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Shareholder rewards were a key focus in the latest banking results season

Lloyds (LLOY) is the highest yielding mainstream London-listed bank following the latest quarterly results, offering a prospective 5.2% based on 2022 forecasts.

A clearer picture on dividends was a consistent feature of the banks’ reporting season as the companies move on from the pandemic.

Despite the sector delivering consensus-beating earnings, the share price response to the latest results was mute. This is because many of the results were flattered by banks releasing larger than expected provisions for Covid-related bad debts which weren’t needed.

These are one-off in nature and therefore there is a degree of scepticism regarding the long-term sustainability of earnings growth.

Moreover, the lending environment remains difficult given the anemic nature of interest rates.

Low interest rates compress net interest margins (the difference between the rate at which banks fund their lending and the amount they charge customers to borrow), and this reduces banks’ profitability.

This situation has prompted Lloyds to target expansion in the wealth management segment. Similarly, HSBC has been attempting to circumvent the inclement UK lending environment by focusing on Asia.

This strategy is yielding returns with strong growth in wealth balances, and promising signs of lending volumes and fee income.

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