REG - Lloyds Banking Group - 2024 Half-Year Results
25/07/2024 07:00
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RNS Number : 7397X Lloyds Banking Group PLC 25 July 2024
Lloyds Banking Group plc
2024 Half-Year Results
25 July 2024
Part 1 of 2
CONTENTS
Results for the (#Section3) half- (#Section3) year (#Section3) 1
Income statement (underlying basis) and key balance sheet metrics (#Section4) 3
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) 9
Divisional results (#3073145fb2054de4afd74c20f787d3c4_31)
Segmental analysis - underlying basis (#142) 16
Retail (#Section38) 18
Commercial Banking (#Section39) 20
Insurance, Pensions and Investments (#Section40) 22
Equity Investments and Central Items (#Section41) 25
Alternative performance measures (#Section42) 26
Risk management (#Section49)
Principal risks and uncertainties (#Section50) 32
Capital risk (#Section51) 33
Credit risk (#Section58) 38
L (#Section75) iquidity risk (#Section75) 50
Interest rate sensitivity (#Section82) 54
Statutory information
Condensed consolidated half-year financial statements (unaudited) (#400) 55
Condensed consolidated income statement (unaudited) (#406) 56
Condensed consolidated statement of comprehensive income (unaudited) (#409) 57
Condensed consolidated balance sheet (unaudited) (#412) 58
Condensed consolidated statement of changes in equity (unaudited) (#415) 59
Condensed consolidated cash flow statement (unaudited) (#418) 62
Notes to the condensed consolidated half-year financial statements (unaudited) 63
(#421)
Statement of directors' responsibilities (#Section109) 99
Independent review report to Lloyds Banking Group plc (#Section110) 100
Key dates (#Section111) 101
Basis of presentation (#Section112) 101
Forward-looking statements (#Section113) 102
Contacts (#Section114) 103
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 8 which is, unless otherwise stated, presented on an underlying
basis. Further information on these measures is set out on page 26.
Forward-looking statements
This news release contains forward-looking statements. For further details,
reference should be made to page 102.
RESULTS FOR THE HALF-YEAR
"In the first six months of 2024, the Group delivered robust financial results
with solid income performance and cost discipline alongside strong capital
generation.
2024 is a key year for our strategic delivery. We continue to deliver on our
strategic transformation, as illustrated in the fourth of our investor
seminars last month. We remain on track to meet our 2024 targeted outcomes.
Indeed, our progress to date enables us to reaffirm 2024 guidance and remain
confident in achieving our 2026 strategic objectives and guidance.
Guided by our purpose, we continue to support customers in reaching their
financial goals and successfully transform our Group. This underpins our
ambition of higher, more sustainable returns that will deliver for all of our
stakeholders as we continue to Help Britain Prosper."
Charlie Nunn, Group Chief Executive
Delivering on our purpose driven strategy; on track to meet 2024 and 2026
strategic outcomes
• Supporting customers to reach financial goals, by meeting a broad range
of their financial needs
• Continued strategic transformation, with c.£3 billion planned
investment between 2022 and the end of 2024, enabling delivery of business and
financial benefits
• Successful execution demonstrated through four strategic seminars,
delivered over the last twelve months
Robust financial performance, in line with expectations(1)
• Statutory profit after tax of £2.4 billion (half-year to 30 June 2023:
£2.9 billion) with net income down 9 per cent on the prior year and operating
costs up 7 per cent (including Bank of England Levy), partly offset by a lower
impairment charge
• Return on tangible equity of 13.5 per cent (half-year to 30 June 2023:
16.6 per cent)
• Underlying net interest income of £6.3 billion, down 10 per cent with a
lower banking net interest margin, as expected, of 2.94 per cent and average
interest-earning banking assets of £449.2 billion
• Underlying other income of £2.7 billion, 8 per cent higher, driven by
continued recovery in customer and market activity and the benefit of
strategic initiatives
• Operating lease depreciation of £679 million, up on the prior year
reflecting growth in the fleet size, depreciation of higher value vehicles and
declines in used electric car prices
• Operating costs of £4.7 billion, up 7 per cent, with cost efficiencies
helping to offset higher ongoing strategic investment, planned elevated
severance charges and continued inflationary pressures, alongside c.£0.1
billion in the first quarter relating to the sector-wide change in the
charging approach for the Bank of England Levy (excluding this, operating
costs were up 4 per cent)
• Remediation costs of £95 million (half-year to 30 June 2023:
£70 million), largely in relation to pre-existing programmes
• Underlying impairment charge of £101 million and asset quality ratio of
5 basis points. Excluding the impact of improvements to the economic outlook,
the asset quality ratio was 19 basis points. The portfolio remains
well-positioned with resilient credit performance and strong asset quality
Growth in customer franchise
• Loans and advances to customers increased by £2.7 billion during the
half-year period to £452.4 billion, with growth across Retail, including
mortgages and unsecured loans
• Customer deposits of £474.7 billion increased by £3.3 billion, with
growth in Retail deposits of £4.9 billion partly offset by a reduction in
Commercial Banking deposits of £1.6 billion
RESULTS FOR THE HALF-YEAR (continued)
Strong capital generation, in line with expectations, enabling an increased
interim dividend
• Strong capital generation of 87 basis points, after regulatory
headwinds of 7 basis points
• CET1 ratio of 14.1 per cent after 48 basis points for ordinary dividend
accrual. Significantly above our ongoing target of c.13.0 per cent by 2026
• Risk-weighted assets of £222.0 billion up £2.9 billion in the period,
reflecting lending growth and other movements, partly offset by effective
management of risk-weighted assets
• Tangible net assets per share of 49.6 pence, down from 50.8 pence at 31
December 2023 after capital distributions, alongside the impact of increased
longer-term rates on the cash flow hedge reserve and pension surplus
• Interim ordinary dividend of 1.06 pence per share (equivalent to £662
million), up 15 per cent on the prior year
Reaffirming guidance for 2024
Based on our current macroeconomic assumptions, for 2024 the Group continues
to expect:
• Banking net interest margin of greater than 290 basis points
• Operating costs of c.£9.4 billion including the c.£0.1 billion Bank of
England Levy
• Asset quality ratio now expected to be less than 20 basis points
• Return on tangible equity of c.13 per cent
• Capital generation of c.175 basis points(2)
• Risk-weighted assets between £220 billion and £225 billion
• To pay down to a CET1 ratio of c.13.5 per cent
Confident in 2026 guidance:
Based on our current macroeconomic assumptions 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(2)
• To pay down to a CET1 ratio of c.13 per cent
(1) See the basis of presentation on page 101.
(2) 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
Half-year to 30 Jun 2024 Half-year Change Half-year Change
£m
to 30 Jun 2023 % to 31 Dec %
£m 2023
£m
Underlying net interest income 6,338 7,004 (10) 6,761 (6)
Underlying other income 2,734 2,538 8 2,585 6
Operating lease depreciation (679) (356) (91) (600) (13)
Net income 8,393 9,186 (9) 8,746 (4)
Operating costs (4,700) (4,413) (7) (4,727) 1
Remediation (95) (70) (36) (605) 84
Total costs (4,795) (4,483) (7) (5,332) 10
Underlying profit before impairment 3,598 4,703 (23) 3,414 5
Underlying impairment (charge) credit (101) (662) 85 354
Underlying profit 3,497 4,041 (13) 3,768 (7)
Restructuring (15) (25) 40 (129) 88
Volatility and other items (158) (146) (8) (6)
Statutory profit before tax 3,324 3,870 (14) 3,633 (9)
Tax expense (880) (1,006) 13 (979) 10
Statutory profit after tax 2,444 2,864 (15) 2,654 (8)
Earnings per share 3.4p 3.9p (0.5)p 3.7p (0.3)p
Dividends per share - ordinary 1.06p 0.92p 15 1.84p
Banking net interest margin(A) 2.94% 3.18% (24)bp 3.03% (9)bp
Average interest-earning banking assets(A) £449.2bn £453.8bn (1) £452.9bn (1)
Cost:income ratio(A) 57.1% 48.8% 8.3pp 61.0% (3.9)pp
Asset quality ratio(A) 0.05% 0.29% (24)bp (0.15)% 20bp
Return on tangible equity(A) 13.5% 16.6% (3.1)pp 15.3% (1.8)pp
At 30 Jun At 31 Mar Change At 31 Dec Change
2024
2024
2023
% %
Loans and advances to customers £452.4bn £448.5bn 1 £449.7bn 1
Customer deposits £474.7bn £469.2bn 1 £471.4bn 1
Loan to deposit ratio(A) 95% 96% (1pp) 95%
CET1 ratio 14.1% 13.9% 0.2pp 14.6% (0.5)pp
Pro forma CET1 ratio(A,1) 14.1% 13.9% 0.2pp 13.7% 0.4pp
UK leverage ratio 5.4% 5.6% (0.2)pp 5.8% (0.4)pp
Risk-weighted assets £222.0bn £222.8bn £219.1bn 1
Wholesale funding £97.6bn £99.9bn (2) £98.7bn (1)
Liquidity coverage ratio(2) 144% 143% 1pp 142% 2pp
Net stable funding ratio(3) 130% 130% 130%
Tangible net assets per share(A) 49.6p 51.2p (1.6)p 50.8p (1.2)p
(A) See page 26.
(1 ) 31 December 2023 reflects 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.
(2) The liquidity coverage ratio is calculated as a monthly rolling simple
average over the previous 12 months.
(3) Net stable funding ratio is based on an average of the four previous
quarters.
(
)
QUARTERLY INFORMATION(A)
Quarter Quarter Change Quarter Quarter Quarter Quarter
ended ended % ended ended ended ended
30 Jun 31 Mar 31 Dec 30 Sep 30 Jun 31 Mar
2024 2024 2023 2023 2023 2023
£m £m £m £m £m £m
Underlying net interest income 3,154 3,184 (1) 3,317 3,444 3,469 3,535
Underlying other income 1,394 1,340 4 1,286 1,299 1,281 1,257
Operating lease depreciation (396) (283) (40) (371) (229) (216) (140)
Net income 4,152 4,241 (2) 4,232 4,514 4,534 4,652
Operating costs (2,298) (2,402) 4 (2,486) (2,241) (2,243) (2,170)
Remediation (70) (25) (541) (64) (51) (19)
Total costs (2,368) (2,427) 2 (3,027) (2,305) (2,294) (2,189)
Underlying profit before impairment 1,784 1,814 (2) 1,205 2,209 2,240 2,463
Underlying impairment (charge) credit (44) (57) 23 541 (187) (419) (243)
Underlying profit 1,740 1,757 (1) 1,746 2,022 1,821 2,220
Restructuring (3) (12) 75 (85) (44) (13) (12)
Volatility and other items (41) (117) 65 114 (120) (198) 52
Statutory profit before tax 1,696 1,628 4 1,775 1,858 1,610 2,260
Tax expense (467) (413) (13) (541) (438) (387) (619)
Statutory profit after tax 1,229 1,215 1 1,234 1,420 1,223 1,641
Earnings per share 1.7p 1.7p 1.7p 2.0p 1.6p 2.3p
Banking net interest margin(A) 2.93% 2.95% (2)bp 2.98% 3.08% 3.14% 3.22%
Average interest-earning banking assets(A) £449.4bn £449.1bn £452.8bn £453.0bn £453.4bn £454.2bn
Cost:income ratio(A) 57.0% 57.2% (0.2)pp 71.5% 51.1% 50.6% 47.1%
Asset quality ratio(A) 0.05% 0.06% (1)bp (0.47)% 0.17% 0.36% 0.22%
Return on tangible equity(A) 13.6% 13.3% 0.3pp 13.9% 16.9% 13.6% 19.1%
At 30 Jun At 31 Mar 2024 Change At 31 Dec 2023 At 30 Sep 2023 At 30 Jun 2023 At 31 Mar 2023
2024 %
Loans and advances to customers(1) £452.4bn £448.5bn 1 £449.7bn £452.1bn £450.7bn £452.3bn
Customer deposits £474.7bn £469.2bn 1 £471.4bn £470.3bn £469.8bn £473.1bn
Loan to deposit ratio(A) 95% 96% (1)pp 95% 96% 96% 96%
CET1 ratio 14.1% 13.9% 0.2pp 14.6% 14.6% 14.2% 14.1%
Pro forma CET1 ratio(A,2) 14.1% 13.9% 0.2pp 13.7% 14.6% 14.2% 14.1%
UK leverage ratio 5.4% 5.6% (0.2)pp 5.8% 5.7% 5.7% 5.6%
Risk-weighted assets £222.0bn £222.8bn £219.1bn £217.7bn £215.3bn £210.9bn
Wholesale funding £97.6bn £99.9bn (2) £98.7bn £108.5bn £103.5bn £101.1bn
Liquidity coverage ratio(3) 144% 143% 1pp 142% 142% 142% 143%
Net stable funding ratio(4) 130% 130% 130% 130% 130% 129%
Tangible net assets per share(A) 49.6p 51.2p (1.6)p 50.8p 47.2p 45.7p 49.6p
(1) The increase between 31 March 2024 and 30 June 2024 is net of the impact
of the securitisation of £0.9 billion of legacy Retail mortgages in May 2024.
The reduction between 30 September 2023 and 31 December 2023 is net of the
impact of the securitisation of £2.7 billion of UK Retail unsecured loans.
(2 ) 31 December 2023 reflects 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) 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.
BALANCE SHEET ANALYSIS
At 30 Jun 2024 At 31 Mar Change At 31 Dec Change
£bn
2024
2023
£bn %
£bn %
UK mortgages(1,2) 306.9 304.6 1 306.2
Credit cards 15.6 15.2 3 15.1 3
UK Retail unsecured loans 8.2 7.6 8 6.9 19
UK Motor Finance 16.2 15.8 3 15.3 6
Overdrafts 1.0 1.0 1.1 (9)
Retail other(1,3) 17.2 16.9 2 16.6 4
Small and Medium Businesses 31.5 32.2 (2) 33.0 (5)
Corporate and Institutional Banking 56.6 55.6 2 55.6 2
Central Items(4) (0.8) (0.4) (0.1)
Loans and advances to customers 452.4 448.5 1 449.7 1
Retail current accounts 101.7 103.1 (1) 102.7 (1)
Retail savings accounts(5) 201.5 196.4 3 194.8 3
Wealth 10.1 10.2 (1) 10.9 (7)
Commercial Banking 161.2 159.3 1 162.8 (1)
Central Items 0.2 0.2 0.2
Customer deposits 474.7 469.2 1 471.4 1
Total assets 892.9 889.6 881.5 1
Total liabilities 847.8 841.8 1 834.1 2
Ordinary shareholders' equity 39.0 40.7 (4) 40.3 (3)
Other equity instruments 5.9 6.9 (14) 6.9 (14)
Non-controlling interests 0.2 0.2 0.2
Total equity 45.1 47.8 (6) 47.4 (5)
Ordinary shares in issue, excluding own shares 62,458m 63,653m (2) 63,508m (2)
(1) From the first quarter of 2024, open mortgage book and closed mortgage
book loans and advances, previously presented separately, are reported
together as UK mortgages; Wealth loans and advances, previously reported
separately, are included within Retail other. The 31 December 2023
comparative is presented on a consistent basis.
(2) The increase between 31 March 2024 and 30 June 2024 is net of the impact
of the securitisation of £0.9 billion of legacy Retail mortgages in May 2024.
(3) Within loans and advances, Retail other includes the European and Wealth
businesses.
(4) Central Items includes central fair value hedge accounting adjustments.
(5) From the first quarter of 2024, Retail relationship savings accounts and
Retail tactical savings accounts, previously reported separately, are reported
together as Retail savings accounts. The 31 December 2023 comparative is
presented on a consistent basis.
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 Half-year Half-year Change Half-year Change
to 30 Jun to 30 Jun % to 31 Dec %
2024 2023 2023
£m £m £m
Net interest income 6,046 6,798 (11) 6,500 (7)
Other income 12,843 8,097 59 14,010 (8)
Total income 18,889 14,895 27 20,510 (8)
Net finance expense in respect of insurance and investment contracts (10,013) (5,589) (79) (11,187) 10
Total income, after net finance expense in respect of insurance and investment 8,876 9,306 (5) 9,323 (5)
contracts
Operating expenses (5,452) (4,774) (14) (6,049) 10
Impairment (charge) credit (100) (662) 85 359
Profit before tax 3,324 3,870 (14) 3,633 (9)
Tax expense (880) (1,006) 13 (979) 10
Profit for the period 2,444 2,864 (15) 2,654 (8)
Profit attributable to ordinary shareholders 2,145 2,572 (17) 2,361 (9)
Ordinary shares in issue (weighted-average - basic) 63,453m 66,226m (4) 63,718m
Basic earnings per share 3.4p 3.9p (0.5)p 3.7p (0.3)p
Summary balance sheet At 30 Jun At 31 Mar Change At 31 Dec Change
2024 2024 % 2023 %
£m £m £m
Assets
Cash and balances at central banks 66,808 70,990 (6) 78,110 (14)
Financial assets at fair value through profit or loss 209,139 212,435 (2) 203,318 3
Derivative financial instruments 18,983 18,820 1 22,356 (15)
Financial assets at amortised cost 525,698 520,053 1 514,635 2
Financial assets at fair value through other comprehensive income 27,847 27,206 2 27,592 1
Other assets 44,452 40,129 11 35,442 25
Total assets 892,927 889,633 881,453 1
Liabilities
Deposits from banks 5,584 6,105 (9) 6,153 (9)
Customer deposits 474,693 469,150 1 471,396 1
Repurchase agreements at amortised cost 37,914 37,461 1 37,703 1
Financial liabilities at fair value through profit or loss 27,056 25,837 5 24,914 9
Derivative financial instruments 16,647 16,727 20,149 (17)
Debt securities in issue at amortised cost 74,760 76,569 (2) 75,592 (1)
Liabilities arising from insurance and participating investment contracts 125,007 124,160 1 120,123 4
Liabilities arising from non-participating investment contracts 48,280 47,274 2 44,978 7
Other liabilities 27,421 27,982 (2) 22,827 20
Subordinated liabilities 10,448 10,577 (1) 10,253 2
Total liabilities 847,810 841,842 1 834,088 2
Total equity 45,117 47,791 (6) 47,365 (5)
Total equity and liabilities 892,927 889,633 881,453 1
GROUP CHIEF EXECUTIVE'S STATEMENT
We are now half way through the five year strategy we set out in February
2022. We continue to make strong progress in delivering against our strategic
targets. We are on track to achieve our 2024 outcomes, including c.£0.7
billion of additional income and c.£1.2 billion of gross cost savings from
strategic initiatives and we are reaffirming our 2024 financial guidance. We
also remain confident in achieving our 2026 strategic outcomes and financial
guidance.
The Group is performing well and has delivered a robust financial performance
in the first half of the year, with continued business momentum, cost
discipline and strong returns. In addition, the resilience of our business
model and customer franchise, alongside our measured approach to risk, is
demonstrated by our continued strong asset quality performance. Our
performance positions the Group well for the future, and enables the Board to
announce an interim ordinary dividend of 1.06 pence per share, up 15 per cent
on the first half of 2023.
I am confident that our strategy remains the right one. As we look ahead to
the UK's priorities and opportunities, including the new government emphasis
on sustained economic growth, our strong financials and business model
position the Group well to continue to support our customers, and to help
Britain prosper.
Robust financial performance and consistent delivery supporting higher interim
dividend
Statutory profit after tax was £2.4 billion in the first half of 2024, down
15 per cent on the prior year with net income down 9 per cent and operating
costs up 7 per cent, partly offset by strong asset quality contributing to a
lower impairment charge. Robust net income of £8.4 billion included a
resilient banking net interest margin of 2.94 per cent and 8 per cent growth
in underlying other income, offset by higher operating lease depreciation.
Operating costs of £4.7 billion reflected higher planned strategic
investment, elevated severance charges and inflationary pressures. We continue
to see strong asset quality, with credit performance improving. The impairment
charge of £101 million includes a benefit from improved economic
assumptions. Excluding this, the asset quality ratio was 19 basis points,
remaining in line with our enhanced guidance.
The Group's balance sheet grew in the first six months of the year, with loans
and advances to customers increasing by £2.7 billion to £452.4 billion. This
reflected growth across Retail, including mortgages and unsecured loans.
Customer deposits of £474.7 billion also increased in the period, by £3.3
billion. This included growth in Retail deposits (including Wealth) of
£4.9 billion offsetting a reduction in Commercial Banking deposits of
£1.6 billion.
The Group delivered strong capital generation of 87 basis points and a CET1
ratio of 14.1 per cent after 48 basis points for ordinary dividend accrual.
Given the strength of the capital generation and CET1 position, the Board has
announced an interim ordinary dividend of 1.06 pence per share, up 15 per cent
on the prior year and equivalent to £662 million. As usual, the Board will
give due consideration at year end to the return of any surplus capital. In
February this year, the Board decided to return surplus capital through a
share buyback programme of up to £2.0 billion. As at 30 June 2024, the
programme had completed £0.9 billion of the buyback, with c.1.8 billion
ordinary shares purchased.
Delivering on purpose driven strategy, benefitting all stakeholders
We have a purpose-driven strategy. Delivering in line with our purpose of
Helping Britain Prosper ensures that we drive outcomes that benefit all
stakeholders. We continue to provide support to our customers to help them
meet their financial needs, including supporting their savings goals through
our strong ISA propositions, attracting an additional £6 billion of new Cash
ISA savings during the first half of 2024. We also helped over 50,000 small
businesses and charities open a new business current account with us.
Core to our purpose is our focus on creating new opportunities for future
growth while contributing to an inclusive society and supporting the
transition to a low carbon economy. Our initiatives in building a more
inclusive society include lending over £7 billion to first time buyers and
supporting c.£1.2 billion of funding to the social housing sector in the
first half of the year, whilst continuing to support over 340 housing
associations across the UK. We continue our partnership with the homelessness
charity Crisis and together we believe we can help to end homelessness.
Importantly, we also continue to progress towards the Group's diversity
targets for gender, ethnicity and disability.
To help build a sustainable future and support the transition to a low carbon
economy we have delivered c.£38 billion(1) of cumulative sustainable
financing since 2022. We remain on track to meet our 2024 targets in this
area. In the first half we also published our new sustainable bond framework
and have since issued €1 billion of green bonds. We have also launched
Buildings Transition Loans, offering Small and Medium businesses discounted
lending for investing in energy efficient property portfolios.
(1) From January 2022 to June 2024: £21.7 billion sustainable finance in
Commercial Banking, £9.1 billion EPC A/B mortgage lending (up to March 2024),
£7.6 billion financing for electric vehicles and plug-in hybrid electric
vehicles.
GROUP CHIEF EXECUTIVE'S STATEMENT (continued)
In the third year of our five-year strategic transformation, continued
momentum across our strategic initiatives is enabling us to realise business
and financial benefits. As a result, we are on track to meet our strategic
objectives, alongside our financial targets. Our transformation is supported
by c.£3 billion planned investment between 2022 and the end of 2024.
We have seen progress across all of our strategic priority areas, alongside
the strategic enablers of people, technology and data. This gives us
confidence that we are on track to deliver c.£0.7 billion of additional
revenues from strategic initiatives and c.£1.2 billion of gross cost savings
by the end of 2024. We have started to demonstrate this successful execution
to investors, with two strategic seminars in 2023 and two in the first half of
2024 focused on our core business areas. Looking further out, we remain
confident in achieving our 2026 strategic and financial outcomes, including
generating an additional c.£1.5 billion revenues per annum from strategic
initiatives.
Driving revenue growth and diversification
The Group continues to strengthen customer relationships, with a view to
delivering diversified revenue growth across the business. In the first six
months of 2024, we further enhanced our mobile apps, which now have over 19
million active users, bringing together products across the Group within
dynamic ecosystems. For our mass affluent customers, we continued the roll out
of 'Lloyds Bank 360', now reaching c.500,000 customers and we launched both
Ready-Made Pensions and Invest Wise, a bespoke investment product for those
aged between 18 and 25. Through investment in digital capability and product
development, we have seen c.30 per cent growth in mobile active customers
within Small and Medium Businesses. We were awarded Best Bank for
Digitalisation Globally at the Global Trade Review Awards 2024.
Investing in efficiency and enablers to improve delivery
Strengthening cost and capital efficiency is critical. The Group is making
strong progress in utilising technology to improve operating leverage. Over
the first six months of 2024, we accelerated our shift to Cloud-based
technology, surpassing our initial target for applications on Cloud. We also
increased the number of legacy technology applications decommissioned by 20
per cent, taking our total decommissioned applications to c.500. In addition,
the Cash Access UK Banking Hub network has doubled this year, providing
continued support to customers in the heart of their communities in an
efficient manner. This is in addition to the expansion of digital journeys
within Small and Medium Businesses, with c.45 per cent of servicing journeys
digitised to date.
Future outlook
We are progressing well towards our ambition of generating higher, more
sustainable returns for shareholders and are on track to achieve our 2024
strategic and financial outcomes.
Reaffirming guidance for 2024
Based on our current macroeconomic assumptions, for 2024 the Group continues
to expect:
• Banking net interest margin of greater than 290 basis points
• Operating costs of c.£9.4 billion including the c.£0.1 billion Bank of
England Levy
• Asset quality ratio now expected to be less than 20 basis points
• Return on tangible equity of c.13 per cent
• Capital generation of c.175 basis points(1)
• Risk-weighted assets between £220 billion and £225 billion
• To pay down to a CET1 ratio of c.13.5 per cent
Confident in 2026 guidance:
Based on our current macroeconomic assumptions 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)
• To pay down to a CET1 ratio of c.13 per cent
(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 the first half of 2024 was £3,324
million,14 per cent lower than the same period in 2023. This was due to lower
net interest income and higher operating expenses, partly offset by a lower
impairment charge. Statutory profit after tax was £2,444 million (half-year
to 30 June 2023: £2,864 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 expense in respect of insurance and investment contracts from one
period to the next.
Total income, after net finance expense in respect of insurance and investment
contracts for the period was £8,876 million, a decrease of 5 per cent on
the same period in 2023, primarily reflecting lower net interest income. Net
interest income of £6,046 million was down 11 per cent compared to the first
half of 2023, driven by lower margins. Other income amounted to £12,843
million in the half-year to 30 June 2024, compared to £8,097 million in the
same period in 2023. Within other income, net trading income from the Group's
insurance activities was £9,820 million in the period compared to
£5,464 million for the half-year 30 June 2023, an increase of
£4,356 million largely reflecting stronger equity market performance.
Outside of the insurance business, there was improved UK Motor Finance
performance, including growth following the acquisition of Tusker in the first
half of 2023 and an increase in average rental value and continued Commercial
Banking growth. The overall movement in other income is broadly offset by the
£4,424 million increase in net finance expense in respect of insurance and
investment contracts.
Total operating expenses of £5,452 million were 14 per cent higher than in
the prior year. This reflects higher operating lease depreciation, due to
fleet size growth, the depreciation of higher value vehicles and declines in
used electric car prices, alongside higher planned strategic investment,
elevated severance charges and continued inflationary pressure. It also
includes c.£0.1 billion relating to the sector-wide change in the charging
approach for the Bank of England Levy during the first quarter. In the first
half of 2024 the Group recognised remediation costs of £95 million
(half-year to 30 June 2023: £70 million), largely in relation to
pre-existing programmes. There have been no further charges relating to the
potential impact of the FCA review into historical motor finance commission
arrangements. An update from the FCA is currently expected in September.
Impairment was a net charge of £100 million (half-year to 30 June 2023:
£662 million). The decrease reflects a larger credit from improvements to
the Group's economic outlook in the period (notably in HPI) and changes in
methodology.
The Group recognised a tax expense of £880 million in the period, compared
to £1,006 million in the first half of 2023, reflecting decreased profits.
Loans and advances to customers increased by £2.7 billion in the year to date
to £452.4 billion. This included growth across most Retail product areas,
with £0.7 billion growth in UK mortgages (net of the impact of the
securitisation of £0.9 billion of legacy mortgages in the second quarter)
and £1.3 billion growth in UK Retail unsecured loans, due to organic balance
growth and lower repayments following a securitisation in the fourth quarter
of 2023. In Commercial Banking, Small and Medium Business lending decreased by
£1.5 billion including repayments of £0.8 billion of government-backed
lending, partly offset by a £1.0 billion increase in Corporate and
Institutional Banking balances through strategic growth. Growth of
£3.9 billion in the second quarter was driven by balance increases across
Retail, including £2.3 billion in UK mortgages (net of £0.9 billion
securitisation) and £1.0 billion in Corporate and Institutional Banking.
This supports a positive trajectory for average interest-earning banking
assets in the second half of 2024.
Customer deposits stood at £474.7 billion at 30 June 2024, a healthy
increase of £3.3 billion in the year to date and £5.5 billion in the second
quarter. Retail deposits were up £4.9 billion in the first half with a
combined increase of £5.9 billion across Retail savings and Wealth, driven
by inflows to limited withdrawal and fixed products, partly offset by £1.0
billion reduction in current account balances. This was driven by seasonal tax
payments and outflows to savings products, including the Group's own savings
offers, partly offset by wage inflation. Commercial Banking deposits reduced
by £1.6 billion in the first half (with £1.9 billion growth in the second
quarter). This was driven by managing for value in Corporate and Institutional
Banking, while within Small and Medium Businesses, growth in targeted sectors
was partly offset by outflows due to business utilisation.
Total equity of £45.1 billion at 30 June 2024 decreased from £47.4 billion
at 31 December 2023. The movement reflected attributable profit for the
period, offset by the dividend paid in May 2024, the redemption of a US Dollar
denominated AT1 capital instrument and the impact of the share buyback
programme announced in February 2024. At 30 June 2024, the programme had
completed £0.9 billion of the buyback, with c.1.8 billion ordinary shares
purchased.
SUMMARY OF GROUP RESULTS (continued)
Underlying results
The Group's underlying profit was £3,497 million, a reduction of 13 per cent
compared to £4,041 million in the first half of 2023. Lower underlying net
interest income and higher operating lease depreciation and operating costs
were partly offset by growth in underlying other income and a lower underlying
impairment charge. Underlying profit in the second quarter was down by 1 per
cent compared to the first quarter of 2024, with lower net income partly
offset by lower operating costs.
Net income(A)
Half-year to 30 Jun 2024 Half-year Change Half-year Change
£m
to 30 Jun 2023 % to 31 Dec 2023 %
£m £m
Underlying net interest income 6,338 7,004 (10) 6,761 (6)
Underlying other income 2,734 2,538 8 2,585 6
Operating lease depreciation(1) (679) (356) (91) (600) (13)
Net income(A) 8,393 9,186 (9) 8,746 (4)
Banking net interest margin(A) 2.94% 3.18% (24)bp 3.03% (9)bp
Average interest-earning banking assets(A) £449.2bn £453.8bn (1) £452.9bn (1)
(1) Net of profits on disposal of operating lease assets of £37 million
(half-year to 30 June 2023: £67 million).
(
)
Net income of £8,393 million was down 9 per cent on the first half of 2023,
driven by lower underlying net interest income and an increased charge for
operating lease depreciation. This was partly offset by higher underlying
other income. Net income in the second quarter of 2024 is down 2 per cent
versus the first quarter.
Underlying net interest income of £6,338 million was down 10 per cent on the
first half of 2023, driven by an expected lower banking net interest margin of
2.94 per cent (half-year to 30 June 2023: 3.18 per cent). The lower margin
reflects anticipated headwinds due to deposit churn and asset margin
compression, particularly in the mortgage book as it refinances in a lower
margin environment. These factors were partially offset by benefits from
higher structural hedge earnings as it refinances in the higher rate
environment. Average interest-earning banking assets in the first half of 2024
at £449.2 billion were slightly lower (1 per cent) compared to the first
half of 2023. This was due to a modest reduction in the mortgage book and a
reduction in Commercial Banking lending, including continued repayments of
government-backed lending in Small and Medium Businesses. Loans and advances
to customers increased by £2.7 billion in the first six months of 2024, with
£3.9 billion in the second quarter, which will support expected growth in
average interest-earning banking assets in the second half of 2024. Net
interest income in the first half of the year included non-banking interest
expense of £229 million (half-year to 30 June 2023: £155 million),
increasing as a result of higher funding costs and growth in the Group's
non-banking businesses.
Underlying net interest income of £3,154 million in the second quarter of
2024 was slightly lower than the first quarter (three months to 31 March 2024:
£3,184 million), with an anticipated continuation of first quarter trends,
including asset margin compression (mainly within UK mortgages), deposit mix
headwinds and lower Commercial Banking deposits. The Group still expects the
banking net interest margin for 2024 to be greater than 290 basis points and
average interest-earning banking assets 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
£242 billion (31 December 2023: £247 billion, 31 March 2024: £244
billion) with a weighted average duration of approximately three-and-a-half
years (31 December 2023: approximately three-and-a-half years). The Group
continues to expect a modest reduction in the notional balance during 2024,
inclusive of the reduction in the first half, with balances stabilising over
the course of the year. The Group generated c.£1.9 billion of total income
from sterling structural hedge balances in the first half of 2024,
representing material growth over the prior year (half-year to 30 June
2023: £1.6 billion). The Group expects sterling structural hedge earnings
in 2024 to be slightly over £0.7 billion higher than in 2023.
SUMMARY OF GROUP RESULTS (continued)
Underlying other income in the first half of 2024 of £2,734 million was 8 per
cent higher compared to £2,538 million in the first half of 2023. Retail was
up 14 per cent versus the first half of 2023, primarily due to UK Motor
Finance, including growth following the acquisition of Tusker in the first
half of 2023 and an increase in fleet size and average rental value. Within
Commercial Banking, 11 per cent growth was driven by a strong markets
performance due to growth from strategic investment and higher levels of
client activity. Insurance, Pensions and Investments underlying other income
grew by 5 per cent compared to the first half of 2023, driven by market share
gains within general insurance alongside favourable market returns partly
offset by the effects of the agreed sale (subject to regulatory approval) of
the in-force bulk annuity portfolio (with associated income and costs for the
period recognised within volatility and other items). Excluding the in-force
bulk annuity portfolio, Insurance, Pensions and Investments was up 9 per cent.
In Equity Investments and Central Items underlying other income was impacted
by the timing of exits in the first half in the Group's equity investment
businesses. Compared to the first quarter of 2024, underlying other income was
4 per cent higher in the second quarter, primarily driven by growth in Retail
and Insurance, Pensions and Investments.
The Group delivered organic growth in assets under administration (AuA) in
Insurance, Pensions and Investments and Wealth (reported within Retail), with
combined £2.9 billion net new money in open book AuA over the first half of
2024. In total, open book AuA now stands at c.£193 billion.
Operating lease depreciation of £679 million increased compared to the prior
year (half-year to 30 June 2023: £356 million), largely given fleet growth,
the depreciation of higher value vehicles and declines in used electric car
prices. This decline in used electric car prices drove a c.£100 million
additional charge in the second quarter to reflect future expected residual
values.
Total costs(A)
Half-year to 30 Jun 2024 Half-year Change Half-year Change
£m to 30 Jun 2023 % to 31 Dec %
£m 2023
£m
Operating costs(A) 4,700 4,413 (7) 4,727 1
Remediation 95 70 (36) 605 84
Total costs(A) 4,795 4,483 (7) 5,332 10
Cost:income ratio(A) 57.1% 48.8% 8.3pp 61.0% (3.9)pp
Total costs, including the Bank of England Levy and remediation, of £4,795
million were 7 per cent higher than the prior year, with operating costs of
£4,700 million up 7 per cent. Operating costs include c.£0.1 billion
relating to the sector-wide change in the charging approach for the Bank of
England Levy (excluding this Levy, operating costs were up 4 per cent), taken
in the first quarter. The Levy will have a broadly neutral impact on profit in
2024, with an offsetting benefit recognised in net interest income over the
course of the year. The Group maintains its cost discipline with cost
efficiencies helping to offset higher ongoing strategic investment, planned
elevated severance charges and continued inflationary pressure. The Group's
cost:income ratio, including remediation, for the first half of 2024 was
57.1 per cent compared to 48.8 per cent in the prior year. Operating costs
in 2024 are still expected to be c.£9.4 billion including
c.£0.1 billion for the new Bank of England Levy.
The Group recognised remediation costs of £95 million in the first half
(half-year to 30 June 2023: £70 million), largely in relation to
pre-existing programmes. There have been no further charges relating to the
potential impact of the FCA review into historical motor finance commission
arrangements. An update from the FCA is currently expected in September.
SUMMARY OF GROUP RESULTS (continued)
Underlying impairment(A)
Half-year to 30 Jun Half-year Change Half-year Change
2024
£m to 30 Jun 2023 % to 31 Dec %
£m 2023
£m
Charges (credits) pre-updated MES(1)
Retail 463 551 16 513 10
Commercial Banking (28) 108 (595) (95)
Other (10) (2) (10)
425 657 35 (92)
Updated economic outlook
Retail (269) 41 (274) (2)
Commercial Banking (55) (36) 53 12
(324) 5 (262) 24
Underlying impairment charge (credit)(A) 101 662 85 (354)
Asset quality ratio(A) 0.05% 0.29% (24)bp (0.15)% 20bp
Total underlying expected credit loss allowance 3,847 5,419 (29) 4,337 (11)
(at end of period)(A)
(1) Impairment charges excluding the impact from updated economic outlook
taken each quarter.
(
)
Asset quality remained strong in the half-year with resilient credit
performance throughout the period. In UK mortgages, further reductions in new
to arrears and flows to default have been observed in the second quarter.
Unsecured Retail portfolios continue to exhibit stable new to arrears and
default trends. Credit quality remains stable and resilient in Commercial
Banking.
Underlying impairment was a charge of £101 million (half-year to 30 June
2023: £662 million), resulting in an asset quality ratio of 5 basis points.
The charge is after a £324 million multiple economic scenarios (MES) credit
(half-year to 30 June 2023: £5 million charge), primarily from an improved
economic outlook, notably in HPI and changes in methodology (see below). The
pre-updated MES charge of £425 million (half-year to 30 June 2023:
£657 million) is equivalent to an asset quality ratio of 19 basis points.
Compared to the prior year, the pre-MES charge is lower, benefitting from
strong portfolio performance and the release of judgemental adjustments for
inflation and interest rate risks, given portfolio performance and lower
charges in UK mortgages. Commercial Banking has benefitted from a one-off
release from loss rates used in the model, while observing a low charge on new
and existing Stage 3 clients.
The underlying expected credit loss (ECL) allowance reduced to £3.8 billion
(31 December 2023: £4.3 billion) in the period, reflecting releases from
improvements to the Group's base case scenario. In addition, there has been a
further reduction driven by evolution of the CPI inflation and UK Bank Rate
profiles in the severe downside scenario, reflecting the more balanced role of
a demand and a supply shock in the current environment. Alongside delaying the
point of dispersion of all scenarios from the base case by a quarter, this
contributed to the MES credit in the second quarter. The uplift from the base
case to probability-weighted ECL remains at £0.5 billion (31 December 2023:
£0.7 billion).
At 30 June 2024, total judgemental adjustments reduced the ECL allowance by
£19 million (31 December 2023: increased the ECL allowance by £67 million).
The reduction in the period is from the release, or reduced impact, of
judgements held in respect of inflationary and interest rate risks in the
Retail portfolios in the second quarter. This reflects the resilient
performance observed from those customers identified with potentially
heightened affordability risk, as well as inflation and the UK Bank Rate now
stabilising.
Stage 3 assets at £10.2 billion are up slightly in the first half, driven
by UK mortgages (31 December 2023: £10.1 billion). Write-offs remain low.
Stage 2 assets have reduced in the first half to £45.7 billion (31 December
2023: £56.5 billion). The reduction is primarily driven by the transfer of
assets from Stage 2 to Stage 1 as a result of improvements in the economic
outlook. In Stage 2, 90.4 per cent of loans are up to date (31 December 2023:
91.3 per cent). The Group now expects the asset quality ratio to be less than
20 basis points in 2024.
SUMMARY OF GROUP RESULTS (continued)
Restructuring, volatility and other items
Half-year to 30 Jun 2024 Half-year Change Half-year Change
£m
to 30 Jun 2023 % to 31 Dec %
£m 2023
£m
Underlying profit 3,497 4,041 (13) 3,768 (7)
Restructuring (15) (25) 40 (129) 88
Market volatility and asset sales (65) (63) (3) 98
Amortisation of purchased intangibles (41) (35) (17) (45) 9
Fair value unwind (52) (48) (8) (59) 12
Volatility and other items (158) (146) (8) (6)
Statutory profit before tax 3,324 3,870 (14) 3,633 (9)
Tax expense (880) (1,006) 13 (979) 10
Statutory profit after tax 2,444 2,864 (15) 2,654 (8)
Earnings per share 3.4p 3.9p (0.5)p 3.7p (0.3)p
Return on tangible equity(A) 13.5% 16.6% (3.1)pp 15.3% (1.8)pp
At 30 Jun At 31 Mar Change At 31 Dec 2023 Change
2024
2024
% %
Tangible net assets per share(A) 49.6p 51.2p (1.6)p 50.8p (1.2)p
Restructuring costs for the first half of 2024 were £15 million (half-year to
30 June 2023: £25 million) and include costs relating to the integration of
Embark and Tusker. Volatility and other items were a net loss of £158 million
for the first half (half-year to 30 June 2023: net loss of £146 million).
This comprised £65 million negative market volatility (half-year to 30 June
2023: £63 million), £41 million for the amortisation of purchased
intangibles (half-year to 30 June 2023: £35 million) and £52 million
relating to fair value unwind (half-year to 30 June 2023: £48 million).
Market volatility was substantially driven by longer-term rate rises in the
first six months, causing negative insurance volatility, partly offset by
positive impacts from banking volatility.
The return on tangible equity for the first half of 2024 was 13.5 per cent
(half-year to 30 June 2023: 16.6 per cent). The Group continues to expect
the return on tangible equity for 2024 to be c.13 per cent.
Tangible net assets per share at 30 June 2024 were 49.6 pence, down 1.2 pence
in the first half (31 December 2023: 50.8 pence) and down 1.6 pence in the
second quarter. The reductions resulted from capital distributions in respect
of 2023, including the payment of the full year ordinary dividend in the
second quarter, alongside increased longer-term rates impacting the cash flow
hedge reserve and pension surplus and the foreign exchange impact on the
redemption of a US Dollar denominated AT1 capital instrument. This was offset
by attributable profit and a reduction in the number of shares in issue due to
the ongoing ordinary share buyback. Tangible net assets per share at 30 June
2024 was reduced by a further 0.9 pence as a result of an accrual for the
ongoing ordinary share buyback without the corresponding reduction in the
number of shares.
Tax
The Group recognised a tax expense of £880 million in the first half of the
year (half-year to 30 June 2023: £1,006 million). The Group expects a
medium-term effective tax rate of around 27 per cent based on the banking
surcharge rate of 3 per cent and the corporation tax rate of 25 per cent.
SUMMARY OF GROUP RESULTS (continued)
Balance sheet
At 30 Jun At 31 Mar Change At 31 Dec Change
2024
2024
2023
% %
Loans and advances to customers £452.4bn £448.5bn 1 £449.7bn 1
Customer deposits £474.7bn £469.2bn 1 £471.4bn 1
Loan to deposit ratio(A) 95% 96% (1pp) 95%
Wholesale funding £97.6bn £99.9bn (2) £98.7bn (1)
Wholesale funding <1 year maturity £38.0bn £39.8bn (5) £35.1bn 8
of which: money market funding <1 year maturity(1) £20.7bn £22.7bn (9) £23.8bn (13)
Liquidity coverage ratio - eligible assets(2) £136.0bn £136.4bn £136.0bn
Liquidity coverage ratio(3) 144% 143% 1pp 142% 2pp
Net stable funding ratio(4) 130% 130% 130%
(1) Excludes balances relating to margins of £2.1 billion (31 March 2024:
£2.2 billion; 31 December 2023: £2.4 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 increased by £2.7 billion in the year to date
to £452.4 billion. This included growth across most Retail product areas,
with £0.7 billion growth in UK mortgages (net of the impact of the
securitisation of £0.9 billion of legacy mortgages in the second quarter)
and £1.3 billion growth in UK Retail unsecured loans, due to organic balance
growth and lower repayments following a securitisation in the fourth quarter
of 2023. In Commercial Banking, Small and Medium Business lending decreased by
£1.5 billion including repayments of £0.8 billion of government-backed
lending, partly offset by a £1.0 billion increase in Corporate and
Institutional Banking balances through strategic growth. Growth of
£3.9 billion in the second quarter was driven by balance increases across
Retail, including £2.3 billion in UK mortgages (net of £0.9 billion
securitisation) and £1.0 billion in Corporate and Institutional Banking.
This supports a positive trajectory for average interest-earning banking
assets in the second half of 2024.
Customer deposits stood at £474.7 billion at 30 June 2024, a healthy
increase of £3.3 billion in the year to date and £5.5 billion in the second
quarter. Retail deposits were up £4.9 billion in the first half with a
combined increase of £5.9 billion across Retail savings and Wealth, driven
by inflows to limited withdrawal and fixed products, partly offset by £1.0
billion reduction in current account balances. This was driven by seasonal tax
payments and outflows to savings products, including the Group's own savings
offers, partly offset by wage inflation. Commercial Banking deposits reduced
by £1.6 billion in the first half (with £1.9 billion growth in the second
quarter). This was driven by managing for value in Corporate and Institutional
Banking, while within Small and Medium Businesses, growth in targeted sectors
was partly offset by outflows due to business utilisation.
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 strong, stable liquidity coverage ratio of
144 per cent (31 December 2023: 142 per cent) and a strong net stable funding
ratio of 130 per cent (31 December 2023: 130 per cent). The loan to deposit
ratio of 95 per cent, stable compared to 31 December 2023, continues to
reflect a robust funding and liquidity position.
Capital
At 30 Jun At 31 Mar Change At 31 Dec Change
2024
2024
2023
% %
CET1 ratio 14.1% 13.9% 0.2pp 14.6% (0.5)pp
Pro forma CET1 ratio(A,1) 14.1% 13.9% 0.2pp 13.7% 0.4pp
UK leverage ratio 5.4% 5.6% (0.2)pp 5.8% (0.4)pp
Risk-weighted assets £222.0bn £222.8bn £219.1bn 1
SUMMARY OF GROUP RESULTS (continued)
Capital generation
Pro forma CET1 ratio as at 31 December 2023(1) 13.7%
Banking build (including impairment charge) (bps) 110
Insurance dividend (bps) 10
Risk-weighted assets (bps) (18)
Other movements(2) (bps) (8)
Capital generation (bps) 94
Retail secured CRD IV model updates and phased unwind of IFRS 9 transitional (7)
relief (bps)
Capital generation (post CRD IV and transitional headwinds) (bps) 87
Ordinary dividend (bps) (48)
CET1 ratio as at 30 June 2024 14.1%
(1) 31 December 2023 reflects 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.
(2) Includes share-based payments, market volatility and FX loss on USD AT1
redemption.
The Group's CET1 capital ratio at 30 June 2024 was 14.1 per cent (31 December
2023: 13.7 per cent pro forma). Capital generation after regulatory headwinds
during the first half of the year was 87 basis points (47 basis points in the
second quarter). This reflected robust banking build and the £200 million
interim half-year dividend received from the Insurance business in June,
partially offset by risk-weighted asset increases and other movements. Other
movements include a 15 basis point impact given the recognition of a foreign
exchange translation loss upon the redemption of a US Dollar denominated AT1
capital instrument in June. Regulatory headwinds of 7 basis points reflect
the reduction in the transitional factor applied to IFRS 9 dynamic relief on
1 January 2024 and an adjustment for part of the impact of the Retail secured
CRD IV models. The Group has accrued a foreseeable ordinary dividend of 48
basis points, inclusive of the announced interim ordinary dividend of 1.06
pence per share. The Group continues to expect capital generation in 2024 to
be c.175 basis points.
As mentioned in the Group's 2023 Full Year Results, there will be no further
deficit contributions made to the Group's main defined benefit pension
schemes, fixed or variable, for this triennial period (to 31 December 2025).
Risk-weighted assets increased by £2.9 billion to £222.0 billion at 30 June
2024 (31 December 2023: £219.1 billion). This incorporates the impact of
Retail lending growth, offset by optimisation including capital efficient
securitisation activity, in addition to other movements. In the context of the
Retail secured CRD IV models, it is estimated that a £5 billion
risk-weighted asset increase will be required over 2024 to 2026, inclusive of
the additional risk-weighted assets recognised in the first half of the year,
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 Group's total regulatory CET1 capital requirement remains at around
12 per cent. The Board's 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 c.13.0 per cent. This includes a
management buffer of around 1 per cent. In order to manage risks and
distributions in an orderly way, the Board expects to pay down to the previous
target of c.13.5 per cent by the end of 2024 before progressing towards
paying down to the current capital target of c.13.0 per cent by the end of
2026.
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. The Board has recommended an interim ordinary dividend
of 1.06 pence per share, an increase of 15 per cent compared to the first
half of 2023, in line with the Board's commitment to capital returns. The
Board intends to pay down to its ongoing capital target of c.13 per cent by
the end of 2026.
In February this year, the Board approved an ordinary share buyback programme
of up to £2.0 billion to return surplus capital in respect of 2023. This
commenced in February 2024 and at 30 June 2024, the programme had completed
£0.9 billion of the buyback, with c.1.8 billion ordinary shares purchased.
DIVISIONAL RESULTS
Segmental analysis - underlying basis(A)
Half-year to 30 June 2024 Retail Commercial Insurance, Equity Group
£m Banking Pensions and Investments £m
£m Investments and Central
£m Items
£m
Underlying net interest income 4,430 1,696 (74) 286 6,338
Underlying other income 1,148 947 649 (10) 2,734
Operating lease depreciation (677) (2) - - (679)
Net income 4,901 2,641 575 276 8,393
Operating costs (2,778) (1,363) (458) (101) (4,700)
Remediation (54) (32) (5) (4) (95)
Total costs (2,832) (1,395) (463) (105) (4,795)
Underlying profit before impairment 2,069 1,246 112 171 3,598
Underlying impairment (charge) credit (194) 83 7 3 (101)
Underlying profit 1,875 1,329 119 174 3,497
Banking net interest margin(A) 2.49% 4.31% 2.94%
Average interest-earning banking assets(A) £367.0bn £82.2bn - - £449.2bn
Asset quality ratio(A) 0.11% (0.17)% 0.05%
Loans and advances to customers(1) £365.1bn £88.1bn - (£0.8bn) £452.4bn
Customer deposits £313.3bn £161.2bn - £0.2bn £474.7bn
Risk-weighted assets £123.3bn £73.2bn £0.2bn £25.3bn £222.0bn
Half-year to 30 June 2023 Retail Commercial Insurance, Equity Investments and Central Group
£m Banking Pensions and Items £m
£m Investments £m
£m
Underlying net interest income 5,064 1,934 (70) 76 7,004
Underlying other income 1,006 856 619 57 2,538
Operating lease depreciation (351) (5) - - (356)
Net income 5,719 2,785 549 133 9,186
Operating costs (2,607) (1,253) (451) (102) (4,413)
Remediation (15) (43) (8) (4) (70)
Total costs (2,622) (1,296) (459) (106) (4,483)
Underlying profit before impairment 3,097 1,489 90 27 4,703
Underlying impairment (charge) credit (592) (72) 1 1 (662)
Underlying profit 2,505 1,417 91 28 4,041
Banking net interest margin(A) 2.89% 4.70% 3.18%
Average interest-earning banking assets(A) £364.1bn £87.8bn - £1.9bn £453.8bn
Asset quality ratio(A) 0.33% 0.16% 0.29%
Loans and advances to customers(1) £361.9bn £92.1bn - (£3.3bn) £450.7bn
Customer deposits £305.9bn £163.6bn - £0.3bn £469.8bn
Risk-weighted assets £114.8bn £75.5bn £0.2bn £24.8bn £215.3bn
(1) Equity Investments and Central Items includes central fair value hedge
accounting adjustments.
DIVISIONAL RESULTS (continued)
Segmental analysis - underlying basis(A) (continued)
Half-year to 31 December 2023 Retail Commercial Insurance, Equity Investments and Central Group
£m Banking Pensions and Items £m
£m Investments £m
£m
Underlying net interest income 4,583 1,865 (62) 375 6,761
Underlying other income 1,153 835 590 7 2,585
Operating lease depreciation (597) (3) - - (600)
Net income 5,139 2,697 528 382 8,746
Operating costs (2,862) (1,394) (429) (42) (4,727)
Remediation (500) (84) (6) (15) (605)
Total costs (3,362) (1,478) (435) (57) (5,332)
Underlying profit before impairment 1,777 1,219 93 325 3,414
Underlying impairment (charge) credit (239) 583 6 4 354
Underlying profit 1,538 1,802 99 329 3,768
Banking net interest margin(A) 2.58% 4.56% 3.03%
Average interest-earning banking assets(A) £367.1bn £85.8bn - - £452.9bn
Asset quality ratio(A) 0.13% (1.25)% (0.15)%
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
(1) Equity Investments and Central Items includes central fair value hedge
accounting adjustments.
(
)
DIVISIONAL RESULTS (continued)
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 aims to deepen
existing and new 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 22.0 million digitally active users, of
which 19.4 million actively use the Group's mobile apps, up 4 per cent in
year. Mobile messaging service interactions increased 70 per cent versus prior
year
• Introduced dynamic ecosystems within the mobile apps(1), bringing
together products and services such as savings and investments, mortgages and
home insurance into spaces aligned to how customers think about their finances
• Digital capability enhancements, including new eligibility likelihood
messaging in 'Your Credit Score', the Group's credit checking tool which now
has over 10 million customer registrations, a new mobile journey for customers
to transfer in their existing ISAs, and partnering with ApTap to provide a
bill management marketplace for mortgage customers
• Scaled up the 'Lloyds Bank 360' mass affluent proposition to c.500,000
customers and launched new dedicated remortgage product for these customers;
introduced digital investment advice service on customer mobile apps
• Renewed and expanded partnership with Visa, the Group's preferred scheme
partner, to further enhance the debit and credit card businesses. Removed fees
on overseas debit card usage for the majority of packaged bank accounts
• Cash Access UK Banking Hub network doubled in size this year, providing
continued support to customers in the heart of their communities. Trial of a
new banking kiosk format as we continue to innovate on distribution
• Invested in technology business Coadjute, whose goal is to modernise and
transform how all parties involved in property transactions connect,
collaborate and communicate, to improve and speed up the home buying journey
• On track to meet 2024 sustainability targets, having lent £9.1 billion
for mortgages(2) on properties with an EPC rating of B or higher and £7.6
billion for financing and leasing of battery electric and plug-in hybrid
vehicles(2)
• Partnered with iconic British brand Aston Martin as their retail finance
provider for UK vehicle sales
Financial performance
• Underlying net interest income 13 per cent lower, reflecting anticipated
mortgage and unsecured lending margin compression, deposit mix headwinds,
partly offset by structural hedge earnings in the higher rate environment
• Underlying other income up 14 per cent, driven by UK Motor Finance,
including growth following the acquisition of Tusker in the first half of 2023
and an increase in average rental value
• Operating lease depreciation charge higher due to fleet growth, the
depreciation of higher value vehicles and declines in used electric car
prices, the latter driving a c.£100 million additional charge in the second
quarter
• Operating costs up 7 per cent, with cost efficiencies helping to offset
ongoing strategic investment (including planned elevated severance), the
sector-wide Bank of England Levy and inflationary pressure. Remediation costs
of £54 million relate largely to pre-existing programmes
• Underlying impairment charge of £194 million is lower than prior year.
This is due to updated economic scenarios resulting in a £269 million credit
(notably an improved HPI outlook), the release of judgmental adjustments for
inflation and interest rate risks and further improvement in UK mortgages
credit performance
• Loans and advances to customers up £3.9 billion with growth across most
product areas. £0.7 billion growth in UK mortgages (net of the securitisation
of £0.9 billion legacy mortgages) and £1.3 billion growth in UK Retail
unsecured loans, due to organic balance growth and lower repayments following
a securitisation in the fourth quarter of 2023
• Customer deposits up 2 per cent, including a £6.7 billion increase in
savings, with the higher rate environment driving inflows to fixed and limited
withdrawal products. Current account balances down £1.0 billion from
seasonal tax payments and outflows to savings including the Groups own
offering, partly offset by wage inflation
• Risk-weighted assets up 3 per cent to £123.3 billion, due to higher
lending balances and an adjustment for part of the impact of the Retail
secured CRD IV models, partly offset by the securitisation of legacy mortgage
loans
(1) Available to Halifax, Lloyds Bank and Bank of Scotland customers,
dependent on product holding and mobile operating system.
(2 ) Since 1 January 2022, new mortgage lending on residential property
with an Energy Performance Certificate rating of B or higher at 31 March
2024; and new lending for Black Horse and operating leases for Lex Autolease
and Tusker at 30 June 2024.
DIVISIONAL RESULTS (continued)
Retail (continued)
Retail performance summary(A)
Half-year to 30 Jun 2024 Half-year Change Half-year Change
£m to 30 Jun 2023 % to 31 Dec 2023 %
£m £m
Underlying net interest income 4,430 5,064 (13) 4,583 (3)
Underlying other income 1,148 1,006 14 1,153
Operating lease depreciation (677) (351) (93) (597) (13)
Net income 4,901 5,719 (14) 5,139 (5)
Operating costs (2,778) (2,607) (7) (2,862) 3
Remediation (54) (15) (500) 89
Total costs (2,832) (2,622) (8) (3,362) 16
Underlying profit before impairment 2,069 3,097 (33) 1,777 16
Underlying impairment (194) (592) 67 (239) 19
Underlying profit 1,875 2,505 (25) 1,538 22
Banking net interest margin(A) 2.49% 2.89% (40)bp 2.58% (9)bp
Average interest-earning banking assets(A) £367.0bn £364.1bn 1 £367.1bn
Asset quality ratio(A) 0.11% 0.33% (22)bp 0.13% (2)bp
At 30 Jun 2024 At 31 Mar 2024 Change At 31 Dec 2023 Change
£bn
£bn
£bn % %
UK mortgages(1,2) 306.9 304.6 1 306.2
Credit cards 15.6 15.2 3 15.1 3
UK Retail unsecured loans 8.2 7.6 8 6.9 19
UK Motor Finance 16.2 15.8 3 15.3 6
Overdrafts 1.0 1.0 1.1 (9)
Other(1,3) 17.2 16.9 2 16.6 4
Loans and advances to customers 365.1 361.1 1 361.2 1
Operating lease assets(4) 6.9 6.8 1 6.5 6
Total customer assets 372.0 367.9 1 367.7 1
Current accounts 101.7 103.1 (1) 102.7 (1)
Savings accounts(5) 201.5 196.4 3 194.8 3
Wealth 10.1 10.2 (1) 10.9 (7)
Customer deposits 313.3 309.7 1 308.4 2
Risk-weighted assets 123.3 121.4 2 119.3 3
(1) From the first quarter of 2024, open mortgage book and closed mortgage
book loans and advances, previously presented separately, are reported
together as UK mortgages; Wealth loans and advances, previously reported
separately, are included within Retail other. The 31 December 2023
comparative is presented on a consistent basis.
(2) The increase between 31 March 2024 and 30 June 2024 is net of the impact
of the securitisation of £0.9 billion of legacy Retail mortgages in May 2024.
(3) Within loans and advances, Retail other includes the European and Wealth
businesses.
(4) Operating lease assets relate to Lex Autolease and Tusker.
(5) From the first quarter of 2024, Retail relationship savings accounts and
Retail tactical savings accounts, previously reported separately, are reported
together as Retail savings accounts. The 31 December 2023 comparative is
presented on a consistent basis.
(
)
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 whilst
connecting the whole Group to clients. 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
• Increased euro and US Dollar debt capital markets issuance volumes by 61
per cent versus the first half of 2023, significantly above market increase of
27 per cent(1)
• Winning greater than 60 per cent of mandates in Global Transaction
Solutions
• Improved cardholder proposition for foreign visitors to the UK with the
enablement of local currency card payments and withdrawals, providing
guaranteed costs at the point of transaction
• Awarded Best Bank for Digitalisation Globally at the Global Trade Review
Awards 2024. Completed the Group's first electronic bill of lading
transaction; reducing transaction time, execution risk, costs and
environmental impact
• Delivered £5.9 billion of sustainable financing(2) in first half of
2024. Ranked first in ESG-labelled bond issuance for UK issuers(3)
• Launched 'Lloyds Bank Market Insights' bringing together economics and
markets expertise to provide topical and timely thought leadership to clients
• Launched new mobile first instant access savings journey enabling
clients to open an instant access account seamlessly with straight through
processing
• Successful pilot in partnership with CoBa, creating client insights by
connecting products and services into one place to establish foreign exchange
requirements
• Expanded Merchant Services Clover proposition, offering customers new
terminals and faster settlement through an assisted onboarding journey
• Rolled out new mobile overdraft journey, streamlining the customer
experience and enabling Business Banking customers to digitally apply for an
overdraft facility up to £50,000
• Launched the Buildings Transition Loan offering customers discounted
lending for investing in energy efficient property portfolios. Enhancing and
expanding Green Asset Finance and Clean Growth Financing lending products
• Hosted the Lilac Review following the publication of the Disability and
Entrepreneur Report in partnership with Small Business Britain, demonstrating
commitment to drive meaningful change to support disabled-led businesses
Financial performance
• Underlying net interest income of £1,696 million, down 12 per cent on
the prior year, driven by a lower banking net interest margin reflecting
deposit churn and lower average deposit balances
• Underlying other income increased 11 per cent to £947 million, driven
by strong markets performance due to growth from strategic investment and
higher levels of client activity resulting in client franchise growth
• Operating costs 9 per cent higher with continued cost efficiencies
helping to offset the sector-wide Bank of England Levy, ongoing strategic
investment, planned elevated severance charges and inflationary pressures.
Remediation charge remains low at £32 million
• Underlying impairment credit of £83 million given strong asset quality
and a benefit from a one-off release from loss rates and updated economic
scenarios. Continuing to observe a low charge on new and existing Stage 3
clients
• Customer lending 1 per cent lower at £88.1 billion reflecting continued
net repayments within Small and Medium Businesses, including government-backed
lending, partly offset by strategic growth in Corporate and Institutional
Banking
• Customer deposits 1 per cent lower at £161.2 billion, due to managing
for value in Corporate and Institutional Banking. Within Small and Medium
Businesses, growth in targeted sectors partly offset by outflows due to
business utilisation
• Risk-weighted assets decreased to £73.2 billion, demonstrating
efficient use of capital and optimisation activity
(1) Refinitiv Eikon; All international bonds in euro and US Dollar,
excluding Sovereign, supranational and agency issuance.
(2) In line with the Sustainable Financing Framework.
(3) Bondradar; excluding Sovereign, supranational and agency issuance.
DIVISIONAL RESULTS (continued)
Commercial Banking (continued)
Commercial Banking performance summary(A)
Half-year to 30 Jun 2024 Half-year Change Half-year Change
£m to 30 Jun 2023 % to 31 Dec 2023 %
£m £m
Underlying net interest income 1,696 1,934 (12) 1,865 (9)
Underlying other income 947 856 11 835 13
Operating lease depreciation (2) (5) 60 (3) 33
Net income 2,641 2,785 (5) 2,697 (2)
Operating costs (1,363) (1,253) (9) (1,394) 2
Remediation (32) (43) 26 (84) 62
Total costs (1,395) (1,296) (8) (1,478) 6
Underlying profit before impairment 1,246 1,489 (16) 1,219 2
Underlying impairment credit (charge) 83 (72) 583 (86)
Underlying profit 1,329 1,417 (6) 1,802 (26)
Banking net interest margin(A) 4.31% 4.70% (39)bp 4.56% (25)bp
Average interest-earning banking assets(A) £82.2bn £87.8bn (6) £85.8bn (4)
Asset quality ratio(A) (0.17%) 0.16% (1.25%)
At 30 Jun 2024 At 31 Mar 2024 Change At 31 Dec 2023 Change
£bn
£bn % £bn %
Small and Medium Businesses 31.5 32.2 (2) 33.0 (5)
Corporate and Institutional Banking 56.6 55.6 2 55.6 2
Loans and advances to customers 88.1 87.8 88.6 (1)
Customer deposits 161.2 159.3 1 162.8 (1)
Risk-weighted assets 73.2 74.3 (1) 74.2 (1)
DIVISIONAL RESULTS (continued)
Insurance, Pensions and Investments
Insurance, Pensions and Investments (IP&I) supports over 10 million
customers with assets under administration (AuA) of £226 billion (excluding
Wealth) and annualised annuity payments of over £0.8 billion. This was
articulated through the investor seminar in March 2024, which highlighted the
significant growth potential in the business and the capacity to unlock value.
The Group continues to invest significantly into IP&I to develop the
business, including the investment propositions to support the Group's mass
affluent strategy, innovating intermediary propositions and accelerating the
transition to a low carbon economy. The decision to divest the bulk annuities
business was a key step in refocusing the activities of IP&I.
Strategic progress
• Open book AuA of £177 billion, with 8 per cent growth year-on-year. Net
AuA flows of £2.7 billion, contributing to an increased stock of deferred
profit
• Workplace pensions business 5 per cent annual increase in regular
contributions to pensions administered, with £2.6 billion net AuA inflows in
the period, driven by contributions and pension scheme wins, contributing to
10 per cent AuA growth and over £100 billion of AuA
• Launched new Scottish Widows app to transform the way people save and
plan for their future. Currently there are 1 million digitally registered
customers across the internet and app platforms
• Continued to grow our home insurance presence with digitisation
improvements transforming customer experience. New policies up over 90 per
cent and market share up 5.5 percentage points to 16.2 per cent in the first
quarter of 2024 versus prior year
• Following the success of Ready-Made Investments, Ready-Made Pensions
launched in March allowing customers to open a personal pension, supporting
Group mass affluent objectives
• Market share of stocks and shares ISA new account openings at 20.1 per
cent, second in market (three months to 31 March 2023: 14.0 per cent, fourth
in market)(1)
• Continued momentum in the protection insurance offering, utilising
Retail channels with take-up rates (as a percentage of mortgage completions)
increasing from 9.1 per cent to 12.1 per cent in the period
• Supported 8,400 customers to secure a guaranteed income for life
(half-year to 30 June 2023: c.6,000), issuing c.£800
million of annuity policies (half-year to 30 June 2023: c.£450 million)
• Agreed the sale of the in-force bulk annuity portfolio to Rothesay Life
plc, enabling the Division to focus on growing strategically important lines
of business
• Climate-aware investment strategy assets increased by £2.2 billion,
cumulatively to £23.9 billion, on track to meet the target of between £20
billion and £25 billion by 2025(2)
Financial performance
• Underlying other income of £649 million, up 5 per cent driven by strong
trading, with higher general insurance income partly offset by higher claims
in the first quarter and the agreed sale (subject to regulatory approval) of
the in-force bulk annuity portfolio, with associated income and costs for the
quarter recognised within volatility and other items
• Underlying other income was up 9 per cent, excluding the in-force bulk
annuity portfolio
• Operating costs up 2 per cent, with cost efficiencies helping to offset
higher ongoing strategic investment, planned elevated severance charges and
inflationary pressure
• Contractual service margin broadly stable in the year at £4.0 billion
(after release to income of £168 million), including £27 million from new
business, reflecting value generation in workplace pensions and annuities.
Balance of deferred profits (including the risk adjustment) £5.1 billion at
30 June 2024
• Life and pensions sales (PVNBP) reduced by 9 per cent driven by the
agreed sale (subject to regulatory approval) of the in-force bulk annuity
portfolio offset by strong performance in the annuities business
• Positive contribution to the Group's CET1 ratio through the payment of a
£200 million interim dividend to Lloyds Banking Group. This was supported by
a strong capital position with an estimated Insurance Solvency II ratio of
177 per cent (169 per cent after interim dividend)
• Credit asset portfolio remains strong, rated 'A-' on average. Well
diversified, with less than 1.5 per cent of assets backing annuities being
sub-investment grade or unrated. Strong liquidity position with c.£3 billion
cash and cash equivalents
(1) Three months to 31 March 2024. ISA information reflects opening through
our direct channels.
(2) Includes a range of funds with a bias towards investing in companies
that are reducing the carbon intensity of their businesses and/or are
developing climate solutions.
DIVISIONAL RESULTS (continued)
Insurance, Pensions and Investments (continued)
Insurance, Pensions and Investments performance summary(A)
Half-year to 30 Jun 2024 Half-year Change Half-year Change
£m to 30 Jun 2023 % to 31 Dec 2023 %
£m £m
Underlying net interest income (74) (70) (6) (62) (19)
Underlying other income 649 619 5 590 10
Net income 575 549 5 528 9
Operating costs (458) (451) (2) (429) (7)
Remediation (5) (8) 38 (6) 17
Total costs (463) (459) (1) (435) (6)
Underlying profit before impairment 112 90 24 93 20
Underlying impairment 7 1 6 (17)
Underlying profit 119 91 31 99 20
Life and pensions sales (PVNBP)(A,1) 8,155 8,956 (9) 8,493 (4)
New business value of insurance and participating investment contracts
recognised in the year(A,2)
of which: deferred to contractual service margin 61 98 (38) 75 (19)
and risk adjustment
of which: losses recognised on initial recognition (10) (9) (11) (11) (9)
51 89 (43) 64 (20)
Assets under administration (net flows)(3) £2.7bn £3.7bn (27) £1.4bn 93
General insurance underwritten new gross written premiums(A) 95 42 82 16
General insurance underwritten total gross written premiums(A) 343 258 33 321 7
General insurance combined ratio(4) 101% 99% 2pp 113% (12)pp
At 30 Jun 2024 At 31 Mar 2024 Change At 31 Dec 2023 Change
% %
Insurance Solvency II ratio (pre-dividend)(5) 177% 173% 4pp 186% (9)pp
Total customer assets under administration £225.9bn £221.7bn 2 £213.1bn 6
(1) Present value of new business premiums.
(2) 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.
(3) The movement in asset inflows and outflows driven by business activity
(excluding market movements).
(4) General insurance combined ratio for the first half of 2024 includes
£30 million (half-year to 30 June 2023: £18 million; half-year to
31 December 2023: £33 million) relating to severe weather event claims
(storm, flood, subsidence and freeze). Excluding these items and reserve
releases the ratio was 91 per cent (half-year to 30 June 2023: 98 per cent;
half-year to 31 December 2023 96 per cent).
(5) Equivalent estimated regulatory view of ratio (including With-Profits
funds and post dividend where applicable) was 160 per cent (31 December 2023:
166 per cent, post February 2024 dividend).
DIVISIONAL RESULTS (continued)
Insurance, Pensions and Investments (continued)
Movement in the contractual service margin (CSM) and risk adjustment
Half-year to 30 June 2024 Half-year to 30 June 2023 Change
CSM Risk adjustment Total(1) CSM Risk adjustment Total(1) Total
£m £m £m £m £m £m £m
At start of period 4,195 1,110 5,305 3,999 1,109 5,108 197
New business written in year
of which: workplace and retirement account 7 24 31 20 16 36 (5)
of which: individual and 29 8 37 43 24 67 (30)
bulk annuities
of which: protection (9) 2 (7) (7) 2 (5) (2)
27 34 61 56 42 98 (37)
Release to income statement (168) (27) (195) (152) (38) (190) (5)
Other(2) (35) (63) (98) 29 17 46 (144)
At end of period 4,019 1,054 5,073 3,932 1,130 5,062 11
(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 the half-year to 30 June 2024, Other includes the impact of the
Rothesay Life plc reinsurance contract, relating to the proposed sale of the
in-force bulk annuity portfolio. This is not included in the new business
value.
Volatility arising in the Insurance business
Half-year to 30 Jun 2024 Half-year Half-year to 31 Dec 2023
£m to 30 Jun 2023 £m
£m
Insurance volatility (16) 24 174
Policyholder interests volatility 112 29 87
Total volatility 96 53 261
Insurance hedging arrangements (324) (235) (187)
Total(1) (228) (182) 74
(1 ) Total insurance volatility is included within market volatility and
asset sales, which in total resulted in a loss of £65 million in the
half-year to 30 June 2024 (half-year to 30 June 2023: loss of £63 million;
half-year to 31 December 2023: gain of £98 million). See page 28.
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 the first half of 2024 the small loss in the insurance volatility line
was driven by asset value losses from increases to interest rates, partly
offset by increases in equity market levels which resulted in profit from
application of the risk mitigation option, as permitted under IFRS 17. At a
total level there was a larger loss 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
Half-year to 30 Jun 2024 Half-year Change Half-year Change
£m to 30 Jun 2023 % to 31 Dec 2023 %
£m £m
Net income 276 133 382 (28)
Operating costs (101) (102) 1 (42)
Remediation (4) (4) (15) 73
Total costs (105) (106) 1 (57) (84)
Underlying profit before impairment 171 27 325 (47)
Underlying impairment 3 1 4 (25)
Underlying profit 174 28 329 (47)
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 first half of 2024 was higher compared to the same period
in 2023, with stronger underlying net interest income partly offset by weaker
underlying other income. Underlying net interest income benefitted 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 as a result
of higher funding costs and the timing of exits in LDC.
Total costs of £105 million in the first half of 2024 were stable on the
prior year. Underlying impairment was a £3 million credit compared to a £1
million credit in the first half of 2023.
(
)
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 40. 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. This measure is useful for assessing sales in
the Group's life, pensions and investments insurance business.
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(4)
items(1,2,3) £m
£m
Half-year to 30 June 2024
Net interest income 6,046 300 (8) 6,338 Underlying net interest income
Other income, net of net finance 2,830 (208) 112 2,734 Underlying other income
expense in respect of insurance
and investment contracts
(679) - (679) Operating lease depreciation
Total income, after net finance expense in respect of insurance and investment 8,876 (587) 104 8,393 Net income
contracts
Operating expenses(5) (5,452) 761 (104) (4,795) Total costs(5)
Impairment charge (100) (1) - (101) Underlying impairment charge
Profit before tax 3,324 173 - 3,497 Underlying profit
Half-year to 30 June 2023
Net interest income 6,798 213 (7) 7,004 Underlying net interest income
Other income, net of net finance expense in respect of insurance and 2,508 (109) 139 2,538 Underlying other income
investment contracts
(356) - (356) Operating lease depreciation
Total income, net of net finance expense in respect of insurance and 9,306 (252) 132 9,186 Net income
investment contracts
Operating expenses(5) (4,774) 423 (132) (4,483) Total costs(5)
Impairment charge (662) - - (662) Underlying impairment charge
Profit before tax 3,870 171 - 4,041 Underlying profit
Half-year to 31 December 2023
Net interest income 6,500 266 (5) 6,761 Underlying net interest income
Other income, net of net finance expense in respect of insurance and 2,823 (338) 100 2,585 Underlying other income
investment contracts
(600) - (600) Operating lease depreciation
Total income, net of net finance expense in respect of insurance and 9,323 (672) 95 8,746 Net income
investment contracts
Operating expenses(5) (6,049) 812 (95) (5,332) Total costs(5)
Impairment credit 359 (5) - 354 Underlying impairment credit
Profit before tax 3,633 135 - 3,768 Underlying profit
(1) In the half-year ended 30 June 2024 this comprised the effects of market
volatility and asset sales (losses of £65 million); the amortisation of
purchased intangibles (£41 million); restructuring costs (£15 million); and
fair value unwind (losses of £52 million).
(2) In the half-year ended 30 June 2023 this comprised the effects of market
volatility and asset sales (losses of £63 million); the amortisation of
purchased intangibles (£35 million); restructuring costs (£25 million); and
fair value unwind (losses of £48 million).
(3) In the half-year ended 31 December 2023 this comprised the effects of
market volatility and asset sales (gains of £98 million); the amortisation of
purchased intangibles (£45 million); restructuring costs (£129 million); and
fair value unwind (losses of £59 million).
(4) 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. To provide a clearer representation of the underlying trends
within the business, these items are shown net within the underlying results.
(5) Statutory operating expenses includes operating lease depreciation. On
an underlying basis operating lease depreciation is included in net income.
ALTERNATIVE PERFORMANCE MEASURES (continued)
Half-year to 30 Jun 2024 Half-year Half-year
to 30 Jun 2023 to 31 Dec 2023
Asset quality ratio(A)
Underlying impairment (charge) credit (£m) (101) (662) 354
Remove non-customer underlying impairment credit (£m) (17) (5) (8)
Underlying customer related impairment (charge) credit (£m) (118) (667) 346
Loans and advances to customers (£bn) 452.4 450.7 449.7
Add back:
Expected credit loss allowance (drawn, statutory basis) (£bn) 3.3 4.7 3.7
Acquisition related fair value adjustments (£bn) 0.2 0.3 0.3
Underlying gross loans and advances to customers (£bn) 455.9 455.7 453.7
Averaging (£bn) (0.5) 0.4 3.8
Average underlying gross loans and advances to customers (£bn) 455.4 456.1 457.5
Asset quality ratio(A) 0.05% 0.29% (0.15)%
Banking net interest margin(A)
Underlying net interest income (£m) 6,338 7,004 6,761
Remove non-banking underlying net interest expense (£m) 229 155 156
Banking underlying net interest income (£m) 6,567 7,159 6,917
Underlying gross loans and advances to customers (£bn) 455.9 455.7 453.7
Adjustment for non-banking and other items:
Fee-based loans and advances (£bn) (9.9) (8.7) (8.9)
Other (£bn) 5.3 7.0 4.2
Interest-earning banking assets (£bn) 451.3 454.0 449.0
Averaging (£bn) (2.1) (0.2) 3.9
Average interest-earning banking assets(A) (£bn) 449.2 453.8 452.9
Banking net interest margin(A) 2.94% 3.18% 3.03%
Cost:income ratio(A)
Operating costs(A) (£m) 4,700 4,413 4,727
Remediation (£m) 95 70 605
Total costs (£m) 4,795 4,483 5,332
Net income (£m) 8,393 9,186 8,746
Cost:income ratio(A) 57.1% 48.8% 61.0%
Operating costs(A)
Operating expenses (£m) 5,452 4,774 6,049
Adjustment for:
Remediation (£m) (95) (70) (605)
Restructuring (£m) (15) (25) (129)
Operating lease depreciation (£m) (679) (356) (600)
Amortisation of purchased intangibles (£m) (41) (35) (45)
Insurance gross up (£m) 104 132 95
Other statutory items (£m) (26) (7) (38)
Operating costs(A) (£m) 4,700 4,413 4,727
ALTERNATIVE PERFORMANCE MEASURES (continued)
Half-year to 30 Jun 2024 Half-year Half-year
to 30 Jun 2023 to 31 Dec 2023
Return on tangible equity(A)
Profit attributable to ordinary shareholders (£m) 2,145 2,572 2,361
Average ordinary shareholders' equity (£bn) 39.9 38.8 38.5
Remove average goodwill and other intangible assets (£bn) (8.0) (7.6) (7.9)
Average tangible equity (£bn) 31.9 31.2 30.6
Return on tangible equity(A) 13.5% 16.6% 15.3%
Underlying profit before impairment(A)
Statutory profit before tax (£m) 3,324 3,870 3,633
Remove impairment charge (£m) 100 662 (359)
Remove volatility and other items including restructuring (£m) 174 171 140
Underlying profit before impairment(A) (£m) 3,598 4,703 3,414
Life and pensions sales (present value of new business premiums)(A)
Total net earned premiums (£m) 5,270 5,147 4,621
Investment sales (£m) 4,512 5,264 5,351
Effect of capitalisation factor (£m) 1,898 1,715 1,711
Effect of annualisation (£m) 350 279 176
Gross premiums from existing long-term business (£m) (3,875) (3,449) (3,366)
Life and pensions sales (present value of new business premiums)(A) (£m) 8,155 8,956 8,493
Half-year to 30 Jun 2024 Half-year Half-year
£m to 30 Jun 2023 to 31 Dec 2023
£m £m
New business value of insurance and participating investment contracts
recognised in the year(A)
Contractual service margin 26 45 47
Risk adjustment for non-financial risk 33 49 37
Losses recognised on initial recognition (40) (36) (35)
19 58 49
Impacts of reinsurance contracts recognised in the year 18 14 15
Increments, single premiums and transfers received on workplace pension 10 5 12
contracts initially recognised in the year
Amounts relating to contracts modified to add a drawdown feature and 4 12 (12)
recognised as new contracts
New business value of insurance and participating investment contracts 51 89 64
recognised in the year(A)
ALTERNATIVE PERFORMANCE MEASURES (continued)
At 30 Jun 2024 At 31 Mar 2024 At 31 Dec 2023
Loan to deposit ratio(A)
Loans and advances to customers (£bn) 452.4 448.5 449.7
Customer deposits (£bn) 474.7 469.2 471.4
Loan to deposit ratio(A) 95% 96% 95%
Pro forma CET1 ratio(A)
CET1 ratio 14.1% 13.9% 14.6%
Insurance dividend and share buyback accrual(1) -% -% (0.9)%
Pro forma CET1 ratio(A) 14.1% 13.9% 13.7%
Tangible net assets per share(A)
Ordinary shareholders' equity (£m) 38,959 40,641 40,224
Goodwill and other intangible assets (£m) (8,315) (8,350) (8,306)
Deferred tax effects and other adjustments (£m) 305 325 352
Tangible net assets (£m) 30,949 32,616 32,270
Ordinary shares in issue, excluding own shares 62,458m 63,653m 63,508m
Tangible net assets per share(A) 49.6p 51.2p 50.8p
(1) Dividend paid up by the Insurance business in the subsequent quarter
period and the impact of the announced ordinary share buyback programmes.
RISK MANAGEMENT
PRINCIPAL RISKS AND UNCERTAINTIES
The most important risks faced by the Group are detailed below. The external
risks faced by the Group may impact the success of delivering against the
Group's long-term strategic objectives. They include, but are not limited to,
macroeconomic uncertainty and elevated interest rates which are contributing
to the cost of living and associated implications for UK consumers and
businesses.
Asset quality remains strong with resilient credit performance throughout the
period. 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.
With respect to conduct risk there have been no further charges relating to
the potential impact of the FCA review into historical motor finance
commission arrangements. An update from the FCA is currently expected in
September.
The Group is transforming its approach to risk management to support its
strategic ambition and purpose of Helping Britain Prosper. The Group has
reviewed its three lines of defence model and is evolving its accountabilities
with enhanced focus on controls and expertise. This will increase the pace of
decision making, with the intent of improving risk management. The Group has
initially focused on non-financial risks.
The Group has also undertaken a detailed review of its risk categories and
implemented an events-based risk management framework. This has resulted in a
reduction in the number of principal risk types and the simplification of
secondary risk categories. This change better aligns to the Basel Committee on
Banking Supervision's event categories which will benefit the Group for
scenario activities and regulatory reporting.
The Group has 11 principal risks; capital risk, climate risk, compliance risk
(previously regulatory and legal risk), conduct risk, credit risk, economic
crime risk, insurance underwriting risk, liquidity risk (previously liquidity
and funding risk), market risk, model risk and operational risk (operational
resilience risk has been removed as a separate risk category as it relates to
many of the principal risk types).
The below principal risk definitions have changed since the Group's 2023
annual report and accounts:
Conduct risk - The risk of our Group activities, behaviours, strategy or
business planning, having an adverse impact on outcomes for customers,
undermining the integrity of the market or distorting competition, which could
lead to regulatory censure, reputational damage or financial loss.
Economic crime risk - The risk that the Group implements ineffective policies,
systems, processes and controls to prevent, detect and respond to the risk of
fraud and/or financial crime resulting in increased losses, regulatory
censure/fines and/or adverse publicity in the UK or other jurisdictions in
which the Group operates.
Insurance underwriting risk - The risk of adverse developments in net
liabilities due to: timing, frequency and severity of claims for
insured/underwritten events; customer behaviour; and expense costs.
Liquidity risk - The risk that the Group does not have sufficient financial
resources to meet its commitments when they fall due or can only secure them
at excessive cost.
Model risk - The potential for adverse consequences from model errors or the
inappropriate use of modelled outputs to inform business decisions. Adverse
consequences could lead to a deterioration in the prudential position,
non-compliance with applicable laws and/or regulations, or damage to the
Group's reputation. Model risk can also lead to financial loss, as well as
qualitative limitations such as the imposition of restrictions on business
activities.
Operational risk - The risk of actual or potential impact to the Group
(financial and/or non-financial) resulting from inadequate or failed internal
processes, people, and systems or from external events. Resilience is core to
the management of operational risk within Lloyds Banking Group to ensure that
business processes (including those that are outsourced) can withstand
operational risks and can respond to and meet customer and stakeholder needs
when continuity of operations is compromised.
All other principal risk definitions remain unchanged.
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 c.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
• 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 30 June 2024,
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
• 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 Bank of England 2022 Annual Cyclical Scenario stress
testing exercise. This assessed 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 has provided data to support the Bank of England 2024 Desk Based Stress
Test. This exercise will test two scenarios with results published on an
aggregate level by the end of 2024. The Group is also participating in the
Bank of England System-Wide Exploratory Scenario. The aggregate findings of
Round 1 were published in June 2024 and the Group will make a Round 2
submission in July 2024. The Group 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 30 June
2024 is presented in the following table. This reflects the application of the
transitional arrangements for IFRS 9.
At 30 Jun At 31 Dec 2023(1)
2024 £m
£m
Common equity tier 1: instruments and reserves
Share capital and share premium account 24,923 24,926
Banking retained earnings(2) 18,664 19,000
Banking other reserves(2) 2,829 3,136
Adjustment to retained earnings for foreseeable dividends and share buyback (1,437) (1,169)
44,979 45,893
Common equity tier 1: regulatory adjustments
Cash flow hedging reserve 4,028 3,766
Goodwill and other intangible assets (5,794) (5,731)
Prudent valuation adjustment (374) (417)
Removal of defined benefit pension surplus (2,473) (2,653)
Significant investments(2) (5,088) (4,975)
Deferred tax assets (3,945) (4,048)
Other regulatory adjustments (38) 62
Common equity tier 1 capital 31,295 31,897
Additional tier 1: instruments
Other equity instruments 5,907 6,915
Additional tier 1: regulatory adjustments
Significant investments(2) (1,100) (1,100)
Total tier 1 capital 36,102 37,712
Tier 2: instruments and provisions
Subordinated liabilities 6,260 6,320
Eligible provisions 67 371
6,327 6,691
Tier 2: regulatory adjustments
Significant investments(2) (964) (964)
Total capital resources 41,465 43,439
Ineligible AT1 and tier 2 instruments(3) (118) (139)
Amortised portion of eligible tier 2 instruments issued by Lloyds Banking 1,420 1,113
Group plc
Other eligible liabilities issued by Lloyds Banking Group plc(4) 27,547 25,492
Total MREL resources 70,314 69,905
Risk-weighted assets 222,019 219,130
Common equity tier 1 capital ratio 14.1% 14.6%
Tier 1 capital ratio 16.3% 17.2%
Total capital ratio 18.7% 19.8%
MREL ratio 31.7% 31.9%
(1) Restated for presentational changes.
(2) In accordance with banking capital regulations, the Group's Insurance
business is excluded from the scope of the Group's capital position. The
Group's investment in the equity and other capital instruments of the
Insurance business are deducted from the relevant tier of capital
('Significant investments'), subject to threshold regulations that allow a
portion of the equity investment to be risk-weighted rather than deducted from
capital. The risk-weighted portion forms part of threshold risk-weighted
assets.
(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 2023 31,897
Banking business profits(1) 2,578
Movement in foreseeable dividend accrual(2) 179
Dividends paid out on ordinary shares during the year (1,169)
Adjustment to reflect full impact of share buyback (2,000)
Dividends received from the Insurance business(3) 450
IFRS 9 transitional adjustment to retained earnings (156)
Deferred tax asset 103
Goodwill and other intangible assets (63)
Significant investments (113)
Movement in treasury shares and employee share schemes (66)
Redemption of other equity instruments (316)
Distributions on other equity instruments (269)
Other movements 240
At 30 June 2024 31,295
(1) Under banking capital regulations, 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 2023
ordinary dividend, net of the accrual for foreseeable 2024 ordinary dividends.
(3) Received in February 2024 and June 2024.
The Group's CET1 capital ratio reduced from 14.6 per cent at 31 December 2023
to 14.1 per cent at 30 June 2024, reflecting the reduction in CET1 capital
resources and the increase in risk-weighted assets.
CET1 capital resources reduced by £602 million, with banking business profits
for the period and the receipt of the dividends paid up by the Insurance
business more than offset by:
• The accrual for foreseeable ordinary dividends in respect of the first
half of 2024, inclusive of the announced interim ordinary dividend of 1.06
pence per share, and distributions on other equity instruments
• The recognition of the full capital impact of the ordinary share buyback
programme announced as part of the Group's 2023 year end results, which
commenced in February 2024
• The recognition of a foreign exchange translation loss upon the
redemption of a US Dollar denominated AT1 capital instrument in June 2024
The full capital impact of the ordinary share buyback programme and the
Insurance dividend received in February 2024 were reflected through the
Group's pro forma CET1 ratio of 13.7 per cent at 31 December 2023.
Movements in total capital and MREL
The Group's total capital ratio reduced to 18.7 per cent at 30 June 2024 (31
December 2023: 19.8 per cent), reflecting the reduction in CET1 capital, the
redemption of the US Dollar AT1 capital instrument, a reduction in Tier 2
capital and the increase in risk-weighted assets. The reduction in Tier 2
capital reflected the impact of interest rates and regulatory amortisation on
instruments and a reduction in eligible provisions recognised through Tier 2
capital, partially offset by a new issuance.
The MREL ratio reduced to 31.7 per cent at 30 June 2024 (31 December 2023:
31.9 per cent) reflecting the reduction in total capital resources and the
increase in risk-weighted assets. This was largely offset by an increase in
other eligible liabilities driven by new issuances, net of calls, the
exclusion of instruments maturing over the next 12 months and the impact of
movements in interest and foreign exchange rates.
CAPITAL RISK (continued)
Risk-weighted assets
At 30 Jun At 31 Dec 2023
2024 £m
£m
Foundation Internal Ratings Based (IRB) Approach 42,736 44,504
Retail IRB Approach 88,608 85,459
Other IRB Approach(1) 21,412 20,941
IRB Approach 152,756 150,904
Standardised (STA) Approach(1) 22,155 22,074
Credit risk 174,911 172,978
Securitisation 9,076 8,958
Counterparty credit risk 6,355 5,847
Credit valuation adjustment risk 574 689
Operational risk 26,330 26,416
Market risk 4,773 4,242
Risk-weighted assets 222,019 219,130
of which: threshold risk-weighted assets(2) 10,535 11,028
(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 increased by £2.9 billion to £222.0 billion at 30 June
2024 (31 December 2023: £219.1 billion). This incorporates the impact of
Retail lending growth, offset by optimisation including capital efficient
securitisation activity, in addition to other movements.
CAPITAL RISK (continued)
Leverage ratio
The table below summarises the component parts of the Group's leverage ratio.
At 30 Jun At 31 Dec 2023
2024 £m
£m
Total tier 1 capital 36,102 37,712
Exposure measure
Statutory balance sheet assets
Derivative financial instruments 18,983 22,356
Securities financing transactions 69,220 56,184
Loans and advances and other assets 804,724 802,913
Total assets 892,927 881,453
Qualifying central bank claims (66,321) (77,625)
Deconsolidation adjustments(1)
Derivative financial instruments 945 585
Loans and advances and other assets (186,553) (178,552)
Total deconsolidation adjustments (185,608) (177,967)
Derivatives adjustments (1,404) (4,896)
Securities financing transactions adjustments 2,779 2,262
Off-balance sheet items 41,273 40,942
Amounts already deducted from tier 1 capital (12,457) (12,523)
Other regulatory adjustments(2) (6,253) (4,012)
Total exposure measure 664,936 647,634
UK leverage ratio 5.4 % 5.8%
Leverage exposure measure (including central bank claims) 731,257 725,259
Leverage ratio (including central bank claims) 4.9 % 5.2%
Total MREL resources 70,314 69,905
MREL leverage ratio 10.6 % 10.8%
(1) 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.
(2) 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 reduced to 5.4 per cent (31 December 2023: 5.8
per cent) reflecting both the reduction in the total tier 1 capital position
and the increase in the leverage exposure measure following increases across
securities financing transactions and other assets (excluding central bank
claims).
(
)
Pillar 3 disclosures
The Group will publish a condensed set of half-year Pillar 3 disclosures in
the second half of August. A copy of the disclosures will be available to view
at: www.lloydsbankinggroup.com/investors/financial-downloads.html.
CREDIT RISK
Overview
The Group's portfolios are well-positioned to benefit from an improved, but
still challenging 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.
Asset quality remains strong with resilient credit performance throughout the
period. In UK mortgages, reductions in new to arrears and flows to default
have been observed in the half-year and second quarter. Unsecured portfolios
continue to exhibit stable new to arrears and flow to default trends. Credit
quality remains stable and resilient in Commercial Banking. 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 the first half of 2024 was £101 million,
down from a charge of £662 million in the first half of 2023. This is partly
as a result of improvements in the Group's macroeconomic outlook resulting in
a release of £324 million (half-year to 30 June 2023: a charge of £5
million). The Group's underlying ECL allowance on loans and advances to
customers decreased in the first half to £3,820 million (31 December 2023:
£4,292 million).
Group Stage 2 loans and advances to customers reduced to £45,697 million (31
December 2023: £56,545 million) and as a percentage of total lending to 10.0
per cent (31 December 2023: 12.5 per cent). This is due to improvements in
the macroeconomic outlook transferring assets back to Stage 1. Of the total
Group Stage 2 loans and advances to customers, 90.4 per cent are up to date
(31 December 2023: 91.3 per cent). Stage 2 coverage remains stable at 3.1
per cent (31 December 2023: 3.0 per cent).
Stage 3 loans and advances to customers have increased slightly to
£10,213 million (31 December 2023: £10,110 million), and stable as a
percentage of total lending at 2.2 per cent (31 December 2023: 2.2 per cent).
Stage 3 coverage decreased by 0.9 percentage points to 14.9 per cent
(31 December 2023: 15.8 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 the impact of higher borrowing costs and higher
prices following elevated inflation in recent years
• 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, including but not
restricted to embracing the standards outlined in the Mortgage Charter
•
CREDIT RISK (continued)
Impairment charge (credit) by division - statutory and underlying(A) basis
Half-year to 30 Jun 2024 Half-year Change Half-year Change
£m
to 30 Jun 2023 % to 31 Dec %
£m 2023
£m
UK mortgages (119) 191 (242) (51)
Credit cards 115 197 42 260 56
UK unsecured loans and overdrafts 140 160 13 91 (54)
UK Motor Finance 61 43 (42) 126 52
Other (3) 1 4
Retail 194 592 67 239 19
Small and Medium Businesses 11 25 56 89 88
Corporate and Institutional Banking (94) 47 (672) (86)
Commercial Banking (83) 72 (583) (86)
Insurance, Pensions and Investments (8) (1) (11) (27)
Equity Investments and Central Items (3) (1) (4) (25)
Total impairment charge (credit) 100 662 85 (359)
Insurance, Pensions and Investments (underlying basis)(A) (7) (1) (6) 17
Total impairment charge (credit) (underlying basis)(A) 101 662 85 (354)
Asset quality ratio(A) 0.05% 0.29% (24)bp (0.15)%
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 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.
Within each table, figures that are different on an underlying basis are shown
underneath the statutory basis figures, for UK mortgages, Retail and the total
for the Group. 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 and underlying(A) basis
At 30 Jun 2024 At 31 Dec
£m
2023
£m
Customer related balances
Drawn 3,324 3,717
Undrawn 279 322
3,603 4,039
Loans and advances to banks 3 8
Debt securities 8 11
Other assets 16 26
Total expected credit loss allowance 3,630 4,084
Customer related balances (underlying basis)(A) 3,820 4,292
of which: Drawn 3,541 3,970
Total expected credit loss allowance (underlying basis)(A) 3,847 4,337
CREDIT RISK (continued)
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 30 June 2024
Underlying basis(A) 400,039 45,697 10,213 - 455,949 773 1,301 1,467 - 3,541
POCI assets (1,787) (2,788) (2,860) 7,435 - (1) (50) (391) 442 -
Acquisition fair - - - (217) (217) - - - (217) (217)
value adjustment
(1,787) (2,788) (2,860) 7,218 (217) (1) (50) (391) 225 (217)
Statutory basis 398,252 42,909 7,353 7,218 455,732 772 1,251 1,076 225 3,324
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
Movements in total expected credit loss (ECL) allowance - statutory and
underlying(A) basis
Opening ECL at Write-offs Income Net ECL Closing ECL at
31 Dec and other(1) statement increase 30 Jun
2023 £m charge (credit) (decrease) 2024
£m £m £m £m
UK mortgages(2) 1,115 (25) (119) (144) 971
Credit cards 810 (225) 115 (110) 700
UK unsecured loans and overdrafts 515 (156) 140 (16) 499
UK Motor Finance 342 (39) 61 22 364
Other 88 (6) (3) (9) 79
Retail 2,870 (451) 194 (257) 2,613
Small and Medium Businesses 538 (52) 11 (41) 497
Corporate and Institutional Banking 644 (48) (94) (142) 502
Commercial Banking 1,182 (100) (83) (183) 999
Insurance, Pensions and Investments 26 (2) (8) (10) 16
Equity Investments and Central Items 6 (1) (3) (4) 2
Total(3) 4,084 (554) 100 (454) 3,630
UK mortgages (underlying basis)(A) 1,368 (61) (119) (180) 1,188
Retail (underlying basis)(A) 3,123 (487) 194 (293) 2,830
Insurance, Pensions and Investments (underlying basis) 26 (3) (7) (10) 16
Total (underlying basis)(A) 4,337 (591) 101 (490) 3,847
(1) Contains adjustments in respect of purchased or originated
credit-impaired financial assets.
(2) Includes £20 million within write-offs and other relating to the
securitisation of £1 billion of legacy Retail mortgages in the second quarter
of 2024.
(3) Total ECL includes £27 million relating to other non customer-related
assets (31 December 2023: £45 million).
(
)
CREDIT RISK (continued)
Loans and advances to customers and expected credit loss allowance - statutory
and underlying(A) basis
At 30 June 2024 Stage 1 Stage 2 Stage 3 POCI Total Stage 2 Stage 3
£m £m £m £m £m as % of as % of
total total
Loans and advances to customers
UK mortgages 266,308 29,842 4,542 7,218 307,910 9.7 1.5
Credit cards 13,329 2,601 290 - 16,220 16.0 1.8
UK unsecured loans and overdrafts 8,261 1,213 186 - 9,660 12.6 1.9
UK Motor Finance 14,185 2,288 117 - 16,590 13.8 0.7
Other 16,434 522 163 - 17,119 3.0 1.0
Retail 318,517 36,466 5,298 7,218 367,499 9.9 1.4
Small and Medium Businesses 26,866 3,773 1,323 - 31,962 11.8 4.1
Corporate and Institutional Banking 53,585 2,670 732 - 56,987 4.7 1.3
Commercial Banking 80,451 6,443 2,055 - 88,949 7.2 2.3
Equity Investments and Central Items(1) (716) - - - (716)
Total gross lending 398,252 42,909 7,353 7,218 455,732 9.4 1.6
UK mortgages (underlying basis)(A,2) 268,095 32,630 7,402 308,127 10.6 2.4
Retail (underlying basis)(A) 320,304 39,254 8,158 367,716 10.7 2.2
Total gross lending (underlying basis)(A) 400,039 45,697 10,213 455,949 10.0 2.2
Customer related ECL allowance (drawn and undrawn)
UK mortgages 87 328 331 225 971
Credit cards 206 361 133 - 700
UK unsecured loans and overdrafts 158 231 110 - 499
UK Motor Finance(3) 185 112 67 - 364
Other 15 19 45 - 79
Retail 651 1,051 686 225 2,613
Small and Medium Businesses 131 205 161 - 497
Corporate and Institutional Banking 139 123 231 - 493
Commercial Banking 270 328 392 - 990
Equity Investments and Central Items - - - - -
Total 921 1,379 1,078 225 3,603
UK mortgages (underlying basis)(A,2) 88 378 722 1,188
Retail (underlying basis)(A) 652 1,101 1,077 2,830
Total (underlying basis)(A) 922 1,429 1,469 3,820
Customer related ECL allowance (drawn and undrawn) as a percentage of loans
and advances to customers
Stage 1 Stage 2 Stage 3 POCI Total Adjusted Stage 3(4) Adjusted Total(4)
%
%
%
%
%
% %
UK mortgages - 1.1 7.3 3.1 0.3
Credit cards 1.5 13.9 45.9 - 4.3 50.0 4.3
UK unsecured loans and overdrafts 1.9 19.0 59.1 - 5.2 64.7 5.2
UK Motor Finance 1.3 4.9 57.3 - 2.2
Other 0.1 3.6 27.6 - 0.5
Retail 0.2 2.9 12.9 3.1 0.7 13.0 0.7
Small and Medium Businesses 0.5 5.4 12.2 - 1.6 16.3 1.6
Corporate and Institutional Banking 0.3 4.6 31.6 - 0.9 31.6 0.9
Commercial Banking 0.3 5.1 19.1 - 1.1 22.8 1.1
Equity Investments and Central Items - - -
Total 0.2 3.2 14.7 3.1 0.8 15.5 0.8
UK mortgages (underlying basis)(A,2) - 1.2 9.8 0.4
Retail (underlying basis)(A) 0.2 2.8 13.2 0.8 13.3 0.8
Total (underlying basis)(A) 0.2 3.1 14.4 0.8 14.9 0.8
(1) Contains centralised fair value hedge accounting adjustments.
(2 ) UK mortgages balances on an underlying basis(A) exclude the impact
of the HBOS acquisition-related adjustments.
(3) UK Motor Finance for Stages 1 and 2 include £185 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) Adjusted Stage 3 and Total ECL allowances as a percentage of drawn
balances exclude loans in recoveries in Credit cards of £24 million, UK
unsecured loans and overdrafts of £16 million, Small and Medium Businesses of
£337 million and Corporate and Institutional Banking of £1 million.
CREDIT RISK (continued)
Loans and advances to customers and expected credit loss allowance - statutory
and underlying(A) 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
UK unsecured 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
UK mortgages (underlying basis)(A,2) 258,362 41,911 7,300 307,573 13.6 2.4
Retail (underlying basis)(A) 307,529 48,558 8,036 364,123 13.3 2.2
Total gross lending (underlying basis)(A) 387,060 56,545 10,110 453,715 12.5 2.2
Customer related ECL allowance (drawn and undrawn)
UK mortgages 169 376 357 213 1,115
Credit cards 234 446 130 - 810
UK unsecured loans and overdrafts 153 244 118 - 515
UK Motor Finance(3) 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
UK mortgages (underlying basis)(A,2) 170 441 757 1,368
Retail (underlying basis)(A) 765 1,243 1,115 3,123
Total gross lending (underlying basis)(A) 1,061 1,692 1,539 4,292
Customer related ECL allowance (drawn and undrawn) as a percentage of loans
and advances to customers
Stage 1 Stage 2 Stage 3 POCI Total Adjusted Stage 3(4) Adjusted Total(4)
%
%
%
%
%
% %
UK mortgages 0.1 1.0 8.2 2.7 0.4
Credit cards 1.9 15.3 45.8 - 5.1 49.4 5.1
UK unsecured loans and overdrafts 2.2 20.6 60.2 - 6.1 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 0.2 2.6 14.1 2.7 0.8 14.2 0.8
Small and Medium Businesses 0.5 5.2 10.9 - 1.6 13.9 1.6
Corporate and Institutional Banking 0.3 6.2 47.0 - 1.1 47.0 1.1
Commercial Banking 0.4 5.6 20.3 - 1.3 24.1 1.3
Equity Investments and Central Items - 66.7 -
Total 0.3 3.1 15.9 2.7 0.9 16.8 0.9
UK mortgages (underlying basis)(A,2) 0.1 1.1 10.4 0.4
Retail (underlying basis)(A) 0.2 2.6 13.9 0.9 13.9 0.9
Total gross lending (underlying basis)(A) 0.3 3.0 15.2 0.9 15.8 0.9
(1) Contains centralised fair value hedge accounting adjustments.
(2) UK mortgages balances on an underlying basis(A) exclude the impact of
the HBOS acquisition-related 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) Adjusted Stage 3 and Total ECL allowances as a percentage of drawn
balances exclude loans in recoveries in Credit cards of £21 million, UK
unsecured loans and overdrafts of £16 million, Small and Medium Businesses of
£327 million.
(
)
CREDIT RISK (continued)
Stage 2 loans and advances to customers and expected credit loss allowance -
statutory and underlying(A) basis
Up to date 1 to 30 days Over 30 days Total
past due(2) past due
PD movements Other(1)
At 30 June 2024 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 17,837 109 9,350 131 1,678 48 977 40 29,842 328
Credit cards 2,317 272 151 46 96 27 37 16 2,601 361
UK unsecured loans and overdrafts 715 135 343 47 114 33 41 16 1,213 231
UK Motor Finance 971 44 1,127 31 155 26 35 11 2,288 112
Other 109 3 308 9 59 5 46 2 522 19
Retail 21,949 563 11,279 264 2,102 139 1,136 85 36,466 1,051
Small and Medium Businesses 2,943 171 464 18 229 11 137 5 3,773 205
Corporate and Institutional Banking 2,615 122 30 1 6 - 19 - 2,670 123
Commercial Banking 5,558 293 494 19 235 11 156 5 6,443 328
Total 27,507 856 11,773 283 2,337 150 1,292 90 42,909 1,379
UK mortgages (underlying basis)(A) 18,966 117 10,261 149 2,100 58 1,303 54 32,630 378
Retail 23,078 571 12,190 282 2,524 149 1,462 99 39,254 1,101
(underlying basis)(A)
Total 28,636 864 12,684 301 2,759 160 1,618 104 45,697 1,429
(underlying basis)(A)
At 31 December 2023
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
UK unsecured 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
UK mortgages (underlying basis)(A) 28,126 157 9,990 156 2,297 64 1,498 64 41,911 441
Retail 32,354 685 11,829 288 2,714 158 1,661 112 48,558 1,243
(underlying basis)(A)
Total 39,165 1,101 12,433 305 2,995 169 1,952 117 56,545 1,692
(underlying basis)(A)
(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 appropriately 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 14 on page 85
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 £468 million compared to £678 million at 31 December 2023.
Total ECL allowance by scenario - statutory and underlying(A) basis
Probability- Upside Base case Downside Severe
weighted £m £m £m downside
£m £m
UK mortgages 971 387 658 1,190 3,004
Credit cards 700 583 676 772 903
Other Retail 942 855 915 990 1,139
Commercial Banking 999 746 895 1,143 1,641
Other 18 16 18 19 21
At 30 June 2024 3,630 2,587 3,162 4,114 6,708
UK mortgages (underlying basis)(A) 1,188 604 876 1,407 3,222
Total (underlying basis)(A) 3,847 2,804 3,380 4,331 6,926
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 (underlying basis)(A) 1,368 650 930 1,400 4,738
Total (underlying basis)(A) 4,337 2,925 3,666 4,714 9,455
CREDIT RISK (continued)
Retail
• Asset quality remains strong in the Retail portfolio with resilient
credit performance throughout the period. There are signs that affordability
pressures are easing as inflation has fallen back and the UK bank rate has
settled. However, lagged impacts from previous interest rate rises and rising
unemployment remain potential headwinds
• Robust risk management remains in place, with strong affordability and
indebtedness controls for both new and existing lending and a prudent risk
appetite approach
• Lending strategies are under continuous review and have been proactively
managed and calibrated to the latest macroeconomic outlook, with actions taken
to enhance both living and housing cost assumptions in affordability
assessments
• In UK mortgages, reductions in new to arrears and flows to default have
been observed in the half-year and second quarter
• Unsecured portfolios continue to exhibit stable new to arrears and flow
to default trends with a small increase observed in flow to default in Motor
driven by a normalisation of Voluntary Terminations (VT's) as used car prices
fall from historic highs
• The Retail impairment charge in the first half of 2024 was £194 million
and is materially lower than the charge of £592 million for the first half
of 2023. This is largely due to favourable updates to the Group's
macroeconomic outlook within the base case and other scenarios, driving a
£269 million release compared to a charge of £41 million in the first half
of 2023, as well as the release of inflationary adjustments, given portfolio
performance
• All existing IFRS 9 staging rules and triggers have been maintained
across Retail from the 2023 year end. Retail customer related ECL allowance as
a percentage of drawn loans and advances (coverage) decreased to 0.8 per cent
(31 December 2023: 0.9 per cent)
• Favourable updates to the Group's macroeconomic outlook have reduced
Stage 2 loans and advances to 10.7 per cent of the Retail portfolio (31
December 2023: 13.3 per cent), of which 89.8 per cent are up to date loans
(31 December 2023: 91.0 per cent). Stage 2 ECL coverage increased to 2.8 per
cent (31 December 2023: 2.6 per cent)
• Stage 3 loans and advances remain flat at 2.2 per cent of total loans
and advances. Retail Stage 3 ECL coverage decreased to 13.3 per cent
(31 December 2023: 13.9 per cent) due to portfolio mix changes; notably
because UK mortgages require comparatively lower coverage in comparison to
other Retail products due to security. Stage 3 loans and advances and Stage 3
coverage for all other Retail products excluding UK mortgages remain broadly
stable
•
UK mortgages
• The UK mortgage portfolio is well positioned with low arrears and a
strong loan to value (LTV) profile. The Group has actively improved the
quality of the portfolio over recent years using robust affordability and
credit controls, while the balances of higher risk legacy vintages have
continued to reduce
• New to arrears and flows to default have improved in the half-year and
second quarter. The Group is proactively monitoring existing mortgage
customers as they reach the end of fixed rate deals with customers' immediate
behaviour remaining stable
• Total loans and advances increased to £308.1 billion (31 December
2023: £307.6 billion), with a decrease in average LTV to 43.0 per cent (31
December 2023: 43.6 per cent). The proportion of balances with a LTV greater
than 90 per cent decreased to 1.4 per cent (31 December 2023: 2.9 per cent).
The average LTV of new business increased to 62.9 per cent (31 December
2023: 61.7 per cent)
• Favourable updates to the Group's macroeconomic outlook and stronger
asset performance resulted in a net impairment release of £119 million for
the first half of 2024 compared to a charge of £191 million for the first
half of 2023. Total ECL coverage remains stable at 0.4 per cent (31 December
2023: 0.4 per cent)
• Favourable macroeconomic updates also resulted in reductions to Stage 2
loans and advances to 10.6 per cent of the portfolio (31 December 2023: 13.6
per cent) and Stage 2 ECL coverage rising slightly to 1.2 per cent
(31 December 2023: 1.1 per cent)
• Stage 3 loans and advances remain stable at 2.4 per cent of the
portfolio (31 December 2023: 2.4 per cent) with increases in legacy variable
rate customers reaching 90 days past due largely offset by legacy mortgage
securitisation activity. Stage 3 ECL coverage decreased to 9.8 per cent (31
December 2023: 10.4 per cent), due to the favourable macroeconomic outlook
•
CREDIT RISK (continued)
Period end and average LTVs across the Retail UK mortgage portfolio -
underlying basis(A)
At 30 June 2024 Mainstream Buy-to-let Specialist Total
% % % %
Less than 60 per cent 57.1 69.8 86.6 59.4
60 per cent to 70 per cent 17.2 21.0 7.7 17.7
70 per cent to 80 per cent 13.4 9.0 2.3 12.6
80 per cent to 90 per cent 10.7 0.1 1.2 8.9
90 per cent to 100 per cent 1.5 0.0 1.0 1.3
Greater than 100 per cent 0.1 0.1 1.2 0.1
Total 100.0 100.0 100.0 100.0
UK mortgages loans and advances to customers (£m) 255,935 47,989 4,203 308,127
Average loan to value(1):
Stock of residential mortgages 42.5 47.1 34.1 43.0
New residential lending in the period 64.0 55.4 n/a 62.9
At 31 December 2023
Less than 60 per cent 55.3 66.9 84.8 57.7
60 per cent to 70 per cent 17.6 21.8 9.2 18.1
70 per cent to 80 per cent 14.3 10.8 2.4 13.5
80 per cent to 90 per cent 9.4 0.4 1.2 7.8
90 per cent to 100 per cent 3.3 0.0 1.1 2.8
Greater than 100 per cent 0.1 0.1 1.3 0.1
Total 100.0 100.0 100.0 100.0
UK mortgages loans and advances to customers (£m) 254,539 47,609 5,425 307,573
Average loan to value(1):
Stock of residential mortgages 43.1 48.1 35.0 43.6
New residential lending in the year 62.5 51.6 n/a 61.7
(1) Average loan to value is calculated as total loans and advances as a
percentage of the total indexed collateral of these loans and advances; the
balances exclude the impact of HBOS acquisition adjustments.
UK mortgages greater than three months in arrears, excluding repossessions -
underlying basis(A)
Number of cases Proportion of total Value of loans(1) Proportion of total
At 30 Jun 2024 At 31 Dec 2023 At 30 Jun 2024 At 31 Dec 2023 At 30 Jun 2024 At 31 Dec 2023 At 30 Jun 2024 At 31 Dec 2023
Cases
Cases
%
%
£m
£m
%
%
Mainstream 22,900 23,123 1.3 1.3 3,163 3,094 1.2 1.2
Buy-to-let 5,058 5,037 1.4 1.4 725 692 1.5 1.5
Specialist 4,085 4,726 11.4 10.5 699 806 16.4 14.7
Total 32,043 32,886 1.5 1.5 4,587 4,592 1.5 1.5
(1) Value of loans represents gross book value excluding the impact of HBOS
acquisition adjustments of mortgages more than three months in arrears. These
accounts are a subset of total Stage 3 given the exclusion of accounts in
possession and those meeting other Stage 3 criteria.
(
)
CREDIT RISK (continued)
Credit cards
• Credit cards balances increased to £16.2 billion (31 December 2023:
£15.8 billion) due to continued recovery in customer spend, with no change to
acquisition risk appetite
• The credit card portfolio is a prime book, with stable credit
performance in the half-year and continued strong repayment rates
• Impairment charge of £115 million for the first half of 2024, is lower
than the charge of £197 million in the first half of 2023, largely due to the
release of ECL judgements raised to cover the risk of increased defaults from
high inflation and cost of living pressures, given continued resilient
portfolio performance. Total ECL coverage reduced to 4.3 per cent
(31 December 2023: 5.1 per cent)
• Favourable updates to the macroeconomic outlook resulted in a reduction
in Stage 2 loans and advances to 16.0 per cent of the portfolio (31 December
2023: 18.4 per cent), with Stage 2 ECL coverage reducing to 13.9 per cent
(31 December 2023: 15.3 per cent)
• Resilient underlying arrears and default performance has also resulted
in stable Stage 3 loans and advances at 1.8 per cent of the portfolio (31
December 2023: 1.8 per cent). Stage 3 ECL coverage is broadly stable at
50.0 per cent (31 December 2023: 49.4 per cent)
UK unsecured loans and overdrafts
• Loans and advances for personal current account and the personal loans
portfolios increased to £9.7 billion (31 December 2023: £8.5 billion)
largely driven by recovering market demand in loans and natural balance build
following the securitisation of assets at the end of 2023
• Impairment charge of £140 million for the first half of 2024 is
modestly below the charge of £160 million for the first half of 2023 again
due to favourable macroeconomic updates and a more resilient underlying
performance than previously anticipated. ECL coverage levels by individual
stage all remain broadly stable, with Stage 2 ECL coverage at 19.0 per cent
(31 December 2023: 20.6 per cent) and Stage 3 ECL coverage at 64.7 per cent
(31 December 2023: 65.6 per cent)
UK Motor Finance
• The UK Motor Finance portfolio increased to £16.6 billion (31 December
2023: £15.7 billion) driven by stocking and fleet, partially offset by a
softening of Retail demand in the half-year
• Updates to Residual Value (RV) and Voluntary Termination (VT) risk held
against Personal Contract Purchase (PCP) and Hire Purchase (HP) lending are
included within the impairment charge(1). Recent significant falls in used car
prices have been reflected and absorbed by an existing management judgement
within this item. As a result RV and VT provision reduced to £185 million as
at 30 June 2024 (31 December 2023: £187 million)
• Impairment charge of £61 million for the first half of 2024 is higher
than a charge of £43 million for the first half of 2023, which benefitted
from more stable used car prices, partially driven by global supply
constraints following the pandemic that have now eased
• ECL coverage levels at a total level and by individual stage remain
broadly stable. Total ECL coverage at 2.2 per cent (31 December 2023: 2.2 per
cent), Stage 2 ECL coverage at 4.9 per cent (31 December 2023: 4.5 per cent)
and Stage 3 ECL coverage at 57.3 per cent (31 December 2023: 56.3 per cent)
Other
• Other loans and advances increased to £17.1 billion (31 December 2023:
£16.6 billion). Stage 3 loans and advances remain stable at 1.0 per cent
(31 December 2023: 0.9 per cent) and Stage 3 coverage reduced to 27.6 per
cent (31 December 2023: 32.6 per cent)
• There was a net impairment credit of £3 million for the first half of
2024 compared to a charge of £1 million in the first half of 2023
(1) The depreciation of operating leases is included separately in the
operating lease depreciation charge.
CREDIT RISK (continued)
Commercial Banking
• The Commercial portfolio credit quality remains stable and resilient,
benefitting from a focused approach to credit underwriting and monitoring
standards and proactively managing exposures to higher risk and vulnerable
sectors
• The Group is cognisant of a number of risks and headwinds associated
with the elevated interest rate environment especially in, but not limited to,
sectors reliant upon consumer discretionary spend. Risks include reduced asset
valuation and refinancing risk, a reduction in market liquidity impacting
credit supply and pressure on both household discretionary spending and
business margins
• The Group continues to closely monitor credit quality, sector and single
name concentrations. Sector and credit risk appetite continue to be
proactively managed to ensure clients are supported in the right way and the
Group is protected
• The Group continues to provide early support to its more vulnerable
customers through focused risk management via its Watchlist and Business
Support framework. The Group continues to balance prudent risk appetite with
ensuring support for financially viable clients
Impairment
• There was a net impairment credit of £83 million in the first half of
2024, compared to a net impairment charge of £72 million in the first half
of 2023. Commercial Banking has benefitted from a one-off release from loss
rates used in the model, while observing a low charge on new and existing
Stage 3 clients
• ECL allowances decreased in the year to £990 million at 30 June 2024
(31 December 2023: £1,165 million). This was driven by the one-off release
noted above, as well as a revised approach to modelling the multiple economic
scenarios and a more favourable outlook across multiple economic indicators
• Stage 2 loans and advances decreased to £6,443 million (31 December
2023: £7,987 million), largely as a result of improvements in the Group's
macroeconomic outlook, with 93.9 per cent of Stage 2 balances up to date (31
December 2023: 92.8 per cent). Stage 2 as a proportion of total loans and
advances to customers decreased to 7.2 per cent (31 December 2023: 8.9 per
cent). Stage 2 ECL coverage was lower at 5.1 per cent (31 December 2023: 5.6
per cent) with the decrease in coverage largely a result of the change in the
forward-looking multiple economic scenarios
• Stage 3 loans and advances were broadly stable at £2,055 million
(31 December 2023: £2,068 million) and as a proportion of total loans and
advances to customers, flat at 2.3 per cent (31 December 2023: 2.3 per cent).
Stage 3 ECL coverage reduced to 22.8 per cent (31 December 2023: 24.1 per
cent)
•
CREDIT RISK (continued)
Commercial Banking UK Real Estate
• Commercial Banking UK Real Estate committed drawn lending stood at £9.7
billion at May 2024 (net of £3.1 billion exposures subject to protection
through Significant Risk Transfer (SRT) securitisations). This compares to
£10.0 billion at 31 December 2023 (net of £3.6 billion subject to SRT
securitisations). In addition there are undrawn lending facilities of £3.4
billion (31 December 2023: £3.6 billion) to predominantly investment grade
rated corporate customers
• The Group classifies Real Estate as exposure which is directly supported
by cash flows from property activities (as opposed to trading activities, such
as hotels, care homes and housebuilders). Exposures of £6.8 billion to social
housing providers are also excluded (31 December 2023: £7.0 billion)
• Despite some headwinds, including the impact of elevated interest rates,
the portfolio continues to remain well-positioned and proactively managed with
conservative LTVs, good levels of interest cover and appropriate risk
mitigants in place
• Overall performance of the portfolio has remained resilient. The Group
has seen improvement within this sector, with a decrease in cases in its more
closely monitored Watchlist category and limited flow into Business Support
• Lending continues to be heavily weighted towards investment real estate
(c.90 per cent) rather than development. Of these investment exposures c.90
per cent have an LTV of less than 70 per cent, with an average LTV of 46 per
cent. The average interest cover ratio was 3.2 times, with 74 per cent having
interest cover of above 2 times. In SME, LTV at origination has been typically
limited to c.55 per cent, in the context of prudent repayment cover criteria
(including notional base rate stress)
• The portfolio is well diversified with no speculative commercial
development lending (defined as property not pre-sold or pre-let at a level to
fully repay the debt or generate sufficient income to meet the minimum
interest cover requirements). Approximately 49 per cent of exposures relate to
commercial real estate, including c.13 per cent secured by office assets, c.12
per cent by retail assets and c.12 per cent by industrial assets.
Approximately 49 per cent of the portfolio relates to residential
• Recognising this is a cyclical sector, total (gross and net) and asset
type quantum caps are in place to control origination and exposure, including
several asset type categories. Focus remains on the UK market and new business
has been written in line with a prudent risk appetite criteria including
conservative LTVs, strong quality of income and proven management teams.
Development lending criteria also includes maximum loan to gross development
value and maximum loan to cost, with funding typically only released against
completed work, as confirmed by the Group's monitoring quantity surveyor
• Use of SRT securitisations also acts as a risk mitigant in this
portfolio. Run-off of these is carefully managed and sequenced
•
LIQUIDITY RISK
The Group has maintained its strong funding and liquidity position with a loan
to deposit ratio of 95 per cent as at 30 June 2024 (31 December 2023: 95 per
cent). Total wholesale funding remained broadly stable at £97.6 billion as
at 30 June 2024 (31 December 2023: £98.7 billion). The Group maintains
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 144 per
cent as at 30 June 2024 (31 December 2023: 142 per cent) calculated on a Group
consolidated basis based on the PRA rulebook. 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 remained stable at £136.0 billion (31 December
2023: £136.0 billion). In addition to the Group's reported LCR eligible
assets, the Group maintains borrowing capacity at central banks which averaged
£78 billion in the 12 months to 30 June 2024. The net stable funding ratio
remains strong at 130 per cent as at 30 June 2024 (31 December 2023: 130 per
cent).
During the first half of 2024, the Group accessed wholesale funding across a
range of currencies and markets with term issuance volumes totalling £8.0
billion. The Group expects full year wholesale issuance of less than £15.0
billion for 2024. The total outstanding amount of drawings from the TFSME has
remained stable at £30.0 billion at 30 June 2024 (31 December 2023:
£30.0 billion), with maturities in 2025, 2027 and beyond. The repayment of
TFSME has been factored into the Group's funding plans.
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.
LIQUIDITY RISK (continued)
Group funding requirements and sources
At 30 Jun 2024 At 31 Dec 2023 Change
£bn
£bn
%
Group funding position
Cash and balances at central banks 66.8 78.1 (14)
Loans and advances to banks(1) 8.5 10.7 (21)
Loans and advances to customers 452.4 449.7 1
Reverse repurchase agreements - non-trading 49.4 38.8 27
Debt securities at amortised cost 15.4 15.4
Financial assets at fair value through other comprehensive income 27.8 27.6 1
Other assets(2) 272.6 261.2 4
Total Group assets 892.9 881.5 1
Less other liabilities(2) (237.6) (226.3) (5)
Funding requirements 655.3 655.2
Wholesale funding(3) 97.6 98.7 (1)
Customer deposits 474.7 471.4 1
Repurchase agreements - non-trading 7.9 7.7 3
Term Funding Scheme with additional incentives for SMEs (TFSME) 30.0 30.0
Total equity 45.1 47.4 (5)
Funding sources 655.3 655.2
(1) 31 December 2023 excludes £0.1 billion of loans and advances to banks
within the Insurance business.
(2) Other assets and other liabilities primarily include balances in the
Group's Insurance business and the fair value of derivative assets and
liabilities.
(3 ) The Group's definition of wholesale funding aligns with that used by
other international market participants; including bank deposits, debt
securities in issue and subordinated liabilities. Excludes balances relating
to margins of £2.1 billion (31 December 2023: £2.4 billion).
Reconciliation of Group funding to the balance sheet
At 30 June 2024 Included Cash collateral received Fair value Balance
in funding £bn and other sheet
analysis accounting £bn
£bn methods
£bn
Deposits from banks 3.3 2.5 (0.2) 5.6
Debt securities in issue 81.6 - (6.8) 74.8
Subordinated liabilities 12.7 - (2.3) 10.4
Total wholesale funding 97.6 2.5
Customer deposits 474.7 - - 474.7
Total 572.3 2.5
At 31 December 2023
Deposits from banks 3.7 2.9 (0.4) 6.2
Debt securities in issue 82.9 - (7.3) 75.6
Subordinated liabilities 12.1 - (1.8) 10.3
Total wholesale funding 98.7 2.9
Customer deposits 471.4 - - 471.4
Total 570.1 2.9
LIQUIDITY RISK (continued)
Analysis of total wholesale funding by residual maturity
Up to 1 1 to 3 3 to 6 6 to 9 9 to 12 1 to 2 2 to 5 Over Total at 30 Jun 2024 Total at 31 Dec 2023
£bn
£bn
month months months months months years years five years
£bn £bn £bn £bn £bn £bn £bn £bn
Deposits from banks 1.6 0.6 0.5 0.3 0.3 - - - 3.3 3.7
Debt securities in issue:
Senior unsecured notes issued 1.9 0.4 2.1 5.4 3.1 4.9 16.9 12.6 47.3 44.5
Covered bonds - - 0.5 2.0 0.1 1.6 6.6 0.9 11.7 14.1
Commercial paper 1.9 3.1 2.7 1.8 1.1 - - - 10.6 12.3
Certificates of deposit issued 0.5 1.5 1.9 1.5 1.4 0.1 - - 6.9 7.8
Securitisation notes - - - 0.1 - 0.1 4.3 0.6 5.1 4.2
4.3 5.0 7.2 10.8 5.7 6.7 27.8 14.1 81.6 82.9
Subordinated liabilities - - 0.8 0.6 0.3 2.3 2.4 6.3 12.7 12.1
Total wholesale funding(1) 5.9 5.6 8.5 11.7 6.3 9.0 30.2 20.4 97.6 98.7
(1) Excludes balances relating to margins of £2.1 billion (31 December
2023: £2.4 billion).
Analysis of term issuance in half-year to 30 June 2024
Sterling US Dollar Euro Other Total
£bn £bn £bn currencies £bn
£bn
Securitisation(1) 0.9 - - - 0.9
Covered bonds - - - - -
Senior unsecured notes 0.5 4.3 1.4 0.5 6.7
Subordinated liabilities - - 0.4 - 0.4
Additional tier 1 - - - - -
Total issuance 1.4 4.3 1.8 0.5 8.0
(1) Includes significant risk transfer securitisations.
LIQUIDITY RISK (continued)
Liquidity portfolio
At 30 June 2024, the banking business had £136.0 billion of highly liquid
unencumbered LCR eligible assets, based on a monthly rolling average over the
previous 12 months post any liquidity haircuts (31 December 2023: £136.0
billion). This comprises £130.4 billion LCR level 1 eligible assets (31
December 2023: £131.3 billion) and £5.6 billion LCR level 2 eligible assets
(31 December 2023: £4.7 billion). These assets are available to meet cash and
collateral outflows and regulatory requirements. The Insurance business
manages a separate liquidity portfolio to mitigate insurance liquidity risk.
The banking business also has a significant amount of non-LCR eligible liquid
assets which are eligible for use in a range of central bank or similar
facilities. Future use of such facilities will be based on prudent liquidity
management and economic considerations, having regard for external market
conditions.
LCR eligible assets
Average
2024(1) 2023(1) Change
%
£bn £bn
Cash and central bank reserves 72.2 83.9 (14)
High quality government/MDB/agency bonds(2) 55.2 44.7 23
High quality covered bonds 3.0 2.7 11
Level 1 130.4 131.3 (1)
Level 2(3) 5.6 4.7 19
Total LCR eligible assets 136.0 136.0
(1) Based on 12 months rolling simple average to 30 June 2024 (2023: 31
December 2023). Eligible assets are calculated as a simple average of
month-end observations over the previous 12 months post any liquidity
haircuts.
(2) Designated multilateral development bank (MDB).
(3) Includes Level 2A and Level 2B.
At 30 Jun 2024 At 31 Mar 2024 At 31 Dec 2023
% % %
Liquidity coverage ratio(1) 144 143 142
Net stable funding ratio(2) 130 130 130
(1) The liquidity coverage ratio and its components are calculated as simple
averages of month-end observations over the previous 12 months.
(2) Net stable funding ratio is based on an average of the four previous
quarters.
Encumbered assets
The Board and Group Asset and Liability Committee (GALCO) monitor and manage
total balance sheet encumbrance, including via a defined risk appetite. At 30
June 2024, the Group had £32.3 billion (31 December 2023: £38.0 billion) of
externally encumbered on-balance sheet assets with counterparties other than
central banks. The decrease in encumbered on-balance sheet assets was
primarily driven by a reduction in secured funding. The Group also had
£727.5 billion (31 December 2023: £704.5 billion) of unencumbered
on-balance sheet assets, and £133.2 billion (31 December 2023: £139.0
billion) of pre-positioned and encumbered assets held with central banks. The
decrease in the latter was primarily driven by monthly redemptions to the
prepositioned collateral pools. Primarily, the Group encumbers mortgages,
unsecured lending, credit card receivables and car loans through the issuance
programmes and tradable securities through securities financing activity. The
Group mainly pre-positions mortgage assets at central banks.
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 30 June 2024, the Group's sterling
structural hedge had a notional balance of £242 billion (a reduction from
£247 billion at 31 December 2023).
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.225 c.375 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.375) (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 30 June 2024 balance sheet position.
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