– Over £1 billion of strategic investment in the last three years
Tackling financial crime, bribery and corruption We can ensure optimum security levels for customers because we consistently invest in the best technologies, processes and training for colleagues. We’ve invested £157 million since 2011 to improve IT security, with a focus on state-of-the-art control and protection technologies.
For us, ‘best bank’ means doing business honestly and ethically, in ways that benefit our customers, colleagues, communities, other stakeholders and the environment.
Emissions in tonnes CO2e in line with a recognised carbon accounting standard.
– Clear customer accountabilities for colleagues, with rewards driven off customer-centric metrics.
Banking volatility reported below underlying profit in the Lloyds Banking Group results.
Following the transfer of employees from employment with Lloyds Banking Group companies to TSB Bank, the defined benefit scheme assets and liabilities have been derecognised from the TSB Bank balance sheet and settled with nil cash consideration, resulting in a one off gain of £64 million. This is eliminated at Lloyds Banking Group level.
– provide specialist knowledge and experience to the Board; – are responsible for the successful leadership and management of the Risk and Finance divisions; – design, develop and implement strategic plans; and
In accordance with the articles of association, the AGM is held in Scotland, usually in May, with attendance of between 350 to 500 shareholders, members of the media and other guests and observers. For those unable to attend, the AGM is broadcast live through the internet with a recording being made available on our website.
An annual control effectiveness review (CER) is undertaken to evaluate the effectiveness of the Group’s control framework with regard to its material risks, and to ensure management actions are in place to address key gaps or weaknesses in the control framework. Business areas and head office functions assess the controls in place to address all material risk exposures across all risk types. The CER considers all material controls, including financial, operational and compliance controls. Members of senior management complete an attestation to confirm the CER findings which are reviewed and independently challenged by the Risk Division and Group Audit and reported to the Board. Action plans are implemented to address any control deficiencies.
The British Bankers’ Association Code for Financial Reporting Disclosure The Group has adopted the British Bankers’ Association’s Code for Financial Reporting Disclosure and its 2014 financial statements have been prepared in compliance with its principles.
Remuneration The Committee reviewed, ahead of the Remuneration Committee, the internal independent control function’s risk assessments of the Group and its divisions, to ensure that the remuneration awards proposed clearly consider the observance of risk appetite and demonstration of appropriate risk management.
We therefore reviewed our variable pay plans during 2014 to ensure that they are designed to motivate the delivery of our key strategic objectives, including the Helping Britain Prosper Plan and our responsible business goals. In this way, they support a performance-orientated culture and reward long-term sustainable performance, as well as building an environment in which colleague conduct and trust from customers are paramount.
We believe these measures capture risk management and profit growth and appropriately align management and shareholder interests.
– Positive performance in Risk Appetite status, material regulatory breaches and audit actions, although delivery of regulatory change programmes has been challenging. – Stress testing within appetite.
HISTORICAL TOTAL SHAREHOLDER RETURN (TSR) PERFORMANCE The chart below shows the historical TSR of Lloyds Banking Group plc compared with the FTSE 100 as required by the regulations, rebased as at 31 December 2008. The FTSE 100 index has been chosen as it is a widely recognised equity index of which Lloyds Banking Group plc has been a constituent throughout this period.
– Deferred bonus awarded in 2014 Bonus is deferred into shares. The face value of the share awards in respect of bonuses granted in March 2014 was £1.7 million (2,155,227 shares) for the GCE; £910,000 (1,153,680 shares) for the CFO; and £860,000 (1,090,290 shares) for the CRO. The share price used to calculate face value is the average price over the five days prior to grant (17 March to 21 March 2014), which was 78.878 pence.
Each risk driver is described and managed using the following standard headings: definition, appetite, exposures, measurement, mitigation and monitoring.
Exposures relating to the default fund of a central counterparty and credit valuation adjustments are included in Credit Risk and Counterparty Credit Risk respectively for the purposes of this table.
Ring Fencing and Resolution planning UK Ring Fencing legislation and Resolution planning continue to influence the Group’s business and operating model and could impact the ability to, and cost of, servicing customers effectively.
Evolving capital requirements The regulatory capital framework continues to be developed and there is a risk that this will give rise to higher regulatory capital requirements than the Group has anticipated within its strategic plans. Developments are being made at a global level through the FSB and Basel Committee, at a European level mainly through the issuance of CRD IV technical standards and guidelines and within the UK by the PRA and through directions from the FPC.
Risk management in the business Line management is directly accountable for identifying and managing any risks inherent or consequential in their individual businesses. A key objective is to ensure that business decisions strike an appropriate balance between risk and reward, consistent with the Group’s risk appetite.
Credit risk oversight within Risk Division is also undertaken by independent Credit Risk Oversight functions operating within Retail and Consumer Credit Risk and Commercial Banking which are part of the Group’s second line of defence. Its primary objective is to provide reasonable and independent oversight that credit risk is being managed with appropriate and effective controls. Oversight is executed through a combination of standard and non-standard reviews. Group Audit performs third line of credit risk assurance.
In addition the Group has Buy-to-let interest only balances of £47,761 million (2013: £44,978 million) and certain other interest only balances of £4,153 million (2013: £4,669 million).
Measurement Operational risk is managed within a Board approved framework and risk appetite, as set out above. A variety of measures are used such as: scoring of potential risks, using impact and likelihood, with impact thresholds aligned to the risk appetite statements above; assessment of the effectiveness of controls; monitoring of events and losses by size, business unit and internal risk categories.
Monitoring Monitoring and reporting is undertaken at Board, Group and business area committees, in accordance with delegated limits of authority which are regularly reviewed and refreshed. Business unit risk exposure is aggregated and discussed at the monthly Group Operational Risk Committee, and matters are escalated to the Chief Risk Officer, or higher committees, if appropriate. A combination of systems, monthly reports from business areas, and oversight and challenge from the Risk Division; audit; and assurance teams ensures that key risks are regularly presented and debated by an executive audience.
For the Banking Group, the liquidity risk appetite covers a range of metrics considered key to maintaining a strong liquidity and funding position, with regular reporting to GALCO and the Board. Strict criteria and limits are in place to ensure central bank cash and highly liquid marketable securities are available as part of the portfolio of liquid assets. Risk appetite is a key element of the annual Group planning process with risk appetite defined over the life of the funding plan.
Table 1.45: On balance sheet encumbered and unencumbered assets Unencumbered – can be used Unencumbered – cannot be used Total assets
Capital position at 31 December 2014 The Group’s capital position as at 31 December 2014 is presented in the following section applying CRD IV transitional arrangements, as implemented in the UK by PRA policy statement PS7/13, and also on a fully loaded CRD IV basis.
Risk appetite The Group’s people risk appetite and corresponding measures enable the Group to lead responsibly and proficiently, manage people resource effectively, support and develop colleague talent, and meet legal and regulatory obligations related to its people.
Notes to the parent company financial statements 325 1. Accounting policies 2. Deferred tax asset 3. Amounts due from subsidiaries 4. Share capital, share premium and other equity instruments 5. Other reserves 6. Retained profits 7. Subordinated liabilities 8. Debt securities in issue 9. Related party transactions 10. Financial instruments 11. Other information
The Chancellor’s autumn statement in December 2014 proposes to restrict to 50 per cent the amount of banks’ profits than can be offset by carried forward tax losses for the purposes of calculating corporation tax liabilities. We obtained management’s analysis of the impact this will have on the utilisation period and the disclosures they have made, deeming them to be reasonable.
(L) EMPLOYEE BENEFITS Short‑term employee benefits, such as salaries, paid absences, performance‑based cash awards and social security costs are recognised over the period in which the employees provide the related services.
Total net gains arising on assets and liabilities held at fair value through profit or loss 8,546 15,775 14,313
Audits of the unconsolidated Open Ended Investment Companies managed by the Group 0.4 0.5 0.8
Hedged forecast cash flows expected to occur: Hedged forecast cash flows affect profit or loss: There were no transactions for which cash flow hedge accounting had to be ceased in 2014 or 2013 as a result of the highly probable cash flows no longer being expected to occur.
Included in the amounts reported above are deposits of £260,129 million (2013: £258,384 million) which are protected under the UK Financial Services Compensation Scheme.
Income statement charge (note 13): Due to change in UK corporation tax rate and related impacts (24) (594)
Metric has been adjusted to include mature mailings only. Future response rates are expected to be lower than experienced to date as mailings to higher risk customers have been prioritised. The sensitivity has reduced from the half year as the higher risk population continues to decrease.
Exchange offer in respect of Enhanced Capital Notes (notes 9 and 46) (4,961) –
Total Enhanced Capital Notes 3,683 8,938 a Interest is payable quarterly in arrears at a rate of 3 month Euribor plus 3.1 per cent per annum.
If complaints per 1,000 customers average 1.3 per annum or less over three years, 100 per cent of this element will vest.
If non‑core assets amount to £37 billion or less, 25 per cent of this element of the award, being the threshold, will vest.
NOTE 48: SHARE-BASED PAYMENTS (CONTINUED) (vii) First Time Buyer Lending: relevant to 5 per cent of the award. Performance will be measured against percentage market shares based on Council of Mortgage Lenders Volumes data. Calculated as three point average of year‑end positions over the three year period ending 31 December 2016.
If the percentage market share reaches 20 per cent, 25 per cent of this element will vest.
Following the default of a number of deposit takers in 2008, the FSCS borrowed funds from HM Treasury to meet the compensation costs for customers of those firms. At the end of the latest FSCS scheme year (31 March 2014), the principal balance outstanding on these loans was £16,591 million (31 March 2013: £17,246 million). Although the substantial majority of this loan will be repaid from funds the FSCS receives from asset sales, surplus cash flow or other recoveries in relation to the assets of the firms that defaulted, any shortfall will be funded by deposit‑taking participants of the FSCS. The amount of future levies payable by the Group depends on a number of factors including the amounts recovered by the FSCS from asset sales, the Group’s participation in the deposit‑taking market at 31 December, the level of protected deposits and the population of deposit‑taking participants.
Loans and receivables: Loans and advances to banks 26,155 26,031 25,365 25,296
Gains recognised in the income statement, within other income, relating to the change in fair value of those assets held at 31 December 2014 547 – 547
Repos included in above amounts: Deposits from banks 1,075 – 1,075 –
Offset items comprise deposit amounts available for offset and amounts available for offset under master netting arrangements that do not meet the criteria under IAS 32 to enable loans and advances and derivative assets respectively to be presented net of these balances in the financial statements.
NOTE 54: FINANCIAL RISK MANAGEMENT (CONTINUED) Debt securities, treasury and other bills held at fair value through profit or loss An analysis of the Group’s trading and other financial assets at fair value through profit or loss is included in note 15. The credit quality of the Group’s debt securities, treasury and other bills held at fair value through profit or loss is set out below: Investment grade1 £m
Other assets held at fair value through profit or loss: Other public sector securities 2,183 – – 2,183
Customer deposits Included in customer deposits in 2013 were deposits held as collateral for facilities granted, with a carrying value of £2,978 million and a fair value of £3,114 million. In addition, collateral balances in the form of cash provided in respect of repurchase agreements amounted to £6 million (2013: £416 million).
Forbearance identification and classification All non‑retail loans and advances in Commercial Banking and Run‑off Divisions are reviewed at least annually by the independent Risk Division. As part of the Group’s long established Credit Risk Classification system for commercial customers, every loan and advance in the good book is categorised as either ‘good’ or ‘watchlist’.
The principal amount for undated subordinated liabilities with no redemption option is included within the over five years column; interest of approximately £80 million (2013: £85 million) per annum which is payable in respect of those instruments for as long as they remain in issue is not included beyond five years.