According to reports, Lloyds Banking Group PLC (LYG.US) has raised its annual net interest income forecast despite expecting a slowdown in UK economic growth and a larger-than-expected decline in Q3 profits. The financial report reveals that Lloyds' Q3 net profit stood at £4.64 billion, a 7% year-on-year increase, with net interest income at £3.45 billion, also reflecting a 7% year-on-year rise. However, pre-tax profit for Q3 fell 36% year-on-year to £1.17 billion, missing analysts' average expectations of £1.45 billion. Nevertheless, Lloyds now anticipates its total net interest income for 2025 will reach £13.6 billion, up from the previous estimate of £13.5 billion. The bank's assumptions indicate a slow economic growth in the UK, though a moderate pace of interest rate cuts typically benefits bank profitability.

Additionally, had it not been for an extra £800 million provision added in Q3 for compensating customers affected by mis-sold car loans, Lloyds would have raised its annual Return on Tangible Equity (ROTE) projections. CEO Charlie Nunn stated, "Despite the impact of additional automotive finance provisions in Q3, we have still achieved strong capital generation for the first nine months of 2025 through revenue growth, cost control, and good asset quality."

As the largest mortgage lender in the UK, Lloyds noted that even amid inflationary pressures and a weak labor market, customers have generally shown resilience. Furthermore, as the largest car loan provider in the UK, Lloyds announced last week the additional £800 million provision for compensating customers affected by mis-sold car loans. This brings the total provisions made by the bank to £1.95 billion, covering compensation and operational costs.

Importantly, Barclays Bank (BCS.US) has also recently become the latest UK bank to increase provisions for compensating millions of customers who were not adequately informed about dealer commission details during car financing. Both Lloyds and Barclays, along with other institutions, indicated that the compensation plan introduced by the UK Financial Conduct Authority (FCA) earlier this month exceeded their understanding of a key court ruling, which indicated that refund amounts should be proportionate to actual customer losses. The Supreme Court of the UK ruled in August that banks only need to pay compensation when the most serious misconduct is found. At that time, many bank analysts and investors believed this ruling would provide significant relief for lending institutions. FCA CEO Nikhil Rathi stated that the regulator's plan would address the issue in an orderly, efficient, and consistent manner rather than resolving it on a case-by-case basis through banks, the Financial Ombudsman Service, and the courts.