TIDM94WP TIDMLLOY

RNS Number : 6499D

Lloyds Bank PLC

29 October 2020

Lloyds Bank plc

Q3 2020 Interim Management Statement

29 October 2020

REVIEW OF PERFORMANCE

Income statement

The Group's results have been significantly affected by the coronavirus pandemic and its impact upon the UK economy. During the nine months to 30 September 2020, the Group recorded a profit before tax of GBP620 million compared with a profit before tax in the nine months to 30 September 2019 of GBP2,562 million, a decrease of GBP1,942 million which was largely driven by a significantly increased impairment charge due to changes to the Group's economic outlook for the UK as a result of the coronavirus pandemic.

Total income decreased by GBP1,695 million, or 13 per cent, to GBP11,234 million in the nine months to 30 September 2020 compared with GBP12,929 million in the nine months to 30 September 2019; there was an GBP827 million decrease in net interest income and a decrease of GBP868 million in other income.

Net interest income was GBP8,326 million in the nine months to 30 September 2020, a decrease of GBP827 million, or 9 per cent, compared to GBP9,153 million in the nine months to 30 September 2019. The net interest margin reduced as a result of the lower rate environment, actions taken to support customers, including free overdrafts, and a change in asset mix, largely as a result of reduced levels of customer demand during the coronavirus pandemic. Average interest-earning assets were broadly stable with growth due to government-backed lending to support corporate customers through the coronavirus crisis and the full impact of the 2019 Tesco acquisition offset by lower balances in the closed mortgage book and credit cards, as well as the impact of the continued optimisation of the corporate and institutional book within Commercial Banking.

Other income was GBP868 million, or 23 per cent, lower at GBP2,908 million in the nine months to 30 September 2020 compared to GBP3,776 million in the nine months to 30 September 2019. Net fee and commission income fell, reflecting reduced current account, card and other transaction-based income streams, as a result of lower levels of customer activity driven by the coronavirus pandemic. The reduction in fee income also reflects the impact of the sale of a wealth management business to a fellow Lloyds Banking Group subsidiary during 2019. Reduced other operating income reflected lower operating lease rental income, in line with the reduced Lex Autolease vehicle fleet, and a reduced level of recharges to other Lloyds Banking Group entities as costs have fallen.

Operating expenses decreased by GBP2,721 million, or 29 per cent, to GBP6,667 million in the nine months to 30 September 2020 compared to GBP9,388 million in the nine months to 30 September 2019. There was a GBP2,421 million decrease in regulatory provisions and a GBP300 million decrease in other operating expenses. The regulatory provisions charge was GBP225 million compared to GBP2,646 million in the nine months to 30 September 2019. The charge in 2019 included GBP2,449 million relating to payment protection insurance (PPI); no further provision was made in the nine months to 30 September 2020. Good progress has been made with the review of PPI information requests received and the conversion rate remains low and consistent with the provision assumption of around 10 per cent. The unutilised provision at 30 September 2020 was GBP324 million.

Other operating costs were lower, despite continued investment in the Group's digital proposition and the impact of coronavirus-related costs, as a result of continued cost discipline, efficiencies gained through digitalisation and other process and organisational improvements as well as lower variable remuneration accruals. Restructuring costs, within other operating costs included increased property optimisation and severance costs, offset by reductions following the completion of MBNA integration.

review of performance (continued)

The impairment charge was significantly higher in the first nine months of the year at GBP3,947 million (nine months to 30 September 2019: GBP979 million). This was primarily driven by the charge taken in the first half of the year for potential future losses in light of the Group's revised economic outlook for the UK due to the coronavirus pandemic; the charge taken for the last three months reflects the relative economic stability in the quarter and is broadly in line with pre-crisis levels. Total expected credit loss allowances (ECL) continue to reflect the net impact of economic scenarios and Government support programmes with the increase on prior year of some GBP3 billion building additional balance sheet resilience.

Observed credit quality remains robust with arrears and defaults remaining low given the temporary support measures, including payment holidays and furlough arrangements, which are available. The third quarter charge includes a GBP205 million management overlay to offset model releases based on third quarter performance, given temporary support programmes. The charge for the quarter also includes a GBP95 million release reflecting minor changes to the updated economic outlook, largely relating to house price growth assumptions.

The ECL allowance at 30 September 2020 remains high by historical standards and, consistent with the Group's updated macroeconomic projections, assumes that a large proportion of expected losses will crystallise over the next 12 months as support measures subside and unemployment increases.

The Group's outlook and IFRS 9 base case economic scenario used to calculate ECL have been updated to reflect a more resilient economic performance in 2020 than was anticipated at the half-year, in particular with respect to positive house prices, albeit with no material change to the Group's medium and long-term views.

The Group's ECL allowance continues to reflect a probability-weighted view of future economic scenarios with a 30 per cent weighting applied to base case, upside and downside scenarios and a 10 per cent weighting to the severe downside. All scenarios have deteriorated significantly in comparison to their equivalents at the 2019 year end, although they have remained broadly consistent over the three months to 30 September 2020. The base case upon which these scenarios are built now assumes that unemployment reaches a rate of 9.0 per cent in the first quarter of 2021, representing the same peak assumed at the half year, albeit one quarter later. The updated base case also recognises recent growth in house prices which drives an improved near-term forecast relative to that taken at 30 June 2020. This improvement, alongside a more resilient view on commercial real estate prices, has driven a GBP0.1 billion reduction to ECL in the third quarter of 2020.

review of performance (continued)

At the half-year an adjustment was made to the severe downside scenario, which was reflected as an overlay, to recognise the greater levels of uncertainty in the short-term economic outlook and therefore a greater severity of potential adverse shocks than the modelled severe downside scenario generates. The adjusted severe downside scenario assumes a peak unemployment rate of 12.5 per cent in the second quarter of 2021 and a GDP drop of 13.3 per cent in 2020. The impact of this adjustment has been estimated at portfolio level, but remains outside the core IFRS 9 process and as such is reflected as a central overlay of GBP200 million, corresponding to an estimated GBP2 billion higher ECL provision within the severe downside scenario.

Stage 2 loans and advances to customers have remained stable in the third quarter at 11.5 per cent of the book reflecting the relative stability of the Group's asset quality performance and forward-looking economic assumptions. Prudent adjustment of the criteria used to trigger movement from Stage 1 to Stage 2 within the credit card portfolio has resulted in an additional GBP1.4 billion of up-to-date assets moving to a Stage 2 lifetime ECL basis.

In the absence of other credit risk indicators, the granting of payment holidays for coronavirus-related requests is not currently in and of itself an indication of a significant increase in credit risk and therefore will not automatically result in a customer balance moving from Stage 1 to Stage 2. Correspondingly, the removal of a customer from payment holiday status does not result in any change in stage from that which otherwise would have been recognised. The Group's coverage of Stage 2 assets increased slightly to 4.6 per cent reflecting the additional cards assets in Stage 2 whilst coverage of Stage 3 assets has increased to 30.8 per cent at 30 September 2020.

Overall the Group's loan portfolio continues to be well-positioned, reflecting a through-the-cycle approach to credit risk and high levels of security. The Retail portfolio is heavily weighted toward high quality mortgage lending where low loan-to-value ratios provide security against potential risks. The prime consumer finance portfolio also benefits from high quality growth in past periods and the Group's prudent risk appetite. The commercial portfolio reflects a diverse client base with relatively limited exposure to the most vulnerable sectors so far affected by the coronavirus outbreak. Within Commercial Banking, the Group's management of concentration risk includes single name and country limits as well as controls over the overall exposure to certain higher risk and vulnerable sectors or asset classes.

There was a tax credit of GBP307 million in the nine months to 30 September 2020 compared to a charge of GBP1,008 million in the nine months to 30 September 2019 primarily as a result of a credit of c GBP440 million arising on remeasurement of the Group's deferred tax balances following the UK Government's decision to maintain the corporation tax rate at 19 per cent, which was substantively enacted on 17 March 2020.

Profit for the period, after tax, was GBP927 million compared to GBP1,554 million in the nine months to 30 September 2019.

review of performance (continued)

Balance sheet and capital

Total assets were GBP25,520 million, or 4 per cent, higher at GBP606,888 million at 30 September 2020 compared to GBP581,368 million at 31 December 2019. Cash and balances at central banks were GBP13,514 million higher at GBP52,394 million reflecting increased liquidity holdings. Financial assets at amortised cost increased by GBP6,420 million to GBP492,921 million at 30 September 2020 compared to GBP486,501 million at 31 December 2019, mainly as a result of an increase in reverse repurchase agreement balances, due to favourable credit spreads. Other loans and advances to customers, net of impairment allowances, were broadly flat as increases in the open mortgage book and in corporate and SME lending, reflecting take-up of Government support schemes, was offset by reductions in the closed mortgage book along with reductions in credit card and motor finance balances, primarily as a result of reduced customer activity in the second quarter, and increased impairment allowances.

Financial assets at fair value through other comprehensive income were GBP3,355 million higher at GBP27,972 million compared to GBP24,617 million at 31 December 2019, reflecting increased holdings of government stock as a result of favourable credit spreads available.

Total liabilities were GBP23,234 million, or 4 per cent, higher at GBP565,703 million compared to GBP542,469 million at 31 December 2019. Deposits from banks were GBP3,621 million higher at GBP27,214 million reflecting increased repurchase agreement balances. Customer deposits were GBP36,595 million, or 9 per cent, higher at GBP433,434 million compared to GBP396,839 million at 31 December 2019, as a result of growth in retail current and savings accounts and commercial deposits. Retail current account growth was significant, in part due to lower levels of customer spending as well as reliance on trusted brands; the growth in Commercial Banking includes the impact within the SME portfolio from the placement of government-supported lending on deposit. In part offsetting these increases, debt securities in issue were GBP15,590 million, or 20 per cent, lower at GBP60,841 million as the Group has taken advantage of other, more attractive, funding sources.

The Group's credit ratings continue to reflect the resilience of the Group's business model and the strength of the balance sheet. In October, Moody's downgraded Lloyds Bank plc from Aa3/Negative to A1/Stable due to the removal of the uplift for Government support. This was triggered by the downgrade of the UK sovereign rating a few days earlier given the agencies' pandemic and Brexit concerns, but did not impact the standalone rating of the bank. Over the year both S&P and Fitch have affirmed the Group's ratings, albeit with negative outlooks to reflect their concerns over the UK economy.

Total equity increased by GBP2,286 million, or 6 per cent, from GBP38,899 million at 31 December 2019 to GBP41,185 million at 30 September 2020, mainly due to profit for the period, the issuance of GBP1,070 million of other equity instruments and an increase in the net surplus relating to the Group's post-retirement defined benefit schemes as credit spreads widened over the first nine months of 2020.

review of performance (continued)

The Group's common equity tier 1 capital ratio increased to 15.0 per cent(1) from 14.3 per cent at 31 December 2019 as the impact of the impairment charge on the Group's profits was largely mitigated through the increase in IFRS 9 transitional relief for capital. In addition, excess expected losses reduced to nil as they absorbed part of the increase in IFRS 9 expected credit losses. The resultant increases in capital were offset in part by pensions contributions made during the period and an increase in deferred tax assets and intangibles deducted from capital.

The tier 1 capital ratio increased to 19.3 per cent(1) from 18.3 per cent at 31 December 2019, primarily reflecting the increase in common equity tier 1 capital and new AT1 issuances, offset in part by the annual reduction in the transitional limit applied to grandfathered AT1 capital. The total capital ratio increased to 22.8 per cent(1) from 22.1 per cent at 31 December 2019, largely reflecting the increase in tier 1 capital.

Reflecting the full impact of IFRS 9 at 30 September 2020, without the application of transitional arrangements, the Group's common equity tier 1 capital ratio would be 13.8 per cent(1) , the tier 1 capital ratio would be 18.1 per cent(1) and the total capital ratio would be 22.2 per cent(1) .

Risk-weighted assets increased by GBP14 million to GBP171,954 million at 30 September 2020, compared to GBP171,940 million at 31 December 2019 largely reflecting the impact of credit migrations, retail model calibrations, and the full implementation of the new securitisation framework. These increases have been offset by reductions in underlying lending balances (excluding government-backed lending schemes that attract limited to no risk-weighted assets), optimisation activity undertaken in Commercial Banking and the impact of the revised SME supporting factor.

The Group's UK leverage ratio increased to 5.4 per cent(1) , (31 December 2019: 5.1 per cent), primarily driven by the increase in tier 1 capital.

 
 
      Incorporating profits for the period that remain subject to formal 
 (1)   verification in accordance with the Capital Requirements Regulation. 
 
 
 
CONDENSED CONSOLIDATED INCOME STATEMENT (UNAUDITED)           Nine        Nine 
                                                            months      months 
                                                             ended       ended 
                                                           30 Sept     30 Sept 
                                                              2020        2019 
                                                        GBPmillion  GBPmillion 
 
Net interest income                                          8,326       9,153 
Other income                                                 2,908       3,776 
                                                        ----------  ---------- 
Total income                                                11,234      12,929 
Total operating expenses                                   (6,667)     (9,388) 
                                                        ----------  ---------- 
Trading surplus                                              4,567       3,541 
Impairment                                                 (3,947)       (979) 
                                                        ----------  ---------- 
Profit before tax                                              620       2,562 
Tax credit (expense)                                           307     (1,008) 
                                                        ----------  ---------- 
Profit for the period                                          927       1,554 
                                                        ----------  ---------- 
 
Profit attributable to ordinary shareholders                   593       1,312 
Profit attributable to other equity holders                    313         211 
                                                        ----------  ---------- 
Profit attributable to equity holders                          906       1,523 
Profit attributable to non-controlling interests                21          31 
                                                        ----------  ---------- 
Profit for the period                                          927       1,554 
                                                        ----------  ---------- 
 
 
 
CONDENSED CONSOLIDATED BALANCE SHEET                       At 30 Sept       At 31 Dec 
                                                                 2020            2019 
                                                           GBPmillion      GBPmillion 
                                                          (unaudited)       (audited) 
Assets 
Cash and balances at central banks                             52,394          38,880 
Financial assets at fair value through profit 
 or loss                                                        2,112           2,284 
Derivative financial instruments                                9,320           8,494 
                                                          -----------    ------------ 
    Loans and advances to banks                                 6,392           4,852 
    Loans and advances to customers                           480,386         474,470 
    Debt securities                                             5,247           5,325 
    Due from fellow Lloyds Banking Group undertakings             896           1,854 
                                                          -----------    ------------ 
Financial assets at amortised cost                            492,921         486,501 
Financial assets at fair value through other 
 comprehensive income                                          27,972          24,617 
Other assets                                                   22,169          20,592 
                                                          -----------    ------------ 
Total assets                                                  606,888         581,368 
                                                          -----------    ------------ 
 
Liabilities 
Deposits from banks                                            27,214        23,593 
Customer deposits                                             433,434       396,839 
Deposits from fellow Lloyds Banking Group undertakings          6,729         4,893 
Financial liabilities at fair value through profit 
 or loss                                                        8,374         7,702 
Derivative financial instruments                                9,021         9,831 
Debt securities in issue                                       60,841        76,431 
Subordinated liabilities                                       10,765        12,586 
Other liabilities                                               9,325        10,594 
                                                          -----------   ----------- 
Total liabilities                                             565,703       542,469 
 
Shareholders' equity                                           35,168        33,973 
Other equity interests                                          5,935         4,865 
Non-controlling interests                                          82            61 
                                                          -----------   ----------- 
Total equity                                                   41,185        38,899 
                                                          -----------   ----------- 
Total equity and liabilities                                  606,888       581,368 
                                                          -----------   ----------- 
 
 

ADDITIONAL FINANCIAL INFORMATION

   1.   Basis of presentation 

This release covers the results of Lloyds Bank plc (the Bank) together with its subsidiaries (the Group) for the nine months ended 30 September 2020.

Accounting policies

The accounting policies are consistent with those applied by the Group in its 2019 Annual Report and Accounts.

   2.   Capital 

Capital and leverage ratios reported as at 30 September 2020 incorporate profits for the nine months that remain subject to formal verification in accordance with the Capital Requirements Regulation. The Group's Q3 2020 Interim Pillar 3 Report can be found at www.lloydsbankinggroup.com/investors/financial-performance/

   3.   Forward-looking information 

The measurement of expected credit losses is required to reflect an unbiased probability-weighted range of possible future outcomes. In order to do this, the Group has developed an economic model to project a wide range of key impairment drivers using information derived mainly from external sources. These drivers include factors such as the unemployment rate, the house price index, commercial property prices and corporate credit spreads. The model-generated economic scenarios for the six years beyond 2020 are mapped to industry-wide historical loss data by portfolio. Combined losses across portfolios are used to rank the scenarios by severity of loss.

Alongside a defined central economic scenario, reflecting the Group's base case assumptions used for medium-term planning purposes, three further economic scenarios are generated to represent the range of future outcomes. The upside, downside and severe downside scenarios are produced by averaging across a group of constituent scenarios around the 15th, 75th and 95th percentiles of the estimated loss distribution around the central case, with the central case expected to lie in the vicinity of the 45th percentile. These locations correspond to scenario weightings that allow for the inclusion of a relatively unlikely severe downside scenario associated with relatively large credit losses. At 31 December 2019 and 30 September 2020, the base case, upside and downside scenarios each carry a 30 per cent weighting, while the severe downside scenario is weighted at 10 per cent. The weights reflect the location of the economic scenarios on the estimated loss distribution.

Following review of the severe downside scenario generated by the modelled approach described above, a judgement was made to increase the severity of GDP and unemployment dispersion from the base case. Whilst the modelled approach gives an unbiased method of creating a loss distribution, it is built on historic experience that does not yet fully capture the unprecedented complexities of the current economic environment and the risk of inflated near-term shocks. The impact of this change has been reflected as a central overlay to reflect the incremental ECL estimated outside the core ECL calculation process. The following economic assumptions include both the modelled severe scenario - used in portfolio level ECL and staging assessment, and the adjusted severe downside - used to generate the final ECL through a central overlay in recognition of more adverse economic outcomes.

ADDITIONAL FINANCIAL INFORMATION (continued)

The key UK economic assumptions made by the Group are shown below. Compounded growth rates have been calculated on a geometric average basis, they were previously calculated on an arithmetic average basis:

Impact of economic assumptions

 
                                                            Modelled    Adjusted 
                               Base case  Upside  Downside    severe      severe 
                                       %       %         %         %           % 
At 30 September 2020 
GDP                                  0.4     0.6       0.0     (0.4)     (0.8) 
Interest rate                       0.15    0.89      0.13      0.04      0.04 
Unemployment rate                    5.8     5.4       6.7       7.7       8.3 
House price growth                   0.7     4.7     (4.2)     (8.8)     (8.8) 
Commercial real estate price 
 growth                            (0.7)     2.2     (3.4)     (7.8)     (7.8) 
 
 
At 31 December 2019 
GDP                                  1.4     1.7       1.2       0.5         n/a 
Interest rate                       1.25    2.04      0.49      0.11         n/a 
Unemployment rate                    4.3     3.9       5.8       7.2         n/a 
House price growth                   1.0     4.8     (3.2)     (7.7)         n/a 
Commercial real estate price 
 growth                              0.0     1.8     (3.8)     (7.1)         n/a 
 

Average economic assumptions do not reveal the extent of expected variation throughout the five-year period. The following tables illustrate the mutability of each assumption over time. Metrics quoted for the first and second quarters of 2020 reflect actual observed economics.

Base Case Scenario by Quarter(1)

 
                    2020     2020      2020     2020      2021     2021     2021     2021 
                      Q1       Q2        Q3       Q4        Q1       Q2       Q3       Q4 
Base Case              %        %         %        %         %        %        %        % 
 
GDP                (2.2)   (20.4)      16.2      2.7       1.0      0.9      0.9      0.8 
Interest rate       0.10     0.10      0.10     0.10      0.10     0.10     0.10     0.10 
Unemployment 
 rate                3.9      3.9       5.3      7.7       9.0      8.1      7.4      6.6 
House price 
 growth              2.8      2.6       5.4      2.0       1.0      0.3    (4.0)    (4.0) 
Commercial 
 real estate 
 price growth      (5.0)    (7.8)     (8.9)   (12.0)    (10.2)    (7.3)    (5.7)    (0.6) 
 
 
 
 
 
(1)            GDP presented quarter on quarter, house price growth and commercial 
                real estate growth presented year on year. . 
 
 

ADDITIONAL FINANCIAL INFORMATION (continued)

Scenarios by year

Key annual assumptions made by the Group. GDP is presented as an annual change, house price growth and commercial real estate price growth is presented as the growth in the respective indices within the period. Interest rate and unemployment rate are averages in the period.

 
                                        2020    2021    2022    2020-22 
                                           %       %       %          % 
Base Case 
GDP                                   (10.0)     6.0     3.0    (1.7) 
Interest rate                           0.10    0.10    0.10     0.10 
Unemployment rate                        5.2     7.8     5.9      6.3 
House price growth                       2.0   (4.0)     1.0    (1.1) 
Commercial real estate price growth   (12.0)   (0.6)     4.1    (8.9) 
 
Upside 
GDP                                    (9.9)     7.0     3.2    (0.5) 
Interest rate                           0.13    0.80    1.26     0.73 
Unemployment rate                        5.2     7.2     5.2      5.8 
House price growth                       3.2     0.2     6.7     10.4 
Commercial real estate price growth    (5.8)    10.4     5.2      9.3 
 
Downside 
GDP                                   (10.5)     4.8     2.5    (3.8) 
Interest rate                           0.10    0.11    0.12     0.11 
Unemployment rate                        5.2     8.3     6.9      6.8 
House price growth                       1.2   (9.4)   (6.1)   (13.9) 
Commercial real estate price growth   (15.7)   (8.7)     1.3   (22.0) 
 
Severe downside - modelled 
GDP                                   (10.8)     3.0     1.9    (6.3) 
Interest rate                           0.08    0.02    0.02     0.04 
Unemployment rate                        5.3     9.1     8.4      7.6 
House price growth                       0.3  (13.4)  (12.9)   (24.3) 
Commercial real estate price growth   (20.8)  (19.7)   (4.1)   (39.0) 
 
Severe downside - adjusted 
GDP                                   (13.3)   (0.7)     5.2    (9.4) 
Interest rate                           0.08    0.02    0.02     0.04 
Unemployment rate                        5.4    11.6     9.2      8.7 
House price growth                       0.3  (13.4)  (12.9)   (24.3) 
Commercial real estate price growth   (20.8)  (19.7)   (4.1)   (39.0) 
 

ADDITIONAL FINANCIAL INFORMATION (continued)

   4.   Loans and advances to customers 
 
                                                                      Stage     Stage 
                                                                          2         3 
                                                                       as %      as % 
                                  Stage    Stage    Stage                of        of 
                         Total        1        2        3   POCI(1)   total     total 
                          GBPm     GBPm     GBPm     GBPm      GBPm       %         % 
At 30 September 2020 
Gross lending 
Retail: 
                       -------  -------  -------  -------   ------- 
  UK Mortgages         288,810  241,747   32,432    1,846    12,785    11.2     0.6 
  Credit cards          15,632   11,894    3,421      317         -    21.9     2.0 
  UK Motor Finance      15,350   12,276    2,838      236         -    18.5     1.5 
  Other(2)              28,192   25,691    2,051      450         -     7.3     1.6 
                       -------  -------  -------  -------   ------- 
                       347,984  291,608   40,742    2,849    12,785    11.7     0.8 
Commercial Banking: 
                       -------  -------  -------  -------   ------- 
  SME                   32,397   26,421    5,098      878         -    15.7     2.7 
  Other                 46,391   33,856    9,955    2,580         -    21.5     5.6 
                       -------  -------  -------  -------   ------- 
                        78,788   60,277   15,053    3,458         -    19.1     4.4 
Central items           59,345   59,260       13       72         -     0.0     0.1 
                       -------  -------  -------  -------   ------- 
Total gross lending    486,117  411,145   55,808    6,379    12,785    11.5     1.3 
Expected credit loss 
 allowance on drawn 
 balances              (5,731)  (1,206)  (2,328)  (1,869)     (328) 
                       -------  -------  -------  -------   ------- 
Net balance sheet 
 carrying value        480,386  409,939   53,480    4,510    12,457 
                       -------  -------  -------  -------   ------- 
 

(1) Purchased or originated credit-impaired.

(2) Retail Other includes Business Banking, Loans, Overdrafts, Europe and Retail run-off.

ADDITIONAL FINANCIAL INFORMATION (continued)

 
                                                                     Stage     Stage 
                                                                         2         3 
                                                                      as %      as % 
                                    Stage   Stage    Stage              of        of 
                           Total        1       2        3    POCI   total     total 
                            GBPm     GBPm    GBPm     GBPm    GBPm       %         % 
At 31 December 2019(1) 
Gross lending 
Retail: 
                         -------  -------  ------  -------  ------ 
                                              16, 
  UK Mortgages           289,198  257,043     935    1,506  13,714     5.9     0.5 
  Credit cards            18,198   16,132   1,681      385       -     9.2     2.1 
  UK Motor Finance        15,976   13,884   1,942      150       -    12.2     0.9 
  Other(2)                21,111   18,692   1,976      443       -     9.4     2.1 
                         -------  -------  ------  -------  ------ 
                         344,483  305,751  22,534    2,484  13,714     6.5     0.7 
Commercial Banking: 
                         -------  -------  ------  -------  ------ 
  SME                     30,433   27,206   2,507      720       -     8.2     2.4 
  Other                   48,865   43,032   3,418    2,415       -     7.0     4.9 
                         -------  -------  ------  -------  ------ 
                          79,298   70,238   5,925    3,135       -     7.5     4.0 
Central items             53,852   53,778      46       28       -     0.1     0.1 
                         -------  -------  ------  -------  ------ 
Total gross lending      477,633  429,767  28,505    5,647  13,714     6.0     1.2 
Expected credit loss 
 allowance on drawn 
 balances                (3,163)    (669)   (993)  (1,359)   (142) 
                         -------  -------  ------  -------  ------ 
Net balance sheet 
 carrying value          474,470  429,098  27,512    4,288  13,572 
                         -------  -------  ------  -------  ------ 
 

(1) Restated to reflect migration of certain customer relationships from SME business within Commercial Banking to Business Banking within Retail.

(2) Retail Other includes Business Banking, Loans, Overdrafts, Europe and Retail run-off.

ADDITIONAL FINANCIAL INFORMATION (continued)

5. Expected credit loss allowances (drawn and undrawn) as a percentage of loans and advances to customers

 
 
                               Total         Stage 1        Stage 2        Stage 3         POCI 
                           -------------  -------------  -------------  -------------  ------------ 
At 30 
 September 2020             GBPm  %(1,2)   GBPm  %(1,2)   GBPm  %(1,2)   GBPm  %(1,2)  GBPm  %(1,2) 
 
Retail: 
                           -----          -----          -----          -----          ---- 
  Secured                  1,143     0.4    109     0.0    507     1.6    199    10.8   328     2.6 
  Credit Cards               998     6.4    249     2.1    644    18.8    105    42.3     -       - 
  UK Motor Finance(3)        557     3.6    198     1.6    215     7.6    144    61.0     -       - 
  Other(4)                   921     3.3    328     1.3    431    21.0    162    48.2     -       - 
                           -----          -----          -----          -----          ---- 
                           3,619     1.0    884     0.3  1,797     4.4    610    22.9   328     2.6 
Commercial Banking: 
                                          -----          -----          -----          ---- 
  SME                        529     1.6    137     0.5    261     5.1    131    14.9     -       - 
  Other                    1,841     4.0    157     0.5    531     5.3  1,153    44.7     -       - 
                           -----          -----          -----          -----          ---- 
                           2,370     3.0    294     0.5    792     5.3  1,284    37.1     -       - 
Central items                225     0.4    211     0.4      1     7.7     13    18.1     -       - 
                           -----          -----          -----          -----          ---- 
Total                      6,214     1.3  1,389     0.3  2,590     4.6  1,907    30.8   328     2.6 
                           -----          -----          -----          -----          ---- 
 
Drawn                      5,731          1,206          2,328          1,869           328 
Undrawn                      483            183            262             38             - 
                           -----          -----          -----          -----          ---- 
Total                      6,214          1,389          2,590          1,907           328 
                           -----          -----          -----          -----          ---- 
 
 

(1) As a percentage of drawn balances.

(2) Stage 3 ECL allowances as a percentage of drawn balances are calculated excluding loans in recoveries in Credit Cards of GBP69 million and GBP114 million in Loans, Overdrafts and Business Banking within Retail other.

(3) UK Motor Finance for Stages 1 and 2 include GBP188 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) Retail Other includes Business Banking, Loans, Overdrafts, Europe and Retail run-off.

ADDITIONAL FINANCIAL INFORMATION (continued)

 
                             Total         Stage 1        Stage 2         Stage 3         POCI 
                         --------------  ------------  --------------  -------------  ------------ 
At 31 December 2019        GBPm  %(1,2)  GBPm  %(1,2)    GBPm  %(1,2)   GBPm  %(1,2)  GBPm  %(1,2) 
 
Retail: 
                         ------          ----          ------          -----          ---- 
  Secured                   569     0.2    24       -     281     1.7    122     8.1   142     1.0 
  Credit Cards              546     3.0   203     1.3     218    13.0    125    41.0     -       - 
  UK Motor Finance(3)       387     2.4   216     1.6      87     4.5     84    56.0     -       - 
  Other(4)                  588     2.8   196     1.0     233    11.8    159    50.0     -       - 
                         ------          ----          ------          -----          ---- 
                          2,090     0.6   639     0.2     819     3.6    490    21.5   142     1.0 
Commercial Banking: 
                                         ----          ------          -----          ---- 
  SME                       273     0.9    45     0.2     127     5.1    101    14.0     -       - 
  Other                     946     1.9    60     0.1     123     3.6    763    31.6     -       - 
                         ------          ----          ------          -----          ---- 
                          1,219     1.5   105     0.1     250     4.2    864    27.6     -       - 
Central items                27     0.1    16     0.0       1     2.2     10    35.7     -       - 
                         ------          ----          ------          -----          ---- 
Total                     3,336     0.7   760     0.2   1,070     3.8  1,364    25.1   142     1.0 
                         ------          ----          ------          -----          ---- 
 
Drawn                     3,163           669             993          1,359           142 
Undrawn                     173            91              77              5             - 
                         ------          ----          ------          -----          ---- 
Total                     3,336           760           1,070          1,364           142 
                         ------          ----          ------          -----          ---- 
 

(1) As a percentage of drawn balances.

(2) Stage 3 ECL allowances as a percentage of drawn balances are calculated excluding loans in recoveries in Credit Cards of GBP80 million and GBP125 million in Loans, Overdrafts and Business Banking within Retail other.

(3) UK Motor Finance for Stages 1 and 2 include GBP201 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) Retail Other includes Business Banking, Loans, Overdrafts, Europe and Retail run-off.

ADDITIONAL FINANCIAL INFORMATION (continued)

6. Stage 2 loans and advances to customers

 
                                                          1-30 days past         Over 30 days 
                            Up to date                          due                 past due 
             -----------------------------------------  -------------------  --------------------- 
                 PD movements             Other 
             --------------------  ------------------- 
               Gross                 Gross                Gross                Gross 
             lending    ECL        lending   ECL        lending   ECL        lending   ECL 
                GBPm   GBPm  %(1)     GBPm  GBPm  %(1)     GBPm  GBPm  %(1)     GBPm  GBPm    %(1) 
At 30 
September 
2020 
Retail: 
             -------  -----        -------  ----        -------  ----        -------  ---- 
  Secured     20,745    207   1.0    8,256   142   1.7    1,719    55   3.2    1,712   103   6.0 
  Credit 
   cards       2,882    497  17.2      424   105  24.8       84    27  32.1       31    15  48.4 
  UK Motor 
   Finance       888     79   8.9    1,777    69   3.9      136    46  33.8       37    21  56.8 
  Other(2)       935    221  23.6      784   105  13.4      215    70  32.6      117    35  29.9 
             -------  -----        -------  ----        -------  ----        -------  ---- 
              25,450  1,004   3.9   11,241   421   3.7    2,154   198   9.2    1,897   174   9.2 
Commercial 
 Banking: 
             -------  -----        -------  ----        -------  ----        -------  ---- 
  SME          4,818    241   5.0      148     7   4.7       60     8  13.3       72     5   6.9 
  Other        9,442    523   5.5      220     5   2.3       19     1   5.3      274     2   0.7 
             -------  -----        -------  ----        -------  ----        -------  ---- 
              14,260    764   5.4      368    12   3.3       79     9  11.4      346     7   2.0 
Central 
 items             -      -     -       13     1   7.7        -     -     -        -     -     - 
             -------  -----        -------  ----        -------  ----        -------  ---- 
Total         39,710  1,768   4.5   11,622   434   3.7    2,233   207   9.3    2,243   181   8.1 
             -------  -----        -------  ----        -------  ----        -------  ---- 
 

(1) ECL allowances as a percentage of drawn balances.

(2) Retail Other includes Business Banking, Loans, Overdrafts, Europe and Retail run-off.

ADDITIONAL FINANCIAL INFORMATION (continued)

 
                                                          1-30 days past         Over 30 days 
                             Up to date                         due                 past due 
              ----------------------------------------  -------------------  --------------------- 
                 PD movements             Other 
              -------------------  ------------------- 
                Gross                Gross                Gross                Gross 
              lending   ECL        lending   ECL        lending   ECL        lending   ECL 
                 GBPm  GBPm  %(1)     GBPm  GBPm  %(1)     GBPm  GBPm  %(1)     GBPm  GBPm    %(1) 
At 31 
December 
2019 
Retail: 
              -------  ----        -------  ----        -------  ----        -------  ---- 
  Secured      10,846    83   0.8    2,593   107   4.1    1,876    33   1.8    1,620    58   3.6 
  Credit 
   cards        1,093   129  11.8      423    47  11.1      124    26  21.0       41    16  39.0 
  UK Motor 
   Finance        543    27   5.0    1,232    30   2.4      135    21  15.6       32     9  28.1 
  Other(2)        893   102  11.4      711    54   7.6      238    50  21.0      134    27  20.1 
              -------  ----        -------  ----        -------  ----        -------  ---- 
               13,375   341   2.5    4,959   238   4.8    2,373   130   5.5    1,827   110   6.0 
Commercial 
 Banking:(3) 
              -------  ----        -------  ----        -------  ----        -------  ---- 
  SME           2,014   104   5.2      410    17   4.1       56     6  10.7       27     -     - 
  Other         1,881    75   4.0    1,238    45   3.6       61     2   3.3      238     1   0.4 
              -------  ----        -------  ----        -------  ----        -------  ---- 
                3,895   179   4.6    1,648    62   3.8      117     8   6.8      265     1   0.4 
Central 
 items              -     -     -       42     1   2.4        1     -   0.0        3     -   0.0 
              -------  ----        -------  ----        -------  ----        -------  ---- 
Total          17,270   520   3.0    6,649   301   4.5    2,491   138   5.5    2,095   111   5.3 
              -------  ----        -------  ----        -------  ----        -------  ---- 
 

(1) ECL allowances as a percentage of drawn balances as at 31 December 2019 restated to reflect migration of certain customer relationships from the SME business within Commercial Banking to Business Banking within Retail.

(2) Retail Other includes Business Banking, Loans, Overdrafts, Europe and Retail run-off.

(3) Stage 2 up to date loans are assigned to PD movement if they also meet other triggers. This represents a change in presentation for Commercial Banking where these loans were reported in Other at 31 December 2019.

ADDITIONAL FINANCIAL INFORMATION (continued)

   7.   Commercial Banking lending in key coronavirus-impacted sectors(1) 
 
                                             At 30 September 2020 
                                      ----------------------------------- 
                                                                    Drawn 
                                                                   as a % 
                                                                 of loans 
                                        Drawn    Undrawn     and advances 
                                        GBPbn      GBPbn                % 
Retail non-food                           2.2        1.5            0.5 
Automotive dealerships(2)                 1.7        2.2            0.1 
Oil and gas                               1.4        2.4            0.3 
Construction                              1.3        1.6            0.3 
Hotels                                    1.9        0.3            0.4 
Passenger transport                       1.3        0.5            0.3 
Leisure                                   0.7        0.7            0.2 
Restaurants and bars                      0.8        0.2            0.2 
                                      -------  --------- 
Total                                    11.3        9.4            2.3 
                                      -------  --------- 
 

(1) Lending classified using ONS SIC codes at legal entity level.

(2) Automotive dealerships includes Black Horse Motor Wholesale lending (within Retail Division).

The spread of coronavirus has resulted in widespread industry disruption, with some sectors such as travel, transportation, retail and hospitality particularly impacted. As a proportion of the Group's overall lending, these sectors remain relatively modest. The Group expects recovery to be slow in a number of vulnerable sectors and anticipates long-term structural changes in these and other sectors. As a result, sector and credit risk appetite continues to be proactively managed to ensure the Group is protected and clients are supported in the right way.

   8.   Support measures 

Retail payment holiday characteristics (1)

 
                           Mortgages           Cards            Loans            Motor             Total 
                        ----------------  ---------------  ---------------  ---------------  ----------------- 
                          000s     GBPbn    000s    GBPbn    000s    GBPbn    000s    GBPbn     000s     GBPbn 
 
Total payment holidays 
 granted                   477  62.7         320  1.6         264  2.1         132  2.2        1,193  68.6 
First payment holiday 
 still in force             14   1.9          24  0.1          23  0.2          12  0.2           73   2.4 
Matured payment 
 holidays 
 - repaying                384  49.5         238  1.2         201  1.6         103  1.7          927  54.0 
Matured payment 
 holidays 
 - extended                 61   9.1          38  0.2          34  0.3           9  0.2          142   9.8 
Matured payment 
 holidays 
 - missed payment           18   2.2          19  0.1           7  0.0           8  0.1           51   2.4 
 
As a percentage of 
total 
matured 
Matured payment 
 holidays 
 - repaying             83%       82%     81%      80%     83%      82%     86%      84%      83%       82% 
Matured payment 
 holidays 
 - extended             13%       15%     13%      14%     14%      15%      8%      10%      13%       15% 
Matured payment 
 holidays 
 - missed payment        4%        4%      6%       6%      3%       2%      6%       7%       5%        4% 
 

(1) Mortgages, credit cards and personal loans at 24 October 2020; motor finance at 23 October 2020. 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.

   REVIEW OF PERFORMANCE   (continued) 

Government-backed loan schemes(1)

 
                                                000s  GBPbn 
 
Coronavirus Business Interruption Loan Scheme      9    2,0 
Bounce Back Loan Scheme                          278    8.4 
 

(1) Data as at 23 October 2020.

Around 1.2 million retail payment holidays, on GBP69 billion of lending, have been granted to help alleviate temporary financial pressure on customers during the crisis, of which there are c.73,000 (GBP2.4 billion) where the first payment holiday is still in force and 1.1 million (GBP66.2 billion) that have matured, including c.142,000 (GBP9.8 billion) that have then been extended. Payment holidays of up to three months have been granted across a range of retail products including mortgages, personal loans, credit cards and motor finance, with extensions available of up to three months should customers request them.

The vast majority of first payment holidays (96 per cent) have now matured, of which 82 per cent by value have restarted payments, 15 per cent have been extended and 4 per cent have missed payment. Of the mortgage payment holidays that have been extended 30 per cent have now matured with around 90 per cent having resumed payment.

Mortgages account for the largest proportion of payment holidays, with a total of around 477,000 having been granted, equating to customer balances of GBP62.7 billion. As at 24 October 2020, 97 per cent, or 463,000, have matured with 83 per cent, or 384,000, of those having resumed repayments, 13 per cent extended and 4 per cent having missed payment. The average LTV of customers extending their mortgage payment holidays and still in extension remains relatively low at 51.6 per cent, compared to 43.5 per cent for the total mortgage book.

The Group also granted 320,000 payment holidays on GBP1.6 billion of credit card balances, 264,000 payment holidays on GBP2.1 billion of unsecured personal loans and 132,000 payment holidays on GBP2.2 billion of motor finance products. These products are also experiencing c.80 per cent of customers resuming payments at the end of their payment holidays. Only GBP0.2 billion of credit card balances have been subject to a payment holiday extension and are still in extension, with GBP0.1 billion having missed payment.

Across all products, customers who are still in extension remain of a typically lower credit quality than the wider book and tend to have higher average balances than customers who have not requested payment holidays.

The Group continues to recognise interest income for the duration of payment holidays and in the absence of other credit risk indicators, the granting of a coronavirus-related payment holiday does not automatically result in a transfer between stages for the purposes of IFRS 9, albeit 35 per cent are classified as Stage 2 based on established criteria.

Within SME, the Group has granted c.33,000 capital repayment holidays, equivalent to c.GBP5.9 billion with low levels of maturities to date.

FORWARD LOOKING STATEMENTS

This document contains certain forward looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and section 27A of the US Securities Act of 1933, as amended, with respect to the business, strategy, plans and/or results of Lloyds Bank plc together with its subsidiaries (the Lloyds Bank Group) and its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about the Lloyds Bank Group's or its directors' and/or management's beliefs and expectations, are forward looking statements. Words such as 'believes', 'anticipates', 'estimates', 'expects', 'intends', 'aims', 'potential', 'will', 'would', 'could', 'considered', 'likely', 'estimate' and variations of these words and similar future or conditional expressions are intended to identify forward looking statements but are not the exclusive means of identifying such statements. Examples of such forward looking statements include, but are not limited to: projections or expectations of the Lloyds Bank Group's future financial position including profit attributable to shareholders, provisions, economic profit, dividends, capital structure, portfolios, net interest margin, capital ratios, liquidity, risk-weighted assets (RWAs), expenditures or any other financial items or ratios; litigation, regulatory and governmental investigations; the Lloyds Bank Group's future financial performance; the level and extent of future impairments and write-downs; statements of plans, objectives or goals of the Lloyds Bank Group or its management including in respect of statements about the future business and economic environments in the UK and elsewhere including, but not limited to, future trends in interest rates, foreign exchange rates, credit and equity market levels and demographic developments; statements about competition, regulation, disposals and consolidation or technological developments in the financial services industry; and statements of assumptions underlying such statements. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend upon circumstances that will or may occur in the future. Factors that could cause actual business, strategy, plans and/or results (including but not limited to the payment of dividends) to differ materially from forward looking statements made by the Lloyds Bank Group or on its behalf include, but are not limited to: general economic and business conditions in the UK and internationally; market related trends and developments; fluctuations in interest rates, inflation, exchange rates, stock markets and currencies; any impact of the transition from IBORs to alternative reference rates; the ability to access sufficient sources of capital, liquidity and funding when required; changes to the Lloyds Bank Group's or Lloyds Banking Group plc's credit ratings; the ability to derive cost savings and other benefits including, but without limitation as a result of any acquisitions, disposals and other strategic transactions; the ability to achieve strategic objectives; changing customer behaviour including consumer spending, saving and borrowing habits; changes to borrower or counterparty credit quality; concentration of financial exposure; management and monitoring of conduct risk; instability in the global financial markets, including Eurozone instability, instability as a result of uncertainty surrounding the exit by the UK from the European Union (EU) and as a result of such exit and the potential for other countries to exit the EU or the Eurozone and the impact of any sovereign credit rating downgrade or other sovereign financial issues; political instability including as a result of any UK general election; technological changes and risks to the security of IT and operational infrastructure, systems, data and information resulting from increased threat of cyber and other attacks; natural, pandemic (including but not limited to the coronavirus disease (COVID-19) outbreak and associated potential and/or actual UK or international lockdowns) and other disasters, adverse weather and similar contingencies outside the Lloyds Bank Group's or Lloyds Banking Group plc's control; inadequate or failed internal or external processes or systems; acts of war, other acts of hostility, terrorist acts and responses to those acts, geopolitical, pandemic or other such events; risks relating to climate change; changes in laws, regulations, practices and accounting standards or taxation, including as a result of the exit by the UK from the EU, or a further possible referendum on Scottish independence; changes to regulatory capital or liquidity requirements and similar contingencies outside the Lloyds Bank Group's or Lloyds Banking Group plc's control; the policies, decisions and actions of governmental or regulatory authorities or courts in the UK, the EU, the US or elsewhere including the implementation and interpretation of key legislation and regulation together with any resulting impact on the future structure of the Lloyds Bank Group; the ability to attract and retain senior management and other employees and meet its diversity objectives; actions or omissions by the Lloyds Bank Group's directors, management or employees including industrial action; changes to the Lloyds Bank Group's post-retirement defined benefit scheme obligations; the extent of any future impairment charges or write-downs caused by, but not limited to, depressed asset valuations, market disruptions and illiquid markets; the value and effectiveness of any credit protection purchased by the Lloyds Bank Group; the inability to hedge certain risks economically; the adequacy of loss reserves; the actions of competitors, including non-bank financial services, lending companies and digital innovators and disruptive technologies; and exposure to regulatory or competition scrutiny, legal, regulatory or competition proceedings, investigations or complaints. Please refer to the latest Annual Report on Form 20-F filed by Lloyds Bank plc with the US Securities and Exchange Commission for a discussion of certain factors and risks together with examples of forward looking statements. Lloyds Banking Group may also make or disclose written and/or oral forward looking statements in reports filed with or furnished to the US Securities and Exchange Commission, Lloyds Banking Group annual reviews, half-year announcements, proxy statements, offering circulars, prospectuses, press releases and other written materials and in oral statements made by the directors, officers or employees of Lloyds Banking Group to

third parties, including financial analysts. Except as required by any applicable law or regulation, the forward looking statements contained in this document are made as of today's date, and the Lloyds Bank Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this document to reflect any change in the Lloyds Bank Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The information, statements and opinions contained in this document do not constitute a public offer under any applicable law or an offer to sell any securities or financial instruments or any advice or recommendation with respect to such securities or financial instruments.

CONTACTS

For further information please contact:

INVESTORS AND ANALYSTS

Douglas Radcliffe

Group Investor Relations Director

020 7356 1571

douglas.radcliffe@lloydsbanking.com

Edward Sands

Director of Investor Relations

020 7356 1585

edward.sands@lloydsbanking.com

Nora Thoden

Director of Investor Relations - ESG

020 7356 2334

nora.thoden@lloydsbanking.com

CORPORATE AFFAIRS

Grant Ringshaw

Director of Media Relations

020 7356 2362

grant.ringshaw@lloydsbanking.com

Matt Smith

Head of Corporate Media

020 7356 3522

matt.smith@lloydsbanking.com

Copies of this interim management statement may be obtained from:

Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN

The statement can also be found on the Group's website - www.lloydsbankinggroup.com

Registered office: Lloyds Bank plc, 25 Gresham Street, London EC2V 7HN

Registered in England no. 2065

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