Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Q4 2022 Earnings Presentation
45 slides from Lloyds Banking's earnings presentation, Feb 22, 2023
Slide 1: Presentation
Classification: Public Presentation Lloyds Banking Group 22 February 2023 1
Slide 2: Business and strategic update
Classification: Public Business and strategic update 2
Slide 3: Strong performance; confidence in continued delivery
Classification: Public Strong performance; confidence in continued delivery Purpose • Purpose driven business underpinned by financial strength; supporting customers and colleagues Helping • Robust financial performance driving increased capital Britain returns • Reaffirming strategy in a changing e
Slide 4: Purpose driven business; delivering for our stakeholders
Classification: Public Purpose driven business; delivering for our stakeholders >200k mortgage customers offered support given rising rates Proactive support >550k businesses offered financial resilience support if required Purpose for customers and Ongoing support for colleagues, including early ce
Slide 5: Robust financial performance; continued business momentum
Classification: Public Robust financial performance; continued business momentum £18.0bn 50.4% 13.5% Net income, Cost:income ratio, Return on tangible equity, up 14% vs 2021 down 10.6pp vs 2021 down 0.3pp vs 2021 245bps 14.1% £3.6bn Pro forma capital Pro forma CET1 ratio2 Total capital distribution
Slide 6: Delivering our strategy is our focus
Classification: Public Delivering our strategy is our focus Purpose driven strategy… …to deliver sustainable growth across our businesses Drive revenue growth and diversification Create a new mass Deepen and innovate Grow in Consumer affluent offering Strengthen cost and capital efficiency Focus Max
Slide 7: Changing environment reinforces our strategy
Classification: Public Changing environment reinforces our strategy Changes since February 2022 Areas of increased focus Enhanced importance of purpose driven More challenging environment for strategy in increasing our support to customers given increased cost of living customers and colleagues Shar
Slide 8: Significant strategic action; early evidence of delivery
Classification: Public Significant strategic action; early evidence of delivery Grow Purpose driven strategy… …as part of a 5 year transformation… …with significant action taken in 2022 Drive revenue growth 2022 Investing in growth Laying the foundations, early benefits delivery £0.9bn strategic inv
Slide 9: Confidence building in financial benefits
Classification: Public Confidence building in financial benefits Incremental income and gross cost saves1... …with momentum building into 2023 and beyond Additional revenues p.a. from strategic initiatives (£bn) Delivered early stages of targeted additional 2024 1.5 revenues 0.7 Increasing penetrati
Slide 10: Driving revenue growth and diversification: Consumer
Classification: Public Driving revenue growth and diversification: Consumer Grow Progress in 2022 2023 implementation 19.8m digitally active customers, up 8% Launch intermediary Protection proposition Deepen and c.1pp growth in Protection share1 Scale HomeHub ecosystem with innovate in improved rete
Slide 11: Driving revenue growth and diversification: Commercial
Classification: Public Driving revenue growth and diversification: Commercial Grow Progress in 2022 2023 implementation >20% growth in new merchant services clients and Digitised merchant services onboarding journeys with proven new digital onboarding capability straight through processing Digitise
Slide 12: Investing in enablers to improve delivery
Classification: Public Investing in enablers to improve delivery Focus Progress in 2022 2023 implementation Refining service model with c.200 branch closures Deliver further improvements in self service capabilities and digital investment and end to end journey digitisation Strengthen cost and capit
Slide 13: Enhancing our financial guidance
Classification: Public Enhancing our financial guidance Purpose driven strategy… …that will create higher, more sustainable, returns Drive revenue growth 2024 and diversification Grow c.13% return on tangible equity c.175bps capital generation Strengthen cost and capital efficiency Focus 2026 >15% r
Slide 14: Financial update
Classification: Public Financial update 14
Slide 15: Robust financial performance
Classification: Public Robust financial performance Financial performance (£m) 2022 2021 YoY Net interest income 13,172 11,163 18% Other income 5,249 5,060 4% • Customer led franchise growth Operating lease depreciation (373) (460) 19% Net income 18,048 15,763 14% • Net income up 14%; NIM 294bps Ope
Slide 16: Ongoing strength in customer franchise
Classification: Public Ongoing strength in customer franchise 2022 lending change (£bn) 2022 deposit change (£bn) Retail Commercial Retail Commercial +£7.9bn/2% +£1.2bn/1% +£2.4bn/1% -£3.7bn/2% • Mortgage balances up £3.7bn in 2022, including £1.2bn open book growth in Q4 3.7 • Credit cards up £0.5b
Slide 17: Strong net interest income performance
Classification: Public Strong net interest income performance Average interest earning assets (£bn) 1 1 6 • NII £13.2bn, up 18% on 2021, benefitting from (1) increased AIEAs and stronger NIM 452 o 2022 AIEAs £452bn, up 2% on 2021 445 o Full year NIM 294bps, up 40bps on 2021 o Q4 NIM 322bps, benefitt
Slide 18: Illustrative interest rate sensitivity
Classification: Public Illustrative interest rate sensitivity Cumulative impact of parallel shifts in interest rate curve – illustrative 50% deposit pass through1 (£m) • Positively exposed to rising rates • Rate sensitivity remains c.£150m additional NII Year 1 Year 2 Year 3 in year 1 for a 25bps pa
Slide 19: Mortgage balance growth
Classification: Public Mortgage balance growth Mortgage book (Book size £bn, Gross margin %1) 1.84% 1.73% 1.52% 308 310 311 YoY • Mortgage balances £311bn, up £3.7bn in 2022 o Open book growth £6.3bn with £1.2bn in Q4 o Back book c.£47bn, Q4 YoY attrition c.25% 138 147 153 +11% • 2022 new business2
Slide 20: Modest growth in other lending portfolios in 2022
Classification: Public Modest growth in other lending portfolios in 2022 UK Cards, Loans & Motor (Book size £bn, Gross margin %1) H2 2022 14 9 7 7 37 6.51% H1 2022 14 9 7 7 37 6.67% • UK Cards, Loans & Motor up £1.4bn in 2022, flat in Q4 14 8 6 8 36 6.62% H2 2021 o Credit cards up £0.5bn in 2022, fl
Slide 21: Continued deposit franchise strength
Classification: Public Continued deposit franchise strength Customer deposits (Book size £bn, Gross margin %1) 0.16% 0.41% 0.98% 476 478 475 YoY • Customer deposits £475bn, down £1.0bn in 2022, given lower Commercial balances 112 113 114 +2% • Retail current account balances up £2.5bn, 2% in 2022; Q
Slide 22: Continued franchise growth building hedge sustainability
Classification: Public Continued franchise growth building hedge sustainability Hedged balances1 (£bn) Hedge 225 240 250 255 capacity 250 255 • Structural hedge approved capacity of £255bn, 240 215 80 up £5bn in Q4 70 75 65 Structural hedge • Nominal balance of £255bn; c.3.5 year 120 140 145 145 wei
Slide 23: Building confidence in other income
Classification: Public Building confidence in other income Other income (£bn) • Other income of £5.2bn in 2022; Q4 £1.4bn • Building confidence in growth potential 1.3 1.3 1.3 1.3 1.3 1.3 1.4 o Retail: improved current account and credit 1.1 card performance o Commercial: improving transaction banki
Slide 24: Stable BAU costs; increased investment as planned
Classification: Public Stable BAU costs; increased investment as planned Operating costs (£m) +6% 489 stable • Operating costs £8.8bn, up 6% given planned 134 investment and new businesses 238 (6) (48) 8,835 o BAU costs stable and overall costs in line with 8,346 8,312 (284) expectations, delivered
Slide 25: Strong observed asset quality; updated economic scenarios
Classification: Public Strong observed asset quality; updated economic scenarios Impairment1 (£m) Q4 2022 2021 YoY Charge (credit) pre updated MES2 383 915 314 601 • Asset quality remains strong Retail 253 773 672 101 Commercial Banking 121 122 (357) 479 • Impairment charge £1,510m, AQR of 32bps Oth
Slide 26: Updated macroeconomic outlook
Classification: Public Updated macroeconomic outlook UK bank rate CPI inflation 5% 12% 4% 10% 8% 3% 2% 6% • Q4 macroeconomic base case broadly in line 4% with Q3 1% 2% 0% 0% o Base rate forecast to have peaked at 4% in Q1 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 2023 21 22 22 23 23 24 2
Slide 27: Resilient Retail portfolio performance
Classification: Public Resilient Retail portfolio performance New to arrears as a proportion of total balances (3 month rolling average, %) 1.00% 0.75% • Customers showing resilience across asset classes, with sustained low levels of new to 0.50% arrears 0.25% • Cards charge offs remain low and belo
Slide 28: Resilient Commercial portfolio performance
Classification: Public Resilient Commercial portfolio performance SME1 overdraft and corporate RCF2 utilisation (%) 60% 50% 40% 41% • Stable SME overdraft utilisation trends 22% 20% • RCF utilisation >30% below pre-pandemic levels 15% 0% • Average invoice financing debtor days below Q4 Q1 Q2 Q3 Q4 Q
Slide 29: Statutory profit after tax £5.6bn
Classification: Public Statutory profit after tax £5.6bn Statutory profit (£m) 2022 2021 YoY • Underlying and statutory profit converging Underlying profit 7,448 7,536 (1)% Restructuring (80) (452) 82% • Restructuring costs £80m, including Embark Volatility and other items (440) (182) integration co
Slide 30: Strong capital generation; enhanced guidance
Classification: Public Strong capital generation; enhanced guidance Risk weighted assets (£bn) -£1bn 4 16 2 • RWAs down £1bn since 1 Jan 2022, given (3) optimisation and credit/model reductions (4) • CET1 14.1%1, after additional £400m variable 212 211 pension contribution in Q4 196 • Strong 245bps
Slide 31: Enhanced guidance highlighting higher, more sustainable, returns
Classification: Public Enhanced guidance highlighting higher, more sustainable, returns 2023 2024 2026 Income NEW: NIM >305bps Costs NEW: c.£9.1bn operating costs NEW: c.£9.2bn operating costs <50% cost:income ratio Asset quality ratio NEW: c.30bps NEW: c.30bps Return on NEW: c.13% NEW: c.13% NEW: >
Slide 32: Closing remarks
Classification: Public Closing remarks 32
Slide 33: Strong performance; confidence in continued delivery
Classification: Public Strong performance; confidence in continued delivery Purpose • Purpose driven business underpinned by financial strength; supporting customers and colleagues Helping • Robust financial performance driving increased capital Britain returns • Reaffirming strategy in a changing e
Slide 34: Q&A
Classification: Public Q&A 34
Slide 35: IFRS 17 appendix
Classification: Public IFRS 17 appendix 35
Slide 36: Reminder of key messages
Classification: Public Reminder of key messages • Accounting change impacting phasing of profit recognition for insurance contracts1 with no impact on capital Overview • Implementation 1 Jan 2023; transition document ahead of Q1 and first segmental results at half year • New business and associated
Slide 37: Income spread over contract life; no change to economic value
Classification: Public Income spread over contract life; no change to economic value IFRS 4 IFRS 17 2022 net income1 (£m) IFRS 4 IFRS 17 Day 1 P&L impact deferred New Expected profit New business 432 largely deferred to on balance sheet and business recognised on CSM spread over contract life Assump
Slide 38: Appendix
Classification: Public Appendix 38
Slide 39: Quarterly P&L and key ratios
Classification: Public Quarterly P&L and key ratios (£m) Q4 2022 Q3 2022 Q2 2022 Q1 2022 Q4 2021 Q3 2021 Q2 2021 Q1 2021 Underlying net interest income 3,643 3,394 3,190 2,945 2,893 2,852 2,741 2,677 Underlying other income 1,438 1,282 1,268 1,261 1,307 1,336 1,282 1,135 Operating lease depreciation
Slide 40: Updated economic scenarios
Classification: Public Updated economic scenarios Scenario ECL (£m) Measure (%) 2022 vs Q3 2022 2023 2024 2025 2026 Ave. 22-26 GDP 4.1 0.5 0.1 1.1 1.7 2.1 1.8 Interest rate 1.94 (0.22) 4.95 4.98 4.63 4.58 4.22 Unemployment rate 3.5 0.2 2.8 3.0 3.3 3.4 3.2 Upside (30%) 3,903 HPI growth 2.4 (3.7) (2.8
Slide 41: Updated coverage after revised economic outlook
Classification: Public Updated coverage after revised economic outlook Gross Write customer Total P&L Net ECL offs Coverage (ex. Recoveries)2 (£m, unless stated L&A coverage ECL Write offs charge/ incr./ ECL & Other otherwise)1 (£bn) Stage 1 Stage 2 Stage 3 Total Q4 20211 Q4 2021 & Other (credit) (d
Slide 42: Low mortgage LTVs
Classification: Public Low mortgage LTVs December 20221 20211 20101 Mainstream Buy to let Specialist Total Total Total Average LTVs 40.9% 46.8% 35.0% 41.6% 42.1% 55.6% New business LTVs 62.3% 58.1% N/A 61.7% 63.3% 60.9% ≤80% LTV 92.6% 99.6% 96.4% 93.9% 95.4% 57.0% >80–90% LTV 5.7% 0.2% 1.2% 4.7% 4.1
Slide 43: Further market updates
Classification: Public Further market updates H1 2023 results H1 2023 results Update on strategic progress in the first half of the year Investor seminars on growth opportunities H2 2023 o Deepen and Innovate in Consumer o Target our Corporate and Institutional offering FY 2023 results Update on str
Slide 44: Disclaimer
Classification: Public Disclaimer Important notice The information, statements, views and opinions contained in this document and accompanying discussion (“this Presentation”) are for informational and reference purposes only. This Presentation has been provided by the Group (defined below). This Pr
Slide 45: Investor Relations contacts
Classification: Public Investor Relations contacts Douglas Radcliffe, Group Investor Relations Director +44 (0)20 7356 1571 Douglas.Radcliffe@lloydsbanking.com Edward Sands, Director, Investor Relations +44 (0)20 7356 1585 Edward.Sands@lloydsbanking.com Nora Thoden, Director, Investor Relations – ES