Lloyds boost from regulator raises hopes of further share buybacks

Lloyds Banking Group has been given a boost after regulators allowed the lender to free up around £1 billion in capital, potentially paving the way for further share buybacks.

The Bank of England’s Prudential Regulation Authority (PRA) set Lloyds a lower level of the so-called “systemic risk buffer” – a requirement designed to boost the capital strength of retail banks.

It came within a wider announcement by the PRA on the capital buffer rates for large retail banks and building societies, which will apply from August 1.

Lloyds shares rose more than 1%, having lifted as much as 5% at one stage, after the bank confirmed the move would lead to a cut in one of its key capital measures, equivalent to around £1 billion.

This is seen as boosting the group’s share buyback capacity by the same amount.

Lloyds said it had a “progressive and sustainable ordinary dividend policy” and added that the board will “continue to give consideration to the distribution of surplus capital at the end of the year”.

Banking analyst Gary Greenwood at Shore Capital said: “This is clearly positive news for investors and reflects management’s good work over recent years to simplify and reduce the risk profile of the group.”

“This is the first example we can think of where one of the large quoted UK banks has actually reduced its capital requirement, after a number of years of upward revisions,” he added.

The news comes ahead of Lloyds’ first quarter results on Thursday, when it is expected to post pre-tax profits of £2.05 billion in the first quarter, up slightly from the £2 billion recorded in the same period last year.

Its comments on the state of the UK economy amid Brexit uncertainty will be in sharp focus, given that the bank’s performance is closely linked to consumer and business confidence.

Rival Royal Bank of Scotland last week reported a 12.5% fall in bottom line profits to £707 million, partly due to uncertainty among businesses, with many reining in spending as Brexit fears linger.

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