REG - Lloyds Banking Group - 2024 Half-Year Results - Part 2 of 2
25/07/2024 07:00
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RNS Number : 7400X Lloyds Banking Group PLC 25 July 2024
Lloyds Banking Group plc
2024 Half-Year Results
25 July 2024
Part 2 of 2
STATUTORY INFORMATION
Condensed consolidated half-year financial statements (unaudited)
Condensed consolidated income statement (unaudited) (#Section84) 56
Condensed consolidated statement of comprehensive income (unaudited) 57
(#Section85)
Condensed consolidated balance sheet (unaudited) (#Section86) 58
Condensed consolidated statement of changes in equity (unaudited) (#Section87) 59
Condensed consolidated cash flow statement (unaudited) (#Section88) 62
Notes to the condensed consolidated half-year financial statements (unaudited)
1 Basis of preparation and accounting policies (#Section90) 63
2 Critical accounting judgements and key sources of estimation uncertainty 64
(#Section91)
3 Segmental analysis (#Section92) 64
4 Net fee and commission income (#Section93) 67
5 Insurance (#Section94) business (#Section94) 67
6 Operating expenses (#Section95) 70
7 Retirement benefit obligations (#Section96) 71
8 Impairment (#Section97) 72
9 Tax (#Section98) 72
10 Fair values of financial assets and liabilities (#Section99) 73
11 Derivative financial instruments (#Section100) 79
12 Loans and advances to customers (#Section101) 80
13 Credit quality of loans and advances to customers (#Section102) 82
14 Allowance for expected credit losses (#Section103) 85
15 Debt securities in issue (#Section104) 93
16 Provisions (#Section105) 94
17 Earnings per share (#Section106) 96
18 Dividends on ordinary shares and share buyback (#Section107) 96
19 Contingent liabilities, commitments and guarantees (#Section108) 96
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Note Half-year Half-year Half-year
to 30 Jun to 30 Jun to 31 Dec
2024 2023 2023
£m £m £m
Interest income 15,435 13,048 15,003
Interest expense (9,389) (6,250) (8,503)
Net interest income 6,046 6,798 6,500
Fee and commission income 1,458 1,426 1,500
Fee and commission expense (568) (539) (556)
Net fee and commission income 4 890 887 944
Net trading income 10,758 6,161 11,888
Insurance revenue 1,650 1,450 1,558
Insurance service expense (1,339) (1,238) (1,176)
Net (expense) income from reinsurance contracts held (23) 11 (9)
Insurance service result 5 288 223 373
Other operating income 907 826 805
Other income 12,843 8,097 14,010
Total income 18,889 14,895 20,510
Net finance expense from insurance, participating investment and reinsurance 5 (6,477) (3,769) (7,915)
contracts
Movement in third party interests in consolidated funds (802) (332) (777)
Change in non-participating investment contracts (2,734) (1,488) (2,495)
Net finance expense in respect of insurance and investment contracts (10,013) (5,589) (11,187)
Total income, after net finance expense in respect of insurance and investment 8,876 9,306 9,323
contracts
Operating expenses 6 (5,452) (4,774) (6,049)
Impairment (charge) credit 8 (100) (662) 359
Profit before tax 3,324 3,870 3,633
Tax expense 9 (880) (1,006) (979)
Profit for the period 2,444 2,864 2,654
Profit attributable to ordinary shareholders 2,145 2,572 2,361
Profit attributable to other equity holders 269 255 272
Profit attributable to equity holders 2,414 2,827 2,633
Profit attributable to non-controlling interests 30 37 21
Profit for the period 2,444 2,864 2,654
Basic earnings per share 17 3.4p 3.9p 3.7p
Diluted earnings per share 17 3.3p 3.8p 3.7p
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 Half-year
to 30 Jun to 30 Jun to 31 Dec
2024 2023 2023
£m £m £m
Profit for the period 2,444 2,864 2,654
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) (1,514)
Tax 93 27 401
(258) (92) (1,113)
Movements in revaluation reserve in respect of equity shares held at fair
value through other comprehensive income:
Change in fair value 72 (48) (6)
Tax - - (3)
72 (48) (9)
Gains and losses attributable to own credit risk:
Losses before tax (86) (85) (149)
Tax 24 24 42
(62) (61) (107)
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 (197)
Income statement transfers in respect of disposals (4) (107) (15)
Income statement transfers in respect of impairment (2) (2) -
Tax (27) (13) 60
72 35 (152)
Movements in cash flow hedging reserve:
Effective portion of changes in fair value taken to other comprehensive income (1,601) (1,644) 2,189
Net income statement transfers 1,238 756 1,082
Tax 101 244 (917)
(262) (644) 2,354
Movements in foreign currency translation reserve:
Currency translation differences (tax: £nil) (39) (66) 13
Transfers to income statement (tax: £nil) - - -
(39) (66) 13
Total other comprehensive (loss) income for the period, net of tax (477) (876) 986
Total comprehensive income for the period 1,967 1,988 3,640
Total comprehensive income attributable to ordinary shareholders 1,668 1,696 3,347
Total comprehensive income attributable to other equity holders 269 255 272
Total comprehensive income attributable to equity holders 1,937 1,951 3,619
Total comprehensive income attributable to non-controlling interests 30 37 21
Total comprehensive income for the period 1,967 1,988 3,640
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 66,808 78,110
Financial assets at fair value through profit or loss 10 209,139 203,318
Derivative financial instruments 11 18,983 22,356
Loans and advances to banks 8,454 10,764
Loans and advances to customers 12 452,408 449,745
Reverse repurchase agreements 49,404 38,771
Debt securities 15,432 15,355
Financial assets at amortised cost 525,698 514,635
Financial assets at fair value through other comprehensive income 10 27,847 27,592
Goodwill and other intangible assets 8,315 8,306
Current tax recoverable 1,152 1,183
Deferred tax assets 4,995 5,185
Retirement benefit assets 7 3,379 3,624
Other assets 26,611 17,144
Total assets 892,927 881,453
Liabilities
Deposits from banks 5,584 6,153
Customer deposits 474,693 471,396
Repurchase agreements at amortised cost 37,914 37,703
Financial liabilities at fair value through profit or loss 10 27,056 24,914
Derivative financial instruments 11 16,647 20,149
Notes in circulation 1,766 1,392
Debt securities in issue at amortised cost 15 74,760 75,592
Liabilities arising from insurance and participating investment contracts 5 125,007 120,123
Liabilities arising from non-participating investment contracts 48,280 44,978
Other liabilities 23,544 19,026
Retirement benefit obligations 7 130 136
Current tax liabilities 47 39
Deferred tax liabilities 146 157
Provisions 16 1,788 2,077
Subordinated liabilities 10,448 10,253
Total liabilities 847,810 834,088
Equity
Share capital 6,252 6,358
Share premium account 18,671 18,568
Other reserves 8,525 8,508
Retained profits 5,511 6,790
Ordinary shareholders' equity 38,959 40,224
Other equity instruments 5,932 6,940
Total equity excluding non-controlling interests 44,891 47,164
Non-controlling interests 226 201
Total equity 45,117 47,365
Total equity and liabilities 892,927 881,453
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Attributable to ordinary shareholders
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 24,926 8,508 6,790 40,224 6,940 201 47,365
Comprehensive income
Profit for the period - - 2,145 2,145 269 30 2,444
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
Equity shares - 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 - (262) - (262) - - (262)
Movements in foreign currency translation reserve, net of tax - (39) - (39) - - (39)
Total other comprehensive loss - (157) (320) (477) - - (477)
Total comprehensive (loss) income(1) - (157) 1,825 1,668 269 30 1,967
Transactions with owners
Dividends - - (1,169) (1,169) - (3) (1,172)
Distributions on other equity instruments - - - - (269) - (269)
Issue of ordinary shares 171 - - 171 - - 171
Share buyback(2) (174) 174 (1,553) (1,553) - - (1,553)
Issue of other equity instruments - - - - - - -
Repurchases and redemptions of other equity instruments - - (316) (316) (1,008) - (1,324)
Movement in treasury shares - - (136) (136) - - (136)
Value of employee services:
Share option schemes - - 24 24 - - 24
Other employee award schemes - - 46 46 - - 46
Changes in non-controlling interests - - - - - (2) (2)
Total transactions with owners (3) 174 (3,104) (2,933) (1,277) (5) (4,215)
Realised gains and losses on equity shares held at fair value through other - - - - - - -
comprehensive income
At 30 June 2024(3) 24,923 8,525 5,511 38,959 5,932 226 45,117
(1 ) Total comprehensive income attributable to owners of the parent was
£1,937 million.
(2) Contains a closed period accrual of £630 million.
(3) Total equity attributable to owners of the parent was £44,891 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 25,233 6,587 6,550 38,370 5,297 244 43,911
Comprehensive income
Profit for the period - - 2,572 2,572 255 37 2,864
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 - 35 - 35 - - 35
Equity shares - (48) - (48) - - (48)
Gains and losses attributable to own credit risk, net of tax - - (61) (61) - - (61)
Movements in cash flow hedging reserve, net of tax - (644) - (644) - - (644)
Movements in foreign currency translation reserve, net of tax - (66) - (66) - - (66)
Total other comprehensive loss - (723) (153) (876) - - (876)
Total comprehensive (loss) income(1) - (723) 2,419 1,696 255 37 1,988
Transactions with owners
Dividends - - (1,059) (1,059) - (30) (1,089)
Distributions on other equity instruments - - - - (255) - (255)
Issue of ordinary shares 115 - - 115 - - 115
Share buyback(2) (327) 327 (2,020) (2,020) - - (2,020)
Issue of other equity instruments - - (6) (6) 1,778 - 1,772
Repurchases and redemptions of other equity instruments - - - - (135) - (135)
Movement in treasury shares - - 101 101 - - 101
Value of employee services:
Share option schemes - - 23 23 - - 23
Other employee award schemes - - 71 71 - - 71
Changes in non-controlling interests - - - - - - -
Total transactions with owners (212) 327 (2,890) (2,775) 1,388 (30) (1,417)
Realised gains and losses on equity shares held at fair value through other - - - - - - -
comprehensive income
At 30 June 2023(3) 25,021 6,191 6,079 37,291 6,940 251 44,482
(1 ) Total comprehensive income attributable to owners of the parent was
£1,951 million.
(2) Contains a closed period accrual of £419 million.
(3 ) Total equity attributable to owners of the parent was £44,231
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 25,021 6,191 6,079 37,291 6,940 251 44,482
Comprehensive income
Profit for the period - - 2,361 2,361 272 21 2,654
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 - (152) - (152) - - (152)
Equity shares - (9) - (9) - - (9)
Gains and losses attributable to own credit risk, net of tax - - (107) (107) - - (107)
Movements in cash flow hedging reserve, net of tax - 2,354 - 2,354 - - 2,354
Movements in foreign currency translation reserve, net of tax - 13 - 13 - - 13
Total other comprehensive income (loss) - 2,206 (1,220) 986 - - 986
Total comprehensive income(1) - 2,206 1,141 3,347 272 21 3,640
Transactions with owners
Dividends - - (592) (592) - (71) (663)
Distributions on other equity instruments - - - - (272) - (272)
Issue of ordinary shares 16 - - 16 - - 16
Share buyback (111) 111 27 27 - - 27
Issue of other equity instruments - - - - - - -
Repurchases and redemptions of other equity instruments - - - - - - -
Movement in treasury shares - - 2 2 - - 2
Value of employee services:
Share option schemes - - 35 35 - - 35
Other employee award schemes - - 98 98 - - 98
Changes in non-controlling interests - - - - - - -
Total transactions with owners (95) 111 (430) (414) (272) (71) (757)
Realised gains and losses on equity shares held at fair value through other - - - - - - -
comprehensive income
At 31 December 2023(2) 24,926 8,508 6,790 40,224 6,940 201 47,365
(1) Total comprehensive income attributable to owners of the parent was
£3,619 million.
(2) Total equity attributable to owners of the parent was £47,164 million.
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
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CONDENSED CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
Half-year Half-year Half-year
to 30 Jun to 30 Jun to 31 Dec
2024 2023 2023
£m £m £m
Cash flows from operating activities
Profit before tax 3,324 3,870 3,633
Adjustments for:
Change in operating assets (21,509) (589) (8,521)
Change in operating liabilities 14,032 10,162 (5,930)
Non-cash and other items 1,671 2,222 3,400
Net tax paid (398) (861) (576)
Net cash (used in) provided by operating activities (2,880) 14,804 (7,994)
Cash flows from investing activities
Purchase of financial assets (5,809) (3,850) (6,461)
Proceeds from sale and maturity of financial assets 5,269 3,657 1,641
Purchase of fixed assets (2,884) (3,378) (2,077)
Proceeds from sale of fixed assets 642 534 493
Repayment of capital by joint ventures and associates - 9 (9)
Acquisition of businesses, net of cash acquired (63) (28) (352)
Net cash used in investing activities (2,845) (3,056) (6,765)
Cash flows from financing activities
Dividends paid to ordinary shareholders (1,169) (1,059) (592)
Distributions in respect of other equity instruments (269) (255) (272)
Distributions in respect of non-controlling interests (3) (30) (71)
Interest paid on subordinated liabilities (350) (344) (279)
Proceeds from issue of subordinated liabilities 427 746 671
Proceeds from issue of other equity instruments - 1,772 -
Proceeds from issue of ordinary shares 170 70 16
Share buyback (923) (1,523) (470)
Repayment of subordinated liabilities - (1,162) (583)
Repurchases and redemptions of other equity instruments (1,324) (135) -
Change in stake of non-controlling interests (2) - -
Net cash used in financing activities (3,443) (1,920) (1,580)
Effects of exchange rate changes on cash and cash equivalents (17) (493) 13
Change in cash and cash equivalents (9,185) 9,335 (16,326)
Cash and cash equivalents at beginning of period 88,838 95,829 105,164
Cash and cash equivalents at end of period 79,653 105,164 88,838
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. Included within cash and cash equivalents at 30 June 2024
is £35 million (30 June 2023: £45 million; 31 December 2023:
£31 million) held within the Group's long-term insurance and investments
operations, which is not immediately available for use in the business.
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
Banking Group plc (the Company) together with its subsidiaries (the Group).
They do not include all of the information required for full annual financial
statements and should be read in conjunction with the Group's consolidated
financial statements as at and for the year ended 31 December 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 Group's website and are also
available upon request from Investor Relations, Lloyds Banking Group plc,
25 Gresham Street, London EC2V 7HN.
The UK Finance Code for Financial Reporting Disclosure (the Disclosure Code)
sets out disclosure principles together with supporting guidance in respect of
the financial statements of UK banks. The Group has adopted the Disclosure
Code and these condensed consolidated half-year financial statements have been
prepared in compliance with the Disclosure Code's principles. Terminology used
in these condensed consolidated half-year financial statements is consistent
with that used in the Group's 2023 annual report and accounts.
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.
Related party transactions
The Group has had no significant related party transactions during the
half-year to 30 June 2024. Related party transactions for the half-year to 30
June 2024 are similar in nature to those for the year ended 31 December 2023.
Full details of the Group's related party transactions for the year ended 31
December 2023 can be found in the Group's 2023 annual report and accounts.
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 21 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 14.
Note 3: Segmental analysis
Lloyds Banking Group provides a wide range of banking and financial services
in the UK and in certain locations overseas. The Group Executive Committee
(GEC) remains the "chief operating decision maker" (as defined by IFRS 8
Operating Segments) for the Group.
The segmental results and comparatives are presented on an underlying basis,
the basis reviewed by the chief operating decision maker. The underlying basis
is derived from the recognition and measurement principles of IFRS with the
effects of the following excluded in arriving at underlying profit before tax:
• Restructuring costs relating to merger, acquisition and integration
activities
• Volatility and other items, which includes the effects of certain asset
sales, the volatility relating to the Group's hedging arrangements and that
arising in the insurance businesses, the unwind of acquisition-related fair
value adjustments and the amortisation of purchased intangible assets
• Losses from insurance and participating investment contract
modifications relating to the enhancement to the Group's longstanding and
workplace pension business through the addition of a drawdown feature
For the purposes of the underlying income statement, operating lease
depreciation (net of gains on disposal of operating lease assets) is shown as
an adjustment to total underlying income.
There has been no change to the descriptions of these segments as provided in
note 4 to the Group's financial statements for the year ended 31 December
2023.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 3: Segmental analysis (continued)
The table below analyses the Group's income and profit by segment on an
underlying basis and provides a reconciliation through to certain lines in the
Group's statutory income statement. Total income, after net finance income in
respect of insurance and investment contracts is also analysed between
external and inter-segment income. The Group's full segmental income statement
on an underlying basis is shown on page 16.
Half-year to 30 June 2024 Net Other Total Profit External Inter-
interest income, income, before income segment
income after net after net tax £m income
£m finance finance £m (expense)
expense(1) expense(1,2) £m
£m £m
Underlying basis
Retail 4,430 1,148 5,578 1,875 6,566 (988)
Commercial Banking 1,696 947 2,643 1,329 2,088 555
Insurance, Pensions and Investments (74) 649 575 119 649 (74)
Other 286 (10) 276 174 (231) 507
Group 6,338 2,734 9,072 3,497 9,072 -
Reconciling items:
Insurance grossing adjustment 8 (112) (104) -
Market volatility and asset sales (273) 208 (65) (65)
Amortisation of purchased intangibles - - - (41)
Restructuring costs(3) - - - (15)
Fair value unwind and other items (27) - (27) (52)
Group - statutory 6,046 2,830 8,876 3,324
Half-year to 30 June 2023 Net Other Total Profit External Inter-
interest income, income, before income segment
income after net after net tax £m income
£m finance finance £m (expense)
expense(1) expense(1,2) £m
£m £m
Underlying basis
Retail 5,064 1,006 6,070 2,505 6,429 (359)
Commercial Banking 1,934 856 2,790 1,417 2,296 494
Insurance, Pensions and Investments (70) 619 549 91 621 (72)
Other 76 57 133 28 196 (63)
Group 7,004 2,538 9,542 4,041 9,542 -
Reconciling items:
Insurance grossing adjustment 7 (139) (132) -
Market volatility and asset sales (183) 117 (66) (63)
Amortisation of purchased intangibles - - - (35)
Restructuring costs(3) - - - (25)
Fair value unwind and other items (30) (8) (38) (48)
Group - statutory 6,798 2,508 9,306 3,870
(1) Other income and total income, after net finance expense in respect of
insurance and investment contracts.
(2) Total income, after net finance expense does not include operating lease
depreciation which, on a statutory basis, is included within operating costs.
(3) Restructuring costs related to merger, acquisition and integration
costs.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 3: Segmental analysis (continued)
Half-year to 31 December 2023 Net Other Total Profit External Inter-
interest income, income, before income segment
income after net after net tax £m income
£m finance finance £m (expense)
expense(1) expense(1,2) £m
£m £m
Underlying basis
Retail 4,583 1,153 5,736 1,538 6,374 (638)
Commercial Banking 1,865 835 2,700 1,802 2,274 426
Insurance, Pensions and Investments (62) 590 528 99 600 (72)
Other 375 7 382 329 98 284
Group 6,761 2,585 9,346 3,768 9,346 -
Reconciling items:
Insurance grossing adjustment 5 (100) (95) -
Market volatility and asset sales (240) 334 94 98
Amortisation of purchased intangibles - - - (45)
Restructuring costs(3) - - - (129)
Fair value unwind and other items (26) 4 (22) (59)
Group - statutory 6,500 2,823 9,323 3,633
(1) Other income and total income, after net finance expense in respect of
insurance and investment contracts.
(2) Total income, after net finance expense does not include operating lease
depreciation which, on a statutory basis, is included within operating costs.
(3) Restructuring costs related to merger, acquisition and integration
costs.
Segment loans and Segment
advances to customers external assets
At 30 Jun At 31 Dec 2023 At 30 Jun At 31 Dec 2023
2024 £m 2024 £m
£m £m
Retail 365,055 361,181 380,919 376,789
Commercial Banking 88,069 88,606 148,736 150,834
Insurance, Pensions and Investments - - 191,796 184,267
Other (716) (42) 171,476 169,563
Total Group 452,408 449,745 892,927 881,453
Segment Segment
customer deposits external liabilities
At 30 Jun At 31 Dec 2023 At 30 Jun At 31 Dec 2023
2024 £m 2024 £m
£m £m
Retail 313,339 308,441 319,066 313,244
Commercial Banking 161,159 162,752 202,358 204,815
Insurance, Pensions and Investments - - 187,673 179,962
Other 195 203 138,713 136,067
Total Group 474,693 471,396 847,810 834,088
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 4: Net fee and commission income
Half-year Half-year Half-year
to 30 Jun to 30 Jun to 31 Dec
2024 2023 2023
£m £m £m
Fee and commission income:
Current accounts 314 310 314
Credit and debit card fees 631 617 647
Commercial banking and treasury fees 188 166 168
Unit trust and insurance broking 32 34 35
Factoring 35 39 36
Other fees and commissions 258 260 300
Total fee and commission income 1,458 1,426 1,500
Fee and commission expense (568) (539) (556)
Net fee and commission income 890 887 944
Current account and credit and debit card fees principally arise in Retail;
commercial banking, treasury and factoring fees arise in Commercial Banking;
and unit trust and insurance broking fees arise in Insurance, Pensions and
Investments.
(
)
Note 5: Insurance business
Half-year Half-year Half-year
to 30 Jun to 30 Jun to 31 Dec
2024 2023 2023
£m £m £m
Life
Amounts relating to the changes in liabilities for remaining coverage:
Contractual service margin recognised for services provided 216 160 169
Change in risk adjustments for non-financial risk for risk expired 27 30 54
Expected incurred claims and other insurance services expenses 977 955 952
Charges to funds in respect of policyholder tax and other 68 20 67
1,288 1,165 1,242
Recovery of insurance acquisition cash flows 56 40 47
Total life 1,344 1,205 1,289
Non-life
Total non-life 306 245 269
Total insurance revenue 1,650 1,450 1,558
Life
Incurred claims and other directly attributable expenses (961) (966) (931)
Changes that relate to past service: adjustment to liabilities for incurred 3 (1) 1
claims
Changes that relate to future service: losses and reversal of losses on (46) (26) 84
onerous contracts
Amortisation of insurance acquisition cash flows (56) (40) (48)
Net impairment loss on insurance acquisition assets (8) - (7)
Total life (1,068) (1,033) (901)
Non-life
Total non-life (271) (205) (275)
Total insurance service expense (1,339) (1,238) (1,176)
Net (expense) income from reinsurance contracts held (23) 11 (9)
Insurance service result 288 223 373
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 5: Insurance business (continued)
Half-year to 30 June 2024
Life Non-life Total
£m £m £m
Net investment return on assets held to back insurance and participating 6,482 20 6,502
investment contracts (memorandum item)(1)
Net finance expense from insurance and participating investment contracts (6,555) (3) (6,558)
Net finance income from reinsurance contracts held 81 - 81
Net finance expense from insurance, participating investment and reinsurance (6,474) (3) (6,477)
contracts
Half-year to 30 June 2023
Life Non-life Total
£m £m £m
Net investment return on assets held to back insurance and participating 3,542 28 3,570
investment contracts (memorandum item)(1)
Net finance expense from insurance and participating investment contracts (3,732) (39) (3,771)
Net finance income from reinsurance contracts held 2 - 2
Net finance expense from insurance, participating investment and reinsurance (3,730) (39) (3,769)
contracts
Half-year to 31 December 2023
Life Non-life Total
£m £m £m
Net investment return on assets held to back insurance and participating 8,214 7 8,221
investment contracts (memorandum item)(1)
Net finance (expense) income from insurance and participating investment (7,997) 33 (7,964)
contracts
Net finance income from reinsurance contracts held 49 - 49
Net finance (expense) income from insurance, participating investment and (7,948) 33 (7,915)
reinsurance
contracts
(1) Net investment return on assets held to back insurance contracts and
participating investment contracts is reported within net trading income on
the face of the Group's income statement; includes income of £6,951 million
(half-year to 30 June 2023: £3,781 million; half-year to 31 December 2023:
£6,419 million) in respect of unit-linked and with-profit contracts measured
applying the variable fee approach. The assets generating the investment
return held to back insurance contracts and participating investment contracts
are carried at fair value on the Group's balance sheet.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 5: Insurance business (continued)
At 30 June 2024 Present value Risk Contractual Other Total
of future adjustment(1) service £m £m
cash flows £m margin(2)
£m £m
Insurance contract assets 2 1 (2) - 1
Liabilities arising from insurance contracts and participating investment (119,421) (1,139) (4,467) - (125,027)
contracts(3,4)
Insurance acquisition assets - - - 20 20
Net liabilities (119,419) (1,138) (4,469) 20 (125,006)
At 31 December 2023
Insurance contract assets - 1 - - 1
Liabilities arising from insurance contracts and participating investment (114,555) (1,178) (4,415) - (120,148)
contracts(3,4)
Insurance acquisition assets - - - 24 24
Net liabilities (114,555) (1,177) (4,415) 24 (120,123)
(1) The movement in the risk adjustment during the half-year to 30 June 2024
included £34 million, net of reinsurance, arising on the initial recognition
of contracts issued in the period (half-year to 30 June 2023: £42 million;
half-year to 31 December 2023: £44 million).
(2) The movement in the contractual service margin during the half-year to
30 June 2024 included £27 million, net of reinsurance, arising on the initial
recognition of contracts issued in the period (half-year to 30 June 2023: £56
million; half-year to 31 December 2023: £31 million).
(3) Liabilities arising from insurance and participating investment
contracts substantially all relates to liability for remaining coverage.
(4) Excluding insurance acquisition assets.
On 13 March 2024, the Group entered into a business transfer agreement with
Rothesay Life plc for the sale of the Group's bulk annuity business and to
pursue the transfer of associated business assets and assumed liabilities
under Part VII of the Financial Services and Markets Act 2000. A reinsurance
agreement between the Group and Rothesay Life plc was signed on 30 April 2024
to materially de-risk the Group's bulk annuity portfolio. The Part VII process
is subject to approval by the High Court, through a process in which
regulators and policyholders are given the opportunity to object. The Group
currently expects the Part VII to take place in the second half of 2025.
Upon entering into the reinsurance agreement, the Group derecognised £5.3
billion of financial assets which represents the reinsurance premium paid and
at 30 April 2024 recognised a reinsurance contract asset of £5.3 billion, of
which £0.3 billion contractual service margin was recognised. The
reinsurance contract asset is presented on the Group's balance sheet within
other assets.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 6: Operating expenses
Half-year Half-year Half-year
to 30 Jun to 30 Jun to 31 Dec
2024 2023 2023
£m £m £m
Staff costs:
Salaries and social security costs 1,914 1,695 1,956
Pensions and other post-retirement benefit schemes (note 7) 276 153 202
Restructuring and other staff costs 214 185 302
2,404 2,033 2,460
Premises and equipment costs(1) 196 179 270
Depreciation and amortisation 1,705 1,333 1,572
UK bank levy - - 150
Regulatory and legal provisions (note 16) 95 70 605
Other 1,365 1,448 1,272
Operating expenses before adjustment for: 5,765 5,063 6,329
Amounts attributable to the acquisition of insurance and participating (88) (82) (101)
investment contracts
Amounts reported within insurance service expenses (225) (207) (179)
Total operating expenses 5,452 4,774 6,049
(1 ) Net of profits on disposal of operating lease assets of £37 million
(half-year to 30 June 2023: £67 million; half-year to 31 December 2023: £26
million).
(
)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 7: Retirement benefit obligations
The Group's post-retirement defined benefit scheme obligations are comprised
as follows:
At 30 Jun At 31 Dec 2023
2024 £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 charge to the income statement in respect of pensions and other
post-retirement benefit schemes is comprised as follows:
Half-year Half-year Half-year
to 30 Jun to 30 Jun to 31 Dec
2024 2023 2023
£m £m £m
Defined benefit schemes (21) (37) (42)
Defined contribution schemes 297 190 244
Total charge to the income statement 276 153 202
The principal assumptions used in the valuations of the defined benefit
pension schemes were as follows:
At 30 Jun At 31 Dec 2023
2024 %
%
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 8: Impairment
Half-year Half-year Half-year
to 30 Jun to 30 Jun to 31 Dec
2024 2023 2023
£m £m £m
Loans and advances to banks (5) (3) (4)
Loans and advances to customers 161 667 (346)
Debt securities (3) 2 (1)
Financial assets held at amortised cost 153 666 (351)
Financial assets at fair value through other comprehensive income (2) (3) 1
Other assets (8) (2) (8)
Loan commitments and financial guarantees (43) 1 (1)
Total impairment charge (credit) 100 662 (359)
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; half-year to
31 December 2023: £46 million).
Note 9: 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 Half-year
to 30 Jun to 30 Jun to 31 Dec
2024 2023 2023
£m £m £m
Profit before tax 3,324 3,870 3,633
UK corporation tax thereon at 25.0 per cent (2023: 23.5 per cent) (831) (909) (854)
Impact of surcharge on banking profits (83) (141) (164)
Non-deductible costs: conduct charges 4 (2) (27)
Non-deductible costs: bank levy - - (35)
Other non-deductible costs (39) (80) (26)
Non-taxable income 27 27 53
Tax relief on coupons on other equity instruments 67 60 64
Tax-exempt gains on disposals 33 27 8
Tax losses where no deferred tax recognised (2) - (2)
Remeasurement of deferred tax due to rate changes 3 (8) (6)
Differences in overseas tax rates - 5 1
Policyholder tax (46) (37) (24)
Deferred tax asset in respect of life assurance expenses - 64 20
Adjustments in respect of prior years (12) (11) 11
Tax effect of share of results of joint ventures (1) (1) 2
Tax expense (880) (1,006) (979)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 10: 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 21 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 banks - 3,405 - 3,405
Loans and advances to customers - 3,152 6,301 9,453
Reverse repurchase agreements - 19,816 - 19,816
Debt securities 10,589 24,999 2,286 37,874
Treasury and other bills 12 - - 12
Contracts held with reinsurers - 11,838 - 11,838
Equity shares 125,181 - 1,560 126,741
Total financial assets at fair value through profit or loss(1) 135,782 63,210 10,147 209,139
Financial assets at fair value through other comprehensive income:
Debt securities 14,059 13,432 51 27,542
Equity shares - - 305 305
Total financial assets at fair value through other comprehensive income 14,059 13,432 356 27,847
Derivative financial instruments 28 18,603 352 18,983
Total financial assets carried at fair value 149,869 95,245 10,855 255,969
(1) Other financial assets mandatorily at fair value through profit or loss
include assets backing insurance contracts and investment contracts of
£178,559 million.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 10: Fair values of financial assets and liabilities (continued)
Financial assets Level 1 Level 2 Level 3 Total
£m £m £m £m
At 31 December 2023
Financial assets at fair value through profit or loss:
Loans and advances to banks - 3,127 - 3,127
Loans and advances to customers - 2,015 7,890 9,905
Reverse repurchase agreements - 17,413 - 17,413
Debt securities 11,611 28,802 2,250 42,663
Treasury and other bills 51 - - 51
Contracts held with reinsurers - 11,424 - 11,424
Equity shares 117,194 - 1,541 118,735
Total financial assets at fair value through profit or loss(1) 128,856 62,781 11,681 203,318
Financial assets at fair value through other comprehensive income:
Debt securities 15,049 12,259 52 27,360
Equity shares - - 232 232
Total financial assets at fair value through other comprehensive income 15,049 12,259 284 27,592
Derivative financial instruments 77 21,857 422 22,356
Total financial assets carried at fair value 143,982 96,897 12,387 253,266
(1) Other financial assets mandatorily at fair value through profit or loss
include assets backing insurance contracts and investment contracts of
£176,475 million.
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:
Debt securities in issue - 4,897 23 4,920
Liabilities in respect of securities sold under repurchase agreements - 20,167 - 20,167
Short positions in securities 1,920 9 - 1,929
Other - 40 - 40
Total financial liabilities at fair value through profit or loss 1,920 25,113 23 27,056
Derivative financial instruments 28 16,246 373 16,647
Liabilities arising from non-participating investment contracts - 48,280 - 48,280
Total financial liabilities carried at fair value 1,948 89,639 396 91,983
At 31 December 2023
Financial liabilities at fair value through profit or loss:
Debt securities in issue - 5,223 42 5,265
Liabilities in respect of securities sold under repurchase agreements - 18,057 - 18,057
Short positions in securities 1,569 5 - 1,574
Other - 18 - 18
Total financial liabilities at fair value through profit or loss 1,569 23,303 42 24,914
Derivative financial instruments 116 19,589 444 20,149
Liabilities arising from non-participating investment contracts - 44,978 - 44,978
Total financial liabilities carried at fair value 1,685 87,870 486 90,041
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 10: Fair values of financial assets and liabilities (continued)
Valuation control framework
Key elements of the valuation control framework include model validation
(incorporating pre-trade and post-trade testing), product implementation
review and independent price verification. The framework covers processes for
all 3 levels in the fair value hierarchy. Formal committees meet quarterly to
discuss and approve valuations in more judgemental areas.
Transfers into and out of level 3 portfolios
Transfers out of level 3 portfolios arise when inputs that could have a
significant impact on the instrument's valuation become market observable;
conversely, transfers into the portfolios arise when sources of data cease to
be observable.
Valuation methodology
For level 2 and level 3 portfolios, there is no significant change to the
valuation methodology (techniques and inputs) disclosed in the Group's
financial statements for the year ended 31 December 2023 applied to these
portfolios.
Movements in level 3 portfolio
The tables below analyse movements in the level 3 financial assets portfolio.
Financial Financial Derivative Total
assets at assets at assets financial
fair value fair value £m assets
through through other carried at
profit or loss comprehensive fair value
£m income £m
£m
At 1 January 2024 11,681 284 422 12,387
Exchange and other adjustments 2 (1) - 1
Gains (losses) recognised in the income statement within other income 55 - (54) 1
Gains recognised in other comprehensive income within the revaluation reserve - 74 - 74
in respect of financial assets at fair value through other comprehensive
income
Purchases/increases to customer loans 335 - 6 341
Sales/repayments of customer loans (1,923) (1) (22) (1,946)
Transfers into the level 3 portfolio 32 - - 32
Transfers out of the level 3 portfolio (35) - - (35)
At 30 June 2024 10,147 356 352 10,855
Gains (losses) recognised in the income statement, within other income, 54 - (41) 13
relating to the change in fair
value of those assets held at 30 June 2024
At 1 January 2023 11,304 342 553 12,199
Exchange and other adjustments (1) (2) (13) (16)
Gains (losses) recognised in the income statement within other income 104 4 (53) 55
Losses recognised in other comprehensive income - (48) - (48)
within the revaluation reserve in respect of financial assets at fair value
through other comprehensive income
Purchases/increases to customer loans 347 - 40 387
Sales/repayments of customer loans (475) (4) (17) (496)
Transfers into the level 3 portfolio 139 - - 139
Transfers out of the level 3 portfolio (4) - (3) (7)
At 30 June 2023 11,414 292 507 12,213
Gains (losses) recognised in the income statement, within other income, 79 2 (58) 23
relating to the change in fair
value of those assets held at 30 June 2023
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 10: Fair values of financial assets and liabilities (continued)
The tables below analyse movements in the level 3 financial liabilities
portfolio.
Financial Derivative Total
liabilities liabilities financial
at fair value £m liabilities
through carried at
profit or loss fair value
£m £m
At 1 January 2024 42 444 486
Exchange and other adjustments - - -
Losses (gains) recognised in the income statement within other income 2 (43) (41)
Additions - 5 5
Redemptions (2) (33) (35)
Transfers into the level 3 portfolio - - -
Transfers out of the level 3 portfolio (19) - (19)
At 30 June 2024 23 373 396
Losses (gains) recognised in the income statement, within other income, 2 (31) (29)
relating to the change in fair value of those liabilities held at 30 June 2024
At 1 January 2023 45 608 653
Exchange and other adjustments - (8) (8)
Losses (gains) recognised in the income statement within other income 1 (57) (56)
Additions - 31 31
Redemptions (1) (36) (37)
Transfers into the level 3 portfolio 2 - 2
Transfers out of the level 3 portfolio (1) - (1)
At 30 June 2023 46 538 584
Losses (gains) recognised in the income statement, within other income, 1 (58) (57)
relating to the change in fair value of those liabilities held at 30 June 2023
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 10: Fair values of financial assets and liabilities (continued)
Sensitivity of level 3 valuations
The tables below set out the effects of reasonably possible alternative
assumptions for categories of level 3 financial assets and financial
liabilities.
Effect of reasonably
possible alternative
assumptions(1)
At 30 June 2024 Valuation Significant Carrying value Favourable changes Unfavourable
techniques unobservable inputs(2) £m £m changes
£m
Financial assets at fair value through profit or loss
Loans and advances to customers Discounted cash flows Interest rate spreads 6,301 277 (245)
(-127bps/+238bps)
Equity and venture capital investments Market approach Earnings multiple 2,293 163 (163)
(1.6/17.8)
Underlying asset/net asset value (incl. property prices)(3) n/a 853 80 (95)
Unlisted equities, debt securities and property partnerships in the life funds Underlying asset/net asset value (incl. property prices), broker quotes or n/a 297 2 (9)
discounted cash flows(3)
Other 403 33 (33)
10,147
Financial assets at fair value through other comprehensive income
Asset-backed securities Lead manager or broker quote/consensus pricing n/a 51 2 (2)
Equity and venture capital investments Underlying asset/net asset value (incl. property prices)(3) n/a 305 29 (29)
356
Derivative financial assets
Interest rate derivatives Option pricing model Interest rate volatility 352 6 (3)
(13%/200%)
Level 3 financial assets carried at fair value 10,855
Financial liabilities at fair value through profit or loss 23 1 (1)
Derivative financial liabilities
Interest rate derivatives Option pricing model Interest rate volatility 373 17 (18)
(13%/200%)
Level 3 financial liabilities carried at fair value 396
(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.
(3) Underlying asset/net asset values represent fair value.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 10: 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 (-50bps/+272bps) 7,890 369 (351)
Equity and venture capital investments Market approach Earnings multiple (1.6/17.8) 2,228 131 (131)
Underlying asset/net asset value (incl. property prices)(3) n/a 809 77 (99)
Unlisted equities, debt securities and property partnerships in the life funds Underlying asset/net asset value (incl. property prices), broker quotes or n/a 309 7 (6)
discounted cash flows(3)
Other 445 39 (41)
11,681
Financial assets at fair value through other comprehensive income
Asset-backed securities Lead manager or broker quote/consensus pricing n/a 52 2 (2)
Equity and venture capital investments Underlying asset/net asset value (incl. property prices)(3) n/a 232 22 (22)
284
Derivative financial assets
Interest rate derivatives Option pricing model Interest rate volatility (13%/200%) 422 6 (3)
Level 3 financial assets carried at fair value 12,387
Financial liabilities at fair value through profit or loss 42 1 (1)
Derivative financial liabilities
Interest rate derivatives Option pricing model Interest rate volatility (13%/200%) 444 10 (7)
Level 3 financial liabilities carried at fair value 486
(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.
(3) Underlying asset/net asset values represent fair value.
Unobservable inputs
Significant unobservable inputs affecting the valuation of debt securities,
unlisted equity investments and derivatives are unchanged from those described
in the Group's financial statements for the year ended 31 December 2023.
Reasonably possible alternative assumptions
Valuation techniques applied to many of the Group's level 3 instruments often
involve the use of two or more inputs whose relationship is interdependent.
The calculation of the effect of reasonably possible alternative assumptions
included in the table above reflects such relationships and is unchanged from
that described in note 21 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 10: 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 8,454 8,454 10,764 10,764
Loans and advances to customers 452,408 445,987 449,745 439,449
Reverse repurchase agreements 49,404 49,404 38,771 38,771
Debt securities 15,432 14,753 15,355 15,139
Financial assets at amortised cost 525,698 518,598 514,635 504,123
Financial liabilities
Deposits from banks 5,584 5,578 6,153 6,153
Customer deposits 474,693 475,358 471,396 471,857
Repurchase agreements at amortised cost 37,914 37,914 37,703 37,703
Debt securities in issue 74,760 75,226 75,592 75,021
Subordinated liabilities 10,448 10,988 10,253 10,345
The carrying amount of the following financial instruments is a reasonable
approximation of fair value: cash and balances at central banks, items in the
course of collection from banks, items in course of transmission to banks and
notes in circulation.
Note 11: Derivative financial instruments
At 30 June 2024 At 31 December 2023
Fair value Fair value Fair value Fair value
of assets of liabilities of assets of liabilities
£m £m £m £m
Trading and other
Exchange rate contracts 5,118 4,580 6,631 6,222
Interest rate contracts 13,538 11,146 15,116 12,724
Credit derivatives 74 146 51 118
Equity and other contracts 228 334 455 580
18,958 16,206 22,253 19,644
Hedging
Derivatives designated as fair value hedges 4 422 83 425
Derivatives designated as cash flow hedges 21 19 20 80
25 441 103 505
Total recognised derivative assets/liabilities 18,983 16,647 22,356 20,149
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 12: 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 385,294 53,167 7,147 7,854 453,462 900 1,467 1,137 213 3,717
Exchange and other adjustments(1) (1,219) (12) (17) 7 (1,241) (6) (6) 10 23 21
Transfers to Stage 1 16,778 (16,708) (70) - 276 (271) (5) -
Transfers to Stage 2 (11,068) 11,546 (478) - (56) 116 (60) -
Transfers to Stage 3 (508) (1,728) 2,236 - (8) (157) 165 -
Net change in ECL (185) 257 169 241
due to transfers
27 (55) 269 241
Impact of transfers between stages 5,202 (6,890) 1,688 -
Other changes in credit quality(2) (139) (50) 331 32 174
Additions and repayments 9,424 (3,150) (828) (418) 5,028 (9) (101) (115) (29) (254)
Charge (credit) to the income statement (121) (206) 485 3 161
Disposals and derecognition(3) (449) (206) (88) (219) (962) (1) (4) (7) (8) (20)
Advances written off (618) (6) (624) (618) (6) (624)
Recoveries of advances written off in previous years 69 - 69 69 - 69
At 30 June 2024 398,252 42,909 7,353 7,218 455,732 772 1,251 1,076 225 3,324
Allowance for (772) (1,251) (1,076) (225) (3,324)
expected credit losses
Net carrying amount 397,480 41,658 6,277 6,993 452,408
Drawn ECL coverage(4) 0.2 % 2.9 % 14.6 % 3.1 % 0.7 %
(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 12: 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 380,991 61,164 7,640 9,622 459,417 700 1,808 1,757 253 4,518
Exchange and other adjustments(1) 1,830 (24) (6) 18 1,818 (7) (1) 105 67 164
Transfers to Stage 1 18,991 (18,953) (38) - 401 (393) (8) -
Transfers to Stage 2 (18,010) 18,592 (582) - (53) 121 (68) -
Transfers to Stage 3 (1,216) (2,507) 3,723 - (13) (223) 236 -
Net change in ECL (260) 402 312 454
due to transfers
75 (93) 472 454
Impact of transfers between stages (235) (2,868) 3,103 -
Other changes in credit quality(2) 105 (103) 804 8 814
Additions and repayments 6,393 (4,213) (2,353) (1,043) (1,216) 81 (85) (862) (81) (947)
Charge (credit) to the income statement 261 (281) 414 (73) 321
Disposals and derecognition(3) (3,685) (892) (122) (743) (5,442) (54) (59) (24) (34) (171)
Advances written off (1,231) - (1,231) (1,231) - (1,231)
Recoveries of advances written off in previous years 116 - 116 116 - 116
At 31 December 2023 385,294 53,167 7,147 7,854 453,462 900 1,467 1,137 213 3,717
Allowance for (900) (1,467) (1,137) (213) (3,717)
expected credit losses
Net carrying amount 384,394 51,700 6,010 7,641 449,745
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 13: 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 13: 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 23,261 6 - - 23,267 3 - - - 3
CMS 6-10 20,029 63 - - 20,092 14 - - - 14
CMS 11-14 32,843 2,133 - - 34,976 127 29 - - 156
CMS 15-18 4,286 3,610 - - 7,896 70 190 - - 260
CMS 19 32 631 - - 663 - 57 - - 57
CMS 20-23 - - 2,055 - 2,055 - - 390 - 390
80,451 6,443 2,055 - 88,949 214 276 390 - 880
Other(1) (716) - - - (716) - - - - -
Total loans and advances to customers 398,252 42,909 7,353 7,218 455,732 772 1,251 1,076 225 3,324
(1) Gross drawn exposures include centralised fair value hedge accounting
adjustments.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 13: 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 13: 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 14,100 7 - - 14,107 2 - - - 2
CMS 6-10 30,534 124 - - 30,658 32 - - - 32
CMS 11-14 31,210 2,927 - - 34,137 133 59 - - 192
CMS 15-18 3,719 4,115 - - 7,834 65 232 - - 297
CMS 19 11 814 - - 825 - 81 - - 81
CMS 20-23 - - 2,068 - 2,068 - - 418 - 418
79,574 7,987 2,068 - 89,629 232 372 418 - 1,022
Other(1) (43) - 6 - (37) - - 4 - 4
Total loans and 385,294 53,167 7,147 7,854 453,462 900 1,467 1,137 213 3,717
advances to
customers
(1) Gross drawn exposures include centralised fair value hedge accounting
adjustments.
(
)
Note 14: 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 24 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 Other Total
ECL assessed and interest rate risk £m ECL
£m £m £m £m
UK mortgages 806 - 23 142 971
Credit cards 679 - 6 15 700
Other Retail 878 - 6 58 942
Commercial Banking 992 322 - (315) 999
Other 18 - - - 18
Total 3,373 322 35 (100) 3,630
At 31 December 2023
UK mortgages 991 - 61 63 1,115
Credit cards 703 - 92 15 810
Other Retail 866 - 33 46 945
Commercial Banking 1,124 340 - (282) 1,182
Other 32 - - - 32
Total 3,716 340 186 (158) 4,084
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 14: 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: £186 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: £33 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 14: 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: £(315) million (31 December 2023: £(282) million)
These adjustments principally comprise:
Commercial Real Estate (CRE) price reduction: £54 million (31 December 2023:
£67 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: £(304) million (31 December 2023: £(292)
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 14: 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 24 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 14: 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 14: 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 14: 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 14: 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
£468 million compared to £678 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 999 746 895 1,143 1,641
Other 18 16 18 19 21
ECL allowance 3,630 2,587 3,162 4,114 6,708
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 1,182 793 1,013 1,383 2,250
Other 32 32 32 32 32
ECL allowance 4,084 2,670 3,406 4,469 9,202
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 73 (67) 88 (83)
ECL impact 145 (134) 178 (172)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 14: 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 15: 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 cost £m
through cost through £m
profit £m profit
or loss or loss
£m £m
Senior unsecured notes issued 4,897 40,380 45,277 5,242 37,038 42,280
Covered bonds - 11,804 11,804 - 14,243 14,243
Commercial paper - 10,555 10,555 - 12,041 12,041
Certificates of deposit issued - 7,056 7,056 - 8,059 8,059
Securitisation notes 23 4,965 4,988 23 4,211 4,234
4,920 74,760 79,680 5,265 75,592 80,857
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 £28,454 million (31 December
2023: £30,716 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 £4,067 million (31 December 2023: £3,794 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 16: Provisions
Provisions Regulatory Other Total
for financial and legal £m £m
commitments provisions
and guarantees £m
£m(1)
At 1 January 2024 322 1,105 650 2,077
Exchange and other adjustments - (2) (2) (4)
Provisions applied - (216) (263) (479)
(Credit) charge for the period (43) 95 142 194
At 30 June 2024 279 982 527 1,788
(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 £95 million in respect of legal actions and other regulatory matters
and the unutilised balance at 30 June 2024 was £982 million (31 December
2023: £1,105 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 16: 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 £21,960
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.
Customer claims in relation to insurance branch business in Germany
The Group continues to receive claims from customers in Germany relating to
policies issued by Clerical Medical Investment Group Limited (subsequently
renamed Scottish Widows Limited), with smaller numbers of claims received from
customers in Austria and Italy. The total provision made to 30 June 2024, was
£709 million (31 December 2023: £709 million) with £5 million
utilisation of the provision during the period, leaving an unutilised
provision at 30 June 2024 of £69 million. The ultimate financial effect,
which could be significantly different from the current provision, will be
known only once all relevant claims have been resolved.
Other
The Group carries provisions of £146 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 £204 million (31 December
2023: £245 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.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 17: Earnings per share
Half-year Half-year Half-year
to 30 Jun to 30 Jun to 31 Dec
2024 2023 2023
£m £m £m
Profit attributable to ordinary shareholders - basic and diluted 2,145 2,572 2,361
( )
Half-year Half-year Half-year
to 30 Jun to 30 Jun to 31 Dec
2024 2023 2023
million million million
Weighted average number of ordinary shares in issue - basic 63,453 66,226 63,718
Adjustment for share options and awards 600 882 716
Weighted average number of ordinary shares in issue - diluted 64,053 67,108 64,434
Basic earnings per share 3.4p 3.9p 3.7p
Diluted earnings per share 3.3p 3.8p 3.7p
( )
(
)
Note 18: Dividends on ordinary shares and share buyback
An interim dividend for 2024 of 1.06 pence per ordinary share (half-year to 30
June 2023: 0.92 pence per ordinary share) will be paid on 10 September 2024.
The total amount of this dividend is £662 million, before the impact of any
further cancellations of shares purchased under the Group's buyback programme
(half-year to 30 June 2023: £592 million, following cancellations of shares
under the Group's buyback programme up to the record date, was paid to
shareholders).
On 21 May 2024, a final dividend in respect of 2023 of 1.84 pence per ordinary
share, totalling £1,169 million, following cancellations of shares under the
Group's buyback programme up to the record date, was paid to shareholders.
Shareholders who have joined the dividend reinvestment plan will automatically
receive ordinary shares instead of the cash dividend. Key dates for the
payment of the recommended dividend are outlined on page 101.
On 23 February 2024 the Group commenced an ordinary share buyback programme to
purchase outstanding ordinary shares. As at 30 June 2024, the Group has
purchased c.1.8 billion ordinary shares under the programme, for a total
consideration of £918 million.
Note 19: 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 £2,696 million (31
December 2023: £2,849 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 £150,396 million (31 December
2023: £143,319 million), of which in respect of undrawn formal standby
facilities, credit lines and other commitments to lend, £81,041 million (31
December 2023: £75,080 million) was irrevocable.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 19: Contingent liabilities, commitments and guarantees (continued)
Interchange fees
With respect to multi-lateral interchange fees (MIFs), the Group is not a
party in the ongoing or threatened litigation which involves the card schemes
Visa and Mastercard (as described below). However, the Group is a
member/licensee of Visa and Mastercard and other card schemes. The litigation
in question is as follows:
• Litigation brought by or on behalf of retailers against both Visa and
Mastercard in the English Courts, in which retailers are seeking damages on
grounds that Visa and Mastercard's MIFs breached competition law (this
includes a judgment of the Supreme Court in June 2020 upholding the Court of
Appeal's finding in 2018 that certain historic interchange arrangements of
Mastercard and Visa infringed competition law)
• Litigation brought on behalf of UK consumers in the English Courts
against Mastercard
Any impact on the Group of the litigation against Visa and Mastercard remains
uncertain at this time, such that it is not practicable for the Group to
provide an estimate of any potential financial effect. Insofar as Visa is
required to pay damages to retailers for interchange fees set prior to June
2016, contractual arrangements to allocate liability have been agreed between
various UK banks (including the 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 Group may be subject and this cap is set at the cash
consideration received by the Group for the sale of its stake in Visa Europe
to Visa Inc in 2016. In 2016, the Group received Visa preference shares as
part of the consideration for the sale of its shares in Visa Europe. A release
assessment is carried out by Visa on certain anniversaries of the sale (in
line with the Visa Europe sale documentation) and as a result, some Visa
preference shares may be converted into Visa Inc Class A common stock from
time to time. Any such release and any subsequent sale of Visa common stock
does not impact the contingent liability.
LIBOR and other trading rates
Certain Group companies, together with other panel banks, have been named as
defendants in ongoing private lawsuits, including purported class action
suits, in the US in connection with their roles as panel banks contributing to
the setting of US Dollar, Japanese Yen and Sterling London Interbank Offered
Rate.
Certain Group companies are also named as defendants in (i) UK-based claims,
and (ii) two Dutch class actions, raising LIBOR manipulation allegations. A
number of claims against the Group in the UK relating to the alleged mis-sale
of interest rate hedging products also include allegations of LIBOR
manipulation.
It is currently not possible to predict the scope and ultimate outcome on the
Group of any private lawsuits or ongoing related challenges to the
interpretation or validity of any of the Group's contractual arrangements,
including their timing and scale. As such, it is not practicable to provide an
estimate of any potential financial effect.
Tax authorities
The Group has an open matter in relation to a claim for group relief of losses
incurred in its former Irish banking subsidiary, which ceased trading on 31
December 2010. In 2013, HMRC informed the Group that its interpretation of the
UK rules means that the group relief is not available. In 2020, HMRC concluded
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 £950 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.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)
(continued)
Note 19: Contingent liabilities, commitments and guarantees (continued)
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.
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 16.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors listed below (being all the directors of Lloyds Banking Group
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 Banking Group 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 Legg
Amanda Mackenzie LVO OBE
Harmeen Mehta
Cathy Turner
Scott Wheway
Catherine Woods
INDEPENDENT REVIEW REPORT TO LLOYDS BANKING GROUP PLC
Conclusion
We have been engaged by Lloyds Banking Group 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 19.
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
KEY DATES
Shares quoted ex-dividend for 2024 interim dividend 1 August 2024
Record date for 2024 interim dividend 2 August 2024
Final date for joining or leaving the interim 2024 dividend reinvestment plan 19 August 2024
Interim 2024 dividend paid 10 September 2024
Q3 2024 Interim Management Statement 23 October 2024
BASIS OF PRESENTATION
This release covers the results of Lloyds Banking Group plc together with its
subsidiaries (the Group) for the six months ended 30 June 2024. Unless
otherwise stated, income statement commentaries throughout this document
compare the six months ended 30 June 2024 to the six months ended 30 June 2023
and the balance sheet analysis compares the Group balance sheet as at 30 June
2024 to the Group balance sheet as at 31 December 2023. The Group uses a
number of alternative performance measures, including underlying profit, in
the discussion of its business performance and financial position. These
measures are labelled with a superscript 'A' throughout this document. Further
information on these measures is set out on page 26. Unless otherwise stated,
commentary on pages 1 to 2 and pages 7 to 8 is given on an underlying basis.
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.
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 Banking Group plc together
with its subsidiaries (the Group) and its current goals and expectations.
Statements that are not historical or current facts, including statements
about the Group's or its directors' and/or management's beliefs and
expectations, are forward-looking statements. Words such as, without
limitation, 'believes', 'achieves', 'anticipates', 'estimates', 'expects',
'targets', 'should', 'intends', 'aims', 'projects', 'plans', 'potential',
'will', 'would', 'could', 'considered', 'likely', 'may', 'seek', 'estimate',
'probability', 'goal', 'objective', 'deliver', 'endeavour', 'prospects',
'optimistic' and similar expressions or variations on these expressions are
intended to identify forward-looking statements. These statements concern or
may affect future matters, including but not limited to: projections or
expectations of the Group's future financial position, including profit
attributable to shareholders, provisions, economic profit, dividends, capital
structure, portfolios, net interest margin, capital ratios, liquidity,
risk-weighted assets (RWAs), expenditures or any other financial items or
ratios; litigation, regulatory and governmental investigations; the Group's
future financial performance; the level and extent of future impairments and
write-downs; the Group's ESG targets and/or commitments; statements of plans,
objectives or goals of the Group or its management and other statements that
are not historical fact and statements of assumptions underlying such
statements. By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend upon circumstances that
will or may occur in the future. Factors that could cause actual business,
strategy, targets, plans and/or results (including but not limited to the
payment of dividends) to differ materially from forward-looking statements
include, but are not limited to: general economic and business conditions in
the UK and internationally; acts of hostility or terrorism and responses to
those acts, or other such events; geopolitical unpredictability; the war
between Russia and Ukraine; the conflicts in the Middle East; the tensions
between China and Taiwan; political instability including as a result of any
UK general election; market related risks, trends and developments; changes in
client and consumer behaviour and demand; exposure to counterparty risk; the
ability to access sufficient sources of capital, liquidity and funding when
required; changes to the Group's credit ratings; fluctuations in interest
rates, inflation, exchange rates, stock markets and currencies; volatility in
credit markets; volatility in the price of the Group's securities; tightening
of monetary policy in jurisdictions in which the Group operates; natural
pandemic and other disasters; risks concerning borrower and counterparty
credit quality; risks affecting insurance business and defined benefit pension
schemes; changes in laws, regulations, practices and accounting standards or
taxation; changes to regulatory capital or liquidity requirements and similar
contingencies; the policies and actions of governmental or regulatory
authorities or courts together with any resulting impact on the future
structure of the Group; risks associated with the Group's compliance with a
wide range of laws and regulations; assessment related to resolution planning
requirements; risks related to regulatory actions which may be taken in the
event of a bank or Group failure; exposure to legal, regulatory or competition
proceedings, investigations or complaints; failure to comply with anti-money
laundering, counter terrorist financing, anti-bribery and sanctions
regulations; failure to prevent or detect any illegal or improper activities;
operational risks including risks as a result of the failure of third party
suppliers; conduct risk; technological changes and risks to the security of IT
and operational infrastructure, systems, data and information resulting from
increased threat of cyber and other attacks; technological failure; inadequate
or failed internal or external processes or systems; risks relating to ESG
matters, such as climate change (and achieving climate change ambitions) and
decarbonisation, including the Group's ability along with the government and
other stakeholders to measure, manage and mitigate the impacts of climate
change effectively, and human rights issues; the impact of competitive
conditions; failure to attract, retain and develop high calibre talent; the
ability to achieve strategic objectives; the ability to derive cost savings
and other benefits including, but without limitation, as a result of any
acquisitions, disposals and other strategic transactions; inability to capture
accurately the expected value from acquisitions; assumptions and estimates
that form the basis of the Group's financial statements; and potential changes
in dividend policy. A number of these influences and factors are beyond the
Group's control. Please refer to the latest Annual Report on Form 20-F filed
by Lloyds Banking Group plc with the US Securities and Exchange Commission
(the SEC), which is available on the SEC's website at www.sec.gov, for a
discussion of certain factors and risks. Lloyds Banking Group plc may also
make or disclose written and/or oral forward-looking statements in other
written materials and in oral statements made by the directors, officers or
employees of Lloyds Banking Group plc to third parties, including financial
analysts. Except as required by any applicable law or regulation, the
forward-looking statements contained in this document are made as of today's
date, and the Group expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements
contained in this document whether as a result of new information, future
events or otherwise. The information, statements and opinions contained in
this document do not constitute a public offer under any applicable law or an
offer to sell any securities or financial instruments or any advice or
recommendation with respect to such securities or financial instruments.
CONTACTS
For further information please contact:
INVESTORS AND ANALYSTS
Douglas Radcliffe
Group Investor Relations Director
020 7356 1571
douglas.radcliffe@lloydsbanking.com
Nora Thoden
Director of Investor Relations - ESG
020 7356 2334
nora.thoden@lloydsbanking.com
Tom Grantham
Investor Relations Senior Manager
07851 440 091
thomas.grantham@lloydsbanking.com
Sarah Robson
Investor Relations Senior Manager
07494 513 983
sarah.robson2@lloydsbanking.com
CORPORATE AFFAIRS
Grant Ringshaw
External Relations Director
020 7356 2362
grant.ringshaw@lloydsbanking.com
Matt Smith
Head of Media Relations
07788 352 487
matt.smith@lloydsbanking.com
Copies of this News Release may be obtained from:
Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V
7HN
The statement can also be found on the Group's website -
www.lloydsbankinggroup.com
Registered office: Lloyds Banking Group plc, The Mound, Edinburgh, EH1 1YZ
Registered in Scotland No. SC095000
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