Lloyds Banking Group reported a stronger-than-expected rise in annual profit, prompting Britain’s biggest mortgage lender to upgrade its profitability outlook and announce a major share
buyback, even as it absorbed nearly £1 billion in costs linked to a motor finance mis-selling scandal.
The bank said profit before tax climbed 12% to £6.7 billion in 2025, up from £5.97 billion a year earlier and comfortably ahead of analysts’ average forecast of £6.4 billion. Higher income, particularly from fees, helped offset the heavy compensation charges tied to past motor finance deals.
Buoyed by the results, Lloyds raised a key performance target, now expecting a return on tangible equity of more than 16% in 2026. That marks a significant upgrade from its previous forecast of around 12% for 2025.
“Looking ahead to 2026 and the culmination of the five-year strategy we set out in 2022, our continued business momentum and strategic delivery enable us to upgrade guidance,” chief executive Charlie Nunn said.
Banks thrive despite lower rates
Lloyds is the first of the UK’s major banks to report full-year earnings this season, and its results suggest the sector has continued to perform well even as interest rates have eased. Growth in fee income, along with a more supportive political backdrop, has helped cushion the impact of narrowing lending margins.
Britain’s Labour government has so far resisted raising taxes on banks, defying some expectations. Instead, it has encouraged regulators to reduce red tape in an effort to stimulate economic growth — a stance welcomed by the financial sector.
Rivals may follow with upgrades
The improved outlook from Lloyds is likely to increase pressure on rival lenders to follow suit. Reuters reported in late January that banks including HSBC, Barclays and NatWest were expected to consider similar upgrades to their profit targets.
Lloyds also announced a £1.75 billion share buyback, lifting total capital returned to shareholders in 2025 to £3.9 billion.
Bigger push on AI
The bank plans to update investors on the next phase of its strategy in July, with artificial intelligence set to play a larger role. Nunn has been one of the most vocal UK banking chiefs on the potential of AI to improve customer service and cut costs.
Lloyds now expects generative AI to deliver more than £100 million in incremental profit by 2026 as its use is scaled across the business.
Motor finance costs still a drag
Earlier this year, Lloyds warned that compensation linked to the motor finance scandal — where customers were not always informed about hidden commissions — would weigh on its 2025 results. Despite that headwind, the bank’s latest figures underline its resilience and improving confidence in future earnings. Photo by Dr Neil Clifton, Wikimedia commons.