Lloyds Banking Group Plc: Q3 2024 Interim Management Statement Summary
Business Context and Reporting Period
This Form 6-K filing reports the Q3 2024 Interim Management Statement for Lloyds Banking Group Plc, covering the nine months ended 30 September 2024. The Group reported a robust financial performance with growth in income, continued cost discipline, and strong asset quality. Management reaffirmed its 2024 guidance, citing progress on strategy and a commitment to delivering sustainable returns.
Key Financial Metrics
| Metric | Nine Months Ended 30 Sep 2024 | Nine Months Ended 30 Sep 2023 | Change |
|---|---|---|---|
| Statutory Profit After Tax | £3.8 billion | £4.3 billion | (12%) |
| Underlying Net Interest Income | £9.6 billion | £10.4 billion | (8%) |
| Underlying Other Income | £4.2 billion | £3.8 billion | +9% |
| Operating Costs | £7.0 billion | £6.7 billion | +5% |
| Underlying Impairment Charge | £273 million | £849 million | (68%) |
| Banking Net Interest Margin | 2.94% | 3.15% | (21 bps) |
| Asset Quality Ratio | 9 bps | 25 bps | (16 bps) |
| CET1 Ratio | 14.3% | 14.6% (Dec 2023) | (30 bps) |
| Risk-Weighted Assets | £223.3 billion | £219.1 billion (Dec 2023) | +2% |
| Tangible Net Assets per Share | 52.5 pence | 50.8 pence (Dec 2023) | +3.3% |
Material Changes vs. Prior Period
- Profit Decline: Statutory profit after tax decreased by 12% year-over-year, driven by lower net interest income and higher operating costs, partially offset by a significantly lower impairment charge.
- Net Interest Income: Underlying net interest income fell 8% due to a lower banking net interest margin (2.94% vs 3.15%), reflecting deposit churn and asset margin compression in the mortgage book. However, Q3 margin improved slightly to 2.95% from 2.93% in Q2.
- Cost Pressures: Operating costs rose 5% due to strategic investments, inflation, and a sector-wide change in the Bank of England Levy charging approach. Operating lease depreciation increased 70% to £994 million due to fleet growth and lower used electric car prices.
- Asset Quality: The underlying impairment charge dropped 68% to £273 million, aided by a £324 million credit from an improved economic outlook. The asset quality ratio improved to 9 basis points.
- Balance Sheet Growth: Underlying loans and advances increased by £7.3 billion to £457.0 billion, driven by Retail growth. Customer deposits rose £4.3 billion to £475.7 billion.
Guidance, Outlook, and Risks
2024 Guidance Reaffirmed:
- Banking net interest margin: >290 basis points.
- Operating costs: c.£9.4 billion (including c.£0.1 billion Bank of England Levy).
- Asset quality ratio:
- Return on tangible equity: c.13%.
- Capital generation: c.175 basis points.
- Risk-weighted assets: £220 billion - £225 billion.
- CET1 ratio target: Pay down to c.13.5% by end of 2024, progressing to c.13.0% by end of 2026.
Management Commentary: The Group expects capital generation of c.175 basis points for 2024. Sterling structural hedge earnings are expected to be over £0.7 billion higher than in 2023. The Board expects to pay down to a CET1 ratio of c.13.5% by the end of 2024.
Risks and Contingencies:
- Regulatory: The FCA confirmed it will set out next steps in its review of historical motor finance commission arrangements in May 2025. No further charges were recognized in the period regarding this review.
- Basel 3.1: Implementation is expected to have a modestly positive impact, with final regulations applying from 1 January 2026.
- Economic Assumptions: The base case assumes slow GDP expansion and modest unemployment rises. The severe downside scenario incorporates adjustments for CPI inflation and UK Bank Rate paths.
Investor Verification Checklist
- Verify the impact of the Bank of England Levy charging approach change on future operating costs.
- Monitor the FCA review of historical motor finance commission arrangements for potential future remediation costs.
- Assess the sustainability of the banking net interest margin given deposit churn and mortgage refinancing headwinds.
- Review the trajectory of Risk-Weighted Assets (RWAs) against the £220-225 billion guidance, particularly regarding Retail secured CRD IV model updates.
- Confirm the execution of the share buyback program and its impact on tangible net assets per share.