LLOYDS BANKING GROUP PLC The Group recognised a tax expense of GBP501 million in the period compared to a credit of GBP406 million in the first three months of 2020. The prior year credit included an uplift in deferred tax assets following the announcement by the UK Government that it would maintain the corporation tax rate at 19 per cent. On 3 March 2021, the Government announced its intention to increase the rate of corporation tax from 19 per cent to 25 per cent with effect from 1 April 2023. Had this change in corporation tax rate been substantively enacted at 31 March 2021, the impact would have been to recognise a c.GBP1 billion deferred tax credit in the income statement and a c.GBP150 million debit within other comprehensive income, increasing the Group's net deferred tax asset by c.GBP850 million.
Given the improved outlook for both the net interest margin and asset quality ratio, the statutory return on tangible equity for 2021 is now expected to be between 8 and 10 per cent, excluding a c.2.5 percentage point benefit from tax rate changes. Balance sheet Loans and advances to customers were up GBP3.3 billion in the quarter at GBP443.5 billion, benefiting from an increase of GBP6.0 billion in the open mortgage book, more than offsetting lower unsecured Retail, Corporate and Institutional, and closed mortgage book balances. Customer deposits of GBP462.4 billion were up GBP11.7 billion in the quarter compared to GBP450.7 billion at 31 December 2020 and included a further increase in Retail current accounts of GBP5.6 billion to GBP103.0 billion. The Group's loan to deposit ratio of 96 per cent provides a strong liquidity position and significant potential to lend into recovery. Capital The Group's CET1 capital ratio has increased from 16.2 per cent at 31 December 2020 to 16.7 per cent, reflecting capital build in the quarter of 54 basis points, prior to the impact of the dividend accrual. Banking business capital build (pre impairments credit) of 55 basis points and underlying risk-weighted asset reductions of 31 basis points were partly offset by pension contributions and other movements of 26 basis points. The net impact of the impairments credit and partial release of IFRS 9 transitional relief during the quarter was a 6 basis points reduction which included 5 basis points relating to the phased reduction in static relief. The impact of the dividend accrual in the quarter equated to 5 basis points and is currently based upon a pro-rated amount of the 2020 full year dividend.
As previously noted the Group will update the market on interim dividend payments with the half-year results, subsequent to reviewing the PRA's update on distributions which is expected ahead of the half-year results reporting cycle for the large UK banks. In the interim the Group's dividend accrual has been made on an appropriately prudent basis (as set out above) in accordance with PRA guidance. As previously stated, the Board intends to resume its progressive and sustainable ordinary dividend policy with the dividend at a higher level than 2020.
The PRA is continuing to consult on a proposal to reverse the revised capital treatment of intangible software assets that was implemented in December 2020 via EU capital regulations. Should the PRA proceed with their proposal then the reinstatement of the original requirement to deduct these assets from capital will come into force during the year. This would lead to a c.50 basis points reduction in the Group's CET1 capital ratio (net of a reduction in associated risk-weighted assets) and based on the position at 31 March 2021 the ratio would reduce to 16.2 per cent.
REVIEW OF PERFORMANCE (continued)
Risk-weighted assets reduced by GBP3.8 billion during the quarter, primarily driven by optimisation activity undertaken in Commercial Banking of around GBP2.5 billion and foreign exchange and other market impacts of GBP1.1 billion, alongside limited credit migration and balance sheet growth. The Group continues to expect 2021 risk-weighted assets to be broadly stable on 2020.
The Board's view of the ongoing level of CET1 capital required by the Group to grow the business, meet regulatory requirements and cover uncertainties remains at c.12.5 per cent, plus a management buffer of c.1 per cent. The Group's CET1 capital regulatory requirement is currently c.11 per cent.
The transitional total capital ratio reduced to 23.0 per cent (31 December 2020: 23.3 per cent) and the transitional minimum requirement for own funds and eligible liabilities (MREL) reduced to 36.1 per cent (31 December 2020: 36.4 per cent) reflecting the impact of movements in rates and the annual reduction in transitional limits applied to legacy tier 1 and tier 2 instruments, which more than offset the increase in CET1 capital. The UK leverage ratio increased to 6.0 per cent.
ADDITIONAL FINANCIAL INFORMATION 1. Banking net interest margin and average interest-earning assets
Quarter Quarter
ended ended
31 Mar 31 Mar
2021 2020
Group net interest income - statutory basis (GBPm) 2,266 5,185
Insurance gross up (GBPm) 352 (2,265)
Volatility and other items (GBPm) 59 30
Group net interest income - underlying basis (GBPm) 2,677 2,950
Non-banking net interest expense (GBPm) 26 44
Banking net interest income - underlying basis (GBPm) 2,703 2,994
Net loans and advances to customers (GBPbn)1 443.5 443.1
Impairment provision and fair value adjustments (GBPbn) 5.7 4.8
Non-banking items:
Fee-based loans and advances (GBPbn) (4.9) (7.6)
Other non-banking (GBPbn) (1.8) (3.1)
Gross banking loans and advances (GBPbn) 442.5 437.2
Averaging (GBPbn) (3.1) (5.6)
Average interest-earning banking assets (GBPbn) 439.4 431.6
Banking net interest margin (%) 2.49 2.79 1. Excludes reverse repos. 1. Return on tangible equity As announced at the full year results, the Group has revised its definition of return on tangible equity. Statutory profit after tax is adjusted to deduct profit attributable to non-controlling interests and other equity holders and is divided by average tangible equity.
Quarter Quarter
ended ended
31 Mar 31 Mar
2021 2020
Average ordinary shareholders' equity (GBPbn) 43.3 44.1
Average intangible assets (GBPbn) (6.2) (6.1)
Average tangible equity (GBPbn) 37.1 38.0
Group statutory profit after tax (GBPm) 1,397 480
Less profit attributable to non-controlling interests and other equity holders (GBPm) (122) (132)
Adjusted statutory profit after tax (GBPm)1 1,275 348
Return on tangible equity (%)1 13.9 3.7 1. Revised basis, quarter ended 31 March 2020 restated. ADDITIONAL FINANCIAL INFORMATION (continued) 1. Further impairment detail
The analyses which follow have been presented on an underlying basis. Refer to basis of presentation on page 19.
Impairment charge by division
Quarter Quarter Quarter
ended ended Change ended Change
31 Mar 31 Mar 31 Dec
2021 2020 2020
GBPm GBPm % GBPm %
UK Mortgages (72) 160 (146) 51
Credit cards 28 349 92 8
Loans and overdrafts 108 225 52 146 26
UK Motor Finance 11 76 86 (42)
Other 6 79 92 -
Retail 81 889 (34)
Commercial Banking (403) 550 (32)
Insurance and Wealth - 1 (2)
Central Items (1) (10) 90 196
Total impairment charge (323) 1,430 128 (MORE TO FOLLOW) Dow Jones Newswires
April 28, 2021 03:01 ET (07:01 GMT)
