REG - Lloyds Banking Group - 2023 Full Year Results
22/02/2024 07:00
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RNS Number : 0101E Lloyds Banking Group PLC 22 February 2024
Lloyds Banking Group plc
2023 Results
News Release
22 February 2024
CONTENTS
Results for the full year (#Section3) 1
Income statement (#Section4) (#Section4) ( (#Section4) underlying basis 3
(#Section4) ) (#Section4) and key balance sheet metrics (#Section4)
Quarterly information (#Section6) 4
Balance sheet analysis (#Section7) 5
Group results (#Section8) - (#Section4) statutory basis (#Section8) 6
Group Chief Executive's statement (#Section11) 7
Summary of Group results (#Section12) 10
Divisional results (#3073145fb2054de4afd74c20f787d3c4_31)
Retail (#Section38) 19
Commercial Banking (#Section39) 22
Insurance, Pensions and Investments (#Section40) 24
Equity Investments and Central Items (#Section41) 27
Segmental analysis - underlying basis (#Section42) 28
Alternative performance measures (#Section43) 29
Risk management (#Section50)
Capital risk (#Section51) 35
Credit risk (#Section57) 40
Funding and liquidity risk (#Section71) 51
Interest rate sensitivity (#Section72) 52
Statutory information
Consolidated income statement (#Section75) 53
Consolidated statement of comprehensive income (#Section76) 54
Consolidated balance sheet (#Section77) 55
Consolidated statement of changes in equity (#Section78) 56
Consolidated cash flow statement (#Section79) 58
Notes to the condensed consolidated financial statements (#Section80) 59
Key dates (#Section92) 81
Basis of presentation (#Section93) 81
Forward (#Section94) - (#Section94) looking statements (#Section94) 82
Contacts (#Section95) 83
Alternative performance measures
The Group uses a number of alternative performance measures, including
underlying profit, in the description of its business performance and
financial position. These measures are labelled with a superscript 'A'
throughout this document, with the exception of content on pages 1 to 2 and
pages 7 to 9 which is, unless otherwise stated, presented on an underlying
basis. Further information on these measures is set out on page 29.
Forward-looking statements
This news release contains forward-looking statements. For further details,
reference should be made to page 82.
RESULTS FOR THE FULL YEAR
"In 2023 the Group remained focused on proactively supporting people and
businesses through persistent cost-of-living pressures, whilst financing their
ambitions and growth. This has come alongside strong progress on our strategy
and delivering increased shareholder returns, guided as always by our core
purpose of Helping Britain Prosper.
The Group delivered a robust financial performance, meeting our 2023 guidance,
driven by income growth, cost discipline and strong asset quality. This
performance enabled strong capital generation and increased shareholder
distributions.
2023 was a critical year in building towards the ambitious strategy we
announced two years ago, as we look to grow our business and deepen
relationships with our customers. As demonstrated in our recent strategic
seminars, we have made significant progress and are on track to meet our 2024
and 2026 strategic outcomes, helping us build towards higher and more
sustainable returns.
Our strategy is purpose-driven. Building a more sustainable and inclusive
future is central to this, including our commitment to supporting the
environmental transition, social housing and broader purpose-aligned
objectives. We are excited about the opportunities that lie ahead as we
continue to deliver for all of our stakeholders."
Charlie Nunn, Group Chief Executive
Delivering on our purpose-driven strategy, on track to meet 2024 and 2026
strategic outcomes
• Pro-actively contacted 7.5 million customers(1) to offer support and
enhance financial resilience
• Continued strategic progress, underpinned by £1.3 billion of additional
investment in 2023
• On track to achieve 2024 strategic outcomes; c.£0.7 billion incremental
income and c.£1.2 billion of gross cost savings
• On track to achieve 2026 strategic outcome of c.£1.5 billion
incremental income given progress on medium-term transformation
• Launched innovative new propositions, including mobile-first mortgage
on-boarding, 'Lloyds Bank 360' in mass affluent and a digital invoice finance
platform as part of digitising the Small and Medium Businesses portfolio
• Highlighted our progress on strategic transformation with two seminars
in 2023. Two further seminars planned for the first half of 2024
• Building on our ambition to create a more sustainable and inclusive
future, with £29 billion(2) of sustainable financing and significant
commitments for social housing
Continued robust financial performance, in line with guidance, supported by
building business momentum
• Statutory profit after tax of £5.5 billion (£1.2 billion in the fourth
quarter) with net income of £17.9 billion up 3 per cent and a low impairment
charge. Strong return on tangible equity of 15.8 per cent (13.9 per cent in
the fourth quarter). Significant growth in profit materially driven by
restatement of earnings for the IFRS 17 accounting change in 2022
• Underlying net interest income of £13.8 billion up 5 per cent, with a
net interest margin of 3.11 per cent, in line with guidance. Banking net
interest margin of 2.98 per cent in the fourth quarter, down 10 basis points
in the quarter given mortgage pricing and deposit mix headwinds, partly
mitigated by the structural hedge. Average interest-earning banking assets of
£453.3 billion, down slightly on the fourth quarter of 2022 as expected
• Underlying other income of £5.1 billion, 10 per cent higher, reflecting
the broad-based recovery of customer activity and ongoing investment in the
business
• Operating lease depreciation of £956 million, up on 2022 given declines
in used car prices (notably in the fourth quarter), impacting portfolio
valuations and gains on disposals, the depreciation cost of higher value
vehicles and the Tusker acquisition and its subsequent growth
• Operating costs of £9.1 billion, in line with guidance, up 5 per cent.
The Group continues to maintain cost discipline in the context of higher
planned strategic investment, severance charges, new business costs and
inflationary pressures
• Remediation costs of £675 million in the year (2022: £255 million),
in relation to pre-existing programmes and a £450 million provision for the
potential impact of the recently announced FCA review into historical motor
finance commission arrangements
• Underlying impairment charge of £308 million and asset quality ratio of
7 basis points. Excluding both a significant write-back in the fourth quarter
and economic outlook improvements across the year, the asset quality ratio was
29 basis points. The portfolio remains well-positioned in the context of the
economic environment with broadly stable credit trends and strong asset
quality
(1) Since April 2022.
(2) From 1 January 2022.
RESULTS FOR THE FULL YEAR (continued)
Resilient customer franchise
• Loans and advances to customers reduced £5.2 billion to £449.7
billion. This included the securitisation of £2.5 billion of legacy Retail
mortgages in the first quarter and £2.7 billion of Retail unsecured loans in
the fourth quarter; excluding these, loans and advances to customers were flat
• Customer deposits of £471.4 billion reduced by £3.9 billion (1 per
cent), including an £11.3 billion reduction in Retail current accounts,
partly offset by a combined increase across Retail savings and Wealth of
£8.9 billion. The trend of customer deposit mix change in a higher rate
environment was slower in the fourth quarter versus the third quarter
Strong capital generation driving increased capital return
• Strong pro forma capital generation(1) of 173 basis points in line with
guidance, after regulatory headwinds of 50 basis points, including 35 basis
points from Retail secured CRD IV model changes (14 basis points in the
fourth quarter) and 15 basis points from the phased unwind of IFRS 9 relief.
Pro forma capital generation before regulatory headwinds was 223 basis points.
The 173 basis points of capital generation includes both the significant
impairment write-back and the higher remediation charge in the fourth quarter
• Risk-weighted assets of £219.1 billion up by £8.2 billion, reflecting
the impact of Retail secured CRD IV model updates (£5 billion, with £2
billion in the fourth quarter), operational risk and lending increases, model
calibrations and other movements, offset by balance sheet management through
securitisations
• Pensions triennial valuation completed with an additional contribution
of £250 million paid in December 2023 to clear the remaining deficit. There
will be no further deficit contributions in this triennial period
• Pro forma CET1 ratio(2) of 13.7 per cent, ahead of revised ongoing
target of c.13.0 per cent and previous target of c.13.5 per cent. In order to
manage risks and distributions in an orderly way, the Group expects to pay
down to the revised target by the end of 2026
• Tangible net assets per share of 50.8 pence, up 4.3 pence on 31 December
2022 and 3.6 pence in the fourth quarter, given continued profitability and
movements in the cash flow hedge reserve, partly offset by pensions surplus
changes
• The Board has recommended a final ordinary dividend of 1.84 pence per
share, resulting in a total ordinary dividend for 2023 of 2.76 pence per
share, up 15 per cent on prior year and in line with the Group's progressive
and sustainable ordinary dividend policy
• Given the Group's strong capital position, the Board has also announced
its intention to implement an ordinary share buyback programme of up to £2.0
billion
• Total capital returns in respect of 2023 of up to £3.8 billion, are
equivalent to c.14 per cent(3) of the Group's market capitalisation value
2024 guidance
Based on our current macroeconomic assumptions, for 2024 the Group expects:
• Banking net interest margin of greater than 290 basis points
• Operating costs of c.£9.3 billion
• Asset quality ratio of less than 30 basis points
• Return on tangible equity of c.13 per cent
• Capital generation of c.175 basis points(4)
• To pay down to a CET1 ratio of c.13.5 per cent
2026 guidance
Based on the expected macroeconomic environment and confidence in our
strategy, the Group is maintaining its medium-term guidance for 2026:
• Cost:income ratio of less than 50 per cent
• Return on tangible equity of greater than 15 per cent
• Capital generation of greater than 200 basis points(4)
The Group also now expects to pay down to a CET1 ratio of c.13.0 per cent by
the end of 2026.
(1) Excluding capital distributions, variable pension contributions and the
impact of the Tusker acquisition. Inclusive of the ordinary dividend received
from the Insurance business in February 2024.
(2) Includes both the full impact of the share buyback announced in respect
of 2023 and the ordinary dividend received from the Insurance business in
February 2024, but excludes the impact of the phased unwind of IFRS 9 relief
on 1 January 2024.
(3) Market capitalisation as at 16 February 2024.
(4) Excluding capital distributions. Inclusive of ordinary dividends
received from the Insurance business in February of the following year.
INCOME STATEMENT (UNDERLYING BASIS)(A) AND KEY BALANCE SHEET METRICS
2023 2022(1) Change
£m
£m %
Underlying net interest income 13,765 13,172 5
Underlying other income 5,123 4,666 10
Operating lease depreciation (956) (373)
Net income 17,932 17,465 3
Operating costs (9,140) (8,672) (5)
Remediation (675) (255)
Total costs (9,815) (8,927) (10)
Underlying profit before impairment 8,117 8,538 (5)
Underlying impairment charge (308) (1,510) 80
Underlying profit 7,809 7,028 11
Restructuring (154) (80) (93)
Volatility and other items (152) (2,166) 93
Statutory profit before tax 7,503 4,782 57
Tax expense (1,985) (859)
Statutory profit after tax 5,518 3,923 41
Earnings per share(1) 7.6p 4.9p 2.7p
Dividends per share - ordinary 2.76p 2.40p 15
Share buyback value £2.0bn £2.0bn
Banking net interest margin(A) 3.11% 2.94% 17bp
Average interest-earning banking assets(A) £453.3bn £452.0bn
Cost:income ratio(A,1) 54.7% 51.1% 3.6pp
Asset quality ratio(A) 0.07% 0.32% (25)bp
Return on tangible equity(A,1) 15.8% 9.8% 6.0pp
At 31 Dec At 31 Dec Change
2023
2022
%
Loans and advances to customers £449.7bn £454.9bn (1)
Customer deposits £471.4bn £475.3bn (1)
Loan to deposit ratio(A) 95% 96% (1)pp
CET1 ratio 14.6% 15.1% (0.5)pp
Pro forma CET1 ratio(A,2) 13.7% 14.1% (0.4)pp
UK leverage ratio 5.8% 5.6% 0.2pp
Risk-weighted assets £219.1bn £210.9bn 4
Wholesale funding £98.7bn £100.3bn (2)
Liquidity coverage ratio(3) 142% 144% (2)pp
Net stable funding ratio(4) 130% 130%
Tangible net assets per share(A,1) 50.8p 46.5p 4.3p
(A) See page 29.
(1) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
(2 ) 31 December 2022 and 31 December 2023 reflect both the full impact
of the share buybacks announced in respect of 2022 and 2023 and the ordinary
dividends received from the Insurance business in February 2023 and February
2024 respectively, but exclude the impact of the phased unwind of IFRS 9
relief on 1 January 2023 and 1 January 2024 respectively.
(3) The liquidity coverage ratio is calculated as a monthly rolling simple
average over the previous 12 months.
(4) Net stable funding ratio is based on an average of the four previous
quarters.
(
)
QUARTERLY INFORMATION(A)
Quarter Quarter Change Quarter Quarter Quarter Quarter Quarter Quarter
ended ended % ended ended ended ended ended ended
31 Dec 30 Sep 30 Jun 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar
2023 2023 2023 2023 2022(1) 2022(1) 2022(1) 2022(1)
£m £m £m £m £m £m £m £m
Underlying net interest income 3,317 3,444 (4) 3,469 3,535 3,643 3,394 3,190 2,945
Underlying other income 1,286 1,299 (1) 1,281 1,257 1,128 1,171 1,185 1,182
Operating lease depreciation (371) (229) (62) (216) (140) (78) (82) (119) (94)
Net income 4,232 4,514 (6) 4,534 4,652 4,693 4,483 4,256 4,033
Operating costs (2,486) (2,241) (11) (2,243) (2,170) (2,356) (2,145) (2,112) (2,059)
Remediation (541) (64) (51) (19) (166) (10) (27) (52)
Total costs (3,027) (2,305) (31) (2,294) (2,189) (2,522) (2,155) (2,139) (2,111)
Underlying profit before impairment 1,205 2,209 (45) 2,240 2,463 2,171 2,328 2,117 1,922
Underlying impairment credit (charge) 541 (187) (419) (243) (465) (668) (200) (177)
Underlying profit 1,746 2,022 (14) 1,821 2,220 1,706 1,660 1,917 1,745
Restructuring (85) (44) (93) (13) (12) (11) (22) (23) (24)
Volatility and other items 114 (120) (198) 52 (638) (1,062) (289) (177)
Statutory profit before tax 1,775 1,858 (4) 1,610 2,260 1,057 576 1,605 1,544
Tax expense (541) (438) (24) (387) (619) (75) (82) (303) (399)
Statutory profit after tax 1,234 1,420 (13) 1,223 1,641 982 494 1,302 1,145
Banking net interest margin(A) 2.98% 3.08% (10)bp 3.14% 3.22% 3.22% 2.98% 2.87% 2.68%
Average interest-earning banking assets(A) £452.8bn £453.0bn £453.4bn £454.2bn £453.8bn £454.9bn £451.2bn £448.0bn
Cost:income ratio(A,1) 71.5% 51.1% 20.4pp 50.6% 47.1% 53.7% 48.1% 50.3% 52.3%
Asset quality ratio(A) (0.47)% 0.17% 0.36% 0.22% 0.38% 0.57% 0.17% 0.16%
Return on tangible equity(A,1) 13.9% 16.9% (3.0)pp 13.6% 19.1% 11.0% 4.2% 13.0% 10.7%
Loans and advances to customers(2) £449.7bn £452.1bn (1) £450.7bn £452.3bn £454.9bn £456.3bn £456.1bn £451.8bn
Customer deposits £471.4bn £470.3bn £469.8bn £473.1bn £475.3bn £484.3bn £478.2bn £481.1bn
Loan to deposit ratio(A) 95% 96% (1pp) 96% 96% 96% 94% 95% 94%
Risk-weighted assets £219.1bn £217.7bn 1 £215.3bn £210.9bn £210.9bn £210.8bn £209.6bn £210.2bn
Tangible net assets per share(A,1) 50.8p 47.2p 3.6p 45.7p 49.6p 46.5p 44.5p 51.4p 53.7p
(1) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
(2) Reductions during 2023 reflect the impact of securitisation of
£2.5 billion of legacy Retail mortgages (including £2.1 billion in the
closed mortgage book) during the first quarter of 2023 and £2.7 billion of
Retail unsecured loans in the fourth quarter of 2023.
BALANCE SHEET ANALYSIS
At 31 Dec At 30 Sep Change At 30 Jun Change At 31 Dec Change
2023
2023
2022
£bn
£bn % 2023 %
£bn %
£bn
Loans and advances to customers
Open mortgage book(1) 298.5 298.3 297.9 299.6
Closed mortgage book(1) 7.7 8.1 (5) 8.5 (9) 11.6 (34)
Credit cards 15.1 15.1 14.9 1 14.3 6
UK Retail unsecured loans(1) 6.9 9.5 (27) 9.3 (26) 8.7 (21)
UK Motor Finance 15.3 15.1 1 14.9 3 14.3 7
Overdrafts 1.1 1.0 10 1.0 10 1.0 10
Wealth 0.9 0.9 0.9 0.9
Retail other(2) 15.7 15.1 4 14.5 8 13.8 14
Small and Medium Businesses 33.0 34.2 (4) 35.5 (7) 37.7 (12)
Corporate and Institutional Banking 55.6 57.3 (3) 56.6 (2) 56.0 (1)
Central items(3) (0.1) (2.5) 96 (3.3) 97 (3.0) 97
Loans and advances to customers 449.7 452.1 (1) 450.7 454.9 (1)
Customer deposits
Retail current accounts 102.7 104.6 (2) 107.8 (5) 114.0 (10)
Retail relationship savings accounts 177.7 173.8 2 169.4 5 166.3 7
Retail tactical savings accounts 17.1 17.0 1 16.5 4 16.1 6
Wealth 10.9 11.2 (3) 12.2 (11) 14.4 (24)
Commercial Banking deposits 162.8 163.7 (1) 163.6 163.8 (1)
Central items 0.2 - 0.3 (33) 0.7 (71)
Customer deposits 471.4 470.3 469.8 475.3 (1)
Total assets(4) 881.5 893.1 (1) 882.8 873.4 1
Total liabilities(4) 834.1 848.1 (2) 838.3 (1) 829.5 1
Ordinary shareholders' equity(4) 40.3 37.9 6 37.3 8 38.4 5
Other equity instruments 6.9 6.9 6.9 5.3 30
Non-controlling interests 0.2 0.2 0.3 (33) 0.2
Total equity(4) 47.4 45.0 5 44.5 7 43.9 8
Ordinary shares in issue, excluding own shares 63,508m 63,486m 64,571m (2) 66,944m (5)
(1) Reductions during 2023 reflect the impact of securitisation of
£2.5 billion of legacy Retail mortgages (including £2.1 billion in the
closed mortgage book) during the first quarter of 2023 and £2.7 billion of
Retail unsecured loans in the fourth quarter of 2023.
(2) Primarily Europe.
(3) Central items includes central fair value hedge accounting adjustments.
(4) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
GROUP RESULTS - STATUTORY BASIS
The results below are prepared in accordance with the recognition and
measurement principles of International Financial Reporting Standards (IFRS).
The underlying results are shown on page 3.
Summary income statement 2023 2022(1) Change
£m £m %
Net interest income 13,298 12,922 3
Other income 22,107 (18,268)
Total income 35,405 (5,346)
Net finance (expense) income in respect of insurance and investment contracts (16,776) 20,887
Total income, after net finance (expense) income in respect of insurance and 18,629 15,541 20
investment contracts
Operating expenses (10,823) (9,237) (17)
Impairment (303) (1,522) 80
Profit before tax 7,503 4,782 57
Tax expense (1,985) (859)
Profit for the year 5,518 3,923 41
Profit attributable to ordinary shareholders 4,933 3,389 46
Profit attributable to other equity holders 527 438 20
Profit attributable to non-controlling interests 58 96 (40)
Profit for the year 5,518 3,923 41
Ordinary shares in issue (weighted-average - basic) 64,953m 68,847m (6)
Basic earnings per share 7.6p 4.9p 2.7p
Summary balance sheet At 31 Dec 2023 At 31 Dec Change
£m 2022(1) %
£m
Assets
Cash and balances at central banks 78,110 91,388 (15)
Financial assets at fair value through profit or loss 203,318 180,769 12
Derivative financial instruments 22,356 24,753 (10)
Financial assets at amortised cost 514,635 520,322 (1)
Financial assets at fair value through other comprehensive income 27,592 23,154 19
Other assets 35,442 33,008 7
Total assets 881,453 873,394 1
Liabilities
Deposits from banks 6,153 7,266 (15)
Customer deposits 471,396 475,331 (1)
Repurchase agreements at amortised cost 37,703 48,596 (22)
Financial liabilities at fair value through profit or loss 24,914 17,755 40
Derivative financial instruments 20,149 24,042 (16)
Debt securities in issue at amortised cost 75,592 73,819 2
Liabilities arising from insurance and participating investment contracts 120,123 110,278 9
Liabilities arising from non-participating investment contracts 44,978 39,476 14
Other liabilities 22,827 22,190 3
Subordinated liabilities 10,253 10,730 (4)
Total liabilities 834,088 829,483 1
Total equity 47,365 43,911 8
Total equity and liabilities 881,453 873,394 1
(1) Restated for presentational changes and for the adoption of IFRS 17; see
notes 1 (page 59), 9 (page 73) and 10 (page 78).
GROUP CHIEF EXECUTIVE'S STATEMENT
2023 was an important year for our Group. We continued to deliver on our
purpose of Helping Britain Prosper, supporting both our customers and
shareholders. We are seeing real evidence of strategic progress as we
transform the business and have increased confidence in delivering the 2024
and 2026 strategic commitments. Our purpose-driven strategy is helping people
and businesses across the UK finance their ambitions and grow whilst enabling
us to build a more sustainable and inclusive business. This progress has been
underpinned by continued strategic investment and contributed to a financial
performance that has driven strong capital generation and increased
shareholder distributions.
The Group delivered a robust financial performance in 2023, meeting our
guidance. Income growth has been supported by a higher banking net interest
margin and good momentum in underlying other income. We continued to manage
costs tightly despite ongoing inflationary pressures. Asset quality remained
strong. As a result, we delivered strong capital generation, enabling the
Board to recommend a final ordinary dividend of 1.84 pence per share implying
a total dividend for the year of 2.76 pence. This is 15 per cent up
year-on-year and in line with our progressive and sustainable dividend policy.
In addition, the Group has announced a share buyback programme of up to £2.0
billion. In combination, this is a total capital return of up to £3.8
billion, or c.14 per cent(1) of the Group's market capitalisation.
With continued cost of living pressures we know that 2023 was challenging for
many. We were proactive in providing support. By using data and insights to
gain a deeper understanding of customer needs, we contacted 7.5 million
customers(2) and around 600,000 businesses to help with their financial
resilience. Alongside, we contacted more than 15 million deposit customers to
ensure they are aware of their savings options, supported by our enhanced
propositions, including attractive rates and products. We also recognise the
importance of supporting our colleagues. We have agreed a two-year pay deal
and paid an additional cash award to around 44,000 colleagues. This is
alongside refreshed flexible working policies that balance the needs of our
people and the strategic aims of the Group.
Robust financial performance, in line with guidance
Statutory profit after tax was £5.5 billion. The significant year-on-year
increase was because of both robust 2023 performance and in particular a 2022
restatement in line with IFRS 17 accounting changes. Strong net income of
£17.9 billion was up 3 per cent, driven by a higher banking net interest
margin in line with guidance and 10 per cent growth in underlying other
income, offset by higher operating lease depreciation. Operating costs of
£9.1 billion increased in line with guidance, reflecting higher planned
strategic investment, severance charges, new businesses and inflationary
pressures. Remediation increased to £675 million and included a
£450 million provision for the potential impact of the recently announced
FCA review into historical motor finance commission arrangements. This charge
includes estimates for costs and potential redress. There remains significant
uncertainty as to the extent of any misconduct and customer loss, if any, the
nature of any remediation action, if required, and its timing. Hence the
impact could materially differ from the provision, both higher or lower. We
saw strong asset quality with credit performance across portfolios broadly at
or favourable to pre-pandemic levels. The impairment charge of £308 million
includes a significant write-back and improved economic assumptions. Excluding
these the asset quality ratio was 29 basis points, still in line with our
guidance.
The Group's balance sheet was resilient in the face of a challenging operating
environment. Excluding the impact of securitisations, loans and advances were
flat. Within the mortgage book strong customer retention in fixed products was
more than offset by continued roll-off from reversionary products. There was
also growth in unsecured Retail lending and Motor Finance. The Group saw
growth of over 12 per cent in assets under administration within Insurance,
Pensions and Investments, including £5.1 billion of net new money. Customer
deposits decreased £3.9 billion to £471.4 billion, although were largely
stable in the second half of the year. Retail deposits were down £2.4
billion, which included an £11.3 billion reduction in Retail current
accounts and a £12.4 billion increase in Retail savings balances supported by
an enhanced savings proposition and proactive customer communications. In
Commercial Banking, deposits were 1 per cent lower at £162.8 billion,
reflecting targeted growth in Corporate and Institutional Banking offset by a
reduction in Small and Medium Businesses.
Delivery of our purpose-driven strategy
We have a clear strategic vision to become a customer-focused digital leader
and integrated financial services provider able to capitalise on new
opportunities at scale. Our strategy is purpose-driven, with a clear focus on
areas where we can profitably grow and make the greatest impact in Helping
Britain Prosper in a sustainable and inclusive way. We believe our day-to-day
business activities that are helping customers finance their ambitions and
growth are underpinned by our purpose. In that context, we also have
particular initiatives that highlight the alignment of purpose and strategy.
(1) Market capitalisation as at 16 February 2024.
(2) Since April 2022.
GROUP CHIEF EXECUTIVE'S STATEMENT (continued)
In 2023, we launched a partnership with Crisis, the national charity for
people experiencing homelessness. This is a hugely important cause for us
given our business focus and unique ability to enact change. We have launched
a cross-industry initiative to back our joint call for 1 million additional
social and affordable homes. Since 2018 we have supported more than £17
billion of new funding to the social housing sector, including £2.7 billion
in 2023. We are also aware of the importance of creating a fully inclusive
organisation within our Group that is representative of modern-day Britain. We
have pledged to double the representation of senior colleagues with
disabilities by 2025, in addition to our existing significant commitments on
gender and race.
In December, I joined global businesses and policy makers at COP 28 to discuss
how to accelerate the environmental transition. Reaching net zero relies on
government, industry and society acting together with certainty, pace and
focus. We are realistic that insufficient progress in policy commitments will
limit the Group's ability to achieve the net zero ambitions to which we remain
committed. We have made significant headway on our sustainability agenda in
2023, in particular exceeding our target for £15 billion of sustainable
financing within our Corporate and Institutional Banking franchise, originally
set for the end of 2024. We are continuing to challenge ourselves and have set
a new Commercial Banking target of £30 billion of sustainable financing for
2024 to 2026, which will take the cumulative total within the division to £45
billion by 2026. This is alongside new emissions reduction targets for
Commercial and Residential Real Estate, Road Passenger Transport and
Agriculture lending.
Within our Retail business we have continued to support customers in reducing
their emissions by growing our low carbon transport business through the
acquisition of Tusker. We now finance 1 in 8 ultra low emission vehicles on
UK roads. We have also launched a solar panel proposition with Effective Home
to expand our home retrofitting ecosystem. We increasingly recognise the need
to expand our sustainability strategy to broader environmental goals and have
launched our first pledge to halt and reverse nature losses in our own green
spaces. Overall, our sustainability strategy represents a significant
strategic and commercial opportunity, consistent with our purpose.
Stepping back, in the context of a fast changing external environment, it is
clear that our purpose-driven strategy remains the right one. By focusing on
Helping Britain Prosper we can deliver our strategic goals and produce higher,
more sustainable returns to the benefit of all of our stakeholders. To achieve
this, we are investing significantly in the transformation of the business. In
February 2022 we committed to £3 billion of incremental investment in the
three years to 2024 and £4 billion to 2026. During 2023, the Group invested a
further £1.3 billion as part of this plan and delivered tangible growth and
cost outcomes that leave us well placed to meet our 2024 and 2026 financial
commitments. We have started to demonstrate this successful execution to the
market with two strategic seminars last year and two further seminars planned
in the first half of 2024 as we continue to build confidence around our
progress.
Driving revenue growth and diversification
Around two-thirds of our strategic investment is weighted towards growth and
our ambition to generate c.£0.7 billion of additional revenues by 2024 and
c.£1.5 billion by 2026. The Consumer business will deliver approximately 30
per cent of these incremental revenues and, as shown in the seminar in
October, we are making strong progress in deepening and innovating within this
business. We are the UK's largest digital bank, and now have 21.5 million
digitally active users, up 17 per cent since 2021 and significantly exceeding
our 2024 target of more than 10 per cent growth. This creates significant
opportunities to deepen our customer relationships using data and insights.
For example, we have personalised our communications to make them more
targeted, with 18 million customers registered for marketing. We have also
launched new propositions such as our mobile-first home onboarding journey and
our home ecosystem, both of which are improving our retention of customers and
our ability to offer complementary products such as protection insurance.
In 2023 we completed our acquisition of Tusker, a stand-out business in the
salary sacrifice market for predominantly ultra-low emission vehicles helping
us both meet our net zero ambitions and deliver capability and growth in an
area in which we were underweight. Tusker has already grown its fleet by
around 60 per cent since acquisition.
We have made good progress on our mass affluent business in 2023, launching
'Lloyds Bank 360', a mobile-first proposition that includes a holistic view of
wealth, educational materials and financial coaching. In addition, we launched
Ready-Made Investments, a proposition made possible through Embark, which we
acquired in 2022. The mass affluent customer base continues to grow, now at
more than 2.5 million customers, from just over 2 million at the end of 2021.
GROUP CHIEF EXECUTIVE'S STATEMENT (continued)
From a Commercial Banking perspective we continue to transform the business to
help companies finance their growth and navigate an increasingly tough
environment. Within our Small and Medium Businesses franchise we have made
significant strides in our multi-year journey to build a front-to-back digital
business, including mobile-first onboarding and personalised cash flow
insights. We are continuing to deliver targeted growth in our Corporate and
Institutional Banking business through serving additional client needs,
particularly by extending our competitive advantage in transaction banking,
and expanding our institutional footprint. This has helped deliver more than
20 per cent growth in Corporate and Institutional Banking underlying other
income since full year 2021 as we build momentum with sustainable and capital
efficient growth.
Investing in efficiency and enablers to improve delivery
Strengthening cost and capital efficiency in the context of growing and
diversifying our revenues is crucial. We have guided to c.£1.2 billion of
gross cost savings by 2024, an increase from the original £1 billion as we
look to mitigate inflationary pressures. In 2026 we are targeting a below 50
per cent cost:income ratio. We have made strong progress against our 2024 cost
saving target, and have now realised around 60 per cent of the savings. This
has been achieved through continued investment in digital solutions and
improving cost-to-serve by, for example, reducing our office footprint by more
than 20 per cent since the end of 2021 and optimising our branch footprint.
This active cost management is helping us deliver our guided cost outcomes at
a time of heightened inflationary pressure.
In respect of capital efficiency we have continued to demonstrate
risk-weighted assets discipline and careful balance sheet management whilst
pursuing new growth opportunities through investments in capital-lite and fee
generating business. We are also reducing the claims on our use of capital,
including for example eliminating our pension deficit, with no further deficit
contributions in this triennial period.
We are investing in maximising the potential of people, technology and data,
the key enablers of our strategy. Investing in the talent, skills and
capabilities needed for long-term growth is critical. We have made more than
2,500 new hires in technology and data roles in 2023 and we have completed a
senior leadership development programme centred around the organisational
shifts we need in order to successfully execute our strategy. We are
transforming our change process in the pursuit of increased efficiency and
responsiveness. Since the start of our strategy, we have decommissioned more
than 400 legacy technology applications and more than doubled the number of
APIs we have created as we continue to migrate onto cloud-based platforms
In conclusion, our purpose-driven strategy and strong business model ensures
that we can continue to support customers and achieve our societal and
strategic goals whilst delivering against our financial targets. We are
successfully transforming the bank and will thereby continue to deliver for
all of our stakeholders.
2024 guidance
We are progressing well towards our ambition of generating higher, more
sustainable returns for shareholders and are on track to achieve our 2024
strategic financial outcomes. Based on our current macroeconomic assumptions
the Group expects:
• Banking net interest margin of greater than 290 basis points
• Operating costs c.£9.3 billion
• Asset quality ratio of less than 30 basis points
• Return on tangible equity c.13 per cent
• Capital generation of c.175 basis points(1)
• To pay down to a CET1 ratio of c.13.5 per cent
2026 guidance
Based on the expected macroeconomic environment and confidence in our
strategy, the Group is maintaining its medium-term guidance for 2026:
• Cost:income ratio of less than 50 per cent
• Return on tangible equity of greater than 15 per cent
• Capital generation of greater than 200 basis points(1)
The Board continually reviews the appropriate level of ongoing capital to
hold. Based on regulatory, economic and business considerations, the Group now
expects to pay down to c.13.0 per cent by the end of 2026.
(1) Excluding capital distributions. Inclusive of ordinary dividends
received from the Insurance business in February of the following year.
SUMMARY OF GROUP RESULTS(A)
Statutory results
The Group's statutory profit before tax for 2023 was £7,503 million, with the
increase on the prior year materially driven by the restatement of earnings
for the IFRS 17 accounting change in 2022. In addition, 2023 has benefited
from higher net income and a significantly lower impairment charge, partly
offset by increased operating expenses as expected. Statutory profit after tax
was £5,518 million.
The Group's statutory income statement includes income and expenses
attributable to the policyholders of the Group's long-term assurance funds,
investors in the Group's non-participating investment contracts and third
party interests in consolidated funds. These items materially offset in
arriving at profit before tax but can, depending on market movements, lead to
significant variances on a statutory basis between total income and net
finance income in respect of insurance and investment contracts from one
period to the next. In 2023, due to market conditions, the Group recognised
net gains on policyholder investments within total income, which were
materially offset by the corresponding net finance expense in respect of
insurance and investment contracts.
Total income, after net finance income in respect of insurance and investment
contracts for the year was £18,629 million, an increase of 20 per cent on
2022, largely reflecting an exceptional charge in the prior year under IFRS 17
from contract modifications in Insurance, Pensions and Investments. Net
interest income of £13,298 million was up 3 per cent on the prior year,
driven by stronger margins and higher average interest-earning assets,
including growth in the open mortgage book, Retail unsecured and European
retail business. Other income amounted to a gain of £22,107 million in 2023,
compared to a loss of £18,268 million in 2022. Net finance income in respect
of insurance and investment contracts was a loss of £16,776 million in the
year compared to a gain of £20,887 million in 2022, reflecting improved
equity and debt markets.
The Group maintained its focus on cost management, whilst increasing strategic
investment as planned. Total operating expenses of £10,823 million were 17
per cent higher than in the prior year. This reflects higher planned strategic
investment, severance charges, new business costs and inflationary effects. In
2023 the Group recognised remediation costs of £675 million (2022:
£255 million) relating to pre-existing programmes and a provision for the
potential impact of the recently announced FCA review into historical motor
finance commission arrangements. The higher operating lease depreciation
charge reflected the declines in used car prices (notably in the fourth
quarter), impacting portfolio valuations and gains on disposals, the
depreciation cost of higher value vehicles and the Tusker acquisition in the
first quarter and its subsequent growth.
Impairment was a net charge of £303 million in 2023 (2022:
£1,522 million). The decrease includes a significant write-back following
the full repayment of debt from a single name client, in addition to a credit
from modest revisions to the Group's economic outlook compared to the
deterioration in the economic outlook captured last year.
The Group recognised a tax expense of £1,985 million in the year, compared
to £859 million in 2022, reflecting increased profits. The prior year
included a £222 million benefit in relation to tax deductibility of
provisions made in 2021.
Loans and advances to customers fell by £5.2 billion during 2023 to
£449.7 billion, in the context of securitisations of £5.2 billion,
including £2.5 billion of legacy Retail mortgages (£2.1 billion in the
closed mortgage book) during the first quarter and £2.7 billion of Retail
unsecured loans in the fourth quarter. Excluding these movements, loans and
advances to customers were stable. During the fourth quarter, loans and
advances to customers reduced by £2.4 billion, mainly due to the impact of
the securitisation of £2.7 billion of Retail unsecured loans.
Customer deposits at £471.4 billion decreased by £3.9 billion (1 per cent)
since the end of 2022. This includes a decrease in Retail current account
balances of £11.3 billion as a result of higher spend and a more competitive
savings market, including the Group's own savings offers. In Retail savings
and Wealth, balances have increased by a combined £8.9 billion, with a
significant proportion transferred from the Group's current account customer
base given attractive customer offers. Commercial Banking deposits were down
£1.0 billion during 2023, reflecting targeted growth in Corporate and
Institutional Banking offset by a reduction in Small and Medium Businesses.
The trend of customer deposit mix change within the Group was slower in the
fourth quarter versus the third quarter.
Total equity of £47,365 million at 31 December 2023 increased from £43,911
million at 31 December 2022. The movement reflected attributable profit for
the year, movements in the cash flow hedge reserve and the issuance of other
equity instruments, partially offset by market movements impacting pensions,
alongside dividends paid and the impact of the share buyback programme. In
February 2023, the Board decided to return surplus capital in respect of 2022
through a share buyback programme of up to £2 billion. This commenced in
February 2023 and completed on 25 August 2023 with c.4.4 billion (c.7 per
cent) ordinary shares repurchased.
SUMMARY OF GROUP RESULTS (continued)
Underlying results(A)
The Group's underlying profit for 2023 was £7,809 million, an increase of 11
per cent compared to £7,028 million in the prior year. Growth in net income
and a lower underlying impairment charge was partly offset by expected higher
operating costs and remediation. Underlying profit in the fourth quarter was
down 14 per cent compared to the third quarter, with the impairment credit
more than offset by lower underlying net interest income, higher operating
lease depreciation and higher total costs, impacted by the bank levy,
severance charges and remediation.
Net income(A)
2023 2022 Change
£m
£m %
Underlying net interest income 13,765 13,172 5
Underlying other income(1) 5,123 4,666 10
Operating lease depreciation(2) (956) (373)
Net income(A,1) 17,932 17,465 3
Banking net interest margin(A) 3.11% 2.94% 17bp
Average interest-earning banking assets(A) £453.3bn £452.0bn
(1) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
(2) Net of profits on disposal of operating lease assets of £93 million
(2022: £197 million).
Net income of £17,932 million was up 3 per cent on the prior year, with
higher net interest income and underlying other income, partially offset by an
increased charge for operating lease depreciation. Net interest income in the
year of £13,765 million was up 5 per cent, driven by a stronger banking net
interest margin of 3.11 per cent (2022: 2.94 per cent), in line with
guidance and higher average interest-earning banking assets. The net interest
margin benefited from UK Bank Rate increases and higher structural hedge
earnings from the rising rate environment, partly offset by expected headwinds
due to deposit mix effects and asset margin compression, particularly in the
mortgage book. Average interest-earning banking assets at £453.3 billion
modestly increased compared to 2022 although slightly lower than the fourth
quarter of 2022 as expected. The increase in average interest earning assets
in the year was due to the open mortgage book, Retail unsecured and the
European retail business, offset by closed mortgage book run-off and continued
repayments of government-backed lending in the Small and Medium Businesses
portfolio. Net interest income in 2023 included non-banking interest expense
of £311 million (2022: £111 million), which continues to increase as a
result of higher funding costs and growth in the Group's non-banking
businesses.
Net interest income in the fourth quarter of £3,317 million was lower than
the third quarter, with a lower net interest margin of 2.98 per cent (three
months to 30 September 2023: 3.08 per cent) from mortgage pricing and deposit
mix headwinds, including in Small and Medium Businesses, partly mitigated by
the structural hedge and a modest reduction in average interest earning
assets. The Group expects the banking net interest margin for 2024 to be
greater than 290 basis points with average interest-earning assets over 2024
expected to be greater than £450 billion.
The Group manages the risk to earnings and capital from movements in interest
rates by hedging the net liabilities which are stable or less sensitive to
movements in rates. The notional balance of the sterling structural hedge was
£247 billion (31 December 2022: £255 billion, 30 September 2023: £251
billion) with a weighted average duration of approximately three-and-a-half
years (31 December 2022: approximately three-and-a-half years), representing
a modest notional balance reduction in the second half of the year, consistent
with guidance. The Group expects a further modest reduction in the notional
balance during 2024, stabilising over the course of the year. The Group
generated £3.4 billion of total income from sterling structural hedge
balances in 2023, representing material growth over the prior year
(2022: £2.6 billion). The Group expects sterling structural hedge earnings
in 2024 to be c.£0.7 billion higher than in 2023.
Underlying other income in 2023 of £5,123 million was 10 per cent higher
compared to £4,666 million in 2022. This was driven by growth across Retail,
Commercial Banking and Insurance, Pensions and Investments. Underlying other
income was broadly stable in the fourth quarter versus the third, with
consistent business unit performance and some impact from severe weather event
claims in the Insurance business.
SUMMARY OF GROUP RESULTS (continued)
Retail underlying other income was up 25 per cent on 2022, due to higher
current account and credit card activity, improved Lex performance and growth
from the acquisition of Tusker. Within Commercial Banking 8 per cent growth
in the year reflected improved performance in capital markets financing and
trading. Insurance, Pensions and Investments underlying other income was 26
per cent higher than the prior year driven by business growth, favourable
market returns and the accounting unwind benefit of adding a drawdown feature
in 2022 to existing longstanding and workplace pension business. In Equity
Investments and Central Items underlying other income was impacted mainly by
higher funding costs on structured medium term notes in issue (offset by
interest income earned on the placement of the funds raised) and to a limited
extent by subdued exit markets affecting the Group's equity investment
businesses.
The Group delivered good organic growth in Insurance, Pensions and Investments
and Wealth (reported within Retail) assets under administration (AuA), with
combined £5.4 billion net new money in open book AuA over the year. In total,
open book AuA now stand at c.£179 billion.
Operating lease depreciation of £956 million increased compared to the prior
year (2022: £373 million). This reflects the declines in used car prices
(notably in the fourth quarter), impacting portfolio valuations and gains on
disposals, the depreciation cost of higher value vehicles and the Tusker
acquisition in the first quarter and its subsequent growth. The £371 million
charge in the quarter is elevated due to a sharp reduction in used car prices
and updated residual value provisions. Before the provision increase the
charge would have been c.£270 million in the fourth quarter, from which
modest further increases are expected in 2024 as this charge nears
normalisation and growth continues.
Total costs(A)
2023 2022 Change
£m £m %
Operating costs(A,1) 9,140 8,672 (5)
Remediation 675 255
Total costs(A,1) 9,815 8,927 (10)
Cost:income ratio(A,1) 54.7% 51.1% 3.6pp
(1) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
Total costs, including remediation, of £9,815 million were 10 per cent higher
than in the prior year. Operating costs were in line with guidance at
£9,140 million, up 5 per cent, with higher planned strategic investment,
severance charges, new business costs and inflationary impacts, partially
mitigated by continued cost efficiency. Operating costs were higher in the
fourth quarter than in the third, impacted by the bank levy as well as
severance charges. The Group's cost:income ratio, including remediation, for
the year was 54.7 per cent, compared to 51.1 per cent in the prior year.
Operating costs are expected to be c.£9.3 billion in 2024, reflecting
severance charges and slightly higher than expected inflation. This does not
include a potential cost increase of around £0.1 billion, driven by a sector
wide change to the way in which the Bank of England charges for supervisory
costs. If enacted, this will result in an equivalent, offsetting net interest
income gain and have a net neutral profit impact.
The Group recognised remediation costs of £675 million in the year (2022:
£255 million), with £541 million in the fourth quarter, in relation to
pre-existing programmes and the potential impact of the recently announced FCA
review into historical motor finance commission arrangements. There have been
no further charges relating to HBOS Reading and the provision held continues
to reflect the Group's best estimate of its full liability, albeit
uncertainties remain.
The Group has recognised a charge of £450 million for costs and potential
redress in light of the Financial Conduct Authority (FCA) section 166 review
of historical motor finance commission arrangements and sales across several
firms announced in January 2024. The review follows the recent decisions by
the Financial Ombudsman Service (FOS) in favour of the customer in relation to
motor finance commission complaints. The charge includes estimates for
operational and legal costs, including litigation costs, together with
estimates for potential awards, based on various scenarios using a range of
assumptions, including for example, commission models, commission rates,
applicable time periods (between 2007 and 2021), response rates and uphold
rates. Costs and awards could arise in the event that the FCA concludes there
has been misconduct and customer loss that requires remediation, or from
adverse litigation decisions. However, while the FCA review is progressing
there is significant uncertainty as to the extent of misconduct and customer
loss, if any, the nature and extent of any remediation action, if required,
and its timing. The ultimate financial impact could therefore materially
differ from the amount provided, both higher or lower. The Group welcomes the
FCA intervention through an independent section 166 review.
SUMMARY OF GROUP RESULTS (continued)
Underlying impairment(A)
2023 2022 Change
£m
£m %
Charges (credits) pre-updated MES(1)
Retail 1,064 773 (38)
Commercial Banking (487) 122
Other (12) 20
565 915 38
Updated economic outlook
Retail (233) 600
Commercial Banking (24) 395
Other - (400)
(257) 595
Underlying impairment charge(A) 308 1,510 80
Asset quality ratio(A) 0.07% 0.32% (25)bp
Total expected credit loss allowance (at end of year)(A) 4,337 5,284 18
(1) Impairment charges excluding the impact from updated economic outlook
taken each quarter.
(
)
Asset quality remains strong with credit performance across portfolios
relatively stable in the quarter and remaining broadly at, or favourable to
pre-pandemic experience. Underlying impairment was £308 million (2022:
£1,510 million), resulting in an asset quality ratio of 7 basis points. The
fourth quarter impairment credit of £541 million includes the impact of a
significant write-back following the full repayment of debt from a single name
client. The charge for 2023 also benefits from a net £257 million multiple
economic scenarios (MES) release (2022: £595 million charge), including a
£188 million release in the fourth quarter, reflecting modest revisions to
the Group's economic outlook. Given this outlook and ongoing portfolio
resilience, the Group now expects the asset quality ratio to be less than
30 basis points in 2024.
The pre-updated MES impairment charge was £565 million (2022:
£915 million), including a net £487 million release in Commercial Banking
largely driven by the significant write-back in the fourth quarter. Excluding
this, the equivalent asset quality ratio for the year was 29 basis points,
also in line with guidance of less than 30 basis points. Compared to the prior
year, while performance has been resilient, there has been modest
deterioration from a low base, primarily in legacy variable rate UK mortgage
portfolios. The impairment charge also includes the impact of higher discount
rates reducing the value of future recoveries, as well as the expected credit
loss (ECL) allowance build from Stage 1 loans rolling forward into a
deteriorating economic outlook.
In UK mortgages, new to arrears were relatively stable throughout 2023, having
increased slightly at the start of the year. Flows to default increased
through the year, also largely driven by legacy variable rate customers as
mentioned above, with trends stabilising in the second half. Unsecured
portfolios continue to exhibit stable new to arrears and default trends
broadly at, or below pre-pandemic levels. The Commercial Banking portfolio's
credit quality remains resilient with limited deterioration.
The ECL allowance of £4.3 billion (31 December 2022: £5.3 billion) continues
to reflect a probability-weighted view of economic scenarios built out from
the base case and its associated conditioning assumptions. Consistent with
prior years, a 30 per cent weighting is applied to the base case, upside and
downside scenarios and a 10 per cent weighting to the severe downside. GDP
growth remained subdued at 0.5 per cent in 2023 and is expected to remain low
in future years with unemployment expected to rise modestly to 5.2 per cent by
the end of 2024. House prices proved more resilient in the second half of the
year than previously assumed and as a result the latest base case assumes a
more modest fall in 2024 of 2.2 per cent (30 September 2023: 2.4 per cent).
Overall, judgemental adjustments to ECL at £0.1 billion have reduced by £0.3
billion in the year. Notably, reductions related to adjustments now captured
within models and the impact of taking a larger negative adjustment reducing
ECL to reflect resilient corporate insolvency rates within the portfolio. Key
judgemental adjustments remain in place to cover continued risks from higher
base rate and inflationary pressures in the Retail portfolios as well as risks
from current valuations in certain Commercial Real Estate segments.
SUMMARY OF GROUP RESULTS (continued)
Stage 2 assets have reduced in the year to £56.5 billion (31 December 2022:
£65.7 billion), with 91.3 per cent of Stage 2 loans up to date
(31 December 2022: 92.7 per cent). Stage 3 assets at £10.1 billion have
reduced in the fourth quarter and relative to the end of 2022 (31 December
2022: £10.8 billion). These reductions in Stage 2 and Stage 3 include the
impact from asset transfers from Stage 2 to Stage 1 as a result of
improvements in the economic forecasts and the securitisations of legacy
Retail mortgages in the first quarter and Retail unsecured loans in the fourth
quarter, as well as the full repayment of debt from a large single name client
in Stage 3.
Restructuring, volatility and other items
2023 2022 Change
£m
£m %
Underlying profit(A,1) 7,809 7,028 11
Restructuring (154) (80) (93)
Volatility and other items(1)
Market volatility and asset sales(1) 35 (1,978)
Amortisation of purchased intangibles (80) (70) (14)
Fair value unwind (107) (118) 9
(152) (2,166) 93
Statutory profit before tax(1) 7,503 4,782 57
Tax expense(1) (1,985) (859)
Statutory profit after tax(1) 5,518 3,923 41
Earnings per share(1) 7.6p 4.9p 2.7p
Return on tangible equity(A,1) 15.8% 9.8% 6.0pp
Tangible net assets per share(A,1) 50.8p 46.5p 4.3p
(1) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
Restructuring costs for the year were £154 million (2022: £80 million) and
include costs relating to the integration of Embark and Tusker, as well as
one-off costs to ensure the continuity of some customer communication services
following the administration of a key supplier. Volatility and other items
were a net loss of £152 million for the year (2022: net loss of
£2,166 million). This comprised £35 million positive market volatility and
asset sales, £80 million for the amortisation of purchased intangibles (2022:
£70 million) and £107 million relating to fair value unwind (2022:
£118 million). Market volatility and asset sales included positive banking
volatility, partly offset by negative impacts from insurance volatility.
Volatility and other items in 2022 included an exceptional charge under IFRS
17 from contract modifications in Insurance, Pensions and Investments,
predominantly in the second half, following the addition of a drawdown feature
to existing longstanding and workplace pensions as a significant customer
enhancement.
The return on tangible equity for the year was 15.8 per cent (2022: 9.8 per
cent), reflecting the Group's robust financial performance. The Group expects
the return on tangible equity for 2024 to be c.13 per cent. Earnings per share
were 7.6 pence for the year (2022: 4.9 pence).
Tangible net assets per share as at 31 December 2023 were 50.8 pence, up from
46.5 pence at 31 December 2022. The increase resulted from higher profits,
cash flow hedge reserve unwind and a reduction in the number of shares
following the share buyback programme announced in February 2023, partly
offset by a negative market impact on the pensions accounting surplus, and
capital distributions. Tangible net assets per share were 3.6 pence higher
than at 30 September 2023 given continued profitability and an increase in
the cash flow hedge reserve following interest rate movements, partly offset
by pensions surplus changes. The share buyback programme in respect of 2022
completed on 25 August 2023, with c.4.4 billion (c.7 per cent) ordinary
shares repurchased.
SUMMARY OF GROUP RESULTS (continued)
Tax
The Group recognised a tax expense of £1,985 million in the year (2022: £859
million) reflecting the increased profits. The prior year included a £222
million benefit in relation to tax deductibility of provisions made in 2021.
The Group expects a medium-term effective tax rate of around 27 per cent,
which includes the impact of the reduction in the rate of banking surcharge
and the increase in the corporation tax rate from 19 per cent to 25 per cent,
both of which came into effect on 1 April 2023. An explanation of the
relationship between the tax expense and the Group's accounting profit for the
year is set out on page 61.
Balance sheet
At 31 Dec At 31 Dec Change
2023
2022
%
Loans and advances to customers £449.7bn £454.9bn (1)
Customer deposits £471.4bn £475.3bn (1)
Loan to deposit ratio(A) 95% 96% (1)pp
Wholesale funding £98.7bn £100.3bn (2)
Wholesale funding <1 year maturity £35.1bn £37.5bn (6)
Of which money market funding <1 year maturity(1) £23.8bn £24.8bn (4)
Liquidity coverage ratio - eligible assets(2) £136.0bn £144.7bn (6)
Liquidity coverage ratio(3) 142% 144% (2)pp
Net stable funding ratio(4) 130% 130%
(1) Excludes balances relating to margins of £2.4 billion (31 December
2022: £2.6 billion).
(2) Eligible assets are calculated as a monthly rolling simple average of
month end observations over the previous 12 months post any liquidity
haircuts.
(3) The liquidity coverage ratio is calculated as a monthly rolling simple
average over the previous 12 months.
(4) Net stable funding ratio is based on an average of the four previous
quarters.
(
)
Loans and advances to customers fell by £5.2 billion during 2023 to
£449.7 billion, in the context of securitisations of £5.2 billion,
including £2.5 billion of legacy Retail mortgages (£2.1 billion in the
closed mortgage book) during the first quarter and £2.7 billion of Retail
unsecured loans in the fourth quarter. Excluding these movements, loans and
advances to customers were stable, with £4.7 billion growth across
unsecured, UK Motor Finance and European retail lending, offset by a
£0.7 billion reduction in the open mortgage book, a £1.8 billion reduction
in the closed mortgage book and a £4.7 billion reduction in Small and Medium
Businesses, principally from repayment of government-backed lending. During
the fourth quarter, loans and advances to customers reduced by £2.4 billion,
mainly due to the impact of the securitisation of £2.7 billion of Retail
unsecured loans. Securitisation activity is conducted to manage risk on the
balance sheet and to offset regulatory capital pressures, where market
opportunities allow net present value positive transactions for the Group.
Customer deposits at £471.4 billion decreased by £3.9 billion (1 per cent)
since the end of 2022. This includes a decrease in Retail current account
balances of £11.3 billion as a result of higher spend and a more competitive
savings market, including the Group's own savings offers. In Retail savings
and Wealth, balances have increased by a combined £8.9 billion, with a
significant proportion transferred from the Group's current account customer
base given attractive customer offers. Commercial Banking deposits were down
£1.0 billion during 2023, reflecting targeted growth in Corporate and
Institutional Banking offset by a reduction in Small and Medium Businesses.
The trend of customer deposit mix change within the Group was slower in the
fourth quarter versus the third quarter.
The Group has a large, high quality liquid asset portfolio held mainly in cash
and government bonds, with all assets hedged for interest rate risk. The
Group's liquid assets continue to significantly exceed regulatory requirements
and internal risk appetite, with a stable and strong liquidity coverage ratio
of 142 per cent (31 December 2022: 144 per cent) and a strong net stable
funding ratio of 130 per cent (31 December 2022: 130 per cent). The loan to
deposit ratio of 95 per cent, broadly stable on 2022, continues to reflect a
robust funding and liquidity position and offers the potential for lending
growth. The Group's funding and liquidity position is further discussed on
page 51.
SUMMARY OF GROUP RESULTS (continued)
Capital
At 31 Dec At 31 Dec Change
2023
2022
%
CET1 ratio 14.6% 15.1% (0.5)pp
Pro forma CET1 ratio(A,1) 13.7% 14.1% (0.4)pp
UK leverage ratio 5.8% 5.6% 0.2pp
Risk-weighted assets £219.1bn £210.9bn 4
Capital generation
Pro forma CET1 ratio as at 31 December 2022(1) 14.1%
Banking build (including impairment charge) (bps) 237
Insurance dividend (bps) 12
Risk-weighted assets (bps) (25)
Fixed pension deficit contributions (bps) (30)
Other movements (bps)(2) 29
Capital generation (bps) 223
Retail secured CRD IV model updates and phased unwind of IFRS 9 transitional (50)
relief (bps)
Capital generation (post CRD IV and transitional headwinds) (bps) 173
Tusker acquisition (bps) (21)
Ordinary dividend (bps) (86)
Share buyback accrual (bps) (98)
Variable pension contributions (bps)(3) (9)
Pro forma CET1 ratio as at 31 December 2023(1) 13.7%
(1) 31 December 2022 and 31 December 2023 reflect both the full impact of
the share buybacks announced in respect of 2022 and 2023 and the ordinary
dividends received from the Insurance business in February 2023 and February
2024 respectively, but exclude the impact of the phased unwind of IFRS 9
relief on 1 January 2023 and 1 January 2024 respectively.
(2) Includes share-based payments and market volatility.
(3) Residual aggregate deficit of £250 million, paid by the Group in
December 2023.
The Group's pro forma CET1 capital ratio at 31 December 2023 was 13.7 per cent
(31 December 2022: 14.1 per cent pro forma). Capital generation before
regulatory headwinds during the year was 223 basis points, reflecting strong
banking build, the £250 million dividend received from the Insurance
business and other movements. These impacts were partially offset by
risk-weighted asset increases (before CRD IV model updates within Retail
secured and net of optimisation) and the full year payment (£800 million) of
fixed pension deficit contributions made to the Group's three main defined
benefit pension schemes. Regulatory headwinds of 50 basis points largely
reflect a £5 billion risk-weighted assets adjustment for part of the impact
of Retail secured CRD IV model updates. They also reflect the end of IFRS 9
static transitional relief and the reduction in the transitional factor
applied to IFRS 9 dynamic relief. Capital generation after the impact of
these regulatory headwinds was 173 basis points. This benefited by just under
30 basis points from an impairment credit driven by a significant write-back
in the fourth quarter which was materially offset by around 15 basis points
in relation to the £450 million charge arising from the potential impact of
the FCA review of historical motor finance commission arrangements.
The impact of the interim ordinary dividend paid in September 2023 and the
accrual for the recommended final ordinary dividend equated to 86 basis
points, with a further 98 basis points utilised to cover the accrual for the
announced ordinary share buyback programme and 9 basis points for variable
pension contributions reflecting the payment to address the £250 million
residual aggregate deficit in the fourth quarter. The acquisition of Tusker
utilised 21 basis points of capital.
Excluding the Insurance dividend received in February 2024 and the full impact
of the announced ordinary share buyback programme, the Group's CET1 capital
ratio at 31 December 2023 was 14.6 per cent (31 December 2022: 15.1 per
cent).
The Group expects capital generation in 2024 to be c.175 basis points after
taking further expected in-year regulatory headwinds and reaffirms guidance
for capital generation in 2026 of greater than 200 basis points.
SUMMARY OF GROUP RESULTS (continued)
Risk-weighted assets have increased by £8.2 billion during the year to
£219.1 billion at 31 December 2023 (31 December 2022: £210.9 billion).
This includes the impact of Retail secured CRD IV model updates of £5
billion, of which a further £2 billion was recognised in the fourth quarter.
Excluding this, lending, operational and market risk increases, a modest
uplift from credit and model calibrations and other movements were partly
offset by optimisation, including capital efficient securitisation activity
within the balance sheet. In relation to the Retail secured CRD IV models, it
is estimated that a further £5 billion increase will be required over 2024
to 2026, noting that this will be subject to final model outcomes. The Group's
risk-weighted assets guidance for 2024 remains unchanged at between
£220 billion and £225 billion.
The PRA provided an update to the Group's Pillar 2A CET1 capital requirement
during the fourth quarter, with the requirement remaining at around 1.5 per
cent of risk-weighted assets. In July 2023 the Group's countercyclical capital
buffer (CCyB) rate increased to 1.8 per cent (from 0.9 per cent) in total
following the increase in the UK CCyB rate to 2 per cent (from 1 per cent).
As a result, the Group's regulatory CET1 capital requirement is now around
12 per cent. The Board's revised view of the ongoing level of CET1 capital
required to grow the business, meet current and future regulatory requirements
and cover economic and business uncertainties is now 13.0 per cent
(previously 13.5 per cent). This continues to include a management buffer of
around 1 per cent. In order to manage risks and distributions in an orderly
way, the Board therefore expects to pay down to c.13.5 per cent by the end of
2024 before progressing towards paying down to the revised capital target of
13.0 per cent by the end of 2026.
Pensions
The Group has completed the triennial valuation of its main defined benefit
pension schemes as at 31 December 2022. Following a fixed contribution of
£800 million in the first half of 2023, a residual aggregate deficit of £250
million was agreed with the Trustee which the Group paid in December 2023.
There will be no further deficit contributions, fixed or variable, for this
triennial period (to 31 December 2025).
Dividend and share buyback
The Group has a progressive and sustainable ordinary dividend policy whilst
maintaining the flexibility to return further surplus capital through buybacks
or special dividends.
In February 2023, the Board decided to return surplus capital in respect of
2022 through a share buyback programme of up to £2 billion. This commenced in
February 2023 and completed on 25 August 2023 with c.4.4 billion (c.7 per
cent) ordinary shares repurchased.
The Board has recommended a final ordinary dividend of 1.84 pence per share,
which, together with the interim ordinary dividend of 0.92 pence per share
totals 2.76 pence per share, an increase of 15 per cent compared to 2022, in
line with the Board's commitment to capital returns. The Board has also
announced its intention to implement an ordinary share buyback of up to £2.0
billion which will commence as soon as is practicable and is expected to be
completed by 31 December 2024.
Based on the total ordinary dividend and the intended ordinary share buyback
the total capital return in respect of 2023 will be up to £3.8 billion,
equivalent to c.14 per cent(1) of the Group's market capitalisation value.
(1) Market capitalisation as at 16 February 2024.
DIVISIONAL RESULTS
Retail
Retail offers a broad range of financial services products to personal
customers, including current accounts, savings, mortgages, credit cards,
unsecured loans, motor finance and leasing solutions. Its aim is to build
enduring relationships that meet more of its customers' financial needs and
improve their financial resilience throughout their lifetime, with
personalised products and services. Retail operates the largest digital bank
and branch network in the UK and continues to improve service levels and
reduce conduct risk, whilst working within a prudent risk appetite. Through
strategic investment, alongside increased use of data, Retail will deepen
existing consumer relationships and broaden its intermediary offering, to
improve customer experience, operational efficiency and increasingly tailor
propositions.
Strategic progress
• UK's largest digital bank with 21.5 million digitally active users, up 9
per cent on 2022. The Group's market leading(1) mobile app has seen
interactions with the mobile messaging service more than double to over 6
million this year
• Enhanced mortgage customer journey, including a personalised
mobile-first onboarding journey where customers manage and track their journey
from researching options to completion, and a protection tool that allows for
richer conversations with new customers, driving a 5 percentage point increase
in branch take-up rates versus the prior year
• Proactively contacted 675,000 mortgage customers to encourage review of
their available options. Created Mortgage Charter support site where customers
can request temporary interest-only payments and term extensions
• 1 percentage point growth in credit card spend market share since 2021,
supported by an enhanced proposition, including improved cashback offerings,
fee-free foreign exchange cards and new Mastercard World Elite rewards card
• Created new mass affluent proposition, 'Lloyds Bank 360', bringing
together relevant products and services in a mobile-first experience.
Delivered a new financial coaching service, supporting 6,000 customers in 2023
• Over 15 million savings customers engaged to raise awareness of enhanced
savings products, including limited withdrawal products offering higher rates
than instant access, whilst retaining flexibility in how savings are accessed
• 8.8 million customers have registered for 'Your Credit Score', the
Group's credit checking tool, with 3.2 million registrations in 2023. Over
500,000 customers have improved their credit score in 2023
• Through our partnership with Citizens Advice, 4,000 customers have
received dedicated support and advice, helping them access £2.5 million of
potential additional income
• On track to meet 2024 sustainability targets, having lent £7.5 billion
to sustainable mortgages(2) and £5.7 billion for financing and leasing of
battery electric and plug-in hybrid vehicles(2). Finance 1 in 8 ultra low
emission vehicles on UK roads, supported by 60 per cent growth in the Tusker
fleet since acquisition in early 2023
Financial performance
• Underlying net interest income 1 per cent lower, driven by mortgage and
unsecured lending margin compression, partly offset by the impact of the
rising rate environment and higher average unsecured lending balances
• Underlying other income up 25 per cent, driven by increased current
account and credit card activity, improved Lex performance and growth from the
acquisition of Tusker
• Operating lease depreciation charge up on 2022 due to declines in used
car prices impacting portfolio valuations and gains on disposals, depreciation
cost of higher value vehicles and the Tusker acquisition and its subsequent
growth
• Operating costs up 6 per cent, reflecting planned strategic investment,
severance charges, inflationary effects and the Tusker acquisition, partly
offset by efficiency initiatives. Remediation costs include a £450 million
provision for the potential impact of the recently announced FCA review into
historical motor finance commission arrangements
• Underlying impairment charge £831 million, lower than the prior year as
updated economic scenarios drove a £233 million credit (2022: £600 million
charge), partly offset by increases observed in the level of UK mortgage new
to arrears and flows to default, primarily legacy variable rate customers,
whilst unsecured performance remained stable
• Customer lending decreased 1 per cent driven by the securitisation of
£2.5 billion of legacy UK mortgages (£2.1 billion within the closed book)
and £2.7 billion of unsecured loans. Excluding these, lending is up £2.2
billion with growth across most products, offset by a £2.5 billion reduction
in the mortgage book, predominantly run-off of the closed book
• Customer deposits decreased 1 per cent, with an £11.3 billion reduction
in current accounts, reflecting higher spend and a more competitive savings
market, including the Group's own offers. In Retail savings and Wealth,
balances have increased by a combined £8.9 billion, significantly from
transfers from the current account customer base
• Risk-weighted assets up 7 per cent in the year, due to the impact of
Retail secured CRD IV model updates, higher lending and a modest uplift from
credit and model calibrations, partly offset by capital efficient
securitisation activity
(1) Comparison to high street banks, based on the November 2023 Financial
Research Survey for England and Wales.
(2) Since 1 January 2022, new residential mortgage lending on property with
an Energy Performance Certificate rating of B or higher at 30 September 2023;
and new lending for Black Horse and operating leases for Lex Autolease and
Tusker at 31 December 2023.
DIVISIONAL RESULTS (continued)
Retail (continued)
Retail performance summary(A)
2023 2022 Change
£m £m %
Underlying net interest income 9,647 9,774 (1)
Underlying other income 2,159 1,731 25
Operating lease depreciation (948) (368)
Net income 10,858 11,137 (3)
Operating costs (5,469) (5,175) (6)
Remediation (515) (92)
Total costs (5,984) (5,267) (14)
Underlying profit before impairment 4,874 5,870 (17)
Underlying impairment charge (831) (1,373) 39
Underlying profit 4,043 4,497 (10)
Banking net interest margin(A) 2.73% 2.76%
Average interest-earning banking assets(A) £365.6bn £362.0bn 1
Asset quality ratio(A) 0.23% 0.38% (15)bp
At 31 Dec 2023 At 31 Dec 2022 Change
£bn
£bn
%
Open mortgage book(1) 298.5 299.6
Closed mortgage book(1) 7.7 11.6 (34)
Credit cards 15.1 14.3 6
UK Retail unsecured loans(1) 6.9 8.7 (21)
UK Motor Finance 15.3 14.3 7
Overdrafts 1.1 1.0 10
Wealth 0.9 0.9
Other(2) 15.7 13.8 14
Loans and advances to customers 361.2 364.2 (1)
Operating lease assets(3) 6.5 4.8 35
Total customer assets 367.7 369.0
Current accounts 102.7 114.0 (10)
Relationship savings 177.7 166.3 7
Tactical savings 17.1 16.1 6
Wealth 10.9 14.4 (24)
Customer deposits 308.4 310.8 (1)
Risk-weighted assets 119.3 111.7 7
(1) Reductions during 2023 reflect the impact of securitisation of
£2.5 billion of legacy Retail mortgages (including £2.1 billion in the
closed mortgage book) during the first quarter of 2023 and £2.7 billion of
Retail unsecured loans in the fourth quarter of 2023.
(2) Primarily Europe.
(3) Operating lease assets relate to Lex Autolease and Tusker.
(
)
DIVISIONAL RESULTS (continued)
Commercial Banking
Commercial Banking serves small and medium businesses and corporate and
institutional clients, providing lending, transactional banking, working
capital management, debt financing and risk management services. Through
investment in digital capability and product development, Commercial Banking
will deliver an enhanced customer experience via a digital-first model in
Small and Medium Businesses and an expanded client proposition across
Commercial Banking, generating diversified capital efficient growth and
supporting customers in their transition to net zero.
Strategic progress
• Launched new mobile-first business current account onboarding journey
for sole traders and limited companies along with personalised business
customer cash flow insights; transforming the customer experience and
increasing levels of automation, driving reduction in account opening times of
up to 15 times
• Exceeded target of 20 per cent growth in new merchant services clients
in 2023, supported by a new point-of-sale card payments solution to micro
businesses integrated into the onboarding journey, enabling clients to
transact more quickly
• Strengthening digital capability including the launch of a new digital
invoice finance platform, digitisation of asset finance journey and improved
mobile payment functionality
• Continue to enhance digital servicing capabilities, including moving
more than 600,000 accounts to paperless statements, with an annual reduction
of 6 million letters and over half of all business address changes fulfilled
digitally
• Industry-leading cash management platform winning more than 65 per cent
of client tenders in 2023
• Delivered Lloyds Bank Market Intelligence self-service portal, providing
clients with data driven insights to help formulate business strategies and
deliver growth
• Awarded Best UK Trade Finance Bank and Trade Finance Deal of the
Year(1); new partnership with Enigio AB supporting the digitalisation of Trade
Finance
• Bond underwriting volumes increased more than 80 per cent in 2023,
significantly outperforming overall market volume increase of 7 per cent.
Investment in technology underpins top 5 ranking for sterling interest rate
swaps traded electronically and a greater than 30 per cent increase in foreign
exchange percentage share of wallet
• A leading provider of sustainable financing(2), achieving the £15
billion(3) Corporate and Institutional sustainable financing commitment one
year early. Number 1 ranked(4) Infrastructure and Project Finance Bank in the
UK, financing wind farms, solar, and investments into newer low carbon
technologies including battery and energy storage
• Continued multi-year programme with Black entrepreneur community;
launched national 'Black in Business' initiative partnering with Channel 4
television and nearly doubled unique visits to market leading Black Business
hub
• Continued to proactively support small UK business leaders and owners
with provision of resources and coaching sessions, including partnering with
the Soil Association Exchange and Mental Health UK
Financial performance
• Underlying net interest income increased 10 per cent to £3,799 million,
driven by a stronger banking net interest margin reflecting the higher rate
environment and strong portfolio management
• Underlying other income of £1,691 million, up 8 per cent on the prior
year, reflecting improved performance in capital markets financing and trading
• Operating costs 6 per cent higher, due to higher planned strategic
investment, severance charges and inflationary effects, partly offset by
continued benefit from efficiency initiatives. Remediation charges slightly
lower at £127 million
• Underlying impairment credit of £511 million driven by a significant
write-back in the fourth quarter and a £24 million credit from updated
macroeconomic scenarios. Portfolio credit quality remains resilient with
limited deterioration
• Customer lending 5 per cent lower at £88.6 billion due to expected net
repayments within Small and Medium Businesses including government-backed
lending and foreign exchange movements, partly offset by attractive growth
opportunities in Corporate and Institutional Banking
• Customer deposits 1 per cent lower at £162.8 billion, reflecting
targeted growth in Corporate and Institutional Banking offset by a reduction
in Small and Medium Businesses
• Risk-weighted assets stable at £74.2 billion, demonstrating efficient
use of capital and continued optimisation activity
(1) Best UK Trade Finance Bank at GTR Leaders in Trade awards, Trade Finance
Deal of the Year at Trade Finance Global awards.
(2) In line with the Sustainable Financing Framework.
(3) Includes the Clean Growth Financing Initiative, Commercial Real Estate
green lending, renewable energy financing, sustainability linked loans and
green and social bond facilitation.
(4) Infralogic 1 January 2023 to 31 December 2023, by value.
DIVISIONAL RESULTS (continued)
Commercial Banking (continued)
Commercial Banking performance summary(A)
2023 2022 Change
£m £m %
Underlying net interest income 3,799 3,447 10
Underlying other income 1,691 1,565 8
Operating lease depreciation (8) (5) (60)
Net income 5,482 5,007 9
Operating costs (2,647) (2,496) (6)
Remediation (127) (133) 5
Total costs (2,774) (2,629) (6)
Underlying profit before impairment 2,708 2,378 14
Underlying impairment credit (charge) 511 (517)
Underlying profit 3,219 1,861 73
Banking net interest margin(A) 4.63% 3.93%
Average interest-earning banking assets(A) £86.8bn £90.0bn (4)
Asset quality ratio(A) (0.54%) 0.52%
At 31 Dec 2023 At 31 Dec 2022 Change
£bn
£bn %
Small and Medium Businesses 33.0 37.7 (12)
Corporate and Institutional Banking 55.6 56.0 (1)
Loans and advances to customers 88.6 93.7 (5)
Customer deposits 162.8 163.8 (1)
Risk-weighted assets 74.2 74.3
DIVISIONAL RESULTS (continued)
Insurance, Pensions and Investments
Insurance, Pensions and Investments supports over 10 million customers with
Assets under Administration (AuA) of £213 billion (excluding Wealth) and
annualised annuity payments of over £1.2 billion. It has seen significant
change in 2023, with a refreshed management team and a refocused strategy.
This has been supported by the Group's significant investment in the
development of the business, including the investment propositions to support
the Group's mass affluent strategy, innovating intermediary propositions
through the Embark and Cavendish Online acquisitions and accelerating the
transition to a low carbon economy.
Strategic progress
• Open book AuA of £164 billion, with 12 per cent growth year-on-year.
Net AuA flows of £5.1 billion, in spite of challenging market conditions,
contributing to an increased stock of deferred profit
• Workplace pensions business saw a 9 per cent annual increase in regular
contributions to pensions administered, with £4.9 billion net AuA flows in
the period, contributing to 18 per cent AuA growth
• Grew general insurance market share following launch of MBNA product in
2022 with new coverages up over 114 per cent and overall share of flows up 12
per cent. Digitisation improvements continue to transform customer experience
• Launched simple non-advised Ready-Made Investments through Embark in
February 2023. This helped around 14,000 customers start their investment
journey, of which c.45 per cent younger than 35, supporting strategic AuA
growth and mass affluent objectives. Sharedealing income up c.75 per cent
compared to last year
• Announced the launch of the Scottish Widows Retail Intermediary
Investment Platform, broadening reach and enhancing the proposition across the
Intermediary channel with leading platform technology and adviser support
model
• £4.2 billion invested in climate-aware investment strategies through
Scottish Widows over the period. Cumulatively £21.7 billion invested, on
track to meet the target of between £20 billion and £25 billion by 2025(1)
• Migrated c.1 million policies and c.£36 billion AuA to strategic
platforms and decommissioned 19 legacy applications
• Supported 13,000 customers to secure a guaranteed income for life,
issuing £1 billion of annuity policies, growing from 9,000 customers and
£568 million in 2022. Increased individual annuity market share from 15.6 per
cent in 2022 to 20.1 per cent(2)
• Continued progress in our protection offering, integrating Cavendish
Online and protecting over 20,000 families through the Group's direct channels
this year
Financial performance
• Underlying other income of £1,209 million, up 26 per cent driven by
favourable market returns and balance sheet growth, including the impact of
adding a drawdown feature in 2022 to existing longstanding and workplace
pension business, resulting in higher contractual service margin and risk
adjustment releases to income. General Insurance income net of claims
increased by c.50 per cent in the year driven by market share gains and
reduced severe weather-related claims compared to 2022
• Operating costs stable, with higher planned strategic investment,
severance charges and inflationary effects, offset by benefit from efficiency
initiatives
• Grew contractual service margin (deferred profits) by £506 million in
the year (before release to income of £310 million), including £94 million
from new business, reflecting strong value generation in workplace pensions
and annuities alongside positive impact from assumption changes and expected
return. Balance of deferred profits (including the risk adjustment) c.£5.3
billion at 31 December 2023 (31 December 2022: c.£5.1 billion)
• Life and pensions sales (PVNBP) decreased by 8 per cent with interest
rate changes resulting in higher discounting applied in the current year,
partially offset by strong performance in the Annuities business
• Strong capital position supported a final dividend of £250 million paid
to Lloyds Banking Group with an estimated Insurance Solvency II ratio of 186
per cent (176 per cent after proposed dividend)
• Credit asset portfolio remains strong, rated 'A-' on average. Well
diversified, with less than 1 per cent of assets backing annuities being
sub-investment grade or unrated. Strong liquidity position with c.£3 billion
cash and cash equivalents
(1) Includes a range of funds with a bias towards investing in companies
that are reducing the carbon intensity of their businesses or are developing
climate solutions.
(2) Nine months to 30 September 2023, as per latest Association of British
Insurers data.
DIVISIONAL RESULTS (continued)
Insurance, Pensions and Investments (continued)
Insurance, Pensions and Investments performance summary(A)
2023 2022(1) Change
£m £m %
Underlying net interest income (132) (101) (31)
Underlying other income 1,209 960 26
Net income 1,077 859 25
Operating costs (880) (879)
Remediation (14) (30) 53
Total costs (894) (909) 2
Underlying profit (loss) before impairment 183 (50)
Underlying impairment credit (charge) 7 (12)
Underlying profit (loss) 190 (62)
Life and pensions sales (PVNBP)(A,2) 17,449 18,991 (8)
New business value of insurance and participating investment contracts
recognised in the year(A,3)
of which: deferred to contractual service margin and risk adjustment 173 132 31
of which: losses recognised on initial recognition (20) (33) 39
153 99 55
Assets under administration (net flows)(4) £5.1bn £8.4bn (39)
General insurance underwritten new gross written premiums(A) 124 55
General insurance underwritten total gross written premiums(A) 579 486 19
General insurance combined ratio(5) 106% 113% (7)pp
At 31 Dec 2023 At 31 Dec 2022 Change
£bn
£bn %
Insurance Solvency II ratio (pre-dividend)(6) 186% 163% 23pp
Total customer assets under administration 213.1 197.3 8
(1) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
(2) Present value of new business premiums.
(3) New business value represents the value added to the contractual service
margin and risk adjustment at the initial recognition of new contracts, net of
acquisition expenses and any loss component on onerous contracts (which is
recognised directly in the income statement) but does not include existing
business increments.
(4) The movement in asset inflows and outflows driven by business activity
(excluding market movements).
(5) General insurance combined ratio for 2023 includes £51 million (2022:
£108 million) relating to severe weather event claims (storm, subsidence and
freeze). Excluding these items and reserve releases the ratio was 97 per cent
(2022: 94 per cent).
(6) Equivalent estimated regulatory view of ratio (including With-Profits
funds and post dividend where applicable) was 166 per cent (31 December 2022:
152 per cent, post February 2023 dividend).
DIVISIONAL RESULTS (continued)
Insurance, Pensions and Investments (continued)
Movement in the contractual service margin (CSM) and risk adjustment
2023 2022 Change
CSM Risk adjustment Total(1) CSM Risk adjustment Total(1) Total
£m £m £m £m £m £m £m
At 1 January 3,999 1,109 5,108 1,927 1,492 3,419 1,689
New business written in year
of which: workplace and retirement account 31 47 78 10 45 55 23
of which: individual and bulk annuities 82 26 108 43 43 86 22
of which: protection (19) 6 (13) (13) 4 (9) (4)
94 79 173 40 92 132 41
Release to income statement (310) (77) (387) (229) (90) (319) (68)
Other(2) 412 (1) 411 2,261 (385) 1,876 (1,465)
At 31 December 4,195 1,110 5,305 3,999 1,109 5,108 197
(1) Total deferred profit is represented by CSM and risk adjustment, both
held on the balance sheet. CSM is released as insurance contract services are
provided; risk adjustment is released as uncertainty within the calculation of
the liabilities diminishes. Amounts are shown net of reinsurance.
(2) For 2022, Other included £1,331 million relating to increases in the
CSM arising on the contracts that were modified and recognised as new
contracts during the period (2023: £nil). This is not included in new
business value.
Volatility arising in the Insurance business
2023 2022(1)
£m £m
Insurance volatility 198 (822)
Policyholder interests volatility 116 (205)
Total volatility 314 (1,027)
Insurance hedging arrangements (422) 351
Total(2) (108) (676)
(1) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
(2 ) Total insurance volatility is included within market volatility and
asset sales, which in total resulted in a gain of £35 million in 2023 (2022:
loss of £1,978 million). See page 31.
The Group's Insurance business has policyholder liabilities that are supported
by substantial holdings of investments. IFRS requires that 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. Insurance volatility on business
accounted for under the Variable Fee Approach (largely unit-linked pensions
business) is deferred to the CSM, other than where the risk mitigation option
is applied. Policyholder interests volatility is driven by the additional
management charges made to some life product customers to cover the extra tax
on their products. Underlying profit therefore includes the expected charge or
credit for the year, with the variance to expectation included in volatility.
During 2023 the movement in the Insurance volatility line above was driven by
increases to equity market levels which resulted in profit from application of
the risk mitigation option. At total level this was more than offset by losses
from hedging arrangements.
The Group manages its Insurance business exposures to equity, interest rate,
foreign currency exchange rate, inflation and market movements within the
Insurance, Pensions and Investments division. It does so by balancing the
importance of managing the impacts to both capital and earnings volatility.
DIVISIONAL RESULTS (continued)
Equity Investments and Central Items
2023 2022(1) Change
£m £m %
Net income 515 462 11
Operating costs (144) (122) (18)
Remediation (19) -
Total costs (163) (122) (34)
Underlying profit before impairment 352 340 4
Underlying impairment credit 5 392 (99)
Underlying profit 357 732 (51)
(1) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
Equity Investments and Central Items includes the Group's equity investments
businesses, including Lloyds Development Capital (LDC), the Group's share of
the Business Growth Fund (BGF) and the Housing Growth Partnership (HGP), as
well as Citra Living. Also included are income and expenses not attributed to
other divisions, including residual underlying net interest income after
transfer pricing (which includes the recharging to other divisions of the
Group's external AT1 distributions), in period gains from gilt sales and the
unwind of associated hedging costs.
Net income for the year was higher compared to 2022, with stronger underlying
net interest income partly offset by weaker underlying other income.
Underlying net interest income benefited from the effect of rising rates on
income earned from the placement of funds raised through the issuance of
structured medium-term notes (offset within underlying other income by the
increased funding costs of the notes) as well as higher internal recharges to
other divisions as a result of increased AT1 distribution costs. Underlying
other income was weaker, primarily due to higher funding costs and also
subdued exit markets affecting the Group's equity investment businesses.
Total costs of £163 million in 2023 were higher than in 2022, in part due to
the costs of business growth in equity investment businesses, including Citra
Living.
Underlying impairment was a £5 million credit compared to a £392 million
credit in 2022. The credit in 2022 relates to the release of the expected
credit loss central adjustment of £400 million held at the end of 2021. This
adjustment was not allocated to specific portfolios and was applied in respect
of uncertainty in the economic outlook, relating to the risks of COVID-19.
SEGMENTAL ANALYSIS - UNDERLYING BASIS(A)
2023 Retail Commercial Insurance, Equity Group
£m Banking Pensions and Investments £m
£m Investments and Central
£m Items
£m
Underlying net interest income 9,647 3,799 (132) 451 13,765
Underlying other income 2,159 1,691 1,209 64 5,123
Operating lease depreciation (948) (8) - - (956)
Net income 10,858 5,482 1,077 515 17,932
Operating costs (5,469) (2,647) (880) (144) (9,140)
Remediation (515) (127) (14) (19) (675)
Total costs (5,984) (2,774) (894) (163) (9,815)
Underlying profit before impairment 4,874 2,708 183 352 8,117
Underlying impairment (charge) credit (831) 511 7 5 (308)
Underlying profit 4,043 3,219 190 357 7,809
Banking net interest margin(A) 2.73% 4.63% 3.11%
Average interest-earning banking assets(A) £365.6bn £86.8bn - £0.9bn £453.3bn
Asset quality ratio(A) 0.23% (0.54)% 0.07%
Loans and advances to customers(1) £361.2bn £88.6bn - (£0.1bn) £449.7bn
Customer deposits £308.4bn £162.8bn - £0.2bn £471.4bn
Risk-weighted assets £119.3bn £74.2bn £0.2bn £25.4bn £219.1bn
2022 Retail Commercial Insurance, Equity Investments and Central Group(2)
£m Banking Pensions and Items(2) £m
£m Investments(2) £m
£m
Underlying net interest income 9,774 3,447 (101) 52 13,172
Underlying other income 1,731 1,565 960 410 4,666
Operating lease depreciation (368) (5) - - (373)
Net income 11,137 5,007 859 462 17,465
Operating costs (5,175) (2,496) (879) (122) (8,672)
Remediation (92) (133) (30) - (255)
Total costs (5,267) (2,629) (909) (122) (8,927)
Underlying profit (loss) before impairment 5,870 2,378 (50) 340 8,538
Underlying impairment (charge) credit (1,373) (517) (12) 392 (1,510)
Underlying profit (loss) 4,497 1,861 (62) 732 7,028
Banking net interest margin(A) 2.76% 3.93% 2.94%
Average interest-earning banking assets(A) £362.0bn £90.0bn - - £452.0bn
Asset quality ratio(A) 0.38% 0.52% 0.32%
Loans and advances to customers(1) £364.2bn £93.7bn - (£3.0bn) £454.9bn
Customer deposits £310.8bn £163.8bn - £0.7bn £475.3bn
Risk-weighted assets £111.7bn £74.3bn £0.1bn £24.8bn £210.9bn
(1) Equity Investments and Central Items includes central fair value hedge
accounting adjustments.
(2) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
ALTERNATIVE PERFORMANCE MEASURES
The statutory results are supplemented with those presented on an underlying
basis and also with other alternative performance measures. This is to enable
a comprehensive understanding of the Group and facilitate comparison with
peers. The Group Executive Committee, which is the 'chief operating decision
maker' (as defined by IFRS 8 Operating Segments) for the Group, reviews the
Group's results on an underlying basis in order to assess performance and
allocate resources. Management uses underlying profit before tax, an
alternative performance measure, as a measure of performance and believes that
it provides important information for investors. This is because it allows for
a comparable representation of the Group's performance by removing the impact
of items such as volatility caused by market movements outside the control of
management.
In arriving at underlying profit, statutory profit before tax is adjusted for
the items below, to allow a comparison of the Group's underlying performance:
• Restructuring costs relating to merger, acquisition and integration
activities
• Volatility and other items, which includes the effects of certain asset
sales, the volatility relating to the Group's hedging arrangements and that
arising in the Insurance business, the unwind of acquisition-related fair
value adjustments and the amortisation of purchased intangible assets
• Losses from insurance and participating investment contract
modifications relating to the enhancement to the Group's longstanding and
workplace pension business through the addition of a drawdown feature
The analysis of lending and expected credit loss (ECL) allowances is presented
on both a statutory and an underlying basis and a reconciliation between the
two is shown on page 42. On a statutory basis, 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. Over time, these POCI assets will run off as the loans redeem,
pay down or losses crystallise. 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. The Group uses the underlying basis to monitor the
creditworthiness of the lending portfolio and related ECL allowances.
ALTERNATIVE PERFORMANCE MEASURES (continued)
The Group calculates a number of metrics that are used throughout the banking
and insurance industries on an underlying basis. These metrics are not
necessarily comparable to similarly titled measures presented by other
companies and are not any more authoritative than measures presented in the
financial statements, however management believes that they are useful in
assessing the performance of the Group and in drawing comparisons between
years. A description of these measures and their calculation, is given below.
Alternative performance measures are used internally in the Group's Monthly
Management Report.
Asset quality ratio The underlying impairment charge or credit for the period in respect of loans
and advances to customers, both drawn and undrawn, expressed as a percentage
of average gross loans and advances to customers for the period. This measure
is useful in assessing the credit quality of the loan book.
Banking net interest margin Banking net interest income on customer and product balances in the banking
businesses as a percentage of average gross interest-earning banking assets
for the period. This measure is useful in assessing the profitability of the
banking business.
Cost:income ratio Total costs as a percentage of net income calculated on an underlying basis.
This measure is useful in assessing the profitability of the Group's
operations before the effects of the underlying impairment credit or charge.
Gross written premiums Gross written premiums is a measure of the volume of General Insurance
business written during the period. This measure is useful for assessing the
growth of the General Insurance business.
Life and pensions sales (present value of new business premiums) Present value of regular premiums plus single premiums from new business
written in the current period.
Loan to deposit ratio Loans and advances to customers divided by customer deposits.
Operating costs Operating expenses adjusted to remove the impact of remediation, restructuring
costs, operating lease depreciation, the amortisation of purchased
intangibles, the insurance gross up and other statutory items.
New business value This represents the value added to the contractual service margin and risk
adjustment at the initial recognition of new contracts, net of acquisition
expenses (derived from the statutory balance sheet movements) and any loss
component on onerous contracts (which is recognised directly in the income
statement) but does not include existing business increments.
Pro forma CET1 ratio CET1 ratio adjusted for the effects of the dividend paid up by the Insurance
business in the subsequent quarter and the full impact of the announced
ordinary share buyback programme.
Return on tangible equity Profit attributable to ordinary shareholders, divided by average tangible net
assets. This measure is useful in providing a consistent basis with which to
measure the Group's performance.
Tangible net assets per share Net assets excluding intangible assets such as goodwill and
acquisition-related intangibles divided by the number of ordinary shares in
issue. This measure is useful in assessing shareholder value.
Underlying profit before impairment Underlying profit adjusted to remove the underlying impairment credit or
charge. This measure is useful in allowing for a comparable representation of
the Group's performance before the effects of the forward-looking underlying
impairment credit or charge.
Underlying profit Statutory profit before tax adjusted for certain items as detailed above. This
measure allows for a comparable representation of the Group's performance by
removing the impact of certain items including volatility caused by market
movements outside the control of management.
ALTERNATIVE PERFORMANCE MEASURES (continued)
Statutory basis Removal of: Underlying basis(A)
£m Volatility Insurance £m
and other gross up(3)
items(1,2) £m
£m
2023
Net interest income 13,298 479 (12) 13,765 Underlying net interest income
Other income, net of net finance 5,331 (447) 239 5,123 Underlying other income
income (expense) in respect of insurance
and investment contracts
(956) - (956) Operating lease depreciation
Total income, after net finance income (expense) in respect of insurance and 18,629 (924) 227 17,932 Net income
investment contracts
Operating expenses(4) (10,823) 1,235 (227) (9,815) Total costs
Impairment charge (303) (5) - (308) Underlying impairment charge
Profit before tax 7,503 306 - 7,809 Underlying profit
2022(5)
Net interest income 12,922 226 24 13,172 Underlying net interest income
Other income, net of net finance 2,619 1,846 201 4,666 Underlying other income
income in respect of insurance
and investment contracts
(373) - (373) Operating lease depreciation
Total income, after net finance 15,541 1,699 225 17,465 Net income
income in respect of insurance
and investment contracts
Operating expenses(4) (9,237) 535 (225) (8,927) Total costs
Impairment (charge) credit (1,522) 12 - (1,510) Underlying impairment charge
Profit before tax 4,782 2,246 - 7,028 Underlying profit
(1) In the year ended 31 December 2023 this comprised the effects of market
volatility and asset sales (gain of £35 million); the amortisation of
purchased intangibles (loss of £80 million); restructuring costs (loss of
£154 million); and fair value unwind (loss of £107 million).
(2) In the year ended 31 December 2022 this comprised the effects of market
volatility and asset sales (loss of £1,978 million); the amortisation of
purchased intangibles (loss of £70 million); restructuring costs (loss of
£80 million); and fair value unwind (loss of £118 million). Market
volatility and asset sales in 2022 included an exceptional charge under IFRS
17 from contract modifications in Insurance, Pensions and Investments,
predominantly in the second half, following the addition of a drawdown feature
to existing longstanding and workplace pensions as a significant customer
enhancement.
(3) The Group's insurance businesses' income statements include income and
expense attributable to the policyholders of the Group's long-term assurance
funds. These items have no impact in total upon profit attributable to equity
shareholders and, to provide a clearer representation of the underlying trends
within the business, these items are shown net within the underlying results.
(4) Statutory operating expenses includes operating lease depreciation. On
an underlying basis operating lease depreciation is included in net income.
(5) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
ALTERNATIVE PERFORMANCE MEASURES (continued)
2023 2022
Asset quality ratio(A)
Underlying impairment charge (£m) (308) (1,510)
Remove non-customer underlying impairment (£m) (13) 27
Underlying customer related impairment charge (£m) (321) (1,483)
Loans and advances to customers (£bn) 449.7 454.9
Add back:
Expected credit loss allowance (drawn) (£bn) 3.7 4.5
Acquisition related fair value adjustments (£bn) 0.3 0.4
Underlying gross loans and advances to customers (£bn) 453.7 459.8
Averaging (£bn) 3.1 (2.9)
Average underlying gross loans and advances to customers (£bn) 456.8 456.9
Asset quality ratio(A) 0.07% 0.32%
Banking net interest margin(A)
Underlying net interest income (£m) 13,765 13,172
Remove non-banking underlying net interest expense (£m) 311 111
Banking underlying net interest income (£m) 14,076 13,283
Underlying gross loans and advances to customers (£bn) 453.7 459.8
Adjustment for non-banking and other items:
Fee-based loans and advances (£bn) (8.9) (8.4)
Other (£bn) 4.2 5.0
Interest-earning banking assets (£bn) 449.0 456.4
Averaging (£bn) 4.3 (4.4)
Average interest-earning banking assets(A) (£bn) 453.3 452.0
Banking net interest margin(A) 3.11% 2.94%
Cost:income ratio(A)
Operating costs(A,1) (£m) 9,140 8,672
Remediation (£m) 675 255
Total costs(1) (£m) 9,815 8,927
Net income(1) (£m) 17,932 17,465
Cost:income ratio(A,1) 54.7% 51.1%
Operating costs(A)
Operating expenses(1) (£m) 10,823 9,237
Adjustment for:
Remediation (£m) (675) (255)
Restructuring (£m) (154) (80)
Operating lease depreciation (£m) (956) (373)
Amortisation of purchased intangibles (£m) (80) (70)
Insurance gross up(1) (£m) 227 225
Other statutory items (£m) (45) (12)
Operating costs(A,1) (£m) 9,140 8,672
(1) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
ALTERNATIVE PERFORMANCE MEASURES (continued)
2023 2022(1)
Return on tangible equity(A)
Profit attributable to ordinary shareholders (£m) 4,933 3,389
Average ordinary shareholders' equity (£bn) 38.9 41.3
Remove average goodwill and other intangible assets (£bn) (7.7) (6.7)
Average tangible equity (£bn) 31.2 34.6
Return on tangible equity(A) 15.8% 9.8%
Underlying profit before impairment(A)
Statutory profit before tax (£m) 7,503 4,782
Remove impairment charge (£m) 303 1,522
Remove volatility and other items including restructuring (£m) 311 2,234
Underlying profit before impairment(A) (£m) 8,117 8,538
Life and pensions sales (present value of new business premiums)(A)
Total net earned premiums (£m) 9,768 8,861
Investment sales (£m) 10,615 11,024
Effect of capitalisation factor (£m) 3,426 4,687
Effect of annualisation (£m) 455 358
Gross premiums from existing long-term business (£m) (6,815) (5,939)
Life and pensions sales (present value of new business premiums)(A) (£m) 17,449 18,991
(1) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
(
)
2023 2022
£m £m
New business value of insurance and participating investment contracts
recognised in the year(A)
Contractual service margin 92 1,793
Risk adjustment for non-financial risk 86 646
Losses recognised on initial recognition (71) (75)
107 2,364
Impacts of reinsurance contracts recognised in the year 29 15
Increments, single premiums and transfers received on workplace pension 17 -
contracts initially recognised in the year
Amounts relating to contracts modified to add a drawdown feature and - (2,280)
recognised as new contracts
New business value of insurance and participating investment contracts 153 99
recognised in the year(A)
ALTERNATIVE PERFORMANCE MEASURES (continued)
At 31 Dec 2023 At 31 Dec 2022
Loan to deposit ratio(A)
Loans and advances to customers (£bn) 449.7 454.9
Customer deposits (£bn) 471.4 475.3
Loan to deposit ratio(A) 95% 96%
Pro forma CET1 ratio(A)
CET1 ratio 14.6% 15.1%
Insurance dividend and share buyback accrual(1) (0.9)% (1.0)%
Pro forma CET1 ratio(A) 13.7% 14.1%
Tangible net assets per share(A)
Ordinary shareholders' equity(2) (£m) 40,224 38,370
Goodwill and other intangible assets (£m) (8,306) (7,615)
Deferred tax effects and other adjustments(2) (£m) 352 393
Tangible net assets(2) (£m) 32,270 31,148
Ordinary shares in issue, excluding own shares 63,508m 66,944m
Tangible net assets per share(A,2) 50.8p 46.5p
(1) Dividend paid up by the Insurance business in the subsequent quarter
period and the impact of the announced ordinary share buyback programmes.
(2) 2022 comparatives have been restated to reflect the impact of IFRS 17.
See page 81.
RISK MANAGEMENT
CAPITAL RISK
CET1 target capital ratio
The Board's revised view of the ongoing level of CET1 capital required by the
Group to grow the business, meet current and future regulatory requirements
and cover economic and business uncertainties is 13.0 per cent which includes
a management buffer of around 1 per cent. This takes into account, amongst
other considerations:
• The minimum Pillar 1 CET1 capital requirement of 4.5 per cent of
risk-weighted assets
• The Group's Pillar 2A CET1 capital requirement, set by the PRA, which is
the equivalent of around 1.5 per cent of risk-weighted assets
• The Group's countercyclical capital buffer (CCyB) requirement which is
currently 1.8 per cent of risk-weighted assets, following the increase in the
UK CCyB rate to 2 per cent in July 2023
• The capital conservation buffer (CCB) requirement of 2.5 per cent of
risk-weighted assets
• The Ring-Fenced Bank (RFB) sub-group's other systemically important
institution (O-SII) buffer 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, set after taking account of the results of any
PRA stress tests and other information, as well as outputs from the Group's
own internal stress tests. The PRA requires this buffer to
remain confidential
• The likely performance of the Group in various potential stress
scenarios and ensuring capital remains resilient in these
• The economic outlook for the UK and business outlook for the Group
• The desire to maintain a progressive and sustainable ordinary dividend
policy in the context of year to year earnings movements
Minimum requirement for own funds and eligible liabilities (MREL)
The Group is not classified as a global systemically important bank (G-SIB)
but is subject to the Bank of England's MREL statement of policy (MREL SoP)
and must therefore maintain a minimum level of MREL resources.
Applying the MREL SoP to current minimum capital requirements at 31 December
2023, the Group's MREL, excluding regulatory capital and leverage buffers, is
the higher of 2 times Pillar 1 plus 2 times Pillar 2A, equivalent to 21.3 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
and capital or leverage buffers.
Leverage minimum requirements
The Group is currently subject to the following minimum requirements under the
UK Leverage Ratio Framework:
• A minimum tier 1 leverage ratio requirement of 3.25 per cent of the
total leverage exposure measure
• A countercyclical leverage buffer (CCLB) which is currently 0.6 per cent
of the total leverage exposure measure, following the increase in the UK CCyB
rate to 2 per cent in July 2023
• 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
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.
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
participated in the delayed 2022 Annual Cyclical Scenario stress test run by
the Bank of England, which was submitted to the regulator in January 2023.
This assesses the Group's resilience to a severe economic shock where the
House Price Index (HPI) falls by 31 per cent, Commercial Real Estate (CRE)
falls by 45 per cent, unemployment peaks at 8.5 per cent and the Base Rate
peaks at 6 per cent. The results of this exercise were published by the Bank
of England on 12 July 2023. The Bank of England calculated the Group's
transitional CET1 ratio, after the application of management actions, as 11.6
per cent and its Tier 1 leverage ratio as 4.5 per cent, significantly
exceeding the hurdle rates of 6.6 per cent and 3.5 per cent, respectively. The
Group also continues to internally assess vulnerabilities to adverse economic
conditions.
CAPITAL RISK (continued)
Capital and MREL resources
An analysis of the Group's capital position and MREL resources as at 31
December 2023 is presented in the following table. This reflects the
application of the transitional arrangements for IFRS 9.
At 31 Dec At 31 Dec 2022
2023 £m
£m
Common equity tier 1
Shareholders' equity per balance sheet(1) 40,224 38,370
Adjustment to retained earnings for foreseeable dividends (1,169) (1,062)
Deconsolidation adjustments(1) 6,954 6,668
Cash flow hedging reserve 3,766 5,476
Other adjustments (54) (80)
49,721 49,372
less: deductions from common equity tier 1
Goodwill and other intangible assets (5,731) (4,982)
Prudent valuation adjustment (417) (434)
Removal of defined benefit pension surplus (2,653) (2,803)
Significant investments(1) (4,975) (4,843)
Deferred tax assets (4,048) (4,445)
Common equity tier 1 capital 31,897 31,865
Additional tier 1
Other equity instruments 6,915 5,271
Preference shares and preferred securities(2) 466 470
Regulatory adjustments (466) (470)
6,915 5,271
less: deductions from tier 1
Significant investments(1) (1,100) (1,100)
Total tier 1 capital 37,712 36,036
Tier 2
Other subordinated liabilities(2) 9,787 10,260
Deconsolidation of instruments issued by insurance entities(1) (582) (1,430)
Regulatory adjustments (2,514) (2,323)
6,691 6,507
less: deductions from tier 2
Significant investments(1) (964) (963)
Total capital resources 43,439 41,580
Ineligible AT1 and tier 2 instruments(3) (139) (181)
Amortised portion of eligible tier 2 instruments issued by Lloyds Banking 1,113 1,346
Group plc
Other eligible liabilities issued by Lloyds Banking Group plc(4) 25,492 24,085
Total MREL resources 69,905 66,830
Risk-weighted assets 219,130 210,859
Common equity tier 1 capital ratio 14.6% 15.1%
Tier 1 capital ratio 17.2% 17.1%
Total capital ratio 19.8% 19.7%
MREL ratio 31.9% 31.7%
(1) 2022 comparatives have been restated to reflect the impact of IFRS 17.
The CET1 deconsolidation adjustments applied to shareholders' equity increased
by £3.6 billion to reflect the full offset of the impact of IFRS 17 on the
Group's opening shareholders' equity position per the Group's consolidated
balance sheet. 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 reported as subordinated liabilities in the balance sheet.
(3) Instruments with less than or equal to one year to maturity or
instruments not issued out of the holding company.
(4) Includes senior unsecured debt.
CAPITAL RISK (continued)
Movements in CET1 capital resources
The key movements are set out in the table below.
Common
equity tier 1
£m
At 31 December 2022 31,865
Banking business profits(1) 5,417
Movement in foreseeable dividend accrual(2) (109)
Dividends paid out on ordinary shares during the year (1,651)
Share buyback reflected through retained profits (1,993)
Dividends received from the Insurance business(3) 100
IFRS 9 transitional adjustment to retained earnings (268)
Pension deficit contributions (768)
Deferred tax asset 397
Goodwill and other intangible assets (749)
Significant investments (132)
Movement in treasury shares and employee share schemes 330
Distributions on other equity instruments (527)
Other movements (15)
At 31 December 2023 31,897
(1) Under the regulatory capital framework, profits made by Insurance are
removed from CET1 capital. However, when dividends are paid to the Group by
Insurance these are recognised through CET1 capital.
(2) Reflects the reversal of the brought forward accrual for the final 2022
ordinary dividend, net of the accrual for the final 2023 ordinary dividend.
(3) Received in February 2023.
The Group's CET1 capital ratio reduced from 15.1 per cent at 31 December 2022
to 14.6 per cent at 31 December 2023, reflecting the increase in risk-weighted
assets.
CET1 capital resources increased marginally by £32 million, with banking
business profits for the year, the receipt of the dividend paid up by the
Insurance business in February 2023 and other increases through reserves
predominantly offset by:
• Pension deficit contributions (fixed and variable) paid during the year
into the Group's three main defined benefit pension schemes
• An increase in goodwill and other intangible assets, which included the
acquisition of Tusker in February 2023
• The interim ordinary dividend paid in September 2023, the accrual for
the final 2023 ordinary dividend of 1.84 pence per share and distributions on
other equity instruments
• The ordinary share buyback programme that was announced as part of the
Group's 2022 year end results and completed in August 2023
The full capital impact of the ordinary share buyback programme and the
Insurance dividend received in February 2023 were reflected through the
Group's pro forma CET1 ratio of 14.1 per cent at 31 December 2022.
The Group's pro forma CET1 ratio of 13.7 per cent at 31 December 2023
reflects the full capital impact of the ordinary share buyback programme
announced as part of the Group's 2023 year end results and the Insurance
dividend received in February 2024.
Movements in total capital and MREL
The Group's total capital ratio increased to 19.8 per cent at 31 December 2023
(31 December 2022: 19.7 per cent) primarily reflecting AT1 and Tier 2
issuance. This was largely offset by the increase in risk-weighted assets and
other movements in Tier 2 capital instruments, which included the impact of a
call and regulatory amortisation.
The MREL ratio increased to 31.9 per cent at 31 December 2023 (31 December
2022: 31.7 per cent) reflecting the increase in both total capital resources
and other eligible liabilities, largely offset by the increase in
risk-weighted assets. The increase in other eligible liabilities was primarily
driven by new issuances, partially offset by a call and the exclusion of
instruments maturing in 2024.
CAPITAL RISK (continued)
Risk-weighted assets
At 31 Dec At 31 Dec 2022
2023 £m
£m
Foundation Internal Ratings Based (IRB) Approach 44,504 46,500
Retail IRB Approach 85,459 81,091
Other IRB Approach(1) 20,941 19,764
IRB Approach 150,904 147,355
Standardised (STA) Approach(1) 22,074 23,119
Credit risk 172,978 170,474
Securitisation 8,958 6,397
Counterparty credit risk 5,847 5,911
Credit valuation adjustment risk 689 621
Operational risk 26,416 24,241
Market risk 4,242 3,215
Risk-weighted assets 219,130 210,859
Of which threshold risk-weighted assets(2) 11,028 11,883
(1) Threshold risk-weighted assets are included within Other IRB Approach
and Standardised (STA) Approach.
(2) Threshold risk-weighted assets reflect the element of significant
investments and deferred tax assets that are permitted to be risk-weighted
instead of being deducted from CET1 capital. Significant investments primarily
arise from investment in the Group's Insurance business.
Risk-weighted assets have increased by £8 billion during the year to £219
billion at 31 December 2023 (31 December 2022: £211 billion). This includes
the impact of Retail secured CRD IV model updates of £5 billion. Excluding
this, lending, operational and market risk increases, a modest uplift from
credit and model calibrations and other movements were partly offset by
optimisation, including capital efficient securitisation activity within the
balance sheet.
In relation to the Retail secured CRD IV models, it is estimated that a
further £5 billion increase will be required over 2024 to 2026, noting that
this will be subject to final model outcomes.
CAPITAL RISK (continued)
Leverage ratio
The table below summarises the component parts of the Group's leverage ratio.
At 31 Dec At 31 Dec 2022
2023 £m
£m
Total tier 1 capital 37,712 36,036
Exposure measure
Statutory balance sheet assets
Derivative financial instruments 22,356 24,753
Securities financing transactions 56,184 56,646
Loans and advances and other assets(1) 802,913 791,995
Total assets 881,453 873,394
Qualifying central bank claims (77,625) (91,125)
Deconsolidation adjustments(2)
Derivative financial instruments 585 712
Loans and advances and other assets(1) (178,552) (164,096)
Total deconsolidation adjustments (177,967) (163,384)
Derivatives adjustments (4,896) (7,414)
Securities financing transactions adjustments 2,262 2,645
Off-balance sheet items 40,942 42,463
Amounts already deducted from tier 1 capital (12,523) (12,033)
Other regulatory adjustments(3) (4,012) (5,731)
Total exposure measure 647,634 638,815
UK leverage ratio 5.8 % 5.6%
Leverage exposure measure (including central bank claims) 725,259 729,940
Leverage ratio (including central bank claims) 5.2 % 4.9%
Total MREL resources 69,905 66,830
MREL leverage ratio 10.8 % 10.5%
(1) 2022 comparatives have been restated to reflect the impact of IFRS 17.
(2) Deconsolidation adjustments relate to the deconsolidation of certain
Group entities that fall outside the scope of the Group's regulatory capital
consolidation, primarily the Group's Insurance business.
(3) Includes adjustments to exclude lending under the UK Government's Bounce
Back Loan Scheme (BBLS).
Analysis of leverage movements
The Group's UK leverage ratio increased to 5.8 per cent (31 December 2022: 5.6
per cent) reflecting the increase in the total tier 1 capital position. This
was partially offset by the increase in the leverage exposure measure
following increases in financial and other assets (excluding central bank
claims), net of reductions in off-balance sheet items and the measure for
securities financing transactions.
CREDIT RISK
Overview
The Group's portfolios are well-positioned for the current macroeconomic
environment. The Group retains a prudent approach to credit risk appetite and
risk management, with strong credit origination criteria and robust LTVs in
the secured portfolios.
Observed credit performance remains resilient, despite the continued economic
uncertainty with only modest evidence of deterioration to date. In UK
mortgages, new to arrears were relatively stable throughout 2023, having
increased slightly at the start of the year, largely driven by legacy vintages
(mortgages originated in the period 2006 to 2008). Flows to default increased
during the year for the same reason with trends stabilising in the second
half. Unsecured portfolios continue to exhibit stable new to arrears and flow
to default trends, broadly at or below pre-pandemic levels. The Group
continues to monitor the impacts of the economic environment carefully through
a suite of early warning indicators and governance arrangements that ensure
risk mitigating action plans are in place to support customers and protect the
Group's positions.
The underlying impairment charge in 2023 was £308 million, down from a charge
of £1,510 million in 2022. This is as a result of a significant write-back
following the full repayment of debt from a single name client in the fourth
quarter and improvements in the Group's macroeconomic outlook, the latter
resulting in a release of £257 million (2022: a charge of £595 million).
The Group's underlying ECL allowance on loans and advances to customers
decreased in the year to £4,292 million (31 December 2022:
£5,222 million).
Group Stage 2 loans and advances to customers reduced to £56,545 million (31
December 2022: £65,728 million) and as a percentage of total lending to 12.5
per cent (31 December 2022: 14.3 per cent). This is due to improvements in
the macroeconomic outlook transferring assets to Stage 1, along with impacts
from securitisations of legacy Retail mortgages in the first quarter and
Retail unsecured loans in the fourth quarter. Of the total Group Stage 2 loans
and advances to customers, 91.3 per cent are up to date (31 December 2022:
92.7 per cent). Stage 2 coverage reduced slightly to 3.0 per cent
(31 December 2022: 3.2 per cent).
Stage 3 loans and advances to customers reduced to £10,110 million (31
December 2022: £10,753 million), and as a percentage of total lending
decreased slightly to 2.2 per cent (31 December 2022: 2.3 per cent). This
reduction is largely following the full repayment of debt from a single name
client in Commercial Banking and securitisation activity, partially offset by
flow to default increases in the UK mortgages portfolio. Stage 3 coverage
decreased by 6.8 percentage points to 15.8 per cent (31 December 2022: 22.6
per cent).
Prudent risk appetite and risk management
• The Group continues to take a prudent and proactive approach to credit
risk management and credit risk appetite whilst, in line with the Group's
strategy, supporting clients to grow, as well as working closely with
customers to help them through cost of living pressures and the impacts of
higher interest rates and any deterioration in broader economic conditions
• Sector, asset and product concentrations within the portfolios are
closely monitored and controlled, with mitigating actions taken where
appropriate. Sector and product risk appetite parameters help manage exposure
to certain higher risk and cyclical sectors, segments and asset classes
• The Group's effective risk management seeks to ensure early
identification and management of customers and counterparties who may be
showing signs of distress
• The Group will continue to work closely with its customers to ensure
that they receive the appropriate level of support, embracing the standards
outlined in the Mortgage Charter and including where customers are leveraging
Pay As You Grow options under the UK Government Coronavirus scheme
CREDIT RISK (continued)
Statutory impairment charge (credit) by division
Loans and Loans and Debt Financial Other Undrawn 2023 2022
£m
advances to advances securities assets at £m balances £m
customers to banks £m fair value £m
£m £m through other
comprehensive
income
£m
Retail 822 - - - - 9 831 1,373
Commercial (501) (5) 1 3 - (9) (511) 517
Banking
Insurance, - (2) - - (10) - (12) 24
Pensions and
Investments
Equity Investments - - - (5) - - (5) (392)
and Central Items
Total impairment charge (credit) 321 (7) 1 (2) (10) - 303 1,522
Underlying impairment charge (credit)(A) by division
Loans and Loans and Debt Financial Other Undrawn 2023 2022
£m
advances to advances securities assets at £m balances £m
customers to banks £m fair value £m
£m £m through other
comprehensive
income
£m
Retail 822 - - - - 9 831 1,373
Commercial (501) (5) 1 3 - (9) (511) 517
Banking
Insurance, - (2) - - (5) - (7) 12
Pensions and
Investments
Equity Investments - - - (5) - - (5) (392)
and Central Items
Total underlying impairment 321 (7) 1 (2) (5) - 308 1,510
charge (credit)
Asset quality ratio(A) 0.07% 0.32%
CREDIT RISK (continued)
Credit risk balance sheet basis of presentation
The balance sheet 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. A reconciliation between the two bases has 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 as loans are written off.
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.
Total expected credit loss allowance
Statutory basis Underlying basis(A)
At 31 Dec 2023 At 31 Dec At 31 Dec 2023 At 31 Dec
£m
2022
£m
2022
£m
£m
Customer related balances
Drawn 3,717 4,518 3,970 4,899
Undrawn 322 323 322 323
4,039 4,841 4,292 5,222
Loans and advances to banks 8 15 8 15
Debt securities 11 9 11 9
Other assets 26 38 26 38
Total expected credit loss allowance 4,084 4,903 4,337 5,284
Reconciliation between statutory and underlying bases of gross loans and
advances to customers and expected credit loss allowance on drawn balances
Gross loans and advances to customers Expected credit loss allowance on drawn balances
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
£m £m £m £m £m £m £m £m £m £m
At 31 December 2023
Underlying basis(A) 387,060 56,545 10,110 - 453,715 901 1,532 1,537 - 3,970
POCI assets (1,766) (3,378) (2,963) 8,107 - (1) (65) (400) 466 -
Acquisition fair - - - (253) (253) - - - (253) (253)
value adjustment
(1,766) (3,378) (2,963) 7,854 (253) (1) (65) (400) 213 (253)
Statutory basis 385,294 53,167 7,147 7,854 453,462 900 1,467 1,137 213 3,717
At 31 December 2022
Underlying basis(A) 383,317 65,728 10,753 - 459,798 700 1,936 2,263 - 4,899
POCI assets (2,326) (4,564) (3,113) 10,003 - - (128) (506) 634 -
Acquisition fair - - - (381) (381) - - - (381) (381)
value adjustment
(2,326) (4,564) (3,113) 9,622 (381) - (128) (506) 253 (381)
Statutory basis 380,991 61,164 7,640 9,622 459,417 700 1,808 1,757 253 4,518
CREDIT RISK (continued)
Movements in total expected credit loss (ECL) allowance - statutory basis
Opening ECL at 31 Dec 2022 Write-offs Income Net ECL Closing ECL at 31 Dec 2023
£m and other(1) statement increase £m
£m charge (credit) (decrease)
£m £m
UK mortgages(2) 1,209 (43) (51) (94) 1,115
Credit cards 763 (410) 457 47 810
Loans and overdrafts(3) 678 (414) 251 (163) 515
UK Motor Finance 252 (79) 169 90 342
Other 86 (3) 5 2 88
Retail 2,988 (949) 831 (118) 2,870
Small and Medium Businesses 549 (125) 114 (11) 538
Corporate and Institutional Banking 1,320 (51) (625) (676) 644
Commercial Banking 1,869 (176) (511) (687) 1,182
Insurance, Pensions and Investments 40 (2) (12) (14) 26
Equity Investments and Central Items 6 5 (5) - 6
Total(4) 4,903 (1,122) 303 (819) 4,084
(1) Contains adjustments in respect of purchased or originated
credit-impaired financial assets.
(2)( ) Includes £60 million within write-offs and other relating to the
£2.5 billion UK mortgages securitisation in the first quarter of 2023.
(3 ) Includes £112 million within write-offs and other relating to the
£2.7 billion unsecured loans securitisation in the fourth quarter of 2023.
(4) Total ECL includes £45 million relating to other non customer-related
assets (31 December 2022: £62 million).
(
)
Movements in total expected credit loss (ECL) allowance - underlying basis(A)
Opening ECL at 31 Dec 2022 Write-offs Income Net ECL Closing ECL at 31 Dec 2023
£m and other statement increase £m
£m charge (credit) (decrease)
£m £m
UK mortgages(1) 1,590 (171) (51) (222) 1,368
Credit cards 763 (410) 457 47 810
Loans and overdrafts(2) 678 (414) 251 (163) 515
UK Motor Finance 252 (79) 169 90 342
Other 86 (3) 5 2 88
Retail 3,369 (1,077) 831 (246) 3,123
Small and Medium Businesses 549 (125) 114 (11) 538
Corporate and Institutional Banking 1,320 (51) (625) (676) 644
Commercial Banking 1,869 (176) (511) (687) 1,182
Insurance, Pensions and Investments 40 (7) (7) (14) 26
Equity Investments and Central Items 6 5 (5) - 6
Total(3) 5,284 (1,255) 308 (947) 4,337
(1)( ) Includes £126 million within write-offs and other relating to the
£2.5 billion UK mortgages securitisation in the first quarter of 2023.
(2) Includes £112 million within write-offs and other relating to the £2.7
billion unsecured loans securitisation in the fourth quarter of 2023.
(3) Total ECL includes £45 million relating to other non customer-related
assets (31 December 2022: £62 million).
(
)
CREDIT RISK (continued)
Loans and advances to customers and expected credit loss allowance - statutory
basis
At 31 December 2023 Stage 1 Stage 2 Stage 3 POCI Total Stage 2 Stage 3
£m £m £m £m £m as % of as % of
total total
Loans and advances to customers
UK mortgages 256,596 38,533 4,337 7,854 307,320 12.5 1.4
Credit cards 12,625 2,908 284 - 15,817 18.4 1.8
Loans and overdrafts 7,103 1,187 196 - 8,486 14.0 2.3
UK Motor Finance 13,541 2,027 112 - 15,680 12.9 0.7
Other 15,898 525 144 - 16,567 3.2 0.9
Retail 305,763 45,180 5,073 7,854 363,870 12.4 1.4
Small and Medium Businesses 27,525 4,458 1,530 - 33,513 13.3 4.6
Corporate and Institutional Banking 52,049 3,529 538 - 56,116 6.3 1.0
Commercial Banking 79,574 7,987 2,068 - 89,629 8.9 2.3
Equity Investments and Central Items(1) (43) - 6 - (37)
Total gross lending 385,294 53,167 7,147 7,854 453,462 11.7 1.6
ECL allowance on drawn balances (900) (1,467) (1,137) (213) (3,717)
Net balance sheet carrying value 384,394 51,700 6,010 7,641 449,745
Customer related ECL allowance (drawn and undrawn)
UK mortgages 169 376 357 213 1,115
Credit cards 234 446 130 - 810
Loans and overdrafts 153 244 118 - 515
UK Motor Finance(2) 188 91 63 - 342
Other 20 21 47 - 88
Retail 764 1,178 715 213 2,870
Small and Medium Businesses 140 231 167 - 538
Corporate and Institutional Banking 156 218 253 - 627
Commercial Banking 296 449 420 - 1,165
Equity Investments and Central Items - - 4 - 4
Total 1,060 1,627 1,139 213 4,039
Customer related ECL allowance (drawn and undrawn) as a percentage of loans
and advances to customers(3)
UK mortgages 0.1 1.0 8.2 2.7 0.4
Credit cards 1.9 15.3 45.8 - 5.1
Loans and overdrafts 2.2 20.6 60.2 - 6.1
UK Motor Finance 1.4 4.5 56.3 - 2.2
Other 0.1 4.0 32.6 - 0.5
Retail 0.2 2.6 14.1 2.7 0.8
Small and Medium Businesses 0.5 5.2 10.9 - 1.6
Corporate and Institutional Banking 0.3 6.2 47.0 - 1.1
Commercial Banking 0.4 5.6 20.3 - 1.3
Equity Investments and Central Items - 66.7 -
Total 0.3 3.1 15.9 2.7 0.9
(1) Contains centralised fair value hedge accounting adjustments.
(2) UK Motor Finance for Stages 1 and 2 include £187 million relating to
provisions against residual values of vehicles subject to finance leasing
agreements for Black Horse. These provisions are included within the
calculation of coverage ratios.
(3) Allowance for expected credit losses on loans and advances to customers
as a percentage of gross loans and advances to customers including loans in
recoveries.
CREDIT RISK (continued)
Loans and advances to customers and expected credit loss allowance - statutory
basis (continued)
At 31 December 2022 Stage 1 Stage 2 Stage 3 POCI Total Stage 2 Stage 3
£m £m £m £m £m as % of as % of
total total
Loans and advances to customers
UK mortgages 257,517 41,783 3,416 9,622 312,338 13.4 1.1
Credit cards 11,416 3,287 289 - 14,992 21.9 1.9
Loans and overdrafts 8,357 1,713 247 - 10,317 16.6 2.4
UK Motor Finance 12,174 2,245 154 - 14,573 15.4 1.1
Other 13,990 643 157 - 14,790 4.3 1.1
Retail 303,454 49,671 4,263 9,622 367,010 13.5 1.2
Small and Medium Businesses 30,781 5,654 1,760 - 38,195 14.8 4.6
Corporate and Institutional Banking 49,728 5,839 1,611 - 57,178 10.2 2.8
Commercial Banking 80,509 11,493 3,371 - 95,373 12.1 3.5
Equity Investments and Central Items(1) (2,972) - 6 - (2,966)
Total gross lending 380,991 61,164 7,640 9,622 459,417 13.3 1.7
ECL allowance on drawn balances (700) (1,808) (1,757) (253) (4,518)
Net balance sheet carrying value 380,291 59,356 5,883 9,369 454,899
Customer related ECL allowance (drawn and undrawn)
UK mortgages 92 553 311 253 1,209
Credit cards 173 477 113 - 763
Loans and overdrafts 185 367 126 - 678
UK Motor Finance(2) 95 76 81 - 252
Other 16 18 52 - 86
Retail 561 1,491 683 253 2,988
Small and Medium Businesses 129 271 149 - 549
Corporate and Institutional Banking 144 231 925 - 1,300
Commercial Banking 273 502 1,074 - 1,849
Equity Investments and Central Items - - 4 - 4
Total 834 1,993 1,761 253 4,841
Customer related ECL allowance (drawn and undrawn) as a percentage of loans
and advances to customers(3)
UK mortgages - 1.3 9.1 2.6 0.4
Credit cards 1.5 14.5 39.1 - 5.1
Loans and overdrafts 2.2 21.4 51.0 - 6.6
UK Motor Finance 0.8 3.4 52.6 - 1.7
Other 0.1 2.8 33.1 - 0.6
Retail 0.2 3.0 16.0 2.6 0.8
Small and Medium Businesses 0.4 4.8 8.5 - 1.4
Corporate and Institutional Banking 0.3 4.0 57.4 - 2.3
Commercial Banking 0.3 4.4 31.9 - 1.9
Equity Investments and Central Items - 66.7 -
Total 0.2 3.3 23.0 2.6 1.1
(1) Contains centralised fair value hedge accounting adjustments.
(2) UK Motor Finance for Stages 1 and 2 include £92 million relating to
provisions against residual values of vehicles subject to finance leasing
agreements for Black Horse. These provisions are included within the
calculation of coverage ratios.
(3) Allowance for expected credit losses on loans and advances to customers
as a percentage of gross loans and advances to customers including loans in
recoveries.
(
)
CREDIT RISK (continued)
Loans and advances to customers and expected credit loss allowance (underlying
basis)(A)
At 31 December 2023 Stage 1 Stage 2 Stage 3 Total Stage 2 Stage 3
£m £m £m £m as % of as % of
total total
Loans and advances to customers
UK mortgages 258,362 41,911 7,300 307,573 13.6 2.4
Credit cards 12,625 2,908 284 15,817 18.4 1.8
Loans and overdrafts 7,103 1,187 196 8,486 14.0 2.3
UK Motor Finance 13,541 2,027 112 15,680 12.9 0.7
Other 15,898 525 144 16,567 3.2 0.9
Retail(1) 307,529 48,558 8,036 364,123 13.3 2.2
Small and Medium Businesses 27,525 4,458 1,530 33,513 13.3 4.6
Corporate and Institutional Banking 52,049 3,529 538 56,116 6.3 1.0
Commercial Banking 79,574 7,987 2,068 89,629 8.9 2.3
Equity Investments and Central Items(2) (43) - 6 (37)
Total gross lending 387,060 56,545 10,110 453,715 12.5 2.2
ECL allowance on drawn balances (901) (1,532) (1,537) (3,970)
Net balance sheet carrying value 386,159 55,013 8,573 449,745
Customer related ECL allowance (drawn and undrawn)
UK mortgages 170 441 757 1,368
Credit cards 234 446 130 810
Loans and overdrafts 153 244 118 515
UK Motor Finance(3) 188 91 63 342
Other 20 21 47 88
Retail(1) 765 1,243 1,115 3,123
Small and Medium Businesses 140 231 167 538
Corporate and Institutional Banking 156 218 253 627
Commercial Banking 296 449 420 1,165
Equity Investments and Central Items - - 4 4
Total 1,061 1,692 1,539 4,292
Customer related ECL allowance (drawn and undrawn) as a percentage of loans
and advances to customers(4)
UK mortgages 0.1 1.1 10.4 0.4
Credit cards 1.9 15.3 49.4 5.1
Loans and overdrafts 2.2 20.6 65.6 6.1
UK Motor Finance 1.4 4.5 56.3 2.2
Other 0.1 4.0 32.6 0.5
Retail(1) 0.2 2.6 13.9 0.9
Small and Medium Businesses 0.5 5.2 13.9 1.6
Corporate and Institutional Banking 0.3 6.2 47.0 1.1
Commercial Banking 0.4 5.6 24.1 1.3
Equity Investments and Central Items - 66.7
Total 0.3 3.0 15.8 0.9
(1 ) Retail balances exclude the impact of the HBOS
acquisition-related adjustments.
(2 ) Contains centralised fair value hedge accounting adjustments.
(3 ) UK Motor Finance for Stages 1 and 2 include £187 million relating
to provisions against residual values of vehicles subject to finance leasing
agreements for Black Horse. These provisions are included within the
calculation of coverage ratios.
(4 ) Total and Stage 3 ECL allowances as a percentage of drawn balances
exclude loans in recoveries in Credit cards of £21 million, Loans and
overdrafts of £16 million and Small and Medium Businesses of £327 million.
CREDIT RISK (continued)
Loans and advances to customers and expected credit loss allowance (underlying
basis)(A) (continued)
At 31 December 2022 Stage 1 Stage 2 Stage 3 Total Stage 2 Stage 3
£m £m £m £m as % of as % of
total total
Loans and advances to customers
UK mortgages 259,843 46,347 6,529 312,719 14.8 2.1
Credit cards 11,416 3,287 289 14,992 21.9 1.9
Loans and overdrafts 8,357 1,713 247 10,317 16.6 2.4
UK Motor Finance 12,174 2,245 154 14,573 15.4 1.1
Other 13,990 643 157 14,790 4.3 1.1
Retail(1) 305,780 54,235 7,376 367,391 14.8 2.0
Small and Medium Businesses 30,781 5,654 1,760 38,195 14.8 4.6
Corporate and Institutional Banking 49,728 5,839 1,611 57,178 10.2 2.8
Commercial Banking 80,509 11,493 3,371 95,373 12.1 3.5
Equity Investments and Central Items(2) (2,972) - 6 (2,966)
Total gross lending 383,317 65,728 10,753 459,798 14.3 2.3
ECL allowance on drawn balances (700) (1,936) (2,263) (4,899)
Net balance sheet carrying value 382,617 63,792 8,490 454,899
Customer related ECL allowance (drawn and undrawn)
UK mortgages 92 681 817 1,590
Credit cards 173 477 113 763
Loans and overdrafts 185 367 126 678
UK Motor Finance(3) 95 76 81 252
Other 16 18 52 86
Retail(1) 561 1,619 1,189 3,369
Small and Medium Businesses 129 271 149 549
Corporate and Institutional Banking 144 231 925 1,300
Commercial Banking 273 502 1,074 1,849
Equity Investments and Central Items - - 4 4
Total 834 2,121 2,267 5,222
Customer related ECL allowance (drawn and undrawn) as a percentage of loans
and advances to customers(4)
UK mortgages - 1.5 12.5 0.5
Credit cards 1.5 14.5 50.9 5.1
Loans and overdrafts 2.2 21.4 64.6 6.6
UK Motor Finance 0.8 3.4 52.6 1.7
Other 0.1 2.8 33.1 0.6
Retail(1) 0.2 3.0 16.4 0.9
Small and Medium Businesses 0.4 4.8 12.9 1.5
Corporate and Institutional Banking 0.3 4.0 57.5 2.3
Commercial Banking 0.3 4.4 38.9 2.0
Equity Investments and Central Items - 66.7
Total 0.2 3.2 22.6 1.1
(1 ) Retail balances exclude the impact of the HBOS acquisition-related
adjustments.
(2 ) Contains centralised fair value hedge accounting adjustments.
(3 ) UK Motor Finance for Stages 1 and 2 include £92 million relating to
provisions against residual values of vehicles subject to finance leasing
agreements for Black Horse. These provisions are included within the
calculation of coverage ratios.
(4 ) Total and Stage 3 ECL allowances as a percentage of drawn balances
exclude loans in recoveries in Credit cards of £67 million, Loans and
overdrafts of £52 million, Small and Medium Businesses of £607 million and
Corporate and Institutional Banking of £1 million.
(
)
CREDIT RISK (continued)
Stage 2 loans and advances to customers and expected credit loss allowance -
statutory basis
Up to date 1 to 30 days Over 30 days Total
past due(2) past due
PD movements Other(1)
At 31 December 2023 Gross ECL(3) Gross ECL(3) Gross ECL(3) Gross ECL(3) Gross ECL(3)
lending £m lending £m lending £m lending £m lending £m
£m £m £m £m £m
UK mortgages 26,665 146 9,024 133 1,771 52 1,073 45 38,533 376
Credit cards 2,612 345 145 49 115 34 36 18 2,908 446
Loans and overdrafts 756 148 279 46 112 34 40 16 1,187 244
UK Motor Finance 735 30 1,120 30 138 21 34 10 2,027 91
Other 125 5 295 7 52 5 53 4 525 21
Retail 30,893 674 10,863 265 2,188 146 1,236 93 45,180 1,178
Small and Medium Businesses 3,455 202 590 17 253 8 160 4 4,458 231
Corporate and Institutional Banking 3,356 214 14 - 28 3 131 1 3,529 218
Commercial Banking 6,811 416 604 17 281 11 291 5 7,987 449
Total 37,704 1,090 11,467 282 2,469 157 1,527 98 53,167 1,627
At 31 December 2022
UK mortgages 29,718 263 9,613 160 1,633 67 819 63 41,783 553
Credit cards 3,023 386 136 46 98 30 30 15 3,287 477
Loans and overdrafts 1,311 249 234 53 125 45 43 20 1,713 367
UK Motor Finance 1,047 28 1,045 23 122 18 31 7 2,245 76
Other 160 5 384 7 54 4 45 2 643 18
Retail 35,259 931 11,412 289 2,032 164 968 107 49,671 1,491
Small and Medium Businesses 4,081 223 1,060 27 339 13 174 8 5,654 271
Corporate and Institutional Banking 5,728 229 27 - 30 1 54 1 5,839 231
Commercial Banking 9,809 452 1,087 27 369 14 228 9 11,493 502
Total 45,068 1,383 12,499 316 2,401 178 1,196 116 61,164 1,993
(1 ) Includes forbearance, client and product-specific indicators not
reflected within quantitative PD assessments.
(2) Includes assets that have triggered PD movements, or other rules, given
that being 1 to 29 days in arrears in and of itself is not a Stage 2 trigger.
(3) Expected credit loss allowance on loans and advances to customers (drawn
and undrawn).
CREDIT RISK (continued)
Stage 2 loans and advances to customers and expected credit loss allowance -
underlying basis(A)
Up to date 1 to 30 days Over 30 days Total
past due(2) past due
PD movements Other(1)
At 31 December 2023 Gross ECL(3) Gross ECL(3) Gross ECL(3) Gross ECL(3) Gross ECL(3)
lending £m lending £m lending £m lending £m lending £m
£m £m £m £m £m
UK mortgages 28,126 157 9,990 156 2,297 64 1,498 64 41,911 441
Credit cards 2,612 345 145 49 115 34 36 18 2,908 446
Loans and overdrafts 756 148 279 46 112 34 40 16 1,187 244
UK Motor Finance 735 30 1,120 30 138 21 34 10 2,027 91
Other 125 5 295 7 52 5 53 4 525 21
Retail 32,354 685 11,829 288 2,714 158 1,661 112 48,558 1,243
Small and Medium Businesses 3,455 202 590 17 253 8 160 4 4,458 231
Corporate and Institutional Banking 3,356 214 14 - 28 3 131 1 3,529 218
Commercial Banking 6,811 416 604 17 281 11 291 5 7,987 449
Total 39,165 1,101 12,433 305 2,995 169 1,952 117 56,545 1,692
At 31 December 2022
UK mortgages 31,908 301 10,800 198 2,379 93 1,260 89 46,347 681
Credit cards 3,023 386 136 46 98 30 30 15 3,287 477
Loans and overdrafts 1,311 249 234 53 125 45 43 20 1,713 367
UK Motor Finance 1,047 28 1,045 23 122 18 31 7 2,245 76
Other 160 5 384 7 54 4 45 2 643 18
Retail 37,449 969 12,599 327 2,778 190 1,409 133 54,235 1,619
Small and Medium Businesses 4,081 223 1,060 27 339 13 174 8 5,654 271
Corporate and Institutional Banking 5,728 229 27 - 30 1 54 1 5,839 231
Commercial Banking 9,809 452 1,087 27 369 14 228 9 11,493 502
Total 47,258 1,421 13,686 354 3,147 204 1,637 142 65,728 2,121
(1 ) Includes forbearance, client and product-specific indicators not
reflected within quantitative PD assessments.
(2) Includes assets that have triggered PD movements, or other rules, given
that being 1 to 29 days in arrears in and of itself is not a Stage 2 trigger.
(3) Expected credit loss allowance on loans and advances to customers (drawn
and undrawn).
CREDIT RISK (continued)
ECL sensitivity to economic assumptions
The measurement of ECL reflects an unbiased probability-weighted range of
possible future economic outcomes. The Group achieves this by generating four
economic scenarios to reflect the range of outcomes; the central scenario
reflects the Group's base case assumptions used for medium-term planning
purposes, an upside and a downside scenario are also selected together with a
severe downside scenario. If the base case moves adversely, it generates a
new, more adverse downside and severe downside which are then incorporated
into the ECL. Consistent with prior years, the base case, upside and downside
scenarios carry a 30 per cent weighting; the severe downside is weighted at 10
per cent. These assumptions can be found in note 4 on page 62 onwards.
The table below shows the Group's ECL for the probability-weighted, upside,
base case, downside and severe downside scenarios, with the severe downside
scenario incorporating adjustments made to CPI inflation and UK Bank Rate
paths. The stage allocation for an asset is based on the overall scenario
probability-weighted probability of default and hence the staging of assets is
constant across all the scenarios. In each economic scenario the ECL for
individual assessments is held constant reflecting the basis on which they are
evaluated. Judgemental adjustments applied through changes to model inputs or
parameters, or more qualitative post model adjustments, are apportioned across
the scenarios in proportion to modelled ECL where this better reflects the
sensitivity of these adjustments to each scenario. The probability-weighted
view shows the extent to which a higher ECL allowance has been recognised to
take account of multiple economic scenarios relative to the base case; the
uplift being £678 million compared to £692 million at 31 December 2022.
Statutory basis Probability- Upside Base case Downside Severe
weighted £m £m £m downside
£m £m
UK mortgages 1,115 395 670 1,155 4,485
Credit cards 810 600 771 918 1,235
Other Retail 945 850 920 981 1,200
Commercial Banking 1,182 793 1,013 1,383 2,250
Other 32 32 32 32 32
At 31 December 2023 4,084 2,670 3,406 4,469 9,202
UK mortgages 1,209 514 790 1,434 3,874
Credit cards 763 596 727 828 1,180
Other Retail 1,016 907 992 1,056 1,290
Commercial Banking 1,869 1,459 1,656 2,027 3,261
Other 46 46 46 47 47
At 31 December 2022 4,903 3,522 4,211 5,392 9,652
Underlying basis(A) Probability- Upside Base case Downside Severe
weighted £m £m £m downside
£m £m
UK mortgages 1,368 650 930 1,400 4,738
Credit cards 810 600 771 918 1,235
Other Retail 945 850 920 981 1,200
Commercial Banking 1,182 793 1,013 1,383 2,250
Other 32 32 32 32 32
At 31 December 2023 4,337 2,925 3,666 4,714 9,455
UK mortgages 1,590 895 1,172 1,815 4,254
Credit cards 763 596 727 828 1,180
Other Retail 1,016 907 992 1,056 1,290
Commercial Banking 1,869 1,459 1,656 2,027 3,261
Other 46 46 46 47 47
At 31 December 2022 5,284 3,903 4,593 5,773 10,032
FUNDING AND LIQUIDITY RISK
The Group has maintained its strong funding and liquidity position with a loan
to deposit ratio of 95 per cent as at 31 December 2023 (31 December 2022: 96
per cent). Total wholesale funding decreased to £98.7 billion as at
31 December 2023 (31 December 2022: £100.3 billion) driven by a small
reduction in Money Market funding. The Group maintains its access to diverse
sources and tenors of funding.
The Group's liquid assets continue to exceed the regulatory minimum and
internal risk appetite, with a liquidity coverage ratio (LCR)(1) of 142 per
cent as at 31 December 2023 (31 December 2022: 144 per cent) calculated on a
Group consolidated basis based on the PRA rulebook. The decrease in LCR is
explained primarily by a reduction in customer deposits. All assets within the
liquid asset portfolio are hedged for interest rate risk. 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.
LCR eligible assets(1) have reduced to £136.0 billion, from £144.7 billion
as at 31 December 2022, driven by a reduction in customer deposits. In
addition to the Group's reported LCR eligible assets, the Group maintains
borrowing capacity at central banks which averaged £74 billion in the 12
months to 31 December 2023. The net stable funding ratio remains strong at 130
per cent as at 31 December 2023 (31 December 2022: 130 per cent).
During 2023, the Group accessed wholesale funding across a range of currencies
and markets with term issuance volumes totalling £16.1 billion, compared to
full year guidance of around £15 billion of wholesale issuance needs. In
2024, the Group expects to have term wholesale issuance requirements of around
£15 billion. The total outstanding amount of drawings from the TFSME has
remained stable at £30.0 billion at 31 December 2023 (31 December 2022:
£30.0 billion), with maturities in 2025, 2027 and beyond.
The Group's credit ratings continue to reflect the strength of its business
model and balance sheet. The rating agencies continue to monitor the impact of
economic conditions and elevated rates for the UK banking sector. The strength
of the Group's management and franchise, along with its robust financial
performance, capital and funding position, are reflected in the Group's strong
ratings.
(1) Based on a monthly rolling simple average over the previous 12 months.
INTEREST RATE SENSITIVITY
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 2023, the Group's
sterling structural hedge had a notional balance of £247 billion (a reduction
from £255 billion at 31 December 2022).
Illustrative cumulative impact of parallel shifts in interest rate curve(1)
The table below shows the banking book net interest income sensitivity to an
instantaneous parallel shift in interest rates. Sensitivities reflect shifts
in the interest rate curve. The actual impact will also depend on the
prevailing regulatory and competitive environment at the time. This
sensitivity is illustrative and does not reflect new business margin
implications and/or pricing actions today or in future periods, other than as
outlined. The sensitivity is greater on downward parallel shifts due to
pricing lags on deposit accounts.
The following assumptions have been applied:
• Instantaneous parallel shift in interest rate curve, including UK Bank
Rate
• Balance sheet remains constant
• Illustrative 50 per cent pass-through on deposits and 100 per cent
pass-through on assets, which could be different in practice
Year 1 Year 2 Year 3
£m
£m
£m
+50 basis points c.250 c.425 c.625
+25 basis points c.125 c.200 c.300
-25 basis points (c.150) (c.200) (c.300)
-50 basis points (c.300) (c.425) (c.600)
(1) Sensitivity based on modelled impact on banking book net interest
income, including the future impact of structural hedge maturities. Annual
impacts are presented for illustrative purposes only and are based on a number
of assumptions which are subject to change. Year 1 reflects the 12 months from
the 31 December 2023 balance sheet position.
STATUTORY INFORMATION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
Note 2022(1)
2023 £m
£m
Interest income 28,051 17,645
Interest expense (14,753) (4,723)
Net interest income 13,298 12,922
Fee and commission income 2,926 2,790
Fee and commission expense (1,095) (1,070)
Net fee and commission income 1,831 1,720
Net trading income (losses) 18,049 (19,987)
Insurance revenue 3,008 2,461
Insurance service expense (2,414) (3,863)
Net income from reinsurance contracts held 2 62
Insurance service result 596 (1,340)
Other operating income 1,631 1,339
Other income 22,107 (18,268)
Total income 35,405 (5,346)
Net finance (expense) income from insurance, participating investment and (11,684) 15,893
reinsurance contracts
Movement in third party interests in consolidated funds (1,109) 1,035
Change in non-participating investment contracts (3,983) 3,959
Total income, after net finance (expense) income in respect of insurance and 18,629 15,541
investment contracts
Operating expenses (10,823) (9,237)
Impairment (303) (1,522)
Profit before tax 7,503 4,782
Tax expense 3 (1,985) (859)
Profit for the year 5,518 3,923
Profit attributable to ordinary shareholders 4,933 3,389
Profit attributable to other equity holders 527 438
Profit attributable to equity holders 5,460 3,827
Profit attributable to non-controlling interests 58 96
Profit for the year 5,518 3,923
Basic earnings per share 6 7.6p 4.9p
Diluted earnings per share 6 7.5p 4.9p
(1) Restated for presentational changes and for the adoption of IFRS 17; see
notes 1, 9 and 10.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2022(1)
2023 £m
£m
Profit for the year 5,518 3,923
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements:
Remeasurements before tax (1,633) (3,012)
Tax 428 860
(1,205) (2,152)
Movements in revaluation reserve in respect of equity shares held at fair
value through other comprehensive income:
Change in fair value (54) 44
Tax (3) 3
(57) 47
Gains and losses attributable to own credit risk:
(Losses) gains before tax (234) 519
Tax 66 (155)
(168) 364
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 (40) (133)
Income statement transfers in respect of disposals (122) (92)
Income statement transfers in respect of impairment (2) 6
Tax 47 62
(117) (157)
Movements in cash flow hedging reserve:
Effective portion of changes in fair value taken to other comprehensive income 545 (6,990)
Net income statement transfers 1,838 43
Tax (673) 1,928
1,710 (5,019)
Movements in foreign currency translation reserve:
Currency translation differences (tax: £nil) (53) 116
Transfers to income statement (tax: £nil) - (31)
(53) 85
Total other comprehensive income (loss) for the year, net of tax 110 (6,832)
Total comprehensive income (loss) for the year 5,628 (2,909)
Total comprehensive income (loss) attributable to ordinary shareholders 5,043 (3,443)
Total comprehensive income attributable to other equity holders 527 438
Total comprehensive income (loss) attributable to equity holders 5,570 (3,005)
Total comprehensive income attributable to non-controlling interests 58 96
Total comprehensive income (loss) for the year 5,628 (2,909)
(1) Restated for the adoption of IFRS 17, see notes 1, 9 and 10.
CONSOLIDATED BALANCE SHEET
At 31 Dec At 31 Dec
2023 2022(1)
£m £m
Assets
Cash and balances at central banks 78,110 91,388
Financial assets at fair value through profit or loss 203,318 180,769
Derivative financial instruments 22,356 24,753
Loans and advances to banks 10,764 10,632
Loans and advances to customers 449,745 454,899
Reverse repurchase agreements 38,771 44,865
Debt securities 15,355 9,926
Financial assets at amortised cost 514,635 520,322
Financial assets at fair value through other comprehensive income 27,592 23,154
Goodwill and other intangible assets 8,306 7,615
Current tax recoverable 1,183 612
Deferred tax assets 5,185 6,422
Retirement benefit assets 3,624 3,823
Other assets 17,144 14,536
Total assets 881,453 873,394
Liabilities
Deposits from banks 6,153 7,266
Customer deposits 471,396 475,331
Repurchase agreements at amortised cost 37,703 48,596
Financial liabilities at fair value through profit or loss 24,914 17,755
Derivative financial instruments 20,149 24,042
Notes in circulation 1,392 1,280
Debt securities in issue at amortised cost 75,592 73,819
Liabilities arising from insurance and participating investment contracts 120,123 110,278
Liabilities arising from non-participating investment contracts 44,978 39,476
Other liabilities 19,026 18,764
Retirement benefit obligations 136 126
Current tax liabilities 39 8
Deferred tax liabilities 157 209
Provisions 2,077 1,803
Subordinated liabilities 10,253 10,730
Total liabilities 834,088 829,483
Equity
Share capital 6,358 6,729
Share premium account 18,568 18,504
Other reserves 8,508 6,587
Retained profits 6,790 6,550
Ordinary shareholders' equity 40,224 38,370
Other equity instruments 6,940 5,297
Total equity excluding non-controlling interests 47,164 43,667
Non-controlling interests 201 244
Total equity 47,365 43,911
Total equity and liabilities 881,453 873,394
(1) Restated for presentational changes and for the adoption of IFRS 17; see
notes 1, 9 and 10.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to ordinary shareholders
Share Other Retained Total Other Non- Total
capital and reserves profits £m equity controlling £m
premium £m £m instruments interests
£m £m £m
At 31 December 2022 (as previously reported) 25,233 6,602 10,145 41,980 5,297 244 47,521
Adjustment on adoption of IFRS 17 (see notes 1, 9 and 10) - (15) (3,595) (3,610) - - (3,610)
At 1 January 2023 25,233 6,587 6,550 38,370 5,297 244 43,911
Comprehensive income
Profit for the year - - 4,933 4,933 527 58 5,518
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - (1,205) (1,205) - - (1,205)
Movements in revaluation reserve in respect of financial assets held at fair
value through other comprehensive income, net of tax:
Debt securities - (117) - (117) - - (117)
Equity shares - (57) - (57) - - (57)
Gains and losses attributable to own credit risk, net of tax - - (168) (168) - - (168)
Movements in cash flow hedging reserve, net of tax - 1,710 - 1,710 - - 1,710
Movements in foreign currency translation reserve, net of tax - (53) - (53) - - (53)
Total other comprehensive income (loss) - 1,483 (1,373) 110 - - 110
Total comprehensive income(1) - 1,483 3,560 5,043 527 58 5,628
Transactions with owners
Dividends - - (1,651) (1,651) - (101) (1,752)
Distributions on other equity instruments - - - - (527) - (527)
Issue of ordinary shares 131 - - 131 - - 131
Share buyback (438) 438 (1,993) (1,993) - - (1,993)
Issue of other equity instruments - - (6) (6) 1,778 - 1,772
Repurchases and redemptions of other equity instruments - - - - (135) - (135)
Movement in treasury shares - - 103 103 - - 103
Value of employee services:
Share option schemes - - 58 58 - - 58
Other employee award schemes - - 169 169 - - 169
Changes in non-controlling interests - - - - - - -
Total transactions with owners (307) 438 (3,320) (3,189) 1,116 (101) (2,174)
Realised gains and losses on equity shares held at fair value through other - - - - - - -
comprehensive income
At 31 December 2023 24,926 8,508 6,790 40,224 6,940 201 47,365
(1) Total comprehensive income attributable to owners of the parent was a
surplus of £5,570 million.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)
Attributable to ordinary shareholders
Share Other Retained Total Other Non- Total
capital and reserves profits £m equity controlling £m
premium £m £m instruments interests
£m £m £m
At 31 December 2021 25,581 11,189 10,241 47,011 5,906 235 53,152
Adjustment on adoption of IFRS 17 (see notes 1, 9 and 10) - (12) (1,923) (1,935) - - (1,935)
At 1 January 2022 25,581 11,177 8,318 45,076 5,906 235 51,217
Comprehensive income
Profit for the year - - 3,389 3,389 438 96 3,923
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax - - (2,152) (2,152) - - (2,152)
Movements in revaluation reserve in respect of financial assets held at fair
value through other comprehensive income, net of tax:
Debt securities - (157) - (157) - - (157)
Equity shares - 47 - 47 - - 47
Gains and losses attributable to own credit risk, net of tax - - 364 364 - - 364
Movements in cash flow hedging reserve, net of tax - (5,019) - (5,019) - - (5,019)
Movements in foreign currency translation reserve, net of tax - 85 - 85 - - 85
Total other comprehensive (loss) income - (5,044) (1,788) (6,832) - - (6,832)
Total comprehensive (loss) income(1) - (5,044) 1,601 (3,443) 438 96 (2,909)
Transactions with owners
Dividends - - (1,475) (1,475) - (92) (1,567)
Distributions on other equity instruments - - - - (438) - (438)
Issue of ordinary shares 105 - - 105 - - 105
Share buyback (453) 453 (2,013) (2,013) - - (2,013)
Issue of other equity instruments - - (5) (5) 750 - 745
Repurchases and redemptions of other equity instruments - - (36) (36) (1,359) - (1,395)
Movement in treasury shares - - (60) (60) - - (60)
Value of employee services:
Share option schemes - - 41 41 - - 41
Other employee award schemes - - 183 183 - - 183
Changes in non-controlling interests - - (3) (3) - 5 2
Total transactions with owners (348) 453 (3,368) (3,263) (1,047) (87) (4,397)
Realised gains and losses on equity shares held at fair value through other - 1 (1) - - - -
comprehensive income
At 31 December 2022 25,233 6,587 6,550 38,370 5,297 244 43,911
(1) Total comprehensive income attributable to owners of the parent was a
loss of £3,005 million.
CONSOLIDATED CASH FLOW STATEMENT
2023 2022(1)
£m £m
Cash flows from operating activities
Profit before tax 7,503 4,782
Adjustments for:
Change in operating assets (9,110) 16,735
Change in operating liabilities 4,232 1,481
Non-cash and other items 5,622 (244)
Net tax paid (1,437) (743)
Net cash provided by operating activities 6,810 22,011
Cash flows from investing activities
Purchase of financial assets (10,311) (7,984)
Proceeds from sale and maturity of financial assets 5,298 11,172
Purchase of fixed assets (5,455) (3,855)
Proceeds from sale of fixed assets 1,027 1,550
Repayment of capital by joint ventures and associates - 36
Acquisition of businesses, net of cash acquired (380) (409)
Net cash (used in) provided by investing activities (9,821) 510
Cash flows from financing activities
Dividends paid to ordinary shareholders (1,651) (1,475)
Distributions in respect of other equity instruments (527) (438)
Distributions in respect of non-controlling interests (101) (92)
Interest paid on subordinated liabilities (623) (603)
Proceeds from issue of subordinated liabilities 1,417 838
Proceeds from issue of other equity instruments 1,772 745
Proceeds from issue of ordinary shares 86 31
Share buyback (1,993) (2,013)
Repayment of subordinated liabilities (1,745) (2,216)
Repurchases and redemptions of other equity instruments (135) (1,395)
Change in stake of non-controlling interests - 5
Net cash used in financing activities (3,500) (6,613)
Effects of exchange rate changes on cash and cash equivalents (480) 727
Change in cash and cash equivalents (6,991) 16,635
Cash and cash equivalents at beginning of year 95,829 79,194
Cash and cash equivalents at end of year 88,838 95,829
(1) Restated for presentational changes and for the adoption of IFRS 17; see
notes 1, 9 and 10.
Cash and cash equivalents comprise cash and non-mandatory balances with
central banks and amounts due from banks with a maturity of less than three
months. Included within cash and cash equivalents at 31 December 2023 is
£31 million (31 December 2022: £37 million) of restricted cash and cash
equivalents held within the Group's long-term insurance and investments
operations, which is not immediately available for use in the business.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting policies and presentation
These condensed consolidated financial statements as at and for the year to 31
December 2023 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 2023 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.
The directors consider that it is appropriate to continue to adopt the going
concern basis in preparing the financial statements. In reaching this
assessment, the directors have considered the impact of climate change upon
the Group's performance and projected funding and capital position. The
directors have also taken into account the results from stress testing
scenarios.
Except for accounting policies and methods of computation affected by IFRS 17
and the IAS 12 exception relating to the recognition and disclosure of the
implication of certain potential deferred tax consequences, the Group's
accounting policies are consistent with those applied by the Group in its
financial statements for the year ended 31 December 2022 and there have been
no changes in the Group's methods of computation. Following amendments to IAS
12 by the IASB (International Tax Reform - Pillar Two Model Rules, issued in
May 2023) entities are not permitted to disclose information about deferred
tax assets and liabilities related to the Organisation for Economic,
Co-operation and Development's Pillar Two Model Rules, including any qualified
domestic minimum top-up taxes. No changes arise to the Group's deferred tax
assets or liabilities as a result of the Group having applied the relevant
exception. The Group's accounting policies are set out in full in the 2023
annual report and accounts.
Presentational changes
Changes have been made to the presentation of the Group's income statement and
the Group's balance sheet arising from the adoption of IFRS 17. In addition to
the impact of IFRS 17, the following changes have been made to the
presentation of the Group's income statement and balance sheet to provide a
more relevant analysis of the Group's financial performance and financial
position:
• Movement in third party interests in consolidated funds are presented
separately on the face of the income statement rather than within interest
expense. There is no change to the balance sheet presentation of the third
party interests
• Items in the course of collection from banks are reported within other
assets rather than separately on the face of the balance sheet
• Investments in joint ventures and associates are reported within other
assets rather than separately on the face of the balance sheet
• Goodwill and other intangible assets are aggregated on the face of the
balance sheet
• Items in the course of transmission to banks are reported within other
liabilities rather than separately on the face of the balance sheet
Except for the impact of IFRS 17, there has been no change in the basis of
accounting for any of the underlying transactions. Comparatives for 2022 have
been presented on a consistent basis.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Accounting policies and presentation (continued)
IFRS 17 Insurance Contracts
On 1 January 2023, the Group adopted IFRS 17 Insurance Contracts, which
replaced IFRS 4 Insurance Contracts. A summary of the impact is set out below.
IFRS 17 establishes principles for the recognition, measurement, presentation
and disclosure of insurance contracts, including reinsurance contracts issued,
participating investment contracts and reinsurance contracts held.
The Group's change in accounting policies arising from the adoption of IFRS 17
has been made in accordance with the transitional provisions of the standard.
IFRS 17 requires a full retrospective approach unless it is impracticable to
do so. Under the full retrospective approach, transition impacts are
calculated as if IFRS 17 had always applied and it prohibits the use of
hindsight. This requires having full and granular data on assumptions and cash
flows so that, at the point of contract recognition, the IFRS 17 contract
value and contractual service margin (CSM) can be calculated and revalued up
to the point of transition. If it is impracticable to apply IFRS 17
retrospectively, a choice is permitted between a modified retrospective
approach, provided qualifying conditions are met, or a fair value approach.
The different approaches can be applied to different groups of insurance
contracts.
On transition, the Group used the full retrospective approach for business
written since 1 January 2016 using Solvency II modelling tools developed when
Solvency II was implemented, which are only available to support the
calculation of IFRS 17 results from that date. The full retrospective approach
was deemed impracticable for contracts initially recognised prior to 1 January
2016 as the models required to calculate the risk adjustment were not in use
within the business prior to this date. The Group opted to use the fair value
approach for business initially recognised prior to 2016, and valuations
supporting Solvency II at the transition date were used to support the fair
value calculation for transition for that business.
Changes have also been made to the Group's cash flow statement arising from
the adoption of IFRS 17. As noted below, IFRS 17 has required several
measurement changes to the balance sheet including the derecognition of the
value of in-force (VIF) asset, the measurement of contract liabilities on a
probability-weighted basis and the creation of a CSM liability. These changes,
together with the presentation of the change in insurance contract liabilities
within the change in operating liabilities, have resulted in a restatement of
the adjustment for changes in both operating assets and liabilities as well as
non-cash and other items. Cash and cash equivalents at 31 December 2022 were
not impacted by the adoption of IFRS 17.
On transition to IFRS 17, the Group's total equity at 1 January 2022 was
reduced by £1,935 million from £53,152 million under IFRS 4 to
£51,217 million under IFRS 17. The reduction in equity is primarily driven
by the derecognition of the VIF asset (£5,317 million), the move to a
probability-weighted estimate (expected value) of contract liabilities
(£5,915 million), the creation of the new CSM liability (£1,927 million, net
of reinsurance) and the establishment of the risk adjustment
(£1,492 million, net of reinsurance).
The CSM at the transition date is released to the income statement in future
periods as insurance contract services are provided. The table below
summarises the approach the Group has applied to groups of insurance contracts
at the transition date and the resulting CSM.
CSM at transition date
Year contracts initially recognised Transition approach £m %
Contracts initially recognised prior to 1 January 2016 Fair value approach(1) 1,419 74
Contracts initially recognised after 1 January 2016 Full retrospective approach 508 26
1,927 100
(1) The fair value element of the CSM was determined as the difference
between the fair value of a group of contracts and the fulfilment cash flows
at 1 January 2022. Fair value was determined using an economic value creation
model which relied on a number of judgements, assumptions and non-observable
inputs including: the market participant in the transaction shared the same
characteristics as the Group, the best estimate assumptions were aligned to
those used by the Group in its 1 January 2022 regulatory calculations and the
required capital in the model was based on the capital requirement, plus the
additional internal capital buffer, at that date. The model considered the
expected profit arising in each future period as the value of the realistic
cash flow less the release of required capital. The stream of profits derived
was then discounted at a required rate of return. The Group has applied the
simplification permitting contracts in different annual cohorts to be grouped
together into a single group for measurement purposes.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Accounting policies and presentation (continued)
In addition to the impact of £1,935 million at 1 January 2022, at 31 December
2022, total equity is also impacted by the restatement of the income statement
for the year ended 31 December 2022, resulting in a further reduction of
£1,632 million in retained profits. This arose from the impact of revised
income recognition requirements, changes in interest rates during 2022 and the
effect of contract modifications. There is a further reduction in total equity
of £43 million in respect of the foreign currency translation reserve and
the reclassification of treasury shares on transition to IFRS 17. Total equity
at 31 December 2022 reduced by £3,610 million, from £47,521 million under
IFRS 4 to £43,911 million under IFRS 17.
Whilst IFRS 17 does not change the total profit recognised over the life of an
insurance contract or participating investment contract, it does change both
the phasing of profit recognition and the amounts recognised within individual
income statement line items, including other income and operating expenses.
Under IFRS 17, the Group is required to defer substantially all of the
expected profit through the recognition of a CSM on the balance sheet; the CSM
is subsequently released to the income statement over the coverage period of
the product. The expected profit includes estimated future premiums and claims
together with expected administration costs such as claims handling costs,
costs incurred to provide contractual policyholder benefits and policy
administration and maintenance costs.
The impact of IFRS 17 on the Group's results for the year ended 31 December
2022 was to reduce profit before tax by £2,146 million and reduce profit
after tax by £1,632 million compared to results reported under IFRS 4.
2. Critical accounting judgements and key sources of estimation
uncertainty
The critical accounting judgements and key sources of estimation uncertainty
made by management in applying the Group's accounting policies are set out in
full in the Group's 2023 annual report and accounts. Those affecting the
Group's recognition and measurement of allowance for expected credit losses
are set out in note 4.
3. Tax expense
The UK corporation tax rate for the year was 23.5 per cent per cent (2022:
19.0 per cent). The increase in applicable tax rate from 2022 relates to the
change in statutory tax rate effective from 1 April 2023. An explanation of
the relationship between tax expense and accounting profit is set out below.
2023 2022(1)
£m £m
Profit before tax 7,503 4,782
UK corporation tax thereon (1,763) (909)
Impact of surcharge on banking profits (305) (339)
Non-deductible costs: conduct charges (29) (5)
Non-deductible costs: bank levy (35) (28)
Other non-deductible costs (106) (70)
Non-taxable income 80 138
Tax relief on coupons on other equity instruments 124 83
Tax-exempt gains on disposals 35 67
Tax losses where no deferred tax recognised (2) 11
Remeasurement of deferred tax due to rate changes (14) 60
Differences in overseas tax rates 6 (63)
Policyholder tax (61) (65)
Deferred tax asset in respect of life assurance expenses 84 21
Adjustments in respect of prior years - 243
Tax effect of share of results of joint ventures 1 (3)
Tax expense (1,985) (859)
(1) Restated for the adoption of IFRS 17, see notes 1, 9 and 10.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Allowance for expected credit losses
The calculation of the Group's allowance for expected credit loss allowances
requires the Group to make a number of judgements, assumptions and estimates.
These are set out in full in note 24 of the Group's 2023 annual report and
accounts, with the most significant detailed below.
The table below analyses total ECL allowances by portfolio, separately
identifying the amounts that have been modelled, those that have been
individually assessed and those arising through the application of judgemental
adjustments.
Judgements due to:
At 31 December 2023 Modelled Individually Inflationary Other(1) Total
ECL assessed and interest £m ECL
£m £m rate risk £m
£m
UK mortgages 991 - 61 63 1,115
Credit cards 703 - 92 15 810
Other Retail 866 - 33 46 945
Commercial Banking 1,124 340 - (282) 1,182
Other 32 - - - 32
Total 3,716 340 186 (158) 4,084
At 31 December 2022
UK mortgages 946 - 49 214 1,209
Credit cards 698 - 93 (28) 763
Other Retail 903 - 53 60 1,016
Commercial Banking 972 1,008 - (111) 1,869
Other 46 - - - 46
Total 3,565 1,008 195 135 4,903
(1) 2022 includes £1 million which was previously reported within
judgements due to COVID-19.
Application of judgement in adjustments to modelled ECL
Impairment models fall within the Group's model risk framework with model
monitoring, periodic validation and back testing performed on model
components, such as probability of default. Limitations in the Group's
impairment models or data inputs may be identified through the ongoing
assessment and validation of the output of the models. In these circumstances,
management applies appropriate judgemental adjustments to the ECL to ensure
that the overall provision adequately reflects all material risks. These
adjustments are determined by considering the particular attributes of
exposures which have not been adequately captured by the impairment models and
range from changes to model inputs and parameters, at account level, through
to more qualitative post-model adjustments. Post-model adjustments are not
typically calculated under each distinct economic scenario used to generate
ECL, but on final modelled ECL. All adjustments are reviewed quarterly and are
subject to internal review and challenge, including by the Audit Committee, to
ensure that amounts are appropriately calculated and specific release criteria
is identified.
During 2022 the intensifying inflationary pressures, alongside rising interest
rates within the Group's outlook created further risks not deemed to be fully
captured by ECL models. These pressures played out in 2023 with households
experiencing increased interest rates and living costs. These risks, whilst
still present, are beginning to subside with inflation now reducing and
interest rates now believed to have peaked. As a result, the judgements held
in respect of inflationary and interest rate risks are at a slightly reduced
level of £186 million (2022: £195 million). Other judgements continue to be
applied for broader data and model limitations, both increasing and decreasing
ECL. These include incremental risks associated with a material devaluation in
commercial real estate prices present since 2022. Given ECL models only
capture future price movements, and not the suppressed level, there is a risk
that further losses are yet to emerge as well as greater risk on specific
sector valuations. At 31 December 2023 judgemental adjustments resulted in
net additional ECL allowances totalling £28 million (2022: £330 million).
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Allowance for expected credit losses (continued)
Generation of multiple economic scenarios
The estimate of expected credit losses is required to be based on an unbiased
expectation of future economic scenarios. The approach used to generate the
range of future economic scenarios depends on the methodology and judgements
adopted. The Group's approach is to start from a defined base case scenario,
used for planning purposes, and to generate alternative economic scenarios
around this base case. The base case scenario is a conditional forecast
underpinned by a number of conditioning assumptions that reflect the Group's
best view of key future developments. If circumstances appear likely to
materially deviate from the conditioning assumptions, then the base case
scenario is updated.
The base case scenario is central to a range of future economic scenarios
generated by simulation of an economic model, for which the same conditioning
assumptions apply as in the base case scenario. These scenarios are ranked by
using estimated relationships with industry-wide historical loss data. With
the base case already pre-defined, three other scenarios are identified as
averages of constituent scenarios located around the 15th, 75th and 95th
percentiles of the distribution. The full distribution is therefore summarised
by a practical number of scenarios to run through ECL models representing an
upside, the base case, and a downside scenario weighted at 30 per cent each,
together with a severe downside scenario weighted at 10 per cent. The scenario
weights represent the distribution of economic scenarios and not subjective
views on likelihood. The inclusion of a severe downside scenario with a
smaller weighting ensures that the non-linearity of losses in the tail of the
distribution is adequately captured. Macroeconomic projections may employ
reversionary techniques to adjust the paths of economic drivers towards
long-run equilibria after a reasonable forecast horizon. The Group does not
use such techniques to force the MES scenarios to revert to the base case
planning view. Utilising such techniques would be expected to be immaterial
for expected credit losses since loss sensitivity is highest over the initial
five years of the projections. Most assets are expected to have matured, or
reached the end of their behavioural life before the five-year horizon.
A forum under the chairmanship of the Chief Economist meets at least quarterly
to review and, if appropriate, recommend changes to the method by which
economic scenarios are generated, for approval by the Chief Financial Officer
and Chief Risk Officer. In June 2022, the Group judged it appropriate to
include an adjusted severe downside scenario to incorporate a high CPI
inflation and UK Bank Rate profiles and to adopt this adjusted severe downside
scenario to calculate the Group's ECL. This is because the historic
macroeconomic and loan loss data upon which the scenario model is calibrated
imply an association of downside economic outcomes with easier monetary
policy, and therefore low interest rates. The adjustment is considered to
better reflect the risks around the Group's base case view in an economic
environment where the potential for supply shocks remains an elevated concern.
The Group has continued to include a non-modelled severe downside scenario for
Group ECL calculations for 31 December 2023 reporting.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Allowance for expected credit losses (continued)
Base case and MES economic assumptions
The Group's base case economic scenario has been updated to reflect ongoing
geopolitical developments, and further evidence of easing of inflationary
pressures allowing shifts to less restrictive monetary policies globally. The
Group's updated base case scenario has three conditioning assumptions: first,
the wars in Ukraine and the Middle East remain geographically contained and do
not lead to a major escalation in energy prices; second, China's economic
stabilisation policy is effective; and third, less restrictive monetary and
fiscal policy throughout this year.
Based on these assumptions and incorporating the economic data published in
the fourth quarter, the Group's base case scenario is for slow expansion in
GDP and a rise in the unemployment rate alongside modest changes in
residential and commercial property prices. Following a reduction in
inflationary pressures, UK Bank Rate is expected to be lowered during 2024.
Risks around this base case economic view lie in both directions and are
largely captured by the generation of alternative economic scenarios.
The Group has accommodated the latest available information at the reporting
date in defining its base case scenario and generating alternative economic
scenarios. The scenarios include forecasts for key variables in the fourth
quarter of 2023, for which actuals may have since emerged prior to
publication.
Scenarios by year
The key UK economic assumptions made by the Group are shown in the following
tables across a number of measures explained below.
Annual assumptions
Gross domestic product (GDP) and Consumer Price Index (CPI) inflation are
presented as an annual change, house price growth and commercial real estate
price growth are presented as the growth in the respective indices over each
year. Unemployment rate and UK Bank Rate are averages over the year.
Five-year average
The five-year average reflects the average annual growth rate, or level, over
the five-year period. It includes movements within the current reporting year,
such that the position as at 31 December 2023 covers the five years 2023 to
2027. The inclusion of the reporting year within the five-year period reflects
the need to predict variables which remain unpublished at the reporting date
and recognises that credit models utilise both level and annual changes. The
use of calendar years maintains a comparability between the annual assumptions
presented.
Five-year start to peak and trough
The peak or trough for any metric may occur intra year and therefore not be
identifiable from the annual assumptions, so they are also disclosed. For GDP,
house price growth and commercial real estate price growth, the peak, or
trough, reflects the highest, or lowest cumulative quarterly position reached
relative to the start of the five-year period, which as at 31 December 2023 is
1 January 2023. Given these metrics may exhibit increases followed by greater
falls, the start to trough movements quoted may be smaller than the equivalent
'peak to trough' movement (and vice versa for start to peak). Unemployment, UK
Bank Rate and CPI inflation reflect the highest, or lowest, quarterly level
reached in the five-year period.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Allowance for expected credit losses (continued)
At 31 December 2023 2023 2024 2025 2026 2027 2023 Start to Start to
% % % % % to 2027 average peak trough
% % %
Upside
Gross domestic product 0.3 1.5 1.7 1.7 1.9 1.4 8.1 0.2
Unemployment rate 4.0 3.3 3.1 3.1 3.1 3.3 4.2 3.0
House price growth 1.9 0.8 6.9 7.2 6.8 4.7 25.7 (1.2)
Commercial real estate price growth (3.9) 9.0 3.8 1.3 1.3 2.2 11.5 (3.9)
UK Bank Rate 4.94 5.72 5.61 5.38 5.18 5.37 5.79 4.25
CPI inflation 7.3 2.7 3.1 3.2 3.1 3.9 10.2 2.1
Base case
Gross domestic product 0.3 0.5 1.2 1.7 1.9 1.1 6.4 0.2
Unemployment rate 4.2 4.9 5.2 5.2 5.0 4.9 5.2 3.9
House price growth 1.4 (2.2) 0.5 1.6 3.5 1.0 4.8 (1.2)
Commercial real estate price growth (5.1) (0.2) 0.1 0.0 0.8 (0.9) (1.2) (5.3)
UK Bank Rate 4.94 4.88 4.00 3.50 3.06 4.08 5.25 3.00
CPI inflation 7.3 2.7 2.9 2.5 2.2 3.5 10.2 2.1
Downside
Gross domestic product 0.2 (1.0) (0.1) 1.5 2.0 0.5 3.4 (1.2)
Unemployment rate 4.3 6.5 7.8 7.9 7.6 6.8 8.0 3.9
House price growth 1.3 (4.5) (6.0) (5.6) (1.7) (3.4) 2.0 (15.7)
Commercial real estate price growth (6.0) (8.7) (4.0) (2.1) (1.2) (4.4) (1.2) (20.4)
UK Bank Rate 4.94 3.95 1.96 1.13 0.55 2.51 5.25 0.43
CPI inflation 7.3 2.8 2.7 1.8 1.1 3.2 10.2 1.0
Severe downside
Gross domestic product 0.1 (2.3) (0.5) 1.3 1.8 0.1 1.0 (2.9)
Unemployment rate 4.5 8.7 10.4 10.5 10.1 8.8 10.5 3.9
House price growth 0.6 (7.6) (13.3) (12.7) (7.5) (8.2) 2.0 (35.0)
Commercial real estate price growth (7.7) (19.5) (10.6) (7.7) (5.2) (10.3) (1.2) (41.8)
UK Bank Rate - modelled 4.94 2.75 0.49 0.13 0.03 1.67 5.25 0.02
UK Bank Rate - adjusted(1) 4.94 6.56 4.56 3.63 3.13 4.56 6.75 3.00
CPI inflation - modelled 7.3 2.7 2.2 0.9 (0.2) 2.6 10.2 (0.3)
CPI inflation - adjusted(1) 7.6 7.5 3.5 1.3 1.0 4.2 10.2 0.9
Probability-weighted
Gross domestic product 0.3 0.1 0.8 1.6 1.9 0.9 5.4 0.1
Unemployment rate 4.2 5.3 5.9 5.9 5.7 5.4 6.0 3.9
House price growth 1.4 (2.5) (0.9) (0.3) 1.8 (0.1) 2.0 (2.8)
Commercial real estate price growth (5.3) (1.9) (1.1) (1.0) (0.2) (1.9) (1.2) (9.9)
UK Bank Rate - modelled 4.94 4.64 3.52 3.02 2.64 3.75 5.25 2.59
UK Bank Rate - adjusted(1) 4.94 5.02 3.93 3.37 2.95 4.04 5.42 2.89
CPI inflation - modelled 7.3 2.7 2.8 2.3 1.9 3.4 10.2 1.9
CPI inflation - adjusted(1) 7.4 3.2 3.0 2.4 2.0 3.6 10.2 2.0
(1) The adjustment to UK Bank Rate and CPI inflation in the severe downside
is considered to better reflect the risks around the Group's base case view in
an economic environment where supply shocks are the principal concern.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Allowance for expected credit losses (continued)
At 31 December 2022 2022 2023 2024 2025 2026 2022 Start to Start to
% % % % % to 2026 average peak trough
% % %
Upside
Gross domestic product 4.1 0.1 1.1 1.7 2.1 1.8 6.5 0.4
Unemployment rate 3.5 2.8 3.0 3.3 3.4 3.2 3.8 2.8
House price growth 2.4 (2.8) 6.5 9.0 8.0 4.5 24.8 (1.1)
Commercial real estate price growth (9.4) 8.5 3.5 2.6 2.3 1.3 7.2 (9.4)
UK Bank Rate 1.94 4.95 4.98 4.63 4.58 4.22 5.39 0.75
CPI inflation 9.0 8.3 4.2 3.3 3.0 5.5 10.7 2.9
Base case
Gross domestic product 4.0 (1.2) 0.5 1.6 2.1 1.4 4.3 (1.1)
Unemployment rate 3.7 4.5 5.1 5.3 5.1 4.8 5.3 3.6
House price growth 2.0 (6.9) (1.2) 2.9 4.4 0.2 6.4 (6.3)
Commercial real estate price growth (11.8) (3.3) 0.9 2.8 3.1 (1.8) 7.2 (14.8)
UK Bank Rate 1.94 4.00 3.38 3.00 3.00 3.06 4.00 0.75
CPI inflation 9.0 8.3 3.7 2.3 1.7 5.0 10.7 1.6
Downside
Gross domestic product 3.9 (3.0) (0.5) 1.4 2.1 0.8 1.2 (3.6)
Unemployment rate 3.8 6.3 7.5 7.6 7.2 6.5 7.7 3.6
House price growth 1.6 (11.1) (9.8) (5.6) (1.5) (5.4) 6.4 (24.3)
Commercial real estate price growth (13.9) (15.0) (3.7) 0.4 1.4 (6.4) 7.2 (29.6)
UK Bank Rate 1.94 2.93 1.39 0.98 1.04 1.65 3.62 0.75
CPI inflation 9.0 8.2 3.3 1.3 0.3 4.4 10.7 0.2
Severe downside
Gross domestic product 3.7 (5.2) (1.0) 1.3 2.1 0.1 0.7 (6.4)
Unemployment rate 4.1 9.0 10.7 10.4 9.7 8.8 10.7 3.6
House price growth 1.1 (14.8) (18.0) (11.5) (4.2) (9.8) 6.4 (40.1)
Commercial real estate price growth (17.3) (28.8) (9.9) (1.3) 3.2 (11.6) 7.2 (47.8)
UK Bank Rate - modelled 1.94 1.41 0.20 0.13 0.14 0.76 3.50 0.12
UK Bank Rate - adjusted(1) 2.44 7.00 4.88 3.31 3.25 4.18 7.00 0.75
CPI inflation - modelled 9.0 8.2 2.6 (0.1) (1.6) 3.6 10.7 (1.7)
CPI inflation - adjusted(1) 9.7 14.3 9.0 4.1 1.6 7.7 14.8 1.5
Probability-weighted
Gross domestic product 4.0 (1.8) 0.2 1.5 2.1 1.2 3.4 (1.8)
Unemployment rate 3.7 5.0 5.8 5.9 5.7 5.2 5.9 3.6
House price growth 1.9 (7.7) (3.2) 0.7 2.9 (1.2) 6.4 (9.5)
Commercial real estate price growth (12.3) (5.8) (0.8) 1.6 2.3 (3.1) 7.2 (18.6)
UK Bank Rate - modelled 1.94 3.70 2.94 2.59 2.60 2.76 3.89 0.75
UK Bank Rate - adjusted(1) 1.99 4.26 3.41 2.91 2.91 3.10 4.31 0.75
CPI inflation - modelled 9.0 8.3 3.6 2.1 1.4 4.9 10.7 1.3
CPI inflation - adjusted(1) 9.1 8.9 4.3 2.5 1.7 5.3 11.0 1.6
(1) The adjustment to UK Bank Rate and CPI inflation in the severe downside
is considered to better reflect the risks around the Group's base case view in
an economic environment where supply shocks are the principal concern.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Allowance for expected credit losses (continued)
Base case scenario by quarter
Gross domestic product is presented quarter-on-quarter. House price growth,
commercial real estate price growth and CPI inflation are presented
year-on-year, i.e. from the equivalent quarter in the previous year.
Unemployment rate and UK Bank Rate are presented as at the end of each
quarter.
At 31 December 2023 First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
2023 2023 2023 2023 2024 2024 2024 2024
% % % % % % % %
Gross domestic product 0.3 0.0 (0.1) 0.0 0.1 0.2 0.3 0.3
Unemployment rate 3.9 4.2 4.2 4.3 4.5 4.8 5.0 5.2
House price growth 1.6 (2.6) (4.5) 1.4 (1.1) (1.5) 0.5 (2.2)
Commercial real estate price growth (18.8) (21.2) (18.2) (5.1) (4.1) (3.8) (2.2) (0.2)
UK Bank Rate 4.25 5.00 5.25 5.25 5.25 5.00 4.75 4.50
CPI inflation 10.2 8.4 6.7 4.0 3.8 2.1 2.3 2.8
At 31 December 2022 First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
2022 2022 2022 2022 2023 2023 2023 2023
% % % % % % % %
Gross domestic product 0.6 0.1 (0.3) (0.4) (0.4) (0.4) (0.2) (0.1)
Unemployment rate 3.7 3.8 3.6 3.7 4.0 4.4 4.7 4.9
House price growth 11.1 12.5 9.8 2.0 (3.0) (8.4) (9.8) (6.9)
Commercial real estate price growth 18.0 18.0 8.4 (11.8) (16.9) (19.8) (15.9) (3.3)
UK Bank Rate 0.75 1.25 2.25 3.50 4.00 4.00 4.00 4.00
CPI inflation 6.2 9.2 10.0 10.7 10.0 8.9 8.0 6.1
ECL sensitivity to economic assumptions
The impact of isolated changes in the UK unemployment rate and House Price
Index (HPI) has been assessed on a univariate basis. Although such changes
would not be observed in isolation, as economic indicators tend to be
correlated in a coherent scenario, this gives insight into the sensitivity of
the Group's ECL to gradual changes in these two critical economic factors. The
assessment has been made against the base case with staging held flat to the
reported probability-weighted view and is assessed through the direct impact
on modelled ECL and only includes judgemental adjustments applied through
changes to model inputs.
The table below shows the impact on the Group's ECL resulting from a 1
percentage point increase or decrease in the UK unemployment rate. The
increase or decrease is presented based on the adjustment phased evenly over
the first 10 quarters of the base case scenario. A more immediate increase or
decrease would drive a more material ECL impact as it would be fully reflected
in both 12-month and lifetime probability of defaults.
At 31 December 2023 At 31 December 2022
1pp increase in 1pp decrease in 1pp increase in 1pp decrease in
unemployment unemployment unemployment unemployment
£m £m £m £m
UK mortgages 33 (32) 26 (21)
Credit cards 38 (38) 41 (41)
Other Retail 19 (19) 25 (25)
Commercial Banking 88 (83) 100 (91)
ECL allowance 178 (172) 192 (178)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Allowance for expected credit losses (continued)
The table below shows the impact on the Group's ECL in respect of UK mortgages
of an increase or decrease in loss given default for a 10 percentage point
increase or decrease in the UK HPI. The increase or decrease is presented
based on the adjustment phased evenly over the first 10 quarters of the base
case scenario.
At 31 December 2023 At 31 December 2022
10pp increase 10pp decrease 10pp increase 10pp decrease
in HPI in HPI in HPI in HPI
£m £m £m £m
ECL impact (201) 305 (225) 370
5. Provisions for liabilities and charges
Regulatory and legal provisions
In the course of its business, the Group is engaged on a regular basis in
discussions with UK and overseas regulators and other governmental authorities
on a range of matters, including legal and regulatory reviews and, from time
to time, enforcement investigations (including in relation to compliance with
applicable laws and regulations, such as those relating to prudential
regulation, consumer protection, investment advice, business conduct, systems
and controls, environmental, competition/anti-trust, tax, anti-bribery,
anti-money laundering and sanctions). Any matters discussed or identified
during such discussions and inquiries may result in, among other things,
further inquiry or investigation, other action being taken by governmental
and/or regulatory authorities, increased costs being incurred by the Group,
remediation of systems and controls, public or private censure, restriction of
the Group's business activities and/or fines. The Group also receives
complaints in connection with its past conduct and claims brought by or on
behalf of current and former employees, customers (including their appointed
representatives), investors and other third parties and is subject to legal
proceedings and other legal actions from time to time. Any events or
circumstances disclosed could have a material adverse effect on the Group's
financial position, operations or cash flows. Provisions are held where the
Group can reliably estimate a probable outflow of economic resources. The
ultimate liability of the Group may be significantly more, or less, than the
amount of any provision recognised. If the Group is unable to determine a
reliable estimate, a contingent liability is disclosed. The recognition of a
provision does not amount to an admission of liability or wrongdoing on the
part of the Group. During the year ended 31 December 2023 the Group charged a
further £675 million in respect of legal actions and other regulatory
matters and the unutilised balance at 31 December 2023 was £1,105 million
(31 December 2022: £803 million). The most significant items are outlined
below.
Motor commission review
A £450 million provision, all recognised in the fourth quarter, has been
established for the potential impact of the recently announced FCA review into
historical motor finance commission arrangements and sales.
As disclosed in previous periods, the Group continues to receive a number of
court claims and complaints in respect of motor finance commissions and is
actively engaging with the FOS in its assessment of these complaints. On 10
January 2024, the FOS issued its Final Decision on a complaint relating to the
Group, as well as decisions relating to other industry participants. On 11
January 2024, the FCA announced a section 166 review of historical motor
finance commission arrangements and sales and plans to communicate a decision
on next steps in the third quarter of 2024 on the basis of the evidence
collated in the review. The FCA has indicated that such steps could include
establishing an industry-wide consumer redress scheme and/or applying to the
Financial Markets Test Case Scheme, to help resolve any contested legal issues
of general importance.
Following the FCA Motor Market Review in March 2019, the FCA issued a policy
statement in July 2020 prohibiting the use of discretionary commission models
from 28 January 2021, which the Group adhered to. The Group continues to
believe that its historical practices were compliant with the law and
regulations in place at that time.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Provisions for liabilities and charges (continued)
As noted above, in response to both the FOS decisions and the FCA announcement
the Group has recognised a charge of £450 million. This includes estimates
for operational and legal costs, including litigation costs, together with
estimates for potential awards, based on various scenarios using a range of
assumptions, including for example, commission models, commission rates,
applicable time periods (between 2007 and 2021), response rates and uphold
rates. Costs and awards could arise in the event that the FCA concludes there
has been misconduct and customer loss that requires remediation, or from
adverse litigation decisions. However, while the FCA review is progressing
there is significant uncertainty as to the extent of misconduct and customer
loss, if any, the nature and extent of any remediation action, if required,
and its timing. The ultimate financial impact could therefore materially
differ from the amount provided, both higher or lower. The Group welcomes the
FCA intervention through an independent section 166 review.
HBOS Reading - review
The Group continues to apply the recommendations from Sir Ross Cranston's
review, issued in December 2019, including a reassessment of direct and
consequential losses by an independent panel (the Foskett Panel), an extension
of debt relief and a wider definition of de facto directors. The Foskett
Panel's full scope and methodology was published on 7 July 2020. The Foskett
Panel's stated objective is to consider cases via a non-legalistic and fair
process and to make its decisions in a generous, fair and common sense manner,
assessing claims against an expanded definition of the fraud and on a lower
evidential basis.
In June 2022, the Foskett Panel announced an alternative option, in the form
of a fixed sum award which could be accepted as an alternative to
participation in the full re-review process, to support earlier resolution of
claims for those deemed by the Foskett Panel to be victims of the fraud.
Around 90 per cent of the population have now had outcomes via this new
process. The provision is unchanged in 2023. Notwithstanding the settled
claims and the increase in outcomes which builds confidence in the full
estimated cost, uncertainties remain and the final outcome could be different
from the current provision once the re-review is concluded by the Foskett
Panel. There is no confirmed timeline for the completion of the Foskett Panel
re-review process nor the review by Dame Linda Dobbs. The Group is committed
to implementing Sir Ross Cranston's recommendations in full.
Payment protection insurance (PPI)
The Group has incurred costs for PPI over a number of years totalling £21,960
million. The Group continues to challenge PPI litigation cases, with mainly
legal fees and operational costs associated with litigation activity
recognised within regulatory and legal provisions.
Customer claims in relation to insurance branch business in Germany
The Group continues to receive claims from customers in Germany relating to
policies issued by Clerical Medical Investment Group Limited (subsequently
renamed Scottish Widows Limited), with smaller numbers of claims received from
customers in Austria and Italy. The total provision made to 31 December 2023,
was £709 million (31 December 2022: £709 million) with £13 million
utilisation of the provision during the year, leaving an unutilised provision
at 31 December 2023 of £75 million. The ultimate financial effect, which
could be significantly different from the current provision, will be known
only once all relevant claims have been resolved.
6. Earnings per share
2023 2022
£m £m
Profit attributable to ordinary shareholders - basic and diluted(1) 4,933 3,389
2023 2022
million million
Weighted average number of ordinary shares in issue - basic 64,953 68,847
Adjustment for share options and awards 807 835
Weighted average number of ordinary shares in issue - diluted 65,760 69,682
Basic earnings per share(1) 7.6p 4.9p
Diluted earnings per share(1) 7.5p 4.9p
(1) Restated for the adoption of IFRS 17, see notes 1, 9 and 10.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Dividends on ordinary shares and share buyback
The directors have recommended a final dividend, which is subject to approval
by the shareholders at the annual general meeting on 16 May 2024, of 1.84
pence per ordinary share (2022: 1.60 pence per ordinary share), equivalent to
£1,169 million, before the impact of any cancellations of shares under the
Company's buyback programme (2022: £1,059 million, following cancellations of
shares under the Company's 2023 buyback programme up to the record date),
which will be paid on 21 May 2024. 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 recommended dividend are outlined on page 81.
Share buyback
The Board has announced its intention to implement an ordinary share buyback
of up to £2.0 billion. This represents the return to shareholders of capital,
surplus to that required to provide capacity to grow the business, meet
current and future regulatory requirements and cover uncertainties. The share
buyback programme will commence as soon as is practicable and is expected to
be completed, subject to continued authority from the PRA, by 31 December
2024.
8. Contingent liabilities and commitments
Interchange fees
With respect to multi-lateral interchange fees (MIFs), the Group is not a
party in the ongoing or threatened litigation which involves the card schemes
Visa and Mastercard (as described below). However, the Group is a
member/licensee of Visa and Mastercard and other card schemes. The litigation
in question is as follows:
• Litigation brought by or on behalf of retailers against both Visa and
Mastercard in the English Courts, in which retailers are seeking damages on
grounds that Visa and Mastercard's MIFs breached competition law (this
includes a judgment of the Supreme Court in June 2020 upholding the Court of
Appeal's finding in 2018 that certain historic interchange arrangements of
Mastercard and Visa infringed competition law)
• Litigation brought on behalf of UK consumers in the English Courts
against Mastercard
Any impact on the Group of the litigation against Visa and Mastercard remains
uncertain at this time, such that it is not practicable for the Group to
provide an estimate of any potential financial effect. Insofar as Visa is
required to pay damages to retailers for interchange fees set prior to June
2016, contractual arrangements to allocate liability have been agreed between
various UK banks (including the Group) and Visa Inc, as part of Visa Inc's
acquisition of Visa Europe in 2016. These arrangements cap the maximum amount
of liability to which the Group may be subject and this cap is set at the cash
consideration received by the Group for the sale of its stake in Visa Europe
to Visa Inc in 2016. In 2016, the Group received Visa preference shares as
part of the consideration for the sale of its shares in Visa Europe. A release
assessment is carried out by Visa on certain anniversaries of the sale (in
line with the Visa Europe sale documentation) and as a result, some Visa
preference shares may be converted into Visa Inc Class A common stock from
time to time. Any such release and any subsequent sale of Visa common stock
does not impact the contingent liability.
LIBOR and other trading rates
Certain Group companies, together with other panel banks, have been named as
defendants in ongoing private lawsuits, including purported class action
suits, in the US in connection with their roles as panel banks contributing to
the setting of US Dollar, Japanese Yen and Sterling London Interbank Offered
Rate and the Australian BBSW reference rate.
Certain Group companies are also named as defendants in (i) UK-based claims,
and (ii) two Dutch class actions, raising LIBOR manipulation allegations. A
number of claims against the Group in the UK relating to the alleged mis-sale
of interest rate hedging products also include allegations of LIBOR
manipulation.
It is currently not possible to predict the scope and ultimate outcome on the
Group of any private lawsuits or ongoing related challenges to the
interpretation or validity of any of the Group's contractual arrangements,
including their timing and scale. As such, it is not practicable to provide an
estimate of any potential financial effect.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. 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 its interpretation of the
UK rules means that the group relief is not available. In 2020, HMRC concluded
its enquiry into the matter and issued a closure notice. The Group's
interpretation of the UK rules has not changed and hence it appealed to the
First Tier Tax Tribunal, with a hearing having taken place in May 2023. If the
final determination of the matter by the judicial process is that HMRC's
position is correct, management believes that this would result in an increase
in current tax liabilities of approximately £920 million (including
interest) and a reduction in the Group's deferred tax asset of approximately
£285 million. The Group, following conclusion of the hearing and having
taken appropriate advice, does not consider that this is a case where
additional tax will ultimately fall due.
There are a number of other open matters on which the Group is in discussions
with HMRC (including the tax treatment of certain costs arising from the
divestment of TSB Banking Group plc), none of which is expected to have a
material impact on the financial position of the Group.
FCA investigation into the Group's anti-money laundering control framework
The FCA has opened an investigation into the Group's compliance with domestic
UK money laundering regulations and the FCA's rules and Principles for
Businesses, with a focus on aspects of its anti-money laundering control
framework. The Group has been fully co-operating with the investigation. It is
not currently possible to estimate the potential financial impact, if any, to
the Group.
Other legal actions and regulatory matters
In addition, in the course of its business the Group is subject to other
complaints and threatened or actual legal proceedings (including class or
group action claims) brought by or on behalf of current or former employees,
customers (including their appointed representatives), investors or other
third parties, as well as legal and regulatory reviews, enquiries and
examinations, requests for information, audits, challenges, investigations and
enforcement actions, which could relate to a number of issues. This includes
matters in relation to compliance with applicable laws and regulations, such
as those relating to prudential regulation, consumer protection, investment
advice, business conduct, systems and controls, environmental,
competition/anti-trust, tax, anti-bribery, anti-money laundering and
sanctions, some of which may be beyond the Group's control, both in the UK and
overseas. Where material, such matters are periodically reassessed, with the
assistance of external professional advisers where appropriate, to determine
the likelihood of the Group incurring a liability. The Group does not
currently expect the final outcome of any such case to have a material adverse
effect on its financial position, operations or cash flows. Where there is a
contingent liability related to an existing provision the relevant disclosures
are included within note 5.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Implementation of IFRS 17 Insurance contracts
Set out below are the accounting policies adopted for insurance and
participating investment contracts in the preparation of these condensed
consolidated financial statements following the adoption of IFRS 17 at 1
January 2023.
The Group undertakes both life insurance and general insurance business.
Insurance and participating investment contracts, and reinsurance contracts
issued and held, are accounted for under IFRS 17 Insurance Contracts.
Products sold by the life insurance business are classified into three
categories:
• Insurance contracts are contracts that transfer significant insurance
risk and may also transfer financial risk. The Group defines significant
insurance risk as the possibility of having to pay benefits on the occurrence
of an insured event which are significantly higher than the benefits payable
if the insured event were not to occur. Once a contract has been classified as
an insurance contract, it remains an insurance contract until all obligations
are extinguished unless that contract is derecognised due to a contract
modification. These contracts are classified as either direct participating
contracts or contracts without direct participation features. Contracts
without direct participation features are accounted for using the general
measurement model (GMM) for life contracts or the premium allocation approach
(PAA) for general insurance contracts. Direct participating contracts are
contracts for which, at inception, the contractual terms specify the
policyholders participate in a clearly identified pool of underlying items.
Under the terms of these contracts the policyholders are entitled to a
substantial share of the returns and change in fair value of the underlying
items. These contracts are accounted for under the variable fee approach (VFA)
• Participating investment contracts are investment contracts that contain
a discretionary participation feature (DPF). They do not transfer significant
insurance risk, but contain a contractual right to receive, as a supplement to
an amount not subject to the discretion of the Group, additional amounts that
are expected to be a significant portion of the total contractual benefits.
The timing or amount of these additional amounts are at the discretion of the
Group and are contractually based on the returns on a specified pool of
contracts or type of contract, returns on a specified pool of assets held by
the Group or profit or loss of a fund
• For certain insurance and investment contracts, the contract can be
partly invested in units which contain a DPF and partly in units without. In
these circumstances, where the contract also contains features that transfer
significant insurance risk, they are classified as insurance contracts. Where
this is not the case, and the discretionary cash flows are expected to be a
significant portion of the total contractual benefits, they are classified as
participating investment contracts. Where the discretionary cash flows are not
expected to be a significant portion of the total contractual benefits, they
are classified as financial instruments. An investment component is defined as
the amount that an insurance contract requires the entity to repay to a
policyholder in all circumstances, regardless of whether an insured event
occurs. The investment component of the insurance and participating investment
contract is non-distinct and is not separated. The Group applies judgement to
determine the investment component for each contract considering the extent to
which insurance and investment components are highly interrelated or not
applying factors such as: whether the policyholder is able to benefit from one
component unless the other component is present; and whether the value of the
investment component is dependent on the timing of the insured event. The
value of the non-distinct investment component is determined on the following
bases: for immediate annuities, full claim amount when within the guaranteed
period; for unit-linked and With-Profits contracts, policyholder's account
value
The general insurance business issues only insurance contracts.
(1) Life insurance business
(i) Accounting for insurance and participating investment contracts
Recognition
The Group aggregates insurance and participating investment contracts into
portfolios of contracts subject to similar risks and managed together. Each
portfolio of insurance contracts is divided into annual cohorts (by year of
issue). Annual cohorts are divided into groups of insurance and participating
investment contracts based on profitability expectations at initial
recognition. The directly attributable costs of selling, underwriting and
starting a group of insurance and participating investment contracts are
allocated to the group of insurance and participating investment contracts
using a systematic and rational method.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Implementation of IFRS 17 Insurance contracts (continued)
On initial recognition, a group of insurance and participating investment
contracts is measured as the total of the fulfilment cash flows and the
contractual service margin (CSM). The measurement includes all future cash
flows that are within the contract boundary of each contract in the group. The
fulfilment cash flows comprise unbiased and probability-weighted estimates of
future cash flows, discounted to present value to reflect the time value of
money and financial risks, plus an explicit risk adjustment for non-financial
risk. The discount rate applied reflects the time value of money, the
characteristics of the cash flows, the liquidity characteristics of the
insurance and participating investment contracts and, where appropriate, is
consistent with observable current market prices. The risk adjustment for
non-financial risk for a group of insurance and participating investment
contracts is the compensation required for bearing the uncertainty about the
amount and timing of the cash flows that arises from non-financial risk.
Diversification benefit is calculated based on Group level diversification of
risks. To determine the risk adjustments for non-financial risk for
reinsurance contracts, the Group applies these techniques both gross and net
of excess of loss reinsurance and derives the amount of risk being transferred
to the reinsurer as the difference between the two results. The CSM of a group
of insurance and participating investment contracts represents the unearned
profit that the Group expects to recognise as it provides insurance contract
services under those contracts in the future.
Contract boundaries
The measurement of a group of contracts includes all future cash flows within
the boundary of each contract in the group.
Cash flows are within the contract boundary:
• For an insurance contract, if they arise from substantive rights and
obligations that exist during the reporting period in which the Group can
compel the policyholder to pay premiums or has a substantive obligation to
provide insurance contract services
• For a participating investment contract, if they result from a
substantive obligation of the Group to deliver cash at a present or future
date
A substantive obligation to provide insurance contract services ends when the
Group has the practical ability to reassess the risks of the particular
policyholder, and can set a price or level of benefits that fully reflects
those reassessed risks; or the Group has the practical ability to reassess the
risks of the portfolio that contains the contract and can set a price or level
of benefits that fully reflects the risks of that portfolio, and the pricing
of the premiums up to the reassessment date does not take into account risks
that relate to periods after the reassessment date.
For certain unitised With-Profits and unit-linked policies, a guaranteed
minimum pension is payable at a vesting date. For certain conventional
With-Profits pensions, policyholders have the option to convert to an annuity
on guaranteed terms. There is no contract boundary at the vesting date of
these policies; the pre and post vesting date phases are treated as a single
insurance contract.
The contract boundary of each group is reassessed at the end of each reporting
period.
Measurement
The carrying amount of a group of insurance and participating investment
contracts at each reporting date is the sum of the liability for remaining
coverage (LRC) and the liability for incurred claims (LIC). The LRC comprises
the fulfilment cash flows that relate to services that will be provided under
the contracts in future periods and any remaining CSM at that date. The LIC
includes the fulfilment cash flows for incurred claims and expenses that have
not yet been paid, including claims that have been incurred but not yet
reported. The fulfilment cash flows of groups of insurance and participating
investment contracts are measured at the reporting date using current
estimates of future cash flows, current discount rates and current estimates
of the risk adjustment for non-financial risk. Changes in fulfilment cash
flows are recognised as follows:
• Changes related to future service are adjusted against the CSM unless
the group is onerous in which case such changes are recognised in the
insurance service result in profit or loss
• Changes related to past or current service are recognised in the
insurance service result in profit or loss
• The effects of the time value of money and financial risk are recognised
as net finance income or expense from insurance, participating investment and
reinsurance contracts in profit or loss
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Implementation of IFRS 17 Insurance contracts (continued)
The carrying amount of the CSM is remeasured at the end of each reporting
period. For contracts measured under the GMM, interest is accreted on the
carrying amount of the CSM using the discount rate curve determined at the
date of initial recognition of the group of contracts. The CSM is also
adjusted for the changes in fulfilment cash flows relating to future service
at the locked-in discount rates determined at initial recognition, unless the
increases in fulfilment cash flows cause a group of contracts to become
onerous or decreases in fulfilment cash flows are allocated to the loss
component of the liability for remaining coverage.
The majority of the Group's With-Profits and unit-linked insurance and
participating investment contracts are direct participating contracts under
which the Group's obligation to the policyholder is the payment of an amount
equal to the fair value of the underlying items, less a variable fee. On
subsequent remeasurement of a group of direct participating contracts
(measured under VFA), changes to the fulfilment cash flows, discounted at
current rates, reflecting changes in the obligation to pay the policyholder an
amount equal to the fair value of the underlying items are recognised in the
income statement, within net finance income or expense from insurance,
participating investment and reinsurance contracts. The CSM is adjusted for
changes in the amount of the Group's share of the fair value of the underlying
items, which relate to future services, except where such changes result in
recognition or reversal of the loss component for onerous groups, or where the
Group applies the risk mitigation option. For certain contracts with direct
participation features, the Group mitigates financial risks using equity and
currency hedges. The Group does not adjust the CSM for changes in the
fulfilment cash flows and/or entity's share of the underlying items that
reflect some of the changes in the effect of time value of money and financial
risk. These amounts are instead reflected in profit or loss. The CSM is also
adjusted for those fulfilment cashflows that do not vary based on the returns
on underlying items that relate to future service (including the effect of
time value of money and financial risks not arising from underlying items,
such as the impact of minimum return guarantees), except where such changes
result in recognition or reversal of the loss component for onerous groups.
Changes in fulfilment cash flows relating to future service adjust the CSM
using current discount rates.
For contracts measured under the GMM or VFA at the end of each reporting
period the appropriate proportion of the CSM is recognised in the income
statement to reflect the amount of profit related to the insurance contract
services provided in the period. This is calculated using coverage units, a
measure used to determine the allocation of the CSM over the remaining
coverage periods. The number of coverage units in a group is the quantity of
insurance contract services provided by the contracts in the group, determined
by considering for each contract the quantity of the benefits provided and its
expected coverage period.
Derecognition
The Group derecognises an insurance and participating investment contract when
it is extinguished (that is, when the obligation specified in the contract
expires or is discharged or cancelled) or if its terms are modified in a way
that would have changed the accounting for the contract significantly had the
new terms always existed.
If a contract is derecognised, then the fulfilment cash flows of the group are
adjusted to eliminate the present value of the future cash flows and risk
adjustment of the contract derecognised from the group, and the CSM of the
group is adjusted for the change in fulfilment cash flows, except where such
changes are allocated to the loss component.
If a contract is derecognised because its terms are modified, then the CSM of
the existing group is also adjusted for the premium that would have been
charged had the Group entered into a contract with the new contract's terms at
the date of modification, less any additional premium charged for the
modification. A new modified contract is recognised assuming the Group
received the premium that would have been charged had the Group entered into a
contract with the new contract's terms at the date of the modification.
Where the adjustments to CSM result in the CSM being reduced to nil, any
further adjustments are recognised in the income statement in insurance
service expense.
(2) General insurance contracts
General insurance contracts issued by the Group are presented on the balance
sheet within liabilities arising from insurance and participating investment
contracts. The Group applies the PAA to the measurement of general insurance
contracts, which either have a coverage period of each contract in the group
of one year or less or have an annual re-pricing option.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Implementation of IFRS 17 Insurance contracts (continued)
For a group of general insurance contracts that is not onerous at initial
recognition, the Group measures the LRC as any premium received at initial
recognition, less any insurance acquisition cash flows at that date, plus any
other asset or liability previously recognised for cash flows related to the
group of contracts that the Group pays or receives before the group of
insurance contracts is recognised.
The Group estimates the LIC using the methodology described in the Measurement
section for life insurance contracts above.
Where, during the coverage period, facts and circumstances indicate that a
group of insurance contracts is onerous, the Group recognises a loss in the
income statement for the net outflow, resulting in the carrying amount of the
liability for the group being equal to the fulfilment cash flows. A loss
component is established by the Group within the LRC for such onerous group.
On subsequent measurement, the Group measures the carrying amount of the LRC
at the end of each reporting period as the LRC at the beginning of the period
plus premiums received in the period, less insurance acquisition cash flows,
plus any amounts relating to the amortisation of the insurance acquisition
cash flows recognised as an expense in the reporting period for the group,
less the amount recognised as insurance revenue for the services provided in
the period. For onerous groups, the LRC is also adjusted for the remeasurement
of the loss component.
(3) Reinsurance
(i) Reinsurance contracts issued
Reinsurance contracts issued by the Group (where insurance risk is transferred
to the Group) are accounted for under the GMM as insurance contracts. These
contracts are presented within other assets or liabilities arising from
insurance and participating investment contracts.
(ii) Reinsurance contracts held
The classification of contracts entered into by the Group with reinsurers
under which the Group is compensated for amounts payable on one or more other
contracts issued by the Group is dependent on whether the contract with the
reinsurer transfers significant insurance risk to the reinsurer. Where the
reinsurance contract transfers significant insurance risk (reinsurance
contracts held), it is accounted for under the GMM, as modified for
reinsurance contracts held. The Group adjusts the CSM of the group to which a
reinsurance contract held belongs and as a result recognises income, when it
recognises a loss on initial recognition of onerous underlying contracts.
Contracts that do not transfer significant insurance risk to the reinsurer are
recognised within financial assets at fair value through profit or loss as
they are within a portfolio of financial assets that is managed, and whose
performance is evaluated, on a fair value basis. These contracts, while
legally reinsurance contracts, do not meet the definition of a reinsurance
contract under IFRS. Investment returns (including movements in fair value and
investment income) allocated to these contracts are recognised on the face of
the income statement within net trading income.
(4) Non-participating investment contracts
The Group's non-participating investment contracts are primarily unit-linked.
These contracts are accounted for under IFRS 9 as financial liabilities whose
value is contractually linked to the fair values of financial assets within
the Group's unitised investment funds. The value of the unit-linked financial
liabilities is determined using current unit prices multiplied by the number
of units attributed to the contract holders at the balance sheet date. Their
value is never less than the amount payable on surrender, discounted for the
required notice period where applicable. Investment returns (including
movements in fair value and investment income) allocated to those contracts
are recognised in the income statement through change in non-participating
investment contracts.
Deposits and withdrawals are not accounted for through the income statement
but are accounted for directly in the balance sheet as adjustments to the
non-participating investment contract liability.
The Group receives investment management fees in the form of an initial
adjustment or charge to the amount invested. These fees are in respect of
services rendered in conjunction with the issue and management of investment
contracts where the Group actively manages the consideration received from its
customers to fund a return that is based on the investment profile that the
customer selected on origination of the contract. These services comprise an
indeterminate number of acts over the lives of the individual contracts and,
therefore, the Group defers these fees and recognises them over the estimated
lives of the contracts, in line with the provision of investment management
services.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Implementation of IFRS 17 Insurance contracts (continued)
Costs which are directly attributable and incremental to securing new
non-participating investment contracts are deferred. This asset is
subsequently amortised over the period of the provision of investment
management services and its recoverability is reviewed in circumstances where
its carrying amount may not be recoverable. If the asset is greater than its
recoverable amount it is written down immediately through fee and commission
expense in the income statement. All other costs are recognised as expenses
when incurred.
Changes to presentation
The implementation of IFRS 17 has also resulted in presentational changes
being made to the Group's income statement. Details of these changes are as
follows:
• The Group disaggregates the amounts recognised in the income statement
into an insurance service result, comprising insurance revenue and insurance
service expenses, and net finance income or expense from insurance,
participating investment and reinsurance contracts. The Group does not
disaggregate the change in risk adjustment for non-financial risk between the
insurance service result and the net finance income or expense from insurance,
participating investment and reinsurance contracts and includes the entire
change as part of the insurance service result.
• The Group presents income or expenses from reinsurance contracts held
(other than finance income or expenses from reinsurance contracts held) as a
single amount within net income or losses from reinsurance contracts held.
Insurance revenue
The Group recognises insurance revenue to reflect the provision of services
arising from the group of insurance and participating investment contracts at
an amount that reflects the consideration to which the Group expects to be
entitled in exchange for those services. Insurance revenue relating to
services provided for each year represents the total of the changes in the LRC
that relate to services for which the Group expects to receive consideration.
The Group allocates a portion of premiums that relate to recovering insurance
acquisition cash flows to each period based on the coverage units provided in
the reporting period. The Group recognises the allocated amount, adjusted for
interest accretion at the discount rates determined on initial recognition of
the related group of contracts, as insurance revenue and an equal amount as
insurance service expenses.
Insurance service expense
The Group presents in the income statement insurance service expenses arising
from groups of insurance and participating investment contracts, generally as
they are incurred, as well as loss components and their reversals and changes
in estimates of past claims.
Net finance income or expense from insurance, participating investment and
reinsurance contracts
The net finance income or expense from insurance, participating investment and
reinsurance contracts comprises changes in the carrying amounts of groups of
insurance and participating investment contracts arising from:
• the effects of the time value of money and changes in the time value of
money;
• changes in financial risk, including where the risk mitigation option is
applied; and
• excluding any such changes for groups of direct participating contracts
which are allocated to a loss component and included in insurance service
expenses.
The net finance income or expense from insurance, participating investment and
reinsurance contracts includes changes in the measurement of groups of
contracts caused by changes in the value of underlying items (excluding
additions and withdrawals). For contracts measured using the GMM, it includes
the difference between the impact of demographic experience and assumptions
change when calculated at market rates compared to locked-in rates. The impact
of exchange differences on changes in the carrying amount of groups of
insurance and participating investment contracts is also included here.
The Group has chosen not to disaggregate the net finance income or expense
from insurance, participating investment and reinsurance contracts between the
income statement and other comprehensive income, with it all being taken to
the income statement.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Impact on balance sheet as at 1 January 2022
In accordance with the requirements of accounting standards, set out below is
the Group's balance sheet at 1 January 2022, prepared in accordance with the
applicable accounting policies following the adoption of IFRS 17.
Consolidated balance sheet as at 1 January 2022
Footnote As previously reported Impact of Other changes (see note 1) Restated
IFRS 17 £m
At 31 Dec (see below) At 1 Jan
2021 £m 2022
£m £m
Assets
Cash and balances at central banks 76,420 - - 76,420
Items in the course of collection from banks 147 - (147)
Financial assets at fair value through profit or loss 1 206,771 200 - 206,971
Derivative financial instruments 22,051 - - 22,051
Financial assets at amortised cost 517,156 - - 517,156
Financial assets at fair value through other comprehensive income 28,137 - - 28,137
Reinsurance assets 2 759 (759) -
Investments in joint ventures and associates 352 - (352)
Goodwill 2,320 - (2,320)
Value of in-force business 3 5,514 (5,317) (197)
Other intangible assets 4,196 - (4,196)
Goodwill and other intangible assets - 6,713 6,713
Current tax recoverable 363 - - 363
Deferred tax assets 4 3,118 655 - 3,773
Retirement benefit assets 4,531 - - 4,531
Other assets 2 14,690 (47) 499 15,142
Total assets 886,525 (5,268) - 881,257
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Impact on balance sheet as at 1 January 2022 (continued)
Consolidated balance sheet as at 1 January 2022 (continued)
Footnote As previously reported Impact of Other changes (see note 1) Restated
IFRS 17 £m
At 31 Dec (see below) At 1 Jan
2021 £m 2022
£m £m
Liabilities
Deposits from banks 7,647 - - 7,647
Customer deposits 476,344 - - 476,344
Repurchase agreements at amortised cost 31,125 - - 31,125
Items in course of transmission to banks 316 - (316)
Financial liabilities at fair value through profit or loss 23,123 - - 23,123
Derivative financial instruments 18,060 - - 18,060
Notes in circulation 1,321 - - 1,321
Debt securities in issue at amortised cost 71,552 - - 71,552
Liabilities arising from insurance contracts and participating investment 5 123,423 1,756 - 125,179
contracts
Liabilities arising from non-participating investment contracts 6 45,040 (4,150) - 40,890
Other liabilities 7 19,947 (896) 316 19,367
Retirement benefit obligations 230 - - 230
Current tax liabilities 6 - - 6
Deferred tax liabilities 4 39 (31) - 8
Other provisions 2,092 (12) - 2,080
Subordinated liabilities 13,108 - - 13,108
Total liabilities 833,373 (3,333) - 830,040
Equity
Share capital 7,102 - - 7,102
Share premium account 18,479 - - 18,479
Other reserves 11,189 (12) - 11,177
Retained profits 10,241 (1,923) - 8,318
Ordinary shareholders' equity 47,011 (1,935) - 45,076
Other equity instruments 5,906 - - 5,906
Total equity excluding non-controlling interests 52,917 (1,935) - 50,982
Non-controlling interests 235 - - 235
Total equity 53,152 (1,935) - 51,217
Total equity and liabilities 886,525 (5,268) - 881,257
(1) Own shares held through consolidated collective investment vehicles
classified as financial assets at fair value through profit or loss rather
than in equity under IFRS 17.
(2) Reinsurance assets are replaced by reinsurance contract assets, which
are presented within other assets, under IFRS 17.
(3) The value of in-force business (VIF) is not recognised on the balance
sheet under IFRS 17 and acquired VIF presented within goodwill and other
intangible assets.
(4) Deferred tax assets and liabilities are recalculated based on IFRS 17
retained earnings.
(5) Change in measurement basis of liabilities arising from insurance
contracts and participating investment contracts under IFRS 17.
(6) Recognition of certain hybrid unit-linked and With-Profit contracts
under IFRS 17.
(7) Unallocated surplus relating to the With-Profit funds is recognised as
part of the liabilities arising from insurance contracts and participating
investment contracts under IFRS 17.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. 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 2023 will be
published on the Group's website and will be delivered to the Registrar of
Companies in accordance with section 441 of the Act. The statutory accounts
for the year ended 31 December 2022 have been filed with the Registrar of
Companies. 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.
KEY DATES
Group strategy update: Mass Affluent and Insurance, Pensions & Investments 20 March 2024
Shares quoted ex-dividend for 2023 final dividend 11 April 2024
Record date for 2023 final dividend 12 April 2024
Q1 2024 Interim Management Statement 24 April 2024
Final date for joining or leaving the final 2023 dividend reinvestment plan 29 April 2024
Annual General Meeting 16 May 2024
Final 2023 dividend paid 21 May 2024
Group strategy update: Business & Commercial Banking 27 June 2024
2024 Half-year results 25 July 2024
Q3 2024 Interim Management Statement 23 October 2024
BASIS OF PRESENTATION
This release covers the results of Lloyds Banking Group plc together with its
subsidiaries (the Group) for the year ended 31 December 2023. Unless otherwise
stated, income statement commentaries throughout this document compare the
year ended 31 December 2023 to the year ended 31 December 2022 and the balance
sheet analysis compares the Group balance sheet as at 31 December 2023 to the
Group balance sheet as at 31 December 2022. The Group uses a number of
alternative performance measures, including underlying profit, in the
discussion of its business performance and financial position. These measures
are labelled with a superscript 'A' throughout this document. Further
information on these measures is set out on page 29. Unless otherwise stated,
commentary on pages 1 to 2 and pages 7 to 9 are given on an underlying basis.
The 2023 annual report and accounts and Pillar 3 disclosures can be found at:
www.lloydsbankinggroup.com/investors/financial-downloads.html.
Implementation of IFRS 17: The Group adopted the IFRS 17 Insurance Contracts
accounting standard from 1 January 2023. IFRS 17 does not require that
comparatives are restated other than for the year, including interim periods,
immediately prior to adoption. The Group has selected a transition date of 1
January 2022 and, as permitted by IFRS 17, will not restate comparatives for
earlier periods. Further information on the impact of this change is set out
in the Group's IFRS 17 Transition Document, which was published on 4 April
2023 and can be found at:
www.lloydsbankinggroup.com/investors/financial-downloads.html.
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements within the meaning
of Section 21E of the US Securities Exchange Act of 1934, as amended, and
section 27A of the US Securities Act of 1933, as amended, with respect to the
business, strategy, plans and/or results of Lloyds Banking Group plc together
with its subsidiaries (the Group) and its current goals and expectations.
Statements that are not historical or current facts, including statements
about the Group's or its directors' and/or management's beliefs and
expectations, are forward-looking statements. Words such as, without
limitation, 'believes', 'achieves', 'anticipates', 'estimates', 'expects',
'targets', 'should', 'intends', 'aims', 'projects', 'plans', 'potential',
'will', 'would', 'could', 'considered', 'likely', 'may', 'seek', 'estimate',
'probability', 'goal', 'objective', 'deliver', 'endeavour', 'prospects',
'optimistic' and similar expressions or variations on these expressions are
intended to identify forward-looking statements. These statements concern or
may affect future matters, including but not limited to: projections or
expectations of the Group's future financial position, including profit
attributable to shareholders, provisions, economic profit, dividends, capital
structure, portfolios, net interest margin, capital ratios, liquidity,
risk-weighted assets (RWAs), expenditures or any other financial items or
ratios; litigation, regulatory and governmental investigations; the Group's
future financial performance; the level and extent of future impairments and
write-downs; the Group's ESG targets and/or commitments; statements of plans,
objectives or goals of the Group or its management and other statements that
are not historical fact and statements of assumptions underlying such
statements. By their nature, forward-looking statements involve risk and
uncertainty because they relate to events and depend upon circumstances that
will or may occur in the future. Factors that could cause actual business,
strategy, targets, plans and/or results (including but not limited to the
payment of dividends) to differ materially from forward-looking statements
include, but are not limited to: general economic and business conditions in
the UK and internationally; acts of hostility or terrorism and responses to
those acts, or other such events; geopolitical unpredictability; the war
between Russia and Ukraine; the conflicts in the Middle East; the tensions
between China and Taiwan; political instability including as a result of any
UK general election; market related risks, trends and developments; changes in
client and consumer behaviour and demand; exposure to counterparty risk; the
ability to access sufficient sources of capital, liquidity and funding when
required; changes to the Group's credit ratings; fluctuations in interest
rates, inflation, exchange rates, stock markets and currencies; volatility in
credit markets; volatility in the price of the Group's securities; tightening
of monetary policy in jurisdictions in which the Group operates; natural
pandemic and other disasters; risks concerning borrower and counterparty
credit quality; risks affecting insurance business and defined benefit pension
schemes; changes in laws, regulations, practices and accounting standards or
taxation; changes to regulatory capital or liquidity requirements and similar
contingencies; the policies and actions of governmental or regulatory
authorities or courts together with any resulting impact on the future
structure of the Group; risks associated with the Group's compliance with a
wide range of laws and regulations; assessment related to resolution planning
requirements; risks related to regulatory actions which may be taken in the
event of a bank or Group failure; exposure to legal, regulatory or competition
proceedings, investigations or complaints; failure to comply with anti-money
laundering, counter terrorist financing, anti-bribery and sanctions
regulations; failure to prevent or detect any illegal or improper activities;
operational risks including risks as a result of the failure of third party
suppliers; conduct risk; technological changes and risks to the security of IT
and operational infrastructure, systems, data and information resulting from
increased threat of cyber and other attacks; technological failure; inadequate
or failed internal or external processes or systems; risks relating to ESG
matters, such as climate change (and achieving climate change ambitions) and
decarbonisation, including the Group's ability along with the government and
other stakeholders to measure, manage and mitigate the impacts of climate
change effectively, and human rights issues; the impact of competitive
conditions; failure to attract, retain and develop high calibre talent; the
ability to achieve strategic objectives; the ability to derive cost savings
and other benefits including, but without limitation, as a result of any
acquisitions, disposals and other strategic transactions; inability to capture
accurately the expected value from acquisitions; assumptions and estimates
that form the basis of the Group's financial statements; and potential changes
in dividend policy. A number of these influences and factors are beyond the
Group's control. Please refer to the latest Annual Report on Form 20-F filed
by Lloyds Banking Group plc with the US Securities and Exchange Commission
(the SEC), which is available on the SEC's website at www.sec.gov, for a
discussion of certain factors and risks. Lloyds Banking Group plc may also
make or disclose written and/or oral forward-looking statements in other
written materials and in oral statements made by the directors, officers or
employees of Lloyds Banking Group plc to third parties, including financial
analysts. Except as required by any applicable law or regulation, the
forward-looking statements contained in this document are made as of today's
date, and the Group expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements
contained in this document whether as a result of new information, future
events or otherwise. The information, statements and opinions contained in
this document do not constitute a public offer under any applicable law or an
offer to sell any securities or financial instruments or any advice or
recommendation with respect to such securities or financial instruments.
CONTACTS
For further information please contact:
INVESTORS AND ANALYSTS
Douglas Radcliffe
Group Investor Relations Director
020 7356 1571
douglas.radcliffe@lloydsbanking.com
Nora Thoden
Director of Investor Relations - ESG
020 7356 2334
nora.thoden@lloydsbanking.com
Tom Grantham
Investor Relations Senior Manager
07851 440 091
thomas.grantham@lloydsbanking.com
Sarah Robson
Investor Relations Senior Manager
07494 513 983
sarah.robson2@lloydsbanking.com
CORPORATE AFFAIRS
Grant Ringshaw
External Relations Director
020 7356 2362
grant.ringshaw@lloydsbanking.com
Matt Smith
Head of Media Relations
07788 352 487
matt.smith@lloydsbanking.com
Copies of this News Release may be obtained from:
Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V
7HN
The statement can also be found on the Group's website -
www.lloydsbankinggroup.com
Registered office: Lloyds Banking Group plc, The Mound, Edinburgh, EH1 1YZ
Registered in Scotland No. SC095000
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