REG - HBOS PLC Lloyds Banking Group - 2023 Half-Year Results
26/07/2023 12:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230726:nRSZ2662Ha&default-theme=true
RNS Number : 2662H HBOS PLC 26 July 2023
HBOS plc
2023 Half-Year Results
26 July 2023
Member of the Lloyds Banking Group
CONTENTS
Financial review (#Section3) 1
Principal risks and uncertainties (#Section4) 2
Statutory information
Condensed consolidated half-year financial statements (unaudited) (#Section5) 4
Consolidated income statement (#Section6) 5
Consolidated statement of comprehensive income (#Section7) 6
Consolidated balance sheet (#Section8) 7
Consolidated statement of changes in equity (#Section9) 8
Consolidated cash flow statement (#Section10) 10
Notes to the condensed consolidated half-year financial statements 11
(#aa4dab3a705b4565a007f7f5b9d29f5a_34)
Statement of (#Section26) d (#Section26) irector (#Section26) s (#Section26) ' 31
(#Section26) (#Section26) re (#Section26) sponsibilities (#Section26)
Forward looking statements (#Section27) 32
FINANCIAL REVIEW
Principal activities
HBOS plc (the Company) 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 made a loss before tax for the half-year to 30 June 2023 of £33
million, compared to a profit before tax of £1,190 million for the same
period in 2022, as a result of lower net interest income and a higher
impairment charge. Profit after tax was £32 million (half-year to 30 June
2022: £886 million).
Total income for the half-year to 30 June 2023 was £1,785 million, a decrease
of 33 per cent on the first half of 2022. Net interest income was £1,601
million, compared to £2,482 million for the same period in 2022. This was
impacted by higher funding costs on intra-group borrowing which more than
offset the benefits from UK Bank Rate increases and effects of average
interest-earning asset growth.
Other income of £184 million was 2 per cent higher than the first half of
2022, driven by increases in both net fee and commission income and other
operating income. Net fee and commission income for the period was £184
million compared to £154 million in the first half of 2022, reflecting
improved credit and debit card performance. Other operating income in the
period of £56 million was up £28 million.
Operating expenses of £1,439 million were 1 per cent lower than in the first
half of 2022, due to higher depreciation given increased strategic investment,
partly offset by lower staff costs. The Group recognised remediation costs of
£11 million (half-year to 30 June 2022: £2 million). There have been no
further charges relating to HBOS Reading and the provision held continues to
reflect the Group's best estimate of its full liability, albeit uncertainties
remain.
The impairment charge was £379 million compared with a £18 million charge in
the half-year to 30 June 2022. The increase reflects the expected credit loss
(ECL) allowance build from Stage 1 loans rolling forward into a more adverse
economic outlook, as well as increased flows to default primarily in legacy
variable rate mortgage portfolios and the inclusion of MBNA limited following
the transfer from Lloyds Bank plc in November 2022. This increase was partly
offset by a lower charge from economic outlook revisions. The Group's ECL
allowance increased to £3,399 million, compared to £3,324 million at 31
December 2022 resulting from the Stage 3 increases in the mortgages and
commercial portfolios alongside low levels of write offs in the period. Asset
quality remains resilient with only modest deterioration to date from a low
base, with credit performance similar, or remaining favourable, to
pre-pandemic experience.
The Group recognised a tax credit of £65 million in the period, compared to
an expense of £304 million in the first half of 2022.
Balance sheet
The Group's balance sheet has remained broadly stable compared to 31 December
2022. Total assets of £319,559 million were down £8 million compared to
£319,567 million at 31 December 2022. Financial assets at amortised cost were
£747 million lower at £305,922 million compared to £306,669 million at
31 December 2022 with debt securities £1,957 million higher, offset by a
reduction in balances due from fellow Lloyds Banking Group undertakings of
£584 million and loans and advances to customers of £2,172 million to
£290,244 million. The reduction in loans and advances to customers was
largely as a result of the exit of £2.5 billion of legacy mortgage loans.
Total liabilities of £301,848 million were down £297 million compared to
£302,145 million at 31 December 2022 driven by a reduction in customer
deposits of £3,951 million in the period to £162,412 million. The reduction
in the first half included a decrease in current account balances from tax
payments, higher spend and a more competitive market, partly offset by growth
in savings balances. This was partially offset by increases in balances due to
fellow Lloyds Banking Group undertakings of £2,366 million and debt
securities in issue of £1,455 million.
Total equity increased by £289 million from £17,422 million at 31 December
2022 to £17,711 million at 30 June 2023.
Capital
Neither the Company nor the Group are regulated from a capital perspective.
Regulatory capital is instead managed in the Company's principal banking
subsidiary, Bank of Scotland plc.
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; high interest rates and high inflation which are
contributing to the cost of living increases and associated implications for
UK consumers and businesses.
Heightened monitoring is in place across the Group's portfolios to identify
signs of affordability stress. The Group has experienced only modest
deterioration in credit performance across its portfolio to date, most notably
in UK mortgages where new to arrears and flows to default have increased on
legacy variable rate loans. The Group continues to work with its customers to
proactively support them through cost of living pressures, the impact from
rising interest rates and any deterioration in broader economic conditions.
The Group remains committed to the effective implementation and embedding of
Consumer Duty into its purpose, strategy and culture in order to deliver good
outcomes for our customers throughout their journeys. This activity seeks to
align and enhance the Group's approach to supporting all customers, including
those who may be vulnerable and customers in financial difficulty.
CRD IV model changes reflecting the revised regulatory standards introduced in
2022 remain subject to approval by the PRA with the resultant risk-weighted
asset and expected loss outcome dependent upon this. An adjustment to
risk-weighted assets has been taken in the second quarter, to reflect the
anticipated impact of CRD IV models, following a further iteration of model
development. On that basis final impacts remain uncertain and further
increases could be required.
There have been minor changes to the definition of these risks compared to
those disclosed in the Group's 2022 Annual Report and Accounts, such as
clarifying third party and outsourced arrangements. The Group continues to
conduct a detailed review of its Enterprise Risk Management Framework, which
may result in a reclassification of the principal risks.
The Group's principal risks and uncertainties are reviewed and reported
regularly to the Board in alignment with the Group's Enterprise Risk
Management Framework.
Capital risk - The risk that an insufficient quantity or quality of capital is
held to meet regulatory requirements or to support business strategy, an
inefficient level of capital is held or that capital is inefficiently deployed
across the Group.
Change and execution risk - The risk that, in delivering its change agenda,
the Group fails to ensure compliance with laws and regulation, maintain
available and effective customer and colleague services, and/or operate within
the Group's risk appetite.
Climate risk - The risk that the Group experiences losses and/or reputational
damage, either from the impacts of climate change and the transition to net
zero, or as a result of the Group's responses to tackling climate change.
Conduct risk - The risk of customer detriment across the customer lifecycle
including: failures in product management, distribution and servicing
activities; from other risks materialising, or other activities which could
undermine the integrity of the market or distort competition, leading to
unfair customer outcomes, regulatory censure, reputational damage or financial
loss. Customer harm or detriment is defined as consumer loss, distress or
inconvenience to customers due to breaches of regulatory or internal
requirements or our wider duty to act fairly and reasonably.
Credit risk - The risk that parties with whom the Group has contracted fail to
meet their financial obligations (both on and off-balance sheet).
Data risk - The risk of the Group failing to effectively govern, manage and
protect its data throughout its lifecycle, including data processed by third
parties, or failure to drive value from data; leading to unethical decision
making, poor customer outcomes, loss of value to the Group and mistrust.
Funding and liquidity risk - Funding risk is defined as the risk that the
Group does not have sufficiently stable and diverse sources of funding or the
funding structure is inefficient. Liquidity risk is defined as the risk that
the Group has insufficient financial resources to meet its commitments as they
fall due, or can only secure them at excessive cost.
Market risk - The risk that the Group's capital or earnings profile is
affected by adverse market rates or prices, in particular interest rates, and
equity prices.
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
Model risk - The risk of financial loss, regulatory censure, reputational
damage or customer detriment, as a result of deficiencies in the development,
application or ongoing operation of models and rating systems.
Operational risk - The risk of loss resulting from inadequate or failed
internal processes, people and systems or from external events.
Operational resilience risk - The risk that the Group fails to design
resilience into business operations including those that are outsourced,
underlying infrastructure and controls (people, property, process, technology)
so that it is able to withstand external or internal events which could impact
the continuation of operations, and fails to respond in a way which meets
customers and stakeholder expectations and needs when the continuity of
operations is compromised.
People risk - The risk that the Group fails to provide an appropriate
colleague and customer-centric culture, supported by robust reward and
wellbeing policies and processes; effective leadership to manage colleague
resources; effective talent and succession management; and robust control to
ensure all colleague-related requirements are met.
Regulatory and legal risk - The risk of financial penalties, regulatory
censure, criminal or civil enforcement action or customer detriment as a
result of failure to identify, assess, correctly interpret, comply with, or
manage regulatory and/or legal requirements.
Strategic risk - The risk which results from:
• Incorrect assumptions about internal or external operating environments
• Failure to understand the potential impact of strategic responses and
business plans on existing risk types
• Failure to respond or the inappropriate strategic response to material
changes in the external or internal operating environments
•
STATUTORY INFORMATION
Condensed consolidated half-year financial statements (unaudited)
Consolidated income statement (#Section6) 5
Consolidated statement of comprehensive income (#Section7) 6
Consolidated balance sheet (#Section8) 7
Consolidated statement of changes in equity (#Section9) 8
Consolidated cash flow statement (#Section10) 10
Notes
1 Basis of preparation and accounting policies (#Section12) 11
2 Critical accounting judgements and key sources of estimation uncertainty 12
(#Section13)
3 Net fee and commission income (#Section14) 12
4 Operating expenses (#Section15) 12
5 Impairment (#Section16) 13
6 Tax expense (#Section17) 13
7 Fair values of financial assets and liabilities (#Section18) 14
8 Loans and advances to customers (#Section19) 18
9 Allowance for expected credit losses (#Section20) 19
10 Debt securities in issue (#Section21) 26
11 Retirement benefit obligations (#Section22) 27
12 Other provisions (#Section23) 28
13 Related party transactions (#Section24) 29
14 Contingent liabilities, commitments and guarantees (#Section25) 29
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Note Half-year Half-year
to 30 Jun to 30 Jun
2023 2022
£m £m
Interest income 5,455 3,712
Interest expense (3,854) (1,230)
Net interest income 1,601 2,482
Fee and commission income 347 310
Fee and commission expense (163) (156)
Net fee and commission income 3 184 154
Net trading losses (56) (2)
Other operating income 56 28
Other income 184 180
Total income 1,785 2,662
Operating expenses 4 (1,439) (1,454)
Impairment 5 (379) (18)
(Loss) profit before tax (33) 1,190
Tax credit (expense) 6 65 (304)
Profit for the period 32 886
(Loss) profit attributable to ordinary shareholders (56) 829
Profit attributable to non-controlling interests 88 57
Profit for the period 32 886
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Half-year Half-year
to 30 Jun to 30 Jun
2023 2022
£m £m
Profit for the period 32 886
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements
Remeasurements before tax (6) (373)
Tax (3) 67
(9) (306)
Items that may subsequently be reclassified to profit or loss:
Movements in revaluation reserve in respect of debt securities held at fair
value through other comprehensive income:
Change in fair value (5) (26)
Tax 1 6
(4) (20)
Movements in cash flow hedging reserve:
Effective portion of changes in fair value taken to other comprehensive income (6) 12
Net income statement transfers (6) (5)
Tax 4 (5)
(8) 2
Total other comprehensive loss for the period, net of tax (21) (324)
Total comprehensive income for the period 11 562
Total comprehensive (loss) income attributable to ordinary shareholders (77) 505
Total comprehensive income attributable to non-controlling interests 88 57
Total comprehensive income for the period 11 562
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
Note At 30 Jun At 31 Dec
2023 2022
£m £m
Assets
Cash and balances at central banks 2,941 3,004
Financial assets at fair value through profit or loss 300 291
Derivative financial instruments 3,345 3,477
Loans and advances to banks 323 271
Loans and advances to customers 8 290,244 292,416
Debt securities 1,957 -
Due from fellow Lloyds Banking Group undertakings 13,398 13,982
Financial assets at amortised cost 305,922 306,669
Financial assets at fair value through other comprehensive income 103 103
Goodwill 452 452
Current tax recoverable 1,197 542
Deferred tax assets 1,417 1,501
Retirement benefit assets 11 1,852 1,513
Other assets(1) 2,030 2,015
Total assets 319,559 319,567
Liabilities
Deposits from banks 176 195
Customer deposits 162,412 166,363
Repurchase agreements 30,332 30,210
Due to fellow Lloyds Banking Group undertakings 90,546 88,180
Financial liabilities at fair value through profit or loss 25 26
Derivative financial instruments 4,430 4,544
Notes in circulation 1,342 1,280
Debt securities in issue 10 7,578 6,123
Other liabilities(1) 1,948 1,719
Retirement benefit obligations 11 72 76
Other provisions 12 796 973
Subordinated liabilities 2,191 2,456
Total liabilities 301,848 302,145
Equity
Share capital 3,778 3,778
Share premium account 585 585
Other reserves 11,161 11,173
Retained profits (386) (337)
Shareholders' equity 15,138 15,199
Non-controlling interests 2,573 2,223
Total equity 17,711 17,422
Total equity and liabilities 319,559 319,567
(1) See note 1 regarding changes to presentation.
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Attributable to ordinary shareholders Non-
controlling
interests
£m
Share Other Retained Total Total
capital and reserves profits £m £m
premium £m £m
£m
At 1 January 2023 4,363 11,173 (337) 15,199 2,223 17,422
Comprehensive income
Profit for the period - - (56) (56) 88 32
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - (9) (9) - (9)
Movements in revaluation reserve in respect of debt securities held at fair - (4) - (4) - (4)
value through other comprehensive income, net of tax
Movements in cash flow hedging reserve, net of tax - (8) - (8) - (8)
Total other comprehensive loss - (12) (9) (21) - (21)
Total comprehensive (loss) income(1) - (12) (65) (77) 88 11
Transactions with owners
Distributions to non-controlling interests - - - - (88) (88)
Changes in non-controlling interests - - - - 350 350
Capital contributions received - - 16 16 - 16
Total transactions with owners - - 16 16 262 278
At 30 June 2023(2) 4,363 11,161 (386) 15,138 2,573 17,711
(1) Total comprehensive income attributable to owners of the parent was a
loss of £77 million.
(2) Total equity attributable to owners of the parent was £15,138 million.
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)
Attributable to ordinary shareholders Non-
controlling
interests
£m
Share Other Retained Total Total
capital and reserves profits £m £m
premium £m £m
£m
At 1 January 2022 3,763 10,165 (562) 13,366 2,223 15,589
Comprehensive income
Profit for the period - - 829 829 57 886
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - (306) (306) - (306)
Movements in revaluation reserve in respect of debt securities held at fair - (20) - (20) - (20)
value through other comprehensive income, net of tax
Movements in cash flow hedging reserve, net of tax - 2 - 2 - 2
Total other comprehensive loss - (18) (306) (324) - (324)
Total comprehensive (loss) income(1) - (18) 523 505 57 562
Transactions with owners
Distributions to non-controlling interests - - - - (57) (57)
Capital contributions received - - 23 23 - 23
Total transactions with owners - - 23 23 (57) (34)
At 30 June 2022(2) 3,763 10,147 (16) 13,894 2,223 16,117
Comprehensive income
Profit for the period - - 189 189 65 254
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - (514) (514) - (514)
Movements in revaluation reserve in respect of debt securities held at fair - (24) - (24) - (24)
value through other comprehensive income, net of tax
Movements in cash flow hedging reserve, net of tax - (4) - (4) - (4)
Total other comprehensive loss - (28) (514) (542) - (542)
Total comprehensive (loss) income(1) - (28) (325) (353) 65 (288)
Transactions with owners
Distributions to non-controlling interests - - - - (65) (65)
Issue of ordinary shares 600 - - 600 - 600
Capital contributions received - 1,054 23 1,077 - 1,077
Adjustment on transfer of subsidiary - - (19) (19) - (19)
Total transactions with owners 600 1,054 4 1,658 (65) 1,593
At 31 December 2022(2) 4,363 11,173 (337) 15,199 2,223 17,422
(1) Total comprehensive income attributable to owners of the parent for the
half-year to 30 June 2022 was a surplus of £505 million (half-year to
31 December 2022: loss of £353 million)
(2) Total equity attributable to owners of the parent at 30 June 2022 was
£13,894 million (31 December 2022: £15,199 million).
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
(
)
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
Half-year Half-year
to 30 Jun to 30 Jun
2023 2022
£m £m
Cash flows from operating activities
(Loss) profit before tax (33) 1,190
Adjustments for:
Change in operating assets 681 (3,993)
Change in operating liabilities 136 4,184
Non-cash and other items (122) (556)
Tax paid (net) (506) (333)
Net cash provided by operating activities 156 492
Cash flows from investing activities
Purchase of financial assets (5) (558)
Proceeds from sale and maturity of financial assets - 179
Purchase of fixed assets (76) (68)
Proceeds from sale of fixed assets 12 -
Net cash used in investing activities (69) (447)
Cash flows from financing activities
Distributions to non-controlling interests (88) (57)
Interest paid on subordinated liabilities (85) (61)
Proceeds from changes in non-controlling interests 350 -
Repayment of subordinated liabilities (226) (58)
Net cash used in financing activities (49) (176)
Change in cash and cash equivalents 38 (131)
Cash and cash equivalents at beginning of period 2,087 2,185
Cash and cash equivalents at end of period 2,125 2,054
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
Note 1: Basis of preparation and accounting policies
These condensed consolidated half-year financial statements as at and for the
period to 30 June 2023 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 HBOS
plc (the Company) 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 2022 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 2022 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 2022 and there have
been no changes in the Group's methods of computation.
Presentational changes
The following changes have been made to the presentation of the Group's
balance sheet:
• items in the course of collection from banks are reported within other
assets rather than separately on the face of the balance sheet; and
• items in the course of transmission to banks are reported within other
liabilities rather than separately on the face of the balance sheet.
There has been no change in the basis of accounting for any of the underlying
transactions. Comparatives have been presented on a consistent basis.
Future accounting developments
The IASB has issued a number of minor amendments to IFRSs 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 are not expected to
have a significant impact on the Group and, apart from the amendments relating
to IFRS 16 Lease liability in a sale and leaseback, have not been endorsed for
use in the UK.
HBOS plc'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 2022 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 2022 were
approved by the directors on 7 March 2023 and were delivered to the Registrar
of Companies on 6 April 2023. 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 (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.
Except for the removal of the judgements and estimates in respect of
capitalised software enhancements, the Group's significant judgements,
estimates and assumptions are unchanged compared to those applied at
31 December 2022. 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
2023 2022
£m £m
Fee and commission income:
Current accounts 96 103
Credit and debit card fees 202 157
Other fees and commissions 49 50
Total fee and commission income 347 310
Fee and commission expense (163) (156)
Net fee and commission income 184 154
Note 4: Operating expenses
Half-year Half-year
to 30 Jun to 30 Jun
2023 2022
£m £m
Staff costs 432 531
Premises and equipment costs 94 72
Amounts paid to fellow Lloyds Banking Group undertakings and other expenses 780 744
Depreciation and amortisation 133 107
Total operating expenses 1,439 1,454
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 5: Impairment
Half-year Half-year
to 30 Jun to 30 Jun
2023 2022
£m £m
Impact of transfers between stages 295 201
Other changes in credit quality 155 (134)
Additions and repayments (77) (47)
Other items 6 (2)
84 (183)
Total impairment 379 18
In respect of:
Loans and advances to customers 378 5
Due from fellow Lloyds Banking Group undertakings - 5
Financial assets held at amortised cost 378 10
Loan commitments and financial guarantees 1 8
Total impairment 379 18
The Group's impairment charge comprises the following:
Impact of transfers between stages
The net impact on the impairment charge of transfers between stages.
Other changes in credit quality
Changes in loss allowance as a result of movements in risk parameters that
reflect changes in customer credit quality, but which have not resulted in a
transfer to a different stage. This also contains the impact on the impairment
charge of write-offs and recoveries, where the related loss allowances are
reassessed to reflect the view of credit quality at the balance sheet date and
therefore the ultimate realisable or recoverable value.
Additions and repayments
Expected loss allowances are recognised on origination of new loans or further
drawdowns of existing facilities. Repayments relate to the reduction of loss
allowances resulting from the repayment of outstanding balances that have been
provided against.
Note 6: Tax expense
In accordance with IAS 34, the Group's income tax credit (expense) for the
half-year to 30 June 2023 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 credit (expense) and accounting
profit is set out below:
Half-year Half-year
to 30 Jun to 30 Jun
2023 2022
£m £m
(Loss) profit before tax (33) 1,190
UK corporation tax thereon at 23.5 per cent (2022: 19.0 per cent) 8 (226)
Impact of surcharge on banking profits 15 (87)
Non-deductible costs: conduct charges (1) -
Other non-deductible costs (6) 3
Non-taxable income - (1)
Tax relief on coupons on other equity instruments 21 -
Tax-exempt gains on disposals 22 -
Remeasurement of deferred tax due to rate changes - (6)
Adjustments in respect of prior years 6 13
Tax credit (expense) 65 (304)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
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 35 to the Group's financial statements for the year
ended 31 December 2022 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, financial assets at fair
value through other comprehensive income 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.
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 2023
Loans and advances to customers at fair value through profit or loss - - 300 300
Debt securities at fair value through other comprehensive income 103 - - 103
Derivative financial instruments - 3,345 - 3,345
Total financial assets carried at fair value 103 3,345 300 3,748
At 31 December 2022
Loans and advances to customers at fair value through profit or loss - - 291 291
Debt securities at fair value through other comprehensive income 103 - - 103
Derivative financial instruments - 3,477 - 3,477
Total financial assets carried at fair value 103 3,477 291 3,871
Financial liabilities Level 1 Level 2 Level 3 Total
£m £m £m £m
At 30 June 2023
Financial liabilities designated at fair value through profit or loss - - 25 25
Derivative financial instruments - 4,269 161 4,430
Total financial liabilities carried at fair value - 4,269 186 4,455
At 31 December 2022
Financial liabilities designated at fair value through profit or loss - - 26 26
Derivative financial instruments - 4,394 150 4,544
Total financial liabilities carried at fair value - 4,394 176 4,570
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 7: Fair values of financial assets and liabilities (continued)
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 2022 applied to these
portfolios.
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 2023 291 - 291
Gains recognised in the income statement within other income 17 - 17
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
At 1 January 2022 362 - 362
Losses recognised in the income statement within other income (5) - (5)
Repayments of customer loans (27) - (27)
At 30 June 2022 330 - 330
Losses recognised in the income statement, within other income, relating (5) - (5)
to the change in fair value of those assets held at 30 June 2022
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 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
At 1 January 2022 33 176 209
(Gains) losses recognised in the income statement within other income (2) 6 4
Redemptions (2) (11) (13)
At 30 June 2022 29 171 200
(Gains) losses recognised in the income statement, within other income, (2) 5 3
relating to the change in fair value of those liabilities held at 30 June 2022
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (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 2023 Valuation Significant unobservable inputs(2) Carrying value Favourable changes Unfavourable
techniques £m £m changes
£m
Financial assets at fair value through profit or loss
Loans and advances to customers Discounted cash flows Interest rate spreads 300 24 (24)
(+/- 50bps)
Level 3 financial assets carried at fair value 300
Financial liabilities at fair value through profit or loss
Securitisation notes Discounted cash flows Interest rate spreads 25 1 (1)
(+/- 50bps)
Derivative financial liabilities
Shared appreciation rights Market values - property valuation HPI (+/- 1%) 161 15 (16)
Level 3 financial liabilities carried at fair value 186
At 31 December 2022
Financial assets at fair value through profit or loss
Loans and advances to customers Discounted cash flows Interest rate spreads 291 25 (23)
(+/- 50bps)
Level 3 financial assets carried at fair value 291
Financial liabilities at fair value through profit or loss
Securitisation notes Discounted cash flows Interest rate spreads 26 1 (1)
(+/- 50bps)
Derivative financial liabilities
Shared appreciation rights Market values - property valuation HPI (+/- 1%) 150 16 (16)
Level 3 financial liabilities carried at fair value 176
(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,
unlisted equity investments and derivatives are unchanged from those described
in the Group's financial statements for the year ended 31 December 2022.
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 35 to the Group's financial statements for the year
ended 31 December 2022.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (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 2023 At 31 December 2022
Carrying Fair Carrying Fair
value value value value
£m £m £m £m
Financial assets
Loans and advances to banks 323 323 271 271
Loans and advances to customers 290,244 282,280 292,416 285,540
Debt securities 1,957 1,752 - -
Due from fellow Lloyds Banking Group undertakings 13,398 13,398 13,982 13,982
Financial assets at amortised cost 305,922 297,753 306,669 299,793
Financial liabilities
Deposits from banks 176 176 195 195
Customer deposits 162,412 162,408 166,363 166,264
Repurchase agreements 30,332 30,332 30,210 30,210
Due to fellow Lloyds Banking Group undertakings 90,546 90,546 88,180 88,180
Debt securities in issue 7,578 7,575 6,123 6,122
Subordinated liabilities 2,191 2,218 2,456 2,475
The carrying amount of cash and balances at central banks and notes in
circulation is a reasonable approximation of fair value.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 8: Loans and advances to customers
Half-year to 30 June 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 (2) (4) - (6) - - 66 66
Transfers to Stage 1 8,739 (8,735) (4) - 144 (142) (2) -
Transfers to Stage 2 (13,290) 13,785 (495) - (24) 73 (49) -
Transfers to Stage 3 (212) (1,379) 1,591 - (3) (118) 121 -
Impact of transfers between stages (4,763) 3,671 1,092 - (95) 242 146 293
22 55 216 293
Other changes in credit quality 11 1 149 161
Additions and repayments 2,216 (905) (506) 805 7 (41) (42) (76)
Charge to the income statement 40 15 323 378
Disposals and derecognition(1) (1,314) (887) (447) (2,648) (1) (35) (85) (121)
Advances written off (308) (308) (308) (308)
Recoveries of advances written off in previous years 61 61 61 61
At 30 June 2023 240,010 46,101 7,406 293,517 323 1,112 1,838 3,273
Allowance for impairment losses (323) (1,112) (1,838) (3,273)
Net carrying amount 239,687 44,989 5,568 290,244
Drawn ECL coverage(2) (%) 0.1 2.4 24.8 1.1
Year ended 31 December 2022
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 2022 250,007 26,420 5,561 281,988 392 810 1,377 2,579
Exchange and other adjustments 8 - - 8 - - 55 55
Acquisition of business(3) 5,345 875 125 6,345 61 110 57 228
Transfers to Stage 1 5,473 (5,422) (51) - 75 (71) (4) -
Transfers to Stage 2 (24,077) 24,327 (250) - (31) 64 (33) -
Transfers to Stage 3 (498) (2,722) 3,220 - (5) (163) 168 -
Impact of transfers between stages (19,102) 16,183 2,919 - (57) 401 161 505
(18) 231 292 505
Other changes in credit quality (187) (14) 329 128
Additions and repayments 7,615 748 (835) 7,528 36 (5) (73) (42)
Charge (credit) to the income statement (169) 212 548 591
Advances written off (350) (350) (350) (350)
Recoveries of advances written off in previous years 94 94 94 94
At 31 December 2022 243,873 44,226 7,514 295,613 284 1,132 1,781 3,197
Allowance for impairment losses (284) (1,132) (1,781) (3,197)
Net carrying amount 243,589 43,094 5,733 292,416
Drawn ECL coverage(2) (%) 0.1 2.6 23.7 1.1
(1 ) Relates to the exit of legacy mortgage loans.
(2) Allowance for expected credit losses on loans and advances to customers
as a percentage of gross loans and advances to customers.
(3) On 30 November 2022 the Group acquired MBNA Limited, formerly a
subsidiary of Lloyds Bank plc, a fellow Lloyds Banking Group undertaking.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 8: Loans and advances to customers (continued)
The movement tables are compiled by comparing the position at the reporting
date 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 period end.
Additions and repayments comprise new loans originated and repayments of
outstanding balances throughout the reporting period. Loans which are written
off in the period are first transferred to Stage 3 before acquiring a full
allowance and subsequent write-off.
Loans and advances to customers include advances securitised under the Group's
securitisation and covered bond programmes (see note 10).
(
)
Note 9: Allowance for expected credit losses
The Group recognises an allowance for expected credit losses (ECLs) for loans
and advances to customers and banks, other financial assets held at amortised
cost, financial assets measured at fair value through other comprehensive
income and certain loan commitment and financial guarantee contracts. At 30
June 2023 the Group's expected credit loss allowance was £3,399 million (31
December 2022: £3,324 million), of which £3,283 million (31 December 2022:
£3,209 million) was in respect of drawn balances.
The Group's total allowances for expected credit losses were as follows:
Allowance for expected credit losses
At 30 June 2023 Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
In respect of:
Loans and advances to customers 323 1,112 1,838 3,273
Debt securities - - 1 1
Due from fellow Lloyds Banking Group undertakings 9 - - 9
Drawn balances 332 1,112 1,839 3,283
Provisions in relation to loan commitments and financial guarantees 54 61 1 116
Total 386 1,173 1,840 3,399
At 31 December 2022
In respect of:
Loans and advances to customers 284 1,132 1,781 3,197
Debt securities - - 1 1
Due from fellow Lloyds Banking Group undertakings 11 - - 11
Drawn balances 295 1,132 1,782 3,209
Provisions in relation to loan commitments and financial guarantees 53 61 1 115
Total 348 1,193 1,783 3,324
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 9: Allowance for expected credit losses (continued)
The calculation of the Group's expected credit loss allowances and provisions
against loan commitments and guarantees under IFRS 9 requires the Group to
make a number of judgements, assumptions and estimates. These are set out in
detail in the note 14 to the Group's financial statements for the year ended
31 December 2022. The principal changes made in the half-year to 30 June 2023
are as follows:
Base case and MES economic assumptions
The Group's updated base case scenario has three conditioning assumptions:
first, the war in Ukraine remains contained within its borders; second, the
financial stress emerging from some weak bank/insurer business models in the
context of rising bond yields does not become systemic; and third, the Bank of
England will continue to tighten policy until it is clear that inflation is
returning to target.
Based on these assumptions and incorporating the economic data published in
the second quarter of 2023, the Group's base case scenario is for a slow
expansion of economic activity alongside a gradual rise in the unemployment
rate. Increases in UK Bank Rate in response to persistent inflationary
pressures trigger further declines in residential and commercial property
prices. 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 2023, for which actuals may have since emerged prior to
publication.
The Group's approach to generating alternative economic scenarios is set out
in detail in note 14 to the financial statements for the year ended 31
December 2022. For June 2023, the Group continues to judge it appropriate to
include a non-modelled severe downside scenario for Group ECL calculations.
This adjusted scenario is considered to better reflect the risks around the
Group's base case view in an economic environment where past supply shocks
continue to unwind slowly.
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) 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 2023 covers the five years 2023 to 2027.
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 (continued)
Note 9: Allowance for expected credit losses (continued)
At 30 June 2023 2023 2024 2025 2026 2027 2023
% % % % % to 2027 average
%
Upside
Gross domestic product 0.8 1.6 0.9 1.5 2.0 1.3
Unemployment rate 3.3 2.7 3.0 3.4 3.3 3.1
House price growth (3.3) 2.4 7.8 7.5 7.3 4.3
Commercial real estate price growth 2.3 6.5 1.8 2.4 3.8 3.4
UK Bank Rate 5.39 7.00 6.57 5.76 5.63 6.07
CPI inflation 7.9 4.2 3.7 3.3 3.3 4.5
Base case
Gross domestic product 0.2 0.3 0.7 1.5 2.1 0.9
Unemployment rate 4.1 4.7 5.2 5.3 5.0 4.9
House price growth (5.4) (3.2) 0.8 2.8 4.8 (0.1)
Commercial real estate price growth (3.9) (0.2) (0.3) 1.2 3.8 0.1
UK Bank Rate 5.06 5.44 4.63 3.69 3.50 4.46
CPI inflation 7.9 4.0 3.0 2.2 2.0 3.8
Downside
Gross domestic product (0.6) (1.5) 0.4 1.4 2.1 0.4
Unemployment rate 4.9 7.1 7.7 7.6 7.1 6.9
House price growth (6.9) (8.2) (6.3) (2.5) 2.2 (4.4)
Commercial real estate price growth (9.2) (7.0) (3.7) (1.4) 2.2 (3.9)
UK Bank Rate 4.73 3.67 2.37 1.30 1.04 2.62
CPI inflation 7.9 3.8 2.3 0.9 0.4 3.1
Severe downside
Gross domestic product (1.5) (2.8) 0.3 1.2 1.8 (0.2)
Unemployment rate 6.1 9.8 10.4 10.1 9.5 9.2
House price growth (9.3) (14.6) (14.3) (9.1) (1.8) (9.9)
Commercial real estate price growth (17.5) (16.5) (9.0) (6.1) (0.4) (10.1)
UK Bank Rate - modelled 4.26 1.73 0.48 0.08 0.04 1.32
UK Bank Rate - adjusted(1) 5.69 7.00 4.94 3.88 3.50 5.00
CPI inflation - modelled 7.9 3.5 1.4 (0.5) (1.3) 2.2
CPI inflation - adjusted(1) 9.8 7.4 5.5 4.2 3.9 6.2
Probability-weighted
Gross domestic product 0.0 (0.2) 0.6 1.4 2.0 0.8
Unemployment rate 4.3 5.3 5.8 5.9 5.5 5.4
House price growth (5.6) (4.1) (0.7) 1.4 4.1 (1.1)
Commercial real estate price growth (5.0) (1.9) (1.5) 0.1 2.9 (1.1)
UK Bank Rate - modelled 4.98 5.00 4.12 3.23 3.05 4.08
UK Bank Rate - adjusted(1) 5.12 5.53 4.56 3.61 3.40 4.45
CPI inflation - modelled 7.9 4.0 2.8 1.9 1.6 3.6
CPI inflation - adjusted(1) 8.1 4.3 3.2 2.3 2.1 4.0
(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 supply shocks are the principal concern.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 9: Allowance for expected credit losses (continued)
At 31 December 2022 2022 2023 2024 2025 2026 2022
% % % % % to 2026 average
%
Upside
Gross domestic product 4.1 0.1 1.1 1.7 2.1 1.8
Unemployment rate 3.5 2.8 3.0 3.3 3.4 3.2
House price growth 2.4 (2.8) 6.5 9.0 8.0 4.5
Commercial real estate price growth (9.4) 8.5 3.5 2.6 2.3 1.3
UK Bank Rate 1.94 4.95 4.98 4.63 4.58 4.22
CPI inflation 9.0 8.3 4.2 3.3 3.0 5.5
Base case
Gross domestic product 4.0 (1.2) 0.5 1.6 2.1 1.4
Unemployment rate 3.7 4.5 5.1 5.3 5.1 4.8
House price growth 2.0 (6.9) (1.2) 2.9 4.4 0.2
Commercial real estate price growth (11.8) (3.3) 0.9 2.8 3.1 (1.8)
UK Bank Rate 1.94 4.00 3.38 3.00 3.00 3.06
CPI inflation 9.0 8.3 3.7 2.3 1.7 5.0
Downside
Gross domestic product 3.9 (3.0) (0.5) 1.4 2.1 0.8
Unemployment rate 3.8 6.3 7.5 7.6 7.2 6.5
House price growth 1.6 (11.1) (9.8) (5.6) (1.5) (5.4)
Commercial real estate price growth (13.9) (15.0) (3.7) 0.4 1.4 (6.4)
UK Bank Rate 1.94 2.93 1.39 0.98 1.04 1.65
CPI inflation 9.0 8.2 3.3 1.3 0.3 4.4
Severe downside
Gross domestic product 3.7 (5.2) (1.0) 1.3 2.1 0.1
Unemployment rate 4.1 9.0 10.7 10.4 9.7 8.8
House price growth 1.1 (14.8) (18.0) (11.5) (4.2) (9.8)
Commercial real estate price growth (17.3) (28.8) (9.9) (1.3) 3.2 (11.6)
UK Bank Rate - modelled 1.94 1.41 0.20 0.13 0.14 0.76
UK Bank Rate - adjusted(1) 2.44 7.00 4.88 3.31 3.25 4.18
CPI inflation - modelled 9.0 8.2 2.6 (0.1) (1.6) 3.6
CPI inflation - adjusted(1) 9.7 14.3 9.0 4.1 1.6 7.7
Probability-weighted
Gross domestic product 4.0 (1.8) 0.2 1.5 2.1 1.2
Unemployment rate 3.7 5.0 5.8 5.9 5.7 5.2
House price growth 1.9 (7.7) (3.2) 0.7 2.9 (1.2)
Commercial real estate price growth (12.3) (5.8) (0.8) 1.6 2.3 (3.1)
UK Bank Rate - modelled 1.94 3.70 2.94 2.59 2.60 2.76
UK Bank Rate - adjusted(1) 1.99 4.26 3.41 2.91 2.91 3.10
CPI inflation - modelled 9.0 8.3 3.6 2.1 1.4 4.9
CPI inflation - adjusted(1) 9.1 8.9 4.3 2.5 1.7 5.3
(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 supply shocks are the principal concern.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 9: Allowance for expected credit losses (continued)
Base case scenario by quarter
Gross domestic product 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 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 0.1 (0.1) 0.1 (0.1) 0.1 0.1 0.1 0.2
Unemployment rate 3.9 4.0 4.2 4.4 4.5 4.7 4.8 4.9
House price growth 1.6 (2.5) (6.4) (5.4) (9.1) (9.5) (6.2) (3.2)
Commercial real estate price growth (18.8) (21.4) (17.9) (3.9) (3.5) (3.5) (2.0) (0.2)
UK Bank Rate 4.25 5.00 5.50 5.50 5.50 5.50 5.50 5.25
CPI inflation 10.2 8.7 7.3 5.3 4.8 3.6 3.8 3.7
At 31 December 2022 First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
2022 2022 2022 2022 2023 2023 2023 2023
% % % % % % % %
Gross domestic product 0.6 0.1 (0.3) (0.4) (0.4) (0.4) (0.2) (0.1)
Unemployment rate 3.7 3.8 3.6 3.7 4.0 4.4 4.7 4.9
House price growth 11.1 12.5 9.8 2.0 (3.0) (8.4) (9.8) (6.9)
Commercial real estate price growth 18.0 18.0 8.4 (11.8) (16.9) (19.8) (15.9) (3.3)
UK Bank Rate 0.75 1.25 2.25 3.50 4.00 4.00 4.00 4.00
CPI inflation 6.2 9.2 10.0 10.7 10.0 8.9 8.0 6.1
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
and post-model adjustments is typically held constant reflecting the basis on
which they are evaluated. However, post-model adjustments in Commercial
Banking have been apportioned across the scenarios to better reflect the
sensitivity of these adjustments to each scenario. Judgements applied through
changes to model inputs are reflected in the scenario ECL sensitivities. 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 £472 million for 30 June 2023 and £440 million
at 31 December 2022.
ECL allowance Probability- Upside Base case Downside Severe
weighted £m £m £m downside
£m £m
At 30 June 2023 3,399 2,479 2,927 3,638 6,862
At 31 December 2022 3,324 2,482 2,884 3,602 6,340
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 9: Allowance for expected credit losses (continued)
The impact of changes in the UK unemployment rate and House Price Index (HPI)
have also been assessed. 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 the reported staging unchanged and is
assessed through the direct impact on modelled ECL only.
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 ten quarters of the base case scenario. An immediate increase or
decrease would drive a more material ECL impact as it would be fully reflected
in both 12-month and lifetime PDs.
At 30 June 2023 At 31 December 2022
1pp increase in 1pp decrease in 1pp increase in 1pp decrease in
unemployment unemployment unemployment unemployment
ECL impact, £m 78 (67) 73 (70)
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 House Price Index (HPI).
The increase or decrease is presented based on the adjustment phased evenly
over the first ten quarters of the base case scenario.
At 30 June 2023 At 31 December 2022
10pp increase 10pp decrease 10pp increase 10pp decrease
in HPI in HPI in HPI in HPI
ECL impact, £m (203) 328 (207) 341
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
(i.e. probability of default, exposure at default and loss given 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 make appropriate adjustments to the Group's
allowance for impairment losses 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 the intensifying inflationary pressures, alongside rising interest
rates within the Group's outlook created further risks not deemed to be fully
captured by ECL models. This has required judgements to be added to capture
affordability risks from inflationary and rising interest rate pressures.
These risks have increased further in the first half of 2023 with additional
judgemental adjustments taken. At 30 June 2023 total management judgement
resulted in additional ECL allowances of £337 million (31 December 2022:
£402 million).
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 management judgement.
Judgements due to:
Modelled Individually Inflationary and interest rate risk Other Total
ECL assessed £m £m ECL
£m £m £m
At 30 June 2023 2,128 934 186 151 3,399
At 31 December 2022 2,045 877 137 265 3,324
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 9: Allowance for expected credit losses (continued)
Judgements due to inflationary and interest rate risk
Inflationary and interest rate pressures: £186 million (31 December 2022:
£137 million)
There has been modest evidence of credit deterioration in the UK mortgages
portfolio through the first half of 2023 despite the high levels of inflation
and the rising interest rate environment. Increases in new to arrears and
defaults that have emerged are mainly driven by variable-rate customers, who
have experienced material increases in their monthly payment. Mortgage ECL
models use bank base rate as a driver of predicted defaults and that has
contributed materially to the elevated levels of ECL at 30 June 2023. However,
there remains a potential risk to affordability from continued inflationary
pressures combined with higher interest rates, and that this may not be fully
captured by the Group's ECL models. This risk is to customers maturing from
low fixed rate deals, the building impact on variable rate product holders,
lower levels of real household income and rental cover value.
The level of risk is somewhat mitigated from stressed affordability
assessments applied at loan origination which means most customers are
anticipated to be able to absorb payment shocks. A judgemental uplift in ECL
has therefore been taken in specific 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 bank base rate as a material driver
of predicted defaults. The increase in judgemental ECL during the period
recognises the heightened risk within the interest-only segment and potential
default suppression due to increased monthly payments diluting the relative
scale of amounts in arrears.
Other judgements
These adjustments principally comprise:
Increase in time to repossession: £144 million (31 December 2022: £159
million)
Due to the Group suspending mortgage litigation activity between late-2014 and
mid-2018 due to policy changes for the treatment of arrears, and as
collections strategy normalises post COVID-19 pandemic, the Group's experience
of possessions data on which our models rely on is limited. This reflects an
adjustment made to allow for an increase in the time assumed between default
and repossession. Provision coverage is therefore uplifted to the equivalent
levels of those accounts already in repossession on an estimated shortfall of
balances expected to flow to possession. A further adjustment is made to
accounts which have been in default for more than 24 months, with an arrears
balance increase in the last six months. These accounts have their probability
of possession set to 70 per cent based on observed historical losses incurred
on accounts that were of an equivalent status.
Asset recovery values: £108 million (31 December 2022: £93 million)
Due to low repossession volumes, sales data informing the estimated level of
discount in the event of repossessions has been limited, impacting the ability
to update model parameters. Despite these low volumes, since 2020 the observed
asset recovery sale values have remained broadly the same on the limited
volumes seen, however the indexed valuation within the model has shown an
increasing trend due to HPI increases, therefore management consider it
appropriate to uplift ECL to reflect expected recovery values. The increase in
the judgement reflects an enhancement in the assessment approach as well as
increased volumes of predicted defaults against which the adjustment is
applied.
Adjustment for specific segments: £26 million (31 December 2022: £27
million)
The Group monitors risks across specific segments of its portfolios which may
not be fully captured through wider collective models. The judgement for fire
safety and cladding uncertainty has been maintained. Though experience remains
limited the risk is considered sufficiently material to address through
judgement, given that there is evidence of assessed cases having defective
cladding, or other fire safety issues.
Adjustment for Stage 2 oversensitivity: £(69) million (31 December 2022:
£nil)
The observed mortgages ECL model oversensitivity to the economic forecast
movements is driven by model limitations such as lack of forward looking
origination PD and movement from application to behaviour scorecards,
amplified by the worsening economic outlook. Management have applied a
judgement to mitigate the Stage 2 oversensitivity in recent vintages where the
impact is most materially observed.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 9: Allowance for expected credit losses (continued)
Other judgements (continued)
Lifetime extension on revolving products: £54 million (31 December 2022: £63
million)
An adjustment is required to extend the lifetime used for Stage 2 exposures on
unsecured revolving products from a three year modelled lifetime, which
reflected the outcome data available when the ECL models were developed.
Incremental defaults beyond year three are calculated through the
extrapolation of the default trajectory observed throughout the three years
and beyond. The judgement has reduced slightly in the period following
refinement to the discounting methodology applied.
Adjustments to loss given defaults (LGDs): £(92) million (31 December 2022:
£(76) million)
A number of adjustments have been made to the loss given default assumptions
used within unsecured credit models. These include largely favourable impacts
on ECL in relation to the alignment of MBNA credit card cure rates as
collection strategies harmonise and adjustments to capture recent improvements
in observed cure rates across all portfolios. These adjustments will be
released once incorporated into models through future recalibration which is
pending model development. The additional benefit in the period is driven by a
greater proportion of charged off accounts being eligible for debt sale.
Following a review on the loss given default approach for commercial exposures
management deem ECL should be adjusted 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.
Note 10: Debt securities in issue
At 30 June 2023 At 31 December 2022
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
Medium-term notes issued - 5,739 5,739 - 4,876 4,876
Covered bonds - 500 500 - 500 500
Securitisation notes 25 1,339 1,364 26 747 773
25 7,578 7,603 26 6,123 6,149
The notes issued by the Group's securitisation and covered bond programmes are
held by external parties and by subsidiaries of the Group.
Securitisation programmes
At 30 June 2023, external parties held £1,364 million (31 December 2022:
£773 million) of the Group's securitisation notes in issue; these notes,
together with those held internally, are secured on loans and advances to
customers and debt securities held at amortised cost amounting to £26,630
million (31 December 2022: £24,811 million), the majority of which have been
sold by subsidiary companies to bankruptcy remote structured entities. The
structured entities are consolidated fully and all of these loans are retained
on the Group's balance sheet.
Covered bond programmes
At 30 June 2023, external parties held £500 million (31 December 2022: £500
million) of the Group's covered bonds in issue; these bonds, together with
those held internally, are secured on certain loans and advances to customers
amounting to £867 million (31 December 2022: £831 million) that have been
assigned to bankruptcy remote limited liability partnerships. These loans are
retained on the Group's balance sheet.
The Group holds cash deposits of £1,235 million (31 December 2022: £1,501
million) which support the debt securities issued by the structured entities,
the term advances related to covered bonds and other legal obligations.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 11: Retirement benefit obligations
The Group's post-retirement defined benefit scheme obligations are comprised
as follows:
At 30 Jun At 31 Dec
2023 2022
£m £m
Defined benefit pension schemes:
Present value of funded obligations (9,267) (9,706)
Fair value of scheme assets 11,061 11,157
Net pension scheme asset 1,794 1,451
Other post-retirement schemes (14) (14)
Net retirement benefit asset 1,780 1,437
Recognised on the balance sheet as:
Retirement benefit assets 1,852 1,513
Retirement benefit obligations (72) (76)
Net retirement benefit asset 1,780 1,437
Movements in the Group's net post-retirement defined benefit scheme asset
during the period were as follows:
£m
Asset at 1 January 2023 1,437
Income statement charge 11
Employer contributions 338
Remeasurement (6)
Asset at 30 June 2023 1,780
The principal assumptions used in the valuations of the defined benefit
pension schemes were as follows:
At 30 Jun At 31 Dec
2023 2022
% %
Discount rate 5.39 4.93
Rate of inflation:
Retail Price Index (RPI) 3.09 2.99
Consumer Price Index (CPI) 2.78 2.68
Rate of salary increases 0.00 0.00
Weighted-average rate of increase for pensions in payment 3.06 3.01
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 12: Other provisions
Provisions Regulatory and legal Other Total
for financial provisions £m £m
commitments £m
and guarantees
£m
At 1 January 2023 115 709 149 973
Exchange and other adjustments - - (4) (4)
Provisions applied - (187) (19) (206)
Charge for the period 1 11 21 33
At 30 June 2023 116 533 147 796
Regulatory and legal provisions
In the course of its business, the Group engages in discussions with the PRA,
FCA and other UK and overseas regulators and other governmental authorities on
a range of matters on a regular basis, 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, competition/antitrust, 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, investors and other third
parties and is subject to legal proceedings and other legal actions from time
to time. Any events or circumstances mentioned herein or below could have a
material adverse effect on the Group's financial position, operations or cash
flows. Where significant, provisions are held against the costs and/or
liabilities expected to be incurred in relation to these matters and matters
arising from related internal reviews. However, the impact of such matters
cannot always be predicted with certainty and the ultimate liability of the
Group may be significantly more, or less, than the amount of any provision
recognised. During the half-year to 30 June 2023 the Group charged a further
£11 million in respect of legal actions and other regulatory matters. The
unutilised balance at 30 June 2023 was £533 million (31 December 2022: £709
million). The most significant items are as follows:
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 their decisions in a generous, fair and common sense
manner, assessing claims against an expanded definition of the fraud and on a
lower evidential basis.
The provision, unchanged from 2022, includes operational costs in relation to
Dame Linda Dobbs's review, which is considering whether the issues relating to
HBOS Reading were investigated and appropriately reported by the Group during
the period from January 2009 to January 2017, and other programme costs. A
significant proportion of the provision relates to the estimated future awards
from the Foskett Panel, and is materially dependent on the assumption that the
number of awards to date are representative of the full population of cases.
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.
Around three-quarters of the population have now had outcomes via this new
process. Notwithstanding the settled claims and the increase in coverage 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's recommendations in
full.
Payment protection insurance
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. PPI litigation remains
inherently uncertain, with a number of key court judgments due to be delivered
in 2023.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 13: Related party transactions
Balances and transactions with fellow Lloyds Banking Group undertakings
The Company and its subsidiaries have balances due to and from the Company'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
2023 2022
£m £m
Assets, included within:
Derivative financial instruments 2,941 2,901
Financial assets at amortised cost: due from fellow Lloyds Banking Group 13,398 13,982
undertakings
16,339 16,883
Liabilities, included within:
Due to fellow Lloyds Banking Group undertakings 90,546 88,180
Derivative financial instruments 3,899 4,063
Debt securities in issue 5,091 4,196
Subordinated liabilities 1,504 1,564
101,040 98,003
During the half-year to 30 June 2023 the Group earned £268 million (half-year
to 30 June 2022: £82 million) of interest income and incurred £2,383 million
(half-year to 30 June 2022: £983 million) of interest expense on balances and
transactions with Lloyds Banking Group plc and fellow Lloyds Banking Group
undertakings.
In addition, during the half-year to 30 June 2023 the Group incurred
expenditure of £26 million (half-year ended 30 June 2022: £23 million) on
behalf of fellow Lloyds Banking Group undertakings which was recharged to
those undertakings; and fellow Lloyds Banking Group undertakings incurred
expenditure of £605 million (half-year ended 30 June 2022: £597 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 2023 are similar
in nature to those for the year ended 31 December 2022.
Note 14: Contingent liabilities, commitments and guarantees
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
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.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 14: Contingent liabilities, commitments and guarantees (continued)
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 and the Australian BBSW reference 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
Group of ongoing private lawsuits or any related challenges to the
interpretation or validity of any of the 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
their 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 estimate that this would result in an increase
in current tax liabilities of approximately £390 million (including
interest). The Group, 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 Lloyds Banking Group is
in discussions with HMRC (including the tax treatment of certain costs arising
from the divestment of TSB Banking Group plc), none of which is expected to
have a material impact on the financial position of the Group.
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, 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, including financial, environmental, compliance, conduct or
other regulatory matters, 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.
In those instances where it is concluded that it is more likely than not that
a payment will be made, a provision is established based on management's best
estimate of the amount required at the relevant balance sheet date, although
the recognition of a provision does not amount to an admission of liability or
wrongdoing on the part of the Group. In some cases it will not be possible to
form a view, for example because the facts are unclear or because further time
is needed to assess properly the merits of the case, and no provisions are
held in relation to such matters. In these circumstances, specific disclosure
in relation to a contingent liability will be made where material. 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 12.
Contingent liabilities, commitments and guarantees arising from the banking
business
At 30 June 2023 total contingent liabilities were £105 million (31 December
2022: £97 million). Total commitments and guarantees were £64,564 million
(31 December 2022: £65,188 million), of which £17,549 million (2022:
£17,458 million) was irrevocable.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors listed below (being all the directors of HBOS 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 2023 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 2023
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
25 July 2023
HBOS plc Board of Directors:
Executive directors:
Charlie Nunn (Group Chief Executive)
William Chalmers (Chief Financial Officer)
Non-executive directors:
Sir Robin Budenberg CBE (Chair)
Alan Dickinson (Deputy Chair)
Sarah Legg
Lord Lupton CBE
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 HBOS 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; expectations about the impact of COVID-19; 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, 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; political instability
including as a result of any UK general election and any further possible
referendum on Scottish independence; acts of hostility or terrorism and
responses to those acts, or other such events; geopolitical unpredictability;
the war between Russia and Ukraine; the tensions between China and Taiwan;
market related risks, trends and developments; exposure to counterparty risk;
instability in the global financial markets, including within the Eurozone,
and as a result of the exit by the UK from the European Union (EU) and the
effects of the EU-UK Trade and Cooperation Agreement; 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
(including but not limited to the COVID-19 pandemic) and other disasters;
risks concerning borrower and counterparty credit quality; longevity risks
affecting defined benefit pension schemes; risks related to the uncertainty
surrounding the integrity and continued existence of reference rates; 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;
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),
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
Edward Sands
Director of Investor Relations
020 7356 1585
edward.sands@lloydsbanking.com
Nora Thoden
Director of Investor Relations - ESG
020 7356 2334
nora.thoden@lloydsbanking.com
CORPORATE AFFAIRS
Grant Ringshaw
External Relations Director
020 7356 2362
grant.ringshaw@lloydsbanking.com
Matt Smith
Head of Media Relations
020 7356 3522
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: HBOS plc, The Mound, Edinburgh EH1 1YZ
Registered in Scotland No. SC218813
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END IR RFMLTMTMTMLJRecent news on Lloyds Banking
See all newsREG - Lloyds Banking Group - Transaction in Own Shares
AnnouncementREG - Lloyds Banking Group - Publication of Final Terms
AnnouncementREG - Stock Exch Notice - Admission to Trading - 09/05/2025
AnnouncementREG - Official List - Official List Notice
AnnouncementREG - Lloyds Banking Group - Transaction in Own Shares
Announcement