Lloyds Banking Group ratings affirmed by Fitch with stable outlook

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Lloyds Fitch rating stable

Highlights

Fitch affirms Lloyds Banking Group plc’s Long-Term Issuer Default Rating at A+ with Stable Outlook, citing strong profitability, capitalisation, and liquidity.
Lloyds' impaired loans ratio projected to decline from 1.7% at end-2025 to 1.5% at end-3Q26, reflecting robust risk controls and resolution of legacy problems.
Fitch anticipates operating profit as a percentage of risk-weighted assets to improve from 3.6% in 3Q26 to about 4% by 2028, supported by structural hedge income and contained cost inflation.

Rating action covers core banks and group fundamentals

As reported by Fitch Ratings, Lloyds Banking Group plc's Long-Term Issuer Default Rating remains at A+ with a Stable Outlook, while its Viability Rating stays at a+. Fitch also affirms the Long-Term Issuer Default Ratings of Lloyds Bank plc and Bank of Scotland Plc at AA with Stable Outlook, alongside the group's other banking subsidiaries and debt ratings.

The agency says the ratings are supported by Lloyds' diversified UK banking model, with leading positions in retail and business banking and additional support from insurance operations. Fitch also points to consistently strong profitability, solid capitalisation and robust funding and liquidity as key supports for the current rating level.

Fitch says the holding company's Viability Rating is aligned with those of its core banks because of high integration and low double leverage across the group. It adds that the main banks' long-term ratings sit two notches above their Viability Ratings because senior creditors benefit from a very large resolution debt buffer.

Asset quality, earnings and capital remain supportive

Fitch describes Lloyds' risk profile as conservative, supported by its concentration on lower-risk UK mortgage lending, which accounts for 65% of gross loans at end-3Q26. The agency says prudent underwriting also helps contain risks in unsecured consumer lending, at 10% of loans, and commercial lending, at 20%, while resilient performance through economic cycles reflects robust risk controls.

Asset quality is expected to remain strong over the next two years, with the impaired loans ratio staying below 2%. Fitch notes the ratio improves to 1.5% at end-3Q26 from 1.7% at end-2025, helped by the resolution of legacy problem loans and resilient loan book performance, and it expects impairment charges to remain manageable and readily absorbed by earnings.

On profitability, Fitch expects operating profit relative to risk-weighted assets, 3.6% in 3Q26, to strengthen to about 4% by 2028. It says structural hedge income should more than offset pressure on mortgage and deposit margins, while contained cost inflation, manageable impairment charges and investment in non-interest income businesses provide further support.

Fitch also expects capitalisation to stay strong, noting the group's 13.3% common equity Tier 1 ratio at end-3Q26 is above its 13% target. The agency says targeted capital generation of more than 200 basis points in 2026 gives Lloyds capacity to absorb unexpected losses or charges, while funding and liquidity remain sound due to a large deposit base, diversified wholesale market access and contingent Bank of England facilities.

Geopolitical shocks and elevated government spending are increasing sovereign borrowing risks in a higher interest rate environment, which can erode fiscal headroom and pressure credit ratings. Our earlier article noted that these strains are particularly acute for emerging and frontier markets, where interest-service burdens are high relative to narrower revenue bases and refinancing becomes more costly as funding rates stay elevated.

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