REG - Lloyds Bank Plc Lloyds Banking Group - 2024 Q3 Interim Management Statement
23/10/2024 11:30
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RNS Number : 3187J Lloyds Bank PLC 23 October 2024
Lloyds Bank plc
Q3 2024 Interim Management Statement
23 October 2024
Member of the Lloyds Banking Group
FINANCIAL REVIEW
Income statement
The Group's profit before tax for the first nine months of 2024 was £3,927
million, 27 per cent lower than the same period in 2023. This was driven by
lower net interest income and higher operating expenses, partly offset by a
lower impairment charge. Profit after tax was £2,727 million (nine months to
30 September 2023 £3,975 million).
Total income for the first nine months of 2024 was £12,613 million, a
decrease of 8 per cent on the same period in 2023. Within this, net interest
income of £9,378 million was 10 per cent lower on the prior year, driven by a
lower margin. The lower margin reflected 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 balances are reinvested
in the higher rate environment.
Other income amounted to £3,235 million in the nine months to 30 September
2024 compared to £3,268 million in the same period in 2023, with improved UK
Motor Finance performance, reflecting growth following the acquisition of
Tusker in the first quarter of 2023, increased fleet size and higher average
rental value, partially offset by the impact of changes to commission
arrangements with Scottish Widows.
Operating expenses of £8,392 million were 13 per cent higher than in the
prior year. This includes the impacts of higher operating lease depreciation,
largely as a result of fleet growth, the depreciation of higher value vehicles
and declines in used electric car prices, alongside higher ongoing strategic
investment, accelerated severance charges and inflationary pressure. It also
includes c.£0.1 billion relating to the sector-wide change in the charging
approach for the Bank of England Levy taken in the first quarter. In the nine
months to 30 September 2024, the Group recognised remediation costs of
£118 million (nine months to 30 September 2023: £127 million), largely in
relation to pre-existing programmes, with no further charges in respect of the
FCA review of historical motor finance commission arrangements. The FCA
confirmed in September 2024 its intention to set out next steps in its review
in May 2025, including its assessment of the outcome of the Judicial Review
and Court of Appeal decisions involving other market participants; the Group
will assess the impact, if any, of these decisions.
The impairment charge was £294 million compared with a £881 million charge
in the nine months to 30 September 2023. The decrease reflects a larger credit
from improvements to the Group's economic outlook in the first half of the
year, notably house price growth and through changes to the severe downside
scenario methodology. The charge also benefitted from strong portfolio
performance, a large debt sale write-back, and a release in Commercial Banking
from loss rates used in the model. Asset quality remains strong with resilient
credit performance.
Balance sheet
Total assets were £4,207 million higher at £609,612 million at 30 September
2024 compared to £605,405 million at 31 December 2023. Financial assets at
amortised cost were £15,406 million higher at £503,477 million compared to
£488,071 million at 31 December 2023 with increases in reverse repurchase
agreements of £11,128 million and loans and advances to customers of £7,355
million, partly offset by a reduction in loans and advances to banks of
£2,919 million. The increase in reverse repurchase agreements and the
decrease in cash and balances at central banks by £17,984 million to
£39,925 million reflected a change in the mix of liquidity holdings. The
increase in loans and advances to customers included growth in UK mortgages,
UK Retail unsecured loans, credit cards and the European retail business,
partly offset by government-backed lending repayments in Commercial Banking.
Financial assets at fair value through other comprehensive income were £5,032
million higher reflecting a change in the mix of liquidity holdings. Other
assets increased by £1,864 million to £28,925 million, driven by higher
settlement balances and higher operating lease assets reflecting continued
motor finance growth.
Total liabilities were £4,390 million higher at £569,364 million compared to
£564,974 million at 31 December 2023. Customer deposits at £446,311 million
have increased by £4,358 million since the end of 2023, driven by inflows to
limited withdrawal and fixed term savings products, partly offset by a
reduction in current account balances and an expected significant outflow in
Commercial Banking. In addition, repurchase agreements at £41,370 million
have increased by £3,668 million since the end of 2023. Debt securities in
issue at amortised cost decreased by £7,369 million to £45,080 million at 30
September 2024. Amounts due to fellow Lloyds Banking Group undertakings
increased by £1,510 million to £4,442 million at 30 September 2024. Other
liabilities increased by £3,042 million to £12,926 million, driven by
higher settlement balances.
Total equity was £40,248 million at 30 September 2024 was broadly stable
compared to £40,431 million at 31 December 2023, with the profit for the
period largely offset by interim dividends of £3.4 billion, pension
revaluations and movements in the cash flow hedging reserve.
FINANCIAL REVIEW (continued)
Capital
The Group's common equity tier 1 (CET1) capital ratio reduced to 13.6 per cent
at 30 September 2024 (31 December 2023: 14.4 per cent). This largely
reflected profit for the period, offset by the payment of interim ordinary
dividends, the accrual for foreseeable ordinary dividends and an increase in
risk-weighted assets.
The Group's total capital ratio reduced to 19.8 per cent (31 December 2023:
20.5 per cent). The issuance of AT1 and Tier 2 capital instruments was more
than offset by the reduction in CET1 capital, the reduction in eligible
provisions recognised through Tier 2 capital, the impact of regulatory
amortisation and foreign exchange on Tier 2 capital instruments and the
increase in risk-weighted assets.
Risk-weighted assets have increased by £2,350 million to £184,910 million at
30 September 2024 (31 December 2023: £182,560 million). This reflects the
impact of Retail lending growth, Retail secured CRD IV model updates and other
movements, partly offset by optimisation including capital efficient
securitisation activity.
The Group's UK leverage ratio reduced to 5.3 per cent (31 December 2023: 5.6
per cent). This reflected both the reduction in the total tier 1 capital
position and an increase in the leverage exposure measure, principally related
to the increase in securities financing transactions and other balance sheet
movements.
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Nine Nine
months ended months ended
30 Sep 30 Sep
2024 2023
£m £m
Net interest income 9,378 10,432
Other income 3,235 3,268
Total income 12,613 13,700
Operating expenses (8,392) (7,457)
Impairment (294) (881)
Profit before tax 3,927 5,362
Tax expense (1,200) (1,387)
Profit for the period 2,727 3,975
Profit attributable to ordinary shareholders 2,454 3,708
Profit attributable to other equity holders 256 249
Profit attributable to equity holders 2,710 3,957
Profit attributable to non-controlling interests 17 18
Profit for the period 2,727 3,975
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
At 30 Sep 2024 At 31 Dec 2023
£m £m
Assets
Cash and balances at central banks 39,925 57,909
Financial assets at fair value through profit or loss 1,990 1,862
Derivative financial instruments 2,926 3,165
Loans and advances to banks 5,891 8,810
Loans and advances to customers 440,479 433,124
Reverse repurchase agreements 43,879 32,751
Debt securities 12,569 12,546
Due from fellow Lloyds Banking Group undertakings 659 840
Financial assets at amortised cost 503,477 488,071
Financial assets at fair value through other comprehensive income 32,369 27,337
Other assets 28,925 27,061
Total assets 609,612 605,405
Liabilities
Deposits from banks 3,474 3,557
Customer deposits 446,311 441,953
Repurchase agreements 41,370 37,702
Due to fellow Lloyds Banking Group undertakings 4,442 2,932
Financial liabilities at fair value through profit or loss 4,964 5,255
Derivative financial instruments 3,583 4,307
Debt securities in issue at amortised cost 45,080 52,449
Other liabilities 12,926 9,884
Subordinated liabilities 7,214 6,935
Total liabilities 569,364 564,974
Equity
Share capital 1,574 1,574
Share premium account 600 600
Other reserves 2,904 2,395
Retained profits 29,667 30,786
Ordinary shareholders' equity 34,745 35,355
Other equity instruments 5,428 5,018
Non-controlling interests 75 58
Total equity 40,248 40,431
Total equity and liabilities 609,612 605,405
ADDITIONAL FINANCIAL INFORMATION
1. Basis of presentation
This release covers the results of Lloyds Bank plc together with its
subsidiaries (the Group) for the nine months ended 30 September 2024.
Accounting policies
The accounting policies are consistent with those applied by the Group in its
2023 Annual Report and Accounts
2. Capital
The Group's Q3 2024 Interim Pillar 3 Disclosures can be found at
www.lloydsbankinggroup.com/investors/financial-downloads.html.
3. UK economic assumptions
Base case and MES economic assumptions
The Group's base case scenario is for a slow expansion in GDP and a modest
rise in the unemployment rate alongside small gains in residential and
commercial property prices. Following a reduction in inflationary pressures,
cuts in UK Bank Rate are expected to continue during 2024 and 2025. 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 as of
the third quarter of 2024. Actuals for this period, or restatements of past
data, may have since emerged prior to publication and have not been included,
including specifically in the Quarterly National Accounts release of 30
September 2024. 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. For September 2024, the Group continues to judge
it appropriate to include a non-modelled severe downside scenario for ECL
calculations as explained in note 12 of the Group's 2024 Half-Year news
release.
UK economic assumptions - base case scenario by quarter
Key quarterly assumptions made by the Group in the base case scenario are
shown below. Gross domestic product is presented quarter-on-quarter. House
price growth, commercial real estate price growth and CPI inflation are
presented year-on-year, i.e. from the equivalent quarter in the previous year.
Unemployment rate and UK Bank Rate are presented as at the end of each
quarter.
At 30 September 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 0.7 0.6 0.3 0.3 0.3 0.3 0.4 0.4
Unemployment rate 4.3 4.2 4.3 4.5 4.6 4.7 4.8 4.8
House price growth 0.4 1.8 5.3 3.1 3.2 3.6 2.4 2.0
Commercial real estate price growth (5.3) (4.7) (2.5) 0.3 1.4 1.9 1.6 1.7
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 2.1 2.7 2.4 2.9 2.7 2.3
ADDITIONAL FINANCIAL INFORMATION (continued)
3. UK economic assumptions (continued)
UK economic assumptions - scenarios by year
Key annual assumptions made by the Group are shown below. Gross domestic
product and 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 within the period. Unemployment rate and UK Bank Rate
are averages for the period.
At 30 September 2024 2024 2025 2026 2027 2028 2024-2028 average
% % % % % %
Upside
Gross domestic product 1.2 2.4 1.9 1.5 1.4 1.7
Unemployment rate 4.2 3.3 2.8 2.7 2.8 3.1
House price growth 3.5 4.6 7.1 6.4 5.1 5.3
Commercial real estate price growth 1.6 9.0 4.2 1.8 0.7 3.4
UK Bank Rate 5.06 5.08 5.16 5.34 5.58 5.24
CPI inflation 2.6 2.7 2.4 2.8 2.8 2.7
Base case
Gross domestic product 1.1 1.3 1.5 1.5 1.5 1.4
Unemployment rate 4.3 4.7 4.7 4.5 4.5 4.5
House price growth 3.1 2.0 1.0 1.5 2.1 2.0
Commercial real estate price growth 0.3 1.7 2.1 0.7 0.3 1.0
UK Bank Rate 5.06 4.19 3.63 3.50 3.50 3.98
CPI inflation 2.6 2.6 2.1 2.2 2.1 2.3
Downside
Gross domestic product 1.0 (0.3) 0.4 1.3 1.5 0.8
Unemployment rate 4.4 6.5 7.3 7.3 7.1 6.5
House price growth 2.9 (0.2) (6.1) (5.8) (2.9) (2.5)
Commercial real estate price growth (0.7) (6.2) (1.7) (1.9) (1.9) (2.5)
UK Bank Rate 5.06 3.11 1.48 0.96 0.65 2.25
CPI inflation 2.6 2.6 1.9 1.5 1.1 2.0
Severe downside
Gross domestic product 0.9 (2.0) (0.1) 1.1 1.4 0.2
Unemployment rate 4.6 8.6 9.9 9.9 9.7 8.5
House price growth 2.3 (2.5) (13.5) (12.6) (8.3) (7.1)
Commercial real estate price growth (2.7) (16.5) (6.5) (6.5) (5.1) (7.6)
UK Bank Rate - modelled 5.06 1.83 0.23 0.06 0.02 1.44
UK Bank Rate - adjusted(1) 5.13 3.67 2.55 2.16 1.88 3.08
CPI inflation - modelled 2.6 2.6 1.5 0.7 0.1 1.5
CPI inflation - adjusted(1) 2.6 3.5 1.8 1.3 0.9 2.0
Probability-weighted
Gross domestic product 1.1 0.8 1.1 1.4 1.4 1.2
Unemployment rate 4.3 5.2 5.4 5.3 5.3 5.1
House price growth 3.1 1.7 (0.7) (0.6) 0.5 0.8
Commercial real estate price growth 0.1 (0.3) 0.7 (0.5) (0.8) (0.1)
UK Bank Rate - modelled 5.06 3.90 3.10 2.95 2.92 3.59
UK Bank Rate - adjusted(1) 5.07 4.08 3.33 3.15 3.11 3.75
CPI inflation - modelled 2.6 2.6 2.0 2.0 1.8 2.2
CPI inflation - adjusted(1) 2.6 2.7 2.1 2.1 1.9 2.3
(1) The adjustment to UK Bank Rate and CPI inflation in the severe downside
is considered to better reflect the risks to the Group's base case view in an
economic environment where the risks of supply and demand shocks are seen as
more balanced.
ADDITIONAL FINANCIAL INFORMATION (continued)
4. Loans and advances to customers and expected credit loss allowance
At 30 September 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 271,138 28,389 4,545 6,949 311,021 9.1 1.5
Credit cards 13,429 2,620 262 - 16,311 16.1 1.6
Loans and overdrafts 8,839 1,374 173 - 10,386 13.2 1.7
UK Motor Finance 14,390 2,314 119 - 16,823 13.8 0.7
Other 16,702 513 150 - 17,365 3.0 0.9
Retail 324,498 35,210 5,249 6,949 371,906 9.5 1.4
Small and Medium Businesses 26,393 3,430 1,303 - 31,126 11.0 4.2
Corporate and Institutional Banking 37,564 2,306 637 - 40,507 5.7 1.6
Commercial Banking 63,957 5,736 1,940 - 71,633 8.0 2.7
Other(1) 260 - - - 260 - -
Total gross lending 388,715 40,946 7,189 6,949 443,799 9.2 1.6
ECL allowance on drawn balances (764) (1,228) (1,106) (222) (3,320)
Net balance sheet carrying value 387,951 39,718 6,083 6,727 440,479
Customer related ECL allowance (drawn and undrawn)
UK mortgages 86 321 339 222 968
Credit cards 207 351 129 - 687
Loans and overdrafts 170 242 111 - 523
UK Motor Finance(2) 169 105 68 - 342
Other 15 18 42 - 75
Retail 647 1,037 689 222 2,595
Small and Medium Businesses 138 190 160 - 488
Corporate and Institutional Banking 126 125 259 - 510
Commercial Banking 264 315 419 - 998
Other - - - - -
Total 911 1,352 1,108 222 3,593
Customer related ECL allowance (drawn and undrawn) as a percentage of loans
and advances to customers
UK mortgages - 1.1 7.5 3.2 0.3
Credit cards 1.5 13.4 49.2 - 4.2
Loans and overdrafts 1.9 17.6 64.2 - 5.0
UK Motor Finance 1.2 4.5 57.1 - 2.0
Other 0.1 3.5 28.0 - 0.4
Retail 0.2 2.9 13.1 3.2 0.7
Small and Medium Businesses 0.5 5.5 12.3 - 1.6
Corporate and Institutional Banking 0.3 5.4 40.7 - 1.3
Commercial Banking 0.4 5.5 21.6 - 1.4
Other - - - - -
Total 0.2 3.3 15.4 3.2 0.8
(1) Contains central fair value hedge accounting adjustments.
(2) UK Motor Finance includes £170 million relating to provisions against
residual values of vehicles subject to finance leases.
( )
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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