SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C.20549
FORM
6-K
Report
of Foreign Private Issuer
Pursuant
to Rule 13a-16 or 15d-16
of
the Securities Exchange Act of 1934
(22
February 2017)
LLOYDS BANKING GROUP plc
(Translation of
registrant's name into English)
5th
Floor
25
Gresham Street
London
EC2V
7HN
United
Kingdom
(Address of
principal executive offices)
Indicate by check
mark whether the registrant files or will file annual
reports
under
cover Form 20-F or Form 40-F.
Form
20-F..X..
Form 40-F.....
Indicate by check
mark whether the registrant by furnishing the
information
contained in this
Form is also thereby furnishing the information to the
Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes
..... No ..X..
If
"Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule
12g3-2(b): 82-
________
Index
to Exhibits
Item
No.
1
Regulatory News
Service Announcement, dated 22 February 2017
Lloyds
Banking Group plc
2016
Results
22
February 2017
|
BASIS OF PRESENTATION
|
This
release covers the results of Lloyds Banking Group plc together
with its subsidiaries (the Group) for the year ended
31 December 2016.
|
Statutory basis:
Statutory information
is set out on pages 33
to
46. However, a number of factors
have had a significant effect on the comparability of the Group's
financial position and results. Accordingly, the results are also
presented on an underlying basis.
|
Underlying basis:
The statutory results
are adjusted for certain items which are listed below, to allow a
comparison of the Group's underlying performance.
−
losses on redemption of the Enhanced Capital Notes and the
volatility in the value of the embedded equity conversion
feature;
−
market volatility and asset sales, which includes the effects of
certain asset sales, the volatility relating to the Group's own
debt and hedging arrangements and that arising in the insurance
businesses and insurance gross up;
−
the unwind of acquisition-related fair value adjustments and the
amortisation of purchased intangible assets;
−
restructuring costs, comprising severance related costs relating to
the Simplification programme, the costs of implementing regulatory
reform and ring-fencing and the rationalisation of the non-branch
property portfolio;
−
TSB build and dual-running costs and the loss relating to the TSB
sale in 2015; and
−
payment protection insurance and other conduct
provisions.
|
Unless
otherwise stated, income statement commentaries throughout this
document compare the 12 months ended 31 December 2016 to the
12 months ended 31 December 2015, and the balance sheet
analysis compares the Group balance sheet as at 31 December
2016 to the Group balance sheet as at 31 December
2015.
Alternative performance measures:
The
Group uses a number of alternative performance measures, including
underlying profit, in the discussion of its business performance
and financial position on page 2 and pages 5 to 25. Further
information on these measures is set out on page 47.
Restatement:
With effect from 1 January
2016 the unsecured personal loans business was transferred from
Retail to Consumer Finance and elements of the Group's business in
the Channel Islands and Isle of Man were transferred from Retail to
Commercial Banking. In addition, certain mortgage lending has been
reclassified as closed to new business. The results for the year
ended 31 December 2016 and the comparative periods are reported on
the new basis.
|
FORWARD
LOOKING STATEMENTS
This
document contains certain forward looking statements with respect
to the business, strategy and plans of Lloyds Banking Group and its
current goals and expectations relating to its future financial
condition and performance. Statements that are not historical
facts, including statements about Lloyds Banking Group's or its
directors' and/or management's beliefs and expectations, are
forward looking 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 the plans, objectives,
expectations, estimates and intentions expressed in such forward
looking statements made by the Group or on its behalf include, but
are not limited to: general economic and business conditions in the
UK and internationally; market related trends and developments;
fluctuations in interest rates (including low or negative rates),
exchange rates, stock markets and currencies; 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; changing customer behaviour including consumer
spending, saving and borrowing habits; changes to borrower or
counterparty credit quality; instability in the global financial
markets, including Eurozone instability, the exit by the UK from
the European Union (EU) and the potential for one or more other
countries to exit the EU or the Eurozone and the impact of any
sovereign credit rating downgrade or other sovereign financial
issues; technological changes and risks to cyber security; natural,
pandemic and other disasters, adverse weather and similar
contingencies outside the Group's control; inadequate or failed
internal or external processes or systems; acts of war, other acts
of hostility, terrorist acts and responses to those acts,
geopolitical, pandemic or other such events; changes in laws,
regulations, accounting standards or taxation, including as a
result of the exit by the UK from the EU, or a further possible
referendum on Scottish independence; changes to regulatory capital
or liquidity requirements and similar contingencies outside the
Group's control; the policies, decisions and actions of
governmental or regulatory authorities or courts in the UK, the EU,
the US or elsewhere including the implementation and interpretation
of key legislation and regulation; the ability to attract and
retain senior management and other employees; requirements or
limitations on the Group as a result of HM Treasury's
investment in the Group; actions or omissions by the Group's
directors, management or employees including industrial action;
changes to the Group's post-retirement defined benefit scheme
obligations; the extent of any future impairment charges or
write-downs caused by, but not limited to, depressed asset
valuations, market disruptions and illiquid markets; the value and
effectiveness of any credit protection purchased by the Group; the
inability to hedge certain risks economically; the adequacy of loss
reserves; the actions of competitors, including non-bank financial
services, lending companies and digital innovators and disruptive
technologies; and exposure to regulatory or competition scrutiny,
legal, regulatory or competition proceedings, investigations or
complaints. Please refer to the latest Annual Report on Form 20-F
filed with the US Securities and Exchange Commission for a
discussion of certain factors together with examples of forward
looking statements. Except as required by any applicablelaw or
regulation, the forward looking statements contained in this
document are made as of today's date, and Lloyds Banking Group
expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any forward looking
statements. 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.
CONTENTS
|
Page
|
Key
highlights
|
1
|
Consolidated
income statement
|
2
|
Balance
sheet and key ratios
|
2
|
Group
Chief Executive's statement
|
3
|
Summary
of Group results
|
4
|
|
|
Divisional
results
|
|
Retail
|
13
|
Commercial
Banking
|
15
|
Consumer
Finance
|
17
|
Insurance
|
19
|
Run-off
and Central items
|
21
|
|
|
Other
financial information
|
|
Reconciliation
between statutory and underlying basis results
|
22
|
Banking
net interest margin
|
23
|
Volatility arising
in insurance businesses
|
24
|
Return
measures
|
24
|
Tangible net assets
per share
|
25
|
|
|
Group
credit risk portfolio
|
26
|
Funding
and liquidity management
|
28
|
Capital
management
|
29
|
|
|
Statutory information
|
|
Primary
statements
|
|
Consolidated income
statement
|
33
|
Consolidated
statement of comprehensive income
|
34
|
Consolidated
balance sheet
|
35
|
Consolidated
statement of changes in equity
|
37
|
Notes
to the consolidated financial statements
|
39
|
|
|
Summary
of alternative performance measures
|
47
|
|
|
Contacts
|
48
|
RESULTS FOR THE FULL
YEAR
'We
have delivered strong financial performance in 2016 as we continue
to make good progress against our strategic priorities. Underlying
profit was £7.9 billion and statutory profit has more
than doubled to £4.2 billion. We continue to improve our
customers' experience, simplifying the business whilst growing in
targeted areas and in December announced the acquisition of MBNA's
prime UK credit card business. Strong capital generation, which is
a consequence of our business model, has enabled us to fully cover
the expected capital impact of the MBNA acquisition, increase our
ordinary dividend by 13 per cent and pay a special dividend.
As a simple, low risk, UK focused bank we are committed and well
positioned to help Britain prosper and become the best bank for
customers and shareholders.'
António
Horta-Osório
Group
Chief Executive
Good underlying performance with strong improvement in statutory
profit
●
Underlying profit of £7.9 billion (2015:
£8.1 billion); underlying RoRE of 13.2 per cent and
RoTE of 14.1 per cent
●
Total income of £17.5 billion (2015:
£17.6 billion)
- Net
interest income of £11.4 billion (2015: £11.5 billion)
with improved margin of 2.71 per cent
- Other
income at £6.1 billion, up in the fourth quarter but slightly
lower (1 per cent) than in 2015 (£6.2 billion)
●
Operating costs 3 per cent lower at £8.1 billion.
Market-leading cost:income ratio improved to 48.7 per cent with
positive operating jaws
●
Asset quality remains strong with no deterioration in
underlying portfolio. Asset quality ratio of 15 basis
points
●
Conduct charges of £2.1 billion include £1.0
billion provision for PPI taken in the third quarter
●
Statutory profit before tax of £4.2 billion, more than
double the £1.6 billion statutory profit in 2015
Strong balance sheet and capital generation
●
Strong balance sheet with a pro forma common equity tier 1
(CET1) ratio of 13.8 per cent (31 December 2015: 13.0 per
cent) after dividends; 14.9 per cent pre dividend. Prudently
retaining c.80 basis points of capital for the announced MBNA
acquisition
●
CET1 capital generation of c.190 basis points, pre dividend,
ahead of guidance due to underlying performance and lower
risk-weighted assets
●
PRA Buffer reduced reflecting de-risking of the balance
sheet. The Group will continue to target a CET1 ratio of
c.13 per cent given expected future regulatory capital
developments
●
Leverage ratio on a pro forma basis increased to
5.0 per cent (30 September 2016: 4.8 per cent; 31
December 2015: 4.8 per cent)
●
Tangible net assets per share of 54.8 pence
(30 September 2016: 54.9 pence; 31 December 2015: 52.3
pence)
Our differentiated UK focused business model continues to deliver
for customers and shareholders
●
Cost discipline and low risk business model providing
competitive advantage
●
Good progress in improving products and propositions to
better meet customers' evolving needs and preferences
●
Helping Britain prosper through continued support to SMEs,
first-time buyers and growth in consumer finance
●
Acquisition of MBNA prime UK credit card business will
support strategic goal to grow in consumer finance; expected to
deliver strong financial returns and create significant shareholder
value
●
UK government continues to reduce its shareholding through
trading plan, with stake now below 5 per cent
Guidance reflects confidence in the Group's future
prospects
●
Net interest margin for 2017 expected to be greater than
2.70 per cent (before impact of MBNA)
●
Asset quality ratio for the full year 2017 expected to be
around 25 basis points (before impact of MBNA)
●
Continue to target a cost:income ratio of around 45 per cent
exiting 2019, with reductions every year
●
Now expect RoRE of between 12.0 and 13.5 per cent and RoTE
of between 13.5 and 15.0 per cent in 2019
●
Group now expects to generate 170−200 basis points of
CET1 capital per annum, pre dividend
Increased ordinary dividend and payment of special
dividend
●
The Board has recommended a final ordinary dividend of 1.7
pence per share, making a total ordinary dividend of
2.55 pence per share, an increase of 13 per cent on 2015
and in line with our progressive and sustainable ordinary dividend
policy
●
In addition, the Board has recommended a special dividend of
0.5 pence per share
CONSOLIDATED INCOME STATEMENT − UNDERLYING
BASIS
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
Net
interest income
|
|
11,435
|
|
11,482
|
|
-
|
Other
income
|
|
6,065
|
|
6,155
|
|
(1)
|
Total income
|
|
17,500
|
|
17,637
|
|
(1)
|
Operating
lease depreciation
|
|
(895)
|
|
(764)
|
|
(17)
|
Net income
|
|
16,605
|
|
16,873
|
|
(2)
|
Operating
costs
|
|
(8,093)
|
|
(8,311)
|
|
3
|
Impairment
|
|
(645)
|
|
(568)
|
|
(14)
|
TSB
|
|
-
|
|
118
|
|
|
Underlying profit
|
|
7,867
|
|
8,112
|
|
(3)
|
|
|
|
|
|
|
|
Volatility
and other items
|
|
(1,544)
|
|
(1,631)
|
|
|
Payment
protection insurance provision
|
|
(1,000)
|
|
(4,000)
|
|
|
Other
conduct provisions
|
|
(1,085)
|
|
(837)
|
|
|
Statutory profit before tax
|
|
4,238
|
|
1,644
|
|
158
|
Taxation
|
|
(1,724)
|
|
(688)
|
|
|
Profit for the year
|
|
2,514
|
|
956
|
|
163
|
|
|
|
|
|
|
|
Earnings
per share
|
|
2.9p
|
|
0.8p
|
|
263
|
|
|
|
|
|
|
|
Dividends
per share − ordinary
|
|
2.55p
|
|
2.25p
|
|
13
|
−
special
|
|
0.50p
|
|
0.50p
|
|
−
|
Total
dividends
|
|
3.05p
|
|
2.75p
|
|
11
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
2.71%
|
|
2.63%
|
|
8bp
|
Average
interest-earning banking assets
|
|
£436bn
|
|
£442bn
|
|
(1)
|
Cost:income
ratio
|
|
48.7%
|
|
49.3%
|
|
(0.6)pp
|
Asset
quality ratio
|
|
0.15%
|
|
0.14%
|
|
1bp
|
Return
on risk-weighted assets
|
|
3.55%
|
|
3.53%
|
|
2bp
|
Underlying
return on required equity
|
|
13.2%
|
|
15.0%
|
|
(1.8)pp
|
Return
on required equity
|
|
5.3%
|
|
1.5%
|
|
3.8pp
|
Underlying
return on tangible equity
|
|
14.1%
|
|
16.0%
|
|
(1.9)pp
|
Return
on tangible equity
|
|
6.6%
|
|
2.6%
|
|
4.0pp
|
BALANCE SHEET AND KEY RATIOS
|
|
|
|
|
|
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
Change
|
|
|
2016
|
|
2015
|
|
%
|
Loans
and advances to customers
1
|
|
£450bn
|
|
£455bn
|
|
(1)
|
Customer
deposits
2
|
|
£413bn
|
|
£418bn
|
|
(1)
|
Loan to
deposit ratio
|
|
109%
|
|
109%
|
|
-
|
Total
assets
|
|
£818bn
|
|
£807bn
|
|
1
|
Pro
forma common equity tier 1 ratio
3
|
|
13.8%
|
|
13.0%
|
|
0.8pp
|
Pro
forma common equity tier 1 ratio pre dividend
3
|
|
14.9%
|
|
|
|
|
Transitional
total capital ratio
|
|
21.4%
|
|
21.5%
|
|
(0.1)pp
|
Pro
forma leverage ratio
3
|
|
5.0%
|
|
4.8%
|
|
0.2pp
|
Risk-weighted
assets
|
|
£216bn
|
|
£223bn
|
|
(3)
|
Tangible
net assets per share
|
|
54.8p
|
|
52.3p
|
|
2.5p
|
1
|
Excludes
reverse repos of £8.3 billion (31 December 2015:
£nil).
|
2
|
Excludes
repos of £2.5 billion (31 December 2015:
£nil).
|
3
|
The
common equity tier 1 and leverage ratios at 31 December 2016
and 2015 are reported on a pro forma basis, including the dividends
paid by the Insurance business in February 2017 and February 2016
respectively, in relation to prior year earnings.
|
GROUP CHIEF EXECUTIVE'S STATEMENT
We have
delivered strong financial performance in 2016 as we continue to
make good progress against our strategic priorities. Underlying
profit was £7.9 billion and statutory profit has more
than doubled to £4.2 billion. We continue to improve our
customers' experience, simplifying the business whilst growing in
targeted areas and in December announced the acquisition of MBNA's
prime UK credit card business. Strong capital generation, which is
a consequence of our business model, has enabled us to fully cover
the expected capital impact of the MBNA acquisition, increase our
ordinary dividend by 13 per cent and pay a special dividend.
As a simple, low risk, UK focused bank we are committed and well
positioned to help Britain prosper and become the best bank for
customers and shareholders.
Operating environment
Given
our UK focus, our performance is inextricably linked to the health
of the UK economy which has been more resilient than the market
expected post referendum, with GDP growth of 2 per cent in
2016. The UK's decision to leave the European Union means the exact
nature of our relationship with Europe going forward remains
unclear and the economic outlook is uncertain. However, the
recovery in recent years with low unemployment, reduced levels of
household and corporate indebtedness and increased house prices
means the UK is well positioned.
The
regulatory environment also continues to evolve and there are a
number of areas on which we await further clarity but, given the
strength of our balance sheet and the capital generative nature of
our business model, we are well placed to meet these regulatory
requirements and the economic uncertainty. Following the de-risking
of the balance sheet in recent years our PRA Buffer has been
reduced but, in light of expected future regulatory capital
developments, the Group will continue to target a CET1 ratio of
around 13.0 per cent.
Financial performance
The
Group has delivered strong financial performance in the year.
Underlying profit was £7.9 billion with an underlying return
on required equity of 13.2 per cent (return on tangible equity of
14.1 per cent). Income was slightly lower which was more than
offset by lower operating costs, resulting in an improved
cost:income ratio of 48.7 per cent. Impairment increased,
primarily due to lower releases and write-backs, but asset quality
remains strong with no signs of deterioration in the portfolio. The
difference between underlying profit and statutory profit reduced
significantly in 2016, as statutory profit before tax more than
doubled to £4.2 billion, largely due to lower PPI
provisions, and this enabled the Group to generate approximately
190 basis points of CET1 capital during the year.
Our
balance sheet remains strong with a pro forma CET1 ratio of 13.8
per cent, a total capital ratio of 21.4 per cent and a pro forma
leverage ratio of 5.0 per cent. In line with our progressive and
sustainable ordinary dividend policy, the Board has recommended a
final ordinary dividend of 1.7 pence per share, taking the total
ordinary dividend for the year to 2.55 pence per share, an
increase of 13 per cent on 2015. The Group has held back c.80 basis
points of CET1 capital to cover the estimated capital impact of the
MBNA acquisition; however, given our strong capital generation in
the year, the Board has also recommended a special dividend of 0.5
pence per share.
Strategic progress
We have
continued to make good progress on our strategic priorities in
2016.
Creating the best customer experience
We are
committed to meeting our customers' evolving needs and preferences
through our multi-brand and multi-channel approach. We operate the
UK's largest branch network and the largest digital bank with over
12.5 million active online users. We have more than 8 million
mobile banking users and for the second consecutive year, the
Lloyds Bank app has been rated the best banking app of all the UK
major banks for functionality.
Customer migration
to digital channels continues at pace with more than 60 per cent of
our simple customer needs now met online and digital is now the
number one channel for new loans and credit cards. We continue to
invest in our customer propositions to improve processes and the
way our customers interact with us. In Commercial Banking we have
continued to improve the online banking platform and in Retail
Business Banking we are now able to open new customer accounts in
5-6 days, down from 21 days previously, with a best-in-class
automated digital ID and verification process. In Consumer Finance,
Black Horse has reduced processing times for new loans, while
increasing security and protection for customers. In Insurance we
have introduced online tools which will allow customers to
consolidate their workplace pension assets and employers to process
employee monthly pension contributions on the same day, down from
22 days in 2014.
This
progress has been reflected in further reductions in the level of
customer complaints and our net promoter score, which continued to
improve in 2016 and is now nearly 50 per cent higher than at
the end of 2011. Our latest 'Building the Best Team' survey results
show that colleague engagement is at an all-time high and in line
with top performing UK corporates. Our strong performance in 2016
reflects the hard work undertaken by colleagues across the Group
and I would like to thank everyone for their significant efforts
and commitment.
Becoming simpler and more efficient
Our
cost leadership is a significant source of competitive advantage
and cost management remains a strategic priority. In response to
the lower rate environment we have accelerated the delivery of our
cost initiatives, and announced at the half year an increase to the
Simplification run-rate savings target and a reduction in our
non-branch property portfolio. We remain on track to deliver both,
having already achieved £0.9 billion of the increased
£1.4 billion Simplification run-rate target. As a result
of the continued focus on costs, our market-leading cost:income
ratio has improved and we continue to target further
reductions.
Delivering sustainable growth
The
Group aims to deliver sustainable growth in line with its low risk
business model. We have continued to make good progress in growing
market share in areas where we are underrepresented, and have grown
lending to SME and Mid Markets clients by around £2 billion in
the year. In Consumer Finance we have continued to grow our motor
finance and credit card portfolios organically and the agreement to
acquire MBNA's prime UK credit card business will give us the
opportunity to create a best-in-class credit card operation. In
Insurance, we will continue to invest in developing the brand and
the business, including our financial planning and retirement
capabilities, and have also completed four bulk annuity deals. In
addition, we are committed to supporting first-time home buyers and
remain the largest lender to this customer group.
Helping Britain prosper
We
remain committed to supporting the people, businesses and
communities in the UK through our Helping Britain Prosper Plan.
Notably, we have provided £1.2 billion of new funding to
manufacturing businesses, supported 121,000 start-ups and
helped 10,000 clients to start exporting in 2016. Our economic
contribution to Britain extends beyond the products and services we
offer and the funding we provide to our customers and clients.
Since we launched our Apprenticeship Scheme we have created more
than 4,000 roles, including 1,000 in 2016 and we have committed to
creating 8,000 by 2020. We have also exceeded our target to create
20,000 digital champions, a year earlier than expected.
Furthermore, we are the highest payer of UK tax in the most recent
PwC Total Tax Contribution Survey for the 100 Group, having paid
£1.8 billion in 2015. Our tax payment in 2016 was £2.3
billion.
The
combination of the progress we have made towards our strategic
priorities and our strong financial performance has enabled the UK
government to further reduce its stake in the Group to less than 5
per cent, at a profit, returning over £18.5 billion to
the UK taxpayer since 2009.
Outlook
Our
financial targets reflect our confidence in the future prospects of
the Group. In 2017 we expect the net interest margin to be greater
than 2.70 per cent and the asset quality ratio to increase to
around 25 basis points (before MBNA). We continue to target a
cost:income ratio of around 45 per cent exiting 2019, with
reductions every year. We now expect a return on required equity of
between 12.0 and 13.5 per cent and a return on tangible equity of
between 13.5 and 15.0 per cent in 2019. Going forward, the
Group expects to generate between 170 and 200 basis points of CET1
capital per annum, pre dividend.
Summary
Following
the simplification and transformation of our business in recent
years, the Group is now focused on delivering the best customer
experience and on continuing to develop our digital capabilities.
Our cost leadership and lower risk positioning provide competitive
advantage which enables us to deliver superior returns to
shareholders. We continue to believe that our simple, low risk
business model is the right one, and our strategic progress and
strong financial performance position us well for future
success.
António
Horta-Osório
Group
Chief Executive
SUMMARY OF GROUP RESULTS
Good underlying performance with strong improvement in statutory
profit
The
Group's underlying profit was £7,867 million, 3 per
cent lower than 2015, with slightly lower income and higher
impairments, partly offset by lower costs. The underlying return on
required equity was 13.2 per cent and the underlying return on
tangible equity was 14.1 per cent. Statutory profit before tax more
than doubled to £4,238 million, compared with £1,644
million in 2015, as the level of PPI provisions reduced
significantly.
Total
loans and advances to customers were £450 billion,
compared with £455 billion at 31 December 2015, and
customer deposits were similarly £5 billion lower than a
year ago at £413 billion.
The
balance sheet remains strong and the CET1 ratio at 31 December 2016
was 13.8 per cent on a pro forma basis and reflects the retention
of c.80 basis points of CET1 capital to cover the estimated capital
impact of the MBNA acquisition. The Group generated
c.190 basis points of CET1 capital, pre dividends, in the
period and tangible net asset value per share increased to
54.8 pence (31 December 2015:
52.3 pence).
Given
the significant amount of capital generated in the year, the Board
has recommended a final ordinary dividend of 1.7 pence per share,
making a total ordinary dividend of 2.55 pence per share, an
increase of 13 per cent on 2015 and in line with our
progressive and sustainable ordinary dividend policy. In addition,
the Board has recommended a special dividend of 0.5 pence per
share.
Total income
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
Net
interest income
|
|
11,435
|
|
11,482
|
|
-
|
Other
income
|
|
6,065
|
|
6,155
|
|
(1)
|
Total income
|
|
17,500
|
|
17,637
|
|
(1)
|
Operating
lease depreciation
1
|
|
(895)
|
|
(764)
|
|
(17)
|
Net income
|
|
16,605
|
|
16,873
|
|
(2)
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
2.71%
|
|
2.63%
|
|
8bp
|
Average
interest-earning banking assets
|
|
£435.9bn
|
|
£441.9bn
|
|
(1)
|
|
|
1
|
Net of
gains on disposal of leased assets.
|
Total
income of £17,500 million was 1 per cent lower than 2015, with
a small reduction in net interest income and a 1 per cent fall in
other income.
Net
interest income fell by £47 million to £11,435 million.
The net interest margin increased to 2.71 per cent (2015:
2.63 per cent), with lower deposit and wholesale funding
costs, including the benefit from the ECN redemptions in the first
quarter, more than offsetting the continuing pressure on asset
pricing. Average interest-earning banking assets reduced by
1 per cent with growth in SME and Consumer Finance balances
more than offset by reductions in the mortgage and run-off
portfolios. The Group expects that the net interest margin for 2017
will be greater than 2.70 per cent (before MBNA).
The
Group manages the risk to its capital and earnings from adverse
movements in interest rates centrally by hedging liabilities which
are deemed to be stable or less sensitive to change in market
interest rates. As at 31 December 2016, the balance hedged was
c.£111 billion with an average duration of c.3 years and
an earning rate of approximately 1.6 per cent over LIBOR. In
2016, the benefit from the structural hedge totalled
£1.7 billion over LIBOR (2015:
£1.8 billion).
Other
income was £6,065 million in 2016 (2015: £6,155 million).
Other income increased in the fourth quarter compared with the same
period last year largely as a result of improved Insurance income
and was higher than the third quarter of 2016, largely due to
increased Commercial Banking fees and commissions and improved
Insurance income. The year-on-year reduction of 1 per cent was
largely due to continued pressure on fees and commissions,
including the impact of the market-wide cap on card interchange
fees introduced in late 2015, lower returns in the Insurance
business and reduced income from the run-off
portfolio.
Operating
lease depreciation increased 17 per cent to £895 million
due to continued growth in the Lex Autolease business and
additional charges in Commercial Banking related to certain leasing
assets.
Operating costs
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
Operating
costs
|
|
8,093
|
|
8,311
|
|
3
|
Cost:income
ratio
|
|
48.7%
|
|
49.3%
|
|
(0.6)pp
|
Operating
jaws
|
|
1.0%
|
|
1.0%
|
|
-
|
Simplification
savings annual run-rate
|
|
947
|
|
373
|
|
|
Operating
costs were £8,093 million, 3 per cent lower than 2015,
driven by the continued focus on cost management and actions to
simplify the business. Investment in the business continues to
increase, particularly in digital, and in 2016 the Group made
further improvements to the branch network to meet changing
customer preferences, investing in new distribution technology,
designing new branch formats and upgrading call centre
technology.
The
Simplification programme remains on track to deliver the increased
target of £1.4 billion of annual run-rate savings by the
end of 2017, with £0.9 billion of run-rate savings
delivered to date. The total spent on the Simplification programme
to date is £1.6 billion with an expected further spend of
£0.6 billion by the end of 2017, of which around
£0.2 billion will be included in restructuring
costs.
The
Group's market-leading cost:income ratio improved to 48.7 per cent
(2015: 49.3 per cent) with positive operating jaws of 1 per
cent. The Group remains committed to achieving annual improvements
in the cost:income ratio and continues to target a cost:income
ratio of around 45 per cent exiting 2019.
Impairment
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
Total
impairment charge
|
|
645
|
|
568
|
|
(14)
|
Asset
quality ratio
|
|
0.15%
|
|
0.14%
|
|
1bp
|
Gross
asset quality ratio
|
|
0.28%
|
|
0.28%
|
|
-
|
Impaired
loans as a % of closing advances
|
|
1.8%
|
|
2.1%
|
|
(0.3)pp
|
Provisions
as a % of impaired loans
|
|
43.4%
|
|
46.1%
|
|
(2.7)pp
|
Provisions
as a % of impaired loans excluding run-off
|
|
41.2%
|
|
43.0%
|
|
(1.8)pp
|
Asset
quality remains strong with no deterioration in the underlying
portfolio. The impairment charge increased to
£645 million from £568 million in 2015 with the
asset quality ratio increasing slightly to 15 basis points. This
increase was largely due, as expected, to a reduction in the level
of provision releases and write-backs. The gross asset quality
ratio (excluding releases and write-backs) remained unchanged at
28 basis points. Looking forward the Group expects a further
reduction in releases and write-backs in 2017 and, as a result, the
asset quality ratio to increase to around 25 basis
points.
The
average indexed loan to value (LTV) of the Retail mortgage
portfolio improved to 44.0 per cent (31 December 2015:
46.1 per cent) and the percentage of lending with an indexed
LTV of greater than 100 per cent improved to 0.7 per cent (31
December 2015: 1.1 per cent).
Impaired
loans continued to fall and at 31 December 2016 were
£8.5 billion, 1.8 per cent of total loans and
advances compared with £9.6 billion, and 2.1 per
cent at 31 December 2015.
Statutory profit
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
£ million
|
|
£ million
|
|
%
|
|
|
|
|
|
|
|
Underlying profit
|
|
7,867
|
|
8,112
|
|
(3)
|
Volatility
and other items
|
|
|
|
|
|
|
Enhanced Capital
Notes
|
|
(790)
|
|
(101)
|
|
|
Market
volatility and asset sales
|
|
439
|
|
(81)
|
|
|
Amortisation of
purchased intangibles
|
|
(340)
|
|
(342)
|
|
|
Restructuring
costs
|
|
(622)
|
|
(170)
|
|
|
Fair
value unwind and other items
|
|
(231)
|
|
(192)
|
|
|
TSB
costs
|
|
-
|
|
(745)
|
|
|
|
|
(1,544)
|
|
(1,631)
|
|
|
Payment
protection insurance provision
|
|
(1,000)
|
|
(4,000)
|
|
|
Other
conduct provisions
|
|
(1,085)
|
|
(837)
|
|
|
Statutory profit before tax
|
|
4,238
|
|
1,644
|
|
158
|
Taxation
|
|
(1,724)
|
|
(688)
|
|
|
Profit for the year
|
|
2,514
|
|
956
|
|
163
|
Statutory
profit before tax more than doubled to £4,238 million (2015:
£1,644 million) primarily due to lower PPI provisions of
£1,000 million (2015: £4,000 million).
The
charge of £790 million for Enhanced Capital Notes in 2016
represented the write-off of the embedded derivative and the
premium paid on the redemption of the remaining notes in the first
quarter.
Market
volatility and asset sales of £439 million included a
gain on sale of the Group's interest in Visa Europe of
£484 million and negative insurance volatility of
£91 million. The main item in the 2015 charge of £81
million was negative insurance volatility of
£105 million.
Restructuring
costs were £622 million in 2016 and comprised costs
relating to the Simplification programme, the announced
rationalisation of the non-branch property portfolio and the work
on implementing the ring-fencing requirements.
A
provision of £1 billion to cover further operating costs and
redress relating to PPI was recognised in the third quarter and
complaint levels in the second half have been around 8,300 per
week on average. The Group's current PPI provision reflects our
interpretation of the Financial Conduct Authority's (FCA)
consultation paper regarding a potential time bar of the end of
June 2019 and the Plevin case.
In
addition there was a charge of £1,085 million to cover a range
of other conduct issues of which £475 million was
recognised in the fourth quarter. The charge for the year included
£280 million in respect of complaints relating to
packaged bank accounts, £261 million in respect of
arrears-related activities on secured and unsecured retail products
and £94 million related to insurance products sold in
Germany, together with a number of other conduct risk provisions
totalling £450 million across all divisions.
Statutory
profit in 2015 included a charge of £745 million,
comprising £660 million relating to the sale of TSB and
£85 million of TSB dual-running costs.
Taxation
The tax
charge was £1,724 million (2015: £688 million)
representing an effective tax rate of 41 per cent (2015:
42 per cent). The high effective tax rate in 2016 was due to
the banking surcharge, restrictions on the deductibility of conduct
provisions, and the negative impact on the net deferred tax asset
of both the change in corporation tax rate and the expected
utilisation by the insurance business. The Group continues to
expect a medium term effective tax rate of around 27 per
cent.
Return on required equity and
tangible equity
The
underlying return on required equity was 13.2 per cent (2015:
15.0 per cent) and the underlying return on tangible equity
was 14.1 per cent (2015: 16.0 per cent). The
reduction in both return measures reflects the lower underlying
profit and higher underlying tax charge following implementation of
the banking tax surcharge.
The
return on required equity increased to 5.3 per cent (2015:
1.5 per cent) and the return on tangible equity increased to
6.6 per cent (2015: 2.6 per cent) both largely reflecting
the lower PPI provision made in the year.
Going
forward, the Group remains confident in its future prospects and
now expects to deliver a return on required equity of between 12.0
and 13.5 per cent and a return on tangible equity of between 13.5
and 15.0 per cent in 2019.
Balance sheet
|
|
|
|
|
|
|
|
|
At
|
|
At
|
|
|
|
|
31 Dec
|
|
31 Dec
|
|
Change
|
|
|
2016
|
|
2015
|
|
%
|
|
|
|
|
|
|
|
Loans
and advances to customers
1
|
|
£450bn
|
|
£455bn
|
|
(1)
|
Customer
deposits
2
|
|
£413bn
|
|
£418bn
|
|
(1)
|
Loan to
deposit ratio
|
|
109%
|
|
109%
|
|
-
|
|
|
|
|
|
|
|
Wholesale
funding
|
|
£111bn
|
|
£120bn
|
|
(8)
|
Wholesale
funding <1 year maturity
|
|
£35bn
|
|
£38bn
|
|
(7)
|
Of which money-market funding <1 year maturity
3
|
|
£14bn
|
|
£22bn
|
|
(36)
|
Liquidity
coverage ratio - eligible assets
|
|
£121bn
|
|
£123bn
|
|
(2)
|
1
|
Excludes
reverse repos of £8.3 billion (31 December 2015:
£nil).
|
2
|
Excludes
repos of £2.5 billion (31 December 2015:
£nil).
|
3
|
Excludes
balances relating to margins of £3.2 billion
(31 December 2015: £2.5 billion) and settlement
accounts of £1.8 billion (31 December 2015:
£1.4 billion).
|
Loans
and advances to customers were £450 billion compared with
£455 billion at 31 December 2015. The reduction
reflects continued strong growth in Consumer Finance, up
11 per cent, and SME lending, up 3 per cent, with both
segments outperforming the market. This was offset by further
reductions in 'closed' portfolios, reduced lending to financial
institutions and lower 'open book' mortgage balances, reflecting
the Group's prudent stance on risk and its focus on protecting
margin in the current competitive low growth market. Mortgage open
book balances fell by £4.5 billion to
£266 billion during the year, of which
£3.4 billion was in the first half and
£1.1 billion was in the second half. Mortgage open book
balances are expected to be broadly stable in 2017.
Deposits
fell 1 per cent to £413 billion, with increased high
quality deposits from Commercial clients offset by lower Retail and
Consumer Finance tactical balances, largely in response to the
active management of deposit and funding requirements. The Group
has maintained its strong funding position with a loan to deposit
ratio of 109 per cent (2015: 109 per cent).
Wholesale
funding decreased by £9 billion to £111 billion
as excess liquidity is managed down. Wholesale funding with a
residual maturity of less than one year was £35 billion
(2015: £38 billion), and the Group's term funding ratio
was unchanged at 68 per cent.
The
Group's liquidity position remains strong, with the liquidity
coverage ratio comfortably meeting regulatory
requirements.
Capital ratios and risk-weighted assets
|
|
|
|
|
|
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
Change
|
|
|
2016
|
|
2015
|
|
%
|
|
|
|
|
|
|
|
Pro
forma common equity tier 1 ratio
1
|
|
13.8%
|
|
13.0%
|
|
0.8pp
|
Pro
forma common equity tier 1 ratio pre dividend
1
|
|
14.9%
|
|
|
|
|
Transitional
tier 1 capital ratio
|
|
17.0%
|
|
16.4%
|
|
0.6pp
|
Transitional
total capital ratio
|
|
21.4%
|
|
21.5%
|
|
(0.1)pp
|
Pro
forma leverage ratio
1
|
|
5.0%
|
|
4.8%
|
|
0.2pp
|
Risk-weighted
assets
|
|
£216bn
|
|
£223bn
|
|
(3)
|
|
|
|
|
|
|
|
Shareholders'
equity
|
|
£43bn
|
|
£41bn
|
|
4
|
Tangible
net assets per share
|
|
54.8p
|
|
52.3p
|
|
2.5p
|
|
|
1
|
The
CET1 and leverage ratios at 31 December 2016 and 31 December
2015 are reported on a pro forma basis, including dividends paid by
the Insurance business in February 2017 and February 2016
respectively, in relation to prior year earnings.
|
The
CET1 ratio improved to 13.8 per cent (2015: 13.0 per cent) on
a pro forma basis and reflects the retention of c.80 basis
points of CET1 capital to cover the estimated capital impact of the
MBNA acquisition. The pro forma ratio includes the 2016 dividend
paid by the Insurance business in February 2017.
The
Group continues to be strongly capital generative and over the year
generated c.190 basis points of CET1 capital, pre dividend.
This largely comprised c.220 basis points of underlying
capital generation, along with benefits from a reduction in
risk-weighted assets (c.40 basis points) and the insurance dividend
(c.20 basis points) partially offset by conduct (c.100 basis
points) and other items. This strong capital generation has enabled
us to fully cover the expected CET1 capital impact of the MBNA
acquisition, increase the ordinary dividend and pay a special
dividend. Going forward we now expect to generate 170 to 200 basis
points of capital per annum pre dividends. This will enable us to
support sustainable growth in the business and help Britain prosper
whilst delivering sustainable returns to shareholders.
The
Group is pleased to announce that following their annual review the
PRA has reduced our PRA Buffer to reflect the significant
de-risking undertaken by the Group in recent years. Going forward
however, there remain a number of potential regulatory capital
developments (including the introduction of the systemic risk
buffer in 2019) and as a result the Board's view of the current
level of CET1 capital required to grow the business, meet
regulatory requirements and cover uncertainties remains unchanged
at around 13 per cent.
The
amount of capital we believe is appropriate to hold is likely to
vary from time to time depending on circumstances and the Board
will continue to give due consideration, subject to the situation
at the time, to the distribution of any surplus capital through the
use of special dividends or share buy backs.
The
Group's total capital ratio remains strong at 21.4 per cent,
significantly in excess of regulatory requirements.
Risk-weighted
assets fell by 3 per cent to £216 billion with the
reduction mainly arising in the fourth quarter primarily as a
result of active balance sheet management including
securitisations.
The
leverage ratio on a pro forma basis increased to 5.0 per cent
(2015: 4.8 per cent), largely reflecting the increase in tier
1 capital.
The
tangible net asset value per share increased to 54.8 pence
(31 December 2015: 52.3 pence) after payment of the 2015
final and 2016 interim dividends totalling 2.85 pence. The
increase reflects good underlying profitability partly offset by
tax and other statutory items.
Dividend
The
Board has recommended a final ordinary dividend of 1.7 pence per
share, together with a capital distribution in the form of a
special dividend of 0.5 pence per share. This is in addition to the
interim ordinary dividend of 0.85 pence per share that was
announced at the 2016 half year results.
The
total ordinary dividend per share for 2016 of 2.55 pence per share
has increased by 13 per cent, from 2.25 pence per share in
2015 and is in line with our progressive and sustainable ordinary
dividend policy. We continue to expect ordinary dividends to
increase over the medium term with a dividend payout ratio of at
least 50 per cent of sustainable earnings.
The
special dividend of 0.5 pence per share represents the distribution
of capital over and above the Board's view of the current level of
capital required to grow the business, meet regulatory requirements
and cover uncertainties, and allows for the estimated capital
impact of the MBNA acquisition.
UNDERLYING BASIS - SEGMENTAL ANALYSIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Run-off and
|
|
|
|
|
|
|
Commercial
|
|
Consumer
|
|
|
|
Central
|
|
|
2016
|
|
Retail
|
|
Banking
|
|
Finance
|
|
Insurance
|
|
items
|
|
Group
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
6,497
|
|
2,735
|
|
1,941
|
|
(146)
|
|
408
|
|
11,435
|
Other
income
|
|
1,053
|
|
1,987
|
|
1,338
|
|
1,755
|
|
(68)
|
|
6,065
|
Total income
|
|
7,550
|
|
4,722
|
|
3,279
|
|
1,609
|
|
340
|
|
17,500
|
Operating
lease depreciation
|
|
-
|
|
(105)
|
|
(775)
|
|
-
|
|
(15)
|
|
(895)
|
Net income
|
|
7,550
|
|
4,617
|
|
2,504
|
|
1,609
|
|
325
|
|
16,605
|
Operating
costs
|
|
(4,174)
|
|
(2,133)
|
|
(939)
|
|
(772)
|
|
(75)
|
|
(8,093)
|
Impairment
|
|
(373)
|
|
(16)
|
|
(282)
|
|
-
|
|
26
|
|
(645)
|
Underlying profit
|
|
3,003
|
|
2,468
|
|
1,283
|
|
837
|
|
276
|
|
7,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
2.20%
|
|
3.26%
|
|
5.88%
|
|
|
|
|
|
2.71%
|
Average
interest-earning banking assets
|
|
£302.7bn
|
|
£88.6bn
|
|
£33.9bn
|
|
|
|
£10.7bn
|
|
£435.9bn
|
Asset
quality ratio
|
|
0.12%
|
|
0.02%
|
|
0.83%
|
|
|
|
|
|
0.15%
|
Return
on risk-weighted assets
|
|
5.45%
|
|
2.44%
|
|
4.09%
|
|
|
|
|
|
3.55%
|
Loans
and advances to customers
1
|
|
£297.7bn
|
|
£100.4bn
|
|
£35.1bn
|
|
|
|
£16.5bn
|
|
£449.7bn
|
Customer
deposits
2
|
|
£271.0bn
|
|
£132.6bn
|
|
£7.9bn
|
|
|
|
£1.5bn
|
|
£413.0bn
|
|
|
|
|
|
|
|
|
|
|
Run-off
and
|
|
|
|
|
|
|
Commercial
|
|
Consumer
|
|
|
|
Central
|
|
|
2015
|
|
Retail
3
|
|
Banking
3
|
|
Finance
3
|
|
Insurance
|
|
items
|
|
Group
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
6,664
|
|
2,576
|
|
1,954
|
|
(163)
|
|
451
|
|
11,482
|
Other
income
|
|
1,115
|
|
2,072
|
|
1,359
|
|
1,827
|
|
(218)
|
|
6,155
|
Total
income
|
|
7,779
|
|
4,648
|
|
3,313
|
|
1,664
|
|
233
|
|
17,637
|
Operating
lease depreciation
|
|
-
|
|
(30)
|
|
(720)
|
|
-
|
|
(14)
|
|
(764)
|
Net
income
|
|
7,779
|
|
4,618
|
|
2,593
|
|
1,664
|
|
219
|
|
16,873
|
Operating
costs
|
|
(4,339)
|
|
(2,162)
|
|
(977)
|
|
(702)
|
|
(131)
|
|
(8,311)
|
Impairment
|
|
(349)
|
|
22
|
|
(235)
|
|
-
|
|
(6)
|
|
(568)
|
TSB
|
|
-
|
|
-
|
|
-
|
|
-
|
|
118
|
|
118
|
Underlying
profit
|
|
3,091
|
|
2,478
|
|
1,381
|
|
962
|
|
200
|
|
8,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
2.22%
|
|
2.98%
|
|
6.61%
|
|
|
|
|
|
2.63%
|
Average
interest-earning banking assets
|
|
£307.0bn
|
|
£90.0bn
|
|
£30.5bn
|
|
|
|
£14.4bn
|
|
£441.9bn
|
Asset
quality ratio
|
|
0.11%
|
|
0.01%
|
|
0.77%
|
|
|
|
|
|
0.14%
|
Return
on risk-weighted assets
|
|
5.71%
|
|
2.36%
|
|
4.27%
|
|
|
|
|
|
3.53%
|
Loans
and advances to customers
1
|
|
£305.6bn
|
|
£102.0bn
|
|
£31.5bn
|
|
|
|
£16.1bn
|
|
£455.2bn
|
Customer
deposits
2
|
|
£273.7bn
|
|
£131.9bn
|
|
£11.1bn
|
|
|
|
£1.6bn
|
|
£418.3bn
|
|
|
1
|
Excludes
reverse repos of £8.3 billion (31 December 2015:
£nil).
|
2
|
Excludes
repos of £2.5 billion (31 December 2015:
£nil).
|
3
|
Restated.
See basis of presentation on the inside front cover.
|
UNDERLYING BASIS - QUARTERLY INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
|
31 Dec
|
|
30 Sept
|
|
30 June
|
|
31 Mar
|
|
31 Dec
|
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
2015
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
2,805
|
|
2,848
|
|
2,876
|
|
2,906
|
|
2,904
|
Other
income
|
|
1,545
|
|
1,427
|
|
1,616
|
|
1,477
|
|
1,528
|
Total income
|
|
4,350
|
|
4,275
|
|
4,492
|
|
4,383
|
|
4,432
|
Operating
lease depreciation
|
|
(226)
|
|
(241)
|
|
(235)
|
|
(193)
|
|
(201)
|
Net income
|
|
4,124
|
|
4,034
|
|
4,257
|
|
4,190
|
|
4,231
|
Operating
costs
|
|
(2,134)
|
|
(1,918)
|
|
(2,054)
|
|
(1,987)
|
|
(2,242)
|
Impairment
|
|
(196)
|
|
(204)
|
|
(96)
|
|
(149)
|
|
(232)
|
Underlying profit
|
|
1,794
|
|
1,912
|
|
2,107
|
|
2,054
|
|
1,757
|
Enhanced
Capital Notes
|
|
-
|
|
-
|
|
-
|
|
(790)
|
|
268
|
Market
volatility and asset sales
|
|
46
|
|
265
|
|
331
|
|
(203)
|
|
123
|
Amortisation
of purchased intangibles
|
|
(85)
|
|
(87)
|
|
(84)
|
|
(84)
|
|
(96)
|
Restructuring
costs
|
|
(232)
|
|
(83)
|
|
(146)
|
|
(161)
|
|
(101)
|
Fair
value unwind and other items
|
|
(75)
|
|
(46)
|
|
(63)
|
|
(47)
|
|
(56)
|
Payment
protection insurance provision
|
|
-
|
|
(1,000)
|
|
-
|
|
-
|
|
(2,100)
|
Other
conduct provisions
|
|
(475)
|
|
(150)
|
|
(345)
|
|
(115)
|
|
(302)
|
Statutory profit (loss) before tax
|
|
973
|
|
811
|
|
1,800
|
|
654
|
|
(507)
|
|
|
|
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
2.68%
|
|
2.69%
|
|
2.74%
|
|
2.74%
|
|
2.64%
|
Average
interest-earning banking assets
|
|
£434.0bn
|
|
£435.9bn
|
|
£435.6bn
|
|
£438.2bn
|
|
£439.2bn
|
Cost:income
ratio
|
|
51.7%
|
|
47.5%
|
|
48.2%
|
|
47.4%
|
|
53.0%
|
Asset
quality ratio
|
|
0.17%
|
|
0.18%
|
|
0.09%
|
|
0.14%
|
|
0.22%
|
Return
on risk-weighted assets
1
|
|
3.26%
|
|
3.42%
|
|
3.79%
|
|
3.70%
|
|
3.12%
|
1
|
Based
on underlying profit before tax.
|
DIVISIONAL
RESULTS
RETAIL
Retail
offers a broad range of financial service products, including
current accounts, savings and mortgages, to UK personal customers,
including Wealth and small business customers. It is also a
distributor of insurance, and a range of long-term savings and
investment products. Its aim is to be the best bank for customers
in the UK, by building deep and enduring relationships that deliver
value to customers, and by providing them with greater choice and
flexibility. It will maintain its multi-brand and multi-channel
strategy, and continue to simplify the business and provide more
transparent products, helping to improve service levels and reduce
conduct risks.
Progress against strategic initiatives
The
division has made good progress against its strategic objectives;
improving the customer experience and realigning branch and other
capabilities in line with changing customer needs.
Creating the best customer experience
●
Largest UK digital bank with over 12.5 million active online
users including over 8 million mobile users.
●
55 per cent of approved mortgage applications proceed to
offer within 14 days compared to 37 per cent in 2015.
●
Instant mortgage lending decisions through the online
Agreement in Principle.
●
Customers can now complete their full remortgage application
online.
●
Reduced appointment times for opening a new savings account
by 44 per cent and matured savings accounts can now be renewed in
just a few minutes.
●
Extended online and mobile phone application processes to
all current accounts.
●
Lloyds Bank and Bank of Scotland current account online
journeys have been rated #1 and #2 respectively by industry
researcher eBenchmarkers.
Becoming simpler and more efficient
●
Continued the branch network optimisation programme in
response to changing customer behaviour.
−
Investing in new distribution technology and rolling out WIFI and
tablet solutions.
−
Designing new branch formats and upgrading call centre
technology.
−
Closed further branches, but maintaining the UK's largest branch
network with a 21 per cent market share.
Delivering sustainable growth
●
Continued to attract new customers through positive
switching activity, accounting for more than 1 in 5 switchers in
2016.
●
Since the launch of the Group's Helping Britain Prosper Plan
in 2014 the Group has continued to be the leading supporter of
first-time house buyers, with £11.7 billion lent in
2016.
●
Exceeded Helping Britain Prosper target by supporting over
121,000 start-up businesses whilst also launching a range of new
products and services to improve the customer experience for small
businesses.
Financial
performance
●
Underlying profit decreased 3 per cent to £3,003
million reflecting the challenging interest rate environment,
continued pressure on other operating income and increased
investment in the business.
●
Net interest income decreased 3 per cent driven largely by a
reduction in mortgage balances reflecting the focus on protecting
margins. Banking margin fell by just 2 basis points despite the
continuing low interest rate environment.
●
Other income 6 per cent lower than 2015 driven by changing
customer behaviour and improvements to the customer
proposition.
●
Operating costs decreased 4 per cent to £4,174 million
as efficiency savings more than covered an increase in investment.
Staff numbers have reduced by 11 per cent in the year.
●
Impairment charge increased 7 per cent to £373 million,
however underlying credit quality remains stable.
●
Loans and advances to customers fell 3 per cent to
£297.7 billion, with the open mortgage book (excluding
specialist mortgage books and Intelligent Finance) reducing by
£4.5 billion to £266 billion during the year, of
which £3.4 billion was in the first half and £1.1 billion
in the second half. The fall reflects the decision to protect net
interest margin in the current competitive low growth
market.
●
Customer deposits decreased 1 per cent to £271.0
billion, driven by the decision to reduce tactical
balances.
●
Risk-weighted assets increased £0.6 billion to
£55.2 billion reflecting the Group's focus on balancing margin
and risk considerations offset by a more prudent approach to
secured risk-weighted asset modelling.
Performance summary
|
|
|
|
|
|
|
|
|
2016
|
|
2015¹
|
|
Change
|
|
|
£m
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
Net
interest income
|
|
6,497
|
|
6,664
|
|
(3)
|
Other
income
|
|
1,053
|
|
1,115
|
|
(6)
|
Total income
|
|
7,550
|
|
7,779
|
|
(3)
|
Operating
lease depreciation
|
|
-
|
|
-
|
|
|
Net income
|
|
7,550
|
|
7,779
|
|
(3)
|
Operating
costs
|
|
(4,174)
|
|
(4,339)
|
|
4
|
Impairment
|
|
(373)
|
|
(349)
|
|
(7)
|
Underlying profit
|
|
3,003
|
|
3,091
|
|
(3)
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
2.20%
|
|
2.22%
|
|
(2)bp
|
Average
interest-earning banking assets
|
|
£302.7bn
|
|
£307.0bn
|
|
(1)
|
Asset
quality ratio
|
|
0.12%
|
|
0.11%
|
|
1bp
|
Impaired
loans as % of closing advances
|
|
1.5%
|
|
1.3%
|
|
0.2pp
|
Return
on risk-weighted assets
|
|
5.45%
|
|
5.71%
|
|
(26)bp
|
Return
on assets
|
|
0.99%
|
|
1.00%
|
|
(1)bp
|
Key balance sheet items
|
|
|
|
|
|
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
|
|
2016
|
|
2015
1
|
|
Change
|
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
Loans
and advances excluding closed portfolios
|
|
271.0
|
|
275.5
|
|
(2)
|
Closed
portfolios
|
|
26.7
|
|
30.1
|
|
(11)
|
Loans
and advances to customers
|
|
297.7
|
|
305.6
|
|
(3)
|
|
|
|
|
|
|
|
Relationship
balances
|
|
253.8
|
|
249.3
|
|
2
|
Tactical
balances
|
|
17.2
|
|
24.4
|
|
(30)
|
Customer
deposits
|
|
271.0
|
|
273.7
|
|
(1)
|
|
|
|
|
|
|
|
Risk-weighted
assets
|
|
55.2
|
|
54.6
|
|
1
|
|
|
1
|
Restated.
See basis of presentation on the inside front cover.
|
COMMERCIAL BANKING
Commercial
Banking has a client-led, low risk, capital efficient strategy,
helping UK-based clients and international clients with a link to
the UK. Through its four client facing divisions - SME, Mid
Markets, Global Corporates and Financial Institutions - it provides
clients with a range of products and services such as lending,
transactional banking, working capital management, risk management,
debt capital markets services, as well as access to private equity
through Lloyds Development Capital.
Progress against strategic initiatives
The
division has made significant progress against its strategic
objectives; delivering a return on risk-weighted assets of 2.44 per
cent, exceeding the investor commitment of returns greater than
2.40 per cent by the end of 2017 while continuing to grow lending
in key client segments.
Creating the best customer experience
●
Awarded Business Bank of the Year at the FD's Excellence
Awards for the 12th consecutive year.
●
Increased net promoter scores across all client divisions
surveyed in 2016.
●
Supported over 10,000 first time exporters which is helping
the UK government achieve its ambition to deliver 100,000 new
exporters by 2020.
Becoming simpler and more efficient
●
Reduced SME relationship manager hours spent on business
account opening from seven to two hours, enabling more time to be
spent face to face with clients.
●
Continued to invest in next generation digital capabilities
and client analytics to transform clients' experiences. The 'CB
Online' transaction banking platform now has over 2,000 clients
registered.
Delivering sustainable growth
●
Increased lending in SME and Mid Markets by around £2
billion in 2016 and provided UK manufacturers with over
£1 billion of funding support in 2016.
●
Facilitated over £10.5 billion of financing to support
UK government infrastructure projects, including the creation of a
wood pellet power plant in Teesside which will provide energy to
600,000 homes and Race Bank Offshore Windfarm which will play a key
part in the UK's green energy future.
Financial performance
●
Underlying profit in line with prior year at £2,468
million.
●
Return on risk-weighted assets of 2.44 per cent with a 7 per
cent reduction in risk-weighted assets, total income growth and
disciplined cost management.
●
Total income up 2 per cent with growth across SME, Mid
Markets and Financial Institutions.
●
Net interest income up 6 per cent with a 28 basis points
improvement in net interest margin, supported by high quality
deposit growth, disciplined deposit pricing and reduced funding
costs. Other income down 4 per cent due to non-recurring income
recognised in 2015 relating to refinancing support of Global
Corporates clients. This has been partially offset by growth in CB
Markets of 8 per cent and increased momentum in the second half of
the year with other income up 9 per cent against the first
half of 2016.
●
Operating lease depreciation increased due to additional
charges relating to certain leasing assets.
●
Operating costs down 1 per cent with performance reflecting
disciplined cost management and headcount rationalisation,
supported by efficiency initiatives resulting in positive
jaws.
●
Impairment charge of £16 million reflects the benefit
of active risk management and the continued low interest rate
environment. Asset quality ratio remains low at 2 basis
points.
●
Risk-weighted assets decreased by £7.2 billion,
reflecting the disciplined approach to capital, including capital
efficient securitisation activity and credit management. This has
received global recognition through the award of Credit Portfolio
Manager of the Year at the 2016 Risk Awards.
●
Loans and advances to customers fell by 2 per cent to
£100.4 billion. Above market growth in SME lending and
increases in Mid Markets and Global Corporates offset by lower
lending in Financial Institutions.
●
Deposits increased 1 per cent to £132.6 billion. Strong
momentum in attracting high quality deposits with Global
Transactional Banking balances up 10 per cent, further
optimising the portfolio and strengthening the Group balance
sheet.
Performance summary
|
|
|
|
|
|
|
|
|
2016
|
|
2015
1
|
|
Change
|
|
|
£m
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
Net
interest income
|
|
2,735
|
|
2,576
|
|
6
|
Other
income
|
|
1,987
|
|
2,072
|
|
(4)
|
Total income
|
|
4,722
|
|
4,648
|
|
2
|
Operating
lease depreciation
|
|
(105)
|
|
(30)
|
|
|
Net income
|
|
4,617
|
|
4,618
|
|
-
|
Operating
costs
|
|
(2,133)
|
|
(2,162)
|
|
1
|
Impairment
(charge) release
|
|
(16)
|
|
22
|
|
|
Underlying profit
|
|
2,468
|
|
2,478
|
|
-
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
3.26%
|
|
2.98%
|
|
28bp
|
Average
interest-earning banking assets
|
|
£88.6bn
|
|
£90.0bn
|
|
(2)
|
Asset
quality ratio
|
|
0.02%
|
|
0.01%
|
|
1bp
|
Impaired
loans as % of closing advances
|
|
2.2%
|
|
2.5%
|
|
(0.3)pp
|
Return
on risk-weighted assets
|
|
2.44%
|
|
2.36%
|
|
8bp
|
Return
on assets
|
|
1.29%
|
|
1.18%
|
|
11bp
|
Key
balance sheet items
|
|
|
|
|
|
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
|
|
2016
|
|
2015
1
|
|
Change
|
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
Loans
and advances to customers
|
|
100.4
|
|
102.0
|
|
(2)
|
Customer
deposits
|
|
132.6
|
|
131.9
|
|
1
|
Risk-weighted
assets
|
|
96.0
|
|
103.2
|
|
(7)
|
|
|
1
|
Restated.
See basis of presentation on the inside front cover.
|
CONSUMER FINANCE
Consumer
Finance comprises all the Group's consumer lending products
including motor finance, credit cards, and unsecured personal loans
along with its European business. Its aim is to deliver sustainable
growth, within a prudent risk appetite in these markets through its
multi-brand, multi-channel distribution model.
Progress against strategic initiatives
The
division continues to make significant progress against its
strategic objectives, and has delivered its original target of
increasing UK customer assets by £6 billion a year ahead of
target, whilst maintaining a prudent approach to new business and
managing residual value risk conservatively. In line with its
strategy to grow in consumer finance the Group has entered into an
agreement to acquire MBNA's prime UK credit card business with
£7.0 billion of assets and c.2.8 million customers, which
will give us the opportunity to create a best-in-class credit card
operation.
Creating the best customer experience
●
Credit Cards launched the innovative Halifax FlexiCard,
giving customers more control, with dedicated repayment
plans.
●
In the Motor business, Black Horse launched a personal
contract purchase (PCP) product for caravans and motorhomes, which
now accounts for 11 per cent of applications in this
sector.
●
Lex Autolease built a bespoke system to manage vehicle
servicing and maintenance, including online self-service
functionality and has been used by over 10,000 customers since
May.
●
Loans have significantly enhanced the digital sales process
with the introduction of an upfront eligibility
checker.
Becoming simpler and more efficient
●
Consumer Finance continues to focus on efficiency with
further significant improvements to processes implemented in the
year. This has also helped reduce customer complaints by 11 per
cent.
●
Lex Autolease simplified the way it sells c.80,000 vehicles
per annum at end of contract, reducing the number of operating
sites and associated costs, whilst increasing speed of vehicle
disposals.
●
Black Horse launched the Mobile Finance Calculator across
the dealer network, allowing dealers to provide more accurate
indicative customer pricing early on in the process.
Delivering sustainable growth
●
Black Horse balances have grown by 20 per cent in the year,
ahead of market growth, and continue to benefit from partnerships
with key manufacturers such as Jaguar Land Rover.
●
Credit card balances grew broadly in line with the market at
4 per cent, and the Group was the number one issuer of new cards in
the UK.
●
The acquisition of MBNA will enable the Group to enhance its
position and offering within the UK prime credit card market and
brings capabilities including data analytics and digital expertise
in addition to a well-recognised brand. This will be complementary
to the Group's existing operation and provides further
opportunities for growth and delivering excellent customer
service.
●
Unsecured loan balances contracted marginally in the year as
the Group continues to focus on low risk franchise
customers.
Financial performance
●
Underlying profit at £1,283 million was down 7 per
cent, driven by slightly lower income and increased impairment, but
return on risk-weighted assets remained strong at 4.09 per
cent.
●
Net interest income at £1,941 million was down 1 per
cent with strong asset growth offset by the 73 basis point
reduction in net interest margin. This was largely due to the focus
on high quality, lower margin motor finance business, with the
margin also impacted by lower Euribor and planned reductions in
deposits, in line with the Group's funding strategy.
●
Other income was down 2 per cent at £1,338 million due
to the market-wide reduction in card interchange fees. Excluding
this, other income was 3 per cent higher driven by continued fleet
growth in Lex Autolease.
●
Operating costs fell 4 per cent to £939 million with
continued investment in the business more than offset by underlying
efficiency savings. The division maintained a strong cost:income
ratio, in line with 2015 at 37.4 per cent.
●
The impairment charge of £282 million increased by
£47 million, primarily due to overall growth and the
non-recurrence of a favourable one-off release in 2015. Credit
quality remains good with new business written within the Group's
prudent credit and conduct appetite.
●
UK customer assets were up 9 per cent year-on-year, driven
primarily by growth in Black Horse.
●
Customer deposits were down 29 per cent to £7.9 billion
driven by re-pricing activity and the Group's deposit
strategy.
Performance summary
|
|
|
|
|
|
|
|
|
2016
|
|
2015
1
|
|
Change
|
|
|
£m
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
Net
interest income
|
|
1,941
|
|
1,954
|
|
(1)
|
Other
income
|
|
1,338
|
|
1,359
|
|
(2)
|
Total income
|
|
3,279
|
|
3,313
|
|
(1)
|
Operating
lease depreciation
|
|
(775)
|
|
(720)
|
|
(8)
|
Net income
|
|
2,504
|
|
2,593
|
|
(3)
|
Operating
costs
|
|
(939)
|
|
(977)
|
|
4
|
Impairment
|
|
(282)
|
|
(235)
|
|
(20)
|
Underlying profit
|
|
1,283
|
|
1,381
|
|
(7)
|
|
|
|
|
|
|
|
Banking
net interest margin
|
|
5.88%
|
|
6.61%
|
|
(73)bp
|
Average
interest-earning banking assets
|
|
£33.9bn
|
|
£30.5bn
|
|
11
|
Asset
quality ratio
|
|
0.83%
|
|
0.77%
|
|
6bp
|
Impaired
loans as % of closing advances
|
|
2.1%
|
|
2.9%
|
|
(0.8)pp
|
Return
on risk-weighted assets
|
|
4.09%
|
|
4.27%
|
|
(18)bp
|
Return
on assets
|
|
3.29%
|
|
3.95%
|
|
(66)bp
|
Key balance sheet items
|
|
|
|
|
|
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
|
|
2016
|
|
2015
1
|
|
Change
|
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
Loans
and advances to customers
|
|
35.1
|
|
31.5
|
|
11
|
Operating
lease assets
|
|
4.1
|
|
3.5
|
|
17
|
Total customer assets
|
|
39.2
|
|
35.0
|
|
12
|
Of which UK
|
|
32.8
|
|
30.0
|
|
9
|
|
|
|
|
|
|
|
Customer
deposits
|
|
7.9
|
|
11.1
|
|
(29)
|
|
|
|
|
|
|
|
Risk-weighted
assets
|
|
32.1
|
|
30.7
|
|
5
|
|
|
1
|
Restated.
See basis of presentation on the inside front cover.
|
INSURANCE
The
Insurance division is committed to providing a range of trusted and
value-for-money protection, pension and investment products to meet
the needs of its customers. With over £110 billion of
funds under management, Scottish Widows is helping six million
customers protect what they value most and plan financially for the
future. In addition, the general insurance business is protecting
the homes, belongings, cars and businesses of over three million
customers.
Progress against strategic
initiatives
The
Group will continue to invest in developing the Insurance business
and will seek to grow in areas where it has competitive advantage
and is underrepresented, for the benefit of both customers and
shareholders.
Creating the best customer experience
●
Regained '5 star' Service Awards in both Life & Pensions
and Investment categories at the 2016 Financial Adviser Service
Awards together with 'Most Improved Provider' award. These
accolades are voted on by 5,000 UK financial advisers and reflect
improved customer service alongside simplified and streamlined
processes.
●
Strengthened the general insurance business with the launch
of a flexible online home insurance offering, delivering increased
direct sales, significant new functionality and more choice for
customers.
●
A founder member of the UK government's Flood Re initiative
and played a lead role in setting up the scheme, which has enabled
customers in high flood risk areas to secure affordable home
insurance.
Becoming simpler and more efficient
●
Launched a new digital service for employers, significantly
reducing processing times for monthly corporate pension scheme
management.
●
Introduced an online tool allowing customers to consolidate
other workplace pensions assets into the Group. This builds on the
existing '5 Steps to Retirement' website, enabling customers to
take control of their retirement plans.
Delivering sustainable growth
●
Successfully completed four bulk annuity transactions in
2016, taking the combined external deal size to over
£1.85 billion since entering the market in late
2015.
●
Continued to leverage Group capabilities to source
attractive, low risk, higher yielding assets to back annuity
liabilities. Total assets acquired to date are £7
billion.
●
Growth in corporate pension sales in a competitive
environment, driven by increased uptake of new
schemes.
●
Scottish Widows Protect monthly applications have increased
almost tenfold, providing £2.4 billion of life assurance and
critical illness cover to individuals and businesses across the
UK.
●
Corporate pension, planning and retirement funds under
management increased to over £42 billion reflecting net
inflows and positive market movements.
Financial
performance
●
Underlying profit decreased by 13 per cent to
£837 million. A 17 per cent increase in new business
income was more than offset by adverse economics impacting existing
business income together with increased investment
costs.
●
Life and pensions sales (PVNBP) decreased by 6 per cent.
Excluding the internal With-Profits fund bulk annuity transfers in
2015 and 2016, PVNBP increased 23 per cent reflecting the four bulk
annuity deals secured, growth in corporate pensions and increased
momentum in both planning and retirement and
protection.
●
General insurance gross written premiums (GWP) decreased by
3 per cent, reflecting the continued softening of the Home market
and the run off of legacy products.
●
Costs increased by 10 per cent to £772 million,
reflecting increased investment and £28 million annual levy
associated with the Flood Re scheme.
Capital
●
The estimated pre dividend Solvency II ratio of 160 per cent
(1 January 2016 pre dividend position: 160 per cent) represents the
shareholder view of Solvency II surplus. Benefits from capital
optimisation initiatives have been offset by adverse interest rate
volatility and the payment of a £500 million dividend in
February 2016.
●
Paid a further £500 million to the Group in February
2017, bringing total dividends paid since the formation of the
Group in 2009, to £7.1 billion.
Performance summary
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
£m
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
(146)
|
|
(163)
|
|
10
|
|
Other
income
|
|
1,755
|
|
1,827
|
|
(4)
|
|
Total income
|
|
1,609
|
|
1,664
|
|
(3)
|
|
Operating
costs
|
|
(772)
|
|
(702)
|
|
(10)
|
|
Underlying profit
|
|
837
|
|
962
|
|
(13)
|
|
|
|
|
|
|
|
|
|
Life
and pensions sales (PVNBP)
1
|
|
8,919
|
|
9,460
|
|
(6)
|
|
New
business income
|
|
381
|
|
326
|
|
17
|
|
General
insurance total gross written premiums
|
|
1,108
|
|
1,148
|
|
(3)
|
|
General
insurance combined ratio
|
|
85%
|
|
83%
|
|
2pp
|
|
Solvency
II ratio (pre dividend)
|
|
160%
|
|
160%
|
|
-
|
|
1
|
Present
value of new business premiums. With-Profit fund bulk annuity
transfer sales were £2,386 million in 2015 and £243
million in 2016. Excluding these transfers, LP&I sales have
improved 23 per cent in 2016.
|
Profit by product group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
New
|
|
Existing
|
|
|
|
New
|
|
Existing
|
|
|
|
|
business
|
|
business
|
|
Total
|
|
business
|
|
business
|
|
Total
|
|
|
income
|
|
income
|
|
income
|
|
income
|
|
income
|
|
income
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
pensions
|
|
123
|
|
135
|
|
258
|
|
140
|
|
175
|
|
315
|
Bulk
annuities
|
|
121
|
|
16
|
|
137
|
|
125
|
|
-
|
|
125
|
Planning
and retirement
|
|
109
|
|
95
|
|
204
|
|
40
|
|
94
|
|
134
|
Protection
|
|
19
|
|
33
|
|
52
|
|
12
|
|
37
|
|
49
|
Longstanding
LP&I
|
|
9
|
|
393
|
|
402
|
|
9
|
|
467
|
|
476
|
|
|
381
|
|
672
|
|
1,053
|
|
326
|
|
773
|
|
1,099
|
Life
and pensions experience and other items
|
|
|
|
|
|
223
|
|
|
|
|
|
235
|
General
insurance
|
|
|
|
|
|
354
|
|
|
|
|
|
323
|
Net
interest income and free asset return
|
|
|
|
|
|
(21)
|
|
|
|
|
|
7
|
Total
costs
|
|
|
|
|
|
(772)
|
|
|
|
|
|
(702)
|
Underlying profit
|
|
|
|
|
|
837
|
|
|
|
|
|
962
|
New
business income has increased by £55 million, or
17 per cent, driven by growth in planning and retirement and
protection propositions. This has more than offset lower income
from corporate pensions.
Existing
business income has decreased by £101 million, primarily
driven by adverse economics.
There
was a net benefit of £223 million (2015:
£235 million) as a result of experience and other items.
This included one off benefits following an update to the
methodology for calculating the illiquidity premium and the
addition of a new death benefit to legacy pension contracts, to
align terms with other pensions products. These were partly offset
by the effect of recent reforms on activity within the pensions
market.
General
insurance income net of claims has increased by £31 million
primarily driven by lower weather related claims.
RUN-OFF AND CENTRAL ITEMS
RUN-OFF
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
|
£m
|
|
£m
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
(110)
|
|
(88)
|
|
(25)
|
|
|
|
|
Other
income
|
|
120
|
|
145
|
|
(17)
|
|
|
|
|
Total income
|
|
10
|
|
57
|
|
(82)
|
|
|
|
|
Operating
lease depreciation
|
|
(15)
|
|
(14)
|
|
(7)
|
|
|
|
|
Net income
|
|
(5)
|
|
43
|
|
|
|
|
|
|
Operating
costs
|
|
(77)
|
|
(150)
|
|
49
|
|
|
|
|
Impairment
release / (charge)
|
|
26
|
|
(8)
|
|
|
|
|
|
|
Underlying loss
|
|
(56)
|
|
(115)
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
Change
|
|
|
|
|
|
£bn
|
|
£bn
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
and advances to customers
|
|
9.6
|
|
10.3
|
|
(7)
|
|
|
|
Total
assets
|
|
11.3
|
|
12.2
|
|
(7)
|
|
|
|
Risk-weighted
assets
|
|
8.5
|
|
10.2
|
|
(17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
lower income and costs reflect further reductions in the run-off
portfolios.
CENTRAL ITEMS
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
income
|
|
330
|
|
176
|
|
|
|
|
|
Costs
|
|
2
|
|
19
|
|
|
|
|
|
Impairment
release
|
|
-
|
|
2
|
|
|
|
|
|
TSB
|
|
-
|
|
118
|
|
|
|
|
|
Underlying profit
|
|
332
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Central
items includes income and expenditure not attributed to divisions,
including the costs of certain central and head office
functions.
Total
income increased to £330 million (2015:
£176 million) largely as a result of sales of liquid
assets including gilts, and the timing of dividends from the
Group's strategic investments.
The
results in 2015 include TSB for the first quarter
only.
OTHER FINANCIAL INFORMATION
1. Reconciliation between statutory and underlying basis
results
The
tables below set out the reconciliation from the statutory results
to the underlying basis results, the principles of which are set
out on the inside front cover.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Removal of:
|
|
|
|
|
|
Lloyds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
|
|
Volatility
|
|
|
|
|
|
Other
|
|
|
|
|
|
Group
|
|
and other
|
|
Insurance
|
|
|
|
conduct
|
|
Underlying
|
|
|
|
statutory
|
|
items
1
|
|
gross up
2
|
|
PPI
|
|
provisions
|
|
basis
|
|
2016
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
9,274
|
|
263
|
|
1,898
|
|
-
|
|
-
|
|
11,435
|
|
Other
income, net of insurance claims
|
|
7,993
|
|
121
|
|
(2,110)
|
|
-
|
|
61
|
|
6,065
|
|
Total income
|
|
17,267
|
|
384
|
|
(212)
|
|
-
|
|
61
|
|
17,500
|
|
Operating
lease depreciation
|
|
|
|
(895)
|
|
-
|
|
-
|
|
-
|
|
(895)
|
|
Net income
|
|
17,267
|
|
(511)
|
|
(212)
|
|
-
|
|
61
|
|
16,605
|
|
Operating
expenses
3
|
|
(12,277)
|
|
1,948
|
|
212
|
|
1,000
|
|
1,024
|
|
(8,093)
|
|
Impairment
|
|
(752)
|
|
107
|
|
-
|
|
-
|
|
-
|
|
(645)
|
|
Profit before tax
|
|
4,238
|
|
1,544
|
|
-
|
|
1,000
|
|
1,085
|
|
7,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Removal
of:
|
|
|
|
|
Lloyds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banking
|
|
Volatility
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
Group
|
|
and other
|
|
|
|
Insurance
|
|
|
|
conduct
|
|
Underlying
|
|
|
statutory
|
|
items
4
|
|
TSB
|
|
gross up
2
|
|
PPI
|
|
provisions
|
|
basis
|
2015
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
11,318
|
|
318
|
|
(192)
|
|
38
|
|
-
|
|
-
|
|
11,482
|
Other
income, net of insurance claims
|
|
6,103
|
|
209
|
|
(31)
|
|
(126)
|
|
-
|
|
-
|
|
6,155
|
Total
income
|
|
17,421
|
|
527
|
|
(223)
|
|
(88)
|
|
-
|
|
-
|
|
17,637
|
Operating
lease depreciation
|
|
|
|
(764)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(764)
|
Net
income
|
|
17,421
|
|
(237)
|
|
(223)
|
|
(88)
|
|
-
|
|
-
|
|
16,873
|
Operating
expenses
3
|
|
(15,387)
|
|
2,065
|
|
86
|
|
88
|
|
4,000
|
|
837
|
|
(8,311)
|
Impairment
|
|
(390)
|
|
(197)
|
|
19
|
|
-
|
|
-
|
|
-
|
|
(568)
|
TSB
5
|
|
-
|
|
-
|
|
118
|
|
-
|
|
-
|
|
-
|
|
118
|
Profit
before tax
|
|
1,644
|
|
1,631
|
|
-
|
|
-
|
|
4,000
|
|
837
|
|
8,112
|
1
|
Comprises
the write-off of the ECN embedded derivative and premium paid on
redemption of the remaining notes in the first quarter (loss of
£790 million); the effects of asset sales (gain of
£217 million); volatile items (gain of
£99 million); liability management (gain of
£123 million); the amortisation of purchased intangibles
(£340 million); restructuring costs
(£622 million, principally comprising the severance
related costs under phase II of the Simplification programme); and
the fair value unwind and other items (loss of
£231 million).
|
2
|
The
Group's insurance businesses' income statements include income and
expenditure which are attributable to the policyholders of the
Group's long-term assurance funds. These items have no impact in
total upon the profit attributable to equity shareholders and, in
order to provide a clearer representation of the underlying trends
within the business, these items are shown net within the
underlying results.
|
3
|
The
statutory basis figure is the aggregate of operating costs and
operating lease depreciation.
|
4
|
Comprises
market movements on the ECN embedded derivative (loss of
£101 million); the effects of asset sales (gain of
£54 million); volatile items (loss of
£107 million); liability management (loss of
£28 million); the amortisation of purchased intangibles
(£342 million); restructuring costs
(£170 million); TSB costs (£745 million); and
the fair value unwind and other items (loss of
£192 million).
|
5
|
Comprises
the underlying results of TSB.
|
2. Banking net interest margin
The
banking net interest margin is calculated by dividing banking net
interest income by average interest-earning banking assets.
Non-banking net interest income includes the net interest expense
reported by the Insurance business, net interest income earned from
non-banking assets, negative fair value adjustments relating to
certain past liability management exercises and consolidation
adjustments between net interest and other income to eliminate the
impact of certain intragroup transactions. Non-banking assets
include loans and advances within Commercial Banking where the
predominant income stream is fees rather than net interest, and
loans sold by Commercial Banking and Retail to Insurance to back
annuitant liabilities.
The
table below shows the reconciliation between the statutory net
interest income and the underlying net interest
income.
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
Group net interest income - statutory basis
|
|
9,274
|
|
11,318
|
|
Insurance
gross up
|
|
1,898
|
|
38
|
|
Volatility
and other items
|
|
263
|
|
318
|
|
TSB
|
|
-
|
|
(192)
|
|
Group net interest income - underlying basis
|
|
11,435
|
|
11,482
|
|
Insurance
division net interest expense
|
|
146
|
|
163
|
|
Other
non-banking net interest expense / (income)
|
|
245
|
|
(15)
|
|
Banking net interest income - underlying basis
|
|
11,826
|
|
11,630
|
|
|
|
|
|
|
|
Average interest-earning banking assets
|
|
£435.9bn
|
|
£441.9bn
|
|
|
|
|
|
|
|
Banking net interest margin
|
|
2.71%
|
|
2.63%
|
|
Other
non-banking net interest expense was £245 million (2015: net
interest income £15 million). The change in the year was
largely driven by a reduction in the net interest income reported
by the non-banking businesses, the continued reduction in run-off
non-banking assets together with a change to the funding cost
charged to the remaining run-off non-banking assets to better
reflect their maturity profile.
The
insurance gross up of £1,898 million (2015: £38 million)
largely represents amounts payable to unitholders in consolidated
open-ended investment vehicles managed by the Insurance business.
The increased expense in the year reflects strong market
performance in the second half of 2016.
The
table below shows the reconciliation between net loans and advances
and average interest-earning banking assets.
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
Quarter
|
|
|
ended
|
|
ended
|
|
ended
|
|
ended
|
|
|
31 Dec
|
|
30 Sept
|
|
30 Jun
|
|
31 Mar
|
|
|
2016
|
|
2016
|
|
2016
|
|
2016
|
|
|
£bn
|
|
£bn
|
|
£bn
|
|
£bn
|
|
|
|
|
|
|
|
|
|
Net loans and advances to customers
|
|
449.7
|
|
451.7
|
|
453.0
|
|
456.7
|
Impairment
provision and fair value adjustments
|
|
3.7
|
|
3.8
|
|
4.1
|
|
4.3
|
Non-banking
items:
|
|
|
|
|
|
|
|
|
Fee
based loans and advances
|
|
(9.4)
|
|
(8.7)
|
|
(9.1)
|
|
(10.9)
|
Sale of
assets to Insurance
|
|
(6.7)
|
|
(6.2)
|
|
(6.1)
|
|
(5.7)
|
Other
non-banking
|
|
(5.0)
|
|
(5.5)
|
|
(4.9)
|
|
(5.3)
|
Gross banking loans and advances
|
|
432.3
|
|
435.1
|
|
437.0
|
|
439.1
|
Averaging
|
|
1.7
|
|
0.8
|
|
(1.4)
|
|
(0.9)
|
Average interest-earning banking assets (qtr)
|
|
434.0
|
|
435.9
|
|
435.6
|
|
438.2
|
Average
interest-earning banking assets (ytd)
|
|
435.9
|
|
436.6
|
|
436.9
|
|
438.2
|
3. Volatility arising in insurance businesses
Volatility
included in the Group's statutory results before tax comprises the
following:
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Insurance
volatility
|
|
(152)
|
|
(303)
|
Policyholder
interests volatility
|
|
241
|
|
87
|
Total
volatility
|
|
89
|
|
(216)
|
Insurance
hedging arrangements
|
|
(180)
|
|
111
|
Total
|
|
(91)
|
|
(105)
|
Insurance volatility
The
Group's insurance business has policyholder liabilities that are
supported by substantial holdings of investments. IFRS requires
that the changes in both the value of the liabilities and
investments are reflected within the income statement. The value of
the liabilities does not move exactly in line with changes in the
value of the investments. As the investments are substantial,
movements in their value can have a significant impact on the
profitability of the Group. Management believes that it is
appropriate to disclose the division's results on the basis of an
expected return in addition to results based on the actual return.
The impact of the actual return on these investments differing from
the expected return is included within insurance
volatility.
4. Return measures
The
Group's underlying return on required equity for 2016 was
13.2 per cent (2015: 15.0 per cent) and the underlying
return on tangible equity was 14.1 per cent (2015:
16.0 per cent). The reduction in both return measures was as a
result of lower underlying profit and higher tax.
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
£bn
|
|
£bn
|
Underlying return on required equity
|
|
|
|
|
Average
shareholders' equity
|
|
42.7
|
|
42.8
|
Average
non-controlling interests
|
|
0.4
|
|
0.6
|
Excess
equity based on 12 per cent CET 1 requirement
|
|
(2.4)
|
|
(2.7)
|
Average
required equity
|
|
40.7
|
|
40.7
|
|
|
|
|
|
Underlying
profit after tax and profits attributable to other equity holders
(£m)
|
|
5,410
|
|
6,155
|
Notional
earnings on excess equity (£m)
|
|
(24)
|
|
(37)
|
|
|
5,386
|
|
6,118
|
|
|
|
|
|
Underlying
return on required equity
|
|
13.2%
|
|
15.0%
|
|
|
|
|
|
Underlying return on tangible equity
|
|
|
|
|
Average
shareholders' equity
|
|
42.7
|
|
42.8
|
Average
intangible assets
|
|
(3.8)
|
|
(4.0)
|
Average
tangible equity
|
|
38.9
|
|
38.8
|
|
|
|
|
|
Underlying
profit after tax and profits attributable to other equity holders
(£m)
|
|
5,410
|
|
6,155
|
Amortisation
of intangible assets (post tax) (£m)
|
|
174
|
|
156
|
Profit
attributable to non-controlling interests (£m)
|
|
(101)
|
|
(96)
|
|
|
5,483
|
|
6,215
|
|
|
|
|
|
Underlying
return on tangible equity
|
|
14.1%
|
|
16.0%
|
5. Tangible net assets per share
The
table below sets out a reconciliation of the Group's shareholders'
equity to its tangible net assets.
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Shareholders'
equity
|
|
43,020
|
|
41,234
|
Goodwill
|
|
(2,016)
|
|
(2,016)
|
Intangible
assets
|
|
(1,681)
|
|
(1,838)
|
Purchased
value of in-force business
|
|
(340)
|
|
(377)
|
Other,
including deferred tax effects
|
|
170
|
|
264
|
Tangible net assets
|
|
39,153
|
|
37,267
|
|
|
|
|
|
Ordinary
shares in issue, excluding Own shares
|
|
71,413m
|
|
71,263m
|
Tangible
net assets per share
|
|
54.8p
|
|
52.3p
|
GROUP CREDIT RISK
PORTFOLIO
Overview
●
Asset quality remains strong with portfolios
continuing to benefit from the Group's pro-active approach to risk
management, continued low interest rates, and a resilient UK
economic environment.
●
The impairment charge increased by 14 per cent to
£645 million in 2016 compared to £568 million in 2015.
Gross charges remained broadly flat with the increase in net
charges largely due to lower levels of releases and
write-backs.
●
The asset quality ratio for 2016 was 15 basis
points compared to 14 basis points during 2015 and the gross asset
quality ratio (excluding releases and write-backs) was stable at 28
basis points.
●
Looking
forward the 2017 full year asset quality ratio is expected to
increase to around 25 basis points primarily reflecting lower
releases and write-backs.
●
Impaired loans as a percentage of closing loans and advances
reduced to 1.8 per cent at 31 December 2016, from 2.1 per cent at
31 December 2015, with impaired loans reducing by £1.1 billion
to £8.5 billion during the period, due to further reductions
in the Commercial Banking, Consumer Finance and run-off
portfolios.
Low risk culture and prudent risk appetite
●
The Group continues to operate a prudent approach
to credit risk, with the portfolios benefiting from the focus on
credit at origination and a prudent through the cycle approach to
credit risk appetite. The Group's portfolios are well positioned
against current economic concerns and market
volatility.
●
The Group's credit processes and controls ensure
effective risk management, including early identification and
management of customers and counterparties who may be showing signs
of distress.
●
The Group has delivered lending growth in key
segments without relaxing credit criteria
despite
terms and conditions in some of the Group's markets being impacted
by increased competition and, in Commercial Banking, uncertainty in
some sectors.
●
Sector concentrations within the lending
portfolios are closely monitored and controlled, with mitigating
actions taken where appropriate. Sector and product caps limit
exposure to certain higher risk and vulnerable sectors and asset
classes. In particular:
−
The average indexed LTV of the Retail UK Secured portfolio at 31
December 2016 was 44.0 per cent (31 December 2015: 46.1 per
cent). The percentage of closing loans and advances with an indexed
LTV greater than 100 per cent was 0.7 per cent (31 December 2015:
1.1 per cent).
− Total UK Direct Real Estate gross lending
across the Group was £19.9 billion at 31 December 2016 (31
December 2015: £19.7 billion). This mainly
includes
Commercial
Banking lending of £18.5 billion, £0.5 billion booked in
the Islands Commercial business and £0.2 billion within Retail
Business Banking (within Retail Division) with the Group continuing
to write new business within conservative risk appetite parameters.
The Group's significantly reduced legacy run-off direct real estate
portfolio has continued to fall to £0.7 billion at 31 December
2016
(
31 December 2015: £1.1
billion
)
, and now represents a very modest element of the
total UK Direct Real Estate lending portfolio.
●
Run-off net external assets stood at £11.3
billion at 31 December 2016, down from £12.2 billion at
31 December 2015. The portfolio represents only 2.1 per cent
of the overall Group's loans and advances (31 December 2015:
2.3 per cent).
Impairment charge by division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
andadvances tocustomers
|
|
Debt
securitiesclassified asloans
andreceivables
|
|
Available-for-salefinancialassets
|
|
Other
credit risk
provisions
|
|
Total
|
|
2015
1
|
2016
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
373
|
|
-
|
|
-
|
|
-
|
|
373
|
|
349
|
Commercial Banking
|
|
21
|
|
-
|
|
-
|
|
(5)
|
|
16
|
|
(22)
|
Consumer Finance
|
|
282
|
|
-
|
|
-
|
|
-
|
|
282
|
|
235
|
Run-off
|
|
(17)
|
|
-
|
|
-
|
|
(9)
|
|
(26)
|
|
8
|
Central items
|
|
(2)
|
|
-
|
|
-
|
|
2
|
|
-
|
|
(2)
|
Total impairment charge
|
|
657
|
|
-
|
|
-
|
|
(12)
|
|
645
|
|
568
|
Asset quality ratio
|
|
|
|
|
|
|
|
|
|
0.15%
|
|
0.14%
|
Gross asset quality ratio
|
|
|
|
|
|
|
|
|
|
0.28%
|
|
0.28%
|
|
|
|
|
|
|
|
|
|
|
|
Group impaired loans and provisions
|
|
|
|
|
|
|
|
|
|
Impairment
|
|
|
|
|
|
|
Impaired
|
|
|
|
provision
|
|
|
Loans and
|
|
|
|
loans as %
|
|
|
|
as % of
|
|
|
advances to
|
|
Impaired
|
|
of closing
|
|
Impairment
|
|
impaired
|
|
|
customers
|
|
loans
|
|
advances
|
|
provisions
1
|
|
loans
2
|
|
|
£m
|
|
£m
|
|
%
|
|
£m
|
|
%
|
At 31 December 2016
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
299,493
|
|
4,354
|
|
1.5
|
|
1,630
|
|
38.2
|
Commercial
Banking
|
|
101,176
|
|
2,179
|
|
2.2
|
|
824
|
|
37.8
|
Consumer
Finance
|
|
35,494
|
|
745
|
|
2.1
|
|
396
|
|
85.0
|
Run-off
|
|
10,259
|
|
1,217
|
|
11.9
|
|
682
|
|
56.0
|
Reverse
repos and other items
3
|
|
15,249
|
|
|
|
|
|
|
|
|
Total gross lending
|
|
461,671
|
|
8,495
|
|
1.8
|
|
3,532
|
|
43.4
|
Impairment
provisions
|
|
(3,532)
|
|
|
|
|
|
|
|
|
Fair
value adjustments
4
|
|
(181)
|
|
|
|
|
|
|
|
|
Total Group
|
|
457,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31
December 2015
5
|
|
|
|
|
|
|
|
|
|
|
Retail
|
|
307,500
|
|
4,112
|
|
1.3
|
|
1,564
|
|
39.2
|
Commercial
Banking
|
|
103,082
|
|
2,543
|
|
2.5
|
|
1,091
|
|
42.9
|
Consumer
Finance
|
|
31,827
|
|
910
|
|
2.9
|
|
367
|
|
75.5
|
Run-off
|
|
11,422
|
|
2,025
|
|
17.7
|
|
1,150
|
|
56.8
|
Reverse
repos and other items
3
|
|
5,798
|
|
|
|
|
|
|
|
|
Total
gross lending
|
|
459,629
|
|
9,590
|
|
2.1
|
|
4,172
|
|
46.1
|
Impairment
provisions
|
|
(4,172)
|
|
|
|
|
|
|
|
|
Fair
value adjustments
4
|
|
(282)
|
|
|
|
|
|
|
|
|
Total
Group
|
|
455,175
|
|
|
|
|
|
|
|
|
1
|
Impairment
provisions include collective unidentified impairment
provisions.
|
2
|
Impairment
provisions as a percentage of impaired loans are calculated
excluding loans in recoveries in Retail (31 December 2016:
£86 million; 31 December 2015:
£118 million) and in Consumer Finance (31 December
2016: £279 million; 31 December 2015:
£424 million).
|
3
|
Includes
£6.7 billion (December 2015: £5.7 billion) of lower
risk loans sold by Commercial Banking and Retail to Insurance to
back annuitant liabilities.
|
4
|
The
fair value adjustments relating to loans and advances were those
required to reflect the HBOS assets in the Group's consolidated
financial records at their fair value and took into account both
the expected losses and market liquidity at the date of
acquisition. The fair value unwind in respect of impairment losses
incurred was £70 million for the year ended
31 December 2016 (31 December 2015:
£97 million). The fair value unwind in respect of loans
and advances is expected to continue to decrease in future years
and will reduce to zero over time.
|
5
|
Restated.
See basis of presentation on the inside front cover.
|
FUNDING AND LIQUIDITY
MANAGEMENT
During
2016, the Group has maintained its strong funding and liquidity
position, with a loan to deposit ratio of 108.9 per
cent.
Total
funded assets reduced by £
5.8
billion to £465.4
billion during 2016. Loans and advances to customers, excluding
reverse repos, reduced by £5.5 billion. Growth in Consumer
Finance was strong at 11 per cent and SME lending growth was 3 per
cent, both outperforming the market. This was offset by a reduction
in mortgage balances as the Group continues to balance risk and
margin considerations versus volumes in a competitive low growth
market. Total customer deposits fell by £5.3 billion to
£413.0 billion at 31 December 2016, largely due to lower
Retail and Consumer Finance tactical balances.
Wholesale
funding has decreased by £9.1 billion to £110.8 billion
as excess liquidity is managed down; the amount with a residual
maturity less than one year fell to £35.1 billion (£37.9
billion at 31 December 2015). The Group's term funding ratio
(wholesale funding with a remaining life of over one year as a
percentage of total wholesale funding) is unchanged at 68 per
cent.
Gross
term issuance for 2016 totalled £10.4 billion. The Group
maintained a diversified approach to funding markets with trades in
public and private format, secured and unsecured products and a
wide range of currencies and markets. In 2016, the Group drew down
£1.0 billion under the Funding for Lending Scheme (FLS),
taking peak usage to £33.1 billion, with £3.0 billion of
maturities during the year. A further £4.5 billion was drawn
under the Bank of England's Term Funding Scheme (TFS), underlining
the Group's support to the UK economy. The maturities for the FLS
and TFS are fully factored into the Group's funding
plan.
During
2016, the Group's term issuance costs have remained broadly in line
with other post-crisis years and significantly lower than levels
seen during the economic downturn. The Group's overall cost of
wholesale funding has reduced as more expensive funding raised in
previous years mature. The Group's market capacity for term funding
is considered across the planning horizon as part of the funding
plan and the Group expects term funding requirements to remain
stable.
The
credit ratings on Lloyds Bank were unchanged over 2016, and the
median credit rating among the three major credit rating agencies
remains 'A+'. Following the EU referendum in June, both S&P and
Moody's revised their outlooks on Lloyds Bank, among other UK
banks, in order to reflect increased macroeconomic uncertainty.
S&P revised the outlook on Lloyds Bank's 'A' rating to
'Negative' from 'Stable' whilst Moody's revised the outlook on
Lloyds Bank's 'A1' rating to 'Stable' from 'Positive'. Moody's also
revised their outlook on the UK banking system to 'Negative' from
'Stable'. Fitch's outlook on Lloyds Bank's 'A+' rating remained
'Stable' as Fitch expect the economic effects of the referendum to
be manageable. The effects of a potential downgrade from all three
credit rating agencies are included in Group liquidity stress
testing.
The LCR
became the Pillar 1 standard for liquidity in the UK in October
2015. The Group comfortably meets the requirements. Liquid asset
holdings have fallen during the second half of 2016 as excess
liquidity held during the EU referendum is managed down. The Group
continues to monitor the Net Stable Funding Ratio (NSFR)
requirements and expects to meet them once confirmed by the
PRA.
CAPITAL
MANAGEMENT
Analysis of capital
position
During
2016 the Group continued to strengthen its capital position with a
fully loaded CET1 ratio, after accruing for foreseeable dividends,
of 13.6 per cent and 13.8 per cent on a pro forma basis upon
recognition of the dividend paid by the Insurance business in
February 2017 in relation to its 2016 earnings (31 December 2015:
13.0 per cent pro forma). The accrual for foreseeable dividends
includes both the recommended full year ordinary dividend of 2.55
pence per ordinary share and a special dividend of 0.5 pence per
ordinary share.
The
CET1 ratio on a pro forma basis reflects the prudent retention of
circa 0.8 per cent of capital, above the current target level, to
cover the estimated capital impact of the MBNA acquisition that was
announced in December 2016.
Over
the year the Group generated around 1.9 per cent of CET1 capital on
a pro forma basis, pre dividend, primarily as a result of the
following:
●
Strong underlying capital generation of 2.2 per cent,
largely driven by underlying profits;
●
The dividend paid by the Insurance business in
February 2017 in relation to its 2016 earnings of 0.2 per
cent;
●
Impact of conduct charges of (1.0) per
cent;
●
Impact of market movements, netting to 0.2 per cent.
This included 0.8 per cent from the impact of the accounting
reclassification of c.£20 billion of gilts within the
liquidity portfolio from 'held-to-maturity' to
'available-for-sale', offset by a number of market related
movements, including an adverse impact of movements in the defined
benefit pension schemes of (0.4) per cent;
●
Other items largely representing a reduction in
risk-weighted assets, most notably in the fourth quarter, largely
relating to active portfolio management, disposals, an improvement
in credit quality and capital efficient securitisation activity,
partially offset by model updates related to UK mortgage portfolios
and the impact of the redemption of the remaining series of
Enhanced Capital Notes in the first quarter.
After
accruing for foreseeable dividends, the transitional total capital
ratio reduced by 0.1 percentage points to 21.4 per cent, primarily
reflecting managed reductions in tier 2 capital, largely due to
calls and redemptions, offset by the increase in CET1 capital and
the reduction in risk-weighted assets.
In 2020
the Group will have to meet a Minimum Requirement for Own Funds and
Eligible Liabilities (MREL). During 2016 the Group commenced
issuance of senior unsecured securities from Lloyds Banking Group
plc which, while not included in total capital, are eligible to
meet MREL. £2.5 billion (Sterling equivalent) was issued in
2016 and a further £2.2 billion (Sterling equivalent) was
issued in January 2017 leaving the Group well positioned to meet
MREL requirements from 2020.
The
leverage ratio, after accruing for foreseeable dividends, increased
from 4.8 per cent to 4.9 per cent (5.0 per cent on a pro forma
basis), largely reflecting the increase in tier 1
capital.
An
analysis of the Group's capital position as at 31 December 2016 is
presented in the following section applying CRD IV transitional
arrangements and also on a fully loaded CRD IV basis, both as
implemented in the UK by the PRA.
The
table below summarises the consolidated capital position of the
Group.
|
|
|
|
|
|
|
|
|
|
|
Transitional
|
|
Fully loaded
|
|
|
|
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
At 31 Dec
|
|
At 31 Dec
|
Capital resources
|
|
2016
|
|
2015
1
|
|
2016
|
|
2015¹
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
Common equity tier 1
|
|
|
|
|
|
|
|
|
Shareholders'
equity per balance sheet
|
|
43,020
|
|
41,234
|
|
43,020
|
|
41,234
|
Adjustment to
retained earnings for foreseeable dividends
|
|
(1,568)
|
|
(1,427)
|
|
(1,568)
|
|
(1,427)
|
Deconsolidation
adjustments
1
|
|
1,342
|
|
1,119
|
|
1,342
|
|
1,119
|
Adjustment for own
credit
|
|
87
|
|
67
|
|
87
|
|
67
|
Cash
flow hedging reserve
|
|
(2,136)
|
|
(727)
|
|
(2,136)
|
|
(727)
|
Other
adjustments
1
|
|
(276)
|
|
(97)
|
|
(276)
|
|
(97)
|
|
|
40,469
|
|
40,169
|
|
40,469
|
|
40,169
|
less: deductions from common equity tier 1
|
|
|
|
|
|
|
|
|
Goodwill
and other intangible assets
|
|
(1,623)
|
|
(1,719)
|
|
(1,623)
|
|
(1,719)
|
Prudent
valuation adjustment
|
|
(630)
|
|
(372)
|
|
(630)
|
|
(372)
|
Excess
of expected losses over impairment provisions and value
adjustments
|
|
(602)
|
|
(270)
|
|
(602)
|
|
(270)
|
Removal
of defined benefit pension surplus
|
|
(267)
|
|
(721)
|
|
(267)
|
|
(721)
|
Securitisation
deductions
|
|
(217)
|
|
(169)
|
|
(217)
|
|
(169)
|
Significant
investments
1
|
|
(4,282)
|
|
(4,500)
|
|
(4,282)
|
|
(4,529)
|
Deferred
tax assets
|
|
(3,564)
|
|
(3,874)
|
|
(3,564)
|
|
(3,884)
|
Common equity tier 1 capital
|
|
29,284
|
|
28,544
|
|
29,284
|
|
28,505
|
Additional tier 1
|
|
|
|
|
|
|
|
|
Other
equity instruments
|
|
5,320
|
|
5,355
|
|
5,320
|
|
5,355
|
Preference
shares and preferred securities
2
|
|
4,998
|
|
4,728
|
|
-
|
|
-
|
Transitional limit
and other adjustments
|
|
(1,692)
|
|
(906)
|
|
-
|
|
-
|
|
|
8,626
|
|
9,177
|
|
5,320
|
|
5,355
|
less: deductions from tier 1
|
|
|
|
|
|
|
|
|
Significant
investments
1
|
|
(1,329)
|
|
(1,177)
|
|
-
|
|
-
|
Total tier 1 capital
|
|
36,581
|
|
36,544
|
|
34,604
|
|
33,860
|
Tier 2
|
|
|
|
|
|
|
|
|
Other
subordinated liabilities
2
|
|
14,833
|
|
18,584
|
|
14,833
|
|
18,584
|
Deconsolidation of
instruments issued by insurance entities
1
|
|
(1,810)
|
|
(1,665)
|
|
(1,810)
|
|
(1,665)
|
Adjustments for
transitional limit and non-eligible instruments
|
|
1,351
|
|
(52)
|
|
(1,694)
|
|
(3,066)
|
Amortisation and
other adjustments
|
|
(3,447)
|
|
(3,880)
|
|
(3,597)
|
|
(4,885)
|
|
|
10,927
|
|
12,987
|
|
7,732
|
|
8,968
|
Eligible
provisions
|
|
186
|
|
221
|
|
186
|
|
221
|
less: deductions from tier 2
|
|
|
|
|
|
|
|
|
Significant
investments
1
|
|
(1,571)
|
|
(1,756)
|
|
(2,900)
|
|
(2,933)
|
Total capital resources
|
|
46,123
|
|
47,996
|
|
39,622
|
|
40,116
|
|
|
|
|
|
|
|
|
|
Risk-weighted assets
|
|
215,534
|
|
222,845
|
|
215,534
|
|
222,747
|
|
|
|
|
|
|
|
|
|
Common
equity tier 1 capital ratio
3
|
|
13.6%
|
|
12.8%
|
|
13.6%
|
|
12.8%
|
Tier 1
capital ratio
|
|
17.0%
|
|
16.4%
|
|
16.1%
|
|
15.2%
|
Total
capital ratio
|
|
21.4%
|
|
21.5%
|
|
18.4%
|
|
18.0%
|
|
|
1
|
For
regulatory capital purposes, the Group's Insurance business is
deconsolidated and replaced by the amount of the Group's investment
in the business. A part of this amount is deducted from capital
(shown as 'significant investments' in the table above) and the
remaining amount is risk-weighted, forming part of threshold
risk-weighted assets. The presentation of the deconsolidation of
the Group's insurance entities has been amended for 2016 with
comparative figures restated accordingly.
|
2
|
Preference
shares, preferred securities and other subordinated liabilities are
categorised as subordinated liabilities in the balance
sheet.
|
3
|
The
common equity tier 1 ratio is 13.8 per cent on a pro forma basis
upon recognition of the dividend paid by the Insurance business in
February 2017 in relation to its 2016 earnings (31 December 2015:
13.0 per cent pro forma).
|
Risk-weighted
assets
|
|
|
|
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
2016
|
|
2015
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Foundation
Internal Ratings Based (IRB) Approach
|
|
64,907
|
|
68,990
|
Retail
IRB Approach
|
|
64,970
|
|
63,912
|
Other
IRB Approach
|
|
17,788
|
|
18,661
|
IRB Approach
|
|
147,665
|
|
151,563
|
Standardised
(STA) Approach
|
|
18,956
|
|
20,443
|
Credit risk
|
|
166,621
|
|
172,006
|
Counterparty
credit risk
|
|
8,419
|
|
7,981
|
Contributions
to the default fund of a central counterparty
|
|
340
|
|
488
|
Credit
valuation adjustment risk
|
|
864
|
|
1,684
|
Operational
risk
|
|
25,292
|
|
26,123
|
Market
risk
|
|
3,147
|
|
3,775
|
Underlying risk-weighted assets
|
|
204,683
|
|
212,057
|
Threshold
risk-weighted assets
1
|
|
10,851
|
|
10,788
|
Total risk-weighted assets
|
|
215,534
|
|
222,845
|
Movement
to fully loaded risk-weighted assets
2
|
|
-
|
|
(98)
|
Fully loaded risk-weighted assets
|
|
215,534
|
|
222,747
|
|
|
1
|
Threshold
risk-weighted assets reflect the element of significant investments
and deferred tax assets that are permitted to berisk-weighted
instead of being deducted from CET1 capital. Significant
investments primarily arise from investment in the Group's
Insurance business.
|
2
|
Differences
may arise between transitional and fully loaded threshold
risk-weighted assets where deferred tax assets reliant on future
profitability and arising from temporary timing differences and
significant investments exceed the fully loaded threshold limit,
resulting in an increase in amounts deducted from CET1 capital
rather than being risk-weighted.
|
Stress testing
The
Group undertakes a wide ranging programme of stress testing
providing a comprehensive view of the potential impacts arising
from the risks to which the Group is exposed. One of the most
important uses of stress testing is to assess the resilience of the
operational and strategic plans of the Group to adverse economic
conditions and other key vulnerabilities. As part of that the Group
participates in the UK-wide concurrent stress test run by the Bank
of England.
During
2016, the Group was subject to the European Banking Authority's
Europe-wide stress test with the Group's results significantly
above our minimum capital requirements. The concurrent UK stress
test run by the Bank of England was also undertaken in 2016. As
announced in November, the Group comfortably exceeded the capital
thresholds set by the PRA and was not required to take any action
as a result of this test.
Leverage ratio
|
|
|
|
|
|
|
Fully loaded
|
|
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
2016
|
|
2015
|
|
|
£m
|
|
£m
|
Total tier 1 capital for leverage ratio
|
|
|
|
|
Common
equity tier 1 capital
|
|
29,284
|
|
28,505
|
Additional
tier 1 capital
|
|
5,320
|
|
5,355
|
Total tier 1 capital
|
|
34,604
|
|
33,860
|
|
|
|
|
|
Exposure measure
|
|
|
|
|
Statutory balance sheet assets
|
|
|
|
|
Derivative
financial instruments
|
|
36,138
|
|
29,467
|
Securities
financing transactions (SFTs)
|
|
42,285
|
|
34,136
|
Loans
and advances and other assets
|
|
739,370
|
|
743,085
|
Total assets
|
|
817,793
|
|
806,688
|
|
|
|
|
|
Deconsolidation adjustments
1
|
|
|
|
|
Derivative
financial instruments
|
|
(2,403)
|
|
(1,510)
|
Securities
financing transactions (SFTs)
|
|
112
|
|
(441)
|
Loans
and advances and other assets
|
|
(142,955)
|
|
(133,975)
|
Total deconsolidation adjustments
|
|
(145,246)
|
|
(135,926)
|
|
|
|
|
|
Derivatives adjustments
|
|
|
|
|
Adjustments
for regulatory netting
|
|
(20,490)
|
|
(16,419)
|
Adjustments
for cash collateral
|
|
(8,432)
|
|
(6,464)
|
Net
written credit protection
|
|
699
|
|
682
|
Regulatory
potential future exposure
|
|
13,188
|
|
12,966
|
Total derivatives adjustments
|
|
(15,035)
|
|
(9,235)
|
|
|
|
|
|
SFT adjustments
|
|
39
|
|
3,361
|
|
|
|
|
|
Off-balance sheet items
|
|
58,685
|
|
56,424
|
|
|
|
|
|
Regulatory deductions and other adjustments
|
|
(9,128)
|
|
(9,112)
|
|
|
|
|
|
Total exposure
|
|
707,108
|
|
712,200
|
|
|
|
|
|
Leverage ratio
2
|
|
4.9%
|
|
4.8%
|
Average leverage ratio
3
|
|
4.9%
|
|
|
Average leverage ratio exposure measure
4
|
|
718,926
|
|
|
|
|
1
|
Deconsolidation
adjustments predominantly reflect the deconsolidation of assets
related to Group subsidiaries that fall outside the scope of the
Group's regulatory capital consolidation (primarily the Group's
Insurance entities).
|
2
|
The
countercyclical leverage ratio buffer is currently
nil.
|
3
|
The
average leverage ratio is based on the average of the month end
tier 1 capital and exposure measures over the quarter
(30 September 2016 to 31 December 2016). The average of 4.9
per cent compares to 4.8 per cent at the start and 4.9 per cent at
the end of the quarter.
|
4
|
The
average leverage ratio exposure measure is based on the average of
the month end exposure measures over the quarter (30 September
2016 to 31 December 2016).
|
Modified UK leverage ratio
The
Group's leverage ratio on a modified basis, excluding qualifying
central bank claims from the leverage exposure measure, is 5.2 per
cent. This follows the rule modification applied to the UK Leverage
Ratio Framework by the PRA in August 2016 as a result of
recommendations made by the Financial Policy
Committee.
The
Financial Policy Committee has indicated that it intends to
recalibrate the UK framework in 2017 in order to adjust for the
impact of the rule modification, thereby ensuring that levels of
capital currently required to meet leverage ratio minimums are
maintained. The modified UK leverage ratio should therefore be
considered in the context of the proposed
recalibration.
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
Note
|
|
|
£ million
|
|
|
|
£ million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and similar income
|
|
|
|
|
16,620
|
|
|
|
17,615
|
Interest
and similar expense
|
|
|
|
|
(7,346)
|
|
|
|
(6,297)
|
Net interest income
|
|
|
|
|
9,274
|
|
|
|
11,318
|
Fee and
commission income
|
|
|
|
|
3,045
|
|
|
|
3,252
|
Fee and
commission expense
|
|
|
|
|
(1,356)
|
|
|
|
(1,442)
|
Net fee
and commission income
|
|
|
|
|
1,689
|
|
|
|
1,810
|
Net
trading income
|
|
|
|
|
18,545
|
|
|
|
3,714
|
Insurance
premium income
|
|
|
|
|
8,068
|
|
|
|
4,792
|
Other
operating income
|
|
|
|
|
2,035
|
|
|
|
1,516
|
Other income
|
|
|
|
|
30,337
|
|
|
|
11,832
|
Total income
|
|
|
|
|
39,611
|
|
|
|
23,150
|
Insurance
claims
|
|
|
|
|
(22,344)
|
|
|
|
(5,729)
|
Total income, net of insurance claims
|
|
|
|
|
17,267
|
|
|
|
17,421
|
Regulatory
provisions
|
|
|
|
|
(2,024)
|
|
|
|
(4,837)
|
Other
operating expenses
|
|
|
|
|
(10,253)
|
|
|
|
(10,550)
|
Total operating expenses
|
|
|
|
|
(12,277)
|
|
|
|
(15,387)
|
Trading surplus
|
|
|
|
|
4,990
|
|
|
|
2,034
|
Impairment
|
|
|
|
|
(752)
|
|
|
|
(390)
|
Profit before tax
|
|
|
|
|
4,238
|
|
|
|
1,644
|
Taxation
|
|
2
|
|
|
(1,724)
|
|
|
|
(688)
|
Profit for the year
|
|
|
|
|
2,514
|
|
|
|
956
|
|
|
|
|
|
|
|
|
|
|
Profit
attributable to ordinary shareholders
|
|
|
|
|
2,001
|
|
|
|
466
|
Profit
attributable to other equity holders
1
|
|
|
|
|
412
|
|
|
|
394
|
Profit
attributable to equity holders
|
|
|
|
|
2,413
|
|
|
|
860
|
Profit
attributable to non-controlling interests
|
|
|
|
|
101
|
|
|
|
96
|
Profit for the year
|
|
|
|
|
2,514
|
|
|
|
956
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
3
|
|
|
2.9p
|
|
|
|
0.8p
|
Diluted earnings per share
|
|
3
|
|
|
2.9p
|
|
|
|
0.8p
|
|
|
1
|
The
profit after tax attributable to other equity holders of
£412 million (2015: £394 million) is offset in
reserves by a tax credit attributable to ordinary shareholders of
£91 million (2015: £80 million).
|
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
£ million
|
|
£ million
|
|
|
|
|
|
Profit for the year
|
|
2,514
|
|
956
|
Other comprehensive income
|
|
|
|
|
Items that will not subsequently be reclassified to profit or
loss:
|
|
|
|
|
Post-retirement defined benefit scheme remeasurements:
|
|
|
|
|
Remeasurements
before taxation
|
|
(1,348)
|
|
(274)
|
Taxation
|
|
320
|
|
59
|
|
|
(1,028)
|
|
(215)
|
Items that may subsequently be reclassified to profit or
loss:
|
|
|
|
|
Movements in revaluation reserve in respect of available-for-sale
financial assets:
|
|
|
|
|
Adjustment
on transfer from held-to-maturity portfolio
|
|
1,544
|
|
-
|
Change
in fair value
|
|
356
|
|
(318)
|
Income
statement transfers in respect of disposals
|
|
(575)
|
|
(51)
|
Income
statement transfers in respect of impairment
|
|
173
|
|
4
|
Taxation
|
|
(301)
|
|
(6)
|
|
|
1,197
|
|
(371)
|
Movements in cash flow hedging reserve:
|
|
|
|
|
Effective
portion of changes in fair value
|
|
2,432
|
|
537
|
Net
income statement transfers
|
|
(557)
|
|
(956)
|
Taxation
|
|
(466)
|
|
7
|
|
|
1,409
|
|
(412)
|
Currency translation differences (tax: nil)
|
|
(4)
|
|
(42)
|
Other comprehensive income for the year, net of tax
|
|
1,574
|
|
(1,040)
|
Total comprehensive income for the year
|
|
4,088
|
|
(84)
|
|
|
|
|
|
Total comprehensive income attributable to ordinary
shareholders
|
|
3,575
|
|
(574)
|
Total comprehensive income attributable to other equity
holders
|
|
412
|
|
394
|
Total comprehensive income attributable to equity
holders
|
|
3,987
|
|
(180)
|
Total comprehensive income attributable to non-controlling
interests
|
|
101
|
|
96
|
Total comprehensive income for the year
|
|
4,088
|
|
(84)
|
CONSOLIDATED BALANCE
SHEET
|
|
|
|
|
|
|
|
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
£ million
|
|
£ million
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Cash
and balances at central banks
|
|
|
|
47,452
|
|
58,417
|
Items
in course of collection from banks
|
|
|
|
706
|
|
697
|
Trading
and other financial assets at fair value through profit or
loss
|
|
|
|
151,174
|
|
140,536
|
Derivative
financial instruments
|
|
|
|
36,138
|
|
29,467
|
Loans
and receivables:
|
|
|
|
|
|
|
Loans
and advances to banks
|
|
|
|
26,902
|
|
25,117
|
Loans
and advances to customers
|
|
|
|
457,958
|
|
455,175
|
Debt
securities
|
|
|
|
3,397
|
|
4,191
|
|
|
|
|
488,257
|
|
484,483
|
Available-for-sale
financial assets
1
|
|
|
|
56,524
|
|
33,032
|
Held-to-maturity
investments
1
|
|
|
|
-
|
|
19,808
|
Goodwill
|
|
|
|
2,016
|
|
2,016
|
Value
of in-force business
|
|
|
|
5,042
|
|
4,596
|
Other
intangible assets
|
|
|
|
1,681
|
|
1,838
|
Property,
plant and equipment
|
|
|
|
12,972
|
|
12,979
|
Current
tax recoverable
|
|
|
|
28
|
|
44
|
Deferred
tax assets
|
|
|
|
2,706
|
|
4,010
|
Retirement
benefit assets
|
|
|
|
342
|
|
901
|
Other
assets
|
|
|
|
12,755
|
|
13,864
|
Total assets
|
|
|
|
817,793
|
|
806,688
|
|
|
1
|
The
Group has reviewed its holding of government securities classified
as held-to-maturity in light of the current low interest rate
environment and they have been reclassified as available-for-sale;
this has resulted in a credit of £1,544 million to the
available-for-sale revaluation reserve (£1,127 million after
tax).
|
|
|
|
|
|
|
|
|
|
|
|
At 31 Dec
|
|
At 31 Dec
|
|
|
|
|
2016
|
|
2015
|
Equity and liabilities
|
|
|
|
£ million
|
|
£ million
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Deposits
from banks
|
|
|
|
16,384
|
|
16,925
|
Customer
deposits
|
|
|
|
415,460
|
|
418,326
|
Items
in course of transmission to banks
|
|
|
|
548
|
|
717
|
Trading
and other financial liabilities at fair value through profit or
loss
|
|
|
|
54,504
|
|
51,863
|
Derivative
financial instruments
|
|
|
|
34,924
|
|
26,301
|
Notes
in circulation
|
|
|
|
1,402
|
|
1,112
|
Debt
securities in issue
|
|
|
|
76,314
|
|
82,056
|
Liabilities
arising from insurance contracts and participating investment
contracts
|
|
|
|
94,390
|
|
80,294
|
Liabilities
arising from non-participating investment contracts
|
|
|
|
20,112
|
|
22,777
|
Other
liabilities
|
|
|
|
29,193
|
|
29,661
|
Retirement
benefit obligations
|
|
|
|
822
|
|
365
|
Current
tax liabilities
|
|
|
|
226
|
|
279
|
Deferred
tax liabilities
|
|
|
|
-
|
|
33
|
Other
provisions
|
|
|
|
4,868
|
|
5,687
|
Subordinated
liabilities
|
|
|
|
19,831
|
|
23,312
|
Total liabilities
|
|
|
|
768,978
|
|
759,708
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Share
capital
|
|
|
|
7,146
|
|
7,146
|
Share
premium account
|
|
|
|
17,622
|
|
17,412
|
Other
reserves
|
|
|
|
14,652
|
|
12,260
|
Retained
profits
|
|
|
|
3,600
|
|
4,416
|
Shareholders' equity
|
|
|
|
43,020
|
|
41,234
|
Other
equity instruments
|
|
|
|
5,355
|
|
5,355
|
Total
equity excluding non-controlling interests
|
|
|
|
48,375
|
|
46,589
|
Non-controlling
interests
|
|
|
|
440
|
|
391
|
Total equity
|
|
|
|
48,815
|
|
46,980
|
Total equity and liabilities
|
|
|
|
817,793
|
|
806,688
|
CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to equity shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
capital
|
|
|
|
|
|
|
|
Other
|
|
Non-
|
|
|
|
|
|
|
|
and
|
|
Other
|
|
Retained
|
|
|
|
equity
|
|
controlling
|
|
|
|
|
|
|
|
premium
|
|
reserves
|
|
profits
|
|
Total
|
|
instruments
|
|
interests
|
|
Total
|
|
|
|
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at 1 January 2016
|
|
24,558
|
|
12,260
|
|
4,416
|
|
41,234
|
|
5,355
|
|
391
|
|
46,980
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
-
|
|
-
|
|
2,413
|
|
2,413
|
|
-
|
|
101
|
|
2,514
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
defined benefit scheme remeasurements, net of tax
|
|
-
|
|
-
|
|
(1,028)
|
|
(1,028)
|
|
-
|
|
-
|
|
(1,028)
|
|
|
|
Movements
in revaluation reserve in respect of available-for-sale financial
assets, net of tax
|
|
-
|
|
1,197
|
|
-
|
|
1,197
|
|
-
|
|
-
|
|
1,197
|
|
|
|
Movements
in cash flow hedging reserve, net of tax
|
|
-
|
|
1,409
|
|
-
|
|
1,409
|
|
-
|
|
-
|
|
1,409
|
|
|
|
Currency
translation differences (tax: nil)
|
|
-
|
|
(4)
|
|
-
|
|
(4)
|
|
-
|
|
-
|
|
(4)
|
|
|
|
Total other comprehensive income
|
|
-
|
|
2,602
|
|
(1,028)
|
|
1,574
|
|
-
|
|
-
|
|
1,574
|
|
|
|
Total comprehensive income
|
|
-
|
|
2,602
|
|
1,385
|
|
3,987
|
|
-
|
|
101
|
|
4,088
|
|
|
|
Transactions with owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
-
|
|
-
|
|
(2,014)
|
|
(2,014)
|
|
-
|
|
(29)
|
|
(2,043)
|
|
|
|
Distributions
on other equity instruments, net of tax
|
|
-
|
|
-
|
|
(321)
|
|
(321)
|
|
-
|
|
-
|
|
(321)
|
|
|
|
Redemption
of preference shares
|
|
210
|
|
(210)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
Movement
in treasury shares
|
|
-
|
|
-
|
|
(175)
|
|
(175)
|
|
-
|
|
-
|
|
(175)
|
|
|
|
Value
of employee services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
option schemes
|
|
-
|
|
-
|
|
141
|
|
141
|
|
-
|
|
-
|
|
141
|
|
|
|
Other
employee award schemes
|
|
-
|
|
-
|
|
168
|
|
168
|
|
-
|
|
-
|
|
168
|
|
|
|
Other
changes in non-controlling interests
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(23)
|
|
(23)
|
|
|
|
Total transactions with owners
|
|
210
|
|
(210)
|
|
(2,201)
|
|
(2,201)
|
|
-
|
|
(52)
|
|
(2,253)
|
|
|
|
Balance at 31 December 2016
|
|
24,768
|
|
14,652
|
|
3,600
|
|
43,020
|
|
5,355
|
|
440
|
|
48,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to equity shareholders
|
|
|
|
|
|
|
|
|
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
capital
|
|
|
|
|
|
|
|
Other
|
|
Non-
|
|
|
|
|
and
|
|
Other
|
|
Retained
|
|
|
|
equity
|
|
controlling
|
|
|
|
|
premium
|
|
reserves
|
|
profits
|
|
Total
|
|
instruments
|
|
interests
|
|
Total
|
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
|
£ million
|
Balance at 1 January 2015
|
|
24,427
|
|
13,216
|
|
5,692
|
|
43,335
|
|
5,355
|
|
1,213
|
|
49,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit
for the year
|
|
-
|
|
-
|
|
860
|
|
860
|
|
-
|
|
96
|
|
956
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-retirement
defined benefit scheme remeasurements, net of tax
|
|
-
|
|
-
|
|
(215)
|
|
(215)
|
|
-
|
|
-
|
|
(215)
|
Movements
in revaluation reserve in respect of available-for-sale financial
assets, net of tax
|
|
-
|
|
(371)
|
|
-
|
|
(371)
|
|
-
|
|
-
|
|
(371)
|
Movements
in cash flow hedging reserve, net of tax
|
|
-
|
|
(412)
|
|
-
|
|
(412)
|
|
-
|
|
-
|
|
(412)
|
Currency
translation differences (tax: nil)
|
|
-
|
|
(42)
|
|
-
|
|
(42)
|
|
-
|
|
-
|
|
(42)
|
Total other comprehensive income
|
|
-
|
|
(825)
|
|
(215)
|
|
(1,040)
|
|
-
|
|
-
|
|
(1,040)
|
Total comprehensive income
|
|
-
|
|
(825)
|
|
645
|
|
(180)
|
|
-
|
|
96
|
|
(84)
|
Transactions with owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
-
|
|
-
|
|
(1,070)
|
|
(1,070)
|
|
-
|
|
(52)
|
|
(1,122)
|
Distributions
on other equity instruments, net of tax
|
|
-
|
|
-
|
|
(314)
|
|
(314)
|
|
-
|
|
-
|
|
(314)
|
Redemption
of preference shares
|
|
131
|
|
(131)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
Movement
in treasury shares
|
|
-
|
|
-
|
|
(816)
|
|
(816)
|
|
-
|
|
-
|
|
(816)
|
Value
of employee services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
option schemes
|
|
-
|
|
-
|
|
107
|
|
107
|
|
-
|
|
-
|
|
107
|
Other
employee award schemes
|
|
-
|
|
-
|
|
172
|
|
172
|
|
-
|
|
-
|
|
172
|
Adjustment
on sale of non-controlling interest in TSB
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(825)
|
|
(825)
|
Other
changes in non-controlling interests
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(41)
|
|
(41)
|
Total transactions with owners
|
|
131
|
|
(131)
|
|
(1,921)
|
|
(1,921)
|
|
-
|
|
(918)
|
|
(2,839)
|
Balance at 31 December 2015
|
|
24,558
|
|
12,260
|
|
4,416
|
|
41,234
|
|
5,355
|
|
391
|
|
46,980
|
n NOTES TO THE FINANCIAL STATEMENTS
1. Accounting policies, presentation and
estimates
These
condensed consolidated financial statements as at and for the year
to 31 December 2016 comprise the results of Lloyds Banking
Group plc (the Company) together with its subsidiaries (the Group).
They do not include all of the information required for full annual
financial statements. Copies of the 2016 Annual Report and Accounts
will be available on the Group's website and upon request from
Investor Relations, Lloyds Banking Group plc, 25 Gresham
Street, London EC2V 7HN.
The
accounting policies are consistent with those applied by the Group
in its 2015 Annual Report and Accounts, and there have been no
significant changes in the basis upon which estimates have been
determined, compared to that applied at 31 December
2015.
2. Taxation
A
reconciliation of the tax charge that would result from applying
the standard UK corporation tax rate to the profit before tax, to
the actual tax charge, is given below:
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Profit before tax
|
|
4,238
|
|
1,644
|
|
|
|
|
|
Tax charge thereon at UK corporation tax rate of 20 per cent(2015:
20.25 per cent)
|
|
(848)
|
|
(333)
|
Factors affecting charge:
|
|
|
|
|
Impact of bank surcharge
|
|
(266)
|
|
-
|
Impact of changes in UK corporation tax rates
|
|
(201)
|
|
(27)
|
Disallowed items
1
|
|
(394)
|
|
(630)
|
Non-taxable items
|
|
75
|
|
162
|
Overseas tax rate differences
|
|
10
|
|
(4)
|
Gains exempted
|
|
19
|
|
67
|
Policyholder tax
2
|
|
(241)
|
|
3
|
Tax losses not previously recognised
|
|
59
|
|
42
|
Adjustments in respect of previous years
|
|
64
|
|
33
|
Effect of results of joint ventures and associates
|
|
(1)
|
|
(1)
|
Tax charge on profit on ordinary activities
|
|
(1,724)
|
|
(688)
|
|
|
1
|
The
Finance (No.2) Act 2015 introduced restrictions on the tax
deductability of provisions for conduct charges arising on or after
8 July 2015. This has resulted in an additional income
statement tax charge of £219 million (2015:
£459 million).
|
2
|
In 2016
this includes a £231 million write down of the deferred tax
asset held within the life business, reflecting the Group's
utilisation estimate which has been restricted by the current
economic environment.
|
The
Finance (No. 2) Act 2015 introduced an additional surcharge of 8
per cent on banking profits from 1 January 2016.
The
Finance Act 2016 was enacted on 15 September 2016. The Act further
reduced the corporation tax rate applicable from 1 April 2020 to 17
per cent and further restricts the amount of banks' profits that
can be offset by carried forward losses for the purposes of
calculating corporation tax liabilities from 50 per cent to 25 per
cent with effect from 1 April 2016.
The
corporation tax changes enacted have resulted in a reduction in the
Group's net deferred tax asset at 31 December 2016 of
£158 million, comprising a £201 million charge
included in the income statement and a £43 million credit
included in equity.
3. Earnings per share
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
£m
|
|
£m
|
|
|
|
|
|
Profit attributable to equity shareholders - basic and
diluted
|
|
2,001
|
|
466
|
Tax credit on distributions to other equity holders
|
|
91
|
|
80
|
|
|
2,092
|
|
546
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
million
|
|
million
|
|
|
|
|
|
Weighted average number of ordinary shares in issue -
basic
|
|
71,234
|
|
71,272
|
Adjustment for share options and awards
|
|
790
|
|
1,068
|
Weighted average number of ordinary shares in issue -
diluted
|
|
72,024
|
|
72,340
|
|
|
|
|
|
Basic earnings per share
|
|
2.9p
|
|
0.8p
|
Diluted earnings per share
|
|
2.9p
|
|
0.8p
|
4. Provisions for liabilities and charges
Payment protection
insurance
The
Group increased the provision for PPI costs by a further
£1,000 million in 2016, all in the third quarter, bringing the
total amount provided to £17,025 million.
The
charge to the provision in 2016 was largely driven by a higher
total volume of complaints expected as a result of the Financial
Conduct Authority's (FCA) proposed industry deadline being extended
to the end of June 2019 in its consultation paper published on 2
August 2016 (CP16/20: Rules and guidance on payment protection
insurance complaints: feedback on CP15/39 and further
consultation). The paper also consulted on some changes to the
proposed rules and guidance that should apply when firms handle PPI
complaints in light of the Supreme Court's decision in
Plevin v Paragon Personal Finance Limited
[2014] UKSC 61
(Plevin). In December 2016, the FCA
stated that a further announcement in relation to the consultation
would follow in 2017.
As at
31 December 2016, a provision of £2,258 million remained
unutilised relating to reactive complaints and associated
administration costs. Total cash payments were £2,200 million
during the year to 31 December 2016. Spend continues to reduce
following the completion of the re-review of previously handled
cases (remediation).
The
provision is consistent with total expected reactive complaint
volumes of 4.9 million (including complaints falling under the
Plevin rules and guidance) in light of the FCA proposals reflected
in the third quarter provision increase which was equivalent to
approximately 7,700 net complaints per week on average through
to the proposed industry deadline of June 2019. Weekly complaint
levels in the second half of 2016 have been approximately 8,300
versus approximately 8,600 in the first half, and are expected to
vary significantly through to the proposed industry
deadline.
Sensitivities
The
Group estimates that it has sold approximately 16 million PPI
policies since 2000. These include policies that were not mis-sold
and those that have been successfully claimed upon. Since the
commencement of the PPI redress programme in 2011 the Group
estimates that it has contacted, settled or provided for
approximately 50 per cent of the policies sold since
2000.
The
total amount provided for PPI represents the Group's best estimate
of the likely future cost. However a number of risks and
uncertainties remain in particular with respect to future volumes.
The cost could differ from the Group's estimates and the
assumptions underpinning them, and could result in a further
provision being required. There is significant uncertainty around
the impact of the proposed regulatory changes, FCA media campaign
and Claims Management Companies and customer activity.
Key
metrics and sensitivities are highlighted in the table
below:
|
|
|
|
|
|
|
Sensitivities(exclude
claims where no PPI policy was held)
|
|
Actuals
to
date
|
|
Anticipated
future
|
|
Sensitivity
|
|
|
|
|
|
|
|
Customer
initiated complaints since origination (m)
1
|
|
3.9
|
|
1.0
|
|
0.1 =
£210m
|
Average
uphold rate per policy
2
|
|
74%
|
|
87%
|
|
1% =
£30m
|
Average
redress per upheld policy
2
|
|
£1,700
|
|
£1,470
|
|
£100
= £125m
|
Administrative
expenses (£m)
|
|
3,190
|
|
460
|
|
1 case
= £450
|
|
|
1
|
Sensitivity
includes complaint handling costs.
|
2
|
Actuals
to date are based on the last six months to 31 December 2016.
Anticipated future and sensitivities are impacted by a proportion
of complaints falling under the
Plevin
rules and guidance.
|
Other provisions for legal actions and regulatory
matters
Packaged bank accounts
In the
year ended 31 December 2016 the Group has provided an additional
£280 million in respect of complaints relating to alleged
mis-selling of packaged bank accounts raising the total amount
provided to £505 million. As at 31 December 2016,
£215 million of the provision remained
unutilised
.
The total
amount provided represents the Group's best estimate of the likely
future cost, however a number of risks and uncertainties remain in
particular with respect to future volumes.
Arrears handling related activities
Following
a review of the Group's secured and unsecured arrears handling
activities, the Group has put in place a number of actions to
further improve its handling of customers in these areas. As a
result, the Group has provided an additional £261 million
in the year ended 31 December 2016 (bringing the total provision to
£397 million), for the costs of identifying and
rectifying certain arrears management fees and activities. As at 31
December 2016, the unutilised provision was
£383 million.
Customer claims in relation to insurance branch business in
Germany
The
Group continues to receive claims in Germany from customers
relating to policies issued by Clerical Medical Investment Group
Limited (subsequently renamed Scottish Widows Limited). The German
industry-wide issue regarding notification of contractual 'cooling
off' periods has continued to lead to an increasing number of
claims in 2016. Accordingly a provision increase of
£94 million was recognised in the year ended 31 December
2016 giving a total provision of £639 million; the
remaining unutilised provision as at 31 December 2016 is
£168 million. The validity of the claims facing the Group
depends upon the facts and circumstances in respect of each claim.
As a result the ultimate financial effect, which could be
significantly different from the current provision, will be known
only once all relevant claims have been resolved.
Other legal actions and regulatory matters
In the
course of its business, the Group is engaged in discussions with
the PRA, FCA and other UK and overseas regulators and other
governmental authorities on a range of matters. The Group also
receives complaints and claims from customers in connection with
its past conduct and, where significant, provisions are held
against the costs expected to be incurred as a result of the
conclusions reached. In the year ended 31 December 2016, the Group
charged an additional £450 million in respect of matters
across all divisions. At 31 December 2016, the Group held
unutilised provisions totalling £573 million for these
other legal actions and regulatory matters.
5. Contingent liabilities and commitments
Interchange fees
With
respect to multi-lateral interchange fees (MIFs), the Group is not
directly involved in the ongoing investigations and litigation (as
described below) which involve card schemes such as Visa and
MasterCard. However, the Group is a member of Visa and MasterCard
and other card schemes.
●
The European Commission continues to pursue certain
competition investigations into MasterCard and Visa probing,
amongst other things, MIFs paid in respect of cards issued outside
the EEA;
●
Litigation continues in the English Courts against both Visa
and MasterCard. This litigation has been brought by several
retailers who are seeking damages for allegedly 'overpaid' MIFs.
From publicly available information, it is understood these damages
claims are running to different timescales with respect to the
litigation process. It is also possible that new claims may be
issued.
●
Any ultimate impact on the Group of the above investigations
and the litigation against Visa and MasterCard remains uncertain at
this time.
Visa
Inc completed its acquisition of Visa Europe on 21 June 2016. The
Group's share of the sale proceeds comprised cash consideration of
approximately £330 million (of which approximately
£300 million was received on completion of the sale and
£30 million is deferred for three years) and preferred
stock, which the Group measures at fair value. The preferred stock
is convertible into Class A Common Stock of Visa Inc or its
equivalent upon the occurrence of certain events. As part of this
transaction, the Group and certain other UK banks also entered into
a Loss Sharing Agreement (LSA) with Visa Inc, which clarifies the
allocation of liabilities between the parties should the litigation
referred to above result in Visa Inc being liable for damages
payable by Visa Europe. The maximum amount of liability to which
the Group may be subject under the LSA is capped at the cash
consideration which was received by the Group at completion. Visa
Inc may also have recourse to a general indemnity, currently in
place under Visa Europe's Operating Regulations, for damages claims
concerning inter or intra-regional MIF setting
activities.
LIBOR and other trading
rates
In July
2014, the Group announced that it had reached settlements totalling
£217 million (at 30 June 2014 exchange rates) to resolve with
UK and US federal authorities legacy issues regarding the
manipulation several years ago of Group companies' submissions to
the British Bankers' Association (BBA) London Interbank Offered
Rate (LIBOR) and Sterling Repo Rate. The Group continues to
cooperate with various other government and regulatory authorities,
including the Serious Fraud Office, the Swiss Competition
Commission, and a number of US State Attorneys General, in
conjunction with their investigations into submissions made by
panel members to the bodies that set LIBOR and various other
interbank offered rates.
Certain
Group companies, together with other panel banks, have also been
named as defendants in private lawsuits, including purported class
action suits, in the US in connection with their roles as panel
banks contributing to the setting of US Dollar, Japanese Yen and
Sterling LIBOR and the Australian BBSW Reference Rate. The
lawsuits, which contain broadly similar allegations, allege
violations of the Sherman Antitrust Act, the Racketeer Influenced
and Corrupt Organizations Act and the Commodity Exchange Act, as
well as various state statutes and common law doctrines. Certain of
the plaintiffs' claims, including those asserted under US
anti-trust laws, were dismissed by the US Federal Court for
Southern District of New York (the District Court). In November
2015 OTC and exchange-based plaintiffs' claims against the Group
were dismissed for lack of personal jurisdiction. On 20 December
2016, the Federal Court for Southern District of New York dismissed
all antitrust class action claims against LBG and its affiliates in
the Multi District Litigation arising from the alleged manipulation
of USD LIBOR. Further appeals in relation to the anti-trust claims
remain possible.
Certain
Group companies are also named as defendants in UK based claims
raising LIBOR manipulation allegations in connection with interest
rate hedging products.
It is
currently not possible to predict the scope and ultimate outcome on
the Group of the various outstanding regulatory investigations not
encompassed by the settlements, any private lawsuits or any related
challenges to the interpretation or validity of any of the Group's
contractual arrangements, including their timing and
scale.
UK shareholder
litigation
In
August 2014, the Group and a number of former directors were named
as defendants in a claim filed in the English High Court by a
number of claimants who held shares in Lloyds TSB Group plc (LTSB)
prior to the acquisition of HBOS plc, alleging breaches of duties
in relation to information provided to shareholders in connection
with the acquisition and the recapitalisation of LTSB. It is
currently not possible to determine the ultimate impact on the
Group (if any), but the Group intends to defend the claim
vigorously.
F
inancial Services Compensation
Scheme
The
Financial Services Compensation Scheme (FSCS) is the UK's
independent statutory compensation fund of last resort for
customers of authorised financial services firms and pays
compensation if a firm is unable or likely to be unable to pay
claims against it. The FSCS is funded by levies on the authorised
financial services industry. Each deposit-taking institution
contributes towards the FSCS levies in proportion to their share of
total protected deposits on 31 December of the year preceding the
scheme year, which runs from 1 April to 31 March.
Following
the default of a number of deposit takers in 2008, the FSCS
borrowed funds from HM Treasury to meet the compensation costs for
customers of those firms. At 31 March 2016, the end of the latest
FSCS scheme year for which it has published accounts, the principal
balance outstanding on these loans was £15,655 million (31
March 2015: £15,797 million). Although it is anticipated
that the substantial majority of this loan will be repaid from
funds the FSCS receives from asset sales, surplus cash flow or
other recoveries in relation to the assets of the firms that
defaulted, any shortfall will be funded by deposit-taking
participants of the FSCS. The amount of future levies payable by
the Group depends on a number of factors including the amounts
recovered by the FSCS from asset sales, the Group's participation
in the deposit-taking market at 31 December, the level of protected
deposits and the population of deposit-taking
participants.
Tax authorities
The
Group provides for potential tax liabilities that may arise on the
basis of the amounts expected to be paid to tax authorities
including open matters where Her Majesty's Revenue and Customs
(HMRC) adopt a different interpretation and application of tax law.
The Group has an open matter in relation to a claim for group
relief of losses incurred in its former Irish banking subsidiary,
which ceased trading on 31 December 2010. In 2013 HMRC informed the
Group that their interpretation of the UK rules, permitting the
offset of such losses, denies the claim; if HMRC's position is
found to be correct management estimate that this would result in
an increase in current tax liabilities of approximately
£600 million and a reduction in the Group's deferred tax
asset of approximately £400 million. The Group does not agree
with HMRC's position and, having taken appropriate advice, does not
consider that this is a case where additional tax will ultimately
fall due. There are a number of other open matters on which the
Group is in discussion with HMRC (including the tax treatment of
certain costs arising from the divestment of TSB Banking Group
plc); none of these is expected to have a material impact on the
financial position of the Group.
Residential mortgage
repossessions
In
August 2014, the Northern Ireland High Court handed down judgment
in favour of the borrowers in relation to three residential
mortgage test cases concerning certain aspects of the Group's
practice with respect to the recalculation of contractual monthly
instalments of customers in arrears. The FCA is actively engaged
with the industry in relation to these considerations. The Group
will respond as appropriate to this and any investigations,
proceedings, or regulatory action that may in due course be
instigated as a result of these issues. The FCA has issued a
consultation on new guidance on the treatment of customers with
mortgage payment shortfalls. The guidance covers remediation for
mortgage customers who may have been affected by the way firms
calculate these customers' monthly mortgage instalments. The output
from this consultation is expected in the first quarter of
2017.
Update to the Financial Conduct
Authority's announcement in November 2015 on a deadline for PPI
complaints and Plevin v Paragon Personal Finance
Limited
On 2
August 2016, the Financial Conduct Authority (FCA) published a
further consultation paper (CP16/20: Rules and guidance on payment
protection insurance complaints: feedback on CP15/39 and further
consultation), following on from the original consultation
published in November 2015.
The FCA
continues to propose the introduction of a two year deadline by
which consumers would need to make their PPI complaints and
indicates the deadline period will start in June 2017 and end in
June 2019, later than originally indicated by the FCA. The FCA has
also consulted further on changes to the proposed rules and
guidance that should apply when firms handle PPI complaints in
light of the Supreme Court's decision in
Plevin v Paragon Personal Finance Limited
[2014] UKSC 61
. The Group awaits the FCA's final decision. A
further announcement by the FCA is expected in 2017.
Mortgage arrears handling
activities
On 26
May 2016, the Group was informed that an enforcement team at the
FCA had commenced an investigation in connection with the Group's
mortgage arrears handling activities. This investigation is ongoing
and it is currently not possible to make a reliable assessment of
the liability, if any, that may result from the
investigation.
HBOS Reading - customer
review
The
Group is commencing a review into a number of customer cases from
the former HBOS Impaired Assets Office based in Reading. This
review follows the conclusion of a criminal trial in which a number
of individuals, including two former HBOS employees, were convicted
of conspiracy to corrupt, fraudulent trading and associated money
laundering offences which occurred prior to the acquisition of HBOS
by the Group in 2009. The review is at an early stage and it is
currently not possible to determine the ultimate financial impact
on the Group.
Other legal actions and regulatory
matters
In
addition, during the ordinary course of business the Group is
subject to other complaints and threatened or actual legal
proceedings (including class or group action claims) brought by or
on behalf of current or former employees, customers, investors or
other third parties, as well as legal and regulatory reviews,
challenges, investigations and enforcement actions, both in the UK
and overseas. All such material 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 itis concluded that
it is more likely than not that a payment will be made, a provision
is established to management's best estimate of the amount required
at the relevant balance sheet date. In some cases it will not be
possible to form a view, for examplebecause the facts are unclear
or because further time is needed properly to assess the merits of
the case, and no provisions are held in relation to such matters.
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.
6. Dividends on ordinary shares
The
directors have recommended a final dividend, which is subject to
approval by the shareholders at the Annual General Meeting, of
1.7 pence per share (2015: 1.5 pence per share) totalling
£1,212 million (2015: £1,070 million). The directors
have also recommended a special dividend of 0.5 pence per
share (2015: 0.5 pence) totalling £356 million (2015:
£357 million). These financial statements do not reflect these
recommended dividends.
Shareholders
who have already joined the dividend reinvestment plan will
automatically receive shares instead of the cash dividend. Key
dates for the payment of the dividends are:
Shares
quoted ex-dividend
6 April
2017
Record
date
7 April
2017
Final
date for joining or leaving the dividend reinvestment plan
25 April 2017
Dividends
paid
16 May
2017
The
final and special dividends in respect of 2015 of 1.5 pence
and 0.5 pence per ordinary share were paid to shareholders on 17
May 2016 and an interim dividend for 2016 of 0.85 pence per
ordinary share was paid on 28 September 2016; these dividends
totalled £2,034 million.
7. Other information
Financial
information contained in this document does not constitute
statutory accounts within the meaning of section 434 of the
Companies Act 2006 ('the Act'). The statutory accounts for the year
ended 31 December 2016 will be published on the Group's website.
The report of the auditor on those statutory accounts was
unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498(2) or
(3) of the Act. The statutory accounts for the year ended
31 December 2015 have been filed with the Registrar of
Companies.
Summary of alternative performance measures
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 is set out
below.
Asset
quality ratio
|
The
underlying impairment charge for the period (on an annualised
basis) in respect of loans and advances to customers after releases
and write-backs expressed as a percentage of average gross loans
and advances to customers for the period
|
Banking
net interest margin
|
Banking
net interest income on customer and product balances in the banking
businesses as a percentage of average gross banking
interest-earning assets for the period
|
Cost:income
ratio
|
Operating
costs as a percentage of net income calculated on an underlying
basis
|
Gross
asset quality ratio
|
The
underlying impairment charge for the period (on an annualised
basis) in respect of loans and advances to customers before
releases and write-backs expressed as a percentage of average gross
loans and advances to customers for the period
|
Impaired
loans as a percentage of advances
|
Impaired
loans and advances to customers adjusted to exclude Retail and
Consumer Finance loans in recoveries expressed as a percentage of
closing gross loans and advances to customers
|
Loan to
deposit ratio
|
The
ratio of loans and advances to customers net of allowance for
impairment losses and excluding reverse repurchase agreements
divided by customer deposits excluding repurchase
agreements
|
Operating
jaws
|
The
difference between the period on period percentage change in net
income and the period on period change in operating costs
calculated on an underlying basis
|
Present
value of new business premium
|
The
total single premium sales received in the period (on an annualised
basis) plus the discounted value of premiums expected to be
received over the term of the new regular premium
contracts
|
Required
equity
|
The
amount of shareholders' equity and non-controlling interests
required to achieve a common equity tier 1 ratio of 12.0 per cent
after allowing for regulatory adjustments and
deductions
|
Return
on assets
|
Underlying
profit before tax divided by average total assets for the
period
|
Return
on required equity
|
Statutory
profit after tax adjusted to reflect the notional earnings on any
excess or shortfall in equity less the post-tax profit attributable
to other equity holders, divided by the average required equity for
the period
|
Return
on risk-weighted assets
|
Underlying
profit before tax divided by average risk-weighted
assets
|
Return
on tangible equity
|
Statutory
profit after tax adjusted to add back amortisation of intangible
assets after tax, profit attributable to non-controlling interests
and other equity holders divided by average tangible net
assets
|
Tangible
net assets per share
|
Net
assets excluding intangible assets such as goodwill and
acquisition-related intangibles divided by the weighted average
number of ordinary shares in issue
|
Underlying
profit
|
Statutory
profit adjusted for certain items as detailed in the Basis of
Preparation
|
Underlying
return on required equity
|
Underlying
profit after tax at the standard UK corporation tax rate adjusted
to reflect the banking tax surcharge and the notional earnings on
any excess or shortfall in equity less the post-tax profit
attributable to other equity holders divided by the average
required equity for the period
|
Underlying
return on tangible equity
|
Underlying
profit after tax at the standard UK corporation tax rate adjusted
to add back amortisation of intangible assets after tax, profit
attributable to non-controlling interests and other equity holders,
divided by average tangible net assets
|
CONTACTS
For
further information please contact:
INVESTORS AND ANALYSTS
Douglas
Radcliffe
Group
Investor Relations Director
020
7356 1571
douglas.radcliffe@finance.lloydsbanking.com
Andrew
Downey
Director
of Investor Relations
020
7356 2334
andrew.downey@finance.lloydsbanking.com
Edward
Sands
Director
of Investor Relations
020
7356 1585
edward.sands@.lloydsbanking.com
CORPORATE AFFAIRS
Fiona
Laffan
Group
Corporate Communications Director
020
7356 2081
fiona.laffan@lloydsbanking.com
Matt
Smith
Head of
Corporate Media
020
7356 3522
matt.smith@lloydsbanking.com
Copies
of this news release may be obtained from:
Investor
Relations, Lloyds Banking Group plc, 25 Gresham Street,
London EC2V 7HN
The
full news release 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
Signatures
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LLOYDS
BANKING GROUP plc
(Registrant)
By: Douglas
Radcliffe
Name: Douglas
Radcliffe
Title: Group
Investor Relations Director
Date:
22 February 2017
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