Lloyds (LLOY.L) reported a higher-than-expected pre-tax profit of £3.5bn for the first half of 2025, a 5% jump as as the lender benefited from an increase in lending and savings balances.

Underlying profits for the first half of the year rose 2% to £3.56bn. Lloyds intends to pay an interim dividend of 1.22p, equivalent to £731m, representing a rise of 15% on a year ago.

Profits were helped by a smaller-than-expected impairment charge for bad loans. City analysts had forecast a £591m provision, but the actual impairment was £442m, although this was still up from £101m at the same point in 2024.

Underlying profit for the trimester rose by 32% year on year to £2bn, earnings per share landed at 2.1 pence, and the cost-to-income ratio stood at 52.2%. Return on tangible equity rose 2.9 percentage points from the previous quarter to 15.5%.

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For the first six months of 2025, the lender’s net income added 6% to £8.9bn, and earnings per share stood at 3.8 pence, up from 3.4 pence reported a year earlier.

The UK’s biggest mortgage lender maintained its performance targets for the year, as improved house price expectations helped offset a decline in its economic outlook including higher unemployment expectations.

Lloyds said total customer lending increased by £11.9bn over the period, or 3%, driven by UK mortgages, with some 33,000 first-time buyers borrowing on a home.

Customer deposits also grew by £11.2bn, or 2%, following a strong season for ISAs, while more people moved money out of current accounts and into savings.

“Our strategic progress and sustained strength in our financial performance allows us to re-affirm our 2025 guidance and gives us confidence in our 2026 commitments. It also underpins our delivery of higher, more sustainable returns for our shareholders,” CEO Charlie Nunn said.

Lloyds is the first major UK lender to report earnings amid intensifying competition for deposit and mortgage market share among British lenders following a round of consolidation in the sector and heightened appetite from banks to boost income as interest rates fall.

Max Harper, analyst at Third Bridge said: “Our experts suggest that future results are strongly linked to the British economy, so if the British economy does well, Lloyds should do well.

“The Bank of England’s current stable interest rate policy is unlikely to significantly impact Lloyds’ dynamic hedging strategy, the primary risk for the bank is stagflation. A combination of a slowing economy and persistently high inflation would create a double-edged sword effect, simultaneously reducing appetite for new lending while interest rate hikes aimed at curbing inflation could turn the bank’s hedge into a source of financial loss.”