REG - Bank of Scotland Plc Bank of Scotland Halifax PLC HBOS Treas Serv Lloyds Banking Group - 2024 Half-Year Results
25/07/2024 11:15
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RNS Number : 8464X Bank of Scotland Plc 25 July 2024
Bank of Scotland plc
2024 Half-Year Results
25 July 2024
Member of the Lloyds Banking Group
CONTENTS
Financial review (#Section3) 1
Principal risks and uncertainties (#Section5) 3
Statutory information
Condensed consolidated half-year financial statements (unaudited) (#Section6) 4
Condensed consolidated income statement (unaudited) (#Section7) 5
Condensed consolidated statement of comprehensive income (unaudited) 6
(#Section8)
Condensed consolidated balance sheet (unaudited) (#Section9) 7
Condensed consolidated statement of changes in equity (unaudited) (#Section10) 8
Condensed consolidated cash flow statement (unaudited) (#Section11) 10
Notes to the condensed consolidated half-year financial statements (unaudited) 11
(#Section12)
Statement of (#Section27) d (#Section27) irectors (#Section27) ' (#Section27) 31
responsibilities (#Section27)
Forward (#Section28) - (#Section28) looking statements (#Section28) 32
Contacts (#Section29) 33
FINANCIAL REVIEW
Principal activities
Bank of Scotland plc (the Bank) and its subsidiaries (together, the Group)
provide a wide range of banking and financial services. The Group's revenue is
earned through interest and fees on a broad range of financial services
products including current and savings accounts, personal loans, credit cards
and mortgages within the retail market and loans and other products to
commercial and corporate customers.
Income statement
The Group's profit before tax for the first half of 2024 was £427 million,
compared to a loss before tax of £112 million for the same period in 2023.
This was due to higher total income and a lower impairment charge, partly
offset by higher operating expenses. Profit after tax was £311 million
(half-year to 30 June 2023: loss after tax of £31 million).
Total income for the period was £2,039 million, an increase of 16 per cent on
the first half of 2023. Net interest income was £1,833 million, compared to
£1,565 million for the same period in 2023. This included the effects of the
mortgage book rolling on to higher rates, which more than offset the impact of
higher deposit and funding costs. Other income of £206 million was
£20 million higher than the first half of 2023, as the impact of increased
net trading income more than offset the impact of changes to commission
arrangements with Scottish Widows.
Operating expenses of £1,608 million were 8 per cent higher than in the first
half of 2023, reflecting planned strategic investment, elevated severance
charges and continued inflationary pressure. It also includes c.£40 million
relating to the sector-wide change in the charging approach for the Bank of
England Levy during the first quarter. The Group recognised remediation costs
of £41 million (half-year to 30 June 2023: £11 million), largely in
relation to pre-existing programmes.
Impairment was a net charge of £4 million compared to a charge of £378
million in the half-year to 30 June 2023. This decrease reflects a larger
credit from improvements to the Group's economic outlook in the period
compared to the prior year (notably in HPI) and changes in methodology. In
addition the reduction also includes the release of judgemental adjustments
for inflation and interest rate risk, and stronger performance in mortgage
portfolios resulting in lower charges. Commercial portfolios have benefited
from a one-off release from loss rates used in the model, while observing a
low charge on new and existing Stage 3 clients.
The Group recognised a tax expense of £116 million in the period, compared to
a tax credit of £81 million in the first half of 2023, reflecting increased
profits.
Balance sheet
Total assets of £328,771 million were £6,341 million higher, or 2 per cent,
compared to £322,430 million at 31 December 2023. Financial assets at
amortised cost were £6,615 million higher at £317,760 million compared to
£311,145 million at 31 December 2023, with increases in balances due from
fellow Lloyds Banking Group undertakings of £4,845 million and loans and
advances to customers of £2,028 million to £294,498 million. The increase
in loans advances to customers was driven by increases in UK mortgages,
partially offset by the securitisation of legacy mortgages.
Total liabilities of £312,602 million were up £6,771 million compared to
£305,831 million at 31 December 2023. This was driven by increases in
balances due to fellow Lloyds Banking Group undertakings of £4,641 million
and an increase in customer deposits of £1,356 million. Customer deposits
increased as a result of inflows into limited withdrawal and fixed savings
products.
Total equity decreased by £430 million from £16,599 million at 31 December
2023 to £16,169 million at 30 June 2024. The movement reflected an interim
dividend of £650 million which was partially offset by attributable profit
for the period.
FINANCIAL REVIEW (continued)
Capital
The capital position of Bank of Scotland plc is presented on an unconsolidated
basis. The Bank's capital position as at 30 June 2024, after applying IFRS 9
transitional arrangements, is set out below.
Capital resources of the Bank
At 30 Jun At 31 Dec
2024 2023
£m £m
Common equity tier 1
Shareholders' equity per balance sheet 13,978 14,485
Adjustment to retained earnings for foreseeable dividends (400) -
Cash flow hedging reserve 76 76
Other adjustments (1) (1)
13,653 14,560
less: deductions from common equity tier 1
Goodwill and other intangible assets (711) (703)
Prudent valuation adjustment (41) (45)
Excess of expected losses over impairment provisions and value adjustments (138) -
Removal of defined benefit pension surplus (34) (36)
Significant investments (70) -
Deferred tax assets (1,800) (1,810)
Common equity tier 1 capital 10,859 11,966
Additional tier 1
Additional tier 1 instruments 2,550 2,550
Total tier 1 capital 13,409 14,516
Tier 2
Tier 2 instruments 1,500 1,500
Eligible provisions and other adjustments 273 394
Total tier 2 capital 1,773 1,894
Total capital resources 15,182 16,410
Risk-weighted assets 80,928 80,254
Capital and leverage ratios
Common equity tier 1 capital ratio 13.4 % 14.9 %
Tier 1 capital ratio 16.6 % 18.1 %
Total capital ratio 18.8 % 20.4 %
UK leverage ratio 4.4 % 4.8 %
The Bank's common equity tier 1 (CET1) capital ratio reduced from 14.9 per
cent at 31 December 2023 to 13.4 per cent at 30 June 2024. This largely
reflected profits for period offset by the dividend payment in the second
quarter of the year, the accrual for foreseeable ordinary dividends and an
increase in risk-weighted assets. The total capital ratio reduced to 18.8 per
cent (31 December 2023: 20.4 per cent) reflecting the reduction in CET1
capital, the increase in risk-weighted assets and the reduction in eligible
provisions recognised through tier 2 in the period.
Risk-weighted assets increased by £674 million to £80,928 million at 30 June
2024 (31 December 2023: £80,254 million), largely reflecting impact of
lending growth. This was partly offset by optimisation, including capital
efficient securitisation activity within the balance sheet.
The Bank's UK leverage ratio of 4.4 per cent at 30 June 2024 has reduced from
4.8 per cent at 31 December 2023, reflecting the reduction in total tier 1
capital and an increase in the exposure measure.
Pillar 3 Disclosures
The Bank will publish a condensed set of half-year Pillar 3 disclosures in the
second half of August. A copy of the disclosures will be available to view at:
www.lloydsbankinggroup.com/investors/financial-downloads.html.
(
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PRINCIPAL RISKS AND UNCERTAINTIES
The most important risks faced by the Group are detailed below. The external
risks faced by the Group may impact the success of delivering against the
Group's long-term strategic objectives. They include, but are not limited to,
macroeconomic uncertainty and elevated interest rates which are contributing
to the cost of living and associated implications for UK consumers and
businesses.
Asset quality remains strong with resilient credit performance throughout the
period. The Group continues to monitor the impacts of the economic environment
carefully through a suite of early warning indicators and governance
arrangements that ensure risk mitigating action plans are in place to support
customers and protect the Group's positions.
The Group is transforming its approach to risk management to support its
strategic ambition and purpose of Helping Britain Prosper. The Group has
reviewed its three lines of defence model and is evolving its accountabilities
with enhanced focus on controls and expertise. This will increase the pace of
decision making, with the intent of improving risk management. The Group has
initially focused on non-financial risks.
The Group has also undertaken a detailed review of its risk categories and
implemented an events-based risk management framework. This has resulted in a
reduction in the number of principal risk types and the simplification of
secondary risk categories. This change better aligns to the Basel Committee on
Banking Supervision's event categories which will benefit the Group for
scenario activities and regulatory reporting.
The Group has 10 principal risks; capital risk, climate risk, compliance risk
(previously regulatory and legal risk), conduct risk, credit risk, economic
crime risk, liquidity risk (previously liquidity and funding risk), market
risk, model risk and operational risk (operational resilience risk has been
removed as a separate risk category as it relates to many of the principal
risk types).
The below principal risk definitions have changed since the Group's 2023
annual report and accounts:
Conduct risk - The risk of our Group activities, behaviours, strategy or
business planning, having an adverse impact on outcomes for customers,
undermining the integrity of the market or distorting competition, which could
lead to regulatory censure, reputational damage or financial loss.
Economic crime risk - The risk that the Group implements ineffective policies,
systems, processes and controls to prevent, detect and respond to the risk of
fraud and/or financial crime resulting in increased losses, regulatory
censure/fines and/or adverse publicity in the UK or other jurisdictions in
which the Group operates.
Liquidity risk - The risk that the Group does not have sufficient financial
resources to meet its commitments when they fall due or can only secure them
at excessive cost.
Model risk - The potential for adverse consequences from model errors or the
inappropriate use of modelled outputs to inform business decisions. Adverse
consequences could lead to a deterioration in the prudential position,
non-compliance with applicable laws and/or regulations, or damage to the
Group's reputation. Model risk can also lead to financial loss, as well as
qualitative limitations such as the imposition of restrictions on business
activities.
Operational risk - The risk of actual or potential impact to the Group
(financial and/or non-financial) resulting from inadequate or failed internal
processes, people, and systems or from external events. Resilience is core to
the management of operational risk within Lloyds Banking Group to ensure that
business processes (including those that are outsourced) can withstand
operational risks and can respond to and meet customer and stakeholder needs
when continuity of operations is compromised.
All other principal risk definitions remain unchanged.
STATUTORY INFORMATION
Condensed consolidated half-year financial statements (unaudited)
Condensed consolidated income statement (unaudited) (#Section7) 5
Condensed consolidated statement of comprehensive income (unaudited) 6
(#Section8)
Condensed consolidated balance sheet (unaudited) (#Section9) 7
Condensed consolidated statement of changes in equity (unaudited) (#Section10) 8
Condensed consolidated cash flow statement (unaudited) (#Section11) 10
Notes to the condensed consolidated half-year financial statements (unaudited)
1 Basis of preparation and accounting policies (#Section13) 11
2 Critical accounting judgements and key sources of estimation uncertainty 12
(#Section14)
3 Net fee and commission income (#Section15) 12
4 Operating expenses (#Section16) 12
5 Impairment (#Section17) 13
6 Tax (#Section18) 13
7 Fair values of financial assets and liabilities (#Section19) 13
8 Loans and advances to customers (#Section20) 17
9 Allowance for expected credit losses (#Section21) 20
10 Debt securities in issue (#Section22) 26
11 Provisions (#Section23) 27
12 Dividends on ordinary shares (#Section24) 28
13 Related party transactions (#Section25) 28
14 Contingent liabilities, commitments and guarantees (#Section26) 28
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Note Half-year Half-year
to 30 Jun to 30 Jun
2024 2023
£m £m
Interest income 6,929 5,456
Interest expense (5,096) (3,891)
Net interest income 1,833 1,565
Fee and commission income 334 335
Fee and commission expense (236) (160)
Net fee and commission income 3 98 175
Net trading income (losses) 52 (45)
Other operating income 56 56
Other income 206 186
Total income 2,039 1,751
Operating expenses 4 (1,608) (1,485)
Impairment 5 (4) (378)
Profit (loss) before tax 427 (112)
Tax (expense) credit 6 (116) 81
Profit (loss) for the period 311 (31)
Profit (loss) attributable to ordinary shareholders 212 (119)
Profit attributable to other equity holders 99 88
Profit (loss) for the period 311 (31)
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Half-year Half-year
to 30 Jun to 30 Jun
2024 2023
£m £m
Profit (loss) for the period 311 (31)
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements
Remeasurements before tax (3) (7)
Tax 1 2
(2) (5)
Items that may subsequently be reclassified to profit or loss:
Movements in cash flow hedging reserve:
Effective portion of changes in fair value taken to other comprehensive income 3 (6)
Net income statement transfers (3) (6)
Tax - 4
- (8)
Total other comprehensive loss for the period, net of tax (2) (13)
Total comprehensive income (loss) for the period 309 (44)
Total comprehensive income (loss) attributable to ordinary shareholders 210 (132)
Total comprehensive income attributable to other equity holders 99 88
Total comprehensive income (loss) for the period 309 (44)
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
Note At 30 Jun At 31 Dec
2024 2023
£m £m
Assets
Cash and balances at central banks 2,383 3,009
Financial assets at fair value through profit or loss 7 298 266
Derivative financial instruments 2,804 2,850
Loans and advances to banks 105 206
Loans and advances to customers 8 294,498 292,470
Debt securities 1,539 1,696
Due from fellow Lloyds Banking Group undertakings 21,618 16,773
Financial assets at amortised cost 317,760 311,145
Goodwill 452 452
Current tax recoverable 1,217 1,024
Deferred tax assets 1,871 1,911
Retirement benefit assets 48 49
Other assets 1,938 1,724
Total assets 328,771 322,430
Liabilities
Deposits from banks 122 179
Customer deposits 163,302 161,946
Repurchase agreements 30,393 30,397
Due to fellow Lloyds Banking Group undertakings 99,739 95,098
Financial liabilities at fair value through profit or loss 7 23 23
Derivative financial instruments 4,093 4,428
Notes in circulation 1,766 1,392
Debt securities in issue at amortised cost 10 9,289 8,610
Other liabilities 1,783 1,506
Provisions 11 560 720
Subordinated liabilities 1,532 1,532
Total liabilities 312,602 305,831
Equity
Share capital 5,847 5,847
Other reserves 3,061 3,061
Retained profits 4,703 5,133
Ordinary shareholders' equity 13,611 14,041
Other equity instruments 2,550 2,550
Total equity excluding non-controlling interests 16,161 16,591
Non-controlling interests 8 8
Total equity 16,169 16,599
Total equity and liabilities 328,771 322,430
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
(
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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Attributable to ordinary shareholders Other Non-
equity controlling
instruments interests
£m £m
Share Other Retained Total Total
capital reserves profits £m £m
£m £m £m
At 1 January 2024 5,847 3,061 5,133 14,041 2,550 8 16,599
Comprehensive income
Profit for the period - - 212 212 99 - 311
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - (2) (2) - - (2)
Movements in cash flow hedging reserve, net of tax - - - - - - -
Total other comprehensive loss - - (2) (2) - - (2)
Total comprehensive income(1) - - 210 210 99 - 309
Transactions with owners
Dividends - - (650) (650) - - (650)
Distributions on other equity instruments - - - - (99) - (99)
Issue of other equity instruments - - - - - - -
Capital contributions received - - 10 10 - - 10
Total transactions with owners - - (640) (640) (99) - (739)
At 30 June 2024(2) 5,847 3,061 4,703 13,611 2,550 8 16,169
(1) Total comprehensive income attributable to owners of the parent was
£309 million.
(2) Total equity attributable to owners of the parent was £16,161 million.
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)
Attributable to ordinary shareholders Other Non-
equity controlling
instruments interests
£m £m
Share Other Retained Total Total
capital reserves profits £m £m
£m £m £m
At 1 January 2023 5,847 3,051 4,940 13,838 2,200 8 16,046
Comprehensive income
(Loss) profit for the period - - (119) (119) 88 - (31)
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - (5) (5) - - (5)
Movements in cash flow hedging reserve, net of tax - (8) - (8) - - (8)
Total other comprehensive loss - (8) (5) (13) - - (13)
Total comprehensive (loss) income(1) - (8) (124) (132) 88 - (44)
Transactions with owners
Distributions on other equity instruments - - - - (88) - (88)
Issue of other equity instruments - - - - 350 350
Capital contributions received - - 16 16 - - 16
Total transactions with owners - - 16 16 262 - 278
At 30 June 2023(2) 5,847 3,043 4,832 13,722 2,550 8 16,280
Comprehensive income
Profit for the period - - 268 268 98 - 366
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - 6 6 - - 6
Movements in cash flow hedging reserve, net of tax - (3) - (3) - - (3)
Movements in foreign currency translation reserve, net of tax - 21 - 21 - - 21
Total other comprehensive income - 18 6 24 - - 24
Total comprehensive income(1) - 18 274 292 98 - 390
Transactions with owners
Distributions on other equity instruments - - - - (98) - (98)
Issue of other equity instruments - - - - - - -
Capital contributions received - - 27 27 - - 27
Total transactions with owners - - 27 27 (98) - (71)
At 31 December 2023(2) 5,847 3,061 5,133 14,041 2,550 8 16,599
(1) Total comprehensive income attributable to owners of the parent for the
half-year to 30 June 2023 was a loss of £44 million (half-year to
31 December 2023: surplus of £390 million).
(2) Total equity attributable to owners of the parent at 30 June 2023 was
£16,272 million (31 December 2023: £16,591 million).
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
(
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CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
Half-year Half-year
to 30 Jun to 30 Jun
2024 2023
£m £m
Cash flows from operating activities
Profit (loss) before tax 427 (112)
Adjustments for:
Change in operating assets (5,635) 489
Change in operating liabilities 6,916 (225)
Non-cash and other items (226) 230
Net tax paid (267) (506)
Net cash provided by (used in) operating activities 1,215 (124)
Cash flows from investing activities
Purchase of fixed assets (128) (76)
Proceeds from sale of fixed assets 7 11
Net cash used in investing activities (121) (65)
Cash flows from financing activities
Dividends paid to ordinary shareholders (650) -
Distributions on other equity instruments (99) (88)
Interest paid on subordinated liabilities (55) (50)
Proceeds from issue of other equity instruments - 350
Repayment of subordinated liabilities - (62)
Net cash (used in) provided by financing activities (804) 150
Change in cash and cash equivalents 290 (39)
Cash and cash equivalents at beginning of period 2,126 2,053
Cash and cash equivalents at end of period 2,416 2,014
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
Cash and cash equivalents comprise cash and non-mandatory balances with
central banks and amounts due from banks with an original maturity of less
than three months.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
Note 1: Basis of preparation and accounting policies
These condensed consolidated half-year financial statements as at and for the
period to 30 June 2024 have been prepared in accordance with the Disclosure
Guidance and Transparency Rules of the Financial Conduct Authority (FCA) and
with International Accounting Standard 34 (IAS 34), Interim Financial
Reporting as adopted by the United Kingdom and comprise the results of Bank of
Scotland plc (the Bank) together with its subsidiaries (the Group). They do
not include all of the information required for full annual financial
statements and should be read in conjunction with the Group's consolidated
financial statements as at and for the year ended 31 December 2023 which
complied with international accounting standards in conformity with the
requirements of the Companies Act 2006 and were prepared in accordance with
International Financial Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB). Copies of the 2023 annual
report and accounts are available on the Lloyds Banking Group's website and
are also available upon request from Investor Relations, Lloyds Banking Group
plc, 25 Gresham Street, London EC2V 7HN.
The directors consider that it is appropriate to continue to adopt the going
concern basis in preparing these condensed consolidated half-year financial
statements. In reaching this assessment, the directors have taken into account
the uncertainties affecting the UK economy and their potential effects upon
the Group's performance and projected funding and capital position; the impact
of further stress scenarios has also been considered. On this basis, the
directors are satisfied that the Group will maintain adequate levels of
funding and capital for the foreseeable future.
The Group's accounting policies are consistent with those applied by the Group
in its financial statements for the year ended 31 December 2023 and there have
been no changes in the Group's methods of computation.
The IASB has issued a number of minor amendments to IFRSs that are relevant to
the Group effective 1 January 2024, including IFRS 16 Lease Liability in a
Sale and Leaseback, IAS 1 Non-current Liabilities with Covenants, and IAS 1
Classification of Liabilities as Current or Non-current. These amendments have
not had a significant impact on the Group.
Future accounting developments
The IASB has issued Amendments to the Classification and Measurement of
Financial Instruments (IFRS 9 and IFRS 7) which is effective 1 January 2026
and IFRS 19 Subsidiaries without Public Accountability: Disclosures which is
effective 1 January 2027. Neither the amendments nor IFRS 19 are expected to
have a significant impact on the Group. The IASB has also issued IFRS 18
Primary Financial Statements which is effective 1 January 2027. The standard
includes no measurement changes, and the Group is currently assessing the
impact of this standard on its income statement presentation.
The Bank's ultimate parent undertaking and controlling party is Lloyds Banking
Group plc which is incorporated in Scotland. Lloyds Banking Group plc has
published consolidated accounts for the year to 31 December 2023 and copies
may be obtained from Investor Relations, Lloyds Banking Group plc, 25 Gresham
Street, London EC2V 7HN and are available for download from
www.lloydsbankinggroup.com.
The financial information contained in this document does not constitute
statutory accounts within the meaning of section 434 of the Companies Act
2006 (the Act). The statutory accounts for the year ended 31 December 2023
were approved by the directors on 29 February 2024 and were delivered to the
Registrar of Companies on 30 March 2024. The auditors' report on those
accounts was unqualified and did not include a statement under sections 498(2)
(accounting records or returns inadequate or accounts not agreeing with
records and returns) or 498(3) (failure to obtain necessary information and
explanations) of the Act.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 2: Critical accounting judgements and key sources of estimation
uncertainty
The preparation of the Group's financial statements in accordance with IFRS
requires management to make judgements, estimates and assumptions in applying
the accounting policies that affect the reported amounts of assets,
liabilities, income and expenses. Due to the inherent uncertainty in making
estimates, actual results reported in future periods may be based upon amounts
which differ from these estimates. Estimates, judgements and assumptions are
continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances. In preparing the financial statements, the
Group has considered the impact of climate-related risks on its financial
position and performance. While the effects of climate change represent a
source of uncertainty, the Group does not consider there to be a material
impact on its judgements and estimates from the physical, transition and other
climate-related risks in the short-term.
The Group's significant judgements, estimates and assumptions are unchanged
compared to those disclosed in note 3 of the Group's 2023 financial
statements. Further information on the critical accounting judgements and key
sources of estimation uncertainty for the allowance for expected credit losses
is set out in note 9.
Note 3: Net fee and commission income
Half-year Half-year
to 30 Jun to 30 Jun
2024 2023
£m £m
Fee and commission income:
Current accounts 97 96
Credit and debit card fees 207 202
Other fees and commissions 30 37
Total fee and commission income 334 335
Fee and commission expense (236) (160)
Net fee and commission income 98 175
Note 4: Operating expenses
Half-year Half-year
to 30 Jun to 30 Jun
2024 2023
£m £m
Staff costs 531 483
Premises and equipment costs 86 94
Depreciation and amortisation 135 133
Amounts payable to fellow Lloyds Banking Group undertakings and other expenses 856 775
Total operating expenses 1,608 1,485
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 5: Impairment
Half-year Half-year
to 30 Jun to 30 Jun
2024 2023
£m £m
Loans and advances to customers 18 378
Due from fellow Lloyds Banking Group undertakings (4) (1)
Financial assets held at amortised cost 14 377
Loan commitments and financial guarantees (10) 1
Total impairment 4 378
Note 6: Tax
In accordance with IAS 34, the Group's income tax (expense) credit for the
half-year to 30 June 2024 is based on the best estimate of the
weighted-average annual income tax rate expected for the full financial year.
The tax effects of one-off items are not included in the weighted-average
annual income tax rate, but are recognised in the relevant period.
An explanation of the relationship between tax (expense) credit and accounting
profit (loss) is set out below:
Half-year Half-year
to 30 Jun to 30 Jun
2024 2023
£m £m
Profit (loss) before tax 427 (112)
UK corporation tax thereon at 25.0 per cent (2023: 23.5 per cent) (107) 26
Impact of surcharge on banking profits (8) 13
Non-deductible costs: conduct charges 5 (1)
Other non-deductible costs (28) (5)
Non-taxable income 6 -
Tax relief on coupons on other equity instruments 25 21
Tax-exempt gains/(losses) on disposals - 22
Adjustments in respect of prior years (9) 5
Tax (expense) credit (116) 81
Note 7: Fair values of financial assets and liabilities
The valuations of financial instruments have been classified into three levels
according to the quality and reliability of information used to determine
those fair values. Note 14 to the Group's financial statements for the year
ended 31 December 2023 details the definitions of the three levels in the
fair value hierarchy.
Financial instruments classified as financial assets at fair value through
profit or loss, derivative financial instruments and financial liabilities at
fair value through profit or loss are recognised at fair value.
The Group manages valuation adjustments for its derivative exposures on a net
basis; the Group determines their fair values on the basis of their net
exposures. In all other cases, fair values of financial assets and liabilities
measured at fair value are determined on the basis of their gross exposures.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 7: Fair values of financial assets and liabilities (continued)
The following tables provide an analysis of the financial assets and
liabilities of the Group that are carried at fair value in the Group's
consolidated balance sheet, grouped into levels 1 to 3 based on the degree to
which the fair value is observable. There were no significant transfers
between level 1 and level 2 during the period.
Financial assets Level 1 Level 2 Level 3 Total
£m £m £m £m
At 30 June 2024
Loans and advances to customers at fair value through profit or loss - 14 284 298
Derivative financial instruments - 2,804 - 2,804
Total financial assets carried at fair value - 2,818 284 3,102
At 31 December 2023
Loans and advances to customers at fair value through profit or loss - - 266 266
Derivative financial instruments - 2,850 - 2,850
Total financial assets carried at fair value - 2,850 266 3,116
Financial liabilities Level 1 Level 2 Level 3 Total
£m £m £m £m
At 30 June 2024
Debt securities in issue designated at fair value through profit or loss - - 23 23
Derivative financial instruments - 3,950 143 4,093
Total financial liabilities carried at fair value - 3,950 166 4,116
At 31 December 2023
Debt securities in issue designated at fair value through profit or loss - - 23 23
Derivative financial instruments - 4,296 132 4,428
Total financial liabilities carried at fair value - 4,296 155 4,451
Valuation control framework
Key elements of the valuation control framework include model validation
(incorporating pre-trade and post-trade testing), product implementation
review and independent price verification. The framework covers processes for
all 3 levels in the fair value hierarchy. Formal committees meet quarterly to
discuss and approve valuations in more judgemental areas.
Transfers into and out of level 3 portfolios
Transfers out of level 3 portfolios arise when inputs that could have a
significant impact on the instrument's valuation become market observable;
conversely, transfers into the portfolios arise when sources of data cease to
be observable.
Valuation methodology
For level 2 and level 3 portfolios, there is no significant change to the
valuation methodology (techniques and inputs) disclosed in the Group's
financial statements for the year ended 31 December 2023 applied to these
portfolios.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 7: Fair values of financial assets and liabilities (continued)
Movements in level 3 portfolio
The tables below analyse movements in the level 3 financial assets portfolio.
Financial Derivative assets Total
assets £m financial
at fair value assets
through carried at
profit or loss fair value
£m £m
At 1 January 2024 266 - 266
Gains recognised in the income statement within other income 30 - 30
Purchases/increases to customer loans 3 - 3
Repayments of customer loans (15) - (15)
At 30 June 2024 284 - 284
Gains recognised in the income statement, within other income, relating 28 - 28
to the change in fair value of those assets held at 30 June 2024
At 1 January 2023 291 - 291
Gains recognised in the income statement within other income 17 - 17
Purchases/increases to customer loans - - -
Repayments of customer loans (8) - (8)
At 30 June 2023 300 - 300
Gains recognised in the income statement, within other income, relating 17 - 17
to the change in fair value of those assets held at 30 June 2023
The tables below analyse movements in the level 3 financial liabilities
portfolio.
Financial Derivative liabilities Total
liabilities £m financial
at fair value liabilities
through carried at
profit or loss fair value
£m £m
At 1 January 2024 23 132 155
Losses recognised in the income statement within other income 2 23 25
Redemptions (2) (12) (14)
At 30 June 2024 23 143 166
Losses recognised in the income statement, within other income, 2 21 23
relating to the change in fair value of those liabilities held at 30 June 2024
At 1 January 2023 26 150 176
(Gains) losses recognised in the income statement within other income (1) 16 15
Redemptions - (5) (5)
At 30 June 2023 25 161 186
(Gains) losses recognised in the income statement, within other income, (1) 16 15
relating to the change in fair value of those liabilities held at 30 June 2023
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 7: Fair values of financial assets and liabilities (continued)
Sensitivity of level 3 valuations
The tables below set out the effects of reasonably possible alternative
assumptions for categories of level 3 financial assets and financial
liabilities.
Effect of reasonably
possible alternative
assumptions(1)
At 30 June 2024 Valuation Significant Carrying value Favourable changes Unfavourable
techniques unobservable inputs(2) £m £m changes
£m
Financial assets at fair value through profit or loss
Loans and advances to customers Discounted cash flows Interest rate spreads 284 20 (19)
(+/- 50bps)
Level 3 financial assets carried at fair value 284
Financial liabilities at fair value through profit or loss
Securitisation notes Discounted cash flows Interest rate spreads 23 1 (1)
(+/- 50bps)
Derivative financial liabilities
Shared appreciation rights Market values - property valuation HPI (+/- 1%) 143 13 (12)
Level 3 financial liabilities carried at fair value 166
At 31 December 2023
Financial assets at fair value through profit or loss
Loans and advances to customers Discounted cash flows Interest rate spreads 266 21 (19)
(+/- 50bps)
Level 3 financial assets carried at fair value 266
Financial liabilities at fair value through profit or loss
Securitisation notes Discounted cash flows Interest rate spreads 23 1 (1)
(+/- 50bps)
Derivative financial liabilities
Shared appreciation rights Market values - property valuation HPI (+/- 1%) 132 13 (12)
Level 3 financial liabilities carried at fair value 155
(1) Where the exposure to an unobservable input is managed on a net basis,
only the net impact is shown in the table.
(2) Ranges are shown where appropriate and represent the highest and lowest
inputs used in the level 3 valuations.
Unobservable inputs
Significant unobservable inputs affecting the valuation of debt securities and
derivatives are unchanged from those described in the Group's financial
statements for the year ended 31 December 2023.
Reasonably possible alternative assumptions
Valuation techniques applied to many of the Group's level 3 instruments often
involve the use of two or more inputs whose relationship is interdependent.
The calculation of the effect of reasonably possible alternative assumptions
included in the table above reflects such relationships and is unchanged from
that described in note 14 to the Group's financial statements for the year
ended 31 December 2023.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 7: Fair values of financial assets and liabilities (continued)
The table below summarises the carrying values of financial assets and
liabilities measured at amortised cost in the Group's consolidated balance
sheet. The fair values presented in the table are at a specific date and may
be significantly different from the amounts which will actually be paid or
received on the maturity or settlement date.
At 30 June 2024 At 31 December 2023
Carrying Fair Carrying Fair
value value value value
£m £m £m £m
Financial assets
Loans and advances to banks 105 105 206 206
Loans and advances to customers 294,498 289,183 292,470 284,115
Debt securities 1,539 1,531 1,696 1,794
Due from fellow Lloyds Banking Group undertakings 21,618 21,618 16,773 16,773
Financial assets at amortised cost 317,760 312,437 311,145 302,888
Financial liabilities
Deposits from banks 122 122 179 179
Customer deposits 163,302 163,657 161,946 162,115
Repurchase agreements 30,393 30,393 30,397 30,397
Due to fellow Lloyds Banking Group undertakings 99,739 99,739 95,098 95,098
Debt securities in issue 9,289 9,327 8,610 8,633
Subordinated liabilities 1,532 1,566 1,532 1,556
The carrying amount of the following financial instruments is a reasonable
approximation of fair value: cash and balances at central banks, items in the
course of collection from banks, items in course of transmission to banks and
notes in circulation.
Note 8: Loans and advances to customers
Half-year to 30 June 2024
Gross carrying amount Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
£m £m £m £m £m £m £m £m
At 1 January 2024 247,818 40,066 6,855 294,739 383 857 1,029 2,269
Exchange and other adjustments (617) - - (617) - (3) 12 9
Transfers to Stage 1 13,424 (13,420) (4) - 156 (153) (3) -
Transfers to Stage 2 (7,397) 7,860 (463) - (23) 69 (46) -
Transfers to Stage 3 (292) (1,394) 1,686 - (4) (99) 103 -
Net change in ECL due to transfers (103) 132 116 145
26 (51) 170 145
Impact of transfers between stages 5,735 (6,954) 1,219 -
Other changes in credit quality (118) (31) 174 25
Additions and repayments 5,730 (1,548) (568) 3,614 (18) (52) (82) (152)
Charge to the income statement (110) (134) 262 18
Disposals and derecognition(1) (490) (266) (219) (975) (1) (5) (27) (33)
Advances written off (356) (356) (356) (356)
Recoveries of advances written off in previous years 56 56 56 56
At 30 June 2024 258,176 31,298 6,987 296,461 272 715 976 1,963
Allowance for ECL (272) (715) (976) (1,963)
Net carrying amount 257,904 30,583 6,011 294,498
Drawn ECL coverage(2) (%) 0.1 2.3 14.0 0.7
(1) Relates to the securitisation of legacy retail mortgages.
(2) Allowance for expected credit losses on loans and advances to customers
as a percentage of gross loans and advances to customers.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 8: Loans and advances to customers (continued)
Year ended 31 December 2023
Gross carrying amount Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
£m £m £m £m £m £m £m £m
At 1 January 2023 243,873 44,226 7,514 295,613 284 1,132 1,781 3,197
Exchange and other adjustments 640 - - 640 (1) - 114 113
Transfers to Stage 1 12,921 (12,909) (12) - 217 (213) (4) -
Transfers to Stage 2 (12,594) 13,209 (615) - (23) 79 (56) -
Transfers to Stage 3 (702) (2,252) 2,954 - (7) (160) 167 -
Net change in ECL due to transfers (138) 211 241 314
49 (83) 348 314
Impact of transfers between stages (375) (1,952) 2,327 -
Other changes in credit quality 44 (113) 353 284
Additions and repayments 4,993 (1,320) (1,943) 1,730 8 (44) (886) (922)
Charge (credit) to the income statement 101 (240) (185) (324)
Disposals and derecognition(1) (1,313) (888) (447) (2,648) (1) (35) (85) (121)
Advances written off (684) (684) (684) (684)
Recoveries of advances written off in previous years 88 88 88 88
At 31 December 2023 247,818 40,066 6,855 294,739 383 857 1,029 2,269
Allowance for ECL (383) (857) (1,029) (2,269)
Net carrying amount 247,435 39,209 5,826 292,470
Drawn ECL coverage(2) (%) 0.2 2.1 15.0 0.8
(1) Relates to the securitisation of legacy retail mortgages.
(2) Allowance for expected credit losses on loans and advances to customers
as a percentage of gross loans and advances to customers.
The movement tables are compiled by comparing the position at the end of the
period to that at the beginning of the year. Transfers between stages are
deemed to have taken place at the start of the reporting period, with all
other movements shown in the stage in which the asset is held at the end of
the period.
Additions and repayments comprise new loans originated and repayments of
outstanding balances throughout the reporting period.
The Group's impairment charge comprises impact of transfers between stages,
other changes in credit quality and additions and repayments.
Advances written off have first been transferred to Stage 3 and then acquired
a full allowance through other changes in credit quality. Recoveries of
advances written off in previous years are shown at the full recovered value,
with a corresponding entry in repayments and release of allowance through
other changes in credit quality.
(
)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 9: Allowance for expected credit losses
The calculation of the Group's allowance for expected credit loss allowances
requires the Group to make a number of judgements, assumptions and estimates.
These are set out in full in note 17 to the Group's financial statements for
the year ended 31 December 2023, with the most significant set out below.
The table below analyses total ECL allowance, separately identifying the
amounts that have been modelled, those that have been individually assessed
and those arising through the application of judgemental adjustment.
Judgemental
adjustments due to:
Modelled Individually Inflationary Other Total
ECL assessed and interest £m ECL
£m £m rate risk £m
£m
At 30 June 2024 1,791 146 31 115 2,083
At 31 December 2023 2,060 167 144 33 2,404
Application of judgement in adjustments to modelled ECL
Impairment models fall within the Group's model risk framework with model
monitoring, periodic validation and back testing performed on model
components, such as probability of default. Limitations in the Group's
impairment models or data inputs may be identified through the ongoing
assessment and validation of the output of the models. In these circumstances,
management applies appropriate judgemental adjustments to the ECL to ensure
that the overall provision adequately reflects all material risks. These
adjustments are determined by considering the particular attributes of
exposures which have not been adequately captured by the impairment models and
range from changes to model inputs and parameters, at account level, through
to more qualitative post-model adjustments.
During 2022 and 2023 the intensifying inflationary pressures, alongside rising
interest rates created further risks not deemed to be fully captured by ECL
models which required judgemental adjustments to be added. Through the first
half of 2024 these risks have largely subsided with inflation back at two per
cent and the UK Bank rate now believed to have peaked. The portfolio has
proven resilient to higher rates and inflation. As a result, the judgements
held in respect of inflationary and interest rate risks are significantly
reduced to £31 million (31 December 2023: £144 million). Other judgements
continue to be applied for broader data and model limitations, both increasing
and decreasing ECL.
Judgemental adjustments due to inflationary and interest rate risk
Inflationary and interest rate pressures: £31 million (31 December 2023:
£144 million)
The Group's ECL models for UK mortgages use UK Bank Rate as a driver of
predicted defaults and were largely believed to have captured the stretch on
customers due to increased interest rates. However, the combination of
inflationary pressures with sharp increases to interest rates over 2023 were
believed to create further risk not potentially captured by ECL models. Modest
increases in new to arrears and defaults emerged in 2023, mainly driven by
variable rate customers, who experienced sudden material increases in their
monthly payment. Given interest rates have stabilised, inflation has reduced
and experience through the first half of 2024 has been benign, this risk has
reduced. A lower judgemental uplift in ECL continues to be taken in segments
of the mortgages portfolio, either where inflation is expected to present a
more material risk, or where segments within the model do not recognise UK
Bank Rate as a material driver of predicted defaults.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 9: Allowance for expected credit losses (continued)
Other judgemental adjustments
These adjustments principally comprise:
Increase in time to repossession: £122 million (31 December 2023: £126
million)
The UK mortgage portfolio currently contains a larger number of customers that
have been in default for a longer period than would typically be expected
following pauses in litigation activity both before and during COVID-19. There
is a risk that the probability of possession (PPD), and therefore ECL on these
accounts is understated given this component of the model may not reflect the
full impact of customers remaining in default for an extended period.
Adjustments for this risk have been in place for several years, although the
approach has been refined in the first half of 2024. The updated approach
continues to target accounts that have been in default for more than 24 months
with an arrears balance increase in the last six months. These accounts now
have their PPD increased to a level based on equivalent observed performance
graduated by their time in default. The change in approach has resulted in a
similar level of adjustment, but now provides a mechanism which will see the
adjustment naturally release as this backlog reduces.
Adjustment for single point of loss model limitation: £47 million (31
December 2023: £nil)
The current UK mortgages ECL model estimates customer level losses using a
'single point of loss' (SPOL) calculation, with predicted timings of defaults
and subsequent repossession using average time periods. This simplification is
continually assessed for any potential over or understatement of ECL compared
to a more sophisticated 'multiple points of loss' (MPOL) modelling technique.
To date, this has not shown any material difference for which an adjustment
would be required. Management have been developing a new ECL model which will
address this limitation, anticipated to be formally adopted later this year.
However, the development activity is now suitably progressed to be leveraged
in the ongoing assessment of the scale of the SPOL model simplification. This
assessment indicated that the MES update in the second quarter of the year had
increased the impact of the simplification up to a scale that required
mitigation through a judgemental adjustment. This adjustment is expected to be
released upon the final adoption of the new ECL model once it has completed
appropriate internal model governance activities.
Lifetime extension on revolving products: £26 million (31 December 2023: £53
million)
An adjustment is required to extend the lifetime used for Stage 2 exposures on
Retail revolving products from a three-year modelled lifetime, which reflected
the outcome data available when the ECL models were developed, to a more
representative lifetime. Incremental defaults beyond year three are calculated
through the extrapolation of the default trajectory observed throughout the
three years and beyond. The judgemental adjustment has reduced slightly for
credit cards in the period following refinement to the discounting methodology
applied.
Adjustments to loss given defaults (LGDs): £(63) million (31 December 2023:
£(64) million)
A number of adjustments continue to be made to the loss given default
assumptions used within unsecured and motor credit models. For unsecured
portfolios, the adjustments reflect the impact of changes in collection debt
sale strategy on the Group's LGD models, incorporating up to date customer
performance and forward flow debt sale pricing. For UK Motor Finance, the
adjustment captures the latest outlook on used car prices.
Following review and monitoring on the loss given default approach for
commercial exposures, ECL requires an adjustment to mitigate limitations
identified in the approach which are causing loss given defaults to be
inflated. These include the benefit from amortisation of exposures relative to
collateral values at default and a move to an exposure-weighted approach being
adopted. These temporary adjustments will be addressed through future model
development.
Corporate insolvency rates: £(35) million (31 December 2023: £(47) million)
The volume of UK corporate insolvencies has continued to remain well above
December 2019 levels, revealing a marked misalignment between observed UK
corporate insolvencies and the Group's credit performance which has been
better than this. This dislocation gives rise to uncertainty over the drivers
of observed trends and the appropriateness of the Group's Commercial Banking
model response which uses observed UK corporate insolvencies data to anchor
future loss estimates to. Given the Group's asset quality remains strong with
low new defaults, a negative adjustment is applied by using the long-term
average rate. The slightly greater negative adjustment in the period reflects
the widening gap between the increasing industry level and the long-term
average rate used.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 9: Allowance for expected credit losses (continued)
Base case and MES economic assumptions
The Group's base case economic scenario as at 30 June 2024 has been updated to
reflect ongoing geopolitical and economic developments, as the slow reduction
of inflationary pressures brings into view a shift to less restrictive
monetary policies globally. The Group's updated base case scenario has three
conditioning assumptions: first, the wars in Ukraine and the Middle East
remain geographically contained; second, the UK's post-election economic
policies retain the framework of the inflation target and fiscal rules, while
allowing for an increase in both current and capital public spending; and
third, the outcome of the US election broadly maintains economic policy
continuity, including an unchanged position for the Federal Reserve.
Based on these assumptions and incorporating the economic data published in
the second quarter of 2024, the Group's base case scenario is for a gradual
expansion of economic activity and a slight rise in the unemployment rate,
alongside modest changes in residential and commercial property prices.
Following a gradual reduction in inflationary pressures, UK Bank Rate is
expected to be lowered twice during 2024. Risks around this base case economic
view lie in both directions and are largely captured by the generation of
alternative economic scenarios.
The Group has taken into account the latest available information at the
reporting date in defining its base case scenario and generating alternative
economic scenarios. The scenarios include forecasts for key variables in the
second quarter of 2024, for which actuals may have since emerged prior to
publication. The Group's base case economic scenario predated the results of
the UK General Election and, as such, information that has become available
since the election has not been included.
The Group's approach to generating alternative economic scenarios is set out
in detail in note 17 to the financial statements for the year ended 31
December 2023. The Group has taken into account the latest available
information at the reporting date in defining its base case scenario and
generating alternative economic scenarios. A small refinement was made to the
Group's approach during the first half of 2024, with alternative economic
scenarios now dispersing from the base case after the balance sheet date. This
is one quarter later than previously adopted reflecting the use of a base case
that is now set closer to the reporting date than at the onset of IFRS 9. As a
result, all scenarios include the same forecasted level for key variables in
the second quarter of 2024, for which actuals may have since emerged prior to
publication.
For June 2024, the Group continues to judge it appropriate to include a
non-modelled severe downside scenario for Group ECL calculations. The scenario
is now generated as a simple average of a fully modelled severe scenario,
better representing shocks to demand, and a scenario with higher paths for UK
Bank Rate and CPI inflation, as a representation of shocks to supply. The
combined 'adjusted' scenario used in ECL modelling is considered to better
reflect the risks around the Group's base case view in an economic environment
where demand and supply shocks are more balanced.
Scenarios by year
The key UK economic assumptions made by the Group are shown in the following
tables across a number of measures explained below.
Annual assumptions
Gross domestic product (GDP) growth and Consumer Price Index (CPI) inflation
are presented as an annual change, house price growth and commercial real
estate price growth are presented as the growth in the respective indices over
each year. Unemployment rate and UK Bank Rate are averages over the year.
Five-year average
The five-year average reflects the average annual growth rate, or level, over
the five-year period. It includes movements within the current reporting year,
such that the position as of 30 June 2024 covers the five years 2024 to 2028.
The inclusion of the reporting year within the five-year period reflects the
need to predict variables which remain unpublished at the reporting date and
recognises that credit models utilise both level and annual changes. The use
of calendar years maintains a comparability between the annual assumptions
presented.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 9: Allowance for expected credit losses (continued)
At 30 June 2024 2024 2025 2026 2027 2028 2024
% % % % % to 2028 average
%
Upside
Gross domestic product growth 1.1 2.3 1.7 1.5 1.4 1.6
Unemployment rate 4.1 3.2 3.0 2.9 2.9 3.2
House price growth 2.2 5.0 7.3 6.0 5.2 5.1
Commercial real estate price growth 2.2 8.7 2.4 2.8 1.2 3.4
UK Bank Rate 5.17 5.30 5.17 5.33 5.55 5.31
CPI inflation 2.5 2.5 2.4 2.7 2.9 2.6
Base case
Gross domestic product growth 0.8 1.2 1.6 1.6 1.6 1.3
Unemployment rate 4.5 4.8 4.8 4.6 4.6 4.7
House price growth 1.2 1.4 1.0 1.4 2.4 1.5
Commercial real estate price growth (1.6) 1.2 0.0 1.9 1.0 0.5
UK Bank Rate 5.06 4.19 3.63 3.50 3.50 3.98
CPI inflation 2.5 2.5 2.1 2.1 2.2 2.3
Downside
Gross domestic product growth 0.6 (0.5) 0.8 1.5 1.6 0.8
Unemployment rate 4.9 6.9 7.5 7.4 7.2 6.7
House price growth 0.6 (1.8) (6.5) (5.4) (2.3) (3.1)
Commercial real estate price growth (4.7) (6.7) (4.1) (0.8) (1.3) (3.5)
UK Bank Rate 4.97 2.77 1.38 0.89 0.63 2.13
CPI inflation 2.5 2.4 1.8 1.4 1.2 1.9
Severe downside
Gross domestic product growth 0.1 (2.2) 0.4 1.2 1.5 0.2
Unemployment rate 5.5 9.4 10.2 10.1 9.8 9.0
House price growth (0.7) (4.8) (13.9) (11.8) (7.6) (7.9)
Commercial real estate price growth (9.1) (15.1) (8.6) (5.3) (4.7) (8.6)
UK Bank Rate - modelled 4.81 1.12 0.16 0.05 0.02 1.23
UK Bank Rate - adjusted(1) 5.09 3.22 2.33 2.02 1.79 2.89
CPI inflation - modelled 2.6 2.4 1.3 0.5 0.1 1.4
CPI inflation - adjusted(1) 2.9 3.2 1.6 0.9 1.0 1.9
Probability-weighted
Gross domestic product growth 0.8 0.7 1.3 1.5 1.5 1.2
Unemployment rate 4.6 5.4 5.6 5.5 5.4 5.3
House price growth 1.1 0.9 (0.9) (0.6) 0.8 0.3
Commercial real estate price growth (2.1) (0.5) (1.3) 0.6 (0.2) (0.7)
UK Bank Rate - modelled 5.04 3.79 3.07 2.92 2.90 3.55
UK Bank Rate - adjusted(1) 5.07 4.00 3.29 3.12 3.08 3.71
CPI inflation - modelled 2.5 2.5 2.1 1.9 1.9 2.2
CPI inflation - adjusted(1) 2.6 2.6 2.1 1.9 2.0 2.2
(1) The adjustment to UK Bank Rate and CPI inflation in the severe downside
is considered to better reflect the risks to the Group's base case view in an
economic environment where the risks of supply and demand shocks are seen as
more balanced.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 9: Allowance for expected credit losses (continued)
At 31 December 2023 2023 2024 2025 2026 2027 2023
% % % % % to 2027 average
%
Upside
Gross domestic product growth 0.3 1.5 1.7 1.7 1.9 1.4
Unemployment rate 4.0 3.3 3.1 3.1 3.1 3.3
House price growth 1.9 0.8 6.9 7.2 6.8 4.7
Commercial real estate price growth (3.9) 9.0 3.8 1.3 1.3 2.2
UK Bank Rate 4.94 5.72 5.61 5.38 5.18 5.37
CPI inflation 7.3 2.7 3.1 3.2 3.1 3.9
Base case
Gross domestic product growth 0.3 0.5 1.2 1.7 1.9 1.1
Unemployment rate 4.2 4.9 5.2 5.2 5.0 4.9
House price growth 1.4 (2.2) 0.5 1.6 3.5 1.0
Commercial real estate price growth (5.1) (0.2) 0.1 0.0 0.8 (0.9)
UK Bank Rate 4.94 4.88 4.00 3.50 3.06 4.08
CPI inflation 7.3 2.7 2.9 2.5 2.2 3.5
Downside
Gross domestic product growth 0.2 (1.0) (0.1) 1.5 2.0 0.5
Unemployment rate 4.3 6.5 7.8 7.9 7.6 6.8
House price growth 1.3 (4.5) (6.0) (5.6) (1.7) (3.4)
Commercial real estate price growth (6.0) (8.7) (4.0) (2.1) (1.2) (4.4)
UK Bank Rate 4.94 3.95 1.96 1.13 0.55 2.51
CPI inflation 7.3 2.8 2.7 1.8 1.1 3.2
Severe downside
Gross domestic product growth 0.1 (2.3) (0.5) 1.3 1.8 0.1
Unemployment rate 4.5 8.7 10.4 10.5 10.1 8.8
House price growth 0.6 (7.6) (13.3) (12.7) (7.5) (8.2)
Commercial real estate price growth (7.7) (19.5) (10.6) (7.7) (5.2) (10.3)
UK Bank Rate - modelled 4.94 2.75 0.49 0.13 0.03 1.67
UK Bank Rate - adjusted(1) 4.94 6.56 4.56 3.63 3.13 4.56
CPI inflation - modelled 7.3 2.7 2.2 0.9 (0.2) 2.6
CPI inflation - adjusted(1) 7.6 7.5 3.5 1.3 1.0 4.2
Probability-weighted
Gross domestic product growth 0.3 0.1 0.8 1.6 1.9 0.9
Unemployment rate 4.2 5.3 5.9 5.9 5.7 5.4
House price growth 1.4 (2.5) (0.9) (0.3) 1.8 (0.1)
Commercial real estate price growth (5.3) (1.9) (1.1) (1.0) (0.2) (1.9)
UK Bank Rate - modelled 4.94 4.64 3.52 3.02 2.64 3.75
UK Bank Rate - adjusted(1) 4.94 5.02 3.93 3.37 2.95 4.04
CPI inflation - modelled 7.3 2.7 2.8 2.3 1.9 3.4
CPI inflation - adjusted(1) 7.4 3.2 3.0 2.4 2.0 3.6
(1) The adjustment to UK Bank Rate and CPI inflation in the severe downside
was considered to better reflect the risks to the Group's base case view in an
economic environment where supply shocks were the principal concern.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 9: Allowance for expected credit losses (continued)
Base case scenario by quarter
Gross domestic product growth is presented quarter-on-quarter. House price
growth, commercial real estate price growth and CPI inflation are presented
year-on-year, i.e. from the equivalent quarter in the previous year.
Unemployment rate and UK Bank Rate are presented as at the end of each
quarter.
At 30 June 2024 First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
2024 2024 2024 2024 2025 2025 2025 2025
% % % % % % % %
Gross domestic product growth 0.6 0.4 0.3 0.2 0.3 0.3 0.4 0.4
Unemployment rate 4.3 4.5 4.6 4.7 4.8 4.9 4.9 4.8
House price growth 0.4 1.0 3.8 1.2 0.9 1.3 1.3 1.4
Commercial real estate price growth (5.3) (5.3) (3.5) (1.6) (0.9) 0.2 (0.2) 1.2
UK Bank Rate 5.25 5.25 5.00 4.75 4.50 4.25 4.00 4.00
CPI inflation 3.5 2.1 2.0 2.5 2.2 2.7 2.6 2.4
At 31 December 2023 First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
2023 2023 2023 2023 2024 2024 2024 2024
% % % % % % % %
Gross domestic product growth 0.3 0.0 (0.1) 0.0 0.1 0.2 0.3 0.3
Unemployment rate 3.9 4.2 4.2 4.3 4.5 4.8 5.0 5.2
House price growth 1.6 (2.6) (4.5) 1.4 (1.1) (1.5) 0.5 (2.2)
Commercial real estate price growth (18.8) (21.2) (18.2) (5.1) (4.1) (3.8) (2.2) (0.2)
UK Bank Rate 4.25 5.00 5.25 5.25 5.25 5.00 4.75 4.50
CPI inflation 10.2 8.4 6.7 4.0 3.8 2.1 2.3 2.8
ECL sensitivity to economic assumptions
The table below shows the Group's ECL for the probability-weighted, upside,
base case, downside and severe downside scenarios, with the severe downside
scenario incorporating adjustments made to CPI inflation and UK Bank Rate
paths. The stage allocation for an asset is based on the overall scenario
probability-weighted PD and hence the staging of assets is constant across all
the scenarios. In each economic scenario the ECL for individual assessments is
held constant reflecting the basis on which they are evaluated. Judgemental
adjustments applied through changes to model inputs or parameters, or more
qualitative post model adjustments, are apportioned across the scenarios in
proportion to modelled ECL where this better reflects the sensitivity of these
adjustments to each scenario. The probability-weighted view shows the extent
to which a higher ECL allowance has been recognised to take account of
multiple economic scenarios relative to the base case; the uplift being £313
million compared to £461 million at 31 December 2023.
ECL allowance Probability- Upside Base case Downside Severe
weighted £m £m £m downside
£m £m
At 30 June 2024 2,083 1,420 1,770 2,360 4,177
At 31 December 2023 2,404 1,520 1,943 2,548 6,004
The sensitivity of ECL to isolated changes in the UK unemployment rate and
House Price Index (HPI) has been assessed on a univariate basis. Although such
changes would not be observed in isolation, as economic indicators tend to be
correlated in a coherent scenario, this gives insight into the sensitivity of
the Group's ECL to gradual changes in these two critical economic factors. The
assessment has been made against the base case with staging held flat to the
reported probability-weighted view and is assessed through the direct impact
on modelled ECL and therefore only includes judgemental adjustments applied
within the model.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 9: Allowance for expected credit losses (continued)
The table below shows the impact on the Group's ECL resulting from a 1
percentage point (pp) increase or decrease in the UK unemployment rate. The
increase or decrease is presented based on the adjustment phased evenly over
the first 10 quarters of the base case scenario. A more immediate increase or
decrease would drive a more material ECL impact as it would be fully reflected
in both 12-month and lifetime probability of defaults.
At 30 June 2024 At 31 December 2023
1pp increase in 1pp decrease in 1pp increase in 1pp decrease in
unemployment unemployment unemployment unemployment
£m £m £m £m
ECL impact 60 (54) 65 (64)
The table below shows the impact on the Group's ECL in respect of UK mortgages
resulting from an increase or decrease in loss given default for a 10
percentage point (pp) increase or decrease in the UK HPI. The increase or
decrease is presented based on the adjustment phased evenly over the first 10
quarters of the base case scenario.
At 30 June 2024 At 31 December 2023
10pp increase 10pp decrease 10pp increase 10pp decrease
in HPI in HPI in HPI in HPI
£m £m £m £m
ECL impact (149) 222 (182) 275
Note 10: Debt securities in issue
At 30 June 2024 At 31 December 2023
At At Total At At Total
fair value amortised £m fair value amortised £m
through cost through cost
profit £m profit £m
or loss or loss
£m £m
Senior unsecured notes issued - 6,003 6,003 - 6,022 6,022
Securitisation notes 23 2,775 2,798 23 2,083 2,106
Covered bonds - 511 511 - 505 505
23 9,289 9,312 23 8,610 8,633
Covered bonds and securitisation programmes
At 30 June 2024, the bonds held by external parties and those held internally,
were secured on certain loans and advances to customers amounting to £831
million (31 December 2023: £824 million) which have been assigned to
bankruptcy remote limited liability partnerships to provide security for
issues of covered bonds by the Group. The Group retains all of the risks and
rewards associated with these loans and the partnerships are consolidated
fully with the loans retained on the Group's balance sheet and the related
covered bonds in issue included within debt securities in issue at amortised
cost.
At 30 June 2024, the Group's securitisation notes in issue held by external
parties includes £23 million at fair value through profit or loss (31
December 2023: £23 million). Those notes held internally, are secured on
loans and advances to customers amounting to £27,512 million (31 December
2023: £29,649 million), the majority of which have been sold by subsidiary
companies to bankruptcy remote structured entities. As the structured entities
are funded by the issue of debt on terms whereby the majority of the risks and
rewards of the portfolio are retained by the subsidiary, the structured
entities are consolidated fully and all of these loans are retained on the
Group's balance sheet, with the related notes in issue included within debt
securities in issue at amortised cost.
Cash deposits of £1,444 million (31 December 2023: £1,277 million) which
support the debt securities issued by the structured entities, the term
advances related to covered bonds and other legal obligations, are held by the
Group.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 11: Provisions
Provisions Regulatory Other Total
for financial and legal £m £m
commitments provisions
and guarantees(1) £m
£m
At 1 January 2024 128 426 166 720
Exchange and other adjustments (1) - - (1)
Provisions applied - (145) (86) (231)
(Credit) charge for the period (10) 41 41 72
At 30 June 2024 117 322 121 560
(1) In respect of loans and advances to customers.
Regulatory and legal provisions
In the course of its business, the Group is engaged on a regular basis in
discussions with UK and overseas regulators and other governmental authorities
on a range of matters, including legal and regulatory reviews and, from time
to time, enforcement investigations (including in relation to compliance with
applicable laws and regulations, such as those relating to prudential
regulation, consumer protection, investment advice, business conduct, systems
and controls, environmental, competition/anti-trust, tax, anti-bribery,
anti-money laundering and sanctions). Any matters discussed or identified
during such discussions and inquiries may result in, among other things,
further inquiry or investigation, other action being taken by governmental
and/or regulatory authorities, increased costs being incurred by the Group,
remediation of systems and controls, public or private censure, restriction of
the Group's business activities and/or fines. The Group also receives
complaints in connection with its past conduct and claims brought by or on
behalf of current and former employees, customers (including their appointed
representatives), investors and other third parties and is subject to legal
proceedings and other legal actions from time to time. Any events or
circumstances disclosed could have a material adverse effect on the Group's
financial position, operations or cash flows. Provisions are held where the
Group can reliably estimate a probable outflow of economic resources. The
ultimate liability of the Group may be significantly more, or less, than the
amount of any provision recognised. If the Group is unable to determine a
reliable estimate, a contingent liability is disclosed. The recognition of a
provision does not amount to an admission of liability or wrongdoing on the
part of the Group. During the half-year to 30 June 2024 the Group charged a
further £41 million in respect of legal actions and other regulatory matters
and the unutilised balance at 30 June 2024 was £322 million (31 December
2023: £426 million). The most significant items are outlined below.
HBOS Reading - review
The Group continues to apply the recommendations from Sir Ross Cranston's
review, issued in December 2019, including a reassessment of direct and
consequential losses by an independent panel (the Foskett Panel), an extension
of debt relief and a wider definition of de facto directors. The Foskett
Panel's full scope and methodology was published on 7 July 2020. The Foskett
Panel's stated objective is to consider cases via a non-legalistic and fair
process and to make its decisions in a generous, fair and common sense manner,
assessing claims against an expanded definition of the fraud and on a lower
evidential basis.
In June 2022, the Foskett Panel announced an alternative option, in the form
of a fixed sum award which could be accepted as an alternative to
participation in the full re-review process, to support earlier resolution of
claims for those deemed by the Foskett Panel to be victims of the fraud. Over
95 per cent of the population have now had decisions via this new process. The
provision is unchanged in the first half of 2024. Notwithstanding the settled
claims and the increase in outcomes which builds confidence in the full
estimated cost, uncertainties remain and the final outcome could be different
from the current provision once the re-review is concluded by the Foskett
Panel. There is no confirmed timeline for the completion of the Foskett Panel
re-review process nor the review by Dame Linda Dobbs. The Group is committed
to implementing Sir Ross Cranston's recommendations in full.
Payment protection insurance (PPI)
The Group has incurred costs for PPI over a number of years totalling £6,356
million. The Group continues to challenge PPI litigation cases, with mainly
legal fees and operational costs associated with litigation activity
recognised within regulatory and legal provisions.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 12: Dividends on ordinary shares
The Bank paid a dividend of £650 million on 16 May 2024 (no dividend was paid
during the half-year to 30 June 2023).
Note 13: Related party transactions
Balances and transactions with fellow Lloyds Banking Group undertakings
The Bank and its subsidiaries have balances due to and from the Bank's
ultimate parent company, Lloyds Banking Group plc, and fellow Lloyds Banking
Group undertakings. These are included on the balance sheet as follows:
At 30 Jun At 31 Dec
2024 2023
£m £m
Assets, included within:
Derivative financial instruments 2,459 2,334
Financial assets at amortised cost: due from fellow Lloyds Banking Group 21,618 16,773
undertakings
Liabilities, included within:
Due to fellow Lloyds Banking Group undertakings 99,739 95,098
Derivative financial instruments 3,701 3,986
Debt securities in issue 5,365 5,371
Subordinated liabilities 1,503 1,503
During the half-year to 30 June 2024 the Group earned £529 million (half-year
to 30 June 2023: £306 million) of interest income and incurred £2,788
million (half-year to 30 June 2023: £2,441 million) of interest expense and
recognised net fee and commission expense of £66 million (half year to 30
June 2023: net fee and commission income £10 million) on balances and
transactions with Lloyds Banking Group plc and fellow Lloyds Banking Group
undertakings. The increase in net fee and commission expense is primarily due
to the impact of changes to commission arrangements with Scottish Widows.
In addition, during the half-year to 30 June 2024 the Group incurred
expenditure of £39 million (half-year ended 30 June 2023: £28 million) on
behalf of fellow Lloyds Banking Group undertakings which was recharged to
those undertakings; and fellow Lloyds Banking Group undertakings incurred
expenditure of £681 million (half-year ended 30 June 2023: £604 million) on
behalf of the Group which has been recharged to the Group.
Other related party transactions
Other related party transactions for the half-year to 30 June 2024 are similar
in nature to those for the year ended 31 December 2023.
Note 14: Contingent liabilities, commitments and guarantees
Contingent liabilities, commitments and guarantees
At 30 June 2024 contingent liabilities, such as performance bonds and letters
of credit, arising from the banking business were £104 million (31 December
2023: £109 million).
The contingent liabilities of the Group arise in the normal course of its
banking business and it is not practicable to quantify their future financial
effect. Total commitments and guarantees were £67,070 million (31 December
2023: £60,718 million), of which in respect of undrawn formal standby
facilities, credit lines and other commitments to lend, £19,139 million
(2023: £13,967 million) was irrevocable.
Interchange fees
With respect to multi-lateral interchange fees (MIFs), the Lloyds Banking
Group is not a party in the ongoing or threatened litigation which involves
the card schemes Visa and Mastercard (as described below). However, the Group
is a member/licensee of Visa and Mastercard and other card schemes. The
litigation in question is as follows:
• Litigation brought by or on behalf of retailers against both Visa and
Mastercard in the English Courts, in which retailers are seeking damages on
grounds that Visa and Mastercard's MIFs breached competition law (this
includes a judgment of the Supreme Court in June 2020 upholding the Court of
Appeal's finding in 2018 that certain historic interchange arrangements of
Mastercard and Visa infringed competition law)
• Litigation brought on behalf of UK consumers in the English Courts
against Mastercard
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 14: Contingent liabilities, commitments and guarantees (continued)
Any impact on the Group of the litigation against Visa and Mastercard remains
uncertain at this time, such that it is not practicable for the Group to
provide an estimate of any potential financial effect. Insofar as Visa is
required to pay damages to retailers for interchange fees set prior to June
2016, contractual arrangements to allocate liability have been agreed between
various UK banks (including the Lloyds Banking Group) and Visa Inc, as part of
Visa Inc's acquisition of Visa Europe in 2016. These arrangements cap the
maximum amount of liability to which the Lloyds Banking Group may be subject
and this cap is set at the cash consideration received by the Lloyds Banking
Group for the sale of its stake in Visa Europe to Visa Inc in 2016. In 2016,
the Lloyds Banking Group received Visa preference shares as part of the
consideration for the sale of its shares in Visa Europe. A release assessment
is carried out by Visa on certain anniversaries of the sale (in line with the
Visa Europe sale documentation) and as a result, some Visa preference shares
may be converted into Visa Inc Class A common stock from time to time. Any
such release and any subsequent sale of Visa common stock does not impact the
contingent liability.
LIBOR and other trading rates
Certain Lloyds Banking Group companies, together with other panel banks, have
been named as defendants in ongoing private lawsuits, including purported
class action suits, in the US in connection with their roles as panel banks
contributing to the setting of US Dollar, Japanese Yen and Sterling London
Interbank Offered Rate.
Certain Lloyds Banking Group companies are also named as defendants in (i)
UK-based claims, and (ii) two Dutch class actions, raising LIBOR manipulation
allegations. A number of claims against the Lloyds Banking Group in the UK
relating to the alleged mis-sale of interest rate hedging products also
include allegations of LIBOR manipulation.
It is currently not possible to predict the scope and ultimate outcome on the
Lloyds Banking Group of any private lawsuits or ongoing related challenges to
the interpretation or validity of any of the Lloyds Banking Group's
contractual arrangements, including their timing and scale. As such, it is not
practicable to provide an estimate of any potential financial effect.
Tax authorities
The Group has an open matter in relation to a claim for group relief of losses
incurred in its former Irish banking subsidiary, which ceased trading on 31
December 2010. In 2013, HMRC informed the Group that its interpretation of the
UK rules means that the group relief is not available. In 2020, HMRC concluded
its enquiry into the matter and issued a closure notice. The Group's
interpretation of the UK rules has not changed and hence it appealed to the
First Tier Tax Tribunal, with a hearing having taken place in May 2023. If the
final determination of the matter by the judicial process is that HMRC's
position is correct, management believes that this would result in an increase
in current tax liabilities of the Group of approximately £190 million
(including interest). The Group, following conclusion of the hearing and
having taken appropriate advice, does not consider that this is a case where
additional tax will ultimately fall due.
There are a number of other open matters on which the Group is in discussions
with HMRC, none of which is expected to have a material impact on the
financial position of the Group.
FCA investigation into the Lloyds Banking Group's anti-money laundering
control framework
As previously disclosed, the FCA has opened an investigation into the Lloyds
Banking Group's compliance with domestic UK money laundering regulations and
the FCA's rules and Principles for Businesses, with a focus on aspects of its
anti-money laundering control framework. The Lloyds Banking Group continues to
co-operate with the investigation. It is not currently possible to estimate
the potential financial impact to the Lloyds Banking Group.
Arena litigation claims
The Group is facing claims alleging breach of duty and/or mandate in the
context of an underlying external fraud matter involving Arena Television. The
Group intends to contest the claims. It is not possible to estimate with
certainty the potential financial impact (if any) to the Group.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 14: Contingent liabilities, commitments and guarantees (continued)
Other legal actions and regulatory matters
In addition, in the course of its business the Group is subject to other
complaints and threatened or actual legal proceedings (including class or
group action claims) brought by or on behalf of current or former employees,
customers (including their appointed representatives), investors or other
third parties, as well as legal and regulatory reviews, enquiries and
examinations, requests for information, audits, challenges, investigations and
enforcement actions, which could relate to a number of issues. This includes
matters in relation to compliance with applicable laws and regulations, such
as those relating to prudential regulation, consumer protection, investment
advice, business conduct, systems and controls, environmental,
competition/anti-trust, tax, anti-bribery, anti-money laundering and
sanctions, some of which may be beyond the Group's control, both in the UK and
overseas. Where material, such matters are periodically reassessed, with the
assistance of external professional advisers where appropriate, to determine
the likelihood of the Group incurring a liability. The Group does not
currently expect the final outcome of any such case to have a material adverse
effect on its financial position, operations or cash flows. Where there is a
contingent liability related to an existing provision the relevant disclosures
are included within note 11.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors listed below (being all the directors of Bank of Scotland plc)
confirm that to the best of their knowledge these condensed consolidated
half-year financial statements have been prepared in accordance with UK
adopted International Accounting Standard 34, Interim Financial Reporting, and
that the half-year management report herein includes a fair review of the
information required by DTR 4.2.7R and DTR 4.2.8R, namely:
• an indication of important events that have occurred during the six
months ended 30 June 2024 and their impact on the condensed consolidated
half-year financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
• material related party transactions in the six months ended 30 June 2024
and any material changes in the related party transactions described in the
last annual report.
Signed on behalf of the Board by
Charlie Nunn
Group Chief Executive
24 July 2024
Bank of Scotland plc Board of Directors:
Executive directors:
Charlie Nunn (Group Chief Executive)
William Chalmers (Chief Financial Officer)
Non-executive directors:
Sir Robin Budenberg CBE (Chair)
Sarah Bentley
Brendan Gilligan
Nigel Hinshelwood
Sarah Legg
Amanda Mackenzie LVO OBE
Harmeen Mehta
Cathy Turner
Scott Wheway
Catherine Woods
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements within the meaning
of Section 21E of the US Securities Exchange Act of 1934, as amended, and
section 27A of the US Securities Act of 1933, as amended, with respect to the
business, strategy, plans and/or results of Bank of Scotland plc together with
its subsidiaries (the Group) and its current goals and expectations.
Statements that are not historical or current facts, including statements
about the Group's or its directors' and/or management's beliefs and
expectations, are forward-looking statements. Words such as, without
limitation, 'believes', 'achieves', 'anticipates', 'estimates', 'expects',
'targets', 'should', 'intends', 'aims', 'projects', 'plans', 'potential',
'will', 'would', 'could', 'considered', 'likely', 'may', 'seek', 'estimate',
'probability', 'goal', 'objective', 'deliver', 'endeavour', 'prospects',
'optimistic' and similar expressions or variations on these expressions are
intended to identify forward-looking statements. These statements concern or
may affect future matters, including but not limited to: projections or
expectations of the Group's future financial position, including profit
attributable to shareholders, provisions, economic profit, dividends, capital
structure, portfolios, net interest margin, capital ratios, liquidity,
risk-weighted assets (RWAs), expenditures or any other financial items or
ratios; litigation, regulatory and governmental investigations; the Group's
future financial performance; the level and extent of future impairments and
write-downs; the Group's ESG targets and/or commitments; statements of plans,
objectives or goals of the Group or its management and other statements that
are not historical fact and statements of assumptions underlying such
statements. By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend upon circumstances that
will or may occur in the future. Factors that could cause actual business,
strategy, targets, plans and/or results (including but not limited to the
payment of dividends) to differ materially from forward-looking statements
include, but are not limited to: general economic and business conditions in
the UK and internationally; acts of hostility or terrorism and responses to
those acts, or other such events; geopolitical unpredictability; the war
between Russia and Ukraine; the conflicts in the Middle East; the tensions
between China and Taiwan; political instability including as a result of any
UK general election; market related risks, trends and developments; changes in
client and consumer behaviour and demand; exposure to counterparty risk; the
ability to access sufficient sources of capital, liquidity and funding when
required; changes to the Group's credit ratings; fluctuations in interest
rates, inflation, exchange rates, stock markets and currencies; volatility in
credit markets; volatility in the price of the Group's securities; tightening
of monetary policy in jurisdictions in which the Group operates; natural
pandemic and other disasters; risks concerning borrower and counterparty
credit quality; risks defined benefit pension schemes; changes in laws,
regulations, practices and accounting standards or taxation; changes to
regulatory capital or liquidity requirements and similar contingencies; the
policies and actions of governmental or regulatory authorities or courts
together with any resulting impact on the future structure of the Group; risks
associated with the Group's compliance with a wide range of laws and
regulations; assessment related to resolution planning requirements; risks
related to regulatory actions which may be taken in the event of a bank or
Group failure; exposure to legal, regulatory or competition proceedings,
investigations or complaints; failure to comply with anti-money laundering,
counter terrorist financing, anti-bribery and sanctions regulations; failure
to prevent or detect any illegal or improper activities; operational risks
including risks as a result of the failure of third party suppliers; conduct
risk; technological changes and risks to the security of IT and operational
infrastructure, systems, data and information resulting from increased threat
of cyber and other attacks; technological failure; inadequate or failed
internal or external processes or systems; risks relating to ESG matters, such
as climate change (and achieving climate change ambitions) and
decarbonisation, including the Group's ability along with the government and
other stakeholders to measure, manage and mitigate the impacts of climate
change effectively, and human rights issues; the impact of competitive
conditions; failure to attract, retain and develop high calibre talent; the
ability to achieve strategic objectives; the ability to derive cost savings
and other benefits including, but without limitation, as a result of any
acquisitions, disposals and other strategic transactions; inability to capture
accurately the expected value from acquisitions; assumptions and estimates
that form the basis of the Group's financial statements; and potential changes
in dividend policy. A number of these influences and factors are beyond the
control of the Group or any of the Group's immediate or ultimate parent
entities (if applicable). Please refer to the latest Annual Report on Form
20-F filed by Lloyds Bank plc with the US Securities and Exchange Commission
(the SEC), which is available on the SEC's website at www.sec.gov, for a
discussion of certain factors and risks. Lloyds Banking Group plc may also
make or disclose written and/or oral forward-looking statements in other
written materials and in oral statements made by the directors, officers or
employees of Lloyds Banking Group plc to third parties, including financial
analysts. Except as required by any applicable law or regulation, the
forward-looking statements contained in this document are made as of today's
date, and the Group expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements
contained in this document whether as a result of new information, future
events or otherwise. The information, statements and opinions contained in
this document do not constitute a public offer under any applicable law or an
offer to sell any securities or financial instruments or any advice or
recommendation with respect to such securities or financial instruments.
CONTACTS
For further information please contact:
INVESTORS AND ANALYSTS
Douglas Radcliffe
Group Investor Relations Director
020 7356 1571
douglas.radcliffe@lloydsbanking.com
Nora Thoden
Director of Investor Relations - ESG
020 7356 2334
nora.thoden@lloydsbanking.com
Tom Grantham
Investor Relations Senior Manager
07851 440 091
thomas.grantham@lloydsbanking.com
Sarah Robson
Investor Relations Senior Manager
07494 513 983
sarah.robson2@lloydsbanking.com
CORPORATE AFFAIRS
Grant Ringshaw
External Relations Director
020 7356 2362
grant.ringshaw@lloydsbanking.com
Matt Smith
Head of Media Relations
07788 352 487
matt.smith@lloydsbanking.com
Copies of this News Release may be obtained from:
Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V
7HN
The statement can also be found on the Group's website -
www.lloydsbankinggroup.com
Registered office: Bank of Scotland plc, The Mound, Edinburgh EH1 1YZ
Registered in Scotland No. SC327000
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