REG - Lloyds Bank CorpMkts Lloyds Banking Group - 2022 Half-Year Results
16/09/2022 14:00
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RNS Number : 7793Z Lloyds Bank Corporate Markets PLC 16 September 2022
Lloyds Bank Corporate Markets plc
2022 Half-Year Results
Member of the Lloyds Banking Group
CONTENTS
Page
Review of performance (#Section3) 1
Principal risks and uncertainties (#Section4) 4
Condensed consolidated interim financial statements (#Section5) 7
Consolidated income statement (#Section6) 8
Consolidated statement of comprehensive income (#Section7) 9
Consolidated balance sheet (#Section8) 10
Consolidated statement of changes in equity (#Section9) 12
Consolidated cash flow statement (#Section10) 15
Notes to the condensed consolidated half-year financial statements 16
(#Section11)
Statement of directors' responsibilities (#Section30) 51
Independent review report to Lloyds Bank Corporate Markets plc (#Section31) 53
Forward looking statements (#Section32) 55
REVIEW OF PERFORMANCE
Lloyds Bank Corporate Markets plc (the Bank) and its subsidiaries (the Group)
carries out the non-ring fenced banking operations of Lloyds Banking Group
(LBG) and provides a wide range of banking and financial services in the UK
and overseas. The Group operates as an integrated business across the UK, the
Crown Dependencies, the USA, Singapore and Germany, and contributes to the
financial results of the Commercial Banking Division of LBG.
The Group's strategic purpose as part of LBG is to Help Britain Prosper by
connecting the UK and LBG with the world through a first class banking,
financing and risk management proposition. All underpinned by excellent
customer service.
Principal activities
Supporting a diverse range of customers, the Group provides a broad range of
banking products to help them achieve their financial goals. The Group's
revenues are earned through the provision of financing and risk management
solutions to commercial customers; and current accounts, savings accounts,
mortgages, car finance and personal loans in the retail market in our Crown
Dependencies businesses.
The target market for these products and services in the UK and
internationally is made up of large corporates, financial institutions and
commercial customers plus, in the Crown Dependencies, retail customers and
includes the following product propositions:
- Commercial lending (including fixed rate loans, revolving credit
facilities, variable loans and business mortgages)
- Trade and working capital management (including trade services, trade
finance, supply chain finance and asset finance)
- Bonds and structured finance (including bonds, structured lending and
asset securitisation)
- Risk management (including foreign exchange, rates, credit,
commodities and liabilities management)
- Retail banking services (including mortgages, personal current
accounts, personal loans and motor finance) in the Crown Dependencies
- ESG product solutions (including green bonds and sustainability-linked
loans)
Review of results
During the half-year to 30 June 2022, the Group recorded a profit before tax
of £249 million compared to £193 million during the half-year to 30 June
2021, an overall increase of £56 million. The Group has benefited from good
performance in its core businesses including increased lending combined with
rising interest rates and foreign exchange trading activity. Work has
continued successfully on the tasks required to safely close down the
Singapore branch which is on schedule to complete this year and continued
progress has been made on the transition from Interbank Offered Rates (IBORs)
to Alternative Risk Free Reference Rates (refer Note 14).
The Group recognised an impairment charge of £11 million (2021: £47 million
impairment credit in the half-year to 30 June 2021) in the income statement
relating to expected credit loss (ECL) driven largely by the future economic
outlook. The Group's ECL calculated under IFRS 9 requires the use of a range
of possible future outcomes and more details are contained in Notes 2 and 4.
Regulatory capital adequacy remains strong, with a Bank CET1 ratio of 12.6 per
cent (2021: 13.1 per cent); reflecting the stability of the business, and the
strength of the client franchise served by the Bank. Risk weighted assets have
increased by £2,136 million from £18,436 million at 31 December 2021 to
£20,572 million at 30 June 2022, reflecting increased lending and an increase
on 1 January 2022 regarding the impact of regulatory changes, including a new
standardised approach for measuring counterparty credit risk (SA-CCR). The
Bank's UK leverage ratio of 4.5 per cent at 30 June 2022 increased from 3.5
per cent at 31 December 2021, largely following the impact of regulatory
changes applied under the UK leverage ratio framework on 1 January 2022.
Total income was £476 million in the first half of 2022 compared to £350
million in the first half of 2021 which is an increase of 36 per cent. This
predominantly comprises net interest income of £131 million (£70 million in
the half-year to 30 June 2021), net fee and commission income of £107 million
(£117 million in the half-year to 30 June 2021) and net trading income of
£234 million (£171 million in the half-year to 30 June 2021). This reflects
good lending growth, stable funding and resilient trading performance.
Operating expenses were £216 million, up from £204 million in the half-year
to 30 June 2021, an increase of £12 million which includes severance and
other costs of closing the Singapore branch. Operating expenses consist
predominantly of management charges relating to the Intra Group Agreement paid
to Lloyds Bank plc, staff costs and other operating expenses. The taxation
charge in the period was £42 million (six months to 30 June 2021 £60 million
charge) and more details are contained in Note 5.
Total assets were £1,378 million higher at £90,077 million at 30 June 2022
compared to £88,699 million at 31 December 2021. Cash and balances at central
banks decreased by £5,798 million from £22,140 million at 31 December 2021
to £16,342 million at 30 June 2022 reflecting a lower assessment of liquidity
required. Financial assets at fair value through profit or loss were £15,709
million at 30 June 2022 compared to £22,409 million at 31 December 2021 and
predominantly consist of reverse repurchase agreements which have reduced in
the period offsetting increases in derivative balances. Derivative financial
instruments of £27,716 million at 30 June 2022 increased by £9,726 million
compared to £17,990 million at 31 December 2021 reflecting fair value mark to
market movements and the impact of the USD exchange rate at the period end.
Financial assets at amortised cost increased by £2,296 million from £25,616
million at 31 December 2021 to £27,912 million at 30 June 2022, mainly as a
result of increased customer lending.
Total liabilities of the Group were £86,867 million at 30 June 2022 compared
to £85,210 million at 31 December 2021, a increase of £1,657 million.
Deposits from banks were £3,223 million at 30 June 2022 which is £598
million lower than £3,821 million at 31 December 2021. Customer deposits
increased by £314 million from £26,967 million at 31 December 2021 to
£27,281 million at 30 June 2022 reflecting customer activity. Financial
liabilities at fair value through profit or loss at 30 June 2022 of £14,082
million have decreased by £2,500 million when compared with the 31 December
2021 balance of £16,582 million which reflects a reduction in repurchase
agreements offset by an increase in short positions. Derivative financial
instruments of £23,122 million have increased by £7,550 million compared to
the 31 December 2021 balance of £15,572 million reflecting fair value mark to
market movements. Debt securities in issue of £14,929 million has decreased
by £1,715 million compared to £16,644 million at 31 December 2021.
Total equity at 30 June 2022 was £3,210 million which is a decrease of £279
million compared to £3,489 million at 31 December 2021 including profits in
the period less the dividend paid to LBG in the period of £220 million (2021:
£200 million) and movements in other reserves (refer Note 10).
Capital position at 30 June 2022
The Bank's capital position as at 30 June 2022 is set out in the following
section.
At 30 June 2022 At 31 Dec 2021
Capital resources of the bank £m £m
Common equity tier 1
Shareholders' equity per balance sheet 2,483 2,783
Adjustment to retained earnings for foreseeable dividends - (220)
Cash flow hedging reserve 308 48
Debit valuation adjustment (35) (16)
2,756 2,595
less: deductions from common equity tier 1
Prudent valuation adjustment (168) (163)
Excess of expected losses over impairment provisions and value adjustments - (9)
Common equity tier 1 capital 2,588 2,423
Additional tier 1
Additional tier 1 instruments 757 757
Total tier 1 capital 3,345 3,180
Tier 2
Tier 2 instruments 697 633
Other adjustments (101) (104)
Total tier 2 capital 596 529
Total capital resources 3,941 3,709
Risk-weighted assets 20,572 18,436
Common equity tier 1 capital ratio 12.6 % 13.1 %
Tier 1 capital ratio 16.3 % 17.2 %
Total capital ratio 19.2 % 20.1 %
At 30 June 2022 At 31 Dec 2021
Risk-weighted assets of the Bank £m £m
Foundation Internal Ratings Based (IRB) Approach 9,302 7,665
Other IRB Approach 545 579
IRB Approach 9,848 8,244
Standardised Approach(1) 1,324 1,337
Credit risk 11,171 9,581
Securitisation 516 571
Counterparty credit risk 5,426 4,024
Credit valuation adjustment risk 383 472
Operational risk 763 855
Market risk 2,313 2,933
Total risk-weighted assets 20,572 18,436
Of which threshold risk-weighted assets(2) 565 555
(1 ) Threshold risk-weighted assets are now included within Other IRB
Approach and the Standardised (STA) Approach. In addition securitisation
risk-weighted assets are now shown separately. Comparatives have been
presented on a consistent basis.
(2 ) Threshold risk-weighted assets reflect the element of significant
investments and deferred tax assets that are permitted to be risk-weighted
instead of being deducted from CET1 capital.
( )
( )
( )
( )
(
)
PRINCIPAL RISKS AND UNCERTAINTIES
The most significant risks that could impact the Group's ability to deliver
its long-term strategic objectives, and approach to managing each risk, are
reviewed and reported to the Board Risk Committee regularly. There has been no
change to the principal risks as disclosed in the Group 2021 Annual Report and
Accounts.
The external risks faced by the Group may also impact the success of
delivering against the Group's long-term strategic objectives. These risks
arise primarily from the war between Russia and Ukraine and the COVID-19
pandemic. The conflict is generating severe economic, political, social and
humanitarian impacts across Europe and in the rest of the world. The Group's
exposure to Russia, Ukraine and surrounding countries is not material, given
our low risk appetite, and the impact of economic sanctions remains limited
and manageable. However consequences are being felt through financial markets
volatility, inflationary pressures and the risks associated with the conflict
remain very high, such as economic contraction, cyber-attacks, higher default
levels and other consequences of sanctions. The possibility of secondary
sanctions could however add complexity to existing operational requirements in
managing our exposure. In addition, the COVID-19 pandemic impacts remain
through additional pressure on the global macro-economic conditions, global
supply chains or public debts. A deterioration in the macro-economic
environment may also impact the Group through higher impairments.
In addition to the geopolitical situation and COVID-19, the Group continues to
monitor and address existing and emerging risks that could have an adverse
impact on business model, financial conditions, operations and our ability to
achieve revenue targets:
- The Group is subject to extensive regulation, supervision and
examination by regulatory bodies in countries where it has a presence, as well
as from wider initiatives. The pace and scope of new regulations could have
material adverse impacts on the Group's business, financial and operating
conditions such as regulatory fines for non compliance, additional capital
requirements, business operations restrictions and associated costs
- The Group continues its transition from Interbank Offered Rates
(IBORs) to Alternative Risk Free Reference Rates. The complexity of the
transition could have material adverse impacts such as less liquid interest
rates, increased litigation or disputes and higher operational risks
- Since the relationship between the UK and the European Union has still
not settled, the UK's exit from the EU continues to create uncertainty as to
what the future UK legal and regulatory framework will look like, noting the
potential for the UK to deviate from the EU's legal and regulatory system.
Trade disruption continues to be felt and meeting stringent EU regulations
restrict the scope of the Group business model in the European Union
- The Group uses proprietary models to forecast losses, measure capital
requirements, make business decisions and assess and control our operations
and financial condition. Models are inherently subject to limitations due to
their use of historical data and trends, simplifying assumptions and reliance
on uncertain macroeconomic and financial variables. Our models may not be
sufficiently predictive of future results due to limited historical data,
extreme market volatility, parameterisation and implementation errors. In
addition, our models may be ineffective if we fail to oversee them and detect
flaws in the review and monitoring process
- The Group operates in a highly competitive market where the
recruitment and retention of talent, particularly at a junior level, remains
challenging. Ensuring that we have the right number and calibre of employees
is core to the Group's success
- On climate risk, the Group is aligned with LBG, its service provider,
which has taken a strategic approach to support the transition to a low carbon
economy and the aims of the 2015 Paris Climate Agreement, the UK Government's
net zero target, the Ten Point Plan for the Green Industrial Revolution and
the Task Force on Climate-related Financial Disclosures (TCFD) recommendations
- The provision of services to the Group is outsourced to Lloyds Bank
plc via a shared service provision model or by external providers via Lloyds
Bank plc. Therefore, issues impacting the shared service provider could have a
detrimental impact on the Group's operations
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
Credit risk - The risk that parties with whom the Group has contracted fail to
meet their financial obligations (both on and off-balance sheet). Observed or
anticipated changes in the economic environment could impact profitability due
to an increase in delinquency, defaults, write-downs and/or expected credit
losses.
Regulatory and legal risk - The risk arising from the failure to identify,
assess, correctly interpret, comply with, or manage regulatory and/or legal
requirements, leading to customer detriment, failure to prevent and/or detect
economic crime, financial penalties, regulatory censure, criminal or civil
enforcement action.
Conduct risk - The risk of detriment across the customer life cycle including:
failures in product management, distribution and servicing activities, from
other risks materialising, or other activities which could undermine the
integrity of the market or distort competition, leading to unfair customer
outcomes, regulatory censure, reputational damage or financial loss.
Operational risk - The risk of inadequate or failed internal processes,
people, systems or from external events leading to loss. This includes
cyber-attack, internal and/or external fraud or financial crime, IT systems
failures or, failure to ensure compliance with associated increasingly complex
and detailed regulation.
Operational risk: shared services model (SSM) - LBG's chosen ring-fencing
operating model introduces risk for the Group in the execution of that model
as a shared service recipient.
Key Risks include:
- Key reliance on the SSM increases the prominence of internal service
provision risk which is compounded, given the leanness of the relevant
teams, in situations where the Group's priorities are not wholly aligned
with those of the wider LBG
- Business process risk (i.e. non-adherence to key processes, including
those relating to market, operational, capital, credit, economic crime
prevention and funding & liquidity risk)
- Information security & cyber risk including access management,
records, data protection and cyber
- IT systems risk due to reliance on the shared service from LBG's IT
department
- Reliance on the SSM to operate a number of key controls and processes
designed to detect, prevent and respond to economic crime
- Operational risk around business resilience, change activity and
sourcing
- Impact of resourcing challenges LBG might face around attracting and
retaining people with the necessary skills
Operational resilience risk - The risk that the Group fails to design
resilience into business operations, underlying infrastructure and controls
(people, process and technical) to withstand external or internal events that
could impact the continuity of operations or alternatively the failure to
respond to events in a way which meets stakeholder expectations and needs when
the continuity of operations is compromised.
People risk - The risk that the Group fails to provide an appropriate
colleague and customer centric culture, supported by robust reward and
wellbeing policies and processes; effective leadership to manage colleague
resources; effective talent and succession management; and control framework
to ensure all colleague related requirements are met.
Capital risk - The risk that the Group has a sub-optimal quantity or quality
of capital or that capital is inefficiently deployed across the Group.
Funding and liquidity risk - Funding risk is defined as the risk that the
Group does not have sufficiently stable and diverse sources of funding or the
funding structure is inefficient. Liquidity risk is defined as the risk that
financial resources are insufficient to meet commitments as they fall due or
can only secure them at excessive cost.
Market risk - The risk that the Group's capital or earnings profile is
affected by adverse market rates, in particular changes and volatility in
interest and foreign exchange rates, inflation rates, commodity prices and
credit spreads through activity in the banking and markets businesses.
Model risk - The risk of financial loss, regulatory censure, reputational
damage or customer detriment from deficiencies in developing, applying and
operating models and rating systems.
Data risk - The risk of the Group failing to effectively govern, manage, and
control its data (including data processed by third party suppliers) leading
to unethical decisions, poor customer outcomes, loss of value to the Group and
mistrust.
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
Governance risk - The risk that its organisational infrastructure fails to
provide robust oversight of decision making and the control mechanisms to
ensure strategies and management instructions are implemented effectively.
Change/execution risk - The risk that, in delivering its change agenda, the
Group fails to ensure compliance with laws and regulation, maintain effective
customer service and availability, and/or operate within the Group's risk
appetite.
Strategic risk - Strategic risk is defined as the risk which results from:
- Incorrect assumptions about internal or external operating
environments
- Failure to understand the potential impact of strategic responses and
business plans on existing risk types
- Failure to respond or the inappropriate strategic response to material
changes in the external or internal operating environments
STATUTORY INFORMATION
Page
Condensed consolidated half-year financial statements (unaudited)
Consolidated income statement (#Section6) 8
Consolidated statement of comprehensive income (#Section7) 9
Consolidated balance sheet (#Section8) 10
Consolidated statement of changes in equity (#Section9) 12
Consolidated cash flow statement (#Section10) 15
Notes
1 Basis of preparation and accounting policies (#Section12) 16
2 Critical accounting judgements and key sources of estimation uncertainty 17
(#Section13)
3 Operating expenses (#Section14) 25
4 Impairment (#Section15) 25
5 Tax expense (#Section16) 26
6 Financial assets at fair value through profit or loss (#Section17) 27
7 Financial assets at amortised cost (#Section18) 28
8 Debt securities in issue (#Section19) 33
9 Other provisions (#Section20) 33
10 Other reserves (#Section21) 33
11 Related party transactions (#Section22) 36
12 Contingent liabilities, commitments and guarantees (#Section23) 37
13 Fair values of financial assets and liabilities (#Section24) 38
14 Interest rate benchmark reform (#Section25) 47
15 Dividends on ordinary shares (#Section26) 49
16 Ultimate parent undertaking (#Section27) 50
17 Events since the balance sheet date (#Section28) 50
18 Other information (#Section29) 50
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Half-year Half-year
to 30 June to 30 June
2022 2021
Note £m £m
Interest income(1) 290 162
Interest expense(1) (159) (92)
Net interest income 131 70
Fee and commission income 122 132
Fee and commission expense (15) (15)
Net fee and commission income 107 117
Net trading income 234 171
Other operating income (expense) 4 (8)
Other income 345 280
Total income 476 350
Operating expenses 3 (216) (204)
Impairment (charge) credit 4 (11) 47
Profit before tax 249 193
Tax expense 5 (42) (60)
Profit for the period 207 133
Profit attributable to ordinary shareholders 190 117
Profit attributable to other equity holders 17 16
Profit for the period 207 133
(1) Restated - See note 1
The accompanying notes are an integral part of the condensed consolidated
half-year financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Half-year Half-year
to 30 June to 30 June
2022 2021
Note £m £m
Profit for the period 207 133
Other comprehensive income
Items that may subsequently be reclassified to profit or loss:
Movements in revaluation reserve in respect of debt securities held at fair 10 1 5
value through other comprehensive income, net of tax
Movements in cash flow hedging reserve, net of tax 10 (260) (63)
Movements in foreign currency translation reserve, net of tax 10 10 (2)
Other comprehensive income for the period, net of tax (249) (60)
Total comprehensive income for the period (42) 73
Total comprehensive income attributable to ordinary shareholders (59) 57
Total comprehensive income attributable to other equity holders 17 16
Total comprehensive income for the period (42) 73
CONSOLIDATED BALANCE SHEET
At At
30 June 31 Dec
2022 2021
(unaudited) (audited)
Note £m £m
Assets
Cash and balances at central banks 16,342 22,140
Financial assets at fair value through profit or loss 6 15,709 22,409
Derivative financial instruments 27,716 17,990
Loans and advances to banks 2,021 2,354
Loans and advances to customers 20,809 17,432
Reverse repurchase agreements 4,461 5,044
Debt securities 309 229
Due from fellow Lloyds Banking Group undertakings 312 557
Financial assets at amortised cost 7 27,912 25,616
Financial assets at fair value through other comprehensive income 12 100
Property, plant and equipment 60 67
Current tax recoverable 2 16
Deferred tax assets 134 37
Other assets 2,190 324
Total assets 90,077 88,699
Liabilities and equity
Liabilities
Deposits from banks 3,223 3,821
Customer deposits 27,281 26,967
Repurchase agreements 1 1,019
Due to fellow Lloyds Banking Group undertakings 1,261 3,442
Financial liabilities at fair value through profit or loss 14,082 16,582
Derivative financial instruments 23,122 15,572
Debt securities in issue 8 14,929 16,644
Other liabilities 2,188 461
Current tax liabilities 5 5
Deferred tax liabilities - -
Other provisions 9 26 13
Subordinated liabilities 749 684
Total liabilities 86,867 85,210
Equity
Share capital 120 120
Other reserves 10 (313) (64)
Retained profits 2,621 2,651
Ordinary shareholder's equity 2,428 2,707
Other equity instruments 782 782
Total equity 3,210 3,489
Total equity and liabilities 90,077 88,699
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Attributable to ordinary shareholders
Share Other Retained Total Other Total
capital reserves profits equity
instruments
£m £m £m £m £m £m
At 1 January 2022 120 (64) 2,651 2,707 782 3,489
Comprehensive income
Profit for the period 190 190 17 207
Other comprehensive income
Movements in revaluation reserve in respect of debt securities held at fair 1 1 1
value through other comprehensive income, net of tax
Movements in cash flow hedging reserve, net of tax (260) (260) (260)
Movements in foreign currency translation reserve, net of tax 10 10 10
Total other comprehensive income (249) (249) (249)
Total comprehensive income (249) 190 (59) 17 (42)
Transactions with owners
Dividends (220) (220) (220)
Distributions on other equity instruments (17) (17)
Total transactions with owners (220) (220) (17) (237)
At 30 June 2022 120 (313) 2,621 2,428 782 3,210
( )
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)
Attributable to ordinary shareholders
Share Other Retained Total Other Total
capital reserves profits equity
instruments
£m £m £m £m £m £m
At 1 January 2021 120 81 2,646 2,847 782 3,629
Comprehensive income
Profit for the period - - 117 117 16 133
Other comprehensive income
Movements in revaluation reserve in respect of financial assets held at fair - 5 - 5 - 5
value through other comprehensive income, net of tax
Movements in cash flow hedging reserve, net of tax - (63) - (63) - (63)
Movements in foreign currency translation reserve, net of tax - (2) - (2) - (2)
Total other comprehensive income - (60) - (60) - (60)
Total comprehensive income - (60) 117 57 16 73
Transactions with owners
Dividends - - (200) (200) - (200)
Distributions on other equity instruments - - - - (16) (16)
Total transactions with owners - - (200) (200) (16) (216)
At 30 June 2021 120 21 2,563 2,704 782 3,486
( )
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)
Attributable to ordinary shareholders
Share Other Retained Total Other Total
capital reserves profits equity
instruments
£m £m £m £m £m £m
At 1 July 2021 120 21 2,563 2,704 782 3,486
Comprehensive income
Profit for the period - - 88 88 17 105
Other comprehensive income
Movements in revaluation reserve in respect of financial assets held at fair - 3 - 3 - 3
value through other comprehensive income, net of tax
Movements in cash flow hedging reserve, net of tax - (90) - (90) - (90)
Movements in foreign currency translation reserve, net of tax - 2 - 2 - 2
Total other comprehensive income - (85) - (85) - (85)
Total comprehensive income - (85) 88 3 17 20
Transactions with owners
Dividends - - - - - -
Distributions on other equity instruments - - - - (17) (17)
Total transactions with owners - - - - (17) (17)
At 31 December 2021 120 (64) 2,651 2,707 782 3,489
( )
(
)
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
Half-year Half-year
to 30 June to 30 June
2022 2021
£m £m
Profit (loss) before tax 249 193
Adjustments for:
Change in operating assets (6,498) 6,104
Change in operating liabilities 915 (10,306)
Non-cash and other items (606) (26)
Tax paid (26) (33)
Net cash provided by operating activities (5,966) (4,068)
Cash flows from investing activities
Purchase of financial assets (27) (25)
Proceeds from sale and maturity of financial assets 119 41
Purchase of fixed assets (1) (4)
Net cash used in investing activities 91 12
Cash flows from financing activities
Dividends paid to ordinary shareholders (220) (200)
Distributions on other equity instruments (17) (16)
Interest paid on subordinated liabilities (9) (8)
Finance Leases (1) -
Net cash provided by financing activities (247) (224)
Effect of exchange rate changes on cash and cash equivalents 716 (63)
Change in cash and cash equivalents (5,406) (4,343)
Cash and cash equivalents at beginning of period (1) 23,103 26,392
Cash and cash equivalents at end of period (1) 17,697 22,049
Cash and cash equivalents comprise cash and non-mandatory balances with
central banks and amounts due from banks with a maturity of less than three
months.
(1) Restated see Note 1
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
Note 1: Basis of preparation and accounting policies
These condensed consolidated half-year financial statements as at and for the
period to 30 June 2022 have been prepared in accordance with the Disclosure
Guidance and Transparency Rules of the Financial Conduct Authority (FCA) and
with International Accounting Standard 34 (IAS 34), Interim Financial
Reporting as adopted by the United Kingdom and comprise the results of Lloyds
Bank Corporate Markets plc (the Bank) together with its subsidiaries (the
Group). They do not include all of the information required for full annual
financial statements and should be read in conjunction with the Group's
consolidated financial statements as at and for the year ended 31 December
2021 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. Copies of the 2021 Annual Report and
Accounts are available on the Group's website Group's website and are
available upon request from Investor Relations, Lloyds Banking Group plc,
25 Gresham Street, London EC2V 7HN.
The Directors consider that it is appropriate to continue to adopt the going
concern basis in preparing the 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 2021 interest income and interest expense balances as at 30 June 2021 have
been restated to reflect £11 million negative interest correctly in the
interest expense line. There has been no impact to net interest income.
Changes in accounting policy
Except for the matter referred to below, the Group's accounting policies are
consistent with those applied by the Group in its financial statements for the
year ended 31 December 2021 and there have been no changes in the Group's
methods of computation.
Cash and cash equivalents: Following a decision by the IFRS Interpretations
Committee in April 2022, the Group includes mandatory reserve deposits with
central banks that are held in demand accounts within cash and cash
equivalents disclosed in the cash flow statement, whereas these amounts were
previously excluded from the amount presented in the cash flow statement. This
change increased the Group's cash and cash equivalents at 31 December 2021 by
£45 million (to £23,103 million) and at 30 June 2022 by £23 million (to
£17,697 million).
Future accounting developments
The IASB has issued a number of minor amendments to IFRSs effective 1 January
2023 (including IAS 1 Presentation of Financial Statements and IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors). These
amendments are not expected to have a significant impact on the Group.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 2: Critical accounting judgements and key sources of estimation
uncertainty
The preparation of the Group's financial statements requires management to
make judgements, estimates and assumptions that impact the application of
accounting policies and the reported amounts of assets, liabilities, income
and expenses. Due to the inherent uncertainty in making estimates, actual
results reported in future periods may include amounts which differ from those
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.
The Group's significant judgements, estimates and assumptions are unchanged
compared to those applied at 31 December 2021, except as detailed below.
Allowance for expected credit losses
The Group recognises an allowance for expected credit losses (ECLs) for loans
and advances to customers and banks, other financial assets held at amortised
cost, financial assets measured at fair value through other comprehensive
income and certain loan commitment and financial guarantee contracts. At 30
June 2022, the Group's ECL allowance was £28 million (31 December 2021: £17
million), of which £17 million (31 December 2021: £11 million) was in
respect of drawn balances.
The calculation of the Group's ECLs and provisions against loan commitments
and guarantees under IFRS 9 requires the Group to make a number of judgements,
assumptions and estimates. These are set out in detail in the Group's 2021
Annual Report and Accounts. The principal changes made in the period ended 30
June 2022 are as follows:
Base case and MES economic assumptions
The Group's base case economic scenario has been revised in light of the
ongoing war in Ukraine, intensifying global inflation pressures, and a
continuing shift towards a more restrictive monetary policy stance by central
banks. The Group's updated base case scenario has two conditioning
assumptions: first, no further UK COVID-19 national lockdowns are mandated;
and, second, the war in Ukraine remains 'local', i.e. without overtly
involving neighbouring countries, NATO or China.
Based on these assumptions and incorporating the economic data published in
the second quarter, the Group's base case scenario is for a modest rise in the
unemployment rate alongside an easing of residential and commercial property
prices, as the UK Bank Rate continues to be raised in response to persistent
inflationary pressures. Risks around this base case economic view lie in both
directions, and are partly captured by the generation of alternative economic
scenarios. Uncertainties relating to key epidemiological developments, notably
the possibility that a vaccine-resistant strain could emerge, are not
specifically captured by these 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 2022, for which actuals may have since emerged prior to
publication.
The Group's approach to generating alternative economic scenarios is set out
in detail in its financial statements for the year ended 31 December 2021. For
June 2022, the Group has judged it appropriate to include a non-modelled
severe downside scenario to incorporate high CPI inflation and UK Bank Rate
profiles and to adopt this adjusted severe downside scenario to calculate the
Group's ECL. This is because the historic macroeconomic and loan loss data
upon which the scenario model is calibrated imply an association of downside
economic outcomes with easier monetary policy, and therefore low interest
rates. The adjustment is considered to better reflect the risks around the
Group's base case view in an economic environment where supply shocks are the
principal concern.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 2: Critical accounting judgements and key sources of estimation
uncertainty (continued)
Scenarios by year
Key annual assumptions made by the Group are shown below. Gross domestic
product 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 within the period.
Unemployment rate and UK Bank Rate are averages for the period. For 31
December 2021, CPI numbers are translations of modelled Retail Price Index
excluding mortgage interest payments (RPIX) estimates, except for the base
case view.
The key UK economic assumptions made by the Group averaged over a five-year
period are also shown below. The use of calendar years maintains a
comparability between tables disclosed, noting that comparatives reflect one
calendar year earlier.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 2: Critical accounting judgements and key sources of estimation
uncertainty (continued)
At 30 June 2022 2022 2023 2024 2025 2026 2022-2026 average
% % % % % %
Upside
UK Gross domestic product 3.5 1.2 1.8 1.7 1.7 2.0
UK Unemployment rate 3.1 2.7 2.9 3.2 3.4 3.1
UK Commercial real estate price growth 9.2 1.8 0.9 (0.9) (0.2) 2.1
UK Bank Rate 1.64 3.12 2.97 2.88 2.78 2.68
CPI inflation 8.6 5.5 2.5 1.9 2.2 4.1
US Gross domestic product 3.0 3.2 2.3 1.4 1.0 2.2
US Unemployment rate 3.5 2.9 2.6 3.0 3.6 3.1
Base case
UK Gross domestic product 3.3 0.6 1.5 1.6 1.7 1.7
UK Unemployment rate 3.8 4.2 4.4 4.5 4.5 4.3
UK Commercial real estate price growth 1.8 (5.0) (1.6) (1.3) 0.8 (1.1)
UK Bank Rate 1.44 2.25 2.00 2.00 2.00 1.94
CPI inflation 8.6 5.5 2.2 1.3 1.5 3.8
US Gross domestic product 2.5 1.1 1.4 2.2 2.0 1.9
US Unemployment rate 3.6 3.8 4.0 4.0 4.1 3.9
Downside
UK Gross domestic product 3.0 (0.1) 1.1 1.4 1.7 1.4
UK Unemployment rate 4.5 6.0 6.3 6.1 5.9 5.8
UK Commercial real estate price growth (4.4) (11.9) (5.5) (3.6) (0.7) (5.3)
UK Bank Rate 1.25 1.23 0.80 0.85 0.95 1.02
CPI inflation 8.7 5.5 1.8 0.6 0.7 3.5
US Gross domestic product 2.1 (0.9) 0.0 2.6 3.0 1.3
US Unemployment rate 3.8 5.0 6.0 6.0 5.5 5.3
Severe downside
UK Gross domestic product 1.6 (1.8) 1.0 1.4 1.6 0.8
UK Unemployment rate 5.8 8.7 8.7 8.3 7.7 7.8
UK Commercial real estate price growth (14.9) (20.9) (11.0) (5.6) 1.0 (10.6)
UK Bank Rate - modelled 0.76 0.18 0.18 0.21 0.24 0.31
UK Bank Rate - adjusted 2.9 4.8 3.0 2.3 2.3 3.0
CPI inflation - modelled 8.6 5.1 0.9 (0.5) (0.5) 2.7
CPI inflation - adjusted 9.8 13.7 4.1 1.7 0.1 5.9
US Gross domestic product 1.5 (3.5) (1.7) 2.9 4.2 0.6
US Unemployment rate 4.0 6.5 8.7 8.5 7.3 7.0
Probability-weighted
UK Gross domestic product 3.1 0.3 1.5 1.5 1.7 1.6
UK Unemployment rate 4.0 4.7 5.0 5.0 4.9 4.7
UK Commercial real estate price growth 0.5 (6.6) (3.0) (2.3) 0.1 (2.3)
UK Bank Rate - modelled 1.37 2.00 1.75 1.74 1.75 1.72
UK Bank Rate - adjusted 1.59 2.46 2.03 1.94 1.95 1.99
CPI inflation - modelled 8.6 5.5 2.0 1.1 1.3 3.7
CPI inflation - adjusted 8.8 6.3 2.3 1.3 1.3 4.0
US Gross domestic product 2.4 0.7 1.0 2.1 2.2 1.7
US Unemployment rate 3.7 4.2 4.7 4.7 4.7 4.4
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 2: Critical accounting judgements and key sources of estimation
uncertainty (continued)
At 31 December 2021 2021 2022 2023 2024 2025 2021-2025 average
% % % % % %
Upside
UK Gross domestic product 7.1 4.0 1.4 1.3 1.4 3.0
UK Unemployment rate 4.4 3.3 3.4 3.5 3.7 3.7
UK Commercial real estate price growth 12.4 5.8 0.7 1.0 (0.6) 3.7
UK Bank Rate 0.14 1.44 1.74 1.82 2.03 1.43
CPI inflation 2.6 5.9 3.3 2.6 3.3 3.5
US Gross domestic product 5.7 6.7 4.4 0.3 (0.5) 3.3
US Unemployment rate 5.3 3.4 2.6 3.4 4.6 3.9
Base case
UK Gross domestic product 7.1 3.7 1.5 1.3 1.3 2.9
UK Unemployment rate 4.5 4.3 4.4 4.4 4.5 4.4
UK Commercial real estate price growth 10.2 (2.2) (1.9) 0.1 0.6 1.2
UK Bank Rate 0.14 0.81 1.00 1.06 1.25 0.85
CPI inflation 2.6 5.9 3.0 1.6 2.0 3.0
US Gross domestic product 5.5 3.6 2.5 2.0 1.5 3.0
US Unemployment rate 5.4 4.0 3.9 3.9 4.1 4.3
Downside
UK Gross domestic product 7.1 3.4 1.3 1.1 1.2 2.8
UK Unemployment rate 4.7 5.6 5.9 5.8 5.7 5.6
UK Commercial real estate price growth 8.6 (10.1) (7.0) (3.4) (0.3) (2.6)
UK Bank Rate 0.14 0.45 0.52 0.55 0.69 0.47
CPI inflation 2.6 5.8 2.8 1.3 1.6 2.8
US Gross domestic product 5.4 1.0 0.2 2.4 3.0 2.4
US Unemployment rate 5.4 4.7 5.9 5.8 5.2 5.4
Severe downside
UK Gross domestic product 6.8 0.9 0.4 1.0 1.4 2.1
UK Unemployment rate 4.9 7.7 8.5 8.1 7.6 7.3
UK Commercial real estate price growth 5.8 (19.6) (12.1) (5.3) (0.5) (6.8)
UK Bank Rate 0.14 0.04 0.06 0.08 0.09 0.08
CPI inflation 2.6 5.8 2.3 0.5 0.9 2.4
US Gross domestic product 5.2 (3.2) (3.1) 3.9 5.7 1.6
US Unemployment rate 5.4 5.8 8.5 7.9 5.9 6.7
Probability-weighted
UK Gross domestic product 7.0 3.4 1.3 1.2 1.3 2.8
UK Unemployment rate 4.6 4.7 5.0 5.0 4.9 4.8
UK Commercial real estate price growth 9.9 (3.9) (3.7) (1.2) (0.1) 0.1
UK Bank Rate 0.14 0.82 0.99 1.04 1.20 0.83
CPI inflation 2.6 5.9 2.9 1.7 2.2 3.1
US Gross domestic product 5.5 3.1 1.8 1.8 1.8 2.8
US Unemployment rate 5.4 4.2 4.6 4.7 4.7 4.7
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 2: Critical accounting judgements and key sources of estimation
uncertainty (continued)
ECL sensitivity to economic assumptions
The table below shows the Group's ECL for the upside, base case, downside and
severe downside scenarios. The stage allocation for an asset is based on the
overall scenario probability-weighted PD and, hence, the staging of assets is
constant across all the scenarios. In each economic scenario the ECL for
individual assessments and post-model adjustments is constant, reflecting the
basis on which they are evaluated. Judgements applied through changes to
inputs are reflected in the scenario sensitivities. The probability-weighted
view shows the extent to which a higher ECL allowance has been recognised to
take account of multiple economic scenarios relative to the base case; the
uplift being £4 million compared to £1 million at 31 December 2021.
Probability- Upside Base case Downside Severe
weighted downside
£m £m £m £m £m
At 30 June 2022 28 20 24 30 53
At 31 December 2021 17 13 16 18 26
Application of judgement in adjustments to modelled ECL
Impairment models fall within the Group's Model Risk framework as reported in
note 3 of the 2021 Annual Report and Accounts.
The coronavirus pandemic and the various support measures that were put in
place resulted in an economic environment which differed significantly from
the historical economic conditions upon which the impairment models had been
built. As a result there has been a greater need for management judgements to
be applied alongside the use of models. Over the first half of 2022 the
intensifying inflationary pressures within the Group's outlook have created
further risks not present in these historic conditions. Conversely, the direct
impact of the pandemic on both economic and credit performance has appeared to
reduce, resulting in a reduction in judgements required specifically to
capture COVID-19 risks. At 30 June 2022 total management judgement resulted
in additional ECL allowances of £6 million (31 December 2021: £6
million). The table below analyses total ECL allowance by portfolio,
separately identifying the amounts that have been modelled, those that have
been individually assessed and those arising through the application of
management judgement.
Modelled Individually Total ECL
ECL assessed Management Judgements(1)
£m £m £m £m
At 30 June 2022 22 - 6 28
At 31 December 2021 10 1 6 17
(1 ) Judgements introduced to address the impact that COVID-19
and resulting interventions have had on the Group's economic outlook and
observed loss experience, which have required additional model limitations to
be addressed.
Post-model adjustments have been raised to reflect uncertainty in the near
term economic outlook and limitations in the models in dealing with this
uncertainty but the impact on staging of assets has not been reflected. These
adjustments principally comprise:
Economic impacts not captured by models: £5 million (31 December 2021: £5
million)
Management adjustment of £5 million has been maintained to reflect additional
uncertainty in the economic outlook, specifically for risks associated with
inflationary pressures. This qualitative overlay is a management judgement to
ensure the overall provision adequately reflects the current material risks;
considering the range of the quarterly provision release, review of trends and
provision coverage.
( )
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
(
)
Note 3: Operating expenses
Half-year Half-year
to 30 June to 30 June
2022 2021
£m £m
Staff costs:
Salaries (76) (81)
Social security costs (8) (7)
Pensions and other post-retirement benefit schemes (7) (7)
Restructuring costs (11) (4)
Other staff costs (4) (3)
(106) (102)
Management charges payable (79) (69)
Depreciation and amortisation (9) (7)
Premises and equipment (3) (9)
Communications and data processing (7) (6)
Professional fees (2) (2)
Other operating expenses (10) (9)
Total operating expenses (216) (204)
Note 4: Impairment
Half-year Half-year
to 30 June
to 30 June
2021
2022
£m £m
Loans and advances to banks (1) 1
Loans and advances to customers (5) 25
Impairment (charge) credit on drawn balances (6) 26
Loan commitments and financial guarantees (5) 21
Total impairment (charge) credit (11) 47
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 5: Tax expense
In accordance with IAS 34, the Group's income tax expense for the half-year to
30 June 2022 is based on the best estimate of the weighted-average annual
income tax rate expected for the full financial year. The tax effects of
one-off items are not included in the weighted-average annual income tax rate,
but are recognised in the relevant period.
An explanation of the relationship between tax expense and accounting profit
is set out below:
Half-year Half-year
to 30 June to 30 June
2022 2021
£m £m
Profit before tax 249 193
UK corporation tax thereon at 19 per cent (2021: 19 per cent) (47) (37)
Impact of surcharge on banking profits (7) (13)
Non-deductible costs - (3)
Non-taxable income 14 1
Tax relief on coupons on other equity instruments 3 3
Tax losses where no deferred tax recognised (2) (3)
Remeasurement of deferred tax due to rate changes - (1)
Differences in overseas tax rates (3) (7)
Tax expense (42) (60)
Note 6: Financial assets at fair value through profit or loss
At At
30 June 31 Dec
2022 2021
£m £m
Trading assets 14,998 21,773
Financial assets mandatorily at fair value through profit or loss:
Loans and advances to customers 402 307
Debt securities 288 310
Treasury and other bills 21 19
711 636
Total financial assets at fair value through profit or loss 15,709 22,409
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 7: Financial assets at amortised cost
Half-year to 30 June 2022
Gross carrying amount Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
£m £m £m £m £m £m £m £m
Loans and advances to banks
At 1 January 2022 2,355 - - 2,355 1 - - 1
Exchange and other adjustments(1) 108 - - 108 - - - -
Additions and repayments (440) - - (440) 1 - - 1
Other changes in credit quality - - - -
Charge (credit) to the income statement 1 - - 1
At 30 June 2022 2,023 2,023 2 - - 2
Allowance for impairment losses (2) - - (2)
Net carrying amount 2,021 - - 2,021
Loans and advances to customers
At 1 January 2022 17,366 47 29 17,442 7 2 1 10
Exchange and other adjustments(1) 1,090 1 - 1,091 - - - -
Transfers to Stage 1 6 (6) - - - - - -
Transfers to Stage 2 (98) 98 - - - - - -
Transfers to Stage 3 (17) - 17 - - - - -
Impact of transfers between stages (109) 92 17 - - 1 - 1
- 1 - 1
Other changes in credit quality 2 (1) - 1
Additions and repayments 2,296 13 (18) 2,291 3 - - 3
Methodology and model changes - - - -
Charge (credit) to the income statement 5 - - 5
Advances written off - - - -
Recoveries of advances written off in previous years - - - -
At 30 June 2022 20,643 153 28 20,824 12 2 1 15
Allowance for impairment losses (12) (2) (1) (15)
Net carrying amount 20,631 151 27 20,809
(1 ) Exchange and other adjustments includes the impact of
movements in exchange rates.
( )
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 7: Financial assets at amortised cost (continued)
Gross carrying amount Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
£m £m £m £m £m £m £m £m
Debt securities
At 1 January 2022 229 - - 229 - - - -
Exchange and other adjustments(1) 11 - - 11 - - - -
Additions and repayments 69 - - 69 - - - -
Charge to the income statement - - - -
At 30 June 2022 309 - - 309 - - - -
Allowance for impairment losses - - - -
Net carrying amount 309 - - 309
Reverse repurchase agreements
At 30 June 2022 4,461 - - 4,461
Allowance for impairment losses - - - -
Net carrying amount 4,461 - - 4,461
Due from fellow Lloyds Banking Group undertakings
At 30 June 2022 312 - - 312
Allowance for impairment losses - - - -
Net carrying amount 312 - - 312
Total financial assets at amortised cost 27,734 151 27 27,912
(1. ) Exchange and other adjustments includes the impact of
movements in exchange rates, discount unwind, and derecognising assets as a
result of modifications.
Movements in allowance for expected credit losses in respect of undrawn
balances were as follows:
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Undrawn balances
At 1 January 2022 6 - - 6
Exchange and other adjustments - - - -
Transfers to Stage 1 - - - -
Transfers to Stage 2 (1) 1 - -
Transfers to Stage 3 - - - -
Impact of transfers between stages - 1 - 1
(1) 2 - 1
Other changes in credit quality 4 - - 4
Charge (credit) to the income statement 3 2 - 5
At 30 June 2022 9 2 - 11
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 7: Financial assets at amortised cost (continued)
The Group's total impairment allowances were as follows:
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
In respect of:
Loans and advances to banks 2 - - 2
Loans and advances to customers 12 2 1 15
Financial assets at amortised cost 14 2 1 17
Provisions in relation to loan commitments and financial guarantees 9 2 - 11
Total 23 4 1 28
Expected credit loss in respect of financial assets at fair value through - - - -
other comprehensive income (memorandum item)
Year ended 31 December 2021
Gross carrying amount Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
£m £m £m £m £m £m £m £m
Loans and advances to banks
At 1 January 2021 3,602 - - 3,602 2 - - 2
Exchange and other adjustments(1) (23) - - (23) - - - -
Additions and repayments (1,224) - - (1,224) - - - -
Charge (credit) to the income statement (1) - - (1)
At 31 December 2021 2,355 - - 2,355 1 - - 1
Allowance for impairment losses (1) - - (1)
Net carrying amount 2,354 - - 2,354
(1 ) Exchange and other adjustments includes the impact of movements
in exchange rates, discount unwind, and derecognising assets as a result of
modifications.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 7: Financial assets at amortised cost (continued)
Gross carrying amount Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
£m £m £m £m £m £m £m £m
Loans and advances to customers
At 1 January 2021 13,886 379 39 14,304 26 20 2 48
Exchange and other adjustments(1) (113) (7) - (120) - - (1) (1)
Transfers to Stage 1 43 (42) (1) - 2 (2) - -
Transfers to Stage 2 (14) 14 - - - - - -
Transfers to Stage 3 - (3) 3 - - - - -
Impact of transfers between stages 29 (31) 2 - (2) - - (2)
- (2) - (2)
Other changes in credit quality (8) (13) 1 (20)
Additions and repayments 3,564 (294) (11) 3,259 (11) (3) - (14)
Methodology and model changes - - - -
Charge (credit) to the income statement (19) (18) 1 (36)
Advances written off (1) (1) (1) (1)
At 31 December 2021 17,366 47 29 17,442 7 2 1 10
Allowance for impairment losses (7) (2) (1) (10)
Net carrying amount 17,359 45 28 17,432
Debt securities
At 1 January 2021 257 - - 257 - - - -
Exchange and other adjustments(1) 1 - - 1 - - - -
Additions and repayments (29) - - (29) - - - -
At 31 December 2021 229 - - 229 - - - -
Allowance for impairment losses - - - -
Net carrying amount 229 - - 229
Reverse repurchase agreements
At 31 December 2021 5,044 - - 5,044
Allowance for impairment losses - - - -
Net carrying amount 5,044 - - 5,044
Due from fellow Lloyds Banking Group undertakings
At 31 December 2021 557 - - 557
Allowance for impairment losses - - - -
Net carrying amount 557 - - 557
Total financial assets at amortised cost 25,543 45 28 25,616
(1) Exchange and other adjustments includes the impact of movements in
exchange rates, discount unwind, and derecognising assets as a result of
modifications.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 7: Financial assets at amortised cost (continued)
Movements in allowance for expected credit losses in respect of undrawn
balances were as follows:
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
Undrawn balances
At 1 January 2021 20 13 - 33
Exchange and other adjustments (1) (1) - (2)
Transfers to Stage 1 4 (4) - -
Transfers to Stage 2 - - - -
Transfers to Stage 3 - - - -
Impact of transfers between stages (4) - - (4)
- (4) - (4)
Other changes in credit quality (13) (8) - (21)
Charge (credit) to the income statement (13) (12) - (25)
At 31 December 2021 6 - - 6
The Group's total impairment allowances were as follows:
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total
£m £m £m £m
In respect of:
Loans and advances to banks 1 - - 1
Loans and advances to customers 7 2 1 10
Financial assets at amortised cost 8 2 1 11
Provisions in relation to loan commitments and financial guarantees 6 - - 6
At 31 December 2021 14 2 1 17
Expected credit loss in respect of financial assets at fair value through - - - -
other comprehensive income (memorandum item)
The movement tables are compiled by comparing the position at the reporting
date to that at the beginning of the year.
Transfers between stages are deemed to have taken place at the start of the
reporting period, with all other movements shown in the stage in which the
asset is held at the period end, with the exception of those held within
purchased or originated credit-impaired, which are not transferable.
Additions and repayments comprise new loans originated and repayments of
outstanding balances throughout the reporting period. Loans which are written
off in the period are first transferred to Stage 3 before acquiring a full
allowance and subsequent write-off.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 8: Debt securities in issue
At 30 June 2022 At 31 December 2021
£m £m
Medium-term notes issued 3,921 4,181
Certificates of deposit issued 4,413 4,164
Commercial paper 3,241 5,129
Amounts due to fellow Group undertakings 3,354 3,170
Total debt securities in issue 14,929 16,644
Note 9: Other provisions
Provisions Regulatory and legal Other Total
for financial provisions
commitments
and guarantees
£m £m £m £m
At 1 January 2022 6 2 5 13
Exchange and other adjustments - - - -
Provisions applied - - - -
Charge for the period 5 - 8 13
At 30 June 2022 11 2 13 26
Note 10: Other reserves
At 30 June 2022 At 31 December 2021
£m £m
Other reserves comprise:
Revaluation reserve in respect of debt securities held at fair value through (1) (2)
other comprehensive income
Cash flow hedging reserve (308) (48)
Foreign currency translation reserve (4) (14)
Total other reserves (313) (64)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 10: Other reserves (continued)
At 30 June 2022 At 31 December 2021
£m £m
Revaluation reserve in respect of debt securities held at fair value through
other comprehensive income
At 1 January (2) (10)
Change in fair value 1 5
Deferred tax - (1)
1 4
Income statement transfers in respect of disposals - 5
Deferred tax - (1)
- 4
At period end (1) (2)
At 30 June 2022 At 31 December 2021
£m £m
Cash flow hedging reserve
At 1 January (48) 105
Change in fair value of hedging derivatives (349) (169)
Deferred tax 94 48
(255) (121)
Net income statement transfers (7) (44)
Deferred tax 2 12
(5) (32)
At period end (308) (48)
At 30 June 2022 At 31 December 2021
£m £m
Foreign currency translation reserve
At 1 January (14) (14)
Currency translation differences arising in the year 10 -
At period end (4) (14)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 11: Related party transactions
Balances and transactions with fellow Lloyds Banking Group undertakings
The Bank and its subsidiaries have balances due to and from the Bank's parent
company, Lloyds Banking Group plc, and fellow Group undertakings. These are
included on the balance sheet as follows:
At At
30 June 31 Dec
2022 2021
£m £m
Assets, included within:
Financial assets at amortised cost: due from fellow Lloyds Banking Group 312 557
undertakings
Financial assets at fair value through profit or loss 11 12
Derivative financial instruments 2,985 2,094
3,308 2,663
Liabilities, included within:
Due to fellow Lloyds Banking Group undertakings 1,261 3,442
Financial liabilities at fair value through profit or loss 5 -
Derivative financial instruments 2,660 2,579
Debt securities in issue 3,354 3,170
Subordinated liabilities 749 684
8,029 9,875
Other equity instruments: 782 782
Additional tier 1 instruments 782 782
During the half-year to 30 June 2022 the Group earned £1 million (half-year
to 30 June 2021: £1 million) of interest income and incurred £46 million
(half-year to 30 June 2021: £54 million) of interest expense on balances and
transactions with Lloyds Banking Group plc and fellow Group undertakings.
Other related party transactions
Other related party transactions for the half-year to 30 June 2022 are similar
in nature to those for the year ended 31 December 2021.
Management charges payable to Lloyds Bank plc of £79 million (half-year to 30
June 2021: £69 million) have been incurred in the period, see note 3.
During the period to June 2021, the Group sold a portfolio of facilities (£55
million of assets and £489 million of commitments) to Lloyds Bank plc, on
which an £8 million operating loss arose. There have been no such
transactions in the period to 30 June 2022.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 12: Contingent liabilities, commitments and guarantees
Legal actions and regulatory matters
During the ordinary course of business the Group is subject to complaints and
threatened or actual legal proceedings (including class or group action
claims) brought by or on behalf of current or former employees, customers,
investors or other third parties, as well as legal and regulatory reviews,
challenges, investigations and enforcement actions, which could relate to a
number of issues, including financial, environmental or other regulatory
matters, both in the UK and overseas. Where material, such matters are
periodically reassessed, with the assistance of external professional advisers
where appropriate, to determine the likelihood of the Group incurring a
liability. In those instances where it is concluded that it is more likely
than not that a payment will be made, a provision is established based on
management's best estimate of the amount required at the relevant balance
sheet date. In some cases it will not be possible to form a view; for example
because the facts are unclear or because further time is needed to assess
properly the merits of the case, and no provisions are held in relation to
such matters. In these circumstances, specific disclosure in relation to a
contingent liability will be made where material. However, 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.
Contingent liabilities, commitments and guarantees arising from the banking
business
At At
30 June 31 Dec
2022 2021
£m £m
Contingent liabilities
Acceptances and endorsements - 170
Other:
Other items serving as direct credit substitutes - 77
Performance bonds, including letters of credit, and other transaction-related 142 158
contingencies
142 235
Total contingent liabilities 142 405
Commitments and guarantees
Undrawn formal standby facilities, credit lines and other commitments to lend:
Less than 1 year original maturity:
Mortgage offers made 58 50
Other commitments and guarantees 9,898 8,831
9,956 8,881
1 year or over original maturity 7,521 6,310
Total commitments and guarantees 17,477 15,191
Of the amounts shown above in respect of undrawn formal standby facilities,
credit lines and other commitments to lend, £16,942 million (31 December
2021: £15,124 million) were irrevocable.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 13: 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 32 to the Group's financial statements for the year
ended 31 December 2021 details the definitions of the three levels in the
fair value hierarchy.
Valuation control framework
Key elements of the valuation control framework, which covers processes for
all levels in the fair value hierarchy including level 3 portfolios, include
model validation (incorporating pre-trade and post-trade testing), product
implementation review and independent price verification. 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 2021 applied to these
portfolios.
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 2022 At 31 December 2021
Carrying Fair Carrying Fair
value value value value
£m £m £m £m
Financial assets
Loans and advances to banks 2,021 2,023 2,354 2,354
Loans and advances to customers 20,809 20,876 17,432 17,488
Reverse repurchase agreements 4,461 4,461 5,044 5,044
Debt securities 309 309 229 229
Due from fellow Lloyds Banking Group undertakings 312 312 557 557
Financial assets at amortised cost 27,912 27,981 25,616 25,672
Financial liabilities
Deposits from banks 3,223 3,233 3,821 3,821
Customer deposits 27,281 27,351 26,967 27,047
Repurchase agreements 1 1 1,019 1,019
Due to fellow Lloyds Banking Group undertakings 1,261 1,261 3,442 3,442
Debt securities in issue 14,929 14,747 16,644 16,723
Subordinated liabilities 749 749 684 684
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 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 and items in course of transmission to banks.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities (continued)
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.
Level 1 Level 2 Level 3 Total
Financial assets £m £m £m £m
At 30 June 2022
Financial assets at fair value through profit or loss:
Loans and advances to customers and reverse repurchase agreements - 12,496 2 12,498
Loans and advances to banks and reverse repurchase agreements - 299 - 299
Debt securities 2,424 300 167 2,891
Treasury and other bills 21 - - 21
Total financial assets at fair value through profit or loss 2,445 13,095 169 15,709
Financial assets at fair value through other comprehensive income:
Debt securities - - 12 12
Treasury and other bills - - - -
Total financial assets at fair value through other comprehensive income - - 12 12
Derivative financial instruments 43 27,049 624 27,716
Total financial assets carried at fair value 2,488 40,144 805 43,437
At 31 December 2021
Financial assets at fair value through profit or loss
Loans and advances to customers and reverse repurchase agreements - 14,741 2 14,743
Loans and advances to banks and reverse repurchase agreements - 486 - 486
Debt securities 6,580 393 188 7,161
Treasury and other bills 19 - - 19
Total financial assets at fair value through profit or loss 6,599 15,620 190 22,409
Financial assets at fair value through other comprehensive income:
Debt securities - - 15 15
Treasury and other bills 85 - - 85
Total financial assets at fair value through other comprehensive income 85 - 15 100
Derivative financial instruments 22 17,239 729 17,990
Total financial assets carried at fair value 6,706 32,859 934 40,499
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities (continued)
Level 1 Level 2 Level 3 Total
Financial liabilities £m £m £m £m
At 30 June 2022
Financial liabilities at fair value through profit or loss:
Trading liabilities 2,341 11,741 - 14,082
Total financial liabilities at fair value through profit or loss 2,341 11,741 - 14,082
Derivative financial instruments 30 22,410 682 23,122
Total financial liabilities carried at fair value 2,371 34,151 682 37,204
At 31 December 2021
Financial liabilities at fair value through profit or loss:
Trading liabilities 1,569 15,013 - 16,582
Total financial liabilities at fair value through profit or loss 1,569 15,013 - 16,582
Derivative financial instruments 13 14,633 926 15,572
Total financial liabilities carried at fair value 1,582 29,646 926 32,154
Movements in level 3 portfolio
The tables below analyse movements in the level 3 financial assets portfolio.
Financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Derivative assets Total financial assets carried at fair value
£m £m £m £m
At 1 January 2022 190 15 729 934
Exchange and other adjustments - - 21 21
(Losses) gains recognised in the income statement within other income (21) - 133 112
Gains recognised in other comprehensive income within the revaluation reserve - 1 - 1
in respect of financial assets at fair value through other comprehensive
income
Purchases/increases - - 41 41
Sales/repayments - (4) (9) (13)
Transfers into the level 3 portfolio - - - -
Transfers out of the level 3 portfolio - - (291) (291)
At 30 June 2022 169 12 624 805
(Losses) gains recognised in the income statement, within other income, (21) - 254 233
relating to the change in fair value of those assets held at 30 June 2022
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities (continued)
Financial Financial Derivative assets Total financial assets carried at fair value
assets at fair value through profit or loss assets at fair value through other comprehensive income
£m £m £m £m
At 1 January 2021 570 113 948 1,631
Exchange and other adjustments - (4) 3 (1)
(Losses) gains recognised in the income statement within other income (30) - (175) (205)
Gains recognised in other comprehensive income within the revaluation reserve - 6 - 6
in respect of financial assets at fair value through other comprehensive
income
Purchases/increases - - 249 249
Sales/repayments (226) (6) (64) (296)
Transfers into the level 3 portfolio 1 - - 1
Transfers out of the level 3 portfolio (119) - - (119)
At 30 June 2021 196 109 961 1,266
Gains recognised in the income statement, within other income, relating to the (30) 1 (168) (197)
change in fair value of those assets held at 30 June 2021
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities (continued)
The tables below analyse movements in the level 3 financial liabilities
portfolio.
Financial liabilities at fair value through profit or loss Derivative liabilities Total
financial liabilities carried at
fair value
£m £m £m
At 1 January 2022 - 926 926
Exchange and other adjustments - 17 17
Losses (gains) recognised in the income statement within other income - (12) (12)
Purchases/increases - 37 37
Sales/repayments - (2) (2)
Transfers into the level 3 portfolio - - -
Transfers out of the level 3 portfolio - (284) (284)
At 30 June 2022 - 682 682
Losses (Gains) recognised in the income statement, within other income, - 28 28
relating to the change in fair value of those liabilities held at 30 June 2022
At 1 January 2021 - 1,251 1,251
Exchange and other adjustments - 3 3
Losses (gains) recognised in the income statement within other income - (196) (196)
Purchases/increases - 265 265
Sales/repayments - (43) (43)
Transfers into the level 3 portfolio - - -
Transfers out of the level 3 portfolio - - -
At 30 June 2021 - 1,280 1,280
(Gains) recognised in the income statement, within other income, relating to - (201) (201)
the change in fair value of those liabilities held at 30 June 2021
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities (continued)
The tables below set out the effects of reasonably possible alternative
assumptions for categories of level 3 financial assets and financial
liabilities.
At 30 June 2022
Effect of reasonably
possible alternative
assumptions(2)
Valuation techniques Significant unobservable inputs(1) Carrying value Favourable changes Unfavourable
changes
£m £m £m
Financial assets at fair value through profit or loss
Loans and advances to customers Comparable pricing Spread (-/+20bps) 2 - -
Debt securities Discounted cash flows Credit spreads (discount factor) and inflation volatility (-/+7bps) 167 12 (12)
169 12 (12)
Financial assets at fair value through other comprehensive income
Asset-backed securities Comparable pricing Spread (-/+7bps) 12 1 (1)
12 1 (1)
Derivative financial assets
Interest rate derivatives Option pricing model Inflation volatility - - -
Option pricing model Interest rate volatility (11.1-146.6bps) 624 5 (5)
624 5 (5)
Level 3 financial assets carried at fair value 805 18 (18)
Derivative financial liabilities
Interest rate derivatives Option pricing model Illiquid long dated repo rate - - -
Option pricing model Inflation volatility - - -
Option pricing model Interest rate volatility (11.1-146.6bps) 682 15 (15)
682 15 (15)
Level 3 financial liabilities carried at fair value 682 15 (15)
(1 ) Ranges are shown where appropriate and represent the highest
and lowest inputs used in the level 3 valuations.
(2 ) Where the exposure to an unobservable input is managed on a
net basis, only the net impact is shown in the table.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities (continued)
At 31 December 2021
Effect of reasonably
possible alternative
assumptions(2)
Valuation Significant unobservable inputs(1) Carrying value Favourable changes Unfavourable changes
techniques
£m £m £m
Financial assets at fair value through profit or loss
Loans and advances to customers Comparable pricing Spread (-/+20bps) 2 - -
Debt securities Discounted cash flows Credit spreads (discount factor) and inflation volatility (-/+7bps) 188 13 (13)
190 13 (13)
Financial assets at fair value through other comprehensive income
Asset-backed securities Comparable pricing Spread (-/+0bps) 15 - -
15 - -
Derivative financial assets
Interest rate derivatives Option pricing model Inflation volatility (31.0-58.7bps) 345 5 (4)
Option pricing model Interest rate volatility (12.8-167.9bps) 384 1 (1)
729 6 (5)
Level 3 financial assets carried at fair value 934 19 (18)
Derivative financial liabilities
Interest rate derivatives Option pricing model Illiquid long dated repo rate (-/+10.2bps) 2 - -
Option pricing model Inflation volatility (31.0-58.7bps) 297 6 (5)
Option pricing model Interest rate volatility (12.8-167.9bps) 627 11 (11)
926 17 (16)
Level 3 financial liabilities carried at fair value 926 17 (16)
(1 ) Ranges are shown where appropriate and represent the highest
and lowest inputs used in the level 3 valuations.
(2 ) Where the exposure to an unobservable input is managed on a
net basis, only the net impact is shown in the table.
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 2021
( )
( )
( )
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities (continued)
Reasonably possible alternative assumptions
Valuation techniques applied to many of the Group's level 3 instruments often
involve the use of two or more inputs whose relationship is interdependent.
The calculation of the effect of reasonably possible alternative assumptions
included in the table above reflects such relationships and are unchanged from
those described in the Group's financial statements for the year ended 31
December 2021.
(
)
Note 14: Interest rate benchmark reform
During 2022, the Group continues to manage the transition to alternative
benchmark rates as part of the LBG IBOR transition programme. During 2021, the
Group transitioned substantially all of its non-US Dollar LIBOR products and
continues to work with customers to transition a small number of remaining
contracts that either have yet to transition or have defaulted to the relevant
synthetic LIBOR benchmark in the interim.
US Dollar LIBOR transition is expected to take place in the next year as these
settings are expected to cease immediately after 30 June 2023. The majority of
the Group's exposures are expected to transition through industry-led
transition programmes managed by the London Clearing House and Futures
exchanges, or through the International Swaps and Derivatives Association
(ISDA) protocol. Other contracts (primarily loans) maturing after June 2023
will be managed through the Group's existing processes, either transitioning
to an alternative benchmark rate or allowed to fallback under existing
contract protocols or through US legislation.
At 30 June 2022, the Group had the following significant exposures impacted by
interest rate benchmark reform which have yet to transition to the replacement
benchmark rate:
At 30 June 2022 Sterling LIBOR £m US Dollar LIBOR £m Other( ) £m (1) Total
Non-derivative financial assets
Financial assets at fair value through profit or loss - 40 - 40
Loans and advances to banks - 293 - 293
Loans and advances to customers 3 1,962 56 2,021
Reverse repurchase agreements - - - -
Debt securities - - - -
Financial assets at amortised cost 3 2,255 56 2,314
Financial assets at fair value through other comprehensive income 12 - - 12
15 2,295 56 2,366
Non-derivative financial liabilities
Customer deposits - 83 - 83
Subordinated liabilities - 620 - 620
- 703 - 703
Derivative notional/contract amount
Cross Currency - 33,943 1,018 34,961
Interest rate 1,429 165,461 731 167,621
1,429 199,404 1,749 202,582
(1 ) Balances within Other include Canadian Dollar Offered Rate
for which a cessation announcement, effective after 28 June 2024, was
published on 16 May 2022.
( )
( )
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
Note 14: Interest rate benchmark reform (continued)
At 31 December 2021 Sterling LIBOR £m US Dollar LIBOR £m Other £m Total
Non-derivative financial assets
Financial assets at fair value through profit or loss 189 96 - 285
Loans and advances to banks - 854 - 854
Loans and advances to customers 123 3,426 - 3,549
Reverse repurchase agreements - - - -
Debt securities 126 - - 126
Financial assets at amortised cost 249 4,280 - 4,529
Financial assets at fair value through other comprehensive income 15 - - 15
453 4,376 - 4,829
Non-derivative financial liabilities
Customer deposits - 74 - 74
Subordinated liabilities - 558 - 558
- 632 - 632
Derivative notional/contract amount
Cross Currency - 36,212 - 36,212
Interest rate 5,238 184,573 - 189,811
5,238 220,785 - 226,023
As at 30 June 2022, the LIBOR balances in the above table relate to contracts
that have not transitioned to an alternative benchmark rate. In the case of
Sterling LIBOR, this includes contracts that will have both cash flows and
valuations determined on a synthetic LIBOR basis during 2022 as well as
contracts referencing panel bank LIBOR that have not yet had an interest rate
reset in 2022.
Of the £199,404 million of USD derivative notional balances as at 30 June
2022, £70,695 million relate to contracts with their final LIBOR fixing prior
to LIBOR cessation and £83,223 million relate to exchange traded futures or
contracts settled through the London Clearing House. Of the remaining £45,486
million, £36,179 million are fallback-eligible and £8,979 million are
intragroup trades.
By 31 December 2021, the Group had transitioned its Sterling, Euro, Japanese
Yen and Swiss Franc LIBOR hedge accounting models to risk-free rates. The
Group plans to complete the transition of its USD LIBOR hedge accounting
models ahead of the 30 June 2023 cessation date.
Note 15: Dividends on ordinary shares
The Bank paid a dividend of £220 million on 26th April 2022 (2021: £200
million).
Note 16: Ultimate parent undertaking
The Bank's ultimate parent undertaking and controlling party is Lloyds Banking
Group plc which is incorporated in Scotland. Lloyds Banking Group plc has
published consolidated accounts for the year to 31 December 2021 and half-year
results for the six month period to 30 June 2022, and copies may be obtained
from Investor Relations, Lloyds Banking Group, 25 Gresham Street, London EC2V
7HN and available for download from www.lloydsbankinggroup.com.
Note 17: Events since the balance sheet date
There are no events since the balance sheet date to disclose.
Note 18: Other information
The financial information contained in this document does not constitute
statutory accounts within the meaning of section 434 of the Companies Act 2006
(the Act). The statutory accounts for the year ended 31 December 2021 were
approved by the directors on 24 March 2022 and were delivered to the Registrar
of Companies on 8 April 2022. The auditors' report on those accounts was
unqualified and did not include a statement under sections 498(2) (accounting
records or returns inadequate or accounts not agreeing with records and
returns) or 498(3) (failure to obtain necessary information and explanations)
of the Act.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors listed below (being all the directors of Lloyds Bank Corporate
Markets 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 2022 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 2022 and any material changes in the related party transactions described
in the last annual report.
Signed on behalf of the Board by
Eduardo J Stock da Cunha
Chief Executive Officer
15 September 2022
Lloyds Bank Corporate Markets plc Board of directors:
Eduardo J Stock da Cunha (Chief Executive Officer)
Julienne C Daglish (Executive director and Chief Financial Officer)
Eve A Henrikson (Non-executive director)
Lord Lupton CBE (Non-executive director and Chair)
Andrew J McIntyre (Non-executive director)
Rupert H Mingay (Non-executive director)
John S W Owen (Non-executive director)
Changes to the composition of the Board since 1 January 2022 up to the date of
this report are shown below:
John J Cummins (resigned 28 February 2022)
Rupert H Mingay (appointed 11 April 2022)
Emma Lawrence (resigned 7 July 2022)
Carla A S Antunes da Silva (resigned 8 September 2022)
Changes to the composition of the Board after the date of the report are shown
below:
Rupert Mingay - will resign as Non-executive director on 30 September 2022 and
will take up role of Chief Risk Officer from 1 October 2022
Eduardo Stock da Cunha - to resign as Chief Executive Officer in early 2023
Carla A S Antunes da Silva - to be appointed Chief Executive Officer in early
2023 (subject to regulatory approval)
Rose St Louis - to be appointed internal Non-executive director (subject to
regulatory approval)
INDEPENDENT REVIEW REPORT TO LLOYDS BANK CORPORATE MARKETS PLC
Conclusion
We have been engaged by the Bank to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
June 2022 which comprises the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated balance sheet, the
consolidated statement of changes in equity, the consolidated cash flow
statement and related notes 1 to 18.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2022 is not prepared, in all
material respects, in accordance with United Kingdom adopted International
Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
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. 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 set of financial statements included in this
half-yearly financial report has been prepared in accordance with United
Kingdom adopted International Accounting Standard 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
this ISRE (UK), however future events or conditions may cause the entity 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 Group
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 statement 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 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. 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
15 September 2022
FORWARD LOOKING STATEMENTS
This document contains certain forward looking statements within the meaning
of Section 21E of the US Securities Exchange Act of 1934, as amended, and
section 27A of the US Securities Act of 1933, as amended, with respect to the
business, strategy, plans and/or results of Lloyds Bank Corporate Markets plc
together with its subsidiaries (the Group) and its current goals and
expectations. Statements that are not historical or current facts, including
statements about the Group's or its directors' and/or management's beliefs and
expectations, are forward looking statements.
Words such as, without limitation, 'believes', 'achieves', 'anticipates',
'estimates', 'expects', 'targets', 'should', 'intends', 'aims', 'projects',
'plans', 'potential', 'will', 'would', 'could', 'considered', 'likely', 'may',
'seek', 'estimate', 'probability', 'goal', 'objective', 'deliver',
'endeavour', 'prospects', 'optimistic' and similar expressions or variations
on these expressions are intended to identify forward looking statements.
These statements concern or may affect future matters, including but not
limited to: projections or expectations of the Group's future financial
position, including profit attributable to shareholders, provisions, economic
profit, dividends, capital structure, portfolios, net interest margin, capital
ratios, liquidity, risk-weighted assets (RWAs), expenditures or any other
financial items or ratios; litigation, regulatory and governmental
investigations; the Group's future financial performance; the level and extent
of future impairments and write-downs; the Group's ESG targets and/or
commitments; statements of plans, objectives or goals of the Group or its
management and other statements that are not historical fact; expectations
about the impact of COVID-19; and statements of assumptions underlying such
statements.
By their nature, forward looking statements involve risk and uncertainty
because they relate to events and depend upon circumstances that will or may
occur in the future.
Factors that could cause actual business, strategy, plans and/or results
(including but not limited to the payment of dividends) to differ materially
from forward looking statements include, but are not limited to: general
economic and business conditions in the UK and internationally; market related
risks, trends and developments; risks concerning borrower and counterparty
credit quality; fluctuations in interest rates, inflation, exchange rates,
stock markets and currencies; volatility in credit markets; volatility in the
price of our securities; any impact of the transition from IBORs to
alternative reference rates; the ability to access sufficient sources of
capital, liquidity and funding when required; changes to the Group's or Lloyds
Banking Group plc's credit ratings; 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; potential changes in dividend
policy; the ability to achieve strategic objectives; insurance risks;
management and monitoring of conduct risk; exposure to counterparty risk;
credit rating risk; tightening of monetary policy in jurisdictions in which
the Group operates; instability in the global financial markets, including
within the Eurozone, and as a result of ongoing uncertainty following the exit
by the UK from the European Union (EU) and the effects of the EU-UK Trade and
Cooperation Agreement; political instability including as a result of any UK
general election and any further possible referendum on Scottish independence;
operational risks; conduct risk; technological changes and risks to the
security of IT and operational infrastructure, systems, data and information
resulting from increased threat of cyber and other attacks; natural pandemic
(including but not limited to the COVID-19 pandemic) and other disasters;
inadequate or failed internal or external processes or systems; acts of
hostility or terrorism and responses to those acts, or other such events;
geopolitical unpredictability; the war between Russia and Ukraine; risks
relating to sustainability and climate change (and achieving climate change
ambitions), including the Group and/or Lloyds Banking Group plc's ability
along with the government and other stakeholders to measure, manage and
mitigate the impacts of climate change effectively; changes in laws,
regulations, practices and accounting standards or taxation; changes to
regulatory capital or liquidity requirements and similar contingencies;
assessment related to resolution planning requirements; the policies and
actions of governmental or regulatory authorities or courts together with any
resulting impact on the future structure of the Group; 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;
projected employee numbers and key person risk; increased labour costs;
assumptions and estimates that form the basis of our financial statements; the
impact of competitive conditions; and exposure to legal, regulatory or
competition proceedings, investigations or complaints. A number of these
influences and factors are beyond the control of the Group or Lloyds
Banking Group plc. Please refer to the Base Prospectus for the Group's Euro
Medium Term Note Programme and 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.
FORWARD LOOKING STATEMENTS (continued)
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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
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