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"dimensions": { "concept": "ifrs-full:CashAndCashEquivalents", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00", "unit": "iso4217:GBP" } }, "fact-893": { "value": "79194000000", "decimals": -6, "dimensions": { "concept": "ifrs-full:CashAndCashEquivalents", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2022-01-01T00:00:00", "unit": "iso4217:GBP" } }, "fact-896": { "value": "Note 1: Basis of preparation The consolidated financial statements of Lloyds Banking Group plc and its subsidiary undertakings (the Group) have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The financial statements have also been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB). The financial information has been prepared under the historical cost convention, as modified by the revaluation of investment properties, insurance and reinsurance contract assets and liabilities measured at their fulfilment values in accordance with IFRS 17, financial assets measured at fair value through other comprehensive income, trading securities and certain other financial assets and liabilities at fair value through profit or loss and all derivative contracts. The directors consider that it is appropriate to continue to adopt the going concern basis in preparing the financial statements. In reaching this assessment, the directors have considered the impact of climate change upon the Group\u2019s performance and projected funding and capital position. The directors have also taken into account the results from stress testing scenarios. Except for accounting policies and methods of computation affected by IFRS 17 and the IAS 12 exception relating to the recognition and disclosure of the implication of certain potential deferred tax consequences, the Group\u2019s accounting policies are consistent with those applied by the Group in its financial statements for the year ended 31 December 2022 and there have been no changes in the Group\u2019s methods of computation. Following amendments to IAS 12 by the IASB (International Tax Reform \u2013 Pillar Two Model Rules, issued in May 2023) entities are not permitted to disclose information about deferred tax assets and liabilities related to the Organisation for Economic, Co-operation and Development\u2019s Pillar Two Model Rules, including any qualified domestic minimum top-up taxes. No changes arise to the Group\u2019s deferred tax assets or liabilities as a result of the Group having applied the relevant exception. Presentational changes Changes have been made to the presentation of the Group\u2019s income statement and the Group\u2019s balance sheet arising from the adoption of IFRS 17. In addition to the impact of IFRS 17, the following changes have been made to the presentation of the Group\u2019s income statement and balance sheet to provide a more relevant analysis of the Group\u2019s financial performance and financial position: \u2022 Movement in third party interests in consolidated funds are presented separately on the face of the income statement rather than within interest expense. There is no change to the balance sheet presentation of the third party interests \u2022 Items in the course of collection from banks are reported within other assets rather than separately on the face of the balance sheet \u2022 Investments in joint ventures and associates are reported within other assets rather than separately on the face of the balance sheet \u2022 Goodwill and other intangible assets are aggregated on the face of the balance sheet \u2022 Items in the course of transmission to banks are reported within other liabilities rather than separately on the face of the balance sheet Except for the impact of IFRS 17, there has been no change in the basis of accounting for any of the underlying transactions. Comparatives for 2022 have been restated for the impact of IFRS 17. Comparatives for 2022 and 2021 have been restated for all other changes. IFRS 17 Insurance Contracts On 1 January 2023, the Group adopted IFRS 17 Insurance Contracts, which replaced IFRS 4 Insurance Contracts. A summary of the impact is set out below. IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts, including reinsurance contracts issued, participating investment contracts and reinsurance contracts held. The Group\u2019s change in accounting policies arising from the adoption of IFRS 17 has been made in accordance with the transitional provisions of the standard. IFRS 17 requires a full retrospective approach unless it is impracticable to do so. Under the full retrospective approach, transition impacts are calculated as if IFRS 17 had always applied and it prohibits the use of hindsight. This requires having full and granular data on assumptions and cash flows so that, at the point of contract recognition, the IFRS 17 contract value and contractual service margin (CSM) can be calculated and revalued up to the point of transition. If it is impracticable to apply IFRS 17 retrospectively, a choice is permitted between a modified retrospective approach, provided qualifying conditions are met, or a fair value approach. The different approaches can be applied to different groups of insurance contracts. On transition, the Group used the full retrospective approach for business written since 1 January 2016 using Solvency II modelling tools developed when Solvency II was implemented, which are only available to support the calculation of IFRS 17 results from that date. The full retrospective approach was deemed impracticable for contracts initially recognised prior to 1 January 2016 as the models required to calculate the risk adjustment were not in use within the business prior to this date. The Group opted to use the fair value approach for business initially recognised prior to 2016, and valuations supporting Solvency II at the transition date were used to support the fair value calculation for transition for that business. Changes have also been made to the Group\u2019s cash flow statement arising from the adoption of IFRS 17. As noted below, IFRS 17 has required several measurement changes to the balance sheet including the derecognition of the value of in-force (VIF) asset, the measurement of contract liabilities on a probability-weighted basis and the creation of a CSM liability. These changes, together with the presentation of the change in insurance contract liabilities within the change in operating liabilities, have resulted in a restatement of the adjustment for changes in both operating assets and liabilities as well as non-cash and other items. Cash and cash equivalents at 31 December 2022 were not impacted by the adoption of IFRS 17. On transition to IFRS 17, the Group\u2019s total equity at 1 January 2022 was reduced by \u00a31,935 million from \u00a353,152 million under IFRS 4 to \u00a351,217 million under IFRS 17. The reduction in equity is primarily driven by the derecognition of the VIF asset (\u00a35,317 million), the move to a probability-weighted estimate (expected value) of contract liabilities (\u00a35,915 million), the creation of the new CSM liability (\u00a31,927 million, net of reinsurance) and the establishment of the risk adjustment (\u00a31,492 million, net of reinsurance) .
The CSM at the transition date is released to the income statement in future periods as insurance contract services are provided. The
table below summarises the approach the Group has applied to groups of insurance contracts at the transition date and the resulting
CSM.
CSM at transition date
Year contracts initially recognised
Transition approach
\u00a3m
%
Contracts initially recognised prior to 1 January 2016
Fair value approach
1,419
7 4
Contracts initially recognised after 1 January 2016
Full retrospective approach
508
2 6
1,927
100
1
1 The fair value element of the CSM was determined as the difference between the fair value of a group of contracts and the fulfilment cash flows at 1 January 2022. Fair
value was determined using an economic value creation model which relied on a number of judgements, assumptions and non-observable inputs including: the market
participant in the transaction shared the same characteristics as the Group, the best estimate assumptions were aligned to those used by the Group in its 1 January 2022
regulatory calculations and the required capital in the model was based on the capital requirement, plus the additional internal capital buffer, at that date. The model
considered the expected profit arising in each future period as the value of the realistic cash flow less the release of required capital. The stream of profits derived was
then discounted at a required rate of return. The Group has applied the simplification permitting contracts in different annual cohorts to be grouped together into a
single group for measurement purposes.
In addition to the impact of \u00a31,935 million at 1 January 2022, at 31 December 2022, total equity is also impacted by the restatement of the
income statement for the year ended 31 December 2022, resulting in a further reduction of \u00a31,632 million in retained profits. This arose
from the impact of revised income recognition requirements, changes in interest rates during 2022 and the effect of contract
modifications. There is a further reduction in total equity of \u00a343 million in respect of the foreign currency translation reserve and the
reclassification of treasury shares on transition to IFRS 17. Total equity at 31 December 2022 reduced by \u00a33,610 million, from \u00a347,521 million
under IFRS 4 to \u00a343,911 million under IFRS 17.
Whilst IFRS 17 does not change the total profit recognised over the life of an insurance contract or participating investment contract, it
does change both the phasing of profit recognition and the amounts recognised within individual income statement line items,
including other income and operating expenses. Under IFRS 17, the Group is required to defer substantially all of the expected profit
through the recognition of a CSM on the balance sheet; the CSM is subsequently released to the income statement over the coverage
period of the product. The expected profit includes estimated future premiums and claims together with expected administration costs
such as claims handling costs, costs incurred to provide contractual policyholder benefits and policy administration and maintenance
costs.
The impact of IFRS 17 on the Group\u2019s results for the year ended 31 December 2022 was to reduce profit before tax by \u00a32,146 million and
reduce profit after tax by \u00a31,632 million compared to results reported under IFRS 4.
Future accounting developments
The IASB has issued a number of minor amendments to IFRSs effective 1 January 2024, including IFRS 16 Lease Liability in a Sale and
Leaseback, IAS 1 Non-current Liabilities with Covenants, and IAS 1 Classification of Liabilities as Current or Non-current. These
amendments are not expected to have a significant impact on the Group and have been endorsed for use in the UK.
", "dimensions": { "concept": "ifrs-full:DisclosureOfBasisOfPreparationOfFinancialStatementsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-947": { "value": "
The consolidated financial statements of Lloyds Banking Group plc and its subsidiary undertakings (the Group) have been prepared in
accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The financial
statements have also been prepared in accordance with International Financial Reporting Standards as issued by the International
Accounting Standards Board (IASB).
", "dimensions": { "concept": "ifrs-full:StatementOfIFRSCompliance", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-990": { "value": "Presentational changes Changes have been made to the presentation of the Group\u2019s income statement and the Group\u2019s balance sheet arising from the adoption of IFRS 17. In addition to the impact of IFRS 17, the following changes have been made to the presentation of the Group\u2019s income statement and balance sheet to provide a more relevant analysis of the Group\u2019s financial performance and financial position: \u2022 Movement in third party interests in consolidated funds are presented separately on the face of the income statement rather than within interest expense. There is no change to the balance sheet presentation of the third party interests \u2022 Items in the course of collection from banks are reported within other assets rather than separately on the face of the balance sheet \u2022 Investments in joint ventures and associates are reported within other assets rather than separately on the face of the balance sheet \u2022 Goodwill and other intangible assets are aggregated on the face of the balance sheet \u2022 Items in the course of transmission to banks are reported within other liabilities rather than separately on the face of the balance sheet Except for the impact of IFRS 17, there has been no change in the basis of accounting for any of the underlying transactions. Comparatives for 2022 have been restated for the impact of IFRS 17. Comparatives for 2022 and 2021 have been restated for all other changes. IFRS 17 Insurance Contracts On 1 January 2023, the Group adopted IFRS 17 Insurance Contracts, which replaced IFRS 4 Insurance Contracts. A summary of the impact is set out below. IFRS 17 establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts, including reinsurance contracts issued, participating investment contracts and reinsurance contracts held. The Group\u2019s change in accounting policies arising from the adoption of IFRS 17 has been made in accordance with the transitional provisions of the standard. IFRS 17 requires a full retrospective approach unless it is impracticable to do so. Under the full retrospective approach, transition impacts are calculated as if IFRS 17 had always applied and it prohibits the use of hindsight. This requires having full and granular data on assumptions and cash flows so that, at the point of contract recognition, the IFRS 17 contract value and contractual service margin (CSM) can be calculated and revalued up to the point of transition. If it is impracticable to apply IFRS 17 retrospectively, a choice is permitted between a modified retrospective approach, provided qualifying conditions are met, or a fair value approach. The different approaches can be applied to different groups of insurance contracts. On transition, the Group used the full retrospective approach for business written since 1 January 2016 using Solvency II modelling tools developed when Solvency II was implemented, which are only available to support the calculation of IFRS 17 results from that date. The full retrospective approach was deemed impracticable for contracts initially recognised prior to 1 January 2016 as the models required to calculate the risk adjustment were not in use within the business prior to this date. The Group opted to use the fair value approach for business initially recognised prior to 2016, and valuations supporting Solvency II at the transition date were used to support the fair value calculation for transition for that business. Changes have also been made to the Group\u2019s cash flow statement arising from the adoption of IFRS 17. As noted below, IFRS 17 has required several measurement changes to the balance sheet including the derecognition of the value of in-force (VIF) asset, the measurement of contract liabilities on a probability-weighted basis and the creation of a CSM liability. These changes, together with the presentation of the change in insurance contract liabilities within the change in operating liabilities, have resulted in a restatement of the adjustment for changes in both operating assets and liabilities as well as non-cash and other items. Cash and cash equivalents at 31 December 2022 were not impacted by the adoption of IFRS 17. On transition to IFRS 17, the Group\u2019s total equity at 1 January 2022 was reduced by \u00a31,935 million from \u00a353,152 million under IFRS 4 to \u00a351,217 million under IFRS 17. The reduction in equity is primarily driven by the derecognition of the VIF asset (\u00a35,317 million), the move to a probability-weighted estimate (expected value) of contract liabilities (\u00a35,915 million), the creation of the new CSM liability (\u00a31,927 million, net of reinsurance) and the establishment of the risk adjustment (\u00a31,492 million, net of reinsurance) The CSM at the transition date is released to the income statement in future periods as insurance contract services are provided. The table below summarises the approach the Group has applied to groups of insurance contracts at the transition date and the resulting CSM.
CSM at transition date
Year contracts initially recognised
Transition approach
\u00a3m
%
Contracts initially recognised prior to 1 January 2016
Fair value approach
1,419
7 4
Contracts initially recognised after 1 January 2016
Full retrospective approach
508
2 6
1,927
100
1 1 The fair value element of the CSM was determined as the difference between the fair value of a group of contracts and the fulfilment cash flows at 1 January 2022. Fair value was determined using an economic value creation model which relied on a number of judgements, assumptions and non-observable inputs including: the market participant in the transaction shared the same characteristics as the Group, the best estimate assumptions were aligned to those used by the Group in its 1 January 2022 regulatory calculations and the required capital in the model was based on the capital requirement, plus the additional internal capital buffer, at that date. The model considered the expected profit arising in each future period as the value of the realistic cash flow less the release of required capital. The stream of profits derived was then discounted at a required rate of return. The Group has applied the simplification permitting contracts in different annual cohorts to be grouped together into a single group for measurement purposes. In addition to the impact of \u00a31,935 million at 1 January 2022, at 31 December 2022, total equity is also impacted by the restatement of the income statement for the year ended 31 December 2022, resulting in a further reduction of \u00a31,632 million in retained profits. This arose from the impact of revised income recognition requirements, changes in interest rates during 2022 and the effect of contract modifications. There is a further reduction in total equity of \u00a343 million in respect of the foreign currency translation reserve and the reclassification of treasury shares on transition to IFRS 17. Total equity at 31 December 2022 reduced by \u00a33,610 million, from \u00a347,521 million under IFRS 4 to \u00a343,911 million under IFRS 17. Whilst IFRS 17 does not change the total profit recognised over the life of an insurance contract or participating investment contract, it does change both the phasing of profit recognition and the amounts recognised within individual income statement line items, including other income and operating expenses. Under IFRS 17, the Group is required to defer substantially all of the expected profit through the recognition of a CSM on the balance sheet; the CSM is subsequently released to the income statement over the coverage period of the product. The expected profit includes estimated future premiums and claims together with expected administration costs such as claims handling costs, costs incurred to provide contractual policyholder benefits and policy administration and maintenance costs. The impact of IFRS 17 on the Group\u2019s results for the year ended 31 December 2022 was to reduce profit before tax by \u00a32,146 million and reduce profit after tax by \u00a31,632 million compared to results reported under IFRS 4. Future accounting developments The IASB has issued a number of minor amendments to IFRSs effective 1 January 2024, including IFRS 16 Lease Liability in a Sale and Leaseback, IAS 1 Non-current Liabilities with Covenants, and IAS 1 Classification of Liabilities as Current or Non-current. These amendments are not expected to have a significant impact on the Group and have been endorsed for use in the UK.", "dimensions": { "concept": "ifrs-full:DescriptionOfInitialApplicationOfStandardsOrInterpretations", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-949": { "value": "Future accounting developments The IASB has issued a number of minor amendments to IFRSs effective 1 January 2024, including IFRS 16 Lease Liability in a Sale and Leaseback, IAS 1 Non-current Liabilities with Covenants, and IAS 1 Classification of Liabilities as Current or Non-current. These amendments are not expected to have a significant impact on the Group and have been endorsed for use in the UK.", "dimensions": { "concept": "ifrs-full:DisclosureOfChangesInAccountingPoliciesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-894": { "value": "
Note 2: Accounting policies
The Group\u2019s accounting policies are set out below. These accounting policies have been applied consistently.
(A) Consolidation
The assets, liabilities and results of Group undertakings (including structured entities) are included in the financial statements on the
basis of accounts made up to the reporting date. Group undertakings include subsidiaries, associates and joint ventures. Details of the
Group\u2019s subsidiaries and related undertakings are given on pages 344 to 356.
(1) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it has power over the entity, is exposed to, or has
rights to, variable returns from its involvement with the entity, and has the ability to affect those returns through the exercise of its
power. This generally accompanies a shareholding of more than one half of the voting rights although in certain circumstances a
holding of less than one half of the voting rights may still result in the ability of the Group to exercise control. The existence and effect of
potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another
entity. The Group reassesses whether or not it controls an entity if facts and circumstances indicate that there have been changes to
any of the above elements. Subsidiaries are fully consolidated from the date on which control is transferred to the Group; they are de-
consolidated from the date that control ceases.
The Group consolidates collective investment vehicles if its beneficial ownership interests give it substantive rights to remove the
external fund manager of the investment activities of the fund. Where a subsidiary of the Group is the fund manager of a collective
investment vehicle, the Group considers a number of factors in determining whether it acts as principal, and therefore controls the
collective investment vehicle, including: an assessment of the scope of the Group\u2019s decision making authority over the investment
vehicle; the rights held by other parties including substantive removal rights without cause over the Group acting as fund manager; the
remuneration to which the Group is entitled in its capacity as decision-maker; and the Group\u2019s exposure to variable returns from the
beneficial interest that it holds in the investment vehicle. Consolidation may be appropriate in circumstances where the Group has less
than a majority beneficial interest. Where a collective investment vehicle is consolidated the interests of parties other than the Group
are reported in other liabilities and the movement in those interests in movement in third party interests in consolidated funds.
Structured entities are entities that are designed so that their activities are not governed by way of voting rights. In assessing whether
the Group has power over such entities in which it has an interest, the Group considers factors such as the purpose and design of the
entity; its practical ability to direct the relevant activities of the entity; the nature of the relationship with the entity; and the size of its
exposure to the variability of returns of the entity.
The treatment of transactions with non-controlling interests depends on whether, as a result of the transaction, the Group loses control
of the subsidiary. Changes in the parent\u2019s ownership interest in a subsidiary that do not result in a loss of control are accounted for as
equity transactions; any difference between the amount by which the non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognised directly in equity and attributed to the owners of the parent entity. Where the Group loses
control of the subsidiary, at the date when control is lost the amount of any non-controlling interest in that former subsidiary is
derecognised and any investment retained in the former subsidiary is remeasured to its fair value; the gain or loss that is recognised in
profit or loss on the partial disposal of the subsidiary includes the gain or loss on the remeasurement of the retained interest.
Intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated.
The acquisition method of accounting is used to account for business combinations by the Group. The consideration for the acquisition
of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The
consideration includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related
costs are expensed as incurred except those relating to the issuance of debt instruments (see (E)(4) below) or share capital (see (Q)
below). Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair value at the
acquisition date.
(2) Joint ventures and associates
Joint ventures are joint arrangements over which the Group has joint control with other parties and has rights to the net assets of the
arrangements. Joint control is the contractually agreed sharing of control of an arrangement and only exists when decisions about the
relevant activities require the unanimous consent of the parties sharing control. Associates are entities over which the Group has
significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the entity, but is
not control or joint control of those policies, and is generally achieved through holding between 20 per cent and 50 per cent of the
voting share capital of the entity.
The Group utilises the venture capital exemption for investments where significant influence or joint control is present and the business
unit operates as a venture capital business. These investments are designated on initial recognition at fair value through profit or loss.
Otherwise, the Group\u2019s investments in joint ventures and associates are accounted for using the equity method of accounting.
(B) Goodwill
Goodwill arises on business combinations and represents the excess of the cost of an acquisition over the fair value of the Group\u2019s
share of the identifiable assets, liabilities and contingent liabilities acquired. Where the fair value of the Group\u2019s share of the identifiable
assets, liabilities and contingent liabilities of the acquired entity is greater than the cost of acquisition, the excess is recognised
immediately in the income statement.
Goodwill is recognised as an asset at cost and is tested at least annually for impairment. For impairment testing, goodwill is allocated
to the cash-generating unit (CGU) or groups of CGUs that are expected to benefit from the business combination. The Group\u2019s CGUs
are largely product based for its Retail and Insurance businesses and client based for its Commercial Banking business. An impairment
loss is recognised if the carrying amount of a CGU is determined to be greater than its recoverable amount. The recoverable amount of
a CGU is the higher of its fair value less costs to sell and its value in use. If an impairment is identified the carrying value of the goodwill
is written down immediately through the income statement and this is not subsequently reversed. At the date of disposal of a
subsidiary, the carrying value of attributable goodwill is included in the calculation of the profit or loss on disposal.
(C) Other intangible assets
Intangible assets which have been determined to have a finite useful life are amortised on a straight-line basis over their estimated
useful life as follows: up to seven years for capitalised software; 10 to 15 years for brands and other intangible assets.
Intangible assets with finite useful lives are reviewed at each reporting date to assess whether there is any indication that they are
impaired. If any such indication exists the recoverable amount of the asset is determined and in the event that the asset\u2019s carrying
amount is greater than its recoverable amount, it is written down immediately. Certain brands have been determined to have an
indefinite useful life and are not amortised. Such intangible assets are assessed annually to determine whether the asset is impaired
and to reconfirm that an indefinite useful life remains appropriate. In the event that an indefinite life is inappropriate, a finite life is
determined and a further impairment review is performed on the asset.
(D) Revenue recognition
(1) Net interest income
Interest income and expense are recognised in the income statement using the effective interest method for all interest-bearing
financial instruments, except for those classified at fair value through profit or loss. The effective interest method is a method of
calculating the amortised cost of a financial asset or liability and of allocating the interest income or interest expense over the
expected life of the financial instrument. The effective interest rate is the rate that exactly discounts the estimated future cash
payments or receipts over the expected life of the financial instrument to the gross carrying amount of the financial asset (before
adjusting for expected credit losses) or to the amortised cost of the financial liability, including early redemption fees, other fees, and
premiums and discounts that are an integral part of the overall return. In the case of financial assets that are purchased or originated
credit-impaired, the effective interest rate is the rate that discounts the estimated future cash flows to the amortised cost of the
instrument. Direct incremental transaction costs related to the acquisition, issue or disposal of a financial instrument are also taken into
account. Interest income from non-credit-impaired financial assets is recognised by applying the effective interest rate to the gross
carrying amount of the asset; for credit-impaired financial assets, the effective interest rate is applied to the net carrying amount after
deducting the allowance for expected credit losses. Impairment policies are set out in (H) below.
(2) Fee and commission income and expense
Fees and commissions receivable which are not an integral part of the effective interest rate are recognised as income as the Group
fulfils its performance obligations. The Group\u2019s principal performance obligations arising from contracts with customers are in respect
of value added current accounts, credit cards and debit cards. These fees are received, and the Group provides the service, monthly;
the fees are recognised in income on this basis. The Group also receives certain fees in respect of its asset finance business where the
performance obligations are typically fulfilled towards the end of the customer contract; these fees are recognised in income on this
basis. Where it is unlikely that the loan commitments will be drawn, loan commitment fees are recognised in fee and commission
income over the life of the facility, rather than as an adjustment to the effective interest rate for the lending expected to be drawn.
Incremental costs incurred to generate fee and commission income are charged to fee and commission expense as they are incurred.
(3) Other
Dividend income is recognised when the right to receive payment is established.
Revenue recognition policies specific to trading income are set out in (E)(3) below; those relating to life insurance and general
insurance business are detailed below (see (M) and (N) below); and those relating to leases are set out in (J)(1) below.
(E) Financial assets and liabilities
On initial recognition, financial assets are classified as measured at amortised cost, fair value through other comprehensive income or
fair value through profit or loss, depending on the Group\u2019s business model for managing those financial assets and whether the
resultant cash flows represent solely payments of principal and interest. The Group assesses its business models at a portfolio level
based on its objectives for the relevant portfolio, how the performance of the portfolio is managed and reported, and the frequency of
asset sales. Financial assets with embedded derivatives are considered in their entirety when considering their cash flow
characteristics. The Group reclassifies financial assets only when its business model for managing those assets changes. A
reclassification will only take place when the change is significant to the Group\u2019s operations and will occur at a portfolio level and not
for individual instruments; reclassifications are expected to be rare. Equity investments are measured at fair value through profit or loss
unless the Group elects at initial recognition to account for the instruments at fair value through other comprehensive income. For
these instruments, principally strategic investments, dividends are recognised in profit or loss but fair value gains and losses are not
subsequently reclassified to profit or loss following derecognition of the investment.
The Group initially recognises loans and advances, deposits, debt securities in issue and subordinated liabilities when the Group
becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of securities and other financial
assets and trading liabilities are recognised on trade date, being the date that the Group is committed to purchase or sell an asset.
Financial assets are derecognised when the contractual right to receive cash flows from those assets has expired or when the Group
has transferred its contractual right to receive the cash flows from the assets and either: substantially all of the risks and rewards of
ownership have been transferred; or the Group has neither retained nor transferred substantially all of the risks and rewards, but has
transferred control.
Financial liabilities are derecognised when the obligation is discharged, cancelled or expires.
(1) Financial instruments measured at amortised cost
Financial assets that are held to collect contractual cash flows where those cash flows represent solely payments of principal and
interest are measured at amortised cost. A basic lending arrangement results in contractual cash flows that are solely payments of
principal and interest on the principal amount outstanding. Where the contractual cash flows introduce exposure to risks or volatility
unrelated to a basic lending arrangement such as changes in equity prices or commodity prices, the payments do not comprise solely
principal and interest. Financial assets measured at amortised cost are predominantly loans and advances to customers and banks,
reverse repurchase agreements and certain debt securities used by the Group to manage its liquidity. Loans and advances and
reverse repurchase agreements are initially recognised when cash is advanced to the borrower at fair value inclusive of transaction
costs. Interest income is accounted for using the effective interest method (see (D) above).
Financial liabilities are measured at amortised cost, except for trading liabilities and other financial liabilities designated at fair value
through profit or loss on initial recognition which are held at fair value.
Where changes are made to the contractual cash flows of a financial asset or financial liability that are economically equivalent and
arise as a direct consequence of interest rate benchmark reform, the Group updates the effective interest rate and does not recognise
an immediate gain or loss.
(2) Financial assets measured at fair value through other comprehensive income
Financial assets that are held to collect contractual cash flows and for subsequent sale, where the assets\u2019 cash flows represent solely
payments of principal and interest, are recognised in the balance sheet at their fair value, inclusive of transaction costs. Interest
calculated using the effective interest method and foreign exchange gains and losses on assets denominated in foreign currencies
are recognised in the income statement. All other gains and losses arising from changes in fair value are recognised directly in other
comprehensive income, until the financial asset is either sold or matures, at which time, other than in respect of equity shares, the
cumulative gain or loss previously recognised in other comprehensive income is recognised in the income statement. The cumulative
revaluation amount in respect of equity shares is transferred directly to retained profits. The Group recognises a charge for expected
credit losses in the income statement (see (H) below). As the asset is measured at fair value, the charge does not adjust the carrying
value of the asset, and this is reflected in other comprehensive income.
(3) Financial instruments measured at fair value through profit or loss
Financial assets are classified at fair value through profit or loss where they do not meet the criteria to be measured at amortised cost
or fair value through other comprehensive income or where they are designated at fair value through profit or loss to reduce an
accounting mismatch. All derivatives are carried at fair value through profit or loss, other than those in effective cash flow and net
investment hedging relationships. Derivatives are carried on the balance sheet as assets when their fair value is positive and as
liabilities when their fair value is negative. Refer to note 21(2) (Financial instruments: Financial assets and liabilities carried at fair value)
for details of valuation techniques and significant inputs to valuation models.
Derivatives embedded in a financial asset are not considered separately; the financial asset is considered in its entirety when
determining whether its cash flows are solely payments of principal and interest. Derivatives embedded in financial liabilities and
insurance contracts (unless the embedded derivative is itself an insurance contract) are treated as separate derivatives when their
economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair
value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the
income statement.
The assets backing the insurance and investment contracts issued by the Group do not meet the criteria to be measured at amortised
cost or fair value through other comprehensive income as they are managed on a fair value basis and accordingly are measured at
fair value through profit or loss. Similarly, trading securities, which are debt securities and equity shares acquired principally for the
purpose of selling in the short term or which are part of a portfolio which is managed for short-term gains, do not meet these criteria
and are also measured at fair value through profit or loss. Financial assets measured at fair value through profit or loss are recognised
in the balance sheet at their fair value. Fair value gains and losses together with interest coupons and dividend income are recognised
in the income statement within net trading income.
Financial liabilities are measured at fair value through profit or loss where they are trading liabilities or where they are designated at
fair value through profit or loss in order to reduce an accounting mismatch; where the liabilities are part of a group of liabilities (or
assets and liabilities) which is managed, and its performance evaluated, on a fair value basis; or where the liabilities contain one or
more embedded derivatives that significantly modify the cash flows arising under the contract and would otherwise need to be
separately accounted for. Financial liabilities measured at fair value through profit or loss are recognised in the balance sheet at their
fair value. Fair value gains and losses are recognised in the income statement within net trading income in the period in which they
occur, except in the case of financial liabilities designated at fair value through profit or loss where gains and losses attributable to
changes in own credit risk are recognised in other comprehensive income.
The fair values of assets and liabilities traded in active markets are based on current bid and offer prices, respectively, which include
the expected effects of potential changes to laws and regulations, risks associated with climate change and other factors. If the
market is not active the Group establishes a fair value by using valuation techniques. The fair values of derivative financial instruments
are adjusted where appropriate to reflect credit risk (via credit valuation adjustments (CVAs), debit valuation adjustments (DVAs) and
funding valuation adjustments (FVAs)), market liquidity and other risks.
(4) Borrowings
Borrowings (which include deposits from banks, customer deposits, repurchase agreements, debt securities in issue and subordinated
liabilities) are recognised initially at fair value, being their issue proceeds net of transaction costs incurred. These instruments are
subsequently stated at amortised cost using the effective interest method.
Preference shares and other instruments which carry a mandatory coupon or are redeemable on a specific date are classified as
financial liabilities. The coupon on these instruments is recognised in the income statement as interest expense. Securities which carry
a discretionary coupon and have no fixed maturity or redemption date are classified as other equity instruments. Interest payments on
these securities are recognised as distributions from equity in the period in which they are paid. An exchange of financial liabilities on
substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new
financial liability. The difference between the carrying amount of a financial liability extinguished and the new financial liability is
recognised in profit or loss together with any related costs or fees incurred.
When a financial liability is exchanged for an equity instrument, the new equity instrument is recognised at fair value and any
difference between the carrying value of the liability and the fair value of the new equity instrument is recognised in profit or loss.
(5) Sale and repurchase agreements (including securities lending and borrowing)
Securities sold subject to repurchase agreements (repos) continue to be recognised on the balance sheet where substantially all of
the risks and rewards are retained. Funds received for repos carried at fair value are included within trading liabilities. Conversely,
securities purchased under agreements to resell (reverse repos), where the Group does not acquire substantially all of the risks and
rewards of ownership, are measured at amortised cost or at fair value. Those measured at fair value are recognised within trading
securities. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using
the effective interest method.
Securities borrowing and lending transactions are typically secured; collateral takes the form of securities or cash advanced or
received. Securities lent to counterparties are retained on the balance sheet. Securities borrowed are not recognised on the balance
sheet, unless these are sold to third parties, in which case the obligation to return them is recorded at fair value as a trading liability.
Cash collateral given or received is treated as a loan and advance measured at amortised cost or customer deposit.
(F) Hedge accounting
As permitted by IFRS 9, the Group continues to apply the requirements of IAS 39 to its hedging relationships.
Changes in the fair value of all derivative instruments, other than those in effective cash flow and net investment hedging relationships,
are recognised immediately in the income statement. As noted in (2) and (3) below, the change in fair value of a derivative in an
effective cash flow or net investment hedging relationship is allocated between the income statement and other comprehensive
income.
Hedge accounting allows one financial instrument, generally a derivative such as a swap, to be designated as a hedge of another
financial instrument such as a loan or deposit or a portfolio of such instruments. At the inception of the hedge relationship, formal
documentation is drawn up specifying the hedging strategy, the hedged item, the hedging instrument and the methodology that will
be used to measure the effectiveness of the hedge relationship in offsetting changes in the fair value or cash flow of the hedged risk.
The effectiveness of the hedging relationship is tested both at inception and throughout its life and if at any point it is concluded that it
is no longer highly effective in achieving its documented objective, hedge accounting is discontinued. Note 22 provides details of the
types of derivatives held by the Group and presents separately those designated in hedge relationships.
Where there is uncertainty arising from interest rate benchmark reform, the Group assumes that the interest rate benchmark on which
the hedged cash flows and/or the hedged risk are based, or the interest rate benchmark on which the cash flows of the hedging
instrument are based, are not altered as a result of interest rate benchmark reform. The Group does not discontinue a hedging
relationship during the period of uncertainty arising from the interest rate benchmark reform solely because the actual results of the
hedge are not highly effective.
Where the contractual terms of a financial asset, financial liability or derivative are amended, on an economically equivalent basis, as
a direct consequence of interest rate benchmark reform, the uncertainty arising from the reform is no longer present. In these
circumstances, the Group amends the hedge documentation to reflect the changes required by the reform; these changes to the
documentation do not in and of themselves result in the discontinuation of hedge accounting or require the designation of a new
hedge relationship.
(1) Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement,
together with the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk; this also applies if the
hedged asset is classified as a financial asset at fair value through other comprehensive income. If the hedge no longer meets the
criteria for hedge accounting, changes in the fair value of the hedged item attributable to the hedged risk are no longer recognised in
the income statement. The cumulative adjustment that has been made to the carrying amount of the hedged item is amortised to the
income statement using the effective interest method over the period to maturity.
(2) Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in
other comprehensive income in the cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised
immediately in the income statement. Amounts accumulated in equity are reclassified to the income statement in the periods in which
the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in the income
statement when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.
(3) Net investment hedges
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging
instrument relating to the effective portion of the hedge is recognised in other comprehensive income, and the gain or loss relating to
the ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are included in the
income statement when the foreign operation is disposed of. The hedging instruments used in net investment hedges may include
non-derivative liabilities as well as derivative financial instruments.
(G) Offset
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right of
offset and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Cash collateral on
exchange traded derivative transactions is presented gross unless the collateral cash flows are always settled net with the derivative
cash flows. In certain situations, even though master netting agreements exist, the lack of management intention to settle on a net
basis results in the financial assets and liabilities being reported gross on the balance sheet.
(H) Impairment of financial assets
The impairment charge in the income statement reflects the change in expected credit losses, including those arising from fraud.
Expected credit losses are recognised for loans and advances to customers and banks, other financial assets held at amortised cost,
financial assets (other than equity investments) measured at fair value through other comprehensive income, and certain loan
commitments and financial guarantee contracts. Expected credit losses are calculated as an unbiased and probability-weighted
estimate using an appropriate probability of default, adjusted to take into account a range of possible future economic scenarios, and
applying this to the estimated exposure of the Group at the point of default after taking into account the value of any collateral held,
repayments, or other mitigants of loss and including the impact of discounting using the effective interest rate.
At initial recognition, allowance (or provision in the case of some loan commitments and financial guarantees) is made for expected
credit losses resulting from default events that are possible within the next 12 months (12-month expected credit losses). In the event of
a significant increase in credit risk since origination, allowance (or provision) is made for expected credit losses resulting from all
possible default events over the expected life of the financial instrument (lifetime expected credit losses). Financial assets where 12-
month expected credit losses are recognised are considered to be Stage 1; financial assets which are considered to have experienced
a significant increase in credit risk since initial recognition are in Stage 2; and financial assets which have defaulted or are otherwise
considered to be credit-impaired are allocated to Stage 3. Some Stage 3 assets, mainly in Commercial Banking, are subject to
individual rather than collective assessment. Such cases are subject to a risk-based impairment sanctioning process, and these are
reviewed and updated at least quarterly, or more frequently if there is a significant change in the credit profile. The collective
assessment of impairment aggregates financial instruments with similar risk characteristics, such as whether the facility is revolving in
nature or secured and the type of security held against financial assets.
An assessment of whether credit risk has increased significantly since initial recognition considers the change in the risk of default
occurring over the remaining expected life of the financial instrument. In determining whether there has been a significant increase in
credit risk, the Group uses quantitative tests based on relative and absolute probability of default (PD) movements linked to internal
credit ratings together with qualitative indicators such as watchlists and other indicators of historical delinquency, credit weakness or
financial difficulty. The use of internal credit ratings and qualitative indicators ensures alignment between the assessment of staging
and the Group\u2019s management of credit risk which utilises these internal metrics within distinct retail and commercial portfolio risk
management practices. However, unless identified at an earlier stage, the credit risk of financial assets is deemed to have increased
significantly when more than 30 days past due. The use of a payment holiday in and of itself has not been judged to indicate a
significant increase in credit risk, with the underlying long-term credit risk deemed to be driven by economic conditions and captured
through the use of forward-looking models. These portfolio-level models are capturing the anticipated volume of increased defaults
and therefore an appropriate assessment of staging and expected credit loss. Where the credit risk subsequently improves such that it
no longer represents a significant increase in credit risk since initial recognition, the asset is transferred back to Stage 1.
Assets are transferred to Stage 3 when they have defaulted or are otherwise considered to be credit-impaired. Default is considered to
have occurred when there is evidence that the customer is experiencing financial difficulty which is likely to affect significantly the
ability to repay the amount due. IFRS 9 contains a rebuttable presumption that default occurs no later than when a payment is 90 days
past due which the Group now uses for all its products following changes to the definition of default for UK mortgages on 1 January
2022. In addition, other indicators of mortgage default are added including end-of-term payments on past due interest-only accounts
and loans considered non-performing due to recent arrears or forbearance. The use of payment holidays is not considered to be an
automatic trigger of regulatory default and therefore does not automatically trigger Stage 3. Days past due will also not accumulate
on any accounts that have taken a payment holiday including those already past due.
In certain circumstances, the Group will renegotiate the original terms of a customer\u2019s loan, either as part of an ongoing customer
relationship or in response to adverse changes in the circumstances of the borrower. In the latter circumstances, the loan will remain
classified as either Stage 2 or Stage 3 until the credit risk has improved such that it no longer represents a significant increase since
origination (for a return to Stage 1), or the loan is no longer credit-impaired (for a return to Stage 2). On renegotiation the gross carrying
amount of the loan is recalculated as the present value of the renegotiated or modified contractual cash flows, which are discounted
at the original effective interest rate. Renegotiation may also lead to the loan and associated allowance being derecognised and a
new loan being recognised initially at fair value.
Purchased or originated credit-impaired financial assets (POCI) include financial assets that are purchased or originated at a deep
discount that reflects incurred credit losses. At initial recognition, POCI assets do not carry an impairment allowance; instead, lifetime
expected credit losses are incorporated into the calculation of the effective interest rate. All changes in lifetime expected credit losses
subsequent to the assets\u2019 initial recognition are recognised as an impairment charge.
A loan or advance is normally written off, either partially or in full, against the related allowance when the proceeds from realising any
available security have been received or there is no realistic prospect of recovery and the amount of the loss has been determined.
Subsequent recoveries of amounts previously written off decrease the amount of impairment losses recorded in the income
statement. For both secured and unsecured retail balances, the write-off takes place only once an extensive set of collections
processes has been completed, or the status of the account reaches a point where policy dictates that continuing attempts to recover
are no longer appropriate. For commercial lending, a write-off occurs if the loan facility with the customer is restructured, the asset is
under administration and the only monies that can be received are the amounts estimated by the administrator, the underlying assets
are disposed and a decision is made that no further settlement monies will be received, or external evidence (for example, third party
valuations) is available that there has been an irreversible decline in expected cash flows.
(I) Property, plant and equipment
Property, plant and equipment (other than investment property) is included at cost less accumulated depreciation. The value of land
(included in premises) is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate the
difference between the cost and the residual value over their estimated useful lives, as follows: the shorter of 50 years and the
remaining period of the lease for freehold/long and short leasehold premises; the shorter of 10 years and, if lease renewal is not likely,
the remaining period of the lease for leasehold improvements; 10 to 20 years for fixtures and furnishings; and 2 to 8 years for other
equipment and motor vehicles.
The assets\u2019 residual values and useful lives are reviewed and, if appropriate, revised at each balance sheet date.
Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. In assessing the recoverable amount of assets the Group considers the effects of potential or actual changes in
legislation, customer behaviour, climate-related risks and other factors on the asset\u2019s CGU. In the event that an asset\u2019s CGU carrying
amount is determined to be greater than its recoverable amount the asset is written down immediately.
Investment property comprises freehold and long leasehold land and buildings that are held either to earn rental income or for capital
accretion or both, primarily within the life insurance funds. In accordance with the guidance published by the Royal Institution of
Chartered Surveyors, investment property is carried at fair value based on current prices for similar properties, adjusted for the specific
characteristics of the property (such as location or condition). If this information is not available, the Group uses alternative valuation
methods such as discounted cash flow projections or recent prices in less active markets. These valuations are reviewed at least
annually by independent professionally qualified valuers. Investment property being redeveloped for continuing use as investment
property, or for which the market has become less active, continues to be valued at fair value.
(J) Leases
Under IFRS 16, a lessor is required to determine whether a lease is a finance or operating lease. A lessee is not required to make this
determination.
(1) As lessor
Assets leased to customers are classified as finance leases if the lease agreements transfer substantially all of the risks and rewards of
ownership to the lessee but not necessarily legal title. All other leases are classified as operating leases. When assets are subject to
finance leases, the present value of the lease payments, together with any unguaranteed residual value, is recognised as a receivable,
net of allowances for expected credit losses and residual value impairment, within loans and advances to banks and customers. The
difference between the gross receivable and the present value of the receivable is recognised as unearned finance lease income.
Finance lease income is recognised in interest income over the term of the lease using the net investment method (before tax) so as to
give a constant rate of return on the net investment in the lease. Unguaranteed residual values are reviewed regularly to identify any
impairment.
Operating lease assets are included within other assets at cost and depreciated over their estimated useful lives. The depreciation
charge is based on the asset\u2019s residual value and the life of the lease. Operating lease rental income is recognised on a straight-line
basis over the life of the lease.
The Group evaluates non-lease arrangements such as outsourcing and similar contracts to determine if they contain a lease which is
then accounted for separately.
(2) As lessee
Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by
the Group. Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments are discounted
using the interest rate implicit in the lease, if that rate can be determined, or the Group\u2019s incremental borrowing rate appropriate for
the right-of-use asset arising from the lease, and the liability recognised within other liabilities.
Lease payments are allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset\u2019s useful life and the lease term on a straight-line basis.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in
profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small
items of office furniture.
(K) 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.
(1) Pension schemes
The Group operates a number of post-retirement benefit schemes for its employees including both defined benefit and defined
contribution pension plans. A defined benefit scheme is a pension plan that defines an amount of pension benefit that an employee
will receive on retirement, dependent on one or more factors such as age, years of pensionable service and pensionable salary. A
defined contribution plan is a pension plan into which the Group pays fixed contributions; there is no legal or constructive obligation to
pay further contributions.
(i) Defined benefit schemes
Scheme assets are included at their fair value and scheme liabilities are measured on an actuarial basis using the projected unit credit
method. The defined benefit scheme liabilities are discounted using rates equivalent to the market yields at the balance sheet date on
high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity
approximating to the terms of the related pension liability. The Group\u2019s income statement charge includes the current service cost of
providing pension benefits, past service costs, net interest expense (income), and plan administration costs that are not deducted from
the return on plan assets. Past service costs, which represents the change in the present value of the defined benefit obligation
resulting from a plan amendment or curtailment, are recognised when the plan amendment or curtailment occurs. Net interest
expense (income) is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset.
Remeasurements, comprising actuarial gains and losses, the return on plan assets (excluding amounts included in net interest expense
(income) and net of the cost of managing the plan assets), and the effect of changes to the asset ceiling (if applicable) are reflected
immediately in the balance sheet with a charge or credit recognised in other comprehensive income in the period in which they occur.
Remeasurements recognised in other comprehensive income are reflected immediately in retained profits and will not subsequently
be reclassified to profit or loss.
The Group\u2019s balance sheet includes the net surplus or deficit, being the difference between the fair value of scheme assets and the
discounted value of scheme liabilities at the balance sheet date. Surpluses are only recognised to the extent that they are recoverable
through reduced contributions in the future or through refunds from the schemes. In assessing whether a surplus is recoverable, the
Group considers (i) its current right to obtain a refund or a reduction in future contributions and (ii) the rights of other parties existing at
the balance sheet date. In determining the rights of third parties existing at the balance sheet date, the Group does not anticipate any
future acts by other parties.
(ii) Defined contribution schemes
The costs of the Group\u2019s defined contribution plans are charged to the income statement in the period in which they fall due.
(2) Share-based compensation
The Group operates a number of equity-settled, share-based compensation plans in respect of services received from certain of its
employees. The value of the employee services received in exchange for equity instruments granted under these plans is recognised
as an expense over the vesting period of the instruments, with a corresponding increase in equity. This expense is determined by
reference to the fair value of the number of equity instruments that are expected to vest. The fair value of equity instruments granted is
based on market prices, if available, at the date of grant. In the absence of market prices, the fair value of the instruments at the date
of grant is estimated using an appropriate valuation technique, such as a Black-Scholes option pricing model or a Monte Carlo
simulation. The determination of fair values excludes the impact of any non-market vesting conditions, which are included in the
assumptions used to estimate the number of options that are expected to vest. At each balance sheet date, this estimate is
reassessed and if necessary revised. Any revision of the original estimate is recognised in the income statement, together with a
corresponding adjustment to equity. Cancellations by employees of contributions to the Group\u2019s Save As You Earn plans are treated as
non-vesting conditions and the Group recognises, in the year of cancellation, the amount of the expense that would have otherwise
been recognised over the remainder of the vesting period. Modifications are assessed at the date of modification and any incremental
charges are charged to the income statement.
(L) Taxation
Tax expense comprises current and deferred tax. Current and deferred tax are charged or credited in the income statement except to
the extent that the tax arises from a transaction or event which is recognised, in the same or a different period, outside the income
statement (either in other comprehensive income, directly in equity, or through a business combination), in which case the tax appears
in the same statement as the transaction that gave rise to it. The tax consequences of the Group\u2019s dividend payments (including
distributions on other equity instruments), if any, are charged or credited to the statement in which the profit distributed originally
arose.
Current tax is the amount of corporate income taxes expected to be payable or recoverable based on the profit for the period as
adjusted for items that are not taxable or not deductible, and is calculated using tax rates and laws that were enacted or substantively
enacted at the balance sheet date.
Current tax includes amounts provided in respect of uncertain tax positions when management expects that, upon examination of the
uncertainty by His Majesty\u2019s Revenue and Customs (HMRC) or other relevant tax authority, it is more likely than not that an economic
outflow will occur. Provisions reflect management\u2019s best estimate of the ultimate liability based on their interpretation of tax law,
precedent and guidance, informed by external tax advice as necessary. Changes in facts and circumstances underlying these
provisions are reassessed at each balance sheet date, and the provisions are remeasured as required to reflect current information.
For the Group\u2019s long-term insurance businesses, the tax expense is analysed between tax that is payable in respect of policyholders\u2019
returns and tax that is payable on the shareholders\u2019 returns. This allocation is based on an assessment of the rates of tax which will be
applied to the returns under the current UK tax rules.
Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts
in the balance sheet. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the
balance sheet date, and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is
settled.
Deferred tax liabilities are generally recognised for all taxable temporary differences but not recognised for taxable temporary
differences arising on investments in subsidiaries where the reversal of the temporary difference can be controlled and it is probable
that the difference will not reverse in the foreseeable future. Deferred tax liabilities are not recognised on temporary differences that
arise from goodwill which is not deductible for tax purposes.
Deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which the deductible
temporary differences can be utilised, and are reviewed at each balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are not recognised in respect of temporary differences that arise on initial recognition of assets and
liabilities acquired other than in a business combination. Deferred tax is not discounted.
(M) Insurance \u2013 IFRS 17 The Group undertakes both life insurance and general insurance business. Insurance and participating investment contracts, and reinsurance contracts issued and held, are accounted for under IFRS 17 Insurance Contracts. Products sold by the life insurance business are classified into three categories: \u2022 Insurance contracts are contracts that transfer significant insurance risk and may also transfer financial risk. The Group defines significant insurance risk as the possibility of having to pay benefits on the occurrence of an insured event which are significantly higher than the benefits payable if the insured event were not to occur. Once a contract has been classified as an insurance contract, it remains an insurance contract until all obligations are extinguished unless that contract is derecognised due to a contract modification. These contracts are classified as either direct participating contracts or contracts without direct participation features. Contracts without direct participation features are accounted for using the general measurement model (GMM) for life contracts or the premium allocation approach (PAA) for general insurance contracts. Direct participating contracts are contracts for which, at inception, the contractual terms specify the policyholders participate in a clearly identified pool of underlying items. Under the terms of these contracts the policyholders are entitled to a substantial share of the returns and change in fair value of the underlying items. These contracts are accounted for under the variable fee approach (VFA) \u2022 Participating investment contracts are investment contracts that contain a discretionary participation feature (DPF). They do not transfer significant insurance risk, but contain a contractual right to receive, as a supplement to an amount not subject to the discretion of the Group, additional amounts that are expected to be a significant portion of the total contractual benefits. The timing or amount of these additional amounts are at the discretion of the Group and are contractually based on the returns on a specified pool of contracts or type of contract, returns on a specified pool of assets held by the Group or profit or loss of a fund \u2022 For certain insurance and investment contracts, the contract can be partly invested in units which contain a DPF and partly in units without. In these circumstances, where the contract also contains features that transfer significant insurance risk, they are classified as insurance contracts. Where this is not the case, and the discretionary cash flows are expected to be a significant portion of the total contractual benefits, they are classified as participating investment contracts. Where the discretionary cash flows are not expected to be a significant portion of the total contractual benefits, they are classified as financial instruments. An investment component is defined as the amount that an insurance contract requires the entity to repay to a policyholder in all circumstances, regardless of whether an insured event occurs. The investment component of the insurance and participating investment contract is non-distinct and is not separated. The Group applies judgement to determine the investment component for each contract considering the extent to which insurance and investment components are highly interrelated or not applying factors such as: whether the policyholder is able to benefit from one component unless the other component is present; and whether the value of the investment component is dependent on the timing of the insured event. The value of the non-distinct investment component is determined on the following bases: for immediate annuities, full claim amount when within the guaranteed period; for unit-linked and With-Profits contracts, policyholder\u2019s account value The general insurance business issues only insurance contracts. (1) Life insurance business (i) Accounting for insurance and participating investment contracts Recognition The Group aggregates insurance and participating investment contracts into portfolios of contracts subject to similar risks and managed together. Each portfolio of insurance contracts is divided into annual cohorts (by year of issue). Annual cohorts are divided into groups of insurance and participating investment contracts based on profitability expectations at initial recognition. The directly attributable costs of selling, underwriting and starting a group of insurance and participating investment contracts are allocated to the group of insurance and participating investment contracts using a systematic and rational method. On initial recognition, a group of insurance and participating investment contracts is measured as the total of the fulfilment cash flows and the contractual service margin (CSM). The measurement includes all future cash flows that are within the contract boundary of each contract in the group. The fulfilment cash flows comprise unbiased and probability-weighted estimates of future cash flows, discounted to present value to reflect the time value of money and financial risks, plus an explicit risk adjustment for non-financial risk. The discount rate applied reflects the time value of money, the characteristics of the cash flows, the liquidity characteristics of the insurance and participating investment contracts and, where appropriate, is consistent with observable current market prices. The risk adjustment for non-financial risk for a group of insurance and participating investment contracts is the compensation required for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk. Diversification benefit is calculated based on Group level diversification of risks. To determine the risk adjustments for non-financial risk for reinsurance contracts, the Group applies these techniques both gross and net of excess of loss reinsurance and derives the amount of risk being transferred to the reinsurer as the difference between the two results. The CSM of a group of insurance and participating investment contracts represents the unearned profit that the Group expects to recognise as it provides insurance contract services under those contracts in the future. Contract boundaries The measurement of a group of contracts includes all future cash flows within the boundary of each contract in the group. Cash flows are within the contract boundary: \u2022 For an insurance contract, if they arise from substantive rights and obligations that exist during the reporting period in which the Group can compel the policyholder to pay premiums or has a substantive obligation to provide insurance contract services \u2022 For a participating investment contract, if they result from a substantive obligation of the Group to deliver cash at a present or future date A substantive obligation to provide insurance contract services ends when the Group has the practical ability to reassess the risks of the particular policyholder, and can set a price or level of benefits that fully reflects those reassessed risks; or the Group has the practical ability to reassess the risks of the portfolio that contains the contract and can set a price or level of benefits that fully reflects the risks of that portfolio, and the pricing of the premiums up to the reassessment date does not take into account risks that relate to periods after the reassessment date. For certain unitised With-Profits and unit-linked policies, a guaranteed minimum pension is payable at a vesting date. For certain conventional With-Profits pensions, policyholders have the option to convert to an annuity on guaranteed terms. There is no contract boundary at the vesting date of these policies; the pre and post vesting date phases are treated as a single insurance contract. The contract boundary of each group is reassessed at the end of each reporting period.
Measurement
The carrying amount of a group of insurance and participating investment contracts at each reporting date is the sum of the liability
for remaining coverage (LRC) and the liability for incurred claims (LIC). The LRC comprises the fulfilment cash flows that relate to
services that will be provided under the contracts in future periods and any remaining CSM at that date. The LIC includes the fulfilment
cash flows for incurred claims and expenses that have not yet been paid, including claims that have been incurred but not yet
reported. The fulfilment cash flows of groups of insurance and participating investment contracts are measured at the reporting date
using current estimates of future cash flows, current discount rates and current estimates of the risk adjustment for non-financial risk.
Changes in fulfilment cash flows are recognised as follows:
\u2022 Changes related to future service are adjusted against the CSM unless the group is onerous in which case such changes are
recognised in the insurance service result in profit or loss
\u2022 Changes related to past or current service are recognised in the insurance service result in profit or loss
\u2022 The effects of the time value of money and financial risk are recognised as net finance income or expense from insurance,
participating investment and reinsurance contracts in profit or loss
The carrying amount of the CSM is remeasured at the end of each reporting period. For contracts measured under the GMM, interest is
accreted on the carrying amount of the CSM using the discount rate curve determined at the date of initial recognition of the group of
contracts. The CSM is also adjusted for the changes in fulfilment cash flows relating to future service at the locked-in discount rates
determined at initial recognition, unless the increases in fulfilment cash flows cause a group of contracts to become onerous or
decreases in fulfilment cash flows are allocated to the loss component of the liability for remaining coverage.
The majority of the Group\u2019s With-Profits and unit-linked insurance and participating investment contracts are direct participating
contracts under which the Group\u2019s obligation to the policyholder is the payment of an amount equal to the fair value of the underlying
items, less a variable fee. On subsequent remeasurement of a group of direct participating contracts (measured under VFA), changes
to the fulfilment cash flows, discounted at current rates, reflecting changes in the obligation to pay the policyholder an amount equal
to the fair value of the underlying items are recognised in the income statement, within net finance income or expense from insurance,
participating investment and reinsurance contracts. The CSM is adjusted for changes in the amount of the Group\u2019s share of the fair
value of the underlying items, which relate to future services, except where such changes result in recognition or reversal of the loss
component for onerous groups, or where the Group applies the risk mitigation option. For certain contracts with direct participation
features, the Group mitigates financial risks using equity and currency hedges. The Group does not adjust the CSM for changes in the
fulfilment cash flows and/or entity\u2019s share of the underlying items that reflect some of the changes in the effect of time value of money
and financial risk. These amounts are instead reflected in profit or loss. The CSM is also adjusted for those fulfilment cashflows that do
not vary based on the returns on underlying items that relate to future service (including the effect of time value of money and
financial risks not arising from underlying items, such as the impact of minimum return guarantees), except where such changes result
in recognition or reversal of the loss component for onerous groups. Changes in fulfilment cash flows relating to future service adjust
the CSM using current discount rates.
For contracts measured under the GMM or VFA at the end of each reporting period the appropriate proportion of the CSM is recognised
in the income statement to reflect the amount of profit related to the insurance contract services provided in the period. This is
calculated using coverage units, a measure used to determine the allocation of the CSM over the remaining coverage periods. The
number of coverage units in a group is the quantity of insurance contract services provided by the contracts in the group, determined
by considering for each contract the quantity of the benefits provided and its expected coverage period.
Derecognition
The Group derecognises an insurance and participating investment contract when it is extinguished (that is, when the obligation
specified in the contract expires or is discharged or cancelled) or if its terms are modified in a way that would have changed the
accounting for the contract significantly had the new terms always existed.
If a contract is derecognised, then the fulfilment cash flows of the group are adjusted to eliminate the present value of the future cash
flows and risk adjustment of the contract derecognised from the group, and the CSM of the group is adjusted for the change in
fulfilment cash flows, except where such changes are allocated to the loss component.
If a contract is derecognised because its terms are modified, then the CSM of the existing group is also adjusted for the premium that
would have been charged had the Group entered into a contract with the new contract\u2019s terms at the date of modification, less any
additional premium charged for the modification. A new modified contract is recognised assuming the Group received the premium
that would have been charged had the Group entered into a contract with the new contract\u2019s terms at the date of the modification.
Where the adjustments to CSM result in the CSM being reduced to nil, any further adjustments are recognised in the income statement
in insurance service expense.
(2) General insurance contracts
General insurance contracts issued by the Group are presented on the balance sheet within liabilities arising from insurance and
participating investment contracts. The Group applies the PAA to the measurement of general insurance contracts, which either have a
coverage period of each contract in the group of one year or less or have an annual re-pricing option.
For a group of general insurance contracts that is not onerous at initial recognition, the Group measures the LRC as any premium
received at initial recognition, less any insurance acquisition cash flows at that date, plus any other asset or liability previously
recognised for cash flows related to the group of contracts that the Group pays or receives before the group of insurance contracts is
recognised.
The Group estimates the LIC using the methodology described in the Measurement section for life insurance contracts above.
Where, during the coverage period, facts and circumstances indicate that a group of insurance contracts is onerous, the Group
recognises a loss in the income statement for the net outflow, resulting in the carrying amount of the liability for the group being equal
to the fulfilment cash flows. A loss component is established by the Group within the LRC for such onerous group.
On subsequent measurement, the Group measures the carrying amount of the LRC at the end of each reporting period as the LRC at
the beginning of the period plus premiums received in the period, less insurance acquisition cash flows, plus any amounts relating to
the amortisation of the insurance acquisition cash flows recognised as an expense in the reporting period for the group, less the
amount recognised as insurance revenue for the services provided in the period. For onerous groups, the LRC is also adjusted for the
remeasurement of the loss component.
(3) Reinsurance (i) Reinsurance contracts issued Reinsurance contracts issued by the Group (where insurance risk is transferred to the Group) are accounted for under the GMM as insurance contracts. These contracts are presented within other assets or liabilities arising from insurance and participating investment contracts. (ii) Reinsurance contracts held The classification of contracts entered into by the Group with reinsurers under which the Group is compensated for amounts payable on one or more other contracts issued by the Group is dependent on whether the contract with the reinsurer transfers significant insurance risk to the reinsurer. Where the reinsurance contract transfers significant insurance risk (reinsurance contracts held), it is accounted for under the GMM, as modified for reinsurance contracts held. The Group adjusts the CSM of the group to which a reinsurance contract held belongs and as a result recognises income, when it recognises a loss on initial recognition of onerous underlying contracts. Contracts that do not transfer significant insurance risk to the reinsurer are recognised within financial assets at fair value through profit or loss as they are within a portfolio of financial assets that is managed, and whose performance is evaluated, on a fair value basis. These contracts, while legally reinsurance contracts, do not meet the definition of a reinsurance contract under IFRS. Investment returns (including movements in fair value and investment income) allocated to these contracts are recognised on the face of the income statement within net trading income. (4) Non-participating investment contracts The Group\u2019s non-participating investment contracts are primarily unit-linked. These contracts are accounted for under IFRS 9 as financial liabilities whose value is contractually linked to the fair values of financial assets within the Group\u2019s unitised investment funds. The value of the unit-linked financial liabilities is determined using current unit prices multiplied by the number of units attributed to the contract holders at the balance sheet date. Their value is never less than the amount payable on surrender, discounted for the required notice period where applicable. Investment returns (including movements in fair value and investment income) allocated to those contracts are recognised in the income statement through change in non-participating investment contracts. Deposits and withdrawals are not accounted for through the income statement but are accounted for directly in the balance sheet as adjustments to the non-participating investment contract liability. The Group receives investment management fees in the form of an initial adjustment or charge to the amount invested. These fees are in respect of services rendered in conjunction with the issue and management of investment contracts where the Group actively manages the consideration received from its customers to fund a return that is based on the investment profile that the customer selected on origination of the contract. These services comprise an indeterminate number of acts over the lives of the individual contracts and, therefore, the Group defers these fees and recognises them over the estimated lives of the contracts, in line with the provision of investment management services. Costs which are directly attributable and incremental to securing new non-participating investment contracts are deferred. This asset is subsequently amortised over the period of the provision of investment management services and its recoverability is reviewed in circumstances where its carrying amount may not be recoverable. If the asset is greater than its recoverable amount it is written down immediately through fee and commission expense in the income statement. All other costs are recognised as expenses when incurred. (N) Insurance \u2013 IFRS 4 As permitted by IFRS 17, the Group\u2019s income statement for the year ended 31 December 2021 has been prepared under IFRS 4 Insurance Contracts. The balance sheets as at 31 December 2023, 31 December 2022 and the opening balance sheet for IFRS 17 transition as at 1 January 2022 are presented under IFRS 17 Insurance Contracts. Products sold by the life insurance business are classified into three categories: insurance contracts, participating investment contracts and non-participating investment contracts. For certain investment contracts, the contract can be partly invested in units which contain a discretionary participation feature (DPF) and partly in units without. Where switching levels for similar contracts are deemed to be significant, new investment contracts which contain an option to switch into investment contracts with DPF have been classified as participating investment contracts. Where the switching levels are not deemed to be significant, a new contract is split, with units containing a DPF being allocated as a participating investment contract and the units without a DPF as a non-participating investment contract. The general insurance business issues only insurance contracts. (1) Life insurance business (i) Accounting for insurance and participating investment contracts Premiums and claims Premiums received in respect of insurance and participating investment contracts are recognised as revenue when due except for unit-linked contracts on which premiums are recognised as revenue when received. Claims are recorded as an expense on the earlier of the maturity date or the date on which the claim is notified. Liabilities Changes in the value of liabilities are recognised in the income statement through insurance claims and changes in insurance and investment contract liabilities. \u2022 Insurance and participating investment contracts in the Group\u2019s with-profit funds: liabilities of the Group\u2019s with-profit funds, including guarantees and options embedded within products written by these funds, are stated at their realistic values in accordance with the Prudential Regulation Authority\u2019s realistic capital regime, except that projected transfers out of the funds into other Group funds are recorded in the unallocated surplus (see below) \u2022 Insurance contracts which are not unit-linked or in the Group\u2019s with-profit funds: a liability for contractual benefits that are expected to be incurred in the future is recorded when the premiums are recognised. The liability is calculated by estimating the future cash flows over the duration of in-force policies and discounting them back to the valuation date allowing for probabilities of occurrence. The liability will vary with movements in interest rates and with the cost of life insurance and annuity benefits where future mortality is uncertain Assumptions are made in respect of all material factors affecting future cash flows, including future interest rates, mortality and costs. \u2022 Insurance and participating investment contracts which are unit-linked; Liabilities for unit-linked insurance and participating investment contracts are stated at the bid value of units plus an additional allowance where appropriate (such as for any excess of future expenses over charges). The liability is increased or reduced by the change in the unit prices and is reduced by policy administration fees, mortality and surrender charges and any withdrawals. Benefit claims in excess of the account balances incurred in the period are also charged through insurance claims and changes in insurance and investment contract liabilities. Revenue consists of fees deducted for mortality, policy administration and surrender charges Unallocated surplus Any amounts in the with-profit funds not yet determined as being due to policyholders or shareholders are recognised as an unallocated surplus which is shown separately from liabilities arising from insurance and participating investment contracts. (ii) Accounting for non-participating investment contracts The accounting policy is consistent with M(4) above, except that investment returns (including movements in fair value and investment income) allocated to those contracts are recognised in the income statement through insurance claims and changes in insurance and investment contract liabilities. (2) General insurance business The Group both underwrites and acts as intermediary in the sale of general insurance products. Underwriting premiums are included in insurance premium income, net of refunds, in the period in which insurance cover is provided to the customer; premiums received relating to future periods are deferred in the balance sheet within liabilities arising from insurance and participating investment contracts on a basis that reflects the length of time for which contracts have been in-force and the projected incidence of risk over the term of the contract and only credited to the income statement when earned. Broking commission is recognised when the underwriter accepts the risk of providing insurance cover to the customer. Where appropriate, provision is made for the effect of future policy terminations based upon past experience. The underwriting business makes provision for the estimated cost of claims notified but not settled and claims incurred but not reported at the balance sheet date. The provision for the cost of claims notified but not settled is based upon a best estimate of the cost of settling the outstanding claims after taking into account all known facts. In those cases where there is insufficient information to determine the required provision, statistical techniques are used which take into account the cost of claims that have recently been settled and make assumptions about the future development of the outstanding cases. Similar statistical techniques are used to determine the provision for claims incurred but not reported at the balance sheet date. Claims liabilities are not discounted. (3) Liability adequacy test At each balance sheet date liability adequacy tests are performed to ensure the adequacy of insurance and participating investment contract liabilities net of related deferred cost assets and value of in-force business. In performing these tests, current best estimates of discounted future contractual cash flows and claims handling and policy administration expenses, as well as investment income from the assets backing such liabilities, are used. Any deficiency is immediately charged to the income statement, initially by writing off the relevant assets and subsequently by establishing a provision for losses arising from liability adequacy tests. (4) Reinsurance The presentation of contracts entered into by the Group with reinsurers under which the Group is compensated for amounts payable on one or more other contracts issued by the Group is dependent on whether the contract with the reinsurer transfers significant insurance risk to the reinsurer. Where the reinsurance contract transfers significant insurance risk, it is classified as an insurance contract and the asset is recognised separately on the balance sheet. Where the reinsurance contract does not transfer significant insurance risk to the reinsurer, the assets arising from contracts held with reinsurers are presented within financial assets at fair value through profit or loss. (i) Contracts with reinsurers that transfer significant insurance risk Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured contracts and in accordance with the terms of each reinsurance contract and are regularly reviewed for impairment. Premiums payable for reinsurance contracts are recognised as an expense when due within insurance premium income. Changes in the reinsurance recoverable assets are recognised in the income statement through insurance claims and changes in insurance and investment contract liabilities. (ii) Contracts with reinsurers that do not transfer significant insurance risk Contracts that do not transfer significant insurance risk to the reinsurer are recognised within financial assets at fair value through profit or loss as they are within a portfolio of financial assets that is managed, and whose performance is evaluated, on a fair value basis. These contracts, while legally reinsurance contracts, do not meet the definition of a reinsurance contract under IFRS. Investment returns (including movements in fair value and investment income) allocated to these contracts are recognised in insurance claims and changes in insurance and investment contract liabilities. (O) Foreign currency translation Items included in the financial statements of each of the Group\u2019s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). Foreign currency transactions are translated into the appropriate functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when recognised in other comprehensive income as qualifying cash flow or net investment hedges. Non-monetary assets that are measured at fair value are translated using the exchange rate at the date that the fair value was determined. Translation differences on equities and similar non-monetary items held at fair value through profit and loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non- monetary financial assets measured at fair value through other comprehensive income, such as equity shares, are included in the fair value reserve in equity unless the asset is a hedged item in a fair value hedge.
The results and financial position of all Group entities that have a functional currency different from the presentation currency are
translated into the presentation currency as follows: the assets and liabilities of foreign operations, including goodwill and fair value
adjustments arising on the acquisition of a foreign entity, are translated into Sterling at foreign exchange rates ruling at the balance
sheet date; and the income and expenses of foreign operations are translated into Sterling at average exchange rates unless these do
not approximate to the foreign exchange rates ruling at the dates of the transactions, in which case income and expenses are
translated at the dates of the transactions.
Foreign exchange differences arising on the translation of a foreign operation are recognised in other comprehensive income and
accumulated in a separate component of equity together with exchange differences arising from the translation of borrowings and
other currency instruments designated as hedges of such investments (see (F)(3) above). On disposal or liquidation of a foreign
operation, the cumulative amount of exchange differences relating to that foreign operation is reclassified from equity and included in
determining the profit or loss arising on disposal or liquidation.
(P) Provisions and contingent liabilities
Provisions are recognised in respect of present obligations arising from past events where it is probable that outflows of resources will
be required to settle the obligations and they can be reliably estimated.
Contingent liabilities are possible obligations whose existence depends on the outcome of uncertain future events or those present
obligations where the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not recognised in
the financial statements but are disclosed unless they are remote.
Provision is made for expected credit losses in respect of irrevocable undrawn loan commitments and financial guarantee contracts
(see (H) above).
(Q) Share capital
Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a
deduction, net of tax, from the proceeds. Dividends paid on the Group\u2019s ordinary shares are recognised as a reduction in equity in the
period in which they are paid.
Where the Company or any member of the Group purchases the Company\u2019s share capital, the consideration paid is deducted from
shareholders\u2019 equity as treasury shares until they are cancelled; if these shares are subsequently sold or reissued, any consideration
received is included in shareholders\u2019 equity.
(R) Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise cash and non-mandatory deposits held with central
banks, mandatory deposits held with central banks in demand accounts and amounts due from banks with an original maturity of less
than three months that are available to finance the Group\u2019s day-to-day operations.
", "dimensions": { "concept": "ifrs-full:DisclosureOfMaterialAccountingPolicyInformationExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-897": { "value": "(A) Consolidation The assets, liabilities and results of Group undertakings (including structured entities) are included in the financial statements on the basis of accounts made up to the reporting date. Group undertakings include subsidiaries, associates and joint ventures. Details of the Group\u2019s subsidiaries and related undertakings are given on pages 344 to 356. (1) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it has power over the entity, is exposed to, or has rights to, variable returns from its involvement with the entity, and has the ability to affect those returns through the exercise of its power. This generally accompanies a shareholding of more than one half of the voting rights although in certain circumstances a holding of less than one half of the voting rights may still result in the ability of the Group to exercise control. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group reassesses whether or not it controls an entity if facts and circumstances indicate that there have been changes to any of the above elements. Subsidiaries are fully consolidated from the date on which control is transferred to the Group; they are de- consolidated from the date that control ceases. The Group consolidates collective investment vehicles if its beneficial ownership interests give it substantive rights to remove the external fund manager of the investment activities of the fund. Where a subsidiary of the Group is the fund manager of a collective investment vehicle, the Group considers a number of factors in determining whether it acts as principal, and therefore controls the collective investment vehicle, including: an assessment of the scope of the Group\u2019s decision making authority over the investment vehicle; the rights held by other parties including substantive removal rights without cause over the Group acting as fund manager; the remuneration to which the Group is entitled in its capacity as decision-maker; and the Group\u2019s exposure to variable returns from the beneficial interest that it holds in the investment vehicle. Consolidation may be appropriate in circumstances where the Group has less than a majority beneficial interest. Where a collective investment vehicle is consolidated the interests of parties other than the Group are reported in other liabilities and the movement in those interests in movement in third party interests in consolidated funds. Structured entities are entities that are designed so that their activities are not governed by way of voting rights. In assessing whether the Group has power over such entities in which it has an interest, the Group considers factors such as the purpose and design of the entity; its practical ability to direct the relevant activities of the entity; the nature of the relationship with the entity; and the size of its exposure to the variability of returns of the entity. The treatment of transactions with non-controlling interests depends on whether, as a result of the transaction, the Group loses control of the subsidiary. Changes in the parent\u2019s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions; any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the parent entity. Where the Group loses control of the subsidiary, at the date when control is lost the amount of any non-controlling interest in that former subsidiary is derecognised and any investment retained in the former subsidiary is remeasured to its fair value; the gain or loss that is recognised in profit or loss on the partial disposal of the subsidiary includes the gain or loss on the remeasurement of the retained interest. Intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated. The acquisition method of accounting is used to account for business combinations by the Group. The consideration for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred except those relating to the issuance of debt instruments (see (E)(4) below) or share capital (see (Q) below). Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. (2) Joint ventures and associates Joint ventures are joint arrangements over which the Group has joint control with other parties and has rights to the net assets of the arrangements. Joint control is the contractually agreed sharing of control of an arrangement and only exists when decisions about the relevant activities require the unanimous consent of the parties sharing control. Associates are entities over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the entity, but is not control or joint control of those policies, and is generally achieved through holding between 20 per cent and 50 per cent of the voting share capital of the entity. The Group utilises the venture capital exemption for investments where significant influence or joint control is present and the business unit operates as a venture capital business. These investments are designated on initial recognition at fair value through profit or loss. Otherwise, the Group\u2019s investments in joint ventures and associates are accounted for using the equity method of accounting. ", "dimensions": { "concept": "ifrs-full:DisclosureOfBasisOfConsolidationExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-948": { "value": "(1) Subsidiaries Subsidiaries are entities controlled by the Group. The Group controls an entity when it has power over the entity, is exposed to, or has rights to, variable returns from its involvement with the entity, and has the ability to affect those returns through the exercise of its power. This generally accompanies a shareholding of more than one half of the voting rights although in certain circumstances a holding of less than one half of the voting rights may still result in the ability of the Group to exercise control. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The Group reassesses whether or not it controls an entity if facts and circumstances indicate that there have been changes to any of the above elements. Subsidiaries are fully consolidated from the date on which control is transferred to the Group; they are de- consolidated from the date that control ceases. The Group consolidates collective investment vehicles if its beneficial ownership interests give it substantive rights to remove the external fund manager of the investment activities of the fund. Where a subsidiary of the Group is the fund manager of a collective investment vehicle, the Group considers a number of factors in determining whether it acts as principal, and therefore controls the collective investment vehicle, including: an assessment of the scope of the Group\u2019s decision making authority over the investment vehicle; the rights held by other parties including substantive removal rights without cause over the Group acting as fund manager; the remuneration to which the Group is entitled in its capacity as decision-maker; and the Group\u2019s exposure to variable returns from the beneficial interest that it holds in the investment vehicle. Consolidation may be appropriate in circumstances where the Group has less than a majority beneficial interest. Where a collective investment vehicle is consolidated the interests of parties other than the Group are reported in other liabilities and the movement in those interests in movement in third party interests in consolidated funds. Structured entities are entities that are designed so that their activities are not governed by way of voting rights. In assessing whether the Group has power over such entities in which it has an interest, the Group considers factors such as the purpose and design of the entity; its practical ability to direct the relevant activities of the entity; the nature of the relationship with the entity; and the size of its exposure to the variability of returns of the entity. The treatment of transactions with non-controlling interests depends on whether, as a result of the transaction, the Group loses control of the subsidiary. Changes in the parent\u2019s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions; any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the parent entity. Where the Group loses control of the subsidiary, at the date when control is lost the amount of any non-controlling interest in that former subsidiary is derecognised and any investment retained in the former subsidiary is remeasured to its fair value; the gain or loss that is recognised in profit or loss on the partial disposal of the subsidiary includes the gain or loss on the remeasurement of the retained interest. Intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated. The acquisition method of accounting is used to account for business combinations by the Group. The consideration for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred except those relating to the issuance of debt instruments (see (E)(4) below) or share capital (see (Q) below). Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair value at the acquisition date. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForSubsidiariesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-950": { "value": "(2) Joint ventures and associates Joint ventures are joint arrangements over which the Group has joint control with other parties and has rights to the net assets of the arrangements. Joint control is the contractually agreed sharing of control of an arrangement and only exists when decisions about the relevant activities require the unanimous consent of the parties sharing control. Associates are entities over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the entity, but is not control or joint control of those policies, and is generally achieved through holding between 20 per cent and 50 per cent of the voting share capital of the entity. The Group utilises the venture capital exemption for investments where significant influence or joint control is present and the business unit operates as a venture capital business. These investments are designated on initial recognition at fair value through profit or loss. Otherwise, the Group\u2019s investments in joint ventures and associates are accounted for using the equity method of accounting. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForInvestmentInAssociatesAndJointVenturesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-991": { "value": "(2) Joint ventures and associates Joint ventures are joint arrangements over which the Group has joint control with other parties and has rights to the net assets of the arrangements. Joint control is the contractually agreed sharing of control of an arrangement and only exists when decisions about the relevant activities require the unanimous consent of the parties sharing control. Associates are entities over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the entity, but is not control or joint control of those policies, and is generally achieved through holding between 20 per cent and 50 per cent of the voting share capital of the entity. The Group utilises the venture capital exemption for investments where significant influence or joint control is present and the business unit operates as a venture capital business. These investments are designated on initial recognition at fair value through profit or loss. Otherwise, the Group\u2019s investments in joint ventures and associates are accounted for using the equity method of accounting. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForInvestmentsInJointVentures", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1017": { "value": "(2) Joint ventures and associates Joint ventures are joint arrangements over which the Group has joint control with other parties and has rights to the net assets of the arrangements. Joint control is the contractually agreed sharing of control of an arrangement and only exists when decisions about the relevant activities require the unanimous consent of the parties sharing control. Associates are entities over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the entity, but is not control or joint control of those policies, and is generally achieved through holding between 20 per cent and 50 per cent of the voting share capital of the entity. The Group utilises the venture capital exemption for investments where significant influence or joint control is present and the business unit operates as a venture capital business. These investments are designated on initial recognition at fair value through profit or loss. Otherwise, the Group\u2019s investments in joint ventures and associates are accounted for using the equity method of accounting. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForInvestmentInAssociates", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-898": { "value": "(B) Goodwill Goodwill arises on business combinations and represents the excess of the cost of an acquisition over the fair value of the Group\u2019s share of the identifiable assets, liabilities and contingent liabilities acquired. Where the fair value of the Group\u2019s share of the identifiable assets, liabilities and contingent liabilities of the acquired entity is greater than the cost of acquisition, the excess is recognised immediately in the income statement. Goodwill is recognised as an asset at cost and is tested at least annually for impairment. For impairment testing, goodwill is allocated to the cash-generating unit (CGU) or groups of CGUs that are expected to benefit from the business combination. The Group\u2019s CGUs are largely product based for its Retail and Insurance businesses and client based for its Commercial Banking business. An impairment loss is recognised if the carrying amount of a CGU is determined to be greater than its recoverable amount. The recoverable amount of a CGU is the higher of its fair value less costs to sell and its value in use. If an impairment is identified the carrying value of the goodwill is written down immediately through the income statement and this is not subsequently reversed. At the date of disposal of a subsidiary, the carrying value of attributable goodwill is included in the calculation of the profit or loss on disposal. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForGoodwillExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-951": { "value": "(B) Goodwill Goodwill arises on business combinations and represents the excess of the cost of an acquisition over the fair value of the Group\u2019s share of the identifiable assets, liabilities and contingent liabilities acquired. Where the fair value of the Group\u2019s share of the identifiable assets, liabilities and contingent liabilities of the acquired entity is greater than the cost of acquisition, the excess is recognised immediately in the income statement. Goodwill is recognised as an asset at cost and is tested at least annually for impairment. For impairment testing, goodwill is allocated to the cash-generating unit (CGU) or groups of CGUs that are expected to benefit from the business combination. The Group\u2019s CGUs are largely product based for its Retail and Insurance businesses and client based for its Commercial Banking business. An impairment loss is recognised if the carrying amount of a CGU is determined to be greater than its recoverable amount. The recoverable amount of a CGU is the higher of its fair value less costs to sell and its value in use. If an impairment is identified the carrying value of the goodwill is written down immediately through the income statement and this is not subsequently reversed. At the date of disposal of a subsidiary, the carrying value of attributable goodwill is included in the calculation of the profit or loss on disposal. (C) Other intangible assets Intangible assets which have been determined to have a finite useful life are amortised on a straight-line basis over their estimated useful life as follows: up to seven years for capitalised software; 10 to 15 years for brands and other intangible assets. Intangible assets with finite useful lives are reviewed at each reporting date to assess whether there is any indication that they are impaired. If any such indication exists the recoverable amount of the asset is determined and in the event that the asset\u2019s carrying amount is greater than its recoverable amount, it is written down immediately. Certain brands have been determined to have an indefinite useful life and are not amortised. Such intangible assets are assessed annually to determine whether the asset is impaired and to reconfirm that an indefinite useful life remains appropriate. In the event that an indefinite life is inappropriate, a finite life is determined and a further impairment review is performed on the asset. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIntangibleAssetsAndGoodwillExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-993": { "value": "(B) Goodwill Goodwill arises on business combinations and represents the excess of the cost of an acquisition over the fair value of the Group\u2019s share of the identifiable assets, liabilities and contingent liabilities acquired. Where the fair value of the Group\u2019s share of the identifiable assets, liabilities and contingent liabilities of the acquired entity is greater than the cost of acquisition, the excess is recognised immediately in the income statement. Goodwill is recognised as an asset at cost and is tested at least annually for impairment. For impairment testing, goodwill is allocated to the cash-generating unit (CGU) or groups of CGUs that are expected to benefit from the business combination. The Group\u2019s CGUs are largely product based for its Retail and Insurance businesses and client based for its Commercial Banking business. An impairment loss is recognised if the carrying amount of a CGU is determined to be greater than its recoverable amount. The recoverable amount of a CGU is the higher of its fair value less costs to sell and its value in use. If an impairment is identified the carrying value of the goodwill is written down immediately through the income statement and this is not subsequently reversed. At the date of disposal of a subsidiary, the carrying value of attributable goodwill is included in the calculation of the profit or loss on disposal. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForBusinessCombinationsAndGoodwillExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-899": { "value": "(C) Other intangible assets Intangible assets which have been determined to have a finite useful life are amortised on a straight-line basis over their estimated useful life as follows: up to seven years for capitalised software; 10 to 15 years for brands and other intangible assets. Intangible assets with finite useful lives are reviewed at each reporting date to assess whether there is any indication that they are impaired. If any such indication exists the recoverable amount of the asset is determined and in the event that the asset\u2019s carrying amount is greater than its recoverable amount, it is written down immediately. Certain brands have been determined to have an indefinite useful life and are not amortised. Such intangible assets are assessed annually to determine whether the asset is impaired and to reconfirm that an indefinite useful life remains appropriate. In the event that an indefinite life is inappropriate, a finite life is determined and a further impairment review is performed on the asset. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIntangibleAssetsOtherThanGoodwillExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-900": { "value": "(D) Revenue recognition (1) Net interest income Interest income and expense are recognised in the income statement using the effective interest method for all interest-bearing financial instruments, except for those classified at fair value through profit or loss. The effective interest method is a method of calculating the amortised cost of a financial asset or liability and of allocating the interest income or interest expense over the expected life of the financial instrument. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument to the gross carrying amount of the financial asset (before adjusting for expected credit losses) or to the amortised cost of the financial liability, including early redemption fees, other fees, and premiums and discounts that are an integral part of the overall return. In the case of financial assets that are purchased or originated credit-impaired, the effective interest rate is the rate that discounts the estimated future cash flows to the amortised cost of the instrument. Direct incremental transaction costs related to the acquisition, issue or disposal of a financial instrument are also taken into account. Interest income from non-credit-impaired financial assets is recognised by applying the effective interest rate to the gross carrying amount of the asset; for credit-impaired financial assets, the effective interest rate is applied to the net carrying amount after deducting the allowance for expected credit losses. Impairment policies are set out in (H) below. (2) Fee and commission income and expense Fees and commissions receivable which are not an integral part of the effective interest rate are recognised as income as the Group fulfils its performance obligations. The Group\u2019s principal performance obligations arising from contracts with customers are in respect of value added current accounts, credit cards and debit cards. These fees are received, and the Group provides the service, monthly; the fees are recognised in income on this basis. The Group also receives certain fees in respect of its asset finance business where the performance obligations are typically fulfilled towards the end of the customer contract; these fees are recognised in income on this basis. Where it is unlikely that the loan commitments will be drawn, loan commitment fees are recognised in fee and commission income over the life of the facility, rather than as an adjustment to the effective interest rate for the lending expected to be drawn. Incremental costs incurred to generate fee and commission income are charged to fee and commission expense as they are incurred. (3) Other Dividend income is recognised when the right to receive payment is established. Revenue recognition policies specific to trading income are set out in (E)(3) below; those relating to life insurance and general insurance business are detailed below (see (M) and (N) below); and those relating to leases are set out in (J)(1) below. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForRecognitionOfRevenue", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-952": { "value": "(1) Net interest income Interest income and expense are recognised in the income statement using the effective interest method for all interest-bearing financial instruments, except for those classified at fair value through profit or loss. The effective interest method is a method of calculating the amortised cost of a financial asset or liability and of allocating the interest income or interest expense over the expected life of the financial instrument. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument to the gross carrying amount of the financial asset (before adjusting for expected credit losses) or to the amortised cost of the financial liability, including early redemption fees, other fees, and premiums and discounts that are an integral part of the overall return. In the case of financial assets that are purchased or originated credit-impaired, the effective interest rate is the rate that discounts the estimated future cash flows to the amortised cost of the instrument. Direct incremental transaction costs related to the acquisition, issue or disposal of a financial instrument are also taken into account. Interest income from non-credit-impaired financial assets is recognised by applying the effective interest rate to the gross carrying amount of the asset; for credit-impaired financial assets, the effective interest rate is applied to the net carrying amount after deducting the allowance for expected credit losses. Impairment policies are set out in (H) below. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForInterestIncomeAndExpenseExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-992": { "value": "(1) Net interest income Interest income and expense are recognised in the income statement using the effective interest method for all interest-bearing financial instruments, except for those classified at fair value through profit or loss. The effective interest method is a method of calculating the amortised cost of a financial asset or liability and of allocating the interest income or interest expense over the expected life of the financial instrument. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument to the gross carrying amount of the financial asset (before adjusting for expected credit losses) or to the amortised cost of the financial liability, including early redemption fees, other fees, and premiums and discounts that are an integral part of the overall return. In the case of financial assets that are purchased or originated credit-impaired, the effective interest rate is the rate that discounts the estimated future cash flows to the amortised cost of the instrument. Direct incremental transaction costs related to the acquisition, issue or disposal of a financial instrument are also taken into account. Interest income from non-credit-impaired financial assets is recognised by applying the effective interest rate to the gross carrying amount of the asset; for credit-impaired financial assets, the effective interest rate is applied to the net carrying amount after deducting the allowance for expected credit losses. Impairment policies are set out in (H) below. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinanceIncomeAndCostsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1018": { "value": "(1) Net interest income Interest income and expense are recognised in the income statement using the effective interest method for all interest-bearing financial instruments, except for those classified at fair value through profit or loss. The effective interest method is a method of calculating the amortised cost of a financial asset or liability and of allocating the interest income or interest expense over the expected life of the financial instrument. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument to the gross carrying amount of the financial asset (before adjusting for expected credit losses) or to the amortised cost of the financial liability, including early redemption fees, other fees, and premiums and discounts that are an integral part of the overall return. In the case of financial assets that are purchased or originated credit-impaired, the effective interest rate is the rate that discounts the estimated future cash flows to the amortised cost of the instrument. Direct incremental transaction costs related to the acquisition, issue or disposal of a financial instrument are also taken into account. Interest income from non-credit-impaired financial assets is recognised by applying the effective interest rate to the gross carrying amount of the asset; for credit-impaired financial assets, the effective interest rate is applied to the net carrying amount after deducting the allowance for expected credit losses. Impairment policies are set out in (H) below. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinanceCostsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-953": { "value": "(2) Fee and commission income and expense Fees and commissions receivable which are not an integral part of the effective interest rate are recognised as income as the Group fulfils its performance obligations. The Group\u2019s principal performance obligations arising from contracts with customers are in respect of value added current accounts, credit cards and debit cards. These fees are received, and the Group provides the service, monthly; the fees are recognised in income on this basis. The Group also receives certain fees in respect of its asset finance business where the performance obligations are typically fulfilled towards the end of the customer contract; these fees are recognised in income on this basis. Where it is unlikely that the loan commitments will be drawn, loan commitment fees are recognised in fee and commission income over the life of the facility, rather than as an adjustment to the effective interest rate for the lending expected to be drawn. Incremental costs incurred to generate fee and commission income are charged to fee and commission expense as they are incurred. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFeeAndCommissionIncomeAndExpenseExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-901": { "value": "(E) Financial assets and liabilities On initial recognition, financial assets are classified as measured at amortised cost, fair value through other comprehensive income or fair value through profit or loss, depending on the Group\u2019s business model for managing those financial assets and whether the resultant cash flows represent solely payments of principal and interest. The Group assesses its business models at a portfolio level based on its objectives for the relevant portfolio, how the performance of the portfolio is managed and reported, and the frequency of asset sales. Financial assets with embedded derivatives are considered in their entirety when considering their cash flow characteristics. The Group reclassifies financial assets only when its business model for managing those assets changes. A reclassification will only take place when the change is significant to the Group\u2019s operations and will occur at a portfolio level and not for individual instruments; reclassifications are expected to be rare. Equity investments are measured at fair value through profit or loss unless the Group elects at initial recognition to account for the instruments at fair value through other comprehensive income. For these instruments, principally strategic investments, dividends are recognised in profit or loss but fair value gains and losses are not subsequently reclassified to profit or loss following derecognition of the investment. The Group initially recognises loans and advances, deposits, debt securities in issue and subordinated liabilities when the Group becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of securities and other financial assets and trading liabilities are recognised on trade date, being the date that the Group is committed to purchase or sell an asset. Financial assets are derecognised when the contractual right to receive cash flows from those assets has expired or when the Group has transferred its contractual right to receive the cash flows from the assets and either: substantially all of the risks and rewards of ownership have been transferred; or the Group has neither retained nor transferred substantially all of the risks and rewards, but has transferred control. Financial liabilities are derecognised when the obligation is discharged, cancelled or expires. (1) Financial instruments measured at amortised cost Financial assets that are held to collect contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. A basic lending arrangement results in contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. Where the contractual cash flows introduce exposure to risks or volatility unrelated to a basic lending arrangement such as changes in equity prices or commodity prices, the payments do not comprise solely principal and interest. Financial assets measured at amortised cost are predominantly loans and advances to customers and banks, reverse repurchase agreements and certain debt securities used by the Group to manage its liquidity. Loans and advances and reverse repurchase agreements are initially recognised when cash is advanced to the borrower at fair value inclusive of transaction costs. Interest income is accounted for using the effective interest method (see (D) above). Financial liabilities are measured at amortised cost, except for trading liabilities and other financial liabilities designated at fair value through profit or loss on initial recognition which are held at fair value. Where changes are made to the contractual cash flows of a financial asset or financial liability that are economically equivalent and arise as a direct consequence of interest rate benchmark reform, the Group updates the effective interest rate and does not recognise an immediate gain or loss. (2) Financial assets measured at fair value through other comprehensive income Financial assets that are held to collect contractual cash flows and for subsequent sale, where the assets\u2019 cash flows represent solely payments of principal and interest, are recognised in the balance sheet at their fair value, inclusive of transaction costs. Interest calculated using the effective interest method and foreign exchange gains and losses on assets denominated in foreign currencies are recognised in the income statement. All other gains and losses arising from changes in fair value are recognised directly in other comprehensive income, until the financial asset is either sold or matures, at which time, other than in respect of equity shares, the cumulative gain or loss previously recognised in other comprehensive income is recognised in the income statement. The cumulative revaluation amount in respect of equity shares is transferred directly to retained profits. The Group recognises a charge for expected credit losses in the income statement (see (H) below). As the asset is measured at fair value, the charge does not adjust the carrying value of the asset, and this is reflected in other comprehensive income. (3) Financial instruments measured at fair value through profit or loss Financial assets are classified at fair value through profit or loss where they do not meet the criteria to be measured at amortised cost or fair value through other comprehensive income or where they are designated at fair value through profit or loss to reduce an accounting mismatch. All derivatives are carried at fair value through profit or loss, other than those in effective cash flow and net investment hedging relationships. Derivatives are carried on the balance sheet as assets when their fair value is positive and as liabilities when their fair value is negative. Refer to note 21(2) (Financial instruments: Financial assets and liabilities carried at fair value) for details of valuation techniques and significant inputs to valuation models. Derivatives embedded in a financial asset are not considered separately; the financial asset is considered in its entirety when determining whether its cash flows are solely payments of principal and interest. Derivatives embedded in financial liabilities and insurance contracts (unless the embedded derivative is itself an insurance contract) are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement. The assets backing the insurance and investment contracts issued by the Group do not meet the criteria to be measured at amortised cost or fair value through other comprehensive income as they are managed on a fair value basis and accordingly are measured at fair value through profit or loss. Similarly, trading securities, which are debt securities and equity shares acquired principally for the purpose of selling in the short term or which are part of a portfolio which is managed for short-term gains, do not meet these criteria and are also measured at fair value through profit or loss. Financial assets measured at fair value through profit or loss are recognised in the balance sheet at their fair value. Fair value gains and losses together with interest coupons and dividend income are recognised in the income statement within net trading income. Financial liabilities are measured at fair value through profit or loss where they are trading liabilities or where they are designated at fair value through profit or loss in order to reduce an accounting mismatch; where the liabilities are part of a group of liabilities (or assets and liabilities) which is managed, and its performance evaluated, on a fair value basis; or where the liabilities contain one or more embedded derivatives that significantly modify the cash flows arising under the contract and would otherwise need to be separately accounted for. Financial liabilities measured at fair value through profit or loss are recognised in the balance sheet at their fair value. Fair value gains and losses are recognised in the income statement within net trading income in the period in which they occur, except in the case of financial liabilities designated at fair value through profit or loss where gains and losses attributable to changes in own credit risk are recognised in other comprehensive income. The fair values of assets and liabilities traded in active markets are based on current bid and offer prices, respectively, which include the expected effects of potential changes to laws and regulations, risks associated with climate change and other factors. If the market is not active the Group establishes a fair value by using valuation techniques. The fair values of derivative financial instruments are adjusted where appropriate to reflect credit risk (via credit valuation adjustments (CVAs), debit valuation adjustments (DVAs) and funding valuation adjustments (FVAs)), market liquidity and other risks. (4) Borrowings Borrowings (which include deposits from banks, customer deposits, repurchase agreements, debt securities in issue and subordinated liabilities) are recognised initially at fair value, being their issue proceeds net of transaction costs incurred. These instruments are subsequently stated at amortised cost using the effective interest method. Preference shares and other instruments which carry a mandatory coupon or are redeemable on a specific date are classified as financial liabilities. The coupon on these instruments is recognised in the income statement as interest expense. Securities which carry a discretionary coupon and have no fixed maturity or redemption date are classified as other equity instruments. Interest payments on these securities are recognised as distributions from equity in the period in which they are paid. An exchange of financial liabilities on substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The difference between the carrying amount of a financial liability extinguished and the new financial liability is recognised in profit or loss together with any related costs or fees incurred. When a financial liability is exchanged for an equity instrument, the new equity instrument is recognised at fair value and any difference between the carrying value of the liability and the fair value of the new equity instrument is recognised in profit or loss. (5) Sale and repurchase agreements (including securities lending and borrowing) Securities sold subject to repurchase agreements (repos) continue to be recognised on the balance sheet where substantially all of the risks and rewards are retained. Funds received for repos carried at fair value are included within trading liabilities. Conversely, securities purchased under agreements to resell (reverse repos), where the Group does not acquire substantially all of the risks and rewards of ownership, are measured at amortised cost or at fair value. Those measured at fair value are recognised within trading securities. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities borrowing and lending transactions are typically secured; collateral takes the form of securities or cash advanced or received. Securities lent to counterparties are retained on the balance sheet. Securities borrowed are not recognised on the balance sheet, unless these are sold to third parties, in which case the obligation to return them is recorded at fair value as a trading liability. Cash collateral given or received is treated as a loan and advance measured at amortised cost or customer deposit. (F) Hedge accounting As permitted by IFRS 9, the Group continues to apply the requirements of IAS 39 to its hedging relationships. Changes in the fair value of all derivative instruments, other than those in effective cash flow and net investment hedging relationships, are recognised immediately in the income statement. As noted in (2) and (3) below, the change in fair value of a derivative in an effective cash flow or net investment hedging relationship is allocated between the income statement and other comprehensive income. Hedge accounting allows one financial instrument, generally a derivative such as a swap, to be designated as a hedge of another financial instrument such as a loan or deposit or a portfolio of such instruments. At the inception of the hedge relationship, formal documentation is drawn up specifying the hedging strategy, the hedged item, the hedging instrument and the methodology that will be used to measure the effectiveness of the hedge relationship in offsetting changes in the fair value or cash flow of the hedged risk. The effectiveness of the hedging relationship is tested both at inception and throughout its life and if at any point it is concluded that it is no longer highly effective in achieving its documented objective, hedge accounting is discontinued. Note 22 provides details of the types of derivatives held by the Group and presents separately those designated in hedge relationships. Where there is uncertainty arising from interest rate benchmark reform, the Group assumes that the interest rate benchmark on which the hedged cash flows and/or the hedged risk are based, or the interest rate benchmark on which the cash flows of the hedging instrument are based, are not altered as a result of interest rate benchmark reform. The Group does not discontinue a hedging relationship during the period of uncertainty arising from the interest rate benchmark reform solely because the actual results of the hedge are not highly effective. Where the contractual terms of a financial asset, financial liability or derivative are amended, on an economically equivalent basis, as a direct consequence of interest rate benchmark reform, the uncertainty arising from the reform is no longer present. In these circumstances, the Group amends the hedge documentation to reflect the changes required by the reform; these changes to the documentation do not in and of themselves result in the discontinuation of hedge accounting or require the designation of a new hedge relationship. (1) Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk; this also applies if the hedged asset is classified as a financial asset at fair value through other comprehensive income. If the hedge no longer meets the criteria for hedge accounting, changes in the fair value of the hedged item attributable to the hedged risk are no longer recognised in the income statement. The cumulative adjustment that has been made to the carrying amount of the hedged item is amortised to the income statement using the effective interest method over the period to maturity. (2) Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income in the cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are reclassified to the income statement in the periods in which the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in the income statement when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. (3) Net investment hedges Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income, and the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of. The hedging instruments used in net investment hedges may include non-derivative liabilities as well as derivative financial instruments. (G) Offset Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right of offset and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Cash collateral on exchange traded derivative transactions is presented gross unless the collateral cash flows are always settled net with the derivative cash flows. In certain situations, even though master netting agreements exist, the lack of management intention to settle on a net basis results in the financial assets and liabilities being reported gross on the balance sheet. (H) Impairment of financial assets The impairment charge in the income statement reflects the change in expected credit losses, including those arising from fraud. Expected credit losses are recognised for loans and advances to customers and banks, other financial assets held at amortised cost, financial assets (other than equity investments) measured at fair value through other comprehensive income, and certain loan commitments and financial guarantee contracts. Expected credit losses are calculated as an unbiased and probability-weighted estimate using an appropriate probability of default, adjusted to take into account a range of possible future economic scenarios, and applying this to the estimated exposure of the Group at the point of default after taking into account the value of any collateral held, repayments, or other mitigants of loss and including the impact of discounting using the effective interest rate. At initial recognition, allowance (or provision in the case of some loan commitments and financial guarantees) is made for expected credit losses resulting from default events that are possible within the next 12 months (12-month expected credit losses). In the event of a significant increase in credit risk since origination, allowance (or provision) is made for expected credit losses resulting from all possible default events over the expected life of the financial instrument (lifetime expected credit losses). Financial assets where 12- month expected credit losses are recognised are considered to be Stage 1; financial assets which are considered to have experienced a significant increase in credit risk since initial recognition are in Stage 2; and financial assets which have defaulted or are otherwise considered to be credit-impaired are allocated to Stage 3. Some Stage 3 assets, mainly in Commercial Banking, are subject to individual rather than collective assessment. Such cases are subject to a risk-based impairment sanctioning process, and these are reviewed and updated at least quarterly, or more frequently if there is a significant change in the credit profile. The collective assessment of impairment aggregates financial instruments with similar risk characteristics, such as whether the facility is revolving in nature or secured and the type of security held against financial assets. An assessment of whether credit risk has increased significantly since initial recognition considers the change in the risk of default occurring over the remaining expected life of the financial instrument. In determining whether there has been a significant increase in credit risk, the Group uses quantitative tests based on relative and absolute probability of default (PD) movements linked to internal credit ratings together with qualitative indicators such as watchlists and other indicators of historical delinquency, credit weakness or financial difficulty. The use of internal credit ratings and qualitative indicators ensures alignment between the assessment of staging and the Group\u2019s management of credit risk which utilises these internal metrics within distinct retail and commercial portfolio risk management practices. However, unless identified at an earlier stage, the credit risk of financial assets is deemed to have increased significantly when more than 30 days past due. The use of a payment holiday in and of itself has not been judged to indicate a significant increase in credit risk, with the underlying long-term credit risk deemed to be driven by economic conditions and captured through the use of forward-looking models. These portfolio-level models are capturing the anticipated volume of increased defaults and therefore an appropriate assessment of staging and expected credit loss. Where the credit risk subsequently improves such that it no longer represents a significant increase in credit risk since initial recognition, the asset is transferred back to Stage 1. Assets are transferred to Stage 3 when they have defaulted or are otherwise considered to be credit-impaired. Default is considered to have occurred when there is evidence that the customer is experiencing financial difficulty which is likely to affect significantly the ability to repay the amount due. IFRS 9 contains a rebuttable presumption that default occurs no later than when a payment is 90 days past due which the Group now uses for all its products following changes to the definition of default for UK mortgages on 1 January 2022. In addition, other indicators of mortgage default are added including end-of-term payments on past due interest-only accounts and loans considered non-performing due to recent arrears or forbearance. The use of payment holidays is not considered to be an automatic trigger of regulatory default and therefore does not automatically trigger Stage 3. Days past due will also not accumulate on any accounts that have taken a payment holiday including those already past due. In certain circumstances, the Group will renegotiate the original terms of a customer\u2019s loan, either as part of an ongoing customer relationship or in response to adverse changes in the circumstances of the borrower. In the latter circumstances, the loan will remain classified as either Stage 2 or Stage 3 until the credit risk has improved such that it no longer represents a significant increase since origination (for a return to Stage 1), or the loan is no longer credit-impaired (for a return to Stage 2). On renegotiation the gross carrying amount of the loan is recalculated as the present value of the renegotiated or modified contractual cash flows, which are discounted at the original effective interest rate. Renegotiation may also lead to the loan and associated allowance being derecognised and a new loan being recognised initially at fair value. Purchased or originated credit-impaired financial assets (POCI) include financial assets that are purchased or originated at a deep discount that reflects incurred credit losses. At initial recognition, POCI assets do not carry an impairment allowance; instead, lifetime expected credit losses are incorporated into the calculation of the effective interest rate. All changes in lifetime expected credit losses subsequent to the assets\u2019 initial recognition are recognised as an impairment charge. A loan or advance is normally written off, either partially or in full, against the related allowance when the proceeds from realising any available security have been received or there is no realistic prospect of recovery and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of impairment losses recorded in the income statement. For both secured and unsecured retail balances, the write-off takes place only once an extensive set of collections processes has been completed, or the status of the account reaches a point where policy dictates that continuing attempts to recover are no longer appropriate. For commercial lending, a write-off occurs if the loan facility with the customer is restructured, the asset is under administration and the only monies that can be received are the amounts estimated by the administrator, the underlying assets are disposed and a decision is made that no further settlement monies will be received, or external evidence (for example, third party valuations) is available that there has been an irreversible decline in expected cash flows. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-954": { "value": "(E) Financial assets and liabilities On initial recognition, financial assets are classified as measured at amortised cost, fair value through other comprehensive income or fair value through profit or loss, depending on the Group\u2019s business model for managing those financial assets and whether the resultant cash flows represent solely payments of principal and interest. The Group assesses its business models at a portfolio level based on its objectives for the relevant portfolio, how the performance of the portfolio is managed and reported, and the frequency of asset sales. Financial assets with embedded derivatives are considered in their entirety when considering their cash flow characteristics. The Group reclassifies financial assets only when its business model for managing those assets changes. A reclassification will only take place when the change is significant to the Group\u2019s operations and will occur at a portfolio level and not for individual instruments; reclassifications are expected to be rare. Equity investments are measured at fair value through profit or loss unless the Group elects at initial recognition to account for the instruments at fair value through other comprehensive income. For these instruments, principally strategic investments, dividends are recognised in profit or loss but fair value gains and losses are not subsequently reclassified to profit or loss following derecognition of the investment. The Group initially recognises loans and advances, deposits, debt securities in issue and subordinated liabilities when the Group becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of securities and other financial assets and trading liabilities are recognised on trade date, being the date that the Group is committed to purchase or sell an asset. Financial assets are derecognised when the contractual right to receive cash flows from those assets has expired or when the Group has transferred its contractual right to receive the cash flows from the assets and either: substantially all of the risks and rewards of ownership have been transferred; or the Group has neither retained nor transferred substantially all of the risks and rewards, but has transferred control. Financial liabilities are derecognised when the obligation is discharged, cancelled or expires. (1) Financial instruments measured at amortised cost Financial assets that are held to collect contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. A basic lending arrangement results in contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. Where the contractual cash flows introduce exposure to risks or volatility unrelated to a basic lending arrangement such as changes in equity prices or commodity prices, the payments do not comprise solely principal and interest. Financial assets measured at amortised cost are predominantly loans and advances to customers and banks, reverse repurchase agreements and certain debt securities used by the Group to manage its liquidity. Loans and advances and reverse repurchase agreements are initially recognised when cash is advanced to the borrower at fair value inclusive of transaction costs. Interest income is accounted for using the effective interest method (see (D) above). Financial liabilities are measured at amortised cost, except for trading liabilities and other financial liabilities designated at fair value through profit or loss on initial recognition which are held at fair value. Where changes are made to the contractual cash flows of a financial asset or financial liability that are economically equivalent and arise as a direct consequence of interest rate benchmark reform, the Group updates the effective interest rate and does not recognise an immediate gain or loss. (2) Financial assets measured at fair value through other comprehensive income Financial assets that are held to collect contractual cash flows and for subsequent sale, where the assets\u2019 cash flows represent solely payments of principal and interest, are recognised in the balance sheet at their fair value, inclusive of transaction costs. Interest calculated using the effective interest method and foreign exchange gains and losses on assets denominated in foreign currencies are recognised in the income statement. All other gains and losses arising from changes in fair value are recognised directly in other comprehensive income, until the financial asset is either sold or matures, at which time, other than in respect of equity shares, the cumulative gain or loss previously recognised in other comprehensive income is recognised in the income statement. The cumulative revaluation amount in respect of equity shares is transferred directly to retained profits. The Group recognises a charge for expected credit losses in the income statement (see (H) below). As the asset is measured at fair value, the charge does not adjust the carrying value of the asset, and this is reflected in other comprehensive income. (3) Financial instruments measured at fair value through profit or loss Financial assets are classified at fair value through profit or loss where they do not meet the criteria to be measured at amortised cost or fair value through other comprehensive income or where they are designated at fair value through profit or loss to reduce an accounting mismatch. All derivatives are carried at fair value through profit or loss, other than those in effective cash flow and net investment hedging relationships. Derivatives are carried on the balance sheet as assets when their fair value is positive and as liabilities when their fair value is negative. Refer to note 21(2) (Financial instruments: Financial assets and liabilities carried at fair value) for details of valuation techniques and significant inputs to valuation models. Derivatives embedded in a financial asset are not considered separately; the financial asset is considered in its entirety when determining whether its cash flows are solely payments of principal and interest. Derivatives embedded in financial liabilities and insurance contracts (unless the embedded derivative is itself an insurance contract) are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement. The assets backing the insurance and investment contracts issued by the Group do not meet the criteria to be measured at amortised cost or fair value through other comprehensive income as they are managed on a fair value basis and accordingly are measured at fair value through profit or loss. Similarly, trading securities, which are debt securities and equity shares acquired principally for the purpose of selling in the short term or which are part of a portfolio which is managed for short-term gains, do not meet these criteria and are also measured at fair value through profit or loss. Financial assets measured at fair value through profit or loss are recognised in the balance sheet at their fair value. Fair value gains and losses together with interest coupons and dividend income are recognised in the income statement within net trading income. Financial liabilities are measured at fair value through profit or loss where they are trading liabilities or where they are designated at fair value through profit or loss in order to reduce an accounting mismatch; where the liabilities are part of a group of liabilities (or assets and liabilities) which is managed, and its performance evaluated, on a fair value basis; or where the liabilities contain one or more embedded derivatives that significantly modify the cash flows arising under the contract and would otherwise need to be separately accounted for. Financial liabilities measured at fair value through profit or loss are recognised in the balance sheet at their fair value. Fair value gains and losses are recognised in the income statement within net trading income in the period in which they occur, except in the case of financial liabilities designated at fair value through profit or loss where gains and losses attributable to changes in own credit risk are recognised in other comprehensive income. The fair values of assets and liabilities traded in active markets are based on current bid and offer prices, respectively, which include the expected effects of potential changes to laws and regulations, risks associated with climate change and other factors. If the market is not active the Group establishes a fair value by using valuation techniques. The fair values of derivative financial instruments are adjusted where appropriate to reflect credit risk (via credit valuation adjustments (CVAs), debit valuation adjustments (DVAs) and funding valuation adjustments (FVAs)), market liquidity and other risks. (H) Impairment of financial assets The impairment charge in the income statement reflects the change in expected credit losses, including those arising from fraud. Expected credit losses are recognised for loans and advances to customers and banks, other financial assets held at amortised cost, financial assets (other than equity investments) measured at fair value through other comprehensive income, and certain loan commitments and financial guarantee contracts. Expected credit losses are calculated as an unbiased and probability-weighted estimate using an appropriate probability of default, adjusted to take into account a range of possible future economic scenarios, and applying this to the estimated exposure of the Group at the point of default after taking into account the value of any collateral held, repayments, or other mitigants of loss and including the impact of discounting using the effective interest rate. At initial recognition, allowance (or provision in the case of some loan commitments and financial guarantees) is made for expected credit losses resulting from default events that are possible within the next 12 months (12-month expected credit losses). In the event of a significant increase in credit risk since origination, allowance (or provision) is made for expected credit losses resulting from all possible default events over the expected life of the financial instrument (lifetime expected credit losses). Financial assets where 12- month expected credit losses are recognised are considered to be Stage 1; financial assets which are considered to have experienced a significant increase in credit risk since initial recognition are in Stage 2; and financial assets which have defaulted or are otherwise considered to be credit-impaired are allocated to Stage 3. Some Stage 3 assets, mainly in Commercial Banking, are subject to individual rather than collective assessment. Such cases are subject to a risk-based impairment sanctioning process, and these are reviewed and updated at least quarterly, or more frequently if there is a significant change in the credit profile. The collective assessment of impairment aggregates financial instruments with similar risk characteristics, such as whether the facility is revolving in nature or secured and the type of security held against financial assets. An assessment of whether credit risk has increased significantly since initial recognition considers the change in the risk of default occurring over the remaining expected life of the financial instrument. In determining whether there has been a significant increase in credit risk, the Group uses quantitative tests based on relative and absolute probability of default (PD) movements linked to internal credit ratings together with qualitative indicators such as watchlists and other indicators of historical delinquency, credit weakness or financial difficulty. The use of internal credit ratings and qualitative indicators ensures alignment between the assessment of staging and the Group\u2019s management of credit risk which utilises these internal metrics within distinct retail and commercial portfolio risk management practices. However, unless identified at an earlier stage, the credit risk of financial assets is deemed to have increased significantly when more than 30 days past due. The use of a payment holiday in and of itself has not been judged to indicate a significant increase in credit risk, with the underlying long-term credit risk deemed to be driven by economic conditions and captured through the use of forward-looking models. These portfolio-level models are capturing the anticipated volume of increased defaults and therefore an appropriate assessment of staging and expected credit loss. Where the credit risk subsequently improves such that it no longer represents a significant increase in credit risk since initial recognition, the asset is transferred back to Stage 1. Assets are transferred to Stage 3 when they have defaulted or are otherwise considered to be credit-impaired. Default is considered to have occurred when there is evidence that the customer is experiencing financial difficulty which is likely to affect significantly the ability to repay the amount due. IFRS 9 contains a rebuttable presumption that default occurs no later than when a payment is 90 days past due which the Group now uses for all its products following changes to the definition of default for UK mortgages on 1 January 2022. In addition, other indicators of mortgage default are added including end-of-term payments on past due interest-only accounts and loans considered non-performing due to recent arrears or forbearance. The use of payment holidays is not considered to be an automatic trigger of regulatory default and therefore does not automatically trigger Stage 3. Days past due will also not accumulate on any accounts that have taken a payment holiday including those already past due. In certain circumstances, the Group will renegotiate the original terms of a customer\u2019s loan, either as part of an ongoing customer relationship or in response to adverse changes in the circumstances of the borrower. In the latter circumstances, the loan will remain classified as either Stage 2 or Stage 3 until the credit risk has improved such that it no longer represents a significant increase since origination (for a return to Stage 1), or the loan is no longer credit-impaired (for a return to Stage 2). On renegotiation the gross carrying amount of the loan is recalculated as the present value of the renegotiated or modified contractual cash flows, which are discounted at the original effective interest rate. Renegotiation may also lead to the loan and associated allowance being derecognised and a new loan being recognised initially at fair value. Purchased or originated credit-impaired financial assets (POCI) include financial assets that are purchased or originated at a deep discount that reflects incurred credit losses. At initial recognition, POCI assets do not carry an impairment allowance; instead, lifetime expected credit losses are incorporated into the calculation of the effective interest rate. All changes in lifetime expected credit losses subsequent to the assets\u2019 initial recognition are recognised as an impairment charge. A loan or advance is normally written off, either partially or in full, against the related allowance when the proceeds from realising any available security have been received or there is no realistic prospect of recovery and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of impairment losses recorded in the income statement. For both secured and unsecured retail balances, the write-off takes place only once an extensive set of collections processes has been completed, or the status of the account reaches a point where policy dictates that continuing attempts to recover are no longer appropriate. For commercial lending, a write-off occurs if the loan facility with the customer is restructured, the asset is under administration and the only monies that can be received are the amounts estimated by the administrator, the underlying assets are disposed and a decision is made that no further settlement monies will be received, or external evidence (for example, third party valuations) is available that there has been an irreversible decline in expected cash flows. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialAssetsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-994": { "value": "(E) Financial assets and liabilities On initial recognition, financial assets are classified as measured at amortised cost, fair value through other comprehensive income or fair value through profit or loss, depending on the Group\u2019s business model for managing those financial assets and whether the resultant cash flows represent solely payments of principal and interest. The Group assesses its business models at a portfolio level based on its objectives for the relevant portfolio, how the performance of the portfolio is managed and reported, and the frequency of asset sales. Financial assets with embedded derivatives are considered in their entirety when considering their cash flow characteristics. The Group reclassifies financial assets only when its business model for managing those assets changes. A reclassification will only take place when the change is significant to the Group\u2019s operations and will occur at a portfolio level and not for individual instruments; reclassifications are expected to be rare. Equity investments are measured at fair value through profit or loss unless the Group elects at initial recognition to account for the instruments at fair value through other comprehensive income. For these instruments, principally strategic investments, dividends are recognised in profit or loss but fair value gains and losses are not subsequently reclassified to profit or loss following derecognition of the investment. The Group initially recognises loans and advances, deposits, debt securities in issue and subordinated liabilities when the Group becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of securities and other financial assets and trading liabilities are recognised on trade date, being the date that the Group is committed to purchase or sell an asset. Financial assets are derecognised when the contractual right to receive cash flows from those assets has expired or when the Group has transferred its contractual right to receive the cash flows from the assets and either: substantially all of the risks and rewards of ownership have been transferred; or the Group has neither retained nor transferred substantially all of the risks and rewards, but has transferred control. Financial liabilities are derecognised when the obligation is discharged, cancelled or expires. (1) Financial instruments measured at amortised cost Financial assets that are held to collect contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. A basic lending arrangement results in contractual cash flows that are solely payments of principal and interest on the principal amount outstanding. Where the contractual cash flows introduce exposure to risks or volatility unrelated to a basic lending arrangement such as changes in equity prices or commodity prices, the payments do not comprise solely principal and interest. Financial assets measured at amortised cost are predominantly loans and advances to customers and banks, reverse repurchase agreements and certain debt securities used by the Group to manage its liquidity. Loans and advances and reverse repurchase agreements are initially recognised when cash is advanced to the borrower at fair value inclusive of transaction costs. Interest income is accounted for using the effective interest method (see (D) above). Financial liabilities are measured at amortised cost, except for trading liabilities and other financial liabilities designated at fair value through profit or loss on initial recognition which are held at fair value. Where changes are made to the contractual cash flows of a financial asset or financial liability that are economically equivalent and arise as a direct consequence of interest rate benchmark reform, the Group updates the effective interest rate and does not recognise an immediate gain or loss. (2) Financial assets measured at fair value through other comprehensive income Financial assets that are held to collect contractual cash flows and for subsequent sale, where the assets\u2019 cash flows represent solely payments of principal and interest, are recognised in the balance sheet at their fair value, inclusive of transaction costs. Interest calculated using the effective interest method and foreign exchange gains and losses on assets denominated in foreign currencies are recognised in the income statement. All other gains and losses arising from changes in fair value are recognised directly in other comprehensive income, until the financial asset is either sold or matures, at which time, other than in respect of equity shares, the cumulative gain or loss previously recognised in other comprehensive income is recognised in the income statement. The cumulative revaluation amount in respect of equity shares is transferred directly to retained profits. The Group recognises a charge for expected credit losses in the income statement (see (H) below). As the asset is measured at fair value, the charge does not adjust the carrying value of the asset, and this is reflected in other comprehensive income. (3) Financial instruments measured at fair value through profit or loss Financial assets are classified at fair value through profit or loss where they do not meet the criteria to be measured at amortised cost or fair value through other comprehensive income or where they are designated at fair value through profit or loss to reduce an accounting mismatch. All derivatives are carried at fair value through profit or loss, other than those in effective cash flow and net investment hedging relationships. Derivatives are carried on the balance sheet as assets when their fair value is positive and as liabilities when their fair value is negative. Refer to note 21(2) (Financial instruments: Financial assets and liabilities carried at fair value) for details of valuation techniques and significant inputs to valuation models. Derivatives embedded in a financial asset are not considered separately; the financial asset is considered in its entirety when determining whether its cash flows are solely payments of principal and interest. Derivatives embedded in financial liabilities and insurance contracts (unless the embedded derivative is itself an insurance contract) are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement. The assets backing the insurance and investment contracts issued by the Group do not meet the criteria to be measured at amortised cost or fair value through other comprehensive income as they are managed on a fair value basis and accordingly are measured at fair value through profit or loss. Similarly, trading securities, which are debt securities and equity shares acquired principally for the purpose of selling in the short term or which are part of a portfolio which is managed for short-term gains, do not meet these criteria and are also measured at fair value through profit or loss. Financial assets measured at fair value through profit or loss are recognised in the balance sheet at their fair value. Fair value gains and losses together with interest coupons and dividend income are recognised in the income statement within net trading income. Financial liabilities are measured at fair value through profit or loss where they are trading liabilities or where they are designated at fair value through profit or loss in order to reduce an accounting mismatch; where the liabilities are part of a group of liabilities (or assets and liabilities) which is managed, and its performance evaluated, on a fair value basis; or where the liabilities contain one or more embedded derivatives that significantly modify the cash flows arising under the contract and would otherwise need to be separately accounted for. Financial liabilities measured at fair value through profit or loss are recognised in the balance sheet at their fair value. Fair value gains and losses are recognised in the income statement within net trading income in the period in which they occur, except in the case of financial liabilities designated at fair value through profit or loss where gains and losses attributable to changes in own credit risk are recognised in other comprehensive income. The fair values of assets and liabilities traded in active markets are based on current bid and offer prices, respectively, which include the expected effects of potential changes to laws and regulations, risks associated with climate change and other factors. If the market is not active the Group establishes a fair value by using valuation techniques. The fair values of derivative financial instruments are adjusted where appropriate to reflect credit risk (via credit valuation adjustments (CVAs), debit valuation adjustments (DVAs) and funding valuation adjustments (FVAs)), market liquidity and other risks. (4) Borrowings Borrowings (which include deposits from banks, customer deposits, repurchase agreements, debt securities in issue and subordinated liabilities) are recognised initially at fair value, being their issue proceeds net of transaction costs incurred. These instruments are subsequently stated at amortised cost using the effective interest method. Preference shares and other instruments which carry a mandatory coupon or are redeemable on a specific date are classified as financial liabilities. The coupon on these instruments is recognised in the income statement as interest expense. Securities which carry a discretionary coupon and have no fixed maturity or redemption date are classified as other equity instruments. Interest payments on these securities are recognised as distributions from equity in the period in which they are paid. An exchange of financial liabilities on substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The difference between the carrying amount of a financial liability extinguished and the new financial liability is recognised in profit or loss together with any related costs or fees incurred. When a financial liability is exchanged for an equity instrument, the new equity instrument is recognised at fair value and any difference between the carrying value of the liability and the fair value of the new equity instrument is recognised in profit or loss. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialLiabilitiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1019": { "value": "(2) Financial assets measured at fair value through other comprehensive income Financial assets that are held to collect contractual cash flows and for subsequent sale, where the assets\u2019 cash flows represent solely payments of principal and interest, are recognised in the balance sheet at their fair value, inclusive of transaction costs. Interest calculated using the effective interest method and foreign exchange gains and losses on assets denominated in foreign currencies are recognised in the income statement. All other gains and losses arising from changes in fair value are recognised directly in other comprehensive income, until the financial asset is either sold or matures, at which time, other than in respect of equity shares, the cumulative gain or loss previously recognised in other comprehensive income is recognised in the income statement. The cumulative revaluation amount in respect of equity shares is transferred directly to retained profits. The Group recognises a charge for expected credit losses in the income statement (see (H) below). As the asset is measured at fair value, the charge does not adjust the carrying value of the asset, and this is reflected in other comprehensive income. (3) Financial instruments measured at fair value through profit or loss Financial assets are classified at fair value through profit or loss where they do not meet the criteria to be measured at amortised cost or fair value through other comprehensive income or where they are designated at fair value through profit or loss to reduce an accounting mismatch. All derivatives are carried at fair value through profit or loss, other than those in effective cash flow and net investment hedging relationships. Derivatives are carried on the balance sheet as assets when their fair value is positive and as liabilities when their fair value is negative. Refer to note 21(2) (Financial instruments: Financial assets and liabilities carried at fair value) for details of valuation techniques and significant inputs to valuation models. Derivatives embedded in a financial asset are not considered separately; the financial asset is considered in its entirety when determining whether its cash flows are solely payments of principal and interest. Derivatives embedded in financial liabilities and insurance contracts (unless the embedded derivative is itself an insurance contract) are treated as separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the income statement. The assets backing the insurance and investment contracts issued by the Group do not meet the criteria to be measured at amortised cost or fair value through other comprehensive income as they are managed on a fair value basis and accordingly are measured at fair value through profit or loss. Similarly, trading securities, which are debt securities and equity shares acquired principally for the purpose of selling in the short term or which are part of a portfolio which is managed for short-term gains, do not meet these criteria and are also measured at fair value through profit or loss. Financial assets measured at fair value through profit or loss are recognised in the balance sheet at their fair value. Fair value gains and losses together with interest coupons and dividend income are recognised in the income statement within net trading income. Financial liabilities are measured at fair value through profit or loss where they are trading liabilities or where they are designated at fair value through profit or loss in order to reduce an accounting mismatch; where the liabilities are part of a group of liabilities (or assets and liabilities) which is managed, and its performance evaluated, on a fair value basis; or where the liabilities contain one or more embedded derivatives that significantly modify the cash flows arising under the contract and would otherwise need to be separately accounted for. Financial liabilities measured at fair value through profit or loss are recognised in the balance sheet at their fair value. Fair value gains and losses are recognised in the income statement within net trading income in the period in which they occur, except in the case of financial liabilities designated at fair value through profit or loss where gains and losses attributable to changes in own credit risk are recognised in other comprehensive income. The fair values of assets and liabilities traded in active markets are based on current bid and offer prices, respectively, which include the expected effects of potential changes to laws and regulations, risks associated with climate change and other factors. If the market is not active the Group establishes a fair value by using valuation techniques. The fair values of derivative financial instruments are adjusted where appropriate to reflect credit risk (via credit valuation adjustments (CVAs), debit valuation adjustments (DVAs) and funding valuation adjustments (FVAs)), market liquidity and other risks. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFinancialInstrumentsAtFairValueThroughProfitOrLossExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1020": { "value": "(4) Borrowings Borrowings (which include deposits from banks, customer deposits, repurchase agreements, debt securities in issue and subordinated liabilities) are recognised initially at fair value, being their issue proceeds net of transaction costs incurred. These instruments are subsequently stated at amortised cost using the effective interest method. Preference shares and other instruments which carry a mandatory coupon or are redeemable on a specific date are classified as financial liabilities. The coupon on these instruments is recognised in the income statement as interest expense. Securities which carry a discretionary coupon and have no fixed maturity or redemption date are classified as other equity instruments. Interest payments on these securities are recognised as distributions from equity in the period in which they are paid. An exchange of financial liabilities on substantially different terms is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The difference between the carrying amount of a financial liability extinguished and the new financial liability is recognised in profit or loss together with any related costs or fees incurred. When a financial liability is exchanged for an equity instrument, the new equity instrument is recognised at fair value and any difference between the carrying value of the liability and the fair value of the new equity instrument is recognised in profit or loss. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForBorrowingsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1021": { "value": "(5) Sale and repurchase agreements (including securities lending and borrowing) Securities sold subject to repurchase agreements (repos) continue to be recognised on the balance sheet where substantially all of the risks and rewards are retained. Funds received for repos carried at fair value are included within trading liabilities. Conversely, securities purchased under agreements to resell (reverse repos), where the Group does not acquire substantially all of the risks and rewards of ownership, are measured at amortised cost or at fair value. Those measured at fair value are recognised within trading securities. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method. Securities borrowing and lending transactions are typically secured; collateral takes the form of securities or cash advanced or received. Securities lent to counterparties are retained on the balance sheet. Securities borrowed are not recognised on the balance sheet, unless these are sold to third parties, in which case the obligation to return them is recorded at fair value as a trading liability. Cash collateral given or received is treated as a loan and advance measured at amortised cost or customer deposit. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForRepurchaseAndReverseRepurchaseAgreementsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1022": { "value": "(F) Hedge accounting As permitted by IFRS 9, the Group continues to apply the requirements of IAS 39 to its hedging relationships. Changes in the fair value of all derivative instruments, other than those in effective cash flow and net investment hedging relationships, are recognised immediately in the income statement. As noted in (2) and (3) below, the change in fair value of a derivative in an effective cash flow or net investment hedging relationship is allocated between the income statement and other comprehensive income. Hedge accounting allows one financial instrument, generally a derivative such as a swap, to be designated as a hedge of another financial instrument such as a loan or deposit or a portfolio of such instruments. At the inception of the hedge relationship, formal documentation is drawn up specifying the hedging strategy, the hedged item, the hedging instrument and the methodology that will be used to measure the effectiveness of the hedge relationship in offsetting changes in the fair value or cash flow of the hedged risk. The effectiveness of the hedging relationship is tested both at inception and throughout its life and if at any point it is concluded that it is no longer highly effective in achieving its documented objective, hedge accounting is discontinued. Note 22 provides details of the types of derivatives held by the Group and presents separately those designated in hedge relationships. Where there is uncertainty arising from interest rate benchmark reform, the Group assumes that the interest rate benchmark on which the hedged cash flows and/or the hedged risk are based, or the interest rate benchmark on which the cash flows of the hedging instrument are based, are not altered as a result of interest rate benchmark reform. The Group does not discontinue a hedging relationship during the period of uncertainty arising from the interest rate benchmark reform solely because the actual results of the hedge are not highly effective. Where the contractual terms of a financial asset, financial liability or derivative are amended, on an economically equivalent basis, as a direct consequence of interest rate benchmark reform, the uncertainty arising from the reform is no longer present. In these circumstances, the Group amends the hedge documentation to reflect the changes required by the reform; these changes to the documentation do not in and of themselves result in the discontinuation of hedge accounting or require the designation of a new hedge relationship. (1) Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk; this also applies if the hedged asset is classified as a financial asset at fair value through other comprehensive income. If the hedge no longer meets the criteria for hedge accounting, changes in the fair value of the hedged item attributable to the hedged risk are no longer recognised in the income statement. The cumulative adjustment that has been made to the carrying amount of the hedged item is amortised to the income statement using the effective interest method over the period to maturity. (2) Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income in the cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are reclassified to the income statement in the periods in which the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in the income statement when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. (3) Net investment hedges Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income, and the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of. The hedging instruments used in net investment hedges may include non-derivative liabilities as well as derivative financial instruments. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsAndHedgingExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-995": { "value": "(F) Hedge accounting As permitted by IFRS 9, the Group continues to apply the requirements of IAS 39 to its hedging relationships. Changes in the fair value of all derivative instruments, other than those in effective cash flow and net investment hedging relationships, are recognised immediately in the income statement. As noted in (2) and (3) below, the change in fair value of a derivative in an effective cash flow or net investment hedging relationship is allocated between the income statement and other comprehensive income. Hedge accounting allows one financial instrument, generally a derivative such as a swap, to be designated as a hedge of another financial instrument such as a loan or deposit or a portfolio of such instruments. At the inception of the hedge relationship, formal documentation is drawn up specifying the hedging strategy, the hedged item, the hedging instrument and the methodology that will be used to measure the effectiveness of the hedge relationship in offsetting changes in the fair value or cash flow of the hedged risk. The effectiveness of the hedging relationship is tested both at inception and throughout its life and if at any point it is concluded that it is no longer highly effective in achieving its documented objective, hedge accounting is discontinued. Note 22 provides details of the types of derivatives held by the Group and presents separately those designated in hedge relationships. Where there is uncertainty arising from interest rate benchmark reform, the Group assumes that the interest rate benchmark on which the hedged cash flows and/or the hedged risk are based, or the interest rate benchmark on which the cash flows of the hedging instrument are based, are not altered as a result of interest rate benchmark reform. The Group does not discontinue a hedging relationship during the period of uncertainty arising from the interest rate benchmark reform solely because the actual results of the hedge are not highly effective. Where the contractual terms of a financial asset, financial liability or derivative are amended, on an economically equivalent basis, as a direct consequence of interest rate benchmark reform, the uncertainty arising from the reform is no longer present. In these circumstances, the Group amends the hedge documentation to reflect the changes required by the reform; these changes to the documentation do not in and of themselves result in the discontinuation of hedge accounting or require the designation of a new hedge relationship. (1) Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk; this also applies if the hedged asset is classified as a financial asset at fair value through other comprehensive income. If the hedge no longer meets the criteria for hedge accounting, changes in the fair value of the hedged item attributable to the hedged risk are no longer recognised in the income statement. The cumulative adjustment that has been made to the carrying amount of the hedged item is amortised to the income statement using the effective interest method over the period to maturity. (2) Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income in the cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are reclassified to the income statement in the periods in which the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in the income statement when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. (3) Net investment hedges Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income, and the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of. The hedging instruments used in net investment hedges may include non-derivative liabilities as well as derivative financial instruments. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForHedgingExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-955": { "value": "(F) Hedge accounting As permitted by IFRS 9, the Group continues to apply the requirements of IAS 39 to its hedging relationships. Changes in the fair value of all derivative instruments, other than those in effective cash flow and net investment hedging relationships, are recognised immediately in the income statement. As noted in (2) and (3) below, the change in fair value of a derivative in an effective cash flow or net investment hedging relationship is allocated between the income statement and other comprehensive income. Hedge accounting allows one financial instrument, generally a derivative such as a swap, to be designated as a hedge of another financial instrument such as a loan or deposit or a portfolio of such instruments. At the inception of the hedge relationship, formal documentation is drawn up specifying the hedging strategy, the hedged item, the hedging instrument and the methodology that will be used to measure the effectiveness of the hedge relationship in offsetting changes in the fair value or cash flow of the hedged risk. The effectiveness of the hedging relationship is tested both at inception and throughout its life and if at any point it is concluded that it is no longer highly effective in achieving its documented objective, hedge accounting is discontinued. Note 22 provides details of the types of derivatives held by the Group and presents separately those designated in hedge relationships. Where there is uncertainty arising from interest rate benchmark reform, the Group assumes that the interest rate benchmark on which the hedged cash flows and/or the hedged risk are based, or the interest rate benchmark on which the cash flows of the hedging instrument are based, are not altered as a result of interest rate benchmark reform. The Group does not discontinue a hedging relationship during the period of uncertainty arising from the interest rate benchmark reform solely because the actual results of the hedge are not highly effective. Where the contractual terms of a financial asset, financial liability or derivative are amended, on an economically equivalent basis, as a direct consequence of interest rate benchmark reform, the uncertainty arising from the reform is no longer present. In these circumstances, the Group amends the hedge documentation to reflect the changes required by the reform; these changes to the documentation do not in and of themselves result in the discontinuation of hedge accounting or require the designation of a new hedge relationship. (1) Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk; this also applies if the hedged asset is classified as a financial asset at fair value through other comprehensive income. If the hedge no longer meets the criteria for hedge accounting, changes in the fair value of the hedged item attributable to the hedged risk are no longer recognised in the income statement. The cumulative adjustment that has been made to the carrying amount of the hedged item is amortised to the income statement using the effective interest method over the period to maturity. (2) Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income in the cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are reclassified to the income statement in the periods in which the hedged item affects profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in the income statement when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. (3) Net investment hedges Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income, and the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of. The hedging instruments used in net investment hedges may include non-derivative liabilities as well as derivative financial instruments. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDerivativeFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-956": { "value": "(G) Offset Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right of offset and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Cash collateral on exchange traded derivative transactions is presented gross unless the collateral cash flows are always settled net with the derivative cash flows. In certain situations, even though master netting agreements exist, the lack of management intention to settle on a net basis results in the financial assets and liabilities being reported gross on the balance sheet. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForOffsettingOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-996": { "value": "(H) Impairment of financial assets The impairment charge in the income statement reflects the change in expected credit losses, including those arising from fraud. Expected credit losses are recognised for loans and advances to customers and banks, other financial assets held at amortised cost, financial assets (other than equity investments) measured at fair value through other comprehensive income, and certain loan commitments and financial guarantee contracts. Expected credit losses are calculated as an unbiased and probability-weighted estimate using an appropriate probability of default, adjusted to take into account a range of possible future economic scenarios, and applying this to the estimated exposure of the Group at the point of default after taking into account the value of any collateral held, repayments, or other mitigants of loss and including the impact of discounting using the effective interest rate. At initial recognition, allowance (or provision in the case of some loan commitments and financial guarantees) is made for expected credit losses resulting from default events that are possible within the next 12 months (12-month expected credit losses). In the event of a significant increase in credit risk since origination, allowance (or provision) is made for expected credit losses resulting from all possible default events over the expected life of the financial instrument (lifetime expected credit losses). Financial assets where 12- month expected credit losses are recognised are considered to be Stage 1; financial assets which are considered to have experienced a significant increase in credit risk since initial recognition are in Stage 2; and financial assets which have defaulted or are otherwise considered to be credit-impaired are allocated to Stage 3. Some Stage 3 assets, mainly in Commercial Banking, are subject to individual rather than collective assessment. Such cases are subject to a risk-based impairment sanctioning process, and these are reviewed and updated at least quarterly, or more frequently if there is a significant change in the credit profile. The collective assessment of impairment aggregates financial instruments with similar risk characteristics, such as whether the facility is revolving in nature or secured and the type of security held against financial assets. An assessment of whether credit risk has increased significantly since initial recognition considers the change in the risk of default occurring over the remaining expected life of the financial instrument. In determining whether there has been a significant increase in credit risk, the Group uses quantitative tests based on relative and absolute probability of default (PD) movements linked to internal credit ratings together with qualitative indicators such as watchlists and other indicators of historical delinquency, credit weakness or financial difficulty. The use of internal credit ratings and qualitative indicators ensures alignment between the assessment of staging and the Group\u2019s management of credit risk which utilises these internal metrics within distinct retail and commercial portfolio risk management practices. However, unless identified at an earlier stage, the credit risk of financial assets is deemed to have increased significantly when more than 30 days past due. The use of a payment holiday in and of itself has not been judged to indicate a significant increase in credit risk, with the underlying long-term credit risk deemed to be driven by economic conditions and captured through the use of forward-looking models. These portfolio-level models are capturing the anticipated volume of increased defaults and therefore an appropriate assessment of staging and expected credit loss. Where the credit risk subsequently improves such that it no longer represents a significant increase in credit risk since initial recognition, the asset is transferred back to Stage 1. Assets are transferred to Stage 3 when they have defaulted or are otherwise considered to be credit-impaired. Default is considered to have occurred when there is evidence that the customer is experiencing financial difficulty which is likely to affect significantly the ability to repay the amount due. IFRS 9 contains a rebuttable presumption that default occurs no later than when a payment is 90 days past due which the Group now uses for all its products following changes to the definition of default for UK mortgages on 1 January 2022. In addition, other indicators of mortgage default are added including end-of-term payments on past due interest-only accounts and loans considered non-performing due to recent arrears or forbearance. The use of payment holidays is not considered to be an automatic trigger of regulatory default and therefore does not automatically trigger Stage 3. Days past due will also not accumulate on any accounts that have taken a payment holiday including those already past due. In certain circumstances, the Group will renegotiate the original terms of a customer\u2019s loan, either as part of an ongoing customer relationship or in response to adverse changes in the circumstances of the borrower. In the latter circumstances, the loan will remain classified as either Stage 2 or Stage 3 until the credit risk has improved such that it no longer represents a significant increase since origination (for a return to Stage 1), or the loan is no longer credit-impaired (for a return to Stage 2). On renegotiation the gross carrying amount of the loan is recalculated as the present value of the renegotiated or modified contractual cash flows, which are discounted at the original effective interest rate. Renegotiation may also lead to the loan and associated allowance being derecognised and a new loan being recognised initially at fair value. Purchased or originated credit-impaired financial assets (POCI) include financial assets that are purchased or originated at a deep discount that reflects incurred credit losses. At initial recognition, POCI assets do not carry an impairment allowance; instead, lifetime expected credit losses are incorporated into the calculation of the effective interest rate. All changes in lifetime expected credit losses subsequent to the assets\u2019 initial recognition are recognised as an impairment charge. A loan or advance is normally written off, either partially or in full, against the related allowance when the proceeds from realising any available security have been received or there is no realistic prospect of recovery and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of impairment losses recorded in the income statement. For both secured and unsecured retail balances, the write-off takes place only once an extensive set of collections processes has been completed, or the status of the account reaches a point where policy dictates that continuing attempts to recover are no longer appropriate. For commercial lending, a write-off occurs if the loan facility with the customer is restructured, the asset is under administration and the only monies that can be received are the amounts estimated by the administrator, the underlying assets are disposed and a decision is made that no further settlement monies will be received, or external evidence (for example, third party valuations) is available that there has been an irreversible decline in expected cash flows. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfFinancialAssetsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1023": { "value": "(H) Impairment of financial assets The impairment charge in the income statement reflects the change in expected credit losses, including those arising from fraud. Expected credit losses are recognised for loans and advances to customers and banks, other financial assets held at amortised cost, financial assets (other than equity investments) measured at fair value through other comprehensive income, and certain loan commitments and financial guarantee contracts. Expected credit losses are calculated as an unbiased and probability-weighted estimate using an appropriate probability of default, adjusted to take into account a range of possible future economic scenarios, and applying this to the estimated exposure of the Group at the point of default after taking into account the value of any collateral held, repayments, or other mitigants of loss and including the impact of discounting using the effective interest rate. At initial recognition, allowance (or provision in the case of some loan commitments and financial guarantees) is made for expected credit losses resulting from default events that are possible within the next 12 months (12-month expected credit losses). In the event of a significant increase in credit risk since origination, allowance (or provision) is made for expected credit losses resulting from all possible default events over the expected life of the financial instrument (lifetime expected credit losses). Financial assets where 12- month expected credit losses are recognised are considered to be Stage 1; financial assets which are considered to have experienced a significant increase in credit risk since initial recognition are in Stage 2; and financial assets which have defaulted or are otherwise considered to be credit-impaired are allocated to Stage 3. Some Stage 3 assets, mainly in Commercial Banking, are subject to individual rather than collective assessment. Such cases are subject to a risk-based impairment sanctioning process, and these are reviewed and updated at least quarterly, or more frequently if there is a significant change in the credit profile. The collective assessment of impairment aggregates financial instruments with similar risk characteristics, such as whether the facility is revolving in nature or secured and the type of security held against financial assets. An assessment of whether credit risk has increased significantly since initial recognition considers the change in the risk of default occurring over the remaining expected life of the financial instrument. In determining whether there has been a significant increase in credit risk, the Group uses quantitative tests based on relative and absolute probability of default (PD) movements linked to internal credit ratings together with qualitative indicators such as watchlists and other indicators of historical delinquency, credit weakness or financial difficulty. The use of internal credit ratings and qualitative indicators ensures alignment between the assessment of staging and the Group\u2019s management of credit risk which utilises these internal metrics within distinct retail and commercial portfolio risk management practices. However, unless identified at an earlier stage, the credit risk of financial assets is deemed to have increased significantly when more than 30 days past due. The use of a payment holiday in and of itself has not been judged to indicate a significant increase in credit risk, with the underlying long-term credit risk deemed to be driven by economic conditions and captured through the use of forward-looking models. These portfolio-level models are capturing the anticipated volume of increased defaults and therefore an appropriate assessment of staging and expected credit loss. Where the credit risk subsequently improves such that it no longer represents a significant increase in credit risk since initial recognition, the asset is transferred back to Stage 1. Assets are transferred to Stage 3 when they have defaulted or are otherwise considered to be credit-impaired. Default is considered to have occurred when there is evidence that the customer is experiencing financial difficulty which is likely to affect significantly the ability to repay the amount due. IFRS 9 contains a rebuttable presumption that default occurs no later than when a payment is 90 days past due which the Group now uses for all its products following changes to the definition of default for UK mortgages on 1 January 2022. In addition, other indicators of mortgage default are added including end-of-term payments on past due interest-only accounts and loans considered non-performing due to recent arrears or forbearance. The use of payment holidays is not considered to be an automatic trigger of regulatory default and therefore does not automatically trigger Stage 3. Days past due will also not accumulate on any accounts that have taken a payment holiday including those already past due. In certain circumstances, the Group will renegotiate the original terms of a customer\u2019s loan, either as part of an ongoing customer relationship or in response to adverse changes in the circumstances of the borrower. In the latter circumstances, the loan will remain classified as either Stage 2 or Stage 3 until the credit risk has improved such that it no longer represents a significant increase since origination (for a return to Stage 1), or the loan is no longer credit-impaired (for a return to Stage 2). On renegotiation the gross carrying amount of the loan is recalculated as the present value of the renegotiated or modified contractual cash flows, which are discounted at the original effective interest rate. Renegotiation may also lead to the loan and associated allowance being derecognised and a new loan being recognised initially at fair value. Purchased or originated credit-impaired financial assets (POCI) include financial assets that are purchased or originated at a deep discount that reflects incurred credit losses. At initial recognition, POCI assets do not carry an impairment allowance; instead, lifetime expected credit losses are incorporated into the calculation of the effective interest rate. All changes in lifetime expected credit losses subsequent to the assets\u2019 initial recognition are recognised as an impairment charge. A loan or advance is normally written off, either partially or in full, against the related allowance when the proceeds from realising any available security have been received or there is no realistic prospect of recovery and the amount of the loss has been determined. Subsequent recoveries of amounts previously written off decrease the amount of impairment losses recorded in the income statement. For both secured and unsecured retail balances, the write-off takes place only once an extensive set of collections processes has been completed, or the status of the account reaches a point where policy dictates that continuing attempts to recover are no longer appropriate. For commercial lending, a write-off occurs if the loan facility with the customer is restructured, the asset is under administration and the only monies that can be received are the amounts estimated by the administrator, the underlying assets are disposed and a decision is made that no further settlement monies will be received, or external evidence (for example, third party valuations) is available that there has been an irreversible decline in expected cash flows. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForImpairmentOfAssetsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-902": { "value": "(I) Property, plant and equipment Property, plant and equipment (other than investment property) is included at cost less accumulated depreciation. The value of land (included in premises) is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate the difference between the cost and the residual value over their estimated useful lives, as follows: the shorter of 50 years and the remaining period of the lease for freehold/long and short leasehold premises; the shorter of 10 years and, if lease renewal is not likely, the remaining period of the lease for leasehold improvements; 10 to 20 years for fixtures and furnishings; and 2 to 8 years for other equipment and motor vehicles. The assets\u2019 residual values and useful lives are reviewed and, if appropriate, revised at each balance sheet date. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In assessing the recoverable amount of assets the Group considers the effects of potential or actual changes in legislation, customer behaviour, climate-related risks and other factors on the asset\u2019s CGU. In the event that an asset\u2019s CGU carrying amount is determined to be greater than its recoverable amount the asset is written down immediately. Investment property comprises freehold and long leasehold land and buildings that are held either to earn rental income or for capital accretion or both, primarily within the life insurance funds. In accordance with the guidance published by the Royal Institution of Chartered Surveyors, investment property is carried at fair value based on current prices for similar properties, adjusted for the specific characteristics of the property (such as location or condition). If this information is not available, the Group uses alternative valuation methods such as discounted cash flow projections or recent prices in less active markets. These valuations are reviewed at least annually by independent professionally qualified valuers. Investment property being redeveloped for continuing use as investment property, or for which the market has become less active, continues to be valued at fair value. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForPropertyPlantAndEquipmentExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-957": { "value": "(I) Property, plant and equipment Property, plant and equipment (other than investment property) is included at cost less accumulated depreciation. The value of land (included in premises) is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate the difference between the cost and the residual value over their estimated useful lives, as follows: the shorter of 50 years and the remaining period of the lease for freehold/long and short leasehold premises; the shorter of 10 years and, if lease renewal is not likely, the remaining period of the lease for leasehold improvements; 10 to 20 years for fixtures and furnishings; and 2 to 8 years for other equipment and motor vehicles. The assets\u2019 residual values and useful lives are reviewed and, if appropriate, revised at each balance sheet date. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In assessing the recoverable amount of assets the Group considers the effects of potential or actual changes in legislation, customer behaviour, climate-related risks and other factors on the asset\u2019s CGU. In the event that an asset\u2019s CGU carrying amount is determined to be greater than its recoverable amount the asset is written down immediately. Investment property comprises freehold and long leasehold land and buildings that are held either to earn rental income or for capital accretion or both, primarily within the life insurance funds. In accordance with the guidance published by the Royal Institution of Chartered Surveyors, investment property is carried at fair value based on current prices for similar properties, adjusted for the specific characteristics of the property (such as location or condition). If this information is not available, the Group uses alternative valuation methods such as discounted cash flow projections or recent prices in less active markets. These valuations are reviewed at least annually by independent professionally qualified valuers. Investment property being redeveloped for continuing use as investment property, or for which the market has become less active, continues to be valued at fair value. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDepreciationExpenseExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-997": { "value": "(I) Property, plant and equipment Property, plant and equipment (other than investment property) is included at cost less accumulated depreciation. The value of land (included in premises) is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate the difference between the cost and the residual value over their estimated useful lives, as follows: the shorter of 50 years and the remaining period of the lease for freehold/long and short leasehold premises; the shorter of 10 years and, if lease renewal is not likely, the remaining period of the lease for leasehold improvements; 10 to 20 years for fixtures and furnishings; and 2 to 8 years for other equipment and motor vehicles. The assets\u2019 residual values and useful lives are reviewed and, if appropriate, revised at each balance sheet date. Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In assessing the recoverable amount of assets the Group considers the effects of potential or actual changes in legislation, customer behaviour, climate-related risks and other factors on the asset\u2019s CGU. In the event that an asset\u2019s CGU carrying amount is determined to be greater than its recoverable amount the asset is written down immediately. Investment property comprises freehold and long leasehold land and buildings that are held either to earn rental income or for capital accretion or both, primarily within the life insurance funds. In accordance with the guidance published by the Royal Institution of Chartered Surveyors, investment property is carried at fair value based on current prices for similar properties, adjusted for the specific characteristics of the property (such as location or condition). If this information is not available, the Group uses alternative valuation methods such as discounted cash flow projections or recent prices in less active markets. These valuations are reviewed at least annually by independent professionally qualified valuers. Investment property being redeveloped for continuing use as investment property, or for which the market has become less active, continues to be valued at fair value. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForExpensesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-904": { "value": "(J) Leases Under IFRS 16, a lessor is required to determine whether a lease is a finance or operating lease. A lessee is not required to make this determination. (1) As lessor Assets leased to customers are classified as finance leases if the lease agreements transfer substantially all of the risks and rewards of ownership to the lessee but not necessarily legal title. All other leases are classified as operating leases. When assets are subject to finance leases, the present value of the lease payments, together with any unguaranteed residual value, is recognised as a receivable, net of allowances for expected credit losses and residual value impairment, within loans and advances to banks and customers. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance lease income. Finance lease income is recognised in interest income over the term of the lease using the net investment method (before tax) so as to give a constant rate of return on the net investment in the lease. Unguaranteed residual values are reviewed regularly to identify any impairment. Operating lease assets are included within other assets at cost and depreciated over their estimated useful lives. The depreciation charge is based on the asset\u2019s residual value and the life of the lease. Operating lease rental income is recognised on a straight-line basis over the life of the lease. The Group evaluates non-lease arrangements such as outsourcing and similar contracts to determine if they contain a lease which is then accounted for separately. (2) As lessee Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group. Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be determined, or the Group\u2019s incremental borrowing rate appropriate for the right-of-use asset arising from the lease, and the liability recognised within other liabilities. Lease payments are allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset\u2019s useful life and the lease term on a straight-line basis. Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT equipment and small items of office furniture. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForLeasesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-903": { "value": "(K) 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. (1) Pension schemes The Group operates a number of post-retirement benefit schemes for its employees including both defined benefit and defined contribution pension plans. A defined benefit scheme is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, dependent on one or more factors such as age, years of pensionable service and pensionable salary. A defined contribution plan is a pension plan into which the Group pays fixed contributions; there is no legal or constructive obligation to pay further contributions. (i) Defined benefit schemes Scheme assets are included at their fair value and scheme liabilities are measured on an actuarial basis using the projected unit credit method. The defined benefit scheme liabilities are discounted using rates equivalent to the market yields at the balance sheet date on high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. The Group\u2019s income statement charge includes the current service cost of providing pension benefits, past service costs, net interest expense (income), and plan administration costs that are not deducted from the return on plan assets. Past service costs, which represents the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment, are recognised when the plan amendment or curtailment occurs. Net interest expense (income) is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Remeasurements, comprising actuarial gains and losses, the return on plan assets (excluding amounts included in net interest expense (income) and net of the cost of managing the plan assets), and the effect of changes to the asset ceiling (if applicable) are reflected immediately in the balance sheet with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurements recognised in other comprehensive income are reflected immediately in retained profits and will not subsequently be reclassified to profit or loss. The Group\u2019s balance sheet includes the net surplus or deficit, being the difference between the fair value of scheme assets and the discounted value of scheme liabilities at the balance sheet date. Surpluses are only recognised to the extent that they are recoverable through reduced contributions in the future or through refunds from the schemes. In assessing whether a surplus is recoverable, the Group considers (i) its current right to obtain a refund or a reduction in future contributions and (ii) the rights of other parties existing at the balance sheet date. In determining the rights of third parties existing at the balance sheet date, the Group does not anticipate any future acts by other parties. (ii) Defined contribution schemes The costs of the Group\u2019s defined contribution plans are charged to the income statement in the period in which they fall due. (2) Share-based compensation The Group operates a number of equity-settled, share-based compensation plans in respect of services received from certain of its employees. The value of the employee services received in exchange for equity instruments granted under these plans is recognised as an expense over the vesting period of the instruments, with a corresponding increase in equity. This expense is determined by reference to the fair value of the number of equity instruments that are expected to vest. The fair value of equity instruments granted is based on market prices, if available, at the date of grant. In the absence of market prices, the fair value of the instruments at the date of grant is estimated using an appropriate valuation technique, such as a Black-Scholes option pricing model or a Monte Carlo simulation. The determination of fair values excludes the impact of any non-market vesting conditions, which are included in the assumptions used to estimate the number of options that are expected to vest. At each balance sheet date, this estimate is reassessed and if necessary revised. Any revision of the original estimate is recognised in the income statement, together with a corresponding adjustment to equity. Cancellations by employees of contributions to the Group\u2019s Save As You Earn plans are treated as non-vesting conditions and the Group recognises, in the year of cancellation, the amount of the expense that would have otherwise been recognised over the remainder of the vesting period. Modifications are assessed at the date of modification and any incremental charges are charged to the income statement. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForEmployeeBenefitsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-958": { "value": "(2) Share-based compensation The Group operates a number of equity-settled, share-based compensation plans in respect of services received from certain of its employees. The value of the employee services received in exchange for equity instruments granted under these plans is recognised as an expense over the vesting period of the instruments, with a corresponding increase in equity. This expense is determined by reference to the fair value of the number of equity instruments that are expected to vest. The fair value of equity instruments granted is based on market prices, if available, at the date of grant. In the absence of market prices, the fair value of the instruments at the date of grant is estimated using an appropriate valuation technique, such as a Black-Scholes option pricing model or a Monte Carlo simulation. The determination of fair values excludes the impact of any non-market vesting conditions, which are included in the assumptions used to estimate the number of options that are expected to vest. At each balance sheet date, this estimate is reassessed and if necessary revised. Any revision of the original estimate is recognised in the income statement, together with a corresponding adjustment to equity. Cancellations by employees of contributions to the Group\u2019s Save As You Earn plans are treated as non-vesting conditions and the Group recognises, in the year of cancellation, the amount of the expense that would have otherwise been recognised over the remainder of the vesting period. Modifications are assessed at the date of modification and any incremental charges are charged to the income statement. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForSharebasedPaymentTransactionsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-905": { "value": "(L) Taxation Tax expense comprises current and deferred tax. Current and deferred tax are charged or credited in the income statement except to the extent that the tax arises from a transaction or event which is recognised, in the same or a different period, outside the income statement (either in other comprehensive income, directly in equity, or through a business combination), in which case the tax appears in the same statement as the transaction that gave rise to it. The tax consequences of the Group\u2019s dividend payments (including distributions on other equity instruments), if any, are charged or credited to the statement in which the profit distributed originally arose. Current tax is the amount of corporate income taxes expected to be payable or recoverable based on the profit for the period as adjusted for items that are not taxable or not deductible, and is calculated using tax rates and laws that were enacted or substantively enacted at the balance sheet date. Current tax includes amounts provided in respect of uncertain tax positions when management expects that, upon examination of the uncertainty by His Majesty\u2019s Revenue and Customs (HMRC) or other relevant tax authority, it is more likely than not that an economic outflow will occur. Provisions reflect management\u2019s best estimate of the ultimate liability based on their interpretation of tax law, precedent and guidance, informed by external tax advice as necessary. Changes in facts and circumstances underlying these provisions are reassessed at each balance sheet date, and the provisions are remeasured as required to reflect current information. For the Group\u2019s long-term insurance businesses, the tax expense is analysed between tax that is payable in respect of policyholders\u2019 returns and tax that is payable on the shareholders\u2019 returns. This allocation is based on an assessment of the rates of tax which will be applied to the returns under the current UK tax rules. Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the balance sheet. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the balance sheet date, and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax liabilities are generally recognised for all taxable temporary differences but not recognised for taxable temporary differences arising on investments in subsidiaries where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future. Deferred tax liabilities are not recognised on temporary differences that arise from goodwill which is not deductible for tax purposes. Deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which the deductible temporary differences can be utilised, and are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are not recognised in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination. Deferred tax is not discounted. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIncomeTaxExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-959": { "value": "(L) Taxation Tax expense comprises current and deferred tax. Current and deferred tax are charged or credited in the income statement except to the extent that the tax arises from a transaction or event which is recognised, in the same or a different period, outside the income statement (either in other comprehensive income, directly in equity, or through a business combination), in which case the tax appears in the same statement as the transaction that gave rise to it. The tax consequences of the Group\u2019s dividend payments (including distributions on other equity instruments), if any, are charged or credited to the statement in which the profit distributed originally arose. Current tax is the amount of corporate income taxes expected to be payable or recoverable based on the profit for the period as adjusted for items that are not taxable or not deductible, and is calculated using tax rates and laws that were enacted or substantively enacted at the balance sheet date. Current tax includes amounts provided in respect of uncertain tax positions when management expects that, upon examination of the uncertainty by His Majesty\u2019s Revenue and Customs (HMRC) or other relevant tax authority, it is more likely than not that an economic outflow will occur. Provisions reflect management\u2019s best estimate of the ultimate liability based on their interpretation of tax law, precedent and guidance, informed by external tax advice as necessary. Changes in facts and circumstances underlying these provisions are reassessed at each balance sheet date, and the provisions are remeasured as required to reflect current information. For the Group\u2019s long-term insurance businesses, the tax expense is analysed between tax that is payable in respect of policyholders\u2019 returns and tax that is payable on the shareholders\u2019 returns. This allocation is based on an assessment of the rates of tax which will be applied to the returns under the current UK tax rules. Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the balance sheet. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the balance sheet date, and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax liabilities are generally recognised for all taxable temporary differences but not recognised for taxable temporary differences arising on investments in subsidiaries where the reversal of the temporary difference can be controlled and it is probable that the difference will not reverse in the foreseeable future. Deferred tax liabilities are not recognised on temporary differences that arise from goodwill which is not deductible for tax purposes. Deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which the deductible temporary differences can be utilised, and are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are not recognised in respect of temporary differences that arise on initial recognition of assets and liabilities acquired other than in a business combination. Deferred tax is not discounted. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForDeferredIncomeTaxExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-906": { "value": "(M) Insurance \u2013 IFRS 17 The Group undertakes both life insurance and general insurance business. Insurance and participating investment contracts, and reinsurance contracts issued and held, are accounted for under IFRS 17 Insurance Contracts. Products sold by the life insurance business are classified into three categories: \u2022 Insurance contracts are contracts that transfer significant insurance risk and may also transfer financial risk. The Group defines significant insurance risk as the possibility of having to pay benefits on the occurrence of an insured event which are significantly higher than the benefits payable if the insured event were not to occur. Once a contract has been classified as an insurance contract, it remains an insurance contract until all obligations are extinguished unless that contract is derecognised due to a contract modification. These contracts are classified as either direct participating contracts or contracts without direct participation features. Contracts without direct participation features are accounted for using the general measurement model (GMM) for life contracts or the premium allocation approach (PAA) for general insurance contracts. Direct participating contracts are contracts for which, at inception, the contractual terms specify the policyholders participate in a clearly identified pool of underlying items. Under the terms of these contracts the policyholders are entitled to a substantial share of the returns and change in fair value of the underlying items. These contracts are accounted for under the variable fee approach (VFA) \u2022 Participating investment contracts are investment contracts that contain a discretionary participation feature (DPF). They do not transfer significant insurance risk, but contain a contractual right to receive, as a supplement to an amount not subject to the discretion of the Group, additional amounts that are expected to be a significant portion of the total contractual benefits. The timing or amount of these additional amounts are at the discretion of the Group and are contractually based on the returns on a specified pool of contracts or type of contract, returns on a specified pool of assets held by the Group or profit or loss of a fund \u2022 For certain insurance and investment contracts, the contract can be partly invested in units which contain a DPF and partly in units without. In these circumstances, where the contract also contains features that transfer significant insurance risk, they are classified as insurance contracts. Where this is not the case, and the discretionary cash flows are expected to be a significant portion of the total contractual benefits, they are classified as participating investment contracts. Where the discretionary cash flows are not expected to be a significant portion of the total contractual benefits, they are classified as financial instruments. An investment component is defined as the amount that an insurance contract requires the entity to repay to a policyholder in all circumstances, regardless of whether an insured event occurs. The investment component of the insurance and participating investment contract is non-distinct and is not separated. The Group applies judgement to determine the investment component for each contract considering the extent to which insurance and investment components are highly interrelated or not applying factors such as: whether the policyholder is able to benefit from one component unless the other component is present; and whether the value of the investment component is dependent on the timing of the insured event. The value of the non-distinct investment component is determined on the following bases: for immediate annuities, full claim amount when within the guaranteed period; for unit-linked and With-Profits contracts, policyholder\u2019s account value The general insurance business issues only insurance contracts. (1) Life insurance business (i) Accounting for insurance and participating investment contracts Recognition The Group aggregates insurance and participating investment contracts into portfolios of contracts subject to similar risks and managed together. Each portfolio of insurance contracts is divided into annual cohorts (by year of issue). Annual cohorts are divided into groups of insurance and participating investment contracts based on profitability expectations at initial recognition. The directly attributable costs of selling, underwriting and starting a group of insurance and participating investment contracts are allocated to the group of insurance and participating investment contracts using a systematic and rational method. On initial recognition, a group of insurance and participating investment contracts is measured as the total of the fulfilment cash flows and the contractual service margin (CSM). The measurement includes all future cash flows that are within the contract boundary of each contract in the group. The fulfilment cash flows comprise unbiased and probability-weighted estimates of future cash flows, discounted to present value to reflect the time value of money and financial risks, plus an explicit risk adjustment for non-financial risk. The discount rate applied reflects the time value of money, the characteristics of the cash flows, the liquidity characteristics of the insurance and participating investment contracts and, where appropriate, is consistent with observable current market prices. The risk adjustment for non-financial risk for a group of insurance and participating investment contracts is the compensation required for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk. Diversification benefit is calculated based on Group level diversification of risks. To determine the risk adjustments for non-financial risk for reinsurance contracts, the Group applies these techniques both gross and net of excess of loss reinsurance and derives the amount of risk being transferred to the reinsurer as the difference between the two results. The CSM of a group of insurance and participating investment contracts represents the unearned profit that the Group expects to recognise as it provides insurance contract services under those contracts in the future. Contract boundaries The measurement of a group of contracts includes all future cash flows within the boundary of each contract in the group. Cash flows are within the contract boundary: \u2022 For an insurance contract, if they arise from substantive rights and obligations that exist during the reporting period in which the Group can compel the policyholder to pay premiums or has a substantive obligation to provide insurance contract services \u2022 For a participating investment contract, if they result from a substantive obligation of the Group to deliver cash at a present or future date A substantive obligation to provide insurance contract services ends when the Group has the practical ability to reassess the risks of the particular policyholder, and can set a price or level of benefits that fully reflects those reassessed risks; or the Group has the practical ability to reassess the risks of the portfolio that contains the contract and can set a price or level of benefits that fully reflects the risks of that portfolio, and the pricing of the premiums up to the reassessment date does not take into account risks that relate to periods after the reassessment date. For certain unitised With-Profits and unit-linked policies, a guaranteed minimum pension is payable at a vesting date. For certain conventional With-Profits pensions, policyholders have the option to convert to an annuity on guaranteed terms. There is no contract boundary at the vesting date of these policies; the pre and post vesting date phases are treated as a single insurance contract. The contract boundary of each group is reassessed at the end of each reporting period. Measurement The carrying amount of a group of insurance and participating investment contracts at each reporting date is the sum of the liability for remaining coverage (LRC) and the liability for incurred claims (LIC). The LRC comprises the fulfilment cash flows that relate to services that will be provided under the contracts in future periods and any remaining CSM at that date. The LIC includes the fulfilment cash flows for incurred claims and expenses that have not yet been paid, including claims that have been incurred but not yet reported. The fulfilment cash flows of groups of insurance and participating investment contracts are measured at the reporting date using current estimates of future cash flows, current discount rates and current estimates of the risk adjustment for non-financial risk. Changes in fulfilment cash flows are recognised as follows: \u2022 Changes related to future service are adjusted against the CSM unless the group is onerous in which case such changes are recognised in the insurance service result in profit or loss \u2022 Changes related to past or current service are recognised in the insurance service result in profit or loss \u2022 The effects of the time value of money and financial risk are recognised as net finance income or expense from insurance, participating investment and reinsurance contracts in profit or loss The carrying amount of the CSM is remeasured at the end of each reporting period. For contracts measured under the GMM, interest is accreted on the carrying amount of the CSM using the discount rate curve determined at the date of initial recognition of the group of contracts. The CSM is also adjusted for the changes in fulfilment cash flows relating to future service at the locked-in discount rates determined at initial recognition, unless the increases in fulfilment cash flows cause a group of contracts to become onerous or decreases in fulfilment cash flows are allocated to the loss component of the liability for remaining coverage. The majority of the Group\u2019s With-Profits and unit-linked insurance and participating investment contracts are direct participating contracts under which the Group\u2019s obligation to the policyholder is the payment of an amount equal to the fair value of the underlying items, less a variable fee. On subsequent remeasurement of a group of direct participating contracts (measured under VFA), changes to the fulfilment cash flows, discounted at current rates, reflecting changes in the obligation to pay the policyholder an amount equal to the fair value of the underlying items are recognised in the income statement, within net finance income or expense from insurance, participating investment and reinsurance contracts. The CSM is adjusted for changes in the amount of the Group\u2019s share of the fair value of the underlying items, which relate to future services, except where such changes result in recognition or reversal of the loss component for onerous groups, or where the Group applies the risk mitigation option. For certain contracts with direct participation features, the Group mitigates financial risks using equity and currency hedges. The Group does not adjust the CSM for changes in the fulfilment cash flows and/or entity\u2019s share of the underlying items that reflect some of the changes in the effect of time value of money and financial risk. These amounts are instead reflected in profit or loss. The CSM is also adjusted for those fulfilment cashflows that do not vary based on the returns on underlying items that relate to future service (including the effect of time value of money and financial risks not arising from underlying items, such as the impact of minimum return guarantees), except where such changes result in recognition or reversal of the loss component for onerous groups. Changes in fulfilment cash flows relating to future service adjust the CSM using current discount rates. For contracts measured under the GMM or VFA at the end of each reporting period the appropriate proportion of the CSM is recognised in the income statement to reflect the amount of profit related to the insurance contract services provided in the period. This is calculated using coverage units, a measure used to determine the allocation of the CSM over the remaining coverage periods. The number of coverage units in a group is the quantity of insurance contract services provided by the contracts in the group, determined by considering for each contract the quantity of the benefits provided and its expected coverage period. Derecognition The Group derecognises an insurance and participating investment contract when it is extinguished (that is, when the obligation specified in the contract expires or is discharged or cancelled) or if its terms are modified in a way that would have changed the accounting for the contract significantly had the new terms always existed. If a contract is derecognised, then the fulfilment cash flows of the group are adjusted to eliminate the present value of the future cash flows and risk adjustment of the contract derecognised from the group, and the CSM of the group is adjusted for the change in fulfilment cash flows, except where such changes are allocated to the loss component. If a contract is derecognised because its terms are modified, then the CSM of the existing group is also adjusted for the premium that would have been charged had the Group entered into a contract with the new contract\u2019s terms at the date of modification, less any additional premium charged for the modification. A new modified contract is recognised assuming the Group received the premium that would have been charged had the Group entered into a contract with the new contract\u2019s terms at the date of the modification. Where the adjustments to CSM result in the CSM being reduced to nil, any further adjustments are recognised in the income statement in insurance service expense. (2) General insurance contracts General insurance contracts issued by the Group are presented on the balance sheet within liabilities arising from insurance and participating investment contracts. The Group applies the PAA to the measurement of general insurance contracts, which either have a coverage period of each contract in the group of one year or less or have an annual re-pricing option. For a group of general insurance contracts that is not onerous at initial recognition, the Group measures the LRC as any premium received at initial recognition, less any insurance acquisition cash flows at that date, plus any other asset or liability previously recognised for cash flows related to the group of contracts that the Group pays or receives before the group of insurance contracts is recognised. The Group estimates the LIC using the methodology described in the Measurement section for life insurance contracts above. Where, during the coverage period, facts and circumstances indicate that a group of insurance contracts is onerous, the Group recognises a loss in the income statement for the net outflow, resulting in the carrying amount of the liability for the group being equal to the fulfilment cash flows. A loss component is established by the Group within the LRC for such onerous group. On subsequent measurement, the Group measures the carrying amount of the LRC at the end of each reporting period as the LRC at the beginning of the period plus premiums received in the period, less insurance acquisition cash flows, plus any amounts relating to the amortisation of the insurance acquisition cash flows recognised as an expense in the reporting period for the group, less the amount recognised as insurance revenue for the services provided in the period. For onerous groups, the LRC is also adjusted for the remeasurement of the loss component. (3) Reinsurance (i) Reinsurance contracts issued Reinsurance contracts issued by the Group (where insurance risk is transferred to the Group) are accounted for under the GMM as insurance contracts. These contracts are presented within other assets or liabilities arising from insurance and participating investment contracts. (ii) Reinsurance contracts held The classification of contracts entered into by the Group with reinsurers under which the Group is compensated for amounts payable on one or more other contracts issued by the Group is dependent on whether the contract with the reinsurer transfers significant insurance risk to the reinsurer. Where the reinsurance contract transfers significant insurance risk (reinsurance contracts held), it is accounted for under the GMM, as modified for reinsurance contracts held. The Group adjusts the CSM of the group to which a reinsurance contract held belongs and as a result recognises income, when it recognises a loss on initial recognition of onerous underlying contracts. Contracts that do not transfer significant insurance risk to the reinsurer are recognised within financial assets at fair value through profit or loss as they are within a portfolio of financial assets that is managed, and whose performance is evaluated, on a fair value basis. These contracts, while legally reinsurance contracts, do not meet the definition of a reinsurance contract under IFRS. Investment returns (including movements in fair value and investment income) allocated to these contracts are recognised on the face of the income statement within net trading income. (4) Non-participating investment contracts The Group\u2019s non-participating investment contracts are primarily unit-linked. These contracts are accounted for under IFRS 9 as financial liabilities whose value is contractually linked to the fair values of financial assets within the Group\u2019s unitised investment funds. The value of the unit-linked financial liabilities is determined using current unit prices multiplied by the number of units attributed to the contract holders at the balance sheet date. Their value is never less than the amount payable on surrender, discounted for the required notice period where applicable. Investment returns (including movements in fair value and investment income) allocated to those contracts are recognised in the income statement through change in non-participating investment contracts. Deposits and withdrawals are not accounted for through the income statement but are accounted for directly in the balance sheet as adjustments to the non-participating investment contract liability. The Group receives investment management fees in the form of an initial adjustment or charge to the amount invested. These fees are in respect of services rendered in conjunction with the issue and management of investment contracts where the Group actively manages the consideration received from its customers to fund a return that is based on the investment profile that the customer selected on origination of the contract. These services comprise an indeterminate number of acts over the lives of the individual contracts and, therefore, the Group defers these fees and recognises them over the estimated lives of the contracts, in line with the provision of investment management services. Costs which are directly attributable and incremental to securing new non-participating investment contracts are deferred. This asset is subsequently amortised over the period of the provision of investment management services and its recoverability is reviewed in circumstances where its carrying amount may not be recoverable. If the asset is greater than its recoverable amount it is written down immediately through fee and commission expense in the income statement. All other costs are recognised as expenses when incurred. (N) Insurance \u2013 IFRS 4 As permitted by IFRS 17, the Group\u2019s income statement for the year ended 31 December 2021 has been prepared under IFRS 4 Insurance Contracts. The balance sheets as at 31 December 2023, 31 December 2022 and the opening balance sheet for IFRS 17 transition as at 1 January 2022 are presented under IFRS 17 Insurance Contracts. Products sold by the life insurance business are classified into three categories: insurance contracts, participating investment contracts and non-participating investment contracts. For certain investment contracts, the contract can be partly invested in units which contain a discretionary participation feature (DPF) and partly in units without. Where switching levels for similar contracts are deemed to be significant, new investment contracts which contain an option to switch into investment contracts with DPF have been classified as participating investment contracts. Where the switching levels are not deemed to be significant, a new contract is split, with units containing a DPF being allocated as a participating investment contract and the units without a DPF as a non-participating investment contract. The general insurance business issues only insurance contracts. (1) Life insurance business (i) Accounting for insurance and participating investment contracts Premiums and claims Premiums received in respect of insurance and participating investment contracts are recognised as revenue when due except for unit-linked contracts on which premiums are recognised as revenue when received. Claims are recorded as an expense on the earlier of the maturity date or the date on which the claim is notified. Liabilities Changes in the value of liabilities are recognised in the income statement through insurance claims and changes in insurance and investment contract liabilities. \u2022 Insurance and participating investment contracts in the Group\u2019s with-profit funds: liabilities of the Group\u2019s with-profit funds, including guarantees and options embedded within products written by these funds, are stated at their realistic values in accordance with the Prudential Regulation Authority\u2019s realistic capital regime, except that projected transfers out of the funds into other Group funds are recorded in the unallocated surplus (see below) \u2022 Insurance contracts which are not unit-linked or in the Group\u2019s with-profit funds: a liability for contractual benefits that are expected to be incurred in the future is recorded when the premiums are recognised. The liability is calculated by estimating the future cash flows over the duration of in-force policies and discounting them back to the valuation date allowing for probabilities of occurrence. The liability will vary with movements in interest rates and with the cost of life insurance and annuity benefits where future mortality is uncertain Assumptions are made in respect of all material factors affecting future cash flows, including future interest rates, mortality and costs. \u2022 Insurance and participating investment contracts which are unit-linked; Liabilities for unit-linked insurance and participating investment contracts are stated at the bid value of units plus an additional allowance where appropriate (such as for any excess of future expenses over charges). The liability is increased or reduced by the change in the unit prices and is reduced by policy administration fees, mortality and surrender charges and any withdrawals. Benefit claims in excess of the account balances incurred in the period are also charged through insurance claims and changes in insurance and investment contract liabilities. Revenue consists of fees deducted for mortality, policy administration and surrender charges Unallocated surplus Any amounts in the with-profit funds not yet determined as being due to policyholders or shareholders are recognised as an unallocated surplus which is shown separately from liabilities arising from insurance and participating investment contracts. (ii) Accounting for non-participating investment contracts The accounting policy is consistent with M(4) above, except that investment returns (including movements in fair value and investment income) allocated to those contracts are recognised in the income statement through insurance claims and changes in insurance and investment contract liabilities. (2) General insurance business The Group both underwrites and acts as intermediary in the sale of general insurance products. Underwriting premiums are included in insurance premium income, net of refunds, in the period in which insurance cover is provided to the customer; premiums received relating to future periods are deferred in the balance sheet within liabilities arising from insurance and participating investment contracts on a basis that reflects the length of time for which contracts have been in-force and the projected incidence of risk over the term of the contract and only credited to the income statement when earned. Broking commission is recognised when the underwriter accepts the risk of providing insurance cover to the customer. Where appropriate, provision is made for the effect of future policy terminations based upon past experience. The underwriting business makes provision for the estimated cost of claims notified but not settled and claims incurred but not reported at the balance sheet date. The provision for the cost of claims notified but not settled is based upon a best estimate of the cost of settling the outstanding claims after taking into account all known facts. In those cases where there is insufficient information to determine the required provision, statistical techniques are used which take into account the cost of claims that have recently been settled and make assumptions about the future development of the outstanding cases. Similar statistical techniques are used to determine the provision for claims incurred but not reported at the balance sheet date. Claims liabilities are not discounted. (3) Liability adequacy test At each balance sheet date liability adequacy tests are performed to ensure the adequacy of insurance and participating investment contract liabilities net of related deferred cost assets and value of in-force business. In performing these tests, current best estimates of discounted future contractual cash flows and claims handling and policy administration expenses, as well as investment income from the assets backing such liabilities, are used. Any deficiency is immediately charged to the income statement, initially by writing off the relevant assets and subsequently by establishing a provision for losses arising from liability adequacy tests. (4) Reinsurance The presentation of contracts entered into by the Group with reinsurers under which the Group is compensated for amounts payable on one or more other contracts issued by the Group is dependent on whether the contract with the reinsurer transfers significant insurance risk to the reinsurer. Where the reinsurance contract transfers significant insurance risk, it is classified as an insurance contract and the asset is recognised separately on the balance sheet. Where the reinsurance contract does not transfer significant insurance risk to the reinsurer, the assets arising from contracts held with reinsurers are presented within financial assets at fair value through profit or loss. (i) Contracts with reinsurers that transfer significant insurance risk Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured contracts and in accordance with the terms of each reinsurance contract and are regularly reviewed for impairment. Premiums payable for reinsurance contracts are recognised as an expense when due within insurance premium income. Changes in the reinsurance recoverable assets are recognised in the income statement through insurance claims and changes in insurance and investment contract liabilities. (ii) Contracts with reinsurers that do not transfer significant insurance risk Contracts that do not transfer significant insurance risk to the reinsurer are recognised within financial assets at fair value through profit or loss as they are within a portfolio of financial assets that is managed, and whose performance is evaluated, on a fair value basis. These contracts, while legally reinsurance contracts, do not meet the definition of a reinsurance contract under IFRS. Investment returns (including movements in fair value and investment income) allocated to these contracts are recognised in insurance claims and changes in insurance and investment contract liabilities. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForInsuranceContracts", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-960": { "value": "
(3) Reinsurance
(i) Reinsurance contracts issued
Reinsurance contracts issued by the Group (where insurance risk is transferred to the Group) are accounted for under the GMM as
insurance contracts. These contracts are presented within other assets or liabilities arising from insurance and participating
investment contracts.
(ii) Reinsurance contracts held
The classification of contracts entered into by the Group with reinsurers under which the Group is compensated for amounts payable
on one or more other contracts issued by the Group is dependent on whether the contract with the reinsurer transfers significant
insurance risk to the reinsurer. Where the reinsurance contract transfers significant insurance risk (reinsurance contracts held), it is
accounted for under the GMM, as modified for reinsurance contracts held. The Group adjusts the CSM of the group to which a
reinsurance contract held belongs and as a result recognises income, when it recognises a loss on initial recognition of onerous
underlying contracts.
Contracts that do not transfer significant insurance risk to the reinsurer are recognised within financial assets at fair value through
profit or loss as they are within a portfolio of financial assets that is managed, and whose performance is evaluated, on a fair value
basis. These contracts, while legally reinsurance contracts, do not meet the definition of a reinsurance contract under IFRS. Investment
returns (including movements in fair value and investment income) allocated to these contracts are recognised on the face of the
income statement within net trading income.
(4) Reinsurance
The presentation of contracts entered into by the Group with reinsurers under which the Group is compensated for amounts payable
on one or more other contracts issued by the Group is dependent on whether the contract with the reinsurer transfers significant
insurance risk to the reinsurer. Where the reinsurance contract transfers significant insurance risk, it is classified as an insurance
contract and the asset is recognised separately on the balance sheet. Where the reinsurance contract does not transfer significant
insurance risk to the reinsurer, the assets arising from contracts held with reinsurers are presented within financial assets at fair value
through profit or loss.
(i) Contracts with reinsurers that transfer significant insurance risk
Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured contracts
and in accordance with the terms of each reinsurance contract and are regularly reviewed for impairment. Premiums payable for
reinsurance contracts are recognised as an expense when due within insurance premium income. Changes in the reinsurance
recoverable assets are recognised in the income statement through insurance claims and changes in insurance and investment
contract liabilities.
(ii) Contracts with reinsurers that do not transfer significant insurance risk
Contracts that do not transfer significant insurance risk to the reinsurer are recognised within financial assets at fair value through
profit or loss as they are within a portfolio of financial assets that is managed, and whose performance is evaluated, on a fair value
basis. These contracts, while legally reinsurance contracts, do not meet the definition of a reinsurance contract under IFRS. Investment
returns (including movements in fair value and investment income) allocated to these contracts are recognised in insurance claims
and changes in insurance and investment contract liabilities.
", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForReinsuranceExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-961": { "value": "
(O) Foreign currency translation
Items included in the financial statements of each of the Group\u2019s entities are measured using the currency of the primary economic
environment in which the entity operates (the functional currency). Foreign currency transactions are translated into the appropriate
functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement, except when recognised in other comprehensive income
as qualifying cash flow or net investment hedges. Non-monetary assets that are measured at fair value are translated using the
exchange rate at the date that the fair value was determined. Translation differences on equities and similar non-monetary items held
at fair value through profit and loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-
monetary financial assets measured at fair value through other comprehensive income, such as equity shares, are included in the fair
value reserve in equity unless the asset is a hedged item in a fair value hedge.
The results and financial position of all Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on the acquisition of a foreign entity, are translated into Sterling at foreign exchange rates ruling at the balance sheet date; and the income and expenses of foreign operations are translated into Sterling at average exchange rates unless these do not approximate to the foreign exchange rates ruling at the dates of the transactions, in which case income and expenses are translated at the dates of the transactions. Foreign exchange differences arising on the translation of a foreign operation are recognised in other comprehensive income and accumulated in a separate component of equity together with exchange differences arising from the translation of borrowings and other currency instruments designated as hedges of such investments (see (F)(3) above). On disposal or liquidation of a foreign operation, the cumulative amount of exchange differences relating to that foreign operation is reclassified from equity and included in determining the profit or loss arising on disposal or liquidation. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForFunctionalCurrencyExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-907": { "value": "(O) Foreign currency translation Items included in the financial statements of each of the Group\u2019s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). Foreign currency transactions are translated into the appropriate functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when recognised in other comprehensive income as qualifying cash flow or net investment hedges. Non-monetary assets that are measured at fair value are translated using the exchange rate at the date that the fair value was determined. Translation differences on equities and similar non-monetary items held at fair value through profit and loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non- monetary financial assets measured at fair value through other comprehensive income, such as equity shares, are included in the fair value reserve in equity unless the asset is a hedged item in a fair value hedge. The results and financial position of all Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on the acquisition of a foreign entity, are translated into Sterling at foreign exchange rates ruling at the balance sheet date; and the income and expenses of foreign operations are translated into Sterling at average exchange rates unless these do not approximate to the foreign exchange rates ruling at the dates of the transactions, in which case income and expenses are translated at the dates of the transactions. Foreign exchange differences arising on the translation of a foreign operation are recognised in other comprehensive income and accumulated in a separate component of equity together with exchange differences arising from the translation of borrowings and other currency instruments designated as hedges of such investments (see (F)(3) above). On disposal or liquidation of a foreign operation, the cumulative amount of exchange differences relating to that foreign operation is reclassified from equity and included in determining the profit or loss arising on disposal or liquidation. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForForeignCurrencyTranslationExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-908": { "value": "(P) Provisions and contingent liabilities Provisions are recognised in respect of present obligations arising from past events where it is probable that outflows of resources will be required to settle the obligations and they can be reliably estimated. Contingent liabilities are possible obligations whose existence depends on the outcome of uncertain future events or those present obligations where the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not recognised in the financial statements but are disclosed unless they are remote. Provision is made for expected credit losses in respect of irrevocable undrawn loan commitments and financial guarantee contracts (see (H) above). ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForProvisionsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-962": { "value": "(P) Provisions and contingent liabilities Provisions are recognised in respect of present obligations arising from past events where it is probable that outflows of resources will be required to settle the obligations and they can be reliably estimated. Contingent liabilities are possible obligations whose existence depends on the outcome of uncertain future events or those present obligations where the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not recognised in the financial statements but are disclosed unless they are remote. Provision is made for expected credit losses in respect of irrevocable undrawn loan commitments and financial guarantee contracts (see (H) above). ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForContingentLiabilitiesAndContingentAssetsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-909": { "value": "(Q) Share capital Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a deduction, net of tax, from the proceeds. Dividends paid on the Group\u2019s ordinary shares are recognised as a reduction in equity in the period in which they are paid. Where the Company or any member of the Group purchases the Company\u2019s share capital, the consideration paid is deducted from shareholders\u2019 equity as treasury shares until they are cancelled; if these shares are subsequently sold or reissued, any consideration received is included in shareholders\u2019 equity. ", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyForIssuedCapitalExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-910": { "value": "(R) Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprise cash and non-mandatory deposits held with central banks, mandatory deposits held with central banks in demand accounts and amounts due from banks with an original maturity of less than three months that are available to finance the Group\u2019s day-to-day operations.", "dimensions": { "concept": "ifrs-full:DescriptionOfAccountingPolicyToDetermineComponentsOfCashAndCashEquivalents", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-963": { "value": "Note 3: Critical accounting judgements and key sources of estimation uncertainty The preparation of the Group\u2019s financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions in applying the accounting policies that affect the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts which differ from those estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In preparing the financial statements, the Group has considered the impact of climate-related risks on its financial position and performance. While the effects of climate change represent a source of uncertainty, the Group does not consider there to be a material impact on its judgements and estimates from the physical, transition and other climate-related risks in the short term. The significant judgements, apart from those involving estimation, made by management in applying the Group\u2019s accounting policies in these financial statements (critical judgements) and the key sources of estimation uncertainty that may have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year (key sources of estimation uncertainty), which together are considered critical to the Group\u2019s results and financial position, are as follows: \u2022 Retirement benefit obligations (note 16) \u2022 Uncertain tax positions (note 19) \u2022 Fair value of financial instruments (note 21) \u2022 Allowance for expected credit losses (note 24) \u2022 Valuation of liabilities arising from insurance business (notes 30 and 36) \u2022 Regulatory and legal provisions (note 38) Consideration of climate change Financial statement preparation includes the consideration of the impact of climate change on the Group\u2019s financial statements. There has been no material impact identified on the financial reporting judgements and estimates. In particular, the directors considered the impact of climate change in respect of the: \u2022 Going concern of the Group for a period of at least 12 months from the date of approval of the financial statements \u2022 Assessment of impairment of non-financial assets including goodwill \u2022 Carrying value and useful economic lives of property, plant and equipment \u2022 Fair value of financial assets and liabilities. These are generally based on market indicators which include the market\u2019s assessment of climate risk \u2022 Initial assessments on expected credit loss, focussing on specific climate-related macroeconomic, physical and transition risk impacts on credit quality at a sector and segment level \u2022 Forecasting of the Group\u2019s future UK taxable profits, which impacts deferred tax recognition Whilst there is currently no material short-term impact of climate change expected, the Group acknowledges the long-term nature of climate risk and continues to monitor and assess climate risks highlighted in the risk management section on pages 154 to 157 ", "dimensions": { "concept": "ifrs-full:ExplanationOfAssumptionAboutFutureWithSignificantRiskOfResultingInMaterialAdjustments", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-911": { "value": "Note 3: Critical accounting judgements and key sources of estimation uncertainty The preparation of the Group\u2019s financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions in applying the accounting policies that affect the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts which differ from those estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In preparing the financial statements, the Group has considered the impact of climate-related risks on its financial position and performance. While the effects of climate change represent a source of uncertainty, the Group does not consider there to be a material impact on its judgements and estimates from the physical, transition and other climate-related risks in the short term. The significant judgements, apart from those involving estimation, made by management in applying the Group\u2019s accounting policies in these financial statements (critical judgements) and the key sources of estimation uncertainty that may have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year (key sources of estimation uncertainty), which together are considered critical to the Group\u2019s results and financial position, are as follows: \u2022 Retirement benefit obligations (note 16) \u2022 Uncertain tax positions (note 19) \u2022 Fair value of financial instruments (note 21) \u2022 Allowance for expected credit losses (note 24) \u2022 Valuation of liabilities arising from insurance business (notes 30 and 36) \u2022 Regulatory and legal provisions (note 38) Consideration of climate change Financial statement preparation includes the consideration of the impact of climate change on the Group\u2019s financial statements. There has been no material impact identified on the financial reporting judgements and estimates. In particular, the directors considered the impact of climate change in respect of the: \u2022 Going concern of the Group for a period of at least 12 months from the date of approval of the financial statements \u2022 Assessment of impairment of non-financial assets including goodwill \u2022 Carrying value and useful economic lives of property, plant and equipment \u2022 Fair value of financial assets and liabilities. These are generally based on market indicators which include the market\u2019s assessment of climate risk \u2022 Initial assessments on expected credit loss, focussing on specific climate-related macroeconomic, physical and transition risk impacts on credit quality at a sector and segment level \u2022 Forecasting of the Group\u2019s future UK taxable profits, which impacts deferred tax recognition Whilst there is currently no material short-term impact of climate change expected, the Group acknowledges the long-term nature of climate risk and continues to monitor and assess climate risks highlighted in the risk management section on pages 154 to 157 .", "dimensions": { "concept": "ifrs-full:DisclosureOfAccountingJudgementsAndEstimatesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-912": { "value": "Note 4: Segmental analysis Lloyds Banking Group provides a wide range of banking and financial services in the UK and in certain locations overseas. The Group Executive Committee (GEC) has been determined to be the chief operating decision-maker, as defined by IFRS 8 Operating Segments, for the Group. The Group\u2019s operating segments reflect its organisational and management structures. The GEC reviews the Group\u2019s internal reporting based around these segments in order to assess performance and allocate resources. It considers interest income and expense on a net basis and consequently the total interest income and expense for all reportable segments is presented net. The segments are differentiated by the type of products provided and by whether the customers are individuals or corporate entities. The segmental results and comparatives are presented on an underlying basis (pre-tax), the basis reviewed by the chief operating decision-maker. The underlying basis is derived from the recognition and measurement principles of IFRS with the effects of the following excluded in arriving at underlying profit: \u2022 Restructuring costs relating to merger, acquisition and integration activities \u2022 Volatility and other items, which includes the effects of certain asset sales, the volatility relating to the Group\u2019s hedging arrangements and that arising in the insurance businesses, the unwind of acquisition-related fair value adjustments and the amortisation of purchased intangible assets \u2022 Losses from insurance and participating investment contract modifications relating to the enhancement to the Group\u2019s longstanding and workplace pension business through the addition of a drawdown feature For the purposes of the underlying income statement, operating lease depreciation (net of gains on disposal of operating lease assets) is shown as an adjustment to total income. The Group has three operating and reportable segments: Retail; Commercial Banking; and Insurance, Pensions and Investments: \u2022 Retail offers a broad range of financial services products to personal customers, including current accounts, savings, mortgages, credit cards, unsecured loans, motor finance and leasing solutions \u2022 Commercial Banking serves small and medium businesses and corporate and institutional clients, providing lending, transactional banking, working capital management, debt financing and risk management services \u2022 Insurance, Pensions and Investments offers insurance, investment and pension management products and services Other comprises income and expenditure not attributed to the Group\u2019s operating segments. These amounts include those arising from the Group\u2019s equities business, residual net interest income after transfer pricing (which includes the central recovery of the Group\u2019s distributions on other equity instruments), in period gains from gilt sales and the unwind of associated hedging costs. Inter-segment services are generally recharged at cost, although some attract a margin. In particular, a profit margin is charged on the internal commission arrangements between the branch network and other distribution channels and the insurance product manufacturing businesses within the Group. Inter-segment lending and deposits are generally entered into at market rates, except that non-interest bearing balances are priced at a rate that reflects the external yield that could be earned on such funds. For the majority of those derivative contracts entered into by business units for risk management purposes, the business unit recognises the net interest income or expense on an accrual accounting basis and transfers the remainder of the movement in the fair value of the derivative to the central function where the resulting accounting volatility is managed where possible through the establishment of hedge accounting relationships. Any change in fair value of the hedged instrument attributable to the hedged risk is also recorded within the central function. This allocation of the fair value of the derivative and change in fair value of the hedged instrument attributable to the hedged risk avoids accounting asymmetry in segmental results and leads to accounting volatility, which is managed centrally and reported within Other.
Insurance,
Commercial Pensions and Underlying
Retail Banking Investments Other basis total
Year ended 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Underlying net interest income
9,647
3,799
(132)
451
13,765
Underlying other income
2,159
1,691
1,209
64
5,123
Total underlying income, net of net finance income in respect of insurance
and investment contracts
11,806
5,490
1,077
515
18,888
Operating lease depreciation
(948)
(8)
\u2013
\u2013
(956)
Net income
10,858
5,482
1,077
515
17,932
Operating costs
(5,469)
(2,647)
(880)
(144)
(9,140)
Remediation
(515)
(127)
(14)
(19)
(675)
Total costs
(5,984)
(2,774)
(894)
(163)
(9,815)
Underlying impairment (charge) credit
(831)
511
7
5
(308)
Underlying profit before tax
4,043
3,219
190
357
7,809
External income
12,803
4,570
1,221
294
18,888
External operating lease depreciation
(948)
(8)
\u2013
\u2013
(956)
Inter-segment (expense) income
(997)
920
(144)
221
\u2013
Net income
10,858
5,482
1,077
515
17,932
Loans and advances to customers
361,181
88,606
\u2013
(42)
449,745
External assets
376,789
150,834
184,267
169,563
881,453
Customer deposits
308,441
162,752
\u2013
203
471,396
External liabilities
313,244
204,815
179,962
136,067
834,088
Analysis of underlying other income:
Net fee and commission income
618
955
249
9
1,831
Operating lease rental income
1,373
10
\u2013
\u2013
1,383
Rental income from investment properties
\u2013
\u2013
140
6
146
Gains less losses on disposal of financial assets at fair value through other
comprehensive income
\u2013
\u2013
\u2013
122
122
Trading income, insurance and other, net of net finance income in respect
of insurance and investment contracts
(27)
327
272
1,069
1,641
Inter-segment other income
195
399
548
(1,142)
\u2013
Underlying other income
2,159
1,691
1,209
64
5,123
Other items reflected in income statement above:
Depreciation and amortisation
1,927
410
201
367
2,905
Defined benefit scheme charge (credit)
53
21
6
(159)
(79)
Non-income statement items:
Additions to fixed assets
3,294
88
80
1,993
5,455
Investments in joint ventures and associates at end of year
\u2013
\u2013
\u2013
401
401
1
1
2
1 Net of profits on disposal of operating lease assets of \u00a393 million.
2 Other includes centralised fair value hedge accounting adjustments.
1
Insurance,
Commercial Pensions and Underlying
Retail Banking Investments Other basis total
Year ended 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Underlying net interest income
9,774
3,447
(101)
52
13,172
Underlying other income
1,731
1,565
960
410
4,666
Total underlying income, net of net finance income in respect of insurance
and investment contracts
11,505
5,012
859
462
17,838
Operating lease depreciation
(368)
(5)
\u2013
\u2013
(373)
Net income
11,137
5,007
859
462
17,465
Operating costs
(5,175)
(2,496)
(879)
(122)
(8,672)
Remediation
(92)
(133)
(30)
\u2013
(255)
Total costs
(5,267)
(2,629)
(909)
(122)
(8,927)
Underlying impairment (charge) credit
(1,373)
(517)
(12)
392
(1,510)
Underlying profit (loss) before tax
4,497
1,861
(62)
732
7,028
External income
12,055
4,330
910
543
17,838
External operating lease depreciation
(368)
(5)
\u2013
\u2013
(373)
Inter-segment (expense) income
(550)
682
(51)
(81)
\u2013
Net income
11,137
5,007
859
462
17,465
Loans and advances to customers
364,194
93,675
\u2013
(2,970)
454,899
External assets
372,485
147,477
170,777
182,655
873,394
Customer deposits
310,765
163,828
\u2013
738
475,331
External liabilities
314,091
202,070
168,357
144,965
829,483
Analysis of underlying other income:
Net fee and commission income
555
928
239
(2)
1,720
Operating lease rental income
1,065
12
\u2013
\u2013
1,077
Rental income from investment properties
\u2013
\u2013
144
1
145
Gains less losses on disposal of financial assets at fair value through other
comprehensive income
\u2013
\u2013
\u2013
92
92
Trading income, insurance and other, net of net finance income in respect
of insurance and investment contracts
296
(765)
1,938
163
1,632
Inter-segment other income
(185)
1,390
(1,361)
156
\u2013
Underlying other income
1,731
1,565
960
410
4,666
Other items reflected in income statement above:
Depreciation and amortisation
1,216
207
142
831
2,396
Defined benefit scheme charge
72
28
7
18
125
Non-income statement items:
Additions to fixed assets
2,146
101
151
1,457
3,855
Investments in joint ventures and associates at end of year
4
\u2013
\u2013
381
385
2
2
3
1 Restated for the adoption of IFRS 17; see notes 1 and 54.
2 Net of profits on disposal of operating lease assets of \u00a3197 million.
3 Other includes centralised fair value hedge accounting adjustments.
Insurance,
Commercial Pensions and Underlying
Retail Banking Investments Other basis total
Year ended 31 December 2021 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Underlying net interest income
8,577
2,602
(103)
87
11,163
Underlying other income
1,597
1,442
1,406
615
5,060
Total underlying income, net of insurance claims and changes in
insurance and investment contract liabilities
10,174
4,044
1,303
702
16,223
Operating lease depreciation
(442)
(18)
\u2013
\u2013
(460)
Net income
9,732
4,026
1,303
702
15,763
Operating costs
(4,987)
(2,288)
(899)
(138)
(8,312)
Remediation
(360)
(830)
(123)
13
(1,300)
Total costs
(5,347)
(3,118)
(1,022)
(125)
(9,612)
Underlying impairment credit
447
936
\u2013
2
1,385
Underlying profit before tax
4,832
1,844
281
579
7,536
External income
11,260
3,883
1,323
(243)
16,223
External operating lease depreciation
(442)
(18)
\u2013
\u2013
(460)
Inter-segment (expense) income
(1,086)
161
(20)
945
\u2013
Net income
9,732
4,026
1,303
702
15,763
Loans and advances to customers
356,351
92,470
\u2013
(254)
448,567
External assets
364,179
144,390
195,039
182,917
886,525
Customer deposits
308,412
167,530
\u2013
402
476,344
External liabilities
312,594
204,641
188,372
127,766
833,373
Analysis of underlying other income:
Net fee and commission income
452
927
13
31
1,423
Operating lease rental income
1,046
13
\u2013
\u2013
1,059
Rental income from investment properties
\u2013
\u2013
186
\u2013
186
Gains less losses on disposal of financial assets at fair value through other
comprehensive income
\u2013
(5)
\u2013
3
(2)
Trading income, insurance and other, net of insurance claims and changes
in insurance and investment contract liabilities
188
1,045
1,766
(605)
2,394
Inter-segment other income
(89)
(538)
(559)
1,186
\u2013
Underlying other income
1,597
1,442
1,406
615
5,060
Other items reflected in income statement above:
Depreciation and amortisation
1,525
283
170
847
2,825
Movement in value of in-force business
\u2013
\u2013
(70)
\u2013
(70)
Defined benefit scheme charge
91
30
9
106
236
Non-income statement items:
Additions to fixed assets
1,921
179
117
1,011
3,228
Investments in joint ventures and associates at end of year
6
\u2013
\u2013
346
352
1 1 2 1 Net of profits on disposal of operating lease assets of \u00a3249 million. 2 Other includes centralised fair value hedge accounting adjustments. Geographical areas The Group\u2019s operations are predominantly UK-based and as a result an analysis between UK and non-UK activities is not provided
Reconciliation of underlying basis to statutory results
The underlying basis is the basis on which financial information is presented to the chief operating decision-maker which excludes
certain items included in the statutory results. The table below reconciles the statutory results to the underlying basis.
Removal of:
Volatility,
Lloyds Banking and other Insurance Underlying
Group statutory items gross up basis
Year ended 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m
Net interest income / Underlying interest income
13,298
479
(12)
13,765
Other income, net of net finance income in respect of insurance and investment
contracts / Underlying other income
5,331
(447)
239
5,123
Total income, net of net finance income in respect of insurance and investment
contracts
18,629
32
227
18,888
Operating lease depreciation
(956)
\u2013
(956)
Total income, net of net finance income in respect of insurance and investment
contracts / Net income
18,629
(924)
227
17,932
Operating expenses / Total costs
(10,823)
1,235
(227)
(9,815)
Impairment charge / Underlying impairment charge
(303)
(5)
\u2013
(308)
Profit before tax / Underlying profit
7,503
306
\u2013
7,809
1
2
3
Removal of:
Volatility,
Lloyds Banking and other Insurance Underlying
Group statutory items gross up basis
Year ended 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m
Net interest income / Underlying interest income
12,922
226
24
13,172
Other income, net of net finance income in respect of insurance and investment
contracts / Underlying other income
2,619
1,846
201
4,666
Total income, net of net finance income in respect of insurance and investment
contracts
15,541
2,072
225
17,838
Operating lease depreciation
(373)
\u2013
(373)
Total income, net of net finance income in respect of insurance and investment
contracts / Net income
15,541
1,699
225
17,465
Operating expenses / Total costs
(9,237)
535
(225)
(8,927)
Impairment credit / Underlying impairment credit
(1,522)
12
\u2013
(1,510)
Profit before tax / Underlying profit
4,782
2,246
\u2013
7,028
5,6
4
2
3
Removal of:
Volatility,
Lloyds Banking and other Insurance Underlying
Group statutory items gross up basis
Year ended 31 December 2021 \u00a3m \u00a3m \u00a3m \u00a3m
Net interest income / Underlying interest income
10,872
255
36
11,163
Other income, net of insurance claims and changes in insurance and investment
contract liabilities / Underlying other income
5,452
(139)
(253)
5,060
Total income, net of insurance claims and changes in insurance and investment
contract liabilities
16,324
116
(217)
16,223
Operating lease depreciation
(460)
\u2013
(460)
Total income, net of insurance claims and changes in insurance and investment
contract liabilities / Net income
16,324
(344)
(217)
15,763
Operating expenses / Total costs
(10,800)
971
217
(9,612)
Impairment charge / Underlying impairment charge
1,378
7
\u2013
1,385
Profit before tax / Underlying profit
6,902
634
\u2013
7,536
6
7
2
3
1 In the year ended 31 December 2023 this comprises the effects of market volatility and asset sales (gain of \u00a335 million); the amortisation of purchased intangibles
(\u00a380 million); restructuring (\u00a3154 million of merger, acquisition and integration costs); and the fair value unwind (losses of \u00a3107 million).
2 The Group\u2019s Insurance business statutory income statement includes income and expenses attributable to the policyholders of the Group\u2019s long-term assurance funds,
investors in the Group's non-participating investment contracts and third party interests in consolidated funds. These items have no impact in total upon the profit
attributable to equity shareholders and, in order to provide a clearer representation of the underlying trends within the business, these items are shown net within the
underlying results.
3 Net of profits on disposal of operating lease assets of \u00a393 million (2022: \u00a3197 million; 2021: \u00a3249 million). Statutory operating expenses includes operating lease
depreciation. On an underlying basis operating lease depreciation is included in net income.
4 Comprises the effects of market volatility and asset sales (losses of \u00a31,978 million); the amortisation of purchased intangibles (\u00a370 million); restructuring (\u00a380 million of
merger, acquisition and integration costs); and the fair value unwind (losses of \u00a3118 million).
5 Restated for the adoption of IFRS 17; see notes 1 and 54.
6 Restated for presentational changes; see note 1.
7 Comprises the effects of market volatility and asset sales (gain of \u00a387 million); the amortisation of purchased intangibles (\u00a370 million); restructuring (\u00a3452 million,
including a software write-off as a result on investment in new technology and systems infrastructure together with merger, acquisition and integration costs); and the
fair value unwind (losses of \u00a3199 million).
", "dimensions": { "concept": "ifrs-full:DisclosureOfEntitysReportableSegmentsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-5": { "value": "Lloyds Banking Group provides a wide range of banking and financial services in the UK and in certain locations overseas. ", "dimensions": { "concept": "ifrs-full:DescriptionOfNatureOfEntitysOperationsAndPrincipalActivities", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-964": { "value": "Geographical areas The Group\u2019s operations are predominantly UK-based and as a result an analysis between UK and non-UK activities is not provided ", "dimensions": { "concept": "ifrs-full:DisclosureOfGeographicalAreasExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-913": { "value": "
Note 5: Net interest income
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Interest income:
Loans and advances to banks
4,172
1,208
104
Loans and advances to customers
20,419
14,465
12,556
Reverse repurchase agreements
2,044
857
77
Debt securities
559
168
80
Financial assets held at amortised cost
27,194
16,698
12,817
Financial assets at fair value through other comprehensive income
857
947
441
Total interest income
28,051
17,645
13,258
Interest expense:
Deposits from banks
(213)
(148)
(74)
Customer deposits
(7,148)
(1,387)
(426)
Repurchase agreements at amortised cost
(2,397)
(842)
(22)
Debt securities in issue at amortised cost
(4,253)
(1,636)
(900)
Lease liabilities
(30)
(29)
(32)
Subordinated liabilities
(712)
(681)
(932)
Total interest expense
(14,753)
(4,723)
(2,386)
Net interest income
13,298
12,922
10,872
1
1
2
3
1 Restated for presentational changes; see note 1.
2 Includes \u00a3923 million (2022: \u00a3724 million; 2021: \u00a3748 million) in respect of finance lease receivables.
3 The impact of the Group\u2019s hedging arrangements is included on this line.
Net interest income includes a debit of \u00a31,838 million (2022: debit of \u00a343 million; 2021: credit of \u00a3621 million) transferred from the cash flow
hedging reserve (see note 43).
", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestIncomeExpenseExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1036": { "value": "Note 5: Net interest income
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Interest income:
Loans and advances to banks
4,172
1,208
104
Loans and advances to customers
20,419
14,465
12,556
Reverse repurchase agreements
2,044
857
77
Debt securities
559
168
80
Financial assets held at amortised cost
27,194
16,698
12,817
Financial assets at fair value through other comprehensive income
857
947
441
Total interest income
28,051
17,645
13,258
Interest expense:
Deposits from banks
(213)
(148)
(74)
Customer deposits
(7,148)
(1,387)
(426)
Repurchase agreements at amortised cost
(2,397)
(842)
(22)
Debt securities in issue at amortised cost
(4,253)
(1,636)
(900)
Lease liabilities
(30)
(29)
(32)
Subordinated liabilities
(712)
(681)
(932)
Total interest expense
(14,753)
(4,723)
(2,386)
Net interest income
13,298
12,922
10,872
1 1 2 3 1 Restated for presentational changes; see note 1. 2 Includes \u00a3923 million (2022: \u00a3724 million; 2021: \u00a3748 million) in respect of finance lease receivables. 3 The impact of the Group\u2019s hedging arrangements is included on this line. Net interest income includes a debit of \u00a31,838 million (2022: debit of \u00a343 million; 2021: credit of \u00a3621 million) transferred from the cash flow hedging reserve (see note 43).", "dimensions": { "concept": "ifrs-full:DisclosureOfFinanceCostExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1032": { "value": "Note 5: Net interest income
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Interest income:
Loans and advances to banks
4,172
1,208
104
Loans and advances to customers
20,419
14,465
12,556
Reverse repurchase agreements
2,044
857
77
Debt securities
559
168
80
Financial assets held at amortised cost
27,194
16,698
12,817
Financial assets at fair value through other comprehensive income
857
947
441
Total interest income
28,051
17,645
13,258
Interest expense:
Deposits from banks
(213)
(148)
(74)
Customer deposits
(7,148)
(1,387)
(426)
Repurchase agreements at amortised cost
(2,397)
(842)
(22)
Debt securities in issue at amortised cost
(4,253)
(1,636)
(900)
Lease liabilities
(30)
(29)
(32)
Subordinated liabilities
(712)
(681)
(932)
Total interest expense
(14,753)
(4,723)
(2,386)
Net interest income
13,298
12,922
10,872
1 1 2 3 1 Restated for presentational changes; see note 1. 2 Includes \u00a3923 million (2022: \u00a3724 million; 2021: \u00a3748 million) in respect of finance lease receivables. 3 The impact of the Group\u2019s hedging arrangements is included on this line. Net interest income includes a debit of \u00a31,838 million (2022: debit of \u00a343 million; 2021: credit of \u00a3621 million) transferred from the cash flow hedging reserve (see note 43).", "dimensions": { "concept": "ifrs-full:DisclosureOfFinanceIncomeExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1024": { "value": "Note 5: Net interest income
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Interest income:
Loans and advances to banks
4,172
1,208
104
Loans and advances to customers
20,419
14,465
12,556
Reverse repurchase agreements
2,044
857
77
Debt securities
559
168
80
Financial assets held at amortised cost
27,194
16,698
12,817
Financial assets at fair value through other comprehensive income
857
947
441
Total interest income
28,051
17,645
13,258
Interest expense:
Deposits from banks
(213)
(148)
(74)
Customer deposits
(7,148)
(1,387)
(426)
Repurchase agreements at amortised cost
(2,397)
(842)
(22)
Debt securities in issue at amortised cost
(4,253)
(1,636)
(900)
Lease liabilities
(30)
(29)
(32)
Subordinated liabilities
(712)
(681)
(932)
Total interest expense
(14,753)
(4,723)
(2,386)
Net interest income
13,298
12,922
10,872
1 1 2 3 1 Restated for presentational changes; see note 1. 2 Includes \u00a3923 million (2022: \u00a3724 million; 2021: \u00a3748 million) in respect of finance lease receivables. 3 The impact of the Group\u2019s hedging arrangements is included on this line. Net interest income includes a debit of \u00a31,838 million (2022: debit of \u00a343 million; 2021: credit of \u00a3621 million) transferred from the cash flow hedging reserve (see note 43).", "dimensions": { "concept": "ifrs-full:DisclosureOfFinanceIncomeExpenseExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-998": { "value": "Note 5: Net interest income
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Interest income:
Loans and advances to banks
4,172
1,208
104
Loans and advances to customers
20,419
14,465
12,556
Reverse repurchase agreements
2,044
857
77
Debt securities
559
168
80
Financial assets held at amortised cost
27,194
16,698
12,817
Financial assets at fair value through other comprehensive income
857
947
441
Total interest income
28,051
17,645
13,258
Interest expense:
Deposits from banks
(213)
(148)
(74)
Customer deposits
(7,148)
(1,387)
(426)
Repurchase agreements at amortised cost
(2,397)
(842)
(22)
Debt securities in issue at amortised cost
(4,253)
(1,636)
(900)
Lease liabilities
(30)
(29)
(32)
Subordinated liabilities
(712)
(681)
(932)
Total interest expense
(14,753)
(4,723)
(2,386)
Net interest income
13,298
12,922
10,872
1 1 2 3 1 Restated for presentational changes; see note 1. 2 Includes \u00a3923 million (2022: \u00a3724 million; 2021: \u00a3748 million) in respect of finance lease receivables. 3 The impact of the Group\u2019s hedging arrangements is included on this line. Net interest income includes a debit of \u00a31,838 million (2022: debit of \u00a343 million; 2021: credit of \u00a3621 million) transferred from the cash flow hedging reserve (see note 43).", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestExpenseExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-965": { "value": "Note 5: Net interest income
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Interest income:
Loans and advances to banks
4,172
1,208
104
Loans and advances to customers
20,419
14,465
12,556
Reverse repurchase agreements
2,044
857
77
Debt securities
559
168
80
Financial assets held at amortised cost
27,194
16,698
12,817
Financial assets at fair value through other comprehensive income
857
947
441
Total interest income
28,051
17,645
13,258
Interest expense:
Deposits from banks
(213)
(148)
(74)
Customer deposits
(7,148)
(1,387)
(426)
Repurchase agreements at amortised cost
(2,397)
(842)
(22)
Debt securities in issue at amortised cost
(4,253)
(1,636)
(900)
Lease liabilities
(30)
(29)
(32)
Subordinated liabilities
(712)
(681)
(932)
Total interest expense
(14,753)
(4,723)
(2,386)
Net interest income
13,298
12,922
10,872
1 1 2 3 1 Restated for presentational changes; see note 1. 2 Includes \u00a3923 million (2022: \u00a3724 million; 2021: \u00a3748 million) in respect of finance lease receivables. 3 The impact of the Group\u2019s hedging arrangements is included on this line. Net interest income includes a debit of \u00a31,838 million (2022: debit of \u00a343 million; 2021: credit of \u00a3621 million) transferred from the cash flow hedging reserve (see note 43).", "dimensions": { "concept": "ifrs-full:DisclosureOfInterestIncomeExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-914": { "value": "
Note 6: Net fee and commission income
Insurance,
Commercial Pensions and
Retail Banking Investments Other Total
Year ended 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Fee and commission income:
Current accounts
406
218
\u2013
\u2013
624
Credit and debit card fees
800
464
\u2013
\u2013
1,264
Commercial banking and treasury fees
\u2013
334
\u2013
\u2013
334
Unit trust and insurance broking
\u2013
\u2013
69
\u2013
69
Factoring
\u2013
75
\u2013
\u2013
75
Other fees and commissions
85
186
264
25
560
Total fee and commission income
1,291
1,277
333
25
2,926
Fee and commission expense
(673)
(322)
(84)
(16)
(1,095)
Net fee and commission income
618
955
249
9
1,831
Insurance,
Commercial Pensions and
Retail Banking Investments Other Total
Year ended 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Fee and commission income:
Current accounts
421
225
\u2013
\u2013
646
Credit and debit card fees
735
460
\u2013
\u2013
1,195
Commercial banking and treasury fees
\u2013
310
\u2013
1
311
Unit trust and insurance broking
\u2013
\u2013
78
\u2013
78
Factoring
\u2013
79
\u2013
\u2013
79
Other fees and commissions
64
169
233
15
481
Total fee and commission income
1,220
1,243
311
16
2,790
Fee and commission expense
(665)
(315)
(72)
(18)
(1,070)
Net fee and commission income
555
928
239
(2)
1,720
1
1
1 Restated for the adoption of IFRS 17; see notes 1 and 54.
Insurance,
Commercial Pensions and
Retail Banking Investments Other Total
Year ended 31 December 2021 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Fee and commission income:
Current accounts
425
213
\u2013
\u2013
638
Credit and debit card fees
533
350
\u2013
\u2013
883
Commercial banking and treasury fees
\u2013
376
\u2013
37
413
Unit trust and insurance broking
\u2013
\u2013
113
\u2013
113
Factoring
\u2013
76
\u2013
\u2013
76
Other fees and commissions
65
183
213
24
485
Total fee and commission income
1,023
1,198
326
61
2,608
Fee and commission expense
(571)
(271)
(313)
(30)
(1,185)
Net fee and commission income
452
927
13
31
1,423
Fees and commissions which are an integral part of the effective interest rate form part of net interest income shown in note 5. Fees and commissions relating to instruments that are held at fair value through profit or loss are included within net trading income shown in note 7. In determining the disaggregation of fees and commissions the Group has considered how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors, including those that are impacted by climate-related factors. It has determined that the above disaggregation by product type provides useful information that does not aggregate items that have substantially different characteristics and is not too detailed. At 31 December 2023, the Group held on its balance sheet \u00a3163 million (31 December 2022: \u00a3173 million) in respect of services provided to customers and \u00a369 million (31 December 2022: \u00a374 million) in respect of amounts received from customers for services to be provided after the balance sheet date. Current unsatisfied performance obligations amount to \u00a3172 million (31 December 2022: \u00a3149 million); the Group expects to receive substantially all of this revenue by 2025. Income recognised during the year included \u00a332 million (2022: \u00a38 million) in respect of amounts included in the contract liability balance at the start of the year and \u00a32 million (2022: \u00a31 million) in respect of amounts from performance obligations satisfied in previous years. The most significant performance obligations undertaken by the Group are in respect of current accounts, the provision of other banking services for commercial customers and credit and debit card services. In respect of current accounts, the Group receives fees for the provision of bank account and transaction services such as ATM services, fund transfers, overdraft facilities and other value-added offerings. For commercial customers, alongside its provision of current accounts, the Group provides other corporate banking services including factoring and commitments to provide loan financing. Loan commitment fees are included in fees and commissions where the loan is not expected to be drawn down by the customer. The Group receives interchange and merchant fees, together with fees for overseas use and cash advances, for provision of card services to cardholders and merchants.", "dimensions": { "concept": "ifrs-full:DisclosureOfFeeAndCommissionIncomeExpenseExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-915": { "value": "Note 7: Net trading income (losses)
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Net gains (losses) on financial assets and liabilities at fair value through profit or loss:
Net gains (losses) on financial instruments held for trading
406
(1,049)
141
Net gains (losses) on other financial instruments mandatorily held at fair value through profit or loss
16,653
(17,210)
15,943
Net losses on financial liabilities designated at fair value through profit or loss
(341)
(154)
(65)
16,718
(18,413)
16,019
Foreign exchange
1,418
(1,063)
606
Investment property (losses) gains (note 27)
(87)
(511)
575
Net trading income (losses)
18,049
(19,987)
17,200
1 2 1 Includes hedge ineffectiveness in respect of fair value hedges (2023: loss of \u00a3267 million; 2022: loss of \u00a341 million; 2021: gain of \u00a3177 million) and cash flow hedges (2023: gain of \u00a319 million; 2022: loss of \u00a310 million; 2021: loss of \u00a369 million). 2 Excludes gains and losses arising from non-participating investment contracts, which are presented separately on the face of the income statement", "dimensions": { "concept": "ifrs-full:DisclosureOfTradingIncomeExpenseExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-916": { "value": "Note 8: Insurance premium income
2021
\u00a3m
Life
Gross premiums:
Life and pensions, excluding annuities
7,515
Annuities
531
8,046
Ceded reinsurance premiums
(376)
Net earned premiums
7,670
Non-life
Net earned premiums
613
Total insurance premium income
8,283
Note 9: Insurance revenue
2023 2022
\u00a3m \u00a3m
Life
Amounts relating to the changes in liabilities for remaining coverage:
CSM recognised for services provided
329
245
Change in risk adjustments for non-financial risk for risk expired
84
103
Expected incurred claims and other insurance services expenses
1,907
1,696
Charges (credits) to funds in respect of policyholder tax and other
87
(228)
2,407
1,816
Recovery of insurance acquisition cash flows
87
86
Total life
2,494
1,902
Non-life
Total non-life
514
559
Total insurance revenue
3,008
2,461
1 1 During 2022, acquisition costs of \u00a3383 million related to contracts modified and derecognised in the year were excluded from both the amortisation of insurance acquisition cash flows and the recovery of insurance acquisition cash flows as there were no insurance contract services arising from the derecognition upon contract modification. Note 10: Insurance service expense
2023
2022
Life Non-life Total Life Non-life Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Incurred claims and other directly attributable expenses
1,897
448
2,345
1,751
475
2,226
Changes that relate to past service: adjustment to liabilities
for incurred claims
\u2013
3
3
\u2013
57
57
Changes that relate to future service: losses and reversal of
losses on onerous contracts
(58)
(1)
(59)
1,486
2
1,488
Amortisation of insurance acquisition cash flows
88
30
118
85
(7)
78
Net impairment loss on insurance acquisition assets
7
\u2013
7
14
\u2013
14
Total insurance service expense
1,934
480
2,414
3,336
527
3,863
1 2 3 1 Included weather-related claims of \u00a357 million (2022: \u00a3116 million), of which \u00a351 million (2022: \u00a3108 million) was related to severe weather events. 2 During 2022, the Group enhanced its existing longstanding and workplace pension business through the addition of a drawdown feature. The Group applied judgement to determine that if the drawdown feature had been included in the contract terms at inception, the modified contracts would have had a substantially different contract boundary. As a result, the existing contracts were derecognised and the modified contracts recognised as new contracts. Judgement was also applied in determining the premium that would have been charged had the Group entered into a contract with the new contracts\u2019 terms at the date of modification. The contracts were modified throughout 2022, in line with the dates of policyholder communication of enhanced benefits. The Group recognised a charge to its 2022 income statement of \u00a31,242 million comprising: \u2013 The Group derecognised existing CSM relating to contracts modified of \u00a3399 million and recognised CSM of \u00a31,730 million relating to the new contracts recognised. During 2022, the CSM increased by \u00a31,331 million and will be released to the income statement, in line with service provided. The new CSM is larger than the previously existing CSM as (i) there were no acquisition costs incurred following modification, and (ii) the CSM for those contracts that were originally recognised prior to 1 January 2016 was previously calculated using the fair value approach on transition \u2013 The new CSM also included additional future profit of \u00a389 million expected to emerge from the addition of a drawdown feature, as a result of the increase in the expected length of the contract services period for this business. There has been an equivalent change in the fulfilment cash flows arising upon contract modification 3 During 2022, acquisition costs of \u00a3383 million related to contracts modified and derecognised in the year were excluded from both the amortisation of insurance acquisition cash flows and the recovery of insurance acquisition cash flows as there were no insurance contract services arising from the derecognition upon contract modification", "dimensions": { "concept": "ifrs-full:DisclosureOfInsurancePremiumRevenueExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1025": { "value": "
Note 10: Insurance service expense
2023
2022
Life Non-life Total Life Non-life Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Incurred claims and other directly attributable expenses
1,897
448
2,345
1,751
475
2,226
Changes that relate to past service: adjustment to liabilities
for incurred claims
\u2013
3
3
\u2013
57
57
Changes that relate to future service: losses and reversal of
losses on onerous contracts
(58)
(1)
(59)
1,486
2
1,488
Amortisation of insurance acquisition cash flows
88
30
118
85
(7)
78
Net impairment loss on insurance acquisition assets
7
\u2013
7
14
\u2013
14
Total insurance service expense
1,934
480
2,414
3,336
527
3,863
1
2
3
1 Included weather-related claims of \u00a357 million (2022: \u00a3116 million), of which \u00a351 million (2022: \u00a3108 million) was related to severe weather events.
2 During 2022, the Group enhanced its existing longstanding and workplace pension business through the addition of a drawdown feature. The Group applied judgement
to determine that if the drawdown feature had been included in the contract terms at inception, the modified contracts would have had a substantially different
contract boundary. As a result, the existing contracts were derecognised and the modified contracts recognised as new contracts. Judgement was also applied in
determining the premium that would have been charged had the Group entered into a contract with the new contracts\u2019 terms at the date of modification. The contracts
were modified throughout 2022, in line with the dates of policyholder communication of enhanced benefits. The Group recognised a charge to its 2022 income statement
of \u00a31,242 million comprising:
\u2013 The Group derecognised existing CSM relating to contracts modified of \u00a3399 million and recognised CSM of \u00a31,730 million relating to the new contracts recognised.
During 2022, the CSM increased by \u00a31,331 million and will be released to the income statement, in line with service provided. The new CSM is larger than the previously
existing CSM as (i) there were no acquisition costs incurred following modification, and (ii) the CSM for those contracts that were originally recognised prior to
1 January 2016 was previously calculated using the fair value approach on transition
\u2013 The new CSM also included additional future profit of \u00a389 million expected to emerge from the addition of a drawdown feature, as a result of the increase in the
expected length of the contract services period for this business. There has been an equivalent change in the fulfilment cash flows arising upon contract
modification
3 During 2022, acquisition costs of \u00a3383 million related to contracts modified and derecognised in the year were excluded from both the amortisation of insurance
acquisition cash flows and the recovery of insurance acquisition cash flows as there were no insurance contract services arising from the derecognition upon contract
modification.
Note 30: Insurance and participating investment contracts assets and liabilities Critical accounting judgements and key sources of estimation uncertainty Critical judgements: Determining the characteristics which make a product illiquid, the level of illiquidity premium to apply to the discount rate of different products and how the illiquidity premium is determined The determination of whether a drawdown feature added to its longstanding and workplace pension products was a modification that required derecognition and the determination of the premium that would have been charged if these were new contracts.
2023
2022
Life Non-life Total Life Non-life Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Insurance contract assets
1
\u2013
1
\u2013
\u2013
\u2013
Liabilities arising from insurance and participating
investment contracts
(119,784)
(364)
(120,148)
(109,920)
(380)
(110,300)
Insurance acquisition assets
8
16
24
8
14
22
Net liabilities
(119,775)
(348)
(120,123)
(109,912)
(366)
(110,278)
1 1 Excluding insurance acquisition assets. The Group estimates future cash flows based on which cash flows are expected and the probability that they will occur as at the measurement date. The Group uses information about past events, current conditions and forecasts of future conditions to inform these expectations. The Group\u2019s estimate of future cash flows is the mean of a range of scenarios that reflect the full range of possible outcomes, considering all reasonable and supportable information available at the reporting date. The probability-weighted average of the future cash flows is calculated using a deterministic scenario representing the probability-weighted mean of a range of scenarios. The Group uses assumptions to develop estimates of future cash flows. These assumptions are reassessed at each reported date to reflect conditions existing at the measurement date. The Group has applied judgment in determining the characteristics which make a product illiquid, the level of illiquidity premium to apply to the discount rate of different products and how the illiquidity premium is determined, where material. The products to which an illiquidity premium has been applied to the discount rate are annuity contracts, due to the illiquid nature of their cash flows, certain reinsurance contracts held where the underlying contracts are annuity contracts, due to the transfer of longevity risk to the reinsurer, and whole of life protection contracts, due to the inherent policyholder value and zero surrender option. For annuity contracts, at initial recognition, the illiquidity premium is calculated with reference to a strategic portfolio of assets, and subsequently measured to reflect the mix of actual assets backing annuity contracts, adjusted to reflect the impacts of transition from initial recognition. To reflect differences between the characteristics of insurance contracts and the derivation of discount rates based on a reference portfolio, adjustments for credit risk are required, and the Group uses the fundamental spread to maintain consistency with its Solvency II approach. For protection contracts, the illiquidity premium is based on the spread on a covered bond index. The average yield curves (GBP currency) that were used to discount the estimates of future cash flows that do not vary based on the returns of the underlying items are as follows:
1 year
5 year
10 year
20 year
30 year
2023
5.37
4.15
4.79
4.72
4.19
2022
6.11
5.15
5.03
4.84
4.42
The Group has also applied judgement to determine if a drawdown feature added to its longstanding and workplace pension products was a modification that required derecognition. See note 10 for more details. The Group determines the quantity of benefits Note 31: Reconciliation of insurance balances for liability for remaining coverage and liability for incurred claims
2023
2022
Liabilities for Liabilities for
remaining coverage Liability for remaining coverage Liability for
Excluding loss Loss incurred Excluding loss Loss incurred
component component claims Total component component claims Total
Life
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
\u00a3m
At 1 January
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
184
(160)
\u2013
24
Liabilities arising from
insurance and participating
investment contracts
(108,846)
(471)
(603)
(109,920)
(124,053)
(179)
(653)
(124,885)
Net asset (liability)
(108,846)
(471)
(603)
(109,920)
(123,869)
(339)
(653)
(124,861)
Insurance revenue
Contracts under the modified
retrospective approach
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Contracts under the fair value
transition approach
1,467
\u2013
\u2013
1,467
1,266
\u2013
\u2013
1,266
Other contracts
1,027
\u2013
\u2013
1,027
636
\u2013
\u2013
636
2,494
\u2013
\u2013
2,494
1,902
\u2013
\u2013
1,902
Insurance service expenses
Incurred claims and other
directly attributable expenses
\u2013
52
(1,949)
(1,897)
\u2013
44
(1,795)
(1,751)
Adjustments to liabilities for
incurred claims
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Losses from drawdown
contract modifications
\u2013
\u2013
\u2013
\u2013
(1,242)
\u2013
\u2013
(1,242)
Losses and reversal of losses
on onerous insurance
contracts
\u2013
58
\u2013
58
\u2013
(244)
\u2013
(244)
Amortisation of insurance
acquisition cash flows
(88)
\u2013
\u2013
(88)
(85)
\u2013
\u2013
(85)
(88)
110
(1,949)
(1,927)
(1,327)
(200)
(1,795)
(3,322)
Insurance service result
2,406
110
(1,949)
567
575
(200)
(1,795)
(1,420)
Net finance income (expense)
from insurance and
participating investment
contracts
(11,576)
(105)
(3)
(11,684)
15,885
68
(3)
15,950
Exchange differences
32
\u2013
\u2013
32
(94)
\u2013
\u2013
(94)
Total change in profit or loss
(9,138)
5
(1,952)
(11,085)
16,366
(132)
(1,798)
14,436
Investment components
8,793
\u2013
(8,793)
\u2013
7,285
\u2013
(7,285)
\u2013
Cash flows
Premiums received
(9,768)
\u2013
\u2013
(9,768)
(8,861)
\u2013
\u2013
(8,861)
Claims and other insurance
service expenses paid
\u2013
\u2013
10,721
10,721
\u2013
\u2013
9,099
9,099
Insurance acquisition cash
flows
203
\u2013
\u2013
203
200
\u2013
\u2013
200
(9,565)
\u2013
10,721
1,156
(8,661)
\u2013
9,099
438
Transfer to other items in the
balance sheet
32
\u2013
34
66
33
\u2013
34
67
At 31 December
Insurance contract assets
1
\u2013
\u2013
1
\u2013
\u2013
\u2013
\u2013
Liabilities arising from
insurance and participating
investment contracts
(118,725)
(466)
(593)
(119,784)
(108,846)
(471)
(603)
(109,920)
Net asset (liability)
(118,724)
(466)
(593)
(119,783)
(108,846)
(471)
(603)
(109,920)
1 1 1 Excluding insurance acquisition assets.
2023
2022
Liabilities for Liabilities for
remaining coverage Liability for remaining coverage Liability for
Excluding loss Loss incurred Excluding loss Loss incurred
component component claims Total component component claims Total
Non-life
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
\u00a3m
At 1 January
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from
insurance and participating
investment contracts
(22)
(1)
(357)
(380)
(32)
(4)
(286)
(322)
Net asset (liability)
(22)
(1)
(357)
(380)
(32)
(4)
(286)
(322)
Insurance revenue
Contracts under the modified
retrospective approach
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Contracts under the fair value
transition approach
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Other contracts
514
\u2013
\u2013
514
559
\u2013
\u2013
559
514
\u2013
\u2013
514
559
\u2013
\u2013
559
Insurance service expenses
Incurred claims and other
directly attributable expenses
\u2013
\u2013
(448)
(448)
\u2013
5
(480)
(475)
Adjustments to liabilities for
incurred claims
\u2013
\u2013
(3)
(3)
\u2013
\u2013
(57)
(57)
Losses and reversal of losses on
onerous insurance contracts
\u2013
1
\u2013
1
\u2013
(2)
\u2013
(2)
Amortisation of insurance
acquisition cash flows
(30)
\u2013
(30)
7
\u2013
\u2013
7
(30)
1
(451)
(480)
7
3
(537)
(527)
Insurance service result
484
1
(451)
34
566
3
(537)
32
Net finance income (expense)
from insurance and
participating investment
contracts
\u2013
\u2013
(6)
(6)
\u2013
\u2013
(2)
(2)
Exchange differences
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Total change in profit or loss
484
1
(457)
28
566
3
(539)
30
Investment components
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Cash flows
Premiums received
(525)
\u2013
\u2013
(525)
(584)
\u2013
\u2013
(584)
Claims and other insurance
service expenses paid
\u2013
\u2013
475
475
\u2013
\u2013
468
468
Insurance acquisition cash
flows
38
\u2013
\u2013
38
28
\u2013
\u2013
28
(487)
\u2013
475
(12)
(556)
\u2013
468
(88)
Transfer to other items in the
balance sheet
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
At 31 December
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from
insurance and participating
investment contracts
(25)
\u2013
(339)
(364)
(22)
(1)
(357)
(380)
Net asset (liability)
(25)
\u2013
(339)
(364)
(22)
(1)
(357)
(380)
1 1 1 Excluding insurance acquisition assets Note 32: Reconciliation of measurement components of insurance contract balances
2023
Contractual service margin
Contracts
Present Risk measured Contracts
value of adjustment under the measured
future for non- modified under the
cash financial retrospective fair value Other
flows risk approach approach contracts Total Total
Life \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from insurance and participating
investment contracts
(104,545)
(1,165)
\u2013
(1,441)
(2,769)
(4,210)
(109,920)
Net asset (liability)
(104,545)
(1,165)
\u2013
(1,441)
(2,769)
(4,210)
(109,920)
Relating to current services
CSM recognised for services provided
\u2013
\u2013
\u2013
130
199
329
329
Changes in risk adjustment for non-financial risk for
risk expired
\u2013
84
\u2013
\u2013
\u2013
\u2013
84
Experience adjustments
99
\u2013
\u2013
(1)
(2)
(3)
96
99
84
\u2013
129
197
326
509
Relating to future services
Contracts initially recognised in the year
107
(86)
\u2013
\u2013
(92)
(92)
(71)
Changes in estimates that adjust the CSM
390
(12)
\u2013
(170)
(208)
(378)
\u2013
Changes in estimates that result in losses and
reversal of losses on onerous contracts
109
20
\u2013
\u2013
\u2013
\u2013
129
606
(78)
\u2013
(170)
(300)
(470)
58
Relating to past services
Adjustments to liabilities for incurred claims
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Insurance service result
705
6
\u2013
(41)
(103)
(144)
567
Net finance income (expense) from insurance and
participating investment contracts
(11,621)
\u2013
\u2013
7
(70)
(63)
(11,684)
Exchange differences
30
\u2013
\u2013
2
\u2013
2
32
Total change in profit or loss
(10,886)
6
\u2013
(32)
(173)
(205)
(11,085)
Cash flows
Premiums received
(9,768)
\u2013
\u2013
\u2013
\u2013
\u2013
(9,768)
Claims and other insurance service expenses paid
10,721
\u2013
\u2013
\u2013
\u2013
\u2013
10,721
Insurance acquisition cash flows
203
\u2013
\u2013
\u2013
\u2013
\u2013
203
1,156
\u2013
\u2013
\u2013
\u2013
\u2013
1,156
Transfer to other items in the balance sheet
66
\u2013
\u2013
\u2013
\u2013
\u2013
66
At 31 December
Insurance contract assets
\u2013
1
\u2013
\u2013
\u2013
\u2013
1
Liabilities arising from insurance and participating
investment contracts
(114,209)
(1,160)
\u2013
(1,473)
(2,942)
(4,415)
(119,784)
Net asset (liability)
(114,209)
(1,159)
\u2013
(1,473)
(2,942)
(4,415)
(119,783)
1 1 1 Excluding insurance acquisition assets
2022
Contractual service margin
Contracts
Present Risk measured Contracts
value of adjustment under the measured
future for non- modified under the
cash financial retrospective Other fair value
flows risk approach contracts approach Total Total
Life \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January
Insurance contract assets
149
(53)
\u2013
(5)
(67)
(72)
24
Liabilities arising from insurance and participating
investment contracts
(121,344)
(1,599)
\u2013
(583)
(1,359)
(1,942)
(124,885)
Net asset (liability)
(121,195)
(1,652)
\u2013
(588)
(1,426)
(2,014)
(124,861)
Relating to current services
CSM recognised for services provided
\u2013
\u2013
\u2013
122
123
245
245
Changes in risk adjustment for non-financial risk for
risk expired
\u2013
103
\u2013
\u2013
\u2013
\u2013
103
Experience adjustments
(189)
\u2013
\u2013
(93)
\u2013
(93)
(282)
(189)
103
\u2013
29
123
152
66
Relating to future services
Contracts initially recognised in the year
2,364
(646)
\u2013
(1,793)
\u2013
(1,793)
(75)
Changes in estimates that adjust the CSM
(158)
603
\u2013
(362)
(83)
(445)
\u2013
Changes in estimates that result in losses and
reversal of losses on onerous contracts
(1,835)
424
\u2013
\u2013
\u2013
\u2013
(1,411)
371
381
\u2013
(2,155)
(83)
(2,238)
(1,486)
Relating to past services
Adjustments to liabilities for incurred claims
(4)
4
\u2013
\u2013
\u2013
\u2013
\u2013
Insurance service result
178
488
\u2013
(2,126)
40
(2,086)
(1,420)
Net finance income (expense) from insurance and
participating investment contracts
16,055
\u2013
\u2013
(55)
(50)
(105)
15,950
Exchange differences
(88)
(1)
\u2013
\u2013
(5)
(5)
(94)
Total change in profit or loss
16,145
487
\u2013
(2,181)
(15)
(2,196)
14,436
Cash flows
Premiums received
(8,861)
\u2013
\u2013
\u2013
\u2013
\u2013
(8,861)
Claims and other insurance service expenses paid
9,099
\u2013
\u2013
\u2013
\u2013
\u2013
9,099
Insurance acquisition cash flows
200
\u2013
\u2013
\u2013
\u2013
\u2013
200
438
\u2013
\u2013
\u2013
\u2013
\u2013
438
Transfer to other items in the balance sheet
67
\u2013
\u2013
\u2013
\u2013
\u2013
67
At 31 December
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from insurance and participating
investment contracts
(104,545)
(1,165)
\u2013
(2,769)
(1,441)
(4,210)
(109,920)
Net asset (liability)
(104,545)
(1,165)
\u2013
(2,769)
(1,441)
(4,210)
(109,920)
1 2 3 3 1 1 Excluding insurance acquisition assets. 2 Contracts initially recognised in the year, include present value of future cash flows of \u00a32,281 million, risk adjustment of \u00a3(551) million and CSM of \u00a3(1,730) million relating to contracts that were modified to add a drawdown feature and recognised as new contracts. 3 The Group derecognised present value of future cash flows of \u00a32,175 million, risk adjustment of \u00a3(534) million and CSM of \u00a3(399) million relating to contracts that were derecognised due to a contract modification to add a drawdown feature. The amounts derecognised are included within changes in estimates that adjust the CSM and changes that result in losses and reversal of losses on onerous contracts. A loss on contract derecognition modification of \u00a31,242 million arose and was recognised in insurance service expense. Further details are provided in note 10. T he Group estimates the risk adjustment separately from other components of the fulfilment cash flows using an explicit margins approach such that a confidence level scenario is used to determine the margins to be applied to the best estimate assumptions. The risk adjustment represents the difference in the value of the best estimate cash flows with and without these margins. The risk adjustment is calculated at a policy level. The confidence level corresponding to the risk adjustment is 90 per cent (2022: 90 per cent). The risk adjustment is calibrated to the value at risk over a one-year time horizon at this confidence level for non-financial risks. This is translated, using statistical approximations, into an equivalent confidence level on a value at risk basis over the expected lifetime of in-force policies of approximately 70 per cent (2022: 70 per cent) at end of the reporting period. Note 33: Impacts of insurance and participating investment contracts recognised in the year
2023
2022
Profitable Onerous Profitable Onerous
contracts contracts contracts contracts
issued issued Total issued issued Total
Life \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Insurance and participating investment contracts
Insurance acquisition cash flows
87
142
229
85
173
258
Claims and other directly attributable expenses
5,450
447
5,897
82,246
1,130
83,376
Estimates of the present value of future cash outflows
5,537
589
6,126
82,331
1,303
83,634
Estimates of the present value of future cash inflows
(5,708)
(525)
(6,233)
(84,754)
(1,244)
(85,998)
Risk adjustment for non-financial risk
79
7
86
630
16
646
Contractual service margin
92
\u2013
92
1,793
\u2013
1,793
Losses recognised on initial recognition
\u2013
71
71
\u2013
75
75
", "dimensions": { "concept": "ifrs-full:DisclosureOfDeferredAcquisitionCostsArisingFromInsuranceContractsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-918": { "value": "
Note 11: Other operating income
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Operating lease rental income
1,383
1,077
1,059
Rental income from investment properties (note 27)
146
145
186
Net gains (losses) on disposal of financial assets at fair value through other comprehensive
income (note 43)
122
92
(2)
Movement in value of in-force business
(70)
Liability management
\u2013
(31)
(22)
Share of results of joint ventures and associates
(16)
10
2
Other
(4)
46
19
Total other operating income
1,631
1,339
1,172
1
1 Restated for the adoption of IFRS 17; see notes 1 and 54.
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingIncomeExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-999": { "value": "Note 11: Other operating income
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Operating lease rental income
1,383
1,077
1,059
Rental income from investment properties (note 27)
146
145
186
Net gains (losses) on disposal of financial assets at fair value through other comprehensive
income (note 43)
122
92
(2)
Movement in value of in-force business
(70)
Liability management
\u2013
(31)
(22)
Share of results of joint ventures and associates
(16)
10
2
Other
(4)
46
19
Total other operating income
1,631
1,339
1,172
1 1 Restated for the adoption of IFRS 17; see notes 1 and 54.", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingExpenseExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-966": { "value": "Note 11: Other operating income
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Operating lease rental income
1,383
1,077
1,059
Rental income from investment properties (note 27)
146
145
186
Net gains (losses) on disposal of financial assets at fair value through other comprehensive
income (note 43)
122
92
(2)
Movement in value of in-force business
(70)
Liability management
\u2013
(31)
(22)
Share of results of joint ventures and associates
(16)
10
2
Other
(4)
46
19
Total other operating income
1,631
1,339
1,172
1 1 Restated for the adoption of IFRS 17; see notes 1 and 54.", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherOperatingIncomeExpenseExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-917": { "value": "
Note 12: Insurance claims
2021
\u00a3m
Life insurance and participating investment contracts
Deaths
(790)
Maturities including surrenders
(6,915)
Annuities
(1,194)
Other
(164)
Gross claims and surrenders
(9,063)
Change in insurance and participating investment contracts
(7,474)
(16,537)
Non-participating investment contracts
Change in non-participating investment contracts
(4,581)
(21,118)
Reinsurers\u2019 share 285
(20,833)
Change in unallocated surplus
35
Total life insurance and investment contracts
(20,798)
Non-life insurance
Total non-life insurance claims, net of reinsurance
(322)
Total insurance claims and changes in insurance and investment contract liabilities
(21,120)
1
1 Reinsurers\u2019 share comprises a charge of \u00a35 million in respect of contracts classified as financial assets at fair value through profit or loss and a credit of \u00a3290 million in
respect of contracts classified as reinsurance contracts.
Total non-life insurance claims, net of reinsurance, in 2021 included weather-related claims of \u00a330 million, of which \u00a311 million was
related to severe weather events.
Note 13: Net investment return on assets held to back insurance and participating investment
contracts and net insurance finance (expense) income
2023
2022
Life Non-life Total Life Non-life Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Net gains (losses) on financial assets and liabilities at fair value
through profit or loss
11,218
35
11,253
(14,876)
9
(14,867)
Foreign exchange
542
\u2013
542
(1,039)
\u2013
(1,039)
Investment property losses
(4)
\u2013
(4)
(3)
\u2013
(3)
Net investment return on assets held to back insurance and
participating investment contracts (memorandum item)
11,756
35
11,791
(15,918)
9
(15,909)
Changes in fair value of underlying items of direct participating
contracts
(10,293)
\u2013
(10,293)
11,212
\u2013
11,212
Effects of risk mitigation option
172
\u2013
172
(118)
\u2013
(118)
Interest accreted
(874)
(6)
(880)
(350)
(2)
(352)
Effect of changes in interest rates and other financial
assumptions
(654)
\u2013
(654)
5,226
\u2013
5,226
Effect of changes in fulfilment cash flows at current rates when
CSM is unlocked at locked-in rates
(80)
\u2013
(80)
(20)
\u2013
(20)
Net finance (expense) income from insurance and
participating investment contracts
(11,729)
(6)
(11,735)
15,950
(2)
15,948
Net finance income (expense) from reinsurance contracts held
51
\u2013
51
(55)
\u2013
(55)
Net finance (expense) income from insurance, participating
investment and reinsurance contracts
(11,678)
(6)
(11,684)
15,895
(2)
15,893
1
1 Net investment return on assets held to back insurance and participating investment contracts is reported within net trading income (losses) on the face of the Group\u2019s
income statement; includes income of \u00a310,200 million (2022: loss of \u00a311,081 million) in respect of unit-linked and with-profit contracts measured applying the variable fee
approach. The assets generating the investment return held to back insurance and participating investment contracts are carried at fair value on the Group\u2019s balance
sheet.
Note 27: Other assets
2023 2022
\u00a3m \u00a3m
Insurance contract assets
1
\u2013
Reinsurance contract assets
442
372
Investment in joint ventures and associates
401
385
Property, plant and equipment:
Investment properties (see below)
2,862
2,532
Premises
920
871
Equipment
1,170
1,285
Operating lease assets (see below)
6,523
4,816
Right-of-use assets (note 28)
1,055
1,156
12,530
10,660
Settlement balances and items in the course of collection from banks
912
658
Prepayments
1,455
1,224
Deferred acquisition and origination costs
39
54
Other assets
1,364
1,183
Total other assets
17,144
14,536
1
1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54.
Investment properties
The Group\u2019s investment properties are predominantly held by the Insurance, Pensions and Investments business where they back
policyholder liabilities. They are valued by external Chartered Surveyors using industry standard techniques based on guidance from
the Royal Institute of Chartered Surveyors. The valuation methodology includes an assessment of general market conditions and sector
level transactions and takes account of expectations of occupancy rates, rental income and growth. Property valuations undergo
individual scrutiny using cash flow analysis to factor in the timing of rental reviews, capital expenditure, lease incentives, dilapidation
and operating expenses; these reviews utilise both observable and unobservable inputs. Within the fair value hierarchy, all of the
Group\u2019s investment properties are categorised as level 3 (see note 21 for details of levels in the fair value hierarchy). The table below
analyses movements in level 3 investment properties, which are carried at fair value.
2023 2022
\u00a3m \u00a3m
At 1 January
2,532
3,612
Acquisition of new properties
450
60
Additional expenditure on existing properties
19
50
Change in fair value (note 7)
(87)
(511)
Disposals
(52)
(679)
At 31 December
2,862
2,532
Rental income of \u00a3146 million (2022: \u00a3145 million) and direct operating expenses of \u00a316 million (2022: \u00a332 million) arising from investment
properties that generate rental income have been recognised in the income statement.
Capital expenditure in respect of investment properties which had been contracted for but not recognised in the financial statements
was \u00a3488 million (2022: \u00a3119 million).
Operating lease assets where the Group is lessor Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. At 31 December the future minimum rentals receivable under non-cancellable operating leases were as follows:
Within 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
1,336
857
680
309
70
4
3,256
At 31 December 2022
912
620
322
102
11
\u2013
1,967
Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. Operating lease assets are comprised as follows:
2023 2022
\u00a3m \u00a3m
Electric vehicles
3,259
1,610
Internal combustion engine vehicles
1,815
2,042
Hybrid vehicles
1,444
1,159
Other
5
5
Total operating lease assets
6,523
4,816
Note 30: Insurance and participating investment contracts assets and liabilities Critical accounting judgements and key sources of estimation uncertainty Critical judgements: Determining the characteristics which make a product illiquid, the level of illiquidity premium to apply to the discount rate of different products and how the illiquidity premium is determined The determination of whether a drawdown feature added to its longstanding and workplace pension products was a modification that required derecognition and the determination of the premium that would have been charged if these were new contracts.
2023
2022
Life Non-life Total Life Non-life Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Insurance contract assets
1
\u2013
1
\u2013
\u2013
\u2013
Liabilities arising from insurance and participating
investment contracts
(119,784)
(364)
(120,148)
(109,920)
(380)
(110,300)
Insurance acquisition assets
8
16
24
8
14
22
Net liabilities
(119,775)
(348)
(120,123)
(109,912)
(366)
(110,278)
1 1 Excluding insurance acquisition assets. The Group estimates future cash flows based on which cash flows are expected and the probability that they will occur as at the measurement date. The Group uses information about past events, current conditions and forecasts of future conditions to inform these expectations. The Group\u2019s estimate of future cash flows is the mean of a range of scenarios that reflect the full range of possible outcomes, considering all reasonable and supportable information available at the reporting date. The probability-weighted average of the future cash flows is calculated using a deterministic scenario representing the probability-weighted mean of a range of scenarios. The Group uses assumptions to develop estimates of future cash flows. These assumptions are reassessed at each reported date to reflect conditions existing at the measurement date. The Group has applied judgment in determining the characteristics which make a product illiquid, the level of illiquidity premium to apply to the discount rate of different products and how the illiquidity premium is determined, where material. The products to which an illiquidity premium has been applied to the discount rate are annuity contracts, due to the illiquid nature of their cash flows, certain reinsurance contracts held where the underlying contracts are annuity contracts, due to the transfer of longevity risk to the reinsurer, and whole of life protection contracts, due to the inherent policyholder value and zero surrender option. For annuity contracts, at initial recognition, the illiquidity premium is calculated with reference to a strategic portfolio of assets, and subsequently measured to reflect the mix of actual assets backing annuity contracts, adjusted to reflect the impacts of transition from initial recognition. To reflect differences between the characteristics of insurance contracts and the derivation of discount rates based on a reference portfolio, adjustments for credit risk are required, and the Group uses the fundamental spread to maintain consistency with its Solvency II approach. For protection contracts, the illiquidity premium is based on the spread on a covered bond index. The average yield curves (GBP currency) that were used to discount the estimates of future cash flows that do not vary based on the returns of the underlying items are as follows:
1 year
5 year
10 year
20 year
30 year
2023
5.37
4.15
4.79
4.72
4.19
2022
6.11
5.15
5.03
4.84
4.42
The Group has also applied judgement to determine if a drawdown feature added to its longstanding and workplace pension products was a modification that required derecognition. See note 10 for more details. The Group determines the quantity of benefits provided under each contract as follows: Product Basis With-Profits and unit linked Policyholder account value 1 Annuities Pre-vesting date 2 : defined amount payable Post-vesting date: annuity payout 1 Or the guaranteed benefits, if higher. 2 Immediate annuities have no pre-vesting date period. Mortality The mortality assumptions for the main classes of business are set with regard to recent Group experience and general industry trends, all of which are adjusted for smoker status and age/gender specific factors. The base mortality tables used for the annuities business for the year ended 31 December 2023 and the prior period were selected from the bespoke mortality tables. The mortality improvements adopt the 100% Bespoke tables and CMI 2022_{M/F}_(7.25)_{2.0/1.8}%_{0.0/0.2}A_2013 for the year ended 31 December 2023 and the 100% Bespoke tables and CMI 2021_{M/F}_(7.25)_{2.0/1.8}%_{0.0/0.2}A_2013 for the prior period. Lapse rates Lapse rates refer to the rate of policy termination or the rate at which policyholders stop paying regular premiums due under the contract. Historical persistency experience is analysed using statistical techniques. As experience can vary considerably between different product types and for contracts that have been in force for different periods, the data is broken down into broadly homogeneous groups for the purposes of determining the Group\u2019s lapse rate in determining the assumptions, which are set on a best estimates basis, based on investigations of historical experience with some expert judgement overlays reflecting expectations of future trends and other external data. The lapse rates for workplace pensions range from 0.8 per cent to 14.6 per cent (2022: 0.8 per cent to 15.7 per cent) and for longstanding business range from 0.5 per cent to 74.1 per cent (2022: 0.5 per cent to 74.1 per cent), the wide range being a result of the age and variety of products
Note 31: Reconciliation of insurance balances for liability for remaining coverage and liability for
incurred claims
2023
2022
Liabilities for Liabilities for
remaining coverage Liability for remaining coverage Liability for
Excluding loss Loss incurred Excluding loss Loss incurred
component component claims Total component component claims Total
Life
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
\u00a3m
At 1 January
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
184
(160)
\u2013
24
Liabilities arising from
insurance and participating
investment contracts
(108,846)
(471)
(603)
(109,920)
(124,053)
(179)
(653)
(124,885)
Net asset (liability)
(108,846)
(471)
(603)
(109,920)
(123,869)
(339)
(653)
(124,861)
Insurance revenue
Contracts under the modified
retrospective approach
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Contracts under the fair value
transition approach
1,467
\u2013
\u2013
1,467
1,266
\u2013
\u2013
1,266
Other contracts
1,027
\u2013
\u2013
1,027
636
\u2013
\u2013
636
2,494
\u2013
\u2013
2,494
1,902
\u2013
\u2013
1,902
Insurance service expenses
Incurred claims and other
directly attributable expenses
\u2013
52
(1,949)
(1,897)
\u2013
44
(1,795)
(1,751)
Adjustments to liabilities for
incurred claims
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Losses from drawdown
contract modifications
\u2013
\u2013
\u2013
\u2013
(1,242)
\u2013
\u2013
(1,242)
Losses and reversal of losses
on onerous insurance
contracts
\u2013
58
\u2013
58
\u2013
(244)
\u2013
(244)
Amortisation of insurance
acquisition cash flows
(88)
\u2013
\u2013
(88)
(85)
\u2013
\u2013
(85)
(88)
110
(1,949)
(1,927)
(1,327)
(200)
(1,795)
(3,322)
Insurance service result
2,406
110
(1,949)
567
575
(200)
(1,795)
(1,420)
Net finance income (expense)
from insurance and
participating investment
contracts
(11,576)
(105)
(3)
(11,684)
15,885
68
(3)
15,950
Exchange differences
32
\u2013
\u2013
32
(94)
\u2013
\u2013
(94)
Total change in profit or loss
(9,138)
5
(1,952)
(11,085)
16,366
(132)
(1,798)
14,436
Investment components
8,793
\u2013
(8,793)
\u2013
7,285
\u2013
(7,285)
\u2013
Cash flows
Premiums received
(9,768)
\u2013
\u2013
(9,768)
(8,861)
\u2013
\u2013
(8,861)
Claims and other insurance
service expenses paid
\u2013
\u2013
10,721
10,721
\u2013
\u2013
9,099
9,099
Insurance acquisition cash
flows
203
\u2013
\u2013
203
200
\u2013
\u2013
200
(9,565)
\u2013
10,721
1,156
(8,661)
\u2013
9,099
438
Transfer to other items in the
balance sheet
32
\u2013
34
66
33
\u2013
34
67
At 31 December
Insurance contract assets
1
\u2013
\u2013
1
\u2013
\u2013
\u2013
\u2013
Liabilities arising from
insurance and participating
investment contracts
(118,725)
(466)
(593)
(119,784)
(108,846)
(471)
(603)
(109,920)
Net asset (liability)
(118,724)
(466)
(593)
(119,783)
(108,846)
(471)
(603)
(109,920)
1
1
1 Excluding insurance acquisition assets.
2023
2022
Liabilities for Liabilities for
remaining coverage Liability for remaining coverage Liability for
Excluding loss Loss incurred Excluding loss Loss incurred
component component claims Total component component claims Total
Non-life
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
\u00a3m
At 1 January
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from
insurance and participating
investment contracts
(22)
(1)
(357)
(380)
(32)
(4)
(286)
(322)
Net asset (liability)
(22)
(1)
(357)
(380)
(32)
(4)
(286)
(322)
Insurance revenue
Contracts under the modified
retrospective approach
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Contracts under the fair value
transition approach
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Other contracts
514
\u2013
\u2013
514
559
\u2013
\u2013
559
514
\u2013
\u2013
514
559
\u2013
\u2013
559
Insurance service expenses
Incurred claims and other
directly attributable expenses
\u2013
\u2013
(448)
(448)
\u2013
5
(480)
(475)
Adjustments to liabilities for
incurred claims
\u2013
\u2013
(3)
(3)
\u2013
\u2013
(57)
(57)
Losses and reversal of losses on
onerous insurance contracts
\u2013
1
\u2013
1
\u2013
(2)
\u2013
(2)
Amortisation of insurance
acquisition cash flows
(30)
\u2013
(30)
7
\u2013
\u2013
7
(30)
1
(451)
(480)
7
3
(537)
(527)
Insurance service result
484
1
(451)
34
566
3
(537)
32
Net finance income (expense)
from insurance and
participating investment
contracts
\u2013
\u2013
(6)
(6)
\u2013
\u2013
(2)
(2)
Exchange differences
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Total change in profit or loss
484
1
(457)
28
566
3
(539)
30
Investment components
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Cash flows
Premiums received
(525)
\u2013
\u2013
(525)
(584)
\u2013
\u2013
(584)
Claims and other insurance
service expenses paid
\u2013
\u2013
475
475
\u2013
\u2013
468
468
Insurance acquisition cash
flows
38
\u2013
\u2013
38
28
\u2013
\u2013
28
(487)
\u2013
475
(12)
(556)
\u2013
468
(88)
Transfer to other items in the
balance sheet
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
At 31 December
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from
insurance and participating
investment contracts
(25)
\u2013
(339)
(364)
(22)
(1)
(357)
(380)
Net asset (liability)
(25)
\u2013
(339)
(364)
(22)
(1)
(357)
(380)
1 1 1 Excluding insurance acquisition assets
Note 32: Reconciliation of measurement components of insurance contract balances
2023
Contractual service margin
Contracts
Present Risk measured Contracts
value of adjustment under the measured
future for non- modified under the
cash financial retrospective fair value Other
flows risk approach approach contracts Total Total
Life \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from insurance and participating
investment contracts
(104,545)
(1,165)
\u2013
(1,441)
(2,769)
(4,210)
(109,920)
Net asset (liability)
(104,545)
(1,165)
\u2013
(1,441)
(2,769)
(4,210)
(109,920)
Relating to current services
CSM recognised for services provided
\u2013
\u2013
\u2013
130
199
329
329
Changes in risk adjustment for non-financial risk for
risk expired
\u2013
84
\u2013
\u2013
\u2013
\u2013
84
Experience adjustments
99
\u2013
\u2013
(1)
(2)
(3)
96
99
84
\u2013
129
197
326
509
Relating to future services
Contracts initially recognised in the year
107
(86)
\u2013
\u2013
(92)
(92)
(71)
Changes in estimates that adjust the CSM
390
(12)
\u2013
(170)
(208)
(378)
\u2013
Changes in estimates that result in losses and
reversal of losses on onerous contracts
109
20
\u2013
\u2013
\u2013
\u2013
129
606
(78)
\u2013
(170)
(300)
(470)
58
Relating to past services
Adjustments to liabilities for incurred claims
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Insurance service result
705
6
\u2013
(41)
(103)
(144)
567
Net finance income (expense) from insurance and
participating investment contracts
(11,621)
\u2013
\u2013
7
(70)
(63)
(11,684)
Exchange differences
30
\u2013
\u2013
2
\u2013
2
32
Total change in profit or loss
(10,886)
6
\u2013
(32)
(173)
(205)
(11,085)
Cash flows
Premiums received
(9,768)
\u2013
\u2013
\u2013
\u2013
\u2013
(9,768)
Claims and other insurance service expenses paid
10,721
\u2013
\u2013
\u2013
\u2013
\u2013
10,721
Insurance acquisition cash flows
203
\u2013
\u2013
\u2013
\u2013
\u2013
203
1,156
\u2013
\u2013
\u2013
\u2013
\u2013
1,156
Transfer to other items in the balance sheet
66
\u2013
\u2013
\u2013
\u2013
\u2013
66
At 31 December
Insurance contract assets
\u2013
1
\u2013
\u2013
\u2013
\u2013
1
Liabilities arising from insurance and participating
investment contracts
(114,209)
(1,160)
\u2013
(1,473)
(2,942)
(4,415)
(119,784)
Net asset (liability)
(114,209)
(1,159)
\u2013
(1,473)
(2,942)
(4,415)
(119,783)
1
1
1 Excluding insurance acquisition assets .
2022
Contractual service margin
Contracts
Present Risk measured Contracts
value of adjustment under the measured
future for non- modified under the
cash financial retrospective Other fair value
flows risk approach contracts approach Total Total
Life \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January
Insurance contract assets
149
(53)
\u2013
(5)
(67)
(72)
24
Liabilities arising from insurance and participating
investment contracts
(121,344)
(1,599)
\u2013
(583)
(1,359)
(1,942)
(124,885)
Net asset (liability)
(121,195)
(1,652)
\u2013
(588)
(1,426)
(2,014)
(124,861)
Relating to current services
CSM recognised for services provided
\u2013
\u2013
\u2013
122
123
245
245
Changes in risk adjustment for non-financial risk for
risk expired
\u2013
103
\u2013
\u2013
\u2013
\u2013
103
Experience adjustments
(189)
\u2013
\u2013
(93)
\u2013
(93)
(282)
(189)
103
\u2013
29
123
152
66
Relating to future services
Contracts initially recognised in the year
2,364
(646)
\u2013
(1,793)
\u2013
(1,793)
(75)
Changes in estimates that adjust the CSM
(158)
603
\u2013
(362)
(83)
(445)
\u2013
Changes in estimates that result in losses and
reversal of losses on onerous contracts
(1,835)
424
\u2013
\u2013
\u2013
\u2013
(1,411)
371
381
\u2013
(2,155)
(83)
(2,238)
(1,486)
Relating to past services
Adjustments to liabilities for incurred claims
(4)
4
\u2013
\u2013
\u2013
\u2013
\u2013
Insurance service result
178
488
\u2013
(2,126)
40
(2,086)
(1,420)
Net finance income (expense) from insurance and
participating investment contracts
16,055
\u2013
\u2013
(55)
(50)
(105)
15,950
Exchange differences
(88)
(1)
\u2013
\u2013
(5)
(5)
(94)
Total change in profit or loss
16,145
487
\u2013
(2,181)
(15)
(2,196)
14,436
Cash flows
Premiums received
(8,861)
\u2013
\u2013
\u2013
\u2013
\u2013
(8,861)
Claims and other insurance service expenses paid
9,099
\u2013
\u2013
\u2013
\u2013
\u2013
9,099
Insurance acquisition cash flows
200
\u2013
\u2013
\u2013
\u2013
\u2013
200
438
\u2013
\u2013
\u2013
\u2013
\u2013
438
Transfer to other items in the balance sheet
67
\u2013
\u2013
\u2013
\u2013
\u2013
67
At 31 December
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from insurance and participating
investment contracts
(104,545)
(1,165)
\u2013
(2,769)
(1,441)
(4,210)
(109,920)
Net asset (liability)
(104,545)
(1,165)
\u2013
(2,769)
(1,441)
(4,210)
(109,920)
1
2
3
3
1
1 Excluding insurance acquisition assets.
2 Contracts initially recognised in the year, include present value of future cash flows of \u00a32,281 million, risk adjustment of \u00a3(551) million and CSM of \u00a3(1,730) million relating to
contracts that were modified to add a drawdown feature and recognised as new contracts.
3 The Group derecognised present value of future cash flows of \u00a32,175 million, risk adjustment of \u00a3(534) million and CSM of \u00a3(399) million relating to contracts that were
derecognised due to a contract modification to add a drawdown feature. The amounts derecognised are included within changes in estimates that adjust the CSM and
changes that result in losses and reversal of losses on onerous contracts. A loss on contract derecognition modification of \u00a31,242 million arose and was recognised in
insurance service expense. Further details are provided in note 10.
T he Group estimates the risk adjustment separately from other components of the fulfilment cash flows using an explicit margins approach such that a confidence level scenario is used to determine the margins to be applied to the best estimate assumptions. The risk adjustment represents the difference in the value of the best estimate cash flows with and without these margins. The risk adjustment is calculated at a policy level. The confidence level corresponding to the risk adjustment is 90 per cent (2022: 90 per cent). The risk adjustment is calibrated to the value at risk over a one-year time horizon at this confidence level for non-financial risks. This is translated, using statistical approximations, into an equivalent confidence level on a value at risk basis over the expected lifetime of in-force policies of approximately 70 per cent (2022: 70 per cent) at end of the reporting period. Note 33: Impacts of insurance and participating investment contracts recognised in the year
2023
2022
Profitable Onerous Profitable Onerous
contracts contracts contracts contracts
issued issued Total issued issued Total
Life \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Insurance and participating investment contracts
Insurance acquisition cash flows
87
142
229
85
173
258
Claims and other directly attributable expenses
5,450
447
5,897
82,246
1,130
83,376
Estimates of the present value of future cash outflows
5,537
589
6,126
82,331
1,303
83,634
Estimates of the present value of future cash inflows
(5,708)
(525)
(6,233)
(84,754)
(1,244)
(85,998)
Risk adjustment for non-financial risk
79
7
86
630
16
646
Contractual service margin
92
\u2013
92
1,793
\u2013
1,793
Losses recognised on initial recognition
\u2013
71
71
\u2013
75
75
", "dimensions": { "concept": "ifrs-full:DisclosureOfInsuranceContractsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1000": { "value": "Note 12: Insurance claims
2021
\u00a3m
Life insurance and participating investment contracts
Deaths
(790)
Maturities including surrenders
(6,915)
Annuities
(1,194)
Other
(164)
Gross claims and surrenders
(9,063)
Change in insurance and participating investment contracts
(7,474)
(16,537)
Non-participating investment contracts
Change in non-participating investment contracts
(4,581)
(21,118)
Reinsurers\u2019 share 285
(20,833)
Change in unallocated surplus
35
Total life insurance and investment contracts
(20,798)
Non-life insurance
Total non-life insurance claims, net of reinsurance
(322)
Total insurance claims and changes in insurance and investment contract liabilities
(21,120)
1 1 Reinsurers\u2019 share comprises a charge of \u00a35 million in respect of contracts classified as financial assets at fair value through profit or loss and a credit of \u00a3290 million in respect of contracts classified as reinsurance contracts. Total non-life insurance claims, net of reinsurance, in 2021 included weather-related claims of \u00a330 million, of which \u00a311 million was related to severe weather events. Note 13: Net investment return on assets held to back insurance and participating investment contracts and net insurance finance (expense) income
2023
2022
Life Non-life Total Life Non-life Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Net gains (losses) on financial assets and liabilities at fair value
through profit or loss
11,218
35
11,253
(14,876)
9
(14,867)
Foreign exchange
542
\u2013
542
(1,039)
\u2013
(1,039)
Investment property losses
(4)
\u2013
(4)
(3)
\u2013
(3)
Net investment return on assets held to back insurance and
participating investment contracts (memorandum item)
11,756
35
11,791
(15,918)
9
(15,909)
Changes in fair value of underlying items of direct participating
contracts
(10,293)
\u2013
(10,293)
11,212
\u2013
11,212
Effects of risk mitigation option
172
\u2013
172
(118)
\u2013
(118)
Interest accreted
(874)
(6)
(880)
(350)
(2)
(352)
Effect of changes in interest rates and other financial
assumptions
(654)
\u2013
(654)
5,226
\u2013
5,226
Effect of changes in fulfilment cash flows at current rates when
CSM is unlocked at locked-in rates
(80)
\u2013
(80)
(20)
\u2013
(20)
Net finance (expense) income from insurance and
participating investment contracts
(11,729)
(6)
(11,735)
15,950
(2)
15,948
Net finance income (expense) from reinsurance contracts held
51
\u2013
51
(55)
\u2013
(55)
Net finance (expense) income from insurance, participating
investment and reinsurance contracts
(11,678)
(6)
(11,684)
15,895
(2)
15,893
1 1 Net investment return on assets held to back insurance and participating investment contracts is reported within net trading income (losses) on the face of the Group\u2019s income statement; includes income of \u00a310,200 million (2022: loss of \u00a311,081 million) in respect of unit-linked and with-profit contracts measured applying the variable fee approach. The assets generating the investment return held to back insurance and participating investment contracts are carried at fair value on the Group\u2019s balance sheet", "dimensions": { "concept": "ifrs-full:DisclosureOfClaimsAndBenefitsPaidExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-967": { "value": "Note 12: Insurance claims
2021
\u00a3m
Life insurance and participating investment contracts
Deaths
(790)
Maturities including surrenders
(6,915)
Annuities
(1,194)
Other
(164)
Gross claims and surrenders
(9,063)
Change in insurance and participating investment contracts
(7,474)
(16,537)
Non-participating investment contracts
Change in non-participating investment contracts
(4,581)
(21,118)
Reinsurers\u2019 share 285
(20,833)
Change in unallocated surplus
35
Total life insurance and investment contracts
(20,798)
Non-life insurance
Total non-life insurance claims, net of reinsurance
(322)
Total insurance claims and changes in insurance and investment contract liabilities
(21,120)
1 1 Reinsurers\u2019 share comprises a charge of \u00a35 million in respect of contracts classified as financial assets at fair value through profit or loss and a credit of \u00a3290 million in respect of contracts classified as reinsurance contracts. Total non-life insurance claims, net of reinsurance, in 2021 included weather-related claims of \u00a330 million, of which \u00a311 million was related to severe weather events. Note 13: Net investment return on assets held to back insurance and participating investment contracts and net insurance finance (expense) income
2023
2022
Life Non-life Total Life Non-life Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Net gains (losses) on financial assets and liabilities at fair value
through profit or loss
11,218
35
11,253
(14,876)
9
(14,867)
Foreign exchange
542
\u2013
542
(1,039)
\u2013
(1,039)
Investment property losses
(4)
\u2013
(4)
(3)
\u2013
(3)
Net investment return on assets held to back insurance and
participating investment contracts (memorandum item)
11,756
35
11,791
(15,918)
9
(15,909)
Changes in fair value of underlying items of direct participating
contracts
(10,293)
\u2013
(10,293)
11,212
\u2013
11,212
Effects of risk mitigation option
172
\u2013
172
(118)
\u2013
(118)
Interest accreted
(874)
(6)
(880)
(350)
(2)
(352)
Effect of changes in interest rates and other financial
assumptions
(654)
\u2013
(654)
5,226
\u2013
5,226
Effect of changes in fulfilment cash flows at current rates when
CSM is unlocked at locked-in rates
(80)
\u2013
(80)
(20)
\u2013
(20)
Net finance (expense) income from insurance and
participating investment contracts
(11,729)
(6)
(11,735)
15,950
(2)
15,948
Net finance income (expense) from reinsurance contracts held
51
\u2013
51
(55)
\u2013
(55)
Net finance (expense) income from insurance, participating
investment and reinsurance contracts
(11,678)
(6)
(11,684)
15,895
(2)
15,893
1 1 Net investment return on assets held to back insurance and participating investment contracts is reported within net trading income (losses) on the face of the Group\u2019s income statement; includes income of \u00a310,200 million (2022: loss of \u00a311,081 million) in respect of unit-linked and with-profit contracts measured applying the variable fee approach. The assets generating the investment return held to back insurance and participating investment contracts are carried at fair value on the Group\u2019s balance sheet. Note 30: Insurance and participating investment contracts assets and liabilities Critical accounting judgements and key sources of estimation uncertainty Critical judgements: Determining the characteristics which make a product illiquid, the level of illiquidity premium to apply to the discount rate of different products and how the illiquidity premium is determined The determination of whether a drawdown feature added to its longstanding and workplace pension products was a modification that required derecognition and the determination of the premium that would have been charged if these were new contracts.
2023
2022
Life Non-life Total Life Non-life Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Insurance contract assets
1
\u2013
1
\u2013
\u2013
\u2013
Liabilities arising from insurance and participating
investment contracts
(119,784)
(364)
(120,148)
(109,920)
(380)
(110,300)
Insurance acquisition assets
8
16
24
8
14
22
Net liabilities
(119,775)
(348)
(120,123)
(109,912)
(366)
(110,278)
1 1 Excluding insurance acquisition assets. The Group estimates future cash flows based on which cash flows are expected and the probability that they will occur as at the measurement date. The Group uses information about past events, current conditions and forecasts of future conditions to inform these expectations. The Group\u2019s estimate of future cash flows is the mean of a range of scenarios that reflect the full range of possible outcomes, considering all reasonable and supportable information available at the reporting date. The probability-weighted average of the future cash flows is calculated using a deterministic scenario representing the probability-weighted mean of a range of scenarios. The Group uses assumptions to develop estimates of future cash flows. These assumptions are reassessed at each reported date to reflect conditions existing at the measurement date. The Group has applied judgment in determining the characteristics which make a product illiquid, the level of illiquidity premium to apply to the discount rate of different products and how the illiquidity premium is determined, where material. The products to which an illiquidity premium has been applied to the discount rate are annuity contracts, due to the illiquid nature of their cash flows, certain reinsurance contracts held where the underlying contracts are annuity contracts, due to the transfer of longevity risk to the reinsurer, and whole of life protection contracts, due to the inherent policyholder value and zero surrender option. For annuity contracts, at initial recognition, the illiquidity premium is calculated with reference to a strategic portfolio of assets, and subsequently measured to reflect the mix of actual assets backing annuity contracts, adjusted to reflect the impacts of transition from initial recognition. To reflect differences between the characteristics of insurance contracts and the derivation of discount rates based on a reference portfolio, adjustments for credit risk are required, and the Group uses the fundamental spread to maintain consistency with its Solvency II approach. For protection contracts, the illiquidity premium is based on the spread on a covered bond index. The average yield curves (GBP currency) that were used to discount the estimates of future cash flows that do not vary based on the returns of the underlying items are as follows:
1 year
5 year
10 year
20 year
30 year
2023
5.37
4.15
4.79
4.72
4.19
2022
6.11
5.15
5.03
4.84
4.42
The Group has also applied judgement to determine if a drawdown feature added to its longstanding and workplace pension products was a modification that required derecognition. See note 10 for more details. The Group determines the quantity of benefits Note 31: Reconciliation of insurance balances for liability for remaining coverage and liability for incurred claims
2023
2022
Liabilities for Liabilities for
remaining coverage Liability for remaining coverage Liability for
Excluding loss Loss incurred Excluding loss Loss incurred
component component claims Total component component claims Total
Life
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
\u00a3m
At 1 January
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
184
(160)
\u2013
24
Liabilities arising from
insurance and participating
investment contracts
(108,846)
(471)
(603)
(109,920)
(124,053)
(179)
(653)
(124,885)
Net asset (liability)
(108,846)
(471)
(603)
(109,920)
(123,869)
(339)
(653)
(124,861)
Insurance revenue
Contracts under the modified
retrospective approach
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Contracts under the fair value
transition approach
1,467
\u2013
\u2013
1,467
1,266
\u2013
\u2013
1,266
Other contracts
1,027
\u2013
\u2013
1,027
636
\u2013
\u2013
636
2,494
\u2013
\u2013
2,494
1,902
\u2013
\u2013
1,902
Insurance service expenses
Incurred claims and other
directly attributable expenses
\u2013
52
(1,949)
(1,897)
\u2013
44
(1,795)
(1,751)
Adjustments to liabilities for
incurred claims
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Losses from drawdown
contract modifications
\u2013
\u2013
\u2013
\u2013
(1,242)
\u2013
\u2013
(1,242)
Losses and reversal of losses
on onerous insurance
contracts
\u2013
58
\u2013
58
\u2013
(244)
\u2013
(244)
Amortisation of insurance
acquisition cash flows
(88)
\u2013
\u2013
(88)
(85)
\u2013
\u2013
(85)
(88)
110
(1,949)
(1,927)
(1,327)
(200)
(1,795)
(3,322)
Insurance service result
2,406
110
(1,949)
567
575
(200)
(1,795)
(1,420)
Net finance income (expense)
from insurance and
participating investment
contracts
(11,576)
(105)
(3)
(11,684)
15,885
68
(3)
15,950
Exchange differences
32
\u2013
\u2013
32
(94)
\u2013
\u2013
(94)
Total change in profit or loss
(9,138)
5
(1,952)
(11,085)
16,366
(132)
(1,798)
14,436
Investment components
8,793
\u2013
(8,793)
\u2013
7,285
\u2013
(7,285)
\u2013
Cash flows
Premiums received
(9,768)
\u2013
\u2013
(9,768)
(8,861)
\u2013
\u2013
(8,861)
Claims and other insurance
service expenses paid
\u2013
\u2013
10,721
10,721
\u2013
\u2013
9,099
9,099
Insurance acquisition cash
flows
203
\u2013
\u2013
203
200
\u2013
\u2013
200
(9,565)
\u2013
10,721
1,156
(8,661)
\u2013
9,099
438
Transfer to other items in the
balance sheet
32
\u2013
34
66
33
\u2013
34
67
At 31 December
Insurance contract assets
1
\u2013
\u2013
1
\u2013
\u2013
\u2013
\u2013
Liabilities arising from
insurance and participating
investment contracts
(118,725)
(466)
(593)
(119,784)
(108,846)
(471)
(603)
(109,920)
Net asset (liability)
(118,724)
(466)
(593)
(119,783)
(108,846)
(471)
(603)
(109,920)
1 1 1 Excluding insurance acquisition assets.
2023
2022
Liabilities for Liabilities for
remaining coverage Liability for remaining coverage Liability for
Excluding loss Loss incurred Excluding loss Loss incurred
component component claims Total component component claims Total
Non-life
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
\u00a3m
At 1 January
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from
insurance and participating
investment contracts
(22)
(1)
(357)
(380)
(32)
(4)
(286)
(322)
Net asset (liability)
(22)
(1)
(357)
(380)
(32)
(4)
(286)
(322)
Insurance revenue
Contracts under the modified
retrospective approach
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Contracts under the fair value
transition approach
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Other contracts
514
\u2013
\u2013
514
559
\u2013
\u2013
559
514
\u2013
\u2013
514
559
\u2013
\u2013
559
Insurance service expenses
Incurred claims and other
directly attributable expenses
\u2013
\u2013
(448)
(448)
\u2013
5
(480)
(475)
Adjustments to liabilities for
incurred claims
\u2013
\u2013
(3)
(3)
\u2013
\u2013
(57)
(57)
Losses and reversal of losses on
onerous insurance contracts
\u2013
1
\u2013
1
\u2013
(2)
\u2013
(2)
Amortisation of insurance
acquisition cash flows
(30)
\u2013
(30)
7
\u2013
\u2013
7
(30)
1
(451)
(480)
7
3
(537)
(527)
Insurance service result
484
1
(451)
34
566
3
(537)
32
Net finance income (expense)
from insurance and
participating investment
contracts
\u2013
\u2013
(6)
(6)
\u2013
\u2013
(2)
(2)
Exchange differences
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Total change in profit or loss
484
1
(457)
28
566
3
(539)
30
Investment components
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Cash flows
Premiums received
(525)
\u2013
\u2013
(525)
(584)
\u2013
\u2013
(584)
Claims and other insurance
service expenses paid
\u2013
\u2013
475
475
\u2013
\u2013
468
468
Insurance acquisition cash
flows
38
\u2013
\u2013
38
28
\u2013
\u2013
28
(487)
\u2013
475
(12)
(556)
\u2013
468
(88)
Transfer to other items in the
balance sheet
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
At 31 December
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from
insurance and participating
investment contracts
(25)
\u2013
(339)
(364)
(22)
(1)
(357)
(380)
Net asset (liability)
(25)
\u2013
(339)
(364)
(22)
(1)
(357)
(380)
1 1 1 Excluding insurance acquisition assets Note 32: Reconciliation of measurement components of insurance contract balances
2023
Contractual service margin
Contracts
Present Risk measured Contracts
value of adjustment under the measured
future for non- modified under the
cash financial retrospective fair value Other
flows risk approach approach contracts Total Total
Life \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from insurance and participating
investment contracts
(104,545)
(1,165)
\u2013
(1,441)
(2,769)
(4,210)
(109,920)
Net asset (liability)
(104,545)
(1,165)
\u2013
(1,441)
(2,769)
(4,210)
(109,920)
Relating to current services
CSM recognised for services provided
\u2013
\u2013
\u2013
130
199
329
329
Changes in risk adjustment for non-financial risk for
risk expired
\u2013
84
\u2013
\u2013
\u2013
\u2013
84
Experience adjustments
99
\u2013
\u2013
(1)
(2)
(3)
96
99
84
\u2013
129
197
326
509
Relating to future services
Contracts initially recognised in the year
107
(86)
\u2013
\u2013
(92)
(92)
(71)
Changes in estimates that adjust the CSM
390
(12)
\u2013
(170)
(208)
(378)
\u2013
Changes in estimates that result in losses and
reversal of losses on onerous contracts
109
20
\u2013
\u2013
\u2013
\u2013
129
606
(78)
\u2013
(170)
(300)
(470)
58
Relating to past services
Adjustments to liabilities for incurred claims
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Insurance service result
705
6
\u2013
(41)
(103)
(144)
567
Net finance income (expense) from insurance and
participating investment contracts
(11,621)
\u2013
\u2013
7
(70)
(63)
(11,684)
Exchange differences
30
\u2013
\u2013
2
\u2013
2
32
Total change in profit or loss
(10,886)
6
\u2013
(32)
(173)
(205)
(11,085)
Cash flows
Premiums received
(9,768)
\u2013
\u2013
\u2013
\u2013
\u2013
(9,768)
Claims and other insurance service expenses paid
10,721
\u2013
\u2013
\u2013
\u2013
\u2013
10,721
Insurance acquisition cash flows
203
\u2013
\u2013
\u2013
\u2013
\u2013
203
1,156
\u2013
\u2013
\u2013
\u2013
\u2013
1,156
Transfer to other items in the balance sheet
66
\u2013
\u2013
\u2013
\u2013
\u2013
66
At 31 December
Insurance contract assets
\u2013
1
\u2013
\u2013
\u2013
\u2013
1
Liabilities arising from insurance and participating
investment contracts
(114,209)
(1,160)
\u2013
(1,473)
(2,942)
(4,415)
(119,784)
Net asset (liability)
(114,209)
(1,159)
\u2013
(1,473)
(2,942)
(4,415)
(119,783)
1 1 1 Excluding insurance acquisition assets .
2022
Contractual service margin
Contracts
Present Risk measured Contracts
value of adjustment under the measured
future for non- modified under the
cash financial retrospective Other fair value
flows risk approach contracts approach Total Total
Life \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January
Insurance contract assets
149
(53)
\u2013
(5)
(67)
(72)
24
Liabilities arising from insurance and participating
investment contracts
(121,344)
(1,599)
\u2013
(583)
(1,359)
(1,942)
(124,885)
Net asset (liability)
(121,195)
(1,652)
\u2013
(588)
(1,426)
(2,014)
(124,861)
Relating to current services
CSM recognised for services provided
\u2013
\u2013
\u2013
122
123
245
245
Changes in risk adjustment for non-financial risk for
risk expired
\u2013
103
\u2013
\u2013
\u2013
\u2013
103
Experience adjustments
(189)
\u2013
\u2013
(93)
\u2013
(93)
(282)
(189)
103
\u2013
29
123
152
66
Relating to future services
Contracts initially recognised in the year
2,364
(646)
\u2013
(1,793)
\u2013
(1,793)
(75)
Changes in estimates that adjust the CSM
(158)
603
\u2013
(362)
(83)
(445)
\u2013
Changes in estimates that result in losses and
reversal of losses on onerous contracts
(1,835)
424
\u2013
\u2013
\u2013
\u2013
(1,411)
371
381
\u2013
(2,155)
(83)
(2,238)
(1,486)
Relating to past services
Adjustments to liabilities for incurred claims
(4)
4
\u2013
\u2013
\u2013
\u2013
\u2013
Insurance service result
178
488
\u2013
(2,126)
40
(2,086)
(1,420)
Net finance income (expense) from insurance and
participating investment contracts
16,055
\u2013
\u2013
(55)
(50)
(105)
15,950
Exchange differences
(88)
(1)
\u2013
\u2013
(5)
(5)
(94)
Total change in profit or loss
16,145
487
\u2013
(2,181)
(15)
(2,196)
14,436
Cash flows
Premiums received
(8,861)
\u2013
\u2013
\u2013
\u2013
\u2013
(8,861)
Claims and other insurance service expenses paid
9,099
\u2013
\u2013
\u2013
\u2013
\u2013
9,099
Insurance acquisition cash flows
200
\u2013
\u2013
\u2013
\u2013
\u2013
200
438
\u2013
\u2013
\u2013
\u2013
\u2013
438
Transfer to other items in the balance sheet
67
\u2013
\u2013
\u2013
\u2013
\u2013
67
At 31 December
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from insurance and participating
investment contracts
(104,545)
(1,165)
\u2013
(2,769)
(1,441)
(4,210)
(109,920)
Net asset (liability)
(104,545)
(1,165)
\u2013
(2,769)
(1,441)
(4,210)
(109,920)
1 2 3 3 1 1 Excluding insurance acquisition assets. 2 Contracts initially recognised in the year, include present value of future cash flows of \u00a32,281 million, risk adjustment of \u00a3(551) million and CSM of \u00a3(1,730) million relating to contracts that were modified to add a drawdown feature and recognised as new contracts. 3 The Group derecognised present value of future cash flows of \u00a32,175 million, risk adjustment of \u00a3(534) million and CSM of \u00a3(399) million relating to contracts that were derecognised due to a contract modification to add a drawdown feature. The amounts derecognised are included within changes in estimates that adjust the CSM and changes that result in losses and reversal of losses on onerous contracts. A loss on contract derecognition modification of \u00a31,242 million arose and was recognised in insurance service expense. Further details are provided in note 10. he Group estimates the risk adjustment separately from other components of the fulfilment cash flows using an explicit margins approach such that a confidence level scenario is used to determine the margins to be applied to the best estimate assumptions. The risk adjustment represents the difference in the value of the best estimate cash flows with and without these margins. The risk adjustment is calculated at a policy level. The confidence level corresponding to the risk adjustment is 90 per cent (2022: 90 per cent). The risk adjustment is calibrated to the value at risk over a one-year time horizon at this confidence level for non-financial risks. This is translated, using statistical approximations, into an equivalent confidence level on a value at risk basis over the expected lifetime of in-force policies of approximately 70 per cent (2022: 70 per cent) at end of the reporting period. Note 33: Impacts of insurance and participating investment contracts recognised in the year
2023
2022
Profitable Onerous Profitable Onerous
contracts contracts contracts contracts
issued issued Total issued issued Total
Life \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Insurance and participating investment contracts
Insurance acquisition cash flows
87
142
229
85
173
258
Claims and other directly attributable expenses
5,450
447
5,897
82,246
1,130
83,376
Estimates of the present value of future cash outflows
5,537
589
6,126
82,331
1,303
83,634
Estimates of the present value of future cash inflows
(5,708)
(525)
(6,233)
(84,754)
(1,244)
(85,998)
Risk adjustment for non-financial risk
79
7
86
630
16
646
Contractual service margin
92
\u2013
92
1,793
\u2013
1,793
Losses recognised on initial recognition
\u2013
71
71
\u2013
75
75
", "dimensions": { "concept": "ifrs-full:DisclosureOfInvestmentContractsLiabilitiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-919": { "value": "
Note 14: Operating expenses
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Staff costs:
Salaries and social security costs
3,651
3,310
3,048
Pensions and other retirement benefit schemes (note 16)
355
455
538
Restructuring and other staff costs
487
307
299
4,493
4,072
3,885
Premises and equipment costs
449
332
261
Depreciation and amortisation
2,905
2,396
2,825
Other expenses:
UK bank levy
150
148
132
Regulatory and legal provisions (note 38)
675
255
1,300
Other
2,720
2,556
2,397
3,545
2,959
3,829
Operating expenses before adjustment for:
11,392
9,759
10,800
Amounts attributable to the acquisition of insurance and participating investment contracts
(183)
(168)
Amounts reported within insurance service expenses
(386)
(354)
Total operating expenses
10,823
9,237
10,800
1
2
3
1 Including social security costs of \u00a3371 million (2022: \u00a3341 million; 2021: \u00a3308 million).
2 Net of profits on disposal of operating lease assets of \u00a393 million (2022: \u00a3197 million; 2021: \u00a3249 million).
3 Including depreciation in respect of premises \u00a3110 million (2022: \u00a3114 million; 2021: \u00a3123 million), equipment \u00a3388 million (2022: \u00a3561 million; 2021: \u00a3779 million), operating lease
assets \u00a31,070 million (2022: \u00a3570 million; 2021: \u00a3709 million) and right-of-use assets \u00a3209 million (2022: \u00a3226 million; 2021: \u00a3228 million).
Average headcount
The average number of persons on a headcount basis employed by the Group during the year was as follows:
2023
2022
2021
UK
65,390
62,587
64,250
Overseas
807
785
826
Total
66,197
63,372
65,076
Performance-based compensation
The tables below analyse the Group\u2019s performance-based compensation costs between those relating to the current performance
year and those relating to earlier years.
Performance-based Performance-based compensation expense
compensation expense deferred until later years
2023 2022 2021 2023 2022 2021
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Awards made in respect of the year ended 31 December
316
349
313
108
128
110
Awards made in respect of earlier years
124
109
22
22
20
22
440
458
335
130
148
132
Performance-based awards expensed in 2023 include cash awards amounting to \u00a3169 million (2022: \u00a3144 million; 2021: \u00a3134 million).
Note 17: Auditors\u2019 remuneration Fees payable to the Company\u2019s auditors by the Group are as follows:
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Fees payable for the:
\u2013 audit of the Company\u2019s current year annual report
2.0
1.9
1.8
\u2013 audits of the Company\u2019s subsidiaries
32.3
29.5
23.7
\u2013 total audit fees in respect of the statutory audit of Group entities
34.3
31.4
25.5
\u2013 services normally provided in connection with statutory and regulatory filings or engagements
6.6
6.3
4.8
Total audit fees
40.9
37.7
30.3
Other audit-related fees
1.3
1.5
0.5
All other fees
1.2
5.0
1.2
Total non-audit services
2.5
6.5
1.7
Total fees payable to the Company\u2019s auditors by the Group
43.4
44.2
32.0
1 2 2 2 3 1 As defined by the Financial Reporting Council (FRC). 2 As defined by the Securities and Exchange Commission (SEC). 3 As defined by the SEC. Total non-audit services as defined by the FRC include all fees other than audit fees in respect of the statutory audit of Group entities. These fees totalled \u00a39.1 million in 2023 (2022: \u00a312.8 million; 2021: \u00a36.5 million). The following types of services are included in the categories listed above: Audit fees: This category includes fees in respect of the audit of the Group\u2019s annual financial statements (including work related to the adoption of new accounting standards) and other services in connection with regulatory filings. Other services supplied pursuant to legislation relate primarily to costs incurred in connection with client asset assurance and with the Sarbanes-Oxley Act requirements associated with the audit of the Group\u2019s financial statements filed on its Form 20-F. Other audit-related fees: This category includes fees in respect of services for assurance and related services that are reasonably related to the performance of the audit or review of the financial statements, for example acting as reporting accountants in respect of debt prospectuses required by the Listing Rules. All other fees: This category includes other assurance services not related to the performance of the audit or review of the financial statements, for example, the review of controls operated by the Group on behalf of a third party. The auditors are not engaged to provide tax services. It is the Group\u2019s policy to use the auditors only on assignments in cases where their knowledge of the Group means that it is neither efficient nor cost effective to employ another firm of accountants. The Group has procedures that are designed to ensure auditor independence, including prohibiting certain non-audit services. All audit and non-audit assignments must be pre-approved by the Audit Committee on an individual engagement basis; for certain types of non-audit engagements where the fee is \u2018de minimis\u2019 the Audit Committee has pre-approved all assignments subject to confirmation by management. On a quarterly basis, the Audit Committee receives and reviews a report detailing all pre-approved services and amounts paid to the auditors for such pre-approved services. During the year, the auditors also earned fees payable by entities outside the consolidated Lloyds Banking Group in respect of the following:
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Audits of Group pension schemes
0.5
0.4
0.4
Audits of the unconsolidated Open-Ended Investment Companies managed by the Group
0.2
0.2
0.3
Reviews of the financial position of corporate and other borrowers
\u2013
\u2013
0.3
", "dimensions": { "concept": "ifrs-full:DisclosureOfExpensesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1026": { "value": "Note 14: Operating expenses
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Staff costs:
Salaries and social security costs
3,651
3,310
3,048
Pensions and other retirement benefit schemes (note 16)
355
455
538
Restructuring and other staff costs
487
307
299
4,493
4,072
3,885
Premises and equipment costs
449
332
261
Depreciation and amortisation
2,905
2,396
2,825
Other expenses:
UK bank levy
150
148
132
Regulatory and legal provisions (note 38)
675
255
1,300
Other
2,720
2,556
2,397
3,545
2,959
3,829
Operating expenses before adjustment for:
11,392
9,759
10,800
Amounts attributable to the acquisition of insurance and participating investment contracts
(183)
(168)
Amounts reported within insurance service expenses
(386)
(354)
Total operating expenses
10,823
9,237
10,800
1 2 3 1 Including social security costs of \u00a3371 million (2022: \u00a3341 million; 2021: \u00a3308 million). 2 Net of profits on disposal of operating lease assets of \u00a393 million (2022: \u00a3197 million; 2021: \u00a3249 million). 3 Including depreciation in respect of premises \u00a3110 million (2022: \u00a3114 million; 2021: \u00a3123 million), equipment \u00a3388 million (2022: \u00a3561 million; 2021: \u00a3779 million), operating lease assets \u00a31,070 million (2022: \u00a3570 million; 2021: \u00a3709 million) and right-of-use assets \u00a3209 million (2022: \u00a3226 million; 2021: \u00a3228 million). Average headcount The average number of persons on a headcount basis employed by the Group during the year was as follows:
2023
2022
2021
UK
65,390
62,587
64,250
Overseas
807
785
826
Total
66,197
63,372
65,076
Performance-based compensation The tables below analyse the Group\u2019s performance-based compensation costs between those relating to the current performance year and those relating to earlier years.
Performance-based Performance-based compensation expense
compensation expense deferred until later years
2023 2022 2021 2023 2022 2021
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Awards made in respect of the year ended 31 December
316
349
313
108
128
110
Awards made in respect of earlier years
124
109
22
22
20
22
440
458
335
130
148
132
Performance-based awards expensed in 2023 include cash awards amounting to \u00a3169 million (2022: \u00a3144 million; 2021: \u00a3134 million). ", "dimensions": { "concept": "ifrs-full:DisclosureOfDepreciationAndAmortisationExpenseExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1001": { "value": "Note 14: Operating expenses
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Staff costs:
Salaries and social security costs
3,651
3,310
3,048
Pensions and other retirement benefit schemes (note 16)
355
455
538
Restructuring and other staff costs
487
307
299
4,493
4,072
3,885
Premises and equipment costs
449
332
261
Depreciation and amortisation
2,905
2,396
2,825
Other expenses:
UK bank levy
150
148
132
Regulatory and legal provisions (note 38)
675
255
1,300
Other
2,720
2,556
2,397
3,545
2,959
3,829
Operating expenses before adjustment for:
11,392
9,759
10,800
Amounts attributable to the acquisition of insurance and participating investment contracts
(183)
(168)
Amounts reported within insurance service expenses
(386)
(354)
Total operating expenses
10,823
9,237
10,800
1 2 3 1 Including social security costs of \u00a3371 million (2022: \u00a3341 million; 2021: \u00a3308 million). 2 Net of profits on disposal of operating lease assets of \u00a393 million (2022: \u00a3197 million; 2021: \u00a3249 million). 3 Including depreciation in respect of premises \u00a3110 million (2022: \u00a3114 million; 2021: \u00a3123 million), equipment \u00a3388 million (2022: \u00a3561 million; 2021: \u00a3779 million), operating lease assets \u00a31,070 million (2022: \u00a3570 million; 2021: \u00a3709 million) and right-of-use assets \u00a3209 million (2022: \u00a3226 million; 2021: \u00a3228 million). Average headcount The average number of persons on a headcount basis employed by the Group during the year was as follows:
2023
2022
2021
UK
65,390
62,587
64,250
Overseas
807
785
826
Total
66,197
63,372
65,076
Performance-based compensation The tables below analyse the Group\u2019s performance-based compensation costs between those relating to the current performance year and those relating to earlier years.
Performance-based Performance-based compensation expense
compensation expense deferred until later years
2023 2022 2021 2023 2022 2021
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Awards made in respect of the year ended 31 December
316
349
313
108
128
110
Awards made in respect of earlier years
124
109
22
22
20
22
440
458
335
130
148
132
Performance-based awards expensed in 2023 include cash awards amounting to \u00a3169 million (2022: \u00a3144 million; 2021: \u00a3134 million). ", "dimensions": { "concept": "ifrs-full:DisclosureOfInformationAboutEmployeesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-968": { "value": "Note 14: Operating expenses
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Staff costs:
Salaries and social security costs
3,651
3,310
3,048
Pensions and other retirement benefit schemes (note 16)
355
455
538
Restructuring and other staff costs
487
307
299
4,493
4,072
3,885
Premises and equipment costs
449
332
261
Depreciation and amortisation
2,905
2,396
2,825
Other expenses:
UK bank levy
150
148
132
Regulatory and legal provisions (note 38)
675
255
1,300
Other
2,720
2,556
2,397
3,545
2,959
3,829
Operating expenses before adjustment for:
11,392
9,759
10,800
Amounts attributable to the acquisition of insurance and participating investment contracts
(183)
(168)
Amounts reported within insurance service expenses
(386)
(354)
Total operating expenses
10,823
9,237
10,800
1 2 3 1 Including social security costs of \u00a3371 million (2022: \u00a3341 million; 2021: \u00a3308 million). 2 Net of profits on disposal of operating lease assets of \u00a393 million (2022: \u00a3197 million; 2021: \u00a3249 million). 3 Including depreciation in respect of premises \u00a3110 million (2022: \u00a3114 million; 2021: \u00a3123 million), equipment \u00a3388 million (2022: \u00a3561 million; 2021: \u00a3779 million), operating lease assets \u00a31,070 million (2022: \u00a3570 million; 2021: \u00a3709 million) and right-of-use assets \u00a3209 million (2022: \u00a3226 million; 2021: \u00a3228 million). Average headcount The average number of persons on a headcount basis employed by the Group during the year was as follows:
2023
2022
2021
UK
65,390
62,587
64,250
Overseas
807
785
826
Total
66,197
63,372
65,076
Performance-based compensation The tables below analyse the Group\u2019s performance-based compensation costs between those relating to the current performance year and those relating to earlier years.
Performance-based Performance-based compensation expense
compensation expense deferred until later years
2023 2022 2021 2023 2022 2021
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Awards made in respect of the year ended 31 December
316
349
313
108
128
110
Awards made in respect of earlier years
124
109
22
22
20
22
440
458
335
130
148
132
Performance-based awards expensed in 2023 include cash awards amounting to \u00a3169 million (2022: \u00a3144 million; 2021: \u00a3134 million). ", "dimensions": { "concept": "ifrs-full:DisclosureOfExpensesByNatureExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-920": { "value": "Note 15: Share-based payments Charge to the income statement The charge to the income statement is set out below:
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Deferred bonus plan
241
289
179
Executive and SAYE plans:
Options granted in the year
14
10
10
Options granted in prior years
45
42
37
59
52
47
Share plans:
Shares granted in the year
6
9
18
Shares granted in prior years
22
26
24
28
35
42
Total charge to the income statement
328
376
268
1 1 Share-based payments impacted by partial consolidation of Group Performance Share into basic salary during 2023. During the year ended 31 December 2023 the Group operated the following share-based payment schemes, all of which are mainly equity settled. Group Performance Share plan The Group operates a Group Performance Share plan that is part equity settled. Bonuses in respect of employee service in 2023 have been recognised in the charge in line with the proportion of the deferral period completed. Save-As-You-Earn schemes Eligible employees may enter into contracts through the Save-As-You-Earn (SAYE) schemes to save up to \u00a3500 per month and, at the expiry of a fixed term of three years, have the option to use these savings within six months of the expiry of the fixed term to acquire shares in the Group at a discounted price of no less than 90 per cent of the market price at the start of the invitation period. Movements in the number of share options outstanding under the SAYE schemes are set out below:
2023
2022
Weighted Weighted
average average
Number exercise price Number exercise price
of options (pence) of options (pence)
Outstanding at 1 January
1,256,918,075
31.30
1,180,563,291
30.63
Granted
287,984,574
38.55
217,611,519
39.38
Exercised
(164,709,399)
38.55
(23,359,526)
37.75
Forfeited
(12,862,726)
31.78
(20,961,259)
29.20
Cancelled
(45,807,000)
37.65
(47,687,607)
33.88
Expired
(10,318,376)
38.25
(49,248,343)
46.29
Outstanding at 31 December
1,311,205,148
31.70
1,256,918,075
31.30
Exercisable at 31 December
410,368
39.87
263,302
47.92
The weighted average share price at the time that the options were exercised during 2023 was \u00a30.48 (2022: \u00a30.49). The weighted average remaining contractual life of options outstanding at the end of the year was 1.58 years (2022: 1.88 years). The weighted average fair value of SAYE options granted during 2023 was \u00a30.09 (2022: \u00a30.07). The fair values of the SAYE options have been determined using a standard Black-Scholes model Other share option plans Executive Share Plans - buyout and retention awards Share options may be granted to senior employees under the Lloyds Banking Group Executive Share Plan 2003, Lloyds Banking Group Executive Group Ownership Share Plan and Deferred Bonus Scheme 2021 specifically to facilitate recruitment (to compensate new recruits for any lost share awards), and also to make grants to key individuals for retention purposes. In some instances, grants may be made subject to individual performance conditions. Participants are not entitled to any dividends paid during the vesting period.
2023
2022
Weighted Weighted
average average
Number exercise price Number exercise price
of options (pence) of options (pence)
Outstanding at 1 January
20,466,471
Nil
14,032,762
Nil
Granted
15,198,717
Nil
10,278,224
Nil
Exercised
(8,739,497)
Nil
(3,333,322)
Nil
Vested
(765,247)
Nil
\u2013
Nil
Forfeited
(8,216)
Nil
(33,409)
Nil
Lapsed
(20,973)
Nil
(477,784)
Nil
Outstanding at 31 December
26,131,255
Nil
20,466,471
Nil
Exercisable at 31 December
1,148,770
Nil
1,638,202
Nil
The weighted average fair value of options granted in the year was \u00a30.41 (2022: \u00a30.44). The fair values of options granted have been determined using a standard Black-Scholes model. The weighted average share price at the time that the options were exercised during 2023 was \u00a30.46 (2022: \u00a30.46). The weighted average remaining contractual life of options outstanding at the end of the year was 6.3 years (2022: 6.0 years). Included in the above are awards to the Group Chief Executive. William Chalmers joined the Group on 3 June 2019 and was appointed as Chief Financial Officer on 1 August 2019. He was granted deferred share awards over 4,086,632 shares, to replace unvested awards from his former employer, Morgan Stanley, that were forfeited as a result of him joining the Group. The final tranche was exercised in 2022 and no options were outstanding for 2023.
2023 2022
Number Number
of shares of shares
Outstanding at 1 January
\u2013
686,085
Exercised
\u2013
(686,085)
Outstanding at 31 December
\u2013
\u2013
Charlie Nunn joined the Group on 16 August 2021 as Group Chief Executive. He was granted deferred share awards over 8,301,708 shares to replace unvested awards from his former employer, HSBC, that were forfeited as a result of him joining the Group.
2023 2022
Number Number
of shares of shares
Outstanding at 1 January
6,585,447
7,444,787
Exercised
(1,247,548)
(859,340)
Outstanding at 31 December
5,337,899
6,585,447
Other share plans Lloyds Banking Group Executive Group Ownership Share Plan The plan, introduced in 2006, is aimed at delivering shareholder value by linking the receipt of shares to an improvement in the performance of the Group over a three-year period. Awards are made within limits set by the rules of the plan, with the limits determining the maximum number of shares that can be awarded equating to three times annual salary. In exceptional circumstances this may increase to four times annual salary. At the end of the performance period for the 2021 grant, the targets had not been fully met and therefore these awards vested in 2023 at a rate of 43.70 per cent. The Executive Group Ownership awards were replaced by Long Term Share Plan awards in 2021.
2023 2022
Number Number
of shares of shares
Outstanding at 1 January
202,394,509
350,873,627
Vested
(66,555,435)
(50,703,778)
Forfeited
(96,034,781)
(98,741,356)
Dividend award
\u2013
966,016
Outstanding at 31 December
39,804,293
202,394,509
Lloyds Banking Group Long Term Share Plan The plan, introduced in 2021, replaced the Executive Group Ownership Share Plan and is intended to provide alignment to the Group\u2019s aim of delivering sustainable returns to shareholders, supported by its values and behaviours. The awards in respect of the 2021 grant are due to vest in 2024 at a rate of 100 per cent. Details in relation to the plan are provided in the directors\u2019 remuneration report.
2023 2022
Number Number
of shares of shares
Outstanding at 1 January
171,947,743
77,883,068
Granted
108,551,439
108,513,202
Forfeited
(18,089,793)
(14,448,527)
Outstanding at 31 December
262,409,389
171,947,743
The weighted average fair value of awards granted in the year was \u00a30.42 (2022: \u00a30.36). Assumptions at 31 December 2023 The fair value calculations at 31 December 2023 for grants made in the year, using Black-Scholes models and Monte Carlo simulation, are based on the following assumptions:
Executive Long Term
SAYE Share Plans Share Plan
Weighted average risk-free interest rate
4.52%
4.36%
3.71%
Weighted average expected life
3.3 years
1.9 years
3.6 years
Weighted average expected volatility
28%
30%
34%
Weighted average expected dividend yield
6.0%
6.0%
6.0%
Weighted average share price
\u00a30.44
\u00a30.46
\u00a30.52
Weighted average exercise price
\u00a30.39
Nil
Nil
Expected volatility is a measure of the amount by which the Group\u2019s shares are expected to fluctuate during the life of an option. The expected volatility is estimated based on the historical volatility of the closing daily share price over the most recent period that is commensurate with the expected life of the option. The historical volatility is compared to the implied volatility generated from market traded options in the Group\u2019s shares to assess the reasonableness of the historical volatility and adjustments made where appropriate. Share Incentive Plans Matching shares The Group undertakes to match shares purchased by employees up to the value of \u00a345 per month; these matching shares are held in trust for a mandatory period of three years on the employee\u2019s behalf, during which period the employee is entitled to any dividends paid on such shares. The award is subject to a non-market based condition: if an employee leaves within this three-year period for other than a \u2018good\u2019 reason, all of the matching shares are forfeited. Similarly, if the employees sell their purchased shares within three years, their matching shares are forfeited. The number of shares awarded relating to matching shares in 2023 was 43,945,238 (2022: 43,378,504), with an average fair value of \u00a30.46 (2022: \u00a30.45), based on market prices at the date of award. Fixed share awards Fixed share awards were introduced in 2014 in order to ensure that total fixed remuneration is commensurate with role and to provide a competitive reward package for certain Lloyds Banking Group employees, with an appropriate balance of fixed and variable remuneration, in line with regulatory requirements. The fixed share awards are delivered in Lloyds Banking Group plc shares, and were initially released over five years with 20 per cent being released each year following the year of award. From June 2020, the fixed share awards are released over three years with one third being released each year following the year of award. The number of shares purchased in relation to fixed share awards in 2023 was 1,790,243 (2022: 7,261,080) with an average fair value of \u00a30.46 (2022: \u00a30.47) based on market prices at the date of the award. The fixed share award is not subject to any performance conditions, performance adjustment or clawback. On an employee leaving the Group, there is no change to the timeline for which shares will become unrestricted. Since the beginning of 2023 the number of recipients of these awards has been reduced to the executive directors only. Free shares An award of shares may be made annually to employees up to a maximum of \u00a33,600. The shares awarded are held in trust for a mandatory period of three years on the employee\u2019s behalf, during which period the employee is entitled to any dividends paid on such shares. The award is subject to a non-market based condition. If an employee leaves the Group within this three-year period for other than a \u2018good\u2019 reason, all of the shares awarded will be forfeited. There have not been any awards made since 2021.", "dimensions": { "concept": "ifrs-full:DisclosureOfSharebasedPaymentArrangementsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-921": { "value": "Note 16: Retirement benefit obligations Critical accounting judgements and key sources of estimation uncertainty Key sources of estimation uncertainty: Discount rate applied to future cash flows Expected lifetime of the schemes\u2019 members Expected rate of future inflationary increases The net asset recognised in the balance sheet at 31 December 2023 in respect of the Group\u2019s defined benefit pension scheme obligations was \u00a33,532 million, comprising an asset of \u00a33,624 million and a liability of \u00a392 million (2022: a net asset of \u00a33,732 million comprising an asset of \u00a33,823 million and a liability of \u00a391 million). The Group\u2019s accounting policy for its defined benefit pension scheme obligations is set out in note 2(K). Income statement and balance sheet sensitivities to changes in the key sources of estimation uncertainty and other actuarial assumptions are provided in part (v).
2023 2022 2021
\u00a3m \u00a3m \u00a3m
(Credit) charge to the income statement
Defined benefit pension schemes
(80)
123
234
Other retirement benefit schemes
1
2
2
Total defined benefit schemes
(79)
125
236
Defined contribution pension schemes
434
330
302
Total charge to the income statement (note 14)
355
455
538
2023 2022
\u00a3m \u00a3m
Amounts recognised in the balance sheet
Retirement benefit assets
3,624
3,823
Retirement benefit obligations
(136)
(126)
Total amounts recognised in the balance sheet
3,488
3,697
The total amounts recognised in the balance sheet relate to:
2023 2022
\u00a3m \u00a3m
Defined benefit pension schemes
3,532
3,732
Other retirement benefit schemes
(44)
(35)
Total amounts recognised in the balance sheet
3,488
3,697
Pension schemes Defined benefit schemes (i) Characteristics of and risks associated with the Group\u2019s schemes The Group has established a number of defined benefit pension schemes in the UK and overseas. All significant schemes are based in the UK, with the three most significant being the main sections of the Lloyds Bank Pension Scheme No. 1, the Lloyds Bank Pension Scheme No. 2 and the HBOS Final Salary Pension Scheme. At 31 December 2023, these schemes represented 94 per cent of the Group\u2019s total gross defined benefit pension assets (2022: 94 per cent). These schemes provide retirement benefits calculated as a proportion of final pensionable salary depending upon the length of pensionable service; the minimum retirement age under the rules of the schemes at 31 December 2023 is generally 55, although certain categories of member are deemed to have a protected right to retire at 50. The Group operates both funded and unfunded pension arrangements; the majority, including the three most significant schemes, are funded schemes in the UK. All of these UK funded schemes are operated as separate legal entities under trust law, are in compliance with the Pensions Act 2004 and are managed by a Trustee Board (the Trustee) whose role is to ensure that their scheme is administered in accordance with the scheme rules and relevant legislation, and to safeguard the assets in the best interests of all members and beneficiaries. The Trustee is solely responsible for setting investment policy and for agreeing funding requirements with the employer through the funding valuation process. The Board of Trustees must be composed of representatives of the scheme membership along with a combination of independent and employer appointed trustees to comply with legislation and scheme rules. A valuation to determine the funding status of each scheme is carried out at least every three years, whereby scheme assets are measured at market value and liabilities (technical provisions) are measured using prudent assumptions. If a deficit is identified a recovery plan is agreed between the employer and the scheme Trustee and sent to the Pensions Regulator for review. The Group does not provide for these deficit contributions as the future economic benefits arising from these contributions are expected to be available to the Group. The Group\u2019s overseas defined benefit pension schemes are subject to local regulatory arrangements. The Group has completed the triennial valuation of its main defined benefit pension schemes as at 31 December 2022. Following a fixed contribution of \u00a3800 million in the first half of 2023, a residual aggregate deficit of \u00a3250 million was agreed with the Trustee which the Group paid in December 2023. There will be no further deficit contributions, fixed or variable, for this triennial period (to 31 December 2025). The deficit contributions are in addition to the regular contributions to meet benefits accruing over the year, and to cover the expenses of running the schemes. The Group expects to pay contributions of at least \u00a30.1 billion to its defined benefit schemes in 2024.
During 2009, the Group made one-off contributions to the Lloyds Bank Pension Scheme No. 1 and Lloyds Bank Pension Scheme No. 2 in
the form of interests in limited liability partnerships for each of the two schemes which hold assets to provide security for the Group\u2019s
obligations to the two schemes. At 31 December 2023, the limited liability partnerships held assets of \u00a36.2 billion. The limited liability
partnerships are consolidated fully in the Group\u2019s balance sheet.
The Group has also established three private limited companies which hold assets to provide security for the Group\u2019s obligations to the
HBOS Final Salary Pension Scheme, a section of the Lloyds Bank Pension Scheme No. 1 and the Lloyds Bank Offshore Pension Scheme. At
31 December 2023 these held assets of \u00a34.1 billion in aggregate. The private limited companies are consolidated fully in the Group\u2019s
balance sheet. The terms of these arrangements require the Group to maintain assets in these vehicles to agreed minimum values in
order to secure obligations owed to the relevant Group pension schemes. The Group has satisfied this requirement during 2023.
The last funding valuations of other Group schemes were carried out on a number of different dates. In order to report the position
under IAS 19 as at 31 December 2023, the most recent valuation results for all schemes have been updated by qualified independent
actuaries. The funding valuations use a more prudent approach to setting the discount rate and more conservative longevity and
inflation assumptions than the IAS 19 valuations.
In a judgment in 2018, the High Court confirmed the requirement to equalise the Guaranteed Minimum Pension (GMP) benefits of men
and women accruing between 1990 and 1997 from contracting out of the State Earnings Related Pension Scheme. The Group
recognised a past service cost of \u00a3108 million in respect of equalisation in 2018 and, following agreement of the detailed
implementation approach with the Trustee, a further \u00a333 million was recognised in 2019. A further hearing was held during 2020 which
confirmed the extent of the Trustee\u2019s obligation to revisit past transfers out of the schemes. The amount of any additional liability as a
result of this judgment is not considered likely to be material.
The Group is aware of the High Court ruling in the case of Virgin Media Ltd v NTL Pension Trustees II Ltd & Ors and is waiting for the
outcome of the appeal, scheduled for 25 June 2024, and any additional hearings, as well as confirmation from the Government as to
whether it will issue new regulations in response to this issue.
(ii) Amounts in the financial statements
2023 2022
\u00a3m \u00a3m
Amount included in the balance sheet
Present value of funded obligations
(30,201)
(28,965)
Fair value of scheme assets
33,733
32,697
Net amount recognised in the balance sheet
3,532
3,732
2023 2022
\u00a3m \u00a3m
Net amount recognised in the balance sheet
At 1 January
3,732
4,404
Net defined benefit pension credit (charge)
80
(123)
Actuarial (losses) gains on defined benefit obligation
(1,304)
17,222
Return on plan assets
(318)
(20,302)
Employer contributions
1,342
2,530
Exchange and other adjustments
\u2013
1
At 31 December
3,532
3,732
2023 2022
\u00a3m \u00a3m
Movements in the defined benefit obligation
At 1 January
(28,965)
(47,130)
Current service cost
(88)
(180)
Interest expense
(1,394)
(902)
Remeasurements:
Actuarial gains \u2013 demographic assumptions
153
288
Actuarial losses \u2013 experience
(1,067)
(1,186)
Actuarial (losses) gains \u2013 financial assumptions
(390)
18,120
Benefits paid
1,544
2,048
Past service cost
(5)
(4)
Settlements
\u2013
13
Exchange and other adjustments
11
(32)
At 31 December
(30,201)
(28,965)
2023 2022
\u00a3m \u00a3m
Analysis of the defined benefit obligation
Active members
(2,955)
(3,088)
Deferred members
(8,438)
(8,515)
Dependants
(1,572)
(1,349)
Pensioners
(17,236)
(16,013)
At 31 December
(30,201)
(28,965)
2023 2022
\u00a3m \u00a3m
Changes in the fair value of scheme assets
At 1 January
32,697
51,534
Return on plan assets excluding amounts included in interest income
(318)
(20,302)
Interest income
1,602
997
Employer contributions
1,342
2,530
Benefits paid
(1,544)
(2,048)
Settlements
\u2013
(13)
Administrative costs paid
(35)
(34)
Exchange and other adjustments
(11)
33
At 31 December
33,733
32,697
The (credit) expense recognised in the income statement for the year ended 31 December comprises:
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Current service cost
88
180
213
Net interest amount
(208)
(95)
(29)
Settlements
\u2013
\u2013
1
Past service cost \u2013 plan amendments
5
4
11
Plan administration costs incurred during the year
35
34
38
Total defined benefit pension (credit) expense
(80)
123
234
(iii) Composition of scheme assets
2023
2022
Quoted Unquoted Total Quoted Unquoted Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Debt instruments
1
:
Fixed interest government bonds
5,657
\u2013
5,657
3,007
\u2013
3,007
Index-linked government bonds
16,105
\u2013
16,105
15,497
\u2013
15,497
Corporate and other debt securities
7,305
\u2013
7,305
3,978
\u2013
3,978
Asset-backed securities
4
\u2013
4
\u2013
\u2013
\u2013
29,071
\u2013
29,071
22,482
\u2013
22,482
Pooled investment vehicles
613
8,361
8,974
2,730
15,863
18,593
Property
\u2013
97
97
\u2013
116
116
Equity instruments
23
62
85
7
47
54
Money market instruments, cash, derivatives and other assets
and liabilities
466
(4,960)
(4,494)
1,069
(9,617)
(8,548)
At 31 December
30,173
3,560
33,733
26,288
6,409
32,697
1 Of the total debt instruments, \u00a326,777 million (2022: \u00a320,369 million) were investment grade (credit ratings equal to or better than \u2018BBB\u2019). The assets of all of the funded plans are held independently of the Group\u2019s assets in separate trustee-administered funds The pension schemes\u2019 pooled investment vehicles comprise:
2023 2022
\u00a3m \u00a3m
Alternative credit funds
1,962
2,222
Bond and debt funds
571
354
Equity funds
1,674
1,421
Hedge and mutual funds
808
240
Infrastructure funds
1,147
1,193
Liquidity funds
1,585
11,527
Property funds
1,227
1,604
Other
\u2013
32
At 31 December
8,974
18,593
The Trustee\u2019s approach to investment is focused on acting in the members\u2019 best financial interests, with the integration of ESG (environmental, social and governance) considerations into investment management processes and practices. This policy is reviewed annually (or more frequently as required) and has been shared with the schemes\u2019 investment managers for implementation. Climate change is one of the risks the schemes manage given its potential financial impact on valuation of assets. (iv) Assumptions The principal actuarial and financial assumptions used in valuations of the defined benefit pension schemes were as follows:
2023 2022
% %
Discount rate
4.70
4.93
Rate of inflation:
Retail Price Index (RPI)
2.96
3.13
Consumer Price Index (CPI)
2.47
2.69
Rate of salary increases
0.00
0.00
Weighted average rate of increase for pensions in payment
2.73
2.84
On 25 November 2020 the Chancellor of the Exchequer announced the outcome of a consultation into a reform of the calculation of RPI. It is now expected that from 2030 RPI will be aligned with CPIH (the Consumer Price Index including owner occupiers\u2019 housing costs). To determine the RPI assumption a term-dependent inflation curve has been used adjusting for an assumed inflation risk premium. A gap of 130 basis points has been assumed between RPI and CPI in 2024 reducing to 120 basis points in 2025, 110 basis points in 2026 and 100 basis points from 2027 to 2030; thereafter a 10 basis point gap has been assumed.
Men
Women
2023 2022 2023 2022
Years Years Years Years
Life expectancy for member aged 60, on the valuation date
26.7
26.7
28.7
28.8
Life expectancy for member aged 60, 15 years after the valuation date
27.8
27.8
29.8
30.0
The mortality assumptions used in the UK scheme valuations are based on standard tables published by the Institute and Faculty of Actuaries which were adjusted in line with the actual experience of the relevant schemes. The table shows that a member retiring at age 60 at 31 December 2023 is assumed to live for, on average, 26.7 years for a male and 28.7 years for a female. In practice there will be much variation between individual members but these assumptions are expected to be appropriate across all members. It is assumed that younger members will live longer in retirement than those retiring now. This reflects the expectation that mortality rates will continue to fall over time as medical science and standards of living improve. To illustrate the degree of improvement assumed, the table also shows the life expectancy for members aged 45 now, when they retire in 15 years time at age 60. The Group uses the CMI mortality projections model and in line with actuarial industry recommendations has placed no weight on 2020 and 2021 mortality experience and 25 per cent weight on 2022 mortality experience. (v) Amount, timing and uncertainty of future cash flows Risk exposure of the defined benefit schemes While the Group is not exposed to any unusual, entity-specific or scheme-specific risks in its defined benefit pension schemes, it is exposed to a number of significant risks, detailed below: Inflation rate risk: The majority of the plans\u2019 benefit obligations are linked to inflation both in deferment and once in payment. Higher inflation will lead to higher liabilities although this will be materially offset by holdings of inflation-linked gilts and, in most cases, caps on the level of inflationary increases are in place to protect against extreme inflation. Interest rate risk: The defined benefit obligation is determined using a discount rate derived from yields on AA-rated corporate bonds. A decrease in corporate bond yields will increase plan liabilities although this will be materially offset by an increase in the value of bond holdings and through the use of derivatives.
Longevity risk: The majority of the schemes\u2019 obligations are to provide benefits for the life of the members so increases in life
expectancy will result in an increase in the plans\u2019 liabilities.
Investment risk: Scheme assets are invested in a diversified portfolio of debt securities, equities and other return-seeking assets. If the
assets underperform the discount rate used to calculate the defined benefit obligation, it will reduce the surplus or increase the deficit.
Volatility in asset values and the discount rate will lead to volatility in the net pension asset on the Group\u2019s balance sheet and in other
comprehensive income. To a lesser extent this will also lead to volatility in the pension expense in the Group\u2019s income statement.
In addition, the schemes themselves are exposed to liquidity risk with the need to ensure that liquid assets held are sufficient to meet
benefit payments as they fall due and there is sufficient collateral available to support their hedging activity.
The ultimate cost of the defined benefit obligations to the Group will depend upon actual future events rather than the assumptions
made. The assumptions made are unlikely to be borne out in practice and as such the cost may be higher or lower than expected.
Sensitivity analysis
The effect of reasonably possible changes in key assumptions on the value of scheme liabilities and the resulting pension charge in the
Group\u2019s income statement and on the net defined benefit pension scheme asset, for the Group\u2019s three most significant schemes, is set
out below. The sensitivities provided assume that all other assumptions and the value of the schemes\u2019 assets remain unchanged, and
are not intended to represent changes that are at the extremes of possibility. The calculations are approximate in nature and full
detailed calculations could lead to a different result. It is unlikely that isolated changes to individual assumptions will be experienced in
practice. Due to the correlation of assumptions, aggregating the effects of these isolated changes may not be a reasonable estimate
of the actual effect of simultaneous changes in multiple assumptions.
Effect of reasonably possible alternative assumptions
(Increase) decrease in the
Increase (decrease) in the net defined benefit
income statement charge pension scheme surplus
2023 2022 2023 2022
\u00a3m \u00a3m \u00a3m \u00a3m
Inflation (including pension increases)
1
:
Increase of 0.1 per cent
11
13
224
251
Decrease of 0.1 per cent
(12)
(13)
(235)
(245)
Discount rate
2
:
Increase of 0.1 per cent
(22)
(25)
(355)
(379)
Decrease of 0.1 per cent
21
24
363
388
Expected life expectancy of members:
Increase of one year
45
38
927
745
Decrease of one year
(46)
(39)
(946)
(762)
1 At 31 December 2023, the assumed rate of RPI inflation is 2.96 per cent and CPI inflation 2.47 per cent (2022: RPI 3.13 per cent and CPI 2.69 per cent).
2 At 31 December 2023, the assumed discount rate is 4.70 per cent (2022: 4.93 per cent).
Sensitivity analysis method and assumptions
The sensitivity analysis above reflects the impact on the liabilities of the Group\u2019s three most significant schemes which account for over
90 per cent of the Group\u2019s defined benefit obligations. While differences in the underlying liability profiles for the remainder of the
Group\u2019s pension arrangements mean that they may exhibit slightly different sensitivities to variations in these assumptions, the
sensitivities provided above are indicative of the impact across the Group as a whole.
The inflation assumption sensitivity applies to the assumed rate of increase in both the Consumer Price Index (CPI) and the Retail Price
Index (RPI), and includes the impact on the rate of increases to pensions, both before and after retirement. These pension increases are
linked to inflation (either CPI or RPI) subject to certain minimum and maximum limits.
The sensitivity analysis (including the inflation sensitivity) does not include the impact of any change in the rate of salary increases as
pensionable salaries have been frozen since 2 April 2014.
The life expectancy assumption has been applied by allowing for an increase/decrease in life expectation from age 60 of one year,
based upon the approximate weighted average age for each scheme. While this is an approximate approach and will not give the
same result as a one year increase in life expectancy at every age, it provides an appropriate indication of the potential impact on the
schemes from changes in life expectancy.
There was no change in the methods and assumptions used in preparing the sensitivity analysis from the prior year.
Asset-liability matching strategies The main schemes\u2019 assets are invested in a diversified portfolio. Whilst c.50 per cent are held to generate the long-term returns required to support the funding position of the schemes, the remainder is invested in liability-driven investment (LDI) strategies which hedge the material risk exposures of the schemes. The investment strategy is not static and will evolve to reflect the structure of liabilities within the schemes. Specific strategies for each pension plan are independently determined by the responsible governance body for each scheme and in consultation with the employer. A significant goal of the strategies adopted by the schemes is to reduce volatility caused by changes in market expectations of interest rates and inflation. In the main schemes, this is achieved by investing scheme assets in bonds, primarily fixed interest gilts and index linked gilts, and by entering into interest rate and inflation swap arrangements. The assets in these LDI strategies represented 50 per cent of scheme assets at 31 December 2023. These investments are structured to take into account the profile of scheme liabilities and actively managed to reflect both changing market conditions and changes to the liability profile. At 31 December 2023 the asset-liability matching strategy mitigated c.117 per cent of the liability sensitivity to interest rate movements and c.125 per cent of the liability sensitivity to inflation movements. In addition, a small amount of interest rate sensitivity arises through holdings of corporate and other debt securities. The higher level of hedging provides greater protection to the funding position of the schemes. On 28 January 2020, the main schemes entered into a \u00a310 billion longevity insurance arrangement to hedge part of the schemes\u2019 exposure to unexpected increases in life expectancy. This arrangement forms part of the schemes\u2019 investment portfolio and will provide income to the schemes in the event that pensions are paid out for longer than expected. The transaction was structured as a pass-through with Scottish Widows as the insurer, and onwards reinsurance to Pacific Life Re Limited. On 28 January 2022, the Lloyds Bank Pension Scheme No. 1 entered into an additional \u00a35.5 billion longevity insurance arrangement. The transaction is structured as a pass-through with Scottish Widows as the insurer, and onwards reinsurance to SCOR SE \u2013 UK Branch. At 31 December 2023 the value of scheme assets included \u00a3(160) million representing the value of the longevity swaps (after allowing for the impact on the IAS 19 liabilities of the revisions to the base mortality assumptions). In total the schemes have now hedged c.30 per cent of their longevity risk exposure. Maturity profile of defined benefit obligation The following table provides information on the weighted average duration of the defined benefit pension obligation and the distribution and timing of benefit payments:
2023 2022
Years Years
Duration of the defined benefit obligation
13
15
Maturity analysis of benefits expected to be paid:
2023 2022
\u00a3m \u00a3m
Within 12 months
1,697
1,409
Between 1 and 2 years
1,513
1,464
Between 2 and 5 years
4,886
4,678
Between 5 and 10 years
9,159
8,930
Between 10 and 15 years
9,176
9,296
Between 15 and 25 years
16,882
17,479
Between 25 and 35 years
12,343
12,720
Between 35 and 45 years
6,121
6,138
In more than 45 years
1,595
1,685
Maturity analysis method and assumptions The projected benefit payments are based on the assumptions underlying the assessment of the obligations, including allowance for expected future inflation. They are shown in their undiscounted form and therefore appear large relative to the discounted assessment of the defined benefit obligations recognised in the Group\u2019s balance sheet. They are in respect of benefits that have been accrued prior to the respective year end date only and make no allowance for any benefits that may have been accrued subsequently. Defined contribution schemes The Group operates a number of defined contribution pension schemes in the UK and overseas, principally Your Tomorrow and the defined contribution sections of the Lloyds Bank Pension Scheme No. 1. During the year ended 31 December 2023 the charge to the income statement in respect of defined contribution schemes was \u00a3434 million (2022: \u00a3330 million; 2021: \u00a3302 million), representing the contributions payable by the employer in accordance with each scheme\u2019s rules.
Other retirement benefit schemes
The Group operates a number of schemes which provide post-retirement healthcare benefits to certain employees, retired employees
and their dependants. The principal scheme relates to former Lloyds Bank staff and under this scheme the Group has undertaken to
meet the cost of post-retirement healthcare for all eligible former employees (and their dependants) who retired prior to 1 January
1996. The Group has entered into an insurance contract to provide these benefits and a provision has been made for the estimated
cost of future insurance premiums payable.
For the principal post-retirement healthcare scheme, the latest actuarial valuation of the liability was carried out at 31 December 2023
by qualified independent actuaries. The principal assumptions used were as set out above, except that the rate of increase in
healthcare premiums has been assumed at 10.00 per cent (2022: 6.74 per cent).
Movements in the other retirement benefits obligation:
2023 2022
\u00a3m \u00a3m
At 1 January
(35)
(103)
Actuarial (losses) gains
(11)
68
Insurance premiums paid
3
3
Charge for the year
(1)
(2)
Exchange and other adjustments
\u2013
(1)
At 31 December
(44)
(35)
", "dimensions": { "concept": "ifrs-full:DisclosureOfEmployeeBenefitsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-969": { "value": "Defined benefit schemes (i) Characteristics of and risks associated with the Group\u2019s schemes The Group has established a number of defined benefit pension schemes in the UK and overseas. All significant schemes are based in the UK, with the three most significant being the main sections of the Lloyds Bank Pension Scheme No. 1, the Lloyds Bank Pension Scheme No. 2 and the HBOS Final Salary Pension Scheme. At 31 December 2023, these schemes represented 94 per cent of the Group\u2019s total gross defined benefit pension assets (2022: 94 per cent). These schemes provide retirement benefits calculated as a proportion of final pensionable salary depending upon the length of pensionable service; the minimum retirement age under the rules of the schemes at 31 December 2023 is generally 55, although certain categories of member are deemed to have a protected right to retire at 50. The Group operates both funded and unfunded pension arrangements; the majority, including the three most significant schemes, are funded schemes in the UK. All of these UK funded schemes are operated as separate legal entities under trust law, are in compliance with the Pensions Act 2004 and are managed by a Trustee Board (the Trustee) whose role is to ensure that their scheme is administered in accordance with the scheme rules and relevant legislation, and to safeguard the assets in the best interests of all members and beneficiaries. The Trustee is solely responsible for setting investment policy and for agreeing funding requirements with the employer through the funding valuation process. The Board of Trustees must be composed of representatives of the scheme membership along with a combination of independent and employer appointed trustees to comply with legislation and scheme rules. A valuation to determine the funding status of each scheme is carried out at least every three years, whereby scheme assets are measured at market value and liabilities (technical provisions) are measured using prudent assumptions. If a deficit is identified a recovery plan is agreed between the employer and the scheme Trustee and sent to the Pensions Regulator for review. The Group does not provide for these deficit contributions as the future economic benefits arising from these contributions are expected to be available to the Group. The Group\u2019s overseas defined benefit pension schemes are subject to local regulatory arrangements. The Group has completed the triennial valuation of its main defined benefit pension schemes as at 31 December 2022. Following a fixed contribution of \u00a3800 million in the first half of 2023, a residual aggregate deficit of \u00a3250 million was agreed with the Trustee which the Group paid in December 2023. There will be no further deficit contributions, fixed or variable, for this triennial period (to 31 December 2025). The deficit contributions are in addition to the regular contributions to meet benefits accruing over the year, and to cover the expenses of running the schemes. The Group expects to pay contributions of at least \u00a30.1 billion to its defined benefit schemes in 2024. During 2009, the Group made one-off contributions to the Lloyds Bank Pension Scheme No. 1 and Lloyds Bank Pension Scheme No. 2 in the form of interests in limited liability partnerships for each of the two schemes which hold assets to provide security for the Group\u2019s obligations to the two schemes. At 31 December 2023, the limited liability partnerships held assets of \u00a36.2 billion. The limited liability partnerships are consolidated fully in the Group\u2019s balance sheet. The Group has also established three private limited companies which hold assets to provide security for the Group\u2019s obligations to the HBOS Final Salary Pension Scheme, a section of the Lloyds Bank Pension Scheme No. 1 and the Lloyds Bank Offshore Pension Scheme. At 31 December 2023 these held assets of \u00a34.1 billion in aggregate. The private limited companies are consolidated fully in the Group\u2019s balance sheet. The terms of these arrangements require the Group to maintain assets in these vehicles to agreed minimum values in order to secure obligations owed to the relevant Group pension schemes. The Group has satisfied this requirement during 2023. The last funding valuations of other Group schemes were carried out on a number of different dates. In order to report the position under IAS 19 as at 31 December 2023, the most recent valuation results for all schemes have been updated by qualified independent actuaries. The funding valuations use a more prudent approach to setting the discount rate and more conservative longevity and inflation assumptions than the IAS 19 valuations. In a judgment in 2018, the High Court confirmed the requirement to equalise the Guaranteed Minimum Pension (GMP) benefits of men and women accruing between 1990 and 1997 from contracting out of the State Earnings Related Pension Scheme. The Group recognised a past service cost of \u00a3108 million in respect of equalisation in 2018 and, following agreement of the detailed implementation approach with the Trustee, a further \u00a333 million was recognised in 2019. A further hearing was held during 2020 which confirmed the extent of the Trustee\u2019s obligation to revisit past transfers out of the schemes. The amount of any additional liability as a result of this judgment is not considered likely to be material. The Group is aware of the High Court ruling in the case of Virgin Media Ltd v NTL Pension Trustees II Ltd & Ors and is waiting for the outcome of the appeal, scheduled for 25 June 2024, and any additional hearings, as well as confirmation from the Government as to whether it will issue new regulations in response to this issue. (ii) Amounts in the financial statements
2023 2022
\u00a3m \u00a3m
Amount included in the balance sheet
Present value of funded obligations
(30,201)
(28,965)
Fair value of scheme assets
33,733
32,697
Net amount recognised in the balance sheet
3,532
3,732
2023 2022
\u00a3m \u00a3m
Net amount recognised in the balance sheet
At 1 January
3,732
4,404
Net defined benefit pension credit (charge)
80
(123)
Actuarial (losses) gains on defined benefit obligation
(1,304)
17,222
Return on plan assets
(318)
(20,302)
Employer contributions
1,342
2,530
Exchange and other adjustments
\u2013
1
At 31 December
3,532
3,732
2023 2022
\u00a3m \u00a3m
Movements in the defined benefit obligation
At 1 January
(28,965)
(47,130)
Current service cost
(88)
(180)
Interest expense
(1,394)
(902)
Remeasurements:
Actuarial gains \u2013 demographic assumptions
153
288
Actuarial losses \u2013 experience
(1,067)
(1,186)
Actuarial (losses) gains \u2013 financial assumptions
(390)
18,120
Benefits paid
1,544
2,048
Past service cost
(5)
(4)
Settlements
\u2013
13
Exchange and other adjustments
11
(32)
At 31 December
(30,201)
(28,965)
2023 2022
\u00a3m \u00a3m
Analysis of the defined benefit obligation
Active members
(2,955)
(3,088)
Deferred members
(8,438)
(8,515)
Dependants
(1,572)
(1,349)
Pensioners
(17,236)
(16,013)
At 31 December
(30,201)
(28,965)
2023 2022
\u00a3m \u00a3m
Changes in the fair value of scheme assets
At 1 January
32,697
51,534
Return on plan assets excluding amounts included in interest income
(318)
(20,302)
Interest income
1,602
997
Employer contributions
1,342
2,530
Benefits paid
(1,544)
(2,048)
Settlements
\u2013
(13)
Administrative costs paid
(35)
(34)
Exchange and other adjustments
(11)
33
At 31 December
33,733
32,697
The (credit) expense recognised in the income statement for the year ended 31 December comprises:
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Current service cost
88
180
213
Net interest amount
(208)
(95)
(29)
Settlements
\u2013
\u2013
1
Past service cost \u2013 plan amendments
5
4
11
Plan administration costs incurred during the year
35
34
38
Total defined benefit pension (credit) expense
(80)
123
234
(iii) Composition of scheme assets
2023
2022
Quoted Unquoted Total Quoted Unquoted Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Debt instruments
1
:
Fixed interest government bonds
5,657
\u2013
5,657
3,007
\u2013
3,007
Index-linked government bonds
16,105
\u2013
16,105
15,497
\u2013
15,497
Corporate and other debt securities
7,305
\u2013
7,305
3,978
\u2013
3,978
Asset-backed securities
4
\u2013
4
\u2013
\u2013
\u2013
29,071
\u2013
29,071
22,482
\u2013
22,482
Pooled investment vehicles
613
8,361
8,974
2,730
15,863
18,593
Property
\u2013
97
97
\u2013
116
116
Equity instruments
23
62
85
7
47
54
Money market instruments, cash, derivatives and other assets
and liabilities
466
(4,960)
(4,494)
1,069
(9,617)
(8,548)
At 31 December
30,173
3,560
33,733
26,288
6,409
32,697
1 Of the total debt instruments, \u00a326,777 million (2022: \u00a320,369 million) were investment grade (credit ratings equal to or better than \u2018BBB\u2019). The assets of all of the funded plans are held independently of the Group\u2019s assets in separate trustee-administered funds
The pension schemes\u2019 pooled investment vehicles comprise:
2023 2022
\u00a3m \u00a3m
Alternative credit funds
1,962
2,222
Bond and debt funds
571
354
Equity funds
1,674
1,421
Hedge and mutual funds
808
240
Infrastructure funds
1,147
1,193
Liquidity funds
1,585
11,527
Property funds
1,227
1,604
Other
\u2013
32
At 31 December
8,974
18,593
The Trustee\u2019s approach to investment is focused on acting in the members\u2019 best financial interests, with the integration of ESG
(environmental, social and governance) considerations into investment management processes and practices. This policy is reviewed
annually (or more frequently as required) and has been shared with the schemes\u2019 investment managers for implementation.
Climate change is one of the risks the schemes manage given its potential financial impact on valuation of assets.
(iv) Assumptions
The principal actuarial and financial assumptions used in valuations of the defined benefit pension schemes were as follows:
2023 2022
% %
Discount rate
4.70
4.93
Rate of inflation:
Retail Price Index (RPI)
2.96
3.13
Consumer Price Index (CPI)
2.47
2.69
Rate of salary increases
0.00
0.00
Weighted average rate of increase for pensions in payment
2.73
2.84
On 25 November 2020 the Chancellor of the Exchequer announced the outcome of a consultation into a reform of the calculation of
RPI. It is now expected that from 2030 RPI will be aligned with CPIH (the Consumer Price Index including owner occupiers\u2019 housing costs).
To determine the RPI assumption a term-dependent inflation curve has been used adjusting for an assumed inflation risk premium. A
gap of 130 basis points has been assumed between RPI and CPI in 2024 reducing to 120 basis points in 2025, 110 basis points in 2026 and
100 basis points from 2027 to 2030; thereafter a 10 basis point gap has been assumed.
Men
Women
2023 2022 2023 2022
Years Years Years Years
Life expectancy for member aged 60, on the valuation date
26.7
26.7
28.7
28.8
Life expectancy for member aged 60, 15 years after the valuation date
27.8
27.8
29.8
30.0
The mortality assumptions used in the UK scheme valuations are based on standard tables published by the Institute and Faculty of
Actuaries which were adjusted in line with the actual experience of the relevant schemes. The table shows that a member retiring at
age 60 at 31 December 2023 is assumed to live for, on average, 26.7 years for a male and 28.7 years for a female. In practice there will
be much variation between individual members but these assumptions are expected to be appropriate across all members. It is
assumed that younger members will live longer in retirement than those retiring now. This reflects the expectation that mortality rates
will continue to fall over time as medical science and standards of living improve. To illustrate the degree of improvement assumed,
the table also shows the life expectancy for members aged 45 now, when they retire in 15 years time at age 60. The Group uses the CMI
mortality projections model and in line with actuarial industry recommendations has placed no weight on 2020 and 2021 mortality
experience and 25 per cent weight on 2022 mortality experience.
(v) Amount, timing and uncertainty of future cash flows
Risk exposure of the defined benefit schemes
While the Group is not exposed to any unusual, entity-specific or scheme-specific risks in its defined benefit pension schemes, it is
exposed to a number of significant risks, detailed below:
Inflation rate risk: The majority of the plans\u2019 benefit obligations are linked to inflation both in deferment and once in payment. Higher
inflation will lead to higher liabilities although this will be materially offset by holdings of inflation-linked gilts and, in most cases, caps on
the level of inflationary increases are in place to protect against extreme inflation.
Interest rate risk:
The defined benefit obligation is determined using a discount rate derived from yields on AA-rated corporate bonds.
A decrease in corporate bond yields will increase plan liabilities although this will be materially offset by an increase in the value of
bond holdings and through the use of derivatives.
Longevity risk: The majority of the schemes\u2019 obligations are to provide benefits for the life of the members so increases in life expectancy will result in an increase in the plans\u2019 liabilities. Investment risk: Scheme assets are invested in a diversified portfolio of debt securities, equities and other return-seeking assets. If the assets underperform the discount rate used to calculate the defined benefit obligation, it will reduce the surplus or increase the deficit. Volatility in asset values and the discount rate will lead to volatility in the net pension asset on the Group\u2019s balance sheet and in other comprehensive income. To a lesser extent this will also lead to volatility in the pension expense in the Group\u2019s income statement. In addition, the schemes themselves are exposed to liquidity risk with the need to ensure that liquid assets held are sufficient to meet benefit payments as they fall due and there is sufficient collateral available to support their hedging activity. The ultimate cost of the defined benefit obligations to the Group will depend upon actual future events rather than the assumptions made. The assumptions made are unlikely to be borne out in practice and as such the cost may be higher or lower than expected. Sensitivity analysis The effect of reasonably possible changes in key assumptions on the value of scheme liabilities and the resulting pension charge in the Group\u2019s income statement and on the net defined benefit pension scheme asset, for the Group\u2019s three most significant schemes, is set out below. The sensitivities provided assume that all other assumptions and the value of the schemes\u2019 assets remain unchanged, and are not intended to represent changes that are at the extremes of possibility. The calculations are approximate in nature and full detailed calculations could lead to a different result. It is unlikely that isolated changes to individual assumptions will be experienced in practice. Due to the correlation of assumptions, aggregating the effects of these isolated changes may not be a reasonable estimate of the actual effect of simultaneous changes in multiple assumptions.
Effect of reasonably possible alternative assumptions
(Increase) decrease in the
Increase (decrease) in the net defined benefit
income statement charge pension scheme surplus
2023 2022 2023 2022
\u00a3m \u00a3m \u00a3m \u00a3m
Inflation (including pension increases)
1
:
Increase of 0.1 per cent
11
13
224
251
Decrease of 0.1 per cent
(12)
(13)
(235)
(245)
Discount rate
2
:
Increase of 0.1 per cent
(22)
(25)
(355)
(379)
Decrease of 0.1 per cent
21
24
363
388
Expected life expectancy of members:
Increase of one year
45
38
927
745
Decrease of one year
(46)
(39)
(946)
(762)
1 At 31 December 2023, the assumed rate of RPI inflation is 2.96 per cent and CPI inflation 2.47 per cent (2022: RPI 3.13 per cent and CPI 2.69 per cent). 2 At 31 December 2023, the assumed discount rate is 4.70 per cent (2022: 4.93 per cent). Sensitivity analysis method and assumptions The sensitivity analysis above reflects the impact on the liabilities of the Group\u2019s three most significant schemes which account for over 90 per cent of the Group\u2019s defined benefit obligations. While differences in the underlying liability profiles for the remainder of the Group\u2019s pension arrangements mean that they may exhibit slightly different sensitivities to variations in these assumptions, the sensitivities provided above are indicative of the impact across the Group as a whole. The inflation assumption sensitivity applies to the assumed rate of increase in both the Consumer Price Index (CPI) and the Retail Price Index (RPI), and includes the impact on the rate of increases to pensions, both before and after retirement. These pension increases are linked to inflation (either CPI or RPI) subject to certain minimum and maximum limits. The sensitivity analysis (including the inflation sensitivity) does not include the impact of any change in the rate of salary increases as pensionable salaries have been frozen since 2 April 2014. The life expectancy assumption has been applied by allowing for an increase/decrease in life expectation from age 60 of one year, based upon the approximate weighted average age for each scheme. While this is an approximate approach and will not give the same result as a one year increase in life expectancy at every age, it provides an appropriate indication of the potential impact on the schemes from changes in life expectancy. There was no change in the methods and assumptions used in preparing the sensitivity analysis from the prior year.
Asset-liability matching strategies
The main schemes\u2019 assets are invested in a diversified portfolio. Whilst c.50 per cent are held to generate the long-term returns
required to support the funding position of the schemes, the remainder is invested in liability-driven investment (LDI) strategies which
hedge the material risk exposures of the schemes. The investment strategy is not static and will evolve to reflect the structure of
liabilities within the schemes. Specific strategies for each pension plan are independently determined by the responsible governance
body for each scheme and in consultation with the employer.
A significant goal of the strategies adopted by the schemes is to reduce volatility caused by changes in market expectations of interest
rates and inflation. In the main schemes, this is achieved by investing scheme assets in bonds, primarily fixed interest gilts and index
linked gilts, and by entering into interest rate and inflation swap arrangements. The assets in these LDI strategies represented 50 per
cent of scheme assets at 31 December 2023.
These investments are structured to take into account the profile of scheme liabilities and actively managed to reflect both changing
market conditions and changes to the liability profile. At 31 December 2023 the asset-liability matching strategy mitigated c.117 per cent
of the liability sensitivity to interest rate movements and c.125 per cent of the liability sensitivity to inflation movements. In addition, a
small amount of interest rate sensitivity arises through holdings of corporate and other debt securities. The higher level of hedging
provides greater protection to the funding position of the schemes.
On 28 January 2020, the main schemes entered into a \u00a310 billion longevity insurance arrangement to hedge part of the schemes\u2019
exposure to unexpected increases in life expectancy. This arrangement forms part of the schemes\u2019 investment portfolio and will
provide income to the schemes in the event that pensions are paid out for longer than expected. The transaction was structured as a
pass-through with Scottish Widows as the insurer, and onwards reinsurance to Pacific Life Re Limited.
On 28 January 2022, the Lloyds Bank Pension Scheme No. 1 entered into an additional \u00a35.5 billion longevity insurance arrangement. The
transaction is structured as a pass-through with Scottish Widows as the insurer, and onwards reinsurance to SCOR SE \u2013 UK Branch.
At 31 December 2023 the value of scheme assets included \u00a3(160) million representing the value of the longevity swaps (after allowing
for the impact on the IAS 19 liabilities of the revisions to the base mortality assumptions).
In total the schemes have now hedged c.30 per cent of their longevity risk exposure.
Maturity profile of defined benefit obligation
The following table provides information on the weighted average duration of the defined benefit pension obligation and the
distribution and timing of benefit payments:
2023 2022
Years Years
Duration of the defined benefit obligation
13
15
Maturity analysis of benefits expected to be paid:
2023 2022
\u00a3m \u00a3m
Within 12 months
1,697
1,409
Between 1 and 2 years
1,513
1,464
Between 2 and 5 years
4,886
4,678
Between 5 and 10 years
9,159
8,930
Between 10 and 15 years
9,176
9,296
Between 15 and 25 years
16,882
17,479
Between 25 and 35 years
12,343
12,720
Between 35 and 45 years
6,121
6,138
In more than 45 years
1,595
1,685
Maturity analysis method and assumptions
The projected benefit payments are based on the assumptions underlying the assessment of the obligations, including allowance for
expected future inflation. They are shown in their undiscounted form and therefore appear large relative to the discounted assessment
of the defined benefit obligations recognised in the Group\u2019s balance sheet. They are in respect of benefits that have been accrued
prior to the respective year end date only and make no allowance for any benefits that may have been accrued subsequently.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDefinedBenefitPlansExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-970": { "value": "
Defined contribution schemes
The Group operates a number of defined contribution pension schemes in the UK and overseas, principally Your Tomorrow and the
defined contribution sections of the Lloyds Bank Pension Scheme No. 1.
During the year ended 31 December 2023 the charge to the income statement in respect of defined contribution schemes was
\u00a3434 million (2022: \u00a3330 million; 2021: \u00a3302 million), representing the contributions payable by the employer in accordance with each
scheme\u2019s rules.
", "dimensions": { "concept": "ifrs-full:DisclosureOfDefinedContributionPlansExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-971": { "value": "Note 17: Auditors\u2019 remuneration Fees payable to the Company\u2019s auditors by the Group are as follows:
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Fees payable for the:
\u2013 audit of the Company\u2019s current year annual report
2.0
1.9
1.8
\u2013 audits of the Company\u2019s subsidiaries
32.3
29.5
23.7
\u2013 total audit fees in respect of the statutory audit of Group entities
34.3
31.4
25.5
\u2013 services normally provided in connection with statutory and regulatory filings or engagements
6.6
6.3
4.8
Total audit fees
40.9
37.7
30.3
Other audit-related fees
1.3
1.5
0.5
All other fees
1.2
5.0
1.2
Total non-audit services
2.5
6.5
1.7
Total fees payable to the Company\u2019s auditors by the Group
43.4
44.2
32.0
1 2 2 2 3 1 As defined by the Financial Reporting Council (FRC). 2 As defined by the Securities and Exchange Commission (SEC). 3 As defined by the SEC. Total non-audit services as defined by the FRC include all fees other than audit fees in respect of the statutory audit of Group entities. These fees totalled \u00a39.1 million in 2023 (2022: \u00a312.8 million; 2021: \u00a36.5 million). The following types of services are included in the categories listed above: Audit fees: This category includes fees in respect of the audit of the Group\u2019s annual financial statements (including work related to the adoption of new accounting standards) and other services in connection with regulatory filings. Other services supplied pursuant to legislation relate primarily to costs incurred in connection with client asset assurance and with the Sarbanes-Oxley Act requirements associated with the audit of the Group\u2019s financial statements filed on its Form 20-F. Other audit-related fees: This category includes fees in respect of services for assurance and related services that are reasonably related to the performance of the audit or review of the financial statements, for example acting as reporting accountants in respect of debt prospectuses required by the Listing Rules. All other fees: This category includes other assurance services not related to the performance of the audit or review of the financial statements, for example, the review of controls operated by the Group on behalf of a third party. The auditors are not engaged to provide tax services. It is the Group\u2019s policy to use the auditors only on assignments in cases where their knowledge of the Group means that it is neither efficient nor cost effective to employ another firm of accountants. The Group has procedures that are designed to ensure auditor independence, including prohibiting certain non-audit services. All audit and non-audit assignments must be pre-approved by the Audit Committee on an individual engagement basis; for certain types of non-audit engagements where the fee is \u2018de minimis\u2019 the Audit Committee has pre-approved all assignments subject to confirmation by management. On a quarterly basis, the Audit Committee receives and reviews a report detailing all pre-approved services and amounts paid to the auditors for such pre-approved services. During the year, the auditors also earned fees payable by entities outside the consolidated Lloyds Banking Group in respect of the following:
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Audits of Group pension schemes
0.5
0.4
0.4
Audits of the unconsolidated Open-Ended Investment Companies managed by the Group
0.2
0.2
0.3
Reviews of the financial position of corporate and other borrowers
\u2013
\u2013
0.3
", "dimensions": { "concept": "ifrs-full:DisclosureOfAuditorsRemunerationExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-922": { "value": "
Note 18: Impairment
Stage 1 Stage 2 Stage 3 POCI Total
Year ended 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
In respect of:
Loans and advances to banks
(5)
(2)
\u2013
\u2013
(7)
Loans and advances to customers
261
(281)
414
(73)
321
Debt securities
\u2013
1
\u2013
\u2013
1
Financial assets at amortised cost
256
(282)
414
(73)
315
Other assets
\u2013
\u2013
(10)
\u2013
(10)
Impairment charge (credit) on drawn balances
256
(282)
404
(73)
305
Loan commitments and financial guarantees
27
(25)
(2)
\u2013
\u2013
Financial assets at fair value through other comprehensive income
(2)
\u2013
\u2013
\u2013
(2)
Total impairment charge (credit)
281
(307)
402
(73)
303
Stage 1 Stage 2 Stage 3 POCI Total
Year ended 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
In respect of:
Loans and advances to banks
12
2
\u2013
\u2013
14
Loans and advances to customers
(217)
694
883
(9)
1,351
Debt securities
7
\u2013
\u2013
\u2013
7
Financial assets at amortised cost
(198)
696
883
(9)
1,372
Other assets
\u2013
\u2013
22
\u2013
22
Impairment (credit) charge on drawn balances
(198)
696
905
(9)
1,394
Loan commitments and financial guarantees
24
99
(1)
\u2013
122
Financial assets at fair value through other comprehensive income
6
\u2013
\u2013
\u2013
6
Total impairment (credit) charge
(168)
795
904
(9)
1,522
Stage 1 Stage 2 Stage 3 POCI Total
Year ended 31 December 2021 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
In respect of:
Loans and advances to banks
(5)
\u2013
\u2013
\u2013
(5)
Loans and advances to customers
(454)
(1,025)
498
(135)
(1,116)
Debt securities
\u2013
\u2013
\u2013
\u2013
\u2013
Financial assets at amortised cost
(459)
(1,025)
498
(135)
(1,121)
Other assets
\u2013
\u2013
2
\u2013
2
Impairment (credit) charge on drawn balances
(459)
(1,025)
500
(135)
(1,119)
Loan commitments and financial guarantees
(102)
(146)
(9)
\u2013
(257)
Financial assets at fair value through other comprehensive income
(2)
\u2013
\u2013
\u2013
(2)
Total impairment (credit) charge
(563)
(1,171)
491
(135)
(1,378)
The impairment charge includes a \u00a373 million charge (2022: \u00a3nil; 2021: release of \u00a377 million) in respect of residual value impairment and
voluntary terminations within the Group\u2019s UK Motor Finance business.
", "dimensions": { "concept": "ifrs-full:DisclosureOfImpairmentOfAssetsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-923": { "value": "Note 19: Tax Analysis of tax expense for the year
2023 2022 2021
\u00a3m \u00a3m \u00a3m
UK corporation tax:
Current tax on profit for the year
(1,301)
(1,152)
(1,472)
Adjustments in respect of prior years
51
31
94
(1,250)
(1,121)
(1,378)
Foreign tax:
Current tax on profit for the year
(101)
(74)
(51)
Adjustments in respect of prior years
3
(9)
21
(98)
(83)
(30)
Current tax expense
(1,348)
(1,204)
(1,408)
Deferred tax:
Current year
(583)
124
546
Adjustments in respect of prior years
(54)
221
(155)
Deferred tax (expense) credit
(637)
345
391
Tax expense
(1,985)
(859)
(1,017)
The tax expense is made up as follows:
Tax credit (expense) attributable to policyholders
30
(54)
(163)
Shareholder tax expense
(2,015)
(805)
(854)
Tax expense
(1,985)
(859)
(1,017)
1 1 Restated for the adoption of IFRS 17; see notes 1 and 54. Factors affecting the tax expense for the year The UK corporation tax rate for the year was 23.5 per cent (2022: 19.0 per cent; 2021: 19.0 per cent). The increase in applicable tax rate from 2022 relates to the change in statutory tax rate effective from 1 April 2023. An explanation of the relationship between tax expense and accounting profit is set out below.
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Profit before tax
7,503
4,782
6,902
UK corporation tax thereon
(1,763)
(909)
(1,311)
Impact of surcharge on banking profits
(305)
(339)
(439)
Non-deductible costs: conduct charges
(29)
(5)
(185)
Non-deductible costs: bank levy
(35)
(28)
(22)
Other non-deductible costs
(106)
(70)
(83)
Non-taxable income
80
138
40
Tax relief on coupons on other equity instruments
124
83
81
Tax-exempt gains on disposals
35
67
140
Tax losses where no deferred tax recognised
(2)
11
(1)
Remeasurement of deferred tax due to rate changes
(14)
60
954
Differences in overseas tax rates
6
(63)
(19)
Policyholder tax
(61)
(65)
(63)
Deferred tax asset in respect of life assurance expenses
84
21
(69)
Adjustments in respect of prior years
\u2013
243
(40)
Tax effect of share of results of joint ventures
1
(3)
\u2013
Tax expense
(1,985)
(859)
(1,017)
1 1 Restated for the adoption of IFRS 17; see notes 1 and 54. The tax impact of the IFRS 17 adjustments is recognised at the rate of tax at which it is expected to be realised. For 2022, this includes the impact of the transitional tax provisions to allow spreading of life companies\u2019 profit or loss arising on transition to IFRS 17 over 10 years. On 17 November 2022 the UK Government confirmed its intention to implement the G20-OECD Inclusive Framework Pillar 2 rules in the UK, including a Qualified Domestic Minimum Top-Up Tax rule. This legislation, which was enacted in 2023, will seek to ensure that UK- headquartered multinational enterprises pay a minimum tax rate of 15 per cent on UK and overseas profits arising after 31 December 2023. As the UK rate of corporation tax in 2024 will be 25 per cent, and the Group\u2019s business is primarily in the UK, the impact of these rules on the Group is not expected to be material
Deferred tax
The Group\u2019s deferred tax assets and liabilities are as follows:
2023 2022 2023 2022
Statutory position \u00a3m
\u00a3m
Tax disclosure
\u00a3m \u00a3m
Deferred tax assets
5,185
6,422
Deferred tax assets
7,409
8,741
Deferred tax liabilities
(157)
(209)
Deferred tax liabilities
(2,381)
(2,528)
Net deferred tax asset at 31 December
5,028
6,213
Net deferred tax asset at 31 December
5,028
6,213
1
1
1 Restated for the adoption of IFRS 17; see notes 1 and 54.
The statutory position reflects the deferred tax assets and liabilities as disclosed in the consolidated balance sheet and takes into
account the ability of the Group to net assets and liabilities where there is a legally enforceable right of offset. The tax disclosure of
deferred tax assets and liabilities ties to the amounts outlined in the tables below which splits the deferred tax assets and liabilities by
type, before such netting.
Movements in deferred tax assets and liabilities (before taking into consideration the offsetting of balances within the same taxing
jurisdiction) can be summarised as follows:
Property, Long-term Share- Other
Tax plant and assurance based Pension Asset temporary
losses equipment Provisions business payments liabilities Derivatives revaluations differences Total
Deferred tax assets \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January 2022
5,023
744
302
\u2013
38
69
700
\u2013
219
7,095
Credit (charge) to the
income statement
39
(238)
113
114
(5)
(22)
(205)
8
62
(134)
Credit (charge) to other
comprehensive income
\u2013
\u2013
(155)
\u2013
\u2013
\u2013
1,928
\u2013
\u2013
1,773
Acquisitions
4
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
4
Other credit to equity
\u2013
\u2013
\u2013
\u2013
3
\u2013
\u2013
\u2013
\u2013
3
At 31 December 2022
5,066
506
260
114
36
47
2,423
8
281
8,741
Credit (charge) to the
income statement
(283)
(258)
(39)
119
10
\u2013
(84)
\u2013
(179)
(714)
Credit (charge) to other
comprehensive income
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
(672)
42
\u2013
(630)
Other credit to equity
\u2013
\u2013
\u2013
\u2013
12
\u2013
\u2013
\u2013
\u2013
12
At 31 December 2023
4,783
248
221
233
58
47
1,667
50
102
7,409
1
2
Capitalised Long-term Other
software assurance Acquisition Pension Asset temporary
enhancements business fair value assets Derivatives revaluations
differences
1
Total
Deferred tax liabilities \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2021
(275)
(1,162)
(352)
(1,331)
(509)
(56)
(331)
(4,016)
Adjustment on adoption of IFRS 17
\u2013
655
\u2013
\u2013
\u2013
\u2013
31
686
At 1 January 2022
(275)
(507)
(352)
(1,331)
(509)
(56)
(300)
(3,330)
Credit (charge) to the income statement
118
507
21
29
(32)
\u2013
(164)
479
Credit to other comprehensive income
\u2013
\u2013
\u2013
283
\u2013
56
\u2013
339
Acquisitions
(5)
\u2013
(1)
\u2013
\u2013
\u2013
\u2013
(6)
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
(10)
(10)
At 31 December 2022
(162)
\u2013
(332)
(1,019)
(541)
\u2013
(474)
(2,528)
Credit (charge) to the income statement
70
\u2013
38
(5)
(167)
\u2013
141
77
Credit to other comprehensive income
\u2013
\u2013
\u2013
53
\u2013
\u2013
66
119
Acquisitions
\u2013
\u2013
(58)
\u2013
\u2013
\u2013
\u2013
(58)
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
9
9
At 31 December 2023
(92)
\u2013
(352)
(971)
(708)
\u2013
(258)
(2,381)
1
2
1 Restated for the adoption of IFRS 17; see notes 1 and 54.
2 Financial assets at fair value through other comprehensive income.
At 31 December 2023 the Group carried net deferred tax assets on its balance sheet of \u00a35,185 million (2022: \u00a36,422 million) principally
relating to tax losses carried forward.
Estimation of income taxes includes the assessment of recoverability of deferred tax assets. Deferred tax assets are only recognised to
the extent that they are considered more likely than not to be recoverable based on existing tax laws and forecasts of future taxable
profits against which the underlying tax deductions can be utilised. The Group has recognised a deferred tax asset of \u00a34,783 million
(2022: \u00a35,066 million) in respect of trading losses carried forward. Substantially all of these losses have arisen in Bank of Scotland plc
and Lloyds Bank plc, and they will be utilised as taxable profits arise in those legal entities in future periods.
The Group\u2019s expectations of future UK taxable profits require management judgement, and take into account the Group\u2019s long-term
financial and strategic plans and anticipated future tax-adjusting items. In making this assessment, account is taken of business plans,
the Board-approved operating plan and the expected future economic outlook as set out in the strategic report, as well as the risks
associated with future regulatory, climate-related and other change, in order to produce a base case forecast of future UK taxable
profits. Under current law there is no expiry date for UK trading losses not yet utilised, and given the forecast of future profitability and
the Group\u2019s commitment to the UK market, in management\u2019s judgement it is more likely than not that the value of the losses will be
recovered by the Group while still operating as a going concern. Banking tax losses that arose before 1 April 2015 can only be used
against 25 per cent of taxable profits arising after 1 April 2016, and they cannot be used to reduce the surcharge on banking profits.
These restrictions in utilisation mean that the value of the deferred tax asset in respect of tax losses is only expected to be fully
recovered by 2036 (2022: 2036) in the base case forecast. The rate of recovery of the Group\u2019s tax loss asset is not a straight line, being
affected by the relative profitability of the different legal entities in future periods, and the relative size of their tax losses carried
forward. It is expected in the base case that 90 per cent of the value will be recovered by 2034, when Bank of Scotland plc will have
utilised all of its available tax losses. It is possible that future tax law changes could materially affect the timing of recovery and the
value of these losses ultimately realised by the Group.
A deferred tax asset of \u00a3118 million (2022: \u00a38 million) has been recognised in respect of the future tax benefit of certain expenses of the
life assurance business. The increase is driven by higher forecast investment returns in the long term projections for the life insurance
business due to interest rate rises which increases the amount of expenses expected to be utilised. The deferred tax asset not
recognised in respect of the remaining expenses is \u00a388 million (2022: \u00a3339 million), and these expenses can be carried forward
indefinitely. The unrecognised deferred tax asset has decreased in 2023 due to utilisation of expenses in the year and the higher
expected investment returns in the long term projections for the life insurance business reducing the net amount of unutilised
expenses in the long term.
Deferred tax not recognised
Deferred tax assets of \u00a3160 million (2022: \u00a3156 million) have not been recognised in respect of \u00a3635 million of UK tax losses and other
temporary differences which can only be used to offset future capital gains. UK capital losses can be carried forward indefinitely.
No deferred tax has been recognised in respect of foreign trade losses where it is not more likely than not that we will be able to utilise
them in future periods. Of the asset not recognised, \u00a351 million (2022: \u00a353 million) relates to losses that will expire if not used within
20 years, and \u00a39 million (2022: \u00a39 million) relates to losses with no expiry date.
As a result of parent company exemptions on dividends from subsidiaries and on capital gains on disposal there are no significant
taxable temporary differences associated with investments in subsidiaries, branches, associates and joint arrangements.
Critical accounting judgements and key sources of estimation uncertainty
Critical judgement: The Group believes that its interpretation of the tax rules on group relief are correct
The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which
ceased trading on 31 December 2010. In 2013, HMRC informed the Group that its interpretation of the UK rules means that the group relief
is not available. In 2020, HMRC concluded its enquiry into the matter and issued a closure notice. The Group\u2019s interpretation of the UK
rules has not changed and hence it appealed to the First Tier Tax Tribunal, with a hearing having taken place in May 2023. If the final
determination of the matter by the judicial process is that HMRC\u2019s position is correct, management believes that this would result in an
increase in current tax liabilities of approximately \u00a3920 million (including interest) and a reduction in the Group\u2019s deferred tax asset of
approximately \u00a3285 million. The Group, following conclusion of the hearing and having taken appropriate advice, does not consider
that this is a case where additional tax will ultimately fall due.
There are a number of other open matters on which the Group is in discussions with HMRC (including the tax treatment of certain costs
arising from the divestment of TSB Banking Group plc), none of which is expected to have a material impact on the financial position of
the Group.
", "dimensions": { "concept": "ifrs-full:DisclosureOfIncomeTaxExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1002": { "value": "Deferred tax The Group\u2019s deferred tax assets and liabilities are as follows:
2023 2022 2023 2022
Statutory position \u00a3m
\u00a3m
Tax disclosure
\u00a3m \u00a3m
Deferred tax assets
5,185
6,422
Deferred tax assets
7,409
8,741
Deferred tax liabilities
(157)
(209)
Deferred tax liabilities
(2,381)
(2,528)
Net deferred tax asset at 31 December
5,028
6,213
Net deferred tax asset at 31 December
5,028
6,213
1 1 1 Restated for the adoption of IFRS 17; see notes 1 and 54. The statutory position reflects the deferred tax assets and liabilities as disclosed in the consolidated balance sheet and takes into account the ability of the Group to net assets and liabilities where there is a legally enforceable right of offset. The tax disclosure of deferred tax assets and liabilities ties to the amounts outlined in the tables below which splits the deferred tax assets and liabilities by type, before such netting. Movements in deferred tax assets and liabilities (before taking into consideration the offsetting of balances within the same taxing jurisdiction) can be summarised as follows:
Property, Long-term Share- Other
Tax plant and assurance based Pension Asset temporary
losses equipment Provisions business payments liabilities Derivatives revaluations differences Total
Deferred tax assets \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January 2022
5,023
744
302
\u2013
38
69
700
\u2013
219
7,095
Credit (charge) to the
income statement
39
(238)
113
114
(5)
(22)
(205)
8
62
(134)
Credit (charge) to other
comprehensive income
\u2013
\u2013
(155)
\u2013
\u2013
\u2013
1,928
\u2013
\u2013
1,773
Acquisitions
4
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
4
Other credit to equity
\u2013
\u2013
\u2013
\u2013
3
\u2013
\u2013
\u2013
\u2013
3
At 31 December 2022
5,066
506
260
114
36
47
2,423
8
281
8,741
Credit (charge) to the
income statement
(283)
(258)
(39)
119
10
\u2013
(84)
\u2013
(179)
(714)
Credit (charge) to other
comprehensive income
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
(672)
42
\u2013
(630)
Other credit to equity
\u2013
\u2013
\u2013
\u2013
12
\u2013
\u2013
\u2013
\u2013
12
At 31 December 2023
4,783
248
221
233
58
47
1,667
50
102
7,409
1 2
Capitalised Long-term Other
software assurance Acquisition Pension Asset temporary
enhancements business fair value assets Derivatives revaluations
differences
1
Total
Deferred tax liabilities \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2021
(275)
(1,162)
(352)
(1,331)
(509)
(56)
(331)
(4,016)
Adjustment on adoption of IFRS 17
\u2013
655
\u2013
\u2013
\u2013
\u2013
31
686
At 1 January 2022
(275)
(507)
(352)
(1,331)
(509)
(56)
(300)
(3,330)
Credit (charge) to the income statement
118
507
21
29
(32)
\u2013
(164)
479
Credit to other comprehensive income
\u2013
\u2013
\u2013
283
\u2013
56
\u2013
339
Acquisitions
(5)
\u2013
(1)
\u2013
\u2013
\u2013
\u2013
(6)
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
(10)
(10)
At 31 December 2022
(162)
\u2013
(332)
(1,019)
(541)
\u2013
(474)
(2,528)
Credit (charge) to the income statement
70
\u2013
38
(5)
(167)
\u2013
141
77
Credit to other comprehensive income
\u2013
\u2013
\u2013
53
\u2013
\u2013
66
119
Acquisitions
\u2013
\u2013
(58)
\u2013
\u2013
\u2013
\u2013
(58)
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
9
9
At 31 December 2023
(92)
\u2013
(352)
(971)
(708)
\u2013
(258)
(2,381)
1 2 1 Restated for the adoption of IFRS 17; see notes 1 and 54. 2 Financial assets at fair value through other comprehensive income. At 31 December 2023 the Group carried net deferred tax assets on its balance sheet of \u00a35,185 million (2022: \u00a36,422 million) principally relating to tax losses carried forward. Estimation of income taxes includes the assessment of recoverability of deferred tax assets. Deferred tax assets are only recognised to the extent that they are considered more likely than not to be recoverable based on existing tax laws and forecasts of future taxable profits against which the underlying tax deductions can be utilised. The Group has recognised a deferred tax asset of \u00a34,783 million (2022: \u00a35,066 million) in respect of trading losses carried forward. Substantially all of these losses have arisen in Bank of Scotland plc and Lloyds Bank plc, and they will be utilised as taxable profits arise in those legal entities in future periods. The Group\u2019s expectations of future UK taxable profits require management judgement, and take into account the Group\u2019s long-term financial and strategic plans and anticipated future tax-adjusting items. In making this assessment, account is taken of business plans, the Board-approved operating plan and the expected future economic outlook as set out in the strategic report, as well as the risks associated with future regulatory, climate-related and other change, in order to produce a base case forecast of future UK taxable profits. Under current law there is no expiry date for UK trading losses not yet utilised, and given the forecast of future profitability and the Group\u2019s commitment to the UK market, in management\u2019s judgement it is more likely than not that the value of the losses will be recovered by the Group while still operating as a going concern. Banking tax losses that arose before 1 April 2015 can only be used against 25 per cent of taxable profits arising after 1 April 2016, and they cannot be used to reduce the surcharge on banking profits. These restrictions in utilisation mean that the value of the deferred tax asset in respect of tax losses is only expected to be fully recovered by 2036 (2022: 2036) in the base case forecast. The rate of recovery of the Group\u2019s tax loss asset is not a straight line, being affected by the relative profitability of the different legal entities in future periods, and the relative size of their tax losses carried forward. It is expected in the base case that 90 per cent of the value will be recovered by 2034, when Bank of Scotland plc will have utilised all of its available tax losses. It is possible that future tax law changes could materially affect the timing of recovery and the value of these losses ultimately realised by the Group. A deferred tax asset of \u00a3118 million (2022: \u00a38 million) has been recognised in respect of the future tax benefit of certain expenses of the life assurance business. The increase is driven by higher forecast investment returns in the long term projections for the life insurance business due to interest rate rises which increases the amount of expenses expected to be utilised. The deferred tax asset not recognised in respect of the remaining expenses is \u00a388 million (2022: \u00a3339 million), and these expenses can be carried forward indefinitely. The unrecognised deferred tax asset has decreased in 2023 due to utilisation of expenses in the year and the higher expected investment returns in the long term projections for the life insurance business reducing the net amount of unutilised expenses in the long term. Deferred tax not recognised Deferred tax assets of \u00a3160 million (2022: \u00a3156 million) have not been recognised in respect of \u00a3635 million of UK tax losses and other temporary differences which can only be used to offset future capital gains. UK capital losses can be carried forward indefinitely. No deferred tax has been recognised in respect of foreign trade losses where it is not more likely than not that we will be able to utilise them in future periods. Of the asset not recognised, \u00a351 million (2022: \u00a353 million) relates to losses that will expire if not used within 20 years, and \u00a39 million (2022: \u00a39 million) relates to losses with no expiry date. As a result of parent company exemptions on dividends from subsidiaries and on capital gains on disposal there are no significant taxable temporary differences associated with investments in subsidiaries, branches, associates and joint arrangements. Critical accounting judgements and key sources of estimation uncertainty Critical judgement: The Group believes that its interpretation of the tax rules on group relief are correct The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which ceased trading on 31 December 2010. In 2013, HMRC informed the Group that its interpretation of the UK rules means that the group relief is not available. In 2020, HMRC concluded its enquiry into the matter and issued a closure notice. The Group\u2019s interpretation of the UK rules has not changed and hence it appealed to the First Tier Tax Tribunal, with a hearing having taken place in May 2023. If the final determination of the matter by the judicial process is that HMRC\u2019s position is correct, management believes that this would result in an increase in current tax liabilities of approximately \u00a3920 million (including interest) and a reduction in the Group\u2019s deferred tax asset of approximately \u00a3285 million. The Group, following conclusion of the hearing and having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due. There are a number of other open matters on which the Group is in discussions with HMRC (including the tax treatment of certain costs arising from the divestment of TSB Banking Group plc), none of which is expected to have a material impact on the financial position of the Group.", "dimensions": { "concept": "ifrs-full:DisclosureOfTaxReceivablesAndPayablesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-972": { "value": "Deferred tax The Group\u2019s deferred tax assets and liabilities are as follows:
2023 2022 2023 2022
Statutory position \u00a3m
\u00a3m
Tax disclosure
\u00a3m \u00a3m
Deferred tax assets
5,185
6,422
Deferred tax assets
7,409
8,741
Deferred tax liabilities
(157)
(209)
Deferred tax liabilities
(2,381)
(2,528)
Net deferred tax asset at 31 December
5,028
6,213
Net deferred tax asset at 31 December
5,028
6,213
1 1 1 Restated for the adoption of IFRS 17; see notes 1 and 54. The statutory position reflects the deferred tax assets and liabilities as disclosed in the consolidated balance sheet and takes into account the ability of the Group to net assets and liabilities where there is a legally enforceable right of offset. The tax disclosure of deferred tax assets and liabilities ties to the amounts outlined in the tables below which splits the deferred tax assets and liabilities by type, before such netting. Movements in deferred tax assets and liabilities (before taking into consideration the offsetting of balances within the same taxing jurisdiction) can be summarised as follows:
Property, Long-term Share- Other
Tax plant and assurance based Pension Asset temporary
losses equipment Provisions business payments liabilities Derivatives revaluations differences Total
Deferred tax assets \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January 2022
5,023
744
302
\u2013
38
69
700
\u2013
219
7,095
Credit (charge) to the
income statement
39
(238)
113
114
(5)
(22)
(205)
8
62
(134)
Credit (charge) to other
comprehensive income
\u2013
\u2013
(155)
\u2013
\u2013
\u2013
1,928
\u2013
\u2013
1,773
Acquisitions
4
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
4
Other credit to equity
\u2013
\u2013
\u2013
\u2013
3
\u2013
\u2013
\u2013
\u2013
3
At 31 December 2022
5,066
506
260
114
36
47
2,423
8
281
8,741
Credit (charge) to the
income statement
(283)
(258)
(39)
119
10
\u2013
(84)
\u2013
(179)
(714)
Credit (charge) to other
comprehensive income
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
(672)
42
\u2013
(630)
Other credit to equity
\u2013
\u2013
\u2013
\u2013
12
\u2013
\u2013
\u2013
\u2013
12
At 31 December 2023
4,783
248
221
233
58
47
1,667
50
102
7,409
1 2
Capitalised Long-term Other
software assurance Acquisition Pension Asset temporary
enhancements business fair value assets Derivatives revaluations
differences
1
Total
Deferred tax liabilities \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2021
(275)
(1,162)
(352)
(1,331)
(509)
(56)
(331)
(4,016)
Adjustment on adoption of IFRS 17
\u2013
655
\u2013
\u2013
\u2013
\u2013
31
686
At 1 January 2022
(275)
(507)
(352)
(1,331)
(509)
(56)
(300)
(3,330)
Credit (charge) to the income statement
118
507
21
29
(32)
\u2013
(164)
479
Credit to other comprehensive income
\u2013
\u2013
\u2013
283
\u2013
56
\u2013
339
Acquisitions
(5)
\u2013
(1)
\u2013
\u2013
\u2013
\u2013
(6)
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
(10)
(10)
At 31 December 2022
(162)
\u2013
(332)
(1,019)
(541)
\u2013
(474)
(2,528)
Credit (charge) to the income statement
70
\u2013
38
(5)
(167)
\u2013
141
77
Credit to other comprehensive income
\u2013
\u2013
\u2013
53
\u2013
\u2013
66
119
Acquisitions
\u2013
\u2013
(58)
\u2013
\u2013
\u2013
\u2013
(58)
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
9
9
At 31 December 2023
(92)
\u2013
(352)
(971)
(708)
\u2013
(258)
(2,381)
1 2 1 Restated for the adoption of IFRS 17; see notes 1 and 54. 2 Financial assets at fair value through other comprehensive income. At 31 December 2023 the Group carried net deferred tax assets on its balance sheet of \u00a35,185 million (2022: \u00a36,422 million) principally relating to tax losses carried forward. Estimation of income taxes includes the assessment of recoverability of deferred tax assets. Deferred tax assets are only recognised to the extent that they are considered more likely than not to be recoverable based on existing tax laws and forecasts of future taxable profits against which the underlying tax deductions can be utilised. The Group has recognised a deferred tax asset of \u00a34,783 million (2022: \u00a35,066 million) in respect of trading losses carried forward. Substantially all of these losses have arisen in Bank of Scotland plc and Lloyds Bank plc, and they will be utilised as taxable profits arise in those legal entities in future periods. The Group\u2019s expectations of future UK taxable profits require management judgement, and take into account the Group\u2019s long-term financial and strategic plans and anticipated future tax-adjusting items. In making this assessment, account is taken of business plans, the Board-approved operating plan and the expected future economic outlook as set out in the strategic report, as well as the risks associated with future regulatory, climate-related and other change, in order to produce a base case forecast of future UK taxable profits. Under current law there is no expiry date for UK trading losses not yet utilised, and given the forecast of future profitability and the Group\u2019s commitment to the UK market, in management\u2019s judgement it is more likely than not that the value of the losses will be recovered by the Group while still operating as a going concern. Banking tax losses that arose before 1 April 2015 can only be used against 25 per cent of taxable profits arising after 1 April 2016, and they cannot be used to reduce the surcharge on banking profits. These restrictions in utilisation mean that the value of the deferred tax asset in respect of tax losses is only expected to be fully recovered by 2036 (2022: 2036) in the base case forecast. The rate of recovery of the Group\u2019s tax loss asset is not a straight line, being affected by the relative profitability of the different legal entities in future periods, and the relative size of their tax losses carried forward. It is expected in the base case that 90 per cent of the value will be recovered by 2034, when Bank of Scotland plc will have utilised all of its available tax losses. It is possible that future tax law changes could materially affect the timing of recovery and the value of these losses ultimately realised by the Group. A deferred tax asset of \u00a3118 million (2022: \u00a38 million) has been recognised in respect of the future tax benefit of certain expenses of the life assurance business. The increase is driven by higher forecast investment returns in the long term projections for the life insurance business due to interest rate rises which increases the amount of expenses expected to be utilised. The deferred tax asset not recognised in respect of the remaining expenses is \u00a388 million (2022: \u00a3339 million), and these expenses can be carried forward indefinitely. The unrecognised deferred tax asset has decreased in 2023 due to utilisation of expenses in the year and the higher expected investment returns in the long term projections for the life insurance business reducing the net amount of unutilised expenses in the long term. Deferred tax not recognised Deferred tax assets of \u00a3160 million (2022: \u00a3156 million) have not been recognised in respect of \u00a3635 million of UK tax losses and other temporary differences which can only be used to offset future capital gains. UK capital losses can be carried forward indefinitely. No deferred tax has been recognised in respect of foreign trade losses where it is not more likely than not that we will be able to utilise them in future periods. Of the asset not recognised, \u00a351 million (2022: \u00a353 million) relates to losses that will expire if not used within 20 years, and \u00a39 million (2022: \u00a39 million) relates to losses with no expiry date. As a result of parent company exemptions on dividends from subsidiaries and on capital gains on disposal there are no significant taxable temporary differences associated with investments in subsidiaries, branches, associates and joint arrangements. Critical accounting judgements and key sources of estimation uncertainty Critical judgement: The Group believes that its interpretation of the tax rules on group relief are correct The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which ceased trading on 31 December 2010. In 2013, HMRC informed the Group that its interpretation of the UK rules means that the group relief is not available. In 2020, HMRC concluded its enquiry into the matter and issued a closure notice. The Group\u2019s interpretation of the UK rules has not changed and hence it appealed to the First Tier Tax Tribunal, with a hearing having taken place in May 2023. If the final determination of the matter by the judicial process is that HMRC\u2019s position is correct, management believes that this would result in an increase in current tax liabilities of approximately \u00a3920 million (including interest) and a reduction in the Group\u2019s deferred tax asset of approximately \u00a3285 million. The Group, following conclusion of the hearing and having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due. There are a number of other open matters on which the Group is in discussions with HMRC (including the tax treatment of certain costs arising from the divestment of TSB Banking Group plc), none of which is expected to have a material impact on the financial position of the Group.", "dimensions": { "concept": "ifrs-full:DisclosureOfDeferredTaxesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-924": { "value": "
Note 20: Measurement basis of financial assets and liabilities
The accounting policies in note 2 describe how different classes of financial instruments are measured, and how income and
expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the financial
assets and liabilities by category and by balance sheet heading.
Mandatorily held at
fair value through
Derivatives profit or loss Designated
At fair value
designated
at fair value
through other
Held at Insurance-
as hedging Held for
through
comprehensive amortised related
instruments trading Other
profit or loss
income cost contracts Total
At 31 December 2023
\u00a3m \u00a3m \u00a3m
\u00a3m
\u00a3m \u00a3m
\u00a3m
\u00a3m
Financial assets
Cash and balances at central banks
\u2013
\u2013
\u2013
\u2013
\u2013
78,110
\u2013
78,110
Financial assets at fair value through
profit or loss
\u2013
21,638
181,680
\u2013
\u2013
\u2013
\u2013
203,318
Derivative financial instruments
103
22,253
\u2013
\u2013
\u2013
\u2013
\u2013
22,356
Loans and advances to banks
\u2013
\u2013
\u2013
\u2013
\u2013
10,764
\u2013
10,764
Loans and advances to customers
\u2013
\u2013
\u2013
\u2013
\u2013
449,745
\u2013
449,745
Reverse repurchase agreements
\u2013
\u2013
\u2013
\u2013
\u2013
38,771
\u2013
38,771
Debt securities
\u2013
\u2013
\u2013
\u2013
\u2013
15,355
\u2013
15,355
Financial assets at amortised cost
\u2013
\u2013
\u2013
\u2013
\u2013
514,635
\u2013
514,635
Financial assets at fair value through
other comprehensive income
\u2013
\u2013
\u2013
\u2013
27,592
\u2013
\u2013
27,592
Other
\u2013
\u2013
\u2013
\u2013
\u2013
299
443
742
Total financial assets
103
43,891
181,680
\u2013
27,592
593,044
443
846,753
Financial liabilities
Deposits from banks
\u2013
\u2013
\u2013
\u2013
\u2013
6,153
\u2013
6,153
Customer deposits
\u2013
\u2013
\u2013
\u2013
\u2013
471,396
\u2013
471,396
Repurchase agreements at amortised
cost
\u2013
\u2013
\u2013
\u2013
\u2013
37,703
\u2013
37,703
Financial liabilities at fair value through
profit or loss
\u2013
19,631
\u2013
5,283
\u2013
\u2013
\u2013
24,914
Derivative financial instruments
505
19,644
\u2013
\u2013
\u2013
\u2013
\u2013
20,149
Notes in circulation
\u2013
\u2013
\u2013
\u2013
\u2013
1,392
\u2013
1,392
Debt securities in issue at amortised cost
\u2013
\u2013
\u2013
\u2013
\u2013
75,592
\u2013
75,592
Liabilities arising from insurance and
participating investment contracts
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
120,123
120,123
Liabilities arising from non-participating
investment contracts
\u2013
\u2013
\u2013
44,978
\u2013
\u2013
\u2013
44,978
Other
\u2013
\u2013
\u2013
\u2013
\u2013
1,960
8
1,968
Subordinated liabilities
\u2013
\u2013
\u2013
\u2013
\u2013
10,253
\u2013
10,253
Total financial liabilities
505
39,275
\u2013
50,261
\u2013
604,449
120,131
814,621
Mandatorily held at fair value through Derivatives profit or loss Designated At fair value designated at fair value through other Held at Insurance- as hedging Held for throughcomprehensive amortised related instruments trading Other profit or loss income cost contracts Total At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m Financial assets Cash and balances at central banks \u2013 \u2013 \u2013 \u2013 \u2013 91,388 \u2013 91,388 Financial assets at fair value through profit or loss \u2013 14,216 166,553 \u2013 \u2013 \u2013 \u2013 180,769 Derivative financial instruments 75 24,678 \u2013 \u2013 \u2013 \u2013 \u2013 24,753 Loans and advances to banks \u2013 \u2013 \u2013 \u2013 \u2013 10,632 \u2013 10,632 Loans and advances to customers \u2013 \u2013 \u2013 \u2013 \u2013 454,899 \u2013 454,899 Reverse repurchase agreements \u2013 \u2013 \u2013 \u2013 \u2013 44,865 \u2013 44,865 Debt securities \u2013 \u2013 \u2013 \u2013 \u2013 9,926 \u2013 9,926 Financial assets at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 520,322 \u2013 520,322 Financial assets at fair value through other comprehensive income \u2013 \u2013 \u2013 \u2013 23,154 \u2013 \u2013 23,154 Other \u2013 \u2013 \u2013 \u2013 \u2013 242 372 614 Total financial assets 75 38,894 166,553 \u2013 23,154 611,952 372 841,000 Financial liabilities Deposits from banks \u2013 \u2013 \u2013 \u2013 \u2013 7,266 \u2013 7,266 Customer deposits \u2013 \u2013 \u2013 \u2013 \u2013 475,331 \u2013 475,331 Repurchase agreements at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 48,596 \u2013 48,596 Financial liabilities at fair value through profit or loss \u2013 12,577 \u2013 5,178 \u2013 \u2013 \u2013 17,755 Derivative financial instruments 527 23,515 \u2013 \u2013 \u2013 \u2013 \u2013 24,042 Notes in circulation \u2013 \u2013 \u2013 \u2013 \u2013 1,280 \u2013 1,280 Debt securities in issue at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 73,819 \u2013 73,819 Liabilities arising from insurance and participating investment contracts \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 110,278 110,278 Liabilities arising from non-participating investment contracts \u2013 \u2013 \u2013 39,476 \u2013 \u2013 \u2013 39,476 Other \u2013 \u2013 \u2013 \u2013 \u2013 1,689 19 1,708 Subordinated liabilities \u2013 \u2013 \u2013 \u2013 \u2013 10,730 \u2013 10,730 Total financial liabilities 527 36,092 \u2013 44,654 \u2013 618,711 110,297 810,281 1 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54.
Note 21: Fair values of financial assets and liabilities
At 31 December 2023, the carrying value of the Group\u2019s financial instrument assets held at fair value was \u00a3253,266 million (2022:
\u00a3228,676 million), and its financial instrument liabilities held at fair value was \u00a390,041 million (2022: \u00a381,273 million).
(1) Fair value measurement
Fair value is the price that would be received on sale of an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. It is a measure as at a specific date and may be significantly different from the amount which
will actually be paid or received on maturity or settlement date.
Wherever possible, fair values have been calculated using unadjusted quoted market prices in active markets for identical instruments
to those held by the Group. Where quoted market prices are not available, or are unreliable because of poor liquidity, fair values have
been determined using valuation techniques which, to the extent possible, use market observable inputs, but in some cases use non-
market observable inputs. Valuation techniques used include discounted cash flow analysis and pricing models and, where
appropriate, comparison to instruments with characteristics similar to those of the instruments held by the Group. The Group measures
valuation adjustments for its derivative exposures on the same basis as the derivatives are managed.
The carrying amount of the following financial instruments is a reasonable approximation of fair value: cash and balances at central
banks, items in the course of collection from banks, items in course of transmission to banks and notes in circulation. Liabilities arising
from non-participating investment contracts are carried at fair value.
Because a variety of estimation techniques are employed and significant estimates made, comparisons of fair values between
financial institutions may not be meaningful. Readers of these financial statements are thus advised to use caution when using this
data to evaluate the Group\u2019s financial position.
Fair value information is not provided for items that are not financial instruments or for other assets and liabilities which are not carried
at fair value in the Group\u2019s consolidated balance sheet. These items include intangible assets, property, plant and equipment, and
shareholders\u2019 equity. These items are material and accordingly the Group believes that any fair value information presented would not
represent the underlying value of the Group.
Valuation control framework
The key elements of the control framework for the valuation of financial instruments include model validation, product implementation
review and independent price verification. These functions are carried out by appropriately skilled risk and finance teams, independent
of the business area responsible for the products.
Model validation covers both qualitative and quantitative elements relating to new models. In respect of new products, a product
implementation review is conducted pre and post-trading. Pre-trade testing ensures that the new model is integrated into the Group\u2019s
systems and that the profit and loss and risk reporting are consistent throughout the trade lifecycle. Post-trade testing examines the
explanatory power of the implemented model, actively monitoring model parameters and comparing in-house pricing to external
sources. Independent price verification procedures cover financial instruments carried at fair value. The frequency of the review is
matched to the availability of independent data, monthly being the minimum. Valuation differences in breach of established
thresholds are escalated to senior management. The results from independent pricing and valuation reserves are reviewed monthly by
senior management.
Formal committees, consisting of senior risk, finance and business management, meet at least quarterly to discuss and approve
valuations in more judgemental areas, in particular for unquoted equities, structured credit, derivatives and the credit valuation
adjustment (CVA), funding valuation adjustment (FVA) and other valuation adjustments.
Valuation of financial assets and liabilities
Assets and liabilities carried at fair value or for which fair values are disclosed have been classified into three levels according to the
quality and reliability of information used to determine the fair values.
Level 1
Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities.
Products classified as level 1 predominantly comprise listed equity shares, treasury bills and other government securities.
Level 2
Level 2 valuations are those where quoted market prices are not available, for example where the instrument is traded in a market that
is not considered to be active or valuation techniques are used to determine fair value and where these techniques use inputs that are
based significantly on observable market data. Examples of such financial instruments include most over-the-counter derivatives,
financial institution issued securities, certificates of deposit and certain asset-backed securities.
Level 3
Level 3 portfolios are those where at least one input which could have a significant effect on the instrument\u2019s valuation is not based on
observable market data. Such instruments would include the Group\u2019s venture capital and unlisted equity investments which are valued
using various valuation techniques that require significant management judgement in determining appropriate assumptions, including
earnings multiples and estimated future cash flows. Certain of the Group\u2019s asset-backed securities, loans and advances recognised at
fair value and derivatives are also classified as level 3.
Transfers out of the level 3 portfolio arise when inputs that could have a significant impact on the instrument\u2019s valuation become
market observable after previously having been non-market observable. In the case of asset-backed securities this can arise if more
than one consistent independent source of data becomes available. Conversely, transfers into the portfolio arise when consistent
sources of data cease to be available.
(2) Financial assets and liabilities carried at fair value (A) Financial assets (excluding derivatives) Valuation hierarchy At 31 December 2023, the Group\u2019s financial assets (excluding derivatives) carried at fair value totalled \u00a3230,910 million (2022: \u00a3203,923 million). The table below analyses these financial assets by balance sheet classification, asset type and valuation methodology (level 1, 2 or 3, as described above). The fair value measurement approach is recurring in nature. There were no significant transfers between level 1 and 2 during the year. For amounts included below which are subject to repurchase and reverse repurchase agreements see note 52.
Level 1 Level 2 Level 3 Total
\u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Trading assets
Loans and advances to customers
\u2013
23
\u2013
23
Reverse repurchase agreements
\u2013
17,413
\u2013
17,413
Debt securities:
Government securities
3,596
\u2013
\u2013
3,596
Asset-backed securities
\u2013
77
\u2013
77
Corporate and other debt securities
\u2013
529
\u2013
529
3,596
606
\u2013
4,202
Total trading assets
3,596
18,042
\u2013
21,638
Other financial assets mandatorily held at fair value through profit or loss
Loans and advances to banks
\u2013
3,127
\u2013
3,127
Loans and advances to customers
\u2013
1,992
7,890
9,882
Debt securities:
Government securities
8,005
4
\u2013
8,009
Other public sector securities
10
2,300
\u2013
2,310
Bank and building society certificates of deposit
\u2013
7,504
\u2013
7,504
Asset-backed securities
\u2013
327
186
513
Corporate and other debt securities
\u2013
18,061
2,064
20,125
8,015
28,196
2,250
38,461
Treasury and other bills
51
\u2013
\u2013
51
Equity shares
117,194
\u2013
1,541
118,735
Contracts held with reinsurers
\u2013
11,424
\u2013
11,424
Total other financial assets mandatorily held at fair value through profit or loss
125,260
44,739
11,681
181,680
Total financial assets at fair value through profit or loss
128,856
62,781
11,681
203,318
Financial assets at fair value through other comprehensive income
Debt securities:
Government securities
14,093
48
\u2013
14,141
Asset-backed securities
\u2013
121
52
173
Corporate and other debt securities
956
12,090
\u2013
13,046
15,049
12,259
52
27,360
Equity shares
\u2013
\u2013
232
232
Total financial assets at fair value through other comprehensive income
15,049
12,259
284
27,592
Total financial assets (excluding derivatives) at fair value
143,905
75,040
11,965
230,910
1 1 Other financial assets mandatorily at fair value through profit or loss include assets backing insurance contracts and investment contracts of \u00a3176,475 million. Included within these assets are investments in unconsolidated structured entities of \u00a376,426 million; see note 49
Level 1 Level 2 Level 3 Total
\u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Trading assets
Loans and advances to customers
\u2013
1
\u2013
1
Reverse repurchase agreements
\u2013
11,781
\u2013
11,781
Debt securities:
Government securities
2,185
\u2013
\u2013
2,185
Asset-backed securities
\u2013
21
\u2013
21
Corporate and other debt securities
\u2013
228
\u2013
228
2,185
249
\u2013
2,434
Total trading assets
2,185
12,031
\u2013
14,216
Other financial assets mandatorily held at fair value through profit or loss
Loans and advances to banks
\u2013
3,329
\u2013
3,329
Loans and advances to customers
\u2013
1,878
7,883
9,761
Debt securities:
Government securities
7,865
7
\u2013
7,872
Other public sector securities
\u2013
2,516
\u2013
2,516
Bank and building society certificates of deposit
\u2013
7,133
\u2013
7,133
Asset-backed securities
\u2013
336
63
399
Corporate and other debt securities
77
15,877
1,739
17,693
7,942
25,869
1,802
35,613
Treasury and other bills
62
\u2013
\u2013
62
Equity shares
105,263
\u2013
1,619
106,882
Contracts held with reinsurers
\u2013
10,906
\u2013
10,906
Total other financial assets mandatorily held at fair value through profit or loss
113,267
41,982
11,304
166,553
Total financial assets at fair value through profit or loss
115,452
54,013
11,304
180,769
Financial assets at fair value through other comprehensive income
Debt securities:
Government securities
10,854
357
\u2013
11,211
Asset-backed securities
\u2013
87
59
146
Corporate and other debt securities
536
10,978
\u2013
11,514
11,390
11,422
59
22,871
Equity shares
\u2013
\u2013
283
283
Total financial assets at fair value through other comprehensive income
11,390
11,422
342
23,154
Total financial assets (excluding derivatives) at fair value
126,842
65,435
11,646
203,923
1
2
1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54.
2 Other financial assets mandatorily at fair value through profit or loss include assets backing insurance contracts and investment contracts of \u00a3161,778 million. Included
within these assets are investments in unconsolidated structured entities of \u00a368,913 million; see note 49.
Movements in level 3 portfolio The table below analyses movements in level 3 financial assets (excluding derivatives) at fair value, recurring basis.
2023
2022
Financial
Total level 3
Financial
Total level 3
Financial
assets at
financial assets Financial
assets at
financial assets
assets at
fair value
(excluding assets at
fair value
(excluding
fair value
through other
derivatives)
fair value
through other
derivatives)
through
comprehensive at fair value,
through
comprehensive at fair value,
profit or loss
income recurring basis
profit or loss
income recurring basis
\u00a3m
\u00a3m \u00a3m
\u00a3m
\u00a3m \u00a3m
At 1 January
11,304
342
11,646
13,313
305
13,618
Exchange and other adjustments
(4)
(1)
(5)
15
3
18
Gains (losses) recognised in the income statement
within other income
723
6
729
(1,609)
(2)
(1,611)
(Losses) gains recognised in other comprehensive
income within the revaluation reserve in respect of
financial assets at fair value through other
comprehensive income
\u2013
(54)
(54)
\u2013
44
44
Purchases/increases to customer loans
744
3
747
959
3
962
Sales/repayments of customer loans
(1,140)
(12)
(1,152)
(1,320)
(11)
(1,331)
Transfers into the level 3 portfolio
136
\u2013
136
197
\u2013
197
Transfers out of the level 3 portfolio
(82)
\u2013
(82)
(251)
\u2013
(251)
At 31 December
11,681
284
11,965
11,304
342
11,646
Gains (losses) recognised in the income statement,
within other income, relating to the change in fair
value of those assets held at 31 December
654
\u2013
654
(1,596)
\u2013
(1,596)
Valuation methodology for financial assets (excluding derivatives) Loans and advances to banks and customers The fair value of these assets is determined using discounted cash flow techniques. The discount rates are derived from market observable interest rates, a risk margin that reflects loan credit ratings and an incremental illiquidity premium based on historical spreads at origination on similar loans. Debt securities Debt securities measured at fair value and classified as level 2 are valued by discounting expected cash flows using an observable credit spread applicable to the particular instrument. Where there is limited trading activity in debt securities, the Group uses valuation models, consensus pricing information from third party pricing services and broker or lead manager quotes to determine an appropriate valuation. Debt securities are classified as level 3 if there is a significant valuation input that cannot be corroborated through market sources or where there are materially inconsistent values for an input. Asset classes classified as level 3 mainly comprise venture capital investments. Equity investments Unlisted equity and fund investments are valued using different techniques in accordance with the Group\u2019s valuation policy and International Private Equity and Venture Capital Guidelines. Depending on the business sector and the circumstances of the investment, unlisted equity valuations are based on earnings multiples, net asset values or discounted cash flows. \u2022 A number of earnings multiples are used in valuing the portfolio including price earnings, earnings before interest and tax and earnings before interest, tax, depreciation and amortisation. The particular multiple selected is appropriate for the size and type of business being valued and is derived by reference to the current market-based multiple. Consideration is given to the risk attributes, growth prospects and financial gearing of comparable businesses when selecting the appropriate multiple \u2022 Discounted cash flow valuations use estimated future cash flows, usually based on management forecasts, with the application of appropriate exit yields or terminal multiples and discounted using rates appropriate to the specific investment, business sector or recent economic rates of return. Recent transactions involving the sale of similar businesses may sometimes be used as a frame of reference in deriving an appropriate multiple \u2022 For fund investments the most recent capital account value calculated by the fund manager is used as the basis for the valuation and adjusted, if necessary, to align valuation techniques with the Group\u2019s valuation policy Unlisted equity investments and investments in property partnerships held in the life assurance funds are valued using third party valuations. Management take account of any pertinent information, such as recent transactions and information received on particular investments, to adjust the third party valuations where necessary (B) Financial liabilities (excluding derivatives) Valuation hierarchy At 31 December 2023, the Group\u2019s financial liabilities (excluding derivatives) carried at fair value, comprised its financial liabilities at fair value through profit or loss and totalled \u00a324,914 million (2022: \u00a317,755 million). The table below analyses these financial liabilities by balance sheet classification and valuation methodology (level 1, 2 or 3, as described on page 257). The fair value measurement approach is recurring in nature. There were no significant transfers between level 1 and 2 during the year.
Level 1 Level 2 Level 3 Total
\u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Trading liabilities
Liabilities in respect of securities sold under repurchase agreements
\u2013
18,057
\u2013
18,057
Short positions in securities
1,569
5
\u2013
1,574
Total trading liabilities
1,569
18,062
\u2013
19,631
Liabilities designated at fair value through profit or loss
Debt securities in issue
\u2013
5,223
42
5,265
Other
\u2013
18
\u2013
18
Total liabilities designated at fair value through profit or loss
\u2013
5,241
42
5,283
Total financial liabilities (excluding derivatives) at fair value
1,569
23,303
42
24,914
At 31 December 2022
Trading liabilities
Liabilities in respect of securities sold under repurchase agreements
\u2013
11,037
\u2013
11,037
Short positions in securities
1,505
35
\u2013
1,540
Total trading liabilities
1,505
11,072
\u2013
12,577
Liabilities designated at fair value through profit or loss
Debt securities in issue
\u2013
5,114
45
5,159
Other
\u2013
19
\u2013
19
Total liabilities designated at fair value through profit or loss
\u2013
5,133
45
5,178
Total financial liabilities (excluding derivatives) at fair value
1,505
16,205
45
17,755
Liabilities designated at fair value through profit or loss primarily represent debt securities in issue which either contain substantive embedded derivatives which would otherwise need to be recognised and measured at fair value separately from the related debt securities, or which are accounted for at fair value to significantly reduce an accounting mismatch. The amount contractually payable on maturity of the debt securities held at fair value through profit or loss at 31 December 2023 was \u00a310,433 million, which was \u00a35,167 million higher than the balance sheet carrying value (2022: \u00a311,195 million, which was \u00a36,036 million higher than the balance sheet carrying value). At 31 December 2023 there was a cumulative \u00a390 million decrease in the fair value of these liabilities attributable to changes in credit spread risk; this is determined by reference to the quoted credit spreads of Lloyds Bank plc, the issuing entity within the Group. Of the cumulative amount, an increase of \u00a3234 million arose in 2023 and a decrease of \u00a3519 million arose in 2022. For the fair value of collateral pledged in respect of repurchase agreements see note 52. In addition to the liabilities above, the Group\u2019s non-participating investment contracts are held at fair value through profit or loss and were all categorised as level 2. Movements in level 3 portfolio The table below analyses movements in the level 3 financial liabilities (excluding derivatives) at fair value portfolio.
2023 2022
\u00a3m \u00a3m
At 1 January
45
37
Gains recognised in the income statement within other income
(1)
(4)
Additions
\u2013
33
Redemptions
(1)
(3)
Transfers out of the level 3 portfolio
(1)
(18)
At 31 December
42
45
Gains recognised in the income statement, within other income, relating to the change in fair value of those liabilities
held at 31 December
(1)
(4)
Valuation methodology for financial liabilities (excluding derivatives) Liabilities held at fair value through profit or loss These principally comprise debt securities in issue which are classified as level 2 and their fair value is determined using techniques whose inputs are based on observable market data. The carrying amount of the securities is adjusted to reflect the effect of changes in own credit spreads and the resulting gain or loss is recognised in other comprehensive income. In the year ended 31 December 2023, the own credit adjustment arising from the fair valuation of \u00a35,265 million (2022: \u00a35,159 million) of the Group\u2019s debt securities in issue designated at fair value through profit or loss resulted in a loss of \u00a3234 million (2022: gain of \u00a3519 million), before tax, recognised in other comprehensive income. Trading liabilities in respect of securities sold under repurchase agreements The fair value of these liabilities is determined using discounted cash flow techniques. The discount rates are derived from observable repurchase agreement rate curves specific to the type of security sold under the repurchase agreement. (C) Derivatives Valuation hierarchy All of the Group\u2019s derivative assets and liabilities are carried at fair value. At 31 December 2023, such assets totalled \u00a322,356 million (2022: \u00a324,753 million) and liabilities totalled \u00a320,149 million (2022: \u00a324,042 million). The table below analyses these derivative balances by valuation methodology (level 1, 2 or 3, as described on page 257). The fair value measurement approach is recurring in nature. There were no significant transfers between level 1 and level 2 during the year.
2023
2022
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Derivative assets
77
21,857
422
22,356
78
24,122
553
24,753
Derivative liabilities
(116)
(19,589)
(444)
(20,149)
(39)
(23,395)
(608)
(24,042)
Movements in level 3 portfolio The table below analyses movements in level 3 derivative assets and liabilities carried at fair value.
2023
2022
Derivative Derivative Derivative Derivative
assets liabilities assets liabilities
\u00a3m \u00a3m \u00a3m \u00a3m
At 1 January
553
(608)
893
(944)
Exchange and other adjustments
(8)
5
47
(37)
(Losses) gains recognised in the income statement within other income
(104)
111
72
204
Purchases (additions)
19
(15)
48
(46)
(Sales) redemptions
(38)
63
(21)
38
Transfers out of the level 3 portfolio
\u2013
\u2013
(486)
177
At 31 December
422
(444)
553
(608)
(Losses) gains recognised in the income statement, within other income, relating to the
change in fair value of those assets or liabilities held at 31 December
(72)
76
222
125
Valuation methodology for derivatives The Group\u2019s derivatives are valued using techniques including discounted cash flow and options pricing models, as appropriate. The types of derivatives classified as level 2 and the valuation techniques used include: \u2022 Interest rate swaps which are valued using discounted cash flow models; the most significant inputs into those models are interest rate yield curves which are developed from publicly quoted rates \u2022 Foreign exchange derivatives that do not contain options which are priced using rates available from publicly quoted sources \u2022 Credit derivatives are valued using standard models with observable inputs, including publicly available yield and credit default swap (CDS) curves \u2022 Less complex interest rate and foreign exchange option products which are valued using volatility surfaces developed from publicly available interest rate cap, interest rate swaption and other option volatilities; option volatility skew information is derived from a market standard consensus pricing service. Complex interest rate products where inputs to the valuation are significant and unobservable are classified as level 3. Certain inputs used to calculate CVA, FVA, and own credit adjustments, are not significant in determining the classification of the derivative and debt instruments. Consequently, these inputs do not form part of the level 3 sensitivities presented. Derivative valuation adjustments Derivative financial instruments which are carried in the balance sheet at fair value are adjusted where appropriate to reflect credit risk, market liquidity and other risks. (i) Uncollateralised derivative valuation adjustments The following table summarises the movement on this valuation adjustment account during 2022 and 2023:
2023 2022
\u00a3m \u00a3m
At 1 January
381
456
Income statement credit
(102)
(75)
Transfers
(3)
\u2013
At 31 December
276
381
Represented by: 2023 2022
\u00a3m \u00a3m
Credit Valuation Adjustment
191
294
Debit Valuation Adjustment
(34)
(55)
Funding Valuation Adjustment
119
142
276
381
Credit and Debit Valuation Adjustments (CVA and DVA) are applied to the Group\u2019s over-the-counter derivative exposures with counterparties that are not subject to strong interbank collateral arrangements. These exposures largely relate to the provision of risk management solutions for corporate customers within the Commercial Banking division. A CVA is taken where the Group has a positive future uncollateralised exposure (asset). A DVA is taken where the Group has a negative future uncollateralised exposure (liability). These adjustments reflect interest rates and expectations of counterparty creditworthiness and the Group\u2019s own credit spread respectively. The CVA is sensitive to: \u2022 The current size of the mark-to-market position on the uncollateralised asset \u2022 Expectations of future market volatility of the underlying asset \u2022 Expectations of counterparty creditworthiness Market Credit Default Swap (CDS) spreads are used to develop the probability of default for quoted counterparties. For unquoted counterparties, internal credit ratings and market sector CDS curves and recovery rates are used. The loss given default (LGD) is based on market recovery rates and internal credit assessments. The combination of a one-notch deterioration in the credit rating of derivative counterparties and a 10 per cent increase in LGD increases the CVA by \u00a350 million. Current market value is used to estimate the projected exposure for products not supported by the model, which are principally complex interest rate options that are traded in very low volumes. For these, the CVA is calculated on an add-on basis (although no such adjustment was required at 31 December 2023). The DVA is sensitive to: \u2022 The current size of the mark-to-market position on the uncollateralised liability \u2022 Expectations of future market volatility of the underlying liability \u2022 The Group\u2019s own CDS spread A 1 per cent rise in the CDS spread would lead to an increase in the DVA of \u00a375 million. The risk exposures that are used for the CVA and DVA calculations are strongly influenced by interest rates. Due to the nature of the Group\u2019s business the CVA/DVA exposures tend to be on average the same way around such that the valuation adjustments fall when interest rates rise. A 1 per cent rise in interest rates would lead to a \u00a339 million fall in the overall valuation adjustment to \u00a3118 million. The CVA model used by the Group does not assume any correlation between the level of interest rates and default rates. The Group has also recognised a Funding Valuation Adjustment to adjust for the net cost of funding uncollateralised derivative positions. This adjustment is calculated on the expected future exposure discounted at a suitable cost of funds. A 10 basis points increase in the cost of funds will increase the funding valuation adjustment by \u00a312 million. (ii) Market liquidity The Group includes mid to bid-offer valuation adjustments against the expected cost of closing out the net market risk in the Group\u2019s trading positions within a time frame that is consistent with historical trading activity and spreads that the trading desks have accessed historically during the ordinary course of business in normal market conditions. At 31 December 2023, the Group\u2019s derivative trading business held mid to bid-offer valuation adjustments of \u00a352 million (2022: \u00a361 million).
(D) Sensitivity of level 3 valuations
Critical accounting judgements and key sources of estimation uncertainty
Key sources of estimation uncertainty:
Interest rate spreads, credit spreads, earnings multiples and interest rate volatility
The Group\u2019s valuation control framework and a description of level 1, 2 and 3 financial assets and liabilities is set out in section (1) above.
The valuation techniques for level 3 financial instruments involve management judgement and estimates, the extent of which depends
on the complexity of the instrument and the availability of market observable information. In addition, in line with market practice, the
Group applies credit, debit and funding valuation adjustments in determining the fair value of its uncollateralised derivative positions. A
description of these adjustments is set out in section (C)(i) above. A quantitative analysis of the sensitivities to market risk arising from
the Group\u2019s trading portfolios is set out in the tables marked audited on page 190.
2023
2022
Effect of reasonably possible Effect of reasonably possible
alternative assumptions
1
alternative assumptions
Carrying Favourable Unfavourable Carrying Favourable Unfavourable
Significant value changes changes value changes changes
Valuation techniques unobservable inputs \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Financial assets at fair value through profit or loss
Loans and Discounted cash Interest rate
advances to flows spreads
customers (-50bps/+272bps)
7,890
369
(351)
7,883
356
(385)
Debt securities
Discounted cash
Credit spreads
flows
(+/- 6%)
5
445
39
(41)
162
9
(9)
Equity and
Market approach
Earnings multiple
venture capital (1.6/17.8)
investments
2,228
131
(131)
1,907
84
(84)
Underlying asset/ n/a
net asset value
(incl. property
prices)
809
77
(99)
771
81
(88)
Unlisted equities, Underlying asset/ n/a
debt securities net asset value
and property (incl. property
partnerships in prices), broker
the life funds quotes or
discounted cash
flows
3
309
7
(6)
581
2
(33)
11,681
11,304
Financial assets at fair value through other comprehensive income
Asset-backed Lead manager or n/a
securities broker quote/
consensus pricing
52
2
(2)
59
\u2013
\u2013
Equity and Underlying asset/ n/a
venture capital net asset value
investments (incl. property
prices)
232
22
(22)
283
15
(15)
284
342
Derivative financial assets
Interest rate Option pricing Interest rate
derivatives
model
volatility (13%/200%)
7
422
6
(3)
553
9
(7)
Level 3 financial assets carried at fair value
12,387
12,199
Financial liabilities at fair value through profit or loss
Securitisation Discounted cash Interest rate
notes and other flows spreads
(+/\u2013 50bps)
42
1
(1)
45
1
(1)
Derivative financial liabilities
Interest rate Option pricing Interest rate
derivatives
model
volatility (13%/200%)
7
444
10
(7)
608
\u2013
\u2013
Level 3 financial liabilities carried at fair value
486
653
1
2
4
6
3
3
8
1 Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.
2 Ranges are shown where appropriate and represent the highest and lowest inputs used in the level 3 valuations.
3 Underlying asset/net asset values represent fair value.
4 2022: -50bps/+289bps.
5 2022: +/- 6%.
6 2022: 1.9/15.2.
7 2022: 17%/105%.
8 2022: +/- 50bps.
Unobservable inputs Significant unobservable inputs affecting the valuation of debt securities, unlisted equity investments and derivatives are as follows: \u2022 Credit spreads represent the premium above the benchmark reference instrument required to compensate for lower credit quality; higher spreads lead to a lower fair value \u2022 Volatility parameters represent key attributes of option behaviour; higher volatilities typically denote a wider range of possible outcomes \u2022 Earnings multiples are used to value certain unlisted equity investments. The earnings multiples used are derived from those of listed entities operating in the same sector with adjustments made for factors such as the size of the company and the quality of its earnings. The majority of the Group\u2019s venture capital investments are valued using an estimate of the company\u2019s maintainable earnings before interest, tax, depreciation and amortisation and in accordance with the International Private Equity and Venture Capital Valuation Guidelines. A higher earnings multiple will result in a higher fair value Reasonably possible alternative assumptions Valuation techniques applied to many of the Group\u2019s level 3 instruments often involve the use of two or more inputs whose relationship is interdependent. The calculation of the effect of reasonably possible alternative assumptions included in the table above reflects such relationships. Debt securities Reasonably possible alternative assumptions have been determined in respect of the Group\u2019s structured credit investments by flexing credit spreads. Derivatives Reasonably possible alternative assumptions have been determined in respect of swaptions in the Group\u2019s derivative portfolios which are priced using industry standard option pricing models. Such models require interest rate volatilities which may be unobservable at longer maturities. To derive reasonably possible alternative valuations these volatility parameters have been flexed within a range of 13 per cent to 200 per cent (2022: 17 per cent to 105 per cent). Unlisted equity, venture capital investments and investments in property partnerships The valuation techniques used for unlisted equity and venture capital investments vary depending on the nature of the investment. Reasonably possible alternative valuations for these investments have been calculated by reference to the approach taken, as appropriate to the business sector and investment circumstances and as such the following inputs have been considered: \u2022 For valuations derived from earnings multiples, consideration is given to the risk attributes, growth prospects and financial gearing of comparable businesses when selecting an appropriate multiple \u2022 The discount rates used in discounted cash flow valuations \u2022 In line with International Private Equity and Venture Capital Guidelines, the values of underlying investments in fund investment portfolios (3) Financial assets and liabilities carried at amortised cost (A) Financial assets Valuation hierarchy The table below analyses the fair values of those financial assets of the Group which are carried at amortised cost by valuation methodology (level 1, 2 or 3, as described on page 257). Financial assets carried at amortised cost are mainly classified as level 3 due to significant unobservable inputs used in the valuation models. Where inputs are observable, debt securities are classified as level 1 or 2.
Carrying Fair Valuation hierarchy
value value Level 1 Level 2 Level 3
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Loans and advances to banks
10,764
10,764
\u2013
\u2013
10,764
Loans and advances to customers
449,745
439,449
\u2013
\u2013
439,449
Reverse repurchase agreements
38,771
38,771
\u2013
38,771
\u2013
Debt securities
15,355
15,139
\u2013
10,939
4,200
Financial assets at amortised cost
514,635
504,123
\u2013
49,710
454,413
At 31 December 2022
Loans and advances to banks
10,632
10,632
\u2013
\u2013
10,632
Loans and advances to customers
454,899
450,071
\u2013
\u2013
450,071
Reverse repurchase agreements
44,865
44,865
\u2013
44,865
\u2013
Debt securities
9,926
9,930
167
9,647
116
Financial assets at amortised cost
520,322
515,498
167
54,512
460,819
Valuation methodology Loans and advances to banks The carrying value of short-dated loans and advances to banks is assumed to be their fair value. The fair value of other loans and advances to banks is estimated by discounting the anticipated cash flows at a market discount rate adjusted for the credit spread of the obligor or, where not observable, the credit spread of borrowers of similar credit quality. Loans and advances to customers The Group provides loans and advances to commercial, corporate and personal customers at both fixed and variable rates. To determine the fair value of loans and advances to customers, loans are segregated into portfolios of similar characteristics. A number of techniques are used to estimate the fair value of fixed rate lending; these take account of expected credit losses based on historic trends, prevailing market interest rates and expected future cash flows. For retail exposures, fair value is usually estimated by discounting anticipated cash flows (including interest at contractual rates) at market rates for similar loans offered by the Group and other financial institutions. Certain loans secured on residential properties are made at a fixed rate for a limited period, typically two to five years, after which the loans revert to the relevant variable rate. The fair value of such loans is estimated by reference to market rates for similar loans of maturity equal to the remaining fixed interest rate period. The fair value of commercial loans is estimated by discounting anticipated cash flows at a rate which reflects the effects of interest rate changes, adjusted for changes in credit risk. Reverse repurchase agreements The carrying amount is deemed a reasonable approximation of fair value given the short-term nature of these instruments. Debt securities The fair values of debt securities are determined predominantly from lead manager quotes and, where these are not available, by alternative techniques including reference to credit spreads on similar assets with the same obligor, market standard consensus pricing services, broker quotes and other research data. (B) Financial liabilities Valuation hierarchy The table below analyses the fair values of those financial liabilities of the Group which are carried at amortised cost by valuation methodology (level 1, 2 or 3, as described on page 257).
Carrying Fair Valuation hierarchy
value value Level 1 Level 2 Level 3
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Deposits from banks
6,153
6,153
\u2013
6,153
\u2013
Customer deposits
471,396
471,857
\u2013
471,857
\u2013
Repurchase agreements at amortised cost
37,703
37,703
\u2013
37,703
\u2013
Debt securities in issue at amortised cost
75,592
75,021
\u2013
75,021
\u2013
Subordinated liabilities
10,253
10,345
\u2013
10,345
\u2013
At 31 December 2022
Deposits from banks
7,266
7,268
\u2013
7,268
\u2013
Customer deposits
475,331
475,147
\u2013
475,147
\u2013
Repurchase agreements at amortised cost
48,596
48,596
\u2013
48,596
\u2013
Debt securities in issue at amortised cost
73,819
71,975
\u2013
71,975
\u2013
Subordinated liabilities
10,730
10,065
\u2013
10,065
\u2013
Valuation methodology Deposits from banks and customer deposits The fair value of bank and customer deposits repayable on demand is assumed to be equal to their carrying value. The fair value for all other deposits is estimated using discounted cash flows applying either market rates, where applicable, or current rates for deposits of similar remaining maturities. Repurchase agreements at amortised cost The carrying amount is deemed a reasonable approximation of fair value given the short-term nature of these instruments. Debt securities in issue at amortised cost The fair value of short-term debt securities in issue is approximately equal to their carrying value. Fair value for other debt securities in issue is calculated based on quoted market prices where available. Where quoted market prices are not available, fair value is estimated using discounted cash flow techniques at a rate which reflects market rates of interest and the Group\u2019s own credit spread. Subordinated liabilities The fair value of subordinated liabilities is determined by reference to quoted market prices where available or by reference to quoted market prices of similar instruments. Subordinated liabilities are classified as level 2, since the inputs used to determine their fair value are largely observable. (4) Reclassifications of financial assets There have been no reclassifications of financial assets in 2022 or 2023. Note 22: Derivative financial instruments The fair values and notional amounts of derivative instruments are set out in the following table:
2023
2022
Contract/ Fair value Contract/ Fair value
notional notional
amount Assets Liabilities amount Assets Liabilities
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Trading and other
Exchange rate contracts
572,858
6,631
6,222
464,223
8,733
9,216
Interest rate contracts
7,654,512
15,116
12,724
6,257,548
14,966
13,332
Credit derivatives
5,349
51
118
6,689
134
118
Equity, commodity and other contracts
9,463
455
580
16,490
845
849
Total derivative assets/liabilities \u2013 trading and other
Hedging
8,242,182
22,253
19,644
6,744,950
24,678
23,515
Derivatives designated as fair value hedges
153,674
83
425
152,697
11
503
Derivatives designated as cash flow hedges
466,344
20
80
251,245
64
24
Total derivative assets/liabilities \u2013 hedging
620,018
103
505
403,942
75
527
Total recognised derivative assets/liabilities
8,862,200
22,356
20,149
7,148,892
24,753
24,042
The notional amount of the contract does not represent the Group\u2019s exposure to credit risk, which is limited to the current cost of replacing contracts with a positive value to the Group should the counterparty default. To reduce credit risk the Group uses a variety of credit enhancement techniques such as netting and collateralisation, where security is provided against the exposure; a large proportion of the Group\u2019s derivatives are held through exchanges such as London Clearing House and are collateralised through those exchanges. Further details are provided in note 52 Credit risk. The Group holds derivatives as part of the following strategies: \u2022 Customer driven, where derivatives are held as part of the provision of risk management products to Group customers \u2022 To manage and hedge the Group\u2019s interest rate and foreign exchange risk arising from normal banking business. The hedge accounting strategy adopted by the Group is to utilise a combination of fair value and cash flow hedge approaches as described in note 52 \u2022 Derivatives held in policyholder funds as permitted by the investment strategies of those funds The principal derivatives used by the Group are as follows: \u2022 Interest rate related contracts include interest rate swaps, forward rate agreements and options. An interest rate swap is an agreement between two parties to exchange fixed and floating interest payments, based upon interest rates defined in the contract, without the exchange of the underlying principal amounts. Forward rate agreements are contracts for the payment of the difference between a specified rate of interest and a reference rate, applied to a notional principal amount at a specific date in the future. An interest rate option gives the buyer, on payment of a premium, the right, but not the obligation, to fix the rate of interest on a future loan or deposit, for a specified period and commencing on a specified future date \u2022 Exchange rate related contracts include forward foreign exchange contracts, currency swaps and options. A forward foreign exchange contract is an agreement to buy or sell a specified amount of foreign currency on a specified future date at an agreed rate. Currency swaps generally involve the exchange of interest payment obligations denominated in different currencies; the exchange of principal can be notional or actual. A currency option gives the buyer, on payment of a premium, the right, but not the obligation, to sell specified amounts of currency at agreed rates of exchange on or before a specified future date \u2022 Credit derivatives, principally credit default swaps, are used by the Group as part of its trading activity and to manage its own exposure to credit risk. A credit default swap is a swap in which one counterparty receives a premium at pre-set intervals in consideration for guaranteeing to make a specific payment should a negative credit event take place \u2022 Equity derivatives are also used by the Group as part of its equity-based retail product activity to eliminate the Group\u2019s exposure to fluctuations in various international stock exchange indices. Index-linked equity options are purchased which give the Group the right, but not the obligation, to buy or sell a specified amount of equities, or basket of equities, in the form of published indices on or before a specified future date
Details of the Group\u2019s hedging instruments are set out below:
Maturity
Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years Total
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Fair value hedges
Interest rate
Cross currency swap
Notional
\u2013
\u2013
\u2013
\u2013
35
35
Average fixed interest rate
\u2013
\u2013
\u2013
\u2013
1.28%
Average EUR/GBP exchange rate
\u2013
\u2013
\u2013
\u2013
1.38
Interest rate swap
Notional
1,908
5,778
19,353
87,119
39,481
153,639
Average fixed interest rate
0.95%
1.72%
2.03%
2.90%
2.00%
Cash flow hedges
Foreign exchange
Currency swap
Notional
18
470
1,648
541
7
2,684
Average EUR/GBP exchange rate
1.15
1.14
1.14
1.08
1.07
Average USD/GBP exchange rate
1.25
1.23
1.25
1.24
\u2013
Interest rate
Interest rate swap
Notional
9,501
23,015
76,439
284,969
69,736
463,660
Average fixed interest rate
4.13%
4.14%
3.82%
3.35%
2.58%
Maturity
Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years Total
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Fair value hedges
Interest rate
Cross currency swap
Notional
\u2013
\u2013
\u2013
\u2013
35
35
Average fixed interest rate
\u2013
\u2013
\u2013
\u2013
1.28%
Average EUR/GBP exchange rate
\u2013
\u2013
\u2013
\u2013
1.38
Interest rate swap
Notional
1,904
12,765
37,488
64,307
36,198
152,662
Average fixed interest rate
1.51%
0.17%
0.72%
1.92%
1.94%
Cash flow hedges
Foreign exchange
Currency swap
Notional
\u2013
\u2013
509
1,004
29
1,542
Average EUR/GBP exchange rate
\u2013
\u2013
1.15
1.10
1.04
Average USD/GBP exchange rate
\u2013
\u2013
1.24
1.25
\u2013
Interest rate
Interest rate swap
Notional
4,741
6,472
26,175
161,391
50,924
249,703
Average fixed interest rate
3.01%
1.18%
2.36%
2.40%
1.60%
The carrying amounts of the Group\u2019s hedging instruments are as follows:
Carrying amount of the hedging instrument
Changes in fair
value used for
Contract/ calculating
notional hedge
amount Assets Liabilities ineffectiveness
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m
Fair value hedges
Interest rate
Currency swaps
35
3
\u2013
2
Interest rate swaps
153,639
80
425
(2,665)
Cash flow hedges
Foreign exchange
Currency swaps
2,684
11
72
(138)
Interest rate
Interest rate swaps
463,660
9
8
2,541
Carrying amount of the hedging instrument
Changes in fair
value used for
Contract/ calculating
notional hedge
amount Assets Liabilities ineffectiveness
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m
Fair value hedges
Interest rate
Currency swaps
35
1
\u2013
(2)
Interest rate swaps
152,662
10
503
1,286
Cash flow hedges
Foreign exchange
Currency swaps
1,542
63
21
198
Interest rate
Interest rate swaps
249,703
1
3
(6,990)
All amounts are held within derivative financial instruments.
The Group\u2019s hedged items are as follows:
Accumulated amount of Change in fair
Carrying amount of fair value adjustment on value of hedged Cash flow hedging reserve
the hedged item the hedged item item for
ineffectiveness Continuing Discontinued
Liabilities Assets Liabilities Assets assessment hedges hedges
At 31 December 2023
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
Fair value hedges
Interest rate
Fixed rate mortgages
\u2013
75,871
\u2013
25
2,544
Fixed rate issuance
50,466
\u2013
1,365
\u2013
(1,110)
Fixed rate bonds
\u2013
24,146
\u2013
(331)
962
Cash flow hedges
Foreign exchange
Foreign currency issuance
138
8
69
Customer deposits
\u2013
\u2013
3
Interest rate
Customer loans
(1,796)
(2,934)
(1,885)
Central bank balances
(648)
(624)
(1,462)
Customer deposits
262
1,591
(3)
1
2
3
2
4
1
5
4
Accumulated amount of Change in fair
Carrying amount of fair value adjustment on value of hedged Cash flow hedging reserve
the hedged item the hedged item item for
ineffectiveness Continuing Discontinued
Liabilities Assets Liabilities Assets assessment hedges hedges
At 31 December 2022
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
Fair value hedges
Interest rate
Fixed rate mortgages
\u2013
73,282
\u2013
(2,602)
(3,198)
Fixed rate issuance
52,190
\u2013
2,392
\u2013
4,223
Fixed rate bonds
\u2013
19,259
\u2013
(1,549)
(2,350)
Cash flow hedges
Foreign exchange
Foreign currency issuance
(198)
134
90
Customer deposits
\u2013
\u2013
3
Interest rate
Customer loans
5,636
(5,587)
(868)
Central bank balances
2,703
(2,130)
(965)
Customer deposits
(1,295)
1,781
(76)
1
2
3
2
4
1
5
4
1 Included within loans and advances to customers.
2 Included within debt securities in issue at amortised cost.
3 Included within financial assets at amortised cost and financial assets at fair value through other comprehensive income.
4 Included within customer deposits.
5 Included within cash and balances at central banks.
The accumulated amount of fair value hedge adjustments remaining on the balance sheet for hedged items that have ceased to be
adjusted for hedging gains and losses is a liability of \u00a31,446 million relating to fixed rate issuances of \u00a3656 million and mortgages of
\u00a3790 million (2022: liability of \u00a31,988 million relating to fixed rate issuances of \u00a3760 million and mortgages of \u00a31,228 million).
Gains and losses arising from hedge accounting are summarised as follows:
1
Amounts reclassified from reserves
to income statement as:
Gain (loss) Hedge Hedged Hedged Income
recognised ineffectiveness cash flows item statement
in other recognised in will no affected line item
comprehensive the income longer income that includes
income statement occur statement reclassified
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m amount
Fair value hedges
Interest rate
Fixed rate mortgages
(264)
Fixed rate issuance
(17)
Fixed rate bonds
14
Cash flow hedges
Foreign exchange
Foreign currency issuance
(138)
\u2013
\u2013
(9)
Interest expense
Customer deposits
\u2013
\u2013
\u2013
\u2013
Interest expense
Interest rate
Customer loans
(37)
20
\u2013
1,674
Interest income
Central bank balances
284
2
\u2013
725
Interest income
Customer deposits
436
(3)
\u2013
(552)
Interest expense
1
Amounts reclassified from reserves
to income statement as:
Gain (loss) Hedge Hedged Hedged Income
recognised ineffectiveness cash flows item statement
in other recognised in will no affected line item
comprehensive the income longer income that includes
income statement occur statement reclassified
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m amount
Fair value hedges
Interest rate
Fixed rate mortgages
22
Fixed rate issuance
(49)
Fixed rate bonds
(14)
Cash flow hedges
Foreign exchange
Foreign currency issuance
198
\u2013
\u2013
(22)
Interest expense
Customer deposits
3
\u2013
\u2013
\u2013
Interest expense
Interest rate
Customer loans
(6,145)
(30)
\u2013
53
Interest income
Central bank balances
(2,831)
\u2013
\u2013
26
Interest income
Customer deposits
1,785
20
\u2013
(14)
Interest expense
1 Hedge ineffectiveness is included in the income statement within net trading income.
There was no gain or loss in either 2023 or 2022 reclassified from the cash flow hedging reserve for which hedge accounting had
previously been used but for which the hedged future cash flows are no longer expected to occur.
Note 51: Offsetting of financial assets and liabilities
The following information relates to financial assets and liabilities which have been offset in the balance sheet and those which have
not been offset but for which the Group has enforceable master netting agreements or collateral arrangements in place with
counterparties.
Related amounts where
set off in the balance
sheet not permitted Potential
net amounts
Gross Amount Net amounts Cash Non-cash if offset
amounts of offset in presented in collateral collateral of related
assets and the balance the balance received/ received/ amounts
liabilities sheet sheet pledged pledged permitted
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Financial assets
Financial assets at fair value through profit or loss:
Excluding reverse repurchase agreements
185,905
\u2013
185,905
(946)
(2,448)
182,511
Reverse repurchase agreements
29,778
(12,365)
17,413
(75)
(17,226)
112
215,683
(12,365)
203,318
(1,021)
(19,674)
182,623
Derivative financial instruments
61,820
(39,464)
22,356
(3,361)
(12,731)
6,264
Financial assets at amortised cost:
Loans and advances to banks
10,764
\u2013
10,764
(2,730)
\u2013
8,034
Loans and advances to customers
453,045
(3,300)
449,745
(653)
(2,214)
446,878
Reverse repurchase agreements
46,157
(7,386)
38,771
71
(38,581)
261
Debt securities
15,355
\u2013
15,355
\u2013
\u2013
15,355
525,321
(10,686)
514,635
(3,312)
(40,795)
470,528
Financial assets at fair value through other comprehensive
income
27,592
\u2013
27,592
\u2013
(4,979)
22,613
Financial liabilities
Deposits from banks
6,153
\u2013
6,153
(2,194)
\u2013
3,959
Customer deposits
472,036
(640)
471,396
(1,516)
(2,214)
467,666
Repurchase agreements at amortised cost
45,089
(7,386)
37,703
60
(37,715)
48
Financial liabilities at fair value through profit or loss:
Excluding repurchase agreements
6,857
\u2013
6,857
\u2013
\u2013
6,857
Repurchase agreements
30,422
(12,365)
18,057
102
(18,043)
116
37,279
(12,365)
24,914
102
(18,043)
6,973
Derivative financial instruments
62,273
(42,124)
20,149
(4,146)
(12,767)
3,236
1
2
3
1 The Group enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard master
netting agreements. The Group holds and provides cash and securities collateral in respect of derivative transactions covered by these agreements. The right to set off
balances under these master netting agreements or to set off cash and securities collateral only arises in the event of non-payment or default and, as a result, these
arrangements do not qualify for offsetting under IAS 32.
2 Net of impairment allowances.
3 The amounts offset in the balance sheet as shown above mainly represent derivatives and repurchase agreements with central clearing houses which meet the criteria
for offsetting under IAS 32.
The effects of over-collateralisation have not been taken into account in the above table .
Related amounts where
set off in the balance
sheet not permitted Potential
net amounts
Gross Amount Net amounts Cash Non-cash if offset
amounts of offset in presented in collateral collateral of related
assets and the balance the balance received/ received/ amounts
liabilities sheet sheet pledged pledged permitted
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Financial assets
Financial assets at fair value through profit or loss:
Excluding reverse repurchase agreements
168,988
\u2013
168,988
\u2013
(1,127)
167,861
Reverse repurchase agreements
32,064
(20,283)
11,781
(87)
(11,694)
\u2013
201,052
(20,283)
180,769
(87)
(12,821)
167,861
Derivative financial instruments
76,437
(51,684)
24,753
(3,951)
(15,839)
4,963
Financial assets at amortised cost:
Loans and advances to banks
10,632
\u2013
10,632
(2,823)
\u2013
7,809
Loans and advances to customers
458,229
(3,330)
454,899
(907)
(2,171)
451,821
Reverse repurchase agreements
55,675
(10,810)
44,865
\u2013
(44,865)
\u2013
Debt securities
9,926
\u2013
9,926
\u2013
\u2013
9,926
534,462
(14,140)
520,322
(3,730)
(47,036)
469,556
Financial assets at fair value through other comprehensive
income
23,154
\u2013
23,154
\u2013
(6,202)
16,952
Financial liabilities
Deposits from banks
7,266
\u2013
7,266
(2,169)
\u2013
5,097
Customer deposits
476,255
(924)
475,331
(1,869)
(2,171)
471,291
Repurchase agreements at amortised cost
59,406
(10,810)
48,596
\u2013
(48,596)
\u2013
Financial liabilities at fair value through profit or loss:
Excluding repurchase agreements
6,718
\u2013
6,718
\u2013
\u2013
6,718
Repurchase agreements
31,320
(20,283)
11,037
\u2013
(11,037)
\u2013
38,038
(20,283)
17,755
\u2013
(11,037)
6,718
Derivative financial instruments
78,132
(54,090)
24,042
(3,731)
(14,490)
5,821
1
2
3
4
1 The Group enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard master
netting agreements. The Group holds and provides cash and securities collateral in respect of derivative transactions covered by these agreements. The right to set off
balances under these master netting agreements or to set off cash and securities collateral only arises in the event of non-payment or default and, as a result, these
arrangements do not qualify for offsetting under IAS 32.
2 Net of impairment allowances.
3 The amounts offset in the balance sheet as shown above mainly represent derivatives and repurchase agreements with central clearing houses which meet the criteria
for offsetting under IAS 32.
4 Restated for the adoption of IFRS 17; see notes 1 and 54.
The effects of over-collateralisation have not been taken into account in the above table .
", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1033": { "value": "Note 20: Measurement basis of financial assets and liabilities The accounting policies in note 2 describe how different classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the financial assets and liabilities by category and by balance sheet heading.
Mandatorily held at
fair value through
Derivatives profit or loss Designated
At fair value
designated
at fair value
through other
Held at Insurance-
as hedging Held for
through
comprehensive amortised related
instruments trading Other
profit or loss
income cost contracts Total
At 31 December 2023
\u00a3m \u00a3m \u00a3m
\u00a3m
\u00a3m \u00a3m
\u00a3m
\u00a3m
Financial assets
Cash and balances at central banks
\u2013
\u2013
\u2013
\u2013
\u2013
78,110
\u2013
78,110
Financial assets at fair value through
profit or loss
\u2013
21,638
181,680
\u2013
\u2013
\u2013
\u2013
203,318
Derivative financial instruments
103
22,253
\u2013
\u2013
\u2013
\u2013
\u2013
22,356
Loans and advances to banks
\u2013
\u2013
\u2013
\u2013
\u2013
10,764
\u2013
10,764
Loans and advances to customers
\u2013
\u2013
\u2013
\u2013
\u2013
449,745
\u2013
449,745
Reverse repurchase agreements
\u2013
\u2013
\u2013
\u2013
\u2013
38,771
\u2013
38,771
Debt securities
\u2013
\u2013
\u2013
\u2013
\u2013
15,355
\u2013
15,355
Financial assets at amortised cost
\u2013
\u2013
\u2013
\u2013
\u2013
514,635
\u2013
514,635
Financial assets at fair value through
other comprehensive income
\u2013
\u2013
\u2013
\u2013
27,592
\u2013
\u2013
27,592
Other
\u2013
\u2013
\u2013
\u2013
\u2013
299
443
742
Total financial assets
103
43,891
181,680
\u2013
27,592
593,044
443
846,753
Financial liabilities
Deposits from banks
\u2013
\u2013
\u2013
\u2013
\u2013
6,153
\u2013
6,153
Customer deposits
\u2013
\u2013
\u2013
\u2013
\u2013
471,396
\u2013
471,396
Repurchase agreements at amortised
cost
\u2013
\u2013
\u2013
\u2013
\u2013
37,703
\u2013
37,703
Financial liabilities at fair value through
profit or loss
\u2013
19,631
\u2013
5,283
\u2013
\u2013
\u2013
24,914
Derivative financial instruments
505
19,644
\u2013
\u2013
\u2013
\u2013
\u2013
20,149
Notes in circulation
\u2013
\u2013
\u2013
\u2013
\u2013
1,392
\u2013
1,392
Debt securities in issue at amortised cost
\u2013
\u2013
\u2013
\u2013
\u2013
75,592
\u2013
75,592
Liabilities arising from insurance and
participating investment contracts
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
120,123
120,123
Liabilities arising from non-participating
investment contracts
\u2013
\u2013
\u2013
44,978
\u2013
\u2013
\u2013
44,978
Other
\u2013
\u2013
\u2013
\u2013
\u2013
1,960
8
1,968
Subordinated liabilities
\u2013
\u2013
\u2013
\u2013
\u2013
10,253
\u2013
10,253
Total financial liabilities
505
39,275
\u2013
50,261
\u2013
604,449
120,131
814,621
Mandatorily held at fair value through Derivatives profit or loss Designated At fair value designated at fair value through other Held at Insurance- as hedging Held for throughcomprehensive amortised related instruments trading Other profit or loss income cost contracts Total At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m Financial assets Cash and balances at central banks \u2013 \u2013 \u2013 \u2013 \u2013 91,388 \u2013 91,388 Financial assets at fair value through profit or loss \u2013 14,216 166,553 \u2013 \u2013 \u2013 \u2013 180,769 Derivative financial instruments 75 24,678 \u2013 \u2013 \u2013 \u2013 \u2013 24,753 Loans and advances to banks \u2013 \u2013 \u2013 \u2013 \u2013 10,632 \u2013 10,632 Loans and advances to customers \u2013 \u2013 \u2013 \u2013 \u2013 454,899 \u2013 454,899 Reverse repurchase agreements \u2013 \u2013 \u2013 \u2013 \u2013 44,865 \u2013 44,865 Debt securities \u2013 \u2013 \u2013 \u2013 \u2013 9,926 \u2013 9,926 Financial assets at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 520,322 \u2013 520,322 Financial assets at fair value through other comprehensive income \u2013 \u2013 \u2013 \u2013 23,154 \u2013 \u2013 23,154 Other \u2013 \u2013 \u2013 \u2013 \u2013 242 372 614 Total financial assets 75 38,894 166,553 \u2013 23,154 611,952 372 841,000 Financial liabilities Deposits from banks \u2013 \u2013 \u2013 \u2013 \u2013 7,266 \u2013 7,266 Customer deposits \u2013 \u2013 \u2013 \u2013 \u2013 475,331 \u2013 475,331 Repurchase agreements at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 48,596 \u2013 48,596 Financial liabilities at fair value through profit or loss \u2013 12,577 \u2013 5,178 \u2013 \u2013 \u2013 17,755 Derivative financial instruments 527 23,515 \u2013 \u2013 \u2013 \u2013 \u2013 24,042 Notes in circulation \u2013 \u2013 \u2013 \u2013 \u2013 1,280 \u2013 1,280 Debt securities in issue at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 73,819 \u2013 73,819 Liabilities arising from insurance and participating investment contracts \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 110,278 110,278 Liabilities arising from non-participating investment contracts \u2013 \u2013 \u2013 39,476 \u2013 \u2013 \u2013 39,476 Other \u2013 \u2013 \u2013 \u2013 \u2013 1,689 19 1,708 Subordinated liabilities \u2013 \u2013 \u2013 \u2013 \u2013 10,730 \u2013 10,730 Total financial liabilities 527 36,092 \u2013 44,654 \u2013 618,711 110,297 810,281 1 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. (1) Fair value measurement Fair value is the price that would be received on sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is a measure as at a specific date and may be significantly different from the amount which will actually be paid or received on maturity or settlement date. Wherever possible, fair values have been calculated using unadjusted quoted market prices in active markets for identical instruments to those held by the Group. Where quoted market prices are not available, or are unreliable because of poor liquidity, fair values have been determined using valuation techniques which, to the extent possible, use market observable inputs, but in some cases use non- market observable inputs. Valuation techniques used include discounted cash flow analysis and pricing models and, where appropriate, comparison to instruments with characteristics similar to those of the instruments held by the Group. The Group measures valuation adjustments for its derivative exposures on the same basis as the derivatives are managed. The carrying amount of the following financial instruments is a reasonable approximation of fair value: cash and balances at central banks, items in the course of collection from banks, items in course of transmission to banks and notes in circulation. Liabilities arising from non-participating investment contracts are carried at fair value. Because a variety of estimation techniques are employed and significant estimates made, comparisons of fair values between financial institutions may not be meaningful. Readers of these financial statements are thus advised to use caution when using this data to evaluate the Group\u2019s financial position. Fair value information is not provided for items that are not financial instruments or for other assets and liabilities which are not carried at fair value in the Group\u2019s consolidated balance sheet. These items include intangible assets, property, plant and equipment, and shareholders\u2019 equity. These items are material and accordingly the Group believes that any fair value information presented would not represent the underlying value of the Group. Valuation control framework The key elements of the control framework for the valuation of financial instruments include model validation, product implementation review and independent price verification. These functions are carried out by appropriately skilled risk and finance teams, independent of the business area responsible for the products. Model validation covers both qualitative and quantitative elements relating to new models. In respect of new products, a product implementation review is conducted pre and post-trading. Pre-trade testing ensures that the new model is integrated into the Group\u2019s systems and that the profit and loss and risk reporting are consistent throughout the trade lifecycle. Post-trade testing examines the explanatory power of the implemented model, actively monitoring model parameters and comparing in-house pricing to external sources. Independent price verification procedures cover financial instruments carried at fair value. The frequency of the review is matched to the availability of independent data, monthly being the minimum. Valuation differences in breach of established thresholds are escalated to senior management. The results from independent pricing and valuation reserves are reviewed monthly by senior management. Formal committees, consisting of senior risk, finance and business management, meet at least quarterly to discuss and approve valuations in more judgemental areas, in particular for unquoted equities, structured credit, derivatives and the credit valuation adjustment (CVA), funding valuation adjustment (FVA) and other valuation adjustments. Valuation of financial assets and liabilities Assets and liabilities carried at fair value or for which fair values are disclosed have been classified into three levels according to the quality and reliability of information used to determine the fair values. Level 1 Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities. Products classified as level 1 predominantly comprise listed equity shares, treasury bills and other government securities. Level 2 Level 2 valuations are those where quoted market prices are not available, for example where the instrument is traded in a market that is not considered to be active or valuation techniques are used to determine fair value and where these techniques use inputs that are based significantly on observable market data. Examples of such financial instruments include most over-the-counter derivatives, financial institution issued securities, certificates of deposit and certain asset-backed securities. Level 3 Level 3 portfolios are those where at least one input which could have a significant effect on the instrument\u2019s valuation is not based on observable market data. Such instruments would include the Group\u2019s venture capital and unlisted equity investments which are valued using various valuation techniques that require significant management judgement in determining appropriate assumptions, including earnings multiples and estimated future cash flows. Certain of the Group\u2019s asset-backed securities, loans and advances recognised at fair value and derivatives are also classified as level 3. Transfers out of the level 3 portfolio arise when inputs that could have a significant impact on the instrument\u2019s valuation become market observable after previously having been non-market observable. In the case of asset-backed securities this can arise if more than one consistent independent source of data becomes available. Conversely, transfers into the portfolio arise when consistent sources of data cease to be available. ", "dimensions": { "concept": "ifrs-full:DisclosureOfFairValueMeasurementExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1027": { "value": "Note 20: Measurement basis of financial assets and liabilities The accounting policies in note 2 describe how different classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the financial assets and liabilities by category and by balance sheet heading.
Mandatorily held at
fair value through
Derivatives profit or loss Designated
At fair value
designated
at fair value
through other
Held at Insurance-
as hedging Held for
through
comprehensive amortised related
instruments trading Other
profit or loss
income cost contracts Total
At 31 December 2023
\u00a3m \u00a3m \u00a3m
\u00a3m
\u00a3m \u00a3m
\u00a3m
\u00a3m
Financial assets
Cash and balances at central banks
\u2013
\u2013
\u2013
\u2013
\u2013
78,110
\u2013
78,110
Financial assets at fair value through
profit or loss
\u2013
21,638
181,680
\u2013
\u2013
\u2013
\u2013
203,318
Derivative financial instruments
103
22,253
\u2013
\u2013
\u2013
\u2013
\u2013
22,356
Loans and advances to banks
\u2013
\u2013
\u2013
\u2013
\u2013
10,764
\u2013
10,764
Loans and advances to customers
\u2013
\u2013
\u2013
\u2013
\u2013
449,745
\u2013
449,745
Reverse repurchase agreements
\u2013
\u2013
\u2013
\u2013
\u2013
38,771
\u2013
38,771
Debt securities
\u2013
\u2013
\u2013
\u2013
\u2013
15,355
\u2013
15,355
Financial assets at amortised cost
\u2013
\u2013
\u2013
\u2013
\u2013
514,635
\u2013
514,635
Financial assets at fair value through
other comprehensive income
\u2013
\u2013
\u2013
\u2013
27,592
\u2013
\u2013
27,592
Other
\u2013
\u2013
\u2013
\u2013
\u2013
299
443
742
Total financial assets
103
43,891
181,680
\u2013
27,592
593,044
443
846,753
Financial liabilities
Deposits from banks
\u2013
\u2013
\u2013
\u2013
\u2013
6,153
\u2013
6,153
Customer deposits
\u2013
\u2013
\u2013
\u2013
\u2013
471,396
\u2013
471,396
Repurchase agreements at amortised
cost
\u2013
\u2013
\u2013
\u2013
\u2013
37,703
\u2013
37,703
Financial liabilities at fair value through
profit or loss
\u2013
19,631
\u2013
5,283
\u2013
\u2013
\u2013
24,914
Derivative financial instruments
505
19,644
\u2013
\u2013
\u2013
\u2013
\u2013
20,149
Notes in circulation
\u2013
\u2013
\u2013
\u2013
\u2013
1,392
\u2013
1,392
Debt securities in issue at amortised cost
\u2013
\u2013
\u2013
\u2013
\u2013
75,592
\u2013
75,592
Liabilities arising from insurance and
participating investment contracts
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
120,123
120,123
Liabilities arising from non-participating
investment contracts
\u2013
\u2013
\u2013
44,978
\u2013
\u2013
\u2013
44,978
Other
\u2013
\u2013
\u2013
\u2013
\u2013
1,960
8
1,968
Subordinated liabilities
\u2013
\u2013
\u2013
\u2013
\u2013
10,253
\u2013
10,253
Total financial liabilities
505
39,275
\u2013
50,261
\u2013
604,449
120,131
814,621
Mandatorily held at fair value through Derivatives profit or loss Designated At fair value designated at fair value through other Held at Insurance- as hedging Held for throughcomprehensive amortised related instruments trading Other profit or loss income cost contracts Total At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m Financial assets Cash and balances at central banks \u2013 \u2013 \u2013 \u2013 \u2013 91,388 \u2013 91,388 Financial assets at fair value through profit or loss \u2013 14,216 166,553 \u2013 \u2013 \u2013 \u2013 180,769 Derivative financial instruments 75 24,678 \u2013 \u2013 \u2013 \u2013 \u2013 24,753 Loans and advances to banks \u2013 \u2013 \u2013 \u2013 \u2013 10,632 \u2013 10,632 Loans and advances to customers \u2013 \u2013 \u2013 \u2013 \u2013 454,899 \u2013 454,899 Reverse repurchase agreements \u2013 \u2013 \u2013 \u2013 \u2013 44,865 \u2013 44,865 Debt securities \u2013 \u2013 \u2013 \u2013 \u2013 9,926 \u2013 9,926 Financial assets at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 520,322 \u2013 520,322 Financial assets at fair value through other comprehensive income \u2013 \u2013 \u2013 \u2013 23,154 \u2013 \u2013 23,154 Other \u2013 \u2013 \u2013 \u2013 \u2013 242 372 614 Total financial assets 75 38,894 166,553 \u2013 23,154 611,952 372 841,000 Financial liabilities Deposits from banks \u2013 \u2013 \u2013 \u2013 \u2013 7,266 \u2013 7,266 Customer deposits \u2013 \u2013 \u2013 \u2013 \u2013 475,331 \u2013 475,331 Repurchase agreements at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 48,596 \u2013 48,596 Financial liabilities at fair value through profit or loss \u2013 12,577 \u2013 5,178 \u2013 \u2013 \u2013 17,755 Derivative financial instruments 527 23,515 \u2013 \u2013 \u2013 \u2013 \u2013 24,042 Notes in circulation \u2013 \u2013 \u2013 \u2013 \u2013 1,280 \u2013 1,280 Debt securities in issue at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 73,819 \u2013 73,819 Liabilities arising from insurance and participating investment contracts \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 110,278 110,278 Liabilities arising from non-participating investment contracts \u2013 \u2013 \u2013 39,476 \u2013 \u2013 \u2013 39,476 Other \u2013 \u2013 \u2013 \u2013 \u2013 1,689 19 1,708 Subordinated liabilities \u2013 \u2013 \u2013 \u2013 \u2013 10,730 \u2013 10,730 Total financial liabilities 527 36,092 \u2013 44,654 \u2013 618,711 110,297 810,281 1 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. ", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialInstrumentsDesignatedAtFairValueThroughProfitOrLossExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1003": { "value": "Note 20: Measurement basis of financial assets and liabilities The accounting policies in note 2 describe how different classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the financial assets and liabilities by category and by balance sheet heading.
Mandatorily held at
fair value through
Derivatives profit or loss Designated
At fair value
designated
at fair value
through other
Held at Insurance-
as hedging Held for
through
comprehensive amortised related
instruments trading Other
profit or loss
income cost contracts Total
At 31 December 2023
\u00a3m \u00a3m \u00a3m
\u00a3m
\u00a3m \u00a3m
\u00a3m
\u00a3m
Financial assets
Cash and balances at central banks
\u2013
\u2013
\u2013
\u2013
\u2013
78,110
\u2013
78,110
Financial assets at fair value through
profit or loss
\u2013
21,638
181,680
\u2013
\u2013
\u2013
\u2013
203,318
Derivative financial instruments
103
22,253
\u2013
\u2013
\u2013
\u2013
\u2013
22,356
Loans and advances to banks
\u2013
\u2013
\u2013
\u2013
\u2013
10,764
\u2013
10,764
Loans and advances to customers
\u2013
\u2013
\u2013
\u2013
\u2013
449,745
\u2013
449,745
Reverse repurchase agreements
\u2013
\u2013
\u2013
\u2013
\u2013
38,771
\u2013
38,771
Debt securities
\u2013
\u2013
\u2013
\u2013
\u2013
15,355
\u2013
15,355
Financial assets at amortised cost
\u2013
\u2013
\u2013
\u2013
\u2013
514,635
\u2013
514,635
Financial assets at fair value through
other comprehensive income
\u2013
\u2013
\u2013
\u2013
27,592
\u2013
\u2013
27,592
Other
\u2013
\u2013
\u2013
\u2013
\u2013
299
443
742
Total financial assets
103
43,891
181,680
\u2013
27,592
593,044
443
846,753
Financial liabilities
Deposits from banks
\u2013
\u2013
\u2013
\u2013
\u2013
6,153
\u2013
6,153
Customer deposits
\u2013
\u2013
\u2013
\u2013
\u2013
471,396
\u2013
471,396
Repurchase agreements at amortised
cost
\u2013
\u2013
\u2013
\u2013
\u2013
37,703
\u2013
37,703
Financial liabilities at fair value through
profit or loss
\u2013
19,631
\u2013
5,283
\u2013
\u2013
\u2013
24,914
Derivative financial instruments
505
19,644
\u2013
\u2013
\u2013
\u2013
\u2013
20,149
Notes in circulation
\u2013
\u2013
\u2013
\u2013
\u2013
1,392
\u2013
1,392
Debt securities in issue at amortised cost
\u2013
\u2013
\u2013
\u2013
\u2013
75,592
\u2013
75,592
Liabilities arising from insurance and
participating investment contracts
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
120,123
120,123
Liabilities arising from non-participating
investment contracts
\u2013
\u2013
\u2013
44,978
\u2013
\u2013
\u2013
44,978
Other
\u2013
\u2013
\u2013
\u2013
\u2013
1,960
8
1,968
Subordinated liabilities
\u2013
\u2013
\u2013
\u2013
\u2013
10,253
\u2013
10,253
Total financial liabilities
505
39,275
\u2013
50,261
\u2013
604,449
120,131
814,621
Mandatorily held at fair value through Derivatives profit or loss Designated At fair value designated at fair value through other Held at Insurance- as hedging Held for throughcomprehensive amortised related instruments trading Other profit or loss income cost contracts Total At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m Financial assets Cash and balances at central banks \u2013 \u2013 \u2013 \u2013 \u2013 91,388 \u2013 91,388 Financial assets at fair value through profit or loss \u2013 14,216 166,553 \u2013 \u2013 \u2013 \u2013 180,769 Derivative financial instruments 75 24,678 \u2013 \u2013 \u2013 \u2013 \u2013 24,753 Loans and advances to banks \u2013 \u2013 \u2013 \u2013 \u2013 10,632 \u2013 10,632 Loans and advances to customers \u2013 \u2013 \u2013 \u2013 \u2013 454,899 \u2013 454,899 Reverse repurchase agreements \u2013 \u2013 \u2013 \u2013 \u2013 44,865 \u2013 44,865 Debt securities \u2013 \u2013 \u2013 \u2013 \u2013 9,926 \u2013 9,926 Financial assets at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 520,322 \u2013 520,322 Financial assets at fair value through other comprehensive income \u2013 \u2013 \u2013 \u2013 23,154 \u2013 \u2013 23,154 Other \u2013 \u2013 \u2013 \u2013 \u2013 242 372 614 Total financial assets 75 38,894 166,553 \u2013 23,154 611,952 372 841,000 Financial liabilities Deposits from banks \u2013 \u2013 \u2013 \u2013 \u2013 7,266 \u2013 7,266 Customer deposits \u2013 \u2013 \u2013 \u2013 \u2013 475,331 \u2013 475,331 Repurchase agreements at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 48,596 \u2013 48,596 Financial liabilities at fair value through profit or loss \u2013 12,577 \u2013 5,178 \u2013 \u2013 \u2013 17,755 Derivative financial instruments 527 23,515 \u2013 \u2013 \u2013 \u2013 \u2013 24,042 Notes in circulation \u2013 \u2013 \u2013 \u2013 \u2013 1,280 \u2013 1,280 Debt securities in issue at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 73,819 \u2013 73,819 Liabilities arising from insurance and participating investment contracts \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 110,278 110,278 Liabilities arising from non-participating investment contracts \u2013 \u2013 \u2013 39,476 \u2013 \u2013 \u2013 39,476 Other \u2013 \u2013 \u2013 \u2013 \u2013 1,689 19 1,708 Subordinated liabilities \u2013 \u2013 \u2013 \u2013 \u2013 10,730 \u2013 10,730 Total financial liabilities 527 36,092 \u2013 44,654 \u2013 618,711 110,297 810,281 1 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. ", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialInstrumentsAtFairValueThroughProfitOrLossExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-973": { "value": "Note 20: Measurement basis of financial assets and liabilities The accounting policies in note 2 describe how different classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the financial assets and liabilities by category and by balance sheet heading.
Mandatorily held at
fair value through
Derivatives profit or loss Designated
At fair value
designated
at fair value
through other
Held at Insurance-
as hedging Held for
through
comprehensive amortised related
instruments trading Other
profit or loss
income cost contracts Total
At 31 December 2023
\u00a3m \u00a3m \u00a3m
\u00a3m
\u00a3m \u00a3m
\u00a3m
\u00a3m
Financial assets
Cash and balances at central banks
\u2013
\u2013
\u2013
\u2013
\u2013
78,110
\u2013
78,110
Financial assets at fair value through
profit or loss
\u2013
21,638
181,680
\u2013
\u2013
\u2013
\u2013
203,318
Derivative financial instruments
103
22,253
\u2013
\u2013
\u2013
\u2013
\u2013
22,356
Loans and advances to banks
\u2013
\u2013
\u2013
\u2013
\u2013
10,764
\u2013
10,764
Loans and advances to customers
\u2013
\u2013
\u2013
\u2013
\u2013
449,745
\u2013
449,745
Reverse repurchase agreements
\u2013
\u2013
\u2013
\u2013
\u2013
38,771
\u2013
38,771
Debt securities
\u2013
\u2013
\u2013
\u2013
\u2013
15,355
\u2013
15,355
Financial assets at amortised cost
\u2013
\u2013
\u2013
\u2013
\u2013
514,635
\u2013
514,635
Financial assets at fair value through
other comprehensive income
\u2013
\u2013
\u2013
\u2013
27,592
\u2013
\u2013
27,592
Other
\u2013
\u2013
\u2013
\u2013
\u2013
299
443
742
Total financial assets
103
43,891
181,680
\u2013
27,592
593,044
443
846,753
Financial liabilities
Deposits from banks
\u2013
\u2013
\u2013
\u2013
\u2013
6,153
\u2013
6,153
Customer deposits
\u2013
\u2013
\u2013
\u2013
\u2013
471,396
\u2013
471,396
Repurchase agreements at amortised
cost
\u2013
\u2013
\u2013
\u2013
\u2013
37,703
\u2013
37,703
Financial liabilities at fair value through
profit or loss
\u2013
19,631
\u2013
5,283
\u2013
\u2013
\u2013
24,914
Derivative financial instruments
505
19,644
\u2013
\u2013
\u2013
\u2013
\u2013
20,149
Notes in circulation
\u2013
\u2013
\u2013
\u2013
\u2013
1,392
\u2013
1,392
Debt securities in issue at amortised cost
\u2013
\u2013
\u2013
\u2013
\u2013
75,592
\u2013
75,592
Liabilities arising from insurance and
participating investment contracts
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
120,123
120,123
Liabilities arising from non-participating
investment contracts
\u2013
\u2013
\u2013
44,978
\u2013
\u2013
\u2013
44,978
Other
\u2013
\u2013
\u2013
\u2013
\u2013
1,960
8
1,968
Subordinated liabilities
\u2013
\u2013
\u2013
\u2013
\u2013
10,253
\u2013
10,253
Total financial liabilities
505
39,275
\u2013
50,261
\u2013
604,449
120,131
814,621
Mandatorily held at fair value through Derivatives profit or loss Designated At fair value designated at fair value through other Held at Insurance- as hedging Held for throughcomprehensive amortised related instruments trading Other profit or loss income cost contracts Total At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m Financial assets Cash and balances at central banks \u2013 \u2013 \u2013 \u2013 \u2013 91,388 \u2013 91,388 Financial assets at fair value through profit or loss \u2013 14,216 166,553 \u2013 \u2013 \u2013 \u2013 180,769 Derivative financial instruments 75 24,678 \u2013 \u2013 \u2013 \u2013 \u2013 24,753 Loans and advances to banks \u2013 \u2013 \u2013 \u2013 \u2013 10,632 \u2013 10,632 Loans and advances to customers \u2013 \u2013 \u2013 \u2013 \u2013 454,899 \u2013 454,899 Reverse repurchase agreements \u2013 \u2013 \u2013 \u2013 \u2013 44,865 \u2013 44,865 Debt securities \u2013 \u2013 \u2013 \u2013 \u2013 9,926 \u2013 9,926 Financial assets at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 520,322 \u2013 520,322 Financial assets at fair value through other comprehensive income \u2013 \u2013 \u2013 \u2013 23,154 \u2013 \u2013 23,154 Other \u2013 \u2013 \u2013 \u2013 \u2013 242 372 614 Total financial assets 75 38,894 166,553 \u2013 23,154 611,952 372 841,000 Financial liabilities Deposits from banks \u2013 \u2013 \u2013 \u2013 \u2013 7,266 \u2013 7,266 Customer deposits \u2013 \u2013 \u2013 \u2013 \u2013 475,331 \u2013 475,331 Repurchase agreements at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 48,596 \u2013 48,596 Financial liabilities at fair value through profit or loss \u2013 12,577 \u2013 5,178 \u2013 \u2013 \u2013 17,755 Derivative financial instruments 527 23,515 \u2013 \u2013 \u2013 \u2013 \u2013 24,042 Notes in circulation \u2013 \u2013 \u2013 \u2013 \u2013 1,280 \u2013 1,280 Debt securities in issue at amortised cost \u2013 \u2013 \u2013 \u2013 \u2013 73,819 \u2013 73,819 Liabilities arising from insurance and participating investment contracts \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 110,278 110,278 Liabilities arising from non-participating investment contracts \u2013 \u2013 \u2013 39,476 \u2013 \u2013 \u2013 39,476 Other \u2013 \u2013 \u2013 \u2013 \u2013 1,689 19 1,708 Subordinated liabilities \u2013 \u2013 \u2013 \u2013 \u2013 10,730 \u2013 10,730 Total financial liabilities 527 36,092 \u2013 44,654 \u2013 618,711 110,297 810,281 1 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. (2) Financial assets and liabilities carried at fair value (A) Financial assets (excluding derivatives) Valuation hierarchy At 31 December 2023, the Group\u2019s financial assets (excluding derivatives) carried at fair value totalled \u00a3230,910 million (2022: \u00a3203,923 million). The table below analyses these financial assets by balance sheet classification, asset type and valuation methodology (level 1, 2 or 3, as described above). The fair value measurement approach is recurring in nature. There were no significant transfers between level 1 and 2 during the year. For amounts included below which are subject to repurchase and reverse repurchase agreements see note 52.
Level 1 Level 2 Level 3 Total
\u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Trading assets
Loans and advances to customers
\u2013
23
\u2013
23
Reverse repurchase agreements
\u2013
17,413
\u2013
17,413
Debt securities:
Government securities
3,596
\u2013
\u2013
3,596
Asset-backed securities
\u2013
77
\u2013
77
Corporate and other debt securities
\u2013
529
\u2013
529
3,596
606
\u2013
4,202
Total trading assets
3,596
18,042
\u2013
21,638
Other financial assets mandatorily held at fair value through profit or loss
Loans and advances to banks
\u2013
3,127
\u2013
3,127
Loans and advances to customers
\u2013
1,992
7,890
9,882
Debt securities:
Government securities
8,005
4
\u2013
8,009
Other public sector securities
10
2,300
\u2013
2,310
Bank and building society certificates of deposit
\u2013
7,504
\u2013
7,504
Asset-backed securities
\u2013
327
186
513
Corporate and other debt securities
\u2013
18,061
2,064
20,125
8,015
28,196
2,250
38,461
Treasury and other bills
51
\u2013
\u2013
51
Equity shares
117,194
\u2013
1,541
118,735
Contracts held with reinsurers
\u2013
11,424
\u2013
11,424
Total other financial assets mandatorily held at fair value through profit or loss
125,260
44,739
11,681
181,680
Total financial assets at fair value through profit or loss
128,856
62,781
11,681
203,318
Financial assets at fair value through other comprehensive income
Debt securities:
Government securities
14,093
48
\u2013
14,141
Asset-backed securities
\u2013
121
52
173
Corporate and other debt securities
956
12,090
\u2013
13,046
15,049
12,259
52
27,360
Equity shares
\u2013
\u2013
232
232
Total financial assets at fair value through other comprehensive income
15,049
12,259
284
27,592
Total financial assets (excluding derivatives) at fair value
143,905
75,040
11,965
230,910
1 1 Other financial assets mandatorily at fair value through profit or loss include assets backing insurance contracts and investment contracts of \u00a3176,475 million. Included within these assets are investments in unconsolidated structured entities of \u00a376,426 million; see note 49
Level 1 Level 2 Level 3 Total
\u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Trading assets
Loans and advances to customers
\u2013
1
\u2013
1
Reverse repurchase agreements
\u2013
11,781
\u2013
11,781
Debt securities:
Government securities
2,185
\u2013
\u2013
2,185
Asset-backed securities
\u2013
21
\u2013
21
Corporate and other debt securities
\u2013
228
\u2013
228
2,185
249
\u2013
2,434
Total trading assets
2,185
12,031
\u2013
14,216
Other financial assets mandatorily held at fair value through profit or loss
Loans and advances to banks
\u2013
3,329
\u2013
3,329
Loans and advances to customers
\u2013
1,878
7,883
9,761
Debt securities:
Government securities
7,865
7
\u2013
7,872
Other public sector securities
\u2013
2,516
\u2013
2,516
Bank and building society certificates of deposit
\u2013
7,133
\u2013
7,133
Asset-backed securities
\u2013
336
63
399
Corporate and other debt securities
77
15,877
1,739
17,693
7,942
25,869
1,802
35,613
Treasury and other bills
62
\u2013
\u2013
62
Equity shares
105,263
\u2013
1,619
106,882
Contracts held with reinsurers
\u2013
10,906
\u2013
10,906
Total other financial assets mandatorily held at fair value through profit or loss
113,267
41,982
11,304
166,553
Total financial assets at fair value through profit or loss
115,452
54,013
11,304
180,769
Financial assets at fair value through other comprehensive income
Debt securities:
Government securities
10,854
357
\u2013
11,211
Asset-backed securities
\u2013
87
59
146
Corporate and other debt securities
536
10,978
\u2013
11,514
11,390
11,422
59
22,871
Equity shares
\u2013
\u2013
283
283
Total financial assets at fair value through other comprehensive income
11,390
11,422
342
23,154
Total financial assets (excluding derivatives) at fair value
126,842
65,435
11,646
203,923
1 2 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. 2 Other financial assets mandatorily at fair value through profit or loss include assets backing insurance contracts and investment contracts of \u00a3161,778 million. Included within these assets are investments in unconsolidated structured entities of \u00a368,913 million; see note 49. Movements in level 3 portfolio The table below analyses movements in level 3 financial assets (excluding derivatives) at fair value, recurring basis.
2023
2022
Financial
Total level 3
Financial
Total level 3
Financial
assets at
financial assets Financial
assets at
financial assets
assets at
fair value
(excluding assets at
fair value
(excluding
fair value
through other
derivatives)
fair value
through other
derivatives)
through
comprehensive at fair value,
through
comprehensive at fair value,
profit or loss
income recurring basis
profit or loss
income recurring basis
\u00a3m
\u00a3m \u00a3m
\u00a3m
\u00a3m \u00a3m
At 1 January
11,304
342
11,646
13,313
305
13,618
Exchange and other adjustments
(4)
(1)
(5)
15
3
18
Gains (losses) recognised in the income statement
within other income
723
6
729
(1,609)
(2)
(1,611)
(Losses) gains recognised in other comprehensive
income within the revaluation reserve in respect of
financial assets at fair value through other
comprehensive income
\u2013
(54)
(54)
\u2013
44
44
Purchases/increases to customer loans
744
3
747
959
3
962
Sales/repayments of customer loans
(1,140)
(12)
(1,152)
(1,320)
(11)
(1,331)
Transfers into the level 3 portfolio
136
\u2013
136
197
\u2013
197
Transfers out of the level 3 portfolio
(82)
\u2013
(82)
(251)
\u2013
(251)
At 31 December
11,681
284
11,965
11,304
342
11,646
Gains (losses) recognised in the income statement,
within other income, relating to the change in fair
value of those assets held at 31 December
654
\u2013
654
(1,596)
\u2013
(1,596)
Valuation methodology for financial assets (excluding derivatives) Loans and advances to banks and customers The fair value of these assets is determined using discounted cash flow techniques. The discount rates are derived from market observable interest rates, a risk margin that reflects loan credit ratings and an incremental illiquidity premium based on historical spreads at origination on similar loans. Debt securities Debt securities measured at fair value and classified as level 2 are valued by discounting expected cash flows using an observable credit spread applicable to the particular instrument. Where there is limited trading activity in debt securities, the Group uses valuation models, consensus pricing information from third party pricing services and broker or lead manager quotes to determine an appropriate valuation. Debt securities are classified as level 3 if there is a significant valuation input that cannot be corroborated through market sources or where there are materially inconsistent values for an input. Asset classes classified as level 3 mainly comprise venture capital investments. Equity investments Unlisted equity and fund investments are valued using different techniques in accordance with the Group\u2019s valuation policy and International Private Equity and Venture Capital Guidelines. Depending on the business sector and the circumstances of the investment, unlisted equity valuations are based on earnings multiples, net asset values or discounted cash flows. \u2022 A number of earnings multiples are used in valuing the portfolio including price earnings, earnings before interest and tax and earnings before interest, tax, depreciation and amortisation. The particular multiple selected is appropriate for the size and type of business being valued and is derived by reference to the current market-based multiple. Consideration is given to the risk attributes, growth prospects and financial gearing of comparable businesses when selecting the appropriate multiple \u2022 Discounted cash flow valuations use estimated future cash flows, usually based on management forecasts, with the application of appropriate exit yields or terminal multiples and discounted using rates appropriate to the specific investment, business sector or recent economic rates of return. Recent transactions involving the sale of similar businesses may sometimes be used as a frame of reference in deriving an appropriate multiple \u2022 For fund investments the most recent capital account value calculated by the fund manager is used as the basis for the valuation and adjusted, if necessary, to align valuation techniques with the Group\u2019s valuation policy Unlisted equity investments and investments in property partnerships held in the life assurance funds are valued using third party valuations. Management take account of any pertinent information, such as recent transactions and information received on particular investments, to adjust the third party valuations where necessary (B) Financial liabilities (excluding derivatives) Valuation hierarchy At 31 December 2023, the Group\u2019s financial liabilities (excluding derivatives) carried at fair value, comprised its financial liabilities at fair value through profit or loss and totalled \u00a324,914 million (2022: \u00a317,755 million). The table below analyses these financial liabilities by balance sheet classification and valuation methodology (level 1, 2 or 3, as described on page 257). The fair value measurement approach is recurring in nature. There were no significant transfers between level 1 and 2 during the year.
Level 1 Level 2 Level 3 Total
\u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Trading liabilities
Liabilities in respect of securities sold under repurchase agreements
\u2013
18,057
\u2013
18,057
Short positions in securities
1,569
5
\u2013
1,574
Total trading liabilities
1,569
18,062
\u2013
19,631
Liabilities designated at fair value through profit or loss
Debt securities in issue
\u2013
5,223
42
5,265
Other
\u2013
18
\u2013
18
Total liabilities designated at fair value through profit or loss
\u2013
5,241
42
5,283
Total financial liabilities (excluding derivatives) at fair value
1,569
23,303
42
24,914
At 31 December 2022
Trading liabilities
Liabilities in respect of securities sold under repurchase agreements
\u2013
11,037
\u2013
11,037
Short positions in securities
1,505
35
\u2013
1,540
Total trading liabilities
1,505
11,072
\u2013
12,577
Liabilities designated at fair value through profit or loss
Debt securities in issue
\u2013
5,114
45
5,159
Other
\u2013
19
\u2013
19
Total liabilities designated at fair value through profit or loss
\u2013
5,133
45
5,178
Total financial liabilities (excluding derivatives) at fair value
1,505
16,205
45
17,755
Liabilities designated at fair value through profit or loss primarily represent debt securities in issue which either contain substantive embedded derivatives which would otherwise need to be recognised and measured at fair value separately from the related debt securities, or which are accounted for at fair value to significantly reduce an accounting mismatch. The amount contractually payable on maturity of the debt securities held at fair value through profit or loss at 31 December 2023 was \u00a310,433 million, which was \u00a35,167 million higher than the balance sheet carrying value (2022: \u00a311,195 million, which was \u00a36,036 million higher than the balance sheet carrying value). At 31 December 2023 there was a cumulative \u00a390 million decrease in the fair value of these liabilities attributable to changes in credit spread risk; this is determined by reference to the quoted credit spreads of Lloyds Bank plc, the issuing entity within the Group. Of the cumulative amount, an increase of \u00a3234 million arose in 2023 and a decrease of \u00a3519 million arose in 2022. For the fair value of collateral pledged in respect of repurchase agreements see note 52. In addition to the liabilities above, the Group\u2019s non-participating investment contracts are held at fair value through profit or loss and were all categorised as level 2. Movements in level 3 portfolio The table below analyses movements in the level 3 financial liabilities (excluding derivatives) at fair value portfolio.
2023 2022
\u00a3m \u00a3m
At 1 January
45
37
Gains recognised in the income statement within other income
(1)
(4)
Additions
\u2013
33
Redemptions
(1)
(3)
Transfers out of the level 3 portfolio
(1)
(18)
At 31 December
42
45
Gains recognised in the income statement, within other income, relating to the change in fair value of those liabilities
held at 31 December
(1)
(4)
Valuation methodology for financial liabilities (excluding derivatives) Liabilities held at fair value through profit or loss These principally comprise debt securities in issue which are classified as level 2 and their fair value is determined using techniques whose inputs are based on observable market data. The carrying amount of the securities is adjusted to reflect the effect of changes in own credit spreads and the resulting gain or loss is recognised in other comprehensive income. In the year ended 31 December 2023, the own credit adjustment arising from the fair valuation of \u00a35,265 million (2022: \u00a35,159 million) of the Group\u2019s debt securities in issue designated at fair value through profit or loss resulted in a loss of \u00a3234 million (2022: gain of \u00a3519 million), before tax, recognised in other comprehensive income. Trading liabilities in respect of securities sold under repurchase agreements The fair value of these liabilities is determined using discounted cash flow techniques. The discount rates are derived from observable repurchase agreement rate curves specific to the type of security sold under the repurchase agreement. (C) Derivatives Valuation hierarchy All of the Group\u2019s derivative assets and liabilities are carried at fair value. At 31 December 2023, such assets totalled \u00a322,356 million (2022: \u00a324,753 million) and liabilities totalled \u00a320,149 million (2022: \u00a324,042 million). The table below analyses these derivative balances by valuation methodology (level 1, 2 or 3, as described on page 257). The fair value measurement approach is recurring in nature. There were no significant transfers between level 1 and level 2 during the year.
2023
2022
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Derivative assets
77
21,857
422
22,356
78
24,122
553
24,753
Derivative liabilities
(116)
(19,589)
(444)
(20,149)
(39)
(23,395)
(608)
(24,042)
Movements in level 3 portfolio The table below analyses movements in level 3 derivative assets and liabilities carried at fair value.
2023
2022
Derivative Derivative Derivative Derivative
assets liabilities assets liabilities
\u00a3m \u00a3m \u00a3m \u00a3m
At 1 January
553
(608)
893
(944)
Exchange and other adjustments
(8)
5
47
(37)
(Losses) gains recognised in the income statement within other income
(104)
111
72
204
Purchases (additions)
19
(15)
48
(46)
(Sales) redemptions
(38)
63
(21)
38
Transfers out of the level 3 portfolio
\u2013
\u2013
(486)
177
At 31 December
422
(444)
553
(608)
(Losses) gains recognised in the income statement, within other income, relating to the
change in fair value of those assets or liabilities held at 31 December
(72)
76
222
125
Valuation methodology for derivatives The Group\u2019s derivatives are valued using techniques including discounted cash flow and options pricing models, as appropriate. The types of derivatives classified as level 2 and the valuation techniques used include: \u2022 Interest rate swaps which are valued using discounted cash flow models; the most significant inputs into those models are interest rate yield curves which are developed from publicly quoted rates \u2022 Foreign exchange derivatives that do not contain options which are priced using rates available from publicly quoted sources \u2022 Credit derivatives are valued using standard models with observable inputs, including publicly available yield and credit default swap (CDS) curves \u2022 Less complex interest rate and foreign exchange option products which are valued using volatility surfaces developed from publicly available interest rate cap, interest rate swaption and other option volatilities; option volatility skew information is derived from a market standard consensus pricing service. Complex interest rate products where inputs to the valuation are significant and unobservable are classified as level 3. Certain inputs used to calculate CVA, FVA, and own credit adjustments, are not significant in determining the classification of the derivative and debt instruments. Consequently, these inputs do not form part of the level 3 sensitivities presented. Derivative valuation adjustments Derivative financial instruments which are carried in the balance sheet at fair value are adjusted where appropriate to reflect credit risk, market liquidity and other risks. (i) Uncollateralised derivative valuation adjustments The following table summarises the movement on this valuation adjustment account during 2022 and 2023:
2023 2022
\u00a3m \u00a3m
At 1 January
381
456
Income statement credit
(102)
(75)
Transfers
(3)
\u2013
At 31 December
276
381
Represented by: 2023 2022
\u00a3m \u00a3m
Credit Valuation Adjustment
191
294
Debit Valuation Adjustment
(34)
(55)
Funding Valuation Adjustment
119
142
276
381
Credit and Debit Valuation Adjustments (CVA and DVA) are applied to the Group\u2019s over-the-counter derivative exposures with counterparties that are not subject to strong interbank collateral arrangements. These exposures largely relate to the provision of risk management solutions for corporate customers within the Commercial Banking division. A CVA is taken where the Group has a positive future uncollateralised exposure (asset). A DVA is taken where the Group has a negative future uncollateralised exposure (liability). These adjustments reflect interest rates and expectations of counterparty creditworthiness and the Group\u2019s own credit spread respectively. The CVA is sensitive to: \u2022 The current size of the mark-to-market position on the uncollateralised asset \u2022 Expectations of future market volatility of the underlying asset \u2022 Expectations of counterparty creditworthiness Market Credit Default Swap (CDS) spreads are used to develop the probability of default for quoted counterparties. For unquoted counterparties, internal credit ratings and market sector CDS curves and recovery rates are used. The loss given default (LGD) is based on market recovery rates and internal credit assessments. The combination of a one-notch deterioration in the credit rating of derivative counterparties and a 10 per cent increase in LGD increases the CVA by \u00a350 million. Current market value is used to estimate the projected exposure for products not supported by the model, which are principally complex interest rate options that are traded in very low volumes. For these, the CVA is calculated on an add-on basis (although no such adjustment was required at 31 December 2023). The DVA is sensitive to: \u2022 The current size of the mark-to-market position on the uncollateralised liability \u2022 Expectations of future market volatility of the underlying liability \u2022 The Group\u2019s own CDS spread A 1 per cent rise in the CDS spread would lead to an increase in the DVA of \u00a375 million. The risk exposures that are used for the CVA and DVA calculations are strongly influenced by interest rates. Due to the nature of the Group\u2019s business the CVA/DVA exposures tend to be on average the same way around such that the valuation adjustments fall when interest rates rise. A 1 per cent rise in interest rates would lead to a \u00a339 million fall in the overall valuation adjustment to \u00a3118 million. The CVA model used by the Group does not assume any correlation between the level of interest rates and default rates. The Group has also recognised a Funding Valuation Adjustment to adjust for the net cost of funding uncollateralised derivative positions. This adjustment is calculated on the expected future exposure discounted at a suitable cost of funds. A 10 basis points increase in the cost of funds will increase the funding valuation adjustment by \u00a312 million. (ii) Market liquidity The Group includes mid to bid-offer valuation adjustments against the expected cost of closing out the net market risk in the Group\u2019s trading positions within a time frame that is consistent with historical trading activity and spreads that the trading desks have accessed historically during the ordinary course of business in normal market conditions. At 31 December 2023, the Group\u2019s derivative trading business held mid to bid-offer valuation adjustments of \u00a352 million (2022: \u00a361 million). (D) Sensitivity of level 3 valuations Critical accounting judgements and key sources of estimation uncertainty Key sources of estimation uncertainty: Interest rate spreads, credit spreads, earnings multiples and interest rate volatility The Group\u2019s valuation control framework and a description of level 1, 2 and 3 financial assets and liabilities is set out in section (1) above. The valuation techniques for level 3 financial instruments involve management judgement and estimates, the extent of which depends on the complexity of the instrument and the availability of market observable information. In addition, in line with market practice, the Group applies credit, debit and funding valuation adjustments in determining the fair value of its uncollateralised derivative positions. A description of these adjustments is set out in section (C)(i) above. A quantitative analysis of the sensitivities to market risk arising from the Group\u2019s trading portfolios is set out in the tables marked audited on page 190.
2023
2022
Effect of reasonably possible Effect of reasonably possible
alternative assumptions
1
alternative assumptions
Carrying Favourable Unfavourable Carrying Favourable Unfavourable
Significant value changes changes value changes changes
Valuation techniques unobservable inputs \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Financial assets at fair value through profit or loss
Loans and Discounted cash Interest rate
advances to flows spreads
customers (-50bps/+272bps)
7,890
369
(351)
7,883
356
(385)
Debt securities
Discounted cash
Credit spreads
flows
(+/- 6%)
5
445
39
(41)
162
9
(9)
Equity and
Market approach
Earnings multiple
venture capital (1.6/17.8)
investments
2,228
131
(131)
1,907
84
(84)
Underlying asset/ n/a
net asset value
(incl. property
prices)
809
77
(99)
771
81
(88)
Unlisted equities, Underlying asset/ n/a
debt securities net asset value
and property (incl. property
partnerships in prices), broker
the life funds quotes or
discounted cash
flows
3
309
7
(6)
581
2
(33)
11,681
11,304
Financial assets at fair value through other comprehensive income
Asset-backed Lead manager or n/a
securities broker quote/
consensus pricing
52
2
(2)
59
\u2013
\u2013
Equity and Underlying asset/ n/a
venture capital net asset value
investments (incl. property
prices)
232
22
(22)
283
15
(15)
284
342
Derivative financial assets
Interest rate Option pricing Interest rate
derivatives
model
volatility (13%/200%)
7
422
6
(3)
553
9
(7)
Level 3 financial assets carried at fair value
12,387
12,199
Financial liabilities at fair value through profit or loss
Securitisation Discounted cash Interest rate
notes and other flows spreads
(+/\u2013 50bps)
42
1
(1)
45
1
(1)
Derivative financial liabilities
Interest rate Option pricing Interest rate
derivatives
model
volatility (13%/200%)
7
444
10
(7)
608
\u2013
\u2013
Level 3 financial liabilities carried at fair value
486
653
1 2 4 6 3 3 8 1 Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table. 2 Ranges are shown where appropriate and represent the highest and lowest inputs used in the level 3 valuations. 3 Underlying asset/net asset values represent fair value. 4 2022: -50bps/+289bps. 5 2022: +/- 6%. 6 2022: 1.9/15.2. 7 2022: 17%/105%. 8 2022: +/- 50bps. Unobservable inputs Significant unobservable inputs affecting the valuation of debt securities, unlisted equity investments and derivatives are as follows: \u2022 Credit spreads represent the premium above the benchmark reference instrument required to compensate for lower credit quality; higher spreads lead to a lower fair value \u2022 Volatility parameters represent key attributes of option behaviour; higher volatilities typically denote a wider range of possible outcomes \u2022 Earnings multiples are used to value certain unlisted equity investments. The earnings multiples used are derived from those of listed entities operating in the same sector with adjustments made for factors such as the size of the company and the quality of its earnings. The majority of the Group\u2019s venture capital investments are valued using an estimate of the company\u2019s maintainable earnings before interest, tax, depreciation and amortisation and in accordance with the International Private Equity and Venture Capital Valuation Guidelines. A higher earnings multiple will result in a higher fair value Reasonably possible alternative assumptions Valuation techniques applied to many of the Group\u2019s level 3 instruments often involve the use of two or more inputs whose relationship is interdependent. The calculation of the effect of reasonably possible alternative assumptions included in the table above reflects such relationships. Debt securities Reasonably possible alternative assumptions have been determined in respect of the Group\u2019s structured credit investments by flexing credit spreads. Derivatives Reasonably possible alternative assumptions have been determined in respect of swaptions in the Group\u2019s derivative portfolios which are priced using industry standard option pricing models. Such models require interest rate volatilities which may be unobservable at longer maturities. To derive reasonably possible alternative valuations these volatility parameters have been flexed within a range of 13 per cent to 200 per cent (2022: 17 per cent to 105 per cent). Unlisted equity, venture capital investments and investments in property partnerships The valuation techniques used for unlisted equity and venture capital investments vary depending on the nature of the investment. Reasonably possible alternative valuations for these investments have been calculated by reference to the approach taken, as appropriate to the business sector and investment circumstances and as such the following inputs have been considered: \u2022 For valuations derived from earnings multiples, consideration is given to the risk attributes, growth prospects and financial gearing of comparable businesses when selecting an appropriate multiple \u2022 The discount rates used in discounted cash flow valuations \u2022 In line with International Private Equity and Venture Capital Guidelines, the values of underlying investments in fund investment portfolios ", "dimensions": { "concept": "ifrs-full:DisclosureOfFairValueOfFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1004": { "value": "Note 22: Derivative financial instruments The fair values and notional amounts of derivative instruments are set out in the following table:
2023
2022
Contract/ Fair value Contract/ Fair value
notional notional
amount Assets Liabilities amount Assets Liabilities
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Trading and other
Exchange rate contracts
572,858
6,631
6,222
464,223
8,733
9,216
Interest rate contracts
7,654,512
15,116
12,724
6,257,548
14,966
13,332
Credit derivatives
5,349
51
118
6,689
134
118
Equity, commodity and other contracts
9,463
455
580
16,490
845
849
Total derivative assets/liabilities \u2013 trading and other
Hedging
8,242,182
22,253
19,644
6,744,950
24,678
23,515
Derivatives designated as fair value hedges
153,674
83
425
152,697
11
503
Derivatives designated as cash flow hedges
466,344
20
80
251,245
64
24
Total derivative assets/liabilities \u2013 hedging
620,018
103
505
403,942
75
527
Total recognised derivative assets/liabilities
8,862,200
22,356
20,149
7,148,892
24,753
24,042
The notional amount of the contract does not represent the Group\u2019s exposure to credit risk, which is limited to the current cost of replacing contracts with a positive value to the Group should the counterparty default. To reduce credit risk the Group uses a variety of credit enhancement techniques such as netting and collateralisation, where security is provided against the exposure; a large proportion of the Group\u2019s derivatives are held through exchanges such as London Clearing House and are collateralised through those exchanges. Further details are provided in note 52 Credit risk. The Group holds derivatives as part of the following strategies: \u2022 Customer driven, where derivatives are held as part of the provision of risk management products to Group customers \u2022 To manage and hedge the Group\u2019s interest rate and foreign exchange risk arising from normal banking business. The hedge accounting strategy adopted by the Group is to utilise a combination of fair value and cash flow hedge approaches as described in note 52 \u2022 Derivatives held in policyholder funds as permitted by the investment strategies of those funds The principal derivatives used by the Group are as follows: \u2022 Interest rate related contracts include interest rate swaps, forward rate agreements and options. An interest rate swap is an agreement between two parties to exchange fixed and floating interest payments, based upon interest rates defined in the contract, without the exchange of the underlying principal amounts. Forward rate agreements are contracts for the payment of the difference between a specified rate of interest and a reference rate, applied to a notional principal amount at a specific date in the future. An interest rate option gives the buyer, on payment of a premium, the right, but not the obligation, to fix the rate of interest on a future loan or deposit, for a specified period and commencing on a specified future date \u2022 Exchange rate related contracts include forward foreign exchange contracts, currency swaps and options. A forward foreign exchange contract is an agreement to buy or sell a specified amount of foreign currency on a specified future date at an agreed rate. Currency swaps generally involve the exchange of interest payment obligations denominated in different currencies; the exchange of principal can be notional or actual. A currency option gives the buyer, on payment of a premium, the right, but not the obligation, to sell specified amounts of currency at agreed rates of exchange on or before a specified future date \u2022 Credit derivatives, principally credit default swaps, are used by the Group as part of its trading activity and to manage its own exposure to credit risk. A credit default swap is a swap in which one counterparty receives a premium at pre-set intervals in consideration for guaranteeing to make a specific payment should a negative credit event take place \u2022 Equity derivatives are also used by the Group as part of its equity-based retail product activity to eliminate the Group\u2019s exposure to fluctuations in various international stock exchange indices. Index-linked equity options are purchased which give the Group the right, but not the obligation, to buy or sell a specified amount of equities, or basket of equities, in the form of published indices on or before a specified future date Details of the Group\u2019s hedging instruments are set out below:
Maturity
Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years Total
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Fair value hedges
Interest rate
Cross currency swap
Notional
\u2013
\u2013
\u2013
\u2013
35
35
Average fixed interest rate
\u2013
\u2013
\u2013
\u2013
1.28%
Average EUR/GBP exchange rate
\u2013
\u2013
\u2013
\u2013
1.38
Interest rate swap
Notional
1,908
5,778
19,353
87,119
39,481
153,639
Average fixed interest rate
0.95%
1.72%
2.03%
2.90%
2.00%
Cash flow hedges
Foreign exchange
Currency swap
Notional
18
470
1,648
541
7
2,684
Average EUR/GBP exchange rate
1.15
1.14
1.14
1.08
1.07
Average USD/GBP exchange rate
1.25
1.23
1.25
1.24
\u2013
Interest rate
Interest rate swap
Notional
9,501
23,015
76,439
284,969
69,736
463,660
Average fixed interest rate
4.13%
4.14%
3.82%
3.35%
2.58%
Maturity
Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years Total
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Fair value hedges
Interest rate
Cross currency swap
Notional
\u2013
\u2013
\u2013
\u2013
35
35
Average fixed interest rate
\u2013
\u2013
\u2013
\u2013
1.28%
Average EUR/GBP exchange rate
\u2013
\u2013
\u2013
\u2013
1.38
Interest rate swap
Notional
1,904
12,765
37,488
64,307
36,198
152,662
Average fixed interest rate
1.51%
0.17%
0.72%
1.92%
1.94%
Cash flow hedges
Foreign exchange
Currency swap
Notional
\u2013
\u2013
509
1,004
29
1,542
Average EUR/GBP exchange rate
\u2013
\u2013
1.15
1.10
1.04
Average USD/GBP exchange rate
\u2013
\u2013
1.24
1.25
\u2013
Interest rate
Interest rate swap
Notional
4,741
6,472
26,175
161,391
50,924
249,703
Average fixed interest rate
3.01%
1.18%
2.36%
2.40%
1.60%
The carrying amounts of the Group\u2019s hedging instruments are as follows:
Carrying amount of the hedging instrument
Changes in fair
value used for
Contract/ calculating
notional hedge
amount Assets Liabilities ineffectiveness
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m
Fair value hedges
Interest rate
Currency swaps
35
3
\u2013
2
Interest rate swaps
153,639
80
425
(2,665)
Cash flow hedges
Foreign exchange
Currency swaps
2,684
11
72
(138)
Interest rate
Interest rate swaps
463,660
9
8
2,541
Carrying amount of the hedging instrument
Changes in fair
value used for
Contract/ calculating
notional hedge
amount Assets Liabilities ineffectiveness
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m
Fair value hedges
Interest rate
Currency swaps
35
1
\u2013
(2)
Interest rate swaps
152,662
10
503
1,286
Cash flow hedges
Foreign exchange
Currency swaps
1,542
63
21
198
Interest rate
Interest rate swaps
249,703
1
3
(6,990)
All amounts are held within derivative financial instruments. The Group\u2019s hedged items are as follows:
Accumulated amount of Change in fair
Carrying amount of fair value adjustment on value of hedged Cash flow hedging reserve
the hedged item the hedged item item for
ineffectiveness Continuing Discontinued
Liabilities Assets Liabilities Assets assessment hedges hedges
At 31 December 2023
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
Fair value hedges
Interest rate
Fixed rate mortgages
\u2013
75,871
\u2013
25
2,544
Fixed rate issuance
50,466
\u2013
1,365
\u2013
(1,110)
Fixed rate bonds
\u2013
24,146
\u2013
(331)
962
Cash flow hedges
Foreign exchange
Foreign currency issuance
138
8
69
Customer deposits
\u2013
\u2013
3
Interest rate
Customer loans
(1,796)
(2,934)
(1,885)
Central bank balances
(648)
(624)
(1,462)
Customer deposits
262
1,591
(3)
1 2 3 2 4 1 5 4
Accumulated amount of Change in fair
Carrying amount of fair value adjustment on value of hedged Cash flow hedging reserve
the hedged item the hedged item item for
ineffectiveness Continuing Discontinued
Liabilities Assets Liabilities Assets assessment hedges hedges
At 31 December 2022
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
Fair value hedges
Interest rate
Fixed rate mortgages
\u2013
73,282
\u2013
(2,602)
(3,198)
Fixed rate issuance
52,190
\u2013
2,392
\u2013
4,223
Fixed rate bonds
\u2013
19,259
\u2013
(1,549)
(2,350)
Cash flow hedges
Foreign exchange
Foreign currency issuance
(198)
134
90
Customer deposits
\u2013
\u2013
3
Interest rate
Customer loans
5,636
(5,587)
(868)
Central bank balances
2,703
(2,130)
(965)
Customer deposits
(1,295)
1,781
(76)
1 2 3 2 4 1 5 4 1 Included within loans and advances to customers. 2 Included within debt securities in issue at amortised cost. 3 Included within financial assets at amortised cost and financial assets at fair value through other comprehensive income. 4 Included within customer deposits. 5 Included within cash and balances at central banks. The accumulated amount of fair value hedge adjustments remaining on the balance sheet for hedged items that have ceased to be adjusted for hedging gains and losses is a liability of \u00a31,446 million relating to fixed rate issuances of \u00a3656 million and mortgages of \u00a3790 million (2022: liability of \u00a31,988 million relating to fixed rate issuances of \u00a3760 million and mortgages of \u00a31,228 million). Gains and losses arising from hedge accounting are summarised as follows: 1
Amounts reclassified from reserves
to income statement as:
Gain (loss) Hedge Hedged Hedged Income
recognised ineffectiveness cash flows item statement
in other recognised in will no affected line item
comprehensive the income longer income that includes
income statement occur statement reclassified
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m amount
Fair value hedges
Interest rate
Fixed rate mortgages
(264)
Fixed rate issuance
(17)
Fixed rate bonds
14
Cash flow hedges
Foreign exchange
Foreign currency issuance
(138)
\u2013
\u2013
(9)
Interest expense
Customer deposits
\u2013
\u2013
\u2013
\u2013
Interest expense
Interest rate
Customer loans
(37)
20
\u2013
1,674
Interest income
Central bank balances
284
2
\u2013
725
Interest income
Customer deposits
436
(3)
\u2013
(552)
Interest expense
1
Amounts reclassified from reserves
to income statement as:
Gain (loss) Hedge Hedged Hedged Income
recognised ineffectiveness cash flows item statement
in other recognised in will no affected line item
comprehensive the income longer income that includes
income statement occur statement reclassified
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m amount
Fair value hedges
Interest rate
Fixed rate mortgages
22
Fixed rate issuance
(49)
Fixed rate bonds
(14)
Cash flow hedges
Foreign exchange
Foreign currency issuance
198
\u2013
\u2013
(22)
Interest expense
Customer deposits
3
\u2013
\u2013
\u2013
Interest expense
Interest rate
Customer loans
(6,145)
(30)
\u2013
53
Interest income
Central bank balances
(2,831)
\u2013
\u2013
26
Interest income
Customer deposits
1,785
20
\u2013
(14)
Interest expense
1 Hedge ineffectiveness is included in the income statement within net trading income. There was no gain or loss in either 2023 or 2022 reclassified from the cash flow hedging reserve for which hedge accounting had previously been used but for which the hedged future cash flows are no longer expected to occur. ", "dimensions": { "concept": "ifrs-full:DisclosureOfHedgeAccountingExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-974": { "value": "Note 22: Derivative financial instruments The fair values and notional amounts of derivative instruments are set out in the following table:
2023
2022
Contract/ Fair value Contract/ Fair value
notional notional
amount Assets Liabilities amount Assets Liabilities
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Trading and other
Exchange rate contracts
572,858
6,631
6,222
464,223
8,733
9,216
Interest rate contracts
7,654,512
15,116
12,724
6,257,548
14,966
13,332
Credit derivatives
5,349
51
118
6,689
134
118
Equity, commodity and other contracts
9,463
455
580
16,490
845
849
Total derivative assets/liabilities \u2013 trading and other
Hedging
8,242,182
22,253
19,644
6,744,950
24,678
23,515
Derivatives designated as fair value hedges
153,674
83
425
152,697
11
503
Derivatives designated as cash flow hedges
466,344
20
80
251,245
64
24
Total derivative assets/liabilities \u2013 hedging
620,018
103
505
403,942
75
527
Total recognised derivative assets/liabilities
8,862,200
22,356
20,149
7,148,892
24,753
24,042
The notional amount of the contract does not represent the Group\u2019s exposure to credit risk, which is limited to the current cost of replacing contracts with a positive value to the Group should the counterparty default. To reduce credit risk the Group uses a variety of credit enhancement techniques such as netting and collateralisation, where security is provided against the exposure; a large proportion of the Group\u2019s derivatives are held through exchanges such as London Clearing House and are collateralised through those exchanges. Further details are provided in note 52 Credit risk. The Group holds derivatives as part of the following strategies: \u2022 Customer driven, where derivatives are held as part of the provision of risk management products to Group customers \u2022 To manage and hedge the Group\u2019s interest rate and foreign exchange risk arising from normal banking business. The hedge accounting strategy adopted by the Group is to utilise a combination of fair value and cash flow hedge approaches as described in note 52 \u2022 Derivatives held in policyholder funds as permitted by the investment strategies of those funds The principal derivatives used by the Group are as follows: \u2022 Interest rate related contracts include interest rate swaps, forward rate agreements and options. An interest rate swap is an agreement between two parties to exchange fixed and floating interest payments, based upon interest rates defined in the contract, without the exchange of the underlying principal amounts. Forward rate agreements are contracts for the payment of the difference between a specified rate of interest and a reference rate, applied to a notional principal amount at a specific date in the future. An interest rate option gives the buyer, on payment of a premium, the right, but not the obligation, to fix the rate of interest on a future loan or deposit, for a specified period and commencing on a specified future date \u2022 Exchange rate related contracts include forward foreign exchange contracts, currency swaps and options. A forward foreign exchange contract is an agreement to buy or sell a specified amount of foreign currency on a specified future date at an agreed rate. Currency swaps generally involve the exchange of interest payment obligations denominated in different currencies; the exchange of principal can be notional or actual. A currency option gives the buyer, on payment of a premium, the right, but not the obligation, to sell specified amounts of currency at agreed rates of exchange on or before a specified future date \u2022 Credit derivatives, principally credit default swaps, are used by the Group as part of its trading activity and to manage its own exposure to credit risk. A credit default swap is a swap in which one counterparty receives a premium at pre-set intervals in consideration for guaranteeing to make a specific payment should a negative credit event take place \u2022 Equity derivatives are also used by the Group as part of its equity-based retail product activity to eliminate the Group\u2019s exposure to fluctuations in various international stock exchange indices. Index-linked equity options are purchased which give the Group the right, but not the obligation, to buy or sell a specified amount of equities, or basket of equities, in the form of published indices on or before a specified future date Details of the Group\u2019s hedging instruments are set out below:
Maturity
Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years Total
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Fair value hedges
Interest rate
Cross currency swap
Notional
\u2013
\u2013
\u2013
\u2013
35
35
Average fixed interest rate
\u2013
\u2013
\u2013
\u2013
1.28%
Average EUR/GBP exchange rate
\u2013
\u2013
\u2013
\u2013
1.38
Interest rate swap
Notional
1,908
5,778
19,353
87,119
39,481
153,639
Average fixed interest rate
0.95%
1.72%
2.03%
2.90%
2.00%
Cash flow hedges
Foreign exchange
Currency swap
Notional
18
470
1,648
541
7
2,684
Average EUR/GBP exchange rate
1.15
1.14
1.14
1.08
1.07
Average USD/GBP exchange rate
1.25
1.23
1.25
1.24
\u2013
Interest rate
Interest rate swap
Notional
9,501
23,015
76,439
284,969
69,736
463,660
Average fixed interest rate
4.13%
4.14%
3.82%
3.35%
2.58%
Maturity
Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 years Over 5 years Total
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Fair value hedges
Interest rate
Cross currency swap
Notional
\u2013
\u2013
\u2013
\u2013
35
35
Average fixed interest rate
\u2013
\u2013
\u2013
\u2013
1.28%
Average EUR/GBP exchange rate
\u2013
\u2013
\u2013
\u2013
1.38
Interest rate swap
Notional
1,904
12,765
37,488
64,307
36,198
152,662
Average fixed interest rate
1.51%
0.17%
0.72%
1.92%
1.94%
Cash flow hedges
Foreign exchange
Currency swap
Notional
\u2013
\u2013
509
1,004
29
1,542
Average EUR/GBP exchange rate
\u2013
\u2013
1.15
1.10
1.04
Average USD/GBP exchange rate
\u2013
\u2013
1.24
1.25
\u2013
Interest rate
Interest rate swap
Notional
4,741
6,472
26,175
161,391
50,924
249,703
Average fixed interest rate
3.01%
1.18%
2.36%
2.40%
1.60%
The carrying amounts of the Group\u2019s hedging instruments are as follows:
Carrying amount of the hedging instrument
Changes in fair
value used for
Contract/ calculating
notional hedge
amount Assets Liabilities ineffectiveness
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m
Fair value hedges
Interest rate
Currency swaps
35
3
\u2013
2
Interest rate swaps
153,639
80
425
(2,665)
Cash flow hedges
Foreign exchange
Currency swaps
2,684
11
72
(138)
Interest rate
Interest rate swaps
463,660
9
8
2,541
Carrying amount of the hedging instrument
Changes in fair
value used for
Contract/ calculating
notional hedge
amount Assets Liabilities ineffectiveness
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m
Fair value hedges
Interest rate
Currency swaps
35
1
\u2013
(2)
Interest rate swaps
152,662
10
503
1,286
Cash flow hedges
Foreign exchange
Currency swaps
1,542
63
21
198
Interest rate
Interest rate swaps
249,703
1
3
(6,990)
All amounts are held within derivative financial instruments. The Group\u2019s hedged items are as follows:
Accumulated amount of Change in fair
Carrying amount of fair value adjustment on value of hedged Cash flow hedging reserve
the hedged item the hedged item item for
ineffectiveness Continuing Discontinued
Liabilities Assets Liabilities Assets assessment hedges hedges
At 31 December 2023
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
Fair value hedges
Interest rate
Fixed rate mortgages
\u2013
75,871
\u2013
25
2,544
Fixed rate issuance
50,466
\u2013
1,365
\u2013
(1,110)
Fixed rate bonds
\u2013
24,146
\u2013
(331)
962
Cash flow hedges
Foreign exchange
Foreign currency issuance
138
8
69
Customer deposits
\u2013
\u2013
3
Interest rate
Customer loans
(1,796)
(2,934)
(1,885)
Central bank balances
(648)
(624)
(1,462)
Customer deposits
262
1,591
(3)
1 2 3 2 4 1 5 4
Accumulated amount of Change in fair
Carrying amount of fair value adjustment on value of hedged Cash flow hedging reserve
the hedged item the hedged item item for
ineffectiveness Continuing Discontinued
Liabilities Assets Liabilities Assets assessment hedges hedges
At 31 December 2022
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
Fair value hedges
Interest rate
Fixed rate mortgages
\u2013
73,282
\u2013
(2,602)
(3,198)
Fixed rate issuance
52,190
\u2013
2,392
\u2013
4,223
Fixed rate bonds
\u2013
19,259
\u2013
(1,549)
(2,350)
Cash flow hedges
Foreign exchange
Foreign currency issuance
(198)
134
90
Customer deposits
\u2013
\u2013
3
Interest rate
Customer loans
5,636
(5,587)
(868)
Central bank balances
2,703
(2,130)
(965)
Customer deposits
(1,295)
1,781
(76)
1 2 3 2 4 1 5 4 1 Included within loans and advances to customers. 2 Included within debt securities in issue at amortised cost. 3 Included within financial assets at amortised cost and financial assets at fair value through other comprehensive income. 4 Included within customer deposits. 5 Included within cash and balances at central banks. The accumulated amount of fair value hedge adjustments remaining on the balance sheet for hedged items that have ceased to be adjusted for hedging gains and losses is a liability of \u00a31,446 million relating to fixed rate issuances of \u00a3656 million and mortgages of \u00a3790 million (2022: liability of \u00a31,988 million relating to fixed rate issuances of \u00a3760 million and mortgages of \u00a31,228 million). Gains and losses arising from hedge accounting are summarised as follows: 1
Amounts reclassified from reserves
to income statement as:
Gain (loss) Hedge Hedged Hedged Income
recognised ineffectiveness cash flows item statement
in other recognised in will no affected line item
comprehensive the income longer income that includes
income statement occur statement reclassified
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m amount
Fair value hedges
Interest rate
Fixed rate mortgages
(264)
Fixed rate issuance
(17)
Fixed rate bonds
14
Cash flow hedges
Foreign exchange
Foreign currency issuance
(138)
\u2013
\u2013
(9)
Interest expense
Customer deposits
\u2013
\u2013
\u2013
\u2013
Interest expense
Interest rate
Customer loans
(37)
20
\u2013
1,674
Interest income
Central bank balances
284
2
\u2013
725
Interest income
Customer deposits
436
(3)
\u2013
(552)
Interest expense
1
Amounts reclassified from reserves
to income statement as:
Gain (loss) Hedge Hedged Hedged Income
recognised ineffectiveness cash flows item statement
in other recognised in will no affected line item
comprehensive the income longer income that includes
income statement occur statement reclassified
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m amount
Fair value hedges
Interest rate
Fixed rate mortgages
22
Fixed rate issuance
(49)
Fixed rate bonds
(14)
Cash flow hedges
Foreign exchange
Foreign currency issuance
198
\u2013
\u2013
(22)
Interest expense
Customer deposits
3
\u2013
\u2013
\u2013
Interest expense
Interest rate
Customer loans
(6,145)
(30)
\u2013
53
Interest income
Central bank balances
(2,831)
\u2013
\u2013
26
Interest income
Customer deposits
1,785
20
\u2013
(14)
Interest expense
1 Hedge ineffectiveness is included in the income statement within net trading income. There was no gain or loss in either 2023 or 2022 reclassified from the cash flow hedging reserve for which hedge accounting had previously been used but for which the hedged future cash flows are no longer expected to occur. ", "dimensions": { "concept": "ifrs-full:DisclosureOfDerivativeFinancialInstrumentsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-925": { "value": "
Note 23: Loans and advances to customers
Year ended 31 December 2023
Gross carrying amount
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January 2023
380,991
61,164
7,640
9,622
459,417
700
1,808
1,757
253
4,518
Exchange and other adjustments
1,830
(24)
(6)
18
1,818
(7)
(1)
105
67
164
Transfers to Stage 1
18,991
(18,953)
(38)
\u2013
401
(393)
(8)
\u2013
Transfers to Stage 2
(18,010)
18,592
(582)
\u2013
(53)
121
(68)
\u2013
Transfers to Stage 3
(1,216)
(2,507)
3,723
\u2013
(13)
(223)
236
\u2013
Impact of transfers between stages
(235)
(2,868)
3,103
\u2013
(260)
402
312
454
75
(93)
472
454
Other changes in credit quality
105
(103)
804
8
814
Additions and repayments
6,393
(4,213)
(2,353)
(1,043)
(1,216)
81
(85)
(862)
(81)
(947)
Charge (credit) to the income
statement
261
(281)
414
(73)
321
Disposals and derecognition
(3,685)
(892)
(122)
(743)
(5,442)
(54)
(59)
(24)
(34)
(171)
Advances written off
Recoveries of advances written off in
(1,231)
\u2013
(1,231)
(1,231)
\u2013
(1,231)
previous years
116
\u2013
116
116
\u2013
116
At 31 December 2023
385,294
53,167
7,147
7,854
453,462
900
1,467
1,137
213
3,717
Allowance for impairment losses
(900)
(1,467)
(1,137)
(213)
(3,717)
Net carrying amount
384,394
51,700
6,010
7,641
449,745
Drawn ECL coverage
4
(%)
0.2
2.8
15.9
2.7
0.8
1
2
3
1 Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, derecognising assets as a result of modifications and
adjustments in respect of purchased or originated credit-impaired financial assets (POCI). Where a POCI asset\u2019s expected credit loss is less than its expected credit loss
on purchase or origination, the increase in its carrying value is recognised within gross loans, rather than as a negative impairment allowance.
2 Includes a charge for methodology and model changes of \u00a360 million, split by stage as \u00a396 million charge for Stage 1, \u00a333 million credit for Stage 2, \u00a31 million credit for
Stage 3 and \u00a32 million credit for POCI.
3 Relates to the securitisations of legacy Retail mortgages and Retail unsecured loans.
4 Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.
The total allowance for impairment losses includes \u00a3187 million (2022: \u00a392 million) in respect of residual value impairment and voluntary
terminations within the Group\u2019s UK Motor Finance business.
Movements in Retail UK mortgage balances were as follows:
Gross carrying amount
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Retail \u2013 UK mortgages
At 1 January 2023
257,517
41,783
3,416
9,622
312,338
91
552
311
253
1,207
Exchange and other adjustments
\u2013
\u2013
\u2013
18
18
\u2013
\u2013
53
67
120
Transfers to Stage 1
12,202
(12,195)
(7)
\u2013
66
(65)
(1)
\u2013
Transfers to Stage 2
(12,673)
13,103
(430)
\u2013
(7)
33
(26)
\u2013
Transfers to Stage 3
(450)
(1,656)
2,106
\u2013
\u2013
(66)
66
\u2013
Impact of transfers between stages
(921)
(748)
1,669
\u2013
(50)
91
115
156
9
(7)
154
156
Other changes in credit quality
43
(104)
14
8
(39)
Additions and repayments
1,202
(1,955)
(553)
(1,043)
(2,349)
19
(49)
(67)
(81)
(178)
Charge (credit) to the income
statement
71
(160)
101
(73)
(61)
Disposals and derecognition
(1,202)
(547)
(94)
(743)
(2,586)
(1)
(18)
(7)
(34)
(60)
Advances written off
Recoveries of advances written off in
(108)
\u2013
(108)
(108)
\u2013
(108)
previous years
7
\u2013
7
7
\u2013
7
At 31 December 2023
256,596
38,533
4,337
7,854
307,320
161
374
357
213
1,105
Allowance for impairment losses
(161)
(374)
(357)
(213)
(1,105)
Net carrying amount
256,435
38,159
3,980
7,641
306,215
Drawn ECL coverage
4
(%)
0.1
1.0
8.2
2.7
0.4
1
2
3
1 Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, derecognising assets as a result of modifications and
adjustments in respect of purchased or originated credit-impaired financial assets (POCI). Where a POCI asset\u2019s expected credit loss is less than its expected credit loss
on purchase or origination, the increase in its carrying value is recognised within gross loans, rather than as a negative impairment allowance.
2 Includes a charge for methodology and model changes of \u00a374 million, split by stage as \u00a391 million charge for Stage 1, \u00a312 million credit for Stage 2, \u00a33 million credit for
Stage 3 and \u00a32 million credit for POCI.
3 Relates to the securitisation of legacy Retail mortgages.
4 Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.
Movements in Retail credit cards were as follows:
Gross carrying amount
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Retail \u2013 credit cards
At 1 January 2023
11,416
3,287
289
14,992
120
433
113
666
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
(16)
(16)
Transfers to Stage 1
1,311
(1,308)
(3)
\u2013
142
(141)
(1)
\u2013
Transfers to Stage 2
(744)
782
(38)
\u2013
(11)
28
(17)
\u2013
Transfers to Stage 3
(172)
(266)
438
\u2013
(4)
(69)
73
\u2013
Impact of transfers between stages
395
(792)
397
\u2013
(80)
125
80
125
47
(57)
135
125
Other changes in credit quality
15
9
298
322
Additions and repayments
814
413
(13)
1,214
(14)
16
(11)
(9)
Charge to the income statement
48
(32)
422
438
Advances written off
(449)
(449)
(449)
(449)
Recoveries of advances written off in previous years
60
60
60
60
At 31 December 2023
12,625
2,908
284
15,817
168
401
130
699
Allowance for impairment losses
(168)
(401)
(130)
(699)
Net carrying amount
12,457
2,507
154
15,118
Drawn ECL coverage
2
(%)
1.3
13.8
45.8
4.4
1
1 Includes a credit for methodology and model changes of \u00a318 million, split by stage as \u00a32 million charge for Stage 1, \u00a320 million credit for Stage 2 and \u00a3nil for Stage 3.
2 Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.
Movements in Commercial Banking lending were as follows:
Gross carrying amount
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Commercial Banking
At 1 January 2023
80,509
11,493
3,371
95,373
214
414
1,070
1,698
Exchange and other adjustments
(968)
(14)
(6)
(988)
(6)
\u2013
83
77
Transfers to Stage 1
4,026
(4,011)
(15)
\u2013
101
(101)
\u2013
\u2013
Transfers to Stage 2
(3,074)
3,143
(69)
\u2013
(16)
19
(3)
\u2013
Transfers to Stage 3
(369)
(327)
696
\u2013
(3)
(26)
29
\u2013
Impact of transfers between stages
583
(1,195)
612
\u2013
(76)
117
32
73
6
9
58
73
Other changes in credit quality
17
9
230
256
Additions and repayments
(550)
(2,297)
(1,657)
(4,504)
1
(60)
(771)
(830)
Charge to the income statement
24
(42)
(483)
(501)
Advances written off
(256)
(256)
(256)
(256)
Recoveries of advances written off in previous years
4
4
4
4
At 31 December 2023
79,574
7,987
2,068
89,629
232
372
418
1,022
Allowance for impairment losses
(232)
(372)
(418)
(1,022)
Net carrying amount
79,342
7,615
1,650
88,607
Drawn ECL coverage
1
(%)
0.3
4.7
20.2
1.1
1 Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.
Year ended 31 December 2022
1
2
Gross carrying amount
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January 2022
400,036
34,931
6,443
10,977
452,387
915
1,114
1,581
210
3,820
Exchange and other adjustments
(393)
15
(23)
12
(389)
2
\u2013
39
65
106
Transfers to Stage 1
8,330
(8,257)
(73)
\u2013
176
(167)
(9)
\u2013
Transfers to Stage 2
(35,046)
35,448
(402)
\u2013
(66)
135
(69)
\u2013
Transfers to Stage 3
(1,250)
(2,528)
3,778
\u2013
(8)
(158)
166
\u2013
Impact of transfers between stages
(27,966)
24,663
3,303
\u2013
(120)
701
268
849
(18)
511
356
849
Other changes in credit quality
(309)
85
618
49
443
Additions and repayments
9,314
1,555
(1,337)
(1,354)
8,178
110
98
(91)
(58)
59
(Credit) charge to the income
statement
(217)
694
883
(9)
1,351
Advances written off
Recoveries of advances written off in
(928)
(13)
(941)
(928)
(13)
(941)
previous years
182
\u2013
182
182
\u2013
182
At 31 December 2022
380,991
61,164
7,640
9,622
459,417
700
1,808
1,757
253
4,518
Allowance for impairment losses
(700)
(1,808)
(1,757)
(253)
(4,518)
Net carrying amount
380,291
59,356
5,883
9,369
454,899
Drawn ECL coverage
3
(%)
0.2
3.0
23.0
2.6
1.0
1 Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, derecognising assets as a result of modifications and
adjustments in respect of purchased or originated credit-impaired financial assets (POCI). Where a POCI asset\u2019s expected credit loss is less than its expected credit loss
on purchase or origination, the increase in its carrying value is recognised within gross loans, rather than as a negative impairment allowance.
2 Includes a credit for methodology and model changes of \u00a363 million, split by stage as \u00a32 million charge for Stage 1, \u00a311 million charge for Stage 2, \u00a347 million credit for
Stage 3 and \u00a329 million credit for POCI.
3 Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.
Movements in Retail UK mortgage balances were as follows:
Gross carrying amount
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Retail \u2013 UK mortgages
At 1 January 2022
273,629
21,798
1,940
10,977
308,344
48
394
184
210
836
Exchange and other adjustments
\u2013
\u2013
\u2013
12
12
\u2013
\u2013
28
65
93
Transfers to Stage 1
5,107
(5,096)
(11)
\u2013
28
(27)
(1)
\u2013
Transfers to Stage 2
(26,043)
26,204
(161)
\u2013
(14)
25
(11)
\u2013
Transfers to Stage 3
(444)
(1,793)
2,237
\u2013
\u2013
(63)
63
\u2013
Impact of transfers between stages
(21,380)
19,315
2,065
\u2013
(25)
254
98
327
(11)
189
149
327
Other changes in credit quality
36
(21)
(1)
49
63
Additions and repayments
5,268
670
(585)
(1,354)
3,999
18
(10)
(45)
(58)
(95)
Charge (credit) to the income
statement
43
158
103
(9)
295
Advances written off
Recoveries of advances written off in
(28)
(13)
(41)
(28)
(13)
(41)
previous years
24
\u2013
24
24
\u2013
24
At 31 December 2022
257,517
41,783
3,416
9,622
312,338
91
552
311
253
1,207
Allowance for impairment losses
(91)
(552)
(311)
(253)
(1,207)
Net carrying amount
257,426
41,231
3,105
9,369
311,131
Drawn ECL coverage
3
(%)
\u2013
1.3
9.1
2.6
0.4
1
2
1 Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, derecognising assets as a result of modifications and
adjustments in respect of purchased or originated credit-impaired financial assets (POCI). Where a POCI asset\u2019s expected credit loss is less than its expected credit loss
on purchase or origination, the increase in its carrying value is recognised within gross loans, rather than as a negative impairment allowance.
2 Includes a credit for methodology and model changes of \u00a396 million, split by stage as \u00a3nil for Stage 1, \u00a312 million credit for Stage 2, \u00a355 million credit for Stage 3 and
\u00a329 million credit for POCI.
3 Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.
Movements in Retail credit cards were as follows:
Gross carrying amount
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Retail \u2013 credit cards
At 1 January 2022
11,918
2,077
292
14,287
96
218
128
442
Exchange and other adjustments
(13)
(2)
\u2013
(15)
4
2
(16)
(10)
Transfers to Stage 1
569
(566)
(3)
\u2013
48
(47)
(1)
\u2013
Transfers to Stage 2
(1,319)
1,358
(39)
\u2013
(16)
36
(20)
\u2013
Transfers to Stage 3
(184)
(191)
375
\u2013
(3)
(43)
46
\u2013
Impact of transfers between stages
(934)
601
333
\u2013
(26)
185
73
232
3
131
98
232
Other changes in credit quality
18
49
230
297
Additions and repayments
445
611
(14)
1,042
(1)
33
(5)
27
Charge to the income statement
20
213
323
556
Advances written off
(413)
(413)
(413)
(413)
Recoveries of advances written off in previous years
91
91
91
91
At 31 December 2022
11,416
3,287
289
14,992
120
433
113
666
Allowance for impairment losses
(120)
(433)
(113)
(666)
Net carrying amount
11,296
2,854
176
14,326
Drawn ECL coverage
2
(%)
1.1
13.2
39.1
4.4
1 1 Includes a charge for methodology and model changes of \u00a333 million, split by stage as \u00a33 million charge for Stage 1, \u00a327 million charge for Stage 2 and \u00a33 million charge for Stage 3. 2 Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers. Movements in Commercial Banking lending were as follows:
Gross carrying amount
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Commercial Banking
At 1 January 2022
82,719
7,530
3,563
93,812
125
260
956
1,341
Exchange and other adjustments
748
6
(20)
734
4
(2)
41
43
Transfers to Stage 1
1,723
(1,676)
(47)
\u2013
55
(55)
\u2013
\u2013
Transfers to Stage 2
(5,807)
5,950
(143)
\u2013
(11)
19
(8)
\u2013
Transfers to Stage 3
(404)
(326)
730
\u2013
(2)
(14)
16
\u2013
Impact of transfers between stages
(4,488)
3,948
540
\u2013
(44)
131
7
94
(2)
81
15
94
Other changes in credit quality
28
18
192
238
Additions and repayments
1,530
9
(587)
952
59
57
(9)
107
Charge to the income statement
85
156
198
439
Advances written off
(127)
(127)
(127)
(127)
Recoveries of advances written off in previous years
2
2
2
2
At 31 December 2022
80,509
11,493
3,371
95,373
214
414
1,070
1,698
Allowance for impairment losses
(214)
(414)
(1,070)
(1,698)
Net carrying amount
80,295
11,079
2,301
93,675
Drawn ECL coverage
2
(%)
0.3
3.6
31.7
1.8
1 1 Includes a credit for methodology and model changes of \u00a325 million, split by stage as \u00a37 million credit for Stage 1, \u00a318 million credit for Stage 2 and \u00a3nil for Stage 3. 2 Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers. The movement tables are compiled by comparing the position at 31 December to that at the beginning of the year. Transfers between stages are deemed to have taken place at the start of the reporting period, with all other movements shown in the stage in which the asset is held at 31 December, with the exception of those held within purchased or originated credit-impaired, which are not transferable. Additions and repayments comprise new loans originated and repayments of outstanding balances throughout the reporting period. The Group\u2019s impairment charge comprises impact of transfers between stages, other changes in credit quality and additions and repayments. Advances written off have first been transferred to Stage 3 and then acquired a full allowance through other changes in credit quality. Recoveries of advances written off in previous years are shown at the full recovered value, with a corresponding entry in repayments and release of allowance through other changes in credit quality.", "dimensions": { "concept": "ifrs-full:DisclosureOfLoansAndAdvancesToCustomersExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-926": { "value": "
Note 24: Allowance for expected credit losses
The Group recognises an allowance for expected credit losses (ECLs) for loans and advances to customers and banks, other financial
assets held at amortised cost, financial assets (other than equity investments) measured at fair value through other comprehensive
income and certain loan commitment and financial guarantee contracts. At 31 December 2023, the Group\u2019s expected credit loss
allowance was \u00a34,084 million (2022: \u00a34,903 million), of which \u00a33,762 million (2022: \u00a34,580 million) was in respect of drawn balances.
The Group\u2019s total impairment allowances were as follows:
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
In respect of:
Loans and advances to banks
8
\u2013
\u2013
\u2013
8
UK mortgages
161
374
357
213
1,105
Credit cards
168
401
130
\u2013
699
Other
339
320
228
\u2013
887
Retail
668
1,095
715
213
2,691
Commercial Banking
232
372
418
\u2013
1,022
Other
\u2013
\u2013
4
\u2013
4
Loans and advances to customers
900
1,467
1,137
213
3,717
Debt securities
7
2
2
\u2013
11
Financial assets at amortised cost
915
1,469
1,139
213
3,736
Other assets
16
\u2013
10
\u2013
26
Provisions in relation to loan commitments and financial guarantees
160
160
2
\u2013
322
Total
1,091
1,629
1,151
213
4,084
Expected credit loss in respect of financial assets at fair value through other
comprehensive income (memorandum item)
7
\u2013
\u2013
\u2013
7
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
In respect of:
Loans and advances to banks
13
2
\u2013
\u2013
15
UK mortgages
91
552
311
253
1,207
Credit cards
120
433
113
\u2013
666
Other
275
409
259
\u2013
943
Retail
486
1,394
683
253
2,816
Commercial Banking
214
414
1,070
\u2013
1,698
Other
\u2013
\u2013
4
\u2013
4
Loans and advances to customers
700
1,808
1,757
253
4,518
Debt securities
8
\u2013
1
\u2013
9
Financial assets at amortised cost
721
1,810
1,758
253
4,542
Other assets
\u2013
\u2013
38
\u2013
38
Provisions in relation to loan commitments and financial guarantees
134
185
4
\u2013
323
Total
855
1,995
1,800
253
4,903
Expected credit loss in respect of financial assets at fair value through other
comprehensive income (memorandum item)
9
\u2013
\u2013
\u2013
9
The calculation of the Group\u2019s expected credit loss allowances and provisions against loan commitments and guarantees, which are set out above, under IFRS 9 requires the Group to make a number of judgements, assumptions and estimates. The most significant are set out below: Critical accounting judgements and key sources of estimation uncertainty Critical judgements: Determining an appropriate definition of default against which a probability of default, exposure at default and loss given default parameter can be evaluated Establishing the criteria for a significant increase in credit risk (SICR) The individual assessment of material cases and the use of judgemental adjustments made to impairment modelling processes that adjust inputs, parameters and outputs to reflect risks not captured by models Key source of estimation uncertainty: Base case and multiple economic scenarios (MES) assumptions, including the rate of unemployment and the rate of change of house prices, required for creation of MES scenarios and forward-looking credit parameters Definition of default The probability of default (PD) of an exposure, both over a 12-month period and over its lifetime, is a key input to the measurement of the ECL allowance. Default has occurred when there is evidence that the customer is experiencing significant financial difficulty which is likely to affect the ability to repay amounts due. The definition of default adopted by the Group is described in note 2(H) Impairment of financial assets. IFRS 9 contains a rebuttable presumption that default occurs no later than when a payment is 90 days past due which the Group now uses for all its products following changes to the definition of default for UK mortgages on 1 January 2022. In addition, other indicators of mortgage default include end-of-term payments on past due interest-only accounts and loans considered in probation due to recent arrears or forbearance, aligning the definition of Stage 3 credit-impaired for IFRS 9 to the CRD IV prudential regulatory definition of default. Significant increase in credit risk An ECL allowance equivalent to 12 months\u2019 expected losses is established against assets in Stage 1; assets classified as Stage 2 carry an ECL allowance equivalent to lifetime expected losses. Assets are transferred from Stage 1 to Stage 2 when there has been a significant increase in credit risk (SICR) since initial recognition. Credit-impaired assets are transferred to Stage 3 with a lifetime expected losses allowance. The Group uses both quantitative and qualitative indicators to determine whether there has been a SICR for an asset. For Retail, the following tables set out the retail master scale (RMS) grade triggers which result in a SICR for financial assets and the PD boundaries for each RMS grade. SICR triggers for key Retail portfolios
Origination grade
1
2
3
4
5
6
7
Mortgages SICR grade
5
5
6
7
8
9
10
Credit cards, loans and overdrafts SICR grade
4
5
6
7
8
9
10
RMS grade
1
2
3
4
5
6
7
8
9
10
11
12
13
14
PD boundary
1
(%)
0.10
0.40
0.80
1.20
2.50
4.50
7.50
10.00
14.00
20.00
30.00
45.00
99.99
100.00
1 Probability-weighted annualised lifetime probability of default. For Commercial a doubling of PD with a minimum increase in PD of 1 per cent and a resulting change in the underlying grade is treated as a SICR. The Group uses the internal credit risk classification and watchlist as qualitative indicators to identify a SICR. The Group does not use the low credit risk exemption in its staging assessments. The use of a payment holiday in and of itself has not been judged to indicate a significant increase in credit risk, nor forbearance, with the underlying long-term credit risk deemed to be driven by economic conditions and captured through the use of forward-looking models. These portfolio level models are capturing the anticipated volume of increased defaults and therefore an appropriate assessment of staging and expected credit loss. All financial assets are assumed to have suffered a SICR if they are more than 30 days past due; credit cards, loans and overdrafts financial assets are also assumed to have suffered a SICR if they are in arrears on three or more separate occasions in a rolling 12- month period. Financial assets are classified as credit-impaired if they are 90 days past due. A Stage 3 asset that is no longer credit-impaired is transferred back to Stage 2 as no general probation period is applied to assets in Stage 3. UK mortgages is an exception to this rule where a probation period is enforced for non-performing, forborne and defaulted exposures in accordance with prudential regulation. If an exposure that is classified as Stage 2 no longer meets the SICR criteria, which in some cases capture customer behaviour in previous periods, it is moved back to Stage 1. The setting of precise trigger points combined with risk indicators requires judgement. The use of different trigger points may have a material impact upon the size of the ECL allowance. The Group monitors the effectiveness of SICR criteria on an ongoing basis. Lifetime of an exposure A range of approaches, segmented by product type, has been adopted by the Group to estimate a product\u2019s expected life. These include using the full contractual life and taking into account behavioural factors such as early repayments, extensions and refinancing. For non-revolving retail assets, the Group has assumed the expected life for each product to be the time taken for all significant losses to be observed. For revolving retail products, the Group has considered the losses beyond the contractual term over which the Group is exposed to credit risk. For commercial overdraft facilities, the average behavioural life has been used. Changes to the assumed expected lives of the Group\u2019s assets could impact the ECL allowance recognised by the Group. The assessment of SICR and corresponding lifetime loss, and the PD, of a financial asset designated as Stage 2, or Stage 3, is dependent on its expected life. Individual assessments and application of judgement in adjustments to modelled ECL The table below analyses total ECL allowances by portfolio, separately identifying the amounts that have been modelled, those that have been individually assessed and those arising through the application of judgemental adjustments.
Judgements due to:
Inflationary
Modelled Individually and interest Total
ECL assessed rate risk Other ECL
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
UK mortgages
991
\u2013
61
63
1,115
Credit cards
703
\u2013
92
15
810
Other Retail
866
\u2013
33
46
945
Commercial Banking
1,124
340
\u2013
(282)
1,182
Other
32
\u2013
\u2013
\u2013
32
Total
3,716
340
186
(158)
4,084
At 31 December 2022
UK mortgages
946
\u2013
49
214
1,209
Credit cards
698
\u2013
93
(28)
763
Other Retail
903
\u2013
53
60
1,016
Commercial Banking
972
1,008
\u2013
(111)
1,869
Other
46
\u2013
\u2013
\u2013
46
Total
3,565
1,008
195
135
4,903
1 1 2022 includes \u00a31 million which was previously reported within judgements due to COVID-19. Individual assessed ECL Stage 3 ECL in Commercial Banking is largely assessed on an individual basis by the Business Support Unit using bespoke assessment of loss for each specific client based on potential recovery strategies. While these assessments are based on the Group\u2019s latest economic view, the use of Group-wide multiple economic scenarios and weightings is not considered appropriate for these cases due to their individual characteristics. In place of this, a range of case-specific outcomes are considered with any alternative better or worse outcomes that carry a 25 per cent likelihood taken into account in establishing a probability-weighted ECL. At 31 December 2023, individually assessed provisions for Commercial Banking were \u00a3340 million (2022: \u00a31,008 million) which reflected a range of \u00a3291 million to \u00a3413 million (2022: \u00a3908 million to \u00a31,140 million), based on the range of alternative outcomes considered. Application of judgement in adjustments to modelled ECL Impairment models fall within the Group\u2019s model risk framework with model monitoring, periodic validation and back testing performed on model components, such as probability of default. Limitations in the Group\u2019s impairment models or data inputs may be identified through the ongoing assessment and validation of the output of the models. In these circumstances, management applies appropriate judgemental adjustments to the ECL to ensure that the overall provision adequately reflects all material risks. These adjustments are determined by considering the particular attributes of exposures which have not been adequately captured by the impairment models and range from changes to model inputs and parameters, at account level, through to more qualitative post- model adjustments. Post-model adjustments are not typically calculated under each distinct economic scenario used to generate ECL, but on final modelled ECL. All adjustments are reviewed quarterly and are subject to internal review and challenge, including by the Audit Committee, to ensure that amounts are appropriately calculated and specific release criteria is identified. During 2022 the intensifying inflationary pressures, alongside rising interest rates within the Group\u2019s outlook created further risks not deemed to be fully captured by ECL models. These pressures played out in 2023 with households experiencing increased interest rates and living costs. These risks, whilst still present, are beginning to subside with inflation now reducing and interest rates now believed to have peaked. As a result, the judgements held in respect of inflationary and interest rate risks are at a slightly reduced level of \u00a3186 million (2022: \u00a3195 million). Other judgements continue to be applied for broader data and model limitations, both increasing and decreasing ECL. These include incremental risks associated with a material devaluation in commercial real estate prices present since 2022. Given ECL models only capture future price movements, and not the suppressed level, there is a risk that further losses are yet to emerge as well as greater risk on specific sector valuations. At 31 December 2023 judgemental adjustments resulted in net additional ECL allowances totalling \u00a328 million (2022: \u00a3330 million). Judgements due to inflationary and interest rate risk UK mortgages: \u00a361 million (2022: \u00a349 million) There has been only modest evidence of credit deterioration in the UK mortgages portfolio through 2023 despite the high levels of inflation and the rising interest rate environment. Increases in new to arrears and defaults that have emerged are mainly driven by variable rate customers, who have experienced material increases in their monthly payment. Mortgage ECL models use UK Bank Rate as a driver of predicted defaults largely capturing the stretch on customers due to increased payments, and that has contributed materially to the elevated levels of ECL at 31 December 2023. The impact is also partly mitigated by stressed affordability assessments applied at loan origination which means most customers have demonstrated the ability to absorb payment shocks. However, there remains a potential risk to affordability from continued inflationary pressures combined with higher interest rates, and that this may not be fully captured by the Group\u2019s ECL models. The risk remains for customers maturing from low fixed rate deals, the accumulated impact on variable rate product holders, lower levels of real household income and rental cover value. Therefore a judgemental uplift in ECL has been taken in these segments of the mortgages portfolio, either where inflation is expected to present a more material risk, or where segments within the model do not recognise UK Bank Rate as a material driver of predicted defaults. Credit cards: \u00a392 million (2022: \u00a393 million) and Other Retail: \u00a333 million (2022: \u00a353 million) The Group\u2019s ECL models for credit cards and personal loan portfolios use predictions of wage growth to account for future affordability stress. As elevated inflation erodes nominal wage growth, adjustments have been made to the econometric models to account for real, rather than nominal, income to produce adjusted predicted defaults. These adjustments also include the specific risk to affordability from increased housing costs, not captured by CPI. As these adjustments are made within predicted default models, they are calculated under each economic scenario and impact the staging of assets through increased PDs. Alongside these portfolio-wide adjustments management has also made an additional uplift to ECL for customers with lower income levels and higher indebtedness deemed most vulnerable to inflationary pressures and interest rate rises. Although this segment of customers has not exhibited any greater deterioration to date, uplifts continue to be applied to recognise that continued inflation and interest rates risks remain. Other judgements UK mortgages: \u00a363 million (2022: \u00a3214 million) These adjustments principally comprise: Increase in time to repossession: \u00a3106 million (2022: \u00a3118 million) Due to the Group suspending mortgage litigation activity between late-2014 and mid-2018 due to policy changes for the treatment of arrears, and as collections strategy normalises post COVID-19 pandemic, the Group\u2019s experience of possessions data on which our models rely is limited. This reflects an adjustment made to allow for an increase in the time assumed between default and repossession. A number of defaulted accounts, equivalent in scale to the estimated shortfall in possessions experienced, have had their provision coverage judgementally increased to the level of those accounts already in repossession. A further adjustment is made to accounts which have been in default for more than 24 months, with an arrears balance increase in the last six months. These accounts have their probability of possession judgmentally set to an increased level based on observed historical losses incurred on accounts that were of an equivalent status. Asset recovery values: \u00a3nil (2022: \u00a369 million) The low level of repossession volumes throughout 2020 to 2022 restricted the calibration of Forced Sale Discount (FSD) model parameters which uses the achieved sales price experience over the last 12 months. Over this period management partly incorporated an increasing trend in FSD rates through judgementally extending the observation period. At December 2023 the level of sales volumes observed over the past 12 months has subsequently returned to an adequate level for model calibrations to again be performed removing the need for judgemental adjustment. Adjustment for specific segments: \u00a323 million (2022: \u00a325 million) The Group monitors risks across specific segments of its portfolios which may not be fully captured through wider collective models. The judgement for fire safety and cladding uncertainty has been maintained. Though experience remains limited the risk is considered sufficiently material to address through judgement, given that there is evidence of assessed cases having defective cladding, or other fire safety issues. Adjustment for Stage 2 oversensitivity: \u00a3(68) million (2022: \u00a3nil) Management has observed an increasing degree of oversensitivity in the number of recently originated low risk accounts moving to Stage 2 through the PD trigger mechanism. This arises from a blend of factors currently present, with the combination of the Group\u2019s current MES assumptions and the uplift approach applied, disproportionately applying greater forward-looking uplifts to recent vintages. Given these accounts have shown no significant movement in observed credit scores and were originated under a similar or more adverse economic outlook, an adjustment has been made pending a model rebuild. Management has judgementally increased the threshold applied to these accounts by one further grade (to what is set out on page 277) which results in \u00a36 billion of assets being moved back to Stage 1 which results in a lower 12-month ECL. Credit cards: \u00a315 million (2022: \u00a3(28) million) and Other Retail: \u00a346 million (2022: \u00a360 million) These adjustments principally comprise: Lifetime extension on revolving products: Credit cards: \u00a367 million (2022: \u00a382 million) and Other Retail: \u00a310 million (2022: \u00a314 million) An adjustment is required to extend the lifetime used for Stage 2 exposures on Retail revolving products from a three-year modelled lifetime, which reflected the outcome data available when the ECL models were developed. Incremental defaults beyond year three are calculated through the extrapolation of the default trajectory observed throughout the three years and beyond. The judgement has reduced slightly in the period following refinement to the discounting methodology applied. Adjustments to loss given defaults (LGDs): Credit cards: \u00a3(50) million (2022: \u00a3(96) million) and Other Retail: \u00a337 million (2022: \u00a313 million) A number of adjustments have been made to the loss given default assumptions used within unsecured and motor credit models. For unsecured portfolios, the adjustments reflect the impact of changes in collection debt sale strategy on the Group\u2019s LGD models, incorporating up to date customer performance and forward flow debt sale pricing. For motor, the adjustment captures a decline in used car prices. Commercial Banking: \u00a3(282) million (2022: \u00a3(111) million) These adjustments principally comprise: Corporate insolvency rates: \u00a3(292) million (2022: \u00a3(35) million) During 2023, the volume of UK corporate insolvencies continued to exhibit an increasing trend beyond December 2019 levels, revealing a marked misalignment between observed UK corporate insolvencies and the Group\u2019s credit performance. This dislocation gives rise to uncertainty over the drivers of observed trends and the appropriateness of the Group\u2019s Commercial Banking model response which uses observed UK corporate insolvencies data to anchor future loss estimates to. Given the Group\u2019s asset quality remains strong with low new defaults, a negative adjustment is applied by using the long-term average rate. The larger negative adjustment in the period reflects the widening gap between the increasing industry level and the long-term average rate used. Adjustments to loss given defaults (LGDs): \u00a3(105) million (2022: \u00a3(105) million) Following a review on the loss given default approach for commercial exposures, management deems that ECL should be adjusted to mitigate limitations identified in the approach which are causing loss given defaults to be inflated. These include the benefit from amortisation of exposures relative to collateral values at default and a move to an exposure-weighted approach being adopted. These temporary adjustments will be addressed through future model development.
Commercial Real Estate (CRE) price reduction: \u00a367 million (2022: \u00a3nil)
Rolling the forecast model forwards into the period has resulted in the material fall in CRE prices seen in late 2022 moving out of the
model assumptions used to assess ECL. Given the model uses future changes in the metric as a driver of defaults and loss rates there is
a risk that the model benefit that arises does not reflect the residual risk caused by the sustained low level of prices. Management
therefore considers it appropriate to judgementally reinstate the CRE price drop within the ECL model assumptions given the materially
reduced level in CRE prices could still trigger additional defaults Within this adjustment management has refined the potential impact
on loss rates through capturing updated valuations as well as stressing valuations on specific sectors where evidence suggests
valuations may lag achievable levels, notably in cases of stressed sale.
Generation of multiple economic scenarios
The estimate of expected credit losses is required to be based on an unbiased expectation of future economic scenarios. The
approach used to generate the range of future economic scenarios depends on the methodology and judgements adopted. The
Group\u2019s approach is to start from a defined base case scenario, used for planning purposes, and to generate alternative economic
scenarios around this base case. The base case scenario is a conditional forecast underpinned by a number of conditioning
assumptions that reflect the Group\u2019s best view of key future developments. If circumstances appear likely to materially deviate from
the conditioning assumptions, then the base case scenario is updated.
The base case scenario is central to a range of future economic scenarios generated by simulation of an economic model, for which
the same conditioning assumptions apply as in the base case scenario. These scenarios are ranked by using estimated relationships
with industry-wide historical loss data. With the base case already pre-defined, three other scenarios are identified as averages of
constituent scenarios located around the 15th, 75th and 95th percentiles of the distribution. The full distribution is therefore summarised
by a practical number of scenarios to run through ECL models representing an upside, the base case, and a downside scenario
weighted at 30 per cent each, together with a severe downside scenario weighted at 10 per cent. The scenario weights represent the
distribution of economic scenarios and not subjective views on likelihood. The inclusion of a severe downside scenario with a smaller
weighting ensures that the non-linearity of losses in the tail of the distribution is adequately captured. Macroeconomic projections may
employ reversionary techniques to adjust the paths of economic drivers towards long-run equilibria after a reasonable forecast
horizon. The Group does not use such techniques to force the MES scenarios to revert to the base case planning view. Utilising such
techniques would be expected to be immaterial for expected credit losses since loss sensitivity is highest over the initial five years of
the projections. Most assets are expected to have matured, or reached the end of their behavioural life before the five-year horizon.
A forum under the chairmanship of the Chief Economist meets at least quarterly to review and, if appropriate, recommend changes to
the method by which economic scenarios are generated, for approval by the Chief Financial Officer and Chief Risk Officer. In June 2022,
the Group judged it appropriate to include an adjusted severe downside scenario to incorporate a high CPI inflation and UK Bank Rate
profiles and to adopt this adjusted severe downside scenario to calculate the Group\u2019s ECL. This is because the historic macroeconomic
and loan loss data upon which the scenario model is calibrated imply an association of downside economic outcomes with easier
monetary policy, and therefore low interest rates. The adjustment is considered to better reflect the risks around the Group\u2019s base case
view in an economic environment where the potential for supply shocks remains an elevated concern. The Group has continued to
include a non-modelled severe downside scenario for Group ECL calculations for 31 December 2023 reporting.
Base case and MES economic assumptions
The Group\u2019s base case economic scenario has been updated to reflect ongoing geopolitical developments, and further evidence of
easing of inflationary pressures allowing shifts to less restrictive monetary policies globally. The Group\u2019s updated base case scenario
has three conditioning assumptions: first, the wars in Ukraine and the Middle East remain geographically contained and do not lead to
a major escalation in energy prices; second, China\u2019s economic stabilisation policy is effective; and third, less restrictive monetary and
fiscal policy throughout this year.
Based on these assumptions and incorporating the economic data published in the fourth quarter, the Group\u2019s base case scenario is
for slow expansion in GDP and a rise in the unemployment rate alongside modest changes in residential and commercial property
prices. Following a reduction in inflationary pressures, UK Bank Rate is expected to be lowered during 2024. Risks around this base case
economic view lie in both directions and are largely captured by the generation of alternative economic scenarios.
The Group has accommodated the latest available information at the reporting date in defining its base case scenario and generating
alternative economic scenarios. The scenarios include forecasts for key variables in the fourth quarter of 2023, for which actuals may
have since emerged prior to publication.
Scenarios by year
The key UK economic assumptions made by the Group are shown in the following tables across a number of measures explained
below.
Annual assumptions
Gross domestic product (GDP) and Consumer Price Index (CPI) inflation are presented as an annual change, house price growth and
commercial real estate price growth are presented as the growth in the respective indices over each year. Unemployment rate and
UK Bank Rate are averages over the year.
Five-year average
The five-year average reflects the average annual growth rate, or level, over the five-year period. It includes movements within the
current reporting year, such that the position as at 31 December 2023 covers the five years 2023 to 2027. The inclusion of the reporting
year within the five-year period reflects the need to predict variables which remain unpublished at the reporting date and recognises
that credit models utilise both level and annual changes. The use of calendar years maintains a comparability between the annual
assumptions presented.
Five-year start to peak and trough
The peak or trough for any metric may occur intra year and therefore not be identifiable from the annual assumptions, so they are also
disclosed. For GDP, house price growth and commercial real estate price growth, the peak, or trough, reflects the highest, or lowest
cumulative quarterly position reached relative to the start of the five-year period, which as at 31 December 2023 is 1 January 2023. Given
these metrics may exhibit increases followed by greater falls, the start to trough movements quoted may be smaller than the
equivalent \u2018peak to trough\u2019 movement (and vice versa for start to peak). Unemployment, UK Bank Rate and CPI inflation reflect the
highest, or lowest, quarterly level reached in the five-year period.
2023 to 2027 Start to Start to
2023 2024 2025 2026 2027 average peak trough
At 31 December 2023 % % % % % % % %
Upside
Gross domestic product
0.3
1.5
1.7
1.7
1.9
1.4
8.1
0.2
Unemployment rate
4.0
3.3
3.1
3.1
3.1
3.3
4.2
3.0
House price growth
1.9
0.8
6.9
7.2
6.8
4.7
25.7
(1.2)
Commercial real estate price growth
(3.9)
9.0
3.8
1.3
1.3
2.2
11.5
(3.9)
UK Bank Rate
4.94
5.72
5.61
5.38
5.18
5.37
5.79
4.25
CPI inflation
7.3
2.7
3.1
3.2
3.1
3.9
10.2
2.1
Base case
Gross domestic product
0.3
0.5
1.2
1.7
1.9
1.1
6.4
0.2
Unemployment rate
4.2
4.9
5.2
5.2
5.0
4.9
5.2
3.9
House price growth
1.4
(2.2)
0.5
1.6
3.5
1.0
4.8
(1.2)
Commercial real estate price growth
(5.1)
(0.2)
0.1
0.0
0.8
(0.9)
(1.2)
(5.3)
UK Bank Rate
4.94
4.88
4.00
3.50
3.06
4.08
5.25
3.00
CPI inflation
7.3
2.7
2.9
2.5
2.2
3.5
10.2
2.1
Downside
Gross domestic product
0.2
(1.0)
(0.1)
1.5
2.0
0.5
3.4
(1.2)
Unemployment rate
4.3
6.5
7.8
7.9
7.6
6.8
8.0
3.9
House price growth
1.3
(4.5)
(6.0)
(5.6)
(1.7)
(3.4)
2.0
(15.7)
Commercial real estate price growth
(6.0)
(8.7)
(4.0)
(2.1)
(1.2)
(4.4)
(1.2)
(20.4)
UK Bank Rate
4.94
3.95
1.96
1.13
0.55
2.51
5.25
0.43
CPI inflation
7.3
2.8
2.7
1.8
1.1
3.2
10.2
1.0
Severe downside
Gross domestic product
0.1
(2.3)
(0.5)
1.3
1.8
0.1
1.0
(2.9)
Unemployment rate
4.5
8.7
10.4
10.5
10.1
8.8
10.5
3.9
House price growth
0.6
(7.6)
(13.3)
(12.7)
(7.5)
(8.2)
2.0
(35.0)
Commercial real estate price growth
(7.7)
(19.5)
(10.6)
(7.7)
(5.2)
(10.3)
(1.2)
(41.8)
UK Bank Rate \u2013 modelled
4.94
2.75
0.49
0.13
0.03
1.67
5.25
0.02
UK Bank Rate \u2013 adjusted
4.94
6.56
4.56
3.63
3.13
4.56
6.75
3.00
CPI inflation \u2013 modelled
7.3
2.7
2.2
0.9
(0.2)
2.6
10.2
(0.3)
CPI inflation \u2013 adjusted
7.6
7.5
3.5
1.3
1.0
4.2
10.2
0.9
Probability-weighted
Gross domestic product
0.3
0.1
0.8
1.6
1.9
0.9
5.4
0.1
Unemployment rate
4.2
5.3
5.9
5.9
5.7
5.4
6.0
3.9
House price growth
1.4
(2.5)
(0.9)
(0.3)
1.8
(0.1)
2.0
(2.8)
Commercial real estate price growth
(5.3)
(1.9)
(1.1)
(1.0)
(0.2)
(1.9)
(1.2)
(9.9)
UK Bank Rate \u2013 modelled
4.94
4.64
3.52
3.02
2.64
3.75
5.25
2.59
UK Bank Rate \u2013 adjusted
4.94
5.02
3.93
3.37
2.95
4.04
5.42
2.89
CPI inflation \u2013 modelled
7.3
2.7
2.8
2.3
1.9
3.4
10.2
1.9
CPI inflation \u2013 adjusted
7.4
3.2
3.0
2.4
2.0
3.6
10.2
2.0
1
1
1
1
1 The adjustment to UK Bank Rate and CPI inflation in the severe downside is considered to better reflect the risks around the Group\u2019s base case view in an economic
environment where supply shocks are the principal concern.
1
First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
Base case scenario by quarter 2023 2023 2023 2023 2024 2024 2024 2024
At 31 December 2023 % % % % % % % %
Gross domestic product
0.3
0.0
(0.1)
0.0
0.1
0.2
0.3
0.3
Unemployment rate
3.9
4.2
4.2
4.3
4.5
4.8
5.0
5.2
House price growth
1.6
(2.6)
(4.5)
1.4
(1.1)
(1.5)
0.5
(2.2)
Commercial real estate price growth
(18.8)
(21.2)
(18.2)
(5.1)
(4.1)
(3.8)
(2.2)
(0.2)
UK Bank Rate
4.25
5.00
5.25
5.25
5.25
5.00
4.75
4.50
CPI inflation
10.2
8.4
6.7
4.0
3.8
2.1
2.3
2.8
1 Gross domestic product is presented quarter-on-quarter. House price growth, commercial real estate growth and CPI inflation are presented year-on-year, i.e. from the
equivalent quarter in the previous year. Unemployment rate and UK Bank Rate are presented as at the end of each quarter.
2022 to 2026 Start to Start to
2022 2023 2024 2025 2026 average peak trough
At 31 December 2022 % % % % % % % %
Upside
Gross domestic product
4.1
0.1
1.1
1.7
2.1
1.8
6.5
0.4
Unemployment rate
3.5
2.8
3.0
3.3
3.4
3.2
3.8
2.8
House price growth
2.4
(2.8)
6.5
9.0
8.0
4.5
24.8
(1.1)
Commercial real estate price growth
(9.4)
8.5
3.5
2.6
2.3
1.3
7.2
(9.4)
UK Bank Rate
1.94
4.95
4.98
4.63
4.58
4.22
5.39
0.75
CPI inflation
9.0
8.3
4.2
3.3
3.0
5.5
10.7
2.9
Base case
Gross domestic product
4.0
(1.2)
0.5
1.6
2.1
1.4
4.3
(1.1)
Unemployment rate
3.7
4.5
5.1
5.3
5.1
4.8
5.3
3.6
House price growth
2.0
(6.9)
(1.2)
2.9
4.4
0.2
6.4
(6.3)
Commercial real estate price growth
(11.8)
(3.3)
0.9
2.8
3.1
(1.8)
7.2
(14.8)
UK Bank Rate
1.94
4.00
3.38
3.00
3.00
3.06
4.00
0.75
CPI inflation
9.0
8.3
3.7
2.3
1.7
5.0
10.7
1.6
Downside
Gross domestic product
3.9
(3.0)
(0.5)
1.4
2.1
0.8
1.2
(3.6)
Unemployment rate
3.8
6.3
7.5
7.6
7.2
6.5
7.7
3.6
House price growth
1.6
(11.1)
(9.8)
(5.6)
(1.5)
(5.4)
6.4
(24.3)
Commercial real estate price growth
(13.9)
(15.0)
(3.7)
0.4
1.4
(6.4)
7.2
(29.6)
UK Bank Rate
1.94
2.93
1.39
0.98
1.04
1.65
3.62
0.75
CPI inflation
9.0
8.2
3.3
1.3
0.3
4.4
10.7
0.2
Severe downside
Gross domestic product
3.7
(5.2)
(1.0)
1.3
2.1
0.1
0.7
(6.4)
Unemployment rate
4.1
9.0
10.7
10.4
9.7
8.8
10.7
3.6
House price growth
1.1
(14.8)
(18.0)
(11.5)
(4.2)
(9.8)
6.4
(40.1)
Commercial real estate price growth
(17.3)
(28.8)
(9.9)
(1.3)
3.2
(11.6)
7.2
(47.8)
UK Bank Rate \u2013 modelled
1.94
1.41
0.20
0.13
0.14
0.76
3.50
0.12
UK Bank Rate \u2013 adjusted
2.44
7.00
4.88
3.31
3.25
4.18
7.00
0.75
CPI inflation \u2013 modelled
9.0
8.2
2.6
(0.1)
(1.6)
3.6
10.7
(1.7)
CPI inflation \u2013 adjusted
9.7
14.3
9.0
4.1
1.6
7.7
14.8
1.5
Probability-weighted
Gross domestic product
4.0
(1.8)
0.2
1.5
2.1
1.2
3.4
(1.8)
Unemployment rate
3.7
5.0
5.8
5.9
5.7
5.2
5.9
3.6
House price growth
1.9
(7.7)
(3.2)
0.7
2.9
(1.2)
6.4
(9.5)
Commercial real estate price growth
(12.3)
(5.8)
(0.8)
1.6
2.3
(3.1)
7.2
(18.6)
UK Bank Rate \u2013 modelled
1.94
3.70
2.94
2.59
2.60
2.76
3.89
0.75
UK Bank Rate \u2013 adjusted
1.99
4.26
3.41
2.91
2.91
3.10
4.31
0.75
CPI inflation \u2013 modelled
9.0
8.3
3.6
2.1
1.4
4.9
10.7
1.3
CPI inflation \u2013 adjusted
9.1
8.9
4.3
2.5
1.7
5.3
11.0
1.6
1 1 1 1 1 The adjustment to UK Bank Rate and CPI inflation in the severe downside is considered to better reflect the risks around the Group\u2019s base case view in an economic environment where supply shocks are the principal concern. 1
First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
Base case scenario by quarter 2022 2022 2022 2022 2023 2023 2023 2023
At 31 December 2022 % % % % % % % %
Gross domestic product
0.6
0.1
(0.3)
(0.4)
(0.4)
(0.4)
(0.2)
(0.1)
Unemployment rate
3.7
3.8
3.6
3.7
4.0
4.4
4.7
4.9
House price growth
11.1
12.5
9.8
2.0
(3.0)
(8.4)
(9.8)
(6.9)
Commercial real estate price growth
18.0
18.0
8.4
(11.8)
(16.9)
(19.8)
(15.9)
(3.3)
UK Bank Rate
0.75
1.25
2.25
3.50
4.00
4.00
4.00
4.00
CPI inflation
6.2
9.2
10.0
10.7
10.0
8.9
8.0
6.1
1 Gross domestic product is presented quarter-on-quarter. House price growth, commercial real estate growth and CPI inflation are presented year-on-year, i.e. from the equivalent quarter in the previous year. Unemployment rate and UK Bank Rate are presented as at the end of each quarter. ECL sensitivity to economic assumptions The table below shows the Group\u2019s ECL for the probability-weighted, upside, base case, downside and severe downside scenarios, with the severe downside scenario incorporating adjustments made to CPI inflation and UK Bank Rate paths. The stage allocation for an asset is based on the overall scenario probability-weighted probability of default and hence the staging of assets is constant across all the scenarios. In each economic scenario the ECL for individual assessments is held constant reflecting the basis on which they are evaluated. Judgemental adjustments applied through changes to model inputs or parameters, or more qualitative post model adjustments, are apportioned across the scenarios in proportion to modelled ECL where this better reflects the sensitivity of these adjustments to each scenario. The probability-weighted view shows the extent to which a higher ECL allowance has been recognised to take account of multiple economic scenarios relative to the base case; the uplift being \u00a3678 million compared to \u00a3692 million at 31 December 2022.
At 31 December 2023
At 31 December 2022
Probability- Severe Probability- Severe
weighted Upside Base case Downside downside weighted Upside Base case Downside downside
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
UK mortgages
1,115
395
670
1,155
4,485
1,209
514
790
1,434
3,874
Credit cards
810
600
771
918
1,235
763
596
727
828
1,180
Other Retail
945
850
920
981
1,200
1,016
907
992
1,056
1,290
Commercial Banking
1,182
793
1,013
1,383
2,250
1,869
1,459
1,656
2,027
3,261
Other
32
32
32
32
32
46
46
46
47
47
ECL allowance
4,084
2,670
3,406
4,469
9,202
4,903
3,522
4,211
5,392
9,652
The impact of isolated changes in the UK unemployment rate and House Price Index (HPI) has been assessed on a univariate basis. Although such changes would not be observed in isolation, as economic indicators tend to be correlated in a coherent scenario, this gives insight into the sensitivity of the Group\u2019s ECL to gradual changes in these two critical economic factors. The assessment has been made against the base case with staging held flat to the reported probability-weighted view and is assessed through the direct impact on modelled ECL and only includes judgemental adjustments applied through changes to model inputs. The table below shows the impact on the Group\u2019s ECL resulting from a 1 percentage point increase or decrease in the UK unemployment rate. The increase or decrease is presented based on the adjustment phased evenly over the first 10 quarters of the base case scenario. A more immediate increase or decrease would drive a more material ECL impact as it would be fully reflected in both 12-month and lifetime probability of defaults.
At 31 December 2023
At 31 December 2022
1pp increase in 1pp decrease in 1pp increase in 1pp decrease in
unemployment unemployment unemployment unemployment
\u00a3m \u00a3m \u00a3m \u00a3m
UK mortgages
33
(32)
26
(21)
Credit cards
38
(38)
41
(41)
Other Retail
19
(19)
25
(25)
Commercial Banking
88
(83)
100
(91)
ECL impact
178
(172)
192
(178)
The table below shows the impact on the Group\u2019s ECL in respect of UK mortgages of an increase or decrease in loss given default for a 10 percentage point increase or decrease in the UK HPI. The increase or decrease is presented based on the adjustment phased evenly over the first 10 quarters of the base case scenario.
At 31 December 2023
At 31 December 2022
10pp increase 10pp decrease 10pp increase 10pp decrease
in HPI in HPI in HPI in HPI
\u00a3m \u00a3m \u00a3m \u00a3m
ECL impact
(201)
305
(225)
370
The table below shows the Group\u2019s ECL and drawn balances for the upside, base case, downside and severe downside scenarios, with staging of assets based on each specific scenario probability of default. In each economic scenario the ECL for individual assessments is held constant reflecting the basis on which they are evaluated. Judgemental adjustments applied through changes to model inputs or parameters, or more qualitative post-model adjustments, are apportioned across the scenarios in proportion to modelled ECL where this better reflects the sensitivity of these adjustments to each scenario. A probability-weighted scenario is not shown as this view does not reflect the basis on which ECL is calculated. Comparing the probability-weighted ECL in the table above to the base case ECL with base case scenario specific staging, as shown in the table below, results in an uplift of \u00a3596 million compared to \u00a3820 million at 31 December 2022.
Drawn balances
ECL allowance
Coverage ratio
Base Severe Base Severe Base Severe
Upside case Downside downside Upside case Downside downside Upside case Downside downside
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m % % % %
Stage 1
UK mortgages
270,131
269,581
266,388
129,736
20
40
84
153
\u2013
\u2013
\u2013
0.1
Credit cards
13,338
12,668
12,109
10,966
169
211
242
298
1.3
1.7
2.0
2.7
Other Retail
39,260
38,939
38,373
30,202
360
384
404
448
0.9
1.0
1.1
1.5
Commercial Banking
98,202
97,394
92,919
78,781
165
260
376
431
0.2
0.3
0.4
0.6
Other
7,632
7,632
7,632
7,632
14
16
17
20
0.2
0.2
0.2
0.3
Total
428,563
426,214
417,421
257,317
728
911
1,123
1,350
0.2
0.2
0.3
0.5
Stage 2
UK mortgages
24,998
25,548
28,741
165,393
73
139
316
4,074
0.3
0.6
1.1
2.5
Credit cards
2,195
2,865
3,424
4,567
302
437
567
859
13.7
15.3
16.6
18.8
Other Retail
5,711
6,032
6,598
14,769
325
378
424
619
5.7
6.3
6.4
4.2
Commercial Banking
4,487
5,295
9,770
23,908
259
379
722
2,466
5.8
7.2
7.4
10.3
Other
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Total
37,391
39,740
48,533
208,637
959
1,333
2,029
8,018
2.6
3.4
4.2
3.8
Stage 3
UK mortgages
4,337
4,337
4,337
4,337
78
225
457
963
1.8
5.2
10.5
22.2
Credit cards
284
284
284
284
122
122
122
122
43.0
43.0
43.0
43.0
Other Retail
452
452
452
452
238
242
248
261
52.7
53.5
54.9
57.7
Commercial Banking
2,068
2,068
2,068
2,068
426
426
426
426
20.6
20.6
20.6
20.6
Other
39
39
39
39
16
16
16
16
41.0
41.0
41.0
41.0
Total
7,180
7,180
7,180
7,180
880
1,031
1,269
1,788
12.3
14.4
17.7
24.9
POCI
UK mortgages
7,854
7,854
7,854
7,854
213
213
213
213
2.7
2.7
2.7
2.7
Total
UK mortgages
307,320
307,320
307,320
307,320
384
617
1,070
5,403
0.1
0.2
0.4
1.8
Credit cards
15,817
15,817
15,817
15,817
593
770
931
1,279
3.8
4.9
5.9
8.1
Other Retail
45,423
45,423
45,423
45,423
923
1,004
1,076
1,328
2.0
2.2
2.4
2.9
Commercial Banking
104,757
104,757
104,757
104,757
850
1,065
1,524
3,323
0.8
1.0
1.5
3.2
Other
7,671
7,671
7,671
7,671
30
32
33
36
0.4
0.4
0.4
0.5
Total
480,988
480,988
480,988
480,988
2,780
3,488
4,634
11,369
0.6
0.7
1.0
2.4
1 2 3 1 Includes loans and advances to banks, loans and advances to customers, debt securities and items identified as other assets in note 27. 2 Coverage ratio is ECL allowance shown as a percentage of drawn balances. 3 POCI ECL has been presented on a probability-weighted basis. The sensitivity is captured within the UK mortgages total
Drawn balances
1
ECL allowance
Coverage ratio
Base Severe Base Severe Base Severe
Upside case Downside downside Upside case Downside downside Upside case Downside downside
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m % % % %
Stage 1
UK mortgages
272,780
264,062
259,684
112,102
39
55
91
106
\u2013
\u2013
\u2013
0.1
Credit cards
12,277
11,583
11,111
9,049
112
157
195
255
0.9
1.4
1.8
2.8
Other Retail
36,001
35,356
34,807
30,927
242
274
298
346
0.7
0.8
0.9
1.1
Commercial Banking
99,319
98,481
87,192
51,452
137
222
323
339
0.1
0.2
0.4
0.7
Other
4,301
4,301
4,301
4,301
42
42
43
43
1.0
1.0
1.0
1.0
Total
424,678
413,783
397,095
207,831
572
750
950
1,089
0.1
0.2
0.2
0.5
Stage 2
UK mortgages
26,520
35,238
39,616
187,198
137
242
557
6,649
0.5
0.7
1.4
3.6
Credit cards
2,426
3,120
3,592
5,654
338
449
534
952
13.9
14.4
14.9
16.8
Other Retail
3,671
4,316
4,865
8,745
390
453
501
839
10.6
10.5
10.3
9.6
Commercial Banking
6,663
7,501
18,790
54,530
214
304
745
3,777
3.2
4.1
4.0
6.9
Other
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Total
39,280
50,175
66,863
256,127
1,079
1,448
2,337
12,217
2.7
2.9
3.5
4.8
Stage 3
UK mortgages
3,416
3,416
3,416
3,416
40
184
443
840
1.2
5.4
13.0
24.6
Credit cards
289
289
289
289
113
113
113
113
39.1
39.1
39.1
39.1
Other Retail
558
558
558
558
254
257
260
264
45.5
46.1
46.6
47.3
Commercial Banking
3,371
3,371
3,371
3,371
1,074
1,074
1,074
1,074
31.9
31.9
31.9
31.9
Other
6
6
6
6
4
4
4
4
66.7
66.7
66.7
66.7
Total
7,640
7,640
7,640
7,640
1,485
1,632
1,894
2,295
19.4
21.4
24.8
30.0
POCI
UK mortgages
9,622
9,622
9,622
9,622
253
253
253
253
2.6
2.6
2.6
2.6
Total
UK mortgages
312,338
312,338
312,338
312,338
469
734
1,344
7,848
0.2
0.2
0.4
2.5
Credit cards
14,992
14,992
14,992
14,992
563
719
842
1,320
3.8
4.8
5.6
8.8
Other Retail
40,230
40,230
40,230
40,230
886
984
1,059
1,449
2.2
2.4
2.6
3.6
Commercial Banking
109,353
109,353
109,353
109,353
1,425
1,600
2,142
5,190
1.3
1.5
2.0
4.7
Other
4,307
4,307
4,307
4,307
46
46
47
47
1.1
1.1
1.1
1.1
Total
481,220
481,220
481,220
481,220
3,389
4,083
5,434
15,854
0.7
0.8
1.1
3.3
2 3 1 Includes loans and advances to banks, loans and advances to customers, debt securities and items identified as other assets in note 27. 2 Coverage ratio is ECL allowance shown as a percentage of drawn balances. 3 POCI ECL has been presented on a probability-weighted basis. The sensitivity is captured within the UK mortgages total . Assessment of climate risk impacts on ECL The Group continues to develop capabilities to quantify the potential impact of climate risks on ECL. This includes identifying the climate-related risk drivers that could influence future credit losses for loan portfolios that have the highest sensitivity to climate risks and commencing the use of more quantitative analysis on the impact of these risk drivers on ECL. This initial assessment has focused on specific climate-related risk drivers, with the intention to broaden and further develop the assessment in future years. The approach leverages the Group\u2019s climate scenario analysis, to identify the potential physical and transition risk impacts on credit quality. Retail mortgages and Commercial Banking portfolios were identified to have the highest sensitivity to climate risk, with both physical and transition risk drivers assessed. The assessment used a combination of macroeconomic and sector level modelling alongside similar techniques used in estimating judgemental adjustments for non-climate related risks at sector and segment level. UK mortgages physical and transition risks \u2013 additional costs resulting in affordability pressure for buy-to-let (BTL) borrowers of UK properties assessed with a low EPC rating requiring retrofitting to meet potential legislative regulations; and similarly additional costs driven by increased flood risk through property repair or rebuild - discussed below. Commercial Banking physical and transition risks \u2013 chronic and acute impacts of rising temperatures on a company\u2019s costs and revenues. Companies adapting to a sudden transition scenario could potentially lead to increased transition costs in operations, direct carbon costs, and deteriorating financial performance due to changing consumer perspectives - discussed below. Macroeconomic and sector scenario risks assessments An assessment was performed on the Group\u2019s internally generated economic scenarios used in the measurement of expected credit losses against external scenarios published by the Network for Greening the Financial System (NGFS) in November 2023. The analysis found the Group\u2019s base case, incorporating the impact of assumed policies over a five-year planning horizon, was positioned broadly within the range of the NGFS climate scenarios considered to be the most plausible, with limited differences in both directions for key impairment drivers. The Group\u2019s MES downside and severe downside together comprising 40 per cent weighting in ECL calculations, are generally more severe than the most adverse NGFS scenario (Net Zero 2050). The assessment suggests that no material changes are required to the Group\u2019s existing suite of economic scenarios. In Retail, the potential incremental impact of climate factors on key economic drivers has been isolated from a range of NGFS scenarios management judged most plausible (Current Policies, Delayed Transition and Fragmented World scenarios). The incremental risk to ECL was then quantified by overlaying the specific climate impact of these scenarios on macroeconomic drivers, the Group\u2019s base case and MES scenarios. Given these more plausible scenarios exhibited very similar impacts, management modelled the ECL impact from the Delayed Transition scenario, which assumes strong environmental policies are needed to compensate for the absence of early action. The results from the most material portfolios, UK mortgages and credit card ECL models allowed management to conclude on an immaterial ECL impact for Retail. In Commercial Banking, an exploratory top-down analysis using newly developed sectoral modelling was adopted to estimate the ECL impact of climate risk on commercial credit conditions. This assessment specifically segmented agriculture, automotive, transport, oil and gas and real estate sectors where climate impacts were judged to be more significant. Sector-specific, climate-adjusted credit cycle indices (CCI) were used to calculate probability of default and resulting ECL. These adjusted CCI model inputs combined external NGFS scenarios with client level valuation impacts where available, alongside historic impairment data. Taking into account methodological limitations, the additional ECL required was shown to be immaterial. However, the analysis has been an informative exercise to take further forward in 2024. Physical and transition risks assessments In 2023 the Group has progressed with third party consultants to enhance both its access to climate-related data and the development of climate modelling capabilities. In the UK mortgage portfolio, an affordability stress for customers was applied, by considering a scenario with minimum EPC requirements being introduced for the UK and estimated average retrofitting costs to bring the estimated EPC distribution for the current UK mortgage portfolio into alignment. The potential default risk from additional costs linked to retrofitting risks was assessed, with independent EPC data used to estimate the ECL impact from increased costs to customers for upgrading or retrofitting to meet a potential legislative target of EPC rating of C by 2028 for BTL. The provision impact was assessed using sensitivity analysis that utilises the relationship between disposable income and probability of default. The impact on ECL has been estimated to be less than \u00a35 million for the potential legislative requirement in place for BTL. Consideration has also been given to flooding risk \u2013 a delayed transition climate outlook, out to 2035 was assessed, resulting in over 80 per cent of the book expected to have no risk of flood damage. The impact on ECL related to the affordability risk from flood damage has been estimated to be immaterial. Whilst this supports no judgemental adjustment to ECL being required, the narrow scope does not capture the wider impact on loss rates emanating from being located in a high risk area.
Assessment
Nature of risk assessed
Portfolios assessed
ECL impact
Macroeconomic impact from climate scenario
Scenario risk \u2013 macro level
Retail
< \u00a35 million
Sector level impacts from climate scenario
Scenario risk \u2013 sector level
Commercial Banking < \u00a315 million
(excluding Business Banking)
Retrofitting cost to meet EPC regulation
Transition risk
UK mortgages \u2013 BTL
< \u00a35 million
Flood risk
Physical risk
UK mortgages
< \u00a35 million
The assessments are limited due to the degree of uncertainty underpinning key assumptions used, as well as the developmental nature of the data, approach and models used in the quantification. These include, but are not limited to the analyses being restricted to PD impacts only, client level valuation impacts not incorporating climate transition plans, only considering the most material hazard (flooding) for UK mortgages and more broadly the political landscape, future climate data enhancements and further model development. However, the conclusions made using the Group\u2019s best internal view of likely outcomes across all analyses further strengthens management\u2019s view there is a low residual risk of material error or omission in the Group\u2019s financial statements due to climate-related risks at present and as a result no adjustments have been made to the ECL measured as at 31 December 2023. The current behavioural lives of the Group\u2019s lending dilutes the potential exposure to the later emergence of potential physical climate impacts, with the incorporation of climate risk within underwriting assessments in Commercial Banking providing further mitigation on more recent originations.
Note 52: Financial risk management
As a bancassurer, financial instruments are fundamental to the Group\u2019s activities and, as a consequence, the risks associated with
financial instruments represent a significant component of the risks faced by the Group.
The primary risks affecting the Group through its use of financial instruments are: market risk, which includes interest rate risk and
foreign exchange risk; credit risk; liquidity risk; capital risk; and insurance risk. The following disclosures provide quantitative and
qualitative information about the Group\u2019s exposure to these risks.
Market risk
(A) Interest rate risk
Interest rate risk arises from the different repricing characteristics of the Group\u2019s assets and liabilities. Liabilities are generally either
insensitive to interest rate movements, for example interest free or very low interest customer deposits, or are sensitive to interest rate
changes but bear rates which may be varied at the Group\u2019s discretion and that for competitive reasons generally reflect changes in
the UK Bank Rate, set by the Bank of England. The rates on the remaining liabilities are contractually fixed for their term to maturity.
Many banking assets are sensitive to interest rate movements; there is a large volume of managed rate assets such as variable rate
mortgages which may be considered as a natural offset to the interest rate risk arising from the managed rate liabilities. However, a
significant proportion of the Group\u2019s lending assets, for example many personal loans and mortgages, bear interest rates which are
contractually fixed. Interest rate sensitivity analysis relating to the Group\u2019s banking activities is set out in the tables marked audited on
page 188.
The Group\u2019s risk management policy is to optimise reward while managing its market risk exposures within the risk appetite defined by
the Board. The largest residual risk exposure arises from balances that are deemed to be insensitive to changes in market rates
(including current accounts, a portion of variable rate deposits and investable equity), and is managed through the Group\u2019s structural
hedge. The structural hedge consists of longer-term fixed rate assets or interest rate swaps and the amount and duration of the
hedging activity is reviewed regularly by the Group Asset and Liability Committee.
The Group establishes hedge accounting relationships for interest rate risk components using cash flow hedges and fair value hedges.
The Group is exposed to cash flow interest rate risk on its variable rate loans and deposits together with its floating rate subordinated
debt. The derivatives used to manage the structural hedge may be designated into cash flow hedges to manage income statement
volatility. The economic items related to the structural hedge, for example current accounts, are not eligible hedged items under IAS 39
for inclusion into accounting hedge relationships. The Group is exposed to fair value interest rate risk on its fixed rate customer loans, its
fixed rate customer deposits and the majority of its subordinated debt, and to cash flow interest rate risk on its variable rate loans and
deposits together with its floating rate subordinated debt. The Group applies netting between similar risks before applying hedge
accounting.
Hedge ineffectiveness arises during the management of interest rate risk due to residual unhedged risk. Sources of ineffectiveness,
which the Group may decide to not fully mitigate, can include basis differences, timing differences and notional amount differences.
The effectiveness of accounting hedge relationships is assessed between the hedging derivatives and the documented hedged item,
which can differ to the underlying economically hedged item.
At 31 December 2023 the aggregate notional principal of interest rate and other swaps (predominantly interest rate) designated as fair
value hedges was \u00a3153,639 million (2022: \u00a3152,662 million) with a net fair value liability of \u00a3345 million (2022: liability of \u00a3493 million) (note
22). The losses on the hedging instruments were \u00a32,663 million (2022: gains of \u00a31,284 million). The gains on the hedged items attributable
to the hedged risk were \u00a32,396 million (2022: losses of \u00a31,325 million). The gains and losses relating to the fair value hedges are recorded
in net trading income.
The notional principal of the interest rate swaps designated as cash flow hedges at 31 December 2023 was \u00a3463,660 million (2022:
\u00a3249,703 million) with a net fair value asset of \u00a31 million (2022: liability of \u00a32 million) (note 22). In 2023, ineffectiveness recognised in the
income statement that arises from cash flow hedges was a gain of \u00a319 million (2022: loss of \u00a310 million).
Interest rate benchmark reform
Following the completion of industry events, including the two London Clearing House USD derivatives transition events in the second
quarter of the year, together with bilateral customer consents, the Group has transitioned materially all of its LIBOR linked products. We
continue to work with customers to transition a small number of remaining contracts that were not subject to the above events and
either have a future dated transition trigger or have defaulted to the relevant synthetic LIBOR benchmark in the interim. Each remaining
contract has a known path to transition which is not expected to have a material impact on the Group\u2019s financial statements.
While the volume of outstanding transactions impacted by IBOR benchmark reforms continues to reduce, the Group does not expect
material changes to its risk management approach.
(B) Foreign exchange risk
The corporate and retail businesses incur foreign exchange risk in the course of providing services to their customers. All non-structural
foreign exchange exposures in the non-trading book are managed centrally within allocated exposure limits. Trading book exposures in
the authorised trading centres are allocated exposure limits. The limits are monitored daily by the local centres and reported to the
market and liquidity risk function in London. Associated VaR and the closing, average, maximum and minimum are disclosed in the
tables marked audited on page 190.
The Group manages foreign currency accounting exposure via cash flow hedge accounting, utilising currency swaps and forward
foreign exchange trades.
Risk arises from the Group\u2019s investments in its overseas operations. The Group\u2019s structural foreign currency exposure is represented by
the net asset value of the foreign currency equity and subordinated debt investments in its subsidiaries and branches. Gains or losses
on structural foreign currency exposures are taken to reserves. The Group\u2019s main overseas operations are in the Americas and Europe.
Details of the Group\u2019s structural foreign currency exposures are as follows:
2023
2022
Other Other
Euro US Dollar non-Sterling Euro US Dollar non-Sterling
Foreign currency of Group operations \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Exposure
1,471
204
1
1,843
209
5
Credit risk The Group\u2019s credit risk exposure arises in respect of the instruments below and predominantly in the United Kingdom. Credit risk appetite is set at Board level and is described and reported through a suite of metrics devised from a combination of accounting and credit portfolio performance measures, which include the use of various credit risk rating systems as inputs and assess credit risk at a counterparty level using three components: (i) the probability of default by the counterparty on its contractual obligations; (ii) the current exposures to the counterparty and their likely future development, from which the Group derives the exposure at default; and (iii) the likely loss ratio on the defaulted obligations, the loss given default. The Group uses a range of approaches to mitigate credit risk, including internal control policies, obtaining collateral, using master netting agreements and other credit risk transfers, such as asset sales and credit derivatives based transactions. (A) Maximum credit exposure The maximum credit risk exposure of the Group in the event of other parties failing to perform their obligations is detailed below. No account is taken of any collateral held and the maximum exposure to loss, which includes amounts held to cover unit-linked and With- Profits Funds liabilities, is considered to be the balance sheet carrying amount or, for non-derivative off-balance sheet transactions and financial guarantees, their contractual nominal amounts.
2023
2022
Maximum Net Maximum Net
exposure Offset exposure exposure Offset exposure
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Financial assets at fair value through profit or loss
3,4
84,583
\u2013
84,583
73,887
\u2013
73,887
Derivative financial instruments
22,356
(9,862)
12,494
24,753
(12,330)
12,423
Financial assets at amortised cost, net
5
:
Loans and advances to banks, net
10,764
\u2013
10,764
10,632
\u2013
10,632
Loans and advances to customers, net
449,745
(2,214)
447,531
454,899
(2,171)
452,728
Reverse repurchase agreements, net
38,771
\u2013
38,771
44,865
\u2013
44,865
Debt securities, net
15,355
\u2013
15,355
9,926
\u2013
9,926
514,635
(2,214)
512,421
520,322
(2,171)
518,151
Financial assets at fair value through other comprehensive
income
27,360
\u2013
27,360
22,871
\u2013
22,871
Reinsurance contract assets
442
\u2013
442
372
\u2013
372
Off-balance sheet items:
Acceptances and endorsements
191
\u2013
191
58
\u2013
58
Other items serving as direct credit substitutes
286
\u2013
286
781
\u2013
781
Performance bonds, including letters of credit, and other
transaction-related contingencies
2,372
\u2013
2,372
2,147
\u2013
2,147
Irrevocable commitments and guarantees
75,080
\u2013
75,080
74,692
\u2013
74,692
77,929
\u2013
77,929
77,678
\u2013
77,678
727,305
(12,076)
715,229
719,883
(14,501)
705,382
1 2 2 5 5 5 5 3 1 Restated for the adoption of IFRS 17; see notes 1 and 54. 2 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. 3 Excluding equity shares. 4 Includes assets within the Group\u2019s unit-linked funds for which credit risk is borne by the policyholders and assets within the Group\u2019s With-Profits Funds for which credit risk is largely borne by the policyholders. Consequently, the Group has no significant exposure to credit risk for such assets which back related contract liabilities. 5 Amounts shown net of related impairment allowances
(B) Concentrations of exposure
The Group\u2019s management of concentration risk includes portfolio controls on certain industries, sectors and products to reflect risk
appetite as well as individual, customer and bank limit risk tolerances. Credit policies and appetite statements are aligned to the
Group\u2019s risk appetite and restrict exposure to higher risk countries and potentially vulnerable sectors and asset classes. Exposures are
monitored to prevent both an excessive concentration of risk and single name concentrations. The Group\u2019s largest credit limits are
regularly monitored by the Board Risk Committee and reported in accordance with regulatory requirements. As part of its credit risk
policy, the Group considers sustainability risk (which incorporates environmental (including climate), social and governance) in the
assessment of Commercial Banking facilities.
At 31 December 2023 the most significant concentrations of exposure were in mortgages.
2023 2022
\u00a3m \u00a3m
Agriculture, forestry and fishing
7,038
7,447
Construction
3,878
4,066
Energy and water supply
3,468
2,552
Financial, business and other services
35,112
37,666
Lease financing
17,374
16,795
Manufacturing
4,021
3,619
Personal:
Mortgages
323,627
323,923
Other
25,342
26,154
Postal and telecommunications
2,654
2,526
Property companies
20,904
21,499
Transport, distribution and hotels
10,044
13,170
Total loans and advances to customers before allowance for impairment losses
453,462
459,417
Allowance for impairment losses (note 24)
(3,717)
(4,518)
Total loans and advances to customers
449,745
454,899
1
1 Includes both UK and overseas mortgage balances.
The Group\u2019s operations are predominantly UK based and as a result an analysis of credit risk exposures by geographical region is not
provided.
(C) Credit quality of assets Cash and balances at central banks Significantly all of the Group\u2019s cash and balances at central banks of \u00a378,110 million (2022: \u00a391,388 million) are due from the Bank of England, the Federal Reserve Bank of New York or the Deutsche Bundesbank. Debt securities, treasury and other bills, and contracts held with reinsurers at fair value through profit or loss Substantially all of the loans and advances to customers, loans and advances to banks and reverse repurchase agreements recognised at fair value through profit or loss have an investment grade rating. The credit quality of the Group\u2019s debt securities, treasury and other bills, and contracts held with reinsurers held at fair value through profit or loss is set out below:
2023
2022
Investment Investment
grade Other Total grade Other Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Trading assets
Debt securities:
Government securities
3,596
\u2013
3,596
2,185
\u2013
2,185
Asset-backed securities
77
\u2013
77
21
\u2013
21
Corporate and other debt securities
471
58
529
216
12
228
Total trading assets (excluding loans and advances to
customers and reverse repurchase agreements)
4,144
58
4,202
2,422
12
2,434
Other financial assets mandatorily at fair value through profit
or loss:
Debt securities:
Government securities
8,009
\u2013
8,009
7,871
1
7,872
Other public sector securities
2,303
7
2,310
2,510
6
2,516
Bank and building society certificates of deposit
7,504
\u2013
7,504
7,129
4
7,133
Asset-backed securities
506
7
513
399
\u2013
399
Corporate and other debt securities
17,076
3,049
20,125
14,932
2,761
17,693
35,398
3,063
38,461
32,841
2,772
35,613
Treasury and other bills
51
\u2013
51
62
\u2013
62
Contracts held with reinsurers
11,336
88
11,424
10,822
84
10,906
Total other financial assets mandatorily held at fair value
through profit or loss (excluding loans and advances and
equity shares)
46,785
3,151
49,936
43,725
2,856
46,581
1 2 1 2 1 Credit ratings equal to or better than \u2018BBB\u2019. 2 Other comprises sub-investment grade (2023: \u00a31,202 million; 2022: \u00a31,256 million) and not rated (2023: \u00a32,007 million; 2022: \u00a31,612 million). Credit risk in respect of trading and other financial assets at fair value through profit or loss held within the Group\u2019s unit-linked funds is borne by the policyholders and credit risk in respect of With-Profits funds is largely borne by the policyholders. Consequently, the Group has no significant exposure to credit risk for such assets which back those contract liabilities. Loans and advances banks Significantly all of the Group\u2019s loans and advances to banks are assessed as Stage 1. Loans and advances to customers The analysis of lending has been prepared based on the division in which the asset is held; with the business segment in which the exposure is recorded reflected in the ratings system applied. The internal credit ratings systems used by the Group differ between Retail and Commercial, reflecting the characteristics of these exposures and the way that they are managed internally; these credit ratings are set out below. All probabilities of default (PDs) include forward-looking information and are based on 12-month values, with the exception of credit-impaired.
Retail
Commercial
Quality classification
IFRS 9 PD range
Quality classification
IFRS 9 PD range
RMS 1\u20133
0.00\u20130.80%
CMS 1\u20135
0.000\u20130.100%
RMS 4\u20136
0.81\u20134.50%
CMS 6\u201310
0.101\u20130.500%
RMS 7\u20139
4.51\u201314.00%
CMS 11\u201314
0.501\u20133.000%
RMS 10
14.01\u201320.00%
CMS 15\u201318
3.001\u201320.000%
RMS 11\u201313
20.01\u201399.99%
CMS 19
20.001\u201399.999%
RMS 14
100.00%
CMS 20\u201323
100.000%
Stage 3 assets include balances of \u00a3364 million (2022: \u00a3727 million) (with outstanding amounts due of \u00a31,167 million (2022: \u00a31,360 million)) which have been subject to a partial write-off and where the Group continues to enforce recovery action. Stage 2 and Stage 3 assets with a carrying amount of \u00a3180 million (2022: \u00a3126 million) were modified during the year. No material gain or loss was recognised by the Group. As at 31 December 2023 assets that had been previously modified while classified as Stage 2 or Stage 3 and were classified as Stage 1 amounted to \u00a35 million (2022: \u00a35,279 million).
Drawn exposures
Allowance for expected credit losses
Gross drawn exposures and expected Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
credit loss allowance \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Retail \u2013 UK mortgages
RMS 1\u20133
226,740
4,137
\u2013
\u2013
230,877
123
37
\u2013
\u2013
160
RMS 4\u20136
29,637
27,037
\u2013
\u2013
56,674
38
151
\u2013
\u2013
189
RMS 7\u20139
219
2,713
\u2013
\u2013
2,932
\u2013
37
\u2013
\u2013
37
RMS 10
\u2013
590
\u2013
\u2013
590
\u2013
13
\u2013
\u2013
13
RMS 11\u201313
\u2013
4,056
\u2013
\u2013
4,056
\u2013
136
\u2013
\u2013
136
RMS 14
\u2013
\u2013
4,337
7,854
12,191
\u2013
\u2013
357
213
570
256,596
38,533
4,337
7,854
307,320
161
374
357
213
1,105
Retail \u2013 credit cards
RMS 1\u20133
3,906
5
\u2013
\u2013
3,911
9
\u2013
\u2013
\u2013
9
RMS 4\u20136
7,159
1,248
\u2013
\u2013
8,407
91
65
\u2013
\u2013
156
RMS 7\u20139
1,548
1,069
\u2013
\u2013
2,617
67
145
\u2013
\u2013
212
RMS 10
12
220
\u2013
\u2013
232
1
50
\u2013
\u2013
51
RMS 11\u201313
\u2013
366
\u2013
\u2013
366
\u2013
141
\u2013
\u2013
141
RMS 14
\u2013
\u2013
284
\u2013
284
\u2013
\u2013
130
\u2013
130
12,625
2,908
284
\u2013
15,817
168
401
130
\u2013
699
Retail \u2013 loans and overdrafts
RMS 1\u20133
638
1
\u2013
\u2013
639
1
\u2013
\u2013
\u2013
1
RMS 4\u20136
5,152
250
\u2013
\u2013
5,402
83
18
\u2013
\u2013
101
RMS 7\u20139
1,256
473
\u2013
\u2013
1,729
44
50
\u2013
\u2013
94
RMS 10
43
135
\u2013
\u2013
178
4
27
\u2013
\u2013
31
RMS 11\u201313
14
328
\u2013
\u2013
342
2
113
\u2013
\u2013
115
RMS 14
\u2013
\u2013
196
\u2013
196
\u2013
\u2013
118
\u2013
118
7,103
1,187
196
\u2013
8,486
134
208
118
\u2013
460
Retail \u2013 UK Motor Finance
RMS 1\u20133
9,979
569
\u2013
\u2013
10,548
142
12
\u2013
\u2013
154
RMS 4\u20136
2,791
998
\u2013
\u2013
3,789
41
29
\u2013
\u2013
70
RMS 7\u20139
769
228
\u2013
\u2013
997
3
13
\u2013
\u2013
16
RMS 10
\u2013
63
\u2013
\u2013
63
\u2013
7
\u2013
\u2013
7
RMS 11\u201313
2
169
\u2013
\u2013
171
\u2013
30
\u2013
\u2013
30
RMS 14
\u2013
\u2013
112
\u2013
112
\u2013
\u2013
63
\u2013
63
13,541
2,027
112
\u2013
15,680
186
91
63
\u2013
340
Retail \u2013 other
RMS 1\u20133
13,613
240
\u2013
\u2013
13,853
3
4
\u2013
\u2013
7
RMS 4\u20136
2,197
186
\u2013
\u2013
2,383
16
13
\u2013
\u2013
29
RMS 7\u20139
\u2013
86
\u2013
\u2013
86
\u2013
4
\u2013
\u2013
4
RMS 10
\u2013
6
\u2013
\u2013
6
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
88
7
\u2013
\u2013
95
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
144
\u2013
144
\u2013
\u2013
47
\u2013
47
15,898
525
144
\u2013
16,567
19
21
47
\u2013
87
Total Retail
305,763
45,180
5,073
7,854
363,870
668
1,095
715
213
2,691
Commercial Banking
CMS 1\u20135
14,100
7
\u2013
\u2013
14,107
2
\u2013
\u2013
\u2013
2
CMS 6\u201310
30,534
124
\u2013
\u2013
30,658
32
\u2013
\u2013
\u2013
32
CMS 11\u201314
31,210
2,927
\u2013
\u2013
34,137
133
59
\u2013
\u2013
192
CMS 15\u201318
3,719
4,115
\u2013
\u2013
7,834
65
232
\u2013
\u2013
297
CMS 19
11
814
\u2013
\u2013
825
\u2013
81
\u2013
\u2013
81
CMS 20\u201323
\u2013
\u2013
2,068
\u2013
2,068
\u2013
\u2013
418
\u2013
418
79,574
7,987
2,068
\u2013
89,629
232
372
418
\u2013
1,022
Other
Total loans and advances to
(43)
\u2013
6
\u2013
(37)
\u2013
\u2013
4
\u2013
4
customers
385,294
53,167
7,147
7,854
453,462
900
1,467
1,137
213
3,717
1
1 Drawn exposures include centralised fair value hedge accounting adjustments.
Drawn exposures
Allowance for expected credit losses
Gross drawn exposures and expected Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
credit loss allowance \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Retail \u2013 UK mortgages
RMS 1\u20133
250,937
24,844
\u2013
\u2013
275,781
81
180
\u2013
\u2013
261
RMS 4\u20136
6,557
11,388
\u2013
\u2013
17,945
10
140
\u2013
\u2013
150
RMS 7\u20139
23
2,443
\u2013
\u2013
2,466
\u2013
72
\u2013
\u2013
72
RMS 10
\u2013
734
\u2013
\u2013
734
\u2013
24
\u2013
\u2013
24
RMS 11\u201313
\u2013
2,374
\u2013
\u2013
2,374
\u2013
136
\u2013
\u2013
136
RMS 14
\u2013
\u2013
3,416
9,622
13,038
\u2013
\u2013
311
253
564
257,517
41,783
3,416
9,622
312,338
91
552
311
253
1,207
Retail \u2013 credit cards
RMS 1\u20133
3,587
5
\u2013
\u2013
3,592
7
\u2013
\u2013
\u2013
7
RMS 4\u20136
6,497
1,441
\u2013
\u2013
7,938
66
70
\u2013
\u2013
136
RMS 7\u20139
1,332
1,246
\u2013
\u2013
2,578
47
167
\u2013
\u2013
214
RMS 10
\u2013
227
\u2013
\u2013
227
\u2013
52
\u2013
\u2013
52
RMS 11\u201313
\u2013
368
\u2013
\u2013
368
\u2013
144
\u2013
\u2013
144
RMS 14
\u2013
\u2013
289
\u2013
289
\u2013
\u2013
113
\u2013
113
11,416
3,287
289
\u2013
14,992
120
433
113
\u2013
666
Retail \u2013 loans and overdrafts
RMS 1\u20133
659
1
\u2013
\u2013
660
2
\u2013
\u2013
\u2013
2
RMS 4\u20136
5,902
451
\u2013
\u2013
6,353
90
24
\u2013
\u2013
114
RMS 7\u20139
1,724
657
\u2013
\u2013
2,381
69
83
\u2013
\u2013
152
RMS 10
53
199
\u2013
\u2013
252
5
45
\u2013
\u2013
50
RMS 11\u201313
19
405
\u2013
\u2013
424
3
163
\u2013
\u2013
166
RMS 14
\u2013
\u2013
247
\u2013
247
\u2013
\u2013
126
\u2013
126
8,357
1,713
247
\u2013
10,317
169
315
126
\u2013
610
Retail \u2013 UK Motor Finance
RMS 1\u20133
8,969
743
\u2013
\u2013
9,712
66
9
\u2013
\u2013
75
RMS 4\u20136
2,778
930
\u2013
\u2013
3,708
25
20
\u2013
\u2013
45
RMS 7\u20139
425
325
\u2013
\u2013
750
2
13
\u2013
\u2013
15
RMS 10
\u2013
99
\u2013
\u2013
99
\u2013
8
\u2013
\u2013
8
RMS 11\u201313
2
148
\u2013
\u2013
150
\u2013
26
\u2013
\u2013
26
RMS 14
\u2013
\u2013
154
\u2013
154
\u2013
\u2013
81
\u2013
81
12,174
2,245
154
\u2013
14,573
93
76
81
\u2013
250
Retail \u2013 other
RMS 1\u20133
12,588
328
\u2013
\u2013
12,916
9
4
\u2013
\u2013
13
RMS 4\u20136
1,311
213
\u2013
\u2013
1,524
4
11
\u2013
\u2013
15
RMS 7\u20139
\u2013
90
\u2013
\u2013
90
\u2013
3
\u2013
\u2013
3
RMS 10
\u2013
5
\u2013
\u2013
5
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
91
7
\u2013
\u2013
98
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
157
\u2013
157
\u2013
\u2013
52
\u2013
52
13,990
643
157
\u2013
14,790
13
18
52
\u2013
83
Total Retail
303,454
49,671
4,263
9,622
367,010
486
1,394
683
253
2,816
Commercial Banking
CMS 1\u20135
13,573
33
\u2013
\u2013
13,606
2
\u2013
\u2013
\u2013
2
CMS 6\u201310
32,070
512
\u2013
\u2013
32,582
37
3
\u2013
\u2013
40
CMS 11\u201314
31,591
5,627
\u2013
\u2013
37,218
128
93
\u2013
\u2013
221
CMS 15\u201318
3,275
4,508
\u2013
\u2013
7,783
47
244
\u2013
\u2013
291
CMS 19
\u2013
813
\u2013
\u2013
813
\u2013
74
\u2013
\u2013
74
CMS 20\u201323
\u2013
\u2013
3,371
\u2013
3,371
\u2013
\u2013
1,070
\u2013
1,070
80,509
11,493
3,371
\u2013
95,373
214
414
1,070
\u2013
1,698
Other
Total loans and advances to
(2,972)
\u2013
6
\u2013
(2,966)
\u2013
\u2013
4
\u2013
4
customers
380,991
61,164
7,640
9,622
459,417
700
1,808
1,757
253
4,518
1 1 Drawn exposures include centralised fair value hedge accounting adjustments Average PD grade The table below shows the average PD for the major portfolios used in the calculation of ECL and therefore Stage 2 average PD reflects the lifetime value. These reflect the forward-looking view under the Group\u2019s base case scenario prior to the application of MES and post-model adjustments which further impact ECL.
2023
2022
Stage 1 Stage 2 Stage 1 Stage 2
average PD average PD average PD average PD
% % % %
Retail
UK mortgages
0.57
17.60
0.26
15.48
Credit cards
2.14
23.02
2.06
20.89
Loans and overdrafts
2.75
29.66
3.36
29.75
UK Motor Finance
0.61
10.00
0.71
11.24
Commercial Banking
Loans and advances to customers
0.92
22.55
0.88
18.50
Reverse repurchase agreement held at amortised cost All of the Group\u2019s reverse repurchase agreements held at amortised cost are assessed as Stage 1. Debt securities held at amortised cost At 31 December 2023 \u00a315,240 million of gross debt securities held at amortised cost were investment grade (credit ratings equal to or better than \u2018BBB\u2019) (2022: \u00a39,919 million), \u00a320 million were sub-investment grade (2022: \u00a3nil) and \u00a3106 million not rated (2022: \u00a316 million). Financial assets at fair value through other comprehensive income (excluding equity shares) At 31 December 2023 \u00a327,267 million of financial assets at fair value through other comprehensive income (excluding equity shares) were investment grade (credit ratings equal to or better than \u2018BBB\u2019) (2022: \u00a322,761 million), \u00a380 million were sub-investment grade (2022: \u00a371 million) and \u00a313 million not rated (2022: \u00a339 million). Derivative assets An analysis of derivative assets is given in note 22. The Group reduces exposure to credit risk by using master netting agreements and by obtaining collateral in the form of cash or highly liquid securities.
2023
2022
Investment Investment
grade Other Total grade Other Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Trading and other
21,297
956
22,253
23,326
1,352
24,678
Hedging
99
4
103
53
22
75
Total derivative financial instruments
21,396
960
22,356
23,379
1,374
24,753
1 2 1 2 1 Credit ratings equal to or better than \u2018BBB\u2019. 2 Other comprises sub-investment grade (2023: \u00a3855 million; 2022: \u00a31,031 million) and not rated (2023: \u00a3105 million; 2022: \u00a3343 million). Financial guarantees and irrevocable loan commitments Financial guarantees represent undertakings that the Group will meet a customer\u2019s obligation to third parties if the customer fails to do so. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. The Group is theoretically exposed to loss in an amount equal to the total guarantees or unused commitments, however, the likely amount of loss is expected to be significantly less. Most commitments to extend credit are contingent upon customers maintaining specific credit standards .
Undrawn exposures
Allowance for expected credit losses
Gross undrawn exposures and expected Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
credit loss allowance \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Retail \u2013 UK mortgages
RMS 1\u20133
12,207
36
\u2013
\u2013
12,243
7
\u2013
\u2013
\u2013
7
RMS 4\u20136
456
190
\u2013
\u2013
646
1
2
\u2013
\u2013
3
RMS 7\u20139
5
16
\u2013
\u2013
21
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 10
\u2013
5
\u2013
\u2013
5
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
\u2013
37
\u2013
\u2013
37
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
25
58
83
\u2013
\u2013
\u2013
\u2013
\u2013
12,668
284
25
58
13,035
8
2
\u2013
\u2013
10
Retail \u2013 credit cards
RMS 1\u20133
39,857
24
\u2013
\u2013
39,881
21
\u2013
\u2013
\u2013
21
RMS 4\u20136
14,522
2,079
\u2013
\u2013
16,601
38
29
\u2013
\u2013
67
RMS 7\u20139
606
322
\u2013
\u2013
928
7
8
\u2013
\u2013
15
RMS 10
2
40
\u2013
\u2013
42
\u2013
2
\u2013
\u2013
2
RMS 11\u201313
\u2013
69
\u2013
\u2013
69
\u2013
6
\u2013
\u2013
6
RMS 14
\u2013
\u2013
40
\u2013
40
\u2013
\u2013
\u2013
\u2013
\u2013
54,987
2,534
40
\u2013
57,561
66
45
\u2013
\u2013
111
Retail \u2013 loans and overdrafts
RMS 1\u20133
4,354
1
\u2013
\u2013
4,355
4
\u2013
\u2013
\u2013
4
RMS 4\u20136
1,638
239
\u2013
\u2013
1,877
10
7
\u2013
\u2013
17
RMS 7\u20139
223
122
\u2013
\u2013
345
5
13
\u2013
\u2013
18
RMS 10
4
28
\u2013
\u2013
32
\u2013
4
\u2013
\u2013
4
RMS 11\u201313
\u2013
49
\u2013
\u2013
49
\u2013
12
\u2013
\u2013
12
RMS 14
\u2013
\u2013
15
\u2013
15
\u2013
\u2013
\u2013
\u2013
\u2013
6,219
439
15
\u2013
6,673
19
36
\u2013
\u2013
55
Retail \u2013 UK Motor Finance
RMS 1\u20133
274
\u2013
\u2013
\u2013
274
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 4\u20136
959
\u2013
\u2013
\u2013
959
2
\u2013
\u2013
\u2013
2
RMS 7\u20139
250
\u2013
\u2013
\u2013
250
\u2013
\u2013
\u2013
\u2013
RMS 10
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
3
\u2013
\u2013
\u2013
3
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
1,486
\u2013
\u2013
\u2013
1,486
2
\u2013
\u2013
\u2013
2
Retail \u2013 other
RMS 1\u20133
544
\u2013
\u2013
\u2013
544
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 4\u20136
267
\u2013
\u2013
\u2013
267
1
\u2013
\u2013
\u2013
1
RMS 7\u20139
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 10
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
 \u2013
811
\u2013
\u2013
\u2013
811
1
\u2013
\u2013
\u2013
1
Total Retail
76,171
3,257
80
58
79,566
96
83
\u2013
\u2013
179
Commercial Banking
CMS 1\u20135
19,250
\u2013
\u2013
\u2013
19,250
1
\u2013
\u2013
\u2013
1
CMS 6\u201310
31,282
6
\u2013
\u2013
31,288
22
\u2013
\u2013
\u2013
22
CMS 11\u201314
9,000
1,537
\u2013
\u2013
10,537
28
24
\u2013
\u2013
52
CMS 15\u201318
923
1,169
\u2013
\u2013
2,092
13
47
\u2013
\u2013
60
CMS 19
\u2013
33
\u2013
\u2013
33
\u2013
6
\u2013
\u2013
6
CMS 20\u201323
\u2013
\u2013
64
\u2013
64
\u2013
\u2013
2
\u2013
2
60,455
2,745
64
\u2013
63,264
64
77
2
\u2013
143
Other
483
\u2013
6
\u2013
489
\u2013
\u2013
\u2013
\u2013
\u2013
Total
137,109
6,002
150
58
143,319
160
160
2
\u2013
322
Undrawn exposures
Allowance for expected credit losses
Gross undrawn exposures and expected Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
credit loss allowance \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Retail \u2013 UK mortgages
RMS 1\u20133
16,003
159
\u2013
\u2013
16,162
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 4\u20136
83
62
\u2013
\u2013
145
1
\u2013
\u2013
\u2013
1
RMS 7\u20139
\u2013
25
\u2013
\u2013
25
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 10
\u2013
7
\u2013
\u2013
7
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
\u2013
21
\u2013
\u2013
21
\u2013
1
\u2013
\u2013
1
RMS 14
\u2013
\u2013
17
67
84
\u2013
\u2013
\u2013
\u2013
\u2013
16,086
274
17
67
16,444
1
1
\u2013
\u2013
2
Retail \u2013 credit cards
RMS 1\u20133
39,384
30
\u2013
\u2013
39,414
16
\u2013
\u2013
\u2013
16
RMS 4\u20136
14,355
2,975
\u2013
\u2013
17,330
32
28
\u2013
\u2013
60
RMS 7\u20139
580
422
\u2013
\u2013
1,002
5
8
\u2013
\u2013
13
RMS 10
\u2013
46
\u2013
\u2013
46
\u2013
2
\u2013
\u2013
2
RMS 11\u201313
\u2013
76
\u2013
\u2013
76
\u2013
6
\u2013
\u2013
6
RMS 14
\u2013
\u2013
45
\u2013
45
\u2013
\u2013
\u2013
\u2013
\u2013
54,319
3,549
45
\u2013
57,913
53
44
\u2013
\u2013
97
Retail \u2013 loans and overdrafts
RMS 1\u20133
4,174
2
\u2013
\u2013
4,176
4
\u2013
\u2013
\u2013
4
RMS 4\u20136
1,618
386
\u2013
\u2013
2,004
6
12
\u2013
\u2013
18
RMS 7\u20139
253
159
\u2013
\u2013
412
6
18
\u2013
\u2013
24
RMS 10
6
36
\u2013
\u2013
42
\u2013
7
\u2013
\u2013
7
RMS 11\u201313
\u2013
61
\u2013
\u2013
61
\u2013
15
\u2013
\u2013
15
RMS 14
\u2013
\u2013
17
\u2013
17
\u2013
\u2013
\u2013
\u2013
\u2013
6,051
644
17
\u2013
6,712
16
52
\u2013
\u2013
68
Retail \u2013 UK Motor Finance
RMS 1\u20133
318
\u2013
\u2013
\u2013
318
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 4\u20136
1,259
\u2013
\u2013
\u2013
1,259
2
\u2013
\u2013
\u2013
2
RMS 7\u20139
347
1
\u2013
\u2013
348
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 10
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
1,924
1
\u2013
\u2013
1,925
2
\u2013
\u2013
\u2013
2
Retail \u2013 other
RMS 1\u20133
702
\u2013
\u2013
\u2013
702
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 4\u20136
198
\u2013
\u2013
\u2013
198
3
\u2013
\u2013
\u2013
3
RMS 7\u20139
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 10
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
900
\u2013
\u2013
\u2013
900
3
\u2013
\u2013
\u2013
3
Total Retail
79,280
4,468
79
67
83,894
75
97
\u2013
\u2013
172
Commercial Banking
CMS 1\u20135
17,047
\u2013
\u2013
\u2013
17,047
2
\u2013
\u2013
\u2013
2
CMS 6\u201310
29,141
135
\u2013
\u2013
29,276
21
2
\u2013
\u2013
23
CMS 11\u201314
9,808
1,647
\u2013
\u2013
11,455
28
33
\u2013
\u2013
61
CMS 15\u201318
779
800
\u2013
\u2013
1,579
8
43
\u2013
\u2013
51
CMS 19
\u2013
85
\u2013
\u2013
85
\u2013
10
\u2013
\u2013
10
CMS 20\u201323
\u2013
\u2013
48
\u2013
48
\u2013
\u2013
4
\u2013
4
56,775
2,667
48
\u2013
59,490
59
88
4
\u2013
151
Other
400
\u2013
11
\u2013
411
\u2013
\u2013
\u2013
\u2013
\u2013
Total
136,455
7,135
138
67
143,795
134
185
4
\u2013
323
(D) Collateral held as security for financial assets The principal types of collateral accepted by the Group include: residential and commercial properties; charges over business assets such as premises, inventory and accounts receivable; financial instruments; cash; and guarantees from third parties. The terms and conditions associated with the use of the collateral are varied and are dependent on both the type of agreement and the counterparty. The Group holds collateral against loans and advances and irrevocable loan commitments; qualitative and, where appropriate, quantitative information is provided in respect of this collateral below. Collateral held as security for financial assets at fair value through profit or loss and for derivative assets is also shown below. The Group holds collateral in respect of loans and advances to customers and reverse repurchase agreements as set out below. The Group does not hold collateral against debt securities which are classified as financial assets held at amortised cost. Loans and advances to customers Retail lending UK mortgages An analysis by loan-to-value ratio of the Group\u2019s UK residential mortgage lending is provided below. The value of collateral used in determining the loan-to-value ratios has been estimated based upon the last actual valuation, adjusted to take into account subsequent movements in house prices. The market takes into account many factors, including environmental considerations such as flood risk and energy efficient additions, in arriving at the value of a home. In some circumstances, where the discounted value of the estimated net proceeds from the liquidation of collateral (i.e. net of costs, expected haircuts and anticipated changes in the value of the collateral to the point of sale) is greater than the estimated exposure at default, no credit losses are expected and no ECL allowance is recognised.
Gross drawn exposures
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Less than 70 per cent
193,235
28,754
3,882
7,168
233,039
57
208
226
118
609
70 per cent to 80 per cent
36,413
4,506
290
333
41,542
37
75
61
26
199
80 per cent to 90 per cent
20,949
2,821
87
142
23,999
48
53
27
20
148
90 per cent to 100 per cent
5,981
2,389
30
91
8,491
19
31
12
14
76
Greater than 100 per cent
18
63
48
120
249
\u2013
7
31
35
73
Total
256,596
38,533
4,337
7,854
307,320
161
374
357
213
1,105
At 31 December 2022
Less than 70 per cent
210,457
33,205
3,161
8,845
255,668
51
330
210
117
708
70 per cent to 80 per cent
31,788
5,264
170
359
37,581
25
124
55
42
246
80 per cent to 90 per cent
11,942
2,604
48
149
14,743
12
59
20
19
110
90 per cent to 100 per cent
3,319
606
13
113
4,051
3
18
7
18
46
Greater than 100 per cent
11
104
24
156
295
\u2013
21
19
57
97
Total
257,517
41,783
3,416
9,622
312,338
91
552
311
253
1,207
The energy performance certificate (EPC) profile of the security associated with the Group\u2019s UK mortgage portfolio is shown below:
Unrated
A B C D E F G properties
EPC profile \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
Total
At 31 December 2023
971
41,250
64,466
95,958
34,327
6,663
1,465
62,220
307,320
At 31 December 2022
731
37,075
60,086
93,010
35,015
6,990
1,519
77,912
312,338
The above data is sourced using the latest available government EPC information as at the relevant balance sheet date. The Group has no EPC data available for 20.2 per cent (2022: 25.0 per cent) of the UK mortgage portfolio; this portion is classified as unrated properties. EPC ratings are not considered to be a material credit risk factor, and do not form part of the Group\u2019s credit risk calculations. Other The majority of other retail lending is unsecured. At 31 December 2023, Stage 3 other retail lending amounted to \u00a3378 million, net of an impairment allowance of \u00a3358 million (2022: \u00a3475 million, net of an impairment allowance of \u00a3372 million). Stage 1 and Stage 2 other retail lending amounted to \u00a355,814 million (2022: \u00a353,825 million). Lending decisions are predominantly based on an obligor\u2019s ability to repay rather than reliance on the disposal of any security provided. Where the lending is secured, collateral values are rigorously assessed at the time of loan origination and are thereafter monitored in accordance with business unit credit policy. The Group\u2019s credit risk disclosures for unimpaired other retail lending show assets gross of collateral and therefore disclose the maximum loss exposure. The Group believes that this approach is appropriate. Commercial lending Stage 1 and Stage 2 secured lending For Stage 1 and Stage 2 secured commercial lending, the Group reports assets gross of collateral and therefore discloses the maximum loss exposure. Stage 1 and Stage 2 secured commercial lending is predominantly managed on a cash flow basis. On occasion, it may include an assessment of underlying collateral, although, for Stage 3 lending, this will not always involve assessing it on a fair value basis. No aggregated collateral information for the entire unimpaired secured commercial lending portfolio is provided to key management personnel. Stage 3 secured lending The value of collateral is re-evaluated and its legal soundness reassessed if there is observable evidence of distress of the borrower; this evaluation is used to determine potential loss allowances and management\u2019s strategy to try to either repair the business or recover the debt. At 31 December 2023, Stage 3 secured commercial lending amounted to \u00a3507 million, net of an impairment allowance of \u00a3133 million (2022: \u00a3410 million, net of an impairment allowance of \u00a3160 million). The fair value of the collateral held in respect of impaired secured commercial lending was \u00a3608 million (2022: \u00a3484 million). In determining the fair value of collateral, no specific amounts have been attributed to the costs of realisation. For the purposes of determining the total collateral held by the Group in respect of impaired secured commercial lending, the value of collateral for each loan has been limited to the principal amount of the outstanding advance in order to eliminate the effects of any over-collateralisation and to provide a clearer representation of the Group\u2019s exposure. Stage 3 secured commercial lending and associated collateral relates to lending to property companies and to customers in the financial, business and other services; transport, distribution and hotels; and construction industries. Reverse repurchase agreements There were reverse repurchase agreements which are accounted for as collateralised loans with a carrying value of \u00a338,771 million (2022: \u00a344,865 million), against which the Group held collateral with a fair value of \u00a338,510 million, capped at the reverse repurchase agreement carrying value (2022: \u00a333,715 million). These transactions were generally conducted under terms that are usual and customary for standard secured lending activities. Financial assets at fair value through profit or loss (excluding equity shares) Included in financial assets at fair value through profit or loss are reverse repurchase agreements treated as collateralised loans with a carrying value of \u00a317,413 million (2022: \u00a311,781 million). Collateral is held with a fair value of \u00a317,301 million, capped at the reverse repurchase agreement carrying value (2022: \u00a39,598 million), all of which the Group is able to repledge. At 31 December 2023, \u00a39,926 million had been repledged (2022: \u00a35,232 million). In addition, securities held as collateral in the form of stock borrowed amounted to \u00a317,280 million (2022: \u00a326,368 million). Of this amount, \u00a39,363 million (2022: \u00a314,375 million) had been resold or repledged as collateral for the Group\u2019s own transactions. These transactions were generally conducted under terms that are usual and customary for standard secured lending activities. Derivative assets, after offsetting of amounts under master netting arrangements The Group reduces exposure to credit risk by using master netting agreements and by obtaining collateral in the form of cash or highly liquid securities. In respect of the net derivative assets after offsetting of amounts under master netting arrangements of \u00a312,494 million (2022: \u00a312,423 million), cash collateral of \u00a33,361 million (2022: \u00a33,951 million) was held. Irrevocable loan commitments and other credit-related contingencies At 31 December 2023, the Group held irrevocable loan commitments and other credit-related contingencies of \u00a377,929 million (2022: \u00a377,678 million). Collateral is held as security, in the event that lending is drawn down, on \u00a313,036 million (2022: \u00a316,442 million) of these balances. Collateral repossessed During the year, \u00a3229 million of collateral was repossessed (2022: \u00a3219 million), consisting primarily of residential property. In respect of retail portfolios, the Group does not take physical possession of properties or other assets held as collateral and uses external agents to realise the value as soon as practicable, generally at auction, to settle indebtedness. Any surplus funds are returned to the borrower or are otherwise dealt with in accordance with appropriate insolvency regulations. In certain circumstances the Group takes physical possession of assets held as collateral against commercial lending. In such cases, the assets are carried on the Group\u2019s balance sheet and are classified according to the Group\u2019s accounting policies. (E) Collateral pledged as security The Group pledges assets primarily for repurchase agreements and securities lending transactions which are generally conducted under terms that are usual and customary for standard securitised borrowing contracts. Repurchase transactions Amortised cost There are balances arising from repurchase transactions of \u00a337,703 million (2022: \u00a348,596 million), which include amounts due under the Bank of England\u2019s Term Funding Scheme with additional incentives for SMEs (TFSME). The fair value of the collateral provided under these agreements at 31 December 2023 was \u00a337,655 million, capped at the repurchase agreement carrying value (2022: \u00a353,827 million including over collaterisation). Financial liabilities at fair value through profit or loss The fair value of collateral pledged in respect of repurchase transactions, accounted for as secured borrowing, where the secured party is permitted by contract or custom to repledge was \u00a317,941 million, capped at the repurchase agreement carrying value (2022: \u00a310,427 million). Securities lending transactions The following on-balance sheet financial assets have been lent to counterparties under securities lending transactions:
2023 2022
\u00a3m \u00a3m
Financial assets at fair value through profit or loss
633
1,463
Financial assets at fair value through other comprehensive income
5,245
5,429
Total
5,878
6,892
Securitisations and covered bonds In addition to the assets detailed above, the Group also holds assets that are encumbered through the Group\u2019s asset-backed conduits and its securitisation and covered bond programmes. Further details of these assets are provided in note 29. 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\u2019s liquidity risk appetite is also calibrated against a number of stressed liquidity metrics. The table below analyses assets and liabilities of the Group, other than liabilities arising from insurance and investment contracts, into relevant maturity groupings based on the remaining contractual period at the balance sheet date; balances with no fixed maturity are included in the over 5 years category. Liabilities arising from insurance and investment contracts are analysed on a behavioural basis. Certain balances, included in the table below on the basis of their residual maturity, are repayable on demand upon payment of a penalty. (A) Maturities of assets and liabilities
Up to 1 1 to 3 3 to 6 6 to 9 9 to 12 1 to 2 2 to 5 Over 5
month months months months months years years years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Assets
Cash and balances at central banks
78,110
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
78,110
Financial assets at fair value through profit or
loss
13,286
8,279
6,192
1,999
1,499
3,403
9,420
159,240
203,318
Derivative financial instruments
2,747
1,380
907
693
448
1,094
2,448
12,639
22,356
Loans and advances to banks
5,768
1,213
873
413
228
579
1,686
4
10,764
Loans and advances to customers
19,148
11,274
13,310
11,555
10,326
32,667
72,029
279,436
449,745
Reverse repurchase agreements
19,475
10,242
5,002
1,969
620
754
709
\u2013
38,771
Debt securities
427
185
7
93
297
2,588
5,742
6,016
15,355
Financial assets at amortised cost
44,818
22,914
19,192
14,030
11,471
36,588
80,166
285,456
514,635
Financial assets at fair value through other
comprehensive income
276
428
221
272
617
1,663
11,587
12,528
27,592
Other assets
1,901
1,024
71
777
65
137
160
31,307
35,442
Total assets
141,138
34,025
26,583
17,771
14,100
42,885
103,781
501,170
881,453
Liabilities
Deposits from banks
2,092
1,065
201
218
184
349
2,044
\u2013
6,153
Customer deposits
427,657
11,052
9,138
6,925
6,093
7,685
2,520
326
471,396
Repurchase agreements at amortised cost
3,222
4,057
23
2
\u2013
21,448
8,951
\u2013
37,703
Financial liabilities at fair value through profit or
loss
8,971
4,115
4,883
479
169
658
926
4,713
24,914
Derivative financial instruments
2,821
1,381
814
660
526
1,420
2,829
9,698
20,149
Debt securities in issue at amortised cost
1,954
8,057
9,260
5,873
4,554
12,489
24,418
8,987
75,592
Liabilities arising from insurance and
participating investment contracts
456
324
12
178
287
2,485
11,235
105,146
120,123
Liabilities arising from non-participating
investment contracts
348
527
789
787
776
4,280
9,517
27,954
44,978
Other liabilities
5,846
1,169
372
1,532
469
639
876
11,924
22,827
Subordinated liabilities
\u2013
\u2013
15
47
789
1,943
3,130
4,329
10,253
Total liabilities
453,367
31,747
25,507
16,701
13,847
53,396
66,446
173,077
834,088
Up to 1 1 to 3 3 to 6 6 to 9 9 to 12 1 to 2 2 to 5 Over 5
month months months months months years years years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Assets
Cash and balances at central banks
91,388
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
91,388
Financial assets at fair value through profit or
loss
12,019
8,108
3,269
2,186
858
2,827
7,726
143,776
180,769
Derivative financial instruments
2,896
1,823
1,069
656
637
1,424
2,828
13,420
24,753
Loans and advances to banks
4,756
763
896
700
352
78
3,084
3
10,632
Loans and advances to customers
17,535
7,628
10,337
8,849
9,952
33,886
78,857
287,855
454,899
Reverse repurchase agreements
14,530
10,908
11,600
4,035
285
2,924
583
\u2013
44,865
Debt securities
7
219
73
275
77
874
6,475
1,926
9,926
Financial assets at amortised cost
36,828
19,518
22,906
13,859
10,666
37,762
88,999
289,784
520,322
Financial assets at fair value through other
comprehensive income
310
273
391
456
665
2,324
9,334
9,401
23,154
Other assets
1,537
969
47
589
132
71
129
29,534
33,008
Total assets
144,978
30,691
27,682
17,746
12,958
44,408
109,016
485,915
873,394
Liabilities
Deposits from banks
3,988
364
141
139
408
4
2,222
\u2013
7,266
Customer deposits
446,311
8,074
5,628
2,953
4,695
3,887
3,402
381
475,331
Repurchase agreements at amortised cost
12,203
6,183
\u2013
\u2013
\u2013
\u2013
30,210
\u2013
48,596
Financial liabilities at fair value through profit or
loss
5,245
2,363
1,526
1,431
665
615
1,476
4,434
17,755
Derivative financial instruments
3,197
1,647
942
739
779
2,030
3,850
10,858
24,042
Debt securities in issue at amortised cost
5,562
9,761
8,646
3,940
2,114
10,124
23,964
9,708
73,819
Liabilities arising from insurance and
participating investment contracts
574
422
94
163
331
1,247
8,465
98,982
110,278
Liabilities arising from non-participating
investment contracts
439
497
736
742
716
2,793
9,890
23,663
39,476
Other liabilities
5,680
1,236
378
1,476
515
499
688
11,718
22,190
Subordinated liabilities
\u2013
\u2013
541
662
\u2013
915
3,770
4,842
10,730
Total liabilities
483,199
30,547
18,632
12,245
10,223
22,114
87,937
164,586
829,483
1 1 Restated for the adoption of IFRS 17; see notes 1 and 54. The above table is provided on a contractual basis. The Group\u2019s assets and liabilities may be repaid or otherwise mature earlier or later than implied by their contractual terms and readers are, therefore, advised to use caution when using this data to evaluate the Group\u2019s liquidity position. In particular, amounts in respect of customer deposits are usually contractually payable on demand or at short notice. However, in practice, these deposits are not usually withdrawn on their contractual maturity. The table below analyses financial instrument liabilities of the Group, excluding those arising from insurance and participating investment contracts, on an undiscounted future cash flow basis according to contractual maturity, into relevant maturity groupings based on the remaining period at the balance sheet date; balances with no fixed maturity are included in the over 5 years category.
Up to 1 1 to 3 3 to 12 1 to 5 Over 5
month months months years years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Deposits from banks
2,093
1,073
623
2,394
\u2013
6,183
Customer deposits
427,695
11,133
22,572
10,767
325
472,492
Repurchase agreements at amortised cost
3,627
4,092
1,085
31,399
\u2013
40,203
Financial liabilities at fair value through profit or loss
8,801
4,157
5,694
1,808
5,845
26,305
Debt securities in issue at amortised cost
2,334
8,492
21,111
40,741
8,085
80,763
Liabilities arising from non-participating investment contracts
44,978
\u2013
\u2013
\u2013
\u2013
44,978
Lease liabilities
18
70
247
779
666
1,780
Subordinated liabilities
32
80
1,274
6,627
7,822
15,835
Total non-derivative financial liabilities
489,578
29,097
52,606
94,515
22,743
688,539
Derivative financial liabilities
Gross settled derivatives \u2013 outflows
80,148
46,874
47,777
35,807
20,302
230,908
Gross settled derivatives \u2013 inflows
(78,031)
(45,249)
(46,575)
(35,753)
(20,327)
(225,935)
Gross settled derivatives \u2013 net flows
2,117
1,625
1,202
54
(25)
4,973
Net settled derivative liabilities
12,095
138
161
402
1,501
14,297
Total derivative financial liabilities
14,212
1,763
1,363
456
1,476
19,270
Up to 1 1 to 3 3 to 12 1 to 5 Over 5
month months months years years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Deposits from banks
3,925
369
714
2,227
135
7,370
Customer deposits
449,801
6,717
11,635
7,417
382
475,952
Repurchase agreements at amortised cost
12,501
6,188
904
33,054
38
52,685
Financial liabilities at fair value through profit or loss
5,297
2,397
3,725
2,293
4,747
18,459
Debt securities in issue at amortised cost
6,108
12,625
15,517
39,527
11,623
85,400
Liabilities arising from non-participating investment contracts
42,975
\u2013
\u2013
\u2013
\u2013
42,975
Lease liabilities
13
54
166
582
700
1,515
Subordinated liabilities
27
113
1,648
6,741
12,384
20,913
Total non-derivative financial liabilities
520,647
28,463
34,309
91,841
30,009
705,269
Derivative financial liabilities
Gross settled derivatives \u2013 outflows
55,671
43,380
40,826
34,808
20,677
195,362
Gross settled derivatives \u2013 inflows
(52,383)
(41,255)
(39,132)
(34,015)
(20,130)
(186,915)
Gross settled derivatives \u2013 net flows
3,288
2,125
1,694
793
547
8,447
Net settled derivative liabilities
13,078
82
130
752
1,501
15,543
Total derivative financial liabilities
16,366
2,207
1,824
1,545
2,048
23,990
1
1 Restated for the adoption of IFRS 17; see notes 1 and 54.
The majority of the Group\u2019s non-participating investment contract liabilities are unit-linked. These unit-linked products are invested in
accordance with unit fund mandates. Clauses are included in policyholder contracts to permit the deferral of sales, where necessary,
so that linked assets can be realised without being a forced seller.
The principal amount for undated subordinated liabilities with no redemption option is included within the over 5 years column; interest
of \u00a316 million (2022: \u00a317 million) per annum which is payable in respect of those instruments for as long as they remain in issue is not
included beyond 5 years.
An analysis of the Group\u2019s total wholesale funding by residual maturity and by currency is set out on page 182.
The following table presents the estimated amount and timing of the remaining contractual discounted cash flows arising from
insurance liabilities The amounts presented do not include those relating to LRC of contracts that are measured under the PAA.
Less than 1 1 to 2 2 to 3 3 to 4 4 to 5 Over 5
year years years years years years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Liabilities arising from insurance and
participating investment contracts
(843)
(2,112)
(3,035)
(3,537)
(3,667)
(101,354)
(114,548)
Reinsurance contract liabilities
\u2013
\u2013
\u2013
\u2013
\u2013
(13)
(13)
Total
(843)
(2,112)
(3,035)
(3,537)
(3,667)
(101,367)
(114,561)
At 31 December 2022
Liabilities arising from insurance and
participating investment contracts
(1,115)
(752)
(1,882)
(2,621)
(3,147)
(95,362)
(104,879)
Reinsurance contract liabilities
(4)
(4)
(4)
(4)
(4)
(118)
(138)
Total
(1,119)
(756)
(1,886)
(2,625)
(3,151)
(95,480)
(105,017)
For insurance contracts which are neither unit-linked nor in the Group\u2019s 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.
Some of the Group\u2019s insurance and participating investment contract liabilities are payable on demand as shown in the table below:
2023
2022
Amounts Amounts
payable on Carrying payable on Carrying
demand amount demand amount
\u00a3m \u00a3m \u00a3m \u00a3m
Life
102,396
99,799
93,663
91,163
Non-life
\u2013
\u2013
\u2013
\u2013
Total
102,396
99,799
93,663
91,163
The amounts payable on demand represent contract surrender values and incurred claims.
The figures below are presented in timing categories representing the remaining offer periods of lending commitments or remaining coverage periods of financial guarantees, but the Group could be required to lend or pay amounts under those arrangements earlier than the periods presented below. Payment under the significant majority of the Group\u2019s lending commitments and financial guarantee contracts could be required to be made on demand.
Up to 1 1 to 3 3 to 6 6 to 9 9 to 12 1 to 3 3 to 5 Over 5
month months months months months years years years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Acceptances and endorsements
7
10
166
\u2013
8
\u2013
\u2013
\u2013
191
Other contingent liabilities
214
558
157
148
200
598
190
593
2,658
Total contingent liabilities
221
568
323
148
208
598
190
593
2,849
Lending commitments and guarantees
69,932
4,767
17,384
4,212
6,528
23,269
14,142
2,983
143,217
Other commitments
\u2013
\u2013
\u2013
\u2013
\u2013
38
41
23
102
Total commitments and guarantees
69,932
4,767
17,384
4,212
6,528
23,307
14,183
3,006
143,319
Total contingents, commitments and guarantees
70,153
5,335
17,707
4,360
6,736
23,905
14,373
3,599
146,168
At 31 December 2022
Acceptances and endorsements
47
11
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
58
Other contingent liabilities
355
744
263
240
144
554
181
447
2,928
Total contingent liabilities
402
755
263
240
144
554
181
447
2,986
Lending commitments and guarantees
68,984
2,419
17,641
1,586
6,439
12,787
14,329
19,571
143,756
Other commitments
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
10
29
39
Total commitments and guarantees
68,984
2,419
17,641
1,586
6,439
12,787
14,339
19,600
143,795
Total contingents, commitments and guarantees
69,386
3,174
17,904
1,826
6,583
13,341
14,520
20,047
146,781
Capital risk Capital is actively managed on an ongoing basis for both the Group and its regulated banking subsidiaries, with associated capital policies and procedures subjected to regular review. The Group assesses both its regulatory capital requirements and the quantity and quality of capital resources it holds to meet those requirements in accordance with the relevant provisions of the Capital Requirements Directive (CRD V) and Capital Requirements Regulation (UK CRR). This is supplemented through additional regulation set out under the PRA Rulebook and through associated statements of policy, supervisory statements and other regulatory guidance. Regulatory capital ratios are considered a key part of the budgeting and planning processes and forecast ratios are reviewed by the Group Asset and Liability Committee. Target capital levels take account of current and future regulatory requirements, capacity for growth and to cover uncertainties. Details of the Group\u2019s capital resources are provided in the table marked audited on page 149. Each insurance company within the Group is regulated by the PRA. The insurance businesses are required to calculate solvency capital requirements and available capital in accordance with Solvency II. The Group complied with these requirements in 2023 and 2022. The Insurance business of the Group calculates regulatory capital on the basis of an internal model, which was approved by the PRA on 5 December 2015, with the latest major change to the model approved in November 2020. The capital position of the Group\u2019s insurance businesses is reviewed on a regular basis by the Insurance, Pensions and Investments Executive Committee. Insurance risk Insurance underwriting risk is the risk of adverse developments in the timing, frequency and severity of claims for insured/underwritten events and in customer behaviour, leading to reductions in earnings and/or value and arises within the Group\u2019s Insurance business. Insurance underwriting risk is measured using a variety of techniques including stress, reverse stress and scenario testing, as well as stochastic modelling. Current and potential future insurance underwriting risk exposures are assessed and aggregated on a range of stresses including risk measures based on 1-in-200 year stresses for the Insurance business\u2019s regulatory capital assessments and other supporting measures where appropriate. The Group also mitigates insurance underwriting risk via the use of reinsurance arrangements. The Group's critical accounting judgements and key sources of estimation uncertainty for its Insurance business are set out in note 36.", "dimensions": { "concept": "ifrs-full:DisclosureOfFinancialRiskManagementExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1005": { "value": "Note 24: Allowance for expected credit losses The Group recognises an allowance for expected credit losses (ECLs) for loans and advances to customers and banks, other financial assets held at amortised cost, financial assets (other than equity investments) measured at fair value through other comprehensive income and certain loan commitment and financial guarantee contracts. At 31 December 2023, the Group\u2019s expected credit loss allowance was \u00a34,084 million (2022: \u00a34,903 million), of which \u00a33,762 million (2022: \u00a34,580 million) was in respect of drawn balances. The Group\u2019s total impairment allowances were as follows:
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
In respect of:
Loans and advances to banks
8
\u2013
\u2013
\u2013
8
UK mortgages
161
374
357
213
1,105
Credit cards
168
401
130
\u2013
699
Other
339
320
228
\u2013
887
Retail
668
1,095
715
213
2,691
Commercial Banking
232
372
418
\u2013
1,022
Other
\u2013
\u2013
4
\u2013
4
Loans and advances to customers
900
1,467
1,137
213
3,717
Debt securities
7
2
2
\u2013
11
Financial assets at amortised cost
915
1,469
1,139
213
3,736
Other assets
16
\u2013
10
\u2013
26
Provisions in relation to loan commitments and financial guarantees
160
160
2
\u2013
322
Total
1,091
1,629
1,151
213
4,084
Expected credit loss in respect of financial assets at fair value through other
comprehensive income (memorandum item)
7
\u2013
\u2013
\u2013
7
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
In respect of:
Loans and advances to banks
13
2
\u2013
\u2013
15
UK mortgages
91
552
311
253
1,207
Credit cards
120
433
113
\u2013
666
Other
275
409
259
\u2013
943
Retail
486
1,394
683
253
2,816
Commercial Banking
214
414
1,070
\u2013
1,698
Other
\u2013
\u2013
4
\u2013
4
Loans and advances to customers
700
1,808
1,757
253
4,518
Debt securities
8
\u2013
1
\u2013
9
Financial assets at amortised cost
721
1,810
1,758
253
4,542
Other assets
\u2013
\u2013
38
\u2013
38
Provisions in relation to loan commitments and financial guarantees
134
185
4
\u2013
323
Total
855
1,995
1,800
253
4,903
Expected credit loss in respect of financial assets at fair value through other
comprehensive income (memorandum item)
9
\u2013
\u2013
\u2013
9
The calculation of the Group\u2019s expected credit loss allowances and provisions against loan commitments and guarantees, which are set out above, under IFRS 9 requires the Group to make a number of judgements, assumptions and estimates. The most significant are set out below: Critical accounting judgements and key sources of estimation uncertainty Critical judgements: Determining an appropriate definition of default against which a probability of default, exposure at default and loss given default parameter can be evaluated Establishing the criteria for a significant increase in credit risk (SICR) The individual assessment of material cases and the use of judgemental adjustments made to impairment modelling processes that adjust inputs, parameters and outputs to reflect risks not captured by models Key source of estimation uncertainty: Base case and multiple economic scenarios (MES) assumptions, including the rate of unemployment and the rate of change of house prices, required for creation of MES scenarios and forward-looking credit parameters Definition of default The probability of default (PD) of an exposure, both over a 12-month period and over its lifetime, is a key input to the measurement of the ECL allowance. Default has occurred when there is evidence that the customer is experiencing significant financial difficulty which is likely to affect the ability to repay amounts due. The definition of default adopted by the Group is described in note 2(H) Impairment of financial assets. IFRS 9 contains a rebuttable presumption that default occurs no later than when a payment is 90 days past due which the Group now uses for all its products following changes to the definition of default for UK mortgages on 1 January 2022. In addition, other indicators of mortgage default include end-of-term payments on past due interest-only accounts and loans considered in probation due to recent arrears or forbearance, aligning the definition of Stage 3 credit-impaired for IFRS 9 to the CRD IV prudential regulatory definition of default. Significant increase in credit risk An ECL allowance equivalent to 12 months\u2019 expected losses is established against assets in Stage 1; assets classified as Stage 2 carry an ECL allowance equivalent to lifetime expected losses. Assets are transferred from Stage 1 to Stage 2 when there has been a significant increase in credit risk (SICR) since initial recognition. Credit-impaired assets are transferred to Stage 3 with a lifetime expected losses allowance. The Group uses both quantitative and qualitative indicators to determine whether there has been a SICR for an asset. For Retail, the following tables set out the retail master scale (RMS) grade triggers which result in a SICR for financial assets and the PD boundaries for each RMS grade. SICR triggers for key Retail portfolios
Origination grade
1
2
3
4
5
6
7
Mortgages SICR grade
5
5
6
7
8
9
10
Credit cards, loans and overdrafts SICR grade
4
5
6
7
8
9
10
RMS grade
1
2
3
4
5
6
7
8
9
10
11
12
13
14
PD boundary
1
(%)
0.10
0.40
0.80
1.20
2.50
4.50
7.50
10.00
14.00
20.00
30.00
45.00
99.99
100.00
1 Probability-weighted annualised lifetime probability of default. For Commercial a doubling of PD with a minimum increase in PD of 1 per cent and a resulting change in the underlying grade is treated as a SICR. The Group uses the internal credit risk classification and watchlist as qualitative indicators to identify a SICR. The Group does not use the low credit risk exemption in its staging assessments. The use of a payment holiday in and of itself has not been judged to indicate a significant increase in credit risk, nor forbearance, with the underlying long-term credit risk deemed to be driven by economic conditions and captured through the use of forward-looking models. These portfolio level models are capturing the anticipated volume of increased defaults and therefore an appropriate assessment of staging and expected credit loss. All financial assets are assumed to have suffered a SICR if they are more than 30 days past due; credit cards, loans and overdrafts financial assets are also assumed to have suffered a SICR if they are in arrears on three or more separate occasions in a rolling 12- month period. Financial assets are classified as credit-impaired if they are 90 days past due. A Stage 3 asset that is no longer credit-impaired is transferred back to Stage 2 as no general probation period is applied to assets in Stage 3. UK mortgages is an exception to this rule where a probation period is enforced for non-performing, forborne and defaulted exposures in accordance with prudential regulation. If an exposure that is classified as Stage 2 no longer meets the SICR criteria, which in some cases capture customer behaviour in previous periods, it is moved back to Stage 1. The setting of precise trigger points combined with risk indicators requires judgement. The use of different trigger points may have a material impact upon the size of the ECL allowance. The Group monitors the effectiveness of SICR criteria on an ongoing basis. Lifetime of an exposure A range of approaches, segmented by product type, has been adopted by the Group to estimate a product\u2019s expected life. These include using the full contractual life and taking into account behavioural factors such as early repayments, extensions and refinancing. For non-revolving retail assets, the Group has assumed the expected life for each product to be the time taken for all significant losses to be observed. For revolving retail products, the Group has considered the losses beyond the contractual term over which the Group is exposed to credit risk. For commercial overdraft facilities, the average behavioural life has been used. Changes to the assumed expected lives of the Group\u2019s assets could impact the ECL allowance recognised by the Group. The assessment of SICR and corresponding lifetime loss, and the PD, of a financial asset designated as Stage 2, or Stage 3, is dependent on its expected life. Individual assessments and application of judgement in adjustments to modelled ECL The table below analyses total ECL allowances by portfolio, separately identifying the amounts that have been modelled, those that have been individually assessed and those arising through the application of judgemental adjustments.
Judgements due to:
Inflationary
Modelled Individually and interest Total
ECL assessed rate risk Other ECL
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
UK mortgages
991
\u2013
61
63
1,115
Credit cards
703
\u2013
92
15
810
Other Retail
866
\u2013
33
46
945
Commercial Banking
1,124
340
\u2013
(282)
1,182
Other
32
\u2013
\u2013
\u2013
32
Total
3,716
340
186
(158)
4,084
At 31 December 2022
UK mortgages
946
\u2013
49
214
1,209
Credit cards
698
\u2013
93
(28)
763
Other Retail
903
\u2013
53
60
1,016
Commercial Banking
972
1,008
\u2013
(111)
1,869
Other
46
\u2013
\u2013
\u2013
46
Total
3,565
1,008
195
135
4,903
1 1 2022 includes \u00a31 million which was previously reported within judgements due to COVID-19. Individual assessed ECL Stage 3 ECL in Commercial Banking is largely assessed on an individual basis by the Business Support Unit using bespoke assessment of loss for each specific client based on potential recovery strategies. While these assessments are based on the Group\u2019s latest economic view, the use of Group-wide multiple economic scenarios and weightings is not considered appropriate for these cases due to their individual characteristics. In place of this, a range of case-specific outcomes are considered with any alternative better or worse outcomes that carry a 25 per cent likelihood taken into account in establishing a probability-weighted ECL. At 31 December 2023, individually assessed provisions for Commercial Banking were \u00a3340 million (2022: \u00a31,008 million) which reflected a range of \u00a3291 million to \u00a3413 million (2022: \u00a3908 million to \u00a31,140 million), based on the range of alternative outcomes considered. Application of judgement in adjustments to modelled ECL Impairment models fall within the Group\u2019s model risk framework with model monitoring, periodic validation and back testing performed on model components, such as probability of default. Limitations in the Group\u2019s impairment models or data inputs may be identified through the ongoing assessment and validation of the output of the models. In these circumstances, management applies appropriate judgemental adjustments to the ECL to ensure that the overall provision adequately reflects all material risks. These adjustments are determined by considering the particular attributes of exposures which have not been adequately captured by the impairment models and range from changes to model inputs and parameters, at account level, through to more qualitative post- model adjustments. Post-model adjustments are not typically calculated under each distinct economic scenario used to generate ECL, but on final modelled ECL. All adjustments are reviewed quarterly and are subject to internal review and challenge, including by the Audit Committee, to ensure that amounts are appropriately calculated and specific release criteria is identified. During 2022 the intensifying inflationary pressures, alongside rising interest rates within the Group\u2019s outlook created further risks not deemed to be fully captured by ECL models. These pressures played out in 2023 with households experiencing increased interest rates and living costs. These risks, whilst still present, are beginning to subside with inflation now reducing and interest rates now believed to have peaked. As a result, the judgements held in respect of inflationary and interest rate risks are at a slightly reduced level of \u00a3186 million (2022: \u00a3195 million). Other judgements continue to be applied for broader data and model limitations, both increasing and decreasing ECL. These include incremental risks associated with a material devaluation in commercial real estate prices present since 2022. Given ECL models only capture future price movements, and not the suppressed level, there is a risk that further losses are yet to emerge as well as greater risk on specific sector valuations. At 31 December 2023 judgemental adjustments resulted in net additional ECL allowances totalling \u00a328 million (2022: \u00a3330 million). Judgements due to inflationary and interest rate risk UK mortgages: \u00a361 million (2022: \u00a349 million) There has been only modest evidence of credit deterioration in the UK mortgages portfolio through 2023 despite the high levels of inflation and the rising interest rate environment. Increases in new to arrears and defaults that have emerged are mainly driven by variable rate customers, who have experienced material increases in their monthly payment. Mortgage ECL models use UK Bank Rate as a driver of predicted defaults largely capturing the stretch on customers due to increased payments, and that has contributed materially to the elevated levels of ECL at 31 December 2023. The impact is also partly mitigated by stressed affordability assessments applied at loan origination which means most customers have demonstrated the ability to absorb payment shocks. However, there remains a potential risk to affordability from continued inflationary pressures combined with higher interest rates, and that this may not be fully captured by the Group\u2019s ECL models. The risk remains for customers maturing from low fixed rate deals, the accumulated impact on variable rate product holders, lower levels of real household income and rental cover value. Therefore a judgemental uplift in ECL has been taken in these segments of the mortgages portfolio, either where inflation is expected to present a more material risk, or where segments within the model do not recognise UK Bank Rate as a material driver of predicted defaults.
Credit cards: \u00a392 million (2022: \u00a393 million) and Other Retail: \u00a333 million (2022: \u00a353 million)
The Group\u2019s ECL models for credit cards and personal loan portfolios use predictions of wage growth to account for future affordability
stress. As elevated inflation erodes nominal wage growth, adjustments have been made to the econometric models to account for
real, rather than nominal, income to produce adjusted predicted defaults. These adjustments also include the specific risk to
affordability from increased housing costs, not captured by CPI. As these adjustments are made within predicted default models, they
are calculated under each economic scenario and impact the staging of assets through increased PDs.
Alongside these portfolio-wide adjustments management has also made an additional uplift to ECL for customers with lower income
levels and higher indebtedness deemed most vulnerable to inflationary pressures and interest rate rises. Although this segment of
customers has not exhibited any greater deterioration to date, uplifts continue to be applied to recognise that continued inflation and
interest rates risks remain.
Other judgements
UK mortgages: \u00a363 million (2022: \u00a3214 million)
These adjustments principally comprise:
Increase in time to repossession: \u00a3106 million (2022: \u00a3118 million)
Due to the Group suspending mortgage litigation activity between late-2014 and mid-2018 due to policy changes for the treatment of
arrears, and as collections strategy normalises post COVID-19 pandemic, the Group\u2019s experience of possessions data on which our
models rely is limited. This reflects an adjustment made to allow for an increase in the time assumed between default and
repossession. A number of defaulted accounts, equivalent in scale to the estimated shortfall in possessions experienced, have had their
provision coverage judgementally increased to the level of those accounts already in repossession. A further adjustment is made to
accounts which have been in default for more than 24 months, with an arrears balance increase in the last six months. These accounts
have their probability of possession judgmentally set to an increased level based on observed historical losses incurred on accounts
that were of an equivalent status.
Asset recovery values: \u00a3nil (2022: \u00a369 million)
The low level of repossession volumes throughout 2020 to 2022 restricted the calibration of Forced Sale Discount (FSD) model
parameters which uses the achieved sales price experience over the last 12 months. Over this period management partly incorporated
an increasing trend in FSD rates through judgementally extending the observation period. At December 2023 the level of sales volumes
observed over the past 12 months has subsequently returned to an adequate level for model calibrations to again be performed
removing the need for judgemental adjustment.
Adjustment for specific segments: \u00a323 million (2022: \u00a325 million)
The Group monitors risks across specific segments of its portfolios which may not be fully captured through wider collective models.
The judgement for fire safety and cladding uncertainty has been maintained. Though experience remains limited the risk is considered
sufficiently material to address through judgement, given that there is evidence of assessed cases having defective cladding, or other
fire safety issues.
Adjustment for Stage 2 oversensitivity: \u00a3(68) million (2022: \u00a3nil)
Management has observed an increasing degree of oversensitivity in the number of recently originated low risk accounts moving to
Stage 2 through the PD trigger mechanism. This arises from a blend of factors currently present, with the combination of the Group\u2019s
current MES assumptions and the uplift approach applied, disproportionately applying greater forward-looking uplifts to recent
vintages. Given these accounts have shown no significant movement in observed credit scores and were originated under a similar or
more adverse economic outlook, an adjustment has been made pending a model rebuild. Management has judgementally increased
the threshold applied to these accounts by one further grade (to what is set out on page 277) which results in \u00a36 billion of assets being
moved back to Stage 1 which results in a lower 12-month ECL.
Credit cards: \u00a315 million (2022: \u00a3(28) million) and Other Retail: \u00a346 million (2022: \u00a360 million)
These adjustments principally comprise:
Lifetime extension on revolving products: Credit cards: \u00a367 million (2022: \u00a382 million) and Other Retail: \u00a310 million (2022: \u00a314 million)
An adjustment is required to extend the lifetime used for Stage 2 exposures on Retail revolving products from a three-year modelled
lifetime, which reflected the outcome data available when the ECL models were developed. Incremental defaults beyond year three
are calculated through the extrapolation of the default trajectory observed throughout the three years and beyond. The judgement
has reduced slightly in the period following refinement to the discounting methodology applied.
Adjustments to loss given defaults (LGDs): Credit cards: \u00a3(50) million (2022: \u00a3(96) million) and Other Retail: \u00a337 million (2022: \u00a313 million)
A number of adjustments have been made to the loss given default assumptions used within unsecured and motor credit models. For
unsecured portfolios, the adjustments reflect the impact of changes in collection debt sale strategy on the Group\u2019s LGD models,
incorporating up to date customer performance and forward flow debt sale pricing. For motor, the adjustment captures a decline in
used car prices.
Commercial Banking: \u00a3(282) million (2022: \u00a3(111) million)
These adjustments principally comprise:
Corporate insolvency rates: \u00a3(292) million (2022: \u00a3(35) million)
During 2023, the volume of UK corporate insolvencies continued to exhibit an increasing trend beyond December 2019 levels, revealing
a marked misalignment between observed UK corporate insolvencies and the Group\u2019s credit performance. This dislocation gives rise to
uncertainty over the drivers of observed trends and the appropriateness of the Group\u2019s Commercial Banking model response which
uses observed UK corporate insolvencies data to anchor future loss estimates to. Given the Group\u2019s asset quality remains strong with
low new defaults, a negative adjustment is applied by using the long-term average rate. The larger negative adjustment in the period
reflects the widening gap between the increasing industry level and the long-term average rate used.
Adjustments to loss given defaults (LGDs): \u00a3(105) million (2022: \u00a3(105) million)
Following a review on the loss given default approach for commercial exposures, management deems that ECL should be adjusted to
mitigate limitations identified in the approach which are causing loss given defaults to be inflated. These include the benefit from
amortisation of exposures relative to collateral values at default and a move to an exposure-weighted approach being adopted. These
temporary adjustments will be addressed through future model development.
Commercial Real Estate (CRE) price reduction: \u00a367 million (2022: \u00a3nil) Rolling the forecast model forwards into the period has resulted in the material fall in CRE prices seen in late 2022 moving out of the model assumptions used to assess ECL. Given the model uses future changes in the metric as a driver of defaults and loss rates there is a risk that the model benefit that arises does not reflect the residual risk caused by the sustained low level of prices. Management therefore considers it appropriate to judgementally reinstate the CRE price drop within the ECL model assumptions given the materially reduced level in CRE prices could still trigger additional defaults Within this adjustment management has refined the potential impact on loss rates through capturing updated valuations as well as stressing valuations on specific sectors where evidence suggests valuations may lag achievable levels, notably in cases of stressed sale. Generation of multiple economic scenarios The estimate of expected credit losses is required to be based on an unbiased expectation of future economic scenarios. The approach used to generate the range of future economic scenarios depends on the methodology and judgements adopted. The Group\u2019s approach is to start from a defined base case scenario, used for planning purposes, and to generate alternative economic scenarios around this base case. The base case scenario is a conditional forecast underpinned by a number of conditioning assumptions that reflect the Group\u2019s best view of key future developments. If circumstances appear likely to materially deviate from the conditioning assumptions, then the base case scenario is updated. The base case scenario is central to a range of future economic scenarios generated by simulation of an economic model, for which the same conditioning assumptions apply as in the base case scenario. These scenarios are ranked by using estimated relationships with industry-wide historical loss data. With the base case already pre-defined, three other scenarios are identified as averages of constituent scenarios located around the 15th, 75th and 95th percentiles of the distribution. The full distribution is therefore summarised by a practical number of scenarios to run through ECL models representing an upside, the base case, and a downside scenario weighted at 30 per cent each, together with a severe downside scenario weighted at 10 per cent. The scenario weights represent the distribution of economic scenarios and not subjective views on likelihood. The inclusion of a severe downside scenario with a smaller weighting ensures that the non-linearity of losses in the tail of the distribution is adequately captured. Macroeconomic projections may employ reversionary techniques to adjust the paths of economic drivers towards long-run equilibria after a reasonable forecast horizon. The Group does not use such techniques to force the MES scenarios to revert to the base case planning view. Utilising such techniques would be expected to be immaterial for expected credit losses since loss sensitivity is highest over the initial five years of the projections. Most assets are expected to have matured, or reached the end of their behavioural life before the five-year horizon. A forum under the chairmanship of the Chief Economist meets at least quarterly to review and, if appropriate, recommend changes to the method by which economic scenarios are generated, for approval by the Chief Financial Officer and Chief Risk Officer. In June 2022, the Group judged it appropriate to include an adjusted severe downside scenario to incorporate a high CPI inflation and UK Bank Rate profiles and to adopt this adjusted severe downside scenario to calculate the Group\u2019s ECL. This is because the historic macroeconomic and loan loss data upon which the scenario model is calibrated imply an association of downside economic outcomes with easier monetary policy, and therefore low interest rates. The adjustment is considered to better reflect the risks around the Group\u2019s base case view in an economic environment where the potential for supply shocks remains an elevated concern. The Group has continued to include a non-modelled severe downside scenario for Group ECL calculations for 31 December 2023 reporting. Base case and MES economic assumptions The Group\u2019s base case economic scenario has been updated to reflect ongoing geopolitical developments, and further evidence of easing of inflationary pressures allowing shifts to less restrictive monetary policies globally. The Group\u2019s updated base case scenario has three conditioning assumptions: first, the wars in Ukraine and the Middle East remain geographically contained and do not lead to a major escalation in energy prices; second, China\u2019s economic stabilisation policy is effective; and third, less restrictive monetary and fiscal policy throughout this year. Based on these assumptions and incorporating the economic data published in the fourth quarter, the Group\u2019s base case scenario is for slow expansion in GDP and a rise in the unemployment rate alongside modest changes in residential and commercial property prices. Following a reduction in inflationary pressures, UK Bank Rate is expected to be lowered during 2024. Risks around this base case economic view lie in both directions and are largely captured by the generation of alternative economic scenarios. The Group has accommodated the latest available information at the reporting date in defining its base case scenario and generating alternative economic scenarios. The scenarios include forecasts for key variables in the fourth quarter of 2023, for which actuals may have since emerged prior to publication. Scenarios by year The key UK economic assumptions made by the Group are shown in the following tables across a number of measures explained below. Annual assumptions Gross domestic product (GDP) and Consumer Price Index (CPI) inflation are presented as an annual change, house price growth and commercial real estate price growth are presented as the growth in the respective indices over each year. Unemployment rate and UK Bank Rate are averages over the year. Five-year average The five-year average reflects the average annual growth rate, or level, over the five-year period. It includes movements within the current reporting year, such that the position as at 31 December 2023 covers the five years 2023 to 2027. The inclusion of the reporting year within the five-year period reflects the need to predict variables which remain unpublished at the reporting date and recognises that credit models utilise both level and annual changes. The use of calendar years maintains a comparability between the annual assumptions presented. Five-year start to peak and trough The peak or trough for any metric may occur intra year and therefore not be identifiable from the annual assumptions, so they are also disclosed. For GDP, house price growth and commercial real estate price growth, the peak, or trough, reflects the highest, or lowest cumulative quarterly position reached relative to the start of the five-year period, which as at 31 December 2023 is 1 January 2023. Given these metrics may exhibit increases followed by greater falls, the start to trough movements quoted may be smaller than the equivalent \u2018peak to trough\u2019 movement (and vice versa for start to peak). Unemployment, UK Bank Rate and CPI inflation reflect the highest, or lowest, quarterly level reached in the five-year period.
2023 to 2027 Start to Start to
2023 2024 2025 2026 2027 average peak trough
At 31 December 2023 % % % % % % % %
Upside
Gross domestic product
0.3
1.5
1.7
1.7
1.9
1.4
8.1
0.2
Unemployment rate
4.0
3.3
3.1
3.1
3.1
3.3
4.2
3.0
House price growth
1.9
0.8
6.9
7.2
6.8
4.7
25.7
(1.2)
Commercial real estate price growth
(3.9)
9.0
3.8
1.3
1.3
2.2
11.5
(3.9)
UK Bank Rate
4.94
5.72
5.61
5.38
5.18
5.37
5.79
4.25
CPI inflation
7.3
2.7
3.1
3.2
3.1
3.9
10.2
2.1
Base case
Gross domestic product
0.3
0.5
1.2
1.7
1.9
1.1
6.4
0.2
Unemployment rate
4.2
4.9
5.2
5.2
5.0
4.9
5.2
3.9
House price growth
1.4
(2.2)
0.5
1.6
3.5
1.0
4.8
(1.2)
Commercial real estate price growth
(5.1)
(0.2)
0.1
0.0
0.8
(0.9)
(1.2)
(5.3)
UK Bank Rate
4.94
4.88
4.00
3.50
3.06
4.08
5.25
3.00
CPI inflation
7.3
2.7
2.9
2.5
2.2
3.5
10.2
2.1
Downside
Gross domestic product
0.2
(1.0)
(0.1)
1.5
2.0
0.5
3.4
(1.2)
Unemployment rate
4.3
6.5
7.8
7.9
7.6
6.8
8.0
3.9
House price growth
1.3
(4.5)
(6.0)
(5.6)
(1.7)
(3.4)
2.0
(15.7)
Commercial real estate price growth
(6.0)
(8.7)
(4.0)
(2.1)
(1.2)
(4.4)
(1.2)
(20.4)
UK Bank Rate
4.94
3.95
1.96
1.13
0.55
2.51
5.25
0.43
CPI inflation
7.3
2.8
2.7
1.8
1.1
3.2
10.2
1.0
Severe downside
Gross domestic product
0.1
(2.3)
(0.5)
1.3
1.8
0.1
1.0
(2.9)
Unemployment rate
4.5
8.7
10.4
10.5
10.1
8.8
10.5
3.9
House price growth
0.6
(7.6)
(13.3)
(12.7)
(7.5)
(8.2)
2.0
(35.0)
Commercial real estate price growth
(7.7)
(19.5)
(10.6)
(7.7)
(5.2)
(10.3)
(1.2)
(41.8)
UK Bank Rate \u2013 modelled
4.94
2.75
0.49
0.13
0.03
1.67
5.25
0.02
UK Bank Rate \u2013 adjusted
4.94
6.56
4.56
3.63
3.13
4.56
6.75
3.00
CPI inflation \u2013 modelled
7.3
2.7
2.2
0.9
(0.2)
2.6
10.2
(0.3)
CPI inflation \u2013 adjusted
7.6
7.5
3.5
1.3
1.0
4.2
10.2
0.9
Probability-weighted
Gross domestic product
0.3
0.1
0.8
1.6
1.9
0.9
5.4
0.1
Unemployment rate
4.2
5.3
5.9
5.9
5.7
5.4
6.0
3.9
House price growth
1.4
(2.5)
(0.9)
(0.3)
1.8
(0.1)
2.0
(2.8)
Commercial real estate price growth
(5.3)
(1.9)
(1.1)
(1.0)
(0.2)
(1.9)
(1.2)
(9.9)
UK Bank Rate \u2013 modelled
4.94
4.64
3.52
3.02
2.64
3.75
5.25
2.59
UK Bank Rate \u2013 adjusted
4.94
5.02
3.93
3.37
2.95
4.04
5.42
2.89
CPI inflation \u2013 modelled
7.3
2.7
2.8
2.3
1.9
3.4
10.2
1.9
CPI inflation \u2013 adjusted
7.4
3.2
3.0
2.4
2.0
3.6
10.2
2.0
1 1 1 1 1 The adjustment to UK Bank Rate and CPI inflation in the severe downside is considered to better reflect the risks around the Group\u2019s base case view in an economic environment where supply shocks are the principal concern. 1
First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
Base case scenario by quarter 2023 2023 2023 2023 2024 2024 2024 2024
At 31 December 2023 % % % % % % % %
Gross domestic product
0.3
0.0
(0.1)
0.0
0.1
0.2
0.3
0.3
Unemployment rate
3.9
4.2
4.2
4.3
4.5
4.8
5.0
5.2
House price growth
1.6
(2.6)
(4.5)
1.4
(1.1)
(1.5)
0.5
(2.2)
Commercial real estate price growth
(18.8)
(21.2)
(18.2)
(5.1)
(4.1)
(3.8)
(2.2)
(0.2)
UK Bank Rate
4.25
5.00
5.25
5.25
5.25
5.00
4.75
4.50
CPI inflation
10.2
8.4
6.7
4.0
3.8
2.1
2.3
2.8
1 Gross domestic product is presented quarter-on-quarter. House price growth, commercial real estate growth and CPI inflation are presented year-on-year, i.e. from the equivalent quarter in the previous year. Unemployment rate and UK Bank Rate are presented as at the end of each quarter.
2022 to 2026 Start to Start to
2022 2023 2024 2025 2026 average peak trough
At 31 December 2022 % % % % % % % %
Upside
Gross domestic product
4.1
0.1
1.1
1.7
2.1
1.8
6.5
0.4
Unemployment rate
3.5
2.8
3.0
3.3
3.4
3.2
3.8
2.8
House price growth
2.4
(2.8)
6.5
9.0
8.0
4.5
24.8
(1.1)
Commercial real estate price growth
(9.4)
8.5
3.5
2.6
2.3
1.3
7.2
(9.4)
UK Bank Rate
1.94
4.95
4.98
4.63
4.58
4.22
5.39
0.75
CPI inflation
9.0
8.3
4.2
3.3
3.0
5.5
10.7
2.9
Base case
Gross domestic product
4.0
(1.2)
0.5
1.6
2.1
1.4
4.3
(1.1)
Unemployment rate
3.7
4.5
5.1
5.3
5.1
4.8
5.3
3.6
House price growth
2.0
(6.9)
(1.2)
2.9
4.4
0.2
6.4
(6.3)
Commercial real estate price growth
(11.8)
(3.3)
0.9
2.8
3.1
(1.8)
7.2
(14.8)
UK Bank Rate
1.94
4.00
3.38
3.00
3.00
3.06
4.00
0.75
CPI inflation
9.0
8.3
3.7
2.3
1.7
5.0
10.7
1.6
Downside
Gross domestic product
3.9
(3.0)
(0.5)
1.4
2.1
0.8
1.2
(3.6)
Unemployment rate
3.8
6.3
7.5
7.6
7.2
6.5
7.7
3.6
House price growth
1.6
(11.1)
(9.8)
(5.6)
(1.5)
(5.4)
6.4
(24.3)
Commercial real estate price growth
(13.9)
(15.0)
(3.7)
0.4
1.4
(6.4)
7.2
(29.6)
UK Bank Rate
1.94
2.93
1.39
0.98
1.04
1.65
3.62
0.75
CPI inflation
9.0
8.2
3.3
1.3
0.3
4.4
10.7
0.2
Severe downside
Gross domestic product
3.7
(5.2)
(1.0)
1.3
2.1
0.1
0.7
(6.4)
Unemployment rate
4.1
9.0
10.7
10.4
9.7
8.8
10.7
3.6
House price growth
1.1
(14.8)
(18.0)
(11.5)
(4.2)
(9.8)
6.4
(40.1)
Commercial real estate price growth
(17.3)
(28.8)
(9.9)
(1.3)
3.2
(11.6)
7.2
(47.8)
UK Bank Rate \u2013 modelled
1.94
1.41
0.20
0.13
0.14
0.76
3.50
0.12
UK Bank Rate \u2013 adjusted
2.44
7.00
4.88
3.31
3.25
4.18
7.00
0.75
CPI inflation \u2013 modelled
9.0
8.2
2.6
(0.1)
(1.6)
3.6
10.7
(1.7)
CPI inflation \u2013 adjusted
9.7
14.3
9.0
4.1
1.6
7.7
14.8
1.5
Probability-weighted
Gross domestic product
4.0
(1.8)
0.2
1.5
2.1
1.2
3.4
(1.8)
Unemployment rate
3.7
5.0
5.8
5.9
5.7
5.2
5.9
3.6
House price growth
1.9
(7.7)
(3.2)
0.7
2.9
(1.2)
6.4
(9.5)
Commercial real estate price growth
(12.3)
(5.8)
(0.8)
1.6
2.3
(3.1)
7.2
(18.6)
UK Bank Rate \u2013 modelled
1.94
3.70
2.94
2.59
2.60
2.76
3.89
0.75
UK Bank Rate \u2013 adjusted
1.99
4.26
3.41
2.91
2.91
3.10
4.31
0.75
CPI inflation \u2013 modelled
9.0
8.3
3.6
2.1
1.4
4.9
10.7
1.3
CPI inflation \u2013 adjusted
9.1
8.9
4.3
2.5
1.7
5.3
11.0
1.6
1 1 1 1 1 The adjustment to UK Bank Rate and CPI inflation in the severe downside is considered to better reflect the risks around the Group\u2019s base case view in an economic environment where supply shocks are the principal concern. 1
First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
Base case scenario by quarter 2022 2022 2022 2022 2023 2023 2023 2023
At 31 December 2022 % % % % % % % %
Gross domestic product
0.6
0.1
(0.3)
(0.4)
(0.4)
(0.4)
(0.2)
(0.1)
Unemployment rate
3.7
3.8
3.6
3.7
4.0
4.4
4.7
4.9
House price growth
11.1
12.5
9.8
2.0
(3.0)
(8.4)
(9.8)
(6.9)
Commercial real estate price growth
18.0
18.0
8.4
(11.8)
(16.9)
(19.8)
(15.9)
(3.3)
UK Bank Rate
0.75
1.25
2.25
3.50
4.00
4.00
4.00
4.00
CPI inflation
6.2
9.2
10.0
10.7
10.0
8.9
8.0
6.1
1 Gross domestic product is presented quarter-on-quarter. House price growth, commercial real estate growth and CPI inflation are presented year-on-year, i.e. from the equivalent quarter in the previous year. Unemployment rate and UK Bank Rate are presented as at the end of each quarter.
ECL sensitivity to economic assumptions
The table below shows the Group\u2019s ECL for the probability-weighted, upside, base case, downside and severe downside scenarios, with
the severe downside scenario incorporating adjustments made to CPI inflation and UK Bank Rate paths. The stage allocation for an
asset is based on the overall scenario probability-weighted probability of default and hence the staging of assets is constant across all
the scenarios. In each economic scenario the ECL for individual assessments is held constant reflecting the basis on which they are
evaluated. Judgemental adjustments applied through changes to model inputs or parameters, or more qualitative post model
adjustments, are apportioned across the scenarios in proportion to modelled ECL where this better reflects the sensitivity of these
adjustments to each scenario. The probability-weighted view shows the extent to which a higher ECL allowance has been recognised
to take account of multiple economic scenarios relative to the base case; the uplift being \u00a3678 million compared to \u00a3692 million at
31 December 2022.
At 31 December 2023
At 31 December 2022
Probability- Severe Probability- Severe
weighted Upside Base case Downside downside weighted Upside Base case Downside downside
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
UK mortgages
1,115
395
670
1,155
4,485
1,209
514
790
1,434
3,874
Credit cards
810
600
771
918
1,235
763
596
727
828
1,180
Other Retail
945
850
920
981
1,200
1,016
907
992
1,056
1,290
Commercial Banking
1,182
793
1,013
1,383
2,250
1,869
1,459
1,656
2,027
3,261
Other
32
32
32
32
32
46
46
46
47
47
ECL allowance
4,084
2,670
3,406
4,469
9,202
4,903
3,522
4,211
5,392
9,652
The impact of isolated changes in the UK unemployment rate and House Price Index (HPI) has been assessed on a univariate basis.
Although such changes would not be observed in isolation, as economic indicators tend to be correlated in a coherent scenario, this
gives insight into the sensitivity of the Group\u2019s ECL to gradual changes in these two critical economic factors. The assessment has been
made against the base case with staging held flat to the reported probability-weighted view and is assessed through the direct
impact on modelled ECL and only includes judgemental adjustments applied through changes to model inputs.
The table below shows the impact on the Group\u2019s ECL resulting from a 1 percentage point increase or decrease in the UK
unemployment rate. The increase or decrease is presented based on the adjustment phased evenly over the first 10 quarters of the
base case scenario. A more immediate increase or decrease would drive a more material ECL impact as it would be fully reflected in
both 12-month and lifetime probability of defaults.
At 31 December 2023
At 31 December 2022
1pp increase in 1pp decrease in 1pp increase in 1pp decrease in
unemployment unemployment unemployment unemployment
\u00a3m \u00a3m \u00a3m \u00a3m
UK mortgages
33
(32)
26
(21)
Credit cards
38
(38)
41
(41)
Other Retail
19
(19)
25
(25)
Commercial Banking
88
(83)
100
(91)
ECL impact
178
(172)
192
(178)
The table below shows the impact on the Group\u2019s ECL in respect of UK mortgages of an increase or decrease in loss given default for a
10 percentage point increase or decrease in the UK HPI. The increase or decrease is presented based on the adjustment phased evenly
over the first 10 quarters of the base case scenario.
At 31 December 2023
At 31 December 2022
10pp increase 10pp decrease 10pp increase 10pp decrease
in HPI in HPI in HPI in HPI
\u00a3m \u00a3m \u00a3m \u00a3m
ECL impact
(201)
305
(225)
370
The table below shows the Group\u2019s ECL and drawn balances for the upside, base case, downside and severe downside scenarios, with staging of assets based on each specific scenario probability of default. In each economic scenario the ECL for individual assessments is held constant reflecting the basis on which they are evaluated. Judgemental adjustments applied through changes to model inputs or parameters, or more qualitative post-model adjustments, are apportioned across the scenarios in proportion to modelled ECL where this better reflects the sensitivity of these adjustments to each scenario. A probability-weighted scenario is not shown as this view does not reflect the basis on which ECL is calculated. Comparing the probability-weighted ECL in the table above to the base case ECL with base case scenario specific staging, as shown in the table below, results in an uplift of \u00a3596 million compared to \u00a3820 million at 31 December 2022.
Drawn balances
ECL allowance
Coverage ratio
Base Severe Base Severe Base Severe
Upside case Downside downside Upside case Downside downside Upside case Downside downside
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m % % % %
Stage 1
UK mortgages
270,131
269,581
266,388
129,736
20
40
84
153
\u2013
\u2013
\u2013
0.1
Credit cards
13,338
12,668
12,109
10,966
169
211
242
298
1.3
1.7
2.0
2.7
Other Retail
39,260
38,939
38,373
30,202
360
384
404
448
0.9
1.0
1.1
1.5
Commercial Banking
98,202
97,394
92,919
78,781
165
260
376
431
0.2
0.3
0.4
0.6
Other
7,632
7,632
7,632
7,632
14
16
17
20
0.2
0.2
0.2
0.3
Total
428,563
426,214
417,421
257,317
728
911
1,123
1,350
0.2
0.2
0.3
0.5
Stage 2
UK mortgages
24,998
25,548
28,741
165,393
73
139
316
4,074
0.3
0.6
1.1
2.5
Credit cards
2,195
2,865
3,424
4,567
302
437
567
859
13.7
15.3
16.6
18.8
Other Retail
5,711
6,032
6,598
14,769
325
378
424
619
5.7
6.3
6.4
4.2
Commercial Banking
4,487
5,295
9,770
23,908
259
379
722
2,466
5.8
7.2
7.4
10.3
Other
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Total
37,391
39,740
48,533
208,637
959
1,333
2,029
8,018
2.6
3.4
4.2
3.8
Stage 3
UK mortgages
4,337
4,337
4,337
4,337
78
225
457
963
1.8
5.2
10.5
22.2
Credit cards
284
284
284
284
122
122
122
122
43.0
43.0
43.0
43.0
Other Retail
452
452
452
452
238
242
248
261
52.7
53.5
54.9
57.7
Commercial Banking
2,068
2,068
2,068
2,068
426
426
426
426
20.6
20.6
20.6
20.6
Other
39
39
39
39
16
16
16
16
41.0
41.0
41.0
41.0
Total
7,180
7,180
7,180
7,180
880
1,031
1,269
1,788
12.3
14.4
17.7
24.9
POCI
UK mortgages
7,854
7,854
7,854
7,854
213
213
213
213
2.7
2.7
2.7
2.7
Total
UK mortgages
307,320
307,320
307,320
307,320
384
617
1,070
5,403
0.1
0.2
0.4
1.8
Credit cards
15,817
15,817
15,817
15,817
593
770
931
1,279
3.8
4.9
5.9
8.1
Other Retail
45,423
45,423
45,423
45,423
923
1,004
1,076
1,328
2.0
2.2
2.4
2.9
Commercial Banking
104,757
104,757
104,757
104,757
850
1,065
1,524
3,323
0.8
1.0
1.5
3.2
Other
7,671
7,671
7,671
7,671
30
32
33
36
0.4
0.4
0.4
0.5
Total
480,988
480,988
480,988
480,988
2,780
3,488
4,634
11,369
0.6
0.7
1.0
2.4
1 2 3 1 Includes loans and advances to banks, loans and advances to customers, debt securities and items identified as other assets in note 27. 2 Coverage ratio is ECL allowance shown as a percentage of drawn balances. 3 POCI ECL has been presented on a probability-weighted basis. The sensitivity is captured within the UK mortgages total
Drawn balances
1
ECL allowance
Coverage ratio
Base Severe Base Severe Base Severe
Upside case Downside downside Upside case Downside downside Upside case Downside downside
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m % % % %
Stage 1
UK mortgages
272,780
264,062
259,684
112,102
39
55
91
106
\u2013
\u2013
\u2013
0.1
Credit cards
12,277
11,583
11,111
9,049
112
157
195
255
0.9
1.4
1.8
2.8
Other Retail
36,001
35,356
34,807
30,927
242
274
298
346
0.7
0.8
0.9
1.1
Commercial Banking
99,319
98,481
87,192
51,452
137
222
323
339
0.1
0.2
0.4
0.7
Other
4,301
4,301
4,301
4,301
42
42
43
43
1.0
1.0
1.0
1.0
Total
424,678
413,783
397,095
207,831
572
750
950
1,089
0.1
0.2
0.2
0.5
Stage 2
UK mortgages
26,520
35,238
39,616
187,198
137
242
557
6,649
0.5
0.7
1.4
3.6
Credit cards
2,426
3,120
3,592
5,654
338
449
534
952
13.9
14.4
14.9
16.8
Other Retail
3,671
4,316
4,865
8,745
390
453
501
839
10.6
10.5
10.3
9.6
Commercial Banking
6,663
7,501
18,790
54,530
214
304
745
3,777
3.2
4.1
4.0
6.9
Other
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Total
39,280
50,175
66,863
256,127
1,079
1,448
2,337
12,217
2.7
2.9
3.5
4.8
Stage 3
UK mortgages
3,416
3,416
3,416
3,416
40
184
443
840
1.2
5.4
13.0
24.6
Credit cards
289
289
289
289
113
113
113
113
39.1
39.1
39.1
39.1
Other Retail
558
558
558
558
254
257
260
264
45.5
46.1
46.6
47.3
Commercial Banking
3,371
3,371
3,371
3,371
1,074
1,074
1,074
1,074
31.9
31.9
31.9
31.9
Other
6
6
6
6
4
4
4
4
66.7
66.7
66.7
66.7
Total
7,640
7,640
7,640
7,640
1,485
1,632
1,894
2,295
19.4
21.4
24.8
30.0
POCI
UK mortgages
9,622
9,622
9,622
9,622
253
253
253
253
2.6
2.6
2.6
2.6
Total
UK mortgages
312,338
312,338
312,338
312,338
469
734
1,344
7,848
0.2
0.2
0.4
2.5
Credit cards
14,992
14,992
14,992
14,992
563
719
842
1,320
3.8
4.8
5.6
8.8
Other Retail
40,230
40,230
40,230
40,230
886
984
1,059
1,449
2.2
2.4
2.6
3.6
Commercial Banking
109,353
109,353
109,353
109,353
1,425
1,600
2,142
5,190
1.3
1.5
2.0
4.7
Other
4,307
4,307
4,307
4,307
46
46
47
47
1.1
1.1
1.1
1.1
Total
481,220
481,220
481,220
481,220
3,389
4,083
5,434
15,854
0.7
0.8
1.1
3.3
2 3 1 Includes loans and advances to banks, loans and advances to customers, debt securities and items identified as other assets in note 27. 2 Coverage ratio is ECL allowance shown as a percentage of drawn balances. 3 POCI ECL has been presented on a probability-weighted basis. The sensitivity is captured within the UK mortgages total Assessment of climate risk impacts on ECL The Group continues to develop capabilities to quantify the potential impact of climate risks on ECL. This includes identifying the climate-related risk drivers that could influence future credit losses for loan portfolios that have the highest sensitivity to climate risks and commencing the use of more quantitative analysis on the impact of these risk drivers on ECL. This initial assessment has focused on specific climate-related risk drivers, with the intention to broaden and further develop the assessment in future years. The approach leverages the Group\u2019s climate scenario analysis, to identify the potential physical and transition risk impacts on credit quality. Retail mortgages and Commercial Banking portfolios were identified to have the highest sensitivity to climate risk, with both physical and transition risk drivers assessed. The assessment used a combination of macroeconomic and sector level modelling alongside similar techniques used in estimating judgemental adjustments for non-climate related risks at sector and segment level. UK mortgages physical and transition risks \u2013 additional costs resulting in affordability pressure for buy-to-let (BTL) borrowers of UK properties assessed with a low EPC rating requiring retrofitting to meet potential legislative regulations; and similarly additional costs driven by increased flood risk through property repair or rebuild - discussed below. Commercial Banking physical and transition risks \u2013 chronic and acute impacts of rising temperatures on a company\u2019s costs and revenues. Companies adapting to a sudden transition scenario could potentially lead to increased transition costs in operations, direct carbon costs, and deteriorating financial performance due to changing consumer perspectives - discussed below. Macroeconomic and sector scenario risks assessments An assessment was performed on the Group\u2019s internally generated economic scenarios used in the measurement of expected credit losses against external scenarios published by the Network for Greening the Financial System (NGFS) in November 2023. The analysis found the Group\u2019s base case, incorporating the impact of assumed policies over a five-year planning horizon, was positioned broadly within the range of the NGFS climate scenarios considered to be the most plausible, with limited differences in both directions for key impairment drivers. The Group\u2019s MES downside and severe downside together comprising 40 per cent weighting in ECL calculations, are generally more severe than the most adverse NGFS scenario (Net Zero 2050). The assessment suggests that no material changes are required to the Group\u2019s existing suite of economic scenarios. In Retail, the potential incremental impact of climate factors on key economic drivers has been isolated from a range of NGFS scenarios management judged most plausible (Current Policies, Delayed Transition and Fragmented World scenarios). The incremental risk to ECL was then quantified by overlaying the specific climate impact of these scenarios on macroeconomic drivers, the Group\u2019s base case and MES scenarios. Given these more plausible scenarios exhibited very similar impacts, management modelled the ECL impact from the Delayed Transition scenario, which assumes strong environmental policies are needed to compensate for the absence of early action. The results from the most material portfolios, UK mortgages and credit card ECL models allowed management to conclude on an immaterial ECL impact for Retail. In Commercial Banking, an exploratory top-down analysis using newly developed sectoral modelling was adopted to estimate the ECL impact of climate risk on commercial credit conditions. This assessment specifically segmented agriculture, automotive, transport, oil and gas and real estate sectors where climate impacts were judged to be more significant. Sector-specific, climate-adjusted credit cycle indices (CCI) were used to calculate probability of default and resulting ECL. These adjusted CCI model inputs combined external NGFS scenarios with client level valuation impacts where available, alongside historic impairment data. Taking into account methodological limitations, the additional ECL required was shown to be immaterial. However, the analysis has been an informative exercise to take further forward in 2024. Physical and transition risks assessments In 2023 the Group has progressed with third party consultants to enhance both its access to climate-related data and the development of climate modelling capabilities. In the UK mortgage portfolio, an affordability stress for customers was applied, by considering a scenario with minimum EPC requirements being introduced for the UK and estimated average retrofitting costs to bring the estimated EPC distribution for the current UK mortgage portfolio into alignment. The potential default risk from additional costs linked to retrofitting risks was assessed, with independent EPC data used to estimate the ECL impact from increased costs to customers for upgrading or retrofitting to meet a potential legislative target of EPC rating of C by 2028 for BTL. The provision impact was assessed using sensitivity analysis that utilises the relationship between disposable income and probability of default. The impact on ECL has been estimated to be less than \u00a35 million for the potential legislative requirement in place for BTL. Consideration has also been given to flooding risk \u2013 a delayed transition climate outlook, out to 2035 was assessed, resulting in over 80 per cent of the book expected to have no risk of flood damage. The impact on ECL related to the affordability risk from flood damage has been estimated to be immaterial. Whilst this supports no judgemental adjustment to ECL being required, the narrow scope does not capture the wider impact on loss rates emanating from being located in a high risk area.
Assessment
Nature of risk assessed
Portfolios assessed
ECL impact
Macroeconomic impact from climate scenario
Scenario risk \u2013 macro level
Retail
< \u00a35 million
Sector level impacts from climate scenario
Scenario risk \u2013 sector level
Commercial Banking < \u00a315 million
(excluding Business Banking)
Retrofitting cost to meet EPC regulation
Transition risk
UK mortgages \u2013 BTL
< \u00a35 million
Flood risk
Physical risk
UK mortgages
< \u00a35 million
The assessments are limited due to the degree of uncertainty underpinning key assumptions used, as well as the developmental nature of the data, approach and models used in the quantification. These include, but are not limited to the analyses being restricted to PD impacts only, client level valuation impacts not incorporating climate transition plans, only considering the most material hazard (flooding) for UK mortgages and more broadly the political landscape, future climate data enhancements and further model development. However, the conclusions made using the Group\u2019s best internal view of likely outcomes across all analyses further strengthens management\u2019s view there is a low residual risk of material error or omission in the Group\u2019s financial statements due to climate-related risks at present and as a result no adjustments have been made to the ECL measured as at 31 December 2023. The current behavioural lives of the Group\u2019s lending dilutes the potential exposure to the later emergence of potential physical climate impacts, with the incorporation of climate risk within underwriting assessments in Commercial Banking providing further mitigation on more recent originations. ", "dimensions": { "concept": "ifrs-full:DisclosureOfAllowanceForCreditLossesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-975": { "value": "Note 24: Allowance for expected credit losses The Group recognises an allowance for expected credit losses (ECLs) for loans and advances to customers and banks, other financial assets held at amortised cost, financial assets (other than equity investments) measured at fair value through other comprehensive income and certain loan commitment and financial guarantee contracts. At 31 December 2023, the Group\u2019s expected credit loss allowance was \u00a34,084 million (2022: \u00a34,903 million), of which \u00a33,762 million (2022: \u00a34,580 million) was in respect of drawn balances. The Group\u2019s total impairment allowances were as follows:
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
In respect of:
Loans and advances to banks
8
\u2013
\u2013
\u2013
8
UK mortgages
161
374
357
213
1,105
Credit cards
168
401
130
\u2013
699
Other
339
320
228
\u2013
887
Retail
668
1,095
715
213
2,691
Commercial Banking
232
372
418
\u2013
1,022
Other
\u2013
\u2013
4
\u2013
4
Loans and advances to customers
900
1,467
1,137
213
3,717
Debt securities
7
2
2
\u2013
11
Financial assets at amortised cost
915
1,469
1,139
213
3,736
Other assets
16
\u2013
10
\u2013
26
Provisions in relation to loan commitments and financial guarantees
160
160
2
\u2013
322
Total
1,091
1,629
1,151
213
4,084
Expected credit loss in respect of financial assets at fair value through other
comprehensive income (memorandum item)
7
\u2013
\u2013
\u2013
7
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
In respect of:
Loans and advances to banks
13
2
\u2013
\u2013
15
UK mortgages
91
552
311
253
1,207
Credit cards
120
433
113
\u2013
666
Other
275
409
259
\u2013
943
Retail
486
1,394
683
253
2,816
Commercial Banking
214
414
1,070
\u2013
1,698
Other
\u2013
\u2013
4
\u2013
4
Loans and advances to customers
700
1,808
1,757
253
4,518
Debt securities
8
\u2013
1
\u2013
9
Financial assets at amortised cost
721
1,810
1,758
253
4,542
Other assets
\u2013
\u2013
38
\u2013
38
Provisions in relation to loan commitments and financial guarantees
134
185
4
\u2013
323
Total
855
1,995
1,800
253
4,903
Expected credit loss in respect of financial assets at fair value through other
comprehensive income (memorandum item)
9
\u2013
\u2013
\u2013
9
The calculation of the Group\u2019s expected credit loss allowances and provisions against loan commitments and guarantees, which are
set out above, under IFRS 9 requires the Group to make a number of judgements, assumptions and estimates. The most significant are
set out below:
Critical accounting judgements and key sources of estimation uncertainty
Critical judgements: Determining an appropriate definition of default against which a probability of default, exposure at
default and loss given default parameter can be evaluated
Establishing the criteria for a significant increase in credit risk (SICR)
The individual assessment of material cases and the use of judgemental adjustments made to
impairment modelling processes that adjust inputs, parameters and outputs to reflect risks not
captured by models
Key source of estimation uncertainty: Base case and multiple economic scenarios (MES) assumptions, including the rate of unemployment
and the rate of change of house prices, required for creation of MES scenarios and forward-looking
credit parameters
Definition of default
The probability of default (PD) of an exposure, both over a 12-month period and over its lifetime, is a key input to the measurement of
the ECL allowance. Default has occurred when there is evidence that the customer is experiencing significant financial difficulty which
is likely to affect the ability to repay amounts due. The definition of default adopted by the Group is described in note 2(H) Impairment
of financial assets. IFRS 9 contains a rebuttable presumption that default occurs no later than when a payment is 90 days past due
which the Group now uses for all its products following changes to the definition of default for UK mortgages on 1 January 2022. In
addition, other indicators of mortgage default include end-of-term payments on past due interest-only accounts and loans
considered in probation due to recent arrears or forbearance, aligning the definition of Stage 3 credit-impaired for IFRS 9 to the CRD IV
prudential regulatory definition of default.
Significant increase in credit risk
An ECL allowance equivalent to 12 months\u2019 expected losses is established against assets in Stage 1; assets classified as Stage 2 carry an
ECL allowance equivalent to lifetime expected losses. Assets are transferred from Stage 1 to Stage 2 when there has been a significant
increase in credit risk (SICR) since initial recognition. Credit-impaired assets are transferred to Stage 3 with a lifetime expected losses
allowance. The Group uses both quantitative and qualitative indicators to determine whether there has been a SICR for an asset. For
Retail, the following tables set out the retail master scale (RMS) grade triggers which result in a SICR for financial assets and the PD
boundaries for each RMS grade.
SICR triggers for key Retail portfolios
Origination grade
1
2
3
4
5
6
7
Mortgages SICR grade
5
5
6
7
8
9
10
Credit cards, loans and overdrafts SICR grade
4
5
6
7
8
9
10
RMS grade
1
2
3
4
5
6
7
8
9
10
11
12
13
14
PD boundary
1
(%)
0.10
0.40
0.80
1.20
2.50
4.50
7.50
10.00
14.00
20.00
30.00
45.00
99.99
100.00
1 Probability-weighted annualised lifetime probability of default.
For Commercial a doubling of PD with a minimum increase in PD of 1 per cent and a resulting change in the underlying grade is treated
as a SICR.
The Group uses the internal credit risk classification and watchlist as qualitative indicators to identify a SICR. The Group does not use
the low credit risk exemption in its staging assessments. The use of a payment holiday in and of itself has not been judged to indicate a
significant increase in credit risk, nor forbearance, with the underlying long-term credit risk deemed to be driven by economic
conditions and captured through the use of forward-looking models. These portfolio level models are capturing the anticipated volume
of increased defaults and therefore an appropriate assessment of staging and expected credit loss.
All financial assets are assumed to have suffered a SICR if they are more than 30 days past due; credit cards, loans and overdrafts
financial assets are also assumed to have suffered a SICR if they are in arrears on three or more separate occasions in a rolling 12-
month period. Financial assets are classified as credit-impaired if they are 90 days past due.
A Stage 3 asset that is no longer credit-impaired is transferred back to Stage 2 as no general probation period is applied to assets in
Stage 3. UK mortgages is an exception to this rule where a probation period is enforced for non-performing, forborne and defaulted
exposures in accordance with prudential regulation. If an exposure that is classified as Stage 2 no longer meets the SICR criteria, which
in some cases capture customer behaviour in previous periods, it is moved back to Stage 1.
The setting of precise trigger points combined with risk indicators requires judgement. The use of different trigger points may have a
material impact upon the size of the ECL allowance. The Group monitors the effectiveness of SICR criteria on an ongoing basis.
Lifetime of an exposure
A range of approaches, segmented by product type, has been adopted by the Group to estimate a product\u2019s expected life. These
include using the full contractual life and taking into account behavioural factors such as early repayments, extensions and
refinancing. For non-revolving retail assets, the Group has assumed the expected life for each product to be the time taken for all
significant losses to be observed. For revolving retail products, the Group has considered the losses beyond the contractual term over
which the Group is exposed to credit risk. For commercial overdraft facilities, the average behavioural life has been used. Changes to
the assumed expected lives of the Group\u2019s assets could impact the ECL allowance recognised by the Group. The assessment of SICR
and corresponding lifetime loss, and the PD, of a financial asset designated as Stage 2, or Stage 3, is dependent on its expected life.
Individual assessments and application of judgement in adjustments to modelled ECL The table below analyses total ECL allowances by portfolio, separately identifying the amounts that have been modelled, those that have been individually assessed and those arising through the application of judgemental adjustments.
Judgements due to:
Inflationary
Modelled Individually and interest Total
ECL assessed rate risk Other ECL
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
UK mortgages
991
\u2013
61
63
1,115
Credit cards
703
\u2013
92
15
810
Other Retail
866
\u2013
33
46
945
Commercial Banking
1,124
340
\u2013
(282)
1,182
Other
32
\u2013
\u2013
\u2013
32
Total
3,716
340
186
(158)
4,084
At 31 December 2022
UK mortgages
946
\u2013
49
214
1,209
Credit cards
698
\u2013
93
(28)
763
Other Retail
903
\u2013
53
60
1,016
Commercial Banking
972
1,008
\u2013
(111)
1,869
Other
46
\u2013
\u2013
\u2013
46
Total
3,565
1,008
195
135
4,903
1 1 2022 includes \u00a31 million which was previously reported within judgements due to COVID-19. Individual assessed ECL Stage 3 ECL in Commercial Banking is largely assessed on an individual basis by the Business Support Unit using bespoke assessment of loss for each specific client based on potential recovery strategies. While these assessments are based on the Group\u2019s latest economic view, the use of Group-wide multiple economic scenarios and weightings is not considered appropriate for these cases due to their individual characteristics. In place of this, a range of case-specific outcomes are considered with any alternative better or worse outcomes that carry a 25 per cent likelihood taken into account in establishing a probability-weighted ECL. At 31 December 2023, individually assessed provisions for Commercial Banking were \u00a3340 million (2022: \u00a31,008 million) which reflected a range of \u00a3291 million to \u00a3413 million (2022: \u00a3908 million to \u00a31,140 million), based on the range of alternative outcomes considered. Application of judgement in adjustments to modelled ECL Impairment models fall within the Group\u2019s model risk framework with model monitoring, periodic validation and back testing performed on model components, such as probability of default. Limitations in the Group\u2019s impairment models or data inputs may be identified through the ongoing assessment and validation of the output of the models. In these circumstances, management applies appropriate judgemental adjustments to the ECL to ensure that the overall provision adequately reflects all material risks. These adjustments are determined by considering the particular attributes of exposures which have not been adequately captured by the impairment models and range from changes to model inputs and parameters, at account level, through to more qualitative post- model adjustments. Post-model adjustments are not typically calculated under each distinct economic scenario used to generate ECL, but on final modelled ECL. All adjustments are reviewed quarterly and are subject to internal review and challenge, including by the Audit Committee, to ensure that amounts are appropriately calculated and specific release criteria is identified. During 2022 the intensifying inflationary pressures, alongside rising interest rates within the Group\u2019s outlook created further risks not deemed to be fully captured by ECL models. These pressures played out in 2023 with households experiencing increased interest rates and living costs. These risks, whilst still present, are beginning to subside with inflation now reducing and interest rates now believed to have peaked. As a result, the judgements held in respect of inflationary and interest rate risks are at a slightly reduced level of \u00a3186 million (2022: \u00a3195 million). Other judgements continue to be applied for broader data and model limitations, both increasing and decreasing ECL. These include incremental risks associated with a material devaluation in commercial real estate prices present since 2022. Given ECL models only capture future price movements, and not the suppressed level, there is a risk that further losses are yet to emerge as well as greater risk on specific sector valuations. At 31 December 2023 judgemental adjustments resulted in net additional ECL allowances totalling \u00a328 million (2022: \u00a3330 million). Judgements due to inflationary and interest rate risk UK mortgages: \u00a361 million (2022: \u00a349 million) There has been only modest evidence of credit deterioration in the UK mortgages portfolio through 2023 despite the high levels of inflation and the rising interest rate environment. Increases in new to arrears and defaults that have emerged are mainly driven by variable rate customers, who have experienced material increases in their monthly payment. Mortgage ECL models use UK Bank Rate as a driver of predicted defaults largely capturing the stretch on customers due to increased payments, and that has contributed materially to the elevated levels of ECL at 31 December 2023. The impact is also partly mitigated by stressed affordability assessments applied at loan origination which means most customers have demonstrated the ability to absorb payment shocks. However, there remains a potential risk to affordability from continued inflationary pressures combined with higher interest rates, and that this may not be fully captured by the Group\u2019s ECL models. The risk remains for customers maturing from low fixed rate deals, the accumulated impact on variable rate product holders, lower levels of real household income and rental cover value. Therefore a judgemental uplift in ECL has been taken in these segments of the mortgages portfolio, either where inflation is expected to present a more material risk, or where segments within the model do not recognise UK Bank Rate as a material driver of predicted defaults. Credit cards: \u00a392 million (2022: \u00a393 million) and Other Retail: \u00a333 million (2022: \u00a353 million) The Group\u2019s ECL models for credit cards and personal loan portfolios use predictions of wage growth to account for future affordability stress. As elevated inflation erodes nominal wage growth, adjustments have been made to the econometric models to account for real, rather than nominal, income to produce adjusted predicted defaults. These adjustments also include the specific risk to affordability from increased housing costs, not captured by CPI. As these adjustments are made within predicted default models, they are calculated under each economic scenario and impact the staging of assets through increased PDs. Alongside these portfolio-wide adjustments management has also made an additional uplift to ECL for customers with lower income levels and higher indebtedness deemed most vulnerable to inflationary pressures and interest rate rises. Although this segment of customers has not exhibited any greater deterioration to date, uplifts continue to be applied to recognise that continued inflation and interest rates risks remain. Other judgements UK mortgages: \u00a363 million (2022: \u00a3214 million) These adjustments principally comprise: Increase in time to repossession: \u00a3106 million (2022: \u00a3118 million) Due to the Group suspending mortgage litigation activity between late-2014 and mid-2018 due to policy changes for the treatment of arrears, and as collections strategy normalises post COVID-19 pandemic, the Group\u2019s experience of possessions data on which our models rely is limited. This reflects an adjustment made to allow for an increase in the time assumed between default and repossession. A number of defaulted accounts, equivalent in scale to the estimated shortfall in possessions experienced, have had their provision coverage judgementally increased to the level of those accounts already in repossession. A further adjustment is made to accounts which have been in default for more than 24 months, with an arrears balance increase in the last six months. These accounts have their probability of possession judgmentally set to an increased level based on observed historical losses incurred on accounts that were of an equivalent status. Asset recovery values: \u00a3nil (2022: \u00a369 million) The low level of repossession volumes throughout 2020 to 2022 restricted the calibration of Forced Sale Discount (FSD) model parameters which uses the achieved sales price experience over the last 12 months. Over this period management partly incorporated an increasing trend in FSD rates through judgementally extending the observation period. At December 2023 the level of sales volumes observed over the past 12 months has subsequently returned to an adequate level for model calibrations to again be performed removing the need for judgemental adjustment. Adjustment for specific segments: \u00a323 million (2022: \u00a325 million) The Group monitors risks across specific segments of its portfolios which may not be fully captured through wider collective models. The judgement for fire safety and cladding uncertainty has been maintained. Though experience remains limited the risk is considered sufficiently material to address through judgement, given that there is evidence of assessed cases having defective cladding, or other fire safety issues. Adjustment for Stage 2 oversensitivity: \u00a3(68) million (2022: \u00a3nil) Management has observed an increasing degree of oversensitivity in the number of recently originated low risk accounts moving to Stage 2 through the PD trigger mechanism. This arises from a blend of factors currently present, with the combination of the Group\u2019s current MES assumptions and the uplift approach applied, disproportionately applying greater forward-looking uplifts to recent vintages. Given these accounts have shown no significant movement in observed credit scores and were originated under a similar or more adverse economic outlook, an adjustment has been made pending a model rebuild. Management has judgementally increased the threshold applied to these accounts by one further grade (to what is set out on page 277) which results in \u00a36 billion of assets being moved back to Stage 1 which results in a lower 12-month ECL. Credit cards: \u00a315 million (2022: \u00a3(28) million) and Other Retail: \u00a346 million (2022: \u00a360 million) These adjustments principally comprise: Lifetime extension on revolving products: Credit cards: \u00a367 million (2022: \u00a382 million) and Other Retail: \u00a310 million (2022: \u00a314 million) An adjustment is required to extend the lifetime used for Stage 2 exposures on Retail revolving products from a three-year modelled lifetime, which reflected the outcome data available when the ECL models were developed. Incremental defaults beyond year three are calculated through the extrapolation of the default trajectory observed throughout the three years and beyond. The judgement has reduced slightly in the period following refinement to the discounting methodology applied. Adjustments to loss given defaults (LGDs): Credit cards: \u00a3(50) million (2022: \u00a3(96) million) and Other Retail: \u00a337 million (2022: \u00a313 million) A number of adjustments have been made to the loss given default assumptions used within unsecured and motor credit models. For unsecured portfolios, the adjustments reflect the impact of changes in collection debt sale strategy on the Group\u2019s LGD models, incorporating up to date customer performance and forward flow debt sale pricing. For motor, the adjustment captures a decline in used car prices. Commercial Banking: \u00a3(282) million (2022: \u00a3(111) million) These adjustments principally comprise: Corporate insolvency rates: \u00a3(292) million (2022: \u00a3(35) million) During 2023, the volume of UK corporate insolvencies continued to exhibit an increasing trend beyond December 2019 levels, revealing a marked misalignment between observed UK corporate insolvencies and the Group\u2019s credit performance. This dislocation gives rise to uncertainty over the drivers of observed trends and the appropriateness of the Group\u2019s Commercial Banking model response which uses observed UK corporate insolvencies data to anchor future loss estimates to. Given the Group\u2019s asset quality remains strong with low new defaults, a negative adjustment is applied by using the long-term average rate. The larger negative adjustment in the period reflects the widening gap between the increasing industry level and the long-term average rate used. Adjustments to loss given defaults (LGDs): \u00a3(105) million (2022: \u00a3(105) million) Following a review on the loss given default approach for commercial exposures, management deems that ECL should be adjusted to mitigate limitations identified in the approach which are causing loss given defaults to be inflated. These include the benefit from amortisation of exposures relative to collateral values at default and a move to an exposure-weighted approach being adopted. These temporary adjustments will be addressed through future model development. Commercial Real Estate (CRE) price reduction: \u00a367 million (2022: \u00a3nil) Rolling the forecast model forwards into the period has resulted in the material fall in CRE prices seen in late 2022 moving out of the model assumptions used to assess ECL. Given the model uses future changes in the metric as a driver of defaults and loss rates there is a risk that the model benefit that arises does not reflect the residual risk caused by the sustained low level of prices. Management therefore considers it appropriate to judgementally reinstate the CRE price drop within the ECL model assumptions given the materially reduced level in CRE prices could still trigger additional defaults Within this adjustment management has refined the potential impact on loss rates through capturing updated valuations as well as stressing valuations on specific sectors where evidence suggests valuations may lag achievable levels, notably in cases of stressed sale. Generation of multiple economic scenarios The estimate of expected credit losses is required to be based on an unbiased expectation of future economic scenarios. The approach used to generate the range of future economic scenarios depends on the methodology and judgements adopted. The Group\u2019s approach is to start from a defined base case scenario, used for planning purposes, and to generate alternative economic scenarios around this base case. The base case scenario is a conditional forecast underpinned by a number of conditioning assumptions that reflect the Group\u2019s best view of key future developments. If circumstances appear likely to materially deviate from the conditioning assumptions, then the base case scenario is updated. The base case scenario is central to a range of future economic scenarios generated by simulation of an economic model, for which the same conditioning assumptions apply as in the base case scenario. These scenarios are ranked by using estimated relationships with industry-wide historical loss data. With the base case already pre-defined, three other scenarios are identified as averages of constituent scenarios located around the 15th, 75th and 95th percentiles of the distribution. The full distribution is therefore summarised by a practical number of scenarios to run through ECL models representing an upside, the base case, and a downside scenario weighted at 30 per cent each, together with a severe downside scenario weighted at 10 per cent. The scenario weights represent the distribution of economic scenarios and not subjective views on likelihood. The inclusion of a severe downside scenario with a smaller weighting ensures that the non-linearity of losses in the tail of the distribution is adequately captured. Macroeconomic projections may employ reversionary techniques to adjust the paths of economic drivers towards long-run equilibria after a reasonable forecast horizon. The Group does not use such techniques to force the MES scenarios to revert to the base case planning view. Utilising such techniques would be expected to be immaterial for expected credit losses since loss sensitivity is highest over the initial five years of the projections. Most assets are expected to have matured, or reached the end of their behavioural life before the five-year horizon. A forum under the chairmanship of the Chief Economist meets at least quarterly to review and, if appropriate, recommend changes to the method by which economic scenarios are generated, for approval by the Chief Financial Officer and Chief Risk Officer. In June 2022, the Group judged it appropriate to include an adjusted severe downside scenario to incorporate a high CPI inflation and UK Bank Rate profiles and to adopt this adjusted severe downside scenario to calculate the Group\u2019s ECL. This is because the historic macroeconomic and loan loss data upon which the scenario model is calibrated imply an association of downside economic outcomes with easier monetary policy, and therefore low interest rates. The adjustment is considered to better reflect the risks around the Group\u2019s base case view in an economic environment where the potential for supply shocks remains an elevated concern. The Group has continued to include a non-modelled severe downside scenario for Group ECL calculations for 31 December 2023 reporting. Base case and MES economic assumptions The Group\u2019s base case economic scenario has been updated to reflect ongoing geopolitical developments, and further evidence of easing of inflationary pressures allowing shifts to less restrictive monetary policies globally. The Group\u2019s updated base case scenario has three conditioning assumptions: first, the wars in Ukraine and the Middle East remain geographically contained and do not lead to a major escalation in energy prices; second, China\u2019s economic stabilisation policy is effective; and third, less restrictive monetary and fiscal policy throughout this year. Based on these assumptions and incorporating the economic data published in the fourth quarter, the Group\u2019s base case scenario is for slow expansion in GDP and a rise in the unemployment rate alongside modest changes in residential and commercial property prices. Following a reduction in inflationary pressures, UK Bank Rate is expected to be lowered during 2024. Risks around this base case economic view lie in both directions and are largely captured by the generation of alternative economic scenarios. The Group has accommodated the latest available information at the reporting date in defining its base case scenario and generating alternative economic scenarios. The scenarios include forecasts for key variables in the fourth quarter of 2023, for which actuals may have since emerged prior to publication. Scenarios by year The key UK economic assumptions made by the Group are shown in the following tables across a number of measures explained below. Annual assumptions Gross domestic product (GDP) and Consumer Price Index (CPI) inflation are presented as an annual change, house price growth and commercial real estate price growth are presented as the growth in the respective indices over each year. Unemployment rate and UK Bank Rate are averages over the year. Five-year average The five-year average reflects the average annual growth rate, or level, over the five-year period. It includes movements within the current reporting year, such that the position as at 31 December 2023 covers the five years 2023 to 2027. The inclusion of the reporting year within the five-year period reflects the need to predict variables which remain unpublished at the reporting date and recognises that credit models utilise both level and annual changes. The use of calendar years maintains a comparability between the annual assumptions presented. Five-year start to peak and trough The peak or trough for any metric may occur intra year and therefore not be identifiable from the annual assumptions, so they are also disclosed. For GDP, house price growth and commercial real estate price growth, the peak, or trough, reflects the highest, or lowest cumulative quarterly position reached relative to the start of the five-year period, which as at 31 December 2023 is 1 January 2023. Given these metrics may exhibit increases followed by greater falls, the start to trough movements quoted may be smaller than the equivalent \u2018peak to trough\u2019 movement (and vice versa for start to peak). Unemployment, UK Bank Rate and CPI inflation reflect the highest, or lowest, quarterly level reached in the five-year period.
2023 to 2027 Start to Start to
2023 2024 2025 2026 2027 average peak trough
At 31 December 2023 % % % % % % % %
Upside
Gross domestic product
0.3
1.5
1.7
1.7
1.9
1.4
8.1
0.2
Unemployment rate
4.0
3.3
3.1
3.1
3.1
3.3
4.2
3.0
House price growth
1.9
0.8
6.9
7.2
6.8
4.7
25.7
(1.2)
Commercial real estate price growth
(3.9)
9.0
3.8
1.3
1.3
2.2
11.5
(3.9)
UK Bank Rate
4.94
5.72
5.61
5.38
5.18
5.37
5.79
4.25
CPI inflation
7.3
2.7
3.1
3.2
3.1
3.9
10.2
2.1
Base case
Gross domestic product
0.3
0.5
1.2
1.7
1.9
1.1
6.4
0.2
Unemployment rate
4.2
4.9
5.2
5.2
5.0
4.9
5.2
3.9
House price growth
1.4
(2.2)
0.5
1.6
3.5
1.0
4.8
(1.2)
Commercial real estate price growth
(5.1)
(0.2)
0.1
0.0
0.8
(0.9)
(1.2)
(5.3)
UK Bank Rate
4.94
4.88
4.00
3.50
3.06
4.08
5.25
3.00
CPI inflation
7.3
2.7
2.9
2.5
2.2
3.5
10.2
2.1
Downside
Gross domestic product
0.2
(1.0)
(0.1)
1.5
2.0
0.5
3.4
(1.2)
Unemployment rate
4.3
6.5
7.8
7.9
7.6
6.8
8.0
3.9
House price growth
1.3
(4.5)
(6.0)
(5.6)
(1.7)
(3.4)
2.0
(15.7)
Commercial real estate price growth
(6.0)
(8.7)
(4.0)
(2.1)
(1.2)
(4.4)
(1.2)
(20.4)
UK Bank Rate
4.94
3.95
1.96
1.13
0.55
2.51
5.25
0.43
CPI inflation
7.3
2.8
2.7
1.8
1.1
3.2
10.2
1.0
Severe downside
Gross domestic product
0.1
(2.3)
(0.5)
1.3
1.8
0.1
1.0
(2.9)
Unemployment rate
4.5
8.7
10.4
10.5
10.1
8.8
10.5
3.9
House price growth
0.6
(7.6)
(13.3)
(12.7)
(7.5)
(8.2)
2.0
(35.0)
Commercial real estate price growth
(7.7)
(19.5)
(10.6)
(7.7)
(5.2)
(10.3)
(1.2)
(41.8)
UK Bank Rate \u2013 modelled
4.94
2.75
0.49
0.13
0.03
1.67
5.25
0.02
UK Bank Rate \u2013 adjusted
4.94
6.56
4.56
3.63
3.13
4.56
6.75
3.00
CPI inflation \u2013 modelled
7.3
2.7
2.2
0.9
(0.2)
2.6
10.2
(0.3)
CPI inflation \u2013 adjusted
7.6
7.5
3.5
1.3
1.0
4.2
10.2
0.9
Probability-weighted
Gross domestic product
0.3
0.1
0.8
1.6
1.9
0.9
5.4
0.1
Unemployment rate
4.2
5.3
5.9
5.9
5.7
5.4
6.0
3.9
House price growth
1.4
(2.5)
(0.9)
(0.3)
1.8
(0.1)
2.0
(2.8)
Commercial real estate price growth
(5.3)
(1.9)
(1.1)
(1.0)
(0.2)
(1.9)
(1.2)
(9.9)
UK Bank Rate \u2013 modelled
4.94
4.64
3.52
3.02
2.64
3.75
5.25
2.59
UK Bank Rate \u2013 adjusted
4.94
5.02
3.93
3.37
2.95
4.04
5.42
2.89
CPI inflation \u2013 modelled
7.3
2.7
2.8
2.3
1.9
3.4
10.2
1.9
CPI inflation \u2013 adjusted
7.4
3.2
3.0
2.4
2.0
3.6
10.2
2.0
1 1 1 1 1 The adjustment to UK Bank Rate and CPI inflation in the severe downside is considered to better reflect the risks around the Group\u2019s base case view in an economic environment where supply shocks are the principal concern. 1
First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
Base case scenario by quarter 2023 2023 2023 2023 2024 2024 2024 2024
At 31 December 2023 % % % % % % % %
Gross domestic product
0.3
0.0
(0.1)
0.0
0.1
0.2
0.3
0.3
Unemployment rate
3.9
4.2
4.2
4.3
4.5
4.8
5.0
5.2
House price growth
1.6
(2.6)
(4.5)
1.4
(1.1)
(1.5)
0.5
(2.2)
Commercial real estate price growth
(18.8)
(21.2)
(18.2)
(5.1)
(4.1)
(3.8)
(2.2)
(0.2)
UK Bank Rate
4.25
5.00
5.25
5.25
5.25
5.00
4.75
4.50
CPI inflation
10.2
8.4
6.7
4.0
3.8
2.1
2.3
2.8
1 Gross domestic product is presented quarter-on-quarter. House price growth, commercial real estate growth and CPI inflation are presented year-on-year, i.e. from the equivalent quarter in the previous year. Unemployment rate and UK Bank Rate are presented as at the end of each quarter.
2022 to 2026 Start to Start to
2022 2023 2024 2025 2026 average peak trough
At 31 December 2022 % % % % % % % %
Upside
Gross domestic product
4.1
0.1
1.1
1.7
2.1
1.8
6.5
0.4
Unemployment rate
3.5
2.8
3.0
3.3
3.4
3.2
3.8
2.8
House price growth
2.4
(2.8)
6.5
9.0
8.0
4.5
24.8
(1.1)
Commercial real estate price growth
(9.4)
8.5
3.5
2.6
2.3
1.3
7.2
(9.4)
UK Bank Rate
1.94
4.95
4.98
4.63
4.58
4.22
5.39
0.75
CPI inflation
9.0
8.3
4.2
3.3
3.0
5.5
10.7
2.9
Base case
Gross domestic product
4.0
(1.2)
0.5
1.6
2.1
1.4
4.3
(1.1)
Unemployment rate
3.7
4.5
5.1
5.3
5.1
4.8
5.3
3.6
House price growth
2.0
(6.9)
(1.2)
2.9
4.4
0.2
6.4
(6.3)
Commercial real estate price growth
(11.8)
(3.3)
0.9
2.8
3.1
(1.8)
7.2
(14.8)
UK Bank Rate
1.94
4.00
3.38
3.00
3.00
3.06
4.00
0.75
CPI inflation
9.0
8.3
3.7
2.3
1.7
5.0
10.7
1.6
Downside
Gross domestic product
3.9
(3.0)
(0.5)
1.4
2.1
0.8
1.2
(3.6)
Unemployment rate
3.8
6.3
7.5
7.6
7.2
6.5
7.7
3.6
House price growth
1.6
(11.1)
(9.8)
(5.6)
(1.5)
(5.4)
6.4
(24.3)
Commercial real estate price growth
(13.9)
(15.0)
(3.7)
0.4
1.4
(6.4)
7.2
(29.6)
UK Bank Rate
1.94
2.93
1.39
0.98
1.04
1.65
3.62
0.75
CPI inflation
9.0
8.2
3.3
1.3
0.3
4.4
10.7
0.2
Severe downside
Gross domestic product
3.7
(5.2)
(1.0)
1.3
2.1
0.1
0.7
(6.4)
Unemployment rate
4.1
9.0
10.7
10.4
9.7
8.8
10.7
3.6
House price growth
1.1
(14.8)
(18.0)
(11.5)
(4.2)
(9.8)
6.4
(40.1)
Commercial real estate price growth
(17.3)
(28.8)
(9.9)
(1.3)
3.2
(11.6)
7.2
(47.8)
UK Bank Rate \u2013 modelled
1.94
1.41
0.20
0.13
0.14
0.76
3.50
0.12
UK Bank Rate \u2013 adjusted
2.44
7.00
4.88
3.31
3.25
4.18
7.00
0.75
CPI inflation \u2013 modelled
9.0
8.2
2.6
(0.1)
(1.6)
3.6
10.7
(1.7)
CPI inflation \u2013 adjusted
9.7
14.3
9.0
4.1
1.6
7.7
14.8
1.5
Probability-weighted
Gross domestic product
4.0
(1.8)
0.2
1.5
2.1
1.2
3.4
(1.8)
Unemployment rate
3.7
5.0
5.8
5.9
5.7
5.2
5.9
3.6
House price growth
1.9
(7.7)
(3.2)
0.7
2.9
(1.2)
6.4
(9.5)
Commercial real estate price growth
(12.3)
(5.8)
(0.8)
1.6
2.3
(3.1)
7.2
(18.6)
UK Bank Rate \u2013 modelled
1.94
3.70
2.94
2.59
2.60
2.76
3.89
0.75
UK Bank Rate \u2013 adjusted
1.99
4.26
3.41
2.91
2.91
3.10
4.31
0.75
CPI inflation \u2013 modelled
9.0
8.3
3.6
2.1
1.4
4.9
10.7
1.3
CPI inflation \u2013 adjusted
9.1
8.9
4.3
2.5
1.7
5.3
11.0
1.6
1
1
1
1
1 The adjustment to UK Bank Rate and CPI inflation in the severe downside is considered to better reflect the risks around the Group\u2019s base case view in an economic
environment where supply shocks are the principal concern.
1
First Second Third Fourth First Second Third Fourth
quarter quarter quarter quarter quarter quarter quarter quarter
Base case scenario by quarter 2022 2022 2022 2022 2023 2023 2023 2023
At 31 December 2022 % % % % % % % %
Gross domestic product
0.6
0.1
(0.3)
(0.4)
(0.4)
(0.4)
(0.2)
(0.1)
Unemployment rate
3.7
3.8
3.6
3.7
4.0
4.4
4.7
4.9
House price growth
11.1
12.5
9.8
2.0
(3.0)
(8.4)
(9.8)
(6.9)
Commercial real estate price growth
18.0
18.0
8.4
(11.8)
(16.9)
(19.8)
(15.9)
(3.3)
UK Bank Rate
0.75
1.25
2.25
3.50
4.00
4.00
4.00
4.00
CPI inflation
6.2
9.2
10.0
10.7
10.0
8.9
8.0
6.1
1 Gross domestic product is presented quarter-on-quarter. House price growth, commercial real estate growth and CPI inflation are presented year-on-year, i.e. from the
equivalent quarter in the previous year. Unemployment rate and UK Bank Rate are presented as at the end of each quarter.
ECL sensitivity to economic assumptions The table below shows the Group\u2019s ECL for the probability-weighted, upside, base case, downside and severe downside scenarios, with the severe downside scenario incorporating adjustments made to CPI inflation and UK Bank Rate paths. The stage allocation for an asset is based on the overall scenario probability-weighted probability of default and hence the staging of assets is constant across all the scenarios. In each economic scenario the ECL for individual assessments is held constant reflecting the basis on which they are evaluated. Judgemental adjustments applied through changes to model inputs or parameters, or more qualitative post model adjustments, are apportioned across the scenarios in proportion to modelled ECL where this better reflects the sensitivity of these adjustments to each scenario. The probability-weighted view shows the extent to which a higher ECL allowance has been recognised to take account of multiple economic scenarios relative to the base case; the uplift being \u00a3678 million compared to \u00a3692 million at 31 December 2022.
At 31 December 2023
At 31 December 2022
Probability- Severe Probability- Severe
weighted Upside Base case Downside downside weighted Upside Base case Downside downside
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
UK mortgages
1,115
395
670
1,155
4,485
1,209
514
790
1,434
3,874
Credit cards
810
600
771
918
1,235
763
596
727
828
1,180
Other Retail
945
850
920
981
1,200
1,016
907
992
1,056
1,290
Commercial Banking
1,182
793
1,013
1,383
2,250
1,869
1,459
1,656
2,027
3,261
Other
32
32
32
32
32
46
46
46
47
47
ECL allowance
4,084
2,670
3,406
4,469
9,202
4,903
3,522
4,211
5,392
9,652
The impact of isolated changes in the UK unemployment rate and House Price Index (HPI) has been assessed on a univariate basis. Although such changes would not be observed in isolation, as economic indicators tend to be correlated in a coherent scenario, this gives insight into the sensitivity of the Group\u2019s ECL to gradual changes in these two critical economic factors. The assessment has been made against the base case with staging held flat to the reported probability-weighted view and is assessed through the direct impact on modelled ECL and only includes judgemental adjustments applied through changes to model inputs. The table below shows the impact on the Group\u2019s ECL resulting from a 1 percentage point increase or decrease in the UK unemployment rate. The increase or decrease is presented based on the adjustment phased evenly over the first 10 quarters of the base case scenario. A more immediate increase or decrease would drive a more material ECL impact as it would be fully reflected in both 12-month and lifetime probability of defaults.
At 31 December 2023
At 31 December 2022
1pp increase in 1pp decrease in 1pp increase in 1pp decrease in
unemployment unemployment unemployment unemployment
\u00a3m \u00a3m \u00a3m \u00a3m
UK mortgages
33
(32)
26
(21)
Credit cards
38
(38)
41
(41)
Other Retail
19
(19)
25
(25)
Commercial Banking
88
(83)
100
(91)
ECL impact
178
(172)
192
(178)
The table below shows the impact on the Group\u2019s ECL in respect of UK mortgages of an increase or decrease in loss given default for a 10 percentage point increase or decrease in the UK HPI. The increase or decrease is presented based on the adjustment phased evenly over the first 10 quarters of the base case scenario.
At 31 December 2023
At 31 December 2022
10pp increase 10pp decrease 10pp increase 10pp decrease
in HPI in HPI in HPI in HPI
\u00a3m \u00a3m \u00a3m \u00a3m
ECL impact
(201)
305
(225)
370
The table below shows the Group\u2019s ECL and drawn balances for the upside, base case, downside and severe downside scenarios, with staging of assets based on each specific scenario probability of default. In each economic scenario the ECL for individual assessments is held constant reflecting the basis on which they are evaluated. Judgemental adjustments applied through changes to model inputs or parameters, or more qualitative post-model adjustments, are apportioned across the scenarios in proportion to modelled ECL where this better reflects the sensitivity of these adjustments to each scenario. A probability-weighted scenario is not shown as this view does not reflect the basis on which ECL is calculated. Comparing the probability-weighted ECL in the table above to the base case ECL with base case scenario specific staging, as shown in the table below, results in an uplift of \u00a3596 million compared to \u00a3820 million at 31 December 2022.
Drawn balances
ECL allowance
Coverage ratio
Base Severe Base Severe Base Severe
Upside case Downside downside Upside case Downside downside Upside case Downside downside
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m % % % %
Stage 1
UK mortgages
270,131
269,581
266,388
129,736
20
40
84
153
\u2013
\u2013
\u2013
0.1
Credit cards
13,338
12,668
12,109
10,966
169
211
242
298
1.3
1.7
2.0
2.7
Other Retail
39,260
38,939
38,373
30,202
360
384
404
448
0.9
1.0
1.1
1.5
Commercial Banking
98,202
97,394
92,919
78,781
165
260
376
431
0.2
0.3
0.4
0.6
Other
7,632
7,632
7,632
7,632
14
16
17
20
0.2
0.2
0.2
0.3
Total
428,563
426,214
417,421
257,317
728
911
1,123
1,350
0.2
0.2
0.3
0.5
Stage 2
UK mortgages
24,998
25,548
28,741
165,393
73
139
316
4,074
0.3
0.6
1.1
2.5
Credit cards
2,195
2,865
3,424
4,567
302
437
567
859
13.7
15.3
16.6
18.8
Other Retail
5,711
6,032
6,598
14,769
325
378
424
619
5.7
6.3
6.4
4.2
Commercial Banking
4,487
5,295
9,770
23,908
259
379
722
2,466
5.8
7.2
7.4
10.3
Other
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Total
37,391
39,740
48,533
208,637
959
1,333
2,029
8,018
2.6
3.4
4.2
3.8
Stage 3
UK mortgages
4,337
4,337
4,337
4,337
78
225
457
963
1.8
5.2
10.5
22.2
Credit cards
284
284
284
284
122
122
122
122
43.0
43.0
43.0
43.0
Other Retail
452
452
452
452
238
242
248
261
52.7
53.5
54.9
57.7
Commercial Banking
2,068
2,068
2,068
2,068
426
426
426
426
20.6
20.6
20.6
20.6
Other
39
39
39
39
16
16
16
16
41.0
41.0
41.0
41.0
Total
7,180
7,180
7,180
7,180
880
1,031
1,269
1,788
12.3
14.4
17.7
24.9
POCI
UK mortgages
7,854
7,854
7,854
7,854
213
213
213
213
2.7
2.7
2.7
2.7
Total
UK mortgages
307,320
307,320
307,320
307,320
384
617
1,070
5,403
0.1
0.2
0.4
1.8
Credit cards
15,817
15,817
15,817
15,817
593
770
931
1,279
3.8
4.9
5.9
8.1
Other Retail
45,423
45,423
45,423
45,423
923
1,004
1,076
1,328
2.0
2.2
2.4
2.9
Commercial Banking
104,757
104,757
104,757
104,757
850
1,065
1,524
3,323
0.8
1.0
1.5
3.2
Other
7,671
7,671
7,671
7,671
30
32
33
36
0.4
0.4
0.4
0.5
Total
480,988
480,988
480,988
480,988
2,780
3,488
4,634
11,369
0.6
0.7
1.0
2.4
1 2 3 1 Includes loans and advances to banks, loans and advances to customers, debt securities and items identified as other assets in note 27. 2 Coverage ratio is ECL allowance shown as a percentage of drawn balances. 3 POCI ECL has been presented on a probability-weighted basis. The sensitivity is captured within the UK mortgages total Drawn balances ECL allowance Coverage ratio Base Severe Base Severe Base Severe Upside case Downside downside Upside case Downside downside Upside case Downside downside At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m % % % % Stage 1 UK mortgages 272,780 264,062 259,684 112,102 39 55 91 106 \u2013 \u2013 \u2013 0.1 Credit cards 12,277 11,583 11,111 9,049 112 157 195 255 0.9 1.4 1.8 2.8 Other Retail 36,001 35,356 34,807 30,927 242 274 298 346 0.7 0.8 0.9 1.1 Commercial Banking 99,319 98,481 87,192 51,452 137 222 323 339 0.1 0.2 0.4 0.7 Other 4,301 4,301 4,301 4,301 42 42 43 43 1.0 1.0 1.0 1.0 Total 424,678 413,783 397,095 207,831 572 750 950 1,089 0.1 0.2 0.2 0.5 Stage 2 UK mortgages 26,520 35,238 39,616 187,198 137 242 557 6,649 0.5 0.7 1.4 3.6 Credit cards 2,426 3,120 3,592 5,654 338 449 534 952 13.9 14.4 14.9 16.8 Other Retail 3,671 4,316 4,865 8,745 390 453 501 839 10.6 10.5 10.3 9.6 Commercial Banking 6,663 7,501 18,790 54,530 214 304 745 3,777 3.2 4.1 4.0 6.9 Other \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 \u2013 Total 39,280 50,175 66,863 256,127 1,079 1,448 2,337 12,217 2.7 2.9 3.5 4.8 Stage 3 UK mortgages 3,416 3,416 3,416 3,416 40 184 443 840 1.2 5.4 13.0 24.6 Credit cards 289 289 289 289 113 113 113 113 39.1 39.1 39.1 39.1 Other Retail 558 558 558 558 254 257 260 264 45.5 46.1 46.6 47.3 Commercial Banking 3,371 3,371 3,371 3,371 1,074 1,074 1,074 1,074 31.9 31.9 31.9 31.9 Other 6 6 6 6 4 4 4 4 66.7 66.7 66.7 66.7 Total 7,640 7,640 7,640 7,640 1,485 1,632 1,894 2,295 19.4 21.4 24.8 30.0 POCI UK mortgages 9,622 9,622 9,622 9,622 253 253 253 253 2.6 2.6 2.6 2.6 Total UK mortgages 312,338 312,338 312,338 312,338 469 734 1,344 7,848 0.2 0.2 0.4 2.5 Credit cards 14,992 14,992 14,992 14,992 563 719 842 1,320 3.8 4.8 5.6 8.8 Other Retail 40,230 40,230 40,230 40,230 886 984 1,059 1,449 2.2 2.4 2.6 3.6 Commercial Banking 109,353 109,353 109,353 109,353 1,425 1,600 2,142 5,190 1.3 1.5 2.0 4.7 Other 4,307 4,307 4,307 4,307 46 46 47 47 1.1 1.1 1.1 1.1 Total 481,220 481,220 481,220 481,220 3,389 4,083 5,434 15,854 0.7 0.8 1.1 3.3 3 1 Includes loans and advances to banks, loans and advances to customers, debt securities and items identified as other assets in note 27. 2 Coverage ratio is ECL allowance shown as a percentage of drawn balances. 3 POCI ECL has been presented on a probability-weighted basis. The sensitivity is captured within the UK mortgages total . Assessment of climate risk impacts on ECL The Group continues to develop capabilities to quantify the potential impact of climate risks on ECL. This includes identifying the climate-related risk drivers that could influence future credit losses for loan portfolios that have the highest sensitivity to climate risks and commencing the use of more quantitative analysis on the impact of these risk drivers on ECL. This initial assessment has focused on specific climate-related risk drivers, with the intention to broaden and further develop the assessment in future years. The approach leverages the Group\u2019s climate scenario analysis, to identify the potential physical and transition risk impacts on credit quality. Retail mortgages and Commercial Banking portfolios were identified to have the highest sensitivity to climate risk, with both physical and transition risk drivers assessed. The assessment used a combination of macroeconomic and sector level modelling alongside similar techniques used in estimating judgemental adjustments for non-climate related risks at sector and segment level. UK mortgages physical and transition risks \u2013 additional costs resulting in affordability pressure for buy-to-let (BTL) borrowers of UK properties assessed with a low EPC rating requiring retrofitting to meet potential legislative regulations; and similarly additional costs driven by increased flood risk through property repair or rebuild - discussed below. Commercial Banking physical and transition risks \u2013 chronic and acute impacts of rising temperatures on a company\u2019s costs and revenues. Companies adapting to a sudden transition scenario could potentially lead to increased transition costs in operations, direct carbon costs, and deteriorating financial performance due to changing consumer perspectives - discussed below. Macroeconomic and sector scenario risks assessments An assessment was performed on the Group\u2019s internally generated economic scenarios used in the measurement of expected credit losses against external scenarios published by the Network for Greening the Financial System (NGFS) in November 2023. The analysis found the Group\u2019s base case, incorporating the impact of assumed policies over a five-year planning horizon, was positioned broadly within the range of the NGFS climate scenarios considered to be the most plausible, with limited differences in both directions for key impairment drivers. The Group\u2019s MES downside and severe downside together comprising 40 per cent weighting in ECL calculations, are generally more severe than the most adverse NGFS scenario (Net Zero 2050). The assessment suggests that no material changes are required to the Group\u2019s existing suite of economic scenarios. In Retail, the potential incremental impact of climate factors on key economic drivers has been isolated from a range of NGFS scenarios management judged most plausible (Current Policies, Delayed Transition and Fragmented World scenarios). The incremental risk to ECL was then quantified by overlaying the specific climate impact of these scenarios on macroeconomic drivers, the Group\u2019s base case and MES scenarios. Given these more plausible scenarios exhibited very similar impacts, management modelled the ECL impact from the Delayed Transition scenario, which assumes strong environmental policies are needed to compensate for the absence of early action. The results from the most material portfolios, UK mortgages and credit card ECL models allowed management to conclude on an immaterial ECL impact for Retail. In Commercial Banking, an exploratory top-down analysis using newly developed sectoral modelling was adopted to estimate the ECL impact of climate risk on commercial credit conditions. This assessment specifically segmented agriculture, automotive, transport, oil and gas and real estate sectors where climate impacts were judged to be more significant. Sector-specific, climate-adjusted credit cycle indices (CCI) were used to calculate probability of default and resulting ECL. These adjusted CCI model inputs combined external NGFS scenarios with client level valuation impacts where available, alongside historic impairment data. Taking into account methodological limitations, the additional ECL required was shown to be immaterial. However, the analysis has been an informative exercise to take further forward in 2024. Physical and transition risks assessments In 2023 the Group has progressed with third party consultants to enhance both its access to climate-related data and the development of climate modelling capabilities. In the UK mortgage portfolio, an affordability stress for customers was applied, by considering a scenario with minimum EPC requirements being introduced for the UK and estimated average retrofitting costs to bring the estimated EPC distribution for the current UK mortgage portfolio into alignment. The potential default risk from additional costs linked to retrofitting risks was assessed, with independent EPC data used to estimate the ECL impact from increased costs to customers for upgrading or retrofitting to meet a potential legislative target of EPC rating of C by 2028 for BTL. The provision impact was assessed using sensitivity analysis that utilises the relationship between disposable income and probability of default. The impact on ECL has been estimated to be less than \u00a35 million for the potential legislative requirement in place for BTL. Consideration has also been given to flooding risk \u2013 a delayed transition climate outlook, out to 2035 was assessed, resulting in over 80 per cent of the book expected to have no risk of flood damage. The impact on ECL related to the affordability risk from flood damage has been estimated to be immaterial. Whilst this supports no judgemental adjustment to ECL being required, the narrow scope does not capture the wider impact on loss rates emanating from being located in a high risk area.
Assessment
Nature of risk assessed
Portfolios assessed
ECL impact
Macroeconomic impact from climate scenario
Scenario risk \u2013 macro level
Retail
< \u00a35 million
Sector level impacts from climate scenario
Scenario risk \u2013 sector level
Commercial Banking < \u00a315 million
(excluding Business Banking)
Retrofitting cost to meet EPC regulation
Transition risk
UK mortgages \u2013 BTL
< \u00a35 million
Flood risk
Physical risk
UK mortgages
< \u00a35 million
The assessments are limited due to the degree of uncertainty underpinning key assumptions used, as well as the developmental nature of the data, approach and models used in the quantification. These include, but are not limited to the analyses being restricted to PD impacts only, client level valuation impacts not incorporating climate transition plans, only considering the most material hazard (flooding) for UK mortgages and more broadly the political landscape, future climate data enhancements and further model development. However, the conclusions made using the Group\u2019s best internal view of likely outcomes across all analyses further strengthens management\u2019s view there is a low residual risk of material error or omission in the Group\u2019s financial statements due to climate-related risks at present and as a result no adjustments have been made to the ECL measured as at 31 December 2023. The current behavioural lives of the Group\u2019s lending dilutes the potential exposure to the later emergence of potential physical climate impacts, with the incorporation of climate risk within underwriting assessments in Commercial Banking providing further mitigation on more recent originations. Credit risk The Group\u2019s credit risk exposure arises in respect of the instruments below and predominantly in the United Kingdom. Credit risk appetite is set at Board level and is described and reported through a suite of metrics devised from a combination of accounting and credit portfolio performance measures, which include the use of various credit risk rating systems as inputs and assess credit risk at a counterparty level using three components: (i) the probability of default by the counterparty on its contractual obligations; (ii) the current exposures to the counterparty and their likely future development, from which the Group derives the exposure at default; and (iii) the likely loss ratio on the defaulted obligations, the loss given default. The Group uses a range of approaches to mitigate credit risk, including internal control policies, obtaining collateral, using master netting agreements and other credit risk transfers, such as asset sales and credit derivatives based transactions. (A) Maximum credit exposure The maximum credit risk exposure of the Group in the event of other parties failing to perform their obligations is detailed below. No account is taken of any collateral held and the maximum exposure to loss, which includes amounts held to cover unit-linked and With- Profits Funds liabilities, is considered to be the balance sheet carrying amount or, for non-derivative off-balance sheet transactions and financial guarantees, their contractual nominal amounts.
2023
2022
Maximum Net Maximum Net
exposure Offset exposure exposure Offset exposure
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Financial assets at fair value through profit or loss
3,4
84,583
\u2013
84,583
73,887
\u2013
73,887
Derivative financial instruments
22,356
(9,862)
12,494
24,753
(12,330)
12,423
Financial assets at amortised cost, net
5
:
Loans and advances to banks, net
10,764
\u2013
10,764
10,632
\u2013
10,632
Loans and advances to customers, net
449,745
(2,214)
447,531
454,899
(2,171)
452,728
Reverse repurchase agreements, net
38,771
\u2013
38,771
44,865
\u2013
44,865
Debt securities, net
15,355
\u2013
15,355
9,926
\u2013
9,926
514,635
(2,214)
512,421
520,322
(2,171)
518,151
Financial assets at fair value through other comprehensive
income
27,360
\u2013
27,360
22,871
\u2013
22,871
Reinsurance contract assets
442
\u2013
442
372
\u2013
372
Off-balance sheet items:
Acceptances and endorsements
191
\u2013
191
58
\u2013
58
Other items serving as direct credit substitutes
286
\u2013
286
781
\u2013
781
Performance bonds, including letters of credit, and other
transaction-related contingencies
2,372
\u2013
2,372
2,147
\u2013
2,147
Irrevocable commitments and guarantees
75,080
\u2013
75,080
74,692
\u2013
74,692
77,929
\u2013
77,929
77,678
\u2013
77,678
727,305
(12,076)
715,229
719,883
(14,501)
705,382
1 2 2 5 5 5 5 3 1 Restated for the adoption of IFRS 17; see notes 1 and 54. 2 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. 3 Excluding equity shares. 4 Includes assets within the Group\u2019s unit-linked funds for which credit risk is borne by the policyholders and assets within the Group\u2019s With-Profits Funds for which credit risk is largely borne by the policyholders. Consequently, the Group has no significant exposure to credit risk for such assets which back related contract liabilities. 5 Amounts shown net of related impairment allowances (B) Concentrations of exposure The Group\u2019s management of concentration risk includes portfolio controls on certain industries, sectors and products to reflect risk appetite as well as individual, customer and bank limit risk tolerances. Credit policies and appetite statements are aligned to the Group\u2019s risk appetite and restrict exposure to higher risk countries and potentially vulnerable sectors and asset classes. Exposures are monitored to prevent both an excessive concentration of risk and single name concentrations. The Group\u2019s largest credit limits are regularly monitored by the Board Risk Committee and reported in accordance with regulatory requirements. As part of its credit risk policy, the Group considers sustainability risk (which incorporates environmental (including climate), social and governance) in the assessment of Commercial Banking facilities. At 31 December 2023 the most significant concentrations of exposure were in mortgages.
2023 2022
\u00a3m \u00a3m
Agriculture, forestry and fishing
7,038
7,447
Construction
3,878
4,066
Energy and water supply
3,468
2,552
Financial, business and other services
35,112
37,666
Lease financing
17,374
16,795
Manufacturing
4,021
3,619
Personal:
Mortgages
323,627
323,923
Other
25,342
26,154
Postal and telecommunications
2,654
2,526
Property companies
20,904
21,499
Transport, distribution and hotels
10,044
13,170
Total loans and advances to customers before allowance for impairment losses
453,462
459,417
Allowance for impairment losses (note 24)
(3,717)
(4,518)
Total loans and advances to customers
449,745
454,899
1 1 Includes both UK and overseas mortgage balances. The Group\u2019s operations are predominantly UK based and as a result an analysis of credit risk exposures by geographical region is not provided
(C) Credit quality of assets
Cash and balances at central banks
Significantly all of the Group\u2019s cash and balances at central banks of \u00a378,110 million (2022: \u00a391,388 million) are due from the Bank of
England, the Federal Reserve Bank of New York or the Deutsche Bundesbank.
Debt securities, treasury and other bills, and contracts held with reinsurers at fair value through profit or loss
Substantially all of the loans and advances to customers, loans and advances to banks and reverse repurchase agreements
recognised at fair value through profit or loss have an investment grade rating. The credit quality of the Group\u2019s debt securities,
treasury and other bills, and contracts held with reinsurers held at fair value through profit or loss is set out below:
2023
2022
Investment Investment
grade Other Total grade Other Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Trading assets
Debt securities:
Government securities
3,596
\u2013
3,596
2,185
\u2013
2,185
Asset-backed securities
77
\u2013
77
21
\u2013
21
Corporate and other debt securities
471
58
529
216
12
228
Total trading assets (excluding loans and advances to
customers and reverse repurchase agreements)
4,144
58
4,202
2,422
12
2,434
Other financial assets mandatorily at fair value through profit
or loss:
Debt securities:
Government securities
8,009
\u2013
8,009
7,871
1
7,872
Other public sector securities
2,303
7
2,310
2,510
6
2,516
Bank and building society certificates of deposit
7,504
\u2013
7,504
7,129
4
7,133
Asset-backed securities
506
7
513
399
\u2013
399
Corporate and other debt securities
17,076
3,049
20,125
14,932
2,761
17,693
35,398
3,063
38,461
32,841
2,772
35,613
Treasury and other bills
51
\u2013
51
62
\u2013
62
Contracts held with reinsurers
11,336
88
11,424
10,822
84
10,906
Total other financial assets mandatorily held at fair value
through profit or loss (excluding loans and advances and
equity shares)
46,785
3,151
49,936
43,725
2,856
46,581
1
2
1
2
1 Credit ratings equal to or better than \u2018BBB\u2019.
2 Other comprises sub-investment grade (2023: \u00a31,202 million; 2022: \u00a31,256 million) and not rated (2023: \u00a32,007 million; 2022: \u00a31,612 million).
Credit risk in respect of trading and other financial assets at fair value through profit or loss held within the Group\u2019s unit-linked funds is
borne by the policyholders and credit risk in respect of With-Profits funds is largely borne by the policyholders. Consequently, the Group
has no significant exposure to credit risk for such assets which back those contract liabilities.
Loans and advances banks
Significantly all of the Group\u2019s loans and advances to banks are assessed as Stage 1.
Loans and advances to customers
The analysis of lending has been prepared based on the division in which the asset is held; with the business segment in which the
exposure is recorded reflected in the ratings system applied. The internal credit ratings systems used by the Group differ between
Retail and Commercial, reflecting the characteristics of these exposures and the way that they are managed internally; these credit
ratings are set out below. All probabilities of default (PDs) include forward-looking information and are based on 12-month values, with
the exception of credit-impaired.
Retail
Commercial
Quality classification
IFRS 9 PD range
Quality classification
IFRS 9 PD range
RMS 1\u20133
0.00\u20130.80%
CMS 1\u20135
0.000\u20130.100%
RMS 4\u20136
0.81\u20134.50%
CMS 6\u201310
0.101\u20130.500%
RMS 7\u20139
4.51\u201314.00%
CMS 11\u201314
0.501\u20133.000%
RMS 10
14.01\u201320.00%
CMS 15\u201318
3.001\u201320.000%
RMS 11\u201313
20.01\u201399.99%
CMS 19
20.001\u201399.999%
RMS 14
100.00%
CMS 20\u201323
100.000%
Stage 3 assets include balances of \u00a3364 million (2022: \u00a3727 million) (with outstanding amounts due of \u00a31,167 million (2022: \u00a31,360 million))
which have been subject to a partial write-off and where the Group continues to enforce recovery action.
Stage 2 and Stage 3 assets with a carrying amount of \u00a3180 million (2022: \u00a3126 million) were modified during the year. No material gain or
loss was recognised by the Group.
As at 31 December 2023 assets that had been previously modified while classified as Stage 2 or Stage 3 and were classified as Stage 1
amounted to \u00a35 million (2022: \u00a35,279 million).
Drawn exposures
Allowance for expected credit losses
Gross drawn exposures and expected Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
credit loss allowance \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Retail \u2013 UK mortgages
RMS 1\u20133
226,740
4,137
\u2013
\u2013
230,877
123
37
\u2013
\u2013
160
RMS 4\u20136
29,637
27,037
\u2013
\u2013
56,674
38
151
\u2013
\u2013
189
RMS 7\u20139
219
2,713
\u2013
\u2013
2,932
\u2013
37
\u2013
\u2013
37
RMS 10
\u2013
590
\u2013
\u2013
590
\u2013
13
\u2013
\u2013
13
RMS 11\u201313
\u2013
4,056
\u2013
\u2013
4,056
\u2013
136
\u2013
\u2013
136
RMS 14
\u2013
\u2013
4,337
7,854
12,191
\u2013
\u2013
357
213
570
256,596
38,533
4,337
7,854
307,320
161
374
357
213
1,105
Retail \u2013 credit cards
RMS 1\u20133
3,906
5
\u2013
\u2013
3,911
9
\u2013
\u2013
\u2013
9
RMS 4\u20136
7,159
1,248
\u2013
\u2013
8,407
91
65
\u2013
\u2013
156
RMS 7\u20139
1,548
1,069
\u2013
\u2013
2,617
67
145
\u2013
\u2013
212
RMS 10
12
220
\u2013
\u2013
232
1
50
\u2013
\u2013
51
RMS 11\u201313
\u2013
366
\u2013
\u2013
366
\u2013
141
\u2013
\u2013
141
RMS 14
\u2013
\u2013
284
\u2013
284
\u2013
\u2013
130
\u2013
130
12,625
2,908
284
\u2013
15,817
168
401
130
\u2013
699
Retail \u2013 loans and overdrafts
RMS 1\u20133
638
1
\u2013
\u2013
639
1
\u2013
\u2013
\u2013
1
RMS 4\u20136
5,152
250
\u2013
\u2013
5,402
83
18
\u2013
\u2013
101
RMS 7\u20139
1,256
473
\u2013
\u2013
1,729
44
50
\u2013
\u2013
94
RMS 10
43
135
\u2013
\u2013
178
4
27
\u2013
\u2013
31
RMS 11\u201313
14
328
\u2013
\u2013
342
2
113
\u2013
\u2013
115
RMS 14
\u2013
\u2013
196
\u2013
196
\u2013
\u2013
118
\u2013
118
7,103
1,187
196
\u2013
8,486
134
208
118
\u2013
460
Retail \u2013 UK Motor Finance
RMS 1\u20133
9,979
569
\u2013
\u2013
10,548
142
12
\u2013
\u2013
154
RMS 4\u20136
2,791
998
\u2013
\u2013
3,789
41
29
\u2013
\u2013
70
RMS 7\u20139
769
228
\u2013
\u2013
997
3
13
\u2013
\u2013
16
RMS 10
\u2013
63
\u2013
\u2013
63
\u2013
7
\u2013
\u2013
7
RMS 11\u201313
2
169
\u2013
\u2013
171
\u2013
30
\u2013
\u2013
30
RMS 14
\u2013
\u2013
112
\u2013
112
\u2013
\u2013
63
\u2013
63
13,541
2,027
112
\u2013
15,680
186
91
63
\u2013
340
Retail \u2013 other
RMS 1\u20133
13,613
240
\u2013
\u2013
13,853
3
4
\u2013
\u2013
7
RMS 4\u20136
2,197
186
\u2013
\u2013
2,383
16
13
\u2013
\u2013
29
RMS 7\u20139
\u2013
86
\u2013
\u2013
86
\u2013
4
\u2013
\u2013
4
RMS 10
\u2013
6
\u2013
\u2013
6
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
88
7
\u2013
\u2013
95
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
144
\u2013
144
\u2013
\u2013
47
\u2013
47
15,898
525
144
\u2013
16,567
19
21
47
\u2013
87
Total Retail
305,763
45,180
5,073
7,854
363,870
668
1,095
715
213
2,691
Commercial Banking
CMS 1\u20135
14,100
7
\u2013
\u2013
14,107
2
\u2013
\u2013
\u2013
2
CMS 6\u201310
30,534
124
\u2013
\u2013
30,658
32
\u2013
\u2013
\u2013
32
CMS 11\u201314
31,210
2,927
\u2013
\u2013
34,137
133
59
\u2013
\u2013
192
CMS 15\u201318
3,719
4,115
\u2013
\u2013
7,834
65
232
\u2013
\u2013
297
CMS 19
11
814
\u2013
\u2013
825
\u2013
81
\u2013
\u2013
81
CMS 20\u201323
\u2013
\u2013
2,068
\u2013
2,068
\u2013
\u2013
418
\u2013
418
79,574
7,987
2,068
\u2013
89,629
232
372
418
\u2013
1,022
Other
Total loans and advances to
(43)
\u2013
6
\u2013
(37)
\u2013
\u2013
4
\u2013
4
customers
385,294
53,167
7,147
7,854
453,462
900
1,467
1,137
213
3,717
1 1 Drawn exposures include centralised fair value hedge accounting adjustments.
Drawn exposures
Allowance for expected credit losses
Gross drawn exposures and expected Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
credit loss allowance \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Retail \u2013 UK mortgages
RMS 1\u20133
250,937
24,844
\u2013
\u2013
275,781
81
180
\u2013
\u2013
261
RMS 4\u20136
6,557
11,388
\u2013
\u2013
17,945
10
140
\u2013
\u2013
150
RMS 7\u20139
23
2,443
\u2013
\u2013
2,466
\u2013
72
\u2013
\u2013
72
RMS 10
\u2013
734
\u2013
\u2013
734
\u2013
24
\u2013
\u2013
24
RMS 11\u201313
\u2013
2,374
\u2013
\u2013
2,374
\u2013
136
\u2013
\u2013
136
RMS 14
\u2013
\u2013
3,416
9,622
13,038
\u2013
\u2013
311
253
564
257,517
41,783
3,416
9,622
312,338
91
552
311
253
1,207
Retail \u2013 credit cards
RMS 1\u20133
3,587
5
\u2013
\u2013
3,592
7
\u2013
\u2013
\u2013
7
RMS 4\u20136
6,497
1,441
\u2013
\u2013
7,938
66
70
\u2013
\u2013
136
RMS 7\u20139
1,332
1,246
\u2013
\u2013
2,578
47
167
\u2013
\u2013
214
RMS 10
\u2013
227
\u2013
\u2013
227
\u2013
52
\u2013
\u2013
52
RMS 11\u201313
\u2013
368
\u2013
\u2013
368
\u2013
144
\u2013
\u2013
144
RMS 14
\u2013
\u2013
289
\u2013
289
\u2013
\u2013
113
\u2013
113
11,416
3,287
289
\u2013
14,992
120
433
113
\u2013
666
Retail \u2013 loans and overdrafts
RMS 1\u20133
659
1
\u2013
\u2013
660
2
\u2013
\u2013
\u2013
2
RMS 4\u20136
5,902
451
\u2013
\u2013
6,353
90
24
\u2013
\u2013
114
RMS 7\u20139
1,724
657
\u2013
\u2013
2,381
69
83
\u2013
\u2013
152
RMS 10
53
199
\u2013
\u2013
252
5
45
\u2013
\u2013
50
RMS 11\u201313
19
405
\u2013
\u2013
424
3
163
\u2013
\u2013
166
RMS 14
\u2013
\u2013
247
\u2013
247
\u2013
\u2013
126
\u2013
126
8,357
1,713
247
\u2013
10,317
169
315
126
\u2013
610
Retail \u2013 UK Motor Finance
RMS 1\u20133
8,969
743
\u2013
\u2013
9,712
66
9
\u2013
\u2013
75
RMS 4\u20136
2,778
930
\u2013
\u2013
3,708
25
20
\u2013
\u2013
45
RMS 7\u20139
425
325
\u2013
\u2013
750
2
13
\u2013
\u2013
15
RMS 10
\u2013
99
\u2013
\u2013
99
\u2013
8
\u2013
\u2013
8
RMS 11\u201313
2
148
\u2013
\u2013
150
\u2013
26
\u2013
\u2013
26
RMS 14
\u2013
\u2013
154
\u2013
154
\u2013
\u2013
81
\u2013
81
12,174
2,245
154
\u2013
14,573
93
76
81
\u2013
250
Retail \u2013 other
RMS 1\u20133
12,588
328
\u2013
\u2013
12,916
9
4
\u2013
\u2013
13
RMS 4\u20136
1,311
213
\u2013
\u2013
1,524
4
11
\u2013
\u2013
15
RMS 7\u20139
\u2013
90
\u2013
\u2013
90
\u2013
3
\u2013
\u2013
3
RMS 10
\u2013
5
\u2013
\u2013
5
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
91
7
\u2013
\u2013
98
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
157
\u2013
157
\u2013
\u2013
52
\u2013
52
13,990
643
157
\u2013
14,790
13
18
52
\u2013
83
Total Retail
303,454
49,671
4,263
9,622
367,010
486
1,394
683
253
2,816
Commercial Banking
CMS 1\u20135
13,573
33
\u2013
\u2013
13,606
2
\u2013
\u2013
\u2013
2
CMS 6\u201310
32,070
512
\u2013
\u2013
32,582
37
3
\u2013
\u2013
40
CMS 11\u201314
31,591
5,627
\u2013
\u2013
37,218
128
93
\u2013
\u2013
221
CMS 15\u201318
3,275
4,508
\u2013
\u2013
7,783
47
244
\u2013
\u2013
291
CMS 19
\u2013
813
\u2013
\u2013
813
\u2013
74
\u2013
\u2013
74
CMS 20\u201323
\u2013
\u2013
3,371
\u2013
3,371
\u2013
\u2013
1,070
\u2013
1,070
80,509
11,493
3,371
\u2013
95,373
214
414
1,070
\u2013
1,698
Other
Total loans and advances to
(2,972)
\u2013
6
\u2013
(2,966)
\u2013
\u2013
4
\u2013
4
customers
380,991
61,164
7,640
9,622
459,417
700
1,808
1,757
253
4,518
1 1 Drawn exposures include centralised fair value hedge accounting adjustments . Average PD grade The table below shows the average PD for the major portfolios used in the calculation of ECL and therefore Stage 2 average PD reflects the lifetime value. These reflect the forward-looking view under the Group\u2019s base case scenario prior to the application of MES and post-model adjustments which further impact ECL.
2023
2022
Stage 1 Stage 2 Stage 1 Stage 2
average PD average PD average PD average PD
% % % %
Retail
UK mortgages
0.57
17.60
0.26
15.48
Credit cards
2.14
23.02
2.06
20.89
Loans and overdrafts
2.75
29.66
3.36
29.75
UK Motor Finance
0.61
10.00
0.71
11.24
Commercial Banking
Loans and advances to customers
0.92
22.55
0.88
18.50
Reverse repurchase agreement held at amortised cost All of the Group\u2019s reverse repurchase agreements held at amortised cost are assessed as Stage 1. Debt securities held at amortised cost At 31 December 2023 \u00a315,240 million of gross debt securities held at amortised cost were investment grade (credit ratings equal to or better than \u2018BBB\u2019) (2022: \u00a39,919 million), \u00a320 million were sub-investment grade (2022: \u00a3nil) and \u00a3106 million not rated (2022: \u00a316 million). Financial assets at fair value through other comprehensive income (excluding equity shares) At 31 December 2023 \u00a327,267 million of financial assets at fair value through other comprehensive income (excluding equity shares) were investment grade (credit ratings equal to or better than \u2018BBB\u2019) (2022: \u00a322,761 million), \u00a380 million were sub-investment grade (2022: \u00a371 million) and \u00a313 million not rated (2022: \u00a339 million). Derivative assets An analysis of derivative assets is given in note 22. The Group reduces exposure to credit risk by using master netting agreements and by obtaining collateral in the form of cash or highly liquid securities.
2023
2022
Investment Investment
grade Other Total grade Other Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Trading and other
21,297
956
22,253
23,326
1,352
24,678
Hedging
99
4
103
53
22
75
Total derivative financial instruments
21,396
960
22,356
23,379
1,374
24,753
1 2 1 2 1 Credit ratings equal to or better than \u2018BBB\u2019. 2 Other comprises sub-investment grade (2023: \u00a3855 million; 2022: \u00a31,031 million) and not rated (2023: \u00a3105 million; 2022: \u00a3343 million). Financial guarantees and irrevocable loan commitments Financial guarantees represent undertakings that the Group will meet a customer\u2019s obligation to third parties if the customer fails to do so. Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. The Group is theoretically exposed to loss in an amount equal to the total guarantees or unused commitments, however, the likely amount of loss is expected to be significantly less. Most commitments to extend credit are contingent upon customers maintaining specific credit standards
Undrawn exposures
Allowance for expected credit losses
Gross undrawn exposures and expected Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
credit loss allowance \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Retail \u2013 UK mortgages
RMS 1\u20133
12,207
36
\u2013
\u2013
12,243
7
\u2013
\u2013
\u2013
7
RMS 4\u20136
456
190
\u2013
\u2013
646
1
2
\u2013
\u2013
3
RMS 7\u20139
5
16
\u2013
\u2013
21
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 10
\u2013
5
\u2013
\u2013
5
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
\u2013
37
\u2013
\u2013
37
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
25
58
83
\u2013
\u2013
\u2013
\u2013
\u2013
12,668
284
25
58
13,035
8
2
\u2013
\u2013
10
Retail \u2013 credit cards
RMS 1\u20133
39,857
24
\u2013
\u2013
39,881
21
\u2013
\u2013
\u2013
21
RMS 4\u20136
14,522
2,079
\u2013
\u2013
16,601
38
29
\u2013
\u2013
67
RMS 7\u20139
606
322
\u2013
\u2013
928
7
8
\u2013
\u2013
15
RMS 10
2
40
\u2013
\u2013
42
\u2013
2
\u2013
\u2013
2
RMS 11\u201313
\u2013
69
\u2013
\u2013
69
\u2013
6
\u2013
\u2013
6
RMS 14
\u2013
\u2013
40
\u2013
40
\u2013
\u2013
\u2013
\u2013
\u2013
54,987
2,534
40
\u2013
57,561
66
45
\u2013
\u2013
111
Retail \u2013 loans and overdrafts
RMS 1\u20133
4,354
1
\u2013
\u2013
4,355
4
\u2013
\u2013
\u2013
4
RMS 4\u20136
1,638
239
\u2013
\u2013
1,877
10
7
\u2013
\u2013
17
RMS 7\u20139
223
122
\u2013
\u2013
345
5
13
\u2013
\u2013
18
RMS 10
4
28
\u2013
\u2013
32
\u2013
4
\u2013
\u2013
4
RMS 11\u201313
\u2013
49
\u2013
\u2013
49
\u2013
12
\u2013
\u2013
12
RMS 14
\u2013
\u2013
15
\u2013
15
\u2013
\u2013
\u2013
\u2013
\u2013
6,219
439
15
\u2013
6,673
19
36
\u2013
\u2013
55
Retail \u2013 UK Motor Finance
RMS 1\u20133
274
\u2013
\u2013
\u2013
274
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 4\u20136
959
\u2013
\u2013
\u2013
959
2
\u2013
\u2013
\u2013
2
RMS 7\u20139
250
\u2013
\u2013
\u2013
250
\u2013
\u2013
\u2013
\u2013
RMS 10
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
3
\u2013
\u2013
\u2013
3
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
1,486
\u2013
\u2013
\u2013
1,486
2
\u2013
\u2013
\u2013
2
Retail \u2013 other
RMS 1\u20133
544
\u2013
\u2013
\u2013
544
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 4\u20136
267
\u2013
\u2013
\u2013
267
1
\u2013
\u2013
\u2013
1
RMS 7\u20139
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 10
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
 \u2013
811
\u2013
\u2013
\u2013
811
1
\u2013
\u2013
\u2013
1
Total Retail
76,171
3,257
80
58
79,566
96
83
\u2013
\u2013
179
Commercial Banking
CMS 1\u20135
19,250
\u2013
\u2013
\u2013
19,250
1
\u2013
\u2013
\u2013
1
CMS 6\u201310
31,282
6
\u2013
\u2013
31,288
22
\u2013
\u2013
\u2013
22
CMS 11\u201314
9,000
1,537
\u2013
\u2013
10,537
28
24
\u2013
\u2013
52
CMS 15\u201318
923
1,169
\u2013
\u2013
2,092
13
47
\u2013
\u2013
60
CMS 19
\u2013
33
\u2013
\u2013
33
\u2013
6
\u2013
\u2013
6
CMS 20\u201323
\u2013
\u2013
64
\u2013
64
\u2013
\u2013
2
\u2013
2
60,455
2,745
64
\u2013
63,264
64
77
2
\u2013
143
Other
483
\u2013
6
\u2013
489
\u2013
\u2013
\u2013
\u2013
\u2013
Total
137,109
6,002
150
58
143,319
160
160
2
\u2013
322
Undrawn exposures
Allowance for expected credit losses
Gross undrawn exposures and expected Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
credit loss allowance \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Retail \u2013 UK mortgages
RMS 1\u20133
16,003
159
\u2013
\u2013
16,162
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 4\u20136
83
62
\u2013
\u2013
145
1
\u2013
\u2013
\u2013
1
RMS 7\u20139
\u2013
25
\u2013
\u2013
25
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 10
\u2013
7
\u2013
\u2013
7
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
\u2013
21
\u2013
\u2013
21
\u2013
1
\u2013
\u2013
1
RMS 14
\u2013
\u2013
17
67
84
\u2013
\u2013
\u2013
\u2013
\u2013
16,086
274
17
67
16,444
1
1
\u2013
\u2013
2
Retail \u2013 credit cards
RMS 1\u20133
39,384
30
\u2013
\u2013
39,414
16
\u2013
\u2013
\u2013
16
RMS 4\u20136
14,355
2,975
\u2013
\u2013
17,330
32
28
\u2013
\u2013
60
RMS 7\u20139
580
422
\u2013
\u2013
1,002
5
8
\u2013
\u2013
13
RMS 10
\u2013
46
\u2013
\u2013
46
\u2013
2
\u2013
\u2013
2
RMS 11\u201313
\u2013
76
\u2013
\u2013
76
\u2013
6
\u2013
\u2013
6
RMS 14
\u2013
\u2013
45
\u2013
45
\u2013
\u2013
\u2013
\u2013
\u2013
54,319
3,549
45
\u2013
57,913
53
44
\u2013
\u2013
97
Retail \u2013 loans and overdrafts
RMS 1\u20133
4,174
2
\u2013
\u2013
4,176
4
\u2013
\u2013
\u2013
4
RMS 4\u20136
1,618
386
\u2013
\u2013
2,004
6
12
\u2013
\u2013
18
RMS 7\u20139
253
159
\u2013
\u2013
412
6
18
\u2013
\u2013
24
RMS 10
6
36
\u2013
\u2013
42
\u2013
7
\u2013
\u2013
7
RMS 11\u201313
\u2013
61
\u2013
\u2013
61
\u2013
15
\u2013
\u2013
15
RMS 14
\u2013
\u2013
17
\u2013
17
\u2013
\u2013
\u2013
\u2013
\u2013
6,051
644
17
\u2013
6,712
16
52
\u2013
\u2013
68
Retail \u2013 UK Motor Finance
RMS 1\u20133
318
\u2013
\u2013
\u2013
318
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 4\u20136
1,259
\u2013
\u2013
\u2013
1,259
2
\u2013
\u2013
\u2013
2
RMS 7\u20139
347
1
\u2013
\u2013
348
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 10
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
1,924
1
\u2013
\u2013
1,925
2
\u2013
\u2013
\u2013
2
Retail \u2013 other
RMS 1\u20133
702
\u2013
\u2013
\u2013
702
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 4\u20136
198
\u2013
\u2013
\u2013
198
3
\u2013
\u2013
\u2013
3
RMS 7\u20139
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 10
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 11\u201313
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
RMS 14
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
900
\u2013
\u2013
\u2013
900
3
\u2013
\u2013
\u2013
3
Total Retail
79,280
4,468
79
67
83,894
75
97
\u2013
\u2013
172
Commercial Banking
CMS 1\u20135
17,047
\u2013
\u2013
\u2013
17,047
2
\u2013
\u2013
\u2013
2
CMS 6\u201310
29,141
135
\u2013
\u2013
29,276
21
2
\u2013
\u2013
23
CMS 11\u201314
9,808
1,647
\u2013
\u2013
11,455
28
33
\u2013
\u2013
61
CMS 15\u201318
779
800
\u2013
\u2013
1,579
8
43
\u2013
\u2013
51
CMS 19
\u2013
85
\u2013
\u2013
85
\u2013
10
\u2013
\u2013
10
CMS 20\u201323
\u2013
\u2013
48
\u2013
48
\u2013
\u2013
4
\u2013
4
56,775
2,667
48
\u2013
59,490
59
88
4
\u2013
151
Other
400
\u2013
11
\u2013
411
\u2013
\u2013
\u2013
\u2013
\u2013
Total
136,455
7,135
138
67
143,795
134
185
4
\u2013
323
(D) Collateral held as security for financial assets
The principal types of collateral accepted by the Group include: residential and commercial properties; charges over business assets
such as premises, inventory and accounts receivable; financial instruments; cash; and guarantees from third parties. The terms and
conditions associated with the use of the collateral are varied and are dependent on both the type of agreement and the
counterparty. The Group holds collateral against loans and advances and irrevocable loan commitments; qualitative and, where
appropriate, quantitative information is provided in respect of this collateral below. Collateral held as security for financial assets at fair
value through profit or loss and for derivative assets is also shown below.
The Group holds collateral in respect of loans and advances to customers and reverse repurchase agreements as set out below. The
Group does not hold collateral against debt securities which are classified as financial assets held at amortised cost.
Loans and advances to customers
Retail lending
UK mortgages
An analysis by loan-to-value ratio of the Group\u2019s UK residential mortgage lending is provided below. The value of collateral used in
determining the loan-to-value ratios has been estimated based upon the last actual valuation, adjusted to take into account
subsequent movements in house prices. The market takes into account many factors, including environmental considerations such as
flood risk and energy efficient additions, in arriving at the value of a home.
In some circumstances, where the discounted value of the estimated net proceeds from the liquidation of collateral (i.e. net of costs,
expected haircuts and anticipated changes in the value of the collateral to the point of sale) is greater than the estimated exposure at
default, no credit losses are expected and no ECL allowance is recognised.
Gross drawn exposures
Allowance for expected credit losses
Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Less than 70 per cent
193,235
28,754
3,882
7,168
233,039
57
208
226
118
609
70 per cent to 80 per cent
36,413
4,506
290
333
41,542
37
75
61
26
199
80 per cent to 90 per cent
20,949
2,821
87
142
23,999
48
53
27
20
148
90 per cent to 100 per cent
5,981
2,389
30
91
8,491
19
31
12
14
76
Greater than 100 per cent
18
63
48
120
249
\u2013
7
31
35
73
Total
256,596
38,533
4,337
7,854
307,320
161
374
357
213
1,105
At 31 December 2022
Less than 70 per cent
210,457
33,205
3,161
8,845
255,668
51
330
210
117
708
70 per cent to 80 per cent
31,788
5,264
170
359
37,581
25
124
55
42
246
80 per cent to 90 per cent
11,942
2,604
48
149
14,743
12
59
20
19
110
90 per cent to 100 per cent
3,319
606
13
113
4,051
3
18
7
18
46
Greater than 100 per cent
11
104
24
156
295
\u2013
21
19
57
97
Total
257,517
41,783
3,416
9,622
312,338
91
552
311
253
1,207
The energy performance certificate (EPC) profile of the security associated with the Group\u2019s UK mortgage portfolio is shown below:
Unrated
A B C D E F G properties
EPC profile \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
Total
At 31 December 2023
971
41,250
64,466
95,958
34,327
6,663
1,465
62,220
307,320
At 31 December 2022
731
37,075
60,086
93,010
35,015
6,990
1,519
77,912
312,338
The above data is sourced using the latest available government EPC information as at the relevant balance sheet date. The Group has
no EPC data available for 20.2 per cent (2022: 25.0 per cent) of the UK mortgage portfolio; this portion is classified as unrated properties.
EPC ratings are not considered to be a material credit risk factor, and do not form part of the Group\u2019s credit risk calculations.
Other
The majority of other retail lending is unsecured. At 31 December 2023, Stage 3 other retail lending amounted to \u00a3378 million, net of an
impairment allowance of \u00a3358 million (2022: \u00a3475 million, net of an impairment allowance of \u00a3372 million).
Stage 1 and Stage 2 other retail lending amounted to \u00a355,814 million (2022: \u00a353,825 million). Lending decisions are predominantly based
on an obligor\u2019s ability to repay rather than reliance on the disposal of any security provided. Where the lending is secured, collateral
values are rigorously assessed at the time of loan origination and are thereafter monitored in accordance with business unit credit
policy.
The Group\u2019s credit risk disclosures for unimpaired other retail lending show assets gross of collateral and therefore disclose the
maximum loss exposure. The Group believes that this approach is appropriate.
Commercial lending Stage 1 and Stage 2 secured lending For Stage 1 and Stage 2 secured commercial lending, the Group reports assets gross of collateral and therefore discloses the maximum loss exposure. Stage 1 and Stage 2 secured commercial lending is predominantly managed on a cash flow basis. On occasion, it may include an assessment of underlying collateral, although, for Stage 3 lending, this will not always involve assessing it on a fair value basis. No aggregated collateral information for the entire unimpaired secured commercial lending portfolio is provided to key management personnel. Stage 3 secured lending The value of collateral is re-evaluated and its legal soundness reassessed if there is observable evidence of distress of the borrower; this evaluation is used to determine potential loss allowances and management\u2019s strategy to try to either repair the business or recover the debt. At 31 December 2023, Stage 3 secured commercial lending amounted to \u00a3507 million, net of an impairment allowance of \u00a3133 million (2022: \u00a3410 million, net of an impairment allowance of \u00a3160 million). The fair value of the collateral held in respect of impaired secured commercial lending was \u00a3608 million (2022: \u00a3484 million). In determining the fair value of collateral, no specific amounts have been attributed to the costs of realisation. For the purposes of determining the total collateral held by the Group in respect of impaired secured commercial lending, the value of collateral for each loan has been limited to the principal amount of the outstanding advance in order to eliminate the effects of any over-collateralisation and to provide a clearer representation of the Group\u2019s exposure. Stage 3 secured commercial lending and associated collateral relates to lending to property companies and to customers in the financial, business and other services; transport, distribution and hotels; and construction industries. Reverse repurchase agreements There were reverse repurchase agreements which are accounted for as collateralised loans with a carrying value of \u00a338,771 million (2022: \u00a344,865 million), against which the Group held collateral with a fair value of \u00a338,510 million, capped at the reverse repurchase agreement carrying value (2022: \u00a333,715 million). These transactions were generally conducted under terms that are usual and customary for standard secured lending activities. Financial assets at fair value through profit or loss (excluding equity shares) Included in financial assets at fair value through profit or loss are reverse repurchase agreements treated as collateralised loans with a carrying value of \u00a317,413 million (2022: \u00a311,781 million). Collateral is held with a fair value of \u00a317,301 million, capped at the reverse repurchase agreement carrying value (2022: \u00a39,598 million), all of which the Group is able to repledge. At 31 December 2023, \u00a39,926 million had been repledged (2022: \u00a35,232 million). In addition, securities held as collateral in the form of stock borrowed amounted to \u00a317,280 million (2022: \u00a326,368 million). Of this amount, \u00a39,363 million (2022: \u00a314,375 million) had been resold or repledged as collateral for the Group\u2019s own transactions. These transactions were generally conducted under terms that are usual and customary for standard secured lending activities. Derivative assets, after offsetting of amounts under master netting arrangements The Group reduces exposure to credit risk by using master netting agreements and by obtaining collateral in the form of cash or highly liquid securities. In respect of the net derivative assets after offsetting of amounts under master netting arrangements of \u00a312,494 million (2022: \u00a312,423 million), cash collateral of \u00a33,361 million (2022: \u00a33,951 million) was held. Irrevocable loan commitments and other credit-related contingencies At 31 December 2023, the Group held irrevocable loan commitments and other credit-related contingencies of \u00a377,929 million (2022: \u00a377,678 million). Collateral is held as security, in the event that lending is drawn down, on \u00a313,036 million (2022: \u00a316,442 million) of these balances. Collateral repossessed During the year, \u00a3229 million of collateral was repossessed (2022: \u00a3219 million), consisting primarily of residential property. In respect of retail portfolios, the Group does not take physical possession of properties or other assets held as collateral and uses external agents to realise the value as soon as practicable, generally at auction, to settle indebtedness. Any surplus funds are returned to the borrower or are otherwise dealt with in accordance with appropriate insolvency regulations. In certain circumstances the Group takes physical possession of assets held as collateral against commercial lending. In such cases, the assets are carried on the Group\u2019s balance sheet and are classified according to the Group\u2019s accounting policies. (E) Collateral pledged as security The Group pledges assets primarily for repurchase agreements and securities lending transactions which are generally conducted under terms that are usual and customary for standard securitised borrowing contracts. Repurchase transactions Amortised cost There are balances arising from repurchase transactions of \u00a337,703 million (2022: \u00a348,596 million), which include amounts due under the Bank of England\u2019s Term Funding Scheme with additional incentives for SMEs (TFSME). The fair value of the collateral provided under these agreements at 31 December 2023 was \u00a337,655 million, capped at the repurchase agreement carrying value (2022: \u00a353,827 million including over collaterisation). Financial liabilities at fair value through profit or loss The fair value of collateral pledged in respect of repurchase transactions, accounted for as secured borrowing, where the secured party is permitted by contract or custom to repledge was \u00a317,941 million, capped at the repurchase agreement carrying value (2022: \u00a310,427 million). Securities lending transactions The following on-balance sheet financial assets have been lent to counterparties under securities lending transactions:
2023 2022
\u00a3m \u00a3m
Financial assets at fair value through profit or loss
633
1,463
Financial assets at fair value through other comprehensive income
5,245
5,429
Total
5,878
6,892
Securitisations and covered bonds In addition to the assets detailed above, the Group also holds assets that are encumbered through the Group\u2019s asset-backed conduits and its securitisation and covered bond programmes. Further details of these assets are provided in note 29", "dimensions": { "concept": "ifrs-full:DisclosureOfCreditRiskExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-927": { "value": "
Note 25: Finance lease receivables
The Group\u2019s finance lease receivables are classified as loans and advances to customers and accounted for at amortised cost. These
balances are analysed as follows:
2023 2022
\u00a3m \u00a3m
Not later than 1 year
5,950
6,562
Later than 1 year and not later than 2 years
4,851
4,119
Later than 2 years and not later than 3 years
4,609
3,844
Later than 3 years and not later than 4 years
3,074
3,029
Later than 4 years and not later than 5 years
631
428
Later than 5 years
545
574
Gross investment
19,660
18,556
Unearned future finance income
(2,272)
(1,639)
Rentals received in advance
(14)
(122)
Net investment
17,374
16,795
The net investment represents amounts recoverable as follows:
2023 2022
\u00a3m \u00a3m
Not later than 1 year
5,236
5,823
Later than 1 year and not later than 2 years
4,328
3,660
Later than 2 years and not later than 3 years
4,090
3,552
Later than 3 years and not later than 4 years
2,711
2,894
Later than 4 years and not later than 5 years
551
385
Later than 5 years
458
481
Net investment
17,374
16,795
Equipment leased to customers under finance lease receivables relates to financing transactions to fund the purchase of aircraft,
ships, motor vehicles and other items. There was an allowance for uncollectable finance lease receivables included in the allowance
for impairment losses of \u00a3360 million (2022: \u00a3252 million).
The Group\u2019s finance lease assets are comprised as follows:
2023 2022
\u00a3m \u00a3m
Electric vehicles
1,339
586
Internal combustion engine vehicles
11,465
10,993
Hybrid vehicles
1,146
746
Other
3,424
4,470
Net investment
17,374
16,795
", "dimensions": { "concept": "ifrs-full:DisclosureOfMaturityAnalysisOfFinanceLeasePaymentsReceivableExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-976": { "value": "Note 25: Finance lease receivables The Group\u2019s finance lease receivables are classified as loans and advances to customers and accounted for at amortised cost. These balances are analysed as follows:
2023 2022
\u00a3m \u00a3m
Not later than 1 year
5,950
6,562
Later than 1 year and not later than 2 years
4,851
4,119
Later than 2 years and not later than 3 years
4,609
3,844
Later than 3 years and not later than 4 years
3,074
3,029
Later than 4 years and not later than 5 years
631
428
Later than 5 years
545
574
Gross investment
19,660
18,556
Unearned future finance income
(2,272)
(1,639)
Rentals received in advance
(14)
(122)
Net investment
17,374
16,795
The net investment represents amounts recoverable as follows:
2023 2022
\u00a3m \u00a3m
Not later than 1 year
5,236
5,823
Later than 1 year and not later than 2 years
4,328
3,660
Later than 2 years and not later than 3 years
4,090
3,552
Later than 3 years and not later than 4 years
2,711
2,894
Later than 4 years and not later than 5 years
551
385
Later than 5 years
458
481
Net investment
17,374
16,795
Equipment leased to customers under finance lease receivables relates to financing transactions to fund the purchase of aircraft, ships, motor vehicles and other items. There was an allowance for uncollectable finance lease receivables included in the allowance for impairment losses of \u00a3360 million (2022: \u00a3252 million). The Group\u2019s finance lease assets are comprised as follows:
2023 2022
\u00a3m \u00a3m
Electric vehicles
1,339
586
Internal combustion engine vehicles
11,465
10,993
Hybrid vehicles
1,146
746
Other
3,424
4,470
Net investment
17,374
16,795
Note 28: Lessee disclosures The table below sets out the movement in the Group\u2019s right-of-use assets, which are primarily in respect of premises, and are recognised within other assets (note 27).
2023 2022
\u00a3m \u00a3m
At 1 January
1,156
1,318
Exchange and other adjustments
3
3
Additions
136
98
Disposals
(31)
(37)
Depreciation charge for the year
(209)
(226)
At 31 December
1,055
1,156
The Group\u2019s lease liabilities are recognised within other liabilities (note 37). The maturity analysis of the Group\u2019s lease liabilities on an undiscounted basis is set out in the liquidity risk section of note 52. The total cash outflow for leases in the year ended 31 December 2023 was \u00a3215 million (2022: \u00a3210 million). The amount recognised within interest expense in respect of lease liabilities is disclosed in note 5.", "dimensions": { "concept": "ifrs-full:DisclosureOfLeasePrepaymentsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1006": { "value": "Note 26: Goodwill and other intangible assets 1
Acquired
value of Purchased Customer- Capitalised
in-force credit card related software
Goodwill business Brands relationships intangibles enhancements Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Cost
2
:
At 1 January 2022
2,664
834
596
1,002
538
6,451
12,085
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
\u2013
(1)
(1)
Additions and acquisitions
335
\u2013
5
\u2013
34
1,452
1,826
Disposals and write-offs
\u2013
\u2013
(12)
\u2013
\u2013
(186)
(198)
At 31 December 2022
2,999
834
589
1,002
572
7,716
13,712
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Additions and acquisitions
143
\u2013
2
\u2013
180
1,494
1,819
Disposals and write-offs
\u2013
\u2013
\u2013
\u2013
(70)
(292)
(362)
At 31 December 2023
3,142
834
591
1,002
682
8,918
15,169
Accumulated amortisation:
At 1 January 2022
344
637
216
621
538
3,016
5,372
Exchange and other adjustments
\u2013
1
\u2013
1
3
(7)
(2)
Charge for the year
\u2013
22
\u2013
70
\u2013
833
925
Disposals and write-offs
\u2013
\u2013
(12)
\u2013
\u2013
(186)
(198)
At 31 December 2022
344
660
204
692
541
3,656
6,097
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
3
(3)
\u2013
Charge for the year
\u2013
20
1
70
9
1,028
1,128
Disposals and write-offs
\u2013
\u2013
\u2013
\u2013
(70)
(292)
(362)
At 31 December 2023
344
680
205
762
483
4,389
6,863
Balance sheet amount at 31 December 2023
2,798
154
386
240
199
4,529
8,306
Balance sheet amount at 31 December 2022
2,655
174
385
310
31
4,060
7,615
3 3 4 4 1 See note 1 regarding changes to presentation. 2 For acquisitions made prior to 1 January 2004, the date of transition to IFRS, cost is included net of amounts amortised up to 31 December 2003. 3 The charge for the year is recognised in operating expenses (note 14). 4 Includes core deposit intangible of \u00a3nil, cost of \u00a32,770 million and accumulated amortisation of \u00a32,770 million. Goodwill On 21 February 2023, Lloyds Bank Asset Finance Limited, a wholly owned subsidiary of the Group, acquired 100 per cent of the ordinary share capital of Hamsard 3352 Limited (Tusker), which together with its subsidiaries operates a vehicle management and leasing business. The acquisition, which supports the Group\u2019s sustainability ambitions, will enable the Group to expand its salary sacrifice proposition within motor finance. The total fair value of the purchase consideration was \u00a3331 million, settled in cash, and the business has been consolidated into the Group\u2019s results since 21 February 2023. The acquisition is expected to provide significant growth opportunities and funding synergies. Goodwill of \u00a3143 million has been recognised on the transaction. None of the goodwill recognised is deductible for tax purposes. Acquisition-related costs of \u00a33 million have been included in operating expenses for the year ended 31 December 2023. The revenue included in the consolidated statement of comprehensive income since 21 February 2023 contributed by Tusker was \u00a3171 million, with net loss after tax of \u00a311 million over the same period. Had Tusker been consolidated from 1 January 2023, the consolidated statement of comprehensive income would have included revenue of \u00a3196 million and a net loss after tax of \u00a36 million. The goodwill held in the Group\u2019s balance sheet is tested at least annually for impairment. For the purposes of impairment testing the goodwill is allocated to the appropriate cash-generating unit; of the total balance of \u00a32,798 million (2022: \u00a32,655 million), \u00a32,171 million, or 78 per cent (2022: \u00a32,171 million, 82 per cent) has been allocated to the Life and pensions cash-generating unit; \u00a3302 million, or 11 per cent (2022: \u00a3302 million, 11 per cent) has been allocated to the Credit card cash-generating unit in the Group\u2019s Retail division; and \u00a3309 million, or 11 per cent (2022: \u00a3166 million, 6 per cent) to the Motor business cash-generating units, both in the Group\u2019s Retail division. The recoverable amount of the goodwill relating to Scottish Widows is based on a value-in-use calculation. The calculation uses pre- tax projections of future cash flows based upon budgets and plans approved by management covering a four-year period, the related run-off of existing business in-force and a discount rate (pre-tax) of 11.0 per cent. The budgets and plans are based upon past experience adjusted to take into account anticipated changes in sales volumes, product mix and margins having regard to expected market conditions (which will reflect current and future risks, such as climate and expected economic activity conditions) and competitor activity. The discount rate is determined with reference to internal measures and available industry information. New business cash flows beyond the four-year period have been extrapolated using a reducing balance growth rate that falls from 3.5 per cent to 2.0 per cent after 20 years, which does not exceed the long-term average growth rate for the life assurance market. Management believes that any reasonably possible change in the key assumptions above would not cause the recoverable amount of the goodwill relating to Scottish Widows to fall below its balance sheet carrying value. The recoverable amount of the goodwill relating to the Motor business is based on a value-in-use calculation using post-tax cash flow projections based on financial budgets and plans approved by management covering a four-year period and a discount rate (post- tax) of 10.5 per cent, based on the Group\u2019s cost of equity. This is equivalent to a pre-tax rate of 14.0 per cent. The budgets and plans are based upon past experience adjusted to take into account anticipated changes in sales volumes having regard to expected market conditions and competitor activity. The cash flows beyond the four-year period are extrapolated using a growth rate of 3.5 per cent which does not exceed the long-term average growth rates for the markets in which the Motor business participates. Management believes that any reasonably possible change in the key assumptions, including from the impacts of climate change or climate-related legislation, would not cause the recoverable amount of the goodwill relating to the Motor business to fall below the balance sheet carrying value. The recoverable amount of the goodwill relating to Credit cards has been based on a value-in-use calculation using post-tax cash flow projections based on financial budgets and plans approved by management covering a four-year period and a discount rate (post-tax) of 10.5 per cent, based on the Group\u2019s cost of equity. This is equivalent to a pre-tax rate of 14.0 per cent. The budgets and plans are based upon past experience adjusted to take into account anticipated changes in credit card volumes having regard to expected market conditions and competitor activity. The cash flows beyond the four-year period assume 3.5 per cent growth, which does not exceed the long-term average growth rates for the markets in which the Cards business participates. Management believes that any reasonably possible change in the key assumptions above would not cause the recoverable amount of the goodwill relating to Credit cards to fall below the balance sheet carrying value. Other intangible assets The acquired value of in-force non-participating investment contracts includes \u00a393 million (2022: \u00a3106 million) in relation to OEIC business. The brand arising from the acquisition of Bank of Scotland in 2009 is recognised on the Group\u2019s balance sheet and has been determined to have an indefinite useful life. The carrying value at 31 December 2023 was \u00a3380 million (2022: \u00a3380 million). The Bank of Scotland name has been in existence for over 300 years and there are no indications that the brand should not have an indefinite useful life. The recoverable amount has been based on a value-in-use calculation. The calculation uses post-tax projections for a four- year period of the income generated by the Bank of Scotland cash-generating unit, a discount rate of 10.5 per cent and a future growth rate of 3.5 per cent. Management believes that any reasonably possible change in the key assumptions would not cause the recoverable amount of the Bank of Scotland brand to fall below its balance sheet carrying value.", "dimensions": { "concept": "ifrs-full:DisclosureOfIntangibleAssetsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-977": { "value": "Note 26: Goodwill and other intangible assets 1
Acquired
value of Purchased Customer- Capitalised
in-force credit card related software
Goodwill business Brands relationships intangibles enhancements Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Cost
2
:
At 1 January 2022
2,664
834
596
1,002
538
6,451
12,085
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
\u2013
(1)
(1)
Additions and acquisitions
335
\u2013
5
\u2013
34
1,452
1,826
Disposals and write-offs
\u2013
\u2013
(12)
\u2013
\u2013
(186)
(198)
At 31 December 2022
2,999
834
589
1,002
572
7,716
13,712
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Additions and acquisitions
143
\u2013
2
\u2013
180
1,494
1,819
Disposals and write-offs
\u2013
\u2013
\u2013
\u2013
(70)
(292)
(362)
At 31 December 2023
3,142
834
591
1,002
682
8,918
15,169
Accumulated amortisation:
At 1 January 2022
344
637
216
621
538
3,016
5,372
Exchange and other adjustments
\u2013
1
\u2013
1
3
(7)
(2)
Charge for the year
\u2013
22
\u2013
70
\u2013
833
925
Disposals and write-offs
\u2013
\u2013
(12)
\u2013
\u2013
(186)
(198)
At 31 December 2022
344
660
204
692
541
3,656
6,097
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
3
(3)
\u2013
Charge for the year
\u2013
20
1
70
9
1,028
1,128
Disposals and write-offs
\u2013
\u2013
\u2013
\u2013
(70)
(292)
(362)
At 31 December 2023
344
680
205
762
483
4,389
6,863
Balance sheet amount at 31 December 2023
2,798
154
386
240
199
4,529
8,306
Balance sheet amount at 31 December 2022
2,655
174
385
310
31
4,060
7,615
3 3 4 4 1 See note 1 regarding changes to presentation. 2 For acquisitions made prior to 1 January 2004, the date of transition to IFRS, cost is included net of amounts amortised up to 31 December 2003. 3 The charge for the year is recognised in operating expenses (note 14). 4 Includes core deposit intangible of \u00a3nil, cost of \u00a32,770 million and accumulated amortisation of \u00a32,770 million. Goodwill On 21 February 2023, Lloyds Bank Asset Finance Limited, a wholly owned subsidiary of the Group, acquired 100 per cent of the ordinary share capital of Hamsard 3352 Limited (Tusker), which together with its subsidiaries operates a vehicle management and leasing business. The acquisition, which supports the Group\u2019s sustainability ambitions, will enable the Group to expand its salary sacrifice proposition within motor finance. The total fair value of the purchase consideration was \u00a3331 million, settled in cash, and the business has been consolidated into the Group\u2019s results since 21 February 2023. The acquisition is expected to provide significant growth opportunities and funding synergies. Goodwill of \u00a3143 million has been recognised on the transaction. None of the goodwill recognised is deductible for tax purposes. Acquisition-related costs of \u00a33 million have been included in operating expenses for the year ended 31 December 2023. The revenue included in the consolidated statement of comprehensive income since 21 February 2023 contributed by Tusker was \u00a3171 million, with net loss after tax of \u00a311 million over the same period. Had Tusker been consolidated from 1 January 2023, the consolidated statement of comprehensive income would have included revenue of \u00a3196 million and a net loss after tax of \u00a36 million. The goodwill held in the Group\u2019s balance sheet is tested at least annually for impairment. For the purposes of impairment testing the goodwill is allocated to the appropriate cash-generating unit; of the total balance of \u00a32,798 million (2022: \u00a32,655 million), \u00a32,171 million, or 78 per cent (2022: \u00a32,171 million, 82 per cent) has been allocated to the Life and pensions cash-generating unit; \u00a3302 million, or 11 per cent (2022: \u00a3302 million, 11 per cent) has been allocated to the Credit card cash-generating unit in the Group\u2019s Retail division; and \u00a3309 million, or 11 per cent (2022: \u00a3166 million, 6 per cent) to the Motor business cash-generating units, both in the Group\u2019s Retail division. The recoverable amount of the goodwill relating to Scottish Widows is based on a value-in-use calculation. The calculation uses pre- tax projections of future cash flows based upon budgets and plans approved by management covering a four-year period, the related run-off of existing business in-force and a discount rate (pre-tax) of 11.0 per cent. The budgets and plans are based upon past experience adjusted to take into account anticipated changes in sales volumes, product mix and margins having regard to expected market conditions (which will reflect current and future risks, such as climate and expected economic activity conditions) and competitor activity. The discount rate is determined with reference to internal measures and available industry information. New business cash flows beyond the four-year period have been extrapolated using a reducing balance growth rate that falls from 3.5 per cent to 2.0 per cent after 20 years, which does not exceed the long-term average growth rate for the life assurance market. Management believes that any reasonably possible change in the key assumptions above would not cause the recoverable amount of the goodwill relating to Scottish Widows to fall below its balance sheet carrying value. The recoverable amount of the goodwill relating to the Motor business is based on a value-in-use calculation using post-tax cash flow projections based on financial budgets and plans approved by management covering a four-year period and a discount rate (post- tax) of 10.5 per cent, based on the Group\u2019s cost of equity. This is equivalent to a pre-tax rate of 14.0 per cent. The budgets and plans are based upon past experience adjusted to take into account anticipated changes in sales volumes having regard to expected market conditions and competitor activity. The cash flows beyond the four-year period are extrapolated using a growth rate of 3.5 per cent which does not exceed the long-term average growth rates for the markets in which the Motor business participates. Management believes that any reasonably possible change in the key assumptions, including from the impacts of climate change or climate-related legislation, would not cause the recoverable amount of the goodwill relating to the Motor business to fall below the balance sheet carrying value.
The recoverable amount of the goodwill relating to Credit cards has been based on a value-in-use calculation using post-tax cash
flow projections based on financial budgets and plans approved by management covering a four-year period and a discount rate
(post-tax) of 10.5 per cent, based on the Group\u2019s cost of equity. This is equivalent to a pre-tax rate of 14.0 per cent. The budgets and
plans are based upon past experience adjusted to take into account anticipated changes in credit card volumes having regard to
expected market conditions and competitor activity. The cash flows beyond the four-year period assume 3.5 per cent growth, which
does not exceed the long-term average growth rates for the markets in which the Cards business participates. Management believes
that any reasonably possible change in the key assumptions above would not cause the recoverable amount of the goodwill relating
to Credit cards to fall below the balance sheet carrying value.
Other intangible assets
The acquired value of in-force non-participating investment contracts includes \u00a393 million (2022: \u00a3106 million) in relation to OEIC
business.
The brand arising from the acquisition of Bank of Scotland in 2009 is recognised on the Group\u2019s balance sheet and has been
determined to have an indefinite useful life. The carrying value at 31 December 2023 was \u00a3380 million (2022: \u00a3380 million). The Bank of
Scotland name has been in existence for over 300 years and there are no indications that the brand should not have an indefinite
useful life. The recoverable amount has been based on a value-in-use calculation. The calculation uses post-tax projections for a four-
year period of the income generated by the Bank of Scotland cash-generating unit, a discount rate of 10.5 per cent and a future growth
rate of 3.5 per cent. Management believes that any reasonably possible change in the key assumptions would not cause the
recoverable amount of the Bank of Scotland brand to fall below its balance sheet carrying value.
", "dimensions": { "concept": "ifrs-full:DisclosureOfGoodwillExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-928": { "value": "Note 26: Goodwill and other intangible assets 1
Acquired
value of Purchased Customer- Capitalised
in-force credit card related software
Goodwill business Brands relationships intangibles enhancements Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Cost
2
:
At 1 January 2022
2,664
834
596
1,002
538
6,451
12,085
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
\u2013
(1)
(1)
Additions and acquisitions
335
\u2013
5
\u2013
34
1,452
1,826
Disposals and write-offs
\u2013
\u2013
(12)
\u2013
\u2013
(186)
(198)
At 31 December 2022
2,999
834
589
1,002
572
7,716
13,712
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Additions and acquisitions
143
\u2013
2
\u2013
180
1,494
1,819
Disposals and write-offs
\u2013
\u2013
\u2013
\u2013
(70)
(292)
(362)
At 31 December 2023
3,142
834
591
1,002
682
8,918
15,169
Accumulated amortisation:
At 1 January 2022
344
637
216
621
538
3,016
5,372
Exchange and other adjustments
\u2013
1
\u2013
1
3
(7)
(2)
Charge for the year
\u2013
22
\u2013
70
\u2013
833
925
Disposals and write-offs
\u2013
\u2013
(12)
\u2013
\u2013
(186)
(198)
At 31 December 2022
344
660
204
692
541
3,656
6,097
Exchange and other adjustments
\u2013
\u2013
\u2013
\u2013
3
(3)
\u2013
Charge for the year
\u2013
20
1
70
9
1,028
1,128
Disposals and write-offs
\u2013
\u2013
\u2013
\u2013
(70)
(292)
(362)
At 31 December 2023
344
680
205
762
483
4,389
6,863
Balance sheet amount at 31 December 2023
2,798
154
386
240
199
4,529
8,306
Balance sheet amount at 31 December 2022
2,655
174
385
310
31
4,060
7,615
3 3 4 4 1 See note 1 regarding changes to presentation. 2 For acquisitions made prior to 1 January 2004, the date of transition to IFRS, cost is included net of amounts amortised up to 31 December 2003. 3 The charge for the year is recognised in operating expenses (note 14). 4 Includes core deposit intangible of \u00a3nil, cost of \u00a32,770 million and accumulated amortisation of \u00a32,770 million. Goodwill On 21 February 2023, Lloyds Bank Asset Finance Limited, a wholly owned subsidiary of the Group, acquired 100 per cent of the ordinary share capital of Hamsard 3352 Limited (Tusker), which together with its subsidiaries operates a vehicle management and leasing business. The acquisition, which supports the Group\u2019s sustainability ambitions, will enable the Group to expand its salary sacrifice proposition within motor finance. The total fair value of the purchase consideration was \u00a3331 million, settled in cash, and the business has been consolidated into the Group\u2019s results since 21 February 2023. The acquisition is expected to provide significant growth opportunities and funding synergies. Goodwill of \u00a3143 million has been recognised on the transaction. None of the goodwill recognised is deductible for tax purposes. Acquisition-related costs of \u00a33 million have been included in operating expenses for the year ended 31 December 2023. The revenue included in the consolidated statement of comprehensive income since 21 February 2023 contributed by Tusker was \u00a3171 million, with net loss after tax of \u00a311 million over the same period. Had Tusker been consolidated from 1 January 2023, the consolidated statement of comprehensive income would have included revenue of \u00a3196 million and a net loss after tax of \u00a36 million. The goodwill held in the Group\u2019s balance sheet is tested at least annually for impairment. For the purposes of impairment testing the goodwill is allocated to the appropriate cash-generating unit; of the total balance of \u00a32,798 million (2022: \u00a32,655 million), \u00a32,171 million, or 78 per cent (2022: \u00a32,171 million, 82 per cent) has been allocated to the Life and pensions cash-generating unit; \u00a3302 million, or 11 per cent (2022: \u00a3302 million, 11 per cent) has been allocated to the Credit card cash-generating unit in the Group\u2019s Retail division; and \u00a3309 million, or 11 per cent (2022: \u00a3166 million, 6 per cent) to the Motor business cash-generating units, both in the Group\u2019s Retail division. The recoverable amount of the goodwill relating to Scottish Widows is based on a value-in-use calculation. The calculation uses pre- tax projections of future cash flows based upon budgets and plans approved by management covering a four-year period, the related run-off of existing business in-force and a discount rate (pre-tax) of 11.0 per cent. The budgets and plans are based upon past experience adjusted to take into account anticipated changes in sales volumes, product mix and margins having regard to expected market conditions (which will reflect current and future risks, such as climate and expected economic activity conditions) and competitor activity. The discount rate is determined with reference to internal measures and available industry information. New business cash flows beyond the four-year period have been extrapolated using a reducing balance growth rate that falls from 3.5 per cent to 2.0 per cent after 20 years, which does not exceed the long-term average growth rate for the life assurance market. Management believes that any reasonably possible change in the key assumptions above would not cause the recoverable amount of the goodwill relating to Scottish Widows to fall below its balance sheet carrying value. The recoverable amount of the goodwill relating to the Motor business is based on a value-in-use calculation using post-tax cash flow projections based on financial budgets and plans approved by management covering a four-year period and a discount rate (post- tax) of 10.5 per cent, based on the Group\u2019s cost of equity. This is equivalent to a pre-tax rate of 14.0 per cent. The budgets and plans are based upon past experience adjusted to take into account anticipated changes in sales volumes having regard to expected market conditions and competitor activity. The cash flows beyond the four-year period are extrapolated using a growth rate of 3.5 per cent which does not exceed the long-term average growth rates for the markets in which the Motor business participates. Management believes that any reasonably possible change in the key assumptions, including from the impacts of climate change or climate-related legislation, would not cause the recoverable amount of the goodwill relating to the Motor business to fall below the balance sheet carrying value. The recoverable amount of the goodwill relating to Credit cards has been based on a value-in-use calculation using post-tax cash flow projections based on financial budgets and plans approved by management covering a four-year period and a discount rate (post-tax) of 10.5 per cent, based on the Group\u2019s cost of equity. This is equivalent to a pre-tax rate of 14.0 per cent. The budgets and plans are based upon past experience adjusted to take into account anticipated changes in credit card volumes having regard to expected market conditions and competitor activity. The cash flows beyond the four-year period assume 3.5 per cent growth, which does not exceed the long-term average growth rates for the markets in which the Cards business participates. Management believes that any reasonably possible change in the key assumptions above would not cause the recoverable amount of the goodwill relating to Credit cards to fall below the balance sheet carrying value. Other intangible assets The acquired value of in-force non-participating investment contracts includes \u00a393 million (2022: \u00a3106 million) in relation to OEIC business. The brand arising from the acquisition of Bank of Scotland in 2009 is recognised on the Group\u2019s balance sheet and has been determined to have an indefinite useful life. The carrying value at 31 December 2023 was \u00a3380 million (2022: \u00a3380 million). The Bank of Scotland name has been in existence for over 300 years and there are no indications that the brand should not have an indefinite useful life. The recoverable amount has been based on a value-in-use calculation. The calculation uses post-tax projections for a four- year period of the income generated by the Bank of Scotland cash-generating unit, a discount rate of 10.5 per cent and a future growth rate of 3.5 per cent. Management believes that any reasonably possible change in the key assumptions would not cause the recoverable amount of the Bank of Scotland brand to fall below its balance sheet carrying value.", "dimensions": { "concept": "ifrs-full:DisclosureOfIntangibleAssetsAndGoodwillExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1037": { "value": "Note 27: Other assets
2023 2022
\u00a3m \u00a3m
Insurance contract assets
1
\u2013
Reinsurance contract assets
442
372
Investment in joint ventures and associates
401
385
Property, plant and equipment:
Investment properties (see below)
2,862
2,532
Premises
920
871
Equipment
1,170
1,285
Operating lease assets (see below)
6,523
4,816
Right-of-use assets (note 28)
1,055
1,156
12,530
10,660
Settlement balances and items in the course of collection from banks
912
658
Prepayments
1,455
1,224
Deferred acquisition and origination costs
39
54
Other assets
1,364
1,183
Total other assets
17,144
14,536
1 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. Investment properties The Group\u2019s investment properties are predominantly held by the Insurance, Pensions and Investments business where they back policyholder liabilities. They are valued by external Chartered Surveyors using industry standard techniques based on guidance from the Royal Institute of Chartered Surveyors. The valuation methodology includes an assessment of general market conditions and sector level transactions and takes account of expectations of occupancy rates, rental income and growth. Property valuations undergo individual scrutiny using cash flow analysis to factor in the timing of rental reviews, capital expenditure, lease incentives, dilapidation and operating expenses; these reviews utilise both observable and unobservable inputs. Within the fair value hierarchy, all of the Group\u2019s investment properties are categorised as level 3 (see note 21 for details of levels in the fair value hierarchy). The table below analyses movements in level 3 investment properties, which are carried at fair value.
2023 2022
\u00a3m \u00a3m
At 1 January
2,532
3,612
Acquisition of new properties
450
60
Additional expenditure on existing properties
19
50
Change in fair value (note 7)
(87)
(511)
Disposals
(52)
(679)
At 31 December
2,862
2,532
Rental income of \u00a3146 million (2022: \u00a3145 million) and direct operating expenses of \u00a316 million (2022: \u00a332 million) arising from investment properties that generate rental income have been recognised in the income statement. Capital expenditure in respect of investment properties which had been contracted for but not recognised in the financial statements was \u00a3488 million (2022: \u00a3119 million). Operating lease assets where the Group is lessor Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. At 31 December the future minimum rentals receivable under non-cancellable operating leases were as follows:
Within 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
1,336
857
680
309
70
4
3,256
At 31 December 2022
912
620
322
102
11
\u2013
1,967
Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. Operating lease assets are comprised as follows:
2023 2022
\u00a3m \u00a3m
Electric vehicles
3,259
1,610
Internal combustion engine vehicles
1,815
2,042
Hybrid vehicles
1,444
1,159
Other
5
5
Total operating lease assets
6,523
4,816
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherNoncurrentAssetsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-895": { "value": "Note 27: Other assets
2023 2022
\u00a3m \u00a3m
Insurance contract assets
1
\u2013
Reinsurance contract assets
442
372
Investment in joint ventures and associates
401
385
Property, plant and equipment:
Investment properties (see below)
2,862
2,532
Premises
920
871
Equipment
1,170
1,285
Operating lease assets (see below)
6,523
4,816
Right-of-use assets (note 28)
1,055
1,156
12,530
10,660
Settlement balances and items in the course of collection from banks
912
658
Prepayments
1,455
1,224
Deferred acquisition and origination costs
39
54
Other assets
1,364
1,183
Total other assets
17,144
14,536
1 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. Investment properties The Group\u2019s investment properties are predominantly held by the Insurance, Pensions and Investments business where they back policyholder liabilities. They are valued by external Chartered Surveyors using industry standard techniques based on guidance from the Royal Institute of Chartered Surveyors. The valuation methodology includes an assessment of general market conditions and sector level transactions and takes account of expectations of occupancy rates, rental income and growth. Property valuations undergo individual scrutiny using cash flow analysis to factor in the timing of rental reviews, capital expenditure, lease incentives, dilapidation and operating expenses; these reviews utilise both observable and unobservable inputs. Within the fair value hierarchy, all of the Group\u2019s investment properties are categorised as level 3 (see note 21 for details of levels in the fair value hierarchy). The table below analyses movements in level 3 investment properties, which are carried at fair value.
2023 2022
\u00a3m \u00a3m
At 1 January
2,532
3,612
Acquisition of new properties
450
60
Additional expenditure on existing properties
19
50
Change in fair value (note 7)
(87)
(511)
Disposals
(52)
(679)
At 31 December
2,862
2,532
Rental income of \u00a3146 million (2022: \u00a3145 million) and direct operating expenses of \u00a316 million (2022: \u00a332 million) arising from investment properties that generate rental income have been recognised in the income statement. Capital expenditure in respect of investment properties which had been contracted for but not recognised in the financial statements was \u00a3488 million (2022: \u00a3119 million).
Operating lease assets where the Group is lessor
Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. At 31 December the
future minimum rentals receivable under non-cancellable operating leases were as follows:
Within 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
1,336
857
680
309
70
4
3,256
At 31 December 2022
912
620
322
102
11
\u2013
1,967
Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. Operating lease assets
are comprised as follows:
2023 2022
\u00a3m \u00a3m
Electric vehicles
3,259
1,610
Internal combustion engine vehicles
1,815
2,042
Hybrid vehicles
1,444
1,159
Other
5
5
Total operating lease assets
6,523
4,816
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherCurrentAssetsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1034": { "value": "Note 27: Other assets
2023 2022
\u00a3m \u00a3m
Insurance contract assets
1
\u2013
Reinsurance contract assets
442
372
Investment in joint ventures and associates
401
385
Property, plant and equipment:
Investment properties (see below)
2,862
2,532
Premises
920
871
Equipment
1,170
1,285
Operating lease assets (see below)
6,523
4,816
Right-of-use assets (note 28)
1,055
1,156
12,530
10,660
Settlement balances and items in the course of collection from banks
912
658
Prepayments
1,455
1,224
Deferred acquisition and origination costs
39
54
Other assets
1,364
1,183
Total other assets
17,144
14,536
1 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. Investment properties The Group\u2019s investment properties are predominantly held by the Insurance, Pensions and Investments business where they back policyholder liabilities. They are valued by external Chartered Surveyors using industry standard techniques based on guidance from the Royal Institute of Chartered Surveyors. The valuation methodology includes an assessment of general market conditions and sector level transactions and takes account of expectations of occupancy rates, rental income and growth. Property valuations undergo individual scrutiny using cash flow analysis to factor in the timing of rental reviews, capital expenditure, lease incentives, dilapidation and operating expenses; these reviews utilise both observable and unobservable inputs. Within the fair value hierarchy, all of the Group\u2019s investment properties are categorised as level 3 (see note 21 for details of levels in the fair value hierarchy). The table below analyses movements in level 3 investment properties, which are carried at fair value.
2023 2022
\u00a3m \u00a3m
At 1 January
2,532
3,612
Acquisition of new properties
450
60
Additional expenditure on existing properties
19
50
Change in fair value (note 7)
(87)
(511)
Disposals
(52)
(679)
At 31 December
2,862
2,532
Rental income of \u00a3146 million (2022: \u00a3145 million) and direct operating expenses of \u00a316 million (2022: \u00a332 million) arising from investment properties that generate rental income have been recognised in the income statement. Capital expenditure in respect of investment properties which had been contracted for but not recognised in the financial statements was \u00a3488 million (2022: \u00a3119 million). Operating lease assets where the Group is lessor Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. At 31 December the future minimum rentals receivable under non-cancellable operating leases were as follows:
Within 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
1,336
857
680
309
70
4
3,256
At 31 December 2022
912
620
322
102
11
\u2013
1,967
Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. Operating lease assets are comprised as follows:
2023 2022
\u00a3m \u00a3m
Electric vehicles
3,259
1,610
Internal combustion engine vehicles
1,815
2,042
Hybrid vehicles
1,444
1,159
Other
5
5
Total operating lease assets
6,523
4,816
", "dimensions": { "concept": "ifrs-full:DisclosureOfPrepaymentsAndOtherAssetsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1028": { "value": "Note 27: Other assets
2023 2022
\u00a3m \u00a3m
Insurance contract assets
1
\u2013
Reinsurance contract assets
442
372
Investment in joint ventures and associates
401
385
Property, plant and equipment:
Investment properties (see below)
2,862
2,532
Premises
920
871
Equipment
1,170
1,285
Operating lease assets (see below)
6,523
4,816
Right-of-use assets (note 28)
1,055
1,156
12,530
10,660
Settlement balances and items in the course of collection from banks
912
658
Prepayments
1,455
1,224
Deferred acquisition and origination costs
39
54
Other assets
1,364
1,183
Total other assets
17,144
14,536
1 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. Investment properties The Group\u2019s investment properties are predominantly held by the Insurance, Pensions and Investments business where they back policyholder liabilities. They are valued by external Chartered Surveyors using industry standard techniques based on guidance from the Royal Institute of Chartered Surveyors. The valuation methodology includes an assessment of general market conditions and sector level transactions and takes account of expectations of occupancy rates, rental income and growth. Property valuations undergo individual scrutiny using cash flow analysis to factor in the timing of rental reviews, capital expenditure, lease incentives, dilapidation and operating expenses; these reviews utilise both observable and unobservable inputs. Within the fair value hierarchy, all of the Group\u2019s investment properties are categorised as level 3 (see note 21 for details of levels in the fair value hierarchy). The table below analyses movements in level 3 investment properties, which are carried at fair value.
2023 2022
\u00a3m \u00a3m
At 1 January
2,532
3,612
Acquisition of new properties
450
60
Additional expenditure on existing properties
19
50
Change in fair value (note 7)
(87)
(511)
Disposals
(52)
(679)
At 31 December
2,862
2,532
Rental income of \u00a3146 million (2022: \u00a3145 million) and direct operating expenses of \u00a316 million (2022: \u00a332 million) arising from investment properties that generate rental income have been recognised in the income statement. Capital expenditure in respect of investment properties which had been contracted for but not recognised in the financial statements was \u00a3488 million (2022: \u00a3119 million). Operating lease assets where the Group is lessor Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. At 31 December the future minimum rentals receivable under non-cancellable operating leases were as follows:
Within 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
1,336
857
680
309
70
4
3,256
At 31 December 2022
912
620
322
102
11
\u2013
1,967
Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. Operating lease assets are comprised as follows:
2023 2022
\u00a3m \u00a3m
Electric vehicles
3,259
1,610
Internal combustion engine vehicles
1,815
2,042
Hybrid vehicles
1,444
1,159
Other
5
5
Total operating lease assets
6,523
4,816
", "dimensions": { "concept": "ifrs-full:DisclosureOfInvestmentPropertyExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1007": { "value": "Note 27: Other assets
2023 2022
\u00a3m \u00a3m
Insurance contract assets
1
\u2013
Reinsurance contract assets
442
372
Investment in joint ventures and associates
401
385
Property, plant and equipment:
Investment properties (see below)
2,862
2,532
Premises
920
871
Equipment
1,170
1,285
Operating lease assets (see below)
6,523
4,816
Right-of-use assets (note 28)
1,055
1,156
12,530
10,660
Settlement balances and items in the course of collection from banks
912
658
Prepayments
1,455
1,224
Deferred acquisition and origination costs
39
54
Other assets
1,364
1,183
Total other assets
17,144
14,536
1 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. Investment properties The Group\u2019s investment properties are predominantly held by the Insurance, Pensions and Investments business where they back policyholder liabilities. They are valued by external Chartered Surveyors using industry standard techniques based on guidance from the Royal Institute of Chartered Surveyors. The valuation methodology includes an assessment of general market conditions and sector level transactions and takes account of expectations of occupancy rates, rental income and growth. Property valuations undergo individual scrutiny using cash flow analysis to factor in the timing of rental reviews, capital expenditure, lease incentives, dilapidation and operating expenses; these reviews utilise both observable and unobservable inputs. Within the fair value hierarchy, all of the Group\u2019s investment properties are categorised as level 3 (see note 21 for details of levels in the fair value hierarchy). The table below analyses movements in level 3 investment properties, which are carried at fair value.
2023 2022
\u00a3m \u00a3m
At 1 January
2,532
3,612
Acquisition of new properties
450
60
Additional expenditure on existing properties
19
50
Change in fair value (note 7)
(87)
(511)
Disposals
(52)
(679)
At 31 December
2,862
2,532
Rental income of \u00a3146 million (2022: \u00a3145 million) and direct operating expenses of \u00a316 million (2022: \u00a332 million) arising from investment properties that generate rental income have been recognised in the income statement. Capital expenditure in respect of investment properties which had been contracted for but not recognised in the financial statements was \u00a3488 million (2022: \u00a3119 million). Operating lease assets where the Group is lessor Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. At 31 December the future minimum rentals receivable under non-cancellable operating leases were as follows:
Within 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
1,336
857
680
309
70
4
3,256
At 31 December 2022
912
620
322
102
11
\u2013
1,967
Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. Operating lease assets are comprised as follows:
2023 2022
\u00a3m \u00a3m
Electric vehicles
3,259
1,610
Internal combustion engine vehicles
1,815
2,042
Hybrid vehicles
1,444
1,159
Other
5
5
Total operating lease assets
6,523
4,816
", "dimensions": { "concept": "ifrs-full:DisclosureOfPropertyPlantAndEquipmentExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-978": { "value": "Note 27: Other assets
2023 2022
\u00a3m \u00a3m
Insurance contract assets
1
\u2013
Reinsurance contract assets
442
372
Investment in joint ventures and associates
401
385
Property, plant and equipment:
Investment properties (see below)
2,862
2,532
Premises
920
871
Equipment
1,170
1,285
Operating lease assets (see below)
6,523
4,816
Right-of-use assets (note 28)
1,055
1,156
12,530
10,660
Settlement balances and items in the course of collection from banks
912
658
Prepayments
1,455
1,224
Deferred acquisition and origination costs
39
54
Other assets
1,364
1,183
Total other assets
17,144
14,536
1 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. Investment properties The Group\u2019s investment properties are predominantly held by the Insurance, Pensions and Investments business where they back policyholder liabilities. They are valued by external Chartered Surveyors using industry standard techniques based on guidance from the Royal Institute of Chartered Surveyors. The valuation methodology includes an assessment of general market conditions and sector level transactions and takes account of expectations of occupancy rates, rental income and growth. Property valuations undergo individual scrutiny using cash flow analysis to factor in the timing of rental reviews, capital expenditure, lease incentives, dilapidation and operating expenses; these reviews utilise both observable and unobservable inputs. Within the fair value hierarchy, all of the Group\u2019s investment properties are categorised as level 3 (see note 21 for details of levels in the fair value hierarchy). The table below analyses movements in level 3 investment properties, which are carried at fair value.
2023 2022
\u00a3m \u00a3m
At 1 January
2,532
3,612
Acquisition of new properties
450
60
Additional expenditure on existing properties
19
50
Change in fair value (note 7)
(87)
(511)
Disposals
(52)
(679)
At 31 December
2,862
2,532
Rental income of \u00a3146 million (2022: \u00a3145 million) and direct operating expenses of \u00a316 million (2022: \u00a332 million) arising from investment properties that generate rental income have been recognised in the income statement. Capital expenditure in respect of investment properties which had been contracted for but not recognised in the financial statements was \u00a3488 million (2022: \u00a3119 million). Operating lease assets where the Group is lessor Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. At 31 December the future minimum rentals receivable under non-cancellable operating leases were as follows:
Within 1 year 1 to 2 years 2 to 3 years 3 to 4 years 4 to 5 years Over 5 years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
1,336
857
680
309
70
4
3,256
At 31 December 2022
912
620
322
102
11
\u2013
1,967
Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. Operating lease assets are comprised as follows:
2023 2022
\u00a3m \u00a3m
Electric vehicles
3,259
1,610
Internal combustion engine vehicles
1,815
2,042
Hybrid vehicles
1,444
1,159
Other
5
5
Total operating lease assets
6,523
4,816
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherAssetsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-929": { "value": "
Note 28: Lessee disclosures
The table below sets out the movement in the Group\u2019s right-of-use assets, which are primarily in respect of premises, and are
recognised within other assets (note 27).
2023 2022
\u00a3m \u00a3m
At 1 January
1,156
1,318
Exchange and other adjustments
3
3
Additions
136
98
Disposals
(31)
(37)
Depreciation charge for the year
(209)
(226)
At 31 December
1,055
1,156
The Group\u2019s lease liabilities are recognised within other liabilities (note 37). The maturity analysis of the Group\u2019s lease liabilities on an
undiscounted basis is set out in the liquidity risk section of note 52.
The total cash outflow for leases in the year ended 31 December 2023 was \u00a3215 million (2022: \u00a3210 million). The amount recognised within
interest expense in respect of lease liabilities is disclosed in note 5.
", "dimensions": { "concept": "ifrs-full:DisclosureOfLeasesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-930": { "value": "Note 29: Debt securities in issue
2023
2022
At fair value At At fair value At
through profit amortised through profit amortised
or loss cost Total or loss cost Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Senior unsecured notes issued
5,242
37,038
42,280
5,133
36,819
41,952
Covered bonds
\u2013
14,243
14,243
\u2013
14,242
14,242
Certificates of deposit issued
\u2013
8,059
8,059
\u2013
7,225
7,225
Securitisation notes
23
4,211
4,234
26
2,780
2,806
Commercial paper
\u2013
12,041
12,041
\u2013
12,753
12,753
Total debt securities in issue
5,265
75,592
80,857
5,159
73,819
78,978
Covered bonds and securitisation programmes At 31 December 2023, the bonds held by external parties and those held internally, were secured on certain loans and advances to customers amounting to \u00a327,019 million (2022: \u00a328,231 million) which have been assigned to bankruptcy remote limited liability partnerships to provide security for issues of covered bonds by the Group. The Group retains all of the risks and rewards associated with these loans and the partnerships are consolidated fully with the loans retained on the Group\u2019s balance sheet and the related covered bonds in issue included within debt securities in issue at amortised cost. The Group has two covered bond programmes, for which limited liability partnerships have been established to ring-fence asset pools and guarantee the covered bonds issued by the Group. At the reporting date the Group had over-collateralised these programmes to meet the terms of the programmes, to secure the rating of the covered bonds and to provide operational flexibility. From time to time, the obligations of the Group to provide collateral may increase due to the formal requirements of the programmes. The Group may also voluntarily contribute collateral to support the ratings of the covered bonds. At 31 December 2023, the Group\u2019s securitisation notes in issue held by external parties includes \u00a323 million at fair value through profit or loss (2022: \u00a326 million). Those notes held internally, are secured on loans and advances to customers amounting to \u00a330,716 million (2022: \u00a329,384 million), the majority of which have been sold by subsidiary companies to bankruptcy remote structured entities. As the structured entities are funded by the issue of debt on terms whereby the majority of the risks and rewards of the portfolio are retained by the subsidiary, the structured entities are consolidated fully and all of these loans are retained on the Group\u2019s balance sheet, with the related notes in issue included within debt securities in issue at amortised cost. Certain loans and advances to customers have been assigned to bankruptcy remote limited liability partnerships. Cash deposits of \u00a33,794 million (2022: \u00a33,896 million) which support the debt securities issued by the structured entities, the term advances related to covered bonds and other legal obligations, are held by the Group. Additionally, the Group has certain contractual arrangements to provide liquidity facilities to some of these structured entities. At 31 December 2023 these obligations had not been triggered; the maximum exposure under these facilities was \u00a329 million (2022: \u00a325 million). The Group recognises the full liabilities associated with its securitisation and covered bond programmes within debt securities in issue, although the obligations of the Group in respect of its securitisation issuances are limited to the cash flows generated from the underlying assets. The Group could be required to provide additional support to a number of the securitisation programmes to support the credit ratings of the debt securities issued, in the form of increased cash reserves and the holding of subordinated notes. Further, certain programmes contain contractual obligations that require the Group to repurchase assets should they become credit-impaired or as otherwise required by the transaction documents. The Group has not provided financial or other support by voluntarily offering to repurchase assets from any of its public securitisation programmes during 2023 (2022: none).", "dimensions": { "concept": "ifrs-full:DisclosureOfDebtSecuritiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1008": { "value": "Note 30: Insurance and participating investment contracts assets and liabilities Critical accounting judgements and key sources of estimation uncertainty Critical judgements: Determining the characteristics which make a product illiquid, the level of illiquidity premium to apply to the discount rate of different products and how the illiquidity premium is determined The determination of whether a drawdown feature added to its longstanding and workplace pension products was a modification that required derecognition and the determination of the premium that would have been charged if these were new contracts.
2023
2022
Life Non-life Total Life Non-life Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Insurance contract assets
1
\u2013
1
\u2013
\u2013
\u2013
Liabilities arising from insurance and participating
investment contracts
(119,784)
(364)
(120,148)
(109,920)
(380)
(110,300)
Insurance acquisition assets
8
16
24
8
14
22
Net liabilities
(119,775)
(348)
(120,123)
(109,912)
(366)
(110,278)
1 1 Excluding insurance acquisition assets. The Group estimates future cash flows based on which cash flows are expected and the probability that they will occur as at the measurement date. The Group uses information about past events, current conditions and forecasts of future conditions to inform these expectations. The Group\u2019s estimate of future cash flows is the mean of a range of scenarios that reflect the full range of possible outcomes, considering all reasonable and supportable information available at the reporting date. The probability-weighted average of the future cash flows is calculated using a deterministic scenario representing the probability-weighted mean of a range of scenarios. The Group uses assumptions to develop estimates of future cash flows. These assumptions are reassessed at each reported date to reflect conditions existing at the measurement date. The Group has applied judgment in determining the characteristics which make a product illiquid, the level of illiquidity premium to apply to the discount rate of different products and how the illiquidity premium is determined, where material. The products to which an illiquidity premium has been applied to the discount rate are annuity contracts, due to the illiquid nature of their cash flows, certain reinsurance contracts held where the underlying contracts are annuity contracts, due to the transfer of longevity risk to the reinsurer, and whole of life protection contracts, due to the inherent policyholder value and zero surrender option. For annuity contracts, at initial recognition, the illiquidity premium is calculated with reference to a strategic portfolio of assets, and subsequently measured to reflect the mix of actual assets backing annuity contracts, adjusted to reflect the impacts of transition from initial recognition. To reflect differences between the characteristics of insurance contracts and the derivation of discount rates based on a reference portfolio, adjustments for credit risk are required, and the Group uses the fundamental spread to maintain consistency with its Solvency II approach. For protection contracts, the illiquidity premium is based on the spread on a covered bond index. The average yield curves (GBP currency) that were used to discount the estimates of future cash flows that do not vary based on the returns of the underlying items are as follows:
1 year
5 year
10 year
20 year
30 year
2023
5.37
4.15
4.79
4.72
4.19
2022
6.11
5.15
5.03
4.84
4.42
The Group has also applied judgement to determine if a drawdown feature added to its longstanding and workplace pension products was a modification that required derecognition. See note 10 for more details. The Group determines the quantity of benefits Note 31: Reconciliation of insurance balances for liability for remaining coverage and liability for incurred claims
2023
2022
Liabilities for Liabilities for
remaining coverage Liability for remaining coverage Liability for
Excluding loss Loss incurred Excluding loss Loss incurred
component component claims Total component component claims Total
Life
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
\u00a3m
At 1 January
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
184
(160)
\u2013
24
Liabilities arising from
insurance and participating
investment contracts
(108,846)
(471)
(603)
(109,920)
(124,053)
(179)
(653)
(124,885)
Net asset (liability)
(108,846)
(471)
(603)
(109,920)
(123,869)
(339)
(653)
(124,861)
Insurance revenue
Contracts under the modified
retrospective approach
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Contracts under the fair value
transition approach
1,467
\u2013
\u2013
1,467
1,266
\u2013
\u2013
1,266
Other contracts
1,027
\u2013
\u2013
1,027
636
\u2013
\u2013
636
2,494
\u2013
\u2013
2,494
1,902
\u2013
\u2013
1,902
Insurance service expenses
Incurred claims and other
directly attributable expenses
\u2013
52
(1,949)
(1,897)
\u2013
44
(1,795)
(1,751)
Adjustments to liabilities for
incurred claims
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Losses from drawdown
contract modifications
\u2013
\u2013
\u2013
\u2013
(1,242)
\u2013
\u2013
(1,242)
Losses and reversal of losses
on onerous insurance
contracts
\u2013
58
\u2013
58
\u2013
(244)
\u2013
(244)
Amortisation of insurance
acquisition cash flows
(88)
\u2013
\u2013
(88)
(85)
\u2013
\u2013
(85)
(88)
110
(1,949)
(1,927)
(1,327)
(200)
(1,795)
(3,322)
Insurance service result
2,406
110
(1,949)
567
575
(200)
(1,795)
(1,420)
Net finance income (expense)
from insurance and
participating investment
contracts
(11,576)
(105)
(3)
(11,684)
15,885
68
(3)
15,950
Exchange differences
32
\u2013
\u2013
32
(94)
\u2013
\u2013
(94)
Total change in profit or loss
(9,138)
5
(1,952)
(11,085)
16,366
(132)
(1,798)
14,436
Investment components
8,793
\u2013
(8,793)
\u2013
7,285
\u2013
(7,285)
\u2013
Cash flows
Premiums received
(9,768)
\u2013
\u2013
(9,768)
(8,861)
\u2013
\u2013
(8,861)
Claims and other insurance
service expenses paid
\u2013
\u2013
10,721
10,721
\u2013
\u2013
9,099
9,099
Insurance acquisition cash
flows
203
\u2013
\u2013
203
200
\u2013
\u2013
200
(9,565)
\u2013
10,721
1,156
(8,661)
\u2013
9,099
438
Transfer to other items in the
balance sheet
32
\u2013
34
66
33
\u2013
34
67
At 31 December
Insurance contract assets
1
\u2013
\u2013
1
\u2013
\u2013
\u2013
\u2013
Liabilities arising from
insurance and participating
investment contracts
(118,725)
(466)
(593)
(119,784)
(108,846)
(471)
(603)
(109,920)
Net asset (liability)
(118,724)
(466)
(593)
(119,783)
(108,846)
(471)
(603)
(109,920)
1 1 1 Excluding insurance acquisition assets.
2023
2022
Liabilities for Liabilities for
remaining coverage Liability for remaining coverage Liability for
Excluding loss Loss incurred Excluding loss Loss incurred
component component claims Total component component claims Total
Non-life
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
\u00a3m
\u00a3m
At 1 January
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from
insurance and participating
investment contracts
(22)
(1)
(357)
(380)
(32)
(4)
(286)
(322)
Net asset (liability)
(22)
(1)
(357)
(380)
(32)
(4)
(286)
(322)
Insurance revenue
Contracts under the modified
retrospective approach
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Contracts under the fair value
transition approach
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Other contracts
514
\u2013
\u2013
514
559
\u2013
\u2013
559
514
\u2013
\u2013
514
559
\u2013
\u2013
559
Insurance service expenses
Incurred claims and other
directly attributable expenses
\u2013
\u2013
(448)
(448)
\u2013
5
(480)
(475)
Adjustments to liabilities for
incurred claims
\u2013
\u2013
(3)
(3)
\u2013
\u2013
(57)
(57)
Losses and reversal of losses on
onerous insurance contracts
\u2013
1
\u2013
1
\u2013
(2)
\u2013
(2)
Amortisation of insurance
acquisition cash flows
(30)
\u2013
(30)
7
\u2013
\u2013
7
(30)
1
(451)
(480)
7
3
(537)
(527)
Insurance service result
484
1
(451)
34
566
3
(537)
32
Net finance income (expense)
from insurance and
participating investment
contracts
\u2013
\u2013
(6)
(6)
\u2013
\u2013
(2)
(2)
Exchange differences
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Total change in profit or loss
484
1
(457)
28
566
3
(539)
30
Investment components
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Cash flows
Premiums received
(525)
\u2013
\u2013
(525)
(584)
\u2013
\u2013
(584)
Claims and other insurance
service expenses paid
\u2013
\u2013
475
475
\u2013
\u2013
468
468
Insurance acquisition cash
flows
38
\u2013
\u2013
38
28
\u2013
\u2013
28
(487)
\u2013
475
(12)
(556)
\u2013
468
(88)
Transfer to other items in the
balance sheet
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
At 31 December
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from
insurance and participating
investment contracts
(25)
\u2013
(339)
(364)
(22)
(1)
(357)
(380)
Net asset (liability)
(25)
\u2013
(339)
(364)
(22)
(1)
(357)
(380)
1 1 1 Excluding insurance acquisition assets Note 32: Reconciliation of measurement components of insurance contract balances
2023
Contractual service margin
Contracts
Present Risk measured Contracts
value of adjustment under the measured
future for non- modified under the
cash financial retrospective fair value Other
flows risk approach approach contracts Total Total
Life \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from insurance and participating
investment contracts
(104,545)
(1,165)
\u2013
(1,441)
(2,769)
(4,210)
(109,920)
Net asset (liability)
(104,545)
(1,165)
\u2013
(1,441)
(2,769)
(4,210)
(109,920)
Relating to current services
CSM recognised for services provided
\u2013
\u2013
\u2013
130
199
329
329
Changes in risk adjustment for non-financial risk for
risk expired
\u2013
84
\u2013
\u2013
\u2013
\u2013
84
Experience adjustments
99
\u2013
\u2013
(1)
(2)
(3)
96
99
84
\u2013
129
197
326
509
Relating to future services
Contracts initially recognised in the year
107
(86)
\u2013
\u2013
(92)
(92)
(71)
Changes in estimates that adjust the CSM
390
(12)
\u2013
(170)
(208)
(378)
\u2013
Changes in estimates that result in losses and
reversal of losses on onerous contracts
109
20
\u2013
\u2013
\u2013
\u2013
129
606
(78)
\u2013
(170)
(300)
(470)
58
Relating to past services
Adjustments to liabilities for incurred claims
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Insurance service result
705
6
\u2013
(41)
(103)
(144)
567
Net finance income (expense) from insurance and
participating investment contracts
(11,621)
\u2013
\u2013
7
(70)
(63)
(11,684)
Exchange differences
30
\u2013
\u2013
2
\u2013
2
32
Total change in profit or loss
(10,886)
6
\u2013
(32)
(173)
(205)
(11,085)
Cash flows
Premiums received
(9,768)
\u2013
\u2013
\u2013
\u2013
\u2013
(9,768)
Claims and other insurance service expenses paid
10,721
\u2013
\u2013
\u2013
\u2013
\u2013
10,721
Insurance acquisition cash flows
203
\u2013
\u2013
\u2013
\u2013
\u2013
203
1,156
\u2013
\u2013
\u2013
\u2013
\u2013
1,156
Transfer to other items in the balance sheet
66
\u2013
\u2013
\u2013
\u2013
\u2013
66
At 31 December
Insurance contract assets
\u2013
1
\u2013
\u2013
\u2013
\u2013
1
Liabilities arising from insurance and participating
investment contracts
(114,209)
(1,160)
\u2013
(1,473)
(2,942)
(4,415)
(119,784)
Net asset (liability)
(114,209)
(1,159)
\u2013
(1,473)
(2,942)
(4,415)
(119,783)
1 1 1 Excluding insurance acquisition assets
2022
Contractual service margin
Contracts
Present Risk measured Contracts
value of adjustment under the measured
future for non- modified under the
cash financial retrospective Other fair value
flows risk approach contracts approach Total Total
Life \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January
Insurance contract assets
149
(53)
\u2013
(5)
(67)
(72)
24
Liabilities arising from insurance and participating
investment contracts
(121,344)
(1,599)
\u2013
(583)
(1,359)
(1,942)
(124,885)
Net asset (liability)
(121,195)
(1,652)
\u2013
(588)
(1,426)
(2,014)
(124,861)
Relating to current services
CSM recognised for services provided
\u2013
\u2013
\u2013
122
123
245
245
Changes in risk adjustment for non-financial risk for
risk expired
\u2013
103
\u2013
\u2013
\u2013
\u2013
103
Experience adjustments
(189)
\u2013
\u2013
(93)
\u2013
(93)
(282)
(189)
103
\u2013
29
123
152
66
Relating to future services
Contracts initially recognised in the year
2,364
(646)
\u2013
(1,793)
\u2013
(1,793)
(75)
Changes in estimates that adjust the CSM
(158)
603
\u2013
(362)
(83)
(445)
\u2013
Changes in estimates that result in losses and
reversal of losses on onerous contracts
(1,835)
424
\u2013
\u2013
\u2013
\u2013
(1,411)
371
381
\u2013
(2,155)
(83)
(2,238)
(1,486)
Relating to past services
Adjustments to liabilities for incurred claims
(4)
4
\u2013
\u2013
\u2013
\u2013
\u2013
Insurance service result
178
488
\u2013
(2,126)
40
(2,086)
(1,420)
Net finance income (expense) from insurance and
participating investment contracts
16,055
\u2013
\u2013
(55)
(50)
(105)
15,950
Exchange differences
(88)
(1)
\u2013
\u2013
(5)
(5)
(94)
Total change in profit or loss
16,145
487
\u2013
(2,181)
(15)
(2,196)
14,436
Cash flows
Premiums received
(8,861)
\u2013
\u2013
\u2013
\u2013
\u2013
(8,861)
Claims and other insurance service expenses paid
9,099
\u2013
\u2013
\u2013
\u2013
\u2013
9,099
Insurance acquisition cash flows
200
\u2013
\u2013
\u2013
\u2013
\u2013
200
438
\u2013
\u2013
\u2013
\u2013
\u2013
438
Transfer to other items in the balance sheet
67
\u2013
\u2013
\u2013
\u2013
\u2013
67
At 31 December
Insurance contract assets
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
Liabilities arising from insurance and participating
investment contracts
(104,545)
(1,165)
\u2013
(2,769)
(1,441)
(4,210)
(109,920)
Net asset (liability)
(104,545)
(1,165)
\u2013
(2,769)
(1,441)
(4,210)
(109,920)
1 2 3 3 1 1 Excluding insurance acquisition assets. 2 Contracts initially recognised in the year, include present value of future cash flows of \u00a32,281 million, risk adjustment of \u00a3(551) million and CSM of \u00a3(1,730) million relating to contracts that were modified to add a drawdown feature and recognised as new contracts. 3 The Group derecognised present value of future cash flows of \u00a32,175 million, risk adjustment of \u00a3(534) million and CSM of \u00a3(399) million relating to contracts that were derecognised due to a contract modification to add a drawdown feature. The amounts derecognised are included within changes in estimates that adjust the CSM and changes that result in losses and reversal of losses on onerous contracts. A loss on contract derecognition modification of \u00a31,242 million arose and was recognised in insurance service expense. Further details are provided in note 10
T he Group estimates the risk adjustment separately from other components of the fulfilment cash flows using an explicit margins
approach such that a confidence level scenario is used to determine the margins to be applied to the best estimate assumptions. The
risk adjustment represents the difference in the value of the best estimate cash flows with and without these margins. The risk
adjustment is calculated at a policy level.
The confidence level corresponding to the risk adjustment is 90 per cent (2022: 90 per cent). The risk adjustment is calibrated to the
value at risk over a one-year time horizon at this confidence level for non-financial risks. This is translated, using statistical
approximations, into an equivalent confidence level on a value at risk basis over the expected lifetime of in-force policies of
approximately 70 per cent (2022: 70 per cent) at end of the reporting period.
Note 33: Impacts of insurance and participating investment contracts recognised in the year
2023
2022
Profitable Onerous Profitable Onerous
contracts contracts contracts contracts
issued issued Total issued issued Total
Life \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Insurance and participating investment contracts
Insurance acquisition cash flows
87
142
229
85
173
258
Claims and other directly attributable expenses
5,450
447
5,897
82,246
1,130
83,376
Estimates of the present value of future cash outflows
5,537
589
6,126
82,331
1,303
83,634
Estimates of the present value of future cash inflows
(5,708)
(525)
(6,233)
(84,754)
(1,244)
(85,998)
Risk adjustment for non-financial risk
79
7
86
630
16
646
Contractual service margin
92
\u2013
92
1,793
\u2013
1,793
Losses recognised on initial recognition
\u2013
71
71
\u2013
75
75
", "dimensions": { "concept": "ifrs-full:DisclosureOfReinsuranceExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-931": { "value": "
Note 34: Direct participating contracts
2023 2022
\u00a3m \u00a3m
Cash and cash equivalents
2
2
Financial assets at fair value through profit or loss
103,022
92,037
Other assets
154
331
Derivative financial instruments
(1,337)
(1,022)
Other liabilities
(416)
(422)
Fair value of underlying items in respect of direct participating contracts
101,425
90,926
", "dimensions": { "concept": "lloydsbankinggroupplc:DisclosureOfDirectParticipatingContracts", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-932": { "value": "
Note 35: Life business contractual service margin run-off
The following table analyses the expected recognition of the contractual service margin (CSM) in profit or loss.
Less than 1 1 to 2 2 to 3 3 to 4 4 to 5 5 to 10 Over 10
year years years years years years years Total
At 31 December 2023 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Annuities
(106)
(99)
(92)
(87)
(82)
(340)
(708)
(1,514)
Pensions and investments
(186)
(176)
(168)
(157)
(133)
(535)
(1,088)
(2,443)
Protection and other
Insurance and participating
(41)
(37)
(33)
(30)
(27)
(104)
(186)
(458)
investment contracts
(333)
(312)
(293)
(274)
(242)
(979)
(1,982)
(4,415)
Reinsurance contracts held
20
17
15
14
13
48
94
221
Total
(313)
(295)
(278)
(260)
(229)
(931)
(1,888)
(4,194)
Less than 1 1 to 2 2 to 3 3 to 4 4 to 5 5 to 10 Over 10
year years years years years years years Total
At 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Annuities
(91)
(85)
(79)
(75)
(71)
(297)
(608)
(1,306)
Pensions and investments
(173)
(162)
(153)
(143)
(134)
(564)
(1,073)
(2,402)
Protection and other
Insurance and participating
(41)
(37)
(34)
(32)
(29)
(114)
(215)
(502)
investment contracts
(305)
(284)
(266)
(250)
(234)
(975)
(1,896)
(4,210)
Reinsurance contracts held
16
15
13
12
12
47
96
211
Total
(289)
(269)
(253)
(238)
(222)
(928)
(1,800)
(3,999)
", "dimensions": { "concept": "lloydsbankinggroupplc:DisclosureOfLifeBusinessContractualServiceMarginRunOff", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-935": { "value": "Note 36: Life insurance sensitivity analysis Critical accounting judgements and key sources of estimation uncertainty Key sources of estimation uncertainty: Future investment returns, mortality rates and expenses, annuitant mortality, future maintenance and investment expenses, widening of credit default spreads and increase in illiquidity premia The following table demonstrates the effect of reasonably possible changes in key assumptions on profit before tax and equity disclosed in these financial statements assuming that the other assumptions remain unchanged. In practice this is unlikely to occur, and changes in some assumptions may be correlated. The sensitivities below are on a gross of reinsurance basis, which do not differ materially from the sensitivities net of reinsurance. These amounts include movements in liabilities relating to insurance and participating investment contracts and related assets in order to demonstrate the impacts on shareholder profit and equity. Therefore, these sensitivities have not been applied to the proportion of assets and liabilities where the risks are borne by the policyholder and where assets and liabilities are well matched so as not to have a significant impact on shareholder profit.
2023
2022
Increase Increase
(reduction) Increase (reduction) Increase
in profit (reduction) in profit (reduction)
before tax in equity before tax in equity
Change in variable \u00a3m \u00a3m \u00a3m \u00a3m
Key sources of estimation uncertainty
Annuitant mortality
5% reduction
70
52
85
69
5% increase
(75)
(56)
(101)
(82)
Future maintenance and investment expenses
10% reduction
29
21
28
23
10% increase
(29)
(21)
(28)
(23)
Risk free rate, including illiquidity premia
1% reduction
393
294
357
289
1% increase
(333)
(250)
(317)
(256)
Widening of credit default spreads on corporate bonds
0.25% addition
(316)
(237)
(276)
(224)
Other accounting estimates
Non-annuitant mortality and morbidity
5% reduction
63
47
54
44
5% increase
(63)
(47)
(54)
(44)
Lapse rates
10% reduction
(11)
(8)
(2)
(2)
10% increase
8
6
1
1
1 2 3 4 5 6 1 This sensitivity shows the impact on the annuity and deferred annuity business of reducing/increasing mortality rates to 95/105 per cent of the expected rate. 2 This sensitivity shows the impact of reducing/increasing maintenance expenses and investment expenses to 90/110 per cent of the expected rate. 3 This sensitivity shows the impact of a 100 basis point increase/decrease in the risk-free rate, including illiquidity premia. This impacts both the related assets and liabilities. 4 This sensitivity shows the impact of a 25 basis point increase in credit default spreads on corporate bonds and the corresponding reduction in market values. Swap curves, the risk-free rate and illiquidity premia are all assumed to be unchanged and therefore this sensitivity impacts the related assets. 5 This sensitivity shows the impact of reducing/increasing mortality and morbidity rates on non-annuity business to 95/105 per cent of the expected rate. 6 This sensitivity shows the impact of reducing/increasing lapse and surrender rates to 90/110 per cent of the expected rate.", "dimensions": { "concept": "lloydsbankinggroupplc:DisclosureOfLifeInsuranceSensitivityAnalysis", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1009": { "value": "
Note 37: Other liabilities
2023 2022
\u00a3m \u00a3m
Reinsurance contract liabilities
8
19
Settlement balances and items in the course of transmission to banks
1,429
1,497
Third party interests in consolidated funds
10,518
10,413
Lease liabilities
1,632
1,317
Other creditors and accruals
5,439
5,518
Total other liabilities
19,026
18,764
1
2
1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54.
2 Where a collective investment vehicle is consolidated, the interests of parties other than the Group are reported at fair value in other liabilities.
The maturity analysis of the Group\u2019s lease liabilities on an undiscounted basis is set out in the liquidity risk section of note 52 .
", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherNoncurrentLiabilitiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1035": { "value": "Note 37: Other liabilities
2023 2022
\u00a3m \u00a3m
Reinsurance contract liabilities
8
19
Settlement balances and items in the course of transmission to banks
1,429
1,497
Third party interests in consolidated funds
10,518
10,413
Lease liabilities
1,632
1,317
Other creditors and accruals
5,439
5,518
Total other liabilities
19,026
18,764
1 2 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. 2 Where a collective investment vehicle is consolidated, the interests of parties other than the Group are reported at fair value in other liabilities. The maturity analysis of the Group\u2019s lease liabilities on an undiscounted basis is set out in the liquidity risk section of note 52 .", "dimensions": { "concept": "ifrs-full:DisclosureOfAccruedExpensesAndOtherLiabilitiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1029": { "value": "Note 37: Other liabilities
2023 2022
\u00a3m \u00a3m
Reinsurance contract liabilities
8
19
Settlement balances and items in the course of transmission to banks
1,429
1,497
Third party interests in consolidated funds
10,518
10,413
Lease liabilities
1,632
1,317
Other creditors and accruals
5,439
5,518
Total other liabilities
19,026
18,764
1 2 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. 2 Where a collective investment vehicle is consolidated, the interests of parties other than the Group are reported at fair value in other liabilities. The maturity analysis of the Group\u2019s lease liabilities on an undiscounted basis is set out in the liquidity risk section of note 52 .", "dimensions": { "concept": "ifrs-full:DisclosureOfTradeAndOtherPayablesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-979": { "value": "Note 37: Other liabilities
2023 2022
\u00a3m \u00a3m
Reinsurance contract liabilities
8
19
Settlement balances and items in the course of transmission to banks
1,429
1,497
Third party interests in consolidated funds
10,518
10,413
Lease liabilities
1,632
1,317
Other creditors and accruals
5,439
5,518
Total other liabilities
19,026
18,764
1 2 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. 2 Where a collective investment vehicle is consolidated, the interests of parties other than the Group are reported at fair value in other liabilities. The maturity analysis of the Group\u2019s lease liabilities on an undiscounted basis is set out in the liquidity risk section of note 52 ", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherCurrentLiabilitiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-933": { "value": "Note 37: Other liabilities
2023 2022
\u00a3m \u00a3m
Reinsurance contract liabilities
8
19
Settlement balances and items in the course of transmission to banks
1,429
1,497
Third party interests in consolidated funds
10,518
10,413
Lease liabilities
1,632
1,317
Other creditors and accruals
5,439
5,518
Total other liabilities
19,026
18,764
1 2 1 Restated for presentational changes and for the adoption of IFRS 17; see notes 1 and 54. 2 Where a collective investment vehicle is consolidated, the interests of parties other than the Group are reported at fair value in other liabilities. The maturity analysis of the Group\u2019s lease liabilities on an undiscounted basis is set out in the liquidity risk section of note 52 .", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherLiabilitiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-934": { "value": "
Note 38: Provisions
Critical accounting judgements and key sources of estimation uncertainty
Critical judgement: Determining whether a present obligation exists and whether it is more likely than not that an outflow of
resources will be required to settle that obligation
Key sources of estimation uncertainty: Populations impacted, response rates and uphold rates
Determining the amount of the provisions, which represent management\u2019s best estimate of the cost of settling these issues, requires
the exercise of significant judgement and estimation. It will often be necessary to form a view on matters which are inherently
uncertain, such as the scope of reviews required by regulators, and to estimate the number of future complaints, the extent to which
they will be upheld, the average cost of redress and the impact of decisions reached by legal and other review processes that may be
relevant to claims received. Consequently the continued appropriateness of the underlying assumptions is reviewed on a regular basis
against actual experience and other relevant evidence and adjustments made to the provisions where appropriate.
Provisions
for financial Regulatory
commitments and legal
and guarantees provisions Other Total
\u00a3m \u00a3m \u00a3m \u00a3m
At 1 January 2023
323
803
677
1,803
Exchange and other adjustments
(1)
5
3
7
Provisions applied
\u2013
(378)
(372)
(750)
Charge for the year
\u2013
675
342
1,017
At 31 December 2023
322
1,105
650
2,077
1 1 Restated for the adoption of IFRS 17; see notes 1 and 54. Provisions for financial commitments and guarantees Provisions are recognised for expected credit losses on undrawn loan commitments and financial guarantees. Regulatory and legal provisions In the course of its business, the Group is engaged on a regular basis in discussions with UK and overseas regulators and other governmental authorities on a range of matters, including legal and regulatory reviews and, from time to time, enforcement investigations (including in relation to compliance with applicable laws and regulations, such as those relating to prudential regulation, consumer protection, investment advice, business conduct, systems and controls, environmental, competition/anti-trust, tax, anti- bribery, anti-money laundering and sanctions). Any matters discussed or identified during such discussions and inquiries may result in, among other things, further inquiry or investigation, other action being taken by governmental and/or regulatory authorities, increased costs being incurred by the Group, remediation of systems and controls, public or private censure, restriction of the Group\u2019s business activities and/or fines. The Group also receives complaints in connection with its past conduct and claims brought by or on behalf of current and former employees, customers (including their appointed representatives), investors and other third parties and is subject to legal proceedings and other legal actions from time to time. Any events or circumstances disclosed could have a material adverse effect on the Group\u2019s financial position, operations or cash flows. Provisions are held where the Group can reliably estimate a probable outflow of economic resources. The ultimate liability of the Group may be significantly more, or less, than the amount of any provision recognised. If the Group is unable to determine a reliable estimate, a contingent liability is disclosed. The recognition of a provision does not amount to an admission of liability or wrongdoing on the part of the Group. During the year ended 31 December 2023 the Group charged a further \u00a3675 million in respect of legal actions and other regulatory matters and the unutilised balance at 31 December 2023 was \u00a31,105 million (31 December 2022: \u00a3803 million). The most significant items are outlined below. Motor commission review A \u00a3450 million provision, all recognised in the fourth quarter, has been established for the potential impact of the recently announced FCA review into historical motor finance commission arrangements and sales. As disclosed in previous periods, the Group continues to receive a number of court claims and complaints in respect of motor finance commissions and is actively engaging with the FOS in its assessment of these complaints. On 10 January 2024, the FOS issued its Final Decision on a complaint relating to the Group, as well as decisions relating to other industry participants. On 11 January 2024, the FCA announced a section 166 review of historical motor finance commission arrangements and sales and plans to communicate a decision on next steps in the third quarter of 2024 on the basis of the evidence collated in the review. The FCA has indicated that such steps could include establishing an industry-wide consumer redress scheme and/or applying to the Financial Markets Test Case Scheme, to help resolve any contested legal issues of general importance. Following the FCA Motor Market Review in March 2019, the FCA issued a policy statement in July 2020 prohibiting the use of discretionary commission models from 28 January 2021, which the Group adhered to. The Group continues to believe that its historical practices were compliant with the law and regulations in place at that time. As noted above, in response to both the FOS decisions and the FCA announcement the Group has recognised a charge of \u00a3450 million. This includes estimates for operational and legal costs, including litigation costs, together with estimates for potential awards, based on various scenarios using a range of assumptions, including for example, commission models, commission rates, applicable time periods (between 2007 and 2021), response rates and uphold rates. Costs and awards could arise in the event that the FCA concludes there has been misconduct and customer loss that requires remediation, or from adverse litigation decisions. However, while the FCA review is progressing there is significant uncertainty as to the extent of misconduct and customer loss, if any, the nature and extent of any remediation action, if required, and its timing. The ultimate financial impact could therefore materially differ from the amount provided, both higher or lower. The Group welcomes the FCA intervention through an independent section 166 review. HBOS Reading \u2013 review The Group continues to apply the recommendations from Sir Ross Cranston\u2019s review, issued in December 2019, including a reassessment of direct and consequential losses by an independent panel (the Foskett Panel), an extension of debt relief and a wider definition of de facto directors. The Foskett Panel\u2019s full scope and methodology was published on 7 July 2020. The Foskett Panel\u2019s stated objective is to consider cases via a non-legalistic and fair process and to make its decisions in a generous, fair and common sense manner, assessing claims against an expanded definition of the fraud and on a lower evidential basis. In June 2022, the Foskett Panel announced an alternative option, in the form of a fixed sum award which could be accepted as an alternative to participation in the full re-review process, to support earlier resolution of claims for those deemed by the Foskett Panel to be victims of the fraud. Around 90 per cent of the population have now had outcomes via this new process. The provision is unchanged in 2023. Notwithstanding the settled claims and the increase in outcomes which builds confidence in the full estimated cost, uncertainties remain and the final outcome could be different from the current provision once the re-review is concluded by the Foskett Panel. There is no confirmed timeline for the completion of the Foskett Panel re-review process nor the review by Dame Linda Dobbs. The Group is committed to implementing Sir Ross Cranston\u2019s recommendations in full. Payment protection insurance (PPI) The Group has incurred costs for PPI over a number of years totalling \u00a321,960 million. The Group continues to challenge PPI litigation cases, with mainly legal fees and operational costs associated with litigation activity recognised within regulatory and legal provisions. Customer claims in relation to insurance branch business in Germany The Group continues to receive claims from customers in Germany relating to policies issued by Clerical Medical Investment Group Limited (subsequently renamed Scottish Widows Limited), with smaller numbers of claims received from customers in Austria and Italy. The total provision made to 31 December 2023, was \u00a3709 million (31 December 2022: \u00a3709 million) with \u00a313 million utilisation of the provision during the year, leaving an unutilised provision at 31 December 2023 of \u00a375 million. The ultimate financial effect, which could be significantly different from the current provision, will be known only once all relevant claims have been resolved. Other The Group carries provisions of \u00a3137 million (2022: \u00a3112 million) in respect of dilapidations, rent reviews and other property-related matters. Provisions are also made for staff and other costs related to Group restructuring initiatives at the point at which the Group becomes committed to the expenditure; at 31 December 2023 provisions of \u00a3245 million (31 December 2022: \u00a3112 million) were held. The Group carries provisions of \u00a346 million (2022: \u00a386 million) for indemnities and other matters relating to legacy business disposals in prior years. Whilst there remains significant uncertainty as to the timing of the utilisation of the provisions, the Group expects the majority of the remaining provisions to have been utilised by 31 December 2026 ", "dimensions": { "concept": "ifrs-full:DisclosureOfProvisionsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-980": { "value": "Note 38: Provisions Critical accounting judgements and key sources of estimation uncertainty Critical judgement: Determining whether a present obligation exists and whether it is more likely than not that an outflow of resources will be required to settle that obligation Key sources of estimation uncertainty: Populations impacted, response rates and uphold rates Determining the amount of the provisions, which represent management\u2019s best estimate of the cost of settling these issues, requires the exercise of significant judgement and estimation. It will often be necessary to form a view on matters which are inherently uncertain, such as the scope of reviews required by regulators, and to estimate the number of future complaints, the extent to which they will be upheld, the average cost of redress and the impact of decisions reached by legal and other review processes that may be relevant to claims received. Consequently the continued appropriateness of the underlying assumptions is reviewed on a regular basis against actual experience and other relevant evidence and adjustments made to the provisions where appropriate.
Provisions
for financial Regulatory
commitments and legal
and guarantees provisions Other Total
\u00a3m \u00a3m \u00a3m \u00a3m
At 1 January 2023
323
803
677
1,803
Exchange and other adjustments
(1)
5
3
7
Provisions applied
\u2013
(378)
(372)
(750)
Charge for the year
\u2013
675
342
1,017
At 31 December 2023
322
1,105
650
2,077
1 1 Restated for the adoption of IFRS 17; see notes 1 and 54. Provisions for financial commitments and guarantees Provisions are recognised for expected credit losses on undrawn loan commitments and financial guarantees. Regulatory and legal provisions In the course of its business, the Group is engaged on a regular basis in discussions with UK and overseas regulators and other governmental authorities on a range of matters, including legal and regulatory reviews and, from time to time, enforcement investigations (including in relation to compliance with applicable laws and regulations, such as those relating to prudential regulation, consumer protection, investment advice, business conduct, systems and controls, environmental, competition/anti-trust, tax, anti- bribery, anti-money laundering and sanctions). Any matters discussed or identified during such discussions and inquiries may result in, among other things, further inquiry or investigation, other action being taken by governmental and/or regulatory authorities, increased costs being incurred by the Group, remediation of systems and controls, public or private censure, restriction of the Group\u2019s business activities and/or fines. The Group also receives complaints in connection with its past conduct and claims brought by or on behalf of current and former employees, customers (including their appointed representatives), investors and other third parties and is subject to legal proceedings and other legal actions from time to time. Any events or circumstances disclosed could have a material adverse effect on the Group\u2019s financial position, operations or cash flows. Provisions are held where the Group can reliably estimate a probable outflow of economic resources. The ultimate liability of the Group may be significantly more, or less, than the amount of any provision recognised. If the Group is unable to determine a reliable estimate, a contingent liability is disclosed. The recognition of a provision does not amount to an admission of liability or wrongdoing on the part of the Group. During the year ended 31 December 2023 the Group charged a further \u00a3675 million in respect of legal actions and other regulatory matters and the unutilised balance at 31 December 2023 was \u00a31,105 million (31 December 2022: \u00a3803 million). The most significant items are outlined below. Motor commission review A \u00a3450 million provision, all recognised in the fourth quarter, has been established for the potential impact of the recently announced FCA review into historical motor finance commission arrangements and sales. As disclosed in previous periods, the Group continues to receive a number of court claims and complaints in respect of motor finance commissions and is actively engaging with the FOS in its assessment of these complaints. On 10 January 2024, the FOS issued its Final Decision on a complaint relating to the Group, as well as decisions relating to other industry participants. On 11 January 2024, the FCA announced a section 166 review of historical motor finance commission arrangements and sales and plans to communicate a decision on next steps in the third quarter of 2024 on the basis of the evidence collated in the review. The FCA has indicated that such steps could include establishing an industry-wide consumer redress scheme and/or applying to the Financial Markets Test Case Scheme, to help resolve any contested legal issues of general importance. Following the FCA Motor Market Review in March 2019, the FCA issued a policy statement in July 2020 prohibiting the use of discretionary commission models from 28 January 2021, which the Group adhered to. The Group continues to believe that its historical practices were compliant with the law and regulations in place at that time. As noted above, in response to both the FOS decisions and the FCA announcement the Group has recognised a charge of \u00a3450 million. This includes estimates for operational and legal costs, including litigation costs, together with estimates for potential awards, based on various scenarios using a range of assumptions, including for example, commission models, commission rates, applicable time periods (between 2007 and 2021), response rates and uphold rates. Costs and awards could arise in the event that the FCA concludes there has been misconduct and customer loss that requires remediation, or from adverse litigation decisions. However, while the FCA review is progressing there is significant uncertainty as to the extent of misconduct and customer loss, if any, the nature and extent of any remediation action, if required, and its timing. The ultimate financial impact could therefore materially differ from the amount provided, both higher or lower. The Group welcomes the FCA intervention through an independent section 166 review. HBOS Reading \u2013 review The Group continues to apply the recommendations from Sir Ross Cranston\u2019s review, issued in December 2019, including a reassessment of direct and consequential losses by an independent panel (the Foskett Panel), an extension of debt relief and a wider definition of de facto directors. The Foskett Panel\u2019s full scope and methodology was published on 7 July 2020. The Foskett Panel\u2019s stated objective is to consider cases via a non-legalistic and fair process and to make its decisions in a generous, fair and common sense manner, assessing claims against an expanded definition of the fraud and on a lower evidential basis. In June 2022, the Foskett Panel announced an alternative option, in the form of a fixed sum award which could be accepted as an alternative to participation in the full re-review process, to support earlier resolution of claims for those deemed by the Foskett Panel to be victims of the fraud. Around 90 per cent of the population have now had outcomes via this new process. The provision is unchanged in 2023. Notwithstanding the settled claims and the increase in outcomes which builds confidence in the full estimated cost, uncertainties remain and the final outcome could be different from the current provision once the re-review is concluded by the Foskett Panel. There is no confirmed timeline for the completion of the Foskett Panel re-review process nor the review by Dame Linda Dobbs. The Group is committed to implementing Sir Ross Cranston\u2019s recommendations in full. Payment protection insurance (PPI) The Group has incurred costs for PPI over a number of years totalling \u00a321,960 million. The Group continues to challenge PPI litigation cases, with mainly legal fees and operational costs associated with litigation activity recognised within regulatory and legal provisions. Customer claims in relation to insurance branch business in Germany The Group continues to receive claims from customers in Germany relating to policies issued by Clerical Medical Investment Group Limited (subsequently renamed Scottish Widows Limited), with smaller numbers of claims received from customers in Austria and Italy. The total provision made to 31 December 2023, was \u00a3709 million (31 December 2022: \u00a3709 million) with \u00a313 million utilisation of the provision during the year, leaving an unutilised provision at 31 December 2023 of \u00a375 million. The ultimate financial effect, which could be significantly different from the current provision, will be known only once all relevant claims have been resolved. Other The Group carries provisions of \u00a3137 million (2022: \u00a3112 million) in respect of dilapidations, rent reviews and other property-related matters. Provisions are also made for staff and other costs related to Group restructuring initiatives at the point at which the Group becomes committed to the expenditure; at 31 December 2023 provisions of \u00a3245 million (31 December 2022: \u00a3112 million) were held. The Group carries provisions of \u00a346 million (2022: \u00a386 million) for indemnities and other matters relating to legacy business disposals in prior years. Whilst there remains significant uncertainty as to the timing of the utilisation of the provisions, the Group expects the majority of the remaining provisions to have been utilised by 31 December 2026 Note 48: Contingent liabilities, commitments and guarantees Contingent liabilities, commitments and guarantees arising from the banking business At 31 December 2023 contingent liabilities, such as performance bonds and letters of credit, arising from the banking business were \u00a32,849 million (2022: \u00a32,986 million). The contingent liabilities of the Group arise in the normal course of its banking business and it is not practicable to quantify their future financial effect. Total commitments and guarantees were \u00a3143,319 million (2022: \u00a3143,795 million), of which in respect of undrawn formal standby facilities, credit lines and other commitments to lend, \u00a375,080 million (2022: \u00a374,692 million) was irrevocable. Capital commitments Excluding commitments in respect of investment property (note 27), capital expenditure contracted but not provided for at 31 December 2023 amounted to \u00a31,240 million (2022: \u00a31,663 million) and related to assets to be leased to customers under operating leases. The Group\u2019s management is confident that future net revenues and funding will be sufficient to cover these commitments. Interchange fees With respect to multi-lateral interchange fees (MIFs), the Group is not a party in the ongoing or threatened litigation which involves the card schemes Visa and Mastercard (as described below). However, the Group is a member/licensee of Visa and Mastercard and other card schemes. The litigation in question is as follows: \u2022 Litigation brought by or on behalf of retailers against both Visa and Mastercard in the English Courts, in which retailers are seeking damages on grounds that Visa and Mastercard\u2019s MIFs breached competition law (this includes a judgment of the Supreme Court in June 2020 upholding the Court of Appeal\u2019s finding in 2018 that certain historic interchange arrangements of Mastercard and Visa infringed competition law) \u2022 Litigation brought on behalf of UK consumers in the English Courts against Mastercard Any impact on the Group of the litigation against Visa and Mastercard remains uncertain at this time, such that it is not practicable for the Group to provide an estimate of any potential financial effect. Insofar as Visa is required to pay damages to retailers for interchange fees set prior to June 2016, contractual arrangements to allocate liability have been agreed between various UK banks (including the Group) and Visa Inc, as part of Visa Inc\u2019s acquisition of Visa Europe in 2016. These arrangements cap the maximum amount of liability to which the Group may be subject and this cap is set at the cash consideration received by the Group for the sale of its stake in Visa Europe to Visa Inc in 2016. In 2016, the Group received Visa preference shares as part of the consideration for the sale of its shares in Visa Europe. A release assessment is carried out by Visa on certain anniversaries of the sale (in line with the Visa Europe sale documentation) and as a result, some Visa preference shares may be converted into Visa Inc Class A common stock from time to time. Any such release and any subsequent sale of Visa common stock does not impact the contingent liability. LIBOR and other trading rates Certain Group companies, together with other panel banks, have been named as defendants in ongoing private lawsuits, including purported class action suits, in the US in connection with their roles as panel banks contributing to the setting of US Dollar, Japanese Yen and Sterling London Interbank Offered Rate and the Australian BBSW reference rate. Certain Group companies are also named as defendants in (i) UK-based claims, and (ii) two Dutch class actions, raising LIBOR manipulation allegations. A number of claims against the Group in the UK relating to the alleged mis-sale of interest rate hedging products also include allegations of LIBOR manipulation. It is currently not possible to predict the scope and ultimate outcome on the Group of any private lawsuits or ongoing related challenges to the interpretation or validity of any of the Group\u2019s contractual arrangements, including their timing and scale. As such, it is not practicable to provide an estimate of any potential financial effect Tax authorities The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which ceased trading on 31 December 2010. In 2013, HMRC informed the Group that its interpretation of the UK rules means that the group relief is not available. In 2020, HMRC concluded its enquiry into the matter and issued a closure notice. The Group\u2019s interpretation of the UK rules has not changed and hence it appealed to the First Tier Tax Tribunal, with a hearing having taken place in May 2023. If the final determination of the matter by the judicial process is that HMRC\u2019s position is correct, management believes that this would result in an increase in current tax liabilities of approximately \u00a3920 million (including interest) and a reduction in the Group\u2019s deferred tax asset of approximately \u00a3285 million. The Group, following conclusion of the hearing and having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due. There are a number of other open matters on which the Group is in discussions with HMRC (including the tax treatment of certain costs arising from the divestment of TSB Banking Group plc), none of which is expected to have a material impact on the financial position of the Group. FCA investigation into the Group\u2019s anti-money laundering control framework The FCA has opened an investigation into the Group\u2019s compliance with domestic UK money laundering regulations and the FCA\u2019s rules and Principles for Businesses, with a focus on aspects of its anti-money laundering control framework. The Group has been fully co- operating with the investigation. It is not currently possible to estimate the potential financial impact, if any, to the Group. Other legal actions and regulatory matters In addition, in the course of its business the Group is subject to other complaints and threatened or actual legal proceedings (including class or group action claims) brought by or on behalf of current or former employees, customers (including their appointed representatives), investors or other third parties, as well as legal and regulatory reviews, enquiries and examinations, requests for information, audits, challenges, investigations and enforcement actions, which could relate to a number of issues. This includes matters in relation to compliance with applicable laws and regulations, such as those relating to prudential regulation, consumer protection, investment advice, business conduct, systems and controls, environmental, competition/anti-trust, tax, anti-bribery, anti-money laundering and sanctions, some of which may be beyond the Group\u2019s control, both in the UK and overseas. Where material, such matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability. The Group does not currently expect the final outcome of any such case to have a material adverse effect on its financial position, operations or cash flows. Where there is a contingent liability related to an existing provision the relevant disclosures are included within note 38.", "dimensions": { "concept": "ifrs-full:DisclosureOfOtherProvisionsContingentLiabilitiesAndContingentAssetsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-936": { "value": "
Note 39: Subordinated liabilities
The movement in subordinated liabilities during the year was as follows:
Preference Preferred
shares securities Undated Dated Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 1 January 2022
488
1,661
174
10,785
13,108
Issued during the year
1
:
7.953% Fixed Rate Reset Dated Subordinated notes 2033 (US$1,000 million)
\u2013
\u2013
\u2013
838
838
\u2013
\u2013
\u2013
838
838
Repurchases and redemptions during the year
1
:
12% Fixed to Floating Rate Perpetual Tier 1 Capital Securities callable 2024
(US$2,000 million)
\u2013
(1,399)
\u2013
\u2013
(1,399)
13% Sterling Step-up Perpetual Capital Securities callable 2029 (\u00a3700 million)
\u2013
(221)
\u2013
\u2013
(221)
7.281% Perpetual Regulatory Tier One Securities (Series B) (\u00a3150 million)
\u2013
(22)
\u2013
\u2013
(22)
7.881% Guaranteed Non-voting Non-cumulative Preferred Securities
(\u00a3245 million)
\u2013
(12)
\u2013
\u2013
(12)
12% Perpetual Subordinated Bonds (\u00a3100 million)
\u2013
\u2013
(22)
\u2013
(22)
5.75% Undated Subordinated Step-up Notes (\u00a3600 million)
\u2013
\u2013
(4)
\u2013
(4)
7.625% Dated Subordinated Notes 2025 (\u00a3750 million)
\u2013
\u2013
\u2013
(502)
(502)
\u2013
(1,654)
(26)
(502)
(2,182)
Foreign exchange movements
8
(6)
\u2013
699
701
Other movements (cash and non-cash)
(26)
(1)
2
(1,710)
(1,735)
At 31 December 2022
470
\u2013
150
10,110
10,730
Issued during the year
1
:
6.625% Fixed Rate Reset Dated Subordinated Notes 2033 (\u00a3750 million)
\u2013
\u2013
\u2013
747
747
5.25% Fixed Rate Reset Dated Subordinated Notes 2033 (S$500 million)
\u2013
\u2013
\u2013
288
288
Fixed-to-Floating Rate Dated Subordinated Notes 2033 (A$750 million)
\u2013
\u2013
\u2013
382
382
\u2013
\u2013
\u2013
1,417
1,417
Repurchases and redemptions during the year
1
:
9.625% Subordinated Bonds 2023 (\u00a3300 million)
\u2013
\u2013
\u2013
(92)
(92)
7.07% Subordinated Fixed Rate Notes 2023 (\u20ac175 million)
\u2013
\u2013
\u2013
(155)
(155)
5.5% Dated Subordinated Notes 2023 (\u00a3850 million)
\u2013
\u2013
\u2013
(850)
(850)
Dated Subordinated Fixed Rate Reset Notes 2028 (\u20ac750 million)
\u2013
\u2013
\u2013
(643)
(643)
8.75% Perpetual Subordinated Bonds (\u00a3100 million)
\u2013
\u2013
(5)
\u2013
(5)
7.375% Subordinated Undated Instruments (\u00a3150 million)
\u2013
\u2013
\u2013
\u2013
\u2013
8% Undated Subordinated Step-up Notes 2023 (\u00a3200 million)
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
(5)
(1,740)
(1,745)
Foreign exchange movements
(2)
\u2013
\u2013
(379)
(381)
Other movements (cash and non-cash)
(2)
\u2013
(1)
235
232
At 31 December 2023
466
\u2013
144
9,643
10,253
2
2
1 Issuances in the year generated cash inflows of \u00a31,417 million (2022: \u00a3838 million); the repurchases and redemptions resulted in cash outflows of \u00a31,745 million (2022:
\u00a32,216 million).
2 Other movements include hedge accounting movements and cash payments in respect of interest on subordinated liabilities in the year amounting to \u00a3623 million
(2022: \u00a3603 million) offset by the interest expense in respect of subordinated liabilities of \u00a3712 million (2022: \u00a3681 million).
Certain of the above securities were issued or redeemed under exchange offers, which did not result in an extinguishment of the original financial liability for accounting purposes. These securities will, in the event of the winding-up of the issuer, be subordinated to the claims of depositors and all other creditors of the issuer, other than creditors whose claims rank equally with, or are junior to, the claims of the holders of the subordinated liabilities. The subordination of specific subordinated liabilities is determined in respect of the issuer and any guarantors of that liability. The claims of holders of preference shares and preferred securities are generally junior to those of the holders of undated subordinated liabilities, which in turn are junior to the claims of holders of the dated subordinated liabilities. The Group has not had any defaults of principal or interest or other breaches with respect to its subordinated liabilities during 2023 (2022: none). Preference shares The Company has in issue various classes of preference shares which are all classified as liabilities under accounting standards.
2023
2022
2023 2022 2021 % of % of
Number Number Number share share 2021
of shares of shares
of shares
\u00a3m
capital
\u00a3m
capital \u00a3m
6% Non-cumulative Redeemable
Preference shares of GBP0.25
400
400
400
\u2013
\u2013
\u2013
\u2013
\u2013
6.475% Non-cumulative Preference
shares of GBP0.25
47,273,816
47,273,816
47,273,816
12
0.07
12
0.07
12
9.25% Non-cumulative Irredeemable
Preference shares of GBP0.25
252,510,147
252,510,147
252,510,147
63
0.40
63
0.37
63
9.75% Non-cumulative Irredeemable
Preference shares of GBP0.25
43,630,285
43,630,285
43,630,285
11
0.07
11
0.06
11
6.413% Non-cumulative Fixed/Floating
Rate Callable Preference shares of
USD0.25
48,990
48,990
48,990
\u2013
\u2013
\u2013
\u2013
\u2013
6.657% Non-cumulative Fixed/Floating
Rate Callable Preference shares of
USD0.25
37,627
37,627
37,627
\u2013
\u2013
\u2013
\u2013
\u2013
The rights and obligations attaching to these shares are set out in the Company\u2019s articles of association, a copy of which can be obtained from Companies House or from our website (www.lloydsbankinggroup.com/who-we-are/group-overview/corporate- governance.html) and, in respect of the 6% Non-cumulative Redeemable Preference shares, in Companies House form 128(1) filed at Companies House on 12 January 2005, a copy of which is available from Companies House (www.companieshouse.gov.uk), and, in respect of the other classes of preference shares, in the prospectus dated 20 November 2008 and published on the National Storage Mechanism on that date, a copy of which prospectus is available on the National Storage Mechanism (www.data.fca.org.uk/#/nsm/ nationalstoragemechanism). All of the Company\u2019s various classes of preference shares (apart from 400 Non-Cumulative Redeemable Preference Shares of GBP0.25 each) are listed (i.e. the free float percentage of the listed preference shares is over 99.99 per cent of all preference shares in issue, by both number of shares and nominal value) and none of those shares have any multiple or unequal voting rights.", "dimensions": { "concept": "ifrs-full:DisclosureOfSubordinatedLiabilitiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-937": { "value": "
Note 40: Share capital
Issued and fully paid ordinary share capital
2023
2022
2023 2022 2021 % of % of
Number Number Number share share 2021
Ordinary shares of 10p (formerly 25p) each of shares of shares
of shares
\u00a3m
capital
\u00a3m
capital \u00a3m
At 1 January
67,287,852,204
71,022,593,135
70,839,206,060
6,729
7,102
7,084
Issued under employee share schemes
667,636,165
793,990,660
183,387,075
67
80
18
Share buyback programme (note 43)
(4,386,262,707)
(4,528,731,591)
\u2013
(438)
(453)
\u2013
At 31 December
63,569,225,662
67,287,852,204
71,022,593,135
6,358
99.46
6,729
99.50
7,102
Ordinary shares
As permitted by the Companies Act 2006, the Company removed references to authorised share capital from its articles of association
at the annual general meeting on 5 June 2009. This change took effect from 1 October 2009. There are no restrictions on the transfer of
shares in the Company other than as set out in the articles of association and:
\u2022 Certain restrictions which may from time to time be imposed by law and regulations (for example, insider trading laws)
\u2022 Where directors and certain employees of the Company require the approval of the Company to deal in the Company\u2019s shares
\u2022 Pursuant to the rules of some of the Company\u2019s employee share plans where certain restrictions may apply while the shares are
subject to the plans
Where, under an employee share plan operated by the Company, participants are the beneficial owners of shares but not the
registered owners, the voting rights are normally exercised by the registered owner at the direction of the participant. Outstanding
awards and options would normally vest and become exercisable on a change of control, subject to the satisfaction of any
performance conditions at that time.
All of the Company\u2019s issued ordinary share capital is listed (i.e. the free float percentage of the ordinary shares is 100 per cent) and none of the shares have any multiple or unequal voting rights; each share carries one vote. In addition, the Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of securities and/or voting rights. The directors have authority to allot and issue ordinary and preference shares and to make market purchases of ordinary and preference shares as granted at the annual general meeting on 18 May 2023. The authority to issue shares and the authority to make market purchases of shares will expire at the next annual general meeting. Shareholders will be asked, at the annual general meeting, to give similar authorities. Subject to any rights or restrictions attached to any shares, on a show of hands at a general meeting of the Company every holder of shares present in person or by proxy and entitled to vote has one vote and on a poll every member present and entitled to vote has one vote for every share held. The special rights attached to any class of shares in the Company may, subject to the statutory provisions, be varied or abrogated either with the consent in writing of the holders of three-quarters in nominal value of the issued shares of the class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of the class (but not otherwise). The holders of ordinary shares, who held 100 per cent of the total ordinary share capital at 31 December 2023, are entitled to receive the Company\u2019s report and accounts, attend, speak and vote at general meetings and appoint proxies to exercise voting rights. Holders of ordinary shares may also receive a dividend (subject to the provisions of the Company\u2019s articles of association) and on a winding-up may share in the assets of the Company. The rights and obligations attached to the Company\u2019s ordinary shares are set out in the Company\u2019s articles of association, a copy of which can be found at www.lloydsbankinggroup.com/who-we-are/group-overview/corporate-governance.html. Preference shares The Company has in issue various classes of preference shares which are all classified as liabilities under accounting standards and which are included in note 39. ", "dimensions": { "concept": "ifrs-full:DisclosureOfIssuedCapitalExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-981": { "value": "Note 40: Share capital Issued and fully paid ordinary share capital
2023
2022
2023 2022 2021 % of % of
Number Number Number share share 2021
Ordinary shares of 10p (formerly 25p) each of shares of shares
of shares
\u00a3m
capital
\u00a3m
capital \u00a3m
At 1 January
67,287,852,204
71,022,593,135
70,839,206,060
6,729
7,102
7,084
Issued under employee share schemes
667,636,165
793,990,660
183,387,075
67
80
18
Share buyback programme (note 43)
(4,386,262,707)
(4,528,731,591)
\u2013
(438)
(453)
\u2013
At 31 December
63,569,225,662
67,287,852,204
71,022,593,135
6,358
99.46
6,729
99.50
7,102
Ordinary shares As permitted by the Companies Act 2006, the Company removed references to authorised share capital from its articles of association at the annual general meeting on 5 June 2009. This change took effect from 1 October 2009. There are no restrictions on the transfer of shares in the Company other than as set out in the articles of association and: \u2022 Certain restrictions which may from time to time be imposed by law and regulations (for example, insider trading laws) \u2022 Where directors and certain employees of the Company require the approval of the Company to deal in the Company\u2019s shares \u2022 Pursuant to the rules of some of the Company\u2019s employee share plans where certain restrictions may apply while the shares are subject to the plans Where, under an employee share plan operated by the Company, participants are the beneficial owners of shares but not the registered owners, the voting rights are normally exercised by the registered owner at the direction of the participant. Outstanding awards and options would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions at that time.
All of the Company\u2019s issued ordinary share capital is listed (i.e. the free float percentage of the ordinary shares is 100 per cent) and
none of the shares have any multiple or unequal voting rights; each share carries one vote. In addition, the Company is not aware of
any agreements between shareholders that may result in restrictions on the transfer of securities and/or voting rights.
The directors have authority to allot and issue ordinary and preference shares and to make market purchases of ordinary and
preference shares as granted at the annual general meeting on 18 May 2023. The authority to issue shares and the authority to make
market purchases of shares will expire at the next annual general meeting. Shareholders will be asked, at the annual general meeting,
to give similar authorities.
Subject to any rights or restrictions attached to any shares, on a show of hands at a general meeting of the Company every holder of
shares present in person or by proxy and entitled to vote has one vote and on a poll every member present and entitled to vote has
one vote for every share held. The special rights attached to any class of shares in the Company may, subject to the statutory
provisions, be varied or abrogated either with the consent in writing of the holders of three-quarters in nominal value of the issued
shares of the class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of the class
(but not otherwise).
The holders of ordinary shares, who held 100 per cent of the total ordinary share capital at 31 December 2023, are entitled to receive the
Company\u2019s report and accounts, attend, speak and vote at general meetings and appoint proxies to exercise voting rights. Holders of
ordinary shares may also receive a dividend (subject to the provisions of the Company\u2019s articles of association) and on a winding-up
may share in the assets of the Company.
The rights and obligations attached to the Company\u2019s ordinary shares are set out in the Company\u2019s articles of association, a copy of
which can be found at www.lloydsbankinggroup.com/who-we-are/group-overview/corporate-governance.html.
Preference shares
The Company has in issue various classes of preference shares which are all classified as liabilities under accounting standards and
which are included in note 39.
Note 42: Share premium account
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
18,504
18,479
17,863
Issued under employee share schemes
64
25
19
Redemption of preference shares
\u2013
\u2013
597
At 31 December
18,568
18,504
18,479
1
1 During the year ended 31 December 2021, the Company redeemed certain tranches of its preference shares, which had been accounted for as subordinated liabilities. On
redemption an amount of \u00a317 million was transferred from the distributable merger reserve to the capital redemption reserve and \u00a3597 million was transferred from the
distributable merger reserve to the share premium account, with these amounts representing the nominal value of the shares redeemed and premium upon original
issuance respectively.
Note 43: Other reserves
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Merger reserve
7,149
7,149
7,149
Capital redemption reserve
5,370
4,932
4,479
Revaluation reserve in respect of debt securities held at fair value through other comprehensive income
(67)
50
207
Revaluation reserve in respect of equity shares held at fair value through other comprehensive income
\u2013
57
9
Cash flow hedging reserve
(3,766)
(5,476)
(457)
Foreign currency translation reserve
(178)
(125)
(198)
At 31 December
8,508
6,587
11,189
1 1 Restated for the adoption of IFRS 17; see notes 1 and 54. The merger reserve primarily comprises the premium on shares issued in January 2009 as part of the recapitalisation of the Group and the acquisition of HBOS plc. The capital redemption reserve represents transfers from distributable reserves in accordance with companies\u2019 legislation upon the redemption of ordinary and preference share capital. The revaluation reserves in respect of debt securities and equity shares held at fair value through other comprehensive income represent the cumulative after-tax unrealised change in the fair value of financial assets so classified since initial recognition; or in the case of financial assets obtained on acquisitions of businesses, since the date of acquisition. The cash flow hedging reserve represents the cumulative after-tax gains and losses on effective cash flow hedging instruments that will be reclassified to the income statement in the periods in which the hedged item affects profit or loss. The foreign currency translation reserve represents the cumulative after-tax gains and losses on the translation of foreign operations and exchange differences arising on financial instruments designated as hedges of the Group\u2019s net investment in foreign operations. Movements in other reserves were as follows: Merger reserve
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
7,149
7,149
7,763
Redemption of preference shares (note 42)
\u2013
\u2013
(614)
At 31 December
7,149
7,149
7,149
Capital redemption reserve
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
4,932
4,479
4,462
Redemption of preference shares (note 42)
\u2013
\u2013
17
Shares cancelled under share buyback programme (see below)
438
453
\u2013
At 31 December
5,370
4,932
4,479
In 2023 and 2022 the Group commenced and completed share buyback programmes to repurchase outstanding ordinary shares. In 2023 the Group bought back and cancelled 4,386 million shares under the programme (2022: 4,529 million shares), for a total consideration, including expenses, of \u00a31,993 million (2022: \u00a32,013 million). Upon cancellation, \u00a3438 million (2022: \u00a3453 million), being the nominal value of the shares repurchased, was transferred to the capital redemption reserve. Revaluation reserve in respect of debt securities held at fair value through other comprehensive income
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
50
207
99
Change in fair value
(40)
(133)
133
Deferred tax
11
31
(45)
Current tax
1
8
\u2013
(28)
(94)
88
Income statement transfers in respect of disposals (note 11)
(122)
(92)
2
Deferred tax
35
23
20
(87)
(69)
22
Impairment recognised in the income statement
(2)
6
(2)
At 31 December
(67)
50
207
Revaluation reserve in respect of equity shares held at fair value through other comprehensive income
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
57
9
(47)
Change in fair value
(54)
44
61
Deferred tax
(3)
3
(4)
(57)
47
57
Realised gains and losses transferred to retained profits
\u2013
\u2013
\u2013
Deferred tax
\u2013
1
(1)
\u2013
1
(1)
At 31 December
\u2013
57
9
Cash flow hedging reserve
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
(5,476)
(457)
1,629
Change in fair value of hedging derivatives
545
(6,990)
(2,279)
Deferred tax
(160)
1,940
646
385
(5,050)
(1,633)
Net income statement transfers
1,838
43
(621)
Deferred tax
(513)
(12)
168
1,325
31
(453)
At 31 December
(3,766)
(5,476)
(457)
Foreign currency translation reserve
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 31 December 2021
(198)
Adjustment on the adoption of IFRS 17
(12)
At 1 January
(125)
(210)
(159)
Currency translation differences arising in the year
(53)
116
(39)
Income statement transfers
\u2013
(31)
\u2013
At 31 December
(178)
(125)
(198)
1 1 Restated for the adoption of IFRS 17; see notes 1 and 54. Note 44: Retained profits
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 31 December 2021
10,241
Adjustment on the adoption of IFRS 17
(1,923)
At 1 January
6,550
8,318
4,584
Profit attributable to ordinary shareholders
4,933
3,389
5,355
Post-retirement defined benefit scheme remeasurements
(1,205)
(2,152)
1,062
Gains and losses attributable to own credit risk (net of tax)
(168)
364
(52)
Dividends paid (note 46)
(1,651)
(1,475)
(877)
Share buyback programme (note 43)
(1,993)
(2,013)
\u2013
Issue costs of other equity instruments (net of tax)
(6)
(5)
\u2013
Repurchase and redemption costs of other equity instruments
\u2013
(36)
\u2013
Movement in treasury shares
103
(60)
(13)
Value of employee services:
Share option schemes
58
41
51
Other employee award schemes
169
183
131
Change in non-controlling interests
\u2013
(3)
(1)
Realised gains and losses on equity shares held at fair value through other comprehensive income
\u2013
(1)
1
At 31 December
6,790
6,550
10,241
1 1 Restated for the adoption of IFRS 17; see notes 1 and 54. Retained profits are stated after deducting \u00a310 million (2022: \u00a3196 million; 2021: \u00a3205 million) representing 61 million (2022: 688 million; 2021: 434 million) treasury shares held. The payment of dividends by subsidiaries and the ability of members of the Group to lend money to other members of the Group may be subject to regulatory or legal restrictions, the availability of reserves and the financial and operating performance of the entity. A number of Group subsidiaries, principally those with banking and insurance activities, are subject to regulatory capital requirements which require minimum amounts of capital to be maintained relative to their size and risk. The Group actively manages the capital of its subsidiaries, which includes monitoring the regulatory capital ratios for its banking and insurance subsidiaries and, on a consolidated basis, the Ring-Fenced Bank sub-group, against approved risk appetite levels. Note 45: Other equity instruments
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
5,297
5,906
5,906
Issued during the year:
$1,250 million 8% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible
Securities Callable 2029
1,028
\u2013
\u2013
\u00a3750 million 8.5% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible
Securities Callable 2028
750
\u2013
\u2013
\u00a3750 million 8.5% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible
Securities Callable 2027
\u2013
750
\u2013
1,778
750
\u2013
Repurchases and redemptions during the year:
\u00a31,494 million 7.625% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible
Securities Callable 2023
(135)
(1,359)
\u2013
(135)
(1,359)
\u2013
Profit for the year attributable to other equity holders
527
438
429
Distributions on other equity instruments
(527)
(438)
(429)
At 31 December
6,940
5,297
5,906
The AT1 securities are Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities with no fixed maturity or redemption date. The principal terms of the AT1 securities are described below: \u2022 The securities rank behind the claims against Lloyds Banking Group plc of (a) unsubordinated creditors, (b) claims which are, or are expressed to be, subordinated to the claims of unsubordinated creditors of Lloyds Banking Group plc but not further or otherwise, or (c) whose claims are, or are expressed to be, junior to the claims of other creditors of Lloyds Banking Group, whether subordinated or unsubordinated, other than those whose claims rank, or are expressed to rank, pari passu with, or junior to, the claims of the holders of the AT1 securities in a winding-up occurring prior to a conversion event being triggered \u2022 The securities bear a fixed rate of interest until the first reset date. After the first reset date or any reset date thereafter, in the event that they are not redeemed, the AT1 securities will bear interest at rates fixed periodically in advance for five-year periods based on market rates \u2022 Interest on the securities will be due and payable only at the sole discretion of Lloyds Banking Group plc, and Lloyds Banking Group plc may at any time elect to cancel any interest payment (or any part thereof) which would otherwise be payable on any interest payment date. There are also certain restrictions on the payment of interest as specified in the terms \u2022 The securities are undated and are repayable, at the option of Lloyds Banking Group plc, in whole at the first call date or period, or on any fifth anniversary after the first call date or period. In addition, the AT1 securities are repayable, at the option of Lloyds Banking Group plc, in whole for certain regulatory or tax reasons. Any repayments require the prior consent of the PRA \u2022 The securities convert into ordinary shares of Lloyds Banking Group plc, at a pre-determined price, should the CET1 ratio of the Group fall below 7.0 per cent", "dimensions": { "concept": "ifrs-full:DisclosureOfShareCapitalReservesAndOtherEquityInterestExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-938": { "value": "Note 41: Earnings per share
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Profit attributable to ordinary shareholders \u2013 basic and diluted
4,933
3,389
5,355
1
2023 2022 2021
million million million
Weighted average number of ordinary shares in issue \u2013 basic
64,953
68,847
70,937
Adjustment for share options and awards
807
835
848
Weighted average number of ordinary shares in issue \u2013 diluted
65,760
69,682
71,785
Basic earnings per share
7.6p
4.9p
7.5p
Diluted earnings per share
7.5p
4.9p
7.5p
1 1 1 Restated for the adoption of IFRS 17; see notes 1 and 54. Basic earnings per share are calculated by dividing the net profit attributable to equity shareholders by the weighted average number of ordinary shares in issue during the year, which has been calculated after deducting 180 million (2022: 198 million; 2021: 19 million) ordinary shares representing the Group\u2019s holdings of own shares in respect of employee share schemes. For the calculation of diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares that arise in respect of share options and awards granted to employees. The number of shares that could have been acquired at the annual average price of the Company\u2019s shares based on the monetary value of the subscription rights attached to outstanding share options and awards is determined. This is deducted from the number of shares issuable under such options and awards to leave a residual bonus amount of shares which are added to the weighted average number of ordinary shares in issue, but no adjustment is made to the profit attributable to equity shareholders. There were 41 million anti-dilutive share options and awards excluded from the calculation of diluted earnings per share (2022: 63 million; 2021: 143 million).", "dimensions": { "concept": "ifrs-full:DisclosureOfEarningsPerShareExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-939": { "value": "Note 42: Share premium account
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
18,504
18,479
17,863
Issued under employee share schemes
64
25
19
Redemption of preference shares
\u2013
\u2013
597
At 31 December
18,568
18,504
18,479
1 1 During the year ended 31 December 2021, the Company redeemed certain tranches of its preference shares, which had been accounted for as subordinated liabilities. On redemption an amount of \u00a317 million was transferred from the distributable merger reserve to the capital redemption reserve and \u00a3597 million was transferred from the distributable merger reserve to the share premium account, with these amounts representing the nominal value of the shares redeemed and premium upon original issuance respectively.
Note 43: Other reserves
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Merger reserve
7,149
7,149
7,149
Capital redemption reserve
5,370
4,932
4,479
Revaluation reserve in respect of debt securities held at fair value through other comprehensive income
(67)
50
207
Revaluation reserve in respect of equity shares held at fair value through other comprehensive income
\u2013
57
9
Cash flow hedging reserve
(3,766)
(5,476)
(457)
Foreign currency translation reserve
(178)
(125)
(198)
At 31 December
8,508
6,587
11,189
1
1 Restated for the adoption of IFRS 17; see notes 1 and 54.
The merger reserve primarily comprises the premium on shares issued in January 2009 as part of the recapitalisation of the Group and
the acquisition of HBOS plc.
The capital redemption reserve represents transfers from distributable reserves in accordance with companies\u2019 legislation upon the
redemption of ordinary and preference share capital.
The revaluation reserves in respect of debt securities and equity shares held at fair value through other comprehensive income
represent the cumulative after-tax unrealised change in the fair value of financial assets so classified since initial recognition; or in the
case of financial assets obtained on acquisitions of businesses, since the date of acquisition.
The cash flow hedging reserve represents the cumulative after-tax gains and losses on effective cash flow hedging instruments that
will be reclassified to the income statement in the periods in which the hedged item affects profit or loss.
The foreign currency translation reserve represents the cumulative after-tax gains and losses on the translation of foreign operations
and exchange differences arising on financial instruments designated as hedges of the Group\u2019s net investment in foreign operations.
Movements in other reserves were as follows:
Merger reserve
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
7,149
7,149
7,763
Redemption of preference shares (note 42)
\u2013
\u2013
(614)
At 31 December
7,149
7,149
7,149
Capital redemption reserve
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
4,932
4,479
4,462
Redemption of preference shares (note 42)
\u2013
\u2013
17
Shares cancelled under share buyback programme (see below)
438
453
\u2013
At 31 December
5,370
4,932
4,479
In 2023 and 2022 the Group commenced and completed share buyback programmes to repurchase outstanding ordinary shares. In
2023 the Group bought back and cancelled 4,386 million shares under the programme (2022: 4,529 million shares), for a total
consideration, including expenses, of \u00a31,993 million (2022: \u00a32,013 million). Upon cancellation, \u00a3438 million (2022: \u00a3453 million), being the
nominal value of the shares repurchased, was transferred to the capital redemption reserve.
Revaluation reserve in respect of debt securities held at fair value through other comprehensive income
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
50
207
99
Change in fair value
(40)
(133)
133
Deferred tax
11
31
(45)
Current tax
1
8
\u2013
(28)
(94)
88
Income statement transfers in respect of disposals (note 11)
(122)
(92)
2
Deferred tax
35
23
20
(87)
(69)
22
Impairment recognised in the income statement
(2)
6
(2)
At 31 December
(67)
50
207
Revaluation reserve in respect of equity shares held at fair value through other comprehensive income
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
57
9
(47)
Change in fair value
(54)
44
61
Deferred tax
(3)
3
(4)
(57)
47
57
Realised gains and losses transferred to retained profits
\u2013
\u2013
\u2013
Deferred tax
\u2013
1
(1)
\u2013
1
(1)
At 31 December
\u2013
57
9
Cash flow hedging reserve
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
(5,476)
(457)
1,629
Change in fair value of hedging derivatives
545
(6,990)
(2,279)
Deferred tax
(160)
1,940
646
385
(5,050)
(1,633)
Net income statement transfers
1,838
43
(621)
Deferred tax
(513)
(12)
168
1,325
31
(453)
At 31 December
(3,766)
(5,476)
(457)
Foreign currency translation reserve
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 31 December 2021
(198)
Adjustment on the adoption of IFRS 17
(12)
At 1 January
(125)
(210)
(159)
Currency translation differences arising in the year
(53)
116
(39)
Income statement transfers
\u2013
(31)
\u2013
At 31 December
(178)
(125)
(198)
1
1 Restated for the adoption of IFRS 17; see notes 1 and 54.
Note 44: Retained profits
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 31 December 2021
10,241
Adjustment on the adoption of IFRS 17
(1,923)
At 1 January
6,550
8,318
4,584
Profit attributable to ordinary shareholders
4,933
3,389
5,355
Post-retirement defined benefit scheme remeasurements
(1,205)
(2,152)
1,062
Gains and losses attributable to own credit risk (net of tax)
(168)
364
(52)
Dividends paid (note 46)
(1,651)
(1,475)
(877)
Share buyback programme (note 43)
(1,993)
(2,013)
\u2013
Issue costs of other equity instruments (net of tax)
(6)
(5)
\u2013
Repurchase and redemption costs of other equity instruments
\u2013
(36)
\u2013
Movement in treasury shares
103
(60)
(13)
Value of employee services:
Share option schemes
58
41
51
Other employee award schemes
169
183
131
Change in non-controlling interests
\u2013
(3)
(1)
Realised gains and losses on equity shares held at fair value through other comprehensive income
\u2013
(1)
1
At 31 December
6,790
6,550
10,241
1
1 Restated for the adoption of IFRS 17; see notes 1 and 54.
Retained profits are stated after deducting \u00a310 million (2022: \u00a3196 million; 2021: \u00a3205 million) representing 61 million (2022: 688 million;
2021: 434 million) treasury shares held.
The payment of dividends by subsidiaries and the ability of members of the Group to lend money to other members of the Group may be subject to regulatory or legal restrictions, the availability of reserves and the financial and operating performance of the entity. A number of Group subsidiaries, principally those with banking and insurance activities, are subject to regulatory capital requirements which require minimum amounts of capital to be maintained relative to their size and risk. The Group actively manages the capital of its subsidiaries, which includes monitoring the regulatory capital ratios for its banking and insurance subsidiaries and, on a consolidated basis, the Ring-Fenced Bank sub-group, against approved risk appetite levels. Note 45: Other equity instruments
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
5,297
5,906
5,906
Issued during the year:
$1,250 million 8% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible
Securities Callable 2029
1,028
\u2013
\u2013
\u00a3750 million 8.5% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible
Securities Callable 2028
750
\u2013
\u2013
\u00a3750 million 8.5% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible
Securities Callable 2027
\u2013
750
\u2013
1,778
750
\u2013
Repurchases and redemptions during the year:
\u00a31,494 million 7.625% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible
Securities Callable 2023
(135)
(1,359)
\u2013
(135)
(1,359)
\u2013
Profit for the year attributable to other equity holders
527
438
429
Distributions on other equity instruments
(527)
(438)
(429)
At 31 December
6,940
5,297
5,906
The AT1 securities are Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities with no fixed maturity or redemption date. The principal terms of the AT1 securities are described below: \u2022 The securities rank behind the claims against Lloyds Banking Group plc of (a) unsubordinated creditors, (b) claims which are, or are expressed to be, subordinated to the claims of unsubordinated creditors of Lloyds Banking Group plc but not further or otherwise, or (c) whose claims are, or are expressed to be, junior to the claims of other creditors of Lloyds Banking Group, whether subordinated or unsubordinated, other than those whose claims rank, or are expressed to rank, pari passu with, or junior to, the claims of the holders of the AT1 securities in a winding-up occurring prior to a conversion event being triggered \u2022 The securities bear a fixed rate of interest until the first reset date. After the first reset date or any reset date thereafter, in the event that they are not redeemed, the AT1 securities will bear interest at rates fixed periodically in advance for five-year periods based on market rates \u2022 Interest on the securities will be due and payable only at the sole discretion of Lloyds Banking Group plc, and Lloyds Banking Group plc may at any time elect to cancel any interest payment (or any part thereof) which would otherwise be payable on any interest payment date. There are also certain restrictions on the payment of interest as specified in the terms \u2022 The securities are undated and are repayable, at the option of Lloyds Banking Group plc, in whole at the first call date or period, or on any fifth anniversary after the first call date or period. In addition, the AT1 securities are repayable, at the option of Lloyds Banking Group plc, in whole for certain regulatory or tax reasons. Any repayments require the prior consent of the PRA \u2022 The securities convert into ordinary shares of Lloyds Banking Group plc, at a pre-determined price, should the CET1 ratio of the Group fall below 7.0 per cent", "dimensions": { "concept": "ifrs-full:DisclosureOfReservesAndOtherEquityInterestExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1010": { "value": "Note 42: Share premium account
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
18,504
18,479
17,863
Issued under employee share schemes
64
25
19
Redemption of preference shares
\u2013
\u2013
597
At 31 December
18,568
18,504
18,479
1 1 During the year ended 31 December 2021, the Company redeemed certain tranches of its preference shares, which had been accounted for as subordinated liabilities. On redemption an amount of \u00a317 million was transferred from the distributable merger reserve to the capital redemption reserve and \u00a3597 million was transferred from the distributable merger reserve to the share premium account, with these amounts representing the nominal value of the shares redeemed and premium upon original issuance respectively. ", "dimensions": { "concept": "lloydsbankinggroupplc:DisclosureOfSharePremiumAccount", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1011": { "value": "Note 44: Retained profits
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 31 December 2021
10,241
Adjustment on the adoption of IFRS 17
(1,923)
At 1 January
6,550
8,318
4,584
Profit attributable to ordinary shareholders
4,933
3,389
5,355
Post-retirement defined benefit scheme remeasurements
(1,205)
(2,152)
1,062
Gains and losses attributable to own credit risk (net of tax)
(168)
364
(52)
Dividends paid (note 46)
(1,651)
(1,475)
(877)
Share buyback programme (note 43)
(1,993)
(2,013)
\u2013
Issue costs of other equity instruments (net of tax)
(6)
(5)
\u2013
Repurchase and redemption costs of other equity instruments
\u2013
(36)
\u2013
Movement in treasury shares
103
(60)
(13)
Value of employee services:
Share option schemes
58
41
51
Other employee award schemes
169
183
131
Change in non-controlling interests
\u2013
(3)
(1)
Realised gains and losses on equity shares held at fair value through other comprehensive income
\u2013
(1)
1
At 31 December
6,790
6,550
10,241
1 1 Restated for the adoption of IFRS 17; see notes 1 and 54. Retained profits are stated after deducting \u00a310 million (2022: \u00a3196 million; 2021: \u00a3205 million) representing 61 million (2022: 688 million; 2021: 434 million) treasury shares held.
The payment of dividends by subsidiaries and the ability of members of the Group to lend money to other members of the Group may
be subject to regulatory or legal restrictions, the availability of reserves and the financial and operating performance of the entity. A
number of Group subsidiaries, principally those with banking and insurance activities, are subject to regulatory capital requirements
which require minimum amounts of capital to be maintained relative to their size and risk. The Group actively manages the capital of
its subsidiaries, which includes monitoring the regulatory capital ratios for its banking and insurance subsidiaries and, on a
consolidated basis, the Ring-Fenced Bank sub-group, against approved risk appetite levels.
", "dimensions": { "concept": "lloydsbankinggroupplc:DisclosureOfRetainedProfits", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1012": { "value": "
Note 45: Other equity instruments
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
5,297
5,906
5,906
Issued during the year:
$1,250 million 8% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible
Securities Callable 2029
1,028
\u2013
\u2013
\u00a3750 million 8.5% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible
Securities Callable 2028
750
\u2013
\u2013
\u00a3750 million 8.5% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible
Securities Callable 2027
\u2013
750
\u2013
1,778
750
\u2013
Repurchases and redemptions during the year:
\u00a31,494 million 7.625% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible
Securities Callable 2023
(135)
(1,359)
\u2013
(135)
(1,359)
\u2013
Profit for the year attributable to other equity holders
527
438
429
Distributions on other equity instruments
(527)
(438)
(429)
At 31 December
6,940
5,297
5,906
The AT1 securities are Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities with no fixed maturity or
redemption date. The principal terms of the AT1 securities are described below:
\u2022 The securities rank behind the claims against Lloyds Banking Group plc of (a) unsubordinated creditors, (b) claims which are, or are
expressed to be, subordinated to the claims of unsubordinated creditors of Lloyds Banking Group plc but not further or otherwise, or
(c) whose claims are, or are expressed to be, junior to the claims of other creditors of Lloyds Banking Group, whether subordinated or
unsubordinated, other than those whose claims rank, or are expressed to rank, pari passu with, or junior to, the claims of the holders
of the AT1 securities in a winding-up occurring prior to a conversion event being triggered
\u2022 The securities bear a fixed rate of interest until the first reset date. After the first reset date or any reset date thereafter, in the event
that they are not redeemed, the AT1 securities will bear interest at rates fixed periodically in advance for five-year periods based on
market rates
\u2022 Interest on the securities will be due and payable only at the sole discretion of Lloyds Banking Group plc, and Lloyds Banking Group
plc may at any time elect to cancel any interest payment (or any part thereof) which would otherwise be payable on any interest
payment date. There are also certain restrictions on the payment of interest as specified in the terms
\u2022 The securities are undated and are repayable, at the option of Lloyds Banking Group plc, in whole at the first call date or period, or
on any fifth anniversary after the first call date or period. In addition, the AT1 securities are repayable, at the option of Lloyds Banking
Group plc, in whole for certain regulatory or tax reasons. Any repayments require the prior consent of the PRA
\u2022 The securities convert into ordinary shares of Lloyds Banking Group plc, at a pre-determined price, should the CET1 ratio of the Group
fall below 7.0 per cent
", "dimensions": { "concept": "lloydsbankinggroupplc:DisclosureOfOtherEquityInstruments", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-940": { "value": "Note 46: Dividends on ordinary shares The directors have recommended a final dividend, which is subject to approval by the shareholders at the annual general meeting on 16 May 2024, of 1.84 pence per ordinary share (2022: 1.60 pence per ordinary share), equivalent to \u00a31,169 million, before the impact of any cancellations of shares under the Company\u2019s buyback programme (2022: \u00a31,059 million, following cancellations of shares under the Company\u2019s 2023 buyback programme up to the record date), which will be paid on 21 May 2024. These financial statements do not reflect the recommended dividend. Dividends paid during the year were as follows:
2023 2022 2021
pence per pence per pence per 2023 2022 2021
share share share \u00a3m \u00a3m \u00a3m
Final dividend recommended by directors at previous year end
1.60
1.33
0.57
1,059
930
404
Interim dividend paid in the year
0.92
0.80
0.67
592
545
473
2.52
2.13
1.24
1,651
1,475
877
The trustees of the following holdings of Lloyds Banking Group plc shares in relation to employee share schemes retain the right to receive dividends but have chosen to waive their entitlement to the dividends on those shares as indicated: the Lloyds Banking Group Share Incentive Plan (holding at 31 December 2023: 3,280,207 shares, 31 December 2022: 32,377,089 shares, waived rights to all dividends) and the Lloyds Banking Group Employee Share Ownership Trust (holding at 31 December 2023: 57,736,111 shares, 31 December 2022: 311,540,740 shares, waived rights to all dividends).", "dimensions": { "concept": "ifrs-full:DisclosureOfDividendsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-8": { "value": "0", "decimals": 2, "dimensions": { "concept": "ifrs-full:DividendsProposedOrDeclaredBeforeFinancialStatementsAuthorisedForIssueButNotRecognisedAsDistributionToOwnersPerShare", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00", "unit": "iso4217:GBP/xbrli:shares" } }, "fact-7": { "value": "0", "decimals": -6, "dimensions": { "concept": "ifrs-full:DividendsProposedOrDeclaredBeforeFinancialStatementsAuthorisedForIssueButNotRecognisedAsDistributionToOwners", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00", "unit": "iso4217:GBP" } }, "fact-6": { "value": "0.0252", "decimals": 2, "dimensions": { "concept": "ifrs-full:DividendsRecognisedAsDistributionsToOwnersPerShare", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00", "unit": "iso4217:GBP/xbrli:shares" } }, "fact-1013": { "value": "Note 47: Related party transactions Key management personnel Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of an entity; the Group\u2019s key management personnel are the members of the Lloyds Banking Group plc Group Executive Committee together with its non-executive directors. The table below details, on an aggregated basis, key management personnel compensation: Compensation
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Salaries and other short-term benefits
16
12
10
Post-employment benefits
\u2013
\u2013
\u2013
Share-based payments
22
16
15
Total compensation
38
28
25
Aggregate contributions in respect of key management personnel to defined contribution pension schemes were \u00a3nil (2022: \u00a3nil; 2021: \u00a3nil).
Share option plans
Share plans
2023 2022 2021 2023 2022 2021
million million million million million million
At 1 January
\u2013
\u2013
\u2013
72
74
117
Granted, including certain adjustments (includes
entitlements of appointed key management personnel)
\u2013
\u2013
\u2013
27
29
19
Exercised/lapsed (includes entitlements of former key
management personnel)
\u2013
\u2013
\u2013
(44)
(31)
(62)
At 31 December
\u2013
\u2013
\u2013
55
72
74
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: Loans
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
2
3
2
Advanced (includes loans to appointed key management personnel)
\u2013
1
1
Repayments (includes loans to former key management personnel)
(1)
(2)
\u2013
At 31 December
1
2
3
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 1.09 per cent and 32.40 per cent in 2023 (2022: 1.01 per cent and 30.15 per cent; 2021: 0.39 per cent and 22.93 per cent). No provisions have been recognised in respect of loans given to key management personnel (2022 and 2021: \u00a3nil). Deposits
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
10
11
10
Placed (includes deposits of appointed key management personnel)
44
37
26
Withdrawn (includes deposits of former key management personnel)
(40)
(38)
(25)
At 31 December
14
10
11
Deposits placed by key management personnel attracted interest rates of up to 6.25 per cent (2022: 5.0 per cent; 2021: 1.0 per cent). At 31 December 2023, the Group did not provide any guarantees in respect of key management personnel (2022 and 2021: none). At 31 December 2023, transactions, arrangements and agreements entered into by the Group\u2019s banking subsidiaries with directors and connected persons included amounts outstanding in respect of loans and credit card transactions of \u00a323.4 thousand with five directors and no connected persons (2022: \u00a32.0 thousand with two directors and no connected persons; 2021: \u00a30.9 million with two directors and one connected person). Subsidiaries Details of the Group\u2019s subsidiaries and related undertakings are given on pages 344 to 356. In accordance with IFRS 10 Consolidated Financial Statements, transactions and balances with subsidiaries have been eliminated on consolidation. Pension funds The Group provides banking and some investment management services to certain of its pension funds. At 31 December 2023, customer deposits of \u00a3133 million (2022: \u00a3155 million) related to the Group\u2019s pension funds. As disclosed in note 16, the Group\u2019s main pension funds have entered into a longevity insurance arrangement that was structured as a pass-through involving Scottish Widows. Collective investment vehicles The Group manages 129 (2022: 125) collective investment vehicles, such as Open-Ended Investment Companies (OEICs) and of these 68 (2022: 73) are consolidated. The Group invested \u00a355 million (2022: \u00a3196 million) and redeemed \u00a3210 million (2022: \u00a3486 million) in the unconsolidated collective investment vehicles during the year and had investments, at fair value, of \u00a31,448 million (2022: \u00a31,491 million) at 31 December. The Group earned fees of \u00a372 million from the unconsolidated collective investment vehicles during 2023 (2022: \u00a380 million). Joint ventures and associates At 31 December 2023 there were loans and advances to customers of \u00a347 million (2022: \u00a321 million) outstanding and balances within customer deposits of \u00a36 million (2022: \u00a358 million) relating to joint ventures and associates. During the year the Group paid fees of \u00a34 million (2022: \u00a35 million) to its Schroders Personal Wealth joint venture and no payment was made (2022: \u00a318 million) under the terms of agreements put in place on the establishment of the joint venture. 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 2023, these companies had total assets of \u00a37,519 million (2022: \u00a34,709 million), total liabilities of \u00a35,927 million (2022: \u00a35,557 million) and for the year ended 31 December 2023 had turnover of \u00a33,381 million (2022: \u00a34,196 million) and made a net loss of \u00a3293 million (2022: net loss of \u00a3228 million). In addition, the Group has provided \u00a31,574 million (2022: \u00a31,466 million) of financing to these companies on which it received \u00a3120 million (2022: \u00a398 million) of interest income in the year.", "dimensions": { "concept": "ifrs-full:DisclosureOfTransactionsBetweenRelatedPartiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-941": { "value": "Note 47: Related party transactions Key management personnel Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of an entity; the Group\u2019s key management personnel are the members of the Lloyds Banking Group plc Group Executive Committee together with its non-executive directors. The table below details, on an aggregated basis, key management personnel compensation: Compensation
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Salaries and other short-term benefits
16
12
10
Post-employment benefits
\u2013
\u2013
\u2013
Share-based payments
22
16
15
Total compensation
38
28
25
Aggregate contributions in respect of key management personnel to defined contribution pension schemes were \u00a3nil (2022: \u00a3nil; 2021: \u00a3nil).
Share option plans
Share plans
2023 2022 2021 2023 2022 2021
million million million million million million
At 1 January
\u2013
\u2013
\u2013
72
74
117
Granted, including certain adjustments (includes
entitlements of appointed key management personnel)
\u2013
\u2013
\u2013
27
29
19
Exercised/lapsed (includes entitlements of former key
management personnel)
\u2013
\u2013
\u2013
(44)
(31)
(62)
At 31 December
\u2013
\u2013
\u2013
55
72
74
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: Loans
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
2
3
2
Advanced (includes loans to appointed key management personnel)
\u2013
1
1
Repayments (includes loans to former key management personnel)
(1)
(2)
\u2013
At 31 December
1
2
3
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 1.09 per cent and 32.40 per cent in 2023 (2022: 1.01 per cent and 30.15 per cent; 2021: 0.39 per cent and 22.93 per cent). No provisions have been recognised in respect of loans given to key management personnel (2022 and 2021: \u00a3nil). Deposits
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
10
11
10
Placed (includes deposits of appointed key management personnel)
44
37
26
Withdrawn (includes deposits of former key management personnel)
(40)
(38)
(25)
At 31 December
14
10
11
Deposits placed by key management personnel attracted interest rates of up to 6.25 per cent (2022: 5.0 per cent; 2021: 1.0 per cent). At 31 December 2023, the Group did not provide any guarantees in respect of key management personnel (2022 and 2021: none). At 31 December 2023, transactions, arrangements and agreements entered into by the Group\u2019s banking subsidiaries with directors and connected persons included amounts outstanding in respect of loans and credit card transactions of \u00a323.4 thousand with five directors and no connected persons (2022: \u00a32.0 thousand with two directors and no connected persons; 2021: \u00a30.9 million with two directors and one connected person). Subsidiaries Details of the Group\u2019s subsidiaries and related undertakings are given on pages 344 to 356. In accordance with IFRS 10 Consolidated Financial Statements, transactions and balances with subsidiaries have been eliminated on consolidation. Pension funds The Group provides banking and some investment management services to certain of its pension funds. At 31 December 2023, customer deposits of \u00a3133 million (2022: \u00a3155 million) related to the Group\u2019s pension funds. As disclosed in note 16, the Group\u2019s main pension funds have entered into a longevity insurance arrangement that was structured as a pass-through involving Scottish Widows. Collective investment vehicles The Group manages 129 (2022: 125) collective investment vehicles, such as Open-Ended Investment Companies (OEICs) and of these 68 (2022: 73) are consolidated. The Group invested \u00a355 million (2022: \u00a3196 million) and redeemed \u00a3210 million (2022: \u00a3486 million) in the unconsolidated collective investment vehicles during the year and had investments, at fair value, of \u00a31,448 million (2022: \u00a31,491 million) at 31 December. The Group earned fees of \u00a372 million from the unconsolidated collective investment vehicles during 2023 (2022: \u00a380 million). Joint ventures and associates At 31 December 2023 there were loans and advances to customers of \u00a347 million (2022: \u00a321 million) outstanding and balances within customer deposits of \u00a36 million (2022: \u00a358 million) relating to joint ventures and associates. During the year the Group paid fees of \u00a34 million (2022: \u00a35 million) to its Schroders Personal Wealth joint venture and no payment was made (2022: \u00a318 million) under the terms of agreements put in place on the establishment of the joint venture. 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 2023, these companies had total assets of \u00a37,519 million (2022: \u00a34,709 million), total liabilities of \u00a35,927 million (2022: \u00a35,557 million) and for the year ended 31 December 2023 had turnover of \u00a33,381 million (2022: \u00a34,196 million) and made a net loss of \u00a3293 million (2022: net loss of \u00a3228 million). In addition, the Group has provided \u00a31,574 million (2022: \u00a31,466 million) of financing to these companies on which it received \u00a3120 million (2022: \u00a398 million) of interest income in the year.", "dimensions": { "concept": "ifrs-full:DisclosureOfRelatedPartyExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-982": { "value": "Key management personnel Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of an entity; the Group\u2019s key management personnel are the members of the Lloyds Banking Group plc Group Executive Committee together with its non-executive directors. The table below details, on an aggregated basis, key management personnel compensation: Compensation
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Salaries and other short-term benefits
16
12
10
Post-employment benefits
\u2013
\u2013
\u2013
Share-based payments
22
16
15
Total compensation
38
28
25
Aggregate contributions in respect of key management personnel to defined contribution pension schemes were \u00a3nil (2022: \u00a3nil; 2021: \u00a3nil).
Share option plans
Share plans
2023 2022 2021 2023 2022 2021
million million million million million million
At 1 January
\u2013
\u2013
\u2013
72
74
117
Granted, including certain adjustments (includes
entitlements of appointed key management personnel)
\u2013
\u2013
\u2013
27
29
19
Exercised/lapsed (includes entitlements of former key
management personnel)
\u2013
\u2013
\u2013
(44)
(31)
(62)
At 31 December
\u2013
\u2013
\u2013
55
72
74
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: Loans
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
2
3
2
Advanced (includes loans to appointed key management personnel)
\u2013
1
1
Repayments (includes loans to former key management personnel)
(1)
(2)
\u2013
At 31 December
1
2
3
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 1.09 per cent and 32.40 per cent in 2023 (2022: 1.01 per cent and 30.15 per cent; 2021: 0.39 per cent and 22.93 per cent). No provisions have been recognised in respect of loans given to key management personnel (2022 and 2021: \u00a3nil). Deposits
2023 2022 2021
\u00a3m \u00a3m \u00a3m
At 1 January
10
11
10
Placed (includes deposits of appointed key management personnel)
44
37
26
Withdrawn (includes deposits of former key management personnel)
(40)
(38)
(25)
At 31 December
14
10
11
Deposits placed by key management personnel attracted interest rates of up to 6.25 per cent (2022: 5.0 per cent; 2021: 1.0 per cent). At 31 December 2023, the Group did not provide any guarantees in respect of key management personnel (2022 and 2021: none). At 31 December 2023, transactions, arrangements and agreements entered into by the Group\u2019s banking subsidiaries with directors and connected persons included amounts outstanding in respect of loans and credit card transactions of \u00a323.4 thousand with five directors and no connected persons (2022: \u00a32.0 thousand with two directors and no connected persons; 2021: \u00a30.9 million with two directors and one connected person). ", "dimensions": { "concept": "ifrs-full:DisclosureOfInformationAboutKeyManagementPersonnelExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-942": { "value": "
Note 48: Contingent liabilities, commitments and guarantees
Contingent liabilities, commitments and guarantees arising from the banking business
At 31 December 2023 contingent liabilities, such as performance bonds and letters of credit, arising from the banking business were
\u00a32,849 million (2022: \u00a32,986 million).
The contingent liabilities of the Group arise in the normal course of its banking business and it is not practicable to quantify their future
financial effect. Total commitments and guarantees were \u00a3143,319 million (2022: \u00a3143,795 million), of which in respect of undrawn formal
standby facilities, credit lines and other commitments to lend, \u00a375,080 million (2022: \u00a374,692 million) was irrevocable.
Capital commitments
Excluding commitments in respect of investment property (note 27), capital expenditure contracted but not provided for at
31 December 2023 amounted to \u00a31,240 million (2022: \u00a31,663 million) and related to assets to be leased to customers under operating
leases. The Group\u2019s management is confident that future net revenues and funding will be sufficient to cover these commitments.
Interchange fees
With respect to multi-lateral interchange fees (MIFs), the Group is not a party in the ongoing or threatened litigation which involves the
card schemes Visa and Mastercard (as described below). However, the Group is a member/licensee of Visa and Mastercard and other
card schemes. The litigation in question is as follows:
\u2022 Litigation brought by or on behalf of retailers against both Visa and Mastercard in the English Courts, in which retailers are seeking
damages on grounds that Visa and Mastercard\u2019s MIFs breached competition law (this includes a judgment of the Supreme Court in
June 2020 upholding the Court of Appeal\u2019s finding in 2018 that certain historic interchange arrangements of Mastercard and Visa
infringed competition law)
\u2022 Litigation brought on behalf of UK consumers in the English Courts against Mastercard
Any impact on the Group of the litigation against Visa and Mastercard remains uncertain at this time, such that it is not practicable for
the Group to provide an estimate of any potential financial effect. Insofar as Visa is required to pay damages to retailers for
interchange fees set prior to June 2016, contractual arrangements to allocate liability have been agreed between various UK banks
(including the Group) and Visa Inc, as part of Visa Inc\u2019s acquisition of Visa Europe in 2016. These arrangements cap the maximum
amount of liability to which the Group may be subject and this cap is set at the cash consideration received by the Group for the sale
of its stake in Visa Europe to Visa Inc in 2016. In 2016, the Group received Visa preference shares as part of the consideration for the sale
of its shares in Visa Europe. A release assessment is carried out by Visa on certain anniversaries of the sale (in line with the Visa Europe
sale documentation) and as a result, some Visa preference shares may be converted into Visa Inc Class A common stock from time to
time. Any such release and any subsequent sale of Visa common stock does not impact the contingent liability.
LIBOR and other trading rates
Certain Group companies, together with other panel banks, have been named as defendants in ongoing private lawsuits, including
purported class action suits, in the US in connection with their roles as panel banks contributing to the setting of US Dollar, Japanese
Yen and Sterling London Interbank Offered Rate and the Australian BBSW reference rate.
Certain Group companies are also named as defendants in (i) UK-based claims, and (ii) two Dutch class actions, raising LIBOR
manipulation allegations. A number of claims against the Group in the UK relating to the alleged mis-sale of interest rate hedging
products also include allegations of LIBOR manipulation.
It is currently not possible to predict the scope and ultimate outcome on the Group of any private lawsuits or ongoing related
challenges to the interpretation or validity of any of the Group\u2019s contractual arrangements, including their timing and scale. As such, it
is not practicable to provide an estimate of any potential financial effect .
Tax authorities The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which ceased trading on 31 December 2010. In 2013, HMRC informed the Group that its interpretation of the UK rules means that the group relief is not available. In 2020, HMRC concluded its enquiry into the matter and issued a closure notice. The Group\u2019s interpretation of the UK rules has not changed and hence it appealed to the First Tier Tax Tribunal, with a hearing having taken place in May 2023. If the final determination of the matter by the judicial process is that HMRC\u2019s position is correct, management believes that this would result in an increase in current tax liabilities of approximately \u00a3920 million (including interest) and a reduction in the Group\u2019s deferred tax asset of approximately \u00a3285 million. The Group, following conclusion of the hearing and having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due. There are a number of other open matters on which the Group is in discussions with HMRC (including the tax treatment of certain costs arising from the divestment of TSB Banking Group plc), none of which is expected to have a material impact on the financial position of the Group. FCA investigation into the Group\u2019s anti-money laundering control framework The FCA has opened an investigation into the Group\u2019s compliance with domestic UK money laundering regulations and the FCA\u2019s rules and Principles for Businesses, with a focus on aspects of its anti-money laundering control framework. The Group has been fully co- operating with the investigation. It is not currently possible to estimate the potential financial impact, if any, to the Group. Other legal actions and regulatory matters In addition, in the course of its business the Group is subject to other complaints and threatened or actual legal proceedings (including class or group action claims) brought by or on behalf of current or former employees, customers (including their appointed representatives), investors or other third parties, as well as legal and regulatory reviews, enquiries and examinations, requests for information, audits, challenges, investigations and enforcement actions, which could relate to a number of issues. This includes matters in relation to compliance with applicable laws and regulations, such as those relating to prudential regulation, consumer protection, investment advice, business conduct, systems and controls, environmental, competition/anti-trust, tax, anti-bribery, anti-money laundering and sanctions, some of which may be beyond the Group\u2019s control, both in the UK and overseas. Where material, such matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability. The Group does not currently expect the final outcome of any such case to have a material adverse effect on its financial position, operations or cash flows. Where there is a contingent liability related to an existing provision the relevant disclosures are included within note 38.", "dimensions": { "concept": "ifrs-full:DisclosureOfCommitmentsAndContingentLiabilitiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1030": { "value": "Note 48: Contingent liabilities, commitments and guarantees Contingent liabilities, commitments and guarantees arising from the banking business At 31 December 2023 contingent liabilities, such as performance bonds and letters of credit, arising from the banking business were \u00a32,849 million (2022: \u00a32,986 million). The contingent liabilities of the Group arise in the normal course of its banking business and it is not practicable to quantify their future financial effect. Total commitments and guarantees were \u00a3143,319 million (2022: \u00a3143,795 million), of which in respect of undrawn formal standby facilities, credit lines and other commitments to lend, \u00a375,080 million (2022: \u00a374,692 million) was irrevocable. Capital commitments Excluding commitments in respect of investment property (note 27), capital expenditure contracted but not provided for at 31 December 2023 amounted to \u00a31,240 million (2022: \u00a31,663 million) and related to assets to be leased to customers under operating leases. The Group\u2019s management is confident that future net revenues and funding will be sufficient to cover these commitments. Interchange fees With respect to multi-lateral interchange fees (MIFs), the Group is not a party in the ongoing or threatened litigation which involves the card schemes Visa and Mastercard (as described below). However, the Group is a member/licensee of Visa and Mastercard and other card schemes. The litigation in question is as follows: \u2022 Litigation brought by or on behalf of retailers against both Visa and Mastercard in the English Courts, in which retailers are seeking damages on grounds that Visa and Mastercard\u2019s MIFs breached competition law (this includes a judgment of the Supreme Court in June 2020 upholding the Court of Appeal\u2019s finding in 2018 that certain historic interchange arrangements of Mastercard and Visa infringed competition law) \u2022 Litigation brought on behalf of UK consumers in the English Courts against Mastercard Any impact on the Group of the litigation against Visa and Mastercard remains uncertain at this time, such that it is not practicable for the Group to provide an estimate of any potential financial effect. Insofar as Visa is required to pay damages to retailers for interchange fees set prior to June 2016, contractual arrangements to allocate liability have been agreed between various UK banks (including the Group) and Visa Inc, as part of Visa Inc\u2019s acquisition of Visa Europe in 2016. These arrangements cap the maximum amount of liability to which the Group may be subject and this cap is set at the cash consideration received by the Group for the sale of its stake in Visa Europe to Visa Inc in 2016. In 2016, the Group received Visa preference shares as part of the consideration for the sale of its shares in Visa Europe. A release assessment is carried out by Visa on certain anniversaries of the sale (in line with the Visa Europe sale documentation) and as a result, some Visa preference shares may be converted into Visa Inc Class A common stock from time to time. Any such release and any subsequent sale of Visa common stock does not impact the contingent liability. LIBOR and other trading rates Certain Group companies, together with other panel banks, have been named as defendants in ongoing private lawsuits, including purported class action suits, in the US in connection with their roles as panel banks contributing to the setting of US Dollar, Japanese Yen and Sterling London Interbank Offered Rate and the Australian BBSW reference rate. Certain Group companies are also named as defendants in (i) UK-based claims, and (ii) two Dutch class actions, raising LIBOR manipulation allegations. A number of claims against the Group in the UK relating to the alleged mis-sale of interest rate hedging products also include allegations of LIBOR manipulation. It is currently not possible to predict the scope and ultimate outcome on the Group of any private lawsuits or ongoing related challenges to the interpretation or validity of any of the Group\u2019s contractual arrangements, including their timing and scale. As such, it is not practicable to provide an estimate of any potential financial effect .
Tax authorities
The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which
ceased trading on 31 December 2010. In 2013, HMRC informed the Group that its interpretation of the UK rules means that the group relief
is not available. In 2020, HMRC concluded its enquiry into the matter and issued a closure notice. The Group\u2019s interpretation of the UK
rules has not changed and hence it appealed to the First Tier Tax Tribunal, with a hearing having taken place in May 2023. If the final
determination of the matter by the judicial process is that HMRC\u2019s position is correct, management believes that this would result in an
increase in current tax liabilities of approximately \u00a3920 million (including interest) and a reduction in the Group\u2019s deferred tax asset of
approximately \u00a3285 million. The Group, following conclusion of the hearing and having taken appropriate advice, does not consider
that this is a case where additional tax will ultimately fall due.
There are a number of other open matters on which the Group is in discussions with HMRC (including the tax treatment of certain costs
arising from the divestment of TSB Banking Group plc), none of which is expected to have a material impact on the financial position of
the Group.
FCA investigation into the Group\u2019s anti-money laundering control framework
The FCA has opened an investigation into the Group\u2019s compliance with domestic UK money laundering regulations and the FCA\u2019s rules
and Principles for Businesses, with a focus on aspects of its anti-money laundering control framework. The Group has been fully co-
operating with the investigation. It is not currently possible to estimate the potential financial impact, if any, to the Group.
Other legal actions and regulatory matters
In addition, in the course of its business the Group is subject to other complaints and threatened or actual legal proceedings (including
class or group action claims) brought by or on behalf of current or former employees, customers (including their appointed
representatives), investors or other third parties, as well as legal and regulatory reviews, enquiries and examinations, requests for
information, audits, challenges, investigations and enforcement actions, which could relate to a number of issues. This includes matters
in relation to compliance with applicable laws and regulations, such as those relating to prudential regulation, consumer protection,
investment advice, business conduct, systems and controls, environmental, competition/anti-trust, tax, anti-bribery, anti-money
laundering and sanctions, some of which may be beyond the Group\u2019s control, both in the UK and overseas. Where material, such
matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the
likelihood of the Group incurring a liability. The Group does not currently expect the final outcome of any such case to have a material
adverse effect on its financial position, operations or cash flows. Where there is a contingent liability related to an existing provision the
relevant disclosures are included within note 38.
", "dimensions": { "concept": "ifrs-full:DisclosureOfContingentLiabilitiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1014": { "value": "Note 48: Contingent liabilities, commitments and guarantees Contingent liabilities, commitments and guarantees arising from the banking business At 31 December 2023 contingent liabilities, such as performance bonds and letters of credit, arising from the banking business were \u00a32,849 million (2022: \u00a32,986 million). The contingent liabilities of the Group arise in the normal course of its banking business and it is not practicable to quantify their future financial effect. Total commitments and guarantees were \u00a3143,319 million (2022: \u00a3143,795 million), of which in respect of undrawn formal standby facilities, credit lines and other commitments to lend, \u00a375,080 million (2022: \u00a374,692 million) was irrevocable. Capital commitments Excluding commitments in respect of investment property (note 27), capital expenditure contracted but not provided for at 31 December 2023 amounted to \u00a31,240 million (2022: \u00a31,663 million) and related to assets to be leased to customers under operating leases. The Group\u2019s management is confident that future net revenues and funding will be sufficient to cover these commitments. Interchange fees With respect to multi-lateral interchange fees (MIFs), the Group is not a party in the ongoing or threatened litigation which involves the card schemes Visa and Mastercard (as described below). However, the Group is a member/licensee of Visa and Mastercard and other card schemes. The litigation in question is as follows: \u2022 Litigation brought by or on behalf of retailers against both Visa and Mastercard in the English Courts, in which retailers are seeking damages on grounds that Visa and Mastercard\u2019s MIFs breached competition law (this includes a judgment of the Supreme Court in June 2020 upholding the Court of Appeal\u2019s finding in 2018 that certain historic interchange arrangements of Mastercard and Visa infringed competition law) \u2022 Litigation brought on behalf of UK consumers in the English Courts against Mastercard Any impact on the Group of the litigation against Visa and Mastercard remains uncertain at this time, such that it is not practicable for the Group to provide an estimate of any potential financial effect. Insofar as Visa is required to pay damages to retailers for interchange fees set prior to June 2016, contractual arrangements to allocate liability have been agreed between various UK banks (including the Group) and Visa Inc, as part of Visa Inc\u2019s acquisition of Visa Europe in 2016. These arrangements cap the maximum amount of liability to which the Group may be subject and this cap is set at the cash consideration received by the Group for the sale of its stake in Visa Europe to Visa Inc in 2016. In 2016, the Group received Visa preference shares as part of the consideration for the sale of its shares in Visa Europe. A release assessment is carried out by Visa on certain anniversaries of the sale (in line with the Visa Europe sale documentation) and as a result, some Visa preference shares may be converted into Visa Inc Class A common stock from time to time. Any such release and any subsequent sale of Visa common stock does not impact the contingent liability. LIBOR and other trading rates Certain Group companies, together with other panel banks, have been named as defendants in ongoing private lawsuits, including purported class action suits, in the US in connection with their roles as panel banks contributing to the setting of US Dollar, Japanese Yen and Sterling London Interbank Offered Rate and the Australian BBSW reference rate. Certain Group companies are also named as defendants in (i) UK-based claims, and (ii) two Dutch class actions, raising LIBOR manipulation allegations. A number of claims against the Group in the UK relating to the alleged mis-sale of interest rate hedging products also include allegations of LIBOR manipulation. It is currently not possible to predict the scope and ultimate outcome on the Group of any private lawsuits or ongoing related challenges to the interpretation or validity of any of the Group\u2019s contractual arrangements, including their timing and scale. As such, it is not practicable to provide an estimate of any potential financial effect . Tax authorities The Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary, which ceased trading on 31 December 2010. In 2013, HMRC informed the Group that its interpretation of the UK rules means that the group relief is not available. In 2020, HMRC concluded its enquiry into the matter and issued a closure notice. The Group\u2019s interpretation of the UK rules has not changed and hence it appealed to the First Tier Tax Tribunal, with a hearing having taken place in May 2023. If the final determination of the matter by the judicial process is that HMRC\u2019s position is correct, management believes that this would result in an increase in current tax liabilities of approximately \u00a3920 million (including interest) and a reduction in the Group\u2019s deferred tax asset of approximately \u00a3285 million. The Group, following conclusion of the hearing and having taken appropriate advice, does not consider that this is a case where additional tax will ultimately fall due. There are a number of other open matters on which the Group is in discussions with HMRC (including the tax treatment of certain costs arising from the divestment of TSB Banking Group plc), none of which is expected to have a material impact on the financial position of the Group. FCA investigation into the Group\u2019s anti-money laundering control framework The FCA has opened an investigation into the Group\u2019s compliance with domestic UK money laundering regulations and the FCA\u2019s rules and Principles for Businesses, with a focus on aspects of its anti-money laundering control framework. The Group has been fully co- operating with the investigation. It is not currently possible to estimate the potential financial impact, if any, to the Group. Other legal actions and regulatory matters In addition, in the course of its business the Group is subject to other complaints and threatened or actual legal proceedings (including class or group action claims) brought by or on behalf of current or former employees, customers (including their appointed representatives), investors or other third parties, as well as legal and regulatory reviews, enquiries and examinations, requests for information, audits, challenges, investigations and enforcement actions, which could relate to a number of issues. This includes matters in relation to compliance with applicable laws and regulations, such as those relating to prudential regulation, consumer protection, investment advice, business conduct, systems and controls, environmental, competition/anti-trust, tax, anti-bribery, anti-money laundering and sanctions, some of which may be beyond the Group\u2019s control, both in the UK and overseas. Where material, such matters are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability. The Group does not currently expect the final outcome of any such case to have a material adverse effect on its financial position, operations or cash flows. Where there is a contingent liability related to an existing provision the relevant disclosures are included within note 38.", "dimensions": { "concept": "ifrs-full:DisclosureOfCommitmentsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-983": { "value": "Note 49: Structured entities The Group\u2019s interests in structured entities are both consolidated and unconsolidated. Details of the Group\u2019s interests in consolidated structured entities are set out in note 29 for securitisations and covered bond vehicles, note 16 for structured entities associated with the Group\u2019s pension schemes, and below in part (A) and (B). Details of the Group\u2019s interests in unconsolidated structured entities are included below in part (C). (A) Asset-backed conduits In addition to the structured entities discussed in note 29, which are used for securitisation and covered bond programmes, the Group sponsors an active asset-backed conduit, Cancara, which invests in client receivables and debt securities. The total consolidated exposure of Cancara at 31 December 2023 was \u00a32,808 million (2022: \u00a32,357 million), comprising \u00a31,521 million of loans and advances (2022: \u00a31,464 million), \u00a3698 million of debt securities (2022: \u00a3850 million) and \u00a3589 million of financial assets at fair value through profit or loss (2022: \u00a343 million). All lending assets and debt securities held by the Group in Cancara are restricted in use, as they are held by the collateral agent for the benefit of the commercial paper investors and the liquidity providers only. The Group provides liquidity facilities to Cancara under terms that are usual and customary for standard lending activities in the normal course of the Group\u2019s banking activities. During 2023 there have continued to be planned drawdowns on certain liquidity facilities for balance sheet management purposes, supporting the programme to provide funding alongside the proceeds of the asset-backed commercial paper issuance. The Group could be asked to provide support under the contractual terms of these arrangements including, for example, if Cancara experienced a shortfall in external funding, which may occur in the event of market disruption. The external assets in Cancara are consolidated in the Group\u2019s financial statements. (B) Consolidated collective investment vehicles and limited partnerships The assets of the Insurance business held in consolidated collective investment vehicles, such as Open-Ended Investment Companies and limited partnerships, are not directly available for use by the Group. However, the Group\u2019s investment in the majority of these collective investment vehicles is readily realisable. As at 31 December 2023, the total carrying value of these consolidated collective investment vehicle assets and liabilities held by the Group was \u00a358,351 million (2022: \u00a354,749 million). The Group has no contractual arrangements (such as liquidity facilities) that would require it to provide financial or other support to the consolidated collective investment vehicles; the Group has not previously provided such support and has no current intentions to provide such support. (C) Unconsolidated structured entities The Group considers itself the sponsor of a structured entity where it is primarily involved in the design and establishment of the structured entity and further where the Group transfers assets to the structured entity, markets products associated with the structured entity in its own name and/or provides guarantees regarding the structured entity\u2019s performance. The Group sponsors a range of diverse investment funds and limited partnerships where it acts as the fund manager or equivalent decision-maker and markets the funds under one of the Group\u2019s brands. The following table describes the types of structured entities that the Group does not consolidate but in which it holds an interest.
Total assets of
structured entities
2023 2022
Type of entity
Nature and purpose of structured entities
Interest held by the Group
\u00a3bn \u00a3bn
Collective investment These vehicles are primarily financed by \u2022 Interests in units issued by the vehicles
2,184
2,176
vehicles and limited investments from investors in the vehicles \u2022 Fees from management of vehicles
partnerships and are matched by policyholder liabilities in
the Insurance division.
Securitisation vehicles
These vehicles issue asset-backed notes to
\u2022 Interest in notes issued by the vehicles
5
\u2013
investors and facilitate the management of \u2022 Fees for loan servicing
the Group\u2019s balance sheet.
The following table sets out an analysis of the carrying amount of interest held by the Group in the unconsolidated structured entities. The maximum exposure to loss is the carrying amounts of the assets held. Carrying amount
2023 2022
\u00a3m \u00a3m
Collective investment vehicles and limited partnerships
76,426
68,913
Notes held in securitisation vehicles
4,127
\u2013
Interest rate derivatives provided to securitisation vehicles
(17)
\u2013
1 1 Recognised within financial assets at fair value through profit or loss. During the year the Group has not provided any non-contractual financial or other support to these entities and has no current intention of providing any non-contractual financial or other support in the future. The fee income earned from unconsolidated structured entities that the Group sponsors but does not have an interest in was \u00a372 million (2022: \u00a380 million) for collective investment vehicles and \u00a3nil (2022: \u00a3nil) for securitisation vehicles. The carrying amount of assets transferred to securitisation vehicles at the time of transfer was \u00a35,625 million and the Group recognised a gain of \u00a331 million on transfer. Continuing involvement in financial assets that have been derecognised The Group has derecognised financial assets in their entirety following transactions with securitisation vehicles, as noted above. The continuing involvement largely arises from funding provided to the vehicles through the purchase of issued notes. The majority of these notes are recognised as debt securities held at amortised cost. The remaining notes held by the Group, together with interest rate derivatives transacted with the vehicles, are recognised at fair value through profit or loss. The carrying amount of these interests and the maximum exposure to loss is included in the table above. At 31 December 2023 the fair value of the retained notes was \u00a34,142 million. The income from the Group\u2019s interest in these structures for the year ended 31 December 2023 and cumulatively for the lifetime was \u00a3133 million", "dimensions": { "concept": "ifrs-full:DisclosureOfUnconsolidatedStructuredEntitiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-943": { "value": "Note 49: Structured entities The Group\u2019s interests in structured entities are both consolidated and unconsolidated. Details of the Group\u2019s interests in consolidated structured entities are set out in note 29 for securitisations and covered bond vehicles, note 16 for structured entities associated with the Group\u2019s pension schemes, and below in part (A) and (B). Details of the Group\u2019s interests in unconsolidated structured entities are included below in part (C). (A) Asset-backed conduits In addition to the structured entities discussed in note 29, which are used for securitisation and covered bond programmes, the Group sponsors an active asset-backed conduit, Cancara, which invests in client receivables and debt securities. The total consolidated exposure of Cancara at 31 December 2023 was \u00a32,808 million (2022: \u00a32,357 million), comprising \u00a31,521 million of loans and advances (2022: \u00a31,464 million), \u00a3698 million of debt securities (2022: \u00a3850 million) and \u00a3589 million of financial assets at fair value through profit or loss (2022: \u00a343 million). All lending assets and debt securities held by the Group in Cancara are restricted in use, as they are held by the collateral agent for the benefit of the commercial paper investors and the liquidity providers only. The Group provides liquidity facilities to Cancara under terms that are usual and customary for standard lending activities in the normal course of the Group\u2019s banking activities. During 2023 there have continued to be planned drawdowns on certain liquidity facilities for balance sheet management purposes, supporting the programme to provide funding alongside the proceeds of the asset-backed commercial paper issuance. The Group could be asked to provide support under the contractual terms of these arrangements including, for example, if Cancara experienced a shortfall in external funding, which may occur in the event of market disruption. The external assets in Cancara are consolidated in the Group\u2019s financial statements. (B) Consolidated collective investment vehicles and limited partnerships The assets of the Insurance business held in consolidated collective investment vehicles, such as Open-Ended Investment Companies and limited partnerships, are not directly available for use by the Group. However, the Group\u2019s investment in the majority of these collective investment vehicles is readily realisable. As at 31 December 2023, the total carrying value of these consolidated collective investment vehicle assets and liabilities held by the Group was \u00a358,351 million (2022: \u00a354,749 million). The Group has no contractual arrangements (such as liquidity facilities) that would require it to provide financial or other support to the consolidated collective investment vehicles; the Group has not previously provided such support and has no current intentions to provide such support. (C) Unconsolidated structured entities The Group considers itself the sponsor of a structured entity where it is primarily involved in the design and establishment of the structured entity and further where the Group transfers assets to the structured entity, markets products associated with the structured entity in its own name and/or provides guarantees regarding the structured entity\u2019s performance. The Group sponsors a range of diverse investment funds and limited partnerships where it acts as the fund manager or equivalent decision-maker and markets the funds under one of the Group\u2019s brands. The following table describes the types of structured entities that the Group does not consolidate but in which it holds an interest.
Total assets of
structured entities
2023 2022
Type of entity
Nature and purpose of structured entities
Interest held by the Group
\u00a3bn \u00a3bn
Collective investment These vehicles are primarily financed by \u2022 Interests in units issued by the vehicles
2,184
2,176
vehicles and limited investments from investors in the vehicles \u2022 Fees from management of vehicles
partnerships and are matched by policyholder liabilities in
the Insurance division.
Securitisation vehicles
These vehicles issue asset-backed notes to
\u2022 Interest in notes issued by the vehicles
5
\u2013
investors and facilitate the management of \u2022 Fees for loan servicing
the Group\u2019s balance sheet.
The following table sets out an analysis of the carrying amount of interest held by the Group in the unconsolidated structured entities. The maximum exposure to loss is the carrying amounts of the assets held. Carrying amount
2023 2022
\u00a3m \u00a3m
Collective investment vehicles and limited partnerships
76,426
68,913
Notes held in securitisation vehicles
4,127
\u2013
Interest rate derivatives provided to securitisation vehicles
(17)
\u2013
1 1 Recognised within financial assets at fair value through profit or loss. During the year the Group has not provided any non-contractual financial or other support to these entities and has no current intention of providing any non-contractual financial or other support in the future. The fee income earned from unconsolidated structured entities that the Group sponsors but does not have an interest in was \u00a372 million (2022: \u00a380 million) for collective investment vehicles and \u00a3nil (2022: \u00a3nil) for securitisation vehicles. The carrying amount of assets transferred to securitisation vehicles at the time of transfer was \u00a35,625 million and the Group recognised a gain of \u00a331 million on transfer. Continuing involvement in financial assets that have been derecognised The Group has derecognised financial assets in their entirety following transactions with securitisation vehicles, as noted above. The continuing involvement largely arises from funding provided to the vehicles through the purchase of issued notes. The majority of these notes are recognised as debt securities held at amortised cost. The remaining notes held by the Group, together with interest rate derivatives transacted with the vehicles, are recognised at fair value through profit or loss. The carrying amount of these interests and the maximum exposure to loss is included in the table above. At 31 December 2023 the fair value of the retained notes was \u00a34,142 million. The income from the Group\u2019s interest in these structures for the year ended 31 December 2023 and cumulatively for the lifetime was \u00a3133 million", "dimensions": { "concept": "ifrs-full:DisclosureOfInformationAboutConsolidatedStructuredEntitiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-944": { "value": "Note 50: Transfers of financial assets Transferred financial assets derecognised in their entirety with ongoing exposure Through asset securitisations, the Group has transferred financial assets which were derecognised in their entirety, with some continuing involvement. Further details are available in note 49. Transferred financial assets that continue to be recognised Details of transferred financial assets that continue to be recognised in full are as follows. The Group enters into repurchase and securities lending transactions in the normal course of business that do not result in derecognition of the financial assets as substantially all of the risks and rewards, including credit, interest rate, prepayment and other price risks are retained by the Group. In all cases, the transferee has the right to sell or repledge the assets concerned. As set out in note 29, included within financial assets measured at amortised cost are loans transferred under the Group\u2019s securitisation and covered bond programmes. As the Group retains all or a majority of the risks and rewards associated with these loans, including credit, interest rate, prepayment and liquidity risk, they remain on the Group\u2019s balance sheet. Assets transferred into the Group\u2019s securitisation and covered bond programmes are not available to be used by the Group while the assets are within the programmes. However, the Group retains the right to remove loans from the covered bond programmes where they are in excess of the programme\u2019s requirements. In addition, where the Group has retained some of the notes issued by securitisation and covered bond programmes, the Group has the ability to sell or pledge these retained notes. The table below sets out the carrying values of the transferred assets and the associated liabilities. For repurchase and securities lending transactions, the associated liabilities represent the Group\u2019s obligation to repurchase the transferred assets. For securitisation programmes, the associated liabilities represent the external notes in issue (note 29). The liabilities shown in the table below have recourse to the transferred assets.
2023
2022
Assets Liabilities Assets Liabilities
\u00a3m \u00a3m \u00a3m \u00a3m
Repurchase and securities lending transactions
Financial assets at fair value through profit or loss
2,716
1,990
6,370
1,483
Debt securities held at amortised cost
1,189
\u2013
173
\u2013
Financial assets at fair value through other comprehensive income
10,928
5,526
8,803
6,990
Securitisation programmes
Financial assets at amortised cost:
Loans and advances to customers
30,716
4,234
29,384
2,806
1 1 The carrying value of associated liabilities excludes securitisation notes held by the Group of \u00a320,150 million (31 December 2022: \u00a322,343 million)", "dimensions": { "concept": "ifrs-full:DisclosureOfTransfersOfFinancialAssetsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1031": { "value": "Note 51: Offsetting of financial assets and liabilities The following information relates to financial assets and liabilities which have been offset in the balance sheet and those which have not been offset but for which the Group has enforceable master netting agreements or collateral arrangements in place with counterparties.
Related amounts where
set off in the balance
sheet not permitted Potential
net amounts
Gross Amount Net amounts Cash Non-cash if offset
amounts of offset in presented in collateral collateral of related
assets and the balance the balance received/ received/ amounts
liabilities sheet sheet pledged pledged permitted
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Financial assets
Financial assets at fair value through profit or loss:
Excluding reverse repurchase agreements
185,905
\u2013
185,905
(946)
(2,448)
182,511
Reverse repurchase agreements
29,778
(12,365)
17,413
(75)
(17,226)
112
215,683
(12,365)
203,318
(1,021)
(19,674)
182,623
Derivative financial instruments
61,820
(39,464)
22,356
(3,361)
(12,731)
6,264
Financial assets at amortised cost:
Loans and advances to banks
10,764
\u2013
10,764
(2,730)
\u2013
8,034
Loans and advances to customers
453,045
(3,300)
449,745
(653)
(2,214)
446,878
Reverse repurchase agreements
46,157
(7,386)
38,771
71
(38,581)
261
Debt securities
15,355
\u2013
15,355
\u2013
\u2013
15,355
525,321
(10,686)
514,635
(3,312)
(40,795)
470,528
Financial assets at fair value through other comprehensive
income
27,592
\u2013
27,592
\u2013
(4,979)
22,613
Financial liabilities
Deposits from banks
6,153
\u2013
6,153
(2,194)
\u2013
3,959
Customer deposits
472,036
(640)
471,396
(1,516)
(2,214)
467,666
Repurchase agreements at amortised cost
45,089
(7,386)
37,703
60
(37,715)
48
Financial liabilities at fair value through profit or loss:
Excluding repurchase agreements
6,857
\u2013
6,857
\u2013
\u2013
6,857
Repurchase agreements
30,422
(12,365)
18,057
102
(18,043)
116
37,279
(12,365)
24,914
102
(18,043)
6,973
Derivative financial instruments
62,273
(42,124)
20,149
(4,146)
(12,767)
3,236
1 2 3 1 The Group enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard master netting agreements. The Group holds and provides cash and securities collateral in respect of derivative transactions covered by these agreements. The right to set off balances under these master netting agreements or to set off cash and securities collateral only arises in the event of non-payment or default and, as a result, these arrangements do not qualify for offsetting under IAS 32. 2 Net of impairment allowances. 3 The amounts offset in the balance sheet as shown above mainly represent derivatives and repurchase agreements with central clearing houses which meet the criteria for offsetting under IAS 32. The effects of over-collateralisation have not been taken into account in the above table .
Related amounts where
set off in the balance
sheet not permitted Potential
net amounts
Gross Amount Net amounts Cash Non-cash if offset
amounts of offset in presented in collateral collateral of related
assets and the balance the balance received/ received/ amounts
liabilities sheet sheet pledged pledged permitted
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Financial assets
Financial assets at fair value through profit or loss:
Excluding reverse repurchase agreements
168,988
\u2013
168,988
\u2013
(1,127)
167,861
Reverse repurchase agreements
32,064
(20,283)
11,781
(87)
(11,694)
\u2013
201,052
(20,283)
180,769
(87)
(12,821)
167,861
Derivative financial instruments
76,437
(51,684)
24,753
(3,951)
(15,839)
4,963
Financial assets at amortised cost:
Loans and advances to banks
10,632
\u2013
10,632
(2,823)
\u2013
7,809
Loans and advances to customers
458,229
(3,330)
454,899
(907)
(2,171)
451,821
Reverse repurchase agreements
55,675
(10,810)
44,865
\u2013
(44,865)
\u2013
Debt securities
9,926
\u2013
9,926
\u2013
\u2013
9,926
534,462
(14,140)
520,322
(3,730)
(47,036)
469,556
Financial assets at fair value through other comprehensive
income
23,154
\u2013
23,154
\u2013
(6,202)
16,952
Financial liabilities
Deposits from banks
7,266
\u2013
7,266
(2,169)
\u2013
5,097
Customer deposits
476,255
(924)
475,331
(1,869)
(2,171)
471,291
Repurchase agreements at amortised cost
59,406
(10,810)
48,596
\u2013
(48,596)
\u2013
Financial liabilities at fair value through profit or loss:
Excluding repurchase agreements
6,718
\u2013
6,718
\u2013
\u2013
6,718
Repurchase agreements
31,320
(20,283)
11,037
\u2013
(11,037)
\u2013
38,038
(20,283)
17,755
\u2013
(11,037)
6,718
Derivative financial instruments
78,132
(54,090)
24,042
(3,731)
(14,490)
5,821
1 2 3 4 1 The Group enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard master netting agreements. The Group holds and provides cash and securities collateral in respect of derivative transactions covered by these agreements. The right to set off balances under these master netting agreements or to set off cash and securities collateral only arises in the event of non-payment or default and, as a result, these arrangements do not qualify for offsetting under IAS 32. 2 Net of impairment allowances. 3 The amounts offset in the balance sheet as shown above mainly represent derivatives and repurchase agreements with central clearing houses which meet the criteria for offsetting under IAS 32. 4 Restated for the adoption of IFRS 17; see notes 1 and 54. The effects of over-collateralisation have not been taken into account in the above table .", "dimensions": { "concept": "ifrs-full:DisclosureOfOffsettingOfFinancialLiabilitiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1015": { "value": "Note 51: Offsetting of financial assets and liabilities The following information relates to financial assets and liabilities which have been offset in the balance sheet and those which have not been offset but for which the Group has enforceable master netting agreements or collateral arrangements in place with counterparties.
Related amounts where
set off in the balance
sheet not permitted Potential
net amounts
Gross Amount Net amounts Cash Non-cash if offset
amounts of offset in presented in collateral collateral of related
assets and the balance the balance received/ received/ amounts
liabilities sheet sheet pledged pledged permitted
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Financial assets
Financial assets at fair value through profit or loss:
Excluding reverse repurchase agreements
185,905
\u2013
185,905
(946)
(2,448)
182,511
Reverse repurchase agreements
29,778
(12,365)
17,413
(75)
(17,226)
112
215,683
(12,365)
203,318
(1,021)
(19,674)
182,623
Derivative financial instruments
61,820
(39,464)
22,356
(3,361)
(12,731)
6,264
Financial assets at amortised cost:
Loans and advances to banks
10,764
\u2013
10,764
(2,730)
\u2013
8,034
Loans and advances to customers
453,045
(3,300)
449,745
(653)
(2,214)
446,878
Reverse repurchase agreements
46,157
(7,386)
38,771
71
(38,581)
261
Debt securities
15,355
\u2013
15,355
\u2013
\u2013
15,355
525,321
(10,686)
514,635
(3,312)
(40,795)
470,528
Financial assets at fair value through other comprehensive
income
27,592
\u2013
27,592
\u2013
(4,979)
22,613
Financial liabilities
Deposits from banks
6,153
\u2013
6,153
(2,194)
\u2013
3,959
Customer deposits
472,036
(640)
471,396
(1,516)
(2,214)
467,666
Repurchase agreements at amortised cost
45,089
(7,386)
37,703
60
(37,715)
48
Financial liabilities at fair value through profit or loss:
Excluding repurchase agreements
6,857
\u2013
6,857
\u2013
\u2013
6,857
Repurchase agreements
30,422
(12,365)
18,057
102
(18,043)
116
37,279
(12,365)
24,914
102
(18,043)
6,973
Derivative financial instruments
62,273
(42,124)
20,149
(4,146)
(12,767)
3,236
1 2 3 1 The Group enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard master netting agreements. The Group holds and provides cash and securities collateral in respect of derivative transactions covered by these agreements. The right to set off balances under these master netting agreements or to set off cash and securities collateral only arises in the event of non-payment or default and, as a result, these arrangements do not qualify for offsetting under IAS 32. 2 Net of impairment allowances. 3 The amounts offset in the balance sheet as shown above mainly represent derivatives and repurchase agreements with central clearing houses which meet the criteria for offsetting under IAS 32. The effects of over-collateralisation have not been taken into account in the above table
Related amounts where
set off in the balance
sheet not permitted Potential
net amounts
Gross Amount Net amounts Cash Non-cash if offset
amounts of offset in presented in collateral collateral of related
assets and the balance the balance received/ received/ amounts
liabilities sheet sheet pledged pledged permitted
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Financial assets
Financial assets at fair value through profit or loss:
Excluding reverse repurchase agreements
168,988
\u2013
168,988
\u2013
(1,127)
167,861
Reverse repurchase agreements
32,064
(20,283)
11,781
(87)
(11,694)
\u2013
201,052
(20,283)
180,769
(87)
(12,821)
167,861
Derivative financial instruments
76,437
(51,684)
24,753
(3,951)
(15,839)
4,963
Financial assets at amortised cost:
Loans and advances to banks
10,632
\u2013
10,632
(2,823)
\u2013
7,809
Loans and advances to customers
458,229
(3,330)
454,899
(907)
(2,171)
451,821
Reverse repurchase agreements
55,675
(10,810)
44,865
\u2013
(44,865)
\u2013
Debt securities
9,926
\u2013
9,926
\u2013
\u2013
9,926
534,462
(14,140)
520,322
(3,730)
(47,036)
469,556
Financial assets at fair value through other comprehensive
income
23,154
\u2013
23,154
\u2013
(6,202)
16,952
Financial liabilities
Deposits from banks
7,266
\u2013
7,266
(2,169)
\u2013
5,097
Customer deposits
476,255
(924)
475,331
(1,869)
(2,171)
471,291
Repurchase agreements at amortised cost
59,406
(10,810)
48,596
\u2013
(48,596)
\u2013
Financial liabilities at fair value through profit or loss:
Excluding repurchase agreements
6,718
\u2013
6,718
\u2013
\u2013
6,718
Repurchase agreements
31,320
(20,283)
11,037
\u2013
(11,037)
\u2013
38,038
(20,283)
17,755
\u2013
(11,037)
6,718
Derivative financial instruments
78,132
(54,090)
24,042
(3,731)
(14,490)
5,821
1 2 3 4 1 The Group enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard master netting agreements. The Group holds and provides cash and securities collateral in respect of derivative transactions covered by these agreements. The right to set off balances under these master netting agreements or to set off cash and securities collateral only arises in the event of non-payment or default and, as a result, these arrangements do not qualify for offsetting under IAS 32. 2 Net of impairment allowances. 3 The amounts offset in the balance sheet as shown above mainly represent derivatives and repurchase agreements with central clearing houses which meet the criteria for offsetting under IAS 32. 4 Restated for the adoption of IFRS 17; see notes 1 and 54. The effects of over-collateralisation have not been taken into account in the above table ", "dimensions": { "concept": "ifrs-full:DisclosureOfOffsettingOfFinancialAssetsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-984": { "value": "Note 51: Offsetting of financial assets and liabilities The following information relates to financial assets and liabilities which have been offset in the balance sheet and those which have not been offset but for which the Group has enforceable master netting agreements or collateral arrangements in place with counterparties.
Related amounts where
set off in the balance
sheet not permitted Potential
net amounts
Gross Amount Net amounts Cash Non-cash if offset
amounts of offset in presented in collateral collateral of related
assets and the balance the balance received/ received/ amounts
liabilities sheet sheet pledged pledged permitted
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Financial assets
Financial assets at fair value through profit or loss:
Excluding reverse repurchase agreements
185,905
\u2013
185,905
(946)
(2,448)
182,511
Reverse repurchase agreements
29,778
(12,365)
17,413
(75)
(17,226)
112
215,683
(12,365)
203,318
(1,021)
(19,674)
182,623
Derivative financial instruments
61,820
(39,464)
22,356
(3,361)
(12,731)
6,264
Financial assets at amortised cost:
Loans and advances to banks
10,764
\u2013
10,764
(2,730)
\u2013
8,034
Loans and advances to customers
453,045
(3,300)
449,745
(653)
(2,214)
446,878
Reverse repurchase agreements
46,157
(7,386)
38,771
71
(38,581)
261
Debt securities
15,355
\u2013
15,355
\u2013
\u2013
15,355
525,321
(10,686)
514,635
(3,312)
(40,795)
470,528
Financial assets at fair value through other comprehensive
income
27,592
\u2013
27,592
\u2013
(4,979)
22,613
Financial liabilities
Deposits from banks
6,153
\u2013
6,153
(2,194)
\u2013
3,959
Customer deposits
472,036
(640)
471,396
(1,516)
(2,214)
467,666
Repurchase agreements at amortised cost
45,089
(7,386)
37,703
60
(37,715)
48
Financial liabilities at fair value through profit or loss:
Excluding repurchase agreements
6,857
\u2013
6,857
\u2013
\u2013
6,857
Repurchase agreements
30,422
(12,365)
18,057
102
(18,043)
116
37,279
(12,365)
24,914
102
(18,043)
6,973
Derivative financial instruments
62,273
(42,124)
20,149
(4,146)
(12,767)
3,236
1 2 3 1 The Group enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard master netting agreements. The Group holds and provides cash and securities collateral in respect of derivative transactions covered by these agreements. The right to set off balances under these master netting agreements or to set off cash and securities collateral only arises in the event of non-payment or default and, as a result, these arrangements do not qualify for offsetting under IAS 32. 2 Net of impairment allowances. 3 The amounts offset in the balance sheet as shown above mainly represent derivatives and repurchase agreements with central clearing houses which meet the criteria for offsetting under IAS 32. The effects of over-collateralisation have not been taken into account in the above table .
Related amounts where
set off in the balance
sheet not permitted Potential
net amounts
Gross Amount Net amounts Cash Non-cash if offset
amounts of offset in presented in collateral collateral of related
assets and the balance the balance received/ received/ amounts
liabilities sheet sheet pledged pledged permitted
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Financial assets
Financial assets at fair value through profit or loss:
Excluding reverse repurchase agreements
168,988
\u2013
168,988
\u2013
(1,127)
167,861
Reverse repurchase agreements
32,064
(20,283)
11,781
(87)
(11,694)
\u2013
201,052
(20,283)
180,769
(87)
(12,821)
167,861
Derivative financial instruments
76,437
(51,684)
24,753
(3,951)
(15,839)
4,963
Financial assets at amortised cost:
Loans and advances to banks
10,632
\u2013
10,632
(2,823)
\u2013
7,809
Loans and advances to customers
458,229
(3,330)
454,899
(907)
(2,171)
451,821
Reverse repurchase agreements
55,675
(10,810)
44,865
\u2013
(44,865)
\u2013
Debt securities
9,926
\u2013
9,926
\u2013
\u2013
9,926
534,462
(14,140)
520,322
(3,730)
(47,036)
469,556
Financial assets at fair value through other comprehensive
income
23,154
\u2013
23,154
\u2013
(6,202)
16,952
Financial liabilities
Deposits from banks
7,266
\u2013
7,266
(2,169)
\u2013
5,097
Customer deposits
476,255
(924)
475,331
(1,869)
(2,171)
471,291
Repurchase agreements at amortised cost
59,406
(10,810)
48,596
\u2013
(48,596)
\u2013
Financial liabilities at fair value through profit or loss:
Excluding repurchase agreements
6,718
\u2013
6,718
\u2013
\u2013
6,718
Repurchase agreements
31,320
(20,283)
11,037
\u2013
(11,037)
\u2013
38,038
(20,283)
17,755
\u2013
(11,037)
6,718
Derivative financial instruments
78,132
(54,090)
24,042
(3,731)
(14,490)
5,821
1 2 3 4 1 The Group enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard master netting agreements. The Group holds and provides cash and securities collateral in respect of derivative transactions covered by these agreements. The right to set off balances under these master netting agreements or to set off cash and securities collateral only arises in the event of non-payment or default and, as a result, these arrangements do not qualify for offsetting under IAS 32. 2 Net of impairment allowances. 3 The amounts offset in the balance sheet as shown above mainly represent derivatives and repurchase agreements with central clearing houses which meet the criteria for offsetting under IAS 32. 4 Restated for the adoption of IFRS 17; see notes 1 and 54. The effects of over-collateralisation have not been taken into account in the above table .", "dimensions": { "concept": "ifrs-full:DisclosureOfOffsettingOfFinancialAssetsAndFinancialLiabilitiesExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-985": { "value": "Market risk (A) Interest rate risk Interest rate risk arises from the different repricing characteristics of the Group\u2019s assets and liabilities. Liabilities are generally either insensitive to interest rate movements, for example interest free or very low interest customer deposits, or are sensitive to interest rate changes but bear rates which may be varied at the Group\u2019s discretion and that for competitive reasons generally reflect changes in the UK Bank Rate, set by the Bank of England. The rates on the remaining liabilities are contractually fixed for their term to maturity. Many banking assets are sensitive to interest rate movements; there is a large volume of managed rate assets such as variable rate mortgages which may be considered as a natural offset to the interest rate risk arising from the managed rate liabilities. However, a significant proportion of the Group\u2019s lending assets, for example many personal loans and mortgages, bear interest rates which are contractually fixed. Interest rate sensitivity analysis relating to the Group\u2019s banking activities is set out in the tables marked audited on page 188. The Group\u2019s risk management policy is to optimise reward while managing its market risk exposures within the risk appetite defined by the Board. The largest residual risk exposure arises from balances that are deemed to be insensitive to changes in market rates (including current accounts, a portion of variable rate deposits and investable equity), and is managed through the Group\u2019s structural hedge. The structural hedge consists of longer-term fixed rate assets or interest rate swaps and the amount and duration of the hedging activity is reviewed regularly by the Group Asset and Liability Committee. The Group establishes hedge accounting relationships for interest rate risk components using cash flow hedges and fair value hedges. The Group is exposed to cash flow interest rate risk on its variable rate loans and deposits together with its floating rate subordinated debt. The derivatives used to manage the structural hedge may be designated into cash flow hedges to manage income statement volatility. The economic items related to the structural hedge, for example current accounts, are not eligible hedged items under IAS 39 for inclusion into accounting hedge relationships. The Group is exposed to fair value interest rate risk on its fixed rate customer loans, its fixed rate customer deposits and the majority of its subordinated debt, and to cash flow interest rate risk on its variable rate loans and deposits together with its floating rate subordinated debt. The Group applies netting between similar risks before applying hedge accounting. Hedge ineffectiveness arises during the management of interest rate risk due to residual unhedged risk. Sources of ineffectiveness, which the Group may decide to not fully mitigate, can include basis differences, timing differences and notional amount differences. The effectiveness of accounting hedge relationships is assessed between the hedging derivatives and the documented hedged item, which can differ to the underlying economically hedged item. At 31 December 2023 the aggregate notional principal of interest rate and other swaps (predominantly interest rate) designated as fair value hedges was \u00a3153,639 million (2022: \u00a3152,662 million) with a net fair value liability of \u00a3345 million (2022: liability of \u00a3493 million) (note 22). The losses on the hedging instruments were \u00a32,663 million (2022: gains of \u00a31,284 million). The gains on the hedged items attributable to the hedged risk were \u00a32,396 million (2022: losses of \u00a31,325 million). The gains and losses relating to the fair value hedges are recorded in net trading income. The notional principal of the interest rate swaps designated as cash flow hedges at 31 December 2023 was \u00a3463,660 million (2022: \u00a3249,703 million) with a net fair value asset of \u00a31 million (2022: liability of \u00a32 million) (note 22). In 2023, ineffectiveness recognised in the income statement that arises from cash flow hedges was a gain of \u00a319 million (2022: loss of \u00a310 million). Interest rate benchmark reform Following the completion of industry events, including the two London Clearing House USD derivatives transition events in the second quarter of the year, together with bilateral customer consents, the Group has transitioned materially all of its LIBOR linked products. We continue to work with customers to transition a small number of remaining contracts that were not subject to the above events and either have a future dated transition trigger or have defaulted to the relevant synthetic LIBOR benchmark in the interim. Each remaining contract has a known path to transition which is not expected to have a material impact on the Group\u2019s financial statements. While the volume of outstanding transactions impacted by IBOR benchmark reforms continues to reduce, the Group does not expect material changes to its risk management approach. (B) Foreign exchange risk The corporate and retail businesses incur foreign exchange risk in the course of providing services to their customers. All non-structural foreign exchange exposures in the non-trading book are managed centrally within allocated exposure limits. Trading book exposures in the authorised trading centres are allocated exposure limits. The limits are monitored daily by the local centres and reported to the market and liquidity risk function in London. Associated VaR and the closing, average, maximum and minimum are disclosed in the tables marked audited on page 190. The Group manages foreign currency accounting exposure via cash flow hedge accounting, utilising currency swaps and forward foreign exchange trades. Risk arises from the Group\u2019s investments in its overseas operations. The Group\u2019s structural foreign currency exposure is represented by the net asset value of the foreign currency equity and subordinated debt investments in its subsidiaries and branches. Gains or losses on structural foreign currency exposures are taken to reserves. The Group\u2019s main overseas operations are in the Americas and Europe.
Details of the Group\u2019s structural foreign currency exposures are as follows:
2023
2022
Other Other
Euro US Dollar non-Sterling Euro US Dollar non-Sterling
Foreign currency of Group operations \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Exposure
1,471
204
1
1,843
209
5
", "dimensions": { "concept": "ifrs-full:DisclosureOfMarketRiskExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-986": { "value": "
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\u2019s liquidity risk appetite is also calibrated against a number of stressed liquidity metrics.
The table below analyses assets and liabilities of the Group, other than liabilities arising from insurance and investment contracts, into
relevant maturity groupings based on the remaining contractual period at the balance sheet date; balances with no fixed maturity are
included in the over 5 years category. Liabilities arising from insurance and investment contracts are analysed on a behavioural basis.
Certain balances, included in the table below on the basis of their residual maturity, are repayable on demand upon payment of a
penalty.
(A) Maturities of assets and liabilities
Up to 1 1 to 3 3 to 6 6 to 9 9 to 12 1 to 2 2 to 5 Over 5
month months months months months years years years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Assets
Cash and balances at central banks
78,110
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
78,110
Financial assets at fair value through profit or
loss
13,286
8,279
6,192
1,999
1,499
3,403
9,420
159,240
203,318
Derivative financial instruments
2,747
1,380
907
693
448
1,094
2,448
12,639
22,356
Loans and advances to banks
5,768
1,213
873
413
228
579
1,686
4
10,764
Loans and advances to customers
19,148
11,274
13,310
11,555
10,326
32,667
72,029
279,436
449,745
Reverse repurchase agreements
19,475
10,242
5,002
1,969
620
754
709
\u2013
38,771
Debt securities
427
185
7
93
297
2,588
5,742
6,016
15,355
Financial assets at amortised cost
44,818
22,914
19,192
14,030
11,471
36,588
80,166
285,456
514,635
Financial assets at fair value through other
comprehensive income
276
428
221
272
617
1,663
11,587
12,528
27,592
Other assets
1,901
1,024
71
777
65
137
160
31,307
35,442
Total assets
141,138
34,025
26,583
17,771
14,100
42,885
103,781
501,170
881,453
Liabilities
Deposits from banks
2,092
1,065
201
218
184
349
2,044
\u2013
6,153
Customer deposits
427,657
11,052
9,138
6,925
6,093
7,685
2,520
326
471,396
Repurchase agreements at amortised cost
3,222
4,057
23
2
\u2013
21,448
8,951
\u2013
37,703
Financial liabilities at fair value through profit or
loss
8,971
4,115
4,883
479
169
658
926
4,713
24,914
Derivative financial instruments
2,821
1,381
814
660
526
1,420
2,829
9,698
20,149
Debt securities in issue at amortised cost
1,954
8,057
9,260
5,873
4,554
12,489
24,418
8,987
75,592
Liabilities arising from insurance and
participating investment contracts
456
324
12
178
287
2,485
11,235
105,146
120,123
Liabilities arising from non-participating
investment contracts
348
527
789
787
776
4,280
9,517
27,954
44,978
Other liabilities
5,846
1,169
372
1,532
469
639
876
11,924
22,827
Subordinated liabilities
\u2013
\u2013
15
47
789
1,943
3,130
4,329
10,253
Total liabilities
453,367
31,747
25,507
16,701
13,847
53,396
66,446
173,077
834,088
Up to 1 1 to 3 3 to 6 6 to 9 9 to 12 1 to 2 2 to 5 Over 5
month months months months months years years years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Assets
Cash and balances at central banks
91,388
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
91,388
Financial assets at fair value through profit or
loss
12,019
8,108
3,269
2,186
858
2,827
7,726
143,776
180,769
Derivative financial instruments
2,896
1,823
1,069
656
637
1,424
2,828
13,420
24,753
Loans and advances to banks
4,756
763
896
700
352
78
3,084
3
10,632
Loans and advances to customers
17,535
7,628
10,337
8,849
9,952
33,886
78,857
287,855
454,899
Reverse repurchase agreements
14,530
10,908
11,600
4,035
285
2,924
583
\u2013
44,865
Debt securities
7
219
73
275
77
874
6,475
1,926
9,926
Financial assets at amortised cost
36,828
19,518
22,906
13,859
10,666
37,762
88,999
289,784
520,322
Financial assets at fair value through other
comprehensive income
310
273
391
456
665
2,324
9,334
9,401
23,154
Other assets
1,537
969
47
589
132
71
129
29,534
33,008
Total assets
144,978
30,691
27,682
17,746
12,958
44,408
109,016
485,915
873,394
Liabilities
Deposits from banks
3,988
364
141
139
408
4
2,222
\u2013
7,266
Customer deposits
446,311
8,074
5,628
2,953
4,695
3,887
3,402
381
475,331
Repurchase agreements at amortised cost
12,203
6,183
\u2013
\u2013
\u2013
\u2013
30,210
\u2013
48,596
Financial liabilities at fair value through profit or
loss
5,245
2,363
1,526
1,431
665
615
1,476
4,434
17,755
Derivative financial instruments
3,197
1,647
942
739
779
2,030
3,850
10,858
24,042
Debt securities in issue at amortised cost
5,562
9,761
8,646
3,940
2,114
10,124
23,964
9,708
73,819
Liabilities arising from insurance and
participating investment contracts
574
422
94
163
331
1,247
8,465
98,982
110,278
Liabilities arising from non-participating
investment contracts
439
497
736
742
716
2,793
9,890
23,663
39,476
Other liabilities
5,680
1,236
378
1,476
515
499
688
11,718
22,190
Subordinated liabilities
\u2013
\u2013
541
662
\u2013
915
3,770
4,842
10,730
Total liabilities
483,199
30,547
18,632
12,245
10,223
22,114
87,937
164,586
829,483
1
1 Restated for the adoption of IFRS 17; see notes 1 and 54.
The above table is provided on a contractual basis. The Group\u2019s assets and liabilities may be repaid or otherwise mature earlier or later
than implied by their contractual terms and readers are, therefore, advised to use caution when using this data to evaluate the Group\u2019s
liquidity position. In particular, amounts in respect of customer deposits are usually contractually payable on demand or at short
notice. However, in practice, these deposits are not usually withdrawn on their contractual maturity.
The table below analyses financial instrument liabilities of the Group, excluding those arising from insurance and participating
investment contracts, on an undiscounted future cash flow basis according to contractual maturity, into relevant maturity groupings
based on the remaining period at the balance sheet date; balances with no fixed maturity are included in the over 5 years category.
Up to 1 1 to 3 3 to 12 1 to 5 Over 5
month months months years years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Deposits from banks
2,093
1,073
623
2,394
\u2013
6,183
Customer deposits
427,695
11,133
22,572
10,767
325
472,492
Repurchase agreements at amortised cost
3,627
4,092
1,085
31,399
\u2013
40,203
Financial liabilities at fair value through profit or loss
8,801
4,157
5,694
1,808
5,845
26,305
Debt securities in issue at amortised cost
2,334
8,492
21,111
40,741
8,085
80,763
Liabilities arising from non-participating investment contracts
44,978
\u2013
\u2013
\u2013
\u2013
44,978
Lease liabilities
18
70
247
779
666
1,780
Subordinated liabilities
32
80
1,274
6,627
7,822
15,835
Total non-derivative financial liabilities
489,578
29,097
52,606
94,515
22,743
688,539
Derivative financial liabilities
Gross settled derivatives \u2013 outflows
80,148
46,874
47,777
35,807
20,302
230,908
Gross settled derivatives \u2013 inflows
(78,031)
(45,249)
(46,575)
(35,753)
(20,327)
(225,935)
Gross settled derivatives \u2013 net flows
2,117
1,625
1,202
54
(25)
4,973
Net settled derivative liabilities
12,095
138
161
402
1,501
14,297
Total derivative financial liabilities
14,212
1,763
1,363
456
1,476
19,270
Up to 1 1 to 3 3 to 12 1 to 5 Over 5
month months months years years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2022
Deposits from banks
3,925
369
714
2,227
135
7,370
Customer deposits
449,801
6,717
11,635
7,417
382
475,952
Repurchase agreements at amortised cost
12,501
6,188
904
33,054
38
52,685
Financial liabilities at fair value through profit or loss
5,297
2,397
3,725
2,293
4,747
18,459
Debt securities in issue at amortised cost
6,108
12,625
15,517
39,527
11,623
85,400
Liabilities arising from non-participating investment contracts
42,975
\u2013
\u2013
\u2013
\u2013
42,975
Lease liabilities
13
54
166
582
700
1,515
Subordinated liabilities
27
113
1,648
6,741
12,384
20,913
Total non-derivative financial liabilities
520,647
28,463
34,309
91,841
30,009
705,269
Derivative financial liabilities
Gross settled derivatives \u2013 outflows
55,671
43,380
40,826
34,808
20,677
195,362
Gross settled derivatives \u2013 inflows
(52,383)
(41,255)
(39,132)
(34,015)
(20,130)
(186,915)
Gross settled derivatives \u2013 net flows
3,288
2,125
1,694
793
547
8,447
Net settled derivative liabilities
13,078
82
130
752
1,501
15,543
Total derivative financial liabilities
16,366
2,207
1,824
1,545
2,048
23,990
1 1 Restated for the adoption of IFRS 17; see notes 1 and 54. The majority of the Group\u2019s non-participating investment contract liabilities are unit-linked. These unit-linked products are invested in accordance with unit fund mandates. Clauses are included in policyholder contracts to permit the deferral of sales, where necessary, so that linked assets can be realised without being a forced seller. The principal amount for undated subordinated liabilities with no redemption option is included within the over 5 years column; interest of \u00a316 million (2022: \u00a317 million) per annum which is payable in respect of those instruments for as long as they remain in issue is not included beyond 5 years. An analysis of the Group\u2019s total wholesale funding by residual maturity and by currency is set out on page 182. The following table presents the estimated amount and timing of the remaining contractual discounted cash flows arising from insurance liabilities The amounts presented do not include those relating to LRC of contracts that are measured under the PAA.
Less than 1 1 to 2 2 to 3 3 to 4 4 to 5 Over 5
year years years years years years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Liabilities arising from insurance and
participating investment contracts
(843)
(2,112)
(3,035)
(3,537)
(3,667)
(101,354)
(114,548)
Reinsurance contract liabilities
\u2013
\u2013
\u2013
\u2013
\u2013
(13)
(13)
Total
(843)
(2,112)
(3,035)
(3,537)
(3,667)
(101,367)
(114,561)
At 31 December 2022
Liabilities arising from insurance and
participating investment contracts
(1,115)
(752)
(1,882)
(2,621)
(3,147)
(95,362)
(104,879)
Reinsurance contract liabilities
(4)
(4)
(4)
(4)
(4)
(118)
(138)
Total
(1,119)
(756)
(1,886)
(2,625)
(3,151)
(95,480)
(105,017)
For insurance contracts which are neither unit-linked nor in the Group\u2019s 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. Some of the Group\u2019s insurance and participating investment contract liabilities are payable on demand as shown in the table below:
2023
2022
Amounts Amounts
payable on Carrying payable on Carrying
demand amount demand amount
\u00a3m \u00a3m \u00a3m \u00a3m
Life
102,396
99,799
93,663
91,163
Non-life
\u2013
\u2013
\u2013
\u2013
Total
102,396
99,799
93,663
91,163
The amounts payable on demand represent contract surrender values and incurred claims.
The figures below are presented in timing categories representing the remaining offer periods of lending commitments or remaining
coverage periods of financial guarantees, but the Group could be required to lend or pay amounts under those arrangements earlier
than the periods presented below. Payment under the significant majority of the Group\u2019s lending commitments and financial
guarantee contracts could be required to be made on demand.
Up to 1 1 to 3 3 to 6 6 to 9 9 to 12 1 to 3 3 to 5 Over 5
month months months months months years years years Total
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
At 31 December 2023
Acceptances and endorsements
7
10
166
\u2013
8
\u2013
\u2013
\u2013
191
Other contingent liabilities
214
558
157
148
200
598
190
593
2,658
Total contingent liabilities
221
568
323
148
208
598
190
593
2,849
Lending commitments and guarantees
69,932
4,767
17,384
4,212
6,528
23,269
14,142
2,983
143,217
Other commitments
\u2013
\u2013
\u2013
\u2013
\u2013
38
41
23
102
Total commitments and guarantees
69,932
4,767
17,384
4,212
6,528
23,307
14,183
3,006
143,319
Total contingents, commitments and guarantees
70,153
5,335
17,707
4,360
6,736
23,905
14,373
3,599
146,168
At 31 December 2022
Acceptances and endorsements
47
11
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
58
Other contingent liabilities
355
744
263
240
144
554
181
447
2,928
Total contingent liabilities
402
755
263
240
144
554
181
447
2,986
Lending commitments and guarantees
68,984
2,419
17,641
1,586
6,439
12,787
14,329
19,571
143,756
Other commitments
\u2013
\u2013
\u2013
\u2013
\u2013
\u2013
10
29
39
Total commitments and guarantees
68,984
2,419
17,641
1,586
6,439
12,787
14,339
19,600
143,795
Total contingents, commitments and guarantees
69,386
3,174
17,904
1,826
6,583
13,341
14,520
20,047
146,781
", "dimensions": { "concept": "ifrs-full:DisclosureOfLiquidityRiskExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-987": { "value": "Capital risk Capital is actively managed on an ongoing basis for both the Group and its regulated banking subsidiaries, with associated capital policies and procedures subjected to regular review. The Group assesses both its regulatory capital requirements and the quantity and quality of capital resources it holds to meet those requirements in accordance with the relevant provisions of the Capital Requirements Directive (CRD V) and Capital Requirements Regulation (UK CRR). This is supplemented through additional regulation set out under the PRA Rulebook and through associated statements of policy, supervisory statements and other regulatory guidance. Regulatory capital ratios are considered a key part of the budgeting and planning processes and forecast ratios are reviewed by the Group Asset and Liability Committee. Target capital levels take account of current and future regulatory requirements, capacity for growth and to cover uncertainties. Details of the Group\u2019s capital resources are provided in the table marked audited on page 149. Each insurance company within the Group is regulated by the PRA. The insurance businesses are required to calculate solvency capital requirements and available capital in accordance with Solvency II. The Group complied with these requirements in 2023 and 2022. The Insurance business of the Group calculates regulatory capital on the basis of an internal model, which was approved by the PRA on 5 December 2015, with the latest major change to the model approved in November 2020. The capital position of the Group\u2019s insurance businesses is reviewed on a regular basis by the Insurance, Pensions and Investments Executive Committee. ", "dimensions": { "concept": "ifrs-full:DisclosureOfObjectivesPoliciesAndProcessesForManagingCapitalExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-945": { "value": "
Note 53: Cash flow statement
(A) Change in operating assets
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Change in financial assets held at amortised cost
12,311
(1,639)
(2,379)
Change in financial assets at fair value through profit or loss
(22,539)
26,219
(15,565)
Change in derivative financial instruments
1,805
(7,704)
6,132
Change in other operating assets
(687)
(141)
1,447
Change in operating assets
(9,110)
16,735
(10,365)
1,2
2
1 Restated for the adoption of IFRS 17; see notes 1 and 54.
2 Restated for presentational changes; see note 1.
(B) Change in operating liabilities
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Change in deposits from banks
(1,110)
(388)
(5,052)
Change in customer deposits
(3,850)
(1,207)
25,672
Change in repurchase agreements
(10,893)
17,471
2,941
Change in financial liabilities at fair value through profit or loss
6,925
(4,849)
391
Change in derivative financial instruments
(3,893)
5,982
(9,258)
Change in debt securities in issue at amortised cost
2,094
1,651
(15,896)
Change in insurance contracts
9,845
(14,901)
7,328
Change in investment contract liabilities
5,502
(1,414)
6,588
Change in other operating liabilities
(388)
(864)
(432)
Change in operating liabilities
4,232
1,481
12,282
1,2
2
3
1 Restated for the adoption of IFRS 17; see notes 1 and 54.
2 Restated for presentational changes; see note 1.
3 Includes an increase of \u00a3315 million (2022: decrease of \u00a3158 million; 2021: decrease of \u00a3197 million) in respect of lease liabilities.
(C) Non-cash and other items
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Interest expense on subordinated liabilities
720
697
1,320
Hedging valuation adjustments on subordinated debt
141
(1,871)
(781)
Accretion of discounts and amortisation of premiums and issue costs
1,259
462
(306)
Revaluation of investment properties
87
511
(575)
Net gain on sale of financial assets at fair value through other comprehensive income
(122)
(92)
2
Share of post-tax results of associates and joint ventures
16
(10)
(2)
Profit on disposal of tangible fixed assets
(61)
(121)
(268)
Net (credit) charge in respect of defined benefit schemes
(79)
125
236
Depreciation and amortisation
2,905
2,396
2,825
Regulatory and legal provisions
675
255
1,300
Other provision movements
(30)
(74)
(66)
Allowance for loan losses
315
1,372
(1,121)
Write-off of allowance for loan losses, net of recoveries
(1,115)
(759)
(935)
Impairment charge (credit) on undrawn balances
\u2013
122
(257)
Impairment (credit) charge on financial assets at fair value through other comprehensive income
(2)
6
(2)
Transactions in own shares
103
(60)
(13)
Transfers to income statement from reserves
1,838
43
(621)
Foreign exchange impact on balance sheet
502
(286)
140
Other non-cash items
176
185
23
Total non-cash items
7,328
2,901
899
Contributions to defined benefit schemes
(1,345)
(2,533)
(1,347)
Payments in respect of regulatory and legal provisions
(378)
(625)
(817)
Other
17
13
\u2013
Total other items
(1,706)
(3,145)
(2,164)
Non-cash and other items
5,622
(244)
(1,265)
1,2
2
3
1 Restated for the adoption of IFRS 17; see notes 1 and 54.
2 Restated for presentational changes; see note 1.
3 When considering the movement on each line of the balance sheet, the impact of foreign exchange rate movements is removed in order to show the underlying cash
impact.
(D) Acquisition of Group undertakings and businesses
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Net assets acquired:
Cash and cash equivalents
38
\u2013
\u2013
Intangible assets
182
68
\u2013
Other assets
672
131
3
Deferred tax
(58)
\u2013
\u2013
Other liabilities
(646)
(146)
\u2013
Goodwill arising on acquisition
143
335
\u2013
Cash consideration
331
388
3
Less cash and cash equivalents acquired
(38)
(74)
\u2013
Net cash outflow arising from acquisition of subsidiaries and businesses
293
314
3
Acquisition of and additional investment in joint ventures
87
95
54
Net cash outflow from acquisitions in the year
380
409
57
(E) Analysis of cash and cash equivalents as shown in the balance sheet
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Cash and balances at central banks
78,110
91,388
76,420
Less mandatory reserve deposits
(1,930)
(2,111)
(2,178)
76,180
89,277
74,242
Loans and advances to banks and reverse repurchase agreements
19,048
14,418
10,533
Less amounts with a maturity of three months or more
(6,390)
(7,866)
(5,581)
12,658
6,552
4,952
Total cash and cash equivalents
88,838
95,829
79,194
1
1 Mandatory reserve deposits are held with local central banks in accordance with statutory requirements. Where these deposits are not held in demand accounts and
are not available to finance the Group\u2019s day-to-day operations they are excluded from cash and cash equivalents.
Included within cash and cash equivalents at 31 December 2023 is \u00a331 million (2022: \u00a337 million; 2021: \u00a376 million) of restricted cash and
cash equivalents is held within the Group\u2019s long-term insurance and investments operations, which is not immediately available for use
in the business.
", "dimensions": { "concept": "ifrs-full:DisclosureOfCashFlowStatementExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-988": { "value": "(E) Analysis of cash and cash equivalents as shown in the balance sheet
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Cash and balances at central banks
78,110
91,388
76,420
Less mandatory reserve deposits
(1,930)
(2,111)
(2,178)
76,180
89,277
74,242
Loans and advances to banks and reverse repurchase agreements
19,048
14,418
10,533
Less amounts with a maturity of three months or more
(6,390)
(7,866)
(5,581)
12,658
6,552
4,952
Total cash and cash equivalents
88,838
95,829
79,194
1 1 Mandatory reserve deposits are held with local central banks in accordance with statutory requirements. Where these deposits are not held in demand accounts and are not available to finance the Group\u2019s day-to-day operations they are excluded from cash and cash equivalents. Included within cash and cash equivalents at 31 December 2023 is \u00a331 million (2022: \u00a337 million; 2021: \u00a376 million) of restricted cash and cash equivalents is held within the Group\u2019s long-term insurance and investments operations, which is not immediately available for use in the business.", "dimensions": { "concept": "ifrs-full:DisclosureOfCashAndCashEquivalentsExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-1016": { "value": "(E) Analysis of cash and cash equivalents as shown in the balance sheet
2023 2022 2021
\u00a3m \u00a3m \u00a3m
Cash and balances at central banks
78,110
91,388
76,420
Less mandatory reserve deposits
(1,930)
(2,111)
(2,178)
76,180
89,277
74,242
Loans and advances to banks and reverse repurchase agreements
19,048
14,418
10,533
Less amounts with a maturity of three months or more
(6,390)
(7,866)
(5,581)
12,658
6,552
4,952
Total cash and cash equivalents
88,838
95,829
79,194
1 1 Mandatory reserve deposits are held with local central banks in accordance with statutory requirements. Where these deposits are not held in demand accounts and are not available to finance the Group\u2019s day-to-day operations they are excluded from cash and cash equivalents. Included within cash and cash equivalents at 31 December 2023 is \u00a331 million (2022: \u00a337 million; 2021: \u00a376 million) of restricted cash and cash equivalents is held within the Group\u2019s long-term insurance and investments operations, which is not immediately available for use in the business.", "dimensions": { "concept": "ifrs-full:DisclosureOfCashAndBankBalancesAtCentralBanksExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-989": { "value": "Note 54: Restatement of prior period information As explained in note 1, the Group adopted IFRS 17 Insurance Contracts on 1 January 2023. The following tables summarise the adjustments arising on the adoption of IFRS 17 to the Group\u2019s: \u2022 Consolidated income statement, consolidated statement of comprehensive income and consolidated cash flow statement for the year ended 31 December 2022 \u2022 Consolidated balance sheet at 31 December 2022
As Impact Other
previously of IFRS 17 changes
reported (see below) (see note 1) Restated
Consolidated income statement for the year ended 31 December 2022
Footnote
\u00a3m \u00a3m \u00a3m \u00a3m
Interest income
17,645
\u2013
\u2013
17,645
Interest expense
1
(3,688)
\u2013
(1,035)
(4,723)
Net interest income
13,957
\u2013
(1,035)
12,922
Fee and commission income
2,835
(45)
\u2013
2,790
Fee and commission expense
(1,332)
262
\u2013
(1,070)
Net fee and commission income
1,503
217
\u2013
1,720
Net trading income (losses)
(19,987)
\u2013
\u2013
(19,987)
Insurance premium income
2
9,059
(9,059)
\u2013
Insurance revenue
3
2,461
\u2013
2,461
Insurance service expense
4
(3,863)
\u2013
(3,863)
Net income (losses) from reinsurance contracts held
62
\u2013
62
Insurance service result
(1,340)
\u2013
(1,340)
Other operating income
5
1,276
63
\u2013
1,339
Other income
(8,149)
(10,119)
\u2013
(18,268)
Total income
5,808
(10,119)
(1,035)
(5,346)
Insurance claims and changes in insurance and investment contract liabilities
6
12,401
(12,401)
\u2013
Net finance (expense) income from insurance, participating investment and
reinsurance contracts
7
15,893
\u2013
15,893
Movement in third party interests in consolidated funds
1
\u2013
1,035
1,035
Change in non-participating investment contracts
8
3,959
\u2013
3,959
Total income, after net finance (expense) income in respect of insurance and
investment contracts
18,209
(2,668)
\u2013
15,541
Operating expenses
9
(9,759)
522
\u2013
(9,237)
Impairment
(1,522)
\u2013
\u2013
(1,522)
Profit before tax
6,928
(2,146)
\u2013
4,782
Tax expense
(1,373)
514
\u2013
(859)
Profit for the year
5,555
(1,632)
\u2013
3,923
Profit attributable to ordinary shareholders
5,021
(1,632)
\u2013
3,389
Profit attributable to other equity holders
438
\u2013
\u2013
438
Profit attributable to equity holders
5,459
(1,632)
\u2013
3,827
Profit attributable to non-controlling interests
96
\u2013
\u2013
96
Profit for the year
5,555
(1,632)
\u2013
3,923
Basic earnings per share
7.3p
(2.4p)
\u2013
4.9p
Diluted earnings per share
7.2p
(2.3p)
\u2013
4.9p
1 Movement in third party interests in consolidated funds is reclassified from interest expense to a separate line on the face of the income statement. 2 Insurance premium income is removed as this is no longer presented in the income statement under IFRS 17. 3 Insurance revenue includes the CSM released to the income statement and changes in the risk adjustment related to current service (for more details on IFRS 17 measurement see note 1). 4 Insurance services expense includes incurred claims excluding any investment components, attributable service expenses and losses as a result of contract modifications. 5 The change in operating income is primarily driven by the removal of the movement in the value of in-force asset. 6 These changes are analysed using different line items under IFRS 17. 7 Finance related changes to the carrying value of insurance, participating investment and reinsurance contracts. 8 Change in non-participating investment contracts is presented as a separate line item. 9 Maintenance expenses are included within insurance service expense and acquisition expenses are deferred within the CSM under IFRS 17
As
previously Impact
reported of IFRS 17 Restated
Consolidated statement of comprehensive income for the year ended 31 December 2022 \u00a3m \u00a3m \u00a3m
Profit for the year
5,555
(1,632)
3,923
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements:
Remeasurements before tax
(3,012)
\u2013
(3,012)
Tax
860
\u2013
860
(2,152)
\u2013
(2,152)
Movements in revaluation reserve in respect of equity shares held at fair value through other
comprehensive income:
Change in fair value
44
\u2013
44
Tax
3
\u2013
3
47
\u2013
47
Gains and losses attributable to own credit risk:
Gains before tax
519
\u2013
519
Tax
(155)
\u2013
(155)
364
\u2013
364
Items that may subsequently be reclassified to profit or loss:
Movements in revaluation reserve in respect of debt securities held at fair value through other
comprehensive income:
Change in fair value
(133)
\u2013
(133)
Income statement transfers in respect of disposals
(92)
\u2013
(92)
Income statement transfers in respect of impairment
6
\u2013
6
Tax
62
\u2013
62
(157)
\u2013
(157)
Movements in cash flow hedging reserve:
Effective portion of changes in fair value taken to other comprehensive income
(6,990)
\u2013
(6,990)
Net income statement transfers
43
\u2013
43
Tax
1,928
\u2013
1,928
(5,019)
\u2013
(5,019)
Movements in foreign currency translation reserve:
Currency translation differences (tax: \u00a3nil)
119
(3)
116
Transfers to income statement (tax: \u00a3nil)
(31)
\u2013
(31)
88
(3)
85
Total other comprehensive loss for the year, net of tax
(6,829)
(3)
(6,832)
Total comprehensive loss for the year
(1,274)
(1,635)
(2,909)
Total comprehensive loss attributable to ordinary shareholders
(1,808)
(1,635)
(3,443)
Total comprehensive income attributable to other equity holders
438
\u2013
438
Total comprehensive loss attributable to equity holders
(1,370)
(1,635)
(3,005)
Total comprehensive income attributable to non-controlling interests
96
\u2013
96
Total comprehensive loss for the year
(1,274)
(1,635)
(2,909)
IFRS 17
adjustments
As as at Other IFRS 17
previously 1 Jan 2022 changes 2022
reported (see below) (see note 1) movements Restated
Consolidated balance sheet as at 31 December 2022
Footnote
\u00a3m \u00a3m \u00a3m \u00a3m \u00a3m
Assets
Cash and balances at central banks
91,388
\u2013
\u2013
\u2013
91,388
Items in the course of collection from banks
242
\u2013
(242)
\u2013
Financial assets at fair value through profit or loss
1
180,609
200
\u2013
(40)
180,769
Derivative financial instruments
24,753
\u2013
\u2013
\u2013
24,753
Financial assets at amortised cost
520,322
\u2013
\u2013
\u2013
520,322
Financial assets at fair value through other comprehensive income
23,154
\u2013
\u2013
\u2013
23,154
Reinsurance assets
2
616
(759)
\u2013
143
Investments in joint ventures and associates
385
\u2013
(385)
\u2013
Goodwill
2,655
\u2013
(2,655)
\u2013
Value of in-force business
3
5,419
(5,317)
(174)
72
Other intangible assets
4,786
\u2013
(4,786)
\u2013
Goodwill and other intangible assets
\u2013
7,615
\u2013
7,615
Current tax recoverable
612
\u2013
\u2013
\u2013
612
Deferred tax assets
4
5,228
655
\u2013
539
6,422
Retirement benefit assets
3,823
\u2013
\u2013
\u2013
3,823
Other assets
2
13,837
(47)
627
119
14,536
Total assets
877,829
(5,268)
\u2013
833
873,394
Liabilities
Deposits from banks
7,266
\u2013
\u2013
\u2013
7,266
Customer deposits
475,331
\u2013
\u2013
\u2013
475,331
Repurchase agreements at amortised cost
48,596
\u2013
\u2013
\u2013
48,596
Items in course of transmission to banks
372
\u2013
(372)
\u2013
Financial liabilities at fair value through profit or loss
17,755
\u2013
\u2013
\u2013
17,755
Derivative financial instruments
24,042
\u2013
\u2013
\u2013
24,042
Notes in circulation
1,280
\u2013
\u2013
\u2013
1,280
Debt securities in issue at amortised cost
73,819
\u2013
\u2013
\u2013
73,819
Liabilities arising from insurance and participating investment
contracts
5
106,893
1,756
\u2013
1,629
110,278
Liabilities arising from non-participating investment contracts
6
42,975
(4,150)
\u2013
651
39,476
Other liabilities
7
19,090
(896)
372
198
18,764
Retirement benefit obligations
126
\u2013
\u2013
\u2013
126
Current tax liabilities
8
\u2013
\u2013
\u2013
8
Deferred tax liabilities
4
216
(31)
\u2013
24
209
Other provisions
1,809
(12)
\u2013
6
1,803
Subordinated liabilities
10,730
\u2013
\u2013
\u2013
10,730
Total liabilities
830,308
(3,333)
\u2013
2,508
829,483
Equity
Share capital
6,729
\u2013
\u2013
\u2013
6,729
Share premium account
18,504
\u2013
\u2013
\u2013
18,504
Other reserves
6,602
(12)
\u2013
(3)
6,587
Retained profits
10,145
(1,923)
\u2013
(1,672)
6,550
Ordinary shareholders\u2019 equity
41,980
(1,935)
\u2013
(1,675)
38,370
Other equity instruments
5,297
\u2013
\u2013
\u2013
5,297
Total equity excluding non-controlling interests
47,277
(1,935)
\u2013
(1,675)
43,667
Non-controlling interests
244
\u2013
\u2013
\u2013
244
Total equity
47,521
(1,935)
\u2013
(1,675)
43,911
Total equity and liabilities
877,829
(5,268)
\u2013
833
873,394
1 Own shares held through consolidated collective investment vehicles classified as financial assets at fair value through profit or loss rather than in equity under IFRS 17. 2 Reinsurance assets are replaced by reinsurance contract assets, which are presented within other assets, under IFRS 17. 3 The value of in-force business (VIF) is not recognised on the balance sheet under IFRS 17 and acquired VIF presented within goodwill and other intangible assets. 4 Deferred tax assets and liabilities are recalculated based on IFRS 17 retained earnings. 5 Change in measurement basis of liabilities arising from insurance and participating investment contracts under IFRS 17. 6 Reclassification of certain hybrid unit-linked and With-Profit contracts from IFRS 9 to IFRS 17. 7 Unallocated surplus relating to the With-Profit funds is recognised as part of the liabilities arising from insurance and participating investment contracts under IFRS 17.
As Other
previously Impact changes
reported of IFRS 17 (see note 1) Restated
Consolidated cash flow statement for the year ended 31 December 2022 \u00a3m \u00a3m \u00a3m \u00a3m
Cash flows from operating activities
Profit before tax
6,928
(2,146)
\u2013
4,782
Adjustments for:
Change in operating assets
17,037
(302)
\u2013
16,735
Change in operating liabilities
15,593
2,418
(16,530)
1,481
Non-cash and other items
(16,804)
30
16,530
(244)
Net tax paid
(743)
\u2013
\u2013
(743)
Net cash provided by operating activities
22,011
\u2013
\u2013
22,011
Cash flows from investing activities
Purchase of financial assets
(7,984)
\u2013
\u2013
(7,984)
Proceeds from sale and maturity of financial assets
11,172
\u2013
\u2013
11,172
Purchase of fixed assets
(3,855)
\u2013
\u2013
(3,855)
Proceeds from sale of fixed assets
1,550
\u2013
\u2013
1,550
Repayment of capital by joint ventures and associates
36
\u2013
\u2013
36
Acquisition of businesses, net of cash acquired
(409)
\u2013
\u2013
(409)
Net cash provided by investing activities
510
\u2013
\u2013
510
Cash flows from financing activities
Dividends paid to ordinary shareholders
(1,475)
\u2013
\u2013
(1,475)
Distributions in respect of other equity instruments
(438)
\u2013
\u2013
(438)
Distributions in respect of non-controlling interests
(92)
\u2013
\u2013
(92)
Interest paid on subordinated liabilities
(603)
\u2013
\u2013
(603)
Proceeds from issue of subordinated liabilities
838
\u2013
\u2013
838
Proceeds from issue of other equity instruments
745
\u2013
\u2013
745
Proceeds from issue of ordinary shares
31
\u2013
\u2013
31
Share buyback
(2,013)
\u2013
\u2013
(2,013)
Repayment of subordinated liabilities
(2,216)
\u2013
\u2013
(2,216)
Repurchases and redemptions of other equity instruments
(1,395)
\u2013
\u2013
(1,395)
Change in stake of non-controlling interests
5
\u2013
\u2013
5
Net cash used in financing activities
(6,613)
\u2013
\u2013
(6,613)
Effects of exchange rate changes on cash and cash equivalents
727
\u2013
\u2013
727
Change in cash and cash equivalents
16,635
\u2013
\u2013
16,635
Cash and cash equivalents at beginning of year
79,194
\u2013
\u2013
79,194
Cash and cash equivalents at end of year
95,829
\u2013
\u2013
95,829
", "dimensions": { "concept": "ifrs-full:DisclosureOfReclassificationsOrChangesInPresentationExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-946": { "value": "
Note 55: Events since the balance sheet date
Share buyback
The Board has announced its intention to implement an ordinary share buyback of up to \u00a32.0 billion. This represents the return to
shareholders of capital, surplus to that required to provide capacity to grow the business, meet current and future regulatory
requirements and cover uncertainties. The share buyback programme will commence as soon as is practicable and is expected to be
completed, subject to continued authority from the PRA, by 31 December 2024.
", "dimensions": { "concept": "ifrs-full:DisclosureOfEventsAfterReportingPeriodExplanatory", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-9": { "value": "Lloyds Banking Group plc", "dimensions": { "concept": "ifrs-full:NameOfReportingEntityOrOtherMeansOfIdentification", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-10": { "value": " public limited company", "dimensions": { "concept": "ifrs-full:LegalFormOfEntity", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-11": { "value": "Scotland", "dimensions": { "concept": "ifrs-full:CountryOfIncorporation", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-12": { "value": "The Mound, Edinburgh EH1 1YZ, Scotland,", "dimensions": { "concept": "ifrs-full:AddressOfRegisteredOfficeOfEntity", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } }, "fact-13": { "value": "25 Gresham Street, London EC2V 7HN", "dimensions": { "concept": "ifrs-full:PrincipalPlaceOfBusiness", "language": "en", "entity": "scheme:549300PPXHEU2JF0AM85", "period": "2023-01-01T00:00:00/2024-01-01T00:00:00" } } } }