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

 

 

03 May 2023

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 

 

 

Indicate by check mark whether the registrant by furnishing the information

contained in this Form is also thereby furnishing the information to the

Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes         No ..X..

 

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule

12g3-2(b): 82- ________

 

 

Index to Exhibits

 

 

Item

 

 No. 1 Regulatory News Service Announcement, dated 03 May 2023

           re: 2023 Q1 Interim Management Statement

 

 

Lloyds Banking Group plc

Q1 2023 Interim Management Statement

3 May 2023

RESULTS FOR THE THREE MONTHS ENDED 31 MARCH 2023

“The Group has delivered a solid financial performance in the first quarter of 2023, with strong net income and capital generation, alongside resilient observed asset quality.

The macroeconomic outlook remains uncertain. We know that this is challenging for many people. Our purpose driven strategy, alongside our financial strength, means we can continue to support our customers across the country, helping Britain prosper. We are also making good progress on our ambitious plans to transform the Group. Our experience over the last year reinforces our belief that continued strategic delivery will create a more sustainable business and deliver increased returns for our shareholders in the medium to longer-term.”

 Charlie Nunn, Group Chief Executive

Robust business performance, supporting continued strong capital generation

Financial guidance maintained, delivering higher, more sustainable returns

 

Based on our purpose driven strategy and business model, as well as our current macroeconomic assumptions, for 2023 the Group continues to expect:

INCOME STATEMENT – UNDERLYING BASISA AND KEY BALANCE SHEET METRICS

	Three months ended 31 Mar 2023 £m			Three months ended 31 Mar 2022 £m			Change %		Three months ended 31 Dec 2022 £m			Change %
Underlying net interest income	3,535			2,945			20		3,643			(3)
Underlying other income1	1,257			1,182			6		1,128			11
Operating lease depreciation	(140)			(94)			(49)		(78)			(79)
Net income	4,652			4,033			15		4,693			(1)
Operating costs1	(2,170)			(2,059)			(5)		(2,356)			8
Remediation	(19)			(52)			63		(166)			89
Total costs	(2,189)			(2,111)			(4)		(2,522)			13
Underlying profit before impairment	2,463			1,922			28		2,171			13
Underlying impairment charge	(243)			(177)			(37)		(465)			48
Underlying profit	2,220			1,745			27		1,706			30
Restructuring	(12)			(24)			50		(11)			(9)
Volatility and other items1	52			(177)					(638)
Statutory profit before tax	2,260			1,544			46		1,057
Tax expense1	(619)			(399)			(55)		(75)
Statutory profit after tax	1,641			1,145			43		982			67
Earnings per share1	2.3p			1.4p			0.9p		1.3p			1.0p
Banking net interest marginA	3.22%			2.68%			54bp		3.22%
Average interest-earning banking assetsA	£454.2bn			£448.0bn			1		£453.8bn
Cost:income ratioA,1	47.1%			52.3%			(5.2)pp		53.7%			(6.6)pp
Asset quality ratioA	0.22%			0.16%			6bp		0.38%			(16)bp
Return on tangible equityA,1	19.1%			10.7%			8.4pp		11.0%			8.1pp

 

At 31 Mar 2023

At 31 Mar 2022

At

Change %

At 31 Dec 2022

Change %

Loans and advances to customers

£452.3bn

£451.8bn

£454.9bn

(1)

Customer deposits

£473.1bn

£481.1bn

(2)

£475.3bn

Loan to deposit ratioA

96%

94%

2pp

96%

CET1 ratio

14.1%

14.2%

(0.1)pp

15.1%

(1.0)pp

Pro forma CET1 ratioA,1

14.1%

14.2%

(0.1)pp

14.1%

Total capital ratio

19.9%

18.9%

1.0pp

19.7%

0.2pp

MREL ratio

32.1%

31.6%

0.5pp

31.7%

0.4pp

UK leverage ratio

5.6%

5.2%

0.4pp

5.6%

Risk-weighted assets

£210.9bn

£210.2bn

£210.9bn

Wholesale funding

£101.1bn

£100.0bn

1

£100.3bn

1

Liquidity coverage ratio2

143%

138%

5pp

144%

(1)pp

Net stable funding ratio3

129%

130%

(1)pp

Tangible net assets per shareA,4

49.6p

53.7p

(4.1)p

46.5p

3.1p

QUARTERLY INFORMATIONA

	Quarter ended 31 Mar 2023 £m			Quarter ended 31 Dec 2022 £m			Quarter ended 30 Sep 2022 £m			Quarter ended 30 Jun 2022 £m			Quarter ended 31 Mar 2022 £m
Underlying net interest income	3,535			3,643			3,394			3,190			2,945
Underlying other income1	1,257			1,128			1,171			1,185			1,182
Operating lease depreciation	(140)			(78)			(82)			(119)			(94)
Net income	4,652			4,693			4,483			4,256			4,033
Operating costs1	(2,170)			(2,356)			(2,145)			(2,112)			(2,059)
Remediation	(19)			(166)			(10)			(27)			(52)
Total costs	(2,189)			(2,522)			(2,155)			(2,139)			(2,111)
Underlying profit before impairment	2,463			2,171			2,328			2,117			1,922
Underlying impairment charge	(243)			(465)			(668)			(200)			(177)
Underlying profit	2,220			1,706			1,660			1,917			1,745
Restructuring	(12)			(11)			(22)			(23)			(24)
Volatility and other items1	52			(638)			(1,062)			(289)			(177)
Statutory profit before tax	2,260			1,057			576			1,605			1,544
Tax expense1	(619)			(75)			(82)			(303)			(399)
Statutory profit after tax	1,641			982			494			1,302			1,145
Banking net interest marginA	3.22%			3.22%			2.98%			2.87%			2.68%
Average interest-earning banking assetsA	£454.2bn			£453.8bn			£454.9bn			£451.2bn			£448.0bn
Cost:income ratioA,1	47.1%			53.7%			48.1%			50.3%			52.3%
Asset quality ratioA	0.22%			0.38%			0.57%			0.17%			0.16%
Return on tangible equityA,1	19.1%			11.0%			4.2%			13.0%			10.7%
Loans and advances to customers	£452.3bn			£454.9bn			£456.3bn			£456.1bn			£451.8bn
Customer deposits	£473.1bn			£475.3bn			£484.3bn			£478.2bn			£481.1bn
Loan to deposit ratioA	96%			96%			94%			95%			94%
Risk-weighted assets	£210.9bn			£210.9bn			£210.8bn			£209.6bn			£210.2bn
Tangible net assets per shareA,1	49.6p			46.5p			44.5p			51.4p			53.7p

 

BALANCE SHEET ANALYSIS

	At 31 Mar 2023 £bn			At 31 Mar  20221 £bn			Change %		At 31 Dec 2022 £bn			Change %
Loans and advances to customers
Open mortgage book	298.6			295.0			1		299.6
Closed mortgage book	8.9			13.7			(35)		11.6			(23)
Credit cards	14.4			13.8			4		14.3			1
UK Retail unsecured loans	9.0			8.2			10		8.7			3
UK Motor Finance	14.7			14.1			4		14.3			3
Overdrafts	1.0			1.0					1.0
Retail other2	14.2			11.5			23		13.8			3
Wealth	0.9			1.0			(10)		0.9
Small and Medium Businesses	36.4			41.9			(13)		37.7			(3)
Corporate and Institutional Banking	56.7			53.2			7		56.0			1
Central items3	(2.5)			(1.6)			(56)		(3.0)			17
Loans and advances to customers	452.3			451.8					454.9			(1)
Customer deposits
Retail current accounts	110.5			113.1			(2)		114.0			(3)
Retail relationship savings accounts	166.7			165.5			1		166.3
Retail tactical savings accounts	16.4			16.7			(2)		16.1			2
Wealth	12.9			15.1			(15)		14.4			(10)
Commercial Banking deposits	166.5			170.3			(2)		163.8			2
Central items	0.1			0.4			(75)		0.7			(86)
Total customer deposits	473.1			481.1			(2)		475.3
Total assets4	885.7			904.9			(2)		873.4			1
Total liabilities4	837.8			855.0			(2)		829.5			1
Ordinary shareholders’ equity4	40.6			44.2			(8)		38.4			6
Other equity instruments	7.1			5.5			29		5.3			34
Non-controlling interests	0.2			0.2					0.2
Total equity	47.9			49.9			(4)		43.9			9
Ordinary shares in issue, excluding own shares	66,396m			70,148m			(5)		66,944m			(1)

GROUP RESULTS – STATUTORY BASIS

 

Summary income statement	Three months ended 31 Mar 2023 £m			Three months ended 31 Mar 20221 £m			Change %
Net interest income	3,434			2,899			18
Other income	5,875			(5,009)
Total income	9,309			(2,110)
Net financial income in respect of insurance and investment contracts	(4,501)			6,031
Total income, after net financial income in respect of insurance and investment contracts	4,808			3,921			23
Operating expenses	(2,306)			(2,200)			(5)
Impairment	(242)			(177)			(37)
Profit before tax	2,260			1,544			46
Tax expense	(619)			(399)			(55)
Profit for the period	1,641			1,145			43
Profit attributable to ordinary shareholders	1,510			1,010			50
Ordinary shares in issue (weighted-average – basic)	66,972m			70,862m			(5)
Basic earnings per share	2.3p			1.4p			0.9p

REVIEW OF PERFORMANCEA

Robust business performance, supporting continued strong capital generation

The Group’s statutory profit before tax for the first three months of 2023 was £2,260 million, £716 million higher than the same period in 2022. Higher income, partly offset by higher operating expenses and the impact of an increased impairment charge, led to an improved result. Statutory profit after tax was £1,641 million (three months to 31 March 2022: £1,145 million).

The Group’s underlying profit was £2,220 million, compared to £1,745 million in the prior year. Growth in net income was partly offset by higher operating costs and an increased impairment charge. Underlying profit before impairment for the period was up 28 per cent to £2,463 million, as a result of strong net income growth.

Net income of £4,652 million was up 15 per cent on the prior year, with higher net interest income and other income, partially offset by a continued low, albeit increasing charge for operating lease depreciation.

Net interest income of £3,535 million was up 20 per cent on the prior year, driven by a stronger banking net interest margin of 3.22 per cent (three months to 31 March 2022: 2.68 per cent, three months to 31 December 2022: 3.22 per cent) and higher average interest-earning banking assets. Relative to the prior year, the net interest margin benefitted from UK Bank Rate increases and structural hedge earnings from the rising rate environment, partly offset by lower mortgage margins. Average interest-earning banking assets were up 1 per cent compared to the first three months of 2022 at £454.2 billion, supported by growth in the open mortgage book, Retail unsecured and the European retail business. The Group continues to expect the banking net interest margin for 2023 to be greater than 305 basis points.

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. As at 31 March 2023, the Group’s structural hedge had an approved capacity of £255 billion (31 December 2022: £255 billion). The nominal balance of the structural hedge was £255 billion at 31 March 2023 (31 December 2022: £255 billion) with a weighted-average duration of approximately three-and-a-half years (31 December 2022: approximately three-and-a-half years). The Group continues to review the stability and mix of underlying deposits and their eligibility for the structural hedge. The Group generated £0.8 billion of total gross income from structural hedge balances in the first three months of 2023, representing material growth over the prior year (three months to 31 March 2022: £0.6 billion).

 

REVIEW OF PERFORMANCE (continued)

Underlying other income of £1,257 million was 6 per cent higher compared to £1,182 million in the prior year. This reflected growth in Retail, Commercial Banking and Insurance, Pensions and Investments, partially offset by reduced income from the Group’s equity investment businesses. Retail other income was up 15 per cent on prior year, including improved Lex performance and increased credit card and current account activity, alongside a gain from the exit of legacy Retail mortgage loans. Commercial Banking other income was up 24 per cent versus the prior year, primarily reflecting improved trading conditions. Insurance, Pensions and Investments other income was 26 per cent higher than the prior year, through higher contractual service margin and risk adjustment releases to income from 2022 adjustments. The general insurance business contribution also increased, with benign weather in the first quarter of 2023 versus adverse weather experience in the comparative period of 2022. Other income from the Group’s equity investments businesses, including Lloyds Development Capital, was lower than the prior year, reflecting more normalised market conditions in the first quarter of 2023.

The Group delivered good organic growth in Insurance, Pensions and Investments and Wealth (reported within Retail) assets under administration (AuA), with combined £2 billion net new money in open book AuA over the period. In total, open book AuA currently stand at c.£165 billion.

Operating lease depreciation of £140 million increased by 49 per cent compared to the prior year, reflecting expected softening of used car prices and the impact of a recovering Lex fleet size.

Total costs of £2,189 million were 4 per cent higher than in the prior year, with increased operating costs of £2,170 million (up 5 per cent). This reflects higher planned strategic investment (expected to peak in 2023), new business costs and inflationary effects. The Group’s cost:income ratio for the first three months of 2023 was 47.1 per cent, compared to 52.3 per cent in the prior year. The Group maintains ongoing cost discipline, in part mitigating inflationary pressures. Consistent with guidance, operating costs are expected to be higher in 2023 at c.£9.1 billion (2022: £8.7 billion), given the Group’s planned strategic investment and inflationary effects, partially mitigated by continued cost efficiency.

In the first three months of 2023 the Group recognised remediation costs of £19 million in relation to pre-existing programmes (three months to 31 March 2022: £52 million). There have been no further charges relating to HBOS Reading since the year end and the provision held continues to reflect the Group’s best estimate of its full liability, albeit uncertainties remain. Following the FCA’s Motor Market review, the Group continues to receive complaints and is engaging with the Financial Ombudsman Service in respect of historical motor commission arrangements. The remediation and financial impact, if any, is uncertain.

Asset quality remains resilient with impairment levels low. Due to the ongoing inflationary pressures on affordability, the Group has observed modest increases in levels of new to arrears in some portfolios and flows to default, although levels remain at or below pre-pandemic experience. Underlying impairment was a net charge of £243 million (three months to 31 March 2022: £177 million), resulting in an asset quality ratio of 22 basis points. This charge is after a £79 million multiple economic scenarios (MES) credit (three months to 31 March 2022: £27 million charge), as a result of the slightly improved economic outlook in the first quarter. This reflects a pre-updated MES charge of £322 million in the period (three months to 31 March 2022: £150 million, three months to 31 December 2022: £383 million), equivalent to an asset quality ratio of 28 basis points. The increase reflects the expected credit loss (ECL) allowance build from Stage 1 loans rolling forward into a more adverse economic outlook, as well as increased flows to default primarily driven by legacy UK mortgage portfolios and charges on existing Stage 3 clients in Commercial Banking.

Modest observed deterioration has translated to a small underlying net increase in Stage 3 balances within UK mortgages (when excluding the impact from the exit of £2.5 billion of legacy Retail mortgage loans). Unsecured flow to default rates are essentially flat. Stage 2 loans and advances to customers decreased to £60.9 billion (31 December 2022: £65.7 billion) largely as a result of the updated economic outlook, with 92 per cent of Stage 2 loans up to date (31 December 2022: 93 per cent). Stage 3 assets were £10.4 billion as at 31 March 2023 (31 December 2022: £10.8 billion). The Group continues to expect the asset quality ratio to be c.30 basis points in 2023.

Restructuring costs remain low at £12 million (three months to 31 March 2022: £24 million). Volatility and other items were a net gain of £52 million for the first three months of 2023 (three months to 31 March 2022: net loss of £177 million), comprising £92 million of positive market volatility and other statutory items, partly offset by £40 million relating to the amortisation of purchased intangibles and fair value unwind (three months to 31 March 2022: £57 million). Market volatility included positive banking volatility of £106 million. This compares to volatility losses during the first three months of 2022 of £120 million, largely resulting from negative insurance and banking contributions.

REVIEW OF PERFORMANCE (continued)

Tangible net assets per share as at the end of the quarter were 49.6 pence, up from 46.5 pence at 31 December 2022. This is as a result of accumulated profits, a reduction in shares from the ongoing ordinary share buyback, cash flow hedge reserve movements and pensions remeasurement.

The return on tangible equity for the first three months of 2023 was 19.1 per cent, reflecting the Group’s solid financial performance and positive market volatility in the first quarter (three months to 31 March 2022: 10.7 per cent). The Group continues to expect the return on tangible equity to be c.13 per cent in 2023. Earnings per share were 2.3 pence (three months to 31 March 2022: 1.4 pence).

The Group has commenced the share buyback programme announced in February 2023, with 0.8 billion shares repurchased as at 31 March 2023.

Balance sheet

Loans and advances to customers fell by £2.6 billion in the first three months of 2023 to £452.3 billion. This largely resulted from the exit of £2.5 billion of legacy Retail mortgage loans (including £2.1 billion in the closed mortgage book), an additional reduction of £0.6 billion in the open mortgage book and repayments of government-backed lending in Commercial Banking, partly offset by £1.2 billion growth in other Retail lending, principally unsecured.

Customer deposits at £473.1 billion decreased by £2.2 billion (0.5 per cent) since the end of 2022. The reduction in the first quarter included a decrease in Retail current account balances of £3.5 billion from seasonal customer outflows, including tax payments, higher spend and a more competitive market, including from UK Government National Savings and Investments offers and the Group’s own savings rates. This was partly offset by Commercial Banking deposit increases of £2.7 billion, including both targeted growth in Corporate and Institutional Banking and some short term placements which are expected to reverse in the second quarter. Retail savings increased slightly during the quarter, capturing some of the movements from elsewhere in the deposit base.

The Group has a strong and stable 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 strong and stable liquidity coverage ratio of 143 per cent (31 December 2022: 144 per cent) and a strong net stable funding ratio of 129 per cent (31 December 2022: 130 per cent) as at 31 March 2023.

Capital

The Group’s CET1 capital ratio at 31 March 2023 was 14.1 per cent (31 December 2022: 14.1 per cent pro forma). On 1 January 2023 IFRS 9 static transitional relief came to an end and the transitional factor applied to IFRS 9 dynamic relief reduced by a further 25 per cent, resulting in an overall reduction in capital of 15 basis points. Excluding this, capital generation during the first quarter amounted to 52 basis points, primarily reflecting strong banking build, partially offset by the accelerated full year payment (£800 million) of fixed pension deficit contributions made to the Group’s three main defined benefit pension schemes. As usual, this represented an efficient utilisation of capital generated in the first quarter, whilst not altering the total contributions to be paid for the year under the current agreement with the Trustee. The Group has accrued a foreseeable ordinary dividend of 21 basis points, based upon a pro-rated amount of the 2022 full year dividend. The Group continues to expect 2023 capital generation to be c.175 basis points.

As previously announced, on 21 February 2023 the Group acquired Tusker, which together with its subsidiaries operates a vehicle management and leasing business. Approximately 18 basis points of available capital has been utilised for the acquisition.

Risk-weighted assets have remained flat during the first quarter at £211 billion at 31 March 2023. This largely reflected capital efficient securitisation activity and other optimisation, in addition to a reduction in threshold risk-weighted assets, offset by the growth in Retail unsecured lending and other movements. CRD IV model changes reflecting the revised regulatory standards introduced in 2022 remain subject to approval by the PRA with the resultant risk-weighted asset outcome dependent upon this. Further clarification is expected later this year. The Group expects an increase in risk-weighted assets from this clarification, however the Group’s 2024 risk-weighted assets guidance, provided in February, remains unchanged.

The current sum of the Group’s regulatory CET1 capital requirement and capital buffers remains at around 11 per cent. This is expected to increase to around 12 per cent from July 2023 due to the planned increase in the UK countercyclical capital buffer (CCyB) rate to 2 per cent, which will increase the Group’s CCyB rate to around 1.8 per cent in total. The Board’s view of the ongoing level of CET1 capital required to grow the business, meet current and future regulatory requirements and cover uncertainties continues to be around 12.5 per cent, plus a management buffer of around 1 per cent.

ADDITIONAL INFORMATION

 

CAPITAL GENERATION

Pro forma CET1 ratio as at 31 December 20221	14.1%
Phased unwind of IFRS 9 relief on 1 January 2023 (bps)	(15)
Pro forma CET1 ratio as at 1 January 2023	14.0%
Banking build (including impairment charge) (bps)	74
Risk-weighted assets (bps)	(5)
Fixed pension deficit contributions (bps)	(30)
Other movements (bps)	13
Capital generation (bps)	52
Tusker acquisition (bps)2	(18)
Ordinary dividends (bps)	(21)
CET1 ratio as at 31 March 2023	14.1%

 

IMPAIRMENT DETAIL

	Three months ended 31 Mar 2023 £m			Three months ended 31 Mar 20221 £m			Change %		Three months ended 31 Dec 2022 £m			Change %
Charges pre-updated MES2
Retail	271			149			(82)		253			(7)
Commercial Banking	53			1					121			56
Other	(2)			–					9
	322			150					383			16
Updated economic outlook
Retail	(66)			(10)					59
Commercial Banking	(13)			37					23
	(79)			27					82
Underlying impairment chargeA	243			177			(37)		465			48
Asset quality ratioA	0.22%			0.16%			6bp		0.38%			(16)bp

ADDITIONAL INFORMATION (continued)

IMPAIRMENT DETAIL (continued)

Loans and advances to customers and expected credit loss allowance (underlying basis)A

At 31 March 2023	Stage 1 £m			Stage 2 £m			Stage 3 £m			Total £m			Stage 2 as % of total			Stage 3 as % of total
Loans and advances to customers
UK mortgages	259,801			42,977			6,243			309,021			13.9			2.0
Credit cards	11,457			3,301			302			15,060			21.9			2.0
Loans and overdrafts	8,524			1,776			254			10,554			16.8			2.4
UK Motor Finance	12,213			2,585			148			14,946			17.3			1.0
Other	14,407			618			156			15,181			4.1			1.0
Retail1	306,402			51,257			7,103			364,762			14.1			1.9
Small and Medium Businesses	30,261			5,059			1,619			36,939			13.7			4.4
Corporate and Institutional Banking	51,722			4,545			1,720			57,987			7.8			3.0
Commercial Banking	81,983			9,604			3,339			94,926			10.1			3.5
Equity Investments and Central Items2	(2,568)			–			6			(2,562)
Total gross lending	385,817			60,861			10,448			457,126			13.3			2.3
ECL allowance on drawn balances	(778)			(1,795)			(2,281)			(4,854)
Net balance sheet carrying value	385,039			59,066			8,167			452,272
Customer related ECL allowance (drawn and undrawn)
UK mortgages	147			577			768			1,492
Credit cards	182			454			121			757
Loans and overdrafts	191			350			130			671
UK Motor Finance3	94			83			78			255
Other	18			18			52			88
Retail1	632			1,482			1,149			3,263
Small and Medium Businesses	126			267			153			546
Corporate and Institutional Banking	156			223			979			1,358
Commercial Banking	282			490			1,132			1,904
Equity Investments and Central Items	–			–			4			4
Total	914			1,972			2,285			5,171
Customer related ECL allowance (drawn and undrawn) as a percentage of loans and advances to customers4
UK mortgages	0.1			1.3			12.3			0.5
Credit cards	1.6			13.8			51.9			5.0
Loans and overdrafts	2.2			19.7			64.7			6.4
UK Motor Finance	0.8			3.2			52.7			1.7
Other	0.1			2.9			33.3			0.6
Retail1	0.2			2.9			16.5			0.9
Small and Medium Businesses	0.4			5.3			15.1			1.5
Corporate and Institutional Banking	0.3			4.9			57.0			2.3
Commercial Banking	0.3			5.1			41.5			2.0
Equity Investments and Central Items				–			66.7
Total	0.2			3.2			23.5			1.1