Q3 2022 Interim Management Statement
27 October 2022
RESULTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2022
“In February we announced an ambitious new strategy. While the operating environment has changed significantly since then, our customer focus remains unchanged. We continue to execute against our strategic goals, based on our objectives of transforming the business, while generating a stronger growth trajectory and enabling the Group to deliver higher, more sustainable returns.
Our income growth, balance sheet momentum and resilient customer franchise have enabled the Group to deliver a robust financial performance and strong capital generation, alongside updated guidance for 2022.
The current environment is concerning for many people and we are committed to maintaining support for our customers. The Group’s resilient business model and prudent approach to risk position the Group well to face the current macroeconomic uncertainties while generating enhanced returns for our shareholders.”
Charlie Nunn, Group Chief Executive
Robust financial results with resilient credit performance and continued business momentum
• Maintaining support for customers and progressing strategic priorities with significant strategic investment
• Supporting the transition to a low carbon economy; announced new sector-based 2030 emissions reduction targets and a new net zero ambition for our supply chain in our Net Zero Activity Update1
• Statutory profit after tax of £4.0 billion (nine months to 30 September 2021: £5.5 billion), with higher net income more than offset by impairment charges as a result of the revised economic outlook (versus a significant write-back in 2021)
• Robust revenue growth supported by continued recovery in customer activity and UK Bank Rate changes. Net income of £13.0 billion, up 12 per cent; higher net interest and other income and continued low operating lease depreciation
• Underlying net interest income up 15 per cent, significantly driven by a stronger banking net interest margin of 2.84 per cent year to date (2.98 per cent in the third quarter)
• Operating costs of £6.4 billion, up 6 per cent compared to the first nine months of 2021, reflecting stable business-as-usual costs alongside higher planned strategic investment and new businesses
• Underlying profit before impairment up 29 per cent to £6.5 billion in the period (with £2.4 billion in the third quarter), as a result of robust net income growth
• Observed asset quality remains strong and the portfolio is well-positioned in the context of cost of living pressures. Underlying impairment of £1.0 billion (of which £0.7 billion was recognised in the third quarter) reflects a resilient observed credit performance, but impacted by the weakening economic outlook and associated scenarios in the third quarter, partially offset by COVID-19 releases
Continued franchise growth and strong capital generation
• Loans and advances to customers at £456.3 billion were up £7.7 billion in the first nine months and up £0.2 billion in the quarter, with continued growth in the open mortgage book
• Customer deposits of £484.3 billion were up £8.0 billion in the first nine months and £6.1 billion in the quarter. Loan to deposit ratio of 94 per cent continues to provide robust funding and liquidity and potential for growth
• Capital generation of 191 basis points2 in the first nine months based on robust banking performance and including the Insurance dividend paid in July 2022
• CET1 ratio of 15.0 per cent after ordinary dividend and variable pension contributions, remaining well ahead of the ongoing target of c.12.5 per cent, plus a management buffer of c.1 per cent. Commitment to consider excess capital returns as usual at year-end
Outlook
Given the robust financial performance in the first nine months of 2022 and incorporating revised macroeconomic forecasts in the third quarter, the Group is updating its 2022 guidance:
• Banking net interest margin now expected to be greater than 290 basis points
• Operating costs expected to be c.£8.8 billion
• Asset quality ratio now expected to be c.30 basis points
• Return on tangible equity expected to be c.13 per cent
• Risk-weighted assets at the end of 2022 expected to be c.£210 billion
• Capital generation now expected to be between 225 and 250 basis points2
1 The Net Zero Activity Update can be found at www.lloydsbankinggroup.com/investors/esg-information.html.
2 Excluding regulatory changes on 1 January 2022, ordinary dividend and variable pension contributions.