REG - Lloyds Bank Plc Lloyds Banking Group - 2023 Half-Year Results
26/07/2023 12:00
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RNS Number : 2659H Lloyds Bank PLC 26 July 2023
Lloyds Bank plc
2023 Half-Year Results
26 July 2023
Member of the Lloyds Banking Group
CONTENTS
Financial review (#Section3) 1
Risk management
Principal risks and uncertainties (#Section5) 3
Capital risk (#Section6) 5
Credit risk (#1f22e5de232e42c087d8d20998766f52_73) 9
Funding and liquidity risk (#Section8) 20
Statutory information
Condensed consolidated half-year financial statements (unaudited) (#Section9) 23
Consolidated income statement (#Section10) 24
Consolidated statement of comprehensive income (#Section11) 25
Consolidated balance sheet (#Section12) 26
Consolidated statement of changes in equity (#Section13) 27
Consolidated cash flow statement (#Section14) 30
Notes to the condensed consolidated half-year financial statements 31
(#Section15)
Statement of (#Section36) d (#Section36) irectors (#Section36) ' (#Section36) 62
responsibilities (#Section36)
Independent review report to Lloyds Bank plc (#Section37) 63
Forward looking statements (#Section38) 64
FINANCIAL REVIEW
Principal activities
Lloyds Bank plc (the Bank) and its subsidiary undertakings (the Group) provide
a wide range of banking and financial services through branches and offices in
the UK and in certain overseas locations. The Group's revenue is earned
through interest and fees on a broad range of financial services products
including current accounts, savings, mortgages, credit cards, motor finance
and unsecured loans to personal and business banking customers; and lending,
transactional banking, working capital management and risk management services
to commercial customers.
Income statement
The Group's profit before tax for the first half of 2023 was £3,530 million,
8 per cent higher than the same period in 2022, benefiting from higher total
income, partly offset by operating expense and impairment charge increases.
Profit after tax was £2,590 million (half-year to 30 June 2022: £2,441
million).
Total income for the first half of 2023 was £9,040 million, an increase of 12
per cent on the same period in 2022, primarily reflecting higher net interest
income in the period. Net interest income of £7,009 million was up 15 per
cent on the prior year, driven by stronger margins as a result of the higher
rate environment and higher average interest-earning banking assets, supported
by growth in the open mortgage book, Retail unsecured and European retail
business.
Other income was £68 million higher at £2,031 million in the half-year to 30
June 2023 compared to £1,963 million in the same period in 2022. Net fee and
commission income was broadly stable at £646 million. Net trading income was
£101 million lower at £107 million in the half-year to 30 June 2023, in
part reflecting the effects of the higher rate environment on the Group's
derivatives. Other operating income increased to £1,278 million compared to
£1,107 million in the half-year to 30 June 2022 as a result of improved Lex
performance and the acquisition of Tusker.
Total operating expenses of £4,829 million were 10 per cent higher than in
the prior year, given the higher planned strategic investment, new business
costs and inflationary effects, partially mitigated by continued cost
efficiency. In addition there was a higher operating lease depreciation charge
in the six months to June 2023 reflecting the depreciation cost of higher
value vehicles, the Tusker acquisition, lower gains on disposal and recent
declines in battery electric used car prices.
The Group recognised remediation costs of £62 million largely in relation to
pre-existing programmes (half-year to 30 June 2022: £58 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. Following the FCA's Motor Market review, the Group
continues to receive complaints and is engaging with the Financial Ombudsman
Service in respect of historical motor commission arrangements. Discussions
are continuing, with the remediation and financial impact, if any, remaining
uncertain.
The impairment charge was £681 million compared with a £364 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 UK mortgage portfolios and higher charges on existing
Stage 3 clients in Commercial Banking. This increase was partly offset by a
lower charge from economic outlook revisions. The Group's ECL allowance
increased to £5,028 million, compared to £4,796 million at 31 December 2022
resulting from the Stage 3 increases in UK mortgages and Commercial Banking
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 expense of £940 million in the period compared to
£842 million in the first half of 2022.
FINANCIAL REVIEW (continued)
Balance sheet
Total assets were £2,598 million lower at £614,330 million at 30 June 2023
compared to £616,928 million at 31 December 2022. Cash and balances at
central banks rose by £3,724 million to £75,729 million reflecting increased
liquidity holdings. Financial assets at amortised cost were £8,961 million
lower at £482,435 million compared to £491,396 million at 31 December 2022
with increases in debt securities of £2,709 million and loans and advances to
banks of £888 million, offset by a reduction in reverse repurchase agreements
of £8,729 million and loans and advances to customers of £3,982 million to
£431,645 million. The reduction in loans and advances to customers was
largely as a result of the exit of £2.5 billion of legacy Retail mortgage
loans (including £2.1 billion in the closed mortgage book) during the first
quarter. Financial assets at fair value through other comprehensive income
decreased £875 million as a result of asset sales during the period. Other
assets increased £2,269 million, reflecting higher settlement balances and
higher operating lease assets following the acquisition of Tusker in February
2023.
Total liabilities were £3,403 million lower at £574,466 million compared to
£577,869 million at 31 December 2022. Customer deposits at £439,914 million
have decreased by £6,258 million (1 per cent) since the end of 2022. This
included decreases in Retail current account balances of £6.2 billion as a
result of tax payments, higher spend and a more competitive market, including
the Group's own savings offers where balances increased by £3.5 billion.
Commercial Banking deposits were stable during the first half of 2023. In
addition, there were decreases in deposits from banks of £1,289 million and
repurchase agreements at amortised cost of £3,968 million. Offsetting these
reductions, debt securities in issue increased by £7,387 million following
issuances of commercial paper, and other liabilities increased
£2,493 million as a result of higher settlement balances and lease
liabilities.
Total equity increased from £39,059 million at 31 December 2022 to £39,864
million at 30 June 2023, as a result of profit for the period and issuance of
other equity instruments partially offset by a £1.9 billion dividend paid in
the period and market movements impacting the cash flow hedge reserve and
pensions.
Capital
The Group's common equity tier 1 (CET1) capital ratio remained flat at 14.8
per cent at 30 June 2023 (31 December 2022: 14.8 per cent). This largely
reflected profit for the period, offset by the accelerated full year payment
of fixed pension deficit contributions made to the Group's three main defined
benefit pension schemes, an increase in the deduction for goodwill and other
intangible assets, including those related to the acquisition of Tusker in
February 2023, the accrual for foreseeable ordinary dividends and an increase
in risk-weighted assets.
Risk-weighted assets have increased by £3.6 billion during the first half of
the year to £178.5 billion at 30 June 2023 (31 December 2022: £174.9
billion). This largely reflects the adjustment for the anticipated impact of
CRD IV models taken in the second quarter. Excluding this, lending growth and
a small uplift from model calibration were partly offset by capital efficient
securitisation activity and other optimisation activity.
The CRD IV model updates reflect an updated impact assessment following a
further iteration of model development. The models remain subject to further
development and final approval by the PRA. On that basis final impacts remain
uncertain and further increases could be required.
RISK MANAGEMENT
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 Lloyds Banking 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
credit spreads.
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
•
CAPITAL RISK
Capital resources
An analysis of the Group's capital position as at 30 June 2023 is presented in
the following table. This reflects the application of the transitional
arrangements for IFRS 9.
At 30 Jun At 31 Dec
2023 2022
£m £m
Common equity tier 1
Shareholders' equity per balance sheet 34,782 34,709
Adjustment to retained earnings for foreseeable dividends (800) (1,900)
Cash flow hedging reserve 5,651 5,168
Other adjustments (6) 131
39,627 38,108
less: deductions from common equity tier 1
Goodwill and other intangible assets (5,374) (4,783)
Prudent valuation adjustment (110) (132)
Removal of defined benefit pension surplus (3,435) (2,804)
Deferred tax assets (4,354) (4,463)
Common equity tier 1 capital 26,354 25,926
Additional tier 1
Additional tier 1 instruments 5,018 4,268
Total tier 1 capital 31,372 30,194
Tier 2
Tier 2 instruments 4,973 5,318
Other adjustments 690 303
Total tier 2 capital 5,663 5,621
Total capital resources 37,035 35,815
Risk-weighted assets 178,534 174,902
Common equity tier 1 capital ratio 14.8% 14.8%
Tier 1 capital ratio 17.6% 17.3%
Total capital ratio 20.7% 20.5%
CAPITAL RISK (continued)
Movements in CET1 capital resources
The key movements are set out in the table below.
Common
equity
tier 1
£m
At 31 December 2022 25,926
Profit for the period 2,590
Movement in foreseeable dividends(1) 1,100
Interim dividend paid out on ordinary shares during the period (1,900)
IFRS 9 transitional adjustment to retained earnings (180)
Pension deficit contributions (586)
Fair value through other comprehensive income reserve 161
Deferred tax asset 109
Goodwill and other intangible assets (590)
Distributions on other equity instruments (161)
Other movements (115)
At 30 June 2023 26,354
(1) Reflects the reversal of the brought forward accrual for the interim
ordinary dividend, net of the accrual for foreseeable 2023 ordinary dividends.
CET1 capital resources have increased by £428 million during the period,
primarily reflecting profit for the period, partially offset by:
• Accelerated fixed pension deficit contributions paid during the period
into the Group's three main defined benefit pension schemes
• An increase in goodwill and other intangible assets, which included the
acquisition of Tusker in February 2023
• The accrual for foreseeable 2023 ordinary dividends
Movements in total capital
The Group's total capital ratio increased to 20.7 per cent (31 December 2022:
20.5 per cent) primarily reflecting the increase in CET1 capital, the issuance
of a new AT1 capital instrument and an increase in eligible provisions
recognised through Tier 2 capital. This was partially offset by the increase
in risk-weighted assets and the impact of sterling appreciation on Tier 2
capital instruments.
CAPITAL RISK (continued)
Risk-weighted assets
At 30 Jun At 31 Dec
2023 2022
£m £m
Foundation Internal Ratings Based (IRB) Approach 36,820 37,907
Retail IRB Approach 83,770 81,066
Other IRB Approach 6,032 5,834
IRB Approach 126,622 124,807
Standardised (STA) Approach(1) 20,364 19,795
Credit risk 146,986 144,602
Securitisation(1) 7,123 5,899
Counterparty credit risk 637 773
Credit valuation adjustment risk 244 342
Operational risk 23,293 23,204
Market risk 251 82
Risk-weighted assets 178,534 174,902
Of which threshold risk-weighted assets(2) 1,729 1,864
(1) Threshold risk-weighted assets are included within the Standardised
(STA) Approach.
(2) Threshold risk-weighted assets reflect the element of deferred tax
assets that are permitted to be risk-weighted instead of being deducted from
CET1 capital.
Risk-weighted assets have increased by £3.6 billion during the first half of
the year to £178.5 billion at 30 June 2023 (31 December 2022: £174.9
billion). This largely reflects the adjustment for the anticipated impact of
CRD IV models taken in the second quarter. Excluding this, lending growth and
a small uplift from model calibration were partly offset by capital efficient
securitisation activity and other optimisation activity.
The CRD IV model updates reflect an updated impact assessment following a
further iteration of model development. The models remain subject to further
development and final approval by the PRA. On that basis final impacts remain
uncertain and further increases could be required.
CAPITAL RISK (continued)
Leverage ratio
The table below summarises the component parts of the Group's leverage ratio.
At 30 Jun At 31 Dec
2023 2022
£m £m
Total tier 1 capital 31,372 30,194
Exposure measure
Statutory balance sheet assets
Derivative financial instruments 3,463 3,857
Securities financing transactions 30,530 39,261
Loans and advances and other assets 580,337 573,810
Total assets 614,330 616,928
Qualifying central bank claims (75,557) (71,747)
Derivatives adjustments (2,566) (2,960)
Securities financing transactions adjustments 1,688 1,939
Off-balance sheet items 32,603 33,863
Amounts already deducted from Tier 1 capital (13,000) (11,724)
Other regulatory adjustments(1) (6,435) (6,714)
Total exposure measure 551,063 559,585
UK leverage ratio 5.7% 5.4%
Leverage exposure measure (including central bank claims) 626,620 631,332
Leverage ratio (including central bank claims) 5.0% 4.8%
(1) Includes deconsolidation adjustments that relate to the deconsolidation
of certain Group entities that fall outside the scope of the Group's
regulatory capital consolidation and adjustments to exclude lending under the
UK Government's Bounce Back Loan Scheme (BBLS).
Analysis of leverage movements
The Group's UK leverage ratio increased to 5.7 per cent (31 December 2022: 5.4
per cent), reflecting the increase in the total tier 1 capital position and
the £8.5 billion reduction in the leverage exposure measure, principally
related to the reduction in securities financing transactions.
Stress testing
As part of the 2022 Annual Cyclical Scenario stress test run by the Bank of
England, the Group's resilience to a severe economic shock where the House
Price Index (HPI) falls by 31 per cent, Commercial Real Estate (CRE) falls by
45 per cent, unemployment peaks at 8.5 per cent and the Base Rate peaks at 6
per cent was assessed. The results of this exercise were published by the Bank
of England on 12 July 2023, with the Group comfortably passing the relevant
hurdle rates.
Pillar 3 disclosures
The Group will publish a condensed set of half-year Pillar 3 disclosures in
the second half of August. A copy of the disclosures will be available to view
at: www.lloydsbankinggroup.com/investors/financial-downloads.
CREDIT RISK
Overview
The Group's portfolios are well-positioned for the current macroeconomic
environment. The Group retains a prudent approach to credit risk appetite and
risk management, with strong credit origination criteria and robust LTVs in
the secured portfolios.
Observed credit performance remains resilient, despite the continued economic
uncertainty with only modest evidence of deterioration to date. New to arrears
have slightly increased in UK mortgages but remain broadly stable across
unsecured portfolios, with only credit cards marginally above pre-pandemic
levels. Looking forward, there are risks from a higher inflation and interest
rate environment as modelled in the Group's expected credit loss (ECL)
allowance including the impact of the multiple economic scenarios (MES). The
Group continues to monitor the impacts of the economic environment carefully
through a suite of early warning indicators and governance arrangements that
ensure risk mitigating action plans are in place to support customers and
protect the Group's positions.
The impairment charge in the first half of 2023 was £681 million, compared to
a charge of £364 million in the first half of 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 modest increases in UK
mortgages new to arrears rates and additional charges on existing Commercial
Banking clients in Stage 3.
The Group's ECL allowance on loans and advances to customers increased in the
period to £5,014 million (31 December 2022: £4,779 million), largely due
to underlying increases in UK mortgages and additional charges on existing
Commercial Banking clients in Stage 3.
Group Stage 2 loans and advances to customers have increased to £61,418
million (31 December 2022: £60,103 million), and as a percentage of total
lending at 14.1 per cent (31 December 2022: 13.7 per cent). Updates to the
macroeconomic outlook drive offsetting movements, with Stage 2 increases in UK
mortgages driven by higher UK Bank Rate projections offset by Commercial
Banking reductions reflecting the modestly improved GDP outlook. Of the total
Group Stage 2 loans and advances to customers, 93.4 per cent are up to date
(31 December 2022 94.1 per cent). Stage 2 coverage reduced to 3.2 per cent
(31 December 2022: 3.3 per cent).
Stage 3 loans and advances to customers increased to £7,855 million (31
December 2022: £7,611 million), and as a percentage of total lending to 1.8
per cent (31 December 2022: 1.7 per cent). Stage 3 coverage increased by
1.1 percentage points to 26.6 per cent (31 December 2022: 25.5 per cent)
largely driven by additional charges on existing Commercial Banking clients in
Stage 3.
Prudent risk appetite and risk management
• The Group continues to take a prudent and proactive approach to credit
risk management and credit risk appetite, whilst working closely with
customers to help them through cost of living pressures and the impacts from
higher interest rates and from any deterioration in broader economic
conditions
• Sector, asset and product concentrations within the portfolios are
closely monitored and controlled, with mitigating actions taken where
appropriate. Sector and product risk appetite parameters help manage exposure
to certain higher risk and cyclical sectors, segments and asset classes
• The Group's effective risk management seeks to ensure early
identification and management of customers and counterparties who may be
showing signs of distress
• The Group will continue to work closely with its customers to ensure
that they receive the appropriate level of support, embracing the standards
outlined in the Mortgage Charter and including where customers are leveraging
Pay As You Grow options under the UK Government Coronavirus scheme
CREDIT RISK (continued)
Impairment charge (credit) by division
Half-year Half-year Change Half-year Change
to 30 Jun 2023 to 30 Jun % to 31 Dec %
£m 2022(1) 2022
£m £m
UK mortgages 191 (64) 359 47
Credit cards 197 272 28 299 34
Loans and overdrafts 160 241 34 258 38
UK Motor Finance 43 7 (9)
Other 1 - 10 90
Retail 592 456 (30) 917 35
Small and Medium Businesses 25 30 17 158 84
Corporate and Institutional Banking 65 76 14 207 69
Commercial Banking 90 106 15 365 75
Other (1) (198) (194)
Total impairment charge 681 364 (87) 1,088 37
(1) Impairment charges for Retail, Commercial Banking and Other reflect the
new organisation structure; comparatives have been presented on a consistent
basis. See page 32.
Total expected credit loss allowance
At 30 Jun 2023 At 31 Dec 2022
£m £m
Customer related balances
Drawn 4,703 4,475
Undrawn 311 304
5,014 4,779
Other assets 14 17
Total ECL allowance 5,028 4,796
Movements in total expected credit loss allowance
Opening Write-offs Income Net ECL Closing
ECL at and other(1) statement increase ECL at
31 Dec £m charge (credit) (decrease) 30 Jun
2022 £m £m 2023
£m £m
UK mortgages(2) 1,209 (69) 191 122 1,331
Credit cards 763 (191) 197 6 769
Loans and overdrafts 678 (147) 160 13 691
UK Motor Finance 252 (44) 43 (1) 251
Other 86 1 1 2 88
Retail 2,988 (450) 592 142 3,130
Small and Medium Businesses 549 (41) 25 (16) 533
Corporate and Institutional Banking 1,258 41 65 106 1,364
Commercial Banking 1,807 - 90 90 1,897
Other 1 1 (1) - 1
Total(3) 4,796 (449) 681 232 5,028
(1) Contains adjustments in respect of purchased or originated
credit-impaired financial assets.
(2) Includes £60 million, within write-offs and other relating to the £2.5
billion legacy portfolio exit in the first quarter of 2023.
(3) Total ECL includes £14 million relating to other non customer-related
assets (31 December 2022: £17 million).
CREDIT RISK (continued)
Loans and advances to customers and expected credit loss allowance
At 30 June 2023 Stage 1 Stage 2 Stage 3 POCI Total Stage 2 Stage 3
£m £m £m £m £m as % of as % of
total total
Loans and advances to customers
UK mortgages 251,013 44,643 3,766 8,349 307,771 14.5 1.2
Credit cards 12,210 3,066 302 - 15,578 19.7 1.9
Loans and overdrafts 9,075 1,535 242 - 10,852 14.1 2.2
UK Motor Finance 12,836 2,226 122 - 15,184 14.7 0.8
Other 14,797 567 131 - 15,495 3.7 0.8
Retail 299,931 52,037 4,563 8,349 364,880 14.3 1.3
Small and Medium Businesses 29,350 5,060 1,576 - 35,986 14.1 4.4
Corporate and Institutional Banking 33,120 4,321 1,716 - 39,157 11.0 4.4
Commercial Banking 62,470 9,381 3,292 - 75,143 12.5 4.4
Other(1) (3,675) - - - (3,675)
Total gross lending 358,726 61,418 7,855 8,349 436,348 14.1 1.8
ECL allowance on drawn balances (758) (1,776) (1,894) (275) (4,703)
Net balance sheet carrying value 357,968 59,642 5,961 8,074 431,645
Customer related ECL allowance (drawn and undrawn)
UK mortgages 117 573 366 275 1,331
Credit cards 187 459 123 - 769
Loans and overdrafts 205 358 128 - 691
UK Motor Finance(2) 120 71 60 - 251
Other 19 18 51 - 88
Retail 648 1,479 728 275 3,130
Small and Medium Businesses 119 255 159 - 533
Corporate and Institutional Banking 117 224 1,010 - 1,351
Commercial Banking 236 479 1,169 - 1,884
Other - - - - -
Total 884 1,958 1,897 275 5,014
Customer related ECL allowance (drawn and undrawn) as a percentage of loans
and advances to customers(3)
UK mortgages - 1.3 9.7 3.3 0.4
Credit cards 1.5 15.0 52.3 - 5.0
Loans and overdrafts 2.3 23.3 66.0 - 6.4
UK Motor Finance 0.9 3.2 49.2 - 1.7
Other 0.1 3.2 38.9 - 0.6
Retail 0.2 2.8 16.4 3.3 0.9
Small and Medium Businesses 0.4 5.0 16.5 - 1.5
Corporate and Institutional Banking 0.4 5.2 58.9 - 3.5
Commercial Banking 0.4 5.1 43.6 - 2.5
Other - - -
Total 0.2 3.2 26.6 3.3 1.2
(1) Contains centralised fair value hedge accounting adjustments.
(2) UK Motor Finance for Stages 1 and 2 include £116 million relating to
provisions against residual values of vehicles subject to finance leasing
agreements. These provisions are included within the calculation of coverage
ratios.
(3) Total and Stage 3 ECL allowances as a percentage of drawn balances
exclude loans in recoveries in Credit cards of £67 million, Loans and
overdrafts of £48 million and Small and Medium Businesses of £610 million.
CREDIT RISK (continued)
Loans and advances to customers and expected credit loss allowance (continued)
At 31 December 2022 Stage 1 Stage 2 Stage 3 POCI Total Stage 2 Stage 3
£m £m £m £m £m as % of as % of
total total
Loans and advances to customers
UK mortgages 257,517 41,783 3,416 9,622 312,338 13.4 1.1
Credit cards 11,416 3,287 289 - 14,992 21.9 1.9
Loans and overdrafts 8,357 1,713 247 - 10,317 16.6 2.4
UK Motor Finance 12,174 2,245 154 - 14,573 15.4 1.1
Other 13,990 643 157 - 14,790 4.3 1.1
Retail 303,454 49,671 4,263 9,622 367,010 13.5 1.2
Small and Medium Businesses 30,781 5,654 1,760 - 38,195 14.8 4.6
Corporate and Institutional Banking 31,729 4,778 1,588 - 38,095 12.5 4.2
Commercial Banking 62,510 10,432 3,348 - 76,290 13.7 4.4
Other(1) (3,198) - - - (3,198)
Total gross lending 362,766 60,103 7,611 9,622 440,102 13.7 1.7
ECL allowance on drawn balances (678) (1,792) (1,752) (253) (4,475)
Net balance sheet carrying value 362,088 58,311 5,859 9,369 435,627
Customer related ECL allowance (drawn and undrawn)
UK mortgages 92 553 311 253 1,209
Credit cards 173 477 113 - 763
Loans and overdrafts 185 367 126 - 678
UK Motor Finance(2) 95 76 81 - 252
Other 16 18 52 - 86
Retail 561 1,491 683 253 2,988
Small and Medium Businesses 129 271 149 - 549
Corporate and Institutional Banking 110 208 924 - 1,242
Commercial Banking 239 479 1,073 - 1,791
Other - - - - -
Total 800 1,970 1,756 253 4,779
Customer related ECL allowance (drawn and undrawn) as a percentage of loans
and advances to customers(3)
UK mortgages - 1.3 9.1 2.6 0.4
Credit cards 1.5 14.5 50.9 - 5.1
Loans and overdrafts 2.2 21.4 64.6 - 6.6
UK Motor Finance 0.8 3.4 52.6 - 1.7
Other 0.1 2.8 33.1 - 0.6
Retail 0.2 3.0 16.5 2.6 0.8
Small and Medium Businesses 0.4 4.8 12.9 - 1.5
Corporate and Institutional Banking 0.3 4.4 58.2 - 3.3
Commercial Banking 0.4 4.6 39.2 - 2.4
Other - - -
Total 0.2 3.3 25.5 2.6 1.1
(1) Contains centralised fair value hedge accounting adjustments.
(2) UK Motor Finance for Stages 1 and 2 include £92 million relating to
provisions against residual values of vehicles subject to finance leasing
agreements. These provisions are included within the calculation of coverage
ratios.
(3) Total and Stage 3 ECL allowances as a percentage of drawn balances
exclude loans in recoveries in Credit cards of £67 million, Loans and
overdrafts of £52, million, Small and Medium Businesses of £607 million and
Corporate and Institutional Banking of £1 million.
CREDIT RISK (continued)
Stage 2 loans and advances to customers and expected credit loss allowance
Up to date 1 to 30 days Over 30 days Total
past due(2) past due
PD movements Other(1)
At 30 June 2023 Gross ECL(3) Gross ECL(3) Gross ECL(3) Gross ECL(3) Gross ECL(3)
lending £m lending £m lending £m lending £m lending £m
£m £m £m £m £m
UK mortgages 32,585 251 9,234 163 1,771 80 1,053 79 44,643 573
Credit cards 2,799 362 141 49 92 30 34 18 3,066 459
Loans and overdrafts 1,135 238 229 55 127 44 44 21 1,535 358
UK Motor Finance 798 22 1,257 24 140 17 31 8 2,226 71
Other 127 5 345 7 57 4 38 2 567 18
Retail 37,444 878 11,206 298 2,187 175 1,200 128 52,037 1,479
Small and Medium Businesses 3,835 221 702 18 334 12 189 4 5,060 255
Corporate and Institutional Banking 4,164 220 23 3 5 1 129 - 4,321 224
Commercial Banking 7,999 441 725 21 339 13 318 4 9,381 479
Total 45,443 1,319 11,931 319 2,526 188 1,518 132 61,418 1,958
At 31 December 2022
UK mortgages 29,718 263 9,613 160 1,633 67 819 63 41,783 553
Credit cards 3,023 386 136 46 98 30 30 15 3,287 477
Loans and overdrafts 1,311 249 234 53 125 45 43 20 1,713 367
UK Motor Finance 1,047 28 1,045 23 122 18 31 7 2,245 76
Other 160 5 384 7 54 4 45 2 643 18
Retail 35,259 931 11,412 289 2,032 164 968 107 49,671 1,491
Small and Medium Businesses 4,081 223 1,060 27 339 13 174 8 5,654 271
Corporate and Institutional Banking 4,706 207 24 1 5 - 43 - 4,778 208
Commercial Banking 8,787 430 1,084 28 344 13 217 8 10,432 479
Total 44,046 1,361 12,496 317 2,376 177 1,185 115 60,103 1,970
(1 ) Includes forbearance, client and product-specific indicators not
reflected within quantitative PD assessments. As of 31 December 2022,
interest-only mortgage customers at risk of not meeting their final term
payment are now directly classified as Stage 2 up to date 'Other', driving
movement of gross lending from the category of Stage 2 up to date 'PD
movement' into 'Other'.
(2) Includes assets that have triggered PD movements, or other rules, given
that being 1 to 29 days in arrears in and of itself is not a Stage 2 trigger.
(3 ) Expected credit loss allowance on loans and advances to customers
(drawn and undrawn).
CREDIT RISK (continued)
ECL sensitivity to economic assumptions
The measurement of ECL reflects an unbiased probability-weighted range of
possible future economic outcomes. The Group achieves this by generating four
economic scenarios to reflect the range of outcomes; the central scenario
reflects the Group's base case assumptions used for medium-term planning
purposes, an upside and a downside scenario are also selected together with a
severe downside scenario. If the base case moves adversely, it generates a
new, more adverse downside and severe downside which are then incorporated
into the ECL. The base case, upside and downside scenarios carry a 30 per cent
weighting; the severe downside is weighted at 10 per cent. These assumptions
can be found in note 11 on page 47 onwards.
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 £680 million at 30 June 2023 compared to
£668 million at 31 December 2022.
Probability- Upside Base case Downside Severe
weighted £m £m £m downside
£m £m
UK mortgages 1,331 544 878 1,502 4,535
Credit cards 769 606 733 840 1,155
Other Retail 1,030 921 1,005 1,075 1,294
Commercial Banking 1,897 1,548 1,731 2,067 2,936
Other 1 1 1 1 1
At 30 June 2023 5,028 3,620 4,348 5,485 9,921
UK mortgages 1,209 514 790 1,434 3,874
Credit cards 763 596 727 828 1,180
Other Retail 1,016 907 992 1,056 1,290
Commercial Banking 1,807 1,434 1,618 1,953 3,059
Other 1 1 1 2 2
At 31 December 2022 4,796 3,452 4,128 5,273 9,405
CREDIT RISK (continued)
Retail
• The Retail portfolio has remained resilient and well-positioned, despite
pressure on consumer disposable incomes from a higher cost of living,
inflationary pressures and rising interest rates. Robust risk management
remains in place, with strong affordability and indebtedness controls for both
new and existing lending and a prudent risk appetite approach. The Retail
lending book is concentrated towards lower risk segments which should be
better able to withstand the cost of living challenge and rising interest
rates
• Modest evidence of increases in new to arrears and flow to default have
been observed in UK mortgages, but new to arrears largely remain stable across
unsecured portfolios, where only credit cards new to arrears are slightly
above 2019 levels
• The Group is closely monitoring the impacts of the rising cost of living
and higher interest rates on consumers to ensure it remains vigilant for any
signs of deterioration. Lending strategies are under continuous review and
have been proactively managed and calibrated to the latest macroeconomic
outlook, with actions taken to enhance living cost assumptions in
affordability assessments with more targeted action for those customers deemed
to be most at risk
• The Retail impairment charge in the first half of 2023 was £592
million, compared to £456 million in the first half of 2022, reflecting the
expected credit loss (ECL) allowance build from Stage 1 loans rolling forward
into a more adverse economic outlook, as well as modest increases in UK
mortgages new to arrears rates. Revisions to the macroeconomic outlook have
led to a marginal ECL increase for the first half of 2023, which compares
favourably to the charge over the first half of 2022, which reflected the
deteriorating global outlook, higher inflation and cost of living concerns as
a consequence of the Ukraine war
• ECL judgements to capture the increased risk of inflation and cost of
living impacts for Retail customers have been updated. This includes
judgements to account for segments of the portfolio considered to be least
resilient to disposable income shocks
• Stage 2 loans and advances to customers now comprise 14.3 per cent of
the Retail portfolio (31 December 2022: 13.5 per cent), of which 93.5 per cent
are up to date performing loans (31 December 2022: 94.0 per cent). Stage 2 ECL
coverage has decreased to 2.8 per cent (31 December 2022: 3.0 per cent)
given the UK mortgages portfolio now comprises a higher proportion of Retail
Stage 2 balances as a result of updates to the macroeconomic outlook. Stage 2
ECL coverage remains broadly stable by portfolio
• Stage 3 loans and advances have increased to 1.3 per cent (31 December
2022: 1.2 per cent). Stage 3 ECL coverage has decreased to 16.4 per cent
(31 December 2022: 16.5 per cent)
CREDIT RISK (continued)
Portfolios
UK mortgages
• The UK mortgages portfolio is well-positioned with a strong
loan-to-value (LTV) profile. The Group has actively improved the quality of
the portfolio over recent years using robust affordability and credit
controls, whilst the balances of higher risk portfolios originated prior to
2008 have continued to reduce
• New to arrears remain below pre-pandemic experience, but modest
increases have been observed this year largely driven by mortgages which
originated in the period 2006 to 2008, where there is a high concentration of
variable rate customers. The Group is proactively monitoring existing mortgage
customers as they reach the end of fixed rate deals with customers' immediate
behaviour remaining stable
• Despite continued macroeconomic uncertainty and inflationary pressures,
credit quality for new mortgage lending remains strong and within the Group's
risk appetite
• Total loans and advances to customers reduced to £307.8 billion (31
December 2022: £312.3 billion), with an increase in average LTV. The
proportion of balances with an LTV greater than 90 per cent increased. New
lending at 90 per cent LTV or above is supported through the Mortgage
Guarantee Scheme or other risk mitigation and is tightly controlled through
enhanced lending criteria. The average LTV of new business decreased
• There was an impairment charge of £191 million for the first half of
2023 reflecting ECL build from Stage 1 loans rolling forward into a more
adverse economic outlook, in addition to a modest deterioration in observed
credit performance. This compares to a net release of £64 million for the
first half of 2022, which reflected benign credit performance and increasing
house prices observed over this period. Total ECL coverage remains flat at 0.4
per cent (31 December 2022: 0.4 per cent)
• Stage 2 loans and advances to customers increased slightly to 14.5 per
cent of the portfolio (31 December 2022: 13.4 per cent) due to updates to the
macroeconomic outlook, most notably higher UK Bank Rate projections. Stage 2
ECL coverage is stable at 1.3 per cent (31 December 2022: 1.3 per cent)
• Stage 3 ECL coverage is also stable at 9.7 per cent (31 December 2022:
9.1 per cent)
Credit cards
• Credit card balances increased to £15.6 billion (31 December 2022:
£15.0 billion) due to increased levels of customer spend offset by repayments
• The credit card portfolio is a prime book which has performed well in
recent years. New to arrears rates are slightly above pre-pandemic levels,
with the absolute value of new to arrears cases being lower due to the
contraction in total balances since 2019
• The impairment charge was £197 million for the first half of 2023
compared to a charge of £272 million for the first half of 2022, with overall
ECL coverage reducing slightly to 5.0 per cent (31 December 2022: 5.1 per
cent)
• Coverage by stage remains broadly stable. Stage 2 ECL coverage increased
slightly to 15.0 per cent (31 December 2022: 14.5 per cent), along with Stage
3 ECL coverage at 52.3 per cent (31 December 2022: 50.9 per cent)
Loans and overdrafts
• Loans and advances to customers for unsecured loans and overdrafts
increased to £10.9 billion (31 December 2022: £10.3 billion) largely driven
by increasing customer demand, with growth concentrated in low risk segments
• The impairment charge was £160 million for the first half of 2023,
compared to £241 million for the first half of 2022 and overall ECL coverage
broadly stable at 6.4 per cent (31 December 2022: 6.6 per cent)
• Stage 2 ECL coverage increased slightly to 23.3 per cent (31 December
2022: 21.4 per cent) and Stage 3 ECL coverage increased to 66.0 per cent (31
December 2022: 64.6 per cent)
CREDIT RISK (continued)
UK Motor Finance
• The UK Motor Finance portfolio increased to £15.2 billion (31 December
2022: £14.6 billion) with new car supply constraints continuing to ease
• There was an impairment charge of £43 million for the first half of
2023 compared to £7 million for the first half of 2022, reflecting recent
used car price declines from recent high levels. Overall ECL coverage has
remained stable at 1.7 per cent (31 December 2022: 1.7 per cent)
• Updates to residual value (RV) and voluntary termination (VT) risk held
against personal contract purchase (PCP) and hire purchase (HP) lending are
included within the impairment charge. Updates to account for used car prices,
including valuations for battery electric vehicles (BEVs), have increased RV
and VT ECL to £116 million (31 December 2022: £92 million)
• Stage 2 ECL coverage reduced slightly to 3.2 per cent (31 December 2022:
3.4 per cent) and Stage 3 ECL coverage reduced to 49.2 per cent (31 December
2022: 52.6 per cent)
Retail UK mortgages loans and advances to customers(1)
At 30 Jun 2023 At 31 Dec 2022
£m £m
Mainstream 253,107 253,283
Buy-to-let 48,807 51,529
Specialist 5,857 7,526
Total 307,771 312,338
(1) Balances include the impact of HBOS related acquisition adjustments.
CREDIT RISK (continued)
Commercial Banking
• The Commercial portfolio credit quality remains resilient with a focused
approach to credit underwriting and monitoring standards and proactive
management of exposures to higher risk and vulnerable sectors
• While a small number of the Group's credit metrics indicate very modest
deterioration, these are not considered to be material. Individual risk driver
assessments at industry sector level allow increased focus on sectors more
vulnerable to changes in consumer spending patterns as well as broader
macroeconomic trends
• The Group has reduced overall exposure to cyclical sectors since 2019
and continues to closely monitor credit quality, sector and single name
concentrations. Sector and credit risk appetite continue to be proactively
managed to ensure that clients are supported and the Group is protected
• The Group continues to provide early support to its more vulnerable
customers through focused risk management via its Watchlist and Business
Support framework. Overall exposures on our Watchlist and in Business Support
have increased slightly in the first half of 2023, reflecting the economic
environment, while the Group continues to monitor the risk of direct and
indirect (consumer led) impact from higher interest rates in the UK. The Group
will continue to balance prudent risk management with ensuring support for
financially viable clients
• The Group is cognisant of a number of client risks and headwinds
associated with rising inflationary and interest rate pressures especially in,
but not limited to, sectors reliant upon consumer discretionary spend. These
include reduced asset valuation and refinancing risk, a reduction in market
liquidity impacting credit supply and pressure on both household discretionary
spending and business margins
• The Group continues to carefully monitor the level of arrears on lending
under the UK Government support schemes, including the Bounce Back Loan Scheme
and the Coronavirus Business Interruption Loan Scheme, where UK Government
guarantees are in place for 100 per cent and 80 per cent respectively. The
Group will continue to review customer trends and take early risk mitigating
actions as appropriate, including actions to review and manage refinancing
risk
Impairment
• There was a net impairment charge of £90 million in the first half of
2023, compared to £106 million in the first half of 2022. The charge was
driven by an observed performance charge largely due to additional charges on
existing Stage 3 clients, partly offset by a release from economic outlook
revisions
• ECL allowances increased by £93 million to £1,884 million at 30 June
2023 (31 December 2022: £1,791 million). The ECL provision at 30 June 2023
captures the impact of inflationary pressures, rising UK Bank rates and supply
chain constraints and assumes additional losses will emerge as a result of
these
• Stage 2 loans and advances decreased by £1,051 million to £9,381
million (31 December 2022: £10,432 million), of which 93.0 per cent are
current and up to date. Stage 2 loans as a proportion of total loans and
advances to customers reduced to 12.5 per cent (31 December 2022: 13.7 per
cent). Stage 2 ECL coverage was higher at 5.1 per cent (31 December 2022: 4.6
per cent) with the increase in coverage a result of better quality assets
moving back to Stage 1 due to the modestly improved GDP outlook
• Stage 3 loans and advances to customers reduced to £3,292 million (31
December 2022: £3,348 million) and as a proportion of total loans and
advances to customers, remained stable at 4.4 per cent (31 December 2022: 4.4
per cent). Stage 3 ECL coverage increased to 43.6 per cent (31 December 2022:
39.2 per cent), predominantly driven by additional charges on existing Stage 3
clients
CREDIT RISK (continued)
Commercial Banking UK Direct Real Estate
• Commercial Banking UK Direct Real Estate committed drawn lending stood
at £10.8 billion at 31 May 2023 (net of £3.9 billion exposures subject to
protection through Significant Risk Transfer (SRT) securitisations), £0.1
billion increase in comparison to 31 December 2022. In addition, there are
undrawn lending facilities of £2.7 billion to predominantly investment grade
rated corporate customers
• The Group classifies Direct Real Estate as exposure which is directly
supported by cash flows from property activities (as opposed to trading
activities, such as hotels, care homes and housebuilders). Exposures of £5.5
billion to social housing providers are also excluded
• Despite some headwinds, including the inflationary environment and the
impact of rising interest rates, the portfolio is well-positioned and
proactively managed with conservative LTVs, good levels of interest cover and
appropriate risk mitigants in place
• Lending continues to be heavily weighted towards investment real estate
(c.95 per cent) rather than development. Of these investment exposures, c. 90
per cent have an LTV of less than 70 per cent, with an average LTV of 44 per
cent. The average interest cover ratio was 4.0 times, with 80 per cent having
interest cover of above 2 times. In SME, LTV at origination has been typically
limited to c.55 per cent, given prudent repayment cover criteria (including
notional base rate stress)
• The portfolio is well diversified with no speculative development
lending (defined as property not pre-sold or pre-let at a level to fully repay
the debt or generate sufficient income to meet the minimum interest cover
requirements). Approximately 47 per cent of exposures relate to commercial
real estate, including c.13 per cent secured by office assets, c.13 per cent
by retail assets and c.12 per cent by industrial assets. Approximately 43 per
cent of the portfolio relates to residential investment
• Recognising this is a cyclical sector, total (gross and net) and asset
type quantum caps are in place to control origination and exposure, including
several asset type categories. Focus remains on the UK market and new business
has been written in line with a prudent risk appetite criteria including
conservative LTVs, strong quality of income and proven management teams.
Development lending criteria also includes maximum loan to gross development
value and maximum loan to cost, with funding typically only released against
completed work, as confirmed by the Group's monitoring quantity surveyor
• Overall performance has remained resilient. Although the Group saw some
increase in cases on its closer monitoring in the CRE Watchlist category,
these are predominantly precautionary
• Use of SRT securitisations also acts as a risk mitigant in this
portfolio, with run off of these carefully managed and sequenced
• Rent collection has largely recovered and stabilised following the
coronavirus pandemic, although challenges remain in some sectors
•
FUNDING AND LIQUIDITY RISK
The Group has maintained its strong funding and liquidity position with a loan
to deposit ratio of 98 per cent as at 30 June 2023 (98 per cent as at 31
December 2022). Overall total wholesale funding has increased to £73.7
billion as at 30 June 2023 (31 December 2022: £69.0 billion) as a result of
short term funding which has continued to increase towards more normalised
levels. The Group maintains its access to diverse sources and tenors of
funding.
The Group's liquid assets continue to exceed the regulatory minimum and
internal risk appetite, with a liquidity coverage ratio (LCR)(1) of 133 per
cent (based on a monthly rolling average over the previous 12 months) as at 30
June 2023 (31 December 2022: 136 per cent). The net stable funding ratio is
strong at 124 per cent as at 30 June 2023 (31 December 2022: 125 per cent).
The Group's credit ratings continue to reflect the strength of its business
model and balance sheet. Moody's revised the outlook on Lloyds Bank plc's
senior unsecured rating to negative following their decision to downgrade the
outlook of the UK sovereign to negative during the first 6 months of 2022;
Moody's affirmed this position in June 2023. The Group's strong management,
franchise and financial performance along with robust capital and funding
position are reflected in the Group's strong ratings.
(1) Based on a monthly rolling simple average over the previous 12 months.
Lloyds Bank Group funding requirements and sources
At 30 Jun At 31 Dec Change
2023 2022 %
£bn £bn
Lloyds Bank Group funding position
Cash and balances at central banks 75.7 72.0 5
Loans and advances to banks 9.3 8.4 11
Loans and advances to customers 431.6 435.6 (1)
Reverse repurchase agreements - non-trading 30.5 39.3 (22)
Debt securities at amortised cost 10.0 7.3 37
Financial assets at fair value through other comprehensive income 22.0 22.8 (4)
Other assets(1) 35.2 31.5 12
Total Lloyds Bank Group assets 614.3 616.9
Less other liabilities(1) (14.4) (11.7) 23
Funding requirements 599.9 605.2 (1)
Customer deposits 439.9 446.2 (1)
Wholesale funding(2) 73.7 69.0 7
Repurchase agreements - non-trading 14.6 18.6 (22)
Term Funding Scheme with additional incentives for SMEs (TFSME) 30.0 30.0
Deposits from fellow Lloyds Banking Group undertakings 1.8 2.3 (22)
Total equity 39.9 39.1 2
Funding sources 599.9 605.2 (1)
(1) Other assets and other liabilities include the fair value of derivative
assets and liabilities.
(2) Lloyds Bank Group's definition of wholesale funding aligns with that
used by other international market participants; including bank deposits, debt
securities in issue and subordinated liabilities. Excludes balances relating
to margins of £0.5 billion (31 December 2022: £0.7 billion).
FUNDING AND LIQUIDITY RISK (continued)
Reconciliation of Group funding to the balance sheet
At 30 June 2023 Included Cash collateral received Fair value Balance
in funding £bn and other sheet
analysis accounting methods £bn
£bn £bn
Deposits from banks 2.5 0.5 0.4 3.4
Debt securities in issue 63.6 - (7.2) 56.4
Subordinated liabilities 7.6 - (1.6) 6.0
Total wholesale funding 73.7 0.5
Customer deposits 439.9 - - 439.9
Total 513.6 0.5
At 31 December 2022
Deposits from banks 4.0 0.7 - 4.7
Debt securities in issue 56.8 - (7.7) 49.1
Subordinated liabilities 8.2 - (1.6) 6.6
Total wholesale funding 69.0 0.7
Customer deposits 446.2 - - 446.2
Total 515.2 0.7
Analysis of total wholesale funding by residual maturity
Up to 1 1 to 3 3 to 6 6 to 9 9 to 12 1 to 2 2 to 5 Over Total at Total at
30 Jun
31 Dec
month months months months months years years five years
2023
2022
£bn
£bn
£bn £bn £bn £bn £bn £bn £bn £bn
Deposits from banks 1.8 0.3 0.3 0.1 - - - - 2.5 4.0
Debt securities in issue:
Certificates of deposit 1.3 1.5 0.7 - 0.1 - - - 3.6 1.6
Commercial paper 2.3 6.3 5.7 0.7 0.4 - - - 15.4 9.0
Medium-term notes - 2.0 0.2 1.0 3.0 7.4 6.0 8.9 28.5 29.1
Covered bonds - - - 1.1 1.1 2.7 5.5 2.2 12.6 14.2
Securitisation - - - - - 0.2 2.9 0.4 3.5 2.9
3.6 9.8 6.6 2.8 4.6 10.3 14.4 11.5 63.6 56.8
Subordinated liabilities - - - - - 0.9 2.1 4.6 7.6 8.2
Total wholesale funding(1) 5.4 10.1 6.9 2.9 4.6 11.2 16.5 16.1 73.7 69.0
(1) Excludes balances relating to margins of £0.5 billion (31 December
2022: £0.7 billion).
FUNDING AND LIQUIDITY RISK (continued)
Analysis of term issuance in half-year to 30 June 2023
Sterling US Dollar Euro Other Total
£bn £bn £bn currencies £bn
£bn
Securitisation(1) 1.1 - - - 1.1
Covered bonds 1.2 - 0.9 - 2.1
Senior unsecured notes - 1.1 0.6 0.9 2.6
Additional tier 1 0.8 - - - 0.8
Total issuance 3.1 1.1 1.5 0.9 6.6
(1) Includes significant risk transfer securitisations.
Liquidity portfolio
At 30 June 2023, the Group had £112.8 billion of highly liquid unencumbered
LCR eligible assets, based on a monthly rolling average over the previous 12
months post any liquidity haircuts (31 December 2022: £120.8 billion). These
assets are available to meet cash and collateral outflows and regulatory
requirements.
The Group also has a significant amount of non-LCR eligible liquid assets
which are eligible for use in a range of central bank or similar facilities.
Future use of such facilities will be based on prudent liquidity management
and economic considerations, having regard for external market conditions.
LCR eligible assets
Average
2023(1) 2022(2) Change
£bn £bn %
Level 1
Cash and central bank reserves 65.6 66.0 (1)
High quality government/MDB/agency bonds(3) 40.8 48.9 (17)
High quality covered bonds 2.2 2.1 5
Total 108.6 117.0 (7)
Level 2(4) 4.2 3.8 11
Total LCR eligible assets 112.8 120.8 (7)
(1) Based on 12 months rolling simple average to 30 June 2023. Eligible
assets are calculated as a simple average of month-end observations over the
previous 12 months post any liquidity haircuts.
(2) Based on 12 months rolling simple average to 31 December 2022. Eligible
assets are calculated as a simple average of month-end observations over the
previous 12 months post any liquidity haircuts.
(3) Designated multilateral development bank (MDB).
(4) Includes Level 2A and Level 2B.
STATUTORY INFORMATION
Condensed consolidated half-year financial statements (unaudited)
Consolidated income statement (#Section10) 24
Consolidated statement of comprehensive income (#Section11) 25
Consolidated balance sheet (#Section12) 26
Consolidated statement of changes in equity (#Section13) 27
Consolidated cash flow statement (#Section14) 30
Notes
1 Basis of preparation and accounting policies (#Section16) 31
2 Critical accounting judgements and key sources of estimation uncertainty 31
(#Section17)
3 Segmental analysis (#Section18) 32
4 Net fee and commission income (#Section19) 33
5 Operating expenses (#Section20) 33
6 Impairment (#Section21) 34
7 Tax expense (#Section22) 35
8 Fair values of (#Section23) f (#Section23) inancial asse (#Section23) ts 35
(#Section23) and liabilities (#Section23)
9 Loans and advances to customers (#Section24) 41
10 Credit quality of loans and advances to (#Section25) customers (#Section25) 43
11 Allowance for expected credit losses (#Section26) 47
12 Debt securities in issue (#Section27) 56
13 Retirement benefit obligations (#Section28) 57
14 Other provisions (#Section29) 58
15 Related party transactions (#Section30) 59
16 Contingent liabilities, commitments and guarantees (#Section31) 60
17 Interest rate benchmark reform (#Section32) 61
18 Dividends on ordinary shares (#Section33) 61
19 Ultimate parent undertaking (#Section34) 61
20 Other information (#Section35) 61
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Note Half-year Half-year
to 30 Jun to 30 Jun
2023 2022
£m £m
Interest income 11,802 7,124
Interest expense (4,793) (1,035)
Net interest income 7,009 6,089
Fee and commission income 1,196 1,180
Fee and commission expense (550) (532)
Net fee and commission income 4 646 648
Net trading income 107 208
Other operating income 1,278 1,107
Other income 2,031 1,963
Total income 9,040 8,052
Operating expenses 5 (4,829) (4,405)
Impairment 6 (681) (364)
Profit before tax 3,530 3,283
Tax expense 7 (940) (842)
Profit for the period 2,590 2,441
Profit attributable to ordinary shareholders 2,417 2,313
Profit attributable to other equity holders 161 114
Profit attributable to equity holders 2,578 2,427
Profit attributable to non-controlling interests 12 14
Profit for the period 2,590 2,441
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 2,590 2,441
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements:
Remeasurements before tax (119) (382)
Tax 27 175
(92) (207)
Movements in revaluation reserve in respect of equity shares held at fair
value through other comprehensive income:
Change in fair value - -
Tax - (1)
- (1)
Gains and losses attributable to own credit risk:
(Losses) gains before tax (85) 421
Tax 24 (127)
(61) 294
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 157 (27)
Income statement transfers in respect of disposals 67 30
Income statement transfers in respect of impairment (2) -
Tax (61) 5
161 8
Movements in cash flow hedging reserve:
Effective portion of changes in fair value taken to other comprehensive income (1,287) (3,382)
Net income statement transfers 616 (182)
Tax 188 960
(483) (2,604)
Movements in foreign currency translation reserve:
Currency translation differences (tax: £nil) (58) 38
Transfers to income statement (tax: £nil) - -
(58) 38
Total other comprehensive loss for the period, net of tax (533) (2,472)
Total comprehensive income (loss) for the period 2,057 (31)
Total comprehensive income (loss) attributable to ordinary shareholders 1,884 (159)
Total comprehensive income attributable to other equity holders 161 114
Total comprehensive income (loss) attributable to equity holders 2,045 (45)
Total comprehensive income attributable to non-controlling interests 12 14
Total comprehensive income (loss) for the period 2,057 (31)
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 75,729 72,005
Financial assets at fair value through profit or loss 1,577 1,371
Derivative financial instruments 3,463 3,857
Loans and advances to banks 9,251 8,363
Loans and advances to customers 9 431,645 435,627
Reverse repurchase agreements 30,530 39,259
Debt securities 10,040 7,331
Due from fellow Lloyds Banking Group undertakings 969 816
Financial assets at amortised cost 482,435 491,396
Financial assets at fair value through other comprehensive income 21,971 22,846
Goodwill and other intangible assets(1) 5,718 5,124
Current tax recoverable 765 527
Deferred tax assets 5,596 5,857
Retirement benefit assets 13 4,685 3,823
Other assets(1) 12,391 10,122
Total assets 614,330 616,928
Liabilities
Deposits from banks 3,369 4,658
Customer deposits 439,914 446,172
Repurchase agreements at amortised cost 44,622 48,590
Due to fellow Lloyds Banking Group undertakings 1,965 2,539
Financial liabilities at fair value through profit or loss 4,929 5,159
Derivative financial instruments 5,605 5,891
Notes in circulation 1,342 1,280
Debt securities in issue 12 56,443 49,056
Other liabilities(1) 8,496 6,003
Retirement benefit obligations 13 120 126
Current tax liabilities 12 3
Deferred tax liabilities 181 208
Other provisions 14 1,453 1,591
Subordinated liabilities 6,015 6,593
Total liabilities 574,466 577,869
Equity
Share capital 1,574 1,574
Share premium account 600 600
Other reserves 363 743
Retained profits 32,245 31,792
Ordinary shareholders' equity 34,782 34,709
Other equity instruments 5,018 4,268
Total equity excluding non-controlling interests 39,800 38,977
Non-controlling interests 64 82
Total equity 39,864 39,059
Total equity and liabilities 614,330 616,928
(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
Share Other Retained Total Other Non- Total
capital and reserves profits £m equity controlling £m
premium £m £m instruments interests
£m £m £m
At 1 January 2023 2,174 743 31,792 34,709 4,268 82 39,059
Comprehensive income
Profit for the period - - 2,417 2,417 161 12 2,590
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - (92) (92) - - (92)
Movements in revaluation reserve in respect of financial assets held at fair
value through other comprehensive income, net of tax:
Debt securities - 161 - 161 - - 161
Equity shares - - - - - - -
Gains and losses attributable to own credit risk, net of tax - - (61) (61) - - (61)
Movements in cash flow hedging reserve, net of tax - (483) - (483) - - (483)
Movements in foreign currency translation reserve, net of tax - (58) - (58) - - (58)
Total other comprehensive loss - (380) (153) (533) - - (533)
Total comprehensive (loss) income(1) - (380) 2,264 1,884 161 12 2,057
Transactions with owners
Dividends - - (1,900) (1,900) - (30) (1,930)
Distributions on other equity instruments - - - - (161) - (161)
Issue of other equity instruments - - (5) (5) 750 - 745
Capital contributions received - - 94 94 - - 94
Return of capital contributions - - - - - - -
Total transactions with owners - - (1,811) (1,811) 589 (30) (1,252)
Realised gains and losses on equity shares held at fair value through other - - - - - - -
comprehensive income
At 30 June 2023(2) 2,174 363 32,245 34,782 5,018 64 39,864
(1) Total comprehensive income attributable to owners of the parent was
£2,045 million.
(2) Total equity attributable to owners of the parent was £39,800 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
Share Other Retained Total Other Non- Total
capital and reserves profits £m equity controlling £m
premium £m £m instruments interests
£m £m £m
At 1 January 2022 2,174 5,400 28,836 36,410 4,268 94 40,772
Comprehensive income
Profit for the period - - 2,313 2,313 114 14 2,441
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - (207) (207) - - (207)
Movements in revaluation reserve in respect of financial assets held at fair
value through other comprehensive income, net of tax:
Debt securities - 8 - 8 - - 8
Equity shares - (1) - (1) - - (1)
Gains and losses attributable to own credit risk, net of tax - - 294 294 - - 294
Movements in cash flow hedging reserve, net of tax - (2,604) - (2,604) - - (2,604)
Movements in foreign currency translation reserve, net of tax - 38 - 38 - - 38
Total other comprehensive (loss) income - (2,559) 87 (2,472) - - (2,472)
Total comprehensive (loss) income(1) - (2,559) 2,400 (159) 114 14 (31)
Transactions with owners
Dividends - - - - - (20) (20)
Distributions on other equity instruments - - - - (114) - (114)
Capital contributions received - - 110 110 - - 110
Return of capital contributions - - (2) (2) - - (2)
Total transactions with owners - - 108 108 (114) (20) (26)
Realised gains and losses on equity shares held at fair value through other - 1 (1) - - - -
comprehensive income
At 30 June 2022(2) 2,174 2,842 31,343 36,359 4,268 88 40,715
(1) Total comprehensive income attributable to owners of the parent was a
loss of £45 million.
(2) Total equity attributable to owners of the parent was £40,627 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
Share Other Retained Total Other Non- Total
capital and reserves profits £m equity controlling £m
premium £m £m instruments interests
£m £m £m
At 1 July 2022 2,174 2,842 31,343 36,359 4,268 88 40,715
Comprehensive income
Profit for the period - - 2,215 2,215 127 11 2,353
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - (1,945) (1,945) - - (1,945)
Movements in revaluation reserve in respect of financial assets held at fair
value through other comprehensive income, net of tax:
Debt securities - (39) - (39) - - (39)
Equity shares - - - - - - -
Gains and losses attributable to own credit risk, net of tax - - 70 70 - - 70
Movements in cash flow hedging reserve, net of tax - (2,113) - (2,113) - - (2,113)
Movements in foreign currency translation reserve, net of tax - 53 - 53 - - 53
Total other comprehensive loss - (2,099) (1,875) (3,974) - - (3,974)
Total comprehensive (loss) income(1) - (2,099) 340 (1,759) 127 11 (1,621)
Transactions with owners
Dividends - - - - - (17) (17)
Distributions on other equity instruments - - - - (127) - (127)
Capital contributions received - - 111 111 - - 111
Return of capital contributions - - (2) (2) - - (2)
Total transactions with owners - - 109 109 (127) (17) (35)
Realised gains and losses on equity shares held at fair value through other - - - - - - -
comprehensive income
At 31 December 2022(2) 2,174 743 31,792 34,709 4,268 82 39,059
(1) Total comprehensive income attributable to owners of the parent was a
loss of £1,632 million.
(2) Total equity attributable to owners of the parent was £38,977 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
Profit before tax 3,530 3,283
Adjustments for:
Change in operating assets 8,828 (13,288)
Change in operating liabilities (1,869) 26,163
Non-cash and other items 1,897 (1,196)
Tax paid (net) (785) (470)
Net cash provided by operating activities 11,601 14,492
Cash flows from investing activities
Purchase of financial assets (3,847) (2,359)
Proceeds from sale and maturity of financial assets 3,654 5,191
Purchase of fixed assets (3,220) (1,584)
Proceeds from sale of fixed assets 506 431
Net cash (used in) provided by investing activities (2,907) 1,679
Cash flows from financing activities
Dividends paid to ordinary shareholders (1,900) -
Distributions on other equity instruments (161) (114)
Dividends paid to non-controlling interests (30) (20)
Return of capital contributions - (2)
Interest paid on subordinated liabilities (198) (199)
Proceeds from issue of other equity instruments 745 -
Repayment of subordinated liabilities (265) (1,644)
Borrowings from parent company 389 73
Repayments of borrowings to parent company (945) -
Interest paid on borrowings from parent company (214) (96)
Net cash used in financing activities (2,579) (2,002)
Effects of exchange rate changes on cash and cash equivalents (70) 1
Change in cash and cash equivalents 6,045 14,170
Cash and cash equivalents at beginning of period 75,201 55,960
Cash and cash equivalents at end of period 81,246 70,130
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 Lloyds
Bank plc (the Bank) together with its subsidiaries (the Group). They do not
include all of the information required for full annual financial statements
and should be read in conjunction with the Group's consolidated financial
statements as at and for the year ended 31 December 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;
• goodwill and other intangible assets are aggregated 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.
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 11.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 3: Segmental analysis
The Group provides a wide range of banking and financial services in the UK
and in certain locations overseas. The Group Executive Committee (GEC) of
Lloyds Bank plc remains the "chief operating decision maker" (as defined by
IFRS 8 Operating segments) for the Group.
During the half-year ended 31 December 2022 there were changes as a result of
the Group restructure effective from 1 July 2022:
• Business Banking and Commercial Cards moved from Retail to Commercial
Banking. Wealth moved to Retail
Following the restructure, the Group completed a review and determined that it
had two operating and reportable segments: Retail and Commercial Banking.
There has been no change to the descriptions of these segments as provided in
note 4 to the Group's financial statements for the year ended 31 December
2022, neither has there been any change to the Group's segmental accounting
for internal segment derivatives entered into by units for risk management
purposes since 31 December 2022.
Comparatives have been presented on a consistent basis in respect of the above
changes.
Half-year to 30 June 2023 Retail Commercial Other Total
£m Banking £m £m
£m
Net interest income 5,063 1,881 65 7,009
Other income 1,005 513 513 2,031
Total income 6,068 2,394 578 9,040
Operating expenses (3,009) (1,063) (757) (4,829)
Impairment (charge) credit (592) (90) 1 (681)
Profit (loss) before tax 2,467 1,241 (178) 3,530
External income (expense) 6,427 2,904 (291) 9,040
Inter-segment income (expense) (359) (510) 869 -
Segment income 6,068 2,394 578 9,040
Half-year to 30 June 2022 Retail Commercial Other Total
£m Banking £m £m
£m
Net interest income 4,601 1,409 79 6,089
Other income 860 452 651 1,963
Total income 5,461 1,861 730 8,052
Operating expenses (2,920) (1,027) (458) (4,405)
Impairment (charge) credit (285) (106) 27 (364)
Profit before tax 2,256 728 299 3,283
External income 5,724 1,656 672 8,052
Inter-segment income (expense) (263) 205 58 -
Segment income 5,461 1,861 730 8,052
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 3: Segmental analysis (continued)
Segment Segment
external assets external liabilities
At 30 Jun At 31 Dec At 30 Jun At 31 Dec
2023 2022 2023 2022
£m £m £m £m
Retail 372,668 372,585 310,489 314,051
Commercial Banking 91,046 89,536 141,121 140,923
Other 150,616 154,807 122,856 122,895
Total 614,330 616,928 574,466 577,869
Note 4: 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 308 328
Credit and debit card fees 614 558
Commercial banking and treasury fees 93 117
Factoring 39 41
Other fees and commissions 142 136
Total fee and commission income 1,196 1,180
Fee and commission expense (550) (532)
Net fee and commission income 646 648
Current account and credit and debit card fees principally arise in Retail;
commercial banking, treasury and factoring fees arise in Commercial Banking.
Note 5: Operating expenses
Half-year Half-year
to 30 Jun to 30 Jun
2023 2022
£m £m
Staff costs 1,934 1,907
Premises and equipment costs 167 126
Other expenses 1,418 1,185
Depreciation and amortisation 1,310 1,187
Total operating expenses 4,829 4,405
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 6: Impairment
Half-year Half-year
to 30 Jun to 30 Jun
2023 2022
£m £m
Impact of transfers between stages 439 419
Other changes in credit quality(1) 376 17
Additions and repayments (144) (76)
Other items 10 4
242 (55)
Total impairment 681 364
In respect of:
Loans and advances to banks (2) 1
Loans and advances to customers 678 329
Debt securities (1) 2
Financial assets held at amortised cost 675 332
Impairment charge on drawn balances 675 332
Loan commitments and financial guarantees 7 32
Financial assets at fair value through other comprehensive income (1) -
Total impairment 681 364
(1) Includes a credit for methodology and model changes of £3 million
(half-year to 30 June 2022: charge of £2 million).
There was a £27 million charge in respect of residual value impairment and
voluntary terminations within the Group's UK Motor Finance business in the
current period (half-year to 30 June 2022: no charge).
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.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 7: Tax expense
In accordance with IAS 34, the Group's income tax 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 expense and accounting profit
is set out below:
Half-year Half-year
to 30 Jun to 30 Jun
2023 2022
£m £m
Profit before tax 3,530 3,283
UK corporation tax thereon at 23.5 per cent (2022: 19.0 per cent) (830) (624)
Impact of surcharge on banking profits (130) (168)
Non-deductible costs: conduct charges (2) (4)
Other non-deductible costs (40) (3)
Non-taxable income 1 35
Tax relief on coupons on other equity instruments 38 -
Tax-exempt gains on disposals 22 -
Tax losses where no deferred tax recognised - (4)
Remeasurement of deferred tax due to rate changes (1) (16)
Differences in overseas tax rates (1) (44)
Adjustments in respect of prior years 3 (14)
Tax expense (940) (842)
Note 8: 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 41 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.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 8: Fair values of financial assets and liabilities (continued)
The following tables provide an analysis of the financial assets and
liabilities of the Group that are carried at fair value in the Group's
consolidated balance sheet, grouped into levels 1 to 3 based on the degree to
which the fair value is observable. There were no significant transfers
between level 1 and level 2 during the period.
Financial assets Level 1 Level 2 Level 3 Total
£m £m £m £m
At 30 June 2023
Financial assets at fair value through profit or loss:
Loans and advances to customers - 1,187 300 1,487
Equity shares 86 - 4 90
Total financial assets at fair value through profit or loss 86 1,187 304 1,577
Financial assets at fair value through other comprehensive income:
Debt securities 10,822 11,096 52 21,970
Equity shares - 1 - 1
Total financial assets at fair value through other comprehensive income 10,822 11,097 52 21,971
Derivative financial instruments - 3,463 - 3,463
Total financial assets carried at fair value 10,908 15,747 356 27,011
At 31 December 2022
Financial assets at fair value through profit or loss
Loans and advances to customers - 841 291 1,132
Equity shares 235 - 4 239
Total financial assets at fair value through profit or loss 235 841 295 1,371
Financial assets at fair value through other comprehensive income:
Debt securities 11,370 11,424 51 22,845
Equity shares - - 1 1
Total financial assets at fair value through other comprehensive income 11,370 11,424 52 22,846
Derivative financial instruments - 3,857 - 3,857
Total financial assets carried at fair value 11,605 16,122 347 28,074
Financial liabilities Level 1 Level 2 Level 3 Total
£m £m £m £m
At 30 June 2023
Financial liabilities at fair value through profit or loss - 4,904 25 4,929
Derivative financial instruments - 5,440 165 5,605
Total financial liabilities carried at fair value - 10,344 190 10,534
At 31 December 2022
Financial liabilities at fair value through profit or loss - 5,133 26 5,159
Derivative financial instruments - 5,728 163 5,891
Total financial liabilities carried at fair value - 10,861 189 11,050
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 8: 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 Financial Derivative assets Total
assets at assets at £m financial
fair value fair value assets
through through other carried at
profit or loss comprehensive fair value
£m income £m
£m
At 1 January 2023 295 52 - 347
Exchange and other adjustments - (2) - (2)
Gains recognised in the income statement within other income 17 4 - 21
Sales/repayments of customer loans (8) (2) - (10)
At 30 June 2023 304 52 - 356
Gains recognised in the income statement, within 17 2 - 19
other income, relating to the change in fair value of those assets held at 30
June 2023
At 1 January 2022 399 56 16 471
Exchange and other adjustments - 1 - 1
Losses recognised in the income statement within other income (4) - (3) (7)
Sales/repayments of customer loans (30) (2) - (32)
Transfers out of the level 3 portfolio - - (12) (12)
At 30 June 2022 365 55 1 421
Losses recognised in the income statement, within (5) - - (5)
other income, relating to the change in fair value of those assets held at 30
June 2022
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 8: Fair values of financial assets and liabilities (continued)
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 26 163 189
(Gains) losses recognised in the income statement within other income (1) 13 12
Redemptions - (11) (11)
At 30 June 2023 25 165 190
Gains recognised in the income statement, within other income, relating (1) (16) (17)
to the change in fair value of those liabilities held at 30 June 2023
At 1 January 2022 33 207 240
Gains recognised in the income statement within other income (2) (22) (24)
Redemptions (2) (11) (13)
At 30 June 2022 29 174 203
Gains recognised in the income statement, within other income, relating (2) (5) (7)
to the change in fair value of those liabilities held at 30 June 2022
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)
Other 4
304
Financial assets at fair value through other comprehensive income 52
Level 3 financial assets carried at fair value 356
Financial liabilities at fair value through profit or loss 25
Derivative financial liabilities
Interest rate derivatives Option pricing model Interest rate volatility (15%/190%) 15
Shared appreciation rights Market values - property valuation HPI (+/- 1%) 150
165
Level 3 financial liabilities carried at fair value 190
(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.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 8: Fair values of financial assets and liabilities (continued)
Sensitivity of level 3 valuations (continued)
Effect of reasonably
possible alternative
assumptions(1)
At 31 December 2022 Valuation Significant Carrying value Favourable changes Unfavourable changes
techniques unobservable inputs(2) £m £m £m
Financial assets at fair value through profit or loss
Loans and advances to customers Discounted cash flows Interest rate spreads 291 25 (23)
(+/- 50bps)
Other 4
295
Financial assets at fair value through other comprehensive income 52
Level 3 financial assets carried at fair value 347
Financial liabilities at fair value through profit or loss 26
Derivative financial liabilities
Interest rate derivatives Option pricing model Interest rate volatility (13%/168%) 13
Shared appreciation rights Market values - property valuation HPI (+/- 1%) 150
163
Level 3 financial liabilities carried at fair value 189
(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 are unchanged from
those described in note 41 to the Group's financial statements for the year
ended 31 December 2022.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 8: 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 9,251 9,251 8,363 8,363
Loans and advances to customers 431,645 423,599 435,627 430,980
Reverse repurchase agreements 30,530 30,530 39,259 39,259
Debt securities 10,040 9,771 7,331 7,334
Due from fellow Lloyds Banking Group undertakings 969 969 816 816
Financial assets at amortised cost 482,435 474,120 491,396 486,752
Financial liabilities
Deposits from banks 3,369 3,371 4,658 4,660
Customer deposits 439,914 439,286 446,172 445,916
Repurchase agreements at amortised cost 44,622 44,622 48,590 48,590
Due to fellow Lloyds Banking Group undertakings 1,965 1,965 2,539 2,539
Debt securities in issue 56,443 55,707 49,056 48,818
Subordinated liabilities 6,015 6,206 6,593 6,760
The carrying amount for 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 9: 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 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
£m £m £m £m £m £m £m £m £m £m
At 1 January 2023 362,766 60,103 7,611 9,622 440,102 678 1,792 1,752 253 4,475
Exchange and other adjustments(1) (1,046) (16) (2) (3) (1,067) - - 55 19 74
Transfers to Stage 1 12,802 (12,788) (14) - 273 (268) (5) -
Transfers to Stage 2 (18,673) 19,174 (501) - (59) 119 (60) -
Transfers to Stage 3 (455) (1,635) 2,090 - (7) (171) 178 -
Impact of transfers between stages (6,326) 4,751 1,575 - (188) 418 201 431
19 98 314 431
Other changes in credit quality(2) 25 (10) 302 74 391
Additions and repayments 4,534 (2,873) (771) (527) 363 37 (86) (58) (37) (144)
Charge to the income statement 81 2 558 37 678
Disposals and derecognition(3) (1,202) (547) (94) (743) (2,586) (1) (18) (7) (34) (60)
Advances written off (554) - (554) (554) - (554)
Recoveries of advances written off in previous years 90 - 90 90 - 90
At 30 June 2023 358,726 61,418 7,855 8,349 436,348 758 1,776 1,894 275 4,703
Allowance for impairment losses (758) (1,776) (1,894) (275) (4,703)
Net carrying amount 357,968 59,642 5,961 8,074 431,645
Drawn ECL coverage(4) 0.2 % 2.9 % 24.1 % 3.3 % 1.1 %
(1) Exchange and other adjustments includes the impact of movements in
exchange rates, discount unwind, derecognising assets as a result of
modifications and adjustments in respect of purchased or originated
credit-impaired financial assets (POCI). Where a POCI asset's expected credit
loss is less than its expected credit loss on purchase or origination, the
increase in its carrying value is recognised within gross loans, rather than
as a negative impairment allowance.
(2) Includes a credit for methodology and model changes of £3 million,
split by Stage as £2 million credit for Stage 1, £3 million credit for
Stage 2, £2 million charge for Stage 3 and £nil for POCI.
(3 ) Relates to the exit of legacy Retail mortgage loans.
(4) Allowance for expected credit losses on loans and advances to customers
as a percentage of gross loans and advances to customers.
The total allowance for impairment losses includes £116 million (31 December
2022: £92 million) in respect of residual value impairment and voluntary
terminations within the Group's UK Motor Finance business.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 9: Loans and advances to customers (continued)
Year ended 31 December 2022
Gross carrying amount Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
£m £m £m £m £m £m £m £m £m £m
At 1 January 2022 382,366 34,884 6,406 10,977 434,633 909 1,112 1,573 210 3,804
Exchange and other adjustments(1) (1,574) 24 (21) 12 (1,559) 1 1 43 65 110
Transfers to Stage 1 8,329 (8,256) (73) - 176 (167) (9) -
Transfers to Stage 2 (34,889) 35,291 (402) - (66) 135 (69) -
Transfers to Stage 3 (1,235) (2,527) 3,762 - (8) (158) 166 -
Impact of transfers between stages (27,795) 24,508 3,287 - (119) 697 268 846
(17) 507 356 846
Other changes in credit quality(2) (312) 84 617 49 438
Additions and repayments 9,769 687 (1,315) (1,354) 7,787 97 88 (91) (58) 36
(Credit) charge to the income statement (232) 679 882 (9) 1,320
Advances written off (928) (13) (941) (928) (13) (941)
Recoveries of advances written off in previous years 182 - 182 182 - 182
At 31 December 2022 362,766 60,103 7,611 9,622 440,102 678 1,792 1,752 253 4,475
Allowance for impairment losses (678) (1,792) (1,752) (253) (4,475)
Net carrying amount 362,088 58,311 5,859 9,369 435,627
Drawn ECL coverage(3) 0.2 % 3.0 % 23.0 % 2.6 % 1.0 %
(1) Exchange and other adjustments includes the impact of movements in
exchange rates, discount unwind, derecognising assets as a result of
modifications and adjustments in respect of purchased or originated
credit-impaired financial assets (POCI). Where a POCI asset's expected credit
loss is less than its expected credit loss on purchase or origination, the
increase in its carrying value is recognised within gross loans, rather than
as a negative impairment allowance.
(2) Includes a credit for methodology and model changes of £63 million,
split by Stage as £2 million charge for Stage 1, £11 million charge for
Stage 2, £47 million credit for Stage 3 and £29 million credit for POCI.
(3) Allowance for expected credit losses on loans and advances to customers
as a percentage of gross loans and advances to customers.
The movement tables are compiled by comparing the position at the 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, with the exception of those held within
purchased or originated credit-impaired, which are not transferable.
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 12).
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 10: Credit quality of loans and advances to customers
Gross drawn exposures Expected credit loss allowance
At 30 June 2023 Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
£m £m £m £m £m £m £m £m £m £m
Retail - UK mortgages
RMS 1-3 241,410 19,656 - - 261,066 96 116 - - 212
RMS 4-6 9,504 18,865 - - 28,369 20 189 - - 209
RMS 7-9 99 1,863 - - 1,962 - 47 - - 47
RMS 10 - 940 - - 940 - 40 - - 40
RMS 11-13 - 3,319 - - 3,319 - 180 - - 180
RMS 14 - - 3,766 8,349 12,115 - - 366 275 641
251,013 44,643 3,766 8,349 307,771 116 572 366 275 1,329
Retail - credit cards
RMS 1-3 3,691 3 - - 3,694 7 - - - 7
RMS 4-6 6,941 1,309 - - 8,250 71 63 - - 134
RMS 7-9 1,571 1,151 - - 2,722 55 150 - - 205
RMS 10 7 234 - - 241 1 53 - - 54
RMS 11-13 - 369 - - 369 - 148 - - 148
RMS 14 - - 302 - 302 - - 123 - 123
12,210 3,066 302 - 15,578 134 414 123 - 671
Retail - loans and overdrafts
RMS 1-3 657 1 - - 658 2 - - - 2
RMS 4-6 6,268 378 - - 6,646 93 32 - - 125
RMS 7-9 2,042 544 - - 2,586 79 70 - - 149
RMS 10 80 188 - - 268 7 41 - - 48
RMS 11-13 28 424 - - 452 5 165 - - 170
RMS 14 - - 242 - 242 - - 128 - 128
9,075 1,535 242 - 10,852 186 308 128 - 622
Retail - UK Motor Finance
RMS 1-3 9,488 752 - - 10,240 84 11 - - 95
RMS 4-6 2,835 974 - - 3,809 31 20 - - 51
RMS 7-9 512 275 - - 787 3 10 - - 13
RMS 10 - 60 - - 60 - 5 - - 5
RMS 11-13 1 165 - - 166 - 25 - - 25
RMS 14 - - 122 - 122 - - 60 - 60
12,836 2,226 122 - 15,184 118 71 60 - 249
Retail - other
RMS 1-3 12,501 279 - - 12,780 2 3 - - 5
RMS 4-6 2,210 200 - - 2,410 16 12 - - 28
RMS 7-9 - 76 - - 76 - 3 - - 3
RMS 10 - 6 - - 6 - - - - -
RMS 11-13 86 6 - - 92 - - - - -
RMS 14 - - 131 - 131 - - 51 - 51
14,797 567 131 - 15,495 18 18 51 - 87
Total Retail 299,931 52,037 4,563 8,349 364,880 572 1,383 728 275 2,958
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 10: Credit quality of loans and advances to customers (continued)
Gross drawn exposures Expected credit loss allowance
At 30 June 2023 Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
£m £m £m £m £m £m £m £m £m £m
Commercial Banking
CMS 1-5 12,183 45 - - 12,228 5 - - - 5
CMS 6-10 18,031 191 - - 18,222 25 1 - - 26
CMS 11-14 29,616 4,753 - - 34,369 121 98 - - 219
CMS 15-18 2,631 3,362 - - 5,993 35 194 - - 229
CMS 19 9 1,030 - - 1,039 - 100 - - 100
CMS 20-23 - - 3,292 - 3,292 - - 1,166 - 1,166
62,470 9,381 3,292 - 75,143 186 393 1,166 - 1,745
Other(1) (3,675) - - - (3,675) - - - - -
Total loans and advances to customers 358,726 61,418 7,855 8,349 436,348 758 1,776 1,894 275 4,703
In respect of:
Retail 299,931 52,037 4,563 8,349 364,880 572 1,383 728 275 2,958
Commercial Banking 62,470 9,381 3,292 - 75,143 186 393 1,166 - 1,745
Other(1) (3,675) - - - (3,675) - - - - -
Total loans and advances to customers 358,726 61,418 7,855 8,349 436,348 758 1,776 1,894 275 4,703
(1) Gross drawn exposures include centralised fair value hedge accounting
adjustments.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 10: Credit quality of loans and advances to customers (continued)
Gross drawn exposures Expected credit loss allowance
At 31 December 2022 Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
£m £m £m £m £m £m £m £m £m £m
Retail - UK mortgages
RMS 1-3 250,937 24,844 - - 275,781 81 180 - - 261
RMS 4-6 6,557 11,388 - - 17,945 10 140 - - 150
RMS 7-9 23 2,443 - - 2,466 - 72 - - 72
RMS 10 - 734 - - 734 - 24 - - 24
RMS 11-13 - 2,374 - - 2,374 - 136 - - 136
RMS 14 - - 3,416 9,622 13,038 - - 311 253 564
257,517 41,783 3,416 9,622 312,338 91 552 311 253 1,207
Retail - credit cards
RMS 1-3 3,587 5 - - 3,592 7 - - - 7
RMS 4-6 6,497 1,441 - - 7,938 66 70 - - 136
RMS 7-9 1,332 1,246 - - 2,578 47 167 - - 214
RMS 10 - 227 - - 227 - 52 - - 52
RMS 11-13 - 368 - - 368 - 144 - - 144
RMS 14 - - 289 - 289 - - 113 - 113
11,416 3,287 289 - 14,992 120 433 113 - 666
Retail - loans and overdrafts
RMS 1-3 659 1 - - 660 2 - - - 2
RMS 4-6 5,902 451 - - 6,353 90 24 - - 114
RMS 7-9 1,724 657 - - 2,381 69 83 - - 152
RMS 10 53 199 - - 252 5 45 - - 50
RMS 11-13 19 405 - - 424 3 163 - - 166
RMS 14 - - 247 - 247 - - 126 - 126
8,357 1,713 247 - 10,317 169 315 126 - 610
Retail - UK Motor Finance
RMS 1-3 8,969 743 - - 9,712 66 9 - - 75
RMS 4-6 2,778 930 - - 3,708 25 20 - - 45
RMS 7-9 425 325 - - 750 2 13 - - 15
RMS 10 - 99 - - 99 - 8 - - 8
RMS 11-13 2 148 - - 150 - 26 - - 26
RMS 14 - - 154 - 154 - - 81 - 81
12,174 2,245 154 - 14,573 93 76 81 - 250
Retail - other
RMS 1-3 12,588 328 - - 12,916 9 4 - - 13
RMS 4-6 1,311 213 - - 1,524 4 11 - - 15
RMS 7-9 - 90 - - 90 - 3 - - 3
RMS 10 - 5 - - 5 - - - - -
RMS 11-13 91 7 - - 98 - - - - -
RMS 14 - - 157 - 157 - - 52 - 52
13,990 643 157 - 14,790 13 18 52 - 83
Total Retail 303,454 49,671 4,263 9,622 367,010 486 1,394 683 253 2,816
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 10: Credit quality of loans and advances to customers (continued)
Gross drawn exposures Expected credit loss allowance
At 31 December 2022 Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
£m £m £m £m £m £m £m £m £m £m
Commercial Banking
CMS 1-5 11,906 14 - - 11,920 2 - - - 2
CMS 6-10 16,689 293 - - 16,982 21 2 - - 23
CMS 11-14 30,646 4,963 - - 35,609 123 83 - - 206
CMS 15-18 3,257 4,352 - - 7,609 46 239 - - 285
CMS 19 12 810 - - 822 - 74 - - 74
CMS 20-23 - - 3,348 - 3,348 - - 1,069 - 1,069
62,510 10,432 3,348 - 76,290 192 398 1,069 - 1,659
Other(1) (3,198) - - - (3,198) - - - - -
Total loans and 362,766 60,103 7,611 9,622 440,102 678 1,792 1,752 253 4,475
advances to
customers
In respect of:
Retail 303,454 49,671 4,263 9,622 367,010 486 1,394 683 253 2,816
Commercial Banking 62,510 10,432 3,348 - 76,290 192 398 1,069 - 1,659
Other(1) (3,198) - - - (3,198) - - - - -
Total loans and 362,766 60,103 7,611 9,622 440,102 678 1,792 1,752 253 4,475
advances to
customers
(1) Gross drawn exposures include centralised fair value hedge accounting
adjustments.
(
)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 11: 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 £5,028 million (31
December 2022: £4,796 million), of which £4,717 million (31 December 2022:
£4,492 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 POCI Total
£m £m £m £m £m
In respect of:
Loans and advances to banks 7 - - - 7
Loans and advances to customers 758 1,776 1,894 275 4,703
Debt securities 6 - 1 - 7
Financial assets at amortised cost 771 1,776 1,895 275 4,717
Provisions in relation to loan commitments and financial guarantees 126 182 3 - 311
Total 897 1,958 1,898 275 5,028
Expected credit loss in respect of financial assets at fair value through 7 - - - 7
other comprehensive income (memorandum item)
At 31 December 2022
In respect of:
Loans and advances to banks 9 - - - 9
Loans and advances to customers 678 1,792 1,752 253 4,475
Debt securities 7 - 1 - 8
Financial assets at amortised cost 694 1,792 1,753 253 4,492
Provisions in relation to loan commitments and financial guarantees 122 178 4 - 304
Total 816 1,970 1,757 253 4,796
Expected credit loss in respect of financial assets at fair value through 9 - - - 9
other comprehensive income (memorandum item)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 11: 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 16 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 16 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 11: 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 11: 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 11: 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
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 11: Allowance for expected credit losses (continued)
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 £680 million for 30 June 2023 and £668 million
at 31 December 2022.
At 30 June 2023 Probability- Upside Base case Downside Severe
weighted £m £m £m downside
£m £m
UK mortgages 1,331 544 878 1,502 4,535
Credit cards 769 606 733 840 1,155
Other Retail 1,030 921 1,005 1,075 1,294
Commercial Banking 1,897 1,548 1,731 2,067 2,936
Other 1 1 1 1 1
ECL allowance 5,028 3,620 4,348 5,485 9,921
At 31 December 2022
UK mortgages 1,209 514 790 1,434 3,874
Credit cards 763 596 727 828 1,180
Other Retail 1,016 907 992 1,056 1,290
Commercial Banking 1,807 1,434 1,618 1,953 3,059
Other 1 1 1 2 2
ECL allowance 4,796 3,452 4,128 5,273 9,405
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
£m £m £m £m
UK mortgages 35 (21) 26 (21)
Credit cards 39 (39) 41 (41)
Other Retail 24 (24) 25 (25)
Commercial Banking 87 (81) 99 (90)
ECL impact 185 (165) 191 (177)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 11: Allowance for expected credit losses (continued)
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 (226) 366 (225) 370
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 £247 million (31 December 2022:
£330 million).
The table below analyses total ECL allowance by portfolio, 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:
At 30 June 2023 Modelled Individually Inflationary and interest rate risk Other(1) Total
ECL assessed £m £m ECL
£m £m £m
UK mortgages 1,082 - 86 163 1,331
Credit cards 718 - 100 (49) 769
Other Retail 945 - 56 29 1,030
Commercial Banking 939 1,096 - (138) 1,897
Other 1 - - - 1
Total 3,685 1,096 242 5 5,028
At 31 December 2022
UK mortgages 946 - 49 214 1,209
Credit cards 698 - 93 (28) 763
Other Retail 903 - 53 60 1,016
Commercial Banking 910 1,008 - (111) 1,807
Other 1 - - - 1
Total 3,458 1,008 195 135 4,796
(1) 2022 includes £1 million which was previously reported within
judgements due to COVID-19.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 11: Allowance for expected credit losses (continued)
Judgements due to inflationary and interest rate risk
UK mortgages: £86 million (31 December 2022: £49 million)
Inflationary and interest rate pressures: £86 million (31 December 2022: £49
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.
Credit cards: £100 million (31 December 2022: £93 million) and Other Retail:
£56 million (31 December: £53 million)
Inflationary risk on Retail segments: Credit cards £100 million (31 December
2022: £93 million) and Other Retail: £56 million (31 December 2022: £53
million)
The Group's ECL models for credit cards and personal loan portfolios use
predictions of wage growth to account for future affordability stress. As
elevated inflation erodes nominal wage growth, adjustments have been made to
the econometric models to account for real, rather than nominal, income to
produce adjusted predicted defaults. These adjustments also include the
specific risk to affordability from increased housing costs, not captured by
CPI. As these adjustments are made within predicted default models, they are
calculated under each economic scenario and impact the staging of assets
through increased PDs.
Alongside these portfolio-wide adjustments management have also made an
additional uplift to ECL for customers with lower income levels and higher
indebtedness deemed most vulnerable to inflationary pressures and interest
rate rises. Although this segment of customers has not exhibited any greater
stress to date, uplifts continue to be applied to recognise that continued
inflation and interest rates pose a greater proportionate risk in future
periods.
Other judgements
UK mortgages: £163 million (31 December 2022: £214 million)
These adjustments principally comprise:
Increase in time to repossession: £120 million (31 December 2022: £118
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.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 11: Allowance for expected credit losses (continued)
Other judgements (continued)
Asset recovery values: £89 million (31 December 2022: £69 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: £25 million (31 December 2022: £25
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: £(72) 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.
Credit cards: £(49) million (31 December 2022: £(28) million) and Other
Retail: £29 million (31 December 2022: £60 million)
These adjustments principally comprise:
Lifetime extension on revolving products: Credit cards: £73 million (31
December 2022: £82 million) and Other Retail: £12 million (31 December 2022
£14 million)
An adjustment is required to extend the lifetime used for Stage 2 exposures on
Retail revolving products from a three year modelled lifetime, which reflected
the outcome data available when the ECL models were developed. 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): Credit cards: £(109) million (31
December 2022: £(96) million) and Other Retail: £12 million (31 December
2022: £13 million)
A number of adjustments have been made to the loss given default assumptions
used within unsecured and motor 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.
Commercial Banking: £(138) million (31 December 2022: £(111) million)
These adjustments principally comprise:
Corporate insolvency rates: £(145) million (31 December 2022: £(35) million)
During the first half of 2023, the volume of UK corporate insolvencies
continued to exhibit an increasing trend beyond December 2019 levels,
revealing a marked dislocation between observed UK corporate insolvencies and
the Group's credit performance. This dislocation gives rise to uncertainty
over the drivers of observed trends and the appropriateness of the Group's
Commercial Banking model response which uses observed UK corporate
insolvencies data to anchor future loss estimates to. Given the Group's asset
quality remains strong with low new defaults, a negative adjustment is applied
by using the long-term average rate. The larger negative adjustment in the
period reflects the widening gap between the increasing industry level and the
long term average rate used.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 11: Allowance for expected credit losses (continued)
Other judgements (continued)
Adjustments to loss given defaults (LGDs): £(105) million (31 December 2022:
£(105) million)
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.
Commercial Real Estate (CRE) price reduction: £82 million (31 December 2022:
£nil)
Rolling the forecast model forwards into the period has resulted in the
material fall in CRE prices seen in late 2022 moving out of the model
assumptions used to assess ECL. Given the model uses change in the metric as a
driver of defaults and losses there is a risk that the model benefit that
arises does not reflect the residual risk caused by the sustained low level of
prices. Management therefore consider it appropriate to judgementally
reinstate the CRE price drop within the ECL model assumptions given the
materially reduced level in CRE prices could still trigger additional
defaults.
Note 12: 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 4,904 21,422 26,326 5,133 21,377 26,510
Covered bonds - 12,527 12,527 - 14,240 14,240
Certificates of deposit - 3,691 3,691 - 1,607 1,607
Securitisation notes 25 3,471 3,496 26 2,780 2,806
Commercial paper - 15,332 15,332 - 9,052 9,052
4,929 56,443 61,372 5,159 49,056 54,215
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 £3,496 million (31 December 2022:
£2,806 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 £30,538
million (31 December 2022: £28,981 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 £12,527 million (31 December 2022:
£14,240 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 £25,818 million (31 December 2022: £28,231
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 £3,575 million (31 December 2022: £3,789
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 13: 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 (27,482) (28,965)
Fair value of scheme assets 32,081 32,697
Net pension scheme asset 4,599 3,732
Other post-retirement schemes (34) (35)
Net retirement benefit asset 4,565 3,697
Recognised on the balance sheet as:
Retirement benefit assets 4,685 3,823
Retirement benefit obligations (120) (126)
Net retirement benefit asset 4,565 3,697
Movements in the Group's net post-retirement defined benefit scheme asset
during the period were as follows:
£m
Asset at 1 January 2023 3,697
Income statement charge 37
Employer contributions 950
Remeasurement (119)
Asset at 30 June 2023 4,565
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) 3.22 3.13
Consumer Price Index (CPI) 2.77 2.69
Rate of salary increases 0.00 0.00
Weighted-average rate of increase for pensions in payment 2.89 2.84
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 14: Other provisions
Provisions Regulatory Other Total
for financial and legal £m £m
commitments provisions
and guarantees £m
£m
At 1 January 2023 304 708 579 1,591
Provisions applied - (99) (169) (268)
Charge for the period 7 62 61 130
At 30 June 2023 311 671 471 1,453
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
£62 million in respect of legal actions and other regulatory matters and the
unutilised balance at 30 June 2023 was £671 million (31 December 2022:
£708 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.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 14: Other provisions (continued)
Payment protection insurance
The Group has incurred costs for PPI over a number of years totalling £21,906
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.
Other
The Group carries provisions of £97 million (31 December 2022: £112 million)
in respect of dilapidations, rent reviews and other property-related matters.
Provisions are also made for staff and other costs related to Group
restructuring initiatives at the point at which the Group becomes committed to
the expenditure; at 30 June 2023 provisions of £95 million (31 December 2022:
£108 million) were held.
The Group carries provisions of £44 million (31 December 2022: £86 million)
for indemnities and other matters relating to legacy business disposals in
prior years. Whilst there remains significant uncertainty as to the timing of
the utilisation of the provisions, the Group expects the majority of the
remaining provisions to have been utilised by 31 December 2026.
Note 15: Related party transactions
Balances and transactions with fellow Lloyds Banking Group undertakings
The Bank and its subsidiaries have balances due to and from the Bank's parent
company, Lloyds Banking Group plc, and fellow Group undertakings. These are
included on the balance sheet as follows:
At 30 Jun At 31 Dec
2023 2022
£m £m
Assets, included within:
Financial assets at fair value through profit or loss 1 -
Derivative financial instruments 1,382 1,120
Financial assets at amortised cost: due from fellow Lloyds Banking Group 969 816
undertakings
2,352 1,936
Liabilities, included within:
Due to fellow Lloyds Banking Group undertakings 1,965 2,539
Derivative financial instruments 1,123 1,084
Debt securities in issue 17,663 17,648
Subordinated liabilities 6,183 6,490
26,934 27,761
During the half-year to 30 June 2023 the Group earned £7 million (half-year
to 30 June 2022: £3 million) of interest income and incurred £475 million
(half-year to 30 June 2022: £270 million) of interest expense on balances
and transactions with Lloyds Banking Group plc and fellow Group undertakings.
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.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 16: 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.
LIBOR and other trading rates
Certain 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 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 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 £780 million (including interest)
and a reduction in the Group's deferred tax asset of approximately
£295 million. The Group, following conclusion of the hearing and having
taken appropriate advice, does not consider that this is a case where
additional tax will ultimately fall due.
There are a number of other open matters on which the Group is in discussions
with HMRC (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.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 16: Contingent liabilities, commitments and guarantees (continued)
Other legal actions and regulatory matters
In addition, in the course of its business the Group is subject to other
complaints and threatened or actual legal proceedings (including class or
group action claims) brought by or on behalf of current or former employees,
customers, 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 14.
Contingent liabilities, commitments and guarantees arising from the banking
business
At 30 June 2023 total contingent liabilities were £2,646 million (31 December
2022: £2,900 million). Total commitments and guarantees were £126,409
million (31 December 2022: £127,369 million), of which £56,827 million
(2022: £57,782 million) was irrevocable.
Note 17: Interest rate benchmark reform
The Group continues to manage the transition to alternative benchmark rates
under its Group-wide IBOR transition programme. Following the successful
completion of industry events, including the two London Clearing House USD
derivatives transition events in the second quarter, the Group has
transitioned the substantial majority of its LIBOR products, with most of the
remainder being USD uncleared derivatives that are due to transition under the
ISDA protocol. The Group continues to work with customers to transition a
small number of remaining contracts that are not subject to the above events
and either have yet to transition or have defaulted to the relevant synthetic
LIBOR benchmark in the interim.
Note 18: Dividends on ordinary shares
The Bank paid a dividend of £1,900 million on 10 May 2023 (no dividend was
paid in the year ended 31 December 2022).
Note 19: Ultimate parent undertaking
The Bank's ultimate parent undertaking and controlling party is Lloyds Banking
Group plc which is incorporated in Scotland. Lloyds Banking Group plc has
published consolidated accounts for the year to 31 December 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.
Note 20: Other information
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 8 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.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors listed below (being all the directors of Lloyds Bank 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
Lloyds Bank 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 Bentley
Brendan Gilligan
Nigel Hinshelwood
Sarah Legg
Lord Lupton CBE
Amanda Mackenzie LVO OBE
Harmeen Mehta
Cathy Turner
Scott Wheway
Catherine Woods
INDEPENDENT REVIEW REPORT TO LLOYDS BANK PLC
Conclusion
We have been engaged by Lloyds Bank plc and its subsidiaries (the "Group") to
review the condensed consolidated set of financial statements in the
half-yearly financial report for the six months ended 30 June 2023 which
comprises the consolidated income statement, the consolidated statement of
comprehensive income, the consolidated balance sheet, the consolidated
statement of changes in equity, the consolidated cash flow statement and
related notes 1 to 20.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed consolidated set of financial statements in the
half-yearly financial report for the six months ended 30 June 2023 is not
prepared, in all material respects, in accordance with the Disclosure Guidance
and Transparency Rules of the United Kingdom's Financial Conduct Authority and
United Kingdom adopted International Accounting Standard (IAS) 34.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council for use in the United Kingdom (ISRE (UK) 2410). A review of interim
financial information consists of making inquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly,
we do not express an audit opinion.
As disclosed in note 1, the annual financial statements of the Group will be
prepared in accordance with United Kingdom adopted IAS. The condensed
consolidated set of financial statements included in this half-yearly
financial report have been prepared in accordance with United Kingdom adopted
IAS 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This Conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the Group to
cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the Group's ability to continue as a going concern, disclosing
as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly financial report, we are responsible for
expressing to the Group a conclusion on the condensed consolidated set of
financial statements in the half-yearly financial report. Our Conclusion,
including our Conclusions Relating to Going Concern, are based on procedures
that are less extensive than audit procedures, as described in the Basis for
Conclusion paragraph of this report.
Use of our report
This report is made solely to the Group in accordance with ISRE (UK) 2410. Our
work has been undertaken so that we might state to the Group those matters we
are required to state to it in an independent review report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Group, for our review work, for this
report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, England
25 July 2023
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 Lloyds Bank plc together with its
subsidiaries (the Lloyds Bank Group) and its current goals and expectations.
Statements that are not historical or current facts, including statements
about the Lloyds Bank 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 Lloyds Bank 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 Lloyds
Bank Group's future financial performance; the level and extent of future
impairments and write-downs; the Lloyds Bank Group's ESG targets and/or
commitments; statements of plans, objectives or goals of the Lloyds Bank 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 Lloyds Bank Group's or
Lloyds Banking Group plc's credit ratings; fluctuations in interest rates,
inflation, exchange rates, stock markets and currencies; volatility in credit
markets; volatility in the price of the Lloyds Bank Group's securities;
tightening of monetary policy in jurisdictions in which the Lloyds Bank 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 Lloyds Bank Group; risks associated with
the Lloyds Bank 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 Lloyds Bank
Group or Lloyds Banking 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 Lloyds Bank Group's or the Lloyds Banking 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; and assumptions and estimates that form the basis of the Lloyds
Bank Group's financial statements. A number of these influences and factors
are beyond the Lloyds Bank Group's control. 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 Bank 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 Bank 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 Lloyds Bank 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: Lloyds Bank plc, 25 Gresham Street, London EC2V 7HN
Registered in England No. 2065
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