Citi sees continued improvement in Lloyds's net interest margins

8th Jun 2015 11:19

Lloyds's net interest margins will continue growing this year, driving improved forecasts for earnings per share, analysts at Citi believe.The lender's reduction of its headline cash ISA savings rate in the second quarter of 2015 will lead to a two basis point improvement in its NIM, while the full repurchase of the remaining enhanced capital notes will increase its margins by five basis points.Together with changes in how the flow-through from base rate rises to savings deposits and front-book mortgages are modelled, the 2015 NIM is now seen reaching 2.69%, 2.70% in 2016 and 2017 and 2.76% in 2018.In turn, that means the broker's underlying earnings per share forecasts for 2015-18 rise by between 5-12% and the price target on the shares to 93p from 86p.However, Citi's forecasts for statutory earnings are now lower - reflected in a large LME charge in 2014 on the ECNs, after the recent loss of a court case.The analysts now expect a 2015 dividend of 2.0p per share, on the basis of a pay-out of approximately 50% of statutory earnings.Citi kept its neutral stance unchanged.As of 11:18 shares in Lloyds were 0.48% lower at 86.67p.