SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
27 July
2017
LLOYDS BANKING GROUP
plc
(Translation of registrant's name into
English)
5th Floor
25 Gresham Street
London
EC2V 7HN
United Kingdom
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual
reports
under
cover Form 20-F or Form 40-F.
Form
20-F..X.. Form 40-F
Indicate
by check mark whether the registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes
No ..X..
If
"Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-
________
Index
to Exhibits
Item
No.
1
Regulatory News
Service Announcement, dated 27 July 2017
Lloyds
Banking Group plc
2017
Half-Year Results
27 July
2017
BASIS OF PRESENTATION
|
This
release covers the results of Lloyds Banking Group plc
together with its subsidiaries (the Group) for the half-year ended
30 June 2017.
|
Statutory basis:
Statutory information
is set out on pages 50
to
85.
However, a number of factors have had a significant effect on the
comparability of the Group’s financial position and results.
Accordingly, the results are also presented on an underlying
basis.
|
Underlying basis:
The statutory results
are adjusted for certain items which are listed below, to allow a
comparison of the Group’s underlying
performance.
− losses
on redemption of the Enhanced Capital Notes and the volatility in
the value of the embedded equity conversion feature;
− market
volatility and asset sales, which includes the effects of certain
asset sales, the volatility relating to the Group’s own debt
and hedging arrangements and that arising in the insurance
businesses and insurance gross up;
− the
unwind of acquisition-related fair value adjustments and the
amortisation of purchased intangible assets;
− restructuring
costs, comprising severance related costs relating to the
Simplification programme, the costs of implementing regulatory
reform and ring-fencing, the rationalisation of the non-branch
property portfolio and the integration of MBNA; and
− payment
protection insurance and other conduct provisions.
|
Unless
otherwise stated, income statement commentaries throughout this
document compare the half-year ended 30 June 2017 to the
half-year ended 30 June 2016, and the balance sheet analysis
compares the Group balance sheet as at 30 June 2017 to the
Group balance sheet as at 31 December 2016.
MBNA:
MBNA’s results and balance
sheet have been consolidated with effect from 1 June
2017.
Alternative performance measures:
The
Group uses a number of alternative performance measures, including
underlying profit, in the discussion of its business performance
and financial position. Further information on these measures is
set out on page 89.
|
FORWARD LOOKING STATEMENTS
This
document contains certain forward looking statements with respect
to the business, strategy and plans of Lloyds Banking Group and its
current goals and expectations relating to its future financial
condition and performance. Statements that are not historical
facts, including statements about Lloyds Banking Group's or its
directors' and/or management's beliefs and expectations, are
forward looking statements. By their nature, forward looking
statements involve risk and uncertainty because they relate to
events and depend upon circumstances that will or may occur in the
future. Factors that could cause actual business, strategy, plans
and/or results (including but not limited to the payment of
dividends) to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in such forward
looking statements made by the Group or on its behalf include, but
are not limited to: general economic and business conditions in the
UK and internationally; market related trends and developments;
fluctuations in interest rates (including low or negative rates),
exchange rates, stock markets and currencies; the ability to access
sufficient sources of capital, liquidity and funding when required;
changes to the Group's credit ratings; the ability to derive cost
savings and other benefits including, but without limitation as a
result of any acquisitions, disposals and other strategic
transactions; changing customer behaviour including consumer
spending, saving and borrowing habits; changes to borrower or
counterparty credit quality; instability in the global financial
markets, including Eurozone instability, instability as a result of
the exit by the UK from the European Union (EU) and the potential
for other countries to exit the EU or the Eurozone
and the impact of any sovereign
credit rating downgrade or other sovereign financial issues;
technological changes and risks to the security of IT and
operational infrastructure, systems, data and information resulting
from increased threat of cyber and other attacks; natural, pandemic
and other disasters, adverse weather and similar contingencies
outside the Group's control; inadequate or failed internal or
external processes or systems; acts of war, other acts of
hostility, terrorist acts and responses to those acts,
geopolitical, pandemic or other such events; changes in laws,
regulations, accounting standards or taxation, including as a
result of the exit by the UK from the EU, or a further possible
referendum on Scottish independence; changes to regulatory capital
or liquidity requirements and similar contingencies outside the
Group's control; the policies, decisions and actions of
governmental or regulatory authorities or courts in the UK, the EU,
the US or elsewhere including the implementation and interpretation
of key legislation and regulation; the ability to attract and
retain senior management and other employees; actions or omissions
by the Group's directors, management or employees including
industrial action; changes to the Group's post-retirement defined
benefit scheme obligations; the extent of any future impairment
charges or write-downs caused by, but not limited to, depressed
asset valuations, market disruptions and illiquid markets; the
value and effectiveness of any credit protection purchased by the
Group; the inability to hedge certain risks economically; the
adequacy of loss reserves; the actions of competitors, including
non-bank financial services, lending companies and digital
innovators and disruptive technologies; and exposure to regulatory
or competition scrutiny, legal, regulatory or competition
proceedings, investigations or complaints. Please refer to the
latest Annual Report on Form 20-F filed with the US Securities and
Exchange Commission for a discussion of certain factors together
with examples of forward looking statements. Except as required by
any applicable law or regulation, the forward looking statements
contained in this document are made as of today's date, and Lloyds
Banking Group expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward looking
statements. The information, statements and opinions contained in
this document do not constitute a public offer under any applicable
law or an offer to sell any securities or financial instruments or
any advice or recommendation with respect to such securities or
financial instruments.
CONTENTS
|
Page
|
Key
highlights
|
1
|
Consolidated
income statement
|
2
|
Balance
sheet and key ratios
|
2
|
Summary
consolidated balance sheet
|
3
|
Group
Chief Executive’s statement
|
4
|
Summary
of Group results
|
6
|
Underlying
basis segmental analysis
|
11
|
Underlying
basis quarterly information
|
12
|
|
|
Divisional
highlights
|
|
Retail
|
13
|
Commercial
Banking
|
15
|
Consumer
Finance
|
17
|
Insurance
|
19
|
Run-off
and Central items
|
21
|
|
|
Additional
information
|
|
Reconciliation
between statutory and underlying basis results
|
22
|
Banking
net interest margin
|
23
|
Volatility arising
in the insurance businesses
|
24
|
Number
of employees (full-time equivalent)
|
24
|
Tangible net assets
per share
|
25
|
Return
on tangible equity?
|
25
|
|
|
Risk management
|
|
Principal
risks and uncertainties
|
26
|
Credit
risk portfolio
|
27
|
Funding
and liquidity management
|
37
|
Capital
management
|
42
|
|
|
Statutory information
|
|
Primary
statements
|
50
|
Consolidated income
statement
|
51
|
Consolidated
statement of comprehensive income
|
52
|
Consolidated
balance sheet
|
53
|
Consolidated
statement of changes in equity
|
55
|
Consolidated cash
flow statement
|
58
|
Notes
to the consolidated financial statements
|
59
|
|
|
Summary
of alternative performance measures
|
89
|
Contacts
|
90
|
|
|
RESULTS FOR THE HALF-YEAR
‘Following
the successful transformation of the Group to become a simple, low
risk, UK focused retail and commercial bank, we have delivered
another strong set of results with increased underlying and
statutory profit and strong capital generation, whilst completing
the acquisition of MBNA and returning to full private
ownership.
The UK
economy remains resilient following strong employment and GDP
growth in recent years together with private sector deleveraging
and rising house prices. Inflation is however now rising above
disposable income given the recent depreciation in sterling and,
while this may affect consumption going forward, the economy should
benefit from rising exports and earnings from foreign
assets.
We have
announced that our next strategy update for the period 2018-2020
will accompany the Group’s full year results in February
2018, and in preparation for this we have made a number of
organisational and senior management changes. The changes are aimed
at aligning and strengthening the Group’s structure to ensure
we meet evolving customer needs and deliver the continuous
transformation required of the organisation in the most effective
way.
Our
differentiated UK focused business model continues to deliver, with
our cost leadership and lower risk positioning providing
competitive advantage. Our strong financial performance and
strategic progress continue to position us well for delivering our
purpose of Helping Britain Prosper.’
António
Horta-Osório
Group Chief Executive
Strong
financial performance with improvements in underlying and statutory
profit
●
Underlying profit
of £4.5 billion, up 8 per cent; underlying return on tangible
equity of 16.6 per cent
●
Total income 4 per
cent higher at £9.3 billion
Net interest income
of £5.9 billion, up 2 per cent with improved margin of 2.82
per cent
Other income 8 per
cent higher at £3.3 billion
●
Operating costs 1
per cent lower at £4.0 billion. Market-leading cost:income
ratio improved to 45.8 per cent
●
Asset quality
remains strong with impairment charge of £268 million, asset
quality ratio stable at 12 basis points
●
Loans and advances
increased to £453 billion, including the benefit of the
acquisition of MBNA
●
Statutory profit
before tax 4 per cent higher at £2.5 billion, despite an
additional £1 billion of conduct charges in the second
quarter, primarily in respect of PPI
●
Strong capital
generation of c.100 basis points reflecting strong underlying
performance with common equity tier 1 (CET1) ratio of 14.0 per cent
(13.5 per cent post dividend); leverage ratio of 4.9 per
cent
●
Tangible net assets
per share of 52.4 pence (31 Dec 2016: 54.8 pence) after
payment of 2016 final dividend of 2.2 pence per share and a
1.4 pence per share reduction from the acquisition of
MBNA
2017
guidance for NIM and AQR updated, with all other guidance
reaffirmed
●
Net interest margin
for the full year now expected to be close to 2.85 per cent,
including MBNA
●
Asset quality ratio
for the full year now expected to be less than 20 basis points,
including MBNA
●
Continue to expect
2017 capital generation at the top end of the 170-200 basis points
ongoing guidance range
●
All other longer
term guidance remains unchanged
Increased
interim dividend
●
Interim ordinary
dividend of
1.0 pence per share, up 18 per cent, in
line with our progressive and sustainable approach to ordinary
dividends
CONSOLIDATED INCOME STATEMENT − UNDERLYING BASIS
|
|
Half-year
|
|
Half-year
|
|
|
|
Half-year
|
|
|
|
|
to 30 June
|
|
to 30 June
|
|
|
|
to 31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
2016
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
5,925
|
|
5,782
|
|
2
|
|
5,653
|
|
5
|
Other
income
|
|
3,348
|
|
3,093
|
|
8
|
|
2,972
|
|
13
|
Total income
|
|
9,273
|
|
8,875
|
|
4
|
|
8,625
|
|
8
|
Operating
lease depreciation
|
|
(495)
|
|
(428)
|
|
(16)
|
|
(467)
|
|
(6)
|
Net income
|
|
8,778
|
|
8,447
|
|
4
|
|
8,158
|
|
8
|
Operating
costs
|
|
(4,018)
|
|
(4,041)
|
|
1
|
|
(4,052)
|
|
1
|
Impairment
|
|
(268)
|
|
(245)
|
|
(9)
|
|
(400)
|
|
33
|
Underlying profit
|
|
4,492
|
|
4,161
|
|
8
|
|
3,706
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
Volatility
and other items
|
|
(358)
|
|
(1,247)
|
|
|
|
(297)
|
|
|
Payment
protection insurance provision
|
|
(1,050)
|
|
–
|
|
|
|
(1,000)
|
|
|
Other
conduct provisions
|
|
(540)
|
|
(460)
|
|
|
|
(625)
|
|
|
Statutory profit before tax
|
|
2,544
|
|
2,454
|
|
4
|
|
1,784
|
|
43
|
Taxation
|
|
(905)
|
|
(597)
|
|
|
|
(1,127)
|
|
|
Profit for the period
|
|
1,639
|
|
1,857
|
|
(12)
|
|
657
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share
|
|
2.0p
|
|
2.3p
|
|
(13)
|
|
0.6p
|
|
233
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
2.82%
|
|
2.74%
|
|
8bp
|
|
2.69%
|
|
13bp
|
Average
interest-earning banking assets
|
|
£431bn
|
|
£437bn
|
|
(1)
|
|
£435bn
|
|
(1)
|
Cost:income
ratio
|
|
45.8%
|
|
47.8%
|
|
(2.0)pp
|
|
49.7%
|
|
(3.9)pp
|
Asset
quality ratio
|
|
0.12%
|
|
0.11%
|
|
1bp
|
|
0.18%
|
|
(6)bp
|
Return
on risk-weighted assets
|
|
4.20%
|
|
3.75%
|
|
45bp
|
|
3.35%
|
|
85bp
|
Underlying
return on tangible equity
|
|
16.6%
|
|
15.1%
|
|
1.5pp
|
|
13.2%
|
|
3.4pp
|
Return
on tangible equity
|
|
8.2%
|
|
9.7%
|
|
(1.5)pp
|
|
3.6%
|
|
4.6pp
|
BALANCE SHEET AND KEY RATIOS
|
|
At 30 June
|
|
At 31 Dec
|
|
Change
|
|
|
2017
|
|
2016
|
|
%
|
|
|
|
|
|
|
|
Loans
and advances to customers
1
|
|
£453bn
|
|
£450bn
|
|
1
|
Customer
deposits
2
|
|
£417bn
|
|
£413bn
|
|
1
|
Loan to
deposit ratio
|
|
109%
|
|
109%
|
|
–
|
Total
assets
|
|
£815bn
|
|
£818bn
|
|
–
|
Pro
forma common equity tier 1 ratio pre 2017 dividend
accrual
3
|
|
14.0%
|
|
13.8%
|
|
0.2pp
|
Pro
forma common equity tier 1 ratio
3
|
|
13.5%
|
|
13.8%
|
|
(0.3)pp
|
Transitional
total capital ratio
|
|
20.8%
|
|
21.4%
|
|
(0.6)pp
|
Pro
forma leverage ratio
3
|
|
4.9%
|
|
5.0%
|
|
(0.1)pp
|
Risk-weighted
assets
|
|
£218bn
|
|
£216bn
|
|
1
|
Tangible
net assets per share
4
|
|
52.4p
|
|
54.8p
|
|
(2.4)p
|
1
|
Excludes
reverse repos of £11.4 billion (31 December 2016:
£8.3 billion).
|
2
|
Excludes
repos of £1.0 billion (31 December 2016:
£2.5 billion).
|
3
|
The
common equity tier 1 and leverage ratios at 30 June 2017 and 31
December 2016 are reported on a pro forma basis, separately
reflecting dividends paid by the Insurance business in July 2017
(in relation to 2017 interim earnings) and February 2017 (in
relation to 2016 full year earnings).
|
4
|
Tangible
net assets per share at 30 June 2017 reflected the payment of the
final dividend of 2.2 pence per share in May 2017 and a
1.4 pence per share reduction from the acquisition of
MBNA.
|
SUMMARY CONSOLIDATED BALANCE SHEET
|
|
At 30 June
|
|
At 31 Dec
|
|
|
2017
|
|
2016
|
|
|
£ million
|
|
£ million
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash
and balances at central banks
|
|
50,491
|
|
47,452
|
Trading
and other financial assets at fair value through profit or
loss
|
|
161,970
|
|
151,174
|
Derivative
financial instruments
|
|
30,024
|
|
36,138
|
Loans
and receivables
|
|
|
|
|
Loans
and advances to banks
|
|
8,865
|
|
26,902
|
Loans
and advances to customers
|
|
464,604
|
|
457,958
|
Debt
securities
|
|
3,841
|
|
3,397
|
|
|
477,310
|
|
488,257
|
Available-for-sale
financial assets
|
|
51,803
|
|
56,524
|
Other
assets
|
|
43,321
|
|
38,248
|
Total assets
|
|
814,919
|
|
817,793
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Deposits
from banks
|
|
24,879
|
|
16,384
|
Customer
deposits
|
|
417,617
|
|
415,460
|
Trading
and other financial liabilities at fair value through profit or
loss
|
|
55,671
|
|
54,504
|
Derivative
financial instruments
|
|
29,190
|
|
34,924
|
Debt
securities in issue
|
|
71,557
|
|
76,314
|
Liabilities
arising from insurance and investment contracts
|
|
116,970
|
|
114,502
|
Subordinated
liabilities
|
|
18,575
|
|
19,831
|
Other
liabilities
|
|
32,114
|
|
37,059
|
Total liabilities
|
|
766,573
|
|
768,978
|
|
|
|
|
|
Shareholders’
equity
|
|
42,513
|
|
43,020
|
Other
equity instruments
|
|
5,355
|
|
5,355
|
Non-controlling
interests
|
|
478
|
|
440
|
Total equity
|
|
48,346
|
|
48,815
|
Total equity and liabilities
|
|
814,919
|
|
817,793
|
GROUP CHIEF EXECUTIVE’S STATEMENT
We have
delivered another strong financial performance in the first half
with increased underlying and statutory profit and strong capital
generation. We have returned to full private ownership, completed
the acquisition of MBNA and have made good strategic progress. As a
simple, low risk, UK focused bank we are well placed to continue to
help Britain prosper.
Operating environment
The UK
economy remains resilient following strong employment and GDP
growth in recent years together with private sector deleveraging
and rising house prices. Inflation is however now rising above
disposable income given the recent depreciation in sterling and,
while this may affect consumption going forward, the economy should
benefit from rising exports and earnings from foreign
assets.
The
regulatory environment continues to evolve and there are a number
of areas on which we await further clarity including Basel IV, but
given the strength of our balance sheet and the capital generative
nature of our business model, we are well placed to meet these
requirements.
Financial performance
The
Group has delivered another strong financial performance in the
first half of the year. Underlying profit was 8 per cent higher at
£4.5 billion with underlying return after tax on tangible
equity 1.5 percentage points higher at 16.6 per cent. Income was 4
per cent higher reflecting higher net interest income and other
income. Operating costs continue to fall as delivery of the
Simplification programme drives further efficiency, and the
Group’s cost:income ratio fell to 45.8 per cent. Asset
quality remains strong and the asset quality ratio remained stable
at 12 basis points. Statutory profit before tax increased 4 per
cent to £2.5 billion. This was after taking additional
provisions for PPI and other conduct related issues which was
disappointing. The Group is also currently undertaking a review of
the HBOS Reading fraud and is in the process of paying compensation
to the victims of the fraud for economic losses, ex-gratia payments
and awards for distress and inconvenience. The strong underlying
performance has nevertheless enabled the Group to generate
approximately 100 basis points of CET1 capital in the period, at
the top end of our guided range.
Our
balance sheet remains strong, with a pre dividend CET1 ratio of
14.0 per cent (13.5 per cent post dividend), a total capital ratio
of 20.8 per cent and a leverage ratio of 4.9 per cent. Given the
strong capital generation in the first half of the year, the Board
has recommended an interim ordinary dividend of 1.0 pence per
share, an increase of 18 per cent.
Strategic progress
We have
continued to make good progress on our strategic priorities in 2017
as we approach the final months of our plan period.
Creating the best customer experience
As a
customer focused business, we are committed to meeting our
customers’ evolving needs and preferences through our
multi-brand and multi-channel approach. We operate the UK’s
largest branch network and the largest digital bank with nearly 13
million active online users. We have more than 8.5 million mobile
banking users and for the third consecutive year, the Lloyds Bank
app has been rated the most feature rich mobile banking app of all
the UK major banks.
Improvements
continue to be made across the business as we transform key
customer journeys. In Mortgages, customers can receive an agreement
in principle in less than 15 minutes and there has been a
36 per cent increase in customers receiving their mortgage
offer in less than 14 days with some offers now in two working
days. In account opening and onboarding we have opened 300,000
branch savings accounts in less than 30 minutes with a new
streamlined process that has halved appointment times. In
Commercial Banking we have delivered a 77 per cent increase in
the proportion of SME clients onboarded in less than 30 days, with
approximately 50 per cent using digital agreements. In
Insurance, a core part of our strategy, we have received a number
of industry and consumer awards across our key business
propositions.
Becoming simpler and more efficient
Cost
management continues to be a strategic priority and we remain
focused on maintaining competitive advantage through our cost
leadership. The Simplification programme is on track to deliver the
target of £1.4 billion of annual run-rate savings by the end
of 2017, with £1.2 billion of run-rate savings delivered to
date. The savings have been delivered through process redesign and
automation, improvements in our sourcing arrangements and through
organisational changes. These will remain areas of focus as we move
into the next phase of our strategy. The Group’s
market-leading cost:income ratio improved to 45.8 per cent and
we continue to expect to exit 2019 with a cost:income ratio of
around 45 per cent.
Delivering sustainable growth
We are
making good progress in growing market share in areas where we are
underrepresented. In Consumer Finance we have grown our motor
finance and credit card portfolios organically and the acquisition
of MBNA allows us to significantly increase our participation in
the UK prime credit card market within our prudent risk appetite.
In addition, we have continued to grow SME lending ahead of the
market and are committed to supporting first-time home buyers where
we are still the largest lender. Open book mortgage balances at 30
June were broadly stable compared to the end of 2016, including the
reacquisition of a portfolio of mortgages from TSB, and we expect
them to grow in the second half of the year. In Insurance, we
continue to invest in developing the brand and the business,
including our financial planning and retirement capabilities and
have also completed five bulk annuity deals in 2017.
We
remain committed to supporting the people, businesses and
communities in the UK through our Helping Britain Prosper Plan. As
part of this plan, we have already provided more than £4
billion in funding support to the manufacturing sector, ahead of
our original 2014 target. We have also supported more than 63,000
start-ups and helped around 2,500 clients to start exporting
this year and we are on track to exceed our 2017 targets in both
areas.
We have
also announced that our next strategy update for the period
2018-2020 will accompany the Group’s full year results in
February 2018, and in preparation for this we have made a number of
organisational and senior management changes. The changes are aimed
at aligning and strengthening the Group’s structure to ensure
we meet evolving customer needs and deliver the continuous
transformation required of the organisation in the most effective
way.
The
combination of the progress we have made towards our strategic
priorities and our strong financial performance has enabled the
Group to be returned to full private ownership with the UK taxpayer
receiving approximately £900 million more than the £20.3
billion originally invested.
Outlook
Our
differentiated UK focused business model continues to deliver with
our cost leadership and lower risk positioning providing
competitive advantage, and our updated financial targets reflect
our confidence in the future prospects of the Group.
For the
full year, and after including MBNA, net interest margin is now
expected to be close to 2.85 per cent and the asset quality ratio
is expected to be less than 20 basis points. We continue to expect
capital generation for 2017 at the top end of the ongoing 170-200
basis points range and for the cost:income ratio to be lower than
in 2016. All other longer term guidance remains
unchanged.
António
Horta-Osório
Group Chief Executive
SUMMARY OF GROUP RESULTS
Strong financial performance with improvements in underlying and
statutory profit
Underlying
profit in the first half of 2017 was £4,492 million, 8 per
cent higher than in the first half of 2016 with higher total income
and lower operating costs offset by a small increase in the
impairment charge.
Statutory
profit before tax in the period was 4 per cent higher at
£2,544 million and included charges for PPI and other conduct
issues, of which a further £1,040 million was taken in the
second quarter. Statutory profit after tax was
£1,639 million and the return on tangible equity was 8.2
per cent.
The
Group’s CET1 ratio strengthened to 14.0 per cent on a pro
forma basis (31 December 2016: 13.8 per cent pro forma) pre
dividends with the Group generating c.100 basis points of CET1
capital in the first half of 2017. Tangible net assets per share at
30 June were 52.4 pence.
Total income
|
|
Half-year
|
|
Half-year
|
|
|
|
Half-year
|
|
|
|
|
to 30 June
|
|
to 30
June
|
|
|
|
to 31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
2016
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
5,925
|
|
5,782
|
|
2
|
|
5,653
|
|
5
|
Other
income
|
|
3,348
|
|
3,093
|
|
8
|
|
2,972
|
|
13
|
Total income
|
|
9,273
|
|
8,875
|
|
4
|
|
8,625
|
|
8
|
Operating
lease depreciation
1
|
|
(495)
|
|
(428)
|
|
(16)
|
|
(467)
|
|
(6)
|
Net income
|
|
8,778
|
|
8,447
|
|
4
|
|
8,158
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
2.82%
|
|
2.74%
|
|
8bp
|
|
2.69%
|
|
13bp
|
Average
interest-earning banking assets
|
|
£430.9bn
|
|
£436.9bn
|
|
(1)
|
|
£434.9bn
|
|
(1)
|
1
|
Net of
gains on disposal of leased assets.
|
Further
detail on net interest income is included on page 23.
|
Total
income at £9,273 million increased by 4 per cent with growth
in both net interest and other income.
Net
interest income increased to £5,925 million, 2 per cent
higher, reflecting an 8 basis point improvement in the net interest
margin to 2.82 per cent, partly offset by a 1 per cent reduction in
average interest-earning banking assets. The improvement in net
interest margin continues to be driven by lower deposit and
wholesale funding costs, which have more than offset reduced
lending rates, and includes a small uplift from the consolidation
of MBNA. Average interest-earning banking assets were 1 per cent
lower at £431 billion with continued growth in Consumer
Finance offset by some further contraction in the mortgage book and
reduced lending to the Global Corporates segment.
Given
the acquisition of MBNA, the Group now expects growth in both
average interest-earning assets and net interest margin in the
second half of the year, and expects the full year net interest
margin to be close to 2.85 per cent.
The
Group manages the risk to its capital and earnings from adverse
movements in interest rates centrally by hedging liabilities which
are deemed to be stable or less sensitive to change in market
interest rates. As at 30 June 2017, the balance hedged was
c.£143 billion (31 December 2016: £111 billion) with
an average duration of c.3 years and an earning rate of
approximately 1.4 per cent over LIBOR (half-year to 30 June
2016: 1.3 per cent over LIBOR). In the first half of 2017, the
benefit from the structural hedge totalled £0.9 billion
over LIBOR (half-year to 30 June 2016:
£0.8 billion).
Other
income was £3,348 million, 8 per cent higher than in the first
half of 2016. The improvement reflected a strong performance by
Commercial Banking which included income earned from support given
to Mid Market and Global Corporate clients with a number of
significant refinancing and hedging transactions in the second
quarter, further growth in Consumer Finance in relation to the Lex
Autolease business, and the gain of £146 million on the sale
of the Group’s interest in VocaLink.
Operating costs
|
|
Half-year
|
|
Half-year
|
|
|
|
Half-year
|
|
|
|
|
to 30 June
|
|
to 30 June
|
|
|
|
to 31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
2016
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Operating
costs
|
|
4,018
|
|
4,041
|
|
1
|
|
4,052
|
|
1
|
Cost:income
ratio
|
|
45.8%
|
|
47.8%
|
|
(2.0)pp
|
|
49.7%
|
|
(3.9)pp
|
Operating
jaws
|
|
5%
|
|
|
|
|
|
|
|
|
Simplification
savings annual run-rate
|
|
1,174
|
|
642
|
|
|
|
947
|
|
|
Operating
costs of £4,018 million were 1 per cent lower reflecting the
Group’s tight cost control and the benefits of the
improvements in efficiency delivered through the Simplification
programme. The Group further increased its investment in developing
digital capability and improving the branch network to respond to
changing customer preferences.
The
Group has delivered £1.2 billion of run-rate savings to date
and remains on track to deliver £1.4 billion of targeted
Simplification annual run-rate savings by the end of
2017.
The
cost:income ratio improved to 45.8 per cent with positive operating
jaws in the period of 5 per cent. The Group continues to
expect the cost:income ratio for 2017 to be lower than 2016 (48.7
per cent).
Impairment
|
|
Half-year
|
|
Half-year
|
|
|
|
Half-year
|
|
|
|
|
to 30 June
|
|
to 30 June
|
|
|
|
to 31
Dec
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
2016
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
impairment charge
|
|
268
|
|
245
|
|
(9)
|
|
400
|
|
33
|
Asset
quality ratio
|
|
0.12%
|
|
0.11%
|
|
1bp
|
|
0.18%
|
|
(6)bp
|
Gross
asset quality ratio
|
|
0.23%
|
|
0.26%
|
|
(3)bp
|
|
0.29%
|
|
(6)bp
|
Impaired
loans as a % of closing advances
|
|
1.8%
|
|
2.0%
|
|
(0.2)pp
|
|
1.8%
|
|
–
|
Provisions
as a % of impaired loans
|
|
43.4%
|
|
43.5%
|
|
(0.1)pp
|
|
43.4%
|
|
–
|
Asset
quality remains strong and the loan portfolios are well positioned,
reflecting the Group’s continued prudent through the cycle
approach to credit risk appetite.
The
impairment charge increased by £23 million to £268
million in the first half. Whilst new impairment charges were
lower, mainly in Commercial Banking, this was more than offset by a
reduced benefit from provision releases and write-backs. The asset
quality ratio was 12 basis points (half-year to 30 June 2016: 11
basis points) with the gross asset quality ratio (before releases
and write-backs) falling 3 basis points compared with the same
period in 2016 and remaining stable compared with the first quarter
in 2017.
The
Group now expects the asset quality ratio for the year to be less
than 20 basis points including MBNA.
Impaired loans have fallen by £0.2 billion to £8.3
billion (31 December 2016: £8.5 billion) and represent 1.8 per
cent of total lending at 30 June 2017. The reduction was mainly due
to a large disposal in Commercial Banking during the first quarter
and further reductions in Run-off.
Provisions
as a percentage of impaired loans were unchanged at 43.4 per cent
(31 December 2016: 43.4 per cent).
Statutory profit
|
|
Half-year
|
|
Half-year
|
|
|
|
Half-year
|
|
|
|
|
to 30 June
|
|
to 30 June
|
|
|
|
to
31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
2016
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
profit
|
|
4,492
|
|
4,161
|
|
8
|
|
3,706
|
|
21
|
Volatility and
other items
|
|
|
|
|
|
|
|
|
|
|
Enhanced Capital
Notes
|
|
–
|
|
(790)
|
|
|
|
–
|
|
|
Market
volatility and asset sales
|
|
136
|
|
128
|
|
|
|
311
|
|
|
Amortisation of
purchased intangibles
|
|
(38)
|
|
(168)
|
|
|
|
(172)
|
|
|
Restructuring
costs
|
|
(321)
|
|
(307)
|
|
|
|
(315)
|
|
|
Fair
value unwind and other
|
|
(135)
|
|
(110)
|
|
|
|
(121)
|
|
|
|
|
(358)
|
|
(1,247)
|
|
|
|
(297)
|
|
|
Payment
protection insurance provision
|
|
(1,050)
|
|
–
|
|
|
|
(1,000)
|
|
|
Other
conduct provisions
|
|
(540)
|
|
(460)
|
|
|
|
(625)
|
|
|
Statutory
profit before tax
|
|
2,544
|
|
2,454
|
|
4
|
|
1,784
|
|
43
|
Taxation
|
|
(905)
|
|
(597)
|
|
|
|
(1,127)
|
|
|
Profit
for the period
|
|
1,639
|
|
1,857
|
|
(12)
|
|
657
|
|
149
|
Further
information on the reconciliation of underlying to statutory
results is included on page 22.
|
Statutory
profit before tax increased 4 per cent to £2,544 million
(2016: £2,454 million) driven by the increased underlying
profit, partly offset by increased conduct provisions.
The
charge of £790 million for Enhanced Capital Notes in the first
half of 2016 represented the write-off of the embedded derivative
and premium paid on the redemption of remaining notes.
Market
volatility and asset sales of £136 million included positive
insurance volatility of £165 million. The credit of
£128 million in 2016 included the gain on sale of Visa
Europe of £484 million offset by negative insurance volatility
of £372 million.
Amortisation
of purchased intangibles was lower at £38 million (2016:
£168 million) as certain intangible assets are now fully
amortised. Restructuring costs increased to £321 million and
comprised severance costs relating to the Simplification programme,
the rationalisation of the non-branch property portfolio, the
integration of MBNA and the work on implementing the ring-fencing
requirements. The Group anticipates c.£0.2 billion of further
implementation costs for the ring-fenced bank between now and the
end of 2018, with a total cost of
c.£0.5 billion.
The
£1,050 million charge for PPI includes an additional £700
million provision taken in the second quarter reflecting current
claim levels, which remain above the Group’s previous
provision assumption. The additional provision will now cover
reactive claims of around 9,000 per week through to the end of
August 2019. Other conduct provisions of £540 million
include an additional £340 million in the second quarter. The
additional provision covers a number of items including packaged
bank accounts and arrears handling. Following a review of the
Group’s arrears handling activities, the Group has put in
place a number of actions to improve further its handling of
customers in these areas and the Group is reimbursing mortgage
arrears fees. The Group is also currently undertaking a review of
the HBOS Reading fraud and is in the process of paying compensation
to the victims of the fraud for economic losses, ex-gratia payments
and awards for distress and inconvenience. A provision of £100
million was taken in the first quarter and reflects the estimated
compensation costs for HBOS Reading.
Taxation
The tax
charge was £905 million, representing an effective tax rate of
35.6 per cent. The high effective tax rate largely reflects the
restrictions on deductibility of conduct provisions and the banking
surcharge.
Return on tangible equity
The
return on tangible equity was 8.2 per cent with improved underlying
profit offset by increased PPI and other conduct provisions. The
Group continues to expect to generate a return on tangible equity
of between 13.5 and 15.0 per cent in 2019.
Balance sheet
|
|
At 30 June
|
|
At 31 Dec
|
|
Change
|
|
|
2017
|
|
2016
|
|
%
|
|
|
|
|
|
|
|
Loans
and advances to customers
1
|
|
£453bn
|
|
£450bn
|
|
1
|
Customer
deposits
2
|
|
£417bn
|
|
£413bn
|
|
1
|
Loan to
deposit ratio
|
|
109%
|
|
109%
|
|
–
|
|
|
|
|
|
|
|
Wholesale
funding
|
|
£102bn
|
|
£111bn
|
|
(8)
|
Wholesale
funding <1 year maturity
|
|
£30bn
|
|
£35bn
|
|
(13)
|
Of which money-market funding <1 year maturity
3
|
|
£17bn
|
|
£14bn
|
|
23
|
Liquidity
coverage ratio – eligible assets
|
|
£122bn
|
|
£121bn
|
|
1
|
1
|
Excludes
reverse repos of £11.4 billion (31 December 2016:
£8.3 billion).
|
2
|
Excludes
repos of £1.0 billion (31 December 2016:
£2.5 billion).
|
3
|
Excludes
balances relating to margins of £2.9 billion
(31 December 2016: £3.2 billion) and settlement
accounts of £1.2 billion (31 December 2016:
£1.8 billion).
|
Loans
and advances to customers increased to £453 billion compared
with £450 billion at 31 December 2016, largely driven by the
acquisition of the MBNA credit card portfolio. Lending to Consumer
Finance and SME customers continued to grow ahead of the market,
increasing by 7 per cent (excluding MBNA) and 1 per cent
respectively since 31 December 2016. This was more than offset by
reductions in the Global Corporate segment as a result of the
Group’s continued focus on optimising capital and returns and
lower closed book mortgage balances.
Open
book mortgage balances at 30 June were broadly stable compared
to the end of 2016 and include the reacquisition of
£1.7 billion of mortgages from TSB in the second quarter.
The open mortgage book is expected to grow in the second half of
the year and close the year slightly above the 2016 closing
position.
Capital ratios and risk-weighted assets
|
|
At 30 June
|
|
At 31 Dec
|
|
Change
|
|
|
2017
|
|
2016
|
|
%
|
|
|
|
|
|
|
|
Pro
forma common equity tier 1 ratio pre 2017 dividend
accrual
1
|
|
14.0%
|
|
13.8%
|
|
0.2pp
|
Pro
forma common equity tier 1 ratio
1
|
|
13.5%
|
|
13.8%
|
|
(0.3)pp
|
Transitional
tier 1 capital ratio
|
|
16.6%
|
|
17.0%
|
|
(0.4)pp
|
Transitional
total capital ratio
|
|
20.8%
|
|
21.4%
|
|
(0.6)pp
|
Pro
forma leverage ratio
1
|
|
4.9%
|
|
5.0%
|
|
(0.1)pp
|
Risk-weighted
assets
|
|
£218bn
|
|
£216bn
|
|
1
|
|
|
|
|
|
|
|
Shareholders’
equity
|
|
£43bn
|
|
£43bn
|
|
(1)
|
Tangible
net assets per share
|
|
52.4p
|
|
54.8p
|
|
(2.4)p
|
1
|
The
common equity tier 1 and leverage ratios at 30 June 2017 and 31
December 2016 are reported on a pro forma basis, separately
reflecting dividends paid by the Insurance business in July 2017
(in relation to 2017 interim earnings) and February 2017 (in
relation to 2016 full year earnings).
|
The
Group’s CET1 ratio improved to 14.0 per cent on a pro forma
basis before accruing for 2017 dividends. The Group continues to be
strongly capital generative and generated c.100 basis points of
capital in the period. This comprised c.140 basis points of
underlying capital generation along with c.40 basis points
from a reduction in risk-weighted assets (before MBNA) and other
factors, partly offset by c.80 basis points to cover conduct
provisions. In addition, the Group utilised the CET1 capital
retained at 31 December 2016 to cover the acquisition of MBNA. The
Group continues to expect capital generation in 2017 at the upper
end of the 170-200 basis points ongoing guidance
range.
While
there remain a number of potential regulatory capital developments
(including the introduction of the systemic risk buffer in 2019),
the Board’s view of the current level of CET1 capital
required to grow the business, meet regulatory requirements and
cover uncertainties remains unchanged at around 13 per
cent.
The
amount of capital we believe is appropriate to hold is likely to
vary from time to time depending on circumstances and the Board
will continue to give due consideration, subject to the situation
at the time, to the distribution of any surplus capital through the
use of special dividends or share buy backs.
Risk-weighted
assets increased to £218 billion as a result of the
acquisition of MBNA and targeted growth in key customer segments,
partly offset through active portfolio management, disposals and
other movements.
The
leverage ratio reduced by 0.1 per cent on a pro forma basis to 4.9
per cent, largely reflecting the impact of the acquisition of MBNA
on both tier 1 capital and the leverage exposure
measure.
Tangible
net assets per share fell to 52.4 pence (31 December 2016: 54.8
pence), largely reflecting the payment of the 2016 final dividend
of 2.2 pence per share during May 2017 and the 1.4 pence
per share impact of the MBNA acquisition.
Structural reform (ring-fencing) update
The
Group is making good progress with the implementation of its
ring-fencing programme, including the non ring-fenced bank, Lloyds
Bank Corporate Markets plc (LBCM), and remains on track to meet the
legal and regulatory requirements by 1 January 2019. LBCM will
primarily comprise Commercial Banking Markets Financing (including
loan markets, bonds and asset securitisation), Commercial Banking
Financial Markets Products (including elements of FX and rates),
the business undertaken by Lloyds Bank International Ltd and the
Group’s branches in the United States, Singapore and Crown
Dependencies.
As a
simple, UK retail and commercial bank, the impact on the Group is
relatively limited and there will be minimal impact for the
majority of the Group’s retail and commercial customers.
Approximately 3 per cent of the Group’s loans and
advances to customers and approximately 7 per cent of
Group’s risk-weighted assets will be in the non ring-fenced
bank. A conditional banking licence with restrictions has been
approved for the non ring-fenced entity and preliminary credit
ratings for LBCM have been confirmed by S&P (A-/A-2) and Fitch
(A/F1).
In
addition to the ring-fenced and non ring-fenced banks, the Group
will continue to operate its Insurance business as a separate
entity and will have a new Equity sub-group which will broadly
comprise the LDC business and strategic investments.
UNDERLYING BASIS
–
SEGMENTAL ANALYSI
S
Half-year to 30 June 2017
|
|
|
|
|
|
|
|
|
|
Run-off and
|
|
|
|
|
|
|
Commercial
|
|
Consumer
|
|
|
|
Central
|
|
|
|
|
Retail
|
|
Banking
|
|
Finance
1
|
|
Insurance
|
|
items
|
|
Group
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
3,337
|
|
1,425
|
|
1,041
|
|
(50)
|
|
172
|
|
5,925
|
Other
income
|
|
477
|
|
1,100
|
|
755
|
|
872
|
|
144
|
|
3,348
|
Total income
|
|
3,814
|
|
2,525
|
|
1,796
|
|
822
|
|
316
|
|
9,273
|
Operating
lease depreciation
|
|
–
|
|
(18)
|
|
(449)
|
|
–
|
|
(28)
|
|
(495)
|
Net income
|
|
3,814
|
|
2,507
|
|
1,347
|
|
822
|
|
288
|
|
8,778
|
Operating
costs
|
|
(2,077)
|
|
(1,057)
|
|
(463)
|
|
(414)
|
|
(7)
|
|
(4,018)
|
Impairment
|
|
(139)
|
|
(13)
|
|
(125)
|
|
–
|
|
9
|
|
(268)
|
Underlying profit
|
|
1,598
|
|
1,437
|
|
759
|
|
408
|
|
290
|
|
4,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
2.29%
|
|
3.45%
|
|
5.58%
|
|
|
|
|
|
2.82%
|
Average
interest-earning banking assets
|
|
£297.3bn
|
|
£84.9bn
|
|
£37.9bn
|
|
|
|
£10.8bn
|
|
£430.9bn
|
Asset
quality ratio
|
|
0.09%
|
|
0.02%
|
|
0.67%
|
|
|
|
|
|
0.12%
|
Return
on risk-weighted assets
|
|
5.83%
|
|
3.11%
|
|
4.36%
|
|
|
|
|
|
4.20%
|
Loans
and advances to customers
2
|
|
£295.8bn
|
|
£95.9bn
|
|
£45.4bn
|
|
|
|
£16.1bn
|
|
£453.2bn
|
Customer
deposits
3
|
|
£269.4bn
|
|
£138.8bn
|
|
£7.1bn
|
|
|
|
£1.3bn
|
|
£416.6bn
|
Half-year to 30 June 2016
|
|
|
|
|
|
|
|
|
|
Run
off and
|
|
|
|
|
|
|
Commercial
|
|
Consumer
|
|
|
|
Central
|
|
|
|
|
Retail
|
|
Banking
|
|
Finance
|
|
Insurance
|
|
items
|
|
Group
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
3,296
|
|
1,306
|
|
994
|
|
(80)
|
|
266
|
|
5,782
|
Other
income
|
|
558
|
|
982
|
|
658
|
|
921
|
|
(26)
|
|
3,093
|
Total
income
|
|
3,854
|
|
2,288
|
|
1,652
|
|
841
|
|
240
|
|
8,875
|
Operating
lease depreciation
|
|
–
|
|
(52)
|
|
(368)
|
|
–
|
|
(8)
|
|
(428)
|
Net
income
|
|
3,854
|
|
2,236
|
|
1,284
|
|
841
|
|
232
|
|
8,447
|
Operating
costs
|
|
(2,144)
|
|
(1,035)
|
|
(466)
|
|
(395)
|
|
(1)
|
|
(4,041)
|
Impairment
|
|
(162)
|
|
35
|
|
(128)
|
|
–
|
|
10
|
|
(245)
|
Underlying
profit
|
|
1,548
|
|
1,236
|
|
690
|
|
446
|
|
241
|
|
4,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
2.23%
|
|
3.18%
|
|
6.27%
|
|
|
|
|
|
2.74%
|
Average
interest-earning banking assets
|
|
£305.0bn
|
|
£88.1bn
|
|
£32.9bn
|
|
|
|
£10.9bn
|
|
£436.9bn
|
Asset
quality ratio
|
|
0.11%
|
|
(0.06)%
|
|
0.79%
|
|
|
|
|
|
0.11%
|
Return
on risk-weighted assets
|
|
5.70%
|
|
2.42%
|
|
4.47%
|
|
|
|
|
|
3.75%
|
Loans
and advances to customers
2
|
|
£300.5bn
|
|
£102.0bn
|
|
£33.7bn
|
|
|
|
£16.8bn
|
|
£453.0bn
|
Customer
deposits
3
|
|
£271.3bn
|
|
£141.4bn
|
|
£9.1bn
|
|
|
|
£1.5bn
|
|
£423.3bn
|
1
|
Includes
MBNA with effect from 1 June 2017.
|
2
|
Excludes
reverse repos of £11.4 billion (30 June 2016:
£nil).
|
3
|
Excludes
repos of £1.0 billion (30 June 2016:
£nil).
|
|
|
UNDERLYING BASIS
–
QUARTERLY INFORMATIO
N
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
|
30 June
|
|
31 Mar
|
|
31 Dec
|
|
30 Sept
|
|
30 June
|
|
|
2017
|
|
2017
|
|
2016
|
|
2016
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
2,997
|
|
2,928
|
|
2,805
|
|
2,848
|
|
2,876
|
Other
income
|
|
1,866
|
|
1,482
|
|
1,545
|
|
1,427
|
|
1,616
|
Total income
|
|
4,863
|
|
4,410
|
|
4,350
|
|
4,275
|
|
4,492
|
Operating
lease depreciation
|
|
(263)
|
|
(232)
|
|
(226)
|
|
(241)
|
|
(235)
|
Net income
|
|
4,600
|
|
4,178
|
|
4,124
|
|
4,034
|
|
4,257
|
Operating
costs
|
|
(2,050)
|
|
(1,968)
|
|
(2,134)
|
|
(1,918)
|
|
(2,054)
|
Impairment
|
|
(141)
|
|
(127)
|
|
(196)
|
|
(204)
|
|
(96)
|
Underlying profit
|
|
2,409
|
|
2,083
|
|
1,794
|
|
1,912
|
|
2,107
|
Market
volatility and asset sales
|
|
124
|
|
12
|
|
46
|
|
265
|
|
331
|
Amortisation
of purchased intangibles
|
|
(15)
|
|
(23)
|
|
(85)
|
|
(87)
|
|
(84)
|
Restructuring
costs
|
|
(164)
|
|
(157)
|
|
(232)
|
|
(83)
|
|
(146)
|
Fair
value unwind and other items
|
|
(74)
|
|
(61)
|
|
(75)
|
|
(46)
|
|
(63)
|
Payment
protection insurance provision
|
|
(700)
|
|
(350)
|
|
–
|
|
(1,000)
|
|
–
|
Other
conduct provisions
|
|
(340)
|
|
(200)
|
|
(475)
|
|
(150)
|
|
(345)
|
Statutory profit before tax
|
|
1,240
|
|
1,304
|
|
973
|
|
811
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
2.83%
|
|
2.80%
|
|
2.68%
|
|
2.69%
|
|
2.74%
|
Average
interest-earning banking assets
|
|
£431.0bn
|
|
£430.9bn
|
|
£434.0bn
|
|
£435.9bn
|
|
£435.6bn
|
Cost:income
ratio
|
|
44.6%
|
|
47.1%
|
|
51.7%
|
|
47.5%
|
|
48.2%
|
Asset
quality ratio
|
|
0.13%
|
|
0.12%
|
|
0.17%
|
|
0.18%
|
|
0.09%
|
DIVISIONAL RESULTS
RETAIL
Retail
offers a broad range of financial service products, including
current accounts, savings and mortgages, to UK personal customers,
including Wealth and small business customers. It is also a
distributor of insurance, and a range of long-term savings and
investment products. Its aim is to be the best bank for customers
in the UK, by building deep and enduring relationships that deliver
value to customers, as well as providing them with greater choice
and flexibility. It will maintain its multi-brand, multi-channel
strategy, continue to simplify the business and provide more
transparent products, helping to improve service levels and reduce
conduct risks.
Progress against strategic initiatives
Creating the best customer experience
●
Announced a new
approach to overdrafts that is simple, clear and puts customers in
control.
●
Largest UK digital
bank with nearly 13 million active online users including over 8.5
million mobile users.
●
For the third year
running, Lloyds Bank’s mobile banking app has been
independently ranked number one in the UK for
functionality.
●
Implemented click
to call technology enabling customers to contact the call centre
from the Group’s Mobile App without the need for additional
ID verification for the majority of transactions.
●
36 per cent
increase in customers receiving their mortgage offer in less than
14 days, with some offers completed in two working
days.
●
Around 90 per
cent of new branch savings accounts opened in less than 30 minutes
using new digital process, with appointment times
halved.
●
Retail complaint
volumes (excluding PPI) were down 24 per cent in the year to
date versus the same period in 2016.
Becoming simpler and more efficient
●
Continued
investment in new distribution technology; iPads introduced in more
than 1,800 branches and used for over 5 million transactions
since going live.
●
Maintained the
UK’s largest branch network with a 21 per cent market share,
despite a small number of branch closures.
●
Improving
accessibility in rural areas by increasing the number of mobile
branches to 20, with further increases planned in the second half
of the year.
Delivering sustainable growth
●
Continued the
Group’s commitment to support first-time buyers, with more
than £5 billion lent so far in 2017, on track to meet the
target of £10 billion in the year.
●
On track to exceed
the Group’s commitment on start-up businesses with over
63,000 supported in 2017 to date.
Financial performance
●
Underlying profit
increased 3 per cent to £1,598 million with improved net
interest margin and further cost reductions more than offsetting
continued pressure on sources of other income.
●
Net interest income
increased 1 per cent reflecting a 6 basis point improvement in net
interest margin partly offset by a reduction in interest-earning
banking assets.
●
Other income was 15
per cent lower than the first half of 2016, driven by changing
customer needs.
●
Operating costs
decreased 3 per cent to £2,077 million, driven by further
efficiency savings which have more than covered increased
investment in the business.
●
Impairment charge
decreased 14 per cent to £139 million, benefiting from higher
unsecured debt sales and a benign credit environment. Underlying
credit quality remains stable.
●
Loans and advances
to customers fell 1 per cent to £295.8 billion. Open book
mortgage balances at 30 June were broadly stable compared to the
end of 2016 after reflecting the reacquisition of
£1.7 billion of mortgages from TSB in the second
quarter.
●
Customer deposits
decreased 1 per cent to £269.4 billion, driven by the
continued reduction in tactical balances.
●
Risk-weighted
assets have remained broadly flat at £55.3
billion.
Performance summary
|
|
Half-year
|
|
Half-year
|
|
|
|
Half-year
|
|
|
|
|
to 30 June
|
|
to 30 June
|
|
|
|
to 31
Dec
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
2016
|
|
Change
|
|
|
£m
|
|
£m
|
|
%
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
3,337
|
|
3,296
|
|
1
|
|
3,201
|
|
4
|
Other
income
|
|
477
|
|
558
|
|
(15)
|
|
495
|
|
(4)
|
Total income
|
|
3,814
|
|
3,854
|
|
(1)
|
|
3,696
|
|
3
|
Operating
lease depreciation
|
|
–
|
|
–
|
|
|
|
–
|
|
|
Net income
|
|
3,814
|
|
3,854
|
|
(1)
|
|
3,696
|
|
3
|
Operating
costs
|
|
(2,077)
|
|
(2,144)
|
|
3
|
|
(2,030)
|
|
(2)
|
Impairment
|
|
(139)
|
|
(162)
|
|
14
|
|
(211)
|
|
34
|
Underlying profit
|
|
1,598
|
|
1,548
|
|
3
|
|
1,455
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
2.29%
|
|
2.23%
|
|
6bp
|
|
2.16%
|
|
13bp
|
Average
interest-earning banking assets
|
|
£297.3bn
|
|
£305.0bn
|
|
(3)
|
|
£300.4bn
|
|
(1)
|
Asset
quality ratio
|
|
0.09%
|
|
0.11%
|
|
(2)bp
|
|
0.14%
|
|
(5)bp
|
Impaired
loans as % of closing advances
|
|
1.5%
|
|
1.4%
|
|
0.1pp
|
|
1.5%
|
|
–
|
Return
on risk-weighted assets
|
|
5.83%
|
|
5.70%
|
|
13bp
|
|
5.21%
|
|
62bp
|
|
|
At 30 June
|
|
At 31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
Loans
and advances excluding closed portfolios
|
|
270.6
|
|
271.0
|
|
–
|
Closed
portfolios
|
|
25.2
|
|
26.7
|
|
(6)
|
Loans
and advances to customers
|
|
295.8
|
|
297.7
|
|
(1)
|
|
|
|
|
|
|
|
Relationship
balances
|
|
254.9
|
|
253.8
|
|
|
Tactical
balances
|
|
14.5
|
|
17.2
|
|
(16)
|
Customer
deposits
|
|
269.4
|
|
271.0
|
|
(1)
|
|
|
|
|
|
|
|
Risk-weighted
assets
|
|
55.3
|
|
55.2
|
|
−
|
COMMERCIAL
BANKING
Commercial
Banking has a client-led, low risk, capital efficient strategy,
helping UK-based clients and international clients with a link to
the UK. Through its four client facing divisions – SME, Mid
Markets, Global Corporates and Financial Institutions – it
provides clients with a range of products and services such as
lending, transactional banking, working capital management, risk
management, debt capital markets services, as well as access to
private equity through Lloyds Development Capital.
Progress against strategic initiatives
Commercial
Banking continues to meet its strategic objective of improving
returns on risk-weighted assets. In the first half of 2017,
Commercial Banking has delivered a return of 3.11 per cent
significantly outperforming the commitment of 2.40 per cent for
2017.
Creating the best customer experience
●
Awarded Business
Bank of the Year at the FDs’ Excellence Awards for the 13th
consecutive year.
●
Helping Britain
prosper globally through its newly launched International Trade
Portal which provides clients with access to 110,000 importers,
30,000 suppliers, 25,000 market reports, 20,000 trade shows and
live tenders.
Becoming simpler and more efficient
●
Continue to improve
the end-to-end journey for clients by significantly improving the
way SMEs open an account with approximately 50 per cent of SME
account openings in 2017 using the new digital signature
tool.
●
Increased digital
capability; clients can now simply and quickly place, review and
renew their online deposits 24 hours a day which has improved
client experiences.
Delivering sustainable growth
●
Participated in
over £3.6 billion of financing in the first half of 2017 to
support UK government infrastructure projects.
●
On track to exceed
the annual £1 billion Helping Britain Prosper funding
commitment for manufacturing businesses in each year since the
commitment was made in 2014. The cumulative target of £4
billion over four years has been met in the first half of the year,
six months ahead of schedule.
Financial performance
●
Underlying profit
increased 16 per cent to £1,437 million.
●
Return on
risk-weighted assets increased to 3.11 per cent, up 69 basis
points, demonstrating the continued progress in delivering
sustainable returns.
●
Income growth of 10
per cent to £2,525 million with strong growth in Mid Markets
and Global Corporates.
●
Net interest income
up 9 per cent to £1,425 million, supported by disciplined
deposit pricing and expanded asset margins due to reduced funding
costs. Net interest margin improved by 27 basis
points.
●
Other income up 12
per cent led by good franchise growth including support given to
Mid Market and Global Corporate clients with a number of
significant refinancing and hedging transactions. Growth in LDC
driven by successful equity exits.
●
Operating lease
depreciation reduced due to accelerated charges in the prior year
on certain leasing assets.
●
Operating costs up
2 per cent due to continued investment in the business including
simplifying the end-to-end customer journey. Disciplined management
of staff-related costs has supported positive operating jaws of 10
per cent.
●
Impairment charge
of £13 million reflects effective credit risk management and
the continued low interest rate environment. Asset quality ratio
remains low at 0.02 per cent.
●
Loans and advances
fell 4 per cent to £95.9 billion mainly due to reductions in
Global Corporates. Lending growth in SME has remained at above
market growth levels.
●
Deposits increased
by 5 per cent to £138.8 billion. Strong momentum in attracting
high quality transactional banking deposits across the franchise
that continues to support the balance sheet strength of the
Group.
●
Continued active
portfolio management with risk-weighted assets decreasing £5.2
billion, driven primarily by the reduction in loans and
advances.
Performance summary
|
|
Half-year
|
|
Half-year
|
|
|
|
Half-year
|
|
|
|
|
to 30 June
|
|
to 30 June
|
|
|
|
to
31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
2016
|
|
Change
|
|
|
£m
|
|
£m
|
|
%
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
1,425
|
|
1,306
|
|
9
|
|
1,429
|
|
–
|
Other
income
|
|
1,100
|
|
982
|
|
12
|
|
1,005
|
|
9
|
Total income
|
|
2,525
|
|
2,288
|
|
10
|
|
2,434
|
|
4
|
Operating
lease depreciation
|
|
(18)
|
|
(52)
|
|
65
|
|
(53)
|
|
66
|
Net income
|
|
2,507
|
|
2,236
|
|
12
|
|
2,381
|
|
5
|
Operating
costs
|
|
(1,057)
|
|
(1,035)
|
|
(2)
|
|
(1,098)
|
|
4
|
Impairment
(charge) release
|
|
(13)
|
|
35
|
|
|
|
(51)
|
|
75
|
Underlying profit
|
|
1,437
|
|
1,236
|
|
16
|
|
1,232
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
3.45%
|
|
3.18%
|
|
27bp
|
|
3.33%
|
|
12bp
|
Average
interest-earning banking assets
|
|
£84.9bn
|
|
£88.1bn
|
|
(4)
|
|
£89.0bn
|
|
(5)
|
Asset
quality ratio
|
|
0.02%
|
|
(0.06)%
|
|
8bp
|
|
0.10%
|
|
(8)bp
|
Impaired
loans as % of closing advances
|
|
2.0%
|
|
2.3%
|
|
(0.3)pp
|
|
2.2%
|
|
(0.2)pp
|
Return
on risk-weighted assets
|
|
3.11%
|
|
2.42%
|
|
69bp
|
|
2.46%
|
|
65bp
|
|
|
At 30 June
|
|
At 31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
Loans
and advances to customers
|
|
95.9
|
|
100.4
|
|
(4)
|
Customer
deposits
|
|
138.8
|
|
132.6
|
|
5
|
Risk-weighted
assets
|
|
90.8
|
|
96.0
|
|
(5)
|
CONSUMER FINANCE
Consumer
Finance comprises the Group’s consumer lending products,
including motor finance, credit cards (including MBNA), unsecured
personal loans and its European consumer business. Its aim is to
deliver sustainable growth, within a prudent risk appetite in these
markets through its multi-brand, multi-channel distribution
model.
Progress against strategic initiatives
The
division continues to make significant progress against its
strategic objectives, and in June, successfully completed the
acquisition of the MBNA credit card business from Bank of America.
The acquisition consolidates the Group’s position as
Britain’s largest credit card issuer. Customer assets have
grown by £11 billion since the start of the year, primarily
driven by £7.9 billion related to MBNA and continued organic
growth.
Creating the best customer experience
●
Consumer Cards
customer complaints reduced 25 per cent year-on-year, despite
continued portfolio growth, as customer concerns are addressed and
fixed.
●
Black Horse
completed the first phase of its new digital platform. This enables
dealers to clearly present information to customers and submit
applications via a tablet.
●
Lex Autolease
launched a new website for both business and personal customers,
improving access from mobile devices.
●
Loans introduced
upfront eligibility checking for existing current account
customers, and extended the Halifax offer beyond existing
customers.
Becoming simpler and more efficient
●
Black Horse has
simplified the process for new customers through the introduction
of welcome videos and the issuance of contract information
digitally.
●
Lex Autolease has
re-platformed its IT infrastructure, improving IT resilience and
doubling performance speed.
●
Bank of Scotland
Germany has replaced its IT system with a modular digital platform
that will result in an IT cost reduction of c.30 per cent over a
five year period.
Delivering sustainable growth
●
Consumer Finance
continues to closely monitor the economic environment to maintain
performance within its prudent risk appetite.
●
Continue to tighten
lending criteria with increased conservatism in residual risk
management.
●
Lex Autolease has
achieved its five year ambition to grow the fleet by 100,000
vehicles, cementing its position as the UK’s leading motor
vehicle leasing company.
Financial performance
●
Underlying profit
at £759 million was up 10 per cent (6 per cent excluding
MBNA), mainly driven by higher income and lower impairments. Return
on risk-weighted assets remained strong at 4.36 per
cent.
●
Net interest income
at £1,041 million was up 5 per cent from strong asset
growth.
●
Other income was up
15 per cent at £755 million, with continued fleet growth in
Lex Autolease. This increase was partly offset by growth in
associated operating lease depreciation.
●
Operating costs
fell by 1 per cent to £463 million through continued
underlying efficiency savings.
●
Impairment charge
down 2 per cent at £125 million due to debt sales more than
offsetting portfolio growth. Underlying asset quality ratio was
broadly flat at 1.30 per cent.
●
UK customer assets
were up 30 per cent since December 2016, reflecting the acquisition
of MBNA and continued growth in Black Horse, in particular through
the partnership with Jaguar Land Rover.
●
Customer deposits
were down 10 per cent since December 2016 to £7.1 billion, in
line with the Group’s deposit strategy.
Performance summary
|
|
Half-year
|
|
Half-year
|
|
|
|
Half-year
|
|
|
|
|
to 30 June
|
|
to 30 June
|
|
|
|
to
31 Dec
|
|
|
|
|
2017
1
|
|
2016
|
|
Change
|
|
2016
|
|
Change
|
|
|
£m
|
|
£m
|
|
%
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
1,041
|
|
994
|
|
5
|
|
947
|
|
10
|
Other
income
|
|
755
|
|
658
|
|
15
|
|
680
|
|
11
|
Total income
|
|
1,796
|
|
1,652
|
|
9
|
|
1,627
|
|
10
|
Operating
lease depreciation
|
|
(449)
|
|
(368)
|
|
(22)
|
|
(407)
|
|
(10)
|
Net income
|
|
1,347
|
|
1,284
|
|
5
|
|
1,220
|
|
10
|
Operating
costs
|
|
(463)
|
|
(466)
|
|
1
|
|
(473)
|
|
2
|
Impairment
|
|
(125)
|
|
(128)
|
|
2
|
|
(154)
|
|
19
|
Underlying profit
|
|
759
|
|
690
|
|
10
|
|
593
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
5.58%
|
|
6.27%
|
|
(69)bp
|
|
5.52%
|
|
6bp
|
Average
interest-earning banking assets
|
|
£37.9bn
|
|
£32.9bn
|
|
15
|
|
£34.9bn
|
|
9
|
Asset
quality ratio
|
|
0.67%
|
|
0.79%
|
|
(12)bp
|
|
0.88%
|
|
(21)bp
|
Impaired
loans as % of closing advances
|
|
1.8%
|
|
2.3%
|
|
(0.5)pp
|
|
2.1%
|
|
(0.3)pp
|
Return
on risk-weighted assets
|
|
4.36%
|
|
4.47%
|
|
(11)bp
|
|
3.73%
|
|
63bp
|
1
|
Includes
MBNA with effect from 1 June 2017 (total income
£63 million; operating costs £21 million;
impairment £14 million).
|
|
|
At 30 June
|
|
At 31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
Loans
and advances to customers
|
|
45.4
|
|
35.1
|
|
29
|
Operating
lease assets
|
|
4.6
|
|
4.1
|
|
12
|
Total customer assets
|
|
50.0
|
|
39.2
|
|
28
|
Of which UK
|
|
42.7
|
|
32.8
|
|
30
|
|
|
|
|
|
|
|
Customer
deposits
|
|
7.1
|
|
7.9
|
|
(10)
|
|
|
|
|
|
|
|
Risk-weighted
assets
|
|
40.0
|
|
32.1
|
|
25
|
INSURANCE
The
Insurance division is committed to providing a range of trusted,
value for money protection, general insurance, pension and
investment products to meet the needs of its customers. Scottish
Widows, with customer funds under management of
£124 billion, together with the general insurance
business help around 9 million customers to protect what they value
most and to plan financially for the future.
Progress against strategic initiatives
The
Group continues to invest in developing the Insurance business and
seeks to grow in areas where it has competitive advantage and is
underrepresented, for the benefit of both customers and
shareholders.
Creating the best customer experience
●
Awarded
‘Pension Firm of the Year’ (FDs’ Excellence
Awards), ‘Pensions Provider of the Year’ (Pensions Age
Awards) and ‘Risk Reduction Provider of the Year’ (UK
Pensions Awards).
●
Helped almost
10,000 protection customers at the most difficult and challenging
times of their lives. An improved customer claim journey means that
the percentage of new protection claims paid is one of the highest
in the industry.
Becoming simpler and more efficient
●
More than 40 per
cent of corporate pension schemes are now using the digital service
for employers, which has significantly reduced processing
times.
●
Launched a digital
service for employees with workplace pensions enabling individuals
to view their pension value and contribution history, update
personal details and access educational material on pension
basics.
Delivering sustainable growth
●
Collaborated with
Commercial Banking to source lower risk, long-maturity assets to
match growing annuitant liabilities, providing finance to support
two major UK infrastructure projects.
●
Annualised payments
to annuity customers in retirement have reached £1 billion,
reflecting robust growth in this business.
●
Sums assured under
Scottish Widows Protect have almost doubled to £4.7 billion
since the end of 2016.
●
Continuing the
progress made in 2016, five further bulk annuity transactions were
successfully completed in the first half of 2017.
●
Corporate pension,
planning and retirement funds under management increased by
8 per cent to £38 billion reflecting net inflows and
positive market movements.
●
Longstanding life,
pensions and investment (LP&I) funds under management remains
stable.
Financial performance
●
Underlying profit
decreased by 9 per cent to £408 million as a result of
lower bulk annuity transactions and increased investment costs in
the first half of 2017. Compared to the second half of 2016,
underlying profit grew by 4 per cent.
●
Life and pensions
sales increased by 4 per cent reflecting growth in corporate
pensions, planning and retirement and protection. Excluding bulk
annuity deals, sales increased by 25 per cent.
●
General insurance
underwritten new business household premiums have increased by 3
per cent, driven by the new flexible online offering launched in
2016.
However, total
underwritten premiums have decreased by 13 per cent, reflecting the
continued competitiveness of the household market and the run off
of legacy products.
●
Costs increased to
£414 million reflecting higher investment expenditure with
business as usual costs remaining broadly flat.
Capital
●
Paid an interim
dividend of £75 million to the Group in July 2017, bringing
total dividends paid since the formation of the Group in 2009, to
£7.2 billion.
●
The estimated post
interim dividend Solvency II ratio of 152 per cent (31 December
2016 post dividend position: 147 per cent) represents the
shareholder view of Solvency II surplus. The increase in the ratio
primarily reflects in year earnings and favourable market
volatility, partly offset by capital invested in new
business.
Performance summary
|
|
Half-year
|
|
Half-year
|
|
|
|
Half-year
|
|
|
|
|
to 30 June
|
|
to 30 June
|
|
|
|
to
31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
2016
|
|
Change
|
|
|
£m
|
|
£m
|
|
%
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
(50)
|
|
(80)
|
|
38
|
|
(66)
|
|
24
|
Other
income
|
|
872
|
|
921
|
|
(5)
|
|
834
|
|
5
|
Total income
|
|
822
|
|
841
|
|
(2)
|
|
768
|
|
7
|
Operating
costs
|
|
(414)
|
|
(395)
|
|
(5)
|
|
(377)
|
|
(10)
|
Underlying profit
|
|
408
|
|
446
|
|
(9)
|
|
391
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
Life
and pensions sales (PVNBP)
1
|
|
4,984
|
|
4,791
|
|
4
|
|
4,128
|
|
21
|
New
business income
|
|
153
|
|
222
|
|
(31)
|
|
159
|
|
(4)
|
General
insurance underwritten new GWP
2
|
|
38
|
|
37
|
|
3
|
|
38
|
|
–
|
General
insurance underwritten total GWP
2
|
|
370
|
|
424
|
|
(13)
|
|
409
|
|
(10)
|
General
insurance combined ratio
|
|
88%
|
|
89%
|
|
(1)pp
|
|
85%
|
|
3pp
|
Solvency
II ratio
3
|
|
152%
|
|
144%
|
|
8pp
|
|
147%
|
|
5pp
|
1
|
Present value of new business premiums.
|
2
|
Gross
written premiums.
|
3
|
On a post dividend shareholder basis. The equivalent regulatory
view of the ratio (including With Profits funds)
is
147 per cent
at 30 June 2017
(31 December 2016: 1
4
3 per
cent).
|
Income by product group
|
|
Half-year to 30 June 2017
|
|
Half-year to 30 June 2016
|
|
|
|
|
New
|
|
Existing
|
|
|
|
New
|
|
Existing
|
|
|
|
Half-year
|
|
|
business
|
|
business
|
|
Total
|
|
business
|
|
business
|
|
Total
|
|
to 31 Dec
|
|
|
income
|
|
income
|
|
income
|
|
income
|
|
income
|
|
income
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
pensions
|
|
50
|
|
48
|
|
98
|
|
69
|
|
52
|
|
121
|
|
106
|
Bulk
annuities
|
|
40
|
|
13
|
|
53
|
|
84
|
|
6
|
|
90
|
|
47
|
Planning
and retirement
|
|
46
|
|
45
|
|
91
|
|
58
|
|
47
|
|
105
|
|
99
|
Protection
|
|
10
|
|
10
|
|
20
|
|
8
|
|
9
|
|
17
|
|
19
|
Longstanding
LP&I
|
|
7
|
|
220
|
|
227
|
|
3
|
|
223
|
|
226
|
|
223
|
|
|
153
|
|
336
|
|
489
|
|
222
|
|
337
|
|
559
|
|
494
|
Life
and pensions experience and other items
|
|
|
|
|
|
191
|
|
|
|
|
|
124
|
|
99
|
General
insurance
|
|
|
|
|
|
157
|
|
|
|
|
|
168
|
|
186
|
NII and
free asset return
|
|
|
|
|
|
(15)
|
|
|
|
|
|
(10)
|
|
(11)
|
Total income
|
|
|
|
|
|
822
|
|
|
|
|
|
841
|
|
768
|
Presentation of
2016 income by product group restated to be aligned with 2017
proposition groupings.
|
New
business income has decreased by £69 million to £153
million, driven by the timing of bulk annuity transactions and
lower income from corporate pensions and planning and retirement.
Existing business income is broadly flat. Compared to the second
half of 2016, new business income is stable.
Experience
and other items contributed a net benefit of £191 million
(2016: £124 million). This included £170 million from the
addition of a new death benefit to certain legacy pension
contracts, aligning terms with other similar products. An
equivalent benefit of £184 million in the first half of 2016
was partly offset by the impact of reforms on activity within the
corporate pensions market.
General
insurance income net of claims has decreased by £11 million
reflecting the continued competitiveness of the Home market and the
run off of legacy products.
RUN-OFF AND CENTRAL ITEMS
RUN-OFF
|
|
Half-year
|
|
Half-year
|
|
|
|
Half-year
|
|
|
|
|
to 30 June
|
|
to 30 June
|
|
|
|
to
31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
2016
|
|
Change
|
|
|
£m
|
|
£m
|
|
%
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
(48)
|
|
(59)
|
|
19
|
|
(51)
|
|
6
|
Other
income
|
|
45
|
|
78
|
|
(42)
|
|
42
|
|
7
|
Total income
|
|
(3)
|
|
19
|
|
|
|
(9)
|
|
67
|
Operating
lease depreciation
|
|
(28)
|
|
(8)
|
|
|
|
(7)
|
|
|
Net income
|
|
(31)
|
|
11
|
|
|
|
(16)
|
|
(94)
|
Operating
costs
|
|
(23)
|
|
(38)
|
|
39
|
|
(39)
|
|
41
|
Impairment
release
|
|
14
|
|
10
|
|
40
|
|
16
|
|
(13)
|
Underlying loss
|
|
(40)
|
|
(17)
|
|
|
|
(39)
|
|
(3)
|
|
|
|
|
|
|
|
|
|
At 30 June
|
|
At 31 Dec
|
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers
|
|
9.1
|
|
9.6
|
|
(5)
|
|
Total
assets
|
|
10.7
|
|
11.3
|
|
(5)
|
|
Risk-weighted
assets
|
|
8.1
|
|
8.5
|
|
(5)
|
|
●
The underlying loss
increased to £40 million largely as a result of additional
depreciation charges on certain leasing assets.
●
Total run-off
assets have reduced by a further 5 per cent since 31 December
2016.
CENTRAL ITEMS
|
|
|
|
|
|
|
|
|
Half-year
|
|
Half-year
|
|
Half-year
|
|
|
|
to 30 June
|
|
to 30 June
|
|
to 31 Dec
|
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
Total
income
|
|
319
|
|
221
|
|
109
|
|
Costs
|
|
16
|
|
37
|
|
(35)
|
|
Impairment
charge
|
|
(5)
|
|
–
|
|
–
|
|
Underlying profit
|
|
330
|
|
258
|
|
74
|
|
●
Central items
includes income and expenditure not attributed to divisions,
including the costs of certain central and head office
functions.
●
Total income
included the gain on sale of the Group’s interest in VocaLink
of £146 million together with gains on sales of liquid
assets and other items.
ADDITIONAL INFORMATION
1.
Reconciliation
between statutory and underlying basis results
The
tables below set out the reconciliation from the statutory results
to the underlying basis results, the principles of which are set
out on the inside front cover.
|
|
|
|
Removal of:
|
|
|
|
|
Lloyds
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
|
|
Volatility
|
|
|
|
|
|
Other
|
|
|
|
|
Group
|
|
and other
|
|
Insurance
|
|
|
|
conduct
|
|
Underlying
|
|
|
statutory
|
|
items
1,4
|
|
gross up
2
|
|
PPI
|
|
provisions
|
|
basis
|
Half-year to 30 June 2017
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
5,202
|
|
115
|
|
608
|
|
–
|
|
–
|
|
5,925
|
Other
income, net of insurance claims
|
|
4,097
|
|
(89)
|
|
(660)
|
|
–
|
|
–
|
|
3,348
|
Total income
|
|
9,299
|
|
26
|
|
(52)
|
|
–
|
|
–
|
|
9,273
|
Operating
lease depreciation
|
|
|
|
(495)
|
|
–
|
|
–
|
|
–
|
|
(495)
|
Net income
|
|
9,299
|
|
(469)
|
|
(52)
|
|
–
|
|
–
|
|
8,778
|
Operating
expenses
3
|
|
(6,552)
|
|
892
|
|
52
|
|
1,050
|
|
540
|
|
(4,018)
|
Impairment
|
|
(203)
|
|
(65)
|
|
–
|
|
–
|
|
–
|
|
(268)
|
Profit before tax
|
|
2,544
|
|
358
|
|
–
|
|
1,050
|
|
540
|
|
4,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Half-year
to 30 June 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
5,225
|
|
134
|
|
423
|
|
–
|
|
–
|
|
5,782
|
Other
income, net of insurance claims
|
|
3,095
|
|
502
|
|
(519)
|
|
–
|
|
15
|
|
3,093
|
Total
income
|
|
8,320
|
|
636
|
|
(96)
|
|
–
|
|
15
|
|
8,875
|
Operating
lease depreciation
|
|
|
|
(428)
|
|
–
|
|
–
|
|
–
|
|
(428)
|
Net
income
|
|
8,320
|
|
208
|
|
(96)
|
|
–
|
|
15
|
|
8,447
|
Operating
expenses
3
|
|
(5,504)
|
|
922
|
|
96
|
|
–
|
|
445
|
|
(4,041)
|
Impairment
|
|
(362)
|
|
117
|
|
–
|
|
–
|
|
–
|
|
(245)
|
Profit
before tax
|
|
2,454
|
|
1,247
|
|
–
|
|
–
|
|
460
|
|
4,161
|
1
|
Half-year
to 30 June 2017 comprises the effects of asset sales (gains of
£6 million); volatile items (gains of
£145 million); liability management (losses of
£15 million); the amortisation of purchased intangibles
(£38 million); restructuring costs
(£321 million, comprising severance costs relating to the
Simplification programme, the rationalisation of the non-branch
property portfolio, the work on implementing the ring-fencing
requirements and the integration of MBNA); and the fair value
unwind and other items (losses of
£135 million).
|
2
|
The
Group’s insurance businesses’ income statements include
income and expenditure which are attributable to the policyholders
of the Group’s long-term assurance funds. These items have no
impact in total upon the profit attributable to equity shareholders
and, in order to provide a clearer representation of the underlying
trends within the business, these items are shown net within the
underlying results.
|
3
|
The
statutory basis figure is the aggregate of operating costs and
operating lease depreciation.
|
4
|
Half-year
to 30 June 2016 comprises the write-off of the ECN embedded
derivative and premium paid on redemption of the remaining notes
(losses of £790 million); the effects of asset sales
(gains of £335 million); volatile items (losses of
£353 million); liability management (gains of
£146 million); the amortisation of purchased intangibles
(£168 million); restructuring costs
(£307 million, principally comprising the severance
related costs under phase II of the Simplification programme); and
the fair value unwind (losses of
£110 million).
|
2.
Banking
net interest margin
The net
interest margin is calculated by dividing underlying banking net
interest income by average interest-earning banking
assets.
Non-banking
net interest income largely comprises subordinated debt costs
incurred by the Insurance business. Non-banking assets largely
comprise fee based loans and advances within Commercial Banking and
loans sold by Commercial Banking and Retail to Insurance to back
annuitant liabilities.
The
table below shows the reconciliation between statutory net interest
income and underlying banking net interest.
|
|
Half-year
|
|
Half-year
|
|
Half-year
|
|
|
to 30 June
|
|
to 30 June
|
|
to 31 Dec
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
Group net interest income – statutory basis
|
|
5,202
|
|
5,225
|
|
4,049
|
Insurance
gross up
|
|
608
|
|
423
|
|
1,475
|
Volatility
and other items
|
|
115
|
|
134
|
|
129
|
Group net interest income – underlying basis
|
|
5,925
|
|
5,782
|
|
5,653
|
Non-banking
net interest expense
|
|
96
|
|
173
|
|
218
|
Banking net interest income – underlying basis
|
|
6,021
|
|
5,955
|
|
5,871
|
|
|
|
|
|
|
|
Average interest-earning banking assets
|
|
£430.9bn
|
|
£436.9bn
|
|
£434.9bn
|
|
|
|
|
|
|
|
Banking net interest margin
|
|
2.82%
|
|
2.74%
|
|
2.69%
|
The
table below shows a reconciliation between net loans and advances
to customers and average interest-earning banking
assets.
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
|
30 Jun
|
|
31 Mar
|
|
31 Dec
|
|
30 Sept
|
|
30 Jun
|
|
|
2017
|
|
2017
|
|
2016
|
|
2016
|
|
2016
|
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and advances to customers
|
|
453.2
|
|
444.7
|
|
449.7
|
|
451.7
|
|
453.0
|
Impairment
provision and fair value adjustments
|
|
3.3
|
|
3.6
|
|
3.7
|
|
3.8
|
|
4.1
|
Non-banking
items:
|
|
|
|
|
|
|
|
|
|
|
Fee
based loans and advances
|
|
(7.4)
|
|
(8.5)
|
|
(9.4)
|
|
(8.7)
|
|
(9.1)
|
Sale of
assets to Insurance
|
|
(6.8)
|
|
(6.6)
|
|
(6.7)
|
|
(6.2)
|
|
(6.1)
|
Other
non-banking
|
|
(4.2)
|
|
(3.4)
|
|
(5.0)
|
|
(5.5)
|
|
(4.9)
|
Gross banking loans and advances
|
|
438.1
|
|
429.8
|
|
432.3
|
|
435.1
|
|
437.0
|
Averaging
|
|
(7.1)
|
|
1.1
|
|
1.7
|
|
0.8
|
|
(1.4)
|
Average interest-earning banking assets (qtr)
|
|
431.0
|
|
430.9
|
|
434.0
|
|
435.9
|
|
435.6
|
Average
interest-earning banking assets
(year to date)
|
|
430.9
|
|
430.9
|
|
435.9
|
|
436.6
|
|
436.9
|
3.
Volatility
arising in insurance businesses
Volatility
included in the Group’s statutory results before tax
comprises the following:
|
|
Half-year
|
|
Half-year
|
|
Half-year
|
|
|
to 30 June
|
|
to 30 June
|
|
to 31 Dec
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
Insurance
volatility
|
|
74
|
|
(328)
|
|
176
|
Policyholder
interests volatility
|
|
110
|
|
(10)
|
|
251
|
Total
volatility
|
|
184
|
|
(338)
|
|
427
|
Insurance
hedging arrangements
|
|
(19)
|
|
(34)
|
|
(146)
|
Total
|
|
165
|
|
(372)
|
|
281
|
The
Group’s insurance business has policyholder liabilities that
are supported by substantial holdings of investments. IFRS requires
that the changes in both the value of the liabilities and
investments are reflected within the income statement. The value of
the liabilities does not move exactly in line with changes in the
value of the investments. As the investments are substantial,
movements in their value can have a significant impact on the
profitability of the Group. Management believes that it is
appropriate to disclose the division’s results on the basis
of an expected return in addition to results based on the actual
return. The impact of the actual return on these investments
differing from the expected return is included within insurance
volatility.
4.
Number
of employees (full-time equivalent)
|
|
At 30 June
|
|
At 31 Dec
|
|
|
2017
|
|
2016
|
|
|
|
|
|
Retail
|
|
29,109
|
|
29,926
|
Commercial
Banking
|
|
5,567
|
|
5,755
|
Consumer
Finance
1
|
|
5,524
|
|
3,425
|
Insurance
|
|
1,870
|
|
1,939
|
Group
operations and other
|
|
30,824
|
|
30,843
|
|
|
72,894
|
|
71,888
|
Agency
staff, interns and scholars
|
|
(2,639)
|
|
(1,455)
|
Total number of employees
|
|
70,255
|
|
70,433
|
|
|
|
|
|
1
|
Includes
MBNA at 30 June 2017.
|
5.
Tangible
net assets per share
The
table below sets out a reconciliation of the Group’s
shareholders’ equity to its tangible net assets.
|
|
At 30 June
|
|
At 31 Dec
|
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Shareholders’
equity
|
|
42,513
|
|
43,020
|
Goodwill
|
|
(2,299)
|
|
(2,016)
|
Intangible
assets
|
|
(2,536)
|
|
(1,681)
|
Purchased
value of in-force business
|
|
(323)
|
|
(340)
|
Other,
including deferred tax effects
|
|
283
|
|
170
|
Tangible net assets
|
|
37,638
|
|
39,153
|
|
|
|
|
|
Ordinary
shares in issue, excluding Own shares
|
|
71,871m
|
|
71,413m
|
Tangible
net assets per share
|
|
52.4p
|
|
54.8p
|
6.
Return
on tangible equity
The
Group’s return on tangible equity is calculated as
follows:
|
|
Half-year
|
|
Half-year
|
|
Half-year
|
|
|
to 30 June
|
|
to 30 June
|
|
to 31 Dec
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
£bn
|
|
£bn
|
|
£bn
|
Underlying return on tangible equity
|
|
|
|
|
|
|
Average
shareholders’ equity
|
|
43.3
|
|
42.6
|
|
43.1
|
Average
intangible assets
|
|
(4.2)
|
|
(4.0)
|
|
(3.9)
|
Average tangible equity
|
|
39.1
|
|
38.6
|
|
39.2
|
|
|
|
|
|
|
|
Underlying
profit after tax (£m)
|
|
3,301
|
|
3,032
|
|
2,700
|
Add
back amortisation of intangible assets (post tax)
(£m)
|
|
108
|
|
86
|
|
89
|
Less
profit attributable to other equity holders (£m)
|
|
(158)
|
|
(163)
|
|
(158)
|
Less
profit attributable to non-controlling interests
(£m)
|
|
(41)
|
|
(63)
|
|
(38)
|
Adjusted
underlying profit after tax (£m)
|
|
3,210
|
|
2,892
|
|
2,593
|
|
|
|
|
|
|
|
Underlying
return on tangible equity
|
|
16.6%
|
|
15.1%
|
|
13.2%
|
|
|
|
|
|
|
|
Statutory return on tangible equity
|
|
|
|
|
|
|
Group
statutory profit after tax (£m)
|
|
1,639
|
|
1,857
|
|
657
|
Add
back amortisation of intangible assets (post tax)
(£m)
|
|
108
|
|
86
|
|
89
|
Add
back amortisation of purchased intangible assets (post tax)
(£m)
|
|
45
|
|
148
|
|
151
|
Less
profit attributable to other equity holders (£m)
|
|
(158)
|
|
(163)
|
|
(158)
|
Less
profit attributable to non-controlling interests
(£m)
|
|
(41)
|
|
(63)
|
|
(38)
|
Adjusted statutory profit after tax
(£m)
|
|
1,593
|
|
1,865
|
|
701
|
|
|
|
|
|
|
|
Statutory
return on tangible equity
|
|
8.2%
|
|
9.7%
|
|
3.6%
|
RISK MANAGEMENT
PRINCIPAL RISKS AND UNCERTAINTIES
The
significant risks faced by the Group which could impact the success
of delivering against the Group’s long-term strategic
objectives and through which global macro-economic conditions,
ongoing political uncertainty, regulatory developments and market
liquidity dynamics could manifest, are detailed below. Except where
noted, there has been no significant change to the description of
these risks or key mitigating actions disclosed in the
Group’s 2016 Annual Report and Accounts, with any
quantitative disclosures updated herein.
The
Group has already considered many of the potential implications
following the UK’s vote to leave the European Union and
continues to manage related developments to assess, and if possible
mitigate any impact to its customers, colleagues and products
− as well as all legal, regulatory, tax, finance and capital
implications.
Credit risk
– The risk that customers and/or other
counterparties whom the Group has either lent money to or entered
into a financial contract with, or other counterparties with whom
the Group has contracted, fail to meet their financial obligations,
resulting in loss to the Group. Adverse changes in the economic and
market environment the Group operates in or the credit quality
and/or behaviour of the Group’s customers and counterparties
could reduce the value of the Group’s assets and potentially
increase the Group’s write downs and allowances for
impairment losses, adversely impacting profitability.
Conduct risk
– Conduct risk can arise from the failure
to design products and services to ensure they are aligned to
customer needs and to design and execute sales processes to ensure
products and services are offered only to those customers who need
and will benefit from them. Additionally, the failure to provide
ongoing support and service to customers and to recognise and
respond to customer complaints, providing appropriate rectification
in a timely manner. Conduct risk can result from the failure to
ensure that colleagues behave in line with conduct, regulatory and
ethical standards. Additionally, market conduct risks exist where
actions taken can disrupt the fair and effective operation of a
market in which the Group is active.
Market risk
– The risk that the Group’s capital
or earnings profile is affected by adverse market rates, in
particular interest rates and credit spreads in the Banking
business, equity and credit spreads in the Insurance business, and
credit spreads in the Group’s Defined Benefit Pension
Schemes.
Operational risk
– The Group faces significant
operational risks, such as risk of cyber and terrorism, which may
result in financial loss, disruption of services to customers, and
damage to its reputation. These include the availability,
resilience and security of the Group’s core IT systems and
the potential for failings in the Group’s customer
processes.
Capital risk
– The risk that the Group has a
sub-optimal quantity or quality of capital or that capital is
inefficiently deployed across the Group.
Funding and liquidity risk
– The risk that the Group
has insufficient financial resources to meet its commitments as
they fall due, or can only secure them at excessive
cost.
Regulatory and legal risk
– The risks of changing
legislation, regulation (including regulatory changes such as the
Second Payment Services Directive and Open Banking), policies,
voluntary codes of practice and their interpretation in the markets
in which the Group operates can have a significant impact on the
Group’s operations, business prospects, structure, costs
and/or capital requirements and ability to enforce contractual
obligations.
Governance risk
– Against a background of increased
regulatory focus on governance and risk management, the most
significant challenges arise from the requirement to improve the
resolvability of the Group and to ring-fence core UK financial
services and activities from January 2019, and from the further
development of the Senior Managers and Certification
Regime.
People risk
– Key people risks include the risk that
the Group fails to maintain organisational skills, capability,
resilience and capacity levels in response to increasing volumes of
organisational, political and external market change.
Insurance risk
– Key insurance risks within the
Insurance business are longevity, persistency and property
insurance. Longevity risk is expected to increase as the
Group’s presence in the bulk annuity market increases.
Longevity is also the key insurance risk in the Group’s
Defined Benefit Pension Schemes.
CREDIT RISK PORTFOLIO
Overview
?
Asset quality
remains strong with portfolios continuing to benefit from the
Group’s proactive approach to risk management, continued low
interest rates, and a resilient UK economic
environment.
?
Impaired loans as a
percentage of closing loans and advances remained stable at 1.8 per
cent, with impaired loans reducing by £202 million to
£8,293 million during the period, mainly due to a large
disposal in Commercial Banking during the first quarter and further
reductions in Run-off.
?
The impairment
charge increased by £23 million to £268 million in
the first half. The increase was driven by lower provision releases
and write-backs which more than offset a reduction in gross
impairment charges mainly in Commercial Banking.
?
The asset quality
ratio was 12 basis points (half-year to 30 June 2016: 11 basis
points) with the gross asset quality ratio (before releases and
write-backs) falling 3 basis points compared with the same
period in 2016 and remaining stable compared with the first quarter
of 2017.
?
The Group now
expects the asset quality ratio for the year to be less than 20
basis points, including MBNA.
Low risk culture and prudent risk appetite
●
The Group continues
to operate a prudent approach to credit risk, with the portfolios
benefiting from the focus on credit quality at origination and a
prudent through the cycle approach to credit risk appetite. The
Group’s portfolios are well positioned against current
economic concerns and market volatility.
●
The Group’s
credit processes and controls ensure effective risk management,
including early identification and management of customers and
counterparties who may be showing signs of distress.
●
The Group has
delivered lending growth in key segments without relaxing credit
criteria.
●
Sector
concentrations within the lending portfolios are closely monitored
and controlled, with mitigating actions taken where appropriate.
Sector and product caps limit exposure to certain higher risk and
vulnerable sectors and asset classes:
The average indexed
LTV of the Retail UK Secured portfolio at 30 June 2017 was
43.0 per cent (31 December 2016: 44.0 per cent). The
percentage of closing loans and advances with an indexed LTV
greater than 100 per cent was 0.7 per cent (31 December 2016:
0.7 per cent).
Robust indebtedness
and affordability controls continue to ensure new unsecured lending
is sustainable for customers.
Total UK Direct
Real Estate gross lending across the Group was £19.4 billion
at 30 June 2017 (31 December 2016: £19.9 billion) and includes
Core Commercial Banking lending of £18.1 billion, £0.5
billion booked in the Islands Commercial business and £0.2
billion within Retail Business Banking (within Retail
Division).
●
Run-off net
external assets stood at £10,676 million at 30 June 2017, down
from £11,336 million at 31 December 2016. The portfolio
represents only 2.0 per cent of the overall Group’s loans and
advances (31 December 2016: 2.1 per cent).
Impairment charge by division
|
|
Half-year
|
|
Half-year
|
|
|
|
Half-year
|
|
|
to 30 June
|
|
to 30 June
|
|
|
|
to 31 Dec
|
|
|
2017
|
|
2016
|
|
Change
|
|
2016
|
|
|
£m
|
|
£m
|
|
%
|
|
£m
|
Retail:
|
|
|
|
|
|
|
|
|
Secured
|
|
34
|
|
32
|
|
(6)
|
|
72
|
Overdrafts
|
|
94
|
|
120
|
|
22
|
|
121
|
Other
|
|
11
|
|
10
|
|
(10)
|
|
18
|
|
|
139
|
|
162
|
|
14
|
|
211
|
Commercial
Banking:
|
|
|
|
|
|
|
|
|
SME
|
|
1
|
|
(5)
|
|
|
|
(2)
|
Other
|
|
12
|
|
(30)
|
|
|
|
53
|
|
|
13
|
|
(35)
|
|
|
|
51
|
Consumer
Finance:
|
|
|
|
|
|
|
|
|
Credit
Cards
|
|
49
|
|
59
|
|
17
|
|
77
|
Loans
|
|
30
|
|
42
|
|
29
|
|
28
|
UK
Motor Finance
|
|
45
|
|
28
|
|
(61)
|
|
47
|
Europe
|
|
1
|
|
(1)
|
|
|
|
2
|
|
|
125
|
|
128
|
|
2
|
|
154
|
Run-off:
|
|
|
|
|
|
|
|
|
Ireland
retail
|
|
4
|
|
–
|
|
|
|
(1)
|
Corporate real
estate and other corporate
|
|
(7)
|
|
9
|
|
|
|
(8)
|
Specialist
finance
|
|
(7)
|
|
(13)
|
|
(46)
|
|
11
|
Other
|
|
(4)
|
|
(6)
|
|
(33)
|
|
(18)
|
|
|
(14)
|
|
(10)
|
|
40
|
|
(16)
|
Central
items
|
|
5
|
|
–
|
|
|
|
–
|
Total impairment charge
|
|
268
|
|
245
|
|
(9)
|
|
400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
quality ratio
|
|
0.12%
|
|
0.11%
|
|
1bp
|
|
0.18%
|
Gross
asset quality ratio
|
|
0.23%
|
|
0.26%
|
|
(3)bp
|
|
0.29%
|
Total
impairment charge comprises:
|
|
|
|
|
|
|
|
|
|
|
Half-year
|
|
Half-year
|
|
|
|
Half-year
|
|
|
|
to 30 June
|
|
to 30 June
|
|
|
|
to 31 Dec
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
2016
|
|
|
|
£m
|
|
£m
|
|
%
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers
|
|
265
|
|
257
|
|
(3)
|
|
400
|
|
Debt
securities classified as loans and receivables
|
|
(4)
|
|
–
|
|
|
|
–
|
|
Available-for-sale
financial assets
|
|
6
|
|
–
|
|
|
|
–
|
|
Other
credit risk provisions
|
|
1
|
|
(12)
|
|
|
|
–
|
|
Total impairment charge
|
|
268
|
|
245
|
|
(9)
|
|
400
|
|
Group impaired loans and provisions
|
|
|
|
|
|
|
|
|
|
Impairment
|
|
|
|
|
|
|
Impaired
|
|
|
|
provisions
|
|
|
Loans and
|
|
|
|
loans as %
|
|
|
|
as % of
|
|
|
advances to
|
|
Impaired
|
|
of closing
|
|
Impairment
|
|
impaired
|
|
|
customers
|
|
loans
|
|
advances
|
|
provisions
1
|
|
loans
2
|
At 30 June 2017
|
|
£m
|
|
£m
|
|
%
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
292,602
|
|
4,175
|
|
1.4
|
|
1,514
|
|
36.3
|
Overdrafts
|
|
1,964
|
|
168
|
|
8.6
|
|
84
|
|
80.8
|
Other
|
|
3,002
|
|
69
|
|
2.3
|
|
36
|
|
66.7
|
|
|
297,568
|
|
4,412
|
|
1.5
|
|
1,634
|
|
37.7
|
Commercial
Banking:
|
|
|
|
|
|
|
|
|
|
|
SME
|
|
30,387
|
|
898
|
|
3.0
|
|
160
|
|
17.8
|
Other
|
|
66,263
|
|
1,014
|
|
1.5
|
|
581
|
|
57.3
|
|
|
96,650
|
|
1,912
|
|
2.0
|
|
741
|
|
38.8
|
Consumer
Finance:
|
|
|
|
|
|
|
|
|
|
|
Credit
Cards
|
|
17,634
|
|
413
|
|
2.3
|
|
263
|
|
82.7
|
Loans
|
|
7,967
|
|
259
|
|
3.3
|
|
109
|
|
86.5
|
UK
Motor Finance
3
|
|
12,786
|
|
126
|
|
1.0
|
|
139
|
|
110.3
|
Europe
4
|
|
7,198
|
|
43
|
|
0.6
|
|
23
|
|
53.5
|
|
|
45,585
|
|
841
|
|
1.8
|
|
534
|
|
87.1
|
Run-off:
|
|
|
|
|
|
|
|
|
|
|
Ireland
retail
|
|
4,472
|
|
138
|
|
3.1
|
|
127
|
|
92.0
|
Corporate real
estate and other corporate
|
|
1,151
|
|
885
|
|
76.9
|
|
364
|
|
41.1
|
Specialist
finance
|
|
2,958
|
|
24
|
|
0.8
|
|
37
|
|
154.2
|
Other
|
|
1,092
|
|
81
|
|
7.4
|
|
29
|
|
35.8
|
|
|
9,673
|
|
1,128
|
|
11.7
|
|
557
|
|
49.4
|
Reverse
repos and other items
5
|
|
18,424
|
|
|
|
|
|
|
|
|
Total gross lending
|
|
467,900
|
|
8,293
|
|
1.8
|
|
3,466
|
|
43.4
|
Impairment
provisions
|
|
(3,466)
|
|
|
|
|
|
|
|
|
Fair
value adjustments
6
|
|
170
|
|
|
|
|
|
|
|
|
Total Group
|
|
464,604
|
|
|
|
|
|
|
|
|
|
|
1
|
Impairment
provisions include collective unidentified impairment
provisions.
|
2
|
Impairment
provisions as a percentage of impaired loans are calculated
excluding Retail and Consumer Finance loans in recoveries
(£64 million in Retail Overdrafts, £15 million
in Retail Other, £95 million in Consumer Finance Credit
Cards and £133 million in Consumer Finance
Loans).
|
3
|
UK
Motor Finance comprises the UK motor finance portfolios,
principally Black Horse and Lex Autolease.
|
4
|
Europe
comprises Netherlands mortgages and German Consumer Finance
products.
|
5
|
Includes
£6.8 billion of lower risk loans sold by Commercial
Banking and Retail to Insurance to back annuitant
liabilities.
|
6
|
The
Group made adjustments to reflect the HBOS and MBNA loans and
advances at fair value on acquisition. At 30 June 2017, the
remaining fair value adjustment was £170 million comprising a
positive adjustment of £300 million in respect of the MBNA
assets and a negative adjustment of £130 million in respect of
the HBOS assets. The fair value unwind in respect of impairment
losses for the six months ended 30 June 2017 was £42 million
(30 June 2016: £27 million). The fair value unwind in respect
of loans and advances will reduce to zero over time.
|
|
|
|
|
|
|
|
|
|
|
Impairment
|
|
|
|
|
|
|
Impaired
|
|
|
|
provisions
|
|
|
Loans and
|
|
|
|
loans as %
|
|
|
|
as % of
|
|
|
advances to
|
|
Impaired
|
|
of closing
|
|
Impairment
|
|
impaired
|
|
|
customers
|
|
loans
|
|
advances
|
|
provisions
1
|
|
loans
2
|
At 31 December
2016
|
|
£m
|
|
£m
|
|
%
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Retail:
|
|
|
|
|
|
|
|
|
|
|
Secured
|
|
294,503
|
|
4,104
|
|
1.4
|
|
1,503
|
|
36.6
|
Overdrafts
|
|
1,952
|
|
179
|
|
9.2
|
|
90
|
|
82.6
|
Other
|
|
3,038
|
|
71
|
|
2.3
|
|
37
|
|
67.3
|
|
|
299,493
|
|
4,354
|
|
1.5
|
|
1,630
|
|
38.2
|
Commercial
Banking:
|
|
|
|
|
|
|
|
|
|
|
SME
|
|
29,959
|
|
923
|
|
3.1
|
|
173
|
|
18.7
|
Other
|
|
71,217
|
|
1,256
|
|
1.8
|
|
651
|
|
51.8
|
|
|
101,176
|
|
2,179
|
|
2.2
|
|
824
|
|
37.8
|
Consumer
Finance:
|
|
|
|
|
|
|
|
|
|
|
Credit
Cards
|
|
9,843
|
|
307
|
|
3.1
|
|
157
|
|
81.8
|
Loans
|
|
7,767
|
|
277
|
|
3.6
|
|
92
|
|
81.4
|
UK
Motor Finance
|
|
11,555
|
|
120
|
|
1.0
|
|
127
|
|
105.8
|
Europe
|
|
6,329
|
|
41
|
|
0.6
|
|
20
|
|
48.8
|
|
|
35,494
|
|
745
|
|
2.1
|
|
396
|
|
85.0
|
Run-off:
|
|
|
|
|
|
|
|
|
|
|
Ireland
retail
|
|
4,497
|
|
138
|
|
3.1
|
|
133
|
|
96.4
|
Corporate real
estate and other corporate
|
|
1,190
|
|
896
|
|
75.3
|
|
399
|
|
44.5
|
Specialist
finance
|
|
3,374
|
|
99
|
|
2.9
|
|
111
|
|
112.1
|
Other
|
|
1,198
|
|
84
|
|
7.0
|
|
39
|
|
46.4
|
|
|
10,259
|
|
1,217
|
|
11.9
|
|
682
|
|
56.0
|
Reverse
repos and other items
3
|
|
15,249
|
|
|
|
|
|
|
|
|
Total
gross lending
|
|
461,671
|
|
8,495
|
|
1.8
|
|
3,532
|
|
43.4
|
Impairment
provisions
|
|
(3,532)
|
|
|
|
|
|
|
|
|
Fair
value adjustments
|
|
(181)
|
|
|
|
|
|
|
|
|
Total
Group
|
|
457,958
|
|
|
|
|
|
|
|
|
|
|
1
|
Impairment
provisions include collective unidentified impairment
provisions.
|
2
|
Impairment
provisions as a percentage of impaired loans are calculated
excluding Retail and Consumer Finance loans in recoveries
(£70 million in Retail Overdrafts, £16 million
in Retail Other, £115 million in Consumer Finance Credit
Cards and £164 million in Consumer Finance
Loans).
|
3
|
Includes
£6.7 billion of lower risk loans sold by Commercial
Banking and Retail to Insurance to back annuitant
liabilities.
|
Retail
●
Loans
and advances in Retail contracted by 0.6 per cent to £297,568
million (31 December 2016: £299,493 million), driven by the
Secured portfolio.
●
Asset
quality remains strong across all portfolios. New business quality
is stable with fewer loans entering arrears, and remains within
credit risk appetite.
●
Impaired
loans as a percentage of closing advances remained stable at 1.5
per cent.
●
Impairment
provisions as a percentage of impaired loans was broadly stable at
37.7 per cent (31 December 2016: 38.2 per cent).
●
The
impairment charge decreased to £139 million (half-year to 30
June 2016: £162 million), mostly due to debt sale write-backs
in the Overdrafts portfolio.
Secured
●
Loans and advances
reduced by 0.6 per cent on the Secured book to £292,602
million (31 December 2016: £294,503 million), with
reductions in both the Mainstream and Buy-to-let portfolios. The
closed Specialist portfolio has continued to run-off, reducing by
5.3 per cent to £16,662 million (31 December 2016:
£17,593 million).
●
The value of
owner-occupier interest only loans reduced in the first half of
2017 by 4.3 per cent to £69,505 million (31 December
2016: £72,651 million).
●
The value of
mortgages greater than three months in arrears (excluding
repossessions) reduced by 2.2 per cent to
£5,900 million at 30 June 2017 (31 December 2016:
£6,033 million). New business quality remained stable and
flows into arrears improved.
●
Impaired loans as a
percentage of closing advances remained stable at 1.4 per
cent.
●
Impairment
provisions as a percentage of impaired loans remained stable at
36.3 per cent (31 December 2016: 36.6 per cent), reflecting a
continued prudent approach to provisioning.
●
The impairment
charge was £34 million (half-year to 30 June 2016:
£32 million).
●
The average indexed
LTV of the portfolio improved to 43.0 per cent (31 December 2016:
44.0 per cent). The percentage of loans and advances with an
indexed LTV in excess of 100 per cent was unchanged at 0.7 per
cent.
●
The average LTV for
new mortgages written in the first half of 2017 was stable at 64.0
per cent (31 December 2016: 64.4 per cent).
Overdrafts
●
Loans and advances
increased by 0.6 per cent in the first half of 2017 to £1,964
million (31 December 2016: £1,952 million).
●
Impaired loans as a
percentage of closing advances were 8.6 per cent (31 December
2016: 9.2 per cent).
●
Impairment
provisions as a percentage of impaired loans decreased to 80.8 per
cent (31 December 2016: 82.6 per cent).
●
The impairment
charge decreased by 21.7 per cent to £94 million (half-year to
30 June 2016: £120 million), largely due to increased debt
sale write-backs and improved underlying performance.
Retail secured and unsecured loans and advances to
customers
|
|
|
|
|
|
|
At 30 June
|
|
At 31 Dec
|
|
|
|
2017
|
|
2016
|
|
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
Mainstream
|
|
221,832
|
|
222,450
|
|
Buy-to-let
|
|
54,108
|
|
54,460
|
|
Specialist
1
|
|
16,662
|
|
17,593
|
|
Total
secured
|
|
292,602
|
|
294,503
|
|
|
|
|
|
|
|
Overdrafts
|
|
1,964
|
|
1,952
|
|
Wealth
|
|
1,993
|
|
2,034
|
|
Retail
Business Banking
|
|
1,009
|
|
1,004
|
|
|
|
4,966
|
|
4,990
|
|
Total
|
|
297,568
|
|
299,493
|
|
|
|
1
|
Specialist
lending has been closed to new business since 2009.
|
Retail mortgages greater than three months in arrears (excluding
repossessions)
|
|
Number of cases
|
|
Total mortgage accounts %
|
|
Value of loans
1
|
|
Total mortgage balances %
|
|
|
June
|
|
Dec
|
|
June
|
|
Dec
|
|
June
|
|
Dec
|
|
June
|
|
Dec
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
Cases
|
|
Cases
|
|
%
|
|
%
|
|
£m
|
|
£m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainstream
|
|
34,919
|
|
35,254
|
|
1.7
|
|
1.7
|
|
3,809
|
|
3,865
|
|
1.7
|
|
1.7
|
Buy-to-let
|
|
5,106
|
|
5,324
|
|
1.1
|
|
1.1
|
|
633
|
|
660
|
|
1.2
|
|
1.2
|
Specialist
|
|
8,869
|
|
9,078
|
|
7.4
|
|
7.2
|
|
1,458
|
|
1,508
|
|
8.8
|
|
8.6
|
Total
|
|
48,894
|
|
49,656
|
|
1.8
|
|
1.8
|
|
5,900
|
|
6,033
|
|
2.0
|
|
2.0
|
1
|
Value
of loans represents total gross book value of mortgages more than
three months in arrears.
|
The
stock of repossessions decreased to 595 cases at 30 June
2017 compared to 678 cases at
31 December 2016.
Period end and average LTVs across the Retail mortgage
portfolios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainstream
|
|
Buy-to-let
|
|
Specialist
|
|
Total
|
|
Unimpaired
|
|
Impaired
|
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 30 June 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than 60%
|
|
58.8
|
|
56.2
|
|
57.7
|
|
58.3
|
|
58.5
|
|
42.4
|
|
60% to
70%
|
|
17.0
|
|
24.0
|
|
17.4
|
|
18.3
|
|
18.3
|
|
17.8
|
|
70% to
80%
|
|
13.6
|
|
13.1
|
|
12.3
|
|
13.4
|
|
13.4
|
|
14.1
|
|
80% to
90%
|
|
8.1
|
|
4.5
|
|
6.9
|
|
7.4
|
|
7.4
|
|
10.4
|
|
90% to
100%
|
|
2.0
|
|
1.6
|
|
2.5
|
|
1.9
|
|
1.9
|
|
6.0
|
|
Greater
than 100%
|
|
0.5
|
|
0.6
|
|
3.2
|
|
0.7
|
|
0.5
|
|
9.3
|
|
Total
|
|
100.0
|
|
100.0
|
|
100.0
|
|
100.0
|
|
100.0
|
|
100.0
|
|
Outstanding
loan value (£m)
|
|
221,832
|
|
54,108
|
|
16,662
|
|
292,602
|
|
288,427
|
|
4,175
|
|
Average
loan to value:
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
of residential mortgages
|
|
40.9
|
|
52.4
|
|
47.5
|
|
43.0
|
|
|
|
|
|
New
residential lending
|
|
64.7
|
|
60.6
|
|
n/a
|
|
64.0
|
|
|
|
|
|
Impaired
mortgages
|
|
50.7
|
|
69.2
|
|
61.4
|
|
54.9
|
|
|
|
|
|
|
|
Mainstream
|
|
Buy-to-let
|
|
Specialist
|
|
Total
|
|
Unimpaired
|
|
Impaired
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31
December 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than 60%
|
|
56.8
|
|
52.0
|
|
53.8
|
|
55.8
|
|
56.0
|
|
38.3
|
60% to
70%
|
|
17.8
|
|
25.4
|
|
17.8
|
|
19.2
|
|
19.3
|
|
18.4
|
70% to
80%
|
|
14.0
|
|
14.4
|
|
13.6
|
|
14.0
|
|
14.0
|
|
15.3
|
80% to
90%
|
|
8.4
|
|
6.1
|
|
8.6
|
|
8.0
|
|
7.9
|
|
11.9
|
90% to
100%
|
|
2.4
|
|
1.5
|
|
3.1
|
|
2.3
|
|
2.2
|
|
6.8
|
Greater
than 100%
|
|
0.6
|
|
0.6
|
|
3.1
|
|
0.7
|
|
0.6
|
|
9.3
|
Total
|
|
100.0
|
|
100.0
|
|
100.0
|
|
100.0
|
|
100.0
|
|
100.0
|
Outstanding
loan value (£m)
|
|
222,450
|
|
54,460
|
|
17,593
|
|
294,503
|
|
290,399
|
|
4,104
|
Average
loan to value:
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
of residential mortgages
|
|
41.8
|
|
53.7
|
|
49.2
|
|
44.0
|
|
|
|
|
New
residential lending
|
|
65.0
|
|
61.9
|
|
n/a
|
|
64.4
|
|
|
|
|
Impaired
mortgages
|
|
51.8
|
|
69.0
|
|
61.9
|
|
55.8
|
|
|
|
|
1
|
Average
loan to value is calculated as total gross loans and advances as a
percentage of the indexed total collateral of these loans and
advances.
|
Commercial Banking
●
There was a net
impairment charge of £13 million compared to a net release of
£35 million in the first half of 2016, primarily driven by a
lower level of write-backs and provision releases, which more than
offset a reduction in gross charges. The portfolio continues to
benefit from effective risk management, a relatively benign
economic environment and continued low interest rates.
●
Credit quality of
the portfolio and new business remains good.
●
Impaired loans
reduced by 12.3 per cent to £1,912 million compared with
£2,179 million at 31 December 2016 and as a percentage of
loans and advances reduced to 2.0 per cent from 2.2 per cent at
31 December 2016.
●
Impairment
provisions reduced to £741 million (31 December 2016:
£824 million) and included collective unidentified impairment
provisions of £179 million (31 December 2016: £183
million). Provisions as a percentage of impaired loans increased
from 37.8 per cent to 38.8 per cent during the first half of
2017.
●
The UK faces a
number of significant headwinds including the changing UK and
global economic outlook and uncertainty relating to EU exit
negotiations which have the ability to impact the Commercial
Banking portfolios.
●
Commercial Banking
remains disciplined within its low risk appetite approach and
credit risks continue to be effectively managed. It manages and
limits exposure to certain sectors and asset classes, and closely
monitors credit quality, sector and single name
concentrations.
●
Internal and
external key performance indicators continue to be monitored
closely to help identify early signs of any deterioration and
portfolios remain subject to ongoing risk mitigation actions as
appropriate.
●
Despite the
uncertain economic headwinds, the portfolios are well positioned
and the Group’s through the cycle risk appetite approach is
expected to remain unchanged. However, portfolios will not be
immune and impairments are likely to increase from their historic
low levels, driven predominantly by lower levels of releases and
write-backs.
Portfolios
●
The SME Banking
portfolio continues to grow within prudent credit risk appetite
parameters. Portfolio credit quality has remained stable or
improved across all key metrics.
●
The Mid Markets
business remains UK-focused and performance generally reflects the
underlying performance of the UK economy. The first half of 2017
has seen a continuation of relatively benign credit conditions,
underpinned by low interest rates, GDP growth and low unemployment.
Lower Sterling values have benefited exporters of goods and
services while placing pressure on margins in businesses reliant on
imports for domestic consumption. This has not resulted in material
increases in stress across the bulk of the portfolio, with levels
of default and impairment remaining low by historic
standards.
●
The Global
Corporates business continues to have a predominance of investment
grade clients and is performing well, with limited downgrades
occurring in the first half of 2017.
●
The commercial real
estate business within the Group’s Mid Markets and Global
Corporate portfolio is focused on clients operating in the UK
commercial property market ranging in size from medium-sized
private real estate entities up to publicly listed property
companies. Despite political uncertainties and the potential impact
of withdrawal from the EU, the market for UK real estate has
continued to be resilient, with appetite from a range of investors.
UK real estate continues to offer attractive yields compared to
other asset classes and the fall in Sterling has boosted the
attractiveness to foreign investors. Credit quality remains good
with minimal impairments/stressed loans. Recognising this is a
cyclical sector, appropriate caps are in place to control exposure
and business propositions continue to be written in line with a
prudent, through the cycle risk appetite with conservative LTVs,
strong quality of income and proven management teams.
●
Financial
Institutions serves predominantly investment grade counterparties
with whom relationships are either client focused or held to
support the Group’s funding, liquidity or general hedging
requirements. The portfolio continues to be prudently managed
within the Group’s conservative risk appetite and clearly
defined sector strategies.
●
The Group continues
to adopt a conservative stance across the Eurozone maintaining
close portfolio scrutiny and oversight particularly given the
current macro environment and horizon risks.
Consumer Finance
●
Loans and advances
in the Consumer Finance book grew by 28.4 per cent to £45,585
million (31 December 2016: £35,494 million), mostly due to the
acquisition of MBNA.
●
Asset quality
remains strong. The quality of new business continues to be good,
and remains within credit risk appetite.
●
Robust indebtedness
and affordability controls continue to ensure new lending is
sustainable for customers and the credit quality of the portfolio
remains high.
●
Impaired loans grew
by 12.9 per cent to £841 million (31 December 2016: £745
million) largely reflecting the acquisition of MBNA. Impaired loans
as a percentage of closing advances improved to 1.8 per cent (31
December 2016: 2.1 per cent) indicating an improvement in
overall credit quality.
●
Impairment
provisions as a percentage of impaired loans increased to 87.1 per
cent (31 December 2016: 85.0 per cent), due to a one-off
change relating to the alignment of policy across brands in Loans,
and growth in the UK Motor Finance portfolio coupled with prudent
provisioning on residual value exposures.
●
The impairment
charge was £125 million (half-year to 30 June 2016: £128
million) with growth in UK Motor Finance, offset by larger debt
sale benefits in both the Cards and Loans portfolios compared to
the first half of 2016.
Credit Cards
●
Loans and advances
increased by 79.2 per cent to £17,634 million during the first
half of 2017 (31 December 2016: £9,843 million), due to the
acquisition of MBNA.
●
Impaired loans
increased by 34.5 per cent to £413 million (31 December 2016:
£307 million), reflecting the acquisition of MBNA. Impaired
loans as a percentage of closing loans and advances improved to 2.3
per cent (31 December 2016: 3.1 per cent), reflecting the
continued sale of debt in recoveries and the good credit quality of
the portfolio.
●
Impairment
provisions as a percentage of impaired loans remained broadly
stable at 82.7 per cent (31 December 2016: 81.8 per
cent).
●
The impairment
charge decreased to £49 million (half-year to 30 June 2016:
£59 million), driven by larger debt sale benefits in the first
half of 2017 compared to the first half of 2016.
Loans
●
Loans and advances
increased by 2.6 per cent to £7,967 million in the first half
of 2017 (31 December 2016: £7,767 million) and credit
quality remained strong.
●
Impaired loans
decreased by 6.5 per cent to £259 million (31 December 2016:
£277 million), largely due to the sale of debt in recoveries.
Impaired loans as a percentage of closing loans and advances
improved to 3.3 per cent (31 December 2016: 3.6 per
cent).
●
Impairment
provisions as a percentage of impaired loans increased to 86.5 per
cent (31 December 2016: 81.4 per cent), reflecting a one-off change
relating to policy alignment across brands for franchised
customers.
●
The impairment
charge decreased to £30 million (half-year to 30 June 2016:
£42 million), driven by larger debt sale benefits in the first
half of 2017 compared to the first half of 2016.
UK Motor Finance
●
Loans and advances
increased by 10.7 per cent to £12,786 million during the first
half of 2017 (31 December 2016: £11,555 million), with
£583 million (47.4 per cent) of the growth occurring in the
Jaguar Land Rover partnership.
●
Impaired loans
increased by 5.0 per cent to £126 million (31 December 2016:
£120 million) driven by book growth. Impaired loans as a
percentage of closing loans and advances remained stable at 1.0 per
cent.
●
Impairment
provisions as a percentage of impaired loans increased to 110.3 per
cent (31 December 2016: 105.8 per cent), reflecting continued
prudence in provisions against residual value
exposures.
●
The impairment
charge was £45 million (half-year to 30 June 2016:
£28 million), driven by growth and seasoning in the
portfolio.
Forbearance
The
Group operates a number of schemes to assist borrowers who are
experiencing financial stress. Forbearance policies are disclosed
in the Risk Management section of the Group’s 2016 Annual
Report and Accounts, pages 127 to 129.
Retail forbearance
At 30
June 2017, UK Secured loans and advances currently or recently
subject to forbearance improved to 0.6 per cent (31 December 2016:
0.7 per cent) of total UK Secured loans and advances. Overdrafts
loans and advances currently or recently subject to forbearance
were 4.1 per cent (31 December 2016: 4.0 per cent) of total
overdrafts loans and advances.
|
|
|
|
|
|
|
|
Impairment provisions
|
|
|
Total loans and
|
|
Total forborne loans
|
|
as % of loans and
|
|
|
advances which are
|
|
and advances which are
|
|
advances which are
|
|
|
forborne
|
|
impaired
|
|
forborne
|
|
|
At June
|
|
At Dec
|
|
At June
|
|
At Dec
|
|
At June
|
|
At Dec
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK Secured lending:
|
|
|
|
|
|
|
|
|
|
|
|
|
Temporary forbearance arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduced
payment arrangements
1
|
|
299
|
|
428
|
|
82
|
|
101
|
|
5.9
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent treatments
|
|
|
|
|
|
|
|
|
|
|
|
|
Repair
and term extensions
2
|
|
1,342
|
|
1,668
|
|
93
|
|
116
|
|
4.7
|
|
4.7
|
Total
|
|
1,641
|
|
2,096
|
|
175
|
|
217
|
|
4.9
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overdrafts
3
:
|
|
80
|
|
78
|
|
69
|
|
61
|
|
46.0
|
|
38.0
|
1
|
Includes
customers who had an arrangement to pay less than the contractual
amount at 30 June or where an arrangement ended within the previous
three months.
|
2
|
Includes
capitalisation of arrears and term extensions which commenced
during the previous 24 months and where the borrowers remain as
customers at 30 June.
|
3
|
Includes
temporary treatments where the customer is currently benefiting
from change or the treatment has ended within the last six
months.
|
Commercial Banking forbearance
At 30
June 2017, £2,321 million (31 December 2016: £2,645
million) of total loans and advances were forborne of which
£1,912 million (31 December 2016: £2,179 million)
were impaired. Impairment provisions as a percentage of forborne
loans and advances increased from 31.2 per cent at 31 December 2016
to 31.9 per cent at 30 June 2017. Unimpaired forborne loans and
advances were £409 million at 30 June 2017 (31 December 2016:
£466 million).
The
table below sets out the Group’s largest unimpaired forborne
loans and advances to commercial customers (exposures over £5
million) as at 30 June 2017 by type of forbearance:
|
|
30 June
|
|
31 Dec
|
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Type of unimpaired forbearance:
|
|
|
|
|
Exposures
> £5m
1
|
|
|
|
|
Covenants
|
|
122
|
|
153
|
Extensions/alterations
|
|
–
|
|
7
|
Multiple
|
|
11
|
|
21
|
|
|
133
|
|
181
|
Exposures
< £5m
1
|
|
276
|
|
285
|
Total
|
|
409
|
|
466
|
1
|
Material
portfolios only.
|
Consumer Finance forbearance
At 30
June 2017, total loans and advances currently or recently subject
to forbearance as a percentage of total loans and advances had
reduced across the major Consumer Finance portfolios (30 June 2017:
1.3 per cent; 31 December 2016: 1.4 per cent), with decreases in
Consumer Credit Cards (including MBNA) and Loans offset by an
increase in UK Motor Finance.
|
|
Total loans and advances which are forborne
|
|
Total forborne loans and advances which are impaired
|
|
Impairment provisions as % of loans and advances which are
forborne
|
|
|
30 June
|
|
31
Dec
|
|
30 June
|
|
31
Dec
|
|
30 June
|
|
31
Dec
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
Credit Cards
1
|
|
302
|
|
212
|
|
194
|
|
119
|
|
34.7
|
|
29.0
|
Loans
2
|
|
53
|
|
49
|
|
50
|
|
46
|
|
42.8
|
|
44.4
|
UK
Motor Finance Retail
2
|
|
109
|
|
117
|
|
50
|
|
62
|
|
23.2
|
|
27.0
|
1
|
Includes
temporary treatments where the customer is currently benefiting
from the change or the treatment has ended within the last six
months. Permanent changes, such as returning a Card account in
arrears to an in-order status, which commenced during the last 24
months for existing customers as at 30 June are also included. 30
June 2017 balances include MBNA (forborne loans;
£110 million; impaired loans:
£86 million).
|
2
|
Includes
temporary treatments where the customer is currently benefiting
from the change or the treatment has ended within the last six
months. Permanent changes, such as refinancing, for existing
customers as at 30 June are also included.
|
FUNDING AND LIQUIDITY MANAGEMENT
During
the first half of 2017 the Group has maintained its strong funding
and liquidity position, with a loan to deposit ratio of 109 per
cent. The combination of a strong balance sheet and access to a
range of funding markets, including government and central bank
schemes, provides the Group with a broad range of options with
respect to funding the balance sheet.
The
Group ran a small excess liquidity position during the first half
of 2017 in anticipation of the acquisition of MBNA. Following
completion of this acquisition, the excess liquidity position has
reduced, although the Group continues to meet the Liquidity
Coverage Ratio (LCR) requirements, with a ratio in excess of
100 per cent.
Loans
and advances to customers were £453.2 billion compared
with £449.7 billion at 31 December 2016. Growth in lending
balances was primarily driven by the acquisition of MBNA in
addition to continued growth in lending to Consumer Finance and SME
customers. Total customer deposits increased by £3.6 billion
to £416.6 billion at 30 June 2017.
Wholesale
funding has decreased by £8.5 billion to £102.3 billion;
the amount with a residual maturity less than one year fell to
£30.4 billion (£35.1 billion at 31 December 2016). The
Group’s term funding ratio (wholesale funding with a
remaining life of over one year as a percentage of total wholesale
funding) has increased to 70 per cent (31 December 2016:
68 per cent). In the first half of 2017, the Group drew down
£9 billion of funding from the Bank of England’s Term
Funding Scheme (TFS), which has contributed to the lower new
issuance volumes seen in the last six months. As at 30 June
2017 the total amount outstanding under the Funding for Lending
Scheme (FLS) was £30.1 billion and under the TFS was
£13.5 billion.
The
credit ratings and outlook on Lloyds Bank were unchanged during the
first half of 2017, and the median credit rating among the three
major credit rating agencies remains ‘A+’.
Group funding position
|
|
|
|
|
|
|
|
|
At 30 June
|
|
At 31 Dec
|
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
|
|
Funding requirement
|
|
|
|
|
|
|
|
Loans
and advances to customers
1
|
|
453.2
|
|
449.7
|
|
1
|
|
Loans
and advances to banks
2
|
|
6.2
|
|
5.1
|
|
22
|
|
Debt
securities
|
|
3.8
|
|
3.4
|
|
12
|
|
Reverse
repurchase agreements
|
|
0.7
|
|
0.5
|
|
40
|
|
Available-for-sale
financial assets – non-LCR eligible
3
|
|
1.0
|
|
1.9
|
|
(47)
|
|
Cash
and balances at central bank – non-LCR eligible
4
|
|
3.8
|
|
4.8
|
|
(21)
|
|
Funded assets
|
|
468.7
|
|
465.4
|
|
1
|
|
Other
assets
5
|
|
244.5
|
|
249.9
|
|
(2)
|
|
|
|
713.2
|
|
715.3
|
|
–
|
|
On balance sheet LCR eligible liquidity assets
|
|
|
|
|
|
|
|
Reverse
repurchase agreements
|
|
11.5
|
|
8.7
|
|
32
|
|
Cash
and balances at central banks
4
|
|
46.7
|
|
42.7
|
|
9
|
|
Available-for-sale
financial assets
|
|
50.8
|
|
54.6
|
|
(7)
|
|
Trading
and fair value through profit and loss
|
|
(3.2)
|
|
1.8
|
|
|
|
Repurchase
agreements
|
|
(4.1)
|
|
(5.3)
|
|
(23)
|
|
|
|
101.7
|
|
102.5
|
|
(1)
|
|
Total Group assets
|
|
814.9
|
|
817.8
|
|
–
|
|
Less:
other liabilities
5
|
|
(247.7)
|
|
(245.2)
|
|
1
|
|
Funding requirement
|
|
567.2
|
|
572.6
|
|
(1)
|
|
Funded by
|
|
|
|
|
|
|
|
Customer
deposits
6
|
|
416.6
|
|
413.0
|
|
1
|
|
Wholesale
funding
7
|
|
102.3
|
|
110.8
|
|
(8)
|
|
|
|
518.9
|
|
523.8
|
|
(1)
|
|
Total
equity
|
|
48.3
|
|
48.8
|
|
(1)
|
|
Total funding
|
|
567.2
|
|
572.6
|
|
(1)
|
|
1
|
Excludes
reverse repos of £11.4 billion (31 December 2016:
£8.3 billion).
|
2
|
Excludes
£1.9 billion (31 December 2016:
£20.9 billion) of loans and advances to banks within the
Insurance business and £0.8 billion (31 December
2016: £0.9 billion) of reverse repurchase
agreements.
|
3
|
Non-LCR
eligible liquid assets comprise a diversified pool of highly rated
unencumbered collateral (including retained issuance).
|
4
|
Cash
and balances at central banks are combined in the Group’s
balance sheet.
|
5
|
Other
assets and other liabilities primarily include balances in the
Group’s Insurance business and the fair value of derivative
assets and liabilities.
|
6
|
Excludes
repos of £1.0 billion (31 December 2016:
£2.5 billion).
|
7
|
The
Group’s definition of wholesale funding aligns with that used
by other international market participants; including interbank
deposits, debt securities in issue and subordinated
liabilities.
|
Reconciliation of Group funding to the balance sheet
|
|
|
|
Repos
|
|
|
|
|
|
|
|
|
and cash
|
|
Fair value
|
|
|
|
|
Included in
|
|
collateral
|
|
and other
|
|
|
|
|
funding
|
|
received by
|
|
accounting
|
|
Balance
|
|
|
analysis
|
|
Insurance
|
|
methods
|
|
sheet
|
At 30 June 2017
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
|
|
|
|
|
|
|
|
Deposits
from banks
|
|
7.0
|
|
17.5
|
|
0.4
|
|
24.9
|
Debt
securities in issue
|
|
76.7
|
|
–
|
|
(5.1)
|
|
71.6
|
Subordinated
liabilities
|
|
18.6
|
|
–
|
|
–
|
|
18.6
|
Total wholesale funding
|
|
102.3
|
|
17.5
|
|
|
|
|
Customer
deposits
|
|
416.6
|
|
1.0
|
|
–
|
|
417.6
|
Total
|
|
518.9
|
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31
December 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
from banks
|
|
8.1
|
|
8.0
|
|
0.3
|
|
16.4
|
Debt
securities in issue
|
|
83.0
|
|
–
|
|
(6.7)
|
|
76.3
|
Subordinated
liabilities
|
|
19.7
|
|
–
|
|
0.1
|
|
19.8
|
Total
wholesale funding
|
|
110.8
|
|
8.0
|
|
|
|
|
Customer
deposits
|
|
413.0
|
|
2.5
|
|
–
|
|
415.5
|
Total
|
|
523.8
|
|
10.5
|
|
|
|
|
Analysis of 2017 total wholesale funding by residual
maturity
|
|
Less
|
|
|
|
|
|
|
|
Nine
|
|
|
|
|
|
More
|
|
Total
|
|
Total
|
|
|
than
|
|
One to
|
|
Three
|
|
Six to
|
|
months
|
|
One to
|
|
Two to
|
|
than
|
|
at
|
|
at
|
|
|
one
|
|
three
|
|
to six
|
|
nine
|
|
to one
|
|
two
|
|
five
|
|
five
|
|
30 June
|
|
31 Dec
|
|
|
month
|
|
months
|
|
months
|
|
months
|
|
year
|
|
years
|
|
years
|
|
years
|
|
2017
|
|
2016
|
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit
from banks
|
|
6.2
|
|
0.7
|
|
0.1
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
7.0
|
|
8.1
|
Debt
securities in issue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of
deposit
|
|
1.7
|
|
3.4
|
|
2.2
|
|
1.4
|
|
1.3
|
|
–
|
|
–
|
|
–
|
|
10.0
|
|
7.5
|
Commercial
paper
|
|
1.8
|
|
1.6
|
|
0.3
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
3.7
|
|
3.2
|
Medium-term
notes
1
|
|
0.3
|
|
1.0
|
|
0.2
|
|
1.4
|
|
0.6
|
|
3.8
|
|
12.4
|
|
14.5
|
|
34.2
|
|
36.9
|
Covered
bonds
|
|
–
|
|
–
|
|
–
|
|
1.6
|
|
0.7
|
|
2.0
|
|
11.5
|
|
8.8
|
|
24.6
|
|
29.1
|
Securitisation
|
|
0.1
|
|
0.5
|
|
0.8
|
|
0.4
|
|
–
|
|
0.8
|
|
1.3
|
|
0.3
|
|
4.2
|
|
6.3
|
|
|
3.9
|
|
6.5
|
|
3.5
|
|
4.8
|
|
2.6
|
|
6.6
|
|
25.2
|
|
23.6
|
|
76.7
|
|
83.0
|
Subordinated
liabilities
|
|
–
|
|
0.4
|
|
–
|
|
0.2
|
|
1.5
|
|
0.8
|
|
3.5
|
|
12.2
|
|
18.6
|
|
19.7
|
Total wholesale funding
2
|
|
10.1
|
|
7.6
|
|
3.6
|
|
5.0
|
|
4.1
|
|
7.4
|
|
28.7
|
|
35.8
|
|
102.3
|
|
110.8
|
Of
which issued by Lloyds Banking Group plc
3
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
2.8
|
|
7.3
|
|
10.1
|
|
7.4
|
1
|
At 31
December 2016, medium term notes included £1.4 billion of
funding from the National Loan Guarantee Scheme. This matured in
May 2017.
|
2
|
The
Group’s definition of wholesale funding aligns with that used
by other international market participants; including interbank
deposits, debt securities in issue and subordinated
liabilities.
|
3
|
Consists
of medium-term notes (30 June 2017: £5.4 billion, 31 December
2016: £2.5 billion) and subordinated liabilities (30 June
2017: £4.6 billion, 31 December 2016: £4.9 billion).
These amounts excluded AT1 securities (30 June 2017:
£5.4 billion, 31 December 2016:
£5.4 billion).
|
Analysis of 2017 term issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
Sterling
|
|
US Dollar
|
|
Euro
|
|
currencies
|
|
Total
|
|
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitisation
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
Medium-term
notes
|
|
–
|
|
2.2
|
|
0.9
|
|
–
|
|
3.1
|
|
Covered
bonds
|
|
1.0
|
|
–
|
|
–
|
|
–
|
|
1.0
|
|
Private
placements
1
|
|
0.1
|
|
0.2
|
|
0.1
|
|
–
|
|
0.4
|
|
Subordinated
liabilities
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
Total issuance
|
|
1.1
|
|
2.4
|
|
1.0
|
|
–
|
|
4.5
|
|
Of
which issued by Lloyds Banking Group plc
2
|
|
–
|
|
2.2
|
|
0.9
|
|
–
|
|
3.1
|
|
1
|
Private
placements include structured bonds and term repurchase agreements
(repos).
|
2
|
Consists
of medium-term notes.
|
Gross
term issuance for the first half of 2017 totalled £4.5
billion. The Group continues to maintain a diversified approach to
funding markets with trades in public and private format, secured
and unsecured products and a wide range of currencies and markets.
For 2017, the Group will continue to maintain this diversified
approach to funding, including capital and funding from the holding
company, Lloyds Banking Group plc, as needed to transition towards
final UK Minimum Requirements for Own Funds and Eligible
Liabilities (MREL). The maturities for the FLS and TFS are fully
factored into the Group’s funding plan.
Liquidity portfolio
At 30
June 2017, the Banking business had £122.3 billion of highly
liquid unencumbered LCR eligible assets, of which
£121.7 billion is LCR level 1 eligible and £0.6
billion is LCR level 2 eligible. These assets are available to meet
cash and collateral outflows and PRA regulatory requirements. A
separate liquidity portfolio to mitigate any insurance liquidity
risk is managed within the Insurance business. LCR eligible liquid
assets represent over seven times the Group’s money market
funding less than one year maturity (excluding derivative
collateral margins and settlement accounts) and exceed total
wholesale funding, and thus provides a substantial buffer in the
event of continued market dislocation.
|
|
At 30 June
|
|
At 31 Dec
|
|
|
|
Average
|
|
Average
|
|
|
2017
|
|
2016
|
|
Change
|
|
2017
|
|
2016
|
|
|
£bn
|
|
£bn
|
|
%
|
|
£bn
|
|
£bn
|
Level
1
|
|
|
|
|
|
|
|
|
|
|
Cash
and central bank reserves
|
|
46.7
|
|
42.7
|
|
9
|
|
53.1
|
|
53.7
|
High
quality government/MDB/agency bonds
1
|
|
74.1
|
|
75.3
|
|
(2)
|
|
74.7
|
|
72.4
|
High
quality covered bonds
|
|
0.9
|
|
2.3
|
|
(61)
|
|
1.0
|
|
2.4
|
Total
|
|
121.7
|
|
120.3
|
|
1
|
|
128.8
|
|
128.5
|
|
|
|
|
|
|
|
|
|
|
|
Level
2
2
|
|
0.6
|
|
0.5
|
|
20
|
|
0.5
|
|
0.5
|
Total
LCR eligible assets
|
|
122.3
|
|
120.8
|
|
1
|
|
129.3
|
|
129.0
|
1
|
Designated
multilateral development bank (MDB).
|
2
|
Includes
Level 2A and Level 2B.
|
The
Banking business also had £102.1 billion of secondary, non-LCR
eligible liquidity, the vast majority of which is eligible for use
in a range of central bank or similar facilities and the Group
routinely makes use of as part of its normal liquidity management
practices. Future use of such facilities will be based on prudent
liquidity management and economic considerations, having regard for
external market conditions.
The
Group considers diversification across geography, currency, markets
and tenor when assessing appropriate holdings of liquid assets.
This liquidity is managed as a single pool in the centre and is
under the control of the function charged with managing the
liquidity of the Group. It is available for deployment at immediate
notice, subject to complying with regulatory
requirements.
Encumbered assets
The
Board and GALCO monitor and manage total balance sheet encumbrance
using a number of risk appetite metrics. At 30 June 2017, the Group
had £79.1 billion (31 December 2016: £83.5 billion) of
externally encumbered on balance sheet assets with counterparties
other than central banks. The decrease in encumbered assets was
primarily driven by a reduction in balances held within the
Group’s issuance programmes.
The
Group also had £586.5 billion (31 December 2016:
£580.9 billion) of unencumbered on balance sheet assets, and
£149.3 billion (31 December 2016: £153.5 billion) of
pre-positioned and encumbered assets held with central banks. The
Group encumbers mortgages, unsecured lending and credit card
receivables through the issuance programmes and tradable securities
through securities financing activity. The Group mainly positions
mortgage assets at central banks. The 2016 Annual Report and
Accounts includes further details on how the Group classifies
assets for encumbrance purposes.
CAPITAL MANAGEMENT
Analysis of capital position
Excluding
the capital impact of the acquisition of MBNA Limited on 1 June
2017, the Group generated around 1.0 per cent of CET1 capital on a
pro forma basis (pre dividend) during the first half of 2017,
primarily as a result of:
●
Strong underlying
capital generation of 1.4 per cent, largely driven by underlying
profits, offset by a reduction of (0.8) per cent for conduct
charges;
●
Other items,
netting to 0.4 per cent, largely representing a pre MBNA reduction
in risk-weighted assets through active portfolio management,
disposals, capital efficient securitisation activity, yield curve
movements and foreign exchange movements, partly offset by targeted
growth in key customer segments.
In
addition, the Group utilised the CET1 capital retained at 31
December 2016 to cover the acquisition of MBNA.
The
combined effect of the capital generated during the period and the
acquisition of MBNA resulted in a pre dividend increase of around
0.2 per cent in the Group’s CET1 ratio from 13.8 per cent pro
forma at 31 December 2016 to 14.0 per cent on pro forma basis.
After accruing for foreseeable dividends the Group’s CET1
ratio reduced by 0.5 per cent to 13.5 per cent on a pro forma
basis.
The
accrual for foreseeable dividends includes the declared interim
ordinary dividend of 1.0 pence per ordinary share.
The
transitional total capital ratio, after accruing for foreseeable
dividends, reduced by 0.6 per cent to 20.8 per cent, largely
reflecting amortisation and foreign exchange movements on tier 2
instruments and the overall increase in risk-weighted assets
following the acquisition of MBNA.
In the
first quarter of 2017, the Bank of England communicated indicative
non-binding guidance to the Group on meeting the Minimum
Requirement for Own Funds and Eligible Liabilities (MREL), prior to
the application of regulatory buffers, as being the higher
of:
●
6 per cent leverage
exposure and 20.5 per cent of risk-weighted assets by 1
January 2020
●
6 per cent
leverage exposure and 25.1 per cent of risk-weighted assets by
1 January 2022
During
the first half of 2017 the Group issued £3.1 billion
(sterling equivalent) of senior unsecured securities from Lloyds
Banking Group plc which, while not included in total capital, are
eligible to meet MREL. Combined with previous issuances made during
2016 the Group remains well positioned to meet MREL requirements
from 2020 and, as at 30 June 2017, had a transitional MREL
ratio of 22.7 per cent.
The
leverage ratio, after accruing for foreseeable dividends, reduced
from 5.0 per cent on a pro forma basis to 4.9 per cent on a pro
forma basis, largely reflecting the acquisition of
MBNA.
An
analysis of the Group’s capital position as at 30 June 2017
is presented in the following section on both a CRD IV transitional
arrangements basis and a CRD IV fully loaded basis.
The
table below summarises the consolidated capital position of the
Group.
|
|
Transitional
|
|
Fully loaded
|
|
|
At 30 June
|
|
At 31 Dec
|
|
At 30 June
|
|
At 31 Dec
|
Capital resources
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
Common equity tier 1
|
|
|
|
|
|
|
|
|
Shareholders’
equity per balance sheet
|
|
42,513
|
|
43,020
|
|
42,513
|
|
43,020
|
Adjustment to
retained earnings for foreseeable dividends
|
|
(1,080)
|
|
(1,568)
|
|
(1,080)
|
|
(1,568)
|
Deconsolidation
adjustments
1
|
|
1,688
|
|
1,342
|
|
1,688
|
|
1,342
|
Adjustment for own
credit
|
|
119
|
|
87
|
|
119
|
|
87
|
Cash
flow hedging reserve
|
|
(1,703)
|
|
(2,136)
|
|
(1,703)
|
|
(2,136)
|
Other
adjustments
|
|
(269)
|
|
(276)
|
|
(269)
|
|
(276)
|
|
|
41,268
|
|
40,469
|
|
41,268
|
|
40,469
|
less: deductions from common equity tier 1
|
|
|
|
|
|
|
|
|
Goodwill
and other intangible assets
|
|
(2,651)
|
|
(1,623)
|
|
(2,651)
|
|
(1,623)
|
Prudent
valuation adjustment
|
|
(636)
|
|
(630)
|
|
(636)
|
|
(630)
|
Excess
of expected losses over impairment provisions and value
adjustments
|
|
(551)
|
|
(602)
|
|
(551)
|
|
(602)
|
Removal
of defined benefit pension surplus
|
|
(320)
|
|
(267)
|
|
(320)
|
|
(267)
|
Securitisation
deductions
|
|
(198)
|
|
(217)
|
|
(198)
|
|
(217)
|
Significant
investments
1
|
|
(4,279)
|
|
(4,282)
|
|
(4,279)
|
|
(4,282)
|
Deferred
tax assets
|
|
(3,313)
|
|
(3,564)
|
|
(3,313)
|
|
(3,564)
|
Common equity tier 1 capital
|
|
29,320
|
|
29,284
|
|
29,320
|
|
29,284
|
Additional tier 1
|
|
|
|
|
|
|
|
|
Other
equity instruments
|
|
5,320
|
|
5,320
|
|
5,320
|
|
5,320
|
Preference
shares and preferred securities
2
|
|
4,639
|
|
4,998
|
|
–
|
|
–
|
Transitional limit
and other adjustments
|
|
(1,884)
|
|
(1,692)
|
|
–
|
|
–
|
|
|
8,075
|
|
8,626
|
|
5,320
|
|
5,320
|
less: deductions from tier 1
|
|
|
|
|
|
|
|
|
Significant
investments
1
|
|
(1,292)
|
|
(1,329)
|
|
–
|
|
–
|
Total tier 1 capital
|
|
36,103
|
|
36,581
|
|
34,640
|
|
34,604
|
Tier 2
|
|
|
|
|
|
|
|
|
Other
subordinated liabilities
2
|
|
13,936
|
|
14,833
|
|
13,936
|
|
14,833
|
Deconsolidation of
instruments issued by insurance entities
1
|
|
(1,721)
|
|
(1,810)
|
|
(1,721)
|
|
(1,810)
|
Adjustments for
transitional limit and non-eligible instruments
|
|
1,748
|
|
1,351
|
|
(1,444)
|
|
(1,694)
|
Amortisation and
other adjustments
|
|
(3,472)
|
|
(3,447)
|
|
(3,538)
|
|
(3,597)
|
|
|
10,491
|
|
10,927
|
|
7,233
|
|
7,732
|
Eligible
provisions
|
|
255
|
|
186
|
|
255
|
|
186
|
less: deductions from tier 2
|
|
|
|
|
|
|
|
|
Significant
investments
1
|
|
(1,646)
|
|
(1,571)
|
|
(2,938)
|
|
(2,900)
|
Total capital resources
|
|
45,203
|
|
46,123
|
|
39,190
|
|
39,622
|
|
|
|
|
|
|
|
|
|
Risk-weighted assets
|
|
217,787
|
|
215,534
|
|
217,787
|
|
215,534
|
|
|
|
|
|
|
|
|
|
Common
equity tier 1 capital ratio
3
|
|
13.5%
|
|
13.6%
|
|
13.5%
|
|
13.6%
|
Tier 1
capital ratio
|
|
16.6%
|
|
17.0%
|
|
15.9%
|
|
16.1%
|
Total
capital ratio
|
|
20.8%
|
|
21.4%
|
|
18.0%
|
|
18.4%
|
1
|
For
regulatory capital purposes the Group’s Insurance business is
deconsolidated and replaced by the amount of the Group’s
investment in the business. A part of this amount is deducted from
capital (shown as ‘significant investments’ in the
table above) and the remaining amount is risk-weighted, forming
part of threshold risk-weighted assets.
|
2
|
Preference
shares, preferred securities and other subordinated liabilities are
categorised as subordinated liabilities in the balance
sheet.
|
3
|
The
common equity tier 1 ratio at 30 June 2017 is 13.5 per cent on a
pro forma basis upon recognition of the dividend paid by the
Insurance business in July 2017 in relation to its 2017 interim
earnings. At 31 December 2016 the ratio was 13.8 per cent on a pro
forma basis upon recognition of the dividend paid by the Insurance
business in February 2017 in relation to its 2016 full year
earnings.
|
The key
difference between the transitional capital calculation as at
30 June 2017 and the fully loaded equivalent is primarily
related to capital securities that previously qualified as tier 1
or tier 2 capital, but that do not fully qualify under CRD IV,
which can be included in additional tier 1 (AT1) or tier 2 capital
(as applicable) up to specified limits which reduce by 10 per cent
per annum until 2022.
The
movements in the transitional CET1, AT1, tier 2 and total capital
positions in the period are provided below.
|
|
Common
|
|
Additional
|
|
|
|
Total
|
|
|
equity tier 1
|
|
tier 1
|
|
Tier 2
|
|
capital
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
At 31
December 2016
|
|
29,284
|
|
7,297
|
|
9,542
|
|
46,123
|
Profit
attributable to ordinary shareholders
1
|
|
1,047
|
|
–
|
|
–
|
|
1,047
|
Movement
in foreseeable dividends
2
|
|
488
|
|
–
|
|
–
|
|
488
|
Dividends
paid out on ordinary shares during the year
|
|
(1,568)
|
|
–
|
|
–
|
|
(1,568)
|
Dividend
in respect of 2016 earnings received from the Insurance
business
1
|
|
500
|
|
–
|
|
–
|
|
500
|
Movement
in treasury shares and employee share schemes
|
|
40
|
|
–
|
|
–
|
|
40
|
Pension
movements:
|
|
|
|
|
|
|
|
|
Removal
of defined benefit pension surplus
|
|
(53)
|
|
–
|
|
–
|
|
(53)
|
Movement through
other comprehensive income
|
|
(105)
|
|
–
|
|
–
|
|
(105)
|
Available-for-sale
reserve
|
|
98
|
|
–
|
|
–
|
|
98
|
Prudent
valuation adjustment
|
|
(6)
|
|
–
|
|
–
|
|
(6)
|
Deferred
tax asset
|
|
251
|
|
–
|
|
–
|
|
251
|
Goodwill
and other intangible assets
|
|
(1,028)
|
|
–
|
|
–
|
|
(1,028)
|
Excess
of expected losses over impairment provisions and value
adjustments
|
|
51
|
|
–
|
|
–
|
|
51
|
Significant
investments
|
|
3
|
|
37
|
|
(75)
|
|
(35)
|
Eligible
provisions
|
|
–
|
|
–
|
|
69
|
|
69
|
Movements
in subordinated debt:
|
|
|
|
|
|
|
|
|
Repurchases,
redemptions and other
|
|
–
|
|
(551)
|
|
(436)
|
|
(987)
|
Issuances
|
|
–
|
|
–
|
|
–
|
|
–
|
Other
movements
|
|
318
|
|
–
|
|
–
|
|
318
|
At 30 June 2017
|
|
29,320
|
|
6,783
|
|
9,100
|
|
45,203
|
1
|
Under
the regulatory framework, profits made by Insurance are removed
from CET1 capital. However, when dividends are paid to the Group by
Insurance these are recognised through CET1 capital.
|
2
|
Includes
the accrual for foreseeable 2017 ordinary dividends and the
reversal of the accrual for foreseeable 2016 dividends which have
now been paid.
|
CET1
capital resources have increased by £36 million in the period,
reflecting a combination of profit generation, the receipt of the
dividend paid by the Insurance business in February 2017 and a
reduction in the deferred tax asset deducted from capital, largely
offset by the accrual for foreseeable dividends in respect of the
first half of 2017, movements in the defined benefit pension
schemes and an increase in the deduction for goodwill and other
intangible assets following the acquisition of MBNA.
AT1
capital resources have reduced by £514 million in the period,
primarily reflecting the annual reduction in the transitional limit
applied to grandfathered AT1 capital instruments.
Tier 2
capital resources have reduced by £442 million in the period
largely reflecting the amortisation of dated tier 2 instruments and
foreign exchange movements on subordinated debt, partly offset by
the transitioning of grandfathered AT1 instruments to tier
2.
Risk-weighted assets
|
|
At 30 June
|
|
At 31 Dec
|
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Foundation
Internal Ratings Based (IRB) Approach
|
|
61,115
|
|
64,907
|
Retail
IRB Approach
|
|
65,331
|
|
64,970
|
Other
IRB Approach
|
|
18,360
|
|
17,788
|
IRB Approach
|
|
144,806
|
|
147,665
|
Standardised
(STA) Approach
|
|
24,794
|
|
18,956
|
Credit risk
|
|
169,600
|
|
166,621
|
Counterparty
credit risk
|
|
7,188
|
|
8,419
|
Contributions
to the default fund of a central counterparty
|
|
419
|
|
340
|
Credit
valuation adjustment risk
|
|
735
|
|
864
|
Operational
risk
|
|
26,222
|
|
25,292
|
Market
risk
|
|
2,930
|
|
3,147
|
Underlying risk-weighted assets
|
|
207,094
|
|
204,683
|
Threshold
risk-weighted assets
1
|
|
10,693
|
|
10,851
|
Total risk-weighted assets
|
|
217,787
|
|
215,534
|
Risk-weighted asset movement by key driver
|
|
Credit
|
|
Credit
|
|
|
|
Counterparty
|
|
|
|
|
|
|
|
|
risk
|
|
risk
|
|
Credit
|
|
credit
|
|
Market
|
|
Operational
|
|
|
|
|
IRB
|
|
STA
|
|
risk
2
|
|
risk
3
|
|
risk
|
|
risk
|
|
Total
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total risk-weighted assets as at
31 December 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215,534
|
Less
total threshold risk-weighted assets
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,851)
|
Risk-weighted assets as at31 December 2016
|
|
147,665
|
|
18,956
|
|
166,621
|
|
9,623
|
|
3,147
|
|
25,292
|
|
204,683
|
Asset
size
|
|
(1,269)
|
|
(238)
|
|
(1,507)
|
|
(258)
|
|
–
|
|
–
|
|
(1,765)
|
Asset
quality
|
|
(539)
|
|
(92)
|
|
(631)
|
|
(661)
|
|
–
|
|
–
|
|
(1,292)
|
Model
updates
|
|
57
|
|
–
|
|
57
|
|
–
|
|
–
|
|
–
|
|
57
|
Methodology
and policy
|
|
(324)
|
|
(74)
|
|
(398)
|
|
–
|
|
–
|
|
–
|
|
(398)
|
Acquisitions
and disposals
|
|
(444)
|
|
6,351
|
|
5,907
|
|
(26)
|
|
–
|
|
930
|
|
6,811
|
Movements
in risk levels (market risk only)
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(217)
|
|
–
|
|
(217)
|
Foreign
exchange
|
|
(340)
|
|
(109)
|
|
(449)
|
|
(336)
|
|
–
|
|
–
|
|
(785)
|
Risk-weighted assets as at 30 June 2017
|
|
144,806
|
|
24,794
|
|
169,600
|
|
8,342
|
|
2,930
|
|
26,222
|
|
207,094
|
Threshold
risk-weighted assets
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,693
|
Total risk-weighted assets as at 30 June 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
217,787
|
1
|
Threshold risk-weighted assets reflect the element of significant
investments and deferred tax assets that are permitted to be
risk-weighted instead of being deducted from CET1 capital.
Significant investments primarily arise from investments in the
Group’s Insurance business.
|
2
|
Credit
risk includes securitisation risk-weighted assets.
|
3
|
Counterparty credit risk includes movements in contributions to the
default fund of central counterparties and movements in credit
valuation adjustment risk.
|
The
risk-weighted assets movement table provides analysis of the
movements in risk-weighted assets in the period by risk type and an
insight into the key drivers of these movements. The key driver
analysis is compiled on a monthly basis through the identification
and categorisation of risk-weighted asset movements and is subject
to management judgment.
Key movements in credit risk, risk-weighted assets
●
Asset size
movements. Credit risk-weighted assets decreased by £1.5
billion due to continued active portfolio management partly offset
by targeted growth in key customer segments.
●
Asset quality
captures movements due to changes in borrower risk, including
changes in the economic environment. Net reductions of £0.6
billion primarily relate to a net change in credit quality and
model calibrations.
●
Methodology and
policy reductions of £0.4 billion relate to capital efficient
securitisation activity.
●
Acquisitions and
disposals; the acquisition of MBNA increased credit risk-weighted
assets by £6.4 billion, partly offset by the disposal of the
Group’s interest in a strategic equity
investment.
●
Foreign exchange
movements reflect the appreciation of Sterling.
Counterparty credit risk and CVA risk-weighted asset
reductions of £1.3 billion are driven mainly by yield
curve movements (included in asset quality) and foreign exchange
movements.
Market risk, risk
-
weighted
assets
reduced by £0.2 billion largely due to a
decrease in the exposure to long dated inflation linked gilts and a
decrease in interest rate exposure.
Operational risk, risk-weighted assets
increase of £0.9
billion due to the acquisition of MBNA.
Leverage ratio
|
|
Fully loaded
|
|
|
At 30 June
|
|
At 31 Dec
|
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
Total tier 1 capital for leverage ratio
|
|
|
|
|
Common
equity tier 1 capital
|
|
29,320
|
|
29,284
|
Additional
tier 1 capital
|
|
5,320
|
|
5,320
|
Total tier 1 capital
|
|
34,640
|
|
34,604
|
|
|
|
|
|
Exposure measure
|
|
|
|
|
Statutory balance sheet assets
|
|
|
|
|
Derivative
financial instruments
|
|
30,024
|
|
36,138
|
Securities
financing transactions (SFTs)
|
|
41,477
|
|
42,285
|
Loans
and advances and other assets
|
|
743,418
|
|
739,370
|
Total assets
|
|
814,919
|
|
817,793
|
|
|
|
|
|
Deconsolidation adjustments
1
|
|
|
|
|
Derivative
financial instruments
|
|
(1,995)
|
|
(2,403)
|
Securities
financing transactions (SFTs)
|
|
(122)
|
|
112
|
Loans
and advances and other assets
|
|
(138,780)
|
|
(142,955)
|
Total deconsolidation adjustments
|
|
(140,897)
|
|
(145,246)
|
|
|
|
|
|
Derivatives adjustments
|
|
|
|
|
Adjustments
for regulatory netting
|
|
(16,198)
|
|
(20,490)
|
Adjustments
for cash collateral
|
|
(8,034)
|
|
(8,432)
|
Net
written credit protection
|
|
857
|
|
699
|
Regulatory
potential future exposure
|
|
12,853
|
|
13,188
|
Total derivatives adjustments
|
|
(10,522)
|
|
(15,035)
|
|
|
|
|
|
SFT adjustments
|
|
(1,014)
|
|
39
|
|
|
|
|
|
Off-balance sheet items
|
|
59,060
|
|
58,685
|
|
|
|
|
|
Regulatory deductions and other adjustments
|
|
(7,239)
|
|
(9,128)
|
|
|
|
|
|
Total exposure measure
|
|
714,307
|
|
707,108
|
|
|
|
|
|
Leverage ratio
2,6
|
|
4.8%
|
|
4.9%
|
|
|
|
|
|
Modified UK leverage exposure measure
3
|
|
667,207
|
|
665,598
|
Average modified UK leverage exposure measure
4
|
|
661,811
|
|
|
|
|
|
|
|
Modified UK leverage ratio
3
|
|
5.2%
|
|
5.2%
|
Average modified UK leverage ratio
5
|
|
5.4%
|
|
|
1
|
Deconsolidation
adjustments relate to the deconsolidation of certain Group entities
that fall outside the scope of the Group’s regulatory capital
consolidation, being primarily the Group’s Insurance
business.
|
2
|
The
countercyclical leverage ratio buffer is currently
nil.
|
3
|
The
Group’s leverage ratio on a modified basis, excluding
qualifying central bank claims from the exposure measure in
accordance with the rule modification applied to the UK Leverage
Ratio Framework by the PRA in 2016.
|
4
|
The
average modified UK leverage exposure measure is based on the
average of the month end modified exposure measures over the
quarter (1 April 2017 to 30 June 2017).
|
5
|
The
average modified UK leverage ratio is based on the average of the
month end tier 1 capital and modified exposure measures over the
quarter (1 April 2017 to 30 June 2017). The average of 5.4 per cent
compares to 5.4 per cent at the start and 5.2 per cent at the end
of the quarter.
|
6
|
The
leverage ratio at 30 June 2017 is 4.9 per cent on a pro forma basis
upon recognition of the dividend paid by the Insurance business in
July 2017 in relation to its 2017 interim earnings. At 31 December
2016 the ratio was 5.0 per cent on a pro forma basis upon
recognition of the dividend paid by the Insurance business in
February 2017 in relation to its 2016 full year
earnings.
|
Key movements
The
leverage total exposure measure increased by £7.2 billion over
the period primarily reflecting an increase in loans and advances
and off-balance sheet items following the acquisition of MBNA and
an increase in central bank claims, partly offset by a reduction in
available-for-sale financial assets and reductions in both the
derivatives and SFT exposure measures.
The
derivatives exposure measure, representing derivative financial
instruments per the balance sheet net of deconsolidation and
derivatives adjustments, reduced by £1.2 billion over the
period, primarily driven by market movements.
The
£2.1 billion reduction in the SFT exposure measure over the
period, representing SFT assets per the balance sheet net of
deconsolidation and other SFT adjustments, reflected reduced
trading volumes and an increase in eligible netting adjustments,
offset by an increase in customer volumes.
Off-balance
sheet items increased by £0.4 billion over the period,
primarily reflecting new residential mortgage offers placed in
addition to an increase in unconditionally cancellable credit card
commitments following the acquisition of MBNA, largely offset by a
net reduction in securitisation financing facilities.
The
average modified UK leverage ratio of 5.4 per cent over the quarter
reflected both a strengthening tier 1 capital position and a small
reduction in the modified exposure measure during the first two
months of the quarter, prior to the acquisition of MBNA in June
which, along with other movements, resulted in the reduction of the
ratio at the end of the quarter.
Individual capital guidance
The
Group receives Pillar 2A Individual Capital Guidance (ICG) from the
PRA. The ICG reflects a point in time estimate by the PRA, which
may change over time, of the minimum amount of capital that is
needed in relation to risks not covered by Pillar 1. During the
period the Group’s ICG has not changed and at 30 June 2017
represented 4.5 per cent of risk-weighted assets of which 2.5 per
cent has to be covered by 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 is exposed. One of the most
important uses of stress testing is to assess the resilience of the
operational and strategic plans of the Group to adverse economic
conditions and other key vulnerabilities. As a part of that the
Group participates in the UK-wide concurrent stress test run by the
Bank of England.
The
last such stress test was undertaken in 2016 and the Group
comfortably exceeded the capital thresholds set by the PRA and was
not required to take any action as a result of this test. The Group
has participated again this year, having submitted its results to
the Bank of England, and is awaiting the publication of the results
of the test for the industry as a whole.
Regulatory capital developments
The
Basel Committee continues to finalise its reforms to the regulatory
capital framework, with the overall aim of addressing excessive
variability in risk-weighted assets modelled by banks without a
significant increase in overall capital requirements across the
industry. The Committee’s proposed revisions include changes
to the standardised frameworks for credit risk and operational
risk, the application of parameter floors for internal models and
the introduction of an aggregate capital floor framework based upon
the revised standardised approaches. The final Basel standards are
expected to be published in the second half of 2017, subject to
approval from the Group of Governors and Heads of Supervision. In
addition the European Commission published a substantial package of
draft reforms in November 2016 aimed at strengthening the
resilience of banks across the EU – these reforms, which
include revisions to the market risk, counterparty credit risk and
leverage frameworks, are currently under negotiation and expected
to be implemented by 2020 at the earliest.
In the
UK the Financial Policy Committee and Prudential Regulation
Authority are currently consulting on revisions to the UK Leverage
Ratio Framework, including proposals to adjust for the impact of
excluding qualifying central bank claims from the leverage measure
by increasing the minimum leverage ratio requirement to 3.25 per
cent.
In
addition the Financial Policy Committee has increased the UK
countercyclical capital buffer rate from 0 per cent to 0.5 per
cent with effect from 27 June 2018. The Committee expects to
increase the rate to 1.0 per cent at its November meeting with
effect from November 2018.
The
Group continues to monitor these developments very closely,
analysing the potential capital impacts to ensure that, through
organic capital generation, the Group continues to maintain a
strong capital position that exceeds both the minimum regulatory
requirements and the Group’s risk appetite and is consistent
with market expectations.
Half-year Pillar 3 disclosures
The
Group will publish a condensed set of half-year Pillar 3
disclosures in August, prepared in accordance with the revised
European Banking Authority (EBA) guidelines on Pillar 3 disclosure
formats and frequency that were issued in December
2016.
A copy
of the half-year Pillar 3 Report will be available to view at
www.lloydsbankinggroup.com/investors/financial-performance/other-disclosures.
STATUTORY INFORMATION
|
Page
|
Condensed consolidated half-year financial statements
(unaudited)
|
|
Consolidated
income statement
|
|
Consolidated
statement of comprehensive income
|
|
Consolidated
balance sheet
|
|
Consolidated
statement of changes in equity
|
|
Consolidated
cash flow statement
|
|
|
|
Notes
|
|
1
|
Accounting
policies, presentation and estimates
|
|
2
|
Segmental
analysis
|
|
3
|
Operating
expenses
|
|
4
|
Impairment
|
|
5
|
Taxation
|
|
6
|
Earnings
per share
|
|
7
|
Trading
and other financial assets at fair value through profit or
loss
|
|
8
|
Derivative
financial instruments
|
|
9
|
Loans
and advances to customers
|
|
10
|
Allowance
for impairment losses on loans and receivables
|
|
11
|
Acquisition
of MBNA
|
|
12
|
Debt
securities in issue
|
|
13
|
Post-retirement
defined benefit schemes
|
|
14
|
Provisions
for liabilities and charges
|
|
15
|
Contingent
liabilities and commitments
|
|
16
|
Fair
values of financial assets and liabilities
|
|
17
|
Credit
quality of loans and advances
|
|
18
|
Dividends
on ordinary shares
|
|
19
|
Events
since the balance sheet date
|
|
20
|
Future
accounting developments
|
|
21
|
Other
information
|
|
CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
(UNAUDITED)
CONSOLIDATED INCOME STATEMENT
|
|
|
|
Half-year to
|
|
Half-year
to
|
|
Half-year
to
|
|
|
|
|
30 June
|
|
30
June
|
|
31
Dec
|
|
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
Note
|
|
£ million
|
|
£ million
|
|
£ million
|
|
|
|
|
|
|
|
|
|
Interest
and similar income
|
|
|
|
7,861
|
|
8,479
|
|
8,141
|
Interest
and similar expense
|
|
|
|
(2,659)
|
|
(3,254)
|
|
(4,092)
|
Net interest income
|
|
|
|
5,202
|
|
5,225
|
|
4,049
|
Fee and
commission income
|
|
|
|
1,518
|
|
1,502
|
|
1,543
|
Fee and
commission expense
|
|
|
|
(670)
|
|
(682)
|
|
(674)
|
Net fee
and commission income
|
|
|
|
848
|
|
820
|
|
869
|
Net
trading income
|
|
|
|
5,843
|
|
7,180
|
|
11,365
|
Insurance
premium income
|
|
|
|
4,099
|
|
4,212
|
|
3,856
|
Other
operating income
|
|
|
|
1,283
|
|
993
|
|
1,042
|
Other income
|
|
|
|
12,073
|
|
13,205
|
|
17,132
|
Total income
|
|
|
|
17,275
|
|
18,430
|
|
21,181
|
Insurance
claims
|
|
|
|
(7,976)
|
|
(10,110)
|
|
(12,234)
|
Total income, net of insurance claims
|
|
|
|
9,299
|
|
8,320
|
|
8,947
|
Regulatory
provisions
|
|
|
|
(1,590)
|
|
(445)
|
|
(1,579)
|
Other
operating expenses
|
|
|
|
(4,962)
|
|
(5,059)
|
|
(5,194)
|
Total operating expenses
|
|
3
|
|
(6,552)
|
|
(5,504)
|
|
(6,773)
|
Trading surplus
|
|
|
|
2,747
|
|
2,816
|
|
2,174
|
Impairment
|
|
4
|
|
(203)
|
|
(362)
|
|
(390)
|
Profit before tax
|
|
|
|
2,544
|
|
2,454
|
|
1,784
|
Taxation
|
|
5
|
|
(905)
|
|
(597)
|
|
(1,127)
|
Profit for the period
|
|
|
|
1,639
|
|
1,857
|
|
657
|
|
|
|
|
|
|
|
|
|
Profit
attributable to ordinary shareholders
|
|
|
|
1,389
|
|
1,590
|
|
411
|
Profit
attributable to other equity holders
1
|
|
|
|
209
|
|
204
|
|
208
|
Profit
attributable to equity holders
|
|
|
|
1,598
|
|
1,794
|
|
619
|
Profit
attributable to non-controlling interests
|
|
|
|
41
|
|
63
|
|
38
|
Profit for the period
|
|
|
|
1,639
|
|
1,857
|
|
657
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
6
|
|
2.0p
|
|
2.3p
|
|
0.6p
|
Diluted
earnings per share
|
|
6
|
|
2.0p
|
|
2.3p
|
|
0.6p
|
|
|
1
|
The
profit after tax attributable to other equity holders of
£209 million (half-year to 30 June 2016:
£204 million; half-year to 31 December 2016:
£208 million) is offset in reserves by a tax credit
attributable to ordinary shareholders of £51 million
(half-year to 30 June 2016: £41 million; half-year
to 31 December 2016: £50 million).
|
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
|
Half-year to
|
|
Half-year to
|
|
Half-year to
|
|
|
30 June
|
|
30 June
|
|
31 Dec
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
£ million
|
|
£ million
|
|
£ million
|
|
|
|
|
|
|
|
Profit for the period
|
|
1,639
|
|
1,857
|
|
657
|
Other comprehensive income
|
|
|
|
|
|
|
Items that will not subsequently be reclassified to profit or
loss:
|
|
|
|
|
|
|
Post-retirement defined benefit scheme remeasurements (note
13):
|
|
|
|
|
|
|
Remeasurements
before taxation
|
|
(124)
|
|
(267)
|
|
(1,081)
|
Taxation
|
|
32
|
|
40
|
|
280
|
|
|
(92)
|
|
(227)
|
|
(801)
|
Gains and losses attributable to own credit risk
|
|
|
|
|
|
|
Losses
before taxation
|
|
(44)
|
|
–
|
|
–
|
Taxation
|
|
12
|
|
–
|
|
–
|
|
|
(32)
|
|
–
|
|
–
|
Items that may subsequently be reclassified to profit or
loss:
|
|
|
|
|
|
|
Movements in revaluation reserve in respect of available-for-sale
financial assets:
|
|
|
|
|
|
|
Adjustment
on transfer from held-to-maturity portfolio
|
|
–
|
|
–
|
|
1,544
|
Change
in fair value
|
|
455
|
|
184
|
|
172
|
Income
statement transfers in respect of disposals
|
|
(315)
|
|
(574)
|
|
(1)
|
Income
statement transfers in respect of impairment
|
|
6
|
|
146
|
|
27
|
Taxation
|
|
(48)
|
|
152
|
|
(453)
|
|
|
98
|
|
(92)
|
|
1,289
|
Movements in cash flow hedging reserve:
|
|
|
|
|
|
|
Effective
portion of changes in fair value
|
|
(267)
|
|
3,040
|
|
(608)
|
Net
income statement transfers
|
|
(317)
|
|
(206)
|
|
(351)
|
Taxation
|
|
151
|
|
(752)
|
|
286
|
|
|
(433)
|
|
2,082
|
|
(673)
|
Currency translation differences (tax: nil)
|
|
(7)
|
|
(20)
|
|
16
|
Other comprehensive income for the period, net of tax
|
|
(466)
|
|
1,743
|
|
(169)
|
Total comprehensive income for the period
|
|
1,173
|
|
3,600
|
|
488
|
|
|
|
|
|
|
|
Total comprehensive income attributable to ordinary
shareholders
|
|
923
|
|
3,333
|
|
242
|
Total comprehensive income attributable to other equity
holders
|
|
209
|
|
204
|
|
208
|
Total comprehensive income attributable to equity
holders
|
|
1,132
|
|
3,537
|
|
450
|
Total comprehensive income attributable to non-controlling
interests
|
|
41
|
|
63
|
|
38
|
Total comprehensive income for the period
|
|
1,173
|
|
3,600
|
|
488
|
CONSOLIDATED BALANCE SHEET
|
|
|
|
At 30 June
|
|
At 31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
|
Note
|
|
£ million
|
|
£ million
|
Assets
|
|
|
|
|
|
|
Cash
and balances at central banks
|
|
|
|
50,491
|
|
47,452
|
Items
in course of collection from banks
|
|
|
|
855
|
|
706
|
Trading
and other financial assets at fair value through profit or
loss
|
|
7
|
|
161,970
|
|
151,174
|
Derivative
financial instruments
|
|
8
|
|
30,024
|
|
36,138
|
Loans
and receivables:
|
|
|
|
|
|
|
Loans
and advances to banks
|
|
|
|
8,865
|
|
26,902
|
Loans
and advances to customers
|
|
9
|
|
464,604
|
|
457,958
|
Debt
securities
|
|
|
|
3,841
|
|
3,397
|
|
|
|
|
477,310
|
|
488,257
|
Available-for-sale
financial assets
|
|
|
|
51,803
|
|
56,524
|
Goodwill
|
|
|
|
2,299
|
|
2,016
|
Value
of in-force business
|
|
|
|
5,153
|
|
5,042
|
Other
intangible assets
|
|
|
|
2,536
|
|
1,681
|
Property,
plant and equipment
|
|
|
|
12,990
|
|
12,972
|
Current
tax recoverable
|
|
|
|
16
|
|
28
|
Deferred
tax assets
|
|
|
|
2,422
|
|
2,706
|
Retirement
benefit assets
|
|
13
|
|
410
|
|
342
|
Other
assets
|
|
|
|
16,640
|
|
12,755
|
Total assets
|
|
|
|
814,919
|
|
817,793
|
CONSOLIDATED BALANCE SHEET
(continued)
|
|
|
|
|
|
|
|
|
|
|
At 30 June
|
|
At 31 Dec
|
|
|
|
|
|
2017
|
|
2016
|
|
|
|
Note
|
|
£ million
|
|
£ million
|
|
Equity and liabilities
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Deposits
from banks
|
|
|
|
24,879
|
|
16,384
|
|
Customer
deposits
|
|
|
|
417,617
|
|
415,460
|
|
Items
in course of transmission to banks
|
|
|
|
944
|
|
548
|
|
Trading
and other financial liabilities at fair value through profit or
loss
|
|
|
|
55,671
|
|
54,504
|
|
Derivative
financial instruments
|
|
8
|
|
29,190
|
|
34,924
|
|
Notes
in circulation
|
|
|
|
1,317
|
|
1,402
|
|
Debt
securities in issue
|
|
12
|
|
71,557
|
|
76,314
|
|
Liabilities
arising from insurance contracts and participating investment
contracts
|
|
|
|
101,318
|
|
94,390
|
|
Liabilities
arising from non-participating investment contracts
|
|
|
|
15,652
|
|
20,112
|
|
Other
liabilities
|
|
|
|
22,226
|
|
29,193
|
|
Retirement
benefit obligations
|
|
13
|
|
905
|
|
822
|
|
Current
tax liabilities
|
|
|
|
416
|
|
226
|
|
Other
provisions
|
|
|
|
6,306
|
|
4,868
|
|
Subordinated
liabilities
|
|
|
|
18,575
|
|
19,831
|
|
Total liabilities
|
|
|
|
766,573
|
|
768,978
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
Share
capital
|
|
|
|
7,191
|
|
7,146
|
|
Share
premium account
|
|
|
|
17,624
|
|
17,622
|
|
Other
reserves
|
|
|
|
14,310
|
|
14,652
|
|
Retained
profits
|
|
|
|
3,388
|
|
3,600
|
|
Shareholders’ equity
|
|
|
|
42,513
|
|
43,020
|
|
Other
equity instruments
|
|
|
|
5,355
|
|
5,355
|
|
Total
equity excluding non-controlling interests
|
|
|
|
47,868
|
|
48,375
|
|
Non-controlling
interests
|
|
|
|
478
|
|
440
|
|
Total equity
|
|
|
|
48,346
|
|
48,815
|
|
Total equity and liabilities
|
|
|
|
814,919
|
|
817,793
|
|
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
|
|
Attributable to equity shareholders
|
|
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
capital
|
|
|
|
|
|
|
|
Other
|
|
Non-
|
|
|
|
|
and
|
|
Other
|
|
Retained
|
|
|
|
equity
|
|
controlling
|
|
|
|
|
premium
|
|
reserves
|
|
profits
|
|
Total
|
|
instruments
|
|
interests
|
|
Total
|
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at 1 January 2017
|
|
24,768
|
|
14,652
|
|
3,600
|
|
43,020
|
|
5,355
|
|
440
|
|
48,815
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
for the period
|
|
–
|
|
–
|
|
1,598
|
|
1,598
|
|
–
|
|
41
|
|
1,639
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
defined benefit scheme remeasurements, net of tax
|
|
–
|
|
–
|
|
(92)
|
|
(92)
|
|
–
|
|
–
|
|
(92)
|
Movements
in revaluation reserve in respect of available-for-sale financial
assets, net of tax
|
|
–
|
|
98
|
|
–
|
|
98
|
|
–
|
|
–
|
|
98
|
Gains
and losses attributable to own credit risk, net of tax
|
|
–
|
|
–
|
|
(32)
|
|
(32)
|
|
–
|
|
–
|
|
(32)
|
Movements
in cash flow hedging reserve, net of tax
|
|
–
|
|
(433)
|
|
–
|
|
(433)
|
|
–
|
|
–
|
|
(433)
|
Currency
translation differences (tax: nil)
|
|
–
|
|
(7)
|
|
–
|
|
(7)
|
|
–
|
|
–
|
|
(7)
|
Total other comprehensive income
|
|
–
|
|
(342)
|
|
(124)
|
|
(466)
|
|
–
|
|
–
|
|
(466)
|
Total comprehensive income
|
|
–
|
|
(342)
|
|
1,474
|
|
1,132
|
|
–
|
|
41
|
|
1,173
|
Transactions with owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
–
|
|
–
|
|
(1,568)
|
|
(1,568)
|
|
–
|
|
–
|
|
(1,568)
|
Distributions
on other equity instruments, net of tax
|
|
–
|
|
–
|
|
(158)
|
|
(158)
|
|
–
|
|
–
|
|
(158)
|
Issue
of ordinary shares
1
|
|
47
|
|
–
|
|
–
|
|
47
|
|
–
|
|
–
|
|
47
|
Movement
in treasury shares
|
|
–
|
|
–
|
|
(154)
|
|
(154)
|
|
–
|
|
–
|
|
(154)
|
Value
of employee services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
option schemes
|
|
–
|
|
–
|
|
45
|
|
45
|
|
–
|
|
–
|
|
45
|
Other
employee award schemes
|
|
–
|
|
–
|
|
149
|
|
149
|
|
–
|
|
–
|
|
149
|
Changes
in non-controlling interests
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(3)
|
|
(3)
|
Total transactions with owners
|
|
47
|
|
–
|
|
(1,686)
|
|
(1,639)
|
|
–
|
|
(3)
|
|
(1,642)
|
Balance at 30 June 2017
|
|
24,815
|
|
14,310
|
|
3,388
|
|
42,513
|
|
5,355
|
|
478
|
|
48,346
|
1
|
During
the half-year to 30 June 2017, 452 million shares were issued in
respect of employee share schemes.
|
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(continued)
|
|
Attributable to equity shareholders
|
|
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
capital
|
|
|
|
|
|
|
|
Other
|
|
Non-
|
|
|
|
|
and
|
|
Other
|
|
Retained
|
|
|
|
equity
|
|
controlling
|
|
|
|
|
premium
|
|
reserves
|
|
profits
|
|
Total
|
|
instruments
|
|
interests
|
|
Total
|
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 January 2016
|
|
24,558
|
|
12,260
|
|
4,416
|
|
41,234
|
|
5,355
|
|
391
|
|
46,980
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
for the period
|
|
–
|
|
–
|
|
1,794
|
|
1,794
|
|
–
|
|
63
|
|
1,857
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
defined benefit scheme remeasurements, net of tax
|
|
–
|
|
–
|
|
(227)
|
|
(227)
|
|
–
|
|
–
|
|
(227)
|
Movements
in revaluation reserve in respect of available-for-sale financial
assets, net of tax
|
|
–
|
|
(92)
|
|
–
|
|
(92)
|
|
–
|
|
–
|
|
(92)
|
Movements
in cash flow hedging reserve, net of tax
|
|
–
|
|
2,082
|
|
–
|
|
2,082
|
|
–
|
|
–
|
|
2,082
|
Currency
translation differences (tax: nil)
|
|
–
|
|
(20)
|
|
–
|
|
(20)
|
|
–
|
|
–
|
|
(20)
|
Total
other comprehensive income
|
|
–
|
|
1,970
|
|
(227)
|
|
1,743
|
|
–
|
|
–
|
|
1,743
|
Total
comprehensive income
|
|
–
|
|
1,970
|
|
1,567
|
|
3,537
|
|
–
|
|
63
|
|
3,600
|
Transactions
with owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
–
|
|
–
|
|
(1,427)
|
|
(1,427)
|
|
–
|
|
(2)
|
|
(1,429)
|
Distributions
on other equity instruments, net of tax
|
|
–
|
|
–
|
|
(163)
|
|
(163)
|
|
–
|
|
–
|
|
(163)
|
Movement
in treasury shares
|
|
–
|
|
–
|
|
(147)
|
|
(147)
|
|
–
|
|
–
|
|
(147)
|
Value
of employee services:
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
option schemes
|
|
–
|
|
–
|
|
35
|
|
35
|
|
–
|
|
–
|
|
35
|
Other
employee award schemes
|
|
–
|
|
–
|
|
82
|
|
82
|
|
–
|
|
–
|
|
82
|
Changes
in non-controlling interests
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(20)
|
|
(20)
|
Total
transactions with owners
|
|
–
|
|
–
|
|
(1,620)
|
|
(1,620)
|
|
–
|
|
(22)
|
|
(1,642)
|
Balance
at 30 June 2016
|
|
24,558
|
|
14,230
|
|
4,363
|
|
43,151
|
|
5,355
|
|
432
|
|
48,938
|
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(continued)
|
|
Attributable to equity shareholders
|
|
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
capital
|
|
|
|
|
|
|
|
Other
|
|
Non-
|
|
|
|
|
and
|
|
Other
|
|
Retained
|
|
|
|
equity
|
|
controlling
|
|
|
|
|
premium
|
|
reserves
|
|
profits
|
|
Total
|
|
instruments
|
|
interests
|
|
Total
|
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 July 2016
|
|
24,558
|
|
14,230
|
|
4,363
|
|
43,151
|
|
5,355
|
|
432
|
|
48,938
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
for the period
|
|
–
|
|
–
|
|
619
|
|
619
|
|
–
|
|
38
|
|
657
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
defined benefit scheme remeasurements, net of tax
|
|
–
|
|
–
|
|
(801)
|
|
(801)
|
|
–
|
|
–
|
|
(801)
|
Movements
in revaluation reserve in respect of available-for-sale financial
assets, net of tax
|
|
–
|
|
1,289
|
|
–
|
|
1,289
|
|
–
|
|
–
|
|
1,289
|
Movements
in cash flow hedging reserve, net of tax
|
|
–
|
|
(673)
|
|
–
|
|
(673)
|
|
–
|
|
–
|
|
(673)
|
Currency
translation differences (tax: nil)
|
|
–
|
|
16
|
|
–
|
|
16
|
|
–
|
|
–
|
|
16
|
Total
other comprehensive income
|
|
–
|
|
632
|
|
(801)
|
|
(169)
|
|
–
|
|
–
|
|
(169)
|
Total
comprehensive income
|
|
–
|
|
632
|
|
(182)
|
|
450
|
|
–
|
|
38
|
|
488
|
Transactions
with owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
–
|
|
–
|
|
(587)
|
|
(587)
|
|
–
|
|
(27)
|
|
(614)
|
Distributions
on other equity instruments, net of tax
|
|
–
|
|
–
|
|
(158)
|
|
(158)
|
|
–
|
|
–
|
|
(158)
|
Redemption
of preference shares
|
|
210
|
|
(210)
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
Movement
in treasury shares
|
|
–
|
|
–
|
|
(28)
|
|
(28)
|
|
–
|
|
–
|
|
(28)
|
Value
of employee services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
option schemes
|
|
–
|
|
–
|
|
106
|
|
106
|
|
–
|
|
–
|
|
106
|
Other
employee award schemes
|
|
–
|
|
–
|
|
86
|
|
86
|
|
–
|
|
–
|
|
86
|
Changes
in non-controlling interests
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(3)
|
|
(3)
|
Total
transactions with owners
|
|
210
|
|
(210)
|
|
(581)
|
|
(581)
|
|
–
|
|
(30)
|
|
(611)
|
Balance
at 31 December 2016
|
|
24,768
|
|
14,652
|
|
3,600
|
|
43,020
|
|
5,355
|
|
440
|
|
48,815
|
CONSOLIDATED CASH FLOW STATEMENT
|
|
Half-year to
|
|
Half-year to
|
|
Half-year to
|
|
|
30 June
|
|
30 June
|
|
31 Dec
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
£ million
|
|
£ million
|
|
£ million
|
|
|
|
|
|
|
|
Profit before tax
|
|
2,544
|
|
2,454
|
|
1,784
|
Adjustments for:
|
|
|
|
|
|
|
Change
in operating assets
|
|
(14,961)
|
|
(18,311)
|
|
6,093
|
Change
in operating liabilities
|
|
(769)
|
|
31,794
|
|
(34,453)
|
Non-cash
and other items
|
|
8,870
|
|
6,929
|
|
6,606
|
Tax
paid
|
|
(367)
|
|
(262)
|
|
(560)
|
Net cash provided by operating activities
|
|
(4,683)
|
|
22,604
|
|
(20,530)
|
Cash flows from investing activities
|
|
|
|
|
|
|
Purchase of financial assets
|
|
(1,847)
|
|
(3,441)
|
|
(1,489)
|
Proceeds from sale and maturity of financial assets
|
|
5,276
|
|
2,729
|
|
3,606
|
Purchase of fixed assets
|
|
(1,960)
|
|
(1,820)
|
|
(1,940)
|
Proceeds from sale of fixed assets
|
|
763
|
|
909
|
|
775
|
Acquisition of businesses, net of cash acquired
|
|
(1,909)
|
|
(6)
|
|
(14)
|
Disposal of businesses, net of cash disposed
|
|
26
|
|
5
|
|
–
|
Net cash used in investing activities
|
|
349
|
|
(1,624)
|
|
938
|
Cash flows from financing activities
|
|
|
|
|
|
|
Dividends paid to ordinary shareholders
|
|
(1,568)
|
|
(1,427)
|
|
(587)
|
Distributions on other equity instruments
|
|
(209)
|
|
(204)
|
|
(208)
|
Dividends paid to non-controlling interests
|
|
–
|
|
(2)
|
|
(27)
|
Interest paid on subordinated liabilities
|
|
(780)
|
|
(946)
|
|
(741)
|
Proceeds from issue of subordinated liabilities
|
|
–
|
|
1,061
|
|
–
|
Repayment of subordinated liabilities
|
|
(636)
|
|
(4,678)
|
|
(3,207)
|
Changes in non-controlling interests
|
|
(3)
|
|
(5)
|
|
(3)
|
Net cash used in financing activities
|
|
(3,196)
|
|
(6,201)
|
|
(4,773)
|
Effects of exchange rate changes on cash and cash
equivalents
|
|
–
|
|
15
|
|
6
|
Change in cash and cash equivalents
|
|
(7,530)
|
|
14,794
|
|
(24,359)
|
Cash and cash equivalents at beginning of period
|
|
62,388
|
|
71,953
|
|
86,747
|
Cash and cash equivalents at end of period
|
|
54,858
|
|
86,747
|
|
62,388
|
Cash
and cash equivalents comprise cash and balances at central banks
(excluding mandatory deposits) and amounts due from banks with a
maturity of less than three months. Included within cash and cash
equivalents at 30 June 2017 is £2,579 million
(30 June 2016: £12,613 million; 31 December
2016: £14,475 million) held within the Group’s life
funds, which is not immediately available for use in the
business.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
Accounting
policies, presentation and estimates
These
condensed consolidated half-year financial statements as at and for
the period to 30 June 2017 have been prepared in accordance
with the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority (FCA) and with International Accounting
Standard 34 (IAS 34),
Interim
Financial Reporting
as adopted by the European Union and
comprise the results of Lloyds Banking Group plc (the Company)
together with its subsidiaries (the Group). They do not include all
of the information required for full annual financial statements
and should be read in conjunction with the Group’s
consolidated financial statements as at and for the year ended
31 December 2016 which were prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union. Copies of the 2016 Annual Report and Accounts
are available on the Group’s website and are available upon
request from Investor Relations, Lloyds Banking Group plc, 25
Gresham Street, London EC2V 7HN.
The UK
Finance Code for Financial Reporting Disclosure (the Disclosure
Code) sets out disclosure principles together with supporting
guidance in respect of the financial statements of UK banks. The
Group has adopted the Disclosure Code and these condensed
consolidated half-year financial statements have been prepared in
compliance with the Disclosure Code’s principles. Terminology
used in these condensed consolidated half-year financial statements
is consistent with that used in the Group’s 2016 Annual
Report and Accounts where a glossary of terms can be
found.
The
directors consider that it is appropriate to continue to adopt the
going concern basis in preparing the condensed consolidated
half-year financial statements. In reaching this assessment, the
directors have considered projections for the Group’s capital
and funding position and have had regard to the factors set out in
Risk management: Principal risks and uncertainties on page
26.
Except
as noted below, the accounting policies are consistent with those
applied by the Group in its 2016 Annual Report and
Accounts.
With
effect from 1 January 2017 the Group has elected to early adopt the
provision in IFRS 9 for gains and losses attributable to changes in
own credit risk on financial liabilities designated at fair value
through profit or loss to be presented in other comprehensive
income. The impact has been to increase profit after tax and reduce
other comprehensive income by £32 million in the six
months to 30 June 2017; there is no impact on total liabilities or
shareholders’ equity. Comparatives have not been
restated.
The
Group has had no material or unusual related party transactions
during the six months to 30 June 2017. Related party transactions
for the six months to 30 June 2017 are similar in nature to those
for the year ended 31 December 2016. Full details of the
Group’s related party transactions for the year to 31
December 2016 can be found in the Group’s 2016 Annual Report
and Accounts.
Future accounting developments
Details
of those IFRS pronouncements which will be relevant to the Group
but which will not be effective at 31 December 2017 and which
have not been applied in preparing these financial statements are
set out in note 20.
Critical accounting estimates and judgements
The
preparation of the Group’s financial statements requires
management to make judgements, estimates and assumptions that
impact the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Due to the
inherent uncertainty in making estimates, actual results reported
in future periods may include amounts which differ from those
estimates. Estimates, judgements and assumptions are continually
evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. There have been no significant
changes in the basis upon which estimates have been determined,
compared to that applied at 31 December 2016.
Lloyds Banking
Group provides a wide range of banking and financial services in
the UK and in certain locations overseas. The Group Executive
Committee (GEC) remains the chief operating decision maker for the
Group.
The
segmental results and comparatives are presented on an underlying
basis, the basis reviewed by the chief operating decision maker.
The effects of the redemption of the Group’s Enhanced Capital
Notes, asset sales, volatile items, the insurance grossing
adjustment, liability management, restructuring costs, conduct
provisions, the amortisation of purchased intangible assets and the
unwind of acquisition-related fair value adjustments are excluded
in arriving at underlying profit.
The
Group’s activities are organised into four financial
reporting segments: Retail; Commercial Banking; Consumer Finance
and Insurance. There has been no change to the descriptions of
these segments as provided in note 4 to the Group’s financial
statements for the year ended 31 December 2016.
There
has been no change to the Group’s segmental accounting for
internal segment services or derivatives entered into by units for
risk management purposes since 31 December 2016.
|
|
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
income,
|
|
income,
|
|
|
|
|
|
|
|
|
Net
|
|
net of
|
|
net of
|
|
Profit
|
|
|
|
Inter-
|
|
|
interest
|
|
insurance
|
|
insurance
|
|
(loss)
|
|
External
|
|
segment
|
|
|
income
|
|
claims
|
|
claims
|
|
before tax
|
|
revenue
|
|
revenue
|
Half-year to 30 June 2017
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying basis
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
3,337
|
|
477
|
|
3,814
|
|
1,598
|
|
4,177
|
|
(363)
|
Commercial
Banking
|
|
1,425
|
|
1,100
|
|
2,525
|
|
1,437
|
|
1,703
|
|
822
|
Consumer
Finance
|
|
1,041
|
|
755
|
|
1,796
|
|
759
|
|
2,082
|
|
(286)
|
Insurance
|
|
(50)
|
|
872
|
|
822
|
|
408
|
|
1,036
|
|
(214)
|
Other
|
|
172
|
|
144
|
|
316
|
|
290
|
|
275
|
|
41
|
Group
|
|
5,925
|
|
3,348
|
|
9,273
|
|
4,492
|
|
9,273
|
|
–
|
Reconciling items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
grossing adjustment
|
|
(608)
|
|
660
|
|
52
|
|
–
|
|
|
|
|
Market
volatility and asset sales
1
|
|
20
|
|
96
|
|
116
|
|
136
|
|
|
|
|
Amortisation
of purchased intangibles
|
|
–
|
|
–
|
|
–
|
|
(38)
|
|
|
|
|
Restructuring
costs
2
|
|
–
|
|
–
|
|
–
|
|
(321)
|
|
|
|
|
Fair
value unwind and other items
|
|
(135)
|
|
(7)
|
|
(142)
|
|
(135)
|
|
|
|
|
Payment
protection insurance provision
|
|
–
|
|
–
|
|
–
|
|
(1,050)
|
|
|
|
|
Other
conduct provisions
|
|
–
|
|
–
|
|
–
|
|
(540)
|
|
|
|
|
Group − statutory
|
|
5,202
|
|
4,097
|
|
9,299
|
|
2,544
|
|
|
|
|
1
|
Comprises
(i) gains on disposals of assets which are not part of normal
business operations (£6 million); (ii) the net effect of
banking volatility and net derivative valuation adjustments (losses
of £20 million); (iii) volatility relating to the
insurance business (gains of £165 million); and (iv) the
results of liability management exercises (losses of
£15 million).
|
2
|
Comprises
severance related costs relating to the Simplification programme,
the costs of implementing regulatory reform and ring-fencing, the
rationalisation of the non-branch property portfolio and the
integration of MBNA.
|
2.
Segmental analysis
(continued)
|
|
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
income,
|
|
income,
|
|
|
|
|
|
|
|
|
Net
|
|
net
of
|
|
net
of
|
|
Profit
|
|
|
|
Inter-
|
|
|
interest
|
|
insurance
|
|
insurance
|
|
(loss)
|
|
External
|
|
segment
|
|
|
income
|
|
claims
|
|
claims
|
|
before
tax
|
|
revenue
|
|
revenue
|
Half-year
to 30 June 2016
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
basis
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
3,296
|
|
558
|
|
3,854
|
|
1,548
|
|
4,333
|
|
(479)
|
Commercial
Banking
|
|
1,306
|
|
982
|
|
2,288
|
|
1,236
|
|
2,137
|
|
151
|
Consumer
Finance
|
|
994
|
|
658
|
|
1,652
|
|
690
|
|
1,942
|
|
(290)
|
Insurance
|
|
(80)
|
|
921
|
|
841
|
|
446
|
|
300
|
|
541
|
Other
|
|
266
|
|
(26)
|
|
240
|
|
241
|
|
163
|
|
77
|
Group
|
|
5,782
|
|
3,093
|
|
8,875
|
|
4,161
|
|
8,875
|
|
–
|
Reconciling
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
grossing adjustment
|
|
(423)
|
|
519
|
|
96
|
|
–
|
|
|
|
|
Enhanced
Capital Notes
1
|
|
–
|
|
(790)
|
|
(790)
|
|
(790)
|
|
|
|
|
Market
volatility and asset sales
2
|
|
20
|
|
252
|
|
272
|
|
128
|
|
|
|
|
Amortisation
of purchased intangibles
|
|
–
|
|
–
|
|
–
|
|
(168)
|
|
|
|
|
Restructuring
costs
3
|
|
–
|
|
–
|
|
–
|
|
(307)
|
|
|
|
|
Fair
value unwind
|
|
(154)
|
|
36
|
|
(118)
|
|
(110)
|
|
|
|
|
Other
conduct provisions
|
|
–
|
|
(15)
|
|
(15)
|
|
(460)
|
|
|
|
|
Group
−
statutory
|
|
5,225
|
|
3,095
|
|
8,320
|
|
2,454
|
|
|
|
|
1
|
The
loss relating to the ECNs was £790 million, representing
the write-off of the embedded derivative and the premium paid on
redemption of the remaining notes.
|
2
|
Comprises
(i) gains on disposals of assets which are not part of normal
business operations (£335 million); (ii) the net effect
of banking volatility and net derivative valuation adjustments
(gains of £19 million); (iii) volatility relating to the
insurance business (losses of £372 million); and (iv) the
results of liability management exercises (gains of
£146 million).
|
3
|
Principally
comprises the severance costs related to phase II of the
Simplification programme.
|
|
|
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
income,
|
|
income,
|
|
|
|
|
|
|
|
|
Net
|
|
net
of
|
|
net
of
|
|
Profit
|
|
|
|
Inter-
|
|
|
interest
|
|
insurance
|
|
insurance
|
|
(loss)
|
|
External
|
|
segment
|
|
|
income
|
|
claims
|
|
claims
|
|
before
tax
|
|
revenue
|
|
revenue
|
Half-year
to 31 December 2016
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying
basis
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
3,201
|
|
495
|
|
3,696
|
|
1,455
|
|
4,127
|
|
(431)
|
Commercial
Banking
|
|
1,429
|
|
1,005
|
|
2,434
|
|
1,232
|
|
1,531
|
|
903
|
Consumer
Finance
|
|
947
|
|
680
|
|
1,627
|
|
593
|
|
1,943
|
|
(316)
|
Insurance
|
|
(66)
|
|
834
|
|
768
|
|
391
|
|
1,011
|
|
(243)
|
Other
|
|
142
|
|
(42)
|
|
100
|
|
35
|
|
13
|
|
87
|
Group
|
|
5,653
|
|
2,972
|
|
8,625
|
|
3,706
|
|
8,625
|
|
–
|
Reconciling
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
grossing adjustment
|
|
(1,475)
|
|
1,591
|
|
116
|
|
–
|
|
|
|
|
Market
volatility and asset sales
1
|
|
13
|
|
379
|
|
392
|
|
311
|
|
|
|
|
Amortisation
of purchased intangibles
|
|
–
|
|
–
|
|
–
|
|
(172)
|
|
|
|
|
Restructuring
costs
|
|
–
|
|
–
|
|
–
|
|
(315)
|
|
|
|
|
Fair
value unwind and other items
|
|
(142)
|
|
2
|
|
(140)
|
|
(121)
|
|
|
|
|
Payment
protection insurance provision
|
|
–
|
|
–
|
|
–
|
|
(1,000)
|
|
|
|
|
Other
conduct provisions
|
|
–
|
|
(46)
|
|
(46)
|
|
(625)
|
|
|
|
|
Group
−
statutory
|
|
4,049
|
|
4,898
|
|
8,947
|
|
1,784
|
|
|
|
|
1
|
Comprises
(i) losses on disposals of assets which are not part of normal
business operations (£118 million); (ii) the net effect
of banking volatility and net derivative valuation adjustments
(gains of £171 million); (iii) volatility relating to the
insurance business (gains of £281 million); and (iv) the
results of liability management exercises (losses of
£23 million).
|
2.
Segmental analysis
(continued)
|
|
Segment external
|
|
Segment customer
|
|
Segment external
|
|
|
assets
|
|
deposits
|
|
liabilities
|
|
|
At 30 June
|
|
At
31 Dec
|
|
At 30 June
|
|
At
31 Dec
|
|
At 30 June
|
|
At
31 Dec
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
297,958
|
|
300,085
|
|
269,405
|
|
271,005
|
|
272,870
|
|
275,006
|
Commercial
Banking
|
|
181,962
|
|
188,296
|
|
138,764
|
|
132,628
|
|
226,383
|
|
221,395
|
Consumer
Finance
|
|
52,540
|
|
40,992
|
|
7,134
|
|
7,920
|
|
11,028
|
|
12,494
|
Insurance
|
|
149,287
|
|
153,936
|
|
–
|
|
–
|
|
142,529
|
|
146,836
|
Other
|
|
133,172
|
|
134,484
|
|
2,314
|
|
3,907
|
|
113,763
|
|
113,247
|
Total Group
|
|
814,919
|
|
817,793
|
|
417,617
|
|
415,460
|
|
766,573
|
|
768,978
|
|
|
Half-year to
|
|
Half-year
to
|
|
Half-year
to
|
|
|
30 June
|
|
30
June
|
|
31
Dec
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
£ million
|
|
£ million
|
|
£ million
|
Administrative expenses
|
|
|
|
|
|
|
Staff
costs:
|
|
|
|
|
|
|
Salaries and social
security costs
|
|
1,769
|
|
1,782
|
|
1,806
|
Pensions and other
post-retirement benefit schemes (note 13)
|
|
302
|
|
268
|
|
287
|
Restructuring and
other staff costs
|
|
291
|
|
412
|
|
262
|
|
|
2,362
|
|
2,462
|
|
2,355
|
Premises
and equipment
|
|
399
|
|
353
|
|
319
|
Other
expenses:
|
|
|
|
|
|
|
Communications and
data processing
|
|
415
|
|
403
|
|
445
|
UK bank
levy
|
|
–
|
|
–
|
|
200
|
Other
|
|
655
|
|
675
|
|
661
|
|
|
1,070
|
|
1,078
|
|
1,306
|
|
|
3,831
|
|
3,893
|
|
3,980
|
Depreciation
and amortisation
|
|
1,131
|
|
1,166
|
|
1,214
|
Total operating expenses, excluding regulatory
provisions
|
|
4,962
|
|
5,059
|
|
5,194
|
Regulatory
provisions:
|
|
|
|
|
|
|
Payment
protection insurance provision (note 14)
|
|
1,050
|
|
–
|
|
1,000
|
Other
regulatory provisions
1
(note
14)
|
|
540
|
|
445
|
|
579
|
|
|
1,590
|
|
445
|
|
1,579
|
Total operating expenses
|
|
6,552
|
|
5,504
|
|
6,773
|
1
|
In
addition, regulatory provisions of £15 million in the
half-year to 30 June 2016 and £46 million in the
half-year to 31 December 2016 were charged against
income.
|
|
|
Half-year to
|
|
Half-year
to
|
|
Half-year
to
|
|
|
30 June
|
|
30
June
|
|
31
Dec
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
Impairment
losses on loans and receivables:
|
|
|
|
|
|
|
Loans
and advances to customers
|
|
200
|
|
229
|
|
363
|
Debt
securities classified as loans and receivables
|
|
(4)
|
|
–
|
|
–
|
Impairment
losses on loans and receivables (note 10)
|
|
196
|
|
229
|
|
363
|
Impairment of available-for-sale financial assets
|
|
6
|
|
146
|
|
27
|
Other
credit risk provisions
|
|
1
|
|
(13)
|
|
–
|
Total impairment charged to the income statement
|
|
203
|
|
362
|
|
390
|
In
accordance with IAS 34, the Group’s income tax expense for
the half-year to 30 June 2017 is based on the best estimate of
the weighted-average annual income tax rate expected for the full
financial year. The tax effects of one-off items are not included
in the weighted-average annual income tax rate, but are recognised
in the relevant period.
An
explanation of the relationship between tax expense and accounting
profit is set out below:
|
|
Half-year to
|
|
Half-year
to
|
|
Half-year
to
|
|
|
30 June
|
|
30 June
|
|
31
Dec
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
Profit before tax
|
|
2,544
|
|
2,454
|
|
1,784
|
|
|
|
|
|
|
|
Tax thereon at UK corporation tax rate of 19.25 per cent(2016: 20
per cent)
|
|
(490)
|
|
(491)
|
|
(357)
|
Impact of bank surcharge
|
|
(231)
|
|
(59)
|
|
(207)
|
Impact of changes in UK corporation tax rates
|
|
(35)
|
|
(3)
|
|
(198)
|
Disallowed items
1
|
|
(274)
|
|
(122)
|
|
(272)
|
Non-taxable items
|
|
55
|
|
47
|
|
28
|
Overseas tax rate differences
|
|
1
|
|
(6)
|
|
16
|
Gains exempted
|
|
69
|
|
8
|
|
11
|
Policyholder
tax
2
|
|
(37)
|
|
(34)
|
|
(207)
|
Tax losses not previously recognised
|
|
9
|
|
49
|
|
10
|
Adjustments in respect of previous years
|
|
26
|
|
10
|
|
54
|
Effect of results of joint ventures and associates
|
|
1
|
|
–
|
|
(1)
|
Other items
|
|
1
|
|
4
|
|
(4)
|
Tax expense
|
|
(905)
|
|
(597)
|
|
(1,127)
|
1
|
The
Finance (No.2) Act 2015 introduced restrictions on the tax
deductibility of provisions for conduct charges arising on or after
8 July 2015. This has resulted in tax of
£237 million (half-year to 30 June 2016:
£81 million; half-year to 31 December 2016:
£138 million).
|
2
|
In the
half-year to 31 December 2016 this included a £231 million
write down of the deferred tax asset held within the life business,
reflecting the Group’s utilisation estimate which has been
restricted by the current economic environment.
|
|
|
Half-year to
|
|
Half-year to
|
|
Half-year
to
|
|
|
30 June
|
|
30 June
|
|
31
Dec
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
Profit
attributable to ordinary shareholders – basic and
diluted
|
|
1,389
|
|
1,590
|
|
411
|
Tax
credit on distributions to other equity holders
|
|
51
|
|
41
|
|
50
|
|
|
1,440
|
|
1,631
|
|
461
|
|
|
Half-year to
|
|
Half-year to
|
|
Half-year
to
|
|
|
30 June
|
|
30 June
|
|
31
Dec
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
million
|
|
million
|
|
million
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares in issue –
basic
|
|
71,426
|
|
71,175
|
|
71,292
|
Adjustment for share options and awards
|
|
704
|
|
882
|
|
699
|
Weighted average number of ordinary shares in issue –
diluted
|
|
72,130
|
|
72,057
|
|
71,991
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
2.0p
|
|
2.3p
|
|
0.6p
|
Diluted earnings per share
|
|
2.0p
|
|
2.3p
|
|
0.6p
|
7.
Trading
and other financial assets at fair value through profit or
loss
|
|
At
|
|
At
|
|
|
30 June
|
|
31 Dec
|
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Trading
assets
|
|
43,016
|
|
45,253
|
|
|
|
|
|
Other
financial assets at fair value through profit or loss:
|
|
|
|
|
Treasury and other
bills
|
|
19
|
|
20
|
Debt
securities
|
|
37,065
|
|
38,210
|
Equity
shares
|
|
81,870
|
|
67,691
|
|
|
118,954
|
|
105,921
|
Total trading and other financial assets at fair value through
profit or loss
|
|
161,970
|
|
151,174
|
Included
in the above is £115,178 million (31 December 2016:
£101,888 million) of assets relating to the insurance
businesses.
8.
Derivative
financial instruments
|
|
30 June 2017
|
|
31
December 2016
|
|
|
Fair value
|
|
Fair value
|
|
Fair
value
|
|
Fair
value
|
|
|
of assets
|
|
of liabilities
|
|
of
assets
|
|
of
liabilities
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
Hedging
|
|
|
|
|
|
|
|
|
Derivatives
designated as fair value hedges
|
|
1,278
|
|
692
|
|
1,481
|
|
759
|
Derivatives
designated as cash flow hedges
|
|
925
|
|
1,136
|
|
1,231
|
|
1,205
|
|
|
2,203
|
|
1,828
|
|
2,712
|
|
1,964
|
Trading
|
|
|
|
|
|
|
|
|
Exchange
rate contracts
|
|
6,864
|
|
6,795
|
|
8,860
|
|
8,781
|
Interest
rate contracts
|
|
19,723
|
|
19,217
|
|
23,050
|
|
22,352
|
Credit
derivatives
|
|
378
|
|
367
|
|
381
|
|
659
|
Equity
and other contracts
|
|
856
|
|
983
|
|
1,135
|
|
1,168
|
|
|
27,821
|
|
27,362
|
|
33,426
|
|
32,960
|
Total recognised derivative assets/liabilities
|
|
30,024
|
|
29,190
|
|
36,138
|
|
34,924
|
9.
Loans
and advances to customers
|
|
|
|
|
|
|
At 30 June
|
|
At 31
Dec
|
|
|
|
2017
|
|
2016
|
|
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
Agriculture,
forestry and fishing
|
|
7,509
|
|
7,269
|
|
Energy
and water supply
|
|
1,543
|
|
2,320
|
|
Manufacturing
|
|
7,529
|
|
7,285
|
|
Construction
|
|
4,405
|
|
4,535
|
|
Transport,
distribution and hotels
|
|
12,262
|
|
13,320
|
|
Postal
and communications
|
|
2,537
|
|
2,564
|
|
Property
companies
|
|
31,756
|
|
32,192
|
|
Financial,
business and other services
|
|
49,786
|
|
49,197
|
|
Personal:
|
|
|
|
|
|
Mortgages
|
|
305,352
|
|
306,682
|
|
Other
|
|
28,969
|
|
20,761
|
|
Lease
financing
|
|
2,403
|
|
2,628
|
|
Hire
purchase
|
|
12,778
|
|
11,617
|
|
|
|
466,829
|
|
460,370
|
|
Allowance
for impairment losses on loans and advances to customers (note
10)
|
|
(2,225)
|
|
(2,412)
|
|
Total loans and advances to customers
|
|
464,604
|
|
457,958
|
|
Loans
and advances to customers include advances securitised under the
Group's securitisation and covered bond programmes (see note
12).
10.
Allowance
for impairment losses on loans and receivables
|
|
Half-year to
|
|
Half-year
to
|
|
Half-year
to
|
|
|
30 June
|
|
30
June
|
|
31
Dec
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
Opening
balance
|
|
2,488
|
|
3,130
|
|
2,831
|
Exchange
and other adjustments
|
|
91
|
|
19
|
|
50
|
Advances
written off
|
|
(818)
|
|
(1,037)
|
|
(1,096)
|
Recoveries
of advances written off in previous years
|
|
333
|
|
509
|
|
353
|
Unwinding
of discount
|
|
(13)
|
|
(19)
|
|
(13)
|
Charge
to the income statement (note 4)
|
|
196
|
|
229
|
|
363
|
Balance at end of period
|
|
2,277
|
|
2,831
|
|
2,488
|
|
|
|
|
|
|
|
In
respect of:
|
|
|
|
|
|
|
Loans
and advances to customers (note 9)
|
|
2,225
|
|
2,733
|
|
2,412
|
Debt
securities
|
|
52
|
|
98
|
|
76
|
Balance at end of period
|
|
2,277
|
|
2,831
|
|
2,488
|
On 1
June 2017, following the receipt of competition and regulatory
approval, the Group acquired 100 per cent of the ordinary share
capital of MBNA Limited (MBNA), which together with its
subsidiaries undertakes a UK consumer credit card business, from
FIA Jersey Holdings Limited, a wholly-owned subsidiary of Bank of
America. The total fair value of the purchase consideration was
£2,016 million, settled in cash.
The
table below sets out the fair value of the identifiable assets and
liabilities acquired. The initial accounting for the acquisition
has been determined provisionally because of its complexity and the
limited time available between the acquisition date and the
preparation of these condensed consolidated interim financial
statements.
|
|
Book value
|
|
Provisional
|
|
Fair value
|
|
|
as at 1 June
|
|
fair value
|
|
as at 1 June
|
|
|
2017
|
|
adjustments
|
|
2017
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Loans
and advances to customers
|
|
7,466
|
|
345
|
|
7,811
|
Available-for-sale
financial assets
|
|
16
|
|
–
|
|
16
|
Other
intangible assets
|
|
–
|
|
702
|
|
702
|
Other
assets
|
|
217
|
|
345
|
|
562
|
Total assets
|
|
7,699
|
|
1,392
|
|
9,091
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Deposits
from banks
1
|
|
6,431
|
|
–
|
|
6,431
|
Other
liabilities
|
|
115
|
|
184
|
|
299
|
Other
provisions
|
|
233
|
|
395
|
|
628
|
Total liabilities
|
|
6,779
|
|
579
|
|
7,358
|
|
|
|
|
|
|
|
Provisional fair value of net assets acquired
|
|
920
|
|
813
|
|
1,733
|
|
|
|
|
|
|
|
Goodwill arising on acquisition
|
|
|
|
|
|
283
|
Total consideration
|
|
|
|
|
|
2,016
|
1
|
Upon
acquisition, the funding of MBNA was assumed by Lloyds Bank
plc.
|
The
post-acquisition profit before tax of MBNA covering the period from
1 June 2017 to 30 June 2017, which is included in the Group
statutory consolidated income statement for the half-year to 30
June 2017, is £18 million.
Had the
acquisition date of MBNA been 1 January 2017, the Group’s
consolidated total income would have been £329 million
higher at £17,604 million and the Group’s consolidated
profit before tax would have been £112 million higher at
£2,656 million.
12.
Debt
securities in issue
|
|
30 June 2017
|
|
31
December 2016
|
|
|
At fair value
|
|
|
|
|
|
At fair
value
|
|
|
|
|
|
|
through
|
|
At
|
|
|
|
through
|
|
At
|
|
|
|
|
profit or
|
|
amortised
|
|
|
|
profit
or
|
|
amortised
|
|
|
|
|
loss
|
|
cost
|
|
Total
|
|
loss
|
|
cost
|
|
Total
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medium-term
notes issued
|
|
8,223
|
|
25,741
|
|
33,964
|
|
9,423
|
|
27,182
|
|
36,605
|
Covered
bonds
|
|
–
|
|
25,937
|
|
25,937
|
|
–
|
|
30,521
|
|
30,521
|
Certificates
of deposit
|
|
–
|
|
10,994
|
|
10,994
|
|
–
|
|
8,077
|
|
8,077
|
Securitisation
notes
|
|
–
|
|
5,105
|
|
5,105
|
|
–
|
|
7,253
|
|
7,253
|
Commercial
paper
|
|
–
|
|
3,780
|
|
3,780
|
|
–
|
|
3,281
|
|
3,281
|
|
|
8,223
|
|
71,557
|
|
79,780
|
|
9,423
|
|
76,314
|
|
85,737
|
The
notes issued by the Group’s securitisation and covered bond
programmes are held by external parties and by subsidiaries of the
Group.
Securitisation programmes
At
30 June 2017, external parties held £5,105 million
(31 December 2016: £7,253 million) and the
Group’s subsidiaries held £25,244 million
(31 December 2016: £26,435 million) of total
securitisation notes in issue of £30,349 million
(31 December 2016: £33,688 million). The notes are
secured on loans and advances to customers and debt securities
classified as loans and receivables amounting to
£49,284 million (31 December 2016:
£52,184 million), the majority of which have been sold by
subsidiary companies to bankruptcy remote structured entities. The
structured entities are consolidated fully and all of these loans
are retained on the Group's balance sheet.
Covered bond programmes
At
30 June 2017, external parties held £25,937 million
(31 December 2016: £30,521 million) and the
Group’s subsidiaries held £700 million
(31 December 2016: £700 million) of total covered
bonds in issue of £26,637 million (31 December 2016:
£31,221 million). The bonds are secured on certain loans
and advances to customers amounting to £33,170 million
(31 December 2016: £35,968 million) that have been
assigned to bankruptcy remote limited liability partnerships. These
loans are retained on the Group's balance sheet.
Cash
deposits of £5,065 million (31 December 2016:
£9,018 million) which support the debt securities issued
by the structured entities, the term advances related to covered
bonds and other legal obligations are held by the
Group.
13.
Post-retirement
defined benefit schemes
The
Group’s post-retirement defined benefit scheme obligations
are comprised as follows:
|
|
At
|
|
At
|
|
|
30 June
|
|
31
Dec
|
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
Defined
benefit pension schemes:
|
|
|
|
|
-
Fair value of scheme assets
|
|
44,721
|
|
45,578
|
-
Present value of funded obligations
|
|
(44,980)
|
|
(45,822)
|
Net
pension scheme liability
|
|
(259)
|
|
(244)
|
Other
post-retirement schemes
|
|
(236)
|
|
(236)
|
Net retirement benefit liability
|
|
(495)
|
|
(480)
|
|
|
|
|
|
Recognised
on the balance sheet as:
|
|
|
|
|
Retirement
benefit assets
|
|
410
|
|
342
|
Retirement
benefit obligations
|
|
(905)
|
|
(822)
|
Net retirement benefit liability
|
|
(495)
|
|
(480)
|
The
movement in the Group’s net post-retirement defined benefit
scheme liability during the period was as follows:
|
|
£m
|
|
|
|
Liability
at 1 January 2017
|
|
(480)
|
Income
statement charge
|
|
(181)
|
Employer
contributions
|
|
290
|
Remeasurement
|
|
(124)
|
Liability at 30 June 2017
|
|
(495)
|
The
charge to the income statement in respect of pensions and other
post-retirement benefit schemes is comprised as
follows:
|
|
Half-year to
|
|
Half-year
to
|
|
Half-year
to
|
|
|
30 June
|
|
30
June
|
|
31
Dec
|
|
|
2017
|
|
2016
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
Defined
benefit pension schemes
|
|
181
|
|
136
|
|
151
|
Defined
contribution schemes
|
|
121
|
|
132
|
|
136
|
Total charge to the income statement
(note 3)
|
|
302
|
|
268
|
|
287
|
The
principal assumptions used in the valuations of the defined benefit
pension schemes were as follows:
|
|
At
|
|
At
|
|
|
30 June
|
|
31
Dec
|
|
|
2017
|
|
2016
|
|
|
%
|
|
%
|
|
|
|
|
|
Discount
rate
|
|
2.71
|
|
2.76
|
Rate of
inflation:
|
|
|
|
|
Retail
Prices Index
|
|
3.18
|
|
3.23
|
Consumer Price
Index
|
|
2.13
|
|
2.18
|
Rate of
salary increases
|
|
0.00
|
|
0.00
|
Weighted-average
rate of increase for pensions in payment
|
|
2.71
|
|
2.74
|
14.
Provisions
for liabilities and charges
Payment protection insurance (excluding MBNA)
The
Group increased the provision for PPI costs by a further
£1,050 million in the half-year to 30 June 2017, of which
£700 million was in the second quarter, bringing the
total amount provided to £18,075 million.
The
charge in the second quarter is largely driven by a potentially
higher total volume of complaints and associated operating costs
due to higher reactive complaint volumes received over the past
three quarters, which have averaged approximately 9,000 per week.
As previously announced, £350 million was taken in the
first quarter to reflect the impact of the Financial Conduct
Authority’s (FCA) rules and guidance published on 2 March
2017 (Policy Statement 17/3), which confirmed a two month extension
to the time bar to the end of August 2019.
At 30
June 2017 a provision of £2,647 million remained
unutilised relating to complaints and associated administration
costs. The provision is consistent with total expected complaint
volumes of 5.3 million (including complaints falling under the
Plevin rules and guidance) with approximately 1.2 million still
expected to be received including approximately 9,000 reactive
complaints per week through to August 2019. Total cash payments
were £661 million during the half-year to 30 June
2017.
Sensitivities
The
Group estimates that it has sold approximately 16 million PPI
policies since 2000. These include policies that were not mis-sold
and those that have been successfully claimed upon. Since the
commencement of the PPI redress programme in 2011 the Group
estimates that it has contacted, settled or provided for
approximately 52 per cent of the policies sold since
2000.
The
total amount provided for PPI represents the Group’s best
estimate of the likely future cost. However a number of risks and
uncertainties remain in particular with respect to future volumes.
The cost could differ from the Group’s estimates and the
assumptions underpinning them, and could result in a further
provision being required. There is significant uncertainty around
the impact of the regulatory changes, FCA media campaign and Claims
Management Companies and customer activity.
Key
metrics and sensitivities are highlighted in the table
below:
Sensitivities
(exclude
claims where no PPI policy was held)
|
Actuals
to date
|
Anticipated
future
2
|
Sensitivity
2,3
|
Customer
initiated complaints since origination (m)
1
|
4.1
|
1.2
|
0.1 =
£215m
|
Administrative
expenses (£m)
|
3,350
|
525
|
1 case
= £450
|
1
|
Sensitivity includes complaint handling costs.
|
2
|
Anticipated
future and sensitivities are impacted by a proportion of complaints
and re-complaints falling under the
Plevin
rules and guidance in light of
the FCA Policy Statement PS 17/3.
|
3
|
Average
redress and uphold rates remain stable.
|
Payment protection insurance (MBNA)
With
regard to MBNA, as announced in December 2016, the Group’s
exposure is capped at £240 million through an indemnity
received from Bank of America.
14.
Provisions for liabilities and charges
(continued)
Other provisions for legal actions and regulatory
matters
Packaged bank accounts
In the
half-year to 30 June 2017 the Group has provided an additional
£95 million in respect of complaints relating to alleged
mis-selling of packaged bank accounts raising the total amount
provided to £600 million. As at 30 June 2017,
£182 million of the provision remained
unutilised
.
The total
amount provided represents the Group’s best estimate of the
likely future cost, however a number of risks and uncertainties
remain in particular with respect to future volumes.
Arrears handling related activities
The
Group has provided an additional £155 million in the
half-year to 30 June 2017 (bringing the total provision to
£552 million), for the costs of identifying and
rectifying certain arrears management fees and activities.
Following a review of the Group’s arrears handling
activities, the Group has put in place a number of actions to
improve further its handling of customers in these areas and the
Group is reimbursing mortgage arrears fees to around 590,000
customers. As at 30 June 2017, the unutilised provision was
£518 million.
Customer claims in relation to insurance branch business in
Germany
The
Group continues to receive claims in Germany from customers
relating to policies issued by Clerical Medical Investment Group
Limited (subsequently renamed Scottish Widows Limited). The German
industry-wide issue regarding notification of contractual
‘cooling off’ periods continued to lead to an
increasing number of claims in 2016. Up to 31 December 2016
the Group had provided a total of £639 million, no further
amounts have been provided in the half-year to 30 June 2017. The
remaining unutilised provision as at 30 June 2017 was £156
million (31 December 2016 is £168 million). The validity
of the claims facing the Group depends upon the facts and
circumstances in respect of each claim. As a result the ultimate
financial effect, which could be significantly different from the
current provision, will be known only once all relevant claims have
been resolved.
HBOS Reading – customer review
The
Group has commenced a review into a number of customer cases from
the former HBOS Impaired Assets Office based in Reading. This
review follows the conclusion of a criminal trial in which a number
of individuals, including two former HBOS employees, were convicted
of conspiracy to corrupt, fraudulent trading and associated money
laundering offences which occurred prior to the acquisition of HBOS
by the Group in 2009. The review is ongoing, the Group has provided
£100 million in the half-year to 30 June 2017 and is in the
process of paying compensation to the victims of the fraud for
economic losses, ex-gratia payments and awards for distress and
inconvenience.
Other legal actions and regulatory matters
In the
course of its business, the Group is engaged in discussions with
the PRA, FCA and other UK and overseas regulators and other
governmental authorities on a range of matters. The Group also
receives complaints and claims from customers in connection with
its past conduct and, where significant, provisions are held
against the costs expected to be incurred as a result of the
conclusions reached. In the half-year to 30 June 2017, the Group
charged an additional £190 million in respect of matters
across all divisions. At 30 June 2017, the Group held unutilised
provisions totalling £589 million for these other legal
actions and regulatory matters.
15.
Contingent
liabilities and commitments
Interchange fees
With
respect to multi-lateral interchange fees (MIFs), the Group is not
directly involved in the ongoing investigations and litigation (as
described below) which involve card schemes such as Visa and
MasterCard. However, the Group is a member of Visa and MasterCard
and other card schemes.
●
The European
Commission continues to pursue certain competition investigations
into MasterCard and Visa probing, amongst other things, MIFs paid
in respect of cards issued outside the EEA;
●
Litigation
continues in the English Courts against both Visa and MasterCard.
This litigation has been brought by several retailers who are
seeking damages for allegedly ‘overpaid’ MIFs. From
publicly available information, it is understood these damages
claims are running to different timescales with respect to the
litigation process. It is also possible that new claims may be
issued.
●
Any ultimate impact
on the Group of the above investigations and the litigation against
Visa and MasterCard remains uncertain at this time.
Visa
Inc completed its acquisition of Visa Europe on 21 June 2016. The
Group’s share of the sale proceeds comprised cash
consideration of approximately £330 million (of which
approximately £300 million was received on completion of the
sale and £30 million is deferred for three years) and
preferred stock, which the Group measures at fair value. The
preferred stock is convertible into Class A Common Stock of Visa
Inc or its equivalent upon the occurrence of certain events. As
part of this transaction, the Group and certain other UK banks also
entered into a Loss Sharing Agreement (LSA) with Visa Inc, which
clarifies the allocation of liabilities between the parties should
the litigation referred to above result in Visa Inc being liable
for damages payable by Visa Europe. The maximum amount of liability
to which the Group may be subject under the LSA is capped at the
cash consideration which was received by the Group at completion.
Visa Inc may also have recourse to a general indemnity, previously
in place under Visa Europe’s Operating Regulations, for
damages claims concerning inter or intra-regional MIF setting
activities.
LIBOR and other trading rates
In July
2014, the Group announced that it had reached settlements totalling
£217 million (at 30 June 2014 exchange rates) to resolve with
UK and US federal authorities legacy issues regarding the
manipulation several years ago of Group companies’
submissions to the British Bankers’ Association (BBA) London
Interbank Offered Rate (LIBOR) and Sterling Repo Rate. The Group
continues to cooperate with various other government and regulatory
authorities, including the Serious Fraud Office, the Swiss
Competition Commission, and a number of US State Attorneys General,
in conjunction with their investigations into submissions made by
panel members to the bodies that set LIBOR and various other
interbank offered rates.
Certain
Group companies, together with other panel banks, have also been
named as defendants in private lawsuits, including purported class
action suits, in the US in connection with their roles as panel
banks contributing to the setting of US Dollar, Japanese Yen and
Sterling LIBOR and the Australian BBSW Reference Rate. The
lawsuits, which contain broadly similar allegations, allege
violations of the Sherman Antitrust Act, the Racketeer Influenced
and Corrupt Organizations Act and the Commodity Exchange Act, as
well as various state statutes and common law doctrines. Certain of
the plaintiffs’ claims, including those in connection with
USD and JPY LIBOR, have been dismissed by the US Federal Court for
Southern District of New York. Appeals remain
possible.
Certain
Group companies are also named as defendants in UK based claims
raising LIBOR manipulation allegations.
It is
currently not possible to predict the scope and ultimate outcome on
the Group of the various outstanding regulatory investigations not
encompassed by the settlements, any private lawsuits or any related
challenges to the interpretation or validity of any of the
Group’s contractual arrangements, including their timing and
scale.
15.
Contingent liabilities and commitments
(continued)
UK shareholder litigation
In
August 2014, the Group and a number of former directors were named
as defendants in a claim filed in the English High Court by a
number of claimants who held shares in Lloyds TSB Group plc (LTSB)
prior to the acquisition of HBOS plc, alleging breaches of duties
in relation to information provided to shareholders in connection
with the acquisition and the recapitalisation of LTSB. It is
currently not possible to determine the ultimate impact on the
Group (if any), but the Group intends to defend the claim
vigorously.
Financial Services Compensation Scheme
Following
the default of a number of deposit takers in 2008, the Financial
Services Compensation Scheme (FSCS) borrowed funds from HM Treasury
to meet the compensation costs for customers of those firms. In
June 2017, the FSCS announced that following the sale of certain
Bradford & Bingley mortgage assets, the principal balance
outstanding on these loans was £4,678 million (31
December 2016: £15,655 million). Although it is anticipated
that the substantial majority of this loan will be repaid from
funds the FSCS receives from asset sales, surplus cash flow or
other recoveries in relation to the assets of the firms that
defaulted, any shortfall will be funded by deposit-taking
participants, including the Group, of the FSCS. The amount of
future levies payable by the Group depends on a number of factors,
principally, the amounts recovered by the FSCS from asset
sales.
Tax authorities
The
Group has an open matter in relation to a claim for group relief of
losses incurred in its former Irish banking subsidiary, which
ceased trading on 31 December 2010. In 2013 HMRC informed the Group
that their interpretation of the UK rules which allow the offset of
such losses denies the claim. If HMRC’s position is found to
be correct management estimate that this would result in an
increase in current tax liabilities of approximately
£650 million and a reduction in the Group’s
deferred tax asset of approximately £350 million. The Group
does not agree with HMRC's position and, having taken appropriate
advice, does not consider that this is a case where additional tax
will ultimately fall due. There are a number of other open matters
on which the Group is in discussion with HMRC (including the tax
treatment of certain costs arising from the divestment of TSB
Banking Group plc), none of which is expected to have a material
impact on the financial position of the Group.
Residential mortgage repossessions
In
August 2014, the Northern Ireland High Court handed down judgment
in favour of the borrowers in relation to three residential
mortgage test cases concerning certain aspects of the Group’s
practice with respect to the recalculation of contractual monthly
instalments of customers in arrears. The FCA is actively engaged
with the industry in relation to these considerations and has
recently published Guidance on the treatment of customers with
mortgage payment shortfalls. The Guidance covers remediation for
mortgage customers who may have been affected by the way firms
calculate these customers’ monthly mortgage instalments. The
Group is now determining its detailed approach to implementation of
the Guidance and will contact affected customers next
year.
Update following the Financial Conduct Authority’s
publication of Policy Statement 17/3
On 2
August 2016, the Financial Conduct Authority (FCA) published a
further consultation paper (CP16/20: Rules and guidance on payment
protection insurance complaints: feedback on CP15/39 and further
consultation), following on from the original consultation
published in November 2015.
On 2
March 2017 the FCA confirmed that the deadline by which consumers
would need to make their PPI complaints would be 29 August 2019,
and new rules with respect to the UK Supreme Court’s decision
in Plevin v Paragon Personal Finance Limited [2014] UKSC 61 would
come into force on 29 August 2017.
15.
Contingent liabilities and commitments
(continued)
On 31
May 2017 an application for judicial review of Policy Statement
17/3 was filed in the High Court of England and Wales, which
subject to the Court’s determination may have an impact on
the implementation of the FCA’s rules and guidance in Policy
Statement 17/3.
Mortgage arrears handling activities
On 26
May 2016, the Group was informed that an enforcement team at the
FCA had commenced an investigation in connection with the
Group’s mortgage arrears handling activities. This
investigation is ongoing and it is currently not possible to make a
reliable assessment of the liability, if any, that may result from
the investigation.
Other legal actions and regulatory matters
In
addition, during the ordinary course of business the Group is
subject to other complaints and threatened or actual legal
proceedings (including class or group action claims) brought by or
on behalf of current or former employees, customers, investors or
other third parties, as well as legal and regulatory reviews,
challenges, investigations and enforcement actions, both in the UK
and overseas. All such material matters are periodically
reassessed, with the assistance of external professional advisers
where appropriate, to determine the likelihood of the Group
incurring a liability. In those instances where it is concluded
that it is more likely than not that a payment will be made, a
provision is established to management's best estimate of the
amount required at the relevant balance sheet date. In some cases
it will not be possible to form a view, for example because the
facts are unclear or because further time is needed properly to
assess the merits of the case, and no provisions are held in
relation to such matters. In these circumstances, specific
disclosure in relation to a contingent liability will be made where
material. However the Group does not currently expect the final
outcome of any such case to have a material adverse effect on its
financial position, operations or cash flows.
Contingent liabilities and commitments arising from the banking
business
|
|
At 30 June
|
|
At 31
Dec
|
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Contingent liabilities
|
|
|
|
|
Acceptances
and endorsements
|
|
29
|
|
21
|
Other:
|
|
|
|
|
Other
items serving as direct credit substitutes
|
|
600
|
|
779
|
Performance bonds
and other transaction-related contingencies
|
|
2,227
|
|
2,237
|
|
|
2,827
|
|
3,016
|
Total contingent liabilities
|
|
2,856
|
|
3,037
|
|
|
|
|
|
Commitments
|
|
|
|
|
Documentary
credits and other short-term trade-related
transactions
|
|
1
|
|
–
|
Forward
asset purchases and forward deposits placed
|
|
365
|
|
648
|
|
|
|
|
|
Undrawn
formal standby facilities, credit lines and other commitments to
lend:
|
|
|
|
|
Less
than 1 year original maturity:
|
|
|
|
|
Mortgage offers
made
|
|
12,014
|
|
10,749
|
Other
commitments
|
|
84,432
|
|
62,697
|
|
|
96,446
|
|
73,446
|
1 year
or over original maturity
|
|
36,838
|
|
40,074
|
Total commitments
|
|
133,650
|
|
114,168
|
Of the
amounts shown above in respect of undrawn formal standby
facilities, credit lines and other commitments to lend,
£61,921 million (31 December 2016:
£63,203 million) was irrevocable.
16.
Fair
values of financial assets and liabilities
The
valuations of financial instruments have been classified into three
levels according to the quality and reliability of information used
to determine those fair values. Note 49 to the Group’s 2016
financial statements describes the definitions of the three levels
in the fair value hierarchy.
Valuation control framework
Key
elements of the valuation control framework, which covers processes
for all levels in the fair value hierarchy including level 3
portfolios, include model validation (incorporating pre-trade and
post-trade testing), product implementation review and independent
price verification. Formal committees meet quarterly to discuss and
approve valuations in more judgemental areas.
Transfers into and out of level 3 portfolios
Transfers
out of level 3 portfolios arise when inputs that could have a
significant impact on the instrument’s valuation become
market observable; conversely, transfers into the portfolios arise
when consistent sources of data cease to be available.
Valuation methodology
For
level 2 and level 3 portfolios, there is no significant change to
what was disclosed in the Group’s 2016 Annual Report and
Accounts in respect of the valuation methodology (techniques and
inputs) applied to such portfolios.
The
table below summarises the carrying values of financial assets and
liabilities presented on the Group’s balance sheet. The fair
values presented in the table are at a specific date and may be
significantly different from the amounts which will actually be
paid or received on the maturity or settlement date.
|
|
30 June 2017
|
|
31
December 2016
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
value
|
|
value
|
|
value
|
|
value
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
Financial assets
|
|
|
|
|
|
|
|
|
Trading
and other financial assets at fair value through profit or
loss
|
|
161,970
|
|
161,970
|
|
151,174
|
|
151,174
|
Derivative
financial instruments
|
|
30,024
|
|
30,024
|
|
36,138
|
|
36,138
|
Loans
and receivables:
|
|
|
|
|
|
|
|
|
Loans
and advances to banks
|
|
8,865
|
|
8,852
|
|
26,902
|
|
26,812
|
Loans
and advances to customers
|
|
464,604
|
|
464,629
|
|
457,958
|
|
457,461
|
Debt
securities
|
|
3,841
|
|
3,774
|
|
3,397
|
|
3,303
|
Available-for-sale
financial instruments
|
|
51,803
|
|
51,803
|
|
56,524
|
|
56,524
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Deposits
from banks
|
|
24,879
|
|
24,855
|
|
16,384
|
|
16,395
|
Customer
deposits
|
|
417,617
|
|
418,050
|
|
415,460
|
|
416,490
|
Trading
and other financial liabilities at fair value through profit or
loss
|
|
55,671
|
|
55,671
|
|
54,504
|
|
54,504
|
Derivative
financial instruments
|
|
29,190
|
|
29,190
|
|
34,924
|
|
34,924
|
Debt
securities in issue
|
|
71,557
|
|
74,707
|
|
76,314
|
|
79,650
|
Liabilities
arising from non-participating investment contracts
|
|
15,652
|
|
15,652
|
|
20,112
|
|
20,112
|
Subordinated
liabilities
|
|
18,575
|
|
22,032
|
|
19,831
|
|
22,395
|
The
carrying amount of the following financial instruments is a
reasonable approximation of fair value: cash and balances at
central banks, items in the course of collection from banks, items
in course of transmission to banks and notes in
circulation.
The
Group manages valuation adjustments for its derivative exposures on
a net basis; the Group determines their fair values on the basis of
their net exposures. In all other cases, fair values of financial
assets and liabilities measured at fair value are determined on the
basis of their gross exposures.
16.
Fair values of financial assets and
liabilities
(continued)
The
following tables provide an analysis of the financial assets and
liabilities of the Group that are carried at fair value in the
Group’s consolidated balance sheet, grouped into levels 1 to
3 based on the degree to which the fair value is
observable.
Financial
assets
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
At 30 June 2017
|
|
|
|
|
|
|
|
|
Trading
and other financial assets at fair value through profit or
loss:
|
|
|
|
|
|
|
|
|
Loans
and advances to customers
|
|
–
|
|
27,839
|
|
–
|
|
27,839
|
Loans
and advances to banks
|
|
–
|
|
1,446
|
|
–
|
|
1,446
|
Debt
securities
|
|
25,768
|
|
22,897
|
|
2,126
|
|
50,791
|
Equity
shares
|
|
80,252
|
|
31
|
|
1,592
|
|
81,875
|
Treasury
and other bills
|
|
19
|
|
–
|
|
–
|
|
19
|
Total
trading and other financial assets at fair value through profit or
loss
|
|
106,039
|
|
52,213
|
|
3,718
|
|
161,970
|
Available-for-sale
financial assets:
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
44,717
|
|
5,865
|
|
114
|
|
50,696
|
Equity
shares
|
|
527
|
|
34
|
|
546
|
|
1,107
|
Total
available-for-sale financial assets
|
|
45,244
|
|
5,899
|
|
660
|
|
51,803
|
Derivative
financial instruments
|
|
123
|
|
28,789
|
|
1,112
|
|
30,024
|
Total
financial assets carried at fair value
|
|
151,406
|
|
86,901
|
|
5,490
|
|
243,797
|
|
|
|
|
|
|
|
|
|
At 31
December 2016
|
|
|
|
|
|
|
|
|
Trading
and other financial assets at fair value
|
|
|
|
|
|
|
|
|
through
profit or loss:
|
|
|
|
|
|
|
|
|
Loans
and advances to customers
|
|
–
|
|
30,473
|
|
–
|
|
30,473
|
Loans
and advances to banks
|
|
–
|
|
2,606
|
|
–
|
|
2,606
|
Debt
securities
|
|
25,075
|
|
23,010
|
|
2,293
|
|
50,378
|
Equity
shares
|
|
66,147
|
|
37
|
|
1,513
|
|
67,697
|
Treasury
and other bills
|
|
20
|
|
–
|
|
–
|
|
20
|
Total
trading and other financial assets at fair value through profit or
loss
|
|
91,242
|
|
56,126
|
|
3,806
|
|
151,174
|
Available-for-sale
financial assets:
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
48,649
|
|
6,529
|
|
133
|
|
55,311
|
Equity
shares
|
|
435
|
|
17
|
|
761
|
|
1,213
|
Total
available-for-sale financial assets
|
|
49,084
|
|
6,546
|
|
894
|
|
56,524
|
Derivative
financial instruments
|
|
270
|
|
34,469
|
|
1,399
|
|
36,138
|
Total
financial assets carried at fair value
|
|
140,596
|
|
97,141
|
|
6,099
|
|
243,836
|
16.
Fair values of financial assets and
liabilities
(continued)
Financial liabilities
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
At 30 June 2017
|
|
|
|
|
|
|
|
|
Trading
and other financial liabilities at fair value through profit or
loss:
|
|
|
|
|
|
|
|
|
Liabilities
held at fair value through profit or loss
|
|
–
|
|
8,223
|
|
–
|
|
8,223
|
Trading
liabilities
|
|
2,375
|
|
45,073
|
|
–
|
|
47,448
|
Total
trading and other financial liabilities at fair value through
profit or loss
|
|
2,375
|
|
53,296
|
|
–
|
|
55,671
|
Derivative
financial instruments
|
|
360
|
|
28,070
|
|
760
|
|
29,190
|
Total
financial liabilities carried at fair value
|
|
2,735
|
|
81,366
|
|
760
|
|
84,861
|
|
|
|
|
|
|
|
|
|
At 31
December 2016
|
|
|
|
|
|
|
|
|
Trading
and other financial liabilities at fair value
|
|
|
|
|
|
|
|
|
through
profit or loss:
|
|
|
|
|
|
|
|
|
Liabilities
held at fair value through profit or loss
|
|
–
|
|
9,423
|
|
2
|
|
9,425
|
Trading
liabilities
|
|
2,417
|
|
42,662
|
|
–
|
|
45,079
|
Total
trading and other financial liabilities at fair value through
profit or loss
|
|
2,417
|
|
52,085
|
|
2
|
|
54,504
|
Derivative
financial instruments
|
|
358
|
|
33,606
|
|
960
|
|
34,924
|
Total
financial liabilities carried at fair value
|
|
2,775
|
|
85,691
|
|
962
|
|
89,428
|
Financial
guarantees are recognised at fair value on initial recognition and
are classified as level 3; the balance is not
material.
16.
Fair values of financial assets and
liabilities
(continued)
Movements in level 3 portfolio
The
tables below analyse movements in the level 3 financial assets
portfolio.
|
|
Trading
|
|
|
|
|
|
|
|
|
and other
|
|
|
|
|
|
Total
|
|
|
financial
|
|
Available-
|
|
|
|
financial
|
|
|
assets at fair
|
|
for-sale
|
|
|
|
assets
|
|
|
value through
|
|
financial
|
|
Derivative
|
|
carried at
|
|
|
profit or loss
|
|
assets
|
|
assets
|
|
fair value
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
At 1
January 2017
|
|
3,806
|
|
894
|
|
1,399
|
|
6,099
|
Exchange
and other adjustments
|
|
(4)
|
|
(15)
|
|
18
|
|
(1)
|
Gains
(losses) recognised in the income statement within other
income
|
|
11
|
|
–
|
|
(226)
|
|
(215)
|
Gains
(losses) recognised in other comprehensive income within the
revaluation reserve in respect of available-for-sale financial
assets
|
|
–
|
|
(199)
|
|
–
|
|
(199)
|
Purchases
|
|
303
|
|
24
|
|
5
|
|
332
|
Sales
|
|
(331)
|
|
(23)
|
|
(40)
|
|
(394)
|
Transfers
into the level 3 portfolio
|
|
56
|
|
–
|
|
–
|
|
56
|
Transfers
out of the level 3 portfolio
|
|
(123)
|
|
(21)
|
|
(44)
|
|
(188)
|
At 30 June 2017
|
|
3,718
|
|
660
|
|
1,112
|
|
5,490
|
Gains (losses) recognised in the income statement within other
income relating to those assets held at 30 June 2017
|
|
234
|
|
–
|
|
(227)
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
|
|
|
|
|
|
and
other
|
|
|
|
|
|
Total
|
|
|
financial
|
|
Available-
|
|
|
|
financial
|
|
|
assets
at fair
|
|
for-sale
|
|
|
|
assets
|
|
|
value
through
|
|
financial
|
|
Derivative
|
|
carried
at
|
|
|
profit
or loss
|
|
assets
|
|
assets
|
|
fair
value
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
At 1
January 2016
|
|
5,116
|
|
684
|
|
1,469
|
|
7,269
|
Exchange
and other adjustments
|
|
6
|
|
1
|
|
61
|
|
68
|
Gains
recognised in the income statement within other income
|
|
317
|
|
–
|
|
478
|
|
795
|
Gains
recognised in other comprehensive income within the revaluation
reserve in respect of available-for-sale financial
assets
|
|
–
|
|
248
|
|
–
|
|
248
|
Purchases
|
|
335
|
|
204
|
|
6
|
|
545
|
Sales
|
|
(2,031)
|
|
(494)
|
|
(35)
|
|
(2,560)
|
Derecognised
pursuant to tender offers and redemptions in respect of Enhanced
Capital Notes
|
|
–
|
|
–
|
|
(476)
|
|
(476)
|
Transfers
into the level 3 portfolio
|
|
187
|
|
136
|
|
45
|
|
368
|
Transfers
out of the level 3 portfolio
|
|
(159)
|
|
–
|
|
(3)
|
|
(162)
|
At 30
June 2016
|
|
3,771
|
|
779
|
|
1,545
|
|
6,095
|
Gains
recognised in the income statement within other income relating to
those assets held at 30 June 2016
|
|
373
|
|
–
|
|
635
|
|
1,008
|
16.
Fair values of financial assets and
liabilities
(continued)
The
tables below analyse movements in the level 3 financial liabilities
portfolio.
|
|
Trading
|
|
|
|
|
|
|
and other
|
|
|
|
|
|
|
financial
|
|
|
|
Total
|
|
|
liabilities at
|
|
|
|
financial
|
|
|
fair value
|
|
|
|
liabilities
|
|
|
through
|
|
Derivative
|
|
carried at
|
|
|
profit or loss
|
|
liabilities
|
|
fair value
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
At 1
January 2017
|
|
2
|
|
960
|
|
962
|
Exchange
and other adjustments
|
|
–
|
|
14
|
|
14
|
Gains
recognised in the income statement within other income
|
|
(2)
|
|
(207)
|
|
(209)
|
Additions
|
|
–
|
|
19
|
|
19
|
Redemptions
|
|
–
|
|
(26)
|
|
(26)
|
Transfers
into the level 3 portfolio
|
|
–
|
|
–
|
|
–
|
Transfers
out of the level 3 portfolio
|
|
–
|
|
–
|
|
–
|
At 30 June 2017
|
|
–
|
|
760
|
|
760
|
Gains recognised in the income statement within other income
relating to those liabilities held at 30 June
2017
|
|
–
|
|
(209)
|
|
(209)
|
|
|
Trading
|
|
|
|
|
|
|
and
other
|
|
|
|
|
|
|
financial
|
|
|
|
Total
|
|
|
liabilities
at
|
|
|
|
financial
|
|
|
fair
value
|
|
|
|
liabilities
|
|
|
through
|
|
Derivative
|
|
carried
at
|
|
|
profit
or loss
|
|
liabilities
|
|
fair
value
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
At 1
January 2016
|
|
1
|
|
723
|
|
724
|
Exchange
and other adjustments
|
|
–
|
|
43
|
|
43
|
Losses
recognised in the income statement within other income
|
|
1
|
|
606
|
|
607
|
Additions
|
|
–
|
|
10
|
|
10
|
Redemptions
|
|
–
|
|
(52)
|
|
(52)
|
At 30
June 2016
|
|
2
|
|
1,330
|
|
1,332
|
Losses
recognised in the income statement within other income relating to
those liabilities held at 30 June 2016
|
|
1
|
|
592
|
|
593
|
16.
Fair values of financial assets and
liabilities
(continued)
The
tables below set out the effects of reasonably possible alternative
assumptions for categories of level 3 financial assets and
financial liabilities which have an aggregated carrying value
greater than £500 million.
|
|
|
|
|
|
At 30 June 2017
|
|
|
|
|
|
|
|
|
Effect of reasonably
|
|
|
|
|
|
|
|
|
possible alternative
|
|
|
|
|
|
|
|
|
assumptions
1
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Valuation
|
unobservable
|
|
|
|
Carrying
|
|
Favourable
|
|
Unfavourable
|
|
technique(s)
|
inputs
|
|
Range
2
|
|
value
|
|
changes
|
|
changes
|
|
|
|
|
|
|
£m
|
|
£m
|
|
£m
|
Trading and other financial assets at fair value through profit or
loss:
|
|
|
|
|
|
|
|
|
Equity
and venture capital investments
|
Market
approach
|
Earnings
multiple
|
|
0.9/18.0
|
|
2,136
|
|
69
|
|
(69)
|
Unlisted
equities and debt securities, property partnerships in the life
funds
|
Underlying
asset/net asset value (incl. property prices)
3
|
n/a
|
|
n/a
|
|
1,458
|
|
−
|
|
(84)
|
Other
|
|
|
|
|
|
124
|
|
|
|
|
|
|
|
|
|
|
3,718
|
|
|
|
|
Available-for-sale financial assets
|
|
|
|
|
660
|
|
52
|
|
(52)
|
Derivative financial assets:
|
|
|
|
|
|
|
|
|
|
|
Interest
rate derivatives
|
Option
pricing model
|
Interest
rate volatility
|
|
0%/136%
|
|
1,112
|
|
11
|
|
(4)
|
|
|
|
|
|
|
1,112
|
|
|
|
|
Financial
assets carried at fair value
|
|
|
|
|
5,490
|
|
|
|
|
Trading and other financial liabilities at fair value through
profit or loss
|
|
|
|
−
|
|
−
|
|
−
|
Derivative financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
Interest
rate derivatives
|
Option
pricing model
|
Interest
rate volatility
|
|
0%/136%
|
|
760
|
|
−
|
|
−
|
|
|
|
|
|
|
760
|
|
|
|
|
Financial
liabilities carried at fair value
|
|
|
|
|
760
|
|
|
|
|
1
|
Where
the exposure to an unobservable input is managed on a net basis,
only the net impact is shown in the table.
|
2
|
The
range represents the highest and lowest inputs used in the level 3
valuations.
|
3
|
Underlying
asset/net asset values represent fair value.
|
16.
Fair values of financial assets and
liabilities
(continued)
|
|
|
|
|
|
At 31
December 2016
|
|
|
|
|
|
|
|
|
Effect
of reasonably
|
|
|
|
|
|
|
|
|
possible
alternative
|
|
|
|
|
|
|
|
|
assumptions
1
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Valuation
|
unobservable
|
|
|
|
Carrying
|
|
Favourable
|
|
Unfavourable
|
|
technique(s)
|
inputs
|
|
Range
2
|
|
value
|
|
changes
|
|
changes
|
|
|
|
|
|
|
£m
|
|
£m
|
|
£m
|
Trading and other financial assets at fair value through profit or
loss:
|
|
|
|
|
|
|
|
|
Equity
and venture capital investments
|
Market
approach
|
Earnings
multiple
|
|
0.9/10.0
|
|
2,163
|
|
63
|
|
(68)
|
Unlisted
equities and debt securities, property partnerships in the life
funds
|
Underlying
asset/net asset value (incl. property prices)
3
|
n/a
|
|
n/a
|
|
1,501
|
|
−
|
|
(32)
|
Other
|
|
|
|
|
|
142
|
|
|
|
|
|
|
|
|
|
|
3,806
|
|
|
|
|
Available-for-sale financial assets
|
|
|
|
|
894
|
|
48
|
|
(53)
|
Derivative financial assets:
|
|
|
|
|
|
|
|
|
|
|
Interest
rate derivatives
|
Option
pricing model
|
Interest
rate volatility
|
|
0%/115%
|
|
1,399
|
|
(3)
|
|
(19)
|
|
|
|
|
|
|
1,399
|
|
|
|
|
Financial
assets carried at fair value
|
|
|
|
|
6,099
|
|
|
|
|
Trading and other financial liabilities at fair value through
profit or loss
|
|
|
|
2
|
|
−
|
|
−
|
Derivative financial liabilities:
|
|
|
|
|
|
|
|
|
|
Interest
rate derivatives
|
Option
pricing model
|
Interest
rate volatility
|
|
0%/115%
|
|
960
|
|
−
|
|
−
|
|
|
|
|
|
|
960
|
|
|
|
|
Financial
liabilities carried at fair value
|
|
|
|
|
962
|
|
|
|
|
1
|
Where
the exposure to an unobservable input is managed on a net basis,
only the net impact is shown in the table.
|
2
|
The
range represents the highest and lowest inputs used in the level 3
valuations.
|
3
|
Underlying
asset/net asset values represent fair value.
|
Unobservable
inputs
Significant
unobservable inputs affecting the valuation of debt securities,
unlisted equity investments and derivatives are unchanged from
those described in the Group’s 2016 financial
statements.
Reasonably possible alternative assumptions
Valuation
techniques applied to many of the Group’s level 3 instruments
often involve the use of two or more inputs whose relationship is
interdependent. The calculation of the effect of reasonably
possible alternative assumptions included in the table above
reflects such relationships and are unchanged from those described
in the Group’s 2016 financial statements.
17.
Credit
quality of loans and advances
The
table below sets out those loans that are (i) neither past due nor
impaired, (ii) past due but not impaired, (iii) impaired, not
requiring a provision and (iv) impaired requiring a
provision.
The
disclosures in the table below are produced under the underlying
basis used for the Group’s segmental reporting. The Group
believes that, for reporting periods following a significant
acquisition such as the acquisition of HBOS in 2009, this
underlying basis, which includes the allowance for loan losses at
the acquisition date on a gross basis, more fairly reflects the
underlying provisioning status of the loans.
The
analysis of lending between retail and commercial has been prepared
based upon the type of exposure and not the business segment in
which the exposure is recorded. Included within retail are
exposures to personal customers and small businesses, whilst
included within commercial are exposures to corporate customers and
other large institutions.
|
|
|
|
|
|
|
|
|
|
|
|
Designated
|
|
|
|
|
|
|
|
|
|
|
|
|
at fair value
|
|
|
|
|
Customers
|
|
through
|
|
|
|
|
Retail –
|
|
Retail –
|
|
|
|
|
|
profit or
|
Loans and advances
|
|
Banks
|
|
mortgages
|
|
other
|
|
Commercial
|
|
Total
|
|
loss
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
At 30 June 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
Good
quality
|
|
8,749
|
|
294,700
|
|
41,668
|
|
72,008
|
|
|
|
29,243
|
Satisfactory
quality
|
|
45
|
|
836
|
|
5,530
|
|
29,887
|
|
|
|
42
|
Lower
quality
|
|
34
|
|
38
|
|
482
|
|
6,144
|
|
|
|
–
|
Below
standard, but not impaired
|
|
−
|
|
163
|
|
655
|
|
346
|
|
|
|
–
|
Neither
past due nor impaired
1
|
|
8,828
|
|
295,737
|
|
48,335
|
|
108,385
|
|
452,457
|
|
29,285
|
0-30
days
|
|
8
|
|
3,065
|
|
311
|
|
166
|
|
3,542
|
|
–
|
30-60
days
|
|
–
|
|
1,334
|
|
95
|
|
67
|
|
1,496
|
|
–
|
60-90
days
|
|
–
|
|
863
|
|
8
|
|
34
|
|
905
|
|
–
|
90-180
days
|
|
–
|
|
1,143
|
|
5
|
|
14
|
|
1,162
|
|
–
|
Over
180 days
|
|
–
|
|
–
|
|
16
|
|
29
|
|
45
|
|
–
|
Past
due but not impaired
2
|
|
8
|
|
6,405
|
|
435
|
|
310
|
|
7,150
|
|
–
|
Impaired
– no provision required
|
|
29
|
|
821
|
|
319
|
|
761
|
|
1,901
|
|
−
|
–
provision held
|
|
–
|
|
3,636
|
|
1,080
|
|
1,676
|
|
6,392
|
|
−
|
Gross
lending
|
|
8,865
|
|
306,599
|
|
50,169
|
|
111,132
|
|
467,900
|
|
29,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31
December 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Good
quality
|
|
26,745
|
|
295,286
|
|
34,195
|
|
72,083
|
|
|
|
33,049
|
Satisfactory
quality
|
|
87
|
|
814
|
|
4,479
|
|
30,433
|
|
|
|
30
|
Lower
quality
|
|
3
|
|
39
|
|
387
|
|
6,433
|
|
|
|
–
|
Below
standard, but not impaired
|
|
53
|
|
164
|
|
417
|
|
415
|
|
|
|
–
|
Neither
past due nor impaired
1
|
|
26,888
|
|
296,303
|
|
39,478
|
|
109,364
|
|
445,145
|
|
33,079
|
0-30
days
|
|
14
|
|
3,547
|
|
285
|
|
157
|
|
3,989
|
|
–
|
30-60
days
|
|
–
|
|
1,573
|
|
75
|
|
37
|
|
1,685
|
|
–
|
60-90
days
|
|
–
|
|
985
|
|
2
|
|
74
|
|
1,061
|
|
–
|
90-180
days
|
|
–
|
|
1,235
|
|
6
|
|
14
|
|
1,255
|
|
–
|
Over
180 days
|
|
–
|
|
–
|
|
18
|
|
23
|
|
41
|
|
–
|
Past
due but not impaired
2
|
|
14
|
|
7,340
|
|
386
|
|
305
|
|
8,031
|
|
–
|
Impaired
– no provision required
|
|
–
|
|
784
|
|
392
|
|
689
|
|
1,865
|
|
–
|
–
provision held
|
|
–
|
|
3,536
|
|
1,038
|
|
2,056
|
|
6,630
|
|
–
|
Gross
lending
|
|
26,902
|
|
307,963
|
|
41,294
|
|
112,414
|
|
461,671
|
|
33,079
|
1
|
The
definitions of good quality, satisfactory quality, lower quality
and below standard, but not impaired applying to retail and
commercial are not the same, reflecting the different
characteristics of these exposures and the way they are managed
internally, and consequently totals are not provided. Commercial
lending has been classified using internal probability of default
rating models mapped so that they are comparable to external credit
ratings. Good quality lending comprises the lower assessed default
probabilities, with other classifications reflecting progressively
higher default risk. Classifications of retail lending incorporate
expected recovery levels for mortgages, as well as probabilities of
default assessed using internal rating models.
|
2
|
A
financial asset is ‘past due’ if a counterparty has
failed to make a payment when contractually due.
|
18.
Dividends
on ordinary shares
An
interim dividend for 2017 of 1.0 pence per ordinary share
(half-year to 30 June 2016: 0.85 pence) will be paid on
27 September 2017. The total amount of this dividend is
£720 million (half-year to 30 June 2016:
£607 million).
Shareholders
who have already joined the dividend reinvestment plan will
automatically receive shares instead of the cash dividend. Key
dates for the payment of the dividends are:
Shares
quoted ex-dividend
|
10 August 2017
|
|
|
Record
date
|
11 August 2017
|
|
|
Final
date for joining or leaving the dividend reinvestment
plan
|
30 August 2017
|
|
|
Interim
dividend paid
|
27 September 2017
|
On
16 May 2017, a final dividend in respect of 2016 of
1.7 pence per share, totalling £1,212 million, and a
special dividend of 0.5 pence per share, totalling
£356 million, were paid to shareholders.
19.
Events
since the balance sheet date
At the
annual general meeting on 11 May 2017, the Company’s
shareholders approved the redesignation of the 80,921,051 limited
voting ordinary shares of 10 pence each that the Company had in
issue as ordinary shares of 10 pence each. The redesignation
took effect on 1 July 2017 and the redesignated shares now rank
equally with the existing issued ordinary shares of the Company.
There is no impact on the Company’s total share capital in
issue or equity.
20.
Future
accounting developments
The
following pronouncements are not applicable for the year ending 31
December 2017 and have not been applied in preparing these interim
financial statements. Save as disclosed below, the impact of these
accounting changes is still being assessed by the Group and
reliable estimates cannot be made at this stage.
With
the exception of IFRS 9 ‘Financial Instruments’, and
IFRS 15 ‘Revenue from Contracts with Customers’, as at
26 July 2017 these pronouncements are awaiting EU
endorsement.
IFRS 9 Financial Instruments
IFRS 9
replaces IAS 39 ‘Financial Instruments: Recognition and
Measurement’ and is effective for annual periods beginning on
or after 1 January 2018.
The
Group has an established IFRS 9 programme to ensure a high quality
implementation in compliance with the standard and additional
regulatory guidance that has been issued. The programme involves
Finance and Risk functions across the Group with Divisional and
Group steering committees providing oversight. The key
responsibilities of the programme include defining IFRS 9
methodology and accounting policy, development of Expected Credit
Loss (ECL) models, identifying and implementing data and system
requirements, and establishing an appropriate operating model and
governance framework.
The
programme is progressing in line with delivery plans and is
currently completing credit risk model development and embedding
the IFRS 9 operating model into the business. All core models are
expected to be operational by September 2017 and outputs will be
reviewed and validated ahead of implementation.
20.
Future accounting developments
(continued)
Classification and measurement
IFRS 9
requires financial assets to be classified into one of three
measurement categories, fair value through profit or loss, fair
value through other comprehensive income or amortised cost.
Financial assets will be measured at amortised cost if they are
held within a business model the objective of which is to hold
financial assets in order to collect contractual cash flows, and
their contractual cash flows represent solely payments of principal
and interest. Financial assets will be measured at fair value
through other comprehensive income if they are held within a
business model the objective of which is achieved by both
collecting contractual cash flows and selling financial assets and
their contractual cash flows represent solely payments of principal
and interest. Financial assets not meeting either of these two
business models; and all equity instruments (unless designated at
inception to fair value through other comprehensive income); and
all derivatives are measured at fair value through profit or loss.
An entity may, at initial recognition, designate a financial asset
as measured at fair value through profit or loss if doing so
eliminates or significantly reduces an accounting
mismatch.
The
Group has undertaken an assessment of the classification and
measurement of financial assets and, whilst certain portfolios will
need to be reclassified, including from amortised cost to fair
value through profit or loss, the overall impact on the Group is
not expected to be significant.
IFRS 9
retains most of the existing requirements for financial
liabilities. However, for financial liabilities designated at fair
value through profit or loss, gains or losses attributable to
changes in own credit risk may be presented in other comprehensive
income. The Group has elected to early adopt this presentation of
gains and losses on financial liabilities from 1 January
2017.
Impairment
The
IFRS 9 impairment model will be applicable to all financial assets
at amortised cost, debt instruments measured at fair value through
other comprehensive income, lease receivables, loan commitments and
financial guarantees not measured at fair value through profit or
loss.
IFRS 9
replaces the existing ‘incurred loss’ impairment
approach with an expected credit loss model, resulting in earlier
recognition of credit losses compared with IAS 39. Expected credit
losses are the unbiased probability weighted average credit losses
determined by evaluating a range of possible outcomes and future
economic conditions.
The ECL
model has three stages. Entities are required to recognise a 12
month expected loss allowance on initial recognition (stage 1) and
a lifetime expected loss allowance when there has been a
significant increase in credit risk since initial recognition
(stage 2). Stage 3 requires objective evidence that an asset is
credit-impaired, which is similar to the guidance on incurred
losses in IAS 39.
IFRS 9
requires the use of more forward looking information including
reasonable and supportable forecasts of future economic conditions.
The need to consider a range of economic scenarios and how they
could impact the loss allowance is a subjective feature of the IFRS
9 ECL model. The Group has developed the capability to model a
number of economic scenarios and capture the impact on credit
losses to ensure the overall ECL reflects an appropriate
distribution of economic outcomes.
For all
material portfolios, IFRS 9 ECL calculation will leverage the
systems, data and methodology used to calculate regulatory
‘expected losses’. The definition of default for IFRS 9
purposes will be aligned to the Basel definition of default to
ensure consistency across the Group. IFRS 9 models will use three
key input parameters for the computation of expected loss, being
probability of default (‘PD’), loss given default
(‘LGD’) and exposure at default (‘EAD’).
However, given the conservatism inherent in the regulatory expected
losses calculation and some differences in the period over which
risk parameters are measured, some adjustments to these components
have been made to ensure compliance with IFRS 9.
20.
Future accounting developments
(continued)
The new
impairment requirements will result in an increase in the
Group’s balance sheet provisions for credit losses and may
have a negative impact on the Group’s regulatory capital
position. The extent of any increase in provisions will depend upon
a number of factors including the composition of the Group’s
lending portfolios and forecast economic conditions at the date of
implementation. It is not possible to conclude on the capital
impact as the interaction with IFRS 9 and the capital rules,
including possible transitional arrangements, is still being
finalised.
Whilst
the Group is still running and testing the new credit risk models,
it is not possible to provide a reliable estimate of the increase
in impairment provisions on 1 January 2018. The ongoing impact on
the financial results will only become clearer after running the
IFRS 9 models over a period of time and under different economic
environments, however, it could result in impairment charges being
more volatile when compared to the current IAS 39 impairment model,
due to the forward looking nature of expected credit
losses.
Hedge accounting
The
hedge accounting requirements of IFRS 9 are more closely aligned
with risk management practices and follow a more principle-based
approach than IAS 39. The standard does not address macro hedge
accounting, which is being considered in a separate IASB project.
There is an option to retain the existing IAS 39 hedge accounting
requirements until the IASB completes its project on macro hedging.
The Group expects to continue applying IAS 39 hedge accounting in
accordance with this accounting policy choice.
IFRS 15 Revenue from Contracts with Customers
IFRS 15
replaces IAS 18 ‘Revenue’ and IAS 11
‘Construction Contracts’ and is effective for annual
periods beginning on or after 1 January 2018.
The
core principle of IFRS 15 is that revenue reflects the transfer of
goods or services to customers in an amount that reflects the
consideration to which an entity expects to be entitled. The
recognition of such revenue is in accordance with five steps to:
identify the contract; identify the performance obligations;
determine the transaction price; allocate the transaction price to
the performance obligations; and recognise revenue when the
performance obligations are satisfied.
Revenue
relating to financial instruments, leases and insurance contracts
are out of scope, however, the Group does recognise fee income that
is within scope, for example on added value accounts, interchange
and service fees, certain mortgage fees, factoring and commitment
fees. A substantial proportion of the current revenue recognition
policy for fee and commission income is not expected to change. The
standard is therefore not expected to have a significant impact on
the Group’s profitability.
Upon
transition, any adjustments can be recognised either
retrospectively to each prior reporting period presented, or
retrospectively with the cumulative effect of initially applying
the standard recognised at the date of initial application as an
adjustment to the opening balance retained earnings. The Group
anticipates adopting the second approach to
transition.
IFRS 16 Leases
IFRS 16
replaces IAS 17 ‘Leases’ and is effective for annual
periods beginning on or after 1 January 2019.
IFRS 16
requires lessees to recognise a right of use asset and a liability
for future payments arising from a lease contract. Lessees will
recognise a finance charge on the liability and a depreciation
charge on the asset which could affect the timing of the
recognition of expenses on leased assets. This change will mainly
impact the properties that the Group currently accounts for as
operating leases. Finance systems will need to be changed to
reflect the new accounting rules and disclosures. Lessor accounting
requirements remain aligned to the current approach under IAS
17.
20.
Future accounting developments
(continued)
IFRS 17 Insurance Contracts
IFRS 17
replaces IFRS 4 ‘Insurance Contracts’ and is effective
for annual periods beginning on or after 1 January
2021.
IFRS 17
requires insurance contracts and participating investment contracts
to be measured on the balance sheet as the total of the fulfilment
cash flows and the contractual service margin. Changes to estimates
of future cash flows from one reporting date to another are
recognised either as an amount in profit or loss or as an
adjustment to the expected profit for providing insurance coverage,
depending on the type of change and the reason for it. The effects
of some changes in discount rates can either be recognised in
profit or loss or in other comprehensive income as an accounting
policy choice. The risk adjustment is released to profit and loss
as an insurer’s risk reduces. Profits which are currently
recognised through a Value in Force asset, will no longer be
recognised at inception of an insurance contract. Instead, the
expected profit for providing insurance coverage is recognised in
profit or loss over time as the insurance coverage is
provided.
The
standard will have a significant impact on the accounting for the
insurance and participating investment contracts issued by the
Insurance Division.
Minor amendments to other accounting standards
The
IASB has issued a number of minor amendments to IFRSs effective 1
January 2018 (including IFRS 2 Share-based Payment and IAS 40
Investment Property) and IFRIC 23 Uncertainty over Income Tax
Treatments effective 1 January 2019. These revised requirements are
not expected to have a significant impact on the
Group.
The
financial information included in this news release does not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006. Statutory accounts for the year ended
31 December 2016 were approved by the directors on
21 February 2017 and were delivered to the Registrar of
Companies on 12 April 2017. The auditors’ report on
those accounts was unqualified and did not include a statement
under sections 498(2) (accounting records or returns
inadequate or accounts not agreeing with records and returns) or
498(3) (failure to obtain necessary information and explanations)
of the Companies Act 2006.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The
directors listed below (being all the directors of
Lloyds Banking Group plc) confirm that to the best of their
knowledge these condensed consolidated half-year financial
statements have been prepared in accordance with International
Accounting Standard 34,
Interim
Financial Reporting
, as adopted by the European Union, and
that the half-year management report herein includes a fair review
of the information required by DTR 4.2.7R and DTR 4.2.8R,
namely:
●
an indication of
important events that have occurred during the six months ended 30
June 2017 and their impact on the condensed consolidated half-year
financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
●
material related
party transactions in the six months ended 30 June 2017 and any
material changes in the related party transactions described in the
last annual report.
Signed
on behalf of the board by
António
Horta-Osório
Group
Chief Executive
26 July
2017
Lloyds Banking
Group plc board of directors:
Executive directors:
António
Horta-Osório (Group Chief Executive)
George
Culmer (Chief Financial Officer)
Juan
Colombás (Chief Risk Officer)
Non-executive directors:
Lord
Blackwell (Chairman)
Anita
Frew (Deputy Chairman)
Alan
Dickinson
Simon
Henry
Lord
Lupton CBE
Deborah
McWhinney
Nicholas
Prettejohn
Stuart
Sinclair
Sara
Weller CBE
INDEPENDENT REVIEW REPORT TO LLOYDS BANKING GROUP PLC
Report on the condensed consolidated half-year financial
statements
Our conclusion
We have
reviewed Lloyds Banking Group plc’s condensed
consolidated half-year financial statements (the ‘interim
financial statements’) in the 2017 half-year results of
Lloyds Banking Group plc for the six month period ended
30 June 2017. Based on our review, nothing has come to our
attention that causes us to believe that the interim financial
statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34,
‘Interim Financial Reporting’, as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom’s Financial Conduct
Authority.
What we have reviewed
The
interim financial statements comprise:
●
the consolidated
balance sheet as at 30 June 2017;
●
the consolidated
income statement for the period then ended;
●
the consolidated
statement of comprehensive income for the period then
ended;
●
the consolidated
cash flow statement for period then ended;
●
the consolidated
statement of changes in equity for the period then ended;
and
●
the explanatory
notes to the interim financial statements.
The
interim financial statements included in the 2017 half-year results
have been prepared in accordance with International Accounting
Standard 34, ‘Interim Financial Reporting’, as adopted
by the European Union and the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom’s Financial Conduct
Authority.
As
disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The
2017 half-year results, including the interim financial statements,
are the responsibility of, and have been approved by, the
directors. The directors are responsible for preparing the 2017
half-year results in accordance with the Disclosure Guidance and
Transparency Rules of sourcebook the United Kingdom’s
Financial Conduct Authority.
Our
responsibility is to express a conclusion on the interim financial
statements in the 2017 half-year results based on our review. This
report, including the conclusion, has been prepared for and only
for the Company for the purpose of complying with the Disclosure
Guidance and Transparency Rules sourcebook of the United
Kingdom’s Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of interim financial statements involves
We
conducted our review in accordance with International Standard on
Review Engagements (UK and Ireland) 2410, ‘Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity’ issued by the Auditing Practices Board for use in the
United Kingdom. A review of interim financial information consists
of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures.
A
review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have
read the other information contained in the 2017 half-year results
and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the interim
financial statements.
PricewaterhouseCoopers
LLP
Chartered
Accountants
London
26 July
2017
Notes:
(a)
The maintenance and
integrity of the Lloyds Banking Group plc website is the
responsibility of the directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the interim financial statements since
they were initially presented on the website.
(b)
Legislation in the
United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
SUMMARY OF ALTERNATIVE PERFORMANCE MEASURES
As
described in the basis of preparation, the Group analyses its
performance on an underlying basis. The Group also calculates a
number of metrics that are used throughout the banking and
insurance industries on an underlying basis as these provide
management with a relevant and consistent view of these measures
from period to period. A description of the Group’s
alternative performance measures and their calculation is set out
below.
|
|
Asset
quality ratio
|
The
underlying impairment charge for the period (on an annualised
basis) in respect of loans and advances to customers after releases
and write-backs, expressed as a percentage of average gross loans
and advances to customers for the period
|
|
Banking
net interest margin
|
Banking
net interest income on customer and product balances in the banking
businesses as a percentage of average gross banking
interest-earning assets for the period
|
|
Cost:income
ratio
|
Operating
costs as a percentage of net income calculated on an underlying
basis
|
|
Gross
asset quality ratio
|
The
underlying impairment charge for the period (on an annualised
basis) in respect of loans and advances to customers before
releases and write-backs expressed as a percentage of average gross
loans and advances to customers for the period
|
|
Impaired
loans as a percentage of closing advances
|
Impaired
loans and advances to customers adjusted to exclude Retail and
Consumer Finance loans in recoveries expressed as a percentage of
closing gross loans and advances to customers
|
|
Loan to
deposit ratio
|
The
ratio of loans and advances to customers net of allowance for
impairment losses and excluding reverse repurchase agreements
divided by customer deposits excluding repurchase
agreements
|
|
Operating
jaws
|
The
difference between the period on period percentage change in net
income and the period on period change in operating costs
calculated on an underlying basis
|
|
Present
value of new business premium
|
The
total single premium sales received in the period (on an annualised
basis) plus the discounted value of premiums expected to be
received over the term of the new regular premium
contracts
|
|
Return
on risk-weighted assets
|
Underlying
profit before tax divided by average risk-weighted
assets
|
|
Return
on tangible equity
|
Statutory
profit after tax adjusted to add back amortisation of intangible
assets, and to deduct profit attributable to non-controlling
interests and other equity holders, divided by average tangible net
assets
|
|
Tangible
net assets per share
|
Net
assets excluding intangible assets such as goodwill and
acquisition-related intangibles divided by the weighted average
number of ordinary shares in issue
|
|
Underlying
profit
|
Statutory
profit adjusted for certain items as detailed in the Basis of
Preparation
|
|
Underlying
return on tangible equity
|
Underlying
profit after tax at the standard UK corporation tax rate adjusted
to add back amortisation of intangible assets, and to deduct profit
attributable to non-controlling interests and other equity holders,
divided by average tangible net assets
|
|
CONTACTS
For
further information please contact:
INVESTORS AND ANALYSTS
Douglas
Radcliffe
Group
Investor Relations Director
020
7356 1571
douglas.radcliffe@finance.lloydsbanking.com
Andrew
Downey
Director
of Investor Relations
020
7356 2334
andrew.downey@finance.lloydsbanking.com
Edward
Sands
Director
of Investor Relations
020
7356 1585
edward.sands@lloydsbanking.com
CORPORATE AFFAIRS
Fiona
Laffan
Group
Corporate Communications Director
020
7356 2081
fiona.laffan@lloydsbanking.com
Matt
Smith
Head of
Corporate Media
020
7356 3522
matt.smith@lloydsbanking.com
Copies
of this news release may be obtained from:
Investor
Relations, Lloyds Banking Group plc,
25 Gresham Street, London EC2V 7HN
The
full news release can also be found on the Group’s website
– www.lloydsbankinggroup.com
Registered
office: Lloyds Banking Group plc, The Mound, Edinburgh, EH1
1YZ
Registered
in Scotland No. SC95000
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LLOYDS
BANKING GROUP plc
(Registrant)
By: Douglas
Radcliffe
Name: Douglas
Radcliffe
Title: Group
Investor Relations Director
Date: 27
July 2017
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