Lloyds’ finance boss slams ring-fencing amid waning growth forecast
Lloyds‘ finance boss raised the alarm on lenders’ ability to help drive growth due to restrictions from the ring-fencing regime.
The bank trimmed its UK GDP expectations and has projected a rise in unemployment in the latest warning sign for the health of the British economy.
The FTSE 100 giant pencilled in 0.2 per cent growth in the first and second quarters of 2025 and 0.3 per cent in the final two quarters. The lender said its “base case scenario is for a slow expansion in gross domestic product”.
Meanwhile, unemployment was forecasted to edge up to 4.8 per cent by the end of 2025.
In its first-quarter report, the bank said: “Risks around this base case economic view lie in both directions and are largely captured by the generation of alternative economic scenarios.”
William Chalmers, Lloyds’ chief financial officer, told reporters on Thursday the debate on the ring-facing regime imposed on banks was an “important” topic amidst the “commitment that we all have to ensure that the UK gets back onto a growth trajectory.”
Lloyds’ chief executive Charlie Nunn co-signed a letter, along with the bosses of HSBC, Natwest and Santander, lobbying Chancellor Rachel Reeves to scrap ring-fencing.
The system requires major banks to separate their retail banking operations from their investment banking activities. It was introduced in the wake of the financial crisis to ensure stability and was mandated in the Financial Services Act 2013.
Chalmers said whilst Lloyds “welcomed the reforms”, there had been “a lot of progress” in non ringfencing regulation.
He added the implications imposed by the regime “makes it harder for us to serve, in particular, large customers, and in some cases, at least reduces our lending capacity.”
Barclays’ boss CS Venkatakrishnan launched a staunch defence of the system on Wednesday, stating the protection offered by the rules outweigh costs.
Lloyds skirts tariff woes but ups provisions
The lender made an impairment charge of £309m on the back of rising economic uncertainty. This dwarfed the £57m reserved in the first quarter of 2024.
Trump’s sweeping tariffs on trading partners have thrown lenders a curve ball with HSBC and Barclays also making provisions for bad loans during their reports earlier this week.
Chalmers said: “As a business that is focussed on the UK with our purposes for helping Britain prosper, the direct exposure to the US and US tariff impact is therefore very limited.”
Lloyds’ domestic focus allowed it to skirt hits to US stocks during Trump’s tariff onslaught.
The lender has since recovered to pre-tariff territory, whereas rivals HSBC and Standard Chartered were down over five per cent in the last month.
Chalmers said corporate customers had adopted a “wait and see” attitude towards tariffs but the geopolitical tensions were “driving sentiment”.
“You’ve seen that manifested in the context of some recent sentiment surveys in the economy overall. As we look forward, the impact could be on impairment, potentially could be on levels of activity… it has been a little bit on rates,” he added.
The finance boss said some dampening of corporate activity was inevitable but Lloyds’ book “remains remarkably well positioned”.