Lloyds Banking Group Plc · LSE:LLOY
Lloyds Banking — Debt Investor Presentation (February 2023)
45 slides from Lloyds Banking's debt investor presentation, Feb 22, 2023
Slide 1: Fixed Income Presentation
Classification: Public Fixed Income Presentation Lloyds Banking Group 22 February 2023 1
Slide 2: Lloyds Banking Group – strong foundations
Classification: Public Lloyds Banking Group – strong foundations Our strong foundations… …have created distinct competitive strengths Leading UK customer franchise with trusted brands Maintained leading market shares; 19% since 2017 >1m business client Relationship with relationships c.50% of UK adu
Slide 3: Business and strategic update
Classification: Public Business and strategic update 3
Slide 4: Helping Britain Prosper
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 ratio 2 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 Create a new mass Deepen and innovate diversification affluent offering Grow in Consumer Strengthen cost and capital efficiency Focus Max
Slide 7: 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 8: 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 Digitised merchant services onboarding journeys with and proven new digital onboarding capability straight through processing Digitise
Slide 9: 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 c.12% red
Slide 10: Enhancing our financial guidance
Classification: Public Enhancing our financial guidance Purpose driven strategy… …that will create higher, more sustainable, returns Drive revenue 2024 growth and Grow diversification c.13% return on tangible equity c.175bps capital generation Strengthen cost and capital efficiency Focus 2026 >15% r
Slide 11: Financial update
Classification: Public Financial update 11
Slide 12: 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 13: 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 14: 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 15: 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 16: 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 17: 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 18: 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 19: Continued franchise growth building hedge sustainability
Classification: Public Continued franchise growth building hedge sustainability Hedged balances1 (£bn) Hedge 225 240 250 255 capacity 240 250 255 • Structural hedge approved capacity of £255bn, 215 70 75 80 up £5bn in Q4 65 Structural hedge 120 140 145 145 • Nominal balance of £255bn; c.3.5 year wei
Slide 20: 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 21: 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 238 134 investment and new businesses (6) (48) 8,835 o BAU costs stable and overall costs in line with 8,346 8,312 (284) expectations, delivered
Slide 22: 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 MES 2 383 915 314 601 • Asset quality remains strong Retail 253 773 672 101 Commercial Banking 121 122 (357) 479 • Impairment charge £1,510m, AQR of 32bps Ot
Slide 23: 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 24: 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% 15% • RCF utilisation >30% below pre-pandemic levels 0% • Average invoice financing debtor days below Q4 Q1 Q2 Q3 Q4 Q
Slide 25: 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 26: 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 NEW: c.30bps NEW: c.30bps ratio Return on NEW: c.13% NEW: c.13% NEW: >
Slide 27: Capital, funding & liquidity
Classification: Public Capital, funding & liquidity 27
Slide 28: Capital, MREL and liquidity summary
Classification: Public Capital, MREL and liquidity summary 16.3% 14.1% MDA CET1 remains ahead of regulatory Capital CET1 CET1 9.4%1 minimum and ongoing Group target of c.12.5% + c.1% management buffer FY 21 FY 22 MREL 37.2% 31.7% MREL remains strong, and in excess of regulatory requirements of 26.5%
Slide 29: Strong capital generation; enhanced guidance
Classification: Public Strong capital generation; enhanced guidance Risk weighted assets (£bn) -£1bn 16 4 2 • RWAs down £1bn since 1 Jan 2022, given (3) optimisation and credit/model reductions (4) 212 211 • CET1 14.1%1, after additional £400m variable pension contribution in Q4 196 • Strong 245bps
Slide 30: Capital strength maintained
Classification: Public Capital strength maintained Common equity tier 1 ratio (%, bps) 16.3% Regulatory change impact 14.1% • CET1 ratio of 14.1% reflects strong capital build of 245bps post regulatory headwinds of 230bps on 1 January 2022 0.9% • UK CCyB rate 1% since December 2022 and set 1.7%1 to
Slide 31: Funding requirements returning to more normalised levels
Classification: Public Funding requirements returning to more normalised levels over strategic plan period Issuance 20231 principles HoldCo Refinancing of Senior <£5bn maturities • FY 2022 total issuance of £9.3bn across products and issuing entities • Expecting c.£15bn issuance in 2023 given more £
Slide 32: Appendix
Classification: Public Appendix 32
Slide 33: Simple group structure with multiple issuance points
Classification: Public Simple group structure with multiple issuance points HoldCo Lloyds Banking Group BBB+ / A3 / A A-2 / P-2 / F1 Sta / Sta / Sta Senior Unsecured - Capital Ring-Fenced Sub-Group Non-Ring-Fenced Sub-Group Insurance Sub-Group Equity Investments Sub-Group Lloyds Bank, Bank of Scotla
Slide 34: Strong credit ratings across the Group
Classification: Public Strong credit ratings across the Group Non-Ring-Fenced Insurance HoldCo Ring-Fenced Bank Bank Sub-Group Lloyds Banking Lloyds Bank, Lloyds Bank UK Sovereign Scottish Widows1 Group Bank of Scotland Corporate Markets AA BBB+ A+ A S&P Stable Stable Stable - Negative A-2 A-1 A-1 A
Slide 35: Strong ESG ratings supported by clear deliverables
Classification: Public Strong ESG ratings supported by clear deliverables Focus on opportunities to support housing and physical We have regeneration MSCI 1 Enabling regional identified 4 AA AA AA Increase regional productivity and create high-quality jobs AA development Encourage inclusive growth b
Slide 36: Our Group Climate Transition Plan
Classification: Public Our Group Climate Transition Plan We have identified 4 F F F F F F We have set focusnet several areas zero No new direct financing of new First round of Net Zero Banking Support oil and gas clients to establish £10bn green mortgage lending £20-25bn SW investment in 50% reducti
Slide 37: Wholesale funding requirements supported by redemption profile
Classification: Public Wholesale funding requirements supported by redemption profile HoldCo redemption profile (£bn)1 10.4 8.1 1.9 6.5 1.4 1.9 0.1 0.7 0.8 3.3 7.1 5.7 0.4 5.4 1.7 1.2 • Redemption profile supports increased future 2023 2024 20 25 2026 issuance, with net supply increasing Senior T2 A
Slide 38: Diverse funding portfolio as at FY 2022
Classification: Public Diverse funding portfolio as at FY 2022 Wholesale funding portfolio by type 13% 25% MM Funding Covered Bond £100bn1 Securitisation OpCo Senior Wholesale funding portfolio by currency 30% 14% 8% HoldCo Senior Sub Debt 15% 3% 23% GBP USD 26% Wholesale funding portfolio by maturi
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 macroeconomic outlook
Classification: Public Updated macroeconomic outlook UK bank rate CPI inflation 5% 15% 4% 3% 10% 2% 5% • Q4 macroeconomic base case broadly in line 1% with Q3 0% 0% Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q4Q2Q4Q2Q4Q2Q4Q2Q4 o Base rate forecast to have peaked at 4% in Q1 2023 21 22 22 23 23 24 24 25 25 21 22 22
Slide 41: 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 42: Updated coverage after revised economic outlook
Classification: Public Updated coverage after revised economic outlook Gross Write custome Total P&L Net ECL offs Coverage (ex. Recoveries)2 (£m, unless stated r 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)
Slide 43: 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 44: Disclaimer
Classification: Public Disclaimer Important notice The infor mation, statement s, views and opinions contained in this document and accompany ing d iscussion (“this Presentation”) are for informat ional a nd refer ence purposes only. This Presentation has been provided by the Group (defined below).
Slide 45: Contacts
Classification: Public Contacts Group Corporate Treasury Liz Padley Peter Green Managing Director, Non Bank Richard Shrimpton Head of Senior Funding & Covered Entities Treasurer & Head of Capital Deputy Treasurer Richard.Shrimpton@Lloydsbanking.com Bonds and Recovery and Resolution Peter.Green@Lloyd
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