SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C.20549
 
 
 
FORM 6-K
 
 
 
Report of Foreign Private Issuer
 
Pursuant to Rule 13a-16 or 15d-16
 
of the Securities Exchange Act of 1934
 
 
 
22 February 2024
 
LLOYDS BANKING GROUP plc
 
(Translation of registrant's name into English)
 
 
 
5th Floor
 
25 Gresham Street
 
London
 
EC2V 7HN
 
United Kingdom
 
 
 
(Address of principal executive offices)
 
 
 
 
 
Indicate by check mark whether the registrant files or will file annual reports
 
under cover Form 20-F or Form 40-F.
 
 
 
Form 20-F..X..     Form 40-F 
 
 
 
Index to Exhibits
 
 
 
 
 
Item
 
 
 
 No. 1 Regulatory News Service Announcement, 22 February 2024
 
           re: 2023 Full Year Results
 
 
 
 
 
 
 
 
 
 
 
Lloyds Banking Group plc
 
2023 Results
 
News Release
 
22 February 2024
 
 
 
 
 
 
 
 
CONTENTS
 
Results for the full year
1
Income statement (underlying basis) and key balance sheet metrics
3
Quarterly information
4
Balance sheet analysis
5
Group results - statutory basis
6
Group Chief Executive's statement
7
Summary of Group results
10
 
 
Divisional results
 
Retail
19
Commercial Banking
22
Insurance, Pensions and Investments
24
Equity Investments and Central Items
27
Segmental analysis - underlying basis
28
 
 
Alternative performance measures
29
 
 
Risk management
 
Capital risk
35
Credit risk
40
Funding and liquidity risk
51
Interest rate sensitivity
52
 
 
Statutory information
 
Consolidated income statement
53
Consolidated statement of comprehensive income
54
Consolidated balance sheet
55
Consolidated statement of changes in equity
56
Consolidated cash flow statement
58
Notes to the condensed consolidated financial statements
59
 
 
Key dates
81
Basis of presentation
81
Forward-looking statements
82
Contacts
83
 
Alternative performance measures
 
The Group uses a number of alternative performance measures, including underlying profit, in the description of its business performance and financial position. These measures are labelled with a superscript 'A' throughout this document, with the exception of content on pages 1 to 2 and pages 7 to 9 which is, unless otherwise stated, presented on an underlying basis. Further information on these measures is set out on page 29.
 
Forward-looking statements
 
This news release contains forward-looking statements. For further details, reference should be made to page 82.
 
 
 
RESULTS FOR THE FULL YEAR
 
"In 2023 the Group remained focused on proactively supporting people and businesses through persistent cost-of-living pressures, whilst financing their ambitions and growth. This has come alongside strong progress on our strategy and delivering increased shareholder returns, guided as always by our core purpose of Helping Britain Prosper.
 
The Group delivered a robust financial performance, meeting our 2023 guidance, driven by income growth, cost discipline and strong asset quality. This performance enabled strong capital generation and increased shareholder distributions.
 
2023 was a critical year in building towards the ambitious strategy we announced two years ago, as we look to grow our business and deepen relationships with our customers. As demonstrated in our recent strategic seminars, we have made significant progress and are on track to meet our 2024 and 2026 strategic outcomes, helping us build towards higher and more sustainable returns.
 
Our strategy is purpose-driven. Building a more sustainable and inclusive future is central to this, including our commitment to supporting the environmental transition, social housing and broader purpose-aligned objectives. We are excited about the opportunities that lie ahead as we continue to deliver for all of our stakeholders."
 
Charlie Nunn, Group Chief Executive
 
Delivering on our purpose-driven strategy, on track to meet 2024 and 2026 strategic outcomes
 
●  Pro-actively contacted 7.5 million customers1 to offer support and enhance financial resilience
 
●  Continued strategic progress, underpinned by £1.3 billion of additional investment in 2023
 
●  On track to achieve 2024 strategic outcomes; c.£0.7 billion incremental income and c.£1.2 billion of gross cost savings
 
●  On track to achieve 2026 strategic outcome of c.£1.5 billion incremental income given progress on medium-term transformation
 
●  Launched innovative new propositions, including mobile-first mortgage on-boarding, 'Lloyds Bank 360' in mass affluent and a digital invoice finance platform as part of digitising the Small and Medium Businesses portfolio
 
●  Highlighted our progress on strategic transformation with two seminars in 2023. Two further seminars planned for the first half of 2024
 
●  Building on our ambition to create a more sustainable and inclusive future, with £29 billion2 of sustainable financing and significant commitments for social housing
 
 
Continued robust financial performance, in line with guidance, supported by building business momentum
 
●  Statutory profit after tax of £5.5 billion (£1.2 billion in the fourth quarter) with net income of £17.9 billion up 3 per cent and a low impairment charge. Strong return on tangible equity of 15.8 per cent (13.9 per cent in the fourth quarter). Significant growth in profit materially driven by restatement of earnings for the IFRS 17 accounting change in 2022
 
●  Underlying net interest income of £13.8 billion up 5 per cent, with a net interest margin of 3.11 per cent, in line with guidance. Banking net interest margin of 2.98 per cent in the fourth quarter, down 10 basis points in the quarter given mortgage pricing and deposit mix headwinds, partly mitigated by the structural hedge. Average interest-earning banking assets of £453.3 billion, down slightly on the fourth quarter of 2022 as expected
 
●  Underlying other income of £5.1 billion, 10 per cent higher, reflecting the broad-based recovery of customer activity and ongoing investment in the business
 
●  Operating lease depreciation of £956 million, up on 2022 given declines in used car prices (notably in the fourth quarter), impacting portfolio valuations and gains on disposals, the depreciation cost of higher value vehicles and the Tusker acquisition and its subsequent growth
 
●  Operating costs of £9.1 billion, in line with guidance, up 5 per cent. The Group continues to maintain cost discipline in the context of higher planned strategic investment, severance charges, new business costs and inflationary pressures
 
●  Remediation costs of £675 million in the year (2022: £255 million), in relation to pre-existing programmes and a £450 million provision for the potential impact of the recently announced FCA review into historical motor finance commission arrangements
 
●  Underlying impairment charge of £308 million and asset quality ratio of 7 basis points. Excluding both a significant write-back in the fourth quarter and economic outlook improvements across the year, the asset quality ratio was 29 basis points. The portfolio remains well-positioned in the context of the economic environment with broadly stable credit trends and strong asset quality
 
 
1  Since April 2022.
 
2  From 1 January 2022.
 
RESULTS FOR THE FULL YEAR (continued)
 
Resilient customer franchise
 
●  Loans and advances to customers reduced £5.2 billion to £449.7 billion. This included the securitisation of £2.5 billion of legacy Retail mortgages in the first quarter and £2.7 billion of Retail unsecured loans in the fourth quarter; excluding these, loans and advances to customers were flat
 
 
●  Customer deposits of £471.4 billion reduced by £3.9 billion (1 per cent), including an £11.3 billion reduction in Retail current accounts, partly offset by a combined increase across Retail savings and Wealth of £8.9 billion. The trend of customer deposit mix change in a higher rate environment was slower in the fourth quarter versus the third quarter
 
 
Strong capital generation driving increased capital return
 
●  Strong pro forma capital generation1 of 173 basis points in line with guidance, after regulatory headwinds of 50 basis points, including 35 basis points from Retail secured CRD IV model changes (14 basis points in the fourth quarter) and 15 basis points from the phased unwind of IFRS 9 relief. Pro forma capital generation before regulatory headwinds was 223 basis points. The 173 basis points of capital generation includes both the significant impairment write-back and the higher remediation charge in the fourth quarter
 
●  Risk-weighted assets of £219.1 billion up by £8.2 billion, reflecting the impact of Retail secured CRD IV model updates (£5 billion, with £2 billion in the fourth quarter), operational risk and lending increases, model calibrations and other movements, offset by balance sheet management through securitisations
 
●  Pensions triennial valuation completed with an additional contribution of £250 million paid in December 2023 to clear the remaining deficit. There will be no further deficit contributions in this triennial period
 
●  Pro forma CET1 ratio2 of 13.7 per cent, ahead of revised ongoing target of c.13.0 per cent and previous target of c.13.5 per cent. In order to manage risks and distributions in an orderly way, the Group expects to pay down to the revised target by the end of 2026
 
●  Tangible net assets per share of 50.8 pence, up 4.3 pence on 31 December 2022 and 3.6 pence in the fourth quarter, given continued profitability and movements in the cash flow hedge reserve, partly offset by pensions surplus changes
 
●  The Board has recommended a final ordinary dividend of 1.84 pence per share, resulting in a total ordinary dividend for 2023 of 2.76 pence per share, up 15 per cent on prior year and in line with the Group's progressive and sustainable ordinary dividend policy
 
●  Given the Group's strong capital position, the Board has also announced its intention to implement an ordinary share buyback programme of up to £2.0 billion
 
●  Total capital returns in respect of 2023 of up to £3.8 billion, are equivalent to c.14 per cent3 of the Group's market capitalisation value
 
 
2024 guidance
 
Based on our current macroeconomic assumptions, for 2024 the Group expects:
 
●  Banking net interest margin of greater than 290 basis points
 
●  Operating costs of c.£9.3 billion
 
●  Asset quality ratio of less than 30 basis points
 
●  Return on tangible equity of c.13 per cent
 
●  Capital generation of c.175 basis points4
 
●  To pay down to a CET1 ratio of c.13.5 per cent
 
 
2026 guidance
 
Based on the expected macroeconomic environment and confidence in our strategy, the Group is maintaining its medium-term guidance for 2026:
 
●  Cost:income ratio of less than 50 per cent
 
●  Return on tangible equity of greater than 15 per cent
 
●  Capital generation of greater than 200 basis points4
 
 
The Group also now expects to pay down to a CET1 ratio of c.13.0 per cent by the end of 2026.
 
1  Excluding capital distributions, variable pension contributions and the impact of the Tusker acquisition. Inclusive of the ordinary dividend received from the Insurance business in February 2024.
 
2  Includes both the full impact of the share buyback announced in respect of 2023 and the ordinary dividend received from the Insurance business in February 2024, but excludes the impact of the phased unwind of IFRS 9 relief on 1 January 2024.
 
3  Market capitalisation as at 16 February 2024.
 
4  Excluding capital distributions. Inclusive of ordinary dividends received from the Insurance business in February of the following year.
 
 
 
 
INCOME STATEMENT (UNDERLYING BASIS)A AND KEY BALANCE SHEET METRICS
 
 
2023
£m
 
 
 
20221
£m
 
 
 
Change
%
 
 
 
 
 
 
 
 
 
Underlying net interest income
 
       13,765
 
 
 
       13,172
 
 
 
                5
 
Underlying other income
 
         5,123
 
 
 
         4,666
 
 
 
              10
 
Operating lease depreciation
 
           (956)
 
 
 
           (373)
 
 
 
 
Net income
 
       17,932
 
 
 
       17,465
 
 
 
                3
 
Operating costs
 
        (9,140)
 
 
 
        (8,672)
 
 
 
               (5)
 
Remediation
 
           (675)
 
 
 
           (255)
 
 
 
 
Total costs
 
        (9,815)
 
 
 
        (8,927)
 
 
 
             (10)
 
Underlying profit before impairment
 
         8,117
 
 
 
         8,538
 
 
 
               (5)
 
Underlying impairment charge
 
           (308)
 
 
 
        (1,510)
 
 
 
              80
 
Underlying profit
 
         7,809
 
 
 
         7,028
 
 
 
              11
 
Restructuring
 
           (154)
 
 
 
             (80)
 
 
 
             (93)
 
Volatility and other items
 
           (152)
 
 
 
        (2,166)
 
 
 
              93
 
Statutory profit before tax
 
         7,503
 
 
 
         4,782
 
 
 
              57
 
Tax expense
 
        (1,985)
 
 
 
           (859)
 
 
 
 
Statutory profit after tax
 
         5,518
 
 
 
         3,923
 
 
 
              41
 
 
 
 
 
 
 
 
 
Earnings per share1
 
7.6p
 
 
 
4.9p
 
 
 
2.7p
 
Dividends per share - ordinary
 
2.76p
 
 
2.40p
 
 
 
              15
 
Share buyback value
 
        £2.0bn
 
 
 
         £2.0bn
 
 
 
 
 
 
 
 
 
 
 
 
Banking net interest marginA
 
3.11%
 
 
 
2.94%
 
 
 
17bp
 
Average interest-earning banking assetsA
 
    £453.3bn
 
 
 
     £452.0bn
 
 
 
 
Cost:income ratioA,1
 
54.7%
 
 
 
51.1%
 
 
 
3.6pp
 
Asset quality ratioA
 
0.07%
 
 
 
0.32%
 
 
 
(25)bp
 
Return on tangible equityA,1
 
15.8%
 
 
 
9.8%
 
 
 
6.0pp
 
 
 
 
 
 
 
At 31 Dec
2023
 
 
 
At 31 Dec
2022
 
 
 
Change
%
 
 
 
 
 
 
 
 
 
Loans and advances to customers
 
    £449.7bn
 
 
 
     £454.9bn
 
 
 
               (1)
 
Customer deposits
 
    £471.4bn
 
 
 
     £475.3bn
 
 
 
               (1)
 
Loan to deposit ratioA
 
95%
 
 
 
96%
 
 
 
(1)pp
 
CET1 ratio
 
14.6%
 
 
 
15.1%
 
 
 
(0.5)pp
 
Pro forma CET1 ratioA,2
 
13.7%
 
 
 
14.1%
 
 
 
(0.4)pp
 
UK leverage ratio
 
5.8%
 
 
 
5.6%
 
 
 
0.2pp
 
Risk-weighted assets
 
    £219.1bn
 
 
 
     £210.9bn
 
 
 
                4
 
Wholesale funding
 
      £98.7bn
 
 
 
     £100.3bn
 
 
 
               (2)
 
Liquidity coverage ratio3
 
142%
 
 
 
144%
 
 
 
(2)pp
 
Net stable funding ratio4
 
130%
 
 
 
130%
 
 
 
 
Tangible net assets per shareA,1
 
50.8p
 
 
 
46.5p
 
 
 
4.3p
 
 
A  See page 29.
 
 
1  2022 comparatives have been restated to reflect the impact of IFRS 17. See page 81.
 
2    31 December 2022 and 31 December 2023 reflect both the full impact of the share buybacks announced in respect of 2022 and 2023 and the ordinary dividends received from the Insurance business in February 2023 and February 2024 respectively, but exclude the impact of the phased unwind of IFRS 9 relief on 1 January 2023 and 1 January 2024 respectively.
 
3  The liquidity coverage ratio is calculated as a monthly rolling simple average over the previous 12 months.
 
4  Net stable funding ratio is based on an average of the four previous quarters.
 
 
 
 
QUARTERLY INFORMATIONA
 
 
Quarter
ended
31 Dec
2023
£m
 
 
 
Quarter
ended
30 Sep
2023
£m
 
 
Change
%
 
 
 
Quarter
ended
30 Jun
2023
£m
 
 
 
Quarter
ended
31 Mar
2023
£m
 
 
 
Quarter
ended
31 Dec
20221
£m
 
 
 
Quarter
ended
30 Sep
20221
£m
 
 
 
Quarter
ended
30 Jun
20221
£m
 
 
 
Quarter
ended
31 Mar
20221
£m
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Underlying net interest income
 
      3,317
 
 
 
     3,444
 
 
 
        (4)
 
 
 
     3,469
 
 
 
     3,535
 
 
 
     3,643
 
 
 
     3,394
 
 
 
     3,190
 
 
 
     2,945
 
 
Underlying other income
 
      1,286
 
 
 
     1,299
 
 
 
        (1)
 
 
 
     1,281
 
 
 
     1,257
 
 
 
     1,128
 
 
 
     1,171
 
 
 
     1,185
 
 
 
     1,182
 
 
Operating lease depreciation
 
       (371)
 
 
 
      (229)
 
 
 
      (62)
 
 
 
      (216)
 
 
 
      (140)
 
 
 
        (78)
 
 
 
        (82)
 
 
 
      (119)
 
 
 
        (94)
 
 
Net income
 
      4,232
 
 
 
     4,514
 
 
 
        (6)
 
 
 
     4,534
 
 
 
     4,652
 
 
 
     4,693
 
 
 
     4,483
 
 
 
     4,256
 
 
 
     4,033
 
 
Operating costs
 
    (2,486)
 
 
 
   (2,241)
 
 
 
      (11)
 
 
 
   (2,243)
 
 
 
   (2,170)
 
 
 
   (2,356)
 
 
 
   (2,145)
 
 
 
   (2,112)
 
 
 
   (2,059)
 
 
Remediation
 
       (541)
 
 
 
        (64)
 
 
 
 
 
 
        (51)
 
 
 
        (19)
 
 
 
      (166)
 
 
 
        (10)
 
 
 
        (27)
 
 
 
        (52)
 
 
Total costs
 
    (3,027)
 
 
 
   (2,305)
 
 
 
      (31)
 
 
 
   (2,294)
 
 
 
   (2,189)
 
 
 
   (2,522)
 
 
 
   (2,155)
 
 
 
   (2,139)
 
 
 
   (2,111)
 
 
Underlying profit before impairment
 
      1,205
 
 
 
     2,209
 
 
 
      (45)
 
 
 
     2,240
 
 
 
     2,463
 
 
 
     2,171
 
 
 
     2,328
 
 
 
     2,117
 
 
 
     1,922
 
 
Underlying impairment credit (charge)
 
         541
 
 
 
      (187)
 
 
 
 
 
 
      (419)
 
 
 
      (243)
 
 
 
      (465)
 
 
 
      (668)
 
 
 
      (200)
 
 
 
      (177)
 
 
Underlying profit
 
      1,746
 
 
 
     2,022
 
 
 
      (14)
 
 
 
     1,821
 
 
 
     2,220
 
 
 
     1,706
 
 
 
     1,660
 
 
 
     1,917
 
 
 
     1,745
 
 
Restructuring
 
         (85)
 
 
 
        (44)
 
 
 
      (93)
 
 
 
        (13)
 
 
 
        (12)
 
 
 
        (11)
 
 
 
        (22)
 
 
 
        (23)
 
 
 
        (24)
 
 
Volatility and other items
 
         114
 
 
 
      (120)
 
 
 
 
 
 
      (198)
 
 
 
          52
 
 
 
      (638)
 
 
 
   (1,062)
 
 
 
      (289)
 
 
 
      (177)
 
 
Statutory profit before tax
 
      1,775
 
 
 
     1,858
 
 
 
        (4)
 
 
 
     1,610
 
 
 
     2,260
 
 
 
     1,057
 
 
 
        576
 
 
 
     1,605
 
 
 
     1,544
 
 
Tax expense
 
       (541)
 
 
 
      (438)
 
 
 
      (24)
 
 
 
      (387)
 
 
 
      (619)
 
 
 
        (75)
 
 
 
        (82)
 
 
 
      (303)
 
 
 
      (399)
 
 
Statutory profit after tax
 
      1,234
 
 
 
     1,420
 
 
 
      (13)
 
 
 
     1,223
 
 
 
     1,641
 
 
 
        982
 
 
 
        494
 
 
 
     1,302
 
 
 
     1,145
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Banking net interest marginA
 
2.98%
 
 
 
3.08%
 
 
 
(10)bp
 
 
 
3.14%
 
 
 
3.22%
 
 
 
3.22%
 
 
 
2.98%
 
 
 
2.87%
 
 
 
2.68%
 
 
Average interest-earning banking assetsA
 
£452.8bn
 
 
 
                £453.0bn
 
 
 
 
 
 
                £453.4bn
 
 
 
                £454.2bn
 
 
 
                £453.8bn
 
 
 
                £454.9bn
 
 
 
                £451.2bn
 
 
 
                £448.0bn
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cost:income ratioA,1
 
71.5%
 
 
 
51.1%
 
 
 
20.4pp
 
 
 
50.6%
 
 
 
47.1%
 
 
 
53.7%
 
 
 
48.1%
 
 
 
50.3%
 
 
 
52.3%
 
 
Asset quality ratioA
 
(0.47)%
 
 
 
0.17%
 
 
 
 
 
 
0.36%
 
 
 
0.22%
 
 
 
0.38%
 
 
 
0.57%
 
 
 
0.17%
 
 
 
0.16%
 
 
Return on tangible equityA,1
 
13.9%
 
 
 
16.9%
 
 
 
(3.0)pp
 
 
 
13.6%
 
 
 
19.1%
 
 
 
11.0%
 
 
 
4.2%
 
 
 
13.0%
 
 
 
10.7%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans and advances to customers2
 
£449.7bn
 
 
 
                £452.1bn
 
 
 
        (1)
 
 
 
                £450.7bn
 
 
 
                £452.3bn
 
 
 
                £454.9bn
 
 
 
                £456.3bn
 
 
 
                £456.1bn
 
 
 
                £451.8bn
 
 
Customer deposits
 
£471.4bn
 
 
 
                £470.3bn
 
 
 
 
 
 
                £469.8bn
 
 
 
                £473.1bn
 
 
 
                £475.3bn
 
 
 
                £484.3bn
 
 
 
                £478.2bn
 
 
 
                £481.1bn
 
 
Loan to deposit ratioA
 
95%
 
 
 
96%
 
 
 
(1pp)
 
 
 
96%
 
 
 
96%
 
 
 
96%
 
 
 
94%
 
 
 
95%
 
 
 
94%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Risk-weighted assets
 
£219.1bn
 
 
 
                £217.7bn
 
 
 
          1
 
 
 
                £215.3bn
 
 
 
                £210.9bn
 
 
 
                £210.9bn
 
 
 
                £210.8bn
 
 
 
                £209.6bn
 
 
 
                £210.2bn
 
 
Tangible net assets per shareA,1
 
50.8p
 
 
 
47.2p
 
 
 
3.6p
 
 
 
45.7p
 
 
 
49.6p
 
 
 
46.5p
 
 
 
44.5p
 
 
 
51.4p
 
 
 
53.7p
 
 
 
1  2022 comparatives have been restated to reflect the impact of IFRS 17. See page 81.
 
2  Reductions during 2023 reflect the impact of securitisation of £2.5 billion of legacy Retail mortgages (including £2.1 billion in the closed mortgage book) during the first quarter of 2023 and £2.7 billion of Retail unsecured loans in the fourth quarter of 2023.
 
 
 
 
BALANCE SHEET ANALYSIS
 
 
At 31 Dec
2023
£bn
 
 
 
At 30 Sep
2023
£bn
 
 
 
Change
%
 
 
At 30 Jun
2023
£bn
 
 
 
Change
%
 
 
At 31 Dec
2022
£bn
 
 
 
Change
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans and advances to customers
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Open mortgage book1
 
       298.5
 
 
 
       298.3
 
 
 
 
 
       297.9
 
 
 
 
 
       299.6
 
 
 
 
Closed mortgage book1
 
           7.7
 
 
 
           8.1
 
 
 
            (5)
 
 
           8.5
 
 
 
            (9)
 
 
         11.6
 
 
 
          (34)
 
Credit cards
 
         15.1
 
 
 
         15.1
 
 
 
 
 
         14.9
 
 
 
              1
 
 
         14.3
 
 
 
              6
 
UK Retail unsecured loans1
 
           6.9
 
 
 
           9.5
 
 
 
          (27)
 
 
           9.3
 
 
 
          (26)
 
 
           8.7
 
 
 
          (21)
 
UK Motor Finance
 
         15.3
 
 
 
         15.1
 
 
 
              1
 
 
         14.9
 
 
 
              3
 
 
         14.3
 
 
 
              7
 
Overdrafts
 
           1.1
 
 
 
           1.0
 
 
 
            10
 
 
           1.0
 
 
 
            10
 
 
           1.0
 
 
 
            10
 
Wealth
 
           0.9
 
 
 
           0.9
 
 
 
 
 
           0.9
 
 
 
 
 
           0.9
 
 
 
 
Retail other2
 
         15.7
 
 
 
         15.1
 
 
 
              4
 
 
         14.5
 
 
 
              8
 
 
         13.8
 
 
 
            14
 
Small and Medium Businesses
 
         33.0
 
 
 
         34.2
 
 
 
            (4)
 
 
         35.5
 
 
 
            (7)
 
 
         37.7
 
 
 
          (12)
 
Corporate and Institutional Banking
 
         55.6
 
 
 
         57.3
 
 
 
            (3)
 
 
         56.6
 
 
 
            (2)
 
 
         56.0
 
 
 
            (1)
 
Central items3
 
         (0.1)
 
 
 
         (2.5)
 
 
 
            96
 
 
         (3.3)
 
 
 
            97
 
 
         (3.0)
 
 
 
            97
 
Loans and advances to customers
 
       449.7
 
 
 
       452.1
 
 
 
            (1)
 
 
       450.7
 
 
 
 
 
       454.9
 
 
 
            (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Customer deposits
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retail current accounts
 
       102.7
 
 
 
       104.6
 
 
 
            (2)
 
 
       107.8
 
 
 
            (5)
 
 
       114.0
 
 
 
          (10)
 
Retail relationship savings accounts
 
       177.7
 
 
 
       173.8
 
 
 
              2
 
 
       169.4
 
 
 
              5
 
 
       166.3
 
 
 
              7
 
Retail tactical savings accounts
 
         17.1
 
 
 
         17.0
 
 
 
              1
 
 
         16.5
 
 
 
              4
 
 
         16.1
 
 
 
              6
 
Wealth
 
         10.9
 
 
 
         11.2
 
 
 
            (3)
 
 
         12.2
 
 
 
          (11)
 
 
         14.4
 
 
 
          (24)
 
Commercial Banking deposits
 
       162.8
 
 
 
       163.7
 
 
 
            (1)
 
 
       163.6
 
 
 
 
 
       163.8
 
 
 
            (1)
 
Central items
 
           0.2
 
 
 
              -
 
 
 
                
 
 
           0.3
 
 
 
          (33)
 
 
           0.7
 
 
 
          (71)
 
Customer deposits
 
       471.4
 
 
 
       470.3
 
 
 
 
 
       469.8
 
 
 
 
 
       475.3
 
 
 
            (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total assets4
 
       881.5
 
 
 
       893.1
 
 
 
            (1)
 
 
       882.8
 
 
 
 
 
       873.4
 
 
 
              1
 
Total liabilities4
 
       834.1
 
 
 
       848.1
 
 
 
            (2)
 
 
       838.3
 
 
 
            (1)
 
 
       829.5
 
 
 
              1
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ordinary shareholders' equity4
 
         40.3
 
 
 
         37.9
 
 
 
              6
 
 
         37.3
 
 
 
              8
 
 
         38.4
 
 
 
              5
 
Other equity instruments
 
           6.9
 
 
 
           6.9
 
 
 
 
 
           6.9
 
 
 
 
 
           5.3
 
 
 
            30
 
Non-controlling interests
 
           0.2
 
 
 
           0.2
 
 
 
 
 
           0.3
 
 
 
          (33)
 
 
           0.2
 
 
 
 
Total equity4
 
         47.4
 
 
 
         45.0
 
 
 
              5
 
 
         44.5
 
 
 
              7
 
 
         43.9
 
 
 
              8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ordinary shares in issue, excluding own shares
 
63,508m
 
 
 
63,486m
 
 
 
 
 
64,571m
 
 
 
            (2)
 
 
66,944m
 
 
 
            (5)
 
 
1  Reductions during 2023 reflect the impact of securitisation of £2.5 billion of legacy Retail mortgages (including £2.1 billion in the closed mortgage book) during the first quarter of 2023 and £2.7 billion of Retail unsecured loans in the fourth quarter of 2023.
 
2  Primarily Europe.
 
3  Central items includes central fair value hedge accounting adjustments.
 
4  2022 comparatives have been restated to reflect the impact of IFRS 17. See page 81.
 
 
 
 
GROUP RESULTS - STATUTORY BASIS
 
The results below are prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS). The underlying results are shown on page 3.
 
 
 
 
Summary income statement
 
2023
£m
 
 
 
20221
£m
 
 
 
Change
%
 
 
 
 
 
 
 
 
 
Net interest income
 
       13,298
 
 
 
       12,922
 
 
 
                  3
 
Other income
 
       22,107
 
 
 
      (18,268)
 
 
 
 
Total income
 
       35,405
 
 
 
        (5,346)
 
 
 
 
Net finance (expense) income in respect of insurance and investment contracts
 
      (16,776)
 
 
 
       20,887
 
 
 
 
Total income, after net finance (expense) income in respect of insurance and investment contracts
 
       18,629
 
 
 
       15,541
 
 
 
                20
 
Operating expenses
 
      (10,823)
 
 
 
        (9,237)
 
 
 
              (17)
 
Impairment
 
           (303)
 
 
 
        (1,522)
 
 
 
                80
 
Profit before tax
 
         7,503
 
 
 
         4,782
 
 
 
                57
 
Tax expense
 
        (1,985)
 
 
 
           (859)
 
 
 
 
Profit for the year
 
         5,518
 
 
 
         3,923
 
 
 
                41
 
 
 
 
 
 
 
 
 
Profit attributable to ordinary shareholders
 
         4,933
 
 
 
         3,389
 
 
 
                46
 
Profit attributable to other equity holders
 
            527
 
 
 
            438
 
 
 
                20
 
Profit attributable to non-controlling interests
 
              58
 
 
 
              96
 
 
 
              (40)
 
Profit for the year
 
         5,518
 
 
 
         3,923
 
 
 
                41
 
 
 
 
 
 
 
 
 
Ordinary shares in issue (weighted-average - basic)
 
64,953m
 
 
 
68,847m
 
 
 
                (6)
 
Basic earnings per share
 
7.6p
 
 
 
4.9p
 
 
 
2.7p
 
 
 
 
 
 
Summary balance sheet
 
At 31 Dec 
2023
£m
 
 
 
At 31 Dec
20221
£m
 
 
 
Change
%
 
Assets
 
 
 
 
 
 
 
 
Cash and balances at central banks
 
       78,110
 
 
 
       91,388
 
 
 
              (15)
 
Financial assets at fair value through profit or loss
 
      203,318
 
 
 
      180,769
 
 
 
                12
 
Derivative financial instruments
 
       22,356
 
 
 
       24,753
 
 
 
              (10)
 
Financial assets at amortised cost
 
      514,635
 
 
 
      520,322
 
 
 
                (1)
 
Financial assets at fair value through other comprehensive income
 
       27,592
 
 
 
       23,154
 
 
 
                19
 
Other assets
 
       35,442
 
 
 
       33,008
 
 
 
                  7
 
Total assets
 
      881,453
 
 
 
      873,394
 
 
 
                  1
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Deposits from banks
 
         6,153
 
 
 
         7,266
 
 
 
              (15)
 
Customer deposits
 
      471,396
 
 
 
      475,331
 
 
 
                (1)
 
Repurchase agreements at amortised cost
 
       37,703
 
 
 
       48,596
 
 
 
              (22)
 
Financial liabilities at fair value through profit or loss
 
       24,914
 
 
 
       17,755
 
 
 
                40
 
Derivative financial instruments
 
       20,149
 
 
 
       24,042
 
 
 
              (16)
 
Debt securities in issue at amortised cost
 
       75,592
 
 
 
       73,819
 
 
 
                  2
 
Liabilities arising from insurance and participating investment contracts
 
      120,123
 
 
 
      110,278
 
 
 
                  9
 
Liabilities arising from non-participating investment contracts
 
       44,978
 
 
 
       39,476
 
 
 
                14
 
Other liabilities
 
       22,827
 
 
 
       22,190
 
 
 
                  3
 
Subordinated liabilities
 
       10,253
 
 
 
       10,730
 
 
 
                (4)
 
Total liabilities
 
      834,088
 
 
 
      829,483
 
 
 
                  1
 
Total equity
 
       47,365
 
 
 
       43,911
 
 
 
                  8
 
Total equity and liabilities
 
      881,453
 
 
 
      873,394
 
 
 
                  1
 
 
1  Restated for presentational changes and for the adoption of IFRS 17; see notes 1 (page 59), 9 (page 73) and 10 (page 78).
 
 
 
 
GROUP CHIEF EXECUTIVE'S STATEMENT
 
2023 was an important year for our Group. We continued to deliver on our purpose of Helping Britain Prosper, supporting both our customers and shareholders. We are seeing real evidence of strategic progress as we transform the business and have increased confidence in delivering the 2024 and 2026 strategic commitments. Our purpose-driven strategy is helping people and businesses across the UK finance their ambitions and grow whilst enabling us to build a more sustainable and inclusive business. This progress has been underpinned by continued strategic investment and contributed to a financial performance that has driven strong capital generation and increased shareholder distributions.
 
The Group delivered a robust financial performance in 2023, meeting our guidance. Income growth has been supported by a higher banking net interest margin and good momentum in underlying other income. We continued to manage costs tightly despite ongoing inflationary pressures. Asset quality remained strong. As a result, we delivered strong capital generation, enabling the Board to recommend a final ordinary dividend of 1.84 pence per share implying a total dividend for the year of 2.76 pence. This is 15 per cent up year-on-year and in line with our progressive and sustainable dividend policy. In addition, the Group has announced a share buyback programme of up to £2.0 billion. In combination, this is a total capital return of up to £3.8 billion, or c.14 per cent1 of the Group's market capitalisation.
 
With continued cost of living pressures we know that 2023 was challenging for many. We were proactive in providing support. By using data and insights to gain a deeper understanding of customer needs, we contacted 7.5 million customers2 and around 600,000 businesses to help with their financial resilience. Alongside, we contacted more than 15 million deposit customers to ensure they are aware of their savings options, supported by our enhanced propositions, including attractive rates and products. We also recognise the importance of supporting our colleagues. We have agreed a two-year pay deal and paid an additional cash award to around 44,000 colleagues. This is alongside refreshed flexible working policies that balance the needs of our people and the strategic aims of the Group.
 
Robust financial performance, in line with guidance
 
Statutory profit after tax was £5.5 billion. The significant year-on-year increase was because of both robust 2023 performance and in particular a 2022 restatement in line with IFRS 17 accounting changes. Strong net income of £17.9 billion was up 3 per cent, driven by a higher banking net interest margin in line with guidance and 10 per cent growth in underlying other income, offset by higher operating lease depreciation. Operating costs of £9.1 billion increased in line with guidance, reflecting higher planned strategic investment, severance charges, new businesses and inflationary pressures. Remediation increased to £675 million and included a £450 million provision for the potential impact of the recently announced FCA review into historical motor finance commission arrangements. This charge includes estimates for costs and potential redress. There remains significant uncertainty as to the extent of any misconduct and customer loss, if any, the nature of any remediation action, if required, and its timing. Hence the impact could materially differ from the provision, both higher or lower. We saw strong asset quality with credit performance across portfolios broadly at or favourable to pre-pandemic levels. The impairment charge of £308 million includes a significant write-back and improved economic assumptions. Excluding these the asset quality ratio was 29 basis points, still in line with our guidance.
 
The Group's balance sheet was resilient in the face of a challenging operating environment. Excluding the impact of securitisations, loans and advances were flat. Within the mortgage book strong customer retention in fixed products was more than offset by continued roll-off from reversionary products. There was also growth in unsecured Retail lending and Motor Finance. The Group saw growth of over 12 per cent in assets under administration within Insurance, Pensions and Investments, including £5.1 billion of net new money. Customer deposits decreased £3.9 billion to £471.4 billion, although were largely stable in the second half of the year. Retail deposits were down £2.4 billion, which included an £11.3 billion reduction in Retail current accounts and a £12.4 billion increase in Retail savings balances supported by an enhanced savings proposition and proactive customer communications. In Commercial Banking, deposits were 1 per cent lower at £162.8 billion, reflecting targeted growth in Corporate and Institutional Banking offset by a reduction in Small and Medium Businesses.
 
Delivery of our purpose-driven strategy
 
We have a clear strategic vision to become a customer-focused digital leader and integrated financial services provider able to capitalise on new opportunities at scale. Our strategy is purpose-driven, with a clear focus on areas where we can profitably grow and make the greatest impact in Helping Britain Prosper in a sustainable and inclusive way. We believe our day-to-day business activities that are helping customers finance their ambitions and growth are underpinned by our purpose. In that context, we also have particular initiatives that highlight the alignment of purpose and strategy.
 
1  Market capitalisation as at 16 February 2024.
 
2  Since April 2022.
 
GROUP CHIEF EXECUTIVE'S STATEMENT (continued)
 
In 2023, we launched a partnership with Crisis, the national charity for people experiencing homelessness. This is a hugely important cause for us given our business focus and unique ability to enact change. We have launched a cross-industry initiative to back our joint call for 1 million additional social and affordable homes. Since 2018 we have supported more than £17 billion of new funding to the social housing sector, including £2.7 billion in 2023. We are also aware of the importance of creating a fully inclusive organisation within our Group that is representative of modern-day Britain. We have pledged to double the representation of senior colleagues with disabilities by 2025, in addition to our existing significant commitments on gender and race.
 
In December, I joined global businesses and policy makers at COP 28 to discuss how to accelerate the environmental transition. Reaching net zero relies on government, industry and society acting together with certainty, pace and focus. We are realistic that insufficient progress in policy commitments will limit the Group's ability to achieve the net zero ambitions to which we remain committed. We have made significant headway on our sustainability agenda in 2023, in particular exceeding our target for £15 billion of sustainable financing within our Corporate and Institutional Banking franchise, originally set for the end of 2024. We are continuing to challenge ourselves and have set a new Commercial Banking target of £30 billion of sustainable financing for 2024 to 2026, which will take the cumulative total within the division to £45 billion by 2026. This is alongside new emissions reduction targets for Commercial and Residential Real Estate, Road Passenger Transport and Agriculture lending.
 
Within our Retail business we have continued to support customers in reducing their emissions by growing our low carbon transport business through the acquisition of Tusker. We now finance 1 in 8 ultra low emission vehicles on UK roads. We have also launched a solar panel proposition with Effective Home to expand our home retrofitting ecosystem. We increasingly recognise the need to expand our sustainability strategy to broader environmental goals and have launched our first pledge to halt and reverse nature losses in our own green spaces. Overall, our sustainability strategy represents a significant strategic and commercial opportunity, consistent with our purpose.
 
Stepping back, in the context of a fast changing external environment, it is clear that our purpose-driven strategy remains the right one. By focusing on Helping Britain Prosper we can deliver our strategic goals and produce higher, more sustainable returns to the benefit of all of our stakeholders. To achieve this, we are investing significantly in the transformation of the business. In February 2022 we committed to £3 billion of incremental investment in the three years to 2024 and £4 billion to 2026. During 2023, the Group invested a further £1.3 billion as part of this plan and delivered tangible growth and cost outcomes that leave us well placed to meet our 2024 and 2026 financial commitments. We have started to demonstrate this successful execution to the market with two strategic seminars last year and two further seminars planned in the first half of 2024 as we continue to build confidence around our progress.
 
Driving revenue growth and diversification
 
Around two-thirds of our strategic investment is weighted towards growth and our ambition to generate c.£0.7 billion of additional revenues by 2024 and c.£1.5 billion by 2026. The Consumer business will deliver approximately 30 per cent of these incremental revenues and, as shown in the seminar in October, we are making strong progress in deepening and innovating within this business. We are the UK's largest digital bank, and now have 21.5 million digitally active users, up 17 per cent since 2021 and significantly exceeding our 2024 target of more than 10 per cent growth. This creates significant opportunities to deepen our customer relationships using data and insights. For example, we have personalised our communications to make them more targeted, with 18 million customers registered for marketing. We have also launched new propositions such as our mobile-first home onboarding journey and our home ecosystem, both of which are improving our retention of customers and our ability to offer complementary products such as protection insurance.
 
In 2023 we completed our acquisition of Tusker, a stand-out business in the salary sacrifice market for predominantly ultra-low emission vehicles helping us both meet our net zero ambitions and deliver capability and growth in an area in which we were underweight. Tusker has already grown its fleet by around 60 per cent since acquisition.
 
We have made good progress on our mass affluent business in 2023, launching 'Lloyds Bank 360', a mobile-first proposition that includes a holistic view of wealth, educational materials and financial coaching. In addition, we launched Ready-Made Investments, a proposition made possible through Embark, which we acquired in 2022. The mass affluent customer base continues to grow, now at more than 2.5 million customers, from just over 2 million at the end of 2021.
 
 
GROUP CHIEF EXECUTIVE'S STATEMENT (continued)
 
From a Commercial Banking perspective we continue to transform the business to help companies finance their growth and navigate an increasingly tough environment. Within our Small and Medium Businesses franchise we have made significant strides in our multi-year journey to build a front-to-back digital business, including mobile-first onboarding and personalised cash flow insights. We are continuing to deliver targeted growth in our Corporate and Institutional Banking business through serving additional client needs, particularly by extending our competitive advantage in transaction banking, and expanding our institutional footprint. This has helped deliver more than 20 per cent growth in Corporate and Institutional Banking underlying other income since full year 2021 as we build momentum with sustainable and capital efficient growth.
 
Investing in efficiency and enablers to improve delivery
 
Strengthening cost and capital efficiency in the context of growing and diversifying our revenues is crucial. We have guided to c.£1.2 billion of gross cost savings by 2024, an increase from the original £1 billion as we look to mitigate inflationary pressures. In 2026 we are targeting a below 50 per cent cost:income ratio. We have made strong progress against our 2024 cost saving target, and have now realised around 60 per cent of the savings. This has been achieved through continued investment in digital solutions and improving cost-to-serve by, for example, reducing our office footprint by more than 20 per cent since the end of 2021 and optimising our branch footprint. This active cost management is helping us deliver our guided cost outcomes at a time of heightened inflationary pressure.
 
In respect of capital efficiency we have continued to demonstrate risk-weighted assets discipline and careful balance sheet management whilst pursuing new growth opportunities through investments in capital-lite and fee generating business. We are also reducing the claims on our use of capital, including for example eliminating our pension deficit, with no further deficit contributions in this triennial period.
 
We are investing in maximising the potential of people, technology and data, the key enablers of our strategy. Investing in the talent, skills and capabilities needed for long-term growth is critical. We have made more than 2,500 new hires in technology and data roles in 2023 and we have completed a senior leadership development programme centred around the organisational shifts we need in order to successfully execute our strategy. We are transforming our change process in the pursuit of increased efficiency and responsiveness. Since the start of our strategy, we have decommissioned more than 400 legacy technology applications and more than doubled the number of APIs we have created as we continue to migrate onto cloud-based platforms
 
In conclusion, our purpose-driven strategy and strong business model ensures that we can continue to support customers and achieve our societal and strategic goals whilst delivering against our financial targets. We are successfully transforming the bank and will thereby continue to deliver for all of our stakeholders.
 
2024 guidance
 
We are progressing well towards our ambition of generating higher, more sustainable returns for shareholders and are on track to achieve our 2024 strategic financial outcomes. Based on our current macroeconomic assumptions the Group expects:
 
●  Banking net interest margin of greater than 290 basis points
 
●  Operating costs c.£9.3 billion
 
●  Asset quality ratio of less than 30 basis points
 
●  Return on tangible equity c.13 per cent
 
●  Capital generation of c.175 basis points1
 
●  To pay down to a CET1 ratio of c.13.5 per cent
 
 
2026 guidance
 
Based on the expected macroeconomic environment and confidence in our strategy, the Group is maintaining its medium-term guidance for 2026:
 
●  Cost:income ratio of less than 50 per cent
 
●  Return on tangible equity of greater than 15 per cent
 
●  Capital generation of greater than 200 basis points1
 
 
The Board continually reviews the appropriate level of ongoing capital to hold. Based on regulatory, economic and business considerations, the Group now expects to pay down to c.13.0 per cent by the end of 2026.
 
1  Excluding capital distributions. Inclusive of ordinary dividends received from the Insurance business in February of the following year.
 
 
 
 
SUMMARY OF GROUP RESULTSA
 
 
 
 
Statutory results
 
The Group's statutory profit before tax for 2023 was £7,503 million, with the increase on the prior year materially driven by the restatement of earnings for the IFRS 17 accounting change in 2022. In addition, 2023 has benefited from higher net income and a significantly lower impairment charge, partly offset by increased operating expenses as expected. Statutory profit after tax was £5,518 million.
 
The Group's statutory income statement includes income and expenses attributable to the policyholders of the Group's long-term assurance funds, investors in the Group's non-participating investment contracts and third party interests in consolidated funds. These items materially offset in arriving at profit before tax but can, depending on market movements, lead to significant variances on a statutory basis between total income and net finance income in respect of insurance and investment contracts from one period to the next. In 2023, due to market conditions, the Group recognised net gains on policyholder investments within total income, which were materially offset by the corresponding net finance expense in respect of insurance and investment contracts.
 
Total income, after net finance income in respect of insurance and investment contracts for the year was £18,629 million, an increase of 20 per cent on 2022, largely reflecting an exceptional charge in the prior year under IFRS 17 from contract modifications in Insurance, Pensions and Investments. Net interest income of £13,298 million was up 3 per cent on the prior year, driven by stronger margins and higher average interest-earning assets, including growth in the open mortgage book, Retail unsecured and European retail business. Other income amounted to a gain of £22,107 million in 2023, compared to a loss of £18,268 million in 2022. Net finance income in respect of insurance and investment contracts was a loss of £16,776 million in the year compared to a gain of £20,887 million in 2022, reflecting improved equity and debt markets.
 
The Group maintained its focus on cost management, whilst increasing strategic investment as planned. Total operating expenses of £10,823 million were 17 per cent higher than in the prior year. This reflects higher planned strategic investment, severance charges, new business costs and inflationary effects. In 2023 the Group recognised remediation costs of £675 million (2022: £255 million) relating to pre-existing programmes and a provision for the potential impact of the recently announced FCA review into historical motor finance commission arrangements. The higher operating lease depreciation charge reflected the declines in used car prices (notably in the fourth quarter), impacting portfolio valuations and gains on disposals, the depreciation cost of higher value vehicles and the Tusker acquisition in the first quarter and its subsequent growth.
 
Impairment was a net charge of £303 million in 2023 (2022: £1,522 million). The decrease includes a significant write-back following the full repayment of debt from a single name client, in addition to a credit from modest revisions to the Group's economic outlook compared to the deterioration in the economic outlook captured last year.
 
The Group recognised a tax expense of £1,985 million in the year, compared to £859 million in 2022, reflecting increased profits. The prior year included a £222 million benefit in relation to tax deductibility of provisions made in 2021.
 
Loans and advances to customers fell by £5.2 billion during 2023 to £449.7 billion, in the context of securitisations of £5.2 billion, including £2.5 billion of legacy Retail mortgages (£2.1 billion in the closed mortgage book) during the first quarter and £2.7 billion of Retail unsecured loans in the fourth quarter. Excluding these movements, loans and advances to customers were stable. During the fourth quarter, loans and advances to customers reduced by £2.4 billion, mainly due to the impact of the securitisation of £2.7 billion of Retail unsecured loans.
 
Customer deposits at £471.4 billion decreased by £3.9 billion (1 per cent) since the end of 2022. This includes a decrease in Retail current account balances of £11.3 billion as a result of higher spend and a more competitive savings market, including the Group's own savings offers. In Retail savings and Wealth, balances have increased by a combined £8.9 billion, with a significant proportion transferred from the Group's current account customer base given attractive customer offers. Commercial Banking deposits were down £1.0 billion during 2023, reflecting targeted growth in Corporate and Institutional Banking offset by a reduction in Small and Medium Businesses. The trend of customer deposit mix change within the Group was slower in the fourth quarter versus the third quarter.
 
Total equity of £47,365 million at 31 December 2023 increased from £43,911 million at 31 December 2022. The movement reflected attributable profit for the year, movements in the cash flow hedge reserve and the issuance of other equity instruments, partially offset by market movements impacting pensions, alongside dividends paid and the impact of the share buyback programme. In February 2023, the Board decided to return surplus capital in respect of 2022 through a share buyback programme of up to £2 billion. This commenced in February 2023 and completed on 25 August 2023 with c.4.4 billion (c.7 per cent) ordinary shares repurchased.
 
 
 
 
SUMMARY OF GROUP RESULTS (continued)
 
Underlying resultsA
 
The Group's underlying profit for 2023 was £7,809 million, an increase of 11 per cent compared to £7,028 million in the prior year. Growth in net income and a lower underlying impairment charge was partly offset by expected higher operating costs and remediation. Underlying profit in the fourth quarter was down 14 per cent compared to the third quarter, with the impairment credit more than offset by lower underlying net interest income, higher operating lease depreciation and higher total costs, impacted by the bank levy, severance charges and remediation.
 
 
Net incomeA
 
 
 
 
 
2023
£m
 
 
 
2022
£m
 
 
 
Change
%
 
 
 
 
 
 
 
 
 
Underlying net interest income
 
       13,765
 
 
 
       13,172
 
 
 
                  5
 
Underlying other income1
 
         5,123
 
 
 
         4,666
 
 
 
                10
 
Operating lease depreciation2
 
           (956)
 
 
 
           (373)
 
 
 
 
Net incomeA,1
 
       17,932
 
 
 
       17,465
 
 
 
                  3
 
 
 
 
 
 
 
 
 
Banking net interest marginA
 
3.11%
 
 
 
2.94%
 
 
 
17bp
 
Average interest-earning banking assetsA
 
    £453.3bn
 
 
 
     £452.0bn
 
 
 
 
 
1  2022 comparatives have been restated to reflect the impact of IFRS 17. See page 81.
 
2  Net of profits on disposal of operating lease assets of £93 million (2022: £197 million).
 
 
 
 
Net income of £17,932 million was up 3 per cent on the prior year, with higher net interest income and underlying other income, partially offset by an increased charge for operating lease depreciation. Net interest income in the year of £13,765 million was up 5 per cent, driven by a stronger banking net interest margin of 3.11 per cent (2022: 2.94 per cent), in line with guidance and higher average interest-earning banking assets. The net interest margin benefited from UK Bank Rate increases and higher structural hedge earnings from the rising rate environment, partly offset by expected headwinds due to deposit mix effects and asset margin compression, particularly in the mortgage book. Average interest-earning banking assets at £453.3 billion modestly increased compared to 2022 although slightly lower than the fourth quarter of 2022 as expected. The increase in average interest earning assets in the year was due to the open mortgage book, Retail unsecured and the European retail business, offset by closed mortgage book run-off and continued repayments of government-backed lending in the Small and Medium Businesses portfolio. Net interest income in 2023 included non-banking interest expense of £311 million (2022: £111 million), which continues to increase as a result of higher funding costs and growth in the Group's non-banking businesses.
 
Net interest income in the fourth quarter of £3,317 million was lower than the third quarter, with a lower net interest margin of 2.98 per cent (three months to 30 September 2023: 3.08 per cent) from mortgage pricing and deposit mix headwinds, including in Small and Medium Businesses, partly mitigated by the structural hedge and a modest reduction in average interest earning assets. The Group expects the banking net interest margin for 2024 to be greater than 290 basis points with average interest-earning assets over 2024 expected to be greater than £450 billion.
 
The Group manages the risk to earnings and capital from movements in interest rates by hedging the net liabilities which are stable or less sensitive to movements in rates. The notional balance of the sterling structural hedge was £247 billion (31 December 2022: £255 billion, 30 September 2023: £251 billion) with a weighted average duration of approximately three-and-a-half years (31 December 2022: approximately three-and-a-half years), representing a modest notional balance reduction in the second half of the year, consistent with guidance. The Group expects a further modest reduction in the notional balance during 2024, stabilising over the course of the year. The Group generated £3.4 billion of total income from sterling structural hedge balances in 2023, representing material growth over the prior year (2022: £2.6 billion). The Group expects sterling structural hedge earnings in 2024 to be c.£0.7 billion higher than in 2023.
 
Underlying other income in 2023 of £5,123 million was 10 per cent higher compared to £4,666 million in 2022. This was driven by growth across Retail, Commercial Banking and Insurance, Pensions and Investments. Underlying other income was broadly stable in the fourth quarter versus the third, with consistent business unit performance and some impact from severe weather event claims in the Insurance business.
 
 
SUMMARY OF GROUP RESULTS (continued)
 
Retail underlying other income was up 25 per cent on 2022, due to higher current account and credit card activity, improved Lex performance and growth from the acquisition of Tusker. Within Commercial Banking 8 per cent growth in the year reflected improved performance in capital markets financing and trading. Insurance, Pensions and Investments underlying other income was 26 per cent higher than the prior year driven by business growth, favourable market returns and the accounting unwind benefit of adding a drawdown feature in 2022 to existing longstanding and workplace pension business. In Equity Investments and Central Items underlying other income was impacted mainly by higher funding costs on structured medium term notes in issue (offset by interest income earned on the placement of the funds raised) and to a limited extent by subdued exit markets affecting the Group's equity investment businesses.
 
The Group delivered good organic growth in Insurance, Pensions and Investments and Wealth (reported within Retail) assets under administration (AuA), with combined £5.4 billion net new money in open book AuA over the year. In total, open book AuA now stand at c.£179 billion.
 
Operating lease depreciation of £956 million increased compared to the prior year (2022: £373 million). This reflects the declines in used car prices (notably in the fourth quarter), impacting portfolio valuations and gains on disposals, the depreciation cost of higher value vehicles and the Tusker acquisition in the first quarter and its subsequent growth. The £371 million charge in the quarter is elevated due to a sharp reduction in used car prices and updated residual value provisions. Before the provision increase the charge would have been c.£270 million in the fourth quarter, from which modest further increases are expected in 2024 as this charge nears normalisation and growth continues.
 

 
Total costsA
 
 
 
 
 
2023
£m
 
 
2022
£m
 
 
Change
%
 
 
 
 
 
 
 
 
 
Operating costsA,1
         9,140
 
 
         8,672
 
 
                (5)
 
Remediation
            675
 
 
            255
 
 
 
Total costsA,1
         9,815
 
 
         8,927
 
 
              (10)
 
 
 
 
 
 
 
 
 
Cost:income ratioA,1
54.7%
 
 
51.1%
 
 
3.6pp
 
1  2022 comparatives have been restated to reflect the impact of IFRS 17. See page 81.
 
 
 
 
Total costs, including remediation, of £9,815 million were 10 per cent higher than in the prior year. Operating costs were in line with guidance at £9,140 million, up 5 per cent, with higher planned strategic investment, severance charges, new business costs and inflationary impacts, partially mitigated by continued cost efficiency. Operating costs were higher in the fourth quarter than in the third, impacted by the bank levy as well as severance charges. The Group's cost:income ratio, including remediation, for the year was 54.7 per cent, compared to 51.1 per cent in the prior year. Operating costs are expected to be c.£9.3 billion in 2024, reflecting severance charges and slightly higher than expected inflation. This does not include a potential cost increase of around £0.1 billion, driven by a sector wide change to the way in which the Bank of England charges for supervisory costs. If enacted, this will result in an equivalent, offsetting net interest income gain and have a net neutral profit impact.
 
The Group recognised remediation costs of £675 million in the year (2022: £255 million), with £541 million in the fourth quarter, in relation to pre-existing programmes and the potential impact of the recently announced FCA review into historical motor finance commission arrangements. There have been no further charges relating to HBOS Reading and the provision held continues to reflect the Group's best estimate of its full liability, albeit uncertainties remain.
 
The Group has recognised a charge of £450 million for costs and potential redress in light of the Financial Conduct Authority (FCA) section 166 review of historical motor finance commission arrangements and sales across several firms announced in January 2024. The review follows the recent decisions by the Financial Ombudsman Service (FOS) in favour of the customer in relation to motor finance commission complaints. The charge includes estimates for operational and legal costs, including litigation costs, together with estimates for potential awards, based on various scenarios using a range of assumptions, including for example, commission models, commission rates, applicable time periods (between 2007 and 2021), response rates and uphold rates. Costs and awards could arise in the event that the FCA concludes there has been misconduct and customer loss that requires remediation, or from adverse litigation decisions. However, while the FCA review is progressing there is significant uncertainty as to the extent of misconduct and customer loss, if any, the nature and extent of any remediation action, if required, and its timing. The ultimate financial impact could therefore materially differ from the amount provided, both higher or lower. The Group welcomes the FCA intervention through an independent section 166 review.
 
 
 
 
SUMMARY OF GROUP RESULTS (continued)
 
Underlying impairmentA
 
 
 
2023
£m
 
 
 
2022
£m
 
 
 
Change
%
 
 
 
 
 
 
 
 
 
Charges (credits) pre-updated MES1
 
 
 
 
 
 
 
 
Retail
 
         1,064
 
 
 
            773
 
 
 
              (38)
 
Commercial Banking
 
           (487)
 
 
 
            122
 
 
 
 
Other
 
             (12)
 
 
 
              20
 
 
 
 
 
            565
 
 
 
915
 
 
 
                38
 
Updated economic outlook
 
 
 
 
 
 
 
 
Retail
 
           (233)
 
 
 
            600
 
 
 
 
Commercial Banking
 
             (24)
 
 
 
            395
 
 
 
 
Other
 
                -
 
 
 
           (400)
 
 
 
 
 
           (257)
 
 
 
            595
 
 
 
 
Underlying impairment chargeA
 
            308
 
 
 
         1,510
 
 
 
                80
 
 
 
 
 
 
 
 
 
Asset quality ratioA
 
0.07%
 
 
 
0.32%
 
 
 
(25)bp
 
Total expected credit loss allowance (at end of year)A
 
         4,337
 
 
 
         5,284
 
 
 
                 18
 
 
1  Impairment charges excluding the impact from updated economic outlook taken each quarter.
 
 
 
 
Asset quality remains strong with credit performance across portfolios relatively stable in the quarter and remaining broadly at, or favourable to pre-pandemic experience. Underlying impairment was £308 million (2022: £1,510 million), resulting in an asset quality ratio of 7 basis points. The fourth quarter impairment credit of £541 million includes the impact of a significant write-back following the full repayment of debt from a single name client. The charge for 2023 also benefits from a net £257 million multiple economic scenarios (MES) release (2022: £595 million charge), including a £188 million release in the fourth quarter, reflecting modest revisions to the Group's economic outlook. Given this outlook and ongoing portfolio resilience, the Group now expects the asset quality ratio to be less than 30 basis points in 2024.
 
The pre-updated MES impairment charge was £565 million (2022: £915 million), including a net £487 million release in Commercial Banking largely driven by the significant write-back in the fourth quarter. Excluding this, the equivalent asset quality ratio for the year was 29 basis points, also in line with guidance of less than 30 basis points. Compared to the prior year, while performance has been resilient, there has been modest deterioration from a low base, primarily in legacy variable rate UK mortgage portfolios. The impairment charge also includes the impact of higher discount rates reducing the value of future recoveries, as well as the expected credit loss (ECL) allowance build from Stage 1 loans rolling forward into a deteriorating economic outlook.
 
In UK mortgages, new to arrears were relatively stable throughout 2023, having increased slightly at the start of the year. Flows to default increased through the year, also largely driven by legacy variable rate customers as mentioned above, with trends stabilising in the second half. Unsecured portfolios continue to exhibit stable new to arrears and default trends broadly at, or below pre-pandemic levels. The Commercial Banking portfolio's credit quality remains resilient with limited deterioration.
 
The ECL allowance of £4.3 billion (31 December 2022: £5.3 billion) continues to reflect a probability-weighted view of economic scenarios built out from the base case and its associated conditioning assumptions. Consistent with prior years, a 30 per cent weighting is applied to the base case, upside and downside scenarios and a 10 per cent weighting to the severe downside. GDP growth remained subdued at 0.5 per cent in 2023 and is expected to remain low in future years with unemployment expected to rise modestly to 5.2 per cent by the end of 2024. House prices proved more resilient in the second half of the year than previously assumed and as a result the latest base case assumes a more modest fall in 2024 of 2.2 per cent (30 September 2023: 2.4 per cent).
 
Overall, judgemental adjustments to ECL at £0.1 billion have reduced by £0.3 billion in the year. Notably, reductions related to adjustments now captured within models and the impact of taking a larger negative adjustment reducing ECL to reflect resilient corporate insolvency rates within the portfolio. Key judgemental adjustments remain in place to cover continued risks from higher base rate and inflationary pressures in the Retail portfolios as well as risks from current valuations in certain Commercial Real Estate segments.
SUMMARY OF GROUP RESULTS (continued)
 
Stage 2 assets have reduced in the year to £56.5 billion (31 December 2022: £65.7 billion), with 91.3 per cent of Stage 2 loans up to date (31 December 2022: 92.7 per cent). Stage 3 assets at £10.1 billion have reduced in the fourth quarter and relative to the end of 2022 (31 December 2022: £10.8 billion). These reductions in Stage 2 and Stage 3 include the impact from asset transfers from Stage 2 to Stage 1 as a result of improvements in the economic forecasts and the securitisations of legacy Retail mortgages in the first quarter and Retail unsecured loans in the fourth quarter, as well as the full repayment of debt from a large single name client in Stage 3.
 
 
Restructuring, volatility and other items
 
 
 
2023
£m
 
 
 
2022
£m
 
 
 
Change
%
 
 
 
 
 
 
 
 
 
Underlying profitA,1
 
         7,809
 
 
 
         7,028
 
 
 
                11
 
Restructuring
 
           (154)
 
 
 
             (80)
 
 
 
              (93)
 
Volatility and other items1
 
 
 
 
 
 
 
 
Market volatility and asset sales1
 
              35
 
 
 
        (1,978)
 
 
 
 
Amortisation of purchased intangibles
 
             (80)
 
 
 
             (70)
 
 
 
              (14)
 
Fair value unwind
 
           (107)
 
 
 
           (118)
 
 
 
                  9
 
 
           (152)
 
 
 
        (2,166)
 
 
 
                93
 
Statutory profit before tax1
 
         7,503
 
 
 
         4,782
 
 
 
                57
 
Tax expense1
 
        (1,985)
 
 
 
           (859)
 
 
 
 
Statutory profit after tax1
 
         5,518
 
 
 
         3,923
 
 
 
                41
 
 
 
 
 
 
 
 
 
Earnings per share1
 
7.6p
 
 
 
4.9p
 
 
 
2.7p
 
Return on tangible equityA,1
 
15.8%
 
 
 
9.8%
 
 
 
6.0pp
 
Tangible net assets per shareA,1
 
50.8p
 
 
 
46.5p
 
 
 
4.3p
 
 
1  2022 comparatives have been restated to reflect the impact of IFRS 17. See page 81.
 
 
 
 
Restructuring costs for the year were £154 million (2022: £80 million) and include costs relating to the integration of Embark and Tusker, as well as one-off costs to ensure the continuity of some customer communication services following the administration of a key supplier. Volatility and other items were a net loss of £152 million for the year (2022: net loss of £2,166 million). This comprised £35 million positive market volatility and asset sales, £80 million for the amortisation of purchased intangibles (2022: £70 million) and £107 million relating to fair value unwind (2022: £118 million). Market volatility and asset sales included positive banking volatility, partly offset by negative impacts from insurance volatility. Volatility and other items in 2022 included an exceptional charge under IFRS 17 from contract modifications in Insurance, Pensions and Investments, predominantly in the second half, following the addition of a drawdown feature to existing longstanding and workplace pensions as a significant customer enhancement.
 
The return on tangible equity for the year was 15.8 per cent (2022: 9.8 per cent), reflecting the Group's robust financial performance. The Group expects the return on tangible equity for 2024 to be c.13 per cent. Earnings per share were 7.6 pence for the year (2022: 4.9 pence).
 
Tangible net assets per share as at 31 December 2023 were 50.8 pence, up from 46.5 pence at 31 December 2022. The increase resulted from higher profits, cash flow hedge reserve unwind and a reduction in the number of shares following the share buyback programme announced in February 2023, partly offset by a negative market impact on the pensions accounting surplus, and capital distributions. Tangible net assets per share were 3.6 pence higher than at 30 September 2023 given continued profitability and an increase in the cash flow hedge reserve following interest rate movements, partly offset by pensions surplus changes. The share buyback programme in respect of 2022 completed on 25 August 2023, with c.4.4 billion (c.7 per cent) ordinary shares repurchased.
 
 
 
 
SUMMARY OF GROUP RESULTS (continued)
 
Tax
 
The Group recognised a tax expense of £1,985 million in the year (2022: £859 million) reflecting the increased profits. The prior year included a £222 million benefit in relation to tax deductibility of provisions made in 2021. The Group expects a medium-term effective tax rate of around 27 per cent, which includes the impact of the reduction in the rate of banking surcharge and the increase in the corporation tax rate from 19 per cent to 25 per cent, both of which came into effect on 1 April 2023. An explanation of the relationship between the tax expense and the Group's accounting profit for the year is set out on page 61.
 
 
 
Balance sheet

 
 
At 31 Dec
2023
 
 
 
At 31 Dec
2022
 
 
 
Change
%
 
 
 
 
 
 
 
 
 
 
Loans and advances to customers
 
    £449.7bn
 
 
 
     £454.9bn
 
 
 
                (1)
 
Customer deposits
 
    £471.4bn
 
 
 
     £475.3bn
 
 
 
                (1)
 
Loan to deposit ratioA
 
95%
 
 
 
96%
 
 
 
(1)pp
 
 
 
 
 
 
 
 
 
 
Wholesale funding
 
      £98.7bn
 
 
 
     £100.3bn
 
 
 
                (2)
 
Wholesale funding <1 year maturity
 
      £35.1bn
 
 
 
       £37.5bn
 
 
 
                (6)
 
Of which money market funding <1 year maturity1
 
      £23.8bn
 
 
 
       £24.8bn
 
 
 
                (4)
 
Liquidity coverage ratio - eligible assets2
 
    £136.0bn
 
 
 
     £144.7bn
 
 
 
                (6)
 
Liquidity coverage ratio3
 
142%
 
 
 
144%
 
 
 
(2)pp
 
Net stable funding ratio4
 
130%
 
 
 
130%
 
 
 
 
 
1  Excludes balances relating to margins of £2.4 billion (31 December 2022: £2.6 billion).
 
2  Eligible assets are calculated as a monthly rolling simple average of month end observations over the previous 12 months post any liquidity haircuts.
 
3  The liquidity coverage ratio is calculated as a monthly rolling simple average over the previous 12 months.
 
4  Net stable funding ratio is based on an average of the four previous quarters.
 
 
 
 
Loans and advances to customers fell by £5.2 billion during 2023 to £449.7 billion, in the context of securitisations of £5.2 billion, including £2.5 billion of legacy Retail mortgages (£2.1 billion in the closed mortgage book) during the first quarter and £2.7 billion of Retail unsecured loans in the fourth quarter. Excluding these movements, loans and advances to customers were stable, with £4.7 billion growth across unsecured, UK Motor Finance and European retail lending, offset by a £0.7 billion reduction in the open mortgage book, a £1.8 billion reduction in the closed mortgage book and a £4.7 billion reduction in Small and Medium Businesses, principally from repayment of government-backed lending. During the fourth quarter, loans and advances to customers reduced by £2.4 billion, mainly due to the impact of the securitisation of £2.7 billion of Retail unsecured loans. Securitisation activity is conducted to manage risk on the balance sheet and to offset regulatory capital pressures, where market opportunities allow net present value positive transactions for the Group.
 
Customer deposits at £471.4 billion decreased by £3.9 billion (1 per cent) since the end of 2022. This includes a decrease in Retail current account balances of £11.3 billion as a result of higher spend and a more competitive savings market, including the Group's own savings offers. In Retail savings and Wealth, balances have increased by a combined £8.9 billion, with a significant proportion transferred from the Group's current account customer base given attractive customer offers. Commercial Banking deposits were down £1.0 billion during 2023, reflecting targeted growth in Corporate and Institutional Banking offset by a reduction in Small and Medium Businesses. The trend of customer deposit mix change within the Group was slower in the fourth quarter versus the third quarter.
 
The Group has a large, high quality liquid asset portfolio held mainly in cash and government bonds, with all assets hedged for interest rate risk. The Group's liquid assets continue to significantly exceed regulatory requirements and internal risk appetite, with a stable and strong liquidity coverage ratio of 142 per cent (31 December 2022: 144 per cent) and a strong net stable funding ratio of 130 per cent (31 December 2022: 130 per cent). The loan to deposit ratio of 95 per cent, broadly stable on 2022, continues to reflect a robust funding and liquidity position and offers the potential for lending growth. The Group's funding and liquidity position is further discussed on page 51.
 

 
SUMMARY OF GROUP RESULTS (continued)
 
Capital
 
 
 
At 31 Dec
2023
 
 
 
At 31 Dec
2022
 
 
 
Change
%
 
 
 
 
 
 
 
 
 
 
CET1 ratio
 
14.6%
 
 
 
15.1%
 
 
 
(0.5)pp
 
Pro forma CET1 ratioA,1
 
13.7%
 
 
 
14.1%
 
 
 
(0.4)pp
 
UK leverage ratio
 
5.8%
 
 
 
5.6%
 
 
 
0.2pp
 
Risk-weighted assets
 
    £219.1bn
 
 
 
     £210.9bn
 
 
 
                  4
 
 
 
 
 
 
Capital generation
 
Pro forma CET1 ratio as at 31 December 20221
 
14.1%
 
Banking build (including impairment charge) (bps)
 
            237
 
Insurance dividend (bps)
 
              12
 
Risk-weighted assets (bps)
 
             (25)
 
Fixed pension deficit contributions (bps)
 
             (30)
 
Other movements (bps)2
 
              29
 
Capital generation (bps)
 
            223
 
Retail secured CRD IV model updates and phased unwind of IFRS 9 transitional relief (bps)
 
             (50)
 
Capital generation (post CRD IV and transitional headwinds) (bps)
 
            173
 
Tusker acquisition (bps)
 
             (21)
 
Ordinary dividend (bps)
 
             (86)
 
Share buyback accrual (bps)
 
             (98)
 
Variable pension contributions (bps)3
 
               (9)
 
Pro forma CET1 ratio as at 31 December 20231
 
13.7%
 
 
1  31 December 2022 and 31 December 2023 reflect both the full impact of the share buybacks announced in respect of 2022 and 2023 and the ordinary dividends received from the Insurance business in February 2023 and February 2024 respectively, but exclude the impact of the phased unwind of IFRS 9 relief on 1 January 2023 and 1 January 2024 respectively.
 
2  Includes share-based payments and market volatility. 
 
3  Residual aggregate deficit of £250 million, paid by the Group in December 2023.
 
 

The Group's pro forma CET1 capital ratio at 31 December 2023 was 13.7 per cent (31 December 2022: 14.1 per cent pro forma). Capital generation before regulatory headwinds during the year was 223 basis points, reflecting strong banking build, the £250 million dividend received from the Insurance business and other movements. These impacts were partially offset by risk-weighted asset increases (before CRD IV model updates within Retail secured and net of optimisation) and the full year payment (£800 million) of fixed pension deficit contributions made to the Group's three main defined benefit pension schemes. Regulatory headwinds of 50 basis points largely reflect a £5 billion risk-weighted assets adjustment for part of the impact of Retail secured CRD IV model updates. They also reflect the end of IFRS 9 static transitional relief and the reduction in the transitional factor applied to IFRS 9 dynamic relief. Capital generation after the impact of these regulatory headwinds was 173 basis points. This benefited by just under 30 basis points from an impairment credit driven by a significant write-back in the fourth quarter which was materially offset by around 15 basis points in relation to the £450 million charge arising from the potential impact of the FCA review of historical motor finance commission arrangements.
 
The impact of the interim ordinary dividend paid in September 2023 and the accrual for the recommended final ordinary dividend equated to 86 basis points, with a further 98 basis points utilised to cover the accrual for the announced ordinary share buyback programme and 9 basis points for variable pension contributions reflecting the payment to address the £250 million residual aggregate deficit in the fourth quarter. The acquisition of Tusker utilised 21 basis points of capital.
 
Excluding the Insurance dividend received in February 2024 and the full impact of the announced ordinary share buyback programme, the Group's CET1 capital ratio at 31 December 2023 was 14.6 per cent (31 December 2022: 15.1 per cent).
 
The Group expects capital generation in 2024 to be c.175 basis points after taking further expected in-year regulatory headwinds and reaffirms guidance for capital generation in 2026 of greater than 200 basis points.
SUMMARY OF GROUP RESULTS (continued)
 
Risk-weighted assets have increased by £8.2 billion during the year to £219.1 billion at 31 December 2023 (31 December 2022: £210.9 billion). This includes the impact of Retail secured CRD IV model updates of £5 billion, of which a further £2 billion was recognised in the fourth quarter. Excluding this, lending, operational and market risk increases, a modest uplift from credit and model calibrations and other movements were partly offset by optimisation, including capital efficient securitisation activity within the balance sheet. In relation to the Retail secured CRD IV models, it is estimated that a further £5 billion increase will be required over 2024 to 2026, noting that this will be subject to final model outcomes. The Group's risk-weighted assets guidance for 2024 remains unchanged at between £220 billion and £225 billion.
 
The PRA provided an update to the Group's Pillar 2A CET1 capital requirement during the fourth quarter, with the requirement remaining at around 1.5 per cent of risk-weighted assets. In July 2023 the Group's countercyclical capital buffer (CCyB) rate increased to 1.8 per cent (from 0.9 per cent) in total following the increase in the UK CCyB rate to 2 per cent (from 1 per cent). As a result, the Group's regulatory CET1 capital requirement is now around 12 per cent. The Board's revised view of the ongoing level of CET1 capital required to grow the business, meet current and future regulatory requirements and cover economic and business uncertainties is now 13.0 per cent (previously 13.5 per cent). This continues to include a management buffer of around 1 per cent. In order to manage risks and distributions in an orderly way, the Board therefore expects to pay down to c.13.5 per cent by the end of 2024 before progressing towards paying down to the revised capital target of 13.0 per cent by the end of 2026.
 
 
Pensions
 
The Group has completed the triennial valuation of its main defined benefit pension schemes as at 31 December 2022. Following a fixed contribution of £800 million in the first half of 2023, a residual aggregate deficit of £250 million was agreed with the Trustee which the Group paid in December 2023. There will be no further deficit contributions, fixed or variable, for this triennial period (to 31 December 2025).
 
 
 
Dividend and share buyback
 
The Group has a progressive and sustainable ordinary dividend policy whilst maintaining the flexibility to return further surplus capital through buybacks or special dividends.
 
In February 2023, the Board decided to return surplus capital in respect of 2022 through a share buyback programme of up to £2 billion. This commenced in February 2023 and completed on 25 August 2023 with c.4.4 billion (c.7 per cent) ordinary shares repurchased.
 
The Board has recommended a final ordinary dividend of 1.84 pence per share, which, together with the interim ordinary dividend of 0.92 pence per share totals 2.76 pence per share, an increase of 15 per cent compared to 2022, in line with the Board's commitment to capital returns. The Board has also announced its intention to implement an ordinary share buyback of up to £2.0 billion which will commence as soon as is practicable and is expected to be completed by 31 December 2024.
 
Based on the total ordinary dividend and the intended ordinary share buyback the total capital return in respect of 2023 will be up to £3.8 billion, equivalent to c.14 per cent1 of the Group's market capitalisation value.
 
1  Market capitalisation as at 16 February 2024.
 
 
 
 
DIVISIONAL RESULTS
 
 
 
Retail
 
Retail offers a broad range of financial services products to personal customers, including current accounts, savings, mortgages, credit cards, unsecured loans, motor finance and leasing solutions. Its aim is to build enduring relationships that meet more of its customers' financial needs and improve their financial resilience throughout their lifetime, with personalised products and services. Retail operates the largest digital bank and branch network in the UK and continues to improve service levels and reduce conduct risk, whilst working within a prudent risk appetite. Through strategic investment, alongside increased use of data, Retail will deepen existing consumer relationships and broaden its intermediary offering, to improve customer experience, operational efficiency and increasingly tailor propositions.
 
Strategic progress
 
●  UK's largest digital bank with 21.5 million digitally active users, up 9 per cent on 2022. The Group's market leading1 mobile app has seen interactions with the mobile messaging service more than double to over 6 million this year
 
●  Enhanced mortgage customer journey, including a personalised mobile-first onboarding journey where customers manage and track their journey from researching options to completion, and a protection tool that allows for richer conversations with new customers, driving a 5 percentage point increase in branch take-up rates versus the prior year
 
●  Proactively contacted 675,000 mortgage customers to encourage review of their available options. Created Mortgage Charter support site where customers can request temporary interest-only payments and term extensions
 
●  1 percentage point growth in credit card spend market share since 2021, supported by an enhanced proposition, including improved cashback offerings, fee-free foreign exchange cards and new Mastercard World Elite rewards card
 
●  Created new mass affluent proposition, 'Lloyds Bank 360', bringing together relevant products and services in a mobile-first experience. Delivered a new financial coaching service, supporting 6,000 customers in 2023
 
●  Over 15 million savings customers engaged to raise awareness of enhanced savings products, including limited withdrawal products offering higher rates than instant access, whilst retaining flexibility in how savings are accessed
 
●  8.8 million customers have registered for 'Your Credit Score', the Group's credit checking tool, with 3.2 million registrations in 2023. Over 500,000 customers have improved their credit score in 2023
 
●  Through our partnership with Citizens Advice, 4,000 customers have received dedicated support and advice, helping them access £2.5 million of potential additional income
 
●  On track to meet 2024 sustainability targets, having lent £7.5 billion to sustainable mortgages2 and £5.7 billion for financing and leasing of battery electric and plug-in hybrid vehicles2. Finance 1 in 8 ultra low emission vehicles on UK roads, supported by 60 per cent growth in the Tusker fleet since acquisition in early 2023
 
 
Financial performance
 
●  Underlying net interest income 1 per cent lower, driven by mortgage and unsecured lending margin compression, partly offset by the impact of the rising rate environment and higher average unsecured lending balances
 
●  Underlying other income up 25 per cent, driven by increased current account and credit card activity, improved Lex performance and growth from the acquisition of Tusker
 
●  Operating lease depreciation charge up on 2022 due to declines in used car prices impacting portfolio valuations and gains on disposals, depreciation cost of higher value vehicles and the Tusker acquisition and its subsequent growth
 
●  Operating costs up 6 per cent, reflecting planned strategic investment, severance charges, inflationary effects and the Tusker acquisition, partly offset by efficiency initiatives. Remediation costs include a £450 million provision for the potential impact of the recently announced FCA review into historical motor finance commission arrangements
 
●  Underlying impairment charge £831 million, lower than the prior year as updated economic scenarios drove a £233 million credit (2022: £600 million charge), partly offset by increases observed in the level of UK mortgage new to arrears and flows to default, primarily legacy variable rate customers, whilst unsecured performance remained stable
 
●  Customer lending decreased 1 per cent driven by the securitisation of £2.5 billion of legacy UK mortgages (£2.1 billion within the closed book) and £2.7 billion of unsecured loans. Excluding these, lending is up £2.2 billion with growth across most products, offset by a £2.5 billion reduction in the mortgage book, predominantly run-off of the closed book
 
●  Customer deposits decreased 1 per cent, with an £11.3 billion reduction in current accounts, reflecting higher spend and a more competitive savings market, including the Group's own offers. In Retail savings and Wealth, balances have increased by a combined £8.9 billion, significantly from transfers from the current account customer base
 
●  Risk-weighted assets up 7 per cent in the year, due to the impact of Retail secured CRD IV model updates, higher lending and a modest uplift from credit and model calibrations, partly offset by capital efficient securitisation activity
 
1  Comparison to high street banks, based on the November 2023 Financial Research Survey for England and Wales.
 
2  Since 1 January 2022, new residential mortgage lending on property with an Energy Performance Certificate rating of B or higher at 30 September 2023; and new lending for Black Horse and operating leases for Lex Autolease and Tusker at 31 December 2023.
 
DIVISIONAL RESULTS (continued)
 
Retail (continued)
 
Retail performance summaryA
 
 
2023
£m
 
 
 
2022
£m
 
 
 
Change
%
 
 
 
 
 
 
 
 
 
Underlying net interest income
 
         9,647
 
 
 
         9,774
 
 
 
                (1)
 
Underlying other income
 
         2,159
 
 
 
         1,731
 
 
 
                25
 
Operating lease depreciation
 
           (948)
 
 
 
           (368)
 
 
 
 
Net income
 
       10,858
 
 
 
       11,137
 
 
 
                (3)
 
Operating costs
 
        (5,469)
 
 
 
        (5,175)
 
 
 
                (6)
 
Remediation
 
           (515)
 
 
 
             (92)
 
 
 
 
Total costs
 
        (5,984)
 
 
 
        (5,267)
 
 
 
              (14)
 
Underlying profit before impairment
 
         4,874
 
 
 
         5,870
 
 
 
              (17)
 
Underlying impairment charge
 
           (831)
 
 
 
        (1,373)
 
 
 
                39
 
Underlying profit
 
         4,043
 
 
 
         4,497
 
 
 
              (10)
 
 
 
 
 
 
 
 
 
Banking net interest marginA
 
2.73%
 
 
 
2.76%
 
 
 
 
Average interest-earning banking assetsA
 
    £365.6bn
 
 
 
     £362.0bn
 
 
 
                  1
 
Asset quality ratioA
 
0.23%
 
 
 
0.38%
 
 
 
(15)bp
 
 
 
 
 
At 31 Dec
2023
£bn
 
 
 
At 31 Dec
2022
£bn
 
 
 
Change
%
 
 
 
 
 
 
 
 
 
Open mortgage book1
 
         298.5
 
 
 
         299.6
 
 
 
 
Closed mortgage book1
 
             7.7
 
 
 
           11.6
 
 
 
              (34)
 
Credit cards
 
           15.1
 
 
 
           14.3
 
 
 
                  6
 
UK Retail unsecured loans1
 
             6.9
 
 
 
             8.7
 
 
 
              (21)
 
UK Motor Finance
 
           15.3
 
 
 
           14.3
 
 
 
                  7
 
Overdrafts
 
             1.1
 
 
 
             1.0
 
 
 
                10
 
Wealth
 
             0.9
 
 
 
             0.9
 
 
 
 
Other2
 
           15.7
 
 
 
           13.8
 
 
 
                14
 
Loans and advances to customers
 
         361.2
 
 
 
         364.2
 
 
 
                (1)
 
Operating lease assets3
 
             6.5
 
 
 
             4.8
 
 
 
                35
 
Total customer assets
 
         367.7
 
 
 
         369.0
 
 
 
 
 
 
 
 
 
 
 
 
Current accounts
 
         102.7
 
 
 
         114.0
 
 
 
              (10)
 
Relationship savings
 
         177.7
 
 
 
         166.3
 
 
 
                  7
 
Tactical savings
 
           17.1
 
 
 
           16.1
 
 
 
                  6
 
Wealth
 
           10.9
 
 
 
           14.4
 
 
 
              (24)
 
Customer deposits
 
         308.4
 
 
 
         310.8
 
 
 
                (1)
 
 
 
 
 
 
 
 
 
Risk-weighted assets
 
         119.3
 
 
 
         111.7 
 
 
 
                  7
 
 
1  Reductions during 2023 reflect the impact of securitisation of £2.5 billion of legacy Retail mortgages (including £2.1 billion in the closed mortgage book) during the first quarter of 2023 and £2.7 billion of Retail unsecured loans in the fourth quarter of 2023.
 
2  Primarily Europe.
 
3  Operating lease assets relate to Lex Autolease and Tusker.
 
 
 
 
DIVISIONAL RESULTS (continued)
 
Commercial Banking
 
Commercial Banking serves small and medium businesses and corporate and institutional clients, providing lending, transactional banking, working capital management, debt financing and risk management services. Through investment in digital capability and product development, Commercial Banking will deliver an enhanced customer experience via a digital-first model in Small and Medium Businesses and an expanded client proposition across Commercial Banking, generating diversified capital efficient growth and supporting customers in their transition to net zero.
 
Strategic progress
 
●  Launched new mobile-first business current account onboarding journey for sole traders and limited companies along with personalised business customer cash flow insights; transforming the customer experience and increasing levels of automation, driving reduction in account opening times of up to 15 times
 
●  Exceeded target of 20 per cent growth in new merchant services clients in 2023, supported by a new point-of-sale card payments solution to micro businesses integrated into the onboarding journey, enabling clients to transact more quickly
 
●  Strengthening digital capability including the launch of a new digital invoice finance platform, digitisation of asset finance journey and improved mobile payment functionality
 
●  Continue to enhance digital servicing capabilities, including moving more than 600,000 accounts to paperless statements, with an annual reduction of 6 million letters and over half of all business address changes fulfilled digitally
 
●  Industry-leading cash management platform winning more than 65 per cent of client tenders in 2023
 
●  Delivered Lloyds Bank Market Intelligence self-service portal, providing clients with data driven insights to help formulate business strategies and deliver growth
 
●  Awarded Best UK Trade Finance Bank and Trade Finance Deal of the Year1; new partnership with Enigio AB supporting the digitalisation of Trade Finance
 
●  Bond underwriting volumes increased more than 80 per cent in 2023, significantly outperforming overall market volume increase of 7 per cent. Investment in technology underpins top 5 ranking for sterling interest rate swaps traded electronically and a greater than 30 per cent increase in foreign exchange percentage share of wallet
 
●  A leading provider of sustainable financing2, achieving the £15 billion3 Corporate and Institutional sustainable financing commitment one year early. Number 1 ranked4 Infrastructure and Project Finance Bank in the UK, financing wind farms, solar, and investments into newer low carbon technologies including battery and energy storage
 
●  Continued multi-year programme with Black entrepreneur community; launched national 'Black in Business' initiative partnering with Channel 4 television and nearly doubled unique visits to market leading Black Business hub
 
●  Continued to proactively support small UK business leaders and owners with provision of resources and coaching sessions, including partnering with the Soil Association Exchange and Mental Health UK
 
 
Financial performance
 
●  Underlying net interest income increased 10 per cent to £3,799 million, driven by a stronger banking net interest margin reflecting the higher rate environment and strong portfolio management
 
●  Underlying other income of £1,691 million, up 8 per cent on the prior year, reflecting improved performance in capital markets financing and trading
 
●  Operating costs 6 per cent higher, due to higher planned strategic investment, severance charges and inflationary effects, partly offset by continued benefit from efficiency initiatives. Remediation charges slightly lower at £127 million
 
●  Underlying impairment credit of £511 million driven by a significant write-back in the fourth quarter and a £24 million credit from updated macroeconomic scenarios. Portfolio credit quality remains resilient with limited deterioration
 
●  Customer lending 5 per cent lower at £88.6 billion due to expected net repayments within Small and Medium Businesses including government-backed lending and foreign exchange movements, partly offset by attractive growth opportunities in Corporate and Institutional Banking
 
●  Customer deposits 1 per cent lower at £162.8 billion, reflecting targeted growth in Corporate and Institutional Banking offset by a reduction in Small and Medium Businesses
 
●  Risk-weighted assets stable at £74.2 billion, demonstrating efficient use of capital and continued optimisation activity
 
1  Best UK Trade Finance Bank at GTR Leaders in Trade awards, Trade Finance Deal of the Year at Trade Finance Global awards.
 
2  In line with the Sustainable Financing Framework.
 
3  Includes the Clean Growth Financing Initiative, Commercial Real Estate green lending, renewable energy financing, sustainability linked loans and green and social bond facilitation.
 
4  Infralogic 1 January 2023 to 31 December 2023, by value.
 
DIVISIONAL RESULTS (continued)
 
Commercial Banking (continued)
 
Commercial Banking performance summaryA
 
 
2023
£m
 
 
 
2022
£m
 
 
 
Change
%
 
 
 
 
 
 
 
 
 
Underlying net interest income
         3,799
 
 
         3,447
 
 
                10
 
Underlying other income
         1,691
 
 
         1,565
 
 
                  8
 
Operating lease depreciation
               (8)
 
 
               (5)
 
 
              (60)
 
Net income
         5,482
 
 
         5,007
 
 
                  9
 
Operating costs
        (2,647)
 
 
        (2,496)
 
 
                (6)
 
Remediation
           (127)
 
 
           (133)
 
 
                  5
 
Total costs
        (2,774)
 
 
        (2,629)
 
 
                (6)
 
Underlying profit before impairment
         2,708
 
 
         2,378
 
 
                14
 
Underlying impairment credit (charge)
            511
 
 
           (517)
 
 
 
Underlying profit
         3,219
 
 
         1,861
 
 
                73
 
 
 
 
 
 
 
 
 
Banking net interest marginA
                4.63%
 
 
 
                3.93%
 
 
 
 
Average interest-earning banking assetsA
      £86.8bn
 
 
 
       £90.0bn
 
 
 
                (4)
 
Asset quality ratioA
                (0.54%)
 
 
 
                0.52%
 
 
 
 
 
 
 
At 31 Dec
2023
£bn
 
 
 
At 31 Dec
2022
£bn
 
 
 
Change
%
 
 
 
 
 
 
 
 
 
Small and Medium Businesses
           33.0
 
 
 
           37.7
 
 
 
              (12)
 
Corporate and Institutional Banking
           55.6
 
 
 
           56.0
 
 
 
                (1)
 
Loans and advances to customers
           88.6
 
 
 
           93.7
 
 
 
                (5)
 
 
 
 
 
 
 
 
 
Customer deposits
         162.8
 
 
 
         163.8
 
 
 
                (1)
 
 
 
 
 
 
 
 
 
Risk-weighted assets
           74.2
 
 
 
           74.3
 
 
 
 
 
 
 
 
DIVISIONAL RESULTS (continued)
 
Insurance, Pensions and Investments
 
Insurance, Pensions and Investments supports over 10 million customers with Assets under Administration (AuA) of £213 billion (excluding Wealth) and annualised annuity payments of over £1.2 billion. It has seen significant change in 2023, with a refreshed management team and a refocused strategy. This has been supported by the Group's significant investment in the development of the business, including the investment propositions to support the Group's mass affluent strategy, innovating intermediary propositions through the Embark and Cavendish Online acquisitions and accelerating the transition to a low carbon economy.
 
Strategic progress
 
●  Open book AuA of £164 billion, with 12 per cent growth year-on-year. Net AuA flows of £5.1 billion, in spite of challenging market conditions, contributing to an increased stock of deferred profit
 
●  Workplace pensions business saw a 9 per cent annual increase in regular contributions to pensions administered, with £4.9 billion net AuA flows in the period, contributing to 18 per cent AuA growth
 
●  Grew general insurance market share following launch of MBNA product in 2022 with new coverages up over 114 per cent and overall share of flows up 12 per cent. Digitisation improvements continue to transform customer experience
 
●  Launched simple non-advised Ready-Made Investments through Embark in February 2023. This helped around 14,000 customers start their investment journey, of which c.45 per cent younger than 35, supporting strategic AuA growth and mass affluent objectives. Sharedealing income up c.75 per cent compared to last year
 
●  Announced the launch of the Scottish Widows Retail Intermediary Investment Platform, broadening reach and enhancing the proposition across the Intermediary channel with leading platform technology and adviser support model
 
●  £4.2 billion invested in climate-aware investment strategies through Scottish Widows over the period. Cumulatively £21.7 billion invested, on track to meet the target of between £20 billion and £25 billion by 20251
 
●  Migrated c.1 million policies and c.£36 billion AuA to strategic platforms and decommissioned 19 legacy applications
 
●  Supported 13,000 customers to secure a guaranteed income for life, issuing £1 billion of annuity policies, growing from 9,000 customers and £568 million in 2022. Increased individual annuity market share from 15.6 per cent in 2022 to 20.1 per cent2
 
●  Continued progress in our protection offering, integrating Cavendish Online and protecting over 20,000 families through the Group's direct channels this year
 
 
Financial performance
 
●  Underlying other income of £1,209 million, up 26 per cent driven by favourable market returns and balance sheet growth, including the impact of adding a drawdown feature in 2022 to existing longstanding and workplace pension business, resulting in higher contractual service margin and risk adjustment releases to income. General Insurance income net of claims increased by c.50 per cent in the year driven by market share gains and reduced severe weather-related claims compared to 2022
 
●  Operating costs stable, with higher planned strategic investment, severance charges and inflationary effects, offset by benefit from efficiency initiatives
 
●  Grew contractual service margin (deferred profits) by £50