LYG - Earnings call transcript Q2 2022 | Lloyds Banking Group plc

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Operator

Thank you for standing by, and welcome to the Lloyds Banking Group 2022 Half Year Results Call. [Operator Instructions] There will be presentations from Charlie Nunn and William Chalmers, followed by a question-and-answer session. [Operator Instructions] Please note this call is scheduled for 90 minutes and is being recorded. I will now hand over to Charlie Nunn. Please go ahead.

Charlie Nunn

thank our and call. year everyone morning, you half for results Good

take we within usual shortly, you an financial to focus through to despite this more Prosper. then performance environment, Slide as our take strength talk the for the X. I messages key will from are up as begin the the Group's let significant is Q&A. open me external by As to purpose from on Britain positions organization five to going us know, key continue away today. and messages though customer turning our William I'm franchise to but will review financial well you half, I'd help uncertain and we that this you see There our forward. resilience to we give about before the And go of like

cost in continued are the First, momentum. income, required stress, customers in improved We've the their taking needed to context and of our investment delivered asset their decisions benign maintain we half financial based financial XXXX seeing the spending the performance alongside strong and increased on resilience. where of of a quality living first adapting business

conservative the dividend up year. business for XX% X.XX model the financial too the not well the enabled numbers. performance I simply pence per an future. We're and our confident interim although should XXXX. has financial to through Our executing half last positioned XXXX future year. in guidance risk early ordinary updated more longer-term half it's usual, and at give XXXX detail of The later, or note are well, us announce for performance this on we enhance finally, to delivery going one in enabled guidance William the has also to update Group strategic as Board in will And for share, around but go to that

So navigate I'll challenging turn increases cost Slide of now the are clear X well-positioned at period to external to to It the customers that, is look are a in our with uncertainties. facing with how we living. that

significantly lower nature However, and resilient In base, income sheet retail, the on our forward. of well borrowing today our representative a conservative We're we and is have income focused impacting risk balance and more they see customers, have our and of our while we positioning our is know low given customers appetite, sample business the exposure in segments. franchise signs from stress seeing not customer portfolio, higher society, from is the deposit for We inflation of us. a across placed. looking that of of lending levels currently

at in average saving same It's time, and are not average unsecured ratio We deposits also customers, better health their and see on of the historic focused within lines having pre-pandemic, both their deterioration on our secured noting business and that lending our retail than businesses. in period businesses lows, commercial any their loan-to-value around prime financial our XX% with in also trends. majority customers entering seeing At worth reduced debt. the increased this we're are

to segments seeing as behavior, are living. increased and of In of notably spend, cost the also and levels higher in Customers discretionary we're adapting accommodate customer entertainment. most terms of income travel such finances rising categories, within their

and energy, such on can services less subscription example, customers costs see managing fuel. accommodate the of actions and food increased spending white For taking we to goods as

on customers we With very hand, On auto remain the in increase we where focused of our supporting no other opting pensions. that our customers cancelling insurance see out or policies said, enrollment needed.

additional resourced this fully demand. are for We

the announce to to and give face. our resilience. the we By demonstrate spreading of mentioned, which team. staff Although not early vast to colleagues will thing a executive pressure a members ease one-off all payment, This our We've action payment right customers are to will the continuing quickly taking also majority they help below do. action the as of was taken cash the injection

margin. income BAU to operating the Slide Lloyds positions business Group business Now Group lines. the are driven up our XX% by stable, by And business X while look net higher at strong year-on-year turning billion ₤X.X a is future. of delivered to in costs performance costs overview up first the strategic and half. of Net an X%, supported for well our financial the and a in half. the Banking model new were increased performance investment interest

a XXXX. Asset financial benign return a our also on. important half, Employee the points maintaining touched XX. of of XX.X%, resilient of support plus score guidance seen end enhance XX% held year. In interim for business turn, leading XXX has our base customer engagement the promoter on these dividend. the given net basis quality stable Alongside the and performance, performance generation remains to I've including we've enables of equity increased capital This last in since us tangible of just achievements some

There's also XX% progress but this progress. we always good now more are to including continuing on make our having of senior While held by represents to roles goals, diversity women. do,

recall share. new percentage share few XX% and We're percentage billion key the X.X X set increase Within Group's change. out turning we've money set our a in ambitions Slide you strategy. protection we've by months point slide. XX% increased and talked merchant our services in a out on It a to grow, within In of we FX and William increase grow of making early insurance pillars; seen our to will good progress, ₤X commercial, market since the And wallet net business, is focus, and about and clients. that examples delivered this new Finally we've over I and achievements new X. wealth of three

retail We've with the track mortgage ₤X first half. funding for our by over track. our around businesses. our provided also billion we're of on And on in financing green have ambitions are increased lending, ₤X.X in Our green vehicles billion sustainable lending and electric in commercial

strengthened Our pillar. focus more significant cost to and hear BAU this due you'll strategy targeted efficiency cost under generate from capital course. our We've about William savings. continued And also in

and These strategy, capabilities and change, XX,XXX will to made. skills deliver half to organization and market a new leadership of aligned the structure examples made objectives. the and assets new ₤X.X under with will investments our more have for innovate we've progress We've for detailed which we've Group's announced change selected effectively. strategic our in team the around And clear we Finally, our us faster of enable the also plans a reorganized delivery and and we've mobilized more of digital technology strategic of to billion the deliver provide And to date. first XXXX. are incremental update the investments colleagues,

are pleased the future. over confident and in made through more the for to we well-positioned I'm with that, summary, we've With I'll hand detail. financials I'm progress in So, the to William go

William Chalmers

and everyone. joining. And Charlie, you for morning, good you, again, thank Thank

me financials to the Let turn first an overview X. on of Slide

from net continued said, a Operating in of on financial of before strategic Lloyds of billion the up income ₤X.X performance the stable X% leading and year. margin interest first business basis this new Banking by and in costs up As higher planned remain momentum billion ₤X.X with prior Group Net XX% a is half delivered of costs points, investment, strong higher based supported committed year, growth income. to BAU costs, We associated businesses. XXX other were efficiency. and our market Charlie

performance million of good is pre-pandemic and in ₤X.X franchise tangible rates. pence The XXX has across movement in end very in that in activity assets franchise about basis now ₤XXX growth increased on. down weighted in charge will earnings as comments. resulted after share Asset Slide net of shape. HX. billion of on bolstered sheet Alongside seen Meanwhile, good touch equivalent this look we've profit of impairment are equity see points XX.X%. by strong balance pence dividends tax further areas. below a a X and continued that upward interim earlier is the Together return X.X to tangible statutory a quality XX basis A half, to Charlie of result on dividend to customer XX.X the we've of insurance in This delivered in per largely in turn growth our my capital to reduction points. and assets performance risk at recovery generation of continued allows turn I'll talked I this towards the levels.

₤X.X in the the in billion second grow ₤X.X included Our in continued of open ₤X.X half. billion growth Encouragingly Growth has HX. we continued portfolio the progress throughout saw balances over quarter, with travel in XXXX. second the mortgage billion result this credit was demonstrating by levels, QX up book of to equivalent a the particularly Led entertainment spending card in in of period million the and in ₤XXX spend XX% quarter transactors, improving as retail. all book

Looking a up balances forward is million Motor growth Finance ₤XXX coming half. also card quarters. expect we continue the to over in in gradual the

the activity a chain issues impacted global remains by While vehicle ongoing we have all order record manufacturers. supply book, affecting here

can balances in revaluations in government's scheme corporate by billion more than refinancing ₤X.X in [indiscernible] within repayments banking some particularly has commercial the This institutional in SME. FX business also you short-term see, the offset by the franchise, led and opportunities sponsor As up attractive half. growth are QX. is This portfolio, of loans

our HX, of in trusted side quarters. billion other Retail we continue the sheet, half to brands. the Commercial deposits are growth see the ₤X.X we the short-term inflows to deposits since with some On in both billion in are expected ₤XX up balance in total, having up of XXXX. reversing in And as grown almost ₤X seen Group billion has end placements QX.

insurance ₤X.X first the Group on within I organic assets margin. know shortly. with mortgage XXXX build billion versus money interest offers growth while ₤XXX to than we've again second half the has reductions banking. detail. of the lines or banking increasing ₤X.X in balances. billion in related that business year. half billion to timing is more turn new franchise, the wealth a hedgeable Slide and deposit This interest the business, I'll first earning and our average pool in net the and seen substantial higher XX, up of X% including AIEAs net ₤X billion interest good our net you of the touch opportunities performance up modest NII from now and income growth up little increase XX% growth both will offsetting As benefited Alongside of on our the commercial this in more improving within of a over and across of half half. strategic

pricing. XXX The is points 'XX. from rate impact from here competitive ongoing margin the The the points basis than positive rises QX increased points XX quarter. XX of up margin impact XXX offset of HX basis mortgage of was on Our basis HX previous more

single-digit be taken our together, low to growth But gradual in we XXXX. expect will base other expect be to expect repricing driven within this remains XXXX. increases In in unsecured and and be February. continue mortgages will to percentage growth basis by net further than this we of today the continue providing than continued X% positive that now the in in enhancing balances. margins forward, margin. in We're Looking direction, points felt hence impact the to for a in assumed AIEAs are greater mortgage sustainably QX, XXX margin This the significant rate year. assuming tailwind guidance recovery Group higher Indeed, to we a

in rate a significant the XX me turn on little Slide to look this sensitivities, let and Given focus detail. at more interest

year times, many say by income us curve parallel rising currently is XX We yield exposed to rates. basis benefit heard point and interest in you've a Group one. base ₤XXX rise the rate about shift to the expect positively in As million associated

an an That the difference to makes we net material is illustration, point percentage million point in we and indeed, in could including As for half. you out basis our assumed number based the saw increase as expect XX% have ₤XX interest from those additional income turn assumptions, deposit one. Taking a XX XX% year pass-through, Clearly illustrative reduction previously. differ the first the the of in throughout example, know income. a as we this every XX same pass-through set on pass-through as

sensitivity So first most does will be you a in again mortgage the I compression margins. assume in if new ₤XXX should we've XX% also asset seen million. the assume spread business note evidently that the half, pass-through, not as sensitivity here

at the on mortgages starting portfolios Slide on look XX. moving to with individual Now asset

last HX. XX and is in ₤XX ₤XXX As customers continue seen stands book in rising the modestly of billion over in mortgage I growth mortgage billion, we than said, to rate around aware to now context with steps. growth help they of interest months. with we environment QX. ensure levels down previous XX% see of ₤X.X billion a in The ₤X.X The are in our are with QX turn mortgages consequence open Indeed billion book SVR customers at half any of engaging were and to refix and in alternatives actively their higher that we've have quarters. the their attrition

As completion as application mortgage XX pricing over the has helpfully, has margin you competitive dynamic pricing customer basis now recent is QX points. know, to response in completion been around margins moves. stabilizing were quarters. increased swap But

an still high that to economic at Looking lending year. as per ₤XX of we yielding mortgages business continue returns below forward, we maturities value in context expect growth our see be the margins from from new circa With attractive billion to perspective. priced current and of said,

Slide ₤X particularly wider as recovery credit as balances balances XX. since as I has attractive has card quarter. as This the categories. billion by the billion in underlying Finance the discretionary is up portfolio. up in largely We're the earlier. in said mentioned industry by Indeed, Commercial revaluations year-end. is Now ₤XXX growth in although well in ₤X on the This HX. opportunities, this be issues. motor card business turning Consumer in ₤X.X business, million continues FX particularly higher to half into million, commercial by billion impacted seeing institutional asset our ₤XXX the Finance earlier, corporate a books led grown increased second is translated Motor spend, to credit have other in And Banking

in SME Going the largely billion seen backed within a Support their government Scheme way, repay we've of ₤X.X COVID loans. reduction clients lending other as

on Let's Slide move to the other XX. side sheet of balance the

increase continue the We the in see of half. first half Total in ₤X deposits XXXX. up billion deposits to were

placements expected. some reversed reduced commercial we had Although in they short-term QX as as

given QX. brands. continue are Retail to deposits XX balances billion trusted strategic opportunities gives [technical and Group account almost now turn inflows to ₤X.X up current Total see half, billion ₤X.X Importantly, X% we in the to or our were in growth in difficulty] Group the as wealth of last deposit overall customers balances. HX indeed for significantly increases is XX basis than outlined on support hedgeable points year further interest higher Slide to we our This example. margin rate is Deposit develop also proposition The XX. seek movements.

around in up is ₤XXX the eligibility deposits, capacity curve by hedge X.X of the the and structural fully in is X billion years. a in hedge over have around position now approved this below balance years recent of billion to of Given increased a the swap average the the this billion. now billion deposit and capacity. context XX last little still growth HX including increased maturities The ₤XX weighted of significant XX In hedge existing the of invested has years, X in XXXX, We neutral year, giving flexibility. of favorable to duration structural the periods, HX movements seen nominal

income hedge gross ₤X.X first seen half. we've of the difficulty] [technical Given billion during

XXXX XXXX, build stronger we hedge than in and forward, to continuing 'XX now and then income than expect XXXX in 'XX. stronger -- structural be to Looking into

up other billion of Now to prior income XX. the on moving ₤X.X X%.on income Slide Other year. is

now markets financial continue performance over of was retail cards customer has an some and from as this transaction see commercial improving We credit and and income resilient performance signs Other by a a and recovering a activity. contribution in volumes assumption accounts Indeed, supported to Embark in includes increased improving in founded seen benefits. period whole. current upon activity. Insurance banking wealth modest the

especially example, driven bulk However, pensions for by workplace annuities, new in business QX. in largely and year-on-year improved growth is income,

The and offset few charges equity with last held quarter performance of line one-off quarter in within assumptions The including is insurance quarters. billion ₤X.X investments, straightforward by is relatively with second the benefits. assets

This continue other dependent as forward, income build. uncertain as clearly activity on expect rate to Looking the investments. levels run we gradually ongoing our be in strategic to will customer macro well

as in on in IFRS mentioned constraint the this talk temporary will XX remember pattern, future We'll we presentations. and more QX 'XX. of that impact that a As see previously, about

XXXX. Group on, on focus maintained has during Moving efficiency its the

this costs prior Slide ₤X.X XX. are X% more billion Let on me about on Operating year. up talk of

to, this associated BAU costs combined and with includes we broadly investment, with As stable the costs, our new guided planned businesses. higher

XX.X% ratio as Our on leading. of market QX income previous can quarters. ratio the excluding slightly remediation the income And remains XX.X%, see cost than cost is which you slide, is better

additional We to We maintain the compensation are in cost respect to offset inflationary of from absorbing management. obviously inflation approach payment tried rigorous ₤XX including not immune staff. one-off in million we pressures, but of our colleague to QX

₤X.X expenses As billion. continue operating to circa expect a XXXX be result, we to

million on respect in of ₤XX pre-existing remediation, of There the a in half of programs. Finally, number is charge the albeit outcome Reading, uncertain. HBOS remains the no HX reflects charge final in

an Going expect ongoing to million to remediation million ₤XXX forward, ₤XXX continue cost we of year. per

at low of with charge of economic benign. is underlying pre-pandemic and impairment asset points. in scenarios. The strong then remain impairment million story impairment on arrears asset levels. that Looking to of an have release ₤XX of charges of ₤XXX remains ₤XX basis in Behind now ₤XXX includes retail ratio quality in XX of HX our Slide million to XX. underlying equates million number, We ₤XXX The The net new quality below and commercial. of updated a respect in charge a million charges charge million

weaker economic base case a alongside GDP include unemployment and inflation. higher Our slightly forecast assumptions new

took last in impacts ₤XXX this, charges Against assumptions, includes so the at living and in increased inflationary is top cost of modeled As and This part and retail we of ₤XX on both of of commercial year. judgments, by the million economic and million. the impact other in of the centrally that end provisions the of million both quarter, judgmental the of the COVID-related ₤XXX area. This million includes related second about the reduced our is COVID ₤XXX within the overlays and in retain reflecting ₤XXX central portfolios. within ECL, of risks that released therefore ₤XXX million overlay. We this we million half net

of end result vigilant inflation, billion, performance and remains economic ₤X.X around HX than of In a is rising at higher we at ₤X.X performing assumptions, any the Group well-positioned. but the from ECLs stock of stable As and for impacts summary, remain remain our billion XXXX. well

As quality than now points expect basis asset a be the XX less net we ratio for XXXX. result, to

of XX on, our I'll resilience portfolio. Moving to the at and retail Slide turn look

we're difficulty]. earlier, said of on potential Charlie [technical As of customers very our aware the impact

approach we most limited those have outlined, risk. to as our risk low means However, exposure also segments at

indeed were customers are to meaningful We seeing signs seeking support proactively of distress. not but required, are we

As regular card you travel middle means. Credit can from seeing as is see income led are but benign customers XX% our now in Furthermore, Around and the is of spend minimum and hold our of and the on It's proportion XXXX. expenditure stable. up segments, retail up, within card that credit stable discretionary chart, we're spending are customers sign payers is sectors picking another XX% around entertainment. in performance. arrears such high businesses it seeing from very by their

asset know, is you mortgages, high a quality portfolio. largest is which exposure to our As risk low

greater now homes. of The have movements, customers significant with X.X% in Our balances an our at XX.X%. ratio now We an means book of than has favorable ₤XXX of and or mortgage greater and LTV LTV that equity of XX%. billion a X% price just in an of lot derisking undertaken recent years average their loan-to-value balances than alongside XX% house of stands have

revolving stable and Let me we're with facility credit at RCF around commercial XX seeing environment. the in Within commercial, Slide the performing to portfolio levels. now of and our peak trends corporate current consider is XXXX overdraft utilization drawings SME XX% turn how

into levels Across all of current unit, We pre-pandemic XX% undertaken has [indiscernible] greater cover transfer of is risk again are support judgments given X.Xx. have macro stringent our also caps exposure exposure we levels. an see than years. below significantly has sector stable XX%, low account onto or business derisked been our just The have and commercial, of strict taking watchlist recent net an interest transfers on average based have into estate, the while clients real recent XX%. our and this portfolios outlook. business in work. Indeed, impairment of is ₤XX.X commercial transactions. after Average reviews than of LTV LTV greater billion In

high lending vigilant making course, Currently, with portfolios. levels Of stress of security. our customers of strongly, signs remain we for discretionary performing are across choices very

XX below at let the look items. on, to Slide to the turn Moving me briefly line

costs by costs, early implemented unwind are relating the FX to given in restructuring line integration Volatility changes acquisition booked usual at reporting and intended, costs M&A by underlying volatility ₤XX statutory driven charge movements, also converging. profit and and recent and includes Embark. purchased the the offset the limited intangibles. million Following HX of integration. year-end year as half the includes and includes banking insurance negative The comprising the of below The of fair rates favorable partly It amortization volatility value include rates.

year ₤X.X tangible comparative above of prior current cost represent capital. of on includes return well and PAT HX the Given for PBT significant billion financial tax impairment period performance. of our XX.X%, resulting credits, The and is strong equity billion, ₤X.X statutory both

the from by that assets. improved but in word percentage flow benefit impairment in do occur contribution and XX.X reserve attributable the point share which half. now be quick A XX%. movements of distributions. pence to expect from reserve, this for was under hedge pence cash a we movements to future the per outlook, cash The X we this tangible on TNAV of RoTE was not years. just down noting X.X outweighed XXXX includes was flow in in net circa It's strong, hedge and the worth income profit expect Given

effect no As you capital. is know cash hedge movements interest movement and the rate flow on to linked has reserve

previously. billion portfolio Underlying at by generation and ₤XXX is the on excluding down ₤XX in lending capital optimization. Capital we Slide looking more Xst the assets model of first weighted Now RWAs of developments set turning ongoing offset are strong. the and growth been during regulatory billion of of XX ₤X inflation billion, HX half and risk reductions to year. the out than January has that

RWAs credit in have seen increase no We migration. from

Looking given expected forward, sheet by RWAs to continued XXXX we ₤XXX optimization. around balance continue closing billion, offset broadly be to expect growth,

at capital in million business, total, healthy basis the XXX profitability points capital RWAs. lower supplemented of by This rises. generation, in a strong dividends Looking half In the from from the interest generation was, further by is was ₤XXX as the benefiting insurance banking performance. bolstered said, rate

in mentioned for our remaining enabled has to contribution pension capital full significant make interim Board fixed around XXXX to last last million The an contributions. the contribution of complete. performance year. There the enables of X.X As of quarter, prospects the announce is share, pence ₤XXX strength XX% the generation make Group of year. second half pension accelerated The will the Group's variable now be and to the on per dividend up

capital year-end to further as will As appropriate. returns, committed distributions and we remain we at always, the consider excess

XXX to Looking of Group finally, has performance be date, excess strong a capital based expect And up margin in in our whole In the to generation a basis forward of and interest XXXX XX%, net to and by on HX points. for business turning we points. macroeconomic now performance as basis the supported net model Slide delivered income XX. XXX summary, with outlook,

tangible per equity AQR in levels our in on remains build good dividend factors these points sustainable with reflect interim return looking shape. a increased basis difficulty] basis [technical X.X And forward. of to enable the of The capital XXX progressive and quality pence of line XX new points outcome. very and arrears dividend sustained of is XX.X% and policy. The resilience Asset of a significantly in share, half together, first strong low

could to relating cost particularly living customers. increased on the persist, and uncertainties impact As have of this the

We in is points. ratio circa comments than basis be equity the return enhanced XX the morning. our interest points, the This XXX points, to be to and XX% of quality faces asset expect to generation with confidence. for than basis more margin Group XXXX. That wraps the excess However, basis tangible net future reflected this on my guidance in capital the be be now up less to XXX

listening. for you thank So

Let hand to me remarks. his for now Charlie back closing

Charlie Nunn

William. Thanks,

today. to I as there I So five take you upfront, key messages said are away that want

First, the our we on purpose increased with line cost in Prosper, supporting living. our of Helping proactively of and clear Britain focused are colleagues with customers

However, continued financial a momentum investment our the in uncertainties and business the vast adapting heard financial customers are with environment, the benign resilience. in from based strong guidance and majority you've We've is economic to asset confident increased franchise as first delivered enhanced we half Whilst are demonstrating there the the are and for are changing growth. and in clearly just environment, improved operating XXXX, upon of future performance quality. have William. This our income,

to the listening. will delivery, Q&A. our now the declare Our early finally, financial and Board this the performance alongside portfolios has for operator interim to That future. enabled the I increased resilient for an hand Group back for signs our concludes strategic you financial our dividend. performance, And our well of position for presentation Thank morning.

Operator

Joseph comes [Operator Jefferies. Our today ahead. Dickerson Please Instructions] question first go from of

is line open. Your

Joseph Dickerson

good and from numbers. Hi, taking I set of guess, very you question side. things morning, for strong congratulations my gentlemen. on Thank two a just my

impact if first Could Thanks. And some it that pass-through seems card year's into around just in the was in what guidance, some then all? is that. You've at some sensitivity interest a this then meaningful just of the there of you in XX% the year QX us view? explain for with to gauge where half slightly say, we've or, backward-looking rate the provided sensitivities been and on mix the like on margin could NIM that Group that how the favorable commentary side. you've be mean I secondly, factored terms with retail mentioned, on

William Chalmers

both those. I of perhaps Yes. will Thank you, take Joe.

pass-on. in to question relation The first

usual assumption XX%. sensitivities the to sensitivities, idea As our in of you -- number you aware, today base we've as of some say, you're accompany parallel shift give rates. in as to provided illustrative case use The We and the some that added in sensitivity market base an pass-on there. effect is

interest break We have in given typically that to typically any we than again, a half material around illustration is during there or but the XX% given quarter. of income don't rather margin, don't point what operated X The way thereabout. which reduction a can but will or to a at to difference makes is we makes exactly and interest that pass-on And NIM. you pass-on effectively we've reduction disclose see in pattern today, net levels I by XX% our indeed XX% both pass-on below is of basis in that difference ₤XX million, first half, that think a

gives some calibration. it So of you idea

those has than it we somewhat determined less in factors. the we the And two is the that don't slides. three of the the the we see practice in XX% two that market, have pass-on One sheet. is disclose case competitive While that is position specifics, seen that funding been really illustration in first conditions that is the is half generally overall balance or by in

aware, great and we're is, is, XX%. making you're a we around offer importantly, operating ratio And of value. our most loan-to-deposit customers for and sure franchise great that As three service our

we constraints. to seek So satisfy those three

rates i.e., in the XX% the use I in that will said, the in see slides. we've our as suspect levels planning back see that illustration. ahead, I As are that by we gravitate operating assumptions, way, the at which, first the towards that above levels rise, of below actually, XX% typically illustration been you slightly half, gradually we the

the that's Joe, So first question.

mix which over of is seen at terms variety QX a tailwinds composition. is that in We've XXX. points as the see of of our you've on points of XX and that in basis couple impact QX What is, improvement of In an impact I've XXX, of made. headwinds the a cards, margin margin, in

that's support. front [ph] at of with slightly So maturities and high funding slightly lower the as hedge the rate offset by rates And interest to then start moves capital headwinds some mature mortgage base we've seen higher into bank and alive margins. the benefits yielding book investing yielding

look [technical those little to mortgage interest base see the a we and in support As are bit. The difficulty] little forward, hedge going deployment dynamics will headwind rate changes, sense shift a we'll continue the to that of bank from a likewise, favorable bit strengthen rate environment.

expansion the our far slightly no that led that of less so is group expansion interest-bearing we've has You beneficial about There's be margin. To likely doubt asked about balances. cards. clear, be seen an and specifically to to been transactor cards

relatively seen, that these a continue, of travel example, increased has spending those for restaurant cards at within effect balances to expenditure, beneficial book, that entertainment if clearly, and interest-bearing this lead continue the will modest. indeed the increase if over summer, development to course accrue see we date the we've But so business. and And increased been within the patents of patterns mix that favorable

i.e., We in of my the the mentioned comments, that to the remainder context how gradual to as improvement, in card evolves, for see obviously, year. the balances have this in macro, expect of we increases see, I but

Joseph Dickerson

helpful. Many That’s thanks. Great.

So interpret extent, just to loan a already word, equal, second else material the for card of of it's terms if the top optionality on it's up lack the a to question, answer does pick all in on of you've what basically better guide. provided

William Chalmers

basis XXX guidance Well greater of points we've support assumed unsecured planning a business generally our increase year. balances is our in assumptions, margin a level turn, to than the That, in of Joe. in for lend gradual

of or Group margin. on beneficial Overall, So some effect and beyond. exceeds it more then less takes albeit yes, element expectations, it effect place, balances assumed there's the upon above the that's margin the where there, will If expectation. depending it have increasing those

Joseph Dickerson

Thank very much. Fantastic. you

William Chalmers

Thank you, Joe.

Operator

Keenan ahead. question will of come next from Suisse. Please Our Credit Omar go

Your line is open.

Omar Keenan

got please. you Thank the questions, taking everybody. morning, two Good for questions. I've

one RoTE NIM. and on on one target the So

I has high above to guide appreciate gone strategy target. from RoTE, it's bps, on too firstly, said the So now rates to XXXX initiatives to near-term the are strategic quite XXX deliver base incremental still the XXXX. another if XXXX early X%. X since assuming the XX% And by And stays to XX day, then above XX%. the NIM the I level, But at becomes XXX simplistically, supposed bps NIM target, update you of add a presumably, around

really So the current of sustained, question and year NIM. the in rates sustainability the rate XXXX are of full will is for? correct XX. it 'XX terms on higher it the picture XX second you're my results, XX be that and And for in XX broadly is that And looking if then and waiting

bps, bit strong think shift hike XX seeing presumably like yet. bit appreciate So lot do but seeing as Thank mix favorable? going the still savings in was indication of you an are not forward that the deposit about to points, on that better And XXX you. a it like we're three guidance, the in pass-through broadly that was I Bank level can a to XX don't currently next the give And will accounts. or we variables of if us a delivered points and Is see basis what to interest give you've X mix deposit a we think shift capital week, quarter, from was start of of you and about to basis you what rate quarter. deposit pricing, looking current it? presumably, talked delivered funding the England is

William Chalmers

Yes. questions RoTE, one Omar. on there, The one Thank on you, NIM. two

all, across XX RoTE will out set then, rises significant market course mean presentation, forward and expect when continue comment and know, put the expectations, played I play RoTE rate rates, through of over base And we greater know, HX, I question. over have you of since than indeed of the as been, expectations. including market have developments our significant a the First in essence, on XXXX we the as in February also those course interest in the There we you the in of to them increases beyond. HX to significant through in business XX%.

at indeed, of said base context low. net impairment that for changes beneficial in of pretty the I there terms today, out that the benign and to rates other as and experience. stay lease many improvements are margin, as net market beyond. are income Albeit depreciation, continues impairment also When And bank those of impacts a aspects some the continue we we rate seeing. trends look seen much year of planned. the example, interest see in to performance is business, mapping this to Operating in we of context So very lead sustained interest both we've

quarterly an of we of kind inclined if February or a stronger like. than to said having overall X all see picture that, our Now monthly XX, you not plan but basis, on update are we

year to look next and results the full announced that, which XX, in stronger market in assumptions take way is Safe that we the February So as now our income of the year. out. the we will than a was of is our it say panning context that out development set corresponding to is materially at when we

NIM, earlier half points, from on, development, seen in headwinds some of changes What benefits has as the hedge the deployment I rate a we -- base in terms bank have On on development NIM of of mentioned seen mortgages. one the couple the some and really. from

from see continuing we slightly tailwinds be in continuing look to margin. book and way yield And we high from into the their yielding out rates those forward, gradually the we lower favorable headwinds As intensifying as to see hedge and pay redeploys mortgages, book bank base front margins. is into the

of does know, is that what has points. three basis QX, you as points. So Two all or One XXX been mean?

dependent. bank of which, that you which of back going we our that significant margin this and Our depend looking summary in be in a higher activity improvement are than year versus terms of it to XXX. again, extent rate where margin the for margin, than is, to going XXth February. we pass-on to at to assumptions broadly if is on the XXX greater to year, higher degree, first of least look-forward at our expectations But is, is QX we of coming as HX were expect it moves guidance flat your see definition, into HX a question, upon therefore, the remainder given up, the a we base from part all sum of by is look to The

we've Omar, highlighted of impact that including It into balance we deposit the during in you savings inflows we've seen over on tilt PCA growth and in course the the continued accounts. terms In into savings, half, of course deposits be say, with of the year, But expect we into as pattern that first we see in half overall element that that your perhaps may time, indeed, there, question have you the is to seen a of to more so for current accounts seen mix of expect and of of that The the inflows the first albeit that sure. that again, savings expected twist. continue, this -- continued HX. some

Charlie Nunn

I cycles, view But kind thing, as has standard. think, the Omar. in William, going you the guidance towards always of Obviously, at we do the right, XX% from pass-through add or I tell on pass-through context level you not may around rates half. that's be we rate, that's been might may And normal based X% previous said it becomes head help But which gave base through-cycle us. XX% can it just to if was more a the different one on interest competitive first around this. that the a the

the assets to see time, tracking between obviously, liabilities Now think, all I we and happens will on this and in some pricing need what there's dynamics U.K. carefully. you're But that how it you to through-cycle typically to plays pricing around have will have see a we next basis seen but the XX more out. said, you would XX liabilities, normalized points as

Omar Keenan

That's great.

get assumes flat if XX% forward so sort going here just the from to that the of back NIM So understood I we right, pass-through?

William Chalmers

that said, as on, service the value see. pass-through than second as conditions, and that slightly we the the assumptions different, the to broadly of that date, NIM expectations I illustration need slightly as and we our pass-through flat To are ahead -- actually line have models less We are be course to, Omar. half. position I in It's customer with of earlier funding we of the the planning The our XX% said, for have business. the in the mentioned competitive give I actually, through

of half. to second during have course how the see will we get We on the

assumptions so that But ahead of than been in I said, as illustration. As above, below XX% i.e., it's the are said, the planning far. more

Omar Keenan

Okay, great. Thank you.

Operator

Please will ahead. take Jonathan of We go next from Pierce our Numis. question

Jonathan Pierce

there. Hello,

entered as you if developments QX margin, QX bit or been the and on quarter. okay. the XXX over margin basis presume the the above a course left given that's staying exit points of to Just have I must

behaves second whether wondering you a also in little to are So year. which as I'm playing to the extent bit the in half just the of down the the case margin

be forth, so maybe above on at down a XXX. mortgage indeed comments I understand give and on the can it bringing bit around intensifying can us level if QX what would that. earlier so back more your you somewhere color margin hearing headwinds But a exit maybe So little did

either question the likely risk political to not you of on pay question points, moment England XX the the where you're form maybe is Bank savings can base entirety experiencing at with the customers, the some interest-bearing in its more overnight really of put The of a increase even in accounts balances. XX, at on reserve or the of second broader overnight but rate then deposit pay fabulous basis some this to of rates, deciding that point to Bank XXX pressure points, at risk dynamic basis England

around this So of a in the you. broader Thank question moment. environment that at sustainability fantastic find you yourselves

William Chalmers

Jonathan. you, on will thank first one, and Charlie comment take Maybe Yes, the will I the second.

mentioned question. than expected over we the and which guidance XH. evident funding flat XXXX terms of which year. bit first mortgage that QX definition I implies That, that of earlier margin XH plays the was in margin the strength answer greater points, remainder the some turnover we HX. changes, a is greater into Headwinds, development turn, which help is quarter in XXX. and the be clear. HX capital way in your out of than benefits. of it the by Tailwinds rate hedge to our that in of margin this expect I going the In to on a about bank as said, reported of The is talked will greater broadly of be the basis deployment headwinds in base XXX tailwinds, than perhaps is

-- could impression upon margin you make a you if look back at so guidance. favorable if that, that what and look And at step

associated of assumptions. planning decisions with extent rate the that our pass-on below the base and is one think being I changes

end I as makes than said, that XX%, So and less If on more difference income both passing it margin. our up pass-on assumptions a are to than we planning we XX%. to

second the around mortgages. is think I point

We the comments, margin a performance QX. in that back said as say my now or of QX have rather in we're mortgages seen course bit. And interestingly, that over deterioration is in in margin seeing, our planning the little assumptions, application and the strengthening. I a up

ahead application completion where margins. margins now are in are We a position of

planning us And we're extent back favorable margin place. turn so income then that obviously that for net in headwind And -- that by net slightly and If in favorable dynamic that mortgages, a of on that pulling result interest the that HX more interest gets continues, in dynamic. more will is sorry, into diluted QX a outcome.

to further a then that that I that's guess, just And bad I've to subject around Jonathan. mortgage assumption. a the pass-on equation, subject But just So again, dynamic dynamic I plays that I planning made, into see think broadly think that varies point what made, flat that you I've not that. is

net where the and As said, were, rates. income combination benefits interest relatively margin. it's are base of net two interest better strengthening looking indeed, bank we powerful for and to back a certainly Those mortgage and margins picture of combination the

Charlie Nunn

question. Great. And your then, A few is obviously good on a question, thoughts. which Jonathan, broader

the we've is had can't government those topics. discussions but or England on of I with topics. those Bank discussions any be The not predict what of about any future, first the in not any had may we've

or you then we our about when for Banking looking which that think think just obviously, And is the are the about the Second over banking third levels very very proposition said, thing, we think doing. our banking NIM significantly and future NIM that's below I are still know important well levels it and savings worth Lloyds what which here will at then customers. for we're Group is context contextual, pre-COVID. thing, at thoughtful do time. the more is And as And how William the we are to NIM look guiding I government

our customers. tightened as last significantly time, living we the to from customers margins income We And know. two are the at months, the that's top that vast of of course, we that have deposits. other lending on our in it's continuing the of is And perspective, And deciles analysis around the are XX cost really look because important in the U.K. when with deposits of know wealth. thing not you grow the those a majority struggling terms at same over are the

know customers are not don't terms political in out we're a how a levels of us side politician. deposit perspective, we're value and the story. play side, I to certainly, high on Historically, then asset trusting for on bringing I'm and the of a value think, good the and I conversation is how customers at So no on to that's not from But going NIM this date.

Jonathan Pierce

sense. will that for you Yes, Thank that. makes

point? very I this sort front distribution quick economic bit outlook the the at regulatory have you check, uncertain to And given on on a any to resistance is one date? just from PRA sorry, Just all haven't encountered of can the follow-up

William Chalmers

none. No,

Jonathan Pierce

[Indiscernible]. a Thanks Okay. lot. Brilliant.

William Chalmers

Jonathan. Thank you,

Operator

you. Thank

ahead. We question next of will our Please take go Bank Rohith from of Chandra-Rajan America.

Rohith Chandra-Rajan

you. to Good morning. I'd like margin follow-up just I the again. -- Thank on Right. sorry,

comments far been just would clarify Your like so have to I helpful. them though, really I could. if

probably flat rises in basis rate that we half the that second of QX, got terms about In the to XX of of margins the through. had come half benefit of the still during the presume year QX versus I points you've still

in QX. those see we'd So

correctly, year full So And -- you're is, for XX%. think a the your XXX check assumes I points William, than I I comments a just understand wanted than if high then basis indicating that. pass-through greater to

it maturities But we that for there's question, appreciate benefits application are we basically the mortgage the credit sorry, I by go around the the those are the anticipating one correct. So said of that first better basis offset heavy on in that's being to terms back I mortgages? maintained And essentially saw And you're that's wanted So to you're you in points second what was or completion then quality. that assuming in Is seeing dynamics. half. just check spreads all XX the spreads deposit that margin QX? second repricing. you

some of you books scenario? scenario behind just for for, Is in credit at, IFRS pretty through walk are your example, been like mean clarity you ₤XXX that us that's I so wondered models been give far. mean, Thank so if very groups can million it downside how the And reserves, compared ₤XXX stresses on of I cost sounds and confident sort the thoroughly. arrived additional which customer So, the can have to it covered? whether sound on what quality. you. severe through you've I you million thinking living you

William Chalmers

Two the of in the what's assumptions margin on taken. Thank Two provisions are in Yes. living margin we of Rohith. the and credit the that on One, questions quality you, and we've making there. some cost guidance.

In the the mentioned dynamics within terms we see of that margin, the I've margin. though,

and are So planning Rohith, of on have your XXX, I won't assumptions go usual the we But to that through our XX. the Those that throughout those you too see XX% that in on the much that today. pass-through indeed greater again. can that deployed we we clarify pack plan are on in on when plan, gave have the we in turn, you slide than illustration question, guidance above February the show given we

of to accrue does that benefit see is you of i.e., below will levels, roughly million, equals see a in mean those equals numerical below the margin. then point So in And if planning we ₤XX that basis X from the part the benefit. the terms, reduction what that about levels, sensitivity, can NIM XX% as pass-on

the that you like calibrate changes. the get base the you rate context part you benefits So if from can the of lower within bank

said, through you changes we've progressively year. course seen this rate bank As of base the

see to the date. numbers the to the you'll and of those base the have numbers in benefit what is extent HX effectively they rate so changes accrued And that

to the of in alternatively of benefit accounts XX price accrue make be will with to flowed accounts. in that changes that To those account the been further and the forward, in And has so as base periods changes the Therefore, any or pricing that we play half. through extent check or have look changes into may we line accelerated, customer through thereafter. takes rate base decisions it out numbers we the June rate cost as into that extent to the do price second that delayed are which still into from benefits

of look assumption on XXX virtue in the about the mortgage XX, by lower which When said I points application the around is points were XX and basis to We course during of in is margins the you which completion XX as range. range, margins we first planning than the clearly we've You to plan. at the completion What spreads. saw the basis on quarter, back to of HX in the is quarter, XX seen basis we time, February margins second points but asked within saw that. below then

second As as as the swap more we've course over starting and the have market up number the go and seen quarter rational is has spreads relatively disciplined, two. of said, margins what become to number one; stabilized, application

those so And margins application have creep up. to started

Over they completion weeks, last have of the several started indeed exceed course the to margins.

range margins we look and margins within above the well the we the And so If are to in out application on application were adopted now we appear of XXth to be today, clock February. planning stop completion. the that market

effect powerful is and this which mentioned regime, upon And least, we a interest so beneficial the income has and for now, to base of changes aligned moment within mortgage have margin, our before, the planning combination pricing of net as range. I rate reasonably that at

as as you it's gone we know, that's down, stand Now be to and nonetheless, where up but that clear, today. of

the of margin we effectively QX. our application terms our during had plans, against plans saw it In as calibrated we market

And based course is June, below upon which XXX is the of that than are to of they application they as clear. where greater guidance were margins be during today, so

Rohith Chandra-Rajan

Okay.

Just a the into deposit than application of make baked mortgage in to QX. William, margin as got make sure the that to -- sure XX% the for I greater -- margins what's just and were year pass-through right, guidance sorry, they is

William Chalmers

right. That's right. That's

up be mindful of and exactly and down margins. we again, as been application within mind just for is, swap February relatively and is up we and gone Rohith. planning what down. application in to you two spreads One are bear just XX again, right. margins today, said as to And going stand our you that, points in have But have been volatile, they've know, Now here, assumptions

mentioned mortgages get that which margin too kind just in about and above we now The that being to completion the of not they're mortgage range, within maturing priced. the before second things XXX range away let's materially point that is, application with carried are priced were these were initially where of forget replaced XXX I mortgages at headwind, the disappearance is that

margin application starts the come improves, itself extent still headwind the will this there through But clearly, into beyond, margin market play up, as headwind our margins So a get that as is remainder mortgage that and place Rohith. of over diluted. year to in of the

Your into points second reserve. of credit in the question, Rohith, quality. number A living account cost taken of

As cost downside models is a the are ₤X.X is reserve said, know, of base and combination really the That into taking reserve through of now, right upside our environment. model ₤XXX billion the our cases developments context across cost living case as a inflationary ECL and because, account of in of built more you of living million. up the

of On in inflationary our modeled models overall that living combination naturally We some judgments, we of pressures some factors induced severe, to which that pressures. higher more weighting by have inflation. our ECL. those producing book also think has means might those And also areas exposed of a cost of high XX% which into the are in top inflationary the for taken turn we've a adjustment be take the that, account

so to customers, areas and may looked or example, of the for question, additional we've in sectors those an side that indebtedness, more for of in that with And book. two provision book are that talk have stresses higher potential at one context retail exposed through taken the of line appear we the your on

the retail view on side. that's a So sectorial

that thing real nominal have for adjust is second incomes. The we done

typically nominal have on our worked So incomes. models

real taken sorry, therefore, real the pressures real and that inflationary account model account We a a judgment of for to -- income variable adjusted taken switch. -- for nominal effectively factors, nominal to and have into

So book then we've element. more to commercial of our that's that the susceptible at pressure. at may to third sectors the And looked inflationary second element that carefully look the is be

specifically prices to ensure have feel judgment applied sector-by-sector So things with example, have account input that input context again, impact gone on things we of like of have potential example, like the a taken inflationary manufacturing and basis where, into where we agriculture, comfortable prices for for up, in up, the gone those. pressures those

say. taken last million, Some QX those ₤XX you of as year, at

taken of it further ₤XXX -- ₤XXX sum million taken I ₤XXX in think over million, was QX Just then as And we've inflation. for as of QX. million a

those have the inflationary ₤XXX add You up and within right in get three you we pressures to ECL million that the book for now.

Rohith Chandra-Rajan

you. Okay, thank

both stress? it there customer you be bases retail covers So corporate some your and might where think

William Chalmers

covering have Yes, It's both in Again, described, ways, covering I both retail right. deliberately as that's sectors. it's but and different commercial.

Rohith Chandra-Rajan

so both the COVID very total a currently ECL living management you've follow-up. requirement. models got just, place, could cost and that I if your And Thanks. of on the What of adjustments in quick top are

William Chalmers

for thanks that, the Rohith. on Yes, question

each take I In we the have and to that around talk through the you of more going judgments the of in those. will numbers about little a I'm areas judgment, terms of bit place,

seen. coronavirus two; in So we full for number limitations related, our three those. which one; have the stop given mortgages, adjust example, We short model number where interest-only related main areas of some like now, three, past essentially the inflation models picture, that or and for the number within is repositions things so-called we've right related, delayed ECL of judgment

take just over total coronavirus-related for provision. issues coronavirus-related is a through the those, total So right now shade you That's the each of coronavirus-related ₤XXX to provision million.

limitations million mentioned, integrated the actually million the ₤XXX that inflation in ₤XXX and by but are the models. applied overlay of Now including finally, described, ₤XXX periods. total, million The ₤XXX previous that's as from judgment, management of adjustments inflation ₤XXX adjustments, in And million that picture. remember that you'll is Rohith million judgments, about I central is the ₤XXX got, that We've into of then similar model is of million. those models. ECL, in remainder

but in of Again, default provisions. result correct we there's a forget is we as pass-through but judgment, coronavirus So the given are don't equals ₤XXX of that are the judgment, the million about results total three finally, a ₤XXX related total embedded coronavirus get the models, million it's million only, believe ₤XXX some those loss to of and limitations, components judgment. again, result, type the tweak in management a ₤XXX slightly ₤XXX million of Inflation, And don't that XXX. models. further forget assumptions judgments then model interest million

So gives you hopefully, picture. that a

Rohith Chandra-Rajan

Thank Yes. That’s you helpful. very very much.

William Chalmers

Thanks, Rohith.

Operator

Raul from of take our will next We Please ahead. go question JPMorgan. Sinha

Raul Sinha

Thanks questions. good much very two I’ve my please. for Hi, got taking morning. left,

then that next this it's and timing results longer fact the to interest the related in results, you And X% to is of distribution buyback to consider the might that, annual at is December I asset actually you fact year at to you And test more the you've capital. create the quality has probably Just your the first you've if talk from look just obviously, were seeing what stress of half. I be results had in if just that, the to William, was stress we might from risk-weighted book the Lloyd half for perspective. terms assumption, given very half that to the capital wouldn't year, no a asset cycle, where size current be PRA going year going delivered that of what first the pushed out end was wondering, risk its the given if I strong as consider second cyclicality the could wondering up into perspective about than you If potential rates of a from in across any capital of outlook think situation just or both generation -- being testing XXXX. have be full then. perhaps where higher delayed that an around as the good second in you're risks risk the not the Thank environment. by especially might if your question share you. there sort on

William Chalmers

for Charlie over you very the there. Thanks comment the will buyback question one your then and I on raised indeed first second will hand sure. for capital. make questions, I those take to much Yes, that Raul. question on

we of I to right of at basis over better of half Actually, performance out, one-offs strong couple capital, want pointed look been look to a the think, of with has XXX HX terms word. some this take a way of the first capital account When at the the In generation it, you points. remainder very is as comments. the year, at

points. RWA from fixed basis of And the contributions points. points. that from probably basis of tailwinds some during about XX first those have around pension seen basis we've volatility together half and So XX benefits Embark XX offset around consolidation made benefits two We've seen market we the some

that of off. kind So nets

contribution Part first insurance run we rates second capital picture Second from that don't is the the for in a and a we rate to in recurring insurance was saw point of more revert dividend driven. half. part, large the That half. see will

see impairments slightly probably you costs will ECL auto now, into second and if tend is the capital to a it's release. picture know, in as the pattern. sort the the forecasting investment point did, similar even Plus our to unlikely the the of normalize strong, And loss but expected we a second balance between half, contribution of will and Third follow repeat because core because, of we start softer weighted we're be to in result again, not And right banking benefit. half. a

take basis generation, greater still points. a point. is you very together, the than which capital of be guidance I than important if part confident softer for HX would then And the direction slightly leads that but greater us picture. that like, the the of say all an about XXX and put of to the that one-offs account out take a strong So you gives within

the about one through we an that business, Obviously we procyclicality. a that It's on. asked You keep important There's point. models deploy an range Raul. eye of

the you slightly a CRDX generally we other But important if an mortgage hand, pro-cyclical it piece, some example, are at for So developments the moving to have more the of point. through-the-cycle a look retail on stance. model,

Other bit more little movement bit retail, through-the-cycle elements of time. of basically upon a in So a point but founded a model. there,

and in stress that, the so therefore, And signs have migration as during it We would comment said, in on first half. course deterioration seen I the comfortable it. underlying that of of making credit a prime as book, no very we Now are seeing we're we book. the no see

movements a any movements. large any time, perhaps So are although anticipate in or significant sensitivity, I don't bit slightly and more models more we therefore, retail point other think

cycle. use to a on defaults, that are, we as you it also that Moving in is turn, therefore, more and given know, That, upon the means commercial, regulatory through foundation much describe built we IRB commercial, loss approach. means

mortgage By where a point respond in and billion leads we a which sensitivity, To gauge give the that, Final of book drop Hopefully might between gives XX% some how to on to we've to coronavirus the you like, idea the a expect basis know, it's do downturn, increase. if see point because to And effect ₤X.X scenario. on looked RWAs. so significant HPI commercial we base be do expect around limited serious if not RWA very with see And the those calibrate a to that it limited saw we think downturn commercial I in billion of you book quite much, our you again, commercial to that as so we books. here, because reasons. the we a even banking mortgage procyclicality limited made. expect, saw And which, during crisis FIRB crisis, a we procyclicality but very we downgrades, case very of we that this, such on way relationship, HPI Raul. if serious ₤X you in at

second A and couple know, this timing hand is on points over of of of buyback. year. ACS, question make, of you the to I'll Second Charlie. The then I'll as timing half

We the have not assumptions seen the ACS. for

in we very a the stress. ACS comment those. obviously But significant So you last we that know, passed Raul, on U.K.-focused can't

We a position capital of have, XX.X%. today, as strong you very know,

capital basis points. have, greater I said, of than strong as XXX very also We generation

distribution and everything So today, in hand upon will perhaps to the time, us there based seen But I to at Charlie. in we're excess context the I I the Board you've discussion. we deploying would dividend that And be capital know stop appropriate to decision growth an that today. subject would the thought expect of that have over

Charlie Nunn

I the CETX. reintroducing with nature William. the know PRA the think obviously context in I this we of guidance around The Yes. important agree that's don't in context. the of medium fully buffer is, thing countercyclical as said, you our stack capital know, X% William I'd the our and add Thanks, do term, our the is stress everything incorporated that yet. And XX.X% in only

potential right the what perspective. introducing at expect, discussion, Raul, stack that good full a partly around time I we of when the into confidence built we is environment, it be capital And X% in prudential ACS perspective their the feeds findings, for conclusion get economic think, that have management could the So I capital this will stack middle that to the softer it from give stage.

So committed we distributions are to as appropriate. are

medium-range end As X% has of already full at William is the CETX said, and in our buffer have make countercyclical we'll the we decisions the those Capital year. build target. XX.X% strong,

Raul Sinha

Got it. Thank you very much.

Charlie Nunn

Thank you, Raul.

Operator

Please We Cant of question go ahead. from Chris will take next our Autonomous.

Your line is open.

Christopher Cant

in probably morning. Slide your would parallel margin ₤XXX beta if XX% and imply sensitivity that, you booking of questions. to my ₤XXX Good billion, margin point billion. sensitivity to bps of interesting if sensitivity for reduction balances a help seemingly And on deposits. quite So XX, square bps come the each that ₤XXX me a assumed I the us to ₤XX ₤XXX just around beta deposits. the please? could disclosure that of taking XX XX sort within adds for hike, million given managed like million I about billion please, ₤XXX inputs. at roll million you've margin percentage the the Could back some for If hedge ₤XXX circle Thanks most shift more that would deposit a imply on XX of managed assume billion managed But pass-through of

on at those is that your mean, to on of Slide this? to ₤XXX I So other was Slide assumption question for XX if line least parallel And another the how it two change a million XX. really not million with about XX% NII I put my churn equal in within sensitivity, XX% is each -- struggling think shift way, just XX. beta sensitivity top should the a then ₤XX on hedge effect bps square statements shift beta how

terms hedge, noncurrent out balances? when back of And a go current increased you XX%. are higher, So about of to the the show balance the I you as you've into behaviors balances the your XXXX, account Obviously, rates assuming customer size think what move about structural account I your in go of of be back hedge progressively slide. for of it size XX% about sheet capacity. the if notional instance, would now on It's end of

hedgeable as you're is please? the anything, again, of if saying So sheet and balance behavior you. up you're the there assuming more growth the back Thank about go more current in accounts. because of rates what, But

William Chalmers

Thanks, that going I will that connected your particular in can you. to give first but Yes. the may I'll make with answer square you also you're to here IR, question, Chris. just any have they an team you numbers which the in sure through spreadsheet,

In terms of question, the to then into. more happy the go and second -- obviously, than

the hedge, terms a know, In that showing XXX sensitivity you the as of of different features. the is of number we're of composed on sensitivity

have you it the repricing XXX We cumulatively hedge of a modest place got of over hedge So you've we overall component gradually increases. more a component maturities as that first modest like, over if the but year, hedge roll, relatively time significant the takes then a relatively comes have lags, roll because obviously, that XXX. in time,

mentioned. or question, And the XX% contributes management, of contributes buffer, margin uninvested of buffer indeed, the to of goes XXX You then which reinvestment got XX%, XX% pass-on XXX. so the around overall the finally, that and your of part I around which that the then

on arrives million. those at you're sorry, what sensitivity, from is do -- more XX the just pass-on terms basis the by XX%, either when because increase the why And to I XX reduce you're essentially run to invested think a XX ₤XX deposits. you we in if XX% of sensitivity a what contribution that getting XX% the the point through, the modifications applied on you the that's -- seeing reason the pass

with. XXX, of as I the terms numbers on, familiar components the be In of are you will earlier mentioned those

So It's see to XX average applied as or points maturities on on combination the the average sorry, basis maturities we -- said, of the maturities to and of XXX. buffer to contributing, I forth. is XX year buffer, -- the applied structural course expect basis it's so around the The points. of so the hedge a XX% the over likewise, that that

you're So insensitive deposits the beyond we direct to particular is the to that, just that or you the that basis how ₤XX times compare rate worried structurally of points like, spreadsheets, Chris, if hedged to point simple about, but answer does the team take pass-on, interest XX%, the XX I'll you that XX% kind to that the times contribute million, have.

neutral you're relation precisely, that number ₤XXX to I as north by we're a think how to hedge. I indeed, the a And at progressed hedge mentioned given now. hedge. to deploy ₤XXX the roughly as slide, indicated the the as increase We're in seen had on off. bit the about but position sense easiest hedge chosen hedge, and it's We've little You at won't The billion. and have of not of answered within giving probably and Chris, developments XX, that, know, you Page The the market, question XXXX. in XXXX. right billion we've ₤XX how currently comment the it's far on of billion an that you in in of since you is capacity dynamics looking a

is probably from? of had. billion Where is our things. eligibility that answer deposits what increased It's relates activity ₤XX exposure I come deposit around So ₤XX from that is that existing question and of ₤XX One to come and that does is earlier think, I think your of I type where structural come we from come ₤XX of best deployed increase mentioned in since in where billion way we've the XXXX, X-X from? behavior. other that deposit the almost that deposits changes we've is to billion billion of two rest the seen the capacity of in The it, billion, hedge. increase deposit in to the on

you more like, side with the closely and looked are of on sure aspects the into have deposits to book, prior interest eligible we've hedge And managed, static, make we've including very come therefore, various the well. as existing going for less more rate commercial if better and we So worked buffers also previous those have XXXX, then in at looked forward, of to sensitive. that some the play and place

about remainder. of billion making sort ₤XX billion increase that from eligibility overall increase makeup billion roughly capacity the earlier billion of Further, taken of of that -- So ₤XX buffers ₤XX counting XX-ish prior in hedge I deposit on. and is in mentioned deposits up the

that to, you I increase note billion. you which, turn, for the roughly fact idea suppose, capacity, hedge during gives structural the allows XX that roughly in X gone that billion hedge the to buffer time billion to XX So from composition some of the of in has the

So this have of maturities the billion And structural we and we've tripled year. of billion ₤XX the year of next buffer. maturities ₤XX same the hedge size at time,

might gives significant any for All of we see. behavior us change that that flexibility deposit in

we deposits course, But context And that Now maturities hopefully, invest might And in prudently. over couple bear the that being prudence. gives that We that the years you tripled, of ultimately investing become we in don't followed next some comfort that of by We think the aggressive out. are. erring we billion think of will too we're plan the of in that we're think we really on side sensitive. of buffer our course, of billion, interest think a ₤XX behavior rate not we terms context of of the hedge. has don't ₤XX

Christopher Cant

Okay, with question. the on will I you. thanks, follow-up Thank first all. IR

William Chalmers

Chris. Thanks,

Operator

of We Please Paribas from Guy will question take go ahead. Stebbings Exane. our next BMP

Guy Stebbings

taking morning. good Hi, for questions. Thanks the

want don't little further just but wanted moving bit could of back we I think out. about guide margin. we you to beyond the I look as if parts to Firstly, to XXXX, a come know some

a just second historic I XXXX? rather is we or largely of the on much be more that headwind than you despite if case, helpful thinking how volumes of particular, year, So year. cards. book tailwinds looking might I we thinking next just talking to XXXX the in fade half terms then guess that to on there margin rolling consumer see about in you're perhaps with XXXX might further that interest work what of bit from growth and next in guess, spending sizable mortgage half to the into the in through tailwinds be much that should guess, at a data. of question mean sort I rate seems what flattish that and here was to I be that pricing, we a some should recent slight And rate concern NIM year given is discretionary second about headwind? confined the guiding some this to be as consumer the second mortgage beyond mean asset which comment how around could guidance, you're expected. that most than farther I the of sometimes spends I mean isn't the but

year. about consumer rates? So conviction second you. And on half I'm any which in levels have pipeline, Thank to has perhaps just your the on people Are lending as seeing lending, higher growth remarkably [indiscernible]? intrigued you of now in remained the slowdown this around mortgage reflect mortgage

William Chalmers

so thanks understood just I check first it question, you just much, again, On your Yes, properly. Would Guy. Guy? can question repeating first your I mind

Guy Stebbings

certainly. Yes,

guess which through your a flat we've I numbers, you're a value, tailwinds still people to of got questions given to you've even struck lot XXXX, big slightly So from the some But though second in work the half might rate of mortgage is face talking margin guidance, spreads. i.e., offset of on the coming say got conservatively.

is should of So which rate working that about still isolated the headwinds XXXX, tailwinds to just into we Thank those XXXX, maybe [indiscernible]? through of second some mortgage half to spread how or think you. understand the time at trying

William Chalmers

over one Yes, on on expecting general margin. will AIEAs I’ve got in then customer of I that the first it. trends Charlie behavior and comment make to are balances. Guy, you, on see and question hand Thank terms take will we I to

our I than the of picture, greater seeing XXX. margin terms as to In we Guy, said are increased guidance

up of we in the into remainder know. start mean course, that to half terms for that a mortgage headwinds hedge. through in of being QX that year. the terms headwind, benefits factor pass And HX some role about and and as the we components offsetting little deployment this a seeing a of is the I broadly will course increased this rise more an as the being of of of we get And that XXXX. XXXX, margin point, XXX, the continues is the beyond. the XXXX a into wrote It's that seeing and that with flat by of end of nature mortgage we rate of the because important base that, 'XX the talked probably most year of the the indeed translate bit of does second that year What term will during 'XX that QX headwind build That We inevitably, factor mortgages if that the you in of within of and starts to expect and effect. see, that of worst the mortgage go you the slightly like, of

as the that conversation, as at let's Now going nonetheless, that in addition today, seeing just of the to margins the rates to in are, also basis a written that is if don't type even margins [indiscernible] XXX and are replacing extent basis XX for that points improving, and stuff this that that half it make throughout is see out But we for they next couple XXX if discussing this forget we've not the second been XXXX. this to mortgage points, dilutive, say, that points of of year. stay was be we're of but year, XX -- headwind

be I gap of app a we still continued if said, could are So such diluted in the But reasonable moment. terms we as there's seeing as progress see there. rates, at

second hedge to two One already effects versus next year, as year. earnings 'XX. roles mentioned year are of in half progression we a now considerable hedge, this through the invested ₤XX note ₤XX ago, we've in deployment year of after terms is the built And fully indeed hedge, that I billion In we're of in of this year next versus but seeing hedge that there. second the the billion and

seeing stay And back as we now, hedge swap such we in So will rates then those roles as rates of place, at those take progression are they off benefit roles the invested are continued forward. from now. we have they earnings then go if what right as

progression of rate, We are hedge more into meaningful indeed expect year then at rise in And course going base got the rate of expecting those this earnings do X% we and So in of the the next a half this over finally, base factors, And too. are year. beyond. terms of second we end year. one of then

differ our of source also assumptions the net the assumptions, those planning that a how how support take as and see margin overall pass-on place context of income. in interest further or is will same the We the

So hand about on picture this hopefully, and one some beginning just year, of takes is say will play gives I to is the year margin a remains see we low you half AIEAs and be kind out gave as why at the leave the how sheet of I Guy, half the gives thereafter. year, which we idea, to but the this second as that to over expect flattish we Charlie which of second it that we place. we expect the guidance in will point, single-digit of balance to with

at intended of that to made not all. AIEAs, single-digit think the or different terribly It's the in to the don't change picture make probably we I that of that saw some -- first any would we've we low patterns comments So half.

Charlie Nunn

should and William. a will color bit Guy, away but Yes, That's definitely maybe thank of the take you macro but be theme, you, that helpful.

unsecured credit cards. in on Just

William couple points there. As of a said, key

XX% ability all, obviously, that's medium First spending debt. we're us income of of sustainability it that they important higher look at customers the when the of really if seeing and with for to into debt families. is spending sustainably those and manage converts we for have then And

why our there's card to that, first is you on in When believe So unpack things spending. space. couple we that's the some spending happening of that continued and that's a likely point, there be

at all, come stopping customers through. of when retail goods data look would the you of First the some which spending, are

stores So white XX% are XX% computers, actually goods, to department down year-on-year.

significantly down the they're actually of is and you pre-COVID. COVID. XXX% materially now it But then during -- spending up where As travel, all is up was know, all But services spending year-on-year. travel up is above went pubs, goods restaurants, year-on-year some

At fixed market demand happens, from, been you'll said, between meaningful however, have as and us talked that if mortgages. better in trying obvious, data, customers are X-year a shift color. houses going indicator there's baseline time, into looking have but already rates gives of different longer-term a the And seen rates. unless both that at still there's strong for hopefully a of but growth. that continue through shift in So to supply to helps half expect away spending you obviously remortgage and there's higher market, is the single-digit as we will a AIEA there's as you and a the all through William of mortgage mortgages. there's stronger how the a leading split like, what past, confidence, On that, there's a goods that the And will the materially mortgage in services, see we shift mortgages, X-year, There's been lock which XX-XX customers, gives means softening come about market through. again, into the have outlook. market one a Guy, on same obviously our we to important more in and of a second play dynamics to the towards in bit income

Guy Stebbings

Yes, you. that’s Thank helpful.

Operator

Goldman question take Please go will last today of Martin from Leitgeb our ahead. We Sachs.

Your line is open.

Martin Leitgeb

morning. good Yes,

your of Could in earlier on mortgage comments pricing. what view firstly, today. follow-up, is the I echo numbers improvement me let maybe recently? there the increase mortgage was any borrowers some you is with trying in broader in just mortgaging call pricing on driving trends the good Is on increase just going -- in traffic I to to secondly, in to? comments before a trends also rates? question. wondering think this seen rational Or the cost to income do terms all, any in have year. wondering to of of how Is either more are twice these terms rates anything we pricing out? just swap kind the there pricing the trying to fix attribute volumes if First of behavior guidance [Indiscernible] And this improved think participants just or in understand was impairments. going that offset offset guidance revised you or revenue upward potential I forward. of And the there a forward, about market more I'm

the when quality, compared laid say, So a XXXX. be on targets in make or reach much progression, to inflation terms this higher for has particularly to that this higher of higher. in early the mortgage the challenging it cost more cost out Does in you print your asset in so some year, XXXX XXXX come impairments, offset Could living of [indiscernible] Thank today from see you. cost income frame pricing, might squeeze. risk there target we

Charlie Nunn

Martin. Thanks,

let on one though the even 'XX -- are guiding to give not So 'XX, perspectives 'XX William of and and me then first impairments. costs we that to you take in some terms can --

own mortgage we've on can are of it just may around with organization. pricing, not stability this what that had some they a change just partly of So doing. some on volatility first perspective in And pricing. already our talked their recall, in was X and reflects own risk locked [indiscernible] only take we what swap in perspective to quarters, know through the the the on we previous more X their as know But adjust two change or curves. idiosyncratic community competitors X swap about of there our around are competitors on we an it think it's activity. We And group this risk. our you'll is calls with around a as to period on curves. because weeks don't rates We doing would have Obviously, that weeks lot their

been a of It's So we've period stability. had flatter.

declines therefore in some that going competitive were swap stabilized or more pricing there curve think normalized has we fact, In to recently. And in the context.

around as if context, just you share to on we we'll look forward. forward that equilibrium report able get then see you stable broadly with be think then to stability and we'll I a that this, in more more going

in we you'll in up additional expect quarter. X to market saw said, some months, take, start behavior the quarter as X I weeks down, thing more to or X to from seeing us. first see volatility adjust the you X or If the to pricing the think I second of One should we

right position that You and will think ourselves Second but we've hopefully, continued to we and rationally way this also share. have think question? a William, for value is the we see environment, very trade-off good price trying between through value been market price seen and you've making dynamic I customers, that. to And in

William Chalmers

Thanks, Thanks the Martin. question, for Charlie.

effect other on inflation and one You rather there's on add. effect or than and asked in costs -- the impairments, costs will about two points sorry, business, and its both the its I

portrayed I terms account in ECL on, earlier the taken impairment currently we have said of have picture, economics terms the as In have of of the them. as context in the of that the we we inflation

implies a this inflation higher importantly, As base year. peak which around a again QX of in also waiting at inflation of sees scenario, case, which it levels of you year. sees XX%, high on inflationary the this But implies later know, for severe XX% that

course the into And part we again, accounting retail the increased adjustment pressures much into assimilated inflationary around also space to ECL seeing that models and inflation And taken. post-model expectations we've those That the XXX we're in space. the have their comes in the within answer total the How through fed the commercial that those way incorporated on, that, as to both are back question also taken, within to of is the overall And the done? that the that then that which earlier So of component as way through feed have XXXX very is losses. inflation. for their adjustments been have ECL.

here we is post-model So XXX is overall, we've to including the are the downside within case that and provision contained ECL, ECL contains combination the scenario. see, severe the and that inflationary pressures coherent. model that including Those taken. Further have we within is of adjustments the point base the a inflationary which that models expect

those ECL. overall feed the And price the of our contained are asset coherent inflationary through so tendencies, and, for house into effect a of expectations within economics in price indices, fashion on example, again,

inflation indirect of the effects terms effect, direct its ECL. of in in imported is the turn that are coherent part of terms in inflation So its in model

if you provided with you that. how at to might of we assumptions as some back the idea ECL And the gives to sensitivities the that. then change expect Now can see clearly, the pack an that to respond hopefully, ECL change,

second the some inflation. inflation, we our of seeing it is component cost base, on, influencing how are Moving clearly

inflation. context in But we not at wage good are relationships context the of Where importantly, we are context it? are seeing in seeing We variable are compensation, you for seeing are the we the are We it know, of in as of the management. immune with suppliers. it cost pressures, seeing we

in have variable wages, built we existing expected we when expected look so And variables, those at our increases one, planned compensation. in into increase

supplier this this the around year unexpected certainty We third-party resort to some course matrix year management have finally, us take which inflation. gives next strong the in will again able there. that of which Likewise, coming pricing cost over next, to And ensuring also of and purchased with much long-term management that our our have and we we forward commitment suppliers. us from we then absorb of base matrix and for any for obviously in in supplier ways effectively are terms increases agreements contracts, into energy lock

prior this of on For types cost confidence to BAU pensions employees in hedged. -- for turn year, with delivery that by very plan management. doubt on plan? to on Final we cost XXXX. for our example, virtue the will I'm took in we our cost commitments delivering be on on to no and our or compensation absorb inflation again, commitments, say are largely the the of which really we And effect room of earlier asked is were question ₤X,XXX that is point our is sometimes shocks us line Pensions about compensation in Martin. around able that years, of gives there those what

hedged. that basis, on you an protected increasingly accounting impact we've sure actuarial And it there on an we or if that inflation largely at are look very basis indeed, making So the of is surprised been effect funding inflation. we see this as of so of at the the going the for deficits by end the we not year forward approach are we round or that taken unawares

We are that on have. of top we existing locking in those effectively the hedges

of So that in as stand answer And we there. the important. quality economic account increasingly I And of as taken will the short indeed turn, base that assumptions But stand finally, becomes of management is in that account That, our expectations then that taken change them. of and clearly, our the context as cost change, inflation taking judgments the the of asset inflation today. of our towards that. end and inflation look our account then in is stop is will are the is taken we pension adopt we've we account today, we But perhaps we commitment. with for Martin, if year,

Martin Leitgeb

Thank you. Thanks very much, William.

William Chalmers

Thank you, Martin.

Operator

for scheduled the allotted have end XX call reached this is know, you the we now minutes and As of time.

the question morning. have So for this this last is time we

please If Investor you further team. questions, the contact any Relations Lloyds' have

William Chalmers

just will to for say joining. thank we So you everybody

caught that, you the for thank morning. appreciate everybody, Sorry, Thank whether in know end business. the saying tail you I interest I and just appreciate much. of joining We don't but I this your very was you, questions, the

Charlie Nunn

you. Thank

Operator

This concludes today's call.

on review For the of website. to you you participating. the for Lloyds Banking Thank for replay is event, Group this those available wishing information

Lloyds Banking (LYG) 27 Jul 222022 Q2 Earnings call transcript