THE market isn’t expecting any nasty surprises from Lloyds when it reports third quarter numbers tomorrow. Its net interest margin, which was at 2.08 per cent in the first half, should improve modestly, as Lloyds reprices the front and back of its mortgage and loan books. However, the momentum is beginning to falter: there’s only so much squeezing that can be done.

Any big surprise would come in loan impairments, which are expected to decline further, albeit at a slower rate. However, if write-offs continue to fall at a healthy rate, even as the housing market cools, then investors could reward the bank with a modest lift in its share price.

Lloyds is also doing well in weaning itself off of cheap government funding, although newer sources are proving more expensive than the special liquidity scheme.

All of these factors are priced in, with the sell-side becoming increasingly bullish in recent months. Best to sit tight and hold.