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Lloyds Banking Group PLC   -  LLOY   

2019 Half-Year Results - News Release part 2 of 2

Released 07:00 31-Jul-2019

RNS Number : 2838H
Lloyds Banking Group PLC
31 July 2019
 

 

 

 

 

2019 Half-Year Results

News Release

 

Lloyds Banking Group plc

 

31 July 2019

 

 

 

 

 

 

 

 

Part 2 of 2

 

 

 

STATUTORY INFORMATION

                                                                                   

 

 

 

 

Page 

Condensed consolidated half-year financial statements

 

Consolidated income statement

58 

Consolidated statement of comprehensive income

60 

Consolidated balance sheet

61 

Consolidated statement of changes in equity

63 

Consolidated cash flow statement

66 

 

 

Notes

 

1

Accounting policies, presentation and estimates

67 

2

Segmental analysis

70 

3

Net fee and commission income

72 

4

Operating expenses

73 

5

Impairment

74 

6

Taxation

75 

7

Earnings per share

75 

8

Financial assets at fair value through profit or loss

76 

9

Derivative financial instruments

76 

10

Financial assets at amortised cost

77 

11

Allowance for impairment losses

80 

12

Debt securities in issue

83 

13

Post-retirement defined benefit schemes

84 

14

Subordinated liabilities

85 

15

Share capital

85 

16

Other equity instruments

86 

17

Provisions for liabilities and charges

87 

18

Contingent liabilities and commitments

89 

19

Fair values of financial assets and liabilities

92 

20

Credit quality of loans and advances to banks and customers

99 

21

Dividends on ordinary shares

107 

22

Implementation of IFRS 16

107 

23

Future accounting developments

108 

24

Other information

108 

 

 

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Half-year to 

 

Half-year to 

    

Half-year to 

 

 

 

 

30 June 

 

30 June 

 

31 Dec 

 

 

 

 

2019 

    

20181 

 

20181 

 

 

Note

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

Interest and similar income

 

 

 

8,399 

 

 8,032 

 

 8,317 

Interest and similar expense

 

 

 

(3,760)

 

 (2,025)

 

 (928)

Net interest income

 

 

 

4,639 

 

 6,007 

 

 7,389 

Fee and commission income

 

 

 

1,428 

 

 1,372 

 

 1,476 

Fee and commission expense

 

 

 

(694)

 

 (674)

 

 (712)

Net fee and commission income

 

3

 

734 

 

 698 

 

 764 

Net trading income

 

 

 

11,789 

 

 1,522 

 

 (5,398)

Insurance premium income

 

 

 

4,431 

 

 4,815 

 

 4,374 

Other operating income

 

 

 

1,547 

 

 1,238 

 

 682 

Other income

 

 

 

18,501 

 

 8,273 

 

 422 

Total income

 

 

 

23,140 

 

 14,280 

 

 7,811 

Insurance claims

 

 

 

(14,009)

 

 (4,709)

 

 1,244 

Total income, net of insurance claims

 

 

 

9,131 

 

 9,571 

 

 9,055 

Regulatory provisions

 

 

 

(793)

 

 (807)

 

 (543)

Other operating expenses

 

 

 

(4,862)

 

 (5,191)

 

 (5,188)

Total operating expenses

 

4

 

(5,655)

 

 (5,998)

 

 (5,731)

Trading surplus

 

 

 

3,476 

 

 3,573 

 

 3,324 

Impairment

 

5

 

(579)

 

 (456)

 

 (481)

Profit before tax

 

 

 

2,897 

 

 3,117 

 

 2,843 

Tax expense

 

6

 

(672)

 

 (800)

 

 (654)

Profit for the period

 

 

 

2,225 

 

 2,317 

 

 2,189 

 

 

 

 

 

 

 

 

 

Profit attributable to ordinary shareholders

 

 

 

1,942 

 

 2,075 

 

 1,900 

Profit attributable to other equity holders

 

 

 

251 

 

 205 

 

 228 

Profit attributable to equity holders

 

 

 

2,193 

 

 2,280 

 

 2,128 

Profit attributable to non-controlling interests

 

 

 

32 

 

 37 

 

 61 

Profit for the period

 

 

 

2,225 

 

 2,317 

 

 2,189 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

7

 

2.7p 

 

2.9p 

 

2.6p 

Diluted earnings per share

 

7

 

2.7p 

 

2.9p 

 

2.6p 

 

 

 

1

Restated, see note 1.

 

 

 

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

 

 

 

 

 

 

 

 

 

    

Half-year to 

 

Half-year to 

 

Half-year to 

 

 

30 June 

 

30 June 

 

31 Dec 

 

 

2019 

    

20181 

 

20181 

 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

Profit for the period

 

2,225 

 

 2,317 

 

 2,189 

Other comprehensive income

 

 

 

 

 

 

Items that will not subsequently be reclassified to profit or loss:

 

 

 

 

 

 

Post-retirement defined benefit scheme remeasurements:

 

 

 

 

 

 

Remeasurements before tax

 

(173)

 

 908 

 

 (741)

Tax

 

44 

 

 (206) 

 

 159 

 

 

(129)

 

 702 

 

 (582)

Movements in revaluation reserve in respect of equity shares held at fair value through other comprehensive income:

 

 

 

 

 

 

Change in fair value

 

 

 (97) 

 

-  

Tax

 

12 

 

 22 

 

-  

 

 

13 

 

 (75)  

 

-  

Gains and losses attributable to own credit risk:

 

 

 

 

 

 

Gains (losses) before tax

 

(303)

 

 167 

 

 366 

Tax

 

82 

 

 (45) 

 

 (99)

 

 

(221)

 

 122 

 

 267 

Share of other comprehensive income of associates and joint ventures

 

-  

 

-  

 

 

 

 

 

 

 

 

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:

 

 

 

 

 

 

Change in fair value

 

(50)

 

 110 

 

(147)

Income statement transfers in respect of disposals

 

(177)

 

 (203) 

 

(72)

Tax

 

68 

 

 46 

 

73 

 

 

(159)

 

 (47)  

 

(146)

Movements in cash flow hedging reserve:

 

 

 

 

 

 

Effective portion of changes in fair value taken to other comprehensive income

 

1,179 

 

 (223) 

 

 457 

Net income statement transfers

 

(242)

 

 (423) 

 

(278)

Tax

 

(250)

 

 182 

 

 (69)

 

 

687 

 

 (464) 

 

 110 

Currency translation differences (tax: nil)

 

 

 5 

 

 (13)

Other comprehensive income for the period, net of tax

 

192 

 

 243 

 

 (356)

Total comprehensive income for the period

 

2,417 

 

 2,560 

 

 1,833

 

 

 

 

 

 

 

Total comprehensive income attributable to ordinary shareholders

 

2,134 

 

 2,318 

 

 1,544

Total comprehensive income attributable to other equity holders

 

251 

 

 205 

 

 228

Total comprehensive income attributable to equity holders

 

2,385 

 

 2,523 

 

 1,772

Total comprehensive income attributable to non-controlling interests

 

32 

 

 37 

 

 61

Total comprehensive income for the period

 

2,417 

 

 2,560 

 

 1,833

 

 

 

1

Restated, see note 1.

 

 

CONSOLIDATED BALANCE SHEET

 

 

 

 

 

 

 

Note

At 30 June

 

At 31 Dec

 

 

20191

 

2018

 

 

(unaudited)

 

(audited)

 

 

£m

 

£m

 

 

 

 

 

Assets

 

 

 

 

Cash and balances at central banks

 

57,290

 

54,663

Items in the course of collection from banks

 

693

 

647

Financial assets at fair value through profit or loss

8

155,108

 

158,529

Derivative financial instruments

9

26,148

 

23,595

Loans and advances to banks

 

8,374

 

6,283

Loans and advances to customers

 

495,138

 

484,858

Debt securities

 

5,434

 

5,238

Financial assets at amortised cost

10

508,946

 

496,379

Financial assets at fair value through other comprehensive income

 

27,078

 

24,815

Goodwill

 

2,314

 

2,310

Value of in-force business

 

5,326

 

4,762

Other intangible assets

 

3,615

 

3,347

Property, plant and equipment

 

13,646

 

12,300

Current tax recoverable

 

6

 

5

Deferred tax assets

 

2,401

 

2,453

Retirement benefit assets

13

1,509

 

1,267

Other assets

 

18,168

 

12,526

Total assets

 

822,248

 

797,598

 

1

 Reflects the implementation of IFRS 16, see note 1.

 

 

CONSOLIDATED BALANCE SHEET (continued)

 

 

 

 

 

 

 

Note

At 30 June

 

At 31 Dec

 

 

20191

 

2018

 

 

(unaudited)

 

(audited)

Equity and liabilities

 

£m

 

£m

 

 

 

 

 

Liabilities

 

 

 

 

Deposits from banks

 

34,777

 

30,320

Customer deposits

 

421,692

 

418,066

Items in course of transmission to banks

 

499

 

636

Financial liabilities at fair value through profit or loss

 

24,754

 

30,547

Derivative financial instruments

9

23,026

 

21,373

Notes in circulation

 

1,042

 

1,104

Debt securities in issue

12

97,815

 

91,168

Liabilities arising from insurance contracts and participating investment contracts

 

107,409

 

98,874

Liabilities arising from non-participating investment contracts

 

14,706

 

13,853

Other liabilities

 

26,124

 

19,633

Retirement benefit obligations

13

250

 

245

Current tax liabilities

 

383

 

377

Deferred tax liabilities

 

49

 

-

Other provisions

17

2,858

 

3,547

Subordinated liabilities

14

17,809

 

17,656

Total liabilities

 

773,193

 

747,399

Equity and liabilities

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

Share capital

15

7,076

 

7,116

Share premium account

 

17,739

 

17,719

Other reserves

 

13,864

 

13,210

Retained profits

 

4,769

 

5,389

Shareholders' equity

 

43,448

 

43,434

Other equity instruments

16

5,406

 

6,491

Total equity excluding non-controlling interests

 

48,854

 

49,925

Non-controlling interests

 

201

 

274

Total equity

 

49,055

 

50,199

Total equity and liabilities

 

822,248

 

797,598

 

 

 

1

Reflects the implementation of IFRS 16, see note 1.

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to equity shareholders

 

 

 

 

 

 

 

 

Share 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

capital 

 

 

 

 

 

 

 

Other 

 

Non - 

 

 

 

 

and 

 

Other 

 

Retained 

 

 

 

equity 

 

controlling 

 

 

 

 

premium 

 

reserves 

 

profits 

 

Total 

 

instruments 

 

interests 

 

Total  

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2019

 

 24,835 

 

 13,210 

 

 5,389 

 

 43,434 

 

 6,491 

 

 274 

 

 50,199 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

 

 

 

2,193 

 

2,193 

 

 

32 

 

2,225 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Post-retirement defined benefit scheme remeasurements, net of tax

 

 

 

(129)

 

(129)

 

 

 

(129)

Movements in revaluation reserve in  respect of financial assets held at fair value through other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

(159)

 

 

(159)

 

 

 

(159)

Equity shares

 

 

13 

 

 

13 

 

 

 

13 

Gains and losses attributable to own credit risk, net of tax

 

 

 

(221)

 

(221)

 

 

 

(221)

Movements in cash flow hedging reserve, net of tax

 

 

687 

 

 

687 

 

 

 

687 

Currency translation differences (tax: £nil)

 

 

 

 

 

 

 

Total other comprehensive income

 

 

542 

 

(350)

 

192

 

 

 

192 

Total comprehensive income

 

 

542 

 

1,843

 

2,385

 

 

32 

 

2,417 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 

 

(1,523)

 

(1,523)

 

 

(91)

 

(1,614)

Distributions on other equity instruments

 

 

 

(251)

 

(251)

 

 

 

(251)

Issue of ordinary shares

 

90 

 

 

 

90 

 

 

 

90 

Share buyback

 

(113)

 

113 

 

(879)

 

(879)

 

 

 

(879)

Redemption of preference shares

 

 

(3)

 

 

 

 

 

Issue of other equity instruments

 

 

 

(1)

 

(1)

 

396 

 

 

395 

Redemption of other equity instruments

 

 

 

 

 

(1,481)

 

 

(1,481)

Movement in treasury shares

 

 

 

71 

 

71 

 

 

 

71 

Value of employee services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share option schemes

 

 

 

34 

 

34 

 

 

 

34 

Other employee award schemes

 

 

 

88 

 

88 

 

 

 

88 

Changes in non-controlling interests

 

 

 

 

 

 

(14)

 

(14)

Total transactions with owners

 

(20)

 

110 

 

(2,461)

 

(2,371)

 

(1,085)

 

(105)

 

(3,561)

Realised gains and losses on equity shares held at fair value through other comprehensive income

 

 

 

(2)

 

 

 

 

Balance at 30 June 2019

 

24,815 

 

13,864 

 

4,769 

 

43,448 

 

5,406 

 

201 

 

49,055 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to equity shareholders

 

 

 

 

 

 

 

 

Share 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

capital 

 

 

 

 

 

 

 

Other  

 

Non- 

 

 

 

 

and 

 

Other 

 

Retained 

 

 

 

equity 

 

controlling 

 

 

 

 

premium 

 

reserves 

 

profits 

 

Total 

 

instruments 

 

interests 

 

Total 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2018

 

 24,831 

 

 13,553 

 

 3,976 

 

 42,360 

 

 5,355 

 

 237 

 

 47,952 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period1

 

 - 

 

 - 

 

 2,280 

 

 2,280 

 

 - 

 

 37 

 

 2,317 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Post-retirement defined benefit scheme remeasurements, net of tax

 

 - 

 

 - 

 

 702 

 

 702 

 

 - 

 

 - 

 

 702 

Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

(47)

 

 

(47)

 

 

 

(47)

Equity shares

 

 

(75)

 

 

(75)

 

 

 

(75)

Gains and losses attributable to own credit risk, net of tax

 

 - 

 

 - 

 

122  

 

 122  

 

 - 

 

 - 

 

 122  

Movements in cash flow hedging reserve, net of tax

 

 - 

 

(464)

 

 - 

 

 (464) 

 

 - 

 

 - 

 

 (464) 

Currency translation differences (tax: £nil)

 

 - 

 

 5  

 

 - 

 

 5  

 

 - 

 

 - 

 

 5  

Total other comprehensive income

 

 - 

 

 (581) 

 

 824 

 

 243  

 

 - 

 

 - 

 

 243  

Total comprehensive income

 

 - 

 

 (581) 

 

 3,104 

 

 2,523 

 

 - 

 

 37 

 

 2,560 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 - 

 

 - 

 

 (1,475) 

 

 (1,475) 

 

 - 

 

 (26) 

 

 (1,501) 

Distributions on other equity instruments1

 

 - 

 

 - 

 

 (205) 

 

 (205) 

 

 - 

 

 - 

 

 (205) 

Issue of ordinary shares

 

 142 

 

 - 

 

 - 

 

 142 

 

 - 

 

 - 

 

 142 

Share buyback

 

(72)

 

72 

 

(565)

 

(565)

 

 - 

 

 - 

 

(565)

Movement in treasury shares

 

 - 

 

 - 

 

 35  

 

 35  

 

 - 

 

 - 

 

 35  

Value of employee services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share option schemes

 

 - 

 

 - 

 

 21 

 

 21 

 

 - 

 

 - 

 

 21 

Other employee award schemes

 

 - 

 

 - 

 

 104 

 

 104 

 

 - 

 

 - 

 

 104 

Total transactions with owners

 

 70 

 

 72 

 

 (2,085) 

 

 (1,943) 

 

 - 

 

 (26) 

 

 (1,969) 

Realised gains and losses on equity shares held at fair value through other comprehensive income

 

 

141 

 

(141)

 

 

-  

 

 

Balance at 30 June 2018

 

 24,901 

 

 13,185 

 

 4,854 

 

 42,940 

 

 5,355  

 

 248 

 

 48,543 

 

 

 

1

Restated, see note 1.

 

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (UNAUDITED) (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Attributable to equity shareholders

 

 

 

 

 

 

 

 

Share 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

capital 

 

 

 

 

 

 

 

Other  

 

Non- 

 

 

 

 

and 

 

Other 

 

Retained 

 

 

 

equity 

 

controlling 

 

 

 

 

premium 

 

reserves 

 

profits 

 

Total 

 

instruments 

 

interests 

 

Total 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 July 2018

 

 24,901 

 

13,185 

 

 4,854 

 

 42,940 

 

5,355 

 

248 

 

 48,543 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Profit for the period1

 

 - 

 

 - 

 

 2,128 

 

 2,128 

 

 

61 

 

 2,189 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Post-retirement defined benefit scheme remeasurements, net of tax

 

 - 

 

 - 

 

 (582)

 

 (582)

 

 - 

 

 - 

 

(582)

Share of other comprehensive income of associates and joint ventures

 

 

 

 

 

 

 

8  

Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt securities

 

 

(146)

 

 

(146) 

 

 

 

(146) 

Equity shares

 

 

 

 

-  

 

 

 

-  

Gains and losses attributable to own credit risk, net of tax

 

 - 

 

 

267 

 

 267  

 

 - 

 

 - 

 

 267  

Movements in cash flow hedging reserve, net of tax

 

 - 

 

 110 

 

 - 

 

 110  

 

 - 

 

 - 

 

 110  

Currency translation differences (tax: £nil)

 

 - 

 

 (13)

 

 - 

 

 (13) 

 

 - 

 

 - 

 

 (13)  

Total other comprehensive income

 

 - 

 

 (49)

 

 (307)

 

 (356) 

 

 - 

 

 - 

 

 (356) 

Total comprehensive income

 

 - 

 

 (49)

 

 1,821 

 

 1,772 

 

 - 

 

 61 

 

 1,833 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends

 

 - 

 

 - 

 

 (765)

 

 (765) 

 

 - 

 

 (35) 

 

 (800) 

Distributions on other equity instruments1

 

 - 

 

 - 

 

 (228)

 

 (228) 

 

 - 

 

 - 

 

 (228) 

Issue of ordinary shares

 

 20 

 

 - 

 

 - 

 

 20 

 

 - 

 

 - 

 

 20 

Share buyback

 

(86)

 

86 

 

(440)

 

(440)

 

 - 

 

 - 

 

(440)

Issue of other equity instruments

 

 

 

(5)

 

(5) 

 

1,136 

 

 

1,131  

Movement in treasury shares

 

 - 

 

 - 

 

 5 

 

 5  

 

 - 

 

 - 

 

 5  

Value of employee services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share option schemes

 

 - 

 

 - 

 

 32 

 

 32 

 

 - 

 

 - 

 

 32 

Other employee award schemes

 

 - 

 

 - 

 

 103 

 

 103 

 

 - 

 

 - 

 

 103 

Total transactions with owners

 

(66)

 

 86 

 

 (1,298)

 

 (1,278) 

 

 1,136 

 

 (35) 

 

 (177) 

Realised gains and losses on equity shares held at fair value through other comprehensive income

 

 

(12)

 

12 

 

 

 

 

Balance at 31 December 2018

 

 24,835 

 

 13,210 

 

 5,389 

 

 43,434 

 

6,491 

 

 274 

 

 50,199 

 

 

 

1

Restated, see note 1.

 

 

 

CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

Half-year to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2019

    

2018

 

2018

 

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

Profit before tax

 

2,897

 

3,117

 

 2,843

Adjustments for:

 

 

 

 

 

 

Change in operating assets

 

(16,318)

 

(19,056)

 

 14,584

Change in operating liabilities

 

15,630

 

19,461

 

 (28,134)

Non-cash and other items

 

10,060

 

1,204

 

 (4,096)

Tax paid

 

(557)

 

(527)

 

 (503)

Net cash provided by (used in) operating activities

 

11,712

 

4,199

 

 (15,306)

Cash flows from investing activities

 

 

 

 

 

 

Purchase of financial assets

 

(8,618)

 

(6,050)

 

 (6,607)

Proceeds from sale and maturity of financial assets

 

6,574

 

14,856

 

11,950

Purchase of fixed assets

 

(1,866)

 

(1,807)

 

 (1,707)

Proceeds from sale of fixed assets

 

676

 

643

 

691

Acquisition of businesses, net of cash acquired

 

(6)

 

(37)

 

 (12)

Disposal of businesses, net of cash disposed

 

-

 

1

 

-

Net cash provided by investing activities

 

(3,240)

 

 7,606

 

4,315

Cash flows from financing activities

 

 

 

 

 

 

Dividends paid to ordinary shareholders

 

(1,523)

 

(1,475)

 

 (765)

Distributions on other equity instruments

 

(251)

 

(205)

 

 (228)

Dividends paid to non-controlling interests

 

(91)

 

(26)

 

 (35)

Interest paid on subordinated liabilities

 

(666)

 

(780)

 

 (488)

Proceeds from issue of subordinated liabilities

 

-

 

1,729

 

 -

Proceeds from issue of other equity instruments

 

395

 

-

 

1,131

Proceeds from issue of ordinary shares

 

20

 

85

 

 17

Share buyback

 

(694)

 

(470)

 

(535)

Repayment of subordinated liabilities

 

(515)

 

(1,612)

 

 (644)

Redemption of other equity instruments

 

(1,481)

 

-

 

  -

Net cash used in financing activities

 

(4,806)

 

(2,754)

 

 (1,547)

Effects of exchange rate changes on cash and cash equivalents

 

-

 

1

 

 2

Change in cash and cash equivalents

 

3,666

 

9,052

 

 (12,536)

Cash and cash equivalents at beginning of period

 

55,224

 

58,708

 

 67,760

Cash and cash equivalents at end of period

 

58,890

 

 67,760

 

 55,224

 

Cash and cash equivalents comprise cash and balances at central banks (excluding mandatory deposits) and amounts due from banks with a maturity of less than three months. Included within cash and cash equivalents at 30 June 2019 is £29 million (30 June 2018: £89 million; 31 December 2018: £40 million) held within the Group's life funds, which is not immediately available for use in the business.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

1.         Accounting policies, presentation and estimates

 

These condensed consolidated interim financial statements as at and for the period to 30 June 2019 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 European Union and comprise the results of Lloyds Banking Group plc (the Company) 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 2018 which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Copies of the 2018 Annual Report and Accounts are available on the Group's website and are available upon request from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN.

 

The UK Finance Code for Financial Reporting Disclosure (the Disclosure Code) sets out disclosure principles together with supporting guidance in respect of the financial statements of UK banks. The Group has adopted the Disclosure Code and these condensed consolidated half-year financial statements have been prepared in compliance with the Disclosure Code's principles. Terminology used in these condensed consolidated half-year financial statements is consistent with that used in the Group's 2018 Annual Report and Accounts.

 

The directors consider that it is appropriate to continue to adopt the going concern basis in preparing the condensed consolidated interim financial statements. In reaching this assessment, the directors have considered projections for the Group's capital and funding position and have had regard to the factors set out in Risk management: Principal risks and uncertainties on page 27.

 

Except as noted below, the accounting policies are consistent with those applied by the Group in its 2018 Annual Report and Accounts.

 

Changes in accounting policy

The Group adopted IFRS 16 Leases from 1 January 2019. IFRS 16 replaces IAS 17 Leases and addresses the classification and measurement of all leases. The Group's accounting as a lessor under IFRS 16 is substantially unchanged from its approach under IAS 17; however for lessee accounting there is no longer a distinction between finance and operating leases.

 

As lessee, under IFRS 16, in respect of leased properties previously accounted for as operating leases the Group now recognises a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use. Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the Group's incremental borrowing rate. Lease payments are allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. Payments associated with leases with a lease term of 12 months or less and leases of low-value assets are recognised as an expense in profit or loss on a straight-line basis.

 

Details of the impact of adoption of IFRS 16 are provided in note 22.

 

The Group has also implemented the amendments to IAS 12 Income Taxes with effect from 1 January 2019 and as a result tax relief on distributions on other equity instruments, previously taken directly to retained profits, is now reported within tax expense in the income statement. Comparatives have been restated. Adoption of these amendments to IAS 12 has resulted in a reduction in tax expense and an increase in profit for the period in the half-year to 30 June 2019 of £60 million (half-year to 30 June 2018: £50 million). There is no impact on total shareholders' equity or on earnings per share.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.         Accounting policies, presentation and estimates (continued)

 

Future accounting developments

Details of those IFRS pronouncements which will be relevant to the Group but which will not be effective at 31 December 2019 and which have not been applied in preparing these financial statements are set out in note 23.

 

Related party transactions

The Group has had no material or unusual related party transactions during the six months to 30 June 2019. Related party transactions for the six months to 30 June 2019 are similar in nature to those for the year ended 31 December 2018. Full details of the Group's related party transactions for the year to 31 December 2018 can be found in the Group's 2018 Annual Report and Accounts.

 

Critical accounting estimates and judgements

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 2018, except as detailed below.

 

Allowance for impairment losses

At 30 June 2019 the Group's allowance for expected credit losses (ECL) was £3,511 million (31 December 2018: £3,362 million), of which £3,338 million (31 December 2018: £3,169 million) was in respect of drawn balances.

 

The measurement of expected credit losses is required to reflect an unbiased probability-weighted range of possible future outcomes. The approach to generating the economic scenarios used in the calculation of the Group's ECL allowances is little changed since 31 December 2018. The central scenario reflects the Group's updated base case assumptions used for medium-term planning purposes. Additional model-generated upside, downside and severe downside scenarios are identified to represent a typical scenario from specified points along an estimated loss distribution, with the scenario weightings unchanged since 31 December 2018. The key UK economic assumptions made by the Group as at 30 June 2019 averaged over a five year period are shown below.

 

Economic assumptions

 

 

 

 

 

 

 

 

 

 

 

Base case

 

Upside

 

Downside

 

Severe

downside

 

 

%

 

%

 

%

 

%

 

 

 

 

 

 

 

 

 

Scenario weighting

 

30

 

30

 

30

 

10

 

 

 

 

 

 

 

 

 

At 30 June 2019

 

 

 

 

 

 

 

 

Bank of England base rate

 

1.25

 

2.05

 

0.49

 

0.11

Unemployment rate

 

4.3

 

3.8

 

5.7

 

7.0

House price growth

 

1.5

 

5.2

 

(2.3)

 

(7.4)

Commercial real estate price growth

 

(0.2)

 

1.6

 

(4.9)

 

(9.5)

 

 

 

 

 

 

 

 

 

At 31 December 2018

 

 

 

 

 

 

 

 

Bank of England base rate

 

1.25

 

2.34

 

1.30

 

0.71

Unemployment rate

 

4.5

 

3.9

 

5.3

 

6.9

House price growth

 

2.5

 

6.1

 

(4.8)

 

(7.5)

Commercial real estate price growth

 

0.4

 

5.3

 

(4.7)

 

(6.4)

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

1.         Accounting policies, presentation and estimates (continued)

 

Economic assumptions - start to peak

 

 

 

 

 

 

 

 

 

 

 

Base case

 

Upside

 

Downside

 

Severe

downside

 

 

%

 

%

 

%

 

%

At 30 June 2019

 

 

 

 

 

 

 

 

Bank of England base rate

 

1.75

 

2.70

 

0.75

 

0.75

Unemployment rate

 

4.7

 

4.5

 

7.0

 

8.1

House price growth

 

7.3

 

28.8

 

(1.6)

 

(2.2)

Commercial real estate price growth

 

(0.6)

 

8.4

 

(1.0)

 

(1.6)

 

 

 

 

 

 

 

 

 

At 31 December 2018

 

 

 

 

 

 

 

 

Bank of England base rate

 

1.75

 

4.00

 

1.75

 

1.25

Unemployment rate

 

4.8

 

4.3

 

6.3

 

8.6

House price growth

 

13.7

 

34.9

 

0.6

 

(1.6)

Commercial real estate price growth

 

0.1

 

26.9

 

(0.5)

 

(0.5)

 

Economic assumptions - start to trough

 

 

 

 

 

 

 

 

 

 

 

Base case

 

Upside

 

Downside

 

Severe

downside

 

 

%

 

%

 

%

 

%

At 30 June 2019

 

 

 

 

 

 

 

 

Bank of England base rate

 

0.75

 

0.75

 

0.31

 

0.01

Unemployment rate

 

3.8

 

3.4

 

3.8

 

3.9

House price growth

 

(1.1)

 

(0.5)

 

(12.0)

 

(33.2)

Commercial real estate price growth

 

(1.5)

 

0.0

 

(23.8)

 

(40.7)

 

 

 

 

 

 

 

 

 

At 31 December 2018

 

 

 

 

 

 

 

 

Bank of England base rate

 

0.75

 

0.75

 

0.75

 

0.25

Unemployment rate

 

4.1

 

3.5

 

4.3

 

4.2

House price growth

 

0.4

 

2.3

 

(26.5)

 

(33.5)

Commercial real estate price growth

 

(0.1)

 

0.0

 

(23.8)

 

(33.8)

 

The Group's base-case economic scenario has changed little over the year and reflects a broadly stable outlook for the economy. Although there remains considerable uncertainty about the economic consequences of the UK's planned exit from the European Union, the Group considers that at this stage the range of possible outcomes is adequately reflected in its choice and weighting of scenarios. The effect of the revised economic assumptions has been to increase the ECL allowance by £50 million.

 

Impact of forward looking information

As a result of applying the assumptions set out above, the extent to which a higher ECL allowance has been recognised is shown below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Probability

 

 

 

 

 

 

 

 

 

Base case

 

-weighted

 

Difference

 

 

 

 

 

 

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

UK mortgages

 

 

 

 

 

501

 

619

 

118

 

Other Retail

 

 

 

 

 

1,365

 

1,386

 

21

 

Commercial

 

 

 

 

 

1,376

 

1,433

 

57

 

Other

 

 

 

 

 

73

 

73

 

-

 

At 30 June 2019

 

 

 

 

 

3,315

 

3,511

 

196

 

At 31 December 2018

 

 

 

 

 

3,100

 

3,362

 

262

 

                                   
 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

2.         Segmental analysis

 

Lloyds Banking Group provides a wide range of banking and financial services in the UK and in certain locations overseas. The Group Executive Committee (GEC) remains the chief operating decision maker for the Group.

 

The segmental results and comparatives are presented on an underlying basis, the basis reviewed by the chief operating decision maker. The effects of certain asset sales, volatile items, the insurance grossing adjustment, liability management, restructuring, payment protection insurance provisions, the amortisation of purchased intangible assets and the unwind of acquisition-related fair value adjustments are excluded in arriving at underlying profit.

 

During the half-year to 30 June 2019, the Group transferred Cardnet, its card payment acceptance service, from Retail into Commercial Banking and also transferred certain equity business from Commercial Banking into Central items. Comparatives have been restated accordingly.

 

The Group's activities are organised into three financial reporting segments: Retail; Commercial Banking; and Insurance and Wealth. There has been no change to the descriptions of these segments as provided in note 4 to the Group's financial statements for the year ended 31 December 2018, neither has there been any change to the Group's segmental accounting for internal segment services or derivatives entered into by units for risk management purposes since 31 December 2018.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

income,

 

income,

 

 

 

 

 

 

 

 

Net

 

net of

 

net of

 

Profit

 

 

 

Inter-

 

 

interest

 

insurance

 

insurance

 

(loss)

 

External

 

segment

 

 

income

 

claims

 

claims

 

before tax

 

revenue

 

revenue

Half-year to 30 June 2019

  

£m

  

£m

  

£m

  

£m

  

£m

  

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying basis

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

4,366

 

1,007

 

5,373

 

1,983

 

6,501

 

(1,128)

Commercial Banking

 

1,460

 

733

 

2,193

 

992

 

1,770

 

423

Insurance and Wealth

 

58

 

1,183

 

1,241

 

677

 

939

 

302

Other

 

261

 

227

 

488

 

542

 

85

 

403

Group

 

6,145

 

3,150

 

9,295

 

4,194

 

9,295

 

-

Reconciling items:

 

 

 

 

 

 

 

 

 

 

 

 

Insurance grossing adjustment

 

(1,303)

 

1,418

 

115

 

-

 

 

 

 

Market volatility and asset sales

 

(87)

 

(22)

 

(109)

 

(296)

 

 

 

 

Amortisation of purchased intangibles

 

-

 

-

 

-

 

(34)

 

 

 

 

Restructuring costs

 

-

 

(48)

 

(48)

 

(182)

 

 

 

 

Fair value unwind and other items

 

(116)

 

(6)

 

(122)

 

(135)

 

 

 

 

Payment protection insurance provision

 

-

 

-

 

-

 

(650)

 

 

 

 

Group - statutory

 

4,639

 

4,492

 

9,131

 

2,897

 

 

 

 

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

2.         Segmental analysis (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

income,

 

income,

 

 

 

 

 

 

 

 

Net

 

net of

 

net of

 

Profit

 

 

 

Inter-

 

 

interest

 

insurance

 

insurance

 

(loss)

 

External

 

segment

 

 

income

 

claims

 

claims

 

before tax

 

revenue

 

revenue

Half-year to 30 June 20181

  

£m

  

£m

  

£m

  

£m

  

£m

  

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying basis

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

4,511

 

1,052

 

5,563

 

2,134

 

6,399

 

(836)

Commercial Banking

 

1,501

 

842

 

2,343

 

1,181

 

1,818

 

525

Insurance and Wealth

 

60

 

979

 

1,039

 

480

 

1,202

 

(163)

Other

 

272

 

251

 

523

 

439

 

49

 

474

Group

 

6,344

 

3,124

 

9,468

 

4,234

 

9,468

 

-

Reconciling items:

 

 

 

 

 

 

 

 

 

 

 

 

Insurance grossing adjustment

 

(244)

 

321

 

77

 

-

 

 

 

 

Market volatility and asset sales

 

54

 

128

 

182

 

34

 

 

 

 

Amortisation of purchased intangibles

 

-

 

-

 

-

 

(53)

 

 

 

 

Restructuring costs

 

-

 

-

 

-

 

(377)

 

 

 

 

Fair value unwind and other items

 

(147)

 

(9)

 

(156)

 

(171)

 

 

 

 

Payment protection insurance provision

 

-

 

-

 

-

 

(550)

 

 

 

 

Group - statutory

 

6,007

 

3,564

 

9,571

 

3,117

 

 

 

 

 

 

 

1

Restated, see page 70.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

income,

 

income,

 

 

 

 

 

 

 

 

Net

 

net of

 

net of

 

Profit

 

 

 

Inter-

 

 

interest

 

insurance

 

insurance

 

(loss)

 

External

 

segment

 

 

income

 

claims

 

claims

 

before tax

 

revenue

 

revenue

Half-year to 31 December 20181

  

£m

  

£m

  

£m

  

£m

  

£m

  

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Underlying basis

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

4,549

 

1,045

 

5,594

 

2,077

 

6,623

 

(1,029)

Commercial Banking

 

1,512

 

828

 

2,340

 

1,002

 

3,071

 

(731)

Insurance and Wealth

 

63

 

886

 

949

 

447

 

693

 

256

Other

 

246

 

127

 

373

 

306

 

(1,130)

 

1,504

Group

 

6,370

 

2,886

 

9,256

 

3,832

 

9,257

 

-

Reconciling items:

 

 

 

 

 

 

 

 

 

 

 

 

Insurance grossing adjustment

 

1,078

 

(994)

 

84

 

-

 

 

 

 

Market volatility and asset sales

 

73

 

(171)

 

(98)

 

(84)

 

 

 

 

Amortisation of purchased intangibles

 

-

 

-

 

-

 

(55)

 

 

 

 

Restructuring costs

 

-

 

(54)

 

(54)

 

(502)

 

 

 

 

Fair value unwind and other items

 

(132)

 

(1)

 

(133)

 

(148)

 

 

 

 

Payment protection insurance provision

 

-

 

-

 

-

 

(200)

 

 

 

 

Group - statutory

 

7,389

 

1,666

 

9,055

 

2,843

 

 

 

 

 

 

 

1

Restated, see page 70.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

2.         Segmental analysis (continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment external

 

Segment customer

 

Segment external

 

  

assets

 

deposits

 

liabilities

 

 

At 30 June

 

At 31 Dec

  

At 30 June

 

At 31 Dec

  

At 30 June

 

At 31 Dec

 

 

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

  

£m

  

£m

 

£m

  

£m

 

£m

  

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail

 

346,979

 

349,412

 

252,400

 

252,808

 

259,372

 

259,778

Commercial Banking

 

158,234

 

165,030

 

150,553

 

148,635

 

191,275

 

191,687

Insurance and Wealth

 

151,165

 

140,487

 

13,832

 

14,063

 

158,272

 

147,673

Other

 

165,870

 

142,669

 

4,907

 

2,560

 

164,274

 

148,261

Total Group

 

822,248

 

797,598

 

421,692

 

418,066

 

773,193

 

747,399

 

 

3.         Net fee and commission income

 

 

 

 

 

 

 

 

 

 

Half-year to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2019

    

2018

 

2018

 

 

£m

 

£m

 

£m

Fee and commission income:

 

 

 

 

 

 

Current accounts

 

325

 

315

 

335

Credit and debit card fees

 

469

 

487

 

506

Commercial banking and treasury fees

 

138

 

152

 

153

Unit trust and insurance broking

 

114

 

105

 

116

Private banking and asset management

 

46

 

49

 

48

Factoring

 

53

 

39

 

44

Other

 

283

 

225

 

274

Total fee and commission income

 

1,428

 

1,372

 

1,476

Fee and commission expense

 

(694)

 

(674)

 

(712)

Net fee and commission income

 

734

 

698

 

764

 

Current account and credit and debit card fees principally arise in Retail; commercial banking, treasury and factoring fees arise in Commercial Banking; and private banking, unit trust, insurance broking and asset management fees arise in Insurance and Wealth.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

4.         Operating expenses

 

 

 

 

 

 

 

 

 

 

Half-year to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2019

    

2018

 

2018

 

 

£m

 

£m

 

£m

Administrative expenses

 

 

 

 

 

 

Salaries and social security costs

 

1,627

 

1,663

 

1,671

Pensions and other post-retirement benefit schemes  (note 13)

 

280

 

405

 

300

Restructuring and other staff costs

 

250

 

444

 

279

 

 

2,157

 

 2,512

 

2,250

Premises and equipment

 

242

 

 367

 

362

Other expenses:

 

 

 

 

 

 

IT, data processing and communications

 

535

 

 563

 

558

UK bank levy

 

-

 

 -

 

225

Operations, marketing and other 

 

626

 

 534

 

603

 

 

1,161

 

 1,097

 

1,386

 

 

3,560

 

 3,976

 

3,998

Depreciation and amortisation

 

1,302

 

 1,215

 

1,190

Total operating expenses, excluding regulatory provisions

 

4,862

 

 5,191

 

5,188

Regulatory provisions (note 17):

 

 

 

 

 

 

Payment protection insurance provision

 

650

 

 550

 

200

Other regulatory provisions

 

143

 

 257

 

343

 

 

793

 

 807

 

543

Total operating expenses

 

5,655

 

 5,998

 

5,731

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

5.         Impairment

 

 

 

 

 

 

 

 

 

 

Half-year to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2019

 

2018

 

2018

 

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

Impact of transfers between stages

 

379 

 

352 

 

133 

Other changes in credit quality

 

223 

 

242 

 

283 

Additions (repayments)

 

(64)

 

(70)

 

(20)

Methodology changes

 

16 

 

(61)

 

41 

Model changes

 

27 

 

 

Other items

 

(2)

 

(7)

 

44 

 

 

200 

 

104 

 

348 

Total impairment charge

 

579 

 

456 

 

481 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

Loans and advances to banks

 

 

 

Loans and advances to customers

 

598 

 

470 

 

552 

Debt securities

 

 

 

Financial assets at amortised cost

 

599 

 

470 

 

553 

Other assets

 

 

 

Impairment charge on drawn balances

 

599 

 

470 

 

554 

Loan commitments and financial guarantees

 

(19)

 

(15)

 

(58)

Financial assets at fair value through other comprehensive income

 

(1)

 

 

(15)

Total impairment charge

 

579 

 

456 

 

481 

 

The Group's impairment charge comprises the following:

 

Transfers between stages

The net impact on the impairment charge of transfers between stages.

 

Other changes in credit quality

Changes in loss allowance as a result of movements in risk parameters that reflect changes in customer credit quality, but which have not resulted in a transfer to a different stage. This also contains the impact on the impairment charge of write-offs and recoveries, where the related loss allowances are reassessed to reflect ultimate realisable or recoverable value.

 

Additions (repayments)

Expected loss allowances are recognised on origination of new loans or further drawdowns of existing facilities. Repayments relate to the reduction of allowances as a result of repayments of outstanding balances.

 

Methodology changes

Increase or decrease in impairment charge as a result of adjustments to the models used for expected credit loss calculations; either as changes to the model inputs (risk parameters) or to the underlying assumptions.

 

Model changes

The impact on the impairment charge of changing the models used to calculate expected credit losses.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

6.         Taxation

 

In accordance with IAS 34, the Group's income tax expense for the half-year to 30 June 2019 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 to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2019

 

20181

 

20181

 

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

Profit before tax

 

2,897

 

 3,117

 

2,843

UK corporation tax thereon at 19 per cent (2018:19 per cent)

 

(550)

 

 (592)

 

(540)

Impact of surcharge on banking profits

 

(221)

 

 (175)

 

(234)

Non-deductible costs: conduct charges

 

(103)

 

 (92)

 

(9)

Non-deductible costs: bank levy

 

 

 -

 

(43)

Other non-deductible costs

 

(39)

 

 (44)

 

(46)

Non-taxable income

 

45

 

 51

 

36

Tax relief on coupons on other equity instruments

 

47

 

39

 

44

Tax-exempt gains on disposals

 

10

 

 38

 

86

(Derecognition) recognition of losses that arose in prior years

 

12

 

 (10)

 

1

Remeasurement of deferred tax due to rate changes

 

14

 

 10

 

22

Differences in overseas tax rates

 

(15)

 

 3

 

3

Policyholder tax

 

(38)

 

 (36)

 

(26)

Policyholder deferred tax asset in respect of life assurance expenses

 

 

-

 

73

Adjustments in respect of prior years

 

166

 

 8

 

(21)

Tax expense

 

(672)

 

 (800)

 

(654)

 

 

 

1

Restated, see note 1.

 

7.         Earnings per share

 

 

 

 

 

 

 

 

 

    

Half-year to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2019

    

20181

 

20181

 

 

 

 

 

 

 

Profit attributable to ordinary shareholders - basic and diluted (£m)

 

1,942

 

 2,075

 

 1,900

 

 

 

1

Restated, see note 1.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of ordinary shares in issue - basic (m)

 

71,053

 

 72,025

 

 71,257

Adjustment for share options and awards (m)

 

663

 

 670

 

 612

Weighted average number of ordinary shares in issue - diluted (m)

 

71,716

 

 72,695

 

 71,869

 

 

 

 

 

 

 

Basic earnings per share

 

2.7p

 

2.9p

 

2.6p

Diluted earnings per share

 

2.7p

 

2.9p

 

2.6p

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

8.         Financial assets at fair value through profit or loss

 

 

 

 

 

 

 

 

At 30 June

 

At 31 Dec

 

 

2019

 

2018

 

 

£m

 

£m

 

 

 

 

 

Trading assets

 

23,867

 

35,246

 

 

 

 

 

Other financial assets at fair value through profit or loss:

 

 

 

 

Treasury and other bills

 

20

 

20

Loans and advances to customers

 

10,787

 

10,964

Loans and advances to banks

 

2,033

 

2,178

Debt securities

 

33,512

 

32,636

Equity shares

 

84,889

 

77,485

 

 

131,241

 

123,283

Financial assets at fair value through profit or loss

 

155,108

 

158,529

 

Included in the above is £125,272 million (31 December 2018: £116,903 million) of assets relating to the insurance businesses.

 

9.         Derivative financial instruments

 

 

 

 

 

 

 

 

 

 

 

 

30 June 2019

 

31 December 2018

 

 

Fair value

 

Fair value

 

Fair value

 

Fair value

 

 

of assets

 

of liabilities

 

of assets

 

of liabilities

 

 

£m

 

£m

 

£m

 

£m

Hedging

 

 

 

 

 

 

 

 

Derivatives designated as fair value hedges

 

949

 

223

 

950

 

216

Derivatives designated as cash flow hedges

 

598

 

965

 

613

 

892

 

 

1,547

 

1,188

 

1,563

 

1,108

Trading

 

 

 

 

 

 

 

 

Exchange rate contracts

 

5,718

 

4,324

 

5,797

 

4,753

Interest rate contracts

 

18,560

 

16,653

 

15,747

 

14,632

Credit derivatives

 

64

 

137

 

99

 

181

Equity and other contracts

 

259

 

724

 

389

 

699

 

 

24,601

 

21,838

 

22,032

 

20,265

Total recognised derivative assets/liabilities

 

26,148

 

23,026

 

23,595

 

21,373

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

10.       Financial assets at amortised cost

 

Half-year to 30 June 2019

 

(A) Loans and advances to customers

 

 

 

 

 

 

 

 

 

 

 

Purchased 

 

 

 

 

 

 

 

 

 

 

 

 

or 

originated 

 

 

 

 

 

 

 

 

 

 

 

 

credit- 

 

 

 

 

 

 

Stage 1 

 

Stage 2 

 

Stage 3 

 

impaired 

 

Total 

 

 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

 

 

441,531 

 

25,345 

 

5,741 

 

15,391 

 

488,008 

Exchange and other adjustments

 

 

 

24 

 

(114) 

 

160 

 

194 

 

264 

Additions (repayments)

 

 

 

14,982 

 

(2,815) 

 

(149) 

 

(999) 

 

11,019 

Transfers to Stage 1

 

 

 

5,432 

 

(5,417) 

 

(15) 

 

 

 

Transfers to Stage 2

 

 

 

(12,982) 

 

13,241 

 

(259) 

 

 

 

Transfers to Stage 3

 

 

 

(741) 

 

(1,069) 

 

1,810 

 

 

 

 

 

 

 

(8,291) 

 

6,755 

 

1,536 

 

 

 

Recoveries

 

 

 

 

 

 

 

201 

 

28 

 

229 

Financial assets that have been written off

 

 

 

 

 

(1,069) 

 

- 

 

(1,069) 

At 30 June 2019

 

 

 

448,246 

 

29,171 

 

6,420 

 

14,614 

 

498,451 

Allowance for impairment losses

 

(621) 

 

(953) 

 

(1,558) 

 

(181) 

 

(3,313) 

Total loans and advances to customers

 

447,625 

 

28,218 

 

4,862 

 

14,433 

 

495,138 

 

(B) Loans and advances to banks

 

At 1 January 2019

 

 

 

6,282

 

3

 

-

 

-

 

6,285

Exchange and other adjustments

 

 

 

(23)

 

2

 

-

 

-

 

(21)

Transfers to Stage 2

 

 

 

(10)

 

10

 

-

 

-

 

-

Additions (repayments)

 

 

 

2,113

 

-

 

-

 

-

 

2,113

At 30 June 2019

 

 

 

8,362

 

15

 

-

 

-

 

8,377

Allowance for impairment losses

 

(3)

 

-

 

-

 

-

 

(3)

Total loans and advances to banks

 

8,359

 

15

 

-

 

-

 

8,374

 

(C) Debt securities

 

At 1 January 2019

 

 

 

5,238

 

-

 

6

 

-

 

5,244

Exchange and other adjustments

 

 

 

(6)

 

-

 

-

 

-

 

(6)

Additions (repayments)

 

 

 

202

 

-

 

-

 

-

 

202

Assets which have been derecognised

 

-

 

-

 

(2)

 

-

 

(2)

Financial assets that have been written off

 

 

 

 

 

(1)

 

-

 

(1)

At 30 June 2019

 

 

 

5,434

 

-

 

3

 

-

 

5,437

Allowance for impairment losses

 

-

 

-

 

(3)

 

-

 

(3)

Total debt securities

 

 

 

5,434

 

-

 

-

 

-

 

5,434

 

 

 

 

 

 

 

 

 

 

 

 

 

Total financial assets at amortised cost

 

461,418

 

28,233

 

4,862

 

14,433

 

508,946

 

Exchange and other adjustments includes certain adjustments, prescribed by IFRS 9, in respect of purchased or originated credit-impaired financial assets

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

10.       Financial assets at amortised cost (continued)

 

Year ended 31 December 2018

 

(A) Loans and advances to customers

 

 

 

 

 

 

 

 

 

 

 

Purchased 

 

 

 

 

 

 

 

 

 

 

 

 

or 

originated 

 

 

 

 

 

 

 

 

 

 

 

 

credit- 

 

 

 

 

 

 

Stage 1 

 

Stage 2 

 

Stage 3 

 

impaired 

 

Total 

 

 

 

 

£m 

 

£m 

 

£m 

 

£m 

 

£m 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2018

 

 

 

403,881 

 

37,245 

 

5,140 

 

17,973 

 

464,239 

Exchange and other adjustments

 

 

 

958 

 

32 

 

 

 

990 

Additions (repayments)

 

 

 

34,942 

 

(2,187)

 

(2,074)

 

(2,609)

 

28,072 

Transfers to Stage 1

 

 

 

19,524 

 

(19,501)

 

(23)

 

 

 

Transfers to Stage 2

 

 

 

(15,743)

 

15,996 

 

(253)

 

 

 

Transfers to Stage 3

 

 

 

(2,031)

 

(2,220)

 

4,251 

 

 

 

 

 

 

 

1,750 

 

(5,725)

 

3,975 

 

 

 

Recoveries

 

 

 

-

 

 

553 

 

27 

 

580 

Disposal of businesses

 

 

 

-

 

(4,020)

 

(277)

 

 

(4,297)

Financial assets that have been written off

 

 

 

 

 

(1,576)

 

 

(1,576)

At 31 December 2018

 

 

 

441,531 

 

25,345 

 

5,741 

 

15,391 

 

488,008 

Allowance for impairment losses

 

 

 

(525)

 

(994)

 

(1,553)

 

(78)

 

(3,150)

Total loans and advances to customers

 

441,006 

 

24,351 

 

4,188 

 

15,313 

 

484,858 

 

(B) Loans and advances to banks

 

At 1 January 2018

 

 

 

4,245 

 

 

 

 

4,247 

Exchange and other adjustments

 

 

 

(29)

 

 

 

 

(28)

Additions (repayments)

 

 

 

2,066 

 

 

 

 

2,066 

At 31 December 2018

 

 

 

6,282 

 

 

 

 

6,285 

Allowance for impairment losses

 

 

 

(2)

 

 

 

 

(2)

Total loans and advances to banks

 

6,280 

 

 

 

 

6,283 

 

(C) Debt securities

 

At 1 January 2018

 

 

 

3,291 

 

 

49 

 

 

3,340 

Exchange and other adjustments

 

 

 

77 

 

 

(14)

 

 

63 

Additions (repayments)

 

 

 

1,870 

 

 

 

 

1,870 

Financial assets that have been written off

 

 

 

 

 

(29)

 

 

(29)

At 31 December 2018

 

 

 

5,238 

 

 

 

 

5,244 

Allowance for impairment losses

 

 

 

 

 

(6)

 

 

(6)

Total debt securities

 

 

 

5,238 

 

 

 

 

5,238 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total financial assets at amortised cost

 

452,524 

 

24,354 

 

4,188 

 

15,313 

 

496,379 

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

10.       Financial assets at amortised cost (continued)

 

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 30 June 2019, with the exception of those held within Purchased or originated credit-impaired, which are not transferrable. Net increase and decrease in balances 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 write-off.

 

Loans and advances to customers include advances securitised under the Group's securitisation and covered bond programmes (see note 12).

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.       Allowance for impairment losses

 

Half-year to 30 June 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased 

 

 

 

 

 

 

 

 

 

 

 

or 

originated 

 

 

 

 

 

 

 

 

 

 

 

credit-  

 

 

 

 

 

Stage 1  

 

Stage 2  

 

Stage 3   

 

impaired  

 

Total 

 

 

 

£m  

 

£m  

 

£m   

 

£m  

 

£m 

In respect of drawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

 

 

 

 

527  

 

 

 

994 

 

 

 

1,570 

 

 

 

78 

 

 

 

3,169 

 

Exchange and other adjustments

 

 

 

 

 

 

 

 

(86) 

 

 

 

324 

 

 

 

195 

 

 

 

438 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

 

 

329 

 

 

 

(323) 

 

 

 

(6) 

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

 

 

(50) 

 

 

 

86 

 

 

 

(36) 

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

 

 

(7) 

 

 

 

(36) 

 

 

 

43 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

 

 

(280) 

 

 

 

373 

 

 

 

276 

 

 

 

 

 

 

 

369 

 

 

 

 

 

 

 

(8) 

 

 

 

100 

 

 

 

277 

 

 

 

 

 

 

 

369 

 

Other items charged to the income statement

 

 

 

 

 

100 

 

 

 

(55) 

 

 

 

305 

 

 

 

(120) 

 

 

 

230 

 

Charge to the income statement (note 5)

 

 

 

 

 

92 

 

 

 

45 

 

 

 

582 

 

 

 

(120) 

 

 

 

599 

 

Advances written off

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,069) 

 

 

 

 

 

 

(1,069) 

 

Recoveries of advances written off in previous years

 

 

 

 

 

 

 

 

 

 

 

 

 

201 

 

 

 

28 

 

 

 

229  

 

Discount unwind

 

 

 

 

 

 

 

 

 

 

 

 

 

(28) 

 

 

 

 

 

 

(28) 

 

At 30 June 2019

 

 

 

 

 

624 

 

 

 

953 

 

 

 

1,580 

 

 

 

181 

 

 

 

3,338  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of undrawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2019

 

 

 

 

 

123 

 

 

 

64 

 

 

 

 

 

 

 

 

 

193 

 

Exchange and other adjustments

 

 

 

 

 

 

 

 

(1) 

 

 

 

 

 

 

 

 

 

(1) 

 

 

 

 

 

 

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

 

 

17 

 

 

 

(17) 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

 

 

(5) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

 

 

 

 

 

(2) 

 

 

 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

 

 

(14) 

 

 

 

25 

 

 

 

(1) 

 

 

 

 

 

 

 

10  

 

 

 

 

 

 

 

(2) 

 

 

 

11 

 

 

 

 

 

 

 

 

 

 

10  

 

Other items charged to the income statement

 

 

 

 

 

(32) 

 

 

 

 

 

 

(2) 

 

 

 

 

 

 

(29) 

 

Charge to the income statement

 

 

 

 

 

(34) 

 

 

 

16 

 

 

 

(1) 

 

 

 

 

 

 

(19) 

 

At 30 June 2019

 

 

 

 

 

89 

 

 

 

79 

 

 

 

5  

 

 

 

 

 

 

173  

 

Total allowance for impairment losses

 

 

 

 

 

713 

 

 

 

1,032 

 

 

 

1,585  

 

 

 

181 

 

 

 

3,511  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3  

 

Loans and advances to customers

 

 

 

 

 

621 

 

 

 

953 

 

 

 

1,558  

 

 

 

181 

 

 

 

3,313  

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3  

 

Other assets

 

 

 

 

 

 

 

 

 

 

 

19 

 

 

 

 

 

 

19  

 

Drawn balances

 

 

 

 

 

624 

 

 

 

953 

 

 

 

1,580  

 

 

 

181 

 

 

 

3,338  

 

Provisions in relation  to loan commitments and

financial guarantees

 

 

 

 

 

89 

 

 

 

79 

 

 

 

5  

 

 

 

 

 

 

173  

 

Total allowance for impairment losses

 

 

 

 

 

713 

 

 

 

1,032 

 

 

 

1,585  

 

 

 

181 

 

 

 

3,511  

 

Expected credit loss in respect of financial assets at fair

value through other comprehensive income

(memorandum item)

 

 

 

 

 

 

 

 

 

-  

 

 

 

 

 

 

1  

 

 

Exchange and other adjustments includes certain adjustments, prescribed by IFRS 9, in respect of purchased or originated credit-impaired financial assets.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.       Allowance for impairment losses (continued)

 

Year ended 31 December 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased 

 

 

 

 

 

 

 

 

 

 

 

or 

 originated 

 

 

 

 

 

 

 

 

 

 

 

credit- 

 

 

 

 

 

Stage 1  

 

Stage 2  

 

Stage 3   

 

Impaired 

 

Total

 

 

 

£m  

 

£m  

 

£m   

 

£m 

 

£m

In respect of drawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2018

 

 

 

 

 

590  

 

 

 

1,147 

 

 

 

1,491 

 

 

 

32 

 

 

 

3,260 

 

Exchange and other adjustments

 

 

 

 

 

2  

 

 

 

 

 

 

133 

 

 

 

 

 

 

135 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

 

 

304  

 

 

 

(299)

 

 

 

(5)

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

 

 

(46) 

 

 

 

85 

 

 

 

(39)

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

 

 

(32) 

 

 

 

(131)

 

 

 

163 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

 

 

(233) 

 

 

 

401 

 

 

 

325 

 

 

 

 

 

 

 

493 

 

 

 

 

 

 

 

(7)

 

 

 

56 

 

 

 

444 

 

 

 

 

 

 

 

493 

 

Other items charged to the income statement

 

 

 

 

 

(58)

 

 

 

(107)

 

 

 

696 

 

 

 

 

 

 

531 

 

Charge to the income statement (note 5)

 

 

 

 

 

(65)

 

 

 

(51)

 

 

 

1,140 

 

 

 

 

 

 

1,024 

 

Advances written off

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,605)

 

 

 

 

 

 

(1,605)

 

Disposal of businesses

 

 

 

 

 

 

 

 

(102)

 

 

 

(79)

 

 

 

 

 

 

(181)

 

Recoveries of advances written off in previous years

 

 

 

 

 

 

 

 

 

 

 

 

 

553 

 

 

 

27 

 

 

 

580 

 

Discount unwind

 

 

 

 

 

 

 

 

 

 

 

 

 

(63)

 

 

 

19 

 

 

 

(44)

 

At 31 December 2018

 

 

 

 

 

527 

 

 

 

994 

 

 

 

1,570 

 

 

 

78 

 

 

 

3,169 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of undrawn balances

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2018

 

 

 

 

 

147 

 

 

 

126 

 

 

 

 

 

 

 

 

 

273 

 

Exchange and other adjustments

 

 

 

 

 

(5)

 

 

 

(14)

 

 

 

12 

 

 

 

 

 

 

(7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 1

 

 

 

 

 

28 

 

 

 

(28)

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 2

 

 

 

 

 

(6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transfers to Stage 3

 

 

 

 

 

(2)

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

 

Impact of transfers between stages

 

 

 

 

 

(25)

 

 

 

22 

 

 

 

(5)

 

 

 

 

 

 

 

(8) 

 

 

 

 

 

 

 

(5)

 

 

 

(5)

 

 

 

 

 

 

 

 

 

 

(8) 

 

Other items charged to the income statement

 

 

 

 

 

(14)

 

 

 

(43)

 

 

 

(8)

 

 

 

 

 

 

(65)

 

Charge to the income statement

 

 

 

 

 

(19)

 

 

 

(48)

 

 

 

(6)

 

 

 

 

 

 

(73)

 

At 31 December 2018

 

 

 

 

 

123 

 

 

 

64 

 

 

 

 

 

 

 

 

 

193 

 

Total allowance for impairment losses

 

 

 

 

 

650 

 

 

 

1,058 

 

 

 

1,576 

 

 

 

78 

 

 

 

3,362 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In respect of:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to banks

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans and advances to customers

 

 

 

 

 

525 

 

 

 

994 

 

 

 

1,553 

 

 

 

78 

 

 

 

3,150 

 

Debt securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

 

 

 

 

 

11 

 

 

 

 

 

 

11 

 

Drawn balances

 

 

 

 

 

527

 

 

 

994 

 

 

 

1,570

 

 

 

78 

 

 

 

3,169 

 

Provisions in relation  to loan commitments and

financial guarantees

 

 

 

 

 

123 

 

 

 

64 

 

 

 

 

 

 

 

 

 

193 

 

Total allowance for impairment losses

 

 

 

 

 

650 

 

 

 

1,058 

 

 

 

1,576 

 

 

 

78 

 

 

 

3,362 

 

Expected credit loss in respect of financial assets at fair

value through other comprehensive income

(memorandum item)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

11.       Allowance for impairment losses (continued)

 

The Group's income statement charge comprises:

 

 

 

 

 

 

 

Half-year

 

Year ended

 

 

to 30 June

 

31 Dec

 

 

2019

 

2018

 

 

£m

 

£m

 

 

 

 

 

Drawn balances

 

599

 

1,024

Undrawn balances

 

(19)

 

(73)

Financial assets at fair value through other comprehensive income

 

(1)

 

(14)

Total

 

579

 

937

 

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 30 June 2019, with the exception of those held within purchased or originated credit-impaired, which are not transferable. As assets are transferred between stages, the resulting change in expected credit loss of £369 million for drawn balances, and £10 million for undrawn balances, is presented separately, in the stage in which the allowance is recognised at the end of the reporting period.

 

Net increase and decrease in balances comprise the movements in the expected credit loss as a result of 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 write-off. Consequently, recoveries on assets previously written-off will also occur in Stage 3 only.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

12.       Debt securities in issue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30 June 2019

 

31 December 2018

 

 

At fair

 

 

 

 

 

At fair

 

 

 

 

 

 

value

 

 

 

 

 

value

 

 

 

 

 

 

through

 

At

 

 

 

through

 

At

 

 

 

 

profit or

 

amortised

 

 

 

profit or

 

amortised

 

 

 

 

loss

 

cost

 

Total

 

loss

 

cost

 

Total

 

   

£m

   

£m

   

£m

   

£m

   

£m

   

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Medium-term notes issued

 

7,930

 

39,404

 

47,334

 

 7,032

 

37,490

 

44,522

Covered bonds

 

-

 

30,479

 

30,479

 

 -

 

28,194

 

28,194

Certificates of deposit

 

-

 

12,167

 

12,167

 

 -

 

12,020

 

12,020

Securitisation notes

 

52

 

5,261

 

5,313

 

53

 

5,426

 

5,479

Commercial paper

 

-

 

10,504

 

10,504

 

 -

 

8,038

 

8,038

 

 

7,982

 

97,815

 

105,797

 

 7,085

 

91,168

 

98,253

 

The notes issued by the Group's securitisation and covered bond programmes are held by external parties and by subsidiaries of the Group.

 

Securitisation programmes

At 30 June 2019, external parties held £5,313 million (31 December 2018: £5,479 million) and the Group's subsidiaries held £30,139 million (31 December 2018: £31,701 million) of total securitisation notes in issue of £35,452 million (31 December 2018: £37,180 million). The notes are secured on loans and advances to customers and debt securities held at amortised cost amounting to £38,604 million (31 December 2018: £41,674 million), the majority of which have been sold by subsidiary companies to bankruptcy remote structured entities. The structured entities are consolidated fully and all of these loans are retained on the Group's balance sheet.

 

Covered bond programmes

At 30 June 2019, external parties held £30,479 million (31 December 2018: £28,194 million) and the Group's subsidiaries held £700 million (31 December 2018: £700 million) of total covered bonds in issue of £31,179 million (31 December 2018: £28,894 million). The bonds are secured on certain loans and advances to customers amounting to £41,049 million (31 December 2018: £36,802 million) that have been assigned to bankruptcy remote limited liability partnerships. These loans are retained on the Group's balance sheet.

 

Cash deposits of £4,049 million (31 December 2018: £4,102 million) which support the debt securities issued by the structured entities, the term advances related to covered bonds and other legal obligations are held by the Group.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

13.       Post-retirement defined benefit schemes

 

The Group's post-retirement defined benefit scheme obligations are comprised as follows:

 

 

 

 

 

 

 

 

At 30 June

 

At 31 Dec

 

 

2019

 

2018

 

    

£m

    

£m

Defined benefit pension schemes:

 

 

 

 

Fair value of scheme assets

 

45,763

 

42,238

Present value of funded obligations

 

(44,375)

 

(41,092)

Net pension scheme asset

 

1,388

 

1,146

Other post-retirement schemes

 

(129)

 

(124)

Net retirement benefit asset

 

1,259

 

1,022

 

 

 

 

 

Recognised on the balance sheet as:

 

 

 

 

Retirement benefit assets

 

1,509

 

1,267

Retirement benefit obligations

 

(250)

 

(245)

Net retirement benefit asset

 

1,259

 

1,022

 

The movement in the Group's net post-retirement defined benefit scheme asset during the period was as follows:

 

 

 

 

 

   

£m

 

 

 

Asset at 1 January 2019

 

1,022

Exchange and other adjustments

 

11

Income statement charge

 

(139)

Employer contributions

 

538

Remeasurement

 

(173)

Asset at 30 June 2019

 

1,259

         

 

The charge to the income statement in respect of pensions and other post-retirement benefit schemes is comprised as follows:

 

9

 

 

 

 

 

 

 

 

Half-year to

 

Half-year to

 

Half-year to

 

 

30 June

 

30 June

 

31 Dec

 

 

2019

    

2018

 

2018

 

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

Defined benefit pension schemes

 

139

 

271

 

134

Defined contribution schemes

 

141

 

134

 

166

Total charge to the income statement (note 4)

 

280

 

405

 

300

                       

 

The principal assumptions used in the valuations of the defined benefit pension schemes were as follows:

 

 

 

 

 

 

 

 

At 30 June

 

At 31 Dec

 

 

2019

 

2018

 

 

%

 

%

 

 

 

 

 

Discount rate

 

2.33

 

2.90

Rate of inflation:

 

 

 

 

Retail Prices Index

 

3.19

 

3.20

Consumer Price Index

 

2.14

 

2.15

Rate of salary increases

 

0.00

 

0.00

Weighted-average rate of increase for pensions in payment

 

2.73

 

2.73

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

14.       Subordinated liabilities

 

The Group's subordinated liabilities are comprised as follows:

 

9

 

 

 

 

 

 

At 30 June

 

At 31 Dec

 

 

2019

 

2018

 

 

£m

 

£m

 

 

 

 

 

Preference shares

 

919

 

803

Preferred securities

 

3,314

 

3,205

Undated subordinated liabilities

 

587

 

588

Dated subordinated liabilities

 

12,989

 

13,060

Total subordinated liabilities

 

17,809

 

17,656

 

15.       Share capital 

 

Movements in share capital during the period were as follows:

 

 

 

 

 

 

 

 

Number

 

 

 

 

of  shares

 

 

 

 

(million)

 

£m

Ordinary shares of 10p each

 

 

 

 

At 1 January 2019

 

71,164

 

7,116

Issued in the period1

 

725

 

73

Share buybacks

 

(1,125)

 

(113)

At period end

 

70,764

 

7,076

 

1

The ordinary shares issued in the period were in respect of employee share schemes.

 

On 20 February 2019 the Group announced the launch of a share buyback programme to repurchase up to £1.75 billion of its outstanding ordinary shares; the programme commenced on 1 March 2019. The Group entered into an agreement with Morgan Stanley & Co. International plc and UBS AG, London Branch (the joint brokers) to conduct the share buyback programme on its behalf and to make trading decisions under the programme independently of the Group. The joint brokers are purchasing the Group's ordinary shares as principal and selling them to the Group in accordance with the terms of their engagement. The Group cancels the shares that it purchases through the programme. By 30 June 2019, the Group had bought back and cancelled 1,125 million shares under the programme, for a total cost of £694 million.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

16.       Other equity instruments

 

 

 

 

 

 

 

 

 

 

 

£m 

 

 

 

 

 

 

 

At 1 January 2019

 

 

 

6,491 

 

Redemption of Additional Tier 1 securities

 

 

 

(1,481)

 

Additional Tier 1 securities issued in the period:

 

 

 

 

 

US dollar notes ($500 million nominal)

 

 

 

396 

 

At 30 June 2019

 

 

 

5,406 

 

                     

 

On 27 June 2019 the Group redeemed, at par, £1,481 million of Additional Tier 1 securities at their first call date.

 

During the half-year to 30 June 2019 the Group issued £396 million (US$500 million) of Additional Tier 1 (AT1) securities; issue costs of £1 million, net of tax, have been charged to retained profits.

 

The AT1 securities are Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities with no fixed maturity or redemption date.

 

The principal terms of the AT1 securities are described below:

 

·    The securities rank behind the claims against Lloyds Banking Group plc of (a) unsubordinated creditors, (b) claims which are, or are expressed to be, subordinated to the claims of unsubordinated creditors of Lloyds Banking Group plc but not further or otherwise or (c) whose claims are, or are expressed to be, junior to the claims of other creditors of Lloyds Banking Group, whether subordinated or unsubordinated, other than those whose claims rank, or are expressed to rank, pari passu with, or junior to, the claims of the holders of the AT1 Securities in a winding-up occurring prior to a conversion event being triggered.

·    The securities bear a fixed rate of interest until the first call date. After the initial call date, in the event that they are not redeemed, the AT1 securities will bear interest at rates fixed periodically in advance for five year periods based on market rates.

·    Interest on the securities will be due and payable only at the sole discretion of Lloyds Banking Group plc, and Lloyds Banking Group plc may at any time elect to cancel any Interest Payment (or any part thereof) which would otherwise be payable on any Interest Payment Date. There are also certain restrictions on the payment of interest as specified in the terms.

·    The securities are undated and are repayable, at the option of Lloyds Banking Group plc, in whole at the first call date, or on any fifth anniversary after the first call date. In addition, the AT1 securities are repayable, at the option of Lloyds Banking Group plc, in whole for certain regulatory or tax reasons. Any repayments require the prior consent of the PRA.

·    The securities convert into ordinary shares of Lloyds Banking Group plc, at a pre-determined price, should the fully loaded Common Equity Tier 1 ratio of the Group fall below 7.0 per cent.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

17.       Provisions for liabilities and charges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provisions

 

Payment

 

Other

 

 

 

 

 

 

 

 

for

 

Protection

 

regulatory

 

 

 

 

 

 

 

 

commitments

 

Insurance

 

provisions

 

Other

 

Total

 

 

 

 

£m

 

£m

 

£m

 

£m

 

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 31 December 2018

 

 

 

193

 

1,524

 

861

 

969

 

3,547

Adjustment on implementation of IFRS 16

 

-

 

-

 

-

 

(97)

 

(97)

Exchange and other adjustments

 

 

 

(1)

 

32

 

-

 

1

 

32

Provisions applied

 

 

 

-

 

(992)

 

(412)

 

(204)

 

(1,608)

Charge for the period

 

 

 

(19)

 

650

 

143

 

210

 

984

At 30 June 2019

 

 

 

173

 

1,214

 

592

 

879

 

2,858

                                               

 

Payment protection insurance (excluding MBNA)

The Group increased the provision for PPI costs by a further £650 million in the half-year to 30 June 2019, of which £550 million was in the second quarter, bringing the total amount provided to £20,075 million.

 

The charge in the second quarter is largely driven by the significant increase in PPI information requests (PIRs) which is likely to lead to higher total complaints and associated administration costs. The Group has historically received around 70,000 PIRs per week, of which around 9,000 converted into a complaint. Through the second quarter, the number of PIRs received increased to around 150,000 per week and in recent weeks around 190,000 per week and the Group has assumed that PIRs remain at this elevated level until the industry deadline at the end of August 2019. At the same time, the quality of PIRs has deteriorated and the Group expects this to continue. While PIR and complaint volumes remain uncertain, the impact of these additional volumes is expected to generate around 200,000 extra complaints, increasing the total expected complaint volumes from 5.6 million to 5.8 million.

 

At 30 June 2019, a provision of £1,083 million remained unutilised relating to complaints and associated administration costs. Total cash payments were £896 million during the six months to 30 June 2019.

 

Sensitivities

The Group estimates that it has sold approximately 16 million PPI policies since 2000. These include policies that were not mis-sold and those that have been successfully claimed upon. Since the commencement of the PPI redress programme in 2011 the Group estimates that it has contacted, settled or provided for approximately 54 per cent of the policies sold since 2000.

 

The total amount provided for PPI represents the Group's best estimate of the likely future cost. A number of risks and uncertainties remain including with respect to future complaint volumes, however the potential impact of these risks has reduced due to the proximity of the industry deadline. The cost could differ from the Group's estimates and the assumptions underpinning them, and could result in a further provision being required. These may also be impacted by any further regulatory changes, the final stage of the Financial Conduct Authority (FCA) media campaign and Claims Management Company and customer activity, and potential additional remediation arising from the continuous improvement of the Group's operational practices.

 

Deloitte LLP has been appointed to assist the Official Receiver with the submission of PPI queries to providers to establish whether any mis-sold PPI redress is due to creditors of bankrupts' estates. The Group has not made any provision in relation to this matter, which will remain under review.

 

For every additional 1,000 reactive complaints per week from July 2019 through to the industry deadline of the end of August 2019, the Group would expect an additional charge of approximately £20 million.
 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

17.       Provisions for liabilities and charges (continued)

 

Payment protection insurance (MBNA)

As announced in December 2016, the Group's exposure is capped at £240 million, which is already provided for, through an indemnity received from Bank of America. MBNA increased its PPI provision by £32 million in the half-year to 30 June 2019 but the Group's exposure continues to remain capped at £240 million under the arrangement with Bank of America, notwithstanding this increase by MBNA.

 

Other provisions for legal actions and regulatory matters

In the course of its business, the Group is engaged in discussions with the PRA, FCA and other UK and overseas regulators and other governmental authorities on a range of matters. The Group also receives complaints in connection with its past conduct and claims brought by or on behalf of current and former employees, customers, investors and other third parties and is subject to legal proceedings and other legal actions. Where significant, provisions are held against the costs expected to be incurred in relation to these matters and matters arising from related internal reviews. During the six months to 30 June 2019 the Group charged a further £143 million in respect of legal actions and other regulatory matters, and the unutilised balance at 30 June 2019 was £592 million (31 December 2018: £861 million). The most significant items are as follows.

 

Arrears handling related activities

The Group has provided an additional £55 million in the half-year to 30 June 2019 for the costs of identifying and rectifying certain arrears management fees and activities, taking the total provided to date to £848 million. The Group has put in place a number of actions to improve its handling of customers in these areas and has made good progress in reimbursing arrears fees to impacted customers.

 

Packaged bank accounts

The Group had provided a total of £795 million up to 31 December 2018 in respect of complaints relating to alleged mis-selling of packaged bank accounts, with no further amounts provided during the six months to 30 June 2019. A number of risks and uncertainties remain particularly with respect to future volumes.

 

Customer claims in relation to insurance branch business in Germany

The Group continues to receive claims in Germany from customers relating to policies issued by Clerical Medical Investment Group Limited (subsequently renamed Scottish Widows Limited), with smaller numbers received from customers in Austria and Italy. The industry-wide issue regarding notification of contractual 'cooling off' periods continued to lead to an increasing number of claims in 2016 and 2017 levelling out in 2018 and into 2019. Up to 31 December 2018 the Group had provided a total of £639 million, with no further amounts provided in 2019. The validity of the claims facing the Group depends upon the facts and circumstances in respect of each claim. As a result the ultimate financial effect, which could be significantly different from the current provision, will be known only once all relevant claims have been resolved.

 

HBOS Reading - customer review

The Group has now completed its compensation assessment for all 71 business customers within the customer review, with more than 98 per cent of these offers to individuals accepted. In total, more than £98 million has been offered of which £84 million has so far been accepted, in addition to £9 million for ex-gratia payments and £6 million for the re-imbursements of legal fees.

 

The review follows the conclusion of a criminal trial in which a number of individuals, including two former HBOS employees, were convicted of conspiracy to corrupt, fraudulent trading and associated money laundering offences which occurred prior to the acquisition of HBOS by the Group in 2009. The Group provided a further £15 million in the year ended 31 December 2018 for customer settlements, raising the total amount provided to £115 million and is now nearing the end of the process of paying compensation to the victims of the fraud, including ex-gratia payments and re-imbursements of legal fees.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

18.       Contingent liabilities and commitments

 

Interchange fees

With respect to multi-lateral interchange fees (MIFs), the Group is not directly involved in the ongoing litigation (as described below) which involve card schemes such as Visa and Mastercard. However, the Group is a member / licensee of Visa and Mastercard and other card schemes:

·    Litigation brought by retailers continues in the English Courts against both Visa and Mastercard

·    Litigation brought on behalf of UK consumers is also proceeding in the English Courts against Mastercard

·    Any ultimate impact on the Group of the litigation against Visa and Mastercard remains uncertain at this time

 

Visa Inc completed its acquisition of Visa Europe on 21 June 2016. As part of this transaction, the Group and certain other UK banks also entered into a Loss Sharing Agreement (LSA) with Visa Inc, which clarifies the allocation of liabilities between the parties should the litigation referred to above result in Visa Inc being liable for damages payable by Visa Europe. The maximum amount of liability to which the Group may be subject under the LSA is capped at the cash consideration which was received by the Group at completion. Visa Inc may also have recourse to a general indemnity, previously in place under Visa Europe's Operating Regulations, for damages claims concerning inter or intra-regional MIF setting activities.

 

LIBOR and other trading rates

In July 2014, the Group announced that it had reached settlements totalling £217 million (at 30 June 2014 exchange rates) to resolve with UK and US federal authorities legacy issues regarding the manipulation several years ago of Group companies' submissions to the British Bankers' Association (BBA) London Interbank Offered Rate (LIBOR) and Sterling Repo Rate. The Swiss Competition Commission concluded its investigation against Lloyds in June 2019. The Group continues to cooperate with various other government and regulatory authorities, including a number of US State Attorneys General, in conjunction with their investigations into submissions made by panel members to the bodies that set LIBOR and various other interbank offered rates.

 

Certain Group companies, together with other panel banks, have also been named as defendants in private lawsuits, including purported class action suits, in the US in connection with their roles as panel banks contributing to the setting of US Dollar, Japanese Yen and Sterling LIBOR and the Australian BBSW Reference Rate. Certain of the plaintiffs' claims, have been dismissed by the US Federal Court for Southern District of New York (subject to appeals).

 

Certain Group companies are also named as defendants in (i) UK based claims; and (ii) two Dutch class actions, raising LIBOR manipulation allegations. A number of the claims against the Group in relation to the alleged mis-sale of interest rate hedging products also include allegations of LIBOR manipulation.

 

It is currently not possible to predict the scope and ultimate outcome on the Group of the various outstanding regulatory investigations not encompassed by the settlements, any private lawsuits or any related challenges to the interpretation or validity of any of the Group's contractual arrangements, including their timing and scale.

 

UK shareholder litigation

In August 2014, the Group and a number of former directors were named as defendants in a claim by a number of claimants who held shares in Lloyds TSB Group plc (LTSB) prior to the acquisition of HBOS plc, alleging breaches of duties in relation to information provided to shareholders in connection with the acquisition and the recapitalisation of LTSB. The defendants refute all claims made. A trial commenced in the English High Court on 18 October 2017 and concluded on 5 March 2018 with judgment to follow. It is currently not possible to determine the ultimate impact on the Group (if any).

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

18.       Contingent liabilities and commitments (continued)

 

Tax authorities

The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which ceased trading on 31 December 2010. In 2013 HMRC informed the Group that their interpretation of the UK rules which allow the offset of such losses denies the claim. If HMRC's position is found to be correct management estimate that this would result in an increase in current tax liabilities of approximately £770 million (including interest) and a reduction in the Group's deferred tax asset of approximately £250 million. The Group does not agree with HMRC's position and, having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due. There are a number of other open matters on which the Group is in discussion with HMRC (including the tax treatment of certain costs arising from the divestment of TSB Banking Group plc), none of which is expected to have a material impact on the financial position of the Group.

 

Mortgage arrears handling activities

On 26 May 2016, the Group was informed that an enforcement team at the FCA had commenced an investigation in connection with the Group's mortgage arrears handling activities. This investigation is ongoing and the Group continues to cooperate with the FCA. It is not currently possible to make a reliable assessment of any liability that may result from the investigation including any financial penalty or public censure.

 

HBOS Reading - FCA investigation

The FCA's investigation into the events surrounding the discovery of misconduct within the Reading-based Impaired Assets team of HBOS has concluded. The FCA issued a final notice on 21 June 2019 announcing that the Group had agreed to settle the matter and pay a fine of £45.5 million.

 

Other legal actions and regulatory matters

In addition, during the ordinary course of business the Group is subject to other 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, both in the UK and overseas. All such material 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 to 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 properly to assess 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.

 

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

18.       Contingent liabilities and commitments (continued)

 

Contingent liabilities and commitments arising from the banking business

 

 

 

 

 

 

 

 

 

 

 

 

At 30 June

 

At 31 Dec

 

 

2019

 

2018

 

    

£m

 

£m

 

 

 

 

 

Contingent liabilities

 

 

 

 

Acceptances and endorsements

 

74

 

194

Other:

 

 

 

 

Other items serving as direct credit substitutes

 

1,042

 

632

Performance bonds and other transaction-related contingencies

 

2,462

 

2,425

 

 

3,504

 

3,057

Total contingent liabilities

 

3,578

 

3,251

 

 

 

 

 

Commitments and guarantees

 

 

 

 

Documentary credits and other short-term trade-related transactions

 

1

 

1

Forward asset purchases and forward deposits placed

 

171

 

731

 

 

 

 

 

Undrawn formal standby facilities, credit lines and other commitments to lend:

 

 

 

 

Less than 1 year original maturity:

 

 

 

 

Mortgage offers made

 

15,011

 

11,594

Other commitments and guarantees

 

84,322

 

85,060

 

 

99,333

 

96,654

1 year or over original maturity

 

37,599

 

37,712

Total commitments and guarantees

 

137,104

 

135,098

 

Of the amounts shown above in respect of undrawn formal standby facilities, credit lines and other commitments to lend, £67,814 million (31 December 2018: £64,884 million) was irrevocable.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

19.       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 49 to the Group's 2018 financial statements describes 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 2018 Annual Report and Accounts applied to these portfolios.

 

The table below summarises the carrying values of financial assets and liabilities presented on the Group's 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.

 

 

 

 

 

 

 

 

 

 

 

 

30 June 2019

 

31 December 2018

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

value

 

value

 

value

 

value

 

 

£m

 

£m

 

£m

 

£m

Financial assets

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss

 

155,108

 

155,108

 

158,529

 

158,529

Derivative financial instruments

 

26,148

 

26,148

 

23,595

 

23,595

 

 

 

 

 

 

 

 

 

Loans and advances to banks

 

8,374

 

8,363

 

6,283

 

Loans and advances to customers

 

495,138

 

496,768

 

484,858

 

Debt securities

 

5,434

 

5,427

 

5,238

 

5,244

Financial assets at amortised cost

 

508,946

 

510,558

 

496,379

 

496,190

Financial assets at fair value through other comprehensive income

 

27,078

 

27,078

 

24,815

 

24,815

Financial liabilities

 

 

 

 

 

 

 

 

Deposits from banks

 

34,777

 

34,761

 

30,320

 

30,322

Customer deposits

 

421,692

 

422,277

 

418,066

 

418,450

Financial liabilities at fair value through profit or loss

 

24,754

 

24,754

 

30,547

 

30,547

Derivative financial instruments

 

23,026

 

23,026

 

21,373

 

21,373

Debt securities in issue

 

97,815

 

100,102

 

91,168

 

93,233

Liabilities arising from non-participating investment contracts

 

14,706

 

14,706

 

13,853

 

13,853

Subordinated liabilities

 

17,809

 

20,200

 

17,656

 

19,564

 

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, items in course of transmission to banks and notes in circulation.

 

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)

 

19.       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.

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

 

£m

 

£m

 

£m

 

£m

At 30 June 2019

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss:

 

 

 

 

 

 

 

 

Loans and advances to customers

 

-

 

14,907

 

11,042

 

25,949

Loans and advances to banks

 

-

 

3,082

 

-

 

3,082

Debt securities

 

17,931

 

21,459

 

1,778

 

41,168

Equity shares

 

82,833

 

13

 

2,043

 

84,889

Treasury and other bills

 

20

 

-

 

-

 

20

Total financial assets at fair value through profit or loss

 

100,784

 

39,461

 

14,863

 

155,108

Financial assets at fair value through other comprehensive income:

 

 

 

 

 

 

 

 

Debt securities

 

15,252

 

11,083

 

171

 

26,506

Equity shares

 

-

 

-

 

25

 

25

Treasury and other bills

 

547

 

-

 

-

 

547

Total financial assets at fair value through other comprehensive income

 

15,799

 

11,083

 

196

 

27,078

Derivative financial instruments

 

83

 

24,881

 

1,184

 

26,148

Total financial assets carried at fair value

 

116,666

 

75,425

 

16,243

 

208,334

 

 

 

 

 

 

 

 

 

At 31 December 2018

 

 

 

 

 

 

 

 

Financial assets at fair value through profit or loss:

 

 

 

 

 

 

 

 

Loans and advances to customers

 

-

 

 27,285

 

10,565

 

 37,850

Loans and advances to banks

 

-

 

 3,026

 

-

 

 3,026

Debt securities

 

 18,010

 

 20,544

 

 1,594

 

 40,148

Equity shares

 

 75,701

 

 26

 

 1,758

 

 77,485

Treasury and other bills

 

 20

 

-

 

-

 

 20