TIDM83AB TIDMLLOY
RNS Number : 7577L
Lloyds Bank Corporate Markets PLC
14 September 2021
Lloyds Bank Corporate Markets plc
2021 Half-Year Results
Member of the Lloyds Banking Group
CONTENTS
Page
Review of performance 1
Principal risks and uncertainties 5
Condensed consolidated half-year financial statements
Consolidated income statement 9
Consolidated statement of comprehensive income 10
Consolidated balance sheet 11
Consolidated statement of changes in equity 12
Consolidated cash flow statement 15
Notes to the condensed consolidated half-year financial
statements 16
Statement of directors' responsibilities 40
Independent review report 41
Forward looking statements 43
REVIEW OF PERFORMANCE
Lloyds Bank Corporate Markets plc (the Bank) and its
subsidiaries (the Group) carries out the non-ring fenced banking
operations of Lloyds Banking Group (LBG) and provides a wide range
of banking and financial services in the UK and overseas. The Group
operates as an integrated business across the UK, the Crown
Dependencies, the USA, Singapore and Germany and contributes to the
financial results of the Commercial Banking Division of LBG.
The Group's strategic purpose as part of LBG is to Help Britain
Recover as part of Helping Britain Prosper through operating a
responsible business that focuses on delighting our customers and
delivering long-term sustainable success.
Principal activities
Supporting a diverse range of customers, the Group provides a
broad range of banking products to help them achieve their
financial goals. The Group's revenues are earned through the
provision of financing and risk management solutions to commercial
customers; and current accounts, savings accounts, mortgages, car
finance and personal loans in the retail market in our Crown
Dependencies businesses.
The target market for these products and services in the UK and
internationally is made up of large corporates, financial
institutions and retail and commercial customers in the Crown
Dependencies, and includes the following product propositions:
- Commercial lending (including fixed rate loans, revolving
credit facilities, variable loans and business mortgages)
- Trade and working capital management (including trade
services, trade finance, supply chain finance and asset
finance)
- Bonds and structured finance (including bonds, structured lending and asset securitisation)
- Risk management (including FX, rates, credit, commodities and liabilities management)
- Retail banking services (including mortgages, personal current
accounts, personal loans and motor finance) in the Crown
Dependencies
Review of results
During the half-year to 30 June 2021, the Group recorded a
profit before tax of GBP193 million compared to GBP7 million during
the half-year to 30 June 2020, an overall increase of GBP186
million. The Group has benefited from robust performance in its
retail banking and corporate sales businesses but noted that
trading performance has been impacted by limited underlying market
volatility. Throughout, the Group has continued to support
customers and provided financial assistance to the UK economy and
the economies in which our customers operate.
The Group has benefitted from an impairment net credit of GBP47
million (2020: GBP77 million impairment charge) in the income
statement relating to expected credit loss (ECL) driven by the
improving economic outlook. The Group's ECL on loans and
commitments, calculated under IFRS 9, requires the use of a range
of possible future outcomes and more details are contained in Notes
2 and 4.
Regulatory capital adequacy remains strong, with a CET1 ratio of
13.8% (2020: 14.8%); reflecting the stability of the business, and
the strength of the client franchise served by the Group. Risk
weighted assets have increased by GBP1,902 million from GBP16,610
million at 31 December 2020 to GBP18,512 million at 30 June 2021.
This is predominantly as a result of the phasing of the Group's
IBOR transition project, is largely temporary and does not
represent additional risk taken by the Group.
Total income was GBP350 million in the first half of 2021
compared to GBP291 million in the first half of 2020. This
predominantly comprises net interest income (NII) of GBP70 million
(GBP30 million in the half-year to 30 June 2020), net fee and
commission income of GBP117 million (GBP96 million in the half-year
to 30 June 2020) and net trading income of GBP171 million (GBP165
million in the half-year to 30 June 2020). This reflects an
improving NII position as a result of stable funding costs in 2021
and management action with regard to reducing funding and liquidity
risk.
Operating expenses were GBP204 million, down from GBP207 million
in the half-year to 30 June 2020, a reduction of GBP3 million as a
result of cost control initiatives. Costs consist predominantly of
management charges relating to the Intra Group Agreement paid to
Lloyds Bank plc, staff costs and other operating expenses. The
taxation charge in the period was GBP60 million (six months to 30
June 2020 GBP27 million credit) reflecting increased profitability
in 2021 and more details are contained in Note 5.
REVIEW OF PERFORMANCE (continued)
Total assets were GBP10,568 million lower at GBP81,861 million
at 30 June 2021 compared to GBP92,429 million at 31 December 2020.
Cash and balances at central banks which decreased by GBP3,096
million from GBP23,369 million at 31 December 2020 to GBP20,273
million at 30 June 2021 reflecting a lower assessment of the
liquidity required should the impact of COVID-19 cause further
market distress. Financial assets at fair value through profit or
loss were GBP18,249 million at 30 June 2021 compared to GBP20,926
million at 31 December 2020 and predominantly consist of reverse
repurchase agreements. Derivative financial instruments of
GBP17,288 million at 30 June 2021 decreased by GBP4,469 million
compared to GBP21,757 million at 31 December 2020 reflecting fair
value mark to market movements. Financial assets at amortised cost
decreased by GBP1,623 million from GBP25,087 million at 31 December
2020 to GBP23,464 million at 30 June 2021 and consist mainly of
loans and advances to customers and banks.
Total liabilities of the Group were GBP78,375 million at 30 June
2021 compared to GBP88,800 million at 31 December 2020, a decrease
of GBP10,425 million. Deposits from banks were GBP4,144 million at
30 June 2021 which is GBP1,457 million lower than GBP5,601 million
at 31 December 2020. Customer deposits decreased by GBP616 million
from GBP25,497 million at 31 December 2020 to GBP24,881 million at
30 June 2021. Financial liabilities at fair value through profit or
loss at 30 June 2021 of GBP14,196 million consist predominantly of
repurchase agreements and reduced by GBP1,619 million when compared
with the 31 December 2020 balance of GBP15,815 million. Derivative
financial instruments of GBP14,589 million have decreased by
GBP6,644 million compared to the 31 December 2020 balance of
GBP21,233 million reflecting fair value mark to market movements.
Debt securities in issue of GBP14,273 million has decreased by
GBP1,329 million compared to GBP15,602 million at 31 December 2020.
The decreases in deposits and debt securities in issue noted above
reflect reduced overall funding requirements and are reflected in
the amount held in cash and balances at central banks.
Total equity at 30 June 2021 was GBP3,486 million which is a
reduction of GBP143 million compared to GBP3,629 million at 31
December 2020 including profits in the period less the dividend
paid to LBG in the period of GBP200 million (2020: GBP700
million).
Capital position at 30 June 2021
The Bank's capital position as at 30 June 2021, applying current
IFRS 9 transitional arrangements, is set out in the following
section.
REVIEW OF PERFORMANCE (continued)
At At
30 June 31 Dec
Bank capital resources (transitional) 2021 2020
GBPm GBPm
Common equity tier 1
Shareholders' equity per Bank balance sheet 2,789 2,914
Adjustment to retained earnings for foreseeable
dividends - (200)
Cash flow hedging reserve (42) (105)
Debit valuation adjustment (18) (25)
Other adjustments 3 34
2,732 2,618
Less: deductions from common equity tier 1
Prudent valuation adjustment (185) (156)
Common equity tier 1 capital 2,547 2,462
--------- --------
Additional tier 1
Additional tier 1 instruments 757 757
Total tier 1 capital 3,304 3,219
--------- --------
Tier 2
Tier 2 instruments 622 635
Other adjustments (92) (109)
--------- --------
Total tier 2 capital 530 526
--------- --------
Total capital resources 3,834 3,745
--------- --------
Risk-weighted assets 18,512 16,610
Common equity tier 1 capital ratio(1) 13.8% 14.8%
Tier 1 capital ratio(1) 17.8% 19.4%
Total capital ratio(1) 20.7% 22.5%
Reflecting the full impact of IFRS 9 at 30 June 2021, without the
(1) application of transitional arrangements, the Bank's common equity
tier 1 capital ratio would be 13.7% per cent, the tier 1 capital
ratio would be 17.8% per cent and the total capital ratio would
be 20.7% per cent.
REVIEW OF PERFORMANCE (continued)
At At
30 June 31 Dec
2021 2020
GBPm GBPm
Bank risk-weighted assets
Foundation Internal Ratings Based (IRB) Approach 6,693 6,566
Other IRB Approach 301 267
-------- -------
IRB Approach 6,994 6,833
Standardised (STA) Approach 1,704 1,961
-------- -------
Credit risk 8,698 8,794
-------- -------
Counterparty credit risk 3,727 3,948
Credit valuation adjustment risk 320 324
Operational risk 901 952
Market risk 4,321 1,982
-------- -------
Underlying risk-weighted assets 17,967 16,000
Threshold risk-weighted assets 545 610
-------- -------
Total risk-weighted assets 18,512 16,610
-------- -------
Principal risks and uncertainties
The most significant risks that could impact Group's ability to
deliver long-term strategic objectives are outlined below. These
principal risks and uncertainties are reviewed and reported to the
Board Risk Committee regularly. There has been no change to the
list of risks as disclosed in the Group's 2020 Annual Report and
Accounts.
The first half of 2021 continued to bring significant
uncertainty. The spread of new COVID-19 variants compounded by
other factors, such as the UK's exit from the European Union, have
the potential to delay economic recovery in the UK and globally.
These risks could continue to place pressure on the Group's
strategy, business model and performance.
The Group continues to monitor, assess and address risks and
their impact on customers, colleagues and strategy. COVID-19
remains a dominant risk theme and an important area of management
focus.
-- While the macroeconomic environment is improving, the
recovery remains uneven across jurisdictions. Vaccine effectiveness
and the international community's ability to deliver them to the
majority of the populace remain key factors in restricting the
spread of the virus and improving global growth prospects
-- Aggressive fiscal policies implemented in response to the
pandemic have led to elevated government indebtedness in advanced
economies and could generate levels of inflation that require a
tightening in monetary policy
-- Higher interest rates could expose vulnerabilities within
highly indebted companies and households as other stimulus measures
are simultaneously withdrawn. Higher rate expectations could also
impact asset prices that have been supported by very accommodative
monetary and fiscal policy
-- COVID-19 continues to have an adverse impact on various
risks. While improved economic environment resulted in lower
impairment levels at the half-year, this remains an area of
continued management focus given risks and uncertainties. Linked to
this is increased model risk caused by a weakening in established
macroeconomic relationships between model inputs and outputs that
could reduce the forecasting ability of those models. While
underlying model drivers are expected to remain valid in the longer
term, impairment provisions still contain an element of judgement.
Meanwhile, regulatory scrutiny of model performance and assumptions
has increased
-- As well as the risks mentioned above, the Group continues to
assess and address the impact of data and operational risks.
Existing, industry wide, challenges with keeping Know Your Customer
(KYC) information relevant and up to date have been exacerbated by
COVID-19. Failure to maintain information in accordance with Money
Laundering regulations may result in the less effective operation
of anti-money laundering controls and consequently in regulatory
censure, fines and / or loss of licence
-- For colleagues, remote working and other ways of working will
remain in place for the foreseeable future to meet current and
future customer needs and expectations
In relation to the UK's exit from the European Union and further
to the EU-UK Trade and Cooperation Agreement (TCA) agreed between
the UK and EU at the end of 2020, a high level Memorandum of
Understanding (MoU) establishing a framework for Financial Services
Regulatory Cooperation (to help preserve financial stability,
market integrity and the protection of investors and consumers) was
due to be agreed by the 31st March 2021 however some EU member
states are still due to ratify it. Also, the MoU is not a legally
binding arrangement and does not address regulatory equivalence.
The Group continues to consider the ongoing impact of the TCA on
its customers, colleagues, products and business strategy including
the potential legal, regulatory, tax, financial and capital
implications. The UK has established a regulatory regime derived
from the pre-existing EU regime, although some variations have
already been announced. The Group continues to be subject to
substantial EU-derived laws, regulation and oversight through its
subsidiary in Germany, Lloyds Bank Corporate Markets
Wertpapierhandelsbank GmbH, which offers a set of products to meet
the current customers' needs in the EU. With LBG, the Group
continues to work closely with regulatory authorities and industry
bodies to ensure that the Group can identify and respond to the
evolving regulatory and legal landscape and meet customers' demands
with appropriate products and service offerings.
The Group continues its transition from Interbank Offered Rates
(IBORs) to Alternative Risk Free Reference Rates to meet London
Interbank Offered Rate (LIBOR) cessation dates that were announced
in March 2021. As a result, a number of existing benchmark rates
are being discontinued or the basis on which they are calculated is
changing, impacting pricing, market risk and valuations. As the
nature of some of these changes is still evolving, including the
impact of the UK Government's Tough Legacy Legislation, the value
of a broad array of financial products, including any LIBOR-based
securities, loans and derivatives could be adversely impacted. IBOR
changes will have important implications for the Group and its
customers by necessitating amendments to existing documents and
contracts and thereby creating differentials in
Principal risks and uncertainties (continued)
performance of benchmark rates and financial products which
reference them. The Group could incur additional costs as a result
of regulatory action if there are concerns with the pace or
effectiveness of implementation. The Group is working closely with
LBG on the transition away from IBORs, including the mitigation of
potential conduct risk to which its customers may be exposed.
Credit risk - The risk that parties with whom the Group has
contracted fail to meet their financial obligations (both on and
off-balance sheet). Observed or anticipated changes in the economic
environment could impact profitability due to an increase in
delinquency, defaults, write-downs and/or expected credit
losses.
Regulatory and legal risk - The risk arising from the failure to
identify, assess, correctly interpret, comply with, or manage
regulatory and/or legal requirements, leading to customer
detriment, failure to prevent fraud and financial crime, financial
penalties, regulatory censure, criminal or civil enforcement
action.
Conduct risk - The risk of detriment across the customer
lifecycle including: failures in product management, distribution
and servicing activities, from other risks materialising, or other
activities which could undermine the integrity of the market or
distort competition, leading to unfair customer outcomes,
regulatory censure, reputational damage or financial loss.
Operational risk - The risk of inadequate or failed internal
processes, people, systems or from external events (including
cyber-related and fraud and financial crime prevention challenges)
leading to loss.
Operational risk: shared services model (SSM) - LBG's chosen
ring-fencing operating model introduces risks for the Group in the
execution of that model as a shared service recipient.
Key risks include:
- Key reliance on the SSM increases the prominence of internal service provision risk
- Business process risk (i.e. non-adherence to key processes,
including those relating to market, operational, capital, credit,
fraud and financial crime prevention and funding and liquidity
risk)
- Information security and cyber risk including access
management, records, data protection and cyber
- IT systems risk
- Reliance on the SSM to operate key controls designed to detect
and prevent fraud and financial crime
- Operational risk around business resilience, change activity and sourcing
Operational resilience risk - The risk that the Group fails to
design resilience into business operations, underlying
infrastructure and controls (people, process, technical) to
withstand external or internal events that could impact the
continuity of operations or alternatively the failure to respond to
events in a way which meets stakeholder expectations and needs when
the continuity of operations is compromised.
People risk - The risk that the Group fails to provide an
appropriate colleague and customer centric culture, supported by
robust reward and wellbeing policies and processes; effective
leadership to manage colleague resources; effective talent and
succession management; and control framework to ensure all
colleague related requirements are met. Failure to meet these
conditions would impact the Group's capacity to attract, retain and
develop talented colleagues.
Capital risk - The risk that the Group has a sub-optimal
quantity or quality of capital or that capital is inefficiently
deployed across the Group.
Funding and liquidity risk - The risk that the Group does not
have sufficiently stable and diverse sources of funding or
financial resources are insufficient to meet commitments as they
fall due.
Principal risks and uncertainties (continued)
Governance risk - The risk that the Group's organisational
infrastructure fails to provide robust oversight of decision making
and the control mechanisms to ensure strategies and management
instructions are implemented effectively. Against a background of
increased regulatory focus on governance and risk management, the
most significant challenges arise from the continuing evolution of
the Senior Managers and Certification Regime, including
incorporating senior manager function allocation for financial
risks arising from climate change.
Market risk - The risk that the Group's capital or earnings
profile is affected by adverse market rates, in particular changes
and volatility in interest and foreign exchange rates, inflation
rates, commodity prices and credit spreads through activity in the
banking and markets businesses.
Model risk - The risk of financial loss, regulatory censure,
reputational damage or customer detriment from deficiencies in
developing, applying and operating models and rating systems.
Climate change risk - The risk that the Group experiences losses
and /or reputational damage as a result of climate change, either
directly or through impact on its customers. These losses may be
realised from physical events, the required adaptation in
transitioning to a lower carbon economy, or as a consequence of the
responses to managing these changes.
Data risk - The risk of the Group failing effectively to govern,
manage, and control its data (including data processed by third
party suppliers) leading to unethical decisions, poor customer
outcomes, loss of value to the Group and mistrust.
Change/execution risk - The risk that, the Group does not
deliver its change agenda successfully, leading to a failure to:
maintain effective customer service and availability; deliver
against strategic objectives; ensure compliance with laws and
regulation; and/or otherwise operate within the Group's risk
appetite.
Strategic risk - The risk which results from incorrect
assumptions about internal or external operating environments;
failure to respond or the Group's inappropriate strategic response
to material changes in the external or internal operating
environments; and/or failure to understand the potential
impact.
STATUTORY INFORMATION
Page
Condensed consolidated half-year financial statements (unaudited)
Consolidated income statement 9
Consolidated statement of comprehensive income 10
Consolidated balance sheet 11
Consolidated statement of changes in equity 12
Consolidated cash flow statement 15
Notes
1 Accounting policies 16
2 Critical accounting judgements and estimates 17
3 Operating expenses 21
4 Impairment 21
5 Taxation 22
6 Financial assets at fair value through profit or loss 22
7 Financial assets at amortised cost 23
8 Debt securities in issue 28
9 Other reserves 29
10 Related party transactions 30
11 Contingent liabilities, commitments and guarantees 31
12 Fair values of financial assets and liabilities 32
13 Dividends on ordinary shares 39
14 Ultimate parent undertaking 39
15 Events since the balance sheet date 39
16 Other information 39
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Half-year Half-year
to 30 to 30
June June
2021 2020(1)
Note GBPm GBPm
Interest income 151 278
Interest expense (81) (248)
--------- ---------
Net interest income 70 30
--------- ---------
Fee and commission income 132 112
Fee and commission expense (15) (16)
--------- ---------
Net fee and commission income 117 96
Net trading income 171 165
Other operating (losses) income (8) -
--------- ---------
Other income 280 261
--------- ---------
Total income 350 291
Operating expenses 3 (204) (207)
Impairment credit (charge) 4 47 (77)
Profit before tax 193 7
Tax (expense) credit 5 (60) 27
--------- ---------
Profit for the period 133 34
--------- ---------
Profit attributable to ordinary shareholders 117 11
Profit attributable to other equity shareholders 16 23
--------- ---------
Profit for the period 133 34
--------- ---------
(1) Restated - see note 1
The accompanying notes are an integral part of the condensed
consolidated half-year financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Half-year Half-year
to 30 to 30
June June
2021 2020
Note GBPm GBPm
Profit for the period 133 34
Other comprehensive income:
Items that may subsequently be reclassified to
profit or loss:
--------- ---------
Movements in revaluation reserve in respect of
debt securities held at fair value through other
comprehensive income 9 5 (4)
Movement in cash flow hedging reserve 9 (63) 58
Currency translation differences 9 (2) 7
--------- ---------
Other comprehensive income for the period, net
of tax (60) 61
--------- ---------
Total comprehensive income for the period 73 95
--------- ---------
Total comprehensive income attributable to ordinary
shareholders 57 72
Total comprehensive income attributable to other
equity holders 16 23
--------- ---------
Total comprehensive income for the period 73 95
--------- ---------
CONSOLIDATED BALANCE SHEET
At At
30 June 31 Dec
2021 2020
(unaudited) (audited)
Note GBPm GBPm
Assets
Cash and balances at central banks 20,273 23,369
Financial assets at fair value through profit
or loss 6 18,249 20,926
Derivative financial instruments 17,288 21,757
Loans and advances to banks 3,307 5,260
Loans and advances to customers 18,837 18,452
Debt securities 210 257
Due from fellow Lloyds Banking Group undertakings 1,110 1,118
------------ ----------
Financial assets at amortised cost 7 23,464 25,087
Financial assets at fair value through other
comprehensive income 134 149
Property, plant and equipment 70 78
Current tax recoverable 6 19
Deferred tax assets 11 19
Other assets 2,366 1,025
------------ ----------
Total assets 81,861 92,429
------------ ----------
Equity and liabilities
Liabilities
Deposits from banks 4,144 5,601
Customer deposits 24,881 25,497
Due to fellow Lloyds Banking Group undertakings 3,048 3,283
Financial liabilities at fair value through profit or loss 14,196 15,815
Derivative financial instruments 14,589 21,233
Debt securities in issue 814,273 15,602
Current tax liabilities 5 -
Deferred tax liabilities 19 38
Other liabilities 2,547 1,045
Subordinated liabilities 673 686
------ ------
Total liabilities 78,375 88,800
Equity
------ ------
Share capital 120 120
Other reserves 9 21 81
Retained profits 2,563 2,646
------ ------
Shareholders' equity 2,704 2,847
Other equity instruments 782 782
------ ------
Total equity 3,486 3,629
------ ------
Total equity and liabilities 81,861 92,429
------ ------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Attributable to ordinary
shareholders
Other
Share Other Retained equity
capital reserves profits Total instruments Total
GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January
2021 120 81 2,646 2,847 782 3,629
Comprehensive income
Profit for the period - - 117 117 16 133
Other comprehensive
income
-------- --------- -------- ------ ------------ ------
Movements in revaluation
reserve in respect
of financial assets
held at fair value
through other comprehensive
income, net of tax:
Debt securities - 5 - 5 - 5
Movements in cash
flow hedging reserve,
net of tax - (63) - (63) - (63)
Movement in foreign
exchange translation
reserve (tax: nil) - (2) - (2) - (2)
-------- --------- -------- ------ ------------ ------
Total other comprehensive
income - (60) - (60) - (60)
-------- --------- -------- ------ ------------ ------
Total comprehensive
income - (60) 117 57 16 73
-------- --------- -------- ------ ------------ ------
Transactions with
owners
-------- --------- -------- ------ ------------ ------
Dividends - - (200) (200) - (200)
Distributions on
other equity instruments - - - - (16) (16)
-------- --------- -------- ------ ------------ ------
Total transactions
with owners - - (200) (200) (16) (216)
Balance at 30 June
2021 120 21 2,563 2,704 782 3,486
-------- --------- -------- ------ ------------ ------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Attributable to ordinary
shareholders
Other
Share Other Retained equity
capital reserves profits Total instruments Total
GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January
2020 120 32 3,342 3,494 782 4,276
Comprehensive income
Profit for the period - - 11 11 23 34
Other comprehensive
income
-------- --------- -------- ----- ------------ -----
Movements in revaluation
reserve in respect
of financial assets
held at fair value
through other comprehensive
income, net of tax:
Debt securities - (4) - (4) - (4)
Movements in cash
flow hedging reserve,
net of tax - 58 - 58 - 58
Movement in foreign
exchange translation
reserve (tax: nil) - 7 - 7 - 7
-------- --------- -------- ----- ------------ -----
Total other comprehensive
income - 61 - 61 - 61
-------- --------- -------- ----- ------------ -----
Total comprehensive
income - 61 11 72 23 95
-------- --------- -------- ----- ------------ -----
Transactions with
owners
-------- --------- -------- ----- ------------ -----
Dividends - - (700) (700) - (700)
Distributions on
other equity instruments - - - - (23) (23)
Other adjustments - - 1 1 - 1
-------- --------- -------- ----- ------------ -----
Total transactions
with owners - - (699) (699) (23) (722)
Balance at 30 June
2020 120 93 2,654 2,867 782 3,649
-------- --------- -------- ----- ------------ -----
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Attributable to ordinary
shareholders
Other
Share Other Retained equity
capital reserves profits Total instruments Total
GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 July 2020 120 93 2,654 2,867 782 3,649
Comprehensive income
Profit for the period - - (7) (7) 17 10
Other comprehensive
income
-------- --------- -------- ----- ------------ -----
Movements in revaluation
reserve in respect
of financial assets
held at fair value
through other comprehensive
income, net of tax:
Debt securities - 3 - 3 - 3
Movements in cash flow
hedging reserve, net
of tax - (9) - (9) - (9)
Movement in foreign
exchange translation
reserve (tax: nil) - (6) - (6) - (6)
-------- --------- -------- ----- ------------ -----
Total other comprehensive
income - (12) - (12) - (12)
-------- --------- -------- ----- ------------ -----
Total comprehensive
income - (12) (7) (19) 17 (2)
-------- --------- -------- ----- ------------ -----
Transactions with owners
-------- --------- -------- ----- ------------ -----
Dividends - - - - - -
Distributions on other
equity instruments - - - - (17) (17)
Other adjustments - - (1) (1) - (1)
-------- --------- -------- ----- ------------ -----
Total transactions
with owners - - (1) (1) (17) (18)
Balance at 31 December
2020 120 81 2,646 2,847 782 3,629
-------- --------- -------- ----- ------------ -----
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
Half-year Half-year
to 30 to 30
June June
2021 2020(1)
GBPm GBPm
Profit before tax 193 7
Adjustments for:
Change in operating assets 6,104 (7,710)
Change in operating liabilities (10,306) 18,889
Non-cash and other items (26) (128)
Tax paid (33) (49)
--------- ---------
Net cash (used in) provided by operating activities (4,068) 11,009
Cash flows from investing activities
--------- ---------
Purchase of financial assets (25) (80)
Proceeds from sale and maturity of financial
assets 41 203
Purchase of fixed assets (4) (16)
--------- ---------
Net cash provided by investing activities 12 107
Cash flows from financing activities
--------- ---------
Dividends paid to ordinary shareholders (200) (700)
Distributions on other equity instruments (16) (23)
Interest paid on subordinated liabilities (8) (14)
--------- ---------
Net cash used in financing activities (224) (737)
Effects of exchange rate changes on cash and
cash equivalents (63) 473
--------- ---------
Change in cash and cash equivalents (4,343) 10,852
Cash and cash equivalents at beginning of period 26,370 19,094
--------- ---------
Cash and cash equivalents at end of period 22,027 29,946
--------- ---------
(1) Restated - see note 1
Cash and cash equivalents comprise cash and balances at central
banks (excluding mandatory deposits) and amounts due from banks
with a maturity of less than three months.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS
1. Accounting policies
These condensed consolidated half-year financial statements as
at and for the 6 month period to 30 June 2021 have been prepared in
accordance with the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority (FCA) and with International
Accounting Standard 34 (IAS 34), Interim Financial Reporting as
adopted by the United Kingdom and comprise the results of Lloyds
Bank Corporate Markets plc (the Bank) together with its
subsidiaries (the Group). They do not include all of the
information required for full annual financial statements and
should be read in conjunction with the Group's consolidated
financial statements as at and for the year ended 31 December 2020
which complied with international accounting standards in
conformity with the requirements of the Companies Act 2006, were
prepared in accordance with International Financial Reporting
Standards (IFRS) and were compliant with IFRS adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union.
Copies of the 2020 Annual Report and Accounts are available on the
Group's website and are available upon request from Investor
Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V
7HN.
The directors consider that it is appropriate to continue to
adopt the going concern basis in preparing the condensed
consolidated half-year financial statements. In reaching this
assessment, the directors have taken into account the continuing
uncertainties affecting the UK economy post-pandemic and their
potential effects upon the Group's performance and projected
funding and capital position; the impact of further stress
scenarios has also been considered. On this basis, the directors
are satisfied that the Group will maintain adequate levels of
funding and capital for the foreseeable future.
As disclosed in the 2020 Annual Review and Accounts, the Group
reassessed the treatment of interest income and expense on certain
derivative instruments to better reflect the economic substance of
the hedging arrangement by recording derivative interest in the
same income statement line item as the interest on the hedged item.
The result of which is that in the income statement, the 2020
comparative numbers have been restated to reflect a GBP29 million
reclassification between net interest income (increased) and other
income (decreased). This reclassification between lines within
total income has no impact on overall total income reported or
profit for the period.
The 2020 comparative cashflow statement has been restated to
correct the treatment of non-cash item movements on the net cash
provided by operating activities and reallocation of purchases and
sales on financial assets from operating activities to investing
activities. These corrections have no impact on the closing cash
positions but the following impact on the underlying lines within
the cashflow statement; net cash provided by operating activities
decreases by GBP594 million from GBP11,603 million to GBP11,009
million with a corresponding GBP123 million increase on net cash
used in investing activities to GBP107 million and GBP471 million
increase on foreign exchange on cash and cash equivalents to GBP473
million.
Changes in accounting policy
The Group adopted the Interest Rate Benchmark Reform Phase 2
amendments from 1 January 2021. These amendments require that
changes to expected future cash flows that both arise as a direct
result of IBOR Reform and are economically equivalent to the
previous cash flows are accounted for as a change to the effective
interest rate with no adjustment to the asset or liability's
carrying amount; no immediate gain or loss is recognised. The new
requirements also provide relief from the requirement to
discontinue hedge accounting as a result of amending hedge
documentation if the changes are required solely as a result of the
IBOR Reform. The amendments do not have a material impact on the
Group's comparatives, which have not been restated.
Except for the change above, the Group's accounting policies are
consistent with those applied by the Group in its 2020 Annual
Report and Accounts and there have been no changes in the Group's
methods of computation.
Future accounting developments
The IASB has issued a number of minor amendments to IFRSs
effective 1 January 2022 and in later years (including IFRS 9
Financial Instruments and IAS 37 Provisions, Contingent Liabilities
and Contingent Assets). These amendments are not expected to have a
significant impact on the Group.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
2. Critical accounting judgements and estimates
The preparation of the Group's financial statements requires
management to make judgements, estimates and assumptions that
impact the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Due to the
inherent uncertainty in making estimates, actual results reported
in future periods may include amounts which differ from those
estimates. Estimates, judgements and assumptions are continually
evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. The Group's significant
judgements, estimates and assumptions are unchanged, compared to
those applied at 31 December 2020, except as detailed below.
Allowance for expected credit losses
The Group recognises an allowance for expected credit losses
(ECLs) for loans and advances to customers and banks, other
financial assets held at amortised cost, financial assets measured
at fair value through other comprehensive income and certain loan
commitment and financial guarantee contracts. At 30 June 2021, the
Group's expected credit loss allowance was GBP33 million (31
December 2020: GBP83 million), of which GBP22 million (31 December
2020: GBP50 million) was in respect of drawn balances.
The calculation of the Group's expected credit loss allowances
and provisions against loan commitments and guarantees under IFRS 9
requires the Group to make a number of judgements, assumptions and
estimates. These are set out in detail in the Group's 2020 Annual
Report and Accounts. The principal changes made in the period ended
30 June 2021 are as follows:
Base Case and Economic Assumptions
The Group's base case economic scenario has been revised in
light of the continuing impact of the coronavirus pandemic in the
UK and globally. The scenario reflects judgements of the net effect
of government-mandated restrictions on economic activity,
large-scale government interventions, and behavioural changes by
households and businesses that may persist beyond the rollout of
coronavirus vaccination programmes.
As large-scale vaccination efforts compete with the emergence of
new viral strains in the UK and globally, there remains
considerable uncertainty about the pace and eventual extent of the
post-pandemic recovery. The Group's updated base case scenario
builds in three key conditioning assumptions. First, that rising
infections in the UK's third COVID-19 wave do not lead to a
re-imposition of restrictions. Second, that the rollout of
vaccination programmes among the UK's trading partners will
reinforce an improving global backdrop. Third, that domestic policy
measures remain accommodative, with monetary policy looking through
a transient rise in inflation.
Conditioned on these assumptions and taking note of improvements
in economic indicators in the second quarter, the Group's base case
outlook continues to assume a rise in the unemployment rate as
furlough support ends alongside a deceleration in commercial
property price growth. Risks around this base case economic view
lie in both directions and are partly captured by the alternative
economic scenarios generated. But uncertainties relating to the key
conditioning assumptions, including epidemiological developments,
the efficacy of vaccine rollouts against emergent strains and the
response of the economy in those circumstances, are not
specifically captured by these scenarios. These specific risks have
been recognised outside the modelled scenarios with a central
adjustment.
The Group has incorporated the latest available information at
the reporting date in defining its base case scenario and
generating alternative economic scenarios. The scenarios include
forecasts for key variables in the second quarter of 2021, for
which actuals may have since emerged prior to publication.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
2. Critical accounting judgements and estimates (continued)
Scenarios by year
Key annual assumptions made by the Group are shown below. Gross
domestic product is presented as an annual change and commercial
real estate price growth is presented as the growth in the
respective index within the period. UK Bank Rate and unemployment
rates are averages for the period. The upside, base case and
downside scenarios are weighted at 30 per cent each, with the
severe downside scenario weighted at 10 per cent.
2021-25
At 30 June 2021 2021 2022 2023 2024 2025 average
%% %% %%
Upside
UK Gross domestic product 6.1 5.5 1.4 1.4 1.2 3.1
UK Bank rate 0.52 1.27 1.09 1.32 1.58 1.16
UK Unemployment rate 4.7 4.9 4.4 4.2 4.1 4.5
UK Commercial real estate price growth 9.2 5.7 2.4 0.3 (0.3) 3.4
US Gross domestic product 7.6 7.5 1.6 (0.4) 0.2 3.2
US Unemployment rate 5.4 3.4 3.3 4.5 5.2 4.4
Base Case
UK Gross domestic product 5.5 5.5 1.6 1.4 1.2 3.0
UK Bank rate 0.10 0.10 0.25 0.50 0.75 0.34
UK Unemployment rate 5.4 6.1 5.4 5.0 4.8 5.4
UK Commercial real estate price growth 0.4 1.0 0.6 0.3 0.5 0.6
US Gross domestic product 6.3 3.9 2.1 1.8 1.7 3.2
US Unemployment rate 5.5 4.4 4.2 4.1 4.1 4.5
Downside
UK Gross domestic product 4.8 4.2 1.3 1.4 1.4 2.6
UK Bank rate 0.09 0.05 0.06 0.11 0.20 0.10
UK Unemployment rate 6.0 7.8 7.1 6.5 6.0 6.7
UK Commercial real estate price growth (5.3) (5.3) (2.8) (1.5) 0.20 (3.0)
US Gross domestic product 5.3 0.5 1.1 3.0 2.9 2.6
US Unemployment rate 5.7 5.9 6.4 5.8 5.1 5.8
Severe Downside
UK Gross domestic product 4.1 3.5 1.1 1.4 1.4 2.3
UK Bank rate 0.06 0.00 0.01 0.02 0.03 0.02
UK Unemployment rate 7.0 9.9 9.1 8.3 7.6 8.4
UK Commercial real estate price growth (13.5) (13.5) (6.9) (2.3) 0.5 (7.3)
US Gross domestic product 3.5 (4.8) 0.7 5.7 5.2 2.0
US Unemployment rate 6.0 8.0 9.0 7.1 5.3 7.1
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
2. Critical accounting judgements and estimates (continued)
2020-24
At 31 December 2020 2020 2021 2022 2023 2024 average
%% %% %%
Upside
UK Gross domestic product (10.5) 3.7 5.7 1.7 1.5 0.3
UK Bank rate 0.10 1.14 1.27 1.20 1.21 0.98
UK Unemployment rate 4.3 5.4 5.4 5.0 4.5 5.0
UK Commercial real estate price growth (4.6) 9.3 3.9 2.1 0.3 2.1
US Gross domestic product (3.4) 8.0 5.1 0.2 (0.6) 1.8
US Unemployment rate 8.3 5.7 3.8 4.3 5.3 5.5
Base case
UK Gross domestic product (10.5) 3.0 6.0 1.7 1.4 0.1
UK Bank rate 0.10 0.10 0.10 0.21 0.25 0.15
UK Unemployment rate 4.5 6.8 6.8 6.1 5.5 5.9
UK Commercial real estate price growth (7.0) (1.7) 1.6 1.1 0.6 (1.1)
US Gross domestic product (3.5) 3.9 2.6 2.0 1.8 1.3
US Unemployment rate 8.3 6.6 5.8 5.5 5.2 6.3
Downside
UK Gross domestic product (10.6) 1.7 5.1 1.4 1.4 (0.4)
UK Bank rate 0.10 0.06 0.02 0.02 0.03 0.05
UK Unemployment rate 4.6 7.9 8.4 7.8 7.0 7.1
UK Commercial real estate price growth (8.7) (10.6) (3.2) (0.8) (0.8) (4.9)
US Gross domestic product (3.7) 1.2 0.3 2.5 3.3 0.7
US Unemployment rate 8.3 7.3 7.7 7.2 6.2 7.3
Severe downside
UK Gross domestic product (10.8) 0.3 4.8 1.3 1.2 (0.8)
UK Bank rate 0.10 0.00 0.00 0.01 0.01 0.02
UK Unemployment rate 4.8 9.9 10.7 9.8 8.7 8.8
UK Commercial real estate price growth (11.0) (21.4) (9.8) (3.9) (0.8) (9.7)
US Gross domestic product (3.9) (2.9) (3.0) 3.8 5.9 (0.1)
US Unemployment rate 8.4 8.4 10.4 9.4 7.0 8.7
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
2. Critical accounting judgements and estimates (continued)
The table below shows the Group's ECL for the upside, base case,
downside and severe downside scenarios. The stage allocation for an
asset is based on the overall scenario probability-weighted PD and,
hence, the Stage 2 allocation is constant across all the scenarios.
ECL applied through individual assessments and post-model
adjustments is reported flat against each economic scenario,
reflecting the basis on which they are evaluated. Judgements
applied through changes to inputs are reflected in the scenario
sensitivities. It therefore shows the extent to which a higher ECL
allowance has been recognised to take account of multiple economic
scenarios from the probability-weighted view relative to the base
case. The uplift being GBP3 million compared to GBP12 million at 31
December 2020.
Probability- Severe
weighted Upside Base case Downside Downside
Impact of multiple economic scenarios GBPm GBPm GBPm GBPm GBPm
At 30 June 2021 33 28 30 36 44
------------ ------ --------- -------- --------
At 31 December 2020 83 51 71 102 159
------------ ------ --------- -------- --------
Application of judgement in adjustments to modelled ECL
Impairment models fall within the Group's Model Risk framework
as reported in note 3 of the 2020 Annual Report and Accounts.
At 30 June 2021, the coronavirus pandemic and the various
support measures that have been put in place have resulted in an
economic environment which differs significantly from the
historical economic conditions upon which the impairment models
have been built. As a result, there is a greater need for
management judgements to be applied as seen in the elevated levels
present since year end. At 30 June 2021 management judgement
resulted in additional ECL allowances totalling GBP23 million
(2020: GBP50 million). The table below analyses total ECL allowance
at 30 June 2021 between modelled, those that have been individually
assessed and those arising through the application of management
judgement.
Modelled
ECL Individually assessed Judgements due to COVID-19(1) Total ECL
GBPm GBPm GBPm GBPm
At 30 June 2021 8 2 23 33
-------- --------------------- ----------------------------- ---------
At 31 December 2020 32 1 50 83
-------- --------------------- ----------------------------- ---------
(1) Judgements due to the impact that COVID-19 and resulting
interventions have had on the Group's economic outlook and observed
loss experience, which have required additional model limitations
to be addressed.
Post-model adjustments have been raised to reflect uncertainty
in the near term economic outlook and limitations in the models in
dealing with this uncertainty but the impact on staging of assets
has not been reflected.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
2. Critical accounting judgements and estimates (continued)
Adjustment to PD models: GBP13 million
This is principally comprised of an adjustment to PD models
reliant on GDP inputs. The credit models used to estimate US and
Financial Institution defaults use GDP as a Key Input. Given the
volatility seen in quarterly GDP, the resulting anticipated
recovery from the extraordinary low levels is judged to understate
predicted defaults. Management used an alternative approach in
generating PDs and adjusted ECL to reflect equivalent movements
seen in core models not reliant on GDP. In addition, the 30 June
2021 figure also incorporates the use of unemployment trends to
replace the use of corporate insolvency data.
Economic impacts not captured by models: GBP10 million
A further management adjustment to increase ECL by GBP10 million
is incorporated to reflect the additional uncertainty of economic
forecasts. This qualitative overlay is a management judgement to
ensure the overall provision adequately reflects the current
material risks; considering the range of the quarterly provision
release, review of trends and provision coverage.
3. Operating expenses
Half-year Half-year
to 30 to 30
June June
2021 2020
GBPm GBPm
Staff costs:
--------- -----------
Salaries 81 76
Social security costs 7 7
Pensions and other post-retirement benefit schemes 7 6
Restructuring costs 4 5
Other staff costs 3 2
--------- -----------
102 96
Management charges 69 86
Depreciation and amortisation 7 8
Premises and equipment 9 1
Communications and data processing 6 5
Professional fees 2 3
Other operating expenses 9 8
Total operating expenses 204 207
--------- -----------
4. Impairment
Half-year to Half-year to
30 June 30 June
2021 2020
GBPm GBPm
Loans and advances to banks (1) 7
Loans and advances to customers (25) 36
------------ ------------
Impairment charge on drawn balances (26) 43
Loan commitments and financial guarantees (21) 34
------------ ------------
Total impairment (credit) charge (47) 77
------------ ------------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
5. Taxation
In accordance with IAS 34, the Group's income tax expense for
the half-year to 30 June 2021 is based on the best estimate of the
weighted-average annual income tax rate expected for the full
financial year. The tax effects of one-off items are not included
in the weighted-average annual income tax rate, but are recognised
in the relevant period.
An explanation of the relationship between tax (expense)/credit
and accounting profit is set out below:
Half-year Half-year
to 30 to 30
June June
2021 2020
GBPm GBPm
Profit before tax 193 7
--------- ---------
Tax thereon at UK corporation tax rate of 19
per cent (2020: 19 per cent) (37) (1)
Impact of surcharge on banking profits (13) 4
Remeasurement of deferred tax due to rate changes (1) -
Non-deductible costs (3) -
Non-taxable income and other deductions 1 10
Tax relief on coupons on other equity instruments 3 4
Losses on which deferred tax not recognised (3) -
Recognition of temporary differences that arose
in prior periods - 8
Differences in overseas tax rates (7) 2
Tax (charge) credit (60) 27
--------- ---------
The Finance Act 2021, which was substantively enacted on 24 May
2021, increases the rate of corporation tax from 19 per cent to 25
per cent with effect from 1 April 2023. The impact of this rate
change is an increase in the Group's net deferred tax liability as
at 30 June 2021 of GBP3 million, comprising a GBP1 million charge
included in the income statement and a GBP2 million charge included
in equity.
6. Financial assets at fair value through profit or loss
At At
30 June 31 Dec
2021 2020
GBPm GBPm
Trading assets 17,799 20,262
Financial assets mandatorily at fair value through
profit or loss:
-------- -------
Loans and advances to customers 119 353
Debt securities 313 289
Equity shares - 3
Treasury bills and other bills 18 19
-------- -------
450 664
-------- -------
Total financial assets at fair value through
profit or loss 18,249 20,926
-------- -------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
7. Financial assets at amortised cost
Period ended 30 June 2021
Allowance for expected credit
Gross carrying amount losses
------------------------------ -----------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Loans and advance
to banks
At 1 January
2021 5,262 - - 5,262 2 - - 2
Exchange and
other
adjustments (70) - - (70) - - -
-------- ------- ------- -------
Additions (repayments) (1,884) - - (1,884) 1 - - 1
Other changes
in credit quality (2) - - (2)
-------- ------- ------- -------
Credit to the
income statement (1) - - (1)
------- ----- ----- ------- -------- ------- ------- -------
At 30 June 2021 3,308 - - 3,308 1 - - 1
------- ----- ----- ------- -------- ------- ------- -------
Allowance for
impairment losses (1) - - (1)
------- ----- ----- -------
Net carrying
amount 3,307 - - 3,307
------- ----- ----- -------
Loans and advance
to customers
At 1 January
2021 18,082 379 39 18,500 26 20 2 48
Exchange and
other
adjustments (344) (1) - (345) (1) (1) 1 (1)
------- ----- ----- ------- -------- ------- ------- -------
Transfers to
Stage 1 78 (78) - - 1 (1) - -
Transfers to
Stage 2 (17) 17 - - - - - -
Transfers to
Stage 3 - (2) 2 - - - - -
------- ----- ----- -------
Impact of transfers
between stages 61 (63) 2 - - - - -
-------- ------- ------- -------
1 (1) - -
Additions (repayments) 929 (218) (7) 704 (4) (2) - (6)
Other changes
in credit quality (9) (10) - (19)
-------- ------- ------- -------
Credit to the
income statement (12) (13) - (25)
Advances written
off (1) (1) (1) (1)
Recoveries of
advances written
off in previous
years - - - -
Discount unwind - -
------- ----- ----- ------- -------- ------- ------- -------
At 30 June 2021 18,728 97 33 18,858 13 6 2 21
------- ----- ----- ------- -------- ------- ------- -------
Allowance for
impairment losses (13) (6) (2) (21)
------- ----- ----- -------
Net carrying
amount 18,715 91 31 18,837
------- ----- ----- -------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
7. Financial assets at amortised cost (continued)
Allowance for expected credit
Gross carrying amount losses
---------------------------- -----------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Debt securities
At 1 January
2021 257 - - 257 - - - -
Exchange and
other
adjustments (1) - - (1) - - - -
Additions (repayments) (46) - - (46) - - - -
Charge to the
income statement - - - -
------ ----- ----- ------ -------- ------- ------- -------
At 30 June 2021 210 - - 210 - - - -
------ ----- ----- ------ -------- ------- ------- -------
Allowance for
impairment losses - - - -
------ ----- ----- ------
Net carrying
amount 210 - - 210
------ ----- ----- ------
Due from fellow
LBG undertakings 1,110 - - 1,110
------ ----- ----- ------
Net carrying
amount 1,110 - - 1,110
------ ----- ----- ------
Total financial
assets at amortised
cost 23,342 91 31 23,464
------ ----- ----- ------
Movements in allowance for expected credit losses in respect of
undrawn balances were as follows:
Allowance for expected
credit losses
-------------------------------
Stage Stage Stage
1 2 3 Total
GBPm GBPm GBPm GBPm
Undrawn balances
At 1 January 2021 20 13 - 33
Exchange and other adjustments (1) - - (1)
------ ------ ------ -------
Transfers to
Stage 1 9 (9) - -
Transfers to
Stage 2 - - - -
Transfers to
Stage 3 - - - -
Impact of transfers between
stages (6) - - (6)
------ ------ ------
3 (9) - (6)
Other changes in credit
quality (12) (3) - (15)
------ ------ ------
Credit to the income statement (9) (12) - (21)
------ ------ ------ -----
At 30 June 2021 10 1 - 11
------ ------ ------ -----
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
7. Financial assets at amortised cost (continued)
The Group's total impairment allowances were as follows:
Allowance for expected
credit losses
---------------------------------
Stage Stage Stage
1 2 3 Total
GBPm GBPm GBPm GBPm
In respect of:
Loans and advances to banks 1 - - 1
Loans and advances to customers 13 6 2 21
Debt securities - - - -
Due from fellow LBG undertakings - - - -
------- ------- ------
Financial assets at amortised
cost 14 6 2 22
Provisions in relation to loan commitments
and financial guarantees 10 1 - 11
------- ------- ------ -----
At 30 June 2021 24 7 2 33
------- ------- ------ -----
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
7. Financial assets at amortised cost (continued)
Year ended 31 December 2020
Allowance for expected credit
Gross carrying amount losses
------------------------------ -----------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Loans and advance
to banks
At 1 January
2020 4,814 - - 4,814 1 - - 1
Exchange and
other
adjustments 75 - - 75 - - - -
Additions (repayments) 373 - - 373 - - - -
Charge to the
income statement 1 - - 1
------- ----- ----- ------- -------- ------- ------- -------
At 31 December
2020 5,262 - - 5,262 2 - - 2
------- ----- ----- ------- -------- ------- ------- -------
Allowance for
impairment losses (2) - - (2)
------- ----- ----- -------
Net carrying
amount 5,260 - - 5,260
------- ----- ----- -------
Loans and advance
to customers
At 1 January
2020 20,028 29 293 20,350 7 2 77 86
Exchange and
other
adjustments 301 (74) (222) 5 (1) (1) (8) (10)
------- ----- ----- ------- -------- ------- ------- -------
Transfers to
Stage 1 3 (3) - - 2 (2) - -
Transfers to
Stage 2 (339) 339 - - - - - -
Transfers to
Stage 3 (3) (29) 32 - - - - -
------- ----- ----- -------
Impact of transfers
between stages (339) 307 32 - (2) 3 - 1
-------- ------- ------- -------
- 1 - 1
Additions (repayments) (1,908) 117 (3) (1,794) 13 2 1 16
Other changes
in credit quality 7 16 (6) 17
-------- ------- ------- -------
Charge to the
income statement 20 19 (5) 34
Advances written
off (61) (61) (61) (61)
Recoveries of
advances written
off in previous
years - - - -
Discount unwind (1) (1)
------- ----- ----- ------- -------- ------- ------- -------
At 31 December
2020 18,082 379 39 18,500 26 20 2 48
------- ----- ----- ------- -------- ------- ------- -------
Allowance for
impairment losses (26) (20) (2) (48)
------- ----- ----- -------
Net carrying
amount 18,056 359 37 18,452
------- ----- ----- -------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
7. Financial assets at amortised cost (continued)
Allowance for expected credit
Gross carrying amount losses
---------------------------- -----------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Debt securities
At 1 January
2020 112 - - 112 - - - -
Exchange and
other
adjustments (4) - - (4) - - - -
Additions (repayments) 149 - - 149 - - - -
Charge to the
income statement - -
------ ----- ----- ------ -------- ------- ------- -------
At 31 December
2020 257 - - 257 - - - -
------ ----- ----- ------ -------- ------- ------- -------
Allowance for
impairment losses - - - -
------ ----- ----- ------
Net carrying
amount 257 - - 257
------ ----- ----- ------
Due from fellow
LBG undertakings 1,118 - - 1,118
------ ----- ----- ------
Net carrying
amount 1,118 - - 1,118
------ ----- ----- ------
Total financial
assets at amortised
cost 24,691 359 37 25,087
------ ----- ----- ------
During the prior year, a Stage 3 customer was restructured with
GBP57 million of gross advances written off and a GBP57 million
impairment provision utilised. The remaining gross advances balance
of GBP222 million was transferred to a new debt securities
financial asset classified at fair value through profit or loss.
Movements in allowance for expected credit losses in respect of
undrawn balances were as follows:
Allowance for expected
credit losses
---------------------------------
Stage Stage Stage
1 2 3 Total
GBPm GBPm GBPm GBPm
Undrawn balances
At 1 January 2020 4 - - 4
Exchange and other adjustments (6) (1) - (7)
------- ------- ------ -------
Transfers to
Stage 1 - - - -
Transfers to
Stage 2 (1) 1 - -
Transfers to
Stage 3 - - - -
Impact of transfers
between stages - 12 - 12
(1) 13 - 12
Other changes in credit
quality 23 1 - 24
------- ------- ------
Charge to the income statement 22 14 - 36
------- ------- ------ -----
At 31 December
2020 20 13 - 33
------- ------- ------ -----
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
7. Financial assets at amortised cost (continued)
The Group's total impairment allowances were as follows:
Allowance for expected
credit losses
---------------------------------
Stage Stage Stage
1 2 3 Total
GBPm GBPm GBPm GBPm
In respect of:
Loans and advances to banks 2 - - 2
Loans and advances to customers 26 20 2 48
Debt securities - - - -
Due from fellow LBG undertakings - - - -
Financial assets at amortised
cost 28 20 2 50
Provisions in relation to loan commitments
and financial guarantees 20 13 - 33
------- ------- ------ -----
At 31 December
2020 48 33 2 83
------- ------- ------ -----
The movement tables are compiled by comparing the position at
the reporting date to that at the beginning of the year.
Transfers between stages are deemed to have taken place at the
start of the reporting period, with all other movements
shown in the stage in which the asset is held at the period
end.
Additions (repayments) comprise new loans originated and
repayments of outstanding balances throughout the reporting period.
Loans which are written off in the period are first transferred to
Stage 3 before acquiring a full allowance and subsequent
write-off.
8. Debt securities in issue
At At
30 June 31 Dec
2021 2020
GBPm GBPm
Medium-term notes issued 4,729 4,891
Certificates of deposit 3,772 4,405
Commercial paper 2,549 2,610
Amounts due to fellow Lloyds Banking Group undertakings 3,223 3,696
-------- -------
Total debt securities in issue 14,273 15,602
-------- -------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
9. Other reserves
At At At
30 June 31 Dec 30 June
2021 2020 2020
GBPm GBPm GBPm
Other reserves comprise:
Revaluation reserve in respect of debt securities held at fair value through
other comprehensive
income (5) (10) (13)
Cash flow hedging reserve 42 105 114
Foreign currency translation reserve (16) (14) (8)
-------- ------- --------
Total other reserves 21 81 93
-------- ------- --------
At At At
30 June 31 Dec 30 June
2021 2020 2020
GBPm GBPm GBPm
Revaluation reserve in respect of debt securities held at fair value
through other comprehensive
income
At 1 January (10) (9) (9)
-------- ------- --------
Change in fair value 6 (2) (6)
Deferred tax (1) 1 2
-------- ------- --------
5 (1) (4)
-------- ------- --------
At period end (5) (10) (13)
-------- ------- --------
At At At
30 June 31 Dec 30 June
2021 2020 2020
GBPm GBPm GBPm
Cash flow hedging reserve
At 1 January 105 56 56
-------- ------- --------
Change in fair value of hedging derivatives (62) 93 84
Deferred tax 14 (27) (23)
-------- ------- --------
(48) 66 61
-------- ------- --------
Income statement transfers (22) (23) (4)
Deferred tax 7 6 1
-------- ------- --------
(15) (17) (3)
-------- ------- --------
Net movement in cash flow hedging reserve (63) 49 58
-------- ------- --------
At period end 42 105 114
-------- ------- --------
At At At
30 June 31 Dec 30 June
2021 2020 2020
GBPm GBPm GBPm
Foreign currency translation reserve
At 1 January (14) (15) (15)
Currency translation differences arising in the period (tax: nil) (2) 1 7
-------- ------- --------
At period end (16) (14) (8)
-------- ------- --------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
10. Related party transactions
Balances and transactions with fellow Lloyds Banking Group
undertakings
The Bank and its subsidiaries have balances due to and from the
Bank's parent company, Lloyds Banking Group plc, and fellow LBG
undertakings. These are included on the balance sheet as
follows:
At At
30 June 31 Dec
2021 2020
GBPm GBPm
Assets, included within:
Financial assets at amortised cost: due from fellow Lloyds Banking Group
undertakings 1,110 1,118
Derivative financial instruments 2,401 2,911
Financial assets at fair value through profit or loss 35 27
-------- -------
3,546 4,056
-------- -------
Liabilities, included within:
Due to fellow Lloyds Banking Group undertakings 3,048 3,283
Derivative financial instruments 3,002 3,788
Debt securities in issue 3,223 3,696
Subordinated liabilities 673 686
----- ------
9,946 11,453
----- ------
Other equity instruments
----- ------
Additional tier 1 instruments 782 782
----- ------
During the half-year to 30 June 2021, the Group earned GBP1
million (half-year to 30 June 2020: GBP7 million) of interest
income and incurred GBP54 million (half-year to 30 June 2020: GBP80
million) of interest expense on balances and transactions with
Lloyds Banking Group plc and fellow Group undertakings.
Other related party transactions
Other related party transactions for the half-year to 30 June
2021 are primarily shared service costs and management fees similar
in nature to those for the year ended 31 December 2020.
Management charges payable to Lloyds Bank plc of GBP69 million
(half-year to 30 June 2020: GBP86 million) have been incurred in
the period see note 3 for further detail.
During the period, the Group sold a portfolio of facilities
(GBP55 million of assets and GBP489 million of commitments) to
Lloyds Bank plc, on which an GBP8 million operating loss arose.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
11. Contingent liabilities, commitments and guarantees
Legal actions and regulatory matters
During the ordinary course of business the Group is subject to
complaints and threatened or actual legal proceedings (including
class or group action claims) brought by or on behalf of current or
former employees, customers, investors or other third parties, as
well as legal and regulatory reviews, challenges, investigations
and enforcement actions, both in the UK and overseas. Where
material, 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 it is 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 example because the facts are unclear or because further
time is needed to properly assess the merits of the case, and no
provisions are held in relation to such matters. In these
circumstances, specific disclosure in relation to a contingent
liability will be made where material. However the Group does not
currently expect the final outcome of any such case to have a
material adverse effect on its financial position, operations or
cash flows.
Contingent liabilities, commitments and guarantees arising from
the banking business
At At
30 June 31 Dec
2021 2020
GBPm GBPm
Contingent liabilities
Acceptances and endorsements 98 57
Other:
-------- -------
Other items serving as direct credit substitutes 58 96
Performance bonds and other transaction-related
contingencies 22 34
-------- -------
80 130
-------- -------
Total contingent liabilities 178 187
-------- -------
Commitments and guarantees
Forward asset purchases and forward deposits
placed - 3
Undrawn formal standby facilities, credit lines
and other commitments to lend:
Less than 1 year original maturity:
------ ------
Mortgage offers made 40 52
Other commitments and guarantees 8,145 7,466
------ ------
8,185 7,518
1 year or over original maturity 5,222 7,014
------ ------
Total commitments and guarantees 13,407 14,535
------ ------
Of the amounts shown above in respect of undrawn formal standby
facilities, credit lines and other commitments to lend, GBP13,347
million (31 December 2020: GBP14,416 million) was irrevocable.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
12. Fair values of financial assets and liabilities
The valuations of financial instruments have been classified
into three levels according to the quality and reliability of
information used to determine those fair values. Note 31 to the
Group's 2020 financial statements describes the definitions of the
three levels in the fair value hierarchy.
Valuation control framework
Key elements of the valuation control framework, which covers
processes for all levels in the fair value hierarchy including
level 3 portfolios, include model validation (incorporating
pre-trade and post-trade testing), product implementation review
and independent price verification. Formal committees meet
quarterly to discuss and approve valuations in more judgemental
areas.
Transfers into and out of level 3 portfolios
Transfers out of level 3 portfolios arise when inputs that could
have a significant impact on the instrument's valuation become
market observable; conversely, transfers into the portfolios arise
when sources of data cease to be observable.
Valuation methodology
For level 2 and level 3 portfolios, there is no significant
change to the valuation methodology (techniques and inputs)
disclosed in the Group's 2020 Annual Report and Accounts applied to
these portfolios.
The table below summarises the carrying values of financial
assets and liabilities presented on the Group's balance sheet. The
fair values presented in the table are at a specific date and may
be significantly different from the amounts which will actually be
paid or received on the maturity or settlement date.
30 June 2021 31 December 2020
---------------- ------------------
Carrying Fair Carrying Fair
value value value value
GBPm GBPm GBPm GBPm
Financial assets
Loans and advances to banks 3,307 3,308 5,260 5,260
Loans and advances to customers 18,837 18,852 18,452 18,524
Debt securities 210 210 257 257
Due from fellow Lloyds Banking
Group undertakings 1,110 1,110 1,118 1,118
-------- ------ ---------- ------
Financial assets at amortised
cost 23,464 23,480 25,087 25,159
Financial liabilities
Deposits from banks 4,144 4,144 5,601 5,603
Customer deposits 24,881 24,967 25,497 25,596
Due to fellow Lloyds Banking
Group undertakings 3,048 3,048 3,283 3,283
Debt securities in issue 14,273 14,406 15,602 15,849
Subordinated liabilities 673 673 686 686
Financial instruments classified as financial assets at fair
value through profit or loss, derivative financial instruments,
financial assets at fair value through other comprehensive income
and financial liabilities at fair value through profit or loss are
recognised at fair value.
The carrying amount of the following financial instruments is a
reasonable approximation of fair value: cash and balances at
central banks, items in the course of collection from banks and
items in course of transmission to banks.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
12. Fair values of financial assets and liabilities (continued)
The Group manages valuation adjustments for its derivative
exposures on a net basis; the Group determines their fair values on
the basis of their net exposures. In all other cases, fair values
of financial assets and liabilities measured at fair value are
determined on the basis of their gross exposures.
The following tables provide an analysis of the financial assets
and liabilities of the Group that are carried at fair value in the
Group's consolidated balance sheet, grouped into levels 1 to 3
based on the degree to which the fair value is observable. There
were no significant transfers between level 1 and level 2 during
the period (June 2020: nil).
Financial assets
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
At 30 June 2021
Financial assets at fair value
through profit or loss:
Loans and advances to customers - 12,285 2 12,287
Loans and advances to banks - 162 - 162
Debt securities 5,101 487 194 5,782
Treasury and other bills 18 - - 18
------- ------- ------- ------
Total financial assets at
fair value through profit
or loss 5,119 12,934 196 18,249
------- ------- ------- ------
Financial assets at fair value
through other comprehensive
income:
Debt securities - - 109 109
Treasury and other bills 25 - - 25
Total financial assets at
fair value through other comprehensive
income 25 - 109 134
------- ------- ------- ------
Derivative financial instruments 6 16,321 961 17,288
------- ------- ------- ------
Total financial assets carried
at fair value 5,150 29,255 1,266 35,671
------- ------- ------- ------
At 31 December 2020
Financial assets at fair value
through profit or loss:
Loans and advances to customers - 12,775 344 13,119
Loans and advances to banks - 229 - 229
Debt securities 6,983 350 223 7,556
Equity shares - - 3 3
Treasury and other bills 19 - - 19
Total financial assets at
fair value through profit
or loss 7,002 13,354 570 20,926
------- ------- ------- ------
Financial assets at fair value
through other comprehensive
income:
Debt securities - - 113 113
Treasury and other bills 36 - - 36
Total financial assets at
fair value through other comprehensive
income 36 - 113 149
------- ------- ------- ------
Derivative financial instruments 1 20,808 948 21,757
------- ------- ------- ------
Total financial assets carried
at fair value 7,039 34,162 1,631 42,832
------- ------- ------- ------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
12. Fair values of financial assets and liabilities (continued)
Financial liabilities
Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
At 30 June 2021
Financial liabilities at fair
value through profit or loss:
Trading liabilities 1,072 13,124 - 14,196
------- ------- ------- ------
Total financial liabilities
at fair value through profit
or loss 1,072 13,124 - 14,196
------- ------- ------- ------
Derivative financial instruments 2 13,307 1,280 14,589
------- ------- ------- ------
Total financial liabilities
carried at fair value 1,074 26,431 1,280 28,785
------- ------- ------- ------
At 31 December 2020
Financial liabilities at fair
value through profit or loss:
Trading liabilities 777 15,038 - 15,815
------- ------- ------- ------
Total financial liabilities
at fair value through profit
or loss 777 15,038 - 15,815
------- ------- ------- ------
Derivative financial instruments 9 19,973 1,251 21,233
------- ------- ------- ------
Total financial liabilities
carried at fair value 786 35,011 1,251 37,048
------- ------- ------- ------
Movements in level 3 portfolio
The tables below analyse movements in the level 3 financial
assets portfolio.
Financial
Financial assets at Total
assets at fair financial
fair value through assets
value through other carried
profit or comprehensive Derivative at
loss income assets fair value
GBPm GBPm GBPm GBPm
At 1 January 2021 570 113 948 1,631
Exchange and other adjustments - (4) 3 (1)
Gains (losses) recognised
in the income statement within
other income (30) - (175) (205)
Gains (losses) recognised
in other comprehensive income
within the revaluation reserve
in respect of financial assets
at fair value through other
comprehensive income - 6 - 6
Purchases - - 249 249
Sales (226) (6) (64) (296)
Transfers into the level 3
portfolio 1 - - 1
Transfers out of the level
3 portfolio (119) - - (119)
-------------- -------------- ---------- -----------
At 30 June 2021 196 109 961 1,266
-------------- -------------- ---------- -----------
Gains (losses) recognised
in the income statement within
other income relating to those
assets held at 30 June 2021 (30) 1 (168) (197)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
12. Fair values of financial assets and liabilities (continued)
Financial
Financial assets at Total
assets at fair financial
fair value through assets
value through other carried
profit or comprehensive Derivative at
loss income assets fair value
GBPm GBPm GBPm GBPm
At 1 January
2020 326 121 785 1,232
Exchange and
other
adjustments - 6 19 25
Gains (losses)
recognised
in the income
statement
within
other income (1) - 127 126
Gains (losses)
recognised
in other
comprehensive
income
within the
revaluation
reserve
in respect of
financial
assets
at fair value
through other
comprehensive
income - (5) - (5)
Purchases - - 2 2
Sales (112) (6) (81) (199)
Transfers into
the level 3
portfolio - - 88 88
Transfers out of
the level
3 portfolio - - (84) (84)
-------------- --------------------------- -------------------- -------------------------
At 30 June 2020 213 116 856 1,185
-------------- --------------------------- -------------------- -------------------------
Gains (losses)
recognised
in the income
statement
within
other income
relating to
those
assets held at
30 June 2020 - 3 132 135
The tables below analyse movements in the level 3 financial
liabilities portfolio.
Financial Total
liabilities at financial
fair value liabilities
through Derivative carried at
profit or loss liabilities fair value
GBPm GBPm GBPm
At 1 January 2021 - 1,251 1,251
Exchange and other adjustments - 3 3
(Gains) losses recognised in the income statement within
other income - (196) (196)
Additions - 265 265
Disposals - (43) (43)
Transfers into the level 3 portfolio - - -
Transfers out of the level 3 portfolio - - -
-------------------------- ----------- -----------
At 30 June 2021 - 1,280 1,280
--------------------------- ----------- -----------
(Gains) losses recognised in the income statement within
other income relating to those liabilities
held at 30 June 2021 - (201) (201)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
12. Fair values of financial assets and liabilities (continued)
Financial Total
liabilities at financial
fair value liabilities
through Derivative carried at
profit or loss liabilities fair value
GBPm GBPm GBPm
At 1 January 2020 - 1,070 1,070
Exchange and other adjustments - 20 20
(Gains) losses recognised in the income statement within
other income - 187 187
Additions - 2 2
Transfers into the level 3 portfolio - 65 65
Transfers out of the level 3 portfolio - (158) (158)
--------------------------- ----------- -----------
At 30 June 2020 - 1,186 1,186
--------------------------- ----------- -----------
(Gains) losses recognised in the income statement within
other income relating to those liabilities
held at 30 June 2020 - 195 195
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
12. Fair values of financial assets and liabilities (continued)
The tables below set out the effects of reasonably possible
alternative assumptions for categories of level 3 financial assets
and financial liabilities.
At 30 June 2021
---------------------------------------
Effect of reasonably
possible alternative
assumptions(2)
-----------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
technique(s) inputs(1) value changes changes
GBPm GBPm GBPm
Financial assets at fair value through
profit or loss:
Credit spreads
(discount
factor) and
Discounted inflation
Debt securities cash flow volatility 194 10 (10)
---------------- --------------- ------------------
Loans and
advances to Comparable
customers pricing Spread 2 - -
--------------- ------------
196 10 (10)
-------- --------------- ------------
Financial assets at fair value through
other comprehensive income:
Asset-backed Comparable
securities pricing Price 109 2 (2)
---------------- --------------- ------------------ --------------- ------------
109 2 (2)
-------- --------------- ------------
Derivative financial
assets:
Interest rate Option pricing Inflation
derivatives model volatility 514 2 (4)
---------------- --------------- ------------------
Option pricing Interest rate
model volatility 447 2 (2)
--------------- ------------------ -------- --------------- ------------
961 4 (6)
-------- --------------- ------------
Level 3 financial assets carried
at fair value 1,266 16 (18)
-------- --------------- ------------
Financial liabilities at fair value through
profit or loss
Derivative financial liabilities:
Illiquid long
Interest rate Option pricing dated repo
derivatives model rate (1) - -
---------------- --------------- ------------------
Option pricing Inflation
model volatility (511) 3 (1)
--------------- ------------------
Option pricing Interest rate
model volatility (768) 12 (13)
--------------- ------------------ -------- --------------- ------------
(1,280) 15 (14)
-------- --------------- ------------
Level 3 financial liabilities carried
at fair value (1,280) 15 (14)
-------------------------------------------------- -------- --------------- ------------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
12. Fair values of financial assets and liabilities (continued)
At 31 December 2020
---------------------------------------
Effect of reasonably
possible alternative
assumptions(2)
-----------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
technique(s) inputs(1) value changes changes
GBPm GBPm GBPm
Financial assets at fair value through
profit or loss:
Credit spreads
(discount
factor) and
Discounted inflation
Debt securities cash flow volatility 223 - (7)
------------------- --------------- ------------------
Loans and
advances to Comparable
customers pricing Spread 344 4 (4)
------------------- --------------- ------------------
Credit spreads
(discount
factor) and
Discounted inflation
Equity investments cash flow volatility 3 10 (3)
------------------- --------------- ------------------ --------------- ------------
570 14 (14)
-------- --------------- ------------
Financial assets at fair value through
other comprehensive income:
Asset-backed Comparable
securities pricing Price 96 2 (2)
------------------- --------------- ------------------
Asset-backed Comparable
securities pricing Spread 17 1 (1)
--------------- ------------
113 3 (3)
-------- --------------- ------------
Derivative financial
assets:
Interest rate Option pricing Inflation
derivatives model volatility 436 5 (3)
------------------- --------------- ------------------
Option pricing Interest rate
model volatility 512 2 (1)
--------------- ------------------ -------- --------------- ------------
948 7 (4)
-------- --------------- ------------
Level 3 financial assets carried
at fair value 1,631 24 (21)
-------- --------------- ------------
Financial liabilities at fair value through
profit or loss
Derivative financial liabilities:
Illiquid long
Interest rate Option pricing dated repo
derivatives model rate (2) - -
------------------- --------------- ------------------
Interest rate Option pricing Inflation
derivatives model volatility (324) 2 (3)
------------------- --------------- ------------------
Interest rate Option pricing Interest rate
derivatives model volatility (925) 1 (2)
------------------- --------------- ------------------ -------- --------------- ------------
(1,251) 3 (5)
-------- --------------- ------------
Level 3 financial liabilities carried
at fair value (1,251) 3 (5)
----------------------------------------------------- -------- --------------- ------------
(1) Ranges are shown where appropriate and represent the highest and
lowest inputs used in the level 3 valuations.
(2) Where the exposure to an unobservable input is managed on a net
basis, only the net impact is shown in the table.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
12. Fair values of financial assets and liabilities (continued)
Unobservable inputs
Significant unobservable inputs affecting the valuation of loans
and advances, debt securities, unlisted equity investments and
derivatives are unchanged from those described in the Group's 2020
financial statements.
Reasonably possible alternative assumptions
Valuation techniques applied to many of the Group's level 3
instruments often involve the use of two or more inputs whose
relationship is interdependent. The calculation of the effect of
reasonably possible alternative assumptions included in the table
above reflects such relationships and are unchanged from those
described in the Group's 2020 financial statements.
Fair value write downs on derivatives
In the prior period, the Group has reflected a fair value write
down of GBP97 million on derivative positions through net trading
income, driven by a single counterparty that has only derivative
exposure with the Group and has entered administration in the wake
of the COVID-19 pandemic.
13. Dividends on ordinary shares
The Bank paid a dividend of GBP200 million on 30 April 2021
(2020: GBP700 million).
14. Ultimate parent undertaking
The Bank's ultimate parent undertaking and controlling party is
Lloyds Banking Group plc which is incorporated in Scotland. Lloyds
Banking Group plc has published consolidated accounts for the year
to 31 December 2020 and half-year results for the six month period
to 30 June 2021, and copies may be obtained from Investor
Relations, Lloyds Banking Group, 25 Gresham Street, London EC2V 7HN
and are available for download from www.lloydsbankinggroup.com.
15. Events since the balance sheet date
There are no events since the balance sheet date to
disclose.
16. Other information
The financial information contained in this document does not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006. The statutory accounts for the year ended
31 December 2020 were approved by the directors on 11 March 2021
and were delivered to the Registrar of Companies on 12 April 2021.
The auditors' report on those accounts was unqualified and did not
include a statement under sections 498(2) (accounting records or
returns inadequate or accounts not agreeing with records and
returns) or 498(3) (failure to obtain necessary information and
explanations) of the Act.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors listed below (being all the directors of Lloyds
Bank Corporate Markets plc) confirm that to the best of their
knowledge these condensed consolidated half-year financial
statements have been prepared in accordance with UK adopted
International Accounting Standard 34, Interim Financial Reporting,
and that the half-year management report herein includes a fair
review of the information required by DTR 4.2.7R and DTR 4.2.8R,
namely:
-- an indication of important events that have occurred during
the six months ended 30 June 2021 and their impact on the condensed
consolidated half-year financial statements, and a description of
the principal risks and uncertainties for the remaining six months
of the financial year; and
-- material related party transactions in the six months ended
30 June 2021 and any material changes in the related party
transactions described in the last annual report.
Signed on behalf of the board by
Eduardo J Stock da Cunha
Chief Executive Officer
13 September 2021
Lloyds Bank Corporate Markets plc board of directors:
John J Cummins (Non-executive director)
Eduardo J Stock da Cunha (Chief Executive Officer)
Julienne C Daglish (Executive director and Chief Financial
Officer)
Eve A Henrikson (Non-executive director)
Emma Lawrence (Non-executive director)
Lord Lupton CBE (Non-executive director and Chair)
Andrew J McIntyre (Non-executive director)
John S W Owen (Non-executive director)
Carla A S Antunes da Silva (Non-executive director)
Changes to the composition of the Board since 1 January 2021 up
to the date of this report are shown below:
-- Christopher J K Edis (resigned 5 April 2021)
-- Julienne C Daglish (appointed 22 April 2021)
-- Letitia M Smith (resigned 4 June 2021)
-- Emma Lawrence (appointed 7 June 2021)
INDEPENT REVIEW REPORT TO LLOYDS BANK CORPORATE MARKETS PLC
We have been engaged by the Bank to review the condensed set of
financial statements in the half-yearly financial report for the
six months ended 30 June 2021 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in equity, the consolidated cash flow statement and
related notes 1 to 16. We have read the other information contained
in the half-yearly financial report and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the condensed set of financial
statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group will be prepared in accordance with International Financial
Reporting Standards as adopted by the United Kingdom. Accordingly,
the condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
UK adopted International Accounting Standard 34, "Interim Financial
Reporting".
Our responsibility
Our responsibility is to express to the Bank a conclusion on the
condensed set of financial statements in the half-yearly financial
report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2021 is not prepared, in all material respects, in accordance
with UK adopted International Accounting Standard 34 and the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
INDEPENT REVIEW REPORT TO LLOYDS BANK CORPORATE MARKETS PLC
Use of our report
This report is made solely to the Bank in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Financial
Reporting Council. Our work has been undertaken so that we might
state to the Bank those matters we are required to state to it in
an independent review report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Bank, for our review work,
for this report, or for the conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, England
13 September 2021
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 Corporate Markets plc together with its
subsidiaries (the Group) and its current goals and expectations
relating to its future financial condition and performance.
Statements that are not historical or current facts, including
statements about the Group's or its directors' and/or management's
beliefs and expectations, are forward looking statements.
Words such as 'believes', 'achieves', 'anticipates',
'estimates', 'expects', 'targets', 'should', 'intends', 'aims',
'projects', 'plans', 'potential', 'will', 'would', 'could',
'considered', 'likely', 'may', 'seek', 'estimate', 'probability',
'goal', 'objective', 'endeavour', 'prospects', 'optimistic' 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, statements or guidance relating to: projections or
expectations of the Group's future financial position including
profit attributable to shareholders, provisions, economic profit,
dividends, capital structure, portfolios, net interest margin,
capital ratios, liquidity, risk-weighted assets (RWAs),
expenditures or any other financial items or ratios; litigation,
regulatory and governmental investigations; the Group's future
financial performance; the level and extent of future impairments
and write-downs; ESG targets and/or commitments; statements of
plans, objectives or goals of the 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 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 credit ratings of relevant
member(s) of the Group or Lloyds Banking Group plc; the ability to
derive cost savings and other benefits including, but without
limitation as a result of any acquisitions, disposals and other
strategic transactions; potential changes in dividend policy; the
ability to achieve strategic objectives; changing customer
behaviour including consumer spending, saving and borrowing habits;
changes to borrower or counterparty credit quality impacting the
recoverability and value of balance sheet assets; concentration of
financial exposure; management and monitoring of conduct risk;
exposure to counterparty risk (including but not limited to third
parties conducting illegal activities without the Group's
knowledge); 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 the
EU-UK Trade and Cooperation Agreement, instability as a result of
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 and any further possible
referendum on Scottish independence; technological changes and
risks to the security of IT and operational infrastructure,
systems, data and information resulting from increased threat of
cyber and other attacks; natural, pandemic (including but not
limited to the COVID-19 pandemic) and other disasters, adverse
weather and similar contingencies outside the control of the Group
or Lloyds Banking Group plc; inadequate or failed internal or
external processes or systems; acts of war, other acts of
hostility, terrorist acts and responses to those acts, or other
such events; geopolitical unpredictability; risks relating to
sustainability and climate change, including the Group and/or
Lloyds Banking Group plc's ability along with the government and
other stakeholders to manage and mitigate the impacts of climate
change effectively; changes in laws, regulations, practices and
accounting standards or taxation, including as a result of the UK's
exit from the EU; changes to regulatory capital or liquidity
requirements (including regulatory measures to restrict
distributions to address potential capital and liquidity stress)
and similar contingencies outside the control of the
FORWARD LOOKING STATEMENTS (continued)
Group or Lloyds Banking Group plc; 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 laws, legislation and regulation together
with any resulting impact on the future structure of the Group; the
ability to attract and retain senior management and other employees
and meet its diversity objectives; actions or omissions by the
Group's directors, management or employees including industrial
action; changes in the Group and/or Lloyds Banking Group plc's
ability to develop sustainable finance products and the Group
and/or Lloyds Banking Group plc's capacity to measure the ESG
impact from its financing activity, which may affect the Group
and/or Lloyds Banking Group plc's ability to achieve its climate
ambition; changes to the Lloyds Banking Group plc'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 Base Prospectus for the Group's Euro Medium Term Note
Programme and the latest Annual Report on Form 20-F filed by Lloyds
Banking Group plc with the US Securities and Exchange Commission
(the SEC), which is available on the SEC's website at www.sec.gov,
for a discussion of certain factors and risks.
Lloyds Banking Group plc may also make or disclose written
and/or oral forward looking statements in reports filed with or
furnished to the SEC, Lloyds Banking Group plc 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 plc to third parties, including financial
analysts.
Except as required by any applicable law or regulation, the
forward looking statements contained in this document are made as
of today's date, and the Group expressly disclaims any obligation
or undertaking to release publicly any updates or revisions to any
forward looking statements contained in this document to reflect
any change in the 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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
IR FZGMLFDLGMZM
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