By Elena Vardon

Lloyds Banking Group posted a sharp rise in profits on steady loan growth and support from its structural hedge but cautioned that escalating tensions in the Middle East could weigh on the health of the U.K.'s economy.

The country's largest mortgage provider said its first-quarter pretax profit rose by a third to 2.025 billion pounds ($2.74 billion), comfortably beating a 1.84 billion-pound estimate taken from a company-compiled consensus.

Net income came in 9% higher at 4.785 billion pounds, just below consensus of 4.80 billion pounds. Net interest income--what banks earn on loans minus what they pay out on deposits--grew 8% to make up 3.57 billion pounds of the total, roughly in line with forecasts.

While the Bank of England has begun easing its monetary policy, Lloyds and its peers have remained insulated from falling rates via their structural hedges--a mechanism that locks in higher yields from previous years. This helped the bank's net interest margin expand to 3.17%, up from 3.10% in the final quarter of 2025 and is set to continue providing a tailwind to its top line.

"We are confident in our delivery for the year ahead and reiterate our guidance for 2026," Chief Executive Charlie Nunn said. Lloyds is set to outline a new midterm plan at the end of July.

After a strong start to the year, the bank slightly upgraded its net interest income view, now expecting to exceed 14.9 billion pounds compared with previous guidance of around that figure. It maintained its target for a return on tangible equity--a key profitability measure--of more than 16% and for operating costs to be less than 9.9 billion pounds.

Despite the upbeat results, Lloyds flagged a shifting macroeconomic backdrop from the fallout of U.S. and Israel's attack on Iran. The bank booked a 295 million-pound provision in the quarter, which includes some money set aside to cover potential bad loans, reflecting an update to its economic models to adopt a more cautious view on this year's growth.

Shares, which have risen around 32% over the last 12 months, edged down around 2% in early afternoon trading in London.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

April 29, 2026 07:20 ET (11:20 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.