TIDM83AB TIDMLLOY
RNS Number : 7793Z
Lloyds Bank Corporate Markets PLC
16 September 2022
Lloyds Bank Corporate Markets plc
2022 Half-Year Results
Member of the Lloyds Banking Group
CONTENTS
Page
Review of performance 1
Principal risks and uncertainties 4
Condensed consolidated interim financial statements 7
Consolidated income statement 8
Consolidated statement of comprehensive income 9
Consolidated balance sheet 10
Consolidated statement of changes in equity 12
Consolidated cash flow statement 15
Notes to the condensed consolidated half-year financial
statements 16
Statement of directors' responsibilities 51
Independent review report to Lloyds Bank Corporate Markets
plc 53
Forward looking statements 55
REVIEW OF PERFORMANCE
Lloyds Bank Corporate Markets plc (the Bank) and its
subsidiaries (the Group) carries out the non-ring fenced banking
operations of Lloyds Banking Group (LBG) and provides a wide range
of banking and financial services in the UK and overseas. The Group
operates as an integrated business across the UK, the Crown
Dependencies, the USA, Singapore and Germany, and contributes to
the financial results of the Commercial Banking Division of
LBG.
The Group's strategic purpose as part of LBG is to Help Britain
Prosper by connecting the UK and LBG with the world through a first
class banking, financing and risk management proposition. All
underpinned by excellent customer service.
Principal activities
Supporting a diverse range of customers, the Group provides a
broad range of banking products to help them achieve their
financial goals. The Group's revenues are earned through the
provision of financing and risk management solutions to commercial
customers; and current accounts, savings accounts, mortgages, car
finance and personal loans in the retail market in our Crown
Dependencies businesses.
The target market for these products and services in the UK and
internationally is made up of large corporates, financial
institutions and commercial customers plus, in the Crown
Dependencies, retail customers and includes the following product
propositions:
- Commercial lending (including fixed rate loans, revolving
credit facilities, variable loans and business mortgages)
- Trade and working capital management (including trade
services, trade finance, supply chain finance and asset
finance)
- Bonds and structured finance (including bonds, structured lending and asset securitisation)
- Risk management (including foreign exchange, rates, credit,
commodities and liabilities management)
- Retail banking services (including mortgages, personal current
accounts, personal loans and motor finance) in the Crown
Dependencies
- ESG product solutions (including green bonds and sustainability-linked loans)
Review of results
During the half-year to 30 June 2022, the Group recorded a
profit before tax of GBP249 million compared to GBP193 million
during the half-year to 30 June 2021, an overall increase of GBP56
million. The Group has benefited from good performance in its core
businesses including increased lending combined with rising
interest rates and foreign exchange trading activity. Work has
continued successfully on the tasks required to safely close down
the Singapore branch which is on schedule to complete this year and
continued progress has been made on the transition from Interbank
Offered Rates (IBORs) to Alternative Risk Free Reference Rates
(refer Note 14).
The Group recognised an impairment charge of GBP11 million
(2021: GBP47 million impairment credit in the half-year to 30 June
2021) in the income statement relating to expected credit loss
(ECL) driven largely by the future economic outlook. The Group's
ECL calculated under IFRS 9 requires the use of a range of possible
future outcomes and more details are contained in Notes 2 and
4.
Regulatory capital adequacy remains strong, with a Bank CET1
ratio of 12.6 per cent (2021: 13.1 per cent); reflecting the
stability of the business, and the strength of the client franchise
served by the Bank. Risk weighted assets have increased by GBP2,136
million from GBP18,436 million at 31 December 2021 to GBP20,572
million at 30 June 2022, reflecting increased lending and an
increase on 1 January 2022 regarding the impact of regulatory
changes, including a new standardised approach for measuring
counterparty credit risk (SA-CCR). The Bank's UK leverage ratio of
4.5 per cent at 30 June 2022 increased from 3.5 per cent at 31
December 2021, largely following the impact of regulatory changes
applied under the UK leverage ratio framework on 1 January
2022.
Total income was GBP476 million in the first half of 2022
compared to GBP350 million in the first half of 2021 which is an
increase of 36 per cent. This predominantly comprises net interest
income of GBP131 million (GBP70 million in the half-year to 30 June
2021), net fee and commission income of GBP107 million (GBP117
million in the half-year to 30 June 2021) and net trading income of
GBP234 million (GBP171 million in the half-year to 30 June 2021).
This reflects good lending growth, stable funding and resilient
trading performance.
Operating expenses were GBP216 million, up from GBP204 million
in the half-year to 30 June 2021, an increase of GBP12 million
which includes severance and other costs of closing the Singapore
branch. Operating expenses consist predominantly of management
charges relating to the Intra Group Agreement paid to Lloyds Bank
plc, staff costs and other operating expenses. The taxation charge
in the period was GBP42 million (six months to 30 June 2021 GBP60
million charge) and more details are contained in Note 5.
Total assets were GBP1,378 million higher at GBP90,077 million
at 30 June 2022 compared to GBP88,699 million at 31 December 2021.
Cash and balances at central banks decreased by GBP5,798 million
from GBP22,140 million at 31 December 2021 to GBP16,342 million at
30 June 2022 reflecting a lower assessment of liquidity required.
Financial assets at fair value through profit or loss were
GBP15,709 million at 30 June 2022 compared to GBP22,409 million at
31 December 2021 and predominantly consist of reverse repurchase
agreements which have reduced in the period offsetting increases in
derivative balances. Derivative financial instruments of GBP27,716
million at 30 June 2022 increased by GBP9,726 million compared to
GBP17,990 million at 31 December 2021 reflecting fair value mark to
market movements and the impact of the USD exchange rate at the
period end. Financial assets at amortised cost increased by
GBP2,296 million from GBP25,616 million at 31 December 2021 to
GBP27,912 million at 30 June 2022, mainly as a result of increased
customer lending.
Total liabilities of the Group were GBP86,867 million at 30 June
2022 compared to GBP85,210 million at 31 December 2021, a increase
of GBP1,657 million. Deposits from banks were GBP3,223 million at
30 June 2022 which is GBP598 million lower than GBP3,821 million at
31 December 2021. Customer deposits increased by GBP314 million
from GBP26,967 million at 31 December 2021 to GBP27,281 million at
30 June 2022 reflecting customer activity. Financial liabilities at
fair value through profit or loss at 30 June 2022 of GBP14,082
million have decreased by GBP2,500 million when compared with the
31 December 2021 balance of GBP16,582 million which reflects a
reduction in repurchase agreements offset by an increase in short
positions. Derivative financial instruments of GBP23,122 million
have increased by GBP7,550 million compared to the 31 December 2021
balance of GBP15,572 million reflecting fair value mark to market
movements. Debt securities in issue of GBP14,929 million has
decreased by GBP1,715 million compared to GBP16,644 million at 31
December 2021.
Total equity at 30 June 2022 was GBP3,210 million which is a
decrease of GBP279 million compared to GBP3,489 million at 31
December 2021 including profits in the period less the dividend
paid to LBG in the period of GBP220 million (2021: GBP200 million)
and movements in other reserves (refer Note 10).
Capital position at 30 June 2022
The Bank's capital position as at 30 June 2022 is set out in the
following section.
At 30 At 31
June 2022 Dec 2021
Capital resources of the bank GBPm GBPm
---------------------------------------------------------- ----------------- ------------------
Common equity tier 1
Shareholders' equity per balance sheet 2,483 2,783
Adjustment to retained earnings for foreseeable dividends - (220)
Cash flow hedging reserve 308 48
Debit valuation adjustment (35) (16)
2,756 2,595
less: deductions from common equity tier 1
Prudent valuation adjustment (168) (163)
Excess of expected losses over impairment provisions
and value adjustments - (9)
Common equity tier 1 capital 2,588 2,423
Additional tier 1
Additional tier 1 instruments 757 757
---------------------------------------------------------- ----------------- ------------------
Total tier 1 capital 3,345 3,180
---------------------------------------------------------- ----------------- ------------------
Tier 2
Tier 2 instruments 697 633
Other adjustments (101) (104)
---------------------------------------------------------- ----------------- ------------------
Total tier 2 capital 596 529
---------------------------------------------------------- ----------------- ------------------
Total capital resources 3,941 3,709
---------------------------------------------------------- ----------------- ------------------
Risk-weighted assets 20,572 18,436
12.6 13.1
Common equity tier 1 capital ratio % %
16.3 17.2
Tier 1 capital ratio % %
19.2 20.1
Total capital ratio % %
At 30 At 31
June 2022 Dec 2021
Risk-weighted assets of the Bank GBPm GBPm
---------------- ----------------
Foundation Internal Ratings Based (IRB) Approach 9,302 7,665
Other IRB Approach 545 579
------------------------------------------------- ---------------- ----------------
IRB Approach 9,848 8,244
Standardised Approach (1) 1,324 1,337
------------------------------------------------- ---------------- ----------------
Credit risk 11,171 9,581
------------------------------------------------- ---------------- ----------------
Securitisation 516 571
Counterparty credit risk 5,426 4,024
Credit valuation adjustment risk 383 472
Operational risk 763 855
Market risk 2,313 2,933
------------------------------------------------- ---------------- ----------------
Total risk-weighted assets 20,572 18,436
------------------------------------------------- ---------------- ----------------
Of which threshold risk-weighted assets (2) 565 555
------------------------------------------------- ---------------- ----------------
(1) Threshold risk-weighted assets are now included within Other
IRB Approach and the Standardised (STA) Approach. In addition
securitisation risk-weighted assets are now shown separately.
Comparatives have been presented on a consistent basis.
(2) Threshold risk-weighted assets reflect the element of
significant investments and deferred tax assets that are permitted
to be risk-weighted instead of being deducted from CET1
capital.
PRINCIPAL RISKS AND UNCERTAINTIES
The most significant risks that could impact the Group's ability
to deliver its long-term strategic objectives, and approach to
managing each risk, are reviewed and reported to the Board Risk
Committee regularly. There has been no change to the principal
risks as disclosed in the Group 2021 Annual Report and
Accounts.
The external risks faced by the Group may also impact the
success of delivering against the Group's long-term strategic
objectives. These risks arise primarily from the war between Russia
and Ukraine and the COVID-19 pandemic. The conflict is generating
severe economic, political, social and humanitarian impacts across
Europe and in the rest of the world. The Group's exposure to
Russia, Ukraine and surrounding countries is not material, given
our low risk appetite, and the impact of economic sanctions remains
limited and manageable. However consequences are being felt through
financial markets volatility, inflationary pressures and the risks
associated with the conflict remain very high, such as economic
contraction, cyber-attacks, higher default levels and other
consequences of sanctions. The possibility of secondary sanctions
could however add complexity to existing operational requirements
in managing our exposure. In addition, the COVID-19 pandemic
impacts remain through additional pressure on the global
macro-economic conditions, global supply chains or public debts. A
deterioration in the macro-economic environment may also impact the
Group through higher impairments.
In addition to the geopolitical situation and COVID-19, the
Group continues to monitor and address existing and emerging risks
that could have an adverse impact on business model, financial
conditions, operations and our ability to achieve revenue
targets:
- The Group is subject to extensive regulation, supervision and
examination by regulatory bodies in countries where it has a
presence, as well as from wider initiatives. The pace and scope of
new regulations could have material adverse impacts on the Group's
business, financial and operating conditions such as regulatory
fines for non compliance, additional capital requirements, business
operations restrictions and associated costs
- The Group continues its transition from Interbank Offered
Rates (IBORs) to Alternative Risk Free Reference Rates. The
complexity of the transition could have material adverse impacts
such as less liquid interest rates, increased litigation or
disputes and higher operational risks
- Since the relationship between the UK and the European Union
has still not settled, the UK's exit from the EU continues to
create uncertainty as to what the future UK legal and regulatory
framework will look like, noting the potential for the UK to
deviate from the EU's legal and regulatory system. Trade disruption
continues to be felt and meeting stringent EU regulations restrict
the scope of the Group business model in the European Union
- The Group uses proprietary models to forecast losses, measure
capital requirements, make business decisions and assess and
control our operations and financial condition. Models are
inherently subject to limitations due to their use of historical
data and trends, simplifying assumptions and reliance on uncertain
macroeconomic and financial variables. Our models may not be
sufficiently predictive of future results due to limited historical
data, extreme market volatility, parameterisation and
implementation errors. In addition, our models may be ineffective
if we fail to oversee them and detect flaws in the review and
monitoring process
- The Group operates in a highly competitive market where the
recruitment and retention of talent, particularly at a junior
level, remains challenging. Ensuring that we have the right number
and calibre of employees is core to the Group's success
- On climate risk, the Group is aligned with LBG, its service
provider, which has taken a strategic approach to support the
transition to a low carbon economy and the aims of the 2015 Paris
Climate Agreement, the UK Government's net zero target, the Ten
Point Plan for the Green Industrial Revolution and the Task Force
on Climate-related Financial Disclosures (TCFD) recommendations
- The provision of services to the Group is outsourced to Lloyds
Bank plc via a shared service provision model or by external
providers via Lloyds Bank plc. Therefore, issues impacting the
shared service provider could have a detrimental impact on the
Group's operations
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
Credit risk - The risk that parties with whom the Group has
contracted fail to meet their financial obligations (both on and
off-balance sheet). Observed or anticipated changes in the economic
environment could impact profitability due to an increase in
delinquency, defaults, write-downs and/or expected credit
losses.
Regulatory and legal risk - The risk arising from the failure to
identify, assess, correctly interpret, comply with, or manage
regulatory and/or legal requirements, leading to customer
detriment, failure to prevent and/or detect economic crime,
financial penalties, regulatory censure, criminal or civil
enforcement action.
Conduct risk - The risk of detriment across the customer life
cycle including: failures in product management, distribution and
servicing activities, from other risks materialising, or other
activities which could undermine the integrity of the market or
distort competition, leading to unfair customer outcomes,
regulatory censure, reputational damage or financial loss.
Operational risk - The risk of inadequate or failed internal
processes, people, systems or from external events leading to loss.
This includes cyber-attack, internal and/or external fraud or
financial crime, IT systems failures or, failure to ensure
compliance with associated increasingly complex and detailed
regulation.
Operational risk: shared services model (SSM) - LBG's chosen
ring-fencing operating model introduces risk for the Group in the
execution of that model as a shared service recipient.
Key Risks include:
- Key reliance on the SSM increases the prominence of internal
service provision risk which is compounded, given the leanness of
the relevant teams, in situations where the Group's priorities are
not wholly aligned with those of the wider LBG
- Business process risk (i.e. non-adherence to key processes,
including those relating to market, operational, capital, credit,
economic crime prevention and funding & liquidity risk)
- Information security & cyber risk including access
management, records, data protection and cyber
- IT systems risk due to reliance on the shared service from LBG's IT department
- Reliance on the SSM to operate a number of key controls and
processes designed to detect, prevent and respond to economic
crime
- Operational risk around business resilience, change activity and sourcing
- Impact of resourcing challenges LBG might face around
attracting and retaining people with the necessary skills
Operational resilience risk - The risk that the Group fails to
design resilience into business operations, underlying
infrastructure and controls (people, process and technical) to
withstand external or internal events that could impact the
continuity of operations or alternatively the failure to respond to
events in a way which meets stakeholder expectations and needs when
the continuity of operations is compromised.
People risk - The risk that the Group fails to provide an
appropriate colleague and customer centric culture, supported by
robust reward and wellbeing policies and processes; effective
leadership to manage colleague resources; effective talent and
succession management; and control framework to ensure all
colleague related requirements are met.
Capital risk - The risk that the Group has a sub-optimal
quantity or quality of capital or that capital is inefficiently
deployed across the Group.
Funding and liquidity risk - Funding risk is defined as the risk
that the Group does not have sufficiently stable and diverse
sources of funding or the funding structure is inefficient.
Liquidity risk is defined as the risk that financial resources are
insufficient to meet commitments as they fall due or can only
secure them at excessive cost.
Market risk - The risk that the Group's capital or earnings
profile is affected by adverse market rates, in particular changes
and volatility in interest and foreign exchange rates, inflation
rates, commodity prices and credit spreads through activity in the
banking and markets businesses.
Model risk - The risk of financial loss, regulatory censure,
reputational damage or customer detriment from deficiencies in
developing, applying and operating models and rating systems.
Data risk - The risk of the Group failing to effectively govern,
manage, and control its data (including data processed by third
party suppliers) leading to unethical decisions, poor customer
outcomes, loss of value to the Group and mistrust.
PRINCIPAL RISKS AND UNCERTAINTIES (continued)
Governance risk - The risk that its organisational
infrastructure fails to provide robust oversight of decision making
and the control mechanisms to ensure strategies and management
instructions are implemented effectively.
Change/execution risk - The risk that, in delivering its change
agenda, the Group fails to ensure compliance with laws and
regulation, maintain effective customer service and availability,
and/or operate within the Group's risk appetite.
Strategic risk - Strategic risk is defined as the risk which
results from:
- Incorrect assumptions about internal or external operating environments
- Failure to understand the potential impact of strategic
responses and business plans on existing risk types
- Failure to respond or the inappropriate strategic response to
material changes in the external or internal operating
environments
STATUTORY INFORMATION
Page
Condensed consolidated half-year financial statements
(unaudited)
Consolidated income statement 8
Consolidated statement of comprehensive income 9
Consolidated balance sheet 10
Consolidated statement of changes in equity 12
Consolidated cash flow statement 15
Notes
1 Basis of preparation and accounting policies 16
2 Critical accounting judgements and key sources
of estimation uncertainty 17
3 Operating expenses 25
4 Impairment 25
5 Tax expense 26
Financial assets at fair value through profit
6 or loss 27
7 Financial assets at amortised cost 28
8 Debt securities in issue 33
9 Other provisions 33
10 Other reserves 33
11 Related party transactions 36
12 Contingent liabilities, commitments and guarantees 37
13 Fair values of financial assets and liabilities 38
14 Interest rate benchmark reform 47
15 Dividends on ordinary shares 49
16 Ultimate parent undertaking 50
17 Events since the balance sheet date 50
18 Other information 50
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Half-year
to 30 Half-year
June to 30 June
2022 2021
Note GBPm GBPm
Interest income (1) 290 162
Interest expense (1) (159) (92)
--------------------- ---------------------
Net interest income 131 70
--------------------- ---------------------
Fee and commission income 122 132
Fee and commission expense (15) (15)
--------------------- ---------------------
Net fee and commission income 107 117
Net trading income 234 171
Other operating income (expense) 4 (8)
--------------------- ---------------------
Other income 345 280
--------------------- ---------------------
Total income 476 350
Operating expenses 3 (216) (204)
Impairment (charge) credit 4 (11) 47
--------------------- ---------------------
Profit before tax 249 193
Tax expense 5 (42) (60)
--------------------- ---------------------
Profit for the period 207 133
--------------------- ---------------------
Profit attributable to ordinary shareholders 190 117
Profit attributable to other equity holders 17 16
Profit for the period 207 133
--------------------- ---------------------
(1) Restated - See note 1
The accompanying notes are an integral part of the condensed
consolidated half-year financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Half-year
to 30 Half-year
June to 30 June
2022 2021
Note GBPm GBPm
Profit for the period 207 133
Other comprehensive income
Items that may subsequently be reclassified
to profit or loss:
--------------------- ---------------------
Movements in revaluation reserve in respect
of debt securities held at fair value through
other comprehensive income, net of tax 10 1 5
Movements in cash flow hedging reserve, net
of tax 10 (260) (63)
Movements in foreign currency translation
reserve, net of tax 10 10 (2)
--------------------- ---------------------
Other comprehensive income for the period,
net of tax (249) (60)
--------------------- ---------------------
Total comprehensive income for the period (42) 73
--------------------- ---------------------
Total comprehensive income attributable to
ordinary shareholders (59) 57
Total comprehensive income attributable to
other equity holders 17 16
--------------------- ---------------------
Total comprehensive income for the period (42) 73
--------------------- ---------------------
CONSOLIDATED BALANCE SHEET
At At
30 June 31 Dec
2022 2021
(unaudited) (audited)
Note GBPm GBPm
Assets
Cash and balances at central banks 16,342 22,140
Financial assets at fair value through profit
or loss 6 15,709 22,409
Derivative financial instruments 27,716 17,990
--------------------- --------------------
Loans and advances to banks 2,021 2,354
Loans and advances to customers 20,809 17,432
Reverse repurchase agreements 4,461 5,044
Debt securities 309 229
Due from fellow Lloyds Banking Group undertakings 312 557
--------------------- --------------------
Financial assets at amortised cost 7 27,912 25,616
Financial assets at fair value through other
comprehensive income 12 100
Property, plant and equipment 60 67
Current tax recoverable 2 16
Deferred tax assets 134 37
Other assets 2,190 324
--------------------- --------------------
Total assets 90,077 88,699
--------------------- --------------------
Liabilities and equity
Liabilities
Deposits from banks 3,223 3,821
Customer deposits 27,281 26,967
Repurchase agreements 1 1,019
Due to fellow Lloyds Banking Group undertakings 1,261 3,442
Financial liabilities at fair value through
profit or loss 14,082 16,582
Derivative financial instruments 23,122 15,572
Debt securities in issue 8 14,929 16,644
Other liabilities 2,188 461
Current tax liabilities 5 5
Deferred tax liabilities - -
Other provisions 9 26 13
Subordinated liabilities 749 684
--------------------- ---------------------
Total liabilities 86,867 85,210
--------------------- ---------------------
Equity
Share capital 120 120
Other reserves 10 (313) (64)
Retained profits 2,621 2,651
--------------------- ---------------------
Ordinary shareholder's equity 2,428 2,707
Other equity instruments 782 782
--------------------- ---------------------
Total equity 3,210 3,489
--------------------- ---------------------
Total equity and liabilities 90,077 88,699
--------------------- ---------------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
Attributable to ordinary shareholders
---------------------------------------------------------------------------
Other
Share Other Retained equity
capital reserves profits Total instruments Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January
2022 120 (64) 2,651 2,707 782 3,489
Comprehensive
income
Profit for the
period 190 190 17 207
Other
comprehensive
income
Movements in
revaluation
reserve in
respect
of debt
securities
held at fair
value
through other
comprehensive
income, net
of tax 1 1 1
Movements in
cash
flow hedging
reserve,
net of tax (260) (260) (260)
Movements in
foreign
currency
translation
reserve, net
of tax 10 10 10
---------------- ------------------ ----------------- ------------------ ------------------- ------------------
Total other
comprehensive
income (249) (249) (249)
---------------- ------------------ ----------------- ------------------ ------------------- ------------------
Total
comprehensive
income (249) 190 (59) 17 (42)
---------------- ------------------ ----------------- ------------------ ------------------- ------------------
Transactions
with
owners
---------------- ------------------ ----------------- ------------------ ------------------- ------------------
Dividends (220) (220) (220)
Distributions
on
other equity
instruments (17) (17)
Total
transactions
with owners (220) (220) (17) (237)
At 30 June
2022 120 (313) 2,621 2,428 782 3,210
---------------- ------------------ ----------------- ------------------ ------------------- ------------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
(continued)
Attributable to ordinary shareholders
-----------------------------------------------------------------------------
Other
Share Other Retained equity
capital reserves profits Total instruments Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January
2021 120 81 2,646 2,847 782 3,629
Comprehensive
income
Profit for the
period - - 117 117 16 133
Other
comprehensive
income
Movements in
revaluation
reserve in
respect
of financial
assets
held at fair
value
through other
comprehensive
income, net
of tax - 5 - 5 - 5
Movements in
cash
flow hedging
reserve,
net of tax - (63) - (63) - (63)
Movements in
foreign
currency
translation
reserve, net
of tax - (2) - (2) - (2)
---------------- ------------------- ----------------- ------------------- ------------------- -------------------
Total other
comprehensive
income - (60) - (60) - (60)
---------------- ------------------- ----------------- ------------------- ------------------- -------------------
Total
comprehensive
income - (60) 117 57 16 73
---------------- ------------------- ----------------- ------------------- ------------------- -------------------
Transactions
with
owners
---------------- ------------------- ----------------- ------------------- ------------------- -------------------
Dividends - - (200) (200) - (200)
Distributions
on
other equity
instruments - - - - (16) (16)
Total
transactions
with owners - - (200) (200) (16) (216)
At 30 June
2021 120 21 2,563 2,704 782 3,486
---------------- ------------------- ----------------- ------------------- ------------------- -------------------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
(continued)
Attributable to ordinary shareholders
---------------------------------------------------------------------------
Other
Share Other Retained equity
capital reserves profits Total instruments Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 July 2021 120 21 2,563 2,704 782 3,486
Comprehensive
income
Profit for the
period - - 88 88 17 105
Other
comprehensive
income
Movements in
revaluation
reserve in
respect
of financial
assets
held at fair
value
through other
comprehensive
income, net
of tax - 3 - 3 - 3
Movements in
cash
flow hedging
reserve,
net of tax - (90) - (90) - (90)
Movements in
foreign
currency
translation
reserve, net
of tax - 2 - 2 - 2
---------------- ------------------ ----------------- ------------------ ------------------- ------------------
Total other
comprehensive
income - (85) - (85) - (85)
---------------- ------------------ ----------------- ------------------ ------------------- ------------------
Total
comprehensive
income - (85) 88 3 17 20
---------------- ------------------ ----------------- ------------------ ------------------- ------------------
Transactions
with
owners
---------------- ------------------ ----------------- ------------------ ------------------- ------------------
Dividends - - - - - -
Distributions
on
other equity
instruments - - - - (17) (17)
Total
transactions
with owners - - - - (17) (17)
At 31 December
2021 120 (64) 2,651 2,707 782 3,489
---------------- ------------------ ----------------- ------------------ ------------------- ------------------
CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)
Half-year
to 30 Half-year
June to 30 June
2022 2021
GBPm GBPm
Profit (loss) before tax 249 193
Adjustments for:
Change in operating assets (6,498) 6,104
Change in operating liabilities 915 (10,306)
Non-cash and other items (606) (26)
Tax paid (26) (33)
---------------------- ----------------------
Net cash provided by operating activities (5,966) (4,068)
---------------------- ----------------------
Cash flows from investing activities
Purchase of financial assets (27) (25)
Proceeds from sale and maturity of financial assets 119 41
Purchase of fixed assets (1) (4)
Net cash used in investing activities 91 12
---------------------- ----------------------
Cash flows from financing activities
Dividends paid to ordinary shareholders (220) (200)
Distributions on other equity instruments (17) (16)
Interest paid on subordinated liabilities (9) (8)
Finance Leases (1) -
Net cash provided by financing activities (247) (224)
---------------------- ----------------------
Effect of exchange rate changes on cash and cash
equivalents 716 (63)
---------------------- ----------------------
Change in cash and cash equivalents (5,406) (4,343)
Cash and cash equivalents at beginning of period
(1) 23,103 26,392
---------------------- ----------------------
Cash and cash equivalents at end of period (1) 17,697 22,049
---------------------- ----------------------
Cash and cash equivalents comprise cash and non-mandatory
balances with central banks and amounts due from banks with a
maturity of less than three months.
(1) Restated see Note 1
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS
Note 1: Basis of preparation and accounting policies
These condensed consolidated half-year financial statements as
at and for the period to 30 June 2022 have been prepared in
accordance with the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority (FCA) and with International
Accounting Standard 34 (IAS 34), Interim Financial Reporting as
adopted by the United Kingdom and comprise the results of Lloyds
Bank Corporate Markets plc (the Bank) together with its
subsidiaries (the Group). They do not include all of the
information required for full annual financial statements and
should be read in conjunction with the Group's consolidated
financial statements as at and for the year ended 31 December 2021
which complied with international accounting standards in
conformity with the requirements of the Companies Act 2006 and were
prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting
Standards Board. Copies of the 2021 Annual Report and Accounts are
available on the Group's website Group's website and are available
upon request from Investor Relations, Lloyds Banking Group plc, 25
Gresham Street, London EC2V 7HN.
The Directors consider that it is appropriate to continue to
adopt the going concern basis in preparing the condensed
consolidated half-year financial statements. In reaching this
assessment, the Directors have taken into account the uncertainties
affecting the UK economy and their potential effects upon the
Group's performance and projected funding and capital position; the
impact of further stress scenarios has also been considered. On
this basis, the Directors are satisfied that the Group will
maintain adequate levels of funding and capital for the foreseeable
future.
The 2021 interest income and interest expense balances as at 30
June 2021 have been restated to reflect GBP11 million negative
interest correctly in the interest expense line. There has been no
impact to net interest income.
Changes in accounting policy
Except for the matter referred to below, the Group's accounting
policies are consistent with those applied by the Group in its
financial statements for the year ended 31 December 2021 and there
have been no changes in the Group's methods of computation.
Cash and cash equivalents: Following a decision by the IFRS
Interpretations Committee in April 2022, the Group includes
mandatory reserve deposits with central banks that are held in
demand accounts within cash and cash equivalents disclosed in the
cash flow statement, whereas these amounts were previously excluded
from the amount presented in the cash flow statement. This change
increased the Group's cash and cash equivalents at 31 December 2021
by GBP 45 million (to GBP23,103 million) and at 30 June 2022 by
GBP23 million (to GBP17,697 million).
Future accounting developments
The IASB has issued a number of minor amendments to IFRSs
effective 1 January 2023 (including IAS 1 Presentation of Financial
Statements and IAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors). These amendments are not expected to have a
significant impact on the Group.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and key sources of
estimation uncertainty
The preparation of the Group's financial statements requires
management to make judgements, estimates and assumptions that
impact the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Due to the
inherent uncertainty in making estimates, actual results reported
in future periods may include amounts which differ from those
estimates. Estimates, judgements and assumptions are continually
evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. The Group's significant
judgements, estimates and assumptions are unchanged compared to
those applied at 31 December 2021, except as detailed below.
Allowance for expected credit losses
The Group recognises an allowance for expected credit losses
(ECLs) for loans and advances to customers and banks, other
financial assets held at amortised cost, financial assets measured
at fair value through other comprehensive income and certain loan
commitment and financial guarantee contracts. At 30 June 2022 , the
Group's ECL allowance was GBP28 million (31 December 2021: GBP17
million), of which GBP17 million (31 December 2021: GBP11 million)
was in respect of drawn balances.
The calculation of the Group's ECLs and provisions against loan
commitments and guarantees under IFRS 9 requires the Group to make
a number of judgements, assumptions and estimates. These are set
out in detail in the Group's 2021 Annual Report and Accounts. The
principal changes made in the period ended 30 June 2022 are as
follows:
Base case and MES economic assumptions
The Group's base case economic scenario has been revised in
light of the ongoing war in Ukraine, intensifying global inflation
pressures, and a continuing shift towards a more restrictive
monetary policy stance by central banks. The Group's updated base
case scenario has two conditioning assumptions: first, no further
UK COVID-19 national lockdowns are mandated; and, second, the war
in Ukraine remains 'local', i.e. without overtly involving
neighbouring countries, NATO or China.
Based on these assumptions and incorporating the economic data
published in the second quarter, the Group's base case scenario is
for a modest rise in the unemployment rate alongside an easing of
residential and commercial property prices, as the UK Bank Rate
continues to be raised in response to persistent inflationary
pressures. Risks around this base case economic view lie in both
directions, and are partly captured by the generation of
alternative economic scenarios. Uncertainties relating to key
epidemiological developments, notably the possibility that a
vaccine-resistant strain could emerge, are not specifically
captured by these scenarios.
The Group has taken into account the latest available
information at the reporting date in defining its base case
scenario and generating alternative economic scenarios. The
scenarios include forecasts for key variables in the second quarter
of 2022, for which actuals may have since emerged prior to
publication.
The Group's approach to generating alternative economic
scenarios is set out in detail in its financial statements for the
year ended 31 December 2021. For June 2022, the Group has judged it
appropriate to include a non-modelled severe downside scenario to
incorporate high CPI inflation and UK Bank Rate profiles and to
adopt this adjusted severe downside scenario to calculate the
Group's ECL. This is because the historic macroeconomic and loan
loss data upon which the scenario model is calibrated imply an
association of downside economic outcomes with easier monetary
policy, and therefore low interest rates. The adjustment is
considered to better reflect the risks around the Group's base case
view in an economic environment where supply shocks are the
principal concern.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and key sources of
estimation uncertainty (continued)
Scenarios by year
Key annual assumptions made by the Group are shown below. Gross
domestic product and Consumer Price Index (CPI) inflation are
presented as an annual change, house price growth and commercial
real estate price growth are presented as the growth in the
respective indices within the period. Unemployment rate and UK Bank
Rate are averages for the period. For 31 December 2021, CPI numbers
are translations of modelled Retail Price Index excluding mortgage
interest payments (RPIX) estimates, except for the base case
view.
The key UK economic assumptions made by the Group averaged over
a five-year period are also shown below. The use of calendar years
maintains a comparability between tables disclosed, noting that
comparatives reflect one calendar year earlier.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and key sources of
estimation uncertainty (continued)
2022-2026
2022 2023 2024 2025 2026 average
At 30 June 2022 % % % % % %
Upside
UK Gross domestic
product 3.5 1.2 1.8 1.7 1.7 2.0
UK Unemployment rate 3.1 2.7 2.9 3.2 3.4 3.1
UK Commercial real
estate
price growth 9.2 1.8 0.9 (0.9) (0.2) 2.1
UK Bank Rate 1.64 3.12 2.97 2.88 2.78 2.68
CPI inflation 8.6 5.5 2.5 1.9 2.2 4.1
US Gross domestic
product 3.0 3.2 2.3 1.4 1.0 2.2
US Unemployment rate 3.5 2.9 2.6 3.0 3.6 3.1
Base case
UK Gross domestic
product 3.3 0.6 1.5 1.6 1.7 1.7
UK Unemployment rate 3.8 4.2 4.4 4.5 4.5 4.3
UK Commercial real
estate
price growth 1.8 (5.0) (1.6) (1.3) 0.8 (1.1)
UK Bank Rate 1.44 2.25 2.00 2.00 2.00 1.94
CPI inflation 8.6 5.5 2.2 1.3 1.5 3.8
US Gross domestic
product 2.5 1.1 1.4 2.2 2.0 1.9
US Unemployment rate 3.6 3.8 4.0 4.0 4.1 3.9
Downside
UK Gross domestic
product 3.0 (0.1) 1.1 1.4 1.7 1.4
UK Unemployment rate 4.5 6.0 6.3 6.1 5.9 5.8
UK Commercial real
estate
price growth (4.4) (11.9) (5.5) (3.6) (0.7) (5.3)
UK Bank Rate 1.25 1.23 0.80 0.85 0.95 1.02
CPI inflation 8.7 5.5 1.8 0.6 0.7 3.5
US Gross domestic
product 2.1 (0.9) 0.0 2.6 3.0 1.3
US Unemployment rate 3.8 5.0 6.0 6.0 5.5 5.3
Severe downside
UK Gross domestic
product 1.6 (1.8) 1.0 1.4 1.6 0.8
UK Unemployment rate 5.8 8.7 8.7 8.3 7.7 7.8
UK Commercial real
estate
price growth (14.9) (20.9) (11.0) (5.6) 1.0 (10.6)
UK Bank Rate -
modelled 0.76 0.18 0.18 0.21 0.24 0.31
UK Bank Rate -
adjusted 2.9 4.8 3.0 2.3 2.3 3.0
CPI inflation -
modelled 8.6 5.1 0.9 (0.5) (0.5) 2.7
CPI inflation -
adjusted 9.8 13.7 4.1 1.7 0.1 5.9
US Gross domestic
product 1.5 (3.5) (1.7) 2.9 4.2 0.6
US Unemployment rate 4.0 6.5 8.7 8.5 7.3 7.0
Probability-weighted
UK Gross domestic
product 3.1 0.3 1.5 1.5 1.7 1.6
UK Unemployment rate 4.0 4.7 5.0 5.0 4.9 4.7
UK Commercial real
estate
price growth 0.5 (6.6) (3.0) (2.3) 0.1 (2.3)
UK Bank Rate -
modelled 1.37 2.00 1.75 1.74 1.75 1.72
UK Bank Rate -
adjusted 1.59 2.46 2.03 1.94 1.95 1.99
CPI inflation -
modelled 8.6 5.5 2.0 1.1 1.3 3.7
CPI inflation -
adjusted 8.8 6.3 2.3 1.3 1.3 4.0
US Gross domestic
product 2.4 0.7 1.0 2.1 2.2 1.7
US Unemployment rate 3.7 4.2 4.7 4.7 4.7 4.4
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and key sources of
estimation uncertainty (continued)
2021-2025
2021 2022 2023 2024 2025 average
At 31 December 2021 % % % % % %
Upside
UK Gross domestic
product 7.1 4.0 1.4 1.3 1.4 3.0
UK Unemployment rate 4.4 3.3 3.4 3.5 3.7 3.7
UK Commercial real
estate
price growth 12.4 5.8 0.7 1.0 (0.6) 3.7
UK Bank Rate 0.14 1.44 1.74 1.82 2.03 1.43
CPI inflation 2.6 5.9 3.3 2.6 3.3 3.5
US Gross domestic
product 5.7 6.7 4.4 0.3 (0.5) 3.3
US Unemployment rate 5.3 3.4 2.6 3.4 4.6 3.9
Base case
UK Gross domestic
product 7.1 3.7 1.5 1.3 1.3 2.9
UK Unemployment rate 4.5 4.3 4.4 4.4 4.5 4.4
UK Commercial real
estate
price growth 10.2 (2.2) (1.9) 0.1 0.6 1.2
UK Bank Rate 0.14 0.81 1.00 1.06 1.25 0.85
CPI inflation 2.6 5.9 3.0 1.6 2.0 3.0
US Gross domestic
product 5.5 3.6 2.5 2.0 1.5 3.0
US Unemployment rate 5.4 4.0 3.9 3.9 4.1 4.3
Downside
UK Gross domestic
product 7.1 3.4 1.3 1.1 1.2 2.8
UK Unemployment rate 4.7 5.6 5.9 5.8 5.7 5.6
UK Commercial real
estate
price growth 8.6 (10.1) (7.0) (3.4) (0.3) (2.6)
UK Bank Rate 0.14 0.45 0.52 0.55 0.69 0.47
CPI inflation 2.6 5.8 2.8 1.3 1.6 2.8
US Gross domestic
product 5.4 1.0 0.2 2.4 3.0 2.4
US Unemployment rate 5.4 4.7 5.9 5.8 5.2 5.4
Severe downside
UK Gross domestic
product 6.8 0.9 0.4 1.0 1.4 2.1
UK Unemployment rate 4.9 7.7 8.5 8.1 7.6 7.3
UK Commercial real
estate
price growth 5.8 (19.6) (12.1) (5.3) (0.5) (6.8)
UK Bank Rate 0.14 0.04 0.06 0.08 0.09 0.08
CPI inflation 2.6 5.8 2.3 0.5 0.9 2.4
US Gross domestic
product 5.2 (3.2) (3.1) 3.9 5.7 1.6
US Unemployment rate 5.4 5.8 8.5 7.9 5.9 6.7
Probability-weighted
UK Gross domestic
product 7.0 3.4 1.3 1.2 1.3 2.8
UK Unemployment rate 4.6 4.7 5.0 5.0 4.9 4.8
UK Commercial real
estate
price growth 9.9 (3.9) (3.7) (1.2) (0.1) 0.1
UK Bank Rate 0.14 0.82 0.99 1.04 1.20 0.83
CPI inflation 2.6 5.9 2.9 1.7 2.2 3.1
US Gross domestic
product 5.5 3.1 1.8 1.8 1.8 2.8
US Unemployment rate 5.4 4.2 4.6 4.7 4.7 4.7
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 2: Critical accounting judgements and key sources of
estimation uncertainty (continued)
ECL sensitivity to economic assumptions
The table below shows the Group's ECL for the upside, base case,
downside and severe downside scenarios. The stage allocation for an
asset is based on the overall scenario probability-weighted PD and,
hence, the staging of assets is constant across all the scenarios.
In each economic scenario the ECL for individual assessments and
post-model adjustments is constant, reflecting the basis on which
they are evaluated. Judgements applied through changes to inputs
are reflected in the scenario sensitivities. The
probability-weighted view shows the extent to which a higher ECL
allowance has been recognised to take account of multiple economic
scenarios relative to the base case; the uplift being GBP4 million
compared to GBP1 million at 31 December 2021.
Probability- Severe
weighted Upside Base case Downside downside
GBPm GBPm GBPm GBPm GBPm
At 30
June
2022 28 20 24 30 53
At 31
December
2021 17 13 16 18 26
Application of judgement in adjustments to modelled ECL
Impairment models fall within the Group's Model Risk framework
as reported in note 3 of the 2021 Annual Report and Accounts.
The coronavirus pandemic and the various support measures that
were put in place resulted in an economic environment which
differed significantly from the historical economic conditions upon
which the impairment models had been built. As a result there has
been a greater need for management judgements to be applied
alongside the use of models. Over the first half of 2022 the
intensifying inflationary pressures within the Group's outlook have
created further risks not present in these historic conditions.
Conversely, the direct impact of the pandemic on both economic and
credit performance has appeared to reduce, resulting in a reduction
in judgements required specifically to capture COVID-19 risks. At
30 June 2022 total management judgement resulted in additional ECL
allowances of GBP6 million (31 December 2021: GBP6 million). The
table below analyses total ECL allowance by portfolio, separately
identifying the amounts that have been modelled, those that have
been individually assessed and those arising through the
application of management judgement.
Modelled Individually Management Total
ECL assessed Judgements(1) ECL
GBPm GBPm GBPm GBPm
At 30
June
2022 22 - 6 28
At 31
December
2021 10 1 6 17
(1) Judgements introduced to address the impact that COVID-19
and resulting interventions have had on the Group's economic
outlook and observed loss experience, which have required
additional model limitations to be addressed.
Post-model adjustments have been raised to reflect uncertainty
in the near term economic outlook and limitations in the models in
dealing with this uncertainty but the impact on staging of assets
has not been reflected. These adjustments principally comprise:
Economic impacts not captured by models: GBP5 million (31
December 2021: GBP5 million)
Management adjustment of GBP5 million has been maintained to
reflect additional uncertainty in the economic outlook,
specifically for risks associated with inflationary pressures. This
qualitative overlay is a management judgement to ensure the overall
provision adequately reflects the current material risks;
considering the range of the quarterly provision release, review of
trends and provision coverage.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 3: Operating expenses
Half-year Half-year
to 30 to 30
June June
2022 2021
GBPm GBPm
Staff costs:
------------------ ------------------
Salaries (76) (81)
Social security costs (8) (7)
Pensions and other post-retirement benefit schemes (7) (7)
Restructuring costs (11) (4)
Other staff costs (4) (3)
------------------
(106) (102)
Management charges payable (79) (69)
Depreciation and amortisation (9) (7)
Premises and equipment (3) (9)
Communications and data processing (7) (6)
Professional fees (2) (2)
Other operating expenses (10) (9)
------------------ ------------------
Total operating expenses (216) (204)
------------------ ------------------
Note 4: Impairment
Half-year Half-year
to 30 to 30
June June
2022 2021
GBPm GBPm
------------------ ------------------
Loans and advances to banks (1) 1
Loans and advances to customers (5) 25
Impairment (charge) credit on drawn balances (6) 26
Loan commitments and financial guarantees (5) 21
Total impairment (charge) credit (11) 47
------------------ ------------------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 5: Tax expense
In accordance with IAS 34, the Group's income tax expense for
the half-year to 30 June 2022 is based on the best estimate of the
weighted-average annual income tax rate expected for the full
financial year. The tax effects of one-off items are not included
in the weighted-average annual income tax rate, but are recognised
in the relevant period.
An explanation of the relationship between tax expense and
accounting profit is set out below:
Half-year Half-year
to 30 to 30
June June
2022 2021
GBPm GBPm
Profit before tax 249 193
------------------- -------------------
UK corporation tax thereon at 19 per cent (2021:
19 per cent) (47) (37)
Impact of surcharge on banking profits (7) (13)
Non-deductible costs - (3)
Non-taxable income 14 1
Tax relief on coupons on other equity instruments 3 3
Tax losses where no deferred tax recognised (2) (3)
Remeasurement of deferred tax due to rate changes - (1)
Differences in overseas tax rates (3) (7)
Tax expense (42) (60)
------------------- -------------------
Note 6: Financial assets at fair value through profit or
loss
At At
30 June 31 Dec
2022 2021
GBPm GBPm
Trading assets 14,998 21,773
Financial assets mandatorily at fair value through
profit or loss:
----------------- -----------------
Loans and advances to customers 402 307
Debt securities 288 310
Treasury and other bills 21 19
711 636
----------------- -----------------
Total financial assets at fair value through profit
or loss 15,709 22,409
----------------- -----------------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 7: Financial assets at amortised cost
Half-year to 30 June 2022
Allowance for expected
Gross carrying amount credit losses
----------------------------------------------------- ---------------------------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Loans and advances to
banks
At 1
January
2022 2,355 - - 2,355 1 - - 1
Exchange and
other
adjustments
(1) 108 - - 108 - - - -
----------- ------------ ----------- -----------
Additions
and
repayments (440) - - (440) 1 - - 1
Other
changes in
credit
quality - - - -
----------- ------------ -----------
Charge
(credit) to
the
income
statement 1 - - 1
At 30 June
2022 2,023 2,023 2 - - 2
------------ ------------ ------------ ----------- ----------- ------------ ----------- -----------
Allowance
for
impairment
losses (2) - - (2)
------------ ------------ ------------ -----------
Net carrying
amount 2,021 - - 2,021
------------ ------------ ------------ -----------
Loans and advances to
customers
At 1
January
2022 17,366 47 29 17,442 7 2 1 10
Exchange and
other
adjustments
(1) 1,090 1 - 1,091 - - - -
Transfers to
Stage 1 6 (6) - - - - - -
Transfers to
Stage 2 (98) 98 - - - - - -
Transfers to
Stage 3 (17) - 17 - - - - -
------------ ------------ ------------ -----------
Impact of
transfers
between
stages (109) 92 17 - - 1 - 1
----------- ------------ -----------
- 1 - 1
Other
changes in
credit
quality 2 (1) - 1
Additions
and
repayments 2,296 13 (18) 2,291 3 - - 3
Methodology
and model
changes - - - -
----------- ------------ -----------
Charge
(credit) to
the
income
statement 5 - - 5
Advances
written off - - - -
Recoveries
of advances
written off
in previous
years - - - -
At 30 June
2022 20,643 153 28 20,824 12 2 1 15
------------ ------------ ------------ ----------- ----------- ------------ ----------- -----------
Allowance
for
impairment
losses (12) (2) (1) (15)
------------ ------------ ------------ -----------
Net carrying
amount 20,631 151 27 20,809
------------ ------------ ------------ -----------
(1) Exchange and other adjustments includes the impact of
movements in exchange rates.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 7: Financial assets at amortised cost (continued)
Allowance for expected
Gross carrying amount credit losses
--------------------------------------------- ------------------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Debt
securities
At 1 January
2022 229 - - 229 - - - -
Exchange and
other
adjustments
(1) 11 - - 11 - - - -
Additions and
repayments 69 - - 69 - - - -
Charge to the
income
statement - - - -
At 30 June
2022 309 - - 309 - - - -
---------- --------- ---------- ---------- --------- --------- --------- ---------
Allowance for
impairment
losses - - - -
---------- --------- ---------- ----------
Net carrying
amount 309 - - 309
---------- --------- ---------- ----------
Reverse
repurchase
agreements
At 30 June
2022 4,461 - - 4,461
Allowance for
impairment
losses - - - -
---------- --------- ---------- ----------
Net carrying
amount 4,461 - - 4,461
---------- --------- ---------- ----------
Due from fellow Lloyds Banking Group
undertakings
At 30 June
2022 312 - - 312
Allowance for
impairment
losses - - - -
---------- --------- ---------- ----------
Net carrying
amount 312 - - 312
---------- --------- ---------- ----------
Total
financial
assets
at amortised
cost 27,734 151 27 27,912
---------- --------- ---------- ----------
(1.) Exchange and other adjustments includes the impact of
movements in exchange rates, discount unwind, and derecognising
assets as a result of modifications.
Movements in allowance for expected credit losses in respect of
undrawn balances were as follows:
Allowance for expected
credit losses
------------------------------------------------
Stage Stage Stage
1 2 3 Total
GBPm GBPm GBPm GBPm
Undrawn balances
At 1 January 2022 6 - - 6
Exchange and other adjustments - - - -
----------- ----------- --------- -----------
Transfers to Stage
1 - - - -
Transfers to Stage
2 (1) 1 - -
Transfers to Stage
3 - - - -
Impact of transfers between
stages - 1 - 1
----------- ----------- ---------
(1) 2 - 1
Other changes in credit quality 4 - - 4
----------- ----------- ---------
Charge (credit) to the income
statement 3 2 - 5
----------- ----------- --------- -----------
At 30 June 2022 9 2 - 11
----------- ----------- --------- -----------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 7: Financial assets at amortised cost (continued)
The Group's total impairment allowances were as follows:
Allowance for expected
credit losses
--------------------------------------------------
Stage Stage Stage
1 2 3 Total
GBPm GBPm GBPm GBPm
In respect of:
----------- ----------- ----------- -----------
Loans and advances to banks 2 - - 2
Loans and advances to customers 12 2 1 15
Financial assets at amortised
cost 14 2 1 17
Provisions in relation to loan
commitments
and financial guarantees 9 2 - 11
----------- ----------- ----------- -----------
Total 23 4 1 28
----------- ----------- ----------- -----------
Expected credit loss in respect of
financial
assets at fair value through other
comprehensive
income (memorandum item) - - - -
----------- ----------- ----------- -----------
Year ended 31 December 2021
Allowance for expected
Gross carrying amount credit losses
------------------------------------------------ ------------------------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Loans and advances to
banks
At 1 January
2021 3,602 - - 3,602 2 - - 2
Exchange and
other
adjustments
(1) (23) - - (23) - - - -
Additions
and
repayments (1,224) - - (1,224) - - - -
Charge
(credit) to
the
income
statement (1) - - (1)
At 31
December
2021 2,355 - - 2,355 1 - - 1
------------ --------- --------- ------------ ------------ --------- --------- ------------
Allowance
for
impairment
losses (1) - - (1)
------------ --------- --------- ------------
Net carrying
amount 2,354 - - 2,354
------------ --------- --------- ------------
(1) Exchange and other adjustments includes the impact of
movements in exchange rates, discount unwind, and derecognising
assets as a result of modifications.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 7: Financial assets at amortised cost (continued)
Allowance for expected
Gross carrying amount credit losses
------------------------------------------------------ ------------------------------------------------------
Stage Stage Stage Stage Stage Stage
1 2 3 Total 1 2 3 Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Loans and advances to
customers
At 1 January
2021 13,886 379 39 14,304 26 20 2 48
Exchange and
other
adjustments
(1) (113) (7) - (120) - - (1) (1)
Transfers to
Stage 1 43 (42) (1) - 2 (2) - -
Transfers to
Stage 2 (14) 14 - - - - - -
Transfers to
Stage 3 - (3) 3 - - - - -
------------ ------------ ------------ ------------
Impact of
transfers
between
stages 29 (31) 2 - (2) - - (2)
------------ ------------ ------------
- (2) - (2)
Other
changes in
credit
quality (8) (13) 1 (20)
Additions
and
repayments 3,564 (294) (11) 3,259 (11) (3) - (14)
Methodology
and model
changes - - - -
------------ ------------ ------------
Charge
(credit) to
the
income
statement (19) (18) 1 (36)
Advances
written off (1) (1) (1) (1)
At 31
December
2021 17,366 47 29 17,442 7 2 1 10
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Allowance
for
impairment
losses (7) (2) (1) (10)
------------ ------------ ------------ ------------
Net carrying
amount 17,359 45 28 17,432
------------ ------------ ------------ ------------
Debt
securities
At 1 January
2021 257 - - 257 - - - -
Exchange and
other
adjustments
(1) 1 - - 1 - - - -
Additions
and
repayments (29) - - (29) - - - -
At 31
December
2021 229 - - 229 - - - -
----------- ---------- ---------- ----------- --------- --------- --------- ---------
Allowance
for
impairment
losses - - - -
----------- ---------- ---------- -----------
Net carrying
amount 229 - - 229
----------- ---------- ---------- -----------
Reverse
repurchase
agreements
At 31
December
2021 5,044 - - 5,044
Allowance
for
impairment
losses - - - -
----------- ---------- ---------- -----------
Net carrying
amount 5,044 - - 5,044
----------- ---------- ---------- -----------
Due from fellow Lloyds Banking Group
undertakings
At 31
December
2021 557 - - 557
Allowance
for
impairment
losses - - - -
----------- ---------- ---------- -----------
Net carrying
amount 557 - - 557
----------- ---------- ---------- -----------
Total
financial
assets
at
amortised
cost 25,543 45 28 25,616
----------- ---------- ---------- -----------
(1) Exchange and other adjustments includes the impact of
movements in exchange rates, discount unwind, and derecognising
assets as a result of modifications.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 7: Financial assets at amortised cost (continued)
Movements in allowance for expected credit losses in respect of
undrawn balances were as follows:
Allowance for expected
credit losses
-------------------------------------------------
Stage Stage Stage
1 2 3 Total
GBPm GBPm GBPm GBPm
Undrawn balances
At 1 January 2021 20 13 - 33
Exchange and other adjustments (1) (1) - (2)
----------- ----------- --------- ------------
Transfers to Stage
1 4 (4) - -
Transfers to Stage
2 - - - -
Transfers to Stage
3 - - - -
Impact of transfers between
stages (4) - - (4)
----------- ----------- ---------
- (4) - (4)
Other changes in credit quality (13) (8) - (21)
----------- ----------- ---------
Charge (credit) to the income
statement (13) (12) - (25)
----------- ----------- --------- ------------
At 31 December 2021 6 - - 6
----------- ----------- --------- ------------
The Group's total impairment allowances were as follows:
Allowance for expected
credit losses
--------------------------------------------------
Stage Stage Stage
1 2 3 Total
GBPm GBPm GBPm GBPm
In respect of:
----------- ----------- ----------- -----------
Loans and advances to banks 1 - - 1
Loans and advances to customers 7 2 1 10
Financial assets at amortised
cost 8 2 1 11
Provisions in relation to loan
commitments
and financial guarantees 6 - - 6
----------- ----------- ----------- -----------
At 31 December 2021 14 2 1 17
----------- ----------- ----------- -----------
Expected credit loss in respect of
financial
assets at fair value through other
comprehensive
income (memorandum item) - - - -
----------- ----------- ----------- -----------
The movement tables are compiled by comparing the position at
the reporting date to that at the beginning of the year.
Transfers between stages are deemed to have taken place at the
start of the reporting period, with all other movements shown in
the stage in which the asset is held at the period end, with the
exception of those held within purchased or originated
credit-impaired, which are not transferable.
Additions and repayments comprise new loans originated and
repayments of outstanding balances throughout the reporting period.
Loans which are written off in the period are first transferred to
Stage 3 before acquiring a full allowance and subsequent
write-off.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 8: Debt securities in issue
At 31
At 30 December
June 2022 2021
GBPm GBPm
Medium-term notes issued 3,921 4,181
Certificates of deposit issued 4,413 4,164
Commercial paper 3,241 5,129
Amounts due to fellow Group undertakings 3,354 3,170
--------------- ---------------
Total debt securities in issue 14,929 16,644
--------------- ---------------
Note 9: Other provisions
Provisions
for financial Regulatory
commitments and legal
and guarantees provisions Other Total
GBPm GBPm GBPm GBPm
At 1 January 2022 6 2 5 13
Exchange and
other adjustments - - - -
Provisions
applied - - - -
Charge for the
period 5 - 8 13
---------------------- ---------------------- ---------------------- ---------------------
At 30 June 2022 11 2 13 26
---------------------- ---------------------- ---------------------- ---------------------
Note 10: Other reserves
At 31
At 30 December
June 2022 2021
GBPm GBPm
Other reserves comprise:
Revaluation reserve in respect of debt securities
held at fair value through other comprehensive income (1) (2)
Cash flow hedging reserve (308) (48)
Foreign currency translation reserve (4) (14)
------------------ ------------------
Total other reserves (313) (64)
------------------ ------------------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 10: Other reserves (continued)
At 31
At 30 December
June 2022 2021
GBPm GBPm
Revaluation reserve in respect of debt securities
held at fair value through other comprehensive income
At 1 January (2) (10)
Change in fair value 1 5
Deferred tax - (1)
1 4
------------------- -------------------
Income statement transfers in respect of disposals - 5
Deferred tax - (1)
-------------------
- 4
At period end (1) (2)
------------------- -------------------
At 31
At 30 December
June 2022 2021
GBPm GBPm
Cash flow hedging reserve
At 1 January (48) 105
------------------ -----------------
Change in fair value of hedging derivatives (349) (169)
Deferred tax 94 48
------------------
(255) (121)
------------------ -----------------
Net income statement transfers (7) (44)
Deferred tax 2 12
------------------
(5) (32)
------------------ -----------------
At period end (308) (48)
------------------ -----------------
At 31
At 30 December
June 2022 2021
GBPm GBPm
Foreign currency translation reserve
At 1 January (14) (14)
Currency translation differences arising in the year 10 -
At period end (4) (14)
------------------- ------------------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 11: Related party transactions
Balances and transactions with fellow Lloyds Banking Group
undertakings
The Bank and its subsidiaries have balances due to and from the
Bank's parent company, Lloyds Banking Group plc, and fellow Group
undertakings. These are included on the balance sheet as
follows:
At At
30 June 31 Dec
2022 2021
GBPm GBPm
Assets, included within:
Financial assets at amortised cost: due from fellow
Lloyds Banking Group undertakings 312 557
Financial assets at fair value through profit or
loss 11 12
Derivative financial instruments 2,985 2,094
------------------ -----------------
3,308 2,663
------------------ -----------------
Liabilities, included within:
Due to fellow Lloyds Banking Group undertakings 1,261 3,442
Financial liabilities at fair value through profit
or loss 5 -
Derivative financial instruments 2,660 2,579
Debt securities in issue 3,354 3,170
Subordinated liabilities 749 684
------------------ -----------------
8,029 9,875
------------------ -----------------
Other equity instruments: 782 782
------------------ -----------------
Additional tier 1 instruments 782 782
------------------ -----------------
During the half-year to 30 June 2022 the Group earned GBP1
million (half-year to 30 June 2021: GBP1 million) of interest
income and incurred GBP46 million (half-year to 30 June 2021: GBP54
million) of interest expense on balances and transactions with
Lloyds Banking Group plc and fellow Group undertakings.
Other related party transactions
Other related party transactions for the half-year to 30 June
2022 are similar in nature to those for the year ended 31 December
2021.
Management charges payable to Lloyds Bank plc of GBP79 million
(half-year to 30 June 2021: GBP69 million) have been incurred in
the period, see note 3.
During the period to June 2021, the Group sold a portfolio of
facilities (GBP55 million of assets and GBP489 million of
commitments) to Lloyds Bank plc, on which an GBP8 million operating
loss arose. There have been no such transactions in the period to
30 June 2022.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 12: Contingent liabilities, commitments and guarantees
Legal actions and regulatory matters
During the ordinary course of business the Group is subject to
complaints and threatened or actual legal proceedings (including
class or group action claims) brought by or on behalf of current or
former employees, customers, investors or other third parties, as
well as legal and regulatory reviews, challenges, investigations
and enforcement actions, which could relate to a number of issues,
including financial, environmental or other regulatory matters,
both in the UK and overseas. Where material, such matters are
periodically reassessed, with the assistance of external
professional advisers where appropriate, to determine the
likelihood of the Group incurring a liability. In those instances
where it is concluded that it is more likely than not that a
payment will be made, a provision is established based on
management's best estimate of the amount required at the relevant
balance sheet date. In some cases it will not be possible to form a
view; for example because the facts are unclear or because further
time is needed to assess properly the merits of the case, and no
provisions are held in relation to such matters. In these
circumstances, specific disclosure in relation to a contingent
liability will be made where material. However, the Group does not
currently expect the final outcome of any such case to
have a material adverse effect on its financial position,
operations or cash flows.
Contingent liabilities, commitments and guarantees arising from
the banking business
At At
30 June 31 Dec
2022 2021
GBPm GBPm
Contingent liabilities
Acceptances and endorsements - 170
Other:
----------------- -----------------
Other items serving as direct credit substitutes - 77
Performance bonds, including letters of credit, and
other transaction-related contingencies 142 158
-----------------
142 235
----------------- -----------------
Total contingent liabilities 142 405
----------------- -----------------
Commitments and guarantees
Undrawn formal standby facilities, credit lines and
other commitments to lend:
Less than 1 year original maturity:
----------------- -----------------
Mortgage offers made 58 50
Other commitments and guarantees 9,898 8,831
-----------------
9,956 8,881
1 year or over original maturity 7,521 6,310
----------------- -----------------
Total commitments and guarantees 17,477 15,191
----------------- -----------------
Of the amounts shown above in respect of undrawn formal standby
facilities, credit lines and other commitments to lend, GBP16,942
million (31 December 2021: GBP15,124 million) were irrevocable.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities
The valuations of financial instruments have been classified
into three levels according to the quality and reliability of
information used to determine those fair values. Note 32 to the
Group's financial statements for the year ended 31 December 2021
details the definitions of the three levels in the fair value
hierarchy.
Valuation control framework
Key elements of the valuation control framework, which covers
processes for all levels in the fair value hierarchy including
level 3 portfolios, include model validation (incorporating
pre-trade and post-trade testing), product implementation review
and independent price verification. Formal committees meet
quarterly to discuss and approve valuations in more judgemental
areas.
Transfers into and out of level 3 portfolios
Transfers out of level 3 portfolios arise when inputs that could
have a significant impact on the instrument's valuation become
market observable; conversely, transfers into the portfolios arise
when sources of data cease to be observable.
Valuation methodology
For level 2 and level 3 portfolios, there is no significant
change to the valuation methodology (techniques and inputs)
disclosed in the Group's financial statements for the year ended 31
December 2021 applied to these portfolios.
The table below summarises the carrying values of financial
assets and liabilities measured at amortised cost in the Group's
consolidated balance sheet. The fair values presented in the table
are at a specific date and may be significantly different from the
amounts which will actually be paid or received on the maturity or
settlement date.
At 31 December
At 30 June 2022 2021
-------------------------------------- ----------------------------------
Carrying Fair Carrying Fair
value value value value
GBPm GBPm GBPm GBPm
Financial assets
------------------ ================== ---------------- ----------------
Loans and advances to banks 2,021 2,023 2,354 2,354
Loans and advances to customers 20,809 20,876 17,432 17,488
Reverse repurchase agreements 4,461 4,461 5,044 5,044
Debt securities 309 309 229 229
Due from fellow Lloyds Banking
Group
undertakings 312 312 557 557
------------------ ------------------ ----------------
Financial assets at amortised cost 27,912 27,981 25,616 25,672
Financial liabilities
Deposits from banks 3,223 3,233 3,821 3,821
Customer deposits 27,281 27,351 26,967 27,047
Repurchase agreements 1 1 1,019 1,019
Due to fellow Lloyds Banking Group
undertakings 1,261 1,261 3,442 3,442
Debt securities in issue 14,929 14,747 16,644 16,723
Subordinated liabilities 749 749 684 684
Financial instruments classified as financial assets at fair
value through profit or loss, derivative financial instruments,
financial assets at fair value through other comprehensive income
and financial liabilities at fair value through profit or loss are
recognised at fair value.
The carrying amount of the following financial instruments is a
reasonable approximation of fair value: cash and balances at
central banks, items in the course of collection from banks and
items in course of transmission to banks.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities
(continued)
The Group manages valuation adjustments for its derivative
exposures on a net basis; the Group determines their fair values on
the basis of their net exposures. In all other cases, fair values
of financial assets and liabilities measured at fair value are
determined on the basis of their gross exposures.
The following tables provide an analysis of the financial assets
and liabilities of the Group that are carried at fair value in the
Group's consolidated balance sheet, grouped into levels 1 to 3
based on the degree to which the fair value is observable. There
were no significant transfers between level 1 and level 2 during
the period.
Level Level Level
1 2 3 Total
Financial assets GBPm GBPm GBPm GBPm
At 30 June 2022
Financial assets at fair value through
profit or loss:
---------------- --------------- ----------------- ----------------
Loans and advances to customers and
reverse repurchase agreements - 12,496 2 12,498
Loans and advances to banks and
reverse
repurchase agreements - 299 - 299
Debt securities 2,424 300 167 2,891
Treasury and other bills 21 - - 21
Total financial assets at fair value
through profit or loss 2,445 13,095 169 15,709
Financial assets at fair value through
other comprehensive income:
Debt securities - - 12 12
Treasury and other bills - - - -
Total financial assets at fair value
through other comprehensive income - - 12 12
---------------- --------------- ----------------- ----------------
Derivative financial instruments 43 27,049 624 27,716
---------------- --------------- ----------------- ----------------
Total financial assets carried at
fair value 2,488 40,144 805 43,437
---------------- --------------- ----------------- ----------------
At 31 December 2021
Financial assets at fair value through
profit or loss
================ =============== ================= ================
Loans and advances to customers and
reverse repurchase agreements - 14,741 2 14,743
Loans and advances to banks and
reverse
repurchase agreements - 486 - 486
Debt securities 6,580 393 188 7,161
Treasury and other bills 19 - - 19
================ =============== ================= ================
Total financial assets at fair value
through profit or loss 6,599 15,620 190 22,409
Financial assets at fair value through
other comprehensive income:
Debt securities - - 15 15
Treasury and other bills 85 - - 85
---------------- --------------- ----------------- ----------------
Total financial assets at fair value
through other comprehensive income 85 - 15 100
---------------- --------------- ----------------- ----------------
Derivative financial instruments 22 17,239 729 17,990
---------------- --------------- ----------------- ----------------
Total financial assets carried at fair
value 6,706 32,859 934 40,499
---------------- --------------- ----------------- ----------------
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities
(continued)
Level Level Level
1 2 3 Total
Financial liabilities GBPm GBPm GBPm GBPm
At 30 June 2022
Financial liabilities at fair value
through profit or loss:
Trading liabilities 2,341 11,741 - 14,082
---------------- ------------- --------------- -------------
Total financial liabilities at fair
value through profit or loss 2,341 11,741 - 14,082
---------------- ------------- --------------- -------------
Derivative financial instruments 30 22,410 682 23,122
---------------- ------------- --------------- -------------
Total financial liabilities carried
at fair value 2,371 34,151 682 37,204
---------------- ------------- --------------- -------------
At 31 December 2021
Financial liabilities at fair value
through profit or loss:
Trading liabilities 1,569 15,013 - 16,582
---------------- ------------- --------------- -------------
Total financial liabilities at fair
value through profit or loss 1,569 15,013 - 16,582
---------------- ------------- --------------- -------------
Derivative financial instruments 13 14,633 926 15,572
---------------- ------------- --------------- -------------
Total financial liabilities carried
at fair value 1,582 29,646 926 32,154
---------------- ------------- --------------- -------------
Movements in level 3 portfolio
The tables below analyse movements in the level 3 financial
assets portfolio.
Financial
Financial assets at
assets at fair value
fair value through other Total financial
through profit comprehensive Derivative assets carried
or loss income assets at fair value
GBPm GBPm GBPm GBPm
At 1 January 2022 190 15 729 934
Exchange and other
adjustments - - 21 21
(Losses) gains
recognised
in the income
statement
within other income (21) - 133 112
Gains recognised in
other
comprehensive
income within
the revaluation
reserve
in respect of
financial
assets at fair
value through
other comprehensive
income - 1 - 1
Purchases/increases - - 41 41
Sales/repayments - (4) (9) (13)
Transfers into the
level
3 portfolio - - - -
Transfers out of the
level
3 portfolio - - (291) (291)
-------------------------- --------------------------- --------------------------- ---------------------------
At 30 June 2022 169 12 624 805
-------------------------- --------------------------- --------------------------- ---------------------------
(Losses) gains
recognised
in the income
statement,
within other
income, relating
to the change in
fair value
of those assets
held at
30 June 2022 (21) - 254 233
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities
(continued)
Financial
Financial assets at
assets at fair value
fair value through other Total financial
through profit comprehensive Derivative assets carried
or loss income assets at fair value
GBPm GBPm GBPm GBPm
At 1 January 2021 570 113 948 1,631
Exchange and other
adjustments - (4) 3 (1)
(Losses) gains
recognised
in the income
statement
within other income (30) - (175) (205)
Gains recognised in
other
comprehensive
income within
the revaluation
reserve
in respect of
financial
assets at fair
value through
other comprehensive
income - 6 - 6
Purchases/increases - - 249 249
Sales/repayments (226) (6) (64) (296)
Transfers into the
level
3 portfolio 1 - - 1
Transfers out of the
level
3 portfolio (119) - - (119)
--------------------------- --------------------------- --------------------------- ---------------------------
At 30 June 2021 196 109 961 1,266
--------------------------- --------------------------- --------------------------- ---------------------------
Gains recognised in
the
income statement,
within
other income,
relating
to the change in
fair value
of those assets
held at
30 June 2021 (30) 1 (168) (197)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities
(continued)
The tables below analyse movements in the level 3 financial
liabilities portfolio.
Financial Total
liabilities financial
at fair value liabilities
through profit Derivative carried at
or loss liabilities fair value
GBPm GBPm GBPm
At 1 January 2022 - 926 926
Exchange and other
adjustments - 17 17
Losses (gains) recognised
in the
income statement within
other income - (12) (12)
Purchases/increases - 37 37
Sales/repayments - (2) (2)
Transfers into the level 3
portfolio - - -
Transfers out of the level
3 portfolio - (284) (284)
--------------------------- --------------------------- ---------------------------
At 30 June 2022 - 682 682
--------------------------- --------------------------- ---------------------------
Losses (Gains) recognised
in the
income statement, within
other income,
relating to the change in
fair value
of those liabilities held
at 30 June
2022 - 28 28
At 1 January 2021 - 1,251 1,251
Exchange and other
adjustments - 3 3
Losses (gains) recognised
in the
income statement within
other income - (196) (196)
Purchases/increases - 265 265
Sales/repayments - (43) (43)
Transfers into the level 3
portfolio - - -
Transfers out of the level
3 portfolio - - -
-------------------------- --------------------------- ---------------------------
At 30 June 2021 - 1,280 1,280
--------------------------- --------------------------- ---------------------------
(Gains) recognised in the
income
statement, within other
income, relating
to the change in fair
value of those
liabilities held at 30
June 2021 - (201) (201)
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities
(continued)
The tables below set out the effects of reasonably possible
alternative assumptions for categories of level 3 financial assets
and financial liabilities.
At 30 June 2022
--------------------------------------------------------------------
Effect of reasonably
possible alternative
assumptions(2)
-------------------------------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
techniques inputs(1) value changes changes
GBPm GBPm GBPm
Financial assets at fair
value
through profit or loss
Loans and
advances Comparable
to customers pricing Spread (-/+20bps) 2 - -
Credit spreads
(discount factor)
and inflation
Debt Discounted volatility
securities cash flows (-/+7bps) 167 12 (12)
169 12 (12)
----------------- ----------------------- ------------------------
Financial assets at fair value through
other comprehensive income
Asset-backed Comparable
securities pricing Spread (-/+7bps) 12 1 (1)
----------------- ----------------------- ------------------------
12 1 (1)
----------------- ----------------------- ------------------------
Derivative financial assets
Option
Interest rate pricing Inflation
derivatives model volatility - - -
Option
pricing Interest rate
model volatility (11.1-146.6bps) 624 5 (5)
----------------- ----------------------- ------------------------
624 5 (5)
----------------- ----------------------- ------------------------
Level 3 financial assets
carried
at fair value 805 18 (18)
----------------- ----------------------- ------------------------
Derivative
financial
liabilities
Option
Interest rate pricing Illiquid long
derivatives model dated repo rate - - -
Option
pricing Inflation
model volatility - - -
Option
pricing Interest rate
model volatility (11.1-146.6bps) 682 15 (15)
----------------- ----------------------- ------------------------
682 15 (15)
----------------- ----------------------- ------------------------
Level 3 financial
liabilities
carried at fair value 682 15 (15)
----------------- ----------------------- ------------------------
(1) Ranges are shown where appropriate and represent the highest
and lowest inputs used in the level 3 valuations.
(2) Where the exposure to an unobservable input is managed on a
net basis, only the net impact is shown in the table.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities
(continued)
At 31 December 2021
--------------------------------------------------------------------
Effect of reasonably
possible alternative
assumptions(2)
-------------------------------------------------
Significant
Valuation unobservable Carrying Favourable Unfavourable
techniques inputs(1) value changes changes
GBPm GBPm GBPm
Financial assets at fair value through
profit or loss
Loans and
advances Comparable
to customers pricing Spread (-/+20bps) 2 - -
Credit spreads
(discount factor)
and inflation
Debt Discounted volatility
securities cash flows (-/+7bps) 188 13 (13)
190 13 (13)
----------------- ----------------------- ------------------------
Financial assets at fair value through
other comprehensive income
Asset-backed Comparable
securities pricing Spread (-/+0bps) 15 - -
----------------- ----------------------- ------------------------
15 - -
----------------- ----------------------- ------------------------
Derivative financial assets
Option Inflation
Interest rate pricing volatility
derivatives model (31.0-58.7bps) 345 5 (4)
Option Interest rate
pricing volatility
model (12.8-167.9bps) 384 1 (1)
----------------- ----------------------- ------------------------
729 6 (5)
----------------- ----------------------- ------------------------
Level 3 financial assets
carried
at fair value 934 19 (18)
----------------- ----------------------- ------------------------
Derivative
financial
liabilities
Option Illiquid long
Interest rate pricing dated repo
derivatives model rate (-/+10.2bps) 2 - -
Option
pricing Inflation volatility
model (31.0-58.7bps) 297 6 (5)
Option Interest rate
pricing volatility
model (12.8-167.9bps) 627 11 (11)
----------------- ----------------------- ------------------------
926 17 (16)
----------------- ----------------------- ------------------------
Level 3 financial
liabilities
carried at fair value 926 17 (16)
----------------- ----------------------- ------------------------
(1) Ranges are shown where appropriate and represent the highest
and lowest inputs used in the level 3 valuations.
(2) Where the exposure to an unobservable input is managed on a
net basis, only the net impact is shown in the table.
Unobservable inputs
Significant unobservable inputs affecting the valuation of debt
securities, unlisted equity investments and derivatives are
unchanged from those described in the Group's financial statements
for the year ended 31 December 2021
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 13: Fair values of financial assets and liabilities
(continued)
Reasonably possible alternative assumptions
Valuation techniques applied to many of the Group's level 3
instruments often involve the use of two or more inputs whose
relationship is interdependent. The calculation of the effect of
reasonably possible alternative assumptions
included in the table above reflects such relationships and are
unchanged from those described in the Group's financial statements
for the year ended 31 December 2021.
Note 14: Interest rate benchmark reform
During 2022, the Group continues to manage the transition to
alternative benchmark rates as part of the LBG IBOR transition
programme. During 2021, the Group transitioned substantially all of
its non-US Dollar LIBOR products and continues to work with
customers to transition a small number of remaining contracts that
either have yet to transition or have defaulted to the relevant
synthetic LIBOR benchmark in the interim.
US Dollar LIBOR transition is expected to take place in the next
year as these settings are expected to cease immediately after 30
June 2023. The majority of the Group's exposures are expected to
transition through industry-led transition programmes managed by
the London Clearing House and Futures exchanges, or through the
International Swaps and Derivatives Association (ISDA) protocol.
Other contracts (primarily loans) maturing after June 2023 will be
managed through the Group's existing processes, either
transitioning to an alternative benchmark rate or allowed to
fallback under existing contract protocols or through US
legislation.
At 30 June 2022, the Group had the following significant
exposures impacted by interest rate benchmark reform which have yet
to transition to the replacement benchmark rate:
Sterling US Dollar Other
LIBOR LIBOR GBPm
At 30 June 2022 GBPm GBPm (1) Total
Non-derivative financial assets
Financial assets at fair value through
profit or loss - 40 - 40
---------------- --------------- --------------- ---------------
Loans and advances to banks - 293 - 293
Loans and advances to customers 3 1,962 56 2,021
Reverse repurchase agreements - - - -
Debt securities - - - -
---------------- --------------- ---------------
Financial assets at amortised cost 3 2,255 56 2,314
Financial assets at fair value through
other comprehensive income 12 - - 12
15 2,295 56 2,366
---------------- --------------- --------------- ---------------
Non-derivative financial liabilities
Customer deposits - 83 - 83
Subordinated liabilities - 620 - 620
---------------- --------------- --------------- ---------------
- 703 - 703
---------------- --------------- --------------- ---------------
Derivative notional/contract amount
Cross Currency - 33,943 1,018 34,961
Interest rate 1,429 165,461 731 167,621
---------------- --------------- --------------- ---------------
1,429 199,404 1,749 202,582
---------------- --------------- --------------- ---------------
(1) Balances within Other include Canadian Dollar Offered Rate
for which a cessation announcement, effective after 28 June 2024,
was published on 16 May 2022.
NOTES TO THE CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL
STATEMENTS (continued)
Note 14: Interest rate benchmark reform (continued)
Sterling US Dollar
LIBOR LIBOR Other
At 31 December 2021 GBPm GBPm GBPm Total
Non-derivative financial assets
Financial assets at fair value through
profit or loss 189 96 - 285
--------------- --------------- -------------- ---------------
Loans and advances to banks - 854 - 854
Loans and advances to customers 123 3,426 - 3,549
Reverse repurchase agreements - - - -
Debt securities 126 - - 126
--------------- --------------- --------------
Financial assets at amortised cost 249 4,280 - 4,529
Financial assets at fair value through
other comprehensive income 15 - - 15
453 4,376 - 4,829
--------------- --------------- -------------- ---------------
Non-derivative financial liabilities
Customer deposits - 74 - 74
Subordinated liabilities - 558 - 558
--------------- --------------- -------------- ---------------
- 632 - 632
--------------- --------------- -------------- ---------------
Derivative notional/contract amount
Cross Currency - 36,212 - 36,212
Interest rate 5,238 184,573 - 189,811
5,238 220,785 - 226,023
--------------- --------------- -------------- ---------------
As at 30 June 2022, the LIBOR balances in the above table relate
to contracts that have not transitioned to an alternative benchmark
rate. In the case of Sterling LIBOR, this includes contracts that
will have both cash flows and valuations determined on a synthetic
LIBOR basis during 2022 as well as contracts referencing panel bank
LIBOR that have not yet had an interest rate reset in 2022.
Of the GBP199,404 million of USD derivative notional balances as
at 30 June 2022, GBP70,695 million relate to contracts with their
final LIBOR fixing prior to LIBOR cessation and GBP83,223 million
relate to exchange traded futures or contracts settled through the
London Clearing House. Of the remaining GBP45,486 million,
GBP36,179 million are fallback-eligible and GBP8,979 million are
intragroup trades.
By 31 December 2021, the Group had transitioned its Sterling,
Euro, Japanese Yen and Swiss Franc LIBOR hedge accounting models to
risk-free rates. The Group plans to complete the transition of its
USD LIBOR hedge accounting models ahead of the 30 June 2023
cessation date.
Note 15: Dividends on ordinary shares
The Bank paid a dividend of GBP220 million on 26th April 2022
(2021: GBP200 million).
Note 16: Ultimate parent undertaking
The Bank's ultimate parent undertaking and controlling party is
Lloyds Banking Group plc which is incorporated in Scotland. Lloyds
Banking Group plc has published consolidated accounts for the year
to 31 December 2021 and half-year results for the six month period
to 30 June 2022, and copies may be obtained from Investor
Relations, Lloyds Banking Group, 25 Gresham Street, London EC2V 7HN
and available for download from www.lloydsbankinggroup.com.
Note 17: Events since the balance sheet date
There are no events since the balance sheet date to
disclose.
Note 18: Other information
The financial information contained in this document does not
constitute statutory accounts within the meaning of section 434 of
the Companies Act 2006 (the Act). The statutory accounts for the
year ended 31 December 2021 were approved by the directors on 24
March 2022 and were delivered to the Registrar of Companies on 8
April 2022. The auditors' report on those accounts was unqualified
and did not include a statement under sections 498(2) (accounting
records or returns inadequate or accounts not agreeing with records
and returns) or 498(3) (failure to obtain necessary information and
explanations) of the Act.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors listed below (being all the directors of Lloyds
Bank Corporate Markets plc) confirm that to the best of their
knowledge these condensed consolidated half-year financial
statements have been prepared in accordance with UK adopted
International Accounting Standard 34, Interim Financial Reporting,
and that the half-year management report herein includes a fair
review of the information required by DTR 4.2.7R and DTR 4.2.8R,
namely:
-- an indication of important events that have occurred during
the six months ended 30 June 2022 and their impact on the condensed
consolidated half-year financial statements, and a description of
the principal risks and uncertainties for the remaining six months
of the financial year; and
-- material related party transactions in the six months ended
30 June 2022 and any material changes in the related party
transactions described in the last annual report.
Signed on behalf of the Board by
Eduardo J Stock da Cunha
Chief Executive Officer
15 September 2022
Lloyds Bank Corporate Markets plc Board of directors:
Eduardo J Stock da Cunha (Chief Executive Officer)
Julienne C Daglish (Executive director and Chief Financial
Officer)
Eve A Henrikson (Non-executive director)
Lord Lupton CBE (Non-executive director and Chair)
Andrew J McIntyre (Non-executive director)
Rupert H Mingay (Non-executive director)
John S W Owen (Non-executive director)
Changes to the composition of the Board since 1 January 2022 up
to the date of this report are shown below:
John J Cummins (resigned 28 February 2022)
Rupert H Mingay (appointed 11 April 2022)
Emma Lawrence (resigned 7 July 2022)
Carla A S Antunes da Silva (resigned 8 September 2022)
Changes to the composition of the Board after the date of the
report are shown below:
Rupert Mingay - will resign as Non-executive director on 30
September 2022 and will take up role of Chief Risk Officer from 1
October 2022
Eduardo Stock da Cunha - to resign as Chief Executive Officer in
early 2023
Carla A S Antunes da Silva - to be appointed Chief Executive
Officer in early 2023 (subject to regulatory approval)
Rose St Louis - to be appointed internal Non-executive director
(subject to regulatory approval)
INDEPENT REVIEW REPORT TO LLOYDS BANK CORPORATE MARKETS PLC
Conclusion
We have been engaged by the Bank to review the condensed set of
financial statements in the half-yearly financial report for the
six months ended 30 June 2022 which comprises the consolidated
income statement, the consolidated statement of comprehensive
income, the consolidated balance sheet, the consolidated statement
of changes in equity, the consolidated cash flow statement and
related notes 1 to 18.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2022 is not prepared, in all material respects, in accordance
with United Kingdom adopted International Accounting Standard 34
and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) and consequently does not enable us to obtain assurance that
we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the
Group will be prepared in accordance with United Kingdom adopted
international accounting standards. The condensed set of financial
statements included in this half-yearly financial report has been
prepared in accordance with United Kingdom adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusion Relating to Going Concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
Conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with this ISRE (UK), however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the directors
The directors are responsible for preparing the half-yearly
financial report in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct
Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the half-yearly financial report, we are
responsible for expressing to the Group a conclusion on the
condensed consolidated set of financial statement in the
half-yearly financial report. Our conclusion, including our
Conclusions Relating to Going Concern, are based on procedures that
are less extensive than audit procedures, as described in the Basis
for Conclusion paragraph of this report.
Use of our report
This report is made solely to the Group in accordance with
International Standard on Review Engagements (UK) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Financial Reporting Council. Our work
has been undertaken so that we might state to the Group those
matters we are required to state to it in an independent review
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Group, for our review work, for this report, or for the
conclusions we have formed.
Deloitte LLP
Statutory Auditor
London, England
15 September 2022
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, plans and/or
results of Lloyds Bank Corporate Markets plc together with its
subsidiaries (the Group) and its current goals and expectations.
Statements that are not historical or current facts, including
statements about the Group's or its directors' and/or management's
beliefs and expectations, are forward looking statements.
Words such as, without limitation, 'believes', 'achieves',
'anticipates', 'estimates', 'expects', 'targets', 'should',
'intends', 'aims', 'projects', 'plans', 'potential', 'will',
'would', 'could', 'considered', 'likely', 'may', 'seek',
'estimate', 'probability', 'goal', 'objective', 'deliver',
'endeavour', 'prospects', 'optimistic' and similar expressions or
variations on these expressions are intended to identify forward
looking statements.
These statements concern or may affect future matters, including
but not limited to: projections or expectations of the Group's
future financial position, including profit attributable to
shareholders, provisions, economic profit, dividends, capital
structure, portfolios, net interest margin, capital ratios,
liquidity, risk-weighted assets (RWAs), expenditures or any other
financial items or ratios; litigation, regulatory and governmental
investigations; the Group's future financial performance; the level
and extent of future impairments and write-downs; the Group's ESG
targets and/or commitments; statements of plans, objectives or
goals of the Group or its management and other statements that are
not historical fact; expectations about the impact of COVID-19; and
statements of assumptions underlying such statements.
By their nature, forward looking statements involve risk and
uncertainty because they relate to events and depend upon
circumstances that will or may occur in the future.
Factors that could cause actual business, strategy, plans and/or
results (including but not limited to the payment of dividends) to
differ materially from forward looking statements include, but are
not limited to: general economic and business conditions in the UK
and internationally; market related risks, trends and developments;
risks concerning borrower and counterparty credit quality;
fluctuations in interest rates, inflation, exchange rates, stock
markets and currencies; volatility in credit markets; volatility in
the price of our securities; any impact of the transition from
IBORs to alternative reference rates; the ability to access
sufficient sources of capital, liquidity and funding when required;
changes to the Group's or Lloyds Banking Group plc's credit
ratings; the ability to derive cost savings and other benefits
including, but without limitation, as a result of any acquisitions,
disposals and other strategic transactions; inability to capture
accurately the expected value from acquisitions; potential changes
in dividend policy; the ability to achieve strategic objectives;
insurance risks; management and monitoring of conduct risk;
exposure to counterparty risk; credit rating risk; tightening of
monetary policy in jurisdictions in which the Group operates;
instability in the global financial markets, including within the
Eurozone, and as a result of ongoing uncertainty following the exit
by the UK from the European Union (EU) and the effects of the EU-UK
Trade and Cooperation Agreement; political instability including as
a result of any UK general election and any further possible
referendum on Scottish independence; operational risks; conduct
risk; technological changes and risks to the security of IT and
operational infrastructure, systems, data and information resulting
from increased threat of cyber and other attacks; natural pandemic
(including but not limited to the COVID-19 pandemic) and other
disasters; inadequate or failed internal or external processes or
systems; acts of hostility or terrorism and responses to those
acts, or other such events; geopolitical unpredictability; the war
between Russia and Ukraine; risks relating to sustainability and
climate change (and achieving climate change ambitions), including
the Group and/or Lloyds Banking Group plc's ability along with the
government and other stakeholders to measure, manage and mitigate
the impacts of climate change effectively; changes in laws,
regulations, practices and accounting standards or taxation;
changes to regulatory capital or liquidity requirements and similar
contingencies; assessment related to resolution planning
requirements; the policies and actions of governmental or
regulatory authorities or courts together with any resulting impact
on the future structure of the Group; failure to comply with
anti-money laundering, counter terrorist financing, anti-bribery
and sanctions regulations; failure to prevent or detect any illegal
or improper activities; projected employee numbers and key person
risk; increased labour costs; assumptions and estimates that form
the basis of our financial statements; the impact of competitive
conditions; and exposure to legal, regulatory or competition
proceedings, investigations or complaints. A number of these
influences and factors are beyond the control of the Group or
Lloyds Banking Group plc. Please refer to the Base Prospectus for
the Group's Euro Medium Term Note Programme and the latest Annual
Report on Form 20-F filed by Lloyds Banking Group plc with the US
Securities and Exchange Commission (the SEC), which is available on
the SEC's website at www.sec.gov, for a discussion of certain
factors and risks.
FORWARD LOOKING STATEMENTS (continued)
Lloyds Banking Group plc may also make or disclose written
and/or oral forward-looking statements in other written materials
and in oral statements made by the directors, officers or employees
of Lloyds Banking Group plc to third parties, including financial
analysts.
Except as required by any applicable law or regulation, the
forward-looking statements contained in this document are made as
of today's date, and the Group expressly disclaims any obligation
or undertaking to release publicly any updates or revisions to any
forward looking statements contained in this document whether as a
result of new information, future events or otherwise. The
information, statements and opinions contained in this document do
not constitute a public offer under any applicable law or an offer
to sell any securities or financial instruments or any advice or
recommendation with respect to such securities or financial
instruments.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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of this information may apply. For further information, please
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END
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