Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — H1 2020 Earnings Presentation
42 slides from Lloyds Banking's earnings presentation, Jul 30, 2020
Slide 1: 2020 Half Year Results
2020 HALF YEAR RESULTS Presentation to analysts and investors | 30 July 2020
Slide 2: Introduction
Classification: Public Introduction António Horta-Osório Group Chief Executive 1
Slide 3: Quick response to the crisis with transformation positioning us well
Classification: Public Quick response to the crisis with transformation positioning us well • >£9bn lending provided to businesses through active participation in Significant Government-backed schemes, broadly in line with natural market shares1 support to • >1.1m customers supported through payment
Slide 4: Continued strategic progress, with benefits of GSR3 investment evidenced
Classification: Public Continued strategic progress, with benefits of GSR3 investment evidenced Progress through GSR3 evidenced Delivering during the crisis Digital active users (m) Digital NPS • Increased digital engagement during lockdown; active Leading +4% 17.0 +8% 69 users up 4%; digital only u
Slide 5: Crisis has highlighted new emerging trends, we are accelerating our response
Classification: Public Crisis has highlighted new emerging trends, we are accelerating our response Emerging trends Strong foundations support our response More challenging Financial Low risk Capital Efficiency economic strength balance sheet strength focused environment Further Unique UK’s leading
Slide 6: Performance impacted by lower rates, activity and economic outlook deterioration
Classification: Public Performance impacted by lower rates, activity and economic outlook deterioration £7.4bn Net income (16)% £3.9bn Total costs • Net income of £7.4bn, down 16%, with NIM of 2.59% (4)% • Total costs of £3.9bn, 4% lower, with BAU costs down 6%; Pre-provision operating £3.5bn cost:i
Slide 7: Economy deteriorated since Q1; signs of recovery, although uncertainty remains
Classification: Public Economy deteriorated since Q1; signs of recovery, although uncertainty remains LBG customers’ spending1 Loan demand3 (7-day rolling average, % change vs. same period a year earlier) (Applications as a percentage of pre-crisis levels, %) 0% 100% -20% 50% -40% 0% -60% Week 21 06
Slide 8: Helping Britain recover is integral to Group purpose
Classification: Public Helping Britain recover is integral to Group purpose Opportunity to build a stronger bank whilst supporting a resilient economy with a more sustainable future • Working with Government and regulators to help households build financial resilience and businesses recover Customer
Slide 9: Current challenges, but remain well placed to deliver for shareholders
Classification: Public Current challenges, but remain well placed to deliver for shareholders • Strong foundations and unique competitive strengths position the Group well for the evolving environment and emerging trends OUR Helping Britain PURPOSE Prosper • Franchise strength, strategic advantage i
Slide 10: Financial update
Classification: Public Financial update William Chalmers Chief Financial Officer 9
Slide 11: Performance impacted by lower rates, activity and economic outlook deterioration
Classification: Public Performance impacted by lower rates, activity and economic outlook deterioration £7.4bn Net income (16)% Cost:income ratio 52.3% • Net income of £7.4bn, down 16%, NIM of 2.59% impacted by rates (incl. remediation) +6.4pp and mix, other income of £2.5bn impacted by customer act
Slide 12: Retail customers deleveraging and building deposits while SME customers use Government schemes
Classification: Public Retail customers deleveraging and building deposits while SME customers are using Government lending schemes and holding cash Movement in lending in Q2 Movement in deposits in Q2 (£bn) (£bn) Retail Commercial Retail Commercial -£3.6bn +£0.5bn +£12.0bn +£1.0bn • Retail customer
Slide 13: Lower net interest income with margin of 240 basis points in Q2
Classification: Public Lower net interest income with margin of 240 basis points in Q2 Net interest income and banking net interest margin (£m) 2.90% (11)bps (11)bps (9)bps 2.59% (11)% 6,145 (222) 5,478 • NII of £5.5bn down 11% on prior year (222) (223) - Q2 NIM down 39bps driven by 21bps rate impac
Slide 14: Asset margins impacted by mix in H1 2020
Classification: Public Asset margins impacted by mix in H1 2020 Changing asset mix (Book size £bn, Gross margin %1) Mortgage book UK consumer finance2 1.92% 1.85% 1.85% 6.95% 7.22%3 6.81% 285 289 285 YoY 41 42 • Robust asset margins; NII impacted by 39 30 28 27 10 10 9 reduction in higher margin act
Slide 15: Significant deposit growth from strong franchise and Government schemes
Classification: Public Significant deposit growth from strong franchise and Government schemes Increase in customer deposits1,2 Retail current account customers and average balances (Book size £bn, Gross margin %) (#m, £k) 0.34% 0.31% 0.20% YoY 441 2.9 4.1 5.1 418 14 (16)% 412 14 (2)% 16 14 14 14 13
Slide 16: Increased hedge capacity although in a lower rate environment
Classification: Public Increased hedge capacity although in a lower rate environment Hedged balances1 (£bn) 172 179 180 56 60 60 86 90 90 • Structural hedge notional balance of £180bn 30 29 30 Structural hedge - c.2.5 year weighted average life H1 2019 H2 2019 H1 2020 37% • Hedge capacity of £190bn,
Slide 17: Continuation of challenging trends in other income
Classification: Public Continuation of challenging trends in other income Divisional other income (£bn) • Other income of £2.5bn, down 22%, driven by H1 2020 0.9 0.7 0.9 2.5 slowdown across key markets in H1 and non-recurring items in Insurance in 2019 H1 2019 1.0 0.7 1.2 3.1 - H1 2019 included £136
Slide 18: Continued focus on efficiency, building on strong track record
Classification: Public Continued focus on efficiency, building on strong track record Total costs (£m) (4)% 4,049 52 • Total costs of £3.9bn down 4% with operating costs (39) 34 3,876 5% lower and remediation up £34m (101) (120) • 6% lower BAU costs enabling continued investment in digital projects
Slide 19: Investment managed carefully, prioritising digital and technology spend
Classification: Public Investment managed carefully, prioritising digital and technology spend Operating costs (excluding Remediation) (£m) 4,024 3,906 3,699 719 752 795 -3% vs. H1 19 473 477 395 -0.2% vs. H1 18 • H1 investment £1.1bn, 15% lower than prior year -6% vs. H1 19 2,832 2,677 2,509 -11% v
Slide 20: Impairment charges reflect updated economic assumptions and drive higher AQRs
Classification: Public Impairment charges reflect updated economic assumptions and drive higher AQRs Impairment charges (£m) H1 20 Q2 20 Q1 20 H1 19 Incr. Charges pre-updated MES 788 420 368 579 209 Retail 578 253 325 556 22 • H1 charge includes £2.4bn in Q2, primarily reflecting deterioration in ec
Slide 21: Updated economic forecast reflected in forward looking ECL provisions
Classification: Public Updated economic forecast reflected in forward looking ECL provisions Q2 MES Movement from Q1 vs. Dec 2020 2021 2022 ‘20-22 2020 2021 2022 ‘20-22 ‘20-22 YoY GDP (%) • ECL estimates based on MES2 impact of loss Upside (9.5) 7.5 3.1 0.3 (4.4) 3.8 (0.6) (1.8) (5.0) scenarios mode
Slide 22: Higher reserving across business lines driven by increase in ECL provisions
Classification: Public Higher reserving across business lines driven by increase in ECL provisions ECL Net ECL P&L Write- ECL (£m) H1 2020 increase charge offs H2 2019 Retail 4,214 1,418 2,095 (677) 2,796 Secured 1,763 547 603 (56) 1,216 Cards 991 385 656 (271) 606 • Increased stock of ECL provision
Slide 23: Robust balance sheet with high levels of security
Classification: Public Robust balance sheet with high levels of security Group loans and advances of £440bn (£bn) 26 70 Retail secured1 SME & Mid Corporates secured lending2 36 Corporate & Institutional • Balance sheet benefitting from prudent approach to 308 and Other3 lending and well-secured c.85
Slide 24: Predominance of high quality retail mortgages
Classification: Public Predominance of high quality retail mortgages Mortgage book quality1,2 (£bn,%) 350 341 324 303 294 289 286 53.4% 59.6% • UK mortgages account for c.2/3 of Group lending 57.0% 88.4% 88.3% 89.3% 81.9% - Mortgage book performing well to date 211 175 143 108 84 65 54 - Average LTV
Slide 25: High quality consumer finance portfolio
Classification: Public High quality consumer finance portfolio Consumer finance portfolio of £43bn (£bn) Secured • Retail customers are being cautious on borrowing in 1 £19bn an uncertain environment Unsecured UK Motor Finance lending £24bn 8 • Prime consumer finance portfolio benefits from high 15
Slide 26: Credit card book managed carefully in recent years
Classification: Public Credit card book managed carefully in recent years Credit cards delinquency trend1 (%) 2.5% 2.0% • Prime credit card book benefits from high quality growth and conservative underwriting in recent years 1.5% - Selective risk appetite tightening in credit cards through the last
Slide 27: Diversified commercial portfolio with limited exposure to most vulnerable sectors
Classification: Public Diversified commercial portfolio with limited exposure to most vulnerable sectors Lending in key coronavirus-impacted sectors1 (£bn) Retail non-food 2.4 1.8 19% Oil & gas 1.4 2.7 69% Auto. dealerships2 2.4 1.5 2% • De-risking of core loan book over the last 10 years Constructi
Slide 28: High quality SME book and de-risked real estate portfolio
Classification: Public High quality SME book and de-risked real estate portfolio SME write-offs (£m) • Low levels of SME impairment in recent years, with average write-off rate <0.25% over last 3 years1 - Assets c.90% secured, with origination LTVs below 60% 65.4 - Conservative interest rate assumpt
Slide 29: Payment holidays continue to support customers through temporary pressures
Classification: Public Payment holidays continue to support customers through temporary pressures Current status of Retail payment holidays1 (#k) • Payment holidays now available until 31 October • >1.1m holidays granted, of which c.750k remain in force - c.45% matured to date; 72% of mortgage custo
Slide 30: Dynamics of IFRS 9 charge and sensitivities
Classification: Public Dynamics of IFRS 9 charge and sensitivities IFRS 9 charges reflect timing of changes in ECL provisions (£bn) 7.2 Provisions raised on new • IFRS 9 requires immediate recognition of lifetime 2.8 business expected credit losses for Stages 2 and 3 Stages 2 & 3: lifetime ECL Roll
Slide 31: Statutory profit after tax of £19 million given below the line charges and tax credit
Classification: Public Statutory profit after tax of £19 million given below the line charges and tax credit • Statutory profit after tax of £19m (£m) H1 2020 H1 2019 Change - Restructuring lower due to significant reduction in Underlying profit (281) 4,194 – severance and property rationalisation c
Slide 32: RWA growth partly offset by lower non-guaranteed lending and Commercial optimisation
Classification: Public RWA growth partly offset by lower non-guaranteed lending and continued Commercial optimisation Loans and advances to customers (£bn) • Loans and advances stable at £440bn and RWAs of H1 2020 341 96 440 £207bn, up £4bn in H1 H2 2019 343 95 440 - c.£4bn credit migration and reta
Slide 33: Increased capital strength and headroom over requirements
Classification: Public Increased capital strength and headroom over requirements Common equity tier 1 ratio (%) +81bps • Capital strength increased with CET1 (2)bps ratio of 14.6% (13.4% excluding 100 14.6 83 transitionals); significant headroom over 79 11 c.11% updated requirement1 13.8 13.4 (39) 1
Slide 34: Strong funding and liquidity position
Classification: Public Strong funding and liquidity position H1 2020 public funding by product and currency (£bn) 2% 26% • £8.5bn of funding completed to date, predominantly 2.8 34% across USD, EUR and GBP £8.5bn 0.1 0.2 • Access to c.£40bn TFSME3 and deposit inflows leave 1.6 1.3 small residual 202
Slide 35: Current challenges, but remain well placed to deliver for shareholders
Classification: Public Current challenges, but remain well placed to deliver for shareholders • Strong foundations and unique competitive strengths position the Group well for the evolving environment and emerging trends OUR Helping Britain PURPOSE Prosper • Franchise strength, strategic advantage i
Slide 36: Questions and Answers
Classification: Public Questions and Answers António Horta-Osório, Group Chief Executive William Chalmers, Chief Financial Officer 35
Slide 37: Appendix
Classification: Public Appendix 36
Slide 38: Quarterly P&L and key ratios
Classification: Public Quarterly P&L and key ratios (£m) Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019 Net interest income 2,528 2,950 3,102 3,130 3,062 3,083 Other income 1,235 1,226 1,267 1,315 1,594 1,556 Operating lease depreciation (302) (224) (236) (258) (254) (219) Net income 3,461 3,952 4,
Slide 39: Prudent economic scenarios
Classification: Public Prudent economic scenarios Current scenario (%) Probability Balance sheet Scenario weighting (%) ECL (£m) Economic measure 2020 2021 2022 2020-22 GDP (10.0) 6.0 3.0 (1.8) Interest rate 0.10 0.10 0.10 0.10 Base case 30 6,730 Unemployment rate 7.2 7.0 5.7 6.7 House price growth
Slide 40: Continued low mortgage LTVs
Classification: Public Continued low mortgage LTVs June 20201 Dec 20191 Dec 20101 Mainstream Buy to let Specialist Total Total Total Average LTVs 42.8% 50.8% 42.5% 44.0% 44.9% 55.6% New business LTVs 64.3% 56.8% n/a 63.0% 64.3% 60.9% ≤ 80% LTV 87.4% 97.7% 92.8% 89.3% 87.5% 57.0% >80–90% LTV 11.0% 1.
Slide 41: Coverage across business lines
Classification: Public Coverage across business lines Drawn balances (£bn)1 Provisions (£m) 1 Coverage (excl. Recoveries) Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Retail 288.1 51.1 5.6 344.8 1,069 1,945 1,200 4,214 0.4% 3.8% 22.1% 1.2% Secured 237.8 4
Slide 42: Forward looking statements
Classification: Public 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, p