Lloyds Banking Group Performance

The Group Asset and Liability Committee (GALCO) monitors and manages total balance sheet encumbrance, including via a defined risk appetite.

At 31 December 2024, the Group had £35.1 billion (31 December 2023: £38.0 billion) of externally encumbered on-balance sheet assets with counterparties other than central banks.

The decrease in encumbered assets was primarily driven by redemptions across securitisations and covered bonds.

The Group also had £747.2 billion (31 December 2023: £704.5 billion) of unencumbered on-balance sheet assets, and £124.4 billion (31 December 2023: £139.0 billion) of pre-positioned and encumbered assets held with central banks; the decrease in the latter was primarily driven by amortisation to the underlying loan pools already pre-positioned at the Bank of England.

Primarily, the Group encumbers mortgages, unsecured lending, credit card receivables and car loans through the issuance programmes and tradable securities through securities financing activity.

The Group mainly pre-positions mortgage assets at central banks.

The Group defines climate risk as the risk from the impacts of climate change and the transition to net zero (‘inbound risk’), or a result of the Group’s response to tackling climate change and supporting the transition to net zero (‘outbound risk’).

The climate risk assessments above remain limited due to the degree of uncertainty underpinning key assumptions used, as well as the continuing developmental nature of the data, approach and models used in the quantification.

These include, but are not limited to, the analyses being restricted to PD impacts only; considering only the most material hazards for UK mortgages (flood and coastal erosion); client valuation impacts not incorporating climate transition plans; the physical risk modelling for corporates currently excluding broader components such as supply chain impacts, and more broadly the political landscape; future climate data enhancements and further model development.

Whilst this supports no judgemental adjustment to ECL being required, where a top-down approach has been used it may not fully capture the impact on loss rates emanating from being located in a high-risk area.

Similarly the current assessment excludes the potential affordability shocks or reduced insurance coverage that could occur due to possible changes to insurance policy initiatives in this area.

Assessments were performed on the Group’s internally generated economic scenarios used in the measurement of expected credit losses against external scenarios published by the Network for Greening the Financial System (NGFS).

The potential incremental impact of climate factors on key economic drivers was isolated from the Phase V NGFS Delayed Transition scenario, which management judged the most plausible.

The incremental risk to ECL was then quantified by overlaying the specific climate impact of this scenario onto macroeconomic drivers within the Group’s base case and MES scenarios.

The results from the most material Retail portfolios, UK mortgages and consumer lending allowed management to conclude on an immaterial ECL impact for Retail of below £5 million (31 December 2023: below £5 million), and in Commercial Banking a separate climate assessment performed at sector level, resulted in an ECL impact of below £15 million (31 December 2023: below £15 million).

The Group’s MES downside and severe downside scenarios, together comprising a 40 per cent weighting in ECL calculations, are generally more severe than the most adverse NGFS scenario (‘Net Zero 2050’).

The Group has enhanced its assessment of transition risk on the UK mortgage portfolio by extending the scope from buy-to-let (BTL) to also include Mainstream and Specialist Residential property portfolios.

The assessment is now also performed with an account level assessment of affordability and valuation impacts, with a more nuanced view of the potential of government to legislate a minimum EPC requirement.

Finally, the time period observed extends to 2050 with multiple transition points across multiple economic scenarios.

The provision impact was assessed by transforming the account level assessment of affordability and valuation impacts of each climate scenario to adjust inputs used in existing Probability of Default (PD) parameters.

As at 31 December 2024, the impact on ECL has been estimated to be less than £5 million (31 December 2023: less than £5 million) in BTL properties and less than £5 million (31 December 2023: not assessed) in Mainstream and Specialist portfolios.

The Group Executive Committee (GEC) has been determined to be the chief operating decision-maker, as defined by IFRS 8 Operating Segments, for the Group.

The Group’s operating segments reflect its organisational and management structures.

The GEC reviews the Group’s internal reporting based around these segments in order to assess performance and allocate resources.

It considers interest income and expense on a net basis and consequently the total interest income and expense for all reportable segments is presented net.

The segments are differentiated by the type of products provided and by whether the customers are individuals or corporate entities.

Aligned with its principle of ensuring all colleagues are rewarded fairly, an important area of focus for the Committee this year has been reviewing the appropriateness of executive directors’ pay.

After careful consideration, including consultation with shareholders (see next section), the Committee decided, effective 1 January 2025, to reverse the impact of the discount applied to the GCE’s salary on appointment (13 per cent) and apply a 3 per cent annual increase effective 1 April 2025 to the salary of both executive directors; the latter is less than the 4.1 per cent pay budget which colleagues will benefit from under our two-year pay deal.

This included comparing the on-target total reward opportunity of the Group’s executive directors with peers, including the FTSE 30 and our main UK banking peers.

Changes in respect of the GCE improve the competitiveness of his total reward opportunity, but the package remains below the median of both our UK banking peer group and the FTSE 30.

Loans and advances to customers up £10.3 billion, including £6.1 billion growth in UK mortgages (net of securitisations of £1.9 billion), UK Retail unsecured loans up £2.2 billion due to organic growth and lower repayments following a securitisation in 2023, alongside £1.9 billion growth across credit cards and other Retail (driven by European lending)

Customer deposits up £11.3 billion, with inflows into limited withdrawal and fixed term products, partly offset by a £1.4 billion reduction in current account balances (significantly lower than the prior year, as expected)

Customer deposits of £482.7 billion significantly increased in the year by £11.3 billion.

Retail deposits were up £11.3 billion in the year driven by inflows to limited withdrawal and fixed term deposits, partly offset by a £1.4 billion reduction in current account balances.

The Group has maintained its strong funding and liquidity position with a loan to deposit ratio of 95 per cent as at 31 December 2024 (31 December 2023: 95 per cent).

The Group’s liquid assets continue to exceed the regulatory minimum and internal risk appetite, with a liquidity coverage ratio (LCR) of 146 per cent (based on a monthly simple average over the previous 12 months) as at 31 December 2024 (31 December 2023: 142 per cent) calculated on a Group consolidated basis based on the PRA rulebook.

The net stable funding ratio remains strong at 129 per cent (based on a quarterly simple average over the previous four quarters) as at 31 December 2024 (31 December 2023: 130 per cent).

During 2024, the Group accessed wholesale funding across a range of currencies and markets with term issuance volumes totalling £13.9 billion.

The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which ceased trading on 31 December 2010.

In January 2025, the First Tier Tribunal concluded in favour of HMRC.

Having reviewed the Tribunal’s conclusions and having taken appropriate advice, the Group intends to appeal the decision and does not consider this to be a case where an additional tax liability will ultimately fall due.

If the final determination of the matter by the judicial process is that HMRC’s position is correct, management believes that this would result in an increase in current tax liabilities of approximately £975 million (including interest) and a reduction in the Group’s deferred tax asset of approximately £275 million.

These restrictions in utilisation mean that the value of the deferred tax asset in respect of tax losses is only expected to be fully recovered by 2037 (2023: 2036) in the base case forecast.

It is expected in the base case that 85 per cent of the value will be recovered by 2033, when Bank of Scotland plc will have utilised all of its available tax losses.

Deferred tax assets of £143 million (2023: £160 million) have not been recognised in respect of £570 million of UK tax losses and other temporary differences which can only be used to offset future capital gains.

No deferred tax has been recognised in respect of foreign trade losses where it is not more likely than not that we will be able to utilise them in future periods.

At 31 December 2024, the Group had £134.4 billion of highly liquid unencumbered LCR eligible assets, based on a monthly simple average over the previous 12 months post any liquidity haircuts (31 December 2023: £136.0 billion), of which £128.5 billion was LCR level 1 eligible (31 December 2023: £131.3 billion) and £5.9 billion was LCR level 2 eligible (31 December 2023: £4.7 billion).

These assets are available to meet cash and collateral outflows and regulatory requirements.

The Insurance business manages a separate liquidity portfolio to mitigate insurance liquidity risk.

The Group also has a significant amount of non-LCR eligible liquid assets which are eligible for use in a range of central bank or similar facilities.

According to Policy in Practice households across the UK are missing out on an estimated £23 billion in benefits each year.

Our new Benefit Calculator helps customers find out what benefits and grants they could be eligible for, giving a personalised, detailed view of the estimated amounts they may be entitled to, along with next steps on how to make a claim.

The calculator makes it easy and convenient for customers to understand if they qualify for support, including grants for home improvements and energy efficiency schemes.

Through this in-app feature, our ambition is to put at least £500 million in customers' pockets, remaining focused on supporting the growth of a resilient customer base.