Company Announcements

2019 Full Year Results

Source: RNS
RNS Number : 5457D
Lloyds Banking Group PLC
20 February 2020
 

 

 

 

 

2019 Results

News Release

 

Lloyds Banking Group plc

 

20 February 2020

 

 

 

 

 

 

CONTENTS

 

 

 

 

Page 

Results for the full year

1

Income statement - underlying basis

2

Key balance sheet metrics

2

Quarterly information

3

Balance sheet analysis

4

Group Chief Executive's statement

5

Summary of Group results

9

Segmental analysis - underlying basis

16

 

 

Divisional results

 

Retail

17

Commercial Banking

19

Insurance and Wealth

21

Central items

23

 

 

Other financial information

 

Reconciliation between statutory and underlying basis results

24

Banking net interest margin and average interest-earning assets

25

Volatility arising in insurance businesses

25

Tangible net assets per share

26

Return on tangible equity

26

Share buyback

26

 

 

Risk management

 

Credit risk portfolio

27

Funding and liquidity management

33

Capital management

34

 

 

Statutory information

 

Condensed consolidated financial statements

41

Consolidated income statement

41

Consolidated statement of comprehensive income

42

Consolidated balance sheet

43

Consolidated statement of changes in equity

45

Consolidated cash flow statement

47

Notes to the condensed consolidated financial statements

48

 

 

Forward looking statements

59

Summary of alternative performance measures

60

Contacts

61

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIS OF PRESENTATION

This release covers the results of Lloyds Banking Group plc together with its subsidiaries (the Group) for the year ended 31 December 2019.

IFRS 16 and IAS 12 (further information in note 1 on page 48): The Group adopted IFRS 16 Leases from 1 January 2019 and as permitted elected to apply the standard retrospectively with the cumulative effect of initial application being recognised at that date; comparative information has not been restated. The Group implemented the amendments to IAS 12 Income Taxes with effect from 1 January 2019 and as a result tax relief on distributions on other equity instruments, previously recognised in equity, is now reported within tax expense; comparatives have been restated.

Statutory basis: Statutory information is set out on pages 48 to 58. However, a number of factors have had a significant effect on the comparability of the Group's financial position and results. Accordingly, the results are also presented on an underlying basis.

Underlying basis: The statutory results are adjusted for certain items which are listed below, to allow a comparison of the Group's underlying performance.

−     restructuring, including severance-related costs, the rationalisation of the non-branch property portfolio, the establishment of the Schroders partnership, the integration of MBNA and Zurich's UK workplace pensions and savings business;

−     volatility and other items, which includes the effects of certain asset sales, the volatility relating to the Group's hedging arrangements and that arising in the insurance businesses, insurance gross up, the unwind of acquisition-related fair value adjustments and the amortisation of purchased intangible assets;

−     payment protection insurance provisions.

Unless otherwise stated, income statement commentaries throughout this document compare the year ended 31 December 2019 to the year ended 31 December 2018, and the balance sheet analysis compares the Group balance sheet as at 31 December 2019 to the Group balance sheet as at 31 December 2018.

Segment information: The segment results have been restated to reflect the transfer of the Cardnet business from Retail into Commercial Banking and certain equities business from Commercial Banking into Central items. The underlying profit and statutory results at Group level are unchanged as a result of these restatements.

Alternative performance measures: The Group uses a number of alternative performance measures, including underlying profit, in the discussion of its business performance and financial position. Further information on these measures is set out on page 60.

 

 

 

 

 

RESULTS FOR THE FULL YEAR

 

"In 2019 the Group has continued to make significant strategic progress while delivering solid financial results in a challenging external market. The Group's statutory performance was impacted by a substantial PPI charge related to the deadline for claims submission. Underlying performance was resilient, reflecting the health of our customer franchise and the strength of the business model.

 

The Group's purpose is to Help Britain Prosper, underpinned by being the bank with the largest retail and commercial presence throughout the UK. In 2019 we helped around 23 per cent of first time buyers by lending £13.8 billion while also achieving our target of lending £18 billion to businesses across the UK. We have also targeted reducing the emissions we finance by more than 50 per cent by 2030, in line with the UK's Net Zero Goal and the Paris Agreement.

 

Given our clear UK focus, our performance is inextricably linked to the health of the UK economy. Throughout 2019, UK economic performance has remained resilient in the face of significant political and economic uncertainty, supported by record employment, low interest rates and rising real wages. Although uncertainty remains given the ongoing negotiation of international trade agreements, there is now a clearer sense of direction and some signs of an improving outlook. We remain well placed to Help Britain Prosper, support our customers and deliver strong and sustainable returns for shareholders."

António Horta-Osório

Group Chief Executive

Significant strategic progress and the right strategy in the current environment

In 2018 we launched our ambitious strategy to transform the Group for success in a digital world; over the last two years we have invested £2 billion in strategic initiatives and:

·     Invested in building a leading customer experience, including the Group's unique Single Customer View, supporting the largest digital bank in the UK with 16.4 million digitally active customers and 10.7 million mobile app users, alongside the largest branch network in the UK

·     Enhanced comprehensive product range and maximised Group capabilities by launch of Schroders Personal Wealth

·     Continued to digitise the Group and transform ways of working

 

Solid financial performance

·     Underlying profit of £7.5 billion, down 7 per cent in a challenging external market

−     Net income of £17.1 billion, down 4 per cent, with stable average interest-earning banking assets of £435 billion, net interest margin of 2.88 per cent and other income down 5 per cent to £5.7 billion

−     Total costs of £8.3 billion further reduced by 5 per cent, driven by action to reduce operating costs, and lower remediation charges; market-leading cost:income ratio improved to 48.5 per cent with positive jaws of 1 per cent

−      Credit quality remains strong with net asset quality ratio of 29 basis points

·     Statutory profit after tax of £3.0 billion after £2.45 billion PPI charge and £1.4 billion tax expense in the year

·     Total ordinary dividend of 3.37 pence per share, up 5 per cent

·     Balance sheet strength maintained with free capital build of 86 basis points in the year (207 basis points pre-PPI charge) and CET1 ratio of 13.8 per cent after dividends

·     The Group is targeting an ongoing CET1 capital ratio of c.12.5 per cent plus a management buffer of c.1 per cent.

·     Sustainable growth in targeted segments including £1.0 billion in UK Motor Finance, £0.3 billion in SME and £3.2 billion in Retail current accounts, as well as growth of £3.5 billion in the open mortgage book, including the Tesco acquisition

·     Underlying return on tangible equity remains strong at 14.8 per cent with statutory return on tangible equity at 7.8 per cent, largely driven by the PPI charge

 

Guidance for 2020 reflects the Group's confidence in the business model and future performance

·     Net interest margin of 2.75 to 2.80 per cent

·     Operating costs to be less than £7.7 billion with the cost:income ratio lower than in 2019

·     Net asset quality ratio expected to be less than 30 basis points

·     Capital build expected to be within the Group's ongoing guidance range of 170 to 200 basis points per year and risk-weighted assets to be broadly in line with 2019

 

 

·     Expect increased statutory return on tangible equity of 12 to 13 per cent, driven by resilient underlying profit and lower below the line charges

INCOME STATEMENT − UNDERLYING BASIS

 

 

 

 

 

 

 

 

 

 

2019  

 

2018  

 

Change

 

    

£m  

    

£m  

    

%

 

 

 

 

 

 

 

Net interest income

 

 12,377  

 

 12,714  

 

(3)

Other income

 

 5,732  

 

 6,010  

 

(5)

Operating lease depreciation

 

 (967)  

 

 (956)  

 

(1)

Net income

 

 17,142  

 

 17,768  

 

(4)

Operating costs

 

 (7,875)  

 

 (8,165)  

 

4

Remediation

 

 (445)  

 

 (600)  

 

26

Total costs

 

 (8,320)  

 

 (8,765)  

 

5

Trading surplus

 

 8,822  

 

 9,003  

 

(2)

Impairment

 

 (1,291)  

 

 (937)  

 

(38)

Underlying profit

 

 7,531  

 

 8,066  

 

(7)

Restructuring

 

 (471)  

 

 (879)  

 

46

Volatility and other items

 

 (217)  

 

 (477)  

 

55

Payment protection insurance provision

 

 (2,450)  

 

 (750)  

 

 

Statutory profit before tax

 

 4,393  

 

 5,960  

 

(26)

Tax expense1

 

 (1,387)  

 

 (1,454)  

 

5

Statutory profit after tax1

 

 3,006  

 

 4,506  

 

(33)

 

 

 

 

 

 

 

Earnings per share

 

3.5p

 

5.5p

 

(36)

Dividends per share - ordinary

 

3.37p

 

3.21p

 

5

Share buyback value

 

-

 

£1.1bn

 

 

 

 

 

 

 

 

 

Banking net interest margin

 

2.88%

 

2.93%

 

(5)bp

Average interest-earning banking assets

 

£435bn

 

£436bn

 

-

Cost:income ratio

 

48.5%

 

49.3%

 

(0.8)pp

Asset quality ratio

 

0.29%

 

0.21%

 

8bp

Underlying return on tangible equity

 

14.8%

 

15.5%

 

(0.7)pp

Return on tangible equity

 

7.8%

 

11.7%

 

(3.9)pp

 

 

 

 

 

KEY BALANCE SHEET METRICS

 

 

 

 

 

 

 

 

 

 

At 31 Dec

 

At 31 Dec

 

Change

 

 

2019

 

2018

 

%

 

 

 

 

 

 

 

Loans and advances to customers2

 

£440bn

 

£444bn

 

(1)

Customer deposits3

 

£412bn

 

£416bn

 

(1)

Loan to deposit ratio

 

107%

 

107%

 

-

Capital build4

 

86bp

 

210bp

 

(124)bp

Pro forma CET1 ratio5

 

13.8%

 

13.9%

 

(0.1)pp

Pro forma transitional MREL ratio5

 

32.6%

 

32.6%

 

-

Pro forma UK leverage ratio5

 

5.2%

 

5.6%

 

(0.4)pp

Pro forma risk-weighted assets5

 

£203bn

 

£206bn

 

(1)

Tangible net assets per share

 

50.8p

 

53.0p

 

(2.2)p

 

 

 

1

2018 restated to reflect amendments to IAS 12, see basis of presentation.

2

Excludes reverse repos of £54.6 billion (31 December 2018: £40.5 billion).

3

Excludes repos of £9.5 billion (31 December 2018: £1.8 billion).

4

Capital build is reported on a pro forma basis, reflecting the dividend paid up by the Insurance business in the subsequent first quarter period and is also reported before accruing for ordinary dividends, the cancellation of the remaining 2019 share buyback and the acquisition of Tesco Bank's UK prime residential mortgage portfolio.

5

The CET1, MREL, leverage ratios and risk-weighted assets at 31 December 2019 and 31 December 2018 are reported on a pro forma basis, reflecting the dividend paid up by the Insurance business in the subsequent first quarter period. The pro forma CET1 ratio at 31 December 2018 incorporates the effects of the share buyback announced in February 2019 and is reported post dividend accrual.

 

 

 

 

QUARTERLY INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter  

 

Quarter  

 

Quarter  

 

Quarter  

 

Quarter  

 

Quarter  

 

Quarter  

 

Quarter 

 

 

ended  

 

ended  

 

ended  

 

ended  

 

ended  

 

ended  

 

ended  

 

ended  

 

 

31 Dec  

 

30 Sept  

 

30 June  

 

31 Mar  

 

31 Dec  

 

30 Sept  

 

30 June  

 

31 Mar  

 

 

2019  

 

2019  

 

2019  

 

2019  

 

2018  

 

2018  

 

2018  

 

2018  

 

  

£m  

 

£m  

 

£m  

 

£m  

 

£m  

 

£m  

  

£m  

  

£m  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 3,102  

 

 3,130  

 

 3,062  

 

 3,083  

 

 3,170  

 

 3,200  

 

 3,173  

 

 3,171  

Other income

 

 1,267  

 

 1,315  

 

 1,594  

 

 1,556  

 

 1,400  

 

 1,486  

 

 1,713  

 

 1,411  

Operating lease depreciation

 

 (236)  

 

 (258)  

 

 (254)  

 

 (219)  

 

 (225)  

 

 (234)  

 

 (245)  

 

 (252)  

Net income

 

 4,133  

 

 4,187  

 

 4,402  

 

 4,420  

 

 4,345  

 

 4,452  

 

 4,641  

 

 4,330  

Operating costs

 

 (2,058)  

 

 (1,911)  

 

 (1,949)  

 

 (1,957)  

 

 (2,151)  

 

 (1,990)  

 

 (2,016)  

 

 (2,008)  

Remediation

 

 (219)  

 

 (83)  

 

 (123)  

 

 (20)  

 

 (234)  

 

 (109)  

 

 (197)  

 

 (60)  

Total costs

 

 (2,277)  

 

 (1,994)  

 

 (2,072)  

 

 (1,977)  

 

 (2,385)  

 

 (2,099)  

 

 (2,213)  

 

 (2,068)  

Trading surplus

 

 1,856  

 

 2,193  

 

 2,330  

 

 2,443  

 

 1,960  

 

 2,353  

 

 2,428  

 

 2,262  

Impairment

 

 (341)  

 

 (371)  

 

 (304)  

 

 (275)  

 

 (197)  

 

 (284)  

 

 (198)  

 

 (258)  

Underlying profit

 

 1,515  

 

 1,822  

 

 2,026  

 

 2,168  

 

 1,763  

 

 2,069  

 

 2,230  

 

 2,004  

Restructuring

 

 (191)  

 

 (98)  

 

 (56)  

 

 (126)  

 

 (267)  

 

 (235)  

 

 (239)  

 

 (138)  

Volatility and other items

 

 122  

 

 126  

 

 (126)  

 

 (339)  

 

 (270)  

 

 (17)  

 

 (16)  

 

 (174)  

Payment protection insurance provision

 

 -  

 

 (1,800)  

 

 (550)  

 

 (100)  

 

 (200)  

 

 -  

 

 (460)  

 

 (90)  

Statutory profit before tax

 

 1,446  

 

 50  

 

 1,294  

 

 1,603  

 

 1,026  

 

 1,817  

 

 1,515  

 

 1,602  

Tax expense1

 

 (427)  

 

 (288)  

 

 (269)  

 

 (403)  

 

 (260)  

 

 (394)  

 

 (369)  

 

 (431)  

Statutory profit (loss) after tax1

 

 1,019  

 

 (238)  

 

 1,025  

 

 1,200  

 

 766  

 

 1,423  

 

 1,146  

 

 1,171  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banking net interest margin

 

2.85%

 

2.88%

 

2.89%

 

2.91%

 

2.92%

 

2.93%

 

2.93%

 

2.93%

Average interest-earning banking assets

 

£437bn

 

£435bn

 

£433bn

 

£433bn

 

£436bn

 

£435bn

 

£436bn

 

£437bn

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost:income ratio

 

55.1%

 

47.6%

 

47.1%

 

44.7%

 

54.9%

 

47.1%

 

47.7%

 

47.8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Asset quality ratio

 

0.30%

 

0.33%

 

0.27%

 

0.25%

 

0.18%

 

0.25%

 

0.18%

 

0.23%

Gross asset quality ratio

 

0.39%

 

0.40%

 

0.38%

 

0.30%

 

0.30%

 

0.30%

 

0.26%

 

0.27%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying return on tangible equity

 

12.2%

 

14.3%

 

15.6%

 

17.0%

 

13.6%

 

15.9%

 

17.3%

 

15.4%

Return on tangible equity

 

11.0%

 

(2.8)%

 

10.5%

 

12.5%

 

7.8%

 

14.8%

 

11.9%

 

12.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to customers2

 

£440bn

 

£447bn

 

£441bn

 

£441bn

 

£444bn

 

£445bn

 

£442bn

 

£445bn

Customer deposits3

 

£412bn

 

£419bn

 

£418bn

 

£417bn

 

£416bn

 

£422bn

 

£418bn

 

£413bn

Loan to deposit ratio

 

107%

 

107%

 

106%

 

106%

 

107%

 

105%

 

106%

 

108%

Pro forma risk-weighted assets4

 

£203bn

 

£209bn

 

£207bn

 

£208bn

 

£206bn

 

£207bn

 

£207bn

 

£211bn

Tangible net assets per share

 

50.8p

 

52.0p

 

53.0p

 

53.4p

 

53.0p

 

51.3p

 

52.1p

 

52.3p

 

 

 

1

Comparatives for 2018 restated to reflect amendments to IAS 12, see basis of presentation.

2

Excludes reverse repos.

3

Excludes repos.

4

Risk-weighted assets at 30 June 2018 are reported on a pro forma basis reflecting the sale of the Irish mortgage portfolio.

 

 

 

 

 

BALANCE SHEET ANALYSIS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 Dec

 

At 30 Sept

 

 

 

At 30 June

 

 

 

At 31 Dec

 

 

 

 

2019

 

2019

 

Change

 

2019

 

Change

 

2018

 

Change

 

 

£bn

 

£bn

 

%

 

£bn

 

%

 

£bn

 

%

Loans and advances to customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Open mortgage book

 

270.1

 

271.0

 

-

 

264.9

 

2

 

266.6

 

1

Closed mortgage book

 

18.5

 

19.1

 

(3)

 

19.8

 

(7)

 

21.2

 

(13)

Credit cards

 

17.7

 

17.7

 

-

 

17.7

 

-

 

18.1

 

(2)

UK Retail unsecured loans

 

8.4

 

8.4

 

-

 

8.2

 

2

 

7.9

 

6

UK Motor Finance

 

15.6

 

15.6

 

-

 

15.5

 

1

 

14.6

 

7

Overdrafts

 

1.3

 

1.3

 

-

 

1.2

 

8

 

1.3

 

-

Retail other1

 

9.0

 

9.2

 

(2)

 

9.0

 

-

 

8.6

 

5

SME2

 

32.1

 

32.4

 

(1)

 

32.3

 

(1)

 

31.8

 

1

Mid Markets3

 

29.1

 

30.7

 

(5)

 

30.6

 

(5)

 

31.7

 

(8)

Global Corporates and Financial Institutions

 

30.8

 

33.7

 

(9)

 

34.7

 

(11)

 

34.4

 

(10)

Commercial Banking other

 

5.2

 

5.2

 

-

 

4.3

 

21

 

4.3

 

21

Wealth 

 

0.9

 

0.9

 

-

 

0.9

 

-

 

0.9

 

-

Central items

 

1.7

 

2.0

 

(15)

 

1.9

 

(11)

 

3.0

 

(43)

Loans and advances to customers4

 

440.4

 

447.2

 

(2)

 

441.0

 

-

 

444.4

 

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer deposits

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail current accounts

 

76.9

 

76.1

 

1

 

76.0

 

1

 

73.7

 

4

Commercial current accounts2,5

 

34.9

 

34.6

 

1

 

34.0

 

3

 

34.9

 

-

Retail relationship savings accounts

 

144.5

 

144.3

 

-

 

144.4

 

-

 

145.9

 

(1)

Retail tactical savings accounts

 

13.3

 

14.1

 

(6)

 

15.3

 

(13)

 

16.8

 

(21)

Commercial deposits2,6

 

127.6

 

135.8

 

(6)

 

133.2

 

(4)

 

130.1

 

(2)

Wealth  

 

13.7

 

13.6

 

1

 

13.8

 

(1)

 

14.1

 

(3)

Central items

 

0.9

 

0.7

 

29

 

0.9

 

-

 

0.8

 

13

Total customer deposits7

 

411.8

 

419.2

 

(2)

 

417.6

 

(1)

 

416.3

 

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets8

 

833.9

 

858.5

 

(3)

 

822.2

 

1

 

797.6

 

5

Total liabilities8

 

786.1

 

810.4

 

(3)

 

773.2

 

2

 

747.4

 

5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

41.7

 

42.5

 

(2)

 

43.4

 

(4)

 

43.4

 

(4)

Other equity instruments

 

5.9

 

5.4

 

9

 

5.4

 

9

 

6.5

 

(9)

Non-controlling interests

 

0.2

 

0.2

 

-

 

0.2

 

-

 

0.3

 

(33)

Total equity

 

47.8

 

48.1

 

(1)

 

49.0

 

(2)

 

50.2

 

(5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ordinary shares in issue, excluding own shares

 

70,031m

 

70,007m

 

-

 

70,740m

 

(1)

 

71,149m

 

(2)

 

 

 

1

Primarily Europe.

2

Includes Retail Business Banking.

3

Includes Mid Corporates (31 December 2019: £5.3 billion; 30 September 2019: £5.2 billion; 30 June 2019: £5.4 billion; 31 December 2018: £5.8 billion)

4

Excludes reverse repos.

5

Primarily non-interest-bearing Commercial Banking current accounts.

6

Primarily Commercial Banking interest-bearing accounts.

7

Excludes repos.

8

 

 

The adoption of IFRS 16 on 1 January 2019 resulted in the recognition of a right-of-use asset of £1.7 billion and lease liabilities of £1.8 billion.

 

 

[

 

 

GROUP CHIEF EXECUTIVE'S STATEMENT

 

In 2019 the Group has continued to deliver for customers while making significant strategic progress and delivering a solid financial performance in a challenging external market. While it is disappointing that this was impacted by the additional PPI charge in the year, as a result of this performance, the Board has been able to recommend an increased total ordinary dividend of 3.37 pence per share.

 

In February 2018 we announced an ambitious plan to transform the Group for success in a digital world, supported by over £3 billion of strategic investment. We are now two-thirds of the way through the plan and have made significant progress in further digitising the Group, enhancing customer experience, maximising our capabilities as an integrated financial services provider and transforming the way we work.

 

We have made significant progress in our customer proposition. For example, our unique Single Customer View capability provides customers with the ability to view their pensions and long-term savings products alongside their banking products. Insurance and Wealth has seen strong growth in life and pensions sales, driven by new members in existing workplace schemes, increased auto enrolment workplace contributions and bulk annuities. In partnership with Schroders, during the third quarter of 2019 we launched Schroders Personal Wealth, with the ambition of becoming a top three financial planning business by the end of 2023. Also in the third quarter, the Group announced the acquisition of Tesco Bank's prime UK residential mortgage portfolio, which complements our organic strategy.

 

Historic conduct issues remain disappointing but we continue to be focused on doing the right thing for our customers. The Group is fully committed to implementing all of the recommendations contained within Sir Ross Cranston's report relating to HBOS Reading and ensuring that victims of the HBOS Reading fraud have their claims assessed in an open and transparent manner. We have apologised to those impacted and are determined to put things right.

 

Given our clear UK focus, our performance is inextricably linked to the health of the UK economy. During 2019, UK economic performance has remained resilient in the face of significant political and economic uncertainty, supported by record employment, low interest rates and rising real wages. Although uncertainty remains given the ongoing negotiation of international trade agreements, there is now a clearer sense of direction and we remain well placed to Help Britain Prosper, support our customers and deliver strong and sustainable returns for shareholders.

 

Financial performance

 

Statutory profit before tax of £4.4 billion was 26 per cent lower than 2018 and earnings per share at 3.5 pence was down 36 per cent, due to the PPI charge of £2.45 billion in 2019 (2018: £0.75 billion). Underlying profit of £7.5 billion was down 7 per cent on 2018, reflecting continued revenue pressure and higher impairments partly offset by lower total costs. Our relentless focus on cost efficiency has led to a reduction in operating costs, where we enhanced our guidance twice during 2019. This was achieved whilst increasing strategic investment and our net promoter scores. Our cost:income ratio improved again to 48.5 per cent. Credit quality remains strong with the Group's net asset quality ratio of 29 basis points in line with the target of less than 30 basis points, despite two material corporate cases.

 

Loans and advances decreased by £4 billion to £440 billion. The acquisition of Tesco Bank's prime UK residential mortgage portfolio, as well as organic growth in targeted segments including SME and UK Motor Finance, was more than offset by continued reductions in the closed mortgage book and lower balances in Mid Markets and Global Corporates. The reduction in Commercial balances is due to continued optimisation of the portfolio as we actively address low risk-adjusted return relationships.

 

The Group is strongly capital generative, although this has been impacted by PPI in 2019. Given our strong capital position at the year end, the Board has recommended a final ordinary dividend of 2.25 pence per share, bringing the total ordinary dividend for the year to 3.37 pence per share. This represents an increase of 5 per cent on 2018 and is in line with our progressive and sustainable ordinary dividend policy. The Group's capital position remains strong with a pro forma CET1 ratio of 13.8 per cent after allowing for ordinary dividends.

 

 

GROUP CHIEF EXECUTIVE'S STATEMENT (continued)

 

Strategic progress

 

The Group's ambitious three year strategic plan was launched in February 2018 and we are on track to achieve our targeted strategic outcomes. We have made significant progress in transforming the Group for success in a digital world and, in line with our commitment to invest more than £3 billion over the period, have invested £2 billion to date across our four strategic pillars.

 

In addition to completing the third stage of our strategic plan, in 2020 we will also begin to consider the next phase of our journey. Work will begin at pace in the summer on the new strategic plan, which we expect to announce in February 2021, along with updated longer-term financial targets. This work will take into account a wide range of factors, including the evolving external environment, emerging changes across society and changing expectations of how companies should respond to such challenges.

 

Leading customer experience

We continue to believe that our customers' evolving needs are best served through a multi-brand, multi-channel strategy. We operate the UK's largest digital bank and are also committed to maintaining the UK's largest branch network and delivering personalised, data-driven customer propositions. We have continued to develop our digital proposition and our market leading digitally-active customer base increased again to 16.4 million, of which 10.7 million are active on their mobile banking app. We have also launched a range of new features that enable our customers to be more in control of their finances, including the ability to change address and search bank statements via the mobile app. While we now originate 75 per cent of products digitally, we believe that the branch network is vital for meeting our customers' complex needs, and our customer-facing colleagues in branch now spend around 50 per cent of their time doing this (up from 45 per cent in 2017). We maintain the largest branch network while trialling new branch formats. In 2019 we opened our latest flagship Bank of Scotland branch in Glasgow, and launched Home by Halifax, an innovative store in London dedicated to supporting customers in buying their homes. We are also using our deep understanding of our diverse customer base to drive growth through tailored propositions such as Club Lloyds and the Halifax Prize Draw, leveraging our multi-brand business model.

 

Digitising the Group

Investment in technology remains a key strategic priority for the Group and enables us to improve the experience of our customers and colleagues. Technology spend now represents 19 per cent of operating costs and having introduced the use of automation for simple, repetitive tasks, we have now created over 1 million cumulative hours of colleague capacity. Virtual assistants are currently managing up to 5,000 customer conversations daily, with customer satisfaction increasing by more than 10 points. In addition, around 25 per cent of queries are handled without being passed to a colleague, a trend that is expected to increase further. These investments deliver a more efficient, scalable and flexible infrastructure and underpin the continuous improvement of our products and services for our customers' benefit. In enhancing our capabilities and accelerating our transformation, we are working in collaboration with a number of fintech providers and we continue to monitor opportunities in this space. In Commercial Banking we have launched a cash management and payments API which allows clients to send faster payments directly from their systems without human intervention and reducing payment times to 1.5 seconds. In addition, transformation has now covered around 55 per cent of our cost base, up from just from 12 per cent at the end of 2017 and on track to achieve our GSR 3 target of 70 per cent by the end of 2020.

 

 

 

GROUP CHIEF EXECUTIVE'S STATEMENT (continued)

 

Maximising Group capabilities

We have continued to build on our Open Banking proposition, which is available to all of our digital customers. Open Banking launched for current accounts in 2018 and we were the first in the market to extend this functionality to both savings products and credit cards in 2019. In addition, our unique Single Customer View capability, which enables customers to view all of the pension and long-term savings that they hold with the Group alongside their banking products, is now available to more than five million customers. As the sole integrated UK banking and insurance provider, this is a unique capability. In addition, within Insurance and Wealth we have exceeded our goal of attracting over 1 million new pension customers, a year ahead of our original target. We have also launched Schroders Personal Wealth to the market, with the ambition of becoming a top three financial planning business by end of 2023. We have continued to make progress towards the target of growing open book assets under administration by £50 billion by the end of 2020, with cumulative net growth of £37 billion since 2018. In Commercial Banking, we have continued to invest in the UK economy and over 900 manufacturing apprentices, graduates and engineers have been trained since 2018 as a result of the £1 million annual investment in the Lloyds Bank Advanced Manufacturing Centre. Commercial Banking has supported Insurance and Wealth by sourcing £0.6 billion of new long-term assets to support 5 new bulk annuity transactions.

 

Transforming ways of working

Our colleagues remain critical to our success and we are making our biggest ever investment in people with a focus on ensuring that we are able to continue to attract, develop and retain the talent and capabilities we will need in the future. We have significantly increased the 'skills of the future' training delivered to our colleagues to a cumulative 3.2 million hours since 2018, putting us well on track to meet our target of 4.4 million hours by the end of the plan period. Related to this, around 33 per cent of change is now delivered using Agile methodologies. We have also hired over 1,200 colleagues across critical areas such as engineering, data science and cyber security, in line with our plan to treble strategic hiring compared to 2018 and enabling the Group to reduce the use of external resource.

 

Helping Britain Prosper Plan

We are committed to the long-term success of the UK with our purpose of Helping Britain Prosper. This is why we launched our Helping Britain Prosper Plan in 2014 which also underpins our environmental, social and governance efforts. For 2019 we met 20 out of 22 objectives of the Plan, and some key achievements are outlined below.

 

The Group is committed to helping customers to buy a home. In 2019 we lent £13.8 billion to first time buyers across the UK including through innovative products like our Lloyds Bank Lend a Hand and Halifax Family Boost mortgages. We have also increased net lending to start-ups, SMEs and Mid Market customers to £3.4 billion since 2018 together with achieving our target of lending £18 billion to UK businesses in 2019.

 

We are working hard to help people save for the future and in 2019 in partnership with Schroders, we launched Schroders Personal Wealth. Our open book assets under administration have increased by £37 billion since the start of the current strategic plan. More generally, our banking savings range operates transparent pricing for all, with customers able to upgrade their accounts online with one click when better products become available.

 

The Group is committed to helping the UK transition to a sustainable, low carbon economy. Over the last five years we have raised over £2.8 billion in green bonds for UK corporate issuers, more than any other UK financial services company. We have also supported renewable energy projects that power the equivalent of 5.1 million homes.

 

As we look forward, we want to play our part in tackling climate change and we have targeted working with our customers, government and the market to help reduce the emissions we finance by more than 50 per cent by 2030, in line with the UK's Net Zero Goal and the Paris Agreement. We are one of the first organisations in the world to commit to all three of The Climate Group's ambitious sustainability initiatives, which aim to speed up the transition to a low carbon economy by committing to source 100 per cent of our electricity from renewable sources, improve energy productivity and transition to electric vehicles.

 

 

 

GROUP CHIEF EXECUTIVE'S STATEMENT (continued)

 

The Group was the first FTSE100 company to establish targets for championing diversity within its business and we now have 36.8 per cent of senior roles held by women, up almost 8 percentage points since 2014 and we continue to aim to meet our target of 40 per cent by the end of 2020. With 10.2 per cent of roles across the Group held by Black, Asian and Minority Ethnic (BAME) colleagues, we have exceeded our 2020 target of 10 per cent.

 

We have also helped over 700,000 individuals, small businesses and charities to develop digital skills in 2019 and we are on track for our target of 1.8 million by 2020. Our Digital Knowhow workshops have also helped thousands of organisations learn how to avoid fraud and take advantage of digital marketing techniques.

 

Our colleagues have also taken an active role in supporting good causes, including raising over £11 million for Mental Health UK over a two year period, as well as volunteering 246,000 hours of their time through our Day to Make a Difference initiative.

 

In addition, the Group has paid £2.9 billion tax in 2019 and we are proud to be the largest corporate tax payer in the UK.

 

We have today issued a separate presentation on our approach to environmental, social and governance issues, which can be found on the Group's external website.

 

Outlook

 

Over 2019, UK economic performance has remained resilient in the face of significant political and economic uncertainty, supported by record employment, low interest rates and rising real wages. Although uncertainty remains given the ongoing negotiation of international trade agreements and the rate outlook remains challenging, there is now a clearer sense of direction and we remain well placed to Help Britain Prosper, support our customers and deliver strong and sustainable returns for shareholders. The Group's confidence in the business model and future performance is reflected in our guidance for 2020:

·     Net interest margin of 2.75 to 2.80 per cent

·     Operating costs to be less than £7.7 billion with the cost:income ratio lower than in 2019

·     Net asset quality ratio expected to be less than 30 basis points

·     Capital build expected to be within the Group's ongoing guidance range of 170 to 200 basis points per year and risk-weighted assets to be broadly in line with 2019

·     Expect increased statutory return on tangible equity of 12 to 13 per cent, driven by resilient underlying profit and lower below the line charges

 

The Group faces the future with confidence. As a result, we will continue to target a progressive and sustainable ordinary dividend. In 2020, the Group will also commence paying dividends quarterly, accelerating payments to shareholders, with the first dividend being paid in June 2020.

 

 

SUMMARY OF GROUP RESULTS

 

Solid financial performance

The Group's statutory profit after tax was £3,006 million, 33 per cent lower than in 2018 with resilient underlying profit partly offset by the significant payment protection insurance (PPI) charge of £2,450 million taken in the year. The statutory return on tangible equity was 7.8 per cent.

 

Trading surplus was resilient at £8,822 million (2018: £9,003 million) with lower net income partly offset by the Group's continued progress in delivering cost reductions. Underlying profit was £7,531 million compared to £8,066 million in 2018, reflecting lower net income and higher impairment charges, partly offset by the Group's strong cost performance. The Group's market-leading underlying return on tangible equity was 14.8 per cent.

 

The Group's balance sheet remains strong with lending growth in the open mortgage book as well as targeted segments, including SME and UK Motor Finance. This was more than offset by lower balances in Mid Markets and Global Corporates, primarily as a result of the optimisation of the Commercial portfolio, as well as continued reductions in the closed mortgage book. The Group's capital position remains strong with a pro forma CET1 ratio of 15.0 per cent pre dividend accrual and 13.8 per cent post dividend.

 

The Group is strongly capital generative and although this has been impacted by PPI in 2019, the Board has recommended a final ordinary dividend of 2.25 pence per share, making a total ordinary dividend of 3.37 pence per share, an increase of 5 per cent on 2018 and in line with our progressive and sustainable ordinary dividend policy.

 

Net income

 

 

 

 

 

 

 

 

 

2019

 

2018

 

Change

 

 

£m

 

£m

 

%

 

 

 

 

 

 

 

Net interest income

 

 12,377

 

 12,714

 

(3)

Other income excluding Vocalink gain on sale

 

 5,682

 

 6,010

 

(5)

Vocalink gain on sale

 

 50

 

 -

 

 

Other income 

 

 5,732

 

 6,010

 

(5)

Operating lease depreciation1

 

 (967)

 

 (956)

 

(1)

Net income

 

 17,142

 

 17,768

 

(4)

 

 

 

 

 

 

 

Banking net interest margin

 

2.88%

 

2.93%

 

(5)bp

Average interest-earning banking assets

 

£434.7bn

 

£436.0bn

 

-

 

1

Net of profits on disposal of operating lease assets of £41 million (2018: £60 million).

 

Net income of £17,142 million was 4 per cent lower than in 2018, reflecting lower net interest income and other income, while operating lease depreciation increased by 1 per cent.

 

Net interest income of £12,377 million was down 3 per cent with a slightly lower net interest margin and stable average interest-earning banking assets. Net interest margin reduced in line with guidance to 2.88 per cent, with the benefit of lower deposit costs, higher Retail current account balances and a benefit from aligning credit card terms, more than offset by continued pressure on asset margins, particularly in the mortgage market.

 

Average interest-earning banking assets at £434.7 billion were stable, with growth in targeted segments, in particular SME (£0.3 billion) and UK Motor Finance (£1.4 billion), more than offset by lower balances in the closed mortgage book (£2.5 billion) and the effect of the sale of the Irish mortgage portfolio in the first half of 2018 (£1.6 billion).

 

 

 

SUMMARY OF GROUP RESULTS (continued)

 

The Group manages the risk to its earnings and capital from movements in interest rates centrally by hedging the net liabilities which are stable or less sensitive to movements in rates. As at 31 December 2019 the Group's structural hedge had a nominal balance of £179 billion (31 December 2018: £180 billion) and an average duration of around three years (31 December 2018: around four years). The Group generated £2.7 billion of income from the structural hedge balances in 2019 (2018: £2.7 billion). Within this, the benefit from the hedge in the year was £1.1 billion over LIBOR (2018: £1.4 billion) with a fixed earnings rate of approximately 0.7 per cent over LIBOR (2018: 0.7 per cent).

 

Other income at £5,732 million decreased by 5 per cent with healthy growth in new business in Insurance and Wealth more than offset by lower other income in Commercial Banking and Retail. Insurance and Wealth continued to perform well reflecting growth in workplace pensions new business from increased auto enrolment contributions in the first half of 2019 and higher general insurance income, net of claims. Insurance and Wealth other income also includes the benefit from the change in investment management provider taken in the first half of 2019 and longevity assumption change benefits. Commercial Banking was impacted by more subdued levels of client activity given challenging external conditions particularly in large corporate markets and Retail other income was impacted by a lower Lex fleet size. Other income includes a gain of £185 million on the sale of £8 billion of gilts and other liquid assets, compared with a £270 million gain on sale of such assets in 2018.

 

Operating lease depreciation increased by 1 per cent reflecting some weakening in used car prices through the first three quarters of 2019, partly offset by a lower fleet size.

 

Total costs

 

 

 

 

 

 

 

 

 

2019

 

2018

 

Change

 

 

£m

 

£m

 

%

 

 

 

 

 

 

 

Operating costs

 

 7,875

 

 8,165

 

4

Remediation

 

 445

 

 600

 

26

Total costs

 

 8,320

 

 8,765

 

5

 

 

 

 

 

 

 

Business as usual costs1

 

 5,478

 

 5,836

 

6

 

 

 

 

 

 

 

Cost:income ratio

 

48.5%

 

49.3%

 

(0.8)pp

 

 

 

1

2018 Business as usual costs are adjusted to reflect the impact of applying IFRS 16. Excluding the impact of IFRS 16 business as usual costs in 2018 were £6,048 million.

 

Total costs of £8,320 million were 5 per cent lower than in 2018, driven by the reduction in both operating costs and remediation charges.

 

Operating costs of £7,875 million were 4 per cent lower with a 6 per cent reduction in business as usual costs, largely driven by increased efficiency from digitalisation and process improvements, in parallel with strategic investment of £1.0 billion in the business, up 6 per cent in the year. During 2019 the Group capitalised around £1.5 billion of investment spend, of which around £1.0 billion related to intangible assets. Total capitalised spend was equivalent to around 60 per cent of above the line investment, in line with 2018.

 

Remediation charges of £445 million, including additional charges of £219 million in the fourth quarter of 2019 relating to a number of items across existing programmes, were significantly lower than the £600 million in 2018.

 

The Group's market-leading cost:income ratio continues to provide a competitive advantage and further strengthened to 48.5 per cent with positive jaws of 1 per cent.

 

The Group expects operating costs in 2020 to be less than £7.7 billion with the cost:income ratio lower than in 2019.

 

 

 

SUMMARY OF GROUP RESULTS (continued)

 

Impairment

 

 

 

 

 

 

 

 

 

 

2019

 

2018

 

Change

 

 

£m

 

£m

 

%

 

 

 

 

 

 

 

Impairment charge

 

 1,291

 

 937

 

(38)

Asset quality ratio

 

0.29%

 

0.21%

 

8bp

Gross asset quality ratio

 

0.37%

 

0.28%

 

9bp

 

 

 

 

 

 

 

 

 

At 31 Dec

 

At 31 Dec

 

 

 

 

20191

 

20181

 

 

 

 

%

 

%

 

Change

 

 

 

 

 

 

 

Stage 2 loans and advances to customers as % of total

 

7.7

 

7.8

 

(0.1)pp

Stage 2 ECL2 allowances as % of Stage 2 drawn balances

 

3.7

 

4.1

 

(0.4)pp

 

 

 

 

 

 

 

Stage 3 loans and advances to customers as a % of total

 

1.8

 

1.9

 

(0.1)pp

Stage 3 ECL2 allowances as % of Stage 3 drawn balances

 

22.5

 

24.3

 

(1.8)pp

 

 

 

 

 

 

 

Total ECL2 allowances as % of drawn balances

 

0.8

 

0.9

 

(0.1)pp

 

 

 

1

Underlying basis.

2

Expected credit loss.

 

Credit quality remains strong with a net asset quality ratio of 29 basis points and a gross asset quality ratio of 37 basis points compared with 21 basis points and 28 basis points respectively in 2018. The impairment charge increased to £1,291 million with the increase primarily driven by two material corporate cases in Commercial Banking, along with some weakening in used car prices in Black Horse.

 

The Group's loan portfolios continue to be well positioned, reflecting the Group's prudent, through the cycle approach to credit risk, and benefiting from continued low interest rates and a resilient UK economy.

 

Overall credit performance in the secured book remains strong with the average mortgage loan to value increasing slightly to 44.9 per cent (31 December 2018: 44.3 per cent). New business average loan to value was 64.3 per cent and 88 per cent of the portfolio has a loan to value ratio of less than 80 per cent. New to arrears as a proportion of the total book remains low in both the secured and unsecured books. In Commercial Banking, the book continues to benefit from low interest rates and effective risk management, including a prudent approach to vulnerable sectors.

 

The Group's outlook and IFRS 9 base case economic scenario used to calculate expected credit loss (ECL) have remained broadly stable throughout 2019, reflecting an orderly exit of the UK from the European Union. During 2019 the Group made small improvements to its economic scenario modelling. The Group's ECL allowance continues to reflect a probability-weighted view of future economic scenarios including a 30 per cent weighting of downside and a 10 per cent weighting of severe downside.

 

Stage 2 loans and advances to customers as a proportion of total lending reduced by 0.1 percentage points to 7.7 per cent, whilst Stage 3 loans and advances fell by the same amount to 1.8 per cent. The Group's coverage of Stage 2 assets reduced by 0.4 percentage points to 3.7 per cent, reflecting a number of model refinements, including an enhanced approach to loan amortisation in the Commercial Banking portfolio. Coverage of Stage 3 assets reduced by 1.8 percentage points to 22.5 per cent largely as a result of the improved performance of mortgage cases in long-term default, and a change in the mix of Commercial assets due to a combination of write-offs and the transfer in of cases with lower likelihood of net loss. The Group's total underlying ECL at 31 December 2019 was £4.2 billion and broadly stable compared to prior year (31 December 2018: £4.4 billion). Total ECL allowances as a percentage of drawn balances fell slightly to 0.8 per cent. The Group expects the 2020 net asset quality ratio to be less than 30 basis points.
 

SUMMARY OF GROUP RESULTS (continued)

 

Statutory profit

 

 

 

 

 

 

 

 

 

2019  

 

2018  

 

Change

 

   

£m  

    

£m  

    

%

 

 

 

 

 

 

 

Underlying profit

 

 7,531  

 

 8,066  

 

(7)

Restructuring

 

 (471)  

 

 (879)  

 

46

Volatility and other items

 

 

 

 

 

 

Market volatility and asset sales

 

 126  

 

 (50)  

 

 

Amortisation of purchased intangibles

 

 (68)  

 

 (108)  

 

37

Fair value unwind and other

 

 (275)  

 

 (319)  

 

14

 

 

 (217)  

 

 (477)  

 

55

Payment protection insurance provision

 

 (2,450)  

 

 (750)  

 

 

Statutory profit before tax

 

 4,393  

 

 5,960  

 

(26)

Tax expense1

 

 (1,387)  

 

 (1,454)  

 

5

Statutory profit after tax1

 

 3,006  

 

 4,506  

 

(33)

 

 

 

 

 

 

 

Earnings per share

 

3.5p

 

5.5p

 

(36)

Return on tangible equity

 

7.8%

 

11.7%

 

(3.9)pp

 

 

 

1

Comparatives restated to reflect amendments to IAS12, see basis of presentation.

 

Further information on the reconciliation of underlying to statutory results is included on page 24.

 

The Group's statutory profit after tax was £3,006 million, 33 per cent lower than in 2018 with resilient underlying profit partly offset by the PPI charge. The return on tangible equity was 7.8 per cent (2018: 11.7 per cent) and earnings per share was 3.5 pence (2018: 5.5 pence).

 

Restructuring costs of £471 million were down 46 per cent, primarily reflecting the completion of both the integration of MBNA and the ring-fencing programme, which were partially offset by costs associated with establishing the Schroders Personal Wealth joint venture.

 

Market volatility and asset sales of £126 million included adverse movements in banking volatility, a gain on the establishment of the Schroders Personal Wealth joint venture as well as the one-off charge for exiting the Standard Life Aberdeen investment management agreement taken in the first half of 2019. In 2018 market volatility and asset sales included a loss on sale of the Irish mortgage portfolio and an adjustment to past service pension liability.

 

The decrease in amortisation of purchased intangibles to £68 million (2018: £108 million) and fair value unwind and other items to £275 million (2018: £319 million) were driven by a number of assets fully amortising in 2018 and the run down of the subordinated liabilities acquired during the HBOS acquisition.

 

The PPI provision charge of £2,450 million was largely due to the significant increase in PPI information requests (PIRs) leading up to the deadline for submission of claims on 29 August 2019, and also reflects costs relating to complaints received from the Official Receiver as well as administration costs. An initial review of around 60 per cent of the five million PIRs received in the run-up to the PPI deadline has been undertaken, with the conversion rate remaining low, and consistent with the provision assumption of around 10 per cent. The Group has also reached final agreement with the Official Receiver. The unutilised provision at 31 December 2019 was £1,578 million.

 

 

 

SUMMARY OF GROUP RESULTS (continued)

 

Taxation

The tax expense was £1,387 million (2018: £1,454 million) representing an effective tax rate of 32 per cent (2018: 24 per cent). This reflected the increase in non-deductible conduct provision charges in relation to PPI, partially offset by the release of a deferred tax liability.

 

The Group continues to expect a medium term effective tax rate around 25 per cent, although this is likely to be lower in 2020 if the UK's corporate tax rate remains unchanged, given a revaluation of the Group's deferred tax assets.

 

Return on tangible equity

The underlying return on tangible equity was 14.8 per cent, primarily reflecting resilient underlying profit and slightly lower average tangible equity. The statutory return on tangible equity was 7.8 per cent and was impacted by PPI.

 

In 2020, the Group expects an increased statutory return on tangible equity of 12 to 13 per cent, driven by resilient underlying profit and lower below the line charges.

 

Balance sheet

 

 

 

 

 

 

 

 

 

 

At 31 Dec

 

At 31 Dec

 

Change

 

  

2019

  

2018

 

%

 

 

 

 

 

 

 

Loans and advances to customers1

 

£440bn

 

£444bn

 

(1)

Customer deposits2

 

£412bn

 

£416bn

 

(1)

Loan to deposit ratio

 

107%

 

107%

 

-

 

 

 

 

 

 

 

Wholesale funding

 

£128bn

 

£123bn

 

4

Wholesale funding <1 year maturity

 

£43bn

 

£33bn

 

31

Of which money-market funding <1 year maturity3

 

£22bn

 

£21bn

 

5

Liquidity coverage ratio - eligible assets4

 

£131bn

 

£126bn

 

4

Liquidity coverage ratio5

 

137%

 

128%

 

9pp

 

 

 

1

Excludes reverse repos of £54.6 billion (31 December 2018: £40.5 billion).

2

Excludes repos of £9.5 billion (31 December 2018: £1.8 billion).

3

Excludes balances relating to margins of £4.2 billion (31 December 2018: £3.8 billion) and settlement accounts of £1.9 billion (31 December 2018: £1.2 billion).

4

Eligible assets are calculated as a simple average of month end observations over the previous 12 months.

5

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

 

Loans and advances to customers were £440 billion (31 December 2018: £444 billion). Growth in the open mortgage book and targeted segments including SME and Motor Finance, was more than offset by continued reductions in the closed mortgage book and lower balances in Mid Markets and Global Corporates. Commercial Banking has continued to optimise its portfolio in challenging market conditions, maintaining a strong focus on risk-weighted asset reduction and actively addressing low risk-adjusted returning client relationships. In line with the Group's expectations, the open mortgage book grew by £3.5 billion driven by the acquisition of Tesco Bank's UK prime residential mortgage portfolio and was broadly flat excluding the acquisition.

 

The Group continues to optimise funding and target current account balance growth, with Retail current accounts up 4 per cent at £76.9 billion (31 December 2018: £73.7 billion). The loan to deposit ratio was flat at 107 per cent.

 

Wholesale funding increased by 4 per cent to £128 billion (31 December 2018: £123 billion) in part as a result of refinancing Funding for Lending Scheme maturities in the year. The proportion maturing in less than one year increased by 31 per cent to £43.4 billion (31 December 2018: £33.1 billion) due to higher term funding maturities in 2020. The Group's liquidity position continues to exceed the regulatory minimum and internal risk appetite.
 

SUMMARY OF GROUP RESULTS (continued)

 

Capital

 

 

 

 

 

 

 

 

 

 

At 31 Dec

 

At 31 Dec

 

Change

 

 

2019

  

2018

 

%

 

 

 

 

 

 

 

Capital build1

 

86bp

 

210bp

 

(124)bp

Pro forma CET1 ratio2

 

13.8%

 

13.9%

 

(0.1)pp

CET1 ratio

 

13.6%

 

14.6%

 

(1.0)pp

Pro forma transitional total capital ratio2

 

21.5%

 

23.1%

 

(1.6)pp

Pro forma transitional MREL ratio2

 

32.6%

 

32.6%

 

-

Pro forma UK leverage ratio2

 

5.2%

 

5.6%

 

(0.4)pp

Pro forma risk-weighted assets2

 

£203bn

 

£206bn

 

(1)

 

 

 

 

 

 

 

Shareholders' equity

 

£42bn

 

£43bn

 

(4)

Tangible net assets per share

 

50.8p

 

53.0p

 

(2.2)p

 

 

 

1

Capital build is reported on a pro forma basis, reflecting the dividend paid up by the Insurance business in the subsequent first quarter period and is also reported before accruing for ordinary dividends, the cancellation of the remaining 2019 share buyback and the acquisition of Tesco Bank's UK prime residential mortgage portfolio.

2

The CET1, total, MREL, leverage ratios and risk-weighted assets at 31 December 2019 and 31 December 2018 are reported on a pro forma basis, reflecting the dividend paid up by the Insurance business in the subsequent first quarter period. The pro forma CET1 ratio at 31 December 2018 incorporates the effects of the share buyback announced in February 2019 and is reported post dividend accrual.

 

The Group's capital position remains strong with the pro forma CET1 capital ratio increasing to 15.0 per cent pre dividend accrual. After accruing 123 basis points for the ordinary dividend, the pro forma CET1 ratio stands at 13.8 per cent.

 

A summary of the CET1 capital build is set out in the table below.

 

 

 

 

 

 

 

 

Pro forma CET1 ratio at 31 December 2018

 

 

 

 

 

13.9%

Banking business underlying capital build (bps)

 

 

 

 

 

 180 

Insurance dividends (bps)

 

 

 

 

 

 18 

Impact from the implementation of IFRS 16 on risk-weighted assets (bps)

 

 

 

 

 

 (11) 

RWA and other movements (bps)

 

 

 

 

 

 20 

 

 

 

 

 

 

 207 

PPI charge (bps)

 

 

 

 

 

 (121) 

 

 

 

 

 

 

 86 

Cancellation of the remaining 2019 share buyback programme (bps)

 

 

 

 

 

 34 

Capital used for the acquisition of the Tesco Bank's mortgage portfolio (bps)

 

 

 

 

 

 (9) 

Ordinary dividend accrual (bps)

 

 

 

 

 

 (123) 

Pro forma CET1 ratio at 31 December 2019

 

 

 

 

 

13.8%

 

The Group's CET1 capital build in the year amounted to 207 basis points before PPI, and to 86 basis points after the in-year PPI charge, equivalent to 121 basis points. Solid financial performance has driven underlying capital build of 198 basis points, including 18 basis points from the dividend from the Insurance business. Capital build also included 20 basis points from favourable risk-weighted asset and other movements (reflecting market movements and the continued optimisation of Commercial Banking risk-weighted assets, net of additional pension contributions and model updates), partly offset by the 11 basis points impact of IFRS 16. The Group's capital position also benefitted by 34 basis points from the cancellation of the remaining c. £650 million of the 2019 buyback programme, as announced in September 2019. The Group used 9 basis points of capital for the acquisition of Tesco Bank's UK prime residential mortgage portfolio.

 

 

 

SUMMARY OF GROUP RESULTS (continued)

 

During 2019 the Prudential Regulation Authority (PRA) reduced the Group's Pillar 2A CET1 requirement from 2.7 per cent to 2.6 per cent. Separately, the Financial Policy Committee of the Bank of England announced an increase in the Countercyclical Capital Buffer (CCYB) rate for the UK from 1.0 per cent to 2.0 per cent, effective from December 2020. During 2020 the PRA will consult on a proposed reduction in Pillar 2A total capital requirements by 50 per cent of this increase in the CCYB, equivalent to reducing the Pillar 2A CET1 requirement by 28 per cent of the increase. Taking into account the current and potential future changes to capital requirements, the Board's view of the ongoing level of CET1 capital required by the Group to grow the business, meet regulatory requirements and cover uncertainties continues to be c.12.5 per cent plus a management buffer of c.1 per cent.

 

The transitional total capital ratio reduced to 21.5 per cent on a pro forma basis (31 December 2018: 23.1 per cent) and the Group's transitional minimum requirement for own funds and eligible liabilities (MREL), which came into force on 1 January 2020, is 32.6 per cent on pro forma basis (31 December 2018: 32.6 per cent). The UK leverage ratio remains strong at 5.2 per cent on a pro forma basis.

 

Risk-weighted assets on a pro forma basis have reduced by £3.0 billion to £203.4 billion driven primarily by the optimisation of the Commercial Banking portfolio, offset in part by model updates in mortgages, the implementation of IFRS 16 and the acquisition of Tesco Bank's mortgage portfolio. We now expect risk-weighted assets at the end of 2020 to be broadly in line with the end of 2019, including regulatory headwinds.

 

Tangible net assets per share reduced by 2.2 pence in 2019 to 50.8 pence (31 December 2018: 53.0 pence) with the effects of the Group's statutory profit after tax and positive cash flow hedge movements being more than offset by dividends paid in 2019, the revaluation of the Group's retirement benefit obligations, the effects of the share buyback and other reserve movements.

 

Dividend

 

The Group has a progressive and sustainable ordinary dividend policy whilst maintaining the flexibility to return surplus capital through buybacks or special dividends.

 

Given the solid financial performance in 2019, the Board has recommended a final ordinary dividend of 2.25 pence per share. This is in addition to the interim ordinary dividend of 1.12 pence per share that was announced in the 2019 half year results. The recommended total ordinary dividend per share for 2019 is therefore 3.37 pence per share and has increased by 5 per cent from 3.21 pence per share in 2018.

 

The Group has announced that it will move to the payment of quarterly dividends in 2020, with the first quarterly dividend in respect of the first quarter of 2020 payable in June 2020. The new approach will be to adopt three equal interim ordinary dividend payments for the first three quarters of the year followed by, subject to performance, a larger final dividend for the fourth quarter of the year. The first three quarterly payments, payable in June, September and December will be 20 per cent of the previous year's total ordinary dividend per share. The fourth quarter payment will be announced with the full year results, with the amount continuing to deliver a full year dividend payment that reflects the Group's financial performance and its objective of a progressive and sustainable ordinary dividend. The final dividend will continue to be paid in May, following approval at the AGM. The Group believes that this approach will provide a more regular flow of dividend income to all shareholders whilst accelerating the receipt of payments.

 

 

 

 

 

SEGMENTAL ANALYSIS - UNDERLYING BASIS

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial  

 

Insurance  

 

Central  

 

 

 

 

Retail  

 

Banking  

 

and Wealth  

 

items  

 

Group  

 

  

£m  

  

£m  

  

£m  

  

£m  

  

£m  

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 8,807  

 

 2,918  

 

 112  

 

 540  

 

 12,377  

Other income

 

 2,014  

 

 1,422  

 

 2,021  

 

 275  

 

 5,732  

Operating lease depreciation

 

 (946)  

 

 (21)  

 

 -  

 

 -  

 

 (967)  

Net income

 

 9,875  

 

 4,319  

 

 2,133  

 

 815  

 

 17,142  

Operating costs

 

 (4,760)  

 

 (2,081)  

 

 (982)  

 

 (52)  

 

 (7,875)  

Remediation

 

 (238)  

 

 (155)  

 

 (50)  

 

 (2)  

 

 (445)  

Total costs

 

 (4,998)  

 

 (2,236)  

 

 (1,032)  

 

 (54)  

 

 (8,320)  

Trading surplus

 

 4,877  

 

 2,083  

 

 1,101  

 

 761  

 

 8,822  

Impairment

 

 (1,038)  

 

 (306)  

 

 -  

 

 53  

 

 (1,291)  

Underlying profit

 

 3,839  

 

 1,777  

 

 1,101  

 

 814  

 

 7,531  

 

 

 

 

 

 

 

 

 

 

 

Banking net interest margin

 

2.63%

 

3.14%

 

 

 

 

 

2.88%

Average interest-earning banking assets

 

£341.6bn

 

£92.2bn

 

£0.9bn

 

 -  

 

£434.7bn

Asset quality ratio

 

0.30%

 

0.30%

 

 

 

 

 

0.29%

Return on risk-weighted assets

 

3.99%

 

2.14%

 

 

 

 

 

3.65%

Loans and advances to customers1

 

£342.3bn

 

£95.5bn

 

£0.9bn

 

£1.7bn

 

£440.4bn

Customer deposits2

 

£252.1bn

 

£145.1bn

 

£13.7bn

 

£0.9bn

 

£411.8bn

Risk-weighted assets

 

£98.4bn

 

£77.4bn

 

£1.3bn

 

£26.3bn

 

£203.4bn

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial  

 

Insurance  

 

Central  

 

 

 

 

Retail3   

 

Banking3  

 

and Wealth  

 

items3  

 

Group  

 

  

£m  

  

£m  

  

£m  

  

£m  

  

£m  

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 9,060  

 

 3,013  

 

 123  

 

 518  

 

 12,714  

Other income

 

 2,097  

 

 1,670  

 

 1,865  

 

 378  

 

 6,010  

Operating lease depreciation

 

 (921)  

 

 (35)  

 

 -  

 

 -  

 

 (956)  

Net income

 

 10,236  

 

 4,648  

 

 1,988  

 

 896  

 

 17,768  

Operating costs

 

 (4,897)  

 

 (2,191)  

 

 (1,021)  

 

 (56)  

 

 (8,165)  

Remediation

 

 (267)  

 

 (203)  

 

 (39)  

 

 (91)  

 

 (600)  

Total costs

 

 (5,164)  

 

 (2,394)  

 

 (1,060)  

 

 (147)  

 

 (8,765)  

Trading surplus

 

 5,072  

 

 2,254  

 

 928  

 

 749  

 

 9,003  

Impairment

 

 (861)  

 

 (71)  

 

 (1)  

 

 (4)  

 

 (937)  

Underlying profit

 

 4,211  

 

 2,183  

 

 927  

 

 745  

 

 8,066  

 

 

 

 

 

 

 

 

 

 

 

Banking net interest margin

 

2.68%

 

3.27%

 

 

 

 

 

2.93%

Average interest-earning banking assets

 

£342.3bn

 

£91.2bn

 

£0.8bn

 

£1.7bn

 

£436.0bn

Asset quality ratio

 

0.25%

 

0.06%

 

 

 

 

 

0.21%

Return on risk-weighted assets

 

4.57%

 

2.50%

 

 

 

 

 

3.86%

Loans and advances to customers1

 

£340.1bn

 

£100.4bn

 

£0.9bn

 

£3.0bn

 

£444.4bn

Customer deposits2

 

£252.8bn

 

£148.6bn

 

£14.1bn

 

£0.8bn

 

£416.3bn

Risk-weighted assets

 

£93.5bn

 

£86.5bn

 

£1.2bn

 

£25.2bn

 

£206.4bn

 

 

 

1

Excludes reverse repos.

 

2

Excludes repos.

 

3

Prior period segmental comparatives restated. See basis of presentation.

 

       

 

 

 

 

DIVISIONAL RESULTS

RETAIL

Retail offers a broad range of financial service products to personal and business banking customers, including current accounts, savings, mortgages, credit cards, unsecured loans, motor finance and leasing solutions. Its aim is to be the best bank for customers in the UK, by building deep and enduring relationships that deliver value, and by providing customers with choice and flexibility, with propositions increasingly personalised to their needs. Retail operates a multi-brand and multi-channel strategy. It continues to simplify its business and provide more transparent products, helping to improve service levels and reduce conduct risks, whilst working within a prudent risk appetite.

 

Progress against strategic priorities

Leading customer experience

·     UK's largest digital bank with 16.4 million active digital customers and 10.7 million mobile banking app customers, with average customer logons at 23 times per month and 75 per cent of new products now originated digitally

·     Maintained the largest UK branch network while trialling new branch formats with the latest flagship Bank of Scotland branch in Glasgow, and Home by Halifax, an innovative store dedicated to supporting customers purchase a property

·     Branch net promoter score up 5 points with around 50 per cent of customer facing time being spent on complex needs

·     Supporting first time buyers with further £13.8 billion of lending, building on success of Lloyds Lend a Hand mortgage, launched Halifax Family Boost mortgage, providing customers' financial supporters with enhanced savings rates

·     Encouraging customers to talk more openly about their finances, through the launch of the M Word campaign earlier this year and co-funding a brand new television series with Channel 4 called 'Save Well, Spend Better'

·     Reduced complaints (excluding PPI) by 13 per cent in 2019 and mobile app NPS increased 3 per cent since 2017

 

Digitising the Group

·     Recognised for innovations by being first in the Business Insider mobile banking study, with recent updates including; 

-       Push notification alerts helping to plan ahead with upcoming payment reminders and confirmations

-       Statement search helping customers find transactions quicker and easier, with c.300,000 searches per week

·     Remote mortgage applications up 30 per cent, with re-mortgage applications starting digitally up 50 per cent in value

 

Maximising Group capabilities

·     Acquired Tesco Bank's UK prime residential mortgage book supporting 23,000 new customers

·     Completed the integration of MBNA, realising a return on investment of 18 per cent, ahead of original target

·     Renewed the successful Jaguar Land Rover relationship1

 

Transforming ways of working

·     Continued progress in 'skills of the future' training delivered to colleagues with over 750,000 additional hours in 2019

 

Financial performance

·     Net interest income was 3 per cent lower due to a 5 basis point reduction in net interest margin with continued pressure on mortgages margin, partly offset by lower funding costs and a benefit from aligning credit card terms

·     Other income reduced 4 per cent reflecting a lower Lex fleet size. Operating lease depreciation includes an associated benefit, more than offset by some weakening in used car prices through the first three quarters of 2019

·     Operating costs reduced 3 per cent, as increased investment in the business was more than offset by efficiency savings. Remediation decreased 11 per cent to £238 million

·     Impairment increased 21 per cent, with some weakening in used car prices, methodology refinements and lower cash recoveries following prior year debt sales, while underlying drivers remain strong, particularly in the mortgage book 

·     Customer lending increased by 1 per cent with the acquisition of Tesco Bank's mortgage portfolio and growth in UK Motor Finance, partly offset by closed book mortgages. Organic open mortgage balances remained flat year on year

·     Customer deposits include current account growth, stable relationship savings and reduced low margin tactical savings

·     Risk-weighted assets increased by 5 per cent mainly driven by mortgage model refinements and the Tesco acquisition

 

 

 

1

Subject to contract.

 

       

Retail performance summary

 

 

 

 

 

 

 

 

 

 

2019  

 

20181  

 

Change

 

    

£m  

    

£m  

    

%

 

 

 

 

 

 

 

Net interest income

 

 8,807  

 

 9,060  

 

(3)

Other income

 

 2,014  

 

 2,097  

 

(4)

Operating lease depreciation

 

 (946)  

 

 (921)  

 

(3)

Net income

 

 9,875  

 

 10,236  

 

(4)

Operating costs

 

 (4,760)  

 

 (4,897)  

 

3

Remediation

 

 (238)  

 

 (267)  

 

11

Total costs

 

 (4,998)  

 

 (5,164)  

 

3

Trading surplus

 

 4,877  

 

 5,072  

 

(4)

Impairment

 

 (1,038)  

 

 (861)  

 

(21)

Underlying profit

 

 3,839  

 

 4,211  

 

(9)

 

 

 

 

 

 

 

Banking net interest margin

 

2.63%

 

2.68%

 

(5)bp

Average interest-earning banking assets

 

£341.6bn

 

£342.3bn

 

-

Asset quality ratio

 

0.30%

 

0.25%

 

5bp

Return on risk-weighted assets

 

3.99%

 

4.57%

 

(58)bp

 

 

 

 

 

 

 

 

 

 

 

At 31 Dec

 

At 31 Dec

 

 

 

 

2019

 

2018

 

Change

 

 

£bn

 

£bn

 

%

 

 

 

 

 

 

 

Open mortgage book

 

270.1

 

266.6

 

1

Closed mortgage book

 

18.5

 

21.2

 

(13)

Credit cards

 

17.7

 

18.1

 

(2)

UK unsecured loans

 

8.4

 

7.9

 

6

UK Motor Finance

 

15.6

 

14.6

 

7

Business Banking

 

1.7

 

1.8

 

(6)

Overdrafts

 

1.3

 

1.3

 

-

Other2

 

9.0

 

8.6

 

5

Loans and advances to customers

 

342.3

 

340.1

 

1

Operating lease assets

 

4.3

 

4.7

 

(9)

Total customer assets

 

346.6

 

344.8

 

1

 

 

 

 

 

 

 

Current Accounts

 

76.9

 

73.7

 

4

Relationship savings3

 

161.9

 

162.3

 

-

Tactical savings

 

13.3

 

16.8

 

(21)

Customer deposits

 

252.1

 

252.8

 

-

 

 

 

 

 

 

 

Risk-weighted assets

 

98.4

 

93.5

 

5

 

1

Prior period comparatives restated. See basis of presentation.

2

Includes Europe and run-off.

3

Includes Business Banking.

 

 

 

COMMERCIAL BANKING

 

Commercial Banking has a client-led, low risk, capital efficient strategy committed to supporting UK-based clients and international clients with a link to the UK. Through its segmented client coverage model, it provides clients with a range of products and services such as lending, transaction banking, working capital management, risk management and debt capital markets. Continued investment in capabilities and digital propositions enables the delivery of a leading customer experience, supported by increasingly productive relationship managers, with more time spent on value-adding activity.

 

Progress against strategic priorities

Leading customer experience

·      95 per cent of SME and Mid Market clients migrated onto Commercial Banking Online platform with customers now having 24/7 access to their accounts, and 5 years of transaction history. The platform sees around 130,000 payments processed every day and around 1.2 million log ons per month

·      Awarded 'Business Bank of the Year' at the FDs' Excellence Awards for the 15th consecutive year

 

Digitising the Group

·      Cash management and payments API launched, allowing clients to send faster payments directly from their systems without human intervention and reducing payment times to 1.5 seconds

·      Launched Asset Finance Broker API, linking new business proposals directly from broker to Group, reducing manual intervention by 87 per cent, enabling quicker and more accurate credit decisions with real-time updates

·      Improved eTrading capability, enabling larger clients to undertake foreign exchange trades electronically 24 hours per day across multiple geographies and supporting clients in automating their businesses

 

Maximising Group capabilities

·      Achieved the committed £18 billion gross new lending to UK businesses; a further £18 billion committed for 2020

·      On track to meet the Group's target of £3 billion of investment in the UK manufacturing sector by the end of 2020

·      Over 900 manufacturing apprentices, graduates and engineers trained since 2018 as a result of the £1 million annual investment in the Lloyds Bank Advanced Manufacturing Centre

·      Beat the sustainability target of supporting energy efficient improvements for a further one million square feet of commercial real estate in 2019 and have supported renewable energy projects capable of powering 5 million homes by the end of 2019

 

Transforming ways of working

·      Completed rollout of the SME Business Lending Tool, freeing up relationship manager time for increased client engagement, and new auto-credit decisioning capability with around 25 per cent of SME annual renewals now automated

·      Continued progress in developing colleagues with the skills and capabilities needed for the future, with  210,000 colleague training hours completed in 2019, exceeding the year-end target

 

Financial performance

·      In challenging market conditions, maintained a strong focus on risk-weighted asset (RWA) optimisation and actively addressed low returning client relationships, delivering a significant reduction in RWA of over £9 billion

·      Net interest income of £2,918 million reduced 3 per cent, reflecting asset margin pressure

·      Other income of £1,422 million was 15 per cent lower than in 2018, driven by lower levels of client activity in challenging market conditions in Global Corporates and Financial Institutions

·      Operating costs of £2,081 million reduced 5 per cent, as increased investment in the business was more than offset by continued focus on efficiency savings

·      Asset quality ratio of 30 basis points was 24 basis points higher, largely driven by material charges raised against two corporate cases, with stable underlying portfolio trends

·      Return on risk-weighted assets of 2.14 per cent was 36 basis points lower, despite the acceleration of risk-weighted asset optimisation in the second half, driven by two material corporate impairment charges

·      SME lending balances up c.1 per cent, continuing to grow slightly ahead of the market

·      Customer deposits at £145.1 billion, down 2 per cent, reflecting funding optimisation activity including a reduction in short-term financial institutions deposits with growth in current accounts of 3 per cent in the second half of the year

 

 

Commercial Banking performance summary

 

 

 

 

 

 

 

 

 

 

2019  

 

20181  

 

Change

 

    

£m  

    

£m  

    

%

 

 

 

 

 

 

 

Net interest income

 

 2,918  

 

 3,013  

 

(3)

Other income

 

 1,422  

 

 1,670  

 

(15)

Operating lease depreciation

 

 (21)  

 

 (35)  

 

40

Net income

 

 4,319  

 

 4,648  

 

(7)

Operating costs

 

 (2,081)  

 

 (2,191)  

 

5

Remediation

 

 (155)  

 

 (203)  

 

24

Total costs

 

 (2,236)  

 

 (2,394)  

 

7

Trading surplus

 

 2,083  

 

 2,254  

 

(8)

Impairment

 

 (306)  

 

 (71)  

 

 

Underlying profit

 

 1,777  

 

 2,183  

 

(19)

 

 

 

 

 

 

 

Banking net interest margin

 

3.14%

 

3.27%

 

(13)bp

Average interest-earning banking assets

 

£92.2bn

 

£91.2bn

 

1

Asset quality ratio

 

0.30%

 

0.06%

 

24bp

Return on risk-weighted assets

 

2.14%

 

2.50%

 

(36)bp

 

 

 

 

 

 

 

 

 

 

 

At 31 Dec

 

At 31 Dec

 

 

 

 

2019

 

2018 

 

Change

 

 

£bn

 

£bn

 

%

 

 

 

 

 

 

 

SME

 

30.4

 

30.0

 

1

Mid Markets2

 

29.1

 

31.7

 

(8)

Global Corporates and Financial Institutions

 

30.8

 

34.4

 

(10)

Other

 

5.2

 

4.3

 

21

Loans and advances to customers

 

95.5

 

100.4

 

(5)

 

 

 

 

 

 

 

SME including Retail Business Banking

 

32.1

 

31.8

 

1

 

 

 

 

 

 

 

Customer deposits

 

145.1

 

148.6

 

(2)

 

 

 

 

 

 

 

Current accounts including Retail Business Banking

 

34.9

 

34.9

 

-

Other deposits including Retail Business Banking

 

127.6

 

130.1

 

(2)

 

 

 

 

 

 

 

Risk-weighted assets

 

77.4

 

86.5

 

(11)

 

 

 

1

Prior period comparatives restated. See basis of presentation.

2

Includes Mid Corporates (31 December 2019: £5.3 billion; 31 December 2018: £5.8 billion).

 

 

 

INSURANCE AND WEALTH

 

Insurance and Wealth offers insurance, investment and wealth management products and services. It supports over 10 million customers with assets under administration of £170 billion and annualised annuity payments in retirement of over £1 billion. The Group continues to invest significantly in the development of the business, with the aims of capturing considerable opportunities in pensions and financial planning, offering customers a single home for their banking and insurance needs and driving growth across intermediary and relationship channels through a strong distribution model.

 

Progress against strategic priorities

Leading customer experience

·     Scottish Widows now offers its standard annuities on the open market allowing a wider range of customers to access the product and secure income for retirement. Aiming to achieve a 15 per cent market share by end of 2020

·     Successful migration of around 400,000 policies from a number of legacy systems to a single platform managed by the Group's partner Diligenta, enabling customers to better manage their policies with Scottish Widows

·     New 'Plan and Protect' life and critical illness cover launched in 2019 helps create financially resilient families by understanding their needs and protecting what matters most, providing a safety net if the worst happens

·     Scottish Widows won 5 star service awards at the Financial Adviser Service Awards for the fourth consecutive year

 

Digitising the Group

·     Significant progress on Single Customer View, with home insurance and individual pension customers added in 2019. Over 5 million customers now able to access their insurance products alongside their bank account

·     Addressing an underserved customer need for home contents insurance for renters through a partnership with the fintech firm Trov. New online low cost product offers a flexible on-demand monthly subscription policy

 

Maximising Group capabilities

·     Schroders Personal Wealth launched with ambition of becoming a top 3 financial planning business by end of 2023

·     Provided new functionality and customer choice in general insurance with full rollout in the last quarter of a flexible, multi-channel home insurance product offering to the branch network

·     Continued progress towards target of growing open book assets under administration by £50 billion by the end of 2020, with strong customer net inflows of £18 billion (including Zurich transfer) in 2019. Cumulative net inflows of £30 billion and market movements give overall growth of £37 billion since the start of the current strategic plan in 2018

·     Sourced £0.6 billion of new long-term assets in collaboration with Commercial Banking to support five bulk annuity transactions, generating over £2 billion of new business premiums

 

Financial performance 

·     Strong growth in life and pensions sales, up 22 per cent, driven by increases in new members in existing workplace schemes, increased auto enrolment workplace contributions and bulk annuities. On track to achieve 15 per cent market share of workplace business by end of 2020 compared to 10 per cent market share at start of 2018

·     New underwritten household premiums increased 19 per cent, resulting in number one market share for new business earlier than expected; total underwritten premiums decreased 3 per cent driven by a competitive renewal market

·     Life and pensions new business income up 19 per cent to £628 million. Lower existing business income due to equity hedging strategy to reduce capital and earnings volatility. Higher experience and other items includes one-off benefit from the change in investment management provider. General insurance benefitted from benign weather in 2019

·     Wealth income and operating costs impacted by the transfer of assets to Schroders Personal Wealth in October 2019

·     Underlying profit increased by 19 per cent to £1,101 million. Net income increased by £145 million to £2,133 million, whilst operating costs decreased by £39 million with cost savings offsetting higher investment in the business

 

Insurance capital

·     Estimated pre final dividend Solvency II ratio of 170 per cent. The rise in the ratio over 2019 includes the impact of an equity hedge partly offset by lower long term interest rates. A final dividend of £250 million and a special dividend of £185 million related to the gain on the establishment of the Schroders Personal Wealth joint venture, were paid to the Group in February 2020, with total dividends paid in respect of 2019 performance of £535 million.

 Insurance and Wealth performance summary

 

 

 

 

 

 

 

 

 

 

2019  

 

2018  

 

Change

 

    

£m  

    

£m  

    

%

 

 

 

 

 

 

 

Net interest income

 

 112  

 

 123  

 

(9)

Other income

 

 2,021  

 

 1,865  

 

8

Net income

 

 2,133  

 

 1,988  

 

7

Operating costs

 

 (982)  

 

 (1,021)  

 

4

Remediation

 

 (50)  

 

 (39)  

 

(28)

Total costs

 

 (1,032)  

 

 (1,060)  

 

3

Trading surplus

 

 1,101  

 

 928  

 

19

Impairment

 

 -  

 

 (1)  

 

 

Underlying profit

 

 1,101  

 

 927  

 

19

 

 

 

 

 

 

 

Life and pensions sales (PVNBP)1

 

 17,515  

 

 14,384  

 

22

General insurance underwritten new GWP2

 

 127  

 

 107  

 

19

General insurance underwritten total GWP2

 

 671  

 

 690  

 

(3)

General insurance combined ratio

 

82%

 

89%

 

(7)pp

 

 

 

 

 

 

 

 

 

 

 

At 31 Dec

 

At 31 Dec

 

 

 

 

2019

 

2018

 

Change

 

 

£bn

 

£bn

 

%

 

 

 

 

 

 

 

Insurance Solvency II ratio3

 

170%

 

165%

 

5pp

UK Wealth Loans and advances to customers

 

0.9

 

0.9

 

-

UK Wealth Customer deposits

 

13.7

 

14.1

 

(3)

UK Wealth Risk-weighted assets

 

1.3

 

1.2

 

8

Total customer assets under administration

 

170.0

 

141.3

 

20

 

 

Income by product group

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

 

2018

 

  

New

  

Existing

  

 

  

New

  

Existing

  

 

 

 

business

 

business

 

Total

 

business

 

business

 

Total

 

  

£m

  

£m

  

£m

  

£m

  

£m

  

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Workplace, planning and retirement

 

387

 

120

 

507

 

333

 

153

 

486

Individual and bulk annuities

 

209

 

68

 

277

 

160

 

84

 

244

Protection

 

21

 

24

 

45

 

20

 

22

 

42

Longstanding LP&I

 

11

 

384

 

395

 

13

 

414

 

427

 

 

628

 

596

 

1,224

 

526

 

673

 

1,199

Life and pensions experience and other items

 

 

 

 

 

255

 

 

 

 

 

143

General insurance

 

 

 

 

 

326

 

 

 

 

 

272

 

 

 

 

 

 

1,805

 

 

 

 

 

1,614

Wealth

 

 

 

 

 

328

 

 

 

 

 

374

Net income

 

 

 

 

 

2,133

 

 

 

 

 

1,988

 

 

 

1

Present value of new business premiums. Further information on page 60.

2

Gross written premiums.

3

Equivalent regulatory view of ratio (including With Profits funds) at 31 December 2019 was 154 per cent (31 December 2018: 156 per cent).

 

CENTRAL ITEMS

 

 

 

 

 

 

 

 

 

 

2019  

 

20181  

 

Change

 

 

£m  

    

£m  

    

%

 

 

 

 

 

 

 

Net income

 

 815  

 

 896  

 

(9)

Operating costs

 

 (52)  

 

 (56)  

 

7

Remediation

 

 (2)  

 

 (91)  

 

98

Total costs

 

 (54)  

 

 (147)  

 

63

Trading surplus

 

 761  

 

 749  

 

2

Impairment

 

 53  

 

 (4)  

 

 

Underlying profit

 

 814  

 

 745  

 

9

 

 

 

1

Prior periods restated. See basis of presentation.

 

Central items includes income and expenditure not attributed to divisions, including the costs of certain central and head office functions, and the Group's private equity business, Lloyds Development Capital.

 

Net income includes the central recovery of the Group's distributions on other equity instruments and gains and losses on the sale of gilts and other liquid assets.

 

During 2019, impairment included releases relating to the reassessment of credit risk associated with debt instruments held within the Group's equity investments business.

 

 

 

 

 

 

 

 

OTHER FINANCIAL INFORMATION

 

1.             Reconciliation between statutory and underlying basis results

 

The tables below set out the reconciliation from the statutory results to the underlying basis results, the principles of which are set out on the inside front cover.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Removal of:

 

 

 

 

 

Volatility

 

 

 

 

 

 

 

 

Statutory

 

and other

 

Insurance

 

 

 

Underlying

 

 

basis

 

items1,2

 

gross up3

 

PPI

 

basis

2019

  

£m

  

£m

  

£m

  

£m

  

£m

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

10,180

 

379

 

1,818

 

 -

 

 12,377

Other income, net of insurance claims

 

8,179

 

(426)

 

(2,021)

 

 -

 

 5,732

Operating lease depreciation

 

 

 

(967)

 

 -

 

 -

 

 (967)

Net income

 

18,359

 

(1,014)

 

(203)

 

 -

 

 17,142

Operating expenses4

 

(12,670)

 

1,697

 

203

 

2,450

 

 (8,320)

Trading surplus

 

5,689

 

683

 

 -

 

 2,450

 

8,822

Impairment

 

(1,296)

 

 5

 

 -

 

 -

 

 (1,291)

Profit before tax

 

4,393

 

688

 

 -

 

2,450

 

7,531

 

 

 

 

 

 

 

 

 

 

 

2018

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

13,396

 

152

 

(834)

 

 -

 

 12,714

Other income, net of insurance claims

 

5,230

 

107

 

673

 

 -

 

 6,010

Operating lease depreciation

 

 

 

(956)

 

 -

 

 -

 

 (956)

Net income

 

 18,626

 

 (697)

 

 (161)

 

 -

 

 17,768

Operating expenses4

 

(11,729)

 

2,053

 

161

 

 750

 

 (8,765)

Trading surplus

 

6,897

 

1,356

 

 

 

750

 

9,003

Impairment

 

(937)

 

 -

 

 -

 

 -

 

 (937)

Profit before tax

 

 5,960

 

 1,356

 

 -

 

 750

 

 8,066

 

 

 

1

In the year ended 31 December 2019 this comprises the effects of market volatility and asset sales (gains of £126 million); the amortisation of purchased intangibles (£68 million); restructuring (£471 million, comprising severance related costs, the integration of Zurich's UK workplace pensions and savings business and costs associated with the establishment of the Schroders Personal Wealth Joint venture); and the fair value unwind and other items (losses of £275 million).

 

2

In the year ended 31 December 2018 this comprises the effects of market volatility and asset sales (losses of £50 million); the amortisation of purchased intangibles (£108 million); restructuring (£879 million, comprising severance related costs, the rationalisation of the non-branch property portfolio, the work on implementing the ring-fencing requirements and the integration of MBNA and Zurich's UK workplace pensions and savings business); and the fair value unwind and other items (losses of £319 million).

 

3

The Group's insurance businesses' income statements include income and expenditure which are attributable to the policyholders of the Group's long-term assurance funds. These items have no impact in total upon the profit attributable to equity shareholders and, in order to provide a clearer representation of the underlying trends within the business, these items are shown net within the underlying results.

 

4

The statutory basis figure is the aggregate of operating costs and operating lease depreciation.

 

 

 

OTHER FINANCIAL INFORMATION (continued)

 

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

 

 

 

 

 

 

 

 

2019

 

2018

 

 

 

 

 

Group net interest income - statutory basis (£m)

 

 10,180

 

 13,396

Insurance gross up (£m)

 

 1,818

 

 (834)

Volatility and other items (£m)

 

 379

 

 152

Group net interest income - underlying basis (£m)

 

 12,377

 

 12,714

Non-banking net interest expense (£m)1

 

 145

 

 54

Banking net interest income - underlying basis (£m)

 

 12,522

 

 12,768

 

 

 

 

 

Net loans and advances to customers (£bn)2

 

 440.4

 

 444.4

Impairment provision and fair value adjustments (£bn)

 

 3.9

 

 4.0

Non-banking items:

 

 

 

 

Fee-based loans and advances (£bn)

 

 (6.3)

 

 (7.2)

Other non-banking (£bn)

 

 (3.1)

 

 (4.7)

Gross banking loans and advances (£bn)

 

 434.9

 

 436.5

Averaging (£bn)

 

 (0.2)

 

 (0.5)

Average interest-earning banking assets (£bn)

 

 434.7

 

 436.0

 

 

 

 

 

Banking net interest margin (%)

 

 2.88

 

 2.93

 

 

 

1

2019 includes impact from the implementation of IFRS 16.

 

2

Excludes reverse repos.

 

 

3.             Volatility arising in insurance businesses

 

Volatility included in the Group's statutory results before tax comprises the following:

 

 

 

 

 

 

 

 

2019  

 

2018  

 

    

£m  

    

£m  

 

 

 

 

 

Insurance volatility

 

 230  

 

 (506)  

Policyholder interests volatility

 

 193  

 

 46  

Total volatility

 

 423  

 

 (460)  

Insurance hedging arrangements

 

 (347)  

 

 357  

Total

 

 76  

 

 (103)  

 

The Group's insurance business has policyholder liabilities that are supported by substantial holdings of investments. IFRS requires that the changes in both the value of the liabilities and investments are reflected within the income statement. The value of the liabilities does not move exactly in line with changes in the value of the investments. As the investments are substantial, movements in their value can have a significant impact on the profitability of the Group. Management believes that it is appropriate to disclose the division's results on the basis of an expected return. The impact of the actual return on these investments differing from the expected return is included within insurance volatility.

 

In-year volatility movements were largely driven by insurance volatility arising from interest rate and credit spread movements. The capital impact of equity market movements is now hedged within Insurance and this also reduces the IFRS earnings exposure to equity market movements.

 

The Group actively manages its exposures to interest rate, foreign currency exchange rate, inflation and market movements within the banking book through a comprehensive hedging strategy. This helps to mitigate earnings volatility and reduces the impact of market movements on the capital position.
 

OTHER FINANCIAL INFORMATION (continued)

 

4.         Tangible net assets per share

 

The table below sets out a reconciliation of the Group's shareholders' equity to its tangible net assets.

 

 

 

 

 

 

 

 

At 31 Dec

 

At 31 Dec

 

 

2019

 

2018

 

    

£m

 

£m

 

 

 

 

 

Shareholders' equity

 

41,697

 

43,434

Goodwill

 

(2,324)

 

(2,310)

Intangible assets

 

(3,808)

 

(3,347)

Purchased value of in-force business

 

(247)

 

(271)

Other, including deferred tax effects

 

269

 

228

Tangible net assets

 

35,587

 

37,734

 

 

 

 

 

Ordinary shares in issue, excluding own shares

 

70,031m

 

71,149m

Tangible net assets per share

 

50.8p

 

53.0p

 

5.         Return on tangible equity

 

 

 

 

 

 

 

 

2019

 

2018

 

    

 

 

 

Average shareholders' equity (£bn)

 

 43.0

 

 43.0

Average intangible assets (£bn)

 

 (5.9)

 

 (5.4)

Average tangible equity (£bn)

 

 37.1

 

 37.6

 

 

 

 

 

Underlying profit after tax (£m)1

 

5,690

 

6,057

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

 

364

 

296

Less profit attributable to non-controlling interests and other equity holders (£m)1

 

(547)

 

(531)

Adjusted underlying profit after tax (£m)

 

5,507

 

5,822

 

 

 

 

 

Underlying return on tangible equity (%)

 

14.8

 

15.5

 

 

 

 

 

Group statutory profit after tax (£m)1

 

3,006

 

4,506

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

 

364

 

296

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

 

74

 

111

Less profit attributable to non-controlling interests and other equity holders (£m)1

 

(547)

 

(531)

Adjusted statutory profit after tax (£m)

 

2,897

 

4,382

 

 

 

 

 

Statutory return on tangible equity (%)

 

7.8

 

11.7

 

 

 

1

Prior period restated to reflect amendments to IAS 12, see basis of presentation.

 

 

6.             Share buyback

 

During 2019, the Group completed £1.1 billion of the announced up to £1.75 billion share buyback programme, with an average price paid of 57.89 pence per share. Through a reduction in the weighted average number of ordinary shares in issue, share buybacks have the effect of increasing earnings per share and, depending on the average price paid per share, can either increase or decrease the tangible net assets per share. The 2019 share buyback had the effect of increasing the earnings per share by 0.1 pence and decreasing the tangible net assets per share by 0.2 pence.

 

 

 

 

 

 

RISK MANAGEMENT

CREDIT RISK PORTFOLIO

Overview

·     Credit quality remains strong despite an uncertain environment

·     The Group's loan portfolios continue to be well positioned, reflecting the Group's effective risk management and continue to benefit from a low interest rate environment

·     The net asset quality ratio increased to 29 basis points (2018: 21 basis points) as did the impairment charge to £1,291 million (2018: £937 million). This was primarily driven by material charges against two corporate cases in Commercial Banking, along with some weakening in used car prices in Retail

·     Stage 2 loans as a proportion of total loans and advances to customers reduced by 0.1 percentage points to 7.7 per cent (31 December 2018: 7.8 per cent). Stage 2 loans and advances were broadly flat at £38.4 billion

·     Stage 2 expected credit loss allowances as a percentage of drawn balances (coverage) decreased to 3.7 per cent (31 December 2018: 4.1 per cent) largely driven by a reduction in expected credit loss (ECL) allowances in SME due to an enhanced approach to loan amortisation within the IFRS 9 model and a number of other model refinements

·     Stage 3 loans as a proportion of total loans and advances to customers fell to 1.8 per cent (31 December 2018: 1.9 per cent), with Stage 3 loans and advances down £0.5 billion to £8.8 billion. Coverage of Stage 3 assets reduced by 1.8 percentage points to 22.5 per cent largely as a result of the improved performance of mortgage cases in long-term default, and a change in the mix of Commercial assets due to a combination of write-offs and the transfer in of cases with lower likelihood of net loss

 

Low risk culture and prudent risk appetite

 

·     The Group continues to take a prudent approach to credit risk, with robust credit quality and affordability controls at origination and a prudent through the cycle credit risk appetite

·     Although not immune, credit portfolios are well positioned against an uncertain economic outlook and potential market volatility

·     The Group continues to grow lending to targeted segments in line with strategy, without relaxing credit criteria

·     The Group's effective risk management seeks to ensure early identification and management of customers and counterparties who may be showing signs of distress

·     Sector 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

 

Impairment charge by division

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial

 

 

 

 

 

 

 

 

 

 

assets at

 

 

 

 

 

 

 

 

Loans

 

fair value

 

 

 

 

 

 

 

 

and

 

through other

 

 

 

 

 

 

 

 

advances

 

comprehensive

 

Undrawn

 

2019

 

 

 

 

to customers

 

income

 

balances

 

Total

 

20181

 

  

£m

  

£m

  

£m

  

£m

  

£m

 

 

 

 

 

 

 

 

 

 

 

Retail

 

 1,063

 

 -

 

 (25)

 

 1,038

 

 861

Commercial Banking

 

 297

 

 (1)

 

 10

 

 306

 

 71

Insurance and Wealth

 

 -

 

 -

 

 -

 

 -

 

 1

Central Items

 

 (53)

 

 -

 

 -

 

 (53)

 

 4

Total impairment charge 

 

 1,307

 

 (1)

 

 (15)

 

 1,291

 

 937

Asset quality ratio

 

 

 

 

 

 

 

0.29%

 

0.21%

Gross asset quality ratio

 

 

 

 

 

 

 

0.37%

 

0.28%

 

 

 

1

Segmental comparatives restated. See basis of presentation.

 

 

CREDIT RISK PORTFOLIO (continued)

 

Credit Risk basis of presentation

 

The analyses which follow have been presented on two bases; the statutory basis which is consistent with the presentation in the Group's accounts and the underlying basis which is used for internal management purposes. Reconciliations between the two bases have been provided.

 

In the following statutory basis tables, purchased or originated credit-impaired (POCI) assets include a fixed pool of mortgages that were purchased as part of the HBOS acquisition at a deep discount to face value reflecting credit losses incurred from the point of origination to the date of acquisition. The residual expected credit loss (ECL) allowance and resulting low coverage ratio on POCI assets reflects further deterioration in the creditworthiness from the date of acquisition. Over time, these POCI assets will run off as the loans redeem, pay down or losses are crystallised.

 

The Group uses the underlying basis to monitor the creditworthiness of the lending portfolio and related ECL allowances because it provides a better indication of the credit performance of the POCI assets purchased as part of the HBOS acquisition. The underlying basis assumes that the lending assets acquired as part of a business combination were originated by the Group and are classified as either Stage 1, 2 or 3 according to the change in credit risk over the period since origination. Underlying ECL allowances have been calculated accordingly.

 

Group loans and advances to customers - statutory basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stage 2

 

Stage 3

 

Total

 

Stage 1

 

Stage 2

 

Stage 3

 

POCI

 

as % of

 

as % of

 

£m

 

£m

 

£m

 

£m

 

£m

 

total

 

total

At 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 344,218

 

 305,502

 

 22,518

 

 2,484

 

 13,714

 

 6.5

 

 0.7

Commercial Banking

 96,763

 

 87,323

 

 5,993

 

 3,447

 

 -

 

 6.2

 

 3.6

Insurance and Wealth

 862

 

 753

 

 32

 

 77

 

 -

 

 3.7

 

 8.9

Central items

 56,404

 

 56,397

 

 -

 

 7

 

 -

 

 -

 

 -

Total gross lending

 498,247

 

 449,975

 

 28,543

 

 6,015

 

 13,714

 

 5.7

 

 1.2

ECL allowance on drawn balances

 (3,259)

 

 (675)

 

 (995)

 

 (1,447)

 

 (142)

 

 

 

 

Net balance sheet carrying value

 494,988

 

 449,300

 

 27,548

 

 4,568

 

 13,572

 

 

 

 

ECL allowances (drawn and undrawn) as a percentage of gross lending (%)1

 0.7

 

 0.2

 

 3.8

 

 25.0

 

 1.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 20182

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 341,682

 

 305,160

 

 18,741

 

 2,390

 

 15,391

 

 5.5

 

 0.7

Commercial Banking

 101,824

 

 92,002

 

 6,592

 

 3,230

 

 -

 

 6.5

 

 3.2

Insurance and Wealth

 865

 

 804

 

 6

 

 55

 

 -

 

 0.7

 

 6.4

Central items

 43,637

 

 43,565

 

 6

 

 66

 

 -

 

 -

 

 0.2

Total gross lending

 488,008

 

 441,531

 

 25,345

 

 5,741

 

 15,391

 

 5.2

 

 1.2

ECL allowance on drawn balances

 (3,150)

 

 (525)

 

 (994)

 

 (1,553)

 

 (78)

 

 

 

 

Net balance sheet carrying value

 484,858

 

 441,006

 

 24,351

 

 4,188

 

 15,313

 

 

 

 

ECL allowances (drawn and undrawn) as a percentage of gross lending (%)1

 0.7

 

 0.1

 

 4.2

 

 28.4

 

 0.5

 

 

 

 

 

 

 

1

 

2

 

Stage 3 ECL allowances as a percentage of drawn balances are calculated excluding loans in recoveries in Retail of £205 million (31 December 2018: £250 million).

Segmental comparatives restated. See basis of presentation.

 

 

 

CREDIT RISK PORTFOLIO (continued)

 

Group loans and advances to customers - underlying basis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stage 2

 

Stage 3

 

Total

 

Stage 1

 

Stage 2

 

Stage 3

 

as % of

 

as % of

 

£m

 

£m

 

£m

 

£m

 

total

 

total

At 31 December 20191

 

 

 

 

 

 

 

 

 

 

 

Retail

 344,776

 

 307,138

 

 32,415

 

 5,223

 

 9.4

 

 1.5

Commercial Banking

 96,763

 

 87,323

 

 5,993

 

 3,447

 

 6.2

 

 3.6

Insurance and Wealth

 862

 

 753

 

 32

 

 77

 

 3.7

 

 8.9

Central items

 56,404

 

 56,397

 

 -

 

 7

 

 -

 

 -

Total gross lending

 498,805

 

 451,611

 

 38,440

 

 8,754

 

 7.7

 

 1.8

ECL allowance on drawn balances

 (3,965)

 

 (702)

 

 (1,346)

 

 (1,917)

 

 

 

 

Net balance sheet carrying value

 494,840

 

 450,909

 

 37,094

 

 6,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ECL allowances (drawn and undrawn) as a percentage of gross lending (%)2

0.8

 

0.2

 

3.7

 

22.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 20181,3

 

 

 

 

 

 

 

 

 

 

 

Retail

 342,559

 

 305,048

 

 31,647

 

 5,864

 

 9.2

 

 1.7

Commercial Banking

 101,824

 

 92,002

 

 6,592

 

 3,230

 

 6.5

 

 3.2

Insurance and Wealth

 865

 

 804

 

 6

 

 55

 

 0.7

 

 6.4

Central items

 43,637

 

 43,565

 

 6

 

 66

 

 -

 

 0.2

Total gross lending

 488,885

 

 441,419

 

 38,251

 

 9,215

 

 7.8

 

 1.9

ECL allowance on drawn balances

 (4,236)

 

 (556)

 

 (1,506)

 

 (2,174)

 

 

 

 

Net balance sheet carrying value

 484,649

 

 440,863

 

 36,745

 

 7,041

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ECL allowances (drawn and undrawn) as a percentage of gross lending (%)2

0.9

 

0.2

 

4.1

 

24.3

 

 

 

 

 

 

 

1

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

2

Stage 3 ECL allowances as a percentage of drawn balances are calculated excluding loans in recoveries in Retail of £205 million (31 December 2018: £250 million).

3

Segmental comparatives restated. See basis of presentation.

 

Group total expected credit loss allowance - statutory basis

 

 

 

 

 

 

 

 

At 31 Dec

 

At 31 Dec

 

 

2019

 

2018

 

  

£m

  

£m

 

 

 

 

 

Customer related balances

 

 

 

 

Drawn

 

 3,259

 

 3,150

Undrawn

 

 177

 

 193

 

 

 3,436

 

 3,343

Other assets

 

 19

 

 19

Total ECL allowance

 

 3,455

 

 3,362

 

 

 

CREDIT RISK PORTFOLIO (continued)

 

Group total expected credit loss allowance - underlying basis

 

 

 

 

 

 

 

 

At 31 Dec

 

At 31 Dec

 

 

2019

 

2018

 

  

£m

  

£m

 

 

 

 

 

Customer related balances

 

 

 

 

Drawn

 

 3,965

 

 4,236

Undrawn

 

 177

 

 193

 

 

 4,142

 

 4,429

Other assets

 

 19

 

 19

Total ECL allowance

 

 4,161

 

 4,448

 

Reconciliation between statutory and underlying basis of Group gross loans and advances to customers

 

 

 

 

 

 

 

 

 

 

 

 

Total 

 

Stage 1 

 

Stage 2 

 

Stage 3 

 

POCI 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

At 31 December 2019

 

 

 

 

 

 

 

 

 

Underlying basis

 498,805 

 

 451,611 

 

 38,440 

 

 8,754 

 

 - 

POCI assets

 - 

 

 (1,718)  

 

 (9,903) 

 

 (2,740) 

 

 14,361 

Acquisition fair value adjustment

 (558) 

 

 82 

 

 6 

 

 1 

 

 (647) 

 

 (558) 

 

 (1,636) 

 

 (9,897) 

 

 (2,739) 

 

 13,714 

Statutory basis

 498,247 

 

 449,975 

 

 28,543 

 

 6,015 

 

 13,714 

 

 

 

 

 

 

 

 

 

 

At 31 December 2018

 

 

 

 

 

 

 

 

 

Underlying basis

 488,885 

 

 441,419 

 

 38,251 

 

 9,215 

 

 - 

POCI assets

 - 

 

 - 

 

 (12,917) 

 

 (3,476) 

 

 16,393 

Acquisition fair value adjustment

 (877) 

 

 112 

 

 11 

 

 2 

 

 (1,002) 

 

 (877) 

 

 112 

 

 (12,906) 

 

 (3,474) 

 

 15,391 

Statutory basis

 488,008 

 

 441,531 

 

 25,345 

 

 5,741 

 

 15,391 

 

Reconciliation between statutory and underlying basis of Group expected credit loss allowances on drawn balances

 

 

 

 

 

 

 

 

 

 

 

 

Total 

 

Stage 1 

 

Stage 2 

 

Stage 3 

 

POCI 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

At 31 December 2019

 

 

 

 

 

 

 

 

 

Underlying basis

 3,965 

 

 702 

 

 1,346 

 

 1,917 

 

 - 

POCI assets

 - 

 

 - 

 

 (334) 

 

 (455) 

 

 789 

Acquisition fair value adjustment

 (706) 

 

 (27) 

 

 (17) 

 

 (15) 

 

 (647) 

 

 (706) 

 

 (27) 

 

 (351) 

 

 (470) 

 

 142 

Statutory basis

 3,259 

 

 675 

 

 995 

 

 1,447 

 

 142 

 

 

 

 

 

 

 

 

 

 

At 31 December 2018

 

 

 

 

 

 

 

 

 

Expected credit losses on drawn balances

 

 

 

 

 

 

 

 

 

Underlying basis

 4,236 

 

 556 

 

 1,506 

 

 2,174 

 

 - 

POCI assets

 - 

 

 - 

 

 (481) 

 

 (599) 

 

 1,080 

Acquisition fair value adjustment

 (1,086) 

 

 (31) 

 

 (31) 

 

 (22) 

 

 (1,002) 

 

 (1,086) 

 

 (31) 

 

 (512) 

 

 (621) 

 

 78 

Statutory basis

 3,150 

 

 525 

 

 994 

 

 1,553 

 

 78 

 

 

 

CREDIT RISK PORTFOLIO (continued)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Stage 1

 

Stage 2

 

Stage 3

 

POCI

 

£m

 

%1

 

£m

 

%1

 

£m

 

%1

 

£m

 

%1,2

 

£m

 

%1

At 31 December 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 2,090

 

0.6

 

 639

 

0.2

 

 819

 

3.6

 

 490

 

21.5

 

 142

 

1.0

Commercial Banking

 1,313

 

1.4

 

 115

 

0.1

 

 252

 

4.2

 

 946

 

27.4

 

 -

 

-

Insurance and Wealth

 17

 

2.0

 

 6

 

0.8

 

 1

 

3.1

 

 10

 

13.0

 

 -

 

-

Central items

 16

 

 -  

 

 10

 

 -

 

 -

 

-

 

 6

 

85.7

 

 -

 

-

Total

 3,436

 

0.7

 

 770

 

0.2

 

 1,072

 

3.8

 

 1,452

 

25.0

 

 142

 

1.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 20181,3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 1,768

 

0.5

 

 493

 

0.2

 

 713

 

3.8

 

 484

 

22.6

 

 78

 

0.5

Commercial Banking

 1,486

 

1.5

 

 111

 

0.1

 

 338

 

5.1

 

 1,037

 

32.1

 

 -

 

-

Insurance and Wealth

 18

 

2.1

 

 6

 

0.7

 

 1

 

16.7

 

 11

 

20.0

 

 -

 

-

Central items

 71

 

0.2

 

 38

 

0.1

 

 6

 

100.0

 

 27

 

40.9

 

 -

 

-

Total

 3,343

 

0.7

 

 648

 

0.1

 

 1,058

 

4.2

 

 1,559

 

28.4

 

 78

 

0.5

 

 

 

 

 

1

As a percentage of drawn balances.

2

Stage 3 ECL allowances as a percentage of drawn balances are calculated excluding loans in recoveries in Retail of £205 million (31 December 2018: £250 million).

3

Segmental comparatives restated. See basis of presentation.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Stage 1

 

Stage 2

 

Stage 3

 

£m

 

%2

 

£m

 

%2

 

£m

 

%2

 

£m

 

%2,3

At 31 December 20191

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 2,796

 

0.8

 

 666

 

0.2

 

 1,170

 

3.6

 

 960

 

19.1

Commercial Banking

 1,313

 

1.4

 

 115

 

0.1

 

 252

 

4.2

 

 946

 

27.4

Insurance and Wealth

 17

 

2.0

 

 6

 

0.8

 

 1

 

3.1

 

 10

 

13.0

Central items

 16

 

 -

 

 10

 

 -  

 

 -

 

 -  

 

 6

 

85.7

Total

 4,142

 

0.8

 

 797

 

0.2

 

 1,423

 

3.7

 

 1,922

 

22.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 20181,4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 2,854

 

0.8

 

 524

 

0.2

 

 1,225

 

3.9

 

 1,105

 

19.7

Commercial Banking

 1,486

 

1.5

 

 111

 

0.1

 

 338

 

5.1

 

 1,037

 

32.1

Insurance and Wealth

 18

 

2.1

 

 6

 

0.7

 

 1

 

16.7

 

 11

 

20.0

Central items

 71

 

0.2

 

 38

 

0.1

 

 6

 

100.0

 

 27

 

40.9

Total

 4,429

 

0.9

 

 679

 

0.2

 

 1,570

 

4.1

 

 2,180

 

24.3

 

 

 

 

 

1

Balances exclude the impact of the HBOS and MBNA related acquisition adjustments.

2

As a percentage of drawn balances.

3

Stage 3 ECL allowances as a percentage of drawn balances are calculated excluding loans in recoveries in Retail of £205 million (31 December 2018: £250 million).

4

Segmental comparatives restated. See basis of presentation.

 

 

 

 

CREDIT RISK PORTFOLIO (continued)

 

Additional information

The measurement of ECL reflects an unbiased probability-weighted range of possible future economic outcomes. The Group achieves this by selecting 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. The table below shows the decomposition of the final probability-weighted ECL for each forward-looking economic scenario. 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.

 

The table below shows the ECL calculated under each scenario on both an underlying and a statutory basis.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Probability-

 

 

 

 

 

 

 

Severe

 

 

weighted

 

Upside

 

Base case

 

Downside

 

Downside

 

 

£m

 

£m

 

£m

 

£m

 

£m

Statutory basis

 

 

 

 

 

 

 

 

 

 

Secured

 

569

 

317

 

464

 

653

 

1,389

Other Retail

 

1,521

 

1,443

 

1,492

 

1,564

 

1,712

Commercial 

 

1,315

 

1,211

 

1,258

 

1,382

 

1,597

Other 

 

50

 

50

 

50

 

50

 

50

At 31 December 2019

 

3,455

 

3,021

 

3,264

 

3,649

 

4,748

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Probability-

 

 

 

 

 

 

 

Severe

 

 

weighted

 

Upside

 

Base case

 

Downside

 

Downside

 

 

£m

 

£m

 

£m

 

£m

 

£m

Underlying basis

 

 

 

 

 

 

 

 

 

 

Secured

 

1,216

 

964

 

1,111

 

1,300

 

2,036

Other Retail

 

1,580

 

1,502

 

1,551

 

1,623

 

1,771

Commercial 

 

1,315

 

1,211

 

1,258

 

1,382

 

1,597

Other 

 

50

 

50

 

50

 

50

 

50

At 31 December 2019

 

4,161

 

3,727

 

3,970

 

4,355

 

5,454

 

 

 

FUNDING AND LIQUIDITY MANAGEMENT

 

The Group has maintained its strong funding and liquidity position with a stable loan to deposit ratio of 107 per cent.

 

During 2019, the Group repaid its Funding for Lending Scheme (FLS) contractual maturities of £12.1 billion and early repaid £4.5 billion of its Term Funding Scheme (TFS) drawings, representing all of its 2020 TFS maturities. This has reduced the balance of FLS outstanding to £1 billion and the balance of TFS to £15.4 billion as at 31 December 2019.

 

The Group's liquidity coverage ratio (LCR) was 137 per cent (based on a monthly rolling average over the previous 12 months) as at 31 December 2019, calculated on a consolidated basis based on the EU Delegated Act. Following the implementation of structural reform, liquidity risk is managed at a legal entity level with the Group consolidated LCR representing the composite of the ring-fenced bank and non ring-fenced bank entities.

 

The Group's credit ratings continue to reflect its robust balance sheet, resilient underlying profitability and bail-in capital position. There were no changes to the ratings over 2019, although in November Moody's revised the Group's and Lloyds Bank plc's outlooks to negative due to concern relating to the UK's exit from the European Union. In March Fitch placed the majority of UK banks, including the Group's entities, on Ratings Watch Negative before stabilising the ratings in December as future economic and political direction became clearer.

 

 

 

 

 

CAPITAL MANAGEMENT

 

Analysis of capital position

 

The Group's pro forma CET1 capital build amounted to 207 basis points before PPI, and to 86 basis points after the in-year PPI charge, reflecting:

 

·     underlying capital build (198 basis points), including the dividend paid up by the Insurance business in February 2020 in relation to its 2019 earnings (18 basis points)

·     other movements (20 basis points), reflecting market movements and the continued optimisation of Commercial Banking risk-weighted assets, net of additional pension contributions and model updates

·     offset by a reduction of 121 basis points relating to the in-year PPI charge and 11 basis points relating to the impact of the implementation of IFRS 16 on risk-weighted assets

 

The Group's capital position also benefitted by 34 basis points as a result of the cancellation of the remaining c.£650 million of the 2019 buyback programme, as announced in September 2019. The Group used 9 basis points of capital for the acquisition of Tesco Bank's UK prime residential mortgage portfolio.

 

Overall the Group's CET1 capital ratio is 15.0 per cent on a pro forma basis before ordinary dividends and 13.8 per cent on a pro forma basis after ordinary dividends (31 December 2018: 13.9 per cent pro forma, after ordinary dividends and incorporating the effects of the share buyback announced in February 2019).

 

Excluding the Insurance dividend paid in February 2020 the Group's actual CET1 ratio is 13.6 per cent after ordinary dividends (31 December 2018: 14.6 per cent).

 

The accrual for foreseeable dividends reflects the recommended final ordinary dividend of 2.25 pence per share.

 

The transitional total capital ratio, after ordinary dividends, reduced to 21.3 per cent (21.5 per cent on a pro forma basis), largely reflecting the reduction in CET1 capital and the net reduction in AT1 capital instruments, partially offset by the reduction in risk-weighted assets.

 

The UK leverage ratio, after ordinary dividends, reduced from 5.6 per cent on a pro forma basis to 5.2 per cent on a pro forma basis, largely reflecting the reduction in the fully loaded tier 1 capital position, partially offset by a reduction in the exposure measure.

 

 

 

CAPITAL MANAGEMENT (continued)

 

Target capital ratio

 

The Board's view of the ongoing level of CET1 capital required by the Group to grow the business, meet regulatory requirements and cover uncertainties continues to be c.12.5 per cent plus a management buffer of c.1 per cent. This takes into account, amongst other things:

 

·     the minimum Pillar 1 CET1 capital requirement of 4.5 per cent of risk‑weighted assets

·     the Group's Pillar 2A set by the PRA. During the year the PRA reduced the Group's Pillar 2A requirement from 4.7 per cent to 4.6 per cent of risk-weighted assets at 31 December 2019, of which 2.6 per cent must be met by CET1 capital

·     the capital conservation buffer (CCB) requirement of 2.5 per cent of risk-weighted assets

·     the Group's current countercyclical capital buffer (CCYB) requirement of 0.9 per cent of risk-weighted assets, which is set to increase following the FPC's decision to increase the UK CCYB rate from 1.0 per cent to 2.0 per cent, effective from December 2020. In conjunction the PRA will consult during 2020 on a proposed reduction in Pillar 2A total capital requirements by 50 per cent of this increase in the CCYB, equivalent to reducing the Pillar 2A CET1 requirement by 28 per cent of the increase.

·     the RFB sub-group's systemic risk buffer (SRB) of 2.0 per cent of risk-weighted assets, which equates to 1.7 per cent of risk-weighted assets at Group level

·     the Group's PRA Buffer, which the PRA sets after taking account of the results of the annual PRA stress test and other information, as well as outputs from the Group's internal stress tests. The PRA requires the PRA Buffer itself to remain confidential between the Group and the PRA

 

Capital resources

 

An analysis of the Group's capital position as at 31 December 2019 is presented in the following section on both a CRD IV transitional arrangements basis and a CRD IV fully loaded basis, as amended by provisions of the revised Capital Requirements Regulation (CRR II) that came into force in June 2019. In addition the Group's capital position reflects the application of the transitional arrangements for IFRS 9.

 

The following table summarises the consolidated capital position of the Group.

 

 

CAPITAL MANAGEMENT (continued)

 

 

 

 

 

 

 

 

 

 

 

 

Transitional

 

Fully loaded

 

  

At 31 Dec

  

At 31 Dec

  

At 31 Dec

  

At 31 Dec

 

 

2019

 

2018

 

2019

 

2018

 

 

£m

 

£m

 

£m

 

£m

Common equity tier 1

 

 

 

 

 

 

 

 

Shareholders' equity per balance sheet

 

 41,697

 

 43,434

 

 41,697

 

 43,434

Adjustment to retained earnings for foreseeable dividends

 

 (1,586)

 

 (1,523)

 

 (1,586)

 

 (1,523)

Deconsolidation adjustments1

 

 2,337

 

 2,273

 

 2,337

 

 2,273

Adjustment for own credit

 

 26

 

 (280)

 

 26

 

 (280)

Cash flow hedging reserve

 

 (1,504)

 

 (1,051)

 

 (1,504)

 

 (1,051)

Other adjustments

 

 247

 

 (19)

 

 247

 

 (19)

 

 

 41,217

 

 42,834

 

 41,217

 

 42,834

less: deductions from common equity tier 1

 

 

 

 

 

 

 

 

Goodwill and other intangible assets

 

 (4,179)

 

 (3,667)

 

 (4,179)

 

 (3,667)

Prudent valuation adjustment

 

 (509)

 

 (529)

 

 (509)

 

 (529)

Excess of expected losses over impairment provisions and value adjustments

 

 (243)

 

 (27)

 

 (243)

 

 (27)

Removal of defined benefit pension surplus

 

 (531)

 

 (994)

 

 (531)

 

 (994)

Securitisation deductions

 

 (185)

 

 (191)

 

 (185)

 

 (191)

Significant investments1

 

 (4,626)

 

 (4,222)

 

 (4,626)

 

 (4,222)

Deferred tax assets

 

 (3,200)

 

 (3,037)

 

 (3,200)

 

 (3,037)

Common equity tier 1 capital

 

 27,744

 

 30,167

 

 27,744

 

 30,167

Additional tier 1

 

 

 

 

 

 

 

 

Other equity instruments

 

 5,881

 

 6,466

 

 5,881

 

 6,466

Preference shares and preferred securities2

 

 4,127

 

 4,008

 

 -

 

 -

Transitional limit and other adjustments

 

 (2,474)

 

 (1,804)

 

 -

 

 -

 

 

 7,534

 

 8,670

 

 5,881

 

 6,466

less: deductions from tier 1

 

 

 

 

 

 

 

 

Significant investments1

 

 (1,286)

 

 (1,298)

 

 -

 

 -

Total tier 1 capital

 

 33,992

 

 37,539

 

 33,625

 

 36,633

Tier 2

 

 

 

 

 

 

 

 

Other subordinated liabilities2

 

 13,003

 

 13,648

 

 13,003

 

 13,648

Deconsolidation of instruments issued by insurance entities1

 

 (1,796)

 

 (1,767)

 

 (1,796)

 

 (1,767)

Adjustments for transitional limit and non-eligible instruments

 

 2,278

 

 1,504

 

 (2,204)

 

 (1,266)

Amortisation and other adjustments

 

 (3,101)

 

 (2,717)

 

 (3,101)

 

 (2,717)

 

 

 10,384

 

 10,668

 

 5,902

 

 7,898

less: deductions from tier 2

 

 

 

 

 

 

 

 

Significant investments1

 

 (960)

 

 (973)

 

 (2,246)

 

 (2,271)

Total capital resources

 

 43,416

 

 47,234

 

 37,281

 

 42,260

 

 

 

 

 

 

 

 

 

Risk-weighted assets (unaudited)

 

 203,431

 

 206,366

 

 203,431

 

 206,366

 

 

 

 

 

 

 

 

 

Common equity tier 1 capital ratio3

 

13.6%

 

14.6%

 

13.6%

 

14.6%

Tier 1 capital ratio

 

16.7%

 

18.2%

 

16.5%

 

17.8%

Total capital ratio

 

21.3%

 

22.9%

 

18.3%

 

20.5%

 

 

 

1

For regulatory capital purposes, the Group's Insurance business is deconsolidated and replaced by the amount of the Group's investment in the business. A part of this amount is deducted from capital (via 'significant investments' in the table above) and the remaining amount is risk-weighted, forming part of threshold risk-weighted assets.

2

Preference shares, preferred securities and other subordinated liabilities are categorised as subordinated liabilities in the balance sheet.

3

The common equity tier 1 ratio is 13.8 per cent on a pro forma basis upon recognition of the dividend paid by the Insurance business in February 2020 in relation to its 2019 earnings (31 December 2018: 13.9 per cent pro forma, incorporating the effects of the share buyback announced in February 2019).

CAPITAL MANAGEMENT (continued)

 

Minimum requirement for own funds and eligible liabilities (MREL)

As the Group is not classified as a global systemically important bank (G-SIB) it is not directly subject to the CRR II MREL requirements that came into force in June 2019. However the Group remains subject to the Bank of England's MREL statement of policy (MREL SoP) and must therefore maintain a minimum level of MREL resources from 1 January 2020.

 

Applying the Bank of England's MREL SoP to current minimum capital requirements, the Group's indicative MREL requirement, excluding regulatory capital and leverage buffers, is as follows:

 

·     from 1 January 2020, the higher of 2 times Pillar 1 plus Pillar 2A, equivalent to 20.6 per cent of risk-weighted assets, or 6.5 per cent of the UK leverage ratio exposure measure

·     from 1 January 2022, the higher of 2 times Pillar 1 plus 2 times Pillar 2A, equivalent to 25.2 per cent of risk-weighted assets, or 6.5 per cent of the UK leverage ratio exposure measure.

 

In addition, CET1 capital cannot be used to meet both MREL requirements and capital or leverage buffers.

 

The Bank of England will review the calibration of MREL in 2020 before setting final end-state requirements to be met from 2022. This review will take into consideration any changes to the capital framework, including the finalisation of the Basel III reforms.

 

An analysis of the Group's current transitional MREL position is provided in the table below.

 

 

 

 

 

 

 

 

Transitional2

 

 

At 31 Dec

 

At 31 Dec

 

 

2019

 

2018

 

  

£m

  

£m

 

 

 

 

 

Total capital resources (transitional basis)

 

 43,416

 

 47,234

Ineligible AT1 and tier 2 instruments1

 

 (874)

 

 (613)

Amortised portion of eligible tier 2 instruments issued by Lloyds Banking Group plc

 

 24

 

 -

Senior unsecured securities issued by Lloyds Banking Group plc

 

 23,554

 

 20,213

Total MREL resources2

 

 66,120

 

 66,834

 

 

 

 

 

Risk-weighted assets

 

 203,431

 

 206,366

 

 

 

 

 

MREL ratio3

 

32.5%

 

32.4%

 

 

 

 

 

Leverage exposure measure

 

 654,387

 

 663,277

 

 

 

 

 

MREL leverage ratio

 

10.1%

 

10.1%

 

 

 

1

Instruments with less than one year to maturity or governed under non-EEA law without a contractual bail-in clause.

2

Until 2022, externally issued regulatory capital in operating entities can count towards the Group's MREL to the extent that such capital would count towards the Group's consolidated capital resources.

3

The MREL ratio is 32.6 per cent on a pro forma basis upon recognition of the dividend paid up by the Insurance business in February 2020 in relation to its 2019 earnings (31 December 2018: 32.6 per cent pro forma).

 

During 2019, the Group issued externally £3.5 billion (sterling equivalent) of senior unsecured securities from Lloyds Banking Group plc which, while not included in total capital, are eligible to meet MREL requirements. Combined with previous issuances made over the last few years the Group remains comfortably positioned to meet MREL requirements from 1 January 2020 and, as at 31 December 2019, had a transitional MREL ratio of 32.5 per cent of risk-weighted assets.

 

 

 

CAPITAL MANAGEMENT (continued)

 

Risk-weighted assets

 

 

 

 

 

 

 

 

At 31 Dec

 

At 31 Dec

 

 

2019

 

2018

 

  

£m

  

£m

 

 

 

 

 

Foundation Internal Ratings Based (IRB) Approach

 

 53,842

 

 60,555

Retail IRB Approach

 

 63,208

 

 59,522

Other IRB Approach

 

 18,544

 

 15,666

IRB Approach

 

 135,594

 

 135,743

Standardised (STA) Approach

 

 24,420

 

 25,757

Credit risk

 

 160,014

 

 161,500

Counterparty credit risk

 

 5,083

 

 5,718

Contributions to the default fund of a central counterparty

 

 210

 

 830

Credit valuation adjustment risk

 

 584

 

 702

Operational risk

 

 25,482

 

 25,505

Market risk

 

 1,790

 

 2,085

Underlying risk-weighted assets

 

 193,163

 

 196,340

Threshold risk-weighted assets1

 

 10,268

 

 10,026

Total risk-weighted assets

 

 203,431

 

 206,366

 

 

 

1

Threshold risk-weighted assets reflect the element of significant investments and deferred tax assets that are permitted to be risk-weighted instead of being deducted from CET1 capital. Significant investments primarily arise from investment in the Group's Insurance business.

 

Stress testing

 

The Group undertakes a wide-ranging programme of stress testing providing a comprehensive view of the potential impacts arising from the risks to which the Group and its key legal entities are exposed. One of the most important uses of stress testing is to assess the resilience of the operational and strategic plans of the Group and its legal entities to adverse economic conditions and other key vulnerabilities. As part of this programme the Group conducted a macroeconomic stress test of the four year operating plan in the first quarter of the year.

 

The Group also participates in the UK wide Annual Cyclical Scenario stress tests run by the Bank of England. In the 2019 Bank of England stress test the Group exceeded the capital and leverage hurdles on a transitional basis after the application of management actions and was not required to take any action as a result of the test.

 

For the Annual Cyclical Scenario stress tests, the Bank of England has taken action to avoid an unwarranted de facto increase in capital requirements that could result from the interaction of IFRS 9. Under this scenario, the stress hurdle rates for banks participating in the exercise are adjusted to recognise the additional resilience provided by the earlier provisions taken under IFRS 9. The Bank of England is considering options for a more enduring treatment of IFRS 9 provisions in the capital framework and alternative options will be explored further during the 2020 Bank of England annual stress test.

 

Leverage ratio

 

The Group is currently subject to the following minimum requirements under the UK Leverage Ratio Framework:

 

·     a minimum leverage ratio requirement of 3.25 per cent of the total leverage exposure measure

·     a countercyclical leverage buffer (CCLB) of 0.3 per cent of the total leverage exposure measure

·     an additional leverage ratio buffer (ALRB) of 0.7 per cent of the total leverage exposure measure applies to the RFB sub-group, which equates to 0.6 per cent at Group level.

 

 

CAPITAL MANAGEMENT (continued)

The countercyclical leverage buffer is set to increase in proportion to the increase in the countercyclical capital buffer following the FPC's decision to increase the UK CCYB rate to 2.0 per cent, effective from December 2020. At least 75 per cent of the 3.25 per cent minimum leverage ratio requirement as well as 100 per cent of all regulatory leverage buffers must be met with CET1 capital.

The table below summarises the component parts of the Group's leverage ratio.

 

 

 

 

 

 

 

Fully loaded

 

 

At 31 Dec

 

At 31 Dec

 

 

2019

 

2018

 

  

£m

  

£m

Total tier 1 capital for leverage ratio

 

 

 

 

Common equity tier 1 capital

 

 27,744

 

 30,167

Additional tier 1 capital

 

 5,881

 

 6,466

Total tier 1 capital

 

 33,625

 

 36,633

 

 

 

 

 

Exposure measure

 

 

 

 

Statutory balance sheet assets

 

 

 

 

Derivative financial instruments

 

 26,369

 

 23,595

Securities financing transactions

 

 67,424

 

 69,301

Loans and advances and other assets

 

 740,100

 

 704,702

Total assets

 

 833,893

 

 797,598

 

 

 

 

 

Qualifying central bank claims

 

 (49,590)

 

 (50,105)

 

 

 

 

 

Deconsolidation adjustments1

 

 

 

 

Derivative financial instruments

 

 (1,293)

 

 (1,376)

Securities financing transactions

 

 (334)

 

 (487)

Loans and advances and other assets

 

 (167,410)

 

 (130,048)

Total deconsolidation adjustments

 

 (169,037)

 

 (131,911)

 

 

 

 

 

Derivatives adjustments

 

 

 

 

Adjustments for regulatory netting

 

 (11,298)

 

 (8,828)

Adjustments for cash collateral

 

 (12,551)

 

 (10,536)

Net written credit protection

 

 458

 

 539

Regulatory potential future exposure

 

 16,337

 

 18,250

Total derivatives adjustments

 

 (7,054)

 

 (575)

 

 

 

 

 

Securities financing transactions adjustments

 

 1,164

 

 40

Off-balance sheet items

 

 53,191

 

 56,393

Regulatory deductions and other adjustments

 

 (8,180)

 

 (8,163)

 

 

 

 

 

Total exposure measure2

 

 654,387

 

 663,277

Average exposure measure3

 

 667,433

 

 

 

 

 

 

 

UK Leverage ratio2,5

 

5.1%

 

5.5%

Average UK leverage ratio3

 

5.0%

 

 

 

 

 

 

 

CRD IV exposure measure4

 

 703,977

 

 713,382

CRD IV leverage ratio4

 

4.8%

 

5.1%

 

1

Deconsolidation adjustments relate to the deconsolidation of certain Group entities that fall outside the scope of the Group's regulatory capital consolidation, being primarily the Group's Insurance business.

2

Calculated in accordance with the UK Leverage Ratio Framework which requires qualifying central bank claims to be excluded from the leverage exposure measure. 

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 October 2019 to 31 December 2019). The average of 5.0 per cent compares to 4.9 per cent at the start and 5.1 per cent at the end of the quarter.

4

Calculated in accordance with CRD IV rules which include central bank claims within the leverage exposure measure.

5

The UK leverage ratio is 5.2 per cent on a pro forma basis upon recognition of the dividend paid up by the Insurance business in February 2020 in relation to its 2019 earnings (31 December 2018: 5.6 per cent pro forma).

 

CAPITAL MANAGEMENT (continued)

 

Application of IFRS 9 on a full impact basis for capital and leverage

 

 

 

 

 

 

 

IFRS 9 full impact

 

 

At 31 Dec

 

At 31 Dec

 

 

2019

 

2018

 

 

 

 

 

Common equity tier 1 (£m)

 

 27,002

 

 29,592

Transitional tier 1 (£m)

 

 33,249

 

 36,964

Transitional total capital (£m)

 

 43,153

 

 47,195

Total risk-weighted assets (£m)

 

 203,083

 

 206,614

Common equity tier 1 ratio (%)

 

13.3%

 

14.3%

Transitional tier 1 ratio (%)

 

16.4%

 

17.9%

Transitional total capital ratio (%)

 

21.2%

 

22.8%

UK leverage ratio exposure measure (£m)

 

 653,643

 

 663,182

UK leverage ratio (%)

 

5.0%

 

5.4%

               

 

The Group has opted to apply paragraph 4 of CRR Article 473a (the 'transitional rules') which allows for additional capital relief in respect of any post 1 January 2018 increase in Stage 1 and Stage 2 IFRS 9 expected credit loss provisions (net of regulatory expected losses) during the transition period. As at 31 December 2019 no additional capital relief has been recognised.

 

 

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

CONSOLIDATED INCOME STATEMENT

 

 

 

 

 

 

 

 

 

 

 

 

2019

    

20181

 

 

Note

 

£m

 

£m

 

 

 

 

 

 

 

Interest and similar income

 

 

 

16,861 

 

 16,349

Interest and similar expense

 

 

 

(6,681)

 

 (2,953)

Net interest income

 

 

 

10,180 

 

 13,396

Fee and commission income

 

 

 

2,756 

 

 2,848

Fee and commission expense

 

 

 

(1,350)

 

 (1,386)

Net fee and commission income

 

 

 

1,406 

 

 1,462

Net trading income

 

 

 

18,288 

 

 (3,876)

Insurance premium income

 

 

 

9,574 

 

 9,189

Other operating income

 

 

 

2,908 

 

 1,920

Other income

 

 

 

32,176 

 

 8,695

Total income

 

 

 

42,356 

 

 22,091

Insurance claims

 

 

 

(23,997)

 

 (3,465)

Total income, net of insurance claims

 

 

 

18,359 

 

 18,626

Regulatory provisions

 

 

 

(2,895)

 

 (1,350)

Other operating expenses

 

 

 

(9,775)

 

 (10,379)

Total operating expenses

 

 

 

(12,670)

 

 (11,729)

Trading surplus

 

 

 

5,689 

 

 6,897

Impairment

 

 

 

(1,296)

 

 (937)

Profit before tax

 

 

 

4,393 

 

 5,960

Tax expense

 

 3

 

(1,387)

 

 (1,454)

Profit for the year

 

 

 

3,006 

 

 4,506

 

 

 

 

 

 

 

Profit attributable to ordinary shareholders

 

 

 

2,459 

 

 3,975

Profit attributable to other equity holders

 

 

 

466 

 

 433

Profit attributable to equity holders

 

 

 

2,925 

 

 4,408

Profit attributable to non-controlling interests

 

 

 

81 

 

98

Profit for the year

 

 

 

3,006 

 

4,506

 

 

 

 

 

 

 

Basic earnings per share

 

 4

 

3.5p

 

5.5p

Diluted earnings per share

 

 4

 

3.4p

 

5.5p

 

1

Restated, see note 1.

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

2019 

    

20181 

 

 

£m 

 

£m 

 

 

 

 

 

Profit for the year

 

3,006 

 

 4,506 

Other comprehensive income

 

 

 

 

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

 

 

 

 

Post-retirement defined benefit scheme remeasurements:

 

 

 

 

Remeasurements before tax

 

(1,433) 

 

 167 

Tax

 

316  

 

 (47) 

 

 

(1,117) 

 

 120 

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

 

 

 

 

Change in fair value

 

 

 

 (97) 

Tax

 

12  

 

 22 

 

 

12  

 

 (75) 

Gains and losses attributable to own credit risk:

 

 

 

 

Gains (losses) before tax

 

(419) 

 

 533 

Tax

 

113  

 

 (144) 

 

 

(306) 

 

 389 

 

 

 

 

 

Share of other comprehensive income of associates and joint ventures

 

 

 

 8 

 

 

 

 

 

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

 

(30) 

 

 (37) 

Income statement transfers in respect of disposals

 

(196) 

 

 (275) 

Impairment recognised in the income statement

 

 (1) 

 

- 

Tax

 

71  

 

 119 

 

 

(156) 

 

 (193) 

Movements in cash flow hedging reserve:

 

 

 

 

Effective portion of changes in fair value taken to other comprehensive income

 

1,209 

 

 234 

Net income statement transfers

 

(608) 

 

 (701) 

Tax

 

(148) 

 

 113 

 

 

453  

 

 (354) 

Currency translation differences (tax: nil)

 

(12) 

 

 (8) 

Other comprehensive income for the year, net of tax

 

(1,126) 

 

 (113) 

Total comprehensive income for the year

 

1,880 

 

 4,393 

 

 

 

 

 

Total comprehensive income attributable to ordinary shareholders

 

1,333  

 

3,862 

Total comprehensive income attributable to other equity holders

 

466  

 

433 

Total comprehensive income attributable to equity holders

 

1,799  

 

4,295 

Total comprehensive income attributable to non-controlling interests

 

81  

 

98 

Total comprehensive income for the year

 

1,880  

 

4,393

 

 

 

1

Restated, see note 1.

 

 

 

CONSOLIDATED BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 Dec

 

At 31 Dec

 

 

 

 

20191

 

2018

 

    

 

    

£m

    

£m

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

Cash and balances at central banks

 

 

 

55,130

 

 54,663

Items in the course of collection from banks

 

 

 

313

 

 647

Financial assets at fair value through profit or loss

 

 

 

160,189

 

 158,529

Derivative financial instruments

 

 

 

26,369

 

 23,595

Loans and advances to banks

 

 

 

9,775

 

 6,283

Loans and advances to customers

 

 

 

494,988

 

 484,858

Debt securities

 

 

 

5,544

 

 5,238

Financial assets at amortised cost

 

 

 

510,307

 

 496,379

Financial assets at fair value through other comprehensive income

 

 

 

25,092

 

 24,815

Investments in joint ventures and associates

 

 

 

304

 

91

Goodwill

 

 

 

2,324

 

 2,310

Value of in-force business

 

 

 

5,558

 

 4,762

Other intangible assets

 

 

 

3,808

 

 3,347

Property, plant and equipment

 

 

 

13,104

 

 12,300

Current tax recoverable

 

 

 

7

 

 5

Deferred tax assets

 

 

 

2,666

 

 2,453

Retirement benefit assets

 

 

 

681

 

 1,267

Assets arising from reinsurance contracts held

 

 

 

23,567

 

7,860

Other assets

 

 

 

4,474

 

 4,575

Total assets

 

 

 

833,893

 

 797,598

 

 

 

1

Reflects the implementation of IFRS16, see note 1.

 

 

 

CONSOLIDATED BALANCE SHEET (continued)

 

 

 

 

 

 

 

 

 

 

 

 

At 31 Dec

 

At 31 Dec

 

 

 

 

20191

 

2018

Equity and liabilities

    

 

    

£m

    

£m

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Deposits from banks

 

 

 

28,179

 

 30,320

Customer deposits

 

 

 

421,320

 

 418,066

Items in course of transmission to banks

 

 

 

373

 

 636

Financial liabilities at fair value through profit or loss

 

 

 

21,486

 

 30,547

Derivative financial instruments

 

 

 

25,779

 

 21,373

Notes in circulation

 

 

 

1,079

 

 1,104

Debt securities in issue

 

 

 

97,689

 

 91,168

Liabilities arising from insurance contracts and participating investment contracts

 

 

 

111,449

 

 98,874

Liabilities arising from non-participating investment contracts

 

 

 

37,459

 

 13,853

Other liabilities

 

 

 

20,333

 

 19,633

Retirement benefit obligations

 

 

 

257

 

 245

Current tax liabilities

 

 

 

187

 

 377

Deferred tax liabilities

 

 

 

44

 

 -

Other provisions

 

 

 

3,323

 

 3,547

Subordinated liabilities

 

 

 

17,130

 

 17,656

Total liabilities

 

 

 

786,087

 

 747,399

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Share capital

 

 

 

7,005

 

 7,116

Share premium account

 

 

 

17,751

 

 17,719

Other reserves

 

 

 

13,695

 

 13,210

Retained profits

 

 

 

3,246

 

 5,389

Shareholders' equity

 

 

 

41,697

 

 43,434

Other equity instruments

 

 

 

5,906

 

 6,491

Total equity excluding non-controlling interests

 

 

 

47,603

 

 49,925

Non-controlling interests

 

 

 

203

 

 274

Total equity

 

 

 

47,806

 

 50,199

Total equity and liabilities

 

 

 

833,893

 

 797,598

 

 

 

1

Reflects the implementation of IFRS16, see note 1.

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to equity shareholders

 

 

 

 

 

 

 

 

Share 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

capital 

 

 

 

 

 

 

 

Other  

 

Non - 

 

 

 

 

and 

 

Other 

 

Retained 

 

 

 

equity 

 

controlling 

 

 

 

 

premium 

 

reserves 

 

profits 

 

Total 

 

instruments 

 

interests 

 

Total 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2019

 

 24,835 

 

 13,210 

 

5,389 

 

 43,434 

 

 6,491 

 

 274 

 

 50,199 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

- 

 

- 

 

2,925 

 

2,925 

 

- 

 

81 

 

3,006 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Post-retirement defined benefit scheme remeasurements, net of tax

 

- 

 

- 

 

(1,117)

 

(1,117)

 

- 

 

- 

 

(1,117)

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

- 

 

(156)

 

- 

 

(156)

 

- 

 

- 

 

(156)

Equity shares

 

- 

 

12 

 

- 

 

12 

 

- 

 

- 

 

12 

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

 

- 

 

- 

 

(306)

 

(306)

 

- 

 

- 

 

(306)

Movements in cash flow hedging reserve, net of tax

 

- 

 

453 

 

- 

 

453 

 

- 

 

- 

 

453 

Currency translation differences (tax: £nil)

 

- 

 

(12)

 

- 

 

(12)

 

- 

 

- 

 

(12)

Total other comprehensive income

 

- 

 

297 

 

(1,423)

 

(1,126)

 

- 

 

- 

 

(1,126)

Total comprehensive income

 

- 

 

297 

 

1,502 

 

1,799 

 

- 

 

81 

 

1,880 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

- 

 

- 

 

(2,312)

 

(2,312)

 

- 

 

(138)

 

(2,450)

Distributions on other equity instruments

 

- 

 

- 

 

(466)

 

(466)

 

- 

 

- 

 

(466)

Issue of ordinary shares

 

107 

 

- 

 

- 

 

107 

 

- 

 

- 

 

107 

Share buyback

 

(189)

 

189 

 

(1,095)

 

(1,095)

 

- 

 

- 

 

(1,095)

Redemption of preference shares

 

 

(3)

 

- 

 

- 

 

- 

 

- 

 

- 

Issue of other equity instruments

 

- 

 

- 

 

(3)

 

(3)

 

896 

 

- 

 

893 

Redemptions of other equity instruments

 

- 

 

- 

 

- 

 

- 

 

(1,481)

 

- 

 

(1,481)

Movement in treasury shares

 

- 

 

- 

 

(3) 

 

(3) 

 

- 

 

- 

 

(3) 

Value of employee services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share option schemes

 

- 

 

- 

 

71 

 

71 

 

- 

 

- 

 

71 

Other employee award schemes

 

- 

 

- 

 

165 

 

165 

 

- 

 

- 

 

165 

Changes in non-controlling interests

 

- 

 

- 

 

- 

 

- 

 

- 

 

(14)

 

(14)

Total transactions with owners

 

(79)

 

186 

 

(3,643)

 

(3,536)

 

(585)

 

(152)

 

(4,273)

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

 

 

 

(2) 

 

 

 

 

Balance at 31 December 2019

 

24,756 

 

13,695 

 

3,246 

 

41,697 

 

5,906 

 

203 

 

47,806 

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to equity shareholders

 

 

 

 

 

 

 

 

Share 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

capital 

 

 

 

 

 

 

 

Other 

 

Non - 

 

 

 

 

and 

 

Other 

 

Retained 

 

 

 

equity 

 

controlling 

 

 

 

 

premium 

 

reserves 

 

profits 

 

Total 

 

instruments 

 

interests 

 

Total 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2018

 

24,831 

 

13,553 

 

3,976 

 

42,360 

 

5,355 

 

237 

 

47,952 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the year1

 

 -  

 

 -  

 

 4,408 

 

 4,408 

 

 -  

 

 98  

 

 4,506 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Post-retirement defined benefit scheme remeasurements, net of tax

 

 -  

 

 -  

 

 120  

 

 120  

 

 -  

 

 -  

 

 120  

Share of other comprehensive income of joint ventures and associates

 

 -  

 

 -  

 

 8  

 

 8  

 

 -  

 

 -  

 

 8  

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 -  

 

 (193)  

 

 -  

 

 (193)  

 

 -  

 

 -  

 

 (193)  

Equity shares

 

 -  

 

 (75)  

 

 -  

 

 (75)  

 

 -  

 

 -  

 

 (75)  

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

 

 -  

 

 -  

 

 389  

 

 389  

 

 -  

 

 -  

 

 389  

Movements in cash flow hedging reserve, net of tax

 

 -  

 

 (354)  

 

 -  

 

 (354)  

 

 -  

 

 -  

 

 (354)  

Currency translation differences (tax: £nil)

 

 -  

 

 (8)  

 

 -  

 

 (8)  

 

 -  

 

 -  

 

 (8)  

Total other comprehensive income

 

 -  

 

 (630)  

 

 517  

 

 (113)  

 

 -  

 

 -  

 

 (113)  

Total comprehensive income

 

 -  

 

 (630)  

 

 4,925 

 

 4,295 

 

 -  

 

 98  

 

 4,393 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 -  

 

 -  

 

 (2,240)  

 

 (2,240)  

 

 -  

 

 (61)  

 

 (2,301)  

Distributions on other equity instruments1

 

 -  

 

 -  

 

 (433)  

 

 (433)  

 

 -  

 

 -  

 

 (433)  

Issue of ordinary shares

 

 162  

 

 -  

 

 -  

 

 162  

 

 -  

 

 -  

 

 162  

Share buyback

 

 (158)  

 

 158  

 

 (1,005)  

 

 (1,005)  

 

 -  

 

 -  

 

 (1,005)  

Issue of other equity instruments

 

 -  

 

 -  

 

 (5)  

 

 (5)  

 

 1,136  

 

 -  

 

 1,131  

Movement in treasury shares

 

 -  

 

 -  

 

 40  

 

 40  

 

 

 

 -  

 

 40  

Value of employee services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 -  

Share option schemes

 

 -  

 

 -  

 

 53  

 

 53  

 

 -  

 

 -  

 

 53  

Other employee award schemes

 

 -  

 

 -  

 

 207  

 

 207  

 

 -  

 

 -  

 

 207  

Total transactions with owners

 

 4  

 

 158  

 

 (3,383)  

 

 (3,221)  

 

 1,136  

 

 (61)  

 

 (2,146)  

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

 

 -  

 

 129  

 

 (129)