With the Lloyds share price approaching 50p, should I buy more of the stock?

During trading there, the Lloyds (LSE:LLOY) share price almost climbed back over 50p. The last time at this level is in March 2022.

I have looked at the bank’s latest financial performance to see what might happen to the share price in 2023.

Take interest

The main financial measure for banks is the net interest margin. This is the difference between the interest received from the loan and the amount paid in deposits (net income), expressed as a percentage of assets.

In a rising interest rate environment, banks generally become more profitable. The average maturity period of loans tends to be longer than that of deposits. Therefore, banks can charge more to borrowers than they pay to depositors.

In addition, loans are usually provided with variable interest rates, while the amount paid for savings is often fixed. If the Bank of England increases the base rate, Lloyds will immediately increase the amount it charges for variable loans, but will keep deposit rates fixed.

Not all news is good

However, there is a potential problem for banks if they increase interest rates. Additional default risk also increases.

At each reporting period, Lloyds reviews the loan book and makes an assessment of the recovery of the amount lent. This provision carries over from one quarter to the next. If the director believes that more customers will default, there is a requirement to include additional disruption charges in the account. On the contrary, if they feel that the situation is improving, and fewer borrowers default or default on their loans, then credit will be recorded.

The lowest value of Lloyds Limited in 2023 is . The answer generally depends on whether the additional net income generated by the operation is greater than the cost of bad loans.

Quarterly performance

The table below summarizes Lloyds’ quarterly performance since March 2021.

Performance measures	Q1 2021	Q2 2021	Q3 2021	Q4 2021	Q1 2022	Q2 2022	Q3 2022
Basic net interest income (£m)	2,677	2,741	2,852	2,893	2,945	3,190	3,394
Banking net interest margin (%)	2.49	2.51	2.55	2.57	2.68	2.87	2.98
Impairment (cost)/credit (£m)	360	374	119	532	(177)	(200)	(668)

As expected, revenues and net profits increased.

However, the loan book estimate has moved from net impaired loans for each quarter in 2021 to charges in 2022.

The Bank of England is expected to continue raising interest rates during the first half of 2023.

Lloyds is a domestically focused bank, and is often seen as a barometer for the UK economy. Although a recession is expected, most economists believe that it will be shallow and short-lived. That is why I expect the risk of debt default will not increase too much. If my assessment is correct, Lloyds should be the net beneficiary of the increased base rate.

What have I decided?

I already have shares in Lloyds.

I like the dividend yield which is currently on offer at around 4.5%. However, I see the benefits of a diversified portfolio, and I don’t want to concentrate too much on one particular stock.

If not, I would be tempted to buy more shares in the UK’s biggest lender.