Lloyds Banking Group has upped its dividend despite reporting a significant fall in first-half profits,amid greater mortgage market competition. 

The lender intends to pay investors a 1.06 pence per share interim dividend,which is equivalent to £662million and a 15 per cent jump on the previous year.

Lloyds posted a 14 per cent slump in pre-tax profit to £3.3billion for the six months ending June,due to rising operating costs and peak interest rates. 

However,this beat analyst forecasts of around £3.2billion.   

Payout: Lloyds Banking Group intends to pay investors a 1.06 pence per share interim dividend

Underlying net interest income slipped by 10 per cent to £6.3billion as its banking net interest margin - the difference between what banks pay savers and receive in loans - dipped by 24 basis points to 2.94 per cent.

Like many other banking giants,Lloyds enjoyed bumper results in 2022 and 2023 as the Bank of England hiked the UK base rate on 14 successive occasions in response to soaring inflation,enabling it to charge customers more for loans.

However,heavy competition in the mortgages market and pressure to provide more generous savings interest has subsequently dampened the sector's profitability.

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So while Lloyds' mortgage book has marginally grown to £306.9billion this year,the company noted on Thursday that homebuyers were refinancing in a lower-margin environment. 

Customer deposits have increased since last December by £3.3billion to £474.7billion,with an expansion in retail deposits offsetting a drop in commercial banking deposits.

Lloyds' first-half earnings were also impacted by operating costs rising by 14 per cent to £5.5billion,which it blamed on 'strategic investment',severance payments and inflationary pressures.

Charlie Nunn,chief executive of Lloyds,said the group 'delivered robust financial results with solid income performance and cost discipline alongside strong capital generation'. 

Following the result,Lloyds upheld its annual guidance. 

It expects to achieve a banking net interest margin exceeding 290 basis points and have operating expenses of approximately £9.4billion.

It also said it was confident of earning about £700million of additional revenues from strategic initiatives and delivering around £1.2billion in cost savings.

Richard Hunter,head of markets at Interactive Investor,said: 'With a resilient performance amid a higher interest rate environment and with some promising signs of growth,Lloyds has provided a timely reminder as to why it is often seen as a barometer for the wider UK economy.

'An improvement in the second quarter bodes well for the remainder of the year,with the additional possibility that the trough has been reached with regard to the crucial metric of net interest margin.'

Lloyds Banking Group shares fell 1.3 per cent to 58.9p in early trading,but they have still expanded by around 22 per cent so far this year.

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