TIDM94WP TIDMLLOY
RNS Number : 9304G
Lloyds Bank PLC
29 July 2021
Lloyds Bank plc
2021 Half-Year Results
29 July 2021
Member of the Lloyds Banking Group
CONTENTS
Page
Review of performance 1
Risk management
P r incipal risks and uncertainties 4
Credit risk portfolio 7
Funding and liquidity management 21
Capital management 25
Statutory information
Condensed consolidated interim financial statements 33
Consolidated income statement 34
Consolidated statement of comprehensive income 35
Consolidated balance sheet 36
Consolidated statement of changes in equity 38
Consolidated cash flow statement 41
Notes to the condensed consolidated half-year financial
statements 42
Statement of directors' responsibilities 84
Independent review report to Lloyds Bank plc 85
Forward looking statements 87
Contacts 89
REVIEW OF PERFORMANCE
Principal activities
Lloyds Bank plc (the Bank) and its subsidiary undertakings (the
Group) provide a wide range of banking and financial services
through branches and offices in the UK and in certain locations
overseas. The Group's revenue is earned through interest and fees
on a broad range of financial services products including current
accounts, savings, mortgages, credit cards, motor finance and
unsecured loans to personal and business banking customers; and
lending, transactional banking, working capital management, risk
management and debt capital markets services to commercial
customers.
Income statement
In the half-year to 30 June 2021, the Group recorded a profit
before tax of GBP3,420 million compared to a loss of GBP290 million
in the same period in 2020, representing an increase of GBP3,710
million largely reflecting the improved economic outlook for the UK
in the first six months of 2021 compared to the deterioration
assumed in 2020. Profit after tax was GBP3,708 million.
Total income decreased by GBP459 million, or 6 per cent, to
GBP7,307 million in the half-year to 30 June 2021 compared to
GBP7,766 million in the first six months of 2020; there was a
decrease of GBP238 million in net interest income and GBP221
million in other income.
Net interest income was down GBP238 million, or 4 per cent, to
GBP5,376 million compared to GBP5,614 million in the first six
months of 2020. The net interest margin reduced reflecting the
lower rate environment and change in asset mix. Average
interest-earning assets increased driven by growth in the open
mortgage book and the impact of government supported loan schemes,
partially offset by lower balances in unsecured personal loans,
credit cards and motor finance, as well as the effects of the
continued optimisation of the Corporate and Institutional book
within Commercial Banking.
Other income was GBP221 million lower at GBP1,931 million in the
six months to 30 June 2021 compared to GBP2,152 million in the same
period last year. Net fee and commission income was GBP57 million
higher, with increases in card and other transaction-based income
streams, reflecting improved levels of customer activity following
the easing of restrictions relating to the pandemic, and increased
commercial banking fees. However, other operating income decreased
by GBP213 million due to lower levels of operating lease rental
income as a result of the reduced Lex Autolease vehicle fleet size
and lower gains on the disposal of financial assets at fair value
through other comprehensive income.
Total operating expenses increased by GBP133 million to GBP4,564
million compared to GBP4,431 million in the first six months of
2020, mainly due to an increase in regulatory provision charges.
There was a decrease of GBP19 million in operating costs reflecting
a reduction in depreciation of tangible fixed assets due to the
reduced Lex Autolease vehicle fleet size as well as gains on
disposal of operating lease assets partially offset by higher
restructuring costs, primarily technology research and development
costs and severance, as well as slightly higher property
transformation costs. Staff costs were 5 per cent higher at
GBP1,868 million compared to GBP1,773 million in the first six
months of 2020, in part reflecting higher charges for variable
remuneration and the increase in severance costs.
The charge in respect of regulatory provisions was GBP152
million higher at GBP310 million and related to pre-existing
programmes. With respect to HBOS Reading, GBP150 million was
incurred in the first half of 2021, including operational costs to
provide for the likelihood of activities spanning across 2022 as
well as the outcome to date of decisions from the independent panel
re-review on direct and consequential losses. Further significant
charges over 2021/2022 could be required as more panel decisions
are published, but it is not possible to reliably estimate the
potential impact or timings at this stage.
There was a net release of expected credit loss allowances
(ECLs) in the first six months of 2021 of GBP677 million, compared
to a charge of GBP3,625 million in the first six months of 2020,
largely reflecting the improved UK economic outlook. Credit
performance remains strong, with low levels of new to arrears.
REVIEW OF PERFORMANCE (continued)
The ECL allowance in respect of loans and advances to customers
remains high by historical standards at GBP4,646 million, a
coverage ratio of 1.0 per cent. This is consistent with the Group's
updated macroeconomic projections and assumes that a large
proportion of these additional expected losses will crystallise
over the next 12 months. This is expected to emerge as support
measures subside and unemployment increases, with the base case
predicting a peak of 6.6 per cent in the fourth quarter of 2021.
The ECL allowance continues to reflect a probability-weighted view
of future economic scenarios with a 30 per cent weighting of base
case, upside and downside and a 10 per cent weighting of the severe
downside. The improvement in unemployment and asset price outlook
in 2021 within the base case is reflected in all scenarios, which
have improved significantly since the year end.
The Group has retained the judgemental overlays applied at year
end and has continued to offset modelled releases not deemed
reflective of underlying risk. The Group's GBP400 million central
overlay has been maintained. It was added at the year end in
recognition of the significant uncertainty with regard to the
efficacy of coronavirus vaccines, the vaccination rollout,
potential virus mutations and economic performance post lockdown
restrictions and Government support. Although the base case outlook
has improved throughout the first half of the year, the Group still
considers that these risks remain and that the conditioning
assumptions for the improved base case and associated scenarios do
not capture these unprecedented risks.
The Group recognised a tax credit of GBP288 million in the
period compared to a credit of GBP594 million in the first six
months of 2020. In March 2021, the UK Government announced its
intention to increase the rate of corporation tax from 19 per cent
to 25 per cent with effect from 1 April 2023 and this was
substantively enacted on 24 May 2021. As a result of this change in
tax rate, the Group has recognised a GBP1,189 million deferred tax
credit in the income statement and a GBP184 million debit within
other comprehensive income, increasing the Group's net deferred tax
asset by GBP1,005 million.
Balance sheet
Total assets were GBP9,683 million higher at GBP609,622 million
at 30 June 2021 compared to GBP599,939 million at 31 December 2020.
There was an increase in cash and balances at central banks which
were GBP8,805 million higher at GBP58,693 million reflecting
increased liquidity holdings. Financial assets at amortised cost
increased by GBP2,208 million, to GBP494,174 million at 30 June
2021 compared to GBP491,966 million at 31 December 2020. Excluding
reverse repurchase agreements, loans and advances to customers, net
of impairment allowances, were GBP6,766 million higher as increases
in the open mortgage book and other retail balances were only
partially offset by reductions in the closed mortgage book, motor
finance and larger corporate lending; however bank and customer
reverse repurchase agreement balances decreased by GBP4,327 million
compared to 31 December 2020. Derivative assets were GBP1,905
million lower at GBP6,436 million compared to GBP8,341 million at
31 December 2020, reflecting reduced volumes and movements in
interest and exchange rates over the first six months of 2021.
Total liabilities were GBP8,071 million higher at GBP566,892
million compared to GBP558,821 million at 31 December 2020.
Customer deposits increased by GBP22,896 million, or 5 per cent, to
GBP457,465 million compared to GBP434,569 million at 31 December
2020, as a result of growth in retail current and savings accounts
and commercial deposits. This increase was partly offset by a
reduction in deposits from banks which were GBP8,968 million lower
at GBP16,029 million, reflecting the reduced need for wholesale
funding following the further growth in customer deposits, and in
derivative liabilities which were GBP2,887 million lower.
Shareholders' equity increased GBP1,890 million to GBP36,995
million; profit for the period was partly offset by movements in
the cash flow hedging reserve and dividends paid of GBP1,000
million.
REVIEW OF PERFORMANCE (continued)
Capital
The Group's Common equity tier 1 capital ratio has increased
from 15.5 per cent at 31 December 2020 to 16.1 per cent at 30 June
2021, primarily as a result of profit for the period and a
reduction in risk-weighted assets, partially offset by the
foreseeable dividend accrual and pension contributions. The tier 1
capital ratio reduced from 19.8 per cent at 31 December 2020 to
19.1 per cent at 30 June 2021 and the total capital ratio reduced
from 23.5 per cent at 31 December 2020 to 22.9 per cent at 30 June
2021, largely reflecting the annual reduction in transitional
limits applied to legacy tier 1 and tier 2 capital instruments in
addition to the derecognition of called AT1 instruments, offset in
part by the issuance of new AT1 and tier 2 instruments, the
increase in common equity tier 1 capital and the reduction in
risk-weighted assets.
Risk-weighted assets reduced by GBP3.7 billion to GBP167.2
billion at 30 June 2021 compared to GBP170.9 billion at 31 December
2020, primarily driven by continued optimisation activity
undertaken in Commercial Banking, partially offset by limited
impacts from credit deterioration, the latter in part due to the
mitigating impact of house price increases.
The Group's UK leverage ratio of 5.3 per cent at 30 June 2021
has reduced from 5.5 per cent at 31 December 2020.
RISK MANAGEMENT
PRINCIPAL RISKS AND UNCERTAINTIES
The significant risks faced by the Group are detailed below.
There has been no change to the definition of these risks from
those disclosed in the Group's 2020 Annual Report and Accounts.
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 and regulatory
developments.
The coronavirus pandemic has had an impact on all risk types and
continues to be a major area of focus. The Group responded quickly
to the challenges faced, putting in place risk mitigation
strategies and refining investment and strategic plans. Transition
planning remains a key focus in ensuring that the Group continues
to protect colleagues and services to customers as the situation
continues to evolve and in ensuring that the lessons learned from
the pandemic are embedded into future working practices.
Lloyds Banking Group is participating in the 2021 Bank of
England Biennial Exploratory Scenario on Climate (CBES) for
submission in October. The scope is to consider credit losses under
three different temperature scenarios over a thirty year horizon,
and the strategic actions Lloyds Banking Group could take to
mitigate Climate Risk. The CBES may be used to inform FPC and PRA
supervision and will not be used to set capital requirements.
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 - The risk that the Group experiences losses and/or
reputational damage as a result of climate change, either directly
or through its customers. These losses may be realised from
physical events, the required adaptation in transitioning to a low
carbon economy, or as a consequence of the responses to managing
these changes.
Market - The risk that the Group's capital or earnings profile
is affected by adverse market rates or prices, in particular
interest rates and credit spreads in the Banking business and
credit spreads in the Group's defined benefit pension schemes.
Credit - The risk that parties with whom the Group has
contracted fail to meet their financial obligations (both on and
off- balance sheet).
Funding and liquidity - Funding risk is defined as the risk that
the Group does not have sufficiently stable and diverse sources of
funding or the funding structure is inefficient. Liquidity risk is
defined as the risk that the Group has insufficient financial
resources to meet its commitments as they fall due, or can only
secure them at excessive cost.
Capital - The risk that the Group has a sub-optimal quantity or
quality of capital or that capital is inefficiently deployed across
the Group.
Change/execution - The risk that, in delivering its change
agenda, the Group fails to ensure compliance with laws and
regulation, maintain effective customer service and availability
and/or operation within the Group's risk appetite.
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.
Data - The risk of the Group failing to effectively govern,
manage and control its data (including data processed by third
party suppliers), leading to unethical decisions, poor customer
outcomes, loss of value to the Group and mistrust.
Governance - The risk that the Group's organisational
infrastructure fails to provide robust oversight of decision-making
and the control mechanisms to ensure strategies and management
instructions are implemented effectively.
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
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.
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.
Operational - The risk of loss resulting from inadequate or
failed internal processes, people and systems or from external
events.
Model - The risk of financial loss, regulatory censure,
reputational damage or customer detriment, as a result of
deficiencies in the development, application or ongoing operation
of models and rating systems.
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.
Strategic - The risk which results from:
-- Incorrect assumptions about internal or external operating environments
-- Failure to respond or the inappropriate strategic response to
material changes in the external or internal operating
environments
-- Failure to understand the potential impact of strategic
responses and business plans on existing risk types
CREDIT RISK PORTFOLIO
Overview
The Group has continued to actively support its customers
throughout the pandemic with a range of flexible options and
payment holidays across major products, as well as lending through
the various UK Government support schemes.
The macroeconomic outlook has improved and as the UK shows signs
of exiting the crisis, the Group's focus is now on supporting its
customers to recover.
The Group's lending portfolios were well positioned entering the
crisis and we retain a prudent approach to credit risk appetite and
risk management, with robust LTVs in our secured portfolios.
Considering the external environment, flows of assets into arrears,
defaults and write-off have remained at low levels.
It is recognised that Government support measures mean that the
true underlying risk may not be reflected in asset performance and
there is an expectation of increased arrears and defaults as these
various arrangements, designed to alleviate short-term financial
pressure, come to an end.
The Group has participated fully in UK Government lending
schemes, including the Bounce Back Loan Scheme and the Coronavirus
Business Interruption Loan Scheme, where UK Government guarantees
are in place at 100 per cent and 80 per cent, respectively.
Repayments under these schemes have started to become due, which
will be coupled with the withdrawal of Government support schemes
in the second half of 2021. The level of arrears is therefore being
carefully monitored, and the Group will continue to review customer
trends and indicators for early signs of distress.
The net impairment credit in the first half of 2021 was GBP677
million, compared to a charge of GBP3,625 million in the first half
of 2020. The first half credit resulted from the release of
expected credit loss (ECL) allowances driven by improvements to the
macroeconomic outlook in the UK, combined with robust credit
performance, with a low run-rate impairment charge given the
continued benign credit environment.
As a result, the Group's ECL allowance on loans and advances to
customers reduced in the period from GBP6,127 million to GBP4,994
million, largely resulting from improvements to the economic
outlook, including the impact of the extension of the Government's
Coronavirus Job Retention Scheme in the first quarter of 2021.
Reductions in Commercial Banking ECL allowances also reflect
improved customer outcomes on restructuring cases, reduction in
Stage 2 exposures and lower flows to default.
Stage 2 loans and advances to customers reduced from GBP51,280
million to GBP45,938 million, and as a percentage of total lending
reduced by 1.1 percentage points to 9.5 per cent (31 December 2020:
10.6 per cent), predominantly reflecting the improvement in the
Group's forward looking macroeconomic assumptions. Of these, 91.5
per cent are up to date (31 December 2020: 91.6 per cent). Stage 2
coverage reduced to 3.9 per cent (31 December 2020: 4.6 per
cent).
Stage 3 loans and advances reduced in the period to GBP6,142
million (31 December 2020: GBP6,443 million), and as a percentage
of total lending remained flat at 1.3 per cent (31 December 2020:
1.3 per cent). Stage 3 coverage reduced by 3.3 percentage points to
29.1 per cent (31 December 2020: 32.4 per cent) largely driven by a
small number of single name releases in Commercial Banking,
including on coronavirus impacted restructuring cases and
favourable asset price inflation benefiting the UK Mortgages and UK
Motor Finance portfolios in the Retail division.
Prudent risk appetite and risk management
-- The Group continues to take a prudent approach to credit risk
and a through-the-cycle credit risk appetite, whilst working
closely with customers to help them through and recover from the
crisis
-- Sector and asset class concentrations within the portfolios
are closely monitored and controlled, with mitigating actions taken
where appropriate. Sector and product caps limit exposure to
certain higher risk and vulnerable sectors and asset classes
-- The Group's effective risk management seeks to ensure early
identification and management of customers and counterparties who
may be showing signs of distress
-- As the UK starts to exit the crisis, the Group will continue
to work closely with its customers to ensure they receive the
appropriate level of support, including where repayments under the
UK Government scheme lending fall due
CREDIT RISK PORTFOLIO (continued)
Impairment charge by division
Half-year Half-year
Half-year to 30 to 31
to 30 June Dec
June 2021 2020 Change 2020 Change
GBPm GBPm % GBPm %
UK Mortgages (175) 603 (125) (40)
Credit cards 67 656 90 144 53
Loans and overdrafts 58 462 87 277 79
UK Motor Finance (40) 241 (15)
Other 1 133 8 88
---------- --------- ---------
Retail (89) 2,095 289
Commercial Banking (585) 1,328 (48)
Central Items (3) 202 194
---------- --------- ---------
Total impairment (credit)
charge (677) 3,625 435
---------- --------- ---------
Group total expected credit loss allowance
At 30 At 31
June 2021 Dec 2020
GBPm GBPm
Customer related balances
---------- ---------
Drawn 4,646 5,701
Undrawn 348 426
---------- ---------
4,994 6,127
Other assets 3 5
---------- ---------
Total ECL allowance 4,997 6,132
---------- ---------
Movements in Group total expected credit loss allowance
Income
ECL at statement ECL at
30 Net ECL Write-offs charge 31
June 2021 increase and other (credit) Dec 2020
GBPm GBPm GBPm GBPm GBPm
UK Mortgages 905 (122) 53 (175) 1,027
Credit cards 802 (121) (188) 67 923
Loans and overdrafts 606 (109) (167) 58 715
UK Motor Finance 434 (67) (27) (40) 501
Other 211 (18) (19) 1 229
---------- --------- ---------- ---------- ---------
Retail 2,958 (437) (348) (89) 3,395
Commercial Banking 1,618 (697) (112) (585) 2,315
Central Items 421 (1) 2 (3) 422
---------- --------- ---------- ---------- ---------
Total(1) 4,997 (1,135) (458) (677) 6,132
---------- --------- ---------- ---------- ---------
(1) Total ECL includes GBP3 million relating to other non
customer-related assets (31 December 2020: GBP5 million).
CREDIT RISK PORTFOLIO (continued)
Group loans and advances to customers and expected credit loss
allowances
Stage Stage Stage
1 2 3 POCI Total
Stage Stage
2 3
as % as %
of of
At 30 June 2021 GBPm GBPm GBPm GBPm GBPm total total
Loans and advances to customers
UK Mortgages 262,541 29,770 1,924 11,886 306,121 9.7 0.6
Credit cards 10,956 2,936 323 - 14,215 20.7 2.3
Loans and overdrafts 7,782 1,413 312 - 9,507 14.9 3.3
UK Motor Finance 12,347 2,272 233 - 14,852 15.3 1.6
Other 18,074 1,203 244 - 19,521 6.2 1.2
------- ------- ------- ------ ------- ------ ------
Retail 311,700 37,594 3,036 11,886 364,216 10.3 0.8
SME 27,952 3,139 863 - 31,954 9.8 2.7
Other 31,615 5,169 2,181 - 38,965 13.3 5.6
------- ------- ------- ------ ------- ------ ------
Commercial Banking 59,567 8,308 3,044 - 70,919 11.7 4.3
Central items(1) 50,755 36 62 - 50,853 0.1 0.1
------- ------- ------- ------ ------- ------ ------
Total gross lending 422,022 45,938 6,142 11,886 485,988 9.5 1.3
ECL allowance on drawn balances (1,173) (1,616) (1,667) (190) (4,646)
------- ------- ------- ------ -------
Net balance sheet carrying
value 420,849 44,322 4,475 11,696 481,342
------- ------- ------- ------ -------
Group ECL allowance (drawn and
undrawn)
UK Mortgages 129 411 175 190 905 45.4 19.3
Credit cards 200 462 140 - 802 57.6 17.5
Loans and overdrafts 178 277 151 - 606 45.7 24.9
UK Motor Finance(2) 154 129 151 - 434 29.7 34.8
Other 51 105 55 - 211 49.8 26.1
------- ------- ------- ------ ------- ------ ------
Retail 712 1,384 672 190 2,958 46.8 22.7
SME 106 129 112 - 347 37.2 32.3
Other 108 280 881 - 1,269 22.1 69.4
------- ------- ------- ------ ------- ------ ------
Commercial Banking 214 409 993 - 1,616 25.3 61.4
Central items 409 1 10 - 420 0.2 2.4
------- ------- ------- ------ ------- ------ ------
Total ECL allowance (drawn
and undrawn) 1,335 1,794 1,675 190 4,994 35.9 33.5
------- ------- ------- ------ ------- ------ ------
Group ECL allowances (drawn and
undrawn) as a % of loans and
advances to customers(3)
UK Mortgages - 1.4 9.1 1.6 0.3
Credit cards 1.8 15.7 55.3 - 5.7
Loans and overdrafts 2.3 19.6 62.4 - 6.4
UK Motor Finance 1.2 5.7 64.8 - 2.9
Other 0.3 8.7 41.4 - 1.1
------- ------- ------- ------ -------
Retail 0.2 3.7 24.1 1.6 0.8
SME 0.4 4.1 15.2 - 1.1
Other 0.3 5.4 40.5 - 3.3
------- ------- ------- ------ -------
Commercial Banking 0.4 4.9 34.1 - 2.3
Central items 0.8 2.8 16.1 - 0.8
------- ------- ------- ------ -------
Total ECL allowances (drawn
and
undrawn) as a % of loans
and advances
to customers 0.3 3.9 29.1 1.6 1.0
------- ------- ------- ------ -------
(1) Includes reverse repos of GBP48.9 billion.
(2) UK Motor Finance for Stages 1 and 2 include GBP136 million
relating to provisions against residual values of vehicles subject
to finance leasing agreements. These provisions are included within
the calculation of coverage ratios.
(3) Total and Stage 3 ECL allowances as a percentage of drawn
balances exclude loans in recoveries in Credit cards of GBP70
million, Loans and overdrafts of GBP70 million, Retail other of
GBP111 million, SME of GBP124 million and Commercial Banking other
of GBP5 million.
CREDIT RISK PORTFOLIO (continued)
Group loans and advances to customers and expected credit loss
allowances (continued)
Stage Stage Stage
1 2 3 POCI Total
Stage Stage
2 3
as % as %
of of
At 31 December 2020 GBPm GBPm GBPm GBPm GBPm total total
Loans and advances to customers
UK Mortgages 251,418 29,018 1,859 12,511 294,806 9.8 0.6
Credit cards 11,496 3,273 340 - 15,109 21.7 2.3
Loans and overdrafts 7,710 1,519 307 - 9,536 15.9 3.2
UK Motor Finance 12,786 2,216 199 - 15,201 14.6 1.3
Other 17,879 1,304 184 - 19,367 6.7 1.0
------- ------- ------- ------ ------- ------ ------
Retail 301,289 37,330 2,889 12,511 354,019 10.5 0.8
SME 27,015 4,500 791 - 32,306 13.9 2.4
Other 29,882 9,438 2,694 - 42,014 22.5 6.4
------- ------- ------- ------ ------- ------ ------
Commercial Banking 56,897 13,938 3,485 - 74,320 18.8 4.7
Central items(1) 57,422 12 69 - 57,503 - 0.1
------- ------- ------- ------ ------- ------ ------
Total gross lending 415,608 51,280 6,443 12,511 485,842 10.6 1.3
ECL allowance on drawn balances (1,347) (2,125) (1,968) (261) (5,701)
------- ------- ------- ------ -------
Net balance sheet carrying
value 414,261 49,155 4,475 12,250 480,141
------- ------- ------- ------ -------
Group ECL allowance (drawn and
undrawn)
UK Mortgages 107 468 191 261 1,027 45.6 18.6
Credit cards 240 530 153 - 923 57.4 16.6
Loans and overdrafts 224 344 147 - 715 48.1 20.6
UK Motor Finance(2) 197 171 133 - 501 34.1 26.5
Other 46 124 59 - 229 54.1 25.8
------- ------- ------- ------ ------- ------ ------
Retail 814 1,637 683 261 3,395 48.2 20.1
SME 142 234 126 - 502 46.6 25.1
Other 172 475 1,161 - 1,808 26.3 64.2
------- ------- ------- ------ ------- ------ ------
Commercial Banking 314 709 1,287 - 2,310 30.7 55.7
Central items 410 - 12 - 422 - 2.8
------- ------- ------- ------ ------- ------ ------
Total ECL allowance (drawn
and undrawn) 1,538 2,346 1,982 261 6,127 38.3 32.3
------- ------- ------- ------ ------- ------ ------
Group ECL allowances (drawn and
undrawn) as a
% of loans and advances to customers(3)
UK Mortgages - 1.6 10.3 2.1 0.3
Credit cards 2.1 16.2 56.0 - 6.1
Loans and overdrafts 2.9 22.6 64.2 - 7.6
UK Motor Finance 1.5 7.7 66.8 - 3.3
Other 0.3 9.5 39.3 - 1.2
------- ------- ------- ------ -------
Retail 0.3 4.4 25.2 2.1 1.0
SME 0.5 5.2 19.1 - 1.6
Other 0.6 5.0 43.2 - 4.3
------- ------- ------- ------ -------
Commercial Banking 0.6 5.1 38.5 - 3.1
Central items 0.7 - 17.4 - 0.7
------- ------- ------- ------ -------
Total ECL allowances (drawn
and undrawn) as a percentage
of loans and advances to
customers 0.4 4.6 32.4 2.1 1.3
------- ------- ------- ------ -------
(1) Includes reverse repos of GBP54.4 billion.
(2) UK Motor Finance for Stages 1 and 2 include GBP192 million
relating to provisions against residual values of vehicles subject
to finance leasing agreements. These provisions are included within
the calculation of coverage ratios.
(3) Total and Stage 3 ECL allowances as a percentage of drawn
balances exclude loans in recoveries in Credit cards of GBP67
million, Loans and overdrafts of GBP78 million, Retail other of
GBP34 million, SME of GBP132 million and Commercial Banking other
of GBP6 million.
CREDIT RISK PORTFOLIO (continued)
Group Stage 2 loans and advances to customers
Up to date
--------------------------------
1-30 days Over 30 days
PD movements Other(1) past due(2) past due Total
---------------
Gross Gross Gross Gross Gross
lending ECL(3) lending ECL(3) lending ECL(3) lending ECL(3) lending ECL(3)
At 30 June
2021 GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
UK
Mortgages 23,034 191 3,630 122 1,491 32 1,615 66 29,770 411
Credit
cards 2,640 356 189 68 77 22 30 16 2,936 462
Loans and
overdrafts 854 162 396 54 127 43 36 18 1,413 277
UK Motor
Finance 966 47 1,148 39 122 29 36 14 2,272 129
Other 494 58 586 33 64 9 59 5 1,203 105
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Retail 27,988 814 5,949 316 1,881 135 1,776 119 37,594 1,384
SME 2,866 118 178 6 24 2 71 3 3,139 129
Other 4,953 275 72 2 49 2 95 1 5,169 280
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Commercial
Banking 7,819 393 250 8 73 4 166 4 8,308 409
Central items 17 - 18 1 - - 1 - 36 1
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total 35,824 1,207 6,217 325 1,954 139 1,943 123 45,938 1,794
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
At 31 December 2020
UK
Mortgages 22,569 215 3,078 131 1,648 43 1,723 79 29,018 468
Credit
cards 2,924 408 220 76 93 27 36 19 3,273 530
Loans and
overdrafts 959 209 388 68 126 45 46 22 1,519 344
UK Motor
Finance 724 62 1,321 55 132 37 39 17 2,216 171
Other 512 56 651 44 69 14 72 10 1,304 124
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Retail 27,688 950 5,658 374 2,068 166 1,916 147 37,330 1,637
SME 4,229 219 150 6 40 5 81 4 4,500 234
Other 9,151 469 83 3 28 2 176 1 9,438 475
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Commercial
Banking 13,380 688 233 9 68 7 257 5 13,938 709
Central items 1 - 11 - - - - - 12 -
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total 41,069 1,638 5,902 383 2,136 173 2,173 152 51,280 2,346
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
(1) Includes forbearance, client and product-specific indicators
not reflected within quantitative PD assessments.
(2) Includes assets that have triggered PD movements, or other
rules, given that being 1-29 days in arrears in and of itself is
not a Stage 2 trigger.
(3) Expected credit loss allowances on loans and advances to
customers (drawn and undrawn).
CREDIT RISK PORTFOLIO (continued)
ECL sensitivity to economic assumptions
The measurement of ECL reflects an unbiased probability-weighted
range of possible future economic outcomes. The Group achieves this
by generating four economic scenarios to reflect the range of
outcomes; the central scenario reflects the Group's base case
assumptions used for medium-term planning purposes, an upside and a
downside scenario are also selected together with a severe downside
scenario. The base case, upside and downside scenarios carry a 30
per cent weighting; the severe downside is weighted at 10 per cent.
These assumptions can be found in note 2 on page 39 onwards.
The table below shows the Group's ECL for the upside, base case,
downside and severe downside scenarios. The stage allocation for an
asset is based on the overall scenario probability-weighted PD and
hence the Stage 2 allocation is constant across all the scenarios.
ECL applied through individual assessments and post-model
adjustments is reported flat against each economic scenario,
reflecting the basis on which they are evaluated.
Probability- Severe
weighted Upside Base case Downside downside
GBPm GBPm GBPm GBPm GBPm
UK Mortgages 905 544 684 1,100 2,064
Other Retail 2,053 1,896 2,009 2,152 2,355
Commercial Banking 1,618 1,369 1,497 1,763 2,296
Other 421 419 421 421 425
----- ------ --------- -------- ---------
At 30 June 2021 4,997 4,228 4,611 5,436 7,140
----- ------ --------- -------- ---------
UK Mortgages 1,027 614 803 1,237 2,306
Other Retail 2,368 2,181 2,310 2,487 2,745
Commercial Banking 2,315 1,853 2,102 2,575 3,554
Other 422 420 422 422 428
----- ------ --------- -------- ---------
At 31 December 2020 6,132 5,068 5,637 6,721 9,033
----- ------ --------- -------- ---------
CREDIT RISK PORTFOLIO (continued)
Retail
(--) The Retail portfolio has remained robust and well
positioned throughout the coronavirus pandemic. Risk management has
been enhanced since the last financial crisis, with strong
affordability and indebtedness controls for both new and existing
lending and a prudent risk appetite approach. This is evident in
the significant improvement in credit quality and low arrears
rates
(--) The Group has actively supported its Retail customers
during the pandemic, through a range of propositions, such as
payment holidays, while personal current account customers have had
access to up to GBP500 interest free arranged overdrafts
(--) Nearly 1.3 million payment holidays, on GBP65.1 billion of
lending, have been granted on Retail products during the pandemic,
with c.7,000 remaining live. Over 93 per cent of expired payment
holidays have now resumed payments, while 6 per cent are either in
arrears or have been charged off
(--) The Group has taken targeted steps across the Retail
product offering to implement tighter credit quality controls on
key risk indicators such as indebtedness and credit scores to
ensure that customers and the bank are protected
(--) Arrears rates across the portfolios remain low despite
expiry of almost all payment holidays
(--) Although the macroeconomic outlook has improved, customers
have been significantly impacted by the pandemic and credit
performance is expected to worsen in coming months, consistent with
the Group's economic assumptions, as the Government support
measures come to an end and unemployment rises
(--) The Retail impairment credit in the first half of 2021 was
GBP89 million, compared to a charge of GBP2,095 million in the
first half of 2020. This significant decrease resulted from a
release of expected credit loss (ECL) allowances driven by the UK's
improved macroeconomic outlook combined with a robust observed
credit performance, with charges relating to flows to arrears and
default remaining low despite expiry of almost all payment
holidays. This impact compares favourably to the substantial
impairment charge to account for the deterioration in the
macroeconomic outlook over the first half of 2020
(--) Existing IFRS 9 staging rules and triggers have been
maintained across Retail from year end 2020 with the exception of
minor changes to the Loans and Overdrafts portfolio to tighten
criteria and align to the Credit cards portfolio. Transfers between
stages have been primarily driven by credit risk rating movements
and the estimated impact of the economic factors on a customer's
forward looking default risk
(--) Total Retail ECL allowance as a percentage of drawn loans
and advances (coverage) has reduced slightly to 0.8 per cent (31
December 2020: 1.0 per cent) following the updates in the Group's
economic forecast. As at 30 June 2021, 46.8 per cent of total
Retail ECL is reflected within Stage 2 under IFRS 9, representing
cases which have observed a Significant Increase in Credit Risk
since origination (SICR)
(--) Stage 2 loans and advances now comprise 10.3 per cent of
the Retail portfolio (31 December 2020: 10.5 per cent), of which
90.3 per cent are up to date performing loans. Stage 2 ECL coverage
has also decreased to 3.7 per cent (31 December 2020: 4.4 per cent)
reflecting the improved macroeconomic outlook
(--) Stage 3 loans and advances have remained flat at 0.8 per
cent of total loans and advances (31 December 2020: 0.8 per cent),
Stage 3 ECL coverage decreased to 24.1 per cent (31 December 2020:
25.2 per cent) due to favourable asset price inflation (both
observed and forecast), benefiting the UK Mortgages and UK Motor
Finance portfolios in particular
CREDIT RISK PORTFOLIO (continued)
Portfolios
UK Mortgages
(--) The UK Mortgages portfolio is well positioned with low
arrears and a low loan-to-value (LTV) profile. The Group has
actively improved the quality of the portfolio over recent years
using robust affordability and credit controls, whilst the balances
of higher risk portfolios originated prior to 2008 have continued
to reduce
(--) Whilst the housing market has remained resilient through
the pandemic with continued strong customer demand, the Group has
taken action to protect credit quality and participates in the
Government guarantee scheme for greater than 90 per cent LTVs,
which provides risk mitigation at the highest exposures
(--) Total loans and advances increased to GBP306.1 billion (31
December 2020: GBP294.8 billion), with a small reduction in average
LTV to 43.1 per cent (31 December 2020: 43.5 per cent). The
proportion of balances with an LTV greater than 90 per cent
decreased to 0.4 per cent (31 December 2020: 0.6 per cent). The
average LTV of new business decreased to 63.1 per cent (31 December
2020: 63.9 per cent)
(--) There was a net impairment credit of GBP175 million for the
first half of 2021 compared to a charge of GBP603 million for the
first half of 2020, reflecting improvements to the UK's
macroeconomic outlook and in particular resilient house prices.
Total ECL coverage remains flat at 0.3 per cent (31 December 2020:
0.3 per cent)
(--) Stage 2 loans and advances decreased to 9.7 per cent of the
portfolio (31 December 2020: 9.8 per cent), and Stage 2 ECL
coverage has reduced to 1.4 per cent (31 December 2020: 1.6 per
cent). These impacts also reflect improvements in the UK's
macroeconomic outlook, with a reduction in balances transferred
into Stage 2 based on the forward looking view of their credit
performance, in addition to favourable experience and house price
assumptions
(--) Stage 3 ECL coverage decreased to 9.1 per cent (31 December
2020: 10.3 per cent) again due to favourable house price
assumptions (both observed and forecast)
Credit cards
(--) Credit card balances decreased to GBP14.2 billion (31
December 2020: GBP15.1 billion) due to reduced levels of customer
spending
(--) The credit card portfolio is a prime book which has
performed well in recent years, with lower arrears rates compared
to the High Street Bank peer group
(--) The impairment charge was GBP67 million for the first half
of 2021 compared to a charge of GBP656 million for the first half
of 2020, with overall ECL coverage decreasing to 5.7 per cent (31
December 2020: 6.1 per cent). These decreases are due to lower than
anticipated arrears emergence, in conjunction with the improved
outlook within the Group's economic forecast
(--) Stage 2 loans and advances have reduced to 20.7 per cent of
the portfolio (31 December 2020: 21.7 per cent) and Stage 2 ECL
coverage has reduced to 15.7 per cent (31 December 2020: 16.2 per
cent). These impacts reflect improvements in the UK's macroeconomic
outlook, most notably the more favourable unemployment forecast
(--) Stage 3 ECL coverage decreased to 55.3 per cent (31
December 2020: 56.0 per cent) due to a slight improvement in the
mix of customers within Stage 3
Loans and overdrafts
(--) Loans and advances for personal current account and the
personal loans portfolios held flat at GBP9.5 billion (31 December
2020: GBP9.5 billion) with some early signs of recovery in customer
spend and demand for credit
(--) The impairment charge was GBP58 million for the first half
of 2021, compared to GBP462 million for the first half of 2020.
This decrease is again partly due to the improved outlook within
the Group's macroeconomic forecasts in addition to lower than
anticipated arrears emergence, reducing both Stage 2 ECL coverage
to 19.6 per cent (31 December 2020: 22.6 per cent) and overall ECL
coverage to 6.4 per cent (31 December 2020: 7.6 per cent)
CREDIT RISK PORTFOLIO (continued)
UK Motor Finance
(--) The UK Motor Finance portfolio decreased to GBP14.9 billion
(31 December 2020: GBP15.2 billion) due to reduced market activity
and new car supply issues as a result of the pandemic
(--) There was a net impairment credit of GBP40 million for the
first half of 2021 compared to a charge of GBP241 million for the
first half of 2020, reflecting improvements to the UK's
macroeconomic outlook and in particular higher than expected used
car prices. Overall ECL coverage has decreased to 2.9 per cent (31
December 2020: 3.3 per cent)
(--) Updates to Residual Value (RV) and Voluntary Termination
(VT) risk held against Personal Contract Purchase (PCP) and Hire
Purchase (HP) lending are included within the impairment charge.
The improved macroeconomic outlook, supported by better than
expected disposal experience, resulted in a net impairment credit
of GBP41 million for RV and VT risk in the first half of 2021
(--) Stage 2 ECL coverage decreased to 5.7 per cent (31 December
2020: 7.7 per cent) and Stage 3 ECL coverage decreased to 64.8 per
cent (31 December 2020: 66.8 per cent) due to the impact from
updates to the Group's outlook on used car prices
Other
(--) Other loans and advances increased to GBP19.5 billion (31
December 2020: GBP19.4 billion)
(--) The impairment charge was GBP1 million for 2021 compared to
GBP133 million for the first half of 2020, primarily due to the
improved outlook within the Group's economic forecasts
Retail UK Mortgages loans and advances to customers
At 30 At 31
June 2021(1) Dec 2020(1)
GBPm GBPm
Mainstream 245,147 234,273
Buy-to-let 50,907 49,634
Specialist 10,067 10,899
------------- ------------
Total 306,121 294,806
------------- ------------
(1) Balances include the impact of HBOS related acquisition
adjustments.
CREDIT RISK PORTFOLIO (continued)
Commercial Banking
(--) Commercial Banking has actively supported its customers
throughout the crisis, through a range of propositions, including
capital repayment holidays, working capital line increases and
financial covenant waivers, as well as supporting small businesses
and corporates through full use of UK Government schemes
(--) Although the macroeconomic outlook has improved, the
pandemic has resulted in widespread industry disruption, with some
sectors such as travel, transportation, non-essential retail,
leisure and hospitality particularly impacted. However, as a
proportion of the Group's overall lending, exposure to these
sectors remains limited
(--) The Group still expects recovery to be slower in a few of
the impacted sectors and anticipates longer term structural changes
in these, and a number of other sectors. Sector and credit risk
appetite continue to be proactively managed to ensure the Group is
protected and clients are supported in the right way
(--) Observed credit quality has been broadly stable in the
first half of 2021, noting that this is likely to be influenced by
the significant temporary support provided by the UK Government in
light of the pandemic, which has had the potential to distort the
underlying credit risk profile, particularly in the predominantly
secured SME portfolio
(--) Commercial Banking has continued to support its more
vulnerable clients early through focused risk management via the
Group's Watchlist and Business Support framework
(--) The Group does anticipate a negative impact from the
withdrawal of UK Government support measures in the second half of
2021. This may also be seen as repayments under UK Government
support schemes start to become due, with an increase in arrears
and defaults expected, consistent with macroeconomic expectations.
It is anticipated that these will be protracted over a number of
years, given the flexible payment deferral options available under
the various UK Government lending schemes. The level of arrears is
therefore being carefully monitored with early risk mitigation
activities taken as appropriate
(--) Although significant uncertainties remain, the Group will
continue to balance prudent risk appetite with ensuring support for
financially viable clients on their road to recovery
Impairments
(--) There was a net impairment credit of GBP585 million in the
first half of 2021, compared to a charge of GBP1,328 million in the
first half of 2020. The credit was driven by the release of
expected credit loss (ECL) allowances resulting from improvements
to the UK's macroeconomic outlook; improved restructuring outcomes
on cases managed within the Business Support Unit (BSU) and other
Stage 3 releases; lower balance sheet and credit quality
improvement, including in Stage 2 exposures; and low levels of
gross charges from cases flowing into default. As a result, ECL
allowances reduced by GBP694 million to GBP1,616 million at 30 June
2021 (31 December 2020: GBP2,310 million)
(--) The Group recognises that credit quality has been partly
supported by the temporary measures provided by the UK Government
schemes and the ECL provision at 30 June 2021 assumes additional
losses will emerge as the support subsides and structural change
emerges in some sectors
(--) Stage 2 loans and advances reduced by GBP5,630 million to
GBP8,308 million (31 December 2020: GBP13,938 million), largely
driven by the improvement in the Group's forward looking economic
assumptions, with 97.1 per cent of Stage 2 balances being current
and up to date. As a result, Stage 2 loans as a proportion of total
loans and advances to customers reduced to 11.7 per cent (31
December 2020: 18.8 per cent). Stage 2 ECL coverage was lower at
4.9 per cent (31 December 2020: 5.1 per cent) with the reduction in
coverage a direct result of the forward look multiple economic
scenarios
(--) Stage 3 loans and advances reduced to GBP3,044 million (31
December 2020: GBP3,485 million) and as a proportion of total loans
and advances to customers, reduced to 4.3 per cent (31 December
2020: 4.7 per cent). SME flows to Stage 3 remain suppressed and
non-SME flows were offset by repayments and write-offs. Stage 3 ECL
coverage reduced to 34.1 per cent (31 December 2020: 38.5 per cent)
predominantly driven by the release of provisions on a small number
of cases in Business Support, including coronavirus impacted
restructuring cases
CREDIT RISK PORTFOLIO (continued)
Commercial Banking UK Direct Real Estate
(--) Commercial Banking UK Direct Real Estate gross lending
stood at GBP11.6 billion at 30 June 2021 (net of exposures subject
to protection through Significant Risk Transfer (SRT)
securitisations). The Group has a further GBP0.8 billion of UK
Direct Real Estate exposure in Business Banking within the Retail
division
(--) The Group classifies Direct Real Estate as exposure which
is directly supported by cash flows from property activities (as
opposed to trading activities, such as hotels, care homes and
housebuilders). Exposures of GBP5.2 billion to social housing
providers are also excluded
(--) Recognising this is a cyclical sector, caps are in place to
control origination and exposure, including a number of asset type
categories. Focus remains on the UK market and business
propositions have been written in line with a prudent,
through-the-cycle risk appetite with conservative LTVs, strong
quality of income and proven management teams
(--) Overall performance has remained resilient. Watchlist
numbers increased through Q1 but have now stabilised. Transfers to
BSU have been limited and the BSU CRE portfolio is largely
concentrated in the retail/shopping centres sub sector, although
this is reducing and remains modest in the context of the overall
BSU portfolio. Overall rent collection has been impacted by the
coronavirus pandemic, particularly in the retail and leisure space
given the impact of lockdowns, though the office sub sector has
been resilient. Despite these challenges the portfolio is well
positioned and proactively managed with appropriate risk mitigants
in place
(-) Exposures over GBP1 million continue to be heavily weighted
towards investment real estate (c.90 per cent) over development. Of
these investment exposures, over 76 per cent have an LTV of less
than 60 per cent, with an average LTV of 49 per cent
(-) c.90 per cent of exposures greater than GBP5 million have an
interest cover ratio of greater than 2.0 times and in SME, LTV at
origination has been typically limited to c.55 per cent, given
prudent repayment cover criteria (including a notional base rate
stress)
(-) Approximately 60 per cent of exposures over GBP1 million
relate to commercial real estate (with no speculative development
lending) with the remainder related to residential real estate. The
underlying sub-sector split is diversified with c.13.5 per cent of
exposures secured by Retail assets and appetite tightened since
2018
(-) The Office portfolio is focused on prime locations with
strong sponsors and low LTVs, as well as no speculative commercial
development. Commercial risk appetite continues to be proactively
managed with appropriate risk mitigation tightening seen in the
first half of 2021
(-) Use of SRT securitisations also acts as a risk mitigant in
this portfolio, with run off of these carefully managed and
tracked
(-) Both investment and development lending is subject to
specific credit risk appetite criteria. Development lending
criteria include maximum loan to gross development value and
maximum loan to cost, with funding typically only released against
completed work, as confirmed by the Group's monitoring quantity
surveyor
CREDIT RISK PORTFOLIO (continued)
Commercial Banking lending in key coronavirus-impacted
sectors(1)
At 30 June 2021 At 31 December 2020
--------------------------------------- --------------------------------------
Drawn
as a Drawn
% of as a
loans Drawn % of
Drawn and and loans
Drawn Undrawn and undrawn advances Drawn Undrawn undrawn and advances
GBPbn GBPbn GBPbn % GBPbn GBPbn GBPbn %
Retail non-food 2.1 1.4 3.5 0.4 2.1 1.5 3.6 0.4
Automotive
dealerships(2) 1.3 2.1 3.4 0.3 1.7 2.0 3.7 0.4
Construction 0.8 1.5 2.3 0.2 0.8 1.6 2.4 0.2
Passenger
transport 1.4 0.7 2.1 0.3 1.1 1.0 2.1 0.2
Hotels 1.5 0.3 1.8 0.3 1.8 0.3 2.1 0.4
Leisure 0.6 0.6 1.2 0.1 0.6 0.7 1.3 0.1
Restaurants
and bars 0.5 0.3 0.8 0.1 0.6 0.3 0.9 0.1
----- ------- ----------- ----- ------- --------
Total 8.2 6.9 15.1 1.7 8.7 7.4 16.1 1.8
----- ------- ----------- ----- ------- --------
(1) Lending classified using ONS Standard Industrial
Classification codes at legal entity level; drawn balances exclude
c.GBP1 billion lending under the Coronavirus Business Interruption
Loan Scheme and the Bounce Back Loan Scheme. Oil and Gas has been
removed as a key coronavirus-impacted sector.
(2) Automotive dealerships includes Black Horse Motor Wholesale
lending (within the Retail Division).
FUNDING AND LIQUIDITY MANAGEMENT
The Group has maintained its strong funding and liquidity
position with a loan to deposit ratio of 96 per cent as at 30 June
2021. Customer deposits continued to increase over the period as
customer spending remained subdued. This increased the Group's cash
reserves held at the Bank of England and allowed the Group to repay
GBP5 billion of the Term Funding Scheme with additional incentives
for SMEs (TFSME) taking the total outstanding amount to GBP8.7
billion as at 30 June 2021.
The Group's liquid assets continue to exceed the regulatory
minimum and internal risk appetite, with a liquidity coverage ratio
(LCR) of 122 per cent (based on a monthly rolling average over the
previous 12 months) as at 30 June 2021.
The Group continues to expect limited term funding needs over
the course of the second half of the year given the on-going
availability of customer deposits and TFSME, both of which are more
cost effective sources of funding for the Group. Overall, wholesale
funding totalled GBP74.8 billion as at 30 June 2021.
Lloyds Bank credit ratings continue to reflect the resilience of
the bank's business model and the strength of the balance sheet.
During July, Moody's finalised and updated their ratings
methodology and used it to drive a number of ratings changes for UK
banks, including a one notch upgrade to the Subordinated issuances
of Lloyds Bank. All Rating Agencies also now recognise a Stable
Outlook on Lloyds Bank ratings, with S&P and Fitch returning
Lloyds Bank to Stable during June and July to reflect better
underlying UK economic expectations and their belief that Lloyds
Bank is well positioned to benefit from the macroeconomic recovery
underway.
FUNDING AND LIQUIDITY MANAGEMENT (continued)
Lloyds Bank Group funding requirements and sources
At 30 At 31
June Dec
2021 2020 Change
GBPbn GBPbn %
Lloyds Bank Group Funding position
Loans and advances to customers(1) 432.5 425.6 2
Loans and advances to banks(2) 4.6 4.3 7
Debt securities at amortised cost 4.8 5.1 (6)
Reverse repurchase agreements - non-trading 51.7 56.1 (8)
Financial assets at fair value through other
comprehensive income 25.8 27.3 (5)
Cash and balances at central banks 58.7 49.9 18
Other assets(3) 31.5 31.6 -
------ ------
Total Lloyds Bank Group assets 609.6 599.9 2
Less other liabilities (3) (18.4) (21.4) (14)
------ ------
Funding requirements 591.2 578.5 2
------ ------
Customer deposits(4) 449.6 425.2 6
Wholesale funding(5) 74.8 79.6 (6)
Repurchase agreements - non-trading 9.3 14.5 (36)
Term funding scheme(6) 8.7 13.7 (36)
Deposits from fellow Lloyds Banking Group
undertakings 6.1 4.4 39
------ ------
548.5 537.4 2
Total equity 42.7 41.1 4
------ ------
Funding sources 591.2 578.5 2
------ ------
(1) Excludes reverse repos of GBP48.9 billion (31 December 2020:
GBP54.4 billion).
(2) Excludes GBP2.8 billion (31 December 2020: GBP1.6 billion)
of reverse repurchase agreements.
(3) Other assets and other liabilities include the fair value of
derivative assets and liabilities.
(4) Excludes repos of GBP7.9 billion (31 December 2020: GBP9.4
billion).
(5) Lloyds Bank Group's definition of wholesale funding aligns
with that used by other international market participants;
including bank deposits, debt securities in issue and subordinated
liabilities. Excludes balances relating to margins of GBP1.6
billion (31 December 2020: GBP1.8 billion).
(6) 31 December 2020 balance includes the Bank of England's Term
Funding Scheme (TFS). 30 June 2021 and 31 December 2020 include the
Term Funding Scheme with additional incentives for SMEs
(TFSME).
FUNDING AND LIQUIDITY MANAGEMENT (continued)
Items due
to
fellow
Lloyds Fair value
Included Repos Banking and other
in funding and cash Group accounting Balance
analysis collateral undertakings methods sheet
At 30 June 2021 GBPbn GBPbn GBPbn GBPbn GBPbn
Deposits from banks 4.2 11.8 - - 16.0
Debt securities in
issue 60.8 - (15.7) 10.0 55.1
Subordinated liabilities 9.8 - - (0.2) 9.6
----------- ----------- -------------
Total wholesale funding 74.8 11.8 (15.7)
Customer deposits 449.6 7.9 - - 457.5
----------- ----------- -------------
Total 524.4 19.7 (15.7)
----------- ----------- -------------
At 31 December 2020
Deposits from banks 3.9 18.8 - 2.3 25.0
Debt securities in
issue 66.4 - (16.1) 9.0 59.3
Subordinated liabilities 9.3 - - (0.1) 9.2
----------- ----------- -------------
Total wholesale funding 79.6 18.8 (16.1)
Customer deposits 425.2 9.4 - - 434.6
----------- ----------- -------------
Total 504.8 28.2 (16.1)
----------- ----------- -------------
Analysis of total wholesale funding by residual maturity
Total Total
Less One Six Nine One Two More at at
than to Three to months to to than 30 31
one three to six nine to one two five five June Dec
month months months months year years years years 2021 2020
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
Deposit from
banks 3.2 1.0 - - - - - - 4.2 3.9
Debt securities
in issue:
------ ------ ------ ------ ----- ----- ----- ----- -------
Certificates
of deposit - 0.3 0.1 0.1 - - - - 0.5 3.6
Commercial
paper 4.0 4.9 0.9 - - - - - 9.8 5.6
Medium-term
notes 1.7 0.8 1.0 1.2 0.9 5.5 11.0 6.3 28.4 31.2
Covered bonds 1.3 0.7 0.4 1.0 1.1 5.5 5.7 3.9 19.6 23.1
Securitisation 0.4 0.2 0.5 - 0.2 1.2 - - 2.5 2.9
----- ------ ------ ------ ------ ----- ----- ----- ----- -----
7.4 6.9 2.9 2.3 2.2 12.2 16.7 10.2 60.8 66.4
Subordinated
liabilities - 1.1 1.6 - - 0.2 3.3 3.6 9.8 9.3
----- ------ ------ ------ ------ ----- ----- ----- ----- -----
Total wholesale
funding(1) 10.6 9.0 4.5 2.3 2.2 12.4 20.0 13.8 74.8 79.6
----- ------ ------ ------ ------ ----- ----- ----- ----- -----
(1) Excludes balances relating to margins of GBP1.6 billion (31
December 2020: GBP1.8 billion).
FUNDING AND LIQUIDITY MANAGEMENT (continued)
Analysis of 2021 term issuance
Other
Sterling US Dollar Euro currencies Total
GBPbn GBPbn GBPbn GBPbn GBPbn
Medium-term notes - 1.5 - - 1.5
Covered bonds - - - - -
Private placements - - - - -
Subordinated liabilities(1) 1.5 1.1 - - 2.6
-------- --------- ----- ----------- -----
Total issuance 1.5 2.6 - - 4.1
-------- --------- ----- ----------- -----
(1) Subordinated liabilities include AT1s.
Liquidity Portfolio
At 30 June 2021, the Group had GBP111.7 billion of highly liquid
unencumbered LCR eligible assets, based on a monthly rolling
average over the previous 12 months post any liquidity haircuts (31
December 2020: GBP113.4 billion). These assets are available to
meet cash and collateral outflows and regulatory requirements.
The Group also has a significant amount of non-LCR eligible
liquid assets which are eligible for use in a range of central bank
or similar facilities, including the TFSME. Future use of such
facilities will be based on prudent liquidity management and
economic considerations, having regard for external market
conditions.
LCR eligible assets
Average Average
2021(1) 2020(2) Change
GBPbn GBPbn %
Level 1
Cash and central bank reserves 49.3 46.5 6
High quality government/MDB/agency bonds(3) 58.4 62.6 (7)
High quality covered bonds 2.7 2.9 (7)
------- -------
Total 110.4 112.0 (1)
Level 2(4) 1.3 1.4 (7)
------- -------
Total LCR eligible assets 111.7 113.4 (1)
------- -------
(1) Based on 12 months rolling average to 30 June 2021. Eligible
assets are calculated as an average of month-end observations over
the previous 12 months post any liquidity haircuts.
(2) Based on 12 months rolling average to 31 December 2020.
Eligible assets are calculated as an average of month-end
observations over the previous 12 months post any liquidity
haircuts.
(3) Designated multilateral development bank (MDB).
(4) Includes Level 2A and Level 2B.
CAPITAL MANAGEMENT
Analysis of capital position
The Group's CET1 capital ratio increased from 15.5 per cent at
31 December 2020 to 16.1 per cent, primarily as a result of profits
for the period (net of the impact of the impairment credit and
partial release of IFRS 9 transitional relief) and a reduction in
underlying risk-weighted assets, partially offset by the
foreseeable dividend accrual and pension contributions.
The PRA have confirmed their intention to remove the beneficial
treatment currently applied to intangible software assets and
reinstate the original requirement to deduct in full. This change
will be implemented on 1 January 2022 and will be expected to
reduce the Group's reported CET 1 ratio by c.50bps.
The Group continues to apply the revised IFRS 9 transitional
arrangements for capital which provide for temporary capital relief
for the increase in accounting impairment provisions following the
initial implementation of IFRS 9 ('static' relief) and subsequent
relief for any increases in Stage 1 and Stage 2 expected credit
losses since 1 January 2020 ('dynamic' relief). The transitional
arrangements do not cover Stage 3 expected credit losses.
Excluding the IFRS 9 transitional relief and removing the
current beneficial treatment applied to intangible software assets
would reduce the Group's CET1 capital ratio from 16.1 per cent to
14.8 per cent, on the basis of the position at 30 June 2021.
The transitional total capital ratio reduced to 22.9 per cent
(31 December 2020: 23.5 per cent) largely reflecting the annual
reduction in transitional limits applied to legacy tier 1 and tier
2 instruments in addition to the derecognition of called AT1
instruments, offset in part by the issuance of new AT1 and tier 2
instruments, the increase in common equity tier 1 capital and the
reduction in risk-weighted assets.
The UK leverage ratio reduced to 5.3 per cent (31 December 2020:
5.5 per cent) as a result of the reduction in fully loaded total
tier 1 capital, which was partly offset by the reduction in the
leverage exposure measure.
Total capital requirement
The Group's total capital requirement (TCR) as at 30 June 2021,
being the aggregate of the Group's Pillar 1 and current Pillar 2A
capital requirements, was GBP20,273 million (31 December 2020:
GBP20,567 million).
Capital resources
An analysis of the Group's capital position as at 30 June 2021
is presented in the following section on both a transitional
arrangements basis and a fully loaded basis in respect of legacy
capital securities subject to current grandfathering provisions. In
addition, the Group's capital position under both bases reflects
the application of the separate transitional arrangements for IFRS
9.
The following table summarises the consolidated capital position
of the Group.
CAPITAL MANAGEMENT (continued)
Transitional Fully loaded
--------------------- ---------------------
At 30 June At 31 Dec At 30 June At 31 Dec
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
Common equity tier 1
Shareholders' equity per balance
sheet 36,995 35,105 36,995 35,105
Adjustment to retained earnings
for foreseeable dividends (700) (1,000) (700) (1,000)
Adjustment to retained earnings
for IFRS 9 transitional arrangements 1,260 1,869 1,260 1,869
Cash flow hedging reserve and other
adjustments (375) (1,401) (375) (1,401)
---------- --------- ---------- ---------
37,180 34,573 37,180 34,573
less: deductions from common equity
tier 1
Goodwill and other intangible assets (3,180) (2,986) (3,180) (2,986)
Prudent valuation adjustment (179) (173) (179) (173)
Removal of defined benefit pension
surplus (2,209) (1,322) (2,209) (1,322)
Deferred tax assets (4,652) (3,525) (4,652) (3,525)
---------- --------- ---------- ---------
Common equity tier 1 capital(1) 26,960 26,567 26,960 26,567
Additional tier 1
Additional tier 1 instruments 4,949 7,295 4,268 5,935
---------- --------- ---------- ---------
Total tier 1 capital(1) 31,909 33,862 31,228 32,502
---------- --------- ---------- ---------
Tier 2
Tier 2 instruments 6,996 6,825 6,298 5,454
Other adjustments (543) (524) (543) (524)
---------- --------- ---------- ---------
Total tier 2 capital 6,453 6,301 5,755 4,930
---------- --------- ---------- ---------
Total capital resources(1) 38,362 40,163 36,983 37,432
---------- --------- ---------- ---------
Risk-weighted assets 167,190 170,862 167,190 170,862
Common equity tier 1 capital ratio 16.1% 15.5% 16.1% 15.5%
Tier 1 capital ratio 19.1% 19.8% 18.7% 19.0%
Total capital ratio 22.9% 23.5% 22.1% 21.9%
(1) Position at 31 December 2020 audited.
CAPITAL MANAGEMENT (continued)
Movements in capital resources
The key difference between the transitional capital calculation
as at 30 June 2021 and the fully loaded equivalent is primarily
related to capital securities that previously qualified as tier 1
or tier 2 capital, but that do not fully qualify under the
regulation, which can be included in additional tier 1 (AT1) or
tier 2 capital (as applicable) up to specified limits which reduce
by 10 per cent per annum until 2022. In addition, following
revisions to eligibility criteria for capital instruments under CRR
II, certain instruments of the Group will cease to qualify as
regulatory capital in June 2025.
The key movements on a transitional capital basis are set out in
the table below.
Common
equity Additional Total
tier 1 tier 1 Tier 2 capital
GBPm GBPm GBPm GBPm
At 31 December 2020 26,567 7,295 6,301 40,163
Profit for the period 3,708 - - 3,708
Foreseeable dividend accrual
for the period(1) (700) - - (700)
IFRS 9 transitional adjustment
to retained earnings (610) - - (610)
Pension contributions (668) - - (668)
Prudent valuation adjustment (6) - - (6)
Deferred tax asset (1,127) - - (1,127)
Goodwill and other intangible
assets (194) - - (194)
Movements in other equity, subordinated
liabilities, other tier 2 items
and related adjustments - (2,346) 152 (2,194)
Distributions on other equity
instruments (203) - - (203)
Other movements(2) 193 - - 193
------- ---------- ------ --------
At 30 June 2021 26,960 4,949 6,453 38,362
------- ---------- ------ --------
(1) Reflects the accrual for foreseeable 2021 ordinary
dividends. Excludes the reversal of the brought forward accrual for
the 2020 full year ordinary dividend which has now been paid
out.
(2) Includes other pension movements.
CET1 capital resources have increased by GBP393 million during
the period, primarily reflecting:
(--) underlying banking profits, with the impairment credit
offset by the partial unwind of IFRS 9 transitional relief
(--) offset in part by pension contributions made during the
period, the accrual of the foreseeable ordinary dividend and other
items including the increase in deferred tax assets deducted from
capital which primarily reflects the remeasurement of deferred tax
assets following the announced increase in the UK corporation tax
rate from 1 April 2023. The remeasurement has a limited overall
capital benefit as the tax credit through profits is largely offset
by the increase in the deferred tax asset deduction.
AT1 capital resources have reduced by GBP2,346 million during
the period, primarily reflecting the annual reduction in the
transitional limit applied to grandfathered tier 1 capital
instruments and the net impact of the derecognition of called AT1
capital instruments and subsequent issuance of new AT1 capital
instruments.
Tier 2 capital resources have increased by GBP152 million during
the period, largely reflecting the issuance of a new tier 2 capital
instrument, partially offset by the application of the reduced
transitional limit applied to grandfathered tier 2 capital
instruments, regulatory amortisation and the impact of movements in
rates.
CAPITAL MANAGEMENT (continued)
Risk-weighted assets
At 31
At 30 Dec
June 2021 2020
GBPm GBPm
Foundation Internal Ratings Based (IRB) Approach 41,359 43,781
Retail IRB Approach 66,584 65,207
Other IRB Approach 11,317 11,916
---------- -------
IRB Approach 119,260 120,904
Standardised (STA) Approach 19,918 21,673
---------- -------
Credit risk 139,178 142,577
Counterparty credit risk 1,727 2,133
Credit valuation adjustment risk 206 355
Operational risk 23,449 23,307
Market risk 186 210
---------- -------
Risk-weighted assets 164,746 165,582
Threshold risk-weighted assets(1) 2,444 2,280
---------- -------
Total risk-weighted assets 167,190 170,862
---------- -------
(1) Threshold risk-weighted assets reflect the element of
deferred tax assets that are permitted to be risk-weighted instead
of being deducted from CET1 capital.
Risk-weighted asset movements by driver
Credit Credit Credit Counterparty
risk risk risk credit Market Operational
IRB STA total(1) risk(2) risk risk Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Total risk-weighted
assets at 31
December
2020 170,862
Less threshold
risk-weighted
assets(3) (2,280)
-------
Risk-weighted
assets
at 31 December
2020 120,904 21,673 142,577 2,488 210 23,307 168,582
Asset size (2,901) (305) (3,206) (347) - - (3,553)
Asset quality 1,465 (142) 1,323 (196) - - 1,127
Model updates - - - - 18 - 18
Methodology and
policy (40) (1,231) (1,271) - 1 - (1,270)
Acquisitions and
disposals - - - - - - -
Movements in risk
levels
(market risk only) - - - - (43) - (43)
Foreign exchange
movements (168) (77) (245) (12) - - (257)
Other - - - - - 142 142
------- ------- --------- ------------ ------ ----------- -------
Risk-weighted
assets
at 30 June 2021 119,260 19,918 139,178 1,933 186 23,449 164,746
------- ------- --------- ------------ ------ -----------
Threshold
risk-weighted
assets(3) 2,444
-------
Total risk-weighted assets
at 30 June 2021 167,190
-------
(1) Credit risk includes securitisation risk-weighted
assets.
(2) Counterparty credit risk includes movements in contributions
to the default fund of central counterparties and movements in
credit valuation adjustment risk.
(3) Threshold risk-weighted assets reflect the element of
deferred tax assets that are permitted to be risk-weighted instead
of being deducted from CET1 capital.
CAPITAL MANAGEMENT (continued)
The risk-weighted assets movement table provides analysis of the
movement in risk-weighted assets in the period by risk type and an
insight into the key drivers of the movements.
Credit risk, risk-weighted assets:
(--) Asset size reduction of GBP3.2 billion predominantly
reflects continued optimisation in Commercial Banking and lower
unsecured balances partially offset by increased mortgage
lending.
(--) Asset quality increase of GBP1.3 billion reflects the
limited impact of credit migration and retail model calibrations
offset by the benefit of House Price Index increases
(--) Methodology and policy changes reduced risk-weighted assets
by GBP1.3 billion through securitisation activity and other
optimisation activity.
Counterparty credit risk, risk-weighted assets: decreased by
GBP0.6 billion due to movements in market rates during the
period
Analysis of leverage movements
The Group's fully loaded UK leverage ratio has reduced to 5.3
per cent, driven by the impact of the reduction in the fully loaded
total tier 1 capital position. This was offset in part by the
reduction in the leverage exposure measure which reduced by GBP6.3
billion during the period, largely reflecting movements in
securities financing transactions and off-balance sheet items, net
of an increase in retail lending.
Following a direction received from the PRA during 2020 the
Group is permitted to exclude lending under the UK Government's
Bounce Back Loan Scheme (BBLS) from the leverage exposure
measure.
The average UK leverage ratio was 5.5 per cent over the second
quarter, reducing to 5.3 per cent towards the end of the quarter
which largely reflected the reduction in fully loaded total tier 1
capital.
CAPITAL MANAGEMENT (continued)
Leverage ratio
The table below summarises the component parts of the Lloyds
Bank plc leverage ratio.
Fully loaded
----------------------
At 31
At 30 Dec
June 2021 2020
GBPm GBPm
Total tier 1 capital for leverage ratio
Common equity tier 1 capital 26,960 26,567
Additional tier 1 capital 4,268 5,935
---------- --------
Total tier 1 capital 31,228 32,502
---------- --------
Exposure measure
Statutory balance sheet assets
Derivative financial instruments 6,436 8,341
Securities financing transactions 51,746 56,073
Loans and advances and other assets 551,440 535,525
---------- --------
Total assets 609,622 599,939
---------- --------
Qualifying central bank claims (53,073) (43,973)
Deconsolidation adjustments
Derivative financial instruments - 16
Securities financing transactions - -
Loans and advances and other assets (113) (139)
---------- --------
Total deconsolidation adjustments(1) (113) (123)
---------- --------
Derivatives adjustments
Adjustments for regulatory netting (1,995) (2,225)
Adjustments for cash collateral (3,810) (5,601)
Net written credit protection 22 145
Regulatory potential future exposure 5,269 5,744
---------- --------
Total derivatives adjustments (514) (1,937)
---------- --------
Securities financing transactions adjustments 833 1,060
Off-balance sheet items 48,220 53,350
Regulatory deductions and other adjustments(2) (17,727) (14,770)
Total exposure measure 587,248 593,546
---------- --------
Average exposure measure(3) 588,616
UK leverage ratio 5.3% 5.5%
Average UK leverage ratio(3) 5.5%
(1) Deconsolidation adjustments relate to the deconsolidation of
certain Lloyds Bank Group entities that fall outside the scope of
Lloyds Bank Group's regulatory capital consolidation.
(2) Includes adjustments to exclude lending under the UK
Government's Bounce Back Loan Scheme (BBLS) and the accelerated
implementation for the netting of regular-way purchases and sales
awaiting settlement in accordance with CRR Article 500d.
(3) The average UK leverage ratio is based on the average of the
month end tier 1 capital position and average exposure measure over
the quarter (1 April 2021 to 30 June 2021). The average of 5.5 per
cent compares to 5.6 per cent at the start and 5.3 per cent at the
end of the quarter.
CAPITAL MANAGEMENT (continued)
Application of IFRS 9 on a full impact basis for capital and
leverage
IFRS 9 full impact
------------------------
At 30 At 31
June 2021 Dec 2020
Common equity tier 1 (GBPm) 25,628 24,591
Transitional tier 1 (GBPm) 30,577 31,886
Transitional total capital (GBPm) 38,273 39,422
Total risk-weighted assets (GBPm) 167,332 171,015
Common equity tier 1 ratio (%) 15.3% 14.4%
Transitional tier 1 ratio (%) 18.3% 18.6%
Transitional total capital ratio (%) 22.9% 23.1%
UK leverage ratio exposure measure (GBPm) 585,916 591,570
UK leverage ratio (%) 5.1% 5.2%
Lloyds Bank Group applies the full extent of the IFRS 9
transitional arrangements for capital as set out under CRR Article
473a (as amended via the CRR 'Quick Fix' revisions published in
June 2020). Specifically, the Group has opted to apply both
paragraphs 2 and 4 of CRR Article 473a (static and dynamic relief)
and in addition to apply a 100 per cent risk weight to the
consequential Standardised credit risk exposure add-back as
permitted under paragraph 7a of the revisions.
As at 30 June 2021, static relief under the transitional
arrangements amounted to GBP262 million (31 December 2020: GBP370
million) and dynamic relief amounted to GBP1,070 million (31
December 2020: GBP1,606 million) through CET1 capital.
Regulatory capital developments
A number of significant regulatory capital changes will
implement on 1 January 2022, including the remaining UK
implementation of CRR 2 (which includes the revised standardised
measure of counterparty credit risk - SA-CCR) and required changes
to the Group's IRB models which will predominantly impact the
mortgage models as a result of changes to the definition of
default, revised loss given default (LGD) parameters and a new
'hybrid' probability of default (PD) approach. In addition UK
regulators are currently consulting on revisions to the UK leverage
ratio framework which are also expected to apply from 1 January
2022.
A consultation on the UK implementation of the remaining final
Basel III reforms (also referred to as Basel 3.1), which include
significant revisions to the credit risk, CVA and operational risk
frameworks and will lead to the phased introduction of a
risk-weighted assets output floor, is expected to be published by
UK regulators in Q4 2021. The final rules are currently expected to
apply from 1 January 2023, with the output floor expected to be
phased in over several years.
Half-year Pillar 3 disclosures
The Group will publish a condensed set of half-year Pillar 3
disclosures in mid-August. A copy of the disclosures will be
available to view at:
https://www.lloydsbankinggroup.com/investors/financial-downloads.html
STATUTORY INFORMATION
Page
Condensed consolidated half-year financial statements
(unaudited)
Consolidated income statement 34
Consolidated statement of comprehensive income 35
Consolidated balance sheet 36
Consolidated statement of changes in equity 38
Consolidated cash flow statement 41
Notes
1 Accounting policies 42
2 Critical accounting judgements and estimates 43
3 Segmental analysis 53
4 Net fee and commission income 55
5 Operating expenses 55
6 Impairment 56
7 Tax expense 58
Financial assets at fair value through profit
8 or loss 58
9 Financial assets at amortised cost 59
10 Debt securities in issue 65
11 Retirement benefit obligations 66
12 Other provisions 67
13 Related party transactions 69
14 Contingent liabilities, commitments and guarantees 70
15 Fair values of financial assets and liabilities 73
Credit quality of loans and advances to banks
16 and customers 79
17 Dividends on ordinary shares 82
18 Ultimate parent undertaking 82
19 Other information 83
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Half-year Half-year
to 30 June to 30 June
2021 2020
Note GBPm GBPm
Interest income 6,397 7,295
Interest expense (1,021) (1,681)
----------- -----------
Net interest income 5,376 5,614
----------- -----------
Fee and commission income 1,070 954
Fee and commission expense (480) (421)
----------- -----------
Net fee and commission income 4 590 533
Net trading income 303 368
Other operating income 1,038 1,251
----------- -----------
Other income 1,931 2,152
----------- -----------
Total income 7,307 7,766
Operating expenses 5 (4,564) (4,431)
Impairment 6 677 (3,625)
----------- -----------
Profit (loss) before tax 3,420 (290)
Tax credit 7 288 594
----------- -----------
Profit for the period 3,708 304
----------- -----------
Profit attributable to ordinary shareholders 3,489 86
Profit attributable to other equity holders 203 204
----------- -----------
Profit attributable to equity holders 3,692 290
Profit attributable to non-controlling interests 16 14
----------- -----------
Profit for the period 3,708 304
----------- -----------
The accompanying notes are an integral part of the condensed
consolidated half-year financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Half-year Half-year
to 30 June to 30 June
2021 2020
GBPm GBPm
Profit for the period 3,708 304
Other comprehensive income
Items that will not subsequently be reclassified
to profit or loss:
Post-retirement defined benefit scheme remeasurements:
----------- -----------
Remeasurements before tax 604 668
Tax (323) (154)
----------- -----------
281 514
Movements in revaluation reserve in respect of
equity shares held at fair value through other
comprehensive income:
----------- -----------
Change in fair value - -
Tax 1 -
----------- -----------
1 -
Gains and losses attributable to own credit risk:
----------- -----------
Losses before tax (48) (3)
Tax 22 1
----------- -----------
(26) (2)
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 41 (16)
Income statement transfers in respect of disposals 59 (137)
Income statement transfers in respect of impairment (2) 6
Tax (12) 41
----------- -----------
86 (106)
Movements in cash flow hedging reserve:
----------- -----------
Effective portion of changes in fair value taken
to other comprehensive income (1,074) 682
Net income statement transfers (275) (480)
Tax 349 (91)
----------- -----------
(1,000) 111
Movements in foreign currency translation reserve:
----------- -----------
Currency translation differences (tax: GBPnil) (7) -
Transfers to income statement (tax: GBPnil) - -
----------- -----------
(7) -
----------- -----------
Other comprehensive income for the period, net
of tax (665) 517
----------- -----------
Total comprehensive income for the period 3,043 821
----------- -----------
Total comprehensive income attributable to ordinary
shareholders 2,824 603
Total comprehensive income attributable to other
equity holders 203 204
----------- -----------
Total comprehensive income attributable to equity
holders 3,027 807
Total comprehensive income attributable to non-controlling
interests 16 14
----------- -----------
Total comprehensive income for the period 3,043 821
----------- -----------
CONSOLIDATED BALANCE SHEET
At At
30 June 31 Dec
2021 2020
(unaudited) (audited)
Note GBPm GBPm
Assets
Cash and balances at central banks 58,693 49,888
Items in the course of collection from banks 163 300
Financial assets at fair value through profit
or loss 8 1,292 1,674
Derivative financial instruments 6,436 8,341
----------- ---------
Loans and advances to banks 7,353 5,950
Loans and advances to customers 481,342 480,141
Debt securities 4,787 5,137
Due from fellow Lloyds Banking Group undertakings 692 738
----------- ---------
Financial assets at amortised cost 9 494,174 491,966
Financial assets at fair value through other
comprehensive income 25,840 27,260
Goodwill 470 470
Other intangible assets 4,252 4,112
Property, plant and equipment 8,065 8,317
Current tax recoverable 763 537
Deferred tax assets 4,257 3,468
Retirement benefit assets 11 3,134 1,714
Other assets 2,083 1,892
----------- ---------
Total assets 609,622 599,939
----------- ---------
CONSOLIDATED BALANCE SHEET (continued)
At At
30 June 31 Dec
2021 2020
(unaudited) (audited)
Equity and liabilities Note GBPm GBPm
Liabilities
Deposits from banks 16,029 24,997
Customer deposits 457,465 434,569
Due to fellow Lloyds Banking Group undertakings 7,169 6,875
Items in course of transmission to banks 319 302
Financial liabilities at fair value through
profit or loss 6,857 6,831
Derivative financial instruments 5,341 8,228
Notes in circulation 1,368 1,305
Debt securities in issue 10 55,120 59,293
Other liabilities 5,891 5,181
Retirement benefit obligations 11 234 245
Current tax liabilities - 31
Other provisions 12 1,499 1,722
Subordinated liabilities 9,600 9,242
----------- ---------
Total liabilities 566,892 558,821
----------- ---------
Equity
----------- ---------
Share capital 1,574 1,574
Share premium account 600 600
Other reserves 6,260 7,181
Retained profits 28,561 25,750
----------- ---------
Ordinary shareholders' equity 36,995 35,105
Other equity instruments 5,644 5,935
----------- ---------
Total equity excluding non-controlling interests 42,639 41,040
Non-controlling interests 91 78
----------- ---------
Total equity 42,730 41,118
----------- ---------
Total equity and liabilities 609,622 599,939
----------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Attributable to ordinary
shareholders
------------------------------------
Share
capital Other Non-
and Other Retained equity controlling
premium reserves profits Total instruments interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January
2021 2,174 7,181 25,750 35,105 5,935 78 41,118
Comprehensive
income
Profit for the
period - - 3,489 3,489 203 16 3,708
Other
comprehensive
income
------- -------- -------- ------- ----------- ----------- -------
Post-retirement
defined
benefit scheme
remeasurements,
net of tax - - 281 281 - - 281
Movements in
revaluation
reserve in
respect
of financial
assets
held at fair
value
through other
comprehensive
income, net of
tax:
Debt
securities - 86 - 86 - - 86
Equity shares - 1 - 1 - - 1
Gains and losses
attributable to
own
credit risk,
net
of tax - - (26) (26) - - (26)
Movements in
cash
flow hedging
reserve,
net of tax - (1,000) - (1,000) - - (1,000)
Movements in
foreign
currency
translation
reserve, net of
tax - (7) - (7) - - (7)
------- -------- -------- ------- ----------- ----------- -------
Total other
comprehensive
income - (920) 255 (665) - - (665)
------- -------- -------- ------- ----------- ----------- -------
Total
comprehensive
income(1) - (920) 3,744 2,824 203 16 3,043
------- -------- -------- ------- ----------- ----------- -------
Transactions
with
owners
------- -------- -------- ------- ----------- ----------- -------
Dividends - - (1,000) (1,000) - (3) (1,003)
Distributions on
other equity
instruments - - - - (203) - (203)
Issue of other
equity
instruments - - (1) (1) 1,550 - 1,549
Redemptions of
other
equity
instruments - - (9) (9) (1,841) - (1,850)
Capital
contributions
received - - 78 78 - - 78
Return of
capital
contributions - - (2) (2) - - (2)
Changes in
non-controlling
interests - - - - - - -
------- -------- -------- ------- ----------- ----------- -------
Total
transactions
with owners - - (934) (934) (494) (3) (1,431)
------- -------- -------- ------- ----------- ----------- -------
Realised gains
and
losses on
equity
shares held at
fair
value through
other
comprehensive
income - (1) 1 - - - -
------- -------- -------- ------- ----------- ----------- -------
At 30 June
2021(2) 2,174 6,260 28,561 36,995 5,644 91 42,730
------- -------- -------- ------- ----------- ----------- -------
(1) Total comprehensive income attributable to owners of the
parent was GBP3,027 million.
(2) Total equity attributable to owners of the parent was
GBP42,639 million.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
(continued)
Attributable to ordinary
shareholders
-----------------------------------
Share
capital Other Non-
and Other Retained equity controlling
premium reserves profits Total instruments interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
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
Movements in
foreign
currency
translation
reserve, net of
tax - - - - - - -
------- -------- -------- ------ ----------- ----------- ------
Total other
comprehensive
income - 5 512 517 - - 517
------- -------- -------- ------ ----------- ----------- ------
Total
comprehensive
income(1) - 5 598 603 204 14 821
------- -------- -------- ------ ----------- ----------- ------
Transactions
with
owners
------- -------- -------- ------ ----------- ----------- ------
Dividends - - - - - - -
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)
Changes in
non-controlling
interests - - - - - - -
------- -------- -------- ------ ----------- ----------- ------
Total
transactions
with owners - - 59 59 866 - 925
------- -------- -------- ------ ----------- ----------- ------
Realised gains
and
losses on equity
shares held at
fair
value through
other
comprehensive
income - - - - - - -
------- -------- -------- ------ ----------- ----------- ------
At 30 June
2020(2) 2,174 7,255 25,206 34,635 5,935 75 40,645
------- -------- -------- ------ ----------- ----------- ------
(1) Total comprehensive income attributable to owners of the
parent was GBP807 million.
(2) Total equity attributable to owners of the parent was
GBP40,570 million.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
(continued)
Attributable to ordinary
shareholders
-----------------------------------
Share
capital Other Non-
and Other Retained equity controlling
premium reserves profits Total instruments interests Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 July 2020 2,174 7,255 25,206 34,635 5,935 75 40,645
Comprehensive
income
Profit for the
period - - 937 937 213 12 1,162
Other
comprehensive
income
------- -------- -------- ------ ----------- ----------- ------
Post-retirement
defined
benefit scheme
remeasurements,
net of tax - - (401) (401) - - (401)
Movements in
revaluation
reserve in
respect
of financial
assets
held at fair
value
through other
comprehensive
income, net of
tax:
Debt
securities - 86 - 86 - - 86
Equity shares - (16) - (16) - - (16)
Gains and losses
attributable to
own
credit risk,
net
of tax - - (53) (53) - - (53)
Movements in
cash
flow hedging
reserve,
net of tax - (160) - (160) - - (160)
Movements in
foreign
currency
translation
reserve, net of
tax - - - - - - -
------- -------- -------- ------ ----------- ----------- ------
Total other
comprehensive
income - (90) (454) (544) - - (544)
------- -------- -------- ------ ----------- ----------- ------
Total
comprehensive
income(1) - (90) 483 393 213 12 618
------- -------- -------- ------ ----------- ----------- ------
Transactions
with
owners
------- -------- -------- ------ ----------- ----------- ------
Dividends - - - - - (7) (7)
Distributions on
other equity
instruments - - - - (213) - (213)
Issue of other
equity
instruments - - - - - - -
Capital
contributions
received - - 79 79 - - 79
Return of
capital
contributions - - (2) (2) - - (2)
Changes in
non-controlling
interests - - - - - (2) (2)
------- -------- -------- ------ ----------- ----------- ------
Total
transactions
with owners - - 77 77 (213) (9) (145)
------- -------- -------- ------ ----------- ----------- ------
Realised gains
and
losses on
equity
shares held at
fair
value through
other
comprehensive
income - 16 (16) - - - -
------- -------- -------- ------ ----------- ----------- ------
At 31 December
2020(2) 2,174 7,181 25,750 35,105 5,935 78 41,118
------- -------- -------- ------ ----------- ----------- ------
(1) Total comprehensive income attributable to owners of the
parent was GBP606 million.
(2) Total equity attributable to owners of the parent was
GBP41,040 million.
(1)
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
Half-year Half-year
to 30 June to 30 June
2021 2020
GBPm GBPm
Profit (loss) before tax 3,420 (290)
Adjustments for:
Change in operating assets 1,360 (11,743)
Change in operating liabilities 6,422 23,967
Non-cash and other items (1,068) 3,221
Tax paid (646) (648)
----------- -----------
Net cash provided by operating activities 9,488 14,507
----------- -----------
Cash flows from investing activities
Purchase of financial assets (5,411) (7,029)
Proceeds from sale and maturity of financial assets 6,335 5,132
Purchase of fixed assets (1,509) (1,301)
Proceeds from sale of fixed assets 542 413
Net cash used in investing activities (43) (2,785)
----------- -----------
Cash flows from financing activities
Dividends paid to ordinary shareholders (1,000) -
Distributions on other equity instruments (203) (204)
Dividends paid to non-controlling interests (3) -
Return of capital contributions (2) (2)
Interest paid on subordinated liabilities (310) (514)
Proceeds from issue of subordinated liabilities 1,086 281
Proceeds from issue of other equity instruments 1,549 1,070
Repayment of subordinated liabilities (471) (1,769)
Redemptions of other equity instruments (1,850) -
Borrowings from parent company 2,459 2,270
Repayments to parent company (850) (136)
Interest paid on borrowing from parent company (127) (103)
----------- -----------
Net cash provided by financing activities 278 893
Effect of exchange rate changes on cash and cash
equivalents - 2
----------- -----------
Change in cash and cash equivalents 9,723 12,617
Cash and cash equivalents at beginning of period 48,966 38,614
----------- -----------
Cash and cash equivalents at end of period 58,689 51,231
----------- -----------
Cash and cash equivalents comprise cash and non-mandatory
balances with central banks and amounts due from banks with a
maturity of less than three months.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS
Note 1: Accounting policies
These condensed consolidated half-year financial statements as
at and for the period to 30 June 2021 have been prepared in
accordance with the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority (FCA) and with International
Accounting Standard 34 (IAS 34), Interim Financial Reporting as
adopted by the United Kingdom and comprise the results of Lloyds
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 2020 which complied with international accounting
standards in conformity with the requirements of the Companies Act
2006, were prepared in accordance with International Financial
Reporting Standards (IFRS) and were compliant with IFRS adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union. Copies of the 2020 Annual Report and Accounts are
available on the Group's website and are available upon request
from Investor Relations, Lloyds Banking Group plc, 25 Gresham
Street, London EC2V 7HN.
The directors consider that it is appropriate to continue to
adopt the going concern basis in preparing the condensed
consolidated half-year financial statements. In reaching this
assessment, the directors have taken into account the continuing
uncertainties affecting the UK economy post-pandemic and their
potential effects upon the Group's performance and projected
funding and capital position; the impact of further stress
scenarios has also been considered. On this basis, the directors
are satisfied that the Group will maintain adequate levels of
funding and capital for the foreseeable future.
Changes in accounting policy
The Group adopted the Interest Rate Benchmark Reform Phase 2
amendments from 1 January 2021. These amendments require that
changes to expected future cash flows that both arise as a direct
result of IBOR Reform and are economically equivalent to the
previous cash flows are accounted for as a change to the effective
interest rate with no adjustment to the asset or liability's
carrying amount; no immediate gain or loss is recognised. The new
requirements also provide relief from the requirement to
discontinue hedge accounting as a result of amending hedge
documentation if the changes are required solely as a result of the
IBOR Reform. The amendments do not have a material impact on the
Group's comparatives, which have not been restated.
Except for the change above, the Group's accounting policies are
consistent with those applied by the Group in its 2020 Annual
Report and Accounts and there have been no changes in the Group's
methods of computation.
Future accounting developments
The IASB has issued a number of minor amendments to IFRSs
effective 1 January 2022 and in later years (including IFRS 9
Financial Instruments and IAS 37 Provisions, Contingent Liabilities
and Contingent Assets). These amendments are not expected to have a
significant impact on the Group.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and estimates
The preparation of the Group's financial statements requires
management to make judgements, estimates and assumptions that
impact the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Due to the
inherent uncertainty in making estimates, actual results reported
in future periods may include amounts which differ from those
estimates. Estimates, judgements and assumptions are continually
evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. The Group's significant
judgements, estimates and assumptions are unchanged compared to
those applied at 31 December 2020, except as detailed below.
Allowance for expected credit losses
The Group recognises an allowance for expected credit losses
(ECLs) for loans and advances to customers and banks, other
financial assets held at amortised cost, financial assets measured
at fair value through other comprehensive income and certain loan
commitment and financial guarantee contracts. At 30 June 2021 the
Group's expected credit loss allowance was GBP4,997 million (31
December 2020: GBP6,132 million), of which GBP4,649 million (31
December 2020: GBP5,706 million) was in respect of drawn
balances.
The calculation of the Group's expected credit loss allowances
and provisions against loan commitments and guarantees under IFRS 9
requires the Group to make a number of judgements, assumptions and
estimates. These are set out in detail in the Group's 2020 Annual
Report and Accounts. The principal changes made in the period ended
30 June 2021 are as follows:
Base Case and Economic Assumptions
The Group's base case economic scenario has been revised in
light of the continuing impact of the coronavirus pandemic in the
UK and globally. The scenario reflects judgements of the net effect
of government-mandated restrictions on economic activity,
large-scale government interventions and behavioural changes by
households and businesses that may persist beyond the rollout of
coronavirus vaccination programmes.
As large-scale vaccination efforts compete with the emergence of
new viral strains in the UK and globally, there remains
considerable uncertainty about the pace and eventual extent of the
post-pandemic recovery. The Group's updated base case scenario
builds in three key conditioning assumptions. First, that rising
infections in the UK's third COVID-19 wave do not lead to a
re-imposition of restrictions. Second, that the rollout of
vaccination programmes among the UK's trading partners will
reinforce an improving global backdrop. Third, that domestic policy
measures remain accommodative, with monetary policy looking through
a transient rise in inflation.
Conditioned on these assumptions and taking note of improvements
in economic indicators in the second quarter, the Group's base case
outlook continues to assume a rise in the unemployment rate as
furlough support ends alongside a deceleration in residential and
commercial property price growth. Risks around this base case
economic view lie in both directions and are partly captured by the
alternative economic scenarios generated. But uncertainties
relating to the key conditioning assumptions, including
epidemiological developments, the efficacy of vaccine rollouts
against emergent strains and the response of the economy in those
circumstances are not specifically captured by these scenarios.
These specific risks have been recognised outside the modelled
scenarios with a central adjustment.
The Group has incorporated the latest available information at
the reporting date in defining its base case scenario and
generating alternative economic scenarios. The scenarios include
forecasts for key variables in the second quarter of 2021, for
which actuals may have since emerged prior to publication.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and estimates
(continued)
Base case scenario by quarter(1)
First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
2021 2021 2021 2021 2022 2022 2022 2022
At 30 June 2021 % % % % % % % %
Gross domestic product (1.5) 4.3 (0.3) 3.2 1.5 0.5 0.4 0.4
UK Bank Rate 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10
Unemployment rate 4.8 5.0 5.4 6.6 6.4 6.2 6.1 5.9
House price growth 6.5 10.5 6.8 5.6 5.0 1.7 0.3 0.1
Commercial real estate
price growth (2.9) 1.3 1.5 0.4 (0.3) (0.5) 0.4 1.0
First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
2020 2020 2020 2020 2021 2021 2021 2021
At 31 December 2020 % % % % % % % %
Gross domestic product (3.0) (18.8) 16.0 (1.9) (3.8) 5.6 3.6 1.5
UK Bank Rate 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10
Unemployment rate 4.0 4.1 4.8 5.0 5.2 6.5 8.0 7.5
House price growth 2.8 2.6 7.2 5.9 5.5 4.7 (1.6) (3.8)
Commercial real estate
price growth (5.0) (7.8) (7.8) (7.0) (6.1) (2.9) (2.2) (1.7)
(1) Gross domestic product presented quarter on quarter, house
price growth and commercial real estate growth presented year on
year - i.e. from the equivalent quarter the previous year. UK Bank
Rate is presented end quarter.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and estimates
(continued)
Scenarios by year
Key annual assumptions made by the Group are shown below. Gross
domestic product is presented as an annual change, house price
growth and commercial real estate price growth are presented as the
growth in the respective indices within the period. UK Bank Rate
and unemployment rate are averages for the period. The upside, base
case and downside scenarios are weighted at 30 per cent each, with
the severe downside scenario weighted at 10 per cent.
2021-2025
2021 2022 2023 2024 2025 average
At 30 June 2021 % % % % % %
Upside
Gross domestic product 6.1 5.5 1.4 1.4 1.2 3.1
UK Bank Rate 0.52 1.27 1.09 1.32 1.58 1.16
Unemployment rate 4.7 4.9 4.4 4.2 4.1 4.5
House price growth 6.8 3.4 4.6 3.9 3.4 4.4
Commercial real estate
price growth 9.2 5.7 2.4 0.3 (0.3) 3.4
Base case
Gross domestic product 5.5 5.5 1.6 1.4 1.2 3.0
UK Bank Rate 0.10 0.10 0.25 0.50 0.75 0.34
Unemployment rate 5.4 6.1 5.4 5.0 4.8 5.4
House price growth 5.6 0.1 0.1 0.6 1.1 1.5
Commercial real estate
price growth 0.4 1.0 0.6 0.3 0.5 0.6
Downside
Gross domestic product 4.8 4.2 1.3 1.4 1.4 2.6
UK Bank Rate 0.09 0.05 0.06 0.11 0.20 0.10
Unemployment rate 6.0 7.8 7.1 6.5 6.0 6.7
House price growth 3.5 (6.2) (7.5) (4.9) (1.8) (3.5)
Commercial real estate
price growth (5.3) (5.3) (2.8) (1.5) 0.2 (3.0)
Severe downside
Gross domestic product 4.1 3.5 1.1 1.4 1.4 2.3
UK Bank Rate 0.06 0.00 0.01 0.02 0.03 0.02
Unemployment rate 7.0 9.9 9.1 8.3 7.6 8.4
House price growth 2.4 (11.0) (13.2) (9.6) (5.1) (7.5)
Commercial real estate
price growth (13.5) (13.5) (6.9) (2.3) 0.5 (7.3)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and estimates
(continued)
2020-2024
2020 2021 2022 2023 2024 average
At 31 December 2020 % % % % % %
Upside
Gross domestic product (10.5) 3.7 5.7 1.7 1.5 0.3
UK Bank Rate 0.10 1.14 1.27 1.20 1.21 0.98
Unemployment rate 4.3 5.4 5.4 5.0 4.5 5.0
House price growth 6.3 (1.4) 5.2 6.0 5.0 4.2
Commercial real estate
price growth (4.6) 9.3 3.9 2.1 0.3 2.1
Base case
Gross domestic product (10.5) 3.0 6.0 1.7 1.4 0.1
UK Bank Rate 0.10 0.10 0.10 0.21 0.25 0.15
Unemployment rate 4.5 6.8 6.8 6.1 5.5 5.9
House price growth 5.9 (3.8) 0.5 1.5 1.5 1.1
Commercial real estate
price growth (7.0) (1.7) 1.6 1.1 0.6 (1.1)
Downside
Gross domestic product (10.6) 1.7 5.1 1.4 1.4 (0.4)
UK Bank Rate 0.10 0.06 0.02 0.02 0.03 0.05
Unemployment rate 4.6 7.9 8.4 7.8 7.0 7.1
House price growth 5.6 (8.4) (6.5) (4.7) (3.0) (3.5)
Commercial real estate
price growth (8.7) (10.6) (3.2) (0.8) (0.8) (4.9)
Severe downside
Gross domestic product (10.8) 0.3 4.8 1.3 1.2 (0.8)
UK Bank Rate 0.10 0.00 0.00 0.01 0.01 0.02
Unemployment rate 4.8 9.9 10.7 9.8 8.7 8.8
House price growth 5.3 (11.1) (12.5) (10.7) (7.6) (7.5)
Commercial real estate
price growth (11.0) (21.4) (9.8) (3.9) (0.8) (9.7)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and estimates
(continued)
The table below shows the Group's ECL for the upside, base case,
downside and severe downside scenarios. The stage allocation for an
asset is based on the overall scenario probability-weighted PD and,
hence, the Stage 2 allocation is constant across all the scenarios.
ECL applied through individual assessments and post-model
adjustments is reported flat against each economic scenario,
reflecting the basis on which they are evaluated. Judgements
applied through changes to inputs are reflected in the scenario
sensitivities. It therefore shows the extent to which a higher ECL
allowance has been recognised to take account of multiple economic
scenarios from the probability-weighted view relative to the base
case. The uplift being GBP386 million compared to GBP495 million at
31 December 2020.
Probability- Severe
weighted Upside Base case Downside downside
At 30 June 2021 GBPm GBPm GBPm GBPm GBPm
UK Mortgages 905 544 684 1,100 2,064
Other Retail 2,053 1,896 2,009 2,152 2,355
Commercial Banking 1,618 1,369 1,497 1,763 2,296
Other 421 419 421 421 425
------------ ------ --------- -------- ---------
ECL allowance 4,997 4,228 4,611 5,436 7,140
------------ ------ --------- -------- ---------
Probability- Severe
weighted Upside Base case Downside downside
At 31 December 2020 GBPm GBPm GBPm GBPm GBPm
UK Mortgages 1,027 614 803 1,237 2,306
Other Retail 2,368 2,181 2,310 2,487 2,745
Commercial Banking 2,315 1,853 2,102 2,575 3,554
Other 422 420 422 422 428
------------ ------ --------- -------- ---------
ECL allowance 6,132 5,068 5,637 6,721 9,033
------------ ------ --------- -------- ---------
The impact of changes in the UK unemployment rate and House
Price Index (HPI) have also been assessed. Although such changes
would not be observed in isolation, as economic indicators tend to
be correlated in a coherent scenario, this gives insight into the
sensitivity of the Group's ECL to gradual changes in these two
critical economic factors. The assessment has been made against the
base case with the reported staging unchanged.
The table below shows the estimated impact on the Group's ECL in
respect of UK Mortgages resulting from a decrease/increase in loss
given default for a 10 percentage point (pp) increase or decrease
in the UK House Price Index (HPI). The increase/decrease is
presented based on the adjustment phased evenly over the first ten
quarters of the base case scenario.
At 30 June 2021 At 31 December 2020
---------------------------- ---------------------------------
10pp increase 10pp decrease 10pp increase 10pp decrease
in HPI in HPI in HPI in HPI
ECL impact, GBPm (175) 254 (206) 284
------------- ------------- ---------------- -------------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and estimates
(continued)
The table below shows the estimated impact on the Group's ECL
resulting from a 1 percentage point (pp) increase or decrease in
the UK unemployment rate. The increase or decrease is presented
based on the adjustment phased evenly over the first ten quarters
of the base case scenario. An immediate increase or decrease would
drive a more material ECL impact as it would be fully reflected in
both 12 month and lifetime PDs.
At 30 June 2021 At 31 December 2020
---------------------------- -------------------------------
1pp increase 1pp decrease 1pp increase 1pp decrease
in in in in
unemployment unemployment unemployment unemployment
GBPm GBPm GBPm GBPm
UK Mortgages 33 (28) 25 (23)
Other Retail 45 (45) 54 (54)
Commercial Banking 85 (73) 123 (110)
Other 1 (1) 1 (1)
------------- ------------- -------------- -------------
ECL impact 164 (147) 203 (188)
------------- ------------- -------------- -------------
Application of judgement in adjustments to modelled ECL
Impairment models fall within the Lloyds Banking Group's Model
Risk framework with model monitoring, periodic validation and back
testing performed on model components (i.e. probability of default,
exposure at default and loss given default). Limitations in the
Group's impairment models or data inputs may be identified through
the ongoing assessment and validation of the output of the models.
In these circumstances, management make appropriate adjustments to
the Group's allowance for impairment losses to ensure that the
overall provision adequately reflects all material risks. These
adjustments are determined by considering the particular attributes
of exposures which have not been adequately captured by the
impairment models and range from changes to model inputs and
parameters, at account level, through to more qualitative
post-model overlays.
Judgements are not typically assessed under each distinct
economic scenario used to generate ECL, but instead are applied on
the basis of final modelled ECL which reflects the
probability-weighted view of all scenarios. All adjustments are
reviewed quarterly and are subject to internal review and
challenge, including by the Audit Committee, to ensure that amounts
are appropriately calculated and that there are specific release
criteria within a reasonable timeframe.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and estimates
(continued)
At 30 June 2021 the coronavirus pandemic and the various support
measures that have been put in place have resulted in an economic
environment which differs significantly from the historical
economic conditions upon which the impairment models have been
built. As a result there is a greater need for management
judgements to be applied, as seen in the elevated levels present
since year end. At 30 June 2021 management judgement resulted in
additional ECL allowances totalling GBP1,659 million (31 December
2020: GBP1,333 million). This comprises judgements added due to
COVID-19 and other judgements not directly linked to COVID-19 but
which have increased in size under the current outlook. The table
below analyses total ECL allowance at 30 June 2021 by portfolio,
separately identifying the amounts that have been modelled, those
that have been individually assessed and those arising through the
application of management judgement.
Judgements
Modelled Individually due to Other
ECL assessed COVID-19(1) judgements Total ECL
GBPm GBPm GBPm GBPm GBPm
At 30 June 2021
UK Mortgages 345 - 73 487 905
Other Retail 1,610 - 405 38 2,053
Commercial Banking 410 952 257 (1) 1,618
Other 21 - 400 - 421
-------- ------------ ------------ ----------- ---------
Total 2,386 952 1,135 524 4,997
-------- ------------ ------------ ----------- ---------
At 31 December 2020
UK Mortgages 481 - 36 510 1,027
Other Retail 2,060 - 321 (13) 2,368
Commercial Banking 1,021 1,215 81 (2) 2,315
Other 22 - 400 - 422
-------- ------------ ------------ ----------- ---------
Total 3,584 1,215 838 495 6,132
-------- ------------ ------------ ----------- ---------
(1) Judgements due to the impact that COVID-19 and resulting
interventions have had on the Group's economic outlook and observed
loss experience, which have required additional model limitations
to be addressed.
Central overlay in respect of economic uncertainty
Central overlay in respect of economic uncertainty: GBP400
million (31 December 2020: GBP400 million)
The Group's GBP400 million central overlay was added at year end
in recognition of the risks to the conditioning assumptions around
the base case scenario being markedly to the downside given the
potential for a material delay in the vaccination programme or
reduction in its effectiveness from further virus mutation and the
corresponding delayed withdrawal of restrictions on social
interaction or introduction of further lockdowns.
Although the outlook has improved in the first half, the Group
still considers that the conditioning assumptions within the base
case and associated scenarios do not necessarily capture the
unprecedented risks that remain. The vaccine roll out has
progressed well and has supported the planned easing of
restrictions to date, however the increasing infection rate and
hospitalisations from the Delta variant highlight the potential
risk from further virus mutation and the resulting response which
could be needed, potentially impacting on social and economic
activity. The scale of the uncertainty is expected to diminish once
the UK is fully vaccinated and infection levels have been sustained
at low levels, with restrictions reduced and associated Government
support wound down.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and estimates
(continued)
Except as noted below, the nature of the judgements are
consistent with those applied by the Group in its 2020 Annual
Report and Accounts. The 30 June 2021 allowance has been
re-assessed based on latest economic outlook, data points and
modelled result.
Judgements due to COVID-19
At At
30 June 31 Dec
2021 2020
GBPm GBPm
UK Mortgages 73 36
Other Retail
Recognition of impact of support measures 318 218
Incorporation of forward-looking LGDs 80 86
Other 7 17
-------- -------
405 321
Commercial Banking
Adjustment to economic variables used as inputs to
models 166 91
Key coronavirus-impacted sectors 100 -
Other (9) (10)
-------- -------
257 81
Other 400 400
-------- -------
Total 1,135 838
-------- -------
Notable movements from 31 December 2020 include:
UK Mortgages: GBP73 million (31 December 2020: GBP36
million)
Judgement has increased in the period due to an extension of the
temporary suspension of the repossession of properties to support
customers during the pandemic. The amount at 30 June 2021 also
incorporates an adjustment to ensure ECL is at calibrated levels
when applied to the latest balance sheet date.
Other Retail
Recognition of impact of support measures: GBP318 million (31
December 2020: GBP218 million)
Government support and subdued levels of consumer spending are
judged to have temporarily reduced the flow of accounts into
arrears and default and to have improved average credit scores
across portfolios. The adjustment made at year end to reverse these
impacts has continued to grow through 2021 with the passage of time
and as average credit scores improved further.
Commercial Banking
Adjustment to economic variables used as inputs to models:
GBP166 million (31 December 2020: GBP91 million)
Further observed reductions in the rate of corporate
insolvencies, used as an input to Commercial default models,
continue to be substituted with an increase proportionate to that
seen in unemployment to generate a level of predicted defaults. The
increase in the adjustment reflects the larger release which would
therefore result should the metric, still believed unrepresentative
of underlying conditions, be used within the model.
Key coronavirus-impacted sectors: GBP100 million (31 December
2020: GBPnil)
At year end the modelled ECL incorporated an economic outlook
containing a material reduction in corporate profits. This is no
longer assumed, which generates a reduction in modelled ECL and
therefore leaves potential risk on specific underperforming
sectors. Judgement has therefore been raised in place of this to
ensure a more targeted stress on likelihood and severity of loss in
these sectors.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and estimates
(continued)
Other judgements
At At
30 June 31 Dec
2021 2020
GBPm GBPm
UK Mortgages
Adjustment to modelled forecast parameters 140 193
End-of-term interest only 168 179
Long-term defaults 74 87
Other 105 51
-------- -------
487 510
Other Retail
Lifetime extension on revolving products 71 81
Unsecured non-scored accounts (21) (72)
Credit card LGD alignment (55) (55)
Other 43 33
-------- -------
38 (13)
Commercial Banking (1) (2)
-------- -------
Total 524 495
-------- -------
Notable movements from 31 December 2020 include:
UK Mortgages
Adjustment to modelled forecast parameters: GBP140 million (31
December 2020: GBP193 million)
Adjustments to the estimated defaults used within the ECL
calculation were introduced at year end following the adoption of
new default forecast models. Work has progressed through the period
with initial model changes identified which reduce the scale of
adjustment required. The scale of the adjustment has also reduced
as the impact of under-sensitivity lessens when applied to the
improved economic outlook.
Other: GBP105 million (31 December 2020: GBP51 million)
The increase in the scale of the judgement reflects additional
adjustment to capture risks relating to fire safety and cladding
uncertainty within assessment of affordability and asset
valuations, not captured by underlying models. The risk is now
deemed sufficiently material to address through judgement, given
that more cases have been assessed as having defective cladding, or
other fire safety issues, together with emerging evidence of higher
arrears and weaker sales values relative to the wider
portfolio.
Other Retail
Unsecured non-scored accounts: GBP(21) million (31 December
2020: GBP(72) million)
Due to a shortcoming in the models, it is not possible to
retrieve relevant credit data for a number of accounts and
therefore no probability of default (PD) is available and no
assessment of whether there has been a significant increase in
credit risk (SICR) can be carried out. Work has progressed during
2021 to resolve this issue. The reduction therefore reflects that
an adjustment is required on fewer accounts.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 3: Segmental analysis
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 remains the chief
operating decision maker for the Group.
The Group's activities are organised into two financial
reporting segments: Retail and Commercial Banking. There has been
no change to the descriptions of these segments as provided in note
4 to the Group's financial statements for the year ended 31
December 2020, neither has there been any change to the Group's
segmental accounting for internal segment services or derivatives
entered into by units for risk management purposes since 31
December 2020.
Commercial
Retail Banking Other Total
Half-year to 30 June 2021 GBPm GBPm GBPm GBPm
Net interest income 4,187 1,112 77 5,376
Other income 829 379 723 1,931
------- ---------- ----- -------
Total income 5,016 1,491 800 7,307
Costs (2,819) (886) (859) (4,564)
Impairment credit 89 585 3 677
------- ---------- ----- -------
Profit (loss) before tax 2,286 1,190 (56) 3,420
------- ---------- ----- -------
External income 5,710 1,293 304 7,307
Inter-segment income (expense) (694) 198 496 -
------- ---------- ----- -------
Segment income 5,016 1,491 800 7,307
------- ---------- ----- -------
Commercial
Retail Banking Other Total
Half-year to 30 June 2020 GBPm GBPm GBPm GBPm
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)
Impairment charge (2,095) (1,328) (202) (3,625)
------- ---------- ----- -------
Profit (loss) before tax 155 (675) 230 (290)
------- ---------- ----- -------
External income 5,951 1,223 592 7,766
Inter-segment income (expense) (822) 257 565 -
------- ---------- ----- -------
Segment income 5,129 1,480 1,157 7,766
------- ---------- ----- -------
Segment external Segment external
assets liabilities
------------------
At At At At
30 June 31 Dec 30 June 31 Dec
2021 2020 2021 2020
GBPm GBPm GBPm GBPm
Retail 369,679 359,171 314,808 295,216
Commercial Banking 79,909 83,155 130,508 126,008
Other 160,034 157,613 121,576 137,597
--------- ------- --------- -------
Total 609,622 599,939 566,892 558,821
--------- ------- --------- -------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 4: Net fee and commission income
Half-year Half-year
to 30 to 30
June June
2021 2020
GBPm GBPm
Fee and commission income:
Current accounts 310 305
Credit and debit card fees 381 344
Commercial banking and treasury fees 167 72
Factoring 38 42
Other fees and commissions 174 191
--------- ---------
Total fee and commission income 1,070 954
Fee and commission expense (480) (421)
--------- ---------
Net fee and commission income 590 533
--------- ---------
Current account and credit and debit card fees principally arise
in Retail; commercial banking, treasury and factoring fees arise in
Commercial Banking.
Note 5: Operating expenses
Half-year Half-year
to 30 to 30
June June
2021 2020
GBPm GBPm
Administrative expenses:
Staff costs 1,868 1,773
Premises and equipment 112 225
Other expenses 1,054 901
--------- ---------
3,034 2,899
Depreciation and amortisation 1,220 1,374
Regulatory provisions (note 12) 310 158
--------- ---------
Total operating expenses 4,564 4,431
--------- ---------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 6: Impairment
Half-year Half-year
to 30 to 30
June June
2021 2020
GBPm GBPm
Impact of transfers between stages 152 1,236
--------- ---------
Other changes in credit quality (473) 1,952
Additions (repayments) (359) 181
Methodology and model changes 3 56
Other items - 200
--------- ---------
(829) 2,389
--------- ---------
Total impairment (credit) charge (677) 3,625
--------- ---------
In respect of:
--------- -----------
Loans and advances to banks (3) 14
Loans and advances to customers (594) 3,314
Debt securities - 1
Due from fellow Lloyds Banking Group undertakings - 1
--------- ---------
Financial assets held at amortised cost (597) 3,330
Other assets - -
--------- ---------
Impairment (credit) charge on drawn balances (597) 3,330
Loan commitments and financial guarantees (78) 289
Financial assets at fair value through other comprehensive
income (2) 6
--------- ---------
Total impairment (credit) charge (677) 3,625
--------- ---------
Total impairment includes a release of GBP41 million (half-year
to 30 June 2020: charge of GBP21 million) in respect of residual
value impairment and voluntary terminations within the Group's UK
Motor Finance business.
The Group's impairment charge comprises the following:
Impact of transfers between stages
The net impact on the impairment charge of transfers between
stages.
Other changes in credit quality
Changes in loss allowance as a result of movements in risk
parameters that reflect changes in customer credit quality, but
which have not resulted in a transfer to a different stage. This
also contains the impact on the impairment charge of write-offs and
recoveries, where the related loss allowances are reassessed to
reflect the view of credit quality at the balance sheet date and
therefore the ultimate realisable or recoverable value.
Additions (repayments)
Expected loss allowances are recognised on origination of new
loans or further drawdowns of existing facilities. Repayments
relate to the reduction of loss allowances resulting from the
repayment of outstanding balances that have been provided
against.
Methodology and model changes
Increase or decrease in impairment charge as a result of
adjustments to the models used for expected credit loss
calculations; either as changes to the model inputs or to the
underlying assumptions, as well as the impact of changing the
models used.
Other items
For the half-year to 30 June 2020 a central adjustment of GBP200
million was included to reflect the adjusted severe downside
economic scenario.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 7: Tax expense
In accordance with IAS 34, the Group's income tax credit for the
half-year to 30 June 2021 is based on the best estimate of the
weighted-average annual income tax rate expected for the full
financial year. The tax effects of one-off items are not included
in the weighted-average annual income tax rate, but are recognised
in the relevant period.
An explanation of the relationship between tax credit and
accounting profit is set out below:
Half-year Half-year
to 30 to 30
June June
2021 2020
GBPm GBPm
Profit (loss) before tax 3,420 (290)
--------- ---------
UK corporation tax thereon at 19 per cent (2020:
19 per cent) (650) 55
Impact of surcharge on banking profits (212) 17
Non-deductible costs: conduct charges (7) (11)
Other non-deductible costs (40) (38)
Non-taxable income 12 53
Tax relief on coupons on other equity instruments 39 39
Tax-exempt gains on disposals 2 -
Tax losses where no deferred tax recognised (5) (5)
Remeasurement of deferred tax due to rate changes 1,189 440
Differences in overseas tax rates (19) 10
Adjustments in respect of prior years (21) 34
--------- ---------
Tax credit 288 594
--------- ---------
The Finance Act 2021, which was substantively enacted on 24 May
2021, increases the rate of corporation tax from 19 per cent to 25
per cent with effect from 1 April 2023. The impact of this rate
change is an increase in the Group's net deferred tax asset as at
30 June 2021 of GBP1,005 million, comprising a GBP1,189 million
credit included in the income statement and a GBP184 million charge
included in equity. The tax credit in the half-year to 30 June 2020
included an uplift in deferred tax assets following the
announcement by the UK Government that it would maintain the
corporation tax rate at 19 per cent.
Note 8: Financial assets at fair value through profit or
loss
At At
30 June 31 Dec
2021 2020
GBPm GBPm
Financial assets mandatorily at fair value through
profit or loss:
-------- ---------
Loans and advances to customers 1,087 1,511
Equity shares 205 163
-------- -------
1,292 1,674
-------- -------
Total financial assets at fair value through profit
or loss 1,292 1,674
-------- -------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 9: Financial assets at amortised cost
Half-year to 30 June 2021
Allowance for expected credit
Gross carrying amount losses
-------------------------------------------- -----------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Loans and advances
to banks
At 1 January
2021 5,954 - - - 5,954 4 - - - 4
Exchange and
other
adjustments (67) - - - (67) 1 - - - 1
----- ----- ----- ----- -----
Additions
(repayments) 1,468 - - - 1,468 - - - - -
Other changes
in credit
quality (3) - - - (3)
----- ----- ----- ----- -----
Credit to the
income
statement (3) - - - (3)
At 30 June 2021 7,355 - - - 7,355 2 - - - 2
-------- -------- ------- ------ ------- ----- ----- ----- ----- -----
Allowance for
impairment
losses (2) - - - (2)
-------- -------- ------- ------ -------
Net carrying
amount 7,353 - - - 7,353
-------- -------- ------- ------ -------
Loans and advances
to customers
At 1 January
2021 415,608 51,280 6,443 12,511 485,842 1,347 2,125 1,968 261 5,701
Exchange and
other
adjustments(1) (1,555) (21) (80) 51 (1,605) - (1) 102 67 168
Transfers to
Stage 1 11,106 (11,098) (8) - 361 (359) (2) -
Transfers to
Stage 2 (10,905) 11,354 (449) - (66) 158 (92) -
Transfers to
Stage 3 (333) (1,227) 1,560 - (9) (175) 184 -
-------- -------- ------- ------ -------
Impact of
transfers
between stages (132) (971) 1,103 - (261) 257 165 161
----- ----- ----- ----- -----
25 (119) 255 161
Other changes
in credit
quality (133) (223) 31 (89) (414)
Additions
(repayments) 8,101 (4,350) (793) (663) 2,295 (61) (174) (73) (36) (344)
Methodology and
model changes (5) 8 - - 3
----- ----- ----- ----- -----
(Credit) charge
to the income
statement (174) (508) 213 (125) (594)
Advances
written
off (602) (13) (615) (602) (13) (615)
Recoveries of
advances
written
off in
previous
years 71 - 71 71 - 71
Discount unwind (85) - (85)
-------- -------- ------- ------ ------- ----- ----- ----- ----- -----
At 30 June 2021 422,022 45,938 6,142 11,886 485,988 1,173 1,616 1,667 190 4,646
-------- -------- ------- ------ ------- ----- ----- ----- ----- -----
Allowance for
impairment
losses (1,173) (1,616) (1,667) (190) (4,646)
-------- -------- ------- ------ -------
Net carrying
amount 420,849 44,322 4,475 11,696 481,342
-------- -------- ------- ------ -------
(1) Exchange and other adjustments includes the impact of
movements in exchange rates, derecognising assets as a result of
modifications and adjustments in respect of purchased or originated
credit-impaired financial assets (POCI).
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 9: Financial assets at amortised cost (continued)
Allowance for expected credit
Gross carrying amount losses
--------------------------------------- ----------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Debt
securities
At 1 January
2021 5,137 - 1 - 5,138 - - 1 - 1
Exchange and
other
adjustments (45) - - - (45) - - - - -
----- ----- ----- ---- -----
Additions
(repayments) (305) - - - (305) - - - - -
----- ----- ----- ---- -----
Charge to the
income
statement - - - - -
At 30 June
2021 4,787 - 1 - 4,788 - - 1 - 1
------- ------ ----- ------ ------- ----- ----- ----- ---- -----
Allowance for
impairment
losses - - (1) - (1)
------- ------ ----- ------ -------
Net carrying
amount 4,787 - - - 4,787
------- ------ ----- ------ -------
Due from
fellow
Lloyds
Banking
Group
undertakings 692 - - - 692
Allowance for
impairment
losses - - - - -
------- ------ ----- ------ -------
Net carrying
amount 692 - - - 692
------- ------ ----- ------ -------
Total
financial
assets at
amortised
cost 433,681 44,322 4,475 11,696 494,174
------- ------ ----- ------ -------
The total allowance for impairment losses includes GBP136
million (31 December 2020: GBP192 million) in respect of residual
value impairment and voluntary terminations within the Group's UK
Motor Finance business.
Movements in allowance for expected credit losses in respect of
undrawn balances were as follows:
Allowance for expected credit
losses
------------------------------------------
Stage Stage Stage
1 2 3 POCI Total
GBPm GBPm GBPm GBPm GBPm
Undrawn balances
At 1 January
2021 191 221 14 - 426
Exchange and other adjustments - - - - -
--------- ------- ------ ---- ------
Transfers to
Stage 1 54 (54) - -
Transfers to
Stage 2 (10) 10 - -
Transfers to
Stage 3 - (4) 4 -
Impact of transfers between
stages (44) 35 - (9)
--------- ------- ------ ---- ------
- (13) 4 (9)
Other items credited to
the income statement (29) (30) (10) - (69)
--------- ------- ------ ---- ------
Credit to the income statement (29) (43) (6) - (78)
--------- ------- ------ ---- ------
At 30 June 2021 162 178 8 - 348
--------- ------- ------ ---- ------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 9: Financial assets at amortised cost (continued)
The Group's total impairment allowances were as follows:
Allowance for expected credit
losses
----------------------------------------
Stage Stage Stage
1 2 3 POCI Total
GBPm GBPm GBPm GBPm GBPm
In respect of:
------- ------- ------ ---- --------
Loans and advances to
banks 2 - - - 2
Loans and advances to
customers 1,173 1,616 1,667 190 4,646
Debt securities - - 1 - 1
Due from fellow Lloyds Banking Group
undertakings - - - - -
------- ------- ------ ---- ------
Financial assets at amortised
cost 1,175 1,616 1,668 190 4,649
Provisions in relation to loan
commitments
and financial guarantees 162 178 8 - 348
------- ------- ------ ---- ------
Total 1,337 1,794 1,676 190 4,997
------- ------- ------ ---- ------
Expected credit loss in respect of
financial assets at fair value
through
other comprehensive income
(memorandum
item) 3 - - - 3
------- ------- ------ ---- ------
Year ended 31 December 2020
Allowance for expected credit
Gross carrying amount losses
-------------------------------- ----------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Loans and advances
to banks
At 1 January
2020 4,852 - - - 4,852 - - - - -
Exchange and
other
adjustments (25) - - - (25) - - - - -
Additions
(repayments) 1,127 - - - 1,127 - - - - -
Charge to the
income
statement 4 - - - 4
At 31
December
2020 5,954 - - - 5,954 4 - - - 4
----- ----- ----- ---- ----- ----- ----- ----- ---- -----
Allowance for
impairment
losses (4) - - - (4)
----- ----- ----- ---- -----
Net carrying
amount 5,950 - - - 5,950
----- ----- ----- ---- -----
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 9: Financial assets at amortised cost (continued)
Allowance for expected credit
Gross carrying amount losses
-------------------------------------------- --------------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Loans and advances
to customers
At 1 January
2020 429,767 28,505 5,647 13,714 477,633 669 993 1,359 142 3,163
Exchange and
other
adjustments(1) 1,013 24 (198) (8) 831 - 2 43 21 66
Transfers to
Stage 1 4,970 (4,954) (16) - 144 (141) (3) -
Transfers to
Stage 2 (28,516) 29,128 (612) - (217) 267 (50) -
Transfers to
Stage 3 (1,615) (2,001) 3,616 - (9) (156) 165 -
-------- ------- ------- ------- -------
Impact of
transfers
between stages (25,161) 22,173 2,988 - (84) 880 570 1,366
----- ----- ------- ---- -------
(166) 850 682 1,366
Other changes
in credit
quality 838 (33) 1,183 167 2,155
Additions
(repayments) 9,989 578 (754) (1,156) 8,657 37 143 (38) (30) 112
Methodology
and model
changes (31) 170 26 - 165
----- ----- ------- ---- -------
Charge to the
income
statement 678 1,130 1,853 137 3,798
Advances
written
off (1,490) (39) (1,529) (1,490) (39) (1,529)
Recoveries of
advances
written
off in
previous
years 250 - 250 250 - 250
Discount unwind (47) - (47)
-------- ------- ------- ------- ------- ----- ----- ------- ---- -------
At 31 December
2020 415,608 51,280 6,443 12,511 485,842 1,347 2,125 1,968 261 5,701
-------- ------- ------- ------- ------- ----- ----- ------- ---- -------
Allowance for
impairment
losses (1,347) (2,125) (1,968) (261) (5,701)
-------- ------- ------- ------- -------
Net carrying
amount 414,261 49,155 4,475 12,250 480,141
-------- ------- ------- ------- -------
(1) Exchange and other adjustments includes the impact of
movements in exchange rates, derecognising assets as a result of
modifications and adjustments in respect of purchased or originated
credit-impaired financial assets.
Allowance for expected credit
Gross carrying amount losses
--------------------------------------- ----------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Debt
securities
At 1 January
2020 5,325 - 1 - 5,326 - - 1 - 1
Exchange and
other
adjustments (17) - - - (17) - - - - -
Additions
(repayments) (171) - - - (171) - - - - -
At 31
December
2020 5,137 - 1 - 5,138 - - 1 - 1
------- ------ ----- ------ ------- ----- ----- ----- ---- -----
Allowance for
impairment
losses - - (1) - (1)
------- ------ ----- ------ -------
Net carrying
amount 5,137 - - - 5,137
------- ------ ----- ------ -------
Due from
fellow
Lloyds
Banking
Group
undertakings 738 - - - 738
Allowance for
impairment
losses - - - - -
------- ------ ----- ------ -------
Net carrying
amount 738 - - - 738
------- ------ ----- ------ -------
Total
financial
assets at
amortised
cost 426,086 49,155 4,475 12,250 491,966
------- ------ ----- ------ -------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 9: Financial assets at amortised cost (continued)
Movements in allowance for expected credit losses in respect of
undrawn balances were as follows:
Allowance for expected credit
losses
------------------------------------------
Stage Stage Stage
1 2 3 POCI Total
GBPm GBPm GBPm GBPm GBPm
Undrawn balances
At 1 January
2020 91 77 5 - 173
Exchange and other adjustments - - - - -
---------- -------- ----- ---- -----
Transfers to
Stage 1 19 (19) - -
Transfers to
Stage 2 (10) 10 - -
Transfers to
Stage 3 (1) (6) 7 -
Impact of transfers between
stages (10) 90 10 90
---------- -------- ----- ---- -----
(2) 75 17 90
Other items charged to
the income statement 102 69 (8) - 163
---------- -------- ----- ---- -----
Charge to the income statement 100 144 9 - 253
---------- -------- ----- ---- -----
At 31 December
2020 191 221 14 - 426
---------- -------- ----- ---- -----
The Group's total impairment allowances were as follows:
Allowance for expected credit
losses
----------------------------------------
Stage Stage Stage
1 2 3 POCI Total
GBPm GBPm GBPm GBPm GBPm
In respect of:
------- ------- ------ ---- --------
Loans and advances to
banks 4 - - - 4
Loans and advances to
customers 1,347 2,125 1,968 261 5,701
Debt securities - - 1 - 1
Due from fellow Lloyds Banking Group
undertakings - - - - -
------- ------- ------ ---- ------
Financial assets at amortised
cost 1,351 2,125 1,969 261 5,706
Provisions in relation to loan
commitments
and financial guarantees 191 221 14 - 426
------- ------- ------ ---- ------
Total 1,542 2,346 1,983 261 6,132
------- ------- ------ ---- ------
Expected credit loss in respect
of financial assets at fair value
through other comprehensive income
(memorandum item) 5 - - - 5
------- ------- ------ ---- ------
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).
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 10: Debt securities in issue
At 30 June 2021 At 31 December 2020
---------------------------- --------------------------------
At fair At fair
value value
through At through
profit amortised profit At amortised
or loss cost Total or loss cost Total
GBPm GBPm GBPm GBPm GBPm GBPm
Medium-term notes issued 6,818 20,588 27,406 6,783 21,501 28,284
Covered bonds - 20,117 20,117 - 23,977 23,977
Certificates of deposit - 464 464 - 3,597 3,597
Securitisation notes 38 4,093 4,131 45 4,436 4,481
Commercial paper - 9,858 9,858 - 5,782 5,782
-------- ---------- ------ -------- ------------ ------
6,856 55,120 61,976 6,828 59,293 66,121
-------- ---------- ------ -------- ------------ ------
The notes issued by the Group's securitisation and covered bond
programmes are held by external parties and by subsidiaries of the
Group.
Securitisation programmes
At 30 June 2021, external parties held GBP4,131 million (31
December 2020: GBP4,481 million) and the Group's subsidiaries held
GBP27,038 million (31 December 2020: GBP27,418 million) of total
securitisation notes in issue of GBP31,169 million (31 December
2020: GBP31,899 million). The notes are secured on loans and
advances to customers and debt securities held at amortised cost
amounting to GBP33,752 million (31 December 2020: GBP34,584
million), the majority of which have been sold by subsidiary
companies to bankruptcy remote structured entities. The structured
entities are consolidated fully and all of these loans are retained
on the Group's balance sheet.
Covered bond programmes
At 30 June 2021, external parties held GBP20,117 million (31
December 2020: GBP23,977 million) and the Group's subsidiaries held
none (31 December 2020: GBP100 million) of total covered bonds in
issue of GBP20,117 million (31 December 2020: GBP24,077 million).
The bonds are secured on certain loans and advances to customers
amounting to GBP31,698 million (31 December 2020: GBP34,960
million) that have been assigned to bankruptcy remote limited
liability partnerships. These loans are retained on the Group's
balance sheet.
Cash deposits of GBP4,674 million (31 December 2020: GBP3,930
million) which support the debt securities issued by the structured
entities, the term advances related to covered bonds and other
legal obligations are held by the Group.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 11: Retirement benefit obligations
The Group's post-retirement defined benefit scheme obligations
are comprised as follows:
At At
30 June 31 Dec
2021 2020
GBPm GBPm
Defined benefit pension schemes:
Fair value of scheme assets 49,299 51,127
Present value of funded obligations (46,297) (49,549)
-------- --------
Net pension scheme asset 3,002 1,578
Other post-retirement schemes (102) (109)
-------- --------
Net retirement benefit asset 2,900 1,469
-------- --------
Recognised on the balance sheet as:
Retirement benefit assets 3,134 1,714
Retirement benefit obligations (234) (245)
-------- --------
Net retirement benefit asset 2,900 1,469
-------- --------
Movements in the Group's net post-retirement defined benefit
scheme asset during the period were as follows:
GBPm
Asset at 1 January 2021 1,469
Income statement charge (122)
Employer contributions 949
Remeasurement 604
-----
Asset at 30 June 2021 2,900
-----
The principal assumptions used in the valuations of the defined
benefit pension schemes were as follows:
At At
30 June 31 Dec
2021 2020
% %
Discount rate 1.93 1.44
Rate of inflation:
Retail Price Index 3.10 2.80
Consumer Price Index 2.70 2.41
Rate of salary increases 0.00 0.00
Weighted-average rate of increase for pensions in
payment 2.81 2.61
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 12: Other provisions
Provisions
for financial
commitments Regulatory
and guarantees provisions Other Total
GBPm GBPm GBPm GBPm
At 1 January 2021 426 520 776 1,722
Exchange and other adjustments - - (10) (10)
Provisions applied - (361) (146) (507)
Charge for the period (78) 310 62 294
---- ----------- ----- -----
At 30 June 2021 348 469 682 1,499
---- ----------- ----- -----
Regulatory provisions
In the course of its business, the Group is engaged in
discussions with the PRA, FCA and other UK and overseas regulators
and other governmental authorities on a range of matters. The Group
also receives complaints in connection with its past conduct and
claims brought by or on behalf of current and former employees,
customers, investors and other third parties and is subject to
legal proceedings and other legal actions. Where significant,
provisions are held against the costs expected to be incurred in
relation to these matters and matters arising from related internal
reviews. During the half-year to 30 June 2021 the Group charged a
further GBP310 million in respect of legal actions and other
regulatory matters.
The unutilised balance at 30 June 2021 was GBP469 million (31
December 2020: GBP520 million). The most significant items are as
follows.
Payment protection insurance (excluding MBNA)
The Group has made provisions for PPI costs over a number of
years totalling GBP21,906 million. Good progress continues to be
made towards ensuring operational completeness, with the final
validation of information requests and complaints with third
parties at an advanced stage, ahead of an orderly programme close.
At 30 June 2021, a provision of GBP55 million remained outstanding
(excluding amounts related to MBNA), with total cash payments of
GBP143 million during the six months to 30 June 2021.
In addition to the above provision, the Group continues to
challenge PPI litigation cases, with mainly administration costs
and some potential redress recognised within the first half
regulatory provisions.
Payment protection insurance (MBNA)
As announced in December 2016, the Group's exposure continues to
remain capped at GBP240 million under the terms of the MBNA sale
and purchase agreement. No additional charge has been made by MBNA
to its PPI provision in the half-year to 30 June 2021.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 12: Other provisions (continued)
HBOS Reading - review
The Group completed its compensation assessment for those within
the Customer Review in 2019 with more than GBP109 million of
compensation paid, in addition to GBP15 million for ex-gratia
payments and GBP6 million for the reimbursement of legal fees. The
Group is applying the recommendations from Sir Ross Cranston's
review, issued in December 2019, including a reassessment of direct
and consequential losses by an independent panel, an extension of
debt relief and a wider definition of de facto directors. Further
details of the panel were announced on 3 April 2020 and the panel's
full scope and methodology was published on 7 July 2020. The
panel's stated objective is to consider cases via a non-legalistic
and fair process and to make their decisions in a generous, fair
and common-sense manner. Details of an appeal process for the
further assessments of debt relief and de facto director status
have also been announced.
In 2020 a charge of GBP159 million was recorded, bringing the
lifetime cost to GBP435 million, covering both compensation
payments and operational costs.
In the half-year to 30 June 2021 the Group has continued to make
progress assessing further debt relief and de facto director status
claims and has now completed 99 per cent of preliminary
assessments. The independent panel has also started to issue its
first outcomes.
The Group has charged GBP150 million in the half-year to 30 June
2021 for the independent panel and Dame Linda Dobbs review of the
Group's handling of HBOS Reading between January 2009 and January
2017. A significant part of this charge relates to the actual and
foreseeable future operational costs of these activities which are
both now expected to extend into 2022, in addition to awards from
the independent panel to date. The first half charge increases the
lifetime cost to GBP585 million. The panel is continuing its
assessment of awards which could result in further significant
charges over 2021 and 2022 but it is not possible to reliably
estimate the potential impact or timings at this stage. The Group
is committed to implementing Sir Ross's recommendations in
full.
Arrears handling related activities
To date the Group has provided a total of GBP1,017 million for
arrears handling activities; the unutilised balance at 30 June 2021
was GBP38 million.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 13: Related party transactions
Balances and transactions with fellow Lloyds Banking Group
undertakings
The Bank and its subsidiaries have balances due to and from the
Bank's parent company, Lloyds Banking Group plc, and fellow Group
undertakings. These are included on the balance sheet as
follows:
At At
30 June 31 Dec
2021 2020
GBPm GBPm
Assets, included within:
Financial assets at amortised cost: due from fellow
Lloyds Banking Group undertakings 692 738
Derivative financial instruments 680 690
-------- -------
1,372 1,428
-------- -------
Liabilities, included within:
Due to fellow Lloyds Banking Group undertakings 7,169 6,875
Derivative financial instruments 797 1,424
Debt securities in issue 13,757 12,686
Subordinated liabilities 5,627 4,599
-------- -------
27,350 25,584
-------- -------
During the half-year to 30 June 2021 the Group earned GBP9
million (half-year to 30 June 2020: GBP3 million) of interest
income and incurred GBP253 million (half-year to 30 June 2020:
GBP242 million) of interest expense on balances and transactions
with Lloyds Banking Group plc and fellow Group undertakings.
During the half-year to 30 June 2021 the Bank issued GBP1,550
million of Additional Tier 1 securities to its parent company,
Lloyds Banking Group plc and redeemed GBP1,841 million, which had
also been issued to Lloyds Banking Group plc.
Other related party transactions
Other related party transactions for the half-year to 30 June
2021 are similar in nature to those for the year ended 31 December
2020.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 14: Contingent liabilities, commitments and guarantees
Interchange fees
With respect to multi-lateral interchange fees (MIFs), the Group
is not involved in the ongoing litigation which involves the card
schemes Visa and Mastercard (as described below). However, the
Group is a member/licensee of Visa and Mastercard and other card
schemes. The litigation in question is as follows:
-- litigation brought by retailers against both Visa and
Mastercard continues in the English Courts in which retailers are
seeking damages on grounds that Visa and Mastercard's MIFs breached
competition law (this includes a judgment of the Supreme Court in
June 2020 upholding the Court of Appeal's finding in 2018 that
historic interchange arrangements of Mastercard and Visa infringed
competition law); and
-- litigation brought on behalf of UK consumers in the English
Courts against Mastercard, which the Supreme Court has now
confirmed can proceed in the lower courts.
Any impact on the Group of the litigation against Visa and
Mastercard remains uncertain at this time, such that it is not
practicable for the Group to provide an estimate of any potential
financial effect. Insofar as Visa is required to pay damages to
retailers for interchange fees set prior to June 2016, contractual
arrangements to allocate liability have been agreed between various
UK banks (including the Group) and Visa Inc, as part of Visa Inc's
acquisition of Visa Europe in 2016. These arrangements cap the
maximum amount of liability to which the Group may be subject and
this cap is set at the cash consideration received by the Group for
the sale of its stake in Visa Europe to Visa Inc in 2016. In 2016,
the Group received Visa preference stock as part of the
consideration for the sale of its shares in Visa Europe. In 2020,
some of these Visa preference shares were converted into Visa Inc
Class A common stock (in accordance with the provisions of the Visa
Europe sale documentation) and they were subsequently sold by the
Group. The sale had no impact on this contingent liability.
LIBOR and other trading rates
Certain Group companies, together with other panel banks, have
been named as defendants in private lawsuits, including purported
class action suits, in the US in connection with their roles as
panel banks contributing to the setting of US Dollar, Japanese Yen
and Sterling London Interbank Offered Rate and the Australian BBSW
reference rate. Certain of the plaintiffs' claims have been
dismissed by the US Federal Court for the Southern District of New
York (subject to appeals).
Certain Group companies are also named as defendants in (i) UK
based claims and; (ii) two Dutch class actions, raising LIBOR
manipulation allegations. A number of the claims against the Group
in the UK relating to the alleged mis-sale of interest rate hedging
products also include allegations of LIBOR manipulation.
The Swiss Competition Commission concluded its investigation
against Lloyds Bank plc in June 2019.
It is currently not possible to predict the scope and ultimate
outcome on the Group of any private lawsuits or any related
challenges to the interpretation or validity of any of the Group's
contractual arrangements, including their timing and scale. As
such, it is not practicable to provide an estimate of any potential
financial effect.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 14: Contingent liabilities, commitments and guarantees
(continued)
Tax authorities
The Group has an open matter in relation to a claim for group
relief of losses incurred in its former Irish banking subsidiary,
which ceased trading on 31 December 2010. In 2013, HMRC informed
the Group that its interpretation of the UK rules means that the
group relief is not available. In 2020, HMRC concluded their
enquiry into the matter and issued a closure notice. The Group's
interpretation of the UK rules has not changed and hence it has
appealed to the First Tier Tax Tribunal, with a hearing expected in
early 2022. If the final determination of the matter by the
judicial process is that HMRC's position is correct, management
estimate that this would result in an increase in current tax
liabilities of approximately GBP720 million (including interest)
and a reduction in the Group's deferred tax asset of approximately
GBP330 million. The Group, having taken appropriate advice, does
not consider that this is a case where additional tax will
ultimately fall due.
There are a number of other open matters on which the Group is
in discussions with HMRC (including the tax treatment of certain
costs arising from the divestment of TSB Banking Group plc), none
of which is expected to have a material impact on the financial
position of the Group.
Other legal actions and regulatory matters
In addition, during the ordinary course of business the Group is
subject to other complaints and threatened or actual legal
proceedings (including class or group action claims) brought by or
on behalf of current or former employees, customers, investors or
other third parties, as well as legal and regulatory reviews,
challenges, investigations and enforcement actions, both in the UK
and overseas. Where material, such matters are periodically
reassessed, with the assistance of external professional advisers
where appropriate, to determine the likelihood of the Group
incurring a liability. In those instances where it is concluded
that it is more likely than not that a payment will be made, a
provision is established to management's best estimate of the
amount required at the relevant balance sheet date. In some cases
it will not be possible to form a view, for example because the
facts are unclear or because further time is needed to properly
assess the merits of the case, and no provisions are held in
relation to such matters. In these circumstances, specific
disclosure in relation to a contingent liability will be made where
material. However the Group does not currently expect the final
outcome of any such case to have a material adverse effect on its
financial position, operations or cash flows. Where there is a
contingent liability related to an existing provision the relevant
disclosures are included within note 12.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 14: Contingent liabilities, commitments and guarantees
(continued)
Contingent liabilities, commitments and guarantees arising from
the banking business
At At
30 June 31 Dec
2021 2020
GBPm GBPm
Contingent liabilities
Acceptances and endorsements 60 73
Other:
-------- ---------
Other items serving as direct credit substitutes 455 221
Performance bonds, including letters of credit, and
other transaction-related contingencies 1,971 2,070
-------- -------
2,426 2,291
-------- -------
Total contingent liabilities 2,486 2,364
-------- -------
Commitments and guarantees
Documentary credits and other short-term trade-related
transactions 1 1
Forward asset purchases and forward deposits placed 74 124
Undrawn formal standby facilities, credit lines and
other commitments to lend:
Less than 1 year original maturity:
-------- ---------
Mortgage offers made 16,701 20,128
Other commitments and guarantees 82,206 82,151
-------- -------
98,907 102,279
1 year or over original maturity 28,319 31,194
-------- -------
Total commitments and guarantees 127,301 133,598
-------- -------
Of the amounts shown above in respect of undrawn formal standby
facilities, credit lines and other commitments to lend, GBP53,163
million (31 December 2020: GBP59,240 million) was irrevocable.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 15: 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 42 to the
Group's 2020 financial statements details the definitions of the
three levels in the fair value hierarchy.
Valuation control framework
Key elements of the valuation control framework, which covers
processes for all levels in the fair value hierarchy including
level 3 portfolios, include model validation (incorporating
pre-trade and post-trade testing), product implementation review
and independent price verification. Formal committees meet
quarterly to discuss and approve valuations in more judgemental
areas.
Transfers into and out of level 3 portfolios
Transfers out of level 3 portfolios arise when inputs that could
have a significant impact on the instrument's valuation become
market observable; conversely, transfers into the portfolios arise
when sources of data cease to be observable.
Valuation methodology
For level 2 and level 3 portfolios, there is no significant
change to the valuation methodology (techniques and inputs)
disclosed in the Group's 2020 Annual Report and Accounts applied to
these portfolios.
The table below summarises the carrying values of financial
assets and liabilities presented on the Group's balance sheet. The
fair values presented in the table are at a specific date and may
be significantly different from the amounts which will actually be
paid or received on the maturity or settlement date.
At 31 December
At 30 June 2021 2020
----------------- -------------------
Carrying Fair Carrying Fair
value value value value
GBPm GBPm GBPm GBPm
Financial assets
-------- ======= -------- ---------
Loans and advances to banks 7,353 7,353 5,950 5,949
Loans and advances to customers 481,342 482,578 480,141 479,518
Debt securities 4,787 4,780 5,137 5,129
Due from fellow Lloyds Banking Group
undertakings 692 692 738 738
-------- ------- -------- -------
Financial assets at amortised cost 494,174 495,403 491,966 491,334
Financial liabilities
Deposits from banks 16,029 16,031 24,997 24,998
Customer deposits 457,465 457,543 434,569 434,740
Due to fellow Lloyds Banking Group
undertakings 7,169 7,169 6,875 6,875
Debt securities in issue 55,120 57,596 59,293 62,931
Subordinated liabilities 9,600 10,470 9,242 10,275
Financial instruments classified as financial assets at fair
value through profit or loss, derivative financial instruments,
financial assets at fair value through other comprehensive income
and financial liabilities at fair value through profit or loss are
recognised at fair value.
The carrying amount of the following financial instruments is a
reasonable approximation of fair value: cash and balances at
central banks, items in the course of collection from banks, items
in course of transmission to banks and notes in circulation.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 15: Fair values of financial assets and liabilities
(continued)
The Group manages valuation adjustments for its derivative
exposures on a net basis; the Group determines their fair values on
the basis of their net exposures. In all other cases, fair values
of financial assets and liabilities measured at fair value are
determined on the basis of their gross exposures.
The following tables provide an analysis of the financial assets
and liabilities of the Group that are carried at fair value in the
Group's consolidated balance sheet, grouped into levels 1 to 3
based on the degree to which the fair value is observable. There
were no significant transfers between level 1 and level 2 during
the period.
Level Level Level
1 2 3 Total
Financial assets GBPm GBPm GBPm GBPm
At 30 June 2021
Financial assets at fair value through
profit or loss:
Loans and advances to customers - 649 438 1,087
Equity shares 201 - 4 205
------ ------ ----- ------
Total financial assets at fair value
through profit or loss 201 649 442 1,292
------ ------ ----- ------
Financial assets at fair value through
other comprehensive income:
Debt securities 12,577 13,207 56 25,840
Treasury and other bills - - - -
------ ------ ----- ------
Total financial assets at fair value
through other comprehensive income 12,577 13,207 56 25,840
------ ------ ----- ------
Derivative financial instruments - 6,424 12 6,436
------ ------ ----- ------
Total financial assets carried at fair
value 12,778 20,280 510 33,568
------ ------ ----- ------
At 31 December 2020
Financial assets at fair value through
profit or loss
Loans and advances to customers - - 1,511 1,511
Equity shares 159 4 - 163
------ ------ ----- ------
Total financial assets at fair value
through profit or loss 159 4 1,511 1,674
------ ------ ----- ------
Financial assets at fair value through
other comprehensive income:
Debt securities 14,758 12,437 65 27,260
Treasury and other bills - - - -
------ ------ ----- ------
Total financial assets at fair value
through other comprehensive income 14,758 12,437 65 27,260
------ ------ ----- ------
Derivative financial instruments - 8,327 14 8,341
------ ------ ----- ------
Total financial assets carried at fair
value 14,917 20,768 1,590 37,275
------ ------ ----- ------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 15: Fair values of financial assets and liabilities
(continued)
Level Level Level
1 2 3 Total
Financial liabilities GBPm GBPm GBPm GBPm
At 30 June 2021
Financial liabilities at fair value
through profit or loss:
Liabilities designated at fair value
through profit or loss - 6,818 38 6,856
Trading liabilities 1 - - 1
----- ------ ----- ------
Total financial liabilities at fair
value through profit or loss 1 6,818 38 6,857
----- ------ ----- ------
Derivative financial instruments - 5,096 245 5,341
----- ------ ----- ------
Total financial liabilities carried
at fair value 1 11,914 283 12,198
----- ------ ----- ------
At 31 December 2020
Financial liabilities at fair value
through profit or loss:
Liabilities designated at fair value
through profit or loss - 6,783 45 6,828
Trading liabilities 1 2 - 3
----- ------ ----- ------
Total financial liabilities at fair
value through profit or loss 1 6,785 45 6,831
----- ------ ----- ------
Derivative financial instruments - 7,909 319 8,228
----- ------ ----- ------
Total financial liabilities carried
at fair value 1 14,694 364 15,059
----- ------ ----- ------
Movements in level 3 portfolio
The tables below analyse movements in the level 3 financial
assets portfolio.
Financial Financial
assets at assets at
fair value fair value Total financial
through through other assets carried
profit or comprehensive Derivative at fair
loss income assets value
GBPm GBPm GBPm GBPm
At 1 January 2021 1,511 65 14 1,590
Exchange and other adjustments (15) (3) - (18)
Losses recognised in the
income statement within
other income (49) - (2) (51)
Losses recognised in other
comprehensive income within
the revaluation reserve
in respect of financial
assets at fair value through
other comprehensive income - (4) - (4)
Purchases/increases to
customer loans 18 - - 18
Sales/repayments of customer
loans (374) (2) - (376)
Transfers into the level
3 portfolio 4 - - 4
Transfers out of the level
3 portfolio (653) - - (653)
----------- -------------- ---------- ---------------
At 30 June 2021 442 56 12 510
----------- -------------- ---------- ---------------
Losses recognised in the
income statement, within
other income, relating
to the change in fair value
of those assets held at
30 June 2021 (60) - (2) (62)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 15: Fair values of financial assets and liabilities
(continued)
Financial Financial
assets at assets at
fair value fair value Total financial
through through other assets carried
profit or comprehensive Derivative at fair
loss income assets value
GBPm GBPm GBPm GBPm
At 1 January 2020 1,829 60 - 1,889
Exchange and other adjustments 79 4 - 83
Gains recognised in the
income statement within
other income 20 - 1 21
Purchases/increases to
customer loans 368 - - 368
Sales/repayments of customer
loans (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 recognised in the
income statement, within
other income, relating
to the change in fair value
of those assets held at
30 June 2020 105 - - 105
The tables below analyse movements in the level 3 financial
liabilities portfolio.
Financial Total
liabilities financial
at fair liabilities
value through carried
profit or Derivative at
loss liabilities fair value
GBPm GBPm GBPm
At 1 January 2021 45 319 364
Gains recognised in the income statement
within other income (2) (55) (57)
Redemptions (5) (19) (24)
At 30 June 2021 38 245 283
-------------- ------------ ------------
Gains recognised in the income statement,
within other income, relating to
the change in fair value of those
liabilities held at 30 June 2021 (2) (42) (44)
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
-------------- ------------ ------------
Gains recognised in the income statement,
within other income, relating to
the change in fair value of those
liabilities held at 30 June 2020 - - -
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 15: Fair values of financial assets and liabilities
(continued)
The tables below set out the effects of reasonably possible
alternative assumptions for categories of level 3 financial assets
and financial liabilities which have an aggregated carrying value
greater than GBP500 million.
At 30 June 2021
------------------------------------------
Effect of reasonably
possible alternative
assumptions(2)
-------------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
techniques inputs(1) value changes changes
GBPm GBPm GBPm
Financial assets at fair value
through profit or loss
Loans and advances Discounted Interest rate
to customers cash flows spreads (+/-6%) 438 39 (36)
Other 4
---------
442
---------
Financial assets at fair value
through other comprehensive
income 56
Derivative financial
assets
Option pricing Interest rate
Interest rate derivatives model volatility (8%/124%) 12
---------
12
---------
Level 3 financial assets carried
at fair value 510
---------
Financial liabilities at fair value through
profit or loss 38
Derivative financial
liabilities
Option pricing Interest rate
Interest rate derivatives model volatility (8%/124%) 39
Market values
Shared appreciation - property
right valuation HPI (+/-1%) 206
---------
245
---------
Level 3 financial liabilities
carried at fair value 283
---------
(1) Ranges are shown where appropriate and represent the highest
and lowest inputs used in the level 3 valuations.
(2) Where the exposure to an unobservable input is managed on a
net basis, only the net impact is shown in the table.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 15: Fair values of financial assets and liabilities
(continued)
At 31 December 2020
-------------------------------------------
Effect of reasonably
possible alternative
assumptions(2)
------------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
techniques inputs(1) value changes changes
GBPm GBPm GBPm
Financial assets at fair value through profit
or loss
Loans and advances Discounted Interest rate
to customers cash flows spreads (-50bps/+106bps) 1,511 47 (45)
-----------
1,511
-----------
Financial assets at fair value
through other comprehensive
income 65
Derivative financial
assets
Interest rate
Option pricing volatility
Interest rate derivatives model (13%/128%) 14
-----------
14
-----------
Level 3 financial assets carried
at fair value 1,590
-----------
Financial liabilities at fair value through
profit or loss 45
Derivative financial
liabilities
Interest rate
Option pricing volatility
Interest rate derivatives model (33%/60%) 48
Market values
Shared appreciation - property
right valuation HPI (+/-1%) 271
-----------
319
-----------
Level 3 financial liabilities
carried at fair value 364
-----------
(1) Ranges are shown where appropriate and represent the highest
and lowest inputs used in the level 3 valuations.
(2) Where the exposure to an unobservable input is managed on a
net basis, only the net impact is shown in the table.
Unobservable inputs
Significant unobservable inputs affecting the valuation of debt
securities, unlisted equity investments and derivatives are
unchanged from those described in the Group's 2020 financial
statements.
Reasonably possible alternative assumptions
Valuation techniques applied to many of the Group's level 3
instruments often involve the use of two or more inputs whose
relationship is interdependent. The calculation of the effect of
reasonably possible alternative assumptions included in the table
above reflects such relationships and are unchanged from those
described in note 42 to the Group's 2020 financial statements.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 16: Credit quality of loans and advances to banks and
customers
Drawn exposures Expected credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total
Gross drawn
exposures
and
expected
credit loss
allowances GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 30 June
2021
Loans and advances
to banks:
CMS 1-10 7,355 - - - 7,355 2 - - - 2
CMS 11-14 - - - - - - - - - -
CMS 15-18 - - - - - - - - - -
CMS 19 - - - - - - - - - -
CMS 20-23 - - - - - - - - - -
7,355 - - - 7,355 2 - - - 2
Loans and advances to
customers:
Retail - UK
Mortgages
RMS 1-6 262,472 22,374 - - 284,846 123 234 - - 357
RMS 7-9 69 4,022 - - 4,091 1 59 - - 60
RMS 10 - 918 - - 918 - 23 - - 23
RMS 11-13 - 2,456 - - 2,456 - 95 - - 95
RMS 14 - - 1,924 11,886 13,810 - - 175 190 365
262,541 29,770 1,924 11,886 306,121 124 411 175 190 900
Retail -
credit
cards
RMS 1-6 9,032 1,124 - - 10,156 61 46 - - 107
RMS 7-9 1,720 1,028 - - 2,748 60 115 - - 175
RMS 10 150 317 - - 467 6 60 - - 66
RMS 11-13 54 467 - - 521 - 169 - - 169
RMS 14 - - 323 - 323 - - 140 - 140
10,956 2,936 323 - 14,215 127 390 140 - 657
Retail -
loans
and
overdrafts
RMS 1-6 5,991 398 - - 6,389 73 19 - - 92
RMS 7-9 1,707 519 - - 2,226 74 60 - - 134
RMS 10 63 143 - - 206 6 29 - - 35
RMS 11-13 21 353 - - 374 3 134 - - 137
RMS 14 - - 312 - 312 - - 151 - 151
7,782 1,413 312 - 9,507 156 242 151 - 549
Retail - UK
Motor
Finance
RMS 1-6 11,638 1,464 - - 13,102 142 36 - - 178
RMS 7-9 687 490 - - 1,177 7 29 - - 36
RMS 10 - 134 - - 134 - 19 - - 19
RMS 11-13 22 184 - - 206 - 45 - - 45
RMS 14 - - 233 - 233 - - 152 - 152
12,347 2,272 233 - 14,852 149 129 152 - 430
Retail -
other
RMS 1-6 15,661 485 - - 16,146 25 15 - - 40
RMS 7-9 1,982 357 - - 2,339 6 43 - - 49
RMS 10 - 5 - - 5 - - - - -
RMS 11-13 431 356 - - 787 - 29 - - 29
RMS 14 - - 244 - 244 - - 54 - 54
18,074 1,203 244 - 19,521 31 87 54 - 172
Total
Retail 311,700 37,594 3,036 11,886 364,216 587 1,259 672 190 2,708
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 16: Credit quality of loans and advances to banks and
customers (continued)
Drawn exposures Expected credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total
Gross drawn
exposures
and expected
credit loss
allowances
(continued) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 30 June
2021
Commercial
Banking
CMS 1-10 24,607 128 - - 24,735 20 2 - - 22
CMS 11-14 31,949 3,419 - - 35,368 113 49 - - 162
CMS 15-18 3,011 4,155 - - 7,166 44 234 - - 278
CMS 19 - 606 - - 606 - 71 - - 71
CMS 20-23 - - 3,044 - 3,044 - - 985 - 985
59,567 8,308 3,044 - 70,919 177 356 985 - 1,518
Other
RMS 1-6 877 36 - - 913 9 1 - - 10
RMS 7-9 - - - - - - - - - -
RMS 10 - - - - - - - - - -
RMS 11-13 - - - - - - - - - -
RMS 14 - - 62 - 62 - - 10 - 10
877 36 62 - 975 9 1 10 - 20
CMS 1-10 49,873 - - - 49,873 - - - - -
CMS 11-14 3 - - - 3 - - - - -
CMS 15-18 - - - - - - - - - -
CMS 19 2 - - - 2 - - - - -
CMS 20-23 - - - - - - - - - -
49,878 - - - 49,878 - - - - -
Central
overlay - - - - - 400 - - - 400
Total loans
and
advances to
customers 422,022 45,938 6,142 11,886 485,988 1,173 1,616 1,667 190 4,646
In respect
of:
Retail 311,700 37,594 3,036 11,886 364,216 587 1,259 672 190 2,708
Commercial
Banking 59,567 8,308 3,044 - 70,919 177 356 985 - 1,518
Other(1) 50,755 36 62 - 50,853 409 1 10 - 420
Total loans
and
advances to
customers 422,022 45,938 6,142 11,886 485,988 1,173 1,616 1,667 190 4,646
(1) Principally comprises reverse repurchase agreement
balances.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 16: Credit quality of loans and advances to banks and
customers (continued)
Drawn exposures Expected credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total
Gross drawn
exposures
and
expected
credit
loss
allowances GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 31
December
2020
Loans and advances
to banks:
CMS 1-10 5,951 - - - 5,951 4 - - - 4
CMS 11-14 3 - - - 3 - - - - -
CMS 15-18 - - - - - - - - - -
CMS 19 - - - - - - - - - -
CMS 20-23 - - - - - - - - - -
------- ------ ----- ------ -------
5,954 - - - 5,954 4 - - - 4
------- ------ ----- ------ ------- ----- ----- ----- ---- -----
Loans and advances to
customers:
Retail - UK
Mortgages
RMS 1-6 251,372 21,010 - - 272,382 103 247 - - 350
RMS 7-9 46 4,030 - - 4,076 1 66 - - 67
RMS 10 - 907 - - 907 - 25 - - 25
RMS 11-13 - 3,071 - - 3,071 - 130 - - 130
RMS 14 - - 1,859 12,511 14,370 - - 191 261 452
------- ------ ----- ------ -------
251,418 29,018 1,859 12,511 294,806 104 468 191 261 1,024
Retail -
credit
cards
RMS 1-6 9,619 1,284 - - 10,903 75 57 - - 132
RMS 7-9 1,603 1,137 - - 2,740 66 138 - - 204
RMS 10 274 343 - - 617 14 70 - - 84
RMS 11-13 - 509 - - 509 - 193 - - 193
RMS 14 - - 340 - 340 - - 153 - 153
------- ------ ----- ------ -------
11,496 3,273 340 - 15,109 155 458 153 - 766
Retail - loans and
overdrafts
RMS 1-6 5,559 291 - - 5,850 80 15 - - 95
RMS 7-9 1,990 580 - - 2,570 99 66 - - 165
RMS 10 116 181 - - 297 13 36 - - 49
RMS 11-13 45 467 - - 512 9 178 - - 187
RMS 14 - - 307 - 307 - - 147 - 147
------- ------ ----- ------ -------
7,710 1,519 307 - 9,536 201 295 147 - 643
Retail - UK
Motor
Finance
RMS 1-6 12,035 1,396 - - 13,431 187 46 - - 233
RMS 7-9 738 456 - - 1,194 7 33 - - 40
RMS 10 - 171 - - 171 - 30 - - 30
RMS 11-13 13 193 - - 206 - 62 - - 62
RMS 14 - - 199 - 199 - - 133 - 133
------- ------ ----- ------ -------
12,786 2,216 199 - 15,201 194 171 133 - 498
Retail -
other
RMS 1-6 14,952 482 - - 15,434 19 19 - - 38
RMS 7-9 2,418 334 - - 2,752 11 39 - - 50
RMS 10 - 21 - - 21 - 1 - - 1
RMS 11-13 509 467 - - 976 - 40 - - 40
RMS 14 - - 184 - 184 - - 59 - 59
------- ------ ----- ------ -------
17,879 1,304 184 - 19,367 30 99 59 - 188
------- ------ ----- ------ ------- ----- ----- ----- ---- -----
Total
Retail 301,289 37,330 2,889 12,511 354,019 684 1,491 683 261 3,119
------- ------ ----- ------ ------- ----- ----- ----- ---- -----
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 16: Credit quality of loans and advances to banks and
customers (continued)
Drawn exposures Expected credit loss allowance
Stage Stage Stage Stage Stage Stage
1 2 3 POCI Total 1 2 3 POCI Total
Gross drawn
exposures
and
expected
credit
loss
allowances
(continued) GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 31
December
2020
Commercial
Banking
CMS 1-10 22,218 177 - - 22,395 23 2 - - 25
CMS 11-14 30,023 6,662 - - 36,685 135 106 - - 241
CMS 15-18 4,656 6,430 - - 11,086 96 397 - - 493
CMS 19 - 669 - - 669 - 129 - - 129
CMS 20-23 - - 3,485 - 3,485 - - 1,273 - 1,273
------- ------ ----- ------ -------
56,897 13,938 3,485 - 74,320 254 634 1,273 - 2,161
Other
RMS 1-6 822 12 - - 834 9 - - - 9
RMS 7-9 - - - - - - - - - -
RMS 10 - - - - - - - - - -
RMS 11-13 - - - - - - - - - -
RMS 14 - - 59 - 59 - - 12 - 12
------- ------ ----- ------ -------
822 12 59 - 893 9 - 12 - 21
------- ------ ----- ------ ------- ----- ----- ----- ---- -----
CMS 1-10 56,362 - - - 56,362 - - - - -
CMS 11-14 236 - - - 236 - - - - -
CMS 15-18 - - - - - - - - - -
CMS 19 2 - - - 2 - - - - -
CMS 20-23 - - 10 - 10 - - - - -
------- ------ ----- ------ -------
56,600 - 10 - 56,610 - - - - -
Central
overlay - - - - - 400 - - - 400
------- ------ ----- ------ ------- ----- ----- ----- ---- -----
Total loans
and
advances
to
customers 415,608 51,280 6,443 12,511 485,842 1,347 2,125 1,968 261 5,701
------- ------ ----- ------ ------- ----- ----- ----- ---- -----
In respect
of:
Retail 301,289 37,330 2,889 12,511 354,019 684 1,491 683 261 3,119
Commercial
Banking 56,897 13,938 3,485 - 74,320 254 634 1,273 - 2,161
Other(1) 57,422 12 69 - 57,503 409 - 12 - 421
------ ----- ------ -------
Total loans
and
advances
to
customers 415,608 51,280 6,443 12,511 485,842 1,347 2,125 1,968 261 5,701
------- ------ ----- ------ ------- ----- ----- ----- ---- -----
(1) Principally comprises reverse repurchase agreement
balances.
Note 17: Dividends on ordinary shares
The Bank paid a dividend of GBP1,000 million on 19 May 2021.
Note 18: Ultimate parent undertaking
The Bank's ultimate parent undertaking and controlling party is
Lloyds Banking Group plc which is incorporated in Scotland. Lloyds
Banking Group plc has published consolidated accounts for the year
to 31 December 2020 and copies may be obtained from Investor
Relations, Lloyds Banking Group, 25 Gresham Street, London EC2V 7HN
and available for download from www.lloydsbankinggroup.com.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 19: Other information
The financial information contained in this document does not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006 (the Act). The statutory accounts for the
year ended 31 December 2020 were approved by the directors on 11
March 2021 and were delivered to the Registrar of Companies on 28
April 2021. The auditors' report on those accounts was unqualified
and did not include a statement under sections 498(2) (accounting
records or returns inadequate or accounts not agreeing with records
and returns) or 498(3) (failure to obtain necessary information and
explanations) of the Act.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors listed below (being all the directors of Lloyds
Bank plc) confirm that to the best of their knowledge these
condensed consolidated half-year financial statements have been
prepared in accordance with UK adopted International Accounting
Standard 34, Interim Financial Reporting, and that the half-year
management report herein includes a fair review of the information
required by DTR 4.2.7R and DTR 4.2.8R, namely:
-- an indication of important events that have occurred during
the six months ended 30 June 2021 and their impact on the condensed
consolidated half-year financial statements, and a description of
the principal risks and uncertainties for the remaining six months
of the financial year; and
-- material related party transactions in the six months ended
30 June 2021 and any material changes in the related party
transactions described in the last annual report.
Signed on behalf of the Board by
William Chalmers
Interim Group Chief Executive
28 July 2021
Lloyds Bank plc Board of directors:
Executive director:
William Chalmers (Interim Group Chief Executive and Chief
Financial Officer)
Non-executive directors:
Robin Budenberg CBE (Chair)
Alan Dickinson (Deputy Chair)
Sarah Bentley
Brendan Gilligan
Nigel Hinshelwood
Sarah Legg
Lord Lupton CBE
Amanda Mackenzie OBE
Nicholas Prettejohn
Stuart Sinclair
Catherine Woods
INDEPENT REVIEW REPORT TO LLOYDS BANK PLC
We have been engaged by the Bank to review the condensed set of
financial statements in the half-yearly financial report for the
six months ended 30 June 2021 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in equity, the consolidated cash flow statement and
related notes 1 to 19. We have read the other information contained
in the half-yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
The annual financial statements of the Group will be prepared in
accordance with International Financial Reporting Standards as
adopted by the United Kingdom. Accordingly, the condensed set of
financial statements included in this half-yearly financial report
has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Our responsibility
Our responsibility is to express to the Bank a conclusion on the
condensed set of financial statements in the half-yearly financial
report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
Use of our report
This report is made solely to the Bank in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the Bank those matters we are required to state to it in
an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Bank, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, England
28 July 2021
FORWARD LOOKING STATEMENTS
This document contains certain forward looking statements within
the meaning of Section 21E of the US Securities Exchange Act of
1934, as amended, and section 27A of the US Securities Act of 1933,
as amended, with respect to the business, strategy, plans and/or
results of Lloyds 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 or current 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', 'achieves', 'anticipates', 'estimates', 'expects',
'targets', 'should', 'intends', 'aims', 'projects', 'plans',
'potential', 'will', 'would', 'could', 'considered', 'likely',
'may', 'seek', 'estimate', 'probability', 'goal', 'objective',
'endeavour', 'prospects', 'optimistic' and variations of these
words and similar future or conditional expressions are intended to
identify forward looking statements but are not the exclusive means
of identifying such statements. Examples of such forward looking
statements include, but are not limited to, statements or guidance
relating to: projections or expectations of the 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; the Lloyds Bank Group's ESG targets and / or
commitments; 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; potential changes in
dividend policy; the ability to achieve strategic objectives;
changing customer behaviour including consumer spending, saving and
borrowing habits; changes to borrower or counterparty credit
quality impacting the recoverability and value of balance sheet
assets; concentration of financial exposure; management and
monitoring of conduct risk; exposure to counterparty risk
(including but not limited to third parties conducting illegal
activities without the Lloyds Bank Group's knowledge); instability
in the global financial markets, including Eurozone instability,
instability as a result of uncertainty surrounding the exit by the
UK from the European Union (EU) and the EU-UK Trade and Cooperation
Agreement, instability as a result of the potential for other
countries to exit the EU or the Eurozone, and the impact of any
sovereign credit rating downgrade or other sovereign financial
issues; political instability including as a result of any UK
general election and any further possible referendum on Scottish
independence; technological changes and risks to the security of IT
and operational infrastructure, systems, data and information
resulting from increased threat of cyber and other attacks;
natural, pandemic (including but not limited to the COVID-19
pandemic) and other disasters, adverse weather and similar
contingencies outside the 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, or other such events;
geopolitical unpredictability; risks relating to sustainability and
climate change, including the Lloyds Bank Group's or Lloyds Banking
Group plc's ability along with the government and other
stakeholders to manage and mitigate the impacts of climate change
effectively; changes in laws, regulations, practices and accounting
standards or taxation, including as a result of the UK's exit from
the EU; changes to regulatory capital or liquidity requirements
(including regulatory measures to restrict distributions to address
potential capital and liquidity stress) and similar contingencies
outside the 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
laws, 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 in Lloyds Bank Group's ability to develop
sustainable finance products and Lloyds Bank Group's capacity to
measure the ESG impact from its financing activity, which may
affect Lloyds Bank Group's ability to achieve its climate ambition;
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 (the SEC), which is available
on the SEC's website at www.sec.gov, for a discussion of certain
factors and risks. Lloyds Bank plc may also make or disclose
written and/or oral forward looking statements in reports filed
with or furnished to the SEC, Lloyds Bank plc annual reviews,
half-year announcements, proxy statements, offering circulars,
prospectuses, press releases and other written materials and in
oral statements made by the directors, officers or employees of
Lloyds Bank plc to third parties, including financial analysts.
Except as required by any applicable law or regulation, the forward
looking statements contained in this document are made as of
today's date, and the 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.
CONTACTS
For further information please contact:
INVESTORS AND ANALYSTS
Douglas Radcliffe
Group Investor Relations Director
020 7356 1571
douglas.radcliffe@lloydsbanking.com
Edward Sands
Director of Investor Relations
020 7356 1585
edward.sands@lloydsbanking.com
Eileen Khoo
Director of Investor Relations
07385 376435
eileen.khoo@lloydsbanking.com
Nora Thoden
Director of Investor Relations - ESG
020 7356 2334
nora.thoden@lloydsbanking.com
CORPORATE AFFAIRS
Grant Ringshaw
External Relations Director
020 7356 2362
grant.ringshaw@lloydsbanking.com
Matt Smith
Head of Media Relations
020 7356 3522
matt.smith@lloydsbanking.com
Copies of this News Release may be obtained from:
Investor Relations, Lloyds Banking Group plc, 25 Gresham Street,
London EC2V 7HN
The statement can also be found on the Group's website -
www.lloydsbankinggroup.com
Registered office: Lloyds Bank plc, 25 Gresham Street, London
EC2V 7HN
Registered in England No. 2065
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END
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