The UK’s largest mortgage lender posted a profit of £5.97 billion for 2024, down from £7.5bn in 2023, missing analysts’ forecasts of £6.39bn.

The bank attributed the decline to interest rate cuts impacting lending margins and the slow pace of Britain’s economic recovery. Net interest margin fell 16 basis points to 2.95%, and underlying net interest income decreased by 7% to £12.8bn. Fourth-quarter pre-tax profit also tumbled, dropping 55% year-on-year to £824 million.

Despite the overall downturn, net income for the fourth quarter rose by 3.4% to £4.37bn. However, underlying profit for the quarter plummeted by 43.1% to £993m, and earnings per share fell by 41.2% to just 1p.

A key factor in the profit decline was a £700m provision for potential motor finance payouts, adding to the £450m already set aside in 2023. Lloyds believes the total £1.15bn provision represents its best estimate of potential remediation costs, though it acknowledges significant uncertainty remains.

Despite these challenges, Lloyds has increased its full-year dividend by 15% to 3.17p and announced a share buyback programme of up to £1.7bn. Chief executive Charlie Nunn described the group’s financial performance as “robust”, highlighting income growth in the second half of the year.

John Moore, senior investment manager at RBC Brewin Dolphin, said: “Lloyds is rounding off the major UK banks’ results with lower numbers than the market expected.

“Among its peers, Lloyds is the most exposed to the UK, and mortgage lending in particular – motor finance provisions, falling interest rates, and a sluggish housing market were always going to be immediate challenges.

“However, the core of Lloyds remains in a good position, with a robust banking business, capacity exiting the traditional lending market through consolidation, and the bank’s guidance intact. But, as ever with Lloyds, the reasonable question to ask is: what’s next?

“The big opportunity is in what the bank refers to as ‘other’ income, which now accounts for £5.6 billion. Moves with Scottish Widows and the acquisition of Embark are positive, but aren’t of a scale that will move the needle – investors may well be looking for news on this front in future updates.”