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LYG Lloyds Banking

Filed: 29 Jul 21, 10:05am
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
 
 
FORM 6-K
 
 
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
 
 
29 July 2021
LLOYDS BANKING GROUP plc
(Translation of registrant's name into English)
 
5th Floor
25 Gresham Street
London
EC2V 7HN
United Kingdom
 
 
(Address of principal executive offices)
 
 
 
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
 
Form 20-F..X..     Form 40-F 
 
 
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
 
Yes         No ..X..
 
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule
12g3-2(b): 82- ________
 
 
Index to Exhibits
 
 
Item
 
 No. 1 Regulatory News Service Announcement, dated 29 July 2021
          re: 2021 Half-Year Results - Part 2 of 2
 
 
Lloyds Banking Group plc
 
2021 Half-Year Results
 
29 July 2021
 
 
Part 2 of 2
 
 
 STATUTORY INFORMATION
 
  
Page
Condensed consolidated half-year financial statements (unaudited) 
Consolidated income statement 86
Consolidated statement of comprehensive income 87
Consolidated balance sheet 88
Consolidated statement of changes in equity 90
Consolidated cash flow statement 93
   
Notes
 
 
1
Accounting policies
 94
2
Critical accounting judgements and estimates
 95
3
Segmental analysis
 105
4
Net fee and commission income
 107
5
Insurance claims
 108
6
Operating expenses
 108
7
Impairment
 109
8
Tax expense
 111
9
Earnings per share
 112
10
Financial assets at fair value through profit or loss
 112
11
Derivative financial instruments
 113
12
Financial assets at amortised cost
 114
13
Debt securities in issue
 121
14
Retirement benefit obligations
122
15
Other provisions
 123
16
Contingent liabilities, commitments and guarantees
 126
17
Fair values of financial assets and liabilities
 129
18
Credit quality of loans and advances to banks and customers
 138
19
Dividends on ordinary shares
 142
20
Future accounting developments
 143
21
Other information
 143
 
 
 CONSOLIDATED INCOME STATEMENT (UNAUDITED)
 
   
Half-year
to 30 June
2021
 
  
Half-year
to 30 June
2020
 
  
Half-year
to 31 Dec
2020
 
 
 
Note
 
 £m  £m  £m 
           
Interest income
 
  
6,544 
 
   
7,574 
 
   
6,732 
 
  
Interest expense
 
  
(2,171)
 
   
(1,018)
 
   
(2,539)
 
  
Net interest income
 
  
4,373 
 
   
6,556 
 
   
4,193 
 
  
Fee and commission income
 
  
1,294 
 
   
1,121 
 
   
1,187 
 
  
Fee and commission expense
 
  
(601)
 
   
(558)
 
   
(590)
 
  
Net fee and commission income
 
4
 
 
693 
 
   
563 
 
   
597 
 
  
Net trading income
 
  
9,515 
 
   
(5,211)
 
   
12,431 
 
  
Insurance premium income
 
  
4,249 
 
   
4,244 
 
   
4,371 
 
  
Other operating income
 
  
738 
 
   
720 
 
   
703 
 
  
Other income
 
  
15,195 
 
   
316 
 
   
18,102 
 
  
Total income
 
  
19,568 
 
   
6,872 
 
   
22,295 
 
  
Insurance claims
 
5
 
 
(11,489)
 
   
1,023 
 
   
(15,064)
 
  
Total income, net of insurance claims
 
  
8,079 
 
   
7,895 
 
   
7,231 
 
  
Operating expenses
 
6
 
 
(4,897)
 
   
(4,668)
 
   
(5,077)
 
  
Impairment
 
7
 
 
723 
 
   
(3,829)
 
   
(326)
 
  
Profit (loss) before tax
 
  
3,905 
 
   
(602)
 
   
1,828 
 
  
Tax (expense) credit
 
8
 
 
(40)
 
   
621 
 
   
(460)
 
  
Profit for the period
 
  
3,865 
 
   
19 
 
   
1,368 
 
  
           
Profit (loss) attributable to ordinary shareholders
 
  
3,611 
 
   
(234)
 
   
1,099 
 
  
Profit attributable to other equity holders
 
  
213 
 
   
234 
 
   
219 
 
  
Profit attributable to equity holders
 
  
3,824 
 
   
— 
 
   
1,318 
 
  
Profit attributable to non-controlling interests
 
  
41 
 
   
19 
 
   
50 
 
  
Profit for the period
 
  
3,865 
 
   
19 
 
   
1,368 
 
  
           
Basic earnings (loss) per share
 
9
 
 5.1p  (0.3p)  1.5p 
Diluted earnings (loss) per share
 
9
 
 5.0p  (0.3p)  1.5p 
 
The accompanying notes are an integral part of the condensed consolidated half-year financial statements.
 
 
 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
 
 
Half-year
to 30 June
2021
 
  
Half-year
to 30 June
2020
 
  
Half-year
to 31 Dec
2020
 
 
 
£m
 
  
£m
 
  
£m
 
 
         
Profit for the period
 
3,865 
 
   
19 
 
   
1,368 
 
  
Other comprehensive income
 
        
Items that will not subsequently be reclassified to profit or loss:
 
        
Post-retirement defined benefit scheme remeasurements:
 
        
Remeasurements before tax
 
604 
 
   
668 
 
   
(530)
 
  
Tax
 
(323)
 
   
(154)
 
   
129 
 
  
 
281 
 
   
514 
 
   
(401)
 
  
Movements in revaluation reserve in respect of equity shares held at fair value through other comprehensive income:
 
        
Change in fair value
 
40 
 
   
(62)
 
   
12 
 
  
Tax
 
 
   
— 
 
   
(16)
 
  
 
41 
 
   
(62)
 
   
(4)
 
  
Gains and losses attributable to own credit risk:
 
        
Losses before tax
 
(48)
 
   
(3)
 
   
(72)
 
  
Tax
 
22 
 
   
 
   
19 
 
  
 
(26)
 
   
(2)
 
   
(53)
 
  
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
 
36 
 
   
(21)
 
   
67 
 
  
Income statement transfers in respect of disposals
 
(15)
 
   
(137)
 
   
(12)
 
  
Income statement transfers in respect of impairment
 
(2)
 
   
 
   
(1)
 
  
Tax
 
 
   
43 
 
   
31 
 
  
 
26 
 
   
(109)
 
   
85 
 
  
Movements in cash flow hedging reserve:
 
        
Effective portion of changes in fair value taken to other comprehensive income
 
(1,153)
 
   
890 
 
   
(160)
 
  
Net income statement transfers
 
(296)
 
   
(223)
 
   
(273)
 
  
Tax
 
372 
 
   
(209)
 
   
100 
 
  
 
(1,077)
 
   
458 
 
   
(333)
 
  
Movements in foreign currency translation reserve:
 
        
Currency translation differences (tax: £nil)
 
(23)
 
   
28 
 
   
(24)
 
  
Transfers to income statement (tax: £nil)
 
— 
 
   
— 
 
   
13 
 
  
 
(23)
 
   
28 
 
   
(11)
 
  
Other comprehensive income for the period, net of tax
 
(778)
 
   
827 
 
   
(717)
 
  
Total comprehensive income for the period
 
3,087 
 
   
846 
 
   
651 
 
  
         
Total comprehensive income attributable to ordinary shareholders
 
2,833 
 
   
593 
 
   
382 
 
  
Total comprehensive income attributable to other equity holders
 
213 
 
   
234 
 
   
219 
 
  
Total comprehensive income attributable to equity holders
 
3,046 
 
   
827 
 
   
601 
 
  
Total comprehensive income attributable to non-controlling interests
 
41 
 
   
19 
 
   
50 
 
  
Total comprehensive income for the period
 
3,087 
 
   
846 
 
   
651 
 
  
 
 
 CONSOLIDATED BALANCE SHEET
 
   
At
30 June
2021
 
  
At
31 Dec
2020
 
 
   (unaudited)  (audited) 
 
Note
 
 £m  £m 
        
Assets
 
       
Cash and balances at central banks
 
  
78,966 
 
   
73,257 
 
  
Items in the course of collection from banks
 
  
163 
 
   
299 
 
  
Financial assets at fair value through profit or loss
 
10
 
 
177,589 
 
   
171,626 
 
  
Derivative financial instruments
 
11
 
 
22,193 
 
   
29,613 
 
  
Loans and advances to banks
 
  
10,811 
 
   
10,746 
 
  
Loans and advances to customers
 
  
500,356 
 
   
498,843 
 
  
Debt securities
 
  
5,008 
 
   
5,405 
 
  
Financial assets at amortised cost
 
12
 
 
516,175 
 
   
514,994 
 
  
Financial assets at fair value through other comprehensive income
 
  
26,213 
 
   
27,603 
 
  
Investments in joint ventures and associates
 
  
313 
 
   
296 
 
  
Goodwill
 
  
2,320 
 
   
2,320 
 
  
Value of in-force business
 
  
5,727 
 
   
5,617 
 
  
Other intangible assets
 
  
4,299 
 
   
4,140 
 
  
Property, plant and equipment
 
  
11,518 
 
   
11,754 
 
  
Current tax recoverable
 
  
792 
 
   
660 
 
  
Deferred tax assets
 
  
3,346 
 
   
2,741 
 
  
Retirement benefit assets
 
14
 
 
3,134 
 
   
1,714 
 
  
Assets arising from contracts held with reinsurers
 
  
19,922 
 
   
20,385 
 
  
Other assets
 
  
7,017 
 
   
4,250 
 
  
Total assets
 
  
879,687 
 
   
871,269 
 
  
 
CONSOLIDATED BALANCE SHEET (continued)
 
   
At
30 June
2021
 
  
At
31 Dec
2020
 
 
   (unaudited)  (audited) 
Equity and liabilities
 
Note £m  £m 
        
Liabilities
 
       
Deposits from banks
 
  
20,655 
 
   
31,465 
 
  
Customer deposits
 
  
482,349 
 
   
460,068 
 
  
Items in course of transmission to banks
 
  
325 
 
   
306 
 
  
Financial liabilities at fair value through profit or loss
 
  
21,054 
 
   
22,646 
 
  
Derivative financial instruments
 
11
 
 
17,951 
 
   
27,313 
 
  
Notes in circulation
 
  
1,368 
 
   
1,305 
 
  
Debt securities in issue
 
13
 
 
81,268 
 
   
87,397 
 
  
Liabilities arising from insurance contracts and participating investment contracts
 
 
120,368 
 
   
116,060 
 
  
Liabilities arising from non-participating investment contracts
 
  
42,031 
 
   
38,452 
 
  
Other liabilities
 
  
24,871 
 
   
20,347 
 
  
Retirement benefit obligations
 
14
 
 
234 
 
   
245 
 
  
Current tax liabilities
 
  
— 
 
   
31 
 
  
Deferred tax liabilities
 
  
42 
 
   
45 
 
  
Other provisions
 
15
 
 
1,758 
 
   
1,915 
 
  
Subordinated liabilities
 
  
13,527 
 
   
14,261 
 
  
Total liabilities
 
  
827,801 
 
   
821,856 
 
  
        
Equity
 
       
Share capital
 
  
7,097 
 
   
7,084 
 
  
Share premium account
 
  
17,872 
 
   
17,863 
 
  
Other reserves
 
  
12,713 
 
   
13,747 
 
  
Retained profits
 
  
8,079 
 
   
4,584 
 
  
Ordinary shareholders’ equity
 
  
45,761 
 
   
43,278 
 
  
Other equity instruments
 
  
5,906 
 
   
5,906 
 
  
Total equity excluding non-controlling interests
 
  
51,667 
 
   
49,184 
 
  
Non-controlling interests
 
  
219 
 
   
229 
 
  
Total equity
 
  
51,886 
 
   
49,413 
 
  
Total equity and liabilities
 
  
879,687 
 
   
871,269 
 
  
 
 
 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
 
 
Attributable to ordinary shareholders
 
         
 
Share
capital and
premium
 
  
Other
reserves
 
  
Retained
profits
 
  
Total
 
  
Other
equity
instruments
 
  
Non-
controlling
interests
 
  
Total
 
 
 
£m
 
  
£m
 
  
£m
 
  
£m
 
  
£m
 
  
£m
 
  
£m
 
 
                     
At 1 January 2021
 
24,947 
 
   
13,747 
 
   
4,584 
 
   
43,278 
 
   
5,906 
 
   
229 
 
   
49,413 
 
  
Comprehensive income
 
                    
Profit for the period
 
— 
 
   
— 
 
   
3,611 
 
   
3,611 
 
   
213 
 
   
41 
 
   
3,865 
 
  
Other comprehensive income
 
                    
Post-retirement defined benefit scheme remeasurements, net of tax
 
— 
 
   
— 
 
   
281 
 
   
281 
 
   
— 
 
   
— 
 
   
281 
 
  
Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:
 
                    
Debt securities
 
— 
 
   
26 
 
   
— 
 
   
26 
 
   
— 
 
   
— 
 
   
26 
 
  
Equity shares
 
— 
 
   
41 
 
   
— 
 
   
41 
 
   
— 
 
   
— 
 
   
41 
 
  
Gains and losses attributable to own credit risk, net of tax
 
— 
 
   
— 
 
   
(26)
 
   
(26)
 
   
— 
 
   
— 
 
   
(26)
 
  
Movements in cash flow hedging reserve, net of tax
 
— 
 
   
(1,077)
 
   
— 
 
   
(1,077)
 
   
— 
 
   
— 
 
   
(1,077)
 
  
Movements in foreign currency translation reserve, net of tax
 
— 
 
   
(23)
 
   
— 
 
   
(23)
 
   
— 
 
   
— 
 
   
(23)
 
  
Total other comprehensive income
 
— 
 
   
(1,033)
 
   
255 
 
   
(778)
 
   
— 
 
   
— 
 
   
(778)
 
  
Total comprehensive income1
 
— 
 
   
(1,033)
 
   
3,866 
 
   
2,833 
 
   
213 
 
   
41 
 
   
3,087 
 
  
Transactions with owners
 
                    
Dividends
 
— 
 
   
— 
 
   
(404)
 
   
(404)
 
   
— 
 
   
(51)
 
   
(455)
 
  
Distributions on other equity instruments
 
— 
 
   
— 
 
   
— 
 
   
— 
 
   
(213)
 
   
— 
 
   
(213)
 
  
Issue of ordinary shares
 
22 
 
   
— 
 
   
— 
 
   
22 
 
   
— 
 
   
— 
 
   
22 
 
  
Movement in treasury shares
 
— 
 
   
— 
 
   
(54)
 
   
(54)
 
   
— 
 
   
— 
 
   
(54)
 
  
Value of employee services:
 
                    
Share option schemes
 
— 
 
   
— 
 
   
27 
 
   
27 
 
   
— 
 
   
— 
 
   
27 
 
  
Other employee award schemes
 
— 
 
   
— 
 
   
59 
 
   
59 
 
   
— 
 
   
— 
 
   
59 
 
  
Changes in non-controlling interests
 
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
  
Total transactions with owners
 
22 
 
   
— 
 
   
(372)
 
   
(350)
 
   
(213)
 
   
(51)
 
   
(614)
 
  
Realised gains and losses on equity shares held at fair value through other comprehensive income
 
— 
 
   
(1)
 
   
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
  
At 30 June 20212
 
24,969 
 
   
12,713 
 
   
8,079 
 
   
45,761 
 
   
5,906 
 
   
219 
 
   
51,886 
 
  
 
1
Total comprehensive income attributable to owners of the parent was £3,046 million.
2
Total equity attributable to owners of the parent was £51,667 million.
 
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)
 
 
Attributable to ordinary shareholders
 
         
 
Share
capital and
premium
 
  
Other
reserves
 
  
Retained
profits
 
  
Total
 
  
Other
equity
instruments
 
  
Non-
controlling
interests
 
  
Total
 
 
 
£m
 
  
£m
 
  
£m
 
  
£m
 
  
£m
 
  
£m
 
  
£m
 
 
                     
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 
 
  
Movements in foreign currency translation reserve, net of tax
 
— 
 
   
28 
 
   
— 
 
   
28 
 
   
— 
 
   
— 
 
   
28 
 
  
Total other comprehensive income
 
— 
 
   
315 
 
   
512 
 
   
827 
 
   
— 
 
   
— 
 
   
827 
 
  
Total comprehensive income1
 
— 
 
   
315 
 
   
278 
 
   
593 
 
   
234 
 
   
19 
 
   
846 
 
  
Transactions with owners
 
                    
Dividends
 
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
  
Distributions on other equity instruments
 
— 
 
   
— 
 
   
— 
 
   
— 
 
   
(234)
 
   
— 
 
   
(234)
 
  
Issue of ordinary shares
 
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 
 
  
Changes in non-controlling interests
 
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
  
Total transactions with owners
 
176 
 
   
— 
 
   
268 
 
   
444 
 
   
(234)
 
   
— 
 
   
210 
 
  
Realised gains and losses on equity shares held at fair value through other comprehensive income
 
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
  
At 30 June 20202
 
24,932 
 
   
14,010 
 
   
3,792 
 
   
42,734 
 
   
5,906 
 
   
222 
 
   
48,862 
 
  
 
1
Total comprehensive income attributable to owners of the parent was £827 million.
 
 
2
Total equity attributable to owners of the parent was £48,640 million.
 
 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)
 
 
Attributable to ordinary shareholders
 
         
 
Share
capital and
premium
 
  
Other
reserves
 
  
Retained
profits
 
  
Total
 
  
Other
equity
instruments
 
  
Non-
controlling
interests
 
  
Total
 
 
 
£m
 
  
£m
 
  
£m
 
  
£m
 
  
£m
 
  
£m
 
  
£m
 
 
                     
At 1 July 2020
 
24,932 
 
   
14,010 
 
   
3,792 
 
   
42,734 
 
   
5,906 
 
   
222 
 
   
48,862 
 
  
Comprehensive income
 
                    
Profit for the period
 
— 
 
   
— 
 
   
1,099 
 
   
1,099 
 
   
219 
 
   
50 
 
   
1,368 
 
  
Other comprehensive income
 
                    
Post-retirement defined benefit scheme remeasurements, net of tax
 
— 
 
   
— 
 
   
(401)
 
   
(401)
 
   
— 
 
   
— 
 
   
(401)
 
  
Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:
 
                    
Debt securities
 
— 
 
   
85 
 
   
— 
 
   
85 
 
   
— 
 
   
— 
 
   
85 
 
  
Equity shares
 
— 
 
   
(4)
 
   
— 
 
   
(4)
 
   
— 
 
   
— 
 
   
(4)
 
  
Gains and losses attributable to own credit risk, net of tax
 
— 
 
   
— 
 
   
(53)
 
   
(53)
 
   
— 
 
   
— 
 
   
(53)
 
  
Movements in cash flow hedging reserve, net of tax
 
— 
 
   
(333)
 
   
— 
 
   
(333)
 
   
— 
 
   
— 
 
   
(333)
 
  
Movements in foreign currency translation reserve, net of tax
 
— 
 
   
(11)
 
   
— 
 
   
(11)
 
   
— 
 
   
— 
 
   
(11)
 
  
Total other comprehensive income
 
— 
 
   
(263)
 
   
(454)
 
   
(717)
 
   
— 
 
   
— 
 
   
(717)
 
  
Total comprehensive income1
 
— 
 
   
(263)
 
   
645 
 
   
382 
 
   
219 
 
   
50 
 
   
651 
 
  
Transactions with owners
 
                    
Dividends
 
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
   
(41)
 
   
(41)
 
  
Distributions on other equity instruments
 
— 
 
   
— 
 
   
— 
 
   
— 
 
   
(219)
 
   
— 
 
   
(219)
 
  
Issue of ordinary shares
 
15 
 
   
— 
 
   
— 
 
   
15 
 
   
— 
 
   
— 
 
   
15 
 
  
Movement in treasury shares
 
— 
 
   
— 
 
   
72 
 
   
72 
 
   
— 
 
   
— 
 
   
72 
 
  
Value of employee services:
 
                    
Share option schemes
 
— 
 
   
— 
 
   
36 
 
   
36 
 
   
— 
 
   
— 
 
   
36 
 
  
Other employee award schemes
 
— 
 
   
— 
 
   
39 
 
   
39 
 
   
— 
 
   
— 
 
   
39 
 
  
Changes in non-controlling interests
 
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
   
(2)
 
   
(2)
 
  
Total transactions with owners
 
15 
 
   
— 
 
   
147 
 
   
162 
 
   
(219)
 
   
(43)
 
   
(100)
 
  
Realised gains and losses on equity shares held at fair value through other comprehensive income
 
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
   
— 
 
  
At 31 December 20202
 
24,947 
 
   
13,747 
 
   
4,584 
 
   
43,278 
 
   
5,906 
 
   
229 
 
   
49,413 
 
  
 
1
Total comprehensive income attributable to owners of the parent was £601 million.
 
2
Total equity attributable to owners of the parent was £49,184 million.
 
 
 CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
 
 
Half-year
to 30 June
2021
 
  
Half-year
to 30 June
2020
 
  
Half-year
to 31 Dec
2020
 
 
 £m  £m  £m 
         
Profit (loss) before tax
 
3,905 
 
   
(602)
 
   
1,828 
 
  
Adjustments for:
 
        
Change in operating assets
 
(2,013)
 
   
(14,313)
 
   
(4,337)
 
  
Change in operating liabilities
 
2,509 
 
   
41,412 
 
   
(5,675)
 
  
Non-cash and other items
 
2,620 
 
   
2,405 
 
   
7,189 
 
  
Tax paid
 
(602)
 
   
(726)
 
   
(10)
 
  
Net cash provided by (used in) operating activities
 
6,419 
 
   
28,176 
 
   
(1,005)
 
  
Cash flows from investing activities
 
        
Purchase of financial assets
 
(5,442)
 
   
(7,115)
 
   
(1,474)
 
  
Proceeds from sale and maturity of financial assets
 
6,378 
 
   
5,239 
 
   
1,108 
 
  
Purchase of fixed assets
 
(1,553)
 
   
(1,314)
 
   
(1,587)
 
  
Proceeds from sale of fixed assets
 
710 
 
   
440 
 
   
706 
 
  
Acquisition of businesses, net of cash acquired
 
(7)
 
   
(3)
 
   
— 
 
  
Net cash provided by (used in) investing activities
 
86 
 
   
(2,753)
 
   
(1,247)
 
  
Cash flows from financing activities
 
        
Dividends paid to ordinary shareholders
 
(404)
 
   
— 
 
   
— 
 
  
Distributions on other equity instruments
 
(213)
 
   
(234)
 
   
(219)
 
  
Dividends paid to non-controlling interests
 
(51)
 
   
— 
 
   
(41)
 
  
Interest paid on subordinated liabilities
 
(456)
 
   
(682)
 
   
(413)
 
  
Proceeds from issue of subordinated liabilities
 
500 
 
   
— 
 
   
— 
 
  
Proceeds from issue of ordinary shares
 
12 
 
   
133 
 
   
11 
 
  
Repayment of subordinated liabilities
 
(471)
 
   
(1,769)
 
   
(2,105)
 
  
Net cash used in financing activities
 
(1,083)
 
   
(2,552)
 
   
(2,767)
 
  
Effects of exchange rate changes on cash and cash equivalents
 
(66)
 
   
 
   
(200)
 
  
Change in cash and cash equivalents
 
5,356 
 
   
22,875 
 
   
(5,219)
 
  
Cash and cash equivalents at beginning of period
 
75,467 
 
   
57,811 
 
   
80,686 
 
  
Cash and cash equivalents at end of period
 
80,823 
 
   
80,686 
 
   
75,467 
 
  
 
Cash and cash equivalents comprise cash and non-mandatory balances with central banks and amounts due from banks with a maturity of less than three months. Included within cash and cash equivalents at 30 June 2021 is £76 million (30 June 2020: £55 million; 31 December 2020: £84 million) held within the Group's long-term insurance and investments operations, which is not immediately available for use in the business.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS
 
 
 Note 1: Accounting policies
 
These condensed consolidated half-year financial statements as at and for the period to 30 June 2021 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 United Kingdom 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 2020 which complied with international accounting standards in conformity with the requirements of the Companies Act 2006, were prepared in accordance with International Financial Reporting Standards (IFRS) and were compliant with IFRS adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. Copies of the 2020 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 2020 Annual Report and Accounts.
 
The directors consider that it is appropriate to continue to adopt the going concern basis in preparing the condensed consolidated half-year financial statements. In reaching this assessment, the directors have taken into account the continuing uncertainties affecting the UK economy post-pandemic and their potential effects upon the Group’s performance and projected funding and capital position; the impact of further stress scenarios has also been considered. On this basis, the directors are satisfied that the Group will maintain adequate levels of funding and capital for the foreseeable future.
 
Changes in accounting policy
 
The Group adopted the Interest Rate Benchmark Reform Phase 2 amendments from 1 January 2021. These amendments require that changes to expected future cash flows that both arise as a direct result of IBOR Reform and are economically equivalent to the previous cash flows are accounted for as a change to the effective interest rate with no adjustment to the asset or liability’s carrying amount; no immediate gain or loss is recognised. The new requirements also provide relief from the requirement to discontinue hedge accounting as a result of amending hedge documentation if the changes are required solely as a result of the IBOR Reform. The amendments do not have a material impact on the Group’s comparatives, which have not been restated.
 
Except for the change above, the Group's accounting policies are consistent with those applied by the Group in its 2020 Annual Report and Accounts and there have been no changes in the Group's methods of computation.
 
Future accounting developments
 
Details of those IFRS pronouncements which will be relevant to the Group but which will not be effective at 31 December 2021 and which have not been applied in preparing these condensed consolidated half-year financial statements are set out in note 20.
 
Related party transactions
 
The Group has had no significant related party transactions during the half-year to 30 June 2021. Related party transactions for the half-year to 30 June 2021 are similar in nature to those for the year ended 31 December 2020. Full details of the Group’s related party transactions for the year ended 31 December 2020 can be found in the Group’s 2020 Annual Report and Accounts.
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 2: Critical accounting judgements and estimates
 
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 2020, except as detailed below.
 
Allowance for expected credit losses
 
The Group recognises an allowance for expected credit losses (ECLs) for loans and advances to customers and banks, other financial assets held at amortised cost, financial assets measured at fair value through other comprehensive income and certain loan commitment and financial guarantee contracts. At 30 June 2021 the Group’s expected credit loss allowance was £5,058 million (31 December 2020: £6,247 million), of which £4,699 million (31 December 2020: £5,788 million) was in respect of drawn balances.
 
The calculation of the Group’s expected credit loss allowances and provisions against loan commitments and guarantees under IFRS 9 requires the Group to make a number of judgements, assumptions and estimates. These are set out in detail in the Group’s 2020 Annual Report and Accounts. The principal changes made in the period ended 30 June 2021 are as follows:
 
Base Case and Economic Assumptions
 
The Group’s base case economic scenario has been revised in light of the continuing impact of the coronavirus pandemic in the UK and globally. The scenario reflects judgements of the net effect of government-mandated restrictions on economic activity, large-scale government interventions and behavioural changes by households and businesses that may persist beyond the rollout of coronavirus vaccination programmes.
 
As large-scale vaccination efforts compete with the emergence of new viral strains in the UK and globally, there remains considerable uncertainty about the pace and eventual extent of the post-pandemic recovery. The Group’s updated base case scenario builds in three key conditioning assumptions. First, that rising infections in the UK’s third COVID-19 wave do not lead to a re-imposition of restrictions. Second, that the rollout of vaccination programmes among the UK’s trading partners will reinforce an improving global backdrop. Third, that domestic policy measures remain accommodative, with monetary policy looking through a transient rise in inflation.
 
Conditioned on these assumptions and taking note of improvements in economic indicators in the second quarter, the Group’s base case outlook continues to assume a rise in the unemployment rate as furlough support ends alongside a deceleration in residential and commercial property price growth. Risks around this base case economic view lie in both directions and are partly captured by the alternative economic scenarios generated. But uncertainties relating to the key conditioning assumptions, including epidemiological developments, the efficacy of vaccine rollouts against emergent strains and the response of the economy in those circumstances are not specifically captured by these scenarios. These specific risks have been recognised outside the modelled scenarios with a central adjustment.
 
The Group has incorporated the latest available information at the reporting date in defining its base case scenario and generating alternative economic scenarios. The scenarios include forecasts for key variables in the second quarter of 2021, for which actuals may have since emerged prior to publication.
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 2: Critical accounting judgements and estimates (continued)
 
Base case scenario by quarter1
 
 
First
quarter
2021
 
Second
quarter
2021
 
Third
quarter
2021
 
Fourth
quarter
2021
 
First
quarter
2022
 
Second
quarter
2022
 
Third
quarter
2022
 
Fourth
quarter
2022
 
At 30 June 2021
 
%
 
%
 
%
 
%
 
%
 
%
 
%
 
%
 
         
Gross domestic product
 
(1.5)
 
 
4.3 
 
 
(0.3)
 
 
3.2 
 
 
1.5 
 
 
0.5 
 
 
0.4 
 
 
0.4 
 
 
UK Bank Rate
 
0.10 
 
 
0.10 
 
 
0.10 
 
 
0.10 
 
 
0.10 
 
 
0.10 
 
 
0.10 
 
 
0.10 
 
 
Unemployment rate
 
4.8 
 
 
5.0 
 
 
5.4 
 
 
6.6 
 
 
6.4 
 
 
6.2 
 
 
6.1 
 
 
5.9 
 
 
House price growth
 
6.5 
 
 
10.5 
 
 
6.8 
 
 
5.6 
 
 
5.0 
 
 
1.7 
 
 
0.3 
 
 
0.1 
 
 
Commercial real estate price growth
 
(2.9)
 
 
1.3 
 
 
1.5 
 
 
0.4 
 
 
(0.3)
 
 
(0.5)
 
 
0.4 
 
 
1.0 
 
 
         
 
First
quarter
2020
 
Second
quarter
2020
 
Third
quarter
2020
 
Fourth
quarter
2020
 
First
quarter
2021
 
Second
quarter
2021
 
Third
quarter
2021
 
Fourth
quarter
2021
 
At 31 December 2020
 
%
 
%
 
%
 
%
 
%
 
%
 
%
 
%
 
         
Gross domestic product
 
(3.0)
 
 
(18.8)
 
 
16.0 
 
 
(1.9)
 
 
(3.8)
 
 
5.6 
 
 
3.6 
 
 
1.5 
 
 
UK Bank Rate
 
0.10 
 
 
0.10 
 
 
0.10 
 
 
0.10 
 
 
0.10 
 
 
0.10 
 
 
0.10 
 
 
0.10 
 
 
Unemployment rate
 
4.0 
 
 
4.1 
 
 
4.8 
 
 
5.0 
 
 
5.2 
 
 
6.5 
 
 
8.0 
 
 
7.5 
 
 
House price growth
 
2.8 
 
 
2.6 
 
 
7.2 
 
 
5.9 
 
 
5.5 
 
 
4.7 
 
 
(1.6)
 
 
(3.8)
 
 
Commercial real estate price growth
 
(5.0)
 
 
(7.8)
 
 
(7.8)
 
 
(7.0)
 
 
(6.1)
 
 
(2.9)
 
 
(2.2)
 
 
(1.7)
 
 
 
1
Gross domestic product presented quarter on quarter, house price growth and commercial real estate growth presented year on year - i.e. from the equivalent quarter the previous year. UK Bank Rate is presented end quarter.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 2: Critical accounting judgements and estimates (continued)
 
Scenarios by year
 
Key annual assumptions made by the Group are shown below. Gross domestic product is presented as an annual change, house price growth and commercial real estate price growth are presented as the growth in the respective indices within the period. UK Bank Rate and unemployment rate are averages for the period. The upside, base case and downside scenarios are weighted at 30 per cent each, with the severe downside scenario weighted at 10 per cent.
 
 
2021
 
2022
 
2023
 
2024
 
2025
 
2021–2025 average
 
At 30 June 2021
 
%
 
%
 
%
 
%
 
%
 
%
 
       
Upside
 
      
Gross domestic product
 
6.1 
 
 
5.5 
 
 
1.4 
 
 
1.4 
 
 
1.2 
 
 
3.1 
 
 
UK Bank Rate
 
0.52 
 
 
1.27 
 
 
1.09 
 
 
1.32 
 
 
1.58 
 
 
1.16 
 
 
Unemployment rate
 
4.7 
 
 
4.9 
 
 
4.4 
 
 
4.2 
 
 
4.1 
 
 
4.5 
 
 
House price growth
 
6.8 
 
 
3.4 
 
 
4.6 
 
 
3.9 
 
 
3.4 
 
 
4.4 
 
 
Commercial real estate price growth
 
9.2 
 
 
5.7 
 
 
2.4 
 
 
0.3 
 
 
(0.3)
 
 
3.4 
 
 
       
Base case
 
      
Gross domestic product
 
5.5 
 
 
5.5 
 
 
1.6 
 
 
1.4 
 
 
1.2 
 
 
3.0 
 
 
UK Bank Rate
 
0.10 
 
 
0.10 
 
 
0.25 
 
 
0.50 
 
 
0.75 
 
 
0.34 
 
 
Unemployment rate
 
5.4 
 
 
6.1 
 
 
5.4 
 
 
5.0 
 
 
4.8 
 
 
5.4 
 
 
House price growth
 
5.6 
 
 
0.1 
 
 
0.1 
 
 
0.6 
 
 
1.1 
 
 
1.5 
 
 
Commercial real estate price growth
 
0.4 
 
 
1.0 
 
 
0.6 
 
 
0.3 
 
 
0.5 
 
 
0.6 
 
 
       
Downside
 
      
Gross domestic product
 
4.8 
 
 
4.2 
 
 
1.3 
 
 
1.4 
 
 
1.4 
 
 
2.6 
 
 
UK Bank Rate
 
0.09 
 
 
0.05 
 
 
0.06 
 
 
0.11 
 
 
0.20 
 
 
0.10 
 
 
Unemployment rate
 
6.0 
 
 
7.8 
 
 
7.1 
 
 
6.5 
 
 
6.0 
 
 
6.7 
 
 
House price growth
 
3.5 
 
 
(6.2)
 
 
(7.5)
 
 
(4.9)
 
 
(1.8)
 
 
(3.5)
 
 
Commercial real estate price growth
 
(5.3)
 
 
(5.3)
 
 
(2.8)
 
 
(1.5)
 
 
0.2 
 
 
(3.0)
 
 
       
Severe downside
 
      
Gross domestic product
 
4.1 
 
 
3.5 
 
 
1.1 
 
 
1.4 
 
 
1.4 
 
 
2.3 
 
 
UK Bank Rate
 
0.06 
 
 
0.00 
 
 
0.01 
 
 
0.02 
 
 
0.03 
 
 
0.02 
 
 
Unemployment rate
 
7.0 
 
 
9.9 
 
 
9.1 
 
 
8.3 
 
 
7.6 
 
 
8.4 
 
 
House price growth
 
2.4 
 
 
(11.0)
 
 
(13.2)
 
 
(9.6)
 
 
(5.1)
 
 
(7.5)
 
 
Commercial real estate price growth
 
(13.5)
 
 
(13.5)
 
 
(6.9)
 
 
(2.3)
 
 
0.5 
 
 
(7.3)
 
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 2: Critical accounting judgements and estimates (continued)
 
 
2020
 
2021
 
2022
 
2023
 
2024
 
2020–2024 average
 
At 31 December 2020
 
%
 
%
 
%
 
%
 
%
 
%
 
       
Upside
 
      
Gross domestic product
 
(10.5)
 
 
3.7 
 
 
5.7 
 
 
1.7 
 
 
1.5 
 
 
0.3 
 
 
UK Bank Rate
 
0.10 
 
 
1.14 
 
 
1.27 
 
 
1.20 
 
 
1.21 
 
 
0.98 
 
 
Unemployment rate
 
4.3 
 
 
5.4 
 
 
5.4 
 
 
5.0 
 
 
4.5 
 
 
5.0 
 
 
House price growth
 
6.3 
 
 
(1.4)
 
 
5.2 
 
 
6.0 
 
 
5.0 
 
 
4.2 
 
 
Commercial real estate price growth
 
(4.6)
 
 
9.3 
 
 
3.9 
 
 
2.1 
 
 
0.3 
 
 
2.1 
 
 
       
Base case
 
      
Gross domestic product
 
(10.5)
 
 
3.0 
 
 
6.0 
 
 
1.7 
 
 
1.4 
 
 
0.1 
 
 
UK Bank Rate
 
0.10 
 
 
0.10 
 
 
0.10 
 
 
0.21 
 
 
0.25 
 
 
0.15 
 
 
Unemployment rate
 
4.5 
 
 
6.8 
 
 
6.8 
 
 
6.1 
 
 
5.5 
 
 
5.9 
 
 
House price growth
 
5.9 
 
 
(3.8)
 
 
0.5 
 
 
1.5 
 
 
1.5 
 
 
1.1 
 
 
Commercial real estate price growth
 
(7.0)
 
 
(1.7)
 
 
1.6 
 
 
1.1 
 
 
0.6 
 
 
(1.1)
 
 
       
Downside
 
      
Gross domestic product
 
(10.6)
 
 
1.7 
 
 
5.1 
 
 
1.4 
 
 
1.4 
 
 
(0.4)
 
 
UK Bank Rate
 
0.10 
 
 
0.06 
 
 
0.02 
 
 
0.02 
 
 
0.03 
 
 
0.05 
 
 
Unemployment rate
 
4.6 
 
 
7.9 
 
 
8.4 
 
 
7.8 
 
 
7.0 
 
 
7.1 
 
 
House price growth
 
5.6 
 
 
(8.4)
 
 
(6.5)
 
 
(4.7)
 
 
(3.0)
 
 
(3.5)
 
 
Commercial real estate price growth
 
(8.7)
 
 
(10.6)
 
 
(3.2)
 
 
(0.8)
 
 
(0.8)
 
 
(4.9)
 
 
       
Severe downside
 
      
Gross domestic product
 
(10.8)
 
 
0.3 
 
 
4.8 
 
 
1.3 
 
 
1.2 
 
 
(0.8)
 
 
UK Bank Rate
 
0.10 
 
 
0.00 
 
 
0.00 
 
 
0.01 
 
 
0.01 
 
 
0.02 
 
 
Unemployment rate
 
4.8 
 
 
9.9 
 
 
10.7 
 
 
9.8 
 
 
8.7 
 
 
8.8 
 
 
House price growth
 
5.3 
 
 
(11.1)
 
 
(12.5)
 
 
(10.7)
 
 
(7.6)
 
 
(7.5)
 
 
Commercial real estate price growth
 
(11.0)
 
 
(21.4)
 
 
(9.8)
 
 
(3.9)
 
 
(0.8)
 
 
(9.7)
 
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 2: Critical accounting judgements and estimates (continued)
 
The table below shows the Group’s ECL for the upside, base case, downside and severe downside scenarios. The stage allocation for an asset is based on the overall scenario probability-weighted PD and, hence, the Stage 2 allocation is constant across all the scenarios. ECL applied through individual assessments and post-model adjustments is reported flat against each economic scenario, reflecting the basis on which they are evaluated. Judgements applied through changes to inputs are reflected in the scenario sensitivities. It therefore shows the extent to which a higher ECL allowance has been recognised to take account of multiple economic scenarios from the probability-weighted view relative to the base case. The uplift being £388 million compared to £506 million at 31 December 2020.
 
 
Probability-
weighted
 
 
Upside
 
 
Base case
 
 
Downside
 
 
Severe
downside
 
At 30 June 2021
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
          
UK Mortgages
 
905 
 
  
544 
 
  
684 
 
  
1,100 
 
  
2,064 
 
 
Other Retail
 
2,053 
 
  
1,896 
 
  
2,009 
 
  
2,152 
 
  
2,355 
 
 
Commercial Banking
 
1,650 
 
  
1,395 
 
  
1,527 
 
  
1,799 
 
  
2,340 
 
 
Other
 
450 
 
  
448 
 
  
450 
 
  
450 
 
  
454 
 
 
ECL allowance
 
5,058 
 
  
4,283 
 
  
4,670 
 
  
5,501 
 
  
7,213 
 
 
 
 
 
Probability-
weighted
 
 
Upside
 
 
Base case
 
 
Downside
 
 
Severe
downside
 
At 31 December 2020
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
          
UK Mortgages
 
1,027 
 
  
614 
 
  
804 
 
  
1,237 
 
  
2,306 
 
 
Other Retail
 
2,368 
 
  
2,181 
 
  
2,310 
 
  
2,487 
 
  
2,745 
 
 
Commercial Banking
 
2,402 
 
  
1,910 
 
  
2,177 
 
  
2,681 
 
  
3,718 
 
 
Other
 
450 
 
  
448 
 
  
450 
 
  
450 
 
  
456 
 
 
ECL allowance
 
6,247 
 
  
5,153 
 
  
5,741 
 
  
6,855 
 
  
9,225 
 
 
 
The impact of changes in the UK unemployment rate and House Price Index (HPI) have also been assessed. Although such changes would not be observed in isolation, as economic indicators tend to be correlated in a coherent scenario, this gives insight into the sensitivity of the Group’s ECL to gradual changes in these two critical economic factors. The assessment has been made against the base case with the reported staging unchanged.
 
The table below shows the impact on the Group’s ECL in respect of UK Mortgages resulting from a decrease/increase in loss given default for a 10 percentage point (pp) increase or 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.
 
 
At 30 June 2021
 
 
At 31 December 2020
 
 
10pp increase
in HPI
 
 
10pp decrease
in HPI
 
 
10pp increase
in HPI
 
 
10pp decrease
in HPI
 
        
ECL impact, £m
 
(175)
 
  
254 
 
  
(206)
 
  
284 
 
 
 
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 2: Critical accounting judgements and estimates (continued)
 
The table below shows the impact on the Group’s ECL resulting from a 1 percentage point (pp) increase or decrease in the UK unemployment rate. The increase or decrease is presented based on the adjustment phased evenly over the first ten quarters of the base case scenario. An immediate increase or decrease would drive a more material ECL impact as it would be fully reflected in both 12 month and lifetime PDs.
 
 
At 30 June 2021
 
 
At 31 December 2020
 
 
1pp increase in
unemployment
 
 
1pp decrease in
unemployment
 
 
1pp increase in
unemployment
 
 
1pp decrease in
unemployment
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
        
UK Mortgages
 
33 
 
  
(28)
 
  
25 
 
  
(23)
 
 
Other Retail
 
45 
 
  
(45)
 
  
54 
 
  
(54)
 
 
Commercial Banking
 
87 
 
  
(74)
 
  
125 
 
  
(112)
 
 
Other
 
 
  
(1)
 
  
 
  
(1)
 
 
ECL impact
 
166 
 
  
(148)
 
  
205 
 
  
(190)
 
 
 
Application of judgement in adjustments to modelled ECL
 
Impairment models fall within the Group’s Model Risk framework with model monitoring, periodic validation and back testing performed on model components (i.e. probability of default, exposure at default and loss given default). Limitations in the Group’s impairment models or data inputs may be identified through the ongoing 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 that the overall provision adequately reflects all material risks. These adjustments are determined by considering the particular attributes of exposures which have not been adequately captured by the impairment models and range from changes to model inputs and parameters, at account level, through to more qualitative post-model overlays.
 
Judgements are not typically assessed under each distinct economic scenario used to generate ECL, but instead are applied on the basis of final modelled ECL which reflects the probability-weighted view of all scenarios. All adjustments are reviewed quarterly and are subject to internal review and challenge, including by the Audit Committee, to ensure that amounts are appropriately calculated and that there are specific release criteria within a reasonable timeframe.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 2: Critical accounting judgements and estimates (continued)
 
At 30 June 2021 the coronavirus pandemic and the various support measures that have been put in place have resulted in an economic environment which differs significantly from the historical economic conditions upon which the impairment models have been built. As a result there is a greater need for management judgements to be applied, as seen in the elevated levels present since year end. At 30 June 2021 management judgement resulted in additional ECL allowances totalling £1,682 million (31 December 2020: £1,383 million). This comprises judgements added due to COVID-19 and other judgements not directly linked to COVID-19 but which have increased in size under the current outlook. The table below analyses total ECL allowance at 30 June 2021 by portfolio, separately identifying the amounts that have been modelled, those that have been individually assessed and those arising through the application of management judgement.
 
 
Modelled
ECL
 
 
Individually
assessed
 
 
Judgements
due to
COVID-191
 
 
Other
judgements
 
 
Total ECL
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
          
At 30 June 2021
 
         
UK Mortgages
 
345 
 
  
— 
 
  
73 
 
  
487 
 
  
905 
 
 
Other Retail
 
1,610 
 
  
— 
 
  
405 
 
  
38 
 
  
2,053 
 
 
Commercial Banking
 
418 
 
  
953 
 
  
280 
 
  
(1)
 
  
1,650 
 
 
Other
 
50 
 
  
— 
 
  
400 
 
  
— 
 
  
450 
 
 
Total
 
2,423 
 
  
953 
 
  
1,158 
 
  
524 
 
  
5,058 
 
 
          
At 31 December 2020
 
         
UK Mortgages
 
481 
 
  
— 
 
  
36 
 
  
510 
 
  
1,027 
 
 
Other Retail
 
2,060 
 
  
— 
 
  
321 
 
  
(13)
 
  
2,368 
 
 
Commercial Banking
 
1,051 
 
  
1,222 
 
  
131 
 
  
(2)
 
  
2,402 
 
 
Other
 
50 
 
  
— 
 
  
400 
 
  
— 
 
  
450 
 
 
Total
 
3,642 
 
  
1,222 
 
  
888 
 
  
495 
 
  
6,247 
 
 
 
1
Judgements due to the impact that COVID-19 and resulting interventions have had on the Group’s economic outlook and observed loss experience, which have required additional model limitations to be addressed.
 
 
Central overlay in respect of economic uncertainty
 
Central overlay in respect of economic uncertainty: £400 million (31 December 2020: £400 million)
 
 
The Group's £400 million central overlay was added at year end in recognition of the risks to the conditioning assumptions around the base case scenario being markedly to the downside given the potential for a material delay in the vaccination programme or reduction in its effectiveness from further virus mutation and the corresponding delayed withdrawal of restrictions on social interaction or introduction of further lockdowns.
 
Although the outlook has improved in the first half, the Group still considers that the conditioning assumptions within the base case and associated scenarios do not necessarily capture the unprecedented risks that remain. The vaccine roll out has progressed well and has supported the planned easing of restrictions to date, however the increasing infection rate and hospitalisations from the Delta variant highlight the potential risk from further virus mutation and the resulting response which could be needed, potentially impacting on social and economic activity. The scale of the uncertainty is expected to diminish once the UK is fully vaccinated and infection levels have been sustained at low levels, with restrictions reduced and associated Government support wound down.
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 2: Critical accounting judgements and estimates (continued)
 
Except as noted below, the nature of the judgements are consistent with those applied by the Group in its 2020 Annual Report and Accounts. The 30 June 2021 allowance has been re-assessed based on latest economic outlook, data points and modelled result.
 
Judgements due to COVID-19
 
 
At
30 June 2021
 
 
At
31 Dec
2020
 
 
£m
 
 
£m
 
    
UK Mortgages
 
73 
 
  
36 
 
 
Other Retail
 
   
Recognition of impact of support measures
 
318 
 
  
218 
 
 
Incorporation of forward-looking LGDs
 
80 
 
  
86 
 
 
Other
 
 
  
17 
 
 
 
405 
 
  
321 
 
 
Commercial Banking
 
   
Adjustment to economic variables used as inputs to models
 
171 
 
  
93 
 
 
Key coronavirus-impacted sectors
 
100 
 
  
— 
 
 
Other
 
 
  
38 
 
 
 
280 
 
  
131 
 
 
    
Other
 
400 
 
  
400 
 
 
Total
 
1,158 
 
  
888 
 
 
 
Notable movements from 31 December 2020 include:
 
UK Mortgages: £73 million (31 December 2020: £36 million)
 
Judgement has increased in the period due to an extension of the temporary suspension of the repossession of properties to support customers during the pandemic. The amount at 30 June 2021 also incorporates an adjustment to ensure ECL is at calibrated levels when applied to the latest balance sheet date.
 
Other Retail
 
Recognition of impact of support measures: £318 million (31 December 2020: £218 million)
 
 
Government support and subdued levels of consumer spending are judged to have temporarily reduced the flow of accounts into arrears and default and to have improved average credit scores across portfolios. The adjustment made at year end to reverse these impacts has continued to grow through 2021 with the passage of time and as average credit scores improved further.
 
Commercial Banking
 
Adjustment to economic variables used as inputs to models: £171 million (31 December 2020: £93 million)
 
 
Further observed reductions in the rate of corporate insolvencies, used as an input to Commercial default models, continue to be substituted with an increase proportionate to that seen in unemployment to generate a level of predicted defaults. The increase in the adjustment reflects the larger release which would therefore result should the metric, still believed unrepresentative of underlying conditions, be used within the model.
 
 
Key coronavirus-impacted sectors: £100 million (31 December 2020: £nil)
 
 
At year end the modelled ECL incorporated an economic outlook containing a material reduction in corporate profits. This is no longer assumed, which generates a reduction in modelled ECL and therefore leaves potential risk on specific underperforming sectors. Judgement has therefore been raised in place of this to ensure a more targeted stress on likelihood and severity of loss in these sectors.
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 2: Critical accounting judgements and estimates (continued)
 
Other judgements
 
 
At
30 June
2021
 
 
At
31 Dec
2020
 
 
£m
 
 
£m
 
    
UK Mortgages
 
   
Adjustment to modelled forecast parameters
 
140 
 
  
193 
 
 
End-of-term interest only
 
168 
 
  
179 
 
 
Long-term defaults
 
74 
 
  
87 
 
 
Other
 
105 
 
  
51 
 
 
 
487 
 
  
510 
 
 
Other Retail
 
   
Lifetime extension on revolving products
 
71 
 
  
81 
 
 
Unsecured non-scored accounts
 
(21)
 
  
(72)
 
 
Credit card LGD alignment
 
(55)
 
  
(55)
 
 
Other
 
43 
 
  
33 
 
 
 
38 
 
  
(13)
 
 
    
Commercial Banking
 
(1)
 
  
(2)
 
 
Total
 
524 
 
  
495 
 
 
 
Notable movements from 31 December 2020 include:
 
UK Mortgages
 
Adjustment to modelled forecast parameters: £140 million (31 December 2020: £193 million)
 
 
Adjustments to the estimated defaults used within the ECL calculation were introduced at year end following the adoption of new default forecast models. Work has progressed through the period with initial model changes identified which reduce the scale of adjustment required. The scale of the adjustment has also reduced as the impact of under-sensitivity lessens when applied to the improved economic outlook.
 
 
Other: £105 million (31 December 2020: £51 million)
 
 
The increase in the scale of the judgement reflects additional adjustment to capture risks relating to fire safety and cladding uncertainty within assessment of affordability and asset valuations, not captured by underlying models. The risk is now deemed sufficiently material to address through judgement, given that more cases have been assessed as having defective cladding, or other fire safety issues, together with emerging evidence of higher arrears and weaker sales values relative to the wider portfolio.
 
Other Retail
 
Unsecured non-scored accounts: £(21) million (31 December 2020: £(72) million)
 
 
Due to a shortcoming in the models, it is not possible to retrieve relevant credit data for a number of accounts and therefore no probability of default (PD) is available and no assessment of whether there has been a significant increase in credit risk (SICR) can be carried out. Work has progressed during 2021 to resolve this issue. The reduction therefore reflects that an adjustment is required on fewer accounts.
 NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 3: 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.
 
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 2020, 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 2020.
 
The table below analyses the Group's income and profit by segment on an underlying basis and provides a reconciliation through to certain lines in the Group's statutory income statement. Total income, net of insurance claims is also analysed between external and inter-segment income. The Group's full segmental income statement on an underlying basis is shown on page 19.
 
 
Net interest income
 
 
Other income, net of insurance claims
 
 
Total income, net of insurance claims1
 
 
Profit before tax
 
 
External income
 
 
Inter-segment income (expense)
 
Half-year to 30 June 2021
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
            
Underlying basis
 
           
Retail
 
4,218 
 
  
812 
 
  
5,030 
 
  
2,335 
 
  
5,713 
 
  
(683)
 
 
Commercial Banking
 
1,153 
 
  
677 
 
  
1,830 
 
  
1,388 
 
  
1,693 
 
  
137 
 
 
Insurance and Wealth
 
36 
 
  
660 
 
  
696 
 
  
89 
 
  
685 
 
  
11 
 
 
Other
 
11 
 
  
268 
 
  
279 
 
  
253 
 
  
(256)
 
  
535 
 
 
Group
 
5,418 
 
  
2,417 
 
  
7,835 
 
  
4,065 
 
  
7,835 
 
  
— 
 
 
Reconciling items:
 
           
Insurance grossing adjustment
 
(938)
 
  
1,026 
 
  
88 
 
  
— 
 
     
Market volatility and asset sales
 
(18)
 
  
279 
 
  
261 
 
  
239 
 
     
Amortisation of purchased intangibles
 
— 
 
  
— 
 
  
— 
 
  
(35)
 
     
Restructuring costs
 
— 
 
  
(8)
 
  
(8)
 
  
(255)
 
     
Fair value unwind and other items
 
(89)
 
  
(8)
 
  
(97)
 
  
(109)
 
     
Group – statutory
 
4,373 
 
  
3,706 
 
  
8,079 
 
  
3,905 
 
     
 
1
Total income, net of insurance claims does not include operating lease depreciation which, on a statutory basis, is included within operating costs.
 
 
 

 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 3: Segmental analysis (continued)
 
 
Net interest income
 
 
Other income, net of insurance claims
 
 
Total income, net of insurance claims1
 
 
Profit (loss) before
tax
 
 
External income
 
 
Inter-segment income (expense)
 
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
 
 
  
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)
 
  
 
  
(98)
 
  
(111)
 
     
Group – statutory
 
6,556 
 
  
1,339 
 
  
7,895 
 
  
(602)
 
     
 
 
 
Net interest income
 
 
Other income, net of insurance claims
 
 
Total income, net of insurance claims1
 
 
Profit (loss) before
tax
 
 
External income
 
 
Inter-segment income (expense)
 
Half-year to 31 December 2020
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
            
Underlying basis
 
           
Retail
 
4,151 
 
  
814 
 
  
4,965 
 
  
1,779 
 
  
5,841 
 
  
(876)
 
 
Commercial Banking
 
1,135 
 
  
634 
 
  
1,769 
 
  
764 
 
  
1,613 
 
  
156 
 
 
Insurance and Wealth
 
35 
 
  
397 
 
  
432 
 
  
(41)
 
  
366 
 
  
66 
 
 
Other
 
(26)
 
  
209 
 
  
183 
 
  
(28)
 
  
(471)
 
  
654 
 
 
Group
 
5,295 
 
  
2,054 
 
  
7,349 
 
  
2,474 
 
  
7,349 
 
  
— 
 
 
Reconciling items:
 
           
Insurance grossing adjustment
 
(982)
 
  
1,045 
 
  
63 
 
  
— 
 
     
Market volatility and asset sales
 
(17)
 
  
(38)
 
  
(55)
 
  
(16)
 
     
Amortisation of purchased intangibles
 
— 
 
  
— 
 
  
— 
 
  
(35)
 
     
Restructuring costs
 
— 
 
  
(17)
 
  
(17)
 
  
(388)
 
     
Fair value unwind and other items
 
(103)
 
  
(6)
 
  
(109)
 
  
(122)
 
     
Payment protection insurance
 
— 
 
  
— 
 
  
— 
 
  
(85)
 
     
Group – statutory
 
4,193 
 
  
3,038 
 
  
7,231 
 
  
1,828 
 
     
 
1
Total income, net of insurance claims does not include operating lease depreciation which, on a statutory basis, is included within operating costs.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 3: Segmental analysis (continued)
 
 
Segment external assets
 
 
Segment customer deposits
 
 
Segment external liabilities
 
 
At
30 June 2021
 
 
At
31 Dec 2020
 
 
At
30 June 2021
 
 
At
31 Dec 2020
 
 
At
30 June 2021
 
 
At
31 Dec 2020
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
            
Retail
 
369,274 
 
  
358,766 
 
  
309,838 
 
  
290,206 
 
  
314,829 
 
  
295,229 
 
 
Commercial Banking
 
133,243 
 
  
142,042 
 
  
149,229 
 
  
145,596 
 
  
186,214 
 
  
189,302 
 
 
Insurance and Wealth
 
192,625 
 
  
183,348 
 
  
14,818 
 
  
14,072 
 
  
199,756 
 
  
190,771 
 
 
Other
 
184,545 
 
  
187,113 
 
  
8,464 
 
  
10,194 
 
  
127,002 
 
  
146,554 
 
 
Total Group
 
879,687 
 
  
871,269 
 
  
482,349 
 
  
460,068 
 
  
827,801 
 
  
821,856 
 
 
 
 
 
 Note 4: Net fee and commission income
 
 
Half-year
to 30 June
2021
 
 
Half-year
to 30 June
2020
 
 
Half-year
to 31 Dec
2020
 
 
£m
 
 
£m
 
 
£m
 
      
Fee and commission income:
 
     
Current accounts
 
312 
 
  
307 
 
  
308 
 
 
Credit and debit card fees
 
384 
 
  
350 
 
  
398 
 
 
Commercial banking and treasury fees
 
215 
 
  
120 
 
  
154 
 
 
Unit trust and insurance broking
 
58 
 
  
66 
 
  
80 
 
 
Factoring
 
38 
 
  
42 
 
  
34 
 
 
Other fees and commissions
 
287 
 
  
236 
 
  
213 
 
 
Total fee and commission income
 
1,294 
 
  
1,121 
 
  
1,187 
 
 
Fee and commission expense
 
(601)
 
  
(558)
 
  
(590)
 
 
Net fee and commission income
 
693 
 
  
563 
 
  
597 
 
 
 
Current account and credit and debit card fees principally arise in Retail; commercial banking, treasury and factoring fees arise in Commercial Banking; and unit trust and insurance broking fees arise in Insurance and Wealth.
 NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 5: Insurance claims
 
 
Half-year
to 30 June
2021
 
 
Half-year
to 30 June
2020
 
 
Half-year
to 31 Dec
2020
 
Insurance claims comprise:
 
£m
 
 
£m
 
 
£m
 
      
Life insurance and investment contracts
 
     
Claims and surrenders
 
(4,465)
 
  
(3,647)
 
  
(4,023)
 
 
Change in insurance and participating investment contracts
 
(4,395)
 
  
3,000 
 
  
(7,590)
 
 
Change in non-participating investment contracts
 
(2,642)
 
  
1,574 
 
  
(3,512)
 
 
 
(11,502)
 
  
927 
 
  
(15,125)
 
 
Reinsurers' share
 
181 
 
  
167 
 
  
251 
 
 
 
(11,321)
 
  
1,094 
 
  
(14,874)
 
 
Change in unallocated surplus
 
(20)
 
  
85 
 
  
(28)
 
 
Total life insurance and investment contracts
 
(11,341)
 
  
1,179 
 
  
(14,902)
 
 
Non-life insurance
 
     
Total non-life insurance claims, net of reinsurance
 
(148)
 
  
(156)
 
  
(162)
 
 
Total insurance claims
 
(11,489)
 
  
1,023 
 
  
(15,064)
 
 
 
 
 
 Note 6: Operating expenses
 
 
Half-year
to 30 June
2021
 
 
Half-year
to 30 June
2020
 
 
Half-year
to 31 Dec
2020
 
 
£m
 
 
£m
 
 
£m
 
      
Salaries and social security costs
 
1,555 
 
  
1,493 
 
  
1,479 
 
 
Pensions and other post-retirement benefit schemes (note 14)
 
284 
 
  
272 
 
  
294 
 
 
Restructuring and other staff costs
 
117 
 
  
129 
 
  
168 
 
 
 
1,956 
 
  
1,894 
 
  
1,941 
 
 
Premises and equipment
 
130 
 
  
237 
 
  
230 
 
 
Other expenses:
 
     
IT, data processing and communications
 
584 
 
  
474 
 
  
539 
 
 
UK bank levy
 
— 
 
  
— 
 
  
211 
 
 
Operations, marketing and other
 
559 
 
  
488 
 
  
531 
 
 
 
1,143 
 
  
962 
 
  
1,281 
 
 
Depreciation and amortisation
 
1,243 
 
  
1,398 
 
  
1,334 
 
 
Goodwill impairment
 
— 
 
  
— 
 
  
 
 
Regulatory provisions (note 15)
 
425 
 
  
177 
 
  
287 
 
 
Total operating expenses
 
4,897 
 
  
4,668 
 
  
5,077 
 
 
 
 
 NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 7: Impairment
 
 
Half-year
to 30 June
2021
 
 
Half-year
to 30 June
2020
 
 
Half-year
to 31 Dec
2020
 
 
£m
 
 
£m
 
 
£m
 
      
Impact of transfers between stages
 
145 
 
  
1,263 
 
  
206 
 
 
Other changes in credit quality
 
(506)
 
  
2,111 
 
  
216 
 
 
Additions (repayments)
 
(366)
 
  
211 
 
  
(14)
 
 
Methodology and model changes
 
 
  
44 
 
  
108 
 
 
Other items
 
 
  
200 
 
  
(190)
 
 
 
(868)
 
  
2,566 
 
  
120 
 
 
Total impairment (credit) charge
 
(723)
 
  
3,829 
 
  
326 
 
 
      
In respect of:
 
     
Loans and advances to banks
 
(3)
 
  
21 
 
  
(16)
 
 
Loans and advances to customers
 
(622)
 
  
3,464 
 
  
386 
 
 
Debt securities
 
— 
 
  
 
  
— 
 
 
Financial assets held at amortised cost
 
(625)
 
  
3,486 
 
  
370 
 
 
Other assets
 
 
  
13 
 
  
(8)
 
 
Impairment (credit) charge on drawn balances
 
(623)
 
  
3,499 
 
  
362 
 
 
Loan commitments and financial guarantees
 
(98)
 
  
324 
 
  
(35)
 
 
Financial assets at fair value through other comprehensive income
 
(2)
 
  
 
  
(1)
 
 
Total impairment (credit) charge
 
(723)
 
  
3,829 
 
  
326 
 
 
 
Total impairment includes a release of £41 million (half-year to 30 June 2020: charge of £21 million; half-year to 31 December 2020: charge of £20 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 the view of credit quality at the balance sheet date and therefore the 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 resulting from the repayment of outstanding balances that have been provided against.
 
Methodology and model 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
 
For the half-year to 30 June 2020 a central adjustment of £200 million was included to reflect the adjusted severe downside economic scenario.
 NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 8: Tax expense
 
In accordance with IAS 34, the Group’s income tax expense for the half-year to 30 June 2021 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 30 June
2021
 
 
Half-year
to 30 June
2020
 
 
Half-year
to 31 Dec
2020
 
 
£m
 
 
£m
 
 
£m
 
      
Profit (loss) before tax
 
3,905 
 
  
(602)
 
  
1,828 
 
 
UK corporation tax thereon at 19 per cent (2020: 19 per cent)
 
(742)
 
  
114 
 
  
(347)
 
 
Impact of surcharge on banking profits
 
(229)
 
  
44 
 
  
(151)
 
 
Non-deductible costs: conduct charges
 
(7)
 
  
(11)
 
  
(13)
 
 
Non-deductible costs: bank levy
 
— 
 
  
— 
 
  
(38)
 
 
Other non-deductible costs
 
(67)
 
  
(40)
 
  
(34)
 
 
Non-taxable income
 
35 
 
  
76 
 
  
(17)
 
 
Tax relief on coupons on other equity instruments
 
40 
 
  
44 
 
  
42 
 
 
Tax-exempt gains on disposals
 
36 
 
  
 
  
78 
 
 
Tax losses where no deferred tax recognised
 
(9)
 
  
(1)
 
  
(57)
 
 
Remeasurement of deferred tax due to rate changes
 
970 
 
  
354 
 
  
(4)
 
 
Differences in overseas tax rates
 
(25)
 
  
13 
 
  
 
 
Policyholder tax
 
(36)
 
  
(23)
 
  
(23)
 
 
Policyholder deferred tax asset in respect of life assurance expenses
 
 
  
— 
 
  
49 
 
 
Adjustments in respect of prior years
 
(10)
 
  
48 
 
  
56 
 
 
Tax effect of share of results of joint ventures
 
— 
 
  
— 
 
  
(3)
 
 
Tax (expense) credit
 
(40)
 
  
621 
 
  
(460)
 
 
 
The Finance Act 2021, which was substantively enacted on 24 May 2021, increases the rate of corporation tax from 19 per cent to 25 per cent with effect from 1 April 2023. The impact of this rate change is an increase in the Group’s net deferred tax asset as at 30 June 2021 of £786 million, comprising a £970 million credit included in the income statement and a £184 million charge included in equity. The tax credit in the half-year to 30 June 2020 included an uplift in deferred tax assets following the announcement by the UK Government that it would maintain the corporation tax rate at 19 per cent.
 NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 9: Earnings per share
 
 
Half-year
to 30 June
2021
 
 
Half-year
to 30 June
2020
 
 
Half-year
to 31 Dec
2020
 
 
£m
 
 
£m
 
 
£m
 
      
Profit (loss) attributable to ordinary shareholders – basic and diluted
 
3,611 
 
  
(234)
 
  
1,099 
 
 
 
 
 
Half-year
to 30 June
2021
 
 
Half-year
to 30 June
2020
 
 
Half-year
to 31 Dec
2020
 
 
million
 
 
million
 
 
million
 
      
Weighted-average number of ordinary shares in issue – basic
 
70,894 
 
  
70,434 
 
  
70,776 
 
 
Adjustment for share options and awards
 
854 
 
  
— 
 
  
697 
 
 
Weighted-average number of ordinary shares in issue – diluted
 
71,748 
 
  
70,434 
 
  
71,473 
 
 
      
Basic earnings (loss) per share
 
5.1p (0.3p) 1.5p
Diluted earnings (loss) per share
 
5.0p (0.3p) 1.5p
 
 
 
 Note 10: Financial assets at fair value through profit or loss
 
 
At
30 June 2021
 
 
At
31 Dec 2020
 
 
£m
 
 
£m
 
    
Trading assets
 
17,772 
 
  
20,825 
 
 
    
Other financial assets at fair value through profit or loss:
 
   
Treasury and other bills
 
18 
 
  
18 
 
 
Loans and advances to customers
 
10,354 
 
  
11,244 
 
 
Loans and advances to banks
 
3,656 
 
  
4,238 
 
 
Debt securities
 
39,021 
 
  
38,852 
 
 
Equity shares
 
106,768 
 
  
96,449 
 
 
 
159,817 
 
  
150,801 
 
 
Total financial assets at fair value through profit or loss
 
177,589 
 
  
171,626 
 
 
 
Included in the above is £155,583 million (31 December 2020: £145,905 million) of assets relating to the insurance businesses.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 11: Derivative financial instruments
 
 
At 30 June 2021
 
 
At 31 December 2020
 
 
Fair value
of assets
 
 
Fair value
of liabilities
 
 
Fair value
of assets
 
 
Fair value
of liabilities
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
        
Hedging
 
       
Derivatives designated as fair value hedges
 
123 
 
  
284 
 
  
478 
 
  
256 
 
 
Derivatives designated as cash flow hedges
 
59 
 
  
131 
 
  
338 
 
  
428 
 
 
 
182 
 
  
415 
 
  
816 
 
  
684 
 
 
Trading
 
       
Exchange rate contracts
 
4,780 
 
  
4,062 
 
  
6,779 
 
  
7,414 
 
 
Interest rate contracts
 
16,700 
 
  
12,653 
 
  
21,644 
 
  
18,564 
 
 
Credit derivatives
 
101 
 
  
206 
 
  
108 
 
  
174 
 
 
Equity and other contracts
 
430 
 
  
615 
 
  
266 
 
  
477 
 
 
 
22,011 
 
  
17,536 
 
  
28,797 
 
  
26,629 
 
 
Total recognised derivative assets/liabilities
 
22,193 
 
  
17,951 
 
  
29,613 
 
  
27,313 
 
 
 
 
 NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 12: Financial assets at amortised cost
 
Half-year to 30 June 2021
 
 
Gross carrying amount
 
 
Allowance for expected credit losses
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
                    
Loans and advances to banks
 
                  
 At 1 January 2021
 
10,752 
 
  
— 
 
  
— 
 
  
— 
 
  
10,752 
 
  
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
Exchange and other adjustments
 
(139)
 
  
— 
 
  
— 
 
  
— 
 
  
(139)
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
Additions (repayments)
 
201 
 
  
— 
 
  
— 
 
  
— 
 
  
201 
 
  
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
Other changes in credit quality
 
          
(5)
 
  
— 
 
  
— 
 
  
— 
 
  
(5)
 
 
Credit to the income statement
 
          
(3)
 
  
— 
 
  
— 
 
  
— 
 
  
(3)
 
 
At 30 June 2021
 
10,814 
 
  
— 
 
  
— 
 
  
— 
 
  
10,814 
 
  
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
Allowance for impairment losses
 
(3)
 
  
— 
 
  
— 
 
  
— 
 
  
(3)
 
           
Net carrying amount
 
10,811 
 
  
— 
 
  
— 
 
  
— 
 
  
10,811 
 
           
                    
Loans and advances to customers
 
                  
 At 1 January 2021
 
433,943 
 
  
51,659 
 
  
6,490 
 
  
12,511 
 
  
504,603 
 
  
1,372 
 
  
2,145 
 
  
1,982 
 
  
261 
 
  
5,760 
 
 
Exchange and other adjustments1
 
(1,953)
 
  
(24)
 
  
(80)
 
  
51 
 
  
(2,006)
 
  
 
  
(2)
 
  
97 
 
  
67 
 
  
163 
 
 
Transfers to Stage 1
 
11,183 
 
  
(11,175)
 
  
(8)
 
    
— 
 
  
362 
 
  
(360)
 
  
(2)
 
    
— 
 
 
Transfers to Stage 2
 
(10,922)
 
  
11,371 
 
  
(449)
 
    
— 
 
  
(66)
 
  
158 
 
  
(92)
 
    
— 
 
 
Transfers to Stage 3
 
(334)
 
  
(1,229)
 
  
1,563 
 
    
— 
 
  
(9)
 
  
(175)
 
  
184 
 
    
— 
 
 
Impact of transfers between stages
 
(73)
 
  
(1,033)
 
  
1,106 
 
    
— 
 
  
(261)
 
  
257 
 
  
164 
 
    
160 
 
 
           
26 
 
  
(120)
 
  
254 
 
    
160 
 
 
Other changes in credit quality
 
          
(143)
 
  
(234)
 
  
31 
 
  
(89)
 
  
(435)
 
 
Additions (repayments)
 
9,007 
 
  
(4,568)
 
  
(801)
 
  
(663)
 
  
2,975 
 
  
(65)
 
  
(176)
 
  
(73)
 
  
(36)
 
  
(350)
 
 
Methodology and model changes
 
          
(5)
 
  
 
  
— 
 
  
— 
 
  
 
 
(Credit) charge to the income statement
 
          
(187)
 
  
(522)
 
  
212 
 
  
(125)
 
  
(622)
 
 
Advances written off
 
    
(603)
 
  
(13)
 
  
(616)
 
      
(603)
 
  
(13)
 
  
(616)
 
 
Recoveries of advances written off in previous years
 
    
72 
 
  
— 
 
  
72 
 
      
72 
 
  
— 
 
  
72 
 
 
Discount unwind
 
              
(85)
 
  
— 
 
  
(85)
 
 
At 30 June 2021
 
440,924 
 
  
46,034 
 
  
6,184 
 
  
11,886 
 
  
505,028 
 
  
1,186 
 
  
1,621 
 
  
1,675 
 
  
190 
 
  
4,672 
 
 
Allowance for impairment losses
 
(1,186)
 
  
(1,621)
 
  
(1,675)
 
  
(190)
 
  
(4,672)
 
           
Net carrying amount
 
439,738 
 
  
44,413 
 
  
4,509 
 
  
11,696 
 
  
500,356 
 
           
 
1.
Exchange and other adjustments includes the impact of movements in exchange rates, derecognising assets as a result of modifications and adjustments in respect of purchased or originated credit-impaired financial assets (POCI). Where a POCI asset’s expected credit loss is less than its expected credit loss on purchase or origination, the increase in its carrying value is recognised within gross loans, rather than as a negative impairment allowance.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 12: Financial assets at amortised cost (continued)
 
 
Gross carrying amount
 
 
Allowance for expected credit losses
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
Debt securities
 
                   
At 1 January 2021
 
5,406 
 
  
— 
 
  
 
  
— 
 
  
5,408 
 
  
 
  
— 
 
  
 
  
— 
 
  
 
 
Exchange and other adjustments
 
(47)
 
  
— 
 
  
— 
 
  
— 
 
  
(47)
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
Additions (repayments)
 
(350)
 
  
— 
 
  
— 
 
  
— 
 
  
(350)
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
Charge to the income statement
 
          
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
At 30 June 2021
 
5,009 
 
  
— 
 
  
 
  
— 
 
  
5,011 
 
  
 
  
— 
 
  
 
  
— 
 
  
 
 
Allowance for impairment losses
 
(1)
 
  
— 
 
  
(2)
 
  
— 
 
  
(3)
 
           
Net carrying amount
 
5,008 
 
  
— 
 
  
— 
 
  
— 
 
  
5,008 
 
           
Total financial assets at
amortised cost
 
455,557 
 
  
44,413 
 
  
4,509 
 
  
11,696 
 
  
516,175 
 
           
 
The total allowance for impairment losses includes £136 million (31 December 2020: £192 million) in respect of residual value impairment and voluntary terminations within the Group’s UK Motor Finance business.
 
Movements in UK retail mortgage balances were as follows:
 
 
Gross carrying amount
 
 
Allowance for expected credit losses
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
UK retail mortgages
 
                   
At 1 January 2021
 
251,418 
 
  
29,018 
 
  
1,859 
 
  
12,511 
 
  
294,806 
 
  
104 
 
  
468 
 
  
191 
 
  
261 
 
  
1,024 
 
 
Exchange and other adjustments1
 
— 
 
  
— 
 
  
— 
 
  
51 
 
  
51 
 
  
— 
 
  
— 
 
  
— 
 
  
67 
 
  
67 
 
 
Transfers to Stage 1
 
3,745 
 
  
(3,742)
 
  
(3)
 
    
— 
 
  
26 
 
  
(26)
 
  
— 
 
    
— 
 
 
Transfers to Stage 2
 
(6,554)
 
  
6,847 
 
  
(293)
 
    
— 
 
  
(7)
 
  
26 
 
  
(19)
 
    
— 
 
 
Transfers to Stage 3
 
(28)
 
  
(666)
 
  
694 
 
    
— 
 
  
— 
 
  
(29)
 
  
29 
 
    
— 
 
 
Impact of transfers between stages
 
(2,837)
 
  
2,439 
 
  
398 
 
    
— 
 
  
(20)
 
  
62 
 
  
26 
 
    
68 
 
 
           
(1)
 
  
33 
 
  
36 
 
    
68 
 
 
Other changes in credit quality
 
          
13 
 
  
(65)
 
  
(31)
 
  
(89)
 
  
(172)
 
 
Additions (repayments)
 
13,960 
 
  
(1,687)
 
  
(322)
 
  
(663)
 
  
11,288 
 
  
 
  
(25)
 
  
(20)
 
  
(36)
 
  
(73)
 
 
Charge (credit) to the income statement
 
          
20 
 
  
(57)
 
  
(15)
 
  
(125)
 
  
(177)
 
 
Advances written off
 
    
(16)
 
  
(13)
 
  
(29)
 
      
(16)
 
  
(13)
 
  
(29)
 
 
Recoveries of advances written off in previous years
 
    
 
  
— 
 
  
 
      
 
  
— 
 
  
 
 
Discount unwind
 
              
10 
 
  
— 
 
  
10 
 
 
At 30 June 2021
 
262,541 
 
  
29,770 
 
  
1,924 
 
  
11,886 
 
  
306,121 
 
  
124 
 
  
411 
 
  
175 
 
  
190 
 
  
900 
 
 
Allowance for impairment losses
 
(124)
 
  
(411)
 
  
(175)
 
  
(190)
 
  
(900)
 
           
Net carrying amount
 
262,417 
 
  
29,359 
 
  
1,749 
 
  
11,696 
 
  
305,221 
 
           
 
1
Exchange and other adjustments includes the impact of movements in exchange rates, derecognising assets as a result of modifications and adjustments in respect of purchased or originated credit-impaired financial assets. Where a POCI asset’s expected credit loss is less than its expected credit loss on purchase or origination, the increase in its carrying value is recognised within gross loans, rather than as a negative impairment allowance.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 12: Financial assets at amortised cost (continued)
 
Movements in allowance for expected credit losses in respect of undrawn balances were as follows:
 
           
Allowance for expected credit losses
 
           
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
           
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
                    
Undrawn balances
 
                   
At 1 January 2021
 
          
212 
 
  
234 
 
  
13 
 
  
— 
 
  
459 
 
 
Exchange and other adjustments
 
       
(2)
 
  
— 
 
  
— 
 
  
— 
 
  
(2)
 
 
Transfers to Stage 1
 
          
63 
 
  
(63)
 
  
— 
 
    
— 
 
 
Transfers to Stage 2
 
          
(10)
 
  
10 
 
  
— 
 
    
— 
 
 
Transfers to Stage 3
 
          
— 
 
  
(4)
 
  
 
    
— 
 
 
Impact of transfers between stages
 
       
(50)
 
  
35 
 
  
— 
 
    
(15)
 
 
           
 
  
(22)
 
  
 
    
(15)
 
 
Other items credited to the income statement
 
       
(41)
 
  
(33)
 
  
(9)
 
  
— 
 
  
(83)
 
 
Credit to the income statement
 
       
(38)
 
  
(55)
 
  
(5)
 
  
— 
 
  
(98)
 
 
At 30 June 2021
 
          
172 
 
  
179 
 
  
 
  
— 
 
  
359 
 
 
 
The Group's total impairment allowances were as follows:
 
           
Allowance for expected credit losses
 
           
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
           
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
                    
In respect of:
 
                   
Loans and advances to banks
 
       
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
Loans and advances to customers:
 
                
UK retail mortgages
 
          
124 
 
  
411 
 
  
175 
 
  
190 
 
  
900 
 
 
Other
 
          
1,062 
 
  
1,210 
 
  
1,500 
 
  
— 
 
  
3,772 
 
 
           
1,186 
 
  
1,621 
 
  
1,675 
 
  
190 
 
  
4,672 
 
 
Debt securities
 
          
 
  
— 
 
  
 
  
— 
 
  
 
 
Financial assets at amortised cost
 
       
1,190 
 
  
1,621 
 
  
1,677 
 
  
190 
 
  
4,678 
 
 
Other assets
 
          
— 
 
  
— 
 
  
21 
 
  
— 
 
  
21 
 
 
Provisions in relation to loan commitments and financial guarantees
 
   
172 
 
  
179 
 
  
 
  
— 
 
  
359 
 
 
Total
 
          
1,362 
 
  
1,800 
 
  
1,706 
 
  
190 
 
  
5,058 
 
 
Expected credit loss in respect of financial assets at fair value through other comprehensive income (memorandum item)
 
   
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 12: Financial assets at amortised cost (continued)
 
Year ended 31 December 2020
 
 
Gross carrying amount
 
 
Allowance for expected credit losses
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
                    
Loans and advances to banks
 
                  
At 1 January 2020
 
9,777 
 
  
— 
 
  
— 
 
  
— 
 
  
9,777 
 
  
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
Exchange and other adjustments
 
50 
 
  
— 
 
  
— 
 
  
— 
 
  
50 
 
  
(1)
 
  
— 
 
  
— 
 
  
— 
 
  
(1)
 
 
Additions (repayments)
 
925 
 
  
— 
 
  
— 
 
  
— 
 
  
925 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
Charge to the income statement
 
          
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
At 31 December 2020
 
10,752 
 
  
— 
 
  
— 
 
  
— 
 
  
10,752 
 
  
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
Allowance for impairment losses
 
(6)
 
  
— 
 
  
— 
 
  
— 
 
  
(6)
 
           
Net carrying amount
 
10,746 
 
  
— 
 
  
— 
 
  
— 
 
  
10,746 
 
           
                    
Loans and advances to customers
 
                  
At 1 January 2020
 
449,975 
 
  
28,543 
 
  
6,015 
 
  
13,714 
 
  
498,247 
 
  
675 
 
  
995 
 
  
1,447 
 
  
142 
 
  
3,259 
 
 
Exchange and other adjustments1
 
1,308 
 
  
(59)
 
  
(422)
 
  
(8)
 
  
819 
 
  
— 
 
  
(1)
 
  
54 
 
  
21 
 
  
74 
 
 
Transfers to Stage 1
 
4,972 
 
  
(4,956)
 
  
(16)
 
    
— 
 
  
146 
 
  
(143)
 
  
(3)
 
    
— 
 
 
Transfers to Stage 2
 
(28,855)
 
  
29,467 
 
  
(612)
 
    
— 
 
  
(218)
 
  
268 
 
  
(50)
 
    
— 
 
 
Transfers to Stage 3
 
(1,633)
 
  
(2,031)
 
  
3,664 
 
    
— 
 
  
(9)
 
  
(156)
 
  
165 
 
    
— 
 
 
Impact of transfers between stages
 
(25,516)
 
  
22,480 
 
  
3,036 
 
    
— 
 
  
(85)
 
  
883 
 
  
569 
 
    
1,367 
 
 
           
(166)
 
  
852 
 
  
681 
 
    
1,367 
 
 
Other changes in credit quality
 
          
857 
 
  
(16)
 
  
1,196 
 
  
167 
 
  
2,204 
 
 
Additions (repayments)
 
8,176 
 
  
695 
 
  
(802)
 
  
(1,156)
 
  
6,913 
 
  
50 
 
  
145 
 
  
(38)
 
  
(30)
 
  
127 
 
 
Methodology and model changes
 
          
(44)
 
  
170 
 
  
26 
 
  
— 
 
  
152 
 
 
Charge to the income statement
 
          
697 
 
  
1,151 
 
  
1,865 
 
  
137 
 
  
3,850 
 
 
Advances written off
 
    
(1,587)
 
  
(39)
 
  
(1,626)
 
      
(1,587)
 
  
(39)
 
  
(1,626)
 
 
Recoveries of advances written off in previous years
 
    
250 
 
  
— 
 
  
250 
 
      
250 
 
  
— 
 
  
250 
 
 
Discount unwind
 
              
(47)
 
  
— 
 
  
(47)
 
 
At 31 December 2020
 
433,943 
 
  
51,659 
 
  
6,490 
 
  
12,511 
 
  
504,603 
 
  
1,372 
 
  
2,145 
 
  
1,982 
 
  
261 
 
  
5,760 
 
 
Allowance for impairment losses
 
(1,372)
 
  
(2,145)
 
  
(1,982)
 
  
(261)
 
  
(5,760)
 
           
Net carrying amount
 
432,571 
 
  
49,514 
 
  
4,508 
 
  
12,250 
 
  
498,843 
 
           
 
1
Exchange and other adjustments includes the impact of movements in exchange rates, derecognising assets as a result of modifications and adjustments in respect of purchased or originated credit-impaired financial assets. Where a POCI asset’s expected credit loss is less than its expected credit loss on purchase or origination, the increase in its carrying value is recognised within gross loans, rather than as a negative impairment allowance.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 12: Financial assets at amortised cost (continued)
 
 
Gross carrying amount
 
 
Allowance for expected credit losses
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
                    
Debt securities
 
                   
At 1 January 2020
 
5,544 
 
  
— 
 
  
 
  
— 
 
  
5,547 
 
  
— 
 
  
— 
 
  
 
  
— 
 
  
 
 
Exchange and other adjustments
 
(21)
 
  
— 
 
  
— 
 
  
— 
 
  
(21)
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
Additions (repayments)
 
(117)
 
  
— 
 
  
— 
 
  
— 
 
  
(117)
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
Charge to the income statement
 
          
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
Financial assets that have been written off during the year
 
    
(1)
 
  
— 
 
  
(1)
 
      
(1)
 
  
— 
 
  
(1)
 
 
At 31 December 2020
 
5,406 
 
  
— 
 
  
 
  
— 
 
  
5,408 
 
  
 
  
— 
 
  
 
  
— 
 
  
 
 
Allowance for impairment losses
 
(1)
 
  
— 
 
  
(2)
 
  
— 
 
  
(3)
 
           
Net carrying amount
 
5,405 
 
  
— 
 
  
— 
 
  
— 
 
  
5,405 
 
           
Total financial assets at
amortised cost
 
448,722 
 
  
49,514 
 
  
4,508 
 
  
12,250 
 
  
514,994 
 
           
 
Movements in UK retail mortgage balances were as follows:
 
 
Gross carrying amount
 
 
Allowance for expected credit losses
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
                    
UK retail mortgages
 
                   
At 1 January 2020
 
257,043 
 
  
16,935 
 
  
1,506 
 
  
13,714 
 
  
289,198 
 
  
23 
 
  
281 
 
  
122 
 
  
142 
 
  
568 
 
 
Exchange and other adjustments1
 
— 
 
  
— 
 
  
— 
 
  
(8)
 
  
(8)
 
  
— 
 
  
— 
 
  
— 
 
  
21 
 
  
21 
 
 
Transfers to Stage 1
 
2,418 
 
  
(2,414)
 
  
(4)
 
    
— 
 
  
17 
 
  
(17)
 
  
— 
 
    
— 
 
 
Transfers to Stage 2
 
(16,463)
 
  
16,882 
 
  
(419)
 
    
— 
 
  
(4)
 
  
22 
 
  
(18)
 
    
— 
 
 
Transfers to Stage 3
 
(199)
 
  
(974)
 
  
1,173 
 
    
— 
 
  
— 
 
  
(35)
 
  
35 
 
    
— 
 
 
Impact of transfers between stages
 
(14,244)
 
  
13,494 
 
  
750 
 
    
— 
 
  
(15)
 
  
198 
 
  
66 
 
    
249 
 
 
           
(2)
 
  
168 
 
  
83 
 
    
249 
 
 
Other changes in credit quality
 
          
63 
 
  
(26)
 
  
(23)
 
  
167 
 
  
181 
 
 
Additions (repayments)
 
8,619 
 
  
(1,411)
 
  
(375)
 
  
(1,156)
 
  
5,677 
 
  
14 
 
  
(15)
 
  
(13)
 
  
(30)
 
  
(44)
 
 
Methodology and model changes
 
          
 
  
60 
 
  
24 
 
  
— 
 
  
90 
 
 
Charge to the income statement
 
          
81 
 
  
187 
 
  
71 
 
  
137 
 
  
476 
 
 
Advances written off
 
    
(37)
 
  
(39)
 
  
(76)
 
      
(37)
 
  
(39)
 
  
(76)
 
 
Recoveries of advances written off in previous years
 
    
15 
 
  
— 
 
  
15 
 
      
15 
 
  
— 
 
  
15 
 
 
Discount unwind
 
              
20 
 
  
— 
 
  
20 
 
 
At 31 December 2020
 
251,418 
 
  
29,018 
 
  
1,859 
 
  
12,511 
 
  
294,806 
 
  
104 
 
  
468 
 
  
191 
 
  
261 
 
  
1,024 
 
 
Allowance for impairment losses
 
(104)
 
  
(468)
 
  
(191)
 
  
(261)
 
  
(1,024)
 
           
Net carrying amount
 
251,314 
 
  
28,550 
 
  
1,668 
 
  
12,250 
 
  
293,782 
 
           
 
1
Exchange and other adjustments includes the impact of movements in exchange rates, derecognising assets as a result of modifications and adjustments in respect of purchased or originated credit-impaired financial assets. Where a POCI asset’s expected credit loss is less than its expected credit loss on purchase or origination, the increase in its carrying value is recognised within gross loans, rather than as a negative impairment allowance.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 12: Financial assets at amortised cost (continued)
 
Movements in allowance for expected credit losses in respect of undrawn balances were as follows:
 
           
Allowance for expected credit losses
 
           
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
           
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
                    
Undrawn balances
 
                   
At 1 January 2020
 
          
95 
 
  
77 
 
  
 
  
— 
 
  
177 
 
 
Exchange and other adjustments
 
       
(6)
 
  
(1)
 
  
— 
 
  
— 
 
  
(7)
 
 
Transfers to Stage 1
 
          
19 
 
  
(19)
 
  
— 
 
    
— 
 
 
Transfers to Stage 2
 
          
(11)
 
  
11 
 
  
— 
 
    
— 
 
 
Transfers to Stage 3
 
          
(1)
 
  
(6)
 
  
 
    
— 
 
 
Impact of transfers between stages
 
       
(10)
 
  
102 
 
  
10 
 
    
102 
 
 
           
(3)
 
  
88 
 
  
17 
 
    
102 
 
 
Other items charged to the income statement
 
       
126 
 
  
70 
 
  
(9)
 
  
— 
 
  
187 
 
 
Charge to the income statement
 
       
123 
 
  
158 
 
  
 
  
— 
 
  
289 
 
 
At 31 December 2020
 
          
212 
 
  
234 
 
  
13 
 
  
— 
 
  
459 
 
 
 
The Group's total impairment allowances were as follows:
 
           
Allowance for expected credit losses
 
           
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
           
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
                    
In respect of:
 
                   
Loans and advances to banks
 
       
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
Loans and advances to customers:
 
                
UK retail mortgages
 
          
104 
 
  
468 
 
  
191 
 
  
261 
 
  
1,024 
 
 
Other
 
          
1,268 
 
  
1,677 
 
  
1,791 
 
  
— 
 
  
4,736 
 
 
           
1,372 
 
  
2,145 
 
  
1,982 
 
  
261 
 
  
5,760 
 
 
Debt securities
 
          
 
  
— 
 
  
 
  
— 
 
  
 
 
Financial assets at amortised cost
 
       
1,379 
 
  
2,145 
 
  
1,984 
 
  
261 
 
  
5,769 
 
 
Other assets
 
          
— 
 
  
— 
 
  
19 
 
  
— 
 
  
19 
 
 
Provisions in relation to loan commitments and financial guarantees
 
   
212 
 
  
234 
 
  
13 
 
  
— 
 
  
459 
 
 
Total
 
          
1,591 
 
  
2,379 
 
  
2,016 
 
  
261 
 
  
6,247 
 
 
Expected credit loss in respect of financial assets at fair value through other comprehensive income (memorandum item)
 
   
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
 
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 transferable.
 
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 13).
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 13: Debt securities in issue
 
 
At 30 June 2021
 
 
At 31 December 2020
 
 
At fair value through profit or loss
 
 
At
amortised
cost
 
 
Total
 
 
At fair value through profit or loss
 
 
At amortised cost
 
 
Total
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
            
Medium-term notes issued
 
6,818 
 
  
40,423 
 
  
47,241 
 
  
6,783 
 
  
42,621 
 
  
49,404 
 
 
Covered bonds
 
— 
 
  
20,120 
 
  
20,120 
 
  
— 
 
  
23,980 
 
  
23,980 
 
 
Certificates of deposit
 
— 
 
  
4,225 
 
  
4,225 
 
  
— 
 
  
7,998 
 
  
7,998 
 
 
Securitisation notes
 
38 
 
  
4,093 
 
  
4,131 
 
  
45 
 
  
4,406 
 
  
4,451 
 
 
Commercial paper
 
— 
 
  
12,407 
 
  
12,407 
 
  
— 
 
  
8,392 
 
  
8,392 
 
 
 
6,856 
 
  
81,268 
 
  
88,124 
 
  
6,828 
 
  
87,397 
 
  
94,225 
 
 
 
The notes issued by the Group’s securitisation and covered bond programmes are held by external parties and by subsidiaries of the Group.
 
Securitisation programmes
 
At 30 June 2021, external parties held £4,131 million (31 December 2020: £4,451 million) and the Group’s subsidiaries held £27,038 million (31 December 2020: £27,448 million) of total securitisation notes in issue of £31,169 million (31 December 2020: £31,899 million). The notes are secured on loans and advances to customers and debt securities held at amortised cost amounting to £33,752 million (31 December 2020: £34,584 million), the majority of which have been sold by subsidiary companies to bankruptcy remote structured entities. The structured entities are consolidated fully and all of these loans are retained on the Group's balance sheet.
 
Covered bond programmes
 
At 30 June 2021, external parties held £20,120 million (31 December 2020: £23,980 million) and the Group’s subsidiaries held none (31 December 2020: £100 million) of total covered bonds in issue of £20,120 million (31 December 2020: £24,080 million). The bonds are secured on certain loans and advances to customers amounting to £31,698 million (31 December 2020: £34,960 million) that have been assigned to bankruptcy remote limited liability partnerships. These loans are retained on the Group's balance sheet.
 
Cash deposits of £4,674 million (31 December 2020: £3,930 million) which support the debt securities issued by the structured entities, the term advances related to covered bonds and other legal obligations are held by the Group.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 14: Retirement benefit obligations
 
The Group’s post-retirement defined benefit scheme obligations are comprised as follows:
 
 
At
30 June 2021
 
 
At
31 Dec 2020
 
 
£m
 
 
£m
 
    
Defined benefit pension schemes:
 
   
Fair value of scheme assets
 
49,299 
 
  
51,127 
 
 
Present value of funded obligations
 
(46,297)
 
  
(49,549)
 
 
Net pension scheme asset
 
3,002 
 
  
1,578 
 
 
Other post-retirement schemes
 
(102)
 
  
(109)
 
 
Net retirement benefit asset
 
2,900 
 
  
1,469 
 
 
    
Recognised on the balance sheet as:
 
   
Retirement benefit assets
 
3,134 
 
  
1,714 
 
 
Retirement benefit obligations
 
(234)
 
  
(245)
 
 
Net retirement benefit asset
 
2,900 
 
  
1,469 
 
 
 
Movements in the Group’s net post-retirement defined benefit scheme asset during the period were as follows:
 
 
£m
 
  
Asset at 1 January 2021
 
1,469 
 
 
Income statement charge
 
(122)
 
 
Employer contributions
 
949 
 
 
Remeasurement
 
604 
 
 
Asset at 30 June 2021
 
2,900 
 
 
 
The charge to the income statement in respect of pensions and other post-retirement benefit schemes is comprised as follows:
 
 
Half-year
to 30 June
2021
 
 
Half-year
to 30 June
2020
 
 
Half-year
to 31 Dec
2020
 
 
£m
 
 
£m
 
 
£m
 
      
Defined benefit pension schemes
 
122 
 
  
121 
 
  
126 
 
 
Defined contribution schemes
 
162 
 
  
151 
 
  
168 
 
 
Total charge to the income statement
 
284 
 
  
272 
 
  
294 
 
 
 
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 14: Retirement benefit obligations (continued)
 
The principal assumptions used in the valuations of the defined benefit pension schemes were as follows:
 
 
At
30 June 2021
 
 
At
31 Dec 2020
 
 
%
 
 
%
 
    
Discount rate
 
1.93 
 
  
1.44 
 
 
Rate of inflation:
 
   
Retail Price Index
 
3.10 
 
  
2.80 
 
 
Consumer Price Index
 
2.70 
 
  
2.41 
 
 
Rate of salary increases
 
0.00 
 
  
0.00 
 
 
Weighted-average rate of increase for pensions in payment
 
2.81 
 
  
2.61 
 
 
 
 
 
 Note 15: Other provisions
 
Provisions
for financial
commitments
and guarantees
 
 
Regulatory
provisions
 
 
Other
 
 
Total
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
        
At 1 January 2021
 
459 
 
  
642 
 
  
814 
 
  
1,915 
 
 
Exchange and other adjustments
 
(2)
 
  
(4)
 
  
(10)
 
  
(16)
 
 
Provisions applied
 
— 
 
  
(398)
 
  
(152)
 
  
(550)
 
 
Charge for the period
 
(98)
 
  
425 
 
  
82 
 
  
409 
 
 
At 30 June 2021
 
359 
 
  
665 
 
  
734 
 
  
1,758 
 
 
 
Regulatory provisions
 
In the course of its business, the Group is engaged in discussions with the PRA, FCA and other UK and overseas regulators and other governmental authorities on a range of matters. The Group also receives complaints in connection with its past conduct and claims brought by or on behalf of current and former employees, customers, investors and other third parties and is subject to legal proceedings and other legal actions. Where significant, provisions are held against the costs expected to be incurred in relation to these matters and matters arising from related internal reviews. During the half-year to 30 June 2021 the Group charged a further £425 million in respect of legal actions and other regulatory matters, including a charge of £91 million for the FCA fine in relation to General Insurance renewals errors, a charge in respect of HBOS Reading and charges for other legacy programmes.
 
The unutilised balance at 30 June 2021 was £665 million (31 December 2020: £642 million). The most significant items are as follows.
 
Payment protection insurance (excluding MBNA)
 
The Group has made provisions for PPI costs over a number of years totalling £21,960 million. Good progress continues to be made towards ensuring operational completeness, with the final validation of information requests and complaints with third parties at an advanced stage, ahead of an orderly programme close. At 30 June 2021, a provision of £57 million remained outstanding (excluding amounts related to MBNA), with total cash payments of £144 million during the six months to 30 June 2021.
 
In addition to the above provision, the Group continues to challenge PPI litigation cases, with mainly administration costs and some potential redress recognised within the first half regulatory provisions.
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 15: Other provisions (continued)
 
Payment protection insurance (MBNA)
 
As announced in December 2016, the Group's exposure continues to remain capped at £240 million under the terms of the MBNA sale and purchase agreement. No additional charge has been made by MBNA to its PPI provision in the half-year to 30 June 2021.
 
HBOS Reading – review
 
The Group completed its compensation assessment for those within the Customer Review in 2019 with more than £109 million of compensation paid, in addition to £15 million for ex-gratia payments and £6 million for the reimbursement of legal fees. The Group is applying the recommendations from Sir Ross Cranston’s review, issued in December 2019, including a reassessment of direct and consequential losses by an independent panel, an extension of debt relief and a wider definition of de facto directors. Further details of the panel were announced on 3 April 2020 and the panel's full scope and methodology was published on 7 July 2020. The panel’s stated objective is to consider cases via a non-legalistic and fair process and to make their decisions in a generous, fair and common-sense manner. Details of an appeal process for the further assessments of debt relief and de facto director status have also been announced.
 
In 2020 a charge of £159 million was recorded, bringing the lifetime cost to £435 million, covering both compensation payments and operational costs.
 
In the half-year to 30 June 2021 the Group has continued to make progress assessing further debt relief and de facto director status claims and has now completed 99 per cent of preliminary assessments. The independent panel has also started to issue its first outcomes.
 
The Group has charged £150 million in the half-year to 30 June 2021 for the independent panel and Dame Linda Dobbs review of the Group’s handling of HBOS Reading between January 2009 and January 2017. A significant part of this charge relates to the actual and foreseeable future operational costs of these activities which are both now expected to extend into 2022, in addition to awards from the independent panel to date. The first half charge increases the lifetime cost to £585 million. The panel is continuing its assessment of awards which could result in further significant charges over 2021 and 2022 but it is not possible to reliably estimate the potential impact or timings at this stage. The Group is committed to implementing Sir Ross's recommendations in full.
 
Arrears handling related activities
 
To date the Group has provided a total of £1,017 million for arrears handling activities; the unutilised balance at 30 June 2021 was £38 million.
 
Customer claims in relation to insurance branch business in Germany
 
The Group continues to receive claims from customers in Germany relating to policies issued by Clerical Medical Investment Group Limited (subsequently renamed Scottish Widows Limited), with smaller numbers of claims received from customers in Austria and Italy. The Group provided a further £21 million in the half-year to 30 June 2021, bringing the total provided to date to £695 million (31 December 2020: £674 million); utilisation of the provision was £22 million in the half-year to 30 June 2021 (year ended 31 December 2020: £28 million); the remaining unutilised provision as at 30 June 2021 was £92 million (31 December 2020: £93 million). The ultimate financial effect, which could be significantly different from the current provision, will be known only once all relevant claims have been resolved.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 16: Contingent liabilities, commitments and guarantees
 
Interchange fees
 
With respect to multi-lateral interchange fees (MIFs), the Group is not involved in the ongoing litigation which involves the card schemes Visa and Mastercard (as described below). However, the Group is a member/licensee of Visa and Mastercard and other card schemes. The litigation in question is as follows:
 
1
litigation brought by retailers against both Visa and Mastercard continues in the English Courts in which retailers are seeking damages on grounds that Visa and Mastercard’s MIFs breached competition law (this includes a judgment of the Supreme Court in June 2020 upholding the Court of Appeal's finding in 2018 that historic interchange arrangements of Mastercard and Visa infringed competition law); and
 
 
2
litigation brought on behalf of UK consumers in the English Courts against Mastercard, which the Supreme Court has now confirmed can proceed in the lower courts.
 
 
Any impact on the Group of the litigation against Visa and Mastercard remains uncertain at this time, such that it is not practicable for the Group to provide an estimate of any potential financial effect. Insofar as Visa is required to pay damages to retailers for interchange fees set prior to June 2016, contractual arrangements to allocate liability have been agreed between various UK banks (including the Group) and Visa Inc, as part of Visa Inc’s acquisition of Visa Europe in 2016. These arrangements cap the maximum amount of liability to which the Group may be subject and this cap is set at the cash consideration received by the Group for the sale of its stake in Visa Europe to Visa Inc in 2016. In 2016, the Group received Visa preference stock as part of the consideration for the sale of its shares in Visa Europe. In 2020, some of these Visa preference shares were converted into Visa Inc Class A common stock (in accordance with the provisions of the Visa Europe sale documentation) and they were subsequently sold by the Group. The sale had no impact on this contingent liability.
 
LIBOR and other trading rates
 
Certain Group companies, together with other panel banks, have been named as defendants in private lawsuits, including purported class action suits, in the US in connection with their roles as panel banks contributing to the setting of US Dollar, Japanese Yen and Sterling London Interbank Offered Rate and the Australian BBSW reference rate. Certain of the plaintiffs' claims have been dismissed by the US Federal Court for the Southern District of New York (subject to appeals).
 
Certain Group companies are also named as defendants in (i) UK based claims and; (ii) two Dutch class actions, raising LIBOR manipulation allegations. A number of the claims against the Group in the UK relating to the alleged mis-sale of interest rate hedging products also include allegations of LIBOR manipulation.
 
The Swiss Competition Commission concluded its investigation against Lloyds Bank plc in June 2019.
 
It is currently not possible to predict the scope and ultimate outcome on the Group of any private lawsuits or any related challenges to the interpretation or validity of any of the Group's contractual arrangements, including their timing and scale. As such, it is not practicable to provide an estimate of any potential financial effect.
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 16: Contingent liabilities, commitments and guarantees (continued)
 
Tax authorities
 
The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which ceased trading on 31 December 2010. In 2013, HMRC informed the Group that its interpretation of the UK rules means that the group relief is not available. In 2020, HMRC concluded their enquiry into the matter and issued a closure notice. The Group's interpretation of the UK rules has not changed and hence it has appealed to the First Tier Tax Tribunal, with a hearing expected in early 2022. If the final determination of the matter by the judicial process is that HMRC’s position is correct, management estimate that this would result in an increase in current tax liabilities of approximately £835 million (including interest) and a reduction in the Group’s deferred tax asset of approximately £330 million. The Group, having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due.
 
There are a number of other open matters on which the Group is in discussions with HMRC (including the tax treatment of certain costs arising from the divestment of TSB Banking Group plc), none of which is expected to have a material impact on the financial position of the Group.
 
Other legal actions and regulatory matters
 
In addition, during the ordinary course of business the Group is subject to other complaints and threatened or actual legal proceedings (including class or group action claims) brought by or on behalf of current or former employees, customers, investors or other third parties, as well as legal and regulatory reviews, challenges, investigations and enforcement actions, both in the UK and overseas. Where material, such matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability. In those instances where it is concluded that it is more likely than not that a payment will be made, a provision is established to management's best estimate of the amount required at the relevant balance sheet date. In some cases it will not be possible to form a view, for example because the facts are unclear or because further time is needed to properly assess the merits of the case, and no provisions are held in relation to such matters. In these circumstances, specific disclosure in relation to a contingent liability will be made where material. However the Group does not currently expect the final outcome of any such case to have a material adverse effect on its financial position, operations or cash flows. Where there is a contingent liability related to an existing provision the relevant disclosures are included within note 15.
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 16: Contingent liabilities, commitments and guarantees (continued)
 
Contingent liabilities, commitments and guarantees arising from the banking business
 
 
At
30 June 2021
 
 
At
31 Dec 2020
 
 
£m
 
 
£m
 
    
Contingent liabilities
 
   
Acceptances and endorsements
 
157 
 
  
131 
 
 
Other:
 
   
Other items serving as direct credit substitutes
 
513 
 
  
317 
 
 
Performance bonds, including letters of credit, and other transaction-related contingencies
 
1,994 
 
  
2,105 
 
 
 
2,507 
 
  
2,422 
 
 
Total contingent liabilities
 
2,664 
 
  
2,553 
 
 
    
Commitments and guarantees
 
   
Documentary credits and other short-term trade-related transactions
 
 
  
 
 
Forward asset purchases and forward deposits placed
 
74 
 
  
127 
 
 
    
Undrawn formal standby facilities, credit lines and other commitments to lend:
 
   
Less than 1 year original maturity:
 
   
Mortgage offers made
 
16,740 
 
  
20,179 
 
 
Other commitments and guarantees
 
89,944 
 
  
89,269 
 
 
 
106,684 
 
  
109,448 
 
 
1 year or over original maturity
 
33,642 
 
  
38,299 
 
 
Total commitments and guarantees
 
140,401 
 
  
147,875 
 
 
 
Of the amounts shown above in respect of undrawn formal standby facilities, credit lines and other commitments to lend, £66,731 million (31 December 2020: £73,962 million) was irrevocable.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 17: Fair values of financial assets and liabilities
 
The valuations of financial instruments have been classified into three levels according to the quality and reliability of information used to determine those fair values. Note 48 to the Group’s 2020 financial statements details the definitions of the three levels in the fair value hierarchy.
 
Valuation control framework
 
Key elements of the valuation control framework, which covers processes for all levels in the fair value hierarchy including level 3 portfolios, include model validation (incorporating pre-trade and post-trade testing), product implementation review and independent price verification. Formal committees meet quarterly to discuss and approve valuations in more judgemental areas.
 
Transfers into and out of level 3 portfolios
 
Transfers out of level 3 portfolios arise when inputs that could have a significant impact on the instrument’s valuation become market observable; conversely, transfers into the portfolios arise when sources of data cease to be observable.
 
Valuation methodology
 
For level 2 and level 3 portfolios, there is no significant change to the valuation methodology (techniques and inputs) disclosed in the Group’s 2020 Annual Report and Accounts applied to these portfolios.
 
The table below summarises the carrying values of financial assets and liabilities presented on the Group’s balance sheet. The fair values presented in the table are at a specific date and may be significantly different from the amounts which will actually be paid or received on the maturity or settlement date.
 
 
At 30 June 2021
 
 
At 31 December 2020
 
 
Carrying
value
 
 
Fair
value
 
 
Carrying
value
 
 
Fair
value
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
        
Financial assets
 
       
Loans and advances to banks
 
10,811 
 
  
10,812 
 
  
10,746 
 
  
10,745 
 
 
Loans and advances to customers
 
500,356 
 
  
501,187 
 
  
498,843 
 
  
498,255 
 
 
Debt securities
 
5,008 
 
  
5,001 
 
  
5,405 
 
  
5,398 
 
 
Financial assets at amortised cost
 
516,175 
 
  
517,000 
 
  
514,994 
 
  
514,398 
 
 
        
Financial liabilities
 
       
Deposits from banks
 
20,655 
 
  
20,656 
 
  
31,465 
 
  
31,468 
 
 
Customer deposits
 
482,349 
 
  
482,513 
 
  
460,068 
 
  
460,338 
 
 
Debt securities in issue
 
81,268 
 
  
85,363 
 
  
87,397 
 
  
93,152 
 
 
Liabilities arising from non-participating investment contracts
 
42,031 
 
  
42,031 
 
  
38,452 
 
  
38,452 
 
 
Subordinated liabilities
 
13,527 
 
  
15,628 
 
  
14,261 
 
  
16,410 
 
 
 
Financial instruments classified as financial assets at fair value through profit or loss, derivative financial instruments, financial assets at fair value through other comprehensive income, assets arising from contracts held with reinsurers and financial liabilities at fair value through profit or loss are recognised at fair value.
 
The carrying amount of the following financial instruments is a reasonable approximation of fair value: cash and balances at central banks, items in the course of collection from banks, items in course of transmission to banks and notes in circulation. Fair values have not been disclosed for discretionary participating investment contracts. There is currently no agreed definition of fair valuation for discretionary participation features applied under IFRS and therefore the range of possible fair values of these contracts cannot be measured reliably.
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 17: Fair values of financial assets and liabilities (continued)
 
The Group manages valuation adjustments for its derivative exposures on a net basis; the Group determines their fair values on the basis of their net exposures. In all other cases, fair values of financial assets and liabilities measured at fair value are determined on the basis of their gross exposures.
 
The following tables provide an analysis of the financial assets and liabilities of the Group that are carried at fair value in the Group’s consolidated balance sheet, grouped into levels 1 to 3 based on the degree to which the fair value is observable. There were no significant transfers between level 1 and level 2 during the period.
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Total
 
Financial assets
 
£m
 
 
£m
 
 
£m
 
 
£m
 
        
At 30 June 2021
 
       
Financial assets at fair value through profit or loss:
 
       
Loans and advances to customers
 
— 
 
  
12,676 
 
  
9,844 
 
  
22,520 
 
 
Loans and advances to banks
 
— 
 
  
3,818 
 
  
— 
 
  
3,818 
 
 
Debt securities
 
16,427 
 
  
26,330 
 
  
1,708 
 
  
44,465 
 
 
Treasury and other bills
 
18 
 
  
— 
 
  
— 
 
  
18 
 
 
Equity shares
 
104,960 
 
  
100 
 
  
1,708 
 
  
106,768 
 
 
Financial assets at fair value through profit or loss
 
121,405 
 
  
42,924 
 
  
13,260 
 
  
177,589 
 
 
Assets arising from contracts held with reinsurers
 
— 
 
  
19,102 
 
  
— 
 
  
19,102 
 
 
Total financial assets at fair value through profit or loss
 
121,405 
 
  
62,026 
 
  
13,260 
 
  
196,691 
 
 
Financial assets at fair value through other comprehensive income:
 
       
Debt securities
 
12,609 
 
  
13,205 
 
  
167 
 
  
25,981 
 
 
Treasury and other bills
 
25 
 
  
— 
 
  
— 
 
  
25 
 
 
Equity shares
 
— 
 
  
— 
 
  
207 
 
  
207 
 
 
Total financial assets at fair value through other comprehensive income
 
12,634 
 
  
13,205 
 
  
374 
 
  
26,213 
 
 
Derivative financial instruments
 
33 
 
  
21,092 
 
  
1,068 
 
  
22,193 
 
 
Total financial assets carried at fair value
 
134,072 
 
  
96,323 
 
  
14,702 
 
  
245,097 
 
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 17: Fair values of financial assets and liabilities (continued)
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Total
 
Financial assets
 
£m
 
 
£m
 
 
£m
 
 
£m
 
        
At 31 December 2020
 
       
Financial assets at fair value through profit or loss:
 
       
Loans and advances to customers
 
— 
 
  
12,508 
 
  
11,501 
 
  
24,009 
 
 
Loans and advances to banks
 
— 
 
  
4,467 
 
  
— 
 
  
4,467 
 
 
Debt securities
 
20,376 
 
  
24,353 
 
  
1,954 
 
  
46,683 
 
 
Treasury and other bills
 
18 
 
  
— 
 
  
— 
 
  
18 
 
 
Equity shares
 
94,687 
 
  
171 
 
  
1,591 
 
  
96,449 
 
 
Financial assets at fair value through profit or loss
 
115,081 
 
  
41,499 
 
  
15,046 
 
  
171,626 
 
 
Assets arising from contracts held with reinsurers
 
— 
 
  
19,543 
 
  
— 
 
  
19,543 
 
 
Total financial assets at fair value through profit or loss
 
115,081 
 
  
61,042 
 
  
15,046 
 
  
191,169 
 
 
Financial assets at fair value through other comprehensive income:
 
       
Debt securities
 
14,784 
 
  
12,437 
 
  
180 
 
  
27,401 
 
 
Treasury and other bills
 
36 
 
  
— 
 
  
— 
 
  
36 
 
 
Equity shares
 
— 
 
  
— 
 
  
166 
 
  
166 
 
 
Total financial assets at fair value through other comprehensive income
 
14,820 
 
  
12,437 
 
  
346 
 
  
27,603 
 
 
Derivative financial instruments
 
60 
 
  
28,572 
 
  
981 
 
  
29,613 
 
 
Total financial assets carried at fair value
 
129,961 
 
  
102,051 
 
  
16,373 
 
  
248,385 
 
 
 
 
 
Level 1
 
 
Level 2
 
 
Level 3
 
 
Total
 
Financial liabilities
 
£m
 
 
£m
 
 
£m
 
 
£m
 
        
At 30 June 2021
 
       
Financial liabilities at fair value through profit or loss:
 
       
Liabilities designated at fair value through profit or loss
 
— 
 
  
6,818 
 
  
39 
 
  
6,857 
 
 
Trading liabilities
 
1,072 
 
  
13,125 
 
  
— 
 
  
14,197 
 
 
Total financial liabilities at fair value through profit or loss
 
1,072 
 
  
19,943 
 
  
39 
 
  
21,054 
 
 
Derivative financial instruments
 
56 
 
  
16,626 
 
  
1,269 
 
  
17,951 
 
 
Total financial liabilities carried at fair value
 
1,128 
 
  
36,569 
 
  
1,308 
 
  
39,005 
 
 
        
At 31 December 2020
 
       
Financial liabilities at fair value through profit or loss:
 
       
Liabilities designated at fair value through profit or loss
 
— 
 
  
6,783 
 
  
45 
 
  
6,828 
 
 
Trading liabilities
 
778 
 
  
15,040 
 
  
— 
 
  
15,818 
 
 
Total financial liabilities at fair value through profit or loss
 
778 
 
  
21,823 
 
  
45 
 
  
22,646 
 
 
Derivative financial instruments
 
56 
 
  
25,883 
 
  
1,374 
 
  
27,313 
 
 
Total financial liabilities carried at fair value
 
834 
 
  
47,706 
 
  
1,419 
 
  
49,959 
 
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 17: Fair values of financial assets and liabilities (continued)
 
Movements in level 3 portfolio
 
The tables below analyse movements in the level 3 financial assets portfolio.
 
 
Financial assets at fair value through profit or loss
 
 
Financial assets at fair value through other comprehensive income
 
 
Derivative assets
 
 
Total financial assets carried at fair value
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
        
At 1 January 2021
 
15,046 
 
  
346 
 
  
981 
 
  
16,373 
 
 
Exchange and other adjustments
 
(16)
 
  
(7)
 
  
 
  
(20)
 
 
Losses recognised in the income statement within other income
 
(135)
 
  
— 
 
  
(154)
 
  
(289)
 
 
Gains recognised in other comprehensive income within the revaluation reserve in respect of financial assets at fair value through other comprehensive income
 
— 
 
  
43 
 
  
— 
 
  
43 
 
 
Purchases/increases to customer loans
 
644 
 
  
— 
 
  
302 
 
  
946 
 
 
Sales/repayments of customer loans
 
(1,520)
 
  
(8)
 
  
(64)
 
  
(1,592)
 
 
Transfers into the level 3 portfolio
 
19 
 
  
— 
 
  
— 
 
  
19 
 
 
Transfers out of the level 3 portfolio
 
(778)
 
  
— 
 
  
— 
 
  
(778)
 
 
At 30 June 2021
 
13,260 
 
  
374 
 
  
1,068 
 
  
14,702 
 
 
Losses recognised in the income statement, within other income, relating to the change in fair value of those assets held at 30 June 2021
 
(187)
 
  
— 
 
  
(156)
 
  
(343)
 
 
        
At 1 January 2020
 
14,908 
 
  
408 
 
  
863 
 
  
16,179 
 
 
Exchange and other adjustments
 
106 
 
  
11 
 
  
19 
 
  
136 
 
 
Gains recognised in the income statement within other income
 
135 
 
  
— 
 
  
124 
 
  
259 
 
 
Losses recognised in other comprehensive income within the revaluation reserve in respect of financial assets at fair value through other comprehensive income
 
— 
 
  
(67)
 
  
— 
 
  
(67)
 
 
Purchases/increases to customer loans
 
851 
 
  
— 
 
  
 
  
853 
 
 
Sales/repayments of customer loans
 
(839)
 
  
(7)
 
  
(81)
 
  
(927)
 
 
Transfers into the level 3 portfolio
 
73 
 
  
— 
 
  
41 
 
  
114 
 
 
Transfers out of the level 3 portfolio
 
(247)
 
  
— 
 
  
(84)
 
  
(331)
 
 
At 30 June 2020
 
14,987 
 
  
345 
 
  
884 
 
  
16,216 
 
 
Gains recognised in the income statement, within other income, relating to the change in fair value of those assets held at 30 June 2020
 
141 
 
  
— 
 
  
132 
 
  
273 
 
 
 
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 17: Fair values of financial assets and liabilities (continued)
 
The tables below analyse movements in the level 3 financial liabilities portfolio.
 
 
Financial liabilities at fair value through profit or loss
 
 
Derivative liabilities
 
 
Total
financial liabilities carried at
fair value
 
 
£m
 
 
£m
 
 
£m
 
      
At 1 January 2021
 
45 
 
  
1,374 
 
  
1,419 
 
 
Exchange and other adjustments
 
— 
 
  
 
  
 
 
Gains recognised in the income statement within other income
 
(2)
 
  
(247)
 
  
(249)
 
 
Additions
 
 
  
201 
 
  
202 
 
 
Redemptions
 
(5)
 
  
(19)
 
  
(24)
 
 
Transfers into the level 3 portfolio
 
— 
 
  
— 
 
  
— 
 
 
Transfers out of the level 3 portfolio
 
— 
 
  
(43)
 
  
(43)
 
 
At 30 June 2021
 
39 
 
  
1,269 
 
  
1,308 
 
 
Gains recognised in the income statement, within other income, relating to the change in fair value of those liabilities held at 30 June 2021
 
(2)
 
  
(244)
 
  
(246)
 
 
      
At 1 January 2020
 
48 
 
  
1,367 
 
  
1,415 
 
 
Exchange and other adjustments
 
— 
 
  
20 
 
  
20 
 
 
Losses recognised in the income statement within other income
 
 
  
194 
 
  
195 
 
 
Additions
 
— 
 
  
 
  
 
 
Redemptions
 
(2)
 
  
(8)
 
  
(10)
 
 
Transfers into the level 3 portfolio
 
— 
 
  
51 
 
  
51 
 
 
Transfers out of the level 3 portfolio
 
— 
 
  
(159)
 
  
(159)
 
 
At 30 June 2020
 
47 
 
  
1,467 
 
  
1,514 
 
 
Losses recognised in the income statement, within other income, relating to the change in fair value of those liabilities held at 30 June 2020
 
— 
 
  
195 
 
  
195 
 
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 17: Fair values of financial assets and liabilities (continued)
 
The tables below set out the effects of reasonably possible alternative assumptions for categories of level 3 financial assets and financial liabilities which have an aggregated carrying value greater than £500 million.
 
   
At 30 June 2021
 
    
Effect of reasonably
possible alternative
assumptions2
 
 
Valuation techniques
 
Significant unobservable inputs1
 
Carrying value
 
Favourable changes
 
Unfavourable
changes
 
   
£m
 
£m
 
£m
 
      
Financial assets at fair value through profit or loss
 
    
Loans and advances to customers
 
Discounted cash flows
 
Interest rate spreads (-50bps/+191bps)
 
9,844 
 
 
514 
 
 
(498)
 
 
Equity and venture capital investments
 
Market approach
 
Earnings multiple (0.3/14.4)
 
1,682 
 
 
143 
 
 
(143)
 
 
Equity and venture capital investments
 
Underlying asset/net asset value
(incl. property prices)3
 
n/a
 
795 
 
 
111 
 
 
(123)
 
 
Unlisted equities, debt securities and property partnerships in the life funds
 
Underlying asset/net asset value
(incl. property prices)3
 
n/a
 
743 
 
 
 
 
(21)
 
 
Other
 
  
196 
 
 
 
 
(9)
 
 
   
13,260 
 
   
Financial assets at fair value through other comprehensive income
 
 
374 
 
   
Derivative financial assets
 
     
Interest rate derivatives
 
Option pricing model
 
Interest rate volatility (8%/124%)
 
1,068 
 
 
 
 
(14)
 
 
   
1,068 
 
   
Level 3 financial assets carried at fair value
 
 
14,702 
 
   
      
Financial liabilities at fair value through profit or loss
 
39 
 
   
Derivative financial liabilities
 
     
Interest rate derivatives
 
Option pricing model
 
Interest rate volatility (8%/124%)
 
1,269 
 
 
— 
 
 
— 
 
 
   
1,269 
 
   
Level 3 financial liabilities carried at fair value
 
 
1,308 
 
   
 
1
Ranges are shown where appropriate and represent the highest and lowest inputs used in the level 3 valuations.
 
2
Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.
 
3
Underlying asset/net asset values represent fair value.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 17: Fair values of financial assets and liabilities (continued)
 
   
At 31 December 2020
 
    
Effect of reasonably
possible alternative
assumptions2
 
 
Valuation
techniques
 
Significant unobservable inputs1
 
Carrying value
 
Favourable changes
 
Unfavourable changes
 
   
£m
 
£m
 
£m
 
      
Financial assets at fair value through profit or loss
 
   
Loans and advances to customers
 
Discounted cash flows
 
Interest rate spreads (-50bps/+215bps)
 
11,501 
 
 
528 
 
 
(651)
 
 
Equity and venture capital investments
 
Market approach
 
Earnings multiple (1.0/15.2)
 
1,905 
 
 
72 
 
 
(72)
 
 
Equity and venture capital investments
 
Underlying asset/net asset value
(incl. property prices)3
 
n/a
 
634 
 
 
91 
 
 
(121)
 
 
Unlisted equities, debt securities and property partnerships in the life funds
 
Underlying asset/net asset value
(incl. property prices)3
 
n/a
 
780 
 
 
 
 
(34)
 
 
Other
 
  
226 
 
 
10 
 
 
(10)
 
 
   
15,046 
 
   
Financial assets at fair value through other comprehensive income
 
 
346 
 
   
Derivative financial assets
 
     
Interest rate derivatives
 
Option pricing model
 
Interest rate volatility (13%/128%)
 
981 
 
 
 
 
(6)
 
 
   
981 
 
   
Level 3 financial assets carried at fair value
 
 
16,373 
 
   
      
Financial liabilities at fair value through profit or loss
 
45 
 
   
Derivative financial liabilities
 
     
Interest rate derivatives
 
Option pricing model
 
Interest rate volatility (13%/128%)
 
1,374 
 
 
— 
 
 
— 
 
 
   
1,374 
 
   
Level 3 financial liabilities carried at fair value
 
 
1,419 
 
   
 
1
Ranges are shown where appropriate and represent the highest and lowest inputs used in the level 3 valuations.
 
2
Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.
 
3
Underlying asset/net asset values represent fair value.
 
 
Unobservable inputs
 
Significant unobservable inputs affecting the valuation of debt securities, unlisted equity investments and derivatives are unchanged from those described in the Group’s 2020 financial statements.
 
Reasonably possible alternative assumptions
 
Valuation techniques applied to many of the Group’s level 3 instruments often involve the use of two or more inputs whose relationship is interdependent. The calculation of the effect of reasonably possible alternative assumptions included in the table above reflects such relationships and are unchanged from those described in note 48 to the Group’s 2020 financial statements.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 18: Credit quality of loans and advances to banks and customers
 
Gross drawn exposures and expected credit loss allowances
 
Drawn exposures
 
 
Expected credit loss allowance
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
                    
At 30 June 2021
 
                   
Loans and advances to banks:
 
                  
CMS 1-10
 
10,804 
 
  
— 
 
  
— 
 
  
— 
 
  
10,804 
 
  
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
CMS 11-14
 
10 
 
  
— 
 
  
— 
 
  
— 
 
  
10 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 15-18
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 19
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 20-23
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
 
10,814 
 
  
— 
 
  
— 
 
  
— 
 
  
10,814 
 
  
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
                    
Loans and advances to customers:
 
                
Retail - UK Mortgages
 
                   
RMS 1-6
 
262,472 
 
  
22,374 
 
  
— 
 
  
— 
 
  
284,846 
 
  
123 
 
  
234 
 
  
— 
 
  
— 
 
  
357 
 
 
RMS 7-9
 
69 
 
  
4,022 
 
  
— 
 
  
— 
 
  
4,091 
 
  
 
  
59 
 
  
— 
 
  
— 
 
  
60 
 
 
RMS 10
 
— 
 
  
918 
 
  
— 
 
  
— 
 
  
918 
 
  
— 
 
  
23 
 
  
— 
 
  
— 
 
  
23 
 
 
RMS 11-13
 
— 
 
  
2,456 
 
  
— 
 
  
— 
 
  
2,456 
 
  
— 
 
  
95 
 
  
— 
 
  
— 
 
  
95 
 
 
RMS 14
 
— 
 
  
— 
 
  
1,924 
 
  
11,886 
 
  
13,810 
 
  
— 
 
  
— 
 
  
175 
 
  
190 
 
  
365 
 
 
 
262,541 
 
  
29,770 
 
  
1,924 
 
  
11,886 
 
  
306,121 
 
  
124 
 
  
411 
 
  
175 
 
  
190 
 
  
900 
 
 
Retail - credit cards
 
                   
RMS 1-6
 
9,032 
 
  
1,124 
 
  
— 
 
  
— 
 
  
10,156 
 
  
61 
 
  
46 
 
  
— 
 
  
— 
 
  
107 
 
 
RMS 7-9
 
1,720 
 
  
1,028 
 
  
— 
 
  
— 
 
  
2,748 
 
  
60 
 
  
115 
 
  
— 
 
  
— 
 
  
175 
 
 
RMS 10
 
150 
 
  
317 
 
  
— 
 
  
— 
 
  
467 
 
  
 
  
60 
 
  
— 
 
  
— 
 
  
66 
 
 
RMS 11-13
 
54 
 
  
467 
 
  
— 
 
  
— 
 
  
521 
 
  
— 
 
  
169 
 
  
— 
 
  
— 
 
  
169 
 
 
RMS 14
 
— 
 
  
— 
 
  
323 
 
  
— 
 
  
323 
 
  
— 
 
  
— 
 
  
140 
 
  
— 
 
  
140 
 
 
 
10,956 
 
  
2,936 
 
  
323 
 
  
— 
 
  
14,215 
 
  
127 
 
  
390 
 
  
140 
 
  
— 
 
  
657 
 
 
Retail - loans and overdrafts
 
                   
RMS 1-6
 
5,991 
 
  
398 
 
  
— 
 
  
— 
 
  
6,389 
 
  
73 
 
  
19 
 
  
— 
 
  
— 
 
  
92 
 
 
RMS 7-9
 
1,707 
 
  
519 
 
  
— 
 
  
— 
 
  
2,226 
 
  
74 
 
  
60 
 
  
— 
 
  
— 
 
  
134 
 
 
RMS 10
 
63 
 
  
143 
 
  
— 
 
  
— 
 
  
206 
 
  
 
  
29 
 
  
— 
 
  
— 
 
  
35 
 
 
RMS 11-13
 
21 
 
  
353 
 
  
— 
 
  
— 
 
  
374 
 
  
 
  
134 
 
  
— 
 
  
— 
 
  
137 
 
 
RMS 14
 
— 
 
  
— 
 
  
312 
 
  
— 
 
  
312 
 
  
— 
 
  
— 
 
  
151 
 
  
— 
 
  
151 
 
 
 
7,782 
 
  
1,413 
 
  
312 
 
  
— 
 
  
9,507 
 
  
156 
 
  
242 
 
  
151 
 
  
— 
 
  
549 
 
 
Retail - UK Motor Finance
 
                   
RMS 1-6
 
11,638 
 
  
1,464 
 
  
— 
 
  
— 
 
  
13,102 
 
  
142 
 
  
36 
 
  
— 
 
  
— 
 
  
178 
 
 
RMS 7-9
 
687 
 
  
490 
 
  
— 
 
  
— 
 
  
1,177 
 
  
 
  
29 
 
  
— 
 
  
— 
 
  
36 
 
 
RMS 10
 
— 
 
  
134 
 
  
— 
 
  
— 
 
  
134 
 
  
— 
 
  
19 
 
  
— 
 
  
— 
 
  
19 
 
 
RMS 11-13
 
22 
 
  
184 
 
  
— 
 
  
— 
 
  
206 
 
  
— 
 
  
45 
 
  
— 
 
  
— 
 
  
45 
 
 
RMS 14
 
— 
 
  
— 
 
  
233 
 
  
— 
 
  
233 
 
  
— 
 
  
— 
 
  
152 
 
  
— 
 
  
152 
 
 
 
12,347 
 
  
2,272 
 
  
233 
 
  
— 
 
  
14,852 
 
  
149 
 
  
129 
 
  
152 
 
  
— 
 
  
430 
 
 
Retail - other
 
                   
RMS 1-6
 
15,661 
 
  
485 
 
  
— 
 
  
— 
 
  
16,146 
 
  
25 
 
  
15 
 
  
— 
 
  
— 
 
  
40 
 
 
RMS 7-9
 
1,982 
 
  
357 
 
  
— 
 
  
— 
 
  
2,339 
 
  
 
  
43 
 
  
— 
 
  
— 
 
  
49 
 
 
RMS 10
 
— 
 
  
 
  
— 
 
  
— 
 
  
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
RMS 11-13
 
431 
 
  
356 
 
  
— 
 
  
— 
 
  
787 
 
  
— 
 
  
29 
 
  
— 
 
  
— 
 
  
29 
 
 
RMS 14
 
— 
 
  
— 
 
  
244 
 
  
— 
 
  
244 
 
  
— 
 
  
— 
 
  
54 
 
  
— 
 
  
54 
 
 
 
18,074 
 
  
1,203 
 
  
244 
 
  
— 
 
  
19,521 
 
  
31 
 
  
87 
 
  
54 
 
  
— 
 
  
172 
 
 
Total Retail
 
311,700 
 
  
37,594 
 
  
3,036 
 
  
11,886 
 
  
364,216 
 
  
587 
 
  
1,259 
 
  
672 
 
  
190 
 
  
2,708 
 
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 18: Credit quality of loans and advances to banks and customers (continued)
 
Gross drawn exposures and expected credit loss allowances (continued)
 
Drawn exposures
 
 
Expected credit loss allowance
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
                    
At 30 June 2021
 
                   
Commercial Banking
 
                   
CMS 1-10
 
38,828 
 
  
133 
 
  
— 
 
  
— 
 
  
38,961 
 
  
28 
 
  
 
  
— 
 
  
— 
 
  
30 
 
 
CMS 11-14
 
32,404 
 
  
3,461 
 
  
— 
 
  
— 
 
  
35,865 
 
  
118 
 
  
51 
 
  
— 
 
  
— 
 
  
169 
 
 
CMS 15-18
 
3,012 
 
  
4,203 
 
  
— 
 
  
— 
 
  
7,215 
 
  
44 
 
  
237 
 
  
— 
 
  
— 
 
  
281 
 
 
CMS 19
 
— 
 
  
607 
 
  
— 
 
  
— 
 
  
607 
 
  
— 
 
  
71 
 
  
— 
 
  
— 
 
  
71 
 
 
CMS 20-23
 
— 
 
  
— 
 
  
3,078 
 
  
— 
 
  
3,078 
 
  
— 
 
  
— 
 
  
987 
 
  
— 
 
  
987 
 
 
 
74,244 
 
  
8,404 
 
  
3,078 
 
  
— 
 
  
85,726 
 
  
190 
 
  
361 
 
  
987 
 
  
— 
 
  
1,538 
 
 
Other
 
                   
RMS 1-6
 
877 
 
  
36 
 
  
— 
 
  
— 
 
  
913 
 
  
 
  
 
  
— 
 
  
— 
 
  
10 
 
 
RMS 7-9
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
RMS 10
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
RMS 11-13
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
RMS 14
 
— 
 
  
— 
 
  
70 
 
  
— 
 
  
70 
 
  
— 
 
  
— 
 
  
16 
 
  
— 
 
  
16 
 
 
 
877 
 
  
36 
 
  
70 
 
  
— 
 
  
983 
 
  
 
  
 
  
16 
 
  
— 
 
  
26 
 
 
CMS 1-10
 
54,098 
 
  
— 
 
  
— 
 
  
— 
 
  
54,098 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 11-14
 
 
  
— 
 
  
— 
 
  
— 
 
  
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 15-18
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 19
 
 
  
— 
 
  
— 
 
  
— 
 
  
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 20-23
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
 
54,103 
 
  
— 
 
  
— 
 
  
— 
 
  
54,103 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
Central overlay
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
400 
 
  
— 
 
  
— 
 
  
— 
 
  
400 
 
 
Total loans and advances to customers
 
440,924 
 
  
46,034 
 
  
6,184 
 
  
11,886 
 
  
505,028 
 
  
1,186 
 
  
1,621 
 
  
1,675 
 
  
190 
 
  
4,672 
 
 
                    
In respect of:
 
                   
Retail
 
311,700 
 
  
37,594 
 
  
3,036 
 
  
11,886 
 
  
364,216 
 
  
587 
 
  
1,259 
 
  
672 
 
  
190 
 
  
2,708 
 
 
Commercial Banking
 
74,244 
 
  
8,404 
 
  
3,078 
 
  
— 
 
  
85,726 
 
  
190 
 
  
361 
 
  
987 
 
  
— 
 
  
1,538 
 
 
Other1
 
54,980 
 
  
36 
 
  
70 
 
  
— 
 
  
55,086 
 
  
409 
 
  
 
  
16 
 
  
— 
 
  
426 
 
 
Total loans and advances to customers
 
440,924 
 
  
46,034 
 
  
6,184 
 
  
11,886 
 
  
505,028 
 
  
1,186 
 
  
1,621 
 
  
1,675 
 
  
190 
 
  
4,672 
 
 
 
1
Principally comprises reverse repurchase agreement balances.
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 18: Credit quality of loans and advances to banks and customers (continued)
 
Gross drawn exposures and expected credit loss allowances
 
Drawn exposures
 
 
Expected credit loss allowance
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
                    
At 31 December 2020
 
                   
Loans and advances to banks:
 
                  
CMS 1-10
 
10,670 
 
  
— 
 
  
— 
 
  
— 
 
  
10,670 
 
  
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
CMS 11-14
 
82 
 
  
— 
 
  
— 
 
  
— 
 
  
82 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 15-18
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 19
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 20-23
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
 
10,752 
 
  
— 
 
  
— 
 
  
— 
 
  
10,752 
 
  
 
  
— 
 
  
— 
 
  
— 
 
  
 
 
                    
Loans and advances to customers:
 
                
Retail - UK Mortgages
 
                   
RMS 1-6
 
251,372 
 
  
21,010 
 
  
— 
 
  
— 
 
  
272,382 
 
  
103 
 
  
247 
 
  
— 
 
  
— 
 
  
350 
 
 
RMS 7-9
 
46 
 
  
4,030 
 
  
— 
 
  
— 
 
  
4,076 
 
  
 
  
66 
 
  
— 
 
  
— 
 
  
67 
 
 
RMS 10
 
— 
 
  
907 
 
  
— 
 
  
— 
 
  
907 
 
  
— 
 
  
25 
 
  
— 
 
  
— 
 
  
25 
 
 
RMS 11-13
 
— 
 
  
3,071 
 
  
— 
 
  
— 
 
  
3,071 
 
  
— 
 
  
130 
 
  
— 
 
  
— 
 
  
130 
 
 
RMS 14
 
— 
 
  
— 
 
  
1,859 
 
  
12,511 
 
  
14,370 
 
  
— 
 
  
— 
 
  
191 
 
  
261 
 
  
452 
 
 
 
251,418 
 
  
29,018 
 
  
1,859 
 
  
12,511 
 
  
294,806 
 
  
104 
 
  
468 
 
  
191 
 
  
261 
 
  
1,024 
 
 
Retail - credit cards
 
                   
RMS 1-6
 
9,619 
 
  
1,284 
 
  
— 
 
  
— 
 
  
10,903 
 
  
75 
 
  
57 
 
  
— 
 
  
— 
 
  
132 
 
 
RMS 7-9
 
1,603 
 
  
1,137 
 
  
— 
 
  
— 
 
  
2,740 
 
  
66 
 
  
138 
 
  
— 
 
  
— 
 
  
204 
 
 
RMS 10
 
274 
 
  
343 
 
  
— 
 
  
— 
 
  
617 
 
  
14 
 
  
70 
 
  
— 
 
  
— 
 
  
84 
 
 
RMS 11-13
 
— 
 
  
509 
 
  
— 
 
  
— 
 
  
509 
 
  
— 
 
  
193 
 
  
— 
 
  
— 
 
  
193 
 
 
RMS 14
 
— 
 
  
— 
 
  
340 
 
  
— 
 
  
340 
 
  
— 
 
  
— 
 
  
153 
 
  
— 
 
  
153 
 
 
 
11,496 
 
  
3,273 
 
  
340 
 
  
— 
 
  
15,109 
 
  
155 
 
  
458 
 
  
153 
 
  
— 
 
  
766 
 
 
Retail - loans and overdrafts
 
                  
RMS 1-6
 
5,559 
 
  
291 
 
  
— 
 
  
— 
 
  
5,850 
 
  
80 
 
  
15 
 
  
— 
 
  
— 
 
  
95 
 
 
RMS 7-9
 
1,990 
 
  
580 
 
  
— 
 
  
— 
 
  
2,570 
 
  
99 
 
  
66 
 
  
— 
 
  
— 
 
  
165 
 
 
RMS 10
 
116 
 
  
181 
 
  
— 
 
  
— 
 
  
297 
 
  
13 
 
  
36 
 
  
— 
 
  
— 
 
  
49 
 
 
RMS 11-13
 
45 
 
  
467 
 
  
— 
 
  
— 
 
  
512 
 
  
 
  
178 
 
  
— 
 
  
— 
 
  
187 
 
 
RMS 14
 
— 
 
  
— 
 
  
307 
 
  
— 
 
  
307 
 
  
— 
 
  
— 
 
  
147 
 
  
— 
 
  
147 
 
 
 
7,710 
 
  
1,519 
 
  
307 
 
  
— 
 
  
9,536 
 
  
201 
 
  
295 
 
  
147 
 
  
— 
 
  
643 
 
 
Retail - UK Motor Finance
 
                   
RMS 1-6
 
12,035 
 
  
1,396 
 
  
— 
 
  
— 
 
  
13,431 
 
  
187 
 
  
46 
 
  
— 
 
  
— 
 
  
233 
 
 
RMS 7-9
 
738 
 
  
456 
 
  
— 
 
  
— 
 
  
1,194 
 
  
 
  
33 
 
  
— 
 
  
— 
 
  
40 
 
 
RMS 10
 
— 
 
  
171 
 
  
— 
 
  
— 
 
  
171 
 
  
— 
 
  
30 
 
  
— 
 
  
— 
 
  
30 
 
 
RMS 11-13
 
13 
 
  
193 
 
  
— 
 
  
— 
 
  
206 
 
  
— 
 
  
62 
 
  
— 
 
  
— 
 
  
62 
 
 
RMS 14
 
— 
 
  
— 
 
  
199 
 
  
— 
 
  
199 
 
  
— 
 
  
— 
 
  
133 
 
  
— 
 
  
133 
 
 
 
12,786 
 
  
2,216 
 
  
199 
 
  
— 
 
  
15,201 
 
  
194 
 
  
171 
 
  
133 
 
  
— 
 
  
498 
 
 
Retail - other
 
                   
RMS 1-6
 
14,952 
 
  
482 
 
  
— 
 
  
— 
 
  
15,434 
 
  
19 
 
  
19 
 
  
— 
 
  
— 
 
  
38 
 
 
RMS 7-9
 
2,418 
 
  
334 
 
  
— 
 
  
— 
 
  
2,752 
 
  
11 
 
  
39 
 
  
— 
 
  
— 
 
  
50 
 
 
RMS 10
 
— 
 
  
21 
 
  
— 
 
  
— 
 
  
21 
 
  
— 
 
  
 
  
— 
 
  
— 
 
  
 
 
RMS 11-13
 
509 
 
  
467 
 
  
— 
 
  
— 
 
  
976 
 
  
— 
 
  
40 
 
  
— 
 
  
— 
 
  
40 
 
 
RMS 14
 
— 
 
  
— 
 
  
184 
 
  
— 
 
  
184 
 
  
— 
 
  
— 
 
  
59 
 
  
— 
 
  
59 
 
 
 
17,879 
 
  
1,304 
 
  
184 
 
  
— 
 
  
19,367 
 
  
30 
 
  
99 
 
  
59 
 
  
— 
 
  
188 
 
 
Total Retail
 
301,289 
 
  
37,330 
 
  
2,889 
 
  
12,511 
 
  
354,019 
 
  
684 
 
  
1,491 
 
  
683 
 
  
261 
 
  
3,119 
 
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 18: Credit quality of loans and advances to banks and customers (continued)
 
Gross drawn exposures and expected credit loss allowances (continued)
 
Drawn exposures
 
 
Expected credit loss allowance
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
 
Stage 1
 
 
Stage 2
 
 
Stage 3
 
 
POCI
 
 
Total
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
 
£m
 
                    
At 31 December 2020
 
                   
Commercial Banking
 
                   
CMS 1-10
 
35,072 
 
  
191 
 
  
— 
 
  
— 
 
  
35,263 
 
  
42 
 
  
 
  
— 
 
  
— 
 
  
44 
 
 
CMS 11-14
 
30,821 
 
  
6,971 
 
  
— 
 
  
— 
 
  
37,792 
 
  
141 
 
  
109 
 
  
— 
 
  
— 
 
  
250 
 
 
CMS 15-18
 
4,665 
 
  
6,469 
 
  
— 
 
  
— 
 
  
11,134 
 
  
96 
 
  
398 
 
  
— 
 
  
— 
 
  
494 
 
 
CMS 19
 
— 
 
  
685 
 
  
— 
 
  
— 
��
  
685 
 
  
— 
 
  
144 
 
  
— 
 
  
— 
 
  
144 
 
 
CMS 20-23
 
— 
 
  
— 
 
  
3,524 
 
  
— 
 
  
3,524 
 
  
— 
 
  
— 
 
  
1,282 
 
  
— 
 
  
1,282 
 
 
 
70,558 
 
  
14,316 
 
  
3,524 
 
  
— 
 
  
88,398 
 
  
279 
 
  
653 
 
  
1,282 
 
  
— 
 
  
2,214 
 
 
Other
 
                   
RMS 1-6
 
871 
 
  
13 
 
  
— 
 
  
— 
 
  
884 
 
  
 
  
 
  
— 
 
  
— 
 
  
10 
 
 
RMS 7-9
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
RMS 10
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
RMS 11-13
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
RMS 14
 
— 
 
  
— 
 
  
67 
 
  
— 
 
  
67 
 
  
— 
 
  
— 
 
  
17 
 
  
— 
 
  
17 
 
 
 
871 
 
  
13 
 
  
67 
 
  
— 
 
  
951 
 
  
 
  
 
  
17 
 
  
— 
 
  
27 
 
 
CMS 1-10
 
60,985 
 
  
— 
 
  
— 
 
  
— 
 
  
60,985 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 11-14
 
238 
 
  
— 
 
  
— 
 
  
— 
 
  
238 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 15-18
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 19
 
 
  
— 
 
  
— 
 
  
— 
 
  
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
CMS 20-23
 
— 
 
  
— 
 
  
10 
 
  
— 
 
  
10 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
 
61,225 
 
  
— 
 
  
10 
 
  
— 
 
  
61,235 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
 
Central overlay
 
— 
 
  
— 
 
  
— 
 
  
— 
 
  
— 
 
  
400 
 
  
— 
 
  
— 
 
  
— 
 
  
400 
 
 
Total loans and advances to customers
 
433,943 
 
  
51,659 
 
  
6,490 
 
  
12,511 
 
  
504,603 
 
  
1,372 
 
  
2,145 
 
  
1,982 
 
  
261 
 
  
5,760 
 
 
                    
In respect of:
 
                   
Retail
 
301,289 
 
  
37,330 
 
  
2,889 
 
  
12,511 
 
  
354,019 
 
  
684 
 
  
1,491 
 
  
683 
 
  
261 
 
  
3,119 
 
 
Commercial Banking
 
70,558 
 
  
14,316 
 
  
3,524 
 
  
— 
 
  
88,398 
 
  
279 
 
  
653 
 
  
1,282 
 
  
— 
 
  
2,214 
 
 
Other1
 
62,096 
 
  
13 
 
  
77 
 
  
— 
 
  
62,186 
 
  
409 
 
  
 
  
17 
 
  
— 
 
  
427 
 
 
Total loans and advances to customers
 
433,943 
 
  
51,659 
 
  
6,490 
 
  
12,511 
 
  
504,603 
 
  
1,372 
 
  
2,145 
 
  
1,982 
 
  
261 
 
  
5,760 
 
 
 
1
Principally comprises reverse repurchase agreement balances.
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 19: Dividends on ordinary shares
 
An interim dividend for 2021 of 0.67 pence per ordinary share will be paid on 13 September 2021. The total amount of this dividend is £473 million.
 
The Group did not pay any dividends during 2020 following a specific request of the regulator, the PRA, in line with all other major UK listed banks, as a result of the developing coronavirus crisis.
 
On 25 May 2021, a final dividend in respect of 2020 of 0.57 pence per share, totalling £404 million, the maximum allowable under PRA guidelines, was paid to shareholders.
 
Shareholders who have already joined the dividend reinvestment plan will automatically receive shares instead of the cash dividend. Key dates for the payment of the recommended dividend are:
 
Shares quoted ex-dividend
 
5 August 2021
 
  
Record date
 
6 August 2021
 
  
Final date for joining or leaving the dividend reinvestment plan
 
20 August 2021
 
  
Dividend paid
 
13 September 2021
 
 
 
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)
 
Note 20: Future accounting developments
 
The following pronouncements are not applicable for the year ending 31 December 2021 and have not been applied in preparing these condensed consolidated half-year financial statements. Save as disclosed below, the impact of these accounting changes is still being assessed by the Group and reliable estimates cannot be made at this stage.
 
With the exception of IFRS 17 Insurance Contracts and certain other minor amendments, as at 28 July 2021 these pronouncements have been endorsed for use in the United Kingdom.
 
IFRS 17 Insurance Contracts
 
IFRS 17 replaces IFRS 4 Insurance Contracts and is effective for annual periods beginning on or after 1 January 2023.
 
IFRS 17 requires insurance contracts and participating investment contracts to be measured on the balance sheet as the total of the fulfilment cash flows and the contractual service margin. Changes to estimates of future cash flows from one reporting date to another are recognised either as an amount in profit or loss or as an adjustment to the expected profit for providing insurance coverage, depending on the type of change and the reason for it. The effects of some changes in discount rates can either be recognised in profit or loss or in other comprehensive income as an accounting policy choice. The risk adjustment is released to profit and loss as an insurer’s risk reduces. Profits which are currently recognised through a value in-force asset will no longer be recognised at inception of an insurance contract. Instead, the expected profit for providing insurance coverage is recognised in profit or loss over time as the insurance coverage is provided. The standard will have a significant impact on the accounting for the insurance and participating investment contracts issued by the Group.
 
The Group's IFRS 17 project is progressing to plan. Work has focused on interpreting the requirements of the standard, developing methodologies and accounting policies, and implementing the changes required to reporting and other systems. The development of the Group's data warehousing and actuarial liability calculation processes required for IFRS 17 reporting continues to progress, with a schedule of testing and business readiness activity due to run from later this year into 2022, ahead of full implementation from 1 January 2023.
 
Minor amendments to other accounting standards
 
The IASB has issued a number of minor amendments to IFRSs effective 1 January 2022 and in later years (including IFRS 9 Financial Instruments and IAS 37 Provisions, Contingent Liabilities and Contingent Assets). These amendments are not expected to have a significant impact on the Group.
 
 
 Note 21: Other information
 
The financial information contained in this document does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006 (the Act). The statutory accounts for the year ended 31 December 2020 were approved by the directors on 23 February 2021 and were delivered to the Registrar of Companies on 28 April 2021. The auditors’ report on those accounts was unqualified and did not include a statement under sections 498(2) (accounting records or returns inadequate or accounts not agreeing with records and returns) or 498(3) (failure to obtain necessary information and explanations) of the Act.
 
 
 STATEMENT OF DIRECTORS' RESPONSIBILITIES
 
The directors listed below (being all the directors of Lloyds Banking Group plc) confirm that to the best of their knowledge these condensed consolidated half-year financial statements have been prepared in accordance with UK adopted International Accounting Standard 34, Interim Financial Reporting, and that the half-year management report herein includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R, namely:
 
1
an indication of important events that have occurred during the six months ended 30 June 2021 and their impact on the condensed consolidated half-year financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and
2
material related party transactions in the six months ended 30 June 2021 and any material changes in the related party transactions described in the last annual report.
 
 
Signed on behalf of the Board by
 
 
 
 
 
William Chalmers
Interim Group Chief Executive
28 July 2021
 
Lloyds Banking Group plc Board of directors:
 
Executive director:
William Chalmers (Interim Group Chief Executive and Chief Financial Officer)
 
Non-executive directors:
Robin Budenberg CBE (Chair)
Alan Dickinson (Deputy Chair)
Sarah Legg
Lord Lupton CBE
Amanda Mackenzie OBE
Nicholas Prettejohn
Stuart Sinclair
Catherine Woods
 
 
 INDEPENDENT REVIEW REPORT TO LLOYDS BANKING GROUP PLC
 
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and related notes 1 to 21. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
 
Directors’ responsibilities
 
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority.
 
The annual financial statements of the Group will be prepared in accordance with International Financial Reporting Standards as adopted by the United Kingdom. Accordingly, the condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with UK adopted International Accounting Standard 34, “Interim Financial Reporting”.
 
Our responsibility
 
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
 
Scope of review
 
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
 
Conclusion
 
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2021 is not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority.
 
Use of our report
 
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Financial Reporting Council. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
 
 
 
 
Deloitte LLP
 
 
Statutory Auditor
 
 
London, England
 
28 July 2021
 FORWARD LOOKING STATEMENTS
 
This document contains certain forward looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and section 27A of the US Securities Act of 1933, as amended, with respect to the business, strategy, plans and/or results of Lloyds Banking Group plc together with its subsidiaries (the Group) and its current goals and expectations relating to its future financial condition and performance. Statements that are not historical or current facts, including statements about the Group's or its directors' and/or management's beliefs and expectations, are forward looking statements. Words such as ‘believes’, ‘achieves’, ‘anticipates’, ‘estimates’, ‘expects’, ‘targets’, ‘should’, ‘intends’, ‘aims’, ‘projects’, ‘plans’, ‘potential’, ‘will’, ‘would’, ‘could’, ‘considered’, ‘likely’, ‘may’, ‘seek’, ‘estimate’, ‘probability’, ‘goal’, ‘objective’, ‘endeavour’, ‘prospects’, ‘optimistic’ and variations of these words and similar future or conditional expressions are intended to identify forward looking statements but are not the exclusive means of identifying such statements. Examples of such forward looking statements include, but are not limited to, statements or guidance relating to: projections or expectations of the Group’s future financial position including profit attributable to shareholders, provisions, economic profit, dividends, capital structure, portfolios, net interest margin, capital ratios, liquidity, risk-weighted assets (RWAs), expenditures or any other financial items or ratios; litigation, regulatory and governmental investigations; the Group’s future financial performance; the level and extent of future impairments and write-downs; the Group’s ESG targets and/or commitments; statements of plans, objectives or goals of the Group or its management including in respect of statements about the future business and economic environments in the UK and elsewhere including, but not limited to, future trends in interest rates, foreign exchange rates, credit and equity market levels and demographic developments; statements about competition, regulation, disposals and consolidation or technological developments in the financial services industry; and statements of assumptions underlying such statements. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend upon circumstances that will or may occur in the future. Factors that could cause actual business, strategy, plans and/or results (including but not limited to the payment of dividends) to differ materially from forward looking statements made by the Group or on its behalf include, but are not limited to: general economic and business conditions in the UK and internationally; market related trends and developments; fluctuations in interest rates, inflation, exchange rates, stock markets and currencies; any impact of the transition from IBORs to alternative reference rates; the ability to access sufficient sources of capital, liquidity and funding when required; changes to the Group’s credit ratings; the ability to derive cost savings and other benefits including, but without limitation, as a result of any acquisitions, disposals and other strategic transactions; potential changes in dividend policy; the ability to achieve strategic objectives; changing customer behaviour including consumer spending, saving and borrowing habits; changes to borrower or counterparty credit quality impacting the recoverability and value of balance sheet assets; concentration of financial exposure; management and monitoring of conduct risk; exposure to counterparty risk (including but not limited to third parties conducting illegal activities without the Group’s knowledge); instability in the global financial markets, including Eurozone instability, instability as a result of uncertainty surrounding the exit by the UK from the European Union (EU) and the EU-UK Trade and Cooperation Agreement, instability as a result of the potential for other countries to exit the EU or the Eurozone, and the impact of any sovereign credit rating downgrade or other sovereign financial issues; political instability including as a result of any UK general election and any further possible referendum on Scottish independence; technological changes and risks to the security of IT and operational infrastructure, systems, data and information resulting from increased threat of cyber and other attacks; natural, pandemic (including but not limited to the COVID-19 pandemic) and other disasters, adverse weather and similar contingencies outside the Group’s control; inadequate or failed internal or external processes or systems; acts of war, other acts of hostility, terrorist acts and responses to those acts, or other such events; geopolitical unpredictability; risks relating to sustainability and climate change, including the Group’s ability along with the government and other stakeholders to manage and mitigate the impacts of climate change effectively; changes in laws, regulations, practices and accounting standards or taxation, including as a result of the UK’s exit from the EU; changes to regulatory capital or liquidity requirements (including regulatory measures to restrict distributions to address potential capital and liquidity stress) and similar contingencies outside the Group’s control; the policies, decisions and actions of governmental or regulatory authorities or courts in the UK, the EU, the US or elsewhere including the implementation and interpretation of key laws, legislation and regulation together with any resulting impact on the future structure of the Group; the ability to attract and retain senior management and other employees and meet its diversity objectives; actions or omissions by the Group's directors, management or employees including industrial action; changes in the Group’s ability to develop sustainable finance products and the Group’s capacity to measure the ESG impact from its financing activity, which may affect the Group’s ability to achieve its climate ambition; changes to the Group's post-retirement defined benefit scheme obligations; the extent of any future impairment charges or write-downs caused by, but not limited to, depressed asset valuations, market disruptions and illiquid markets; the value and effectiveness of any credit protection purchased by the Group; the inability to hedge certain risks economically; the adequacy of loss reserves; the actions of competitors, including non-bank financial services, lending companies and digital innovators and disruptive technologies; and exposure to regulatory or competition scrutiny, legal, regulatory or competition proceedings, investigations or complaints. Please refer to the latest Annual Report on Form 20-F filed by Lloyds Banking Group plc with the US Securities and Exchange Commission (the SEC), which is available on the SEC’s website at www.sec.gov, for a discussion of certain factors and risks. Lloyds Banking Group plc may also make or disclose written and/or oral forward looking statements in reports filed with or furnished to the SEC, Lloyds Banking Group plc annual reviews, half-year announcements, proxy statements, offering circulars, prospectuses, press releases and other written materials and in oral statements made by the directors, officers or employees of Lloyds Banking Group plc to third parties, including financial analysts. Except as required by any applicable law or regulation, the forward looking statements contained in this document are made as of today's date, and the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this document to reflect any change in the Group’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The information, statements and opinions contained in this document do not constitute a public offer under any applicable law or an offer to sell any securities or financial instruments or any advice or recommendation with respect to such securities or financial instruments.
 
 
 SUMMARY OF ALTERNATIVE PERFORMANCE MEASURES
 
The Group calculates a number of metrics that are used throughout the banking and insurance industries on an underlying basis. A description of these measures and their calculation is set out below.
 
Asset quality ratio
 
The underlying impairment charge for the period (on an annualised basis) in respect of loans and advances to customers after releases and write-backs, expressed as a percentage of average gross loans and advances to customers for the period
 
Average interest-earning banking assets
 
Gross loans and advances to customers adjusted to remove fee-based and other non-banking balances, averaged over the period.
 
Banking net interest margin
 
Banking net interest income on customer and product balances in the banking businesses as a percentage of average gross banking interest-earning assets for the period
 
Cost:income ratio
 
Total costs as a percentage of net income calculated on an underlying basis
 
Loan to deposit ratio
 
Loans and advances to customers net of allowance for impairment losses and excluding reverse repurchase agreements divided by customer deposits excluding repurchase agreements on an underlying basis
 
Present value of new business premium
 
The total single premium sales received in the period (on an annualised basis) plus the discounted value of premiums expected to be received over the term of the new regular premium contracts
 
Return on risk-weighted assets
 
Underlying profit before tax divided by average risk-weighted assets
 
Return on tangible equity
 
Statutory profit after tax adjusted to deduct profit attributable to non-controlling interests and other equity holders, divided by average tangible net assets
 
Tangible net assets per share
 
Net assets excluding intangible assets such as goodwill and acquisition-related intangibles divided by the weighted average number of ordinary shares in issue
 
Underlying profit before impairment
 
Underlying profit adjusted to remove the underlying impairment charge
 
Underlying, or 'above the line' profit
 
Statutory profit before tax adjusted for certain items as detailed in the Basis of Presentation
 
 
 
 CONTACTS
 
For further information please contact:
 
INVESTORS AND ANALYSTS
 
Douglas Radcliffe
 
Group Investor Relations Director
 
020 7356 1571
 
douglas.radcliffe@lloydsbanking.com
 
 
Edward Sands
 
Director of Investor Relations
 
020 7356 1585
 
edward.sands@lloydsbanking.com
 
 
Eileen Khoo
 
Director of Investor Relations
 
07385 376435
 
eileen.khoo@lloydsbanking.com
 
 
Nora Thoden
 
Director of Investor Relations - ESG
 
020 7356 2334
 
nora.thoden@lloydsbanking.com
 
 
CORPORATE AFFAIRS
 
Grant Ringshaw
 
External Relations Director
 
020 7356 2362
 
grant.ringshaw@lloydsbanking.com
 
 
Matt Smith
 
Head of Media Relations
 
020 7356 3522
 
matt.smith@lloydsbanking.com
 
 
Copies of this News Release may be obtained from:
Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN
The statement can also be found on the Group’s website – www.lloydsbankinggroup.com
 
Registered office: Lloyds Banking Group plc, The Mound, Edinburgh, EH1 1YZ
Registered in Scotland No. 95000
 
 
 
Signatures
 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
LLOYDS BANKING GROUP plc
 (Registrant)
 
 
 
By: Douglas Radcliffe
Name: Douglas Radcliffe
Title: Group Investor Relations Director
 
 
 
 
 
Date: 29 July 2021