Lloyds Banking Group reported a 13% increase in annual profits as it delivered a bumper pay-out for shareholders and said it will meet cost targets earlier than expected.
The finance giant also shrugged off concerns about the impact of Britain’s departure from the European Union on the bank.
Shares rose over 5% in afternoon trade to 61.2p.
Lloyds posted pre-tax profits of £5.96 billion for 2018 compared with £5.28 billion the previous year due to lower charges for payment protection insurance (PPI) compensation.
Charges related to the PPI mis-selling scandal fell to £750 million from £1.65 billion in 2017, although the company did book an additional £200 million charge in the fourth quarter of 2018. To date, PPI has cost Lloyds £19.4 billion.
On an underlying basis, profits rose 6% to £8.07 billion.
Lloyds hiked the dividend by 5% to 3.21p per share and a proposed share buyback of up to £1.75 billion, which represents a total return of up to £4 billion to investors.
Operating costs were relatively steady in 2018 at £8.17 billion and the company now expects costs to be less than £8 billion this year, which is a year ahead of its initial target.
Lloyds is the UK’s largest mortgage lender but faces competition to maintain its market share and its net interest margin.
The net interest margin – the difference between what a bank pays savers and charges borrowers – grew to 2.93% from 2.86% and the bank expects a net interest margin of about 2.9% in 2019.
Lloyds is the midst of a three-year strategic plan which will see the bank invest more than £3 billion and focus on boosting its digital capabilities.
This includes its “biggest ever investment in people” as it looks to increase staff training and development by 50% to 4.4 million hours a year to embrace new technology.
Mr Horta-Osorio said: “2018 has been a year of strong strategic and financial delivery, as we build on our unique capabilities to transform the group to succeed in a digital world.
Pay details were also released alongside Lloyds’ results and showed that Mr Horta-Osorio saw his base salary rise 1.6% in 2018 to £1.24 million.
His total remuneration, however, fell 2.5% to £6.27 million from £6.43 million due to a decline in his long-term incentive plan and lower group performance share awards for directors.
The bank’s gender pay gap narrowed by 1.3% last year to 31.5%, which it claims is better than the average for financial services firms.
Laith Khalaf, senior analyst at Hargreaves Lansdown, said with a “high market share in key banking markets, the question is where Lloyds goes next”.
“Part of Lloyds’ new strategy is to shuffle sideways into the financial planning and retirement market, and the bank is targeting one million new pension customers by the end of 2020.
“This is an ambitious target seeing as the Government’s automatic enrolment programme has already prompted a round of company pension switches. However, the strategy makes sense to give Lloyds some diversification from its core banking activities, and allow it to spread its wings in another market.
Mr Khalaf said Lloyds’ share price is still around the same level as when Mr Horta-Osorio became chief executive in 2011 because the bank “is indelibly plugged into the UK economy, and the shadow cast by Brexit means the bank’s shares are left out in the cold”.
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