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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