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
21
February 2018
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 21 February
2018
|
re:
|
Full year
results
|
Lloyds
Banking Group plc
2017
Results
21
February 2018
|
BASIS OF PRESENTATION
|
This
release covers the results of Lloyds Banking Group plc together
with its subsidiaries (the Group) for the year ended
31 December 2017.
|
Statutory basis:
Audited statutory
information is set out on pages 35
to
46. 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 year ended 31 December 2017 to the year
ended 31 December 2016, and the balance sheet analysis
compares the Group balance sheet as at 31 December 2017 to the
Group balance sheet as at 31 December 2016.
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 on page 2 and pages 7 to 27. Further
information on these measures is set out on page 47.
Segment information:
the segment results
and balance sheet information have been restated to reflect the
previously announced changes to the Group operating structure
implemented in September 2017. The underlying profit and statutory
results at Group level are unchanged as a result of these
restatements.
|
FORWARD LOOKING STATEMENTS
This
document contains certain forward looking statements with respect
to the business, strategy, plans and /or results 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 forward looking statements
made by the Group or on its behalf include, but are not limited to:
general economic and business conditions in the UK and
internationally; market related trends and developments;
fluctuations in interest rates, inflation, exchange rates, stock
markets and currencies; 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 together with any resulting
impact on the future structure of the Group; the ability to attract
and retain senior management and other employees and meet its
diversity objectives; actions or omissions by the Group's
directors, management or employees including industrial action;
changes to the Group's post-retirement defined benefit scheme
obligations; the extent of any future impairment charges or
write-downs caused by, but not limited to, depressed asset
valuations, market disruptions and illiquid markets; the value and
effectiveness of any credit protection purchased by the Group; the
inability to hedge certain risks economically; the adequacy of loss
reserves; the actions of competitors, including non-bank financial
services, lending companies and digital innovators and disruptive
technologies; and exposure to regulatory or competition scrutiny,
legal, regulatory or competition proceedings, investigations or
complaints. Please refer to the latest Annual Report 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
|
Group
Chief Executive’s statement
|
3
|
Summary
of Group results
|
7
|
|
|
Divisional
results
|
|
Retail
|
17
|
Commercial
Banking
|
19
|
Insurance and
Wealth
|
21
|
Run-off
and Central items
|
23
|
|
|
Other
financial information
|
|
Reconciliation
between statutory and underlying basis results
|
24
|
Banking
net interest margin
|
25
|
Volatility arising
in insurance businesses
|
26
|
Tangible net assets
per share
|
26
|
Return
on tangible equity
|
27
|
|
|
Group
credit risk portfolio
|
28
|
Funding
and liquidity management
|
30
|
Capital
management
|
31
|
|
|
Audited
statutory information
|
|
Primary
statements
|
|
Consolidated income
statement
|
35
|
Consolidated
statement of comprehensive income
|
36
|
Consolidated
balance sheet
|
37
|
Consolidated
statement of changes in equity
|
39
|
Notes
to the consolidated financial statements
|
41
|
|
|
Summary
of alternative performance measures
|
47
|
|
|
Contacts
|
48
|
RESULTS FOR THE FULL YEAR
‘2017
has been a landmark year in which the Group has made significant
strategic progress and returned to full private ownership. This is
due to the hard work of all our people and I thank them for it. We
have delivered another year of strong financial performance with
improved profit and returns on both a statutory and underlying
basis and have now built the largest and top rated digital bank in
the UK. We are therefore well prepared to succeed in a digital
world.’
António
Horta-Osório
Group
Chief Executive
Strong financial performance with improved profit and returns on
both a statutory and underlying basis
●
Statutory profit
before tax at £5.3 billion, 24 per cent higher, with a return
on tangible equity of 8.9 per cent
●
Underlying profit
of £8.5 billion, 8 per cent higher, with an underlying return
on tangible equity of 15.6 per cent
●
Net income at
£17.5 billion, 5 per cent higher with improved net interest
income and other income; net interest margin increased to 2.86 per
cent
●
Positive operating
jaws; market leading cost:income ratio improved to 46.8 per
cent
●
Asset quality
remains strong with asset quality ratio of 18 basis
points
●
Continued lending
growth in targeted segments including SME and the open mortgage
book
●
Strong capital
generation of 245 basis points with a CET1 ratio of 15.5 per cent,
pre dividend and share buyback
●
CET1 capital
requirement of c.13 per cent plus a management buffer of
around 1 per cent
●
Total ordinary
dividend of 3.05 pence per share, up 20 per cent on 2016, and a
share buyback of up to £1 billion representing an increase in
total capital returns of up to 46 per cent. Total capital return of
up to £3.2 billion.
A landmark year in which the Group made significant strategic
progress and returned to full private ownership
●
Successful delivery
of second strategic plan: significant improvement in customer
service, market leading digital proposition, targeted lending
growth and Simplification savings ahead of target
●
Completed
acquisition of MBNA and announced acquisition of Zurich’s
workplace pensions and savings business
●
Significant
progress made against Helping Britain Prosper targets since the
beginning of 2015, with more than £35 billion of lending
to first-time buyers and support provided to c.350,000 start-up
businesses
●
Restructured the
business and reorganised the leadership team; ready for the next
stage of the Group’s strategic journey
2018 guidance demonstrates confidence in the Group’s future
prospects
●
Net interest margin
expected to be around 290 basis points
●
Cost:income ratio
expected to improve further
●
Asset quality ratio
expected to be less than 30 basis points
●
Capital generation
expected to be 170 to 200 basis points, pre dividends
Transforming the Group for success in a digital world
As also announced today, the next phase of our strategy will
further transform the Group for success in a digital world. We will
build on the strong progress of recent years and leverage the
Group’s unique strengths. We will be investing over £3
billion in four strategic priorities: further enhancing our leading
customer experience; further digitising the Group; maximising the
Group’s capabilities; and transforming ways of working. These
will drive our transformation into a digitised, simple, low risk,
customer focused UK financial services provider and
deliver:
●
Sustainable and low
risk growth: asset growth in targeted segments, a resilient net
interest margin and an asset quality ratio of around 35 basis
points through the cycle and less than 30 basis points through the
plan period
●
Continued
development of an integrated Group proposition for retirement
savings and investment
●
Market leading
efficiency: targeting operating costs less than £8 billion in
2020; cost:income ratio in the low 40s exiting 2020 including
remediation costs, with improvements in the cost:income ratio every
year
●
Superior returns
and lower cost of equity: targeting strong statutory profit growth
and an improved return on tangible equity of 14 to 15 per cent from
2019, on a higher CET1 capital base of c.13 per cent plus a
management buffer of around 1 per cent
●
Strong CET1 capital
generation: targeting 170 to 200 basis points of capital generation
per year pre dividend
●
Attractive capital
distribution policy: progressive and sustainable ordinary dividends
whilst maintaining the flexibility to return surplus capital to
shareholders.
CONSOLIDATED INCOME STATEMENT − UNDERLYING BASIS
|
|
2017
|
|
2016
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
Net interest income
|
|
12,320
|
|
11,435
|
|
8
|
Other income
|
|
6,205
|
|
6,065
|
|
2
|
Total income
|
|
18,525
|
|
17,500
|
|
6
|
Operating lease depreciation
|
|
(1,053)
|
|
(895)
|
|
(18)
|
Net income
|
|
17,472
|
|
16,605
|
|
5
|
Operating costs
|
|
(8,184)
|
|
(8,093)
|
|
(1)
|
Impairment
|
|
(795)
|
|
(645)
|
|
(23)
|
Underlying profit
|
|
8,493
|
|
7,867
|
|
8
|
|
|
|
|
|
|
|
Volatility and other items
|
|
(703)
|
|
(1,544)
|
|
|
PPI provision
|
|
(1,650)
|
|
(1,000)
|
|
|
Other conduct provisions
|
|
(865)
|
|
(1,085)
|
|
|
Statutory profit before tax
|
|
5,275
|
|
4,238
|
|
24
|
Tax expense
|
|
(1,728)
|
|
(1,724)
|
|
–
|
Profit for the year
|
|
3,547
|
|
2,514
|
|
41
|
|
|
|
|
|
|
|
Earnings per share
|
|
4.4p
|
|
2.9p
|
|
52
|
Dividends per share – ordinary
|
|
3.05p
|
|
2.55p
|
|
20
|
Dividends per share
–
special
|
|
–
|
|
0.50p
|
|
|
Share buyback up to £1 billion
|
|
1.40p
|
|
–
|
|
|
|
|
|
|
|
|
|
Banking net interest margin
|
|
2.86%
|
|
2.71%
|
|
15bp
|
Average interest-earning banking assets
|
|
£435bn
|
|
£436bn
|
|
–
|
Cost:income ratio
|
|
46.8%
|
|
48.7%
|
|
(1.9)pp
|
Asset quality ratio
|
|
0.18%
|
|
0.15%
|
|
3bp
|
Return on risk-weighted assets
|
|
3.95%
|
|
3.55%
|
|
40bp
|
Underlying return on tangible equity
|
|
15.6%
|
|
14.1%
|
|
1.5pp
|
Return on tangible equity
|
|
8.9%
|
|
6.6%
|
|
2.3pp
|
CONSOLIDATED BALANCE SHEET AND KEY RATIOS
|
|
At 31 Dec
|
|
At 31 Dec
|
|
Change
|
|
|
2017
|
|
2016
|
|
%
|
|
|
|
|
|
|
|
Loans and advances to customers
1
|
|
£456bn
|
|
£450bn
|
|
1
|
Customer deposits
2
|
|
£416bn
|
|
£413bn
|
|
1
|
Loan to deposit ratio
|
|
110%
|
|
109%
|
|
1pp
|
Total assets
|
|
£812bn
|
|
£818bn
|
|
(1)
|
Pro forma CET1 ratio pre dividend and share
buyback
3
|
|
15.5%
|
|
14.1%
|
|
1.4pp
|
Pro forma CET1 ratio post dividend
3,4
|
|
14.4%
|
|
13.0%
|
|
1.4pp
|
Pro forma CET1 ratio post dividend and share
buyback
3
|
|
13.9%
|
|
13.0%
|
|
0.9pp
|
Transitional total capital ratio
4
|
|
21.2%
|
|
21.4%
|
|
(0.2)pp
|
Pro forma UK leverage ratio
3,4,
5
|
|
5.4%
|
|
5.3%
|
|
0.1pp
|
Risk-weighted assets
|
|
£211bn
|
|
£216bn
|
|
(2)
|
Tangible net assets per share pre dividend
6,7
|
|
56.5p
|
|
54.8p
|
|
1.7p
|
Tangible net assets per share
7
|
|
53.3p
|
|
54.8p
|
|
(1.5)p
|
1
|
Excludes
reverse repos of £16.8 billion (31 December 2016:
£8.3 billion).
|
2
|
Excludes
repos of £2.6 billion (31 December 2016:
£2.5 billion).
|
3
|
The
CET1 and leverage ratios at 31 December 2017 and 2016 are
reported on a pro forma basis, reflecting the dividends paid by the
Insurance business in February 2018 and February 2017,
respectively, in relation to prior year earnings. In addition the
CET1 ratios at 31 December 2016 have been adjusted for the
acquisition of MBNA.
|
4
|
The
2017 capital and leverage ratios do not, unless otherwise
indicated, recognise the share buyback as this will be reflected in
2018.
|
5
|
Calculated
in accordance with the UK Leverage Ratio Framework. Excludes
qualifying central bank claims.
|
6
|
Pre
final 2016 and interim 2017 dividends.
|
7
|
Tangible
net assets per share at 31 December 2016 equivalent to 53.4 pence
after adjusting for the impact of MBNA.
|
GROUP CHIEF EXECUTIVE’S STATEMENT
2017
has been a landmark year for the Group. In May the UK government
completed the sell-down of its shares and the Group returned to
full private ownership. This was enabled by the significant
strategic progress and strong financial performance in recent years
and was down to the hard work of all our people and I thank them
for it.
During
the year we successfully completed the second phase of our strategy
with significant improvement in customer service, development of
our market leading digital proposition including an open banking
platform, targeted growth and delivery of Simplification savings
ahead of target. We now have the largest and top rated digital bank
in the UK alongside the largest branch network. We also completed
the acquisition of MBNA’s prime credit card business, the
Group’s first major acquisition since the financial crisis
and announced the acquisition of Zurich’s UK workplace
pensions and savings business later in the year, giving us a strong
platform on which to develop the next stage of our strategy in the
financial planning and retirement business.
2017
has also been a pivotal year for the UK. The Bank of England
increased the bank rate for the first time in more than 10 years
and the government triggered Article 50 and launched EU exit
negotiations. Although the precise nature of the UK’s future
relationship with Europe remains unclear and the economic outlook
is therefore uncertain, the economy has been resilient with low
unemployment, stable house prices, record employment and GDP growth
of 1.8 per cent.
Financial performance
We have
delivered another year of strong financial performance in 2017 with
increased profits and returns on both a statutory and underlying
basis, strong capital generation and increased capital
returns.
Statutory
profit before tax increased 24 per cent to £5.3 billion,
reflecting higher underlying profit and lower below the line
charges. Underlying profit was £8.5 billion, an increase of 8
per cent, with improved income and positive operating jaws
resulting in an improved cost:income ratio of 46.8 per cent. Asset
quality remains strong and the Group’s gross asset quality
ratio remains unchanged at 28 basis points, while the net asset
quality ratio increased to 18 basis points as a result of expected
lower releases and write-backs. Additional PPI provisions of
£1.7 billion and conduct costs of £865 million were
taken in the year. The increased PPI provision reflects increased
complaint levels including the impact of the first FCA advertising
campaign for the August 2019 industry deadline.
During
the year, loans and advances increased to £456 billion
with open mortgage book growth, increased SME balances and
continued growth in consumer lending whilst also consolidating the
MBNA book. Our balance sheet remains strong with a pro forma CET1
ratio of 13.9 per cent (after ordinary dividends and allowing for
the share buyback), a total capital ratio of 21.2 per cent and a
pro forma UK leverage ratio of 5.4 per cent.
In line
with our progressive and sustainable ordinary dividend policy, the
Board has recommended a final ordinary dividend of 2.05 pence per
share, taking the total ordinary dividend for 2017 to 3.05 pence
per share, up 20 per cent on 2016. Given our strong capital
generation the Board has also announced its intention to implement
a share buyback of up to £1 billion, equivalent to up to
1.4 pence per share.
Strategic progress
In 2017
we successfully completed the second phase of our strategic plan,
achieving our strategic priorities of creating the best customer
experience, becoming simpler and more efficient and delivering
sustainable growth.
Creating the best customer experience
We have
been committed to meeting customers’ evolving needs through
our multi-brand and multi-channel approach and as a result customer
satisfaction, as measured by net promoter score (NPS), has
increased to 62.0 from 58.6 in 2014 and from 42.5 in 2011. We
operate the UK’s largest branch network and the largest
digital bank with 13.4 million active online users, of which
9.3 million are on mobile. We have focused on transforming key
customer journeys and have made significant improvements, including
faster processing of new mortgage applications and simpler
processes for account opening. In addition we have developed an
open banking platform in line with regulatory
timescales.
We
remain committed to delivering the best service for our customers
and addressing historic conduct issues. We have continued to pay
compensation to victims of the legacy fraud at HBOS Reading, and
have now made offers to 57 customers, which represents more
than 80 per cent of the customers in the review.
Becoming simpler and more efficient
Cost
management has been a strategic priority and we remain focused on
maintaining our competitive advantage in cost leadership. Our
Simplification programme has delivered £1.4 billion of
run-rate cost savings, ahead of our original £1 billion
target, and costs have fallen every year (excluding the impact of
MBNA). Our market leading cost:income ratio improved to 46.8 per
cent in 2017, with further improvements targeted.
Delivering sustainable growth
When we
outlined our strategic vision in October 2014, we targeted
sustainable growth in line with our low risk appetite, committing
to grow in areas where we were under-represented. We have increased
net lending to SME clients by £3 billion since 2014,
significantly ahead of the market, while also increasing UK
consumer assets by over £6 billion and acquiring the £8
billion MBNA credit card portfolio. In the competitive low growth
mortgage market we have focused on protecting margin rather than
achieving volume growth over the last couple of years though the
open mortgage book returned to growth in 2017. The Group also
announced the acquisition of Zurich’s workplace pensions and
savings business in late 2017.
We
remain committed to building the best team, creating an inclusive
and diverse workforce that represents a changing Britain. Colleague
engagement is at an all-time high, and in line with top performing
corporates. In 2017 we were awarded number one employer for
lesbian, gay, bisexual and transgender people at the Stonewall
Awards and named the world’s best bank for diversity and
inclusion by Euromoney magazine.
Helping Britain Prosper Plan
In 2014
we launched our Helping Britain Prosper Plan to support the people,
businesses and communities in the UK. The financial success of the
Group is inextricably linked to the health of the UK and we are
working hard to support the whole economy. Since the launch of the
plan four years ago, we have lent more than £47 billion to
first-time buyers, supported more than 440,000 start-ups, been the
largest UK corporate tax payer and donated £72 million to the
Group’s independent Foundations. Also, in 2017 we have
trained over 700,000 individuals, businesses and charities in
digital skills. In 2014 we were the first FTSE 100 company to make
a commitment on the number of senior positions held by women. At
that time women made up 29 per cent of senior management. In
2017 we met our 34 per cent target and we are on track to achieve
40 per cent by 2020. We also recently became the first FTSE 100
company to set a target to increase the proportion of senior roles
held by Black, Asian and Minority Ethnic colleagues. Our target is
8 per cent by 2020 for senior managers and 10 per cent for the
overall Group.
Strategy overview
As we
look to the future, we see the external environment evolving
rapidly. Changing customer behaviours, the pace of technological
evolution and changes in regulation all present opportunities.
Given our strong capabilities and the significant progress made in
recent years we believe we are in a unique position to compete and
win in this environment by developing additional competitive
advantages. We will continue to transform ourselves to succeed in
this digital world and the next phase of our strategy, being
announced today, will ensure we have the capabilities to deliver
future success.
Strategic priorities
We have
identified four strategic priorities focused on the financial needs
and behaviours of the customer of the future: further enhancing our
leading customer experience; further digitising the Group;
maximising Group capabilities; and transforming ways of working. We
will invest more than £3 billion in these strategic
initiatives through the plan period that will drive our
transformation into a digitised, simple, low risk, customer focused
UK financial services provider.
Delivering a leading customer experience
We will
drive stronger customer relationships through best in class
propositions while continuing to provide our customers with
brilliant servicing and a seamless experience across all channels.
This will include:
●
remaining the
number 1 digital bank in the UK with open banking
functionality;
●
unrivalled reach
with UK’s largest branch network serving complex needs;
and
●
data-driven and
personalised customer propositions.
Digitising the Group
We will
deploy new technology to drive additional operational efficiencies
that will make banking simple and easier for customers whilst
reducing operating costs, pursuing the following
initiatives:
●
deeper end-to-end
transformation targeting over 70 per cent of cost
base;
●
simplification and
progressive modernisation of our data and IT infrastructure;
and
●
technology enabled
productivity improvements across the business.
Maximising the Group’s capabilities
We will
deepen customer relationships, grow in targeted segments and better
address our customers’ banking and insurance needs as an
integrated financial services provider. This will
include:
●
increasing
Financial Planning and Retirement (FP&R) open book assets by
more than £50 billion by 2020 with more than 1 million new
pension customers;
●
implementing an
integrated FP&R proposition with single customer view;
and
●
start-up, SME and
Mid Market net lending growth (more than £6 billion in the
plan period).
Transforming ways of working
We are
making our biggest ever investment in people, increasing colleague
training and development by 50 per cent to 4.4 million hours
per annum and embracing new technology to drive better customer
outcomes. The hard work, commitment and expertise of our colleagues
has enabled us to deliver to date and we will further invest in
capabilities and agile working practices. We have already
restructured the business and reorganised the leadership team to
ensure effective implementation of the new strategy.
Financial returns
The UK
economy has proven resilient and going forward our plans and
projections assume this performance continues with a steady
increase in base rate to 1.25 per cent by the end of
2020.
The
strategy outlined today will enable the Group to deliver strong
statutory profit growth supported by targeted asset growth in key
segments, a resilient net interest margin, lower operating costs,
strong asset quality and lower remediation costs, whilst delivering
strong capital generation and sustainable and superior shareholder
returns.
Costs
will continue to be a competitive advantage as we deliver market
leading efficiency. We expect operating costs to be less than
£8 billion in 2020. We also expect to achieve a cost:income
ratio in the low 40s as we exit 2020, including future remediation
costs. We continue to expect improvements in the cost:income ratio
every year.
Asset
quality remains strong and, given our low risk business model and
the significant portfolio improvements in recent years, we now
expect an asset quality ratio of around 35 basis points through the
cycle and less than 30 basis points through the plan
period.
We
expect to deliver an improved return on tangible equity (RoTE) of
14.0–15.0 per cent from 2019 onwards on a higher CET1 capital
base of c.13 per cent plus a management buffer of around 1 per
cent.
Capital
generation is expected to remain strong with 170-200 basis points
of capital generation per year pre dividend and as a result we
expect to deliver progressive and sustainable ordinary dividends
whilst maintaining the flexibility to return surplus capital to
shareholders.
Summary
Our
strong foundations, differentiated business model and strategic
capabilities combined with the new strategic plan announced today
and a highly engaged team positions us well to succeed in a digital
world and continue to help Britain prosper.
António
Horta-Osório
Group
Chief Executive
CHIEF FINANCIAL OFFICER’S REVIEW OF FINANCIAL
PERFORMANCE
Strong financial performance with improved profit and returns on
both statutory and underlying bases
The
Group’s statutory profit before tax was £5,275 million,
24 per cent higher than in 2016 driven by increased underlying
profit and lower volatility and other items which more than offset
the increased PPI charge. Statutory profit after tax increased by
41 per cent to £3,547 million
(2016: £2,514 million) and the return on tangible
equity was 8.9 per cent.
Underlying
profit was £8,493 million, 8 per cent higher than 2016 with
higher income and positive operating jaws. The underlying return on
tangible equity increased to 15.6 per cent. Underlying profit in
the fourth quarter was £1,926 million, 7 per cent higher than
the same period in 2016 with a 5 per cent increase in net
income.
The
balance sheet remains strong and the Group generated 245 basis
points of CET1 capital in the year. The pro forma CET1 ratio at
31 December 2017 after accruing for ordinary dividends and
allowing for the share buyback was 13.9 per cent compared to
13.0 per cent (pro forma after dividends and adjusting
for MBNA) at 31 December 2016. The pro forma leverage ratio
increased to 5.4 per cent (31 December 2016: 5.3 per
cent) and tangible net assets per share were
53.3 pence.
Given
the strong capital generation in the year, the Board has
recommended a final ordinary dividend of 2.05 pence per share,
making a total ordinary dividend of 3.05 pence per share, an
increase of 20 per cent on 2016 and in line with our progressive
and sustainable ordinary dividend policy. In addition, the Board
intends to implement a share buyback of up to £1 billion,
equivalent to up to 1.4 pence per share.
Total income
|
|
2017
|
|
2016
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
Net interest income
|
|
12,320
|
|
11,435
|
|
8
|
Other income
|
|
6,205
|
|
6,065
|
|
2
|
Total income
|
|
18,525
|
|
17,500
|
|
6
|
Operating lease depreciation
1
|
|
(1,053)
|
|
(895)
|
|
(18)
|
Net income
|
|
17,472
|
|
16,605
|
|
5
|
|
|
|
|
|
|
|
Banking net interest margin
|
|
2.86%
|
|
2.71%
|
|
15bp
|
Average interest-earning assets
|
|
£434.9bn
|
|
£435.9bn
|
|
–
|
1
|
Net of
profits on disposal of operating lease assets of
£32 million (2016: £58 million).
|
Net
income of £17,472 million was 5 per cent higher than in 2016
with an 8 per cent increase in net interest income, which included
£430 million from MBNA, and a 2 per cent increase in other
income, while operating lease depreciation increased 18 per cent
reflecting fleet growth in Lex Autolease.
Net
interest income increased by £885 million to £12,320
million. The net interest margin increased by 15 basis points
to 2.86 per cent reflecting lower deposit and wholesale funding
costs, which more than offset continued pressure on asset margins
and also included a 7 basis points benefit from MBNA. Average
interest-earning assets were broadly unchanged with reductions in
run-off, global corporates and the closed mortgage book offset by
MBNA.
The
Group expects the net interest margin for 2018 to be around 2.90
per cent, in line with the margin of 2.90 per cent in the
fourth quarter of 2017.
The
Group manages the risk to its earnings and capital from movements
in interest rates centrally by hedging the net liabilities which
are stable or less sensitive to movements in rates. These
liabilities include certain current account and savings balances,
together with the Group’s equity. As at 31 December 2017 the
Group’s hedge had a nominal balance of £165 billion
(31 December 2016: £111 billion), broadly in line with the
underlying hedgeable balances. The hedge had an average duration of
around 3 years and a fixed earnings rate of approximately 1.1 per
cent over LIBOR (2016: 1.6 per cent). The benefit from the
hedge in the year was £1.9 billion over LIBOR (2016:
£1.7 billion).
Other
income was £6,205 million, an increase of 2 per cent in the
year. The increase reflected continued growth in the Lex Autolease
business, the £146 million gain on sale of the
Group’s interest in Vocalink and £274 million
(2016: £112 million) of gains from the sale of
£14 billion of gilts and other available-for-sale assets
(2016: c.£5 billion). The increase was partly offset by lower
income from the run-off portfolio and reduced income from bulk
annuities reflecting the timing of transactions.
Operating costs
|
|
2017
|
|
2016
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
Operating costs
|
|
8,184
|
|
8,093
|
|
(1)
|
Cost:income ratio
|
|
46.8%
|
|
48.7%
|
|
(1.9)pp
|
Operating jaws
|
|
4%
|
|
|
|
|
Simplification savings annual run-rate
|
|
1,422
|
|
947
|
|
|
Operating
costs at £8,184 million increased slightly during the year,
but excluding MBNA costs of £135 million fell 1 per cent.
Savings from Simplification more than offset increased investment
in the business and inflation.
In 2017
the Group continued to focus on tight cost control while investing
significant amounts in developing its digital capability, improving
the branch network and simplifying processes. The Simplification
programme has achieved the annual run-rate savings target of
£1.4 billion since 2014, ahead of the original
£1 billion target.
Our
market leading cost:income ratio continues to provide competitive
advantage and improved further to 46.8 per cent with positive
operating jaws of 4 per cent.
The
Group expects operating costs of less than £8 billion in 2020;
the Group also expects the cost:income ratio to improve every year
and reach the low 40s exiting 2020, including future remediation
costs.
Impairment
|
|
2017
|
|
2016
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
Impairment charge
|
|
795
|
|
645
|
|
(23)
|
Asset quality ratio
|
|
0.18%
|
|
0.15%
|
|
3bp
|
Gross asset quality ratio
|
|
0.28%
|
|
0.28%
|
|
–
|
|
|
|
|
|
|
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
Change
|
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
Impaired loans as a % of closing advances
|
|
1.6%
|
|
1.8%
|
|
(0.2)pp
|
Provisions as a % of impaired loans
|
|
45.6%
|
|
43.4%
|
|
2.2pp
|
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 economy.
The
impairment charge increased to £795 million from £645
million in 2016, reflecting lower releases and write-backs and the
consolidation of MBNA. The asset quality ratio increased from 15
basis points to 18 basis points reflecting the expected lower
provision write-backs and releases while the gross asset quality
ratio was stable year-on-year at 28 basis points including the 2
basis points impact of MBNA in 2017.
The
Group expects an asset quality ratio of around 35 basis points
through the cycle and less than 30 basis points through the plan
period and in 2018. The Group continues to expect the asset quality
to remain strong but with further reductions in releases and
write-backs, however, following the implementation of IFRS 9, the
Group anticipates some additional volatility in
impairment.
Total
impaired loans fell by £0.7 billion to
£7.8 billion (31 December 2016: £8.5 billion) and
represent 1.6 per cent of closing advances to customers (31
December 2016: 1.8 per cent). Provisions as a percentage of
impaired loans increased to 45.6 per cent (31 December 2016:
43.4 per cent).
Overall
credit performance in the UK Retail mortgage book remains stable.
The average indexed loan to value (LTV) improved to 43.6 per cent
(31 December 2016: 44.0 per cent) and the value of lending with an
indexed LTV of greater than 80 per cent fell to
£30.7 billion (31 December 2016:
£32.4 billion). Impaired loans as a percentage of closing
advances were 1.3 per cent (31 December 2016: 1.4 per
cent).
The UK
Motor Finance book continues to benefit from conservative residual
values and prudent provisioning and impaired loans as a percentage
of closing advances were stable at 1.0 per cent. The credit card
book also continued to perform strongly with the MBNA portfolio
performing in line with the Group’s expectations. Impaired
credit card balances as a percentage of closing advances improved
to 2.3 per cent (31 December 2016: 3.1 per cent).
The
Commercial Banking portfolio continues to benefit from effective
risk management, a resilient economic environment and continued low
interest rates. Impaired loans as a percentage of closing advances
reduced to 1.9 per cent (31 December 2016:
2.1 per cent).
Statutory profit
|
|
2017
|
|
2016
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
Underlying profit
|
|
8,493
|
|
7,867
|
|
8
|
Volatility and other items
|
|
|
|
|
|
|
Enhanced
Capital Notes
|
|
–
|
|
(790)
|
|
|
Market
volatility and asset sales
|
|
279
|
|
439
|
|
|
Amortisation
of purchased intangibles
|
|
(91)
|
|
(340)
|
|
|
Restructuring
costs
|
|
(621)
|
|
(622)
|
|
|
Fair
value unwind and other
|
|
(270)
|
|
(231)
|
|
|
|
|
(703)
|
|
(1,544)
|
|
|
PPI provision
|
|
(1,650)
|
|
(1,000)
|
|
|
Other conduct provisions
|
|
(865)
|
|
(1,085)
|
|
|
Statutory profit before tax
|
|
5,275
|
|
4,238
|
|
24
|
Tax expense
|
|
(1,728)
|
|
(1,724)
|
|
–
|
Profit for the year
|
|
3,547
|
|
2,514
|
|
41
|
Statutory
profit before tax increased 24 per cent to £5,275 million
(2016: £4,238 million) driven by higher underlying profit and
lower volatility and other items. Statutory profit after tax
increased by 41 per cent to £3,547 million
(2016: £2,514 million).
The
charge of £790 million for Enhanced Capital Notes in 2016
represented the write-off of the embedded derivative and premium
paid on redemption of the remaining notes.
Market
volatility and asset sales of £279 million included positive
insurance volatility of £286 million. The credit of
£439 million in 2016 included the £484 million gain
on sale of the Group’s interest in Visa Europe.
Amortisation
of purchased intangibles was lower at £91 million (2016:
£340 million) as certain intangible assets are now fully
amortised.
Restructuring
costs were £621 million (2016: £622 million) and included
costs relating to the Simplification programme, the rationalisation
of the non-branch property portfolio, implementation of the
ring-fencing requirements and MBNA integration costs.
The PPI
charge of £1,650 million included an additional £600
million in the fourth quarter reflecting an increase in expected
weekly complaints from 9,000 to 11,000, which is the average level
of complaints for the last nine months. The outstanding balance
sheet provision at 31 December 2017 was £2.4
billion.
The
other conduct provisions of £865 million included an
additional £325 million charged in the fourth quarter which
covers a number of items including packaged bank accounts, arrears
handling and smaller legacy issues.
Taxation
The tax
expense was £1,728 million (2016:
£1,724 million) representing an effective tax rate of
33 per cent (2016: 41 per cent). The high effective
tax rate largely reflects the restrictions on deductibility of
conduct provisions and the banking surcharge. The effective tax
rate of 41 per cent in 2016 was higher as it also included the
negative impact on the net deferred tax asset of both the change in
corporation tax rate and the
expected utilisation by the
insurance business.
The Group expects the effective tax rate
to reduce to around 25 per cent by 2020.
Return on tangible equity
The
underlying return on tangible equity increased to 15.6 per
cent (2016: 14.1 per cent) primarily reflecting increased
underlying profit. The return on tangible equity was
8.9 per cent up from 6.6 per cent in 2016,
reflecting the increase in statutory profit after tax.
Going
forward the Group remains confident in its future prospects and
expects the return on tangible equity to trend towards the
underlying level and expects to generate a statutory return on
tangible equity of between 14.0 and 15.0 per cent in 2019, on a
higher capital base.
Balance sheet
|
|
At 31 Dec
|
|
At 31 Dec
|
|
Change
|
|
|
2017
|
|
2016
|
|
%
|
|
|
|
|
|
|
|
Loans and advances to customers
1
|
|
£456bn
|
|
£450bn
|
|
1
|
Customer deposits
2
|
|
£416bn
|
|
£413bn
|
|
1
|
Loan to deposit ratio
|
|
110%
|
|
109%
|
|
1pp
|
|
|
|
|
|
|
|
Wholesale funding
|
|
£101bn
|
|
£111bn
|
|
(9)
|
Wholesale funding <1 year maturity
|
|
£29bn
|
|
£35bn
|
|
(19)
|
Of which money-market funding <1 year
maturity
3
|
|
£15bn
|
|
£14bn
|
|
6
|
Liquidity coverage ratio – eligible assets
|
|
£121bn
|
|
£121bn
|
|
–
|
1
|
Excludes
reverse repos of £16.8 billion (31 December 2016:
£8.3 billion).
|
2
|
Excludes
repos of £2.6 billion (31 December 2016:
£2.5 billion).
|
3
|
Excludes
balances relating to margins of £2.1 billion
(31 December 2016: £3.2 billion) and settlement
accounts of £1.5 billion (31 December 2016:
£1.8 billion).
|
Loans
and advances to customers increased by 1 per cent to
£456 billion compared with £450 billion at
31 December 2016 mainly due to the acquisition of the MBNA
prime credit card portfolio (£8 billion), growth in the
open mortgage book, UK Motor Finance and SME, partly offset by
reductions in run-off and the closed mortgage book.
The
loan to deposit ratio was broadly stable at 110 per cent. Wholesale
funding reduced by 9 per cent to £101 billion compared
with £111 billion at 31 December 2016. In addition,
the Group made use of central bank funding schemes and by the end
of 2017 the Group had fully utilised its £20 billion
capacity from the Bank of England’s Term Funding
Scheme.
The
Group’s liquidity surplus exceeds the regulatory minimum and
internal risk appetite with a Liquidity Coverage Ratio of 127 per
cent based on the EU Delegated Act at 31 December
2017.
Capital ratios and risk-weighted assets
|
|
At 31 Dec
|
|
At 31 Dec
|
|
Change
|
|
|
2017
|
|
2016
|
|
%
|
|
|
|
|
|
|
|
Pro forma CET1 ratio pre dividend and share
buyback
1
|
|
15.5%
|
|
14.1%
|
|
1.4pp
|
Pro forma CET1 ratio post dividend
1,2
|
|
14.4%
|
|
13.0%
|
|
1.4pp
|
Pro forma CET1 ratio post dividend and share
buyback
1
|
|
13.9%
|
|
13.0%
|
|
0.9pp
|
Transitional tier 1 capital ratio
2
|
|
17.2%
|
|
17.0%
|
|
0.2pp
|
Transitional total capital ratio
2
|
|
21.2%
|
|
21.4%
|
|
(0.2)pp
|
Pro forma UK leverage ratio
1,2,3
|
|
5.4%
|
|
5.3%
|
|
0.1pp
|
Risk-weighted assets
|
|
£211bn
|
|
£216bn
|
|
(2)
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
£44bn
|
|
£43bn
|
|
1
|
Tangible net assets per share pre dividend
4,5
|
|
56.5p
|
|
54.8p
|
|
1.7p
|
Tangible net assets per share
5
|
|
53.3p
|
|
54.8p
|
|
(1.5)p
|
1
|
The
CET1 and leverage ratios at 31 December 2017 and 2016 are
reported on a pro forma basis, reflecting the dividends paid by the
Insurance business in February 2018 and February 2017,
respectively, in relation to prior year earnings. In addition the
CET1 ratios at 31 December 2016 have been adjusted for the
acquisition of MBNA.
|
2
|
The
2017 capital and leverage ratios do not, unless otherwise
indicated, recognise the share buyback as this will be reflected in
2018.
|
3
|
Calculated
in accordance with the UK Leverage Ratio Framework. Excludes
qualifying central bank claims.
|
4
|
Pre
final 2016 and interim 2017 dividends.
|
5
|
Tangible
net assets per share at 31 December 2016 equivalent to 53.4 pence
after adjusting for the impact of MBNA.
|
The
Group’s CET1 ratio has strengthened to 15.5 per cent on a pro
forma basis before ordinary dividends and the share buyback. After
ordinary dividends and allowing for the share buyback, the CET1
ratio remains strong at 13.9 per cent.
The
Group generated 245 basis points of CET1 capital (pre ordinary
dividends and share buyback) in the year. This included c.250 basis
points from underlying capital generation; the Group also had a
benefit of c.80 basis points from the reduction in risk-weighted
assets and c.40 basis points from market and other movements,
which were offset by the c.120 basis point impact of conduct
provisions.
The
Group remains highly capital generative and continues to expect
ongoing capital generation of 170 to 200 basis points per
annum.
As
reported in the Q3 IMS, the Group’s Pillar 2A CET1
requirement has increased by 0.5 per cent to 3 per cent. In
addition, the Countercyclical Capital Buffer on UK exposures will
be introduced during 2018 and the Systemic Risk Buffer will come
into effect in early 2019. The Group is also pleased to announce
that the PRA has now completed its annual review of the
Group’s PRA Buffer requirement. As a consequence, the
Board’s view of the level of CET1 capital required is c.13
per cent plus a management buffer of around 1 per cent. The
Group’s CET1 ratio as at 31 December 2017, including the
Insurance dividend and after the ordinary dividend and allowing for
the share buyback, was 13.9 per cent.
The
Group’s total capital ratio remains strong at 21.2 per cent
which, when combined with eligible senior unsecured securities
issued by Lloyds Banking Group plc, has left the Group well
positioned to meet its Minimum Requirement for Own Funds and
Eligible Liabilities (MREL) from 2020.
The
leverage ratio on a pro forma basis increased to 5.4 per cent (31
December 2016: 5.3 per cent), largely reflecting both the increase
in fully loaded tier 1 capital and reductions in balance sheet
assets.
Tangible
net assets per share at 31 December 2016 was 54.8 pence, or 53.4
pence after adjusting for the acquisition of MBNA. The movement
from the adjusted 2016 tangible net assets per share to 53.3 pence
at 31 December 2017 comprises an increase of 3.1 pence due to the
strong financial performance offset by a reduction of 3.2 pence for
dividends paid during the year.
Dividend
The
Board has recommended a final ordinary dividend of 2.05 pence per
share. This is in addition to the interim ordinary dividend of 1.0
pence per share that was announced at the 2017 half year results.
The total ordinary dividend per share for 2017 of 3.05 pence per
share has increased by 20 per cent from 2.55 pence per share in
2016.
The
Board continues to give due consideration at each year end to the
return of any surplus capital and for 2017, the Board intends to
implement a share buyback of up to £1 billion, equivalent to
up to 1.4 pence per share. This represents the return of capital
over and above the Board’s view of the current level of
capital required to grow the business, meet regulatory requirements
and cover uncertainties. The share buyback programme will commence
in March 2018 and is expected to be completed during the next 12
months.
Given
the total ordinary dividend of 3.05 pence per share and the
intended share buyback, equivalent to up to 1.4 pence per
ordinary share, the total capital return for 2017 will be up to
4.45 pence per share, an increase of up to 46 per cent on the
prior year, equivalent to up to
£3.2 billion.
In
prior years, the Board has distributed surplus capital by means of
a special dividend. The Board’s current preference is to
return surplus capital by way of a buyback programme given the
amount of surplus capital (£1 billion in 2017 versus £350
million in 2016), the normalisation of ordinary dividends, our
return to full private ownership and the flexibility that a buyback
programme offers.
The
Group intends to maintain a progressive and sustainable ordinary
dividend policy. The rate of growth of the ordinary dividend will
be decided by the Board in light of circumstances at the time and,
having grown very significantly in the last three years, going
forward the ordinary dividend is likely to grow at a more
normalised rate, whilst being supplemented by buybacks or special
dividends.
Pensions
The
Group’s defined benefit schemes have been significantly
derisked over recent years, including being materially hedged for
both interest rates and inflation.
Terms
have now been agreed in principle with the Trustee in respect of
the valuations of the Group’s three main defined benefit
pension schemes. The valuations showed an aggregate ongoing funding
deficit of £7.3 billion as at 31 December 2016
(£5.2 billion deficit at 30 June 2014). The increase in
the ongoing deficit over the period was mainly driven by lower gilt
yields, offset primarily by hedging and asset returns.
Under
the previous recovery plans, deficit contributions were committed
of £0.3 billion in 2018 and 2019 and c.£0.9 billion
per annum thereafter. Under the new recovery plans, deficit
contributions of £0.4 billion are payable in 2018, £0.6
billion in 2019, £0.8 billion in 2020 and £1.3 billion
per annum from 2021 to 2024. The Group also continues to provide
security to these pension schemes, with corporate guarantees and
collateral pledged, while also making additional annual
contributions for future service. All of the Group’s defined
benefit pension schemes will be located within the ring-fenced bank
and these revised contributions are included in the Group’s
latest capital guidance.
Ring-fencing
The
Group is making good progress with the implementation of its
ring-fencing programme, including the establishment of 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. As a predominantly UK retail and commercial bank, the
impact on the Group is relatively limited, with minimal impact for
the majority of the Group’s retail and commercial
customers.
Over
the course of 2018, in order to comply with the ring-fencing
legislation, certain businesses will be transferred out of Lloyds
Bank plc and its subsidiaries to other parts of the Group, by means
of statutory or contractual transfers. This will include the
transfer of certain wholesale and international businesses to
Lloyds Bank Corporate Markets and the transfer of Scottish Widows
Group and other insurance subsidiaries to Lloyds Banking Group
plc.
Due to
the Group’s UK retail and commercial focus, the vast majority
of the Group’s business will continue to be held by Lloyds
Bank plc and its subsidiaries (together the ring-fenced bank) and
as a result these transfers will not have a material impact on the
financial strength of Lloyds Bank plc.
IFRS 9
The
Group implemented IFRS 9 (Financial Instruments) on 1 January 2018.
The adoption of the new Standard resulted in a reduction in
shareholders’ equity of £1.2 billion largely reflecting
an increase in impairment provisions of £1.3 billion. The
impact on the Group’s CET1 capital ratio before transitional
relief at 1 January 2018 was a reduction of c.30 basis points after
taking account of the offset against regulatory expected losses.
After transitional relief the impact was c.1 basis
point.
Other matters
In 2014
the FCA removed the requirement to publish quarterly interim
management statements, however the Group has continued to publish
detailed statements. Going forward, given the simple and more
stable nature of the Group’s business, we will review the
length and content of the Q1 and Q3 interim management
statements.
UNDERLYING BASIS – SEGMENTAL ANALYSIS
|
|
|
|
|
|
|
|
Run-off and
|
|
|
|
|
|
|
Commercial
|
|
Insurance
|
|
Central
|
|
|
2017
|
|
Retail
|
|
Banking
|
|
and Wealth
|
|
items
|
|
Group
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
8,706
|
|
3,086
|
|
133
|
|
395
|
|
12,320
|
Other income
|
|
2,217
|
|
1,761
|
|
1,846
|
|
381
|
|
6,205
|
Total income
|
|
10,923
|
|
4,847
|
|
1,979
|
|
776
|
|
18,525
|
Operating lease depreciation
|
|
(946)
|
|
(44)
|
|
–
|
|
(63)
|
|
(1,053)
|
Net income
|
|
9,977
|
|
4,803
|
|
1,979
|
|
713
|
|
17,472
|
Operating costs
|
|
(4,857)
|
|
(2,199)
|
|
(1,040)
|
|
(88)
|
|
(8,184)
|
Impairment
|
|
(717)
|
|
(115)
|
|
–
|
|
37
|
|
(795)
|
Underlying profit
|
|
4,403
|
|
2,489
|
|
939
|
|
662
|
|
8,493
|
|
|
|
|
|
|
|
|
|
|
|
Banking net interest margin
|
|
2.61%
|
|
3.54%
|
|
|
|
|
|
2.86%
|
Average interest-earning banking assets
|
|
£337.4bn
|
|
£86.0bn
|
|
£0.8bn
|
|
£10.7bn
|
|
£434.9bn
|
Asset quality ratio
|
|
0.21%
|
|
0.12%
|
|
|
|
|
|
0.18%
|
Return on risk-weighted assets
|
|
4.92%
|
|
2.82%
|
|
|
|
|
|
3.95%
|
Loans and advances to customers
1
|
|
£339.7bn
|
|
£100.0bn
|
|
£0.8bn
|
|
£15.2bn
|
|
£455.7bn
|
Customer deposits
2
|
|
£253.1bn
|
|
£147.6bn
|
|
£13.8bn
|
|
£1.0bn
|
|
£415.5bn
|
Risk-weighted assets
|
|
£90.8bn
|
|
£85.6bn
|
|
£1.3bn
|
|
£33.2bn
|
|
£210.9bn
|
2016
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
8,073
|
|
2,934
|
|
80
|
|
348
|
|
11,435
|
Other income
|
|
2,162
|
|
1,756
|
|
1,939
|
|
208
|
|
6,065
|
Total income
|
|
10,235
|
|
4,690
|
|
2,019
|
|
556
|
|
17,500
|
Operating lease depreciation
|
|
(775)
|
|
(105)
|
|
–
|
|
(15)
|
|
(895)
|
Net income
|
|
9,460
|
|
4,585
|
|
2,019
|
|
541
|
|
16,605
|
Operating costs
|
|
(4,748)
|
|
(2,189)
|
|
(1,046)
|
|
(110)
|
|
(8,093)
|
Impairment
|
|
(654)
|
|
(17)
|
|
–
|
|
26
|
|
(645)
|
Underlying profit
|
|
4,058
|
|
2,379
|
|
973
|
|
457
|
|
7,867
|
|
|
|
|
|
|
|
|
|
|
|
Banking net interest margin
|
|
2.47%
|
|
3.36%
|
|
|
|
|
|
2.71%
|
Average interest-earning banking assets
|
|
£334.5bn
|
|
£89.9bn
|
|
£0.8bn
|
|
£10.7bn
|
|
£435.9bn
|
Asset quality ratio
|
|
0.20%
|
|
0.02%
|
|
|
|
|
|
0.15%
|
Return on risk-weighted assets
|
|
4.85%
|
|
2.45%
|
|
|
|
|
|
3.55%
|
Loans and advances to customers
2
|
|
£330.8bn
|
|
£101.6bn
|
|
£0.8bn
|
|
£16.5bn
|
|
£449.7bn
|
Customer deposits
2
|
|
£256.5bn
|
|
£141.3bn
|
|
£13.8bn
|
|
£1.4bn
|
|
£413.0bn
|
Risk-weighted assets
|
|
£84.6bn
|
|
£92.6bn
|
|
£1.7bn
|
|
£36.6bn
|
|
£215.5bn
|
1
|
Excludes
reverse repos of £16.8 billion (31 December 2016:
£8.3 billion).
|
2
|
Excludes
repos of £2.6 billion (31 December 2016:
£2.5 billion).
|
3
|
Restated.
See basis of presentation on the inside front cover.
|
UNDERLYING BASIS – QUARTERLY INFORMATION
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
|
31 Dec
|
|
30 Sept
|
|
30 June
|
|
31 Mar
|
|
31 Dec
|
|
|
2017
|
|
2017
|
|
2017
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
3,203
|
|
3,192
|
|
2,997
|
|
2,928
|
|
2,805
|
Other income
|
|
1,429
|
|
1,428
|
|
1,866
|
|
1,482
|
|
1,545
|
Total income
|
|
4,632
|
|
4,620
|
|
4,863
|
|
4,410
|
|
4,350
|
Operating lease depreciation
|
|
(284)
|
|
(274)
|
|
(263)
|
|
(232)
|
|
(226)
|
Net income
|
|
4,348
|
|
4,346
|
|
4,600
|
|
4,178
|
|
4,124
|
Operating costs
|
|
(2,165)
|
|
(2,001)
|
|
(2,050)
|
|
(1,968)
|
|
(2,134)
|
Impairment
|
|
(257)
|
|
(270)
|
|
(141)
|
|
(127)
|
|
(196)
|
Underlying profit
|
|
1,926
|
|
2,075
|
|
2,409
|
|
2,083
|
|
1,794
|
Volatility and other items
|
|
(221)
|
|
(124)
|
|
(129)
|
|
(229)
|
|
(346)
|
PPI provision
|
|
(600)
|
|
–
|
|
(700)
|
|
(350)
|
|
–
|
Other conduct provisions
|
|
(325)
|
|
–
|
|
(340)
|
|
(200)
|
|
(475)
|
Statutory profit before tax
|
|
780
|
|
1,951
|
|
1,240
|
|
1,304
|
|
973
|
|
|
|
|
|
|
|
|
|
|
|
Banking net interest margin
|
|
2.90%
|
|
2.90%
|
|
2.83%
|
|
2.80%
|
|
2.68%
|
Average interest-earning banking assets
|
|
£439.2bn
|
|
£438.3bn
|
|
£431.0bn
|
|
£430.9bn
|
|
£434.0bn
|
Cost:income ratio
|
|
49.8%
|
|
46.0%
|
|
44.6%
|
|
47.1%
|
|
51.7%
|
Asset quality ratio
|
|
0.23%
|
|
0.24%
|
|
0.13%
|
|
0.12%
|
|
0.17%
|
DIVISIONAL RESULTS
RETAIL
Retail
offers a broad range of financial service products, including
current accounts, savings, mortgages, credit cards, motor finance
and unsecured loans to personal and business banking customers. Its
aim is to be the best bank for customers in the UK, by building
deep and enduring relationships that deliver value to customers,
and by providing them with greater choice and flexibility. Retail
operates a multi-brand and multi-channel strategy and continues to
simplify the business and provide more transparent products,
helping to improve service levels and reduce conduct risks, whilst
working within a prudent risk appetite.
Progress against strategic priorities
Creating the best customer experience
●
Delivered a new
approach to current account overdrafts that is simple, clear and
puts customers in control as well as redesigning the account
opening journey to reduce account opening times.
●
Largest UK digital
bank with 13.4 million active online users including 9.3 million
mobile users.
●
Now able to provide
bespoke financial support to customers suffering from cancer,
following training from Macmillan.
●
Retail complaint
volumes (excluding PPI) down 17 per cent compared to
2016.
Becoming simpler and more efficient
●
Maintained the
UK’s largest branch network, with 21 per cent market share.
Responding to changing customer usage and preferences resulted in
an overall net reduction in branches, the introduction of new
branch formats in selected locations and an increase in mobile
branches to 28, supporting 169 communities.
●
Improved digital
capability simplifying processes for customers:
o
Rolled out over
4,440 iPad Pros across our branches, integrating the multi-channel
customer experience
o
Simplified online
processes for mortgage intermediaries to offer a faster
service
o
Customers now able
to check both loan and credit card eligibility up
front
Delivering sustainable growth
●
Successfully
completed the acquisition of MBNA from Bank of America,
consolidating the Group’s position as Britain’s largest
prime credit card issuer, with 25 per cent market share of
balances.
●
Continued to
support first-time home buyers, lending £13 billion compared
to the £10 billion target.
●
Supported over
124,000 start-up businesses, exceeding the commitment to support
100,000.
●
Lex Autolease
exceeded its five year ambition to grow its fleet by 100,000
vehicles, cementing its position as the UK’s leading vehicle
leasing company.
Financial performance
●
2017 results
include completion of the acquisition of MBNA on 1 June. MBNA has
performed ahead of expectations and generated incremental income of
£448 million, operating costs of £135 million and
impairments of £118 million.
●
Underlying profit
increased 9 per cent to £4,403 million.
●
Net interest income
increased 8 per cent (3 per cent excluding MBNA) reflecting a 14
basis points improvement in net interest margin, driven by deposit
repricing offsetting mortgage margin pressures.
●
Other income was 3
per cent higher, driven by fleet growth in Lex Autolease. Operating
lease depreciation increased reflecting fleet growth and increased
conservatism in residual value management.
●
Operating costs
increased 2 per cent to £4,857 million. Excluding MBNA, costs
decreased by 1 per cent driven by efficiency savings partly offset
by increased investment spend and pay related growth.
●
Impairment charges
increased 10 per cent to £717 million. Excluding MBNA,
impairments were £55 million lower than in 2016, reflecting
the resilient economic environment. Asset quality ratio excluding
MBNA was down 2 basis points.
●
Loans and advances
to customers were up 3 per cent to £339.7 billion (including
MBNA £8 billion) driven by the Black Horse business and growth
in the open mortgage book, up £1.0 billion to £267.1
billion.
●
Customer deposits
were down 1 per cent to £253.1 billion, with a continued
reduction in tactical balances.
●
Risk-weighted
assets increased by £6.2 billion to £90.8 billion
following the acquisition of MBNA.
Performance summary
|
|
2017
|
|
2016
1
|
|
Change
|
|
|
£m
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
Net interest income
|
|
8,706
|
|
8,073
|
|
8
|
Other income
|
|
2,217
|
|
2,162
|
|
3
|
Total income
|
|
10,923
|
|
10,235
|
|
7
|
Operating lease depreciation
|
|
(946)
|
|
(775)
|
|
(22)
|
Net income
|
|
9,977
|
|
9,460
|
|
5
|
Operating costs
|
|
(4,857)
|
|
(4,748)
|
|
(2)
|
Impairment
|
|
(717)
|
|
(654)
|
|
(10)
|
Underlying profit
|
|
4,403
|
|
4,058
|
|
9
|
|
|
|
|
|
|
|
Banking net interest margin
|
|
2.61%
|
|
2.47%
|
|
14bp
|
Average interest-earning banking assets
|
|
£337.4bn
|
|
£334.5bn
|
|
1
|
Asset quality ratio
|
|
0.21%
|
|
0.20%
|
|
1bp
|
Impaired loans as % of closing advances
|
|
1.4%
|
|
1.5%
|
|
(0.1)pp
|
Return on risk-weighted assets
|
|
4.92%
|
|
4.85%
|
|
7bp
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
|
|
2017
|
|
2016
1
|
|
Change
|
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
Open mortgage book
|
|
267.1
|
|
266.1
|
|
–
|
Closed mortgage book
|
|
23.6
|
|
26.7
|
|
(12)
|
Credit cards
|
|
18.1
|
|
9.7
|
|
87
|
Loans
|
|
7.9
|
|
7.7
|
|
3
|
UK Motor Finance
|
|
13.6
|
|
11.4
|
|
19
|
Europe
2
|
|
7.1
|
|
6.3
|
|
13
|
Other
|
|
2.3
|
|
2.9
|
|
(21)
|
Loans and advances to customers
|
|
339.7
|
|
330.8
|
|
3
|
Operating lease assets
|
|
4.7
|
|
4.1
|
|
15
|
Total customer assets
|
|
344.4
|
|
334.9
|
|
3
|
|
|
|
|
|
|
|
Relationship balances
|
|
240.0
|
|
239.3
|
|
–
|
Tactical balances
|
|
13.1
|
|
17.2
|
|
(24)
|
Customer deposits
|
|
253.1
|
|
256.5
|
|
(1)
|
|
|
|
|
|
|
|
Risk-weighted assets
|
|
90.8
|
|
84.6
|
|
7
|
1
|
Restated.
See basis of presentation on the inside front cover.
|
2
|
Includes
the Netherlands mortgage lending business.
|
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 segments – 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 and debt capital markets services.
Progress against strategic priorities
Commercial
Banking delivered a return on risk-weighted assets of 2.82 per cent
in 2017, exceeding the commitment of a return of 2.40 per cent,
while continuing to focus on improving the client experience and
grow lending in key client segments.
Creating the best customer experience
●
Awarded Business
Bank of the Year at the FDs’ Excellence Awards for the 13th
consecutive year; scoring highest against peers across all
assessment criteria; service, relationship managers and value for
money.
●
Supported c.6,800
clients in 2017 to export for the first time and helped clients
break into new markets through the International Trade
Portal.
Becoming simpler and more efficient
●
Over 16,000 SME
business accounts opened using the transformed end-to-end process
in 2017.
●
The transformed
process includes additional digital functionality, such as the
option to review and approve banking agreements online and upload
signatures.
Delivering sustainable growth
●
Following the
launch of the Green Loan Initiative in 2016, the Group has provided
in excess £0.5 billion of green lending, improving the energy
efficiency of over 5 million square feet of real
estate.
●
Exceeded the
£4 billion Helping Britain Prosper funding commitment for
manufacturing businesses, for the four years to 2017. In addition,
continued to support the Lloyds Bank Advanced Manufacturing
Training Centre, investing £1 million a year since 2014;
and to date have trained over 500 manufacturing graduates,
engineers and apprentices, building towards the target of 1,000 by
2020.
●
SME lending up 2
per cent, outperforming the market and providing valuable support
to the economy.
Financial performance
●
Underlying profit
increased 5 per cent to £2,489 million, driven by income
growth and active cost management, delivering improvement in
cost:income ratio to 45.8 per cent.
●
Return on
risk-weighted assets of 2.82 per cent, reflecting proactive
portfolio optimisation and increased profit.
●
Income increased by
3 per cent to £4,847 million with broad based franchise
growth.
●
Net interest margin
increased 18 basis points to 3.54 per cent as a result of lower
funding costs.
●
Other income
resilient at £1,761 million (2016:
£1,756 million), with fewer significant transactions in
the second half of the year and reduced client activity compared to
2016.
●
Operating lease
depreciation reduced due to lower accelerated charges compared with
2016.
●
Continued
investment in the business offset by efficiencies, leading to flat
operating costs.
●
The increase in
impairment charge to £115 million and asset quality ratio to
12 basis points is due to a lower level of write-backs and
provision releases and also includes a single large corporate
impairment.
●
Loans and advances
decreased 2 per cent to £100.0 billion, with year-on-year
lending growth of 2 per cent in SME remaining at above market
growth levels, offset by reductions in Global
Corporates.
●
Deposits increased
by 4 per cent to £147.6 billion, with continued momentum in
attracting high quality transactional banking
deposits.
●
Continued portfolio
optimisation, including capital efficient securitisation activity,
to achieve an 8 per cent reduction in risk-weighted assets to
£85.6 billion.
Performance summary
|
|
2017
|
|
2016
1
|
|
Change
|
|
|
£m
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
Net interest income
|
|
3,086
|
|
2,934
|
|
5
|
Other income
|
|
1,761
|
|
1,756
|
|
–
|
Total income
|
|
4,847
|
|
4,690
|
|
3
|
Operating lease depreciation
|
|
(44)
|
|
(105)
|
|
58
|
Net income
|
|
4,803
|
|
4,585
|
|
5
|
Operating costs
|
|
(2,199)
|
|
(2,189)
|
|
–
|
Impairment charge
|
|
(115)
|
|
(17)
|
|
|
Underlying profit
|
|
2,489
|
|
2,379
|
|
5
|
|
|
|
|
|
|
|
Banking net interest margin
|
|
3.54%
|
|
3.36%
|
|
18bp
|
Average interest-earning banking assets
|
|
£86.0bn
|
|
£89.9bn
|
|
(4)
|
Asset quality ratio
|
|
0.12%
|
|
0.02%
|
|
10bp
|
Impaired loans as % of closing advances
|
|
1.9%
|
|
2.1%
|
|
(0.2)pp
|
Return on risk-weighted assets
|
|
2.82%
|
|
2.45%
|
|
37bp
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
|
|
2017
|
|
2016
1
|
|
Change
|
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
SME
|
|
30.7
|
|
30.2
|
|
2
|
Mid
Corporates
|
|
19.9
|
|
19.5
|
|
2
|
Other
Mid Markets
|
|
14.3
|
|
15.0
|
|
(5)
|
Mid Markets
|
|
34.2
|
|
34.5
|
|
(1)
|
Other
2
|
|
41.8
|
|
43.4
|
|
(4)
|
Loans sold to Insurance business
3
|
|
(6.7)
|
|
(6.5)
|
|
|
Loans and advances to customers
|
|
100.0
|
|
101.6
|
|
(2)
|
|
|
|
|
|
|
|
Customer deposits
|
|
147.6
|
|
141.3
|
|
4
|
Risk-weighted assets
|
|
85.6
|
|
92.6
|
|
(8)
|
1
|
Restated.
See basis of presentation on the inside front cover.
|
2
|
Mainly
lending to Global Corporates and Financial Institutions
clients.
|
3
|
The
customer segment balances include lower risk loans that were
originated by Commercial Banking and subsequently sold to the
Insurance business to back annuitant liabilities. These loans are
reported in Central items but have been included in this table to
aid comparison with prior periods.
|
INSURANCE AND WEALTH
Insurance
and Wealth offers insurance, investment and wealth management
products and services. It supports over 9 million customers
with total customer assets under administration of £145
billion and annualised annuity payments to customers in retirement
of c.£1 billion. The division’s strategic aim is to be
the best insurer and wealth management business in the UK. It is
committed to providing trusted, value for money products and
services to meet the needs of its customers.
Progress against strategic priorities
The
Group continues to direct significant investment towards developing
Insurance and Wealth, seeking to grow in areas where it has
competitive advantage and is under-represented, for the benefit of
both customers and shareholders.
Creating the best customer experience
●
Scottish Widows won
‘Company of the Year’ and 5 star service awards in
individual categories of Life and Pensions and Investments at the
Financial Adviser Service Awards 2017.
●
Home insurance net
promoter scores increased by 10 per cent and life, pensions and
investments by 13 per cent.
●
Improved the Wealth
customer experience, through reduction in time taken to provide
customer advice by up to 40 per cent, which allows the Group
to help more customers.
Becoming simpler and more efficient
●
Simplifying
insurance systems and processes through long-term partnerships with
Diligenta and Jardine Lloyd Thomson, enabling customers to better
manage their policies with Scottish Widows.
●
Following its
launch in 2016, the employer digital service now reaches all
eligible workplace schemes, significantly reducing processing time
for monthly pension scheme management.
Delivering sustainable growth
●
Announced the
acquisition of Zurich’s UK workplace pensions and savings
business, which has customer funds of £21 billion and
c.595,000 customers. The acquisition will enhance Scottish
Widows’ current offering, giving a strong platform on which
to develop the next stage of its strategy in financial planning and
retirement.
●
Helping Britain
prosper by funding £670 million of long duration loans in the
year to finance affordable housing, infrastructure and commercial
real estate projects whilst supporting a growing annuitant
portfolio.
●
Since market entry
in 2015, we have written £2.5 billion of bulk annuity business
(of which £0.6 billion in 2017) and continue to see
significant demand from UK defined benefit pension schemes using
bulk annuities to manage risk.
●
Workplace, planning
and retirement customer assets under administration increased by 15
per cent to £43 billion reflecting net inflows and positive
market movements.
●
Wealth customer
assets increased by 7 per cent to £25 billion, reflecting
positive market movements.
Financial performance
●
Income in insurance
and overall costs remained flat, with higher investment costs
offset by lower business as usual costs. Underlying profit has
decreased by 3 per cent to £939 million as a result of
lower Wealth income.
●
Total life and
pensions sales increased by 12 per cent, driven by 29 per cent
increase across workplace, planning and retirement and protection,
partly offset by lower bulk annuity sales where we have maintained
a strong pricing discipline whilst actively quoting in a very
competitive market.
●
The total
underwritten household premiums decreased by 12 per cent reflecting
the highly competitive marketplace, despite achieving an increase
in underwritten new business premiums of 12 per cent supported by
the new flexible Direct proposition launched during
2016.
Insurance capital
●
Estimated pre final
dividend Solvency II ratio is unchanged at 160 per cent (31
December 2016: 160 per cent) and represents the shareholder view of
Solvency II surplus. The ratio reflects in-year earnings, capital
management actions and favourable market movements offset by
capital invested in new business and dividends paid in the
year.
●
Capital management
actions include successful conclusion of a £1.3 billion
annuitant longevity reinsurance transaction with Prudential
Insurance Company of America.
●
Estimated excess
capital of £890 million was generated in 2017 from which
dividends totalling £575 million were paid in the year with a
further dividend of £600 million paid to the Group in February
2018.
Performance summary
|
|
2017
|
|
2016
1
|
|
Change
|
|
|
£m
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
Net interest income
|
|
133
|
|
80
|
|
66
|
Other income
|
|
1,846
|
|
1,939
|
|
(5)
|
Total income
|
|
1,979
|
|
2,019
|
|
(2)
|
Operating costs
|
|
(1,040)
|
|
(1,046)
|
|
1
|
Underlying profit
|
|
939
|
|
973
|
|
(3)
|
|
|
|
|
|
|
|
Life and pensions sales (PVNBP)
2
|
|
9,951
|
|
8,919
|
|
12
|
General insurance underwritten new GWP
3
|
|
84
|
|
75
|
|
12
|
General insurance underwritten total GWP
3
|
|
733
|
|
831
|
|
(12)
|
General insurance combined ratio
|
|
87%
|
|
85%
|
|
2pp
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
|
|
2017
|
|
2016
1
|
|
Change
|
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
Insurance Solvency II ratio
4
|
|
160%
|
|
160%
|
|
–
|
Wealth loans and advances to customers
|
|
0.8
|
|
0.8
|
|
–
|
Wealth customer deposits
|
|
13.8
|
|
13.8
|
|
–
|
Wealth risk-weighted assets
|
|
1.3
|
|
1.7
|
|
(24)
|
Total customer assets under administration
|
|
145.4
|
|
137.8
|
|
6
|
Income by product group
|
|
2017
|
|
2016
1
|
|
|
New
|
|
Existing
|
|
|
|
New
|
|
Existing
|
|
|
|
|
business
|
|
business
|
|
Total
|
|
business
|
|
business
|
|
Total
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workplace
|
|
107
|
|
96
|
|
203
|
|
123
|
|
103
|
|
226
|
Planning and retirement
|
|
95
|
|
91
|
|
186
|
|
109
|
|
95
|
|
204
|
Bulk annuities
|
|
54
|
|
26
|
|
80
|
|
121
|
|
16
|
|
137
|
Protection
|
|
13
|
|
20
|
|
33
|
|
19
|
|
17
|
|
36
|
Longstanding LP&I
|
|
12
|
|
440
|
|
452
|
|
9
|
|
441
|
|
450
|
|
|
281
|
|
673
|
|
954
|
|
381
|
|
672
|
|
1,053
|
Life and pensions experience and other items
|
|
|
|
|
|
358
|
|
|
|
|
|
202
|
General insurance
|
|
|
|
|
|
298
|
|
|
|
|
|
354
|
|
|
|
|
|
|
1,610
|
|
|
|
|
|
1,609
|
Wealth
|
|
|
|
|
|
369
|
|
|
|
|
|
410
|
Total income
|
|
|
|
|
|
1,979
|
|
|
|
|
|
2,019
|
1
|
Restated.
See basis of presentation on the inside front cover.
|
2
|
Present
value of new business premiums.
|
3
|
Gross
written premiums.
|
4
|
Equivalent
regulatory view of ratio (including With Profits funds) is 154 per
cent at 31 December 2017 (31 December 2016: 154 per
cent).
|
Excluding
bulk annuities and 2016 with profits fund annuity transfer within
planning and retirement, new business income remains stable,
reflecting lower margins as a result of the competitive environment
and strengthening of underlying assumptions. Existing business
income is flat with positive impact of economics offset by legacy
products run-off.
Experience
and other items contributed a net benefit of £358 million
(2016: £202 million), including benefits as a result of
changes to longevity assumptions. These include both experience in
the annuity portfolio and the adoption of a new industry model
reflecting an updated view of future life expectancy.
RUN-OFF AND CENTRAL ITEMS
RUN-OFF
|
|
2017
|
|
2016
|
|
Change
|
|
|
£m
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
Net interest income
|
|
(91)
|
|
(110)
|
|
17
|
Other income
|
|
42
|
|
120
|
|
(65)
|
Total income
|
|
(49)
|
|
10
|
|
|
Operating lease depreciation
|
|
(63)
|
|
(15)
|
|
|
Net income
|
|
(112)
|
|
(5)
|
|
|
Operating costs
|
|
(54)
|
|
(77)
|
|
30
|
Impairment release
|
|
41
|
|
26
|
|
58
|
Underlying loss
|
|
(125)
|
|
(56)
|
|
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
|
|
2017
|
|
2016
|
|
Change
|
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
Loans and advances to customers
|
|
8.1
|
|
9.6
|
|
(16)
|
Total assets
|
|
9.1
|
|
11.3
|
|
(19)
|
Risk-weighted assets
|
|
7.3
|
|
8.5
|
|
(14)
|
The
lower income and costs reflect further reductions in the run-off
portfolios. The run-off portfolio largely comprises the
Group’s Irish mortgage book and a number of other corporate
and specialist finance portfolios.
CENTRAL ITEMS
|
|
2017
|
|
2016
1
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Total income
|
|
825
|
|
546
|
Costs
|
|
(34)
|
|
(33)
|
Impairment
|
|
(4)
|
|
–
|
Underlying profit
|
|
787
|
|
513
|
1
|
Restated.
See basis of presentation on the inside front cover.
|
Central
items includes income and expenditure not attributed to divisions,
including the costs of certain central and head office functions
and the Group’s private equity business, Lloyds Development
Capital.
Total
income increased to £825 million (2016:
£546 million) largely as a result of the gains on sales
of liquid assets including gilts of £274 million (2016:
£112 million) and the gain of £146 million on
the sale of the Group’s interest in Vocalink.
OTHER FINANCIAL INFORMATION
1.
Reconciliation
between statutory and underlying basis results
The
tables below set out the reconciliation from the statutory results
to the underlying basis results, the principles of which are set
out on the inside front cover.
|
|
|
|
Removal of:
|
|
|
|
|
|
|
Volatility
|
|
|
|
|
|
Other
|
|
|
|
|
Statutory
|
|
and other
|
|
Insurance
|
|
|
|
conduct
|
|
Underlying
|
|
|
basis
|
|
items
1,2
|
|
gross up
3
|
|
PPI
|
|
provisions
|
|
basis
|
2017
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
10,912
|
|
228
|
|
1,180
|
|
–
|
|
–
|
|
12,320
|
Other income, net of insurance claims
|
|
7,747
|
|
(186)
|
|
(1,356)
|
|
–
|
|
–
|
|
6,205
|
Total income
|
|
18,659
|
|
42
|
|
(176)
|
|
–
|
|
–
|
|
18,525
|
Operating lease depreciation
|
|
|
|
(1,053)
|
|
–
|
|
–
|
|
–
|
|
(1,053)
|
Net income
|
|
18,659
|
|
(1,011)
|
|
(176)
|
|
–
|
|
–
|
|
17,472
|
Operating expenses
4
|
|
(12,696)
|
|
1,821
|
|
176
|
|
1,650
|
|
865
|
|
(8,184)
|
Impairment
|
|
(688)
|
|
(107)
|
|
–
|
|
–
|
|
–
|
|
(795)
|
Profit before tax
|
|
5,275
|
|
703
|
|
–
|
|
1,650
|
|
865
|
|
8,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
9,274
|
|
263
|
|
1,898
|
|
–
|
|
–
|
|
11,435
|
Other income, net of insurance claims
|
|
7,993
|
|
121
|
|
(2,110)
|
|
–
|
|
61
|
|
6,065
|
Total income
|
|
17,267
|
|
384
|
|
(212)
|
|
–
|
|
61
|
|
17,500
|
Operating lease depreciation
|
|
|
|
(895)
|
|
–
|
|
–
|
|
–
|
|
(895)
|
Net income
|
|
17,267
|
|
(511)
|
|
(212)
|
|
–
|
|
61
|
|
16,605
|
Operating expenses
4
|
|
(12,277)
|
|
1,948
|
|
212
|
|
1,000
|
|
1,024
|
|
(8,093)
|
Impairment
|
|
(752)
|
|
107
|
|
–
|
|
–
|
|
–
|
|
(645)
|
Profit before tax
|
|
4,238
|
|
1,544
|
|
–
|
|
1,000
|
|
1,085
|
|
7,867
|
1
|
In the
year ended 31 December 2017 this comprises the effects of asset
sales (gain of £30 million); volatile items (gain of
£263 million); liability management (loss of
£14 million); the amortisation of purchased intangibles
(£91 million); restructuring costs
(£621 million, principally comprising 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 (loss of
£270 million).
|
2
|
In the
year ended 31 December 2016 this comprises the write-off of the ECN
embedded derivative and premium paid on redemption of the remaining
notes in the first quarter (loss of £790 million); the
effects of asset sales (gain of £217 million); volatile
items (gain of £99 million); liability management (gain
of £123 million); the amortisation of purchased
intangibles (£340 million); restructuring costs
(£622 million, principally comprising the severance
related costs related to phase II of the Simplification programme);
and the fair value unwind and other items (loss of
£231 million).
|
3
|
The
Group’s insurance businesses’ income statements include
income and expenditure which are attributable to the policyholders
of the Group’s long-term assurance funds. These items have no
impact in total upon the profit attributable to equity shareholders
and, in order to provide a clearer representation of the underlying
trends within the business, these items are shown net within the
underlying results.
|
4
|
The
statutory basis figure is the aggregate of operating costs and
operating lease depreciation.
|
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 and Wealth to back annuitant liabilities.
The
table below shows the reconciliation between statutory net interest
income and the underlying banking net interest income.
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Group net interest income – statutory basis
|
|
10,912
|
|
9,274
|
Insurance gross up
|
|
1,180
|
|
1,898
|
Volatility and other items
|
|
228
|
|
263
|
Group net interest income – underlying basis
|
|
12,320
|
|
11,435
|
Non-banking net interest income
|
|
111
|
|
391
|
Banking net interest income – underlying basis
|
|
12,431
|
|
11,826
|
|
|
|
|
|
Average interest-earning banking assets
|
|
£434.9bn
|
|
£435.9bn
|
|
|
|
|
|
Banking net interest margin
|
|
2.86%
|
|
2.71%
|
The
table below shows the reconciliation between net loans and advances
and average interest-earning banking assets.
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
|
31 Dec
|
|
30 Sept
|
|
30 Jun
|
|
31 Mar
|
|
31 Dec
|
|
|
2017
|
|
2017
|
|
2017
|
|
2017
|
|
2016
|
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
|
|
|
|
|
|
|
|
|
|
Net loans and advances to
customers
1
|
|
455.7
|
|
454.6
|
|
453.2
|
|
444.7
|
|
449.7
|
Impairment provision and fair value adjustments
|
|
3.2
|
|
3.4
|
|
3.3
|
|
3.6
|
|
3.7
|
Non-banking items:
|
|
|
|
|
|
|
|
|
|
|
Fee
based loans and advances
|
|
(8.1)
|
|
(7.4)
|
|
(7.4)
|
|
(8.5)
|
|
(9.4)
|
Sale
of assets to Insurance
|
|
(6.9)
|
|
(6.8)
|
|
(6.8)
|
|
(6.6)
|
|
(6.7)
|
Other
non-banking
|
|
(4.0)
|
|
(4.7)
|
|
(4.2)
|
|
(3.4)
|
|
(5.0)
|
Gross banking loans and advances
|
|
439.9
|
|
439.1
|
|
438.1
|
|
429.8
|
|
432.3
|
Averaging
|
|
(0.7)
|
|
(0.8)
|
|
(7.1)
|
|
1.1
|
|
1.7
|
Average interest-earning banking assets (qtr)
|
|
439.2
|
|
438.3
|
|
431.0
|
|
430.9
|
|
434.0
|
Average interest-earning banking assets
(year to date)
|
|
434.9
|
|
433.4
|
|
430.9
|
|
430.9
|
|
435.9
|
1
|
Excludes
reverse repos of £16.8 billion (31 December 2016:
£8.3 billion).
|
3.
Volatility
arising in insurance businesses
Volatility
included in the Group’s statutory results before tax
comprises the following:
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Insurance volatility
|
|
196
|
|
(152)
|
Policyholder interests volatility
|
|
190
|
|
241
|
Total volatility
|
|
386
|
|
89
|
Insurance hedging arrangements
|
|
(100)
|
|
(180)
|
Total
|
|
286
|
|
(91)
|
Insurance volatility
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 Insurance and Wealth 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.
Tangible
net assets per share
The
table below sets out a reconciliation of the Group’s
shareholders’ equity to its tangible net assets.
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Shareholders’ equity
|
|
43,551
|
|
43,020
|
Goodwill
|
|
(2,310)
|
|
(2,016)
|
Intangible assets
|
|
(2,835)
|
|
(1,681)
|
Purchased value of in-force business
|
|
(306)
|
|
(340)
|
Other, including deferred tax effects
|
|
254
|
|
170
|
Tangible net assets
|
|
38,354
|
|
39,153
|
|
|
|
|
|
Ordinary shares in issue, excluding own shares
|
|
71,944m
|
|
71,413m
|
Tangible net assets per share
|
|
53.3p
|
|
54.8p
|
Tangible net assets per share pre dividend
1
|
|
56.5p
|
|
54.8p
|
1
|
Pre
final 2016 and interim 2017 dividends.
|
Tangible
net assets per share at 31 December 2016 was 54.8 pence, or 53.4
pence after adjusting for the acquisition of MBNA. The movement
from the adjusted 2016 tangible net assets per share to 53.3 pence
at 31 December 2017 comprises an increase of 3.1 pence due to the
strong financial performance offset by a reduction of 3.2 pence for
dividends paid during the year.
5.
Return
on tangible equity
The
Group’s underlying return on tangible equity was 15.6 per
cent (2016: 14.1 per cent) and statutory return on tangible equity
was 8.9 per cent, 2.3 percentage points higher year-on-year as a
result of higher underlying profit and lower volatility and other
items.
|
|
2017
|
|
2016
|
Underlying return on tangible equity
|
|
|
|
|
Average shareholders’ equity (£bn)
|
|
43.4
|
|
42.7
|
Average intangible assets (£bn)
|
|
(4.6)
|
|
(3.8)
|
Average tangible equity (£bn)
|
|
38.8
|
|
38.9
|
|
|
|
|
|
Underlying profit after tax (£m)
|
|
6,244
|
|
5,731
|
Add back amortisation of intangible assets (post tax)
(£m)
|
|
219
|
|
174
|
Less profit attributable to other equity holders
(£m)
|
|
(313)
|
|
(321)
|
Less profit attributable to non-controlling interests
(£m)
|
|
(90)
|
|
(101)
|
Adjusted underlying profit after tax (£m)
|
|
6,060
|
|
5,483
|
|
|
|
|
|
Underlying return on tangible equity
|
|
15.6%
|
|
14.1%
|
|
|
|
|
|
Statutory return on tangible equity
|
|
|
|
|
Group statutory profit after tax (£m)
|
|
3,547
|
|
2,514
|
Add back amortisation of intangible assets (post tax)
(£m)
|
|
219
|
|
174
|
Add back amortisation of purchased intangible assets (post tax)
(£m)
|
|
101
|
|
299
|
Less profit attributable to other equity holders
(£m)
|
|
(313)
|
|
(321)
|
Less profit attributable to non-controlling interests
(£m)
|
|
(90)
|
|
(101)
|
Adjusted statutory profit after tax (£m)
|
|
3,464
|
|
2,565
|
|
|
|
|
|
Statutory return on tangible equity
|
|
8.9%
|
|
6.6%
|
GROUP 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.
●
Gross impairment
charges remain broadly flat, including the acquisition of
MBNA.
●
Gross asset quality
ratio (excluding releases and write-backs) was stable at 28 basis
points.
●
The net impairment
charge increased to £795 million in 2017 compared to £645
million in 2016, reflecting expected lower provision releases and
write-backs and the acquisition of MBNA (£118 million). The
net asset quality ratio for 2017 was 18 basis points (2016: 15
basis points).
●
The Group expects
an asset quality ratio of around 35 basis points through the
cycle and less than 30 basis points through the plan period and in
2018.
●
Impaired loans as a
percentage of closing loans and advances reduced to 1.6 per cent
(31 December 2016: 1.8 per cent) with impaired loans down
£0.7 billion to £7.8 billion (31 December 2016:
£8.5 billion), with reductions across Retail, Commercial
Banking and Run-off divisions. As at 31 December Retail impaired
loans were £104 million lower at £4,951 million,
despite including £151 million relating to the
acquisition of MBNA. Commercial Banking impaired loans reduced by
£270 million to £1,927 million, driven by impaired
loan repayments and reductions, partly offset by a large newly
impaired loan.
Low risk culture and prudent risk appetite
●
The Group continues
to take a prudent approach to credit risk, with robust credit
quality and affordability controls at origination and a prudent
through the cycle credit risk appetite. The Group’s
portfolios are well positioned against an uncertain economic
outlook and potential market volatility.
●
The
Group continues to grow lending to key segments while maintaining
prudent credit criteria.
●
The Group’s
effective risk management ensures early identification and
management of customers and counterparties who may be showing signs
of distress.
●
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. In particular:
o
The
average indexed LTV of the UK Retail mortgage portfolio improved to
43.6 per cent (31 December 2016: 44.0 per cent) and the
percentage of Secured loans and advances with an indexed LTV
greater than 100 per cent was 0.6 per cent
(31 December 2016: 0.7 per cent). The average LTV for new UK
Retail mortgages written in 2017 was 63.0 per cent
(31 December 2016: 64.4 per cent).
o
The
value of UK Retail mortgage lending with an indexed LTV of greater
than 80 per cent fell to £30,680 million (31
December 2016: £32,395 million).
o
Total UK Direct
Real Estate gross lending across the Group was £17.9 billion
at 31 December 2017 (31 December 2016: £19.9 billion) and
includes Commercial Banking lending of £17.3 billion, and
£0.2 billion within Retail Business Banking (within Retail).
The Group’s legacy run-off direct real estate portfolio has
continued to fall and was £0.4 billion at 31 December
2017.
o
Run-off net
external assets stood at £9.1 billion at 31 December 2017,
down from £11.3 billion at 31 December 2016. The portfolio
represents only 1.8 per cent of the overall Group’s loans and
advances (31 December 2016: 2.1 per cent).
Impairment
charge by division
|
|
|
|
Debt securities
|
|
Available
|
|
|
|
|
|
|
|
|
Loans and
|
|
classified as
|
|
-for-sale
|
|
Other
|
|
|
|
|
|
|
advances to
|
|
loans and
|
|
financial
|
|
credit risk
|
|
|
|
|
|
|
customers
|
|
receivables
|
|
assets
|
|
provisions
|
|
Total
|
|
2016¹
|
2017
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
717
|
|
–
|
|
–
|
|
–
|
|
717
|
|
654
|
Commercial Banking
|
|
117
|
|
–
|
|
3
|
|
(5)
|
|
115
|
|
17
|
Insurance and Wealth
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
Run-off
|
|
(31)
|
|
(6)
|
|
–
|
|
(4)
|
|
(41)
|
|
(26)
|
Central items
|
|
1
|
|
–
|
|
3
|
|
–
|
|
4
|
|
–
|
Total impairment charge
|
|
804
|
|
(6)
|
|
6
|
|
(9)
|
|
795
|
|
645
|
Asset quality ratio
|
|
|
|
|
|
|
|
|
|
0.18%
|
|
0.15%
|
Gross asset quality ratio
|
|
|
|
|
|
|
|
|
|
0.28%
|
|
0.28%
|
1
|
Restated.
See basis of presentation on the inside front cover.
|
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
|
|
|
£m
|
|
£m
|
|
%
|
|
£m
|
|
%
|
At 31 December 2017
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
341,705
|
|
4,951
|
|
1.4
|
|
2,147
|
|
46.1
|
Commercial Banking
|
|
100,812
|
|
1,927
|
|
1.9
|
|
830
|
|
43.1
|
Insurance and Wealth
|
|
818
|
|
28
|
|
3.4
|
|
9
|
|
32.1
|
Run-off
|
|
8,533
|
|
935
|
|
11.0
|
|
456
|
|
48.8
|
Reverse repos and other items
3
|
|
23,886
|
|
|
|
|
|
|
|
|
Total gross lending
|
|
475,754
|
|
7,841
|
|
1.6
|
|
3,442
|
|
45.6
|
Impairment provisions
|
|
(3,442)
|
|
|
|
|
|
|
|
|
Fair value adjustments
4
|
|
186
|
|
|
|
|
|
|
|
|
Total Group
|
|
472,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2016
5
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
332,953
|
|
5,055
|
|
1.5
|
|
2,011
|
|
42.9
|
Commercial Banking
|
|
102,398
|
|
2,197
|
|
2.1
|
|
828
|
|
37.7
|
Insurance and Wealth
|
|
812
|
|
26
|
|
3.2
|
|
11
|
|
42.3
|
Run-off
|
|
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
4
|
|
(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 loans in recoveries in Retail (31 December 2017:
£291 million; 31 December 2016:
£365 million)
|
3
|
Includes
£6.9 billion (December 2016: £6.7 billion) of lower
risk loans sold by Commercial Banking and Retail to Insurance and
Wealth to back annuitant liabilities.
|
4
|
The
Group made adjustments to reflect the HBOS and MBNA loans and
advances at fair value on acquisition. At 31 December 2017, the
remaining fair value adjustment was £186 million comprising a
positive adjustment of £270 million in respect of the MBNA
assets and a negative adjustment of £84 million in respect of
the HBOS assets. The fair value unwind in respect of impairment
losses incurred was £85 million for the year ended
31 December 2017 (31 December 2016:
£70 million). The fair value adjustment in respect of
loans and advances is expected to continue to decrease in future
years and will reduce to zero over time.
|
5
|
Restated.
See basis of presentation on the inside front cover.
|
FUNDING AND LIQUIDITY MANAGEMENT
The
Group has maintained its strong funding and liquidity position with
a loan to deposit ratio of 110 per cent at 31 December 2017
(109 per cent as at 31 December 2016).
During
2017, the Group drew down a further £15.4 billion under the
Bank of England’s Term Funding Scheme (TFS), now fully
utilised at £20 billion as at 31 December 2017. The amount
outstanding under the Bank of England’s Funding for Lending
Scheme (FLS) is £25.1 billion as at 31 December 2017
(£30.1 billion as at 31 December 2016).
As a
result, wholesale funding has decreased by £9.7 billion to
£101.1 billion as at 31 December 2017, with the amount
maturing in less than one year falling to £28.5 billion as at
31 December 2017 (£35.1 billion as at 31 December 2016). In
2017, the Group issued term funding of £10.2 billion and
following the full utilisation of the TFS, would expect term
issuance volumes in 2018 to return to a steady-state requirement of
between £15 billion and £20 billion per
annum.
The
Group’s strong balance sheet and funding and liquidity
position has been reflected in positive movements in the
Group’s credit ratings in 2017. During the second half of the
year, Moody’s upgraded Lloyds Bank plc’s long-term
rating by one notch to ‘Aa3’. In addition, S&P
improved Lloyds Bank plc’s outlook to ‘positive’
to reflect the Group’s improved bail-in capital position
following recent Lloyds Banking Group plc issuance.
The
Group’s liquidity surplus continues to exceed the regulatory
minimum and internal risk appetite, with a Liquidity Coverage Ratio
of 127 per cent as at 31 December 2017 based on the EU Delegated
Act.
CAPITAL MANAGEMENT
Analysis of capital position
Excluding
the capital impact of the acquisition of MBNA on 1 June 2017, the
Group generated 2.45 per cent of CET1 capital on a pro forma basis
before ordinary dividends and allowing for the share buyback,
primarily as a result of:
●
Strong underlying
capital generation of 2.5 per cent, largely driven by underlying
profits (2.2 per cent) and the dividend paid by the Insurance
business in February 2018 in relation to 2017 earnings (0.3 per
cent);
●
A reduction in
risk-weighted assets (prior to the impact of the acquisition of
MBNA) resulting in an increase of 0.8 per cent, primarily
reflecting updates made to both mortgage and unsecured retail IRB
models, continued active portfolio management, foreign exchange
movements, disposals and capital efficient securitisation activity,
partly offset through targeted growth in key customer
segments;
●
The impact of
market and other movements, generating an increase of 0.4 per cent,
partially reflecting positive movements in available-for-sale
assets and the defined benefit pension schemes;
●
Offset by a
reduction of (1.2) per cent for conduct
provisions.
In
addition, the Group utilised the 0.8 per cent of CET1 capital
retained at 31 December 2016 to cover the acquisition of
MBNA.
Overall
the Group’s CET1 ratio has strengthened to 15.5 per cent on a
pro forma basis before ordinary dividends and the share buyback.
After ordinary dividends the Group’s CET1 ratio was 14.4 per
cent on a pro forma basis. In addition the Board intends to
implement a share buyback programme of up to £1 billion,
equivalent to up to 1.4 pence per share. The buyback will
impact the Group’s capital position in 2018 and is expected
to reduce CET1 capital by c.50 basis points. Allowing for this
at 31 December 2017 the pro forma CET1 ratio would be 13.9 per cent
(31 December 2016: 13.0 per cent pro forma after dividends and
adjusting for MBNA).
The
accrual for foreseeable dividends reflects the recommended final
ordinary dividend of 2.05 pence per share.
The
transitional total capital ratio, after
ordinary dividends
reduced by
0.2 per cent to 21.2 per cent, largely reflecting amortisation on
dated tier 2 instruments and foreign exchange movements on tier 1
and tier 2 instruments, offset by the increase in CET1 capital and
the reduction in risk-weighted assets.
Applying
the Bank of England’s Minimum Requirement for Own Funds and
Eligible Liabilities (MREL) policy to current capital requirements,
the Group’s indicative MREL requirement, excluding regulatory
capital buffers, is as follows:
●
From 2020, 2 times
Pillar 1 plus Pillar 2A, equivalent to 21.4 per cent of
risk-weighted assets
●
From 2022, 2 times
Pillar 1 plus 2 times Pillar 2A, equivalent to 26.8 per cent of
risk-weighted assets
The
Bank of England will review the calibration of MREL in 2020 before
setting final end-state requirements to be met from 2022. This
review will take into consideration any changes to the capital
framework, including the finalisation of Basel III.
During
2017, the Group issued £8.5 billion (sterling equivalent as at
31 December 2017) 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 comfortably positioned to meet MREL
requirements from 2020 and, as at 31 December 2017, had a
transitional MREL ratio of 25.7 per cent of risk-weighted
assets.
The UK
leverage ratio, after ordinary
dividends
, increased from
5.3 per cent on a pro forma basis to 5.4 per cent on a pro
forma basis, largely reflecting the increase in fully loaded tier 1
capital and the underlying reduction in balance sheet assets, net
of qualifying central bank claims and deconsolidation
adjustments.
An
analysis of the Group’s capital position as at 31 December
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 31 Dec
|
|
At 31 Dec
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Capital resources
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
Common equity tier 1
|
|
|
|
|
|
|
|
|
Shareholders’ equity per balance sheet
|
|
43,551
|
|
43,020
|
|
43,551
|
|
43,020
|
Adjustment
to retained earnings for foreseeable dividends
|
|
(1,475)
|
|
(1,568)
|
|
(1,475)
|
|
(1,568)
|
Deconsolidation adjustments
1
|
|
1,301
|
|
1,342
|
|
1,301
|
|
1,342
|
Adjustment
for own credit
|
|
109
|
|
87
|
|
109
|
|
87
|
Cash
flow hedging reserve
|
|
(1,405)
|
|
(2,136)
|
|
(1,405)
|
|
(2,136)
|
Other
adjustments
|
|
(177)
|
|
(276)
|
|
(177)
|
|
(276)
|
|
|
41,904
|
|
40,469
|
|
41,904
|
|
40,469
|
less: deductions from common equity tier 1
|
|
|
|
|
|
|
|
|
Goodwill and other intangible assets
|
|
(2,966)
|
|
(1,623)
|
|
(2,966)
|
|
(1,623)
|
Prudent valuation adjustment
|
|
(556)
|
|
(630)
|
|
(556)
|
|
(630)
|
Excess of expected losses over impairment provisions and value
adjustments
|
|
(498)
|
|
(602)
|
|
(498)
|
|
(602)
|
Removal of defined benefit pension surplus
|
|
(541)
|
|
(267)
|
|
(541)
|
|
(267)
|
Securitisation deductions
|
|
(191)
|
|
(217)
|
|
(191)
|
|
(217)
|
Significant investments
1
|
|
(4,250)
|
|
(4,282)
|
|
(4,250)
|
|
(4,282)
|
Deferred tax assets
|
|
(3,255)
|
|
(3,564)
|
|
(3,255)
|
|
(3,564)
|
Common equity tier 1 capital
|
|
29,647
|
|
29,284
|
|
29,647
|
|
29,284
|
Additional tier 1
|
|
|
|
|
|
|
|
|
Other equity instruments
|
|
5,330
|
|
5,320
|
|
5,330
|
|
5,320
|
Preference shares and preferred securities
2
|
|
4,503
|
|
4,998
|
|
–
|
|
–
|
Transitional
limit and other adjustments
|
|
(1,748)
|
|
(1,692)
|
|
–
|
|
–
|
|
|
8,085
|
|
8,626
|
|
5,330
|
|
5,320
|
less: deductions from tier 1
|
|
|
|
|
|
|
|
|
Significant investments
1
|
|
(1,403)
|
|
(1,329)
|
|
–
|
|
–
|
Total tier 1 capital
|
|
36,329
|
|
36,581
|
|
34,977
|
|
34,604
|
Tier 2
|
|
|
|
|
|
|
|
|
Other subordinated liabilities
2
|
|
13,419
|
|
14,833
|
|
13,419
|
|
14,833
|
Deconsolidation of instruments issued by insurance
entities
1
|
|
(1,786)
|
|
(1,810)
|
|
(1,786)
|
|
(1,810)
|
Adjustments
for transitional limit and non-eligible instruments
|
|
1,617
|
|
1,351
|
|
(1,252)
|
|
(1,694)
|
Amortisation
and other adjustments
|
|
(3,524)
|
|
(3,447)
|
|
(3,565)
|
|
(3,597)
|
|
|
9,726
|
|
10,927
|
|
6,816
|
|
7,732
|
Eligible provisions
|
|
120
|
|
186
|
|
120
|
|
186
|
less: deductions from tier 2
|
|
|
|
|
|
|
|
|
Significant investments
1
|
|
(1,516)
|
|
(1,571)
|
|
(2,919)
|
|
(2,900)
|
Total capital resources
|
|
44,659
|
|
46,123
|
|
38,994
|
|
39,622
|
|
|
|
|
|
|
|
|
|
Risk-weighted assets
|
|
210,919
|
|
215,534
|
|
210,919
|
|
215,534
|
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio
3
|
|
14.1%
|
|
13.6%
|
|
14.1%
|
|
13.6%
|
Tier 1 capital ratio
|
|
17.2%
|
|
17.0%
|
|
16.6%
|
|
16.1%
|
Total capital ratio
|
|
21.2%
|
|
21.4%
|
|
18.5%
|
|
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 is 14.4 per cent on a pro forma basis
upon recognition of the dividend paid by the Insurance business in
February 2018 in relation to its 2017 earnings (31 December 2016:
13.8 per cent pro forma).
|
Risk-weighted assets
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
Foundation
Internal Ratings Based (IRB) Approach
|
|
60,207
|
|
64,907
|
Retail
IRB Approach
|
|
61,588
|
|
64,970
|
Other
IRB Approach
|
|
17,191
|
|
17,788
|
IRB Approach
|
|
138,986
|
|
147,665
|
Standardised
(STA) Approach
|
|
25,503
|
|
18,956
|
Credit risk
|
|
164,489
|
|
166,621
|
Counterparty
credit risk
|
|
6,055
|
|
8,419
|
Contributions
to the default fund of a central counterparty
|
|
428
|
|
340
|
Credit
valuation adjustment risk
|
|
1,402
|
|
864
|
Operational
risk
|
|
25,326
|
|
25,292
|
Market
risk
|
|
3,051
|
|
3,147
|
Underlying risk-weighted assets
|
|
200,751
|
|
204,683
|
Threshold risk-weighted assets
1
|
|
10,168
|
|
10,851
|
Total risk-weighted assets
|
|
210,919
|
|
215,534
|
1
|
Threshold
risk-weighted assets reflect the element of significant investments
and deferred tax assets that are permitted to be risk-weighted
instead of being deducted from CET1 capital. Significant
investments primarily arise from investment in the Group’s
Insurance business.
|
Stress testing
The
Group undertakes a wide ranging programme of stress testing
providing a comprehensive view of the potential impacts arising
from the risks to which the Group 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 part of this
programme, and in line with previous years, the Group conducted
macroeconomic stress tests of the operating plan.
The
concurrent UK stress test run by the Bank of England was also
undertaken in 2017. As announced in November, despite the severity
of the stress scenario, the Group exceeded the capital and leverage
thresholds set out for the purpose of the stress test and was not
required to take any capital action as a result.
|
|
Fully loaded
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
2017
|
|
2016
|
Leverage ratio
|
|
£m
|
|
£m
|
Total tier 1 capital for leverage ratio
|
|
|
|
|
Common equity tier 1 capital
|
|
29,647
|
|
29,284
|
Additional tier 1 capital
|
|
5,330
|
|
5,320
|
Total tier 1 capital
|
|
34,977
|
|
34,604
|
|
|
|
|
|
Exposure measure
|
|
|
|
|
Statutory balance sheet assets
|
|
|
|
|
Derivative financial instruments
|
|
25,834
|
|
36,138
|
Securities financing transactions
|
|
49,193
|
|
42,285
|
Loans and advances and other assets
|
|
737,082
|
|
739,370
|
Total assets
|
|
812,109
|
|
817,793
|
|
|
|
|
|
Qualifying central bank claims
|
|
(53,842)
|
|
(41,510)
|
|
|
|
|
|
Deconsolidation adjustments
1
|
|
|
|
|
Derivative financial instruments
|
|
(2,043)
|
|
(2,403)
|
Securities financing transactions
|
|
(85)
|
|
112
|
Loans and advances and other assets
|
|
(140,387)
|
|
(142,955)
|
Total deconsolidation adjustments
|
|
(142,515)
|
|
(145,246)
|
|
|
|
|
|
Derivatives adjustments
|
|
|
|
|
Adjustments for regulatory netting
|
|
(13,031)
|
|
(20,490)
|
Adjustments for cash collateral
|
|
(7,380)
|
|
(8,432)
|
Net written credit protection
|
|
881
|
|
699
|
Regulatory potential future exposure
|
|
12,335
|
|
13,188
|
Total derivatives adjustments
|
|
(7,195)
|
|
(15,035)
|
|
|
|
|
|
Securities financing transactions adjustments
|
|
(2,022)
|
|
39
|
Off-balance sheet items
|
|
58,357
|
|
58,685
|
Regulatory deductions and other adjustments
|
|
(7,658)
|
|
(9,128)
|
|
|
|
|
|
Total exposure measure
2
|
|
657,234
|
|
665,598
|
Average exposure measure
4
|
|
660,557
|
|
|
|
|
|
|
|
UK Leverage ratio
2,3,6
|
|
5.3%
|
|
5.2%
|
Average UK leverage ratio
4
|
|
5.4%
|
|
|
|
|
|
|
|
CRD IV exposure measure
5
|
|
711,076
|
|
707,108
|
CRD IV leverage ratio
5
|
|
4.9%
|
|
4.9%
|
1
|
Deconsolidation
adjustments relate to the deconsolidation of certain Group entities
that fall outside the scope of the Group’s regulatory capital
consolidation, being primarily the Group’s Insurance
business.
|
2
|
Calculated
in accordance with the UK Leverage Ratio Framework which requires
qualifying central bank claims to be excluded from the leverage
exposure measure.
|
3
|
The
countercyclical leverage ratio buffer is currently
nil.
|
4
|
The
average UK leverage ratio is based on the average of the month end
tier 1 capital and exposure measures over the quarter
(1 October 2017 to 31 December 2017). The average of 5.4 per
cent compares to 5.4 per cent at the start and 5.3 per cent at the
end of the quarter.
|
5
|
Calculated
in accordance with CRD IV rules which include central bank claims
within the leverage exposure measure.
|
6
|
The UK
leverage ratio is 5.4 per cent on a pro forma basis upon
recognition of the dividend paid by the Insurance business in
February 2018 in relation to its 2017 earnings (31 December 2016:
5.3 per cent pro forma).
|
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
|
|
|
|
2017
|
|
2016
|
|
|
Note
|
|
£ million
|
|
£ million
|
|
|
|
|
|
|
|
Interest and similar income
|
|
|
|
16,006
|
|
16,620
|
Interest and similar expense
|
|
|
|
(5,094)
|
|
(7,346)
|
Net interest income
|
|
|
|
10,912
|
|
9,274
|
Fee and commission income
|
|
|
|
2,965
|
|
3,045
|
Fee and commission expense
|
|
|
|
(1,382)
|
|
(1,356)
|
Net fee and commission income
|
|
|
|
1,583
|
|
1,689
|
Net trading income
|
|
|
|
11,817
|
|
18,545
|
Insurance premium income
|
|
|
|
7,930
|
|
8,068
|
Other operating income
|
|
|
|
1,995
|
|
2,035
|
Other income
|
|
|
|
23,325
|
|
30,337
|
Total income
|
|
|
|
34,237
|
|
39,611
|
Insurance claims
|
|
|
|
(15,578)
|
|
(22,344)
|
Total income, net of insurance claims
|
|
|
|
18,659
|
|
17,267
|
Regulatory provisions
|
|
|
|
(2,515)
|
|
(2,024)
|
Other operating expenses
|
|
|
|
(10,181)
|
|
(10,253)
|
Total operating expenses
|
|
|
|
(12,696)
|
|
(12,277)
|
Trading surplus
|
|
|
|
5,963
|
|
4,990
|
Impairment
|
|
|
|
(688)
|
|
(752)
|
Profit before tax
|
|
|
|
5,275
|
|
4,238
|
Tax expense
|
|
2
|
|
(1,728)
|
|
(1,724)
|
Profit for the year
|
|
|
|
3,547
|
|
2,514
|
|
|
|
|
|
|
|
Profit attributable to ordinary shareholders
|
|
|
|
3,042
|
|
2,001
|
Profit attributable to other equity holders
1
|
|
|
|
415
|
|
412
|
Profit attributable to equity holders
|
|
|
|
3,457
|
|
2,413
|
Profit attributable to non-controlling interests
|
|
|
|
90
|
|
101
|
Profit for the year
|
|
|
|
3,547
|
|
2,514
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
3
|
|
4.4p
|
|
2.9p
|
Diluted earnings per share
|
|
3
|
|
4.3p
|
|
2.9p
|
1
|
The
profit after tax attributable to other equity holders of
£415 million (2016: £412 million) is offset in
reserves by a tax credit attributable to ordinary shareholders of
£102 million (2016: £91 million).
|
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
|
2017
|
|
2016
|
|
|
£ million
|
|
£ million
|
|
|
|
|
|
Profit for the year
|
|
3,547
|
|
2,514
|
Other comprehensive income
|
|
|
|
|
Items that will not subsequently be reclassified to profit or
loss:
|
|
|
|
|
Post-retirement defined benefit scheme remeasurements:
|
|
|
|
|
Remeasurements
before tax
|
|
628
|
|
(1,348)
|
Tax
|
|
(146)
|
|
320
|
|
|
482
|
|
(1,028)
|
Gains and losses attributable to own credit risk:
|
|
|
|
|
Gains
(losses) before tax
|
|
(55)
|
|
–
|
Tax
|
|
15
|
|
–
|
|
|
(40)
|
|
–
|
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
|
|
303
|
|
356
|
Income
statement transfers in respect of disposals
|
|
(446)
|
|
(575)
|
Income
statement transfers in respect of impairment
|
|
6
|
|
173
|
Tax
|
|
63
|
|
(301)
|
|
|
(74)
|
|
1,197
|
Movement in cash flow hedging reserve:
|
|
|
|
|
Effective
portion of changes in fair value taken to other comprehensive
income
|
|
(363)
|
|
2,432
|
Net
income statement transfers
|
|
(651)
|
|
(557)
|
Tax
|
|
283
|
|
(466)
|
|
|
(731)
|
|
1,409
|
Currency translation differences (tax: nil)
|
|
(32)
|
|
(4)
|
Other comprehensive income for the year, net of
tax
|
|
(395)
|
|
1,574
|
Total comprehensive income for the year
|
|
3,152
|
|
4,088
|
|
|
|
|
|
Total comprehensive income attributable to ordinary
shareholders
|
|
2,647
|
|
3,575
|
Total comprehensive income attributable to other equity
holders
|
|
415
|
|
412
|
Total comprehensive income attributable to equity
holders
|
|
3,062
|
|
3,987
|
Total comprehensive income attributable to non-controlling
interests
|
|
90
|
|
101
|
Total comprehensive income for the year
|
|
3,152
|
|
4,088
|
CONSOLIDATED BALANCE SHEET
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
2017
|
|
2016
|
|
|
£ million
|
|
£ million
|
|
|
|
|
|
Assets
|
|
|
|
|
Cash and balances at central banks
|
|
58,521
|
|
47,452
|
Items in the course of collection from banks
|
|
755
|
|
706
|
Trading and other financial assets at fair value through profit or
loss
|
|
162,878
|
|
151,174
|
Derivative financial instruments
|
|
25,834
|
|
36,138
|
Loans and receivables:
|
|
|
|
|
Loans
and advances to banks
|
|
6,611
|
|
26,902
|
Loans
and advances to customers
|
|
472,498
|
|
457,958
|
Debt
securities
|
|
3,643
|
|
3,397
|
|
|
482,752
|
|
488,257
|
Available-for-sale financial assets
|
|
42,098
|
|
56,524
|
Goodwill
|
|
2,310
|
|
2,016
|
Value of in-force business
|
|
4,839
|
|
5,042
|
Other intangible assets
|
|
2,835
|
|
1,681
|
Property, plant and equipment
|
|
12,727
|
|
12,972
|
Current tax recoverable
|
|
16
|
|
28
|
Deferred tax assets
|
|
2,284
|
|
2,706
|
Retirement benefit assets
|
|
723
|
|
342
|
Other assets
|
|
13,537
|
|
12,755
|
Total assets
|
|
812,109
|
|
817,793
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
2017
|
|
2016
|
Equity and liabilities
|
|
£ million
|
|
£ million
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Deposits from banks
|
|
29,804
|
|
16,384
|
Customer deposits
|
|
418,124
|
|
415,460
|
Items in course of transmission to banks
|
|
584
|
|
548
|
Trading and other financial liabilities at fair value through
profit or loss
|
|
50,877
|
|
54,504
|
Derivative financial instruments
|
|
26,124
|
|
34,924
|
Notes in circulation
|
|
1,313
|
|
1,402
|
Debt securities in issue
|
|
72,450
|
|
76,314
|
Liabilities arising from insurance contracts and participating
investment contracts
|
|
103,413
|
|
94,390
|
Liabilities arising from non-participating investment
contracts
|
|
15,447
|
|
20,112
|
Other liabilities
|
|
20,730
|
|
29,193
|
Retirement benefit obligations
|
|
358
|
|
822
|
Current tax liabilities
|
|
274
|
|
226
|
Deferred tax liabilities
|
|
–
|
|
–
|
Other provisions
|
|
5,546
|
|
4,868
|
Subordinated liabilities
|
|
17,922
|
|
19,831
|
Total liabilities
|
|
762,966
|
|
768,978
|
|
|
|
|
|
Equity
|
|
|
|
|
Share capital
|
|
7,197
|
|
7,146
|
Share premium account
|
|
17,634
|
|
17,622
|
Other reserves
|
|
13,815
|
|
14,652
|
Retained profits
|
|
4,905
|
|
3,600
|
Shareholders’ equity
|
|
43,551
|
|
43,020
|
Other equity instruments
|
|
5,355
|
|
5,355
|
Total equity excluding non-controlling interests
|
|
48,906
|
|
48,375
|
Non-controlling interests
|
|
237
|
|
440
|
Total equity
|
|
49,143
|
|
48,815
|
Total equity and liabilities
|
|
812,109
|
|
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 year
|
|
–
|
|
–
|
|
3,457
|
|
3,457
|
|
–
|
|
90
|
|
3,547
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement defined benefit scheme remeasurements, net of
tax
|
|
–
|
|
–
|
|
482
|
|
482
|
|
–
|
|
–
|
|
482
|
Movements in revaluation reserve in respect of available-for-sale
financial assets, net of tax
|
|
–
|
|
(74)
|
|
–
|
|
(74)
|
|
–
|
|
–
|
|
(74)
|
Gains and losses attributable to own credit risk, net of
tax
|
|
–
|
|
–
|
|
(40)
|
|
(40)
|
|
–
|
|
–
|
|
(40)
|
Movements in cash flow hedging reserve, net of tax
|
|
–
|
|
(731)
|
|
–
|
|
(731)
|
|
–
|
|
–
|
|
(731)
|
Currency translation differences (tax: £nil)
|
|
–
|
|
(32)
|
|
–
|
|
(32)
|
|
–
|
|
–
|
|
(32)
|
Total other comprehensive income
|
|
–
|
|
(837)
|
|
442
|
|
(395)
|
|
–
|
|
–
|
|
(395)
|
Total comprehensive income
|
|
–
|
|
(837)
|
|
3,899
|
|
3,062
|
|
–
|
|
90
|
|
3,152
|
Transactions with owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
–
|
|
–
|
|
(2,284)
|
|
(2,284)
|
|
–
|
|
(51)
|
|
(2,335)
|
Distributions on other equity instruments, net of tax
|
|
–
|
|
–
|
|
(313)
|
|
(313)
|
|
–
|
|
–
|
|
(313)
|
Issue of ordinary shares
|
|
63
|
|
–
|
|
–
|
|
63
|
|
–
|
|
–
|
|
63
|
Movement in treasury shares
|
|
–
|
|
–
|
|
(411)
|
|
(411)
|
|
–
|
|
–
|
|
(411)
|
Value of employee services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
option schemes
|
|
–
|
|
–
|
|
82
|
|
82
|
|
–
|
|
–
|
|
82
|
Other
employee award schemes
|
|
–
|
|
–
|
|
332
|
|
332
|
|
–
|
|
–
|
|
332
|
Changes in non-controlling interests
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(242)
|
|
(242)
|
Total transactions with owners
|
|
63
|
|
–
|
|
(2,594)
|
|
(2,531)
|
|
–
|
|
(293)
|
|
(2,824)
|
Balance at 31 December 2017
|
|
24,831
|
|
13,815
|
|
4,905
|
|
43,551
|
|
5,355
|
|
237
|
|
49,143
|
|
|
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 year
|
|
–
|
|
–
|
|
2,413
|
|
2,413
|
|
–
|
|
101
|
|
2,514
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement defined benefit scheme remeasurements, net of
tax
|
|
–
|
|
–
|
|
(1,028)
|
|
(1,028)
|
|
–
|
|
–
|
|
(1,028)
|
Movements in revaluation reserve in respect of available-for-sale
financial assets, net of tax
|
|
–
|
|
1,197
|
|
–
|
|
1,197
|
|
–
|
|
–
|
|
1,197
|
Movements in cash flow hedging reserve, net of tax
|
|
–
|
|
1,409
|
|
–
|
|
1,409
|
|
–
|
|
–
|
|
1,409
|
Currency translation differences (tax: £nil)
|
|
–
|
|
(4)
|
|
–
|
|
(4)
|
|
–
|
|
–
|
|
(4)
|
Total other comprehensive income
|
|
–
|
|
2,602
|
|
(1,028)
|
|
1,574
|
|
–
|
|
–
|
|
1,574
|
Total comprehensive income
|
|
–
|
|
2,602
|
|
1,385
|
|
3,987
|
|
–
|
|
101
|
|
4,088
|
Transactions with owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
–
|
|
–
|
|
(2,014)
|
|
(2,014)
|
|
–
|
|
(29)
|
|
(2,043)
|
Distributions on other equity instruments, net of tax
|
|
–
|
|
–
|
|
(321)
|
|
(321)
|
|
–
|
|
–
|
|
(321)
|
Redemption of preference shares
|
|
210
|
|
(210)
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
Movement in treasury shares
|
|
–
|
|
–
|
|
(175)
|
|
(175)
|
|
–
|
|
–
|
|
(175)
|
Value of employee services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
Share
option schemes
|
|
–
|
|
–
|
|
141
|
|
141
|
|
–
|
|
–
|
|
141
|
Other
employee award schemes
|
|
–
|
|
–
|
|
168
|
|
168
|
|
–
|
|
–
|
|
168
|
Changes in non-controlling interests
|
|
–
|
|
–
|
|
–
|
|
–
|
|
–
|
|
(23)
|
|
(23)
|
Total transactions with owners
|
|
210
|
|
(210)
|
|
(2,201)
|
|
(2,201)
|
|
–
|
|
(52)
|
|
(2,253)
|
Balance at 31 December 2016
|
|
24,768
|
|
14,652
|
|
3,600
|
|
43,020
|
|
5,355
|
|
440
|
|
48,815
|
NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
Accounting
policies, presentation and estimates
These
condensed consolidated financial statements as at and for the year
to 31 December 2017 have been prepared in accordance with the
Listing Rules of the Financial Conduct Authority (FCA) relating to
Preliminary Announcements and comprise the results of Lloyds
Banking Group plc (the Company) together with its subsidiaries (the
Group). They do not include all of the information required for
full annual financial statements. Copies of the 2017 Annual Report
and Accounts will be available on the Group’s website and
upon request from Investor Relations, Lloyds Banking Group plc,
25 Gresham Street, London EC2V 7HN.
Except
as noted below, the accounting policies are consistent with those
applied by the Group in its 2016 Annual Report and Accounts, and
there have been no significant changes in the basis upon which
estimates have been determined, compared to that applied at
31 December 2016.
With
effect from 1 January 2017 the Group has elected to early adopt the
provision in IFRS9 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 £40 million in the year
ended 31 December 2017; there is no impact on total liabilities or
shareholders’ equity. Comparatives have not been
restated.
The UK
corporation tax rate for the year was 19.25 per cent (2016: 20 per
cent). An explanation of the relationship between tax expense and
accounting profit is set out below:
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Profit
before tax
|
|
5,275
|
|
4,238
|
UK
corporation tax thereon
|
|
(1,015)
|
|
(848)
|
Impact
of surcharge on banking profits
|
|
(452)
|
|
(266)
|
Non-deductible
costs: conduct charges
|
|
(352)
|
|
(219)
|
Non-deductible
costs: bank levy
|
|
(44)
|
|
(40)
|
Other
non-deductible costs
|
|
(59)
|
|
(135)
|
Non-taxable
income
|
|
72
|
|
75
|
Tax-exempt
gains on disposals
|
|
128
|
|
19
|
Recognition
of losses that arose in prior years
|
|
–
|
|
59
|
Remeasurement
of deferred tax due to rate changes
|
|
(9)
|
|
(201)
|
Differences
in overseas tax rates
|
|
(15)
|
|
10
|
Policyholder
tax
1
|
|
(66)
|
|
(241)
|
Adjustments
in respect of prior years
|
|
85
|
|
64
|
Tax
effect of share of results of joint ventures
|
|
(1)
|
|
(1)
|
Tax expense
|
|
(1,728)
|
|
(1,724)
|
1
|
In 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 was restricted by the prevailing
economic environment.
|
The UK
corporation tax rate will reduce from 19 per cent to 17 per cent on
1 April 2020. The Group measures its deferred tax assets and
liabilities at the value expected to be recoverable or payable in
future periods, and remeasures them at each reporting date based on
the most recent estimates of utilisation or settlement, including
the impact of the bank surcharge where appropriate. The deferred
tax impact of this remeasurement in 2017 is a charge of
£9 million in the income statement and a credit of
£22 million in other comprehensive income.
|
|
2017
|
|
2016
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Profit attributable to equity shareholders – basic and
diluted
|
|
3,042
|
|
2,001
|
Tax credit on distributions to other equity holders
|
|
102
|
|
91
|
|
|
3,144
|
|
2,092
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
|
million
|
|
million
|
|
|
|
|
|
Weighted average number of ordinary shares in issue –
basic
|
|
71,710
|
|
71,234
|
Adjustment for share options and awards
|
|
683
|
|
790
|
Weighted average number of ordinary shares in issue –
diluted
|
|
72,393
|
|
72,024
|
|
|
|
|
|
Basic earnings per share
|
|
4.4p
|
|
2.9p
|
Diluted earnings per share
|
|
4.3p
|
|
2.9p
|
4.
Provisions
for liabilities and charges
Payment protection insurance (excluding MBNA)
The
Group increased the provision for PPI costs by a further
£1,650 million in 2017, of which £600 million was in the
fourth quarter, bringing the total amount provided to £18,675
million. The remaining provision is consistent with an average of
11,000 complaints per week (previously 9,000) through to the
industry deadline of August 2019, in line with the average
experience over the last nine months.
The
higher volume of complaints received has been driven by increased
claims management company (CMC) marketing activity and the
Financial Conduct Authority (FCA) advertising
campaign.
At 31
December 2017, a provision of £2,438 million remained
unutilised relating to complaints and associated administration
costs. Total cash payments were £1,470 million during the
year to 31 December 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 53 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 Company and customer activity.
For
every additional 1,000 reactive complaints per week above 11,000 on
average through to the industry deadline of August 2019, the Group
would expect an additional charge of £200
million.
Payment protection insurance (MBNA)
With
regard to MBNA, as announced in December 2016, the Group’s
exposure is capped at £240 million, already provided for,
through an indemnity received from Bank of America.
Other provisions for legal actions and regulatory
matters
In the
course of its business, the Group is engaged in discussions with
the PRA, FCA and other UK and overseas regulators and other
governmental authorities on a range of matters. The Group also
receives complaints in connection with its past conduct and claims
brought by or on behalf of current and former employees, customers,
investors and other third parties and is subject to legal
proceedings and other legal actions. Where significant, provisions
are held against the costs expected to be incurred in relation to
these matters and matters arising from related internal reviews.
During the year ended 31 December 2017 the Group charged a further
£865 million in respect of legal actions and other
regulatory matters, the unutilised balance at 31 December 2017 was
£1,292 million (31 December 2016: £1,339 million). The
most significant items are as follows.
Arrears handling related activities
The
Group has provided an additional £245 million (bringing
the total provided to date to £642 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 has
made good progress in reimbursing mortgage arrears fees to the
590,000 impacted customers.
Packaged bank accounts
In 2017
the Group provided an additional £245 million in respect of
complaints relating to alleged mis-selling of packaged bank
accounts raising the total amount provided to
£750 million. A number of risks and uncertainties remain
in particular with respect to future volumes.
Customer claims in relation to insurance branch business in
Germany
The
Group continues to receive claims in Germany from customers
relating to policies issued by Clerical Medical Investment Group
Limited (subsequently renamed Scottish Widows Limited). The German
industry-wide issue regarding notification of contractual
‘cooling off’ periods continued to lead to an
increasing number of claims in 2016 and 2017. Up to
31 December 2016 the Group had provided a total of £639
million and no further amounts have been provided to
31 December 2017. 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 is undertaking 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 Group has provided £100 million in
the year to 31 December 2017 and is in the process of paying
compensation to the victims of the fraud for economic losses as
well as ex-gratia payments and awards for distress and
inconvenience. The review is ongoing and at 12 February 2018,
the Group had made offers to 57 customers, which represents more
than 80 per cent of the customers in the review.
5.
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 competition investigations against
MasterCard and Visa probing, amongst other things, MIFs paid in
respect of cards issued outside the EEA;
●
Litigation brought
by retailers continues in the English Courts against both Visa and
MasterCard.
●
Any ultimate impact
on the Group of the above investigations and litigation against
Visa and MasterCard remains uncertain at this time.
Visa
Inc completed its acquisition of Visa Europe on 21 June 2016. 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. 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, and decisions are awaited on the
Group’s motions to dismiss the Sterling LIBOR and BBSW
claims. The decisions leading to the Group’s dismissal from
the USD LIBOR claims are subject to two appeals; the first took
place on 25 September 2017 and a decision is expected in the first
quarter of 2018, and the second is expected to take place in the
first half of 2018. The decisions leading to the Group’s
dismissal from the JPY LIBOR claims are not presently subject to
appeal.
Certain
Group companies are also named as defendants in (i) UK based
claims; and (ii) in a Dutch class action, each raising LIBOR
manipulation allegations. A number of the claims against the Group
in relation to the alleged mis-sale of interest rate hedging
products also include allegations of LIBOR
manipulation.
It is
currently not possible to predict the scope and ultimate outcome on
the Group of the various outstanding regulatory investigations not
encompassed by the settlements, any private lawsuits or any related
challenges to the interpretation or validity of any of the
Group’s contractual arrangements, including their timing and
scale.
UK shareholder litigation
In
August 2014, the Group and a number of former directors were named
as defendants in a claim by a number of claimants who held shares
in Lloyds TSB Group plc (LTSB) prior to the acquisition of HBOS
plc, alleging breaches of duties in relation to information
provided to shareholders in connection with the acquisition and the
recapitalisation of LTSB. The defendants refute all claims made. A
trial commenced in the English High Court on 18 October 2017 and is
scheduled to conclude in the first quarter of 2018 with judgment to
follow. It is currently not possible to determine the ultimate
impact on the Group (if any).
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 the HM Treasury loan 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 (including interest) 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
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 during
2018.
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.
6.
Dividends
on ordinary shares
The
directors have recommended a final dividend, which is subject to
approval by the shareholders at the Annual General Meeting, of
2.05 pence per share (2016: 1.7 pence per share) totalling
£1,475 million. These financial statements do not reflect
this recommended dividend.
Shareholders
who have already joined the dividend reinvestment plan will
automatically participate in the plan instead of receiving a cash
dividend. Key dates for the payment of the dividends
are:
Shares
quoted ex-dividend
|
19 April 2018
|
|
|
Record
date
|
20 April 2018
|
|
|
Final
date for joining or leaving the dividend reinvestment
plan
|
4 May 2018
|
|
|
Dividends
paid
|
29 May 2018
|
The
final and special dividends in respect of 2016 of 1.7 pence
and 0.5 pence per ordinary share were paid to shareholders on 16
May 2017 and an interim dividend for 2017 of 1.0 pence per
ordinary share was paid on 27 September 2017; the cash cost of
these dividends was £2,284 million net of a credit in
respect of unclaimed dividends written-back in accordance with the
Company’s Articles of Association.
7.
Events
since the balance sheet date
The
Group intends to implement a share buyback of up to £1
billion. This represents the return to shareholders of capital
surplus to that required to provide capacity for growth, meet
regulatory requirements and cover uncertainties. The share buyback
programme will commence in March 2018 and is expected to be
completed during the next 12 months.
Financial
information contained in this document does not constitute
statutory accounts within the meaning of section 434 of the
Companies Act 2006 (‘the Act’). The statutory accounts
for the year ended 31 December 2017 will be published on the
Group’s website. The report of the auditor on those statutory
accounts was unqualified, did not draw attention to any matters by
way of emphasis and did not contain a statement under section
498(2) or (3) of the Act. The statutory accounts for the year ended
31 December 2017 have been filed with the Registrar of
Companies.
Summary of alternative performance measures
The
Group calculates a number of metrics that are used throughout the
banking and insurance industries on an underlying basis. A
description of these measures and their calculation is set out
below.
|
|
Asset
quality ratio
|
The
underlying impairment charge for the period (on an annualised
basis) in respect of loans and advances to customers after releases
and write-backs, expressed as a percentage of average gross loans
and advances to customers for the period
|
Banking
net interest margin
|
Banking
net interest income on customer and product balances in the banking
businesses as a percentage of average gross banking
interest-earning assets for the period
|
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 loans in
recoveries, expressed as a percentage of closing gross loans and
advances to customers
|
Loan to
deposit ratio
|
Loans
and advances to customers net of allowance for impairment losses
and excluding reverse repurchase agreements divided by customer
deposits excluding repurchase agreements
|
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
Presentation
|
Underlying
return on tangible equity
|
Underlying
profit after tax at the standard UK corporation tax rate adjusted
to add back amortisation of intangible assets, and to deduct profit
attributable to non-controlling interests and other equity holders,
divided by average tangible net assets
|
CONTACTS
For
further information please contact:
INVESTORS AND ANALYSTS
Douglas
Radcliffe
Group
Investor Relations Director
020
7356 1571
douglas.radcliffe@lloydsbanking.com
Edward
Sands
Director
of Investor Relations
020
7356 1585
edward.sands@lloydsbanking.com
Nora
Thoden
Director
of Investor Relations
020
7356 2334
nora.thoden@lloydsbanking.com
CORPORATE AFFAIRS
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. 95000
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:
21 February 2018
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