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Lloyds Banking Group reported a 36% drop in third-quarter profits, as Britain’s largest domestic lender set aside another £800 million to compensate customers mis-sold motor finance loans. The
Lloyds Banking Group reported a 36% drop in third-quarter profits, as Britain’s largest domestic lender set aside another £800 million to compensate customers mis-sold motor finance loans.
The charge, related to an ongoing investigation by the Financial Conduct Authority (FCA), dragged Lloyds’ pre-tax profit down to £1.2 billion between July and September — compared with £1.8 billion a year earlier.
While the figure came in above analysts’ expectations of around £1 billion, it underscores the growing cost of the UK regulator’s redress scheme, which could affect millions of car finance customers.
The latest provision takes Lloyds’ total motor finance compensation bill to £1.95 billion.
The FCA’s investigation found that up to 14 million car finance deals may have included unfair commission arrangements, where dealers or brokers were incentivized to raise interest rates on loans.
According to the regulator, average compensation per customer could reach £700, representing a significant financial exposure for the UK’s largest retail bank.
Lloyds’ chief financial officer, William Chalmers, voiced concerns about the FCA’s redress framework, calling it “disproportionate” to the level of harm caused.
“We do think the proposals, as they stand right now, risk producing an anomalous outcome for customers, which is not a sensible place to be,”
Chalmers said, adding that the bank hopes for a “constructive dialogue” with the regulator.
Chalmers declined to confirm whether Lloyds might pursue legal action against the FCA’s proposals but noted the bank continues to engage in active discussions.
Despite the regulatory setback, Lloyds’ core business continued to perform steadily through 2025.
“The trend reflects wage growth boosting our customers’ balances, as well as slightly lower spend than previously,”
Chalmers explained.
Chief executive Charlie Nunn said the bank’s underlying performance remains strong, citing cost control, income growth, and the acquisition of Schroders Personal Wealth as strategic milestones.
“The group continues to perform well, demonstrating robust financial performance alongside strategic progress, despite the impact of the additional motor finance charge in the third quarter,” Nunn said.
The Schroders deal gives Lloyds full ownership of the joint wealth management venture, allowing it to capture income that was previously shared with Schroders.
Analysts viewed the results as solid but overshadowed by provisions.
Max Harper, a banking analyst at Third Bridge, commented:
“What could’ve been a decent set of results with a net income beat, driven by other income, has been heavily hit by the new motor provision, sending profits down 36%.”
Harper noted that Lloyds’ net interest income (NII) guidance was upgraded slightly to £13.6 billion from £13.5 billion, which reflects resilient hedging performance.
He added that acquiring the remaining stake in Schroders Personal Wealth is positive for other income, but warned that Lloyds’ customer base skews less affluent, suggesting a need to attract wealthier clients to maintain long-term growth.
Despite short-term pressure from regulatory costs, Lloyds continues to show:
However, the motor finance redress scheme remains a major uncertainty, both for Lloyds and the wider UK banking sector. The scale of potential payouts and timing of compensation will significantly influence 2025 earnings.
Lloyds’ Q3 results reflect a resilient underlying business overshadowed by a regulatory overhang. The £800 million charge has weighed heavily on quarterly profits, yet the bank continues to deliver steady income growth, loan expansion, and cost efficiencies.
As the FCA finalizes its redress scheme, Lloyds faces the challenge of balancing regulatory obligations with maintaining profitability and investor confidence.
While the compensation costs are significant, the group’s strategic acquisitions, strong deposit base, and modest NII upgrades suggest a measured path forward amid ongoing industry scrutiny.
Key Financials (Q3 2025):
| Metric | Q3 FY25 | Q3 FY24 | Change |
|---|---|---|---|
| Pre-Tax Profit | £1.2B | £1.8B | 🔻 36% |
| Motor Finance Charge | £800M | £— | — |
| Total Compensation Provisions | £1.95B | £1.15B | 🔼 +70% |
| NII Guidance | £13.6B | £13.5B | 🔼 +0.7% |
Summary:
