PLUS1
| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Lloyds Banking Group Plc | LSE:LLOY | London | Ordinary Share | GB0008706128 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.37 | -0.84% | 43.43 | 43.425 | 43.445 | 43.805 | 43.105 | 43.48 | 367,472,469 | 16:29:59 |
| Industry Sector | Turnover (m) | Profit (m) | EPS - Basic | PE Ratio | Market Cap (m) |
|---|---|---|---|---|---|
| Banks | 37,444.0 | 6,902.0 | 7.5 | 5.8 | 30,815 |
Lloyds Banking Group PLC 2021 Q3 Interim Management Statement
28/10/2021 7:00am
UK Regulatory (RNS & others)
Lloyds Banking (LSE:LLOY)
Historical Stock Chart
From May 2021 to May 2022
TIDMLLOY
RNS Number : 4985Q
Lloyds Banking Group PLC
28 October 2021
Lloyds Banking Group plc
Q3 2021 Interim Management Statement
28 October 2021
RESULTS FOR THE NINE MONTHSED 30 SEPTEMBER 2021
"I am delighted to be introducing my first set of results as CEO of Lloyds Banking Group. It is very clear to me that the Group is a truly purpose-driven organisation with a real customer focus. The Group has a great franchise, an excellent digital proposition and a real depth of talent. I have been impressed with the Group's ability to Help Britain Recover from the pandemic, its commitment to sustainability and diversity, as well as its strong risk stewardship.
Building on the strengths of the Group and its achievements in recent years, there are clearly significant opportunities for Lloyds Banking Group to further develop its platforms and capabilities and grow through disciplined investment, empowering colleagues, enhancing collaboration and increasing agility across the Group. This can be built on the foundation strengths of customer service, distribution, and cost management. As we move into the final quarter of 2021, the Board, Group Executive Committee and I are developing the next evolution of our strategy and longer-term priorities. I look forward to working with all colleagues across the Group in continuing to build a resilient, stable Lloyds Banking Group and deliver sustainable, long-term returns for our shareholders, whilst meeting the needs of broader stakeholders."
Charlie Nunn, Group Chief Executive
HIGHLIGHTS FOR THE NINE MONTHSED 30 SEPTEMBER 2021
Continued business momentum and solid financial performance
* Strong progress on Strategic Review 2021 priorities,
including an all channel net promoter score and
mobile app net promoter score above 2021 targets,
improved capabilities in Markets products and a 12
per cent increase in new clients using the Group's
improved merchant services proposition
* Statutory profit before tax of GBP5.9 billion (GBP2.0
billion in the quarter) and underlying profit of
GBP6.3 billion (GBP2.2 billion in the quarter), both
up significantly compared to the first nine months of
2020
* Solid net income of GBP11.6 billion, up 8 per cent
(up 20 per cent compared to the third quarter of
2020), benefiting from increased average
interest-earning assets of GBP443.0 billion, a
banking net interest margin of 2.52 per cent and
other income of GBP3.8 billion, alongside a reduction
in operating lease depreciation
* Sustained cost discipline with operating costs of
GBP5.6 billion, up 1 per cent compared to the first
nine months of 2020, including the impact of
rebuilding variable pay. Remediation charge of GBP100
million in the third quarter
* Asset quality remains strong. Net impairment credit
of GBP740 million, including a net credit of GBP84
million in the third quarter, based upon improvements
to the macroeconomic outlook for the UK, combined
with robust credit performance. Management judgements
in respect of coronavirus of c.GBP1.2 billion
retained
Balance sheet and capital strength further enhanced
* Loans and advances at GBP450.5 billion, up GBP10.3
billion (GBP2.8 billion in the third quarter), driven
by strong growth of GBP15.3 billion in the open
mortgage book (GBP2.7 billion in the third quarter)
* Customer deposits of GBP479.1 billion, up GBP28.4
billion (GBP4.7 billion in the quarter), with
continued inflows to the Group's trusted brands,
including Retail current accounts up GBP12.2 billion.
Resulting loan to deposit ratio of 94 per cent
provides a strong liquidity position and significant
potential to lend into recovery
* Strong capital build of 159 basis points. CET1 ratio
of 17.2 per cent after dividend accrual,
significantly ahead of the ongoing target of c.12.5
per cent, plus a c.1 per cent management buffer and
regulatory requirement of c.11 per cent
Outlook
* Given our solid financial performance and the
improved UK macroeconomic outlook, the Group is
enhancing its guidance for 2021. Based on the Group's
current macroeconomic assumptions:
* Net interest margin now expected to be modestly above
250 basis points
* Operating costs expected to be c.GBP7.6 billion
* Impairment now expected to be a net credit for the
year
* Return on tangible equity now expected to be over 10
per cent, excluding the c.2.5 percentage point
benefit from tax rate changes
* Risk-weighted assets in 2021 expected to be below
GBP200 billion
* The Group continues to target a return on tangible
equity in excess of its cost of equity in the medium
term
Unless otherwise stated, the commentary on this page is given on an underlying basis. See page 14.
INCOME STATEMENT - UNDERLYING BASIS
Nine Nine Three Three
months months months months
ended ended ended ended
30 Sep 30 Sep 30 Sep 30 Sep
2021 2020 Change 2021 2020 Change
GBPm GBPm % GBPm GBPm %
Net interest income 8,270 8,096 2 2,852 2,618 9
Other income 3,753 3,449 9 1,336 988 35
Operating lease depreciation (382) (734) 48 (111) (208) 47
-------- -------- -------- --------
Net income 11,641 10,811 8 4,077 3,398 20
-------- -------- -------- --------
Operating costs (5,601) (5,557) (1) (1,871) (1,858) (1)
Remediation (525) (254) (100) (77) (30)
-------- -------- -------- --------
Total costs (6,126) (5,811) (5) (1,971) (1,935) (2)
-------- -------- -------- --------
Underlying profit before
impairment 5,515 5,000 10 2,106 1,463 44
Impairment credit (charge) 740 (4,119) 84 (301)
-------- -------- -------- --------
Underlying profit 6,255 881 2,190 1,162 88
Restructuring (386) (288) (34) (131) (155) 15
Volatility and other items 65 (159) (30) 29
Statutory profit before
tax 5,934 434 2,029 1,036 96
Tax (expense) credit (469) 273 (429) (348) (23)
-------- -------- -------- --------
Statutory profit after
tax 5,465 707 1,600 688
-------- -------- -------- --------
Earnings per share 7.1p 0.5p 2.0p 0.8p
Banking net interest margin 2.52% 2.54% (2)bp 2.55% 2.42% 13bp
Average interest-earning
banking assets GBP443bn GBP434bn 2 GBP447bn GBP436bn 2
Cost:income ratio 52.6% 53.8% (1.2)pp 48.3% 56.9% (8.6)pp
Asset quality ratio (0.22)% 1.24% (146)bp (0.07)% 0.27% (34)bp
Return on tangible equity 17.6% 1.1% 16.5pp 14.5% 6.0% 8.5pp
KEY BALANCE SHEET METRICS
At 31
At 30 At 30 Change Dec Change
Sep 2021 Jun 2021 % 2020 %
Loans and advances to
customers(1) GBP451bn GBP448bn 1 GBP440bn 2
Customer deposits(2) GBP479bn GBP474bn 1 GBP451bn 6
Loan to deposit ratio 94% 94% - 98% (4)pp
Liquidity coverage ratio 130% 131% (1)pp 136% (6)pp
CET1 ratio(3) 17.2% 16.7% 0.5pp 16.2% 1.0pp
CET1 ratio pre IFRS 9
transitional relief and
software(3,4) 16.1% 15.5% 0.6pp 14.5% 1.6pp
Transitional total capital
ratio(3) 23.6% 23.1% 0.5pp 23.3% 0.3pp
Transitional MREL ratio(3) 36.9% 36.3% 0.6pp 36.4% 0.5pp
UK leverage ratio(3) 5.8% 5.8% - 5.8% -
Risk-weighted assets GBP201bn GBP201bn - GBP203bn (1)
Tangible net assets per
share 56.6p 55.6p 1.0p 52.3p 4.3p
See basis of presentation. Return on tangible equity revised basis calculation shown on page 16.
(1) Excludes reverse repos of GBP52.2 billion (30 June 2021: GBP52.7 billion; 31 December 2020: GBP58.6 billion).
(2) Excludes repos of GBP6.1 billion (30 June 2021: GBP7.9 billion; 31 December 2020: GBP9.4 billion).
(3) Incorporating profits for the quarter that remain subject to formal verification.
(4) CET1 ratio 'pre IFRS 9 transitional relief and software' reflects (a) the full impact of IFRS 9, prior to the application of transitional relief arrangements and (b) the reversal of the beneficial treatment currently applied to intangible software assets.
QUARTERLY INFORMATION
Quarter Quarter Quarter Quarter Quarter Quarter Quarter
ended ended ended ended ended ended ended
30 30 31 31 30 30 31
Sep Jun Mar Dec Sep Jun Mar
2021 2021 2021 2020 2020 2020 2020
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Net interest
income 2,852 2,741 2,677 2,677 2,618 2,528 2,950
Other income 1,336 1,282 1,135 1,066 988 1,235 1,226
Operating lease
depreciation (111) (123) (148) (150) (208) (302) (224)
-------- -------- -------- -------- -------- -------- --------
Net income 4,077 3,900 3,664 3,593 3,398 3,461 3,952
-------- -------- -------- -------- -------- -------- --------
Operating costs (1,871) (1,879) (1,851) (2,028) (1,858) (1,822) (1,877)
Remediation (100) (360) (65) (125) (77) (90) (87)
-------- -------- -------- -------- -------- -------- --------
Total costs (1,971) (2,239) (1,916) (2,153) (1,935) (1,912) (1,964)
-------- -------- -------- -------- -------- -------- --------
Underlying profit
before
impairment 2,106 1,661 1,748 1,440 1,463 1,549 1,988
Impairment credit
(charge) 84 333 323 (128) (301) (2,388) (1,430)
-------- -------- -------- -------- -------- -------- --------
Underlying profit
(loss) 2,190 1,994 2,071 1,312 1,162 (839) 558
Restructuring (131) (82) (173) (233) (155) (70) (63)
Volatility and
other
items (30) 95 - (202) 29 233 (421)
Payment
protection
insurance
provision - - - (85) - - -
-------- -------- -------- -------- -------- -------- --------
Statutory profit
(loss)
before tax 2,029 2,007 1,898 792 1,036 (676) 74
Tax (expense)
credit (429) 461 (501) (112) (348) 215 406
-------- -------- -------- -------- -------- -------- --------
Statutory profit
(loss)
after tax 1,600 2,468 1,397 680 688 (461) 480
-------- -------- -------- -------- -------- -------- --------
Banking net
interest
margin 2.55% 2.51% 2.49% 2.46% 2.42% 2.40% 2.79%
Average
interest-earning
banking assets GBP447bn GBP442bn GBP439bn GBP437bn GBP436bn GBP435bn GBP432bn
Cost:income ratio 48.3% 57.4% 52.3% 59.9% 56.9% 55.2% 49.7%
Asset quality
ratio (0.07)% (0.30)% (0.29)% 0.11% 0.27% 2.16% 1.30%
Return on
tangible equity 14.5% 24.4% 13.9% 5.9% 6.0% (6.1%) 3.7%
Loans and
advances to
customers(1) GBP451bn GBP448bn GBP444bn GBP440bn GBP439bn GBP440bn GBP443bn
Customer
deposits(2) GBP479bn GBP474bn GBP462bn GBP451bn GBP447bn GBP441bn GBP428bn
Loan to deposit
ratio 94% 94% 96% 98% 98% 100% 103%
Risk-weighted
assets GBP201bn GBP201bn GBP199bn GBP203bn GBP205bn GBP207bn GBP209bn
Tangible net
assets
per share 56.6p 55.6p 52.4p 52.3p 52.2p 51.6p 57.4p
See basis of presentation. Return on tangible equity revised basis calculation shown on page 16.
(1) Excludes reverse repos.
(2) Excludes repos.
BALANCE SHEET ANALYSIS
At 30 At 30 At 30 At 31
Sep Jun Sep Dec
2021 2021 Change 2020 Change 2020 Change
GBPbn GBPbn % GBPbn % GBPbn %
Loans and advances to
customers
Open mortgage book 292.6 289.9 1 270.6 8 277.3 6
Closed mortgage book 14.8 15.3 (3) 17.0 (13) 16.5 (10)
Credit cards 13.8 13.6 1 14.8 (7) 14.3 (3)
UK Retail unsecured
loans 8.1 8.0 1 8.2 (1) 8.0 1
UK Motor Finance 14.1 14.4 (2) 14.8 (5) 14.7 (4)
Overdrafts 1.0 1.0 - 1.0 - 0.9 11
Retail other(1) 10.8 10.5 3 10.2 6 10.4 4
SME(2) 39.8 40.4 (1) 40.0 (1) 40.6 (2)
Mid Corporates 3.7 3.8 (3) 4.4 (16) 4.1 (10)
Corporate and Institutional 46.6 44.9 4 50.2 (7) 46.0 1
Commercial Banking other 4.4 3.9 13 4.6 (4) 4.3 2
Wealth and Central items 0.8 2.0 (60) 3.4 (76) 3.1 (74)
------- ------- ------- -------
Loans and advances to
customers(3) 450.5 447.7 1 439.2 3 440.2 2
------- ------- ------- -------
Customer deposits
Retail current accounts 109.6 107.3 2 91.7 20 97.4 13
Commercial current accounts(2,4) 50.7 49.5 2 45.7 11 47.6 7
Retail relationship
savings accounts 162.6 161.3 1 149.9 8 154.1 6
Retail tactical savings
accounts 16.8 16.4 2 12.5 34 14.0 20
Commercial deposits(2,5) 123.8 124.5 (1) 132.9 (7) 122.7 1
Wealth and Central items 15.6 15.4 1 14.5 8 14.9 5
------- ------- ------- -------
Total customer deposits(6) 479.1 474.4 1 447.2 7 450.7 6
------- ------- ------- -------
Total assets 882.0 879.7 - 868.9 2 871.3 1
Total liabilities 829.4 827.8 - 819.4 1 821.9 1
Ordinary shareholders'
equity 46.5 45.8 2 43.4 7 43.3 7
Other equity instruments 5.9 5.9 - 5.9 - 5.9 -
Non-controlling interests 0.2 0.2 - 0.2 - 0.2 -
------- ------- ------- -------
Total equity 52.6 51.9 1 49.5 6 49.4 6
------- ------- ------- -------
Ordinary shares in issue,
excluding own shares 70,979m 70,956m - 70,776m - 70,812m -
(1) Primarily Europe.
(2) Includes Retail Business Banking.
(3) Excludes reverse repos.
(4) Primarily non interest-bearing Commercial Banking current accounts.
(5) Primarily Commercial Banking interest-bearing accounts.
(6) Excludes repos.
GROUP RESULTS - STATUTORY BASIS
The results below are prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRSs). The underlying results are shown on page 3 . A reconciliation between the statutory and underlying results is shown on page 15.
Income statement
Nine Nine
months months
ended ended
30 Sep 30 Sep
2021 2020 Change
GBPm GBPm %
Net interest income 7,073 9,173 (23)
Other income 20,012 4,126
-------- -------
Total income(1) 27,085 13,299
Insurance claims(1) (14,803) (1,719)
-------- -------
Total income, net of insurance claims 12,282 11,580 6
Operating expenses (7,194) (7,020) (2)
Impairment credit (charge) 846 (4,126)
-------- -------
Profit before tax 5,934 434
Tax (expense) credit (469) 273
-------- -------
Profit for the period 5,465 707
-------- -------
Balance sheet
At 30 At 31
Sep Dec
2021 2020 Change
GBPm GBPm %
Assets
Cash and balances at central banks 68,873 73,257 (6)
Financial assets at fair value through profit
or loss(2) 202,655 191,169 6
Derivative financial instruments 23,191 29,613 (22)
Financial assets at amortised cost 519,478 514,994 1
Financial assets at fair value through other
comprehensive income 27,958 27,603 1
Other assets 39,842 34,633 15
------- -------
Total assets 881,997 871,269 1
------- -------
Liabilities
Deposits from banks 14,291 31,465 (55)
Customer deposits 485,177 460,068 5
Financial liabilities at fair value through
profit or loss 26,667 22,646 18
Derivative financial instruments 18,262 27,313 (33)
Debt securities in issue 80,509 87,397 (8)
Liabilities arising from insurance and investment
contracts 163,931 154,512 6
Other liabilities 27,074 24,194 12
Subordinated liabilities 13,444 14,261 (6)
------- -------
Total liabilities 829,355 821,856 1
------- -------
Total equity 52,642 49,413 7
------- -------
Total equity and liabilities 881,997 871,269 1
------- -------
(1) Includes income and expense attributable to the policyholders of the Group's long-term assurance funds that materially offset in arriving at profit attributable to equity shareholders. These can, depending on market movements, lead to significant variances on a statutory basis in total income and insurance claims from one period to the next.
(2) Contains assets measured at fair value through profit or loss arising from contracts held with reinsurers, previously included within other assets; comparatives have been restated.
REVIEW OF PERFORMANCE
Strong strategic progress
During the first nine months of 2021, the Group has made meaningful progress across our Helping Britain Recover priority areas. We have expanded the availability of affordable and quality homes with new lending of c.GBP12.8 billion to first-time buyers, exceeding our full year 2021 target of GBP10 billion. In addition, we have continued to help businesses recover, adapt and grow through supporting over 70,000 businesses in start up and helping more than 130,000 small businesses boost their digital capabilities. The Group continues to contribute to the transition to a low carbon economy, including introducing a flagship fossil fuel-free fund allowing pension savers to invest with positive environmental impact.
We are making strong strategic progress against our customer focused ambitions. During the first nine months of 2021, the Group has continued to focus on its aim of being the preferred financial partner for personal customers with net open mortgage book growth of more than GBP15 billion. Our all channel NPS and mobile app NPS have both continued to improve in 2021 and are ahead of the targets we outlined in February. The Group generated GBP5 billion net new open book Assets Under Administration in Insurance and Wealth, as well as enhancing our Wealth offering through the announced acquisition of Embark Group. In our vision to become the best bank for business, during the first nine months of 2021, we have delivered more than 50 per cent growth in SME products originated via a digital source compared to the same period in 2020. Alongside this, we have continued to improve our ranking in core Markets areas, such as GBP rates.
The Group continues to enhance its capabilities, including an improved merchant services proposition and distribution capabilities, delivering 12 per cent new client growth in the first nine months of 2021. We have continued the roll out of hybrid ways of workings and remain on track for an 8 per cent reduction in office space in 2021, with 5 per cent delivered so far. We are continuing to build our data-driven organisation with more than 25 per cent increase in SME client engagement following the roll out of data-driven targeted marketing in June 2021.
Statutory results
The Group's statutory profit before tax for the nine months ended 30 September 2021 was GBP5,934 million, benefiting from continued business momentum and a net impairment credit based upon the improved macroeconomic outlook. Statutory profit after tax was GBP5,465 million.
The Group's balance sheet reflects continued franchise growth. Loans and advances to customers, excluding reverse repurchase agreements, were 2 per cent higher at GBP450.5 billion, compared to GBP440.2 billion at 31 December 2020, driven by strong growth in the open mortgage book of GBP15.3 billion. Customer deposits, excluding repurchase agreements, have increased by GBP28.4 billion since the end of 2020, with continued inflows to the Group's trusted brands.
Underlying results
The Group's underlying profit for the first nine months of the year was GBP6,255 million, compared to GBP881 million for the same period in 2020, reflecting both solid financial performance and the improved macroeconomic outlook for the UK. Underlying profit before impairment for the period of GBP5,515 million continues to recover, up 10 per cent against the nine months to 30 September 2020. In the third quarter underlying profit before impairment was GBP2,106 million and underlying profit was GBP2,190 million, up 27 per cent and 10 per cent respectively on the second quarter of 2021.
Net income performance of GBP11,641 million was solid, up 8 per cent on the first nine months of 2020 with stronger net interest income and other income. Net interest income of GBP8,270 million was up 2 per cent year on year, benefiting from average interest-earning banking asset growth and a banking net interest margin of 2.52 per cent (nine months to 30 September 2020: 2.54 per cent). The Group's banking net interest margin in the third quarter of 2.55 per cent was up 4 basis points on the second quarter, reflecting increased structural hedge earnings, funding benefits and higher retail overdraft balances. Average interest-earning banking assets were up 2 per cent compared to the first nine months of 2020 at GBP443.0 billion, driven by strong growth in the open mortgage book and the impact of three quarters of government-backed lending during 2021, compared to two quarters in 2020. This was partially offset by continued optimisation in Commercial Banking, the repayment of revolving credit facilities provided to support commercial clients during the pandemic and lower average balances in credit cards and Motor Finance for the year to date.
REVIEW OF PERFORMANCE (continued)
As at 30 September 2021 the Group's structural hedge had an approved capacity of GBP240 billion. This represents an increase from GBP225 billion at 30 June 2021, GBP210 billion at year end 2020 and GBP185 billion at year end 2019, on the basis of substantially greater deposit inflows since year end 2019 (inflows of GBP67 billion). The nominal balance of the structural hedge was GBP225 billion at 30 September 2021 (31 December 2020: GBP186 billion) with a weighted-average duration of around three-and-a-half years (31 December 2020: around two-and-a-half years). The Group generated GBP1.6 billion of total gross income from the structural hedge balances in the period (nine months to 30 September 2020: GBP1.9 billion), with income in the third quarter of GBP0.6 billion, showing an increase versus the first half run rate of GBP0.5 billion per quarter.
Other income of GBP3,753 million was 9 per cent higher compared to GBP3,449 million in the first nine months of 2020, with GBP1,336 million in the third quarter. Performance reflected gradually increasing customer activity, particularly strong returns in the Group's equity investment business (including Lloyds Development Capital) both in the third quarter, and the year to date, partly offset by a reduced Lex fleet size and lower levels of gilt sales. In the third quarter, Retail other income benefited from increased customer activity levels, whilst Insurance and Wealth was broadly stable. Commercial Banking, although up on the third quarter of 2020, was down slightly against the second quarter of 2021 due to lower Markets and corporate financing activity. The Group's equity investment business generated c.GBP250 million of other income in the quarter, with Lloyds Development Capital c.GBP100 million above its typical run rate. Operating lease depreciation reduced to GBP382 million (nine months to 30 September 2020: GBP734 million) as a result of stronger used car prices, combined with the continued impact of a reduced Lex fleet size.
Total costs of GBP6,126 million were 5 per cent higher than in the first nine months of 2020, due to both slightly higher operating costs and a higher remediation charge in the period. In the context of continued stronger than expected financial performance in income and impairments, as announced at the half-year, the Group accelerated the rebuild of variable pay, which has resulted in the increase in operating costs. The Group continues to maintain its focus on cost management, with a market-leading cost:income ratio of 52.6 per cent.
Remediation charges increased to GBP525 million (GBP100 million in the third quarter), which included the previously announced GBP91 million regulatory fine relating to the past communication of historical home insurance renewals, redress and operational costs in respect of HBOS Reading and litigation costs and charges relating to other ongoing legacy programmes. Year to date, GBP190 million has been recognised in relation to HBOS Reading redress and operational costs, including GBP40 million in the third quarter. As previously indicated, further significant charges in relation to HBOS Reading could be required in future quarters, although it is not possible to reliably estimate the potential impact or timings at this stage.
Asset quality remains strong, with sustained low levels of new to arrears. Impairment was a net credit of GBP740 million, compared to a net charge of GBP4,119 million in the first nine months of 2020. Within this, the first nine months of the year have seen a low impairment charge of GBP411 million before the impact of economic outlook revisions (first nine months of 2020: GBP1,192 million), including GBP159 million in the third quarter, reflecting continued strong asset quality. The net credit in the period was significantly driven by a GBP1,098 million release of expected credit loss (ECL) allowances based upon improvements to the macroeconomic outlook for the UK. Of this macroeconomic outlook driven release of ECL, GBP261 million was recognised in the third quarter of 2021.
The Group's ECL allowance reduced in the first nine months of the year by GBP1.6 billion to GBP5.2 billion, c.GBP1 billion higher than at the end of 2019 (31 December 2020: GBP6.9 billion, 31 December 2019: GBP4.2 billion). As noted above, observed credit performance remained robust in the period, with the flow of assets into arrears, defaults and write-offs remaining at low levels. The Group has retained the judgemental overlays that were in place at the half-year, with management judgements in respect of coronavirus of c.GBP1.2 billion (31 December 2020: c.GBP0.9 billion), including the central GBP400 million overlay introduced at year end, as well as c.GBP800 million of judgements within the underlying credit portfolios (31 December 2020: c.GBP500 million).
REVIEW OF PERFORMANCE (continued)
Capital
The Group's CET1 capital ratio increased to 17.2 per cent after dividend accrual, compared to 16.2 per cent at 31 December 2020. The strong capital build of 159 basis points during the first nine months of the year largely reflected banking profitability (pre-impairment credit) of 186 basis points, with a limited impairment offset of 17 basis points, being the net impact of IFRS 9 transitional relief reduction and the impairment credit year to date. Capital build also benefited from a reduction in underlying risk-weighted assets of 18 basis points, more than offset by pension and other movements of 28 basis points, primarily reflecting the full 2021 fixed contributions for the Group's three main defined benefit pension schemes. The CET1 capital ratio reduced by a further 56 basis points in respect of the ordinary dividend accrual for 2021.
The PRA have confirmed their intention to remove the beneficial treatment currently applied to intangible software assets and reinstate the original requirement to deduct these assets in full. This change will be implemented on 1 January 2022 and is expected to reduce the Group's reported CET1 ratio by c.50 basis points at that time. The Group continues to apply IFRS 9 transitional arrangements for capital, with the total relief recognised at 30 September 2021 amounting to 60 basis points. Excluding the IFRS 9 transitional relief and removing the current beneficial treatment applied to intangible software assets would reduce the Group's CET1 capital ratio from 17.2 per cent to 16.1 per cent, on the basis of the position at 30 September 2021.
The PRA recently reduced the Group's nominal Pillar 2A CET1 requirement, resulting in a reduction from the equivalent of around 2.2 per cent at 30 June 2021 to the equivalent of around 2.0 per cent on the basis of the position at 30 September 2021. The Group's CET1 regulatory capital requirement remains at around 11 per cent. The Board's view of the ongoing level of CET1 capital required to grow the business, meet regulatory requirements and cover uncertainties continues to be around 12.5 per cent, plus a management buffer of around 1 per cent.
Risk-weighted assets at GBP201 billion reduced by GBP2.0 billion in the first nine months of the year, primarily driven by continued optimisation activity undertaken in Commercial Banking, partially offset by limited credit migration and balance sheet growth. The Group continues to expect risk-weighted assets to be below GBP200 billion at the end of the year. On 1 January 2022, regulatory headwinds from the implementation of new CRD IV models (predominantly relating to mortgages) and changes to counterparty credit risk rules (SA-CCR) are expected to increase risk-weighted assets by between GBP15 billion and GBP20 billion. The exact outcome remains subject to the finalisation of the new CRD IV models and as such the Group's estimate carries a degree of uncertainty.
IFRS 17
IFRS 17, an accounting standard that will be effective from 1 January 2023, impacts the phasing of profit recognition for insurance contracts. Upon implementation, the Group's insurance-related retained earnings will be restated and the reporting of insurance new business revenue within other income will be spread over time as the Group provides service to its policyholders (versus recognised up front under current accounting standards), with the quantum and timing of the impact dependent on, inter alia, the amount and mix of new business and extent of assumption changes in any given year following implementation. The cash flow and economic value generated by the Group's Insurance business does not change. There will be no impact on the Group's or the Insurance business' capital position, nor the ability of Insurance to pay dividends to Group. Following implementation, recognition of Insurance income will be more stable. Reduction in the Group's shareholders' equity from, inter alia, the removal of value in force from the Insurance business, remeasurement of insurance liabilities and the creation of a contractual service margin (CSM) liability, is expected to drive a mid-single digit pence per share reduction in the Group's tangible net asset value.
ADDITIONAL IMPAIRMENT INFORMATION
The analyses which follow have been presented on an underlying basis.
Impairment pre and post updated economic outlook on an underlying basis
Nine Nine Three Three
months months months months
ended ended ended ended
30 Sep 30 Sep 30 Sep 30 Sep
2021 2020 Change 2021 2020 Change
GBPm GBPm % GBPm GBPm %
Charges pre-updated multiple
economic scenarios(1) :
------- ------- ------- -------
Retail 733 976 25 206 398 48
Commercial Banking (318) 211 (46) 5
Other (4) 5 (1) 1
------- ------- ------- -------
411 1,192 66 159 404 61
Coronavirus impacted restructuring
cases(2) (53) 434 18 2
Updated economic outlook:
------- ------- ------- -------
Retail (690) 1,442 (146) (75) 95
Commercial Banking (408) 851 (115) (30)
Other - 200 - -
------- ------- ------- -------
(1,098) 2,493 (261) (105)
------- ------- ------- -------
Impairment (credit) charge (740) 4,119 (84) 301
------- ------- ------- -------
Asset quality ratio (0.22)% 1.24% (146)bp (0.07%) 0.27% (34)bp
(1) Charges based on economic outlook as at 31 December 2019, prior to the impact of the coronavirus pandemic on expected losses.
(2) Additional (credits) charges on cases subject to restructuring at the end of 2019, where the coronavirus pandemic is considered to have had a direct effect upon the recovery strategy.
Movements in ECL by division on an underlying basis
Opening Income Closing
ECL at statement ECL at
31 Dec Write-offs (credit) Net ECL 30 Sep
2020 and other charge decrease 2021
GBPm GBPm GBPm GBPm GBPm
UK Mortgages 1,605 (36) (212) (248) 1,357
Credit cards 958 (301) 87 (214) 744
Loans and overdrafts 715 (360) 204 (156) 559
UK Motor Finance 501 (40) (42) (82) 419
Other 229 (28) 6 (22) 207
------- ---------- ---------- --------- -------
Retail 4,008 (765) 43 (722) 3,286
SME 502 (10) (190) (200) 302
Corporate and other(1) 1,900 (126) (589) (715) 1,185
------- ---------- ---------- --------- -------
Commercial Banking 2,402 (136) (779) (915) 1,487
Other 450 1 (4) (3) 447
------- ---------- ---------- --------- -------
Total(2) 6,860 (900) (740) (1,640) 5,220
------- ---------- ---------- --------- -------
(1) Corporate and other primarily comprises Mid Corporates and Corporate and Institutional.
(2) Total ECL includes GBP25 million relating to other non customer-related assets (31 December 2020: GBP28 million).
ADDITIONAL IMPAIRMENT INFORMATION (continued)
Group loans and advances to customers and expected credit loss allowances - underlying basis
Stage Stage Stage
1 2 3 Total
Stage Stage
2 3
as % as %
of of
At 30 September 2021 GBPm GBPm GBPm GBPm total total
Loans and advances to customers
UK Mortgages 269,807 34,699 4,261 308,767 11.2 1.4
Credit cards 11,080 2,966 305 14,351 20.7 2.1
Loans and overdrafts 7,818 1,473 287 9,578 15.4 3.0
UK Motor Finance 12,143 2,170 217 14,530 14.9 1.5
Other(1) 17,285 1,617 467 19,369 8.3 2.4
------- ------- ------- ------- ------ ------
Retail(2) 318,133 42,925 5,537 366,595 11.7 1.5
SME(1) 27,945 2,884 852 31,681 9.1 2.7
Corporate and other(1) 49,890 3,772 2,157 55,819 6.8 3.9
------- ------- ------- ------- ------ ------
Commercial Banking 77,835 6,656 3,009 87,500 7.6 3.4
Insurance and Wealth 906 29 64 999 2.9 6.4
Central items(1) 52,417 - 8 52,425 - -
------- ------- ------- ------- ------ ------
Total gross lending 449,291 49,610 8,618 507,519 9.8 1.7
------ ------
ECL allowance on drawn balances (1,101) (1,754) (2,034) (4,889)
------- ------- ------- -------
Net balance sheet carrying
value 448,190 47,856 6,584 502,630
------- ------- ------- -------
Group ECL allowance (drawn
and undrawn)
UK Mortgages 124 651 582 1,357 48.0 42.9
Credit cards 161 449 134 744 60.3 18.0
Loans and overdrafts 158 269 132 559 48.1 23.6
UK Motor Finance(3) 150 126 143 419 30.1 34.1
Other 49 102 56 207 49.3 27.1
------- ------- ------- ------- ------ ------
Retail(2) 642 1,597 1,047 3,286 48.6 31.9
SME 87 115 100 302 38.1 33.1
Corporate and other 97 203 882 1,182 17.2 74.6
------- ------- ------- ------- ------ ------
Commercial Banking 184 318 982 1,484 21.4 66.2
Insurance and Wealth 9 1 10 20 5.0 50.0
Central items 400 - 5 405 - 1.2
------- ------- ------- ------- ------ ------
Total ECL allowance (drawn
and undrawn) 1,235 1,916 2,044 5,195 36.9 39.3
------- ------- ------- ------- ------ ------
Group ECL allowances (drawn
and undrawn) as a % of loans
and advances to customers(4)
UK Mortgages - 1.9 13.7 0.4
Credit cards 1.5 15.1 57.0 5.2
Loans and overdrafts 2.0 18.3 61.4 5.9
UK Motor Finance 1.2 5.8 65.9 2.9
Other 0.3 6.3 21.0 1.1
------- ------- ------- -------
Retail(2) 0.2 3.7 20.2 0.9
SME 0.3 4.0 13.7 1.0
Corporate and other 0.2 5.4 41.0 2.1
------- ------- ------- -------
Commercial Banking 0.2 4.8 34.1 1.7
Insurance and Wealth 1.0 3.4 15.6 2.0
Central items 0.8 - 62.5 0.8
------- ------- ------- -------
Total ECL allowances (drawn
and undrawn) as a % of loans
and advances to customers 0.3 3.9 25.1 1.0
------- ------- ------- -------
(1) Retail other, SME and Corporate and other include BBLS related assets. Central items includes reverse repos of GBP52.2 billion.
(2) Retail balances exclude the impact of the HBOS and MBNA acquisition related adjustments.
(3) UK Motor Finance for Stages 1 and 2 include GBP135 million relating to provisions against residual values of vehicles subject to finance leasing agreements. These provisions are included within the calculation of coverage ratios.
(4) Total and Stage 3 ECL allowances as a percentage of drawn balances exclude loans in recoveries in credit cards of GBP70 million, loans and overdrafts of GBP72 million, Retail other of GBP200 million, SME of GBP124 million and Corporate and other of GBP4 million.
ADDITIONAL IMPAIRMENT INFORMATION (continued)
Group loans and advances to customers and expected credit loss allowances - underlying basis (continued)
Stage Stage Stage
1 2 3 Total
Stage Stage
2 3
as % as %
of of
At 31 December 2020 GBPm GBPm GBPm GBPm total total
Loans and advances to customers
UK Mortgages 253,043 37,882 4,459 295,384 12.8 1.5
Credit cards 11,454 3,264 339 15,057 21.7 2.3
Loans and overdrafts 7,710 1,519 307 9,536 15.9 3.2
UK Motor Finance 12,786 2,216 199 15,201 14.6 1.3
Other(1) 17,879 1,304 184 19,367 6.7 1.0
------- ------- ------- ------- ------ ------
Retail(2) 302,872 46,185 5,488 354,545 13.0 1.5
SME(1) 27,015 4,500 791 32,306 13.9 2.4
Corporate and other(1) 43,543 9,816 2,733 56,092 17.5 4.9
------- ------- ------- ------- ------ ------
Commercial Banking 70,558 14,316 3,524 88,398 16.2 4.0
Insurance and Wealth 832 13 70 915 1.4 7.7
Central items(1) 61,264 - 7 61,271 - -
------- ------- ------- ------- ------ ------
Total gross lending 435,526 60,514 9,089 505,129 12.0 1.8
------ ------
ECL allowance on drawn balances (1,385) (2,493) (2,495) (6,373)
------- ------- ------- -------
Net balance sheet carrying
value 434,141 58,021 6,594 498,756
------- ------- ------- -------
Group ECL allowance (drawn
and undrawn)
UK Mortgages 110 798 697 1,605 49.7 43.4
Credit cards 250 548 160 958 57.2 16.7
Loans and overdrafts 224 344 147 715 48.1 20.6
UK Motor Finance(3) 197 171 133 501 34.1 26.5
Other 46 124 59 229 54.1 25.8
------- ------- ------- ------- ------ ------
Retail(2) 827 1,985 1,196 4,008 49.5 29.8
SME 142 234 126 502 46.6 25.1
Corporate and other 217 507 1,169 1,893 26.8 61.8
------- ------- ------- ------- ------ ------
Commercial Banking 359 741 1,295 2,395 30.9 54.1
Insurance and Wealth 11 1 11 23 4.3 47.8
Central items 400 - 6 406 - 1.5
------- ------- ------- ------- ------ ------
Total ECL allowance (drawn
and undrawn) 1,597 2,727 2,508 6,832 39.9 36.7
------- ------- ------- ------- ------ ------
Group ECL allowances (drawn
and undrawn) as a % of loans
and advances to customers(4)
UK Mortgages - 2.1 15.6 0.5
Credit cards 2.2 16.8 58.8 6.4
Loans and overdrafts 2.9 22.6 64.2 7.6
UK Motor Finance 1.5 7.7 66.8 3.3
Other 0.3 9.5 39.3 1.2
------- ------- ------- -------
Retail(2) 0.3 4.3 22.5 1.1
SME 0.5 5.2 19.1 1.6
Corporate and other 0.5 5.2 42.9 3.4
------- ------- ------- -------
Commercial Banking 0.5 5.2 38.2 2.7
Insurance and Wealth 1.3 7.7 15.7 2.5
Central items 0.7 - 85.7 0.7
------- ------- ------- -------
Total ECL allowances (drawn
and undrawn) as a % of loans
and advances to customers 0.4 4.5 28.6 1.4
------- ------- ------- -------
(1) Retail other, SME and Corporate and other include BBLS related assets. Central items includes reverse repos of GBP58.6 billion.
(2) Retail balances exclude the impact of the HBOS and MBNA acquisition related adjustments.
(3) UK Motor Finance for Stages 1 and 2 include GBP192 million relating to provisions against residual values of vehicles subject to finance leasing agreements. These provisions are included within the calculation of coverage ratios.
(4) Total and Stage 3 ECL allowances as a percentage of drawn balances exclude loans in recoveries in credit cards of GBP67 million, loans and overdrafts of GBP78 million, Retail other of GBP34 million, SME of GBP132 million and Corporate and other of GBP6 million.
ADDITIONAL IMPAIRMENT INFORMATION (continued)
UK economic assumptions - Base case scenario by quarter
Key quarterly assumptions made by the Group are shown below. Gross domestic product is presented quarter on quarter, house price growth and commercial real estate growth are presented year on year and UK Bank Rate is presented end quarter. Unemployment is presented as the average for the quarter.
First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
2021 2021 2021 2021 2022 2022 2022 2022
At 30 September 2021 % % % % % % % %
Gross domestic product (1.6) 4.8 1.4 1.5 0.9 0.9 0.6 0.3
UK Bank Rate 0.10 0.10 0.10 0.10 0.10 0.25 0.25 0.50
Unemployment rate 4.9 4.7 4.7 5.8 5.7 5.6 5.4 5.4
House price growth 6.5 8.7 5.2 4.8 4.6 2.9 2.0 1.4
Commercial real estate
price growth (2.9) 3.4 3.5 2.1 1.3 (1.3) (0.6) 0.4
UK economic assumptions - Scenarios by year
Key annual assumptions made by the Group are shown below. Gross domestic product is presented as an annual change, house price growth and commercial real estate price growth are presented as the growth in the respective indices within the period. UK Bank Rate and unemployment rate are averages for the period.
2021-2025
2021 2022 2023 2024 2025 average
At 30 September 2021 % % % % % %
Upside
Gross domestic product 6.7 5.5 1.1 1.4 1.4 3.2
UK Bank Rate 0.26 1.57 1.62 1.78 2.03 1.45
Unemployment rate 4.6 4.1 4.0 3.8 3.8 4.1
House price growth 5.8 4.5 5.2 5.2 4.2 5.0
Commercial real estate
price growth 7.7 6.5 2.6 1.8 0.5 3.8
Base case
Gross domestic product 6.3 5.0 1.5 1.3 1.3 3.1
UK Bank Rate 0.10 0.28 0.50 0.69 0.94 0.50
Unemployment rate 5.0 5.5 5.2 4.9 4.7 5.1
House price growth 4.8 1.4 0.1 1.1 1.1 1.7
Commercial real estate
price growth 2.1 0.4 1.3 1.4 0.7 1.2
Downside
Gross domestic product 6.1 4.1 1.1 1.3 1.4 2.8
UK Bank Rate 0.11 0.16 0.17 0.19 0.28 0.18
Unemployment rate 5.3 6.9 6.8 6.4 6.0 6.3
House price growth 3.6 (4.8) (7.6) (5.3) (2.7) (3.4)
Commercial real estate
price growth (1.2) (5.7) (1.4) 0.0 0.2 (1.6)
Severe downside
Gross domestic product 5.5 2.4 0.8 1.2 1.4 2.3
UK Bank Rate 0.08 0.01 0.03 0.03 0.05 0.04
Unemployment rate 5.9 9.1 9.1 8.4 7.7 8.0
House price growth 3.1 (7.9) (13.1) (10.1) (6.4) (7.0)
Commercial real estate
price growth (7.2) (16.4) (7.3) (2.2) 0.4 (6.7)
ADDITIONAL IMPAIRMENT INFORMATION (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 probability-weighted scenario view and, hence, the Stage 2 allocation is constant across all scenarios, in line with reported amounts. ECL applied through individual assessments and post-model adjustments is reported flat against each economic scenario, reflecting the basis on which they are evaluated. The base case, upside and downside scenarios carry a 30 per cent weighting; the severe downside is weighted at 10 per cent.
Probability- Severe
weighted Upside Base case Downside downside
Underlying basis GBPm GBPm GBPm GBPm GBPm
At 30 September 2021 5,220 4,584 4,904 5,577 7,002
At 31 December 2020 6,860 5,766 6,354 7,468 9,838
INTEREST RATE SENSITIVITY INFORMATION
Illustrative cumulative impact of parallel shifts in interest rate curve(1)
The table below shows the banking book net interest income sensitivity to an instantaneous parallel up or down basis points change to interest rates. Sensitivities reflect shifts in the forward rate curve. The net interest income impact from the shift is driven by structural hedge maturity reinvestment and benefit on certain deposit balances. The actual impact will also depend on the prevailing regulatory and competitive environment at the time. This sensitivity is illustrative and does not reflect new business margin implications and/or pricing actions, other than as outlined.
The following assumptions have been applied:
-- Instantaneous parallel shift in GBP interest rate curve, including bank base rate -- Balance sheet remains constant
-- Assumes an illustrative 50 per cent pass-through on deposits, but could be different in practice
-- Customer deposits and interest rates floored at 0 per cent
Year Year Year
1 2 3
GBPm GBPm GBPm
+50bps c.425 c.600 c.850
+25bps c.225 c.300 c.425
+15bps c.125 c.175 c.250
-10bps c.(150) c.(200) c.(250)
(1) Sensitivity based on modelled impact on banking book net interest income, including the structural hedge. Annual impacts are presented for illustrative purposes only and are based on a number of assumptions which are subject to change. Year 1 reflects the 12 months from 30 September 2021 balance sheet position.
ALTERNATIVE PERFORMANCE MEASURES
In addition to the statutory basis of presentation, the results are also presented on an underlying basis. The Group Executive Committee, which is the chief operating decision maker for the Group, reviews the Group's results on an underlying basis in order to assess performance and allocate resources. Management uses underlying profit before tax, an alternative performance measure, as a measure of performance and believes that it provides important information for investors because it allows for a comparable representation of the Group's performance by removing the impact of certain items including volatility caused by market movements outside the control of management.
In arriving at underlying profit, statutory profit before tax is adjusted for the items below, to allow a comparison of the Group's underlying performance:
- Restructuring, including severance-related costs, property transformation, technology research and development, regulatory programmes and merger, acquisition and integration costs
- Volatility and other items, which includes the effects of certain asset sales, the volatility relating to the Group's hedging arrangements and that arising in the insurance business, the unwind of acquisition-related fair value adjustments and the amortisation of purchased intangible assets
- Payment protection insurance provisions
The Group's statutory income statement includes income and expense attributable to the policyholders of the Group's long-term assurance funds. These items materially offset in arriving at profit attributable to equity shareholders but can, depending on market movements, lead to significant variances on a statutory basis in total income and insurance claims from one period to the next. The Group nets down this volatility in the underlying basis presentation in order to improve comparability between periods.
The analysis of lending and expected credit loss (ECL) allowances is presented on an underlying basis. On a statutory basis, purchased or originated credit-impaired (POCI) assets include a fixed pool of mortgages that were purchased as part of the HBOS acquisition at a deep discount to face value reflecting credit losses incurred from the point of origination to the date of acquisition. Over time, these POCI assets will run off as the loans redeem, pay down or losses crystallise. The underlying basis assumes that the lending assets acquired as part of a business combination were originated by the Group and are classified as either Stage 1, 2 or 3 according to the change in credit risk over the period since origination. Underlying ECL allowances have been calculated accordingly. The Group uses the underlying basis to monitor the creditworthiness of the lending portfolio and related ECL allowances.
The Group calculates a number of metrics that are used throughout the banking and insurance industries on an underlying basis. A description of these measures and their calculation, which remain unchanged, is set out on page 125 of the 2021 Half-Year Results News Release.
ALTERNATIVE PERFORMANCE MEASURES (continued)
Reconciliation between statutory and underlying basis financial information
Removal of:
Volatility Insurance
Statutory and other gross Underlying
basis items(1,2) up(3) basis
Nine months ended 30 September
2021 GBPm GBPm GBPm GBPm
Net interest income 7,073 136 1,061 8,270
Other income, net of insurance
claims 5,209 (258) (1,198) 3,753
Operating lease depreciation (382) - (382)
--------- ----------- --------- ----------
Net income 12,282 (504) (137) 11,641
Operating expenses(4) (7,194) 931 137 (6,126)
Impairment credit 846 (106) - 740
--------- ----------- --------- ----------
Profit before tax 5,934 321 - 6,255
--------- ----------- --------- ----------
Nine months ended 30 September
2020
Net interest income 9,173 112 (1,189) 8,096
Other income, net of insurance
claims 2,407 13 1,029 3,449
Operating lease depreciation (734) - (734)
--------- ----------- --------- ----------
Net income 11,580 (609) (160) 10,811
Operating expenses(4) (7,020) 1,056 153 (5,811)
Impairment charge (4,126) - 7 (4,119)
--------- ----------- --------- ----------
Profit before tax 434 447 - 881
--------- ----------- --------- ----------
(1) In the nine months to 30 September 2021 this comprises the effects of market volatility and asset sales (gain of GBP269 million); the amortisation of purchased intangibles (GBP52 million); restructuring (GBP386 million, including severance costs (GBP91 million), property transformation (GBP72 million), technology research and development (GBP104 million), regulatory programmes (GBP46 million) and merger, acquisition, integration costs and other (GBP73 million)); and fair value unwind (losses of GBP152 million).
(2) In the nine months to 30 September 2020 this comprises the effects of market volatility and asset sales (gain of GBP65 million); the amortisation of purchased intangibles (GBP52 million); restructuring (GBP288 million, including severance costs (GBP65 million), property transformation (GBP95 million), technology research and development (GBP35 million), regulatory programmes (GBP29 million) and merger, acquisition, integration costs and other (GBP64 million)); and fair value unwind (losses of GBP172 million).
(3) The Group's insurance businesses' income statements include income and expense attributable to the policyholders of the Group's long-term assurance funds. These items have no impact in total upon profit attributable to equity shareholders and, to provide a clearer representation of the underlying trends within the business, these items are shown net within the underlying results.
(4) The statutory basis figure is the aggregate of operating costs and operating lease depreciation. The Group's cost:income ratio is calculated dividing total costs by net income on an underlying basis. On an underlying basis operating lease depreciation is included in net income.
At 30 Sep At 30 Jun At 31 Dec
2021 2021 2020
GBPm GBPm GBPm
Tangible net assets per share
Ordinary shareholders' equity 46,490 45,761 43,278
Goodwill (2,320) (2,320) (2,320)
Intangible assets (4,346) (4,299) (4,140)
Purchased value of in-force business (203) (209) (221)
Other, including deferred tax effects 558 552 459
--------- --------- ---------
Tangible net assets 40,179 39,485 37,056
--------- --------- ---------
Ordinary shares in issue, excluding own
shares 70,979m 70,956m 70,812m
Tangible net assets per share 56.6p 55.6p 52.3p
ALTERNATIVE PERFORMANCE MEASURES (continued)
Nine Nine
months months
ended ended
30 Sep 30 Sep
2021 2020
Asset quality ratio
Underlying basis impairment release (charge) (GBPm) 740 (4,119)
Remove non-customer impairment (GBPm) (6) 16
------- -------
Underlying customer related impairment release (charge)
(GBPm) 734 (4,103)
Statutory net loans and advances to customers (GBPbn)(1) 450.5 439.2
Add back expected credit loss allowance (drawn) (GBPbn) 4.4 5.9
Acquisition related fair value adjustments (GBPbn) 0.4 0.6
------- -------
Underlying gross loans and advances to customers
(GBPbn) 455.3 445.7
Averaging (GBPbn) (6.1) (2.0)
------- -------
Average underlying gross loans and advances to customers
(GBPbn) 449.2 443.7
------- -------
Asset quality ratio (0.22)% 1.24%
Banking net interest margin
Net interest income - underlying basis (GBPm) 8,270 8,096
Non-banking net interest expense (GBPm) 86 151
------- -------
Banking net interest income - underlying basis (GBPm) 8,356 8,247
------- -------
Underlying gross loans and advances to customers
(GBPbn) 455.3 445.7
Non-banking items:
Fee-based loans and advances (GBPbn) (5.4) (5.5)
Other non-banking (GBPbn) 0.9 (3.7)
------- -------
Interest-earning banking assets 450.8 436.5
Averaging (GBPbn) (7.8) (2.2)
------- -------
Average interest-earning banking assets (GBPbn) 443.0 434.3
------- -------
Banking net interest margin 2.52% 2.54%
Return on tangible equity
Profit attributable to ordinary shareholders (GBPm) 5,064 319
Average shareholders' equity (GBPbn) 44.7 43.6
Average intangible assets (GBPbn) (6.3) (6.2)
------- -------
Average tangible equity (GBPbn) 38.4 37.4
------- -------
Return on tangible equity (%) (,2) 17.6 1.1
Underlying profit before impairment
Statutory profit before tax (GBPm) 5,934 434
Statutory impairment (release) charge (GBPm) (846) 4,126
Volatility and other items including restructuring
(GBPm) 427 447
Insurance gross up (GBPm) - (7)
Underlying profit before impairment (GBPm) 5,515 5,000
------- -------
(1) Excludes reverse repos of GBP52.2 billion (30 September 2020: GBP60.0 billion).
(2) As announced at the full year 2020 results, the Group has revised its definition of return on tangible equity. Statutory profit after tax is adjusted to deduct profit attributable to non-controlling interests and other equity holders and is divided by average tangible equity. 30 September 2020 disclosed on the revised basis.
BASIS OF PRESENTATION
This release covers the results of Lloyds Banking Group plc together with its subsidiaries (the Group) for the nine months ended 30 September 2021. Unless otherwise stated, income statement commentaries throughout this document compare the nine months ended 30 September 2021 to the nine months ended 30 September 2020, and the balance sheet analysis compares the Group balance sheet as at 30 September 2021 to the Group balance sheet as at 31 December 2020. The Group uses a number of alternative performance measures, including underlying profit, in the discussion of its business performance and financial position. These measures are labelled with a ' ' throughout this document. Further information on these measures is set out on page 14. Unless otherwise stated, commentary on page 1 is given on an underlying basis. Capital and leverage ratios reported as at 30 September 2021 incorporate profits for the quarter that remain subject to formal verification in accordance with the Capital Requirements Regulation. The Q3 2021 Interim Pillar 3 Report can be found at: https://www.lloydsbankinggroup.com/investors/financial-downloads/
FORWARD LOOKING STATEMENTS
This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and section 27A of the US Securities Act of 1933, as amended, with respect to Lloyds Banking Group plc together with its subsidiaries (the Group) and its current goals and expectations. Statements that are not historical or current facts, including statements about the Group's or its directors' and/or management's beliefs and expectations, are forward looking statements. Words such as, without limitation, 'believes', 'achieves', 'anticipates', 'estimates', 'expects', 'targets', 'should', 'intends', 'aims', 'projects', 'plans', 'potential', 'will', 'would', 'could', 'considered', 'likely', 'may', 'seek', 'estimate', 'probability', 'goal', 'objective', 'deliver', 'endeavour', 'prospects', 'optimistic' and similar expressions or variations on these expressions are intended to identify forward looking statements. These statements concern or may affect future matters, including but not limited to: projections or expectations of the Group's future financial position, including profit attributable to shareholders, provisions, economic profit, dividends, capital structure, portfolios, net interest margin, capital ratios, liquidity, risk-weighted assets (RWAs), expenditures or any other financial items or ratios; litigation, regulatory and governmental investigations; the Group's future financial performance; the level and extent of future impairments and write-downs; the Group's ESG targets and/or commitments; statements of plans, objectives or goals of the Group or its management and other statements that are not historical fact; expectations about the impact of COVID-19; and statements of assumptions underlying such statements. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend upon circumstances that will or may occur in the future. Factors that could cause actual business, strategy, plans and/or results (including but not limited to the payment of dividends) to differ materially from forward looking statements include, but are not limited to: general economic and business conditions in the UK and internationally; market related risks, trends and developments; fluctuations in interest rates, inflation, exchange rates, stock markets and currencies; volatility in credit markets; any impact of the transition from IBORs to alternative reference rates; the ability to access sufficient sources of capital, liquidity and funding when required; changes to the Group's credit ratings; the ability to derive cost savings and other benefits including, but without limitation, as a result of any acquisitions, disposals and other strategic transactions; potential changes in dividend policy; the ability to achieve strategic objectives; management and monitoring of conduct risk; exposure to counterparty risk; credit rating risk; instability in the global financial markets, including within the Eurozone, and as a result of uncertainty surrounding the exit by the UK from the European Union (EU) and the effects of the EU-UK Trade and Cooperation Agreement; political instability including as a result of any UK general election and any further possible referendum on Scottish independence; technological changes and risks to the security of IT and operational infrastructure, systems, data and information resulting from increased threat of cyber and other attacks; natural pandemic (including but not limited to the COVID-19 pandemic) and other disasters; inadequate or failed internal or external processes or systems; acts of hostility or terrorism and responses to those acts, or other such events; geopolitical unpredictability; risks relating to sustainability and climate change (and achieving climate change ambitions), including the Group's ability along with the government and other stakeholders to measure, manage and mitigate the impacts of climate change effectively; changes in laws, regulations, practices and accounting standards or taxation; changes to regulatory capital or liquidity requirements and similar contingencies; the policies and actions of governmental or regulatory authorities or courts together with any resulting impact on the future structure of the Group; projected employee numbers and key person risk; the impact of competitive conditions; and exposure to legal, regulatory or competition proceedings, investigations or complaints. A number of these influences and factors are beyond the Group's control. Please refer to the latest Annual Report on Form 20-F filed by Lloyds Banking Group plc with the US Securities and Exchange Commission (the SEC), which is available on the SEC's website at www.sec.gov, for a discussion of certain factors and risks. Lloyds Banking Group plc may also make or disclose written and/or oral forward-looking statements in other written materials and in oral statements made by the directors, officers or employees of Lloyds Banking Group plc to third parties, including financial analysts. Except as required by any applicable law or regulation, the forward-looking statements contained in this document are made as of today's date, and the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this document whether as a result of new information, future events or otherwise. The information, statements and opinions contained in this document do not constitute a public offer under any applicable law or an offer to sell any securities or financial instruments or any advice or recommendation with respect to such securities or financial instruments.
CONTACTS
For further information please contact:
INVESTORS AND ANALYSTS
Douglas Radcliffe
Group Investor Relations Director
020 7356 1571
douglas.radcliffe@lloydsbanking.com
Edward Sands
Director of Investor Relations
020 7356 1585
edward.sands@lloydsbanking.com
Eileen Khoo
Director of Investor Relations
07385 376435
eileen.khoo@lloydsbanking.com
Nora Thoden
Director of Investor Relations - ESG
020 7356 2334
nora.thoden@lloydsbanking.com
CORPORATE AFFAIRS
Grant Ringshaw
External Relations Director
020 7356 2362
grant.ringshaw@lloydsbanking.com
Matt Smith
Head of Media Relations
020 7356 3522
matt.smith@lloydsbanking.com
Copies of this interim management statement may be obtained from:
Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN
The statement can also be found on the Group's website - www.lloydsbankinggroup.com
Registered office: Lloyds Banking Group plc, The Mound, Edinburgh, EH1 1YZ
Registered in Scotland No. 95000
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END
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October 28, 2021 02:00 ET (06:00 GMT)
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