Proactive Investors - Lloyds Banking Group PLC (LON:LLOY) ‘s customers are opening record numbers of ISA’s as they hunt for higher savings rates following the sharp increase in interest rates.
The UK’s largest lender said in its third quarter results it had seen a £3.9 billion rise in savings balances and a £3.2 billion drop in current account totals.
William Chalmers, Lloyds’ chief financial officer, said that customers were opening bumper numbers of the tax-free savings accounts as they search for better interest rates.
The bank said its net interest margin, a key driver of bank income and accounts for the difference between what is charged for mortgages and paid on savings, dropped from 3.14% to 3.08% in the third quarter, due to “expected mortgage and deposit pricing headwinds”.
Chalmers said that decline was expected to continue into the next quarter.
It comes amid tough competition, which has forced lenders to start to reduce costly mortgage rates, while paying out more for deposits, as savers increasingly shop around for more lucrative returns.
Despite the rise in savings, Lloyds said household spending had increased in recent months despite the squeeze being faced by consumers.
Chalmers said “You can see some pretty consistent and reasonable spend increases,” adding “I think it’s safe to say that, as a general matter, customers are adjusting to the times that we’re in.”
The bank said it lent £1.4 billion more in the third quarter, up to £452 billion, with growth of £1.2 billion in its retail business.
Mortgage demand is stable, with modest growth in its open mortgage book, cards, loans and motor businesses. Lending to businesses dropped £0.6 billion.
The bank has also taken a brighter view of the UK economy, nudging up its growth forecasts for next year although it expects inflation to fall more slowly.
The FTSE 100-listed bank thinks GDP will now strengthen by 0.4% in 2023 against its previous forecast of 0.2% and believes interest rates have peaked at 5.25%.
But it forecast more pain in the housing market with a peak to trough fall in house prices of 11%, and a 5% drop this year, while it thinks inflation will still be around 4% towards the end of next year.
Shares in Lloyds are up 1.45 at 41.13p.