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Lloyds Banking Group (LLOY)

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Thursday 29 October, 2020

Lloyds Banking Group

2020 Q3 Interim Management Statement

RNS Number : 5455D
Lloyds Banking Group PLC
29 October 2020
 

 

Lloyds Banking Group plc

Q3 2020 Interim Management Statement

29 October 2020

 

 

 

 

 

 

GROUP CHIEF EXECUTIVE'S STATEMENT

The impact of the coronavirus pandemic on the global economy and on people and businesses within the UK has been unprecedented. We remain focused on working together with the Government and our regulators to ensure that we continue to support our customers in this challenging time.

Although our performance has clearly been impacted by the pandemic and the associated challenging economic environment, I am pleased that we are now seeing an encouraging business recovery and, with impairments significantly lower, a return to profitability in the third quarter. In particular, we increased open mortgage book lending by £3.5 billion in the quarter, with a 22 per cent share of approvals building a strong pipeline for the fourth quarter, and have supported businesses with an 18 per cent share of Government support scheme lending. Given the financial performance we were able to further strengthen our capital position to 15.2 per cent and enhance our guidance for impairment and risk-weighted assets.

The pandemic has accelerated many trends around ways of working and digital adoption and our long-run investment in digital propositions has positioned the Group well to continue to support our customers. As a result the number of digital users continued to increase, the proportion of products sold digitally is rising and customer satisfaction is at record levels. Our digital proposition and focus on technological change will remain a priority as we accelerate our transformation.

Societal expectations of companies, particularly regarding sustainability, continue to increase and we are taking action to build an inclusive and more sustainable future. We have announced a Race Action plan to drive cultural change, including a clear target to increase Black representation in senior roles. To support the transition to a more environmentally sustainable future, we have also announced an ambitious goal to help reduce the carbon emissions we finance by over 50 per cent by 2030.

Lloyds Banking Group plays a vital role in the UK economy and I remain very proud of the support that we have provided over the course of 2020. Once again I would like to express my gratitude to all of my colleagues whose dedication and hard work ensures that we continue to deliver vital services to our customers and communities, while supporting those most in need throughout the pandemic.

Although the outlook remains uncertain, our customer-focused strategy and the strength of the Group's business model will allow us to continue to help Britain recover and play our part in helping to return the UK to prosperity. This is fully aligned with the Group's long-term strategic objectives, the position of the franchise and the interests of our shareholders.

António Horta-Osório,

Group Chief Executive

 

RESULTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2020

Business transformation and franchise strength position the Group well

Multi-channel  distribution  model,  including  the  UK's  largest  branch  network  and  UK's  leading  digital  bank  with 17.1 million digitally active users and 12.1 million active mobile app users, up 700,000 and 1.4 million respectively over the last nine months

Digital activity and engagement continues to increase, with an average of 25 logons per customer, per month. 85 per cent of products are now originated digitally, with an 18 per cent increase over the last nine months, and record levels of customer satisfaction with the digital net promoter score at 69, up 8 per cent in the nine months

Actively supporting customers through a range of flexible propositions, including around 1.2 million payment holidays and c.£11 billion of lending through Government schemes, with an 18 per cent market share of support scheme lending, including a 21 per cent share of Bounce Back Loans

Continued commitment to cost efficiency, creating capacity to invest in the business and enabling a rapid response to the challenges presented by the coronavirus pandemic

Accelerating our transformation as we respond to the crisis by further enhancing and adapting our strategy, customer propositions and working practices

RESULTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2020 (continued)

Resilient business model with return to profitability in the third quarter

Net income of £10.8 billion, down 17 per cent, with £3.4 billion in the third quarter, reflecting lower interest rates and lower other income. Lower net interest margin of 2.54 per cent, reflecting lower rates, actions taken to support customers and changes in asset mix. Net interest margin of 2.42 per cent in the third quarter, up 2 basis points and average interest-earning assets slightly higher in the quarter, both supported by strong volume growth

Other income decreased by 23 per cent to £3.4 billion, with £1.0 billion in the third quarter, reflecting lower levels of customer activity across the Group's main business lines and the impact of the Asset Management Market Review

Total costs of £5.8 billion, 4 per cent lower, with business as usual costs down 5 per cent, enabling continued investment in digital projects and enhanced support for customers during the pandemic. Total costs of £1.9 billion in the third quarter lower than prior year

Trading surplus of £5.0 billion, including £1.5 billion in the quarter, providing significant capacity to absorb impairment impacts of the coronavirus crisis

Impairment experience benign in third quarter with a charge of £0.3 billion, in line with pre-crisis levels and reflecting no significant change in economic outlook; £4.1 billion charge in the nine months primarily reflecting deterioration in economic outlook recognised in the first half of 2020

Return to profitability in the third quarter with statutory profit before tax of £1.0 billion and profit after tax of £0.7 billion; return on tangible equity of 7.4 per cent in the quarter

Strong balance sheet and capital position, well positioned to absorb future coronavirus impacts

Activity levels picked up in the third quarter of 2020 after contraction in the first six months, particularly mortgage applications and consumer spending

Loans and advances at £439 billion were flat on year end with increased SME lending driven by Government support schemes, offset by expected reductions in the closed mortgage book and lower credit card, motor finance and other Commercial Banking balances

Open mortgage book up £3.5 billion since June 2020; 22 per cent market share of approvals with a strong pipeline

Retail current accounts continued to increase ahead of the market in the third quarter, with Group deposits up £35 billion, or 9 per cent, over the first nine months of 2020 as a result of inflows to the Group's trusted brands

Loan to deposit ratio of 98 per cent, providing a strong liquidity position and significant potential to lend into recovery

CET1 ratio of 15.2 per cent, 14.0 per cent pre IFRS 9 transitional relief, gives significant headroom above ongoing target of around 12.5 per cent plus a management buffer of around 1 per cent and regulatory requirements of c.11 per cent

Outlook

The outlook remains highly uncertain given the second wave of coronavirus, Government response including social distancing measures and the end of the furlough scheme, together with the ongoing Brexit negotiations

Mortgage activity picking up strongly and increase in Retail current accounts ahead of the market; mortgage business strength offsetting yield curve pressure

Solid pre-provision profit and enhanced capital strength provide significant loss absorbing capacity, building on our cost leadership position

The Group's 2020 guidance reflects a proactive response to the challenging economic environment and is based on the Group's current macroeconomic assumptions

Net interest margin expected to remain broadly stable around c.240 basis points in the fourth quarter, resulting in a full year margin of c.250 basis points

Operating costs to be below £7.6 billion

Impairment charge for the full year now expected to be at the lower end of the £4.5 billion to £5.5 billion range

Risk-weighted assets now expected to be broadly stable compared to 30 September 2020

Although the economic outlook remains uncertain, the Group remains well positioned for long-term superior and sustainable returns, supported by its leading efficiency position and prudent balance sheet. This together with the Group's capital position and business model enables it to continue to support its customers and help Britain recover

 

 

INCOME STATEMENT − UNDERLYING BASIS

 

Nine months ended
30 Sep 2020

 

Nine
months
ended
30 Sep
2019

 

Change

 

Three
months
ended
30 Sep
2020

 

Three
months
ended
30 Sep
2019

 

Change

 

£m

 

£m

 

%

 

£m

 

£m

 

%

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

8,096 

 

 

9,275 

 

 

(13)

 

2,618 

 

 

3,130 

 

 

(16)

Other income

3,449 

 

 

4,465 

 

 

(23)

 

988 

 

 

1,315 

 

 

(25)

Operating lease depreciation

(734)

 

 

(731)

 

 

-

 

(208)

 

 

(258)

 

 

19

Net income

10,811 

 

 

13,009 

 

 

(17)

 

3,398 

 

 

4,187 

 

 

(19)

Operating costs

(5,557)

 

 

(5,817)

 

 

4

 

(1,858)

 

 

(1,911)

 

 

3

Remediation

(254)

 

 

(226)

 

 

(12)

 

(77)

 

 

(83)

 

 

7

Total costs

(5,811)

 

 

(6,043)

 

 

4

 

(1,935)

 

 

(1,994)

 

 

3

Trading surplus

5,000 

 

 

6,966 

 

 

(28)

 

1,463 

 

 

2,193 

 

 

(33)

Impairment

(4,119)

 

 

(950)

 

 

 

 

(301)

 

 

(371)

 

 

19

Underlying profit

881 

 

 

6,016 

 

 

(85)

 

1,162 

 

 

1,822 

 

 

(36)

Restructuring

(288)

 

 

(280)

 

 

(3)

 

(155)

 

 

(98)

 

 

(58)

Volatility and other items

(159)

 

 

(339)

 

 

53

 

29 

 

 

126 

 

 

77

Payment protection insurance provision

 

 

(2,450)

 

 

100

 

 

 

(1,800)

 

 

100

Statutory profit before tax

434 

 

 

2,947 

 

 

(85)

 

1,036 

 

 

50 

 

 

 

Tax credit / (expense)

273 

 

 

(960)

 

 

 

 

(348)

 

 

(288)

 

 

(21)

Statutory profit / (loss) after tax

707 

 

 

1,987 

 

 

(64)

 

688 

 

 

(238)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings / (loss) per share

0.5p

 

2.2p

 

(77)

 

0.8p

 

(0.5)p

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banking net interest margin

2.54 

%

 

2.89 

%

 

(35)

bp

 

2.42 

%

 

2.88 

%

 

(46)

bp

Average interest-earning banking assets

£434

bn 

 

£434

bn 

 

-

 

£436

bn 

 

£435

bn 

 

-

Cost:income ratio

53.8 

%

 

46.5 

%

 

7.3pp

 

56.9 

%

 

47.6 

%

 

9.3pp

Asset quality ratio

1.24 

%

 

0.29 

%

 

95bp

 

0.27 

%

 

0.33 

%

 

(6)

bp

Underlying return on tangible equity

2.4%

 

15.7 

%

 

(13.3)pp

 

9.3%

 

14.3 

%

 

(5.0)pp

Return on tangible equity

2.5%

 

6.8 

%

 

(4.3)pp

 

7.4%

 

(2.8)%

 

10.2pp

                                   

 

 

KEY BALANCE SHEET METRICS

 

At 30 Sep
2020

 

At 30 Jun
2020

 

Change
%

 

 

 

At 31 Dec
2019

 

Change
%

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to customers1

£439

bn 

 

£440

bn 

 

-

 

 

 

£440

bn 

 

-

Customer deposits2

£447

bn 

 

£441

bn 

 

1

 

 

 

£412

bn 

 

9

Loan to deposit ratio

98 

%

 

100 

%

 

(2)

pp

 

 

 

107 

%

 

(9)

pp

CET1 ratio3,4

15.2 

%

 

14.6 

%

 

0.6pp

 

 

 

13.8 

%

 

1.4pp

CET1 ratio pre IFRS 9 transitional relief3,4

14.0 

%

 

13.4 

%

 

0.6pp

 

 

 

13.4 

%

 

0.6pp

Transitional MREL ratio3,4

36.5 

%

 

36.8 

%

 

(0.3)pp

 

 

 

32.6 

%

 

3.9pp

UK leverage ratio3,4

5.6 

%

 

5.4 

%

 

0.2pp

 

 

 

5.2 

%

 

0.4pp

Risk-weighted assets3

£205

bn 

 

£207

bn 

 

(1)

 

 

 

£203

bn 

 

1

Tangible net assets per share

52.2

 

51.6

 

0.6

 

 

 

50.8

 

1.4

Excludes reverse repos of £60.0 billion (30 June 2020: £61.1 billion; 31 December 2019: £54.6 billion).

Excludes repos of £12.1 billion (30 June 2020: £12.3 billion; 31 December 2019: £9.5 billion).

The CET1, MREL and leverage ratios and risk-weighted assets at 31 December 2019 are reported on a pro forma basis, reflecting the dividend paid up by the Insurance business in the subsequent reporting period. CET1 ratio pre IFRS 9 transitional relief reflects the full impact of IFRS 9, prior to the application of transitional arrangements for capital that provide relief for the impact of IFRS 9.

Incorporating profits for the period that remain subject to formal verification in accordance with the Capital Requirements Regulation.

 

 

QUARTERLY INFORMATION

 

Quarter
ended
30 Sep
2020

 

Quarter
ended
30 Jun
2020

 

Quarter
ended
31 Mar
2020

 

Quarter
ended
31 Dec
2019

 

Quarter
ended
30 Sep
2019

 

Quarter
ended
30 Jun
2019

 

Quarter
ended
31 Mar
2019

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

2,618 

 

 

2,528 

 

 

2,950 

 

 

3,102 

 

 

3,130 

 

 

3,062 

 

 

3,083 

 

Other income

988 

 

 

1,235 

 

 

1,226 

 

 

1,267 

 

 

1,315 

 

 

1,594 

 

 

1,556 

 

Operating lease depreciation

(208)

 

 

(302)

 

 

(224)

 

 

(236)

 

 

(258)

 

 

(254)

 

 

(219)

 

Net income

3,398 

 

 

3,461 

 

 

3,952 

 

 

4,133 

 

 

4,187 

 

 

4,402 

 

 

4,420 

 

Operating costs

(1,858)

 

 

(1,822)

 

 

(1,877)

 

 

(2,058)

 

 

(1,911)

 

 

(1,949)

 

 

(1,957)

 

Remediation

(77)

 

 

(90)

 

 

(87)

 

 

(219)

 

 

(83)

 

 

(123)

 

 

(20)

 

Total costs

(1,935)

 

 

(1,912)

 

 

(1,964)

 

 

(2,277)

 

 

(1,994)

 

 

(2,072)

 

 

(1,977)

 

Trading surplus

1,463 

 

 

1,549 

 

 

1,988 

 

 

1,856 

 

 

2,193 

 

 

2,330 

 

 

2,443 

 

Impairment

(301)

 

 

(2,388)

 

 

(1,430)

 

 

(341)

 

 

(371)

 

 

(304)

 

 

(275)

 

Underlying profit / (loss)

1,162 

 

 

(839)

 

 

558 

 

 

1,515 

 

 

1,822 

 

 

2,026 

 

 

2,168 

 

Restructuring

(155)

 

 

(70)

 

 

(63)

 

 

(191)

 

 

(98)

 

 

(56)

 

 

(126)

 

Volatility and other items

29 

 

 

233 

 

 

(421)

 

 

122 

 

 

126 

 

 

(126)

 

 

(339)

 

Payment protection insurance provision

 

 

 

 

 

 

 

 

(1,800)

 

 

(550)

 

 

(100)

 

Statutory profit / (loss) before tax

1,036 

 

 

(676)

 

 

74 

 

 

1,446 

 

 

50 

 

 

1,294 

 

 

1,603 

 

Tax (expense) / credit

(348)

 

 

215 

 

 

406 

 

 

(427)

 

 

(288)

 

 

(269)

 

 

(403)

 

Statutory profit / (loss) after tax

688 

 

 

(461)

 

 

480 

 

 

1,019 

 

 

(238)

 

 

1,025 

 

 

1,200 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banking net interest margin

2.42 

%

 

2.40 

%

 

2.79 

%

 

2.85 

%

 

2.88 

%

 

2.89 

%

 

2.91 

%

Average interest-earning banking assets

£436

bn 

 

£435

bn 

 

£432

bn 

 

£437

bn 

 

£435

bn 

 

£433

bn 

 

£433

bn 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost:income ratio

56.9 

%

 

55.2 

%

 

49.7 

%

 

55.1 

%

 

47.6 

%

 

47.1 

%

 

44.7 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset quality ratio

0.27 

%

 

2.16 

%

 

1.30 

%

 

0.30 

%

 

0.33 

%

 

0.27 

%

 

0.25 

%

Gross asset quality ratio

0.28 

%

 

2.19 

%

 

1.35 

%

 

0.39 

%

 

0.40 

%

 

0.38 

%

 

0.30 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying return on tangible equity

9.3%

 

(6.0)%

 

4.7%

 

12.2%

 

14.3%

 

15.6%

 

17.0%

Return on tangible equity

7.4%

 

(4.8)%

 

5.0%

 

11.0%

 

(2.8)%

 

10.5%

 

12.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to customers1

£439

bn 

 

£440

bn 

 

£443

bn 

 

£440

bn 

 

£447

bn 

 

£441

bn 

 

£441

bn 

Customer deposits2

£447

bn 

 

£441

bn 

 

£428

bn 

 

£412

bn 

 

£419

bn 

 

£418

bn 

 

£417

bn 

Loan to deposit ratio

98 

%

 

100 

%

 

103 

%

 

107 

%

 

107 

%

 

106 

%

 

106 

%

Risk-weighted assets3

£205

bn 

 

£207

bn 

 

£209

bn 

 

£203

bn 

 

£209

bn 

 

£207

bn 

 

£208

bn 

Tangible net assets per share

52.2

 

51.6

 

57.4

 

50.8

 

52.0

 

53.0

 

53.4

Excludes reverse repos.

Excludes repos.

Risk-weighted assets at 30 June 2019 and 31 December 2019 are reported on a pro forma basis reflecting the Insurance dividend paid to the Group in the subsequent reporting period.

 

 

BALANCE SHEET ANALYSIS

 

At 30 Sep
2020

 

At 30 Jun
2020

 

Change

 

At 30 Sep
2019

 

Change

 

At 31 Dec
2019

 

Change

 

£bn

 

£bn

 

%

 

£bn

 

%

 

£bn

 

%

Loans and advances to customers

 

 

 

 

 

 

 

 

 

 

 

 

 

Open mortgage book

270.6 

 

 

267.1 

 

 

1

 

271.0 

 

 

-

 

270.1 

 

 

-

Closed mortgage book

17.0 

 

 

17.5 

 

 

(3)

 

19.1 

 

 

(11)

 

18.5 

 

 

(8)

Credit cards

14.8 

 

 

15.2 

 

 

(3)

 

17.7 

 

 

(16)

 

17.7 

 

 

(16)

UK Retail unsecured loans

8.2 

 

 

8.2 

 

 

-

 

8.4 

 

 

(2)

 

8.4 

 

 

(2)

UK motor finance

14.8 

 

 

15.3 

 

 

(3)

 

15.6 

 

 

(5)

 

15.6 

 

 

(5)

Overdrafts

1.0 

 

 

1.0 

 

 

-

 

1.3 

 

 

(23)

 

1.3 

 

 

(23)

Retail other1

10.2 

 

 

9.7 

 

 

5

 

9.2 

 

 

11

 

9.0 

 

 

13

SME2

40.0 

 

 

38.4 

 

 

4

 

32.4 

 

 

23

 

32.1 

 

 

25

Mid Corporates3

4.4 

 

 

4.6 

 

 

(4)

 

5.2 

 

 

(15)

 

5.3 

 

 

(17)

Corporate and Institutional3

50.2 

 

 

55.0 

 

 

(9)

 

59.2 

 

 

(15)

 

54.6 

 

 

(8)

Commercial Banking other

4.6 

 

 

5.0 

 

 

(8)

 

5.2 

 

 

(12)

 

5.2 

 

 

(12)

Wealth

0.9 

 

 

0.9 

 

 

-

 

0.9 

 

 

-

 

0.9 

 

 

-

Central items

2.5 

 

 

2.5 

 

 

-

 

2.0 

 

 

25

 

1.7 

 

 

47

Loans and advances to customers4

439.2 

 

 

440.4 

 

 

-

 

447.2 

 

 

(2)

 

440.4 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail current accounts

91.7 

 

 

87.5 

 

 

5

 

76.1 

 

 

20

 

76.9 

 

 

19

Commercial current accounts2,5

45.7 

 

 

44.2 

 

 

3

 

34.6 

 

 

32

 

34.9 

 

 

31

Retail relationship savings accounts

149.9 

 

 

148.5 

 

 

1

 

144.3 

 

 

4

 

144.5 

 

 

4

Retail tactical savings accounts

12.5 

 

 

12.7 

 

 

(2)

 

14.1 

 

 

(11)

 

13.3 

 

 

(6)

Commercial deposits2,6

132.9 

 

 

133.8 

 

 

(1)

 

135.8 

 

 

(2)

 

127.6 

 

 

4

Wealth

13.6 

 

 

13.5 

 

 

1

 

13.6 

 

 

-

 

13.7 

 

 

(1)

Central items

0.9 

 

 

0.9 

 

 

-

 

0.7 

 

 

29

 

0.9 

 

 

-

Total customer deposits7

447.2 

 

 

441.1 

 

 

1

 

419.2 

 

 

7

 

411.8 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

868.9 

 

 

873.0 

 

 

-

 

858.5 

 

 

1

 

833.9 

 

 

4

Total liabilities

819.4 

 

 

824.1 

 

 

(1)

 

810.4 

 

 

1

 

786.1 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

43.4 

 

 

42.8 

 

 

1

 

42.5 

 

 

2

 

41.7 

 

 

4

Other equity instruments

5.9 

 

 

5.9 

 

 

-

 

5.4 

 

 

9

 

5.9 

 

 

-

Non-controlling interests

0.2 

 

 

0.2 

 

 

-

 

0.2 

 

 

-

 

0.2 

 

 

-

Total equity

49.5 

 

 

48.9 

 

 

1

 

48.1 

 

 

3

 

47.8 

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares in issue, excluding own shares

70,776m

 

70,735m

 

-

 

70,007m

 

1

 

70,031m

 

1

Primarily Europe.

Includes Retail Business Banking.

Commercial Banking segmentation has been updated to reflect new client coverage model.

Excludes reverse repos.

Primarily non interest-bearing Commercial Banking current accounts.

Primarily Commercial Banking interest-bearing accounts.

Excludes repos.

   

 

REVIEW OF PERFORMANCE

 

Financial performance reflects challenging economic environment, with return to profitability in the third quarter

The Group's statutory profit before tax for the nine months ended 30 September 2020 was £434 million whilst statutory profit after tax was £707 million. This performance was impacted by the significant impairment charge that was taken during the period, the majority of which was recognised in the first half reflecting the Group's revised economic outlook for the UK following the outbreak of the coronavirus pandemic. In the third quarter, the Group returned to profit with statutory profit before tax of £1,036 million and statutory profit after tax of £688 million, largely due to a reduced impairment charge reflecting the relative economic stability and impact of support measures.

Trading surplus for the first nine months of the year was £5,000 million, a reduction of 28 per cent compared to the same period in 2019, reflecting the challenging external environment. Net income was down 17 per cent at £10,811 million, driven by both lower net interest income and lower other income. Against this backdrop the Group continued to deliver further cost savings, with total costs down 4 per cent, while continuing to invest.

The Group's underlying profit was £881 million for the period, compared to an underlying profit of £6,016 million in the first nine months of 2019, reflecting reduced net income and the significant impairment charge of £4,119 million that has been taken in 2020.

The Group's balance sheet remains strong. Loans and advances to customers were flat on year-end at £439 billion whilst during the third quarter, open mortgage net lending increased by £3.5 billion and mortgage applications picked up strongly. Group deposits were up £35 billion to £447 billion. Retail current account growth was significant and ahead of the market in the third quarter, reflecting lower levels of customer spend during the pandemic and inflows to the Group's trusted brands. Commercial Banking current account growth reflects the Group's strong customer relationships and also the placement of Government-supported lending on deposit by SMEs.

Net income

Net income of £10,811 million was 17 per cent lower than in the first nine months of 2019, reflecting both lower net interest income and lower other income in the period as well as a marginal increase in operating lease depreciation.

Net interest income of £8,096 million was down 13 per cent given a reduction in the banking net interest margin and stable average interest-earning banking assets. The net interest margin reduced by 35 basis points to 2.54 per cent, reflecting the lower rate environment, actions taken to support customers including interest-free overdrafts, and a change in asset mix, largely as a result of reduced levels of customer demand during the coronavirus pandemic. The net interest margin in the third quarter of 2.42 per cent reflected the positive impact of deposit repricing and the resumption of overdraft charges, largely offset by lower income from the Group's structural hedge and continued pressure from change in asset mix including lower unsecured balances.

The Group manages the risk to its earnings and capital from movements in interest rates centrally by hedging the net liabilities which are stable or less sensitive to movements in rates. As at 30 September 2020 the Group's structural hedge had an increased approved capacity of £200 billion (in part reflecting deposit growth in the first nine months of 2020), a nominal balance of £185 billion (31 December 2019: £179 billion) and a weighted-average duration of around two years (31 December 2019: around three years). The Group generated £1.9 billion of income from the structural hedge balances in the first nine months of 2020 (nine months to 30 September 2019: £2.0 billion). Within this, the benefit from the hedge was £1.1 billion over average LIBOR (nine months to 30 September 2019: £0.8 billion) with a fixed earnings rate of approximately 0.8 per cent over average LIBOR (30 September 2019: 0.6 per cent).

Average interest-earning banking assets were stable period-on-period at £434 billion with growth due to Government-backed lending to support corporate clients through the coronavirus crisis and the full impact of the 2019 Tesco acquisition, offset by lower balances in the closed mortgage book and credit cards as well as the impact of the continued optimisation of the corporate and institutional book within Commercial Banking. The increase in the third quarter of 2020 to £436 billion was partly driven by an increase in mortgage lending, as a result of a release of pent-up demand following the lifting of lockdown restrictions that were in place in the first half of the year and changing customer behaviours. Given the pipeline of new mortgage business, the Group expects average interest-earning assets to continue to benefit in the fourth quarter from increased mortgage lending.

 

REVIEW OF PERFORMANCE   (continued)

Other income decreased by 23 per cent to £3,449 million in the first nine months of the year, reflecting lower levels of customer activity across the Group's main business lines, largely driven by the coronavirus pandemic. Within Retail, other income fell as a result of reduced customer spending and the continuing impact of a lower Lex fleet size. Commercial Banking saw lower transaction banking income as a consequence of coronavirus-related activity levels, with resilience in markets income, whilst Insurance recognised a gain resulting from a one-off methodology change in the first half of the year, which was more than offset by reduced levels of new business and a charge in relation to the Group's response to the Asset Management Market Review in the third quarter.

Other income includes a gain of £135 million (£181 million in the first nine months of 2019) on the sale of gilts and other liquid assets, which was recognised in the first half of 2020. The comparative for the first nine months of 2019 included a gain of £50 million relating to the sale of the Group's interest in Vocalink.

In the third quarter, other income of £1.0 billion was impacted by the non-recurrence of asset sales and insurance assumption change gains that occurred in the second quarter, activity levels and a c.£80 million charge across Retail and Insurance and Wealth in relation to the Asset Management Market Review, partly offset by improved Lloyds Development Capital performance. A resilient third quarter in Retail was supported by increased card spending, whilst Commercial Banking experienced lower markets and modest transaction banking volumes. Insurance continued to be impacted by reduced levels of new business. Other income is expected to remain muted in the fourth quarter given activity levels and potential persistency assumption changes.

Operating lease depreciation was flat at £734 million in the nine months to 30 September 2020 and included a charge incurred in the first half of the year to reflect a reassessment of residual values, given the economic outlook. In the third quarter of 2020 operating lease depreciation was £208 million reflecting robust disposal performance since markets re-opened and a lower fleet size.

Total costs

Total costs of £5,811 million were 4 per cent lower than in the first nine months of 2019, driven by continued reductions in operating costs.

Operating costs of £5,557 million were 4 per cent lower, in the context of continued investment in the Group's digital proposition and added coronavirus-related costs. Business as usual costs were down 5 per cent on the prior year driven by ongoing cost discipline, efficiencies gained through digitalisation and other process and organisational improvements, as well as lower variable remuneration accruals.

Total investment spend in the first nine months of 2020 amounted to £1.6 billion, down 16 per cent on the prior year. Of this £0.7 billion related to strategic investment, taking the cumulative strategic spend since the start of GSR3 to £2.6 billion. Although the investment spend continues to be managed carefully in response to the current operating environment, the Group has continued to prioritise technology and digital projects and will continue to invest through the cycle.

During the first nine months of 2020 the Group capitalised c.£1.0 billion of investment spend of which c.£0.7 billion related to intangible assets, which is currently deducted from capital. Total capitalised spend was equivalent to c.60 per cent of above the line investment, in line with prior periods.

Remediation charges were £254 million (nine months to 30 September 2019: £226 million) and included additional charges of £77 million in the third quarter relating to pre-existing programmes.

Despite the continued delivery of reduced costs, the lower net income over the period meant that the Group's cost:income ratio of 53.8 per cent was higher than in the first nine months of 2019, while the cost:income ratio in the third quarter was 56.9 per cent.

 

REVIEW OF PERFORMANCE   (continued)

Impairment

 

Nine
months
ended
30 Sep
2020

 

Nine
months
ended
30 Sep
2019

 

Change

 

Three
months
ended
30 Sep
2020

 

Three
months
ended
30 Sep
2019

 

Change

 

£m

 

£m

 

%

 

£m

 

£m

 

%

 

 

 

 

 

 

 

 

 

 

 

 

Charges pre-updated multiple economic scenarios1:

 

 

 

 

 

 

 

 

 

 

 

Retail2

976 

 

 

816 

 

 

(20)

 

398 

 

 

260 

 

 

(53)

Commercial Banking

211 

 

 

194 

 

 

(9)

 

 

 

129 

 

 

96

Other

 

 

(60)

 

 

 

 

 

 

(18)

 

 

 

 

1,192 

 

 

950 

 

 

(25)

 

404 

 

 

371 

 

 

(9)

Coronavirus impacted restructuring cases3

434 

 

 

 

 

 

 

 

 

 

 

 

Updated economic outlook:

 

 

 

 

 

 

 

 

 

 

 

Retail

1,442 

 

 

 

 

 

 

(75)

 

 

 

 

 

Commercial Banking

851 

 

 

 

 

 

 

(30)

 

 

 

 

 

Other

200 

 

 

 

 

 

 

 

 

 

 

 

 

2,493 

 

 

 

 

 

 

(105)

 

 

 

 

 

Impairment charge

4,119 

 

 

950 

 

 

 

 

301 

 

 

371 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

Asset quality ratio

1.24 

%

 

0.29 

%

 

95bp

 

0.27 

%

 

0.33 

%

 

(6)bp

Gross asset quality ratio

1.27 

%

 

0.36 

%

 

91bp

 

0.28 

%

 

0.40 

%

 

(12)

bp

Charges arrived at under 31 December 2019 multiple economic scenarios.

Retail charge in the third quarter of 2020 includes a £205 million management overlay (£193 million pre-overlay).

Additional charges made during the first nine months of 2020 on cases subject to restructuring at the end of 2019, where the coronavirus pandemic is considered to have had a direct effect upon the recovery strategy.

 

 

At 30 Sep

20201

 

At 30 Jun

20201

 

Change

 

At 31 Dec

20191

 

Change

 

£m

 

£m

 

%

 

£m

 

%

 

 

 

 

 

 

 

 

 

 

Stage 2 loans and advances to customers

66,291 

 

 

67,858 

 

 

(2)

 

38,440 

 

 

72

Stage 2 loans and advances to customers as % of total

13.1 

%

 

13.4 

%

 

(0.3)

pp

 

7.7 

%

 

5.4pp

Stage 2 ECL2 allowances

3,057 

 

 

2,817 

 

 

9

 

1,423 

 

 

115

Stage 2 ECL2 allowances as % of Stage 2 drawn balances

4.6 

%

 

4.2 

%

 

0.4pp

 

3.7 

%

 

0.9pp

 

 

 

 

 

 

 

 

 

 

Stage 3 loans and advances to customers

9,074 

 

 

9,538 

 

 

(5)

 

8,754 

 

 

4

Stage 3 loans and advances to customers as % of total

1.8 

%

 

1.9 

%

 

(0.1)

pp

 

1.8 

%

 

-

Stage 3 ECL2 allowances

2,579 

 

 

2,763 

 

 

(7)

 

1,922 

 

 

34

Stage 3 ECL2 allowances as % of Stage 3 drawn balances3

29.0 

%

 

29.6 

%

 

(0.6)

pp

 

22.5 

%

 

6.5pp

 

 

 

 

 

 

 

 

 

 

Total loans and advances to customers4

505,655 

 

 

508,076 

 

 

-

 

498,805 

 

 

1

Total ECL2 allowances

7,084 

 

 

7,186 

 

 

(1)

 

4,142 

 

 

71

Total ECL2 allowances as % of drawn balances

1.4 

%

 

1.4 

%

 

-

 

0.8 

%

 

0.6pp

Underlying basis. Refer to basis of presentation on page 31.

Expected credit loss.

Stage 3 ECL allowances as a percentage of drawn balances are calculated excluding loans in recoveries in Retail of £183 million (30 June 2020: £206 million; 31 December 2019: £205 million).

Includes reverse repos of £60.0 billion (30 June 2020: £61.1 billion; 31 December 2019: £54.6 billion).

 

REVIEW OF PERFORMANCE (continued)

The Group impairment charge of £4,119 million was significantly higher in the first nine months of the year than in the same period in 2019. This was primarily driven by the charge in the first half reflecting potential future losses in light of the Group's revised economic outlook for the UK as a consequence of the coronavirus pandemic. The charge of £301 million taken in the third quarter was broadly in line with pre-crisis levels and reflected the relative economic stability in the quarter. The Group's total expected credit loss (ECL) allowance continues to reflect the net impact of economic scenarios and Government support programmes, with the increase since 31 December 2019 of £3 billion building additional balance sheet resilience.

The Group's net asset quality ratio was 1.24 per cent compared with 0.29 per cent in the same period in 2019, largely driven by increases in ECL allowance in the first half of the year. Excluding the updated economic assumptions and coronavirus-impacted restructuring cases, the asset quality ratio was 0.36 per cent, slightly higher than in the prior period.

Observed credit quality remains robust with arrears and defaults remaining low given the temporary support measures, including payment holidays and furlough arrangements, that are available. The Retail charge of £398 million, pre-updated multiple economic scenarios, included a £205 million management overlay to offset model releases based on third quarter performance, given temporary support programmes. The charge for the quarter also includes a £105 million release reflecting minor changes to the updated economic outlook, largely relating to house price growth assumptions.

In the quarter, the Group's ECL allowance was broadly stable at £7.1 billion. The ECL represents 1.4 per cent of drawn balances, up 0.6 percentage points from 0.8 per cent at 31 December 2019. The outlook and IFRS 9 base case economic scenario that are used to calculate the Group's ECL have been updated to reflect a more resilient economic performance in 2020 than was anticipated at the half-year, in particular with respect to positive house prices, albeit with no material change to the Group's medium and long-term views.

The ECL allowance of £7.1 billion at 30 September 2020 remains high by historical standards and, consistent with the Group's updated macroeconomic projections, assumes that a large proportion of expected losses will crystallise over the next 12 months as support measures subside and unemployment increases.

The Group's ECL allowance continues to reflect a probability-weighted view of future economic scenarios with a 30 per cent weighting applied to base case, upside and downside scenarios and a 10 per cent weighting to the severe downside. All scenarios have deteriorated significantly in comparison to their equivalents at the 2019 year end, although they have remained broadly consistent over the three months to 30 September 2020. The base case upon which these scenarios are built now assumes that unemployment reaches a rate of 9.0 per cent in the first quarter of 2021, representing the same peak assumed at the half year, albeit one quarter later. The updated base case also recognises recent growth in house prices which drives an improved near-term forecast relative to that taken at 30 June 2020. This improvement, alongside a more resilient view on commercial real estate prices, has driven a £0.1 billion reduction to ECL in the third quarter of 2020.

At the half-year an adjustment was made to the severe downside scenario, which was reflected as an overlay, to recognise the greater levels of uncertainty in the short-term economic outlook and therefore a greater severity of potential adverse shocks than the modelled severe downside scenario generates. The adjusted severe downside scenario assumes a peak unemployment rate of 12.5 per cent in the second quarter of 2021 and a GDP drop of 13.3 per cent in 2020. The impact of this adjustment has been estimated at portfolio level, but remains outside the core IFRS 9 process and as such is reflected as a central overlay of £200 million, corresponding to an estimated £2 billion higher ECL provision within the severe downside scenario.

Taking into account the probability weightings attached to each scenario, the Group's reported ECL reflects an uplift of £509 million from the base case economic scenario ECL (30 June 2020: £510 million; 31 December 2019: £191 million).

REVIEW OF PERFORMANCE (continued)

Stage 2 loans and advances to customers have remained stable in the third quarter at 13 per cent of the book reflecting the relative stability of the Group's asset quality performance and forward-looking economic assumptions. Prudent adjustment of the criteria used to trigger movement from Stage 1 to Stage 2 within the credit card portfolio has resulted in an additional £1.4 billion of up-to-date assets moving to a Stage 2 lifetime ECL basis, and consequently £40 million of additional ECL being recognised. Stage 3 loans and advances have reduced in the third quarter as a result of limited flows to default alongside write-offs.

In the absence of other credit risk indicators, the granting of payment holidays for coronavirus-related requests is not currently in and of itself an indication of a significant increase in credit risk and therefore will not automatically result in a customer balance moving from Stage 1 to Stage 2. Correspondingly, the removal of a customer from payment holiday status does not result in any change in stage from that which otherwise would have been recognised. The Group's coverage of Stage 2 assets increased slightly to 4.6 per cent, reflecting additional Stage 2 card assets, whilst coverage of Stage 3 assets has reduced slightly from 29.6 per cent at 30 June 2020 to 29.0 per cent at 30 September 2020.

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

Significant uncertainty in the economic outlook remains, including that surrounding Brexit trade negotiations and the ongoing coronavirus pandemic. The extent of the impairment charge at the full year will depend on the potential severity and duration of the economic shock in the UK. Currently, given the stability seen in the portfolio since the half-year and based on current macroeconomic assumptions, the Group expects the impairment charge for the full year to be at the lower end of the £4.5 billion to £5.5 billion range.

Commercial Banking lending in key coronavirus-impacted sectors1

 

At 30 September 2020

 

At 30 June 2020

 

Drawn

 

Undrawn

 

Drawn as a % of Group loans and advances

 

Drawn

 

Undrawn

 

Drawn as a % of Group loans and advances

£bn

 

£bn

 

%

 

£bn

 

£bn

 

%

 

 

 

 

 

 

 

 

 

 

 

 

Retail non-food

2.3

 

1.7

 

0.5 

 

 

2.4

 

1.8

 

0.5 

 

Automotive dealerships2

1.7

 

2.2

 

0.4 

 

 

2.4

 

1.5

 

0.5 

 

Oil and gas

1.4

 

2.7

 

0.3 

 

 

1.4

 

2.7

 

0.3 

 

Construction

1.3

 

1.7

 

0.3 

 

 

1.3

 

1.7

 

0.3 

 

Hotels

1.8

 

0.3

 

0.4 

 

 

1.9

 

0.3

 

0.4 

 

Passenger transport

1.3

 

0.6

 

0.3 

 

 

1.3

 

0.6

 

0.3 

 

Leisure

0.8

 

0.7

 

0.2 

 

 

0.8

 

0.5

 

0.2 

 

Restaurants and bars

0.8

 

0.4

 

0.2 

 

 

0.8

 

0.5

 

0.2 

 

Total

11.4

 

10.3

 

2.6 

 

 

12.3

 

9.6

 

2.7 

 

Lending classified using ONS SIC codes at legal entity level.

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

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

REVIEW OF PERFORMANCE   (continued)

Support measures

Retail payment holiday characteristics 1

 

Mortgages

 

Cards

 

Loans

 

Motor

 

Total

 

000s

£bn

 

000s

£bn

 

000s

£bn

 

000s

£bn

 

000s

£bn

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total payment holidays granted

477

62.7 

 

 

320

1.6 

 

 

264

2.1 

 

 

132

2.2 

 

 

1,193

68.6 

 

First payment holiday still in force

14

1.9 

 

 

24

0.1 

 

 

23

0.2 

 

 

12

0.2 

 

 

73

2.4 

 

Matured payment holidays - repaying

384

49.5 

 

 

238

1.2 

 

 

201

1.6 

 

 

103

1.7 

 

 

927

54.0 

 

Matured payment holidays - extended

61

9.1 

 

 

38

0.2 

 

 

34

0.3 

 

 

9

0.2 

 

 

142

9.8 

 

Matured payment holidays - missed payment

18

2.2 

 

 

19

0.1 

 

 

7

0.0 

 

 

8

0.1 

 

 

51

2.4 

 

 

 

 

 

 

 

 

 

 

 

 

As a percentage of total matured

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Matured payment holidays - repaying

83 

%

82 

%

 

81 

%

80 

%

 

83 

%

82 

%

 

86 

%

84 

%

 

83 

%

82 

%

Matured payment holidays - extended

13 

%

15 

%

 

13 

%

14 

%

 

14 

%

15 

%

 

%

10 

%

 

13 

%

15 

%

Matured payment holidays - missed payment

%

%

 

%

%

 

%

%

 

%

%

 

%

%

Mortgages, credit cards and personal loans at 24 October 2020; motor finance at 23 October 2020. Analysis of mortgage payment holidays excludes St James Place, Intelligent Finance and Tesco; motor finance payment holidays excludes Lex Autolease. Total payment holidays granted are equal to the sum of first payment holiday still in force and matured payment holidays.

Government-backed loan schemes1

 

000s

 

£bn

 

 

 

 

Coronavirus Business Interruption Loan Scheme

9

 

2.0

Bounce Back Loan Scheme

278

 

8.4

Data as at 23 October 2020.

Around 1.2 million retail payment holidays, on £69 billion of lending, have been granted to help alleviate temporary financial pressure on customers during the crisis, of which there are c.73,000 (£2.4 billion) where the first payment holiday is still in force and 1.1 million (£66.2 billion) that have matured, including c.142,000 (£9.8 billion) that have then been extended. Payment holidays of up to three months have been granted across a range of retail products including mortgages, personal loans, credit cards and motor finance, with extensions available of up to three months should customers request them.

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

Mortgages account for the largest proportion of payment holidays, with a total of around 477,000 having been granted, equating to customer balances of £62.7 billion. As at 24 October 2020, 97 per cent, or 463,000, have matured with 83 per cent, or 384,000, of those having resumed repayments, 13 per cent extended and 4 per cent having missed payment. The average LTV of customers extending their mortgage payment holidays and still in extension remains relatively low at 51.6 per cent, compared to 43.5 per cent for the total mortgage book.

The Group also granted 320,000 payment holidays on £1.6 billion of credit card balances, 264,000 payment holidays on £2.1 billion of unsecured personal loans and 132,000 payment holidays on £2.2 billion of motor finance products. These products are also experiencing c.80 per cent of customers resuming payments at the end of their payment holidays. Only £0.2 billion of credit card balances have been subject to a payment holiday extension and are still in extension, with £0.1 billion having missed payment.

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

REVIEW OF PERFORMANCE   (continued)

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

Within SME, the Group has granted c.33,000 capital repayment holidays, equivalent to c.£5.9 billion with low levels of maturities to date.

Statutory profit

The Group's statutory profit after tax of £707 million was impacted by lower income and the significantly increased impairment charge.

Restructuring costs of £288 million for the first nine months of the year were broadly stable on prior year.  Costs were higher in the third quarter at £155 million as the Group resumed its property optimisation programme and organisational and role reduction activities that were paused earlier in the year, and this is expected to continue into the fourth quarter.

Volatility and other items of £159 million in the first nine months of 2020 included £320 million of negative insurance volatility, largely driven by falling equity markets and widening corporate bond credit spreads, offset by positive banking volatility of £365 million, primarily reflecting exchange rate and interest rate movements. Comparatives for the first nine months of 2019 include a one-off charge for exiting the Standard Life Aberdeen investment management agreement.

No further provision has been taken for PPI in the first nine months 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. The unutilised provision at 30 September 2020 was £328 million.

The Group recognised a tax credit of £273 million in the period, primarily as a result of an uplift in the value of deferred tax assets of c.£350 million recognised in the first half of 2020. This change reflected the corporation tax rate remaining at 19 per cent, which was substantively enacted on 17 March 2020.

Balance sheet

 

At 30 Sep
2020

 

At 31 Dec
2019

 

Change
%

 

 

 

 

 

 

Loans and advances to customers1

£439

bn 

 

£440

bn 

 

-

Customer deposits2

£447

bn 

 

£412

bn 

 

9

Loan to deposit ratio

98 

%

 

107 

%

 

(9)

pp

 

 

 

 

 

 

Wholesale funding3

£116

bn 

 

£124

bn 

 

(7)

Wholesale funding <1 year maturity3

£36

bn 

 

£39

bn 

 

(9)

Of which money-market funding <1 year maturity3

£24

bn 

 

£25

bn 

 

(2)

Liquidity coverage ratio - eligible assets4

£139

bn 

 

£130

bn 

 

6

Liquidity coverage ratio5

138 

%

 

137 

%

 

1pp

Excludes reverse repos of £60.0 billion (31 December 2019: £54.6 billion).

Excludes repos of £12.1 billion (31 December 2019: £9.5 billion).

Excludes balances relating to margins of £6.1 billion (31 December 2019: £4.2 billion).

Eligible assets are calculated as an average of month-end observations over the previous 12 months post liquidity haircut. 2019 assets have been restated accordingly.

The Liquidity coverage ratio is calculated as a simple average of month end observations over the previous 12 months.

 

REVIEW OF PERFORMANCE (continued)

Loans and advances to customers were stable compared to the year-end at £439 billion. The open mortgage book at 30 September 2020 is slightly higher than the year end, having increased £3.5 billion since 30 June 2020 given the market recovery and with improved new business margins. The closed mortgage book has continued to reduce, as expected, whilst credit card and motor finance balances are also lower, primarily as a result of reduced customer activity in the second quarter.

Commercial Banking has continued to focus on supporting SME clients through access to Government lending schemes and providing access to liquidity facilities for corporate and institutional clients. SME balances including Retail Business Banking at £40 billion have increased 25 per cent over the period as clients have made use of government-backed schemes to safeguard their cash flow during the pandemic. The Group has granted £8.4 billion of Bounce Back Loans, including those granted to Retail Business Banking clients and has extended £2.0 billion under the Coronavirus Business Interruption Loan Scheme, representing a total market share of Government-backed lending of 18 per cent. More broadly commercial lending was impacted by lower transaction banking volumes due to reduced client activity, the continued optimisation of the corporate and institutional book and revolving credit facilities returning to year-end levels.

The Group continues to see funding benefits with Retail current account balances up 19 per cent on the year-end to £92 billion reflecting reduced levels of consumer spending and the strength of the Group's trusted brands. Commercial current account balances were up 31 per cent on the year end at £46 billion, including the impact within the SME portfolio from the placement of Government-supported lending on deposit. The Group's loan to deposit ratio has fallen to 98 per cent from 107 per cent at 31 December 2019 driven by the 9 per cent increase in customer deposits.

The Group has maintained its strong funding and liquidity position with a stable liquidity coverage ratio of 138 per cent. In addition to its sizable liquid asset buffer averaging £138.5 billion over the last twelve months, the Group has a significant amount of pre-positioned collateral eligible for use in a range of central bank facilities.

The Group continues to access wholesale funding markets across a variety of currencies and markets to maintain a stable and diverse source of funds. During this period, the Group repaid all outstanding amounts of its Term Funding Scheme (TFS) drawings of £15.4 billion and the remaining £1 billion outstanding of its Funding for Lending Scheme (FLS) drawings. In addition to the £1 billion drawn in the first half of the year, the Group has made drawings of £12.7 billion in the third quarter from the Term Funding Scheme with additional incentives for SMEs (TFSME) taking the total outstanding amount to £13.7 billion as at 30 September 2020. Overall, total wholesale funding has reduced to £115.5 billion as at 30 September 2020 (31 December 2019: £124.2 billion) principally as a result of growth in customer deposits.

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

 

REVIEW OF PERFORMANCE   (continued)

Capital

 

At 30 Sep
2020

 

At 31 Dec
2019

 

Change
%

 

 

 

 

 

 

CET1 ratio1,2

15.2 

%

 

13.8 

%

 

1.4pp

CET1 ratio pre IFRS 9 transitional relief1,2,3

14.0 

%

 

13.4 

%

 

0.6pp

Transitional total capital ratio1,2

22.6 

%

 

21.5 

%

 

1.1pp

Transitional MREL ratio1,2

36.5 

%

 

32.6 

%

 

3.9pp

UK leverage ratio1,2

5.6 

%

 

5.2 

%

 

0.4pp

Risk-weighted assets1

£205

bn 

 

£203

bn 

 

1

 

 

 

 

 

 

Shareholders' equity

£43

bn 

 

£42

bn 

 

2

Tangible net assets per share

52.2

 

50.8

 

1.4

The CET1, total, MREL and leverage ratios and risk-weighted assets at 31 December 2019 are reported on a pro forma basis, reflecting the dividend paid up by the Insurance business in the subsequent first quarter period.

Incorporating profits for the period that remain subject to formal verification in accordance with the Capital Requirements Regulation.

CET1 ratio reflecting the full impact of IFRS 9, prior to the application of transitional arrangements for capital that provide relief for the impact of IFRS 9.

 

Pro forma CET1 ratio at 31 December 2019

13.8 

%

Banking business underlying capital build excluding impairment (bps)

143 

 

Impairment charge (bps)

(167)

 

Banking business underlying capital build (bps)

(24)

 

RWA, pensions and other movements (bps)

 

IFRS 9 transitional relief (bps)

84 

 

Reversal of FY 2019 ordinary dividend accrual (bps)

83 

 

CET1 ratio at 30 September 2020

15.2 

%

The Group's CET1 capital ratio increased by 145 basis points to 15.2 per cent over the first nine months of the year. Underlying capital build of 143 basis points was more than offset by the 167 basis point impact of impairment in the period. Pension contributions equivalent to 42 basis points reflecting the full accelerated 2020 contribution to the Group's three main defined benefit pension schemes and increased risk-weighted assets were largely offset by favourable market movements and the benefit of reductions in excess expected losses and prudent valuation reserve. However, given the benefit of the in-year IFRS 9 transitional relief (84 basis points) and the reversal of the full year 2019 ordinary dividend (83 basis points), the capital ratio increased to 15.2 per cent. The increase in the CET1 ratio of 64 basis points in the third quarter benefited from a stronger underlying build and risk-weighted asset reductions, in part due to the continued optimisation of the Commercial Banking portfolio.

The Group applies the revised IFRS 9 transitional arrangements for capital set out under current European capital regulations. This provides temporary capital relief for the increase in accounting impairment provisions following the initial implementation of IFRS 9 ('static' relief) and subsequent relief for any increases in Stage 1 and Stage 2 expected credit losses ('dynamic' relief). The transitional arrangements do not cover Stage 3 expected credit losses. It is expected that a significant part of the Group's transitional relief that was built in 2020 will unwind in 2021, impacting CET1 ratios.

Whilst the net increase in IFRS 9 transitional relief in the first nine months of the year amounted to 84 basis points, the Group's total relief recognised at 30 September 2020 amounted to 121 basis points, including static relief. In the third quarter the Group benefited from 5 basis points of IFRS 9 transitional relief.

 

 

REVIEW OF PERFORMANCE   (continued)

Risk-weighted assets increased by £1.9 billion over the first nine months with increases from credit migrations and retail model calibrations (c.£4.3 billion); regulatory changes (net £0.9 billion) and other various movements, including foreign currency and the risk-weighted part of the Group's investment in Insurance (£3.3 billion), partially offset by the reduction in underlying lending balances (excluding Government-backed lending schemes that attract limited to no risk-weighted assets) (c.£3.2 billion) and optimisation activity undertaken in Commercial Banking (c.£3.4 billion). Risk-weighted assets reduced by £1.8 billion in the third quarter, largely reflecting reduced lending outside Government support schemes and the continued optimisation of the Commercial Banking portfolio.

In the fourth quarter, risk-weighted assets will continue to be affected by credit migrations but this is expected to be offset by a number of items including the continued optimisation of the Commercial Banking portfolio. Taking this into account the Group now expects risk-weighted assets at year end to be broadly stable compared to 30 September 2020.

Whilst credit migration and the unwind of IFRS 9 transitional relief in 2020 has so far been less than expected, it is likely that these will have a fuller impact in 2021, consistent with economic forecasts. These will impact capital ratios as they evolve.

During the first half of 2020 the PRA reduced the Group's Pillar 2A CET1 requirement from 2.6 per cent to 2.3 per cent. The PRA also concluded its consultation on a proposed reduction in Pillar 2A to partially offset increased CET1 requirements from the UK countercyclical capital buffer rate in normal conditions being set at 2 per cent (currently set at 0 per cent). This is expected to reduce the Group's Pillar 2A CET1 requirement by a further 0.3 per cent when it becomes effective before the end of the year although, based on PRA policy statements, it is expected that this will be offset by other regulatory capital requirements.

Following the decision by the PRA to reduce the UK countercyclical capital buffer rate to zero earlier in the year, combined with the Pillar 2A adjustment noted above, the Group's CET1 capital regulatory requirement has reduced to c.11 per cent and subsequently headroom over requirements has increased.

The Board's view of the ongoing level of CET1 capital required by the Group to grow the business, meet regulatory requirements and cover uncertainties is around 12.5 per cent, plus a management buffer of around 1 per cent.

The transitional total capital ratio increased to 22.6 per cent (31 December 2019: 21.5 per cent on a pro forma basis) and the Group's transitional minimum requirement for own funds and eligible liabilities (MREL), which came into force on 1 January 2020, is 36.5 per cent (31 December 2019: 32.6 per cent on a pro forma basis). The UK leverage ratio increased to 5.6 per cent.

 

ADDITIONAL FINANCIAL INFORMATION

 

 

1.  Banking net interest margin and average interest-earning assets

 

Nine
months
ended
30 Sep
2020

 

Nine
months
ended
30 Sep
2019

 

 

 

 

Group net interest income - statutory basis (£m)

9,173 

 

 

7,425 

 

Insurance gross up (£m)

(1,189)

 

 

1,559 

 

Volatility and other items (£m)

112 

 

 

291 

 

Group net interest income - underlying basis (£m)

8,096 

 

 

9,275 

 

Non-banking net interest expense (£m)

151 

 

 

103 

 

Banking net interest income - underlying basis (£m)

8,247 

 

 

9,378 

 

 

 

 

 

Net loans and advances to customers (£bn)1

439.2 

 

 

447.2 

 

Impairment provision and fair value adjustments (£bn)

6.5 

 

 

4.1 

 

Non-banking items:

 

 

 

Fee-based loans and advances (£bn)

(5.5)

 

 

(7.0)

 

Other non-banking (£bn)

(3.7)

 

 

(3.5)

 

Gross banking loans and advances (£bn)

436.5 

 

 

440.8 

 

Averaging (£bn)

(2.2)

 

 

(6.8)

 

Average interest-earning banking assets (£bn)

434.3 

 

 

434.0 

 

 

 

 

 

Banking net interest margin (%)

2.54

 

2.89

Excludes reverse repos.

   

 

2. Return on tangible equity

 

Nine
months
ended
30 Sep
2020

 

Nine
months
ended
30 Sep
2019

 

 

 

 

Average shareholders' equity (£bn)

43.6 

 

 

43.3 

 

Average intangible assets (£bn)

(6.2)

 

 

(5.9)

 

Average tangible equity (£bn)

37.4 

 

 

37.4 

 

 

 

 

 

Underlying profit after tax (£m)

732 

 

 

4,543 

 

Add back amortisation of intangible assets (post tax) (£m)

323 

 

 

269 

 

Less profit attributable to non-controlling interests and other equity holders (£m)

(388)

 

 

(415)

 

Adjusted underlying profit after tax (£m)

667 

 

 

4,397 

 

 

 

 

 

Underlying return on tangible equity (%)

2.4

 

15.7

 

 

 

 

Group statutory profit after tax (£m)

707 

 

 

1,987 

 

Add back amortisation of intangible assets (post tax) (£m)

323 

 

 

269 

 

Add back amortisation of purchased intangible assets (post tax) (£m)

53 

 

 

56 

 

Less profit attributable to non-controlling interests and other equity holders (£m)

(388)

 

 

(415)

 

Adjusted statutory profit after tax (£m)

695 

 

 

1,897 

 

 

 

 

 

Statutory return on tangible equity (%)

2.5

 

6.8

 

 

 

ADDITIONAL FINANCIAL INFORMATION (continued)

3. Further impairment detail

Impairment charge by division on an underlying basis

 

Nine
months
ended
30 Sep
2020

 

Nine
months
ended
30 Sep
2019

 

Change

 

Three
months
ended
30 Sep
2020

 

Three
months
ended
30 Sep
2019

 

Change

 

£m

 

£m

 

%

 

£m

 

£m

 

%

 

 

 

 

 

 

 

 

 

 

 

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

UK Mortgages

624 

 

 

(85)

 

 

 

 

21 

 

 

(47)

 

 

 

Credit cards

792 

 

 

380 

 

 

 

 

136 

 

 

113 

 

 

(20)

UK Motor Finance

268 

 

 

153 

 

 

(75)

 

27 

 

 

49 

 

 

45

Other

734 

 

 

368 

 

 

(99)

 

139 

 

 

145 

 

 

4

 

2,418 

 

 

816 

 

 

 

 

323 

 

 

260 

 

 

(24)

Commercial Banking:

 

 

 

 

 

 

 

 

 

 

 

SME

288 

 

 

(54)

 

 

 

 

31 

 

 

(6)

 

 

 

Other

1,208 

 

 

248 

 

 

 

 

(54)

 

 

135 

 

 

 

 

1,496 

 

 

194 

 

 

 

 

(23)

 

 

129 

 

 

 

Insurance and Wealth

11 

 

 

 

 

 

 

 

 

 

 

-

Central Items

194 

 

 

(61)

 

 

 

 

 

 

(19)

 

 

100

Total impairment charge

4,119 

 

 

950 

 

 

 

 

301 

 

 

371 

 

 

19

Analysis of lending and ECL allowance by division

The analyses which follow have been presented on an underlying basis and reconciled to figures prepared on a statutory basis where appropriate. Refer to basis of presentation on page 31.

Movements in ECL by division on an underlying basis

 

ECL
at 30 Sep
2020

 

Net ECL
increase

 

Income Statement charge

 

Write-offs
and other

 

ECL
at 31 Dec
2019

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

Retail:

 

 

 

 

 

 

 

 

 

UK Mortgages

1,772 

 

 

556 

 

 

624 

 

 

(68)

 

 

1,216 

 

Credit cards

1,039 

 

 

433 

 

 

792 

 

 

(359)

 

 

606 

 

UK Motor Finance

557 

 

 

170 

 

 

268 

 

 

(98)

 

 

387 

 

Other

921 

 

 

334 

 

 

734 

 

 

(400)

 

 

587 

 

 

4,289 

 

 

1,493 

 

 

2,418 

 

 

(925)

 

 

2,796 

 

Commercial Banking

2,590 

 

 

1,275 

 

 

1,496 

 

 

(221)

 

 

1,315 

 

Other

257 

 

 

207 

 

 

205 

 

 

 

 

50 

 

Total1

7,136 

 

 

2,975 

 

 

4,119 

 

 

(1,144)

 

 

4,161 

 

Total ECL includes £52 million relating to other non customer-related assets (31 December 2019: £19 million).

ADDITIONAL FINANCIAL INFORMATION (continued)

Group loans and advances to customers

 

Total

 

Stage 1

 

Stage 2

 

Stage 3

 

POCI1

 

Stage 2
as % of
total

 

Stage 3
as % of
total

 

£m

 

£m

 

£m

 

£m

 

£m

 

%

 

%

At 30 September 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross lending (underlying basis)

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail:2

 

 

 

 

 

 

 

 

 

 

 

 

 

UK Mortgages

289,439 

 

 

243,097 

 

 

41,822 

 

 

4,520 

 

 

 

 

14.4

 

1.6

Credit cards

15,571 

 

 

11,847 

 

 

3,408 

 

 

316 

 

 

 

 

21.9

 

2.0

UK Motor Finance

15,350 

 

 

12,276 

 

 

2,838 

 

 

236 

 

 

 

 

18.5

 

1.5

Other3

28,192 

 

 

25,691 

 

 

2,051 

 

 

450 

 

 

 

 

7.3

 

1.6

 

348,552 

 

 

292,911 

 

 

50,119 

 

 

5,522 

 

 

 

 

14.4

 

1.6

Commercial Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

SME

32,397 

 

 

26,421 

 

 

5,098 

 

 

878 

 

 

 

 

15.7

 

2.7

Other

61,079 

 

 

47,424 

 

 

11,061 

 

 

2,594 

 

 

 

 

18.1

 

4.2

 

93,476 

 

 

73,845 

 

 

16,159 

 

 

3,472 

 

 

 

 

17.3

 

3.7

Insurance and Wealth

888 

 

 

802 

 

 

13 

 

 

73 

 

 

 

 

1.5

 

8.2

Central items

62,739 

 

 

62,732 

 

 

 

 

 

 

 

 

-

 

-

Total gross lending (underlying basis)

505,655 

 

 

430,290 

 

 

66,291 

 

 

9,074 

 

 

 

 

13.1

 

1.8

Purchased or originated credit-impaired assets

 

 

(1,350)

 

 

(9,390)

 

 

(2,674)

 

 

13,414 

 

 

 

 

 

Acquisition fair value adjustment

(568)

 

 

47 

 

 

13 

 

 

 

 

(629)

 

 

 

 

 

Total gross lending (statutory basis)

505,087 

 

 

428,987 

 

 

56,914 

 

 

6,401 

 

 

12,785 

 

 

11.3

 

1.3

Expected credit loss allowance on drawn balances (statutory basis)

(5,903)

 

 

(1,233)

 

 

(2,349)

 

 

(1,993)

 

 

(328)

 

 

 

 

 

Net balance sheet carrying value (statutory basis)

499,184 

 

 

427,754 

 

 

54,565 

 

 

4,408 

 

 

12,457 

 

 

 

 

 

Purchased or originated credit-impaired.

Retail balances exclude the impact of the HBOS and MBNA acquisition related adjustments.

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

 

 

 

 

 

 

ADDITIONAL FINANCIAL INFORMATION (continued)

 

Total

 

Stage 1

 

Stage 2

 

Stage 3

 

POCI1

 

Stage 2
as % of
total

 

Stage 3
as % of
total

 

£m

 

£m

 

£m

 

£m

 

£m

 

%

 

%

At 30 June 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross lending (underlying basis)

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail:2

 

 

 

 

 

 

 

 

 

 

 

 

 

UK Mortgages

286,379 

 

 

237,787 

 

 

44,035 

 

 

4,557 

 

 

 

 

15.4

 

1.6

Credit cards

15,825 

 

 

13,380 

 

 

2,079 

 

 

366 

 

 

 

 

13.1

 

2.3

UK Motor Finance

15,830 

 

 

12,674 

 

 

2,920 

 

 

236 

 

 

 

 

18.4

 

1.5

Other3

26,780 

 

 

24,239 

 

 

2,061 

 

 

480 

 

 

 

 

7.7

 

1.8

 

344,814 

 

 

288,080 

 

 

51,095 

 

 

5,639 

 

 

-

 

14.8

 

1.6

Commercial Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

SME

31,769 

 

 

25,742 

 

 

5,181 

 

 

846 

 

 

 

 

16.3

 

2.7

Other

66,841 

 

 

52,320 

 

 

11,559 

 

 

2,962 

 

 

 

 

17.3

 

4.4

 

98,610 

 

 

78,062 

 

 

16,740 

 

 

3,808 

 

 

 

 

17.0

 

3.9

Insurance and Wealth

871 

 

 

765 

 

 

23 

 

 

83 

 

 

 

 

2.6

 

9.5

Central items

63,781 

 

 

63,773 

 

 

 

 

 

 

 

 

-

 

-

Total gross lending (underlying basis)

508,076 

 

 

430,680 

 

 

67,858 

 

 

9,538 

 

 

 

 

13.4

 

1.9

Purchased or originated credit-impaired assets

 

 

(1,210)

 

 

(9,728)

 

 

(2,757)

 

 

13,695 

 

 

 

 

 

Acquisition fair value adjustment

(582)

 

 

59 

 

 

 

 

 

 

(652)

 

 

 

 

 

Total gross lending (statutory basis)

507,494 

 

 

429,529 

 

 

58,139 

 

 

6,783 

 

 

13,043 

 

 

11.5

 

1.3

Expected credit loss allowance on drawn balances (statutory basis)

(5,986)

 

 

(1,332)

 

 

(2,168)

 

 

(2,161)

 

 

(325)

 

 

 

 

 

Net balance sheet carrying value (statutory basis)

501,508 

 

 

428,197 

 

 

55,971 

 

 

4,622 

 

 

12,718 

 

 

 

 

 

Purchased or originated credit-impaired.

Retail balances exclude the impact of the HBOS and MBNA acquisition related adjustments.

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

 

ADDITIONAL FINANCIAL INFORMATION (continued)

 

Total

 

Stage 1

 

Stage 2

 

Stage 3

 

POCI

 

Stage 2
as % of
total

 

Stage 3
as % of
total

 

£m

 

£m

 

£m

 

£m

 

£m

 

%

 

%

At 31 December 20191

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross lending (underlying basis)

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail:2

 

 

 

 

 

 

 

 

 

 

 

 

 

UK Mortgages

289,845 

 

 

258,760 

 

 

26,838 

 

 

4,247 

 

 

 

 

9.3

 

1.5

Credit cards

18,110 

 

 

16,052 

 

 

1,675 

 

 

383 

 

 

 

 

9.2

 

2.1

UK Motor Finance

15,976 

 

 

13,884 

 

 

1,942 

 

 

150 

 

 

 

 

12.2

 

0.9

Other3

21,110 

 

 

18,691 

 

 

1,976 

 

 

443 

 

 

 

 

9.4

 

2.1

 

345,041 

 

 

307,387 

 

 

32,431 

 

 

5,223 

 

 

-

 

9.4

 

1.5

Commercial Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

SME

30,433 

 

 

27,206 

 

 

2,507 

 

 

720 

 

 

 

 

8.2

 

2.4

Other

66,065 

 

 

59,868 

 

 

3,470 

 

 

2,727 

 

 

 

 

5.3

 

4.1

 

96,498 

 

 

87,074 

 

 

5,977 

 

 

3,447 

 

 

 

 

6.2

 

3.6

Insurance and Wealth

862 

 

 

753 

 

 

32 

 

 

77 

 

 

 

 

3.7

 

8.9

Central items

56,404 

 

 

56,397 

 

 

 

 

 

 

 

 

-

 

-

Total gross lending (underlying basis)

498,805 

 

 

451,611 

 

 

38,440 

 

 

8,754 

 

 

 

 

7.7

 

1.8

Purchased or originated credit-impaired assets

 

 

(1,718)

 

 

(9,903)

 

 

(2,740)

 

 

14,361 

 

 

 

 

 

Acquisition fair value adjustment

(558)

 

 

82 

 

 

 

 

 

 

(647)

 

 

 

 

 

Total gross lending (statutory basis)

498,247 

 

 

449,975 

 

 

28,543 

 

 

6,015 

 

 

13,714 

 

 

5.7

 

1.2

Expected credit loss allowance on drawn balances (statutory basis)

(3,259)

 

 

(675)

 

 

(995)

 

 

(1,447)

 

 

(142)

 

 

 

 

 

Net balance sheet carrying value (statutory basis)

494,988 

 

 

449,300 

 

 

27,548 

 

 

4,568 

 

 

13,572 

 

 

 

 

 

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

Retail balances exclude the impact of the HBOS and MBNA acquisition related adjustments.

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

 

 

 

 

 

 

 

ADDITIONAL FINANCIAL INFORMATION (continued)

Group expected credit loss allowances (drawn and undrawn) as a percentage of loans and advances to customers

 

Total

 

 

 

Stage 1

 

 

 

Stage 2

 

 

 

Stage 3

 

 

 

POCI

 

£m

 

%1

 

£m

 

%1

 

£m

 

%1

 

£m

 

%1,2

 

£m

At 30 September 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ECL allowance (drawn and undrawn - underlying basis)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail:3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UK Mortgages

1,772 

 

 

0.6

 

111 

 

 

-

 

918 

 

 

2.2

 

743 

 

 

16.4

 

 

Credit cards

1,039 

 

 

6.7

 

261 

 

 

2.2

 

669 

 

 

19.6

 

109 

 

 

44.1

 

 

UK Motor Finance4

557 

 

 

3.6

 

198 

 

 

1.6

 

215 

 

 

7.6

 

144 

 

 

61.0

 

 

Other5

921 

 

 

3.3

 

328 

 

 

1.3

 

431 

 

 

21.0

 

162 

 

 

48.2

 

 

 

4,289 

 

 

1.2

 

898 

 

 

0.3

 

2,233 

 

 

4.5

 

1,158 

 

 

21.7

 

 

Commercial Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SME

529 

 

 

1.6

 

137 

 

 

0.5

 

261 

 

 

5.1

 

131 

 

 

14.9

 

 

Other

2,036 

 

 

3.3

 

203 

 

 

0.4

 

562 

 

 

5.1

 

1,271 

 

 

49.0

 

 

 

2,565 

 

 

2.7

 

340 

 

 

0.5

 

823 

 

 

5.1

 

1,402 

 

 

40.4

 

 

Insurance and Wealth

25 

 

 

2.8

 

11 

 

 

1.4

 

 

 

7.7

 

13 

 

 

17.8

 

 

Central items

205 

 

 

0.3

 

199 

 

 

0.3

 

 

 

-

 

 

 

85.7

 

 

Total ECL allowance (drawn and undrawn - underlying basis)

7,084 

 

 

1.4

 

1,448 

 

 

0.3

 

3,057 

 

 

4.6

 

2,579 

 

 

29.0

 

 

Purchased or originated credit-impaired assets

 

 

 

 

(2)

 

 

 

 

(411)

 

 

 

 

(544)

 

 

 

 

957 

 

Acquisition fair value adjustment

(670)

 

 

 

 

(12)

 

 

 

 

(25)

 

 

 

 

(4)

 

 

 

 

(629)

 

Total ECL allowance (drawn and undrawn - statutory basis)

6,414 

 

 

1.3

 

1,434 

 

 

0.3

 

2,621 

 

 

4.6

 

2,031 

 

 

32.7

 

328 

 

As a percentage of drawn balances.

Stage 3 ECL allowances as a percentage of drawn balances are calculated excluding loans in recoveries in Credit Cards of £69 million and £114 million in Loans, Overdrafts and Business Banking within Retail other.

Retail balances exclude the impact of the HBOS and MBNA acquisition related adjustments.

UK Motor Finance for Stages 1 and 2 include £188 million relating to provisions against residual values of vehicles subject to finance leasing agreements. These provisions are included within the calculation of coverage ratios.

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

 

 

 

 

 

 

ADDITIONAL FINANCIAL INFORMATION (continued)

 

Total

 

 

 

Stage 1

 

 

 

Stage 2

 

 

 

Stage 3

 

 

 

POCI

 

£m

 

%1

 

£m

 

%1

 

£m

 

%1

 

£m

 

%1,2

 

£m

At 30 June 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ECL allowance
(underlying basis)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail:3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UK Mortgages

1,763 

 

 

0.6

 

108 

 

 

-

 

907 

 

 

2.1

 

748 

 

 

16.4

 

 

Credit cards

991 

 

 

6.3

 

426 

 

 

3.2

 

438 

 

 

21.1

 

127 

 

 

43.9

 

 

UK Motor Finance4

563 

 

 

3.6

 

194 

 

 

1.5

 

217 

 

 

7.4

 

152 

 

 

64.4

 

 

Other5

897 

 

 

3.4

 

341 

 

 

1.4

 

383 

 

 

18.6

 

173 

 

 

49.3

 

 

 

4,214 

 

 

1.2

 

1,069 

 

 

0.4

 

1,945 

 

 

3.8

 

1,200 

 

 

22.1

 

 

Commercial Banking:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SME

502 

 

 

1.6

 

115 

 

 

0.4

 

269 

 

 

5.2

 

118 

 

 

13.9

 

 

Other

2,238 

 

 

3.3

 

210 

 

 

0.4

 

602 

 

 

5.2

 

1,426 

 

 

48.1

 

 

 

2,740 

 

 

2.8

 

325 

 

 

0.4

 

871 

 

 

5.2

 

1,544 

 

 

40.5

 

 

Insurance and Wealth

25 

 

 

2.9

 

11 

 

 

1.4

 

 

 

4.3

 

13 

 

 

15.7

 

 

Central items

207 

 

 

0.3

 

201 

 

 

0.3

 

 

 

-

 

 

 

75.0

 

 

Total ECL allowance (drawn and undrawn - underlying basis)

7,186 

 

 

1.4

 

1,606 

 

 

0.4

 

2,817 

 

 

4.2

 

2,763 

 

 

29.6

 

 

Purchased or originated credit-impaired assets

 

 

 

 

 

 

 

 

(416)

 

 

 

 

(561)

 

 

 

 

977 

 

Acquisition fair value adjustment

(699)

 

 

 

 

(23)

 

 

 

 

(18)

 

 

 

 

(6)

 

 

 

 

(652)

 

Total ECL allowance (drawn and undrawn - statutory basis)

6,487 

 

 

1.3

 

1,583 

 

 

0.4

 

2,383 

 

 

4.1

 

2,196 

 

 

33.4

 

325 

 

As a percentage of drawn balances.

Stage 3 ECL allowances as a percentage of drawn balances are calculated excluding loans in recoveries in Credit Cards of £77 million and £129 million in Loans, Overdrafts and Business Banking within Retail other.

Retail balances exclude the impact of the HBOS and MBNA acquisition related adjustments.

UK Motor Finance for Stages 1 and 2 include £191 million relating to provisions against residual values of vehicles subject to finance leasing agreements. These provisions are included within the calculation of coverage ratios.

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

 

 

ADDITIONAL FINANCIAL INFORMATION (continued)

 

Total

 

 

 

Stage 1

 

 

 

Stage 2

 

 

 

Stage 3

 

 

 

POCI

 

£m

 

%1,2

 

£m

 

%1,2

 

£m

 

%1,2

 

£m

 

%1,2,3

 

£m

At 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ECL allowance (drawn and undrawn - underlying basis)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail:4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

UK Mortgages

1,216 

 

 

0.4

 

26 

 

 

-

 

614 

 

 

2.3

 

576 

 

 

13.6

 

 

Credit cards

606 

 

 

3.4

 

230 

 

 

1.4

 

236 

 

 

14.1

 

140 

 

 

46.2

 

 

UK Motor Finance5

387 

 

 

2.4

 

216 

 

 

1.6

 

87 

 

 

4.5

 

84 

 

 

56.0

 

 

Other6

587 

 

 

2.8

 

194 

 

 

1.0

 

233 

 

 

11.8

 

160 

 

 

50.3

 

 

 

2,796 

 

 

0.8

 

666 

 

 

0.2

 

1,170 

 

 

3.6

 

960 

 

 

19.1

 

 

Commercial Banking:7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SME

273 

 

 

0.9

 

45 

 

 

0.2

 

127 

 

 

5.1

 

101 

 

 

14.0

 

 

Other

1,040 

 

 

1.6

 

70 

 

 

0.1

 

125 

 

 

3.6

 

845 

 

 

31.0

 

 

 

1,313 

 

 

1.4

 

115 

 

 

0.1

 

252 

 

 

4.2

 

946 

 

 

27.4

 

 

Insurance and Wealth

17 

 

 

2.0

 

 

 

0.8

 

 

 

3.1

 

10 

 

 

13.0

 

 

Central items

16 

 

 

-

 

10 

 

 

-

 

-

 

-

 

 

 

85.7

 

 

Total ECL allowance (drawn and undrawn - underlying basis)

4,142 

 

 

0.8

 

797 

 

 

0.2

 

1,423 

 

 

3.7

 

1,922 

 

 

22.5

 

 

Purchased or originated credit-impaired assets

 

 

 

 

 

 

 

 

(334)

 

 

 

 

(455)

 

 

 

 

789 

 

Acquisition fair value adjustment

(706)

 

 

 

 

(27)

 

 

 

 

(17)

 

 

 

 

(15)

 

 

 

 

(647)

 

Total ECL allowance (drawn and undrawn - statutory basis)

3,436 

 

 

0.7

 

770 

 

 

0.2

 

1,072 

 

 

3.8

 

1,452 

 

 

25.0

 

142 

 

As a percentage of drawn balances.

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

Stage 3 ECL allowances as a percentage of drawn balances are calculated excluding loans in recoveries in Credit Cards of £80 million and £125 million in Loans, Overdrafts and Business Banking within Retail other.

Retail balances exclude the impact of the HBOS and MBNA acquisition related adjustments.