REG - Lloyds Banking Group - 2019 Full Year Results
20/02/2020 07:00
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RNS Number : 5457D Lloyds Banking Group PLC 20 February 2020
2019 Results
News Release
Lloyds Banking Group plc
20 February 2020
CONTENTS
Page
Results for the full year 1
Income statement - underlying basis 2
Key balance sheet metrics 2
Quarterly information 3
Balance sheet analysis 4
Group Chief Executive's statement 5
Summary of Group results 9
Segmental analysis - underlying basis 16
Divisional results
Retail 17
Commercial Banking 19
Insurance and Wealth 21
Central items 23
Other financial information
Reconciliation between statutory and underlying basis results 24
Banking net interest margin and average interest-earning assets 25
Volatility arising in insurance businesses 25
Tangible net assets per share 26
Return on tangible equity 26
Share buyback 26
Risk management
Credit risk portfolio 27
Funding and liquidity management 33
Capital management 34
Statutory information
Condensed consolidated financial statements 41
Consolidated income statement 41
Consolidated statement of comprehensive income 42
Consolidated balance sheet 43
Consolidated statement of changes in equity 45
Consolidated cash flow statement 47
Notes to the condensed consolidated financial statements 48
Forward looking statements 59
Summary of alternative performance measures 60
Contacts 61
BASIS OF PRESENTATION
This release covers the results of Lloyds Banking Group plc together with its
subsidiaries (the Group) for the year ended 31 December 2019.
IFRS 16 and IAS 12 (further information in note 1 on page 48): The Group
adopted IFRS 16 Leases from 1 January 2019 and as permitted elected to apply
the standard retrospectively with the cumulative effect of initial application
being recognised at that date; comparative information has not been restated.
The Group implemented the amendments to IAS 12 Income Taxes with effect from 1
January 2019 and as a result tax relief on distributions on other equity
instruments, previously recognised in equity, is now reported within tax
expense; comparatives have been restated.
Statutory basis: Statutory information is set out on pages 48 to 58. However,
a number of factors have had a significant effect on the comparability of the
Group's financial position and results. Accordingly, the results are also
presented on an underlying basis.
Underlying basis: The statutory results are adjusted for certain items which
are listed below, to allow a comparison of the Group's underlying performance.
− restructuring, including severance-related costs, the
rationalisation of the non-branch property portfolio, the establishment of the
Schroders partnership, the integration of MBNA and Zurich's UK workplace
pensions and savings business;
− volatility and other items, which includes the effects of certain
asset sales, the volatility relating to the Group's hedging arrangements and
that arising in the insurance businesses, insurance gross up, the unwind of
acquisition-related fair value adjustments and the amortisation of purchased
intangible assets;
− payment protection insurance provisions.
Unless otherwise stated, income statement commentaries throughout this
document compare the year ended 31 December 2019 to the year ended
31 December 2018, and the balance sheet analysis compares the Group balance
sheet as at 31 December 2019 to the Group balance sheet as at 31 December
2018.
Segment information: The segment results have been restated to reflect the
transfer of the Cardnet business from Retail into Commercial Banking and
certain equities business from Commercial Banking into Central items. The
underlying profit and statutory results at Group level are unchanged as a
result of these restatements.
Alternative performance measures: The Group uses a number of alternative
performance measures, including underlying profit, in the discussion of its
business performance and financial position. Further information on these
measures is set out on page 60.
RESULTS FOR THE FULL YEAR
"In 2019 the Group has continued to make significant strategic progress while
delivering solid financial results in a challenging external market. The
Group's statutory performance was impacted by a substantial PPI charge related
to the deadline for claims submission. Underlying performance was resilient,
reflecting the health of our customer franchise and the strength of the
business model.
The Group's purpose is to Help Britain Prosper, underpinned by being the bank
with the largest retail and commercial presence throughout the UK. In 2019 we
helped around 23 per cent of first time buyers by lending £13.8 billion while
also achieving our target of lending £18 billion to businesses across the
UK. We have also targeted reducing the emissions we finance by more than 50
per cent by 2030, in line with the UK's Net Zero Goal and the Paris Agreement.
Given our clear UK focus, our performance is inextricably linked to the health
of the UK economy. Throughout 2019, UK economic performance has remained
resilient in the face of significant political and economic uncertainty,
supported by record employment, low interest rates and rising real wages.
Although uncertainty remains given the ongoing negotiation of international
trade agreements, there is now a clearer sense of direction and some signs of
an improving outlook. We remain well placed to Help Britain Prosper, support
our customers and deliver strong and sustainable returns for shareholders."
António Horta-Osório
Group Chief Executive
Significant strategic progress and the right strategy in the current
environment
In 2018 we launched our ambitious strategy to transform the Group for success
in a digital world; over the last two years we have invested £2 billion in
strategic initiatives and:
· Invested in building a leading customer experience, including the
Group's unique Single Customer View, supporting the largest digital bank in
the UK with 16.4 million digitally active customers and 10.7 million mobile
app users, alongside the largest branch network in the UK
· Enhanced comprehensive product range and maximised Group
capabilities by launch of Schroders Personal Wealth
· Continued to digitise the Group and transform ways of working
Solid financial performance
· Underlying profit of £7.5 billion, down 7 per cent in a
challenging external market
− Net income of £17.1 billion, down 4 per cent, with stable
average interest-earning banking assets of £435 billion, net interest margin
of 2.88 per cent and other income down 5 per cent to £5.7 billion
− Total costs of £8.3 billion further reduced by 5 per cent,
driven by action to reduce operating costs, and lower remediation charges;
market-leading cost:income ratio improved to 48.5 per cent with positive jaws
of 1 per cent
− Credit quality remains strong with net asset quality ratio of 29
basis points
· Statutory profit after tax of £3.0 billion after £2.45 billion
PPI charge and £1.4 billion tax expense in the year
· Total ordinary dividend of 3.37 pence per share, up 5 per cent
· Balance sheet strength maintained with free capital build of 86
basis points in the year (207 basis points pre-PPI charge) and CET1 ratio of
13.8 per cent after dividends
· The Group is targeting an ongoing CET1 capital ratio of c.12.5 per
cent plus a management buffer of c.1 per cent.
· Sustainable growth in targeted segments including £1.0 billion in
UK Motor Finance, £0.3 billion in SME and £3.2 billion in Retail current
accounts, as well as growth of £3.5 billion in the open mortgage book,
including the Tesco acquisition
· Underlying return on tangible equity remains strong at 14.8 per
cent with statutory return on tangible equity at 7.8 per cent, largely driven
by the PPI charge
Guidance for 2020 reflects the Group's confidence in the business model and
future performance
· Net interest margin of 2.75 to 2.80 per cent
· Operating costs to be less than £7.7 billion with the cost:income
ratio lower than in 2019
· Net asset quality ratio expected to be less than 30 basis points
· Capital build expected to be within the Group's ongoing guidance
range of 170 to 200 basis points per year and risk-weighted assets to be
broadly in line with 2019
· Expect increased statutory return on tangible equity of 12 to 13
per cent, driven by resilient underlying profit and lower below the line
charges
INCOME STATEMENT − UNDERLYING BASIS
2019 2018 Change
£m £m %
Net interest income 12,377 12,714 (3)
Other income 5,732 6,010 (5)
Operating lease depreciation (967) (956) (1)
Net income 17,142 17,768 (4)
Operating costs (7,875) (8,165) 4
Remediation (445) (600) 26
Total costs (8,320) (8,765) 5
Trading surplus 8,822 9,003 (2)
Impairment (1,291) (937) (38)
Underlying profit 7,531 8,066 (7)
Restructuring (471) (879) 46
Volatility and other items (217) (477) 55
Payment protection insurance provision (2,450) (750)
Statutory profit before tax 4,393 5,960 (26)
Tax expense(1) (1,387) (1,454) 5
Statutory profit after tax(1) 3,006 4,506 (33)
Earnings per share 3.5p 5.5p (36)
Dividends per share - ordinary 3.37p 3.21p 5
Share buyback value - £1.1bn
Banking net interest margin 2.88% 2.93% (5)bp
Average interest-earning banking assets £435bn £436bn -
Cost:income ratio 48.5% 49.3% (0.8)pp
Asset quality ratio 0.29% 0.21% 8bp
Underlying return on tangible equity 14.8% 15.5% (0.7)pp
Return on tangible equity 7.8% 11.7% (3.9)pp
KEY BALANCE SHEET METRICS
At 31 Dec At 31 Dec Change
2019 2018 %
Loans and advances to customers(2) £440bn £444bn (1)
Customer deposits(3) £412bn £416bn (1)
Loan to deposit ratio 107% 107% -
Capital build(4) 86bp 210bp (124)bp
Pro forma CET1 ratio(5) 13.8% 13.9% (0.1)pp
Pro forma transitional MREL ratio(5) 32.6% 32.6% -
Pro forma UK leverage ratio(5) 5.2% 5.6% (0.4)pp
Pro forma risk-weighted assets(5) £203bn £206bn (1)
Tangible net assets per share 50.8p 53.0p (2.2)p
(1) 2018 restated to reflect amendments to IAS 12, see basis of presentation.
(2) Excludes reverse repos of £54.6 billion (31 December 2018: £40.5 billion).
(3) Excludes repos of £9.5 billion (31 December 2018: £1.8 billion).
(4) Capital build is reported on a pro forma basis, reflecting the dividend paid
up by the Insurance business in the subsequent first quarter period and is
also reported before accruing for ordinary dividends, the cancellation of the
remaining 2019 share buyback and the acquisition of Tesco Bank's UK prime
residential mortgage portfolio.
(5) The CET1, MREL, leverage ratios and risk-weighted assets at 31 December 2019
and 31 December 2018 are reported on a pro forma basis, reflecting the
dividend paid up by the Insurance business in the subsequent first quarter
period. The pro forma CET1 ratio at 31 December 2018 incorporates the effects
of the share buyback announced in February 2019 and is reported post dividend
accrual.
QUARTERLY INFORMATION
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended ended ended ended
31 Dec 30 Sept 30 June 31 Mar 31 Dec 30 Sept 30 June 31 Mar
2019 2019 2019 2019 2018 2018 2018 2018
£m £m £m £m £m £m £m £m
Net interest income 3,102 3,130 3,062 3,083 3,170 3,200 3,173 3,171
Other income 1,267 1,315 1,594 1,556 1,400 1,486 1,713 1,411
Operating lease depreciation (236) (258) (254) (219) (225) (234) (245) (252)
Net income 4,133 4,187 4,402 4,420 4,345 4,452 4,641 4,330
Operating costs (2,058) (1,911) (1,949) (1,957) (2,151) (1,990) (2,016) (2,008)
Remediation (219) (83) (123) (20) (234) (109) (197) (60)
Total costs (2,277) (1,994) (2,072) (1,977) (2,385) (2,099) (2,213) (2,068)
Trading surplus 1,856 2,193 2,330 2,443 1,960 2,353 2,428 2,262
Impairment (341) (371) (304) (275) (197) (284) (198) (258)
Underlying profit 1,515 1,822 2,026 2,168 1,763 2,069 2,230 2,004
Restructuring (191) (98) (56) (126) (267) (235) (239) (138)
Volatility and other items 122 126 (126) (339) (270) (17) (16) (174)
Payment protection insurance provision - (1,800) (550) (100) (200) - (460) (90)
Statutory profit before tax 1,446 50 1,294 1,603 1,026 1,817 1,515 1,602
Tax expense(1) (427) (288) (269) (403) (260) (394) (369) (431)
Statutory profit (loss) after tax(1) 1,019 (238) 1,025 1,200 766 1,423 1,146 1,171
Banking net interest margin 2.85% 2.88% 2.89% 2.91% 2.92% 2.93% 2.93% 2.93%
Average interest-earning banking assets £437bn £435bn £433bn £433bn £436bn £435bn £436bn £437bn
Cost:income ratio 55.1% 47.6% 47.1% 44.7% 54.9% 47.1% 47.7% 47.8%
Asset quality ratio 0.30% 0.33% 0.27% 0.25% 0.18% 0.25% 0.18% 0.23%
Gross asset quality ratio 0.39% 0.40% 0.38% 0.30% 0.30% 0.30% 0.26% 0.27%
Underlying return on tangible equity 12.2% 14.3% 15.6% 17.0% 13.6% 15.9% 17.3% 15.4%
Return on tangible equity 11.0% (2.8)% 10.5% 12.5% 7.8% 14.8% 11.9% 12.3%
Loans and advances to customers(2) £440bn £447bn £441bn £441bn £444bn £445bn £442bn £445bn
Customer deposits(3) £412bn £419bn £418bn £417bn £416bn £422bn £418bn £413bn
Loan to deposit ratio 107% 107% 106% 106% 107% 105% 106% 108%
Pro forma risk-weighted assets(4) £203bn £209bn £207bn £208bn £206bn £207bn £207bn £211bn
Tangible net assets per share 50.8p 52.0p 53.0p 53.4p 53.0p 51.3p 52.1p 52.3p
(1) Comparatives for 2018 restated to reflect amendments to IAS 12, see basis of
presentation.
(2) Excludes reverse repos.
(3) Excludes repos.
(4) Risk-weighted assets at 30 June 2018 are reported on a pro forma basis
reflecting the sale of the Irish mortgage portfolio.
BALANCE SHEET ANALYSIS
At 31 Dec At 30 Sept At 30 June At 31 Dec
2019 2019 Change 2019 Change 2018 Change
£bn £bn % £bn % £bn %
Loans and advances to customers
Open mortgage book 270.1 271.0 - 264.9 2 266.6 1
Closed mortgage book 18.5 19.1 (3) 19.8 (7) 21.2 (13)
Credit cards 17.7 17.7 - 17.7 - 18.1 (2)
UK Retail unsecured loans 8.4 8.4 - 8.2 2 7.9 6
UK Motor Finance 15.6 15.6 - 15.5 1 14.6 7
Overdrafts 1.3 1.3 - 1.2 8 1.3 -
Retail other(1) 9.0 9.2 (2) 9.0 - 8.6 5
SME(2) 32.1 32.4 (1) 32.3 (1) 31.8 1
Mid Markets(3) 29.1 30.7 (5) 30.6 (5) 31.7 (8)
Global Corporates and Financial Institutions 30.8 33.7 (9) 34.7 (11) 34.4 (10)
Commercial Banking other 5.2 5.2 - 4.3 21 4.3 21
Wealth 0.9 0.9 - 0.9 - 0.9 -
Central items 1.7 2.0 (15) 1.9 (11) 3.0 (43)
Loans and advances to customers(4) 440.4 447.2 (2) 441.0 - 444.4 (1)
Customer deposits
Retail current accounts 76.9 76.1 1 76.0 1 73.7 4
Commercial current accounts(2,5) 34.9 34.6 1 34.0 3 34.9 -
Retail relationship savings accounts 144.5 144.3 - 144.4 - 145.9 (1)
Retail tactical savings accounts 13.3 14.1 (6) 15.3 (13) 16.8 (21)
Commercial deposits(2,6) 127.6 135.8 (6) 133.2 (4) 130.1 (2)
Wealth 13.7 13.6 1 13.8 (1) 14.1 (3)
Central items 0.9 0.7 29 0.9 - 0.8 13
Total customer deposits(7) 411.8 419.2 (2) 417.6 (1) 416.3 (1)
Total assets(8) 833.9 858.5 (3) 822.2 1 797.6 5
Total liabilities(8) 786.1 810.4 (3) 773.2 2 747.4 5
Shareholders' equity 41.7 42.5 (2) 43.4 (4) 43.4 (4)
Other equity instruments 5.9 5.4 9 5.4 9 6.5 (9)
Non-controlling interests 0.2 0.2 - 0.2 - 0.3 (33)
Total equity 47.8 48.1 (1) 49.0 (2) 50.2 (5)
Ordinary shares in issue, excluding own shares 70,031m 70,007m - 70,740m (1) 71,149m (2)
(1) Primarily Europe.
(2) Includes Retail Business Banking.
(3) Includes Mid Corporates (31 December 2019: £5.3 billion; 30 September 2019:
£5.2 billion; 30 June 2019: £5.4 billion; 31 December 2018:
£5.8 billion)
(4) Excludes reverse repos.
(5) Primarily non-interest-bearing Commercial Banking current accounts.
(6) Primarily Commercial Banking interest-bearing accounts.
(7) Excludes repos.
(8) The adoption of IFRS 16 on 1 January 2019 resulted in the recognition of a
right-of-use asset of £1.7 billion and lease liabilities of £1.8 billion.
( )
( )
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GROUP CHIEF EXECUTIVE'S STATEMENT
In 2019 the Group has continued to deliver for customers while making
significant strategic progress and delivering a solid financial performance in
a challenging external market. While it is disappointing that this was
impacted by the additional PPI charge in the year, as a result of this
performance, the Board has been able to recommend an increased total ordinary
dividend of 3.37 pence per share.
In February 2018 we announced an ambitious plan to transform the Group for
success in a digital world, supported by over £3 billion of strategic
investment. We are now two-thirds of the way through the plan and have made
significant progress in further digitising the Group, enhancing customer
experience, maximising our capabilities as an integrated financial services
provider and transforming the way we work.
We have made significant progress in our customer proposition. For example,
our unique Single Customer View capability provides customers with the ability
to view their pensions and long-term savings products alongside their banking
products. Insurance and Wealth has seen strong growth in life and pensions
sales, driven by new members in existing workplace schemes, increased auto
enrolment workplace contributions and bulk annuities. In partnership with
Schroders, during the third quarter of 2019 we launched Schroders Personal
Wealth, with the ambition of becoming a top three financial planning business
by the end of 2023. Also in the third quarter, the Group announced the
acquisition of Tesco Bank's prime UK residential mortgage portfolio, which
complements our organic strategy.
Historic conduct issues remain disappointing but we continue to be focused on
doing the right thing for our customers. The Group is fully committed to
implementing all of the recommendations contained within Sir Ross Cranston's
report relating to HBOS Reading and ensuring that victims of the HBOS Reading
fraud have their claims assessed in an open and transparent manner. We have
apologised to those impacted and are determined to put things right.
Given our clear UK focus, our performance is inextricably linked to the health
of the UK economy. During 2019, UK economic performance has remained resilient
in the face of significant political and economic uncertainty, supported by
record employment, low interest rates and rising real wages. Although
uncertainty remains given the ongoing negotiation of international trade
agreements, there is now a clearer sense of direction and we remain well
placed to Help Britain Prosper, support our customers and deliver strong and
sustainable returns for shareholders.
Financial performance
Statutory profit before tax of £4.4 billion was 26 per cent lower than 2018
and earnings per share at 3.5 pence was down 36 per cent, due to the PPI
charge of £2.45 billion in 2019 (2018: £0.75 billion). Underlying profit
of £7.5 billion was down 7 per cent on 2018, reflecting continued revenue
pressure and higher impairments partly offset by lower total costs. Our
relentless focus on cost efficiency has led to a reduction in operating costs,
where we enhanced our guidance twice during 2019. This was achieved whilst
increasing strategic investment and our net promoter scores. Our cost:income
ratio improved again to 48.5 per cent. Credit quality remains strong with the
Group's net asset quality ratio of 29 basis points in line with the target of
less than 30 basis points, despite two material corporate cases.
Loans and advances decreased by £4 billion to £440 billion. The acquisition
of Tesco Bank's prime UK residential mortgage portfolio, as well as organic
growth in targeted segments including SME and UK Motor Finance, was more than
offset by continued reductions in the closed mortgage book and lower balances
in Mid Markets and Global Corporates. The reduction in Commercial balances is
due to continued optimisation of the portfolio as we actively address low
risk-adjusted return relationships.
The Group is strongly capital generative, although this has been impacted by
PPI in 2019. Given our strong capital position at the year end, the Board has
recommended a final ordinary dividend of 2.25 pence per share, bringing the
total ordinary dividend for the year to 3.37 pence per share. This represents
an increase of 5 per cent on 2018 and is in line with our progressive and
sustainable ordinary dividend policy. The Group's capital position remains
strong with a pro forma CET1 ratio of 13.8 per cent after allowing for
ordinary dividends.
GROUP CHIEF EXECUTIVE'S STATEMENT (continued)
Strategic progress
The Group's ambitious three year strategic plan was launched in February 2018
and we are on track to achieve our targeted strategic outcomes. We have made
significant progress in transforming the Group for success in a digital world
and, in line with our commitment to invest more than £3 billion over the
period, have invested £2 billion to date across our four strategic pillars.
In addition to completing the third stage of our strategic plan, in 2020 we
will also begin to consider the next phase of our journey. Work will begin at
pace in the summer on the new strategic plan, which we expect to announce in
February 2021, along with updated longer-term financial targets. This work
will take into account a wide range of factors, including the evolving
external environment, emerging changes across society and changing
expectations of how companies should respond to such challenges.
Leading customer experience
We continue to believe that our customers' evolving needs are best served
through a multi-brand, multi-channel strategy. We operate the UK's largest
digital bank and are also committed to maintaining the UK's largest branch
network and delivering personalised, data-driven customer propositions. We
have continued to develop our digital proposition and our market leading
digitally-active customer base increased again to 16.4 million, of which 10.7
million are active on their mobile banking app. We have also launched a range
of new features that enable our customers to be more in control of their
finances, including the ability to change address and search bank statements
via the mobile app. While we now originate 75 per cent of products digitally,
we believe that the branch network is vital for meeting our customers' complex
needs, and our customer-facing colleagues in branch now spend around 50 per
cent of their time doing this (up from 45 per cent in 2017). We maintain the
largest branch network while trialling new branch formats. In 2019 we opened
our latest flagship Bank of Scotland branch in Glasgow, and launched Home by
Halifax, an innovative store in London dedicated to supporting customers in
buying their homes. We are also using our deep understanding of our diverse
customer base to drive growth through tailored propositions such as Club
Lloyds and the Halifax Prize Draw, leveraging our multi-brand business model.
Digitising the Group
Investment in technology remains a key strategic priority for the Group and
enables us to improve the experience of our customers and colleagues.
Technology spend now represents 19 per cent of operating costs and having
introduced the use of automation for simple, repetitive tasks, we have now
created over 1 million cumulative hours of colleague capacity. Virtual
assistants are currently managing up to 5,000 customer conversations daily,
with customer satisfaction increasing by more than 10 points. In addition,
around 25 per cent of queries are handled without being passed to a colleague,
a trend that is expected to increase further. These investments deliver a more
efficient, scalable and flexible infrastructure and underpin the continuous
improvement of our products and services for our customers' benefit. In
enhancing our capabilities and accelerating our transformation, we are working
in collaboration with a number of fintech providers and we continue to monitor
opportunities in this space. In Commercial Banking we have launched a cash
management and payments API which allows clients to send faster payments
directly from their systems without human intervention and reducing payment
times to 1.5 seconds. In addition, transformation has now covered around 55
per cent of our cost base, up from just from 12 per cent at the end of 2017
and on track to achieve our GSR 3 target of 70 per cent by the end of 2020.
GROUP CHIEF EXECUTIVE'S STATEMENT (continued)
Maximising Group capabilities
We have continued to build on our Open Banking proposition, which is available
to all of our digital customers. Open Banking launched for current accounts in
2018 and we were the first in the market to extend this functionality to both
savings products and credit cards in 2019. In addition, our unique Single
Customer View capability, which enables customers to view all of the pension
and long-term savings that they hold with the Group alongside their banking
products, is now available to more than five million customers. As the sole
integrated UK banking and insurance provider, this is a unique capability. In
addition, within Insurance and Wealth we have exceeded our goal of attracting
over 1 million new pension customers, a year ahead of our original target. We
have also launched Schroders Personal Wealth to the market, with the ambition
of becoming a top three financial planning business by end of 2023. We have
continued to make progress towards the target of growing open book assets
under administration by £50 billion by the end of 2020, with cumulative net
growth of £37 billion since 2018. In Commercial Banking, we have continued to
invest in the UK economy and over 900 manufacturing apprentices, graduates
and engineers have been trained since 2018 as a result of the £1 million
annual investment in the Lloyds Bank Advanced Manufacturing Centre. Commercial
Banking has supported Insurance and Wealth by sourcing £0.6 billion of new
long-term assets to support 5 new bulk annuity transactions.
Transforming ways of working
Our colleagues remain critical to our success and we are making our biggest
ever investment in people with a focus on ensuring that we are able to
continue to attract, develop and retain the talent and capabilities we will
need in the future. We have significantly increased the 'skills of the future'
training delivered to our colleagues to a cumulative 3.2 million hours since
2018, putting us well on track to meet our target of 4.4 million hours by the
end of the plan period. Related to this, around 33 per cent of change is now
delivered using Agile methodologies. We have also hired over 1,200 colleagues
across critical areas such as engineering, data science and cyber security, in
line with our plan to treble strategic hiring compared to 2018 and enabling
the Group to reduce the use of external resource.
Helping Britain Prosper Plan
We are committed to the long-term success of the UK with our purpose of
Helping Britain Prosper. This is why we launched our Helping Britain Prosper
Plan in 2014 which also underpins our environmental, social and governance
efforts. For 2019 we met 20 out of 22 objectives of the Plan, and some key
achievements are outlined below.
The Group is committed to helping customers to buy a home. In 2019 we lent
£13.8 billion to first time buyers across the UK including through innovative
products like our Lloyds Bank Lend a Hand and Halifax Family Boost mortgages.
We have also increased net lending to start-ups, SMEs and Mid Market customers
to £3.4 billion since 2018 together with achieving our target of lending £18
billion to UK businesses in 2019.
We are working hard to help people save for the future and in 2019 in
partnership with Schroders, we launched Schroders Personal Wealth. Our open
book assets under administration have increased by £37 billion since the
start of the current strategic plan. More generally, our banking savings range
operates transparent pricing for all, with customers able to upgrade their
accounts online with one click when better products become available.
The Group is committed to helping the UK transition to a sustainable, low
carbon economy. Over the last five years we have raised over £2.8 billion in
green bonds for UK corporate issuers, more than any other UK financial
services company. We have also supported renewable energy projects that power
the equivalent of 5.1 million homes.
As we look forward, we want to play our part in tackling climate change and we
have targeted working with our customers, government and the market to help
reduce the emissions we finance by more than 50 per cent by 2030, in line
with the UK's Net Zero Goal and the Paris Agreement. We are one of the first
organisations in the world to commit to all three of The Climate Group's
ambitious sustainability initiatives, which aim to speed up the transition to
a low carbon economy by committing to source 100 per cent of our electricity
from renewable sources, improve energy productivity and transition to electric
vehicles.
GROUP CHIEF EXECUTIVE'S STATEMENT (continued)
The Group was the first FTSE100 company to establish targets for championing
diversity within its business and we now have 36.8 per cent of senior roles
held by women, up almost 8 percentage points since 2014 and we continue to aim
to meet our target of 40 per cent by the end of 2020. With 10.2 per cent of
roles across the Group held by Black, Asian and Minority Ethnic (BAME)
colleagues, we have exceeded our 2020 target of 10 per cent.
We have also helped over 700,000 individuals, small businesses and charities
to develop digital skills in 2019 and we are on track for our target of 1.8
million by 2020. Our Digital Knowhow workshops have also helped thousands of
organisations learn how to avoid fraud and take advantage of digital marketing
techniques.
Our colleagues have also taken an active role in supporting good causes,
including raising over £11 million for Mental Health UK over a two year
period, as well as volunteering 246,000 hours of their time through our Day to
Make a Difference initiative.
In addition, the Group has paid £2.9 billion tax in 2019 and we are proud to
be the largest corporate tax payer in the UK.
We have today issued a separate presentation on our approach to environmental,
social and governance issues, which can be found on the Group's external
website.
Outlook
Over 2019, UK economic performance has remained resilient in the face of
significant political and economic uncertainty, supported by record
employment, low interest rates and rising real wages. Although uncertainty
remains given the ongoing negotiation of international trade agreements and
the rate outlook remains challenging, there is now a clearer sense of
direction and we remain well placed to Help Britain Prosper, support our
customers and deliver strong and sustainable returns for shareholders. The
Group's confidence in the business model and future performance is reflected
in our guidance for 2020:
· Net interest margin of 2.75 to 2.80 per cent
· Operating costs to be less than £7.7 billion with the cost:income
ratio lower than in 2019
· Net asset quality ratio expected to be less than 30 basis points
· Capital build expected to be within the Group's ongoing guidance
range of 170 to 200 basis points per year and risk-weighted assets to be
broadly in line with 2019
· Expect increased statutory return on tangible equity of 12 to 13
per cent, driven by resilient underlying profit and lower below the line
charges
The Group faces the future with confidence. As a result, we will continue to
target a progressive and sustainable ordinary dividend. In 2020, the Group
will also commence paying dividends quarterly, accelerating payments to
shareholders, with the first dividend being paid in June 2020.
SUMMARY OF GROUP RESULTS
Solid financial performance
The Group's statutory profit after tax was £3,006 million, 33 per cent
lower than in 2018 with resilient underlying profit partly offset by the
significant payment protection insurance (PPI) charge of £2,450 million
taken in the year. The statutory return on tangible equity was 7.8 per cent.
Trading surplus was resilient at £8,822 million (2018: £9,003 million) with
lower net income partly offset by the Group's continued progress in delivering
cost reductions. Underlying profit was £7,531 million compared to
£8,066 million in 2018, reflecting lower net income and higher impairment
charges, partly offset by the Group's strong cost performance. The Group's
market-leading underlying return on tangible equity was 14.8 per cent.
The Group's balance sheet remains strong with lending growth in the open
mortgage book as well as targeted segments, including SME and UK Motor
Finance. This was more than offset by lower balances in Mid Markets and Global
Corporates, primarily as a result of the optimisation of the Commercial
portfolio, as well as continued reductions in the closed mortgage book. The
Group's capital position remains strong with a pro forma CET1 ratio of
15.0 per cent pre dividend accrual and 13.8 per cent post dividend.
The Group is strongly capital generative and although this has been impacted
by PPI in 2019, the Board has recommended a final ordinary dividend of 2.25
pence per share, making a total ordinary dividend of 3.37 pence per share, an
increase of 5 per cent on 2018 and in line with our progressive and
sustainable ordinary dividend policy.
Net income
2019 2018 Change
£m £m %
Net interest income 12,377 12,714 (3)
Other income excluding Vocalink gain on sale 5,682 6,010 (5)
Vocalink gain on sale 50 -
Other income 5,732 6,010 (5)
Operating lease depreciation(1) (967) (956) (1)
Net income 17,142 17,768 (4)
Banking net interest margin 2.88% 2.93% (5)bp
Average interest-earning banking assets £434.7bn £436.0bn -
(1) Net of profits on disposal of operating lease assets of £41 million (2018:
£60 million).
Net income of £17,142 million was 4 per cent lower than in 2018, reflecting
lower net interest income and other income, while operating lease depreciation
increased by 1 per cent.
Net interest income of £12,377 million was down 3 per cent with a slightly
lower net interest margin and stable average interest-earning banking assets.
Net interest margin reduced in line with guidance to 2.88 per cent, with the
benefit of lower deposit costs, higher Retail current account balances and a
benefit from aligning credit card terms, more than offset by continued
pressure on asset margins, particularly in the mortgage market.
Average interest-earning banking assets at £434.7 billion were stable, with
growth in targeted segments, in particular SME (£0.3 billion) and UK Motor
Finance (£1.4 billion), more than offset by lower balances in the closed
mortgage book (£2.5 billion) and the effect of the sale of the Irish
mortgage portfolio in the first half of 2018 (£1.6 billion).
SUMMARY OF GROUP RESULTS (continued)
The Group manages the risk to its earnings and capital from movements in
interest rates centrally by hedging the net liabilities which are stable or
less sensitive to movements in rates. As at 31 December 2019 the Group's
structural hedge had a nominal balance of £179 billion (31 December 2018:
£180 billion) and an average duration of around three years (31 December
2018: around four years). The Group generated £2.7 billion of income from the
structural hedge balances in 2019 (2018: £2.7 billion). Within this, the
benefit from the hedge in the year was £1.1 billion over LIBOR (2018:
£1.4 billion) with a fixed earnings rate of approximately 0.7 per cent over
LIBOR (2018: 0.7 per cent).
Other income at £5,732 million decreased by 5 per cent with healthy growth in
new business in Insurance and Wealth more than offset by lower other income in
Commercial Banking and Retail. Insurance and Wealth continued to perform well
reflecting growth in workplace pensions new business from increased auto
enrolment contributions in the first half of 2019 and higher general insurance
income, net of claims. Insurance and Wealth other income also includes the
benefit from the change in investment management provider taken in the first
half of 2019 and longevity assumption change benefits. Commercial Banking was
impacted by more subdued levels of client activity given challenging external
conditions particularly in large corporate markets and Retail other income was
impacted by a lower Lex fleet size. Other income includes a gain of
£185 million on the sale of £8 billion of gilts and other liquid assets,
compared with a £270 million gain on sale of such assets in 2018.
Operating lease depreciation increased by 1 per cent reflecting some weakening
in used car prices through the first three quarters of 2019, partly offset by
a lower fleet size.
Total costs
2019 2018 Change
£m £m %
Operating costs 7,875 8,165 4
Remediation 445 600 26
Total costs 8,320 8,765 5
Business as usual costs(1) 5,478 5,836 6
Cost:income ratio 48.5% 49.3% (0.8)pp
(1) 2018 Business as usual costs are adjusted to reflect the impact of applying
IFRS 16. Excluding the impact of IFRS 16 business as usual costs in 2018 were
£6,048 million.
Total costs of £8,320 million were 5 per cent lower than in 2018, driven by
the reduction in both operating costs and remediation charges.
Operating costs of £7,875 million were 4 per cent lower with a 6 per cent
reduction in business as usual costs, largely driven by increased efficiency
from digitalisation and process improvements, in parallel with strategic
investment of £1.0 billion in the business, up 6 per cent in the year.
During 2019 the Group capitalised around £1.5 billion of investment spend, of
which around £1.0 billion related to intangible assets. Total capitalised
spend was equivalent to around 60 per cent of above the line investment, in
line with 2018.
Remediation charges of £445 million, including additional charges of £219
million in the fourth quarter of 2019 relating to a number of items across
existing programmes, were significantly lower than the £600 million in 2018.
The Group's market-leading cost:income ratio continues to provide a
competitive advantage and further strengthened to 48.5 per cent with positive
jaws of 1 per cent.
The Group expects operating costs in 2020 to be less than £7.7 billion with
the cost:income ratio lower than in 2019.
SUMMARY OF GROUP RESULTS (continued)
Impairment
2019 2018 Change
£m £m %
Impairment charge 1,291 937 (38)
Asset quality ratio 0.29% 0.21% 8bp
Gross asset quality ratio 0.37% 0.28% 9bp
At 31 Dec At 31 Dec
2019(1) 2018(1)
% % Change
Stage 2 loans and advances to customers as % of total 7.7 7.8 (0.1)pp
Stage 2 ECL(2) allowances as % of Stage 2 drawn balances 3.7 4.1 (0.4)pp
Stage 3 loans and advances to customers as a % of total 1.8 1.9 (0.1)pp
Stage 3 ECL(2) allowances as % of Stage 3 drawn balances 22.5 24.3 (1.8)pp
Total ECL(2) allowances as % of drawn balances 0.8 0.9 (0.1)pp
(1) Underlying basis.
(2) Expected credit loss.
Credit quality remains strong with a net asset quality ratio of 29 basis
points and a gross asset quality ratio of 37 basis points compared with 21
basis points and 28 basis points respectively in 2018. The impairment charge
increased to £1,291 million with the increase primarily driven by two
material corporate cases in Commercial Banking, along with some weakening in
used car prices in Black Horse.
The Group's loan portfolios continue to be well positioned, reflecting the
Group's prudent, through the cycle approach to credit risk, and benefiting
from continued low interest rates and a resilient UK economy.
Overall credit performance in the secured book remains strong with the average
mortgage loan to value increasing slightly to 44.9 per cent (31 December 2018:
44.3 per cent). New business average loan to value was 64.3 per cent and
88 per cent of the portfolio has a loan to value ratio of less than 80 per
cent. New to arrears as a proportion of the total book remains low in both the
secured and unsecured books. In Commercial Banking, the book continues to
benefit from low interest rates and effective risk management, including a
prudent approach to vulnerable sectors.
The Group's outlook and IFRS 9 base case economic scenario used to calculate
expected credit loss (ECL) have remained broadly stable throughout 2019,
reflecting an orderly exit of the UK from the European Union. During 2019 the
Group made small improvements to its economic scenario modelling. The Group's
ECL allowance continues to reflect a probability-weighted view of future
economic scenarios including a 30 per cent weighting of downside and a 10 per
cent weighting of severe downside.
Stage 2 loans and advances to customers as a proportion of total lending
reduced by 0.1 percentage points to 7.7 per cent, whilst Stage 3 loans and
advances fell by the same amount to 1.8 per cent. The Group's coverage of
Stage 2 assets reduced by 0.4 percentage points to 3.7 per cent, reflecting a
number of model refinements, including an enhanced approach to loan
amortisation in the Commercial Banking portfolio. Coverage of Stage 3 assets
reduced by 1.8 percentage points to 22.5 per cent largely as a result of the
improved performance of mortgage cases in long-term default, and a change in
the mix of Commercial assets due to a combination of write-offs and the
transfer in of cases with lower likelihood of net loss. The Group's total
underlying ECL at 31 December 2019 was £4.2 billion and broadly stable
compared to prior year (31 December 2018: £4.4 billion). Total ECL allowances
as a percentage of drawn balances fell slightly to 0.8 per cent. The Group
expects the 2020 net asset quality ratio to be less than 30 basis points.
SUMMARY OF GROUP RESULTS (continued)
Statutory profit
2019 2018 Change
£m £m %
Underlying profit 7,531 8,066 (7)
Restructuring (471) (879) 46
Volatility and other items
Market volatility and asset sales 126 (50)
Amortisation of purchased intangibles (68) (108) 37
Fair value unwind and other (275) (319) 14
(217) (477) 55
Payment protection insurance provision (2,450) (750)
Statutory profit before tax 4,393 5,960 (26)
Tax expense(1) (1,387) (1,454) 5
Statutory profit after tax(1) 3,006 4,506 (33)
Earnings per share 3.5p 5.5p (36)
Return on tangible equity 7.8% 11.7% (3.9)pp
(1) Comparatives restated to reflect amendments to IAS12, see basis of
presentation.
Further information on the reconciliation of underlying to statutory results
is included on page 24.
The Group's statutory profit after tax was £3,006 million, 33 per cent
lower than in 2018 with resilient underlying profit partly offset by the PPI
charge. The return on tangible equity was 7.8 per cent (2018: 11.7 per
cent) and earnings per share was 3.5 pence (2018: 5.5 pence).
Restructuring costs of £471 million were down 46 per cent, primarily
reflecting the completion of both the integration of MBNA and the ring-fencing
programme, which were partially offset by costs associated with establishing
the Schroders Personal Wealth joint venture.
Market volatility and asset sales of £126 million included adverse movements
in banking volatility, a gain on the establishment of the Schroders Personal
Wealth joint venture as well as the one-off charge for exiting the Standard
Life Aberdeen investment management agreement taken in the first half of 2019.
In 2018 market volatility and asset sales included a loss on sale of the Irish
mortgage portfolio and an adjustment to past service pension liability.
The decrease in amortisation of purchased intangibles to £68 million (2018:
£108 million) and fair value unwind and other items to £275 million (2018:
£319 million) were driven by a number of assets fully amortising in 2018 and
the run down of the subordinated liabilities acquired during the HBOS
acquisition.
The PPI provision charge of £2,450 million was largely due to the significant
increase in PPI information requests (PIRs) leading up to the deadline for
submission of claims on 29 August 2019, and also reflects costs relating to
complaints received from the Official Receiver as well as administration
costs. An initial review of around 60 per cent of the five million PIRs
received in the run-up to the PPI deadline has been undertaken, with the
conversion rate remaining low, and consistent with the provision assumption of
around 10 per cent. The Group has also reached final agreement with the
Official Receiver. The unutilised provision at 31 December 2019 was
£1,578 million.
SUMMARY OF GROUP RESULTS (continued)
Taxation
The tax expense was £1,387 million (2018: £1,454 million) representing an
effective tax rate of 32 per cent (2018: 24 per cent). This reflected the
increase in non-deductible conduct provision charges in relation to PPI,
partially offset by the release of a deferred tax liability.
The Group continues to expect a medium term effective tax rate around 25 per
cent, although this is likely to be lower in 2020 if the UK's corporate tax
rate remains unchanged, given a revaluation of the Group's deferred tax
assets.
Return on tangible equity
The underlying return on tangible equity was 14.8 per cent, primarily
reflecting resilient underlying profit and slightly lower average tangible
equity. The statutory return on tangible equity was 7.8 per cent and was
impacted by PPI.
In 2020, the Group expects an increased statutory return on tangible equity of
12 to 13 per cent, driven by resilient underlying profit and lower below the
line charges.
Balance sheet
At 31 Dec At 31 Dec Change
2019 2018 %
Loans and advances to customers(1) £440bn £444bn (1)
Customer deposits(2) £412bn £416bn (1)
Loan to deposit ratio 107% 107% -
Wholesale funding £128bn £123bn 4
Wholesale funding <1 year maturity £43bn £33bn 31
Of which money-market funding <1 year maturity(3) £22bn £21bn 5
Liquidity coverage ratio - eligible assets(4) £131bn £126bn 4
Liquidity coverage ratio(5) 137% 128% 9pp
(1) Excludes reverse repos of £54.6 billion (31 December 2018: £40.5 billion).
(2) Excludes repos of £9.5 billion (31 December 2018: £1.8 billion).
(3) Excludes balances relating to margins of £4.2 billion (31 December 2018:
£3.8 billion) and settlement accounts of £1.9 billion (31 December 2018:
£1.2 billion).
(4) Eligible assets are calculated as a simple average of month end observations
over the previous 12 months.
(5) The Liquidity coverage ratio is calculated as a simple average of month end
observations over the previous 12 months
Loans and advances to customers were £440 billion (31 December 2018: £444
billion). Growth in the open mortgage book and targeted segments including SME
and Motor Finance, was more than offset by continued reductions in the closed
mortgage book and lower balances in Mid Markets and Global Corporates.
Commercial Banking has continued to optimise its portfolio in challenging
market conditions, maintaining a strong focus on risk-weighted asset reduction
and actively addressing low risk-adjusted returning client relationships. In
line with the Group's expectations, the open mortgage book grew by
£3.5 billion driven by the acquisition of Tesco Bank's UK prime residential
mortgage portfolio and was broadly flat excluding the acquisition.
The Group continues to optimise funding and target current account balance
growth, with Retail current accounts up 4 per cent at £76.9 billion (31
December 2018: £73.7 billion). The loan to deposit ratio was flat at 107 per
cent.
Wholesale funding increased by 4 per cent to £128 billion (31 December 2018:
£123 billion) in part as a result of refinancing Funding for Lending Scheme
maturities in the year. The proportion maturing in less than one year
increased by 31 per cent to £43.4 billion (31 December 2018: £33.1 billion)
due to higher term funding maturities in 2020. The Group's liquidity position
continues to exceed the regulatory minimum and internal risk appetite.
SUMMARY OF GROUP RESULTS (continued)
Capital
At 31 Dec At 31 Dec Change
2019 2018 %
Capital build(1) 86bp 210bp (124)bp
Pro forma CET1 ratio(2) 13.8% 13.9% (0.1)pp
CET1 ratio 13.6% 14.6% (1.0)pp
Pro forma transitional total capital ratio(2) 21.5% 23.1% (1.6)pp
Pro forma transitional MREL ratio(2) 32.6% 32.6% -
Pro forma UK leverage ratio(2) 5.2% 5.6% (0.4)pp
Pro forma risk-weighted assets(2) £203bn £206bn (1)
Shareholders' equity £42bn £43bn (4)
Tangible net assets per share 50.8p 53.0p (2.2)p
(1) Capital build is reported on a pro forma basis, reflecting the dividend paid
up by the Insurance business in the subsequent first quarter period and is
also reported before accruing for ordinary dividends, the cancellation of the
remaining 2019 share buyback and the acquisition of Tesco Bank's UK prime
residential mortgage portfolio.
(2) The CET1, total, MREL, leverage ratios and risk-weighted assets at 31 December
2019 and 31 December 2018 are reported on a pro forma basis, reflecting the
dividend paid up by the Insurance business in the subsequent first quarter
period. The pro forma CET1 ratio at 31 December 2018 incorporates the effects
of the share buyback announced in February 2019 and is reported post dividend
accrual.
The Group's capital position remains strong with the pro forma CET1 capital
ratio increasing to 15.0 per cent pre dividend accrual. After accruing 123
basis points for the ordinary dividend, the pro forma CET1 ratio stands at
13.8 per cent.
A summary of the CET1 capital build is set out in the table below.
Pro forma CET1 ratio at 31 December 2018 13.9%
Banking business underlying capital build (bps) 180
Insurance dividends (bps) 18
Impact from the implementation of IFRS 16 on risk-weighted assets (bps) (11)
RWA and other movements (bps) 20
207
PPI charge (bps) (121)
86
Cancellation of the remaining 2019 share buyback programme (bps) 34
Capital used for the acquisition of the Tesco Bank's mortgage portfolio (bps) (9)
Ordinary dividend accrual (bps) (123)
Pro forma CET1 ratio at 31 December 2019 13.8%
The Group's CET1 capital build in the year amounted to 207 basis points before
PPI, and to 86 basis points after the in-year PPI charge, equivalent to
121 basis points. Solid financial performance has driven underlying capital
build of 198 basis points, including 18 basis points from the dividend from
the Insurance business. Capital build also included 20 basis points from
favourable risk-weighted asset and other movements (reflecting market
movements and the continued optimisation of Commercial Banking risk-weighted
assets, net of additional pension contributions and model updates), partly
offset by the 11 basis points impact of IFRS 16. The Group's capital position
also benefitted by 34 basis points from the cancellation of the remaining
c. £650 million of the 2019 buyback programme, as announced in September
2019. The Group used 9 basis points of capital for the acquisition of Tesco
Bank's UK prime residential mortgage portfolio.
SUMMARY OF GROUP RESULTS (continued)
During 2019 the Prudential Regulation Authority (PRA) reduced the Group's
Pillar 2A CET1 requirement from 2.7 per cent to 2.6 per cent. Separately, the
Financial Policy Committee of the Bank of England announced an increase in the
Countercyclical Capital Buffer (CCYB) rate for the UK from 1.0 per cent to 2.0
per cent, effective from December 2020. During 2020 the PRA will consult on a
proposed reduction in Pillar 2A total capital requirements by 50 per cent of
this increase in the CCYB, equivalent to reducing the Pillar 2A CET1
requirement by 28 per cent of the increase. Taking into account the current
and potential future changes to capital requirements, the Board's view of the
ongoing level of CET1 capital required by the Group to grow the business, meet
regulatory requirements and cover uncertainties continues to be c.12.5 per
cent plus a management buffer of c.1 per cent.
The transitional total capital ratio reduced to 21.5 per cent on a pro forma
basis (31 December 2018: 23.1 per cent) and the Group's transitional minimum
requirement for own funds and eligible liabilities (MREL), which came into
force on 1 January 2020, is 32.6 per cent on pro forma basis (31 December
2018: 32.6 per cent). The UK leverage ratio remains strong at 5.2 per cent on
a pro forma basis.
Risk-weighted assets on a pro forma basis have reduced by £3.0 billion to
£203.4 billion driven primarily by the optimisation of the Commercial
Banking portfolio, offset in part by model updates in mortgages, the
implementation of IFRS 16 and the acquisition of Tesco Bank's mortgage
portfolio. We now expect risk-weighted assets at the end of 2020 to be broadly
in line with the end of 2019, including regulatory headwinds.
Tangible net assets per share reduced by 2.2 pence in 2019 to 50.8 pence (31
December 2018: 53.0 pence) with the effects of the Group's statutory profit
after tax and positive cash flow hedge movements being more than offset by
dividends paid in 2019, the revaluation of the Group's retirement benefit
obligations, the effects of the share buyback and other reserve movements.
Dividend
The Group has a progressive and sustainable ordinary dividend policy whilst
maintaining the flexibility to return surplus capital through buybacks or
special dividends.
Given the solid financial performance in 2019, the Board has recommended a
final ordinary dividend of 2.25 pence per share. This is in addition to the
interim ordinary dividend of 1.12 pence per share that was announced in the
2019 half year results. The recommended total ordinary dividend per share for
2019 is therefore 3.37 pence per share and has increased by 5 per cent from
3.21 pence per share in 2018.
The Group has announced that it will move to the payment of quarterly
dividends in 2020, with the first quarterly dividend in respect of the first
quarter of 2020 payable in June 2020. The new approach will be to adopt three
equal interim ordinary dividend payments for the first three quarters of the
year followed by, subject to performance, a larger final dividend for the
fourth quarter of the year. The first three quarterly payments, payable in
June, September and December will be 20 per cent of the previous year's total
ordinary dividend per share. The fourth quarter payment will be announced with
the full year results, with the amount continuing to deliver a full year
dividend payment that reflects the Group's financial performance and its
objective of a progressive and sustainable ordinary dividend. The final
dividend will continue to be paid in May, following approval at the AGM. The
Group believes that this approach will provide a more regular flow of dividend
income to all shareholders whilst accelerating the receipt of payments.
SEGMENTAL ANALYSIS - UNDERLYING BASIS
2019
Commercial Insurance Central
Retail Banking and Wealth items Group
£m £m £m £m £m
Net interest income 8,807 2,918 112 540 12,377
Other income 2,014 1,422 2,021 275 5,732
Operating lease depreciation (946) (21) - - (967)
Net income 9,875 4,319 2,133 815 17,142
Operating costs (4,760) (2,081) (982) (52) (7,875)
Remediation (238) (155) (50) (2) (445)
Total costs (4,998) (2,236) (1,032) (54) (8,320)
Trading surplus 4,877 2,083 1,101 761 8,822
Impairment (1,038) (306) - 53 (1,291)
Underlying profit 3,839 1,777 1,101 814 7,531
Banking net interest margin 2.63% 3.14% 2.88%
Average interest-earning banking assets £341.6bn £92.2bn £0.9bn - £434.7bn
Asset quality ratio 0.30% 0.30% 0.29%
Return on risk-weighted assets 3.99% 2.14% 3.65%
Loans and advances to customers(1) £342.3bn £95.5bn £0.9bn £1.7bn £440.4bn
Customer deposits(2) £252.1bn £145.1bn £13.7bn £0.9bn £411.8bn
Risk-weighted assets £98.4bn £77.4bn £1.3bn £26.3bn £203.4bn
2018
Commercial Insurance Central
Retail(3 ) Banking(3 ) and Wealth items(3 ) Group
£m £m £m £m £m
Net interest income 9,060 3,013 123 518 12,714
Other income 2,097 1,670 1,865 378 6,010
Operating lease depreciation (921) (35) - - (956)
Net income 10,236 4,648 1,988 896 17,768
Operating costs (4,897) (2,191) (1,021) (56) (8,165)
Remediation (267) (203) (39) (91) (600)
Total costs (5,164) (2,394) (1,060) (147) (8,765)
Trading surplus 5,072 2,254 928 749 9,003
Impairment (861) (71) (1) (4) (937)
Underlying profit 4,211 2,183 927 745 8,066
Banking net interest margin 2.68% 3.27% 2.93%
Average interest-earning banking assets £342.3bn £91.2bn £0.8bn £1.7bn £436.0bn
Asset quality ratio 0.25% 0.06% 0.21%
Return on risk-weighted assets 4.57% 2.50% 3.86%
Loans and advances to customers(1) £340.1bn £100.4bn £0.9bn £3.0bn £444.4bn
Customer deposits(2) £252.8bn £148.6bn £14.1bn £0.8bn £416.3bn
Risk-weighted assets £93.5bn £86.5bn £1.2bn £25.2bn £206.4bn
(1) Excludes reverse repos.
(2) Excludes repos.
(3) Prior period segmental comparatives restated. See basis of presentation.
DIVISIONAL RESULTS
RETAIL
Retail offers a broad range of financial service products to personal and
business banking customers, including current accounts, savings, mortgages,
credit cards, unsecured loans, motor finance and leasing solutions. Its aim is
to be the best bank for customers in the UK, by building deep and enduring
relationships that deliver value, and by providing customers with choice and
flexibility, with propositions increasingly personalised to their needs.
Retail operates a multi-brand and multi-channel strategy. It continues to
simplify its business and provide more transparent products, helping to
improve service levels and reduce conduct risks, whilst working within a
prudent risk appetite.
Progress against strategic priorities
Leading customer experience
· UK's largest digital bank with 16.4 million active digital
customers and 10.7 million mobile banking app customers, with average customer
logons at 23 times per month and 75 per cent of new products now originated
digitally
· Maintained the largest UK branch network while trialling new branch
formats with the latest flagship Bank of Scotland branch in Glasgow, and Home
by Halifax, an innovative store dedicated to supporting customers purchase a
property
· Branch net promoter score up 5 points with around 50 per cent of
customer facing time being spent on complex needs
· Supporting first time buyers with further £13.8 billion of
lending, building on success of Lloyds Lend a Hand mortgage, launched Halifax
Family Boost mortgage, providing customers' financial supporters with enhanced
savings rates
· Encouraging customers to talk more openly about their finances,
through the launch of the M Word campaign earlier this year and co-funding a
brand new television series with Channel 4 called 'Save Well, Spend Better'
· Reduced complaints (excluding PPI) by 13 per cent in 2019 and
mobile app NPS increased 3 per cent since 2017
Digitising the Group
· Recognised for innovations by being first in the Business Insider
mobile banking study, with recent updates including;
- Push notification alerts helping to plan ahead with upcoming
payment reminders and confirmations
- Statement search helping customers find transactions quicker and
easier, with c.300,000 searches per week
· Remote mortgage applications up 30 per cent, with re-mortgage
applications starting digitally up 50 per cent in value
Maximising Group capabilities
· Acquired Tesco Bank's UK prime residential mortgage book supporting
23,000 new customers
· Completed the integration of MBNA, realising a return on investment
of 18 per cent, ahead of original target
· Renewed the successful Jaguar Land Rover relationship(1)
Transforming ways of working
· Continued progress in 'skills of the future' training delivered to
colleagues with over 750,000 additional hours in 2019
Financial performance
· Net interest income was 3 per cent lower due to a 5 basis point
reduction in net interest margin with continued pressure on mortgages margin,
partly offset by lower funding costs and a benefit from aligning credit card
terms
· Other income reduced 4 per cent reflecting a lower Lex fleet
size. Operating lease depreciation includes an associated benefit, more than
offset by some weakening in used car prices through the first three quarters
of 2019
· Operating costs reduced 3 per cent, as increased investment in
the business was more than offset by efficiency savings. Remediation decreased
11 per cent to £238 million
· Impairment increased 21 per cent, with some weakening in used car
prices, methodology refinements and lower cash recoveries following prior year
debt sales, while underlying drivers remain strong, particularly in the
mortgage book
· Customer lending increased by 1 per cent with the acquisition of
Tesco Bank's mortgage portfolio and growth in UK Motor Finance, partly offset
by closed book mortgages. Organic open mortgage balances remained flat year on
year
· Customer deposits include current account growth, stable
relationship savings and reduced low margin tactical savings
· Risk-weighted assets increased by 5 per cent mainly driven by
mortgage model refinements and the Tesco acquisition
(1) Subject to contract.
Retail performance summary
2019 2018(1) Change
£m £m %
Net interest income 8,807 9,060 (3)
Other income 2,014 2,097 (4)
Operating lease depreciation (946) (921) (3)
Net income 9,875 10,236 (4)
Operating costs (4,760) (4,897) 3
Remediation (238) (267) 11
Total costs (4,998) (5,164) 3
Trading surplus 4,877 5,072 (4)
Impairment (1,038) (861) (21)
Underlying profit 3,839 4,211 (9)
Banking net interest margin 2.63% 2.68% (5)bp
Average interest-earning banking assets £341.6bn £342.3bn -
Asset quality ratio 0.30% 0.25% 5bp
Return on risk-weighted assets 3.99% 4.57% (58)bp
At 31 Dec At 31 Dec
2019 2018 Change
£bn £bn %
Open mortgage book 270.1 266.6 1
Closed mortgage book 18.5 21.2 (13)
Credit cards 17.7 18.1 (2)
UK unsecured loans 8.4 7.9 6
UK Motor Finance 15.6 14.6 7
Business Banking 1.7 1.8 (6)
Overdrafts 1.3 1.3 -
Other(2) 9.0 8.6 5
Loans and advances to customers 342.3 340.1 1
Operating lease assets 4.3 4.7 (9)
Total customer assets 346.6 344.8 1
Current Accounts 76.9 73.7 4
Relationship savings(3) 161.9 162.3 -
Tactical savings 13.3 16.8 (21)
Customer deposits 252.1 252.8 -
Risk-weighted assets 98.4 93.5 5
(1) Prior period comparatives restated. See basis of presentation.
(2) Includes Europe and run-off.
(3) Includes Business Banking.
COMMERCIAL BANKING
Commercial Banking has a client-led, low risk, capital efficient strategy
committed to supporting UK-based clients and international clients with a link
to the UK. Through its segmented client coverage model, it provides clients
with a range of products and services such as lending, transaction banking,
working capital management, risk management and debt capital markets.
Continued investment in capabilities and digital propositions enables the
delivery of a leading customer experience, supported by increasingly
productive relationship managers, with more time spent on value-adding
activity.
Progress against strategic priorities
Leading customer experience
· 95 per cent of SME and Mid Market clients migrated onto
Commercial Banking Online platform with customers now having 24/7 access to
their accounts, and 5 years of transaction history. The platform sees around
130,000 payments processed every day and around 1.2 million log ons per month
· Awarded 'Business Bank of the Year' at the FDs' Excellence Awards
for the 15(th) consecutive year
Digitising the Group
· Cash management and payments API launched, allowing clients to
send faster payments directly from their systems without human intervention
and reducing payment times to 1.5 seconds
· Launched Asset Finance Broker API, linking new business proposals
directly from broker to Group, reducing manual intervention by 87 per cent,
enabling quicker and more accurate credit decisions with real-time updates
· Improved eTrading capability, enabling larger clients to
undertake foreign exchange trades electronically 24 hours per day across
multiple geographies and supporting clients in automating their businesses
Maximising Group capabilities
· Achieved the committed £18 billion gross new lending to UK
businesses; a further £18 billion committed for 2020
· On track to meet the Group's target of £3 billion of investment
in the UK manufacturing sector by the end of 2020
· Over 900 manufacturing apprentices, graduates and engineers
trained since 2018 as a result of the £1 million annual investment in the
Lloyds Bank Advanced Manufacturing Centre
· Beat the sustainability target of supporting energy efficient
improvements for a further one million square feet of commercial real estate
in 2019 and have supported renewable energy projects capable of powering 5
million homes by the end of 2019
Transforming ways of working
· Completed rollout of the SME Business Lending Tool, freeing up
relationship manager time for increased client engagement, and new auto-credit
decisioning capability with around 25 per cent of SME annual renewals now
automated
· Continued progress in developing colleagues with the skills and
capabilities needed for the future, with 210,000 colleague training hours
completed in 2019, exceeding the year-end target
Financial performance
· In challenging market conditions, maintained a strong focus on
risk-weighted asset (RWA) optimisation and actively addressed low returning
client relationships, delivering a significant reduction in RWA of over
£9 billion
· Net interest income of £2,918 million reduced 3 per cent,
reflecting asset margin pressure
· Other income of £1,422 million was 15 per cent lower than in
2018, driven by lower levels of client activity in challenging market
conditions in Global Corporates and Financial Institutions
· Operating costs of £2,081 million reduced 5 per cent, as
increased investment in the business was more than offset by continued focus
on efficiency savings
· Asset quality ratio of 30 basis points was 24 basis points
higher, largely driven by material charges raised against two corporate cases,
with stable underlying portfolio trends
· Return on risk-weighted assets of 2.14 per cent was 36 basis
points lower, despite the acceleration of risk-weighted asset optimisation in
the second half, driven by two material corporate impairment charges
· SME lending balances up c.1 per cent, continuing to grow slightly
ahead of the market
· Customer deposits at £145.1 billion, down 2 per cent, reflecting
funding optimisation activity including a reduction in short-term financial
institutions deposits with growth in current accounts of 3 per cent in the
second half of the year
Commercial Banking performance summary
2019 2018(1) Change
£m £m %
Net interest income 2,918 3,013 (3)
Other income 1,422 1,670 (15)
Operating lease depreciation (21) (35) 40
Net income 4,319 4,648 (7)
Operating costs (2,081) (2,191) 5
Remediation (155) (203) 24
Total costs (2,236) (2,394) 7
Trading surplus 2,083 2,254 (8)
Impairment (306) (71)
Underlying profit 1,777 2,183 (19)
Banking net interest margin 3.14% 3.27% (13)bp
Average interest-earning banking assets £92.2bn £91.2bn 1
Asset quality ratio 0.30% 0.06% 24bp
Return on risk-weighted assets 2.14% 2.50% (36)bp
At 31 Dec At 31 Dec
2019 2018 Change
£bn £bn %
SME 30.4 30.0 1
Mid Markets(2) 29.1 31.7 (8)
Global Corporates and Financial Institutions 30.8 34.4 (10)
Other 5.2 4.3 21
Loans and advances to customers 95.5 100.4 (5)
SME including Retail Business Banking 32.1 31.8 1
Customer deposits 145.1 148.6 (2)
Current accounts including Retail Business Banking 34.9 34.9 -
Other deposits including Retail Business Banking 127.6 130.1 (2)
Risk-weighted assets 77.4 86.5 (11)
(1) Prior period comparatives restated. See basis of presentation.
(2) Includes Mid Corporates (31 December 2019: £5.3 billion; 31 December 2018:
£5.8 billion).
INSURANCE AND WEALTH
Insurance and Wealth offers insurance, investment and wealth management
products and services. It supports over 10 million customers with assets
under administration of £170 billion and annualised annuity payments in
retirement of over £1 billion. The Group continues to invest significantly in
the development of the business, with the aims of capturing considerable
opportunities in pensions and financial planning, offering customers a single
home for their banking and insurance needs and driving growth across
intermediary and relationship channels through a strong distribution model.
Progress against strategic priorities
Leading customer experience
· Scottish Widows now offers its standard annuities on the open
market allowing a wider range of customers to access the product and secure
income for retirement. Aiming to achieve a 15 per cent market share by end
of 2020
· Successful migration of around 400,000 policies from a number of
legacy systems to a single platform managed by the Group's partner Diligenta,
enabling customers to better manage their policies with Scottish Widows
· New 'Plan and Protect' life and critical illness cover launched in
2019 helps create financially resilient families by understanding their needs
and protecting what matters most, providing a safety net if the worst happens
· Scottish Widows won 5 star service awards at the Financial Adviser
Service Awards for the fourth consecutive year
Digitising the Group
· Significant progress on Single Customer View, with home insurance
and individual pension customers added in 2019. Over 5 million customers now
able to access their insurance products alongside their bank account
· Addressing an underserved customer need for home contents insurance
for renters through a partnership with the fintech firm Trov. New online low
cost product offers a flexible on-demand monthly subscription policy
Maximising Group capabilities
· Schroders Personal Wealth launched with ambition of becoming a top
3 financial planning business by end of 2023
· Provided new functionality and customer choice in general insurance
with full rollout in the last quarter of a flexible, multi-channel home
insurance product offering to the branch network
· Continued progress towards target of growing open book assets under
administration by £50 billion by the end of 2020, with strong customer net
inflows of £18 billion (including Zurich transfer) in 2019. Cumulative net
inflows of £30 billion and market movements give overall growth of £37
billion since the start of the current strategic plan in 2018
· Sourced £0.6 billion of new long-term assets in collaboration with
Commercial Banking to support five bulk annuity transactions, generating over
£2 billion of new business premiums
Financial performance
· Strong growth in life and pensions sales, up 22 per cent, driven by
increases in new members in existing workplace schemes, increased auto
enrolment workplace contributions and bulk annuities. On track to achieve 15
per cent market share of workplace business by end of 2020 compared to 10 per
cent market share at start of 2018
· New underwritten household premiums increased 19 per cent,
resulting in number one market share for new business earlier than expected;
total underwritten premiums decreased 3 per cent driven by a competitive
renewal market
· Life and pensions new business income up 19 per cent to £628
million. Lower existing business income due to equity hedging strategy to
reduce capital and earnings volatility. Higher experience and other items
includes one-off benefit from the change in investment management provider.
General insurance benefitted from benign weather in 2019
· Wealth income and operating costs impacted by the transfer of
assets to Schroders Personal Wealth in October 2019
· Underlying profit increased by 19 per cent to £1,101 million. Net
income increased by £145 million to £2,133 million, whilst operating costs
decreased by £39 million with cost savings offsetting higher investment in
the business
Insurance capital
· Estimated pre final dividend Solvency II ratio of 170 per cent. The
rise in the ratio over 2019 includes the impact of an equity hedge partly
offset by lower long term interest rates. A final dividend of £250 million
and a special dividend of £185 million related to the gain on the
establishment of the Schroders Personal Wealth joint venture, were paid to the
Group in February 2020, with total dividends paid in respect of 2019
performance of £535 million.
Insurance and Wealth performance summary
2019 2018 Change
£m £m %
Net interest income 112 123 (9)
Other income 2,021 1,865 8
Net income 2,133 1,988 7
Operating costs (982) (1,021) 4
Remediation (50) (39) (28)
Total costs (1,032) (1,060) 3
Trading surplus 1,101 928 19
Impairment - (1)
Underlying profit 1,101 927 19
Life and pensions sales (PVNBP)(1) 17,515 14,384 22
General insurance underwritten new GWP(2) 127 107 19
General insurance underwritten total GWP(2) 671 690 (3)
General insurance combined ratio 82% 89% (7)pp
At 31 Dec At 31 Dec
2019 2018 Change
£bn £bn %
Insurance Solvency II ratio(3) 170% 165% 5pp
UK Wealth Loans and advances to customers 0.9 0.9 -
UK Wealth Customer deposits 13.7 14.1 (3)
UK Wealth Risk-weighted assets 1.3 1.2 8
Total customer assets under administration 170.0 141.3 20
Income by product group
2019 2018
New Existing New Existing
business business Total business business Total
£m £m £m £m £m £m
Workplace, planning and retirement 387 120 507 333 153 486
Individual and bulk annuities 209 68 277 160 84 244
Protection 21 24 45 20 22 42
Longstanding LP&I 11 384 395 13 414 427
628 596 1,224 526 673 1,199
Life and pensions experience and other items 255 143
General insurance 326 272
1,805 1,614
Wealth 328 374
Net income 2,133 1,988
(1) Present value of new business premiums. Further information on page 60.
(2) Gross written premiums.
(3) Equivalent regulatory view of ratio (including With Profits funds) at 31
December 2019 was 154 per cent (31 December 2018: 156 per cent).
CENTRAL ITEMS
2019 2018(1) Change
£m £m %
Net income 815 896 (9)
Operating costs (52) (56) 7
Remediation (2) (91) 98
Total costs (54) (147) 63
Trading surplus 761 749 2
Impairment 53 (4)
Underlying profit 814 745 9
(1) Prior periods restated. See basis of presentation.
Central items includes income and expenditure not attributed to divisions,
including the costs of certain central and head office functions, and the
Group's private equity business, Lloyds Development Capital.
Net income includes the central recovery of the Group's distributions on other
equity instruments and gains and losses on the sale of gilts and other liquid
assets.
During 2019, impairment included releases relating to the reassessment of
credit risk associated with debt instruments held within the Group's equity
investments business.
OTHER FINANCIAL INFORMATION
1. Reconciliation between statutory and underlying
basis results
The tables below set out the reconciliation from the statutory results to the
underlying basis results, the principles of which are set out on the inside
front cover.
Removal of:
Volatility
Statutory and other Insurance Underlying
basis items(1,2) gross up(3) PPI basis
2019 £m £m £m £m £m
Net interest income 10,180 379 1,818 - 12,377
Other income, net of insurance claims 8,179 (426) (2,021) - 5,732
Operating lease depreciation (967) - - (967)
Net income 18,359 (1,014) (203) - 17,142
Operating expenses(4) (12,670) 1,697 203 2,450 (8,320)
Trading surplus 5,689 683 - 2,450 8,822
Impairment (1,296) 5 - - (1,291)
Profit before tax 4,393 688 - 2,450 7,531
2018
Net interest income 13,396 152 (834) - 12,714
Other income, net of insurance claims 5,230 107 673 - 6,010
Operating lease depreciation (956) - - (956)
Net income 18,626 (697) (161) - 17,768
Operating expenses(4) (11,729) 2,053 161 750 (8,765)
Trading surplus 6,897 1,356 750 9,003
Impairment (937) - - - (937)
Profit before tax 5,960 1,356 - 750 8,066
(1) In the year ended 31 December 2019 this comprises the effects of market
volatility and asset sales (gains of £126 million); the amortisation of
purchased intangibles (£68 million); restructuring (£471 million, comprising
severance related costs, the integration of Zurich's UK workplace pensions and
savings business and costs associated with the establishment of the Schroders
Personal Wealth Joint venture); and the fair value unwind and other items
(losses of £275 million).
(2) In the year ended 31 December 2018 this comprises the effects of market
volatility and asset sales (losses of £50 million); the amortisation of
purchased intangibles (£108 million); restructuring (£879 million,
comprising severance related costs, the rationalisation of the non-branch
property portfolio, the work on implementing the ring-fencing requirements and
the integration of MBNA and Zurich's UK workplace pensions and savings
business); and the fair value unwind and other items (losses of
£319 million).
(3) The Group's insurance businesses' income statements include income and
expenditure which are attributable to the policyholders of the Group's
long-term assurance funds. These items have no impact in total upon the profit
attributable to equity shareholders and, in order to provide a clearer
representation of the underlying trends within the business, these items are
shown net within the underlying results.
(4) The statutory basis figure is the aggregate of operating costs and operating
lease depreciation.
OTHER FINANCIAL INFORMATION (continued)
2. Banking net interest margin and average interest-earning
assets
2019 2018
Group net interest income - statutory basis (£m) 10,180 13,396
Insurance gross up (£m) 1,818 (834)
Volatility and other items (£m) 379 152
Group net interest income - underlying basis (£m) 12,377 12,714
Non-banking net interest expense (£m)(1) 145 54
Banking net interest income - underlying basis (£m) 12,522 12,768
Net loans and advances to customers (£bn)(2) 440.4 444.4
Impairment provision and fair value adjustments (£bn) 3.9 4.0
Non-banking items:
Fee-based loans and advances (£bn) (6.3) (7.2)
Other non-banking (£bn) (3.1) (4.7)
Gross banking loans and advances (£bn) 434.9 436.5
Averaging (£bn) (0.2) (0.5)
Average interest-earning banking assets (£bn) 434.7 436.0
Banking net interest margin (%) 2.88 2.93
(1) 2019 includes impact from the implementation of IFRS 16.
(2) Excludes reverse repos.
3. Volatility arising in insurance businesses
Volatility included in the Group's statutory results before tax comprises the
following:
2019 2018
£m £m
Insurance volatility 230 (506)
Policyholder interests volatility 193 46
Total volatility 423 (460)
Insurance hedging arrangements (347) 357
Total 76 (103)
The Group's insurance business has policyholder liabilities that are supported
by substantial holdings of investments. IFRS requires that the changes in both
the value of the liabilities and investments are reflected within the income
statement. The value of the liabilities does not move exactly in line with
changes in the value of the investments. As the investments are substantial,
movements in their value can have a significant impact on the profitability of
the Group. Management believes that it is appropriate to disclose the
division's results on the basis of an expected return. The impact of the
actual return on these investments differing from the expected return is
included within insurance volatility.
In-year volatility movements were largely driven by insurance volatility
arising from interest rate and credit spread movements. The capital impact of
equity market movements is now hedged within Insurance and this also reduces
the IFRS earnings exposure to equity market movements.
The Group actively manages its exposures to interest rate, foreign currency
exchange rate, inflation and market movements within the banking book through
a comprehensive hedging strategy. This helps to mitigate earnings volatility
and reduces the impact of market movements on the capital position.
OTHER FINANCIAL INFORMATION (continued)
4. Tangible net assets per share
The table below sets out a reconciliation of the Group's shareholders' equity
to its tangible net assets.
At 31 Dec At 31 Dec
2019 2018
£m £m
Shareholders' equity 41,697 43,434
Goodwill (2,324) (2,310)
Intangible assets (3,808) (3,347)
Purchased value of in-force business (247) (271)
Other, including deferred tax effects 269 228
Tangible net assets 35,587 37,734
Ordinary shares in issue, excluding own shares 70,031m 71,149m
Tangible net assets per share 50.8p 53.0p
5. Return on tangible equity
2019 2018
Average shareholders' equity (£bn) 43.0 43.0
Average intangible assets (£bn) (5.9) (5.4)
Average tangible equity (£bn) 37.1 37.6
Underlying profit after tax (£m)(1) 5,690 6,057
Add back amortisation of intangible assets (post tax) (£m) 364 296
Less profit attributable to non-controlling interests and other equity holders (547) (531)
(£m)(1)
Adjusted underlying profit after tax (£m) 5,507 5,822
Underlying return on tangible equity (%) 14.8 15.5
Group statutory profit after tax (£m)(1) 3,006 4,506
Add back amortisation of intangible assets (post tax) (£m) 364 296
Add back amortisation of purchased intangible assets (post tax) (£m) 74 111
Less profit attributable to non-controlling interests and other equity holders (547) (531)
(£m)(1)
Adjusted statutory profit after tax (£m) 2,897 4,382
Statutory return on tangible equity (%) 7.8 11.7
(1) Prior period restated to reflect amendments to IAS 12, see basis of
presentation.
6. Share buyback
During 2019, the Group completed £1.1 billion of the announced up to £1.75
billion share buyback programme, with an average price paid of 57.89 pence per
share. Through a reduction in the weighted average number of ordinary shares
in issue, share buybacks have the effect of increasing earnings per share and,
depending on the average price paid per share, can either increase or decrease
the tangible net assets per share. The 2019 share buyback had the effect of
increasing the earnings per share by 0.1 pence and decreasing the tangible net
assets per share by 0.2 pence.
RISK MANAGEMENT
CREDIT RISK PORTFOLIO
Overview
· Credit quality remains strong despite an uncertain environment
· The Group's loan portfolios continue to be well positioned,
reflecting the Group's effective risk management and continue to benefit from
a low interest rate environment
· The net asset quality ratio increased to 29 basis points (2018: 21
basis points) as did the impairment charge to £1,291 million (2018: £937
million). This was primarily driven by material charges against two corporate
cases in Commercial Banking, along with some weakening in used car prices in
Retail
· Stage 2 loans as a proportion of total loans and advances to
customers reduced by 0.1 percentage points to 7.7 per cent (31 December 2018:
7.8 per cent). Stage 2 loans and advances were broadly flat at £38.4 billion
· Stage 2 expected credit loss allowances as a percentage of drawn
balances (coverage) decreased to 3.7 per cent (31 December 2018: 4.1 per
cent) largely driven by a reduction in expected credit loss (ECL) allowances
in SME due to an enhanced approach to loan amortisation within the IFRS 9
model and a number of other model refinements
· Stage 3 loans as a proportion of total loans and advances to
customers fell to 1.8 per cent (31 December 2018: 1.9 per cent), with Stage
3 loans and advances down £0.5 billion to £8.8 billion. Coverage of Stage 3
assets reduced by 1.8 percentage points to 22.5 per cent largely as a result
of the improved performance of mortgage cases in long-term default, and a
change in the mix of Commercial assets due to a combination of write-offs and
the transfer in of cases with lower likelihood of net loss
Low risk culture and prudent risk appetite
· The Group continues to take a prudent approach to credit risk, with
robust credit quality and affordability controls at origination and a prudent
through the cycle credit risk appetite
· Although not immune, credit portfolios are well positioned against
an uncertain economic outlook and potential market volatility
· The Group continues to grow lending to targeted segments in line
with strategy, without relaxing credit criteria
· The Group's effective risk management seeks to ensure early
identification and management of customers and counterparties who may be
showing signs of distress
· Sector concentrations within the portfolios are closely monitored
and controlled, with mitigating actions taken where appropriate. Sector and
product caps limit exposure to certain higher risk and vulnerable sectors and
asset classes
Impairment charge by division
Financial
assets at
Loans fair value
and through other
advances comprehensive Undrawn 2019
to customers income balances Total 2018(1)
£m £m £m £m £m
Retail 1,063 - (25) 1,038 861
Commercial Banking 297 (1) 10 306 71
Insurance and Wealth - - - - 1
Central Items (53) - - (53) 4
Total impairment charge 1,307 (1) (15) 1,291 937
Asset quality ratio 0.29% 0.21%
Gross asset quality ratio 0.37% 0.28%
(1) Segmental comparatives restated. See basis of presentation.
CREDIT RISK PORTFOLIO (continued)
Credit Risk basis of presentation
The analyses which follow have been presented on two bases; the statutory
basis which is consistent with the presentation in the Group's accounts and
the underlying basis which is used for internal management purposes.
Reconciliations between the two bases have been provided.
In the following statutory basis tables, purchased or originated
credit-impaired (POCI) assets include a fixed pool of mortgages that were
purchased as part of the HBOS acquisition at a deep discount to face value
reflecting credit losses incurred from the point of origination to the date of
acquisition. The residual expected credit loss (ECL) allowance and resulting
low coverage ratio on POCI assets reflects further deterioration in the
creditworthiness from the date of acquisition. Over time, these POCI assets
will run off as the loans redeem, pay down or losses are crystallised.
The Group uses the underlying basis to monitor the creditworthiness of the
lending portfolio and related ECL allowances because it provides a better
indication of the credit performance of the POCI assets purchased as part of
the HBOS acquisition. The underlying basis assumes that the lending assets
acquired as part of a business combination were originated by the Group and
are classified as either Stage 1, 2 or 3 according to the change in credit
risk over the period since origination. Underlying ECL allowances have been
calculated accordingly.
Group loans and advances to customers - statutory basis
Stage 2 Stage 3
Total Stage 1 Stage 2 Stage 3 POCI as % of as % of
£m £m £m £m £m total total
At 31 December 2019
Retail 344,218 305,502 22,518 2,484 13,714 6.5 0.7
Commercial Banking 96,763 87,323 5,993 3,447 - 6.2 3.6
Insurance and Wealth 862 753 32 77 - 3.7 8.9
Central items 56,404 56,397 - 7 - - -
Total gross lending 498,247 449,975 28,543 6,015 13,714 5.7 1.2
ECL allowance on drawn balances (3,259) (675) (995) (1,447) (142)
Net balance sheet carrying value 494,988 449,300 27,548 4,568 13,572
ECL allowances (drawn and undrawn) as a percentage of gross lending (%)(1) 0.7 0.2 3.8 25.0 1.0
At 31 December 2018(2)
Retail 341,682 305,160 18,741 2,390 15,391 5.5 0.7
Commercial Banking 101,824 92,002 6,592 3,230 - 6.5 3.2
Insurance and Wealth 865 804 6 55 - 0.7 6.4
Central items 43,637 43,565 6 66 - - 0.2
Total gross lending 488,008 441,531 25,345 5,741 15,391 5.2 1.2
ECL allowance on drawn balances (3,150) (525) (994) (1,553) (78)
Net balance sheet carrying value 484,858 441,006 24,351 4,188 15,313
ECL allowances (drawn and undrawn) as a percentage of gross lending (%)(1) 0.7 0.1 4.2 28.4 0.5
(1) Stage 3 ECL allowances as a percentage of drawn balances are calculated
excluding loans in recoveries in Retail of £205 million (31 December 2018:
( ) £250 million).
(2) Segmental comparatives restated. See basis of presentation.
( )
CREDIT RISK PORTFOLIO (continued)
Group loans and advances to customers - underlying basis
Stage 2 Stage 3
Total Stage 1 Stage 2 Stage 3 as % of as % of
£m £m £m £m total total
At 31 December 2019(1)
Retail 344,776 307,138 32,415 5,223 9.4 1.5
Commercial Banking 96,763 87,323 5,993 3,447 6.2 3.6
Insurance and Wealth 862 753 32 77 3.7 8.9
Central items 56,404 56,397 - 7 - -
Total gross lending 498,805 451,611 38,440 8,754 7.7 1.8
ECL allowance on drawn balances (3,965) (702) (1,346) (1,917)
Net balance sheet carrying value 494,840 450,909 37,094 6,837
ECL allowances (drawn and undrawn) as a percentage of gross lending (%)(2) 0.8 0.2 3.7 22.5
At 31 December 2018(1,3)
Retail 342,559 305,048 31,647 5,864 9.2 1.7
Commercial Banking 101,824 92,002 6,592 3,230 6.5 3.2
Insurance and Wealth 865 804 6 55 0.7 6.4
Central items 43,637 43,565 6 66 - 0.2
Total gross lending 488,885 441,419 38,251 9,215 7.8 1.9
ECL allowance on drawn balances (4,236) (556) (1,506) (2,174)
Net balance sheet carrying value 484,649 440,863 36,745 7,041
ECL allowances (drawn and undrawn) as a percentage of gross lending (%)(2) 0.9 0.2 4.1 24.3
(1) These balances exclude the impact of the HBOS and MBNA acquisition related
adjustments.
(2) Stage 3 ECL allowances as a percentage of drawn balances are calculated
excluding loans in recoveries in Retail of £205 million (31 December 2018:
£250 million).
(3) Segmental comparatives restated. See basis of presentation.
Group total expected credit loss allowance - statutory basis
At 31 Dec At 31 Dec
2019 2018
£m £m
Customer related balances
Drawn 3,259 3,150
Undrawn 177 193
3,436 3,343
Other assets 19 19
Total ECL allowance 3,455 3,362
CREDIT RISK PORTFOLIO (continued)
Group total expected credit loss allowance - underlying basis
At 31 Dec At 31 Dec
2019 2018
£m £m
Customer related balances
Drawn 3,965 4,236
Undrawn 177 193
4,142 4,429
Other assets 19 19
Total ECL allowance 4,161 4,448
Reconciliation between statutory and underlying basis of Group gross loans and
advances to customers
Total Stage 1 Stage 2 Stage 3 POCI
£m £m £m £m £m
At 31 December 2019
Underlying basis 498,805 451,611 38,440 8,754 -
POCI assets - (1,718) (9,903) (2,740) 14,361
Acquisition fair value adjustment (558) 82 6 1 (647)
(558) (1,636) (9,897) (2,739) 13,714
Statutory basis 498,247 449,975 28,543 6,015 13,714
At 31 December 2018
Underlying basis 488,885 441,419 38,251 9,215 -
POCI assets - - (12,917) (3,476) 16,393
Acquisition fair value adjustment (877) 112 11 2 (1,002)
(877) 112 (12,906) (3,474) 15,391
Statutory basis 488,008 441,531 25,345 5,741 15,391
Reconciliation between statutory and underlying basis of Group expected credit
loss allowances on drawn balances
Total Stage 1 Stage 2 Stage 3 POCI
£m £m £m £m £m
At 31 December 2019
Underlying basis 3,965 702 1,346 1,917 -
POCI assets - - (334) (455) 789
Acquisition fair value adjustment (706) (27) (17) (15) (647)
(706) (27) (351) (470) 142
Statutory basis 3,259 675 995 1,447 142
At 31 December 2018
Expected credit losses on drawn balances
Underlying basis 4,236 556 1,506 2,174 -
POCI assets - - (481) (599) 1,080
Acquisition fair value adjustment (1,086) (31) (31) (22) (1,002)
(1,086) (31) (512) (621) 78
Statutory basis 3,150 525 994 1,553 78
CREDIT RISK PORTFOLIO (continued)
Group expected credit loss allowances (drawn and undrawn) as a percentage of
loans and advances to customers - statutory basis
Total Stage 1 Stage 2 Stage 3 POCI
£m %(1) £m %(1) £m %(1) £m %(1,2) £m %(1)
At 31 December 2019
Retail 2,090 0.6 639 0.2 819 3.6 490 21.5 142 1.0
Commercial Banking 1,313 1.4 115 0.1 252 4.2 946 27.4 - -
Insurance and Wealth 17 2.0 6 0.8 1 3.1 10 13.0 - -
Central items 16 - 10 - - - 6 85.7 - -
Total 3,436 0.7 770 0.2 1,072 3.8 1,452 25.0 142 1.0
At 31 December 2018(1,3)
Retail 1,768 0.5 493 0.2 713 3.8 484 22.6 78 0.5
Commercial Banking 1,486 1.5 111 0.1 338 5.1 1,037 32.1 - -
Insurance and Wealth 18 2.1 6 0.7 1 16.7 11 20.0 - -
Central items 71 0.2 38 0.1 6 100.0 27 40.9 - -
Total 3,343 0.7 648 0.1 1,058 4.2 1,559 28.4 78 0.5
(1) As a percentage of drawn balances.
(2) Stage 3 ECL allowances as a percentage of drawn balances are calculated
excluding loans in recoveries in Retail of £205 million (31 December 2018:
£250 million).
(3) Segmental comparatives restated. See basis of presentation.
Group expected credit loss allowances (drawn and undrawn) as a percentage of
loans and advances to customers - underlying basis
Total Stage 1 Stage 2 Stage 3
£m %(2) £m %(2) £m %(2) £m %(2,3)
At 31 December 2019(1)
Retail 2,796 0.8 666 0.2 1,170 3.6 960 19.1
Commercial Banking 1,313 1.4 115 0.1 252 4.2 946 27.4
Insurance and Wealth 17 2.0 6 0.8 1 3.1 10 13.0
Central items 16 - 10 - - - 6 85.7
Total 4,142 0.8 797 0.2 1,423 3.7 1,922 22.5
At 31 December 2018(1,4)
Retail 2,854 0.8 524 0.2 1,225 3.9 1,105 19.7
Commercial Banking 1,486 1.5 111 0.1 338 5.1 1,037 32.1
Insurance and Wealth 18 2.1 6 0.7 1 16.7 11 20.0
Central items 71 0.2 38 0.1 6 100.0 27 40.9
Total 4,429 0.9 679 0.2 1,570 4.1 2,180 24.3
(1) Balances exclude the impact of the HBOS and MBNA related acquisition
adjustments.
(2) As a percentage of drawn balances.
(3) Stage 3 ECL allowances as a percentage of drawn balances are calculated
excluding loans in recoveries in Retail of £205 million (31 December 2018:
£250 million).
(4) Segmental comparatives restated. See basis of presentation.
CREDIT RISK PORTFOLIO (continued)
Additional information
The measurement of ECL reflects an unbiased probability-weighted range of
possible future economic outcomes. The Group achieves this by selecting four
economic scenarios to reflect the range of outcomes; the central scenario
reflects the Group's base case assumptions used for medium term planning
purposes, an upside and a downside scenario are also selected together with a
severe downside scenario. The base case, upside and downside scenarios carry a
30 per cent weighting; the severe downside is weighted at 10 per cent. The
table below shows the decomposition of the final probability-weighted ECL for
each forward-looking economic scenario. The stage allocation for an asset is
based on the overall scenario probability-weighted PD and, hence, the Stage 2
allocation is constant across all the scenarios.
The table below shows the ECL calculated under each scenario on both an
underlying and a statutory basis.
Probability- Severe
weighted Upside Base case Downside Downside
£m £m £m £m £m
Statutory basis
Secured 569 317 464 653 1,389
Other Retail 1,521 1,443 1,492 1,564 1,712
Commercial 1,315 1,211 1,258 1,382 1,597
Other 50 50 50 50 50
At 31 December 2019 3,455 3,021 3,264 3,649 4,748
Probability- Severe
weighted Upside Base case Downside Downside
£m £m £m £m £m
Underlying basis
Secured 1,216 964 1,111 1,300 2,036
Other Retail 1,580 1,502 1,551 1,623 1,771
Commercial 1,315 1,211 1,258 1,382 1,597
Other 50 50 50 50 50
At 31 December 2019 4,161 3,727 3,970 4,355 5,454
FUNDING AND LIQUIDITY MANAGEMENT
The Group has maintained its strong funding and liquidity position with a
stable loan to deposit ratio of 107 per cent.
During 2019, the Group repaid its Funding for Lending Scheme (FLS) contractual
maturities of £12.1 billion and early repaid £4.5 billion of its Term
Funding Scheme (TFS) drawings, representing all of its 2020 TFS maturities.
This has reduced the balance of FLS outstanding to £1 billion and the
balance of TFS to £15.4 billion as at 31 December 2019.
The Group's liquidity coverage ratio (LCR) was 137 per cent (based on a
monthly rolling average over the previous 12 months) as at 31 December 2019,
calculated on a consolidated basis based on the EU Delegated Act. Following
the implementation of structural reform, liquidity risk is managed at a legal
entity level with the Group consolidated LCR representing the composite of the
ring-fenced bank and non ring-fenced bank entities.
The Group's credit ratings continue to reflect its robust balance sheet,
resilient underlying profitability and bail-in capital position. There were no
changes to the ratings over 2019, although in November Moody's revised the
Group's and Lloyds Bank plc's outlooks to negative due to concern relating to
the UK's exit from the European Union. In March Fitch placed the majority of
UK banks, including the Group's entities, on Ratings Watch Negative before
stabilising the ratings in December as future economic and political direction
became clearer.
CAPITAL MANAGEMENT
Analysis of capital position
The Group's pro forma CET1 capital build amounted to 207 basis points before
PPI, and to 86 basis points after the in-year PPI charge, reflecting:
· underlying capital build (198 basis points), including the dividend
paid up by the Insurance business in February 2020 in relation to its 2019
earnings (18 basis points)
· other movements (20 basis points), reflecting market movements and
the continued optimisation of Commercial Banking risk-weighted assets, net of
additional pension contributions and model updates
· offset by a reduction of 121 basis points relating to the in-year
PPI charge and 11 basis points relating to the impact of the implementation of
IFRS 16 on risk-weighted assets
The Group's capital position also benefitted by 34 basis points as a result of
the cancellation of the remaining c.£650 million of the 2019 buyback
programme, as announced in September 2019. The Group used 9 basis points of
capital for the acquisition of Tesco Bank's UK prime residential mortgage
portfolio.
Overall the Group's CET1 capital ratio is 15.0 per cent on a pro forma basis
before ordinary dividends and 13.8 per cent on a pro forma basis after
ordinary dividends (31 December 2018: 13.9 per cent pro forma, after ordinary
dividends and incorporating the effects of the share buyback announced in
February 2019).
Excluding the Insurance dividend paid in February 2020 the Group's actual CET1
ratio is 13.6 per cent after ordinary dividends (31 December 2018: 14.6 per
cent).
The accrual for foreseeable dividends reflects the recommended final ordinary
dividend of 2.25 pence per share.
The transitional total capital ratio, after ordinary dividends, reduced to
21.3 per cent (21.5 per cent on a pro forma basis), largely reflecting the
reduction in CET1 capital and the net reduction in AT1 capital instruments,
partially offset by the reduction in risk-weighted assets.
The UK leverage ratio, after ordinary dividends, reduced from 5.6 per cent on
a pro forma basis to 5.2 per cent on a pro forma basis, largely reflecting the
reduction in the fully loaded tier 1 capital position, partially offset by a
reduction in the exposure measure.
CAPITAL MANAGEMENT (continued)
Target capital ratio
The Board's view of the ongoing level of CET1 capital required by the Group to
grow the business, meet regulatory requirements and cover uncertainties
continues to be c.12.5 per cent plus a management buffer of c.1 per cent. This
takes into account, amongst other things:
· the minimum Pillar 1 CET1 capital requirement of 4.5 per cent of
risk‑weighted assets
· the Group's Pillar 2A set by the PRA. During the year the PRA
reduced the Group's Pillar 2A requirement from 4.7 per cent to 4.6 per cent
of risk-weighted assets at 31 December 2019, of which 2.6 per cent must be met
by CET1 capital
· the capital conservation buffer (CCB) requirement of 2.5 per cent
of risk-weighted assets
· the Group's current countercyclical capital buffer (CCYB)
requirement of 0.9 per cent of risk-weighted assets, which is set to increase
following the FPC's decision to increase the UK CCYB rate from 1.0 per cent
to 2.0 per cent, effective from December 2020. In conjunction the PRA will
consult during 2020 on a proposed reduction in Pillar 2A total capital
requirements by 50 per cent of this increase in the CCYB, equivalent to
reducing the Pillar 2A CET1 requirement by 28 per cent of the increase.
· the RFB sub-group's systemic risk buffer (SRB) of 2.0 per cent of
risk-weighted assets, which equates to 1.7 per cent of risk-weighted assets at
Group level
· the Group's PRA Buffer, which the PRA sets after taking account of
the results of the annual PRA stress test and other information, as well as
outputs from the Group's internal stress tests. The PRA requires the PRA
Buffer itself to remain confidential between the Group and the PRA
Capital resources
An analysis of the Group's capital position as at 31 December 2019 is
presented in the following section on both a CRD IV transitional arrangements
basis and a CRD IV fully loaded basis, as amended by provisions of the revised
Capital Requirements Regulation (CRR II) that came into force in June 2019. In
addition the Group's capital position reflects the application of the
transitional arrangements for IFRS 9.
The following table summarises the consolidated capital position of the Group.
CAPITAL MANAGEMENT (continued)
Transitional Fully loaded
At 31 Dec At 31 Dec At 31 Dec At 31 Dec
2019 2018 2019 2018
£m £m £m £m
Common equity tier 1
Shareholders' equity per balance sheet 41,697 43,434 41,697 43,434
Adjustment to retained earnings for foreseeable dividends (1,586) (1,523) (1,586) (1,523)
Deconsolidation adjustments(1) 2,337 2,273 2,337 2,273
Adjustment for own credit 26 (280) 26 (280)
Cash flow hedging reserve (1,504) (1,051) (1,504) (1,051)
Other adjustments 247 (19) 247 (19)
41,217 42,834 41,217 42,834
less: deductions from common equity tier 1
Goodwill and other intangible assets (4,179) (3,667) (4,179) (3,667)
Prudent valuation adjustment (509) (529) (509) (529)
Excess of expected losses over impairment provisions and value adjustments (243) (27) (243) (27)
Removal of defined benefit pension surplus (531) (994) (531) (994)
Securitisation deductions (185) (191) (185) (191)
Significant investments(1) (4,626) (4,222) (4,626) (4,222)
Deferred tax assets (3,200) (3,037) (3,200) (3,037)
Common equity tier 1 capital 27,744 30,167 27,744 30,167
Additional tier 1
Other equity instruments 5,881 6,466 5,881 6,466
Preference shares and preferred securities(2) 4,127 4,008 - -
Transitional limit and other adjustments (2,474) (1,804) - -
7,534 8,670 5,881 6,466
less: deductions from tier 1
Significant investments(1) (1,286) (1,298) - -
Total tier 1 capital 33,992 37,539 33,625 36,633
Tier 2
Other subordinated liabilities(2) 13,003 13,648 13,003 13,648
Deconsolidation of instruments issued by insurance entities(1) (1,796) (1,767) (1,796) (1,767)
Adjustments for transitional limit and non-eligible instruments 2,278 1,504 (2,204) (1,266)
Amortisation and other adjustments (3,101) (2,717) (3,101) (2,717)
10,384 10,668 5,902 7,898
less: deductions from tier 2
Significant investments(1) (960) (973) (2,246) (2,271)
Total capital resources 43,416 47,234 37,281 42,260
Risk-weighted assets (unaudited) 203,431 206,366 203,431 206,366
Common equity tier 1 capital ratio(3) 13.6% 14.6% 13.6% 14.6%
Tier 1 capital ratio 16.7% 18.2% 16.5% 17.8%
Total capital ratio 21.3% 22.9% 18.3% 20.5%
(1) For regulatory capital purposes, the Group's Insurance business is
deconsolidated and replaced by the amount of the Group's investment in the
business. A part of this amount is deducted from capital (via 'significant
investments' in the table above) and the remaining amount is risk-weighted,
forming part of threshold risk-weighted assets.
(2) Preference shares, preferred securities and other subordinated liabilities are
categorised as subordinated liabilities in the balance sheet.
(3) The common equity tier 1 ratio is 13.8 per cent on a pro forma basis upon
recognition of the dividend paid by the Insurance business in February 2020 in
relation to its 2019 earnings (31 December 2018: 13.9 per cent pro forma,
incorporating the effects of the share buyback announced in February 2019).
CAPITAL MANAGEMENT (continued)
Minimum requirement for own funds and eligible liabilities (MREL)
As the Group is not classified as a global systemically important bank (G-SIB)
it is not directly subject to the CRR II MREL requirements that came into
force in June 2019. However the Group remains subject to the Bank of England's
MREL statement of policy (MREL SoP) and must therefore maintain a minimum
level of MREL resources from 1 January 2020.
Applying the Bank of England's MREL SoP to current minimum capital
requirements, the Group's indicative MREL requirement, excluding regulatory
capital and leverage buffers, is as follows:
· from 1 January 2020, the higher of 2 times Pillar 1 plus Pillar 2A,
equivalent to 20.6 per cent of risk-weighted assets, or 6.5 per cent of the UK
leverage ratio exposure measure
· from 1 January 2022, the higher of 2 times Pillar 1 plus 2 times
Pillar 2A, equivalent to 25.2 per cent of risk-weighted assets, or 6.5 per
cent of the UK leverage ratio exposure measure.
In addition, CET1 capital cannot be used to meet both MREL requirements and
capital or leverage buffers.
The Bank of England will review the calibration of MREL in 2020 before setting
final end-state requirements to be met from 2022. This review will take into
consideration any changes to the capital framework, including the finalisation
of the Basel III reforms.
An analysis of the Group's current transitional MREL position is provided in
the table below.
Transitional(2)
At 31 Dec At 31 Dec
2019 2018
£m £m
Total capital resources (transitional basis) 43,416 47,234
Ineligible AT1 and tier 2 instruments(1) (874) (613)
Amortised portion of eligible tier 2 instruments issued by Lloyds Banking 24 -
Group plc
Senior unsecured securities issued by Lloyds Banking Group plc 23,554 20,213
Total MREL resources(2) 66,120 66,834
Risk-weighted assets 203,431 206,366
MREL ratio(3) 32.5% 32.4%
Leverage exposure measure 654,387 663,277
MREL leverage ratio 10.1% 10.1%
(1) Instruments with less than one year to maturity or governed under non-EEA law
without a contractual bail-in clause.
(2) Until 2022, externally issued regulatory capital in operating entities can
count towards the Group's MREL to the extent that such capital would count
towards the Group's consolidated capital resources.
(3) The MREL ratio is 32.6 per cent on a pro forma basis upon recognition of the
dividend paid up by the Insurance business in February 2020 in relation to its
2019 earnings (31 December 2018: 32.6 per cent pro forma).
During 2019, the Group issued externally £3.5 billion (sterling equivalent)
of senior unsecured securities from Lloyds Banking Group plc which, while not
included in total capital, are eligible to meet MREL requirements. Combined
with previous issuances made over the last few years the Group remains
comfortably positioned to meet MREL requirements from 1 January 2020 and, as
at 31 December 2019, had a transitional MREL ratio of 32.5 per cent of
risk-weighted assets.
CAPITAL MANAGEMENT (continued)
Risk-weighted assets
At 31 Dec At 31 Dec
2019 2018
£m £m
Foundation Internal Ratings Based (IRB) Approach 53,842 60,555
Retail IRB Approach 63,208 59,522
Other IRB Approach 18,544 15,666
IRB Approach 135,594 135,743
Standardised (STA) Approach 24,420 25,757
Credit risk 160,014 161,500
Counterparty credit risk 5,083 5,718
Contributions to the default fund of a central counterparty 210 830
Credit valuation adjustment risk 584 702
Operational risk 25,482 25,505
Market risk 1,790 2,085
Underlying risk-weighted assets 193,163 196,340
Threshold risk-weighted assets(1) 10,268 10,026
Total risk-weighted assets 203,431 206,366
(1) 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. Significant investments primarily arise from
investment in the Group's Insurance business.
Stress testing
The Group undertakes a wide-ranging programme of stress testing providing a
comprehensive view of the potential impacts arising from the risks to which
the Group and its key legal entities are exposed. One of the most important
uses of stress testing is to assess the resilience of the operational and
strategic plans of the Group and its legal entities to adverse economic
conditions and other key vulnerabilities. As part of this programme the Group
conducted a macroeconomic stress test of the four year operating plan in the
first quarter of the year.
The Group also participates in the UK wide Annual Cyclical Scenario stress
tests run by the Bank of England. In the 2019 Bank of England stress test the
Group exceeded the capital and leverage hurdles on a transitional basis after
the application of management actions and was not required to take any action
as a result of the test.
For the Annual Cyclical Scenario stress tests, the Bank of England has taken
action to avoid an unwarranted de facto increase in capital requirements that
could result from the interaction of IFRS 9. Under this scenario, the stress
hurdle rates for banks participating in the exercise are adjusted to recognise
the additional resilience provided by the earlier provisions taken under IFRS
9. The Bank of England is considering options for a more enduring treatment of
IFRS 9 provisions in the capital framework and alternative options will be
explored further during the 2020 Bank of England annual stress test.
Leverage ratio
The Group is currently subject to the following minimum requirements under the
UK Leverage Ratio Framework:
· a minimum leverage ratio requirement of 3.25 per cent of the total
leverage exposure measure
· a countercyclical leverage buffer (CCLB) of 0.3 per cent of the
total leverage exposure measure
· an additional leverage ratio buffer (ALRB) of 0.7 per cent of the
total leverage exposure measure applies to the RFB sub-group, which equates to
0.6 per cent at Group level.
CAPITAL MANAGEMENT (continued)
The countercyclical leverage buffer is set to increase in proportion to the
increase in the countercyclical capital buffer following the FPC's decision to
increase the UK CCYB rate to 2.0 per cent, effective from December 2020. At
least 75 per cent of the 3.25 per cent minimum leverage ratio requirement as
well as 100 per cent of all regulatory leverage buffers must be met with CET1
capital.
The table below summarises the component parts of the Group's leverage ratio.
Fully loaded
At 31 Dec At 31 Dec
2019 2018
£m £m
Total tier 1 capital for leverage ratio
Common equity tier 1 capital 27,744 30,167
Additional tier 1 capital 5,881 6,466
Total tier 1 capital 33,625 36,633
Exposure measure
Statutory balance sheet assets
Derivative financial instruments 26,369 23,595
Securities financing transactions 67,424 69,301
Loans and advances and other assets 740,100 704,702
Total assets 833,893 797,598
Qualifying central bank claims (49,590) (50,105)
Deconsolidation adjustments(1)
Derivative financial instruments (1,293) (1,376)
Securities financing transactions (334) (487)
Loans and advances and other assets (167,410) (130,048)
Total deconsolidation adjustments (169,037) (131,911)
Derivatives adjustments
Adjustments for regulatory netting (11,298) (8,828)
Adjustments for cash collateral (12,551) (10,536)
Net written credit protection 458 539
Regulatory potential future exposure 16,337 18,250
Total derivatives adjustments (7,054) (575)
Securities financing transactions adjustments 1,164 40
Off-balance sheet items 53,191 56,393
Regulatory deductions and other adjustments (8,180) (8,163)
Total exposure measure(2) 654,387 663,277
Average exposure measure(3) 667,433
UK Leverage ratio(2,5) 5.1% 5.5%
Average UK leverage ratio(3) 5.0%
CRD IV exposure measure(4) 703,977 713,382
CRD IV leverage ratio(4) 4.8% 5.1%
(1) Deconsolidation adjustments relate to the deconsolidation of certain Group
entities that fall outside the scope of the Group's regulatory capital
consolidation, being primarily the Group's Insurance business.
(2) Calculated in accordance with the UK Leverage Ratio Framework which requires
qualifying central bank claims to be excluded from the leverage exposure
measure.
(3) The average UK leverage ratio is based on the average of the month end tier 1
capital position and average exposure measure over the quarter (1 October
2019 to 31 December 2019). The average of 5.0 per cent compares to 4.9 per
cent at the start and 5.1 per cent at the end of the quarter.
(4) Calculated in accordance with CRD IV rules which include central bank claims
within the leverage exposure measure.
(5) The UK leverage ratio is 5.2 per cent on a pro forma basis upon recognition of
the dividend paid up by the Insurance business in February 2020 in relation to
its 2019 earnings (31 December 2018: 5.6 per cent pro forma).
CAPITAL MANAGEMENT (continued)
Application of IFRS 9 on a full impact basis for capital and leverage
IFRS 9 full impact
At 31 Dec At 31 Dec
2019 2018
Common equity tier 1 (£m) 27,002 29,592
Transitional tier 1 (£m) 33,249 36,964
Transitional total capital (£m) 43,153 47,195
Total risk-weighted assets (£m) 203,083 206,614
Common equity tier 1 ratio (%) 13.3% 14.3%
Transitional tier 1 ratio (%) 16.4% 17.9%
Transitional total capital ratio (%) 21.2% 22.8%
UK leverage ratio exposure measure (£m) 653,643 663,182
UK leverage ratio (%) 5.0% 5.4%
The Group has opted to apply paragraph 4 of CRR Article 473a (the
'transitional rules') which allows for additional capital relief in respect of
any post 1 January 2018 increase in Stage 1 and Stage 2 IFRS 9 expected credit
loss provisions (net of regulatory expected losses) during the transition
period. As at 31 December 2019 no additional capital relief has been
recognised.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
2019 2018(1)
Note £m £m
Interest and similar income 16,861 16,349
Interest and similar expense (6,681) (2,953)
Net interest income 10,180 13,396
Fee and commission income 2,756 2,848
Fee and commission expense (1,350) (1,386)
Net fee and commission income 1,406 1,462
Net trading income 18,288 (3,876)
Insurance premium income 9,574 9,189
Other operating income 2,908 1,920
Other income 32,176 8,695
Total income 42,356 22,091
Insurance claims (23,997) (3,465)
Total income, net of insurance claims 18,359 18,626
Regulatory provisions (2,895) (1,350)
Other operating expenses (9,775) (10,379)
Total operating expenses (12,670) (11,729)
Trading surplus 5,689 6,897
Impairment (1,296) (937)
Profit before tax 4,393 5,960
Tax expense 3 (1,387) (1,454)
Profit for the year 3,006 4,506
Profit attributable to ordinary shareholders 2,459 3,975
Profit attributable to other equity holders 466 433
Profit attributable to equity holders 2,925 4,408
Profit attributable to non-controlling interests 81 98
Profit for the year 3,006 4,506
Basic earnings per share 4 3.5p 5.5p
Diluted earnings per share 4 3.4p 5.5p
(1) Restated, see note 1.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2019 2018(1)
£m £m
Profit for the year 3,006 4,506
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements:
Remeasurements before tax (1,433) 167
Tax 316 (47)
(1,117) 120
Movements in revaluation reserve in respect of equity shares held at fair
value through other comprehensive income:
Change in fair value - (97)
Tax 12 22
12 (75)
Gains and losses attributable to own credit risk:
Gains (losses) before tax (419) 533
Tax 113 (144)
(306) 389
Share of other comprehensive income of associates and joint ventures - 8
Items that may subsequently be reclassified to profit or loss:
Movements in revaluation reserve in respect of debt securities held at fair
value through other comprehensive income:
Change in fair value (30) (37)
Income statement transfers in respect of disposals (196) (275)
Impairment recognised in the income statement (1) -
Tax 71 119
(156) (193)
Movements in cash flow hedging reserve:
Effective portion of changes in fair value taken to other comprehensive income 1,209 234
Net income statement transfers (608) (701)
Tax (148) 113
453 (354)
Currency translation differences (tax: nil) (12) (8)
Other comprehensive income for the year, net of tax (1,126) (113)
Total comprehensive income for the year 1,880 4,393
Total comprehensive income attributable to ordinary shareholders 1,333 3,862
Total comprehensive income attributable to other equity holders 466 433
Total comprehensive income attributable to equity holders 1,799 4,295
Total comprehensive income attributable to non-controlling interests 81 98
Total comprehensive income for the year 1,880 4,393
(1) Restated, see note 1.
CONSOLIDATED BALANCE SHEET
At 31 Dec At 31 Dec
2019(1) 2018
£m £m
Assets
Cash and balances at central banks 55,130 54,663
Items in the course of collection from banks 313 647
Financial assets at fair value through profit or loss 160,189 158,529
Derivative financial instruments 26,369 23,595
Loans and advances to banks 9,775 6,283
Loans and advances to customers 494,988 484,858
Debt securities 5,544 5,238
Financial assets at amortised cost 510,307 496,379
Financial assets at fair value through other comprehensive income 25,092 24,815
Investments in joint ventures and associates 304 91
Goodwill 2,324 2,310
Value of in-force business 5,558 4,762
Other intangible assets 3,808 3,347
Property, plant and equipment 13,104 12,300
Current tax recoverable 7 5
Deferred tax assets 2,666 2,453
Retirement benefit assets 681 1,267
Assets arising from reinsurance contracts held 23,567 7,860
Other assets 4,474 4,575
Total assets 833,893 797,598
(1) Reflects the implementation of IFRS16, see note 1.
CONSOLIDATED BALANCE SHEET (continued)
At 31 Dec At 31 Dec
2019(1) 2018
Equity and liabilities £m £m
Liabilities
Deposits from banks 28,179 30,320
Customer deposits 421,320 418,066
Items in course of transmission to banks 373 636
Financial liabilities at fair value through profit or loss 21,486 30,547
Derivative financial instruments 25,779 21,373
Notes in circulation 1,079 1,104
Debt securities in issue 97,689 91,168
Liabilities arising from insurance contracts and participating investment 111,449 98,874
contracts
Liabilities arising from non-participating investment contracts 37,459 13,853
Other liabilities 20,333 19,633
Retirement benefit obligations 257 245
Current tax liabilities 187 377
Deferred tax liabilities 44 -
Other provisions 3,323 3,547
Subordinated liabilities 17,130 17,656
Total liabilities 786,087 747,399
Equity
Share capital 7,005 7,116
Share premium account 17,751 17,719
Other reserves 13,695 13,210
Retained profits 3,246 5,389
Shareholders' equity 41,697 43,434
Other equity instruments 5,906 6,491
Total equity excluding non-controlling interests 47,603 49,925
Non-controlling interests 203 274
Total equity 47,806 50,199
Total equity and liabilities 833,893 797,598
(1) Reflects the implementation of IFRS16, see note 1.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to equity shareholders
Share
capital Other Non -
and Other Retained equity controlling
premium reserves profits Total instruments interests Total
£m £m £m £m £m £m £m
Balance at 1 January 2019 24,835 13,210 5,389 43,434 6,491 274 50,199
Comprehensive income
Profit for the year - - 2,925 2,925 - 81 3,006
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - (1,117) (1,117) - - (1,117)
Movements in revaluation reserve in respect of financial assets held at fair
value through other comprehensive income, net of tax:
Debt securities - (156) - (156) - - (156)
Equity shares - 12 - 12 - - 12
Gains and losses attributable to own credit risk, net of tax - - (306) (306) - - (306)
Movements in cash flow hedging reserve, net of tax - 453 - 453 - - 453
Currency translation differences (tax: £nil) - (12) - (12) - - (12)
Total other comprehensive income - 297 (1,423) (1,126) - - (1,126)
Total comprehensive income - 297 1,502 1,799 - 81 1,880
Transactions with owners
Dividends - - (2,312) (2,312) - (138) (2,450)
Distributions on other equity instruments - - (466) (466) - - (466)
Issue of ordinary shares 107 - - 107 - - 107
Share buyback (189) 189 (1,095) (1,095) - - (1,095)
Redemption of preference shares 3 (3) - - - - -
Issue of other equity instruments - - (3) (3) 896 - 893
Redemptions of other equity instruments - - - - (1,481) - (1,481)
Movement in treasury shares - - (3) (3) - - (3)
Value of employee services:
Share option schemes - - 71 71 - - 71
Other employee award schemes - - 165 165 - - 165
Changes in non-controlling interests - - - - - (14) (14)
Total transactions with owners (79) 186 (3,643) (3,536) (585) (152) (4,273)
Realised gains and losses on equity shares held at fair value through other - 2 (2) - - - -
comprehensive income
Balance at 31 December 2019 24,756 13,695 3,246 41,697 5,906 203 47,806
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)
Attributable to equity shareholders
Share
capital Other Non -
and Other Retained equity controlling
premium reserves profits Total instruments interests Total
£m £m £m £m £m £m £m
Balance at 1 January 2018 24,831 13,553 3,976 42,360 5,355 237 47,952
Comprehensive income
Profit for the year(1) - - 4,408 4,408 - 98 4,506
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - 120 120 - - 120
Share of other comprehensive income of joint ventures and associates - - 8 8 - - 8
Movements in revaluation reserve in respect of financial assets held at fair
value through other comprehensive income, net of tax:
Debt securities - (193) - (193) - - (193)
Equity shares - (75) - (75) - - (75)
Gains and losses attributable to own credit risk, net of tax - - 389 389 - - 389
Movements in cash flow hedging reserve, net of tax - (354) - (354) - - (354)
Currency translation differences (tax: £nil) - (8) - (8) - - (8)
Total other comprehensive income - (630) 517 (113) - - (113)
Total comprehensive income - (630) 4,925 4,295 - 98 4,393
Transactions with owners
Dividends - - (2,240) (2,240) - (61) (2,301)
Distributions on other equity instruments(1) - - (433) (433) - - (433)
Issue of ordinary shares 162 - - 162 - - 162
Share buyback (158) 158 (1,005) (1,005) - - (1,005)
Issue of other equity instruments - - (5) (5) 1,136 - 1,131
Movement in treasury shares - - 40 40 - 40
Value of employee services: -
Share option schemes - - 53 53 - - 53
Other employee award schemes - - 207 207 - - 207
Total transactions with owners 4 158 (3,383) (3,221) 1,136 (61) (2,146)
Realised gains and losses on equity shares held at fair value through other - 129 (129) - - - -
comprehensive income
Balance at 31 December 2018 24,835 13,210 5,389 43,434 6,491 274 50,199
(1) Restated, see note 1.
CONSOLIDATED CASH FLOW STATEMENT
2019 2018
£m £m
Profit before tax 4,393 5,960
Adjustments for:
Change in operating assets (11,049) (4,472)
Change in operating liabilities 3,642 (8,673)
Non-cash and other items 15,573 (2,892)
Tax paid (1,278) (1,030)
Net cash provided by (used in) operating activities 11,281 (11,107)
Cash flows from investing activities
Purchase of financial assets (9,730) (12,657)
Proceeds from sale and maturity of financial assets 9,631 26,806
Purchase of fixed assets (3,442) (3,514)
Proceeds from sale of fixed assets 1,432 1,334
Acquisition of businesses, net of cash acquired (21) (49)
Disposal of businesses, net of cash disposed - 1
Net cash (used in) provided by investing activities (2,130) 11,921
Cash flows from financing activities
Dividends paid to ordinary shareholders (2,312) (2,240)
Distributions on other equity instruments (466) (433)
Dividends paid to non-controlling interests (138) (61)
Interest paid on subordinated liabilities (1,178) (1,268)
Proceeds from issue of subordinated liabilities - 1,729
Proceeds from issue of other equity instruments 893 1,131
Proceeds from issue of ordinary shares 36 102
Share buyback (1,095) (1,005)
Repayment of subordinated liabilities (818) (2,256)
Redemption of other equity instruments (1,481) -
Net cash used in financing activities (6,559) (4,301)
Effects of exchange rate changes on cash and cash equivalents (5) 3
Change in cash and cash equivalents 2,587 (3,484)
Cash and cash equivalents at beginning of year 55,224 58,708
Cash and cash equivalents at end of year 57,811 55,224
Cash and cash equivalents comprise cash and balances at central banks
(excluding mandatory deposits) and amounts due from banks with a maturity of
less than three months. Included within cash and cash equivalents at
31 December 2019 is £49 million (31 December 2018: £40 million) held
within the Group's life funds, which is not immediately available for use in
the business.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting policies, presentation and estimates
These condensed consolidated financial statements as at and for the year to 31
December 2019 have been prepared in accordance with the Listing Rules of the
Financial Conduct Authority (FCA) relating to Preliminary Announcements and
comprise the results of Lloyds Banking Group plc (the Company) together with
its subsidiaries (the Group). They do not include all of the information
required for full annual financial statements. Copies of the 2019 Annual
Report and Accounts will be available on the Group's website and upon request
from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London
EC2V 7HN.
Except as noted below, the accounting policies are consistent with those
applied by the Group in its 2018 Annual Report and Accounts.
The Group adopted IFRS 16 Leases from 1 January 2019. IFRS 16 replaces IAS 17
Leases and addresses the classification and measurement of all leases. The
Group's accounting as a lessor under IFRS 16 is substantially unchanged from
its approach under IAS 17; however for lessee accounting there is no longer a
distinction between the accounts for finance and operating leases. For all
assets the lessee recognises a right-of-use asset and a corresponding
liability at the date at which the leased asset is available for use. Assets
and liabilities arising from a lease are initially measured on a present value
basis. The lease payments are discounted using the interest rate implicit in
the lease, if that rate can be determined, or the lessee's incremental
borrowing rate. Lease payments are allocated between the liability and finance
cost. The finance cost is charged to profit or loss over the lease period so
as to produce a constant periodic rate of interest on the remaining balance of
the liability for each period. The right-of-use asset is depreciated over the
shorter of the asset's useful life and the lease term on a straight-line
basis. Payments associated with leases with a lease term of 12 months or less
and leases of low-value assets are recognised as an expense in profit or loss
on a straight-line basis.
The Group elected to apply the standard retrospectively with the cumulative
effect of initial application being recognised at 1 January 2019, comparatives
have therefore not been restated. There was no impact on shareholders' equity.
The Group has also implemented the amendments to IAS 12 Income Taxes with
effect from 1 January 2019 and as a result tax relief on distributions on
other equity instruments, previously taken directly to retained profits, is
reported within tax expense in the income statement. Comparatives have been
restated. Adoption of these amendments to IAS 12 has resulted in a reduction
in tax expense and an increase in profit for the year in 2019 of £115 million
(2018: £106 million). There is no impact on shareholders' equity or on
earnings per share.
The Group has early adopted the hedge accounting amendments Interest Rate
Benchmark Reform, issued by the IASB as a response to issues arising from the
planned replacement of interest rate benchmarks in a number of jurisdictions.
The amendments confirm that entities applying hedge accounting can continue to
assume that the interest rate benchmark on which the hedged cash flows and
cash flows of the hedging instrument are based is not altered as a result of
the uncertainties of the interest rate benchmark reform. Comparatives have not
been restated.
The Group's accounting policies are set out in full in the 2019 Annual Report
and Accounts.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
02. Critical accounting judgements and estimates
At 31 December 2019 the Group's expected credit loss allowance (ECL) was
£3,455 million (31 December 2018: £3,362 million), of which £3,278 million
(31 December 2018: £3,169 million) was in respect of drawn balances.
The calculation of the Group's ECL allowances and its provisions against loan
commitments and guarantees under IFRS 9 requires the Group to make a number of
judgements, assumptions and estimates. In particular, the measurement of
expected credit losses is required to reflect an unbiased probability-weighted
range of possible future outcomes. In order to do this, the Group has
developed an economic model to project a wide range of key impairment drivers
using information derived mainly from external sources. These drivers include
factors such as the unemployment rate, the house price index, commercial
property prices and corporate credit spreads. The model-generated economic
scenarios for the six years beyond 2019 are mapped to industry-wide historical
loss data by portfolio. Combined losses across portfolios are used to rank the
scenarios by severity of loss. Alongside a defined central scenario three
further scenarios are generated by averaging a group of individual scenarios
around specified points along the loss distribution to reflect the range of
outcomes. The central scenario reflects the Group's base case assumptions used
for medium-term planning purposes, an upside and a downside scenario are also
produced together with a severe downside scenario. Rare occurrences of adverse
economic events can lead to relatively large credit losses which means that
typically the most likely outcome is less than the probability-weighted
outcome of the range of possible future events. To allow for this a relatively
unlikely severe downside scenario is therefore included. At 31 December 2018
and 31 December 2019, the base case, upside and downside scenarios each carry
a 30 per cent weighting; the severe downside scenario is weighted at 10 per
cent. The choice of alternative scenarios and scenario weights is a
combination of quantitative analysis and judgemental assessment to ensure that
the full range of possible outcomes and material non-linearity of losses are
captured.
For each major product grouping models have been developed which utilise
historical credit loss data to produce probabilities of default (PDs) for each
scenario; an overall weighted-average PD is used to assist in determining the
staging of financial assets and related ECL.
The key UK economic assumptions made by the Group averaged over a five-year
period are shown below:
Economic assumptions
Base case Upside Downside Severe
downside
% % % %
At 31 December 2019
Interest rate 1.25 2.04 0.49 0.11
Unemployment rate 4.3 3.9 5.8 7.2
House price growth 1.3 5.0 (2.6) (7.1)
Commercial real estate price growth (0.2) 1.8 (3.8) (7.1)
At 31 December 2018
Interest rate 1.25 2.34 1.30 0.71
Unemployment rate 4.5 3.9 5.3 6.9
House price growth 2.5 6.1 (4.8) (7.5)
Commercial real estate price growth 0.4 5.3 (4.7) (6.4)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Critical accounting judgements and estimates (continued)
The Group's base-case economic scenario has changed little over the year and
reflects a broadly stable outlook for the economy. Although there remains
uncertainty about the economic consequences of the UK's exit from the European
Union, the Group considers that at this stage the range of possible outcomes
is adequately reflected in its choice and weighting of scenarios. The averages
shown below do not fully reflect the peak to trough changes in the stated
assumptions over the period. The tables below illustrate the variability of
the assumptions from the start of the scenario period to the peak and trough.
Economic assumptions - start to peak
Base case Upside Downside Severe
downside
% % % %
At 31 December 2019
Interest rate 1.75 2.56 0.75 0.75
Unemployment rate 4.6 4.6 6.9 8.3
House price growth 6.0 26.3 (1.9) (2.3)
Commercial real estate price growth 0.1 10.4 (0.6) (1.1)
At 31 December 2018
Interest rate 1.75 4.00 1.75 1.25
Unemployment rate 4.8 4.3 6.3 8.6
House price growth 13.7 34.9 0.6 (1.6)
Commercial real estate price growth 0.1 26.9 (0.5) (0.5)
Economic assumptions - start to trough
Base case Upside Downside Severe
downside
% % % %
At 31 December 2019
Interest rate 0.75 0.75 0.35 0.01
Unemployment rate 3.8 3.4 3.9 3.9
House price growth (1.9) (0.8) (14.8) (33.1)
Commercial real estate price growth (0.9) 0.3 (17.5) (30.9)
At 31 December 2018
Interest rate 0.75 0.75 0.75 0.25
Unemployment rate 4.1 3.5 4.3 4.2
House price growth 0.4 2.3 (26.5) (33.5)
Commercial real estate price growth (0.1) 0.0 (23.8) (33.8)
The following table shows the extent to which a higher ECL allowance has been
recognised to take account of forward looking information from the weighted
multiple economic scenarios. The most significant difference between these
bases arises on UK mortgages as the probability weighted ECL includes the
impact of house price movements on the loss given default. For other
portfolios adjustment is made only for the probability of default. All
non-modelled provisions, including post model adjustments, are based on the
probability weighted modelled ECL across all scenarios.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Critical accounting judgements and estimates (continued)
Impact of multiple economic scenarios
At 31 December 2019 At 31 December 2018
Base Probability Base Probability
case -weighted Difference case -weighted Difference
£m £m £m £m £m £m
UK mortgages 464 569 105 253 460 207
Other Retail 1,492 1,521 29 1,294 1,308 14
Commercial 1,258 1,315 57 1,472 1,513 41
Other 50 50 - 81 81 -
3,264 3,455 191 3,100 3,362 262
The table below shows the Group's expected credit loss for the upside and
downside scenarios using a 100 per cent weighting, with stage allocation based
on each specific scenario.
At 31 December 2019 At 31 December 2018
Upside Downside Upside Downside
£m £m £m £m
ECL allowance 3,001 3,677 2,775 3,573
The impact of changes in the UK unemployment rate and House Price Index (HPI)
have also been assessed. Although such changes would not be observed in
isolation, as economic indicators tend to be correlated in a coherent
scenario, this gives insight into the sensitivity of the Group's ECL to
changes in these two critical economic factors. The assessment has been made
against the base case with the reported staging unchanged. The changes to HPI
and the unemployment rate have been phased in to the forward-looking economic
outlook over three years.
The table below shows the impact on the Group's ECL resulting from a
decrease/increase in Loss Given Default for a 10 percentage point (pp)
increase/decrease in the UK House Price Index (HPI).
At 31 December 2019 At 31 December 2018
10pp 10pp 10pp 10pp
increase decrease increase decrease
in HPI in HPI in HPI in HPI
£m £m £m £m
ECL impact (110) 147 (114) 154
The table below shows the impact on the Group's ECL resulting from a 1
percentage point (pp) increase/decrease in the UK unemployment rate.
At 31 December 2019 At 31 December 2018
1pp 1pp 1pp 1pp
increase in decrease in increase in decrease in
unemployment unemployment unemployment unemployment
£m £m
ECL impact 141 (143) 172 (155)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Taxation
The UK corporation tax rate for the year was 19 per cent (2018: 19 per cent).
An explanation of the relationship between tax expense and accounting profit
is set out below:
2019 2018(1)
£m £m
Profit before tax 4,393 5,960
UK corporation tax thereon (835) (1,132)
Impact of surcharge on banking profits (364) (409)
Non-deductible costs: conduct charges (370) (101)
Non-deductible costs: bank levy (43) (43)
Other non-deductible costs (121) (90)
Non-taxable income 40 87
Tax relief on coupons on other equity instruments 89 83
Tax-exempt gains on disposals 102 124
Recognition (derecognition) of losses that arose in prior years 18 (9)
Remeasurement of deferred tax due to rate changes (6) 32
Differences in overseas tax rates (14) 6
Policyholder tax (67) (62)
Policyholder deferred tax asset in respect of life assurance expenses (53) 73
Adjustments in respect of prior years 237 (13)
Tax expense (1,387) (1,454)
(1) Restated, see note 1.
During the December 2019 election campaign, the UK government stated its
intention to maintain the corporation tax rate at 19 per cent on 1 April
2020. Had this rate change been substantively enacted at 31 December 2019, the
effect would have been to increase net deferred tax assets by c.£300 million.
4. Earnings per share
2019 2018(1)
£m £m
Profit attributable to equity shareholders - basic and diluted 2,459 3,975
(1) Restated, see note 1.
p
2019 2018
million million
Weighted average number of ordinary shares in issue - basic 70,603 71,638
Adjustment for share options and awards 682 641
Weighted average number of ordinary shares in issue - diluted 71,285 72,279
Basic earnings per share 3.5p 5.5p
Diluted earnings per share 3.4p 5.5p
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Provisions for liabilities and charges
Payment protection insurance (excluding MBNA)
The Group increased the provision for PPI costs by a further £2,450 million
in the year ended 31 December 2019, bringing the total amount provided to
£21,875 million.
The PPI provision charge of £2,450 million was largely due to the significant
increase in PPI information requests (PIRs) leading up to the deadline for
submission of claims on 29 August 2019, and also reflects costs relating to
complaints received from the Official Receiver as well as administration
costs. An initial review of around 60 per cent of the five million PIRs
received in the run-up to the PPI deadline has been undertaken, with the
conversion rate remaining low, and consistent with the provision assumption of
around 10 per cent. The Group has reached final agreement with the Official
Receiver.
At 31 December 2019, a provision of £1,578 million remained unutilised
relating to complaints and associated administration costs excluding amounts
relating to MBNA. Total cash payments were £2,201 million during the year
ended 31 December 2019.
Sensitivities
The total amount provided for PPI represents the Group's best estimate of the
likely future cost. A number of risks and uncertainties remain including
processing the remaining PIRs and outstanding complaints. The cost could
differ from the Group's estimates and the assumptions underpinning them, and
could result in a further provision being required. These may also be impacted
by any further regulatory changes and potential additional remediation arising
from the continuous improvement of the Group's operational practices.
For every one per cent increase in PIR conversion rate on the stock as at the
industry deadline, the Group would expect an additional charge of
approximately £100 million.
Payment protection insurance (MBNA)
MBNA increased its PPI provision by £367 million in the year ended
31 December 2019 but the Group's exposure continues to remain capped at £240
million under the terms of the sale and purchase agreement.
.
.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Provisions for liabilities and charges (continued)
Other provisions for legal actions and regulatory matters
In the course of its business, the Group is engaged in discussions with the
PRA, FCA and other UK and overseas regulators and other governmental
authorities on a range of matters. The Group also receives complaints in
connection with its past conduct and claims brought by or on behalf of current
and former employees, customers, investors and other third parties and is
subject to legal proceedings and other legal actions. Where significant,
provisions are held against the costs expected to be incurred in relation to
these matters and matters arising from related internal reviews. During the
year ended 31 December 2019 the Group charged a further £445 million in
respect of legal actions and other regulatory matters, and the unutilised
balance at 31 December 2019 was £528 million (31 December 2018:
£861 million). The most significant items are as follows.
Arrears handling related activities
The Group has provided an additional £188 million in the year ended 31
December 2019 for the costs of identifying and rectifying certain arrears
management fees and activities, taking the total provided to date to £981
million. The Group has put in place a number of actions to improve its
handling of customers in these areas and has made good progress in reimbursing
arrears fees to impacted customers.
Packaged bank accounts
The Group had provided a total of £795 million up to 31 December 2018 in
respect of complaints relating to alleged mis-selling of packaged bank
accounts, with no further amounts provided during the year ended 31 December
2019. A number of risks and uncertainties remain, particularly with respect to
future volumes.
Customer claims in relation to insurance branch business in Germany
The Group continues to receive claims in Germany from customers relating to
policies issued by Clerical Medical Investment Group Limited (subsequently
renamed Scottish Widows Limited), with smaller numbers received from customers
in Austria and Italy. The industry-wide issue regarding notification of
contractual 'cooling off' periods continued to lead to an increasing number of
claims in 2016 and 2017. Whilst complaint volumes have declined, new
litigation claim volumes per month have remained fairly constant throughout
2019. Up to 31 December 2019 the Group had provided a total of £656 million.
The validity of the claims facing the Group depends upon the facts and
circumstances in respect of each claim. As a result, the ultimate financial
effect, which could be significantly different from the current provision,
will be known only once all relevant claims have been resolved.
HBOS Reading - review
The Group has now completed its compensation assessment for all 71 business
customers within the customer review, with more than 98 per cent of these
offers to individuals accepted. In total, more than £100 million in
compensation has been offered to victims of the HBOS Reading fraud prior to
the publication of Sir Ross Cranston's independent quality assurance review of
the customer review, of which £94 million has so far been accepted, in
addition to £9 million for ex-gratia payments and £6 million for the
re-imbursements of legal fees. Sir Ross's review was concluded on
10 December 2019 and made a number of recommendations, including a
re-assessment of direct and consequential losses by an independent panel. The
Group has committed to implementing Sir Ross's recommendations in full. In
addition, further ex gratia payments of £35,000 have been made to 200
individuals in recognition of the additional delay which will be caused whilst
the Group takes steps to implement Sir Ross's recommendations. It is not
possible to estimate at this stage what the financial impact will be.
HBOS Reading - FCA investigation
The FCA's investigation into the events surrounding the discovery of
misconduct within the Reading-based Impaired Assets team of HBOS has
concluded. The Group has settled the matter with the FCA and paid a fine of
£45.5 million, as per the FCA's final notice dated 21 June 2019.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Contingent liabilities and commitments
Interchange fees
With respect to multi-lateral interchange fees (MIFs), the Group is not
involved in the ongoing litigation (as described below) which involves card
schemes such as Visa and Mastercard. However, the Group is a member / licensee
of Visa and Mastercard and other card schemes. The litigation in question is
as follows:
· litigation brought by retailers against both Visa and Mastercard
continues in the English Courts (and includes appeals heard by the Supreme
Court, judgment awaited); and
· litigation brought on behalf of UK consumers in the English Courts
against Mastercard.
Any impact on the Group of the litigation against Visa and Mastercard remains
uncertain at this time. Insofar as Visa is required to pay damages to
retailers for interchange fees set prior to June 2016, contractual
arrangements to allocate liability have been agreed between various UK banks
(including the Group) and Visa Inc, as part of Visa Inc's acquisition of Visa
Europe in 2016. These arrangements cap the maximum amount of liability to
which the Group may be subject, and this cap is set at the cash consideration
received by the Group for the sale of its stake in Visa Europe to Visa Inc in
2016.
LIBOR and other trading rates
In July 2014, the Group announced that it had reached settlements totalling
£217 million (at 30 June 2014 exchange rates) to resolve with UK and US
federal authorities legacy issues regarding the manipulation several years ago
of Group companies' submissions to the British Bankers' Association (BBA)
London Interbank Offered Rate (LIBOR) and Sterling Repo Rate. The Swiss
Competition Commission concluded its investigation against Lloyds Bank plc in
June 2019. The Group continues to cooperate with various other government and
regulatory authorities, including a number of US State Attorneys General, in
conjunction with their investigations into submissions made by panel members
to the bodies that set LIBOR and various other interbank offered rates.
Certain Group companies, together with other panel banks, have also been named
as defendants in private lawsuits, including purported class action suits, in
the US in connection with their roles as panel banks contributing to the
setting of US Dollar, Japanese Yen and Sterling LIBOR and the Australian BBSW
Reference Rate. Certain of the plaintiffs' claims have been dismissed by the
US Federal Court for Southern District of New York (subject to appeals).
Certain Group companies are also named as defendants in (i) UK based claims;
and (ii) two Dutch class actions, raising LIBOR manipulation allegations. A
number of the claims against the Group in relation to the alleged mis-sale of
interest rate hedging products also include allegations of LIBOR manipulation.
It is currently not possible to predict the scope and ultimate outcome on the
Group of the various outstanding regulatory investigations not encompassed by
the settlements, any private lawsuits or any related challenges to the
interpretation or validity of any of the Group's contractual arrangements,
including their timing and scale.
UK shareholder litigation
In August 2014, the Group and a number of former directors were named as
defendants in a claim by a number of claimants who held shares in Lloyds TSB
Group plc (LTSB) prior to the acquisition of HBOS plc, alleging breaches of
duties in relation to information provided to shareholders in connection with
the acquisition and the recapitalisation of LTSB. Judgment was delivered on 15
November 2019. The Group and former directors successfully defended the
claims. The claimants have sought permission to appeal. It is currently
not possible to determine the ultimate impact on the Group (if any).
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Contingent liabilities and commitments (continued)
Tax authorities
The Group has an open matter in relation to a claim for group relief of losses
incurred in its former Irish banking subsidiary, which ceased trading on 31
December 2010. In 2013 HMRC informed the Group that their interpretation of
the UK rules which allow the offset of such losses denies the claim for group
relief of losses. If HMRC's position is found to be correct, management
estimate that this would result in an increase in current tax liabilities of
approximately £800 million (including interest) and a reduction in the
Group's deferred tax asset of approximately £250 million. The Group does not
agree with HMRC's position and, having taken appropriate advice, does not
consider that this is a case where additional tax will ultimately fall due.
There are a number of other open matters on which the Group is in discussion
with HMRC (including the tax treatment of certain costs arising from the
divestment of TSB Banking Group plc), none of which is expected to have a
material impact on the financial position of the Group.
Mortgage arrears handling activities- FCA investigation
On 26 May 2016, the Group was informed that an enforcement team at the FCA had
commenced an investigation in connection with the Group's mortgage arrears
handling activities. It is not currently possible to make a reliable
assessment of any liability resulting from the investigation including any
financial penalty.
Other legal actions and regulatory matters
In addition, during the ordinary course of business the Group is subject to
other complaints and threatened or actual legal proceedings (including class
or group action claims) brought by or on behalf of current or former
employees, customers, investors or other third parties, as well as legal and
regulatory reviews, challenges, investigations and enforcement actions, both
in the UK and overseas. All such material 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 to 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 properly to assess 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.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Dividends on ordinary shares
The directors have recommended a final dividend, which is subject to approval
by the shareholders at the Annual General Meeting, of 2.25 pence per share
(2018: 2.14 pence per share) totalling £1,586 million. These financial
statements do not reflect the recommended dividend.
Shareholders who have already joined the dividend reinvestment plan will
automatically receive shares instead of the cash dividend. Key dates for the
payment of the dividends are:
Shares quoted ex-dividend 16 April 2020
Record date 17 April 2020
Final date for joining or leaving the dividend reinvestment plan 4 May 2020
Dividends paid 27 May 2020
In May 2019 the Group announced that it will move to the payment of quarterly
dividends in 2020, with the first quarterly dividend in respect of Q1 2020
payable in June 2020. The new approach will be to adopt three equal interim
ordinary dividend payments for the first three quarters of the year followed
by, subject to performance, a larger final dividend for the fourth quarter of
the year. The first three quarterly payments, payable in June, September and
December will be 20 per cent of the previous year's total ordinary dividend
per share. The fourth quarter payment will be announced with the full year
results, with the amount continuing to deliver a full year dividend payment
that reflects the Group's financial performance and its objective of a
progressive and sustainable ordinary dividend. The final dividend will
continue to be paid in May, following approval at the AGM. The Group believes
that this approach will provide a more regular flow of dividend income to all
shareholders whilst accelerating the receipt of payments.
The key dates for the payment of the three interim dividends are:
First interim dividend
Shares quoted ex-dividend 4 June 2020
Record date 5 June 2020
Final date for joining or leaving the dividend reinvestment plan 19 June 2020
Dividends paid 30 June 2020
Second interim dividend
Shares quoted ex-dividend 6 August 2020
Record date 7 August 2020
Final date for joining or leaving the dividend reinvestment plan 21 August 2020
Dividends paid 14 September 2020
Third interim dividend
Shares quoted ex-dividend 5 November 2020
Record date 6 November 2020
Final date for joining or leaving the dividend reinvestment plan 20 November 2020
Dividends paid 11 December 2020
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. 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 2019 will be
published on the Group's website. The report of the auditor on those accounts
was unqualified, did not draw attention to any matters by way of emphasis and
did not include a statement under sections 498(2) or 498(3) of the Act. The
statutory accounts for the year ended 31 December 2018 have been filed with
the Registrar of Companies.
FORWARD LOOKING STATEMENTS
This document contains certain forward looking statements within the meaning
of Section 21E of the US Securities Exchange Act of 1934, as amended, and
section 27A of the US Securities Act of 1933, as amended, with respect to the
business, strategy, plans and/or results of Lloyds Banking Group plc together
with its subsidiaries (the Group) and its current goals and expectations
relating to its future financial condition and performance. Statements that
are not historical facts, including statements about the Group's or its
directors' and/or management's beliefs and expectations, are forward looking
statements. Words such as 'believes', 'anticipates', 'estimates', 'expects',
'intends', 'aims', 'potential', 'will', 'would', 'could', 'considered',
'likely', 'estimate' and variations of these words and similar future or
conditional expressions are intended to identify forward looking statements
but are not the exclusive means of identifying such statements. Examples of
such forward looking statements include, but are 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; statements of plans, objectives or goals of the Group or its
management including in respect of statements about the future business and
economic environments in the UK and elsewhere including, but not limited to,
future trends in interest rates, foreign exchange rates, credit and equity
market levels and demographic developments; statements about competition,
regulation, disposals and consolidation or technological developments in the
financial services industry; 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 made by the
Group or on its behalf include, but are not limited to: general economic and
business conditions in the UK and internationally; market related trends and
developments; fluctuations in interest rates, inflation, exchange rates, stock
markets and currencies; 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 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; the ability to achieve strategic objectives; changing customer
behaviour including consumer spending, saving and borrowing habits; changes to
borrower or counterparty credit quality; concentration of financial exposure;
management and monitoring of conduct risk; instability in the global financial
markets, including Eurozone instability, instability as a result of
uncertainty surrounding the exit by the UK from the European Union (EU) and as
a result of such exit and the potential for other countries to exit the EU or
the Eurozone and the impact of any sovereign credit rating downgrade or other
sovereign financial issues; political instability including as a result of any
UK general election; 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 and other
disasters, adverse weather and similar contingencies outside the Group's
control; inadequate or failed internal or external processes or systems; acts
of war, other acts of hostility, terrorist acts and responses to those acts,
geopolitical, pandemic or other such events; risks relating to climate change;
changes in laws, regulations, practices and accounting standards or taxation,
including as a result of the exit by the UK from the EU, or a further possible
referendum on Scottish independence; changes to regulatory capital or
liquidity requirements and similar contingencies outside the Group's control;
the policies, decisions and actions of governmental or regulatory authorities
or courts in the UK, the EU, the US or elsewhere including the implementation
and interpretation of key legislation and regulation together with any
resulting impact on the future structure of the Group; the ability to attract
and retain senior management and other employees and meet its diversity
objectives; actions or omissions by the Group's directors, management or
employees including industrial action; changes to the Group's post-retirement
defined benefit scheme obligations; the extent of any future impairment
charges or write-downs caused by, but not limited to, depressed asset
valuations, market disruptions and illiquid markets; the value and
effectiveness of any credit protection purchased by the Group; the inability
to hedge certain risks economically; the adequacy of loss reserves; the
actions of competitors, including non-bank financial services, lending
companies and digital innovators and disruptive technologies; and exposure to
regulatory or competition scrutiny, legal, regulatory or competition
proceedings, investigations or complaints. Please refer to the latest Annual
Report or Form 20-F filed by Lloyds Banking Group plc with the US Securities
and Exchange Commission for a discussion of certain factors and risks together
with examples of forward looking statements. Lloyds Banking Group may also
make or disclose written and/or oral forward looking statements in reports
filed with or furnished to the US Securities and Exchange Commission, Lloyds
Banking Group annual reviews, half-year announcements, proxy statements,
offering circulars, prospectuses, press releases and other written materials
and in oral statements made by the directors, officers or employees of Lloyds
Banking Group 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 to reflect any change in the Group's expectations with regard thereto
or any change in events, conditions or circumstances on which any such
statement is based. 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.
Summary of alternative performance measures
The Group calculates a number of metrics that are used throughout the banking
and insurance industries on an underlying basis. A description of these
measures and their calculation is set out below.
Asset quality ratio The underlying impairment charge for the period (on an annualised basis) in
respect of loans and advances to customers after releases and write-backs,
expressed as a percentage of average gross loans and advances to customers for
the period
Banking net interest margin Banking net interest income on customer and product balances in the banking
businesses as a percentage of average gross banking interest-earning assets
for the period
Business as usual costs Operating costs, less investment expensed and depreciation
Cost:income ratio Total costs as a percentage of net income calculated on an underlying basis
Gross asset quality ratio The underlying impairment charge for the period (on an annualised basis) in
respect of loans and advances to customers before releases and write-backs,
expressed as a percentage of average gross loans and advances to customers for
the period
Loan to deposit ratio Loans and advances to customers net of allowance for impairment losses and
excluding reverse repurchase agreements divided by customer deposits excluding
repurchase agreements on an underlying basis
Jaws The difference between the period on period percentage change in net income
and the period on period change in total costs calculated on an underlying
basis
Present value of new business premium The total single premium sales received in the period (on an annualised basis)
plus the discounted value of premiums expected to be received over the term of
the new regular premium contracts
Return on Underlying profit before tax divided by average risk-weighted assets
risk-weighted assets
Return on tangible equity Statutory profit after tax adjusted to add back amortisation of intangible
assets, and to deduct profit attributable to non-controlling interests and
other equity holders, divided by average tangible net assets
Tangible net assets per share Net assets excluding intangible assets such as goodwill and
acquisition-related intangibles divided by the weighted average number of
ordinary shares in issue
Trading surplus Underlying profit before impairment charge
Underlying, 'or above the line' profit Statutory profit adjusted for certain items as detailed in the Basis of
Presentation
Underlying return on tangible equity Underlying profit after tax at the standard UK corporation tax rate adjusted
to add back amortisation of intangible assets, and to deduct profit
attributable to non-controlling interests and other equity holders, divided by
average tangible net assets
CONTACTS
For further information please contact:
INVESTORS AND ANALYSTS
Douglas Radcliffe
Group Investor Relations Director
020 7356 1571
douglas.radcliffe@lloydsbanking.com
Edward Sands
Director of Investor Relations
020 7356 1585
edward.sands@lloydsbanking.com
Nora Thoden
Director of Investor Relations
020 7356 2334
nora.thoden@lloydsbanking.com
CORPORATE AFFAIRS
Grant Ringshaw
External Relations Director
020 7356 2362
grant.ringshaw@lloydsbanking.com
Matt Smith
Head of Media Relations
020 7356 3522
matt.smith@lloydsbanking.com
Copies of this interim management statement may be obtained from:
Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V
7HN
The statement can also be found on the Group's website -
www.lloydsbankinggroup.com
Registered office: Lloyds Banking Group plc, The Mound, Edinburgh, EH1 1YZ
Registered in Scotland No. 95000
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
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
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