Coronavirus Update

Lloyds Banking Group - Q3 Interim Management Statement

This content has been sourced from:

Lloyds Banking Group plc

Q3 2020 Interim Management Statement

29 October 2020


The impact of the coronavirus pandemic on the global economy and on people and businesses within the UK has been unprecedented. We remain focused on working together with the Government and our regulators to ensure that we continue to support our customers in this challenging time.

Although our performance has clearly been impacted by the pandemic and the associated challenging economic environment, I am pleased that we are now seeing an encouraging business recovery and, with impairments significantly lower, a return to profitability in the third quarter. In particular, we increased open mortgage book lending by £3.5 billion in the quarter, with a 22 per cent share of approvals building a strong pipeline for the fourth quarter, and have supported businesses with an 18 per cent share of Government support scheme lending. Given the financial performance we were able to further strengthen our capital position to 15.2 per cent and enhance our guidance for impairment and risk-weighted assets.

The pandemic has accelerated many trends around ways of working and digital adoption and our long-run investment in digital propositions has positioned the Group well to continue to support our customers. As a result the number of digital users continued to increase, the proportion of products sold digitally is rising and customer satisfaction is at record levels. Our digital proposition and focus on technological change will remain a priority as we accelerate our transformation.

Societal expectations of companies, particularly regarding sustainability, continue to increase and we are taking action to build an inclusive and more sustainable future. We have announced a Race Action plan to drive cultural change, including a clear target to increase Black representation in senior roles. To support the transition to a more environmentally sustainable future, we have also announced an ambitious goal to help reduce the carbon emissions we ?nance by over 50 per cent by 2030.

Lloyds Banking Group plays a vital role in the UK economy and I remain very proud of the support that we have provided over the course of 2020. Once again I would like to express my gratitude to all of my colleagues whose dedication and hard work ensures that we continue to deliver vital services to our customers and communities, while supporting those most in need throughout the pandemic.

Although the outlook remains uncertain, our customer-focused strategy and the strength of the Group's business model will allow us to continue to help Britain recover and play our part in helping to return the UK to prosperity. This is fully aligned with the Group's long-term strategic objectives, the position of the franchise and the interests of our shareholders.

António Horta-Osório,

Group Chief Executive


Business transformation and franchise strength position the Group well

• Multi-channel  distribution  model,  including  the  UK's  largest  branch  network  and  UK's  leading  digital  bank  with 17.1 million digitally active users and 12.1 million active mobile app users, up 700,000 and 1.4 million respectively over the last nine months

• Digital activity and engagement continues to increase, with an average of 25 logons per customer, per month. 85 per cent of products are now originated digitally, with an 18 per cent increase over the last nine months, and record levels of customer satisfaction with the digital net promoter score at 69, up 8 per cent in the nine months

• Actively supporting customers through a range of flexible propositions, including around 1.2 million payment holidays and c.£11 billion of lending through Government schemes, with an 18 per cent market share of support scheme lending, including a 21 per cent share of Bounce Back Loans

• Continued commitment to cost efficiency, creating capacity to invest in the business and enabling a rapid response to the challenges presented by the coronavirus pandemic

• Accelerating our transformation as we respond to the crisis by further enhancing and adapting our strategy, customer propositions and working practices


Resilient business model with return to profitability in the third quarter

• Net income of £10.8 billion, down 17 per cent, with £3.4 billion in the third quarter, reflecting lower interest rates and lower other income. Lower net interest margin of 2.54 per cent, reflecting lower rates, actions taken to support customers and changes in asset mix. Net interest margin of 2.42 per cent in the third quarter, up 2 basis points and average interest-earning assets slightly higher in the quarter, both supported by strong volume growth

• Other income decreased by 23 per cent to £3.4 billion, with £1.0 billion in the third quarter, reflecting lower levels of customer activity across the Group's main business lines and the impact of the Asset Management Market Review

• Total costs of £5.8 billion, 4 per cent lower, with business as usual costs down 5 per cent, enabling continued investment in digital projects and enhanced support for customers during the pandemic. Total costs of £1.9 billion in the third quarter lower than prior year

• Trading surplus of £5.0 billion, including £1.5 billion in the quarter, providing significant capacity to absorb impairment impacts of the coronavirus crisis

• Impairment experience benign in third quarter with a charge of £0.3 billion, in line with pre-crisis levels and reflecting no significant change in economic outlook; £4.1 billion charge in the nine months primarily reflecting deterioration in economic outlook recognised in the first half of 2020

• Return to profitability in the third quarter with statutory profit before tax of £1.0 billion and profit after tax of £0.7 billion; return on tangible equity of 7.4 per cent in the quarter

Strong balance sheet and capital position, well positioned to absorb future coronavirus impacts

• Activity levels picked up in the third quarter of 2020 after contraction in the first six months, particularly mortgage applications and consumer spending

• Loans and advances at £439 billion were flat on year end with increased SME lending driven by Government support schemes, offset by expected reductions in the closed mortgage book and lower credit card, motor finance and other Commercial Banking balances

• Open mortgage book up £3.5 billion since June 2020; 22 per cent market share of approvals with a strong pipeline

• Retail current accounts continued to increase ahead of the market in the third quarter, with Group deposits up £35 billion, or 9 per cent, over the first nine months of 2020 as a result of inflows to the Group's trusted brands

• Loan to deposit ratio of 98 per cent, providing a strong liquidity position and significant potential to lend into recovery

• CET1 ratio of 15.2 per cent, 14.0 per cent pre IFRS 9 transitional relief, gives significant headroom above ongoing target of around 12.5 per cent plus a management buffer of around 1 per cent and regulatory requirements of c.11 per cent


• The outlook remains highly uncertain given the second wave of coronavirus, Government response including social distancing measures and the end of the furlough scheme, together with the ongoing Brexit negotiations

• Mortgage activity picking up strongly and increase in Retail current accounts ahead of the market; mortgage business strength offsetting yield curve pressure

• Solid pre-provision profit and enhanced capital strength provide significant loss absorbing capacity, building on our cost leadership position

• The Group's 2020 guidance reflects a proactive response to the challenging economic environment and is based on the Group's current macroeconomic assumptions

-  Net interest margin expected to remain broadly stable around c.240 basis points in the fourth quarter, resulting in a full year margin of c.250 basis points

-  Operating costs to be below £7.6 billion

-  Impairment charge for the full year now expected to be at the lower end of the £4.5 billion to £5.5 billion range

-  Risk-weighted assets now expected to be broadly stable compared to 30 September 2020

• Although the economic outlook remains uncertain, the Group remains well positioned for long-term superior and sustainable returns, supported by its leading efficiency position and prudent balance sheet. This together with the Group's capital position and business model enables it to continue to support its customers and help Britain recover