Lloyds Banking Group plc — 2021 Form 20-F summary
Business context and reporting period
Annual report for the fiscal year ended 31 December 2021, filed 28 February 2022; it is not a standalone Q4 report. Lloyds is a UK-focused banking, insurance and wealth group, reporting Retail, Commercial Banking, and Insurance and Wealth segments. Financial statements are prepared under IFRS as issued by the IASB, in pounds sterling.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Net interest income | £9.366bn | £10.749bn |
| Total income | £37.444bn | £29.167bn |
| Total income, net of insurance claims | £16.324bn | £15.126bn |
| Operating expenses | £10.800bn | £9.745bn |
| Impairment credit / (charge) | £1.378bn | (£4.155bn) |
| Statutory profit before tax | £6.902bn | £1.226bn |
| Profit for the year | £5.885bn | £1.387bn |
| Profit attributable to ordinary shareholders | £5.355bn | £0.865bn |
| Basic earnings per share | 7.5p | 1.2p |
Underlying profit before tax was £8.040bn, up from £2.193bn. Net interest margin, excluding amounts allocated to OEIC unitholders, was 1.75% versus 1.70%; the statutory cost-income ratio rose to 66.2% from 64.4%.
Reported net trading income rose by £9.980bn to £17.200bn, chiefly reflecting higher policyholder investment values in strong equity markets; corresponding insurance claims also increased. The resulting statutory income totals are therefore substantially affected by insurance and policyholder accounting movements.
Operating cash flow was £6.621bn, compared with £27.171bn in 2020. Cash and cash equivalents at year-end were £76.379bn. Total assets were £886.525bn; loans and advances to customers were £448.567bn and customer deposits £476.344bn. Debt securities in issue were £71.552bn and subordinated liabilities £13.108bn.
At year-end, the CET1 ratio was 17.3%, total capital ratio 23.6%, UK leverage ratio 5.8%, and transitional MREL ratio 37.2%. The loan-to-deposit ratio was 94% and the liquidity coverage ratio 135%. Wholesale funding was £91.4bn, down 16% year on year. These capital and liquidity measures are not interchangeable: the filing also reports an adjusted CET1 ratio of 16.3% after announced distributions.
Material changes versus 2020
- Profit before tax increased by £5.676bn, principally as the UK economic outlook improved and impairment provisions were released; the 2020 comparison included substantial pandemic-related charges.
- Net interest income fell 13%, although it increased 3% excluding the unusually adverse OEIC unitholder movement. The reported movement reflects a £1.506bn charge in 2021 versus a £175m credit in 2020.
- Customer deposits rose 6% and loans to customers rose 2%; cash at central banks increased 4%. Debt securities in issue fell 18% as deposit growth and funding schemes reduced issuance needs.
- The expected credit loss allowance fell to £4.042bn from £6.247bn. Stage 2 customer loans declined to £34.931bn from £51.659bn; Stage 3 loans were broadly stable at £6.443bn.
- Operating expenses increased 11%, including regulatory and legal provisions of £1.300bn versus £464m. The Group recorded an £836m increase in restructuring costs, including a software write-off and strategic investment costs.
Outlook, management commentary, risks and unusual items
Management forecast UK GDP growth of 3.7% in 2022 and 1.5% in 2023, while noting substantial uncertainty from COVID-19, inflation, supply-chain disruption, interest-rate changes, Brexit-related impacts and geopolitical risks. Management expects deposit accumulation to slow, consumer credit to recover, house prices to be broadly flat in 2022, and some business borrowing trends to normalise.
The Group’s strategy targets return on tangible equity above 10% by 2024 and above 12% by 2026; additional revenue of about £0.7bn by 2024 and £1.5bn by 2026; business-as-usual costs flat in 2024 versus 2021; and a cost-income ratio below 50% by 2026. These are forward-looking targets, not reported results. Management expects capital generation of around 150 basis points annually over 2022–2024, rising to 175–200 basis points by 2026.
The Board recommended a 2021 total ordinary dividend of 2.00p per share, including a 1.33p final dividend, and announced a share buyback of up to £2bn, subject to continuing PRA approval. The programme began in February 2022 and is expected to finish by 31 December 2022. The Group completed its £377m Embark acquisition in January 2022, after the reporting date.
Unusual and material provisions include £790m recognised in 2021 for HBOS Reading-related estimated awards and programme costs, including £600m in Q4. The final outcome remains uncertain and could differ significantly after the independent Foskett Panel re-review. The Group also recorded a £91m FCA fine relating to past communications about home insurance renewals. PPI provisions totalled £21.960bn cumulatively, with £22m remaining at year-end, excluding MBNA; PPI litigation remains uncertain.
Key risks include a weaker UK economy, higher inflation and interest rates, post-pandemic credit deterioration as support measures unwind, climate-related physical and transition risks, competition, cyber and operational resilience, regulatory change, and legal or conduct exposures. Management retained £779m of net COVID-related ECL management judgements, including £400m for downside risks not captured by the modelled scenarios. The filing notes that UK regulatory changes effective 1 January 2022 reduced the adjusted CET1 ratio to about 14.0%; implementation and final model approvals remain uncertain.
The auditors issued an unqualified opinion on the 2021 financial statements and internal control over financial reporting. Key audit areas included expected credit losses, insurance assumptions, fair value of illiquid instruments, regulatory and litigation provisions, and pension obligations.
Important facts for investors to verify
- How much of the 2021 profit improvement is sustainable, given the impairment release and insurance-related market volatility.
- Whether the £4.042bn ECL allowance and retained COVID-related judgements adequately reflect downside risks, including inflation, rates and the end of government support.
- The eventual HBOS Reading review outcome and whether the £790m provision, along with other legal and conduct provisions, is sufficient.
- The CET1 position after 2022 regulatory changes, distributions and the proposed buyback, and whether the buyback receives ongoing PRA approval.
- Progress against the 2024–2026 strategy targets, including revenue growth, cost discipline and return on tangible equity.
- The final accounting and integration impacts of the post-year-end Embark acquisition and the evolving regulatory and climate-related risk disclosures.