Run‑off: Corporate real estate, other corporate and Specialist Finance At 31 December 2014, £1,998 million (31 December 2013: £12,051 million, restated following a reassessment of the unimpaired exposure breakdown) of total loans and advances were forborne of which £1,912 million (31 December 2013: £9,499 million) were impaired. The coverage ratio for forborne loans increased from 32.2 per cent at 31 December 2013 to 58.3 per cent at 31 December 2014.
NOTE 54: FINANCIAL RISK MANAGEMENT (CONTINUED) Impaired loans and advances The movements in Run‑off corporate real estate, other corporate and Specialist Finance impaired forborne loans and advances were as follows: £m
Unimpaired loans and advances Unimpaired forborne loans and advances were £86 million at 31 December 2014 (31 December 2013: £2,552 million, restated). The Group previously assumed that all lower quality unimpaired exposures under £5 million were forborne, as were a number of non‑material portfolios. As part of the Group’s ongoing review and refinement of forbearance reporting, exposures below £5 million, and non‑ material portfolios, were subject to more granular review which led to a reduction in the level of forbearance previously reported.
The reduction also related to unimpaired loans and advances over £5 million and reflects the curing of a limited number of high value transactions where forbearance was granted some time ago and the obligor is no longer considered in financial difficulty.
LIQUIDITY RISK Liquidity risk is defined as the risk that the Group has insufficient financial resources to meet its commitments as they fall due, or can only secure them at excessive cost. Liquidity risk is managed through a series of measures, tests and reports that are primarily based on contractual maturity. The Group carries out monthly stress testing of its liquidity position against a range of scenarios, including those prescribed by the PRA. The Group’s liquidity risk appetite is also calibrated against a number of stressed liquidity metrics.
Loans and advances to customers 20,072 11,026 10,860 10,216 11,332 27,292 80,257 311,649 482,704
Cash and balances at central banks 49,823 5 78 – – – – 9 49,915
Loans and advances to customers 32,677 6,720 9,699 10,269 11,886 25,191 56,156 340,354 492,952
Liabilities arising from non‑participating investment contracts 17,136 – – – – 17,136
Trading and other financial liabilities at fair value through profit or loss 18,811 9,906 4,416 7,382 3,616 44,131
For insurance and participating investment contracts which are neither unit‑linked nor in the Group’s with‑profit funds, in particular annuity liabilities, the aim is to invest in assets such that the cash flows on investments match those on the projected future liabilities.
Up to 1 month £m 1‑3 months £m 3‑6 months £m 6‑9 months £m 9‑12 months £m 1‑3 years £m 3‑5 years £m
INSURANCE RISK Insurance risk is the risk of reductions in earnings, capital and/or value, through financial or reputational loss, due to fluctuations in the timing, frequency and severity of insured/underwritten events and to fluctuations in the timing and amount of claim settlements. This includes fluctuations in profits due to customer behaviour.
Share of post‑tax results of associates and joint ventures (32) (43) (28)
Liabilities arising from insurance contracts and participating investment contracts – (451) –
(iii) in September 2014, the Group disposed of a further 11.5 per cent for a consideration of £160 million, after directly attributable costs of £1 million.
NOTE 57: FUTURE ACCOUNTING DEVELOPMENTS The following pronouncements may have a significant effect on the Group’s financial statements but are not applicable for the year ending 31 December 2014 and have not been applied in preparing these financial statements. Save as disclosed below, the full impact of these accounting changes is being assessed by the Group.
Fair value and exchange adjustments and other non-cash items 1,118 137 245
Lloyds Banking Group Annual Report and Accounts 2014 325BECOMING THE BEST BANK FOR CUSTOMERS
NOTE 4: SHARE CAPITAL, SHARE PREMIUM AND OTHER EQUITY INSTRUMENTS Details of the Company’s share capital, share premium account and other equity instruments are as set out in notes 42, 43 and 46 to the consolidated financial statements.
Total subordinated liabilities 1,688 1,669 a Further information regarding these issues can be found in note 41 to the consolidated financial statements.
NOTE 8: DEBT SECURITIES IN ISSUE These comprise US$862.5 million 7.75% Public Income Notes due 2050 issued by the Company in July 2010.
Percentage of equity share capital and voting rights held Nature of business
In November 2009, as part of the restructuring plan that was a requirement for European Commission approval of state aid received by the Group, Lloyds Banking Group agreed to suspend the payment of coupons and dividends on certain of the Group’s preference shares and preferred securities for the two year period from 31 January 2010 to 31 January 2012. The Group also agreed to temporarily suspend and/or waive dividend payments on certain preference shares which have been issued intra group. Consequently, in accordance with the terms of some of these instruments, subsidiaries could have been prevented from making dividend payments on ordinary shares during this period. In addition, certain subsidiary companies currently have insufficient distributable reserves to make dividend payments.
Note 51 to the consolidated financial statements outlines the valuation hierarchy into which financial instruments measured at fair value are categorised.
NOTE 10: FINANCIAL INSTRUMENTS (CONTINUED) VALUATION HIERARCHY The table below analyses the assets and liabilities of the Company. With the exception of derivatives all assets and liabilities are held at amortised cost. They are categorised into levels 1 to 3 based on the degree to which their fair value is observable.
The carrying amount of cash and cash equivalents is a reasonable approximation of fair value.
ANNUAL GENERAL MEETING (AGM) The AGM will be held at the Edinburgh International Conference Centre, The Exchange, Edinburgh EH3 8EE on Thursday 14 May 2015 at 11.00 am. Further details about the meeting, including the proposed resolutions, can be found in our Notice of AGM which will be available shortly on our website at www.lloydsbankinggroup.com
Despite changes to regulations which remove the requirement to issue interim management statements, Lloyds Banking Group still intends to issue these reports in May and October.
AMERICAN DEPOSITARY RECEIPTS (ADRs) Our shares are traded in the USA through a New York Stock Exchange-listed sponsored ADR facility with The Bank of New York Mellon as the depositary. The ADRs are traded on the New York Stock Exchange under the symbol LYG. The CUSIP number is 539439109 and the ratio of ADRs to ordinary shares is 1:4.
ANALYSIS OF SHAREHOLDERS At 31 December 2014 Share Number of ordinary shares
Funding risk The risk that the Group does not have sufficiently stable and diverse sources of funding or the funding structure is inefficient.
13 Explain how risk-weighted assets (RWAs) relate to business activities and related risks. 109, 157-158, Pillar 3 14 Present a table showing the capital requirements for each method used for calculating RWAs for each Basel asset class. Pillar 3 15 Tabulate credit risk for Basel asset classes. Pillar 3 16 Present a flow statement that reconciles movements in RWAs for the period for each RWA risk type. 158 17 Provide narrative putting Basel Pillar 3 back-testing requirements into context. Pillar 3
REGISTERED OFFICE The Mound Edinburgh EH1 1YZ Registered in Scotland no SC95000