Operating expenses excluding the impact of acquisitions and the netting of operating lease depreciation (see page 31), were flat at £4,580 million.
UK current account fee income rose by £6 million, reversing the downward trend experienced in recent years; a £37 million increase in fee income from added value current accounts more than offset a reduction in service charges and unauthorised borrowing and other fees.
The Group has dedicated standards, policies and procedures to control and monitor credit and related risks. Examples of the way in which such risks are measured include: Group Rating System – all business units are required to operate an authorised rating system that complies with the Group’s standard methodology.
To further enhance the ability to measure and predict future risk, the Group continues to develop new policies and risk management systems.
– Provision of lending guidelines. These define the responsibilities for lending officers and provide a disciplined and focused benchmark for credit decisions.
– Continuous review and improvement of all aspects of operational risk management to reflect developments in industry best practice and regulatory requirements, e.g. the New Basel Accord.
– A six-monthly update on the Group’s Aggregate Change Plan is provided to the Board.
Corporate social responsibility Lloyds TSB adopts a responsible attitude to Social, Environmental and Ethical (SEE) issues, and publishes a separate annual information pack on its role in the community, its code of business conduct and its environmental performance: ‘the community and our business’ (see page 93 for details).
Non-executive directors do not have service agreements and, in accordance with the articles of association, their appointment may be terminated at any time without compensation.
Lloyds TSB recognises that executive directors may be invited to become non-executive directors of other companies and that such appointments can broaden their knowledge and experience, to the benefit of the Group. Fees are normally retained by the individual director, as the post entails personal responsibility on their part. Directors are generally allowed to accept one such appointment.
Shareplan Amounts shown are those receivable by directors in respect of the Group’s ‘shareplan’. Under the scheme, employees received an award equal to 3 per cent of salary in 2002. A maximum of £3,000 is receivable in shares for those eligible, with any balance paid in cash.
The executive directors are all members of one of the defined benefit schemes provided by the Lloyds TSB Group. Those directors who joined the Group after 1 June 1989 have pensions provided on salary in excess of the earnings cap either through membership of a Funded Unapproved Retirement Benefits
Derivatives used in the Group’s non-trading activities are taken out to reduce exposures to fluctuations in interest and exchange rates and include exchange rate forwards and futures, currency swaps together with interest rate swaps, forward rate agreements and options. These derivatives are accounted for in the same way as the underlying items which they are hedging. Interest receipts and payments on hedging interest derivatives are included in the profit and loss account so as to match the interest payable or receivable on the hedged item.
Following Government changes recently announced in respect of employee benefit trusts the future benefit to the tax charge from this source will be less.
Provisions for bad and doubtful debts* (1,766) (1,466) Interest held in suspense* (57) (70)
The Group has interests in a number of entities which, although they do not meet the legal definition of a subsidiary, give rise to benefits that are in substance no different from those that would arise if those entities were subsidiaries. As a consequence, these entities are consolidated in the same way as if they were subsidiaries.
Following the publication, in December 2001, of the Association of British Insurers’ detailed guidance for the preparation of figures using the achieved profits method of accounting the Group has reviewed the way in which economic assumptions are set for the purposes of the embedded value calculations. The guidance requires that the assumptions should be reviewed at each reporting date. In order to comply with this guidance, and achieve greater comparability with other major insurers, the Group has adopted this approach.