RESULTS FOR THE HALF-YEAR
The Group has continued to make strong strategic progress during the first half of 2019 and delivered a good financial performance with market leading efficiency and returns. The economy has remained resilient although economic uncertainty has led to some softening in business confidence as well as in international economic indicators. In this environment our strategy continues to be the right one and we are well placed to support our customers and continue to help Britain prosper.
António Horta-Osório, Group Chief Executive
Strong strategic progress and the right strategy in the current environment
· The economy has remained resilient however, as indicated at the first quarter results, the continuing uncertainty is having an impact and leading to some softening in business confidence as well as in international economic indicators
· The Group has taken a prudent approach to growth and risk in recent years, whilst reducing costs and increasing the investment in the business for the benefit of our customers
· Since the launch of GSR3 in 2018, the Group has invested £1.5 billion in improving customer experience, increasing efficiency and delivering superior returns. This investment means the Group is well placed to continue to support its customers, help Britain prosper and deliver sustainable returns for shareholders
Good financial performance with market leading efficiency and returns
· Statutory profit after tax of £2.2 billion with strong return on tangible equity of 11.5 per cent; earnings per share of 2.7 pence
· Robust underlying profit of £4.2 billion with slightly lower net income and expected higher impairment offset by lower total costs
· Net income of £8.8 billion with a resilient net interest margin of 2.90 per cent, slightly lower average interest earning banking assets and other income, with other income benefiting from strong performance in Insurance and Wealth
· Total costs of £4.0 billion down 5 per cent with operating costs down 3 per cent and remediation down 44 per cent. Market leading cost:income ratio further improved to 45.9 per cent and positive jaws of 3 per cent
· Credit quality remains strong with a net asset quality ratio of 26 basis points
· Additional PPI charge of £550 million in the second quarter driven by significant increase in information request volumes in the second quarter, ahead of the August deadline
· Tangible net assets per share of 53.0 pence
· Interim ordinary dividend of 1.12 pence per share, up 5 per cent, in line with our progressive and sustainable policy
Balance sheet strength maintained with lower capital requirement
· Balance sheet remains strong with targeted lending and deposit growth in the quarter including the open mortgage book, SME, UK Motor Finance and current accounts
· CET1 capital build of 70 basis points after the impact of PPI (33 basis points) and IFRS 16 (11 basis points); pro forma CET1 ratio of 14.6 per cent, pre dividend
· As previously reported, given the lower Systemic Risk Buffer and Pillar 2A requirement, the Board's view of the level of capital required by the Group to grow the business, meet regulatory requirements and cover uncertainties has reduced from around 13 per cent to around 12.5 per cent, plus a management buffer of around 1 per cent
Outlook
· The Group's strategy remains the right one in the current environment and the Group continues to expect to deliver sustainable, superior performance for its customers and shareholders
· The resilience of the Group's business model is reflected in its 2019 guidance:
− Net interest margin of c.2.90 per cent
− Operating costs to be less than £8 billion and cost:income ratio expected to fall
− Net asset quality ratio of less than 30 basis points
− Given below the line charges, including PPI, in 2019 the Group now expects capital build to be at the lower end of the Group's ongoing 170 to 200 basis points range, and for return on tangible equity to be around 12 per cent
· Beyond 2019, longer term targets remain unchanged although continued economic uncertainty could impact outlook