REG - Lloyds Bank Plc Lloyds Banking Group - 2024 Half-Year Results
25/07/2024 11:15
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RNS Number : 8452X Lloyds Bank PLC 25 July 2024
Lloyds Bank plc
2024 Half-Year Results
25 July 2024
Member of the Lloyds Banking Group
CONTENTS
Financial review (#Section3) 1
Risk management
Principal risks and uncertainties (#Section5) 3
Capital risk (#Section6) 4
Credit risk (#Section7) 8
Liquidity risk (#Section8) 18
Statutory information
Condensed consolidated half-year financial statements (unaudited) (#Section9) 21
Condensed consolidated income statement (unaudited) (#Section10) 22
Condensed consolidated statement of comprehensive income (#Section11) 23
(unaudited) (#Section11)
Condensed consolidated balance sheet (unaudited) (#Section12) 24
Condensed consolidated statement of changes in equity (unaudited) (#Section13) 25
Condensed consolidated cash flow statement (unaudited) (#Section14) 28
Notes to the condensed consolidated half-year financial statements (unaudited) 29
(#Section15)
Statement of directors' responsibilities (#Section33) 58
Independent review report to Lloyds Bank plc (#Section34) 59
Forward looking statements (#Section35) 60
Contacts (#Section36) 61
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 2024 was £2,818 million,
20 per cent lower than the same period in 2023. This was due to lower net
interest income and higher operating expenses, partly offset by a lower
impairment charge. Profit after tax was £2,007 million (half-year to 30 June
2023: £2,590 million).
Total income for the period was £8,376 million, a decrease of 7 per cent on
the same period in 2023, primarily reflecting lower net interest income. Net
interest income of £6,222 million was down 11 per cent compared to the first
half of 2023, driven by lower margins. The lower margin reflects anticipated
headwinds due to deposit churn and asset margin compression, particularly in
the mortgage book as it refinances in a lower margin environment. These
factors were partially offset by benefits from higher structural hedge
earnings as it refinances in the higher rate environment.
Other income amounted to £2,154 million in the half-year to 30 June 2024
compared to £2,031 million in the same period in 2023, with improved UK
Motor Finance performance, including growth following the acquisition of
Tusker in the first half of 2023 and continued Commercial Banking growth
partially offset by the impact of changes to commission arrangements with
Scottish Widows.
Operating expenses of £5,436 million were 13 per cent higher than in the
prior year. This reflects higher operating lease depreciation, due to fleet
size growth, the depreciation of higher value vehicles and declines in used
car prices (particularly in electric vehicles), alongside planned strategic
investment, elevated severance charges and continued inflationary pressure. It
also includes c.£100 million relating to the sector-wide change in the
charging approach for the Bank of England Levy during the first quarter.
In the first half of 2024 the Group recognised remediation costs of
£90 million (half-year to 30 June 2023: £62 million), largely in relation
to pre-existing programmes. There have been no further charges relating to the
potential impact of the FCA review into historical motor finance commission
arrangements. An update from the FCA is currently expected in September.
Impairment was a net charge of £122 million compared to a £681 million
charge in the half-year to 30 June 2023. This decrease reflects a larger
credit from improvements to the Group's economic outlook in the period
compared to the prior year (notably in HPI) and changes in methodology. In
addition the reduction also includes the release of judgemental adjustments
for inflation and interest rate risks and stronger performance in UK mortgages
resulting in lower charges. Commercial Banking has benefited from a one-off
release from loss rates used in the model, while observing a low charge on new
and existing Stage 3 clients.
The Group recognised a tax expense of £811 million in the period, compared to
£940 million in the first half of 2023, reflecting decreased profits.
FINANCIAL REVIEW (continued)
Balance sheet
Total assets were £2,957 million higher at £608,362 million at 30 June 2024
compared to £605,405 million at 31 December 2023. Financial assets at
amortised cost were £9,987 million higher at £498,058 million compared to
£488,071 million at 31 December 2023 with increases in reverse repurchase
agreements of £9,522 million and loans and advances to customers of £2,186
million, partly offset by a reduction in loans and advances to banks of
£1,743 million. The increase in reverse repurchase agreements and the
decrease in cash and balances at central banks by £8,755 million to £49,154
million reflected a change in the mix of liquidity holdings. The increase in
loans and advances to customers included growth across most Retail product
areas, in particular UK Retail unsecured loans, due to balance growth and
lower repayments following a securitisation in the fourth quarter of 2023.
Other assets increased by £2,021 million to £13,959 million, driven by
higher settlement balances and higher operating lease assets reflecting
continued motor finance growth.
Total liabilities were £3,749 million higher at £568,723 million compared to
£564,974 million at 31 December 2023. Customer deposits at £446,165 million
increased by £4,212 million since the end of 2023, driven by inflows to
limited withdrawal and fixed savings products, partly offset by decreases in
current account balances. Debt securities in issue at amortised cost decreased
by £3,724 million to £48,725 million at 30 June 2024. Amounts due to fellow
Lloyds Banking Group undertakings increased by £2,236 million to £5,168
million at 30 June 2024. Other liabilities increased by £2,208 million to
£8,468 million, driven by higher settlement balances.
Total equity was £39,639 million at 30 June 2024 compared to £40,431 million
at 31 December 2023. The reduction in total equity was driven by an interim
dividend of £2.1 billion, pension revaluations and cash flow hedging reserve
movements, partly offset by the profit for the period.
Capital
The Group's common equity tier 1 (CET1) capital ratio reduced to 13.6 per cent
at 30 June 2024 (31 December 2023: 14.4 per cent). This largely reflected
profit for the period, offset by the payment of ordinary dividends during the
first half of the year, the accrual for foreseeable ordinary dividends and an
increase in risk-weighted assets.
Risk-weighted assets have increased by £1,389 million to £183,949 million at
30 June 2024 (31 December 2023: £182,560 million). This incorporates the
impact of Retail lending growth, offset by optimisation including capital
efficient securitisation activity, in addition to other movements.
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 and elevated interest rates which are contributing
to the cost of living and associated implications for UK consumers and
businesses.
Asset quality remains strong with resilient credit performance throughout the
period. The Group continues to monitor the impacts of the economic environment
carefully through a suite of early warning indicators and governance
arrangements that ensure risk mitigating action plans are in place to support
customers and protect the Group's positions.
With respect to conduct risk there have been no further charges relating to
the potential impact of the FCA review into historical motor finance
commission arrangements. An update from the FCA is currently expected in
September.
The Group is transforming its approach to risk management to support its
strategic ambition and purpose of Helping Britain Prosper. The Group has
reviewed its three lines of defence model and is evolving its accountabilities
with enhanced focus on controls and expertise. This will increase the pace of
decision making, with the intent of improving risk management. The Group has
initially focused on non-financial risks.
The Group has also undertaken a detailed review of its risk categories and
implemented an events-based risk management framework. This has resulted in a
reduction in the number of principal risk types and the simplification of
secondary risk categories. This change better aligns to the Basel Committee on
Banking Supervision's event categories which will benefit the Group for
scenario activities and regulatory reporting.
The Group has 10 principal risks; capital risk, climate risk, compliance risk
(previously regulatory and legal risk), conduct risk, credit risk, economic
crime risk, liquidity risk (previously liquidity and funding risk), market
risk, model risk and operational risk (operational resilience risk has been
removed as a separate risk category as it relates to many of the principal
risk types).
The below principal risk definitions have changed since the Group's 2023
annual report and accounts:
Conduct risk - The risk of our Group activities, behaviours, strategy or
business planning, having an adverse impact on outcomes for customers,
undermining the integrity of the market or distorting competition, which could
lead to regulatory censure, reputational damage or financial loss.
Economic crime risk - The risk that the Group implements ineffective policies,
systems, processes and controls to prevent, detect and respond to the risk of
fraud and/or financial crime resulting in increased losses, regulatory
censure/fines and/or adverse publicity in the UK or other jurisdictions in
which the Group operates.
Liquidity risk - The risk that the Group does not have sufficient financial
resources to meet its commitments when they fall due or can only secure them
at excessive cost.
Model risk - The potential for adverse consequences from model errors or the
inappropriate use of modelled outputs to inform business decisions. Adverse
consequences could lead to a deterioration in the prudential position,
non-compliance with applicable laws and/or regulations, or damage to the
Group's reputation. Model risk can also lead to financial loss, as well as
qualitative limitations such as the imposition of restrictions on business
activities.
Operational risk - The risk of actual or potential impact to the Group
(financial and/or non-financial) resulting from inadequate or failed internal
processes, people, and systems or from external events. Resilience is core to
the management of operational risk within Lloyds Banking Group to ensure that
business processes (including those that are outsourced) can withstand
operational risks and can respond to and meet customer and stakeholder needs
when continuity of operations is compromised.
All other principal risk definitions remain unchanged.
CAPITAL RISK
Capital resources
An analysis of the Group's capital position as at 30 June 2024 is presented in
the following table. This reflects the application of the transitional
arrangements for IFRS 9.
At 30 Jun At 31 Dec
2024 2023
£m £m
Common equity tier 1
Shareholders' equity per balance sheet 34,552 35,355
Adjustment to retained earnings for foreseeable dividends (1,250) (490)
Cash flow hedging reserve 3,815 3,554
Other adjustments (6) 73
37,111 38,492
less: deductions from common equity tier 1
Goodwill and other intangible assets (5,608) (5,531)
Prudent valuation adjustment (103) (117)
Removal of defined benefit pension surplus (2,473) (2,653)
Deferred tax assets (3,889) (3,971)
Common equity tier 1 capital 25,038 26,220
Additional tier 1
Additional tier 1 instruments 5,018 5,018
Total tier 1 capital 30,056 31,238
Tier 2
Tier 2 instruments 5,506 5,747
Eligible provisions 119 417
Total tier 2 capital 5,625 6,164
Total capital resources 35,681 37,402
Risk-weighted assets 183,949 182,560
Common equity tier 1 capital ratio 13.6% 14.4%
Tier 1 capital ratio 16.3% 17.1%
Total capital ratio 19.4% 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 2023 26,220
Profit for the period 2,007
Movement in foreseeable dividends(1) (760)
Dividends paid out on ordinary shares during the year (2,140)
IFRS 9 transitional adjustment to retained earnings (141)
Deferred tax asset 83
Goodwill and other intangible assets (77)
Distributions on other equity instruments (172)
Other movements 18
At 30 June 2024 25,038
(1) Reflects the reversal of the brought forward accrual for the interim
ordinary dividend at 31 December 2023, net of the accrual recognised at 30
June 2024.
CET1 capital resources have reduced by £1,182 million during the period,
primarily reflecting profit for the period, which was more than offset by:
• The payment of ordinary dividends during the first half of the year and
the accrual for foreseeable ordinary dividends
• Distributions on other equity instruments
• The unwind of IFRS 9 dynamic transitional relief, including the phased
reduction on 1 January 2024
Movements in total capital
The Group's total capital ratio reduced to 19.4 per cent (31 December 2023:
20.5 per cent). This reflected the reduction in CET1 capital, the reduction in
eligible provisions recognised through Tier 2 capital, the impact of interest
rates on Tier 2 capital instruments and the increase in risk-weighted assets.
CAPITAL RISK (continued)
Risk-weighted assets
At 30 Jun At 31 Dec
2024 2023
£m £m
Foundation Internal Ratings Based (IRB) Approach 34,955 36,478
Retail IRB Approach 88,587 85,436
Other IRB Approach 6,263 6,126
IRB Approach 129,805 128,040
Standardised (STA) Approach(1) 18,827 19,021
Credit risk 148,632 147,061
Securitisation 8,440 8,246
Counterparty credit risk 947 875
Credit valuation adjustment risk 331 454
Operational risk 25,305 25,605
Market risk 294 319
Risk-weighted assets 183,949 182,560
of which: threshold risk-weighted assets(2) 1,070 1,424
(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 £1,389 million to £183,949 million at
30 June 2024 (31 December 2023: £182,560 million). This incorporates the
impact of Retail lending growth, offset by optimisation including capital
efficient securitisation activity, in addition to other movements.
CAPITAL RISK (continued)
Leverage ratio
The table below summarises the component parts of the Group's leverage ratio.
At 30 Jun At 31 Dec
2024 2023
£m £m
Total tier 1 capital 30,056 31,238
Exposure measure
Statutory balance sheet assets
Derivative financial instruments 2,688 3,165
Securities financing transactions 42,773 32,796
Loans and advances and other assets 562,901 569,444
Total assets 608,362 605,405
Qualifying central bank claims (48,670) (57,430)
Derivatives adjustments (1,350) (1,737)
Securities financing transactions adjustments 1,519 1,431
Off-balance sheet items 31,940 31,494
Amounts already deducted from Tier 1 capital (12,013) (12,060)
Other regulatory adjustments(1) (4,856) (4,950)
Total exposure measure 574,932 562,153
UK leverage ratio 5.2% 5.6%
Leverage exposure measure (including central bank claims) 623,602 619,583
Leverage ratio (including central bank claims) 4.8% 5.0%
(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 reduced to 5.2 per cent (31 December 2023: 5.6
per cent). This reflected both the reduction in the total tier 1 capital
position and the £12.8 billion increase in the leverage exposure measure,
principally related to the increase in securities financing transactions and
other balance sheet movements.
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.html.
CREDIT RISK
Overview
The Group's portfolios are well-positioned to benefit from an improved, but
still challenging 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.
Asset quality remains strong with resilient credit performance throughout the
period. In UK mortgages, reductions in new to arrears and flows to default
have been observed in the half-year and second quarter. Unsecured portfolios
continue to exhibit stable new to arrears and flow to default trends. Credit
quality remains stable and resilient in Commercial Banking. 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 2024 was £122 million, down from a
charge of £681 million in the first half of 2023. This is partly as a result
of improvements in the Group's macroeconomic outlook. The Group's ECL
allowance on loans and advances to customers decreased in the first half to
£3,587 million (31 December 2023: £4,007 million).
Group Stage 2 loans and advances to customers reduced to £42,774 million (31
December 2023: £52,973 million) and as a percentage of total lending to at
9.8 per cent (31 December 2023: 12.1 per cent). This is due to improvements
in the macroeconomic outlook transferring assets back to Stage 1. Of the total
Group Stage 2 loans and advances to customers, 91.5 per cent are up to date
(31 December 2023: 92.5 per cent). Stage 2 coverage remains stable at 3.2
per cent (31 December 2023: 3.1 per cent).
Stage 3 loans and advances to customers have increased slightly to
£7,343 million (31 December 2023: £7,131 million), and as a percentage of
total lending to 1.7 per cent (31 December 2023: 1.6 per cent). Stage 3
coverage decreased by 1.2 percentage points to 14.7 per cent (31 December
2023: 15.9 per cent).
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, in line with the Group's
strategy, supporting clients to grow, as well as working closely with
customers to help them through the impact of higher borrowing costs and higher
prices following elevated inflation in recent years
• 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, including but not
restricted to embracing the standards outlined in the Mortgage Charter
CREDIT RISK (continued)
Impairment charge (credit) by division
Half-year Half-year Change Half-year Change
to 30 Jun 2024 to 30 Jun % to 31 Dec %
£m 2023 2023
£m £m
UK mortgages (119) 191 (242) (51)
Credit cards 115 197 42 260 56
UK unsecured loans and overdrafts 140 160 13 91 (54)
UK Motor Finance 61 43 (42) 126 52
Other (3) 1 4
Retail 194 592 67 239 19
Small and Medium Businesses 11 25 56 89 88
Corporate and Institutional Banking (80) 65 (662) (88)
Commercial Banking (69) 90 (573) (88)
Other (3) (1) (4) (25)
Total impairment charge (credit) 122 681 82 (338)
Total expected credit loss allowance
At 30 Jun 2024 At 31 Dec 2023
£m £m
Customer related balances
Drawn 3,314 3,693
Undrawn 273 314
3,587 4,007
Other assets 9 14
Total ECL allowance 3,596 4,021
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
2023 £m £m 2024
£m £m
UK mortgages(2) 1,115 (25) (119) (144) 971
Credit cards 810 (225) 115 (110) 700
UK unsecured loans and overdrafts 515 (156) 140 (16) 499
UK Motor Finance 342 (39) 61 22 364
Other 88 (6) (3) (9) 79
Retail 2,870 (451) 194 (257) 2,613
Small and Medium Businesses 537 (51) 11 (40) 497
Corporate and Institutional Banking 613 (48) (80) (128) 485
Commercial Banking 1,150 (99) (69) (168) 982
Other 1 3 (3) - 1
Total(3) 4,021 (547) 122 (425) 3,596
(1) Contains adjustments in respect of purchased or originated
credit-impaired financial assets.
(2) Includes £20 million within write-offs and other relating to the
securitisation of £1 billion of legacy Retail mortgages in the second quarter
of 2024.
(3) Total ECL includes £9 million relating to other non customer-related
assets (31 December 2023: £14 million).
CREDIT RISK (continued)
Loans and advances to customers and expected credit loss allowance
At 30 June 2024 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 266,308 29,842 4,542 7,218 307,910 9.7 1.5
Credit cards 13,329 2,601 290 - 16,220 16.0 1.8
UK unsecured loans and overdrafts 8,261 1,213 186 - 9,660 12.6 1.9
UK Motor Finance 14,185 2,288 117 - 16,590 13.8 0.7
Other 16,434 522 163 - 17,119 3.0 1.0
Retail 318,517 36,466 5,298 7,218 367,499 9.9 1.4
Small and Medium Businesses 26,866 3,773 1,323 - 31,962 11.8 4.1
Corporate and Institutional Banking 36,888 2,535 722 - 40,145 6.3 1.8
Commercial Banking 63,754 6,308 2,045 - 72,107 8.7 2.8
Other(1) (982) - - - (982)
Total gross lending 381,289 42,774 7,343 7,218 438,624 9.8 1.7
Customer related ECL allowance (drawn and undrawn)
UK mortgages 87 328 331 225 971
Credit cards 206 361 133 - 700
UK unsecured loans and overdrafts 158 231 110 - 499
UK Motor Finance(2) 185 112 67 - 364
Other 15 19 45 - 79
Retail 651 1,051 686 225 2,613
Small and Medium Businesses 131 205 161 - 497
Corporate and Institutional Banking 127 120 230 - 477
Commercial Banking 258 325 391 - 974
Other - - - - -
Total 909 1,376 1,077 225 3,587
Customer related ECL allowance (drawn and undrawn) as a percentage of loans
and advances to customers
Stage 1 Stage 2 Stage 3 POCI Total
%
%
%
%
%
UK mortgages - 1.1 7.3 3.1 0.3
Credit cards 1.5 13.9 45.9 - 4.3
UK unsecured loans and overdrafts 1.9 19.0 59.1 - 5.2
UK Motor Finance 1.3 4.9 57.3 - 2.2
Other 0.1 3.6 27.6 - 0.5
Retail 0.2 2.9 12.9 3.1 0.7
Small and Medium Businesses 0.5 5.4 12.2 - 1.6
Corporate and Institutional Banking 0.3 4.7 31.9 - 1.2
Commercial Banking 0.4 5.2 19.1 - 1.4
Other - - -
Total 0.2 3.2 14.7 3.1 0.8
(1) Contains centralised fair value hedge accounting adjustments.
(2) UK Motor Finance for Stages 1 and 2 include £185 million relating to
provisions against residual values of vehicles subject to finance leasing
agreements for Black Horse. These provisions are included within the
calculation of coverage ratios.
CREDIT RISK (continued)
Loans and advances to customers and expected credit loss allowance (continued)
At 31 December 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 256,596 38,533 4,337 7,854 307,320 12.5 1.4
Credit cards 12,625 2,908 284 - 15,817 18.4 1.8
UK unsecured loans and overdrafts 7,103 1,187 196 - 8,486 14.0 2.3
UK Motor Finance 13,541 2,027 112 - 15,680 12.9 0.7
Other 15,898 525 144 - 16,567 3.2 0.9
Retail 305,763 45,180 5,073 7,854 363,870 12.4 1.4
Small and Medium Businesses 27,525 4,458 1,530 - 33,513 13.3 4.6
Corporate and Institutional Banking 35,872 3,335 528 - 39,735 8.4 1.3
Commercial Banking 63,397 7,793 2,058 - 73,248 10.6 2.8
Other(1) (301) - - - (301)
Total gross lending 368,859 52,973 7,131 7,854 436,817 12.1 1.6
Customer related ECL allowance (drawn and undrawn)
UK mortgages 169 376 357 213 1,115
Credit cards 234 446 130 - 810
UK unsecured loans and overdrafts 153 244 118 - 515
UK Motor Finance(2) 188 91 63 - 342
Other 20 21 47 - 88
Retail 764 1,178 715 213 2,870
Small and Medium Businesses 139 231 167 - 537
Corporate and Institutional Banking 135 212 253 - 600
Commercial Banking 274 443 420 - 1,137
Other - - - - -
Total 1,038 1,621 1,135 213 4,007
Customer related ECL allowance (drawn and undrawn) as a percentage of loans
and advances to customers
Stage 1 Stage 2 Stage 3 POCI Total
%
%
%
%
%
UK mortgages 0.1 1.0 8.2 2.7 0.4
Credit cards 1.9 15.3 45.8 - 5.1
UK unsecured loans and overdrafts 2.2 20.6 60.2 - 6.1
UK Motor Finance 1.4 4.5 56.3 - 2.2
Other 0.1 4.0 32.6 - 0.5
Retail 0.2 2.6 14.1 2.7 0.8
Small and Medium Businesses 0.5 5.2 10.9 - 1.6
Corporate and Institutional Banking 0.4 6.4 47.9 - 1.5
Commercial Banking 0.4 5.7 20.4 - 1.6
Other - - -
Total 0.3 3.1 15.9 2.7 0.9
(1) Contains centralised fair value hedge accounting adjustments.
(2) UK Motor Finance for Stages 1 and 2 include £187 million relating to
provisions against residual values of vehicles subject to finance leasing
agreements for Black Horse. These provisions are included within the
calculation of coverage ratios.
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 2024 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 17,837 109 9,350 131 1,678 48 977 40 29,842 328
Credit cards 2,317 272 151 46 96 27 37 16 2,601 361
UK unsecured loans and overdrafts 715 135 343 47 114 33 41 16 1,213 231
UK Motor Finance 971 44 1,127 31 155 26 35 11 2,288 112
Other 109 3 308 9 59 5 46 2 522 19
Retail 21,949 563 11,279 264 2,102 139 1,136 85 36,466 1,051
Small and Medium Businesses 2,943 171 464 18 229 11 137 5 3,773 205
Corporate and Institutional Banking 2,492 119 19 1 5 - 19 - 2,535 120
Commercial Banking 5,435 290 483 19 234 11 156 5 6,308 325
Total 27,384 853 11,762 283 2,336 150 1,292 90 42,774 1,376
At 31 December 2023
UK mortgages 26,665 146 9,024 133 1,771 52 1,073 45 38,533 376
Credit cards 2,612 345 145 49 115 34 36 18 2,908 446
UK unsecured loans and overdrafts 756 148 279 46 112 34 40 16 1,187 244
UK Motor Finance 735 30 1,120 30 138 21 34 10 2,027 91
Other 125 5 295 7 52 5 53 4 525 21
Retail 30,893 674 10,863 265 2,188 146 1,236 93 45,180 1,178
Small and Medium Businesses 3,455 202 590 17 253 8 160 4 4,458 231
Corporate and Institutional Banking 3,175 208 2 - 27 3 131 1 3,335 212
Commercial Banking 6,630 410 592 17 280 11 291 5 7,793 443
Total 37,523 1,084 11,455 282 2,468 157 1,527 98 52,973 1,621
(1 ) Includes forbearance, client and product-specific indicators not
reflected within quantitative PD assessments.
(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 appropriately 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. Consistent with prior years, 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 12 on page 44
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 probability of default and hence the staging of assets is
constant across all the scenarios. In each economic scenario the ECL for
individual assessments is held constant reflecting the basis on which they are
evaluated. Judgemental adjustments applied through changes to model inputs or
parameters, or more qualitative post model adjustments, are apportioned across
the scenarios in proportion to modelled ECL where this better reflects the
sensitivity of these adjustments to each scenario. The probability-weighted
view shows the extent to which a higher ECL allowance has been recognised to
take account of multiple economic scenarios relative to the base case; the
uplift being £464 million compared to £673 million at 31 December 2023.
Total ECL allowance by scenario
Probability- Upside Base case Downside Severe
weighted £m £m £m downside
£m £m
UK mortgages 971 387 658 1,190 3,004
Credit cards 700 583 676 772 903
Other Retail 942 855 915 990 1,139
Commercial Banking 982 735 882 1,122 1,606
Other 1 2 1 1 1
At 30 June 2024 3,596 2,562 3,132 4,075 6,653
UK mortgages 1,115 395 670 1,155 4,485
Credit cards 810 600 771 918 1,235
Other Retail 945 850 920 981 1,200
Commercial Banking 1,150 780 986 1,342 2,179
Other 1 1 1 1 1
At 31 December 2023 4,021 2,626 3,348 4,397 9,100
CREDIT RISK (continued)
Retail
• Asset quality remains strong in the Retail portfolio with resilient
credit performance throughout the period. There are signs that affordability
pressures are easing as inflation has fallen back and the UK bank rate has
settled. However, lagged impacts from previous interest rate rises and rising
unemployment remain potential headwinds
• Robust risk management remains in place, with strong affordability and
indebtedness controls for both new and existing lending and a prudent risk
appetite approach
• Lending strategies are under continuous review and have been proactively
managed and calibrated to the latest macroeconomic outlook, with actions taken
to enhance both living and housing cost assumptions in affordability
assessments
• In UK mortgages, reductions in new to arrears and flows to default have
been observed in the half-year and second quarter
• Unsecured portfolios continue to exhibit stable new to arrears and flow
to default trends with a small increase observed in flow to default in Motor
driven by a normalisation of Voluntary Terminations (VT's) as used car prices
fall from historic highs
• The Retail impairment charge in the first half of 2024 was £194 million
and is materially lower than the charge of £592 million for the first half
of 2023. This is largely due to favourable updates to the Group's
macroeconomic outlook within the base case and other scenarios, as well as the
release of inflationary adjustments, given portfolio performance
• All existing IFRS 9 staging rules and triggers have been maintained
across Retail from the 2023 year end. Retail customer related ECL allowance as
a percentage of drawn loans and advances (coverage) decreased to 0.7 per cent
(31 December 2023: 0.8 per cent)
• Favourable updates to the Group's macroeconomic outlook have reduced
Stage 2 loans and advances to 9.9 per cent of the Retail portfolio (31
December 2023: 12.4 per cent), of which 91.1 per cent are up to date loans
(31 December 2023: 92.4 per cent). Stage 2 ECL coverage increased to 2.9 per
cent (31 December 2023: 2.6 per cent)
• Stage 3 loans and advances remain flat at 1.4 per cent of total loans
and advances. Retail Stage 3 ECL coverage decreased to 12.9 per cent
(31 December 2023: 14.1 per cent) due to portfolio mix changes; notably
because UK mortgages require comparatively lower coverage in comparison to
other Retail products due to security. Stage 3 loans and advances and Stage 3
coverage for all other Retail products excluding UK mortgages remain broadly
stable
UK mortgages
• The UK mortgage portfolio is well positioned with low arrears and 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, while the balances of higher risk legacy vintages have
continued to reduce
• New to arrears and flows to default have improved in the half-year and
second quarter. The Group is proactively monitoring existing mortgage
customers as they reach the end of fixed rate deals with customers' immediate
behaviour remaining stable
• Total loans and advances increased to £307.9 billion (31 December
2023: £307.3 billion), with a decrease in average LTV. The proportion of
balances with a LTV greater than 90 per cent decreased. The average LTV of new
business increased
• Favourable updates to the Group's macroeconomic outlook and stronger
asset performance resulted in a net impairment release of £119 million for
the first half of 2024 compared to a charge of £191 million for the first
half of 2023. Total ECL coverage decreased to 0.3 per cent (31 December
2023: 0.4 per cent)
• Favourable macroeconomic updates also resulted in reductions to Stage 2
loans and advances to 9.7 per cent of the portfolio (31 December 2023: 12.5
per cent) and Stage 2 ECL coverage rising slightly to 1.1 per cent
(31 December 2023: 1.0 per cent)
• Stage 3 loans and advances remain stable at 1.5 per cent of the
portfolio (31 December 2023: 1.4 per cent) with increases in legacy variable
rate customers reaching 90 days past due largely offset by legacy mortgage
securitisation activity. Stage 3 ECL coverage decreased to 7.3 per cent (31
December 2023: 8.2 per cent), due to the favourable macroeconomic outlook
CREDIT RISK (continued)
Credit cards
• Credit cards balances increased to £16.2 billion (31 December 2023:
£15.8 billion) due to continued recovery in customer spend, with no change to
acquisition risk appetite
• The credit card portfolio is a prime book, with stable credit
performance in the half-year and continued strong repayment rates
• Impairment charge of £115 million for the first half of 2024, is lower
than the charge of £197 million in the first half of 2023, largely due to the
release of ECL judgements raised to cover the risk of increased defaults from
high inflation and cost of living pressures, given continued resilient
portfolio performance. Total ECL coverage reduced to 4.3 per cent
(31 December 2023: 5.1 per cent)
• Favourable updates to the macroeconomic outlook resulted in a reduction
in Stage 2 loans and advances to 16.0 per cent of the portfolio (31 December
2023: 18.4 per cent), with Stage 2 ECL coverage reducing to 13.9 per cent
(31 December 2023: 15.3 per cent)
• Resilient underlying arrears and default performance has also resulted
in stable Stage 3 loans and advances at 1.8 per cent of the portfolio (31
December 2023: 1.8 per cent). Stage 3 ECL coverage is broadly stable at
45.9 per cent (31 December 2023: 45.8 per cent)
UK unsecured loans and overdrafts
• Loans and advances for personal current account and the personal loans
portfolios increased to £9.7 billion (31 December 2023: £8.5 billion)
largely driven by recovering market demand in loans and natural balance build
following the securitisation of assets at the end of 2023
• Impairment charge of £140 million for the first half of 2024 is
modestly below the charge of £160 million for the first half of 2023 again
due to favourable macroeconomic updates and a more resilient underlying
performance than previously anticipated. ECL coverage levels by individual
stage all remain broadly stable, with Stage 2 ECL coverage at 19.0 per cent
(31 December 2023: 20.6 per cent) and Stage 3 ECL coverage at 59.1 per cent
(31 December 2023: 60.2 per cent)
UK Motor Finance
• The UK Motor Finance portfolio increased to £16.6 billion (31 December
2023: £15.7 billion) driven by stocking and fleet, partially offset by a
softening of Retail demand in the half-year
• 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(1). Recent significant falls in used car
prices have been reflected and absorbed by an existing management judgement
within this item. As a result RV and VT provision reduced to £185 million as
at 30 June 2024 (31 December 2023: £187 million)
• Impairment charge of £61 million for the first half of 2024 is higher
than a charge of £43 million for the first half of 2023, which benefitted
from more stable used car prices, partially driven by global supply
constraints following the pandemic that have now eased
• ECL coverage levels at a total level and by individual stage remain
broadly stable. Total ECL coverage at 2.2 per cent (31 December 2023: 2.2 per
cent), Stage 2 ECL coverage at 4.9 per cent (31 December 2023: 4.5 per cent)
and Stage 3 ECL coverage at 57.3 per cent (31 December 2023: 56.3 per
cent)
Other
• Other loans and advances increased to £17.1 billion (31 December 2023:
£16.6 billion). Stage 3 loans and advances remain stable at 1.0 per cent
(31 December 2023: 0.9 per cent) and Stage 3 coverage reduced to 27.6 per
cent (31 December 2023: 32.6 per cent)
• There was a net impairment credit of £3 million for the first half of
2024 compared to a charge of £1 million in the first half of 2023
(1) The depreciation of operating leases is included separately in the
operating lease depreciation charge.
CREDIT RISK (continued)
Commercial Banking
• The Commercial portfolio credit quality remains stable and resilient,
benefitting from a focused approach to credit underwriting and monitoring
standards and proactively managing exposures to higher risk and vulnerable
sectors
• The Group is cognisant of a number of risks and headwinds associated
with the elevated interest rate environment especially in, but not limited to,
sectors reliant upon consumer discretionary spend. Risks 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 closely monitor credit quality, sector and single
name concentrations. Sector and credit risk appetite continue to be
proactively managed to ensure clients are supported in the right way 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. The Group continues to balance prudent risk appetite with
ensuring support for financially viable clients
Impairment
• There was a net impairment credit of £69 million in the first half of
2024, compared to a net impairment charge of £90 million in the first half
of 2023. Commercial Banking has benefitted from a one-off release from loss
rates used in the model, while observing a low charge on new and existing
Stage 3 clients
• ECL allowances decreased in the year to £974 million at 30 June 2024
(31 December 2023: £1,137 million). This was driven by the one-off release
noted above, as well as a revised approach to modelling the multiple economic
scenarios and a more favourable outlook across multiple economic indicators
• Stage 2 loans and advances decreased to £6,308 million (31 December
2023: £7,793 million), largely as a result of improvements in the Group's
macroeconomic outlook, with 93.8 per cent of Stage 2 balances up to date (31
December 2023: 92.7 per cent). Stage 2 as a proportion of total loans and
advances to customers decreased to 8.7 per cent (31 December 2023: 10.6 per
cent). Stage 2 ECL coverage was lower at 5.2 per cent (31 December 2023: 5.7
per cent) with the decrease in coverage largely a result of the change in the
forward-looking multiple economic scenarios
• Stage 3 loans and advances were broadly stable at £2,045 million
(31 December 2023: £2,058 million) and as a proportion of total loans and
advances to customers, flat at 2.8 per cent (31 December 2023: 2.8 per cent).
Stage 3 ECL coverage reduced to 19.1 per cent (31 December 2023: 20.4 per
cent)
CREDIT RISK (continued)
Commercial Banking UK Real Estate
• Commercial Banking UK Real Estate committed drawn lending stood at £9.5
billion at May 2024 (net of £3.1 billion exposures subject to protection
through Significant Risk Transfer (SRT) securitisations). This compares to
£9.7 billion at 31 December 2023 (net of £3.6 billion subject to SRT
securitisations). In addition there are undrawn lending facilities of £2.2
billion (31 December 2023: £2.8 billion) to predominantly investment grade
rated corporate customers
• The Group classifies 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 £6.6 billion to social
housing providers are also excluded (31 December 2023: £6.7 billion)
• Despite some headwinds, including the impact of elevated interest rates,
the portfolio continues to remain well-positioned and proactively managed with
conservative LTVs, good levels of interest cover and appropriate risk
mitigants in place
• Overall performance of the portfolio has remained resilient. The Group
has seen improvement within this sector, with a decrease in cases in its more
closely monitored Watchlist category and limited flow into Business Support
• Lending continues to be heavily weighted towards investment real estate
(c.90 per cent) rather than development. Of these investment exposures c.91
per cent have an LTV of less than 70 per cent, with an average LTV of 46 per
cent. The average interest cover ratio was 3.2 times, with 74 per cent having
interest cover of above 2 times. In SME, LTV at origination has been typically
limited to c.55 per cent, in the context of prudent repayment cover criteria
(including notional base rate stress)
• The portfolio is well diversified with no speculative commercial
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 49 per cent of exposures relate to
commercial real estate, including c.13 per cent secured by office assets, c.12
per cent by retail assets and c.12 per cent by industrial assets.
Approximately 49 per cent of the portfolio relates to residential
• 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
• Use of SRT securitisations also acts as a risk mitigant in this
portfolio. Run-off of these is carefully managed and sequenced
•
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 2024 (31 December 2023: 98 per
cent). Total wholesale funding decreased to £66.0 billion as at 30 June
2024 (31 December 2023: £70.4 billion), driven by a reduction in money
market funding and covered bond maturities. The Group maintains 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 134 per
cent (based on a monthly rolling average over the previous 12 months) as at 30
June 2024 (31 December 2023: 133 per cent). The net stable funding ratio is
strong at 125 per cent as at 30 June 2024 (31 December 2023: 125 per cent).
The Group's credit ratings continue to reflect the strength of its business
model and balance sheet. The rating agencies continue to monitor the impact of
economic conditions and elevated rates for the UK banking sector. The strength
of the Group's management and franchise, along with its robust financial
performance, 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
2024 2023 %
£bn £bn
Lloyds Bank Group funding position
Cash and balances at central banks 49.2 57.9 (15)
Loans and advances to banks 7.1 8.8 (19)
Loans and advances to customers 435.3 433.1 1
Reverse repurchase agreements - non-trading 42.3 32.8 29
Debt securities at amortised cost 12.6 12.5 1
Financial assets at fair value through other comprehensive income 27.5 27.3 1
Other assets(1) 34.4 33.0 4
Total Lloyds Bank Group assets 608.4 605.4
Less other liabilities(1) (16.6) (12.6) (32)
Funding requirements 591.8 592.8
Customer deposits 446.2 442.0 1
Wholesale funding(2) 66.0 70.4 (6)
Repurchase agreements - non-trading 7.7 7.7
Term Funding Scheme with additional incentives for SMEs (TFSME) 30.0 30.0
Deposits from fellow Lloyds Banking Group undertakings 2.3 2.3
Total equity 39.6 40.4 (2)
Funding sources 591.8 592.8
(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 £0.4 billion (31 December 2023: £0.6 billion).
FUNDING AND LIQUIDITY RISK (continued)
Reconciliation of Group funding to the balance sheet
At 30 June 2024 Included Cash collateral received Fair value Balance
in funding £bn and other sheet
analysis accounting methods £bn
£bn £bn
Deposits from banks 2.5 0.4 0.1 3.0
Debt securities in issue at amortised cost 55.3 - (6.6) 48.7
Subordinated liabilities 8.2 - (1.4) 6.8
Total wholesale funding 66.0 0.4
Customer deposits 442.0 - 4.2 446.2
Total 508.0 0.4
At 31 December 2023
Deposits from banks 2.8 0.6 0.2 3.6
Debt securities in issue at amortised cost 59.3 - (6.9) 52.4
Subordinated liabilities 8.3 - (1.4) 6.9
Total wholesale funding 70.4 0.6
Customer deposits 442.0 - - 442.0
Total 512.4 0.6
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
2024
2023
£bn
£bn
£bn £bn £bn £bn £bn £bn £bn £bn
Deposits from banks 1.3 0.4 0.4 0.2 0.2 - - - 2.5 2.8
Debt securities in issue:
Senior unsecured notes issued 1.3 0.2 1.9 2.6 1.6 3.1 7.5 12.1 30.3 29.5
Covered bonds - - 0.5 2.0 0.1 1.7 6.5 0.9 11.7 14.1
Commercial paper 1.5 2.5 1.5 1.3 0.1 - - - 6.9 8.4
Certificates of deposit issued 0.1 0.6 0.4 0.1 0.1 - - - 1.3 3.1
Securitisation notes - - - 0.1 - 0.1 4.3 0.6 5.1 4.2
2.9 3.3 4.3 6.1 1.9 4.9 18.3 13.6 55.3 59.3
Subordinated liabilities - - - 0.6 0.3 0.5 2.2 4.6 8.2 8.3
Total wholesale funding(1) 4.2 3.7 4.7 6.9 2.4 5.4 20.5 18.2 66.0 70.4
(1) Excludes balances relating to margins of £0.4 billion (31 December
2023: £0.6 billion).
FUNDING AND LIQUIDITY RISK (continued)
Analysis of term issuance in half-year to 30 June 2024
Sterling US Dollar Euro Other Total
£bn £bn £bn currencies £bn
£bn
Securitisation(1) 0.9 - - - 0.9
Covered bonds - - - - -
Senior unsecured notes - 3.0 0.8 0.5 4.3
Additional tier 1 - - - - -
Total issuance 0.9 3.0 0.8 0.5 5.2
(1) Includes significant risk transfer securitisations.
Liquidity portfolio
At 30 June 2024, the Group had £108.4 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 2023: £108.7 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
2024(1) 2023(1) Change
£bn £bn %
Cash and central bank reserves 52.4 63.3 (17)
High quality government/MDB/agency bonds(2) 48.1 38.4 25
High quality covered bonds 2.9 2.7 7
Level 1 103.4 104.4 (1)
Level 2(3) 5.0 4.3 16
Total LCR eligible assets 108.4 108.7
(1) Based on 12 months rolling simple average to 30 June 2024 (2023: 31
December 2023). Eligible assets are calculated as a simple average of
month-end observations over the previous 12 months post any liquidity
haircuts.
(2) Designated multilateral development bank (MDB).
(3) Includes Level 2A and Level 2B.
STATUTORY INFORMATION
Condensed consolidated half-year financial statements (unaudited)
Condensed consolidated income statement (unaudited) (#Section10) 22
Condensed consolidated statement of comprehensive income (unaudited) 23
(#Section11)
Condensed consolidated balance sheet (unaudited) (#Section12) 24
Condensed consolidated statement of changes in equity (unaudited) (#Section13) 25
Condensed consolidated cash flow statement (unaudited) (#Section14) 28
Notes to the condensed consolidated half-year financial statements (unaudited)
1 Basis of preparation and accounting policies (#Section16) 29
2 Critical accounting judgements and key sources of estimation uncertainty 30
(#Section17)
3 Segmental analysis (#Section18) 30
4 Net fee and commission income (#Section19) 31
5 Operating expenses (#Section20) 31
6 Retirement benefit obligations (#Section21) 32
7 Impairment (#Section22) 33
8 Tax (#Section23) 33
9 Fair values of financial assets and liabilities (#Section24) 34
10 Loans and advances to customers (#Section25) 39
11 Credit quality of loans and advances to customers (#Section26) 41
12 Allowance for expected credit losses (#Section27) 44
13 Debt securities in issue (#Section28) 52
14 Provisions (#Section29) 53
15 Dividends on ordinary shares (#Section30) 54
16 Related party transactions (#Section31) 55
17 Contingent liabilities, commitments and guarantees (#Section32) 55
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Note Half-year Half-year
to 30 Jun to 30 Jun
2024 2023
£m £m
Interest income 13,980 11,802
Interest expense (7,758) (4,793)
Net interest income 6,222 7,009
Fee and commission income 1,186 1,196
Fee and commission expense (883) (550)
Net fee and commission income 4 303 646
Net trading income 331 107
Other operating income 1,520 1,278
Other income 2,154 2,031
Total income 8,376 9,040
Operating expenses 5 (5,436) (4,829)
Impairment 7 (122) (681)
Profit before tax 2,818 3,530
Tax expense 8 (811) (940)
Profit for the period 2,007 2,590
Profit attributable to ordinary shareholders 1,824 2,417
Profit attributable to other equity holders 172 161
Profit attributable to equity holders 1,996 2,578
Profit attributable to non-controlling interests 11 12
Profit for the period 2,007 2,590
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Half-year Half-year
to 30 Jun to 30 Jun
2024 2023
£m £m
Profit for the period 2,007 2,590
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements:
Remeasurements before tax (351) (119)
Tax 93 27
(258) (92)
Gains and losses attributable to own credit risk:
Losses before tax (86) (85)
Tax 24 24
(62) (61)
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 105 157
Income statement transfers in respect of disposals (4) 67
Income statement transfers in respect of impairment (2) (2)
Tax (27) (61)
72 161
Movements in cash flow hedging reserve:
Effective portion of changes in fair value taken to other comprehensive income (1,435) (1,287)
Net income statement transfers 1,072 616
Tax 102 188
(261) (483)
Movements in foreign currency translation reserve:
Currency translation differences (tax: £nil) (39) (58)
Transfers to income statement (tax: £nil) - -
(39) (58)
Total other comprehensive loss for the period, net of tax (548) (533)
Total comprehensive income for the period 1,459 2,057
Total comprehensive income attributable to ordinary shareholders 1,276 1,884
Total comprehensive income attributable to other equity holders 172 161
Total comprehensive income attributable to equity holders 1,448 2,045
Total comprehensive income attributable to non-controlling interests 11 12
Total comprehensive income for the period 1,459 2,057
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
Note At 30 Jun At 31 Dec
2024 2023
£m £m
Assets
Cash and balances at central banks 49,154 57,909
Financial assets at fair value through profit or loss 9 2,265 1,862
Derivative financial instruments 2,688 3,165
Loans and advances to banks 7,067 8,810
Loans and advances to customers 10 435,310 433,124
Reverse repurchase agreements 42,273 32,751
Debt securities 12,619 12,546
Due from fellow Lloyds Banking Group undertakings 789 840
Financial assets at amortised cost 498,058 488,071
Financial assets at fair value through other comprehensive income 9 27,521 27,337
Goodwill and other intangible assets 5,870 5,837
Current tax recoverable 846 1,026
Deferred tax assets 4,622 4,636
Retirement benefit assets 6 3,379 3,624
Other assets 13,959 11,938
Total assets 608,362 605,405
Liabilities
Deposits from banks 2,973 3,557
Customer deposits 446,165 441,953
Repurchase agreements 37,848 37,702
Due to fellow Lloyds Banking Group undertakings 5,168 2,932
Financial liabilities at fair value through profit or loss 9 4,909 5,255
Derivative financial instruments 3,980 4,307
Notes in circulation 1,766 1,392
Debt securities in issue at amortised cost 13 48,725 52,449
Other liabilities 8,468 6,260
Retirement benefit obligations 6 130 136
Current tax liabilities 28 23
Deferred tax liabilities 146 157
Provisions 14 1,653 1,916
Subordinated liabilities 6,764 6,935
Total liabilities 568,723 564,974
Equity
Share capital 1,574 1,574
Share premium account 600 600
Other reserves 2,167 2,395
Retained profits 30,211 30,786
Ordinary shareholders' equity 34,552 35,355
Other equity instruments 5,018 5,018
Total equity excluding non-controlling interests 39,570 40,373
Non-controlling interests 69 58
Total equity 39,639 40,431
Total equity and liabilities 608,362 605,405
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
CONDENSED 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 2024 2,174 2,395 30,786 35,355 5,018 58 40,431
Comprehensive income
Profit for the period - - 1,824 1,824 172 11 2,007
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - (258) (258) - - (258)
Movements in revaluation reserve in respect of financial assets held at fair
value through other comprehensive income, net of tax:
Debt securities - 72 - 72 - - 72
Gains and losses attributable to own credit risk, net of tax - - (62) (62) - - (62)
Movements in cash flow hedging reserve, net of tax - (261) - (261) - - (261)
Movements in foreign currency translation reserve, net of tax - (39) - (39) - - (39)
Total other comprehensive loss - (228) (320) (548) - - (548)
Total comprehensive (loss) income(1) - (228) 1,504 1,276 172 11 1,459
Transactions with owners
Dividends - - (2,140) (2,140) - - (2,140)
Distributions on other equity instruments - - - - (172) - (172)
Issue of other equity instruments - - - - - - -
Capital contributions received - - 61 61 - - 61
Return of capital contributions - - - - - - -
Total transactions with owners - - (2,079) (2,079) (172) - (2,251)
At 30 June 2024(2) 2,174 2,167 30,211 34,552 5,018 69 39,639
(1) Total comprehensive income attributable to owners of the parent was
£1,448 million.
(2) Total equity attributable to owners of the parent was £39,570 million.
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)
Attributable to ordinary shareholders
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
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)
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.
CONDENSED 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 2023 2,174 363 32,245 34,782 5,018 64 39,864
Comprehensive income
Profit for the period - - 2,441 2,441 173 3 2,617
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - (1,113) (1,113) - - (1,113)
Movements in revaluation reserve in respect of financial assets held at fair
value through other comprehensive income, net of tax:
Debt securities - (90) - (90) - - (90)
Gains and losses attributable to own credit risk, net of tax - - (107) (107) - - (107)
Movements in cash flow hedging reserve, net of tax - 2,097 - 2,097 - - 2,097
Movements in foreign currency translation reserve, net of tax - 25 - 25 - - 25
Total other comprehensive income (loss) - 2,032 (1,220) 812 - - 812
Total comprehensive income(1) - 2,032 1,221 3,253 173 3 3,429
Transactions with owners
Dividends - - (2,800) (2,800) - (9) (2,809)
Distributions on other equity instruments - - - - (173) - (173)
Issue of other equity instruments - - - - - - -
Capital contributions received - - 121 121 - - 121
Return of capital contributions - - (1) (1) - - (1)
Total transactions with owners - - (2,680) (2,680) (173) (9) (2,862)
At 31 December 2023(2) 2,174 2,395 30,786 35,355 5,018 58 40,431
(1) Total comprehensive income attributable to owners of the parent was
£3,426 million.
(2) Total equity attributable to owners of the parent was £40,373 million.
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
Half-year Half-year
to 30 Jun to 30 Jun
2024 2023
£m £m
Cash flows from operating activities
Profit before tax 2,818 3,530
Adjustments for:
Change in operating assets (11,747) 8,828
Change in operating liabilities 2,077 (1,869)
Non-cash and other items 2,270 1,897
Net tax paid (415) (785)
Net cash (used in) provided by operating activities (4,997) 11,601
Cash flows from investing activities
Purchase of financial assets (5,800) (3,847)
Proceeds from sale and maturity of financial assets 5,261 3,654
Purchase of fixed assets (2,636) (3,220)
Proceeds from sale of fixed assets 604 506
Net cash used in investing activities (2,571) (2,907)
Cash flows from financing activities
Dividends paid to ordinary shareholders (2,140) (1,900)
Distributions on other equity instruments (172) (161)
Dividends paid to non-controlling interests - (30)
Interest paid on subordinated liabilities (194) (198)
Proceeds from issue of other equity instruments - 745
Repayment of subordinated liabilities - (265)
Borrowings from parent company 3,168 389
Repayments of borrowings to parent company (1,001) (945)
Interest paid on borrowings from parent company (198) (214)
Net cash used in financing activities (537) (2,579)
Effects of exchange rate changes on cash and cash equivalents (66) (70)
Change in cash and cash equivalents (8,171) 6,045
Cash and cash equivalents at beginning of period 66,538 75,201
Cash and cash equivalents at end of period 58,367 81,246
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
Cash and cash equivalents comprise cash and non-mandatory balances with
central banks and amounts due from banks with an original maturity of less
than three months.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
Note 1: Basis of preparation and accounting policies
These condensed consolidated half-year financial statements as at and for the
period to 30 June 2024 have been prepared in accordance with the Disclosure
Guidance and Transparency Rules of the Financial Conduct Authority (FCA) and
with International Accounting Standard 34 (IAS 34), Interim Financial
Reporting as adopted by the United Kingdom and comprise the results of 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 2023 which complied with
international accounting standards in conformity with the requirements of the
Companies Act 2006 and were prepared in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB). Copies of the 2023 annual report and accounts are
available on the Lloyds Banking Group's website and are also available upon
request from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street,
London EC2V 7HN.
The directors consider that it is appropriate to continue to adopt the going
concern basis in preparing these condensed consolidated half-year financial
statements. In reaching this assessment, the directors have taken into account
the uncertainties affecting the UK economy and their potential effects upon
the Group's performance and projected funding and capital position; the impact
of further stress scenarios has also been considered. On this basis, the
directors are satisfied that the Group will maintain adequate levels of
funding and capital for the foreseeable future.
The Group's accounting policies are consistent with those applied by the Group
in its financial statements for the year ended 31 December 2023 and there have
been no changes in the Group's methods of computation.
The IASB has issued a number of minor amendments to IFRSs that are relevant to
the Group effective 1 January 2024, including IFRS 16 Lease Liability in a
Sale and Leaseback, IAS 1 Non-current Liabilities with Covenants, and IAS 1
Classification of Liabilities as Current or Non-current. These amendments have
not had a significant impact on the Group.
Future accounting developments
The IASB has issued Amendments to the Classification and Measurement of
Financial Instruments (IFRS 9 and IFRS 7) which is effective 1 January 2026
and IFRS 19 Subsidiaries without Public Accountability: Disclosures which is
effective 1 January 2027. Neither the amendments nor IFRS 19 are expected to
have a significant impact on the Group. The IASB has also issued IFRS 18
Primary Financial Statements which is effective 1 January 2027. The standard
includes no measurement changes, and the Group is currently assessing the
impact of this standard on its income statement presentation.
The Bank's ultimate parent undertaking and controlling party is Lloyds Banking
Group plc which is incorporated in Scotland. Lloyds Banking Group plc has
published consolidated accounts for the year to 31 December 2023 and copies
may be obtained from Investor Relations, Lloyds Banking Group plc, 25 Gresham
Street, London EC2V 7HN and are available for download from
www.lloydsbankinggroup.com.
The financial information contained in this document does not constitute
statutory accounts within the meaning of section 434 of the Companies Act
2006 (the Act). The statutory accounts for the year ended 31 December 2023
were approved by the directors on 29 February 2024 and were delivered to the
Registrar of Companies on 30 March 2024. The auditors' report on those
accounts was unqualified and did not include a statement under sections 498(2)
(accounting records or returns inadequate or accounts not agreeing with
records and returns) or 498(3) (failure to obtain necessary information and
explanations) of the Act.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 2: Critical accounting judgements and key sources of estimation
uncertainty
The preparation of the Group's financial statements in accordance with IFRS
requires management to make judgements, estimates and assumptions in applying
the accounting policies that affect the reported amounts of assets,
liabilities, income and expenses. Due to the inherent uncertainty in making
estimates, actual results reported in future periods may be based upon amounts
which differ from these estimates. Estimates, judgements and assumptions are
continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances. In preparing the financial statements, the
Group has considered the impact of climate-related risks on its financial
position and performance. While the effects of climate change represent a
source of uncertainty, the Group does not consider there to be a material
impact on its judgements and estimates from the physical, transition and other
climate-related risks in the short-term.
The Group's significant judgements, estimates and assumptions are unchanged
compared to those disclosed in note 3 of the Group's 2023 financial
statements. Further information on the critical accounting judgements and key
sources of estimation uncertainty for the allowance for expected credit losses
is set out in note 12.
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.
Half-year to 30 June 2024 Retail Commercial Other Total
£m Banking £m £m
£m
Net interest income 4,429 1,636 157 6,222
Other income 837 521 796 2,154
Total income 5,266 2,157 953 8,376
Operating expenses (3,563) (1,149) (724) (5,436)
Impairment (charge) credit (195) 69 4 (122)
Profit before tax 1,508 1,077 233 2,818
External income (expense) 6,254 2,829 (707) 8,376
Inter-segment (expense) income (988) (672) 1,660 -
Segment income 5,266 2,157 953 8,376
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 (expense) income (359) (510) 869 -
Segment income 6,068 2,394 578 9,040
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 3: Segmental analysis (continued)
Segment Segment
external assets external liabilities
At 30 Jun At 31 Dec At 30 Jun At 31 Dec
2024 2023 2024 2023
£m £m £m £m
Retail 380,653 376,589 319,063 313,232
Commercial Banking 86,004 90,301 136,393 138,835
Other 141,705 138,515 113,267 112,907
Total Group 608,362 605,405 568,723 564,974
Note 4: Net fee and commission income
Half-year Half-year
to 30 Jun to 30 Jun
2024 2023
£m £m
Fee and commission income:
Current accounts 312 308
Credit and debit card fees 629 614
Commercial banking and treasury fees 92 93
Factoring 35 39
Other fees and commissions 118 142
Total fee and commission income 1,186 1,196
Fee and commission expense (883) (550)
Net fee and commission income 303 646
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
2024 2023
£m £m
Staff costs 2,287 1,934
Premises and equipment costs 182 167
Depreciation and amortisation 1,659 1,310
Other 1,308 1,418
Total operating expenses 5,436 4,829
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 6: Retirement benefit obligations
The Group's post-retirement defined benefit scheme obligations are comprised
as follows:
At 30 Jun At 31 Dec
2024 2023
£m £m
Defined benefit pension schemes:
Present value of funded obligations (28,633) (30,201)
Fair value of scheme assets 31,924 33,733
Net pension scheme asset 3,291 3,532
Other post-retirement schemes (42) (44)
Total amounts recognised in the balance sheet 3,249 3,488
Recognised on the balance sheet as:
Retirement benefit assets 3,379 3,624
Retirement benefit obligations (130) (136)
Total amounts recognised in the balance sheet 3,249 3,488
Movements in the Group's net post-retirement defined benefit scheme asset
during the period were as follows:
£m
Asset at 1 January 2024 3,488
Income statement credit 21
Employer contributions 91
Remeasurement (351)
Asset at 30 June 2024 3,249
The principal assumptions used in the valuations of the defined benefit
pension schemes were as follows:
At 30 Jun At 31 Dec
2024 2023
% %
Discount rate 5.18 4.70
Rate of inflation:
Retail Price Index (RPI) 3.08 2.96
Consumer Price Index (CPI) 2.67 2.47
Rate of salary increases 0.00 0.00
Weighted-average rate of increase for pensions in payment 2.90 2.73
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 7: Impairment
Half-year Half-year
to 30 Jun to 30 Jun
2024 2023
£m £m
Loans and advances to banks (4) (2)
Loans and advances to customers 169 678
Debt securities (1) (1)
Financial assets held at amortised cost 164 675
Financial assets at fair value through other comprehensive income (2) (1)
Loan commitments and financial guarantees (40) 7
Total impairment 122 681
There was a £10 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 2023: £27 million).
Note 8: Tax
In accordance with IAS 34, the Group's income tax expense for the half-year to
30 June 2024 is based on the best estimate of the weighted-average annual
income tax rate expected for the full financial year. The tax effects of
one-off items are not included in the weighted-average annual income tax rate,
but are recognised in the relevant period.
An explanation of the relationship between tax expense and accounting profit
is set out below:
Half-year Half-year
to 30 Jun to 30 Jun
2024 2023
£m £m
Profit before tax 2,818 3,530
UK corporation tax thereon at 25.0 per cent (2023: 23.5 per cent) (704) (830)
Impact of surcharge on banking profits (78) (130)
Non-deductible costs: conduct charges 4 (2)
Other non-deductible costs (98) (40)
Non-taxable income 33 1
Tax relief on coupons on other equity instruments 42 38
Tax-exempt gains/(losses) on disposals - 22
Remeasurement of deferred tax due to rate changes 3 (1)
Differences in overseas tax rates (3) (1)
Adjustments in respect of prior years (10) 3
Tax expense (811) (940)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 9: 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 16 to the Group's financial statements for the year
ended 31 December 2023 details the definitions of the three levels in the
fair value hierarchy.
Financial instruments classified as financial assets at fair value through
profit or loss, derivative financial instruments, financial assets at fair
value through other comprehensive income and financial liabilities at fair
value through profit or loss are recognised at fair value.
The Group manages valuation adjustments for its derivative exposures on a net
basis; the Group determines their fair values on the basis of their net
exposures. In all other cases, fair values of financial assets and liabilities
measured at fair value are determined on the basis of their gross exposures.
The following tables provide an analysis of the financial assets and
liabilities of the Group that are carried at fair value in the Group's
consolidated balance sheet, grouped into levels 1 to 3 based on the degree to
which the fair value is observable. There were no significant transfers
between level 1 and level 2 during the period.
Financial assets Level 1 Level 2 Level 3 Total
£m £m £m £m
At 30 June 2024
Financial assets at fair value through profit or loss:
Loans and advances to customers - 1,784 282 2,066
Equity shares 195 - 4 199
Total financial assets at fair value through profit or loss 195 1,784 286 2,265
Financial assets at fair value through other comprehensive income:
Debt securities 14,038 13,432 51 27,521
Equity shares - - - -
Total financial assets at fair value through other comprehensive income 14,038 13,432 51 27,521
Derivative financial instruments - 2,688 - 2,688
Total financial assets carried at fair value 14,233 17,904 337 32,474
At 31 December 2023
Financial assets at fair value through profit or loss:
Loans and advances to customers - 1,391 266 1,657
Equity shares 201 - 4 205
Total financial assets at fair value through profit or loss 201 1,391 270 1,862
Financial assets at fair value through other comprehensive income:
Debt securities 15,025 12,259 52 27,336
Equity shares - - 1 1
Total financial assets at fair value through other comprehensive income 15,025 12,259 53 27,337
Derivative financial instruments - 3,165 - 3,165
Total financial assets carried at fair value 15,226 16,815 323 32,364
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 9: Fair values of financial assets and liabilities (continued)
Financial liabilities Level 1 Level 2 Level 3 Total
£m £m £m £m
At 30 June 2024
Financial liabilities at fair value through profit or loss - 4,886 23 4,909
Derivative financial instruments - 3,832 148 3,980
Total financial liabilities carried at fair value - 8,718 171 8,889
At 31 December 2023
Financial liabilities at fair value through profit or loss - 5,232 23 5,255
Derivative financial instruments - 4,168 139 4,307
Total financial liabilities carried at fair value - 9,400 162 9,562
Valuation control framework
Key elements of the valuation control framework include model validation
(incorporating pre-trade and post-trade testing), product implementation
review and independent price verification. The framework covers processes for
all 3 levels in the fair value hierarchy. Formal committees meet quarterly to
discuss and approve valuations in more judgemental areas.
Transfers into and out of level 3 portfolios
Transfers out of level 3 portfolios arise when inputs that could have a
significant impact on the instrument's valuation become market observable;
conversely, transfers into the portfolios arise when sources of data cease to
be observable.
Valuation methodology
For level 2 and level 3 portfolios, there is no significant change to the
valuation methodology (techniques and inputs) disclosed in the Group's
financial statements for the year ended 31 December 2023 applied to these
portfolios.
Movements in level 3 portfolio
The tables below analyse movements in the level 3 financial assets portfolio.
Financial Financial Total
assets at assets at financial
fair value fair value assets
through through other carried at
profit or loss comprehensive fair value
£m income £m
£m
At 1 January 2024 270 53 323
Exchange and other adjustments - (1) (1)
Gains recognised in the income statement within other income 26 - 26
Purchases/increases to customer loans 6 - 6
Sales/repayments of customer loans (16) (1) (17)
At 30 June 2024 286 51 337
Gains recognised in the income statement, within other income, relating to the 26 - 26
change in fair value of those assets held at 30 June 2024
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
Purchases/increases to customer loans - - -
Sales/repayments of customer loans (8) (2) (10)
At 30 June 2023 304 52 356
Gains recognised in the income statement, within other income, relating to the 17 2 19
change in fair value of those assets held at 30 June 2023
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 9: 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 2024 23 139 162
Losses recognised in the income statement within other income 2 19 21
Redemptions (2) (10) (12)
At 30 June 2024 23 148 171
Losses (gains) recognised in the income statement, within other income, 2 (21) (19)
relating to the change in fair value of those liabilities held at 30 June 2024
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 to the (1) (16) (17)
change in fair value of those liabilities held at 30 June 2023
Sensitivity of level 3 valuations
The tables below set out the effects of reasonably possible alternative
assumptions for categories of level 3 financial assets and financial
liabilities.
Effect of reasonably
possible alternative
assumptions(1)
At 30 June 2024 Valuation Significant 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 282 20 (19)
(+/- 50bps)
Equity investments 4
286
Financial assets at fair value through other comprehensive income 51
Level 3 financial assets carried at fair value 337
Financial liabilities at fair value through profit or loss 23 1 (1)
Derivative financial liabilities
Interest rate derivatives Option pricing model Interest rate volatility (13%/200%) 14
Shared appreciation rights Market values - property valuation HPI (+/- 1%) 134 13 (12)
148
Level 3 financial liabilities carried at fair value 171
(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 (UNAUDITED)
(continued)
Note 9: Fair values of financial assets and liabilities (continued)
Sensitivity of level 3 valuations (continued)
Effect of reasonably
possible alternative
assumptions(1)
At 31 December 2023 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 266 21 (19)
(+/- 50bps)
Equity investments 4
270
Financial assets at fair value through other comprehensive income 53
Level 3 financial assets carried at fair value 323
Financial liabilities at fair value through profit or loss 23 1 (1)
Derivative financial liabilities
Interest rate derivatives Option pricing model Interest rate volatility (13%/200%) 16
Shared appreciation rights Market values - property valuation HPI (+/- 1%) 123 13 (12)
139
Level 3 financial liabilities carried at fair value 162
(1) Where the exposure to an unobservable input is managed on a net basis,
only the net impact is shown in the table.
(2) Ranges are shown where appropriate and represent the highest and lowest
inputs used in the level 3 valuations.
Unobservable inputs
Significant unobservable inputs affecting the valuation of debt securities and
derivatives are unchanged from those described in the Group's financial
statements for the year ended 31 December 2023.
Reasonably possible alternative assumptions
Valuation techniques applied to many of the Group's level 3 instruments often
involve the use of two or more inputs whose relationship is interdependent.
The calculation of the effect of reasonably possible alternative assumptions
included in the table above reflects such relationships and are unchanged from
those described in note 16 to the Group's financial statements for the year
ended 31 December 2023.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 9: Fair values of financial assets and liabilities (continued)
The table below summarises the carrying values of financial assets and
liabilities measured at amortised cost in the Group's consolidated balance
sheet. The fair values presented in the table are at a specific date and may
be significantly different from the amounts which will actually be paid or
received on the maturity or settlement date.
At 30 June 2024 At 31 December 2023
Carrying Fair Carrying Fair
value value value value
£m £m £m £m
Financial assets
Loans and advances to banks 7,067 7,067 8,810 8,810
Loans and advances to customers 435,310 429,131 433,124 423,183
Reverse repurchase agreements 42,273 42,273 32,751 32,751
Debt securities 12,619 12,110 12,546 12,506
Due from fellow Lloyds Banking Group undertakings 789 789 840 840
Financial assets at amortised cost 498,058 491,370 488,071 478,090
Financial liabilities
Deposits from banks 2,973 2,965 3,557 3,557
Customer deposits 446,165 446,802 441,953 442,391
Repurchase agreements 37,848 37,848 37,702 37,702
Due to fellow Lloyds Banking Group undertakings 5,168 5,168 2,932 2,932
Debt securities in issue 48,725 48,681 52,449 52,243
Subordinated liabilities 6,764 6,880 6,935 7,160
The carrying amount of the following financial instruments is a reasonable
approximation of fair value: cash and balances at central banks, items in the
course of collection from banks, items in course of transmission to banks and
notes in circulation.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 10: Loans and advances to customers
Half-year to 30 June 2024
Gross carrying amount Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
£m £m £m £m £m £m £m £m £m £m
At 1 January 2024 368,859 52,973 7,131 7,854 436,817 885 1,462 1,133 213 3,693
Exchange and other adjustments(1) (1,062) (13) (6) 7 (1,074) (6) (5) 14 23 26
Transfers to Stage 1 16,753 (16,683) (70) - 276 (271) (5) -
Transfers to Stage 2 (11,055) 11,533 (478) - (56) 116 (60) -
Transfers to Stage 3 (508) (1,710) 2,218 - (8) (156) 164 -
Net change in ECL (184) 257 169 242
due to transfers
28 (54) 268 242
Impact of transfers between stages 5,190 (6,860) 1,670 -
Other changes in (136) (52) 331 32 175
credit quality(2)
Additions and repayments 8,751 (3,120) (816) (418) 4,397 (5) (99) (115) (29) (248)
Charge (credit) to the income statement (113) (205) 484 3 169
Disposals and derecognition(3) (449) (206) (88) (219) (962) (1) (4) (7) (8) (20)
Advances written off (617) (6) (623) (617) (6) (623)
Recoveries of advances written off in previous years 69 - 69 69 - 69
At 30 June 2024 381,289 42,774 7,343 7,218 438,624 765 1,248 1,076 225 3,314
Allowance for (765) (1,248) (1,076) (225) (3,314)
expected credit losses
Net carrying amount 380,524 41,526 6,267 6,993 435,310
Drawn ECL coverage(4) 0.2 % 2.9 % 14.7 % 3.1 % 0.8 %
(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 £65 million,
split by Stage as £26 million credit for Stage 1, £31 million credit for
Stage 2, £4 million credit for Stage 3 and £4 million credit for POCI.
(3 ) Relates to the securitisation of legacy Retail mortgages.
(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 expected credit losses includes £185 million (31
December 2023: £187 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 (UNAUDITED)
(continued)
Note 10: Loans and advances to customers (continued)
Year ended 31 December 2023
Gross carrying amount Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 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) 2,432 (8) (8) 18 2,434 (8) (1) 106 67 164
Transfers to Stage 1 18,355 (18,317) (38) - 393 (385) (8) -
Transfers to Stage 2 (17,963) 18,545 (582) - (53) 121 (68) -
Transfers to Stage 3 (1,214) (2,507) 3,721 - (13) (223) 236 -
Net change in ECL (254) 401 312 459
due to transfers
73 (86) 472 459
Impact of transfers between stages (822) (2,279) 3,101 -
Other changes in 106 (103) 802 8 813
credit quality(2)
Additions and repayments 8,168 (3,951) (2,338) (1,043) 836 90 (81) (862) (81) (934)
Charge (credit) to the income statement 269 (270) 412 (73) 338
Disposals and derecognition(3) (3,685) (892) (122) (743) (5,442) (54) (59) (24) (34) (171)
Advances written off (1,229) - (1,229) (1,229) - (1,229)
Recoveries of advances written off in previous years 116 - 116 116 - 116
At 31 December 2023 368,859 52,973 7,131 7,854 436,817 885 1,462 1,133 213 3,693
Allowance for (885) (1,462) (1,133) (213) (3,693)
expected credit losses
Net carrying amount 367,974 51,511 5,998 7,641 433,124
Drawn ECL coverage(4) 0.2 % 2.8 % 15.9 % 2.7 % 0.8 %
(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 charge for methodology and model changes of £60 million,
split by Stage as £96 million charge for Stage 1, £33 million credit for
Stage 2, £1 million credit for Stage 3 and £2 million credit for POCI.
(3) Relates to the securitisations of legacy Retail mortgages and Retail
unsecured loans.
(4) Allowance for expected credit losses on loans and advances to customers
as a percentage of gross loans and advances to customers.
The movement tables are compiled by comparing the position at the end of the
period to that at the beginning of the year. Transfers between stages are
deemed to have taken place at the start of the reporting period, with all
other movements shown in the stage in which the asset is held at the end of
the period. Purchased or originated credit-impaired are not transferable.
Additions and repayments comprise new loans originated and repayments of
outstanding balances throughout the reporting period.
The Group's impairment charge comprises impact of transfers between stages,
other changes in credit quality and additions and repayments.Advances written
off have first been transferred to Stage 3 and then acquired a full allowance
through other changes in credit quality. Recoveries of advances written off in
previous years are shown at the full recovered value, with a corresponding
entry in repayments and release of allowance through other changes in credit
quality.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 11: Credit quality of loans and advances to customers
Gross drawn exposures Allowance for expected credit losses
At 30 June 2024 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 1-3 245,910 8,272 - - 254,182 54 51 - - 105
RMS 4-6 20,300 15,522 - - 35,822 26 109 - - 135
RMS 7-9 98 2,001 - - 2,099 1 35 - - 36
RMS 10 - 973 - - 973 - 23 - - 23
RMS 11-13 - 3,074 - - 3,074 - 108 - - 108
RMS 14 - - 4,542 7,218 11,760 - - 331 225 556
266,308 29,842 4,542 7,218 307,910 81 326 331 225 963
Retail - credit cards
RMS 1-3 4,665 3 - - 4,668 9 - - - 9
RMS 4-6 7,357 1,185 - - 8,542 85 56 - - 141
RMS 7-9 1,303 918 - - 2,221 52 116 - - 168
RMS 10 4 166 - - 170 - 35 - - 35
RMS 11-13 - 329 - - 329 - 117 - - 117
RMS 14 - - 290 - 290 - - 133 - 133
13,329 2,601 290 - 16,220 146 324 133 - 603
Retail - UK unsecured loans and overdrafts
RMS 1-3 855 1 - - 856 2 - - - 2
RMS 4-6 6,209 437 - - 6,646 89 27 - - 116
RMS 7-9 1,153 347 - - 1,500 41 40 - - 81
RMS 10 34 118 - - 152 3 23 - - 26
RMS 11-13 10 310 - - 320 1 104 - - 105
RMS 14 - - 186 - 186 - - 110 - 110
8,261 1,213 186 - 9,660 136 194 110 - 440
Retail - UK Motor Finance
RMS 1-3 9,978 646 - - 10,624 132 14 - - 146
RMS 4-6 3,747 1,092 - - 4,839 46 34 - - 80
RMS 7-9 458 272 - - 730 4 16 - - 20
RMS 10 - 91 - - 91 - 11 - - 11
RMS 11-13 2 187 - - 189 - 37 - - 37
RMS 14 - - 117 - 117 - - 67 - 67
14,185 2,288 117 - 16,590 182 112 67 - 361
Retail - other
RMS 1-3 14,153 250 - - 14,403 3 4 - - 7
RMS 4-6 2,200 167 - - 2,367 10 10 - - 20
RMS 7-9 - 90 - - 90 - 5 - - 5
RMS 10 - 5 - - 5 - - - - -
RMS 11-13 81 10 - - 91 - - - - -
RMS 14 - - 163 - 163 - - 45 - 45
16,434 522 163 - 17,119 13 19 45 - 77
Total Retail 318,517 36,466 5,298 7,218 367,499 558 975 686 225 2,444
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 11: Credit quality of loans and advances to customers (continued)
Gross drawn exposures Allowance for expected credit losses
At 30 June 2024 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 13,625 - - - 13,625 1 - - - 1
CMS 6-10 13,731 59 - - 13,790 12 - - - 12
CMS 11-14 32,113 2,020 - - 34,133 125 28 - - 153
CMS 15-18 4,255 3,601 - - 7,856 69 188 - - 257
CMS 19 30 628 - - 658 - 57 - - 57
CMS 20-23 - 2,045 - 2,045 - - 390 - 390
63,754 6,308 2,045 - 72,107 207 273 390 - 870
Other(1) (982) - - - (982) - - - - -
Total loans and advances to customers 381,289 42,774 7,343 7,218 438,624 765 1,248 1,076 225 3,314
(1) Gross drawn exposures include centralised fair value hedge accounting
adjustments.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 11: Credit quality of loans and advances to customers (continued)
Gross drawn exposures Allowance for expected credit losses
At 31 December 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 1-3 226,740 4,137 - - 230,877 123 37 - - 160
RMS 4-6 29,637 27,037 - - 56,674 38 151 - - 189
RMS 7-9 219 2,713 - - 2,932 - 37 - - 37
RMS 10 - 590 - - 590 - 13 - - 13
RMS 11-13 - 4,056 - - 4,056 - 136 - - 136
RMS 14 - - 4,337 7,854 12,191 - - 357 213 570
256,596 38,533 4,337 7,854 307,320 161 374 357 213 1,105
Retail - credit cards
RMS 1-3 3,906 5 - - 3,911 9 - - - 9
RMS 4-6 7,159 1,248 - - 8,407 91 65 - - 156
RMS 7-9 1,548 1,069 - - 2,617 67 145 - - 212
RMS 10 12 220 - - 232 1 50 - - 51
RMS 11-13 - 366 - - 366 - 141 - - 141
RMS 14 - - 284 - 284 - - 130 - 130
12,625 2,908 284 - 15,817 168 401 130 - 699
Retail - UK unsecured loans and overdrafts
RMS 1-3 638 1 - - 639 1 - - - 1
RMS 4-6 5,152 250 - - 5,402 83 18 - - 101
RMS 7-9 1,256 473 - - 1,729 44 50 - - 94
RMS 10 43 135 - - 178 4 27 - - 31
RMS 11-13 14 328 - - 342 2 113 - - 115
RMS 14 - - 196 - 196 - - 118 - 118
7,103 1,187 196 - 8,486 134 208 118 - 460
Retail - UK Motor Finance
RMS 1-3 9,979 569 - - 10,548 142 12 - - 154
RMS 4-6 2,791 998 - - 3,789 41 29 - - 70
RMS 7-9 769 228 - - 997 3 13 - - 16
RMS 10 - 63 - - 63 - 7 - - 7
RMS 11-13 2 169 - - 171 - 30 - - 30
RMS 14 - - 112 - 112 - - 63 - 63
13,541 2,027 112 - 15,680 186 91 63 - 340
Retail - other
RMS 1-3 13,613 240 - - 13,853 3 4 - - 7
RMS 4-6 2,197 186 - - 2,383 16 13 - - 29
RMS 7-9 - 86 - - 86 - 4 - - 4
RMS 10 - 6 - - 6 - - - - -
RMS 11-13 88 7 - - 95 - - - - -
RMS 14 - - 144 - 144 - - 47 - 47
15,898 525 144 - 16,567 19 21 47 - 87
Total Retail 305,763 45,180 5,073 7,854 363,870 668 1,095 715 213 2,691
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 11: Credit quality of loans and advances to customers (continued)
Gross drawn exposures Allowance for expected credit losses
At 31 December 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 12,145 - - - 12,145 2 - - - 2
CMS 6-10 17,259 121 - - 17,380 23 - - - 23
CMS 11-14 30,366 2,793 - - 33,159 129 57 - - 186
CMS 15-18 3,618 4,070 - - 7,688 63 229 - - 292
CMS 19 9 809 - - 818 - 81 - - 81
CMS 20-23 - - 2,058 - 2,058 - - 418 - 418
63,397 7,793 2,058 - 73,248 217 367 418 - 1,002
Other(1) (301) - - - (301) - - - - -
Total loans and 368,859 52,973 7,131 7,854 436,817 885 1,462 1,133 213 3,693
advances to
customers
(1) Gross drawn exposures include centralised fair value hedge accounting
adjustments.
(
)
Note 12: Allowance for expected credit losses
The calculation of the Group's allowance for expected credit loss allowances
requires the Group to make a number of judgements, assumptions and estimates.
These are set out in full in note 19 to the Group's financial statements for
the year ended 31 December 2023, with the most significant set out below.
The table below analyses total ECL allowance by portfolio, separately
identifying the amounts that have been modelled, those that have been
individually assessed and those arising through the application of judgemental
adjustments.
Judgemental
adjustments due to:
At 30 June 2024 Modelled Individually Inflationary and interest rate risk Other Total
ECL assessed £m £m ECL
£m £m £m
UK mortgages 806 - 23 142 971
Credit cards 679 - 6 15 700
Other Retail 878 - 6 58 942
Commercial Banking 968 322 - (308) 982
Other 1 - - - 1
Total 3,332 322 35 (93) 3,596
At 31 December 2023
UK mortgages 991 - 61 63 1,115
Credit cards 703 - 92 15 810
Other Retail 867 - 32 46 945
Commercial Banking 1,090 340 - (280) 1,150
Other 1 - - - 1
Total 3,652 340 185 (156) 4,021
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 12: Allowance for expected credit losses (continued)
Application of judgement in adjustments to modelled ECL
Impairment models fall within the Group's model risk framework with model
monitoring, periodic validation and back testing performed on model
components, such as probability of default. Limitations in the Group's
impairment models or data inputs may be identified through the ongoing
assessment and validation of the output of the models. In these circumstances,
management applies appropriate judgemental adjustments to the ECL to ensure
that the overall provision adequately reflects all material risks. These
adjustments are determined by considering the particular attributes of
exposures which have not been adequately captured by the impairment models and
range from changes to model inputs and parameters, at account level, through
to more qualitative post-model adjustments.
During 2022 and 2023 the intensifying inflationary pressures, alongside rising
interest rates created further risks not deemed to be fully captured by ECL
models which required judgemental adjustments to be added. Through the first
half of 2024 these risks have largely subsided with inflation back at two per
cent and the UK Bank rate now believed to have peaked. The portfolio has
proven resilient to higher rates and inflation. As a result, the judgements
held in respect of inflationary and interest rate risks are significantly
reduced to £35 million (31 December 2023: £185 million). Other judgements
continue to be applied for broader data and model limitations, both increasing
and decreasing ECL.
Judgemental adjustments due to inflationary and interest rate risk
UK mortgages: £23 million (31 December 2023: £61 million)
The Group's ECL models for UK mortgages use UK Bank Rate as a driver of
predicted defaults and were largely believed to have captured the stretch on
customers due to increased interest rates. However, the combination of
inflationary pressures with sharp increases to interest rates over 2023 were
believed to create further risk not potentially captured by ECL models. Modest
increases in new to arrears and defaults emerged in 2023, mainly driven by
variable rate customers, who experienced sudden material increases in their
monthly payment. Given interest rates have stabilised, inflation has reduced
and experience through the first half of 2024 has been benign, this risk has
reduced. A lower judgemental uplift in ECL continues to be taken in segments
of the mortgages portfolio, either where inflation is expected to present a
more material risk, or where segments within the model do not recognise UK
Bank Rate as a material driver of predicted defaults.
Credit cards: £6 million (31 December 2023: £92 million) and Other Retail:
£6 million (31 December 2023: £32 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 eroded nominal wage growth, adjustments were introduced to
the econometric models to account for real, rather than nominal, income to
produce adjusted predicted defaults. This impact is heavily reduced at 30 June
2024 given the model has moved into a period of low inflation, which naturally
reduces the scale of adjustments in the period. Alongside these portfolio-wide
in-model adjustments management had previously made an additional uplift to
ECL for customers with lower income levels and higher indebtedness. This
specific post-model adjustment has been released in the first half of 2024
given the improved environment and no evidence of greater deterioration in
performance of this segment.
Other judgemental adjustments
UK mortgages: £142 million (31 December 2023: £63 million)
These adjustments principally comprise:
Increase in time to repossession: £98 million (31 December 2023: £106
million)
The UK mortgage portfolio currently contains a larger number of customers that
have been in default for a longer period than would typically be expected
following pauses in litigation activity both before and during COVID-19. There
is a risk that the probability of possession (PPD), and therefore ECL on these
accounts is understated given this component of the model may not reflect the
full impact of customers remaining in default for an extended period.
Adjustments for this risk have been in place for several years, although the
approach has been refined in the first half of 2024. The updated approach
continues to target accounts that have been in default for more than 24 months
with an arrears balance increase in the last six months. These accounts now
have their PPD increased to a level based on equivalent observed performance
graduated by their time in default. The change in approach has resulted in a
similar level of adjustment, but now provides a mechanism which will see the
adjustment naturally release as this backlog reduces.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 12: Allowance for expected credit losses (continued)
Adjustment for single point of loss model limitation: £46 million (31
December 2023: £nil)
The current UK mortgages ECL model estimates customer level losses using a
'single point of loss' (SPOL) calculation, with predicted timings of defaults
and subsequent repossession using average time periods. This simplification is
continually assessed for any potential over or understatement of ECL compared
to a more sophisticated 'multiple points of loss' (MPOL) modelling technique.
To date, this has not shown any material difference for which an adjustment
would be required. Management have been developing a new ECL model which will
address this limitation, anticipated to be formally adopted later this year.
However, the development activity is now suitably progressed to be leveraged
in the ongoing assessment of the scale of the SPOL model simplification. This
assessment indicated that the MES update in the second quarter of the year had
increased the impact of the simplification up to a scale that required
mitigation through a judgemental adjustment. This adjustment is expected to be
released upon the final adoption of the new ECL model once it has completed
appropriate internal model governance activities.
Credit cards: £15 million (31 December 2023: £15 million) and Other Retail:
£58 million (31 December 2023: £46 million)
These adjustments principally comprise:
Lifetime extension on revolving products: Credit cards: £60 million (31
December 2023: £67 million) and Other Retail: £10 million (31 December 2023:
£10 million)
An adjustment is required to extend the lifetime used for Stage 2 exposures on
Retail revolving products from a three-year modelled lifetime, which reflected
the outcome data available when the ECL models were developed, to a more
representative lifetime. Incremental defaults beyond year three are calculated
through the extrapolation of the default trajectory observed throughout the
three years and beyond. The judgemental adjustment has reduced slightly for
credit cards in the period following refinement to the discounting methodology
applied.
Adjustments to loss given defaults (LGDs): Credit cards: £(50) million (31
December 2023: £(50) million) and Other Retail: £18 million (31 December
2023: £37 million)
A number of adjustments continue to be made to the loss given default
assumptions used within unsecured and motor credit models. For unsecured
portfolios, the adjustments reflect the impact of changes in collection debt
sale strategy on the Group's LGD models, incorporating up to date customer
performance and forward flow debt sale pricing. For UK Motor Finance, the
adjustment captures the latest outlook on used car prices.
Commercial Banking: £(308) million (31 December 2023: £(280) million)
These adjustments principally comprise:
Commercial Real Estate (CRE) price reduction: £53 million (31 December 2023:
£65 million)
The material fall in CRE prices seen in late 2022 moved out of the model
assumptions used to assess ECL in 2023. Given the model uses future changes in
the metric as a driver of defaults and loss rates there is a continued risk
that the model benefit that arises does not reflect the residual risk caused
by the sustained low level of prices still apparent. Management therefore
considers 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. Within this adjustment management has
refined the potential impact on loss rates through capturing updated
valuations as well as stressing valuations on specific sectors where evidence
suggests valuations may lag achievable levels, notably in cases of stressed
sale.
Corporate insolvency rates: £(297) million (31 December 2023: £(287)
million)
The volume of UK corporate insolvencies has continued to remain well above
December 2019 levels, revealing a marked misalignment between observed UK
corporate insolvencies and the Group's credit performance which has been
better than this. This dislocation gives rise to uncertainty over the drivers
of observed trends and the appropriateness of the Group's Commercial Banking
model response which uses observed UK corporate insolvencies data to anchor
future loss estimates to. Given the Group's asset quality remains strong with
low new defaults, a negative adjustment is applied by using the long-term
average rate. The slightly greater negative adjustment in the period reflects
the widening gap between the increasing industry level and the long-term
average rate used.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 12: Allowance for expected credit losses (continued)
Adjustments for loss given defaults (LGDs): £(90) million (31 December 2023:
£(105) million)
Following review and monitoring on the loss given default approach for
commercial exposures, ECL requires an adjustment to mitigate limitations
identified in the approach which are causing loss given defaults to be
inflated. These include the benefit from amortisation of exposures relative to
collateral values at default and a move to an exposure-weighted approach being
adopted. These temporary adjustments will be addressed through future model
development.
Base case and MES economic assumptions
The Group's base case economic scenario as at 30 June 2024 has been updated to
reflect ongoing geopolitical and economic developments, as the slow reduction
of inflationary pressures brings into view a shift to less restrictive
monetary policies globally. The Group's updated base case scenario has three
conditioning assumptions: first, the wars in Ukraine and the Middle East
remain geographically contained; second, the UK's post-election economic
policies retain the framework of the inflation target and fiscal rules, while
allowing for an increase in both current and capital public spending; and
third, the outcome of the US election broadly maintains economic policy
continuity, including an unchanged position for the Federal Reserve.
Based on these assumptions and incorporating the economic data published in
the second quarter of 2024, the Group's base case scenario is for a gradual
expansion of economic activity and a slight rise in the unemployment rate,
alongside modest changes in residential and commercial property prices.
Following a gradual reduction in inflationary pressures, UK Bank Rate is
expected to be lowered twice during 2024. Risks around this base case economic
view lie in both directions and are largely captured by the generation of
alternative economic scenarios.
The Group has taken into account the latest available information at the
reporting date in defining its base case scenario and generating alternative
economic scenarios. The scenarios include forecasts for key variables in the
second quarter of 2024, for which actuals may have since emerged prior to
publication. The Group's base case economic scenario predated the results of
the UK General Election and, as such, information that has become available
since the election has not been included.
The Group's approach to generating alternative economic scenarios is set out
in detail in note 19 to the financial statements for the year ended 31
December 2023. The Group has taken into account the latest available
information at the reporting date in defining its base case scenario and
generating alternative economic scenarios. A small refinement was made to the
Group's approach during the first half of 2024, with alternative economic
scenarios now dispersing from the base case after the balance sheet date. This
is one quarter later than previously adopted reflecting the use of a base case
that is now set closer to the reporting date than at the onset of IFRS 9. As a
result, all scenarios include the same forecasted level for key variables in
the second quarter of 2024, for which actuals may have since emerged prior to
publication.
For June 2024, the Group continues to judge it appropriate to include a
non-modelled severe downside scenario for Group ECL calculations. The scenario
is now generated as a simple average of a fully modelled severe scenario,
better representing shocks to demand, and a scenario with higher paths for UK
Bank Rate and CPI inflation, as a representation of shocks to supply. The
combined 'adjusted' scenario used in ECL modelling is considered to better
reflect the risks around the Group's base case view in an economic environment
where demand and supply shocks are more balanced.
Scenarios by year
The key UK economic assumptions made by the Group are shown in the following
tables across a number of measures explained below.
Annual assumptions
Gross domestic product (GDP) growth and Consumer Price Index (CPI) inflation
are presented as an annual change, house price growth and commercial real
estate price growth are presented as the growth in the respective indices over
each year. Unemployment rate and UK Bank Rate are averages over the year.
Five-year average
The five-year average reflects the average annual growth rate, or level, over
the five-year period. It includes movements within the current reporting year,
such that the position as of 30 June 2024 covers the five years 2024 to 2028.
The inclusion of the reporting year within the five-year period reflects the
need to predict variables which remain unpublished at the reporting date and
recognises that credit models utilise both level and annual changes. The use
of calendar years maintains a comparability between the annual assumptions
presented.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 12: Allowance for expected credit losses (continued)
At 30 June 2024 2024 2025 2026 2027 2028 2024
% % % % % to 2028 average
%
Upside
Gross domestic product growth 1.1 2.3 1.7 1.5 1.4 1.6
Unemployment rate 4.1 3.2 3.0 2.9 2.9 3.2
House price growth 2.2 5.0 7.3 6.0 5.2 5.1
Commercial real estate price growth 2.2 8.7 2.4 2.8 1.2 3.4
UK Bank Rate 5.17 5.30 5.17 5.33 5.55 5.31
CPI inflation 2.5 2.5 2.4 2.7 2.9 2.6
Base case
Gross domestic product growth 0.8 1.2 1.6 1.6 1.6 1.3
Unemployment rate 4.5 4.8 4.8 4.6 4.6 4.7
House price growth 1.2 1.4 1.0 1.4 2.4 1.5
Commercial real estate price growth (1.6) 1.2 0.0 1.9 1.0 0.5
UK Bank Rate 5.06 4.19 3.63 3.50 3.50 3.98
CPI inflation 2.5 2.5 2.1 2.1 2.2 2.3
Downside
Gross domestic product growth 0.6 (0.5) 0.8 1.5 1.6 0.8
Unemployment rate 4.9 6.9 7.5 7.4 7.2 6.7
House price growth 0.6 (1.8) (6.5) (5.4) (2.3) (3.1)
Commercial real estate price growth (4.7) (6.7) (4.1) (0.8) (1.3) (3.5)
UK Bank Rate 4.97 2.77 1.38 0.89 0.63 2.13
CPI inflation 2.5 2.4 1.8 1.4 1.2 1.9
Severe downside
Gross domestic product growth 0.1 (2.2) 0.4 1.2 1.5 0.2
Unemployment rate 5.5 9.4 10.2 10.1 9.8 9.0
House price growth (0.7) (4.8) (13.9) (11.8) (7.6) (7.9)
Commercial real estate price growth (9.1) (15.1) (8.6) (5.3) (4.7) (8.6)
UK Bank Rate - modelled 4.81 1.12 0.16 0.05 0.02 1.23
UK Bank Rate - adjusted(1) 5.09 3.22 2.33 2.02 1.79 2.89
CPI inflation - modelled 2.6 2.4 1.3 0.5 0.1 1.4
CPI inflation - adjusted(1) 2.9 3.2 1.6 0.9 1.0 1.9
Probability-weighted
Gross domestic product growth 0.8 0.7 1.3 1.5 1.5 1.2
Unemployment rate 4.6 5.4 5.6 5.5 5.4 5.3
House price growth 1.1 0.9 (0.9) (0.6) 0.8 0.3
Commercial real estate price growth (2.1) (0.5) (1.3) 0.6 (0.2) (0.7)
UK Bank Rate - modelled 5.04 3.79 3.07 2.92 2.90 3.55
UK Bank Rate - adjusted(1) 5.07 4.00 3.29 3.12 3.08 3.71
CPI inflation - modelled 2.5 2.5 2.1 1.9 1.9 2.2
CPI inflation - adjusted(1) 2.6 2.6 2.1 1.9 2.0 2.2
(1) The adjustment to UK Bank Rate and CPI inflation in the severe downside
is considered to better reflect the risks to the Group's base case view in an
economic environment where the risks of supply and demand shocks are seen as
more balanced.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 12: Allowance for expected credit losses (continued)
At 31 December 2023 2023 2024 2025 2026 2027 2023
% % % % % to 2027 average
%
Upside
Gross domestic product growth 0.3 1.5 1.7 1.7 1.9 1.4
Unemployment rate 4.0 3.3 3.1 3.1 3.1 3.3
House price growth 1.9 0.8 6.9 7.2 6.8 4.7
Commercial real estate price growth (3.9) 9.0 3.8 1.3 1.3 2.2
UK Bank Rate 4.94 5.72 5.61 5.38 5.18 5.37
CPI inflation 7.3 2.7 3.1 3.2 3.1 3.9
Base case
Gross domestic product growth 0.3 0.5 1.2 1.7 1.9 1.1
Unemployment rate 4.2 4.9 5.2 5.2 5.0 4.9
House price growth 1.4 (2.2) 0.5 1.6 3.5 1.0
Commercial real estate price growth (5.1) (0.2) 0.1 0.0 0.8 (0.9)
UK Bank Rate 4.94 4.88 4.00 3.50 3.06 4.08
CPI inflation 7.3 2.7 2.9 2.5 2.2 3.5
Downside
Gross domestic product growth 0.2 (1.0) (0.1) 1.5 2.0 0.5
Unemployment rate 4.3 6.5 7.8 7.9 7.6 6.8
House price growth 1.3 (4.5) (6.0) (5.6) (1.7) (3.4)
Commercial real estate price growth (6.0) (8.7) (4.0) (2.1) (1.2) (4.4)
UK Bank Rate 4.94 3.95 1.96 1.13 0.55 2.51
CPI inflation 7.3 2.8 2.7 1.8 1.1 3.2
Severe downside
Gross domestic product growth 0.1 (2.3) (0.5) 1.3 1.8 0.1
Unemployment rate 4.5 8.7 10.4 10.5 10.1 8.8
House price growth 0.6 (7.6) (13.3) (12.7) (7.5) (8.2)
Commercial real estate price growth (7.7) (19.5) (10.6) (7.7) (5.2) (10.3)
UK Bank Rate - modelled 4.94 2.75 0.49 0.13 0.03 1.67
UK Bank Rate - adjusted(1) 4.94 6.56 4.56 3.63 3.13 4.56
CPI inflation - modelled 7.3 2.7 2.2 0.9 (0.2) 2.6
CPI inflation - adjusted(1) 7.6 7.5 3.5 1.3 1.0 4.2
Probability-weighted
Gross domestic product growth 0.3 0.1 0.8 1.6 1.9 0.9
Unemployment rate 4.2 5.3 5.9 5.9 5.7 5.4
House price growth 1.4 (2.5) (0.9) (0.3) 1.8 (0.1)
Commercial real estate price growth (5.3) (1.9) (1.1) (1.0) (0.2) (1.9)
UK Bank Rate - modelled 4.94 4.64 3.52 3.02 2.64 3.75
UK Bank Rate - adjusted(1) 4.94 5.02 3.93 3.37 2.95 4.04
CPI inflation - modelled 7.3 2.7 2.8 2.3 1.9 3.4
CPI inflation - adjusted(1) 7.4 3.2 3.0 2.4 2.0 3.6
(1) The adjustment to UK Bank Rate and CPI inflation in the severe downside
was considered to better reflect the risks to the Group's base case view in an
economic environment where supply shocks were the principal concern.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 12: Allowance for expected credit losses (continued)
Base case scenario by quarter
Gross domestic product growth is presented quarter-on-quarter. House price
growth, commercial real estate price growth and CPI inflation are presented
year-on-year, i.e. from the equivalent quarter in the previous year.
Unemployment rate and UK Bank Rate are presented as at the end of each
quarter.
At 30 June 2024 First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
2024 2024 2024 2024 2025 2025 2025 2025
% % % % % % % %
Gross domestic product growth 0.6 0.4 0.3 0.2 0.3 0.3 0.4 0.4
Unemployment rate 4.3 4.5 4.6 4.7 4.8 4.9 4.9 4.8
House price growth 0.4 1.0 3.8 1.2 0.9 1.3 1.3 1.4
Commercial real estate price growth (5.3) (5.3) (3.5) (1.6) (0.9) 0.2 (0.2) 1.2
UK Bank Rate 5.25 5.25 5.00 4.75 4.50 4.25 4.00 4.00
CPI inflation 3.5 2.1 2.0 2.5 2.2 2.7 2.6 2.4
At 31 December 2023 First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
2023 2023 2023 2023 2024 2024 2024 2024
% % % % % % % %
Gross domestic product growth 0.3 0.0 (0.1) 0.0 0.1 0.2 0.3 0.3
Unemployment rate 3.9 4.2 4.2 4.3 4.5 4.8 5.0 5.2
House price growth 1.6 (2.6) (4.5) 1.4 (1.1) (1.5) 0.5 (2.2)
Commercial real estate price growth (18.8) (21.2) (18.2) (5.1) (4.1) (3.8) (2.2) (0.2)
UK Bank Rate 4.25 5.00 5.25 5.25 5.25 5.00 4.75 4.50
CPI inflation 10.2 8.4 6.7 4.0 3.8 2.1 2.3 2.8
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 12: 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 is
held constant reflecting the basis on which they are evaluated. Judgemental
adjustments applied through changes to model inputs or parameters, or more
qualitative post model adjustments, are apportioned across the scenarios in
proportion to modelled ECL where this better reflects the sensitivity of these
adjustments to each scenario. The probability-weighted view shows the extent
to which a higher ECL allowance has been recognised to take account of
multiple economic scenarios relative to the base case; the uplift being £464
million for 30 June 2024 and £673 million at 31 December 2023.
At 30 June 2024 Probability- Upside Base case Downside Severe
weighted £m £m £m downside
£m £m
UK mortgages 971 387 658 1,190 3,004
Credit cards 700 583 676 772 903
Other Retail 942 855 915 990 1,139
Commercial Banking 982 735 882 1,122 1,606
Other 1 2 1 1 1
ECL allowance 3,596 2,562 3,132 4,075 6,653
At 31 December 2023
UK mortgages 1,115 395 670 1,155 4,485
Credit cards 810 600 771 918 1,235
Other Retail 945 850 920 981 1,200
Commercial Banking 1,150 780 986 1,342 2,179
Other 1 1 1 1 1
ECL allowance 4,021 2,626 3,348 4,397 9,100
The sensitivity of ECL to isolated changes in the UK unemployment rate and
House Price Index (HPI) has been assessed on a univariate basis. Although such
changes would not be observed in isolation, as economic indicators tend to be
correlated in a coherent scenario, this gives insight into the sensitivity of
the Group's ECL to gradual changes in these two critical economic factors. The
assessment has been made against the base case with staging held flat to the
reported probability-weighted view and is assessed through the direct impact
on modelled ECL and therefore only includes judgemental adjustments applied
within the model.
The table below shows the impact on the Group's ECL resulting from a 1
percentage point (pp) increase or decrease in the UK unemployment rate. The
increase or decrease is presented based on the adjustment phased evenly over
the first 10 quarters of the base case scenario. A more immediate increase or
decrease would drive a more material ECL impact as it would be fully reflected
in both 12-month and lifetime probability of defaults.
At 30 June 2024 At 31 December 2023
1pp increase in 1pp decrease in 1pp increase in 1pp decrease in
unemployment unemployment unemployment unemployment
£m £m £m £m
UK mortgages 22 (17) 33 (32)
Credit cards 34 (34) 38 (38)
Other Retail 16 (16) 19 (19)
Commercial Banking 71 (66) 87 (81)
ECL impact 143 (133) 177 (170)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 12: 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 HPI. The increase or
decrease is presented based on the adjustment phased evenly over the first 10
quarters of the base case scenario.
At 30 June 2024 At 31 December 2023
10pp increase 10pp decrease 10pp increase 10pp decrease
in HPI in HPI in HPI in HPI
£m £m £m £m
ECL impact (164) 245 (201) 305
Note 13: Debt securities in issue
At 30 June 2024 At 31 December 2023
At At Total At At Total
fair value amortised £m fair value amortised £m
through cost through cost
profit £m profit £m
or loss or loss
£m £m
Senior unsecured notes issued 4,886 23,685 28,571 5,232 22,642 27,874
Covered bonds - 11,849 11,849 - 14,318 14,318
Commercial paper - 6,908 6,908 - 8,182 8,182
Securitisation notes 23 4,965 4,988 23 4,211 4,234
Certificates of deposit issued - 1,318 1,318 - 3,096 3,096
4,909 48,725 53,634 5,255 52,449 57,704
Covered bonds and securitisation programmes
At 30 June 2024, the bonds held by external parties and those held internally,
were secured on certain loans and advances to customers amounting to £28,529
million (31 December 2023: £27,019 million) which have been assigned to
bankruptcy remote limited liability partnerships to provide security for
issues of covered bonds by the Group. The Group retains all of the risks and
rewards associated with these loans and the partnerships are consolidated
fully with the loans retained on the Group's balance sheet and the related
covered bonds in issue included within debt securities in issue at amortised
cost.
At 30 June 2024, the Group's securitisation notes in issue held by external
parties includes £23 million at fair value through profit or loss (31
December 2023: £23 million). Those notes held internally, are secured on
loans and advances to customers amounting to £27,945 million (31 December
2023: £30,190 million), the majority of which have been sold by subsidiary
companies to bankruptcy remote structured entities. As the structured entities
are funded by the issue of debt on terms whereby the majority of the risks and
rewards of the portfolio are retained by the subsidiary, the structured
entities are consolidated fully and all of these loans are retained on the
Group's balance sheet, with the related notes in issue included within debt
securities in issue at amortised cost.
Cash deposits of £3,955 million (31 December 2023: £3,678 million) which
support the debt securities issued by the structured entities, the term
advances related to covered bonds and other legal obligations, are held by the
Group.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 14: Provisions
Provisions Regulatory Other Total
for financial and legal £m £m
commitments provisions
and guarantees(1) £m
£m
At 1 January 2024 314 1,014 588 1,916
Exchange and other adjustments (1) - (2) (3)
Provisions applied - (206) (254) (460)
(Credit) charge for the period (40) 90 150 200
At 30 June 2024 273 898 482 1,653
(1) In respect of loans and advances to customers.
Regulatory and legal provisions
In the course of its business, the Group is engaged on a regular basis in
discussions with UK and overseas regulators and other governmental authorities
on a range of matters, including legal and regulatory reviews and, from time
to time, enforcement investigations (including in relation to compliance with
applicable laws and regulations, such as those relating to prudential
regulation, consumer protection, investment advice, business conduct, systems
and controls, environmental, competition/anti-trust, tax, anti-bribery,
anti-money laundering and sanctions). Any matters discussed or identified
during such discussions and inquiries may result in, among other things,
further inquiry or investigation, other action being taken by governmental
and/or regulatory authorities, increased costs being incurred by the Group,
remediation of systems and controls, public or private censure, restriction of
the Group's business activities and/or fines. The Group also receives
complaints in connection with its past conduct and claims brought by or on
behalf of current and former employees, customers (including their appointed
representatives), investors and other third parties and is subject to legal
proceedings and other legal actions from time to time. Any events or
circumstances disclosed could have a material adverse effect on the Group's
financial position, operations or cash flows. Provisions are held where the
Group can reliably estimate a probable outflow of economic resources. The
ultimate liability of the Group may be significantly more, or less, than the
amount of any provision recognised. If the Group is unable to determine a
reliable estimate, a contingent liability is disclosed. The recognition of a
provision does not amount to an admission of liability or wrongdoing on the
part of the Group. During the half-year to 30 June 2024 the Group charged a
further £90 million in respect of legal actions and other regulatory matters
and the unutilised balance at 30 June 2024 was £898 million (31 December
2023: £1,014 million). The most significant items are outlined below.
Motor commission review
The Group recognised a £450 million provision in the fourth quarter of 2023
for the potential impact of the FCA review into historical motor finance
commission arrangements and sales announced in January 2024.
As disclosed in previous periods, the Group continues to receive a number of
court claims and complaints in respect of motor finance commissions and is
actively engaging with the FOS in its assessment of these complaints. On 10
January 2024, the FOS issued its Final Decision on a complaint relating to the
Group, as well as decisions relating to other industry participants. On 11
January 2024, the FCA announced a section 166 review of historical motor
finance commission arrangements and sales and plans to communicate a decision
on next steps in the third quarter of 2024 on the basis of the evidence
collated in the review. The FCA has indicated that such steps could include
establishing an industry-wide consumer redress scheme and/or applying to the
Financial Markets Test Case Scheme, to help resolve any contested legal issues
of general importance.
Following the FCA Motor Market Review in March 2019, the FCA issued a policy
statement in July 2020 prohibiting the use of discretionary commission models
from 28 January 2021, which the Group adhered to. The Group continues to
believe that its historical practices were compliant with the law and
regulations in place at that time.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 14: Provisions (continued)
As noted above, in response to both the FOS decisions and the FCA announcement
the Group recognised a charge of £450 million in the fourth quarter of 2023.
This includes estimates for operational and legal costs, including litigation
costs, together with estimates for potential awards, based on various
scenarios using a range of assumptions, including for example, commission
models, commission rates, applicable time periods (between 2007 and 2021),
response rates and uphold rates. Costs and awards could arise in the event
that the FCA concludes there has been misconduct and customer loss that
requires remediation, or from adverse litigation decisions. However, while the
FCA review is progressing there is significant uncertainty as to the extent of
misconduct and customer loss, if any, the nature and extent of any remediation
action, if required, and its timing. The ultimate financial impact could
therefore materially differ from the amount provided, both higher or lower.
The Group welcomes the FCA intervention through an independent section 166
review and is engaging with the FCA as part of the review.
HBOS Reading - review
The Group continues to apply the recommendations from Sir Ross Cranston's
review, issued in December 2019, including a reassessment of direct and
consequential losses by an independent panel (the Foskett Panel), an extension
of debt relief and a wider definition of de facto directors. The Foskett
Panel's full scope and methodology was published on 7 July 2020. The Foskett
Panel's stated objective is to consider cases via a non-legalistic and fair
process and to make its decisions in a generous, fair and common sense manner,
assessing claims against an expanded definition of the fraud and on a lower
evidential basis.
In June 2022, the Foskett Panel announced an alternative option, in the form
of a fixed sum award which could be accepted as an alternative to
participation in the full re-review process, to support earlier resolution of
claims for those deemed by the Foskett Panel to be victims of the fraud. Over
95 per cent of the population have now had decisions via this new process. The
provision is unchanged in the first half of 2024. Notwithstanding the settled
claims and the increase in outcomes which builds confidence in the full
estimated cost, uncertainties remain and the final outcome could be different
from the current provision once the re-review is concluded by the Foskett
Panel. There is no confirmed timeline for the completion of the Foskett Panel
re-review process nor the review by Dame Linda Dobbs. The Group is committed
to implementing Sir Ross Cranston's recommendations in full.
Payment protection insurance (PPI)
The Group has incurred costs for PPI over a number of years totalling £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.
Other
The Group carries provisions of £144 million (31 December 2023: £137
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 2024 provisions of £198 million (31 December
2023: £240 million) were held.
The Group carries provisions of £33 million (31 December 2023: £46 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 2028.
Note 15: Dividends on ordinary shares
The Bank paid dividends of £490 million on 25 March 2024 and £1,650 million
on 16 May 2024 (£1,900 million was paid during the half-year to 30 June
2023).
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 16: 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
2024 2023
£m £m
Assets, included within:
Financial assets at fair value through profit or loss - 1
Derivative financial instruments 1,149 1,137
Financial assets at amortised cost: due from fellow Lloyds Banking Group 789 840
undertakings
Liabilities, included within:
Due to fellow Lloyds Banking Group undertakings 5,168 2,932
Derivative financial instruments 892 953
Debt securities in issue at amortised cost 19,922 18,131
Subordinated liabilities 6,926 6,919
During the half-year to 30 June 2024 the Group earned £7 million (half-year
to 30 June 2023: £7 million) of interest income and incurred £684 million
(half-year to 30 June 2023: £475 million) of interest expense and recognised
net fee and commission expense of £367 million (half year to 30 June 2023:
£46 million) on balances and transactions with Lloyds Banking Group plc and
fellow Group undertakings. The increase in net fee and commission expense is
primarily due to the impact of changes to commission arrangements with
Scottish Widows.
Other related party transactions
Other related party transactions for the half-year to 30 June 2024 are similar
in nature to those for the year ended 31 December 2023.
Note 17: Contingent liabilities, commitments and guarantees
Contingent liabilities, commitments and guarantees arising from the banking
business
At 30 June 2024 contingent liabilities, such as performance bonds and letters
of credit, arising from the banking business were £2,606 million (31
December 2023: £2,755 million).
The contingent liabilities of the Group arise in the normal course of its
banking business and it is not practicable to quantify their future financial
effect. Total commitments and guarantees were £130,744 million (31 December
2023: £122,733 million), of which in respect of undrawn formal standby
facilities, credit lines and other commitments to lend, £60,638 million (31
December 2023: £53,722 million) was irrevocable.
Interchange fees
With respect to multi-lateral interchange fees (MIFs), the Lloyds Banking
Group is not a party in the ongoing or threatened litigation which involves
the card schemes Visa and Mastercard (as described below). However, the Group
is a member/licensee of Visa and Mastercard and other card schemes. The
litigation in question is as follows:
• Litigation brought by or on behalf of retailers against both Visa and
Mastercard in the English Courts, in which retailers are seeking damages on
grounds that Visa and Mastercard's MIFs breached competition law (this
includes a judgment of the Supreme Court in June 2020 upholding the Court of
Appeal's finding in 2018 that certain historic interchange arrangements of
Mastercard and Visa infringed competition law)
• Litigation brought on behalf of UK consumers in the English Courts
against Mastercard
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 17: Contingent liabilities, commitments and guarantees (continued)
Any impact on the Group of the litigation against Visa and Mastercard remains
uncertain at this time, such that it is not practicable for the Group to
provide an estimate of any potential financial effect. Insofar as Visa is
required to pay damages to retailers for interchange fees set prior to June
2016, contractual arrangements to allocate liability have been agreed between
various UK banks (including the Lloyds Banking Group) and Visa Inc, as part of
Visa Inc's acquisition of Visa Europe in 2016. These arrangements cap the
maximum amount of liability to which the Lloyds Banking Group may be subject
and this cap is set at the cash consideration received by the Lloyds Banking
Group for the sale of its stake in Visa Europe to Visa Inc in 2016. In 2016,
the Lloyds Banking Group received Visa preference shares as part of the
consideration for the sale of its shares in Visa Europe. A release assessment
is carried out by Visa on certain anniversaries of the sale (in line with the
Visa Europe sale documentation) and as a result, some Visa preference shares
may be converted into Visa Inc Class A common stock from time to time. Any
such release and any subsequent sale of Visa common stock does not impact the
contingent liability.
LIBOR and other trading rates
Certain Lloyds Banking Group companies, together with other panel banks, have
been named as defendants in ongoing private lawsuits, including purported
class action suits, in the US in connection with their roles as panel banks
contributing to the setting of US Dollar, Japanese Yen and Sterling London
Interbank Offered Rate.
Certain Lloyds Banking Group companies are also named as defendants in (i)
UK-based claims, and (ii) two Dutch class actions, raising LIBOR manipulation
allegations. A number of claims against the Lloyds Banking Group in the UK
relating to the alleged mis-sale of interest rate hedging products also
include allegations of LIBOR manipulation.
It is currently not possible to predict the scope and ultimate outcome on the
Lloyds Banking Group of any private lawsuits or ongoing related challenges to
the interpretation or validity of any of the Lloyds Banking Group's
contractual arrangements, including their timing and scale. As such, it is not
practicable to provide an estimate of any potential financial effect.
Tax authorities
The Group has an open matter in relation to a claim for group relief of losses
incurred in its former Irish banking subsidiary, which ceased trading on 31
December 2010. In 2013, HMRC informed the Group that its interpretation of the
UK rules means that the group relief is not available. In 2020, HMRC concluded
its enquiry into the matter and issued a closure notice. The Group's
interpretation of the UK rules has not changed and hence it appealed to the
First Tier Tax Tribunal, with a hearing having taken place in May 2023. If the
final determination of the matter by the judicial process is that HMRC's
position is correct, management believes that this would result in an increase
in current tax liabilities of approximately £830 million (including
interest) and a reduction in the Group's deferred tax asset of approximately
£275 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.
FCA investigation into the Group's anti-money laundering control framework
As previously disclosed, the FCA has opened an investigation into the Group's
compliance with domestic UK money laundering regulations and the FCA's rules
and Principles for Businesses, with a focus on aspects of its anti-money
laundering control framework. The Group continues to co-operate with the
investigation. It is not currently possible to estimate the potential
financial impact to the Group.
Arena litigation claims
The Group is facing claims alleging breach of duty and/or mandate in the
context of an underlying external fraud matter involving Arena Television. The
Group intends to contest the claims. It is not possible to estimate with
certainty the potential financial impact (if any) to the Group.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 17: Contingent liabilities, commitments and guarantees (continued)
Other legal actions and regulatory matters
In addition, in the course of its business the Group is subject to other
complaints and threatened or actual legal proceedings (including class or
group action claims) brought by or on behalf of current or former employees,
customers (including their appointed representatives), investors or other
third parties, as well as legal and regulatory reviews, enquiries and
examinations, requests for information, audits, challenges, investigations and
enforcement actions, which could relate to a number of issues. This includes
matters in relation to compliance with applicable laws and regulations, such
as those relating to prudential regulation, consumer protection, investment
advice, business conduct, systems and controls, environmental,
competition/anti-trust, tax, anti-bribery, anti-money laundering and
sanctions, some of which may be beyond the Group's control, both in the UK and
overseas. Where material, such matters are periodically reassessed, with the
assistance of external professional advisers where appropriate, to determine
the likelihood of the Group incurring a liability. The Group does not
currently expect the final outcome of any such case to have a material adverse
effect on its financial position, operations or cash flows. Where there is a
contingent liability related to an existing provision the relevant disclosures
are included within note 14.
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 2024 and their impact on the condensed consolidated
half-year financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
• material related party transactions in the six months ended 30 June 2024
and any material changes in the related party transactions described in the
last annual report.
Signed on behalf of the Board by
Charlie Nunn
Group Chief Executive
24 July 2024
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)
Sarah Bentley
Brendan Gilligan
Nigel Hinshelwood
Sarah Legg
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 2024 which
comprises the condensed consolidated income statement, the condensed
consolidated statement of comprehensive income, the condensed consolidated
balance sheet, the condensed consolidated statement of changes in equity, the
condensed consolidated cash flow statement and related notes 1 to 17.
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 2024 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 international accounting
standards. 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
24 July 2024
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 and
statements of assumptions underlying such statements. By their nature,
forward-looking statements involve risk and uncertainty because they relate to
events and depend upon circumstances that will or may occur in the future.
Factors that could cause actual business, strategy, targets, plans and/or
results (including but not limited to the payment of dividends) to differ
materially from forward-looking statements include, but are not limited to:
general economic and business conditions in the UK and internationally; acts
of hostility or terrorism and responses to those acts, or other such events;
geopolitical unpredictability; the war between Russia and Ukraine; the
conflicts in the Middle East; the tensions between China and Taiwan; political
instability including as a result of any UK general election; market related
risks, trends and developments; changes in client and consumer behaviour and
demand; exposure to counterparty risk; the ability to access sufficient
sources of capital, liquidity and funding when required; changes to the 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 and other disasters; risks
concerning borrower and counterparty credit quality; risks affecting defined
benefit pension schemes; changes in laws, regulations, practices and
accounting standards or taxation; changes to regulatory capital or liquidity
requirements and similar contingencies; the policies and actions of
governmental or regulatory authorities or courts together with any resulting
impact on the future structure of the 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 including risks as a result of the failure of third party
suppliers; conduct risk; technological changes and risks to the security of IT
and operational infrastructure, systems, data and information resulting from
increased threat of cyber and other attacks; technological failure; inadequate
or failed internal or external processes or systems; risks relating to ESG
matters, such as climate change (and achieving climate change ambitions) and
decarbonisation, including the 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
Nora Thoden
Director of Investor Relations - ESG
020 7356 2334
nora.thoden@lloydsbanking.com
Tom Grantham
Investor Relations Senior Manager
07851 440 091
thomas.grantham@lloydsbanking.com
Sarah Robson
Investor Relations Senior Manager
07494 513 983
sarah.robson2@lloydsbanking.com
CORPORATE AFFAIRS
Grant Ringshaw
External Relations Director
020 7356 2362
grant.ringshaw@lloydsbanking.com
Matt Smith
Head of Media Relations
07788 352 487
matt.smith@lloydsbanking.com
Copies of this News Release may be obtained from:
Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V
7HN
The statement can also be found on the Group's website -
www.lloydsbankinggroup.com
Registered office: Lloyds Bank plc, 25 Gresham Street, London EC2V 7HN
Registered in England No. 2065
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