DGAP-News: Lloyds Banking Group PLC: 2019 Annual Report and Accounts
DGAP-News: Lloyds Banking Group PLC
/ Key word(s): Annual Results
20 February 2020 LLOYDS BANKING GROUP PLC - ANNUAL REPORT AND ACCOUNTS In accordance with Listing Rule 9.6.1, Lloyds Banking Group plc has submitted today the following document to the National Storage Mechanism. - Annual Report and Accounts 2019 This document will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM A copy of the Annual Report and Accounts 2019 is available through the 'Investors & Performance' section of our website www.lloydsbankinggroup.com This announcement also contains additional information for the purposes of compliance with the Disclosure Guidance and Transparency Rules, including principal risk factors, details of related party transactions and a responsibility statement. This information is extracted, in full unedited text, from the Annual Report and Accounts 2019 (the 'Annual Report'). References to page numbers and notes to the accounts made in the following Appendices, refer to page numbers and notes to the accounts in the Annual Report. The 2019 Results News Release made on 20 February 2019 contained a condensed set of financial statements, the Group Chief Executive's statement and the Chief Financial Officer's review. -END- For further information: Investor Relations Corporate Affairs FORWARD LOOKING STATEMENTS This document contains certain forward looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as amended, and section 27A of the US Securities Act of 1933, as amended, with respect to the business, strategy, plans and/or results of Lloyds Banking Group plc together with its subsidiaries (the Group) and its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about the Group's or its directors' and/or management's beliefs and expectations, are forward looking statements. Words such as 'believes', 'anticipates', 'estimates', 'expects', 'intends', 'aims', 'potential', 'will', 'would', 'could', 'considered', 'likely', 'estimate' and variations of these words and similar future or conditional expressions are intended to identify forward looking statements but are not the exclusive means of identifying such statements. Examples of such forward looking statements include, but are not limited to: projections or expectations of the Group's future financial position including profit attributable to shareholders, provisions, economic profit, dividends, capital structure, portfolios, net interest margin, capital ratios, liquidity, risk-weighted assets (RWAs), expenditures or any other financial items or ratios; litigation, regulatory and governmental investigations; the Group's future financial performance; the level and extent of future impairments and write-downs; statements of plans, objectives or goals of the Group or its management including in respect of statements about the future business and economic environments in the UK and elsewhere including, but not limited to, future trends in interest rates, foreign exchange rates, credit and equity market levels and demographic developments; statements about competition, regulation, disposals and consolidation or technological developments in the financial services industry; and statements of assumptions underlying such statements. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend upon circumstances that will or may occur in the future. Factors that could cause actual business, strategy, plans and/or results (including but not limited to the payment of dividends) to differ materially from forward looking statements made by the Group or on its behalf include, but are not limited to: general economic and business conditions in the UK and internationally; market related trends and developments; fluctuations in interest rates, inflation, exchange rates, stock markets and currencies; any impact of the transition from IBORs to alternative reference rates; the ability to access sufficient sources of capital, liquidity and funding when required; changes to the Group's credit ratings; the ability to derive cost savings and other benefits including, but without limitation as a result of any acquisitions, disposals and other strategic transactions; the ability to achieve strategic objectives; changing customer behaviour including consumer spending, saving and borrowing habits; changes to borrower or counterparty credit quality; concentration of financial exposure; management and monitoring of conduct risk; instability in the global financial markets, including Eurozone instability, instability as a result of uncertainty surrounding the exit by the UK from the European Union (EU) and as a result of such exit and the potential for other countries to exit the EU or the Eurozone and the impact of any sovereign credit rating downgrade or other sovereign financial issues; political instability including as a result of any UK general election; technological changes and risks to the security of IT and operational infrastructure, systems, data and information resulting from increased threat of cyber and other attacks; natural, pandemic and other disasters, adverse weather and similar contingencies outside the Group's control; inadequate or failed internal or external processes or systems; acts of war, other acts of hostility, terrorist acts and responses to those acts, geopolitical, pandemic or other such events; risks relating to climate change; changes in laws, regulations, practices and accounting standards or taxation, including as a result of the exit by the UK from the EU, or a further possible referendum on Scottish independence; changes to regulatory capital or liquidity requirements and similar contingencies outside the Group's control; the policies, decisions and actions of governmental or regulatory authorities or courts in the UK, the EU, the US or elsewhere including the implementation and interpretation of key legislation and regulation together with any resulting impact on the future structure of the Group; the ability to attract and retain senior management and other employees and meet its diversity objectives; actions or omissions by the Group's directors, management or employees including industrial action; changes to the Group's post-retirement defined benefit scheme obligations; the extent of any future impairment charges or write-downs caused by, but not limited to, depressed asset valuations, market disruptions and illiquid markets; the value and effectiveness of any credit protection purchased by the Group; the inability to hedge certain risks economically; the adequacy of loss reserves; the actions of competitors, including non-bank financial services, lending companies and digital innovators and disruptive technologies; and exposure to regulatory or competition scrutiny, legal, regulatory or competition proceedings, investigations or complaints. Please refer to the latest Annual Report or Form 20-F filed by Lloyds Banking Group plc with the US Securities and Exchange Commission for a discussion of certain factors and risks together with examples of forward looking statements. Lloyds Banking Group may also make or disclose written and/or oral forward looking statements in reports filed with or furnished to the US Securities and Exchange Commission, Lloyds Banking Group annual reviews, half-year announcements, proxy statements, offering circulars, prospectuses, press releases and other written materials and in oral statements made by the directors, officers or employees of Lloyds Banking Group to third parties, including financial analysts. Except as required by any applicable law or regulation, the forward looking statements contained in this document are made as of today's date, and the Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this document to reflect any change in the Group's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. The information, statements and opinions contained in this document do not constitute a public offer under any applicable law or an offer to sell any securities or financial instruments or any advice or recommendation with respect to such securities or financial instruments. Appendix 1 - Principal risks and uncertainties Principal risks and uncertainties are reported regularly to the Board Risk Committee. Change / execution, data and operational resilience have been elevated from existing risks to principal risks during 2019, and strategic added as a new principal risk. New - Change / Execution Example Risk Appetite Mitigation - Continued focus on strengthening the control environment, maturation of the change policy and associated policies and procedures, which set out the principles and key controls that apply across the business and are aligned to the Group risk appetite. Senior Management continue to drive improvements to Change and Execution Risk metrics, in particular those affecting customers and colleagues. - Businesses assess the potential impacts of undertaking any change activity on their ability to execute effectively, and the potential consequences for the existing risk profiles. Further detail on principal risk, including mitigation on page 139. Alignment to strategic priorities and future focus: New principal risk New - Data Example Risk Appetite Mitigation - Significant investment has been made to enhance the maturity of data risk management in recent years. - In addition to the General Data Protection programme which delivered the necessary infrastructure to achieve compliance with the new regulations in May 2018, a number of other large investments have been made. Further detail on principal risk, including mitigation on page 139. Alignment to strategic priorities and future focus: - The quality of the data that the Group holds and the choices we make in how it is used is a key strategic enabler to future business growth, delivering a leading customer experience and Helping Britain Prosper. - We recognise that lawful, fair and transparent collection and appropriate use of data, is critical to delivering a leading customer experience and maintaining trust across the wider industry. - Internal programmes ensure that data is used correctly, and the control environment is regularly assessed through both internal and third-party testing. New principal risk New - Operational Resilience Example Risk Appetite Mitigation Further detail on principal risk, including mitigation on page 140. Alignment to strategic priorities and future focus: - End-to-end resilience of our critical processes is a key strategic priority and the Group operational resilience programmes continue to invest in improving our control environment and resilience. We continue to exercise, test and improve our resilience through scenario testing as well as learning from real events (those impacting ourselves but also those impacting others) through understanding the root cause. - We recognise the importance of the Group's operational resilience to our customers, markets and the wider financial sector. New principal risk New - Strategic Example - The financial services sector operates in evolving regulatory and competitive environment with an increased pace, scale and complexity of change which creates a risk to the Group's strategic plans. - Shareholder expectations continue to evolve potentially impacting the Group's role in society. - Greater competition for specialist skill sets (such as data science and engineering), alongside demographic challenges in the working population, may result in a skills shortage impacting delivery of key strategic initiatives. Risk Appetite Mitigation Further detail on principal risk, including mitigation on page 141. Alignment to strategic priorities and future focus: New principal risk Credit Example Risk Appetite Mitigation - Prudent, through the cycle credit principles, risk policies and appetite statements. - Robust models and controls. Further detail on principal risk, including mitigation on page 142. Alignment to strategic priorities and future focus: - We seek to support sustainable growth in our targeted segments. We have a conservative and well-balanced credit portfolio, managed through the economic cycle and supported by strong credit portfolio management. - We are committed to better addressing our customers' banking needs through consistent, fair and responsible credit risk decisions, aligned to customers' circumstances, whilst staying within prudent risk appetite. - Portfolios have benefitted from relatively favourable economic conditions and a prolonged period of low interest rates. Underlying impairments remain below long-term level, but are expected to increase as impairments normalise. Key risk indicators 1.8% Regulatory and Legal Example Risk Appetite Mitigation - Group policies and procedures set out the principles and key controls that should apply across the business which are aligned to the Group risk appetite. - Business units identify, assess and implement policy and regulatory requirements and establish local controls, processes, procedures and resources to ensure appropriate governance and compliance. Further detail on principal risk, including mitigation on page 162. Alignment to strategic priorities and future focus: - We are committed to operating sustainably and responsibly, and commit significant resource and expense to ensure we meet our legal and regulatory obligations. - We respond as appropriate to impending legislation, regulation and associated consultations and participate in industry bodies. We continue to be proactive in responding to significant ongoing and new legislation, regulation and court proceedings.
Example Risk Appetite Mitigation - Simplified and enhanced conduct policies and procedures in place to ensure appropriate controls and processes that deliver fair customer outcomes, and support market integrity and competition requirements. - Active engagement with regulatory bodies and other stakeholders to develop understanding of concerns related to customer treatment, effective competition and market integrity, to ensure that the Group's strategic conduct focus continues to meet evolving stakeholder expectations. Further detail on principal risk, including mitigation on page 163. Alignment to strategic priorities and future focus: - As we transform our business, minimising conduct risk is critical to achieving our strategic goals and meeting regulatory standards. - We have senior committees that ensure our focus on embedding a customer-centric culture and delivering fair outcomes across the Group. Our conduct risk framework continues to support this through robust and effective management. This supports our vision of being the best bank for customers, enabling the delivery of a leading customer experience through effective root cause analysis and learning from customer feedback. Operational Example Risk Appetite Mitigation - The Group continues to review and invest in its control environment to ensure it addresses the inherent risks faced. - The Group employs a range of risk management strategies, including: avoidance, mitigation, transfer (including insurance) and acceptance. Further detail on principal risk, including mitigation on page 164. Alignment to strategic priorities and future focus: People Example Risk Appetite Mitigation - Focusing on leadership and colleague engagement, through delivery of strategies to attract, retain and develop high calibre people together with implementation of rigorous succession planning. - Continued focus on the Group's culture by developing and delivering initiatives that reinforce the appropriate behaviours which generate the best possible long-term outcomes for customers and colleagues. Further detail on principal risk, including mitigation on page 165. Example Risk Appetite Mitigation - General Insurance exposure to accumulations of risk and possible catastrophes is mitigated by reinsurance arrangements broadly spread over different reinsurers. - Insurance processes on underwriting, claims management, pricing and product design. Further detail on principal risk, including mitigation on page 166. Alignment to strategic priorities and future focus: - We are committed to meeting the changing needs of customers by working to provide a range of insurance products via multiple channels. The focus is on delivering a leading customer experience by helping customers protect themselves today whilst preparing for a secure financial future. - Strategic growth initiatives within Insurance are developed and managed in line with a defined risk appetite, aligned to the Group risk appetite and strategy. Key risk indicators £671m Capital Example - A worsening macroeconomic environment could lead to adverse financial performance, which could deplete capital resources and/ or increase capital requirements due to a deterioration in customers' creditworthiness. - Alternatively a shortage of capital could arise from an increase in the amount of capital that needs to be held. Risk Appetite Mitigation - The Group has a capital management framework that includes the setting of capital risk appetite. - The Group maintains a recovery plan which sets out a range of potential mitigating actions that could be taken in response to a stress. Further detail on principal risk, including mitigation on page 167. Alignment to strategic priorities and future focus: Key risk indicators 5.2%1 Example Risk Appetite Mitigation - The Group manages and monitors liquidity risks and ensures that liquidity risk management systems and arrangements are adequate with regard to the internal risk appetite, Group strategy and regulatory requirements. - The Group's funding and liquidity position is underpinned by its significant customer deposit base, and is supported by strong relationships across customer segments. Further detail on principal risk, including mitigation on page 175. Alignment to strategic priorities and future focus: - We maintain a strong funding position in line with our low risk strategy, and the loan to deposit ratio remains within our target range. - Our funding position allows us to grow targeted business segments, and better address our customers' needs Key risk indicators 107% Governance Examples - Inadequate or complex governance arrangements to address ring-fencing requirements and the potential impact of EU exit could result in a weaker control environment, delays in decision making and lack of clear accountability. - Non-compliance with, or breaches of SMCR requirements could result in lack of clear accountability, and legal and regulatory consequences. Risk Appetite Mitigation - Defining individual and collective accountabilities for risk management, risk oversight and risk assurance through a three lines of defence model which supports the discharge of responsibilities to customers, shareholders and regulators. - Outlining governance arrangements which articulate the enterprise-wide approach to risk management. Further detail on principal risk, including mitigation on page 181. Alignment to strategic priorities and future focus: - Ring-fencing ensures that we are safer and continue to deliver a leading customer experience by providing further protection to core retail and SME deposits, increasing transparency of our operations and facilitating the options available in resolution. - Our governance framework and strong culture of ownership and accountability enabled effective, on time, compliance with the SMCR requirements and enable us to demonstrate clear accountability for decisions. Market Examples - Earnings are impacted by our ability to forecast and model customer behaviour accurately and establish appropriate hedging strategies. - The Insurance business is exposed indirectly to equity risk through the value of future management charges on policyholder funds. Credit spread and interest rate risk within the Insurance business primarily arises from bonds and loans used to back annuities. - Narrowing credit spreads will increase the cost of pension scheme benefits. Risk Appetite Mitigation - Structural hedge programmes implemented to manage liability margins and margin compression. - Equity and credit spread risks are closely monitored and, where appropriate, asset and liability matching is undertaken. - The Group's defined benefit pension schemes continue to monitor their credit allocation as well as the hedges in place against nominal rate and inflation movements. Further detail on principal risk, including mitigation on page 183. Alignment to strategic priorities and future focus: - We actively manage our exposure to movements in market rates, to drive lower volatility earnings and offer a comprehensive customer proposition with hedging strategies to support strategic aims. Mitigating actions are implemented to reduce the impact of market movements, resulting in a more stable capital position. - Effective interest rate and inflation hedging has kept volatility in the Group's defined benefit pension schemes low. This combined with improved market conditions has helped keep the schemes in IAS 19 surplus in 2019. This allows us to more efficiently utilise available capital resources. Key risk indicators Model Example: Risk Appetite Mitigation Further detail on principal risk, including mitigation on page 187. Alignment to strategic priorities and future focus:
Note 47: Related party transactions The table below details, on an aggregated basis, key management personnel compensation:
The tables below detail, on an aggregated basis, balances outstanding at the year end and related income and expense, together with information relating to other transactions between the Group and its key management personnel:
The loans are on both a secured and unsecured basis and are expected to be settled in cash. The loans attracted interest rates of between 6.45 per cent and 24.20 per cent in 2019 (2018: 6.70 per cent and 24.20 per cent; 2017: 6.45 per cent and 23.95 per cent) . No provisions have been recognised in respect of loans given to key management personnel (2018 and 2017: £nil) .
Deposits placed by key management personnel attracted interest rates of up to 3.0 per cent (2018: 3.5 per cent; 2017: 4.0 per cent) . At 31 December 2019, the Group did not provide any guarantees in respect of key management personnel (2018 and 2017: none) . At 31 December 2019, transactions, arrangements and agreements entered into by the Group's banking subsidiaries with directors and connected persons included amounts outstanding in respect of loans and credit card transactions of £0.6 million with four directors and two connected persons (2018: £0.5 million with three directors and three connected persons; 2017: £0.01 million with three directors and two connected persons) . Subsidiaries In addition to the above balances, the Group has a number of other associates held by its venture capital business that it accounts for at fair value through profit or loss. At 31 December 2019, these companies had total assets of approximately £4,761 million (2018: £4,091 million) , total liabilities of approximately £5,322 million (2018: £4,616 million) and for the year ended 31 December 2019 had turnover of approximately £4,286 million (2018: £4,522 million) and made a loss of approximately £190 million (2018: net loss of £125 million). In addition, the Group has provided £1,266 million (2018: £1,141 million) of financing to these companies on which it received £86 million (2018: £49 million) of interest income in the year. As discussed in note 23, in October 2019, the Group established a wealth management joint venture with Schroders. The Group subsequently transferred approximately £12 billion of managed assets at fair value. Statement of directors' responsibilities The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company A copy of the financial statements is placed on our website at www.lloydsbankinggroup.com/investors/financial-performance. The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Each of the current Directors who are in office as at the date of this report, and whose names and functions are listed on pages 66 to 67 of this annual report, confirm that, to the best of his or her knowledge: - the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and Group; and; - the management report contained in the strategic report and the Directors' report includes a fair review of the development and performance of the business and the position of the Company and the Group together with a description of the principal risks and uncertainties they face. The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy. The Directors have also separately reviewed and approved the strategic report. This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
20.02.2020 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG. |
Language: | English |
Company: | Lloyds Banking Group PLC |
Gresham Street | |
EC2V 7HN London | |
United Kingdom | |
Phone: | 020 7626 1500 |
Internet: | www.lloydsbankinggroup.com |
ISIN: | GB0008706128 |
WKN: | 871784 |
Listed: | Regulated Unofficial Market in Berlin, Dusseldorf, Frankfurt, Hamburg, Hanover, Munich, Stuttgart, Tradegate Exchange; London, BX, SIX |
EQS News ID: | 979645 |
End of News | DGAP News Service |
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979645 20.02.2020
Lloyds Banking Group Stock
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