Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Q4 2020 Earnings Presentation
54 slides from Lloyds Banking's earnings presentation, Feb 24, 2021
Slide 1: 2020 Results
2020 RESULTS Presentation to analysts and investors | 24 February 2021
Slide 2: Introduction, Financial Update, Strategic Review 2021, Q&A
Classification: Public Introduction António Horta-Osório, Group Chief Executive Financial Update William Chalmers, Chief Financial Officer Strategic Review 2021 William Chalmers, Chief Financial Officer Q&A 1
Slide 3: Introduction
Classification: Public Introduction António Horta-Osório Group Chief Executive 2
Slide 4: Supporting all stakeholders in 2020
Classification: Public Supporting all stakeholders in 2020 Successfully supporting customers, colleagues and Strength of business model communities through the pandemic enabling continued delivery Government-backed loans for business • Digital leader, with accelerated transformation >£12bn customers
Slide 5: Helping Britain Prosper is at the heart of who we are
Classification: Public Helping Britain Prosper is at the heart of who we are and underpins our business Driving sustainability Strategy to help the Championing diversity First FTSE100 company to set public transition to a sustainable low carbon economy gender, Black, Asian and Minority Ethnic and sp
Slide 6: Profit delivered in a highly challenging environment
Classification: Public Profit delivered in a highly challenging environment 2020 £14.4bn Net income (16)% • NII of £10.8bn down 13%, driven by lower rates and changing asset Cost:income ratio 55.3% mix. 2020 NIM 2.52%; Q4 NIM 2.46% (incl. remediation) +6.8pp • Other income £4.5bn; down 21% with lowe
Slide 7: Economy supported by Government actions with strong housing market
Classification: Public Economy supported by Government actions with strong housing market HPI & mortgage market completions1 LBG customers’ card spend2 (5-day rolling average, % change vs same period a year earlier) Mortgage Completions (£bn) HPI (%) 100% 30 8% 25 50% 6% 20 0% 15 4% 10 -50% 2% 5 0 0
Slide 8: Business transformed by our clear strategic path since 2011
Classification: Public Business transformed by our clear strategic path since 2011 GSR1 (2011-2014) GSR2 (2015-2017) GSR3 (2018-2020) Purpose Helping Britain Prosper Key Reshape our portfolio Create the best customer experience Leading customer experience strategic Simplify the Group Become simpler
Slide 9: GSR3 laid the foundations for Strategic Review 2021
Classification: Public GSR3 laid the foundations for Strategic Review 2021 Overview of selected GSR3 outcomes Improved customer satisfaction to record levels across multiple channels All channel NPS1 Digital NPS1 Leading customer 2017 2017 65 66 experience +5% +2% 2020 68 2020 67 Exceeded end-to end
Slide 10: Digitising the Group: digital leadership increases value of multi-channel model
Classification: Public Digitising the Group: Digital leadership increases value of multi-brand, multi- channel model Largest digital bank in the UK A key component of our differentiated multi-brand, multi-channel model Continued growth in GSR3… Responding to 85% Products originated via digital chann
Slide 11: Comprehensive Insurance & Wealth customer offering
Classification: Public Maximising Group Capabilities: We have created a comprehensive Insurance & Wealth customer offering Growth delivered across a number of core markets Strategic actions enable enhanced wealth offering Increase in new business market share since FY 20171 Share HNW/UHNW >£1m inves
Slide 12: Strategic progress has created capabilities that position us well
Classification: Public Our strategic progress has created capabilities that position us well for the future Efficiency has created capacity for new investment and Our core capabilities opportunities Purpose driven, customer focused business model Differentiated and sustainable franchise Digital lead
Slide 13: Financial update
Classification: Public Financial update William Chalmers Chief Financial Officer 12
Slide 14: Resilient business model, returning to profitability in the second half
Classification: Public Resilient business model, returning to profitability in the second half Q4 20201 20201 £3.6bn £14.4bn Net income +6% (16)% • NII of £10.8bn down 13%, driven by lower rates and Cost:income ratio 59.9% 55.3% changing asset mix. 2020 NIM 2.52%; Q4 NIM 2.46% (incl. remediation) +3
Slide 15: Resilient lending and Retail deposit growth ahead of market
Classification: Public Strong customer franchise: resilient lending and Retail deposit growth ahead of market 2020 lending change 2020 deposit change (£bn) (£bn) • Mortgage balances up £5.2bn, to £293.8bn; including Q4 Retail Commercial Retail Commercial open book growth of £6.7bn +£1.5bn -£2.2bn +3
Slide 16: Rate and yield curve headwinds, offset by strong mortgage activity
Classification: Public Rate and yield curve headwinds, partly offset by strong mortgage activity Net interest income and banking net interest margin (£m) • 2020 NII £10.8bn, down 13% on prior year; NIM at 252bps 288 12,377 252 - NIM decrease impacted by lower rates and asset mix (657) 10,773 - Q4 NI
Slide 17: Asset margins impacted by mix in 2020
Classification: Public Asset margins impacted by mix in 2020 Changing asset mix (Book size £bn, Gross margin %1) Mortgage book UK consumer finance2 1.85% 1.85% 1.82% YoY 7.22%3 6.81% 6.72% 289 285 294 Total: +2% 42 39 37 25 10 • Total mortgage book up £9bn in H2 driven by 28 27 9 9 Motor - New4 stro
Slide 18: Significant deposit growth given low customer spend
Classification: Public Significant deposit growth given low customer spend, Government schemes and strong franchise Increase in customer deposits1,2 Retail current account customers and average balances (Book size £bn, Gross margin %) (#m, £k) 0.31% 0.20% 0.18% YoY 2.9 4.1 5.6 451 Total: +9% 441 412
Slide 19: Increased hedge capacity
Classification: Public Increased hedge capacity Hedged balances1 (£bn) 185 190 210 179 180 186 62 60 60 • Structural hedge notional balance of £186bn 90 90 94 - c.2.5 year weighted average life, up from c.2 years in Q3 29 30 30 Structural hedge • Hedge capacity of £210bn, increase of £25bn in 2020 3
Slide 20: Other income stabilising, geared to customer activity
Classification: Public Other income stabilising, geared to customer activity and ongoing investment Other income (£bn) • Other income £4.5bn; impacted by lower customer activity and lower non-recurring items vs. 2019 1.2 1.2 1.1 1.0 - Retail impacted by lower interchange income and Lex fleet volumes
Slide 21: Strong focus on costs alongside investment in the future
Classification: Public Continued strong focus on costs, alongside investment in the future of the business Total costs (£m) (4)% 8,320 • Total costs of £8.0bn down 4% with operating costs 103 4% lower and remediation costs 15% lower (45) • Delivery on operating cost target of <£7.6bn (238) 7,964 (11
Slide 22: Committed to further efficiency improvements
Classification: Public Committed to further efficiency improvements, supporting continued investment Proven record of managing costs Cost framework presents opportunities (BAU costs1, £bn) BAU costs • Rigorous matrix approach to BAU costs (24)% • Productivity and 3rd party management (e.g. (Ongoing)
Slide 23: Solid underlying impairment performance, lower charges expected in 2021
Classification: Public Solid underlying impairment performance, with lower charges expected in 2021 Impairment charges (£m) 2020 Q4 20 2019 Incr. vs 2019 Charges pre-updated MES 1,610 418 1,291 319 • Stable observed credit experience in Q4 Retail 1,359 383 1,038 321 - Support schemes remaining effec
Slide 24: Building coverage ratios across product areas
Classification: Public Building coverage ratios across product areas ECL Net ECL P&L Write-offs ECL (£m) 2020 increase charge & other 2019 Retail 4,008 1,212 2,384 (1,172) 2,796 UK Mortgages 1,605 389 478 (89) 1,216 • Stock of ECL provisions £6.9bn, providing significant balance sheet resilience Car
Slide 25: Retail: high quality and improving mortgage book
Classification: Public Retail: high quality and improving mortgage book; new to arrears remain low Mortgage book quality1,2 (£bn,%) 350 341 324 303 294 289 295 53.4% 91.6% 59.6% 88.4% 88.3% 57.0% 81.9% 211 175 143 • UK mortgages account for c.2/3rds of Group lending 108 84 65 51 - Growth in 2020, ne
Slide 26: Strong performance on payment holidays
Classification: Public Strong performance on payment holidays with over 90% now matured Current status of Retail payment holidays and balances1 (£bn) PHs granted 61.9 1.7 2.4 2.3 • Total of c.1.3m payment holidays (PHs) granted on £68bn In-force2 5.1 0.1 0.2 0.3 of lending, of which £6bn (8%) curren
Slide 27: Commercial: diversified portfolio with limited exposure to impacted sectors
Classification: Public Commercial: diversified portfolio with limited exposure to most impacted sectors Lending in key coronavirus-impacted sectors1 (£bn) Total 10.8 10.7 Movement since Q1 -1.1 +2.6 • Diverse client base with limited exposure to coronavirus- Retail non-food 2.2 1.7 19% impacted sect
Slide 28: Statutory profit after tax of £1.4 billion
Classification: Public Statutory profit after tax of £1.4 billion after below the line charges and tax credit • Restructuring costs of £521m in 2020, £233m in Q4; (£m) 2020 2019 Change driven by resumption of property optimisation programme and role reduction activity Underlying profit 2,193 7,531 (
Slide 29: Restructuring costs higher reflecting investment in efficiency
Classification: Public Restructuring costs higher reflecting increased investment in efficiency • Restructuring activities included: Restructuring costs - Severance costs; increased by organisational design (£m) 2020 2019 Change initiatives, accelerated in Q4 Severance costs (156) (97) (61)% - Prope
Slide 30: RWAs stable with optimisation offsetting credit migration
Classification: Public RWAs stable with optimisation more than offsetting credit migration RWA 2020 movement (£bn) £(0.7)bn • Stable overall RWA performance 2.5 2.2 - Strong RWA management 203.4 1.6 202.7 1.9 (3.6) - Delay in expected credit migration (5.3) • RWA headwinds now delayed 2019 Credit Un
Slide 31: Enhanced capital strength with significant headroom
Classification: Public Enhanced capital strength with significant headroom over target and requirements Common equity tier 1 ratio (%, bps) +242bps 51 16.4 16.2 • Enhanced capital strength with CET1 +129bps 83 192 (21) ratio of 16.2% (15.7% excl. software 74 intangible benefit) 83 (46) • 2020 capita
Slide 32: Strategic Review 2021
Classification: Public Strategic Review 2021 William Chalmers Chief Financial Officer 31
Slide 33: Today's environment brings new challenges and opportunities
Classification: Public Today’s environment brings new challenges and opportunities Our core capabilities Challenges Opportunities Purpose driven, customer Restoring personal and business finances to health Taking a transformational and leading role in focused business model Helping Britain Recover I
Slide 34: Strategic Review 2021: the next evolution of our strategy
Classification: Public Strategic Review 2021: The next evolution of our strategy Our strategy – Building the UK’s preferred financial partner Our enhanced • Core purpose of Helping Britain Prosper, Our customer ambitions capabilities with focus of Helping Britain Recover at the heart of our strategy
Slide 35: Helping Britain Recover: focused on where we can make a difference
Classification: Public Helping Britain Recover: Focused on where we can make a difference, embedded in the business Helping Britain Recover priorities Supporting our enhanced ambitions £ Help rebuild households’ >6,500 colleagues trained to support customers build their financial resilience financia
Slide 36: Preferred financial partner for personal customers
Classification: Public Preferred financial partner for personal customers Long term vision Leveraging our unique capabilities to meet more of our customers’ needs Capability and opportunity 2021 investment focus Measures of success Largest UK personal customer franchise with multi-brand, multi-chann
Slide 37: Best bank for business
Classification: Public Best bank for business Long term vision Leading digital SME bank; disciplined and strengthened large client proposition Capability and opportunity 2021 investment focus Measures of success Leading SME franchise, with disciplined large corporate business Automate recovery suppo
Slide 38: Modernised technology architecture
Classification: Public Modernised technology architecture Long term vision Efficient, scalable and resilient cloud-based architecture, supporting business transformation Capability and opportunity 2021 investment focus Measures of success Technology platform advanced through GSR3 Mobile app releases
Slide 39: Modernised technology architecture: R&D investment
Classification: Public Modernised technology architecture: ‘R&D’ investment to assess potential for step change in customer proposition and efficiency Next-gen technology capabilities developed through partnerships Significant opportunities exist Innovative customer propositions Strategic partnershi
Slide 40: Integrated payments
Classification: Public Integrated payments Long term vision Seizing the payments growth opportunity in our customers’ channel of choice Capability and opportunity 2021 investment focus Measures of success Strong foundations Maintain leading card spend #1 >20% Enhance cards e-commerce & market share
Slide 41: Data-driven organisation
Classification: Public Data-driven organisation Long term vision Leveraging our data proposition to create value for all stakeholders Capability and opportunity 2021 investment focus Measures of success Investment has created strong data capabilities Increase personal customer needs Expand use of da
Slide 42: Reimagined ways of working
Classification: Public Reimagined ways of working Long term vision Purpose-led, future ready and inclusive workforce in a transformed workspace Capability and opportunity 2021 investment focus Measures of success Significant progress during GSR3 Further build our purpose-led culture Colleague engage
Slide 43: Strategic Review 2021: clear execution in 2021
Classification: Public Strategic Review 2021: The next evolution of our strategy Clear execution in 2021 Delivering sustainable shareholder value • Guidance based on current economic assumptions: Our customer ambitions Our enhanced capabilities - Net interest margin to be in excess of 240bps Moderni
Slide 44: Strategic Review 2021: the next evolution of our strategy
Classification: Public Strategic Review 2021: The next evolution of our strategy Core purpose of Helping Britain Prosper Focused on Helping Britain Recover, in remains unchanged areas where we can make a difference Unlocking co-ordinated growth Supported by our enhanced capabilities opportunities ac
Slide 45: Questions and Answers
Classification: Public Questions and Answers 44
Slide 46: Appendix
Classification: Public Appendix 45
Slide 47: Quarterly P&L and key ratios
Classification: Public Quarterly P&L and key ratios (£m) Q4 2020 Q3 2020 Q2 2020 Q1 2020 Q4 2019 Q3 2019 Q2 2019 Q1 2019 Net interest income 2,677 2,618 2,528 2,950 3,102 3,130 3,062 3,083 Other income 1,066 988 1,235 1,226 1,267 1,315 1,594 1,556 Operating lease depreciation (150) (208) (302) (224)
Slide 48: 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 (10.5) 3.7 5.7 (1.9) Interest rate 0.10 1.14 1.27 0.84 Upside 30 5,766 Unemployment rate 4.3 5.4 5.4 5.1 HPI growth 6.3 (1.4) 5
Slide 49: Updated economic forecast reflects slight improvement since Q3
Classification: Public Updated economic forecast reflects slight improvement since Q3 Q4 MES1 Movement from Q3 vs. Dec 2020 2021 2022 ‘20-222 2020 2021 2022 ‘20-222 ‘20-222 YoY GDP (%) Upside (10.5) 3.7 5.7 (1.9) (0.6) (3.3) 2.5 (1.4) (7.2) Base (10.5) 3.0 6.0 (2.4) (0.5) (3.0) 3.0 (0.7) (6.3) Downs
Slide 50: Coverage across business lines
Classification: Public Coverage across business lines Drawn balances (£m)1 Expected credit loss 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 302,872 46,185 5,488 354,545 827 1,985 1,196 4,008 0.3 4.3 22
Slide 51: 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) 25 59 • Balance sheet benefitting from prudent approach to Retail secured1 lending and well-secured SME & Mid Corporates 38 secured lending2 - c.85% of Group lending secured Corporate &
Slide 52: Continued low mortgage LTVs
Classification: Public Continued low mortgage LTVs 20201 20191 20101 Mainstream Buy to let Specialist Total Total Total Average LTVs 42.5% 49.7% 40.9% 43.5% 44.9% 55.6% New business LTVs 65.1% 58.2% n/a 63.9% 64.3% 60.9% ≤ 80% LTV 89.9% 98.6% 94.2% 91.6% 87.5% 57.0% >80–90% LTV 9.6% 0.9% 2.3% 7.8% 1
Slide 53: Growth in customer franchise, further opportunities in targeted areas
Classification: Public Growth in customer franchise, with further opportunities in targeted areas Channels market share Digital new business volumes1 19% 1 Branch new business volumes 27% Product market share Consumer credit card balances 25% PCA deposit balances 22% SME and small business lending b
Slide 54: 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