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Lloyds Banking Group (LLOY)

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Thursday 30 July, 2020

Lloyds Banking Group

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