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LLOY Lloyds Bank

Filed: 30 Jul 20, 8:00pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

30 July 2020

 

Commission File number 001-15246

 

LLOYDS BANK plc

(Translation of registrant’s name into English)

 

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 of Form 20-F or Form 40-F.

 

Form 20-F x     Form 40-F  o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (1) o.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101 (b) (7) o.

 

This report on Form 6-K shall be deemed incorporated by reference into the Company’s Registration Statement (File No. 333-231902-01) and to be a part thereof from the date on which this report is filed, to the extent not superseded by documents or reports subsequently filed or furnished.

 

 

 


 

FORWARD LOOKING STATEMENTS

 

This document contains certain forward looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and section 27A of the US Securities Act of 1933, as amended, with respect to the business, strategy, plans and/or results of Lloyds Bank plc together with its subsidiaries (the Lloyds Bank Group) and its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about the Lloyds Bank Group’s or its directors’ and/or management’s beliefs and expectations, are forward looking statements.

 

Words such as ‘believes’, ‘anticipates’, ‘estimates’, ‘expects’, ‘intends’, ‘aims’, ‘potential’, ‘will’, ‘would’, ‘could’, ‘considered’, ‘likely’, ‘estimate’ and variations of these words and similar future or conditional expressions are intended to identify forward looking statements but are not the exclusive means of identifying such statements.

 

Examples of such forward looking statements include, but are not limited to: projections or expectations of the Lloyds Bank Group’s future financial position including profit attributable to shareholders, provisions, economic profit,  dividends, capital structure, portfolios, net interest margin, capital ratios, liquidity, risk-weighted assets (RWAs), expenditures or any other financial items or ratios; litigation, regulatory and governmental investigations;  the Lloyds Bank Group’s future financial performance; the level and extent of future impairments and write-downs; statements of plans, objectives or goals of the Lloyds Bank Group or its management including in respect of statements about the future business and economic environments in the UK and elsewhere including, but not limited to, future trends in interest rates, foreign exchange rates, credit and equity market levels and demographic developments; statements about competition, regulation,  disposals and consolidation or technological developments in the financial services industry; and statements of assumptions underlying such statements.

 

By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend upon circumstances that will or may occur in the future.

 

Factors that could cause actual business, strategy, plans and/or results (including but not limited to the payment of dividends) to differ materially from forward looking statements made by the Lloyds Bank Group or on its behalf include, but are not limited to: general economic and business conditions in the UK and internationally; market related trends and developments; fluctuations in interest rates, inflation, exchange rates, stock markets and currencies; any impact of the transition from IBORs to alternative reference rates; the ability to access sufficient sources of capital, liquidity and funding when required; changes to the Lloyds Bank Group’s or Lloyds Banking Group plc’s credit ratings; the ability to derive cost savings and other benefits including, but without limitation as a result of any acquisitions, disposals and other strategic transactions; the ability to achieve strategic objectives; changing customer behaviour including consumer spending, saving and borrowing habits; changes to borrower or counterparty credit quality; concentration of financial exposure; management and monitoring of conduct risk; instability in the global financial markets, including Eurozone instability, instability as a result of uncertainty surrounding the exit by the UK from the European Union (EU) and as a result of such exit and the potential for other countries to exit the EU or the Eurozone and the impact of any sovereign credit rating downgrade or other sovereign financial issues; political instability including as a result of any UK general election; technological changes and risks to the security of IT and operational infrastructure, systems, data and information resulting from increased threat of cyber and other attacks; natural, pandemic (including but not limited to the coronavirus disease (COVID-19) pandemic) and other disasters, adverse weather and similar contingencies outside the Lloyds Bank Group’s or Lloyds Banking Group plc’s control; inadequate or failed internal or external processes or systems; acts of war, other acts of hostility, terrorist acts and responses to those acts, geopolitical, pandemic or other such events; risks relating to climate change; changes in laws, regulations, practices and accounting standards or taxation, including as a result of the exit by the UK from the EU, or a further possible referendum on Scottish independence; changes to regulatory capital or liquidity requirements and similar contingencies outside the Lloyds Bank Group’s or Lloyds Banking Group plc’s control; the policies, decisions and actions of governmental or regulatory authorities or courts in the UK, the EU, the US or elsewhere including the implementation and interpretation of key legislation and regulation together with any resulting impact on the future structure of the Lloyds Bank Group; the ability to attract and retain senior management and other employees and meet its diversity objectives; actions or omissions by the Lloyds Bank Group’s directors, management or employees including industrial action; changes to the Lloyds Bank Group’s post-retirement defined benefit scheme obligations; the extent of any future impairment charges or write-downs caused by, but not limited to, depressed asset valuations, market disruptions and illiquid markets; the value and effectiveness of any credit protection purchased by the Lloyds Bank Group; the inability to hedge certain risks economically; the adequacy of loss reserves; the actions of competitors, including non-bank financial services, lending companies and digital innovators and disruptive technologies; and exposure to regulatory or competition scrutiny, legal, regulatory or competition proceedings, investigations or complaints. Please refer to the latest Annual Report on Form 20-F filed by Lloyds Bank plc with the US Securities and Exchange Commission for a discussion of certain factors and risks together with examples of forward looking statements.

 

Lloyds Banking Group may also make or disclose written and/or oral forward looking statements in reports filed with or furnished to the US Securities and Exchange Commission, Lloyds Banking Group annual reviews, half-year announcements, proxy statements, offering circulars, prospectuses, press releases and other written materials and in oral statements made by the directors, officers or employees of Lloyds Banking Group to third parties, including financial analysts.

 

Except as required by any applicable law or regulation, the forward looking statements contained in this document are made as of today’s date, and the Lloyds Bank Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this document to reflect any change in the Lloyds Bank Group’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The information, statements and opinions contained in this document do not constitute a public offer under any applicable law or an offer to sell any securities or financial instruments or any advice or recommendation with respect to such securities or financial instruments.

 


 

BASIS OF PRESENTATION

 

This report on Form 6-K contains the interim report of Lloyds Bank plc, which includes the unaudited consolidated interim results as at and for the half-year ended 30 June 2020 and is being incorporated by reference into the Registration Statement with File no. 333-231902-01.

 

The comparative information included in the consolidated financial statements presented in this Form 6-K differs from that provided in the Group’s UK results for the half-year ended 30 June 2020. As reported in the Group’s 2018 Form 20-F, an adjusting post balance sheet event that occurred between the signing of the Group’s 2018 UK Annual Report and Accounts and its 2018 Form 20-F resulted in the charge recognised in respect of PPI complaints in the Group’s 2018 Form 20-F being £649 million greater than that recorded in the Group’s 2018 UK Annual Report and Accounts. Consequently, the charge recognised by the Group in its UK results for the half-year ended 30 June 2019 was £649 million greater than in the comparatives for the half-year ended 30 June 2019 shown in this Form 6-K.

 


 

FINANCIAL REVIEW

 

Income statement

 

The Group’s results have been significantly affected by the coronavirus pandemic and its impact upon the UK economy.  During the half-year to 30 June 2020, the Group recorded a loss before tax of £290 million compared with a profit before tax in the half-year to 30 June 2019 of £3,356 million, a decrease of £3,646 million which was largely driven by a significantly increased impairment charge due to changes to the Group’s economic outlook.

 

Total income decreased by £848 million, or 10 per cent, to £7,766 million in the half-year to 30 June 2020 compared with £8,614 million in the half-year to 30 June 2019; there was a £454 million decrease in net interest income and a decrease of £394 million in other income.

 

Net interest income was £5,614 million in the half-year to 30 June 2020, a decrease of £454 million, or 7 per cent, compared to £6,068 million in the half-year to 30 June 2019. The net interest margin reduced as a result of the lower rate environment, actions taken to support customers, including free overdrafts, and a change in asset mix, partly as a result of reduced levels of customer demand during the coronavirus pandemic.  Average interest-earning assets were broadly stable with growth due to government-backed lending to support corporate customers through the coronavirus crisis offset by lower balances in the closed mortgage book and in the credit card portfolio, as well as the impact of balance sheet optimisation within Commercial Banking in the second half of 2019.

 

Other income was £394 million, or 15 per cent, lower at £2,152 million in the half-year to 30 June 2020 compared to £2,546 million in the half-year to 30 June 2019. Net fee and commission income was £129 million, or 19 per cent, lower at £533 million compared to £662 million in the half-year to 30 June 2019 reflecting lower levels of current account, card and other transaction banking income, following the introduction of coronavirus-related lockdown restrictions and corresponding lower levels of customer activity.  The reduction in fee income also reflects the impact of the sale of certain wealth management business to a fellow Lloyds Banking Group subsidiary during 2019. Net trading income was £72 million higher at £368 million compared to £296 million in the same period in 30 June 2019. Other operating income was £337 million, or 21 per cent, lower at £1,251 million compared to £1,588 million in the first half of 2019 reflecting lower operating lease rental income, in line with the reduced Lex Autolease vehicle fleet, and a reduced level of recharges to other Lloyds Banking Group entities as costs have fallen. During the half-year to 30 June 2019 the Group realised a profit of £107 million on the sale of certain wealth management businesses to a fellow Lloyds Banking Group subsidiary and a profit of £16 million on the transfer of private client asset management business to Cazenove Capital.

 

Operating expenses decreased by £238 million, or 5 per cent, to £4,431 million in the half-year to 30 June 2020 compared to £4,669 million in the half-year to 30 June 2019. There was a £40 million increase in regulatory provisions and a £278 million decrease in other operating expenses. The regulatory provisions charge was £158 million compared to £118 million in the half-year to 30 June 2019. No further provision has been taken for PPI in 2020. Good progress has been made with the review of PPI information requests received and the conversion rate remains low and consistent with the provision assumption of around 10 per cent, albeit operations have been impacted by the coronavirus pandemic in the second quarter. The unutilised provision at 30 June 2020 was £742 million.

 

Other operating costs were lower, despite continued investment in the Group’s digital proposition and bearing coronavirus-related costs.  This reflects continued cost discipline, efficiencies gained through digitalisation and other process improvements, lower bonus accruals and a lower level of restructuring costs, driven by the completion of the MBNA integration and lower severance costs relating to the Group’s strategic investment plans.

 

1


 

FINANCIAL REVIEW (continued)

 

The Group’s impairment charge increased by £3,036 million to £3,625 million in the half-year to 30 June 2020 compared to £589 million in the half-year to 30 June 2019, with the increase primarily driven by updates to the Group’s economic outlook. Impairment provisions reflect the net impact of economic scenarios and Government support programmes with the increase on prior year of more than £3 billion building additional balance sheet resilience. Observed credit quality remains robust with arrears and defaults remaining low. The Group recognises that this is likely to be influenced by the temporary support provided, including payment holidays and furlough arrangements. The expected credit loss (ECL) allowance as at 30 June 2020 assumes additional losses will emerge as the support subsides.

 

The Group’s ECL allowance continues to reflect a probability weighted view of future economic scenarios including a 30 per cent weighting of base case, upside and downside and a 10 per cent weighting of severe downside, although all scenarios have deteriorated significantly since the year end. The base case upon which these scenarios are built assumes unemployment rate reaches 9.0 per cent in the fourth quarter of 2020 and more sustained reductions in asset prices. Given the weightings attached to scenarios, the ECL represents an uplift of £506 million from the base case ECL.

 

Judgement has been applied to the model-generated severe downside scenario to recognise the greater levels of uncertainty in the short-term economic outlook and therefore a greater severity of potential adverse shocks from the base case. In this scenario, this results in a peak unemployment rate of 12.5 per cent in the second quarter of 2021 and a GDP drop of 17.2 per cent in 2020. The impact of this adjustment has been estimated at portfolio level but outside the core IFRS 9 process and as such is reflected as a central overlay of £200 million, reflecting an estimated £2 billion higher ECL provision within the severe downside scenario.

 

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

 

There was a tax credit of £594 million in the half-year to 30 June 2020 compared to a charge of £763 million in the half-year to 30 June 2019 reflecting the loss before tax in 2020 and a credit of £440 million arising on remeasurement of the Group’s deferred tax balances following the UK government’s decision to maintain the corporation tax rate at 19 per cent, which was substantively enacted on 17 March 2020.

 

Profit for the period, after tax, was £304 million compared to £2,593 million in the half-year to 30 June 2019.

 

Balance sheet and capital

 

Total assets were £26,276 million, or 5 per cent, higher at £607,644 million at 30 June 2020 compared to £581,368 million at 31 December 2019. Cash and balances at central banks were £12,095 million higher at £50,975 million reflecting the increased liquidity holdings. Financial assets at amortised cost increased by £7,942 million to £494,443 million at 30 June 2020 compared to £486,501 million at 31 December 2019, mainly as a result of a £6,530 million increase in reverse repurchase agreement balances, reflecting attractive rates for liquidity holdings.  Other loans and advances to customers, net of impairment allowances, were broadly flat as increased corporate and SME lending, reflecting take-up of Government support schemes, was offset by expected reductions in the mortgage book, lower credit card balances, where customer activity reduced during the first half of the year, and increased impairment allowances. Derivative balances were £2,296 million higher at £10,790 million compared to £8,494 million at 31 December 2019, this increase reflects movements in both interest rates and exchange rates, particularly the US dollar and Euro, over the first half of 2020.

 

2


 

FINANCIAL REVIEW (continued)

 

Total liabilities were £24,530 million, or 5 per cent, higher at £566,999 million compared to £542,469 million at 31 December 2019. Deposits from banks were £3,052 million higher at £26,645 million as the Group drew down on available funding facilities and customer deposits were £30,752 million, or 8 per cent, higher at £427,591 million compared to £396,839 million at 31 December 2019, as a result of growth in retail current accounts and commercial deposits.  Retail current accounts growth was significant, reflecting lower levels of customer spending as well as reliance on trusted brands; growth in Commercial Banking reflected strong relationships and increased liquidity positions in uncertain market conditions.  In part offsetting these increases, debt securities in issue were £10,275 million, or 13 per cent, lower at £66,156 million as the Group has taken advantage of other, more attractive, funding sources.

 

Total equity increased by £1,746 million, or 4 per cent, from £38,899 million at 31 December 2019 to £40,645 million at 30 June 2020, mainly due to the issuance of £1,070 million of other equity instruments and an increase in the net surplus relating to the Group’s post-retirement defined benefit schemes as credit spreads widened over the first six months of 2020.

 

The Group’s common equity tier 1 capital ratio increased to 14.6 per cent(1) from 14.3 per cent at 31 December 2019 as the impact of the impairment charge on the Group’s profits was largely mitigated through the increase in IFRS 9 transitional relief for capital. In addition, excess expected losses reduced to nil as they absorbed part of the increase in IFRS 9 expected credit losses. The resultant increases in capital were offset in part by pensions contributions made during the period and an increase in deferred tax assets and intangibles deducted from capital.

 

The tier 1 capital ratio increased to 18.8 per cent(1) from 18.3 per cent at 31 December 2019, primarily reflecting the increase in common equity tier 1 capital and new AT1 issuances, offset in part by the annual reduction in the transitional limit applied to grandfathered AT1 capital.

 

The total capital ratio increased to 22.5 per cent(1) from 22.1 per cent at 31 December 2019, which reflected the increase in tier 1 capital.

 

Risk-weighted assets increased by £1,371 million, or 1 per cent, to £173,311 million at 30 June 2020, compared to £171,940 million at 31 December 2019 largely reflecting the impact of credit migrations, retail model calibrations, and the full implementation of the new securitisation framework. These increases have been partially offset by reductions in underlying lending balances (excluding government backed lending schemes that attract limited to no risk-weighted assets), optimisation activity undertaken in Commercial Banking and the impact of the revised SME supporting factor.

 

The Group’s UK leverage ratio increased to 5.3 per cent(1), (31 December 2019: 5.1 per cent), primarily driven by the increase in tier 1 capital.

 


(1)

 

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

 

Capital position at 30 June 2020

 

The Group’s capital position as at 30 June 2020, incorporating profits for the period that remain subject to formal verification in accordance with the Capital Requirements Regulation and applying CRD IV transitional rules and IFRS 9 transitional arrangements, is set out in the following section.

 

3


 

FINANCIAL REVIEW (continued)

 

Capital ratios

 

Capital resources (transitional)

 

At
30 June
2020

 

At
31 Dec
2019

 

 

 

£m

 

£m

 

Common equity tier 1

 

 

 

 

 

Shareholders’ equity per balance sheet

 

34,635

 

33,973

 

Adjustment for own credit

 

28 

 

26

 

Cash flow hedging reserve

 

(1,667

)

(1,556

)

Other adjustments

 

1,894

 

397

 

 

 

34,890

 

32,840

 

Less: deductions from common equity tier 1

 

 

 

 

 

Goodwill and other intangible assets

 

(4,189

)

(4,050

)

Prudent valuation adjustment

 

(186

)

(220

)

Excess of expected losses over impairment provisions and value adjustments

 

 

(195

)

Removal of defined benefit pension surplus

 

(1,721

)

(531

)

Deferred tax assets

 

(3,541

)

(3,207

)

Common equity tier 1 capital

 

25,253

 

24,637

 

 

 

 

 

 

 

Additional tier 1

 

 

 

 

 

Additional tier 1 instruments

 

7,290

 

6,905

 

Total tier 1 capital

 

32,543

 

31,542

 

 

 

 

 

 

 

Tier 2

 

 

 

 

 

Tier 2 instruments

 

6,719

 

6,914

 

Other adjustments

 

(286

)

(480

)

Total tier 2 capital

 

6,433

 

6,434

 

 

 

 

 

 

 

Total capital resources

 

38,976

 

37,976

 

 

 

 

 

 

 

Risk-weighted assets

 

173,311

 

171,940

 

 

 

 

 

 

 

Common equity tier 1 capital ratio(1)

 

14.6

%

14.3

%

Tier 1 capital ratio(1)

 

18.8

%

18.3

%

Total capital ratio(1)

 

22.5

%

22.1

%

 


(1)              Reflecting the full impact of IFRS 9 at 30 June 2020, without the application of transitional arrangements, the Group’s common equity tier 1 capital ratio would be 13.5 per cent, the tier 1 capital ratio would be 17.7 per cent and the total capital ratio would be 22.0 per cent.

 

4


 

FINANCIAL REVIEW (continued)

 

 

 

At
30 June
2020

 

At
31 Dec
2019

 

 

 

£m

 

£m 

 

Risk-weighted assets

 

 

 

 

 

Foundation Internal Ratings Based (IRB) Approach

 

46,042

 

46,500

 

Retail IRB Approach

 

64,574

 

63,192

 

Other IRB Approach

 

12,044

 

11,722

 

IRB Approach

 

122,660

 

121,414

 

Standardised (STA) Approach

 

21,596

 

22,074

 

Credit risk

 

144,256

 

143,488

 

Counterparty credit risk

 

2,054

 

1,830

 

Credit valuation adjustment risk

 

279

 

271

 

Operational risk

 

24,086

 

24,413

 

Market risk

 

259

 

171

 

Underlying risk-weighted assets

 

170,934

 

170,173

 

Threshold risk-weighted assets (1)

 

2,377

 

1,767

 

Total risk-weighted assets

 

173,311

 

171,940

 

 

5


 

FINANCIAL REVIEW (continued)

 

 

 

Fully loaded

 

 

 

At 30 June
2020

 

At 31 Dec
2019

 

 

 

£m

 

£m

 

Leverage ratio

 

 

 

 

 

 

 

 

 

 

 

Total tier 1 capital for leverage ratio

 

 

 

 

 

Common equity tier 1 capital

 

25,253

 

24,637

 

Additional tier 1 capital

 

5,930

 

4,865

 

Total tier 1 capital

 

31,183

 

29,502

 

 

 

 

 

 

 

Exposure measure

 

 

 

 

 

Statutory balance sheet assets

 

 

 

 

 

Derivative financial instruments

 

10,790

 

8,494

 

Securities financing transactions

 

60,117

 

52,032

 

Loans and advances and other assets

 

536,737

 

520,842

 

Total assets

 

607,644

 

581,368

 

 

 

 

 

 

 

Qualifying central bank claims

 

(45,920

)

(33,408

)

 

 

 

 

 

 

Deconsolidation adjustments

 

 

 

 

 

Derivative financial instruments

 

8

 

32 

 

Loans and advances and other assets

 

(613

)

(1,326

)

Total deconsolidation adjustments

 

(605

)

(1,294

)

 

 

 

 

 

 

Derivatives adjustments

 

 

 

 

 

Adjustments for regulatory netting

 

(2,928

)

(2,430

)

Adjustments for cash collateral

 

(7,388

)

(6,869

)

Net written credit protection

 

155

 

148

 

Regulatory potential future exposure

 

7,593

 

8,186

 

Total derivatives adjustments

 

(2,568

)

(965

)

 

 

 

 

 

 

Securities financing transactions adjustments

 

1,546 

 

689 

 

 

 

 

 

 

 

Off-balance sheet items

 

44,302

 

44,172

 

 

 

 

 

 

 

Regulatory deductions and other adjustments

 

(14,538

)

(7,641

)

 

 

 

 

 

 

Total exposure measure

 

589,861

 

582,921

 

 

 

 

 

 

 

UK leverage ratio(1)

 

5.3

%

5.1

%

 

 

 

 

 

 

CRD IV leverage exposure measure

 

635,781

 

616,329

 

CRD IV leverage ratio

 

4.9

%

4.8

%

 


(1)              Reflecting the full impact of IFRS 9 at 30 June 2020, without the application of transitional arrangements, the Group’s UK leverage ratio would be 5.0 per cent.

 

A copy of the half-year Pillar 3 disclosures will be available to view from mid-August at: https://www.lloydsbankinggroup.com/investors/financial-performance/

 

6


 

PRINCIPAL RISKS AND UNCERTAINTIES

 

The significant risks faced by the Group are detailed below. There has been no change to the description of these risks since disclosed in the Group’s 2019 Annual Report on Form 20-F.

 

The external risks faced by the Group may also impact the success of delivering against the Group’s long-term strategic objectives. They include, but are not limited to the coronavirus pandemic, global macro-economic conditions, regulatory developments and the exit of the UK from the European Union.

 

Through the coronavirus pandemic, the Group has offered help and support to customers with a range of measures, for example with payment holidays and government lending schemes, and continues to actively monitor the outcomes to ensure fair customer treatment. Support has been prioritised for those customers in the most vulnerable situations and those who need help urgently. The Group has also been required to take a series of unprecedented actions to protect colleagues, and we has been proactive in limiting the impact with a number of mitigating actions to support colleagues’ safety and wellbeing. Transition planning, including continued engagement with colleagues, remains a key focus in ensuring that we continue to protect our colleagues and our services to customers as the situation continues to evolve and that any lessons learned from the pandemic can be embedded into our future working practices.

 

As at 24 July 2020, over 1.1 million retail payment holidays have been granted to help alleviate temporary financial pressure on customers during the crisis, of which around 750,000 are still in force. Payment holidays of up to three months have been granted across a range of retail products including mortgages, personal loans, credit cards and motor finance, with extensions available of up to three months should customers request them. Of the original payment holidays that have matured, 69 per cent have restarted payments. Across all products, customers who have sought to extend their payment holiday are typically of a lower credit quality than those who have not had a payment holiday, and tend to have higher average balances and lower credit scores. Retail payment holiday credit risk is captured in the modelled expected credit loss allowance. As seen in the evolving payment holiday data in July, around 30 per cent of customers on payment holidays have not recommenced payment, and the current stage 2 uplift captures c.25 per cent of all payment holiday customers.

 

The Group’s key cyber controls have continued to operate effectively during the coronavirus pandemic. During this period, the Group has also enhanced monitoring of key suppliers to protect the services received by Group and its ability to protect and maintain service to customers. The Group continues to work with the regulators constructively with regular engagement to ensure they are aware of the impacts on, and mitigating actions taken by, the Group.

 

The Group’s principal risks and uncertainties are reviewed and reported regularly to the Board in alignment with Lloyds Banking Group’s Enterprise Risk Management Framework. Climate risk is being proposed to be introduced as a principal risk category, reflecting the focus in this key area, and work already undertaken by the Group.

 

Change / Execution — The risk that, in delivering the change agenda, the Group fails to ensure compliance with laws and regulation, maintain effective customer service and availability, and/or operate within the Group’s approved risk appetite.

 

Data — The risk that the Group fails to effectively govern, manage, and control data (including data processed by third party suppliers) leading to unethical decisions, poor customer outcomes, loss of value to the Group and mistrust.

 

Operational Resilience — The risk that the Group fails to design resilience into business operations, underlying infrastructure and controls (people, process, technology) so that it is able to withstand external or internal events which could impact the continuation of operations, and fails to respond in a way which meets customer and stakeholder expectations and needs when the continuity of operations is compromised.

 

Strategic — The risks which result from strategic plans which do not adequately reflect trends in external factors, ineffective business strategy execution, or failure to respond in a timely manner to external environments or changes in stakeholder behaviours and expectations.

 

Credit — The risk that parties with whom the Group has contracted, fail to meet their financial obligations (both on and off balance sheet). For example observed, anticipated or unexpected changes in the economic environment could impact profitability due to an increase in delinquency, defaults, write-downs and/or expected credit losses.

 

7


 

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

 

Regulatory and Legal — The risk of financial penalties, regulatory censure, criminal or civil enforcement action or customer detriment as a result of failure to identify, assess, correctly interpret, comply with, or manage regulatory and/or legal requirements.

 

Conduct — The risk of customer detriment across the customer lifecycle including: failures in product management, distribution and servicing activities; from other risks materialising, or other activities which could undermine the integrity of the market or distort competition, leading to unfair customer outcomes, regulatory censure, reputational damage or financial loss.

 

Operational — The risk of loss from inadequate or failed internal processes, people and systems, or from external events.

 

People — The risk that the Group fails to provide an appropriate colleague and customer-centric culture, supported by robust reward and wellbeing policies and processes; effective leadership to manage colleague resources; effective talent and succession management; and robust control to ensure all colleague-related requirements are met.

 

Capital — The risk that the Group has a sub-optimal quantity or quality of capital or that capital is inefficiently deployed across Lloyds Banking Group.

 

Funding and Liquidity — Funding risk is the risk that the Group does not have sufficiently stable and diverse sources of funding or the funding structure is inefficient. Liquidity risk is the risk that the Group does not have sufficient financial resources to meet commitments when they fall due, or can only secure them at excessive cost.

 

Governance — The risk that the organisational infrastructure fails to provide robust oversight of decision making and the control mechanisms to ensure strategies and management instructions are implemented effectively.

 

Market — The risk that the Group’s capital or earnings profile is affected by adverse market rates, in particular interest rates and credit spreads in the banking business, and credit spreads in Lloyds Banking Group’s defined benefit pension schemes.

 

Model — The risk of financial loss, regulatory censure, reputational damage or customer detriment, as a result of deficiencies in the development, application and ongoing operation of models and rating systems.

 

Credit risk

 

Economic conditions have worsened in the first half of 2020 as the coronavirus crisis impact is felt. Given the challenging external environment and expectations of further economic deterioration, the impairment charge has increased significantly during the first half of 2020, predominantly driven by updates to the Group’s economic outlook as well as the impact on restructuring cases and single name charges. As a result, expected credit loss allowances increased. There are a number of headwinds which have the potential to further impact the portfolios, including uncertainty around future UK and global economic conditions with a risk of an increase in unemployment and further business failures as the various UK Government schemes wind down in the third quarter, the risk of a second wave of the virus and further, perhaps deeper, measures worsening the economy and the financial health of our customers. Outside of these, the possibility still remains of a no-deal end to the transition period of the UK exit from the European Union. In the context of the uncertainty, the Group’s risk appetite and risk management approach continues to help ensure that the Group takes timely and proactive actions.

 

Funding and liquidity risk

 

The Group has maintained its strong funding and liquidity position. In addition to its sizable liquid asset buffer the Group has a significant amount of pre-positioned collateral eligible for use in a range of central bank facilities, including the Bank of England’s Term Funding Scheme with additional incentives for SMEs (TFSME). The Group saw a significant increase in deposits in the first half given reduced customer spending and customers depositing government lending scheme balances. This increased the Group’s cash reserves balance held at the Bank of England and alongside available TFSME capacity reduces the need for additional wholesale funding in 2020.

 

8


 

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED INCOME STATEMENT

 

 

 

Note

 

Half-year
to 30 June
2020

 

 

Half-year
to 30 June
2019

 

 

 

 

 

 

£m 

 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and similar income

 

 

 

7,295

 

 

8,016

 

 

Interest and similar expense

 

 

 

(1,681

)

 

(1,948

)

 

Net interest income

 

 

 

5,614

 

 

6,068

 

 

Fee and commission income

 

 

 

954

 

 

1,193

 

 

Fee and commission expense

 

 

 

(421

)

 

(531

)

 

Net fee and commission income

 

3

 

533

 

 

662

 

 

Net trading income

 

 

 

368

 

 

296

 

 

Other operating income

 

 

 

1,251

 

 

1,588

 

 

Other income

 

 

 

2,152

 

 

2,546

 

 

Total income

 

 

 

7,766

 

 

8,614

 

 

Regulatory provisions

 

 

 

(158

)

 

(118

)

 

Other operating expenses

 

 

 

(4,273

)

 

(4,551

)

 

Total operating expenses

 

4

 

(4,431

)

 

(4,669

)

 

Trading surplus

 

 

 

3,335

 

 

3,945

 

 

Impairment

 

5

 

(3,625

)

 

(589

)

 

(Loss) profit before tax

 

 

 

(290

)

 

3.356

 

 

Tax credit (expense)

 

6

 

594

 

 

(763

)

 

Profit for the period

 

 

 

304

 

 

2,593

 

 

 

 

 

 

 

 

 

 

 

 

Profit attributable to ordinary shareholders

 

 

 

86

 

 

2,433

 

 

Profit attributable to other equity shareholders

 

 

 

204

 

 

139

 

 

Profit attributable to equity holders

 

 

 

290

 

 

2,572

 

 

Profit attributable to non-controlling interests

 

 

 

14

 

 

21

 

 

Profit for the period

 

 

 

304

 

 

2,593

 

 

 

9


 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 

 

 

Half-year
to 30 June
2020

 

 

Half-year
to 30 June
2019

 

 

 

 

£m 

 

 

£m 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

304

 

 

2,593

 

 

Other comprehensive income:

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Post-retirement defined benefit scheme remeasurements:

 

 

 

 

 

 

 

Remeasurements before tax

 

668

 

 

(173

)

 

Tax

 

(154

)

 

44

 

 

 

 

514

 

 

(129

)

 

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

 

 

 

 

 

 

 

Change in fair value

 

 

 

 

 

Tax

 

 

 

12

 

 

 

 

 

 

12

 

 

Gains and losses attributable to own credit risk:

 

 

 

 

 

 

 

Gains and (losses) before tax

 

(3

)

 

(303

)

 

Tax

 

1

 

 

82

 

 

 

 

(2

)

 

(221

)

 

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

 

(16

)

 

(55

)

 

Income statement transfers in respect of disposals

 

(137

)

 

(177

)

 

Impairment recognised in the income statement

 

6

 

 

 

 

Tax

 

41

 

 

69

 

 

 

 

(106

)

 

(163

)

 

Movement in cash flow hedging reserve:

 

 

 

 

 

 

 

Effective portion of changes in fair value

 

682

 

 

1,078

 

 

Net income statement transfers

 

(480

)

 

(231

)

 

Tax

 

(91

)

 

(228

)

 

 

 

111

 

 

619

 

 

Currency translation differences (tax: nil)

 

 

 

(5

)

 

Other comprehensive income for the period, net of tax

 

517

 

 

113

 

 

Total comprehensive income for the period

 

821

 

 

2,706

 

 

 

 

 

 

 

 

 

 

Total comprehensive income attributable to ordinary shareholders

 

603

 

 

2,546

 

 

Total comprehensive income attributable to other equity holders

 

204

 

 

139

 

 

Total comprehensive income attributable to equity holders

 

807

 

 

2,685

 

 

Total comprehensive income attributable to non-controlling interests

 

14

 

 

21

 

 

Total comprehensive income for the period

 

821

 

 

2,706

 

 

 

10


 

CONSOLIDATED BALANCE SHEET

 

 

 

Note

 

At
30 June
2020
(unaudited)

 

 

At
31 Dec
2019
(audited)

 

 

 

 

 

 

£m

 

 

£m

 

 

Assets

 

 

 

 

 

 

 

 

 

Cash and balances at central banks

 

 

 

50,975

 

 

38,880

 

 

Items in course of collection from banks

 

 

 

321

 

 

292

 

 

Financial assets at fair value through profit or loss

 

7

 

2,386

 

 

2,284

 

 

Derivative financial instruments

 

 

 

10,790

 

 

8,494

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks

 

 

 

7,070

 

 

4,852

 

 

Loans and advances to customers

 

 

 

481,235

 

 

474,470

 

 

Debt securities

 

 

 

5,213

 

 

5,325

 

 

Due from fellow Lloyds Banking Group undertakings

 

 

 

925

 

 

1,854

 

 

Financial assets at amortised cost

 

8

 

494,443

 

 

486,501

 

 

Financial assets at fair value through other comprehensive income

 

 

 

26,823

 

 

24,617

 

 

Goodwill

 

 

 

474

 

 

474

 

 

Other intangible assets

 

 

 

3,960

 

 

3,781

 

 

Property, plant and equipment

 

 

 

8,779

 

 

9,467

 

 

Current tax recoverable

 

 

 

908

 

 

4

 

 

Deferred tax assets

 

 

 

3,357

 

 

3,366

 

 

Retirement benefit assets

 

11

 

2,241

 

 

681

 

 

Other assets

 

 

 

2,187

 

 

2,527

 

 

Total assets

 

 

 

607,644

 

 

581,368

 

 

 

11


 

CONSOLIDATED BALANCE SHEET (continued)

 

 

 

Note

 

At
30 June
2020
(unaudited)

 

 

At
31 Dec
2019
(audited)

 

 

 

 

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

Equity and liabilities

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

Deposits from banks

 

 

 

26,645

 

 

23,593

 

 

Customer deposits

 

 

 

427,591

 

 

396,839

 

 

Due to fellow Lloyds Banking Group undertakings

 

 

 

6,502

 

 

4,893

 

 

Items in course of transmission to banks

 

 

 

304

 

 

354

 

 

Financial liabilities at fair value through profit or loss

 

 

 

9,102

 

 

7,702

 

 

Derivative financial instruments

 

 

 

9,254

 

 

9,831

 

 

Notes in circulation

 

 

 

1,256

 

 

1,079

 

 

Debt securities in issue

 

10

 

66,156

 

 

76,431

 

 

Other liabilities

 

 

 

5,520

 

 

5,600

 

 

Retirement benefit obligations

 

11

 

271

 

 

257

 

 

Current tax liabilities

 

 

 

24

 

 

166

 

 

Deferred tax liabilities

 

 

 

 

 

 

 

Other provisions

 

12

 

2,249

 

 

3,138

 

 

Subordinated liabilities

 

 

 

12,125

 

 

12,586

 

 

Total liabilities

 

 

 

566,999

 

 

542,469

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

Share capital

 

 

 

1,574

 

 

1,574

 

 

Share premium account

 

 

 

600

 

 

600

 

 

Other reserves

 

 

 

7,255

 

 

7,250

 

 

Retained profits

 

 

 

25,206

 

 

24,549

 

 

Shareholders’ equity

 

 

 

34,635

 

 

33,973

 

 

Other equity instruments

 

 

 

5,935

 

 

4,865

 

 

Total equity excluding non-controlling interests

 

 

 

40,570

 

 

38,838

 

 

Non-controlling interests

 

 

 

75

 

 

61

 

 

Total equity

 

 

 

40,645

 

 

38,899

 

 

Total equity and liabilities

 

 

 

607,644

 

 

581,368

 

 

 

12


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2020

 

2,174

 

 

7,250

 

 

24,549

 

 

33,973

 

 

4,865

 

 

61

 

 

38,899

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

 

 

 

 

86

 

 

86

 

 

204

 

 

14

 

 

304

 

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

 

 

 

(106

)

 

 

 

(106

)

 

 

 

 

 

(106

)

Equity shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

(2

)

 

(2

)

 

 

 

 

 

(2

)

Movements in cash flow hedging reserve, net of tax

 

 

 

111

 

 

 

 

111

 

 

 

 

 

 

111

 

Currency translation differences (tax: nil)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total other comprehensive income

 

 

 

5

 

 

512

 

 

517

 

 

 

 

 

 

517

 

Total comprehensive income (1)

 

 

 

5

 

 

598

 

 

603

 

 

204

 

 

14

 

 

821

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions on other equity instruments

 

 

 

 

 

 

 

 

 

(204

)

 

 

 

(204

)

Issue of other equity instruments

 

 

 

 

 

 

 

 

 

1,070

 

 

 

 

1,070

 

Capital contributions received

 

 

 

 

 

61

 

 

61

 

 

 

 

 

 

61

 

Return of capital contributions

 

 

 

 

 

(2

)

 

(2

)

 

 

 

 

 

(2

)

Total transactions with owners

 

 

 

 

 

59

 

 

59

 

 

866

 

 

 

 

925

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 30 June 2020

 

2,174

 

 

7,255

 

 

25,206

 

 

34,635

 

 

5,935

 

 

75

 

 

40,645

 

 


(1) Total comprehensive income attributable to owners of the parent for the half-year to 30 June 2020 was £807 million (half-year to 30 June 2019: £2,685 million; half-year to 31 December 2019: a deficit of £1,015 million).

 

13


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2019

 

2,174

 

 

6,965

 

 

27,321

 

 

36,460

 

 

3,217

 

 

73

 

 

39,750

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

 

 

 

 

2,433

 

 

2,433

 

 

139

 

 

21

 

 

2,593

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Post-retirement defined benefit scheme remeasurements, net of tax

 

 

 

 

 

(129

)

 

(129

)

 

 

 

 

 

(129

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

 

(163

)

 

 

 

(163

)

 

 

 

 

 

(163

)

Equity shares

 

 

 

12

 

 

 

 

12

 

 

 

 

 

 

12

 

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

 

 

 

 

 

(221

)

 

(221

)

 

 

 

 

 

(221

)

Movements in cash flow hedging reserve, net of tax

 

 

 

619

 

 

 

 

619

 

 

 

 

 

 

619

 

Currency translation differences (tax: nil)

 

 

 

(5

)

 

 

 

(5

)

 

 

 

 

 

(5

)

Total other comprehensive income

 

 

 

463

 

 

(350

)

 

113

 

 

 

 

 

 

113

 

Total comprehensive income

 

 

 

463

 

 

2,083

 

 

2,546

 

 

139

 

 

21

 

 

2,706

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 

 

 

 

(2,100

)

 

(2,100

)

 

 

 

 

 

(2,100

)

Distributions on other equity instruments

 

 

 

 

 

 

 

 

 

(139

)

 

 

 

(139

)

Capital contributions received

 

 

 

 

 

123

 

 

123

 

 

 

 

 

 

123

 

Return of capital contributions

 

 

 

 

 

(3

)

 

(3

)

 

 

 

 

 

(3

)

Changes in non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

(14

)

 

(14

)

Total transactions with owners

 

 

 

 

 

(1,980

)

 

(1,980

)

 

(139

)

 

(14

)

 

(2,133

)

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

 

 

 

(12

)

 

12

 

 

 

 

 

 

 

 

 

Balance at 30 June 2019

 

2,174

 

 

7,416

 

 

27,436

 

 

37,026

 

 

3,217

 

 

80

 

 

40,323

 

 

14


 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 July 2019

 

2,174

 

 

7,416

 

 

27,436

 

 

37,026

 

 

3,217

 

 

80

 

 

40,323

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

 

 

 

 

82

 

 

82

 

 

142

 

 

19

 

 

243

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Post-retirement defined benefit scheme remeasurements, net of tax

 

 

 

 

 

(988

)

 

(988

)

 

 

 

 

 

(988

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

 

4

 

 

 

 

4

 

 

 

 

 

 

4

 

Equity shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

(85

)

 

(85

)

 

 

 

 

 

(85

)

Movements in cash flow hedging reserve, net of tax

 

 

 

(173

)

 

 

 

(173

)

 

 

 

 

 

(173

)

Currency translation differences (tax: nil)

 

 

 

3

 

 

 

 

3

 

 

 

 

 

 

3

 

Total other comprehensive income

 

 

 

(166

)

 

(1,073

)

 

(1,239

)

 

 

 

 

 

(1,239

)

Total comprehensive income

 

 

 

(166

)

 

(991

)

 

(1,157

)

 

142

 

 

19

 

 

(996

)

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 

 

 

 

(2,000

)

 

(2,000

)

 

 

 

(38

)

 

(2,038

)

Distributions on other equity instruments

 

 

 

 

 

 

 

 

 

(142

)

 

 

 

(142

)

Issue of other equity instruments

 

 

 

 

 

 

 

 

 

1,648

 

 

 

 

1,648

 

Capital contributions received

 

 

 

 

 

106

 

 

106

 

 

 

 

 

 

106

 

Return of capital contributions

 

 

 

 

 

(2

)

 

(2

)

 

 

 

 

 

(2

)

Total transactions with owners

 

 

 

 

 

(1,896

)

 

(1,896

)

 

1,506

 

 

(38

)

 

(428

)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2019

 

2,174

 

 

7,250

 

 

24,549

 

 

33,973

 

 

4,865

 

 

61

 

 

38,899

 

 

15


 

CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

 

 

 

Half-year
to 30 June
2020

 

 

Half-year
to 30 June
2019

 

 

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

 

 

(Loss) profit before tax

 

(290

)

 

3,356

 

 

Adjustments for:

 

 

 

 

 

 

 

Change in operating assets

 

(11,743

)

 

7,666

 

 

Change in operating liabilities

 

23,967

 

 

(390

)

 

Non-cash and other items

 

3,221

 

 

(391

)

 

Tax paid

 

(648

)

 

(475

)

 

Net cash provided by operating activities

 

14,507

 

 

9,766

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

Purchase of financial assets

 

(7,029

)

 

(8,250

)

 

Proceeds from sale and maturity of financial assets

 

5,132

 

 

6,159

 

 

Purchase of fixed assets

 

(1,301

)

 

(1,819

)

 

Proceeds from sale of fixed assets

 

413

 

 

601

 

 

Disposal of businesses, net of cash disposed

 

 

 

107

 

 

Net cash used in investing activities

 

(2,785

)

 

(3,202

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

Dividends paid to ordinary shareholders

 

 

 

(2,100

)

 

Distributions on other equity instruments

 

(204

)

 

(139

)

 

Return of capital contribution

 

(2

)

 

(3

)

 

Interest paid on subordinated liabilities

 

(514

)

 

(530

)

 

Proceeds from issue of other equity instruments to parent company

 

1,070

 

 

 

 

Proceeds from issue of subordinated liabilities

 

281

 

 

 

 

Repayment of subordinated liabilities

 

(1,769

)

 

(512

)

 

Borrowings from parent company

 

2,270

 

 

2,211

 

 

Repayments to parent company

 

(136

)

 

(2,964

)

 

Interest paid on borrowing from parent company

 

(103

)

 

(383

)

 

Net cash provided by (used in) financing activities

 

893

 

 

(4,420

)

 

Effects of exchange rate changes on cash and cash equivalents

 

2

 

 

 

 

Change in cash and cash equivalents

 

12,617

 

 

2,144

 

 

Cash and cash equivalents at beginning of period

 

38,614

 

 

39,723

 

 

Cash and cash equivalents at end of period

 

51,231

 

 

41,867

 

 

 

Cash and cash equivalents comprise cash and balances at central banks (excluding mandatory deposits) and amounts due from banks with a maturity of less than three months.

 

16


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.         Accounting policies, presentation and estimates

 

These condensed consolidated half-year financial statements as at and for the period to 30 June 2020 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (FCA) and with International Accounting Standard 34 (IAS 34), Interim Financial Reporting and comprise the results of Lloyds Bank plc (the Bank) together with its subsidiaries (the Group). They do not include all of the information required for full annual financial statements and should be read in conjunction with the Group’s consolidated financial statements as at and for the year ended 31 December 2019 which were prepared in accordance with International Financial Reporting Standards (IFRS). Copies of the 2019 Annual Report on Form 20-F are available on the Lloyds Banking Group’s website.

 

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 considered the implications of the COVID-19 pandemic upon the Group’s performance and projected funding and capital position and also taken into account the impact of further stress scenarios. On this basis, the directors are satisfied that the Group will maintain adequate levels of funding and capital for the foreseeable future.

 

The accounting policies are consistent with those applied by the Group in its 2019 Annual Report on Form 20-F.

 

Future accounting developments

 

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

 

Critical accounting estimates and judgements

 

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

 

Allowance for impairment losses

 

At 30 June 2020 the Group’s expected credit loss allowance (ECL) was £6,220 million (31 December 2019: £3,380 million), of which £5,758 million (31 December 2019: £3,207 million) was in respect of drawn balances. The calculation of the Group’s ECL allowances and its provisions against loan commitments and guarantees under IFRS 9 requires the Group to make a number of judgements, assumptions and estimates.

 

18


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.         Accounting policies, presentation and estimates (continued)

 

Forward-looking information

 

The measurement of expected credit losses is required to reflect an unbiased probability-weighted range of possible future outcomes. In order to do this, the Group has developed an economic model to project a wide range of key impairment drivers using information derived mainly from external sources. These drivers include factors such as the unemployment rate, the house price index, commercial property prices and corporate credit spreads. The model-generated economic scenarios for the six years beyond 2020 are mapped to industry-wide historical loss data by portfolio. Combined losses across portfolios are used to rank the scenarios by severity of loss.

 

Alongside a defined central economic scenario, reflecting the Group’s base case assumptions used for medium-term planning purposes, three further economic scenarios are generated to represent the range of future outcomes. The upside, downside and severe downside scenarios are produced by averaging across a group of constituent scenarios around the 15th, 75th and 95th percentiles of the estimated loss distribution around the central case, with the central case expected to lie in the vicinity of the 45th percentile. These locations correspond to scenario weightings that allow for the inclusion of a relatively unlikely severe downside scenario associated with relatively large credit losses. At 31 December 2019 and 30 June 2020, the base case, upside and downside scenarios each carry a 30 per cent weighting, while the severe downside scenario is weighted at 10 per cent. The weights reflect the location of the economic scenarios on the estimated loss distribution.

 

Following review of the severe downside scenario generated by the modelled approach described above, a judgement was made to increase the severity of GDP and unemployment dispersion from the base case. Whilst the modelled approach gives an unbiased method of creating a loss distribution, it is built on historic experience that does not yet fully capture the unprecedented complexities of the current economic environment and the risk of inflated near-term shocks. The impact of this change has been reflected as a central overlay to reflect the incremental ECL estimated outside the core ECL calculation process. The following economic assumptions include both the modelled severe scenario — used in portfolio level ECL and staging assessment, and the adjusted severe downside - used to generate the final ECL through a central overlay in recognition of more adverse economic outcomes.

 

The key UK economic assumptions made by the Group are shown below. Compounded growth rates have been calculated on a geometric average basis, they were previously calculated on an arithmetic average basis:

 

Impact of economic assumptions

 

 

 

Base case

 

Upside

 

Downside

 

Modelled
severe

 

Adjusted
severe

 

 

 

%

 

%

 

%

 

%

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

 

 

 

 

 

 

 

 

 

 

GDP

 

0.4

 

0.8

 

0.3

 

(0.4

)

(0.8

)

Interest rate

 

0.15

 

1.06

 

0.16

 

0.03

 

0.03

 

Unemployment rate

 

6.0

 

5.5

 

7.1

 

8.1

 

8.8

 

House price growth

 

0.4

 

4.7

 

(4.8

)

(9.6

)

(9.6

)

Commercial real estate price growth

 

(0.6

)

2.7

 

(3.5

)

(8.0

)

(8.0

)

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

GDP

 

1.4

 

1.7

 

1.2

 

0.5

 

n/a

 

Interest rate

 

1.25

 

2.04

 

0.49

 

0.11

 

n/a

 

Unemployment rate

 

4.3

 

3.9

 

5.8

 

7.2

 

n/a

 

House price growth

 

1.0

 

4.8

 

(3.2

)

(7.7

)

n/a

 

Commercial real estate price growth

 

0.0

 

1.8

 

(3.8

)

(7.1

)

n/a

 

 

19


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.                            Accounting policies, presentation and estimates (continued)

 

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

 

Economic assumptions — start to peak

 

 

 

Base case

 

Upside

 

Downside

 

Modelled
severe

 

Adjusted
severe

 

 

 

%

 

%

 

%

 

%

 

%

 

At 30 June 2020

 

 

 

 

 

 

 

 

 

 

 

GDP

 

1.9

 

4.0

 

1.7

 

(1.8

)

(2.0

)

Interest rate

 

0.25

 

1.50

 

0.21

 

0.10

 

0.10

 

Unemployment rate

 

9.0

 

8.6

 

9.2

 

9.7

 

12.5

 

House price growth

 

2.1

 

25.8

 

0.4

 

0.4

 

0.4

 

Commercial real estate price growth

 

(2.7

)

14.8

 

(2.7

)

(2.7

)

(2.7

)

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

GDP

 

7.0

 

8.6

 

6.2

 

2.7

 

n/a

 

Interest rate

 

1.75

 

2.56

 

0.75

 

0.75

 

n/a

 

Unemployment rate

 

4.6

 

4.6

 

6.9

 

8.3

 

n/a

 

House price growth

 

5.2

 

26.3

 

(1.9

)

(2.3

)

n/a

 

Commercial real estate price growth

 

0.1

 

10.4

 

(0.6

)

(1.1

)

n/a

 

 

Economic assumptions — start to trough

 

 

 

Base case

 

Upside

 

Downside

 

Modelled
severe

 

Adjusted
severe

 

 

 

%

 

%

 

%

 

%

 

%

 

At 30 June 2020

 

 

 

 

 

 

 

 

 

 

 

GDP

 

(19.7

)

(19.5

)

(19.8

)

(20.2

)

(26.1

)

Interest rate

 

0.10

 

0.10

 

0.08

 

0.01

 

0.01

 

Unemployment rate

 

3.9

 

3.9

 

3.9

 

3.9

 

3.9

 

House price growth

 

(6.1

)

(3.8

)

(21.6

)

(39.7

)

(39.7

)

Commercial real estate price growth

 

(20.0

)

(11.5

)

(27.2

)

(42.3

)

(42.3

)

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

GDP

 

0.4

 

0.7

 

0.2

 

(2.7

)

n/a

 

Interest rate

 

0.75

 

0.75

 

0.35

 

0.01

 

n/a

 

Unemployment rate

 

3.8

 

3.4

 

3.9

 

3.9

 

n/a

 

House price growth

 

(2.7

)

(0.8

)

(14.8

)

(33.1

)

n/a

 

Commercial real estate price growth

 

(0.9

)

0.3

 

(17.5

)

(30.9

)

n/a

 

 

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

 

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

 

20


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.                            Accounting policies, presentation and estimates (continued)

 

Scenarios by year

 

 

 

2020

 

2021

 

2022

 

2020-22

 

 

 

%

 

%

 

%

 

%

 

Base Case

 

 

 

 

 

 

 

 

 

GDP

 

(10.0

)

6.0

 

3.0

 

(1.8

)

Interest rate

 

0.10

 

0.10

 

0.10

 

0.10

 

Unemployment rate

 

7.2

 

7.0

 

5.7

 

6.7

 

House price growth

 

(6.0

)

(0.1

)

2.9

 

(3.3

)

Commercial real estate price growth

 

(20.0

)

10.0

 

4.0

 

(8.5

)

 

 

 

 

 

 

 

 

 

 

Upside

 

 

 

 

 

 

 

 

 

GDP

 

(9.5

)

7.5

 

3.1

 

0.3

 

Interest rate

 

0.21

 

1.15

 

1.42

 

0.92

 

Unemployment rate

 

7.1

 

6.2

 

4.9

 

6.1

 

House price growth

 

(3.7

)

5.0

 

9.0

 

10.2

 

Commercial real estate price growth

 

(8.4

)

18.6

 

3.4

 

12.4

 

 

 

 

 

 

 

 

 

 

 

Downside

 

 

 

 

 

 

 

 

 

GDP

 

(10.2

)

5.8

 

3.1

 

(2.0

)

Interest rate

 

0.09

 

0.12

 

0.19

 

0.13

 

Unemployment rate

 

7.3

 

7.7

 

6.8

 

7.3

 

House price growth

 

(8.0

)

(6.1

)

(4.5

)

(17.5

)

Commercial real estate price growth

 

(27.2

)

4.0

 

2.9

 

(22.1

)

 

 

 

 

 

 

 

 

 

 

Severe downside - Modelled

 

 

 

 

 

 

 

 

 

GDP

 

(10.9

)

3.0

 

2.2

 

(6.2

)

Interest rate

 

0.06

 

0.01

 

0.02

 

0.03

 

Unemployment rate

 

7.5

 

8.9

 

8.4

 

8.3

 

House price growth

 

(9.5

)

(11.5

)

(11.7

)

(29.2

)

Commercial real estate price growth

 

(36.2

)

(7.8

)

(1.4

)

(41.9

)

 

 

 

 

 

 

 

 

 

 

Severe downside - Adjusted

 

 

 

 

 

 

 

 

 

GDP

 

(17.2

)

4.1

 

5.2

 

(9.4

)

Interest rate

 

0.06

 

0.01

 

0.02

 

0.03

 

Unemployment rate

 

8.0

 

11.6

 

9.2

 

9.6

 

House price growth

 

(9.5

)

(11.5

)

(11.7

)

(29.2

)

Commercial real estate price growth

 

(36.2

)

(7.8

)

(1.4

)

(41.9

)

 

Base Case Scenario by Quarter

 

 

 

2020
Q1

 

2020
Q2

 

2020
Q3

 

2020
Q4

 

2021
Q1

 

2021
 Q2

 

2021
Q3

 

2021
Q4

 

 

 

%

 

%

 

%

 

%

 

%

 

%

 

%

 

%

 

Base Case

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GDP

 

(1.6

)

(19.3

)

(10.9

)

(8.1

)

(4.7

)

18.1

 

7.7

 

5.1

 

Interest rate

 

0.10

 

0.10

 

0.10

 

0.10

 

0.10

 

0.10

 

0.10

 

0.10

 

Unemployment rate

 

3.9

 

7.5

 

8.5

 

9.0

 

8.0

 

7.4

 

6.6

 

6.2

 

House price growth

 

2.8

 

0.9

 

(2.4

)

(6.0

)

(6.3

)

(4.0

)

(1.1

)

(0.1

)

Commercial real estate price growth

 

(5.0

)

(12.3

)

(19.9

)

(20.0

)

(14.4

)

(3.7

)

7.7

 

10.0

 

 

21


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.                            Accounting policies, presentation and estimates (continued)

 

Impact of multiple economic scenarios

 

The following table shows the extent to which a higher ECL allowance has been recognised to take account of forward-looking information from the weighted multiple economic scenarios (MES). The Group’s probability-weighted ECL allowance continues to reflect a 30 per cent weighting of base case, upside and downside and a 10 per cent weighting of adjusted severe downside. The majority of post-model adjustments and all individually assessed provisions, although assessed on a range of multiple case specific outcomes, are reported flat under each economic scenario. At 30 June 2020 the impact of MES was an increase of £506 million to the base case (31 December 2019: £191 million).

 

 

 

Probability-

 

 

 

 

 

 

 

Severe

 

 

 

weighted

 

Upside

 

Base case

 

Downside

 

downside

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

UK Mortgages

 

1,111

 

773

 

929

 

1,264

 

2,214

 

Other Retail

 

2,404

 

2,208

 

2,383

 

2,510

 

2,741

 

Commercial Banking

 

2,479

 

2,157

 

2,376

 

2,661

 

3,208

 

Other

 

226

 

26

 

26

 

27

 

2,027

 

At 30 June 2020

 

6,220

 

5,164

 

5,714

 

6,462

 

10,190

 

 

 

 

 

 

 

 

 

 

 

 

 

UK Mortgages

 

569

 

317

 

464

 

653

 

1,389

 

Other Retail

 

1,521

 

1,443

 

1,492

 

1,564

 

1,712

 

Commercial Banking

 

1,224

 

1,124

 

1,167

 

1,289

 

1,496

 

Other

 

66

 

66

 

66

 

66

 

66

 

At 31 December 2019

 

3,380

 

2,950

 

3,189

 

3,572

 

4,663

 

 

Sensitivity of ECL to key economic variables

 

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

 

 

 

At 30 June 2020

 

At 31 December 2019

 

 

 

10pp increase
in HPI

 

10 pp decrease
in HPI

 

10pp increase
in HPI

 

10 pp decrease
in HPI

 

ECL impact, £m

 

(149

)

185

 

(110

)

147

 

 

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

 

 

 

At 30 June 2020

 

At 31 December 2019

 

 

 

1pp increase in
unemployment

 

1pp decrease in
unemployment

 

1pp increase in
unemployment

 

1 pp decrease in
unemployment

 

ECL impact, £m

 

294

 

(276

)

141

 

(143

)

 

22


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.                            Accounting policies, presentation and estimates (continued)

 

Post-model adjustments

 

Limitations in the Group’s impairment models or input data may be identified through the on-going assessment and validation of the output of the models. In these circumstances, management make appropriate adjustments to the Group’s allowance for impairment losses to ensure the overall provision adequately reflects all material risks. These adjustments are generally determined taking into account the particular attributes of the exposure which have not been adequately captured by the primary impairment models. At 30 June 2020 the incorporation of the changes in the economic outlook required an additional £636 million of post model adjustments; other adjustments increased to £377 million from £161 million at 31 December 2019.

 

 

 

Modelled
ECL

 

Economic
outlook
post-model
adjustments

 

Other
post-model
adjustments

 

Total ECL

 

 

 

£m

 

£m

 

£m

 

£m

 

UK Mortgages

 

803

 

50

 

258

 

1,111

 

Other Retail

 

2,008

 

358

 

38

 

2,404

 

Commercial Banking

 

2,370

 

28

 

81

 

2,479

 

Other

 

26

 

200

 

 

226

 

At 30 June 2020

 

5,207

 

636

 

377

 

6,220

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

3,219

 

 

161

 

3,380

 

 

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

 

At 30 June 2020, other post-model adjustments amounted to £377 million of which £258 million relates to UK Mortgages. This comprises increases for the additional end of term risk on interest-only mortgages of £171 million (31 December 2019: £132 million); accounts in long-term default of £34 million (31 December 2019: £33 million); additional risk on forborne accounts, £21 million, and adjustments to possession rate levels, £32 million. In Other Retail post-model adjustments reflect the extension of modelled lifetime on revolving products of £38 million (31 December 2019: £36 million). All post-model adjustments are reviewed at least half-yearly and are subject to strict internal governance and controls.

 

Significant increase in credit risk

 

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

 

23


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.                            Accounting policies, presentation and estimates (continued)

 

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

 

Definition of default

 

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

 

Loss given default

 

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

 

Financial instrument valuations

 

The Group categorises financial instruments carried on the balance sheet at fair value using a three level hierarchy. Financial instruments categorised as level 1 are valued using quoted market prices and therefore minimal estimates are made in determining fair value. The fair value of financial instruments categorised as level 2 and, in particular, level 3 is determined using valuation techniques which involve management judgement and estimates the extent of which depends on the complexity of the instrument and the availability of market observable information. The pandemic has had a significant impact on the fair values of the financial assets and financial liabilities, particularly those that are valued with reference to unobservable interest rate spreads and interest rate volatility, including the funding valuation adjustment on its uncollateralised derivatives. Further details on the valuation of level 3 assets and liabilities, including significant unobservable inputs used in the valuation models, together with the effects of reasonably possible alternative assumptions, are given in note 14.

 

24


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

2.                            Segmental analysis

 

The Group provides a wide range of banking and financial services in the UK and in certain locations overseas. The Group Executive Committee (GEC) of Lloyds Bank plc has been determined to be the chief operating decision maker for the Group.

 

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

 

There has been no change to the Group’s segmental accounting for internal segment services or derivatives entered into by units for risk management purposes since 31 December 2019.

 

Half-year to 30 June 2020

 

Retail

 

Commercial
Banking

 

Other

 

Total

 

 

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

4,202

 

1,180

 

232

 

5,614

 

Other income

 

927

 

300

 

925

 

2,152

 

Total income

 

5,129

 

1,480

 

1,157

 

7,766

 

Costs

 

(2,879

)

(827

)

(725

)

(4,431

)

Trading surplus

 

2,250

 

653

 

432

 

3,335

 

Impairment

 

(2,095

)

(1,328

)

(202

)

(3,625

)

Profit (loss) before tax

 

155

 

(675

)

230

 

(290

)

 

 

 

 

 

 

 

 

 

 

External income

 

5,951

 

1,223

 

592

 

7,766

 

Intersegment income

 

(822

)

257

 

565

 

 

Total income

 

5,129

 

1,480

 

1,157

 

7,766

 

 

 

 

 

 

 

 

 

 

 

Total external assets

 

349,485

 

91,247

 

166,912

 

607,644

 

Total external liabilities

 

278,950

 

134,638

 

153,411

 

566,999

 

 

25


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

2.                            Segmental analysis (continued)

 

Half-year to 30 June 2019 (1)

 

Retail

 

Commercial
Banking

 

Other

 

Total

 

 

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

4,520

 

1,371

 

177

 

6,068

 

Other income

 

1,012

 

459

 

1,075

 

2,546

 

Total income

 

5,532

 

1,830

 

1,252

 

8,614

 

Costs

 

(2,915

)

(923

)

(831

)

(4,669

)

Trading surplus

 

2,617

 

907

 

421

 

3,945

 

Impairment

 

(556

)

(64

)

31

 

(589

)

Profit before tax

 

2,061

 

843

 

452

 

3,356

 

 

 

 

 

 

 

 

 

 

 

External income

 

6,456

 

1,375

 

783

 

8,614

 

Intersegment income

 

(924

)

455

 

469

 

 

Total income

 

5.532

 

1,830

 

1,252

 

8,614

 

 

 

 

 

 

 

 

 

 

 

Total external assets

 

347,221

 

98,596

 

147,102

 

592,919

 

Total external liabilities

 

260,394

 

127,691

 

164,511

 

552,596

 

 


(1)         Restated, see page 25.

 

3.         Net fee and commission income

 

 

 

Half-year
to 30 June
2020

 

 

Half-year
to 30 June
2019

 

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

Fee and commission income:

 

 

 

 

 

 

Current accounts

 

305

 

 

322

 

Credit and debit card fees

 

344

 

 

460

 

Commercial banking and treasury fees

 

72

 

 

80

 

Private banking and asset management

 

 

 

37

 

Factoring

 

42

 

 

53

 

Other

 

191

 

 

241

 

Total fee and commission income

 

954

 

 

1,193

 

Fee and commission expense

 

(421

)

 

(531

)

Net fee and commission income

 

533

 

 

662

 

 

Current account and credit and debit card fees principally arise in Retail, and commercial banking, treasury and factoring fees arise in Commercial Banking.

 

26


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

4.         Operating expenses

 

 

 

Half-year
to 30 June
2020

 

 

Half-year
to 30 June
2019

 

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

Administrative expenses:

 

 

 

 

 

 

Staff costs

 

1,773

 

 

2,043

 

Premises and equipment

 

225

 

 

221

 

Other expenses

 

901

 

 

1,015

 

 

 

2,899

 

 

3,279

 

Depreciation and amortisation

 

1,374

 

 

1,272

 

Total operating expenses, excluding regulatory provisions

 

4,273

 

 

4,551

 

Regulatory provisions (note 12):

 

 

 

 

 

 

Payment protection insurance provision

 

 

 

 

Other regulatory provisions

 

158

 

 

118

 

 

 

158

 

 

118

 

Total operating expenses

 

4,431

 

 

4,669

 

 

5.         Impairment

 

 

 

Half-year to

 

 

Half-year to

 

 

 

30 June

 

 

30 June

 

 

 

2020

 

 

2019

 

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

1,236

 

 

379

 

Other changes in credit quality

 

1,952

 

 

220

 

Additions (repayments)

 

181

 

 

(56

)

Methodology, model and assumption changes

 

56

 

 

45

 

Other items

 

200

 

 

1

 

 

 

2,389

 

 

210

 

Total impairment charge

 

3,625

 

 

589

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

Loans and advances to banks

 

14

 

 

 

Loans and advances to customers

 

3,314

 

 

610

 

Debt securities

 

1

 

 

 

Due from fellow Lloyds Banking Group undertakings

 

1

 

 

(1

)

Financial assets at amortised cost

 

3,330

 

 

609

 

Other assets

 

 

 

 

Impairment charge on drawn balances

 

3,330

 

 

609

 

Loan commitments and financial guarantees

 

289

 

 

(20

)

Financial assets at fair value through other comprehensive income

 

6

 

 

 

Total impairment charge

 

3,625

 

 

589

 

 

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

 

27


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

5.         Impairment (continued)

 

The Group’s impairment charge comprises the following:

 

Impact of transfers between stages

 

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

 

Other changes in credit quality

 

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

 

Additions (repayments)

 

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

 

Methodology, model and assumption changes

 

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

 

Other items

 

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

 

28


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

6.         Taxation

 

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

 

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

 

 

 

Half-year
to 30 June
2020

 

Half-year
to 30 June
2019

 

 

 

£m 

 

£m 

 

 

 

 

 

 

 

(Loss) profit before tax

 

(290

)

3,356

 

 

 

 

 

 

 

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

 

55

 

(638

)

Impact of surcharge on banking profits

 

17

 

(241

)

Non-deductible costs: conduct charges

 

(11

)

(15

)

Other non-deductible costs

 

(38

)

(17

)

Non-taxable income

 

53

 

32

 

Tax relief on coupons on other equity instruments

 

39

 

26

 

Tax exempt gains on disposals

 

 

3

 

Tax losses where no deferred tax recognised

 

(5

)

(3

)

Remeasurement of deferred tax due to rate changes

 

440

 

(2

)

Differences in overseas tax rates

 

10

 

(8

)

Adjustments in respect of prior years

 

34

 

100

 

Tax credit (expense)

 

594

 

(763

)

 

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

 

7.         Financial assets at fair value through profit or loss

 

 

 

At
30 June
2020

 

 

At
31 Dec
2019

 

 

 

£m 

 

 

£m 

 

 

 

 

 

 

 

 

Trading assets

 

246

 

 

290

 

 

 

 

 

 

 

 

Other financial assets at fair value through profit or loss:

 

 

 

 

 

 

Loans and advances to customers

 

1,934

 

 

1,782

 

Debt securities

 

 

 

47

 

Equity shares

 

206

 

 

165

 

 

 

2,140

 

 

1,994

 

Total financial assets at fair value through profit or loss

 

2,386

 

 

2,284

 

 

29


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

8.                            Financial assets at amortised cost

 

Half-year to 30 June 2020

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

or
originated

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

impaired

 

Total

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

Loans and advances to banks

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

4,852

 

 

 

 

4,852

 

Exchange and other adjustments

 

238

 

 

 

 

238

 

Additions (repayments)

 

1,995

 

 

 

 

1,995

 

At 30 June 2020

 

7,085

 

 

 

 

7,085

 

Allowance for impairment losses

 

(15

)

 

 

 

(15

)

Total loans and advances to banks

 

7,070

 

 

 

 

7,070

 

 

Loans and advances to customers

 

At 1 January 2020

 

429,767

 

 

28,505

 

 

5,647

 

 

13,714

 

 

477,633

 

Exchange and other adjustments

 

1,853

 

 

26

 

 

5

 

 

(54

)

 

1,830

 

Additions (repayments)

 

9,473

 

 

122

 

 

(791

)

 

(593

)

 

8,211

 

Transfers to Stage 1

 

3,152

 

 

(3,143

)

 

(9

)

 

 

 

 

 

Transfers to Stage 2

 

(32,072

)

 

32,416

 

 

(344

)

 

 

 

 

 

Transfers to Stage 3

 

(1,058

)

 

(1,569

)

 

2,627

 

 

 

 

 

 

 

 

(29,978

)

 

27,704

 

 

2,274

 

 

 

 

 

 

Recoveries

 

 

 

 

 

 

 

86

 

 

 

 

86

 

Financial assets that have been written off

 

 

 

 

 

 

 

(761

)

 

(24

)

 

(785

)

At 30 June 2020

 

411,115

 

 

56,357

 

 

6,460

 

 

13,043

 

 

486,975

 

Allowance for impairment losses

 

(1,300

)

 

(2,141

)

 

(1,974

)

 

(325

)

 

(5,740

)

Total loans and advances to customers

 

409,815

 

 

54,216

 

 

4,486

 

 

12,718

 

 

481,235

 

 

Debt securities

 

At 1 January 2020

 

5,325

 

 

1

 

 

5,326

 

Exchange and other adjustments

 

102

 

 

 

 

102

 

Additions (repayments)

 

(213

)

 

 

 

(213

)

Financial assets that have been written off

 

 

 

 

 

 

 

 

At 30 June 2020

 

5,214

 

 

1

 

 

5,215

 

Allowance for impairment losses

 

(1

)

 

(1

)

 

(2

)

Total debt securities

 

5,213

 

 

 

 

5,213

 

 

Due from fellow Lloyds Banking Group undertakings

 

Due from fellow Lloyds Banking Group undertakings

 

926

 

 

 

 

926

 

Allowance for impairment losses

 

(1

)

 

 

 

(1

)

Due from fellow Lloyds Banking Group undertakings, net of impairment allowances

 

925

 

 

 

 

925

 

 

 

 

 

 

 

 

 

 

 

 

 

Total financial assets at amortised cost

 

423,023

 

54,216

 

4,486

 

12,718

 

494,443

 

 

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

 

30


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

8.                            Financial assets at amortised cost (continued)

 

Year ended 31 December 2019

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

or
originated

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

impaired

 

Total

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

Loans and advances to banks

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

3,691

 

2

 

 

 

3,693

 

Exchange and other adjustments

 

(125

)

 

 

 

(125

)

Additions (repayments)

 

1,286

 

(2

)

 

 

1,284

 

At 31 December 2019

 

4,852

 

 

 

 

4,852

 

Allowance for impairment losses

 

 

 

 

 

 

Total loans and advances to banks

 

4,852

 

 

 

 

4,852

 

 

Loans and advances to customers

 

At 1 January 2019

 

420,968

 

 

25,308

 

 

5,397

 

 

15,391

 

 

467,064

 

Exchange and other adjustments

 

(312

)

 

(44

)

 

26

 

 

283

 

 

(47

)

Additions (repayments)

 

13,690

 

 

(2,520

)

 

(857

)

 

(1,934

)

 

8,379

 

Transfers to Stage 1

 

6,318

 

 

(6,286

)

 

(32

)

 

 

 

 

 

Transfers to Stage 2

 

(13,052

)

 

13,484

 

 

(432

)

 

 

 

 

 

Transfers to Stage 3

 

(1,539

)

 

(1,437

)

 

2,976

 

 

 

 

 

 

 

 

(8,273

)

 

5,761

 

 

2,512

 

 

 

 

 

 

Recoveries

 

 

 

 

 

396

 

 

28

 

 

424

 

Acquisition of portfolios

 

3,694

 

 

 

 

 

 

 

 

3,694

 

Financial assets that have been written off

 

 

 

 

 

 

 

(1,827

)

 

(54

)

 

(1,881

)

At 31 December 2019

 

429,767

 

 

28,505

 

 

5,647

 

 

13,714

 

 

477,633

 

Allowance for impairment losses

 

(669

)

 

(993

)

 

(1,359

)

 

(142

)

 

(3,163

)

Total loans and advances to customers

 

429,098

 

 

27,512

 

 

4,288

 

 

13,572

 

 

474,470

 

 

Debt securities

 

At 1 January 2019

 

5,095

 

 

2

 

 

5,097

 

Exchange and other adjustments

 

(90

)

 

(1

)

 

(91

)

Additions (repayments)

 

320

 

 

 

 

320

 

At 31 December 2019

 

5,325

 

 

1

 

 

5,326

 

Allowance for impairment losses

 

 

 

(1

)

 

(1

)

Total debt securities

 

5,325

 

 

 

 

5,325

 

 

Due from fellow Lloyds Banking Group undertakings

 

Due from fellow Lloyds Banking Group undertakings

 

1,854

 

 

43

 

 

1,897

 

Allowance for impairment losses

 

 

 

(43

)

 

(43

)

Due from fellow Lloyds Banking Group undertakings, net of impairment allowances

 

1,854

 

 

 

 

1,854

 

 

 

 

 

 

 

 

 

 

 

 

 

Total financial assets at amortised cost

 

441,129

 

27,512

 

4,288

 

13,572

 

486,501

 

 

31


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

8.                            Financial assets at amortised cost (continued)

 

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

 

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

 

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

 

Loans and advances to customers include advances securitised under the Group’s securitisation and covered bond programmes (see note 10).

 

32


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

9.                            Allowance for impairment losses

 

Half-year to 30 June 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

or
originated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

 

 

Stage 2

 

 

 

Stage 3

 

 

 

impaired

 

 

 

Total

 

 

 

 

 

 

 

£m

 

 

 

£m

 

 

 

£m

 

 

 

£m

 

 

 

£m

 

 

 

In respect of drawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

 

 

669

 

 

 

993

 

 

 

1,403

 

 

 

142

 

 

 

3,207

 

 

 

Exchange and other adjustments

 

 

 

 

 

 

 

 

 

27

 

 

 

(38

)

 

 

(11

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

108

 

 

 

(107

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

(90

)

 

 

133

 

 

 

(43

)

 

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

(10

)

 

 

(133

)

 

 

143

 

 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

(64

)

 

 

774

 

 

 

445

 

 

 

 

 

 

 

1,155

 

 

 

 

 

 

 

(56

)

 

 

667

 

 

 

544

 

 

 

 

 

 

 

1,155

 

 

 

Other items charged to the income statement

 

 

 

704

 

 

 

481

 

 

 

745

 

 

 

245

 

 

 

2,175

 

 

 

Charge to the income statement (note 5)

 

 

 

648

 

 

 

1,148

 

 

 

1,289

 

 

 

245

 

 

 

3,330

 

 

 

Advances written off

 

 

 

 

 

 

 

 

 

 

 

(804

)

 

 

(24

)

 

 

(828

)

 

 

Recoveries of advances written off in previous years

 

 

 

 

 

 

 

 

 

 

 

86

 

 

 

 

 

 

86

 

 

 

Discount unwind

 

 

 

 

 

 

 

 

 

 

 

(26

)

 

 

 

 

 

(26

)

 

 

At 30 June 2020

 

 

 

1,317

 

 

 

2,141

 

 

 

1,975

 

 

 

325

 

 

 

5,758

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of undrawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

 

 

91

 

 

 

77

 

 

 

5

 

 

 

 

 

 

173

 

 

 

Exchange and other adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

8

 

 

 

(8

)

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

(6

)

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

 

 

 

(6

)

 

 

6

 

 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

(2

)

 

 

72

 

 

 

11

 

 

 

 

 

 

 

81

 

 

 

 

 

 

 

 

 

 

64

 

 

 

17

 

 

 

 

 

 

 

81

 

 

 

Other items charged to the income statement

 

 

 

145

 

 

 

50

 

 

 

13

 

 

 

 

 

 

208

 

 

 

Charge to the income statement (note 5)

 

 

 

145

 

 

 

114

 

 

 

30

 

 

 

 

 

 

289

 

 

 

At 30 June 2020

 

 

 

236

 

 

 

191

 

 

 

35

 

 

 

 

 

 

462

 

 

 

Total allowance for impairment losses

 

 

 

1,553

 

 

 

2,332

 

 

 

2,010

 

 

 

325

 

 

 

6,220

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks

 

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

Loans and advances to customers

 

 

 

1,300

 

 

 

2,141

 

 

 

1,974

 

 

 

325

 

 

 

5,740

 

 

 

Debt securities

 

 

 

1

 

 

 

 

 

 

1

 

 

 

 

 

 

2

 

 

 

Due from fellow Lloyds Banking Group undertakings

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

Financial assets at amortised cost

 

 

 

1,317

 

 

 

2,141

 

 

 

1,975

 

 

 

325

 

 

 

5,758

 

 

 

Provisions in relation to loan commitments and financial guarantees

 

 

 

236

 

 

 

191

 

 

 

35

 

 

 

 

 

 

462

 

 

 

Total allowance for impairment losses

 

 

 

1,553

 

 

 

2,332

 

 

 

2,010

 

 

 

325

 

 

 

6,220

 

 

 

Expected credit loss in respect of financial assets at fair value through other comprehensive income (memorandum item)

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

Exchange and other adjustments includes certain adjustments, prescribed by IFRS 9, in respect of purchased or originated credit-impaired financial assets. The total allowance for impairment losses includes £191 million (31 December 2019: £201 million) in respect of residual value impairment and voluntary terminations within the Group’s asset finance business.

 

33


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

9.                            Allowance for impairment losses (continued)

 

Year ended 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

or
originated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

 

 

Stage 2

 

 

 

Stage 3

 

 

 

impaired

 

 

 

Total

 

 

 

 

 

 

 

£m

 

 

 

£m

 

 

 

£m

 

 

 

£m

 

 

 

£m

 

 

 

In respect of drawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

 

 

519

 

 

 

992

 

 

 

1,434

 

 

 

78

 

 

 

3,023

 

 

 

Exchange and other adjustments

 

 

 

10

 

 

 

(9

)

 

 

29

 

 

 

283

 

 

 

313

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

229

 

 

 

(222

)

 

 

(7

)

 

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

(53

)

 

 

92

 

 

 

(39

)

 

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

(15

)

 

 

(140

)

 

 

155

 

 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

(175

)

 

 

353

 

 

 

420

 

 

 

 

 

 

 

598

 

 

 

 

 

 

 

(14

)

 

 

83

 

 

 

529

 

 

 

 

 

 

 

598

 

 

 

Other items charged to the income statement

 

 

 

154

 

 

 

(73

)

 

 

894

 

 

 

(193

)

 

 

782

 

 

 

Charge to the income statement

 

 

 

140

 

 

 

10

 

 

 

1,423

 

 

 

(193

)

 

 

1,380

 

 

 

Advances written off

 

 

 

 

 

 

 

 

 

 

 

(1,827

)

 

 

(54

)

 

 

(1,881

)

 

 

Recoveries of advances written off in previous years

 

 

 

 

 

 

 

 

 

 

 

396

 

 

 

28

 

 

 

424

 

 

 

Discount unwind

 

 

 

 

 

 

 

 

 

 

 

(52

)

 

 

 

 

 

(52

)

 

 

At 31 December 2019

 

 

 

669

 

 

 

993

 

 

 

1,403

 

 

 

142

 

 

 

3,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of undrawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

 

 

121

 

 

 

63

 

 

 

6

 

 

 

 

 

 

190

 

 

 

Exchange and other adjustments

 

 

 

(1

)

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

19

 

 

 

(19

)

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

(4

)

 

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

(1

)

 

 

(3

)

 

 

4

 

 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

(17

)

 

 

24

 

 

 

(1

)

 

 

 

 

 

 

6

 

 

 

 

 

 

 

(3

)

 

 

6

 

 

 

3

 

 

 

 

 

 

 

6

 

 

 

Other items charged to the income statement

 

 

 

(26

)

 

 

7

 

 

 

(4

)

 

 

 

 

 

(23

)

 

 

Charge to the income statement

 

 

 

(29

)

 

 

13

 

 

 

(1

)

 

 

 

 

 

(17

)

 

 

At 31 December 2019

 

 

 

91

 

 

 

77

 

 

 

5

 

 

 

 

 

 

173

 

 

 

Total allowance for impairment losses

 

 

 

760

 

 

 

1,070

 

 

 

1,408

 

 

 

142

 

 

 

3,380

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to customers

 

 

 

669

 

 

 

993

 

 

 

1,359

 

 

 

142

 

 

 

3,163

 

 

 

Debt securities

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

 

 

Due from fellow Lloyds Banking Group undertakings

 

 

 

 

 

 

 

 

 

43

 

 

 

 

 

 

43

 

 

 

Financial assets at amortised cost

 

 

 

669

 

 

 

993

 

 

 

1,403

 

 

 

142

 

 

 

3,207

 

 

 

Provisions in relation to loan commitments and financial guarantees

 

 

 

91

 

 

 

77

 

 

 

5

 

 

 

 

 

 

173

 

 

 

Total allowance for impairment losses

 

 

 

760

 

 

 

1,070

 

 

 

1,408

 

 

 

142

 

 

 

3,380

 

 

 

Expected credit loss in respect of financial assets at fair value through other comprehensive income (memorandum item)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

34


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

9.                            Allowance for impairment losses (continued)

 

The Group’s income statement charge comprises:

 

 

 

Half-year
to 30 June
2020

 

Year ended
31 Dec
2019

 

 

 

£m

 

£m

 

 

 

 

 

 

 

Drawn balances

 

3,330

 

1,380

 

Undrawn balances

 

289

 

(17

)

Financial assets at fair value through other comprehensive income

 

6

 

(1

)

Total

 

3,625

 

1,362

 

 

Transfers between stages are deemed to have taken place at the start of the reporting period, with all other movements shown in the stage in which the asset is held at the period end, with the exception of those held within Purchased or originated credit-impaired, which are not transferable. As assets are transferred between stages, the resulting change in expected credit loss of £1,155 million for drawn balances, and £81 million for undrawn balances, is presented separately as impacts of transfers between stages, in the stage in which the expected credit loss is recognised at the end of the reporting period.

 

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

 

35


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

10.                     Debt securities in issue

 

 

 

At 30 June 2020

 

At 31 December 2019

 

 

 

At fair

 

 

 

 

 

At fair

 

 

 

 

 

 

 

value

 

 

 

 

 

value

 

 

 

 

 

 

 

through

 

At

 

 

 

through

 

At

 

 

 

 

 

profit or

 

amortised

 

 

 

profit or

 

amortised

 

 

 

 

 

loss

 

cost

 

Total

 

loss

 

cost

 

Total

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medium-term notes issued

 

7,644

 

22,556

 

30,200

 

7,484

 

26,628

 

34,112

 

Covered bonds

 

 

27,766

 

27,766

 

 

29,818

 

29,818

 

Certificates of deposit

 

 

3,027

 

3,027

 

 

4,925

 

4,925

 

Securitisation notes

 

47

 

5,867

 

5,914

 

47

 

7,329

 

7,376

 

Commercial paper

 

 

6,940

 

6,940

 

 

7,731

 

7,731

 

Total debt securities in issue

 

7,691

 

66,156

 

73,847

 

7,531

 

76,431

 

83,962

 

 

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

 

Securitisation programmes

 

At 30 June 2020, external parties held £5,914 million (31 December 2019: £7,376 million) and the Group’s subsidiaries held £29,453 million (31 December 2019: £31,396 million) of total securitisation notes in issue of £35,367 million (31 December 2019: £38,772 million). The notes are secured on loans and advances to customers and debt securities held at amortised cost amounting to £37,809 million (31 December 2019: £42,545 million), the majority of which have been sold by subsidiary companies to bankruptcy remote structured entities. The structured entities are consolidated fully and all of these loans are retained on the Group’s balance sheet.

 

Covered bond programmes

 

At 30 June 2020, external parties held £27,766 million (31 December 2019: £29,818 million) and the Group’s subsidiaries held £100 million (31 December 2019: £100 million) of total covered bonds in issue of £27,866 million (31 December 2019: £29,918 million). The bonds are secured on certain loans and advances to customers amounting to £38,042 million (31 December 2019: £39,131 million) that have been assigned to bankruptcy remote limited liability partnerships. These loans are retained on the Group’s balance sheet.

 

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

 

36


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.                     Post-retirement defined benefit schemes

 

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

 

 

 

At
30 June
2020

 

At
31 Dec
2019

 

 

 

£m

 

£m

 

 

 

 

 

 

 

Defined benefit pension schemes:

 

 

 

 

 

Fair value of scheme assets

 

50,696

 

45,791

 

Present value of funded obligations

 

(48,593

)

(45,241

)

Net pension scheme asset

 

2,103

 

550

 

Other post-retirement schemes

 

(133

)

(126

)

Net retirement benefit asset

 

1,970

 

424

 

 

 

 

 

 

 

Recognised on the balance sheet as:

 

 

 

 

 

Retirement benefit assets

 

2,241

 

681

 

Retirement benefit obligations

 

(271

)

(257

)

Net retirement benefit asset

 

1,970

 

424

 

 

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

 

 

 

£m

 

 

 

 

 

Asset at 1 January 2020

 

424

 

Income statement charge

 

(121

)

Employer contributions

 

999

 

Remeasurement

 

668

 

Asset at 30 June 2020

 

1,970

 

 

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

 

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

 

 

 

At
30 June
2020

 

At
31 Dec
2019

 

 

 

%

 

%

 

 

 

 

 

 

 

Discount rate

 

1.54

 

2.05

 

Rate of inflation:

 

 

 

 

 

Retail Prices Index

 

2.85

 

2.94

 

Consumer Price Index

 

1.90

 

1.99

 

Rate of salary increases

 

0.00

 

0.00

 

Weighted-average rate of increase for pensions in payment

 

2.52

 

2.57

 

 

37


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

12.                     Provisions for liabilities and charges

 

 

 

Provisions

 

Payment

 

Other

 

 

 

 

 

 

 

for

 

protection

 

regulatory

 

 

 

 

 

 

 

commitments

 

insurance

 

provisions

 

Other

 

Total

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

173

 

1,874

 

395

 

696

 

3,138

 

Exchange and other adjustments

 

 

 

 

(3

)

(3

)

Provisions applied

 

 

(996

)

(298

)

(102

)

(1,396

)

Charge for the period

 

289

 

 

158

 

63

 

510

 

At 30 June 2020

 

462

 

878

 

255

 

654

 

2,249

 

 

Payment protection insurance (excluding MBNA)

 

The Group has made provisions for PPI costs totalling £21,821 million; no additional charge has been made in the first half of 2020. Good progress has been made with the review of PPI information requests received and the conversion rate remains low and consistent with the provision assumption of around 10 per cent, albeit operations have been impacted by the coronavirus pandemic in the second quarter.

 

At 30 June 2020, a provision of £742 million remained unutilised relating to complaints and associated administration costs excluding amounts relating to MBNA. Total cash payments were £830 million during the six months to 30 June 2020.

 

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

 

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

 

Payment protection insurance (MBNA)

 

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

 

38


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

12.                     Provisions for liabilities and charges (continued)

 

Other provisions for legal actions and regulatory matters

 

In the course of its business, the Group is engaged in discussions with the UK Prudential Regulation Authority (PRA), UK Financial Conduct Authority (FCA) and other UK and overseas regulators and other governmental authorities on a range of matters. The Group also receives complaints in connection with its past conduct and claims brought by or on behalf of current and former employees, customers, investors and other third parties and is subject to legal proceedings and other legal actions. Where significant, provisions are held against the costs expected to be incurred in relation to these matters and matters arising from related internal reviews. During the six months to 30 June 2020 the Group charged a further £158 million in respect of legal actions and other regulatory matters, and the unutilised balance at 30 June 2020 was £255 million (31 December 2019: £395 million). The most significant items are as follows.

 

Arrears handling related activities

 

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

 

HBOS Reading — review

 

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

 

39


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

13.                     Contingent liabilities, commitments and guarantees

 

Interchange fees

 

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

 

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

 

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

 

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

 

LIBOR and other trading rates

 

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

 

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

 

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

 

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

 

Tax authorities

 

The Lloyds Banking 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 Lloyds Banking Group that their interpretation of the UK rules which allow the offset of such losses denies the claim for group relief of losses. If HMRC’s position is found to be correct, management estimate that this would result in an increase in current tax liabilities of approximately £700 million (including interest) and a reduction in deferred tax assets of approximately £270 million. The Lloyds Banking Group does not agree with HMRC’s position and, having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due. There are a number of other open matters on which the Lloyds

 

40


 

Bank Group is in discussion with HMRC (including the tax treatment of certain costs arising from the divestment of TSB Banking Group plc), none of which is expected to have a material impact on the financial position of the Lloyds Bank Group.

 

Other legal actions and regulatory matters

 

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

 

41


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

13.                     Contingent liabilities, commitments and guarantees (continued)

 

Contingent liabilities, commitments and guarantees arising from the banking business

 

 

 

At
30 June
2020

 

 

At
31 Dec
2019

 

 

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

 

 

Contingent liabilities

 

 

 

 

 

 

 

Acceptances and endorsements

 

118

 

 

17

 

 

Other:

 

 

 

 

 

 

 

Other items serving as direct credit substitutes

 

246

 

 

279

 

 

Performance bonds and other transaction-related contingencies

 

2,116

 

 

2,274

 

 

 

 

2,362

 

 

2,553

 

 

Total contingent liabilities

 

2,480

 

 

2,570

 

 

 

 

 

 

 

 

 

 

Commitments and guarantees

 

 

 

 

 

 

 

Documentary credits and other short-term trade-related transactions

 

1

 

 

 

 

Forward asset purchases and forward deposits placed

 

170

 

 

171

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

Less than 1 year original maturity:

 

 

 

 

 

 

 

Mortgage offers made

 

14,098

 

 

12,647

 

 

Other commitments and guarantees

 

82,664

 

 

78,306

 

 

 

 

96,762

 

 

90,953

 

 

1 year or over original maturity

 

23,835

 

 

25,310

 

 

Total commitments and guarantees

 

120,768

 

 

116,434

 

 

 

Of the amounts shown above in respect of undrawn formal standby facilities, credit lines and other commitments to lend, £47,042 million (31 December 2019: £46,629 million) was irrevocable.

 

42


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

14.                     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 43 to the Group’s 2019 financial statements describes the definitions of the three levels in the fair value hierarchy.

 

Valuation control framework

 

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

 

Transfers into and out of level 3 portfolios

 

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

 

Valuation methodology

 

For level 2 and level 3 portfolios, there is no significant change to the valuation methodology (techniques and inputs) disclosed in the Group’s 2019 Annual Report on Form 20-F applied to these portfolios.

 

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

 

 

 

At 30 June 2020

 

 

At 31 December 2019

 

 

 

Carrying
value

 

 

Fair
value

 

 

Carrying
value

 

 

Fair
value

 

 

 

£m 

 

 

£m 

 

 

£m 

 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss

 

2,386 

 

 

2,386 

 

 

2,284 

 

 

2,284 

 

Derivative financial instruments

 

10,790 

 

 

10,790 

 

 

8,494 

 

 

8,494 

 

Loans and advances to banks

 

7,070 

 

 

7,071 

 

 

4,852 

 

 

4,849 

 

Loans and advances to customers

 

481,235 

 

 

481,182 

 

 

474,470 

 

 

475,128 

 

Debt securities

 

5,213 

 

 

5,206 

 

 

5,325 

 

 

5,317 

 

Due from fellow Lloyds Banking Group undertakings

 

925 

 

 

925 

 

 

1,854 

 

 

1,854 

 

Financial assets at amortised cost

 

494,443 

 

 

494,384 

 

 

486,501 

 

 

487,148 

 

Financial assets at fair value through other comprehensive income

 

26,823 

 

 

26,823 

 

 

24,617 

 

 

24,617 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Deposits from banks

 

26,645 

 

 

26,647 

 

 

23,593 

 

 

23,497 

 

Customer deposits

 

427,591 

 

 

427,805 

 

 

396,839 

 

 

397,222 

 

Due to fellow Lloyds Banking Group undertakings

 

6,502 

 

 

6,502 

 

 

4,893 

 

 

4,893 

 

Financial liabilities at fair value through profit or loss

 

9,102 

 

 

9,102 

 

 

7,702 

 

 

7,702 

 

Derivative financial instruments

 

9,254 

 

 

9,254 

 

 

9,831 

 

 

9,831 

 

Debt securities in issue

 

66,156 

 

 

69,869 

 

 

76,431 

 

 

78,632 

 

Subordinated liabilities

 

12,125 

 

 

15,949 

 

 

12,586 

 

 

14,542 

 

 

43


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

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

 

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.

 

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

 

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

 

Financial assets

 

 

 

Level 1 

 

Level 2 

 

Level 3 

 

Total 

 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

At 30 June 2020

 

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss:

 

 

 

 

 

 

 

 

 

Loans and advances to customers

 

 

 

1,934 

 

1,934 

 

Debt securities

 

246 

 

 

 

246 

 

Equity shares

 

202 

 

 

 

206 

 

Total financial assets at fair value through profit or loss

 

448 

 

 

1,934 

 

2,386 

 

Financial assets at fair value through other comprehensive income:

 

 

 

 

 

 

 

 

 

Debt securities

 

14,114 

 

12,645 

 

64 

 

26,823 

 

Equity shares

 

 

 

 

 

Total financial assets at fair value through other comprehensive income

 

14,114 

 

12,645 

 

64 

 

26,823 

 

Derivative financial instruments

 

 

10,775 

 

15 

 

10,790 

 

Total financial assets carried at fair value

 

14,562 

 

23,424 

 

2,013 

 

39,999 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss:

 

 

 

 

 

 

 

 

 

Loans and advances to customers

 

 

 

1,782 

 

1,782 

 

Debt securities

 

290 

 

 

47 

 

337 

 

Equity shares

 

161 

 

 

 

165 

 

Total financial assets at fair value through profit or loss

 

451 

 

 

1,829 

 

2,284 

 

Financial assets at fair value through other comprehensive income:

 

 

 

 

 

 

 

 

 

Debt securities

 

12,844 

 

11,274 

 

60 

 

24,178 

 

Treasury and other bills

 

439 

 

 

 

439 

 

Total financial assets at fair value through other comprehensive income

 

13,283 

 

11,274 

 

60 

 

24,617 

 

Derivative financial instruments

 

 

8,494 

 

 

8,494 

 

Total financial assets carried at fair value

 

13,734 

 

19,772 

 

1,889 

 

35,395 

 

 

44


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

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

 

Financial liabilities

 

 

 

Level 1 

 

Level 2 

 

Level 3 

 

Total 

 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

At 30 June 2020

 

 

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss:

 

 

 

 

 

 

 

 

 

Liabilities held at fair value through profit or loss

 

 

7,644 

 

47 

 

7,691 

 

Trading liabilities

 

90 

 

1,321 

 

 

1,411 

 

Total financial liabilities at fair value through profit or loss

 

90 

 

8,965 

 

47 

 

9,102 

 

Derivative financial instruments

 

 

8,907 

 

347 

 

9,254 

 

Total financial liabilities carried at fair value

 

90 

 

17,872 

 

394 

 

18,356 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss:

 

 

 

 

 

 

 

 

 

Liabilities held at fair value through profit or loss

 

 

7,484 

 

47 

 

7,531 

 

Trading liabilities

 

73 

 

98 

 

 

171 

 

Total financial liabilities at fair value through profit or loss

 

73 

 

7,582 

 

47 

 

7,702 

 

Derivative financial instruments

 

 

9,534 

 

297 

 

9,831 

 

Total financial liabilities carried at fair value

 

73 

 

17,116 

 

344 

 

17,533 

 

 

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 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

1,829 

 

60 

 

 

1,889 

 

Exchange and other adjustments

 

79 

 

 

 

83 

 

Gains recognised in the income statement within other income

 

20 

 

 

1

 

21 

 

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

 

 

 

 

 

Purchases

 

368 

 

 

 

368 

 

Sales

 

(312

)

 

 

(312

)

Transfers into the level 3 portfolio

 

 

 

14 

 

14 

 

Transfers out of the level 3 portfolio

 

(50

)

 

 

(50

)

At 30 June 2020

 

1,934 

 

64 

 

15

 

2,013

 

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

 

105 

 

 

 

105 

 

 

45


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

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

 

 

 

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 2019

 

2,721 

 

53 

 

 

2,779 

 

Exchange and other adjustments

 

 

 

 

 

Gains recognised in the income statement within other income

 

 

 

 

 

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

 

 

 

 

 

Purchases

 

483 

 

 

 

483 

 

Sales

 

(1,272

)

(1

)

 

(1,273

)

Transfers into the level 3 portfolio

 

399 

 

 

21 

 

420 

 

At 30 June 2019

 

2,334 

 

56 

 

26 

 

2,416 

 

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

 

 

 

 

 

 

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

 

 

 

Financial

 

 

 

Total

 

 

 

liabilities at

 

 

 

financial

 

 

 

fair value

 

 

 

liabilities

 

 

 

through

 

Derivative

 

carried at

 

 

 

profit or loss

 

liabilities

 

fair value

 

 

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

At 1 January 2020

 

47 

 

297 

 

344 

 

Losses recognised in the income statement within other income

 

1

 

12

 

13

 

Redemptions

 

(1

)

(8

)

(9

)

Transfers into the level 3 portfolio

 

 

46 

 

46 

 

At 30 June 2020

 

47

 

347

 

394

 

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

 

 

 

 

 

46


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

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

 

 

 

Financial

 

 

 

Total

 

 

 

liabilities at

 

 

 

financial

 

 

 

fair value

 

 

 

liabilities

 

 

 

through

 

Derivative

 

carried at

 

 

 

profit or loss

 

liabilities

 

fair value

 

 

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

 

8

 

8

 

Losses recognised in the income statement within other income

 

 

8

 

8

 

Additions

 

 

 

 

Redemptions

 

(1

)

(12

)

(13

)

Transfers into the level 3 portfolio

 

53

 

345

 

398

 

Transfers out of the level 3 portfolio

 

 

 

 

At 30 June 2019

 

52

 

349

 

401

 

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

 

 

8

 

8

 

 

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

 

 

 

 

 

 

 

 

 

At 30 June 2020

 

 

 

 

 

 

 

 

 

 

 

Effect of reasonably
possible alternative
assumptions(1)

 

 

 

Valuation
technique(s)

 

Significant
unobservable
inputs

 

Range(2)

 

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

 

Inferred spreads (bps)

 

50 bps / 103bps

 

1,934

 

37 

 

(37

)

 

 

 

 

 

 

 

 

1,934

 

 

 

 

 

Financial assets at fair value through other comprehensive income:

 

 

 

 

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial assets:

 

 

 

 

 

 

 

 

 

 

 

Interest rate derivatives

 

Option pricing model

 

Interest rate volatility

 

0% / 176%

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets carried at fair value

 

 

 

 

 

 

 

2,013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss

 

 

 

47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

Interest rate derivatives

 

Option pricing model

 

Interest rate volatility

 

32% / 58%

 

50

 

 

 

 

 

Interest rate derivatives

 

Market values – property valuation

 

HPI

 

-5% / +5%

 

297

 

 

 

 

 

 

 

 

 

 

 

 

 

347

 

 

 

 

 

Financial liabilities carried at fair value

 

 

 

 

 

394

 

 

 

 

 

 


(1)

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

(2)

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

 

47


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

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

 

 

 

 

 

 

 

 

 

At 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

Effect of reasonably possible
alternative assumptions(1)

 

 

 

Valuation
technique(s)

 

Significant
unobservable
inputs

 

Range(2)

 

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 (bps)

 

50 bps / 102 bps

 

1,782

 

36 

 

(39

)

Debt securities

 

 

 

 

 

 

 

47

 

 

 

 

 

 

 

 

 

 

 

 

 

1,829

 

 

 

 

 

Financial assets at fair value through other comprehensive income

 

60

 

 

 

 

 

Financial assets carried at fair value

 

 

 

 

 

1,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss:

 

 

 

47

 

 

 

 

 

Derivative financial liabilities:

 

 

 

 

 

297

 

 

 

 

 

Financial liabilities carried at fair value

 

 

 

 

 

344

 

 

 

 

 

 


(1)

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

(2)

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

 

Unobservable inputs

 

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

 

Reasonably possible alternative assumptions

 

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

 

48


 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

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

 

Gross drawn exposures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

originated

 

 

 

 

 

 

PD

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

At 30 June 2020

 

range

 

 

Stage 1

 

 

Stage 2

 

 

Stage 3

 

 

impaired

 

 

Total

 

 

 

 

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMS 1-10

 

0.00-0.50%

 

 

3,664

 

 

 

 

 

 

 

 

3,664

 

CMS 11-14

 

0.51-3.00%

 

 

3,384

 

 

 

 

 

 

 

 

3,384

 

CMS 15-18

 

3.01-20.00%

 

 

37

 

 

 

 

 

 

 

 

37

 

CMS 19

 

20.01-99.99%

 

 

 

 

 

 

 

 

 

 

 

CMS 20-23

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,085

 

 

 

 

 

 

 

 

7,085

 

Loans and advances to customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail — mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

 

236,569

 

 

27,321

 

 

 

 

 

 

263,890

 

RMS 7-9

 

4.51-14.00%

 

 

8

 

 

3,770

 

 

 

 

 

 

3,778

 

RMS 10

 

14.01-20.00%

 

 

 

 

862

 

 

 

 

 

 

862

 

RMS 11-13

 

20.01-99.99%

 

 

 

 

2,354

 

 

 

 

 

 

2,354

 

RMS 14

 

100.00%

 

 

 

 

 

 

1,800

 

 

13,043

 

 

14,843

 

 

 

 

 

 

236,577

 

 

34,307

 

 

1,800

 

 

13,043

 

 

285,727

 

Retail — credit cards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

 

10,070

 

 

456

 

 

 

 

 

 

10,526

 

RMS 7-9

 

4.51-14.00%

 

 

2,882

 

 

641

 

 

 

 

 

 

3,523

 

RMS 10

 

14.01-20.00%

 

 

403

 

 

361

 

 

 

 

 

 

764

 

RMS 11-13

 

20.01-99.99%

 

 

84

 

 

630

 

 

 

 

 

 

714

 

RMS 14

 

100.00%

 

 

 

 

 

 

368

 

 

 

 

368

 

 

 

 

 

 

13,439

 

 

2,088

 

 

368

 

 

 

 

15,895

 

Retail — UK Motor Finance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

 

11,615

 

 

1,762

 

 

 

 

 

 

13,377

 

RMS 7-9

 

4.51-14.00%

 

 

1,054

 

 

693

 

 

 

 

 

 

1,747

 

RMS 10

 

14.01-20.00%

 

 

 

 

155

 

 

 

 

 

 

155

 

RMS 11-13

 

20.01-99.99%

 

 

5

 

 

310

 

 

 

 

 

 

315

 

RMS 14

 

100.00%

 

 

 

 

 

 

236

 

 

 

 

236

 

 

 

 

 

 

12,674

 

 

2,920

 

 

236

 

 

 

 

15,830

 

Retail - other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

 

19,242

 

 

693

 

 

 

 

 

 

19,935

 

RMS 7-9

 

4.51-14.00%

 

 

3,213

 

 

546

 

 

 

 

 

 

3,759

 

RMS 10

 

14.01-20.00%

 

 

787

 

 

191

 

 

 

 

 

 

978

 

RMS 11-13

 

20.01-99.99%

 

 

997

 

 

631

 

 

 

 

 

 

1,628

 

RMS 14

 

100.00%

 

 

 

 

 

 

480

 

 

 

 

480

 

 

 

 

 

 

24,239

 

 

2,061

 

 

480

 

 

 

 

26,780

 

Total Retail

 

 

 

 

286,929

 

 

41,376

 

 

2,884

 

 

13,043

 

 

344,232

 

 

49


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

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

 

Gross drawn exposures (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

originated

 

 

 

 

 

 

PD

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

At 30 June 2020

 

range

 

 

Stage 1

 

 

Stage 2

 

 

Stage 3

 

 

impaired

 

 

Total

 

 

 

 

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMS 1-10

 

0.00-0.50%

 

 

20,094

 

 

114

 

 

 

 

 

 

20,208

 

CMS 11-14

 

0.51-3.00%

 

 

35,518

 

 

6,935

 

 

 

 

 

 

42,453

 

CMS 15-18

 

3.01-20.00%

 

 

7,321

 

 

6,366

 

 

 

 

 

 

13,687

 

CMS 19

 

20.01-99.99%

 

 

 

 

1,542

 

 

 

 

 

 

1,542

 

CMS 20-23

 

100%

 

 

 

 

 

 

3,493

 

 

 

 

3,493

 

 

 

 

 

 

62,933

 

 

14,957

 

 

3,493

 

 

 

 

81,383

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

 

764

 

 

24

 

 

 

 

 

 

788

 

RMS 7-9

 

4.51-14.00%

 

 

 

 

 

 

 

 

 

 

 

RMS 10

 

14.01-20.00%

 

 

 

 

 

 

 

 

 

 

 

RMS 11-13

 

20.01-99.99%

 

 

 

 

 

 

 

 

 

 

 

RMS 14

 

100.00%

 

 

 

 

 

 

83

 

 

 

 

83

 

 

 

 

 

 

764

 

 

24

 

 

83

 

 

 

 

871

 

CMS 1-10

 

0.00-0.50%

 

 

60,489

 

 

 

 

 

 

 

 

60,489

 

CMS 11-14

 

0.51-3.00%

 

 

 

 

 

 

 

 

 

 

 

CMS 15-18

 

3.01-20.00%

 

 

 

 

 

 

 

 

 

 

 

CMS 19

 

20.01-99.99%

 

 

 

 

 

 

 

 

 

 

 

CMS 20-23

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

60,489

 

 

 

 

 

 

 

 

60,489

 

Total loans and advances to customers

 

 

 

 

411,115

 

 

56,357

 

 

6,460

 

 

13,043

 

 

486,975

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 

 

 

286,929

 

 

41,376

 

 

2,884

 

 

13,043

 

 

344,232

 

Commercial

 

 

 

 

62,933

 

 

14,957

 

 

3,493

 

 

 

 

81,383

 

Other

 

 

 

 

61,253

 

 

24

 

 

83

 

 

 

 

61,360

 

Total loans and advances to customers

 

 

 

 

411,115

 

 

56,357

 

 

6,460

 

 

13,043

 

 

486,975

 

 

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

 

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

 

50


 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

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

 

Expected credit losses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

or

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

originated

 

 

 

 

 

 

PD

 

 

 

 

 

 

 

 

 

 

 

credit-

 

 

 

 

At 30 June 2020

 

range

 

 

Stage 1

 

 

Stage 2

 

 

Stage 3

 

 

impaired

 

 

Total

 

 

 

 

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMS 1-10

 

0.00-0.50%

 

 

 

 

 

 

 

 

 

 

 

CMS 11-14

 

0.51-3.00%

 

 

14

 

 

 

 

 

 

 

 

14

 

CMS 15-18

 

3.01-20.00%

 

 

1

 

 

 

 

 

 

 

 

1

 

CMS 19

 

20.01-99.99%

 

 

 

 

 

 

 

 

 

 

 

CMS 20-23

 

100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

15

 

Loans and advances to customers:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail — mortgages

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

 

106

 

 

250

 

 

 

 

 

 

356

 

RMS 7-9

 

4.51-14.00%

 

 

 

 

79

 

 

 

 

 

 

79

 

RMS 10

 

14.01-20.00%

 

 

 

 

28

 

 

 

 

 

 

28

 

RMS 11-13

 

20.01-99.99%

 

 

 

 

134

 

 

 

 

 

 

134

 

RMS 14

 

100.00%

 

 

 

 

 

 

187

 

 

325

 

 

512

 

 

 

 

 

 

106

 

 

491

 

 

187

 

 

325

 

 

1,109

 

Retail — credit cards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMS 1-6

 

0.00-4.50%

 

 

96

 

 

22

 

 

 

 

 

 

118

 

RMS 7-9

 

4.51-14.00%

 

 

134

 

 

61

 

 

 

 

 

 

195

 

RMS 10

 

14.01-20.00%

 

 

44

 

 

58

 

 

 

 

 

 

102

 

RMS 11-13

 

20.01-99.99%

 

 

13

 

 

208

 

 

 

 

 

 

221

 

RMS 14

 

100.00%

 

 

 

 

 

 

121