Company Announcements

Bank of England Stress Test Passed

Source: RNS
RNS Number : 5031V
Lloyds Banking Group PLC
13 December 2021


13 December 2021


Lloyds Banking Group (the Group), together with seven other financial institutions in the UK, has been subject to the 2021 solvency stress test, conducted by the Bank of England (BoE).


The Group has passed the stress test on both fully-loaded (non-transitional) and transitional IFRS 9 bases, with the BoE calculating the Group's CET1 ratio after the application of management actions as 7.8 per cent, against the reference rate of 7.7 per cent. Despite the hypothetical severity of the stress test scenario, the Group exceeds the capital reference rate after the application of management actions and without the conversion of AT1 securities into equity (which contributed 2.1 percentage points of capital in the 2019 exercise). The fully-loaded capital drawdown of 830 basis points, excluding transitional relief, represents a significant 3.3 percentage point improvement (i.e. reduction) in the fully-loaded capital depletion compared to the 2019 stress test, as a result of the continued improvement in the quality of the portfolio, capital base and different stress conditions. Given this performance, the Group is not required to take any capital actions.


This year's stress test assumes a significant slowdown in economic activity, on top of the economic impact of the Covid 19 pandemic through 2020. This is one of the most severe stress tests that the Group has faced, including a significant hypothetical capital depletion in the first two years, followed by a steep recovery in most macroeconomic indicators thereafter. Whilst there is no significant market risk stress, this scenario includes a severe UK deterioration which particularly impacts the Group as it combines negative rates, in conjunction with significant falls in property prices and GDP. In particular, base rates are assumed to fall below zero in 2021 and remain negative until 2024, unemployment increases to a peak of 11.9 per cent in the fourth quarter of 2021, 2.7 percentage points higher than the peak in the 2019 stress test, whilst UK house and commercial property prices both fall 33 per cent. GDP reduces by 9 per cent in the first year and, combining the stress scenario with the economic decline in 2020, implies a cumulative three-year loss of 37 per cent of 2019 UK GDP.


In line with previous tests, this year's stress test runs under the IFRS 9 accounting standard and requires the immediate recognition of expected losses on a perfect foresight basis, rather than reflecting incurred losses. The BoE assesses the stress test results on an IFRS 9 transitional basis, in line with the phased implementation approach. Results are also shown on an IFRS 9 fully-loaded basis. The low point post-management actions is the same in both cases given the unwind of the 2020 transitional relief in the fully-loaded view.


The Group's capital position remains strong, having reported a CET1 ratio of 17.2 per cent and a UK leverage ratio of 5.8 per cent, post dividend accrual, at 30 September 2021. The Group also continues to be strongly capital generative with capital build for the first nine months of the year of 159 basis points. As indicated previously, any return of excess capital will be considered at year end.


Further details

Details of the BoE's approach to the stress test and the detailed results in relation to all participating financial institutions are available from the BoE website.


For further information:


Investor Relations

Douglas Radcliffe                                                                                                 +44 (0) 20 7356 1571

Group Investor Relations Director



Corporate Affairs

Matt Smith                                                                                                            +44 (0) 20 7356 3522

Head of Media Relations 





This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and section 27A of the US Securities Act of 1933, as amended, with respect to Lloyds Banking Group plc together with its subsidiaries (the Group) and its current goals and expectations. Statements that are not historical or current facts, including statements about the Group's or its directors' and/or management's beliefs and expectations, are forward looking statements. Words such as, without limitation, 'believes', 'achieves', 'anticipates', 'estimates', 'expects', 'targets', 'should', 'intends', 'aims', 'projects', 'plans', 'potential', 'will', 'would', 'could', 'considered', 'likely', 'may', 'seek', 'estimate', 'probability', 'goal', 'objective', 'deliver', 'endeavour', 'prospects', 'optimistic' and similar expressions or variations on these expressions are intended to identify forward looking statements. 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