Lloyds Banking Group Q1 2026: Profit Soars 33%, NII Guidance Raised

Lloyds cost discipline and other income growth show this was not just a rates story

One of the better signs in this update is that profit growth was not purely about margins. Underlying other income rose 11% to £1.6 billion, helped by stronger customer activity, strategic initiatives, growth in UK Motor Finance and the full acquisition of Schroders Personal Wealth in late 2025.

At the same time, operating costs fell 3% to £2.5 billion. That helped drive the cost:income ratio down to 51.9% from 58.1% a year earlier. The lower this ratio goes, the more efficiently the bank is running.

That said, not every cost line improved. Operating lease depreciation rose 10% to £389 million, reflecting fleet growth, higher value vehicles and weaker used car prices. That is mainly tied to the motor business, and it is a reminder that parts of Lloyds are exposed to very normal, very cyclical asset value moves.

My take: this is the sort of quarter investors like because it blends growth with discipline. Rising income is good. Rising income while costs fall is much better.

Lloyds lending growth, deposits and balance sheet strength in Q1 2026

Lending growth was solid. Underlying loans and advances to customers increased by £5.1 billion in the quarter to £486.2 billion, with growth across Retail and Commercial Banking. UK mortgages, credit cards, unsecured loans, motor finance and the European retail business all contributed.

Customer deposits dipped slightly by £0.6 billion to £495.9 billion. That was due to a £3.1 billion reduction in Retail deposits, partly offset by £2.3 billion growth in Commercial Banking deposits. Lloyds said fixed-term deposits fell slightly because of its own participation decisions, which suggests this was at least partly a pricing choice rather than a competitive problem.

The loan to deposit ratio stood at 98%, up from 97% at the end of 2025. That is still a comfortable level and supports the view that funding remains robust.

Liquidity also looks strong, with a liquidity coverage ratio of 144% and a net stable funding ratio of 123%. Those are regulatory safety buffers, and Lloyds remains well above minimum requirements.

Bad debt trends, economic scenarios and the motor finance commission risk

Impairments – essentially expected bad debt charges – remain well behaved. The underlying impairment charge was £295 million, slightly lower than the £309 million recorded a year ago, producing an asset quality ratio of 25 basis points.

That is a good result, especially because Lloyds booked a £101 million net charge from updated multiple economic scenarios. In short, the bank has taken a slightly more cautious view of the economic outlook, including the effect of the Middle East conflict, but underlying customer credit performance is still described as strong and stable.

There is a caution flag worth watching. Lloyds said there has been no change to the provision for motor finance commission arrangements following the announcement of the final rules of the industry-wide redress scheme. However, it also said there are still uncertainties around response rates, operational costs, litigation and challenges from other parties.

That is management speaking carefully, but the message is clear enough: the issue is not over. There is no fresh hit today, which is positive, but the final bill is still not fully nailed down.

Lloyds CET1 ratio, capital generation and shareholder returns outlook

Capital remains healthy. The CET1 ratio – a key measure of bank solvency – was 13.4% at 31 March 2026. That is below the 14.0% reported at the end of 2025, but above the 13.2% pro forma figure that included the full impact of the 2025 share buyback.

Capital generation in the quarter was 41 basis points, and Lloyds still expects more than 200 basis points for the full year. The group also continues to target paying down to a CET1 ratio of around 13.0% by the end of 2026, which suggests there is still room for distributions if performance holds up.

Tangible net assets per share rose to 57.9p from 57.0p at the end of 2025. That is another quiet positive for shareholders, as it shows the underlying value backing each share is moving higher.

What Lloyds Banking Group Q1 2026 results mean for investors

This was a strong quarter and, in my view, plainly positive. Lloyds delivered better profitability, better efficiency and better revenue momentum, while keeping credit quality under control and reaffirming wider 2026 guidance.

The main positives are clear:

• Profit before tax rose 33% to £2.0 billion
• Net interest income improved and 2026 guidance is now greater than £14.9 billion
• Costs fell, pushing the cost:income ratio down to 51.9%
• Lending growth remained healthy across key divisions
• Capital and liquidity stayed strong

The main watchpoints are just as clear:

• Used car prices are still affecting motor-related depreciation
• The economic outlook has softened, prompting a larger scenario-related impairment charge
• Motor finance commission uncertainty has not gone away

Overall, though, this looks like a bank with momentum. Lloyds is showing that it can still grow earnings, defend margins and generate capital even with economic uncertainty in the background. For shareholders, that keeps the investment case very much alive heading into the half-year results and strategy update on 30 July 2026.