Lloyds Banking Group (NYSE:LYG) expects net interest income to grow at a mid-single-digit pace in 2027, slowing from this year as competition for loans and deposits continues, Chief Financial Officer William Chalmers said at the UBS European Conference.
Chalmers said the bank remains confident in meeting its 2026 financial guidance and the longer-term framework accompanying its Accelerate 2030 strategy. He described current trading as consistent with the bank’s full-year objectives.
Net interest income and other operating income each rose 10% year to date through the third quarter, he said. Lloyds expects full-year net interest income to be modestly above £14.9 billion and other operating income to grow at a high-single-digit rate.
Competition and the 2027 outlook
Chalmers said he expects “healthy” net interest income growth next year, but at a slower rate than in 2026. A structural hedge is expected to provide a tailwind of about £1 billion in 2027, compared with £1.5 billion this year.
That benefit will be offset in part by continued competition in lending and deposits, he said. Deposit flows have been more modest than expected, with new money typically going into fixed-term accounts. Chalmers cited factors including the withdrawal of central-bank funding, quantitative tightening, competition from non-lending deposit takers and pressure from higher living and borrowing costs.
He expects lending volumes next year to be broadly similar to this year’s, while noting that persistently high interest rates could eventually weigh on demand, including for mortgages. Lloyds has grown lending by about £18 billion, or roughly 3%, year to date when securitizations are added back, he said.
Chalmers characterized deposit migration as manageable. Against a total deposit base of about £503 billion, he said a quarterly shift of £1 billion to £1.5 billion within the retail book would not make a substantial difference.
Lending choices and asset quality
Lloyds has balanced its pursuit of lending growth with returns, Chalmers said. Mortgages grew about 1%, or roughly £4 billion including securitizations, year to date, while the bank maintained approximately 17.6% of new-business completions. Some consumer finance businesses, including transport, cards and loans, grew by 6% to 7%, depending on the product.
On deposits, the bank has sometimes stepped back from fixed-term markets when margins were unattractive or negative, he said. Personal current account balances grew by £1 billion during the year.
Chalmers said asset quality remains stable and Lloyds expects to deliver an asset quality ratio of about 25 basis points for the year, in line with guidance. New-to-arrears measures and other early warning indicators were low and stable, he said, adding that the bank’s customers and lending standards provide resilience.
Investment and long-term targets
Under Accelerate 2030, Lloyds plans about £13 billion of investment from 2027 through 2030. Chalmers said the bank will monitor investment returns and adjust priorities where necessary, while keeping spending within its financial commitments.
The framework includes a cost-to-income ratio below 45% by the end of 2030, return on tangible equity of about 20% by the end of the plan and capital generation above 225 basis points. Chalmers said Lloyds would provide more precise financial guidance at the start of each year.
Artificial intelligence is being embedded across customer engagement, servicing and other operations, he said. Lloyds expects the technology to support both revenue and efficiency, although Chalmers said it remains uncertain how much additional improvement it could produce.
Insurance and customer relationships
Chalmers said the bank sees growth opportunities in insurance, pensions and investments, including by connecting Scottish Widows customers more closely with its banking services. Scottish Widows has about 10 million customers, of whom roughly 2 million also bank with Lloyds, he said.
He said deeper customer relationships and rewards are central to Lloyds’ strategy and could help it compete as AI tools make it easier for customers to compare individual products. AI alone is unlikely to materially change the mix between net interest income and other operating income, he added, because the technology can benefit both.
About Lloyds Banking Group (NYSE:LYG)
Lloyds Banking Group is a UK-based financial services company serving personal, business and institutional customers. Its operations include retail and commercial banking, insurance, pensions and wealth management, delivered through brands such as Lloyds Bank, Halifax, Bank of Scotland and Scottish Widows. The group operates primarily in the United Kingdom, offering services including current and savings accounts, mortgages, lending, payment services, business banking and insurance products. Lloyds Banking Group was formed in 2009 following Lloyds TSB’s acquisition of HBOS.
