Annual Report and Accounts 2016 Lloyds Banking Group How We're Helping Britain Prosper
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Lloyds Banking plc Group Lloyds Annual Report and Accounts 2016 HELPING BRITAIN PROSPER Lloyds Banking Group Annual Report and Accounts 2016 Lloyds Banking Group How we're helping Britain prosper Helping Britain Prosper is our purpose. It means responding to the social and economic issues we We're helping believe we are best placed to address. individuals, families, businesses and We already support people, businesses and communities all over Britain through our iconic brands and extensive communities all across range of clear and simple products and services, but we Britain to prosper want to do even more to play our part in making Britain a more inclusive and prosperous country. To achieve this we must continue to build a culture where our colleagues put customers first. We want to take a leading role in helping the UK economy whether through supporting housing, trade, growth, infrastructure or tackling disadvantage. Our Helping Britain Prosper Plan, launched in 2014, helps us achieve this, taking us beyond business as usual by setting measurable targets in the areas where we believe we can make the biggest difference. The Plan is an investment in our long-term sustainable success which underpins our aim to become the best bank for customers whilst delivering superior and sustainable returns for shareholders. HELPING PLAN FOR RETIREMENT Key brands >280,000 customer visits to our Retirement Planning Website. We want to do more to support and guide more of our customers on their retirement options HELPING HOMEBUYERS £39bn of gross new mortgage lending in 2016 with 60 per cent going to help homebuyers get on and move up the housing ladder HELPING UK MANUFACTURING £1. 2b n of new funding support for UK manufacturing companies. We are supporting future talent to make British manufacturing more productive and competitive, today and tomorrow HELPING START-UPS 121,000 start-ups helped to get going and grow through funding. We also provide advice and mentoring – including vital support for many charities and social enterprises HELPING COMMUNITIES HELPING THE ECONOMY £600m given to support charities through our £1.8 b n independent charitable Foundations over tax paid in 2015. We are a major contributor the last 30 years. We believe no other bank to UK tax revenues and were ranked as the has the reach or resources to help tackle highest payer of UK tax in the most recent social disadvantage PwC Total Tax Contribution Survey for the 100 Group. This payment increased to £2.3 billion in 2016 HELPING TO BUILD DIGITAL BRITAIN 12.5m customers banking online, making us the UK’s largest digital bank. We are also helping Britain’s charities and small businesses to build their digital skills and capability CONTENTS Reporting Just as we operate in an integrated way, we aim to report in an integrated way. We have taken further steps towards this goal this year. As well as reporting our financial results, we also Strategic report report on our approach to operating responsibly and take Our competitive strengths 02 into account relevant economic, political, social, regulatory and environmental factors. Group highlights 03 Divisional highlights 04 Chairman's statement 06 Group Chief Executive's review 08 Market overview 10 Our business model 12 Our strategic priorities 14 Key performance indicators 16 Our Helping Britain Prosper Plan 18 Doing business responsibly 20 Risk overview 26 View our Annual Report and Accounts and other information Financial results about Lloyds Banking Group at www.lloydsbankinggroup.com Summary of Group results 33 Five year financial summary 39 Divisional results 40 Other financial information 49 Governance Letter from the Chairman 52 Board of Directors 54 Group Executive Committee 58 Corporate governance report 60 Directors' report 81 Directors' remuneration report 84 Risk management The Group’s approach to risk 116 Emerging risks 118 Capital stress testing 119 How risk is managed 119 Risk governance 121 Full analysis of risk drivers 123 Financial statements Independent auditors' report 171 Consolidated financial statements 179 Parent company financial statements 277 The 2016 Annual Report and Accounts incorporates the strategic report and the consolidated financial statements, both of which have been approved by Other information the Board of Directors. Shareholder information 286 Forward looking statements 288 Abbreviations 288 Alternative performance measures 289 Glossary 289 On behalf of the Board Lord Blackwell Subsidiaries and related undertakings 293 Chairman Lloyds Banking Group 21 February 2017 This Annual Report and Accounts contains forward looking statements with respect to certain of the Group’s plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives. For further details, reference should be made to the forward looking statements on page 288. Please turn over Lloyds Banking Group Annual Report and Accounts 2016 ABOUT US We are the leading provider of financial services to individual report Strategic and business customers in the UK. Our main business activities are retail and commercial banking, general insurance, and long-term savings, protection and investment. We provide our services under a number of well recognised brands including Lloyds Bank, Halifax, Bank of Scotland and Scottish Widows and through a range of distribution channels including the largest branch network and digital bank in the UK. results Financial We are creating a simpler, more responsive, customer focused business. Doing the right thing for our customers by meeting their financial needs, helping them succeed, improving our service Governance proposition and creating value for them, is key to the long-term sustainable success of our business. Risk management Risk Right: Sophie Unwin's 'Remade in Edinburgh' which was awarded a grant from the Lloyds Bank Social Entrepreneurs Scale Up Programme, teaches local people, including those who are homeless, unemployed, or refugees, to repair household goods to save money. OUR PURPOSE OUR STRATEGIC PRIORITIES statementsFinancial Helping Britain prosper Creating the best customer experience Read more on page 18 Becoming simpler and more efficient OUR AIM To become the best bank for customers whilst delivering superior and sustainable Delivering sustainable growth returns for shareholders Other information OUR BUSINESS MODEL Supported by our colleagues Simple, low risk, UK focused, Building the best team retail and commercial bank Read more on page 12 Read more on page 14 01 Strategic report Our competitive strengths Our strengths and capabilities provide significant advantage and differentiation, driving value creation UK focus Financial strength Operating primarily in the UK means we are focused Our balance sheet and funding position have both been on a single developed market that we truly understand transformed in recent years and they are now amongst while avoiding the complexities and costs of multi- the strongest in the banking sector worldwide. jurisdictional operations. Simple, low cost Low risk business Being a low risk bank is fundamental to our business model. operating model Our low risk appetite is reflected through the low level of Our simpler operating model and focus on operational non-performing loans and non-core assets and our credit efficiency provides a cost advantage which benefits default swap spread, which is amongst the best in the banking both customers and shareholders. sector worldwide. PETIT COM IVE STRENGTHS F ST INA CO N W CI O AL L , ST LE SS R P SINE AREA E BU S N IM S G T H IN S IL ODUCT S U PR S U A R L C T O E A O R N W F C R K E I U S K HELPING BRITAIN PROSPER O P D E N R A BEST BANK FOR A T R I CUSTOMERS B N C - G I G O T N N I L R K U E S S U N M P M A O E B N R L A S F I E I IN C L B A R P L E Y N M O CE M E CO P D M E U AG L G TI- N CH D E ANN AN EL SKILLED Operating responsibly Multi-brand proposition A sustainable and responsible approach to doing business Offering our services through a number of recognised is integral to everything we do. brands enables us to address the needs of different customer segments more effectively. Multi-channel approach Operating in an integrated way through a range Skilled and of distribution channels, including the largest branch network and digital bank in the UK, ensures our customers engaged people can interact with us when and how they want. Our colleagues provide real advantage. We invest in skills and training while ensuring alignment to our customer focused strategy and commitment to build the best team. Read more on page 12 02 Lloyds Banking Group Annual Report and Accounts 2016 Group highlights ANOTHER YEAR OF GOOD PROGRESS Strategic report Strategic Underlying profit of Strong balance sheet position with pro forma CET1 ratio (post dividend) of £ 7.9 bn 13.8 % Strong capital generation Progressive and sustainable ordinary dividend c.190 bps results Financial pre dividend 2.55p per share with an additional special dividend of Statutory profit before tax more than doubled to 0.5p per share £4.2 bn Cost:income ratio of Acquisition of 48.7% Our market leading cost:income ratio reduced MBNA further, reflecting our operational efficiency Governance credit card business, announced in December Asset quality ratio of 15 bps Asset quality remains strong with no deterioration in the underlying portfolio Risk management Risk Read more on pages 33 to 36 or visit www.lloydsbankinggroup.com Financial statementsFinancial Other information 03 Strategic report Divisional highlights We operate across four business areas to execute our strategy and drive value for all our stakeholders Read more on pages 40 to 47 or visit www.lloydsbankinggroup.com RETAIL COMMERCIAL BANKING Our Retail division is a leading provider of current accounts, Our Commercial Banking division has a rich heritage of savings and mortgages to personal and small business supporting UK businesses from SMEs to large corporates customers in the UK.