Lloyds Banking Group (LSE:LLOY) — Investor Presentation

0:01 Good afternoon, ladies and gentlemen, and welcome to the LLOYDS BANK Investor Presentation. Throughout today's meeting, investors online will be in listen only mode. Questions are encouraged and can be submitted at any time using Before we begin, we'd like to submit the following poll, and I'm sure the company will be most grateful for your participation. I would now like to hand over to Group Investor Relations Director.

0:27 Good afternoon to you, Douglas. Excellent. Thank you very much, and good afternoon to everybody. As the introduction has indicated, I'm Douglas Radcliffe. I'm the group investor relations director. A number of you may well have heard me speak on a previous investor meet webinar. And, clearly, I've been involved in LLOYDS BANKING GROUP for a while, so you may well have seen me on some of the divisional seminars that are available on our website. I'm also joined today by Tom Grantham, who's a senior manager in the investor relations team. We're very happy to be running another one of these retail briefings with Investor Meet. View these events as a great way of engaging with our shareholders, so thank you for joining us.

1:13 It's particularly important for us given we have almost like the the largest retail shareholder base in The UK. During the presentation, I'll talk to our strategy, in particular our outlook to 2026, and Tom will talk to the financials. This should take about twenty minutes, and we'll then have plenty of time for q and a at the end. So let's move on to the first slide. As you all know, LLOYDS is a UK focused bank with a simple operating model split across three reporting divisions, retail banking, commercial banking, and insurance, pensions and investments. Within these divisions, we offer a comprehensive product suite to meet our customers' ever evolving financial needs.

2:05 One of our strengths is our portfolio of trusted and recognized brands, many of which you'll know, including LLOYDS BANK, Halifax, and Scottish Widows, though you can clearly see from the slide that there are a number of other brands that we operate. The breadth of our franchise provides us with a key advantage in servicing more of our customers' needs as well as understanding them better to provide more targeted offerings that deliver value for both customers and the group.

2:36 As a bank, we continue to be guided by our purpose driven strategy that I'll talk to on the next slide. We have a clear strategy and a consistent purpose of helping Britain prosper. We've had this in place for a number of years, and a number of you may well recollect it. This strategy is focused on priorities of grow, focus and change. These have helped us build upon our competitive advantages and drive revenue growth and diversification whilst reinforcing cost and capital efficiency. This has been underpinned by unlocking the potential of our people, technology and data. This strategy and its successful execution is enhancing the propositions we offer customers and creating a compelling investment case for our shareholders, ultimately delivering income growth and operating leverage, which is driving higher, more sustainable returns and distributions for shareholders.

3:43 Let me quickly provide a few examples of the success of the strategy so far. There's a few numbers on this slide, but let's focus on a few of the key ones. As said, we've made strong progress across our three strategic pillars. When we laid out the strategy in February 2022, we laid out a number of targeted outcomes to keep track of progress to 2024. Pleasingly, we have delivered against 80% of these, which has helped drive the outputs that you can see on this page. In particular, through our growth initiatives, such as deepening customer relationships and growing in high value areas, we have grown net income by 2,000,000,000 versus $20.21.

4:32 This includes 800,000,000 of additional income from strategic initiatives, beating our original target of 700,000,000. Importantly, it also includes significant growth in what we call other operating income or non interest income as we look to diversify our income sources. We have also generated GBP 1,200,000,000 of cost savings and GBP 18,000,000,000 of risk weighted asset efficiencies as we have retained our core cost and capital discipline, something that's fundamental to a bank in a competitive environment. Finally, we've transformed our people, technology and data.

5:20 This has resulted in innovative propositions and increased automation as well as a reduction in legacy systems, enabling a step change in the level of digital engagement we are seeing from customers. For example, in 2024, we saw around 7,000,000,000 digital log ons from customers. There's clearly more to come, and I'll speak more on that at the end of this presentation. But for now, I'll hand over to Tom to talk through the financials. Thanks, Douglas, and good afternoon, everyone. Before I go into the financials, just wanna go through the key messages that we want to leave you with today. First, as Douglas has spoken to and demonstrated, our purpose led strategy is delivering.

6:06 This means we have concluded the first chapter of that transformation successfully, and we are building momentum as we move into the second phase. Secondly, as I will speak to in a moment, we delivered a robust financial performance in 2024. This was despite an additional motivation that I will come to later in the presentation. This financial performance delivered strong capital generation that enabled an increased total dividend of 3.17p for 2024, up 15% year on year and a buyback of 1,700,000,000. Finally, we have issued new guidance for 2025 and are increasingly confident for our 2026 ambitions. With that, let me move on to the numbers themselves.

6:54 As said, our results in Q4 and 2024 as a whole were robust. Stack profit after tax was GBP 4,500,000,000 or GBP 5,000,000,000 excluding the Q4 Motor provision. This resulted in a return on tangible equity of 12.3% or 14% ex Motor. Net income was GBP 17,100,000,000 with a net interest margin of two ninety five basis points. Pleasingly, the Q4 net interest margin grew quarter on quarter to two ninety seven basis points. This continues the positive trajectory from Q3. We retained cost discipline over the year, with operating costs in line with guidance at GBP 9,400,000,000. Remediation of GBP $899,000,000 included GBP 700,000,000 as a result of the aforementioned motor charge.

7:44 Asset quality remained strong in 2024. The impairment charge of GBP $433,000,000 represents an asset quality ratio of 10 basis points. Tangible net asset value per share grew in 2024 by 1.6p to 52.4p per share. And finally, as said, we delivered strong capital generation of 148 basis points or 177 basis points excluding Motor, in line with our guidance. After distributions, this resulted in a CET1 ratio of 13.5%, in line with the expectations we set out in the beginning of the year. Let me turn to movements in the balance sheet. Pleasingly, lending and deposits grew strongly in 2024.

8:30 Lending ended the year at GBP $459,000,000,000, up 2% or GBP 9,000,000,000 in the year and up £2,000,000,000 in Q4. This growth was largely driven by mortgages, which grew £6,100,000,000 in the year or £2,200,000,000 in Q4. This was driven by a recovering market as well as a market share of new lending of around 20%, materially above levels of recent years. We expect further mortgage growth through 2025, supported by further strength in the market. In Commercial Banking, lending was down GBP 1,000,000,000 in the year and GBP 300,000,000 in the quarter.

9:07 Within this, we saw growth in our corporate and institutional business or the area of the business that predominantly serves large corporates, and this was more than offset by a reduction in our BCP balances, which are predominantly focused on SMEs. This reduction was largely due to the repayment of government backed lending. Turning to deposits. We saw a strong performance across both Q4 and the year as a whole. Total deposits were up by over GBP 11,000,000,000 in 2024, driven by growth in retail savings and a slightly better performance than expected in current accounts. Although we saw further churn in the period from customers moving their money from current accounts into savings products, this slowed during the year. Commercial deposits were stable. Let me now move on to income on Slide 10.

9:58 The group delivered net interest income of $12,800,000,000 in 2024, which was growth of 1%, including growth of 1% quarter on quarter. Over the year, average interest earning assets were $451,000,000,000 and the net interest margin was two ninety five basis points, both in line with guidance. In Q4, AIEAs were £455,000,000,000 with a margin of two ninety seven basis points. As you'll have noticed, the margin was two basis points up on Q3 and is continuing to increase at the gradual pace we'd expected. Going forward, we're going to focus on net interest income in our guidance rather than our margin. This will simplify our approach and ensure that we guide on what really matters, I. E, income. In 2025, we are targeting net interest income of 13,500,000,000, up about 700,000,000 from 2024.

10:51 This is built on further lending and deposit growth as well as a significant pickup in the income from the structural hedge. Indeed, hedge income is expected to grow by GBP 1,200,000,000 in 2025 year on year and a further GBP 1,500,000,000 in 2026. These tailwinds will be partly offset by deposit share, the impact of rate reductions and the continuation of the mortgage refinancing headwind. Whilst the pressures are meaningful, they will ease throughout the year. And just a note, to ease the transition away from the margin, our 2025 net interest income guidance is equivalent to a net interest margin of three zero five basis points. Turning to other income. 2024 was another year of encouraging and broad based growth. We expect this pattern to continue.

11:41 In 2024, other income of GBP 5,600,000,000 was 9% higher year on year, driven by positive momentum across the divisions. Indeed, retail was up 10%, supported by a strengthening contribution from our motor leasing business. Commercial was up 8% driven by a positive performance in our markets business, whilst insurance, pensions and investments was up 7%, which included healthy growth within general insurance as well as workplace pensions and individual annuities. Turning to operating lease depreciation briefly, which is the depreciation charge for our operating fee business. That was 1,300,000,000 in 2024 and included $331,000,000 in Q4. A key driver of this is car prices, which followed our expectations in the second half of the year.

12:29 Overall then, we expect this charge to grow in line with fleet growth and higher value vehicles going forward, but this will support growth in other operating income. Let me move to costs on Slide 11.

12:46 Operating costs of GBP 9,400,000,000 were in line with guidance. This was up 3% year on year, although this was only 2% excluding the sector wide charge for the Bank of England levy that was incorporated at the beginning of the year. In 2025, we expect operating costs of £9,700,000,000 This includes the impact of higher national insurance contributions equivalent to around GBP 100,000,000 per annum as well as ongoing investment, partly offset by further efficiency savings. Cost discipline remains hugely important for the group. Our tight BAU cost control enables us to make ongoing investment into the business to support our growth ambitions within our planned cost budgets. This means whilst investment to 2026 will be slightly higher than previously planned, it's consistent with our 2026 ambitions, including a below 50% costincome ratio.

13:40 Turning to remediation briefly. The GBP $899,000,000 charge, as said, includes GBP 700,000,000 relating to the incremental motor provision. This provision is built upon a number of key inputs, including the potential outcomes from the Supreme Court in April, which then creates a range of scenarios against which we assess probabilities to determine the probability weighted provision. Clearly, there remains significant uncertainty. But combined with the $450,000,000 taken in 2023, the total of $1,150,000,000 represents our best estimate. However, clearly, the final financial impact could differ meaningfully, both higher or lower. Let me now turn to asset quality. Asset quality remains strong and reflects resilient credit performance.

14:31 The full year impairment charge was GBP $433,000,000, as said, equivalent to an asset quality ratio of 10 basis points. This is a result of a low underlying charge, but it also benefits from improvements to our economic forecasts over the year. However, even excluding these economic releases, our asset quality ratio was a still low 19 basis points. Looking forward, we expect the asset quality ratio to be around 25 basis points for 2025 based upon our stated economic assumptions. Let me now move to Slide 19 to wrap up the financial overview.

15:09 In 2024, the group delivered strong capital generation of 148 basis points, up 177 basis points, excluding the Motor provision. We remain highly committed to returning capital to shareholders, and this strong generation underpins that. For 2024, the Board announced a final ordinary dividend of 2.11p per share for a total of 3.17p. This is up 15% on 2023. In addition, we announced a buyback of up to £1,700,000,000 We view this as a good result given the additional notes provision, and it means we have paid down to 13.5% CET1 level as guided. Together, this means the group will distribute around GBP 3,600,000,000 in respect to 2024.

15:57 Our distributions are in line with the progressive and sustainable dividend policy. Indeed, the ordinary dividend is up around 60 percent versus 2021. In addition, our consecutive buyback programs have so far reduced the share count by around 15% over the same period. Going forward, prospects are good for continued healthy growth in our capital distributions. On that note, let me hand back to Douglas to talk to our strategic aspirations to 2026. Thank you, Tom. So if you just heard, we have been successful in our strategic execution to date, and we delivered a robust performance in 2024. I'll now speak to the second phase of our strategic transformation and the financial benefits that we'll bring out to 2026.

16:46 So as a reminder, we initially announced our strategy back in 2022, with the first phase being the three years up until 2025, and effectively, it's all to the end of twenty twenty four with the next two years being the next stage of the process. So over the next two years, we're going to build on our strong foundations and business momentum we have built in the first phase. This will drive growth across the group with

17:14 a focus on high value areas. Our commitment to cost and capital efficiency will be reinforced by further savings, delivering strong operating leverage, whilst we will begin the next phase of our technology transformation, increasing the adoption of new technologies such as Gen AI,

17:36 driving benefits in both the near and long term. On the next slide, I'll talk talk through our priorities for each of our main business units, where we are building upon our existing strengths to deliver long term competitive advantage. Let me cover each of the business units in turn. Our retail business has significant scale and reach. We have relationships with over half of The UK adult population with leading positions across both products and channels. Our strategic focus is to deliver market leading, mobile first and highly personalized experiences. We will also maintain our leadership positions in lending through ongoing improvements to customer journeys across all channels.

18:23 This will help us deepen relationships, and we are targeting a further increase in our customer depth of relationship, defined as the number of products they hold with us of 3%. Turning to commercial, which is a combination of our BCB and CIB franchises, which essentially serve small and medium sized businesses and larger corporates, respectively. Across all of commercial, we have trusted long standing relationships and leading positions in core areas. For example, in CIB, we are a leader in UK infrastructure and project finance. Building upon these strengths, we see opportunities to diversify across both products and sectors whilst focusing on digitization front to back.

19:09 For example, in BCB, we are digitizing key servicing journeys, improving experience and driving efficiencies for the group. This focus is helping us to diversify our income. In CIB, we are targeting growth of 45% in other income from 2021 to 2026.

19:29 Finally, in insurance, pensions and investments, we are delivering a truly differentiated experience. With 10,000,000 customers, of which only around 2,000,000 have a banking relationship with us, there is significant opportunity to drive deeper relationships through more integration with our banking business. This would take the form of embedding insurance products within the retail banking app, including investment solutions. We're also driving increased engagement with the Scottish Widows app, increasing the number of users from 400,000 today to more than 1,500,000 by the end of twenty twenty six. As said before, underpinning all of this is the transformation we are undertaking across our technology.

20:18 I'll I'll speak to that on the next slide. Our technology strategy over the next two years will have two distinct elements. Ongoing modernization will deliver savings and improve efficiency

20:32 whilst creating the capacity for investment in new technologies. On the latter, we are well positioned as an AI leader with 800 AI models live today, supporting our colleagues and customers whilst we continue to make key hires at all levels. We are now launching a significant number of generative AI use cases across the group. This includes a knowledge management tool to more than 10,000 of our frontline colleagues. These investments are critical to driving long term advantage that will drive

21:07 that will drive long term advantage and will support financial benefits and our tech leadership position into the future. Let me conclude by turning to our financial expectations in 2026.

21:23 The next phase of our strategic plan will deliver significant revenue upside. Headwinds to our growth will persist, but we expect them to be smaller than they were in the years 2024. In contrast, we expect year on year progression in our structural hedge earnings more than headwinds. Added to this, we expect further growth across our strategic and BAU initiatives. On the former, we are upgrading our guidance to greater than 1,500,000,000 of additional revenues by 2026. Taking these factors together, we are very confident in the outlook. Let me now close with our full suite of guidance. The group is on a clear path to delivering an enhanced financial performance.

22:11 For 2025, we have now issued new guidance, including a return on tangible equity of around 13 and a half percent and and capital generation of circa 175 basis points.

22:25 We have also reconfirmed our 2026 targets. As you can see, the significant operating leverage we are generating will support higher, more sustainable returns and capital generation. For 2026, this represents a return on tangible equity of greater than 15% and greater than 200 basis points of capital generation.

22:50 I hope you found this to be a useful and interesting update. To summarize, we are very pleased with the progress so far and are excited about the opportunities to accelerate as we deliver a highly compelling investment case. We'll now open the call up to q and a. So please do submit any questions that you have via the website. I I know know we've received a couple of already,

23:17 but please do submit any additional questions. That's great. Douglas, Thomas, thank you very much indeed for updating investors. As Douglas just said, ladies and gentlemen, please do continue to submit your questions just using the Q and A tab situated on the right hand corner of the screen. But just while the guys take a few moments just to review the considerable number of questions you submitted already, I'd like to remind you a recording of this presentation, along with a copy of the slides and the published Q and A, will be accessible via your Investor Meet company platform. Douglas Thomas, as you can see, there's a number of questions from investors. So firstly, thank you to everyone for your engagement. If I may just hand back to you just to read out the questions where it's appropriate to do so, and I'll pick up from you at the end. Absolutely. Thank you very much indeed. So we'll go through these. We'll try and cover most of questions that you've submitted, and we'll just go through them in no no apparent order.

24:03 So the first question that was received was very much about motor finance. Clearly, that's very topical for for LLOYDS at the moment, but was really focused on

24:14 why LLOYDS seems to be continually impacted by different misselling cases. A number of you are aware that, you know, we we have had misselling cases in the past. Look. Look. From our side, I think that there are a number of key elements behind this. If you if you look at the motor finance case itself, Tom Tom gave the details actually on the call itself. Essentially, this relates to commission paid to motor finance dealers over a number of years. Essentially, we have taken a we took a 700,000,000 provision in the fourth quarter, basically, you know, in relation to the potential impact of, you know, those commissions. We had already taken a 450,000,000 charge in the fourth quarter of twenty twenty three.

25:04 So essentially now we've taken a charge of 1,150,000,000. And effectively, that reflects the court of appeal judgment, that was a huge surprise to the market and goes beyond the scope of the FCA review and the initial expectations. Essentially, that provision that we took includes an estimate for operational costs. It includes an estimate for potential redress, and that's based on a number of multiple scenarios. Now what I would flag is that there there is significant uncertainty. Clearly, the next stage in the process is the supreme court. The supreme court hearing on this will actually be held at the beginning of April. From our side, what I would what I would say is the fact that, you know, this is very much relating to, historic sales historic sales processes.

25:55 As a group, you can talk about our, you know, our focus of helping Britain prosper. What you'll also see as a group is that we are very customer focused in the way that we have initiated process processes. Indeed, actually, if you go back probably eight to ten years, we actually introduced a number of processes relating to, you know, customer relationship management, how the sales process worked, how indeed we were we were developing products and services to make sure that the the processes in place were indeed, you know, aligned to the requirements. And indeed, we believe that the process that was used for motor finance sales was entirely aligned to the regulatory regulatory requirements at the time, which is why that was, you know, a surprise to everyone and which is why this is this has been taken up the line and challenged by a number of our peers and taken to the supreme court.

26:54 We very much believe that actually the way that we operate the business is in the best interest of our customers. That's the focus of the business. It will continue to be the be the case. We would hope that the way that the the regulation, the politicians, the the courts come about means that actually we will get greater clarity going forward as to exactly what the policy, the process should look like and should prevent similar elements coming through because, as I say, this does very much relate to historic processes that were in place. Tom, I don't know whether there's anything you want to add to that at all. No. I think I think that covers motor. I think the next question then is from Robert, and it asks, what has Nat NatWest got right that LLOYDS haven't given their share prices doubled over the last year?

27:42 And maybe I'll start on that, Douglas, and then you add where you feel appropriate. I think the key thing, and I won't talk to our competitors' share price, but last year, clearly, our share price was impacted by most funds. And as said, that was an issue that emerged over the year. So there was an FCA investigation in January 2024 and then a court of appeals decision in October 2024. Both of those impacted the share price, increase that we saw through the year and also, therefore, resulted in a slight difference in comparison to peers. What has been pleasing for us is in 2025, we have outperformed our peers in terms of our share price. And, again, I won't necessarily talk to the relative differences between them, but from a LLOYDS perspective, we feel that's because we've added more transparency around our medium term prospects and shown the benefits that our strategy is going to bring after 2026.

28:32 And, also, clearly, there's benefits to come from that as well as we build the foundations. I think that transparency has helped people understand the earnings growth in particular we're expecting over the next few years. In addition, motor was clearly an overhang last year and continues to be an overhang. And we obviously don't like the uncertainty, we understand that shareholders don't like the uncertainty. But I think there's an understanding now that is largely built into our share price. We'll obviously have to wait and see what happens with the supreme court in April and the any judgment that comes from that. But I think, hopefully, shareholders are reassured by the fact that despite that overhang, we paid out a 1,700,000,000 buyback and paid down to 13.5% CET one ratio that we targeted. And I think that reassurance that our capital distributions can remain strong, we can continue to distribute to shareholders, Hopefully, that has helped drive the share price so far in 2025.

29:19 Yeah. I think I think that point that you said that you mentioned at the end there, Tom, is is is really important. There is absolutely no doubt that the court case on motor finance is a is an overhang on the share price at the moment. But what we were really focused on with the full year results is really in ensuring that actually the underlying performance of the business was very clear, whether that be the robust financial performance, whether that be the progress on our our strategic initiatives, or even whether it be the actual capital return itself. You know, fundamentally, as as Tom indicated there, we, despite taking an additional provision of 700,000,000, we were still able to announce an increased ordinary share ordinary dividend. That ordinary dividend was up 15% in the year, and indeed, we were unable to announce a a 1,700,000,000 buyback. So from a a capital return perspective, we were still able to almost like deliver the capital generation that enabled the capital strong capital return despite the additional provision for motor finance.

30:20 So the next question that's come up has been, how are you balancing digital transformation with maintaining customer trust and security? It's a really important question and and a question that, you know, clearly is raised on a number of times. You know, from from from our perspective, this is very much about customer requirements. You can see very much at the moment that that primarily in The UK and indeed worldwide, the move is very much more is driven by digital distribution, the focus on the app, the focus on actually enabling customers to do as many of their financial transactions as possible, you know, online. The actual use of branches is reducing. It's been very clear. That's one of the reasons why the the number of branches that we have on the high street has been reducing because the sheer demand for it is is less.

31:15 So you can see that the the customer demand is for is for digital transformation, is to move forward the the the technical capability available at every customer's hands. Likewise, you know, maintaining trust is fundamentally important. And, actually, I think as one of the largest financial institutions in The UK, given our size, we're able to invest that much more into security, into fraud, into investment to make sure that the actual services that we have are safe and secure. Fundamentally, as a bank, it is about safety. It is about security for for our customers' perspective and getting that balances right. You know, we have if you look at it from an internal perspective, we have compliance teams. We have policies. We have procedures.

32:02 You know, we, you know, we are very focused on making sure, you know, that actually the services, the processes that are available to customers are safe and secure. And, actually, if you're talking about long term sustainable relationships, that's just part of the proposition. So the next question was from Philip, and he asked whether on our most finance provision, whether it's a best estimate of the total costs, including redress and admin, and whether we disclose a range best to worst of assumptions of what the ultimate cost may be. So first of all, Philip, you're right. It is a best estimate. It's a best estimate in the sense that it's a probability weighted outcome.

32:48 So there are cases. There are scenarios which have worse numbers. There are scenarios which have better numbers, and we've assigned probabilities to all those scenarios, and then that output comes up with the 1,150,000,000 that we have taken to date. In terms of whether we've disclosed a range, we haven't, unfortunately. But suffice to say, there will be ones, as said, that are higher than that 1.15 and some that are lower. They will depend, as said, on some of those inputs, whether that's a supreme court outcome, whether it's the FCA's interventional potential intervention beyond that point, and also the customer behavior from any redress arrangement. All of those ought to be taken into account, but we haven't given the range for the best or worst maybe. Excellent. The the the next question that came up was talking about the performance of some of the divisions, in particular the commercial banking division, and really looking about how it's performing from particularly on the SME side, but whether there are any sector specific challenges.

33:48 Some of you may well have seen, you know, the actual full year results presentation that we produced. Essentially, there were there were a couple of pages in there that specifically related to BCB, so business and commercial banking, and indeed CIB, which is our effectively commercial book. So it's it's almost like the larger commercial customers. If you look at at it from our BCB side, effectively, our strategy, so for the small and medium sized businesses, is very much to build the best digitally led relationship bank, you know, meeting broader customer needs. Historically, we've had a very strong customer franchise, which has been very much relationship led. Indeed, if you look at it, you know, we've probably got about a 20%, you know, SME relationship share.

34:37 Actually, on the SME on the VCB, so SME side, we've we've probably got about, you know, in fact, more than a million customers. So it's a it's a significant business. And, actually, when you look at the returns from that business, it's a very strong return led business. Actually, if you look at the returns averaging over the last few years, it's probably greater than about 20% return on tangible equity. If you look at the strengths on that business, I think, actually, deposit share has remained very strong. If you look at some of the core areas in which we've been growing and being some of the most like valuable sectors, so whether that be transaction banking, whether that are looking at working capital. And, actually, we expect that to increase further and probably expect it to increase by more than 10% over the next couple of years.

35:25 But I think the biggest challenge in that area, and this is specifically on the SME side, is the digitization. As as I talked about previously, you know, fundamentally, if we're gonna be important as a group as a whole, operating leverage is gonna be really important. Operating leverage is very important when it comes to the SME business, and actually digitizing a lot of the proposition is fundamental. It's one of the biggest challenges. It's it's what we're really focused on. So that's gonna be the the objective from from that side. If you look at it from a commercial perspective, actually, again, you know, we've been making significant share and significant progress when it comes to some of the ancillary income. So for us, you know, the the franchise isn't just about lending to these customers.

36:13 You know, yes, we're the largest, you know, UK infrastructure, the largest project finance provider, But, actually, it's about how can we progress in some of the other related ancillary services, whether that's be in debt capital markets and how we support the growth of institutional and corporate customers or indeed it's how, you know, what sort of, like, interest rate products we can progress. And and, actually, if you look at it, we are aiming to deliver what about 45% growth between 2022 or 2021 and 2026. So it is a it is an area that we are growing particularly from another income perspective. And maybe the one thing I'll add to that on on the back of the question is on SMEs in particular and maybe the sector focus there. What we have found is that although customers remain resilient, lending growth and demand for lending has been muted.

37:09 So whilst we have seen customers build up deposits, and as said, haven't seen anything from asset quality perspective to concern us, What has happened is customers have been paying back government backed lending, and that hasn't been replaced, with new lending from that side. As that means in 2024, we saw a reduction in SME lending because of that deleveraging. The next question that's come up is actually about distributions, so capital return, and asking really whether the right way to think about this is that you'll continue to deliver progressive dividend per share supported by ongoing share buybacks. Yeah. I mean, you can see with the guidance that I talked about earlier, essentially, the moment, for this year, we're expecting 175 basis points of capital generation. And indeed, for next year, we've indicated that we're expecting more than 200 basis points of capital generation and indeed that we're looking to pay down to a capital ratio of around a CET1 ratio of around 13%.

38:08 So we've made it very clear from our dividend policy side that we have a progressive and sustainable ordinary dividend. As I say, that dividend increased by 15%, last year. I think it increased by 15%, the year before that and, 20% the year before that. So as you can see, it is very much progressive. We do believe that to be sustainable. On top of that, if you look, that dividend itself was probably delivered just under was probably equivalent to about just under about 2,000,000,000 of capital, something like that. On top of that, obviously, last year, we also announced an up to £1,700,000,000 buyback. If you look at it previously, in previous years, we delivered, what, a 2,000,000,000 buyback.

38:56 So you can see it's very much a consistent policy to have that progressive and sustainable ordinary dividend and then look towards return capital, you know, at the end of each year. Given where the share price has been, I think, you know, the the board's view has been that actually the share buyback is the most appropriate method for that excess capital return at the moment. I think one major factor behind that being that we believe that actually the returns of the group and indeed, as you can see, you know, the capital generation is strong and should continue to grow. So from that side, you know, we believe in the the future trajectory of the organization and there but, therefore, you know, believe that this is still a a good time to be buying back shares.

39:49 The next question is specifically on, Halifax share dealing, looking at the service and looking at how it compares to various peers who who work with their customers. You know, what I would say is that Halifax shared dealing is actually integral to our proposition when it comes to, you know, wealth and mass affluent clients. It's a really important element of the whole link between savings and investment. And, actually, from a group perspective, one of the major priorities, which I mentioned earlier, was how we integrate more effectively the insurance business with the retail business.

40:35 In the same way, we're looking at how you integrate Halifax share dealing and some of our share dealing services with some of the other, you know, banking propositions. It is a priority for us. It's something that we are going to be developing. And, actually, if you look at some of the almost like progress that we've made in cash ISAs and the like, actually, our market share has improved significantly. I think now we're number two for cash ISAs, you know, in The UK. So I think that whole proposition is gonna be really important as we focus more on mass affluence and the wealth management proposition, and it will become integral to the whole proposition. And maybe just to talk about some of the developments we saw in the last year. So our mass affluent affluent wealth proposition is was a key part of our strategy.

41:24 Last year, that meant rolling out standalone investment products such as ready made investments and LLOYDS BANKING three sixty. Those are investment propositions, but what's key for us and I think where we see our competitive advantage is we can build those into the banking app. So on the banking app, you now have a specific tab that is for investment, and it makes it much easier for our customers to use all those services. Augmented to that, we bought Embark, which is a direct to consumer wealth platform. So you mentioned other providers and other more dynamic brokers. We Embark adds a lot of that capability to us, and that helps us compete with some of the other providers out there. And so we feel we have a compelling proposition. And as said, we'll have to see how it develops, but it's something we're we're confident on. And I think that's really key there because you talk about Halifax share dealing actually, you know, under the latest details. You can actually see a lot of your Halifax share dealing, you know, accounts on your Lloyds Banking Group app.

42:17 And that that integrated approach is really fundamental from a customer proposition. A number of customers do use alternative apps that, you know, that are entirely independent, but a lot of customers don't want that. They want a more integrated approach and be able to combine their savings and their, almost like share dealing propositions, and that's something that we want to enable going forward. So the next question was on Citra Living. So Citra Living, is now called called LLOYDS Living. We've rebranded that business. That is a buy to rent part of our proposition. Now this is something that we only built itself a few years ago. So this is new to the business. And so it's grown from essentially a portfolio of zero to a portfolio that's much higher now. It's in thousands of homes exchanged. So the question is, are we committed to growing it, or is it a noncore unit that we could sell in the future? So we are very committed to growing it. It's it's within our equity investments business, which itself sits within central items, but that has grown grown quickly, and it is growing the other income exchanging on about 1,500 homes per year. That gives a sense of the, the ambitions that we have.

43:35 And the key thing is I think when you look at businesses like LLOYDS Living is the fact that what we've talked about is diversifying our income, not just having net interest income, but having other operating income. And, you know, businesses such as, you know, Lloyd's Living, such as Lloyd's Development Capital that are in the equities business do provide that additional, other income streams and an opportunity going forward. It's really important when you're running a business the size of ours that you have almost like a a portfolio based approach to to the way you look at investments, and this is simply another one of those perhaps smaller, perhaps newer investments that we're looking to develop further. The next question was relating to consolidation and M and A. And the question was, is LLOYDS open to playing an active role in the ongoing consolidation of The UK banking sector? Or is future m and a only going to be of the bolt on variety to grow the noninterest income line?

44:32 In essence, I think it's very clear that the LLOYDS strategy is an organic strategy. We believe that we can actually grow the business through actually developing the propositions that we have. We already have leading market shares in a number of the different product areas we compete in, whether that be current accounts, whether that be mortgages, or indeed some of the other more, peripheral areas. So so, yes, we have quite quite strong market positions. The fact that you have those strong market positions already probably does preclude you from undertaking some of the the larger m and a that could potentially be out there. We will have to look at look at the, effectively, the market shares and what that would mean across the piece. But it does mean if you're already a leading player that actually some of those acquisitions would be more difficult.

45:25 We will, however, continue to look at, you know, add on acquisitions, but only where they're really relevant to the business. You know, does it mean that we can actually, you know, add, you know, economies of scale by buying books? Could we actually accelerate the development of our strategy by acquiring different skills or capabilities? Are there different areas that we could actually grow slightly? So I think we we will look at opportunities. Any opportunity has to effectively work from both the return perspective, from a risk perspective. I mean, you'll see we've made a number of acquisitions. In fact, Tom alluded to this in a couple of his earlier responses.

46:12 But, you know, we acquired Tusker, which was a a salary sacrifice motor finance business. It's been very successful. Actually, the number of cars financed has probably doubled over the last two to three years. So, actually yeah. And it was completely aligned to our strategy and where we wanted to play. So I think, yeah, yes, we will look at, you know, odd add on acquisitions, but, primarily, you should look at our strategy as an organic strategy. So Marcus asks, are there any upcoming regulatory changes that you believe could significantly impact your business model or capital requirements. So I think the key point here is that when we look at regulation, there is both capital regulation, so the PRA, and there's also the FCA from a conduct perspective.

46:58 For us, I think what's most important is a predictable regulatory environment because that allows us to operate in The UK effectively knowing exactly the commitments we have to customers and how our products should interact with customers. I think for us, we've had a constructive dialogue with the FCA in recent months. I think we support the chancellor in her statements in the Imagine House speech at the end of last year, which talked about making sure that regulation is set up to promote growth in the industry. For us, we think that's a very important part of a healthy and stable financial sector that in turn will help The UK. In terms of specific regulatory changes, clearly, recently, the government talked about the interaction of the financial embodiment with the FCA and the talk of basically making sure that the FUZ aligned with the FCA and the FCA was the one that had the chief remit to bring in regulation for the banking system. That is obviously something we support and allows us to have that more predictable environment that we just talked Beyond that, there are clearly more there's more speculation.

48:03 I think for us, we are keen to see regulation that helps promote some of the areas that are both important for the government and and important for the business. So whether that's housing, whether that's sustainable infrastructure or the transition to net zero, whether that's financial planning in terms of pensions, any changes there that meaningfully help our customers then also but also help us support our customers is important. I don't know, Douglas, was there anything you might want to add to that? No. I think that's I think that's a very, yeah, fair summary. So so the next question on here, and you might wanna add something on this as well, Tom, but was really talking about preference shares and the fact that we redeemed some preference shares in 2024 and really looking at, you know, almost like, you know, what that means going forward. Now, clearly, when it when it comes to preference shares, you know well well, actually, when it when it comes to, you know, funding for the group as a whole, and let's be clear that, you know, preference shares are a part of that. We run very much a diverse funding portfolio.

49:08 You know, that's looking at effectively funding across all the different layers of the balance sheet. We look at capital. We look at opco funding. We look at holdco funding. And and it's in essence, across the piece, we try to get, you know, a pretty diversified, you know, almost like wholesale funding position, not just from a type because that impacts actually the cost of the funding and for the group as a whole, but also across different currencies and also across different, debt types and indeed across different tenants. Whenever we're managing the funding base of the the book as a whole, it's a case of balancing regulatory requirements and getting the meeting the appropriate funding requirements.

49:57 We don't tend to because it's, you know, effectively indicate, you know, as and when, you know, whether you're what calls or not you're going to make on future securities. But, you know, clearly, you know, we've got a very diversified and, I I would say, almost like debt holder friendly approach to the way that we look at this. So the next question is from John. It asks, what assumptions are you making around the Bank of England base rate for the next twelve months? So our economic expectations that we set out the full year said that there should there would likely be, or our expectation is, three cuts in 2025. Obviously, that includes one cut that has already happened in February, and so that suggests two further cuts in the remainder of the year.

50:46 As we go to 2026, we expect two further cuts to a terminal rate of 3.5%. So those are our expectations at the moment. Obviously, every quarter, we review our economic expectations. But as of the full year, those are where we think we're gonna end up, and they are built in to our guidance around net interest income and also asset quality. That actually, I think, concludes the questions that have actually been submitted. That's great, Douglas. Thomas, indeed. Thank you. And thank you to everybody once again for your wonderful engagement this afternoon. Douglas, Thomas, I know that investor feedback will be particularly important to you, and I will shortly redirect those on call to give you their thoughts and their expectations. But before doing so, Douglas, if I may, for the final time, just come back to you for a couple of closing comments.

51:34 Yeah. If anything, it's just a a very quick brief comment. It's like, you know, thank you for dialing into the call. Thank you for your interest in LLOYDS BANKING GROUP. You know, I hope what we've been able to share with you today is a is a bit of a summary of the progress, the priorities for the group, and indeed, you know, the the future potential. You know, we are confident in delivering our future guidance, And, you know, you know, we wanted to, you know, make sure that that was you know, that the messaging that we were making to the market from an institutional perspective was also clearly shared with, you know, retail investors as well through, you know, this investor meet webinar. So thank you very much for dialing in. That's great, Douglas. Thank you very much indeed for updating investors. If I could please ask investors not to close the sessions, we'll now automatically redirect you for the opportunity to provide your feedback in order that management can really better understand your views and expectations.

52:34 I would say only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of Douglas, Thomas and the team from LLOYDS BANK, we'd like to thank you for attending today's presentation, and good afternoon to you all.