Lloyds gives 'resilient' British economy all clear as profit rises

By Emma Rumney and Lawrence White

LONDON (Reuters) - Lloyds Banking Group gave an optimistic assessment of Britain's economic health on Wednesday as the bank's third quarter pre-tax profit jumped despite higher bad loan charges.

Britain's biggest mortgage lender played down concerns from economists and authorities that an expected interest rate rise could hit over-extended consumers, saying that it saw no signs of major headwinds.

"We see no signs of deterioration, not only in impairments which come later in the cycle, but in non-performing loans, in any of our segments," Chief Executive Antonio Horta-Osorio told a media call following the bank's results.

Lloyds said its statutory pretax profit more than doubled to 1.95 billion pounds, just missing an average analyst forecast of 2 billion pounds according to Thomson Reuters data.

However, the bank's loan impairments rose to 270 million pounds ($354 million) from 204 million a year earlier, which it blamed on a 'single large corporate exposure' as well as the integration of credit card unit MBNA, which it bought this year.

Britain's economy picked up speed in the third quarter, data released on Wednesday showed, increasing expectations that the Bank of England will lift interest rates next month.

Regulators have warned that this could test the ability of British consumers to repay their loans.

Consumer credit in Britain has grown much faster than household income in the last few years, the Bank of England said in June. Dealership car finance has expanded the fastest and accounts for nearly a third of the 198 billion pounds in consumer loans, with Lloyds having the biggest market share.

Horta-Osorio said if borrowing costs rise it would only reverse an emergency cut after last year's June Brexit vote, and that consumers are well placed to withstand hikes.

But investors were less convinced and Lloyds shares fell 1.77 percent by 0822 GMT, making them the third worst performer on Britain's main FTSE index.

"All the dials are pointing in the right direction at Lloyds, but the share price is still being held back by a consensus of angst over Brexit," Laith Khalaf, senior analyst at Hargreaves Lansdown, said.

"The bank is heavily plugged into the domestic economy, and so could sustain collateral damage if Brexit negotiations prompt a slump in UK growth."

CAPITAL BOOST

In a sign of its increasing profitability, Lloyds said it would improve the rate at which it generates capital to between 2.25 to 2.4 percentage points a year by the end of 2017.

The bank avoided taking fresh provisions for misconduct charges such as the mis-selling of payment protection insurance (PPI) after it set aside another 700 million pounds of provisions for PPI mis-selling compensation in July.

But it said on Wednesday that there has been a rise in PPI claims since Britain's financial watchdog launched a new publicity campaign on the issue in August.

Lloyds said its net interest margin - the difference between the interest it gets from borrowers and what it pays savers, a key revenue driver - had widened to 2.9 percent from 2.69 percent a year ago.

The bank said the integration of the MBNA credit card business is on track to be completed in the first quarter of 2019, ahead of schedule.

($1 = 0.7616 pounds)

(Reporting by Emma Rumney and Lawrence White, additional reporting by John Geddie and Kit Rees; Editing by Rachel Armstrong and Alexander Smith)