Company Announcements

RNS Number : 7793Z
Lloyds Bank Corporate Markets PLC
16 September 2022
 

 

Lloyds Bank Corporate Markets plc

2022 Half-Year Results

 

 

 

 

 

 

 

 

 

 

Member of the Lloyds Banking Group



REVIEW OF PERFORMANCE

Lloyds Bank Corporate Markets plc (the Bank) and its subsidiaries (the Group) carries out the non-ring fenced banking operations of Lloyds Banking Group (LBG) and provides a wide range of banking and financial services in the UK and overseas. The Group operates as an integrated business across the UK, the Crown Dependencies, the USA, Singapore and Germany, and contributes to the financial results of the Commercial Banking Division of LBG.

The Group's strategic purpose as part of LBG is to Help Britain Prosper by connecting the UK and LBG with the world through a first class banking, financing and risk management proposition. All underpinned by excellent customer service.

Principal activities

Supporting a diverse range of customers, the Group provides a broad range of banking products to help them achieve their financial goals. The Group's revenues are earned through the provision of financing and risk management solutions to commercial customers; and current accounts, savings accounts, mortgages, car finance and personal loans in the retail market in our Crown Dependencies businesses.

The target market for these products and services in the UK and internationally is made up of large corporates, financial institutions and commercial customers plus, in the Crown Dependencies, retail customers and includes the following product propositions:

-    Commercial lending (including fixed rate loans, revolving credit facilities, variable loans and business mortgages)

-    Trade and working capital management (including trade services, trade finance, supply chain finance and asset finance)

-    Bonds and structured finance (including bonds, structured lending and asset securitisation)

-    Risk management (including foreign exchange, rates, credit, commodities and liabilities management)

-    Retail banking services (including mortgages, personal current accounts, personal loans and motor finance) in the Crown Dependencies

-    ESG product solutions (including green bonds and sustainability-linked loans)

Review of results

During the half-year to 30 June 2022, the Group recorded a profit before tax of £249 million compared to £193 million during the half-year to 30 June 2021, an overall increase of £56 million. The Group has benefited from good performance in its core businesses including increased lending combined with rising interest rates and foreign exchange trading activity. Work has continued successfully on the tasks required to safely close down the Singapore branch which is on schedule to complete this year and continued progress has been made on the transition from Interbank Offered Rates (IBORs) to Alternative Risk Free Reference Rates (refer Note 14).

The Group recognised an impairment charge of £11 million (2021: £47 million impairment credit in the half-year to 30 June 2021) in the income statement relating to expected credit loss (ECL) driven largely by the future economic outlook. The Group's ECL calculated under IFRS 9 requires the use of a range of possible future outcomes and more details are contained in Notes 2 and 4.

Regulatory capital adequacy remains strong, with a Bank CET1 ratio of 12.6 per cent (2021: 13.1 per cent); reflecting the stability of the business, and the strength of the client franchise served by the Bank. Risk weighted assets have increased by £2,136 million from £18,436 million at 31 December 2021 to £20,572 million at 30 June 2022, reflecting increased lending and an increase on 1 January 2022 regarding the impact of regulatory changes, including a new standardised approach for measuring counterparty credit risk (SA-CCR). The Bank's UK leverage ratio of 4.5 per cent at 30 June 2022 increased from 3.5 per cent at 31 December 2021, largely following the impact of regulatory changes applied under the UK leverage ratio framework on 1 January 2022.

Total income was £476 million in the first half of 2022 compared to £350 million in the first half of 2021 which is an increase of 36 per cent. This predominantly comprises net interest income of £131 million (£70 million in the half-year to 30 June 2021), net fee and commission income of £107 million (£117 million in the half-year to 30 June 2021) and net trading income of £234 million (£171 million in the half-year to 30 June 2021). This reflects good lending growth, stable funding and resilient trading performance.

Operating expenses were £216 million, up from £204 million in the half-year to 30 June 2021, an increase of £12 million which includes severance and other costs of closing the Singapore branch. Operating expenses consist predominantly of management charges relating to the Intra Group Agreement paid to Lloyds Bank plc, staff costs and other operating expenses. The taxation charge in the period was £42 million (six months to 30 June 2021 £60 million charge) and more details are contained in Note 5.

Total assets were £1,378 million higher at £90,077 million at 30 June 2022 compared to £88,699 million at 31 December 2021. Cash and balances at central banks decreased by £5,798 million from £22,140 million at 31 December 2021 to £16,342 million at 30 June 2022 reflecting a lower assessment of liquidity required. Financial assets at fair value through profit or loss were £15,709 million at 30 June 2022 compared to £22,409 million at 31 December 2021 and predominantly consist of reverse repurchase agreements which have reduced in the period offsetting increases in derivative balances. Derivative financial instruments of £27,716 million at 30 June 2022 increased by £9,726 million compared to £17,990 million at 31 December 2021 reflecting fair value mark to market movements and the impact of the USD exchange rate at the period end. Financial assets at amortised cost increased by £2,296 million from £25,616 million at 31 December 2021 to £27,912 million at 30 June 2022, mainly as a result of increased customer lending.

Total liabilities of the Group were £86,867 million at 30 June 2022 compared to £85,210 million at 31 December 2021, a increase of £1,657 million. Deposits from banks were £3,223 million at 30 June 2022 which is £598 million lower than £3,821 million at 31 December 2021. Customer deposits increased by £314 million from £26,967 million at 31 December 2021 to £27,281 million at 30 June 2022 reflecting customer activity.  Financial liabilities at fair value through profit or loss at 30 June 2022 of £14,082 million have decreased by £2,500 million when compared with the 31 December 2021 balance of £16,582 million which reflects a reduction in repurchase agreements offset by an increase in short positions.  Derivative financial instruments of £23,122 million have increased by £7,550 million compared to the 31 December 2021 balance of £15,572 million reflecting fair value mark to market movements. Debt securities in issue of £14,929 million has decreased by £1,715 million compared to £16,644 million at 31 December 2021.

Total equity at 30 June 2022 was £3,210 million which is a decrease of £279 million compared to £3,489 million at 31 December 2021 including profits in the period less the dividend paid to LBG in the period of £220 million (2021: £200 million) and movements in other reserves (refer Note 10).

Capital position at 30 June 2022

The Bank's capital position as at 30 June 2022 is set out in the following section.

 

 

At 30 June 2022

At 31 Dec 2021

Capital resources of the bank

£m

£m

Common equity tier 1

 

 

Shareholders' equity per balance sheet

           2,483

           2,783

Adjustment to retained earnings for foreseeable dividends

                -

            (220)

Cash flow hedging reserve

              308

                48

Debit valuation adjustment

              (35)

              (16)

 

           2,756

           2,595

less: deductions from common equity tier 1

 

 

Prudent valuation adjustment

             (168)

             (163)

Excess of expected losses over impairment provisions and value adjustments

                -

                (9)

Common equity tier 1 capital

           2,588

          2,423

Additional tier 1

 

 

Additional tier 1 instruments

              757

              757

Total tier 1 capital

           3,345

           3,180

Tier 2

 

 

Tier 2 instruments

              697

              633

Other adjustments

             (101)

             (104)

Total tier 2 capital

              596

              529

Total capital resources

           3,941

           3,709

 

 

 

Risk-weighted assets

        20,572

        18,436

 

Common equity tier 1 capital ratio

        12.6 %

       13.1  %

Tier 1 capital ratio

        16.3 %

       17.2  %

Total capital ratio

        19.2 %

       20.1  %

 

 

At 30 June 2022

At 31 Dec 2021

Risk-weighted assets of the Bank

£m

£m

Foundation Internal Ratings Based (IRB) Approach

           9,302

           7,665

Other IRB Approach

              545

              579

IRB Approach

           9,848

           8,244

Standardised Approach1

           1,324

           1,337

Credit risk

         11,171

           9,581

Securitisation

              516

              571

Counterparty credit risk

           5,426

           4,024

Credit valuation adjustment risk

              383

              472

Operational risk

              763

              855

Market risk

           2,313

           2,933

Total risk-weighted assets

         20,572

         18,436

Of which threshold risk-weighted assets2

              565

              555

1    Threshold risk-weighted assets are now included within Other IRB Approach and the Standardised (STA) Approach. In addition securitisation risk-weighted assets are now shown separately. Comparatives have been presented on a consistent basis.

2     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.

 

 

 

 


 

 

 

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

The most significant risks that could impact the Group's ability to deliver its long-term strategic objectives, and approach to managing each risk, are reviewed and reported to the Board Risk Committee regularly. There has been no change to the principal risks as disclosed in the Group 2021 Annual Report and Accounts.

The external risks faced by the Group may also impact the success of delivering against the Group's long-term strategic objectives. These risks arise primarily from the war between Russia and Ukraine and the COVID-19 pandemic. The conflict is generating severe economic, political, social and humanitarian impacts across Europe and in the rest of the world. The Group's exposure to Russia, Ukraine and surrounding countries is not material, given our low risk appetite, and the impact of economic sanctions remains limited and manageable. However consequences are being felt through financial markets volatility, inflationary pressures and the risks associated with the conflict remain very high, such as economic contraction, cyber-attacks, higher default levels and other consequences of sanctions. The possibility of secondary sanctions could however add complexity to existing operational requirements in managing our exposure. In addition, the COVID-19 pandemic impacts remain through additional pressure on the global macro-economic conditions, global supply chains or public debts. A deterioration in the macro-economic environment may also impact the Group through higher impairments.

In addition to the geopolitical situation and COVID-19, the Group continues to monitor and address existing and emerging risks that could have an adverse impact on business model, financial conditions, operations and our ability to achieve revenue targets:

-    The Group is subject to extensive regulation, supervision and examination by regulatory bodies in countries where it has a presence, as well as from wider initiatives. The pace and scope of new regulations could have  material adverse impacts on the Group's business, financial and operating conditions such as regulatory fines for non compliance, additional capital requirements, business operations restrictions and associated costs

-    The Group continues its transition from Interbank Offered Rates (IBORs) to Alternative Risk Free Reference Rates. The complexity of the transition could have material adverse impacts such as less liquid interest rates, increased litigation or disputes and higher operational risks

-    Since the relationship between the UK and the European Union has still not settled, the UK's exit from the EU continues to create uncertainty as to what the future UK legal and regulatory framework will look like, noting the potential for the UK to deviate from the EU's legal and regulatory system. Trade disruption continues to be felt and meeting stringent EU regulations restrict the scope of the Group business model in the European Union

-    The Group uses proprietary models to forecast losses, measure capital requirements, make business decisions and assess and control our operations and financial condition. Models are inherently subject to limitations due to their use of historical data and trends, simplifying assumptions and reliance on uncertain macroeconomic and financial variables. Our models may not be sufficiently predictive of future results due to limited historical data, extreme market volatility, parameterisation and implementation errors. In addition, our models may be ineffective if we fail to oversee them and detect flaws in the review and monitoring process

-    The Group operates in a highly competitive market where the recruitment and retention of talent, particularly at a junior level, remains challenging. Ensuring that we have the right number and calibre of employees is core to the Group's success

-    On climate risk, the Group is aligned with LBG, its service provider, which has taken a strategic approach to support the transition to a low carbon economy and the aims of the 2015 Paris Climate Agreement, the UK Government's net zero target, the Ten Point Plan for the Green Industrial Revolution and the Task Force on Climate-related Financial Disclosures (TCFD) recommendations

-    The provision of services to the Group is outsourced to Lloyds Bank plc via a shared service provision model or by external providers via Lloyds Bank plc. Therefore, issues impacting the shared service provider could have a detrimental impact on the Group's operations

 

 

 

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

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

Regulatory and legal risk - The risk arising from the failure to identify, assess, correctly interpret, comply with, or manage regulatory and/or legal requirements, leading to customer detriment, failure to prevent and/or detect economic crime, financial penalties, regulatory censure, criminal or civil enforcement action.

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

Operational risk - The risk of inadequate or failed internal processes, people, systems or from external events leading to loss. This includes cyber-attack, internal and/or external fraud or financial crime, IT systems failures or, failure to ensure compliance with associated increasingly complex and detailed regulation.

Operational risk: shared services model (SSM) - LBG's chosen ring-fencing operating model introduces risk for the Group in the execution of that model as a shared service recipient.

Key Risks include:

-    Key reliance on the SSM increases the prominence of internal service provision risk which is compounded, given the leanness of the relevant teams,  in situations where the Group's priorities are not wholly aligned with those of the wider LBG

-    Business process risk (i.e. non-adherence to key processes, including those relating to market, operational, capital, credit, economic crime prevention and funding & liquidity risk)

-    Information security & cyber risk including access management, records, data protection and cyber

-    IT systems risk due to reliance on the shared service from LBG's IT department

-    Reliance on the SSM to operate a number of key controls and processes designed to detect, prevent and respond to economic crime

-    Operational risk around business resilience, change activity and sourcing

-    Impact of resourcing challenges LBG might face around attracting and retaining people with the necessary skills

Operational resilience risk - The risk that the Group fails to design resilience into business operations, underlying infrastructure and controls (people, process and technical) to withstand external or internal events that could impact the continuity of operations or alternatively the failure to respond to events in a way which meets stakeholder expectations and needs when the continuity of operations is compromised.

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

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

Funding and liquidity risk - Funding risk is defined as the risk that the Group does not have sufficiently stable and diverse sources of funding or the funding structure is inefficient. Liquidity risk is defined as the risk that financial resources are insufficient to meet commitments as they fall due or can only secure them at excessive cost.

Market risk - The risk that the Group's capital or earnings profile is affected by adverse market rates, in particular changes and volatility in interest and foreign exchange rates, inflation rates, commodity prices and credit spreads through activity in the banking and markets businesses.

Model risk - The risk of financial loss, regulatory censure, reputational damage or customer detriment from deficiencies in developing, applying and operating models and rating systems.

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

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

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

Change/execution risk - The risk that, in delivering its change agenda, the Group fails to ensure compliance with laws and regulation, maintain effective customer service and availability, and/or operate within the Group's risk appetite.

Strategic risk - Strategic risk is defined as the risk which results from:

-    Incorrect assumptions about internal or external operating environments

-    Failure to understand the potential impact of strategic responses and business plans on existing risk types

-    Failure to respond or the inappropriate strategic response to material changes in the external or internal operating environments

 



CONSOLIDATED INCOME STATEMENT (UNAUDITED)

 

 

 

Half-year

to 30 June

2022

 

 

Half-year

to 30 June

2021

 

 

Note

 

£m

 

 

£m

 

 

 

 

 

 

 

 

 

Interest income1

 

 

                 290

 

 

                 162

 

Interest expense1

 

 

               (159)

 

 

                 (92)

 

Net interest income

 

 

                 131

 

 

                   70

 

Fee and commission income

 

 

 

 

 

Fee and commission expense

 

 

                 (15)

 

 

                 (15)

 

Net fee and commission income

 

 

                 107

 

 

                 117

 

Net trading income

 

 

                 234

 

 

                 171

 

Other operating income (expense)

 

 

                     4

 

 

                   (8)

 

Other income

 

 

                 345

 

 

                 280

 

Total income

 

 

                 476

 

 

                 350

 

Operating expenses

3

 

                (216)

 

 

               (204)

 

Impairment (charge) credit

4

 

                  (11)

 

 

                  47

 

Profit before tax

 

 

                249

 

 

                193

 

Tax expense

5

 

                 (42)

 

 

                  (60)

 

Profit for the period

 

 

                 207

 

 

                 133

 

 

 

 

 

 

 

 

 

Profit attributable to ordinary shareholders

 

 

                 190

 

 

                 117

 

Profit attributable to other equity holders

 

 

                   17

 

 

                   16

 

Profit for the period

 

 

                 207

 

 

                 133

 

1 Restated - See note 1

The accompanying notes are an integral part of the condensed consolidated half-year financial statements.

 


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 

 

Half-year

to 30 June

2022

 

 

Half-year

to 30 June

2021

 

 

Note

£m

 

 

£m

 

 

 

 

 

 

 

 

Profit for the period

 

                 207

 

 

                 133

 

Other comprehensive income

 

 

 

 

 

 

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, net of tax

10

                     1

 

 

                     5

 

 

 

 

 

 

 

 

Movements in cash flow hedging reserve, net of tax

10

 

 

 

 

 

 

 

 

 

 

Movements in foreign currency translation reserve, net of tax

10

                   10

 

 

                   (2)

 

Other comprehensive income for the period, net of tax

 

               (249)

 

 

                 (60)

 

Total comprehensive income for the period

 

                 (42)

 

 

                   73

 

 

 

 

 

 

 

 

Total comprehensive income attributable to ordinary shareholders

 

                 (59)

 

 

                   57

 

Total comprehensive income attributable to other equity holders

 

                   17

 

 

                   16

 

Total comprehensive income for the period

 

                 (42)

 

 

                   73

 

 


CONSOLIDATED BALANCE SHEET

 

 

 

At

30 June

2022

 

 

At

31 Dec

2021

 

 

 

 

(unaudited)

 

 

(audited)

 

 

Note

 

£m

 

 

£m

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and balances at central banks

 

 

            16,342

 

 

            22,140

 

Financial assets at fair value through profit or loss

6

 

            15,709

 

 

            22,409

 

Derivative financial instruments

 

 

            27,716

 

 

            17,990

 

Loans and advances to banks

 

 

 

 

 

Loans and advances to customers

 

 

 

 

 

Reverse repurchase agreements

 

 

 

 

 

Debt securities

 

 

 

 

 

Due from fellow Lloyds Banking Group undertakings

 

 

                 312

 

 

                 557

 

Financial assets at amortised cost

7

 

            27,912

 

 

            25,616

 

Financial assets at fair value through other comprehensive income

 

 

                   12

 

 

                 100

 

Property, plant and equipment

 

 

                   60

 

 

                   67

 

Current tax recoverable

 

 

                     2

 

 

                   16

 

Deferred tax assets

 

 

                 134

 

 

                   37

 

Other assets

 

 

              2,190

 

 

                 324

 

Total assets

 

 

            90,077

 

 

            88,699

 

 

Liabilities and equity

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Deposits from banks

 

 

              3,223

 

 

              3,821

 

Customer deposits

 

 

            27,281

 

 

            26,967

 

Repurchase agreements

 

 

                     1

 

 

              1,019

 

Due to fellow Lloyds Banking Group undertakings

 

 

              1,261

 

 

              3,442

 

Financial liabilities at fair value through profit or loss

 

 

            14,082

 

 

            16,582

 

Derivative financial instruments

 

 

            23,122

 

 

            15,572

 

Debt securities in issue

8

 

            14,929

 

 

            16,644

 

Other liabilities

 

 

              2,188

 

 

                 461

 

Current tax liabilities

 

 

                     5

 

 

                     5

 

Deferred tax liabilities

 

 

                   -

 

 

                   -

 

Other provisions

9

 

                   26

 

 

                   13

 

Subordinated liabilities

 

 

                 749

 

 

                 684

 

Total liabilities

 

 

            86,867

 

 

            85,210

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

Share capital

 

 

                 120

 

 

                 120

 

Other reserves

10

 

                (313)

 

 

                  (64)

 

Retained profits

 

 

              2,621

 

 

              2,651

 

Ordinary shareholder's equity

 

 

              2,428

 

 

              2,707

 

Other equity instruments

 

 

                782

 

 

                782

 

Total equity

 

 

              3,210

 

 

              3,489

 

Total equity and liabilities

 

 

            90,077

 

 

            88,699

 

 


CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

 

Attributable to ordinary shareholders

 

 

 

 

 

 

 

Share

capital

 

 

Other

reserves

 

 

Retained

profits

 

 

Total

 

 

Other

equity

instruments

 

 

Total

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2022

              120

 

 

              (64)

 

 

           2,651

 

 

           2,707

 

 

               782

 

 

           3,489

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

 

 

 

 

 

              190

 

 

              190

 

 

                 17

 

 

              207

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Movements in revaluation reserve in respect of debt securities held at fair value through other comprehensive income, net of tax

 

 

 

                  1

 

 

 

 

 

                  1

 

 

 

 

 

                  1

 

Movements in cash flow hedging reserve, net of tax

 

 

 

             (260)

 

 

 

 

 

             (260)

 

 

 

 

 

             (260)

 

Movements in foreign currency translation reserve, net of tax

 

 

 

                10

 

 

 

 

 

                10

 

 

 

 

 

                10

 

Total other comprehensive income

 

 

 

             (249)

 

 

 

 

 

             (249)

 

 

 

 

 

             (249)

 

Total comprehensive income

 

 

 

            (249)

 

 

              190

 

 

              (59)

 

 

                 17

 

 

              (42)

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 

 

 

 

 

             (220)

 

 

            (220)

 

 

 

 

 

            (220)

 

Distributions on other equity instruments

 

 

 

 

 

 

 

 

 

 

 

 

                (17)

 

 

              (17)

 

Total transactions with owners

 

 

 

 

 

 

             (220)

 

 

             (220)

 

 

                (17)

 

 

             (237)

 

At 30 June 2022

              120

 

 

             (313)

 

 

          2,621

 

 

          2,428

 

 

               782

 

 

          3,210

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)

 

Attributable to ordinary shareholders

 

 

 

 

 

 

 

Share

capital

 

 

Other

reserves

 

 

Retained

profits

 

 

Total

 

 

Other

equity

instruments

 

 

Total

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2021

              120

 

 

                81

 

 

           2,646

 

 

           2,847

 

 

               782

 

 

           3,629

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

                -

 

 

                -

 

 

              117

 

 

              117

 

 

                 16

 

 

              133

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

                -

 

 

                  5

 

 

                -

 

 

                  5

 

 

                  -

 

 

                  5

 

Movements in cash flow hedging reserve, net of tax

                -

 

 

               (63)

 

 

                -

 

 

               (63)

 

 

                  -

 

 

               (63)

 

Movements in foreign currency translation reserve, net of tax

                -

 

 

                 (2)

 

 

                -

 

 

                 (2)

 

 

                  -

 

 

                 (2)

 

Total other comprehensive income

                -

 

 

               (60)

 

 

                -

 

 

               (60)

 

 

                  -

 

 

               (60)

 

Total comprehensive income

                -

 

 

              (60)

 

 

              117

 

 

               57

 

 

                 16

 

 

               73

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

                -

 

 

                -

 

 

             (200)

 

 

            (200)

 

 

                  -

 

 

            (200)

 

Distributions on other equity instruments

                -

 

 

                -

 

 

                -

 

 

                -

 

 

                (16)

 

 

               (16)

 

Total transactions with owners

                -

 

 

                -

 

 

             (200)

 

 

             (200)

 

 

                (16)

 

 

             (216)

 

At 30 June 2021

              120

 

 

                21

 

 

          2,563

 

 

          2,704

 

 

               782

 

 

          3,486

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)

 

Attributable to ordinary shareholders

 

 

 

 

 

 

 

Share

capital

 

 

Other

reserves

 

 

Retained

profits

 

 

Total

 

 

Other

equity

instruments

 

 

Total

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 July 2021

              120

 

 

                21

 

 

           2,563

 

 

           2,704

 

 

               782

 

 

           3,486

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

                -

 

 

                -

 

 

                88

 

 

                88

 

 

                 17

 

 

              105

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

                -

 

 

                  3

 

 

                -

 

 

                  3

 

 

                  -

 

 

                  3

 

Movements in cash flow hedging reserve, net of tax

                -

 

 

               (90)

 

 

                -

 

 

               (90)

 

 

                  -

 

 

               (90)

 

Movements in foreign currency translation reserve, net of tax

                -

 

 

                  2

 

 

                -

 

 

                  2

 

 

                  -

 

 

                  2

 

Total other comprehensive income

                -

 

 

               (85)

 

 

                -

 

 

               (85)

 

 

                  -

 

 

               (85)

 

Total comprehensive income

                -

 

 

               (85)

 

 

                88

 

 

                  3

 

 

                 17

 

 

                20

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

                -

 

 

                -

 

 

                -

 

 

                -

 

 

                  -

 

 

                -

 

Distributions on other equity instruments

                -

 

 

                -

 

 

                -

 

 

                -

 

 

                (17)

 

 

              (17)

 

Total transactions with owners

                -

 

 

                -

 

 

                -

 

 

                -

 

 

                (17)

 

 

               (17)

 

At 31 December 2021

              120

 

 

               (64)

 

 

           2,651

 

 

           2,707

 

 

               782

 

 

           3,489

 

 


CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

 

Half-year

to 30 June

2022

 

 

Half-year

to 30 June

2021

 

 

£m

 

 

£m

 

 

 

 

 

 

 

Profit (loss) before tax

                 249

 

 

                 193

 

Adjustments for:

 

 

 

 

 

Change in operating assets

            (6,498)

 

 

              6,104

 

Change in operating liabilities

                 915

 

 

          (10,306)

 

Non-cash and other items

               (606)

 

 

                 (26)

 

Tax paid

                 (26)

 

 

                 (33)

 

Net cash provided by operating activities

            (5,966)

 

 

            (4,068)

 

Cash flows from investing activities

 

 

 

 

 

Purchase of financial assets

                 (27)

 

 

                 (25)

 

Proceeds from sale and maturity of financial assets

                 119

 

 

                   41

 

Purchase of fixed assets

                   (1)

 

 

                   (4)

 

Net cash used in investing activities

                   91

 

 

                   12

 

Cash flows from financing activities

 

 

 

 

 

Dividends paid to ordinary shareholders

                (220)

 

 

                (200)

 

Distributions on other equity instruments

                  (17)

 

 

                  (16)

 

Interest paid on subordinated liabilities

                    (9)

 

 

                    (8)

 

Finance Leases

                   (1)

 

 

                   -

 

Net cash provided by financing activities

               (247)

 

 

               (224)

 

Effect of exchange rate changes on cash and cash equivalents

                 716

 

 

                  (63)

 

Change in cash and cash equivalents

             (5,406)

 

 

            (4,343)

 

Cash and cash equivalents at beginning of period 1

           23,103

 

 

           26,392

 

Cash and cash equivalents at end of period 1

           17,697

 

 

            22,049

 

Cash and cash equivalents comprise cash and non-mandatory balances with central banks and amounts due from banks with a maturity of less than three months.

1 Restated see Note 1

 


NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS


Note 1: Basis of preparation and accounting policies

These condensed consolidated half-year financial statements as at and for the period to 30 June 2022 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (FCA) and with International Accounting Standard 34 (IAS 34), Interim Financial Reporting as adopted by the United Kingdom and comprise the results of Lloyds Bank Corporate Markets plc (the Bank) together with its subsidiaries (the Group). They do not include all of the information required for full annual financial statements and should be read in conjunction with the Group's consolidated financial statements as at and for the year ended 31 December 2021 which complied with international accounting standards in conformity with the requirements of the Companies Act 2006 and were prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. Copies of the 2021 Annual Report and Accounts are available on the Group's website Group's website and are available upon request from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN.

The Directors consider that it is appropriate to continue to adopt the going concern basis in preparing the condensed consolidated half-year financial statements. In reaching this assessment, the Directors have taken into account the uncertainties affecting the UK economy and their potential effects upon the Group's performance and projected funding and capital position; the impact of further stress scenarios has also been considered. On this basis, the Directors are satisfied that the Group will maintain adequate levels of funding and capital for the foreseeable future.

The 2021 interest income and interest expense balances as at 30 June 2021 have been restated to reflect £11 million negative interest correctly in the interest expense line. There has been no impact to net interest income.

Changes in accounting policy

Except for the matter referred to below, the Group's accounting policies are consistent with those applied by the Group in its financial statements for the year ended 31 December 2021 and there have been no changes in the Group's methods of computation.

Cash and cash equivalents: Following a decision by the IFRS Interpretations Committee in April 2022, the Group includes mandatory reserve deposits with central banks that are held in demand accounts within cash and cash equivalents disclosed in the cash flow statement, whereas these amounts were previously excluded from the amount presented in the cash flow statement. This change increased the Group's cash and cash equivalents at 31 December 2021 by £45 million (to £23,103 million) and at 30 June 2022 by £23 million (to £17,697 million). 

Future accounting developments

The IASB has issued a number of minor amendments to IFRSs effective 1 January 2023 (including IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors). These amendments are not expected to have a significant impact on the Group.


NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 2: Critical accounting judgements and key sources of estimation uncertainty

The preparation of the Group's financial statements requires management to make judgements, estimates and assumptions that impact the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may include amounts which differ from those estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group's significant judgements, estimates and assumptions are unchanged compared to those applied at 31 December 2021, except as detailed below.

Allowance for expected credit losses

The Group recognises an allowance for expected credit losses (ECLs) for loans and advances to customers and banks, other financial assets held at amortised cost, financial assets measured at fair value through other comprehensive income and certain loan commitment and financial guarantee contracts. At 30 June 2022, the Group's ECL allowance was £28 million (31 December 2021: £17 million), of which £17 million (31 December 2021: £11 million) was in respect of drawn balances.

The calculation of the Group's ECLs and provisions against loan commitments and guarantees under IFRS 9 requires the Group to make a number of judgements, assumptions and estimates. These are set out in detail in the Group's 2021 Annual Report and Accounts. The principal changes made in the period ended 30 June 2022 are as follows:

Base case and MES economic assumptions

The Group's base case economic scenario has been revised in light of the ongoing war in Ukraine, intensifying global inflation pressures, and a continuing shift towards a more restrictive monetary policy stance by central banks. The Group's updated base case scenario has two conditioning assumptions: first, no further UK COVID-19 national lockdowns are mandated; and, second, the war in Ukraine remains 'local', i.e. without overtly involving neighbouring countries, NATO or China.

Based on these assumptions and incorporating the economic data published in the second quarter, the Group's base case scenario is for a modest rise in the unemployment rate alongside an easing of residential and commercial property prices, as the UK Bank Rate continues to be raised in response to persistent inflationary pressures. Risks around this base case economic view lie in both directions, and are partly captured by the generation of alternative economic scenarios. Uncertainties relating to key epidemiological developments, notably the possibility that a vaccine-resistant strain could emerge, are not specifically captured by these scenarios.

The Group has taken into account the latest available information at the reporting date in defining its base case scenario and generating alternative economic scenarios. The scenarios include forecasts for key variables in the second quarter of 2022, for which actuals may have since emerged prior to publication.

The Group's approach to generating alternative economic scenarios is set out in detail in its financial statements for the year ended 31 December 2021. For June 2022, the Group has judged it appropriate to include a non-modelled severe downside scenario to incorporate high CPI inflation and UK Bank Rate profiles and to adopt this adjusted severe downside scenario to calculate the Group's ECL. This is because the historic macroeconomic and loan loss data upon which the scenario model is calibrated imply an association of downside economic outcomes with easier monetary policy, and therefore low interest rates. The adjustment is considered to better reflect the risks around the Group's base case view in an economic environment where supply shocks are the principal concern.

 

 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 2: Critical accounting judgements and key sources of estimation uncertainty (continued)

Scenarios by year

Key annual assumptions made by the Group are shown below. Gross domestic product and Consumer Price Index (CPI) inflation are presented as an annual change, house price growth and commercial real estate price growth are presented as the growth in the respective indices within the period. Unemployment rate and UK Bank Rate are averages for the period. For 31 December 2021, CPI numbers are translations of modelled Retail Price Index excluding mortgage interest payments (RPIX) estimates, except for the base case view.

The key UK economic assumptions made by the Group averaged over a five-year period are also shown below. The use of calendar years maintains a comparability between tables disclosed, noting that comparatives reflect one calendar year earlier.

 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 2: Critical accounting judgements and key sources of estimation uncertainty (continued)

At 30 June 2022

2022

%

2023

%

2024

%

2025

%

2026

%

2022-2026 average

%

Upside

 

 

 

 

 

 

UK Gross domestic product

      3.5    

      1.2    

      1.8    

      1.7    

      1.7    

      2.0    

UK Unemployment rate

      3.1    

      2.7    

      2.9    

      3.2    

      3.4    

      3.1    

UK Commercial real estate price growth

      9.2    

      1.8    

      0.9    

                (0.9)

                (0.2)

      2.1    

UK Bank Rate

        1.64

        3.12

        2.97

        2.88

        2.78

        2.68

CPI inflation

      8.6    

      5.5    

      2.5    

      1.9    

      2.2    

      4.1    

US Gross domestic product

      3.0    

      3.2    

      2.3    

      1.4    

      1.0    

      2.2    

US Unemployment rate

      3.5    

      2.9    

      2.6    

      3.0    

      3.6    

      3.1    

Base case

 

 

 

 

 

 

UK Gross domestic product

      3.3    

      0.6    

      1.5    

      1.6    

      1.7    

      1.7    

UK Unemployment rate

      3.8    

      4.2    

      4.4    

      4.5    

      4.5    

      4.3    

UK Commercial real estate price growth

      1.8    

                (5.0)

                (1.6)

                (1.3)

      0.8    

                (1.1)

UK Bank Rate

        1.44

        2.25

        2.00

        2.00

        2.00

        1.94

CPI inflation

      8.6    

      5.5    

      2.2    

      1.3    

      1.5    

      3.8    

US Gross domestic product

      2.5    

      1.1    

      1.4    

      2.2    

      2.0    

      1.9    

US Unemployment rate

      3.6    

      3.8    

      4.0    

      4.0    

      4.1    

      3.9    

Downside

 

 

 

 

 

 

UK Gross domestic product

      3.0    

                (0.1)

      1.1    

      1.4    

      1.7    

      1.4    

UK Unemployment rate

      4.5    

      6.0    

      6.3    

      6.1    

      5.9    

      5.8    

UK Commercial real estate price growth

                (4.4)

                (11.9)

                (5.5)

                (3.6)

                (0.7)

                (5.3)

UK Bank Rate

        1.25

        1.23

        0.80

        0.85

        0.95

        1.02

CPI inflation

      8.7    

      5.5    

      1.8    

      0.6    

      0.7    

      3.5    

US Gross domestic product

      2.1    

                (0.9)

      0.0    

      2.6    

      3.0    

      1.3    

US Unemployment rate

      3.8    

      5.0    

      6.0    

      6.0    

      5.5    

      5.3    

Severe downside

 

 

 

 

 

 

UK Gross domestic product

      1.6    

                (1.8)

      1.0    

      1.4    

      1.6    

      0.8    

UK Unemployment rate

      5.8    

      8.7    

      8.7    

      8.3    

      7.7    

      7.8    

UK Commercial real estate price growth

                (14.9)

                (20.9)

                (11.0)

                (5.6)

      1.0    

                (10.6)

UK Bank Rate - modelled

        0.76

        0.18

        0.18

        0.21

        0.24

        0.31

UK Bank Rate - adjusted

      2.9    

      4.8    

      3.0    

      2.3    

      2.3    

      3.0    

CPI inflation - modelled

      8.6    

      5.1    

      0.9    

                (0.5)

                (0.5)

      2.7    

CPI inflation - adjusted

      9.8    

        13.7

      4.1    

      1.7    

      0.1    

      5.9    

US Gross domestic product

      1.5    

                (3.5)

                (1.7)

      2.9    

      4.2    

      0.6    

US Unemployment rate

      4.0    

      6.5    

      8.7    

      8.5    

      7.3    

      7.0    

Probability-weighted

 

 

 

 

 

 

UK Gross domestic product

      3.1    

      0.3    

      1.5    

      1.5    

      1.7    

      1.6    

UK Unemployment rate

      4.0    

      4.7    

      5.0    

      5.0    

      4.9    

      4.7    

UK Commercial real estate price growth

      0.5    

                (6.6)

                (3.0)

                (2.3)

      0.1    

                (2.3)

UK Bank Rate - modelled

        1.37

        2.00

        1.75

        1.74

        1.75

        1.72

UK Bank Rate - adjusted

        1.59

        2.46

        2.03

        1.94

        1.95

        1.99

CPI inflation - modelled

      8.6    

      5.5    

      2.0    

      1.1    

      1.3    

      3.7    

CPI inflation - adjusted

      8.8    

      6.3    

      2.3    

      1.3    

      1.3    

      4.0    

US Gross domestic product

      2.4    

      0.7    

      1.0    

      2.1    

      2.2    

      1.7    

US Unemployment rate

      3.7    

      4.2    

      4.7    

      4.7    

4.7

      4.4    

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 2: Critical accounting judgements and key sources of estimation uncertainty (continued)

At 31 December 2021

2021

%

2022

%

2023

%

2024

%

2025

%

2021-2025 average

%

Upside

 

 

 

 

 

 

UK Gross domestic product

      7.1    

      4.0    

      1.4    

      1.3    

      1.4    

      3.0    

UK Unemployment rate

      4.4    

      3.3    

      3.4    

      3.5    

      3.7    

      3.7    

UK Commercial real estate price growth

        12.4

      5.8    

      0.7    

      1.0    

                (0.6)

      3.7    

UK Bank Rate

        0.14

        1.44

        1.74

        1.82

        2.03

        1.43

CPI inflation

      2.6    

      5.9    

      3.3    

      2.6    

      3.3    

      3.5    

US Gross domestic product

5.7

6.7

4.4

0.3

                (0.5)

3.3

US Unemployment rate

5.3

3.4

2.6

3.4

4.6

3.9

Base case

 

 

 

 

 

 

UK Gross domestic product

      7.1    

      3.7    

      1.5    

      1.3    

      1.3    

      2.9    

UK Unemployment rate

      4.5    

      4.3    

      4.4    

      4.4    

      4.5    

      4.4    

UK Commercial real estate price growth

        10.2

                (2.2)

                (1.9)

      0.1    

      0.6    

      1.2    

UK Bank Rate

        0.14

        0.81

        1.00

        1.06

        1.25

        0.85

CPI inflation

      2.6    

      5.9    

      3.0    

      1.6    

      2.0    

      3.0    

US Gross domestic product

5.5

3.6

2.5

2.0

1.5

3.0

US Unemployment rate

5.4

4.0

3.9

3.9

4.1

4.3

Downside

 

 

 

 

 

 

UK Gross domestic product

      7.1    

      3.4    

      1.3    

      1.1    

      1.2    

      2.8    

UK Unemployment rate

      4.7    

      5.6    

      5.9    

      5.8    

      5.7    

      5.6    

UK Commercial real estate price growth

      8.6    

                (10.1)

                (7.0)

                (3.4)

                (0.3)

                (2.6)

UK Bank Rate

        0.14

        0.45

        0.52

        0.55

        0.69

        0.47

CPI inflation

      2.6    

      5.8    

      2.8    

      1.3    

      1.6    

      2.8    

US Gross domestic product

5.4

1.0

0.2

2.4

3.0

2.4

US Unemployment rate

5.4

4.7

5.9

5.8

5.2

5.4

Severe downside

 

 

 

 

 

 

UK Gross domestic product

      6.8    

      0.9    

      0.4    

      1.0    

      1.4    

      2.1    

UK Unemployment rate

      4.9    

      7.7    

      8.5    

      8.1    

      7.6    

      7.3    

UK Commercial real estate price growth

      5.8    

                (19.6)

                (12.1)

                (5.3)

                (0.5)

                (6.8)

UK Bank Rate

        0.14

        0.04

        0.06

        0.08

        0.09

        0.08

CPI inflation

      2.6    

      5.8    

      2.3    

      0.5    

      0.9    

      2.4    

US Gross domestic product

      5.2    

                (3.2)

                (3.1)

      3.9    

      5.7    

      1.6    

US Unemployment rate

5.4

5.8

8.5

7.9

5.9

6.7

Probability-weighted

 

 

 

 

 

 

UK Gross domestic product

      7.0    

      3.4    

      1.3    

      1.2    

      1.3    

      2.8    

UK Unemployment rate

      4.6    

      4.7    

      5.0    

      5.0    

      4.9    

      4.8    

UK Commercial real estate price growth

      9.9    

                (3.9)

                (3.7)

                (1.2)

                (0.1)

      0.1    

UK Bank Rate

        0.14

        0.82

        0.99

        1.04

        1.20

        0.83

CPI inflation

      2.6    

      5.9    

      2.9    

      1.7    

      2.2    

      3.1    

US Gross domestic product

      5.5    

      3.1    

      1.8    

      1.8    

      1.8    

      2.8    

US Unemployment rate

      5.4    

      4.2    

      4.6    

      4.7    

      4.7    

      4.7    

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 2: Critical accounting judgements and key sources of estimation uncertainty (continued)

ECL sensitivity to economic assumptions

The table below shows the Group's ECL for the upside, base case, downside and severe downside scenarios. The stage allocation for an asset is based on the overall scenario probability-weighted PD and, hence, the staging of assets is constant across all the scenarios. In each economic scenario the ECL for individual assessments and post-model adjustments is constant, reflecting the basis on which they are evaluated. Judgements applied through changes to inputs are reflected in the scenario sensitivities. The probability-weighted view shows the extent to which a higher ECL allowance has been recognised to take account of multiple economic scenarios relative to the base case; the uplift being £4 million compared to £1 million at 31 December 2021.

 

Probability-

weighted

Upside

Base case

Downside

Severe

downside

 

£m

£m

£m

£m

£m

At 30 June 2022

                    28

                    20

                    24

                    30

                    53

At 31 December 2021

                    17

                    13

                    16

                    18

                    26

Application of judgement in adjustments to modelled ECL

Impairment models fall within the Group's Model Risk framework as reported in note 3 of the 2021 Annual Report and Accounts.

The coronavirus pandemic and the various support measures that were put in place resulted in an economic environment which differed significantly from the historical economic conditions upon which the impairment models had been built. As a result there has been a greater need for management judgements to be applied alongside the use of models. Over the first half of 2022 the intensifying inflationary pressures within the Group's outlook have created further risks not present in these historic conditions. Conversely, the direct impact of the pandemic on both economic and credit performance has appeared to reduce, resulting in a reduction in judgements required specifically to capture COVID-19 risks. At 30 June 2022  total management judgement resulted in additional ECL allowances of  £6 million  (31 December 2021: £6 million). The table below analyses total ECL allowance by portfolio, separately identifying the amounts that have been modelled, those that have been individually assessed and those arising through the application of management judgement.

 

Modelled

ECL

Individually

assessed

 

Management Judgements1

Total ECL

 

£m

£m

£m

£m

At 30 June 2022

                    22

                         -

                                   6

                  28

At 31 December 2021

                    10

                           1

                                   6

                  17

1        Judgements introduced to address the impact that COVID-19 and resulting interventions have had on the Group's economic outlook and observed loss experience, which have required additional model limitations to be addressed.

Post-model adjustments have been raised to reflect uncertainty in the near term economic outlook and limitations in the models in dealing with this uncertainty but the impact on staging of assets has not been reflected. These adjustments principally comprise:

Economic impacts not captured by models: £5 million (31 December 2021: £5 million)

Management adjustment of £5 million has been maintained to reflect additional uncertainty in the economic outlook, specifically for risks associated with inflationary pressures. This qualitative overlay is a management judgement to ensure the overall provision adequately reflects the current material risks; considering the range of the quarterly provision release, review of trends and provision coverage.

 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)


Note 3: Operating expenses

 

Half-year

to 30 June

2022

 

Half-year

to 30 June

2021

 

£m

 

£m

 

 

 

 

Staff costs:

 

 

 

Salaries

              (76)

 

              (81)

Social security costs

                (8)

 

                (7)

Pensions and other post-retirement benefit schemes

                (7)

 

                (7)

Restructuring costs

              (11)

 

                (4)

Other staff costs

                (4)

 

                (3)

 

            (106)

 

            (102)

Management charges payable

              (79)

 

              (69)

Depreciation and amortisation

                (9)

 

                (7)

Premises and equipment

                (3)

 

                (9)

Communications and data processing

                (7)

 

                (6)

Professional fees

                (2)

 

                (2)

Other operating expenses

              (10)

 

                (9)

Total operating expenses

            (216)

 

            (204)

 


 

Note 4: Impairment

 

Half-year

to 30 June

2022

 

Half-year
to 30 June
2021

 

£m

 

£m

Loans and advances to banks

                (1)

 

                  1

Loans and advances to customers

                (5)

 

                25

Impairment (charge) credit on drawn balances

                (6)

 

                26

Loan commitments and financial guarantees

                (5)

 

                21

Total impairment (charge) credit

             (11)

 

                47

 

 

 

 

 

 

 

 

 

 


NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 5: Tax expense

In accordance with IAS 34, the Group's income tax expense for the half-year to 30 June 2022 is based on the best estimate of the weighted-average annual income tax rate expected for the full financial year. The tax effects of one-off items are not included in the weighted-average annual income tax rate, but are recognised in the relevant period.

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

 

Half-year

to 30 June

2022

 

Half-year

to 30 June

2021

 

£m

 

£m

 

 

 

 

Profit before tax

              249

 

              193

UK corporation tax thereon at 19 per cent (2021: 19 per cent)

              (47)

 

              (37)

Impact of surcharge on banking profits

                (7)

 

              (13)

Non-deductible costs

                -

 

                 (3)

Non-taxable income

                14

 

                 1

Tax relief on coupons on other equity instruments

                 3

 

                  3

Tax losses where no deferred tax recognised

                 (2)

 

                 (3)

Remeasurement of deferred tax due to rate changes

                -

 

                 (1)

Differences in overseas tax rates

                 (3)

 

                 (7)

Tax expense

              (42)

 

              (60)

 


Note 6: Financial assets at fair value through profit or loss

 

At

30 June

2022

 

At

31 Dec

2021

 

£m

 

£m

 

 

 

 

Trading assets

         14,998

 

         21,773

 

 

 

 

Financial assets mandatorily at fair value through profit or loss:

 

 

 

Loans and advances to customers

              402

 

              307

Debt securities

              288

 

              310

Treasury and other bills

                21

 

                19

 

              711

 

              636

Total financial assets at fair value through profit or loss

         15,709

 

         22,409

 


NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 7: Financial assets at amortised cost

Half-year to 30 June 2022

 

Gross carrying amount

 

Allowance for expected credit losses

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 At 1 January 2022

    2,355

 

         -

 

         -

 

   2,355

 

           1

 

         -

 

         -

 

           1

Exchange and other adjustments1

       108

 

         -

 

         -

 

      108

 

         -

 

         -

 

         -

 

         -

Additions and repayments

     (440)

 

         -

 

         -

 

     (440)

 

          1

 

         -

 

         -

 

           1

Other changes in credit quality

 

 

 

 

 

 

 

 

         -

 

         -

 

         -

 

         -

Charge (credit) to the income statement

 

 

 

 

 

 

 

 

           1

 

         -

 

         -

 

           1

At 30 June 2022

    2,023

 

 

 

 

 

   2,023

 

           2

 

         -

 

         -

 

           2

Allowance for impairment losses

          (2)

 

         -

 

         -

 

         (2)

 

 

 

 

 

 

 

 

Net carrying amount

    2,021

 

         -

 

         -

 

   2,021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 At 1 January 2022

  17,366

 

         47

 

         29

 

17,442

 

           7

 

           2

 

           1

 

         10

Exchange and other adjustments1

    1,090

 

           1

 

         -

 

   1,091

 

         -

 

         -

 

         -

 

         -

Transfers to Stage 1

           6

 

          (6)

 

         -

 

        -

 

         -

 

         -

 

         -

 

         -

Transfers to Stage 2

        (98)

 

         98

 

         -

 

        -

 

         -

 

         -

 

         -

 

         -

Transfers to Stage 3

        (17)

 

         -

 

         17

 

        -

 

         -

 

         -

 

         -

 

         -

Impact of transfers between stages

      (109)

 

         92

 

         17

 

        -

 

         -

 

           1

 

         -

 

           1

 

 

 

 

 

 

 

 

 

         -

 

           1

 

         -

 

           1

Other changes in credit quality

 

 

 

 

 

 

 

 

           2

 

          (1)

 

         -

 

           1

Additions and repayments

    2,296

 

         13

 

        (18)

 

   2,291

 

           3

 

         -

 

         -

 

           3

Methodology and model changes

 

 

 

 

 

 

 

 

         -

 

         -

 

         -

 

         -

Charge (credit)  to the income statement

 

 

 

 

 

 

 

 

           5

 

         -

 

         -

 

           5

Advances written off

 

 

 

 

         -

 

        -

 

 

 

 

 

         -

 

         -

Recoveries of advances written off in previous years

 

 

 

 

         -

 

        -

 

 

 

 

 

         -

 

         -

At 30 June 2022

  20,643

 

       153

 

         28

 

20,824

 

         12

 

           2

 

           1

 

         15

Allowance for impairment losses

        (12)

 

          (2)

 

          (1)

 

       (15)

 

 

 

 

 

 

 

 

Net carrying amount

  20,631

 

       151

 

         27

 

20,809

 

 

 

 

 

 

 

 

1        Exchange and other adjustments includes the impact of movements in exchange rates.

 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 7: Financial assets at amortised cost (continued)

 

Gross carrying amount

 

Allowance for expected credit losses

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2022

       229

 

         -

 

         -

 

       229

 

         -

 

         -

 

         -

 

         -

Exchange and other adjustments1

         11

 

         -

 

         -

 

         11

 

         -

 

         -

 

         -

 

         -

Additions and repayments

         69

 

         -

 

         -

 

         69

 

         -

 

         -

 

         -

 

         -

Charge to the income statement

 

 

 

 

 

 

 

 

         -

 

         -

 

         -

 

         -

At 30 June 2022

       309

 

         -

 

         -

 

       309

 

         -

 

         -

 

         -

 

         -

Allowance for impairment losses

         -

 

         -

 

         -

 

         -

 

 

 

 

 

 

 

 

Net carrying amount

       309

 

         -

 

         -

 

       309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reverse repurchase agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June 2022

    4,461

 

         -

 

         -

 

    4,461

 

 

 

 

 

 

 

 

Allowance for impairment losses

         -

 

         -

 

         -

 

         -

 

 

 

 

 

 

 

 

Net carrying amount

    4,461

 

         -

 

         -

 

    4,461

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due from fellow Lloyds Banking Group undertakings

 

 

 

 

 

 

 

 

 

 

At 30 June 2022

       312

 

         -

 

         -

 

       312

 

 

 

 

 

 

 

 

Allowance for impairment losses

         -

 

         -

 

         -

 

         -

 

 

 

 

 

 

 

 

Net carrying amount

       312

 

         -

 

         -

 

       312

 

 

 

 

 

 

 

 

Total financial assets at amortised cost

  27,734

 

       151

 

         27

 

  27,912

 

 

 

 

 

 

 

 

1.       Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, and derecognising assets as a result of modifications.

Movements in allowance for expected credit losses in respect of undrawn balances were as follows:

 

 

 

 

 

 

 

 

 

 

 

Allowance for expected credit losses

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undrawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2022

 

 

 

 

 

 

 

 

 

 

           6

 

         -

 

         -

 

           6

Exchange and other adjustments

 

 

 

 

 

 

 

         -

 

         -

 

         -

 

         -

Transfers to Stage 1

 

 

 

 

 

 

 

 

 

 

         -

 

         -

 

         -

 

         -

Transfers to Stage 2

 

 

 

 

 

 

 

 

 

 

         (1)

 

           1

 

         -

 

         -

Transfers to Stage 3

 

 

 

 

 

 

 

 

 

 

         -

 

         -

 

         -

 

         -

Impact of transfers between stages

 

 

 

 

 

 

 

         -

 

           1

 

         -

 

           1

 

 

 

 

 

 

 

 

 

 

 

         (1)

 

           2

 

         -

 

           1

Other changes in credit quality

 

 

 

 

 

 

 

           4

 

         -

 

         -

 

           4

Charge (credit) to the income statement

 

 

 

 

 

 

 

           3

 

           2

 

         -

 

           5

At 30 June 2022

 

 

 

 

 

 

 

 

 

 

           9

 

           2

 

         -

 

         11

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 7: Financial assets at amortised cost (continued)

The Group's total impairment allowances were as follows:

 

 

 

 

 

 

 

 

 

 

 

Allowance for expected credit losses


 

 

 

 

 

 

 

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks 

 

 

 

 

 

 

 

           2

 

         -

 

         -

 

           2

Loans and advances to customers

 

 

 

 

 

 

 

         12

 

           2

 

           1

 

         15

Financial assets at amortised cost

 

 

 

 

 

 

 

         14

 

           2

 

           1

 

         17

Provisions in relation to loan commitments and financial guarantees

 

 

 

           9

 

           2

 

         -

 

         11

Total

 

 

 

 

 

 

 

 

 

 

         23

 

           4

 

           1

 

         28

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

 

 

 

         -

 

         -

 

         -

 

         -

 

 

 

Year ended 31 December 2021

 

Gross carrying amount

 

Allowance for expected credit losses

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2021

    3,602

 

         -

 

         -

 

    3,602

 

           2

 

         -

 

         -

 

           2

Exchange and other adjustments1

       (23)

 

         -

 

         -

 

        (23)

 

         -

 

         -

 

         -

 

         -

Additions and repayments

   (1,224)

 

         -

 

         -

 

   (1,224)

 

         -

 

         -

 

         -

 

         -

Charge (credit) to the income statement

 

 

 

 

 

 

 

 

          (1)

 

         -

 

         -

 

          (1)

At 31 December 2021

    2,355

 

         -

 

         -

 

    2,355

 

           1

 

         -

 

         -

 

           1

Allowance for impairment losses

          (1)

 

         -

 

         -

 

          (1)

 

 

 

 

 

 

 

 

Net carrying amount

    2,354

 

         -

 

         -

 

    2,354

 

 

 

 

 

 

 

 

1      Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, and derecognising assets as a result of modifications.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 7: Financial assets at amortised cost (continued)

 

Gross carrying amount

 

Allowance for expected credit losses

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2021

  13,886

 

       379

 

         39

 

  14,304

 

         26

 

         20

 

           2

 

         48

Exchange and other adjustments1

     (113)

 

         (7)

 

         -

 

      (120)

 

         -

 

         -

 

          (1)

 

         (1)

Transfers to Stage 1

         43

 

        (42)

 

          (1)

 

         -

 

           2

 

          (2)

 

         -

 

         -

Transfers to Stage 2

        (14)

 

         14

 

         -

 

         -

 

         -

 

         -

 

         -

 

         -

Transfers to Stage 3

         -

 

          (3)

 

           3

 

         -

 

         -

 

         -

 

         -

 

         -

Impact of transfers between stages

         29

 

       (31)

 

           2

 

         -

 

          (2)

 

         -

 

         -

 

          (2)

 

 

 

 

 

 

 

 

 

         -

 

         (2)

 

         -

 

          (2)

Other changes in credit quality

 

 

 

 

 

 

 

 

          (8)

 

        (13)

 

           1

 

        (20)

Additions and repayments

    3,564

 

      (294)

 

        (11)

 

    3,259

 

        (11)

 

         (3)

 

         -

 

        (14)

Methodology and model changes

 

 

 

 

 

 

 

 

         -

 

         -

 

         -

 

         -

Charge (credit) to the income statement

 

 

 

 

 

 

 

 

        (19)

 

        (18)

 

           1

 

        (36)

Advances written off

 

 

 

 

          (1)

 

          (1)

 

 

 

 

 

         (1)

 

          (1)

At 31 December 2021

  17,366

 

         47

 

         29

 

  17,442

 

           7

 

           2

 

           1

 

         10

Allowance for impairment losses

          (7)

 

          (2)

 

          (1)

 

        (10)

 

 

 

 

 

 

 

 

Net carrying amount

  17,359

 

         45

 

         28

 

  17,432

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2021

       257

 

         -

 

         -

 

       257

 

         -

 

         -

 

         -

 

         -

Exchange and other adjustments1

           1

 

         -

 

         -

 

           1

 

         -

 

         -

 

         -

 

         -

Additions and repayments

        (29)

 

         -

 

         -

 

        (29)

 

         -

 

         -

 

         -

 

         -

At 31 December 2021

       229

 

         -

 

         -

 

       229

 

         -

 

         -

 

         -

 

         -

Allowance for impairment losses

         -

 

         -

 

         -

 

         -

 

 

 

 

 

 

 

 

Net carrying amount

       229

 

         -

 

         -

 

       229

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reverse repurchase agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 31 December 2021

    5,044

 

         -

 

         -

 

    5,044

 

 

 

 

 

 

 

 

Allowance for impairment losses

         -

 

         -

 

         -

 

         -

 

 

 

 

 

 

 

 

Net carrying amount

    5,044

 

         -

 

         -

 

    5,044

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Due from fellow Lloyds Banking Group undertakings

 

 

 

 

 

 

 

 

 

 

At 31 December 2021

       557

 

         -

 

         -

 

       557

 

 

 

 

 

 

 

 

Allowance for impairment losses

         -

 

         -

 

         -

 

         -

 

 

 

 

 

 

 

 

Net carrying amount

       557

 

         -

 

         -

 

       557

 

 

 

 

 

 

 

 

Total financial assets at amortised cost

  25,543

 

         45

 

         28

 

  25,616

 

 

 

 

 

 

 

 

1    Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, and derecognising assets as a result of modifications.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 7: Financial assets at amortised cost (continued)

Movements in allowance for expected credit losses in respect of undrawn balances were as follows:

 

 

 

 

 

 

 

 

 

 

 

Allowance for expected credit losses

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undrawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2021

 

 

 

 

 

 

 

 

 

 

         20

 

         13

 

         -

 

         33

Exchange and other adjustments

 

 

 

 

 

 

 

         (1)

 

         (1)

 

         -

 

          (2)

Transfers to Stage 1

 

 

 

 

 

 

 

 

 

 

           4

 

         (4)

 

         -

 

         -

Transfers to Stage 2

 

 

 

 

 

 

 

 

 

 

         -

 

         -

 

         -

 

         -

Transfers to Stage 3

 

 

 

 

 

 

 

 

 

 

         -

 

         -

 

         -

 

         -

Impact of transfers between stages

 

 

 

 

 

 

 

         (4)

 

         -

 

         -

 

          (4)

 

 

 

 

 

 

 

 

 

 

 

         -

 

         (4)

 

         -

 

          (4)

Other changes in credit quality

 

 

 

 

 

 

 

       (13)

 

         (8)

 

         -

 

        (21)

Charge (credit) to the income statement

 

 

 

 

 

 

 

       (13)

 

       (12)

 

         -

 

        (25)

At 31 December 2021

 

 

 

 

 

 

 

 

 

 

           6

 

         -

 

         -

 

           6

The Group's total impairment allowances were as follows:

 

 

 

 

 

 

 

 

 

 

 

Allowance for expected credit losses

 

 

 

 

 

 

 

 

 

 

 

Stage 1

 

Stage 2

 

Stage 3

 

Total

 

 

 

 

 

 

 

 

 

 

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks

 

 

 

 

 

 

 

           1

 

         -

 

         -

 

           1

Loans and advances to customers

 

 

 

 

 

 

 

           7

 

           2

 

           1

 

         10

Financial assets at amortised cost

 

 

 

 

 

 

 

           8

 

           2

 

           1

 

         11

Provisions in relation to loan commitments and financial guarantees

 

 

 

           6

 

         -

 

         -

 

           6

At 31 December 2021

 

 

 

 

 

 

 

 

 

 

         14

 

           2

 

           1

 

         17

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

 

 

 

         -

 

         -

 

         -

 

         -

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

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

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

 


NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 8: Debt securities in issue

 

At 30 June 2022

 

At 31 December 2021

 

£m

 

£m

 

 

 

 

Medium-term notes issued

           3,921

 

           4,181

Certificates of deposit issued

           4,413

 

           4,164

Commercial paper

           3,241

 

           5,129

Amounts due to fellow Group undertakings

           3,354

 

           3,170

Total debt securities in issue

         14,929

 

         16,644

Note 9: Other provisions

 

Provisions

for financial

commitments

and guarantees

 

Regulatory and legal

provisions

 

Other

 

Total

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

At 1 January 2022

                      6

 

                      2

 

                      5

 

                    13

Exchange and other adjustments

                    -

 

                    -

 

                    -

 

                    -

Provisions applied

                    -

 

                    -

 

                    -

 

                    -

Charge for the period

                      5

 

                    -

 

                      8

 

                    13

At 30 June 2022

                    11

 

                      2

 

                    13

 

                    26

 


Note 10: Other reserves

 

At 30 June 2022

 

At 31 December 2021

 

£m

 

£m

Other reserves comprise:

 

 

 

Revaluation reserve in respect of debt securities held at fair value through other comprehensive income

                (1)

 

                (2)

Cash flow hedging reserve

             (308)

 

               (48)

Foreign currency translation reserve

                (4)

 

              (14)

Total other reserves

            (313)

 

              (64)

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 10: Other reserves (continued)

 

At 30 June 2022

 

At 31 December 2021

 

£m

 

£m

Revaluation reserve in respect of debt securities held at fair value through other comprehensive income

 

 

 

 

 

 

At 1 January

                (2)

 

              (10)

Change in fair value

                  1

 

                  5

Deferred tax

                -

 

                 (1)

 

                  1

 

                 4

Income statement transfers in respect of disposals

                -

 

                  5

Deferred tax

                -

 

                 (1)

 

                -

 

                  4

At period end

                 (1)

 

                (2)

 

 

At 30 June 2022

 

At 31 December 2021

 

£m

 

£m

Cash flow hedging reserve

 

 

 

At 1 January

              (48)

 

              105

Change in fair value of hedging derivatives

            (349)

 

            (169)

Deferred tax

                94

 

                48

 

            (255)

 

            (121)

Net income statement transfers

                (7)

 

              (44)

Deferred tax

                  2

 

                12

 

                (5)

 

              (32)

At period end

            (308)

 

              (48)

 

 

At 30 June 2022

 

At 31 December 2021

 

£m

 

£m

Foreign currency translation reserve

 

 

 

At 1 January

              (14)

 

              (14)

Currency translation differences arising in the year

                10

 

                -

At period end

                 (4)

 

               (14)

 


NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 11: Related party transactions

Balances and transactions with fellow Lloyds Banking Group undertakings

The Bank and its subsidiaries have balances due to and from the Bank's parent company, Lloyds Banking Group plc, and fellow Group undertakings. These are included on the balance sheet as follows:

 

At

30 June

2022

 

At

31 Dec

2021

 

£m

 

£m

 

 

 

 

Assets, included within:

 

 

 

Financial assets at amortised cost: due from fellow Lloyds Banking Group undertakings

              312

 

              557

Financial assets at fair value through profit or loss

                11

 

                12

Derivative financial instruments

           2,985

 

           2,094

 

           3,308

 

           2,663

Liabilities, included within:

 

 

 

Due to fellow Lloyds Banking Group undertakings

           1,261

 

           3,442

Financial liabilities at fair value through profit or loss

                  5

 

                -

Derivative financial instruments

           2,660

 

           2,579

Debt securities in issue

           3,354

 

           3,170

Subordinated liabilities

              749

 

              684

 

           8,029

 

           9,875

 

 

 

 

Other equity instruments:

              782

 

              782

Additional tier 1 instruments

              782

 

              782

During the half-year to 30 June 2022 the Group earned £1 million (half-year to 30 June 2021: £1 million) of interest income and incurred £46 million (half-year to 30 June 2021: £54 million) of interest expense on balances and transactions with Lloyds Banking Group plc and fellow Group undertakings.

Other related party transactions

Other related party transactions for the half-year to 30 June 2022 are similar in nature to those for the year ended 31 December 2021.

Management charges payable to Lloyds Bank plc of £79 million (half-year to 30 June 2021: £69 million) have been incurred in the period, see note 3.

During the period to June 2021, the Group sold a portfolio of facilities (£55 million of assets and £489 million of commitments) to Lloyds Bank plc, on which an £8 million operating loss arose. There have been no such transactions in the period to 30 June 2022.


NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 12: Contingent liabilities, commitments and guarantees

Legal actions and regulatory matters

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

Contingent liabilities, commitments and guarantees arising from the banking business

 

At

30 June

2022

 

At

31 Dec

2021

 

£m

 

£m

 

 

 

 

Contingent liabilities

 

 

 

Acceptances and endorsements

                -

 

              170

Other:

 

 

 

Other items serving as direct credit substitutes

                -

 

                77

Performance bonds, including letters of credit, and other transaction-related contingencies

              142

 

              158

 

              142

 

              235

Total contingent liabilities

              142

 

              405

 

 

 

 

Commitments and guarantees

 

 

 

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

 

 

 

Less than 1 year original maturity:

 

 

 

Mortgage offers made

                58

 

                50

Other commitments and guarantees

           9,898

 

           8,831

 

           9,956

 

           8,881

1 year or over original maturity

           7,521

 

           6,310

Total commitments and guarantees

         17,477

 

         15,191

Of the amounts shown above in respect of undrawn formal standby facilities, credit lines and other commitments to lend, £16,942 million (31 December 2021: £15,124 million) were irrevocable.


NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: Fair values of financial assets and liabilities

The valuations of financial instruments have been classified into three levels according to the quality and reliability of information used to determine those fair values. Note 32 to the Group's financial statements for the year ended 31 December 2021 details the definitions of the three levels in the fair value hierarchy.

Valuation control framework

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

Transfers into and out of level 3 portfolios

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

Valuation methodology

For level 2 and level 3 portfolios, there is no significant change to the valuation methodology (techniques and inputs) disclosed in the Group's financial statements for the year ended 31 December 2021 applied to these portfolios.

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

 

At 30 June 2022

 

At 31 December 2021

 

Carrying

value

 

Fair

value

 

Carrying

value

 

Fair

value

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

     Loans and advances to banks

           2,021

 

           2,023

 

           2,354

 

           2,354

     Loans and advances to customers

         20,809

 

         20,876

 

         17,432

 

         17,488

     Reverse repurchase agreements

           4,461

 

           4,461

 

           5,044

 

           5,044

     Debt securities

              309

 

              309

 

              229

 

              229

     Due from fellow Lloyds Banking Group undertakings

              312

 

              312

 

              557

 

              557

Financial assets at amortised cost

         27,912

 

         27,981

 

         25,616

 

         25,672

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

Deposits from banks

           3,223

 

           3,233

 

           3,821

 

           3,821

Customer deposits

         27,281

 

         27,351

 

         26,967

 

         27,047

Repurchase agreements

                  1

 

                  1

 

           1,019

 

           1,019

Due to fellow Lloyds Banking Group undertakings

           1,261

 

           1,261

 

           3,442

 

           3,442

Debt securities in issue

         14,929

 

         14,747

 

         16,644

 

         16,723

Subordinated liabilities

              749

 

              749

 

              684

 

              684

Financial instruments classified as financial assets at fair value through profit or loss, derivative financial instruments, financial assets at fair value through other comprehensive income and financial liabilities at fair value through profit or loss are recognised at fair value.

The carrying amount of the following financial instruments is a reasonable approximation of fair value: cash and balances at central banks, items in the course of collection from banks and items in course of transmission to banks.

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: Fair values of financial assets and liabilities (continued)

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

The following tables provide an analysis of the financial assets and liabilities of the Group that are carried at fair value in the Group's consolidated balance sheet, grouped into levels 1 to 3 based on the degree to which the fair value is observable. There were no significant transfers between level 1 and level 2 during the period.

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Financial assets

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

At 30 June 2022

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss:

 

 

 

 

 

 

 

 

Loans and advances to customers and reverse repurchase agreements

               -

 

        12,496

 

                 2

 

        12,498

 

Loans and advances to banks and reverse repurchase agreements

               -

 

             299

 

               -

 

             299

 

Debt securities

          2,424

 

             300

 

             167

 

          2,891

 

Treasury and other bills

               21

 

               -

 

               -

 

               21

 

Total financial assets at fair value through profit or loss

          2,445

 

        13,095

 

             169

 

        15,709

 

Financial assets at fair value through other comprehensive income:

 

 

 

 

 

 

 

 

Debt securities

               -

 

               -

 

               12

 

               12

 

Treasury and other bills

               -

 

               -

 

               -

 

               -

 

Total financial assets at fair value through other comprehensive income

               -

 

               -

 

               12

 

               12

 

Derivative financial instruments

               43

 

        27,049

 

             624

 

        27,716

 

Total financial assets carried at fair value

          2,488

 

        40,144

 

             805

 

        43,437

 

 

 

 

 

 

 

 

 

 

At 31 December 2021

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss

 

 

 

 

 

 

 

 

Loans and advances to customers and reverse repurchase agreements

               -

 

        14,741

 

                 2

 

        14,743

 

Loans and advances to banks and reverse repurchase agreements

               -

 

             486

 

               -

 

             486

 

Debt securities

          6,580

 

             393

 

             188

 

          7,161

 

Treasury and other bills

               19

 

               -

 

               -

 

               19

 

Total financial assets at fair value through profit or loss

          6,599

 

        15,620

 

             190

 

        22,409

 

Financial assets at fair value through other comprehensive income:

 

 

 

 

 

 

 

 

Debt securities

               -

 

               -

 

               15

 

               15

 

Treasury and other bills

               85

 

               -

 

               -

 

               85

 

Total financial assets at fair value through other comprehensive income

               85

 

               -

 

               15

 

             100

 

Derivative financial instruments

               22

 

        17,239

 

             729

 

        17,990

 

Total financial assets carried at fair value

          6,706

 

        32,859

 

             934

 

        40,499

 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: Fair values of financial assets and liabilities (continued)

 

Level 1

 

Level 2

 

Level 3

 

Total

Financial liabilities

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

At 30 June 2022

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss:

 

 

 

 

 

 

 

Trading liabilities

          2,341

 

        11,741

 

               -

 

        14,082

Total financial liabilities at fair value through profit or loss

          2,341

 

        11,741

 

               -

 

        14,082

Derivative financial instruments

               30

 

        22,410

 

             682

 

        23,122

Total financial liabilities carried at fair value

          2,371

 

        34,151

 

             682

 

        37,204

 

 

 

 

 

 

 

 

At 31 December 2021

 

 

 

 

 

 

 

Financial liabilities at fair value through profit or loss:

 

 

 

 

 

 

 

Trading liabilities

          1,569

 

        15,013

 

               -

 

        16,582

Total financial liabilities at fair value through profit or loss

          1,569

 

        15,013

 

               -

 

        16,582

Derivative financial instruments

               13

 

        14,633

 

             926

 

        15,572

Total financial liabilities carried at fair value

          1,582

 

        29,646

 

             926

 

        32,154

Movements in level 3 portfolio

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

 

Financial assets at fair value through profit or loss

 

Financial assets at fair value through other comprehensive income

 

Derivative assets

 

Total financial assets carried at fair value

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

At 1 January 2022

                       190

 

                         15

 

                       729

 

                       934

Exchange and other adjustments

                         -

 

                         -

 

                         21

 

                         21

(Losses) gains recognised in the income statement within other income

                       (21)

 

                         -

 

                       133

 

                       112

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

                         -

 

                           1

 

                         -

 

                           1

Purchases/increases

                         -

 

                         -

 

                         41

 

                         41

Sales/repayments

                         -

 

                         (4)

 

                         (9)

 

                       (13)

Transfers into the level 3 portfolio

                         -

 

                         -

 

                         -

 

                         -

Transfers out of the level 3 portfolio

                         -

 

                         -

 

                     (291)

 

                     (291)

At 30 June 2022

                       169

 

                         12

 

                       624

 

                       805

(Losses) gains recognised in the income statement, within other income, relating to the change in fair value of those assets held at 30 June 2022

                       (21)

 

                         -

 

                       254

 

                       233

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: Fair values of financial assets and liabilities (continued)

 

Financial

assets at fair value through profit or loss

 

Financial

assets at fair value through other comprehensive income

 

Derivative assets

 

Total financial assets carried at fair value

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

At 1 January 2021

                       570

 

                       113

 

                       948

 

                    1,631

Exchange and other adjustments

                         -

 

                         (4)

 

                           3

 

                         (1)

(Losses) gains recognised in the income statement within other income

                       (30)

 

                         -

 

                     (175)

 

                     (205)

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

                         -

 

                           6

 

                         -

 

                           6

Purchases/increases

                         -

 

                         -

 

                       249

 

                       249

Sales/repayments

                     (226)

 

                         (6)

 

                       (64)

 

                     (296)

Transfers into the level 3 portfolio

                           1

 

                         -

 

                         -

 

                           1

Transfers out of the level 3 portfolio

                     (119)

 

                         -

 

                         -

 

                     (119)

At 30 June 2021

                       196

 

                       109

 

                       961

 

                    1,266

Gains recognised in the income statement, within other income, relating to the change in fair value of those assets held at 30 June 2021

                       (30)

 

                           1

 

                     (168)

 

                     (197)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: Fair values of financial assets and liabilities (continued)

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

 

Financial liabilities at fair value through profit or loss

 

Derivative liabilities

 

Total

financial liabilities carried at

fair value

 

£m

 

£m

 

£m

 

 

 

 

 

 

At 1 January 2022

                         -

 

                       926

 

                       926

Exchange and other adjustments

                         -

 

                         17

 

                         17

Losses (gains) recognised in the income statement within other income

                         -

 

                       (12)

 

                       (12)

Purchases/increases

                         -

 

                         37

 

                         37

Sales/repayments

                         -

 

                         (2)

 

                         (2)

Transfers into the level 3 portfolio

                         -

 

                         -

 

                         -

Transfers out of the level 3 portfolio

                         -

 

                     (284)

 

                     (284)

At 30 June 2022

                         -

 

                       682

 

                       682

Losses (Gains) recognised in the income statement, within other income, relating to the change in fair value of those liabilities held at 30 June 2022

                         -

 

                         28

 

                         28

 

 

 

 

 

 

At 1 January 2021

                         -

 

                    1,251

 

                    1,251

Exchange and other adjustments

                         -

 

                           3

 

                           3

Losses (gains) recognised in the income statement within other income

                         -

 

                     (196)

 

                     (196)

Purchases/increases

                         -

 

                       265

 

                       265

Sales/repayments

                         -

 

                       (43)

 

                       (43)

Transfers into the level 3 portfolio

                         -

 

                         -

 

                         -

Transfers out of the level 3 portfolio

                         -

 

                         -

 

                         -

At 30 June 2021

                         -

 

                    1,280

 

                    1,280

(Gains) recognised in the income statement, within other income, relating to the change in fair value of those liabilities held at 30 June 2021

                         -

 

                     (201)

 

                     (201)

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: Fair values of financial assets and liabilities (continued)

The tables below set out the effects of reasonably possible alternative assumptions for categories of level 3 financial assets and financial liabilities.

 

 

 

At 30 June 2022

 

 

 

 

Effect of reasonably

possible alternative

assumptions2

 

Valuation techniques

Significant unobservable inputs1

Carrying value

Favourable changes

Unfavourable

changes

 

 

 

£m

£m

£m

 

 

 

 

 

 

Financial assets at fair value through profit or loss

 

 

 

 

Loans and advances to customers

Comparable pricing

Spread (-/+20bps)

                 2

                      -

                      -

Debt securities

Discounted cash flows

Credit spreads (discount factor) and inflation volatility (-/+7bps)

             167

                     12

                    (12)

 

 

 

             169

                     12

                    (12)

Financial assets at fair value through other comprehensive income

 

 

 

Asset-backed securities

Comparable pricing

Spread (-/+7bps)

               12

                       1

                      (1)

 

 

 

               12

                       1

                      (1)

Derivative financial assets

 

 

 

 

Interest rate derivatives

Option pricing model

Inflation volatility

                -

                      -

                     -

 

Option pricing model

Interest rate volatility (11.1-146.6bps)

             624

                       5

                      (5)

 

 

 

             624

                       5

                      (5)

 

 

 

 

 

 

Level 3 financial assets carried at fair value

 

             805

                     18

                    (18)

 

 

 

 

 

 

 

 

 

 

Derivative financial liabilities

 

 

 

 

 

Interest rate derivatives

Option pricing model

Illiquid long dated repo rate

                -

                      -

                      -

 

Option pricing model

Inflation volatility

                -

                      -

                      -

 

Option pricing model

Interest rate volatility (11.1-146.6bps)

             682

                     15

                    (15)

 

 

 

             682

                     15

                    (15)

 

 

 

 

 

 

Level 3 financial liabilities carried at fair value

 

             682

                     15

                    (15)

1        Ranges are shown where appropriate and represent the highest and lowest inputs used in the level 3 valuations.

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

NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (continued)

Note 13: Fair values of financial assets and liabilities (continued)

 

 

 

At 31 December 2021

 

 

 

 

Effect of reasonably

possible alternative

assumptions2

 

Valuation

techniques

Significant unobservable inputs1

Carrying value

Favourable changes

Unfavourable changes

 

 

 

£m

£m

£m

 

 

 

 

 

 

Financial assets at fair value through profit or loss

 

 

 

Loans and advances to customers

Comparable pricing

Spread (-/+20bps)

                 2

                      -

                      -

Debt securities

Discounted cash flows

Credit spreads (discount factor) and inflation volatility (-/+7bps)

             188

                     13

                    (13)

 

 

 

             190

                     13

                    (13)

Financial assets at fair value through other comprehensive income

 

 

 

Asset-backed securities

Comparable pricing

Spread (-/+0bps)

               15

                      -

                      -

 

 

 

               15

                      -

                      -

Derivative financial assets

 

 

 

 

Interest rate derivatives

Option pricing model

Inflation volatility (31.0-58.7bps)

             345

                       5

                      (4)

 

Option pricing model

Interest rate volatility (12.8-167.9bps)

             384

                       1

                      (1)

 

 

 

             729

                       6

                      (5)

 

 

 

 

 

 

Level 3 financial assets carried at fair value

 

             934

                     19

                    (18)

 

 

 

 

 

 

 

 

 

 

Derivative financial liabilities

 

 

 

 

 

Interest rate derivatives

Option pricing model

Illiquid long dated repo rate (-/+10.2bps)

                 2

                      -

                      -

 

Option pricing model

Inflation volatility (31.0-58.7bps)

             297

                       6

                      (5)

 

Option pricing model

Interest rate volatility (12.8-167.9bps)

             627

                     11

                    (11)

 

 

 

             926

                     17

                    (16)

 

 

 

 

 

 

Level 3 financial liabilities ca