2020 Half-Year Results - Part 2 of 2

RNS Number : 5413U
Lloyds Banking Group PLC
30 July 2020
 

 

 

2020 Half-Year Results

News Release

 

Lloyds Banking Group plc

 

30 July 2020

 

Part 2 of 2

 

 

Y'

 

 

STATUTORY INFORMATION

 

 

 

 

 

Page 

Condensed consolidated half-year financial statements

 

Consolidated income statement

71

Consolidated statement of comprehensive income

72

Consolidated balance sheet

73

Consolidated statement of changes in equity

75

Consolidated cash flow statement

78

 

 

Notes

 

1

Accounting policies, presentation and estimates

79

2

Segmental analysis

86

3

Net fee and commission income

88

4

Operating expenses

89

5

Impairment

90

6

Taxation

91

7

Earnings per share

91

8

Financial assets at fair value through profit or loss

92

9

Derivative financial instruments

92

10

Financial assets at amortised cost

93

11

Allowance for impairment losses

97

12

Debt securities in issue

101

13

Post-retirement defined benefit schemes

102

14

Provisions for liabilities and charges

103

15

Contingent liabilities, commitments and guarantees

105

16

Fair values of financial assets and liabilities

108

17

Credit quality of loans and advances to banks and customers

115

18

Future accounting developments

123

19

Other information

123

 

 

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Half-year to 

 

Half-year to 

 

Half-year to 

 

 

 

 

30 June 

 

30 June 

 

31 Dec 

 

 

 

 

2020 

 

2019 

 

2019 

 

 

Note

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

Interest and similar income

 

 

 

7,574  

 

8,399 

 

8,462 

Interest and similar expense

 

 

 

(1,018) 

 

(3,760)

 

(2,921)

Net interest income

 

 

 

6,556  

 

4,639 

 

5,541 

Fee and commission income

 

 

 

1,121  

 

1,428 

 

1,328 

Fee and commission expense

 

 

 

(558) 

 

(694)

 

(656)

Net fee and commission income

 

3

 

563  

 

734 

 

672 

Net trading income

 

 

 

(5,211) 

 

11,789 

 

6,499 

Insurance premium income

 

 

 

4,244  

 

4,431 

 

5,143 

Other operating income

 

 

 

720  

 

1,547 

 

1,361 

Other income

 

 

 

316  

 

18,501 

 

13,675 

Total income

 

 

 

6,872  

 

23,140 

 

19,216 

Insurance claims

 

 

 

1,023  

 

(14,009)

 

(9,988)

Total income, net of insurance claims

 

 

 

7,895  

 

9,131 

 

9,228 

Regulatory provisions

 

 

 

(177) 

 

(793)

 

(2,102)

Other operating expenses

 

 

 

(4,491) 

 

(4,862)

 

(4,913)

Total operating expenses

 

4

 

(4,668) 

 

(5,655)

 

(7,015)

Trading surplus

 

 

 

3,227  

 

3,476 

 

2,213 

Impairment

 

5

 

(3,829) 

 

(579)

 

(717)

(Loss) profit before tax

 

 

 

(602) 

 

2,897 

 

1,496 

Tax credit (expense)

 

6

 

621  

 

(672)

 

(715)

Profit for the period

 

 

 

19  

 

2,225 

 

781 

 

 

 

 

 

 

 

 

 

(Loss) profit attributable to ordinary shareholders

 

 

 

(234) 

 

1,942 

 

517 

Profit attributable to other equity holders

 

 

 

234 

 

251 

 

215 

Profit attributable to equity holders

 

 

 

 

2,193 

 

732 

Profit attributable to non-controlling interests

 

 

 

19  

 

32 

 

49 

Profit for the period

 

 

 

19  

 

2,225 

 

781 

 

 

 

 

 

 

 

 

 

Basic (loss) earnings per share

 

7

 

(0.3)p 

 

2.7p 

 

0.8p 

Diluted (loss) earnings per share

 

7

 

(0.3)p 

 

2.7p 

 

0.7p 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated half-year financial statements

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

Half-year to 

 

Half-year to 

 

Half-year to 

 

 

30 June 

 

30 June 

 

31 Dec 

 

 

2020 

 

2019 

 

2019 

 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

Profit for the period

 

19 

 

2,225 

 

781 

Other comprehensive income

 

 

 

 

 

 

Items that will not subsequently be reclassified to profit or loss:

 

 

 

 

 

 

Post-retirement defined benefit scheme remeasurements:

 

 

 

 

 

 

Remeasurements before tax

 

668 

 

(173)

 

(1,260)

Tax

 

(154)

 

44 

 

272 

 

 

514 

 

(129)

 

(988)

Movements in revaluation reserve in respect of equity shares held at fair value through other comprehensive income:

 

 

 

 

 

 

Change in fair value

 

(62)

 

 

(1)

Tax

 

 

12 

 

 

 

(62)

 

13 

 

(1)

Gains and losses attributable to own credit risk:

 

 

 

 

 

 

Gains (losses) before tax

 

(3)

 

(303)

 

(116)

Tax

 

 

82 

 

31 

 

 

(2)

 

(221)

 

(85)

Items that may subsequently be reclassified to profit or loss:

 

 

 

 

 

 

Movements in revaluation reserve in respect of debt securities held at fair value through other comprehensive income:

 

 

 

 

 

 

Change in fair value

 

(21) 

 

(49)

 

19 

Income statement transfers in respect of disposals

 

(137) 

 

(177)

 

(19)

Impairment recognised in the income statement

 

 

(1)

 

Tax

 

43 

 

68 

 

 

 

(109) 

 

(159)

 

Movements in cash flow hedging reserve:

 

 

 

 

 

 

Effective portion of changes in fair value taken to other comprehensive income

 

890 

 

1,179 

 

30 

Net income statement transfers

 

(223) 

 

(242)

 

(366)

Tax

 

(209) 

 

(250)

 

102 

 

 

458 

 

687 

 

(234)

Currency translation differences (tax: nil)

 

28 

 

 

(13)

Other comprehensive income for the period, net of tax

 

827 

 

192 

 

(1,318)

Total comprehensive income for the period

 

846 

 

2,417 

 

(537)

 

 

 

 

 

 

 

Total comprehensive income attributable to ordinary shareholders

 

593 

 

2,134 

 

(801)

Total comprehensive income attributable to other equity holders

 

234 

 

251 

 

215 

Total comprehensive income attributable to equity holders

 

827 

 

2,385 

 

(586)

Total comprehensive income attributable to non-controlling interests

 

19 

 

32 

 

49 

Total comprehensive income for the period

 

846 

 

2,417 

 

(537)

 

 

 

CONSOLIDATED BALANCE SHEET

 

 

 

 

 

 

 

 

At 30 June

 

At 31 Dec

 

 

2020

 

2019

 

 

(unaudited)

 

(audited)

 

Note

£m

 

£m

 

 

 

 

 

Assets

 

 

 

 

Cash and balances at central banks

 

78,139

 

55,130

Items in the course of collection from banks

 

331

 

313

Financial assets at fair value through profit or loss

8

157,113

 

160,189

Derivative financial instruments

9

32,978

 

26,369

Loans and advances to banks

 

11,202

 

9,775

Loans and advances to customers

 

501,508

 

494,988

Debt securities

 

5,604

 

5,544

Financial assets at amortised cost

10

518,314

 

510,307

Financial assets at fair value through other comprehensive income

 

27,211

 

25,092

Investments in joint ventures and associates

 

311

 

304

Goodwill

 

2,324

 

2,324

Value of in-force business

 

5,397

 

5,558

Other intangible assets

 

3,985

 

3,808

Property, plant and equipment

 

12,212

 

13,104

Current tax recoverable

 

947

 

7

Deferred tax assets

 

2,611

 

2,666

Retirement benefit assets

13

2,241

 

681

Assets arising from reinsurance contracts held

 

22,220

 

23,567

Other assets

 

6,660

 

4,474

Total assets

 

872,994

 

833,893

 

 

 

CONSOLIDATED BALANCE SHEET (continued)

 

 

 

 

 

 

 

 

At 30 June

 

At 31 Dec

 

 

2020

 

2019

 

 

(unaudited)

 

(audited)

Equity and liabilities

Note

£m

 

£m

 

 

 

 

 

Liabilities

 

 

 

 

Deposits from banks

 

34,124

 

28,179

Customer deposits

 

453,446

 

421,320

Items in course of transmission to banks

 

309

 

373

Financial liabilities at fair value through profit or loss

 

21,474

 

21,486

Derivative financial instruments

9

28,631

 

25,779

Notes in circulation

 

1,256

 

1,079

Debt securities in issue

12

99,931

 

97,689

Liabilities arising from insurance contracts and participating investment contracts

 

108,125

 

111,449

Liabilities arising from non-participating investment contracts

 

34,927

 

37,459

Other liabilities

 

21,395

 

20,333

Retirement benefit obligations

13

271

 

257

Current tax liabilities

 

33

 

187

Deferred tax liabilities

 

32

 

44

Other provisions

14

2,461

 

3,323

Subordinated liabilities

 

17,717

 

17,130

Total liabilities

 

824,132

 

786,087

Equity and liabilities

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

Share capital

 

7,076

 

7,005

Share premium account

 

17,856

 

17,751

Other reserves

 

14,010

 

13,695

Retained profits

 

3,792

 

3,246

Shareholders' equity

 

42,734

 

41,697

Other equity instruments

 

5,906

 

5,906

Total equity excluding non-controlling interests

 

48,640

 

47,603

Non-controlling interests

 

222

 

203

Total equity

 

48,862

 

47,806

Total equity and liabilities

 

872,994

 

833,893

 

 

 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to ordinary shareholders

 

 

 

 

 

 

 

 

Share 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

capital 

 

 

 

 

 

 

 

Other 

 

Non - 

 

 

 

 

and 

 

Other 

 

Retained 

 

 

 

equity 

 

controlling 

 

 

 

 

premium 

 

reserves 

 

profits 

 

Total 

 

instruments 

 

interests 

 

Total 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2020

 

24,756 

 

13,695 

 

3,246 

 

41,697 

 

5,906 

 

203 

 

47,806 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) profit for the period

 

 

 

(234)

 

(234)

 

234 

 

19 

 

19 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Post-retirement defined benefit scheme remeasurements, net of tax

 

 

 

514 

 

514 

 

 

 

514 

Movements in revaluation reserve in  respect of financial assets held at fair value through other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

(109)

 

 

(109)

 

 

 

(109)

Equity shares

 

 

(62)

 

 

(62)

 

 

 

(62)

Gains and losses attributable to own credit risk, net of tax

 

 

 

(2)

 

(2)

 

 

 

(2)

Movements in cash flow hedging reserve, net of tax

 

 

458 

 

 

458 

 

 

 

458 

Currency translation differences (tax: £nil)

 

 

28 

 

 

28 

 

 

 

28 

Total other comprehensive income

 

 

315 

 

512 

 

827 

 

 

 

827 

Total comprehensive income1

 

 

315 

 

278 

 

593 

 

234 

 

19 

 

846 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions on other equity instruments

 

 

 

 

 

(234)

 

 

(234)

Issue of ordinary shares2

 

176 

 

 

 

176 

 

 

 

176 

Movement in treasury shares

 

 

 

221 

 

221 

 

 

 

221 

Value of employee services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share option schemes

 

 

 

12 

 

12 

 

 

 

12 

Other employee award schemes

 

 

 

35 

 

35 

 

 

 

35 

Total transactions with owners

 

176 

 

 

268 

 

444 

 

(234)

 

 

210 

Realised gains and losses on equity shares held at fair value through other comprehensive income

 

 

 

 

 

 

 

Balance at 30 June 2020

 

24,932 

 

14,010 

 

3,792 

 

42,734 

 

5,906 

 

222 

 

48,862 

 

 

 

1

Total comprehensive income attributable to owners of the parent for the half-year to 30 June 2020 was £827 million (half-year to 30 June 2019: £2,385 million; half-year to 31 December 2019: a deficit of £586 million).

2

During the half-year to 30 June 2020, 709 million shares (half-year to 30 June 2019: 725 million shares; half-year to 31 December 2019: 51 million shares) were issued in respect of employee share schemes.

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to ordinary shareholders

 

 

 

 

 

 

 

 

Share 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

capital 

 

 

 

 

 

 

 

Other 

 

Non - 

 

 

 

 

and 

 

Other 

 

Retained 

 

 

 

equity 

 

controlling 

 

 

 

 

premium 

 

reserves 

 

profits 

 

Total 

 

instruments 

 

interests 

 

Total 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2019

 

 24,835 

 

 13,210 

 

 5,389 

 

 43,434 

 

 6,491 

 

 274 

 

 50,199 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

 

 

1,942 

 

1,942 

 

251 

 

32 

 

2,225 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Post-retirement defined benefit scheme remeasurements, net of tax

 

 

 

(129)

 

(129)

 

 

 

(129)

Movements in revaluation reserve in  respect of financial assets held at fair value through other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

(159)

 

 

(159)

 

 

 

(159)

Equity shares

 

 

13 

 

 

13 

 

 

 

13 

Gains and losses attributable to own credit risk, net of tax

 

 

 

(221)

 

(221)

 

 

 

(221)

Movements in cash flow hedging reserve, net of tax

 

 

687 

 

 

687 

 

 

 

687 

Currency translation differences (tax: £nil)

 

 

 

 

 

 

 

Total other comprehensive income

 

 

542 

 

(350)

 

192

 

 

 

192 

Total comprehensive income

 

 

542 

 

1,592

 

2,134

 

251 

 

32 

 

2,417 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 

 

(1,523)

 

(1,523)

 

 

(91)

 

(1,614)

Distributions on other equity instruments

 

 

 

 

 

(251) 

 

 

(251)

Issue of ordinary shares

 

90 

 

 

 

90 

 

 

 

90 

Share buyback

 

(113)

 

113 

 

(879)

 

(879)

 

 

 

(879)

Redemption of preference shares

 

 

(3)

 

 

 

 

 

Issue of other equity instruments

 

 

 

(1)

 

(1)

 

396 

 

 

395 

Redemption of other equity instruments

 

 

 

 

 

(1,481)

 

 

(1,481)

Movement in treasury shares

 

 

 

71 

 

71 

 

 

 

71 

Value of employee services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share option schemes

 

 

 

34 

 

34 

 

 

 

34 

Other employee award schemes

 

 

 

88 

 

88 

 

 

 

88 

Changes in non-controlling interests

 

 

 

 

 

 

(14)

 

(14)

Total transactions with owners

 

(20)

 

110 

 

(2,210)

 

(2,120)

 

(1,336)

 

(105)

 

(3,561)

Realised gains and losses on equity shares held at fair value through other comprehensive income

 

 

 

(2)

 

 

 

 

Balance at 30 June 2019

 

24,815 

 

13,864 

 

4,769 

 

43,448 

 

5,406 

 

201 

 

49,055 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to ordinary shareholders

 

 

 

 

 

 

 

 

Share 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

capital 

 

 

 

 

 

 

 

Other 

 

Non- 

 

 

 

 

and 

 

Other 

 

Retained 

 

 

 

equity 

 

controlling 

 

 

 

 

premium 

 

reserves 

 

profits 

 

Total 

 

instruments 

 

interests 

 

Total 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 July 2019

 

24,815 

 

13,864 

 

4,769 

 

43,448 

 

5,406 

 

201 

 

49,055 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

 - 

 

 - 

 

517 

 

517 

 

215 

 

49 

 

781 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Post-retirement defined benefit scheme remeasurements, net of tax

 

 - 

 

 - 

 

(988)

 

(988)

 

 - 

 

 - 

 

(988)

Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

 

 

 

 

 

Equity shares

 

 

(1)

 

 

(1)

 

 

 

(1)

Gains and losses attributable to own credit risk, net of tax

 

 - 

 

 

(85)

 

(85) 

 

 - 

 

 - 

 

(85)

Movements in cash flow hedging reserve, net of tax

 

 - 

 

(234)

 

 - 

 

(234)

 

 - 

 

 - 

 

(234)

Currency translation differences (tax: £nil)

 

 - 

 

(13)

 

 - 

 

(13)

 

 - 

 

 - 

 

(13)

Total other comprehensive income

 

 - 

 

(245)

 

(1,073)

 

(1,318) 

 

 - 

 

 - 

 

(1,318)

Total comprehensive income

 

 - 

 

(245)

 

(556)

 

(801)

 

 215 

 

49 

 

(537)

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 - 

 

 - 

 

(789)

 

(789) 

 

 - 

 

(47) 

 

(836) 

Distributions on other equity instruments

 

 - 

 

 - 

 

 

 

 (215)

 

 - 

 

(215) 

Issue of ordinary shares

 

17 

 

 - 

 

 - 

 

17 

 

 - 

 

 - 

 

17 

Share buyback

 

(76)

 

76 

 

(216)

 

(216)

 

 - 

 

 - 

 

(216)

Issue of other equity instruments

 

 

 

(2)

 

(2) 

 

500 

 

 

498 

Movement in treasury shares

 

 - 

 

 - 

 

(74)

 

(74) 

 

 - 

 

 - 

 

(74) 

Value of employee services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share option schemes

 

 - 

 

 - 

 

37 

 

37 

 

 - 

 

 - 

 

37 

Other employee award schemes

 

 - 

 

 - 

 

77 

 

77 

 

 - 

 

 - 

 

77 

Total transactions with owners

 

(59)

 

76 

 

(967)

 

(950) 

 

285 

 

(47) 

 

(712) 

Realised gains and losses on equity shares held at fair value through other comprehensive income

 

 

 

 

 

 

 

Balance at 31 December 2019

 

24,756 

 

13,695 

 

3,246 

 

41,697 

 

5,906 

 

203 

 

47,806 

 

 

 

CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

Half-year to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2020

 

2019

 

2019

 

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

(Loss) profit before tax

 

(602)

 

2,897

 

1,496

Adjustments for:

 

 

 

 

 

 

Change in operating assets

 

(14,306)

 

(16,318)

 

5,269

Change in operating liabilities

 

41,412

 

15,630

 

(11,988)

Non-cash and other items

 

2,125

 

10,060

 

5,513

Tax paid

 

(726)

 

(557)

 

(721)

Net cash provided by (used in) operating activities

 

27,903

 

11,712

 

(431)

Cash flows from investing activities

 

 

 

 

 

 

Purchase of financial assets

 

(7,115)

 

(8,618)

 

(1,112)

Proceeds from sale and maturity of financial assets

 

5,239

 

6,574

 

3,057

Purchase of fixed assets

 

(1,314)

 

(1,866)

 

(1,576)

Proceeds from sale of fixed assets

 

440

 

676

 

756

Acquisition of businesses, net of cash acquired

 

(10)

 

(6)

 

(15)

Net cash (used in) provided by investing activities

 

(2,760)

 

(3,240)

 

1,110

Cash flows from financing activities

 

 

 

 

 

 

Dividends paid to ordinary shareholders

 

 

(1,523)

 

(789)

Distributions on other equity instruments

 

(234)

 

(251)

 

(215)

Dividends paid to non-controlling interests

 

 

(91)

 

(47)

Interest paid on subordinated liabilities

 

(682)

 

(666)

 

(512)

Proceeds from issue of subordinated liabilities

 

280

 

-

 

-

Proceeds from issue of other equity instruments

 

 

395

 

498

Proceeds from issue of ordinary shares

 

133

 

20

 

16

Share buyback

 

 

(694)

 

(401)

Repayment of subordinated liabilities

 

(1,769)

 

(515)

 

(303)

Redemption of other equity instruments

 

 

(1,481)

 

-

Net cash used in financing activities

 

(2,272)

 

(4,806)

 

(1,753)

Effects of exchange rate changes on cash and cash equivalents

 

4

 

-

 

(5)

Change in cash and cash equivalents

 

22,875

 

3,666

 

(1,079)

Cash and cash equivalents at beginning of period

 

57,811

 

55,224

 

58,890

Cash and cash equivalents at end of period

 

80,686

 

58,890

 

57,811

 

Cash and cash equivalents comprise cash and balances at central banks (excluding mandatory deposits) and amounts due from banks with a maturity of less than three months. Included within cash and cash equivalents at 30 June 2020 is £55 million (30 June 2019: £29 million; 31 December 2019: £49 million) held within the Group's life funds, which is not immediately available for use in the business.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.  Accounting policies, presentation and estimates

 

These condensed consolidated interim financial statements as at and for the period to 30 June 2020 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (FCA) and with International Accounting Standard 34 (IAS 34), Interim Financial Reporting as adopted by the European Union and comprise the results of Lloyds Banking Group plc (the Company) together with its subsidiaries (the Group). They do not include all of the information required for full annual financial statements and should be read in conjunction with the Group's consolidated financial statements as at and for the year ended 31 December 2019 which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Copies of the 2019 Annual Report and Accounts are available on the Group's website and are available upon request from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN.

 

The UK Finance Code for Financial Reporting Disclosure (the Disclosure Code) sets out disclosure principles together with supporting guidance in respect of the financial statements of UK banks. The Group has adopted the Disclosure Code and these condensed consolidated half-year financial statements have been prepared in compliance with the Disclosure Code's principles. Terminology used in these condensed consolidated half-year financial statements is consistent with that used in the Group's 2019 Annual Report and Accounts.

 

The directors consider that it is appropriate to continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements. In reaching this assessment, the directors have considered the implications of the COVID-19 pandemic upon the Group's performance and projected funding and capital position and also taken into account the impact of further stress scenarios. On this basis, the directors are satisfied that the Group will maintain adequate levels of funding and capital for the foreseeable future. Further details of the Group's funding and capital position are set out on pages 56 to 69.

 

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

 

Future accounting developments

Details of those IFRS pronouncements which will be relevant to the Group but which will not be effective at 31 December 2020 and which have not been applied in preparing these financial statements are set out in note 18.

 

Related party transactions

The Group has had no material or unusual related party transactions during the six months to 30 June 2020. Related party transactions for the six months to 30 June 2020 are similar in nature to those for the year ended 31 December 2019. Full details of the Group's related party transactions for the year to 31 December 2019 can be found in the Group's 2019 Annual Report and Accounts.

 

Critical accounting estimates and judgements

The preparation of the Group's financial statements requires management to make judgements, estimates and assumptions that impact the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may include amounts which differ from those estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group's significant judgements, estimates and assumptions are unchanged compared to those applied at 31 December 2019, except as detailed below.

 

Allowance for impairment losses

At 30 June 2020 the Group's expected credit loss allowance (ECL) was £6,541 million (31 December 2019: £3,455 million), of which £6,040 million (31 December 2019: £3,278 million) was in respect of drawn balances. The calculation of the Group's ECL allowances and its provisions against loan commitments and guarantees under IFRS 9 requires the Group to make a number of judgements, assumptions and estimates.
 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.  Accounting policies, presentation and estimates (continued)

 

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 June 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.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Base case

 

Upside

 

Downside

 

Modelled

severe

 

Adjusted

severe

 

 

%

 

%

 

%

 

%

 

%

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

 

 

 

 

 

 

 

 

 

GDP

 

0.4

 

0.8

 

0.3

 

(0.4)

 

(0.8)

Interest rate

 

0.15

 

1.06

 

0.16

 

0.03

 

0.03

Unemployment rate

 

6.0

 

5.5

 

7.1

 

8.1

 

8.8

House price growth

 

0.4

 

4.7

 

(4.8)

 

(9.6)

 

(9.6)

Commercial real estate price growth

 

(0.6)

 

2.7

 

(3.5)

 

(8.0)

 

(8.0)

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.  Accounting policies, presentation and estimates (continued)

 

The five year averages shown do not demonstrate the extent of peaks and troughs in the stated assumptions over the period. The tables below illustrate the variability of the assumptions from the start of the scenario period to the peak and trough.

 

Economic assumptions - start to peak

 

 

 

 

 

 

 

 

 

 

 

 

 

Base case

 

Upside

 

Downside

 

Modelled

severe

 

Adjusted

severe

 

 

%

 

%

 

%

 

%

 

%

At 30 June 2020

 

 

 

 

 

 

 

 

 

 

GDP

 

1.9

 

4.0

 

1.7 

 

(1.8)

 

(2.0)

Interest rate

 

0.25

 

1.50

 

0.21 

 

0.10 

 

0.10 

Unemployment rate

 

9.0

 

8.6

 

9.2 

 

9.7 

 

12.5 

House price growth

 

2.1

 

25.8

 

0.4 

 

0.4 

 

0.4 

Commercial real estate price growth

 

(2.7)

 

14.8

 

(2.7)

 

(2.7)

 

(2.7)

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

 

GDP

 

7.0

 

8.6

 

6.2

 

2.7

 

n/a

Interest rate

 

1.75

 

2.56

 

0.75

 

0.75

 

n/a

Unemployment rate

 

4.6

 

4.6

 

6.9

 

8.3

 

n/a

House price growth

 

5.2

 

26.3

 

(1.9)

 

(2.3)

 

n/a

Commercial real estate price growth

 

0.1

 

10.4

 

(0.6)

 

(1.1)

 

n/a

 

Economic assumptions - start to trough 

 

 

 

 

 

 

 

 

 

 

 

 

 

Base case

 

Upside

 

Downside

 

Modelled

severe

 

Adjusted

severe

 

 

%

 

%

 

%

 

%

 

%

At 30 June 2020

 

 

 

 

 

 

 

 

 

 

GDP

 

(19.7)

 

(19.5)

 

(19.8)

 

(20.2)

 

(26.1)

Interest rate

 

0.10 

 

0.10 

 

0.08 

 

0.01 

 

0.01 

Unemployment rate

 

3.9 

 

3.9 

 

3.9 

 

3.9 

 

3.9 

House price growth

 

(6.1)

 

(3.8)

 

(21.6)

 

(39.7)

 

(39.7)

Commercial real estate price growth

 

(20.0)

 

(11.5)

 

(27.2)

 

(42.3)

 

(42.3)

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

 

GDP

 

0.4

 

0.7

 

0.2

 

(2.7)

 

n/a

Interest rate

 

0.75

 

0.75

 

0.35

 

0.01

 

n/a

Unemployment rate

 

3.8

 

3.4

 

3.9

 

3.9

 

n/a

House price growth

 

(2.7)

 

(0.8)

 

(14.8)

 

(33.1)

 

n/a

Commercial real estate price growth

 

(0.9)

 

0.3

 

(17.5)

 

(30.9)

 

n/a

 

The Group's base case economic scenario has been materially revised in light of the impact of the COVID-19 pandemic in the UK and globally. The estimated impacts reflect judgments on the net effect of restrictions on economic activity unprecedented in peacetime, large-scale and previously untried government interventions, and lasting behavioural changes by households and businesses.

 

Although the UK economy has begun to recover as restrictions are eased, there is considerable uncertainty about the pace and eventual extent of the recovery. The Group's base case assumptions reflect an expectation of some enduring scarring as the economy works through the sharp contraction in economic activity in 2020. Consistent with this, and despite the support provided by the government's Coronavirus Job Retention Scheme and other income and lending assistance, the base case outlook entails a rise in the unemployment rate and weakness in residential and commercial property prices. The Group considers that risks to its base case economic view lie in both directions, reflecting both epidemiological and other developments, including vis-à-vis the UK's transition to new trading arrangements with the European Union.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.  Accounting policies, presentation and estimates (continued)

 

Scenarios by year

 

 

 

 

 

 

 

 

 

 

 

2020

 

2021

 

2022

 

2020-22

 

 

%

 

%

 

%

 

%

Base Case

 

 

 

 

 

 

 

 

GDP

 

(10.0)

 

6.0 

 

3.0 

 

(1.8)

Interest rate

 

0.10 

 

0.10 

 

0.10 

 

0.10 

Unemployment rate

 

7.2 

 

7.0 

 

5.7 

 

6.7 

House price growth

 

(6.0)

 

(0.1)

 

2.9 

 

(3.3)

Commercial real estate price growth

 

(20.0)

 

10.0 

 

4.0 

 

(8.5)

 

 

 

 

 

 

 

 

 

Upside

 

 

 

 

 

 

 

 

GDP

 

(9.5)

 

7.5

 

3.1

 

0.3

Interest rate

 

0.21 

 

1.15

 

1.42

 

0.92

Unemployment rate

 

7.1

 

6.2

 

4.9

 

6.1

House price growth

 

(3.7)

 

5.0

 

9.0

 

10.2

Commercial real estate price growth

 

(8.4)

 

18.6

 

3.4

 

12.4

 

 

 

 

 

 

 

 

 

Downside

 

 

 

 

 

 

 

 

GDP

 

(10.2)

 

5.8

 

3.1

 

(2.0)

Interest rate

 

0.09 

 

0.12

 

0.19

 

0.13 

Unemployment rate

 

7.3

 

7.7

 

6.8

 

7.3

House price growth

 

(8.0)

 

(6.1)

 

(4.5)

 

(17.5)

Commercial real estate price growth

 

(27.2)

 

4.0 

 

2.9

 

(22.1)

 

 

 

 

 

 

 

 

 

Severe downside - Modelled

 

 

 

 

 

 

 

 

GDP

 

(10.9)

 

3.0 

 

2.2 

 

(6.2)

Interest rate

 

0.06 

 

0.01 

 

0.02 

 

0.03 

Unemployment rate

 

7.5

 

8.9

 

8.4 

 

8.3 

House price growth

 

(9.5)

 

(11.5)

 

(11.7)

 

(29.2)

Commercial real estate price growth

 

(36.2)

 

(7.8)

 

(1.4)

 

(41.9)

 

 

 

 

 

 

 

 

 

Severe downside - Adjusted

 

 

 

 

 

 

 

 

GDP

 

(17.2)

 

4.1 

 

5.2 

 

(9.4)

Interest rate

 

0.06 

 

0.01 

 

0.02 

 

0.03 

Unemployment rate

 

8.0 

 

11.6 

 

9.2 

 

9.6 

House price growth

 

(9.5)

 

(11.5)

 

(11.7)

 

(29.2)

Commercial real estate price growth

 

(36.2)

 

(7.8)

 

(1.4)

 

(41.9)

 

Base Case Scenario by Quarter

 

 

 

 

 

 

 

 

 

 

 

 

2020

Q1

2020

Q2

2020

Q3

2020

Q4

2021 Q1

2021 Q2

2021 Q3

2021 Q4

 

 

%

%

%

%

%

%

%

%

Base Case

 

 

 

 

 

 

 

 

 

GDP

 

(1.6)

(19.3) 

(10.9)

(8.1)

(4.7)

18.1

7.7

5.1

Interest rate

 

0.10

0.10

0.10

0.10

0.10

0.10

0.10

0.10

Unemployment rate

 

3.9

7.5

8.5

9.0

8.0

7.4

6.6

6.2

House price growth

 

2.8

0.9

(2.4)

(6.0)

(6.3)

(4.0)

(1.1)

(0.1)

Commercial real estate price growth

 

(5.0)

(12.3) 

(19.9)

(20.0)

(14.4)

(3.7)

7.7

10.0

                 

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.  Accounting policies, presentation and estimates (continued)

 

Impact of multiple economic scenarios

 

The following table shows the extent to which a higher ECL allowance has been recognised to take account of forward-looking information from the weighted multiple economic scenarios (MES). The Group's probability-weighted ECL allowance continues to reflect a 30 per cent weighting of base case, upside and downside and a 10 per cent weighting of adjusted severe downside. The majority of post-model adjustments and all individually assessed provisions, although assessed on a range of multiple case specific outcomes, are reported flat under each economic scenario. At 30 June 2020 the impact of MES was an increase of £510 million to the base case (31 December 2019: £191 million).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Probability-

 

 

 

 

 

 

 

Severe

 

 

weighted

 

Upside

 

Base case

 

Downside

 

downside

 

 

£m

 

£m

 

£m

 

£m

 

£m

UK Mortgages

 

1,111

 

773

 

929

 

1,264

 

2,214

Other Retail

 

2,404

 

2,208

 

2,383

 

2,510

 

2,741

Commercial Banking

 

2,763

 

2,416

 

2,656

 

2,954

 

3,553

Other 

 

263

 

63

 

63

 

64

 

2,064

At 30 June 2020

 

6,541

 

5,460

 

6,031

 

6,792

 

10,572

 

 

 

 

 

 

 

 

 

 

 

UK Mortgages

 

569

 

317

 

464

 

653

 

1,389

Other Retail

 

1,521

 

1,443

 

1,492

 

1,564

 

1,712

Commercial Banking

 

1,315

 

1,211

 

1,258

 

1,382

 

1,597

Other 

 

50

 

50

 

50

 

50

 

50

At 31 December 2019

 

3,455

 

3,021

 

3,264

 

3,649

 

4,748

 

Sensitivity of ECL to key economic variables

 

The table below shows the impact on the Group's ECL resulting from a decrease/increase in loss given default for a 10 percentage point (pp) increase/decrease in the UK House Price Index (HPI). The increase/decrease is presented based on the adjustment phased evenly over the first ten quarters of the base case scenario.

 

(1

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

At 31 December 2019

 

 

10pp increase in HPI

 

10 pp decrease in HPI

 

10pp increase in HPI

 

10 pp decrease in HPI

 

 

 

 

 

 

 

 

 

ECL impact, £m

 

(149)

 

185

 

(110)

 

147

 

The table below shows the impact on the Group's ECL resulting from a decrease/increase for a 1 percentage point (pp) increase/decrease in the UK unemployment rate. The increase/decrease is presented based on the adjustment phased evenly over the first ten quarters of the base case scenario.

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

At 31 December 2019

 

 

1pp increase in unemployment

 

1pp decrease in unemployment

 

1pp increase in unemployment

 

1 pp decrease in unemployment

 

 

 

 

 

 

 

 

 

ECL impact, £m

 

294

 

(276)

 

141

 

(143)

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.  Accounting policies, presentation and estimates (continued)

 

Post-model adjustments

Limitations in the Group's impairment models or input data may be identified through the on-going assessment and validation of the output of the models. In these circumstances, management make appropriate adjustments to the Group's allowance for impairment losses to ensure the overall provision adequately reflects all material risks. These adjustments are generally determined taking into account the particular attributes of the exposure which have not been adequately captured by the primary impairment models. At 30 June 2020 the incorporation of the changes in the economic outlook required an additional £636 million of post model adjustments; other adjustments increased to £346 million from £161 million at 31 December 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Modelled

ECL

 

Economic

outlook

post-model

adjustments

 

Other

post-model

adjustments

 

Total ECL

 

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

UK Mortgages

 

803

 

50

 

258

 

1,111

Other Retail

 

2,008

 

358

 

38

 

2,404

Commercial Banking

 

2,685

 

28

 

50

 

2,763

Other

 

63

 

200

 

-

 

263

At 30 June 2020

 

5,559

 

636

 

346

 

6,541

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

3,294

 

-

 

161

 

3,455

 

Post model adjustments amounting to £636 million have been made to incorporate aspects of the updated economic outlook that have not been adequately captured by the models including adjustments to losses given default.  The adjusted severe downside scenario has also been incorporated using a post model adjustment.

 

At 30 June 2020, other post-model adjustments amounted to £346 million of which £258 million relates to UK Mortgages. This comprises increases for the additional end of term risk on interest-only mortgages of £171 million (31 December 2019: £132 million); accounts in long-term default of £34 million (31 December 2019: £33 million); additional risk on forborne accounts, £21 million, and adjustments to possession rate levels, £32 million. In Other Retail post-model adjustments reflect the extension of modelled lifetime on revolving products of £38 million (31 December 2019: £36 million). All post-model adjustments are reviewed at least half-yearly and are subject to strict internal governance and controls.

 

 

Significant increase in credit risk

An assessment of whether credit risk has increased significantly since initial recognition considers the change in the risk of default occurring over the remaining expected life of the financial instrument. In determining whether there has been a significant increase in credit risk, the Group uses quantitative tests based on relative and absolute probability of default movements linked to internal credit ratings together with qualitative indicators such as watchlists and other indicators of historical delinquency, credit weakness or financial difficulty. These quantitative tests are carried out on both observed and forward-looking probabilities of default (PDs) to determine whether a customer has triggered the required deterioration appropriate for their PD at origination. For each major product grouping, models have been developed which utilise historical credit loss data to produce probabilities of default for each scenario; and it is the overall weighted-average forward-looking PD that is used to assist in determining the staging of financial assets.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.  Accounting policies, presentation and estimates (continued)

 

There have been no changes to the quantitative or qualitative triggers used at 30 June 2020. The Group considers these to continue to perform adequately under the current economic conditions and notably with the widespread use of payment holidays. The use of a payment holiday in itself has not been judged to indicate a significant increase in credit risk, with the underlying long-term credit risk deemed to be driven by economic conditions and captured through the use of forward-looking models. These portfolio level models are capturing the anticipated volume of increased defaults and therefore an appropriate assessment of staging and expected credit loss.

 

Definition of default

The probability of default (PD) of an exposure, both over a 12 month period and over its lifetime, is a key input to the measurement of the ECL allowance. Default has occurred when there is evidence that the customer is experiencing significant financial difficulty which is likely to affect the ability to repay amounts due. The Group uses a 90 day past due backstop for all of its products except for UK mortgages wherein a backstop of 180 days past due is in place. The use of payment holidays is not considered to be an automatic trigger of regulatory default and therefore does not automatically trigger Stage 3. Days past due will also not accumulate on any accounts that have taken a payment holiday including those already past due.

 

Loss given default

The calculation of the ECL allowance also requires an estimate to be made of the loss that will be incurred in the event of a default. The loss given default (LGD) is based on market recovery rates and internal credit assessments. The LGD for customers utilising government funding schemes incorporates an appropriate level of recovery dependent upon the individual scheme and corresponding level of guarantee being used. The use of forecast collateral value indices in determining LGDs continues to be effective despite the temporarily low volumes of transactions upon which those indices are based.

 

Financial instrument valuations

The Group categorises financial instruments carried on the balance sheet at fair value using a three level hierarchy. Financial instruments categorised as level 1 are valued using quoted market prices and therefore minimal estimates are made in determining fair value. The fair value of financial instruments categorised as level 2 and, in particular, level 3 is determined using valuation techniques which involve management judgement and estimates the extent of which depends on the complexity of the instrument and the availability of market observable information. The COVID-19 pandemic has had a significant impact on a number of the businesses in which the Group's private equity business has an interest and, as a result, the Group has reduced the fair value of its investments in those businesses in the first half of 2020. These valuations are classified as level 3 and are based on earnings multiples; significant judgement is required in estimating both the relevant earnings and the multiple to be applied.

 

The principal judgements made by the Group in determining the fair value of its other financial assets and liabilities classified as level 3 are primarily related to interest rate spreads and interest rate volatility. Further details on the valuation of level 3 assets and liabilities, including significant unobservable inputs used in the valuation models, together with the effects of reasonably possible alternative assumptions, are given in note 16.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

2.  Segmental analysis

 

Lloyds Banking Group provides a wide range of banking and financial services in the UK and in certain locations overseas. The Group Executive Committee (GEC) remains the chief operating decision maker for the Group.

 

The segmental results and comparatives are presented on an underlying basis, the basis reviewed by the chief operating decision maker. The effects of certain asset sales, volatile items, the insurance grossing adjustment, liability management, restructuring, payment protection insurance provisions, the amortisation of purchased intangible assets and the unwind of acquisition-related fair value adjustments are excluded in arriving at underlying profit.

 

During the half-year to 30 June 2020, the Group migrated certain customer relationships from the SME business within Commercial Banking to Business Banking within Retail; the Group has also revised its approach to internal funding charges, including the adoption of the Sterling Overnight Index Average (SONIA) interest rate benchmark in place of LIBOR. Comparatives have been restated accordingly.

 

The Group's activities are organised into three financial reporting segments: Retail; Commercial Banking; and Insurance and Wealth. There has been no change to the descriptions of these segments as provided in note 4 to the Group's financial statements for the year ended 31 December 2019, neither has there been any change to the Group's segmental accounting for internal segment services or derivatives entered into by units for risk management purposes since 31 December 2019.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

income,

 

income,

 

 

 

 

 

 

 

 

Net

 

net of

 

net of

 

Profit

 

 

 

Inter-

 

 

interest

 

insurance

 

insurance

 

(loss)

 

External

 

segment

 

 

income

 

claims

 

claims

 

before tax

 

revenue

 

revenue

Half-year to 30 June 2020

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying basis

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

4,233

 

919

 

5,152

 

212

 

6,027

 

(875)

Commercial Banking

 

1,222

 

658

 

1,880

 

(668)

 

1,633

 

247

Insurance and Wealth

 

14

 

853

 

867

 

379

 

857

 

10

Other

 

9

 

31

 

40

 

(204)

 

(578)

 

618

Group

 

5,478

 

2,461

 

7,939

 

(281)

 

7,939

 

-

Reconciling items:

 

 

 

 

 

 

 

 

 

 

 

 

Insurance grossing adjustment

 

1,132

 

(1,018)

 

114

 

-

 

 

 

 

Market volatility and asset sales

 

52

 

(75)

 

(23)

 

(43)

 

 

 

 

Amortisation of purchased intangibles

 

-

 

-

 

-

 

(34)

 

 

 

 

Restructuring costs

 

-

 

(37)

 

(37)

 

(133)

 

 

 

 

Fair value unwind and other items

 

(106)

 

8

 

(98)

 

(111)

 

 

 

 

Group - statutory

 

6,556

 

1,339

 

7,895

 

(602)

 

 

 

 

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

2.  Segmental analysis (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

income,

 

income,

 

 

 

 

 

 

 

 

Net

 

net of

 

net of

 

Profit

 

 

 

Inter-

 

 

interest

 

insurance

 

insurance

 

(loss)

 

External

 

segment

 

 

income

 

claims

 

claims

 

before tax

 

revenue

 

revenue

Half-year to 30 June 20191

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying basis

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

4,561

 

1,009

 

5,570

 

2,177

 

6,514

 

(944)

Commercial Banking

 

1,449

 

731

 

2,180

 

982

 

1,861

 

319

Insurance and Wealth

 

40

 

1,183

 

1,223

 

659

 

1,152

 

71

Other

 

95

 

227

 

322

 

376

 

(232)

 

554

Group

 

6,145

 

3,150

 

9,295

 

4,194

 

9,295

 

-

Reconciling items:

 

 

 

 

 

 

 

 

 

 

 

 

Insurance grossing adjustment

 

(1,303)

 

1,418

 

115

 

-

 

 

 

 

Market volatility and asset sales

 

(87)

 

(22)

 

(109)

 

(296)

 

 

 

 

Amortisation of purchased intangibles

 

-

 

-

 

-

 

(34)

 

 

 

 

Restructuring costs

 

-

 

(48)

 

(48)

 

(182)

 

 

 

 

Fair value unwind and other items

 

(116)

 

(6)

 

(122)

 

(135)

 

 

 

 

Payment protection insurance provision

 

-

 

-

 

-

 

(650)

 

 

 

 

Group - statutory

 

4,639

 

4,492

 

9,131

 

2,897

 

 

 

 

 

 

 

1

Restated, see page 86.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

income,

 

income,

 

 

 

 

 

 

 

 

Net

 

net of

 

net of

 

Profit

 

 

 

Inter-

 

 

interest

 

insurance

 

insurance

 

(loss)

 

External

 

segment

 

 

income

 

claims

 

claims

 

before tax

 

revenue

 

revenue

Half-year to 31 December 20191

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying basis

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

4,623

 

1,010

 

5,633

 

2,036

 

6,622

 

(989)

Commercial Banking

 

1,443

 

686

 

2,129

 

772

 

1,647

 

482

Insurance and Wealth

 

37

 

838

 

875

 

407

 

774

 

101

Other

 

129

 

48

 

177

 

122

 

(229)

 

406

Group

 

6,232

 

2,582

 

8,814

 

3,337

 

8,814

 

-

Reconciling items:

 

 

 

 

 

 

 

 

 

 

 

 

Insurance grossing adjustment

 

(515)

 

603

 

88

 

-

 

 

 

 

Market volatility and asset sales

 

(63)

 

551

 

488

 

422

 

 

 

 

Amortisation of purchased intangibles

 

-

 

-

 

-

 

(34)

 

 

 

 

Restructuring costs

 

-

 

(40)

 

(40)

 

(289)

 

 

 

 

Fair value unwind and other items

 

(113)

 

(9)

 

(122)

 

(140)

 

 

 

 

Payment protection insurance provision

 

-

 

-

 

-

 

(1,800)

 

 

 

 

Group - statutory

 

5,541

 

3,687

 

9,228

 

1,496

 

 

 

 

 

 

 

1

Restated, see page 86.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

2.  Segmental analysis (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment external

 

Segment customer

 

Segment external

 

 

assets

 

deposits

 

liabilities

 

 

At 30 June

 

At 31 Dec

 

At 30 June

 

At 31 Dec

 

At 30 June

 

At 31 Dec

 

 

2020

 

20191

 

2020

 

20191

 

2020

 

20191

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

349,035 

 

350,850 

 

272,217 

 

253,128 

 

278,964 

 

261,036 

Commercial Banking

 

153,759 

 

144,795 

 

154,481 

 

144,050 

 

198,407 

 

182,318 

Insurance and Wealth

 

171,639 

 

175,869 

 

13,511 

 

13,677 

 

178,562 

 

182,333 

Other

 

198,561 

 

162,379 

 

13,237 

 

10,465 

 

168,199 

 

160,400 

Total Group

 

872,994 

 

833,893 

 

453,446 

 

421,320 

 

824,132 

 

786,087 

 

 

 

1

Restated, see page 86.

 

3.  Net fee and commission income

 

 

 

 

 

 

 

 

 

 

Half-year to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2020

 

2019

 

2019

 

 

£m

 

£m

 

£m

Fee and commission income:

 

 

 

 

 

 

Current accounts

 

307

 

325

 

334

Credit and debit card fees

 

350

 

469

 

513

Commercial banking and treasury fees

 

120

 

138

 

110

Unit trust and insurance broking

 

66

 

114

 

92

Private banking and asset management

 

3

 

46

 

23

Factoring

 

42

 

53

 

50

Other

 

233

 

283

 

206

Total fee and commission income

 

1,121

 

1,428

 

1,328

Fee and commission expense

 

(558)

 

(694)

 

(656)

Net fee and commission income

 

563

 

734

 

672

 

Current account and credit and debit card fees principally arise in Retail; commercial banking, treasury and factoring fees arise in Commercial Banking; and private banking, unit trust, insurance broking and asset management fees arise in Insurance and Wealth.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

4.  Operating expenses

 

 

 

 

 

 

 

 

 

 

Half-year to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2020

 

2019

 

2019

 

 

£m

 

£m

 

£m

Administrative expenses

 

 

 

 

 

 

Salaries and social security costs

 

1,493

 

1,627

 

1,617

Pensions and other post-retirement benefit schemes  (note 13)

 

272

 

280

 

252

Restructuring and other staff costs

 

129

 

250

 

225

 

 

1,894

 

2,157

 

2,094

Premises and equipment

 

237

 

242

 

249

Other expenses:

 

 

 

 

 

 

IT, data processing and communications

 

474

 

535

 

503

UK bank levy

 

-

 

-

 

224

Operations, marketing and other 

 

488

 

626

 

485

 

 

962

 

1,161

 

1,212

 

 

3,093

 

3,560

 

3,555

Depreciation and amortisation

 

1,398

 

1,302

 

1,358

Total operating expenses, excluding regulatory provisions

 

4,491

 

4,862

 

4,913

Regulatory provisions (note 14):

 

 

 

 

 

 

Payment protection insurance provision

 

-

 

650

 

1,800

Other regulatory provisions

 

177

 

143

 

302

 

 

177

 

793

 

2,102

Total operating expenses

 

4,668

 

5,655

 

7,015

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

5.  Impairment

 

 

 

 

 

 

 

 

 

 

Half-year to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2020

 

2019

 

2019

 

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

Impact of transfers between stages

 

1,263

 

379 

 

225 

Other changes in credit quality

 

2,111

 

223 

 

575 

Additions (repayments)

 

211

 

(64)

 

(52)

Methodology, model and assumption changes

 

44

 

43 

 

(29)

Other items

 

200

 

(2)

 

(2)

 

 

2,566

 

200 

 

492 

Total impairment charge

 

3,829

 

579 

 

717 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

Loans and advances to banks

 

21

 

 

(1)

Loans and advances to customers

 

3,464

 

598 

 

709 

Debt securities

 

1

 

 

Financial assets at amortised cost

 

3,486

 

599 

 

708 

Other assets

 

13

 

 

Impairment charge on drawn balances

 

3,499

 

599 

 

713 

Loan commitments and financial guarantees

 

324

 

(19)

 

Financial assets at fair value through other comprehensive income

 

6

 

(1)

 

Total impairment charge

 

3,829

 

579 

 

717 

 

The impairment charge includes £21 million (half-year to 30 June 2019: £90 million; half-year to 31 December 2019: £44 million) in respect of residual value impairment and voluntary terminations within the Group's UK motor finance business.

 

The Group's impairment charge comprises the following:

 

Impact of transfers between stages

The net impact on the impairment charge of transfers between stages.

 

Other changes in credit quality

Changes in loss allowance as a result of movements in risk parameters that reflect changes in customer credit quality, but which have not resulted in a transfer to a different stage. This also contains the impact on the impairment charge of write-offs and recoveries, where the related loss allowances are reassessed to reflect ultimate realisable or recoverable value.

 

Additions (repayments)

Expected loss allowances are recognised on origination of new loans or further drawdowns of existing facilities. Repayments relate to the reduction of loss allowances as a result of repayments of outstanding balances.

 

Methodology, model and assumption changes

Increase or decrease in impairment charge as a result of adjustments to the models used for expected credit loss calculations; either as changes to the model inputs or to the underlying assumptions, as well as the impact of changing the models used.

 

Other items

In the half-year to 30 June 2020 this includes a central adjustment of £200 million to reflect the adjusted severe downside economic scenario (note 1).

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

6.  Taxation

 

In accordance with IAS 34, the Group's income tax expense for the half-year to 30 June 2020 is based on the best estimate of the weighted-average annual income tax rate expected for the full financial year. The tax effects of one-off items are not included in the weighted-average annual income tax rate, but are recognised in the relevant period.

 

An explanation of the relationship between tax expense and accounting profit is set out below:

 

 

 

 

 

 

 

 

 

 

Half-year to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2020

 

2019

 

2019

 

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

(Loss) profit before tax

 

(602)

 

2,897

 

1,496

UK corporation tax thereon at 19 per cent (2019:19 per cent)

 

114

 

(550)

 

(285)

Impact of surcharge on banking profits

 

44

 

(221)

 

(143)

Non-deductible costs: conduct charges

 

(11)

 

(103)

 

(267)

Non-deductible costs: bank levy

 

-

 

 

(43)

Other non-deductible costs

 

(40)

 

(39)

 

(82)

Non-taxable income

 

76

 

45

 

(5)

Tax relief on coupons on other equity instruments

 

44

 

47

 

42

Tax-exempt gains on disposals

 

3

 

10

 

92

Tax losses where no deferred tax recognised

 

(1)

 

12

 

6

Remeasurement of deferred tax due to rate changes

 

354

 

14

 

(20)

Differences in overseas tax rates

 

13

 

(15)

 

1

Policyholder tax

 

(23)

 

(38)

 

(29)

Policyholder deferred tax asset in respect of life assurance expenses

 

-

 

-

 

(53)

Adjustments in respect of prior years

 

48

 

166

 

71

Tax credit (expense)

 

621

 

(672)

 

(715)

 

On 29 October 2018 the UK Government announced its intention to restrict the use of capital tax losses to 50 per cent of any future gains that arise. This restriction was substantively enacted on 2 July 2020 and will reduce the Group's net deferred tax asset by £58 million in the second half of the year, with £44 million to be recognised within the Group's tax expense and £14 million within other comprehensive income.

 

7.  Earnings per share

 

 

 

 

 

 

 

 

 

 

Half-year to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2020

 

2019

 

2019

 

 

 

 

 

 

 

(Loss) profit attributable to ordinary shareholders 

- basic and diluted (£m)

 

(234)

 

1,942

 

517 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of ordinary shares in issue - basic (m)

 

70,434

 

71,053

 

70,160 

Adjustment for share options and awards (m)

 

 

663

 

701 

Weighted average number of ordinary shares in issue - diluted (m)

 

70,434

 

71,716

 

70,861 

 

 

 

 

 

 

 

Basic (loss) earnings per share

 

(0.3)p

 

2.7p

 

0.8p

Diluted (loss) earnings per share

 

(0.3)p

 

2.7p

 

0.7p

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

8.  Financial assets at fair value through profit or loss

 

 

 

 

 

 

 

 

At 30 June

 

At 31 Dec

 

 

2020

 

2019

 

 

£m

 

£m

 

 

 

 

 

Trading assets

 

19,535

 

17,982

 

 

 

 

 

Other financial assets at fair value through profit or loss:

 

 

 

 

Treasury and other bills

 

20

 

19

Loans and advances to customers

 

11,002

 

10,654

Loans and advances to banks

 

3,933

 

1,886

Debt securities

 

38,300

 

33,859

Equity shares

 

84,323

 

95,789

 

 

137,578

 

142,207

Financial assets at fair value through profit or loss

 

157,113

 

160,189

 

Included in the above is £132,250 million (31 December 2019: £136,855 million) of assets relating to the insurance businesses.

 

9.  Derivative financial instruments

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

At 31 December 2019

 

 

Fair value

 

Fair value

 

Fair value

 

Fair value

 

 

of assets

 

of liabilities

 

of assets

 

of liabilities

 

 

£m

 

£m

 

£m

 

£m

Hedging

 

 

 

 

 

 

 

 

Derivatives designated as fair value hedges

 

982

 

241

 

806

 

229

Derivatives designated as cash flow hedges

 

587

 

860

 

430

 

876

 

 

1,569

 

1,101

 

1,236

 

1,105

Trading

 

 

 

 

 

 

 

 

Exchange rate contracts

 

6,426

 

5,280

 

4,990

 

6,540

Interest rate contracts

 

24,359

 

21,418

 

19,810

 

17,464

Credit derivatives

 

52

 

77

 

83

 

167

Equity and other contracts

 

572

 

755

 

250

 

503

 

 

31,409

 

27,530

 

25,133

 

24,674

Total recognised derivative assets/liabilities

 

32,978

 

28,631

 

26,369

 

25,779

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

10.  Financial assets at amortised cost

 

Half-year to 30 June 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased 

 

 

 

 

 

 

 

 

 

 

 

 

 

or 

originated 

 

 

 

 

 

 

 

 

 

 

 

 

 

credit- 

 

 

 

 

 

 

 

Stage 1 

 

Stage 2 

 

Stage 3 

 

impaired 

 

Total 

 

 

 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

Loans and advances to banks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

 

 

9,777 

 

 

 

 

9,777 

 

Exchange and other adjustments

 

 

 

368 

 

 

 

 

368 

 

Transfers to Stage 2

 

 

 

(43)

 

43 

 

 

 

 

Additions (repayments)

 

 

 

1,078 

 

 

 

 

1,079 

 

At 30 June 2020

 

 

 

11,180 

 

44 

 

 

 

11,224 

 

Allowance for impairment losses

 

(21)

 

(1)

 

 

 

(22)

 

Total loans and advances to banks

 

11,159 

 

43 

 

 

 

11,202 

 

                                        

 

Loans and advances to customers

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

 

 

449,975 

 

28,543 

 

6,015 

 

13,714 

 

498,247 

Exchange and other adjustments

 

 

 

2,735 

 

27 

 

 

(54)

 

2,712 

Additions (repayments)

 

 

 

8,247 

 

417 

 

(836)

 

(593)

 

7,235 

Transfers to Stage 1

 

 

 

3,154 

 

(3,145)

 

(9)

 

 

 

Transfers to Stage 2

 

 

 

(33,522)

 

33,866 

 

(344)

 

 

 

Transfers to Stage 3

 

 

 

(1,060)

 

(1,569)

 

2,629 

 

 

 

 

 

 

 

(31,428)

 

29,152 

 

2,276 

 

 

 

Recoveries

 

 

 

 

 

 

 

86 

 

 

86 

Financial assets that have been written off

 

 

 

 

 

(762)

 

(24)

 

(786)

At 30 June 2020

 

 

 

429,529 

 

58,139 

 

6,783 

 

13,043 

 

507,494 

Allowance for impairment losses

 

(1,332)

 

(2,168)

 

(2,161)

 

(325)

 

(5,986)

Total loans and advances to customers

 

428,197 

 

55,971 

 

4,622 

 

12,718 

 

501,508 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

 

 

5,544 

 

 

 

 

5,547 

 

Exchange and other adjustments

 

 

 

112 

 

 

 

 

112 

 

Additions (repayments)

 

 

 

(50)

 

 

 

 

(50)

 

Financial assets that have been written off

 

 

 

 

 

 

 

- 

 

At 30 June 2020

 

 

 

5,606 

 

 

 

 

5,609 

 

Allowance for impairment losses

 

(2)

 

 

(3)

 

 

(5)

 

Total debt securities

 

 

 

5,604 

 

 

 

 

5,604 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total financial assets at amortised cost

 

444,960 

 

56,014 

 

4,622 

 

12,718 

 

518,314 

 

                          

 

Exchange and other adjustments includes certain adjustments, prescribed by IFRS 9, in respect of purchased or originated credit-impaired financial assets.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

10.  Financial assets at amortised cost (continued)

 

Movements in Retail mortgage balances were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased 

 

 

 

 

 

 

 

 

 

 

 

 

 

or 

originated 

 

 

 

 

 

 

 

 

 

 

 

 

 

credit- 

 

 

 

 

 

 

 

Stage 1 

 

Stage 2 

 

Stage 3 

 

impaired 

 

Total 

 

 

 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

 

 

257,043 

 

16,935 

 

1,506 

 

13,714 

 

289,198 

 

Exchange and other adjustments

 

 

 

 

 

 

(54)

 

(53)

 

Additions (repayments)

 

 

 

(1,522)

 

(1,054)

 

(216)

 

(593)

 

(3,385)

 

Transfers to Stage 1

 

 

 

1,350 

 

(1,345)

 

(5)

 

 

 

 

Transfers to Stage 2

 

 

 

(20,260)

 

20,473 

 

(213)

 

 

 

 

Transfers to Stage 3

 

 

 

(34)

 

(702)

 

736 

 

 

 

 

 

 

 

 

(18,944)

 

18,426 

 

518 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

 

-

 

 

Financial assets that have been written off

 

 

 

 

 

(18)

 

(24)

 

(42)

 

At 30 June 2020

 

 

 

236,577 

 

34,307 

 

1,800 

 

13,043 

 

285,727 

 

Allowance for impairment losses

 

(106)

 

(491)

 

(187)

 

(325)

 

(1,109)

 

Total loans and advances to customers

 

236,471 

 

33,816 

 

1,613 

 

12,718 

 

284,618 

 

                          

 

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

10.  Financial assets at amortised cost (continued)

 

Year ended 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased 

 

 

 

 

 

 

 

 

 

 

 

 

 

or 

originated 

 

 

 

 

 

 

 

 

 

 

 

 

 

credit- 

 

 

 

 

 

 

 

Stage 1 

 

Stage 2 

 

Stage 3 

 

impaired 

 

Total 

 

 

 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

                          

Loans and advances to banks

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

 

 

6,282 

 

 

 

 

6,285 

 

Exchange and other adjustments

 

 

 

(218)

 

 

 

 

(218)

 

Additions (repayments)

 

 

 

3,713 

 

(3)

 

 

 

3,710 

 

At 31 December 2019

 

 

 

9,777 

 

 

 

 

9,777 

 

Allowance for impairment losses

 

 

 

(2)

 

 

  - 

 

 

(2)

 

Total loans and advances to banks

 

9,775 

 

 

 

 

9,775 

 

                          

 

Loans and advances to customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

 

 

441,531 

 

25,345 

 

5,741 

 

15,391 

 

488,008 

Exchange and other adjustments

 

 

 

(498)

 

(34)

 

47 

 

283 

 

(202)

Additions (repayments)

 

 

 

13,554 

 

(2,558)

 

(858)

 

(1,934)

 

8,204 

Transfers to Stage 1

 

 

 

6,318 

 

(6,286)

 

(32)

 

 

 

Transfers to Stage 2

 

 

 

(13,084)

 

13,516 

 

(432)

 

 

 

Transfers to Stage 3

 

 

 

(1,540)

 

(1,440)

 

2,980 

 

 

 

 

 

 

 

(8,306)

 

5,790 

 

2,516 

 

 

 

Recoveries

 

 

 

 

 

 

 

397 

 

28 

 

425 

Acquisition of portfolios

 

 

 

3,694 

 

 

 

 

3,694 

Financial assets that have been written off

 

 

 

 

 

(1,828)

 

(54)

 

(1,882)

At 31 December 2019

 

 

 

449,975 

 

28,543 

 

6,015 

 

13,714 

 

498,247 

Allowance for impairment losses

 

 

 

(675)

 

(995)

 

(1,447)

 

(142)

 

(3,259)

Total loans and advances to customers

 

449,300 

 

27,548 

 

4,568 

 

13,572 

 

494,988 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

 

 

5,238 

 

 

 

 

5,244 

 

Exchange and other adjustments

 

 

 

(94)

 

 

(2)

 

 

(96)

 

Additions (repayments)

 

 

 

400 

 

 

 

 

400 

 

Financial assets that have been written off

 

 

 

 

 

(1)

 

 

(1)

 

At 31 December 2019

 

 

 

5,544 

 

 

 

 

5,547 

 

Allowance for impairment losses

 

 

 

 

 

(3)

 

 

(3)

 

Total debt securities

 

 

 

5,544 

 

 

 

 

5,544 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total financial assets at amortised cost

 

464,619 

 

27,548 

 

4,568 

 

13,572 

 

510,307 

 

                          

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

10.  Financial assets at amortised cost (continued)

 

Movements in Retail mortgage balances were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased or 

originated 

 

 

 

 

 

 

 

 

 

 

 

 

 

credit- 

 

 

 

 

 

 

 

Stage 1 

 

Stage 2 

 

Stage 3 

 

impaired 

 

Total 

 

 

 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

 

 

257,797 

 

13,654 

 

1,393 

 

15,391 

 

288,235 

 

Exchange and other adjustments

 

 

 

(1)

 

 

 

283 

 

284 

 

Additions (repayments)

 

 

 

799 

 

(1,432)

 

(416)

 

(1,934)

 

(2,983)

 

Transfers to Stage 1

 

 

 

3,060 

 

(3,057)

 

(3)

 

 

 

 

Transfers to Stage 2

 

 

 

(7,879)

 

8,242 

 

(363)

 

 

 

 

Transfers to Stage 3

 

 

 

(427)

 

(472)

 

899 

 

 

 

 

 

 

 

 

(5,246)

 

4,713 

 

533 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

29 

 

28 

 

57 

 

Acquisition of portfolios

 

 

 

3,694 

 

 

 

 

3,694 

 

Financial assets that have been written off

 

 

 

 

 

(35)

 

(54)

 

(89)

 

At 31 December 2019

 

 

 

257,043 

 

16,935 

 

1,506 

 

13,714 

 

289,198 

 

Allowance for impairment losses

 

(23)

 

(281)

 

(122)

 

(142)

 

(568)

 

Total loans and advances to customers

 

257,020 

 

16,654 

 

1,384 

 

13,572 

 

288,630 

 

                           

 

The movement tables are compiled by comparing the position at the reporting date to that at the beginning of the year.

 

Transfers between stages are deemed to have taken place at the start of the reporting period, with all other movements shown in the stage in which the asset is held at the period end, with the exception of those held within Purchased or originated credit-impaired, which are not transferrable.

 

Additions (repayments) comprise new loans originated and repayments of outstanding balances throughout the reporting period. Loans which are written off in the period are first transferred to Stage 3 before acquiring a full allowance and subsequent write-off.

 

Loans and advances to customers include advances securitised under the Group's securitisation and covered bond programmes (see note 12).

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Allowance for impairment losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Half-year to 30 June 2020

 

 

 

 

 

 

 

 

Purchased 

 

 

 

 

 

 

 

 

 

 

 

or 

originated 

 

 

 

 

 

 

 

 

 

 

 

credit- 

 

 

 

 

 

Stage 1 

 

Stage 2 

 

Stage 3 

 

impaired 

 

Total 

 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

In respect of drawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

 

 

 

 

677 

 

 

 

995 

 

 

 

1,464 

 

 

 

142 

 

 

 

3,278 

 

Exchange and other adjustments

 

 

 

 

 

 

 

 

 

 

 

26 

 

 

 

(38)

 

 

 

(10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

 

 

108 

 

 

 

(107)

 

 

 

(1)

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

 

 

(90)

 

 

 

133 

 

 

 

(43)

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

 

 

(10)

 

 

 

(133)

 

 

 

143 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

 

 

(64)

 

 

 

777 

 

 

 

447 

 

 

 

 

 

 

 

1,160 

 

 

 

 

 

 

 

(56)

 

 

 

670 

 

 

 

546 

 

 

 

 

 

 

 

1,160 

 

Other items charged to the income statement

 

 

 

 

 

733 

 

 

 

503 

 

 

 

858 

 

 

 

245 

 

 

 

2,339 

 

Charge to the income statement (note 5)

 

 

 

 

 

677 

 

 

 

1,173 

 

 

 

1,404 

 

 

 

245 

 

 

 

3,499 

 

Advances written off

 

 

 

 

 

 

 

 

 

 

 

 

 

(762)

 

 

 

(24)

 

 

 

(786)

 

Recoveries of advances written off in previous years

 

 

 

 

 

 

 

 

 

 

 

 

 

86 

 

 

 

 

 

 

86 

 

Discount unwind

 

 

 

 

 

 

 

 

 

 

 

 

 

(27)

 

 

 

 

 

 

(27)

 

At 30 June 2020

 

 

 

 

 

1,355 

 

 

 

2,169 

 

 

 

2,191 

 

 

 

325 

 

 

 

6,040 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of undrawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

 

 

 

 

95 

 

 

 

77 

 

 

 

 

 

 

 

 

 

177 

 

Exchange and other adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

 

 

 

 

 

(8)

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

 

 

(8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

 

 

 

 

 

(6)

 

 

 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

 

 

(2)

 

 

 

94 

 

 

 

11 

 

 

 

 

 

 

 

103 

 

 

 

 

 

 

 

(2)

 

 

 

88 

 

 

 

17 

 

 

 

 

 

 

 

103 

 

Other items charged to the income statement

 

 

 

 

 

158 

 

 

 

50 

 

 

 

13 

 

 

 

 

 

 

221 

 

Charge to the income statement (note 5)

 

 

 

 

 

156 

 

 

 

138 

 

 

 

30 

 

 

 

 

 

 

324 

 

At 30 June 2020

 

 

 

 

 

251 

 

 

 

215 

 

 

 

35 

 

 

 

 

 

 

501 

 

Total allowance for impairment losses

 

 

 

 

 

1,606 

 

 

 

2,384 

 

 

 

2,226 

 

 

 

325 

 

 

 

6,541 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks

 

 

 

 

 

21 

 

 

 

 

 

 

 

 

 

 

 

 

22 

 

Retail mortgages

 

 

 

 

 

106 

 

 

 

491 

 

 

 

187 

 

 

 

325 

 

 

 

1,109 

 

Other

 

 

 

 

 

1,226 

 

 

 

1,677 

 

 

 

1,974 

 

 

 

 

 

 

4,877 

 

Loans and advances to customers

 

 

 

 

 

1,332 

 

 

 

2,168 

 

 

 

2,161 

 

 

 

325 

 

 

 

5,986 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets at amortised cost

 

 

 

 

 

1,355 

 

 

 

2,169 

 

 

 

2,164 

 

 

 

325 

 

 

 

6,013 

 

Other assets

 

 

 

 

 

 

 

 

 

 

 

27 

 

 

 

 

 

 

27 

 

Provisions in relation to loan commitments and

financial guarantees

 

 

 

 

 

251 

 

 

 

215 

 

 

 

35 

 

 

 

 

 

 

501 

 

Total allowance for impairment losses

 

 

 

 

 

1,606 

 

 

 

2,384 

 

 

 

2,226 

 

 

 

325 

 

 

 

6,541 

 

Expected credit loss in respect of financial assets at fair

value through other comprehensive income

(memorandum item)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Allowance for impairment losses (continued)

 

Exchange and other adjustments includes certain adjustments, prescribed by IFRS 9, in respect of purchased or originated credit-impaired financial assets.

 

The total allowance for impairment losses includes £191 million (31 December 2019: £201 million) in respect of residual value impairment and voluntary terminations within the Group's asset finance business.

 

Movements in the Group's impairment allowances in respect of Retail mortgages were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased 

 

 

 

 

 

 

 

 

 

 

 

or 

originated 

 

 

 

 

 

 

 

 

 

 

 

credit- 

 

 

 

 

 

Stage 1 

 

Stage 2 

 

Stage 3 

 

impaired 

 

Total 

 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

 

 

 

 

24 

 

 

 

281 

 

 

 

122 

 

 

 

142 

 

 

 

569 

 

Exchange and other adjustments

 

 

 

 

 

(2)

 

 

 

 

 

 

 

 

 

(38)

 

 

 

(39)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

 

 

14 

 

 

 

(14)

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

 

 

(6)

 

 

 

16 

 

 

 

(10)

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

 

 

 

 

 

(28)

 

 

 

28 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

 

 

(12)

 

 

 

159 

 

 

 

39 

 

 

 

 

 

 

 

186 

 

 

 

 

 

 

 

(4)

 

 

 

133 

 

 

 

57 

 

 

 

 

 

 

 

186 

 

Other items charged to the income statement

 

 

 

 

 

90 

 

 

 

76 

 

 

 

 

 

 

245 

 

 

 

418 

 

Charge to the income statement

 

 

 

 

 

86 

 

 

 

209 

 

 

 

64 

 

 

 

245 

 

 

 

604 

 

Advances written off

 

 

 

 

 

 

 

 

 

 

 

 

 

(18)

 

 

 

(24)

 

 

 

(42)

 

Recoveries of advances written off in previous years

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount unwind

 

 

 

 

 

 

 

 

 

 

 

 

 

10 

 

 

 

 

 

 

10 

 

At 30 June 2020

 

 

 

 

 

108 

 

 

 

491 

 

 

 

187 

 

 

 

325 

 

 

 

1,111 

 

 

£2 million of the closing allowance at 30 June 2020 relates to undrawn exposures.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Allowance for impairment losses (continued)

 

Year ended 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased 

 

 

 

 

 

 

 

 

 

 

 

or 

 originated 

 

 

 

 

 

 

 

 

 

 

 

credit- 

 

 

 

 

 

Stage 1 

 

Stage 2 

 

Stage 3 

 

impaired 

 

Total

 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m

In respect of drawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

 

 

 

 

527 

 

 

 

994 

 

 

 

1,570 

 

 

 

78 

 

 

 

3,169 

 

Exchange and other adjustments

 

 

 

 

 

11 

 

 

 

(9)

 

 

 

23 

 

 

 

283 

 

 

 

308 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

 

 

229 

 

 

 

(222)

 

 

 

(7)

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

 

 

(53)

 

 

 

92 

 

 

 

(39)

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

 

 

(15)

 

 

 

(140)

 

 

 

155 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

 

 

(175)

 

 

 

353 

 

 

 

420 

 

 

 

 

 

 

 

598 

 

 

 

 

 

 

 

(14)

 

 

 

83 

 

 

 

529 

 

 

 

 

 

 

 

598 

 

Other items charged to the income statement

 

 

 

 

 

153 

 

 

 

(73)

 

 

 

827 

 

 

 

(193)

 

 

 

714 

 

Charge to the income statement

 

 

 

 

 

139 

 

 

 

10 

 

 

 

1,356 

 

 

 

(193)

 

 

 

1,312 

 

Advances written off

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,829)

 

 

 

(54)

 

 

 

(1,883)

 

Recoveries of advances written off in previous years

 

 

 

 

 

 

 

 

 

 

 

 

 

397 

 

 

 

28 

 

 

 

425 

 

Discount unwind

 

 

 

 

 

 

 

 

 

 

 

 

 

(53)

 

 

 

 

 

 

(53)

 

At 31 December 2019

 

 

 

 

 

677 

 

 

 

995 

 

 

 

1,464 

 

 

 

142 

 

 

 

3,278 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of undrawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

 

 

 

 

123 

 

 

 

64 

 

 

 

 

 

 

 

 

 

193 

 

Exchange and other adjustments

 

 

 

 

 

 

 

 

(1)

 

 

 

 

 

 

 

 

 

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

 

 

19 

 

 

 

(19)

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

 

 

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

 

 

(1)

 

 

 

(3)

 

 

 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

 

 

(17)

 

 

 

24 

 

 

 

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other items charged to the income statement

 

 

 

 

 

(25)

 

 

 

 

 

 

(4)

 

 

 

 

 

 

(21)

 

Charge to the income statement

 

 

 

 

 

(28)

 

 

 

14 

 

 

 

(1)

 

 

 

 

 

 

(15)

 

At 31 December 2019

 

 

 

 

 

95 

 

 

 

77 

 

 

 

 

 

 

 

 

 

177 

 

Total allowance for impairment losses

 

 

 

 

 

772 

 

 

 

1,072 

 

 

 

1,469 

 

 

 

142 

 

 

 

3,455 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail mortgages

 

 

 

 

 

23 

 

 

 

281 

 

 

 

122 

 

 

 

142 

 

 

 

568 

 

Other

 

 

 

 

 

652 

 

 

 

714 

 

 

 

1,325 

 

 

 

 

 

 

2,691 

 

Loans and advances to customers

 

 

 

 

 

675 

 

 

 

995 

 

 

 

1,447 

 

 

 

142 

 

 

 

3,259 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets at amortised cost

 

 

 

 

 

677 

 

 

 

995 

 

 

 

1,450 

 

 

 

142 

 

 

 

3,264 

 

Other assets

 

 

 

 

 

 

 

 

 

 

 

14 

 

 

 

 

 

 

14 

 

Provisions in relation to loan commitments and

financial guarantees

 

 

 

 

 

95 

 

 

 

77 

 

 

 

 

 

 

 

 

 

177 

 

Total allowance for impairment losses

 

 

 

 

 

772 

 

 

 

1,072 

 

 

 

1,469 

 

 

 

142 

 

 

 

3,455 

 

Expected credit loss in respect of financial assets at fair

value through other comprehensive income

(memorandum item)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.  Allowance for impairment losses (continued)

 

Movements in the Group's impairment allowances in respect of Retail mortgages were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased 

 

 

 

 

 

 

 

 

 

 

 

or 

originated 

 

 

 

 

 

 

 

 

 

 

 

credit- 

 

 

 

 

 

Stage 1 

 

Stage 2 

 

Stage 3 

 

impaired 

 

Total 

 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

 

 

 

 

37 

 

 

 

226 

 

 

 

118 

 

 

 

78 

 

 

 

459 

 

Exchange and other adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

283 

 

 

 

283 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

 

 

17 

 

 

 

(17)

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

 

 

(13)

 

 

 

33 

 

 

 

(20)

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

 

 

(5)

 

 

 

(21)

 

 

 

26 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

 

 

(15)

 

 

 

105 

 

 

 

39 

 

 

 

 

 

 

 

129 

 

 

 

 

 

 

 

(16)

 

 

 

100 

 

 

 

45 

 

 

 

 

 

 

 

129 

 

Other items charged to the income statement

 

 

 

 

 

 

 

 

(45)

 

 

 

(59)

 

 

 

(193)

 

 

 

(294)

 

Charge to the income statement

 

 

 

 

 

(13)

 

 

 

55 

 

 

 

(14)

 

 

 

(193)

 

 

 

(165)

 

Advances written off

 

 

 

 

 

 

 

 

 

 

 

 

 

(35)

 

 

 

(54)

 

 

 

(89)

 

Recoveries of advances written off in previous years

 

 

 

 

 

 

 

 

 

 

 

 

 

29 

 

 

 

28 

 

 

 

57 

 

Discount unwind

 

 

 

 

 

 

 

 

 

 

 

 

 

24 

 

 

 

 

 

 

24 

 

At 31 December 2019

 

 

 

 

 

24 

 

 

 

281 

 

 

 

122 

 

 

 

142 

 

 

 

569 

 

 

£1 million of the closing allowance at 31 December 2019 related to undrawn exposures.

 

The Group's income statement charge comprises:

 

 

 

 

 

 

 

Half-year

 

Year ended 

 

 

to 30 June

 

31 Dec 

 

 

2020

 

2019 

 

 

£m

 

£m 

 

 

 

 

 

Drawn balances

 

3,499

 

1,312 

Undrawn balances

 

324

 

(15)

Financial assets at fair value through other comprehensive income

 

6

 

(1)

Total

 

3,829

 

1,296 

 

Transfers between stages are deemed to have taken place at the start of the reporting period, with all other movements shown in the stage in which the asset is held at the period end, with the exception of those held within Purchased or originated credit-impaired, which are not transferable. As assets are transferred between stages, the resulting change in expected credit loss of £1,160 million for drawn balances, and £103 million for undrawn balances, is presented separately as impacts of transfers between stages, in the stage in which the expected credit loss is recognised at the end of the reporting period.

 

Other items charged to the income statement include the movements in the expected credit loss as a result of new loans originated and repayments of outstanding balances throughout the reporting period. Loans which are written off in the period are first transferred to Stage 3 before acquiring a full allowance and subsequent write-off. Consequently, recoveries on assets previously written-off also occur in Stage 3 only.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

12.  Debt securities in issue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

At 31 December 2019

 

 

At fair

 

 

 

 

 

At fair

 

 

 

 

 

 

value

 

 

 

 

 

value

 

 

 

 

 

 

through

 

At

 

 

 

through

 

At

 

 

 

 

profit or

 

amortised

 

 

 

profit or

 

amortised

 

 

 

 

loss

 

cost

 

Total

 

loss

 

cost

 

Total

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Medium-term notes issued

 

7,644

 

45,903

 

53,547

 

7,484

 

41,291

 

48,775

Covered bonds

 

-

 

27,770

 

27,770

 

 -

 

29,821

 

29,821

Certificates of deposit

 

-

 

11,842

 

11,842

 

 -

 

10,598

 

10,598

Securitisation notes

 

47

 

5,830

 

5,877

 

47

 

7,288

 

7,335

Commercial paper

 

-

 

8,586

 

8,586

 

 -

 

8,691

 

8,691

 

 

7,691

 

99,931

 

107,622

 

 7,531

 

97,689

 

105,220

 

The notes issued by the Group's securitisation and covered bond programmes are held by external parties and by subsidiaries of the Group.

 

Securitisation programmes

At 30 June 2020, external parties held £5,877 million (31 December 2019: £7,335 million) and the Group's subsidiaries held £29,491 million (31 December 2019: £31,436 million) of total securitisation notes in issue of £35,368 million (31 December 2019: £38,771 million). The notes are secured on loans and advances to customers and debt securities held at amortised cost amounting to £37,809 million (31 December 2019: £42,545 million), the majority of which have been sold by subsidiary companies to bankruptcy remote structured entities. The structured entities are consolidated fully and all of these loans are retained on the Group's balance sheet.

 

Covered bond programmes

At 30 June 2020, external parties held £27,770 million (31 December 2019: £29,821 million) and the Group's subsidiaries held £100 million (31 December 2019: £100 million) of total covered bonds in issue of £27,870 million (31 December 2019: £29,921 million). The bonds are secured on certain loans and advances to customers amounting to £38,042 million (31 December 2019: £39,131 million) that have been assigned to bankruptcy remote limited liability partnerships. These loans are retained on the Group's balance sheet.

 

Cash deposits of £4,012 million (31 December 2019: £4,703 million) which support the debt securities issued by the structured entities, the term advances related to covered bonds and other legal obligations are held by the Group.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

13.  Post-retirement defined benefit schemes

 

The Group's post-retirement defined benefit scheme obligations are comprised as follows:

 

 

 

 

 

 

 

At 30 June

 

At 31 Dec

 

 

2020

 

2019

 

 

£m

 

£m

Defined benefit pension schemes:

 

 

 

 

Fair value of scheme assets

 

50,696

 

45,791

Present value of funded obligations

 

(48,593)

 

(45,241)

Net pension scheme asset

 

2,103

 

550

Other post-retirement schemes

 

(133)

 

(126)

Net retirement benefit asset

 

1,970

 

424

 

 

 

 

 

Recognised on the balance sheet as:

 

 

 

 

Retirement benefit assets

 

2,241

 

681

Retirement benefit obligations

 

(271)

 

(257)

Net retirement benefit asset

 

1,970

 

424

 

The movement in the Group's net post-retirement defined benefit scheme asset during the period was as follows:

 

 

 

 

 

£m

 

 

 

Asset at 1 January 2020

 

424

Income statement charge

 

(121)

Employer contributions

 

999

Remeasurement

 

668

Asset at 30 June 2020

 

1,970

     

 

During the first half of 2020, the Group's main pension schemes entered into a £10 billion longevity insurance arrangement (with Scottish Widows acting as a conduit) to hedge their exposure to an unexpected increase in life expectancy for approximately half of their current pensioners. As a result, the impact of changes in mortality rates in future years on the pension schemes' gross liabilities will be partially offset by movements in the value of the longevity swap, which is included within the pension schemes' assets. Upon initial recognition, the pension schemes valued the swaps at £nil and, in line with market practice, actual mortality experience is assumed to be in line with the expected mortality rate for the first year of the swap.

 

The charge to the income statement in respect of pensions and other post-retirement benefit schemes is comprised as follows:

9

 

 

 

 

 

 

 

 

Half-year to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2020

 

2019

 

2019

 

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

Defined benefit pension schemes

 

121

 

139

 

106

Defined contribution schemes

 

151

 

141

 

146

Total charge to the income statement (note 4)

 

272

 

280

 

252

            

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

13.  Post-retirement defined benefit schemes (continued)

 

The principal assumptions used in the valuations of the defined benefit pension schemes were as follows:

 

 

 

 

 

 

 

At 30 June

 

At 31 Dec

 

 

2020

 

2019

 

 

%

 

%

 

 

 

 

 

Discount rate

 

1.54

 

2.05

Rate of inflation:

 

 

 

 

Retail Prices Index

 

2.85

 

2.94

Consumer Price Index

 

1.90

 

1.99

Rate of salary increases

 

0.00

 

0.00

Weighted-average rate of increase for pensions in payment

 

2.52

 

2.57

 

14.  Provisions for liabilities and charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisions

 

Payment

 

Other

 

 

 

 

 

 

 

 

for

 

protection

 

regulatory

 

 

 

 

 

 

 

 

commitments

 

insurance

 

provisions

 

Other

 

Total

 

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

 

 

177

 

1,880

 

528

 

738

 

3,323

Exchange and other adjustments

 

 

 

-

 

-

 

9

 

-

 

9

Provisions applied

 

 

 

-

 

(999)

 

(319)

 

(117)

 

(1,435)

Charge for the period

 

 

 

324

 

-

 

177

 

63

 

564

At 30 June 2020

 

 

 

501

 

881

 

395

 

684

 

2,461

                        

 

Payment protection insurance (excluding MBNA)

The Group has made provisions for PPI costs totalling £21,875 million; no additional charge has been made in the first half of 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, albeit operations have been impacted by the coronavirus pandemic in the second quarter.

 

At 30 June 2020, a provision of £745 million remained unutilised relating to complaints and associated administration costs excluding amounts relating to MBNA. Total cash payments were £833 million during the six months to 30 June 2020.

 

The total amount provided for PPI represents the Group's best estimate of the likely future cost. A number of risks and uncertainties remain including processing the remaining outstanding complaints. These may also be impacted by any further regulatory changes. The cost could therefore differ from the Group's estimates and the assumptions underpinning them, and could result in a further provision being required.

 

For every 1 per cent increase in PIR conversion rate on the stock as at the industry deadline, the Group would expect an additional charge of approximately £100 million.

 

 

.
 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

14.  Provisions for liabilities and charges (continued)

 

Payment protection insurance (MBNA)

As announced in December 2016, the Group's exposure continues to remain capped at £240 million under the terms of the MBNA sale and purchase agreement. No additional charge has been made by MBNA to its PPI provision in the first half of 2020.

 

Other provisions for legal actions and regulatory matters

In the course of its business, the Group is engaged in discussions with the PRA, FCA and other UK and overseas regulators and other governmental authorities on a range of matters. The Group also receives complaints in connection with its past conduct and claims brought by or on behalf of current and former employees, customers, investors and other third parties and is subject to legal proceedings and other legal actions. Where significant, provisions are held against the costs expected to be incurred in relation to these matters and matters arising from related internal reviews. During the six months to 30 June 2020 the Group charged a further £177 million in respect of legal actions and other regulatory matters, and the unutilised balance at 30 June 2020 was £395 million (31 December 2019: £528 million). The most significant items are as follows.

 

Arrears handling related activities

The Group has provided an additional £28 million during the half-year to 30 June 2020 for arrears handling related activities, bringing the total provided to date to £1,009 million; the unutilised balance at 30 June 2020 was £78 million.

 

Customer claims in relation to insurance branch business in Germany

The Group continues to receive claims from customers in Germany relating to policies issued by Clerical Medical Investment Group Limited (subsequently renamed Scottish Widows Limited), with smaller numbers of claims received from customers in Austria and Italy. The industry-wide issue regarding notification of contractual 'cooling off' periods continued to lead to a steady flow of claims through 2018 and 2019. Whilst complaint volumes continued to decline during the first half of 2020, new litigation claim volumes per month have remained fairly constant. Up to 31 December 2019 the Group had provided a total of £656 million and no further amounts have been provided in the half-year to 30 June 2020; the unutilised balance at 30 June 2020 was £91 million. The validity of the claims facing the Group depends upon the facts and circumstances in respect of each claim. As a result, the ultimate financial effect, which could be significantly different from the current provision, will be known only once all relevant claims have been resolved.

 

HBOS Reading - review

The Group completed its compensation assessment for all 71 business customers within the customer review in the fourth quarter of 2019. In total more than £109 million of compensation has been accepted by victims of the HBOS Reading fraud, in addition to £14 million for ex-gratia payments and £6 million for the re-imbursements of legal fees. Sir Ross Cranston's Quality Assurance review was concluded on 10 December 2019 and made a number of recommendations, including a re-assessment of direct and consequential losses by an independent panel, an extension of debt relief, and a wider definition of de facto directors. Details of the panel were announced on 3 April 2020 and the panel's full scope and methodology was published on 7 July 2020. Details of an appeal process for the further assessments of debt relief and de facto director status have also been announced. The Group has begun its assessment of customer claims for further debt relief and de facto director status. The Group has committed to implementing Sir Ross's recommendations in full. It is not possible to estimate at this stage what the financial impact will be.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

15.  Contingent liabilities, commitments and guarantees

 

Interchange fees

With respect to multi-lateral interchange fees (MIFs), the Group is not involved in the ongoing litigation which involves card schemes such as Visa and Mastercard (as described below). However, the Group is a member / licensee of Visa and Mastercard and other card schemes. The litigation in question is as follows:

 

· litigation brought by retailers against both Visa and Mastercard which continues in the English Courts (this includes a judgment of the Supreme Court in June 2020 upholding the Court of Appeal's finding in 2018 that historic interchange arrangements of Mastercard and Visa infringed competition law); and

· litigation brought on behalf of UK consumers in the English Courts against Mastercard (judgement is awaited from the Supreme Court on whether the collective proceedings may be permissible).

 

Any impact on the Group of the litigation against Visa and Mastercard remains uncertain at this time. Insofar as Visa is required to pay damages to retailers for interchange fees set prior to June 2016, contractual arrangements to allocate liability have been agreed between various UK banks (including the Group) and Visa Inc, as part of Visa Inc's acquisition of Visa Europe in 2016.  These arrangements cap the maximum amount of liability to which the Group may be subject, and this cap is set at the cash consideration received by the Group for the sale of its stake in Visa Europe to Visa Inc in 2016.

 

LIBOR and other trading rates

In July 2014, the Group announced that it had reached settlements totalling £217 million (at 30 June 2014 exchange rates) to resolve with UK and US federal authorities legacy issues regarding the manipulation several years ago of Group companies' submissions to the British Bankers' Association (BBA) London Interbank Offered Rate (LIBOR) and Sterling Repo Rate. The Swiss Competition Commission concluded its investigation against Lloyds Bank plc in June 2019. However, the Group continues to cooperate with various other government and regulatory authorities, including a number of US State Attorneys General, in conjunction with their investigations into submissions made by panel members to the bodies that set LIBOR and various other interbank offered rates.

 

Certain Group companies, together with other panel banks, have also been named as defendants in private lawsuits, including purported class action suits, in the US in connection with their roles as panel banks contributing to the setting of US Dollar, Japanese Yen and Sterling LIBOR and the Australian BBSW Reference Rate. Certain of the plaintiffs' claims have been dismissed by the US Federal Court for Southern District of New York (subject to appeals).

 

Certain Group companies are also named as defendants in (i) UK based claims; and (ii) two Dutch class actions, raising LIBOR manipulation allegations. A number of the claims against the Group in relation to the alleged mis-sale of interest rate hedging products also include allegations of LIBOR manipulation.

 

It is currently not possible to predict the scope and ultimate outcome on the Group of the various outstanding regulatory investigations not encompassed by the settlements, any private lawsuits or any related challenges to the interpretation or validity of any of the Group's contractual arrangements, including their timing and scale.

 

UK shareholder litigation

In August 2014, the Group and a number of former directors were named as defendants in a claim by a number of claimants who held shares in Lloyds TSB Group plc (LTSB) prior to the acquisition of HBOS plc, alleging breaches of duties in relation to information provided to shareholders in connection with the acquisition and the recapitalisation of LTSB. Judgment was delivered on 15 November 2019.  The Group and its former directors successfully defended the claims. The claimants have been denied permission to appeal by the trial judge but may now seek permission to appeal from the Court of Appeal. It is currently not possible to determine the ultimate impact on the Group (if any).

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

15.  Contingent liabilities, commitments and guarantees (continued)

 

Tax authorities

The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which ceased trading on 31 December 2010. In 2013 HMRC informed the Group that their interpretation of the UK rules which allow the offset of such losses denies the claim for group relief of losses. If HMRC's position is found to be correct, management estimate that this would result in an increase in current tax liabilities of approximately £805 million (including interest) and a reduction in the Group's deferred tax asset of approximately £270 million. The Group does not agree with HMRC's position and, having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due. There are a number of other open matters on which the Group is in discussion with HMRC (including the tax treatment of certain costs arising from the divestment of TSB Banking Group plc), none of which is expected to have a material impact on the financial position of the Group.

 

Other legal actions and regulatory matters

In addition, during the ordinary course of business the Group is subject to other complaints and threatened or actual legal proceedings (including class or group action claims) brought by or on behalf of current or former employees, customers, investors or other third parties, as well as legal and regulatory reviews, challenges, investigations and enforcement actions, both in the UK and overseas. All such material matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability. In those instances where it is concluded that it is more likely than not that a payment will be made, a provision is established to management's best estimate of the amount required at the relevant balance sheet date. In some cases it will not be possible to form a view, for example because the facts are unclear or because further time is needed to assess properly the merits of the case, and no provisions are held in relation to such matters. In these circumstances, specific disclosure in relation to a contingent liability will be made where material. However the Group does not currently expect the final outcome of any such case to have a material adverse effect on its financial position, operations or cash flows.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

15.  Contingent liabilities, commitments and guarantees (continued)

 

Contingent liabilities, commitments and guarantees arising from the banking business

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June

 

At 31 Dec

 

 

2020

 

2019

 

 

£m

 

£m

 

 

 

 

 

Contingent liabilities

 

 

 

 

Acceptances and endorsements

 

141

 

74

Other:

 

 

 

 

Other items serving as direct credit substitutes

 

370

 

366

Performance bonds and other transaction-related contingencies

 

2,157

 

2,454

 

 

2,527

 

2,820

Total contingent liabilities

 

2,668

 

2,894

 

 

 

 

 

Commitments and guarantees

 

 

 

 

Documentary credits and other short-term trade-related transactions

 

1

 

-

Forward asset purchases and forward deposits placed

 

170

 

189

 

 

 

 

 

Undrawn formal standby facilities, credit lines and other commitments to lend:

 

 

 

 

Less than 1 year original maturity:

 

 

 

 

Mortgage offers made

 

14,166

 

12,684

Other commitments and guarantees

 

90,755

 

85,735

 

 

104,921

 

98,419

1 year or over original maturity

 

32,916

 

34,945

Total commitments and guarantees

 

138,008

 

133,553

 

Of the amounts shown above in respect of undrawn formal standby facilities, credit lines and other commitments to lend, £64,040 million (31 December 2019: £63,504 million) was irrevocable.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

16.  Fair values of financial assets and liabilities

 

The valuations of financial instruments have been classified into three levels according to the quality and reliability of information used to determine those fair values. Note 50 to the Group's 2019 financial statements describes the definitions of the three levels in the fair value hierarchy.

 

Valuation control framework

Key elements of the valuation control framework, which covers processes for all levels in the fair value hierarchy including level 3 portfolios, include model validation (incorporating pre-trade and post-trade testing), product implementation review and independent price verification. Formal committees meet quarterly to discuss and approve valuations in more judgemental areas.

 

Transfers into and out of level 3 portfolios

Transfers out of level 3 portfolios arise when inputs that could have a significant impact on the instrument's valuation become market observable; conversely, transfers into the portfolios arise when sources of data cease to be observable.

 

Valuation methodology

For level 2 and level 3 portfolios, there is no significant change to the valuation methodology (techniques and inputs) disclosed in the Group's 2019 Annual Report and Accounts applied to these portfolios.

 

The table below summarises the carrying values of financial assets and liabilities presented on the Group's balance sheet. The fair values presented in the table are at a specific date and may be significantly different from the amounts which will actually be paid or received on the maturity or settlement date.

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

At 31 December 2019

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

value

 

value

 

value

 

value

 

 

£m

 

£m

 

£m

 

£m

Financial assets

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss

 

157,113

 

157,113

 

160,189

 

160,189

Derivative financial instruments

 

32,978

 

32,978

 

26,369

 

26,369

 

 

 

 

 

 

 

 

 

Loans and advances to banks

 

11,202

 

11,211

 

9,775

 

9,773

Loans and advances to customers

 

501,508

 

501,494

 

494,988

 

495,804

Debt securities

 

5,604

 

5,597

 

5,544

 

5,537

Financial assets at amortised cost

 

518,314

 

518,302

 

510,307

 

511,114

Financial assets at fair value through other comprehensive income

 

27,211

 

27,211

 

25,092

 

25,092

Financial liabilities

 

 

 

 

 

 

 

 

Deposits from banks

 

34,124

 

34,190

 

28,179

 

28,079

Customer deposits

 

453,446

 

453,773

 

421,320

 

421,728

Financial liabilities at fair value through profit or loss

 

21,474

 

21,474

 

21,486

 

21,486

Derivative financial instruments

 

28,631

 

28,631

 

25,779

 

25,779

Debt securities in issue

 

99,931

 

105,211

 

97,689

 

100,443

Liabilities arising from non-participating investment contracts

 

34,927

 

34,927

 

37,459

 

37,459

Subordinated liabilities

 

17,717

 

22,368

 

17,130

 

19,783

 

The carrying amount of the following financial instruments is a reasonable approximation of fair value: cash and balances at central banks, items in the course of collection from banks, items in course of transmission to banks and notes in circulation.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

16.  Fair values of financial assets and liabilities (continued)

 

The Group manages valuation adjustments for its derivative exposures on a net basis; the Group determines their fair values on the basis of their net exposures. In all other cases, fair values of financial assets and liabilities measured at fair value are determined on the basis of their gross exposures.

 

The following tables provide an analysis of the financial assets and liabilities of the Group that are carried at fair value in the Group's consolidated balance sheet, grouped into levels 1 to 3 based on the degree to which the fair value is observable.

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

£m

 

£m

 

£m

 

£m

At 30 June 2020

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss:

 

 

 

 

 

 

 

 

Loans and advances to customers

 

-

 

11,232

 

11,264

 

22,496

Loans and advances to banks

 

-

 

4,075

 

-

 

4,075

Debt securities

 

20,747

 

23,610

 

1,841

 

46,198

Treasury and other bills

 

20

 

-

 

-

 

20

Equity shares

 

82,086

 

356

 

1,882

 

84,324

Total financial assets at fair value through profit or loss

 

102,853

 

39,273

 

14,987

 

157,113

Financial assets at fair value through other comprehensive income:

 

 

 

 

 

 

 

 

Debt securities

 

14,142

 

12,644

 

181

 

26,967

Treasury and other bills

 

80

 

-

 

-

 

80

Equity shares

 

-

 

-

 

164

 

164

Total financial assets at fair value through other comprehensive income

 

14,222

 

12,644

 

345

 

27,211

Derivative financial instruments

 

99

 

31,995

 

884

 

32,978

Total financial assets carried at fair value

 

117,174

 

83,912

 

16,216

 

217,302

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss:

 

 

 

 

 

 

 

 

Loans and advances to customers

 

-

 

10,164

 

10,912

 

21,076

Loans and advances to banks

 

18

 

2,381

 

-

 

2,399

Debt securities

 

18,670

 

20,246

 

1,990

 

40,906

Treasury and other bills

 

19

 

-

 

-

 

19

Equity shares

 

93,766

 

17

 

2,006

 

95,789

Total financial assets at fair value through profit or loss

 

112,473

 

32,808

 

14,908

 

160,189

Financial assets at fair value through other comprehensive income:

 

 

 

 

 

 

 

 

Debt securities

 

12,876

 

11,273

 

181

 

24,330

Treasury and other bills

 

535

 

-

 

-

 

535

Equity shares

 

-

 

-

 

227

 

227

Total financial assets at fair value through other comprehensive income

 

13,411

 

11,273

 

408

 

25,092

Derivative financial instruments

 

50

 

25,456

 

863

 

26,369

Total financial assets carried at fair value

 

125,934

 

69,537

 

16,179

 

211,650

          

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

16.  Fair values of financial assets and liabilities (continued)

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss:

 

 

 

 

 

 

 

 

Liabilities held at fair value through profit or loss

 

-

 

7,644

 

47

 

7,691

Trading liabilities

 

1,963

 

11,820

 

-

 

13,783

Total financial liabilities at fair value through profit or loss

 

1,963

 

19,464

 

47

 

21,474

Derivative financial instruments

 

63

 

27,101

 

1,467

 

28,631

Total financial liabilities carried at fair value

 

2,026

 

46,565

 

1,514

 

50,105

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss:

 

 

 

 

 

 

 

 

Liabilities held at fair value through profit or loss

 

 -

 

7,483

 

48

 

7,531

Trading liabilities

 

2,781

 

11,174

 

-

 

13,955

Total financial liabilities at fair value through profit or loss

 

2,781

 

18,657

 

48

 

21,486

Derivative financial instruments

 

54

 

24,358

 

1,367

 

25,779

Total financial liabilities carried at fair value

 

2,835

 

43,015

 

1,415

 

47,265

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

16.  Fair values of financial assets and liabilities (continued)

 

Movements in level 3 portfolio

The tables below analyse movements in the level 3 financial assets portfolio.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial

 

 

 

 

 

 

Financial

 

assets at

 

 

 

Total

 

 

assets at

 

fair value

 

 

 

financial

 

 

fair value

 

through other

 

 

 

assets

 

 

through profit

 

comprehensive

 

Derivative

 

carried at

 

 

 or loss

 

income

 

assets

 

 fair value

 

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

14,908

 

408

 

863

 

16,179

Exchange and other adjustments

 

106

 

11

 

19

 

136

Gains recognised in the income statement within other income

 

135

 

-

 

124

 

259

Losses recognised in other comprehensive income within the revaluation reserve in respect of financial assets carried at fair value through other comprehensive income

 

-

 

(67)

 

-

 

(67)

Purchases/ increases to customer loans

 

851

 

-

 

2

 

853

Sales/ repayments

 

(839)

 

(7)

 

(81)

 

(927)

Transfers into the level 3 portfolio

 

73

 

-

 

41

 

114

Transfers out of the level 3 portfolio

 

(247)

 

-

 

(84)

 

(331)

At 30 June 2020

 

14,987

 

345

 

884

 

16,216

Gains recognised in the income statement within other income relating to those assets held at 30 June 2020

 

141

 

-

 

132

 

273

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial

 

 

 

 

 

Financial

 

assets

 

 

 

Total

 

assets at

 

at fair value

 

 

 

financial

 

fair value

 

through other

 

 

 

assets

 

through profit

 

comprehensive

 

Derivative

 

carried at

 

 or loss

 

income

 

assets

 

 fair value

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

At 1 January 2019

 

13,917

 

267

 

927

 

15,111

Exchange and other adjustments

 

3

 

1

 

-

 

4

Gains recognised in the income statement within other income

 

489

 

-

 

251

 

740

Gains recognised in other comprehensive income within the revaluation reserve in respect of financial assets held at fair value through other comprehensive income

 

-

 

8

 

-

 

8

Purchases/ increases to customer loans

 

1,511

 

-

 

2

 

1,513

Sales/ repayments

 

(1,522)

 

(80)

 

(16)

 

(1,618)

Transfers into the level 3 portfolio

 

563

 

-

 

22

 

585

Transfers out of the level 3 portfolio

 

(98)

 

-

 

(2)

 

(100)

At 30 June 2019

 

14,863

 

196

 

1,184

 

16,243

Gains recognised in the income statement within other income relating to those assets held at 30 June 2019

 

189

 

-

 

285

 

474

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

16.  Fair values of financial assets and liabilities (continued)

 

The tables below analyse movements in the level 3 financial liabilities portfolio.

 

 

 

 

 

 

 

 

 

 

Financial

 

 

 

Total

 

 

liabilities at

 

 

 

financial

 

 

fair value

 

 

 

liabilities

 

 

through

 

Derivative

 

carried at

 

 

profit or loss

 

liabilities

 

fair value

 

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

At 1 January 2020

 

48

 

1,367

 

1,415

Exchange and other adjustments

 

-

 

20

 

20

Losses recognised in the income statement within other income

 

1

 

194

 

195

Additions

 

-

 

2

 

2

Redemptions

 

(2)

 

(8)

 

(10)

Transfers into the level 3 portfolio

 

-

 

51

 

51

Transfers out of the level 3 portfolio

 

-

 

(159)

 

(159)

At 30 June 2020

 

47

 

1,467

 

1,514

Losses recognised in the income statement within other income relating to those liabilities held at 30 June 2020

 

-

 

195

 

195

 

 

 

 

 

 

 

 

 

 

Financial

 

 

 

Total

 

 

liabilities at

 

 

 

financial

 

 

fair value

 

 

 

liabilities

 

 

through

 

Derivative

 

carried at

 

 

profit or loss

 

liabilities

 

fair value

 

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

At 1 January 2019

 

11

 

716

 

727

Exchange and other adjustments

 

-

 

-

 

-

Losses recognised in the income statement within other income

 

-

 

204

 

204

Additions

 

-

 

1

 

1

Redemptions

 

(1)

 

(12)

 

(13)

Transfers into the level 3 portfolio

 

53

 

364

 

417

Transfers out of the level 3 portfolio

 

(11)

 

-

 

(11)

At 30 June 2019

 

52

 

1,273

 

1,325

Losses recognised in the income statement within other income relating to those liabilities held at 30 June 2019

 

-

 

249

 

249

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

16.  Fair values of financial assets and liabilities (continued)

 

The tables below set out the effects of reasonably possible alternative assumptions for categories of level 3 financial assets and financial liabilities which have an aggregated carrying value greater than £500 million.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

 

 

 

 

 

 

 

 

Effect of reasonably

 

 

 

 

 

 

 

 

 

possible alternative

 

 

 

 

 

 

 

 

 

assumptions1

 

 

 

Significant

 

 

 

 

 

 

 

 

 

 

Valuation

unobservable

 

 

 

Carrying

 

Favourable

 

Unfavourable

 

 

technique(s)

inputs

 

Range2

 

value

 

changes

 

changes

 

 

 

 

 

 

 

£m

 

£m

 

£m

 

Financial assets at fair value through profit or loss

 

 

 

 

 

 

 

 

 

Loans and advances to customers

Discounted

 cash flows

Interest rate spreads (bps)

 

50 bps /

256 bps

 

11,264

 

541

 

(503)

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity and venture capital investments

Market approach

Earnings multiple

 

1.1 /

14.6

 

1,886

 

30

 

(30)

 

Equity and venture capital investments

Underlying asset/net asset value (incl. property prices)³

n/a

 

 

 

961

 

124

 

(146)

 

Unlisted equities, debt securities and property partnerships in the life funds

Underlying asset/net asset value (incl. property prices)³

n/a

 

 

 

867

 

8

 

(44)

 

Other

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

14,987

 

 

 

 

 

Financial assets at fair value through other comprehensive income

 

 

 

345

 

8

 

(9)

 

 

Derivative financial assets

 

 

 

 

 

 

 

 

 

 

 

Interest rate derivatives

Option pricing model

Interest rate volatility

 

0% /

176%

 

884

 

5

 

(7)

 

 

 

 

 

 

 

884

 

 

 

 

 

Financial assets carried at fair value

 

 

 

16,216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss

 

 

 

47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial liabilities

 

 

 

 

 

 

 

 

 

 

 

Interest rate derivatives

Option pricing model

Interest rate volatility

 

0% /

176%

 

1,467

 

 

 

Financial liabilities carried at fair value

 

 

 

1,514

 

 

 

 

 

 

 

 

1

Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.

2

The range represents the highest and lowest inputs used in the level 3 valuations.

3

Underlying asset/net asset values represent fair value.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

16.  Fair values of financial assets and liabilities (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

Effect of reasonably

 

 

 

 

 

 

 

 

possible alternative

 

 

 

 

 

 

 

 

assumptions1

 

 

Significant

 

 

 

 

 

 

 

 

 

Valuation

unobservable

 

 

 

Carrying

 

Favourable

 

Unfavourable

 

technique(s)

inputs

 

Range2

 

value

 

changes

 

changes

 

 

 

 

 

 

£m

 

£m

 

£m

Financial assets at fair value through profit or loss:

 

 

 

 

 

 

 

 

Loans and advances to customers

Discounted

cash flows

Interest rate spreads (bps)

 

 

47bps / 108bps

 

10,912

 

401

 

(384)

Equity and venture capital investments

Market approach

Earnings multiple

 

1.5 /

15.4

 

1,948

 

89

 

(89)

 

Underlying assets/net asset value (incl. property prices)³

 

 

 

 

935

 

89

 

(113)

Unlisted equities, debt securities and property partnerships in the life funds

Underlying asset/net asset value (incl. property prices, broker quotes or discounted cash flows)3

n/a

 

n/a

 

1,052

 

19

 

(41)

Other

 

 

 

 

 

61

 

1

 

(1)

 

 

 

 

 

 

14,908

 

 

 

 

Financial assets at fair value through other comprehensive income

 

 

 

 

408

 

 

 

 

Derivative financial assets:

 

 

 

 

 

 

 

 

 

 

Interest rate derivatives

Option pricing model

Interest rate volatility

 

14% /

 115%

 

863

 

5

 

(6)

 

 

 

 

 

 

863

 

 

 

 

Financial assets carried at fair value

 

 

 

 

16,179

 

 

 

 

Financial liabilities at fair value through profit or loss

 

 

 

 

48

 

 

 

 

Derivative financial liabilities:

 

 

 

 

 

 

 

 

 

Interest rate derivatives

Option pricing model

Interest rate volatility

 

14% /

 115%

 

1,367

 

 

 

 

 

 

 

 

1,367

 

 

 

 

Financial liabilities carried at fair value

 

 

 

 

1,415

 

 

 

 

 

1

Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.

2

The range represents the highest and lowest inputs used in the level 3 valuations.

3

Underlying asset/net asset values represent fair value.

 

Unobservable inputs

Significant unobservable inputs affecting the valuation of debt securities, unlisted equity investments and derivatives are unchanged from those described in the Group's 2019 financial statements.

 

Reasonably possible alternative assumptions

Valuation techniques applied to many of the Group's level 3 instruments often involve the use of two or more inputs whose relationship is interdependent. The calculation of the effect of reasonably possible alternative assumptions included in the table above reflects such relationships and are unchanged from those described in note 50 to the Group's 2019 financial statements.
 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

17.  Credit quality of loans and advances to banks and customers

 

Gross drawn exposures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

 

or

 

 

 

 

 

 

 

 

 

 

 

 

originated

 

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

PD

 

Stage 1

 

Stage 2

 

Stage 3

 

impaired

 

Total

 

 

range

 

£m

 

£m

 

£m

 

£m

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks:

 

 

 

 

 

 

 

 

 

 

CMS 1-10

 

0.00-0.50%

 

6,094

 

-

 

-

 

-

 

6,094

CMS 11-14

 

0.51-3.00%

 

5,049

 

-

 

-

 

-

 

5,049

CMS 15-18

 

3.01-20.00%

 

37

 

44

 

-

 

-

 

81

CMS 19

 

20.01-99.99%

 

-

 

-

 

-

 

-

 

-

CMS 20-23

 

100%

 

-

 

-

 

-

 

-

 

-

 

 

 

 

11,180

 

44

 

-

 

-

 

11,224

Loans and advances to customers:

 

 

 

 

 

 

 

 

 

 

Retail - mortgages

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

236,569

 

27,321

 

-

 

-

 

263,890

RMS 7-9

 

4.51-14.00%

 

8

 

3,770

 

-

 

-

 

3,778

RMS 10

 

14.01-20.00%

 

-

 

862

 

-

 

-

 

862

RMS 11-13

 

20.01-99.99%

 

-

 

2,354

 

-

 

-

 

2,354

RMS 14

 

100.00%

 

-

 

-

 

1,800

 

13,043

 

14,843

 

 

 

 

236,577

 

34,307

 

1,800

 

13,043

 

285,727

Retail - credit cards

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

10,070

 

456

 

-

 

-

 

10,526

RMS 7-9

 

4.51-14.00%

 

2,882

 

641

 

-

 

-

 

3,523

RMS 10

 

14.01-20.00%

 

403

 

361

 

-

 

-

 

764

RMS 11-13

 

20.01-99.99%

 

84

 

630

 

-

 

-

 

714

RMS 14

 

100.00%

 

-

 

-

 

368

 

-

 

368

 

 

 

 

13,439

 

2,088

 

368

 

-

 

15,895

Retail - UK Motor Finance

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

11,615

 

1,762

 

-

 

-

 

13,377

RMS 7-9

 

4.51-14.00%

 

1,054

 

693

 

-

 

-

 

1,747

RMS 10

 

14.01-20.00%

 

-

 

155

 

-

 

-

 

155

RMS 11-13

 

20.01-99.99%

 

5

 

310

 

-

 

-

 

315

RMS 14

 

100.00%

 

-

 

-

 

236

 

-

 

236

 

 

 

 

12,674

 

2,920

 

236

 

-

 

15,830

Retail - other

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

19,242

 

693

 

-

 

-

 

19,935

RMS 7-9

 

4.51-14.00%

 

3,213

 

546

 

-

 

-

 

3,759

RMS 10

 

14.01-20.00%

 

787

 

191

 

-

 

-

 

978

RMS 11-13

 

20.01-99.99%

 

997

 

631

 

-

 

-

 

1,628

RMS 14

 

100.00%

 

-

 

-

 

480

 

-

 

480

 

 

 

 

24,239

 

2,061

 

480

 

-

 

26,780

Total Retail

 

 

 

286,929

 

41,376

 

2,884

 

13,043

 

344,232

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

17.  Credit quality of loans and advances to banks and customers (continued)

 

Gross drawn exposures (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

 

or

 

 

 

 

 

 

 

 

 

 

 

 

originated

 

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

PD

 

Stage 1

 

Stage 2

 

Stage 3

 

impaired

 

Total

 

 

range

 

£m

 

£m

 

£m

 

£m

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

CMS 1-10

 

0.00-0.50%

 

29,923

 

353

 

-

 

-

 

30,276

CMS 11-14

 

0.51-3.00%

 

40,101

 

7,276

 

-

 

-

 

47,377

CMS 15-18

 

3.01-20.00%

 

8,038

 

7,543

 

-

 

-

 

15,581

CMS 19

 

20.01-99.99%

 

-

 

1,568

 

-

 

-

 

1,568

CMS 20-23

 

100%

 

-

 

-

 

3,808

 

-

 

3,808

 

 

 

 

78,062

 

16,740

 

3,808

 

-

 

98,610

Other

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

765

 

23

 

-

 

-

 

788

RMS 7-9

 

4.51-14.00%

 

-

 

-

 

-

 

-

 

-

RMS 10

 

14.01-20.00%

 

-

 

-

 

-

 

-

 

-

RMS 11-13

 

20.01-99.99%

 

-

 

-

 

-

 

-

 

-

RMS 14

 

100.00%

 

-

 

-

 

91

 

-

 

91

 

 

 

 

765

 

23

 

91

 

-

 

879

CMS 1-10

 

0.00-0.50%

 

63,773

 

-

 

-

 

-

 

63,773

CMS 11-14

 

0.51-3.00%

 

-

 

-

 

-

 

-

 

-

CMS 15-18

 

3.01-20.00%

 

-

 

-

 

-

 

-

 

-

CMS 19

 

20.01-99.99%

 

-

 

-

 

-

 

-

 

-

CMS 20-23

 

100%

 

-

 

-

 

-

 

-

 

-

 

 

 

 

63,773

 

-

 

-

 

-

 

63,773

Total loans and advances to customers

 

429,529

 

58,139

 

6,783

 

13,043

 

507,494

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

286,929

 

41,376

 

2,884

 

13,043

 

344,232

Commercial

 

 

 

78,062

 

16,740

 

3,808

 

-

 

98,610

Other

 

 

 

64,538

 

23

 

91

 

-

 

64,652

Total loans and advances to customers

 

429,529

 

58,139

 

6,783

 

13,043

 

507,494

 

The update to the Group's economic outlook has contributed to a deterioration of assigned credit quality and an increase in stage 2 balances due to the forward-looking probability of default (PD) used for rating segmentation.

 

Lending originated under the UK Government's COVID-19 support schemes is rated according to the customer's probability of default; the Government guarantees impact the anticipated loss given default (LGD).

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

17.  Credit quality of loans and advances to banks and customers (continued)

 

Expected credit losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

 

or

 

 

 

 

 

 

 

 

 

 

 

 

originated

 

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

PD

 

Stage 1

 

Stage 2

 

Stage 3

 

impaired

 

Total

 

 

range

 

£m

 

£m

 

£m

 

£m

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks:

 

 

 

 

 

 

 

 

 

 

CMS 1-10

 

0.00-0.50%

 

1

 

-

 

-

 

-

 

1

CMS 11-14

 

0.51-3.00%

 

19

 

-

 

-

 

-

 

19

CMS 15-18

 

3.01-20.00%

 

1

 

1

 

-

 

-

 

2

CMS 19

 

20.01-99.99%

 

-

 

-

 

-

 

-

 

-

CMS 20-23

 

100%

 

-

 

-

 

-

 

-

 

-

 

 

 

 

21

 

1

 

-

 

-

 

22

Loans and advances to customers:

 

 

 

 

 

 

 

 

 

 

Retail - mortgages

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

106

 

250

 

-

 

-

 

356

RMS 7-9

 

4.51-14.00%

 

-

 

79

 

-

 

-

 

79

RMS 10

 

14.01-20.00%

 

-

 

28

 

-

 

-

 

28

RMS 11-13

 

20.01-99.99%

 

-

 

134

 

-

 

-

 

134

RMS 14

 

100.00%

 

-

 

-

 

187

 

325

 

512

 

 

 

 

106

 

491

 

187

 

325

 

1,109

Retail - credit cards

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

96

 

22

 

-

 

-

 

118

RMS 7-9

 

4.51-14.00%

 

134

 

61

 

-

 

-

 

195

RMS 10

 

14.01-20.00%

 

44

 

58

 

-

 

-

 

102

RMS 11-13

 

20.01-99.99%

 

13

 

208

 

-

 

-

 

221

RMS 14

 

100.00%

 

-

 

-

 

121

 

-

 

121

 

 

 

 

287

 

349

 

121

 

-

 

757

Retail - UK Motor Finance

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

184

 

50

 

-

 

-

 

234

RMS 7-9

 

4.51-14.00%

 

8

 

47

 

-

 

-

 

55

RMS 10

 

14.01-20.00%

 

-

 

21

 

-

 

-

 

21

RMS 11-13

 

20.01-99.99%

 

-

 

99

 

-

 

-

 

99

RMS 14

 

100.00%

 

-

 

-

 

152

 

-

 

152

 

 

 

 

192

 

217

 

152

 

-

 

561

Retail - other

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

116

 

28

 

-

 

-

 

144

RMS 7-9

 

4.51-14.00%

 

110

 

43

 

-

 

-

 

153

RMS 10

 

14.01-20.00%

 

22

 

35

 

-

 

-

 

57

RMS 11-13

 

20.01-99.99%

 

17

 

213

 

-

 

-

 

230

RMS 14

 

100.00%

 

-

 

-

 

173

 

-

 

173

 

 

 

 

265

 

319

 

173

 

-

 

757

Total Retail

 

 

 

850

 

1,376

 

633

 

325

 

3,184

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

17.  Credit quality of loans and advances to banks and customers (continued)

 

Expected credit losses (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

 

or

 

 

 

 

 

 

 

 

 

 

 

 

originated

 

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

PD

 

Stage 1

 

Stage 2

 

Stage 3

 

impaired

 

Total

 

 

range

 

£m

 

£m

 

£m

 

£m

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

CMS 1-10

 

0.00-0.50%

 

21

 

2

 

-

 

-

 

23

CMS 11-14

 

0.51-3.00%

 

131

 

164

 

-

 

-

 

295

CMS 15-18

 

3.01-20.00%

 

118

 

390

 

-

 

-

 

508

CMS 19

 

20.01-99.99%

 

-

 

236

 

-

 

-

 

236

CMS 20-23

 

100%

 

-

 

-

 

1,509

 

-

 

1,509

 

 

 

 

270

 

792

 

1,509

 

-

 

2,571

Other

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

12

 

-

 

-

 

-

 

12

RMS 7-9

 

4.51-14.00%

 

-

 

-

 

-

 

-

 

-

RMS 10

 

14.01-20.00%

 

-

 

-

 

-

 

-

 

-

RMS 11-13

 

20.01-99.99%

 

-

 

-

 

-

 

-

 

-

RMS 14

 

100.00%

 

-

 

-

 

19

 

-

 

19

 

 

 

 

12

 

-

 

19

 

-

 

31

CMS 1-10

 

0.00-0.50%

 

-

 

-

 

-

 

-

 

-

CMS 11-14

 

0.51-3.00%

 

-

 

-

 

-

 

-

 

-

CMS 15-18

 

3.01-20.00%

 

-

 

-

 

-

 

-

 

-

CMS 19

 

20.01-99.99%

 

-

 

-

 

-

 

-

 

-

CMS 20-23

 

100%

 

-

 

-

 

-

 

-

 

-

 

 

 

 

-

 

-

 

-

 

-

 

-

Central adjustment to severe scenario

 

200 

 

-

 

-

 

-

 

200

Total loans and advances to customers

 

1,332

 

2,168

 

2,161

 

325

 

5,986

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

850

 

1,376

 

633

 

325

 

3,184

Commercial

 

 

 

270

 

792

 

1,509

 

-

 

2,571

Other

 

 

 

212

 

-

 

19

 

-

 

231

Total loans and advances to customers

 

1,332

 

2,168

 

2,161

 

325

 

5,986

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

17.  Credit quality of loans and advances to banks and customers (continued)

 

Gross drawn exposures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

 

or

 

 

 

 

 

 

 

 

 

 

 

 

originated

 

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

PD

 

Stage 1

 

Stage 2

 

Stage 3

 

impaired

 

Total

 

 

range

 

£m

 

£m

 

£m

 

£m

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks:

 

 

 

 

 

 

 

 

 

 

CMS 1-10

 

0.00-0.50%

 

9,777

 

-

 

-

 

-

 

9,777

CMS 11-14

 

0.51-3.00%

 

-

 

-

 

-

 

-

 

-

CMS 15-18

 

3.01-20.00%

 

-

 

-

 

-

 

-

 

-

CMS 19

 

20.01-99.99%

 

-

 

-

 

-

 

-

 

-

CMS 20-23

 

100%

 

-

 

-

 

-

 

-

 

-

 

 

 

 

9,777

 

-

 

-

 

-

 

9,777

Loans and advances to customers:

 

 

 

 

 

 

 

 

 

 

Retail - mortgages

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

257,028

 

13,494

 

-

 

-

 

270,522

RMS 7-9

 

4.51-14.00%

 

15

 

2,052

 

-

 

-

 

2,067

RMS 10

 

14.01-20.00%

 

-

 

414

 

-

 

-

 

414

RMS 11-13

 

20.01-99.99%

 

-

 

975

 

-

 

-

 

975

RMS 14

 

100.00%

 

-

 

-

 

1,506

 

13,714

 

15,220

 

 

 

 

257,043

 

16,935

 

1,506

 

13,714

 

289,198

Retail - credit cards

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

14,745

 

729

 

-

 

-

 

15,474

RMS 7-9

 

4.51-14.00%

 

1,355

 

556

 

-

 

-

 

1,911

RMS 10

 

14.01-20.00%

 

32

 

105

 

-

 

-

 

137

RMS 11-13

 

20.01-99.99%

 

1

 

291

 

-

 

-

 

292

RMS 14

 

100.00%

 

-

 

-

 

385

 

-

 

385

 

 

 

 

16,133

 

1,681

 

385

 

-

 

18,199

Retail - UK Motor Finance

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

13,568

 

1,297

 

-

 

-

 

14,865

RMS 7-9

 

4.51-14.00%

 

314

 

368

 

-

 

-

 

682

RMS 10

 

14.01-20.00%

 

-

 

99

 

-

 

-

 

99

RMS 11-13

 

20.01-99.99%

 

2

 

178

 

-

 

-

 

180

RMS 14

 

100.00%

 

-

 

-

 

150

 

-

 

150

 

 

 

 

13,884

 

1,942

 

150

 

-

 

15,976

Retail - other

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

17,166

 

763

 

-

 

-

 

17,929

RMS 7-9

 

4.51-14.00%

 

1,330

 

784

 

-

 

-

 

2,114

RMS 10

 

14.01-20.00%

 

44

 

91

 

-

 

-

 

135

RMS 11-13

 

20.01-99.99%

 

151

 

338

 

-

 

-

 

489

RMS 14

 

100.00%

 

-

 

-

 

443

 

-

 

443

 

 

 

 

18,691

 

1,976

 

443

 

-

 

21,110

Total Retail

 

 

 

305,751

 

22,534

 

2,484

 

13,714

 

344,483

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

17.  Credit quality of loans and advances to banks and customers (continued)

 

Gross drawn exposures (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

 

or

 

 

 

 

 

 

 

 

 

 

 

 

originated

 

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

PD

 

Stage 1

 

Stage 2

 

Stage 3

 

impaired

 

Total

 

 

range

 

£m

 

£m

 

£m

 

£m

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

CMS 1-10

 

0.00-0.50%

 

59,708

 

379

 

-

 

-

 

60,087

CMS 11-14

 

0.51-3.00%

 

25,569

 

2,318

 

-

 

-

 

27,887

CMS 15-18

 

3.01-20.00%

 

1,797

 

3,111

 

-

 

-

 

4,908

CMS 19

 

20.01-99.99%

 

-

 

169

 

-

 

-

 

169

CMS 20-23

 

100%

 

-

 

-

 

3,447

 

-

 

3,447

 

 

 

 

87,074

 

5,977

 

3,447

 

-

 

96,498

Other

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

754

 

32

 

-

 

-

 

786

RMS 7-9

 

4.51-14.00%

 

40

 

-

 

-

 

-

 

40

RMS 10

 

14.01-20.00%

 

-

 

-

 

-

 

-

 

-

RMS 11-13

 

20.01-99.99%

 

-

 

-

 

-

 

-

 

-

RMS 14

 

100.00%

 

-

 

-

 

84

 

-

 

84

 

 

 

 

794

 

32

 

84

 

-

 

910

CMS 1-10

 

0.00-0.50%

 

56,356

 

-

 

-

 

-

 

56,356

CMS 11-14

 

0.51-3.00%

 

-

 

-

 

-

 

-

 

-

CMS 15-18

 

3.01-20.00%

 

-

 

-

 

-

 

-

 

-

CMS 19

 

20.01-99.99%

 

-

 

-

 

-

 

-

 

-

CMS 20-23

 

100%

 

-

 

-

 

-

 

-

 

-

 

 

 

 

56,356

 

-

 

-

 

-

 

56,356

Total loans and advances to customers

 

449,975

 

28,543

 

6,015

 

13,714

 

498,247

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

305,751

 

22,534

 

2,484

 

13,714

 

344,483

Commercial

 

 

 

87,074

 

5,977

 

3,447

 

-

 

96,498

Other

 

 

 

57,150

 

32

 

84

 

-

 

57,266

Total loans and advances to customers

 

449,975

 

28,543

 

6,015

 

13,714

 

498,247

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

17.  Credit quality of loans and advances to banks and customers (continued)

 

Expected credit losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

 

or

 

 

 

 

 

 

 

 

 

 

 

 

originated

 

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

PD

 

Stage 1

 

Stage 2

 

Stage 3

 

impaired

 

Total

 

 

range

 

£m

 

£m

 

£m

 

£m

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks:

 

 

 

 

 

 

 

 

 

 

CMS 1-10

 

0.00-0.50%

 

2

 

-

 

-

 

-

 

2

CMS 11-14

 

0.51-3.00%

 

-

 

-

 

-

 

-

 

-

CMS 15-18

 

3.01-20.00%

 

-

 

-

 

-

 

-

 

-

CMS 19

 

20.01-99.99%

 

-

 

-

 

-

 

-

 

-

CMS 20-23

 

100%

 

-

 

-

 

-

 

-

 

-

 

 

 

 

2

 

-

 

-

 

-

 

2

Loans and advances to customers:

 

 

 

 

 

 

 

 

 

 

Retail - mortgages

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

23

 

183

 

-

 

-

 

206

RMS 7-9

 

4.51-14.00%

 

-

 

39

 

-

 

-

 

39

RMS 10

 

14.01-20.00%

 

-

 

13

 

-

 

-

 

13

RMS 11-13

 

20.01-99.99%

 

-

 

46

 

-

 

-

 

46

RMS 14

 

100.00%

 

-

 

-

 

122

 

142

 

264

 

 

 

 

23

 

281

 

122

 

142

 

568

Retail - credit cards

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

103

 

25

 

-

 

-

 

128

RMS 7-9

 

4.51-14.00%

 

49

 

54

 

-

 

-

 

103

RMS 10

 

14.01-20.00%

 

3

 

19

 

-

 

-

 

22

RMS 11-13

 

20.01-99.99%

 

-

 

91

 

-

 

-

 

91

RMS 14

 

100.00%

 

-

 

-

 

126

 

-

 

126

 

 

 

 

155

 

189

 

126

 

-

 

470

Retail - UK Motor Finance

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

203

 

30

 

-

 

-

 

233

RMS 7-9

 

4.51-14.00%

 

10

 

15

 

-

 

-

 

25

RMS 10

 

14.01-20.00%

 

-

 

10

 

-

 

-

 

10

RMS 11-13

 

20.01-99.99%

 

1

 

32

 

-

 

-

 

33

RMS 14

 

100.00%

 

-

 

-

 

84

 

-

 

84

 

 

 

 

214

 

87

 

84

 

-

 

385

Retail - other

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

109

 

26

 

-

 

-

 

135

RMS 7-9

 

4.51-14.00%

 

55

 

64

 

-

 

-

 

119

RMS 10

 

14.01-20.00%

 

4

 

16

 

-

 

-

 

20

RMS 11-13

 

20.01-99.99%

 

3

 

103

 

-

 

-

 

106

RMS 14

 

100.00%

 

-

 

-

 

158

 

-

 

158

 

 

 

 

171

 

209

 

158

 

-

 

538

Total Retail

 

 

 

563

 

766

 

490

 

142

 

1,961

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

17.  Credit quality of loans and advances to banks and customers (continued)

 

Expected credit losses (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

 

or

 

 

 

 

 

 

 

 

 

 

 

 

originated

 

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

PD

 

Stage 1

 

Stage 2

 

Stage 3

 

impaired

 

Total

 

 

range

 

£m

 

£m

 

£m

 

£m

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

CMS 1-10

 

0.00-0.50%

 

33

 

1

 

-

 

-

 

34

CMS 11-14

 

0.51-3.00%

 

50

 

37

 

-

 

-

 

87

CMS 15-18

 

3.01-20.00%

 

13

 

174

 

-

 

-

 

187

CMS 19

 

20.01-99.99%

 

-

 

16

 

-

 

-

 

16

CMS 20-23

 

100%

 

-

 

-

 

941

 

-

 

941

 

 

 

 

96

 

228

 

941

 

-

 

1,265

Other

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

6

 

1

 

-

 

-

 

7

RMS 7-9

 

4.51-14.00%

 

-

 

-

 

-

 

-

 

-

RMS 10

 

14.01-20.00%

 

-

 

-

 

-

 

-

 

-

RMS 11-13

 

20.01-99.99%

 

-

 

-

 

-

 

-

 

-

RMS 14

 

100.00%

 

-

 

-

 

16

 

-

 

16

 

 

 

 

6

 

1

 

16

 

-

 

23

CMS 1-10

 

0.00-0.50%

 

10

 

-

 

-

 

-

 

10

CMS 11-14

 

0.51-3.00%

 

-

 

-

 

-

 

-

 

-

CMS 15-18

 

3.01-20.00%

 

-

 

-

 

-

 

-

 

-

CMS 19

 

20.01-99.99%

 

-

 

-

 

-

 

-

 

-

CMS 20-23

 

100%

 

-

 

-

 

-

 

-

 

-

 

 

 

 

10

 

-

 

-

 

-

 

10

Total loans and advances to customers

 

675

 

995

 

1,447

 

142

 

3,259

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

563

 

766

 

490

 

142

 

1,961

Commercial

 

 

 

96

 

228

 

941

 

-

 

1,265

Other

 

 

 

16

 

1

 

16

 

-

 

33

Total loans and advances to customers

 

675

 

995

 

1,447

 

142

 

3,259

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

18.  Future accounting developments

 

The following pronouncements are not applicable for the year ending 31 December 2020 and have not been applied in preparing these interim financial statements. Save as disclosed below, the impact of these accounting changes is still being assessed by the Group and reliable estimates cannot be made at this stage.

 

IFRS 17 Insurance Contracts and certain minor amendments to other accounting standards have not been endorsed by the EU as at 29 July 2020.

 

IFRS 17 Insurance Contracts

IFRS 17 replaces IFRS 4 Insurance Contracts and is effective for annual periods beginning on or after 1 January 2023.

 

IFRS 17 requires insurance contracts and participating investment contracts to be measured on the balance sheet as the total of the fulfilment cash flows and the contractual service margin. Changes to estimates of future cash flows from one reporting date to another are recognised either as an amount in profit or loss or as an adjustment to the expected profit for providing insurance coverage, depending on the type of change and the reason for it. The effects of some changes in discount rates can either be recognised in profit or loss or in other comprehensive income as an accounting policy choice. The risk adjustment is released to profit and loss as an insurer's risk reduces. Profits which are currently recognised through a Value in Force asset, will no longer be recognised at inception of an insurance contract. Instead, the expected profit for providing insurance coverage is recognised in profit or loss over time as the insurance coverage is provided.  The standard will have a significant impact on the accounting for the insurance and participating investment contracts issued by the Group.

 

The Group has undertaken a re-planning exercise in response to the change of date for IFRS 17 implementation. Work is progressing to plan and to date has focused on interpreting the requirements of the standard, developing methodologies and accounting policies, and assessing the changes required to reporting and other systems. The development of the Group's data warehousing and actuarial liability calculation processes required for IFRS 17 reporting is progressing.

 

Minor amendments to other accounting standards

The IASB has issued a number of minor amendments to IFRSs effective 1 January 2021 and 1 January 2022 (including IFRS 9 Financial Instruments and IAS 37 Provisions, Contingent Liabilities and Contingent Assets). These amendments are not expected to have a significant impact on the Group.

 

19.  Other information

 

The financial information included in these condensed consolidated financial statements does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2019 were approved by the directors on 19 February 2020 and were delivered to the Registrar of Companies on 4 March 2020. The auditors' report on those accounts was unqualified and did not include a statement under sections 498(2) (accounting records or returns inadequate or accounts not agreeing with records and returns) or 498(3) (failure to obtain necessary information and explanations) of the Companies Act 2006.

 

 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

 

The directors listed below (being all the directors of Lloyds Banking Group plc) confirm that to the best of their knowledge these condensed consolidated half-year financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union, and that the half-year management report herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:

· an indication of important events that have occurred during the six months ended 30 June 2020 and their impact on the condensed consolidated half-year financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

· material related party transactions in the six months ended 30 June 2020 and any material changes in the related party transactions described in the last annual report.

 

Signed on behalf of the Board by

 

 

 

 

 

António Horta-Osório

Group Chief Executive

29 July 2020

 

Lloyds Banking Group plc Board of directors:

 

Executive directors:

António Horta-Osório (Group Chief Executive)

William Chalmers (Chief Financial Officer)

Juan Colombás (Chief Operating Officer)

 

Non-executive directors:

Lord Blackwell (Chairman)

Alan Dickinson

Simon Henry

Sarah Legg

Lord Lupton CBE

Amanda Mackenzie OBE

Nicholas Prettejohn

Stuart Sinclair

Sara Weller CBE

Catherine Woods

 

 

INDEPENDENT REVIEW REPORT TO LLOYDS BANKING GROUP PLC

 

Report on the condensed consolidated half-year financial statements

 

Our conclusion

We have reviewed Lloyds Banking Group plc's condensed consolidated half-year financial statements (the 'interim financial statements') in the 2020 Half-Year Results of Lloyds Banking Group plc (the 'Company') for the six month period ended 30 June 2020. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

What we have reviewed

The interim financial statements comprise:

· the consolidated balance sheet as at 30 June 2020;

· the consolidated income statement and consolidated statement of comprehensive income for the period then ended;

· the consolidated cash flow statement for the period then ended;

· the consolidated statement of changes in equity for the period then ended; and

· the explanatory notes to the interim financial statements

 

The interim financial statements included in the 2020 Half-Year Results have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 1 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

 

Responsibilities for the interim financial statements and the review

 

Our responsibilities and those of the directors

The 2020 Half-Year Results, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the 2020 Half-Year Results in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Our responsibility is to express a conclusion on the interim financial statements in the 2020 Half-Year Results based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose.  We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

 

 

INDEPENDENT REVIEW REPORT TO LLOYDS BANKING GROUP PLC (continued)

 

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

We have read the other information contained in the 2020 Half-Year Results and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

 

 

 

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

London

29 July 2020

 

 

 

 

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 Banking Group plc together with its subsidiaries (the 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 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 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 Group's future financial performance; the level and extent of future impairments and write-downs; statements of plans, objectives or goals of the 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 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 Group's credit ratings; the ability to derive cost savings and other benefits including, but without limitation as a result of any acquisitions, disposals and other strategic transactions; 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 other disasters, adverse weather and similar contingencies outside the Group's control; inadequate or failed internal or external processes or systems; acts of war, other acts of hostility, terrorist acts and responses to those acts, geopolitical, pandemic or other such events; 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 Group's control; the policies, decisions and actions of governmental or regulatory authorities or courts in the UK, the EU, the US or elsewhere including the implementation and interpretation of key legislation and regulation together with any resulting impact on the future structure of the Group; the ability to attract and retain senior management and other employees and meet its diversity objectives; actions or omissions by the Group's directors, management or employees including industrial action; changes to the Group's post-retirement defined benefit scheme obligations; the extent of any future impairment charges or write-downs caused by, but not limited to, depressed asset valuations, market disruptions and illiquid markets; the value and effectiveness of any credit protection purchased by the Group; the inability to hedge certain risks economically; the adequacy of loss reserves; the actions of competitors, including non-bank financial services, lending companies and digital innovators and disruptive technologies; and exposure to regulatory or competition scrutiny, legal, regulatory or competition proceedings, investigations or complaints. Please refer to the latest Annual Report on Form 20-F filed by Lloyds Banking Group 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 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 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.

 

 

 

 

 

 

 

 

Summary of alternative performance measures

 

The Group calculates a number of metrics that are used throughout the banking and insurance industries on an underlying basis. A description of these measures and their calculation is set out below.

 

 

 

Asset quality ratio

The underlying impairment charge for the period (on an annualised basis) in respect of loans and advances to customers after releases and write-backs, expressed as a percentage of average gross loans and advances to customers for the period

Banking net interest margin

Banking net interest income on customer and product balances in the banking businesses as a percentage of average gross banking interest-earning assets for the period

Business as usual costs

Operating costs, less investment expensed and depreciation

Cost:income ratio

Total costs as a percentage of net income calculated on an underlying basis

Gross asset quality ratio

The underlying impairment charge for the period (on an annualised basis) in respect of loans and advances to customers before releases and write-backs, expressed as a percentage of average gross loans and advances to customers for the period

Loan to deposit ratio

Loans and advances to customers net of allowance for impairment losses and excluding reverse repurchase agreements divided by customer deposits excluding repurchase agreements

Present value of new business premium

The total single premium sales received in the period (on an annualised basis) plus the discounted value of premiums expected to be received over the term of the new regular premium contracts

Return on
risk-weighted assets

Underlying profit before tax divided by average risk-weighted assets

Return on tangible equity

Statutory profit after tax adjusted to add back amortisation of intangible assets, and to deduct profit attributable to non-controlling interests and other equity holders, divided by average tangible net assets

Tangible net assets per share

Net assets excluding intangible assets such as goodwill and acquisition-related intangibles divided by the weighted average number of ordinary shares in issue

Underlying, 'or above the line' profit

Statutory profit adjusted for certain items as detailed in the Basis of Presentation

Underlying return on tangible equity

Underlying profit after tax at the standard UK corporation tax rate adjusted to add back amortisation of intangible assets, and to deduct profit attributable to non-controlling interests and other equity holders, divided by average tangible net assets

 

 

 

 

CONTACTS

 

 

For further information please contact:

 

INVESTORS AND ANALYSTS

Douglas Radcliffe

Group Investor Relations Director

020 7356 1571

douglas.radcliffe@lloydsbanking.com

 

Edward Sands

Director of Investor Relations

020 7356 1585

edward.sands@lloydsbanking.com

 

Nora Thoden

Director of Investor Relations - ESG

020 7356 2334

nora.thoden@lloydsbanking.com

 

 

CORPORATE AFFAIRS

Grant Ringshaw

External Relations Director

020 7356 2362

grant.ringshaw@lloydsbanking.com

 

Matt Smith

Head of Media Relations

020 7356 3522

matt.smith@lloydsbanking.com

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Copies of this news release may be obtained from:

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

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

 

Registered office: Lloyds Banking Group plc, The Mound, Edinburgh, EH1 1YZ

Registered in Scotland No. 95000

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
 
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