TIDM94WP TIDMLLOY
RNS Number : 5024L
Lloyds Bank PLC
30 April 2020
Lloyds Bank plc
Q1 2020 Interim Management Statement
30 April 2020
REVIEW OF PERFORMANCE
Income statement
During the three months to 31 March 2020, the Group recorded a
profit before tax of GBP404 million compared with a profit before
tax in the three months to 31 March 2019 of GBP1,420 million, a
decrease of GBP1,016 million which was largely driven by a
significantly increased impairment charge due to changes to the
Group's economic outlook as a result of the coronavirus
pandemic.
Total income decreased by GBP172 million, or 4 per cent, to
GBP3,902 million in the three months to 31 March 2020 compared with
GBP4,074 million in the three months to 31 March 2019; there was a
GBP166 million decrease in net interest income coupled with a small
decrease of GBP6 million in other income.
Net interest income was GBP2,885 million in the three months to
31 March 2020, a decrease of GBP166 million, or 5 per cent,
compared to GBP3,051 million in the three months to 31 March 2019.
The net interest margin reduced as a result of continued pressure
from competitive asset markets and reduced liability spreads; and
average interest-earning assets reduced with growth in the open
mortgage book and targeted segments, including UK motor finance,
more than offset by lower balances in the closed mortgage book and
the effects of the Commercial Banking portfolio optimisation.
Other income was GBP6 million, or 1 per cent, lower at GBP1,017
million in the three months to 31 March 2020 compared to GBP1,023
million in the three months to 31 March 2019.
Operating expenses decreased by GBP192 million, or 8 per cent,
to GBP2,187 million in the three months to 31 March 2020 compared
to GBP2,379 million in the three months to 31 March 2019. There was
a GBP39 million decrease in regulatory provisions and a GBP153
million decrease in other operating expenses. Other operating
expenses were lower, despite continued strategic investment and
absorbing some emerging expenses related to the Group's response to
the coronavirus outbreak, as a result of the Group's continued cost
discipline and efficiencies gained through digitalisation and other
process improvements; the decrease also reflects a lower level of
restructuring costs.
No further provision has been taken for payment protection
insurance (PPI). Good progress has been made with the review of PPI
information requests received and the conversion rate remains low
and consistent with the provision assumption of around 10 per cent,
although operations have been impacted by the coronavirus pandemic
in recent weeks. The unutilised provision at 31 March 2020 was
GBP1,014 million.
The Group's impairment charge increased by GBP1,036 million to
GBP1,311 million in the three months to 31 March 2020 compared to
GBP275 million in the three months to 31 March 2019, with the
increase primarily driven by updates to the Group's economic
outlook following the coronavirus outbreak resulting in a charge of
GBP774 million and coronavirus impacts on existing restructuring
cases leading to an additional charge of GBP172 million. Underlying
credit quality remains robust, however increased charges will
inevitably arise from existing and new lending. Although market
dynamics are challenging a number of sectors and corporate
customers within the Commercial book, particularly within the
Business Support Unit, the corporate portfolio's diverse client
base and limits are being proactively managed and have relatively
low exposure to the most vulnerable sectors affected by the
coronavirus outbreak. The Group's management of concentration risk
includes single name and country limits as well as controls over
the Group's overall exposure to certain higher risk and vulnerable
sectors and asset classes.
The Group's outlook and IFRS 9 base case economic scenario used
to calculate expected credit loss (ECL) allowance has been updated
since the 2019 year end through post model adjustments. Reflecting
these post model adjustments, which take into account the Group's
best estimate of the impact of the coronavirus outbreak on the
Group's customer and client base, has resulted in an additional
impairment charge of GBP774 million in the quarter. The Group's ECL
allowance continues to reflect a probability-weighted view of
future economic scenarios including a 30 per cent weighting of base
case, upside and downside and a 10 per cent weighting of severe
downside, although all scenarios have deteriorated significantly
since the 2019 year end.
REVIEW OF PERFORMANCE (continued)
Significant uncertainty remains. Although the existing book and
new lending, including Government supported lending, will
inevitably experience losses, partially offset by applicable
Government guarantees, the extent of the impairment charge will
depend on the severity and the duration of the economic shock
experienced in the UK.
There was a tax credit of GBP396 million in the three months to
31 March 2020 compared to a charge of GBP435 million in the three
months to 31 March 2019 reflecting the reduced profit before tax in
2020 and a credit of GBP447 million arising on remeasurement of the
Group's deferred tax balances following the UK government's
decision to maintain the corporation tax rate at 19 per cent on 1
April 2020, which was substantively enacted on 17 March 2020.
Profit for the period, after tax, was GBP800 million compared to
GBP985 million in the three months to 31 March 2019.
Balance sheet and capital
The Group is committed to supporting its customers in financial
distress and with increased liquidity needs during the coronavirus
pandemic and continues to optimise funding and target current
account balance growth as well as accessing wholesale funding
markets across currencies and investors to maintain a stable and
diverse source of funds.
Total assets were GBP30,705 million, or 5 per cent, higher at
GBP612,073 million at 31 March 2020 compared to GBP581,368 million
at 31 December 2019. Cash and balances at central banks were
GBP19,374 million higher at GBP58,254 million reflecting the
increased liquidity needs. Financial assets at amortised cost
increased by GBP715 million to GBP487,216 million at 31 March 2020
compared to GBP486,501 million at 31 December 2019 as increased
corporate lending, primarily drawdowns of existing facilities, was
partially offset by expected reductions in the mortgage book along
with reductions in credit cards, where customer activity reduced in
March. Derivative balances were GBP3,689 million higher at
GBP12,183 million compared to GBP8,494 million at 31 December 2019,
this increase reflects movements in both interest rates and
exchange rates, particularly the US dollar, over the quarter. Other
assets were GBP4,614 million higher at GBP25,206 million compared
to GBP20,592 million at 31 December 2019 mainly due to a GBP4,723
million increase in retirement benefit assets as credit spreads
widened; since the period end the net surplus has reduced as credit
spreads have started to narrow.
Total liabilities were GBP25,621 million, or 5 per cent, higher
at GBP568,090 million compared to GBP542,469 million at 31 December
2019. Deposits from banks were GBP12,563 million higher at
GBP36,156 million as the Group drew down on available funding
facilities and customer deposits were GBP13,132 million, or 3 per
cent, higher at GBP409,971 million compared to GBP396,839 million
at 31 December 2019, as a result of growth in retail current
accounts and commercial deposits.
Total equity increased by GBP5,084 million, or 13 per cent, from
GBP38,899 million at 31 December 2019 to GBP43,983 million at 31
March 2020, mainly due to profit for the period and a positive
remeasurement of the Group's post-retirement defined benefit
schemes as credit spreads widened significantly in the quarter.
The Group's common equity tier 1 capital ratio reduced to 14.1
per cent(1) from 14.3 per cent at 31 December 2019, primarily as a
result of an increase in risk-weighted assets. The tier 1 capital
ratio reduced to 17.9 per cent(1) from 18.3 per cent at 31 December
2019 and the total capital ratio reduced to 21.7 per cent(1) from
22.1 per cent at 31 December 2019.
Risk-weighted assets increased by GBP3.7 billion, or 2 per cent,
to GBP175.6 billion at 31 March 2020, compared to GBP171.9 billion
at 31 December 2019 largely as a result of the full implementation
of the new securitisation framework, resulting in an increase of
GBP2.1 billion; increases of approximately GBP0.4 billion in
counterparty credit risk and credit valuation adjustments; and
retail, an increase of approximately GBP1.0 billion. Optimisation
activity undertaken in Commercial Banking prior to the coronavirus
pandemic has been largely offset by drawdowns by corporate
customers towards the end of the quarter.
The Group's UK leverage ratio remains at 5.1 per cent(1) .
Incorporating profits for the period that remain subject to formal
(1) verification in accordance with the Capital Requirements Regulation.
CONDENSED CONSOLIDATED INCOME Three Three
STATEMENT (UNAUDITED) months months
ended ended
31 March 31 March
2020 2019
GBPmillion GBPmillion
Net interest income 2,885 3,051
Other income 1,017 1,023
----------------------------------- ----------------------------------
Total income 3,902 4,074
Total operating expenses (2,187) (2,379)
----------------------------------- ----------------------------------
Trading surplus 1,715 1,695
Impairment (1,311) (275)
----------------------------------- ----------------------------------
Profit before tax 404 1,420
Taxation 396 (435)
----------------------------------- ----------------------------------
Profit for the period 800 985
----------------------------------- ----------------------------------
Profit attributable to ordinary
shareholders 685 906
Profit attributable to other equity
holders 104 69
----------------------------------- ----------------------------------
Profit attributable to equity holders 789 975
Profit attributable to non-controlling
interests 11 10
----------------------------------- ----------------------------------
Profit for the period 800 985
----------------------------------- ----------------------------------
CONDENSED CONSOLIDATED BALANCE SHEET At 31 March At 31 Dec
2020 2019
GBPmillion GBPmillion
(unaudited) (audited)
Assets
Cash and balances at central banks 58,254 38,880
Financial assets at fair value through profit
or loss 2,406 2,284
Derivative financial instruments 12,183 8,494
Financial assets at amortised cost 487,216 486,501
Financial assets at fair value through other
comprehensive income 26,808 24,617
Other assets 25,206 20,592
----------- ------------
Total assets 612,073 581,368
----------- ------------
Liabilities
Deposits from banks 36,156 23,593
Customer deposits 409,971 396,839
Deposits from fellow Lloyds Banking Group undertakings 6,207 4,893
Financial liabilities at fair value through profit
or loss 7,341 7,702
Derivative financial instruments 10,348 9,831
Debt securities in issue 75,425 76,431
Subordinated liabilities 12,222 12,586
Other liabilities 10,420 10,594
----------- -----------
Total liabilities 568,090 542,469
Shareholders' equity 38,663 33,973
Other equity interests 5,248 4,865
Non-controlling interests 72 61
----------- -----------
Total equity 43,983 38,899
----------- -----------
Total equity and liabilities 612,073 581,368
----------- -----------
ADDITIONAL FINANCIAL INFORMATION
Basis of presentation
This release covers the results of Lloyds Bank plc (the Bank)
together with its subsidiaries (the Group) for the three months
ended 31 March 2020.
Accounting policies
The accounting policies are consistent with those applied by the
Group in its 2019 Annual Report and Accounts.
Capital
The Group's Q1 2020 Interim Pillar 3 Report can be found at
www.lloydsbankinggroup.com/investors/financial-performance/
economic assumptions
The key UK economic assumptions made by the Group, averaged over
a five-year period, used to calibrate the impairment overlay in the
first quarter are shown below:
Severe
Base case Upside Downside downside
% % % %
At 31 March 2020
GDP 0.9 1.2 0.4 (0.1)
Interest rate 0.24 0.88 0.08 0.02
Unemployment rate 5.0 4.7 6.5 7.6
House price growth 1.4 4.7 (3.7) (8.8)
Commercial real estate price growth (0.3) 1.0 (4.8) (7.2)
At 31 December 2019
GDP 1.3 1.6 1.1 0.4
Interest rate 1.25 2.04 0.49 0.11
Unemployment rate 4.3 3.9 5.8 7.2
House price growth 1.3 5.0 (2.6) (7.1)
Commercial real estate price growth (0.2) 1.8 (3.8) (7.1)
ADDITIONAL FINANCIAL INFORMATION (continued)
Economic assumptions (continued)
Scenarios by year
2020 2021 2022 2020-22
% % % %
Base Case
GDP (5.0) 3.0 3.5 1.2
Interest rate 0.10 0.25 0.25 0.20
Unemployment rate 5.9 5.4 4.7 5.3
House price growth (5.0) 2.0 2.5 (0.7)
Commercial real estate
price growth (15.0) 5.0 5.0 (6.3)
Upside
GDP (5.0) 3.8 3.7 2.2
Interest rate 0.26 1.03 1.08 0.79
Unemployment rate 5.9 5.0 4.3 5.0
House price growth (2.2) 6.8 6.8 11.6
Commercial real estate
price growth (11.9) 8.9 6.0 1.7
Downside
GDP (6.5) 1.8 3.6 (1.4)
Interest rate 0.00 0.03 0.06 0.03
Unemployment rate 6.3 6.7 6.4 6.5
House price growth (7.6) (4.1) (5.3) (16.1)
Commercial real estate
price growth (26.6) (3.3) 2.1 (27.5)
Severe downside
GDP (7.8) (0.1) 3.1 (5.1)
Interest rate 0.00 0.00 0.00 0.00
Unemployment rate 6.7 8.0 8.0 7.6
House price growth (10.0) (10.9) (12.9) (30.2)
Commercial real estate
price growth (39.2) (5.7) 3.8 (40.5)
ADDITIONAL FINANCIAL INFORMATION (continued)
Lending within Commercial Banking to key coronavirus-impacted
sectors(1)
Drawn Undrawn
GBPbn GBPbn
Retail non-food 2.5 1.0
Automotive dealerships 2.3 1.3
Oil and gas 1.3 1.7
Construction 1.2 1.5
Hotels 1.8 0.3
Passenger transport 1.2 0.5
Leisure 0.8 0.5
Restaurants and bars 0.7 0.3
Lending classified using ONS SIC codes at legal entity level.
(1)
FORWARD LOOKING STATEMENTS
This document contains certain forward looking statements within
the meaning of Section 21E of the US Securities Exchange Act of
1934, as amended, and section 27A of the US Securities Act of 1933,
as amended, with respect to the business, strategy, plans and/or
results of Lloyds Bank plc together with its subsidiaries (the
Lloyds Bank Group) and its current goals and expectations relating
to its future financial condition and performance. Statements that
are not historical facts, including statements about the Lloyds
Bank Group's or its directors' and/or management's beliefs and
expectations, are forward looking statements. Words such as
'believes', 'anticipates', 'estimates', 'expects', 'intends',
'aims', 'potential', 'will', 'would', 'could', 'considered',
'likely', 'estimate' and variations of these words and similar
future or conditional expressions are intended to identify forward
looking statements but are not the exclusive means of identifying
such statements. Examples of such forward looking statements
include, but are not limited to: projections or expectations of the
Lloyds Bank Group's future financial position including profit
attributable to shareholders, provisions, economic profit,
dividends, capital structure, portfolios, net interest margin,
capital ratios, liquidity, risk-weighted assets (RWAs),
expenditures or any other financial items or ratios; litigation,
regulatory and governmental investigations; the Lloyds Bank Group's
future financial performance; the level and extent of future
impairments and write-downs; statements of plans, objectives or
goals of the Lloyds Bank Group or its management including in
respect of statements about the future business and economic
environments in the UK and elsewhere including, but not limited to,
future trends in interest rates, foreign exchange rates, credit and
equity market levels and demographic developments; statements about
competition, regulation, disposals and consolidation or
technological developments in the financial services industry; and
statements of assumptions underlying such statements. By their
nature, forward looking statements involve risk and uncertainty
because they relate to events and depend upon circumstances that
will or may occur in the future. Factors that could cause actual
business, strategy, plans and/or results (including but not limited
to the payment of dividends) to differ materially from forward
looking statements made by the Lloyds Bank 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, inflation, exchange
rates, stock markets and currencies; any impact of the transition
from IBORs to alternative reference rates; the ability to access
sufficient sources of capital, liquidity and funding when required;
changes to the Lloyds Bank Group's or Lloyds Banking Group plc'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; the
ability to achieve strategic objectives; changing customer
behaviour including consumer spending, saving and borrowing habits;
changes to borrower or counterparty credit quality; concentration
of financial exposure; management and monitoring of conduct risk;
instability in the global financial markets, including Eurozone
instability, instability as a result of uncertainty surrounding the
exit by the UK from the European Union (EU) and as a result of such
exit and the potential for other countries to exit the EU or the
Eurozone and the impact of any sovereign credit rating downgrade or
other sovereign financial issues; political instability including
as a result of any UK general election; technological changes and
risks to the security of IT and operational infrastructure,
systems, data and information resulting from increased threat of
cyber and other attacks; natural, pandemic (including but not
limited to the coronavirus disease (COVID-19) outbreak) and other
disasters, adverse weather and similar contingencies outside the
Lloyds Bank Group's or Lloyds Banking Group plc'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; risks
relating to climate change; changes in laws, regulations, practices
and 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 Lloyds Bank
Group's or Lloyds Banking Group plc'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
together with any resulting impact on the future structure of the
Lloyds Bank Group; the ability to attract and retain senior
management and other employees and meet its diversity objectives;
actions or omissions by the Lloyds Bank Group's directors,
management or employees including industrial action; changes to the
Lloyds Bank 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 Lloyds Bank
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 by Lloyds Bank plc with the
US Securities and Exchange Commission for a discussion of certain
factors and risks together with examples of forward looking
statements. Lloyds Banking Group may also make or disclose written
and/or oral forward looking statements in reports filed with or
furnished to the US Securities and Exchange Commission, Lloyds
Banking Group annual reviews, half-year announcements, proxy
statements, offering circulars, prospectuses, press releases and
other written materials and in oral statements made by the
directors, officers or employees of Lloyds Banking Group to third
parties, including financial analysts. Except as required by any
applicable law or regulation, the forward looking statements
contained in this document are made as of today's date, and the
Lloyds Bank Group expressly disclaims any obligation or undertaking
to release publicly any updates or revisions to any forward looking
statements contained in this document to reflect any change in the
Lloyds Bank Group's expectations with regard thereto or any change
in events, conditions or circumstances on which any such statement
is based. The information, statements and opinions contained in
this document do not constitute a public offer under any applicable
law or an offer to sell any securities or financial instruments or
any advice or recommendation with respect to such securities or
financial instruments.
CONTACTS
For further information please contact:
INVESTORS AND ANALYSTS
Douglas Radcliffe
Group Investor Relations Director
020 7356 1571
douglas.radcliffe@lloydsbanking.com
Edward Sands
Director of Investor Relations
020 7356 1585
edward.sands@lloydsbanking.com
Nora Thoden
Director of Investor Relations - ESG
020 7356 2334
nora.thoden@lloydsbanking.com
CORPORATE AFFAIRS
Grant Ringshaw
Director of Media Relations
020 7356 2362
grant.ringshaw@lloydsbanking.com
Matt Smith
Head of Corporate Media
020 7356 3522
matt.smith@lloydsbanking.com
Copies of this interim management statement may be obtained
from:
Investor Relations, Lloyds Banking Group plc, 25 Gresham Street,
London EC2V 7HN
The statement can also be found on the Group's website -
www.lloydsbankinggroup.com
Registered office: Lloyds Bank plc, 25 Gresham Street, London
EC2V 7HN
Registered in England no. 2065
This information is provided by RNS, the news service of the
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END
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