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
29 July 2021
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 29 July
2021
re: 2021
Half-Year Results - Part 1 of 2
Lloyds Banking Group plc
2021 Half-Year Results
29 July 2021
Part 1 of 2
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BASIS OF PRESENTATION
This
release covers the results of Lloyds Banking Group plc together
with its subsidiaries (the Group) for the six months ended 30 June
2021.
Underlying basis: In addition to the statutory basis of
presentation, the results are also presented on an underlying
basis. The Group Executive Committee, which is the chief operating
decision maker for the Group, reviews the Group's results on an
underlying basis in order to assess performance and allocate
resources. Management uses underlying profit before tax, an
alternative performance measure, as a measure of performance and
believes that it provides important information for investors
because it allows for a comparable representation of the Group's
performance by removing the impact of certain items including
volatility caused by market movements outside the control of
management.
In
arriving at underlying profit, statutory profit before tax is
adjusted for the items below, to allow a comparison of the Group's
underlying performance:
● Restructuring,
including severance-related costs, property transformation,
technology research and development, regulatory programmes and
merger, acquisition and integration costs
● Volatility and
other items, which includes the effects of certain asset sales, the
volatility relating to the Group's hedging arrangements and that
arising in the insurance business, the unwind of
acquisition-related fair value adjustments and the amortisation of
purchased intangible assets
● Payment
protection insurance provisions
The
analysis of lending and expected credit loss (ECL) allowances is
presented on an underlying basis and reconciled to figures prepared
on a statutory basis. On a statutory basis, purchased or originated
credit-impaired (POCI) assets include a fixed pool of mortgages
that were purchased as part of the HBOS acquisition at a deep
discount to face value reflecting credit losses incurred from the
point of origination to the date of acquisition. Over time, these
POCI assets will run off as the loans redeem, pay down or losses
crystallise. The underlying basis assumes that the lending assets
acquired as part of a business combination were originated by the
Group and are classified as either Stage 1, 2 or 3 according to the
change in credit risk over the period since origination. Underlying
ECL allowances have been calculated accordingly. The Group uses the
underlying basis to monitor the creditworthiness of the lending
portfolio and related ECL allowances.
Commentary
within the results for the full year on page 1 and within the
Interim Group Chief Executive's statement on pages 7 to 9 is given
on an underlying basis.
Unless
otherwise stated, income statement commentaries throughout this
document compare the six months ended 30 June 2021 to the six
months ended 30 June 2020, and the balance sheet analysis compares
the Group balance sheet as at 30 June 2021 to the Group balance
sheet as at 31 December 2020.
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. These measures are labelled with a '†' throughout
this document. Further information on these measures is set out on
page 149.
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CONTENTS
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Page
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Results for the half-year
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1
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Income statement - underlying basis
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3
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Key balance sheet metrics
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3
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Quarterly information
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5
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Balance sheet analysis
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6
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Group results - statutory basis
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7
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Interim Group Chief Executive's statement
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9
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Summary of Group results
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13
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Segmental analysis - underlying basis
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23
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Divisional results
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Retail
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26
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Commercial Banking
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28
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Insurance and Wealth
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30
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Central items
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34
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Other financial information
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|
Reconciliation between statutory and underlying
basis financial information
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35
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Banking net interest margin and average interest-earning
assets
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37
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Volatility arising in the insurance business
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38
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Changes in Insurance assumptions
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38
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Tangible net assets per share
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40
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Return on tangible equity
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40
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Support measures
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41
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Risk management
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Principal risks and uncertainties
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42
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Credit risk portfolio
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44
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Funding and liquidity management
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68
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Capital management
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73
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Statutory information
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Condensed consolidated half-year financial statements
(unaudited)
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85
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Consolidated income statement
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86
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Consolidated statement of comprehensive income
|
87
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Consolidated balance sheet
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88
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Consolidated statement of changes in equity
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90
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Consolidated cash flow statement
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93
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Notes to the condensed consolidated half-year financial
statements
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94
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Statement of directors' responsibilities
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144
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Independent review report to Lloyds Banking Group plc
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145
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Forward looking statements
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147
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Summary of alternative performance measures
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149
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Contacts
|
150
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RESULTS FOR THE HALF-YEAR
"During the first six months of 2021, the Group has delivered a
solid financial performance with continued business momentum,
bolstered by an improved macroeconomic outlook for the UK. While we
are seeing clear progress in the vaccine roll out and emergence
from lockdown restrictions, the coronavirus pandemic continues to
have a significant impact on the people, businesses and communities
of the UK. In this context, the Group remains committed to Helping
Britain Recover from the pandemic and delivering for all
stakeholders."
William Chalmers
Interim
Group Chief Executive
Solid financial performance with continued business momentum,
bolstered by improved macroeconomic outlook
● Good
progress on Strategic Review 2021 priorities, including record
customer satisfaction scores, improved capabilities in Markets
products and a leading payments card spend market
share
● Announced
today the acquisition of Embark, a fast growing investment and
retirement platform business. Embark enhances our capabilities to
address the attractive mass market and self-directed Wealth
segment, completing the Group's Wealth proposition. Embark will
also enable the Group to re-platform its pensions and retirement
proposition, significantly strengthening its offering in
Retirement, an important growth market
● Statutory
profit before tax of £3.9 billion, increased significantly on
first half of 2020, benefiting from solid business momentum and a
net impairment credit in the period
● Net
income of £7.6 billion, up 2 per cent, with increased average
interest-earning assets at £441 billion, a strong banking net
interest margin of 2.50 per cent and other income of £2.4
billion, alongside a reduction in operating lease
depreciation
● Sustained
cost discipline with operating costs of £3.7 billion,
including the impact of rebuilding variable pay in the context of
stronger than expected financial performance
● Remediation
charge of £425 million, materially driven by the £91
million regulatory fine relating to the communication of historical
insurance renewals, £150 million of redress and
operational costs for HBOS Reading, and charges in relation to
other ongoing legacy programmes
● Net
impairment credit of £656 million, including £333 million
in the second quarter, as a result of an £837 million release
driven by improvements to the macroeconomic outlook for the UK,
combined with robust credit performance. Management judgements in
respect of coronavirus retained, now c.£1.2
billion
Balance sheet and capital strength further enhanced
● Loans
and advances at £447.7 billion, up £7.5 billion in the
period, driven by strong growth of £12.6 billion in the open
mortgage book
● Customer
deposits of £474.4 billion up £23.7 billion in the
period, with continued inflows into the Group's trusted brands,
including Retail current accounts which were up £9.9 billion
in the period. Resulting loan to deposit ratio of 94 per cent,
continues to provide a strong liquidity position and significant
potential to lend into recovery
● Strong
capital build of 93 basis points in the first half prior to the
interim ordinary dividend. Reintroduced a progressive and
sustainable ordinary dividend policy, with an interim ordinary
dividend of 0.67 pence per share
● CET1
ratio of 16.7 per cent after dividend accrual, significantly ahead
of both the ongoing target of c.12.5 per cent, plus a management
buffer of c.1 per cent and regulatory requirement of c.11 per
cent
Outlook
● Given
our solid financial performance and the improved UK macroeconomic
outlook, the Group is enhancing its guidance for 2021. Based on the
Group's current macroeconomic assumptions:
- Net
interest margin now expected to be around 250 basis
points
- Operating
costs now expected to be c.£7.6 billion
- Net
asset quality ratio now expected to be below 10 basis
points
- Return
on tangible equity now expected to be c.10 per cent, excluding the
c.2.5 percentage point benefit from tax rate
changes
- Risk-weighted
assets in 2021 now expected to be below £200
billion
INCOME STATEMENT − UNDERLYING
BASIS†
|
Half-year to 30 June 2021
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Half-year
to 30 June 2020
|
|
|
Change
|
|
Half-year
to 31 Dec
2020
|
|
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Change
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|
£m
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£m
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|
|
%
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|
£m
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%
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|
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Net interest income
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5,418
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5,478
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(1)
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5,295
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2
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Other income
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2,417
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2,461
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(2)
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2,054
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18
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Operating lease depreciation
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(271)
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(526)
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48
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(358)
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|
24
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Net income
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7,564
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7,413
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2
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6,991
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8
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Operating costs
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(3,730)
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(3,699)
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(1)
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(3,886)
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4
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Remediation
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(425)
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|
(177)
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(202)
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Total costs
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(4,155)
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(3,876)
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(7)
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(4,088)
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(2)
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Underlying profit before impairment
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3,409
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3,537
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(4)
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2,903
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17
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Impairment
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656
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(3,818)
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(429)
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Underlying profit (loss)
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4,065
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(281)
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2,474
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|
|
64
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Restructuring
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(255)
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|
(133)
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|
|
(92)
|
|
(388)
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|
|
34
|
Volatility and other items
|
95
|
|
|
(188)
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|
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|
(173)
|
|
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|
Payment protection insurance provision
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-
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|
-
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(85)
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Statutory profit (loss) before tax
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3,905
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(602)
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1,828
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Tax (expense) credit
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(40)
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|
621
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|
|
|
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(460)
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|
|
91
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Statutory profit after tax
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3,865
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|
|
19
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|
|
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|
1,368
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|
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|
|
|
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|
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|
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Earnings (loss) per share
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5.1p
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|
|
(0.3)p
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|
|
|
|
1.5p
|
|
|
|
Dividends per share - ordinary
|
0.67p
|
|
|
-
|
|
|
|
|
0.57p
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|
|
18
|
|
|
|
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|
|
|
|
|
|
|
|
|
Banking
net interest margin†
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2.50%
|
|
|
2.59%
|
|
|
(9)bp
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|
2.44%
|
|
|
6bp
|
Average
interest-earning banking assets†
|
£441bn
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|
|
£433bn
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|
|
2
|
|
£437bn
|
|
|
1
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Cost:income
ratio†
|
54.9%
|
|
|
52.3%
|
|
|
2.6pp
|
|
58.5%
|
|
|
(3.6)pp
|
Asset
quality ratio†
|
(0.30)%
|
|
|
1.73%
|
|
|
(203)bp
|
|
0.19%
|
|
|
(49)bp
|
Return
on tangible equity1,†
|
19.2%
|
|
|
(1.3)%
|
|
|
20.5pp
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|
5.9%
|
|
|
13.3pp
|
KEY BALANCE SHEET METRICS
|
At 30 June 2021
|
|
|
At 30 June 2020
|
|
|
Change
%
|
|
At 31 Dec 2020
|
|
|
Change
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers2
|
£448bn
|
|
|
£440bn
|
|
|
2
|
|
£440bn
|
|
|
2
|
Customer
deposits3
|
£474bn
|
|
|
£441bn
|
|
|
8
|
|
£451bn
|
|
|
5
|
Loan to
deposit ratio†
|
94%
|
|
|
100%
|
|
|
(6)pp
|
|
98%
|
|
|
(4)pp
|
CET1
ratio
|
16.7%
|
|
|
14.6%
|
|
|
2.1pp
|
|
16.2%
|
|
|
0.5pp
|
CET1
ratio pre IFRS 9 transitional relief and software4
|
15.5%
|
|
|
13.4%
|
|
|
2.1pp
|
|
14.5%
|
|
|
1.0pp
|
Transitional
MREL ratio
|
36.3%
|
|
|
36.8%
|
|
|
(0.5)pp
|
|
36.4%
|
|
|
(0.1)pp
|
UK
leverage ratio
|
5.8%
|
|
|
5.4%
|
|
|
0.4pp
|
|
5.8%
|
|
|
-
|
Risk-weighted
assets
|
£201bn
|
|
|
£207bn
|
|
|
(3)
|
|
£203bn
|
|
|
(1)
|
Tangible
net assets per share†
|
55.6p
|
|
|
51.6p
|
|
|
4.0p
|
|
52.3p
|
|
|
3.3p
|
1 Revised
basis, calculation shown on page 31.
2 Excludes
reverse repos of £52.7 billion (30 June 2020: £61.1
billion; 31 December 2020: £58.6 billion).
3 Excludes
repos of £7.9 billion (30 June 2020: £12.3 billion; 31
December 2020 £9.4 billion).
4 CET1
ratio 'pre IFRS 9 transitional relief and software' reflects the
full impact of IFRS 9, prior to the application of the transitional
relief arrangements and the reversal of the beneficial treatment
currently applied to intangible software assets.
QUARTERLY
INFORMATION†
|
Quarterended 30 June 2021
|
|
|
Quarterended31 Mar 2021
|
|
|
Quarterended31 Dec 2020
|
|
|
Quarterended30 Sept 2020
|
|
|
Quarterended30 June 2020
|
|
|
Quarterended31 Mar 2020
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
2,741
|
|
|
2,677
|
|
|
2,677
|
|
|
2,618
|
|
|
2,528
|
|
|
2,950
|
|
Other income
|
1,282
|
|
|
1,135
|
|
|
1,066
|
|
|
988
|
|
|
1,235
|
|
|
1,226
|
|
Operating lease depreciation
|
(123)
|
|
|
(148)
|
|
|
(150)
|
|
|
(208)
|
|
|
(302)
|
|
|
(224)
|
|
Net income
|
3,900
|
|
|
3,664
|
|
|
3,593
|
|
|
3,398
|
|
|
3,461
|
|
|
3,952
|
|
Operating costs
|
(1,879)
|
|
|
(1,851)
|
|
|
(2,028)
|
|
|
(1,858)
|
|
|
(1,822)
|
|
|
(1,877)
|
|
Remediation
|
(360)
|
|
|
(65)
|
|
|
(125)
|
|
|
(77)
|
|
|
(90)
|
|
|
(87)
|
|
Total costs
|
(2,239)
|
|
|
(1,916)
|
|
|
(2,153)
|
|
|
(1,935)
|
|
|
(1,912)
|
|
|
(1,964)
|
|
Underlying profit before impairment
|
1,661
|
|
|
1,748
|
|
|
1,440
|
|
|
1,463
|
|
|
1,549
|
|
|
1,988
|
|
Impairment
|
333
|
|
|
323
|
|
|
(128)
|
|
|
(301)
|
|
|
(2,388)
|
|
|
(1,430)
|
|
Underlying profit (loss)
|
1,994
|
|
|
2,071
|
|
|
1,312
|
|
|
1,162
|
|
|
(839)
|
|
|
558
|
|
Restructuring
|
(82)
|
|
|
(173)
|
|
|
(233)
|
|
|
(155)
|
|
|
(70)
|
|
|
(63)
|
|
Volatility and other items
|
95
|
|
|
-
|
|
|
(202)
|
|
|
29
|
|
|
233
|
|
|
(421)
|
|
Payment protection insurance provision
|
-
|
|
|
-
|
|
|
(85)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Statutory profit (loss) before tax
|
2,007
|
|
|
1,898
|
|
|
792
|
|
|
1,036
|
|
|
(676)
|
|
|
74
|
|
Tax
credit (expense)
|
461
|
|
|
(501)
|
|
|
(112)
|
|
|
(348)
|
|
|
215
|
|
|
406
|
|
Statutory profit (loss) after tax
|
2,468
|
|
|
1,397
|
|
|
680
|
|
|
688
|
|
|
(461)
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin†
|
2.51%
|
|
|
2.49%
|
|
|
2.46%
|
|
|
2.42%
|
|
|
2.40%
|
|
|
2.79%
|
|
Average
interest-earning banking assets†
|
£442bn
|
|
|
£439bn
|
|
|
£437bn
|
|
|
£436bn
|
|
|
£435bn
|
|
|
£432bn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost:income
ratio†
|
57.4%
|
|
|
52.3%
|
|
|
59.9%
|
|
|
56.9%
|
|
|
55.2%
|
|
|
49.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
quality ratio†
|
(0.30)%
|
|
|
(0.29)%
|
|
|
0.11%
|
|
|
0.27%
|
|
|
2.16%
|
|
|
1.30%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
on tangible equity1,†
|
24.4%
|
|
|
13.9%
|
|
|
5.9%
|
|
|
6.0%
|
|
|
(6.1%)
|
|
|
3.7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers2
|
£448bn
|
|
|
£444bn
|
|
|
£440bn
|
|
|
£439bn
|
|
|
£440bn
|
|
|
£443bn
|
|
Customer
deposits3
|
£474bn
|
|
|
£462bn
|
|
|
£451bn
|
|
|
£447bn
|
|
|
£441bn
|
|
|
£428bn
|
|
Loan to
deposit ratio†
|
94%
|
|
|
96%
|
|
|
98%
|
|
|
98%
|
|
|
100%
|
|
|
103%
|
|
Risk-weighted
assets
|
£201bn
|
|
|
£199bn
|
|
|
£203bn
|
|
|
£205bn
|
|
|
£207bn
|
|
|
£209bn
|
|
Tangible
net assets per share†
|
55.6p
|
|
|
52.4p
|
|
|
52.3p
|
|
|
52.2p
|
|
|
51.6p
|
|
|
57.4p
|
|
1 Revised
basis, calculation shown on page 31.
2 Excludes
reverse repos.
3 Excludes
repos.
BALANCE SHEET ANALYSIS
|
At 30 June 2021
|
|
At 31 Mar 2021
|
|
Change
|
|
At 30 June 2020
|
|
Change
|
|
At 31 Dec 2020
|
|
Change
|
|
£bn
|
|
£bn
|
|
%
|
|
£bn
|
|
%
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open mortgage book
|
289.9
|
|
283.3
|
|
2
|
|
267.1
|
|
9
|
|
277.3
|
|
5
|
Closed mortgage book
|
15.3
|
|
15.9
|
|
(4)
|
|
17.5
|
|
(13)
|
|
16.5
|
|
(7)
|
Credit cards
|
13.6
|
|
13.5
|
|
1
|
|
15.2
|
|
(11)
|
|
14.3
|
|
(5)
|
UK Retail unsecured loans
|
8.0
|
|
7.8
|
|
3
|
|
8.2
|
|
(2)
|
|
8.0
|
|
-
|
UK Motor Finance
|
14.4
|
|
14.9
|
|
(3)
|
|
15.3
|
|
(6)
|
|
14.7
|
|
(2)
|
Overdrafts
|
1.0
|
|
0.9
|
|
11
|
|
1.0
|
|
-
|
|
0.9
|
|
11
|
Retail
other1
|
10.5
|
|
10.3
|
|
2
|
|
9.7
|
|
8
|
|
10.4
|
|
1
|
SME2
|
40.4
|
|
41.1
|
|
(2)
|
|
38.4
|
|
5
|
|
40.6
|
|
-
|
Mid
Corporates
|
3.8
|
|
4.0
|
|
(5)
|
|
4.6
|
|
(17)
|
|
4.1
|
|
(7)
|
Corporate
and Institutional
|
44.9
|
|
45.6
|
|
(2)
|
|
55.0
|
|
(18)
|
|
46.0
|
|
(2)
|
Commercial Banking other
|
3.9
|
|
4.1
|
|
(5)
|
|
5.0
|
|
(22)
|
|
4.3
|
|
(9)
|
Wealth
|
1.0
|
|
1.0
|
|
-
|
|
0.9
|
|
11
|
|
0.9
|
|
11
|
Central items
|
1.0
|
|
1.1
|
|
(9)
|
|
2.5
|
|
(60)
|
|
2.2
|
|
(55)
|
Loans and advances to customers3
|
447.7
|
|
443.5
|
|
1
|
|
440.4
|
|
2
|
|
440.2
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail current accounts
|
107.3
|
|
103.0
|
|
4
|
|
87.5
|
|
23
|
|
97.4
|
|
10
|
Commercial
current accounts2,4
|
49.5
|
|
47.2
|
|
5
|
|
44.2
|
|
12
|
|
47.6
|
|
4
|
Retail relationship savings accounts
|
161.3
|
|
158.2
|
|
2
|
|
148.5
|
|
9
|
|
154.1
|
|
5
|
Retail tactical savings accounts
|
16.4
|
|
13.8
|
|
19
|
|
12.7
|
|
29
|
|
14.0
|
|
17
|
Commercial
deposits2,5
|
124.5
|
|
125.5
|
|
(1)
|
|
133.8
|
|
(7)
|
|
122.7
|
|
1
|
Wealth
|
14.8
|
|
14.1
|
|
5
|
|
13.5
|
|
10
|
|
14.1
|
|
5
|
Central items
|
0.6
|
|
0.6
|
|
-
|
|
0.9
|
|
(33)
|
|
0.8
|
|
(25)
|
Total customer deposits6
|
474.4
|
|
462.4
|
|
3
|
|
441.1
|
|
8
|
|
450.7
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
879.7
|
|
869.5
|
|
1
|
|
873.0
|
|
1
|
|
871.3
|
|
1
|
Total liabilities
|
827.8
|
|
820.0
|
|
1
|
|
824.1
|
|
-
|
|
821.9
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shareholders' equity
|
45.8
|
|
43.4
|
|
6
|
|
42.8
|
|
7
|
|
43.3
|
|
6
|
Other equity instruments
|
5.9
|
|
5.9
|
|
-
|
|
5.9
|
|
-
|
|
5.9
|
|
-
|
Non-controlling interests
|
0.2
|
|
0.2
|
|
-
|
|
0.2
|
|
-
|
|
0.2
|
|
-
|
Total equity
|
51.9
|
|
49.5
|
|
5
|
|
48.9
|
|
6
|
|
49.4
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares in issue, excluding own shares
|
70,956m
|
|
70,936m
|
|
-
|
|
70,735m
|
|
-
|
|
70,812m
|
|
-
|
1 Primarily
Europe.
2 Includes
Retail Business Banking.
3 Excludes
reverse repos.
4 Primarily
non-interest-bearing Commercial Banking current
accounts.
5 Primarily
Commercial Banking interest-bearing accounts.
6 Excludes
repos.
GROUP RESULTS − STATUTORY BASIS
The results below are prepared in accordance with International
Financial Reporting Standards (IFRSs). The underlying results are
shown on page 2. A reconciliation between the statutory and
underlying results is shown on page 28.
Income statement
|
Half-year
to 30 June
2021
|
|
|
Half-year
to 30 June
2020
|
|
|
Change
|
|
Half-year
to 31 Dec
2020
|
|
|
Change
|
|
£m
|
|
|
£m
|
|
|
%
|
|
£m
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
4,373
|
|
|
6,556
|
|
|
(33)
|
|
4,193
|
|
|
4
|
Other income
|
15,195
|
|
|
316
|
|
|
|
|
18,102
|
|
|
(16)
|
Total income
|
19,568
|
|
|
6,872
|
|
|
|
|
22,295
|
|
|
(12)
|
Insurance claims
|
(11,489)
|
|
|
1,023
|
|
|
|
|
(15,064)
|
|
|
(24)
|
Total income, net of insurance claims
|
8,079
|
|
|
7,895
|
|
|
2
|
|
7,231
|
|
|
12
|
Operating expenses
|
(4,897)
|
|
|
(4,668)
|
|
|
(5)
|
|
(5,077)
|
|
|
4
|
Impairment
|
723
|
|
|
(3,829)
|
|
|
|
|
(326)
|
|
|
|
Profit (loss) before tax
|
3,905
|
|
|
(602)
|
|
|
|
|
1,828
|
|
|
|
Tax (expense) credit
|
(40)
|
|
|
621
|
|
|
|
|
(460)
|
|
|
91
|
Profit for the period
|
3,865
|
|
|
19
|
|
|
|
|
1,368
|
|
|
|
The Group's statutory income statement includes income and expense
attributable to the policyholders of the Group's long-term
assurance funds. These items materially offset in arriving at
profit attributable to equity shareholders but can, depending on
market movements, lead to significant variances on a statutory
basis between total income and insurance claims from one period to
the next. In the six months to 30 June 2021, due to strong market
conditions, the Group recognised significant gains on policyholder
investments within total income which were materially offset by an
increase within insurance claims expense, representing the growth
in the corresponding insurance and investment contract
liabilities.
GROUP RESULTS − STATUTORY BASIS (continued)
Balance sheet
|
At 30 June
2021
|
|
|
At 30
June
2020
|
|
|
Change
|
|
At 31
Dec
2020
|
|
|
Change
|
|
£m
|
|
|
£m
|
|
|
%
|
|
£m
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and balances at central banks
|
78,966
|
|
|
78,139
|
|
|
1
|
|
73,257
|
|
|
8
|
Financial assets at fair value through profit or loss
|
177,589
|
|
|
157,113
|
|
|
13
|
|
171,626
|
|
|
3
|
Derivative financial instruments
|
22,193
|
|
|
32,978
|
|
|
(33)
|
|
29,613
|
|
|
(25)
|
Financial assets at amortised cost
|
516,175
|
|
|
518,314
|
|
|
-
|
|
514,994
|
|
|
-
|
Financial assets at fair value through other comprehensive
income
|
26,213
|
|
|
27,211
|
|
|
(4)
|
|
27,603
|
|
|
(5)
|
Other assets
|
58,551
|
|
|
59,239
|
|
|
(1)
|
|
54,176
|
|
|
8
|
Total assets
|
879,687
|
|
|
872,994
|
|
|
1
|
|
871,269
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits from banks
|
20,655
|
|
|
34,124
|
|
|
(39)
|
|
31,465
|
|
|
(34)
|
Customer deposits
|
482,349
|
|
|
453,446
|
|
|
6
|
|
460,068
|
|
|
5
|
Financial liabilities at fair value through profit or
loss
|
21,054
|
|
|
21,474
|
|
|
(2)
|
|
22,646
|
|
|
(7)
|
Derivative financial instruments
|
17,951
|
|
|
28,631
|
|
|
(37)
|
|
27,313
|
|
|
(34)
|
Debt securities in issue
|
81,268
|
|
|
99,931
|
|
|
(19)
|
|
87,397
|
|
|
(7)
|
Liabilities arising from insurance and investment
contracts
|
162,399
|
|
|
143,052
|
|
|
14
|
|
154,512
|
|
|
5
|
Subordinated liabilities
|
13,527
|
|
|
17,717
|
|
|
(24)
|
|
14,261
|
|
|
(5)
|
Other liabilities
|
28,598
|
|
|
25,757
|
|
|
11
|
|
24,194
|
|
|
18
|
Total liabilities
|
827,801
|
|
|
824,132
|
|
|
-
|
|
821,856
|
|
|
1
|
Total equity
|
51,886
|
|
|
48,862
|
|
|
6
|
|
49,413
|
|
|
5
|
Total equity and liabilities
|
879,687
|
|
|
872,994
|
|
|
1
|
|
871,269
|
|
|
1
|
The Group's balance sheet includes assets and liabilities
associated with the policyholders of the Group's long-term
assurance funds. These items have no material impact in total upon
the net assets attributable to equity shareholders but can,
depending on market movements, lead to significant variances on a
statutory basis, predominantly between financial assets at fair
value through profit or loss and liabilities arising from insurance
and investment contracts from one period to the next. In the six
months to 30 June 2021, due to strong market conditions,
significant growth was seen in policyholder investments, primarily
within financial assets at fair value through profit or loss. This
was materially offset by an increase in the corresponding insurance
and investment contract liabilities.
INTERIM GROUP CHIEF EXECUTIVE'S STATEMENT
Since the start of the pandemic the Group has continued to Help
Britain Recover, supporting Retail and Commercial customers and
communities across the UK. In this context, over the last six
months the Group has delivered a solid financial performance, with
continued business momentum and balance sheet growth. It has been
an honour to be Interim Group Chief Executive since May and I am
proud of the positive impact that we have been able to make. The
dedication of colleagues and their support of customers and
businesses in these unique and challenging times is
impressive.
Today, the coronavirus pandemic continues to have a significant
impact on the people, businesses and communities in the UK and
Government support measures remain important. While we are clearly
seeing positive developments and the macroeconomic outlook is
improving, supported by the successful vaccine roll out in the UK
and emergence from lockdown restrictions, the outlook remains
uncertain.
As we look forward into the remainder of 2021, I am confident that
the Group's people, financial strength and business model will
continue to Help Britain Recover. I look forward to working with
Charlie Nunn when he starts in August as our new Group Chief
Executive. I am confident he will find a truly customer focused
business in a strong financial and strategic position. We remain
committed to supporting our customers, colleagues and communities
and ensuring a sustainable recovery.
Financial performance
In the context of continued business momentum and balance sheet
growth the Group has delivered a solid financial performance with
statutory profit before tax of £3.9 billion in the first half
of 2021, significantly higher than the first half of 2020 and
benefiting from a net impairment credit in the period. Net income
of £7.6 billion was up 2 per cent, benefiting from
increased average interest-earning assets and a strengthened net
interest margin in the second quarter of 2021, as well as some
early signs of recovery in other income and a reduction in
operating lease depreciation. The Group continues to maintain its
focus on cost management, with a market-leading cost:income ratio
of 54.9 per cent. Operating costs increased slightly over the
period due to the rebuilding of variable pay in the context of
stronger than expected financial performance in income and
impairments. Remediation charges also increased in the period as we
took charges relating to a number of ongoing legacy issues.
Increased profits were supported by the net impairment credit of
£656 million, as a result of a release of expected credit
loss (ECL) allowances of £837 million driven by the improved
macroeconomic outlook for the UK, combined with robust credit
performance.
The balance sheet continues to grow with loans and advances to
customers at £447.7 billion, up 2 per cent in the first half
of 2021, driven by strong growth in mortgage lending. Customer
deposits continued to increase, with growth of
£23.7 billion since the end of 2020, including
significant growth in Retail current accounts and relationship
savings balances. Deposit balances are now up c.£63 billion
over the last eighteen months.
The Group's capital position remains strong with a CET1 ratio of
16.7 per cent after dividend accrual. Given the strength of the
capital position and the regulator's clarification that banks may
resume capital distributions, the Board has announced an interim
ordinary dividend of 0.67 pence per share, in line with the Board's
commitment to future capital returns, and has reintroduced a
progressive and sustainable ordinary dividend policy.
Strategic progress
We launched Strategic Review 2021 in February this year, with a
focus on Helping Britain Recover and further enhancing our core
capabilities, specifically technology, payments, data and our
people. Strategic Review 2021 supports the creation of sustainable
shareholder value through revenue generation and diversification,
further efficiency gains and disciplined growth as we accelerate
our transformation and build the UK's preferred financial partner
for personal customers and the best bank for business. In the first
half of 2021, we invested £0.4 billion to support these
strategic initiatives.
INTERIM GROUP CHIEF EXECUTIVE'S STATEMENT (continued)
We are committed to helping our customers, clients, colleagues and
communities through the coronavirus pandemic and rebuilding
livelihoods, whilst delivering long-term sustainable returns for
shareholders. We recognise that the focus of the Group's purpose,
Helping Britain Prosper, must evolve in response to the current
environment with changing societal and customer needs and
expectations. We are therefore committed to Helping Britain Recover
and supporting a sustainable recovery which benefits all of our
stakeholders.
During the first half of 2021 we have made meaningful progress
across all five of our Helping Britain Recover priority areas that
are embedded in our business ambitions and where we can make the
most difference. For example:
● We
have helped rebuild households' financial health and wellbeing
through directing customers to free independent debt advice for
more than 130,000 accounts
● We
have supported businesses to recover, adapt and grow through
supporting over 48,000 businesses to start up and helping 75,000
small businesses boost their digital capability
● We
have expanded the availability of affordable and quality homes with
new lending of c.£9.0 billion to nearly 43,000 first-time
buyers, almost reaching our full year 2021 target of £10
billion, as well as delivering £2.1 billion of new
funding support to the social housing sector, exceeding our full
year target
● We
are accelerating the transition to a low carbon economy, expanding
the funding available under our discounted green finance
initiatives from £3 billion to £5 billion in the first
half of 2021, with more than £8.6 billion of total green
finance delivered since 2016. In addition, we have renewed our
strategic relationship with Jaguar Land Rover, and have extended
our contract with Tesla, supporting the delivery of the Group's
goal of helping to reduce the emissions we finance by more than 50
per cent by 2030 on path to net zero by 2050, or sooner.
Furthermore, our progress on reducing our own operational emissions
has recently been recognised in being ranked sixth in the Financial
Times' inaugural listing of Europe's Climate
Leaders
● We
are continuing to contribute to an inclusive society and build an
inclusive organisation. In June 2021 we collaborated with City
Mental Health Alliance to publish a research report on 'Mental
Health And Race at Work' and have launched a pilot to improve free
access to cash in underserved areas
Building the UK's preferred financial partner for personal
customers and best bank for business
We are building on our position as the UK's largest personal
customer franchise with our multi-brand, multi-channel model,
leveraging our unique capabilities to meet more of our customers'
needs. During the first half of 2021, we increased our net open
mortgage book by £12.6 billion. We are exceeding our target to
maintain record all channel net promoter score with a 3 point
increase in the first half of 2021. We have seen positive annual
net new money in Insurance and Wealth, with cumulative net flows
for open book assets under administration of £4 billion in the
first half of 2021.
We have today announced that we intend to acquire the Embark Group
(Embark), a fast growing investment and retirement platform
business. Embark enhances our capabilities to address the
attractive mass market and self-directed Wealth segment, completing
the Group's Wealth proposition. Embark will also enable us to
re-platform the Group's pensions and retirement proposition,
delivering a market-leading platform for intermediaries and
significantly strengthening the Group's offering in Retirement, an
important growth market.
As announced within Strategic Review 2021, the Group aims to meet
more of its customers' broader financial needs, whilst retaining
more of the c.£10 billion assets under administration which
customers invest with third parties each year. The acquisition of
Embark will deliver a modern, industry-leading mass market,
direct-to-consumer proposition, complementing the Group's existing
advice offerings through Schroders Personal Wealth and Cazenove
Capital. The acquisition will see the Group acquire c.£35
billion of assets under administration on behalf of c.410,000
consumer clients.
We are targeting a top-three position in direct-to-consumer
self-directed and robo-advice business in the medium term. We are
also targeting a top-three position in the individual pensions and
retirement drawdown market by 2025. The acquisition of Embark
transforms our ability to achieve these objectives. As a
consequence, we are increasing our Strategic Review 2021 net new
money target from £25 billion to c.£40 billion by 2023,
to reflect this increased growth potential.
INTERIM GROUP CHIEF EXECUTIVE'S STATEMENT (continued)
Through a combination of the Group's new capabilities and its
multi-brand, multi-channel distribution model across more than 25
million customers, the Group expects this acquisition to deliver
attractive growth and returns over time and create value for
shareholders. A consideration of c.£390 million will be paid
for the entire share capital of Embark upon completion. The
transaction is expected to have a c.30 basis points impact on Group
CET1 capital and deliver a mid-teens return on invested capital in
the medium term, both including all integration and restructuring
costs.
We have progressed towards our vision to be the best bank for
business, building on our outstanding reach, supported by our brand
and scale, our historic above-market growth in SME and a strong
presence among large corporate clients. During the first half of
2021, we increased our SME and Retail Business Banking digital net
promoter score by 3 points, targeting a 5 point increase by the end
of 2023. We have also improved our share of FX products for core
clients in 2021 and have improved our GBP rates ranking by four
places to sixth.
Enhanced capabilities
We are progressively modernising our technology architecture in
order to deliver better customer propositions and to structurally
improve our operational efficiency and agility. We have further
strengthened our digital offering for customers, including
increasing the volume of mobile releases and improving customer
satisfaction, with our record mobile app net promoter score
increasing by 4 points in the first half of 2021, surpassing our
target. Additionally, in line with the technology R&D
investment we highlighted at the full year, we safely migrated
around 120,000 customer accounts to our pilot new bank architecture
in the first half. Although fewer than the c.400,000 originally
planned, it was sufficient to provide a significant proof-point for
our investment, allowing work to progress.
We have further invested in our payments proposition with a leading
market share of card spend, in line with target. In addition, we
have achieved a twofold increase in the number of corporate clients
onboarded to the new cash management and payments platform with its
improved capability to meet client needs. We remain on track for a
threefold increase by the end of the year.
We have further invested in data capabilities to deliver more
effective outcomes for our customers and our colleagues. During the
first half of 2021, we have extended machine learning capabilities
to drive faster mortgage approvals for 20,000 franchise customers
using automated income verification analysis. In addition, we
migrated 45 million customer records to private cloud hosting to
prove our data migration capabilities. This reflects another
important proof-point.
The pandemic has accelerated many of the trends previously evident
in the workplace. These require a reduced office footprint, but
also enhanced workspaces to foster collaboration and creativity. It
is very important that we respond to this opportunity to best serve
our colleagues and to enhance efficiency. During the first half of
2021, we have reduced office space by c.3 per cent, on track to
meet our target of an 8 per cent reduction in 2021. We have also
created three distinct workstyles, known as 'home', 'hub' and
'hybrid', as part of our planning for future ways of working. We
expect around 80 per cent of colleagues to work in a hybrid
manner under this model.
Much work remains to be done on Strategic Review 2021, but the
first half represents a strong start on our programme.
Outlook
● Given
our solid financial performance and the improved UK macroeconomic
outlook, the Group is enhancing its guidance for 2021. Based on the
Group's current macroeconomic assumptions:
- Net
interest margin now expected to be around 250 basis
points
- Operating
costs now expected to be c.£7.6 billion
- Net
asset quality ratio now expected to be below 10 basis
points
- Return
on tangible equity now expected to be c.10 per cent, excluding the
c.2.5 percentage point benefit from tax rate
changes
- Risk-weighted
assets in 2021 now expected to be below £200
billion
Although the macroeconomic outlook remains uncertain, the Group's
people, financial strength and business model will ensure that we
can continue to support our customers and Help Britain Recover.
This is fully aligned with the Group's long term strategic
objectives, the position of the franchise and the interests of our
shareholders.
SUMMARY OF GROUP RESULTS
Solid financial performance with continued business momentum,
bolstered by macroeconomic outlook
Statutory results
The Group's statutory profit before tax for the half-year to 30
June 2021 was £3,905 million, whilst statutory profit after
tax was £3,865 million, both benefiting from solid business
momentum and a net impairment credit driven by the UK's improved
macroeconomic outlook, combined with robust credit performance. The
Group's statutory profit after tax included a benefit
of £970 million from the revaluation of deferred tax
assets given the revised corporation tax rate effective from 1
April 2023, substantively enacted in the second
quarter.
On a statutory basis, net income was up 2 per cent on the first
half of 2020 reflecting lower net interest income given the reduced
margins combined with lower levels of customer activity, more than
offset by the positive impact of market volatility. Statutory
operating expenses were up £229 million, impacted by a higher
remediation charge in the period and increased restructuring costs.
Statutory impairment for the period was a net credit as a result of
a release of expected credit loss (ECL) allowances driven by the
improved macroeconomic outlook for the UK, combined with robust
credit performance.
Underlying results†
The Group's underlying profit was £4,065 million for the
period, compared to an underlying loss of £281 million in the
first six months of 2020, reflecting both solid financial
performance and the improved macroeconomic outlook.
Underlying profit before impairment for the period of £3,409
million continues to recover and although down 4 per cent on the
first six months of 2020 is up 17 per cent on the second six months
of 2020. Net income was 2 per cent higher than in the first half of
2020 at £7,564 million and 8 per cent higher when compared to
the second half of 2020. The Group continues to maintain its focus
on cost management, with a market-leading cost:income ratio,
although operating costs increased slightly on prior year due to
the rebuilding of variable pay, given stronger than expected
financial performance in income and impairments. Total costs,
including remediation, were up 7 per cent on the prior year, given
the slight increase in operating costs and a higher remediation
charge in the period, materially driven by a regulatory fine
relating to the communication of historical insurance renewals,
further costs in relation to HBOS Reading and other litigation
relating to ongoing legacy programmes.
The Group's balance sheet remains strong. Loans and advances to
customers were 2 per cent higher at £448 billion, driven by
strong growth in mortgage lending. Customer deposits increased 5
per cent to £474 billion with significant growth in Retail
current accounts and relationship savings balances, continuing the
trend seen since 2019. The Group's CET1 ratio was 16.7 per cent
after dividend accrual, significantly ahead of both the ongoing
target of c.12.5 per cent, plus a management buffer of c.1 per cent
and the regulatory requirement of c.11 per cent.
Net income†
|
Half-year to 30 June 2021
|
|
|
Half-year
to 30 June 2020
|
|
|
Change
|
|
Half-year
to 31 Dec
2020
|
|
|
Change
|
|
£m
|
|
|
£m
|
|
|
%
|
|
£m
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
5,418
|
|
|
5,478
|
|
|
(1)
|
|
5,295
|
|
|
2
|
Other income
|
2,417
|
|
|
2,461
|
|
|
(2)
|
|
2,054
|
|
|
18
|
Operating
lease depreciation
|
(271)
|
|
|
(526)
|
|
|
48
|
|
(358)
|
|
|
24
|
Net income
|
7,564
|
|
|
7,413
|
|
|
2
|
|
6,991
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin†
|
2.50%
|
|
|
2.59%
|
|
|
(9)bp
|
|
2.44%
|
|
|
6bp
|
Average
interest-earning banking assets†
|
£440.8bn
|
|
|
£433.2bn
|
|
|
2
|
|
£436.6bn
|
|
|
1
|
SUMMARY OF GROUP RESULTS (continued)
Net income of £7,564 million was up 2 per cent on the first
half of 2020, with slightly lower net interest income and other
income more than offset by a reduction in operating lease
depreciation. Compared to the second half of 2020, net income was
up 8 per cent, driven by significant improvements in other income
as well as an increase in net interest income and lower operating
lease depreciation.
Net interest income of £5,418 million was down 1 per cent
versus the first half of 2020, impacted by a reduction in the
banking net interest margin which more than offset the effects of
higher average interest-earning banking assets. The banking net
interest margin reduced by 9 basis points to 2.50 per cent,
reflecting the lower rate environment and change in asset mix,
including lower unsecured balances. The banking net interest margin
in the second quarter of 2021 improved to 2.51 per cent versus the
first quarter, benefiting from improving structural hedge earnings
and asset and liability mix in Commercial Banking. Average
interest-earning banking assets were up 2 per cent compared to the
first half of 2020, driven by strong growth in the open mortgage
book and the impact of Government supported loan schemes. These
were partially offset by the effects of the continued optimisation
of the Corporate and Institutional book within Commercial Banking
and lower unsecured and motor balances.
The Group manages the risk to its earnings and capital from
movements in interest rates centrally by hedging the net
liabilities which are stable or less sensitive to movements in
rates. As at 30 June 2021 the Group's structural hedge had an
approved capacity of £225 billion, a prudent increase from
£210 billion at year end 2020, capturing part of the liability
growth since year end 2019, given the success in attracting deposit
balances. The nominal balance of the structural hedge was £215
billion as at 30 June 2021 (31 December 2020: £186 billion)
with a weighted-average duration of around three-and-a-half years
(31 December 2020: around two-and-a-half years). The Group
generated £1.1 billion of total gross income from the
structural hedge balances in the first half of 2021 (half-year to
30 June 2020: £1.3 billion), impacted by market
rates.
Taking all of these factors into account, the Group now expects the
net interest margin for full year 2021 to be around 250 basis
points, with low single-digit percentage growth in average
interest-earning assets in 2021.
Other income of £2,417 million was 2 per cent lower than the
first half of 2020, reflecting lower levels of insurance new
business income, a lower Lex fleet size and significantly lower
levels of gilt and other liquid asset sales (half-year to
30 June 2021: £23 million, half-year to 30 June 2020:
£135 million). This was in part mitigated by strong
performance in the Group's equity investment businesses, including
Lloyds Development Capital, of £280 million (half-year to
30 June 2020: £9 million loss). The Group's other income
was up 18 per cent on the second half of 2020, significantly due to
the absence of the negative insurance assumption changes and
experience variance seen in the second half of 2020.
In the second quarter of 2021, other income of £1,282 million
was up £147 million against the previous three months,
including a strong contribution from the Group's equity investment
businesses and positive assumption changes in Insurance. The Group
is also seeing some early signs of increasing customer activity and
new business, particularly in Retail and workplace pensions within
Insurance and Wealth.
Operating lease depreciation reduced to £271 million
(half-year to 30 June 2020: £526 million) driven by strength
in used vehicle prices during the first half of 2021, as well as
the continued impact of a smaller Lex fleet size.
SUMMARY OF GROUP RESULTS (continued)
Total costs†
|
Half-year to 30 June 2021
|
|
|
Half-yearto 30 June 2020
|
|
|
Change
|
|
Half-yearto 31 Dec2020
|
|
|
Change
|
|
£m
|
|
|
£m
|
|
|
%
|
|
£m
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs
|
3,730
|
|
|
3,699
|
|
|
(1)
|
|
3,886
|
|
|
4
|
Remediation
|
425
|
|
|
177
|
|
|
|
|
202
|
|
|
|
Total costs
|
4,155
|
|
|
3,876
|
|
|
(7)
|
|
4,088
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost:income
ratio†
|
54.9%
|
|
|
52.3%
|
|
|
2.6pp
|
|
58.5%
|
|
|
(3.6)pp
|
Total costs of £4,155 million were 7 per cent higher than in
the first half of 2020, due to slightly higher operating costs and
a higher remediation charge in the period. The Group continues to
maintain its focus on cost management, with a market-leading
cost:income ratio of 54.9 per cent. In the context of stronger than
expected financial performance in income and impairments, the Group
is accelerating the rebuild of variable pay in 2021, which has
resulted in the slight increase in operating costs in the
period.
Total investment spend in the first half of 2021 amounted to
£0.9 billion, prioritising technology and digital projects
whilst building on the customer ambitions and enhanced capabilities
outlined in Strategic Review 2021, including £0.4 billion
strategic investment spend. During the first half of 2021 the Group
capitalised c.£0.6 billion of investment spend, of which
c.£0.4 billion related to intangible assets. Total capitalised
spend amounted to 64 per cent of investment.
The Group now expects operating costs for 2021 to be broadly in
line with 2020 at c.£7.6 billion, as a result of the
accelerated rebuild of variable pay in the context of stronger than
expected financial performance.
Remediation charges increased to £425 million, materially
driven by the £91 million regulatory fine relating to the
communication of historic home insurance renewals, HBOS Reading
charges as previously flagged, as well as litigation costs and
charges in relation to other ongoing legacy programmes. With
respect to HBOS Reading, £150 million was incurred in the
first half of 2021, including operational costs to provide for the
likelihood of activities spanning across 2022 as well as the
outcome to date of decisions from the independent panel re-review
on direct and consequential losses. Further significant charges
over 2021 and 2022 could be required as more panel decisions are
published, but at this stage it is not possible to reliably
estimate the potential impact or timings.
SUMMARY OF GROUP RESULTS (continued)
Impairment†
Asset quality remains strong, with low levels of new to arrears.
Impairment in the first half of the year was a net credit of
£656 million, compared to a net charge of
£3,818 million in the first half of 2020. The net credit
in the period resulted from an £837 million release of
expected credit loss (ECL) allowances driven by improvements to the
macroeconomic outlook for the UK, of which £378 million was
recognised in the second quarter of 2021. This was partially offset
by a low run-rate impairment charge of £252 million,
reflecting strong asset quality in a continued benign credit
environment and some releases against Commercial Banking
exposures.
The Group's ECL allowance reduced in the first half of the year by
£1.3 billion to £5.6 billion (31 December 2020:
£6.9 billion, 31 December 2019: £4.2 billion), of
which £837 million resulted from improvements to the
macroeconomic outlook, including stronger GDP performance, improved
unemployment outlook partly given the impact of the extension of
the Government's Coronavirus Job Retention Scheme announced in the
first quarter of 2021 and strength in house prices. Observed credit
performance remained robust in the period, with the flow of assets
into arrears, defaults and write-offs remaining at low levels.
Reductions in Commercial Banking ECL allowances also reflect
improved outcomes on restructuring cases, reduction in Stage 2
exposures and lower flows to default.
The ECL allowance remains high by historical standards, £1.4
billion above 31 December 2019 and assumes that a large proportion
of these additional expected losses will crystallise over the next
12 months. This is expected to take place as support measures
subside and unemployment increases, with the Group's base case
predicting a peak of 6.6 per cent in the fourth quarter of 2021.
The ECL allowance continues to reflect a probability-weighted view
of future economic scenarios with a 30 per cent weighting of base
case, upside and downside and a 10 per cent weighting of the severe
downside. The improvement in unemployment and asset price outlook
we have seen in 2021 within the base case is further reflected in
all scenarios which have improved significantly since the year
end.
The Group has retained the judgemental overlays applied at year end
and has continued to offset modelled releases not deemed reflective
of underlying risk. Management judgements in respect of coronavirus
of c.£1.2 billion (31 December 2020: c.£0.9 billion)
include a central £400 million overlay, as well as c.£800
million of judgements within the underlying portfolios (31 December
2020: c.£500 million). The central overlay was added at year
end in recognition of the significant uncertainty with regard to
the efficacy of coronavirus vaccines, the vaccination rollout,
potential virus mutations and economic performance post lockdown
restrictions and Government support. Although the base case outlook
has improved throughout the first half, the Group considers these
risks remain and that the conditioning assumptions for the improved
base case and associated scenarios do not capture these
unprecedented risks.
Overall the Group's loan portfolio continues to be well positioned,
reflecting a prudent, through-the-cycle approach to credit risk and
high levels of security. The Retail portfolio is heavily weighted
towards high quality mortgage lending where low loan-to-value
ratios provide security against potential risks. The prime consumer
finance portfolio also benefits from previous high quality growth
and the Group's prudent risk appetite. The Commercial portfolio
reflects a diverse client base with limited exposure to sectors
most affected by the coronavirus pandemic. Within Commercial
Banking, management of concentration risk includes single name and
country limits as well as controls over the overall exposure to
certain higher risk sectors and asset classes.
Whilst covered by Government guarantees and with significant
adoption of the Government's Pay As You Grow scheme, early trends
in Bounce Back Loan Scheme (BBLS) repayments indicate fewer than 10
per cent of customers due to commence repayment across the Group
have entered arrears.
Given the experience of the first half of the year and the Group's
current macroeconomic assumptions, the full year impairment charge
is expected to be materially lower than the guidance set out in the
first quarter, with the net asset quality ratio for 2021 now
expected to be below 10 basis points.
SUMMARY OF GROUP RESULTS (continued)
|
Half-year to 30 June 2021
|
|
|
Half-yearto 30 June 2020
|
|
|
Change
|
|
Half-year to 31 Dec 2020
|
|
|
Change
|
|
£m
|
|
|
£m
|
|
|
%
|
|
£m
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges
pre-updated multiple economic scenarios1
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
527
|
|
|
578
|
|
|
9
|
|
781
|
|
|
33
|
Commercial
Banking
|
(272)
|
|
|
206
|
|
|
|
|
46
|
|
|
|
Other
|
(3)
|
|
|
4
|
|
|
|
|
(5)
|
|
|
40
|
|
252
|
|
|
788
|
|
|
68
|
|
822
|
|
|
69
|
Coronavirus
impacted restructuring cases2
|
(71)
|
|
|
432
|
|
|
|
|
(29)
|
|
|
|
Updated economic outlook:
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
(544)
|
|
|
1,517
|
|
|
|
|
(492)
|
|
|
(11)
|
Commercial
Banking
|
(293)
|
|
|
881
|
|
|
|
|
(72)
|
|
|
|
Other
|
-
|
|
|
200
|
|
|
|
|
200
|
|
|
|
|
(837)
|
|
|
2,598
|
|
|
|
|
(364)
|
|
|
|
Impairment (credit) charge
|
(656)
|
|
|
3,818
|
|
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
quality ratio†
|
(0.30)%
|
|
|
1.73%
|
|
|
(203)bp
|
|
0.19%
|
|
|
(49bp)
|
1 Charges
based on the economic outlook as at 31 December 2019, prior to the
impact of the coronavirus pandemic on forward looking expected
losses.
2 Additional
(credits)/charges on cases subject to restructuring at the end of
2019, where the coronavirus pandemic is considered to have had a
direct effect upon the recovery strategy.
|
At 30 June 20211
|
|
At 31
Dec 20201
|
|
Change
%
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
Stage 2 gross loans and advances to customers
|
54,129
|
|
60,514
|
|
(11)
|
Stage 2 loans and advances to customers as % of total
|
10.7%
|
|
12.0%
|
|
(1.3)pp
|
Stage 2
ECL allowances2
|
2,081
|
|
2,727
|
|
(24)
|
Stage 2
ECL allowances2 as % of Stage 2
drawn balances
|
3.8%
|
|
4.5%
|
|
(0.7)pp
|
|
|
|
|
|
|
Stage 3 gross loans and advances to customers
|
8,616
|
|
9,089
|
|
(5)
|
Stage 3 loans and advances to customers as a % of
total
|
1.7%
|
|
1.8%
|
|
(0.1)pp
|
Stage 3
ECL allowances2
|
2,108
|
|
2,508
|
|
(16)
|
Stage 3
ECL allowances2 as % of Stage 3
drawn balances3
|
25.6%
|
|
28.6%
|
|
(3.0)pp
|
|
|
|
|
|
|
Total
loans and advances to customers4
|
505,496
|
|
505,129
|
|
-
|
Total
ECL allowance on loans and advances to customers2
|
5,555
|
|
6,832
|
|
(19)
|
Total
ECL allowances on loans and advances to customers2 as % of drawn
balances3
|
1.1%
|
|
1.4%
|
|
(0.3)pp
|
1 Underlying
basis. Refer to basis of presentation.
2 Expected
credit loss allowance on loans and advances to customers (drawn and
undrawn).
3 Total
and Stage 3 ECL allowances as a percentage of drawn balances are
calculated excluding loans in recoveries in Retail and Commercial
Banking of £380 million (31 December 2020: £317
million). Comparatives restated to reflect exclusion of Commercial
Banking recoveries.
4 Includes
reverse repos of £52.7 billion (31 December 2020: £58.6
billion).
SUMMARY OF GROUP RESULTS (continued)
Statutory profit
|
Half-year to 30 June 2021
|
|
|
Half-year
to 30 June 2020
|
|
|
Change
|
|
Half-year
to 31 Dec
2020
|
|
|
Change
|
|
£m
|
|
|
£m
|
|
|
%
|
|
£m
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory profit (loss) before tax
|
3,905
|
|
|
(602)
|
|
|
|
|
1,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
costs
|
(69)
|
|
|
(28)
|
|
|
|
|
(128)
|
|
|
46
|
Property
transformation
|
(42)
|
|
|
(37)
|
|
|
(14)
|
|
(109)
|
|
|
61
|
Technology
research and development
|
(81)
|
|
|
(19)
|
|
|
|
|
(42)
|
|
|
(93)
|
Regulatory
programmes
|
(32)
|
|
|
(19)
|
|
|
(68)
|
|
(23)
|
|
|
(39)
|
Mergers
and acquisitions, integration and other restructuring
costs
|
(31)
|
|
|
(30)
|
|
|
(3)
|
|
(86)
|
|
|
64
|
|
(255)
|
|
|
(133)
|
|
|
(92)
|
|
(388)
|
|
|
34
|
Volatility
and other items
|
|
|
|
|
|
|
|
|
|
|
|
|
Market
volatility and asset sales
|
239
|
|
|
(43)
|
|
|
|
|
(16)
|
|
|
|
Amortisation of
purchased intangibles
|
(35)
|
|
|
(34)
|
|
|
(3)
|
|
(35)
|
|
|
|
Fair
value unwind
|
(109)
|
|
|
(111)
|
|
|
2
|
|
(122)
|
|
|
11
|
|
95
|
|
|
(188)
|
|
|
|
|
(173)
|
|
|
|
Payment
protection insurance provision
|
-
|
|
|
-
|
|
|
|
|
(85)
|
|
|
|
Total adjustments
|
(160)
|
|
|
(321)
|
|
|
50
|
|
(646)
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying profit (loss)†
|
4,065
|
|
|
(281)
|
|
|
|
|
2,474
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
(loss) per share
|
5.1p
|
|
|
(0.3)p
|
|
|
|
|
1.5p
|
|
|
|
Return
on tangible equity1,†
|
19.2%
|
|
|
(1.3)%
|
|
|
20.5pp
|
|
5.9%
|
|
|
13.3pp
|
1 Calculation
shown on page 31.
Further information on the reconciliation of underlying to
statutory results is included on page 28.
Restructuring costs of £255 million, up from £133 million
in the first half of 2020, reflected an increase in technology
research and development spend as the Group invests in
investigating and proving new technologies, as well as higher
severance costs. A further increase in restructuring costs beyond
the level of the first half is expected in the second half of
2021.
Volatility and other items, comprising market volatility and asset
sales of £239 million, largely offset by the amortisation of
purchased intangibles and the unwind of acquisition fair value
adjustments, resulted in a net gain of £95 million compared to
a net loss of £188 million in the first half of 2020. Within
market volatility and asset sales, insurance volatility was
favourable compared to prior year, driven largely by rising equity
markets compared to the significant downturn in the first half of
2020, along with the narrowing spreads experienced this year. This
was alongside reduced levels of positive banking volatility as a
result of exchange rate movements.
SUMMARY OF GROUP RESULTS (continued)
Tax
The Group recognised a tax expense of £40 million in the
period compared to a net credit of £621 million in the first
six months of 2020. In March 2021, the UK Government announced its
intention to increase the rate of corporation tax from 19 per cent
to 25 per cent with effect from 1 April 2023 and this was
substantively enacted on 24 May 2021. As a result of this change in
tax rate, the Group has recognised a £970 million deferred tax
credit in the income statement and a £184 million debit
within other comprehensive income, increasing the Group's net
deferred tax asset by £786 million. The prior year tax credit
included an uplift in deferred tax assets following the
announcement by the UK Government that it would maintain the
corporation tax rate at 19 per cent.
Return on tangible
equity†
The return on tangible equity for the first half of the year was
19.2 per cent, which included the annualised c.5 percentage
point benefit from the corporation tax rate change. Based on the
Group's current macroeconomic assumptions, return on tangible
equity for the full year is now expected to be c.10 per cent,
excluding the equivalent c.2.5 percentage point benefit from
tax rate changes over the year.
Balance sheet
|
At 30 June 2021
|
|
At 30 June 2020
|
|
Change%
|
|
At 31 Dec2020
|
|
Change%
|
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers1
|
£448bn
|
|
£440bn
|
|
2
|
|
£440bn
|
|
2
|
Customer
deposits2
|
£474bn
|
|
£441bn
|
|
8
|
|
£451bn
|
|
5
|
Loan to
deposit ratio†
|
94%
|
|
100%
|
|
(6)pp
|
|
98%
|
|
(4)pp
|
|
|
|
|
|
|
|
|
|
|
Wholesale funding
|
£103bn
|
|
£125bn
|
|
(17)
|
|
£109bn
|
|
(6)
|
Wholesale funding <1 year maturity
|
£34bn
|
|
£40bn
|
|
(16)
|
|
£34bn
|
|
(2)
|
Of
which money-market funding <1 year maturity3
|
£21bn
|
|
£26bn
|
|
(17)
|
|
£22bn
|
|
-
|
Liquidity
coverage ratio - eligible assets4
|
£139bn
|
|
£138bn
|
|
1
|
|
£142bn
|
|
(2)
|
Liquidity
coverage ratio5
|
131%
|
|
140%
|
|
(9)pp
|
|
136%
|
|
(5)pp
|
1 Excludes
reverse repos of £52.7 billion (30 June 2020: £61.1
billion; 31 December 2020: £58.6 billion).
2 Excludes
repos of £7.9 billion (30 June 2020: £12.3 billion; 31
December 2020 £9.4 billion).
3 Excludes
balances relating to margins of £4.0 billion (30 June 2020:
£6.9 billion; 31 December 2020: £5.3
billion).
4 Eligible
assets are calculated as an average of month-end observations over
the previous 12 months post any liquidity
haircuts.
5 The
liquidity coverage ratio is calculated as a simple average of month
end observations over the previous 12 months.
The Group's balance sheet reflects healthy franchise growth. Loans
and advances to customers were 2 per cent higher at £448
billion compared to £440 billion at 31 December 2020. Within
Retail, strong growth in the open mortgage book of £12.6
billion was only partially offset by the continued run off of the
closed mortgage book and lower cards balances. Commercial Banking
experienced reductions as a result of continued optimisation
activity within the Corporate and Institutional book and a market
where corporate liquidity levels are high and demand for new
lending restrained. Customer deposits have increased by £23.7
billion since the end of 2020, with continued inflows into the
Group's trusted brands and significant growth of £47.2 billion
seen in Retail current accounts and relationship savings balances
since 2019. Within Commercial Banking, deposits were up £3.6
billion, largely driven by the inflow of short-term balances, in
June 2021.
The Group's loan to deposit ratio of 94 per cent continues to
provide a strong liquidity position and significant potential to
lend into recovery. The Group's funding and liquidity position is
further discussed on page 54.
SUMMARY OF GROUP RESULTS (continued)
Capital
|
At 30 June 2021
|
|
At 30 June 2020
|
|
Change
%
|
|
At 31 Dec2020
|
|
Change
%
|
|
|
|
|
|
|
|
|
|
|
CET1
ratio
|
16.7%
|
|
14.6%
|
|
2.1pp
|
|
16.2%
|
|
0.5pp
|
CET1
ratio pre IFRS 9 transitional relief and software1
|
15.5%
|
|
13.4%
|
|
2.1pp
|
|
14.5%
|
|
1.0pp
|
Transitional
total capital ratio
|
23.1%
|
|
22.3%
|
|
0.8pp
|
|
23.3%
|
|
(0.2)pp
|
Transitional
MREL ratio
|
36.3%
|
|
36.8%
|
|
(0.5)pp
|
|
36.4%
|
|
(0.1)pp
|
UK
leverage ratio
|
5.8%
|
|
5.4%
|
|
0.4pp
|
|
5.8%
|
|
-
|
Risk-weighted
assets
|
£201bn
|
|
£207bn
|
|
(3)
|
|
£203bn
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
Ordinary shareholders' equity
|
£46bn
|
|
£43bn
|
|
7
|
|
£43bn
|
|
6
|
Tangible
net assets per share†
|
55.6p
|
|
51.6p
|
|
4.0p
|
|
52.3p
|
|
3.3p
|
|
|
|
|
|
|
|
|
|
|
1 CET1
ratio 'pre IFRS 9 transitional relief and software' reflects the
full impact of IFRS 9, prior to the application of the transitional
relief arrangements, and the reversal of the beneficial treatment
currently applied to intangible software assets.
Capital movements
|
bps
|
|
|
|
|
Banking build (pre impairment credit)
|
115
|
|
Impairment credit net of IFRS 9 transitional relief
release
|
(6)
|
|
Underlying risk-weighted assets
|
16
|
|
Pension contributions and other movements
|
(32)
|
|
Capital build
|
93
|
|
Revised
software rules1
|
(6)
|
|
Ordinary dividend accrual
|
(37)
|
|
Net movement in CET1 ratio
|
50
|
|
1 Reduction
in benefit driven by prudential amortisation.
The Group's CET1 capital ratio increased from 16.2 per cent at 31
December 2020 to 16.7 per cent post dividend accrual. The strong
capital build of 93 basis points during the first six months of the
year largely reflected banking build (pre impairment credit), with
a limited offset from the net impact of the impairment credit and
partial release of IFRS 9 transitional relief which included 5
basis points relating to the phased reduction in static relief.
Further increases in capital build from a reduction in underlying
risk-weighted assets and other movements were more than offset by
pension contributions of 35 basis points made during the period
which reflected the full 2021 fixed contributions for the Group's
three main defined benefit pension schemes. The accrual for
foreseeable ordinary dividends includes the impact of the interim
ordinary dividend.
The PRA have confirmed their intention to remove the beneficial
treatment currently applied to intangible software assets and
reinstate the original requirement to deduct these assets in full.
This change will be implemented on 1 January 2022 and is expected
to reduce the Group's reported CET 1 ratio by c.50 basis points at
that time.
The Group continues to apply the revised IFRS 9 transitional
arrangements for capital, with the total relief recognised at 30
June 2021 amounting to 78 basis points.
Excluding the IFRS 9 transitional relief and removing the current
beneficial treatment applied to intangible software assets would
reduce the Group's CET1 capital ratio from 16.7 per cent to 15.5
per cent, on the basis of the position at 30 June
2021.
SUMMARY OF GROUP RESULTS (continued)
The Board's view of the ongoing level of CET1 capital required by
the Group to grow the business, meet regulatory requirements and
cover uncertainties is around 12.5 per cent, plus a management
buffer of around 1 per cent.
Risk-weighted assets at £201 billion reduced by £1.8
billion in the first six months of the year, primarily driven by
continued optimisation activity undertaken in Commercial Banking,
partially offset by a temporary increase in market risk and limited
impacts from credit deterioration, the latter in part due to the
mitigating impact of house price increases. Given the improved
macroeconomic outlook, risk-weighted assets in 2021 are now expected to be
below £200 billion by the end of the year. On 1 January
2022, regulatory headwinds from the implementation of new CRD IV
models (predominantly relating to mortgages) and changes to
counterparty credit risk rules (SA-CCR) are expected to increase
risk-weighted assets by £15-£20 billion. Significant
uncertainty remains around the outcome of the implementation and
the macroeconomic environment at the time, both of which may impact
this assessment.
Tangible net assets per share increased by 3.3 pence to 55.6 pence
at 30 June 2021 from 52.3 pence at
31 December 2020.
Dividend
In
respect of the first half of 2021 and following the PRA update of
13 July 2021, the Board has announced an interim ordinary dividend
of 0.67 pence per share,
reintroducing a progressive and sustainable ordinary dividend
policy.
Going forward, the Group will revert to paying any ordinary
dividends half yearly, rather than quarterly, with the quantum
announced with the half year and full year results. The Board
believes this approach is appropriate in the current environment
given its simplicity, environmental benefits and the additional
flexibility it provides to the business. The Board will continue to
give due consideration at each year end to the return of any
surplus capital through the use of special dividends or
buybacks.
SEGMENTAL ANALYSIS - UNDERLYING
BASIS†
Half-year to 30 June 2021
|
Retail
|
|
|
Commercial
Banking
|
|
|
Insurance
and Wealth
|
|
|
Central
items
|
|
|
Group
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
4,218
|
|
|
1,153
|
|
|
36
|
|
|
11
|
|
|
5,418
|
|
Other income
|
812
|
|
|
677
|
|
|
660
|
|
|
268
|
|
|
2,417
|
|
Operating lease depreciation
|
(263)
|
|
|
(8)
|
|
|
-
|
|
|
-
|
|
|
(271)
|
|
Net income
|
4,767
|
|
|
1,822
|
|
|
696
|
|
|
279
|
|
|
7,564
|
|
Operating costs
|
(2,296)
|
|
|
(901)
|
|
|
(493)
|
|
|
(40)
|
|
|
(3,730)
|
|
Remediation
|
(153)
|
|
|
(169)
|
|
|
(116)
|
|
|
13
|
|
|
(425)
|
|
Total costs
|
(2,449)
|
|
|
(1,070)
|
|
|
(609)
|
|
|
(27)
|
|
|
(4,155)
|
|
Underlying profit before impairment
|
2,318
|
|
|
752
|
|
|
87
|
|
|
252
|
|
|
3,409
|
|
Impairment
|
17
|
|
|
636
|
|
|
2
|
|
|
1
|
|
|
656
|
|
Underlying profit
|
2,335
|
|
|
1,388
|
|
|
89
|
|
|
253
|
|
|
4,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin†
|
2.45%
|
|
|
2.96%
|
|
|
|
|
|
|
|
|
2.50%
|
|
Average
interest-earning banking assets†
|
£358.3bn
|
|
|
£81.6bn
|
|
|
£0.9bn
|
|
|
-
|
|
|
£440.8bn
|
|
Asset
quality ratio†
|
(0.01)%
|
|
|
(1.48)%
|
|
|
|
|
|
|
|
|
(0.30)%
|
|
Return
on risk-weighted assets†
|
4.75%
|
|
|
3.82%
|
|
|
|
|
|
|
|
|
4.08%
|
|
Loans
and advances to customers1
|
£361.5bn
|
|
|
£84.2bn
|
|
|
£1.0bn
|
|
|
£1.0bn
|
|
|
£447.7bn
|
|
Customer
deposits2
|
£309.8bn
|
|
|
£149.2bn
|
|
|
£14.8bn
|
|
|
£0.6bn
|
|
|
£474.4bn
|
|
Risk-weighted assets
|
£100.0bn
|
|
|
£72.7bn
|
|
|
£1.4bn
|
|
|
£26.8bn
|
|
|
£200.9bn
|
|
Half-year to 30 June 2020
|
Retail
|
|
|
Commercial
Banking
|
|
|
Insurance
and Wealth
|
|
|
Central
items
|
|
|
Group
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
4,233
|
|
|
1,222
|
|
|
14
|
|
|
9
|
|
|
5,478
|
|
Other income
|
919
|
|
|
658
|
|
|
853
|
|
|
31
|
|
|
2,461
|
|
Operating lease depreciation
|
(518)
|
|
|
(8)
|
|
|
-
|
|
|
-
|
|
|
(526)
|
|
Net income
|
4,634
|
|
|
1,872
|
|
|
867
|
|
|
40
|
|
|
7,413
|
|
Operating costs
|
(2,277)
|
|
|
(906)
|
|
|
(459)
|
|
|
(57)
|
|
|
(3,699)
|
|
Remediation
|
(50)
|
|
|
(115)
|
|
|
(19)
|
|
|
7
|
|
|
(177)
|
|
Total costs
|
(2,327)
|
|
|
(1,021)
|
|
|
(478)
|
|
|
(50)
|
|
|
(3,876)
|
|
Underlying profit before impairment
|
2,307
|
|
|
851
|
|
|
389
|
|
|
(10)
|
|
|
3,537
|
|
Impairment
|
(2,095)
|
|
|
(1,519)
|
|
|
(10)
|
|
|
(194)
|
|
|
(3,818)
|
|
Underlying profit (loss)
|
212
|
|
|
(668)
|
|
|
379
|
|
|
(204)
|
|
|
(281)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin†
|
2.59%
|
|
|
2.92%
|
|
|
|
|
|
|
|
|
2.59%
|
|
Average
interest-earning banking assets†
|
£342.3bn
|
|
|
£90.0bn
|
|
|
£0.9bn
|
|
|
-
|
|
|
£433.2bn
|
|
Asset
quality ratio†
|
1.23%
|
|
|
3.12%
|
|
|
|
|
|
|
|
|
1.73%
|
|
Return on risk-weighted assets
|
0.43%
|
|
|
(1.70)%
|
|
|
|
|
|
|
|
|
(0.27)%
|
|
Loans
and advances to customers1
|
£341.0bn
|
|
|
£96.0bn
|
|
|
£0.9bn
|
|
|
£2.5bn
|
|
|
£440.4bn
|
|
Customer
deposits2
|
£272.2bn
|
|
|
£154.5bn
|
|
|
£13.5bn
|
|
|
£0.9bn
|
|
|
£441.1bn
|
|
Risk-weighted assets
|
£99.4bn
|
|
|
£78.4bn
|
|
|
£1.3bn
|
|
|
£28.0bn
|
|
|
£207.1bn
|
|
1 Excludes
reverse repos.
2 Excludes
repos.
SEGMENTAL ANALYSIS - UNDERLYING BASIS (continued)
Half-year to 31 December 2020
|
Retail
|
|
|
Commercial
Banking
|
|
|
Insurance
and Wealth
|
|
|
Central
items
|
|
|
Group
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
4,151
|
|
|
1,135
|
|
|
35
|
|
|
(26)
|
|
|
5,295
|
|
Other income
|
814
|
|
|
634
|
|
|
397
|
|
|
209
|
|
|
2,054
|
|
Operating lease depreciation
|
(338)
|
|
|
(20)
|
|
|
-
|
|
|
-
|
|
|
(358)
|
|
Net income
|
4,627
|
|
|
1,749
|
|
|
432
|
|
|
183
|
|
|
6,991
|
|
Operating costs
|
(2,484)
|
|
|
(945)
|
|
|
(443)
|
|
|
(14)
|
|
|
(3,886)
|
|
Remediation
|
(75)
|
|
|
(95)
|
|
|
(31)
|
|
|
(1)
|
|
|
(202)
|
|
Total costs
|
(2,559)
|
|
|
(1,040)
|
|
|
(474)
|
|
|
(15)
|
|
|
(4,088)
|
|
Underlying
profit before impairment†
|
2,068
|
|
|
709
|
|
|
(42)
|
|
|
168
|
|
|
2,903
|
|
Impairment
|
(289)
|
|
|
55
|
|
|
1
|
|
|
(196)
|
|
|
(429)
|
|
Underlying
profit (loss)†
|
1,779
|
|
|
764
|
|
|
(41)
|
|
|
(28)
|
|
|
2,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin†
|
2.45%
|
|
|
2.74%
|
|
|
|
|
|
|
|
|
2.44%
|
|
Average
interest-earning banking assets†
|
£348.5bn
|
|
|
£87.2bn
|
|
|
£0.9bn
|
|
|
-
|
|
|
£436.6bn
|
|
Asset
quality ratio†
|
0.17%
|
|
|
(0.12)%
|
|
|
|
|
|
|
|
|
0.19%
|
|
Return
on risk-weighted assets†
|
3.56%
|
|
|
1.98%
|
|
|
|
|
|
|
|
|
2.40%
|
|
Loans
and advances to customers1
|
£350.9bn
|
|
|
£86.2bn
|
|
|
£0.9bn
|
|
|
£2.2bn
|
|
|
£440.2bn
|
|
Customer
deposits2
|
£290.2bn
|
|
|
£145.6bn
|
|
|
£14.1bn
|
|
|
£0.8bn
|
|
|
£450.7bn
|
|
Risk-weighted assets
|
£99.0bn
|
|
|
£75.0bn
|
|
|
£1.3bn
|
|
|
£27.4bn
|
|
|
£202.7bn
|
|
1 Excludes
reverse repos.
2 Excludes
repos.
RETAIL
Retail offers a broad range of financial service products to
personal and business banking customers, including current
accounts, savings, mortgages, credit cards, unsecured loans, motor
finance and leasing solutions. Its aim is to be the preferred
financial partner for personal customers, by building deep and
enduring relationships that meet more of its customers' financial
needs and to improve their financial resilience throughout their
lifetime, with personalised products and services. Retail operates
a multi-brand and multi-channel strategy. It continues to simplify
its business and provide more transparent products, helping to
improve service levels and reduce conduct risk, while working
within a prudent risk appetite.
Strategic progress
● Record
net promoter scores across branch (80) and digital (71), reflecting
continued improved customer satisfaction and the Group's focus on
improving customer experience
● Expanded
the availability of affordable and quality homes, with strong open
mortgage book growth of £12.6 billion, including new lending
of c.£9.0 billion to nearly 43,000 first-time buyers, almost
reaching the Group's full year £10 billion 2021
target
● Strengthened
our mortgage proposition with 1,500 Mortgage Advisers now having
video capability, alongside face to face and phone, providing
enhanced access and flexibility with 800 appointments per week
outside branch opening hours
● Helped
rebuild households' financial health and wellbeing through
directing customers to free independent debt advice for more than
130,000 accounts
● Continued
modernisation of the Group's technology architecture, demonstrated
by being the first major bank to market giving customers the
ability to settle their credit card balance via open banking. Over
850,000 uses since launch
● Maintained
UK's largest branch network; piloting a scheme to strengthen free
access to cash, with over 400 retail sites to date agreeing to
provide cashback; supported industry commitments to access to cash
through the BankHub pilot
● Flexed
ways of working to meet customer demand, with 800 branch colleagues
moving into customer service roles
● Progress
towards deepening relationships via a 133 per cent increase in
referrals to Schroders Personal Wealth (compared to the second half
of 2020), allowing the Group to meet more of our customers'
financial needs
● Renewed
strategic relationship with Jaguar Land Rover, and extended
contract with Tesla, contributing to the transition to a low carbon
economy
Financial performance
● Net
interest income of £4,218 million, in line with prior year.
Benefit of mortgage and business banking growth, offset by the low
rate environment, lower unsecured balances and reduced activity and
demand during the pandemic
● Other
income reduced by 12 per cent, including a market driven reduction
in Lex fleet size. Operating lease depreciation decreased by 49 per
cent, driven by strength in used vehicle prices and the smaller
fleet size
● Operating
costs 1 per cent higher; reflecting investment in IT and increased
variable pay costs, compared to first half 2020. Remediation
charges increased on prior year to £153
million
● Impairment
significantly decreased, with a £17 million credit in the
first half of 2021, underpinned by benign credit environment and
strong asset quality, alongside an improved macroeconomic outlook
for the UK
● Customer
lending increased 3 per cent in the period driven by strong open
mortgage book growth of £12.6 billion, partially offset by the
continued run off of the closed mortgage book and lower cards
balances
● Customer
deposits increased 7 per cent in 2021, demonstrating the strength
of the Group's trusted brands
● Risk-weighted
assets up 1 per cent, in part influenced by model calibrations and
a larger mortgage book, offset by house price growth and lower
unsecured balances
Retail performance
summary†
|
Half-year to 30 June 2021
|
|
|
Half-year
to 30 June 2020
|
|
|
Change
|
|
Half-year
to 31 Dec
2020
|
|
|
Change
|
|
£m
|
|
|
£m
|
|
|
%
|
|
£m
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
4,218
|
|
|
4,233
|
|
|
-
|
|
4,151
|
|
|
2
|
Other income
|
812
|
|
|
919
|
|
|
(12)
|
|
814
|
|
|
-
|
Operating lease depreciation
|
(263)
|
|
|
(518)
|
|
|
49
|
|
(338)
|
|
|
22
|
Net income
|
4,767
|
|
|
4,634
|
|
|
3
|
|
4,627
|
|
|
3
|
Operating costs
|
(2,296)
|
|
|
(2,277)
|
|
|
(1)
|
|
(2,484)
|
|
|
8
|
Remediation
|
(153)
|
|
|
(50)
|
|
|
|
|
(75)
|
|
|
|
Total costs
|
(2,449)
|
|
|
(2,327)
|
|
|
(5)
|
|
(2,559)
|
|
|
4
|
Underlying profit before impairment
|
2,318
|
|
|
2,307
|
|
|
-
|
|
2,068
|
|
|
12
|
Impairment
|
17
|
|
|
(2,095)
|
|
|
|
|
(289)
|
|
|
|
Underlying profit
|
2,335
|
|
|
212
|
|
|
|
|
1,779
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin†
|
2.45%
|
|
|
2.59%
|
|
|
(14)bp
|
|
2.45%
|
|
|
-
|
Average
interest-earning banking assets†
|
£358.3bn
|
|
|
£342.3bn
|
|
|
5
|
|
£348.5bn
|
|
|
3
|
Asset
quality ratio†
|
(0.01)%
|
|
|
1.23%
|
|
|
(124)bp
|
|
0.17%
|
|
|
(18)bp
|
Return
on risk-weighted assets†
|
4.75%
|
|
|
0.43%
|
|
|
432bp
|
|
3.56%
|
|
|
119bp
|
|
At 30 June 2021
|
|
|
At 30 June 2020
|
|
|
Change
|
|
At 31 Dec 2020
|
|
|
Change
|
|
£bn
|
|
|
£bn
|
|
|
%
|
|
£bn
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open mortgage book
|
289.9
|
|
|
267.1
|
|
|
9
|
|
277.3
|
|
|
5
|
Closed mortgage book
|
15.3
|
|
|
17.5
|
|
|
(13)
|
|
16.5
|
|
|
(7)
|
Credit cards
|
13.6
|
|
|
15.2
|
|
|
(11)
|
|
14.3
|
|
|
(5)
|
UK unsecured loans
|
8.0
|
|
|
8.2
|
|
|
(2)
|
|
8.0
|
|
|
-
|
UK Motor Finance
|
14.4
|
|
|
15.3
|
|
|
(6)
|
|
14.7
|
|
|
(2)
|
Business Banking
|
8.8
|
|
|
7.0
|
|
|
26
|
|
8.8
|
|
|
-
|
Overdrafts
|
1.0
|
|
|
1.0
|
|
|
-
|
|
0.9
|
|
|
11
|
Other1
|
10.5
|
|
|
9.7
|
|
|
8
|
|
10.4
|
|
|
1
|
Loans and advances to customers
|
361.5
|
|
|
341.0
|
|
|
6
|
|
350.9
|
|
|
3
|
Operating lease assets
|
4.0
|
|
|
4.1
|
|
|
(2)
|
|
3.9
|
|
|
3
|
Total customer assets
|
365.5
|
|
|
345.1
|
|
|
6
|
|
354.8
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accounts
|
107.3
|
|
|
87.5
|
|
|
23
|
|
97.4
|
|
|
10
|
Relationship
savings2
|
186.1
|
|
|
172.0
|
|
|
8
|
|
178.8
|
|
|
4
|
Tactical savings
|
16.4
|
|
|
12.7
|
|
|
29
|
|
14.0
|
|
|
17
|
Customer deposits
|
309.8
|
|
|
272.2
|
|
|
14
|
|
290.2
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-weighted assets
|
100.0
|
|
|
99.4
|
|
|
1
|
|
99.0
|
|
|
1
|
1 Includes
Europe and run-off.
2 Includes
Business Banking.
COMMERCIAL BANKING
Through its segmented client coverage model, Commercial Banking
provides clients with a range of products and services such as
lending, transaction banking, working capital management, risk
management and debt capital markets. Commercial Banking is
committed to becoming the best bank for business through its
client-led, low-risk, capital efficient strategy. Continued
investment in capabilities and digital propositions will enable the
business to build a leading digital SME proposition and a
strengthened Corporate and Institutional client
franchise.
Strategic progress
● Supporting
the UK recovery by investing in 1,100 business specialists to help
business customers develop appropriate recovery
plans
● Exceeded
the full year target to help expand the availability of affordable
and quality homes, delivering £2.1 billion of new funding
support to the social housing sector in the first half, including
£1.4 billion of ESG-linked funding via a new, dedicated
sustainability team
● Expanded
the funding available under the Group's discounted green finance
initiatives from £3 billion to £5 billion in the first
half of 2021 to support businesses transition to a low carbon
economy, with more than £8.6 billion of total green finance
delivered since 2016
● Strengthening
the Markets proposition through an enhanced product offering and
improved pricing capabilities; achieving growth in the share of FX
products for core clients and improving GBP rates
ranking1 to
sixth
● Increased
the number of new clients using the Group's merchant services by 8
per cent through targeted investment, providing a simplified and
quicker onboarding service
● Twofold
increase in the number of corporate clients onboarded to the new
cash management and payments platform through improved capabilities
to meet client needs; remain on track for a threefold increase by
the end of the year
● Enhanced
digital platform delivering a 3 point improvement in SME and Retail
Business Banking digital net promoter score, reflecting improved
service and the commitment to be the best bank for
business
● On
track to achieve greater than 50 per cent growth in SME products
originated via a digital source by the end of
2021
Financial performance
● Net
interest income of £1,153 million down 6 per cent on prior
year, reflecting lower deposit income given the rate environment,
partly offset by disciplined asset pricing and portfolio
optimisation across both sides of the balance
sheet
● Other
income up 3 per cent at £677 million, driven by higher levels
of corporate financing activity offset by reductions in financial
markets following the market volatility in the second quarter of
last year
● Operating
costs 1 per cent lower reflecting continued benefit from efficiency
initiatives partly offset by investment and increased variable pay
costs
● Impairment
credit of £636 million in the first half of 2021, driven by
the UK's improved macroeconomic outlook, improved credit outlook
across Stage 1 and 2 and releases on a small number of specific
single names in Stage 3
● Customer
lending 2 per cent lower at £84.2 billion due to lower
consumer activity and continued optimisation of the corporate
portfolio
● Customer
deposits 2 per cent higher at £149.2 billion, largely driven
by the inflow of short-term balances in June 2021; focus remains on
optimising for liquidity
● Risk-weighted
assets decreased 3 per cent to £72.7 billion, driven by
ongoing optimisation in the corporate book
1 Combined
Tradeweb and Bloomberg GBP IRS ranking.
Commercial Banking performance
summary†
|
Half-year to 30 June 2021
|
|
|
Half-year
to 30 June 2020
|
|
|
Change
|
|
Half-year
to 31 Dec
2020
|
|
|
Change
|
|
£m
|
|
|
£m
|
|
|
%
|
|
£m
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
1,153
|
|
|
1,222
|
|
|
(6)
|
|
1,135
|
|
|
2
|
Other income
|
677
|
|
|
658
|
|
|
3
|
|
634
|
|
|
7
|
Operating lease depreciation
|
(8)
|
|
|
(8)
|
|
|
-
|
|
(20)
|
|
|
60
|
Net income
|
1,822
|
|
|
1,872
|
|
|
(3)
|
|
1,749
|
|
|
4
|
Operating costs
|
(901)
|
|
|
(906)
|
|
|
1
|
|
(945)
|
|
|
5
|
Remediation
|
(169)
|
|
|
(115)
|
|
|
(47)
|
|
(95)
|
|
|
(78)
|
Total costs
|
(1,070)
|
|
|
(1,021)
|
|
|
(5)
|
|
(1,040)
|
|
|
(3)
|
Underlying profit before impairment
|
752
|
|
|
851
|
|
|
(12)
|
|
709
|
|
|
6
|
Impairment
|
636
|
|
|
(1,519)
|
|
|
|
|
55
|
|
|
|
Underlying profit (loss)
|
1,388
|
|
|
(668)
|
|
|
|
|
764
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin†
|
2.96%
|
|
|
2.92%
|
|
|
4bp
|
|
2.74%
|
|
|
22bp
|
Average
interest-earning banking assets†
|
£81.6bn
|
|
|
£90.0bn
|
|
|
(9)
|
|
£87.2bn
|
|
|
(6)
|
Asset
quality ratio†
|
(1.48)%
|
|
|
3.12%
|
|
|
(460)bp
|
|
(0.12)%
|
|
|
(136)bp
|
Return
on risk-weighted assets†
|
3.82%
|
|
|
(1.70)%
|
|
|
552bp
|
|
1.98%
|
|
|
184bp
|
|
At 30 June 2021
|
|
|
At 30 June 2020
|
|
|
Change
|
|
At 31 Dec 2020
|
|
|
Change
|
|
£bn
|
|
|
£bn
|
|
|
%
|
|
£bn
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SME
|
31.6
|
|
|
31.4
|
|
|
1
|
|
31.8
|
|
|
(1)
|
Mid
Corporates
|
3.8
|
|
|
4.6
|
|
|
(17)
|
|
4.1
|
|
|
(7)
|
Corporate and Institutional
|
44.9
|
|
|
55.0
|
|
|
(18)
|
|
46.0
|
|
|
(2)
|
Other
|
3.9
|
|
|
5.0
|
|
|
(22)
|
|
4.3
|
|
|
(9)
|
Loans and advances to customers
|
84.2
|
|
|
96.0
|
|
|
(12)
|
|
86.2
|
|
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SME loans and advances including Retail Business
Banking
|
40.4
|
|
|
38.4
|
|
|
5
|
|
40.6
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
149.2
|
|
|
154.5
|
|
|
(3)
|
|
145.6
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current accounts including Retail Business Banking
|
49.5
|
|
|
44.2
|
|
|
12
|
|
47.6
|
|
|
4
|
Other customer deposits including Retail Business
Banking
|
124.5
|
|
|
133.8
|
|
|
(7)
|
|
122.7
|
|
|
1
|
Customer deposits including Retail Business Banking
|
174.0
|
|
|
178.0
|
|
|
(2)
|
|
170.3
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-weighted assets
|
72.7
|
|
|
78.4
|
|
|
(7)
|
|
75.0
|
|
|
(3)
|
INSURANCE AND WEALTH
Insurance and Wealth offers insurance, investment and wealth
management products and services. It supports over 10 million
customers with assets under administration (AuA) of £185
billion and annualised annuity payments of over
£1.1 billion. The Group continues to invest significantly
in the development of the business, with the aim of becoming
Britain's preferred financial partner for pensions and financial
planning, helping to rebuild households' financial health and
wellbeing, and meeting more of the Group customers' financial
needs, increasingly with carbon neutral investments.
Strategic progress
● Announced
acquisition of Embark, a fast growing investment and retirement
platform business with c.£35 billion of AuA on behalf of
c.410,000 consumer clients. Embark enhances the Group's
capabilities to address the attractive mass market and
self-directed Wealth segment, completing the Group's Wealth
proposition, alongside Schroders Personal Wealth and the Group's
investment in Cazenove Capital, and significantly strengthens the
Group's offering in Retirement, an important growth
market
● Deepened
customer relationships via a 220 per cent increase in referrals to
Schroders Personal Wealth (compared to the first half of 2020),
allowing the Group to meet more of our customers' financial
needs
● Progressed
the Group's vision to be the preferred financial partner for
personal customers, with £4 billion net new money in Insurance
and Wealth open book AuA over the period (£125 billion as at
30 June 2021)
● Scottish
Widows has invested in its first sustainability-linked loan,
helping accelerate the transition to a low carbon economy and our
ambition to halve the carbon footprint of our investments by 2030,
on the path to net zero by 2050
● Launched
a new digital protection journey through Halifax, with rollout to
other Group platforms planned for the second half of 2021. Scottish
Widows are proud to have maintained a protection claims payout rate
of over 98 per cent during the pandemic, helping rebuild
households' financial health and wellbeing
● Continued
modernisation of the Group's technology architecture, with over 22
million views of insurance products each month in the Group's
unique Single Customer View proposition (up from 17 million, 31
December 2020)
Financial performance
● LP&I
sales have increased by 14 per cent (20 per cent excluding bulk
annuities), driven by strong performance across most propositions.
A change in workplace pensions business mix and assumptions has
resulted in the associated income recognition being deferred to
future years and a reduction in reported new business
margin
● Continued
momentum in workplace pensions has driven strong growth: scheme
membership has increased by 5 per cent, year to date premiums
received by 33 per cent, and AuA by 25 per cent (compared to 30
June 2020)
● Strong
growth in volumes of protection business, with an increase of over
40 per cent in the number of new policies sold (compared to the
first half of 2020), including a 10 per cent growth in sales
through the Group's Retail channels
● Life
and pensions experience includes £27 million positive impact
from assumption changes (prior period included £91 million
from methodology changes)
● Persistency
experience for the first half of 2021 is £36 million
favourable to expectation, driven by strong retention of business
in workplace, planning and retirement, and longstanding
LP&I
● Wealth
income was resilient, with net interest income ahead of prior year,
driven by higher customer deposits; Stockbroking income has also
grown year on year, driven by continued high trading
volumes
● Other
income of £660 million reduced from £853 million in the
first half of 2020 largely driven by reduced activity in the bulk
annuity market and the non recurrence of a positive methodology
change in the first half of 2020. Compared to the second half of
2020 other income increased by £263 million, primarily as a
result of renewed activity in workplace pensions, and resilient
experience compared to long term persistency, mortality and
longevity assumptions
● Total
costs increased by £131 million, driven by a £91 million
regulatory fine relating to the way the Group historically
communicated with home insurance customers regarding their
renewals. Operating costs increased by £34 million due to
investment in IT and increased variable pay costs. The increase
compared to the second half of 2020 also reflects the timing of the
Flood Re levy
Insurance capital
● Estimated
Shareholder Solvency II ratio of 162 per cent, with 11 percentage
points increase from 31 December 2020, reflecting the positive
impact of recent long term rate increases, with positive earnings
from in-force business
● Credit
asset portfolio remains strong, rated 'A -' on average, well
diversified and non-cyclical, with less than 1 per cent of assets
backing annuities being sub investment grade or
unrated
Insurance and Wealth performance
summary†
|
Half-year to 30 June 2021
|
|
|
Half-year
to 30 June 2020
|
|
|
Change
|
|
Half-year
to 31 Dec
2020
|
|
|
Change
|
|
£m
|
|
|
£m
|
|
|
%
|
|
£m
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
36
|
|
|
14
|
|
|
|
|
35
|
|
|
3
|
Other income
|
660
|
|
|
853
|
|
|
(23)
|
|
397
|
|
|
66
|
Net income
|
696
|
|
|
867
|
|
|
(20)
|
|
432
|
|
|
61
|
Operating costs
|
(493)
|
|
|
(459)
|
|
|
(7)
|
|
(443)
|
|
|
(11)
|
Remediation
|
(116)
|
|
|
(19)
|
|
|
|
|
(31)
|
|
|
|
Total costs
|
(609)
|
|
|
(478)
|
|
|
(27)
|
|
(474)
|
|
|
(28)
|
Underlying profit before impairment
|
87
|
|
|
389
|
|
|
(78)
|
|
(42)
|
|
|
|
Impairment
|
2
|
|
|
(10)
|
|
|
|
|
1
|
|
|
|
Underlying profit (loss)
|
89
|
|
|
379
|
|
|
(77)
|
|
(41)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
and pensions sales (PVNBP)1,†
|
9,006
|
|
|
7,880
|
|
|
14
|
|
6,649
|
|
|
35
|
General
insurance underwritten new gross written premiums
|
47
|
|
|
56
|
|
|
(16)
|
|
55
|
|
|
(15)
|
General
insurance underwritten total gross written premiums
|
315
|
|
|
327
|
|
|
(4)
|
|
335
|
|
|
(6)
|
General
insurance combined ratio2
|
114%
|
|
|
89%
|
|
|
25pp
|
|
82%
|
|
|
32pp
|
|
At 30 June 2021
|
|
|
At 30 June 2020
|
|
|
Change
|
|
At 31 Dec 2020
|
|
|
Change
|
|
£bn
|
|
|
£bn
|
|
|
%
|
|
£bn
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
Solvency II ratio3
|
162%
|
|
|
140%
|
|
|
22pp
|
|
151%
|
|
|
11pp
|
UK Wealth Loans and advances to customers
|
1.0
|
|
|
0.9
|
|
|
11
|
|
0.9
|
|
|
11
|
UK Wealth Customer deposits
|
14.8
|
|
|
13.5
|
|
|
10
|
|
14.1
|
|
|
5
|
UK Wealth Risk-weighted assets
|
1.4
|
|
|
1.3
|
|
|
8
|
|
1.3
|
|
|
8
|
Total customer assets under administration
|
184.6
|
|
|
159.6
|
|
|
16
|
|
171.9
|
|
|
7
|
Income by product group
|
Half-year to 30 June 2021
|
|
Half-year
to 30 June 2020
|
|
Half-year
to 31 Dec 2020
|
|
|
New
business
|
|
|
Existing
business
|
|
|
Total
|
|
|
New
business
|
|
|
Existing
business
|
|
|
Total
|
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workplace, planning and retirement
|
98
|
|
|
55
|
|
|
153
|
|
|
121
|
|
|
62
|
|
|
183
|
|
|
144
|
|
Individual and bulk annuities
|
43
|
|
|
38
|
|
|
81
|
|
|
108
|
|
|
41
|
|
|
149
|
|
|
101
|
|
Protection
|
14
|
|
|
10
|
|
|
24
|
|
|
11
|
|
|
10
|
|
|
21
|
|
|
16
|
|
Longstanding LP&I
|
7
|
|
|
150
|
|
|
157
|
|
|
4
|
|
|
175
|
|
|
179
|
|
|
176
|
|
|
162
|
|
|
253
|
|
|
415
|
|
|
244
|
|
|
288
|
|
|
532
|
|
|
437
|
|
Life and pensions experience and other items
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
72
|
|
|
(267)
|
|
General insurance
|
|
|
|
|
|
|
158
|
|
|
|
|
|
|
|
|
155
|
|
|
154
|
|
|
|
|
|
|
|
|
581
|
|
|
|
|
|
|
|
|
759
|
|
|
324
|
|
Wealth
|
|
|
|
|
|
|
115
|
|
|
|
|
|
|
|
|
108
|
|
|
108
|
|
Net income
|
|
|
|
|
|
|
696
|
|
|
|
|
|
|
|
|
867
|
|
|
432
|
|
1 Present
value of new business premiums. Further information on page
125.
2 Includes
£91 million regulatory fine relating to the way the Group
historically communicated with home insurance customers regarding
their renewals. Excluding the fine this ratio was 84 per
cent.
3 Equivalent
estimated regulatory view of ratio (including With Profits funds)
was 153 per cent (30 June 2020:
144 per cent).
CENTRAL ITEMS†
|
Half-year to 30 June 2021
|
|
|
Half-year
to 30 June 2020
|
|
|
Change
|
|
Half-year
to 31 Dec
2020
|
|
|
Change
|
|
£m
|
|
|
£m
|
|
|
%
|
|
£m
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
279
|
|
|
40
|
|
|
|
|
183
|
|
|
52
|
Operating costs
|
(40)
|
|
|
(57)
|
|
|
30
|
|
(14)
|
|
|
|
Remediation
|
13
|
|
|
7
|
|
|
86
|
|
(1)
|
|
|
|
Total costs
|
(27)
|
|
|
(50)
|
|
|
46
|
|
(15)
|
|
|
(80)
|
Underlying profit (loss) before impairment
|
252
|
|
|
(10)
|
|
|
|
|
168
|
|
|
50
|
Impairment
|
1
|
|
|
(194)
|
|
|
|
|
(196)
|
|
|
|
Underlying profit (loss)
|
253
|
|
|
(204)
|
|
|
|
|
(28)
|
|
|
|
Central items includes income and expenditure not attributed to
divisions, including residual net interest income after transfer
pricing (including the central recovery of the Group's
distributions on other equity instruments), in period gains from
gilt sales and the unwind of associated hedging costs, as well as
the Group's equities business, including Lloyds Development Capital
and the Business Growth Fund.
Net income in the period of £279 million improved by £239
million on the first six months of 2020 largely due to the
non-recurrence of negative coronavirus-related revaluations taken
in 2020 and strong performance in the equities businesses in the
first half of 2021. Other income also included a significantly
reduced gain of £23 million (half-year to 30 June 2020:
£135 million) on the sale of gilts and other liquid
assets.
Impairment for the period was a credit of £1 million compared
to a charge of £194 million in the first half of 2020 and a
charge of £196 million in the second half of 2020. The
impairment charge for the first and second halves of 2020 included
£200 million in each period in respect of uncertainty in the
economic outlook not captured within modelled ECL
allowances.
OTHER FINANCIAL INFORMATION
1. Reconciliation
between statutory and underlying basis financial
information
The tables below set out the reconciliation from the statutory
results to the underlying basis results, the principles of which
are set out in the basis of presentation.
|
|
|
|
Removal of:
|
|
|
|
|
Statutory
basis
|
|
|
Volatility
and other
items1,2,3
|
|
|
Insurance
gross up4
|
|
|
PPI
|
|
|
Underlying
basis†
|
|
Half-year to 30 June 2021
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
4,373
|
|
|
107
|
|
|
938
|
|
|
-
|
|
|
5,418
|
|
Other income, net of insurance claims
|
3,706
|
|
|
(263)
|
|
|
(1,026)
|
|
|
-
|
|
|
2,417
|
|
Operating lease depreciation
|
|
|
|
(271)
|
|
|
-
|
|
|
-
|
|
|
(271)
|
|
Net income
|
8,079
|
|
|
(427)
|
|
|
(88)
|
|
|
-
|
|
|
7,564
|
|
Operating
expenses5
|
(4,897)
|
|
|
654
|
|
|
88
|
|
|
-
|
|
|
(4,155)
|
|
Impairment6
|
723
|
|
|
(67)
|
|
|
-
|
|
|
-
|
|
|
656
|
|
Profit (loss) before tax
|
3,905
|
|
|
160
|
|
|
-
|
|
|
-
|
|
|
4,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Half-year to 30 June 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
6,556
|
|
|
54
|
|
|
(1,132)
|
|
|
-
|
|
|
5,478
|
|
Other income, net of insurance claims
|
1,339
|
|
|
104
|
|
|
1,018
|
|
|
-
|
|
|
2,461
|
|
Operating lease depreciation
|
|
|
|
(526)
|
|
|
-
|
|
|
-
|
|
|
(526)
|
|
Net income
|
7,895
|
|
|
(368)
|
|
|
(114)
|
|
|
-
|
|
|
7,413
|
|
Operating
expenses5
|
(4,668)
|
|
|
689
|
|
|
103
|
|
|
-
|
|
|
(3,876)
|
|
Impairment6
|
(3,829)
|
|
|
-
|
|
|
11
|
|
|
-
|
|
|
(3,818)
|
|
Profit (loss) before tax
|
(602)
|
|
|
321
|
|
|
-
|
|
|
-
|
|
|
(281)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Half-year to 31 December 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
4,193
|
|
|
120
|
|
|
982
|
|
|
-
|
|
|
5,295
|
|
Other income, net of insurance claims
|
3,038
|
|
|
61
|
|
|
(1,045)
|
|
|
-
|
|
|
2,054
|
|
Operating lease depreciation
|
|
|
|
(358)
|
|
|
-
|
|
|
-
|
|
|
(358)
|
|
Net income
|
7,231
|
|
|
(177)
|
|
|
(63)
|
|
|
-
|
|
|
6,991
|
|
Operating
expenses5
|
(5,077)
|
|
|
833
|
|
|
71
|
|
|
85
|
|
|
(4,088)
|
|
Impairment6
|
(326)
|
|
|
(95)
|
|
|
(8)
|
|
|
-
|
|
|
(429)
|
|
Profit (loss) before tax
|
1,828
|
|
|
561
|
|
|
-
|
|
|
85
|
|
|
2,474
|
|
1 In
the half-year to 30 June 2021 this comprises the effects of market
volatility and asset sales (gain of £239 million); the
amortisation of purchased intangibles (£35 million);
restructuring (£255 million, including severance costs,
property transformation, technology research and development,
regulatory programmes and merger, acquisition and integration
costs); and fair value unwind (losses of £109
million).
2 In
the half-year to 30 June 2020 this comprises the effects of market
volatility and asset sales (loss of £43 million); the
amortisation of purchased intangibles (£34 million);
restructuring (£133 million, including severance costs,
property transformation, technology research and development,
regulatory programmes and merger, acquisition and integration
costs); and fair value unwind (losses of £111
million).
3 In
the half-year to 31 December 2020 this comprises the effects of
market volatility and asset sales (loss of £16 million); the
amortisation of purchased intangibles (£35 million);
restructuring (£388 million, including severance costs,
property transformation, technology research and development,
regulatory programmes and merger, acquisition and integration
costs); and fair value unwind (losses of £122
million).
4 The
Group's insurance businesses' income statements include income and
expense attributable to the policyholders of the Group's long-term
assurance funds. These items have no impact in total upon profit
attributable to equity shareholders and, to provide a clearer
representation of the underlying trends within the business, these
items are shown net within the underlying
results.
5 The
statutory basis figure is the aggregate of operating costs and
operating lease depreciation.
6 Certain
derivative valuation adjustments associated with credit-impaired
customers are included within the impairment charge on an
underlying basis but reported within other income, net of insurance
claims on a statutory basis.
OTHER FINANCIAL INFORMATION (continued)
1. Reconciliation between
statutory and underlying basis financial
information (continued)
The table below sets out the reconciliation from statutory profit
before tax to underlying profit before impairment.
|
Half-year to 30 June 2021
|
|
|
Half-year
to 30 June 2020
|
|
|
Half-year
to 31 Dec
2020
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
|
|
|
|
|
|
Statutory profit before tax
|
3,905
|
|
|
(602)
|
|
|
1,828
|
Impairment
|
(723)
|
|
|
3,829
|
|
|
326
|
Volatility
and other items1
|
227
|
|
|
321
|
|
|
656
|
Insurance gross up
|
-
|
|
|
(11)
|
|
|
8
|
Payment protection insurance
|
-
|
|
|
-
|
|
|
85
|
Underlying profit before impairment†
|
3,409
|
|
|
3,537
|
|
|
2,903
|
1 See
page 28.
2. Banking net interest
margin and average interest-earning assets†
|
Half-year to 30 June 2021
|
|
|
Half-year
to 30 June 2020
|
|
|
Half-year
to 31 Dec
2020
|
|
|
|
|
|
|
|
|
|
|
Group net interest income - statutory basis (£m)
|
4,373
|
|
|
6,556
|
|
|
4,193
|
|
Insurance gross up (£m)
|
938
|
|
|
(1,132)
|
|
|
982
|
|
Volatility and other items (£m)
|
107
|
|
|
54
|
|
|
120
|
|
Group net interest income - underlying basis (£m)
|
5,418
|
|
|
5,478
|
|
|
5,295
|
|
Non-banking
net interest expense (£m)
|
58
|
|
|
110
|
|
|
67
|
|
Banking net interest income - underlying basis
(£m)
|
5,476
|
|
|
5,588
|
|
|
5,362
|
|
|
|
|
|
|
|
|
|
|
Net loans and advances to customers (£bn)1
|
447.7
|
|
|
440.4
|
|
|
440.2
|
|
Impairment provision and fair value adjustments
(£bn)
|
5.1
|
|
|
6.6
|
|
|
6.3
|
|
Non-banking items:
|
|
|
|
|
|
|
|
|
Fee-based loans and advances (£bn)
|
(4.6)
|
|
|
(6.5)
|
|
|
(5.1)
|
|
Other non-banking (£bn)
|
(0.4)
|
|
|
(2.4)
|
|
|
(2.6)
|
|
Gross banking loans and advances (£bn)
|
447.8
|
|
|
438.1
|
|
|
438.8
|
|
Averaging
(£bn)
|
(7.0)
|
|
|
(4.9)
|
|
|
(2.2)
|
|
Average interest-earning banking assets (£bn)
|
440.8
|
|
|
433.2
|
|
|
436.6
|
|
|
|
|
|
|
|
|
|
|
Banking net interest margin (%)
|
2.50
|
|
|
2.59
|
|
|
2.44
|
|
1 Excludes
reverse repos.
OTHER FINANCIAL INFORMATION (continued)
3. Volatility arising in the insurance
business
Volatility included in the Group's statutory results before tax
comprises the following:
|
Half-year to 30 June 2021
|
|
|
Half-year
to 30 June 2020
|
|
|
Half-year
to 31 Dec
2020
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
Insurance volatility
|
275
|
|
|
(393)
|
|
|
173
|
|
Policyholder interests volatility
|
214
|
|
|
(205)
|
|
|
131
|
|
Total volatility
|
489
|
|
|
(598)
|
|
|
304
|
|
Insurance hedging arrangements
|
(340)
|
|
|
228
|
|
|
(156)
|
|
Total
|
149
|
|
|
(370)
|
|
|
148
|
|
The Group's insurance business has policyholder liabilities that
are supported by substantial holdings of investments. IFRS requires
that the changes in both the value of the liabilities and
investments are reflected within the income statement. The value of
the liabilities does not move exactly in line with changes in the
value of the investments. As the investments are substantial,
movements in their value can have a significant impact on the
profitability of the Group. Management believes that it is
appropriate to disclose the division's results on the basis of an
expected return. The impact of the actual return on these
investments differing from the expected return is included within
insurance volatility.
Insurance volatility movements in the first half of 2021 were
largely driven by an increase in global equity markets and
narrowing gilt spreads. Although the Group manages its exposures to
equity, interest rate, foreign currency exchange rate, inflation
and market movements within the Insurance division, it does so by
balancing the importance of managing the impacts on both capital
and earnings volatility. For example, equity market movements are
hedged within Insurance on a Solvency II capital basis and whilst
this also reduces the IFRS earnings exposure to equity market
movements, the hedge works to a lesser extent from an IFRS earnings
perspective.
4. Changes in insurance assumptions and
methodology
The following impacts from assumption changes are included within
Insurance and Wealth other operating income.
|
Half-year to 30 June 2021
|
|
Half-year
to 30 June 2020
|
|
Half-year
to 31 Dec
2020
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
Persistency
|
-
|
|
-
|
|
(74)
|
Mortality, longevity and morbidity
|
34
|
|
-
|
|
52
|
Expense assumptions
|
(29)
|
|
-
|
|
(124)
|
Other
|
22
|
|
-
|
|
(5)
|
Total assumption changes
|
27
|
|
-
|
|
(151)
|
Methodology changes
|
-
|
|
91
|
|
-
|
Total assumption and methodology changes
|
27
|
|
91
|
|
(151)
|
Key life and pensions assumptions and methodologies are formally
updated through the annual basis review in the fourth quarter of
each year. However, assumptions are monitored throughout the year
and are updated at half year where there is a compelling reason to
do so.
Current period changes reflect updated annuitant longevity
assumptions, increased future short-term committed expenditure on
specific projects and an update to reinsurance recovery
assumptions.
OTHER FINANCIAL INFORMATION (continued)
5. Tangible
net assets per share†
The table below sets out a reconciliation of the Group's
shareholders' equity to its tangible net assets.
|
At 30 June 2021
|
|
At 30 June 2020
|
|
At 31 Dec 2020
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
Ordinary shareholders' equity
|
45,761
|
|
42,734
|
|
43,278
|
|
Goodwill
|
(2,320)
|
|
(2,324)
|
|
(2,320)
|
|
Intangible assets
|
(4,299)
|
|
(3,985)
|
|
(4,140)
|
|
Purchased value of in-force business
|
(209)
|
|
(234)
|
|
(221)
|
|
Other, including deferred tax effects
|
552
|
|
309
|
|
459
|
|
Tangible net assets
|
39,485
|
|
36,500
|
|
37,056
|
|
|
|
|
|
|
|
|
Ordinary shares in issue, excluding own shares
|
70,956m
|
|
70,735m
|
|
70,812m
|
|
|
|
|
|
|
|
|
Tangible net assets per share
|
55.6p
|
|
51.6p
|
|
52.3p
|
|
6. Return
on tangible equity†
As announced at the full year results, the Group has revised its
definition of return on tangible equity. Statutory profit after tax
is adjusted to deduct profit attributable to non-controlling
interests and other equity holders and is divided by average
tangible equity.
|
Half-year to 30 June 2021
|
|
|
Half-year
to 30 June 2020
|
|
|
Half-year
to 31 Dec
2020
|
|
|
|
|
|
|
|
|
|
|
Average shareholders' equity (£bn)
|
44.2
|
|
|
43.7
|
|
|
43.1
|
|
Average intangible assets (£bn)
|
(6.3)
|
|
|
(6.2)
|
|
|
(6.3)
|
|
Average tangible equity (£bn)
|
37.9
|
|
|
37.5
|
|
|
36.8
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) attributable to ordinary shareholders
(£m)1
|
3,611
|
|
|
(234)
|
|
|
1,099
|
|
|
|
|
|
|
|
|
|
|
Return on tangible equity (%)1,†
|
19.2
|
|
|
(1.3)
|
|
|
5.9
|
|
1 Revised
basis, half-year to 30 June 2020 and half-year to 31 December 2020
restated.
OTHER FINANCIAL INFORMATION (continued)
7. Support
measures
Retail payment holiday
characteristics1
|
Mortgages
|
|
Cards
|
|
Loans
|
|
Motor
|
|
Total
|
|
000s
|
£bn
|
|
000s
|
£bn
|
|
000s
|
£bn
|
|
000s
|
£bn
|
|
000s
|
£bn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total payment holidays granted
|
491
|
59.1
|
|
341
|
1.7
|
|
304
|
2.4
|
|
161
|
2.0
|
|
1,297
|
65.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First payment holiday still in force
|
0
|
0.1
|
|
1
|
0.0
|
|
0
|
0.0
|
|
0
|
0.0
|
|
2
|
0.1
|
Matured payment holidays - repaying
|
460
|
55.2
|
|
290
|
1.4
|
|
274
|
2.2
|
|
149
|
1.8
|
|
1,173
|
60.6
|
Matured payment holidays - extended
|
2
|
0.2
|
|
1
|
0.0
|
|
1
|
0.0
|
|
1
|
0.0
|
|
5
|
0.3
|
Matured payment holidays - missed payment
|
29
|
3.6
|
|
48
|
0.2
|
|
29
|
0.2
|
|
11
|
0.2
|
|
116
|
4.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total matured
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matured payment holidays - repaying
|
94%
|
94%
|
|
85%
|
86%
|
|
90%
|
91%
|
|
92%
|
90%
|
|
91%
|
93%
|
Matured payment holidays - extended
|
0.3%
|
0.4%
|
|
0.3%
|
0.4%
|
|
0.2%
|
0.3
|
|
0.7%
|
1.1%
|
|
0.4%
|
0.4%
|
Matured payment holidays - missed payment
|
6%
|
6%
|
|
14%
|
14%
|
|
9%
|
9%
|
|
7%
|
9%
|
|
9%
|
6%
|
1 Mortgages,
credit cards and personal loans at 3 July 2021; Motor finance at 6
July 2021. Analysis of mortgage payment holidays excludes St James
Place, Intelligent Finance and Tesco; Motor finance payment
holidays excludes Lex Autolease. Total payment holidays granted are
equal to the sum of first payment holiday still in force and
matured payment holidays. Totals and percentages calculated using
unrounded numbers.
RISK MANAGEMENT
PRINCIPAL RISKS AND UNCERTAINTIES
The significant risks faced by the Group are detailed below. There
has been no change to the definition of these risks from those
disclosed in the Group's 2020 Annual Report and
Accounts.
The external risks faced by the Group may also impact the success
of delivering against the Group's long-term strategic objectives.
They include, but are not limited to the coronavirus pandemic,
global macro-economic conditions and regulatory
developments.
The coronavirus pandemic has had an impact on all risk types and
continues to be a major area of focus. The Group responded quickly
to the challenges faced, putting in place risk mitigation
strategies and refining investment and strategic plans. Transition
planning remains a key focus in ensuring that the Group continues
to protect colleagues and services to customers as the situation
continues to evolve and in ensuring that the lessons learned from
the pandemic are embedded into future working
practices.
The Group is participating in the 2021 Bank of England Biennial
Exploratory Scenario on Climate (CBES) for submission in October.
The scope is to consider credit losses under three different
temperature scenarios over a thirty year horizon, and the strategic
actions the Group could take to mitigate Climate Risk. The CBES may
be used to inform FPC and PRA supervision and will not be used to
set capital requirements.
The Group's principal risks and uncertainties are reviewed and
reported regularly to the Board in alignment with the Group's
Enterprise Risk Management Framework.
Climate - The risk
that the Group experiences losses and/or reputational damage as a
result of climate change, either directly or through its customers.
These losses may be realised from physical events, the required
adaptation in transitioning to a low carbon economy, or as a
consequence of the responses to managing these
changes.
Market - The risk
that the Group's capital or earnings profile is affected by adverse
market rates or prices, in particular interest rates and credit
spreads in the Banking business, interest rates, equity prices and
credit spreads in the Insurance business, and credit spreads in the
Group's defined benefit pension schemes.
Credit - The risk that
parties with whom the Group has contracted fail to meet their
financial obligations (both on and off- balance
sheet).
Funding and liquidity - Funding risk is defined as the risk that the Group
does not have sufficiently stable and diverse sources of funding or
the funding structure is inefficient. Liquidity risk is defined as
the risk that the Group has insufficient financial resources to
meet its commitments as they fall due, or can only secure them at
excessive cost.
Capital - The risk that
the Group has a sub-optimal quantity or quality of capital or that
capital is inefficiently deployed across the
Group.
Insurance underwriting - The risk of adverse developments in the timing,
frequency and severity of claims for insured/underwritten events
and in customer behaviour, leading to reductions in earnings and/or
value.
Change/execution - The
risk that, in delivering its change agenda, the Group fails to
ensure compliance with laws and regulation, maintain effective
customer service and availability and/or operation within the
Group's risk appetite.
Conduct - The risk of
customer detriment across the customer lifecycle including:
failures in product management, distribution and servicing
activities; from other risks materialising, or other activities
which could undermine the integrity of the market or distort
competition, leading to unfair customer outcomes, regulatory
censure, reputational damage or financial loss.
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
Data - The risk of the
Group failing to effectively govern, manage and control its data
(including data processed by third party suppliers), leading to
unethical decisions, poor customer outcomes, loss of value to the
Group and mistrust.
Governance - The risk that
the Group's organisational infrastructure fails to provide robust
oversight of decision-making and the control mechanisms to ensure
strategies and management instructions are implemented
effectively.
People - The risk that the
Group fails to provide an appropriate colleague and
customer-centric culture, supported by robust reward and wellbeing
policies and processes, effective leadership to manage colleague
resources, effective talent and succession management and robust
control to ensure all colleague-related requirements are
met.
Operational resilience - The risk that the Group fails to design resilience
into business operations, underlying infrastructure and controls
(people, process, technology) so that it is able to withstand
external or internal events which could impact the continuation of
operations and fails to respond in a way which meets customer and
stakeholder expectations and needs when the continuity of
operations is compromised.
Operational - The risk of
loss resulting from inadequate or failed internal processes, people
and systems or from external events.
Model - The risk of
financial loss, regulatory censure, reputational damage or customer
detriment, as a result of deficiencies in the development,
application or ongoing operation of models and rating
systems.
Regulatory and legal - The
risk of financial penalties, regulatory censure, criminal or civil
enforcement action or customer detriment as a result of failure to
identify, assess, correctly interpret, comply with, or manage
regulatory and/or legal requirements.
Strategic - The risk which
results from:
● Incorrect
assumptions about internal or external operating
environments
● Failure
to respond or the inappropriate strategic response to material
changes in the external or internal operating
environments
● Failure
to understand the potential impact of strategic responses and
business plans on existing risk types
CREDIT RISK PORTFOLIO
Overview
The Group has continued to actively support its customers
throughout the pandemic with a range of flexible options and
payment holidays across major products, as well as lending through
the various UK Government support schemes.
The macroeconomic outlook has improved and as the UK shows signs of
exiting the crisis, the Group's focus is now on supporting its
customers to recover.
The Group's lending portfolios were well positioned entering the
crisis and we retain a prudent approach to credit risk appetite and
risk management, with robust LTVs in our secured portfolios.
Considering the external environment, flows of assets into arrears,
defaults and write-off have remained at low levels.
It is recognised that Government support measures mean that the
true underlying risk may not be reflected in asset performance and
there is an expectation of increased arrears and defaults as these
various arrangements, designed to alleviate short-term financial
pressure, come to an end.
The Group has participated fully in UK Government lending schemes,
including the Bounce Back Loan Scheme and the Coronavirus Business
Interruption Loan Scheme, where UK Government guarantees are in
place at 100 per cent and 80 per cent, respectively.
Repayments under these schemes have started to become due, which
will be coupled with the withdrawal of Government support schemes
in the second half of 2021. The level of arrears is therefore being
carefully monitored, and the Group will continue to review customer
trends and indicators for early signs of distress.
The net impairment credit in the first half of 2021 was £656
million, compared to a charge of £3,818 million in the first
half of 2020. The first half credit resulted from an £837
million release of expected credit loss (ECL) allowances driven by
improvements to the macroeconomic outlook in the UK, combined with
robust credit performance, with a low run-rate impairment charge of
£252 million given the continued benign credit
environment.
As a result, the Group's ECL allowance on loans and advances to
customers reduced in the period from £6,832 million to
£5,555 million, of which £837 million resulted from
improvements to the economic outlook, including the impact of the
extension of the Government's Coronavirus Job Retention Scheme in
the first quarter of 2021. Reductions in Commercial Banking ECL
allowances also reflect improved outcomes on restructuring cases,
reduction in Stage 2 exposures and lower flows to
default.
Stage 2 loans and advances to customers reduced from £60,514
million to £54,129 million, and as a percentage of total
lending reduced by 1.3 percentage points to 10.7 per cent (31
December 2020: 12.0 per cent), predominantly reflecting the
improvement in the Group's forward looking macroeconomic
assumptions. Of these, 88.8 per cent are up to date
(31 December 2020: 88.9 per cent). Stage 2 coverage reduced to
3.8 per cent (31 December 2020: 4.5 per cent).
Stage 3 loans and advances reduced in the period to £8,616
million (31 December 2020: £9,089 million), and as a
percentage of total lending reduced to 1.7 per cent (31 December
2020: 1.8 per cent). Stage 3 coverage reduced by
3.0 percentage points to 25.6 per cent (31 December 2020: 28.6
per cent) largely driven by a small number of single name releases
in Commercial Banking, including on coronavirus impacted
restructuring cases and favourable asset price inflation benefiting
the UK Mortgages and UK Motor Finance portfolios in the Retail
division.
Prudent risk appetite and risk management
● The
Group continues to take a prudent approach to credit risk and a
through-the-cycle credit risk appetite, whilst working closely with
customers to help them through and recover from the
crisis
● Sector
and asset class concentrations within the portfolios are closely
monitored and controlled, with mitigating actions taken where
appropriate. Sector and product caps limit exposure to certain
higher risk and vulnerable sectors and asset
classes
● The
Group's effective risk management seeks to ensure early
identification and management of customers and counterparties who
may be showing signs of distress
● As
the UK starts to exit the crisis, the Group will continue to work
closely with its customers to ensure they receive the appropriate
level of support, including where repayments under the UK
Government scheme lending fall due
CREDIT RISK PORTFOLIO (continued)
Impairment charge by division - underlying basis
|
Half-year to 30 June 2021
|
|
|
Half-year
to 30 June 2020
|
|
|
Change
|
|
Half-year
to 31 Dec
2020
|
|
|
Change
|
|
£m
|
|
|
£m
|
|
|
%
|
|
£m
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
(175)
|
|
|
603
|
|
|
|
|
(125)
|
|
|
(40)
|
Credit
cards
|
67
|
|
|
656
|
|
|
90
|
|
144
|
|
|
53
|
Loans
and overdrafts
|
130
|
|
|
462
|
|
|
72
|
|
277
|
|
|
53
|
UK
Motor Finance
|
(40)
|
|
|
241
|
|
|
|
|
(15)
|
|
|
|
Other
|
1
|
|
|
133
|
|
|
|
|
8
|
|
|
88
|
Retail
|
(17)
|
|
|
2,095
|
|
|
|
|
289
|
|
|
|
SME
|
(146)
|
|
|
257
|
|
|
|
|
7
|
|
|
|
Other
|
(490)
|
|
|
1,262
|
|
|
|
|
(62)
|
|
|
|
Commercial Banking
|
(636)
|
|
|
1,519
|
|
|
|
|
(55)
|
|
|
|
Insurance and Wealth
|
(2)
|
|
|
10
|
|
|
|
|
(1)
|
|
|
|
Central items
|
(1)
|
|
|
194
|
|
|
|
|
196
|
|
|
|
Total impairment (credit) charge†
|
(656)
|
|
|
3,818
|
|
|
|
|
429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset
quality ratio†
|
(0.30)%
|
|
|
1.73%
|
|
|
(203)bp
|
|
0.19%
|
|
|
(49)bp
|
Credit Risk basis of presentation
The analyses which follow have been presented on two bases; the
statutory basis which is consistent with the presentation in the
Group's accounts and the underlying basis which is used for
internal management purposes. A reconciliation between the two
bases has been provided.
In the following statutory basis tables, purchased or originated
credit-impaired (POCI) assets include a fixed pool of mortgages
that were purchased as part of the HBOS acquisition at a deep
discount to face value reflecting credit losses incurred from the
point of origination to the date of acquisition. The residual
expected credit loss (ECL) allowance and resulting low coverage
ratio on POCI assets reflects further deterioration in the
creditworthiness from the date of acquisition. Over time, these
POCI assets will run off as the loans redeem, pay down or losses
are crystallised.
The Group uses the underlying basis to monitor the creditworthiness
of the lending portfolio and related ECL allowances because it
provides a better indication of the credit performance of the POCI
assets purchased as part of the HBOS acquisition. The underlying
basis assumes that the lending assets acquired as part of a
business combination were originated by the Group and are
classified as either Stage 1, 2 or 3 according to the change in
credit risk over the period since origination. Underlying ECL
allowances have been calculated accordingly.
CREDIT RISK PORTFOLIO (continued)
Group total expected credit loss allowance
|
Statutory basis
|
|
Underlying basis
|
|
At 30 June 2021
|
|
|
At 31 Dec 2020
|
|
|
At 30 June 2021
|
|
|
At 31 Dec 2020
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer related balances
|
|
|
|
|
|
|
|
|
|
|
|
Drawn
|
4,672
|
|
|
5,760
|
|
|
5,197
|
|
|
6,373
|
|
Undrawn
|
359
|
|
|
459
|
|
|
358
|
|
|
459
|
|
|
5,031
|
|
|
6,219
|
|
|
5,555
|
|
|
6,832
|
|
Other assets
|
27
|
|
|
28
|
|
|
27
|
|
|
28
|
|
Total ECL allowance
|
5,058
|
|
|
6,247
|
|
|
5,582
|
|
|
6,860
|
|
Reconciliation between statutory and underlying basis of Group
gross loans and advances to customers and expected credit loss
allowances on drawn balances
|
Gross loans and advances to customers
|
|
Expected credit loss allowances on drawn balances
|
|
Stage 1
|
|
|
Stage 2
|
|
|
Stage 3
|
|
|
POCI
|
|
|
Total
|
|
|
Stage 1
|
|
|
Stage 2
|
|
|
Stage 3
|
|
|
POCI
|
|
|
Total
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 30 June 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying basis
|
442,751
|
|
|
54,129
|
|
|
8,616
|
|
|
-
|
|
|
505,496
|
|
|
1,196
|
|
|
1,902
|
|
|
2,099
|
|
|
-
|
|
|
5,197
|
|
POCI assets
|
(1,854)
|
|
|
(8,100)
|
|
|
(2,433)
|
|
|
12,387
|
|
|
-
|
|
|
(2)
|
|
|
(269)
|
|
|
(420)
|
|
|
691
|
|
|
-
|
|
Acquisition fair value adjustment
|
27
|
|
|
5
|
|
|
1
|
|
|
(501)
|
|
|
(468)
|
|
|
(8)
|
|
|
(12)
|
|
|
(4)
|
|
|
(501)
|
|
|
(525)
|
|
|
(1,827)
|
|
|
(8,095)
|
|
|
(2,432)
|
|
|
11,886
|
|
|
(468)
|
|
|
(10)
|
|
|
(281)
|
|
|
(424)
|
|
|
190
|
|
|
(525)
|
|
Statutory basis
|
440,924
|
|
|
46,034
|
|
|
6,184
|
|
|
11,886
|
|
|
505,028
|
|
|
1,186
|
|
|
1,621
|
|
|
1,675
|
|
|
190
|
|
|
4,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underlying basis
|
435,526
|
|
|
60,514
|
|
|
9,089
|
|
|
-
|
|
|
505,129
|
|
|
1,385
|
|
|
2,493
|
|
|
2,495
|
|
|
-
|
|
|
6,373
|
|
POCI assets
|
(1,625)
|
|
|
(8,864)
|
|
|
(2,600)
|
|
|
13,089
|
|
|
-
|
|
|
(3)
|
|
|
(330)
|
|
|
(506)
|
|
|
839
|
|
|
-
|
|
Acquisition fair value adjustment
|
42
|
|
|
9
|
|
|
1
|
|
|
(578)
|
|
|
(526)
|
|
|
(10)
|
|
|
(18)
|
|
|
(7)
|
|
|
(578)
|
|
|
(613)
|
|
|
(1,583)
|
|
|
(8,855)
|
|
|
(2,599)
|
|
|
12,511
|
|
|
(526)
|
|
|
(13)
|
|
|
(348)
|
|
|
(513)
|
|
|
261
|
|
|
(613)
|
|
Statutory basis
|
433,943
|
|
|
51,659
|
|
|
6,490
|
|
|
12,511
|
|
|
504,603
|
|
|
1,372
|
|
|
2,145
|
|
|
1,982
|
|
|
261
|
|
|
5,760
|
|
CREDIT RISK PORTFOLIO (continued)
Movements in Group total expected credit loss allowance - statutory
basis
|
ECL at 30 June 2021
|
|
|
Net ECL
decrease
|
|
|
Write-offs
and other
|
|
|
Income
statement
charge (credit)
|
|
|
ECL at 31 Dec 2020
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
905
|
|
|
(122)
|
|
|
53
|
|
|
(175)
|
|
|
1,027
|
|
Credit
cards
|
802
|
|
|
(121)
|
|
|
(188)
|
|
|
67
|
|
|
923
|
|
Loans
and overdrafts
|
606
|
|
|
(109)
|
|
|
(167)
|
|
|
58
|
|
|
715
|
|
UK
Motor Finance
|
434
|
|
|
(67)
|
|
|
(27)
|
|
|
(40)
|
|
|
501
|
|
Other
|
211
|
|
|
(18)
|
|
|
(19)
|
|
|
1
|
|
|
229
|
|
Retail
|
2,958
|
|
|
(437)
|
|
|
(348)
|
|
|
(89)
|
|
|
3,395
|
|
SME
|
347
|
|
|
(155)
|
|
|
(9)
|
|
|
(146)
|
|
|
502
|
|
Other
|
1,303
|
|
|
(597)
|
|
|
(109)
|
|
|
(488)
|
|
|
1,900
|
|
Commercial Banking
|
1,650
|
|
|
(752)
|
|
|
(118)
|
|
|
(634)
|
|
|
2,402
|
|
Other
|
450
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
450
|
|
Total1
|
5,058
|
|
|
(1,189)
|
|
|
(466)
|
|
|
(723)
|
|
|
6,247
|
|
1 Total
ECL includes £27 million relating to other non
customer-related assets (31 December 2020: £28
million).
Movements in Group total expected credit loss allowance -
underlying basis
|
ECL at 30 June 2021
|
|
|
Net ECL
decrease
|
|
|
Write-offs
and other
|
|
|
Income
statement
charge (credit)
|
|
|
ECL at 31 Dec 2020
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
1,406
|
|
|
(199)
|
|
|
(24)
|
|
|
(175)
|
|
|
1,605
|
|
Credit
cards
|
825
|
|
|
(133)
|
|
|
(200)
|
|
|
67
|
|
|
958
|
|
Loans
and overdrafts
|
606
|
|
|
(109)
|
|
|
(239)
|
|
|
130
|
|
|
715
|
|
UK
Motor Finance
|
434
|
|
|
(67)
|
|
|
(27)
|
|
|
(40)
|
|
|
501
|
|
Other
|
211
|
|
|
(18)
|
|
|
(19)
|
|
|
1
|
|
|
229
|
|
Retail
|
3,482
|
|
|
(526)
|
|
|
(509)
|
|
|
(17)
|
|
|
4,008
|
|
SME
|
347
|
|
|
(155)
|
|
|
(9)
|
|
|
(146)
|
|
|
502
|
|
Other
|
1,303
|
|
|
(597)
|
|
|
(107)
|
|
|
(490)
|
|
|
1,900
|
|
Commercial Banking
|
1,650
|
|
|
(752)
|
|
|
(116)
|
|
|
(636)
|
|
|
2,402
|
|
Other
|
450
|
|
|
-
|
|
|
3
|
|
|
(3)
|
|
|
450
|
|
Total1
|
5,582
|
|
|
(1,278)
|
|
|
(622)
|
|
|
(656)
|
|
|
6,860
|
|
1 Total
ECL includes £27 million relating to other non
customer-related assets (31 December 2020:
£28 million).
CREDIT RISK PORTFOLIO (continued)
Group loans and advances to customers and expected credit loss
allowances - statutory basis
|
Stage 1
|
|
Stage 2
|
|
Stage 3
|
|
POCI
|
|
Total
|
|
Stage 2
as % of
total
|
|
Stage 3
as % of
total
|
At 30 June 2021
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
262,541
|
|
29,770
|
|
1,924
|
|
11,886
|
|
306,121
|
|
9.7
|
|
0.6
|
Credit
cards
|
10,956
|
|
2,936
|
|
323
|
|
-
|
|
14,215
|
|
20.7
|
|
2.3
|
Loans
and overdrafts
|
7,782
|
|
1,413
|
|
312
|
|
-
|
|
9,507
|
|
14.9
|
|
3.3
|
UK
Motor Finance
|
12,347
|
|
2,272
|
|
233
|
|
-
|
|
14,852
|
|
15.3
|
|
1.6
|
Other
|
18,074
|
|
1,203
|
|
244
|
|
-
|
|
19,521
|
|
6.2
|
|
1.2
|
Retail
|
311,700
|
|
37,594
|
|
3,036
|
|
11,886
|
|
364,216
|
|
10.3
|
|
0.8
|
SME
|
27,952
|
|
3,139
|
|
863
|
|
-
|
|
31,954
|
|
9.8
|
|
2.7
|
Other
|
46,292
|
|
5,265
|
|
2,215
|
|
-
|
|
53,772
|
|
9.8
|
|
4.1
|
Commercial Banking
|
74,244
|
|
8,404
|
|
3,078
|
|
-
|
|
85,726
|
|
9.8
|
|
3.6
|
Insurance and Wealth
|
877
|
|
36
|
|
63
|
|
-
|
|
976
|
|
3.7
|
|
6.5
|
Central
items1
|
54,103
|
|
-
|
|
7
|
|
-
|
|
54,110
|
|
-
|
|
-
|
Total gross lending
|
440,924
|
|
46,034
|
|
6,184
|
|
11,886
|
|
505,028
|
|
9.1
|
|
1.2
|
ECL allowance on drawn balances
|
(1,186)
|
|
(1,621)
|
|
(1,675)
|
|
(190)
|
|
(4,672)
|
|
|
|
|
Net balance sheet carrying value
|
439,738
|
|
44,413
|
|
4,509
|
|
11,696
|
|
500,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group ECL allowance (drawn and undrawn)
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
129
|
|
411
|
|
175
|
|
190
|
|
905
|
|
45.4
|
|
19.3
|
Credit
cards
|
200
|
|
462
|
|
140
|
|
-
|
|
802
|
|
57.6
|
|
17.5
|
Loans
and overdrafts
|
178
|
|
277
|
|
151
|
|
-
|
|
606
|
|
45.7
|
|
24.9
|
UK
Motor Finance2
|
154
|
|
129
|
|
151
|
|
-
|
|
434
|
|
29.7
|
|
34.8
|
Other
|
51
|
|
105
|
|
55
|
|
-
|
|
211
|
|
49.8
|
|
26.1
|
Retail
|
712
|
|
1,384
|
|
672
|
|
190
|
|
2,958
|
|
46.8
|
|
22.7
|
SME
|
106
|
|
129
|
|
112
|
|
-
|
|
347
|
|
37.2
|
|
32.3
|
Other
|
131
|
|
286
|
|
883
|
|
-
|
|
1,300
|
|
22.0
|
|
67.9
|
Commercial Banking
|
237
|
|
415
|
|
995
|
|
-
|
|
1,647
|
|
25.2
|
|
60.4
|
Insurance and Wealth
|
9
|
|
1
|
|
11
|
|
-
|
|
21
|
|
4.8
|
|
52.4
|
Central items
|
400
|
|
-
|
|
5
|
|
-
|
|
405
|
|
-
|
|
1.2
|
Total ECL allowance (drawn and undrawn)
|
1,358
|
|
1,800
|
|
1,683
|
|
190
|
|
5,031
|
|
35.8
|
|
33.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group ECL allowances (drawn and undrawn)
as a % of loans and advances to customers3
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
-
|
|
1.4
|
|
9.1
|
|
1.6
|
|
0.3
|
|
|
|
|
Credit
cards
|
1.8
|
|
15.7
|
|
55.3
|
|
-
|
|
5.7
|
|
|
|
|
Loans
and overdrafts
|
2.3
|
|
19.6
|
|
62.4
|
|
-
|
|
6.4
|
|
|
|
|
UK
Motor Finance
|
1.2
|
|
5.7
|
|
64.8
|
|
-
|
|
2.9
|
|
|
|
|
Other
|
0.3
|
|
8.7
|
|
41.4
|
|
-
|
|
1.1
|
|
|
|
|
Retail
|
0.2
|
|
3.7
|
|
24.1
|
|
1.6
|
|
0.8
|
|
|
|
|
SME
|
0.4
|
|
4.1
|
|
15.2
|
|
-
|
|
1.1
|
|
|
|
|
Other
|
0.3
|
|
5.4
|
|
40.0
|
|
-
|
|
2.4
|
|
|
|
|
Commercial Banking
|
0.3
|
|
4.9
|
|
33.7
|
|
-
|
|
1.9
|
|
|
|
|
Insurance and Wealth
|
1.0
|
|
2.8
|
|
17.5
|
|
-
|
|
2.2
|
|
|
|
|
Central items
|
0.7
|
|
-
|
|
71.4
|
|
-
|
|
0.7
|
|
|
|
|
Total ECL allowances (drawn and
undrawn) as a % of loans and advances to customers
|
0.3
|
|
3.9
|
|
29.0
|
|
1.6
|
|
1.0
|
|
|
|
|
1 Includes
reverse repos of £52.7 billion.
2 UK
Motor Finance for Stages 1 and 2 include £136 million relating
to provisions against residual values of vehicles subject to
finance leasing agreements. These provisions are included within
the calculation of coverage ratios.
3 Total
and Stage 3 ECL allowances as a percentage of drawn balances
exclude loans in recoveries in Credit cards of
£70 million, Loans and overdrafts of £70 million,
Retail other of £111 million, SME of £124 million and
Commercial Banking other of £5 million.
CREDIT RISK PORTFOLIO (continued)
Group loans and advances to customers and expected credit loss
allowances - statutory basis (continued)
|
Stage 1
|
|
Stage 2
|
|
Stage 3
|
|
POCI
|
|
Total
|
|
Stage 2
as % of
total
|
|
Stage 3
as % of
total
|
At 31
December 2020
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
251,418
|
|
29,018
|
|
1,859
|
|
12,511
|
|
294,806
|
|
9.8
|
|
0.6
|
Credit
cards
|
11,496
|
|
3,273
|
|
340
|
|
-
|
|
15,109
|
|
21.7
|
|
2.3
|
Loans
and overdrafts
|
7,710
|
|
1,519
|
|
307
|
|
-
|
|
9,536
|
|
15.9
|
|
3.2
|
UK
Motor Finance
|
12,786
|
|
2,216
|
|
199
|
|
-
|
|
15,201
|
|
14.6
|
|
1.3
|
Other
|
17,879
|
|
1,304
|
|
184
|
|
-
|
|
19,367
|
|
6.7
|
|
1.0
|
Retail
|
301,289
|
|
37,330
|
|
2,889
|
|
12,511
|
|
354,019
|
|
10.5
|
|
0.8
|
SME
|
27,015
|
|
4,500
|
|
791
|
|
-
|
|
32,306
|
|
13.9
|
|
2.4
|
Other
|
43,543
|
|
9,816
|
|
2,733
|
|
-
|
|
56,092
|
|
17.5
|
|
4.9
|
Commercial Banking
|
70,558
|
|
14,316
|
|
3,524
|
|
-
|
|
88,398
|
|
16.2
|
|
4.0
|
Insurance and Wealth
|
832
|
|
13
|
|
70
|
|
-
|
|
915
|
|
1.4
|
|
7.7
|
Central
items1
|
61,264
|
|
-
|
|
7
|
|
-
|
|
61,271
|
|
-
|
|
-
|
Total gross lending
|
433,943
|
|
51,659
|
|
6,490
|
|
12,511
|
|
504,603
|
|
10.2
|
|
1.3
|
ECL allowance on drawn balances
|
(1,372)
|
|
(2,145)
|
|
(1,982)
|
|
(261)
|
|
(5,760)
|
|
|
|
|
Net balance sheet carrying value
|
432,571
|
|
49,514
|
|
4,508
|
|
12,250
|
|
498,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group ECL allowance (drawn and undrawn)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
107
|
|
468
|
|
191
|
|
261
|
|
1,027
|
|
45.6
|
|
18.6
|
Credit
cards
|
240
|
|
530
|
|
153
|
|
-
|
|
923
|
|
57.4
|
|
16.6
|
Loans
and overdrafts
|
224
|
|
344
|
|
147
|
|
-
|
|
715
|
|
48.1
|
|
20.6
|
UK
Motor Finance2
|
197
|
|
171
|
|
133
|
|
-
|
|
501
|
|
34.1
|
|
26.5
|
Other
|
46
|
|
124
|
|
59
|
|
-
|
|
229
|
|
54.1
|
|
25.8
|
Retail
|
814
|
|
1,637
|
|
683
|
|
261
|
|
3,395
|
|
48.2
|
|
20.1
|
SME
|
142
|
|
234
|
|
126
|
|
-
|
|
502
|
|
46.6
|
|
25.1
|
Other
|
217
|
|
507
|
|
1,169
|
|
-
|
|
1,893
|
|
26.8
|
|
61.8
|
Commercial Banking
|
359
|
|
741
|
|
1,295
|
|
-
|
|
2,395
|
|
30.9
|
|
54.1
|
Insurance and Wealth
|
11
|
|
1
|
|
11
|
|
-
|
|
23
|
|
4.3
|
|
47.8
|
Central items
|
400
|
|
-
|
|
6
|
|
-
|
|
406
|
|
-
|
|
1.5
|
Total ECL allowance (drawn and undrawn)
|
1,584
|
|
2,379
|
|
1,995
|
|
261
|
|
6,219
|
|
38.3
|
|
32.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
ECL allowances (drawn and undrawn)
as a %
of loans and advances to customers3
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
-
|
|
1.6
|
|
10.3
|
|
2.1
|
|
0.3
|
|
|
|
|
Credit
cards
|
2.1
|
|
16.2
|
|
56.0
|
|
-
|
|
6.1
|
|
|
|
|
Loans
and overdrafts
|
2.9
|
|
22.6
|
|
64.2
|
|
-
|
|
7.6
|
|
|
|
|
UK
Motor Finance
|
1.5
|
|
7.7
|
|
66.8
|
|
-
|
|
3.3
|
|
|
|
|
Other
|
0.3
|
|
9.5
|
|
39.3
|
|
-
|
|
1.2
|
|
|
|
|
Retail
|
0.3
|
|
4.4
|
|
25.2
|
|
2.1
|
|
1.0
|
|
|
|
|
SME
|
0.5
|
|
5.2
|
|
19.1
|
|
-
|
|
1.6
|
|
|
|
|
Other
|
0.5
|
|
5.2
|
|
42.9
|
|
-
|
|
3.4
|
|
|
|
|
Commercial Banking
|
0.5
|
|
5.2
|
|
38.2
|
|
-
|
|
2.7
|
|
|
|
|
Insurance and Wealth
|
1.3
|
|
7.7
|
|
15.7
|
|
-
|
|
2.5
|
|
|
|
|
Central items
|
0.7
|
|
-
|
|
85.7
|
|
-
|
|
0.7
|
|
|
|
|
Total ECL allowances (drawn and
undrawn) as a % of loans and advances
to customers
|
0.4
|
|
4.6
|
|
32.3
|
|
2.1
|
|
1.2
|
|
|
|
|
1 Includes
reverse repos of £58.6 billion.
2 UK
Motor Finance for Stages 1 and 2 include £192 million relating
to provisions against residual values of vehicles subject to
finance leasing agreements. These provisions are included within
the calculation of coverage ratios.
3 Total
and Stage 3 ECL allowances as a percentage of drawn balances
exclude loans in recoveries in Credit cards of
£67 million, Loans and overdrafts of £78 million,
Retail other of £34 million, SME of £132 million and
Commercial Banking other of £6 million.
CREDIT RISK PORTFOLIO (continued)
Group loans and advances to customers and expected credit loss
allowances - underlying basis
|
Stage 1
|
|
Stage 2
|
|
Stage 3
|
|
Total
|
|
Stage 2
as % of
total
|
|
Stage 3
as % of
total
|
At 30 June 2021
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
264,395
|
|
37,870
|
|
4,357
|
|
306,622
|
|
12.4
|
|
1.4
|
Credit
cards
|
10,929
|
|
2,931
|
|
322
|
|
14,182
|
|
20.7
|
|
2.3
|
Loans
and overdrafts
|
7,782
|
|
1,413
|
|
312
|
|
9,507
|
|
14.9
|
|
3.3
|
UK
Motor Finance
|
12,347
|
|
2,272
|
|
233
|
|
14,852
|
|
15.3
|
|
1.6
|
Other
|
18,074
|
|
1,203
|
|
244
|
|
19,521
|
|
6.2
|
|
1.2
|
Retail1
|
313,527
|
|
45,689
|
|
5,468
|
|
364,684
|
|
12.5
|
|
1.5
|
SME
|
27,952
|
|
3,139
|
|
863
|
|
31,954
|
|
9.8
|
|
2.7
|
Other
|
46,292
|
|
5,265
|
|
2,215
|
|
53,772
|
|
9.8
|
|
4.1
|
Commercial Banking
|
74,244
|
|
8,404
|
|
3,078
|
|
85,726
|
|
9.8
|
|
3.6
|
Insurance and Wealth
|
877
|
|
36
|
|
63
|
|
976
|
|
3.7
|
|
6.5
|
Central
items2
|
54,103
|
|
-
|
|
7
|
|
54,110
|
|
-
|
|
-
|
Total gross lending
|
442,751
|
|
54,129
|
|
8,616
|
|
505,496
|
|
10.7
|
|
1.7
|
ECL allowance on drawn balances
|
(1,196)
|
|
(1,902)
|
|
(2,099)
|
|
(5,197)
|
|
|
|
|
Net balance sheet carrying value
|
441,555
|
|
52,227
|
|
6,517
|
|
500,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group ECL allowance (drawn and undrawn)
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
131
|
|
680
|
|
595
|
|
1,406
|
|
48.4
|
|
42.3
|
Credit
cards
|
206
|
|
474
|
|
145
|
|
825
|
|
57.5
|
|
17.6
|
Loans
and overdrafts
|
178
|
|
277
|
|
151
|
|
606
|
|
45.7
|
|
24.9
|
UK
Motor Finance3
|
154
|
|
129
|
|
151
|
|
434
|
|
29.7
|
|
34.8
|
Other
|
51
|
|
105
|
|
55
|
|
211
|
|
49.8
|
|
26.1
|
Retail1
|
720
|
|
1,665
|
|
1,097
|
|
3,482
|
|
47.8
|
|
31.5
|
SME
|
106
|
|
129
|
|
112
|
|
347
|
|
37.2
|
|
32.3
|
Other
|
131
|
|
286
|
|
883
|
|
1,300
|
|
22.0
|
|
67.9
|
Commercial Banking
|
237
|
|
415
|
|
995
|
|
1,647
|
|
25.2
|
|
60.4
|
Insurance and Wealth
|
9
|
|
1
|
|
11
|
|
21
|
|
4.8
|
|
52.4
|
Central items
|
400
|
|
-
|
|
5
|
|
405
|
|
-
|
|
1.2
|
Total ECL allowance (drawn and undrawn)
|
1,366
|
|
2,081
|
|
2,108
|
|
5,555
|
|
37.5
|
|
37.9
|
|
|
|
|
|
|
|
|
|
|
|
|
Group ECL allowances (drawn and undrawn) as a
% of loans and advances to customers4
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
-
|
|
1.8
|
|
13.7
|
|
0.5
|
|
|
|
|
Credit
cards
|
1.9
|
|
16.2
|
|
57.5
|
|
5.8
|
|
|
|
|
Loans
and overdrafts
|
2.3
|
|
19.6
|
|
62.4
|
|
6.4
|
|
|
|
|
UK
Motor Finance
|
1.2
|
|
5.7
|
|
64.8
|
|
2.9
|
|
|
|
|
Other
|
0.3
|
|
8.7
|
|
41.4
|
|
1.1
|
|
|
|
|
Retail1
|
0.2
|
|
3.6
|
|
21.0
|
|
1.0
|
|
|
|
|
SME
|
0.4
|
|
4.1
|
|
15.2
|
|
1.1
|
|
|
|
|
Other
|
0.3
|
|
5.4
|
|
40.0
|
|
2.4
|
|
|
|
|
Commercial Banking
|
0.3
|
|
4.9
|
|
33.7
|
|
1.9
|
|
|
|
|
Insurance and Wealth
|
1.0
|
|
2.8
|
|
17.5
|
|
2.2
|
|
|
|
|
Central items
|
0.7
|
|
-
|
|
71.4
|
|
0.7
|
|
|
|
|
Total ECL allowances (drawn and undrawn) as a
% of loans and advances to customers
|
0.3
|
|
3.8
|
|
25.6
|
|
1.1
|
|
|
|
|
1 Retail
balances exclude the impact of the HBOS and MBNA acquisition
related adjustments.
2 Includes
reverse repos of £52.7 billion.
3 UK
Motor Finance for Stages 1 and 2 include £136 million relating
to provisions against residual values of vehicles subject to
finance leasing agreements. These provisions are included within
the calculation of coverage ratios.
4 Total
and Stage 3 ECL allowances as a percentage of drawn balances
exclude loans in recoveries in Credit cards of
£70 million, Loans and overdrafts of £70 million,
Retail other of £111 million, SME of £124 million and
Commercial Banking other of £5 million.
CREDIT RISK PORTFOLIO (continued)
Group loans and advances to customers and expected credit loss
allowances - underlying basis (continued)
|
Stage 1
|
|
Stage 2
|
|
Stage 3
|
|
Total
|
|
Stage 2
as % of
total
|
|
Stage 3
as % of
total
|
At 31
December 2020
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to customers
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
253,043
|
|
37,882
|
|
4,459
|
|
295,384
|
|
12.8
|
|
1.5
|
Credit
cards
|
11,454
|
|
3,264
|
|
339
|
|
15,057
|
|
21.7
|
|
2.3
|
Loans
and overdrafts
|
7,710
|
|
1,519
|
|
307
|
|
9,536
|
|
15.9
|
|
3.2
|
UK
Motor Finance
|
12,786
|
|
2,216
|
|
199
|
|
15,201
|
|
14.6
|
|
1.3
|
Other
|
17,879
|
|
1,304
|
|
184
|
|
19,367
|
|
6.7
|
|
1.0
|
Retail1
|
302,872
|
|
46,185
|
|
5,488
|
|
354,545
|
|
13.0
|
|
1.5
|
SME
|
27,015
|
|
4,500
|
|
791
|
|
32,306
|
|
13.9
|
|
2.4
|
Other
|
43,543
|
|
9,816
|
|
2,733
|
|
56,092
|
|
17.5
|
|
4.9
|
Commercial Banking
|
70,558
|
|
14,316
|
|
3,524
|
|
88,398
|
|
16.2
|
|
4.0
|
Insurance and Wealth
|
832
|
|
13
|
|
70
|
|
915
|
|
1.4
|
|
7.7
|
Central
items2
|
61,264
|
|
-
|
|
7
|
|
61,271
|
|
-
|
|
-
|
Total gross lending
|
435,526
|
|
60,514
|
|
9,089
|
|
505,129
|
|
12.0
|
|
1.8
|
ECL allowance on drawn balances
|
(1,385)
|
|
(2,493)
|
|
(2,495)
|
|
(6,373)
|
|
|
|
|
Net balance sheet carrying value
|
434,141
|
|
58,021
|
|
6,594
|
|
498,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group ECL allowance (drawn and undrawn)
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
110
|
|
798
|
|
697
|
|
1,605
|
|
49.7
|
|
43.4
|
Credit
cards
|
250
|
|
548
|
|
160
|
|
958
|
|
57.2
|
|
16.7
|
Loans
and overdrafts
|
224
|
|
344
|
|
147
|
|
715
|
|
48.1
|
|
20.6
|
UK
Motor Finance3
|
197
|
|
171
|
|
133
|
|
501
|
|
34.1
|
|
26.5
|
Other
|
46
|
|
124
|
|
59
|
|
229
|
|
54.1
|
|
25.8
|
Retail1
|
827
|
|
1,985
|
|
1,196
|
|
4,008
|
|
49.5
|
|
29.8
|
SME
|
142
|
|
234
|
|
126
|
|
502
|
|
46.6
|
|
25.1
|
Other
|
217
|
|
507
|
|
1,169
|
|
1,893
|
|
26.8
|
|
61.8
|
Commercial Banking
|
359
|
|
741
|
|
1,295
|
|
2,395
|
|
30.9
|
|
54.1
|
Insurance and Wealth
|
11
|
|
1
|
|
11
|
|
23
|
|
4.3
|
|
47.8
|
Central items
|
400
|
|
-
|
|
6
|
|
406
|
|
-
|
|
1.5
|
Total ECL allowance (drawn and undrawn)
|
1,597
|
|
2,727
|
|
2,508
|
|
6,832
|
|
39.9
|
|
36.7
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
ECL allowances (drawn and undrawn) as a
% of
loans and advances to customers4
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
-
|
|
2.1
|
|
15.6
|
|
0.5
|
|
|
|
|
Credit
cards
|
2.2
|
|
16.8
|
|
58.8
|
|
6.4
|
|
|
|
|
Loans
and overdrafts
|
2.9
|
|
22.6
|
|
64.2
|
|
7.6
|
|
|
|
|
UK
Motor Finance
|
1.5
|
|
7.7
|
|
66.8
|
|
3.3
|
|
|
|
|
Other
|
0.3
|
|
9.5
|
|
39.3
|
|
1.2
|
|
|
|
|
Retail1
|
0.3
|
|
4.3
|
|
22.5
|
|
1.1
|
|
|
|
|
SME
|
0.5
|
|
5.2
|
|
19.1
|
|
1.6
|
|
|
|
|
Other
|
0.5
|
|
5.2
|
|
42.9
|
|
3.4
|
|
|
|
|
Commercial Banking
|
0.5
|
|
5.2
|
|
38.2
|
|
2.7
|
|
|
|
|
Insurance and Wealth
|
1.3
|
|
7.7
|
|
15.7
|
|
2.5
|
|
|
|
|
Central items
|
0.7
|
|
-
|
|
85.7
|
|
0.7
|
|
|
|
|
Total ECL allowances (drawn and undrawn) as a
% of loans and advances to customers
|
0.4
|
|
4.5
|
|
28.6
|
|
1.4
|
|
|
|
|
1 Retail
balances exclude the impact of the HBOS and MBNA acquisition
related adjustments.
2 Includes
reverse repos of £58.6 billion.
3 UK
Motor Finance ECL for Stages 1 and 2 include £192 million
relating to provisions against residual values of vehicles subject
to finance leasing agreements. These provisions are included within
the calculation of coverage ratios.
4 Total
and Stage 3 ECL allowances as a percentage of drawn balances
exclude loans in recoveries in Credit cards of
£67 million, Loans and overdrafts of £78 million,
Retail other of £34 million, SME of £132 million and
Commercial Banking other of £6 million.
CREDIT RISK PORTFOLIO (continued)
Group Stage 2 loans and advances to customers - statutory
basis
|
Up to date
|
|
1-30 days
past due2
|
|
Over 30 days
past due
|
|
Total
|
|
PD movements
|
|
Other1
|
|
|
|
Gross
lending
|
|
ECL3
|
|
Gross
lending
|
|
ECL3
|
|
Gross
lending
|
|
ECL3
|
|
Gross
lending
|
|
ECL3
|
|
Gross
lending
|
|
ECL3
|
At 30 June 2021
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
23,034
|
|
191
|
|
3,630
|
|
122
|
|
1,491
|
|
32
|
|
1,615
|
|
66
|
|
29,770
|
|
411
|
Credit
cards
|
2,640
|
|
356
|
|
189
|
|
68
|
|
77
|
|
22
|
|
30
|
|
16
|
|
2,936
|
|
462
|
Loans
and overdrafts
|
854
|
|
162
|
|
396
|
|
54
|
|
127
|
|
43
|
|
36
|
|
18
|
|
1,413
|
|
277
|
UK
Motor Finance
|
966
|
|
47
|
|
1,148
|
|
39
|
|
122
|
|
29
|
|
36
|
|
14
|
|
2,272
|
|
129
|
Other
|
494
|
|
58
|
|
586
|
|
33
|
|
64
|
|
9
|
|
59
|
|
5
|
|
1,203
|
|
105
|
Retail
|
27,988
|
|
814
|
|
5,949
|
|
316
|
|
1,881
|
|
135
|
|
1,776
|
|
119
|
|
37,594
|
|
1,384
|
SME
|
2,866
|
|
118
|
|
178
|
|
6
|
|
24
|
|
2
|
|
71
|
|
3
|
|
3,139
|
|
129
|
Other
|
5,028
|
|
281
|
|
89
|
|
1
|
|
56
|
|
3
|
|
92
|
|
1
|
|
5,265
|
|
286
|
Commercial Banking
|
7,894
|
|
399
|
|
267
|
|
7
|
|
80
|
|
5
|
|
163
|
|
4
|
|
8,404
|
|
415
|
Insurance and Wealth
|
17
|
|
-
|
|
18
|
|
1
|
|
-
|
|
-
|
|
1
|
|
-
|
|
36
|
|
1
|
Central items
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Total
|
35,899
|
|
1,213
|
|
6,234
|
|
324
|
|
1,961
|
|
140
|
|
1,940
|
|
123
|
|
46,034
|
|
1,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
22,569
|
|
215
|
|
3,078
|
|
131
|
|
1,648
|
|
43
|
|
1,723
|
|
79
|
|
29,018
|
|
468
|
Credit
cards
|
2,924
|
|
408
|
|
220
|
|
76
|
|
93
|
|
27
|
|
36
|
|
19
|
|
3,273
|
|
530
|
Loans
and overdrafts
|
959
|
|
209
|
|
388
|
|
68
|
|
126
|
|
45
|
|
46
|
|
22
|
|
1,519
|
|
344
|
UK
Motor Finance
|
724
|
|
62
|
|
1,321
|
|
55
|
|
132
|
|
37
|
|
39
|
|
17
|
|
2,216
|
|
171
|
Other
|
512
|
|
56
|
|
651
|
|
44
|
|
69
|
|
14
|
|
72
|
|
10
|
|
1,304
|
|
124
|
Retail
|
27,688
|
|
950
|
|
5,658
|
|
374
|
|
2,068
|
|
166
|
|
1,916
|
|
147
|
|
37,330
|
|
1,637
|
SME
|
4,229
|
|
219
|
|
150
|
|
6
|
|
40
|
|
5
|
|
81
|
|
4
|
|
4,500
|
|
234
|
Other
|
9,505
|
|
501
|
|
97
|
|
3
|
|
37
|
|
2
|
|
177
|
|
1
|
|
9,816
|
|
507
|
Commercial Banking
|
13,734
|
|
720
|
|
247
|
|
9
|
|
77
|
|
7
|
|
258
|
|
5
|
|
14,316
|
|
741
|
Insurance and Wealth
|
1
|
|
-
|
|
12
|
|
1
|
|
-
|
|
-
|
|
-
|
|
-
|
|
13
|
|
1
|
Central items
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Total
|
41,423
|
|
1,670
|
|
5,917
|
|
384
|
|
2,145
|
|
173
|
|
2,174
|
|
152
|
|
51,659
|
|
2,379
|
1 Includes
forbearance, client and product-specific indicators not reflected
within quantitative PD assessments.
2 Includes
assets that have triggered PD movements, or other rules, given that
being 1-29 days in arrears in and of itself is not a Stage 2
trigger.
3 Expected
credit loss allowances on loans and advances to customers (drawn
and undrawn).
CREDIT RISK PORTFOLIO (continued)
Group Stage 2 loans and advances to customers - underlying
basis
|
Up to date
|
|
1-30 days
past due2
|
|
Over 30 days past due
|
|
Total
|
|
PD movements
|
|
Other1
|
|
|
|
Gross
lending
|
|
ECL3
|
|
Gross
lending
|
|
ECL3
|
|
Gross
lending
|
|
ECL3
|
|
Gross
lending
|
|
ECL3
|
|
Gross
lending
|
|
ECL3
|
At 30 June 2021
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
27,971
|
|
305
|
|
4,606
|
|
172
|
|
2,540
|
|
69
|
|
2,753
|
|
134
|
|
37,870
|
|
680
|
Credit
cards
|
2,636
|
|
366
|
|
188
|
|
69
|
|
77
|
|
23
|
|
30
|
|
16
|
|
2,931
|
|
474
|
Loans
and overdrafts
|
854
|
|
162
|
|
396
|
|
54
|
|
127
|
|
43
|
|
36
|
|
18
|
|
1,413
|
|
277
|
UK
Motor Finance
|
966
|
|
47
|
|
1,148
|
|
39
|
|
122
|
|
29
|
|
36
|
|
14
|
|
2,272
|
|
129
|
Other
|
494
|
|
58
|
|
586
|
|
33
|
|
64
|
|
9
|
|
59
|
|
5
|
|
1,203
|
|
105
|
Retail
|
32,921
|
|
938
|
|
6,924
|
|
367
|
|
2,930
|
|
173
|
|
2,914
|
|
187
|
|
45,689
|
|
1,665
|
SME
|
2,866
|
|
118
|
|
178
|
|
6
|
|
24
|
|
2
|
|
71
|
|
3
|
|
3,139
|
|
129
|
Other
|
5,028
|
|
281
|
|
89
|
|
1
|
|
56
|
|
3
|
|
92
|
|
1
|
|
5,265
|
|
286
|
Commercial Banking
|
7,894
|
|
399
|
|
267
|
|
7
|
|
80
|
|
5
|
|
163
|
|
4
|
|
8,404
|
|
415
|
Insurance and Wealth
|
17
|
|
-
|
|
18
|
|
1
|
|
-
|
|
-
|
|
1
|
|
-
|
|
36
|
|
1
|
Central items
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Total
|
40,832
|
|
1,337
|
|
7,209
|
|
375
|
|
3,010
|
|
178
|
|
3,078
|
|
191
|
|
54,129
|
|
2,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
Mortgages
|
28,049
|
|
354
|
|
4,067
|
|
189
|
|
2,663
|
|
82
|
|
3,103
|
|
173
|
|
37,882
|
|
798
|
Credit
cards
|
2,916
|
|
422
|
|
220
|
|
78
|
|
92
|
|
28
|
|
36
|
|
20
|
|
3,264
|
|
548
|
Loans
and overdrafts
|
959
|
|
209
|
|
388
|
|
68
|
|
126
|
|
45
|
|
46
|
|
22
|
|
1,519
|
|
344
|
UK
Motor Finance
|
724
|
|
62
|
|
1,321
|
|
55
|
|
132
|
|
37
|
|
39
|
|
17
|
|
2,216
|
|
171
|
Other
|
512
|
|
56
|
|
651
|
|
44
|
|
69
|
|
14
|
|
72
|
|
10
|
|
1,304
|
|
124
|
Retail
|
33,160
|
|
1,103
|
|
6,647
|
|
434
|
|
3,082
|
|
206
|
|
3,296
|
|
242
|
|
46,185
|
|
1,985
|
SME
|
4,229
|
|
219
|
|
150
|
|
6
|
|
40
|
|
5
|
|
81
|
|
4
|
|
4,500
|
|
234
|
Other
|
9,505
|
|
501
|
|
97
|
|
3
|
|
37
|
|
2
|
|
177
|
|
1
|
|
9,816
|
|
507
|
Commercial Banking
|
13,734
|
|
720
|
|
247
|
|
9
|
|
77
|
|
7
|
|
258
|
|
5
|
|
14,316
|
|
741
|
Insurance and Wealth
|
1
|
|
-
|
|
12
|
|
1
|
|
-
|
|
-
|
|
-
|
|
-
|
|
13
|
|
1
|
Central items
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Total
|
46,895
|
|
1,823
|
|
6,906
|
|
444
|
|
3,159
|
|
213
|
|
3,554
|
|
247
|
|
60,514
|
|
2,727
|
1 Includes
forbearance, client and product-specific indicators not reflected
within quantitative PD assessments.
2 Includes
assets that have triggered PD movements, or other rules, given that
being 1-29 days in arrears in and of itself is not a Stage 2
trigger.
3 Expected
credit loss allowances on loans and advances to customers (drawn
and undrawn).
CREDIT RISK PORTFOLIO (continued)
ECL sensitivity to economic assumptions
The measurement of ECL reflects an unbiased probability-weighted
range of possible future economic outcomes. The Group achieves this
by generating four economic scenarios to reflect the range of
outcomes; the central scenario reflects the Group's base case
assumptions used for medium-term planning purposes, an upside and a
downside scenario are also selected together with a severe downside
scenario. The base case, upside and downside scenarios carry a 30
per cent weighting; the severe downside is weighted at 10 per cent.
These assumptions can be found in note 2 on page
79 onwards.
The table below shows the Group's ECL for the upside, base case,
downside and severe downside scenarios. The stage allocation for an
asset is based on the overall scenario probability-weighted PD and
hence the Stage 2 allocation is constant across all the scenarios.
ECL applied through individual assessments and post-model
adjustments is reported flat against each economic scenario,
reflecting the basis on which they are evaluated.
Probability-
weighted
|
|
|
Upside
|
|
|
Base case
|
|
|
Downside
|
|
|
Severe
downside
|
|
Statutory basis
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK Mortgages
|
905
|
|
|
544
|
|
|
684
|
|
|
1,100
|
|
|
2,064
|
|
Other Retail
|
2,053
|
|
|
1,896
|
|
|
2,009
|
|
|
2,152
|
|
|
2,355
|
|
Commercial Banking
|
1,650
|
|
|
1,395
|
|
|
1,527
|
|
|
1,799
|
|
|
2,340
|
|
Other
|
450
|
|
|
448
|
|
|
450
|
|
|
450
|
|
|
454
|
|
At 30 June 2021
|
5,058
|
|
|
4,283
|
|
|
4,670
|
|
|
5,501
|
|
|
7,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK Mortgages
|
1,027
|
|
|
614
|
|
|
804
|
|
|
1,237
|
|
|
2,306
|
|
Other Retail
|
2,368
|
|
|
2,181
|
|
|
2,310
|
|
|
2,487
|
|
|
2,745
|
|
Commercial Banking
|
2,402
|
|
|
1,910
|
|
|
2,177
|
|
|
2,681
|
|
|
3,718
|
|
Other
|
450
|
|
|
448
|
|
|
450
|
|
|
450
|
|
|
456
|
|
At 31 December 2020
|
6,247
|
|
|
5,153
|
|
|
5,741
|
|
|
6,855
|
|
|
9,225
|
|
Probability-
weighted
|
|
|
Upside
|
|
|
Base case
|
|
|
Downside
|
|
|
Severe
downside
|
|
Underlying basis
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK Mortgages
|
1,406
|
|
|
1,045
|
|
|
1,185
|
|
|
1,601
|
|
|
2,565
|
|
Other Retail
|
2,076
|
|
|
1,919
|
|
|
2,032
|
|
|
2,175
|
|
|
2,378
|
|
Commercial Banking
|
1,650
|
|
|
1,395
|
|
|
1,527
|
|
|
1,799
|
|
|
2,340
|
|
Other
|
450
|
|
|
448
|
|
|
450
|
|
|
450
|
|
|
454
|
|
At 30 June 2021
|
5,582
|
|
|
4,807
|
|
|
5,194
|
|
|
6,025
|
|
|
7,737
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK Mortgages
|
1,605
|
|
|
1,192
|
|
|
1,382
|
|
|
1,815
|
|
|
2,884
|
|
Other Retail
|
2,403
|
|
|
2,216
|
|
|
2,345
|
|
|
2,522
|
|
|
2,780
|
|
Commercial Banking
|
2,402
|
|
|
1,910
|
|
|
2,177
|
|
|
2,681
|
|
|
3,718
|
|
Other
|
450
|
|
|
448
|
|
|
450
|
|
|
450
|
|
|
456
|
|
At 31 December 2020
|
6,860
|
|
|
5,766
|
|
|
6,354
|
|
|
7,468
|
|
|
9,838
|
|
CREDIT RISK PORTFOLIO (continued)
Retail
● The
Retail portfolio has remained robust and well positioned throughout
the coronavirus pandemic. Risk management has been enhanced since
the last financial crisis, with strong affordability and
indebtedness controls for both new and existing lending and a
prudent risk appetite approach. This is evident in the significant
improvement in credit quality and low arrears
rates
● The
Group has actively supported its Retail customers during the
pandemic, through a range of propositions, such as payment
holidays, while personal current account customers have had access
to up to £500 interest free arranged
overdrafts
● Nearly
1.3 million payment holidays, on £65.1 billion of lending,
have been granted on Retail products during the pandemic, with
c.7,000 remaining live. Over 93 per cent of expired payment
holidays have now resumed payments, while 6 per cent are either in
arrears or have been charged off
● The
Group has taken targeted steps across the Retail product offering
to implement tighter credit quality controls on key risk indicators
such as indebtedness and credit scores to ensure that customers and
the bank are protected
● Arrears
rates across the portfolios remain low despite expiry of almost all
payment holidays
● Although
the macroeconomic outlook has improved, customers have been
significantly impacted by the pandemic and credit performance is
expected to worsen in coming months, consistent with the Group's
economic assumptions, as the Government support measures come to an
end and unemployment rises
● The
Retail impairment credit in the first half of 2021 was £17
million, compared to a charge of £2,095 million in the first
half of 2020. This significant decrease resulted from a £544
million release of expected credit loss (ECL) allowances driven by
the UK's improved macroeconomic outlook, combined with a robust
observed credit performance, with charges relating to flows to
arrears and default remaining low despite expiry of almost all
payment holidays. This impact compares favourably to the
£1,517 million impairment charge to account for the
deterioration in the macroeconomic outlook over the first half of
2020
● Existing
IFRS 9 staging rules and triggers have been maintained across
Retail from year end 2020 with the exception of minor changes to
the Loans and Overdrafts portfolio to tighten criteria and align to
the Credit cards portfolio. Transfers between stages have been
primarily driven by credit risk rating movements and the estimated
impact of the economic factors on a customer's forward looking
default risk
● Total
Retail ECL allowance as a percentage of drawn loans and advances
(coverage) has reduced slightly to 1.0 per cent (31 December 2020:
1.1 per cent) following the updates in the Group's economic
forecast. As at 30 June 2021, 47.8 per cent of total Retail ECL is
reflected within Stage 2 under IFRS 9, representing cases which
have observed a Significant Increase in Credit Risk since
origination (SICR)
● Stage
2 loans and advances now comprise 12.5 per cent of the Retail
portfolio (31 December 2020: 13.0 per cent), of which 87.2 per cent
are up to date performing loans. Stage 2 ECL coverage has also
decreased to 3.6 per cent (31 December 2020: 4.3 per cent)
reflecting the improved macroeconomic outlook
● Stage
3 loans and advances have remained flat at 1.5 per cent of total
loans and advances (31 December 2020: 1.5 per cent), Stage 3
ECL coverage decreased to 21.0 per cent (31 December 2020: 22.5 per
cent) due to favourable asset price inflation (both observed and
forecast), benefiting the UK Mortgages and UK Motor Finance
portfolios in particular
CREDIT RISK PORTFOLIO (continued)
Portfolios
UK Mortgages
● The
UK Mortgages portfolio is well positioned with low arrears and a
low loan-to-value (LTV) profile. The Group has actively improved
the quality of the portfolio over recent years using robust
affordability and credit controls, whilst the balances of higher
risk portfolios originated prior to 2008 have continued to
reduce
● Whilst
the housing market has remained resilient through the pandemic with
continued strong customer demand, the Group has taken action to
protect credit quality and participates in the Government guarantee
scheme for greater than 90 per cent LTVs, which provides risk
mitigation at the highest exposures
● Total
loans and advances increased to £306.6 billion (31 December
2020: £295.4 billion), with a small reduction in average LTV
to 43.1 per cent (31 December 2020: 43.5 per cent). The proportion
of balances with an LTV greater than 90 per cent decreased to 0.4
per cent (31 December 2020: 0.6 per cent). The average LTV of new
business decreased to 63.1 per cent (31 December 2020: 63.9 per
cent)
● There
was a net impairment credit of £175 million for the first half
of 2021 compared to a charge of £603 million for the first
half of 2020, reflecting improvements to the UK's macroeconomic
outlook and in particular resilient house prices. Total ECL
coverage remains flat at 0.5 per cent (31 December 2020: 0.5 per
cent)
● Stage
2 loans and advances decreased to 12.4 per cent of the portfolio
(31 December 2020: 12.8 per cent), and Stage 2 ECL coverage has
reduced to 1.8 per cent (31 December 2020: 2.1 per cent). These
impacts also reflect improvements in the UK's macroeconomic
outlook, with a reduction in balances transferred into Stage 2
based on the forward looking view of their credit performance, in
addition to favourable experience and house price
assumptions
● Stage
3 ECL coverage decreased to 13.7 per cent (31 December 2020: 15.6
per cent) again due to favourable house price assumptions (both
observed and forecast)
Credit cards
● Credit
card balances decreased to £14.2 billion (31 December 2020:
£15.1 billion) due to reduced levels of customer
spending
● The
credit card portfolio is a prime book which has performed well in
recent years, with lower arrears rates compared to the High Street
Bank peer group
● The
impairment charge was £67 million for the first half of 2021
compared to a charge of £656 million for the first half of
2020, with overall ECL coverage decreasing to 5.8 per cent (31
December 2020: 6.4 per cent). These decreases are due to lower than
anticipated arrears emergence, in conjunction with the improved
outlook within the Group's economic forecast
● Stage
2 loans and advances have reduced to 20.7 per cent of the portfolio
(31 December 2020: 21.7 per cent) and Stage 2 ECL coverage has
reduced to 16.2 per cent (31 December 2020: 16.8 per cent). These
impacts reflect improvements in the UK's macroeconomic outlook,
most notably the more favourable unemployment
forecast
● Stage
3 ECL coverage decreased to 57.5 per cent (31 December 2020: 58.8
per cent) due to a slight improvement in the mix of customers
within Stage 3
Loans and overdrafts
● Loans
and advances for personal current account and the personal loans
portfolios held flat at £9.5 billion (31 December 2020:
£9.5 billion) with some early signs of recovery in customer
spend and demand for credit
● The
impairment charge was £130 million for the first half of 2021,
compared to £462 million for the first half of 2020. This
decrease is again partly due to the improved outlook within the
Group's macroeconomic forecasts in addition to lower than
anticipated arrears emergence, reducing both Stage 2 ECL coverage
to 19.6 per cent (31 December 2020: 22.6 per cent) and overall ECL
coverage to 6.4 per cent (31 December 2020: 7.6 per
cent)
CREDIT RISK PORTFOLIO (continued)
UK Motor Finance
● The
UK Motor Finance portfolio decreased to £14.9 billion (31
December 2020: £15.2 billion) due to reduced market activity
and new car supply issues as a result of the
pandemic
● There
was a net impairment credit of £40 million for the first half
of 2021 compared to a charge of £241 million for the first
half of 2020, reflecting improvements to the UK's macroeconomic
outlook and in particular higher than expected used car prices.
Overall ECL coverage has decreased to 2.9 per cent (31 December
2020: 3.3 per cent)
● Updates
to Residual Value (RV) and Voluntary Termination (VT) risk held
against Personal Contract Purchase (PCP) and Hire Purchase (HP)
lending are included within the impairment charge. The improved
macroeconomic outlook, supported by better than expected disposal
experience, resulted in a net impairment credit of £41 million
for RV and VT risk in the first half of 2021
● Stage
2 ECL coverage decreased to 5.7 per cent (31 December 2020: 7.7 per
cent) and Stage 3 ECL coverage decreased to 64.8 per cent (31
December 2020: 66.8 per cent) due to the impact from updates to the
Group's outlook on used car prices
Other
● Other
loans and advances increased to £19.5 billion (31 December
2020: £19.4 billion)
● The
impairment charge was £1 million for 2021 compared to
£133 million for the first half of 2020, primarily due to the
improved outlook within the Group's economic
forecasts
CREDIT RISK PORTFOLIO (continued)
Retail UK Mortgages loans and advances to customers - statutory
basis
|
At 30 June 20211
|
|
At 31
Dec 20201
|
|
£m
|
|
£m
|
|
|
|
|
Mainstream
|
245,147
|
|
234,273
|
Buy-to-let
|
50,907
|
|
49,634
|
Specialist
|
10,067
|
|
10,899
|
Total
|
306,121
|
|
294,806
|
1 Balances
include the impact of HBOS related acquisition
adjustments.
Mortgages greater than three months in arrears, excluding
repossessions - underlying basis
|
Number of cases
|
|
Total mortgage accounts
|
|
Value of loans1
|
|
Total mortgage balances
|
|
At 30 June 2021
|
|
At 31 Dec 2020
|
|
At 30 June 2021
|
|
At 31 Dec 2020
|
|
At 30 June 2021
|
|
At 31 Dec 2020
|
|
At 30 June 2021
|
|
At 31 Dec 2020
|
|
Cases
|
|
Cases
|
|
%
|
|
%
|
|
£m
|
|
£m
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mainstream
|
23,967
|
|
25,014
|
|
1.3
|
|
1.4
|
|
2,728
|
|
2,777
|
|
1.1
|
|
1.2
|
Buy-to-let
|
4,377
|
|
4,598
|
|
1.0
|
|
1.1
|
|
568
|
|
602
|
|
1.1
|
|
1.2
|
Specialist
|
5,983
|
|
6,294
|
|
7.6
|
|
7.6
|
|
1,002
|
|
1,056
|
|
9.8
|
|
9.6
|
Total
|
34,327
|
|
35,906
|
|
1.5
|
|
1.5
|
|
4,298
|
|
4,435
|
|
1.4
|
|
1.5
|
1 Value
of loans represents total gross book value of mortgages more than
three months in arrears; the balances exclude the impact of HBOS
acquisition adjustments.
The stock of repossessions decreased to 257 cases at 30 June 2021
compared to 343 cases at 31 December 2020.
CREDIT RISK PORTFOLIO (continued)
Period end and average LTVs across the Retail mortgage portfolios -
underlying basis
|
Mainstream
|
|
Buy-to-let
|
|
Specialist
|
|
Total
|
At 30 June 2021
|
%
|
|
%
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
Less than 60%
|
55.4
|
|
65.6
|
|
75.5
|
|
57.8
|
60% to 70%
|
18.9
|
|
25.0
|
|
14.9
|
|
19.8
|
70% to 80%
|
18.5
|
|
8.7
|
|
5.0
|
|
16.4
|
80% to 90%
|
6.8
|
|
0.4
|
|
1.5
|
|
5.6
|
90% to 100%
|
0.2
|
|
0.1
|
|
1.0
|
|
0.2
|
Greater than 100%
|
0.2
|
|
0.2
|
|
2.1
|
|
0.2
|
Total
|
100.0
|
|
100.0
|
|
100.0
|
|
100.0
|
Average
loan to value1:
|
|
|
|
|
|
|
|
Stock
of residential mortgages
|
42.2
|
|
48.8
|
|
39.2
|
|
43.1
|
New
residential lending
|
63.6
|
|
60.2
|
|
n/a
|
|
63.1
|
At 31 December 2020
|
|
|
|
|
|
|
|
Less than 60%
|
53.8
|
|
61.5
|
|
70.1
|
|
55.8
|
60% to 70%
|
18.3
|
|
25.0
|
|
16.1
|
|
19.3
|
70% to 80%
|
17.8
|
|
12.1
|
|
8.0
|
|
16.5
|
80% to 90%
|
9.6
|
|
0.9
|
|
2.3
|
|
7.8
|
90% to 100%
|
0.3
|
|
0.2
|
|
1.0
|
|
0.3
|
Greater than 100%
|
0.2
|
|
0.3
|
|
2.5
|
|
0.3
|
Total
|
100.0
|
|
100.0
|
|
100.0
|
|
100.0
|
Average
loan to value1:
|
|
|
|
|
|
|
|
Stock
of residential mortgages
|
42.5
|
|
49.7
|
|
40.9
|
|
43.5
|
New
residential lending
|
65.1
|
|
58.2
|
|
n/a
|
|
63.9
|
1 Average
loan to value is calculated as total loans and advances as a
percentage of the total indexed collateral of these loans and
advances; the balances exclude the impact of HBOS acquisition
adjustments.
CREDIT RISK PORTFOLIO (continued)
Commercial Banking
● Commercial
Banking has actively supported its customers throughout the crisis,
through a range of propositions, including capital repayment
holidays, working capital line increases and financial covenant
waivers, as well as supporting small businesses and corporates
through full use of UK Government schemes
● Although
the macroeconomic outlook has improved, the pandemic has resulted
in widespread industry disruption, with some sectors such as
travel, transportation, non-essential retail, leisure and
hospitality particularly impacted. However, as a proportion of the
Group's overall lending, exposure to these sectors remains
limited
● The
Group still expects recovery to be slower in a few of the impacted
sectors and anticipates longer term structural changes in these,
and a number of other sectors. Sector and credit risk appetite
continue to be proactively managed to ensure the Group is protected
and clients are supported in the right way
● Observed
credit quality has been broadly stable in the first half of 2021,
noting that this is likely to be influenced by the significant
temporary support provided by the UK Government in light of the
pandemic, which has had the potential to distort the underlying
credit risk profile, particularly in the predominantly secured SME
portfolio
● Commercial
Banking has continued to support its more vulnerable clients early
through focused risk management via the Group's Watchlist and
Business Support framework
● The
Group does anticipate a negative impact from the withdrawal of UK
Government support measures in the second half of 2021. This may
also be seen as repayments under UK Government support schemes
start to become due, with an increase in arrears and defaults
expected, consistent with macroeconomic expectations. It is
anticipated that these will be protracted over a number of years,
given the flexible payment deferral options available under the
various UK Government lending schemes. The level of arrears is
therefore being carefully monitored with early risk mitigation
activities taken as appropriate
● Although
significant uncertainties remain, the Group will continue to
balance prudent risk appetite with ensuring support for financially
viable clients on their road to recovery
Impairments
● There
was a net impairment credit of £636 million in the first half
of 2021, compared to a charge of £1,519 million in the first
half of 2020. The credit was driven by the £293 million
release of expected credit loss (ECL) allowances resulting from
improvements to the UK's macroeconomic outlook; improved
restructuring outcomes on cases managed within the Business Support
Unit and other Stage 3 releases; lower balance sheet and credit
quality improvements, including in Stage 2 exposures; and low
levels of gross charges from cases flowing into default. As a
result, ECL allowances reduced by £748 million to £1,647
million at 30 June 2021 (31 December 2020:
£2,395 million)
● The
Group recognises that credit quality has been partly supported by
the temporary measures provided by the UK Government schemes and
the ECL provision at 30 June 2021 assumes additional losses will
emerge as the support subsides and structural change emerges in
some sectors
● Stage
2 loans and advances reduced by £5,912 million to £8,404
million (31 December 2020: £14,316 million), largely driven by
the improvement in the Group's forward looking economic
assumptions, with 97.1 per cent of Stage 2 balances being current
and up to date. As a result, Stage 2 loans as a proportion of total
loans and advances to customers reduced to 9.8 per cent (31
December 2020: 16.2 per cent). Stage 2 ECL coverage was lower at
4.9 per cent (31 December 2020: 5.2 per cent) with the reduction in
coverage a direct result of the forward look multiple economic
scenarios
● Stage
3 loans and advances reduced to £3,078 million (31 December
2020: £3,524 million) and as a proportion of total loans and
advances to customers, reduced to 3.6 per cent (31 December 2020:
4.0 per cent). SME flows to Stage 3 remain suppressed and non-SME
flows were offset by repayments and write-offs. Stage 3 ECL
coverage reduced to 33.7 per cent (31 December 2020: 38.2 per cent)
predominantly driven by the release of provisions on a small number
of cases in Business Support, including coronavirus impacted
restructuring cases
CREDIT RISK PORTFOLIO (continued)
Commercial Banking UK Direct Real Estate
● Commercial
Banking UK Direct Real Estate gross lending stood at £12.1
billion at 30 June 2021 (net of exposures subject to protection
through Significant Risk Transfer (SRT) securitisations). The Group
has a further £0.8 billion of UK Direct Real Estate exposure
in Business Banking within the Retail division
● The
Group classifies Direct Real Estate as exposure which is directly
supported by cash flows from property activities (as opposed to
trading activities, such as hotels, care homes and housebuilders).
Exposures of £5.7 billion to social housing providers are also
excluded
● Recognising
this is a cyclical sector, caps are in place to control origination
and exposure, including a number of asset type categories. Focus
remains on the UK market and business propositions have been
written in line with a prudent, through-the-cycle risk appetite
with conservative LTVs, strong quality of income and proven
management teams
● Overall
performance has remained resilient. Watchlist numbers increased
through Q1 but have now stabilised. Transfers to BSU have been
limited and the BSU CRE portfolio is largely concentrated in the
retail/shopping centres sub sector, although this is reducing and
remains modest in the context of the overall BSU portfolio. Overall
rent collection has been impacted by the coronavirus pandemic,
particularly in the retail and leisure space given the impact of
lockdowns, though the office sub sector has been resilient. Despite
these challenges the portfolio is well positioned and proactively
managed with appropriate risk mitigants in place
- Exposures
over £1 million continue to be heavily weighted towards
investment real estate (c.90 per cent) over development. Of these
investment exposures, over 76 per cent have an LTV of less than 60
per cent, with an average LTV of 49 per cent
- c.90
per cent of exposures greater than £5 million have an interest
cover ratio of greater than 2.0 times and in SME, LTV at
origination has been typically limited to c.55 per cent, given
prudent repayment cover criteria (including a notional base rate
stress)
- Approximately
60 per cent of exposures over £1 million relate to commercial
real estate (with no speculative development lending) with the
remainder related to residential real estate. The underlying
sub-sector split is diversified with c.13.5 per cent of exposures
secured by Retail assets and appetite tightened since
2018
- The
Office portfolio is focused on prime locations with strong sponsors
and low LTVs, as well as no speculative commercial development.
Commercial risk appetite continues to be proactively managed with
appropriate risk mitigation tightening seen in the first half of
2021
- Use
of SRT securitisations also acts as a risk mitigant in this
portfolio, with run off of these carefully managed and
tracked
- Both
investment and development lending is subject to specific credit
risk appetite criteria. Development lending criteria include
maximum loan to gross development value and maximum loan to cost,
with funding typically only released against completed work, as
confirmed by the Group's monitoring quantity surveyor
CREDIT RISK PORTFOLIO (continued)
Commercial Banking lending in key
coronavirus-impacted sectors1
|
At 30 June 2021
|
|
At 31 December 2020
|
|
Drawn
|
|
Undrawn
|
|
Drawn and undrawn
|
|
Drawn as a % of loans and advances
|
|
Drawn
|
|
Undrawn
|
|
Drawn and undrawn
|
|
Drawn as a % of loans and advances
|
£bn
|
|
£bn
|
|
£bn
|
|
%
|
|
£bn
|
£bn
|
£bn
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail non-food
|
2.1
|
|
1.4
|
|
3.5
|
|
0.4
|
|
|
2.1
|
|
1.7
|
|
3.8
|
|
0.4
|
Automotive
dealerships2
|
1.3
|
|
2.1
|
|
3.4
|
|
0.2
|
|
|
1.8
|
|
2.0
|
|
3.8
|
|
0.4
|
Construction
|
0.8
|
|
1.5
|
|
2.3
|
|
0.2
|
|
|
0.8
|
|
1.7
|
|
2.5
|
|
0.2
|
Passenger transport
|
1.4
|
|
0.7
|
|
2.1
|
|
0.3
|
|
|
1.1
|
|
1.1
|
|
2.2
|
|
0.2
|
Hotels
|
1.5
|
|
0.3
|
|
1.8
|
|
0.3
|
|
|
1.8
|
|
0.3
|
|
2.1
|
|
0.4
|
Leisure
|
0.6
|
|
0.6
|
|
1.2
|
|
0.1
|
|
|
0.6
|
|
0.7
|
|
1.3
|
|
0.1
|
Restaurants and bars
|
0.5
|
|
0.4
|
|
0.9
|
|
0.1
|
|
|
0.6
|
|
0.5
|
|
1.1
|
|
0.1
|
Total
|
8.2
|
|
7.0
|
|
15.2
|
|
1.6
|
|
|
8.8
|
|
8.0
|
|
16.8
|
|
1.7
|
1 Lending
classified using ONS Standard Industrial Classification codes at
legal entity level; drawn balances exclude c.£1 billion
lending under the Coronavirus Business Interruption Loan Scheme and
the Bounce Back Loan Scheme. Oil and Gas has been removed as a key
coronavirus-impacted sector.
2 Automotive
dealerships includes Black Horse Motor Wholesale lending (within
the Retail Division).
FUNDING AND LIQUIDITY MANAGEMENT
The Group has maintained its strong funding and liquidity position
with a loan to deposit ratio of 94 per cent as at 30 June 2021
(98 per cent as at 31 December 2020). Customer deposits continued
to increase over the period as customer spending remained subdued.
This increased the Group's cash reserves held at the Bank of
England and allowed the Group to repay £5 billion of the Term
Funding Scheme with additional incentives for SMEs (TFSME) taking
the total outstanding amount to £8.7 billion as at 30 June
2021.
The Group's liquid assets continue to exceed the regulatory minimum
and internal risk appetite, with a liquidity coverage ratio (LCR)
of 131 per cent (based on a monthly rolling average over the
previous 12 months) as at 30 June 2021 calculated on a Group
consolidated basis based on the EU Delegated Act. Following the
implementation of structural reform, liquidity risk is managed at a
legal entity level with the Group consolidated LCR representing the
composite of the Ring-Fenced Bank and Non Ring-Fenced Bank
entities.
During the first half of the year, the Group continued to have
access to wholesale funding across a range of currencies and
markets. Year-to-date term funding issuance volumes total £2.1
billion which remains below the Group's normal guidance given the
availability of customer deposits and TFSME, both of which are more
cost effective sources of funding for the Group. The Group
continues to expect limited additional term funding needs over the
course of the second half of the year. Overall, wholesale funding
totalled £103.3 billion as at 30 June 2021.
The Group's credit ratings continue to reflect the resilience of
the Group's business model and the strength of the balance sheet.
In May, Fitch downgraded Lloyds Banking Group plc from A+/Negative
to A/Negative on a methodological adjustment reflecting the fact
that Qualifying Junior Debt ratios will remain below 10 per cent of
risk-weighted assets. This action led to a downgrade of the Long
Term Issuer Default and Insurer Financial Strength Ratings of
Scottish Widows (downgraded by one notch to A and A+ respectively).
The ratings of all bank subsidiaries were affirmed. During July,
Moody's finalised and updated their ratings methodology and used it
to drive a number of ratings changes for UK banks, including the
Senior and Subordinated ratings for Lloyds Banking Group and
Subordinated ratings for Lloyds Bank, which each saw one notch
upgrades. During
June and July, all ratings agencies returned the Group's ratings to
Stable to reflect better underlying UK economic expectations and
their belief that Lloyds is well positioned to benefit from the
macroeconomic recovery underway.
FUNDING AND LIQUIDITY MANAGEMENT (continued)
Group funding requirements and sources
|
At 30 June 2021
|
|
|
At 31 Dec 2020
|
|
|
Change
|
|
£bn
|
|
|
£bn
|
|
|
%
|
|
|
|
|
|
|
|
|
Group funding position
|
|
|
|
|
|
|
|
Loans
and advances to customers1
|
447.7
|
|
|
440.2
|
|
|
2
|
Loans
and advances to banks2
|
7.1
|
|
|
7.8
|
|
|
(9)
|
Debt securities at amortised cost
|
5.0
|
|
|
5.4
|
|
|
(7)
|
Reverse repurchase agreements - non-trading
|
56.3
|
|
|
61.3
|
|
|
(8)
|
Financial
assets at fair value through other comprehensive
income
|
26.2
|
|
|
27.6
|
|
|
(5)
|
Cash
and balances at central banks
|
79.0
|
|
|
73.3
|
|
|
8
|
Other
assets3
|
258.4
|
|
|
255.7
|
|
|
1
|
Total Group assets
|
879.7
|
|
|
871.3
|
|
|
1
|
Less
other liabilities3
|
(232.1)
|
|
|
(233.6)
|
|
|
(1)
|
Funding requirements
|
647.6
|
|
|
637.7
|
|
|
2
|
|
|
|
|
|
|
|
|
Customer
deposits4
|
474.4
|
|
|
450.7
|
|
|
5
|
Wholesale
funding5
|
103.3
|
|
|
109.4
|
|
|
(6)
|
Repurchase agreements - non-trading
|
9.3
|
|
|
14.5
|
|
|
(36)
|
Term
funding scheme6
|
8.7
|
|
|
13.7
|
|
|
(36)
|
Total equity
|
51.9
|
|
|
49.4
|
|
|
5
|
Funding sources
|
647.6
|
|
|
637.7
|
|
|
2
|
1 Excludes
reverse repos of £52.7 billion (31 December 2020: £58.6
billion).
2 Excludes
£0.1 billion (31 December 2020: £0.2 billion) of loans
and advances to banks within the Insurance business and
£3.6 billion (31 December 2020: £2.7 billion) of
reverse repurchase agreements.
3 Other
assets and other liabilities primarily include balances in the
Group's Insurance business and the fair value of derivative assets
and liabilities.
4 Excludes
repos of £7.9 billion (31 December 2020: £9.4
billion).
5 The
Group's definition of wholesale funding aligns with that used by
other international market participants; including bank deposits,
debt securities in issue and subordinated liabilities. Excludes
balances relating to margins of £4.0 billion (31 December
2020: £5.3 billion).
6 31
December 2020 balance includes the Bank of England's Term Funding
Scheme (TFS). 30 June 2021 and 31 December 2020 include the Term
Funding Scheme with additional incentives for SMEs
(TFSME).
FUNDING AND LIQUIDITY MANAGEMENT (continued)
|
Included
in funding
analysis
|
|
Repos
and cash
collateral
received by
Insurance
|
|
Fair value
and other
accounting
methods
|
|
Balance
sheet
|
At 30 June 2021
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
|
|
|
|
|
|
|
Deposits from banks
|
5.9
|
|
14.6
|
|
0.2
|
|
20.7
|
Debt securities in issue
|
84.0
|
|
-
|
|
(2.7)
|
|
81.3
|
Subordinated liabilities
|
13.4
|
|
-
|
|
0.1
|
|
13.5
|
Total wholesale funding
|
103.3
|
|
14.6
|
|
|
|
|
Customer deposits
|
474.4
|
|
7.9
|
|
-
|
|
482.3
|
Total
|
577.7
|
|
22.5
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2020
|
|
|
|
|
|
|
|
Deposits from banks
|
6.1
|
|
24.3
|
|
1.1
|
|
31.5
|
Debt securities in issue
|
89.7
|
|
-
|
|
(2.3)
|
|
87.4
|
Subordinated liabilities
|
13.6
|
|
-
|
|
0.7
|
|
14.3
|
Total wholesale funding
|
109.4
|
|
24.3
|
|
|
|
|
Customer deposits
|
450.7
|
|
9.4
|
|
-
|
|
460.1
|
Total
|
560.1
|
|
33.7
|
|
|
|
|
Analysis of total wholesale funding by residual
maturity
|
Less
than one
month
|
|
One to
three
months
|
|
Three
to six
months
|
|
Six
to nine
months
|
|
Nine
months
to one
year
|
|
One to
two years
|
|
Two to
five years
|
|
More than
five years
|
|
Total at30 June 2021
|
|
Total at 31 Dec 2020
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits from banks
|
3.3
|
|
1.4
|
|
0.6
|
|
-
|
|
0.1
|
|
0.2
|
|
0.3
|
|
-
|
|
5.9
|
|
6.1
|
|
Debt securities in issue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
0.4
|
|
0.8
|
|
1.1
|
|
1.1
|
|
0.4
|
|
0.4
|
|
-
|
|
-
|
|
4.2
|
|
8.0
|
|
Commercial
paper
|
4.2
|
|
5.8
|
|
1.8
|
|
0.5
|
|
-
|
|
-
|
|
-
|
|
-
|
|
12.3
|
|
8.1
|
|
Medium-term
notes
|
1.0
|
|
0.3
|
|
1.6
|
|
2.3
|
|
1.0
|
|
8.1
|
|
19.0
|
|
12.1
|
|
45.4
|
|
47.5
|
|
Covered
bonds
|
1.3
|
|
0.7
|
|
0.4
|
|
1.0
|
|
1.1
|
|
5.5
|
|
5.7
|
|
3.9
|
|
19.6
|
|
23.2
|
|
Securitisation
|
0.4
|
|
0.2
|
|
0.5
|
|
-
|
|
0.2
|
|
1.2
|
|
-
|
|
-
|
|
2.5
|
|
2.9
|
|
|
7.3
|
|
7.8
|
|
5.4
|
|
4.9
|
|
2.7
|
|
15.2
|
|
24.7
|
|
16.0
|
|
84.0
|
|
89.7
|
|
Subordinated liabilities
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1.1
|
|
6.3
|
|
6.0
|
|
13.4
|
|
13.6
|
|
Total wholesale funding1
|
10.6
|
|
9.2
|
|
6.0
|
|
4.9
|
|
2.8
|
|
16.5
|
|
31.3
|
|
22.0
|
|
103.3
|
|
109.4
|
|
1 Excludes
balances relating to margins of £4.0 billion (31 December
2020: £5.3 billion).
FUNDING AND LIQUIDITY MANAGEMENT (continued)
Analysis of 2021 term issuance
|
Sterling
|
|
US Dollar
|
|
Euro
|
|
Other
currencies
|
|
Total
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
|
|
|
|
|
|
|
|
|
Medium-term notes
|
-
|
|
1.5
|
|
-
|
|
-
|
|
1.5
|
Covered bonds
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Private placements
|
0.1
|
|
-
|
|
-
|
|
-
|
|
0.1
|
Subordinated liabilities
|
0.5
|
|
-
|
|
-
|
|
-
|
|
0.5
|
Total issuance
|
0.6
|
|
1.5
|
|
-
|
|
-
|
|
2.1
|
Liquidity Portfolio
At 30 June 2021, the banking business had £139.1 billion of
highly liquid unencumbered LCR eligible assets, based on a monthly
rolling average over the previous 12 months post any liquidity
haircuts (31 December 2020: £141.7 billion). These assets are
available to meet cash and collateral outflows and regulatory
requirements. The Insurance business manages a separate liquidity
portfolio to mitigate insurance liquidity risk.
The banking business also has a significant amount of non-LCR
eligible liquid assets which are eligible for use in a range of
central bank or similar facilities, including the TFSME. Future use
of such facilities will be based on prudent liquidity management
and economic considerations, having regard for external market
conditions.
LCR eligible assets
|
Average
20211
|
|
Average
20202
|
|
Change
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
Level 1
|
|
|
|
|
|
Cash and central bank reserves
|
71.7
|
|
69.3
|
|
3
|
High
quality government/MDB/agency bonds3
|
63.3
|
|
68.1
|
|
(7)
|
High quality covered bonds
|
2.8
|
|
2.9
|
|
(3)
|
Total
|
137.8
|
|
140.3
|
|
(2)
|
Level
24
|
1.3
|
|
1.4
|
|
(7)
|
Total LCR eligible assets
|
139.1
|
|
141.7
|
|
(2)
|
1 Based
on 12 months rolling average to 30 June 2021. Eligible assets are
calculated as an average of month-end observations over the
previous 12 months post any liquidity haircuts.
2 Based
on 12 months rolling average to 31 December 2020. Eligible assets
are calculated as an average of month-end observations over the
previous 12 months post any liquidity haircuts.
3 Designated
multilateral development bank (MDB).
4 Includes
Level 2A and Level 2B.
FUNDING AND LIQUIDITY MANAGEMENT (continued)
Encumbered assets
The Board and the Group Asset and Liability Committee (GALCO)
monitor and manage total balance sheet encumbrance using a number
of risk appetite metrics. At 30 June 2021, the Group had £38.4
billion (31 December 2020: £46.9 billion) of externally
encumbered on-balance sheet assets with counterparties other than
central banks. The decrease in encumbered assets was primarily
driven by securitisation and covered bond redemptions. The Group
also had £737.3 billion (31 December 2020: £707.2
billion) of unencumbered on-balance sheet assets, and £104.0
billion (31 December 2020: £117.2 billion) of pre-positioned
and encumbered assets held with central banks, the reduction in the
latter was primarily driven by the amortisation of the asset
portfolios pledged to access Bank of England funding schemes.
Primarily, the Group encumbers mortgages, unsecured lending and
credit card receivables through the issuance programmes and
tradable securities through securities financing activity. The
Group mainly positions mortgage assets at central
banks.
CAPITAL MANAGEMENT
Analysis of capital position
The Group's CET1 capital ratio increased from 16.2 per cent at 31
December 2020 to 16.7 per cent (post dividend accrual), with a
strong capital build of 93 basis points in the first six months of
the year, prior to a reduction in the intangible software assets
benefit (6 basis points) and the impact of the foreseeable ordinary
dividend accrual (37 basis points). This reflected the
following:
● Banking
build (pre impairment credit) of 115 basis points, in part offset
by 6 basis points for the limited net impact of the impairment
credit and partial release of IFRS 9 transitional relief which
included 5 basis points relating to the phased reduction of static
relief
● A
reduction in underlying risk-weighted assets generating an increase
of 16 basis points and other movements which netted to 3 basis
points
● Offset
by pension contributions of 35 basis points, reflecting the
full 2021 fixed contributions for the Group's three main defined
benefit pension schemes
The accrual for foreseeable ordinary dividends includes the
announced interim ordinary dividend of 0.67 pence per share. The
Board has confirmed its intention to reintroduce a progressive and
sustainable ordinary dividend policy. A final decision on the 2021
full year dividend and the return of any surplus capital through
special dividends or share buybacks will be given due consideration
by the Board at year end.
The PRA have confirmed their
intention to remove the beneficial treatment currently applied to
intangible software assets and reinstate the original requirement
to deduct these assets in full. This change will be implemented on
1 January 2022 and is expected to reduce the Group's reported CET 1
ratio by c.50bps at that time.
The Group continues to apply the revised IFRS 9 transitional
arrangements for capital which provide for temporary capital relief
for the increase in accounting impairment provisions following the
initial implementation of IFRS 9 ('static' relief) and subsequent
relief for any increases in Stage 1 and Stage 2 expected credit
losses since 1 January 2020 ('dynamic' relief). The transitional
arrangements do not cover Stage 3 expected credit losses. The total
relief recognised at 30 June 2021 amounted to 78 basis
points.
Excluding the IFRS 9 transitional relief and removing the current
beneficial treatment applied to intangible software assets would
reduce the Group's CET1 capital ratio from 16.7 per cent to 15.5
per cent, on the basis of the position at 30 June
2021.
The transitional total capital ratio reduced to 23.1 per cent (31
December 2020: 23.3 per cent) largely reflecting the annual
reduction in transitional limits applied to legacy tier 1 and tier
2 instruments and the impact of movements in rates, partially
offset by the increase in CET 1 capital, the issuance of a new tier
2 capital instrument and the reduction in risk-weighted
assets.
The Group's transitional minimum requirement for own funds and
eligible liabilities (MREL) ratio reduced to 36.3 per cent (31
December 2020: 36.4 per cent), largely reflecting the reductions in
transitional total capital resources and other eligible
liabilities, partially offset by the reduction in risk-weighted
assets.
The UK leverage ratio remained at 5.8 per cent (31 December 2020:
5.8 per cent) as the reduction in the fully loaded total tier 1
capital position was offset by the reduction in the leverage
exposure measure, the latter primarily reflecting movements in
securities financing transactions and off-balance sheet
items.
Total capital requirement
The Group's total capital requirement (TCR) as at 30 June 2021,
being the aggregate of the Group's Pillar 1 and current Pillar 2A
capital requirements, was £23,767 million (31 December 2020:
£23,918 million).
CAPITAL MANAGEMENT (continued)
Target capital ratio
The Board's view of the ongoing level of CET1 capital required by
the Group to grow the business, meet regulatory requirements and
cover uncertainties remains at c.12.5 per cent plus a management
buffer of c.1 per cent. This takes into account, amongst other
things:
● The
minimum Pillar 1 CET1 capital requirement of 4.5 per cent of
risk-weighted assets
● The
Group's Pillar 2A requirement set by the PRA. The current CET1
Pillar 2A requirement is c.2.2 per cent of risk-weighted
assets
● The
capital conservation buffer (CCB) requirement of 2.5 per cent of
risk-weighted assets
● The
Group's current countercyclical capital buffer (CCYB) requirement
which is around zero per cent of risk-weighted assets,
predominantly reflecting the current UK countercyclical capital
buffer rate of zero per cent
● The
RFB sub-group's other systemically important institution (O-SII)
buffer of 2.0 per cent of risk-weighted assets, which equates to
1.7 per cent of risk-weighted assets at Group level
● The
Group's PRA Buffer, which the PRA sets after taking account of the
results of any PRA stress tests and other information, as well as
outputs from the Group's own internal stress tests. The PRA
requires this buffer to remain confidential
● The
desire to maintain dividends in the context of year to year
earnings movements
Capital resources
An analysis of the Group's capital position as at 30 June 2021 is
presented in the following section on both a transitional
arrangements basis and a fully loaded basis in respect of legacy
capital securities subject to current grandfathering provisions. In
addition, the Group's capital position under both bases reflects
the application of the separate transitional arrangements for IFRS
9.
The following table summarises the consolidated capital position of
the Group.
CAPITAL MANAGEMENT (continued)
|
Transitional
|
|
Fully loaded
|
|
At 30 June 2021
|
|
At 31 Dec 2020
|
|
At 30 June 2021
|
|
At 31 Dec 2020
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
Common equity tier 1
|
|
|
|
|
|
|
|
Shareholders' equity per balance sheet
|
45,761
|
|
43,278
|
|
45,761
|
|
43,278
|
Adjustment to retained earnings for foreseeable
dividends
|
(710)
|
|
(404)
|
|
(710)
|
|
(404)
|
Adjustment to retained earnings for IFRS 9 transitional
arrangements
|
1,311
|
|
1,958
|
|
1,311
|
|
1,958
|
Deconsolidation
adjustments1
|
2,583
|
|
2,333
|
|
2,583
|
|
2,333
|
Cash flow hedging reserve and other adjustments
|
(695)
|
|
(1,785)
|
|
(695)
|
|
(1,785)
|
|
48,250
|
|
45,380
|
|
48,250
|
|
45,380
|
less: deductions from common equity tier 1
|
|
|
|
|
|
|
|
Goodwill and other intangible assets
|
(3,332)
|
|
(3,120)
|
|
(3,332)
|
|
(3,120)
|
Prudent valuation adjustment
|
(502)
|
|
(445)
|
|
(502)
|
|
(445)
|
Removal of defined benefit pension surplus
|
(2,209)
|
|
(1,322)
|
|
(2,209)
|
|
(1,322)
|
Significant
investments1
|
(4,073)
|
|
(4,109)
|
|
(4,073)
|
|
(4,109)
|
Deferred tax assets
|
(4,609)
|
|
(3,562)
|
|
(4,609)
|
|
(3,562)
|
Common equity tier 1 capital2
|
33,525
|
|
32,822
|
|
33,525
|
|
32,822
|
Additional tier 1
|
|
|
|
|
|
|
|
Other equity instruments
|
5,879
|
|
5,881
|
|
5,879
|
|
5,881
|
Preference
shares and preferred securities3
|
2,472
|
|
2,705
|
|
-
|
|
-
|
Transitional limit and other adjustments
|
(1,921)
|
|
(1,604)
|
|
-
|
|
-
|
|
6,430
|
|
6,982
|
|
5,879
|
|
5,881
|
less: deductions from tier 1
|
|
|
|
|
|
|
|
Significant
investments1
|
(1,100)
|
|
(1,138)
|
|
(1,100)
|
|
-
|
Total tier 1 capital2
|
38,855
|
|
38,666
|
|
38,304
|
|
38,703
|
Tier 2
|
|
|
|
|
|
|
|
Other
subordinated liabilities3
|
11,055
|
|
11,556
|
|
11,055
|
|
11,556
|
Deconsolidation
of instruments issued by insurance entities1
|
(1,737)
|
|
(1,892)
|
|
(1,737)
|
|
(1,892)
|
Adjustments for transitional limit and non-eligible
instruments
|
914
|
|
1,474
|
|
(1,243)
|
|
(1,346)
|
Amortisation and other adjustments
|
(1,640)
|
|
(1,694)
|
|
(1,640)
|
|
(1,694)
|
|
8,592
|
|
9,444
|
|
6,435
|
|
6,624
|
less: deductions from tier 2
|
|
|
|
|
|
|
|
Significant
investments1
|
(966)
|
|
(942)
|
|
(966)
|
|
(2,080)
|
Total capital resources2
|
46,481
|
|
47,168
|
|
43,773
|
|
43,247
|
|
|
|
|
|
|
|
|
Risk-weighted assets (unaudited)
|
200,858
|
|
202,747
|
|
200,858
|
|
202,747
|
|
|
|
|
|
|
|
|
Common equity tier 1 capital ratio
|
16.7%
|
|
16.2%
|
|
16.7%
|
|
16.2%
|
Tier 1 capital ratio
|
19.3%
|
|
19.1%
|
|
19.1%
|
|
19.1%
|
Total capital ratio
|
23.1%
|
|
23.3%
|
|
21.8%
|
|
21.3%
|
1 For
regulatory capital purposes, the Group's Insurance business is
deconsolidated and replaced by the amount of the Group's investment
in the business. A part of this amount is deducted from capital
(via 'significant investments' in the table above) and the
remaining amount is risk-weighted, forming part of threshold
risk-weighted assets.
2 Position
at 31 December 2020 audited.
3 Preference
shares, preferred securities and other subordinated liabilities are
reported as subordinated liabilities in the balance
sheet.
CAPITAL MANAGEMENT (continued)
Movements in capital resources
The key difference between the transitional capital calculation as
at 30 June 2021 and the fully loaded equivalent is primarily
related to capital securities that previously qualified as tier 1
or tier 2 capital, but that do not fully qualify under the
regulation, which can be included in additional tier 1 (AT1) or
tier 2 capital (as applicable) up to specified limits which reduce
by 10 per cent per annum until 2022. In addition, following
revisions to eligibility criteria for capital instruments under CRR
II, certain tier 1 capital instruments of the Group that will
transition to tier 2 capital by 2022 will cease to qualify as
regulatory capital in June 2025.
Following a debt restructure by the Insurance business during the
period, the Group's previous holdings in certain legacy capital
instruments issued by Scottish Widows Group Limited have been
replaced with new instruments that are fully eligible under
Solvency II requirements. These include the issue of Restricted
Tier 1 (RT1) and tier 2 capital instruments to the Group which are
subsequently deducted from the Group's tier 1 and tier 2 capital
positions respectively on both a transitional and fully loaded
basis. Remaining legacy instruments held by the Group continue to
be deducted from the Group's tier 2 capital position on both a
transitional and fully loaded basis.
The key movements on a transitional capital basis are set out in
the table below.
|
Common
equity tier 1
|
|
Additional
tier 1
|
|
Tier 2
|
|
Total
capital
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
At 31 December 2020
|
32,822
|
|
5,844
|
|
8,502
|
|
47,168
|
Banking
business profits1
|
4,025
|
|
-
|
|
-
|
|
4,025
|
Foreseeable
dividend accrual for the period2
|
(710)
|
|
-
|
|
-
|
|
(710)
|
IFRS 9 transitional adjustment to retained earnings
|
(647)
|
|
-
|
|
-
|
|
(647)
|
Pension contributions
|
(668)
|
|
-
|
|
-
|
|
(668)
|
Prudent valuation adjustment
|
(57)
|
|
-
|
|
-
|
|
(57)
|
Deferred tax asset
|
(1,047)
|
|
-
|
|
-
|
|
(1,047)
|
Goodwill and other intangible assets
|
(212)
|
|
-
|
|
-
|
|
(212)
|
Significant investments
|
36
|
|
38
|
|
(24)
|
|
50
|
Movements in other equity, subordinated liabilities, other tier 2
items and related adjustments
|
-
|
|
(552)
|
|
(852)
|
|
(1,404)
|
Distributions on other equity instruments
|
(213)
|
|
-
|
|
-
|
|
(213)
|
Other
movements3
|
196
|
|
-
|
|
-
|
|
196
|
At 30 June 2021
|
33,525
|
|
5,330
|
|
7,626
|
|
46,481
|
1 Under
the regulatory framework, profits made by Insurance are removed
from CET1 capital. However, when dividends are paid to the Group by
Insurance these are recognised through CET1 capital.
2 Reflects
the accrual for foreseeable 2021 ordinary dividends. Excludes the
reversal of the brought forward accrual for the 2020 full year
ordinary dividend which has now been paid out.
3 Includes
other pension movements.
CET1 capital resources have increased by £703 million during
the period, primarily reflecting:
● underlying
banking business profits, with the impairment credit offset by the
partial unwind of IFRS 9 transitional relief
● offset
in part by pension contributions made during the period, the
accrual of the foreseeable ordinary dividend and other items
including the increase in deferred tax assets deducted from capital
which primarily reflects the remeasurement of deferred tax assets
following the announced increase in the UK corporation tax rate
from 1 April 2023. The remeasurement has a limited overall capital
benefit as the tax credit through banking profits is largely offset
by the increase in the deferred tax asset deduction.
AT1 capital resources have reduced by £514 million during the
period, primarily reflecting the annual reduction in the
transitional limit applied to grandfathered AT1 capital
instruments.
CAPITAL MANAGEMENT (continued)
Tier 2 capital resources have reduced by £876 million during
the period, largely reflecting the application of the reduced
transitional limit applied to grandfathered tier 2 capital
instruments, the impact of movements in rates and regulatory
amortisation, partially offset by the issuance of a new tier 2
capital instrument.
Minimum requirement for own funds and eligible liabilities
(MREL)
The Group is not classified as a global systemically important bank
(G-SIB) but is subject to the Bank of England's MREL statement of
policy (MREL SoP) and must therefore maintain a minimum level of
MREL resources.
Applying the MREL SoP to current minimum capital requirements, the
Group's MREL from 1 January 2020, excluding regulatory capital and
leverage buffers, is the higher of 2 times Pillar 1 plus Pillar 2A,
equivalent to 19.8 per cent of risk-weighted assets, or 6.5 per
cent of the UK leverage ratio exposure measure.
From 1 January 2022 the Group's indicative MREL, excluding
regulatory capital and leverage buffers, will increase to the
higher of 2 times Pillar 1 plus 2 times Pillar 2A, equivalent to
23.7 per cent of risk-weighted assets, or 6.5 per cent of the
UK leverage ratio exposure measure.
In addition, CET1 capital cannot be used to meet both MREL and
capital or leverage buffers.
The Bank of England is undertaking a review of the current MREL
framework and has recently published a consultation paper on
proposed changes which it intends to implement by the end of the
year. There is no proposed change to the end-state requirements
that will apply from 1 January 2022.
An analysis of the Group's current transitional MREL resources is
provided in the table below.
|
Transitional1
|
|
At 30 June 2021
|
|
|
At 31 Dec 2020
|
|
|
£m
|
|
|
£m
|
|
|
|
|
|
|
|
Total capital resources (transitional basis)
|
46,481
|
|
|
47,168
|
|
Ineligible
AT1 and tier 2 instruments2
|
(235)
|
|
|
(582)
|
|
Amortised portion of eligible tier 2 instruments issued by Lloyds
Banking Group plc
|
420
|
|
|
194
|
|
Other
eligible liabilities issued by Lloyds Banking Group plc3
|
26,180
|
|
|
26,946
|
|
Total MREL resources1
|
72,846
|
|
|
73,726
|
|
|
|
|
|
|
|
Risk-weighted assets
|
200,858
|
|
|
202,747
|
|
|
|
|
|
|
|
MREL ratio
|
36.3%
|
|
|
36.4%
|
|
|
|
|
|
|
|
Leverage exposure measure
|
658,689
|
|
|
666,070
|
|
|
|
|
|
|
|
MREL leverage ratio
|
11.1%
|
|
|
11.1%
|
|
1 Until
2022, externally issued regulatory capital in operating entities
can count towards the Group's MREL resources to the extent that
such capital would count towards the Group's consolidated capital
resources.
2 Instruments
with less than or equal to one year to maturity or governed under
non-UK law without a contractual bail-in clause.
3 Includes
senior unsecured debt.
During the first half of 2021, the Group issued externally
£1.4 billion (sterling equivalent at point of issuance) of
senior unsecured debt from Lloyds Banking Group plc which, while
not included in total capital, is eligible to meet
MREL.
Total MREL resources reduced by £880 million during the
period, largely as a result of the reduction in total capital
resources and a reduction in other eligible liabilities, the latter
reflecting the impact of movements in rates and the removal of a
senior unsecured debt instrument with less than one year to
maturity, partially offset by the issuance of the £1.4 billion
of senior unsecured debt.
CAPITAL MANAGEMENT (continued)
Risk-weighted assets
|
At 30 June 2021
|
|
|
At 31 Dec 2020
|
|
|
£m
|
|
|
£m
|
|
Foundation Internal Ratings Based (IRB) Approach
|
48,137
|
|
|
50,435
|
|
|
Retail IRB Approach
|
66,602
|
|
|
65,225
|
|
|
Other IRB Approach
|
16,986
|
|
|
17,747
|
|
|
IRB Approach
|
131,725
|
|
|
133,407
|
|
|
Standardised (STA) Approach
|
21,787
|
|
|
23,596
|
|
|
Credit risk
|
153,512
|
|
|
157,003
|
|
|
Counterparty credit risk
|
4,999
|
|
|
5,630
|
|
|
Contributions to the default funds of central
counterparties
|
423
|
|
|
436
|
|
|
Credit valuation adjustment risk
|
526
|
|
|
679
|
|
|
Operational risk
|
24,573
|
|
|
24,865
|
|
|
Market risk
|
4,516
|
|
|
2,207
|
|
|
Risk-weighted assets
|
188,549
|
|
|
190,820
|
|
|
Threshold
risk-weighted assets1
|
12,309
|
|
|
11,927
|
|
|
Total risk-weighted assets
|
200,858
|
|
|
202,747
|
|
|
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.
Risk-weighted asset movements by driver
|
Credit risk
IRB
|
|
Credit risk
STA
|
|
Credit risk
total1
|
|
Counterparty
credit risk2
|
|
Market
risk
|
|
Operational
risk
|
|
Total
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
Total risk-weighted assets at 31 December 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
202,747
|
|
Less
threshold risk-weighted assets3
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,927)
|
|
Risk-weighted assets at 31 December 2020
|
133,407
|
|
23,596
|
|
157,003
|
|
6,745
|
|
2,207
|
|
24,865
|
|
190,820
|
|
Asset size
|
(3,178)
|
|
(375)
|
|
(3,553)
|
|
(569)
|
|
-
|
|
-
|
|
(4,122)
|
|
Asset quality
|
1,816
|
|
(110)
|
|
1,706
|
|
(193)
|
|
-
|
|
-
|
|
1,513
|
|
Model updates
|
-
|
|
-
|
|
-
|
|
-
|
|
533
|
|
-
|
|
533
|
|
Methodology and policy
|
(42)
|
|
(1,243)
|
|
(1,285)
|
|
-
|
|
-
|
|
-
|
|
(1,285)
|
|
Acquisitions and disposals
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Movements in risk levels (market risk only)
|
-
|
|
-
|
|
-
|
|
-
|
|
51
|
|
-
|
|
51
|
|
Foreign exchange movements
|
(278)
|
|
(81)
|
|
(359)
|
|
(35)
|
|
-
|
|
-
|
|
(394)
|
|
Other
|
-
|
|
-
|
|
-
|
|
-
|
|
1,725
|
|
(292)
|
|
1,433
|
|
Risk-weighted assets at 30 June 2021
|
131,725
|
|
21,787
|
|
153,512
|
|
5,948
|
|
4,516
|
|
24,573
|
|
188,549
|
|
Threshold risk-weighted assets3
|
|
|
|
|
|
|
|
|
|
|
|
|
12,309
|
|
Total risk-weighted assets at 30 June 2021
|
|
|
|
|
|
|
|
|
|
|
|
200,858
|
|
1 Credit
risk includes securitisation risk-weighted assets.
2 Counterparty
credit risk includes movements in contributions to the default fund
of central counterparties and movements in credit valuation
adjustment risk.
3 Threshold
risk-weighted assets reflect the element of significant investments
and deferred tax assets that are permitted to be risk-weighted
instead of being deducted from CET1 capital. Significant
investments primarily arise from investments in the Group's
Insurance business.
CAPITAL MANAGEMENT (continued)
The risk-weighted assets movement table provides analysis of the
movement in risk-weighted assets in the period by risk type and an
insight into the key drivers of the movements.
Credit risk, risk-weighted assets:
● Asset
size reduction of £3.6 billion predominantly reflects
continued optimisation in Commercial Banking and lower unsecured
balances, partially offset by increased mortgage
lending
● Asset
quality increase of £1.7 billion reflects the impact of credit
migration and retail model calibrations, offset by the benefit of
House Price Index increases
● Methodology
and policy changes reduced risk-weighted assets by £1.3
billion through securitisation activity and other optimisation
activity
Counterparty credit risk, risk-weighted assets: reduced by £0.8 billion predominantly
due to movements in market rates during the
period
Market risk, risk-weighted assets: the increase of £2.3 billion is largely
temporary and due to IBOR cessation activities.
Leverage ratio
The Group is currently subject to the following minimum
requirements under the UK Leverage Ratio Framework:
● a
minimum leverage ratio requirement of 3.25 per cent of the total
leverage exposure measure
● a
countercyclical leverage buffer (CCLB) which is currently zero per
cent of the total leverage exposure measure, reflecting the current
UK countercyclical capital buffer rate of zero per
cent
● an
additional leverage ratio buffer (ALRB) of 0.7 per cent of the
total leverage exposure measure applies to the RFB sub-group, which
equates to 0.6 per cent at Group level
At least 75 per cent of the 3.25 per cent minimum leverage ratio
requirement as well as 100 per cent of all regulatory leverage
buffers must be met with CET1 capital.
Analysis of leverage movements
The Group's fully loaded UK leverage ratio has remained at 5.8 per
cent, with the impact of the reduction in the fully loaded total
tier 1 capital position offset by the reduction in the exposure
measure which reduced by £7.4 billion during the period,
largely reflecting movements in securities financing transactions
and off-balance sheet items.
Following a direction received from the PRA during 2020 the Group
is permitted to exclude lending under the UK Government's Bounce
Back Loan Scheme (BBLS) from the leverage exposure
measure.
The derivatives exposure measure, representing derivative financial
instruments per the balance sheet net of deconsolidation and
derivatives adjustments, increased by £1.6 billion during the
period, largely reflecting market movements and an increase in the
regulatory potential future exposure.
The securities financing transactions (SFT) exposure measure,
representing SFT assets per the balance sheet net of
deconsolidation and other SFT adjustments, reduced by £6.0
billion during the period, largely reflecting a reduction in
trades.
Off balance sheet items reduced by £5.3 billion during the
period, reflecting reductions in both corporate facilities and
residential mortgage offers placed.
The average UK leverage ratio was 5.9 per cent over the second
quarter, reducing to 5.8 per cent towards the end of the quarter
which largely reflected the reduction in fully loaded total tier 1
capital following the increase in the significant investments
deduction from tier 1 capital as a result of the issuance of
Solvency II eligible Restricted Tier 1 capital instruments from
Insurance to the Group.
CAPITAL MANAGEMENT (continued)
The table below summarises the component parts of the Group's
leverage ratio.
|
Fully loaded
|
|
At 30 June 2021
|
|
|
At 31 Dec 2020
|
|
|
£m
|
|
|
£m
|
|
|
|
|
|
|
|
Total tier 1 capital for leverage ratio
|
|
|
|
|
|
Common equity tier 1 capital
|
33,525
|
|
|
32,822
|
|
Additional tier 1 capital
|
4,779
|
|
|
5,881
|
|
Total tier 1 capital
|
38,304
|
|
|
38,703
|
|
|
|
|
|
|
|
Exposure measure
|
|
|
|
|
|
Statutory balance sheet assets
|
|
|
|
|
|
Derivative financial instruments
|
22,193
|
|
|
29,613
|
|
Securities financing transactions
|
68,674
|
|
|
74,322
|
|
Loans and advances and other assets
|
788,820
|
|
|
767,334
|
|
Total assets
|
879,687
|
|
|
871,269
|
|
|
|
|
|
|
|
Qualifying central bank claims
|
(73,140)
|
|
|
(67,093)
|
|
|
|
|
|
|
|
Deconsolidation adjustments1
|
|
|
|
|
|
Derivative financial instruments
|
(622)
|
|
|
(1,549)
|
|
Securities financing transactions
|
-
|
|
|
-
|
|
Loans and advances and other assets
|
(180,198)
|
|
|
(171,183)
|
|
Total deconsolidation adjustments
|
(180,820)
|
|
|
(172,732)
|
|
|
|
|
|
|
|
Derivatives adjustments
|
|
|
|
|
|
Adjustments for regulatory netting
|
(8,851)
|
|
|
(12,444)
|
|
Adjustments for cash collateral
|
(8,694)
|
|
|
(12,679)
|
|
Net written credit protection
|
282
|
|
|
455
|
|
Regulatory potential future exposure
|
13,216
|
|
|
12,535
|
|
Total derivatives adjustments
|
(4,047)
|
|
|
(12,133)
|
|
|
|
|
|
|
|
Securities financing transactions adjustments
|
1,319
|
|
|
1,713
|
|
Off-balance sheet items
|
55,535
|
|
|
60,882
|
|
Regulatory deductions and other adjustments2
|
(19,845)
|
|
|
(15,836)
|
|
|
|
|
|
|
|
Total exposure measure
|
658,689
|
|
|
666,070
|
|
Average exposure measure3
|
656,938
|
|
|
|
|
|
|
|
|
|
|
UK leverage ratio
|
5.8%
|
|
|
5.8%
|
|
Average UK leverage ratio3
|
5.9%
|
|
|
|
|
1 Deconsolidation
adjustments relate to the deconsolidation of certain Group entities
that fall outside the scope of the Group's regulatory capital
consolidation, primarily the Group's Insurance
business.
2 Includes
adjustments to exclude lending under the UK Government's Bounce
Back Loan Scheme (BBLS) and the netting of regular-way purchases
and sales awaiting settlement in accordance with CRR Article
500d.
3 The
average UK leverage ratio is based on the average of the month end
tier 1 capital position and average exposure measure over the
quarter (1 April 2021 to 30 June 2021). The average of 5.9 per cent
compares to 6.0 per cent at the start and 5.8 per cent at the end
of the quarter.
CAPITAL MANAGEMENT (continued)
Application of IFRS 9 on a full impact basis for capital and
leverage
|
IFRS 9 full impact
|
|
At 30 June 2021
|
|
At 31 Dec 2020
|
|
|
|
|
Common equity tier 1 (£m)
|
31,855
|
|
30,341
|
Transitional tier 1 (£m)
|
37,185
|
|
36,185
|
Transitional total capital (£m)
|
46,153
|
|
46,052
|
Total risk-weighted assets (£m)
|
200,234
|
|
201,800
|
Common equity tier 1 ratio (%)
|
15.9%
|
|
15.0%
|
Transitional tier 1 ratio (%)
|
18.6%
|
|
17.9%
|
Transitional total capital ratio (%)
|
23.0%
|
|
22.8%
|
UK leverage ratio exposure measure (£m)
|
657,019
|
|
663,590
|
UK leverage ratio (%)
|
5.6%
|
|
5.5%
|
The Group applies the full extent of the IFRS 9 transitional
arrangements for capital as set out under CRR Article 473a (as
amended via the CRR 'Quick Fix' revisions published in June 2020).
Specifically, the Group has opted to apply both paragraphs 2 and 4
of CRR Article 473a (static and dynamic relief) and in addition to
apply a 100 per cent risk weight to the consequential Standardised
credit risk exposure add-back as permitted under paragraph 7a of
the revisions.
As at 30 June 2021, static relief under the transitional
arrangements amounted to £438 million
(31 December 2020: £616 million) and dynamic
relief amounted to £1,232 million (31 December 2020:
£1,865 million) through CET1 capital.
Stress testing
The Group undertakes a wide-ranging programme of stress testing,
providing a comprehensive view of the potential impacts arising
from the risks to which the Group and its key legal entities are
exposed. One of the most important uses of stress testing is to
assess the resilience of the operational and strategic plans of the
Group and its legal entities to adverse economic conditions and
other key vulnerabilities. As part of this programme, the Group
conducts a macroeconomic stress test of the Group four year
operating plan in the second half of the year to assess whether the
Group's capital position is resilient to a further severe economic
shock over and above the stress in the current economic
environment.
The Group also participates in stress tests run by the Bank of
England. The Bank of England published the industry level results
of this year's stress test in the July 2021 Financial Stability
Report, which showed that the industry is resilient to a severe
economic shock and validates their analysis conducted during 2020
that banks can lend to households and businesses, even in very
challenging scenarios. This aligns to the Group's view of its
strength and resilience as it continues with its commitment to meet
the needs of customers.
The Climate Biennial Exploratory Scenario (CBES) launched in June
2021 and activity is underway. The Group is investing significant
resource in preparation and execution, in particular in acquiring
climate related data and will leverage the experience gained
through that exercise to further embed climate risk into risk
management and stress testing activities.
CAPITAL MANAGEMENT (continued)
Regulatory capital developments
A number of significant regulatory capital changes will implement
on 1 January 2022, including the remaining UK implementation of CRR
2 (which includes the revised standardised measure of counterparty
credit risk - SA-CCR) and required changes to the Group's IRB
models which will predominantly impact the mortgage models as a
result of changes to the definition of default, revised loss given
default (LGD) parameters and a new 'hybrid' probability of default
(PD) approach. In addition UK regulators are currently consulting
on revisions to the UK leverage ratio framework which are also
expected to apply from 1 January 2022.
A consultation on the UK implementation of the remaining final
Basel III reforms (also referred to as Basel 3.1), which include
significant revisions to the credit risk, CVA and operational risk
frameworks and will lead to the phased introduction of a
risk-weighted assets output floor, is expected to be published by
UK regulators in Q4 2021. The final rules are currently expected to
apply from 1 January 2023, with the output floor expected to be
phased in over several years.
Half-year Pillar 3 disclosures
The Group will publish a condensed set of half-year Pillar 3
disclosures in mid-August. A copy of the disclosures will be
available to view at:
https://www.lloydsbankinggroup.com/investors/financial-downloads.html
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: 29
July 2021
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