lyg-20241231

Lloyds Banking Group plc Annual Report and Accounts 2024

Sustainability review introduction

Charlie Nunn

Group Chief

Executive

Our 2024 sustainability report showcases how we

are delivering on our purpose of Helping Britain

Prosper, by unlocking sustainable and inclusive

growth for our customers, colleagues and

communities. By delivering on our sustainability

objectives and focusing on our customers, we’re

accessing new commercial growth opportunities,

providing positive outcomes for stakeholders and

building a more resilient and profitable business

that delivers higher, sustainable returns.



	Key highlights

	£15bn funding provided to first-time buyers
	£15bn funding provided to first-time buyers
	£25bn achieved 2025 Scottish Widows target of discretionary investments in climate-aware strategies
	2.4m customers registered for our in-app credit score tool in the last 12 months
	£43m funding provided to support the Community Development Finance sector

With over 28 million UK customers, we can help to create a more

sustainable and inclusive future for the people and businesses we

serve. In 2024, we continued to focus on making the biggest impact

we could for the UK in the interest of all our stakeholders. I’m

pleased to share our progress.

Improving access to housing

We are deeply involved in the UK’s housing sector, and we want to

help the UK access good quality and genuinely affordable housing.

As the UK’s largest mortgage lender, we helped more customers

onto the housing ladder last year by providing £15 billion to first-

time buyers, delivering growth in line with our strategy. In addition

to making finance available, we continue to support customers to

retrofit their homes through our Green Living Reward and renewed

Effective Homes partnership, to offer customers quality and

affordable insulation. We continue to champion the UK’s social

housing sector and alongside our charity partner, Crisis, we have

called for one million more homes at social rent by the end of the

decade. Since 2018, we have supported £19.5 billion of funding to

the sector, delivering £2.2 billion in 2024 and growing our

Commercial Banking business, while supporting our purpose

objectives.

Beyond our focus on new homes, we are working with partners

across the industry to improve the UK’s existing housing stock. Last

year, we announced the National Wealth Fund Partnership – a

£500 million fund to help bolster retrofitting of social homes in the

UK. This blended finance model will enable housing associations to

improve energy efficiency and bring down costs for residents –

improving health, work and home lives. Going forward, we will

continue our work across the housing sector to increase the

provision of safe, sustainable and affordable homes, in line with our

strategy to unlock sustainable and inclusive growth.

Empowering our customers

From day-to-day spending to saving for the long term, we want to

empower our customers to make confident decisions that add up to

a more prosperous future. As the UK’s biggest digital bank, we are

putting more power in the hands of our customers to help them

secure their financial wellbeing. Launched last year, our Ready-

Made Investments offer investments picked and managed by our

expert teams to help empower our customers to start investing. Our

Ready-Made Pensions are also helping customers grasp their

retirement planning by allowing them to view, track and top up

their pensions via our mobile app for the first time. By offering our

customers these new and easy to use digital products, we are

growing the Group’s assets under administration.

Elsewhere in the business, we launched our new Bill Switcher and

Benefit Calculator tools to help customers with their everyday

spending. Since launching in October, over 1 million customers have

interacted with the Benefit Calculator and over 300,000 have

accessed Bill Switcher to check potential savings. Over the last

12 months, 2.4 million customers took advantage of our in-app

Credit Score tool, with over 780,000 actively improving their credit

health. Tools like these help us better serve our customers and

support the growth we delivered in 2024. We also continued our

work to empower a diverse range of UK businesses last year,

providing over 32,500 hours of targeted support for under-

represented entrepreneurs. It’s been an important year of progress,

and we will continue to use our unparalleled data and insight to

empower our customers to improve their financial wellbeing.

Investing in our regions

Last year, we continued to support regional development and

thriving communities. In 2024, we became the first major UK bank

to lend to a Community Development Financial Institution (CDFI),

contributing £43 million to three CDFIs as part of a £62 million fund.

This investment is designed to support 800 businesses and up to

10,500 regional jobs. This transaction was facilitated by our

Regional Impact Fund, committing £1 billion to regenerating housing

and communities, creating economic opportunities in regions and

supporting the transition to net zero across the UK.

Lloyds Banking Group plc Annual Report and Accounts 2024

Building a diverse business to

serve customers and communities

Beyond supporting the development of UK regions, we need to

make sure our own business understands and reflects the

communities we serve. To that end, we have continued to develop

our approach to diversity and now aim for a gender balance of 45 to

55 per cent in all executive roles by the end of 2030. We have also

strengthened our ethnic diversity targets, aiming for 3.5 to 4 per

cent of Black heritage and 19 to 22 per cent of Black, Asian and

Minority Ethnic colleagues in executive roles by end of 2030,

increasing our ambition for senior colleagues. We believe that a

diverse and inclusive workforce also allows us to retain and attract

the best talent which is essential for delivering our ongoing strategic

transformation.

Building resilience by supporting

the net zero transition

We have further embedded our environmental strategy and Climate

Action Plan across the Group this year. We continue to support the

UK’s transition to net zero by advancing initiatives that decarbonise

our economy and protect nature.

Last year, we deployed significant lending and investment aligned to

our core business areas. In 2024, we achieved our financing targets

for EPC A and B mortgage lending and financing for electric vehicles

and plug-in hybrid vehicles. We made our first investment in nature

protection, becoming a founding business partner of Projects for

Nature, supporting three landmark nature recovery projects in

England. Through our banking business, we have now provided over

£47 billion of sustainable finance since 2022. In Scottish Widows, we

achieved our cumulative investment target of £25 billion in climate-

aware strategies one year early, with £25.9 billion invested by the

end of 2024.

Looking ahead, we’ve set new financing targets of £11 billion for EPC

A and B mortgages and £10 billion for electric vehicles by the end of

2027. We start 2025 in a strong position with emissions calculated

for 96 per cent of our bank lending and we continue to support our

clients with their net zero transitions.

We strengthened our approach to Credible Transition Plans in 2024,

expanding the number of clients we assess, with £14 billion of our

Commercial and Institutional Banking book now covered by

Transition Plan Assessments, a significant increase from the

£2.9 billion assessed last year. Supporting the net zero transition is

driving growth across our business and will help secure the long-

term resilience of our customers, communities and financial sector.

Delivering growth and opportunity in 2025

As we look forward to the rest of 2025, we will continue to unlock

sustainable and inclusive growth in line with our strategy and deliver

on our purpose of Helping Britain Prosper.


	Our reporting suite We report on sustainability matters throughout this annual report, in particular in the following sections: (i) Strategic report, pages 30 to 31 and 42 to 44; (ii) Sustainability review on pages 45 to 60; (iii) Risk management on pages 150 to 153; (iv) Governance pages 88 to 89 and (v) in the supplementary sustainability report. In this ‘Sustainability review’, we set out our sustainability strategy, risks and opportunities, with the remaining chapter focusing on our progress against our ambitions and targets to support the transition to net zero. These disclosures align to our disclosure requirements for Climate-related Financial Disclosures (CFD) sections 414CA and 414CB of the Companies Act 2006 and the UK’s Listing Rule 6.6.6R(8) requirement to include disclosures consistent with Task Force on Climate- related Financial Disclosure (TCFD) recommendations. The content in this chapter is subject to the statements included in: (i) the ‘Forward-looking statements’ section; and (ii) the ‘sustainability metrics basis of reporting’ which details how our metrics are calculated. This can be found on our website .

Empowering

our customers

According to Policy in Practice households

across the UK are missing out on an estimated

£23 billion in benefits each year. Our new

Benefit Calculator helps customers find out

what benefits and grants they could be eligible

for, giving a personalised, detailed view of the

estimated amounts they may be entitled to,

along with next steps on how to make a claim.

From single young professionals who have just

moved into their first home not taking

advantage of Council Tax discounts,

homeowners who could claim for help with

sustainable home improvements to retirees with

unclaimed Pension Credit. The calculator makes

it easy and convenient for customers to

understand if they qualify for support, including

grants for home improvements and energy

efficiency schemes.

Through this in-app feature, our ambition is to

put at least £500 million in customers' pockets,

remaining focused on supporting the growth of a

resilient customer base.

Lloyds Banking Group plc Annual Report and Accounts 2024

Our sustainability strategy

Our purpose pillars

Creating a sustainable and inclusive future is core to our business

growth and purpose of Helping Britain Prosper. Guided by our

Group strategy, we are concentrating on areas where we can have

the biggest impact, delivering our purpose while creating value for

all our stakeholders.

We have identified purpose pillars which underpin how we are

Helping Britain Prosper and support the delivery of the Group’s

strategy. These pillars represent areas where we believe we can

deliver significant societal impact at scale for the UK, leveraging our

core capabilities as an integrated financial services provider.

They are built on the foundation of ongoing business activity to

embed sustainability in all that we do while acting in a trusted and

responsible manner through risk management, conduct and

governance.

By delivering on our objectives across these pillars, we can create

further commercial growth opportunities as well as positive

outcomes for our stakeholders and thus build a more resilient and

profitable business to deliver higher, more sustainable returns for

our shareholders.

Further detail on our progress in each of these pillars can be found in

our sustainability report 2024 .

Helping Britain Prosper

By creating a more sustainable and inclusive future for people and businesses – shaping finance

as a force of good. Guided by our Group strategy, we are concentrating on areas where we can have

impact at scale, delivering our purpose and create value for all our stakeholders.

Grow

Focus

Change

Drive revenue

growth and

diversification

Strengthen cost and

capital efficiency

Maximise the

potential of people,

technology and data

Our purpose pillars

Help every household

in the UK have access

to quality and

affordable housing,

notwithstanding

income and tenure

Empower customers

and businesses to a

more prosperous

financial future

Supporting regional

development and

communities

Be the leading UK

business for diversity,

equity and inclusion

supporting our

customers, colleagues

and communities

Support the UK

transition to net zero by

advancing initiatives

that address climate

change and protect

nature

Our purpose pillar objectives

Embedding sustainability in all that we do while acting in a trusted and responsible manner

•Broaden access to home

ownership

•Increase the supply of

social and affordable

housing

•Improve the quality of

the private rented

sector

•Support UK

housebuilders to deliver

quality and sustainable

housing

•Empowering and

supporting our

customers and clients

to build financial

resilience and long-term

security

•Supporting customers

and businesses when

they need it most

•Empowering financial

and digital education

and access to skills

•Breaking down barriers

to access and inclusion,

empowering people and

businesses of all

backgrounds to thrive

•Be a partner in the

regeneration of the UK's

regions and nations

•Build and regenerate

housing to create

thriving communities

•Broaden economic

opportunity by enabling

high-quality jobs and

inclusive growth

•Help communities to

develop and adapt to

immediate and future

needs through

community investment

and engagement

•Create a more diverse,

equitable and inclusive

organisation that is

representative of

modern-day Britain

•Remove barriers and

provide opportunities

for our colleagues to

thrive regardless of their

background

•Support the health and

wellbeing of our

colleagues

•Provide the appropriate

technology, tools and

skills for our colleagues

to thrive

•Promoting sustainable

finance and investment

•Taking a systems-led

approach to considering

environmental issues:

–Energy transition

–Greening the built

environment

–Low carbon transport

–Sustainable farming

and food

•Managing the footprint

of our own operations

and supply chain

Link to our strategy

Lloyds Banking Group plc Annual Report and Accounts 2024

Our value chain

Developing our value chain

and materiality approach

Our value chain

At the heart of our purpose of Helping Britain Prosper is a desire to

create value for all our stakeholders by understanding what matters

to them. Engaging with and listening to our stakeholders is intrinsic

to our business in order for us to act in a trusted and responsible

manner.

As one of the largest UK financial services organisations with the

majority of our operations and exposure in the UK, we are impacted

by the country’s macroeconomic, regulatory, political and physical

environment – which poses challenges and dependencies as well as

opportunities for the business. Our role is to facilitate the flow of

funds between participants in the economy, act as custodians of

financial assets and protect value for our customers, all while

considering long-term trends and their impact on what we do and

the value we create for the society and communities in which we

operate. As such, the way we manage sustainability issues matters

and our performance is integral in how we shape finance as a force

for good.

Our customers, clients and shareholders input into our operations

by trusting us with their savings and investments and we ensure that

capital is allocated efficiently for the benefit of our customers and

clients who want to borrow. Access to credit supports economic

growth as customers and clients use their borrowings to make

investments and purchases, propelling production and

infrastructure development, supporting communities and wider

society. We work with our customers and clients to make sure we

help them fulfil their ambitions whilst protecting the climate and

nature and delivering products in a responsible manner.

Our operations are built around this management of capital for our

stakeholders requiring safeguarding of our customers’ money and

data. We know our colleagues are the key ingredient to our success

and we aim to create an inclusive and supportive environment in

which everyone can thrive. Suppliers are asked to comply with

specific Third Party Supplier Policies when applicable to the services

they provide. All suppliers are expected to conform to our Code of

Supplier Responsibility. We operate with prudent and appropriate

internal risk management, together with our regulators, ensuring we

protect our customers and clients, colleagues and communities, and

deliver sustainable returns to our shareholders while maintaining a

safe, stable and prosperous financial system for the UK.

We consider ‘materiality’ to be the threshold at which a

sustainability matter becomes sufficiently important to our

investors and other stakeholders and so should be reported. Our

approach to materiality also considers disclosure standards and

other applicable rules and regulations as part of our materiality

assessment for determining material topics and the associated risks

and opportunities arising from these topics. Further detail on how

we apply materiality in determining our climate risks can be found

within our risk management section on page 150.

Our material sustainability topics

In 2024, we have refreshed our material topics list through a review

of both our external and internal environments, which includes our

value chain, markets in which we operate, products, services and

activities, as well as horizon scanning and stakeholder engagement.

Our internal environment includes colleagues, processes and

policies, culture and management. We have used the outputs from

this exercise to refresh our materiality assessment.


	We prioritise our material topics based on:



		The strategic importance of the issue to the Group

		The importance of the issue to our stakeholders

		The social, economic and environmental impact of each topic in relation to the core activities, products and services provided by the Group

We conducted our materiality review and impact assessment of our

operations, products and services in line with the requirements of

the UNEP FI Principles for Responsible Banking, and we have

considered, among other inputs, the UN Sustainability Development

Goals (SDGs) which provide a common framework for us to show

how we use our operating model, scale and resources to respond to

some of the UK’s biggest societal challenges.

Identifying and assessing our material risks (including climate) allows

us to understand where we have the opportunities to deliver

impact. The assessment of our opportunities drives our strategy and

business model through our purpose pillars, with progress measured

against our ambitions, targets and pledges.


	Our assessment has identified the following material topics: •Artificial intelligence (emerging topic) •Biodiversity and nature (emerging topic) •Climate change •Diversity, equity and inclusion •Financial inclusion and resilience •Governance and conduct •Health and wellbeing of colleagues •Human rights •Regional inequalities Further details on on these material topics and how these are demonstrated through our purpose pillars can be found in our sustainability report page 11

Future developments to our materiality approach

We continue to evolve our approach to double materiality,

leveraging existing materiality processes and tools with the aim of

embedding a double materiality assessment in due course. The

Group is considering the regulatory landscape and is preparing for

readiness to report in alignment with the government adoption of

the ISSB and the implementation of CSRD reporting for selected EU

entities from reporting year 2025, with the remainder of the Group

falling into scope for CSRD reporting from 2028.

Lloyds Banking Group plc Annual Report and Accounts 2024

Sustainability risks and opportunities

Our material topics have helped inform our understanding of the

key sustainability risks and opportunities of the Group, across a

range of Environmental, Social and Governance topics.

Identifying and assessing our material sustainability topics and

associated risks and opportunities (including climate) allows us to

align and consider their impact on our strategy and purpose pillars,

and be cognisant of their impact on our business model both now

and in the future. Key risk outcomes include experiencing losses

and/or reputational damage, sustainability risks to our colleagues

and communities and the transition to net zero because of the

Group’s response to tackling climate change.

As shown in the table below, the impacts from sustainability risks

largely manifest through other principal risks that the Group faces

(including credit, conduct and operational risks). Therefore, our

approach is to embed consideration of sustainability-related risks

into our wider risk management processes.

Sustainability risks

Environmental risks (encompassing Climate and Nature) are primarily

considered to arise through two channels, physical or transition risks:

•Physical risks arising from changes in climate or weather

patterns, or the degradation of nature. These can either be acute

(event driven such as floods, storms or pest outbreaks), or

chronic (longer-term shifts such as rising sea levels or droughts)

•Transition risks due to societal changes or those associated with

moving towards a low carbon economy and nature recovery,

including changes to policy, legislation and regulation, technology

and market, or legal risks from failing to manage the transition

Social risks are considered to manifest through:

•Operational risks due to failure to recruit, develop and retain a

diverse workforce with the required level of skills and capabilities

to meet the current and future needs of the Group. This includes

colleague wellbeing and business objectives not being met. For

further detail on other operational risks see page 196

•Conduct risks with the Group’s activities, behaviours, strategy or

business planning having an adverse impact on outcomes for

customers and clients. For further details on conduct risks see

page 154

•Compliance risk as a result of non-compliance with regulation,

which could lead to regulatory censure, reputational damage or

financial loss. For further detail on other compliance risks see

page 154

•Credit risk due to clients or customers not complying with

legislation, the Group’s external sector statements or negative

market and consumer sentiment negatively impacting or

affecting the credit risk of a client. For further detail on credit

risks, see page 155

Consideration of sustainability-related risks within our enterprise

risk management framework continues to evolve, with our

approach more developed in some areas than others, for example,

our established approach to ESG credit risk management. We will

continue to enhance our overall approach as part of further

development of the Group’s approach to risk management and

principal risks we face.

Our approach to principal risk identification, assessment and

management as part of our enterprise risk management framework

can be found in our risk overview on pages 33 to 38.

Sustainability opportunities

Our biggest opportunities to support business growth, our

colleagues and our customers, are in relation to the areas where we

have the largest lending and investment portfolios.

Understanding our risks and impacts helps us to identify key

opportunities to support our customers. Identifying and assessing

our material risks (including climate) allows us to understand where

we have the opportunities to deliver impact.

The identification, assessment and management of our

opportunities is undertaken on a regular basis by our functional-

level and divisional teams, and approval of new initiatives governed

in line with our sustainability governance structure pages 88 to 89.

Through this work we have identified opportunities included in our

purpose pillar objectives, such as responding to increasing customer

preference for sustainable products and lending, supporting

investment in transition-related technology, embracing

opportunities to reduce our carbon footprint, increasing the supply

of social and affordable housing as well as empowering and

supporting our customers and clients to build financial resilience.

The assessment of our opportunities drives our strategy and

business model through our purpose pillars, with progress measured

against our ambitions, targets and pledges.

We assess material risks and opportunities over the short, medium

and long term as sustainability-related matters materialise over

time, noting that the timings of these will also be impacted by

external factors, such as government policy and regulation,

technology developments, as well as our customers' response.

We have aligned time frames to those used for business planning:

The table within this section provides an overview of our

sustainability risks and opportunities assessment.

UK carbon capture

and storage (CCS)

In December 2024, Lloyds Banking Group supported UK CCS

project, Northern Endurance Partnership (NEP) and Net Zero

Teesside Power (NZT Power), as part of an £8 billion financing

package.

These landmark transactions are supported by the UK

Government and are pivotal to the UK’s decarbonisation

strategy.

NEP, a collaboration between BP, Equinor and Total Energies is

a first of a kind CO2 transportation and storage product project

in the UK which is expected to store 100 million tonnes of CO2

across the Teesside and Humber industrial regions.

Supported by the UK Government’s Dispatchable Power

Agreement, NZT Power will deliver flexible, dispatchable, and

clean power, and the capture of up to 2 million tonnes of CO2

per annum, which will be stored via the Northern Endurance

Partnership project.

The projects represent a significant opportunity for the UK

supply chain, in particular for businesses across the north of

England. The region will also benefit from the creation of

1000s of jobs throughout the projects construction and

operational lives.

In addition to the £450 million Lloyds participation and

Mandated Lead Arranger role in the £8 billion financing,

Lloyds Bank also undertook the roles of Hedge Provider,

Agent and Security Trustee demonstrating our stated

corporate and institutional banking growth strategy in action

through deepening client relationship on a multi product basis.

Lloyds Banking Group plc Annual Report and Accounts 2024


	Risks
Risk description		Principal risk	Driver	Time horizon	How this is monitored	Sustainability Material Topic

Reduction in customers’ creditworthiness and/ or affordability		Credit		Medium, Long	Elements of climate change incorporated into annual ECL assessment. Further details, see page 282. Qualitative updates on nature provided to Group Net Zero Committee, although measurement capability is still evolving	Climate change, Biodiversity and nature


Devaluation of assets, investments or collateral, including property and motor vehicles		Credit, Market		Short, Medium, Long	Range of quantitative metrics across portfolios, including EPC ratings and flood risk exposure for residential mortgages, further details in our 2024 sustainability report pages 99 and 132	Climate change


Underwriting and insurance risk arising from climate risks		Insurance underwriting		Acute: Short, Medium Chronic: Long	Defined risk appetite. For further details of insurance risk and policy, please see the 2024 sustainability report page 136	Climate change


Disruption to the Group’s services and supply chain due to increased frequency and severity of extreme weather events, such as floods and storms		Operational		Acute: Short Chronic: Long	Invocation of Group Incident Management (GIM) Operational Framework. Incident reports reviewed monthly at Group Incident Operating Forum (GIOF)	Climate change


Not meeting our business objectives for supporting the transition to net zero, including failure to deliver on our external commitments		Conduct, Climate		Medium, Long	Progress against our emission reduction targets and sustainable lending and investments. For further details please see pages 54 to 59	Climate change Governance and conduct


Failure to meet requirements for Sustainability related disclosures or management of risk		Compliance		Short, Medium	Quantitative updates provided to Group executive committees. Further details can be found on pages 88 to 89	Climate change, Diversity, Equity and Inclusion, Human rights


External perception of greenwashing in the Group’s disclosures, marketing or product communications		Conduct, Compliance, Operational		Short, Medium	Qualitative updates provided on Group processes and controls provided to Group Net Zero Committee pages 88 to 89	Governance and conduct


Financial hardship as a result of macroeconomic pressures resulting in delinquencies		Credit, Market		Short, Medium	Scenario updates are presented to executive committees on a regular basis. See page 107	Financial inclusion and resilience


Financial education gaps in society resulting in lower engagement with financial products and lower level of financial resilience		Credit, Conduct		Short, Medium	Purpose pillar updates are provided to Responsible Business Committee. See page 109	Financial inclusion and resilience


Artificial intelligence impacting customer service experience and presenting limitations for customers with accessibility needs		Conduct		Short, Medium	Qualitative updates given to Responsible Business Committee see page 89	Financial inclusion and resilience, Governance and conduct


Colleague wellbeing – the failure to provide an appropriate colleague culture, reward, talent management and wellbeing policies and process		Operational		Short, Medium	Quantitative and qualitative indicators, such as succession, diversity, retention see pages 30 to 32	Diversity, equity and inclusion, Health and wellbeing of colleagues


Changes in social sentiment and expectations of the Group in relation to sustainability topics		Conduct		Medium, Long	Scenario updates are presented to executive committees on a regular basis. See page 109	Financial inclusion and resilience, Health and wellbeing of colleagues

Lloyds Banking Group plc Annual Report and Accounts 2024

Sustainability risks and opportunities continued


	Opportunities
	Opportunity description	Principal risk	Driver	Time horizon	How this is monitored	Sustainability Material Topic

Reducing the emissions and improving the resilience of our own operations		Operational, Climate		Short, Medium	Our own operational pledges. For further details, see sustainability report 2024 page 70	Climate change


Providing finance to support investment in climate-related technology and solutions		Market, Climate, Credit		Short, Medium	Our SW investment targets see page 57 Our Commercial Banking sustainable lending target see page 57	Climate change


Develop products to support sustainable projects including loans and green bonds		Market, Credit		Short, Medium	Our sustainable lending targets. For further details please see page 57	Climate change, Regional inequalities


Increasing consumer preference for sustainable products		Market		Short, Medium	Our ESG pension offering see sustainability report 2024 page 56	Climate change, Regional inequalities, Financial inclusion and resilience


Develop industry partnerships to help drive sustainable, low carbon and nature positive solutions for our customers and suppliers to transition		Conduct, Climate		Short, Medium	Our sustainable lending targets. For further details please see page 57	Climate change, Biodiversity and nature, Regional inequalities


Supporting nature recovery projects as a test and learn on how we can leverage green finance to support nature restoration in the future		Market, Credit		Medium, Long	Internal KPIs set on a project level	Biodiversity and nature


Transforming the diversity, equity and inclusion of our business to support our colleagues and enable us to develop more inclusive and accessible products to serve our customers		Operational		Short, Medium	Colleague diversity, equity and inclusion performance see page 32 and support provided to businesses owned by Black, disabled and women entrepreneurs	Diversity, Equity and Inclusion, Human Rights


Digital and artificial intelligence tools to support, empowering customers financial resilience and to identify customer vulnerabilities while ensuring good outcomes for customers		Conduct, Operational		Short, Medium	Qualitative updates given to Responsible Business Committee see page 89	Artificial Intelligence, Financial inclusion and resilience, Governance and conduct


Opportunities to invest in the UK’s regions and develop products and services that support regeneration, job creation and productivity, collaborating with government		Conduct, Operational		Short, Medium	Funding provided to support communities and regions within the UK. See pages 41 to 48 of the sustainability report 2024	Regional inequalities


Support the government ambitions increasing accessibility and availability of affordable quality and sustainable housing		Conduct, Operational		Short, Medium, Long	First-time buyer performance and sustainable or sustainability-linked social housing funding to the social housing sector. See pages 15 and 22 of the sustainability report 2024	Regional inequalities, Financial inclusion and resilience

Lloyds Banking Group plc Annual Report and Accounts 2024

Climate resilience

Evaluating our resilience to climate risk

Climate change risks can expose the Group to potential financial

loss and therefore presents an important consideration for the

resilience of the Group’s strategy.

We believe our strategy provides resilience from the challenges of

climate risk. In forming this view, we have:

•Assessed the areas of our business facing the greatest risk, based

on the size of the Group’s exposure and the potential relative

impact across key sectors

•Undertaken further analysis to understand the potential

outcomes from these risks if they were to occur

We have also looked to ensure that the findings from this analysis

support and inform our strategy, with further action taken where

we have exposure potentially at risk as part of the Group’s plans to

support the transition to net zero.

Areas at greater risk

Understanding the potential impact of climate risk is initially

informed by identifying the areas of the Group’s portfolio which

could be affected by climate risk. We assess both physical and

transition risk, with physical risk more focused on our mortgage and

home insurance books. A summary of bank lending to sectors with

increased climate risk is shown in the table on page 80 of the

sustainability report 2024.

The make-up of the Group’s lending portfolio means the biggest

exposures identified are in the residential mortgages and real estate

sector. Although short-term risks are expected to be limited based

on the current policy landscape the Group continues to progress its

transition plans see page 89 of sustainability report for elaboration

on transition plans. For other sectors with higher sensitivity to

transition risk our exposure is lower and the Group continues to

monitor loans and advances in these sectors.

Climate change can increase the likelihood and severity of flood

events which could negatively impact property valuations and

increase insurance costs. Currently, less than 1 in 6 properties within

our mortgage portfolio are at risk of flooding, and just over 1 in 100

meet our very high risk criteria for present day. We continue to work

closely with the government to mitigate the risks around flood

resilience and have integrated property level controls into our

originations process. Stricter energy efficiency regulations rendering

properties non-compliant could also have a negative impact on

property valuations and lead to increased affordability pressures on

customers to transition.

For our Commercial Banking lending and investments, we have

undertaken further analysis to inform which sectors are most

exposed to climate risk using different models and scenarios,

including the Network for Greening the Financial System (NGFS)

scenarios.

Our latest analysis has assessed the potential financial impacts

across key sectors in the Net Zero 2050 scenario (NGFS Phase IV),

given this scenario describes the ideal outcome that the Group’s net

zero strategy and targets are aiming for. We recognise the

assumptions required for this scenario now tend to generate

increased transition risks when compared to previous iterations,

reflecting the lack of sufficient progress to date and external

dependencies such as government policy, therefore more stringent

future actions are required.

At a high level, this analysis continues to show Coal Mining, Oil &

Gas, Transport and Utilities as the sectors most impacted in the

modelled scenario (Net Zero 2050). Further detail is provided in the

risk management section page 150.

Analysis of potential impacts

The risks relating to climate change are complex, forward-looking

and uncertain, therefore our approach to assessing the impact of

these risks continues to evolve as our understanding matures and

develops. Unlike traditional financial models, there is no historic

dataset to test climate model outcomes against.

The following assessments have been undertaken to evaluate our

resilience to the impacts of the risks related to climate change:

Lending

The following analysis has not shown any material impact at this

stage:

•We have performed a stress exercise on the largest credit

portfolio, retail mortgages, and quantified the impact on losses

and implication on capital. The stresses explored were

affordability shocks due to retrofitting and physical risk costs.

The climate impact was immaterial in relation to both

impairment and capital effect

•In 2023 we incorporated consideration of some impacts of

climate risk into our calculation of expected credit losses. This

exercise was repeated in 2024 with similar results. This continues

to support management’s view that there is a low residual risk of

material error or omission in the Group’s financial statements

due to climate-related risks and as a result no adjustments have

been made to ECL measured as at 31 December 2024. See the

climate risk, risk management section for elaboration.

Investment and insurance

We assessed risks to the achievement of our strategic objectives

over the short to medium term by stress testing our business plan. In

2024, amongst other stress tests, we considered a bespoke climate

scenario and compared this to the base planning scenario. In the

analysis, we projected our Insurance and Investment balance sheet

and profit and loss account. The key components of the stress

scenarios were:

•Physical risk events cause household insurance claims and a food

price shock in the short to medium term1

•Governments then commence a disorderly transition which is

priced in by markets

•The consequences of higher food prices and the transition cause

stresses to asset values, deterioration of the business

environment with reduced sales, people saving less, and our

costs increasing

This analysis showed us the variation in projected profitability

caused by an adverse climate scenario and the potential for it to

impact Scottish Widows Group’s capital position.

1The implied long-medium term reduction in crop production was not considered.

Informing our strategy

We continue to drive action to help reduce emissions across our

lending and investment portfolios, see page 82 of the sustainability

report 2024 for details of our NZBA targets, with a particular focus

on defining our approach to tackle our highest emitting sectors. Our

business strategy is kept under continual review to ensure that it

remains current and updated to take account of emerging risks.

Long-term climate scenario analysis alerts us to potential changes in

the economic and physical environment, to which we adapt by

reviewing our strategy.

Our scenario analysis capabilities continue to evolve and we’re

continuing to embed, as detailed within the risk management

section page 150.

Lloyds Banking Group plc Annual Report and Accounts 2024

Supporting the transition to net zero

Our environmental strategy

In delivering against our purpose pillars, we developed and agreed a

new environmental sustainability strategy in 2023 taking a system-

led approach to start a journey to enable cross-group collaboration

and to support and assist us in our understanding of the changes

and solutions needed to enable the transition to net zero.

Considering the transition in this context has started to inform the

actions and understanding of the impact and progress needed to be

made by the Group.

A systems-led approach also supports us to consider the synergies

and potential trade-offs between areas of the Group, the systems

themselves, other environmental issues such as nature and our

broader social purpose pillars. These are all interconnected and we

will continue to explore greater integration across these moving

forward.

The Group has four systems where we believe we can leverage our

scale, reach in the market and products and services that we offer

to support the transition to net zero. These systems are focused on

where we live through greening the built environment, how we

move through low carbon transport, how we farm with a more

sustainable farming and food system and through the energy we use

with an energy transition fundamental to broader decarbonisation.

Further to this, we will need to ensure we transition the broader

business, including our supply chain, and manage our own impacts

to support progress against our net zero ambitions and targets.

Our emissions reduction ambitions

The Group have set several ambitions across our own operations,

supply chain and lending and investments to support the

decarbonisation of our business in line with limiting global warming

to 1.5°C, recognising that there are significant challenges and

external dependencies in many areas of the economy, including the

technologies, solutions and policies required, that will need to be

addressed for us to achieve these.


	Bank Work with customers, government and the market to help reduce the carbon emissions we finance by more than 50 per cent by 2030 on the path to net zero by 20501 or sooner. Scottish Widows Align all our investments with the goals of the Paris Agreement, reaching net zero carbon emissions2 by 2050 or sooner. Supply chain Working with our suppliers to reduce the emissions generated by 50 per cent by 2030, on the path to net zero by 2050 or sooner3. Our operations Net zero carbon operations4 by 2030.


	1From a 2018 baseline, covering Scope 1 and 2 emissions. 2From a 2019 baseline; covering Scope 1 and 2 emissions. 3From a 2021/22 baseline. 4From a 2018/19 baseline.

Globally, we are not moving quickly enough to tackle the climate

crisis at the speed we know is required and we will need to do more

and collaborate with a wide range of stakeholders to unblock the

barriers that stand in our way or we will not achieve our ambitions.

The financial ecosystem provides a critical means to accelerate the

low carbon transition, by leveraging purposeful engagement with

our stakeholders.

To date, our emissions footprint has guided where we have the

biggest role to play. We calculate our emissions in line with the

Greenhouse Gas Protocol, further detail is in our sustainability

metrics basis of reporting 2024 . Our lending portfolio means our

biggest exposure to sectors at increased climate risk is in relation to

our residential mortgages and our real estate sector. The scale of our

emissions varies across different areas of the business. A breakdown

of our Group’s absolute emissions is shown below.


	Progress in reduction of our Group’s emissions (MtCO2e)


	Statement on assurance provider Deloitte were appointed to provide independent limited assurance over certain data points and 2030 emissions reduction ambitions, targets and pledges within this Annual Report, indicated with a . The assurance engagement was planned and performed in accordance with the International Standard on Assurance Engagements 3000 (Revised), Assurance Engagements Other Than Audits or Reviews of Historical Financial Information (ISAE 3000 (Revised)) and International Standard on Assurance Engagements 3410 (ISAE 3410). This independent assurance report is separate from Deloitte’s audit report on the financial statements and is available at sustainability downloads .

1Baseline year determined by ambition (2018 for Bank, 2019 for Scottish Widows, 2021/22

for Supply Chain and 2018/2019 for Own Ops) MtCO2e – Megatonnes Carbon Dioxide

equivalents.

2Based on 2023 data available for Bank and Scottish Widows financed emissions Scope 1

and 2 emissions only. 2023/24 period end data for supply chain emissions and own

operations includes Scope 1, 2 and 3 categories and is reported on a market basis.

3Supply Chain emissions are calculated from supplier spend totalling £4.6 billion (net of VAT).

In addition there is a further £5.6 billion (including VAT) spread across other business areas.

Further details on our methodology see sustainability metrics basis of reporting 2024 .

Lloyds Banking Group plc Annual Report and Accounts 2024



	Bank Our ambition Work with customers, government and the market to help reduce the carbon emissions we finance by more than 50 per cent by 2030 on the path to net zero by 2050 or sooner.



Our progress
Our progress
MtCO2e reduction	l	Progress	l	2030 ambition

Our actions

Our overall bank financed emissions reduction ambition is

supported by 10 sector-specific NZBA targets covering our highest

emitting sectors.

These targets are supported by sector-specific transition plans

which detail how we are supporting our customers and clients

to transition in these areas.


NZBA sector target summary
System and targets1	Baseline year of target	Target baseline2		2023 Target progress	Divergence from pathway3
Greening the built environment
UK mortgages – 41 per cent reduction in emissions intensity to 28kgCO2e/m2 by 2030	2020	46kgCO2e/m2	4	43kgCO2e/m2	1.0%
Commercial and residential real estate (C&RRE) – 48 per cent reduction in emissions intensity to 21kgCO2e/m2 by 2030	2021	39kgCO2e/m2		38kgCO2e/m2	5.4%
Low carbon transport
Retail motor3 – reduce emissions intensity of our cars and vans by more than 50 per cent by 2030, reaching:
75gCO2e/km or lower (cars)	2018	150gCO2e/km	4	135gCO2e/km	8.6%
99kgCO2e/km or lower (LCVs)	2018	198gCO2e/km	4	190gCO2e/km	11.9%
Road passenger transport – 49 per cent reduction in emissions intensity to 72gCO2/pkm by 2030	2019	141gCO2e/pkm		130gCO2e/pkm	4.3%
Automotive (OEMs) – 47 per cent reduction in emissions intensity to 133gCO2e/vkm by 2030	2020	249gCO2e/vkm		259gCO2e/vkm	22.5%
Aviation – 31 per cent reduction in emissions intensity to 737gCO2e/rtk by 2030	2019	1,068gCO2e/rtk		904gCO2e/rtk	(4.6)%
Sustainable farming and food
Agriculture – 25 per cent reduction of absolute emissions to 5.0 MtCO2e by 2030	2021	6.7MtCO2e		5.9MtCO2e	(3.7)%
Energy transition
Oil and gas – 50 per cent reduction of absolute emissions to 3.2 MtCO2e by 2030	2019	6.4MtCO2e		2.0MtCO2e	(45.0)%
Power generation – 81 per cent reduction in emissions intensity to 53gCO2e/kWh by 2030	2020	276gCO2e/kWh	4	54gCO2e/kWh	(74.1)%
Thermal coal – full exit of thermal coal power in the UK since 2024. Full exit from all entities that operate thermal coal facilities by 2030	—	—		—	—%
1There are rounding differences between target baseline, percentage reduction and 2030 target. Targets cover on-balance sheet assets. The scope of our target has been defined within the sustainability metrics basis of reporting 2024 available at sustainability downloads . 2C&RRE, Road passenger transport, Automotive (OEMs), Aviation, Agriculture and Oil and gas baselines have been updated due to methodology changes, revised client data and clarification of client scope 3 data. 3Shows divergence between 2023 actual and 2023 reference pathway emission intensity. Arrow up – performance for 2023 ahead of reference pathway. Arrow down – performance for 2023 behind reference pathway. Retail motor cars and LCVs divergence, is based on divergence from scenario pathway as no reference pathway is available. 4The baseline metrics for UK mortgages, Retail Motor and Power have not been restated in the current period and were previously subject to limited assurance by Deloitte LLP in 2023. This limited assurance report is available at sustainability downloads . Indicator is subject to limited assurance by Deloitte LLP see page 54 for details.

Lloyds Banking Group plc Annual Report and Accounts 2024

Supporting the transition to net zero continued

Divergences and the challenges with transition

Energy transition

Energy contributes to 21.2 per cent1,2 of UK emissions, and makes up

1.5 per cent of the Group’s bank financed emissions.

The energy system interacts with all other systems as the transition

of this system is critical to support the decarbonisation of other

industries, such as EV public charging infrastructure for Low Carbon

Transport or the electricity grid for Greening the Built Environment.

The supply of energy is central to our society and plays a critical role

in providing energy security to the UK.

Our retail-focused banking activities means we do not have

significant exposure to the oil and gas sector and our total Bank

exposure to oil and gas has reduced by c.70 percent since 2022.

Our strategy focuses on supporting a clean energy future for the UK,

benefitting households, businesses and communities across the

country. We are actively seeking to support established clean

technologies and identifying maturing and emerging technologies

and how to increase their bankability to unlock financing at scale.

Greening the built environment

Contributing to 26.3 per cent1,2 of UK emissions and 27.4 per cent of

the Group’s bank financed emissions the built environment is a

material and complex system that touches a number of areas across

the Group, including our residential mortgages portfolio and our

commercial real estate clients that have both residential and non-

residential properties in their portfolio.

The energy system is intrinsically linked to decarbonisation of the

built environment with decarbonisation of electricity, both on site

and via the grid, a critical enabler alongside a switch away from gas

boilers to lower carbon heating alternatives such as heat pumps.

Furthermore, many of the buildings which are expected to be

occupied in 2050 already exist, making retrofit the primary focus as

well as greener new builds. The most significant external

dependencies on policy are centred on the need to improve

commercial viability of retrofit to drive its uptake across all

customer types at scale, and the need for robust low carbon

standards for new builds to prevent locking in future emissions.

To date, key areas of focus include providing tools to support

customers to understand their impacts and act on these insights,

with partnerships and incentives to facilitate retrofit uptake

alongside engaging on policy developments.

Moving forward our priority areas include:

•Continuing to enhance our data capability across the built

environment including buildings within our agriculture system

•Identifying new finance models to support customers and make

retrofit more affordable over the long term

•Enhancing customer education that supports customers in

understanding options available to make properties more

efficient

•Encouraging the policy development needed to enable retrofit at

scale

•Unlocking skills through our participation in industry leading skills

and diversity initiatives

1Sourced from Department for Energy Security and Net Zero – 2022 UK greenhouse gas

emissions.

2UK emissions from 2022, including energy supply were 106.6 MtCO2e for built

environment, 90.2 MtCO2e for Passenger Car, Electric Vehicle, Buses and Light Duty

Vehicles, and aviation transport and 49.1 MtCO2e for sustainable farming and food.

Total UK emissions from 2022, including energy supply where 406.0MtCO2e for the

entire UK.

3UK emissions from energy supply in 2022 were 85.7MtCO2e.

Low carbon transport

Surface transport is the highest emitting sector in the UK,

accounting for 22.2 per cent1,2 of total emissions and 14.2 per cent of

the Bank’s financed emissions. Our low carbon transport system

addresses transport by road and by air. Emissions for our rail and

shipping activities within the transportation sector are not currently

included, due to their low materiality and exposure.

The most material policy impact for this system is across road

transport, driven by the Zero Emission Vehicle (ZEV) mandate which

is noted to have made good progress by the Climate Change

Committee, together with the Labour government’s recent

commitment to restore the 2030 date for the phase out of new ICE

(internal combustion engine) cars and 2035 for vans.

We have developed products and propositions to help customers

understand the best way to transition to greener vehicles and to

ensure switching to electric fuel types is as hassle-free and cost-

effective as possible, including via partnerships. We are also

engaging our corporate clients to set science-based targets and with

government and other external stakeholders to ensure there is a

supportive external environment to facilitate transition.

Sustainable farming and food

The agriculture sector is responsible for 12 per cent1,2 of UK emissions

and 29.9 per cent of Bank financed emissions. Unlike other systems,

emissions are derived from natural processes which are challenging

to abate.

Our sustainable farming and food system addresses primary

agriculture and the food value chain and plays an important role in

ensuring food security in the UK. Agriculture is one of the largest

sources of financed emissions for the Group. Developing more

sustainable business models involves farmers and other actors in the

direct and indirect value chain, coupled with a supportive policy

environment.

Through our partnership with the Soil Association Exchange, we

have developed tools and services to provide our larger clients with

consultancy support that provides valuable insights into the

financial and environmental impact of sustainability measures.

We are also using our voice through policy engagement with

government and industry to help drive the transition.

Further information is available in our sustainability report 2024 .



	Our sustainable financing and investment targets We have established sustainable finance and investment targets aligned to our core business areas.

Our financing and investment target horizons align to the Group’s

strategic and performance management timelines that will continue

to build up to support our 2030 ambitions and beyond to 2050. In

2024, we achieved three of our four targets totalling £20.8 billion

for sustainable financing in EPC A and B mortgage lending and

financing for electric vehicles and plug-in hybrid vehicles for retail

customers, as well as achieving our Scottish Widows £25 billion

discretionary investment in climate-aware strategies target.

Our sustainable financing framework has continued to evolve to

provide greater clarity on what Lloyds Banking Group considers to

be eligible types of sustainable finance covering the Group’s retail

and commercial lending sustainability downloads . Sustainable

finance and investment targets continue to be part of our long-term

incentive plan (LTIP) assessment as set out on page 132.

Lloyds Banking Group plc Annual Report and Accounts 2024


	Summary of our progress
	Sustainable finance and investment target	2024
	Commercial Banking
	£30 billion sustainable finance1 for Commercial Banking2 customers from 1 January 2024 to end of 2026	£10.7bn
	Motor
	£8 billion financing for EV and plug-in hybrid electric vehicles by 20243	£9.4bn
	EPC A and B mortgage lending
	£10 billion of mortgage lending for EPC A and B rated properties by 20244	£11.4bn
	Scottish Widows
	£20–£25 billion discretionary investment in climate- aware5 strategies by 2025	£25.9bn

1As defined within the sustainable financing framework.

2Commercial Banking target relates to both corporate and institutional customers and

small and medium businesses. In the prior year we achieved our previous sustainable

finance target for corporate and institutional customers. The cumulative sustainable

finance supported since 2022 is £26.5 billion for Commercial Banking.

3Includes new lending advances for Black Horse and operating leases for Lex Autolease

(gross) and operating leases for Tusker (gross, post-acquisition by the Group in February

2023 only); includes cars and vans. £3.7 billion achieved in 2024.

4New mortgage lending on UK (excluding Channel Islands) residential property that meets

an Energy Performance Certificate (EPC) rating of B or higher. The target includes re-

mortgages but excludes further advances. £11.4 billion covers the period from January 2022

to September 2024. With £3.1 billion achieved from 1 January 2024 to 30 September 2024.

5This refers to funds that have a focus on investment in companies that are either

adapting their business to reduce carbon emissions or developing solutions to address

climate change.

Indicator is subject to limited assurance by Deloitte LLP for further details see page 54.


	New targets
	We have set two new consumer lending sustainable financing targets from 2025
	EPC A and B mortgage lending
	£11 billion of mortgage lending for EPC A and B rated properties by 2027
	Motor
	£10 billion financing for electric vehicles by 2027



	Scottish Widows Our ambition To align all our investments with the goals of the Paris Agreement, reaching net zero carbon emissions by 2050 or sooner.

	To support our ambition we have set ourselves the following targets: •Invest between £20 billion to £25 billion in climate-aware investment strategies1, with at least £1 billion invested into climate solutions investments by 2025 •Halving the carbon footprint2,3 of our investment portfolios by 2030



Our progress
Our progress
tCO2e/£m reduction	l	Progress	l	2030 target

Our 2023 carbon footprint was 64.7 tCO2e/£m, down from our

2019 baseline of 116.1 tCO2e/£m. The carbon footprint has

continued to decline from 2019 to 2023. Whilst investee

company emissions have declined, most notably in 2020 because

of reduced production and energy usage during the COVID-19

pandemic, company market values have increased by more in

2023 which has led to a further reduction in the footprint. As the

carbon footprint is sensitive to market fluctuations in addition to

the absolute value of emissions and our own investment activity,

we expect to see short-term variation of the footprint and will

be studying the medium-term trend from future reporting.

Our five-year Climate Action Plan, launched in 2022 outlines our

current plans for action on climate change with regard to our

overall portfolio. It sets out four key actions to aid us in achieving

our net zero targets and our ambition to align with the goals of

the Paris Agreement.

The following activities have contributed to the progress on our

Climate Action Plan since its launch:

•Develop climate-aware investment strategies and climate

solutions1 investments

•Product development and strategic asset allocation actions

have seen Scottish Widows achieve its 2025 target early. See

progress table on the left.

•Integrate climate considerations into asset allocation

optimisation

•Our Responsible Investment and Stewardship Framework

and policies influence fund selection and asset allocation

decisions across our portfolio to ensure that material ESG

considerations are embedded

•Exclude high-carbon investments that we believe present a

high risk of becoming stranded assets

•In place since 2020 our exclusion policy helps to ensure that

our investment approach is aligned with the long-term

interests of our customers. As two of the most CO2-intensive

fossil fuels, companies involved in thermal coal and tar sands

are not aligned with our long-term investment strategy

•Focus our stewardship activity on companies failing to

address climate risk

Scottish Widows is currently in the process of revising its Climate

Action Plan, with a new plan expected to be released in 2025

covering the period from 2025 to 2030. Further details on this

activity is included in our sustainability report 2024 on

page 117.

1Climate-aware investment strategies: This refers to funds that have a focus on

investment in companies that are either adapting this business to reduce carbon

emissions or developing solutions to address climate change. We will invest in

climate solution investments either within these strategies or other funds. For more

information on our calculation methodology for these targets please see the

sustainability metrics basis of reporting 2024 which is available on our sustainability

downloads .

2From a 2019 baseline.

3Carbon footprint is a measure of carbon intensity calculated as absolute value

of emissions applicable to an investment divided by the value of investment.

The carbon footprint measured, where data is available, for year-end 2023 was

64.7 tCO2e/£m against a 2019 baseline of 116.1 tCO2e/£m

Indicator is subject to limited assurance by Deloitte LLP for further details see

page 54.

SusRev_SupplyChainOwnOperations_NetTransitionBorder.gif

Lloyds Banking Group plc Annual Report and Accounts 2024

Supporting the transition to net zero continued



	Supply chain Our ambition Reduce our supply chain emissions by 50 per cent by 2030, on a path to net zero by 2050.1



Our progress
Our progress
tCO2e
	Restated baseline2 year 2021/22	2022/23	Current year 2023/24
Scope 3 emissions GHG Protocol Categories 1,2,4	532,168	627,275	560,506
1From a 2021/22 baseline. 2Our supply chain emissions have been calculated using supplier emissions disclosure data where possible which is supplemented with CEDA carbon factors when we are unable to draw on supplier emissions. Our numbers were restated in 2024 to account for revised CEDA emission factors. Indicator is subject to limited assurance by Deloitte LLP see page 54 for details.

We recognise the significant challenges we face in meeting our

ambition given the indirect nature of supply chain emissions, the

drive to grow our business, the need for new technologies

including the use of AI, and policies to support achievement of it.

We are committed to managing our demand for goods and

services sustainably and working collaboratively with suppliers on

our shared journey to net zero, notably through the Emerald

Standard.

In October 2024, the Comprehensive Environmental Data

Archive (CEDA), published updated carbon factors for the year

2022 and in line with the Green House Gas (GHG) Protocol, we

took the decision to apply these retrospectively to our prior

disclosures which includes our baseline year (October 2021 to

September 2022). We believe it is important to provide the most

accurate view of our emissions based on available data. As a

result, our restated emissions are lower compared to those

previously disclosed for our baseline year and baseline year +1.

For the latest reporting period, October 2023 to September

2024, emissions are calculated from supplier spend totalling

£4.6 billion (net of VAT). This represents a 15 per cent increase in

supplier spend compared to our baseline year. Emissions have

also risen but at a lower rate of 5 per cent over the same period,

illustrated by a reduction in our emissions intensity from 132

tCO2e/£M to 121 tCO2e/£M.

We continue to support our key suppliers on their

decarbonisation journey through the Emerald Standard engaging

with 162 suppliers in 2024. These suppliers represent more than

80 per cent of our supply chain spend and supply chain emissions

as disclosed in our sustainability report 2023 .

We assess our key suppliers across four areas:

•GHG emissions calculation and disclosure

•Net zero commitments

•Science-aligned emission reduction targets

•ESG scorecard

Additional details on our supply chain emissions and our Emerald

Standard are included within our sustainability report 2024 .



	Our operations Our ambition Achieve net zero own operations by 2030, based on our 2018/19 baseline.

	The delivery of our ambition is supported by five pledges: •Reduce our direct carbon emissions by at least 90 per cent by 20301 •Reduce total energy consumption across our operations by 50 per cent by 20301 •Maintain travel-related carbon emissions below 50 per cent1,2 •Zero waste by 2030 (includes our legacy waste reduction pledge)3 •Water neutrality by 20304



Our progress
Our progress
Net zero ambition progress	l	Progress	l	2030 ambition
Net zero carbon operations by 2030

1From a 2018/19 baseline. 2From 2023/24 our travel related carbon emissions pledge considers domestic travel only. 3Reduce operation waste by 80 per cent by 2025 from a 2014/2015 baseline. 4Water neutrality across our buildings, reducing our water consumption as much as possible, and offsetting the residual volume. Includes water consumption across our full operational estate.

Our actions

We continue to make strong progress against our ambition and

pledges. We recognise that achieving these will not be easy, and

we will need to keep investing in our buildings, as well as

supporting colleagues in the transition towards a greener future.

To reduce our direct emissions, we continue to commit to the

procurement of 100 per cent renewable electricity. We signed a

three-year corporate power purchase agreement (PPA) to

complement our longer-term PPA agreed in the previous year.

This short-term agreement will cover around 25 per cent of our

electricity requirement, providing a direct line of sight from the

electricity produced from two onshore wind farms to our

buildings. We will continue our drive to reduce the energy

consumption of our property portfolio and invest in upgrading

our properties with better and more efficient lighting.

Our operating model has evolved since originally setting our travel

pledge in 2021, with the Group drawing more select skills from the

global market; we have therefore had to re-assess our existing

travel pledge commitment. The operating model evolution has

impacted our carbon emissions through a need for increased

international travel by our colleagues. From reporting year

2023/24, we have revised the elements reported within our travel

pledge to focus on domestic travel only aligned with our action

plans. This includes domestic commuting, business travel and

company vehicles.

Moving forward, we will continue to actively promote

sustainable travel options and monitor international travel

emissions. We commit to putting controls in place to minimise

international emissions to a essential level.

Further details of progress against our operation pledges can be

found within the sustainability report 2024 .

Lloyds Banking Group plc Annual Report and Accounts 2024

Streamlined energy carbon reporting

Methodology

The Group follows the principles of the Greenhouse Gas (GHG)

Protocol Corporate Accounting and Reporting Standard to

calculate Scope 1, 2 and 3 emissions from our worldwide operations.

Energy consumption is calculated according to guidance set out by

the Department for Energy Security and Net Zero. The reporting

period is 1 October 2023 to 30 September 2024.

Emissions are reported based on the operational control approach.

•Reported Scope 1 emissions are from activities for which the

Group is responsible, including those generated from gas and oil

used in buildings, emissions from fuels used in UK company

owned vehicles used for business travel, and fugitive emissions

from the use of air conditioning and chiller/refrigerant plant

•Reported Scope 2 emissions are generated from the use and

purchase of electricity and imported heat through heat networks

which are calculated in line with GHG protocol using both the

location and market-based methodologies

•Reported Scope 3 emissions relate to business travel (category 6)

and commuting (category 7) undertaken by colleagues, emissions

from colleagues working from home (category 7), operational

waste (category 5) and the extraction and distribution of each of

our energy sources – electricity, imported heating, gas and oil

(category 3). Scope 3 emissions do not include purchased goods

and services, capital goods and upstream transportation and

distribution (category 1, 2 and 4) and investments (category 15),

these figures are included in our supply chain and financed

emissions reporting shown on pages 54 to 58

•The methodology to derive reported Scope 1, 2 and 3 emissions is

provided in the sustainability metrics basis of reporting 2024

Exclusions

Emissions associated with our joint ventures and investments are

not currently calculated as they fall outside the scope of our

operational boundary. The Group does not have any emissions

associated with the purchase of steam or cooling for its own use

and is not aware of any other material sources of omissions from our

reporting.


	Intensity ratio


	October 2023 to September 2024	October 2022 to September 20231	October 2021 to September 20221
GHG emissions (CO2e) per £m of underlying income (location based)	10.2	9.8	10.1
GHG emissions (CO2e) per £m of underlying income (market based)	7.2	6.8	6.7

1Intensities have been restated for 2021/22 and 2022/23 emissions data to improve the

accuracy of reporting, using actual data to replace estimates and improvements to

fugitive gas calculations. Underlying income figures for those years have not changed.

Our overall location-based carbon emissions2 were 174,661 tonnes

CO2e; a 0.9 per cent decrease year on year. While our overall

market-based3 carbon emissions were 123,960 tonnes CO2e; a 1.1

per cent increase since 2022/23. Group energy consumption

(electricity and gas) has continued to reduce in line with extensive

investment in energy efficiency across our buildings and adaptations

to our established hybrid work style, this has been offset by an

increase in our emissions from business travel. The Group promotes

sustainable travel through our sustainable car scheme and refreshed

travel and expenses colleague guidance.

2Includes Scope 1, 2 emissions and Scope 3 categories 3, 5, 6 and 7. Scope 3 categories 1,

2, 4 and 15 are excluded.

3Since January 2019, our Scope 2 market-based emissions relating to electricity

consumption are zero tCO2e as we have procured renewable electricity mainly through

our Power Purchase Agreement (PPA) and Green Tariff, and renewable certificates

equivalent to the remainder to make up the total electricity consumption in each of the

markets in which we operate.


	Carbon emissions (tonnes CO2e)


	October 2023 to September 2024 tonnes CO2e	October 2022 to September 2023 tonnes CO2e4	October 2021 to September 2022 tonnesCO2e4
Total tCO2e (location based)	174,661	176,320	176,446
Total tCO2e (market based)	123,960	122,564	117,671
Total Scope 1 and 2 (location based)	71,146	75,494	86,251
Of which: UK Scope 1 and 2 (location based)	70,427	74,732	85,384
Total Scope 1 and 2 (market based)	20,445	21,738	27,475
Of which: UK Scope 1 and 2 (market based)	20,262	21,528	27,208
Total Scope 1	20,441	21,727	27,473
Total Scope 2 (market based)	4	11	2
Of which: Electricity	–	–	–
Total Scope 2 (location based)	50,704	53,767	58,777
Total Scope 3	103,515	100,826	90,196

Indicator is subject to limited assurance by Deloitte LLP see page 54 for details

4Metrics have been restated for 2021/22 and 2022/23 emissions data to improve the

accuracy of reporting, using actual data to replace estimates and improvements to

fugitive gas calculations.

Further information covering our baseline year 2018/19 to 2023/24 is

available in our sustainability metrics datasheet 2024 .

Focusing

on reducing

our operational

carbon footprint

This year, we entered into two new

long-term power purchase agreements

to purchase renewable electricity

from specific wind and solar assets across

the UK. Not only does this provide valuable

focus and support for UK renewable energy

generation, it is also an essential component

of the Group’s ambition for our own

operations to be net zero by 2030,

locking in supply and price stability.

Lloyds Banking Group plc Annual Report and Accounts 2024

Supporting the transition to net zero continued


	Global energy use (kWhs)


	October 2023 to September 2024 kWhs	October 2022 to September 2023 kWhs1	October 2021 to September 2022 kWhs1
Total global energy use	334,739,294	362,639,743	420,824,628
Of which: UK energy use	331,150,563	358,779,700	416,340,738
Total building energy	320,967,285	347,966,736	409,209,957
Total Company owned vehicle energy	8,704,843	10,108,961	7,599,309
Total grey fleet2 vehicle energy	5,067,165	4,564,047	4,015,361

1Restated data since 2021/22 to improve the accuracy of reporting, using actual data to

replace estimates and updates to historical emissions. Scope 3 – Business Travel

(category 6) also restated to reflect improving data coverage for Air and Rail emissions.

2Grey fleet refers to colleague and hired road vehicles being used for a business purpose.

Indicator is subject to limited assurance by Deloitte LLP see page 54 for details

Energy efficiency

Our ongoing optimisation programme continues to support energy

savings in 2024 across our own operations. This workstream

includes efficiency improvements such as energy efficient lighting,

fabric improvements and increased delivery of building

management systems. In addition to this work, we have undertaken

strategic alterations of building management and control systems to

match the businesses core operating hours and ensure temperature

settings are aligned with Group comfort guidelines.

During the year, we completed 60 LED installations across our

branch network bringing our total LED installations to over 350

branches. We completed either full or partial LED installations

across a total of 22 offices within our portfolio. In 2024, we have

added another 49 properties to our connected branches

programme. This provides a remote monitoring solution which

enables us to utilise the building management technology to ensure

our building heating, ventilation and air conditioning is performing

as required.

We have also optimised power usage, leveraged technology, and

implemented innovative solutions to reduce consumption in our

data centres. Alongside safely decommissioning our older, less

efficient data centres, we are building a new highly energy efficient

one.

Financial planning and controls

How sustainability is factored into our

internal reporting and planning process

Climate considerations form part of our planning and forecasting

activities. We consider climate effects in our base case economic

scenario and forecast financed emissions alongside climate risks and

opportunities within the Group’s four-year financial plan, primarily

across four key areas Bank financed emissions, Scottish Widows

investment carbon intensity, own operation and supply chain.

Our financial planning process acknowledges the dependencies on

external factors such as policies, technology developments and

customer behaviour. We continue to monitor the impact of these

external factors on our Group ambitions and targets alongside

working in partnership with our customers and other stakeholders

to achieve our common ambition of achieving net zero by 2050.

How finance is supporting the Bank’s reporting

of sustainability-related matters

•Forecasting our Bank financed emissions to 2030 for our high-

carbon-intensive sectors, along with our supply chain and own

operations. In 2024 we enhanced this forecast to include

Scottish Widows carbon investment footprint to 2030, now

covering all our Group emissions ambitions

•We have established capability to report our sustainable lending

and investments progress on a quarterly basis as well as regularly

reporting our financed emissions, providing management with

insight on our progress against our ambitions and targets. This

process is used to support executive remuneration and Board risk

appetite metrics. In 2025 we will explore how this reporting can

be extended to consider wider social sustainability metrics

•We have implemented a number of controls in relation to the

calculation and reporting of financed emissions and in 2024

enhanced our controls in relation to sustainability-related

regulatory disclosures

•Finance track sustainability-related investment across key

climate, nature and social initiatives through direct engagement

with business unit teams ensuring alignment and prioritisation

with our strategic objectives. As part of this, the Group has

dedicated investment of c.£30 million to support our customers’

transition in 2024, in addition to the day-to-day activities

integrated into business-as-usual. Regular monitoring of our

sustainability-related investment across the Group aligns our

financial goals with our purpose, supporting the ability to

measure progress and delivery

Financial statement preparation includes consideration of the

impact of climate change on the Group’s financial position. While

the effects of climate change represent a source of uncertainty, the

Group does not consider there to be a material short-term impact,

see page 174 for further details.

Lloyds Banking Group plc Annual Report and Accounts 2024

Income statement – underlying basisA


	2024 £m	2023 £m	Change %
Underlying net interest income	12,845	13,765	(7)
Underlying other income	5,597	5,123	9
Operating lease depreciation	(1,325)	(956)	(39)
Net income	17,117	17,932	(5)
Operating costs	(9,442)	(9,140)	(3)
Remediation	(899)	(675)	(33)
Total costs	(10,341)	(9,815)	(5)
Underlying profit before impairment	6,776	8,117	(17)
Underlying impairment charge	(433)	(308)	(41)
Underlying profit	6,343	7,809	(19)
Restructuring	(40)	(154)	74
Market volatility and asset sales	(144)	35
Amortisation of purchased intangibles	(81)	(80)	(1)
Fair value unwind	(107)	(107)
Volatility and other items	(332)	(152)
Statutory profit before tax	5,971	7,503	(20)
Tax expense	(1,494)	(1,985)	25
Statutory profit after tax	4,477	5,518	(19)

Earnings per share	6.3p	7.6p	(1.3)p
Dividends per share – ordinary	3.17p	2.76p	15
Share buyback value	£1.7bn	£2.0bn	(15)

Banking net interest marginA	2.95%	3.11%	(16)bp
Average interest-earning banking assetsA	£451.2bn	£453.3bn
Cost:income ratioA	60.4%	54.7%	5.7pp
Asset quality ratioA	0.10%	0.07%	3bp
Return on tangible equityA	12.3%	15.8%	(3.5)pp

ASee page 314.

Key balance sheet metrics


	At 31 Dec 2024	At 31 Dec 2023	Change %
Underlying loans and advances to customersA	£459.1bn	£449.7bn	2
Customer deposits	£482.7bn	£471.4bn	2
Loan to deposit ratioA	95%	95%
CET1 ratio	14.2%	14.6%	(0.4)pp
Pro forma CET1 ratioA,1	13.5%	13.7%	(0.2)pp
UK leverage ratio	5.5%	5.8%	(0.3)pp
Risk-weighted assets	£224.6bn	£219.1bn	3
Wholesale funding2	£92.5bn	£98.7bn	(6)
Wholesale funding <1 year maturity2	£31.3bn	£35.1bn	(11)
of which: money market funding <1 year maturity2	£16.9bn	£23.8bn	(29)
Liquidity coverage ratio – eligible assets3	£134.4bn	£136.0bn	(1)
Liquidity coverage ratio4	146%	142%	4pp
Net stable funding ratio5	129%	130%	(1)pp
Tangible net assets per shareA	52.4p	50.8p	1.6p

131 December 2023 and 31 December 2024 reflect both the full impact of the share buybacks announced in respect of 2023 and 2024 and the ordinary dividends received from the

Insurance business in February 2024 and February 2025.

2Excludes balances relating to margins of £2.8 billion (31 December 2023: £2.4 billion).

3Eligible assets are calculated as a monthly rolling simple average of month end observations over the previous 12 months post any liquidity haircuts.

4The liquidity coverage ratio is calculated as a simple average of month-end observations over the previous 12 months.

5The net stable funding ratio is calculated as a simple average of month-end observations over the previous four quarter-ends.

Lloyds Banking Group plc Annual Report and Accounts 2024

Balance sheet analysis


	At 31 Dec 2024 £bn	At 30 Sep 2024 £bn	Change %	At 30 Jun 2024 £bn	Change %	At 31 Dec 2023 £bn	Change %

UK mortgages1,2	312.3	310.1	1	306.9	2	306.2	2
Credit cards	15.7	15.7		15.6	1	15.1	4
UK Retail unsecured loans	9.1	8.8	3	8.2	11	6.9	32
UK Motor Finance3	15.3	15.6	(2)	16.2	(6)	15.3
Overdrafts	1.2	1.1	9	1.0	20	1.1	9
Retail other1,4	17.9	17.3	3	17.2	4	16.6	8
Business and Commercial Banking5	29.7	30.7	(3)	31.5	(6)	33.0	(10)
Corporate and Institutional Banking	57.9	57.2	1	56.6	2	55.6	4
Central Items6	–	0.5		(0.8)		(0.1)
Underlying loans and advances to customersA	459.1	457.0		452.4	1	449.7	2

Retail current accounts	101.3	100.6	1	101.7		102.7	(1)
Retail savings accounts7	208.2	204.3	2	201.5	3	194.8	7
Wealth	10.2	10.1	1	10.1	1	10.9	(6)
Commercial Banking	162.6	160.7	1	161.2	1	162.8
Central Items	0.4	–		0.2		0.2
Customer deposits	482.7	475.7	1	474.7	2	471.4	2

Total assets	906.7	900.8	1	892.9	2	881.5	3
Total liabilities	860.8	854.4	1	847.8	2	834.1	3

Ordinary shareholders’ equity	39.5	40.3	(2)	39.0	1	40.3	(2)
Other equity instruments	6.2	5.9	5	5.9	5	6.9	(10)
Non-controlling interests	0.2	0.2		0.2		0.2
Total equity	45.9	46.4	(1)	45.1	2	47.4	(3)

Ordinary shares in issue, excluding own shares	60,491m	61,419m	(2)	62,458m	(3)	63,508m	(5)

1From the first quarter of 2024, open mortgage book and closed mortgage book loans and advances, previously presented separately, are reported together as UK mortgages; Wealth

loans and advances, previously reported separately, are included within Retail other. The 31 December 2023 comparative is presented on a consistent basis.

2The increases between 31 December 2023 and 30 June 2024 and between 30 September 2024 and 31 December 2024 are net of the impact of the securitisations of primarily legacy

Retail mortgages of £0.9 billion and £1.0 billion respectively.

3UK Motor Finance balances on an underlying basisA exclude a finance lease gross up. See page 314.

4Within underlying loans and advances, Retail other includes the European and Wealth businesses.

5Previously named Small and Medium Businesses.

6Central Items includes central fair value hedge accounting adjustments.

7From the first quarter of 2024, Retail relationship savings accounts and Retail tactical savings accounts, previously reported separately, are reported together as Retail savings

accounts. The 31 December 2023 comparative is presented on a consistent basis.

Lloyds Banking Group plc Annual Report and Accounts 2024

Summary of Group results

Statutory results

The Group’s profit before tax for 2024 was £5,971 million, 20 per cent lower than in 2023. This was driven by lower total income, higher

operating expenses and a higher impairment charge. Profit after tax was £4,477 million and earnings per share was 6.3 pence (2023:

£5,518 million and 7.6 pence respectively).

Total income, after net finance expense in respect of insurance and investment contracts for 2024 was £18,003 million, a decrease of 3 per

cent on 2023. Within this, net interest income of £12,277 million was down 8 per cent on the prior year, driven by a lower margin. The

margin performance over the year reflected anticipated headwinds due to deposit churn and asset margin compression, particularly in the

mortgage book as it refinances in a lower margin environment. These factors were partially offset by benefits from higher structural hedge

earnings as balances are reinvested in the higher rate environment.

Other income amounted to £22,004 million in 2024, broadly in line with 2023. Within other income, net trading income was

£17,825 million compared to £18,049 million in 2023. Within the Group’s insurance activities, net trading income was £16,013 million in

2024 (2023: £16,742 million), a decrease of £729 million largely reflecting less favourable market performance in 2024. Within the Group’s

banking activities, net trading income was £1,812 million (2023: £1,307 million) with growth in Commercial Banking driven by strong markets

performance and higher levels of client activity. Outside of net trading income within Retail, there was improved performance in UK Motor

Finance, with growth following the acquisition of Tusker in 2023 and higher average vehicle rental values. Net fee and commission income

was £1,759 million compared to £1,831 million in 2023. The £729 million decrease in net trading income within the Group’s insurance

activities was largely offset by the £498 million decrease in net finance expense in respect of insurance and investment contracts.

Total operating expenses of £11,601 million were 7 per cent higher than in the prior year. This reflects higher operating lease

depreciation, as a result of fleet growth, the depreciation of higher value vehicles and declines in used electric car prices, primarily in the

first half, alongside inflationary pressures, business growth costs and ongoing strategic investments including severance. It also includes c.

£0.1 billion relating to the sector-wide change in the charging approach for the Bank of England Levy taken in the first quarter, largely offset

across the year in net interest income. The Group has maintained its cost discipline with cost efficiencies partly offsetting these items. In

2024, the Group recognised remediation costs of £899 million (2023: £675 million), including a £700 million provision in relation to the

potential impact of motor finance commission arrangements, alongside £199 million charges in relation to pre-existing programmes.

Asset quality remains strong with improved credit performance in the year. The impairment charge was £431 million compared to a

£303 million charge in 2023 (which benefitted from a significant write-back following the full repayment of debt from a single name client).

The charge in 2024 includes a credit from an improved economic outlook, notably house price growth and changes in the first half of the

year to the severe downside scenario methodology. The charge also benefitted from strong portfolio performance and the release of

judgemental adjustments for inflation and interest rate risks in 2024, as well as a release in Commercial Banking from loss rates used in the

model in the first half of the year and a debt sale write back in Retail in the third quarter.

The Group saw good lending growth in 2024 with loans and advances to customers increasing by £10.2 billion to £459.9 billion. This

included £6.1 billion growth in UK mortgages (net of the impact of the securitisation of £1.9 billion of primarily legacy Retail mortgages in

the second and fourth quarters), £2.2 billion growth in UK Retail unsecured loans driven by organic balance growth and lower repayments

following a securitisation in the fourth quarter of 2023, alongside a £0.6 billion increase in credit card balances and growth in other Retail

lending (principally in the European retail business). In Commercial Banking, Business and Commercial Banking lending decreased by

£3.3 billion, including repayments of £1.6 billion of government-backed lending. Corporate and Institutional Banking balances increased

£2.3 billion from strategic growth, notably higher infrastructure lending.

Customer deposits of £482.7 billion significantly increased in the year by £11.3 billion. Retail deposits were up £11.3 billion in the year driven

by inflows to limited withdrawal and fixed term deposits, partly offset by a £1.4 billion reduction in current account balances. Commercial

Banking deposits were stable in the year, reflecting growth in target sectors offset by an expected outflow in the third quarter.

Total equity of £45.9 billion at 31 December 2024 decreased from £47.4 billion at 31 December 2023. The movement reflected attributable

profit for the year and issuance of an AT1 capital instrument in October 2024, which was more than offset by the dividends paid in

May 2024 and September 2024, the impact of redemption of AT1 capital instruments in June 2024 and December 2024 and the impact of

the share buyback programme in respect of 2023.

Lloyds Banking Group plc Annual Report and Accounts 2024

Underlying resultsA

The Group’s underlying profit was £6,343 million in 2024, a reduction of 19 per cent compared to £7,809 million in the prior year with lower

net income, higher operating costs and higher remediation and underlying impairment charges. Underlying profit of £993 million in the

fourth quarter was down 46 per cent compared to the third quarter of 2024, with net income slightly up, more than offset by higher

operating costs, including the annual Bank Levy and a charge for the potential impacts of motor finance commission arrangements.

Net incomeA


	2024 £m	2023 £m	Change %
Underlying net interest income	12,845	13,765	(7)
Underlying other income	5,597	5,123	9
Operating lease depreciation1	(1,325)	(956)	(39)
Net incomeA	17,117	17,932	(5)

Banking net interest marginA	2.95%	3.11%	(16)bp
Average interest-earning banking assetsA	£451.2bn	£453.3bn

1Net of profits on disposal of operating lease assets of £59 million (31 December 2023: £93 million).

Net income of £17,117 million was down 5 per cent on 2023, driven by lower underlying net interest income and an increased charge for

operating lease depreciation. This was partly offset by higher underlying other income. Net income in the fourth quarter of 2024 was

slightly up on the third quarter, building on the growth seen in the third quarter.

Underlying net interest income of £12,845 million was down 7 per cent on 2023, with a resilient banking net interest margin of 2.95 per cent

(2023: 3.11 per cent), compared to guidance of greater than 2.90 per cent, benefitting from fewer than expected UK Bank Rate cuts, the

change in charging approach for the Bank of England Levy, solid deposit volumes and the structural hedge contribution. The margin

performance over the year reflected anticipated headwinds due to deposit churn and asset margin compression, particularly in the

mortgage book as it refinances in a lower margin environment. These factors were partially offset by benefits from higher structural hedge

earnings as balances are reinvested in the higher rate environment. Average interest-earning banking assets in 2024 of £451.2 billion were in

line with guidance and broadly stable versus 2023. This includes growth across Retail products partly offset by the impact of securitisations,

alongside a reduction in Commercial Banking assets, which included continued repayments of government-backed lending in Business and

Commercial Banking and lower lending to banks. Underlying net interest income in 2024 included a non-banking net interest expense of

£469 million (2023: £311 million), increasing as a result of higher funding costs and growth in the Group’s non-banking businesses.

Underlying net interest income of £3,276 million in the fourth quarter of 2024 was 1 per cent higher than in the third quarter (three months

to 30 September 2024: £3,231 million), building on growth in the third quarter. Growth in structural hedge earnings more than offset the

impact from the expected continuation of headwinds in respect of deposit churn and asset margin compression, resulting in an increase in

banking net interest margin to 2.97 per cent in the fourth quarter (three months to 30 September 2024: 2.95 per cent). Average interest-

earning banking assets were £455.1 billion, up on the third quarter from growth in UK mortgages, Retail unsecured loans and Corporate and

Institutional Banking. The non-banking net interest expense was in line with the third quarter. Looking forward, the Group expects the

underlying net interest income for 2025 to be c.£13.5 billion.

The Group manages the risk to earnings and capital from movements in interest rates by hedging the net liabilities which are stable or less

sensitive to movements in rates. At the end of the fourth quarter, the notional balance of the sterling structural hedge was maintained at

£242 billion (31 December 2023: £247 billion) with a weighted average duration of approximately three-and-a-half years

(31 December 2023: approximately three-and-a-half years). This is consistent with the balance at the end of the second and third quarters

of 2024 (30 September 2024: £242 billion, 30 June 2024: £242 billion), given stability in deposit flows. The Group generated £4.2 billion of

total income from sterling structural hedge balances in 2024, representing material growth over the prior year (2023: £3.4 billion). The

Group expects sterling structural hedge earnings in 2025 to be £1.2 billion higher than in 2024 and £1.5 billion higher in 2026 than in 2025.

Underlying other income in 2024 of £5,597 million grew by 9 per cent (2023: £5,123 million). Retail was up 10 per cent versus 2023, primarily

due to UK Motor Finance, including growth following the acquisition of Tusker in 2023 and higher average vehicle rental values. Within

Commercial Banking growth of 8 per cent was driven by strong markets performance as a result of strategic investment and higher levels of

client activity. Insurance, Pensions and Investments underlying other income grew by 7 per cent compared to 2023 driven by strong trading

and higher general insurance income net of claims and after the disposal of the in-force bulk annuities portfolio. In Equity Investments and

Central Items, underlying other income was up 50 per cent on the prior year, driven by strong income growth from Lloyds Living. Underlying

other income in the fourth quarter was 11 per cent higher than the fourth quarter of 2023 with growth across divisions.

The Group delivered organic growth in assets under administration (AuA) in Insurance, Pensions and Investments and Wealth (reported

within Retail), with combined £5.7 billion net new money in open book AuA over 2024. In total, open book AuA stand at c.£201 billion at

31 December 2024.

Operating lease depreciation of £1,325 million increased compared to the prior year (2023: £956 million), as a result of fleet growth,

the depreciation of higher value vehicles and declines in used electric car prices, primarily in the first half. The increase in 2024 includes the

c.£100 million additional charge taken in the second quarter to reflect revised future expected residual values. The charge in the fourth

quarter was £331 million, consistent with expectations, given used car prices have performed in line with assumptions.

Lloyds Banking Group plc Annual Report and Accounts 2024

Summary of Group results continued

Total costsA


	2024 £m	2023 £m	Change %
Operating costsA	9,442	9,140	(3)
Remediation	899	675	(33)
Total costsA	10,341	9,815	(5)

Cost:income ratioA	60.4%	54.7%	5.7pp

Total costs, including remediation, of £10,341 million were 5 per cent higher than the prior year, with operating costs of £9,442 million up

3 per cent. Operating costs include c.£0.1 billion relating to the sector-wide change in the charging approach for the Bank of England Levy

taken in the first quarter. Excluding the Levy, operating costs were up 2 per cent. The Group has maintained its cost discipline with cost

efficiencies helping to partially offset inflationary pressures, business growth costs and ongoing strategic investments including severance.

Operating costs in 2025 are expected to be c.£9.7 billion, including further increased severance and the impact from National Insurance

contributions changes (c.£0.1 billion).

The Group recognised remediation costs of £899 million in 2024 (2023: £675 million), with £775 million in the fourth quarter, including an

additional £700 million in relation to the potential impact of motor finance commission arrangements in light of the Court of Appeal (CoA)

judgment in relation to Wrench, Johnson and Hopcraft (WJH) in October 2024, which goes beyond the scope of the original FCA motor

finance commissions review. The Supreme Court granted the relevant lenders permission to appeal the WJH judgment and the substantive

hearing is scheduled to be heard on 1 April to 3 April 2025. The total £1,150 million provision, including £450 million provided in 2023,

represents the Group’s best estimate of the potential impact, including both redress and operational costs, but notes that there is a

significant level of uncertainty in terms of the final outcome. As a result, the final financial impact could differ materially to the amount

provided.

The Group’s cost:income ratio for 2024 was 60.4 per cent compared to 54.7 per cent in the prior year, and 73.7 per cent in the fourth

quarter impacted by the provision charge for motor finance commission arrangements and the Bank Levy.

Underlying impairmentA


	2024 £m	2023 £m	Change %
Charges (credits) pre-updated MES1
Retail	789	1,064	26
Commercial Banking	48	(487)
Other	(10)	(12)	(17)
	827	565	(46)
Updated economic outlook
Retail	(332)	(233)	42
Commercial Banking	(62)	(24)
	(394)	(257)	53
Underlying impairment chargeA	433	308	(41)

Asset quality ratioA	0.10%	0.07%	3bp
Total expected credit loss allowance (at end of year)A	3,651	4,337	16

1Impairment charges excluding the impact from updated economic outlook (multiple economic scenarios, MES) taken each quarter.

Asset quality remains strong with improved credit performance in the year. Underlying impairment was a charge of £433 million

(2023: £308 million), resulting in an asset quality ratio of 10 basis points. The charge reflects a £394 million multiple economic scenarios

(MES) credit (2023: £257 million credit) from an improved economic outlook, notably house price growth and changes in the first half of the

year to the severe downside scenario methodology. The charge in the fourth quarter of £160 million includes a £70 million MES credit.

The pre-updated MES charge of £827 million is equivalent to an asset quality ratio of 19 basis points. This is higher than the prior year pre-

updated MES charge of £565 million, which benefitted from a significant write-back following the full repayment of debt from a single

name client. The charge in 2024 benefitted from strong portfolio performance and the release of judgemental adjustments for inflation and

interest rate risks in 2024, as well as a one-off release in Commercial Banking from loss rates used in the model in the first half of the year

and a one-off debt sale write back in Retail in the third quarter. In the fourth quarter, the pre-updated MES charge was £230 million,

equating to 20 basis points. Looking forward, the Group expects the asset quality ratio to be c.25 basis points in 2025.

Lloyds Banking Group plc Annual Report and Accounts 2024

Restructuring, volatility and other items

Restructuring costs during 2024 were £40 million (2023: £154 million) and include costs relating to the integration of Embark and Tusker as

well as those related to a contract termination. Volatility and other items were a net loss of £332 million for the year (2023: net loss of

£152 million). This included £81 million for the amortisation of purchased intangibles (2023: £80 million) and £107 million relating to fair

value unwind (2023: £107 million). Negative market volatility of £144 million (2023: positive volatility of £35 million) was substantially driven

by longer-term rate rises in the period, driving negative insurance volatility, partly offset by positive impacts from banking volatility. The

fourth quarter volatility and other items charge of £150 million, was primarily driven by insurance volatility including from movements in

interest rates.

The return on tangible equity for 2024 was 12.3 per cent (2023: 15.8 per cent), with 7.1 per cent in the fourth quarter reflecting the provision

charge in relation to the potential impacts of motor finance commission arrangements. Excluding this impact, the return on tangible equity

was 14.0 per cent in 2024 and 13.9 per cent in the fourth quarter. The Group expects the return on tangible equity for 2025 to be c.13.5 per

cent.

Tangible net assets per share at 31 December 2024 was 52.4 pence, up 1.6 pence in the year (31 December 2023: 50.8 pence). The increase

resulted from attributable profit and a reduction in the number of shares following the share buyback programme announced in

February 2024. This was offset by capital distributions, a lower pension surplus from negative market impacts and the foreign exchange

impact on the redemption of a US dollar denominated AT1 capital instrument. Tangible net assets per share was down 0.1 pence in the

fourth quarter. The decrease was due to increased long-term rates impacting the cash flow hedge reserve and pension surplus, partly offset

by attributable profit, impacted by the provision charge relating to motor finance commission arrangements.

In February 2024, the Board decided to return surplus capital in respect of 2023 through a share buyback programme of up to £2.0 billion.

This commenced on 23 February 2024 and completed on 13 November 2024 with c.3.7 billion (c.6 per cent) ordinary shares repurchased.

Further information on the reconciliation of statutory to underlying results is included on page 314.

Tax

The Group recognised a tax expense of £1,494 million in the year (2023: £1,985 million). This reflected lower profits than the prior year and

tax credits of £100 million on the finalisation of prior year returns within the fourth quarter charge of £124 million. The Group expects a

medium-term effective tax rate of around 27 per cent based on the banking surcharge rate of 3 per cent and the corporation tax rate of

25 per cent. An explanation of the relationship between the tax expense and the Group’s accounting profit for the year is set out in note 15

to the consolidated financial statements on page 255.

Balance sheet

The Group saw good lending growth in 2024 with underlying loans and advances to customers increasing by £9.4 billion to £459.1 billion.

This included £6.1 billion growth in UK mortgages (net of the impact of the securitisation of £1.9 billion of primarily legacy Retail mortgages

in the second and fourth quarters), £2.2 billion growth in UK Retail unsecured loans driven by organic balance growth and lower

repayments following a securitisation in the fourth quarter of 2023, alongside a £0.6 billion increase in credit card balances and growth in

other Retail lending (principally in the European retail business). In Commercial Banking, Business and Commercial Banking lending

decreased by £3.3 billion, including repayments of £1.6 billion of government-backed lending. Corporate and Institutional Banking balances

increased £2.3 billion from strategic growth, notably higher infrastructure lending. Growth of £2.1 billion in underlying loans and advances to

customers in the fourth quarter included £2.2 billion in UK mortgages (net of the £1.0 billion impact from a securitisation) and stable

Commercial Banking balances.

Customer deposits of £482.7 billion significantly increased in the year by £11.3 billion, including £7.0 billion in the fourth quarter. Retail

deposits were up £11.3 billion in the year driven by inflows to limited withdrawal and fixed term deposits, partly offset by a £1.4 billion

reduction in current account balances (significantly lower than the prior year, as expected). In the fourth quarter, Retail current account

balances increased by £0.7 billion in contrast to a £1.1 billion reduction in the third quarter helped by calendar timing impacts. Deposit

churn observed within savings and between savings and current accounts was lower in 2024 than in 2023 and lower in the second half of

2024 than in the first half. Commercial Banking deposits were stable in the year, reflecting growth in target sectors offset by an expected

outflow in the third quarter. The increase in Commercial Banking deposits in the fourth quarter of £1.9 billion reflected growth in target

sectors alongside foreign exchange impacts.

The Group has a large, high quality liquid asset portfolio held mainly in cash and government bonds, with all assets hedged for interest rate

risk. The Group’s liquid assets continue to significantly exceed regulatory requirements and internal risk appetite, with a strong, stable

liquidity coverage ratio of 146 per cent (31 December 2023: 142 per cent) and a strong net stable funding ratio of 129 per cent (31 December

2023: 130 per cent). The loan to deposit ratio of 95 per cent, broadly stable compared to 31 December 2023 and 30 September 2024,

continues to reflect a robust funding and liquidity position.

The underlying expected credit loss (ECL) allowance reduced to £3.7 billion (31 December 2023: £4.3 billion) in the period, reflecting

releases driven by improvements to the Group’s economic base case scenario. The uplift from the base case to probability-weighted ECL is

£0.4 billion (31 December 2023: £0.7 billion). The ECL allowance includes judgemental adjustments which reduce the ECL by £15 million (31

December 2023: £67 million increase to ECL). The reduction in judgemental adjustments in the year was primarily from the release of those

held in respect of inflationary and interest rate risks, which are now stabilising, with a resilient credit performance being observed.

Lloyds Banking Group plc Annual Report and Accounts 2024

Summary of Group results continued

Capital

Capital generation


Pro forma CET1 ratio as at 31 December 2023A,1	13.7%
Banking build (bps)2	221
Insurance dividend (bps)	14
Risk-weighted assets (bps)	(14)
Other movements (bps)3	(17)
Retail secured CRD IV increases and phased unwind of IFRS 9 transitional relief (bps)4	(27)
Capital generation excluding provision charge for motor finance commission arrangements (bps)	177
Provision charge for motor finance commission arrangements (bps)	(29)
Capital generation (bps)	148
Ordinary dividend (bps)	(91)
Share buyback accrual (bps)	(80)
Pro forma CET1 ratio as at 31 December 2024A,1	13.5%

131 December 2023 and 31 December 2024 reflect both the full impact of the share buybacks announced in respect of 2023 and 2024 and the ordinary dividends received from the

Insurance business in February 2024 and February 2025.

2Includes impairment charge and excess regulatory expected losses, excludes a charge for motor finance commission arrangements.

3Includes share-based payments and foreign exchange loss on a US dollar AT1 redemption.

4Retail secured CRD IV increases with respect to performing exposures.

The Group’s pro forma CET1 capital ratio at 31 December 2024 was 13.5 per cent (31 December 2023: 13.7 per cent pro forma), in line with

guidance. Capital generation during the year was 148 basis points. Excluding the provision for motor finance commission arrangements,

capital generation was 177 basis points, in line with guidance.

Capital generation reflects robust banking build and the interim half-year and full-year dividends received from the Insurance business in

June 2024 (£200 million) and February 2025 (£100 million) respectively, partially offset by risk-weighted asset increases and other

movements, including 15 basis points relating to the foreign exchange translation loss following the US dollar AT1 capital instrument

redemption in June. Regulatory headwinds of 27 basis points in the year reflect an adjustment for part of the impact of the Retail secured

CRD IV increases and the reduction in the transitional factor applied to IFRS 9 dynamic relief on 1 January 2024. There was a further

29 basis points resulting from a provision relating to the potential impacts of motor finance commission arrangements. The impact of the

interim ordinary dividend paid in September 2024 and the accrual for the recommended final ordinary dividend equates to 91 basis points,

with a further 80 basis points to cover the accrual for the announced ordinary share buyback programme of up to £1.7 billion.

The Group expects capital generation in 2025 to be c.175 basis points and reaffirms guidance for capital generation in 2026 of greater than

200 basis points.

Excluding the Insurance dividend received in February 2025 and the full impact of the announced ordinary share buyback programme, the

Group's CET1 capital ratio at 31 December 2024 was 14.2 per cent (31 December 2023: 14.6 per cent).

Risk-weighted assets increased by £5.5 billion in the year to £224.6 billion at 31 December 2024 (31 December 2023: £219.1 billion), in line

with guidance. This reflects the impact of lending growth, Retail secured CRD IV increases and other movements, partly offset by

optimisation including capital efficient, net present value positive securitisation activity. In the fourth quarter, risk-weighted assets

increased by £1.3 billion primarily driven by lending growth, operational risk and Retail secured CRD IV increases, again partly offset by

optimisation activity. In the context of the Retail secured CRD IV increases, a risk-weighted asset increase of £3.3 billion was recognised

against performing exposures in 2024. Including this increase, it is now envisaged that the overall uplift could be modestly higher than

£5 billion, subject to finalisation with the PRA. The PRA published its second policy statement on implementing Basel 3.1 in the UK in

September 2024. The final regulations, which are now due to be implemented on 1 January 2027 following a PRA announcement in January

2025, will introduce substantial revisions to the approaches for calculating risk-weighted assets. The Group expects the initial impact of

Basel 3.1 implementation to be moderately positive.

The Group’s regulatory CET1 capital requirement remains at around 12 per cent, including the Pillar 2A CET1 capital requirement remaining

at around 1.5 per cent of risk-weighted assets. The Board’s view of the ongoing level of total CET1 capital required to grow the business,

meet current and future regulatory requirements and cover economic and business uncertainties is c.13.0 per cent. This includes a

management buffer of around 1 per cent. In order to manage risks and distributions in an orderly way, the Board intends to progress

towards paying down to the current CET1 capital target of c.13.0 per cent by the end of 2026.

Pensions

Following completion of the triennial valuation of its main defined benefit pension schemes as at 31 December 2022, there will be no

further deficit contributions for this triennial period (to 31 December 2025).

Dividend and share buyback

The Group has a progressive and sustainable ordinary dividend policy whilst maintaining the flexibility to return further surplus capital

through share buybacks or special dividends. In February 2024, the Board decided to return surplus capital in respect of 2023 through a

share buyback programme of up to £2.0 billion. This commenced on 23 February 2024 and completed on 13 November 2024 with

c.3.7 billion (c.6 per cent) ordinary shares repurchased.

In respect of 2024, the Board has recommended a final ordinary dividend of 2.11 pence per share, which, together with the interim ordinary

dividend of 1.06 pence per share totals 3.17 pence per share, an increase of 15 per cent compared to 2023, in line with the Board’s

commitment to a progressive and sustainable ordinary dividend. The Board has also announced its intention to implement an ordinary

share buyback of up to £1.7 billion, which will commence as soon as is practicable and is expected to be completed by 31 December 2025.

Based on the total ordinary dividend and the announced ordinary share buyback, the total capital return in respect of 2024 will be up to

£3.6 billion, equivalent to c.9 per cent (as at 14 February 2025) of the Group’s market capitalisation value. The Group intends to pay down

to its ongoing CET1 capital target of c.13.0 per cent by the end of 2026.

Lloyds Banking Group plc Annual Report and Accounts 2024

Other financial information

Post-tax return on average assets


	2024 %	2023 %
Post-tax return on average assets	0.50	0.63

Share buyback in respect of 2023 results

During 2024, the Group completed a £2.0 billion share buyback programme, in respect of 2023 results, with c.3.7 billion shares purchased

at an average price of 54.21 pence per share. Through a reduction in the weighted average number of ordinary shares in issue, share

buybacks have the effect of increasing earnings per share and, depending on the average price paid per share, can either increase or

decrease the tangible net assets per share. The share buyback in respect of 2023 results had the effect of increasing the earnings per share

by 0.2 pence and increasing the tangible net assets per share by 3.0 pence.

Insurance, Pensions and Investments performance summaryA


	2024 £m	2023 £m	Change %
Life and pensions sales (PVNBP)A,1	18,249	17,449	5
New business value of insurance and participating investment contracts recognised in the yearA,2
of which: deferred to contractual service margin and risk adjustment	126	173	(27)
of which: losses recognised on initial recognition	(15)	(20)	25
	111	153	(27)
Assets under administration (net flows)3	£5.3bn	£5.1bn	4
General insurance underwritten new gross written premiumsA	197	124	59
General insurance underwritten total gross written premiumsA	737	579	27
General insurance combined ratio	97%	106%	(9)pp


	At 31 Dec 2024	At 31 Dec 2023	Change %
Insurance Solvency II ratio (pre-dividend)4	158%	186%	(28)pp
Total customer assets under administration	£231.9bn	£213.1bn	9

1Present value of new business premiums.

2New business value represents the value added to the contractual service margin and risk adjustment at the initial recognition of new contracts, net of acquisition expenses and any

loss component on onerous contracts (which is recognised directly in the income statement) but does not include existing business increments.

3The movement in asset inflows and outflows driven by business activity (excluding market movements).

4Equivalent estimated regulatory view of ratio (including With-Profits funds and post dividend where applicable) was 148 per cent (31 December 2023: 166 per cent, post-February 2024

dividend).

Breakdown of net incomeA


	2024				2023
Deferred profit release1 £m		Other in-year profit £m	Total £m	Deferred profit release1 £m		Other in-year profit £m	Total £m
Life open book (pensions, individual annuities, Wealth and protection)	350	318	668		267	290	557
Non-life (General insurance)	–	229	229		–	171	171
Other items2	69	190	259		85	223	308
Bulk annuities3	–	–	–		35	6	41
Net incomeA	419	737	1,156		387	690	1,077

1Total deferred profit release is represented by contractual service margin (CSM) and risk adjustment releases from holdings on the balance sheet. CSM is released as insurance contract

services are provided; risk adjustment is released as uncertainty within the calculation of the liabilities diminishes. Amounts are shown net of reinsurance.

2Other items represents the income from longstanding business, return on shareholder assets and interest on subordinated debt.

32024 reflects the agreed sale (subject to High Court approval) of the in-force bulk annuity portfolio to Rothesay Life plc. Please see note 24 to the consolidated financial statements on

page 286.

Lloyds Banking Group plc Annual Report and Accounts 2024

Summary of Group results continued

Movement in deferred profit1 (contractual service margin (CSM) and risk adjustment)


	Life open book £m	Other products2 £m	Bulk annuities3 £m	Total1 £m

At 1 January 2024	4,025	702	578	5,305
New business written	126	–	–	126
Release to income statement	(350)	(69)	–	(419)
Other movements	415	53	(460)	8
At 31 December 2024	4,216	686	118	5,020

At 1 January 2023	3,661	909	538	5,108
New business written	120	–	53	173
Release to income statement	(267)	(85)	(35)	(387)
Other movements	511	(122)	22	411
At 31 December 2023	4,025	702	578	5,305

1Total deferred profit is represented by CSM and risk adjustment, both held on the balance sheet. CSM is released as insurance contract services are provided; risk adjustment is

released as uncertainty within the calculation of the liabilities diminishes. Amounts are shown net of reinsurance.

2Other products includes longstanding business and European business.

3Bulk annuities for 2024 reflects the reinsurance agreement entered into as part of the agreed sale (subject to High Court approval) of the in-force bulk annuity portfolio to Rothesay

Life plc, with the impact of the reinsurance agreement included within Other movements.

Volatility arising in the Insurance business


	2024 £m	2023 £m
Insurance volatility	(56)	198
Policyholder interests volatility	162	116
Total volatility	106	314
Insurance hedging arrangements	(442)	(422)
Total1	(336)	(108)

1Total insurance volatility is included within market volatility and asset sales, which in total resulted in a loss of £144 million in 2024 (2023: gain of £35 million). See page 314.

Insurance volatility impacts statutory profit before tax (through volatility and asset sales) but does not impact underlying profit, which is

based on an expected return. The impact of the actual return differing from the expected return is included within insurance volatility. This

is because movements in their value can have a significant impact on the profitability of the Group. Management believes that it is

appropriate to disclose the results on the basis of an expected return.

The Group manages its Insurance business exposures to equity, interest rate, foreign currency exchange rate and inflation movements

within the Insurance, Pensions and Investments division. It does so by balancing the importance of managing the impacts to both Solvency

capital and earnings volatility, as these factors can impact the dividend that the Insurance business can pay up to Lloyds Banking Group plc.

This approach can result in volatility in statutory profit before tax. Total insurance volatility resulted in losses of £336 million (2023:

£108 million), driven by increases in interest rates and equity performance.

Lloyds Banking Group plc Annual Report and Accounts 2024

Segmental analysis – underlying basisA


2024	Retail £m	Commercial Banking £m	Insurance, Pensions and Investments £m		Equity Investments and Central Items £m		Group £m
Underlying net interest income	8,930	3,434		(136)		617	12,845
Underlying other income	2,384	1,825		1,292		96	5,597
Operating lease depreciation	(1,319)	(6)		–		–	(1,325)
Net income	9,995	5,253		1,156		713	17,117
Operating costs	(5,596)	(2,762)		(924)		(160)	(9,442)
Remediation	(750)	(104)		(19)		(26)	(899)
Total costs	(6,346)	(2,866)		(943)		(186)	(10,341)
Underlying profit before impairment	3,649	2,387		213		527	6,776
Underlying impairment (charge) credit	(457)	14		7		3	(433)
Underlying profit	3,192	2,401		220		530	6,343

Banking net interest marginA	2.49%	4.39%					2.95%
Average interest-earning banking assetsA	£370.1bn	£81.1bn		–		–	£451.2bn
Asset quality ratioA	0.12%	0.00%					0.10%
Underlying loans and advances to customersA,1	£371.5bn	£87.6bn		–		–	£459.1bn
Customer deposits	£319.7bn	£162.6bn		–		£0.4bn	£482.7bn
Risk-weighted assets	£125.1bn	£73.8bn		£0.4bn		£25.3bn	£224.6bn


2023	Retail £m	Commercial Banking £m	Insurance, Pensions and Investments £m		Equity Investments and Central Items £m	Group £m
Underlying net interest income	9,647	3,799		(132)	451	13,765
Underlying other income	2,159	1,691		1,209	64	5,123
Operating lease depreciation	(948)	(8)		–	–	(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 profit (loss) before impairment	4,874	2,708		183	352	8,117
Underlying impairment (charge) credit	(831)	511		7	5	(308)
Underlying profit (loss)	4,043	3,219		190	357	7,809

Banking net interest marginA	2.73%	4.63%				3.11%
Average interest-earning banking assetsA	£365.6bn	£86.8bn		–	£0.9bn	£453.3bn
Asset quality ratioA	0.23%	(0.54)%				0.07%
Underlying loans and advances to customersA,1	£361.2bn	£88.6bn		–	(£0.1bn)	£449.7bn
Customer deposits	£308.4bn	£162.8bn		–	£0.2bn	£471.4bn
Risk-weighted assets	£119.3bn	£74.2bn		£0.2bn	£25.4bn	£219.1bn

1Equity Investments and Central Items includes central fair value hedge accounting adjustments.

Number of employees (full-time equivalent)


	At 31 Dec 2024	At 31 Dec 20231
Retail	29,734	32,217
Commercial Banking	8,850	9,399
Insurance, Pensions and Investments	5,882	5,903
Group functions and services	17,544	16,114
	62,010	63,633
Agency staff	(782)	(1,064)
Total number of employees	61,228	62,569

1During 2024, employees have been reallocated between Commercial Banking and Group functions and services. 2023 has been presented on a consistent basis.

The Group has reduced its non-permanent worker population by around 11 per cent in 2024. Overall, the Group has reduced its permanent

workforce and invested in growth within the Lloyds Technology Office to increase skills in technology and data.

Lloyds Banking Group plc Annual Report and Accounts 2024

Retail

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. Its aim is to build enduring relationships that meet more of its customers’

financial needs and improves their financial resilience throughout their lifetime. Retail operates the largest digital bank in the UK and

continues to improve digital experience through a mobile-first strategy, deliver market-leading products and meet consumer duty

expectations whilst working within a prudent risk appetite. Through strategic investment, alongside increased use of data, Retail aims to

deepen consumer relationships, deliver personalised propositions, broaden its intermediary offering, improve customer experience and

operational efficiency.

Strategic progress

•UK’s largest digital bank with 22.7 million digitally active users; 20.2 million actively using the Group’s mobile apps, up 8 per cent in 2024,

with over 6 billion logons this year. Mobile messaging interactions up over 60 per cent on 2023

•Enriched mobile offering, including a redesigned Lloyds Bank app with six new spaces allowing customers to manage their finances

alongside ‘Link Pay’, a safe and fast way to request payment. Enhanced personalisation of in-app journeys and messaging, through data

utilisation to better understand customer needs

•Mortgage gross lending share increased 3 percentage points since 2023 to 20 per cent, alongside £15.1 billion lending to first time buyers

in 2024 and a 6 percentage point increase in take-up of protection insurance in 2024

•Grown Mass Affluent customer base to over 3 million and exceeded target for growth in banking balances, up 15 per cent since 2021,

with a dedicated digital-first proposition providing product offers, digital tools and financial coaching

•Increased customers served per distribution FTE by 30 per cent since 2021 and utilised the expertise of branch colleagues to answer

personal banking calls, to support 725,000 customers in 2024

•5 per cent growth in depth of relationship1 with customers, including growth across all life stages

•11.2 million customers registered for ‘Your Credit Score’, including 2.4 million registrations in 2024, contributing c.7 per cent of direct

mortgages applications value. Over 780,000 customers have improved their score in 2024

•Introduced fee free overseas debit card usage on the majority of packaged bank accounts, supporting an increase in customers using

debit cards overseas and a stronger value proposition driving income diversification

•Launched ‘Black Horse FlexPay’, a flexible and easy way to pay for larger purchases in instalments

•Surpassed 2024 sustainability targets, lending £11.4 billion in mortgages on properties with an EPC rating of A or B2 and £9.4 billion for

financing and leasing of battery electric and plug-in hybrid vehicles2

Financial performance

•Underlying net interest income 7 per cent lower, reflecting expected mortgage and unsecured lending asset margin compression and

continued deposit churn headwinds, partly offset by higher structural hedge earnings

•Underlying other income up 10 per cent, driven by UK Motor Finance including growth following the acquisition of Tusker in 2023 and

higher average vehicle rental values

•Operating lease depreciation charge higher due to fleet growth, the depreciation of higher value vehicles and declines in used electric

car prices, primarily in the first half

•Operating costs up 2 per cent, with cost efficiencies helping to partially offset inflationary pressures, business growth costs, ongoing

strategic investment including increased severance charges and the sector-wide Bank of England Levy. Remediation costs of £750

million include a £700 million provision in relation to the potential impacts of motor finance commission arrangements

•Underlying impairment charge of £457 million, lower than prior year and includes a £332 million credit from an improved economic

outlook, notably house price growth, the release of judgemental adjustments for inflation and interest rate risks, a one-off debt sale

write back and strong portfolio performance in UK mortgages

•Loans and advances to customers up £10.3 billion, including £6.1 billion growth in UK mortgages (net of securitisations of £1.9 billion), UK

Retail unsecured loans up £2.2 billion due to organic growth and lower repayments following a securitisation in 2023, alongside £1.9

billion growth across credit cards and other Retail (driven by European lending)

•Customer deposits up £11.3 billion, with inflows into limited withdrawal and fixed term products, partly offset by a £1.4 billion reduction

in current account balances (significantly lower than the prior year, as expected)

•Risk-weighted assets up 5 per cent in 2024, given higher lending and Retail secured CRD IV model increases, partly offset by capital

efficient securitisation activity

1Customers retained from November 2021. Relates to product holdings, for franchise customers with active relationship.

2Since 1 January 2022, new mortgage lending on residential property with an Energy Performance Certificate rating of A or B at 30 September 2024; and new lending for Black Horse and

operating leases for Lex Autolease and Tusker at 31 December 2024.

Lloyds Banking Group plc Annual Report and Accounts 2024

Commercial Banking

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 whilst connecting the whole Group to clients. Through

investment in digital capability and product development, Commercial Banking will deliver an enhanced customer experience via a digital-

first model in Business and Commercial Banking and an expanded client proposition across Commercial Banking, generating diversified

capital efficient growth and supporting customers in their transition to net zero.

Strategic progress

•Maintained position as number 1 ranked1 Infrastructure and Project Finance Bank in the UK, financing wind farms, solar, and investments

into newer low carbon technologies

•Increased euro and US dollar debt capital markets issuance volumes by 39 per cent, outperforming the market2

•Awarded Best Bank for Digitalisation at the Global Trade Review Awards 2024. Completed the Group’s first electronic bill of lading

transaction, reducing transaction time, execution risk, costs and environmental impact

•Delivered £10.7 billion of sustainable financing3 in 2024. Ranked first in ESG-labelled bond issuance for UK issuers4

•Launched ‘Lloyds Bank Market Insights’ bringing together economics and markets expertise to provide topical and timely thought

leadership to clients; consistently recognised as one of the leading forecasters of the UK economy

•Awarded Best Bank Foreign Exchange Trading for Corporates in the UK5 and delivered 42 per cent year on year increase in foreign

exchange volumes

•Achieved strategic objective of Top 5 sterling interest rate swap counterparty with number 2 ranking

•Expanded the mobile-first onboarding journey following initial launch in 2023 to include multiple party limited companies, clubs and

societies; around 9 in 10 Business Banking accounts now being originated digitally

•Threshold for automated credit decisioning increased to up to £100,000 for customers meeting criteria, with new mobile overdraft

journey enabling Business Banking customers to digitally apply for an overdraft facility

•Launched new mobile app journeys for instant access, term and notice accounts

•Enhanced Merchant Services proposition, including improved access to Clover offering and introduction of tailored terminal

integrations, helping customers to automate business management processes

•Delivered increased personalised content for customers in both mobile app and browser, resulting in over half a billion personalised

digital impressions and driving significant increase in engagement

•Hosted the Lilac Review following the publication of the Disability and Entrepreneur Report in partnership with Small Business Britain

and founding signatory to the Disability Finance Code for Entrepreneurship

Financial performance

•Underlying net interest income of £3,434 million, down 10 per cent on the prior year, driven by expected customer movements into

interest-bearing accounts, as well as lower average deposit balances

•Underlying other income increased 8 per cent to £1,825 million, reflecting client franchise growth due to strategic investment and higher

levels of client activity, driving a strong markets performance

•Operating costs 4 per cent higher with cost efficiencies helping to partially offset inflationary pressures, business growth costs, ongoing

strategic investment and the sector-wide Bank of England Levy. Remediation costs were £104 million

•Underlying impairment credit of £14 million, reduced from the prior year which included a significant one-off write-back. The credit in

2024 reflected strong asset quality, a one-off release from model loss rates and updated economic scenarios. The charge on new and

existing Stage 3 clients remains low

•Customer lending 1 per cent lower at £87.6 billion reflecting ongoing net repayments within Business and Commercial Banking, including

government-backed lending, partly offset by strategic growth in Corporate and Institutional Banking, notably higher infrastructure

lending

•Customer deposits stable at £162.6 billion, with growth in target sectors, offset by an expected outflow in the third quarter

•Risk-weighted assets 1 per cent lower at £73.8 billion, reflecting efficient allocation of capital and optimisation activity

1Infralogic 1 January 2024 to 31 December 2024, by deal volume and value.

2Refinitiv Eikon; all international bonds in euro and US dollar, excluding Sovereign, supranational and agency issuance.

3In line with the Group’s Sustainable Financing Framework.

4Bondradar; excluding Sovereign, supranational and agency issuance.

5Coalition Greenwich Voice of Clients - 2024 European Corporate Foreign Exchange Study.

Lloyds Banking Group plc Annual Report and Accounts 2024

Insurance, Pensions and Investments

Insurance, Pensions and Investments (IP&I) supports over 10 million customers, with a number one ranking in Home Insurance new policy

share, a number two ranking in UK defined contribution Workplace provision, and a top three position for Individual Annuities provision

with annualised annuity payments of over £0.9 billion. Total Assets under administration (AuA) are £232 billion (excluding Wealth). The

Group continues to invest significantly into IP&I to develop the business, including the investment propositions to support the Group’s Mass

Affluent strategy, digitisation, innovating intermediary propositions and accelerating the transition to a low carbon economy.

Strategic progress

•Scottish Widows now has more than 1 million digitally registered customers. Recently relaunched an app for workplace pension

customers which has over 400,000 users, 60 per cent of which are active users

•Increased the product offering with the introduction of Ready-Made Pensions, the Self Invested Personal Pension and Pet Insurance.

Alongside Ready-Made Investments launched in 2023, with c.45,000 accounts opened to date and c.40 per cent of customers under

the age of 35, this creates a significant opportunity to grow the business and drive deeper customer relationships

•Continued to grow home insurance market share through the Group’s strong brands, transforming customer experiences through

digitisation, whilst also delivering productivity gains. New policies increased by over 24 per cent and market share grew by

0.9 percentage points to 15.0 per cent compared to 2023

•Continued momentum in the protection insurance offering, utilising Retail channels with take-up rates (as a percentage of mortgage

completions) increasing from 9.1 per cent to 15.2 per cent in 2024

•Successful launch of refreshed independent financial advisor proposition on new architecture driving significant new business with

applications for protection cover up 50 per cent in the second half of the year following the launch

•Open book AuA of £185 billion (2023: £164 billion), with 13 per cent growth in the year. Net AuA flows of £5.3 billion, contributing to an

increased stock of deferred profit. This included a significant contribution from the workplace pensions business, with a 9 per cent

increase in regular contributions to pensions administered and £108 billion of AuA

•Market share of stocks and shares ISA new account openings at 19.8 per cent, second in the market1 (12 months to 30 September 2023:

20.2 per cent, second in the market)

•Grew individual annuities market share by 4 percentage points to 23.5 per cent1, issuing c.£1.7 billion of policies (2023: c.£1.0 billion).

Focused strategic presence following the sale (subject to High Court approval) of the bulk annuities business

•Completed the transfer of the longstanding life and pensions business to IP&I’s strategic platform with four migrations successfully

executed during 2024

•Climate-aware investments increased by £4.2 billion in 2024, bringing overall investment to £25.9 billion, currently exceeding the target

of £20 billion to £25 billion by the end of 20252

•Ended the year with a Trustpilot score of 4.3 stars for Scottish Widows and 4.6 for Lloyds Insurance

Financial performance

•Underlying profit up 16 per cent after agreed sale (subject to High Court approval) of the in-force bulk annuity portfolio

•Underlying other income of £1,292 million, up 7 per cent from strong trading, with higher net general insurance income

•Operating costs up 5 per cent, with cost efficiencies helping to partially offset inflationary pressures, business growth costs and ongoing

strategic investment including increased severance charges

•Balance of deferred profits broadly stable in the year at £5.0 billion (after release to income of £419 million) and after allowing for the

reinsurance agreement entered into for the in-force bulk annuity portfolio, including £126 million from new business, reflecting value

generation in workplace pensions and individual annuities

•Life and pensions sales (PVNBP) up 5 per cent driven by strong performance in the individual annuities and workplace business partly

offset by the agreed sale (subject to High Court approval) of the in-force bulk annuity portfolio

•Payment of a £100 million final dividend to Lloyds Banking Group plc in February 2025, after the £200 million interim dividend,

supported by a strong capital position with an estimated Insurance Solvency II ratio of 158 per cent (154 per cent after proposed

dividend)

•Credit asset portfolio strong, rated ‘A-’ on average. Well diversified, with less than 2.5 per cent of assets backing annuities being sub-

investment grade or unrated. Strong liquidity position with c.£3 billion cash and cash equivalents

1ISA information reflects opening through direct channels and is based on 12 months to 30 September 2024. Annuities information reflects nine months to 30 September 2024.

2Includes a range of funds with a bias towards investing in companies that are reducing the carbon intensity of their businesses and/or are developing climate solutions.

Equity Investments and Central Items

Equity Investments and Central Items includes the Group’s equity investments businesses, including Lloyds Development Capital (LDC), the

Group’s share of the Business Growth Fund (BGF) and the Housing Growth Partnership (HGP), as well as Lloyds Living. Also included are

income and expenses not attributed to other divisions, including residual underlying net interest income after transfer pricing (which

includes the recharging to other divisions of the Group’s external AT1 distributions), and the unwind of hedging costs relating to historic gilt

sales.

Net income in 2024 was higher compared to 2023, with stronger underlying net interest income and higher underlying other income. This

included £393 million, after funding costs relating to the Group’s equity and direct investment businesses (2023: £344 million). Underlying

net interest income was higher than in 2023, which was impacted by short-term central hedging costs in the first half of 2023. Underlying

other income includes £502 million (2023: £437 million) generated by the Group’s equity and direct investment businesses increasing as a

result of strong income growth from Lloyds Living, while income from LDC was flat in the year at £425 million (2023: £418 million).

Total costs of £186 million in 2024 increased 14 per cent on the prior year, largely due to costs associated with the agreed sale (subject to

High Court approval) of the Group’s in-force bulk annuity portfolio. Underlying impairment was a £3 million credit compared to a £5 million

credit in 2023.

Lloyds Banking Group plc Annual Report and Accounts 2024

110

Directors’ remuneration report

Remuneration Committee

Cathy Turner

Chair,

Remuneration

Committee

1Pro-rated for reduced hours.

2In line with our cost guidance, the BSC outcome includes a £0.1 billion adjustment to

the Operating Cost measure target relating to the sector-wide change in the charging

approach for the Bank of England Levy which was not included in the financial

objective this measure was set against.

Chair’s statement

Our two-year pay deal for 2024 and 2025 remains

industry leading; between April 2024 and April

2025, we will have provided a minimum £3,0001

pay award, worth a total of between 8.2 to 13.6

per cent of salary, for our colleagues at lower

grades.



	Remuneration content

	Chair’s statement	pages 110 to 112
	Remuneration at a glance	page 113
	2023 Directors’ Remuneration Policy summary	pages 115 to 116
	2024 annual report on remuneration	pages 118 to 133

Dear shareholder

On behalf of the Board, I am pleased to present the directors'

remuneration report for the year ended 31 December 2024. We are

grateful for the strong support received at the 2024 annual general

meeting (AGM), with 96.4 per cent approval of our 2023 report.

Supporting our customers,

colleagues and communities in 2024

We are proud of how we have continued to deliver on our purpose

of Helping Britain Prosper by supporting our customers, colleagues

and our communities throughout 2024.

In 2023 we announced our two-year pay deal for 2024 and 2025

which remains industry leading. In the context of improving

economic conditions and an easing of price increases, we will have

provided a real-term pay increase for almost 55,000 colleagues at

grades A to E in 2025. Our minimum award of £1,5001, means our

colleagues at lower grades received an average increase of between

4.4 and 6.3 per cent.

That means that between April 2024 and April 2025, we will have

provided a minimum £3,0001 pay award, worth a total of between

8.2 to 13.6 per cent of salary, for our colleagues at lower grades.

From 1 April 2025 we will also be increasing our minimum salary

from £23,5001 to £25,0001 which will be 9 per cent above the

national Real Living Wage; our London rates will be 13.9 per cent

above the London Real Living Wage.

For 2024, we extended eligibility for significantly increased Group

Performance Share (GPS) annual bonus plan awards to those of our

more junior colleagues who have made an exceptional contribution

to our purpose of Helping Britain Prosper.

In addition to our core reward offering, we also have a range of

flexible options to provide colleagues with additional choice and to

allow them to tailor their reward package to their own or their

family’s individual circumstances. Colleagues can also access a range

of financial products at discounted rates from the Group portfolio;

these include current accounts, mortgages and rental deposit or

season ticket loans. For more information see page 117.

Incentivising our colleagues helps us to deliver on our strategy and

deliver for our customers by, for example, providing a range of

housing options for our communities; amongst a range of actions,

we have increased the number of people on the housing ladder by

lending more than £15 billion in 2024 to first time buyers and

expanding the availability of affordable homes by supporting over

£2 billion of new funding to the social housing sector in 2024.

We also aim to bring more of our products and services to existing

customers and broaden our product offerings. Our digitally active

users grew to 22.7 million in 2024, retaining our position as the UK’s

largest digital bank and we launched new interactive tools such as

Benefit Calculator, which empowers customers to identify support

they might be eligible for.

Group balanced scorecard

The Group balanced scorecard (BSC) is intended to provide insight

into performance for the full range of our stakeholders and informs

a range of key reward decisions, including for our executive

directors. 60 per cent of the scorecard is linked to financial metrics,

aligned to the interests of our shareholders, 20 per cent of the

scorecard assesses how effectively we are serving customers across

all our brands, products and services, 7.5 per cent relates to our

culture and colleague engagement and 12.5 per cent is weighted to

carbon reduction and inclusivity.

As discussed in more detail on page 5, our financial results for 2024

include an additional provision for the potential remediation costs

relating to motor finance commission arrangements; this has

negatively impacted the profit after tax and return on tangible

equity (RoTE) measures in the BSC resulting in a reduced outturn of

68.12 per cent of maximum, fully inclusive of the impact of the

provision. More information on our Group BSC outcome can be

found on page 119.

As a consequence of including the outcome above, the Committee

does not consider that the BSC outcome properly reflects the

strength of the underlying Group performance or the performance

of the executive directors whose variable reward is directly linked to

it.

After careful consideration of the importance of transparency and

to demonstrate the Group’s commitment to respecting the targets

it sets for itself, the Committee has decided not to exercise its

discretion this year to adjust the BSC outcome to a higher level

which it considers would better reflect the underlying performance.

The Committee considers it critical that it can set robust financial

targets which provide clear line of sight to delivery against its

ambitious strategy and align with the financial planning and

budgeting process. As such, for the financial measures within our

2025 BSC (and beyond if required) we will exclude the impact of

provisions related to the motor finance matter (as it is not a

budgeted item) and the Committee will instead consider any

impact on a discretionary case-by-case basis taking account of the

impact on the full range of the Group’s stakeholders including its

customers, colleagues, shareholders and communities. With the

exception of relative Total Shareholder Return (rTSR), the financial

measures used to determine the future vesting of our Long Term

Incentive Plan (LTIP) awards, including the remaining two years of

our 2024 award, will be treated in the same way.

Lloyds Banking Group plc Annual Report and Accounts 2024

111

2024 variable reward outcomes

The Group delivered robust financial results in 2024 and successfully

completed the first phase of our five-year purpose-driven strategy.

With that in mind, one of the key principles for the Committee this

year has been the need to ensure colleague engagement and reward

colleagues fairly for their contribution; this is reflected in the

Committee’s decision making and the pay and variable reward

outcomes discussed below.

The Committee has considered a range of factors to determine the

2024 Group Performance Share (GPS) annual bonus pool outcome;

these include the Group’s underlying financial performance, its

performance for our customers and communities and its reward

market positioning.

The Committee has approved a 2024 GPS pool of £368 million,

representing a year on year reduction of 4 per cent when compared

to 2023. This acknowledges that, whilst our underlying results are

robust and in line with our published guidance, underlying profit is

down year on year, which the Committee considered is important

to recognise in its GPS decision.

In 2022, Long Term Share Plan (LTSP) awards were granted to

approximately 750 colleagues including our executive directors. To

ensure that subsequent performance has been sustained a ‘pre-vest

test’ consisting of three financial underpins and four key questions

has been considered by the Committee. Based on the outcome of

that test the Committee has determined that the awards should

fully vest. More detail is provided on page 121. The Committee also

considered whether there was a requirement to adjust for windfall

gains in respect of this award and determined that no adjustment is

necessary.

Executive director remuneration outcomes

Charlie Nunn, our Group Chief Executive (GCE), has overseen the

successful completion of the first phase of our strategy and

delivered robust financial results in 2024. The GCE has embodied

the Group’s values and has led through a year of substantial

transformation and external uncertainties whilst maintaining a

strong regulatory and risk environment.

Our Chief Financial Officer (CFO) has had a critical role in strategy

development, communication and execution. He has embedded

strong commercial and investment discipline across the Group.

The Committee determined that the GPS awards for the GCE and

CFO should be in line with the Group’s performance as assessed by

the Group BSC of 68.1 per cent of maximum, with resultant awards

of £1,126,633 and £812,014 respectively.

The 2024 Group BSC outcome also acts as part of a ‘pre-grant test’

for the 2025 LTIP awards. Given our robust 2024 performance, the

Committee has determined to grant LTIP awards to the GCE and

the CFO of 300 per cent of salary in line with the current Directors’

Remuneration Policy (the Policy). The vesting outcome of the LTIP

award will be subject to the achievement of stretching performance

targets measured over the period 2025 to 2027.

The Committee assessed the performance measures and weightings

used in the 2024 grant and concluded they remain strongly aligned

to the Group’s strategic transformation and public financial and

environmental commitments. Therefore, they remain appropriate

for the 2025 grant. For more details see page 132.

As set out on page 86, in continuing to consider its arrangements for

engaging with the Group’s workforce, the Board approved in 2024

an evolved approach to colleague engagement, to be implemented

during 2025. This new approach builds on existing colleague

listening activity and will introduce three forums to better represent

colleagues particularly at grades where trade union membership is

low. The forums will include the People Forum, the People

Consultation Forum, and the Management Advisory Forum. Where

appropriate, these forums will be engaged on matters of

remuneration, including executive remuneration.

Executive directors’ 2025 pay

Aligned with its principle of ensuring all colleagues are rewarded

fairly, an important area of focus for the Committee this year has

been reviewing the appropriateness of executive directors’ pay.

On appointment, the Committee set the base salary of the GCE

lower than his predecessor, by 13 per cent, to recognise that this

was his first lead executive role in a listed environment. This is in line

with good practice and investor preferences.

The GCE made an immediate impact and, over the last three and a

half years, has provided strong leadership of the Group, delivering

progress against our ambitious strategic objectives and a series of

robust financial results in a challenging and uncertain economic

climate. Externally, he has raised the profile of the Group, to aid us

in the delivery of our purpose of Helping Britain Prosper particularly

in respect of the UK’s housing crisis. Since 2018 we have supported

around £20 billion of funding to the social housing sector.

Given the GCE’s increased experience and strong track-record of

delivery, the Committee has determined that it is an appropriate

time to review his package. The most obvious inconsistency was his

fixed pay recognising that it has only increased modestly since he

was appointed – his fixed pay has risen by just 5 per cent over three

and a half years.

The Committee also reviewed the fixed pay of the CFO. The

Committee recognised the strong financial leadership throughout

our transformation and the breadth of the role which includes

responsibility for Lloyds Development Capital, Lloyds Living and

Housing Growth Partnership, all key enablers of our purpose of

Helping Britain Prosper.

After careful consideration, including consultation with shareholders

(see next section), the Committee decided, effective 1 January 2025,

to reverse the impact of the discount applied to the GCE’s salary on

appointment (13 per cent) and apply a 3 per cent annual increase

effective 1 April 2025 to the salary of both executive directors; the latter

is less than the 4.1 per cent pay budget which colleagues will benefit

from under our two-year pay deal. In line with our current Policy, the

Fixed Share Award (FSA) of the GCE and CFO will be increased by

£283,381 and £353,094 respectively to align with their salaries.

As part of its decision, the Committee considered that, excluding the

exceptional salary increase in January 2025, the GCE’s salary will

have increased by 8 per cent between his date of appointment and

April 2025; over the equivalent period, colleagues will have

benefitted from a total pay budget of 18.2 per cent.

In determining these changes, the Committee reviewed the relevant

benchmarking data. This included comparing the on-target total

reward opportunity of the Group’s executive directors with peers,

including the FTSE 30 and our main UK banking peers. Due to

significant pay practice differences compared to the UK, US and

European firms were not included in the analysis.

Changes in respect of the GCE improve the competitiveness of his

total reward opportunity, but the package remains below the

median of both our UK banking peer group and the FTSE 30.


	Group Chief Executive Charlie Nunn

Lloyds Banking Group plc Annual Report and Accounts 2024

112

Directors’ remuneration report continued

The changes for our CFO will align his fixed pay and on-target

opportunity with the market.


	Chief Financial Officer William Chalmers

Shareholder consultation

In 2024, I consulted with a range of shareholders and proxy rating

agencies to discuss their views on executive pay and our thoughts

on Policy implementation for 2025 and beyond. During this process I

spoke with our largest shareholders, representing around 25 per

cent of the Group’s issued share capital, as well as representative

bodies whose members make up a significant portion of our register.

The feedback received was valuable and indicated broad

understanding amongst investors for both the 2025 modifications

and the longer-term trajectory for executive pay at the Group which

is considered to be managed responsibly. Our shareholders clearly

understood our rationale and need to pay the executive directors,

who are well respected amongst our investors, fairly for their roles in

the short term as well as over the long term.

One area of particular discussion was the timing of fixed pay

increases given the opportunity the Group now has to set its own

variable to fixed pay ratio.

The Committee considered the variable to fixed pay ratio feedback

carefully and determined to take a two-step approach. To ensure

the executive directors are paid fairly ahead of the 2026 Policy

review, the fixed pay changes set out above would be implemented.

Fixed pay will be reconsidered as part of the 2026 Policy review

where it is anticipated that, consistent with anticipated market

movements, the FSA element will be significantly reduced and a

higher, performance-related, variable reward opportunity will be

recommended to shareholders as part of the new Policy presented

to the 2026 AGM.

I would like to thank our shareholders and advisory bodies for their

engagement and the feedback received as part of our consultation;

your support is important and I look forward to engaging with

shareholders again as we develop our 2026 Policy over the coming

year.

Board Chair fee

The Committee has also considered how the fee paid to the Board

Chair compares with the market. This was reduced, at his request,

on appointment by 20 per cent versus his predecessor.

Recognising investor expectations that non-executive director fees

properly recognise the time commitment, skills and experience

necessary to perform the role, the Committee decided, in line with

the Policy and with Sir Robin Budenberg not participating in the

discussion, to increase the Chair fee to a more market comparable

level of £850,000 in two steps over 2025 and 2026. In January 2025,

the Chair fee increased from £654,500 to £750,000.

Variable to fixed pay ratio for material risk takers

(MRTs)

Following the approval by the Group’s shareholders of a resolution

to allow the Committee to set an appropriate variable to fixed pay

ratio for its MRTs, it has approved a maximum ratio of 8:1 for 2024

and later years. The Committee considers that this will provide it

with sufficient flexibility in terms of variable reward design without

creating an incentive for excessive risk taking.

The variable opportunity for the executive directors will remain

subject to the limits set out in the 2023 Policy and cannot be

increased as a consequence of the increase in the ratio.

Dilution limits

As our GPS, somewhat unusually, operates across such a broad base

of colleagues, (approximately 30,000 received shares in respect of

awards over £2,000 in 2024) it is more consistent with an all

employee, rather than an executive, share plan. Therefore the ‘inner’

dilution limit is a particular challenge for the Group. To aid the

operation of our share plans, we will be recommending a resolution

at the upcoming AGM to remove the 5 per cent ‘inner’ dilution limit

for our discretionary share schemes. We will maintain the ‘outer’

dilution limit of 10 per cent for all our share plans.

This change aligns with the recent updates to the Investment

Associations Principles of Remuneration and certain proxy rating

agencies guidance and will provide the Group with more flexibility in

terms of how it administers colleague share awards in its overall

capital management.

Together with my Committee members, I would like to thank our

shareholders for their ongoing support and our colleagues for their

continued commitment to our customers and our communities.

On behalf of the Board

Cathy Turner

Chair, Remuneration Committee

Lloyds Banking Group plc Annual Report and Accounts 2024

113

2024 Remuneration at a glance

Detail of the 2024 Group balanced scorecard and 2022 Long Term

Share Plan can be found on pages 119 to 121.



Key financial highlights

12.3%	148bps	£3.6bn
12.3%	148bps	£3.6bn
Return on tangible equity (14.0 per cent excluding motor finance provision)	Capital generation (177 basis points excluding motor finance provision)	Total capital return including an ordinary dividend of 3.17 pence per share, up 15 per cent vs 2023



	2024 Total remuneration (£000)

	Group Chief Executive		Group Chief Executive Charlie Nunn
	Group Chief Executive		Group Chief Executive Charlie Nunn
	The single total figure of remuneration for the Group Chief Executive during 2024 was £5.6 million. This is an increase of 53 per cent compared to 2023 largely driven by the 2022 LTSP vesting outcome, the first long-term incentive vesting for GCE since he joined the Group in 2021. Excluding this, the year-on-year figure would be down 2 per cent largely driven by the lower annual GPS award recognising 2024 Group performance.
	Chief Financial Officer		Chief Financial Officer William Chalmers
	Chief Financial Officer		Chief Financial Officer William Chalmers
	The single total figure of remuneration for the Chief Financial Officer during 2024 was £3.8 million. This is an increase of 20 per cent compared to 2023 which was largely driven by a higher 2022 LTSP award than the previous 2021 award. The 2021 award was reduced by 40 per cent upfront at the time of grant, showing restraint based on 2020 Group performance. The figure also includes a lower annual GPS award recognising 2024 Group performance.



	2024 Group balanced scorecard performance

	68.1% Our Group balanced scorecard reflects a robust business performance. Further details can be found on pages 119 to 120.



	2024 Group Performance Share (GPS) pool

	£368m The Committee determined a GPS pool for 2024 of £368 million, down 4 per cent from 2023. This recognises that, whilst our underlying results are robust and in line with our published guidance, underlying profit is down year over year.



	2025 Long Term Incentive Plan (LTIP) award

	The Committee has considered the Group’s performance in 2024 and other factors as part of the ‘pre-grant test’ as well as the individual contribution of the executive directors and will grant 2025 Long Term Incentive Plan awards of 300 per cent of salary to the Group Chief Executive and the Chief Financial Officer (see page 132).



	2022 Long Term Share Plan (LTSP) outcome

	The award level for the 2022 Long Term Share Plan was set at grant in March 2022 by reference to the ‘pre-grant test’ which considered the 2021 balanced scorecard, the share price and four key questions. Vesting was subject to a ‘pre-vest test’ which has been assessed as ‘met’. For full details on the ‘pre-vest test’ please see page 121.

Lloyds Banking Group plc Annual Report and Accounts 2024

114

Directors’ remuneration report continued

Remuneration Committee

The Committee comprises of four non-executive directors. Sir Robin

Budenberg attends the Committee in his role as Group Chair. The

non-executive directors are from a wide background to provide a

balanced and independent view on remuneration matters. Two of

the three designated independent non-executive directors of the

Ring-Fenced Banks also attend meetings of the Committee as

observers in order to provide insights on matters relevant to the

Ring-Fenced Banks and as part of their role in the Group’s overall

governance structure. For further details of Committee membership

and attendance at meetings, please see page 80.

During the year, Charlie Nunn, as the GCE provided regular briefings

to the Committee. In addition, the Committee engaged with and

received updates from the Chief People and Places Officer, Total

Reward Director and the Chief Risk Officer.

The purpose of the Committee is to set the remuneration for all

executive directors and the Chair, including pensions rights and any

compensation payments. It recommends and monitors the level and

structure of remuneration for senior management and material risk

takers. It also considers, agrees and recommends an overall

remuneration policy and philosophy for the Group that is aligned

with its long-term business strategy, its business objectives,

its risk appetite, purpose and values and the long-term interests of

the Group and recognises the interests of the relevant stakeholders

including the wider workforce.

The Committee’s operation is designed to ensure that no conflicts

of interest arise and in particular, the Committee ensures that no

individual is present when matters relating to their own

remuneration are discussed.

Advisers

PwC was appointed by the Committee in May 2022 following a

competitive tender process and was retained for 2024. The

Committee is of the view that PwC provides independent

remuneration advice to the Committee and does not have any

connections with the Group or any director that may impair its

independence.

More broadly, PwC provides unrelated professional services to the

Group in the ordinary course of business including tax, advisory,

internal audit and non-audit assurance services. PwC attended

Committee meetings upon invitation and fees payable for the

provision of services in respect of directors’ remuneration in 2024

amounted to £113,092 excluding VAT. Fees paid to PwC for advising

the Committee are based partly on a fixed fee and partly on a time

and materials basis.



	Committee activities in the year


	Jan	Feb	May	Sep	Nov

Executive directors’ remuneration
Executive directors’ fixed pay proposals	l	l	¡	l	¡
Executive directors’ performance and variable remuneration	l	l	¡	l	l
Directors’ remuneration report	¡	l	¡	¡	l
All employee remuneration
2025 pay proposals	¡	¡	¡	l	l
Group performance and GPS pool	l	l	l	l	l
Gender and ethnicity pay reporting	¡	¡	¡	l	l
Employee insights	¡	l	l	¡	¡
Remuneration for other senior executives	l	l	l	l	l
Reward governance
Consideration of policy and conduct matters	l	l	l	l	l



	Statement of voting at annual general meeting


The table below sets out the voting outcome at the annual general meeting in May 2024 in relation to the annual report on remuneration. The Remuneration Policy was subject to a binding vote at the annual general meeting in May 2023.
	Votes cast in favour		Votes cast against		Votes withheld
	Number of shares (millions)	Percentage of votes cast	Number of shares (millions)	Percentage of votes cast	Number of shares (millions)
2023 annual report on remuneration (advisory vote)	39,404	96.36%	1,488	3.64%	34
Directors’ Remuneration Policy (binding vote in 2023)	39,002	96.00%	1,623	4.00%	68

Lloyds Banking Group plc Annual Report and Accounts 2024

115

2023 Directors’ Remuneration Policy summary

and 2024 implementation

The 2023 Directors’ Remuneration Policy was approved by

shareholders at the AGM on 18 May 2023 with 96 per cent of votes

cast and took effect from that date. The full policy is set out in the

2022 Annual Report and Accounts (pages 125 to 133) which is

available on our website.

The Committee extensively consulted on the Policy proposals with

the Group’s institutional shareholders and proxy rating agencies.

The Committee regularly engages and consults with key

shareholders to take into account their feedback on the Policy and

its implementation.

A summary of the Policy for the executive directors and how it was

implemented during 2024 is shown below. For how we intend to

implement the Policy for 2025 please see pages 130 to 133.


		Directors’ remuneration		Wider workforce alignment



Base Salary	•Base salaries are reviewed annually with increases typically taking effect from 1 April •Increases will normally be no more than the increase awarded to the overall employee population With effect from 1 April 2024 salaries for the executive directors increased by 4 per cent, in line with the wider workforce, to £1,181,700 for the GCE and £851,703 for the CFO.	The pay deal for the wider workforce in 2024 reflected a 4.2 per cent budget. The approach focused on lower paid colleagues with junior colleagues receiving a minimum £1,500 award.


Fixed Share Award	•Delivered entirely in Lloyds Banking Group shares, released over three years with 33 per cent being released annually following the year of the award •The maximum award is 100 per cent of base salary Fixed share awards were increased from 1 April 2024 as part of the 4 per cent fixed pay increase to £1,092,000 for the GCE and £524,160 for the CFO.	To maintain an appropriate balance between fixed and variable remuneration, and to further align the interests of executive directors and shareholders, a portion of fixed pay is delivered in the form of shares. Fixed share awards are only granted to the GCE and the CFO.


Pension	•The maximum allowance for executive directors is set at 15 per cent of base salary •Any director may elect to receive some or all of their pension allowance as cash in lieu of pension Pension allowances for all executive directors were set at 15 per cent of base salary.	The maximum allowance for all executive directors is set at 15 per cent of base salary in line with the majority of the workforce.


Benefits	Benefits may include those currently provided and disclosed in the annual report on remuneration. Core benefits include a company car or car allowance, private medical insurance, life insurance and other benefits that may be selected through the Group’s flexible benefits plan. Benefits were unchanged from 2023. Executive directors received a flexible benefit allowance of 4 per cent of base salary. The Chief Financial Officer also received a car allowance.	Flexible benefit allowance of 4 per cent of base salary was consolidated into base salary in July 2023 for colleagues, simplifying their reward package and incurring pension contribution entitlement.

Lloyds Banking Group plc Annual Report and Accounts 2024

116

Directors’ remuneration report continued


	Directors’ remuneration		Wider workforce alignment



Group Performance Share (Short Term Variable)	•The normal ‘target’ level of the GPS is 50 per cent of maximum opportunity •The maximum GPS opportunity is 140 per cent of salary for the executive directors •The Group will apply deferral in line with minimum regulatory requirements. See below section on deferral •Awards may be subject to malus and clawback. See below section on performance adjustment The Group Chief Executive and Chief Financial Officer received 2024 GPS awards of 68.1 per cent of maximum. Outcomes are shown in detail on page 119.	All Group employees are eligible to receive an award through the Group Performance Share scheme. The Committee determined a GPS pool of £368 million for 2024.


Long Term Incentive Plan (Long Term Variable)	•Awards will be granted in the form of conditional rights to shares in the Group •The maximum LTIP opportunity is 300 per cent of salary for the executive directors •The Group will apply deferral in line with minimum regulatory requirements. See below section on deferral •Awards may be subject to malus and clawback. See below section on performance adjustment Awards were granted in March 2024 at 300 per cent of salary for executive directors. The 2022 LTSP award vested in full as show on page 121.	The wider workforce are not eligible for LTIP awards, consistent with market practice.


	Deferral of variable remuneration and holding periods
The GPS and LTIP are both considered variable remuneration for the purpose of regulatory and deferral requirements. Deferral levels are determined at the time of award in compliance with regulatory requirements which currently require that, for executive directors, at least 60 per cent of the aggregate variable remuneration (GPS + LTIP)		is deferred up to seven years with pro rata vesting between the third and seventh year, and at least 50 per cent of total variable remuneration is delivered in shares or other equity-linked instruments subject to a minimum one-year holding period.



	Performance adjustment	•The Committee determines that the financial results for a given year do not support the level of variable remuneration awarded •Any other circumstances where the Committee considers relevant Judgement on individual performance adjustment is informed by taking into account the severity of the issue, the individual’s proximity to the issue and the individual’s behaviour in relation to the issue. Individual adjustment may be applied through adjustments to balanced scorecard assessments and/or through reducing the variable remuneration outcome. Awards are subject to clawback for a period of up to seven years after the date of award which may be extended to 10 years where there is an ongoing internal or regulatory investigation. The application of clawback will generally be considered when: •There is reasonable evidence of employee misbehaviour or material error •There is material failure of risk management at a Group, business area, division and/or business unit level
Performance adjustment is determined by the Remuneration Committee and/or Board Risk Committee and may result in a reduction of up to 100 per cent variable remuneration opportunity for the relevant period. It can be applied on a collective or individual basis. When considering collective adjustment, a report is submitted to the Remuneration Committee and Board Risk Committee regarding any adjustments required to balanced scorecards or the overall GPS and/or LTSP/LTIP outcome to reflect in-year or prior year risk matters. The application of malus will generally be considered when: •There is reasonable evidence of employee misbehaviour or material error or that they participated in conduct which resulted in losses for the Group or failed to meet appropriate standards of fitness and propriety •There is material failure of risk management



	Directors’ Remuneration Policy and Group remuneration policy alignment


	Executive directors	Group Executive Committee	Other material risk takers	Other employees

Fixed
Base salary	l	l	l	l
Fixed Share Award / Role-based allowance	l	l	l	¡
Pension and benefits	l	l	l	l
Variable
Short term incentive	l	l	l	l
Long term incentive	l	l	¡	¡

Lloyds Banking Group plc Annual Report and Accounts 2024

117

Explore life at Lloyds Banking Group

In addition to our core reward offering, we also offer a range of

wider benefits.


	Sharesave

Sharesave is a savings account combined with a share option plan, it

enables our colleagues to save for their future and then buy shares

in the Group at a discounted price.

52%

of colleagues participate in Sharesave



	Sharematch

	Sharematch allows our colleagues to invest in Lloyds Banking Group shares in a tax-efficient way. For every two shares bought, we give three matching shares completely free up to a maximum colleague investment of £30 per month. This allows our colleagues to share in the success of the Group through share price growth as well as dividend income. 60% of colleagues participate in Sharematch



	Colleague Sustainable Cars

Colleague Sustainable Cars is a salary sacrifice scheme which allows

colleagues to drive a brand new Ultra Low Emission Vehicle (ULEV),

funded by a reduction in salary. Our scheme is one of the largest in

the private sector with some 3,000 ULEV vehicles provided.

These cars greatly reduce the environmental impact on climate

change and urban air quality supporting our Group sustainability

ambitions.



	Taking leave

We understand colleagues may need time off for various reasons.

Some leave will be planned, such as holidays or taking time out to

care for family, while other times it may be needed to deal with

unexpected situations.

Whatever the reason, we’re committed to supporting colleagues by

providing the time they need.


	Recognition

	To create an environment of belonging, recognition is a key component to boosting morale, increase productivity and foster a positive workplace culture. It helps employees feel valued and motivated, leading to higher job satisfaction and retention. From Group-wide alignment to annual awards, celebrating those who have had game changing outcomes for our customers, to a platform refresh, enabling our colleagues to have an updated experience of recognising each other. 20% of our colleagues have been nominated for an annual award since June 2024



	Colleague wellbeing

At Lloyds Banking Group, the health and wellbeing of our colleagues

is at the heart of everything we do. We want our people to thrive

both at work and in life, no matter what their role is, or where they

work. We're dedicated to creating an inclusive culture and to

provide the support needed for physical and mental wellbeing. Our

diverse range of health and wellbeing resources is there to help for

in-the-moment support, and to help our colleagues to make

healthy, sustainable choices to maintain their wellbeing.



	Financial products and colleague offers

Colleagues can access a wide range of financial products, some at

discounted rates, from the Lloyds Banking Group portfolio. These

include current accounts and mortgages. We also offer rental

deposit and season ticket loans which support colleagues with day

to day expenses and budgeting.

Colleague Offers is an online one-stop shop for hundreds of great

discounts from some of the high street’s leading brands. The

website is available for colleagues and up to 10 friends or family

members and can be accessed from home or work.



	Flexible working

Through Flexibility Works we offer colleagues a range of flexible

working options. We’re focused on balancing the needs of our

customers as we transform our business, with creating a place people

love to work and feel supported in the moments that matter.

Lloyds Banking Group plc Annual Report and Accounts 2024

118

Directors’ remuneration report continued


	Executive director single total figure of remuneration (audited)

		Charlie Nunn		William Chalmers		Totals
£000		2024	2023	2024	2023	2024	2023
Base salary		1,170	1,136	844	819	2,014	1,955
Fixed Share Award1		1,082	1,050	519	504	1,601	1,554
Benefits		52	48	63	62	115	110
Pension		176	170	127	123	303	293
Total fixed pay		2,480	2,404	1,553	1,508	4,033	3,912
Group Performance Share2		1,127	1,277	812	921	1,939	2,198
Long-term Incentive3,4,5		2,008	–	1,448	749	3,456	749
Total variable pay		3,135	1,277	2,260	1,670	5,395	2,947
Other remuneration6		–	–	–	1	–	1
Total remuneration		5,615	3,681	3,813	3,179	9,428	6,860
Less: Performance adjustment		–	–	–	–	–	–
Total remuneration less performance adjustment		5,615	3,681	3,813	3,179	9,428	6,860

1The Fixed Share Award is part of fixed remuneration and is not subject to any performance conditions (see page 115).

2Awards for Charlie Nunn and William Chalmers will be made in March 2025 in a combination of cash and shares.

3The 2022 Long Term Share Plan (LTSP) vesting (see page 121) at 100 per cent was confirmed by the Remuneration Committee at its meeting on 13 February 2025. The total number of

shares vesting will be 3,588,364 for Charlie Nunn and 2,586,292 for William Chalmers. The average share price between 1 October 2024 and 31 December 2024 of 55.969 pence has

been used to indicate the value. The shares were awarded in 2022 based on a share price of 47.027 pence and as such 19 per cent of the reported value is attributable to share price

appreciation.

4The long-term incentive figures for 2023 have been adjusted to reflect the share price on the date of vesting (6 March 2024) of 48.4 pence instead of the average price of 43.564 pence

reported in the 2023 report.

5The 2021 LTSP awards were granted prior to Charlie Nunn joining as Group Chief Executive from 16 August 2021.

6Other remuneration payments comprise income from all employee share plans, which arises through employer matching or discounting of employee purchases.



	2024 pension and benefits (audited)

		Charlie Nunn 2024	William Chalmers 2024
Pension/Benefits
Pension		175,551	126,527
Car or car allowance1		4,141	12,000
Flexible benefits payments2		46,814	49,490
Private medical insurance		1,130	1,130
Subtotal for Total Benefits less pension		52,085	62,620

1For Charlie Nunn this includes the benefit associated with the Colleague Sustainable Car Scheme (salary sacrifice) and for William Chalmers this includes a car allowance.

2Includes flexible benefits allowance and for William Chalmers, includes holidays sold through the Group's flexible benefits plan.

Defined benefits pension arrangements (audited)

There are no executive directors with defined benefit pension entitlements.

Payments for loss of office (audited)

No payments for loss of office were made in 2024.

Payments within the reporting year to past directors (audited)

There were no payments made to past directors in 2024.

External appointments

No executive director served as a non-executive director on the board of another company in 2024.

Lloyds Banking Group plc Annual Report and Accounts 2024

119

2024 Group balanced scorecard

The balanced scorecard provides transparency on how our

executive directors’ remuneration outcomes for 2024 GPS directly

aligns with our performance.

Profit after tax and return on tangible equity measures have been

impacted by the additional provision for the potential remediation

costs relating to motor finance commission arrangements. However,

underlying performance remains robust. Strong cost discipline

combined with customer and sustainability performance has

resulted in an overall outcome of 68.1 per cent as set out in the

scorecard table below.

Our 2024 employee engagement index score has increased to 71 per

cent, up 5 percentage points from 2023, reflecting our colleagues’

positive outlook as we continue to serve our customers and

transform our business. Further commentary on non-financial

performance is described on page 120.

For 2024, sustainability measures aligned to our public commitments

on climate change, promoting inclusion and diversity and colleague

engagement accounted for 20 per cent of the scorecard.


	Our 2024 balanced scorecard

As mentioned on pages 110 to 112, the Committee does not consider

that the BSC outcome properly reflects the strength of the

underlying Group performance or the performance of the executive

directors whose variable reward is directly linked to it.

After careful consideration of the importance of transparency and

to demonstrate the Group’s commitment to respecting the targets

it sets for itself, the Committee has decided not to exercise its

discretion to adjust the BSC outcome to a higher level which it

considers would better reflect the underlying performance.



	Charlie Nunn – Group Chief Executive

	Maximum award	£1,654,380
	Group balanced scorecard outcome	68.1%
	Initial scorecard outcome	£1,126,633
	Committee discretion	—
	Annual GPS award/% of maximum	68.1%
	•Delivered the first phase of the strategy, financial targets, and investment priorities, which will set the Group up for success in 2025 and 2026 •Continued strong leadership throughout the year that included some uncertainties for consumers, such as a change in government •Group financials remain positive, driven by robust income performance, strategic delivery and effective risk management



	William Chalmers – Chief Financial Officer

	Maximum award	£1,192,384
	Group balanced scorecard outcome	68.1%
	Initial scorecard outcome	£812,014
	Committee discretion	—
	Annual GPS award/% of maximum	68.1%
	•Played a critical role in the strategic execution of the Group and maintained positive engagement with investors and regulators on the Group performance and strategy, throughout 2024 •Strong financial management, delivering the plan throughout 2024, with a strong focus on cost management, net interest income & other operating income growth •Effective balance sheet management with a pro forma CET1 ratio of 13.5 per cent, ahead of regulatory requirements

Lloyds Banking Group plc Annual Report and Accounts 2024

120

Directors’ remuneration report continued

Non-financial measures (40 per cent) commentary

The scorecard that the Committee used in determining the annual GPS awards for the executive directors, along with the assessment of

performance against the scorecard, is detailed on page 119. The table below outlines the Committee’s assessment of the non-financial

elements of the scorecard.


Measure		Commentary
Group customer dashboard Our assessment of how effectively we are serving customers across our brands, products and services.		•The 2024 Group Customer Dashboard (GCD) contains 150 measures, of which 46 drive the overall balanced scorecard (BSC) outcome. These 46 measures focus on customer advocacy (NPS), customer satisfaction, complaints and digital growth •In 2024, the total GCD BSC score is 83, on a 0-100 scale. Progress is evident across key strategic areas; such as products experience, banking app enhancements and increased digital engagement •The overall positive result is supported by performance relative to peers, with Lloyds Banking Group brands typically ranking between 1st-3rd amongst key competitors for customer experience benchmark metrics

Reducing operational carbon emissions Reported vs 2018/2019 baseline. Includes Scope 1, Scope 2 and Scope 3 carbon emissions. Reporting Year is October to September.		•A 30 per cent reduction has been achieved in 2024 from our 2018/19 baseline. The Group continues to make good progress reducing direct emissions, although increases continue to be seen in commuting and business travel emissions in line with the hybrid working expectation of colleagues spending 40 per cent of their time in offices •This metric supports our external commitments to achieve net zero carbon operations by 2030, reduce energy usage by 50 per cent by 2030, and the updated pledge to maintain domestic travel emissions below 50 per cent of 2018/19 levels

Increasing our gender and ethnic representation in senior roles Senior roles include all colleagues at grade F and above.		•We have seen an increase in women in senior roles to 40.4 per cent during 2024. This is against an ambition we set ourselves in 2020 to achieve 50 per cent representation of women in senior roles by 2025 •Throughout 2024, we have seen a continued increase in the representation of Black, Asian and Minority Ethnic representation in senior roles. At the end of 2024, 12.6 per cent of senior manager positions were held by Black, Asian or Minority Ethnic colleagues

Culture and colleague engagement Our employee engagement index score		•Our employee engagement index (EEI) encompasses pride and satisfaction working for the Group, and also recommending the Group as a great place to work •Our 2024 EEI score reflects our colleagues’ improving sentiment on change and change communications, and the positive impact this has had on their trust in our leadership

Lloyds Banking Group plc Annual Report and Accounts 2024

121

2022 Long Term Share Plan

A Long Term Share Plan award was granted in relation to 2021

performance under the terms of the previous Policy.

It is an important feature of the LTSP that performance is assessed

and appropriately recognised upfront in the award size during the

‘pre-grant test’.

A final ‘pre-vest test’ of financial underpins and consideration of

four key questions takes place prior to vesting to ensure

performance over the period has been sustainable. The Committee

has completed the full assessment and there is nothing known now

which, had it been known at the time of grant, would have changed

the initial award levels.

The outcome of the ‘pre-vest test’ of both financial underpin

performance and consideration of the four key questions is shown

below.


	Pre-vest test – underpins


	1Peers: Barclays Group, HSBC Holdings, NatWest Group, Santander UK and Virgin Money UK. 22024 peer bank average based on latest company published consensus as of 6 February 2025 where full-year results not available. 3RoTE not restated for impact of IFRS 17. 4Dividend shown includes both interim and final for the respective performance year.


Pre-vest test – additional consideration by the Committee

In conjunction with the assessment of performance against the financial underpins above, the Committee considered the four questions below to satisfy itself that there is nothing known now which, had it been known at the time of grant, would have changed the initial award levels:		The Group continues to make meaningful progress against our environmental commitments including the delivery of current sustainable finance and investment targets across Commercial Banking, EPC A and B mortgage lending, Motor and Scottish Widows. Our targets for EPCA and B mortgage lending and Motor were achieved earlier than planned. During the 2022 to 2024 performance period, there have been no serious external conduct matters or severe reputational damage. While there continues to be uncertainty around motor finance commission arrangements, provisions relate to the potential remediation costs. Significant uncertainty remains around the ultimate financial impact therefore the Committee determined it should not impact the 2022 LTSP vesting outcome. The Committee concluded that performance considered in the ‘pre-grant test’ has been sustainable and therefore no discretion has been applied. The 2022 LTSP awards will vest at 100 per cent, as the outcome represents a fair reflection of performance during the period.
Q	Has the bank lived up to its ambition to be the Best Bank for Customers?
Q	Do the Group’s financial results and capital position adequately reflect risk, conduct and any other non-financial considerations, including ESG?
Q	Has the Group made meaningful progress in supporting the UK’s transition to net zero?
Q	Has the Group suffered a serious conduct event or has severe reputational damage arisen from the Group not living its values?
A	The Group has maintained its strong capital position and support for customers, clients and communities since making awards in 2022. Risk management has remained a key element in shaping our business model, with a focus on safely progressing our strategic ambitions.

In determining the final vesting outcome of the 2022 Long Term

Share Plan, the Committee carefully considered alignment with

shareholder experience and whether adjustments were required for

windfall gains.

Awards were granted in March 2022 at 47.027 pence, around 20 per

cent higher than awards granted in March 2021.

The award price is considered a fair reflection of the share price in

the 12 months leading up to grant. The share price used to calculate

indicative value is 55.969 pence (page 118). While 19 per cent higher,

the Committee considers it reasonably represents performance over

the period.

The Committee concluded there was no windfall gain over the

period and as such no adjustment was required.

Lloyds Banking Group plc Annual Report and Accounts 2024

122

Directors’ remuneration report continued


	Relative importance of spend on pay

The graphs below illustrate the total remuneration of all Group employees compared with returns of capital to shareholders in the form of

dividends and share buyback.

12024: Ordinary dividend in respect of the financial year ended 31 December 2024,

partly paid in 2024 and partly to be paid in 2025 and intended share buyback. 2023:

Ordinary dividend in respect of the financial year ended 31 December 2023, partly paid

in 2023 and partly paid in 2024 and share buyback.

2Performance-based compensation includes expense for the following plans: Group

Performance Share (2024: £368 million, 2023: £410 million), Long Term Incentive Plan,

Long Term Share Plan and Executive Group Ownership Share (2024: £28 million, 2023:

£30 million), Executive Share Awards (2024: £0.03 million, 2023: £0.06 million). For the

2024 performance year, the value of awards was £368 million for Group Performance

Share and £26 million for Long Term Incentive Plan.

Comparison of returns to shareholders and Group Chief Executive total remuneration

The required chart below shows the historical total shareholder return (TSR) of Lloyds Banking Group plc compared with the FTSE 100. The

FTSE 100 Index has been chosen as it is a widely recognised equity index of which Lloyds Banking Group plc has been a constituent

throughout this period.


	GCE	2015	2016	2017	2018	2019	2020	2021	2022	2023	2024
GCE single figure of remuneration £000	Charlie Nunn1	n/a	n/a	n/a	n/a	n/a	n/a	5,523	3,767	3,681	5,615
	William Chalmers2	n/a	n/a	n/a	n/a	n/a	n/a	819	n/a	n/a	n/a
	Sir António Horta-Osório	8,704	5,791	6,434	6,544	4,424	3,604	2,444	n/a	n/a	n/a
Annual bonus/GPS payout (% of maximum opportunity)	Charlie Nunn	n/a	n/a	n/a	n/a	n/a	n/a	57.8%	84.1%	80.3%	68.1%
	William Chalmers2	n/a	n/a	n/a	n/a	n/a	n/a	78.2%	n/a	n/a	n/a
	Sir António Horta-Osório3	57%	77%	77%	67.6%	n/a	n/a	57.8%	n/a	n/a	n/a
Long-term incentive vesting (% of maximum opportunity)	Charlie Nunn	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a	100%
	William Chalmers2	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a
	Sir António Horta-Osório	94.18%	55%	66.3%	68.7%	49.7%	33.75%	41.8%	n/a	n/a	n/a

1Charlie Nunn succeeded Sir António Horta-Osório as Group Chief Executive with effect from 16 August 2021 and the single figure total remuneration for 2021 includes a one-off buy-out

of £4.231 million.

2William Chalmers was the Interim Group Chief Executive from 1 May 2021 until 15 August 2021, remuneration in the table above is for this period.

3Sir António Horta-Osório independently requested that he be withdrawn from consideration for a Group Performance Share award in 2019 and 2020. There were no GPS awards for

2020 performance.

Lloyds Banking Group plc Annual Report and Accounts 2024

123


	Single total figure of remuneration for Chair and non-executive directors (audited)

		Fees (£000)		Benefits (£000)4		Total (£000)
		2024	2023	2024	2023	2024	2023
Chair and non–executive directors
Sir Robin Budenberg		655	629	1	2	656	631
Nathan Bostock1		140	–	–	–	140	–
Alan Dickinson2		112	402	4	3	116	405
Sarah Legg		232	228	13	5	245	233
Lord Lupton3		112	286	2	6	114	292
Amanda Mackenzie		219	179	3	1	222	180
Harmeen Mehta		106	102	5	1	111	103
Cathy Turner		277	157	2	–	279	157
Scott Wheway		475	458	17	25	492	483
Catherine Woods5		250	246	(9)	23	241	269

1Nathan Bostock was appointed on 1 August 2024.

2 Alan Dickinson retired on 16 May 2024.

3Lord Lupton retired on 16 May 2024.

4Benefits for the non-executive directors relates to reimbursement for expenses incurred in the course of duties. The Chair’s benefits also include private medical insurance, including a

one-off settlement of tax in 2023 relating to the restatement in the 2022 annual report. Non-executive directors do not receive variable pay.

5The value of benefits in respect of 2024 includes the correction of previous tax treatment from 2023. Excluding the correction, the benefits figure for 2024 is £7,047. The figure on a

revised basis for 2023 is £6,548.


	Directors’ share interests and share awards Directors’ interests (audited)

		Number of shares			Number of options		Total shareholding1
		Owned outright	Unvested subject to continued employment	Unvested subject to performance	Unvested subject to continued employment	Vested unexercised	Totals at 31 December 20242
Executive directors
Charlie Nunn		7,602,947	335,442	17,248,972	3,968,909	–	29,156,270
William Chalmers		9,113,285	2,662,483	12,432,089	56,878	–	24,264,735
Non-executive directors
Sir Robin Budenberg		2,500,000	–	–	–	–	2,500,000
Nathan Bostock		430	–	–	–	–	430
Alan Dickinson3		200,000	–	–	–	–	200,000
Sarah Legg		200,000	–	–	–	–	200,000
Lord Lupton3		2,250,000	–	–	–	–	2,250,000
Amanda Mackenzie		63,567	–	–	–	–	63,567
Harmeen Mehta		20,000	–	–	–	–	20,000
Cathy Turner		424,113	–	–	–	–	424,113
Scott Wheway		168,356	–	–	–	–	168,356
Catherine Woods		119,281	–	–	–	–	119,281

1Includes holdings of any Person Closely Associated.

2There has been no change in shareholdings from 31 December 2024 to 20 February 2025.

3Alan Dickinson and Lord Lupton retired on 16 May 2024; the number of shares shown is as of 16 May 2024.

4Directors are not permitted to enter into any hedging arrangements in relation to share awards. No director uses shareholding as collateral.

Lloyds Banking Group plc Annual Report and Accounts 2024

124

Directors’ remuneration report continued


	Outstanding share plan interests (audited)

		At 1 January 2024	Granted/ awarded	Vested/ released/ exercised	Lapsed	At 31 December 2024	Exercise price	Exercise periods
		At 1 January 2024	Granted/ awarded	Vested/ released/ exercised	Lapsed	At 31 December 2024	Exercise price	From	To	Notes

Charlie Nunn
LTSP 2022 – 2024		3,588,364	–	–	–	3,588,364				2
LTSP 2023 – 2025		3,283,896	–	–	–	3,283,896				2
LTIP 2024 – 2026		–	10,376,712	–	–	10,376,712				2,3,4
Deferred GPS awarded in 2022 (2021 GPS)		74,139	–	74,139	–	–				5
Deferred GPS awarded in 2023 (2022 GPS)		773,294	–	437,852	–	335,442				5
Deferred GPS awarded in 2024 (2023 GPS)		–	1,363,431	1,363,431	–	–				6,7
Share Buy-Out		1,368,990	–	1,368,990	–	–	–	12/03/2024	11/03/2029	1
		1,368,990	–	–	–	1,368,990	–	11/03/2025	10/03/2030	1
		1,369,012	–	–	–	1,369,012	–	11/03/2026	10/03/2031	1
		891,217	–	–	–	891,217	–	11/03/2027	10/03/2032	1
		339,690	–	–	–	339,690	–	11/03/2028	10/03/2033	1
William Chalmers
GOS 2020 – 2022		1,722,544	–	430,636	–	1,291,908				2
LTSP 2021 – 2023		1,547,340	–	309,468	–	1,237,872				2
LTSP 2022 – 2024		2,586,292	–	–	–	2,586,292				2
LTSP 2023 – 2025		2,366,848	–	–	–	2,366,848				2
LTIP 2024 – 2026		–	7,478,949	–	–	7,478,949				2,3,4
Deferred GPS awarded in 2022 (2021 GPS)		149,835	–	149,835	–	–				5
Deferred GPS awarded in 2023 (2022 GPS)		398,104	–	265,401	–	132,703				5
Deferred GPS awarded in 2024 (2023 GPS)		–	982,685	982,685	–	–				6,7
2020 Sharesave		46,317	–	46,317	–	–	24.25p	01/01/2024	30/06/2024
2021 Sharesave		17,177	–	–	–	17,177	39.40p	01/01/2025	30/06/2025
2023 Sharesave		20,171	–	–	–	20,171	38.55p	01/01/2027	30/06/2027
2024 Sharesave		–	19,530	–	–	19,530	52.35p	01/01/2028	30/06/2028

1When Charlie Nunn joined the Group on 16 August 2021 as Group Chief Executive and executive director, he was granted deferred share awards and deferred cash to replace unvested

awards from his previous employer, HSBC. Options vested on 11 March 2024 and Charlie Nunn exercised the options on 25 March 2024, acquiring 711,874 shares, after the settlement of

income tax and national insurance contributions. The shares received are subject to holding periods that mirror those of the replaced HSBC shares, with 282,888 shares having no

holding period and 428,986 a 12-month holding period.

2All GOS, LTSP and LTIP awards have a three-year performance/underpin period ending 31 December. Awards were made in the form of conditional rights to free shares.

3In line with regulatory requirements, LTIPs awarded during 2024 were ineligible for dividend equivalents. In accordance with the Remuneration Policy, the LTIP award was determined

at 300 per cent of salary for Charlie Nunn and William Chalmers. The number of shares to be granted was determined by taking the average share price over the five days prior to grant

(27 February 2024 to 4 March 2024), which was 46.844 pence and applying a discount based on Lloyds Banking Group’s expected dividend yield for the vesting period (32.85 pence).

42024 LTIP vesting is subject to performance conditions applicable for the first three years from grant as detailed on page 124 of the 2023 directors’ remuneration report. Each year the

Remuneration Committee will monitor the Group’s progress in relation to the performance conditions.

5The third tranche of the 2021 GPS deferred award and the second tranche of the 2022 GPS deferred award vested on 6 March 2024. The closing market price of Lloyds Banking Group

shares on that date was 48.4 pence. The awards were settled in shares net of tax, with the resulting shares subject to a one-year holding period.

6The 2023 GPS is delivered half in an immediately vested share award with shares subject to a holding period until March 2025, and half paid in cash. The value of the shares awarded in

respect of the GPS granted in March 2024 was £638,686 (1,363,431 shares) for Charlie Nunn; and £460,329 (982,685 shares) for William Chalmers. The awards are not subject to

performance conditions. The number of shares granted was determined by taking the average Lloyds Banking Group share price over the five days prior to grant (27 February 2024 to

4 March 2024), which was 46.844 pence.

7The 2023 GPS share award vested on 6 March 2024. The closing market price of the Lloyds Banking Group shares on that date was 48.4 pence. The award was settled in shares net of

tax, with the resulting shares subject to a one-year holding period.


	Outstanding cash awards (audited)

		At 1 January 2024 £	Granted/ awarded £	Vested / released / exercised £	At 31 December 2024 £	Notes
Charlie Nunn
Deferred GPS cash awarded in 2022 (2021 GPS)		34,865	–	34,865	–
Deferred GPS cash awarded in 2023 (2022 GPS)		401,346	–	227,250	174,096
William Chalmers
Deferred GPS cash awarded in 2022 (2021 GPS)		70,463	–	70,463	–	1
Deferred GPS cash awarded in 2023 (2022 GPS)		206,620	–	137,746	68,874	1

1Half of the deferred portion of the 2021 and 2022 GPS awards are delivered in cash.

2£2,000 of 2023 GPS was delivered in cash in March 2024 for both executive directors. Half of the remaining 2023 GPS was delivered in cash on 20 June 2024. Charlie Nunn received

£636,686 and William Chalmers received £458,329.

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Shareholding requirement

To further strengthen the alignment between executive directors’

interests and those of our shareholders, executives are expected to

build and maintain a significant shareholding in the Group in direct

proportion to their salary.

Increased shareholding requirements were approved by

shareholders as part of the 2023 Policy and came into effect from

1 January 2024.

The minimum shareholding requirements applicable to executive

directors at 31 December 2024 are 400 per cent of salary for the

Group Chief Executive and 300 per cent of salary for the Chief

Financial Officer. Executive directors have five years from the date

of appointment to meet the requirement. In the event that

exceptional individual circumstances exist resulting in an executive

not being able to comply with the Policy, the Remuneration

Committee will consider whether an exception should apply.

Charlie Nunn has until 15 August 2026 to meet the requirement

and currently holds 344 per cent of salary in Group shares at

31 December 2024. This is an increase from 196 per cent which

was published in the 2023 directors’ remuneration report.

William Chalmers met the requirement by 2 June 2024 and currently

holds 656 per cent of salary in Group shares at 31 December 2024,

more than double his shareholding requirement. This is an increase

from 467 per cent which was published in the 2023 directors’

remuneration report.

Unvested shares that remain subject to performance or continued

employment do not count towards the requirement but contribute

to aligning the interests of executive directors and shareholders

through share price exposure.

Post-employment shareholding requirement

Executive directors are contractually bound to a post-employment

shareholding requirement of two years at a level equal to the lower

of the shareholding requirements immediately prior to departure or

the actual shareholding on departure. The post-employment

requirement will be maintained through self-certification, with the

Committee keeping this approach under review.

None of those who were directors at the end of the year had any

other interest in the capital of Lloyds Banking Group plc or its

subsidiaries.


	Shareholding requirement

1Calculated using the average share price for the period 1 January 2024 to 31 December 2024 (53.439 pence). Includes ordinary shares, net of tax where appropriate, acquired through

the vesting of the deferred Group Performance Share plan, Fixed Share Awards as the shares have no performance conditions, awards in the form of options which have vested but

have not been exercised, unvested performance tested Executive Group Ownership Share awards and Long Term Share Plan awards, shares held in the Share Incentive Plan (SIP) Trust,

i.e. Free, Partnership, Matching and Dividend shares which are no longer subject to forfeiture, as defined in the SIP Rules. Shares held by Persons Closely Associated, as defined by the

Companies Act, but broadly meaning spouse or partner and children, are also included.

22023 shareholding has been recalculated using the average share price for the period 1 January 2024 to 31 December 2024 (53.439 pence).

3Unvested shares subject to continued employment do not count towards the shareholding requirement and are shown after deduction of estimated income tax and national

insurance.

4Unvested shares subject to performance are shown with an assumed 100 per cent vesting outcome and after deduction of estimated income tax and national insurance. The final

vesting outcome could range between 0-100 per cent. Shares subject to performance are also subject to continued employment.

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Directors’ remuneration report continued

Gender and ethnicity pay

We’re proud of the journey that the Group has been on since 2017

when our Gender Pay Gap reporting began, and from 2020, when as

part of our Race Action Plan we began voluntarily sharing our

Ethnicity Pay Gap report. Since then, we’ve achieved solid results

and made year-on-year progress against our Diversity, Equity and

Inclusion (DE&I) agenda.

Inclusion is a core value at Lloyds Banking Group, and for good

reason. A more inclusive society is a more prosperous society, and a

diverse business is a better business. Achieving this requires focus

and effort right through the business to make this happen.



	Gender pay gap – April 2023 to April 2024
	Progress has continued to close the mean Gender Pay Gap; this has reduced 0.8 percentage points to 25.9 per cent. As of April 2024, 40.4 per cent of senior leadership roles were held by women. Overview This is not about pay equality – a Gender Pay Gap exists because women hold fewer senior positions within the Group than men. What the data shows Continued progress has been made in closing the Gender Pay Gap, with the gap reducing by 0.8 percentage points to 25.9 per cent. This improvement demonstrates that our actions are moving us in the right direction, however, we remain committed to accelerating our progress. Our commitments to gender inclusion Integrating DE&I into the way we run our business has been core to our success to date. Holding our Group executives to account is paramount. We use business area goals and delivery against these forms a core part of individual scorecards and performance conversations. Our data-led approach, which is grounded in key metrics and insight gathered through colleague feedback, allows our business area executives to identify opportunities to accelerate progress and to also address any gaps. We take active steps to improve equity through all stages of our colleague lifecycle from recruitment, to progression and retention. We will continue to focus on improving the representation of women in senior roles. This is crucial to our ability to close our Gender Pay Gap. We have committed to support the recommendations set out by the FTSE Women Leaders review of 40 per cent women representation in the Executive Committee and direct report population, and we have met these recommendations ahead of the 2025 target date. We have climbed from 73rd position in the 2017 FTSE 100 rankings to 5th in the 2024 rankings.

Our Executive Ally Sponsors for Gender, Ethnicity and other diversity

strands are driving change from the top, alongside our volunteer

colleague networks, who work tirelessly to help our colleagues feel

seen, valued and included. These efforts are underpinned by centrally

led targeted initiatives and propositions.

The pay gap progress we have made in the last year is moving us in the

right direction albeit slower than we would like. However, as our

transformation continues at pace, we are confident that our choices

and actions are paving the way for a brighter and more equitable future.



	Ethnicity pay gap – April 2023 to April 2024
	Continued progress has been made with the mean gap reducing by 2.7 percentage points from 5.7 per cent to 3.0 per cent from last year, the largest improvement since we started reporting in 2020. Overview We remain committed to publishing our Ethnicity Pay Gap report on a voluntary basis. We have chosen to publish for the past three years because we recognise the importance of transparency in encouraging focus and inspiring purposeful, action-led change. It helps to hold us accountable to delivering on our commitment and we believe will lead to sustainable positive change for our people. What the data shows 90.4 per cent of our colleagues have chosen to disclose their ethnicity with us, an encouraging increase from 88.2 per cent in April 2023. Whilst we have more to do to close the gap, we have seen improvements within the representation of our senior leadership teams which has had a significant impact on gap closure to date. Our commitments to ethnic diversity As an organisation we stand against racism, and our Race Action Plan created in 2020 outlines the steps we continue to take to drive sustainable change for our people. We are focused internally on driving change through our culture, recruitment and progression to improve representation. For example, our Race Education training programme, undertaken by all colleagues within the Group, aims to equip everyone with the skills they need to reflect on their own behaviours and the impact these can have on those around them, ultimately helping us to create a more positive working culture for everyone. Having identified opportunities to improve the progression of our Black heritage colleagues, we continue to invest in our bespoke Senior Leadership and Career Acceleration programmes, with colleagues promoted or making lateral moves to enhance their career progression since inception. We have seen steady growth in ethnicity representation across the Group and specifically at senior levels, but to further accelerate our progress we are looking closely at the colleague life cycle, increasing representation in skills growth areas in technology and data, continuing the upskilling of our colleagues and leaders and ensuring equity in our people policies and processes. Additionally, we have continued in our active support for Black business communities through our partnerships with Foundervine and the Black Business Network.

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Percentage change in remuneration levels

The table below sets out the change in the directors’ base salary/fees, taxable benefits and annual bonus compared with the change in our

UK-based colleagues’ pay. Lloyds Banking Group plc is not an employing entity, and therefore the disclosure below is made on a voluntary

basis to compare any change with all employees of the wider Group based in the UK. This population has been chosen as the majority of

our workforce are based in the UK and is considered to be the most appropriate group of employees. The same population is used for the

purposes of the Chief Executive Officer pay ratio disclosure on page 128 of the report.

% change in base salary/fees

% change in GPS

% change in benefits

2019 to

2020

2020 to

2021

2021 to

2022

2022 to

2023

2023 to

2024

2019 to

20204

2020 to

2021

2021 to

2022

2022 to

2023

2023 to

2024

2019 to

2020

2020 to

2021

2021 to

2022

2022 to

2023

2023 to

2024

All employees1

139

109

(100)

n/a

(14)9

(4)

(32)

(43)9

(71)9

Executive directors

Charlie Nunn2

n/a

–

n/a

(5)

(12)

n/a

(37)

William Chalmers3

(9)

–

(100)

n/a

(2)

(12)

(1)

–

Non-executive directors5,6

Sir Robin Budenberg

n/a

243

n/a

–

100

(50)

Nathan Bostock10

n/a

Alan Dickinson7

(10)

(26)

n/a

Sarah Legg

131

n/a

Lord Lupton8

–

(8)

(2)

n/a

Amanda Mackenzie

(1)

n/a

Harmeen Mehta

n/a

Cathy Turner

n/a

Scott Wheway

n/a

Catherine Woods

n/a

1Lloyds Banking Group is not a contracting entity but considers all UK-based employees to be appropriate for purposes of an ‘All employees’ calculation.

2Charlie Nunn became the Group Chief Executive in August 2021. Figures for 2021 have been annualised based on the single total figure table.

3William Chalmers was the Interim Group Chief Executive from May to August 2021 and received a deputisation payment for this period.

4No Group Performance Share (bonus) was paid for 2020 performance.

5In some instances, non-executive directors may change membership or become the Chair of a Committee during the year, resulting in year-on-year percentage changes in fees. In

particular, during 2024 Cathy Turner and Amanda Mackenzie joined the Risk and Audit Committee’s respectively.

6Some non-executive directors have received other benefits that relate to reimbursement for expenses incurred in the course of duties. Reimbursements of these expenses do not

provide an accurate comparison to benefits received by colleagues and are therefore not included.

7Alan Dickinson retired on 16 May 2024. Figures for 2024 have been annualised based on the single total figure table.

8Lord Lupton retired on 16 May 2024. Figures for 2024 have been annualised based on the single total figure table.

92022 to 2023 and 2023 to 2024 variance was impacted by the consolidation of variable pay and Flex cash allowance into base salary.

10Nathan Bostock was appointed on 1 August 2024 and therefore no year-on-year comparison shown.

Service agreements

The service contracts of all current executive directors are terminable on 12 months’ notice from the Group and six months’ notice from the

individual. The Chair also has a letter of appointment. The Chair’s engagement may be terminated on six months’ notice by either party.

Letters of appointment

The non-executive directors all have letters of appointment and are appointed for an initial term of three years after which their

appointment may continue subject to an annual review. Non-executive directors may have their appointment terminated, in accordance

with statute, regulation and the articles of association, at any time with immediate effect and without compensation.

All directors are subject to annual re-election by shareholders.

The service contracts and letters of appointments are available for inspection at the Company’s registered office.


NED	Date of letter of appointment	Date of appointment
Sir Robin Budenberg1	4 July 2020	1 October 2020
Nathan Bostock	29 July 2024	1 August 2024
Sarah Legg	21 October 2019	1 December 2019
Amanda Mackenzie	17 April 2018	1 October 2018
Harmeen Mehta	5 October 2021	1 November 2021
Cathy Turner	11 October 2022	1 November 2022
Scott Wheway	26 July 2022	1 August 2022
Catherine Woods	22 October 2019	1 March 2020

1Chair is subject to a six-month notice period.

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Directors’ remuneration report continued


	Chief Executive Officer pay ratio

The Remuneration Committee views pay ratios as a useful reference point to inform policy-setting, but also takes into consideration a number of other factors. The table below shows the ratios of the GCE’s total remuneration to the remuneration of colleagues since 2017. The change in the pay ratios for 2024 is explained in more detail below.

		Total compensation				Fixed pay
Year		Methodology	P25 (Lower Quartile)	P50 (Median)	P75 (Upper Quartile)	P25 (Lower Quartile)	P50 (Median)	P75 (Upper Quartile)
	2024	A	165:1	114:1	63:1	75:1	53:1	29:1
	2023	A	112:1	80:1	45:1	76:1	54:1	31:1
	2022	A	120:1	86:1	48:1	81:1	59:1	35:1
	2021	A	316:1	225:1	120:1	93:1	66:1	38:1
	2020	A	132:1	95:1	54:1	103:1	75:1	42:1
	2019	A	179:1	128:1	71:1	114:1	82:1	47:1
	2018	A	237:1	169:1	93:1	113:1	81:1	48:1
	2017	A	245:1	177:1	97:1	113:1	82:1	48:1
	Y-o-Y (2023 vs 2024)			43%			(2)%

Notes to the table:

•The 2024 total remuneration for the colleagues identified at P25, P50 and P75 are as follows: £34,122, £49,372, £88,790

•The 2024 base salary for the colleagues identified at P25, P50 and P75 are as follows: £29,853, £43,258, £74,212

•The P25, P50 and P75 colleagues were determined on 31 December 2024 based on calculating total remuneration for all UK employees

for the 2024 financial year. Payroll data from 1 January 2024 to 31 December 2024

•Colleague total remuneration has been calculated in line with the single total figure of remuneration. The single total figure of

remuneration has been calculated for 54,423 UK colleagues within the Group for a full year including full-time equivalent base pay, 2024

Group Performance Share awards, vesting Long Term Share Plan awards (for eligible colleagues), core benefits, pension, overtime and

shift payments, travel/relocation payments (for eligible colleagues) and private medical benefit

•The average share price between 1 October 2024 and 31 December 2024 of 55.969 pence has been used to indicate the value of vesting

Long Term Share Plan awards

•Due to operational constraints, the calculation of the colleague Pension Input Figure excludes inflationary adjustments for those on the

defined benefit scheme. The omission of this factor does not materially affect the outcome of the ratio and/or distort the validity of the

valuation

•All other data has been calculated in line with the methodology for the single total figure of remuneration for the GCE

Our ratios have been calculated using Methodology option A on the basis that it provided the most accurate means of identifying the

median, lower and upper quartile colleagues. The ratio has been calculated taking into account the pay and benefits of 54,423 UK

employees, other than the individual performing the role of GCE.

The change in total remuneration ratios since 2017 is largely driven by the more volatile nature of variable pay for the GCE.

In 2021 the median ratio was calculated for all three individuals undertaking the role of GCE and increased by 137 per cent year-on-year.

This increase can be attributed to the one-off buy-out awards granted to Charlie Nunn, an increase in the vesting of the LTIP and the

payment of Group Performance Share (annual bonus), which were not awarded for 2020.

The reduction in 2022 was due to two factors. Firstly, Charlie Nunn’s remuneration for 2022 did not include any value in respect of Long

Term Incentive plans, as no 2020 Executive Group Ownership Share (EGOS) award was granted to him given that he was not an executive

director at the time of grant. Secondly, the 2021 ratio included the one-off buy-out awards granted to Charlie Nunn. In addition the 2021

ratio was calculated for all three individuals undertaking the role of GCE. Over the same time period, employee total compensation

increased by 12 per cent at the lower quartile, 11 per cent at the median and 7 per cent at the upper quartile, also contributing to the

decrease in pay ratios.

The further reduction in 2023 was attributed to three key factors. Recognising the desire to focus on the remuneration of lower paid

colleagues, no annual pay award was proposed for the GCE for 2023 while the pay budget for the wider workforce was 6.3 per cent. Given

the approach focused on lower paid colleagues and colleagues lower in their pay range, this resulted in pay increases of between 8 per cent

and 13 per cent for around 43,000 colleagues. In addition, from July 2023 we consolidated a significant portion of our Group Performance

Share into base salary for around 32,000 colleagues, further increasing the fixed pay element. Finally, the GCE received a lower annual

short-term variable award for 2023 compared to 2022.

In 2024, the total compensation ratio increased by 43 per cent largely driven by the 2022 LTSP award vesting for Charlie Nunn, the first

vesting of a long-term incentive award for our Group Chief Executive since appointment. Excluding this, the year-on-year comparison

would be down 9 per cent on 2023. The fixed pay ratio has reduced by 2 per cent as colleagues realise a full-year impact of Group

Performance Share consolidation from July 2023.

For the majority of colleagues, year-on-year changes in remuneration are principally driven by pay increases and the impacts of Group

performance and collective adjustment. The Group has a commitment to pay progression and a continued focus on ensuring higher pay

awards for colleagues who are lower paid, or paid lower within their pay range. We are committed to ensuring all colleagues are rewarded

fairly.

The Committee is thoughtful of the volatility in pay ratios due to variable reward outcomes. Although the pay ratio is used as a useful

reference point to inform policy-setting, the Committee takes into account a number of other factors to assess colleague pay progression.

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Policy alignment to Provision 40 of the Corporate Governance Code

A summary of how the Remuneration Policy addresses the principles set out in the UK Corporate Governance Code is detailed below.



	Clarity

	•The Committee regularly consults with key shareholders to ensure transparency on our policy and remuneration outcomes and topics. Shareholder feedback is shared with Board members and considered in the Committee’s reward decisions and policy considerations •Targets are aligned to the Group’s strategy and purpose, providing clarity to shareholders and stakeholders on the relationship between delivery of the strategy and remuneration outcomes •During the year the Group communicated directly with colleagues detailing Group performance, changes in the economic and financial environment, and updates on key strategic initiatives. Meetings were held throughout the year between the Group and our recognised unions •Non-executive directors attended a number of colleague focus groups, allowing colleagues to share their perspective on matters on the Board’s agenda and discuss the Group’s progress against its strategic objectives •We regularly engage with colleagues through engagement surveys and townhalls. The Group Chief Executive hosted two all colleague townhall sessions in 2024. Colleagues were invited to submit questions with the most popular questions answered on the day. Categories included ‘People and culture’ where colleagues can submit questions around remuneration •As set out on page 86, in continuing to consider its arrangements for engaging with the Group’s workforce, the Board approved in 2024 an evolved approach to colleague engagement, to be implemented during 2025. This new approach builds on existing colleague listening activity and will introduce three forums to better represent colleagues particularly at grades where trade union membership is low. The forums will include the People Forum, the People Consultation Forum, and the Management Advisory Forum. Where appropriate, these forums will be engaged on matters of remuneration, including how executive remuneration aligns to the wider workforce



	Proportionality

	•There is clear alignment between the performance of the Group, the business strategy, and the reward paid to executive directors •The Committee has the discretion to reduce the annual bonus, LTIP and LTSP awards, if it considers the payout does not appropriately reflect the performance of the Group during the performance period



	Simplicity

	•The Remuneration Policy has been designed so that it is easy to understand and transparent, while complying with all regulatory requirements and meeting the expectations of our shareholders •The purpose of each remuneration element is explained in the Policy and the amount paid in respect of each element is clearly set out



	Risk

	•The Remuneration Policy supports the Group’s risk management framework •Risk and conduct considerations are taken into account in setting the annual bonus pool •The annual bonus, deferred bonus, LTIP and LTSP incorporate malus and clawback provisions, and overarching Committee discretion to adjust formulaic outcomes



	Predictability

	•The summarised Remuneration Policy on pages 115 to 116 describes the operation and maximum potential for each remuneration element •The full Policy set out on pages 125 to 133 of the 2022 annual report and accounts illustrates a range of potential outcomes for executive directors



	Alignment to culture

	•Annual and long-term variable remuneration are designed to drive behaviours consistent with the Group’s strategy, purpose and values •When considering individual executive directors’ performance, the Committee takes account of the Group’s values

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Directors’ remuneration report continued

Implementation of the Policy in 2025

The 2023 Directors’ Remuneration Policy was approved at the AGM in May 2023. The Policy is summarised on pages 115 and 116.

The Group proposes to operate the Policy in the following way for 2025.


	Directors’ remuneration


	Base Salary
	As set out in the Chair statement on pages 110 to 112, on appointment the GCE’s base salary was set lower than his predecessor, by 13 per cent, to recognise that this was his first lead executive role in a listed environment. This is in line with good practice and investor preferences. Given the GCE’s increased experience and strong track-record of delivery, the Committee has determined that it is an appropriate time to review his package. The most obvious inconsistency was his fixed pay recognising that it has only increased modestly since he was appointed – his fixed pay has risen by just 5 per cent over three and a half years. After careful consideration, including consultation with shareholders, the Committee decided, effective 1 January 2025, to reverse the impact of the discount applied to the GCE’s salary on appointment and apply a 3 per cent annual increase effective 1 April 2025 to the salary of both executive directors; this is less than the 4.1 per cent pay deal for wider workforce.		As part of its decision, the Committee considered that, excluding the exceptional salary increase in January 2025, the GCE’s salary will have increased by 8 per cent between his date of appointment and April 2025; over the equivalent period, colleagues will have benefitted from a total pay budget of 18.2 per cent. For further context and detail, including the benchmarking used by the Committee to test its decision making, please refer to pages 110 to 112. Salaries from 1 January 2025 will therefore be as follows: GCE: £1,335,321 Salaries from 1 April 2025 will therefore be as follows: GCE: £1,375,381 CFO: £877,254


	Fixed Share Award
	As set out in the Chair statement on pages 110 to 112, in line with our current Policy, the Fixed Share Award (FSA) of the GCE and CFO will be increased by £283,381 and £353,094 respectively to align with their salaries. Shares will be released in equal tranches over three years.		Awards from 1 January 2025 will therefore be as follows: GCE: £1,335,321 CFO: £851,703 Awards from 1 April 2025 will therefore be as follows: GCE: £1,375,381 CFO: £877,254


	Pension
	Pension allowances for all executive directors are set at 15 per cent of base salary. Any new executive director appointments in 2025 will also attract a maximum allowance of 15 per cent of base salary. Around 55,000 colleagues participate in the Group’s Defined Contribution (DC) Pension scheme where the maximum opportunity for the workforce is 15 per cent of base salary.		Executive directors’ employer pension contributions are therefore aligned with those available to the majority of the workforce.


	Benefits
	Benefits remain unchanged from 2024. Executive directors receive a flexible benefit allowance of 4 per cent of base salary. This can be used to select benefits including life assurance and critical illness cover.		Other benefits include transportation and private medical cover. The Chief Financial Officer also receives a car allowance.

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	Directors’ remuneration continued



	Group Performance Share (Short Term Variable)
	Overview Maximum opportunities for executive directors for 2025 are 140 per cent of base salary. For the 2025 performance year, any GPS opportunity will be awarded in March 2026 in a combination of cash (up to 50 per cent) and shares. Individual awards as a percentage of maximum will directly relate to the overall Group balanced scorecard performance assessment outcome in the first instance. The Group will apply deferral in line with minimum regulatory requirements as set out in the Policy. Under current rules, at least 60 per cent of total variable remuneration awarded to our executive directors will remain deferred over a period of up to seven years, maintaining strong alignment to shareholders. 2025 Group balanced scorecard The performance measures for determining any individual 2025 GPS awards for executive directors are outlined in the table below. The measures and targets are set annually by the Committee to reflect the strategic priorities of the Group and take into account both the annual financial plan and operating plan against the backdrop of the rapidly evolving external economic and societal landscape. Performance measures and weightings The 2025 scorecard metrics have been reviewed alongside the 2025 LTIP measures, shown on page 132, to ensure they are complementary and there is minimal overlap which would risk duplication of outcomes. Whilst a RoTE measure is also included in the LTIP performance metrics, it is considered a fundamental indicator of Group performance and creation of shareholder value. The RoTE within the annual scorecard focuses on in-year performance while the LTIP assesses long-term performance. Performance measures and weightings remain unchanged from 2024. Targets and methodology Setting stretching targets is a key component of our demanding performance-driven culture. The Committee has undertaken a thorough exercise to ensure targets are sufficiently stretching, taking into consideration our operating plan and, where applicable, forward- looking guidance.		The Committee agreed targets to evaluate performance in 2025 and these will be disclosed retrospectively in the 2025 annual report alongside the level of performance achieved, as the Committee considers such targets to be commercially sensitive. There are three changes to measure definitions from 2024. As discussed in the Chair statement on pages 110 to 112, profit after tax and return on tangible equity measures will exclude any future potential impact of motor finance provisions. Instead, items will be reviewed on a case-by- case basis by the Committee to determine their inclusion. The Group is now drawing more select skills from the global market and we have therefore had to re-assess our existing travel pledge commitment. From reporting year 2023/24, we have revised the elements reported within our travel pledge to focus on domestic travel only aligned with our action plans. To ensure consistency, the operational carbon emissions measure in the 2025 Group BSC will be adjusted to also exclude international travel emissions. In 2025 we have refreshed the Groups gender and ethnicity strategic plan and we’re setting new ranging ambitions for executive roles, to achieve by 2030. The 2025 BSC will reflect the targets for this population to align with the delivery of the new ambitions. Discretion When determining the final outcome, the Committee may consider any personal or business area objectives and whether there has been effective, consistent and proactive risk management and conduct outcomes across all dimensions. When assessing performance, the Committee can exercise its judgement to determine the appropriate outcome. This helps to avoid any potential unintended outcomes that might arise from the application of formulaic performance criteria.


	Our 2025 balanced scorecard

1Profit after tax and return on tangible equity measures will exclude any future potential impact of motor finance provisions. Instead, items will be reviewed on a case-by-case basis

by the Remuneration Committee to determine their inclusion.

2Operating costs will exclude remediation and in-year GPS expense.

3 Executive roles include grade X colleagues only.

4 Reducing our operational carbon emissions will exclude international travel.

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Directors’ remuneration report continued


	Directors’ remuneration continued



	Long Term Incentive Plan (Long Term Variable)
	Overview The Group’s demanding, high performance culture is critical to delivering our ambitious strategy. LTIP awards will be granted in relation to 2024 performance under the terms of the current Policy. The Committee concluded that 2024 performance, including assessment of our 2024 Group scorecard and other factors, was at a level to make awards. This is known as the ‘pre-grant test’. To ensure strong alignment between variable reward outcomes and the creation of shareholder value through the delivery of our strategy and the deepening of our relationships with our customers, the Committee has determined that LTIP awards will be granted with a value of 300 per cent of salary to the GCE and CFO to reflect the Group’s performance in 2024. In accordance with regulatory requirements LTIP awards will not accrue dividend equivalents over the vesting period; in line with the Policy, the number of shares granted under the awards will be determined using a share price adjusted to reflect the absence of dividends or equivalents during the vesting period. Performance measures and weightings The Committee reviews the performance measures and weightings ahead of each award grant. For 2025, the Committee has concluded measures and weightings from 2024 remain aligned to the Group’s strategic direction and public commitments. Three financial measures make up a total weighting of 50 per cent of the scorecard. Return on tangible equity (RoTE) emphasises the efficient use of capital and ensures focus on long-term value creation, capital generation recognises the importance of maintaining a strong financial foundation for the Group		and prioritises capital-accretive decision making for the long-term and rTSR compares the value delivered to a shareholder in the Group over the performance period with the value delivered to shareholders by our peers. A dedicated 35 per cent weighting will focus on the Group’s delivery of its strategy and success of our strategic initiatives in driving revenue growth and diversification. The Committee will give consideration to an assessment of performance against quantifiable Board metrics aligned to each of our four strategic growth pillars. Finally, 15 per cent weight is attributed to environmental measures, reflecting that the transition to a low carbon economy is at the core of our strategy and aligns with our purpose of Helping Britain Prosper. As discussed in the Chair statement on pages 110 to 112, return on tangible equity and capital generation measures will exclude any future potential impacts of motor finance provisions. Instead, items will be reviewed on a case-by-case basis by the Committee to determine their inclusion. Target setting Setting targets is a critical focus area for the Committee and a rigorous exercise has been undertaken to ensure our targets are sufficiently stretching. We have taken into account our long-term strategic ambitions, commitments to our ESG agenda and comparable industry returns. Operation The awards made in 2025 will vest based on the Group’s performance between January 2025 to December 2027. The following table provides a breakdown of the construct which the Committee considers aligns management and shareholder interests appropriately.

	1Return on tangible equity and capital generation measures will exclude any future potential impacts of motor finance provisions. Instead, items will be reviewed on a case-by- case basis by the Remuneration Committee to determine their inclusion. 2If average RoTE reaches 13 per cent then 5 per cent of the award vests. If average RoTE reaches 16 per cent then 20 per cent of the award vests. If average RoTE is between the threshold and maximum, vesting is calculated on a straight-line basis between these two points. 3If average capital generation reaches 185 basis points then 2.5 per cent of the award vests. If average capital generation reaches 230 basis points then 10 per cent of the award vests. If average capital generation is between the threshold and maximum, vesting is calculated on a straight-line basis between these two points. Target includes the anticipated impact of Basel 3.1 implementation in 2027, expected to be moderately positive. 4Peer group: HSBC, Barclays, NatWest, BNP Paribas, Santander, ING, Intesa Sanpaolo, BBVA, UniCredit, Nordea, Crédit Agricole, Caixa, KBC Group, Deutsche Bank, SocGen, Danske, ABN AMRO, Bank of Ireland. Where performance falls between threshold and maximum levels, an intermediate percentage will vest. 5See page 54 for an overview of our environmental metrics and targets.


	2025-2027 LTIP scorecard

Lloyds Banking Group plc Annual Report and Accounts 2024

133


	Directors’ remuneration continued



Chair and non-executive director fees and benefits
Any increases normally take effect from 1 January of a given year. The Committee is responsible for evaluating and making recommendations to the Board with regard to the Chair’s fees. The Chair does not participate in these discussions. The GCE and the Chair are responsible for evaluating and making recommendations to the Board in relation to the fees of the non- executive directors (NEDs). The Chair receives an all-inclusive fee, which is reviewed periodically plus benefits including life insurance, medical insurance and transportation. The Committee retains the right to provide additional benefits depending on individual circumstances. NEDs are paid a basic fee plus additional fees for the Chair/ membership of Committees and for membership of Group company Boards, non-Board level committees and/or other specific responsibilities.		Additional fees are also paid to the Senior Independent Director to reflect additional responsibilities. The Chair and the NEDs are not entitled to receive any payment for loss of office (other than in the case of the Chair’s fees for the six-month notice period) and are not entitled to participate in the Group’s variable remuneration arrangements, all employee share plan or pension arrangements. NEDs are reimbursed for expenses incurred in the course of their duties, such as travel and accommodation expenses, on a grossed-up basis (where applicable). Non-executive directors may receive more than one of the above fees.
	Chair and non-executive director fees in 2025

As set out in the Chair statement on pages 110 to 112 there is a £95,500 increase to the annual fee for the Chair (£750,000). This is step one of a two-stage increase. The second increase will take place from 1 January 2026 and will increase the fee to £850,000. Following a detailed review of peer benchmarks and to ensure our non-executive directors are paid appropriately for the experience and time requirements required, the basic Board fee, Chair fees for Audit, Remuneration and Risk Committees will increase by 3 per cent for 2025. The Chair fees for the Responsible Business Committee and the IT and Cyber Advisory Forum will increase by 35 per cent. The Audit, Remuneration and Risk Committee member fees will increase by 2 per cent and the Nomination and Governance Committee member fee will increase by 1 per cent for 2025. The Responsible Business Committee and IT and Cyber Advisory Forum member fees will increase by 49 per cent. There is no increase to the Senior Independent Director fee for 2025.

			2025	2024
Basic non-executive director fee			92,200	89,500
Senior Independent Director			64,200	64,200
Audit Committee Chair			77,250	75,000
Remuneration Committee Chair			77,250	75,000
Risk Committee Chair			77,250	75,000
Responsible Business Committee Chair			60,000	44,500
IT and Cyber Advisory Forum Chair			60,000	44,500
Audit Committee member			35,000	34,300
Remuneration Committee member			35,000	34,300
Risk Committee member			35,000	34,300
Responsible Business Committee member			25,000	16,750
IT and Cyber Advisory Forum member			25,000	16,750
Nomination and Governance Committee member			16,550	16,375

Audited content

All narrative and quantitative tables within the directors’

remuneration report are unaudited unless otherwise stated. Where

disclosures have been audited, this has been carried out under

International Standards on Auditing (ISAs).

Lloyds Banking Group plc Annual Report and Accounts 2024

138

Risk management

Risk management is at the heart of

Helping Britain Prosper and creating a

more sustainable and inclusive future

for people and businesses.

Our mission is to protect our customers,

shareholders, colleagues and the Group, while

enabling sustainable growth. This is achieved through

informed risk decisions and robust risk management,

supported by a consistent risk-focused culture.

The Risk overview (pages 33 to 38) provides a summary of risk

management within the Group and the key focus areas for 2024.

This full risk management section provides a more in-depth view of

how risk is managed within the Group including key developments

in 2024, and the framework by which risks are identified, managed,

mitigated and monitored.

All narrative and quantitative tables within the risk management

section are unaudited unless otherwise stated. The audited

information is required to comply with the requirements of relevant

IFRS Accounting Standards.

The Group’s approach to risk

The Group operates a prudent approach to risk, with rigorous

management controls, supporting sustainable business growth

within the Group’s risk appetite and minimising losses. Through a

strong and independent risk function, a robust control framework is

maintained to identify and escalate current and emerging risks, and

drive and inform good risk-reward decision making.

To comply with UK-specific ring-fencing requirements, core banking

services are ring-fenced from other activities within the overall

Group. The Group’s enterprise risk management framework (ERMF)

and risk appetite apply across the Group. The Group’s Corporate

Governance Framework applies across Lloyds Banking Group plc,

Lloyds Bank plc, Bank of Scotland plc and HBOS plc. It is tailored

where needed to meet the entity-specific needs of Lloyds Bank plc

and Bank of Scotland plc, within the Ring-Fenced Bank sub-group

(RFB) and supplementary corporate governance frameworks are in

place to address the specific requirements of the other sub-groups

(Non-Ring-Fenced Bank, Insurance and Equity Investments).

The Group’s ERMF is structured to align with the industry-accepted

internal control framework standards and applies to every area of

the business, covering all types of risk. In 2024, the framework was

reviewed and updated to align more closely to the changing nature

of risks within the industry and the Group, along with evolving

regulatory expectations.

The ERMF provides the Group with an effective mechanism for

developing and embedding risk policies and risk management

strategies which are aligned with the risks faced by its businesses. It

also seeks to facilitate effective communication on these matters

across the Group.

Updates to the enterprise risk management framework

The Group has transformed its approach to risk management to

support its strategic ambition and purpose of Helping Britain

Prosper, and has conducted a comprehensive review of its ERMF.

This has resulted in a reduction in the number of principal risk types

(or level one risk categories) from 15 to 11, and the simplification of

level two risk categories.

•Compliance risk supersedes the previous regulatory and legal risk

•Economic crime is now a principal risk, recognising the increased

focus on topics such as fraud

•Previous change and execution, data and people risks are now

classified as level two risks within the principal operational risk

•Operational resilience and strategic risk are no longer individual

risks, but are addressed throughout the updated framework

•New definitions for conduct, model and operational risks

This change better aligns to the Basel Committee on Banking

Supervision’s event categories which will benefit the Group for

scenario activities and regulatory reporting. This review will continue

in 2025, with further focus on level three risks.

Further details of each principal risk, including level two risks, are

provided on pages 144 to 198.

Risk appetite

The Group’s approach to setting, and the ongoing management of

risk appetite is detailed in the risk appetite framework, which is an

integral component of the Group’s ERMF.

The Group defines risk appetite as the type and aggregate level of

risk the Group is willing to take or accept in pursuit of its strategic

objectives and business plans.

Risk appetite aligns to organisational objectives, defined through

consideration of how it enables the Group to achieve its strategic

aims. It reinforces our purpose, strategy and objectives by driving

behaviour and setting boundaries around risk taking, to monitor

changes in risk exposure, enabling the delivery of business plans.

The Board is responsible for approving the Group’s Board risk

appetite at least annually. Group Board-level risk appetite metrics

are augmented further by lower-level measures to facilitate the

management of Board risk appetite.

Risk culture

Guided by the Board, the senior management articulates and role

models the core risk values to which the Group aspires. Senior

management establishes a strong focus on building and sustaining

long-term relationships with customers, through the economic

cycle. The Group’s Code of Ethics and Responsibility reinforces

colleagues’ accountability for the risks they take and supports

better decision making to meet their customers’ needs.

Risk skills and capabilities

To support a strong risk culture across the Group, all colleagues

complete risk training as part of their annual mandatory training. A

library of risk management learning resources is available, which all

colleagues who have specific risk management roles can access to

build their skills and capabilities.

There is ongoing investment in risk systems and models alongside

the Group’s focus on customer and product systems and processes.

This drives improvements in risk data quality, aggregation and

reporting, enabling effective and efficient risk decisions.

Risk governance

Governance frameworks

The Group’s approach to risk is based on a robust control

framework and strong risk management culture, enabling the

delivery of effective risk management, guiding the way all

employees approach their work, behave and make decisions.

Authority is delegated from the Board to individuals through the

management hierarchy. Senior management are supported by a

committee-based structure, ensuring open challenge and effective

decision making.

The Group’s risk appetite, principles, policies, procedures, controls,

and reporting are regularly reviewed and updated as required, to

ensure they remain in line with evolving regulation, law, corporate

governance and industry good practice.

The Board and senior management encourage a culture of

transparency which supports the interaction of the executive and

non-executive governance structure.

Board-level engagement, combined with senior management in

Group-wide risk issues at Group Executive Committee level, ensure

that any escalated issues are addressed promptly and that

necessary remediation plans are initiated as required.

Line managers are accountable for identifying and managing risks in

their individual businesses, ensuring that business decisions balance

risk and reward, and are consistent with the Group’s risk appetite.

The risk committee governance framework is explained on page 140.

Lloyds Banking Group plc Annual Report and Accounts 2024

139

Risk governance structure

The risk governance structure below is integral to effective risk

management across the Group. To meet ring-fencing requirements,

the Boards and Board Committees of the Group and the Ring-

Fenced Banks, as well as relevant Committees of the Group and the

Ring-Fenced Banks, will sit concurrently and referred to as the

Aligned Board Model. Please see page 83 for further information on

the Group’s approach to ring-fencing.

Three lines of defence model

The Group’s ERMF is implemented through a 'three lines of defence'

model, which has been enhanced during 2024 to ensure more

clearly defined responsibilities and accountabilities across the

business, and drive further consistency across the Group's oversight

and assurance activities.

The Group’s three lines of defence model distinguishes between risk

management, risk oversight and risk assurance, with continued

focus on ensuring appropriate risk resource and capabilities is in

place within each area:

•Senior management within the business areas (first line of


	Risk governance structure


	Risk governance structure

defence) have primary responsibility for risk decisions within

Group risk appetite parameters set and approved by the Board.

They have end-to-end accountability for all risks within their

end-to-end business processes. They must ensure effective

controls are in place both within the business and at third parties

to manage risk appropriately within risk appetite. They are

responsible for managing the direct and consequential risk by

identifying, assessing, mitigating, monitoring and reporting risks.

They are also responsible for complying with relevant laws and

regulations

•The Risk function (second line of defence) is independent from

the first line of defence. It advises on, monitors, challenges,

approves, escalates where required, and reports on the risk-

taking activities undertaken by the first line, ensuring these are

within the constraints of the ERMF and risk appetite set by the

Board. It provides oversight of governance, risk management and

controls across the Group to ensure risks are identified and

reported appropriately to the Board and the Group Chief

Executive. The Risk function also provides regulatory advice,

supports interpretation of regulatory requirements and provides

oversight of first line compliance

•Group Audit (third line of defence) provide independent

assurance to the Group Audit Committee, Board Risk

Committee and the Board on the effectiveness of control and

governance processes in place across the first and second lines. It

exercises its role as a single independent internal audit function

through the delivery of reviews and insights, identifying the most

significant risks facing the Group. The function provides opinion

and challenge on the Group’s control environment to the Audit

Committee, Board and Board Audit Committees of the sub-

groups, subsidiaries and legal entities where applicable

•The Company Secretariat supports senior and Board level

committees and supports agenda planning. This gives a further

line of escalation outside the three lines of defence

Lloyds Banking Group plc Annual Report and Accounts 2024

140

Risk management continued

Risk governance structure

Board, Executive and Risk Committees

The Group’s risk governance structure strengthens risk evaluation and management, while also positioning the Group to manage the

changing regulatory environment in an efficient and effective manner.

Assisted by the Board Risk and Audit Committees, the Board approves the Group’s overall governance, risk and control frameworks and

risk appetite. Refer to the corporate governance section on pages 76 to 96, for further information on Board Committees.

The sub-group, business unit (where appropriate) and functional risk committees review and recommend relevant risk appetite and

monitor local risk profile and adherence to appetite.

Executive and Risk Committees

The Group Chief Executive is supported by the following:


Committees		Risk focus1
Group Executive Committee (GEC)		Assists the Group Chief Executive in exercising their authority in relation to material matters which have strategic, cross-business unit, cross-function or Group-wide implications.
Group and Ring-Fenced Banks Risk Committees (GRC)		Responsible for the development, implementation and effectiveness of the Group’s enterprise risk management framework, the clear articulation of the Group’s risk appetite and monitoring and reviewing of the Group’s aggregate risk exposures, control environment and concentrations of risk.
Group and Ring-Fenced Banks Asset and Liability Committees (GALCO)		Responsible for the strategic direction of the Group’s assets and liabilities and the profit and loss implications of balance sheet management actions. The Committee reviews and determines the appropriate allocation of capital, liquidity and funding, and market risk resources and makes appropriate trade-offs between risk and reward.
Group and Ring-Fenced Banks Cost Management Committees		Leads and shapes the Group’s approach to cost management, ensuring appropriate governance and process over Group-wide cost management activities and effective control of the Group’s cost base.
Group and Ring-Fenced Banks Contentious Regulatory Committees		Provides senior management oversight, challenge and accountability in connection with the Group’s engagement with contentious regulatory matters as agreed by the Group Chief Executive.
Group and Ring-Fenced Banks Strategic Delivery Committees		Responsible for driving the execution of the Group’s investment portfolio and strategic transformation agenda as agreed by the Group Chief Executive. Monitors execution performance and progress against strategic objectives. Assists in resolving issues on individual project areas and prioritisation across the Group. Seeks to resolve challenges that require cross-Group support, ensuring appropriate funding is available. Ensures that project performance provides value for money for the Group, and that autonomy is maintained alongside accountability for projects and platforms.
Group and Ring-Fenced Banks Disclosure Committee		Provides oversight of the accuracy, completeness and timeliness of disclosures made to the market and/or prospective investors.
Group and Ring-Fenced Banks Net Zero Committees		Provides direction and oversight of the Group’s environmental sustainability strategy, with particular focus on the net zero transition and nature strategy. Oversight of the Group’s approach to meeting external environmental commitments and targets, including the Net Zero Banking Alliance (NZBA). Recommend all external material commitments and targets in relation to environmental sustainability.
Group and Ring-Fenced Banks Conduct Investigations Committee		Protects and promotes the Group’s conduct, values and behaviours by taking action to rectify the most serious cases of misconduct within the Group. The Committee makes decisions and recommendations (including sanctions) on investigations which have been referred from the triage process, and oversees regular reviews to identify thematic outcomes and lessons learned, which are shared with the business.
The Group Risk Committee is supported by business unit risk committees, cross-business unit committees addressing specific matters of Group-wide significance, and the following second line of defence Risk committees which ensure oversight of risk management:
Group Market Risk Committee		Responsible for monitoring, oversight and challenge of market risk exposures across the Group. Reviews and proposes changes to the market risk management framework, and reviews the adequacy of data quality needed for managing market risks. Issues of Group-level significance are escalated to GALCO or GFRC as required, including those held in the Group’s insurance companies.
Group Economic Crime Prevention Committee		Ensures that the Group’s economic crime risk management complies with its strategic aims, corporate responsibility, risk appetite and economic crime prevention policy. The Committee provides direction and appropriate focus on priorities to enhance the Group’s economic crime risk management capabilities in line with business and customer objectives, whilst aligning to the Group’s target operating model.
Group Financial Risk Committee (GFRC)		Responsible for overseeing, reviewing, challenging and, where relevant, making recommendations to GALCO, GEC and/or BRC for the following matters: internal capital stress tests; all PRA and any other regulatory stress tests; reverse stress tests; ICAAP; Pillar 3; recovery plans and resolution; sign-off of level one models; annual refresh of through the cycle loss rates; Resolvability Assessment Framework; and relevant ad-hoc stress tests or other analysis as and when required by the Committee.
Group Capital Risk Committee		Provides oversight and challenge over holistic capital risk matters, focusing on Group, Ring-Fenced Bank and material subsidiaries. Reviews latest capital positions and plans, capital risk appetite proposals, early warning indicators, Capital Contingency Framework assessment and regulatory developments specific to capital. Issues of Ring-Fenced Bank and Group-level significance are escalated to GALCO or GFRC as required.
Group Model Governance Committee		Provides debate, challenge and support of decisions relating to the Group’s model risk management policy. Facilitating the approval of models, model changes and model-related items as required by model policy, including items related to the governance framework as a whole and its application.
Group Liquidity Risk Committee		Provides oversight, monitoring, challenge, and approval for liquidity and funding risks across the Ring-Fenced Bank and Group. Reviews and proposes changes to the liquidity and funding risk management framework, including the ILAAP, liquidity risk appetite and internal liquidity stress testing. Issues of Ring-Fenced Bank and Group-level significance are escalated to GALCO or GFRC as required.

1Reference to Group within the risk focus of each Committee relates to the Group and the Ring-Fenced Banks.

Lloyds Banking Group plc Annual Report and Accounts 2024

141

Risk decision making and reporting

Risk analysis and reporting enables better understanding of risks and

returns, supporting the identification of opportunities as well as

better management of risks.

An aggregate view of the Group’s overall risk profile, key risks and

management actions, and performance against risk appetite,

including the Group Control and Risk Environment report, is

reported to and discussed regularly at Group Risk Committee and

Board Risk Committee.

Risk and control cycle from identification to reporting

To allow senior management to make informed risk decisions, the

business follows a continuous risk management approach. This risk

and control cycle, from identification to reporting, ensures that

there is consistency in the approach to managing and mitigating

risks impacting the Group.

The risk and control self-assessment (RCSA) process is used to

identify, measure and manage operational risks across the Group.

Risks are identified and measured on an inherent basis, using a

consistent quantification methodology.


	Risk and control cycle


					Identify
					Risk identification is conducted on a continuous basis through the use of scenario analysis which considers the most material and emerging risks the Group faces, and identifies and assesses extreme, but plausible instances which may occur.
		Report			Measure
		Risks are reported via appropriate Group, sub-Group and Divisional level risk reports and committees, allowing independent challenge by the Risk function. When thresholds for risk appetite are breached, committee minutes are clear on the actions and time frames required to address the risk and bring the exposure back within tolerance.			Risks are measured against the impact and likelihood of the risk occurring, using prescribed matrices, and are determined as to whether they satisfy the Group risk appetite.
		Monitor			Manage
		Proactive monitoring or testing is established to ensure that controls continue to be effective, and that the Group remains within risk appetite.			Risks are then managed with appropriate controls or mitigation plans put in place, which are reviewed to ensure their effectiveness. Any risks which cannot be mitigated will then require risk acceptance via the appropriate risk governance.

Financial reporting risk management systems and internal

controls

Following the updated enterprise risk management framework,

financial reporting (including tax) is now recognised as a level two

risk within the principal operational risk. Please see pages 196 to 198

for further detail.

The Group has a Disclosure Committee which assists the Group

Chief Executive and Chief Financial Officer in fulfilling their

disclosure responsibilities under relevant listing and other regulatory

and legal requirements. In addition, the Audit Committee reviews

the quality and acceptability of the Group’s financial disclosures. For

further information on the Audit Committee’s responsibilities

relating to financial reporting see pages 100 to 103.

Lloyds Banking Group plc Annual Report and Accounts 2024

142

Risk management continued

Exposure to risk arising from the business activities of the Group

The table below provides a high level guide to how the Group’s business activities are reflected through its risk-weighted assets (RWAs),

which are calculated in accordance with prudential capital requirements. There are a number of risks that are not captured in RWAs such

as pension obligation risk and interest rate risk in the banking book, which instead fall within the scope of the Group's Pillar 2A capital

requirements. Furthermore the risk relating to Insurance activities is not included in this table as Insurance is subject to a different set of

prudential rules (Solvency II regime). Business activities for each division are provided in the divisional results on pages 72 to 74.


At 31 December 2024	Retail £bn	Commercial Banking £bn	Insurance, Pensions and Investments1 £bn	Equity Investments and Central Items2 £bn	Group £bn
Risk-weighted assets (RWAs)
Credit risk	107.7	55.5	0.2	12.5	175.9
Counterparty credit risk3	–	6.0	–	1.1	7.1
Market risk	–	3.7	–	–	3.7
Operational risk	17.4	8.6	0.2	1.0	27.2
Total (excluding threshold)	125.1	73.8	0.4	14.6	213.9
Threshold4	–	–	–	10.7	10.7
Total	125.1	73.8	0.4	25.3	224.6

1As a separate regulated business, the Insurance business maintains its own solvency requirements, including appropriate management buffers, and reports directly to the Insurance

Board. Insurance does not hold any RWAs as its assets are removed from the Group’s banking regulatory capital calculations. However, in accordance with banking capital rules part of

the Group’s equity investment in Insurance is included in the calculation of threshold RWAs, while the remainder is taken as a deduction from common equity tier 1 (CET1) capital.

2Equity Investments and Central Items includes the risk-weighted assets of the Group’s equity investments businesses (including Lloyds Development Capital and Lloyds Living) and

Group Corporate Treasury, in addition to other central amounts.

3Exposures relating to the default fund of a central counterparty and credit valuation adjustment risk are included in counterparty credit risk.

4Threshold RWAs reflect the proportion of significant investments and deferred tax assets that are permitted to be risk-weighted instead of deducted from CET1 capital. Significant

investments primarily arise from the investment in the Group’s Insurance business.

Stress testing

Overview

Stress testing is recognised as an important risk management tool

by the Boards, senior management, the businesses and the Risk and

Finance functions of all parts of the Group and its legal entities. It is

fully embedded in the planning process of the Group and its key

legal entities as a key activity in medium-term planning, and senior

management is actively involved in stress testing activities.

Scenario stress testing is used to support:

Risk identification:

•Understanding key vulnerabilities of the Group and its key legal

entities under adverse economic conditions

Risk appetite:

•Assessing the results of the stress test against the risk appetite of

all parts of the Group to ensure the Group and its legal entities

are managed within their risk parameters

•Setting of risk appetite by assessing the underlying risks under

stress conditions

Strategic and capital planning:

•Senior management and the Boards of the Group and its key

legal entities to adjust strategies if the plan does not meet risk

appetite in a stressed scenario

•The ICAAP, by demonstrating capital adequacy and meeting the

requirements of regulatory stress tests that are used to inform

the setting of the PRA and management buffers (see capital risk

on pages 144 to 150) of the Group and its separately regulated

legal entities

•The capital allocation process which feeds into business unit

performance management

Risk mitigation:

•The development of potential actions and contingency plans to

mitigate the impact of adverse scenarios. Stress testing also links

directly to the recovery and resolution planning process of the

Group and its legal entities

Regulatory stress tests

Following the 2022/23 ACS stress test, the PRA completed a desk-

based stress test in 2024. The test evaluated the resilience of the UK

banking system to two hypothetical scenarios including severe but

plausible combinations of adverse shocks to the UK and global

economies. The results were published in November 2024 and the

report concluded the UK banking system is well capitalised,

maintains high levels of liquidity and asset quality remains strong.

The report did not publish individual bank results and the Group

was not required to take any capital actions. The Bank of England

has updated its approach to stress testing the UK banking system,

as part of that, in 2025 the Group will participate in the PRA Bank

Capital Stress Test. Scottish Widows will participate in the 2025 Life

Insurance Stress Test.

Internal stress tests

On at least an annual basis, the Group conducts macroeconomic

stress tests to highlight and understand the key vulnerabilities of the

Group’s and its legal entities’ business plans to adverse changes in the

economic environment, to evaluate mitigating actions and ensure that

there are adequate financial resources in the event of a downturn.

Reverse stress testing

Reverse stress testing is used to explore the vulnerabilities of the

Group’s and its key legal entities’ strategies and plans for extreme

adverse events that would cause the businesses to fail. Where this

identifies plausible scenarios with an unacceptably high risk, the

Group or its entities will adopt measures to prevent or mitigate that

and reflect these in strategic plans.

Other stress testing activity

The Group’s stress testing programme also involves undertaking

assessments of liquidity scenarios, market risk sensitivities and

scenarios, and business-specific scenarios. If required, ad hoc stress

testing exercises are also undertaken to assess emerging risks, as

well as in response to regulatory requests. This wide-ranging

programme provides a comprehensive view of the potential impacts

arising from the risks to which the Group is exposed and reflects the

nature, scale and complexity of the Group. In 2024, the Group also

participated in the Bank of England’s System-wide exploratory

scenario (SWES), to improve understanding of the behaviours of

banks and non-bank financial institutions during stressed financial

market conditions. The results were published at a sectorial level;

for the banking sector, this stress had minimal impact.

Lloyds Banking Group plc Annual Report and Accounts 2024

143

Detailed stress testing information can be found within each

relevant risk in the Risk management section (capital risk page 144,

insurance underwriting risk page 182, liquidity risk page 183 and

market risk page 190).

Methodology

The stress tests process must comply with all regulatory

requirements, which is achieved through comprehensive scenarios

and a rigorous divisional, functional, risk and executive review and

challenge process, supported by analysis and insight into impacts on

customers and business drivers.

All relevant business, Risk and Finance teams are involved in the

delivery of analysis, and ensure the sensitivity of the business plan to

each risk is well understood. The methodologies and modelling

approach used for stress testing embed direct links between the

macroeconomic scenarios and the drivers for each business area to

give appropriate stress sensitivities. All material assumptions used in

modelling are documented and justified, with a clearly

communicated review and sign-off process. Modelling is supported

by expert judgement and is subject to the Group model governance

policy.

Governance

Clear accountabilities and responsibilities for stress testing are

assigned to senior management and the Risk and Finance functions

throughout the Group and its key legal entities. This is formalised

through the Group business planning and stress testing policy and

procedure, which are reviewed at least annually.

The Group Financial Risk Committee (GFRC), chaired by the Chief

Risk Officer and attended by the Chief Financial Officer and other

senior Risk and Finance colleagues, has primary responsibility for

overseeing the development and execution of the Group’s and Ring-

Fenced Bank’s stress tests. A similar process is in place within Lloyds

Bank Corporate Markets (LBCM) and Scottish Widows for

governance of their specific results.

The review and challenge of the Group’s and Ring-Fenced Bank’s

detailed stress forecasts, the key assumptions behind these, and the

methodology used to translate the economic assumptions into

stressed outputs conclude with the appropriate Finance and Risk

sign-off. The outputs are then presented to the GFRC and the Board

Risk Committee for review and challenge. With regulatory exercises

being approved at Board Risk Committee and Board where

appropriate. There is a similar process within the LBCM for the

governance of the LBCM-specific results.

Emerging and topical risks

Background and framework

Recognising emerging risks is a crucial part of the Group’s risk

management strategy. It allows the Group to pinpoint key risks and

opportunities, enabling proactive responses through strategic

planning and effective risk mitigation. Although emerging risks are

not classified as principal risks, they require strong focus to prevent

potentially adverse impacts or missed opportunities.

Impacts from emerging risks on the Group’s principal risks can

materialise in two ways:

•Emerging risks can impact the Group’s principal risks directly in

the absence of an appropriate strategic response

•Emerging risks can be a source of new risks, dependent on the

chosen response and the underlying assumptions on how given

emerging risks may manifest

Risk identification

The basis for risk identification is underpinned by horizon scanning,

external research and insights, supported by collaboration between

functions across the Group. The Group works closely with regulatory

authorities and industry bodies to ensure that it can monitor

external developments and identify and respond to the evolving

landscape, particularly in relation to compliance risk. In addition,

the Group engages with external experts to gain external insight

and context. This activity complements and builds upon the annual

strategic planning cycle and is used to identify key external trends,

risks and opportunities for the Group.

The Group is continually enhancing its methods for identifying and

prioritising emerging and topical risks. Throughout 2024, the Group

enhanced its emerging risk methodology, further allowing greater

focus on the underlying risk drivers and enabling a more granular

level of assessment alongside targeted planning and mitigation

activity. These improvements reflect the Group’s strategic

transformation journey, and the planned investments outlined in its

business plans. The 2024 assessment has refined the emerging and

topical risk themes from eight to six.

The emerging risk themes detailed in the Risk overview section on

page 38 align to the current principal risks the Group is managing,

many of which are continuous areas of focus. The nature of

emerging risks is expected to evolve and may require different

solutions to mitigate from the measures used today. The risks also

correlate, for example consumer expectations and market dynamics

will be influenced by the UK economic and political environment.

Risk mitigation and monitoring

Emerging risk themes have been discussed at executive-level

committees throughout 2024, with key actions assigned to closely

monitor their manifestation and potential opportunities, and in

some cases, also forming part of the business planning process.

Deep dives on selected emerging risk themes are also planned for

2025.

The table below details how the Group is monitoring and mitigating

against each of its emerging risk themes:


Emerging and topical risk theme	Mitigating actions
Consumer expectations and market dynamics	Regular reviews into: •Impacts caused by cost-of-living challenges •Customer proposition by business area •The Group’s strategy, including performance, key risks and external environment
Evolution of operating model	•Implementation of playbooks in the event significant disruptive events occur, for example a pandemic or system outages, which are refreshed at least annually •Strengthened measures to ensure that the Group is prepared for significant disruption to supply chains •Enhanced business continuity plans ahead of the March 2025 operational resilience regulatory deadline •Review of the Group’s strategic workforce planning to ensure the required skills composition
Evolution of technology, AI and cybercrime	•Continued transformation and modernisation of our technology and infrastructure •Deep dives completed on Generative AI, cyber risk, IT systems risk and economic crime prevention at Board-level committees •Implementation of a data ethics and AI framework within our Group data and model risk policies
Global economic and geopolitical environment	•Evaluation of the Group’s economic assumptions in response to the macroeconomic environment •Intelligence scanning to detect and identify triggers and events that may impact the Group and its operations
Regulatory agenda and expectations	•Monitoring of regulatory developments through horizon scanning activity •Engagement with regulators on key areas of focus •Oversight of the Group’s climate strategy and external sector statements
UK economic and political environment	•Evaluation of the Group’s base case economic assumptions in response to the macroeconomic environment •Undertake stress tests to assess the impact of various economic scenarios on the Group’s performance

Lloyds Banking Group plc Annual Report and Accounts 2024

144

Risk management continued

Full analysis of principal risk categories

The Group’s risk framework covers all types of risk which affect the Group and could impact on the achievement of its strategic objectives.

Detailed information relating to each principal risk is included over the following pages, 144 to 198.



	Capital risk

	Definition Capital risk is defined as the risk that an insufficient quantity or quality of capital is held to meet regulatory requirements or to support business strategy, an inefficient level of capital is held or that capital is inefficiently deployed across the Group. The Risk overview, on page 34, contains a summary of capital risk performance and key mitigating actions.



	Financial risk indicators •CET1 ratio: 14.2 per cent (2023: 14.6 per cent) •MREL ratio: 32.2 per cent (2023: 31.9 per cent) •Total capital ratio: 19.0 per cent (2023: 19.8 per cent)

Exposures

A capital risk event arises when the Group has insufficient capital

resources to support its strategic objectives and plans, and to meet

both regulatory and external stakeholder requirements and

expectations. This could arise due to a depletion of the Group’s

capital resources as a result of the crystallisation of any of the risks

to which it is exposed, or through a significant increase in risk-

weighted assets as a result of rule changes or economic

deterioration. Alternatively a shortage of capital could arise from an

increase in the minimum requirements for capital or leverage or the

minimum requirement for own funds and eligible liabilities (MREL)

either at Group, Ring-Fenced Bank (RFB) sub-group or regulated

entity level. The Group’s capital management approach is focused

on maintaining sufficient and appropriate capital resources across

all regulated levels of its structure in order to prevent such

exposures while optimising value for shareholders.

Measurement

The Group maintains capital levels across all regulated entities

commensurate with a prudent level of solvency to achieve

financial resilience and market confidence. To support this,

capital risk appetite is calibrated by taking into consideration

both an internal view of the amount of capital to hold as well as

external regulatory requirements.

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.

Further details of the regulatory capital and leverage frameworks to

which the Group is subject, including the means by which its capital

and leverage requirements and capital resources are calculated, are

provided in the Group’s Pillar 3 disclosures.

The minimum amount of total capital, under Pillar 1 of the

regulatory capital framework, is set at 8 per cent of total risk-

weighted assets. At least 4.5 per cent of risk-weighted assets are

required to be met with common equity tier 1 (CET1) capital and at

least 6 per cent of risk-weighted assets are required to be met with

tier 1 capital. Minimum Pillar 1 requirements are supplemented by

both additional minimum requirements under Pillar 2A of the

regulatory capital framework, the aggregate of which is referred to

as the Group’s Total Capital Requirement (TCR), and by a number

of regulatory capital buffers as described below.

Additional minimum capital requirements under Pillar 2A are set by

the PRA as a firm-specific Individual Capital Requirement (ICR)

reflecting a point in time estimate, which may change over time, of

the minimum amount of capital to cover risks that are not fully

covered by Pillar 1, such as concentration risk, residual value risk and

operational risk, and those risks not covered at all by Pillar 1, such as

pension obligation risk and interest rate risk in the banking book

(IRRBB). This is set as a variable amount for Pillar 2A (being a set

percentage of risk-weighted assets), with fixed add-ons for certain

risk types. The Group’s Pillar 2A capital requirement at 31 December

2024 is the equivalent of around 2.6 per cent of risk-weighted

assets, of which the minimum amount to be met by CET1 capital is

the equivalent of around 1.5 per cent of risk-weighted assets.

The Group is also required to hold a number of regulatory capital

buffers which must be met with CET1 capital.

Systemic buffers are designed to hold systemically important banks

to higher capital standards, so that they can withstand a greater

level of stress before requiring resolution.

•The Group is not classified as a global systemically important

institution (G-SII) but has been classified as an ‘other’

systemically important institution (O-SII) by the PRA

•The O-SII buffer applies to the Group’s RFB sub-group and is set

at 2.0 per cent of the RFB sub-group’s risk-weighted assets at

December 2024. This equates to 1.7 per cent of risk-weighted

assets at Group level, with the difference reflecting the risk-

weighted assets of the Group that are not in the RFB sub-group

and for which the O-SII buffer does not therefore apply. It is the

PRA’s policy to include this in the Group’s PRA Buffer. The latest

review point under the Financial Policy Committee’s (FPC)

framework occurred during November 2024 (based upon the

average of the RFB sub-group’s quarter-end UK leverage

exposure measures over 2023) which resulted in no change to

the buffer

The capital conservation buffer (CCB) is a standard buffer of 2.5 per

cent of risk-weighted assets designed to provide for losses in the

event of stress.

The countercyclical capital buffer (CCyB) is time-varying and is

designed to require banks to hold additional capital to remove or

reduce the build-up of systemic risk in times of credit boom,

providing additional loss-absorbing capacity and acting as an

incentive for banks to constrain further credit growth. The amount

of the buffer is determined by reference to published buffer rates

for the individual countries where the Group has relevant credit

exposures. The FPC sets the UK CCyB rate, which as at 31 December

2024 is set at 2 per cent. The FPC judges that the neutral rate for

the UK CCyB is around 2 per cent.

Given the Group’s UK-focused business model, the Group’s CCyB at

31 December 2024 was around 1.8 per cent of risk-weighted assets.

Lloyds Banking Group plc Annual Report and Accounts 2024

145

As part of the Group’s capital planning process, forecast capital

positions are subjected to stress testing to determine the adequacy

of the Group’s capital resources against minimum requirements,

including the Pillar 2A requirement. The PRA considers outputs from

both the Group’s internal stress tests and Bank of England (BoE)

stress tests, in conjunction with other information, as part of the

process for informing the setting of a bank-specific capital buffer for

the Group, known as the PRA Buffer. The PRA requires this buffer to

remain confidential.

Under previous Bank of England stress tests, the BoE has taken

action to avoid an unwarranted de facto increase in capital

requirements that could result from the interaction with IFRS 9. The

stress hurdle rates for banks participating in the annual cyclical

scenario (ACS) stress test exercises were adjusted to recognise the

additional resilience provided by the earlier provisions taken under

IFRS 9. The BoE is continuing to work towards a more enduring

treatment of IFRS 9 for the purposes of future stress tests.

All buffers are required to be met with CET1 capital. Usage of the

PRA Buffer (which includes the Group’s share of the RFB sub-

group’s O-SII buffer) would trigger a dialogue between the Group

and the PRA to agree what action is required whereas a breach of

the combined buffer (all other regulatory buffers, as referenced

above) would give rise to mandatory restrictions upon any

discretionary capital distributions. The PRA has previously

communicated its expectation that banks’ capital and liquidity

buffers can be drawn down as necessary to support the real

economy through a shock and that sufficient time would be made

available to restore buffers in a gradual manner.

In addition to the risk-based capital framework outlined above, the

Group is also subject to minimum capital requirements under the

UK Leverage Ratio Framework. The leverage ratio is calculated by

dividing tier 1 capital resources by the leverage exposure which is a

defined measure of on-balance sheet assets and off-balance sheet

items.The minimum tier 1 leverage ratio requirement under the UK

Leverage Ratio Framework is 3.25 per cent. This is supplemented by

a time-varying countercyclical leverage buffer (CCLB) requirement

which is determined by multiplying the Group’s CCyB rate by 35 per

cent. As at 31 December 2024 the CCLB for the Group was 0.6 per

cent. An additional leverage ratio buffer (ALRB) requirement of 0.7

per cent applies to the RFB sub-group and is determined by

multiplying the RFB sub-group O-SII buffer by 35 per cent. At Group

level an equivalent buffer of 0.6 per cent applies.

At least 75 per cent of the 3.25 per cent minimum leverage ratio

requirement as well as 100 per cent of regulatory leverage buffers

must be met by CET1 capital.

As at 31 December 2024 the leverage ratio framework did not give

rise to higher regulatory capital requirements for the Group than the

risk-based capital framework.

Mitigating actions

The Group has a capital management framework that includes the

setting of capital risk appetite and capital planning and stress

testing activities. Close monitoring of capital, leverage and MREL

ratios is undertaken to ensure the Group meets regulatory

requirements and risk appetite levels and deploys its capital

resources efficiently.

The Group regularly refreshes and monitors its suite of early warning

indicators and maintains a Capital Contingency Framework as part

of a Recovery Plan, which is designed to identify and escalate

emerging capital concerns at an early stage, so that mitigating

actions can be taken, if needed. For example, the Group is able to

accumulate additional capital through the retention of profits over

time, which can be enhanced through reducing or cancelling

proposed dividend payments and share buybacks, by raising new

equity via, for example, a rights issue or debt exchange and by

raising additional tier 1 or tier 2 capital securities. The cost and

availability of additional capital are dependent upon market

conditions and perceptions at the time.

The Group is also able to manage the demand for capital through

management actions including adjusting its lending strategy,

business disposals and through the efficient use of securitisations

and other optimisation activity.

Capital policies and procedures are well established and subject to

independent oversight.

Monitoring

The Group’s capital is actively managed and monitoring capital

ratios is a key factor in the Group’s planning processes, which

separately cover the RFB sub-group and key individual banking

entities. Multi-year base case forecasts of the Group’s capital

position, based upon the Group’s operating plan, are produced at

least annually to inform the Group’s capital plan whilst shorter-term

forecasts are more frequently undertaken to understand and

respond to variations of the Group’s actual performance against the

plan. The Group’s capital plan is tested for capital adequacy using

relevant stress scenarios and sensitivities covering adverse economic

conditions as well as other adverse factors that could impact the

Group.

Regular monitoring of the capital position is undertaken by a range

of committees, including Group Capital Risk Committee (GCRC),

Group Financial Risk Committee (GFRC), Group and Ring-Fenced

Banks Asset and Liability Committees (GALCO), Group and Ring-

Fenced Banks Risk Committees (GRC), Board Risk Committee

(BRC) and the Board. This includes reporting of actual ratios against

risk appetite, base case and stress scenario projected ratios, and

review of early warning indicators and assessment against the

Capital Contingency Framework.

The regulatory capital framework within which the Group operates

continues to evolve and further detail on this is provided in the

Group’s Pillar 3 disclosures. The Group continues to monitor

prudential developments very closely, analysing the potential

capital impacts to ensure that, through organic capital generation

and management actions, the Group continues to maintain a strong

capital position that exceeds both minimum regulatory

requirements and the Group’s risk appetite and is consistent with

market expectations.

Target capital ratios

The Board’s view of the ongoing level of CET1 capital required by the

Group to grow the business, meet current and future regulatory

requirements and cover economic and business uncertainties is

c.13.0 per cent which includes a management buffer of around 1 per

cent. This takes into account, amongst other considerations:

•The minimum Pillar 1 CET1 capital requirement of 4.5 per cent of

risk-weighted assets

•The Group’s Pillar 2A CET1 capital requirement, set by the PRA,

which is the equivalent of around 1.5 per cent of risk-weighted

assets

•The Group’s countercyclical capital buffer (CCyB) requirement

which is around 1.8 per cent of risk-weighted assets

•The capital conservation buffer (CCB) requirement of 2.5 per

cent of risk-weighted assets

•The Ring-Fenced Bank (RFB) sub-group’s other systemically

important institution (O-SII) buffer of 2.0 per cent of risk-

weighted assets, which equates to 1.7 per cent of risk-weighted

assets at Group level

•The Group’s PRA Buffer, set after taking account of the results of

any PRA stress tests and other information, as well as outputs

from the Group’s own internal stress tests. The PRA requires this

buffer to remain confidential

•The likely performance of the Group in various potential stress

scenarios and ensuring capital remains resilient in these

•The economic outlook for the UK and business outlook for the

Group

•The desire to maintain a progressive and sustainable ordinary

dividend policy in the context of year to year

earnings movements

Lloyds Banking Group plc Annual Report and Accounts 2024

146

Risk management continued

Capital returns

The Group has in place a progressive and sustainable ordinary

dividend policy which allows for flexibility to return surplus capital

to shareholders through share buybacks or special dividends.

Surplus capital represents capital over and above the amount

management wish to retain to grow the business, meet current and

future regulatory requirements and cover uncertainties. The amount

of required capital may vary from time to time depending on

circumstances and by its nature there can be no guarantee that any

return of surplus capital will be made.

Given the Group’s robust financial performance and strong capital

position at the year end, the Board has recommended a final

ordinary dividend of 2.11 pence per share. This is in addition to the

interim ordinary dividend of 1.06 pence per share that was

announced as part of the 2024 half-year results and paid in

September 2024. The total ordinary dividend for the year is

therefore 3.17 pence per share. The Group also intends to

implement a share buyback programme of up to £1.7 billion which

will commence as soon as is practicable and is expected to be

completed by 31 December 2025.

The Board remains committed to future capital returns. Going

forward, the Board intends to maintain its progressive and

sustainable ordinary dividend policy alongside further returns of

surplus capital at the end of the year as appropriate. The Board will

continue to give due consideration at year end to the size of the

final dividend payment and to the return of any surplus capital

based upon the circumstances at the time.

The ability of the Group to pay a dividend is also subject to

constraints including the availability of distributable reserves, legal

and regulatory restrictions and the Group’s financial and operating

performance.

Distributable reserves are determined as required by the Companies

Act 2006 by reference to a company’s individual financial

statements. At 31 December 2024 Lloyds Banking Group plc (‘the

Company’) had accumulated distributable reserves of

approximately £13 billion. Substantially all of the Company’s merger

reserve is available for distribution under UK company law as a

result of transactions undertaken to recapitalise the Company in

2009.

Lloyds Banking Group plc acts as a holding company which also

issues capital and other securities to capitalise and fund the

activities of the Group. The profitability of the holding company,

and its ability to sustain dividend payments, is therefore dependent

upon the continued receipt of dividends and interest from its main

operating subsidiaries, including Lloyds Bank plc (the Ring-Fenced

Bank), Lloyds Bank Corporate Markets plc, LBG Equity Investments

Limited and Scottish Widows Group Limited (the Insurance

business). The principal operating subsidiary is Lloyds Bank plc

which, at 31 December 2024, had a consolidated CET1 capital ratio

that exceeded minimum regulatory requirements and internal risk

appetite levels. 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 RFB sub-group against

approved risk appetite levels. The Group operates a formal capital

management policy which requires all subsidiary entities, subject to

agreement by their governing bodies, to remit surplus capital to

their parent companies.

Minimum requirement for own funds and eligible liabilities

(MREL)

Global systemically important banks (G-SIBs) are subject to an

international standard on total loss absorbing capacity (TLAC). The

standard is designed to enhance the resilience of the global financial

system by ensuring that failing G-SIBs have sufficient capital to

absorb losses and recapitalise under resolution, whilst continuing to

provide critical banking services.

In the UK, the Bank of England has implemented the requirements

of the international TLAC standard through the establishment of a

framework which sets out MREL. The purpose of MREL is to require

firms to maintain sufficient own funds and eligible liabilities that are

capable of credibly bearing losses or recapitalising a bank whilst in

resolution. MREL can be satisfied by a combination of regulatory

capital and certain unsecured liabilities (which must be subordinate

to a firm’s operating liabilities).

Although the Group is not classified as a G-SIB it is subject to the

Bank of England’s MREL framework, including the statement of

policy on MREL (the ‘MREL SoP’) which requires the Group to

maintain a minimum level of MREL resources.

Under the requirements of the framework, the Group operates a

single point of entry (SPE) resolution strategy, with Lloyds Banking

Group plc as the designated resolution entity.

Applying the MREL SoP to minimum capital requirements at

31 December 2024, the Group’s MREL, excluding regulatory capital

and leverage buffers, is the higher of 2 times Pillar 1 plus 2 times

Pillar 2A, equivalent to 21.3 per cent of risk-weighted assets, or

6.5 per cent of the UK leverage ratio exposure measure.

In addition, CET1 capital cannot be used to meet both MREL and

capital or leverage buffers.

Internal minimum requirements for own funds and eligible liabilities

(Internal MREL) also apply to the Group’s material sub-groups and

entities, being the RFB sub-group, Lloyds Bank plc, Bank of Scotland

plc and Lloyds Bank Corporate Markets plc.

Analysis of pro forma CET1 capital position

The Group’s pro forma CET1 capital ratio at 31 December 2024 was

13.5 per cent (31 December 2023: 13.7 per cent pro forma), in line with

guidance. Capital generation during the year was 148 basis points.

Excluding the provision for motor finance commission arrangements,

capital generation was 177 basis points, in line with guidance. Capital

generation reflects robust banking build and the interim half-year and

full-year dividends received from the Insurance business in June 2024

(£200 million) and February 2025 (£100 million) respectively, partially

offset by risk-weighted asset increases and other movements,

including 15 basis points relating to the foreign exchange translation

loss following the US dollar AT1 capital instrument redemption in

June. Regulatory headwinds of 27 basis points in the year reflect an

adjustment for part of the impact of the Retail secured CRD IV

increases and the reduction in the transitional factor applied to

IFRS 9 dynamic relief on 1 January 2024. There was a further 29 basis

points resulting from a provision relating to the potential impacts of

motor finance commission arrangements. The impact of the interim

ordinary dividend paid in September 2024 and the accrual for the

recommended final ordinary dividend equates to 91 basis points, with

a further 80 basis points to cover the accrual for the announced

ordinary share buyback programme of up to £1.7 billion.

The full impact of the share buyback will be accrued for through the

Group’s actual capital position during the first quarter of 2025.

Excluding the Insurance dividend received in February 2025 and the

full impact of the announced ordinary share buyback programme,

the Group's CET1 capital ratio at 31 December 2024 was 14.2 per

cent (31 December 2023: 14.6 per cent).

Lloyds Banking Group plc Annual Report and Accounts 2024

147

Capital resources (audited) and MREL resources (unaudited)

An analysis of the Group’s capital position and MREL resources as at 31 December 2024 is presented in the following table. This reflects the

application of the transitional arrangements for IFRS 9. The Group’s Pillar 3 disclosures provide a comprehensive analysis of the own funds

of the Group.


	At 31 Dec 2024 £m	At 31 Dec 20231 £m
Common equity tier 1: instruments and reserves
Share capital and share premium account	24,782	24,926
Banking retained earnings2	19,582	19,000
Banking other reserves2	2,786	3,136
Adjustment to retained earnings for foreseeable dividends	(1,276)	(1,169)
	45,874	45,893
Common equity tier 1: regulatory adjustments
Cash flow hedging reserve	3,755	3,766
Goodwill and other intangible assets	(5,679)	(5,731)
Prudent valuation adjustment	(354)	(417)
Excess of expected losses over impairment provisions and value adjustments	(270)	–
Removal of defined benefit pension surplus	(2,215)	(2,653)
Significant investments2	(5,024)	(4,975)
Deferred tax assets	(4,025)	(4,048)
Other regulatory adjustments	(83)	62
Common equity tier 1 capital	31,979	31,897

Additional tier 1: instruments
Other equity instruments	6,170	6,915
Additional tier 1: regulatory adjustments
Significant investments2	(800)	(1,100)
Total tier 1 capital	37,349	37,712

Tier 2: instruments and provisions
Subordinated liabilities	6,366	6,320
Eligible provisions	–	371
Tier 2: regulatory adjustments
Significant investments2	(964)	(964)
Total capital resources (audited)	42,751	43,439

Ineligible AT1 and tier 2 instruments3	(94)	(139)
Amortised portion of eligible tier 2 instruments issued by Lloyds Banking Group plc	891	1,113
Other eligible liabilities issued by Lloyds Banking Group plc4	28,675	25,492
Total MREL resources (unaudited)	72,223	69,905

Risk-weighted assets (unaudited)	224,632	219,130

Common equity tier 1 capital ratio (unaudited)	14.2%	14.6%
Tier 1 capital ratio (unaudited)	16.6%	17.2%
Total capital ratio (unaudited)	19.0%	19.8%
MREL ratio (unaudited)	32.2%	31.9%

1 Restated for presentational changes.

2In accordance with banking capital regulations, the Group’s Insurance business is excluded from the scope of the Group’s capital position. The Group’s investment in the equity and

other capital instruments of the Insurance business are deducted from the relevant tier of capital (‘Significant investments’), subject to threshold regulations that allow a portion of the

equity investment to be risk-weighted rather than deducted from capital. The risk-weighted portion forms part of threshold risk-weighted assets.

3Instruments not issued out of the holding company.

4Includes senior unsecured debt.

Total capital requirement

The Group’s total capital requirement (TCR) as at 31 December 2024, being the aggregate of the Group’s Pillar 1 and Pillar 2A capital

requirements, was £23,907 million (31 December 2023: £23,322 million).

Lloyds Banking Group plc Annual Report and Accounts 2024

148

Risk management continued

Movements in CET1 capital resources

The key movements are set out in the table below.


	Common equity tier 1 £m
At 31 December 2023	31,897
Banking business profits1	4,765
Movement in foreseeable dividend accrual2	(107)
Dividends paid out on ordinary shares during the year	(1,828)
Adjustment to reflect full impact of share buyback	(2,011)
Dividends received from the Insurance business3	450
IFRS 9 transitional adjustment to retained earnings	(159)
Excess regulatory expected losses	(270)
Redemption of other equity instruments	(316)
Distributions on other equity instruments	(498)
Other movements	56
At 31 December 2024	31,979

1Under banking capital regulations, profits made by Insurance are removed from CET1 capital. However, when dividends are paid to the Group by Insurance these are recognised

through CET1 capital.

2Reflects the reversal of the brought forward accrual for the final 2023 ordinary dividend, net of the accrual for the final 2024 ordinary dividend.

3Received in February 2024 and June 2024.

The Group’s CET1 capital ratio reduced to 14.2 per cent at 31 December 2024 from 14.6 per cent at 31 December 2023, with the increase in

CET1 capital resources more than offset by the increase in risk-weighted assets.

CET1 capital resources increased by £82 million, with banking business profits for the year and the receipt of dividends paid up by the

Insurance business offset by:

•The interim ordinary dividend paid in September 2024, the accrual for the final 2024 ordinary dividend of 2.11 pence per share and

distributions on other equity instruments

•The recognition of the full capital impact of the ordinary share buyback programme announced as part of the Group’s 2023 year end

results, which completed in November 2024

•The recognition of a foreign exchange translation loss upon the redemption of a US dollar denominated AT1 capital instrument in June

2024

The IFRS 9 transitional arrangements for dynamic relief amounted to £13 million (31 December 2023: £196 million) through CET1 capital.

The transitional arrangements ended on 1 January 2025.

Movements in total capital and MREL

The Group’s total capital ratio reduced to 19.0 per cent at 31 December 2024 (31 December 2023: 19.8 per cent), reflecting reductions in

both Additional Tier 1 and Tier 2 capital and the increase in risk-weighted assets, partly offset by the increase in CET1 capital. The reduction

in Additional Tier 1 capital reflects redemptions, including the US dollar AT1 capital instrument redeemed in June 2024, offset in part by a

new issuance and a reduction in the Group’s significant investment in instruments issued by the Insurance business following a redemption

by the Insurance business as it sought to refine its capital structure. The reduction in Tier 2 capital primarily reflects the impact of regulatory

amortisation on instruments, interest rate movements and a reduction in eligible provisions recognised through Tier 2 capital, partially

offset by new issuances.

The MREL ratio increased to 32.2 per cent at 31 December 2024 (31 December 2023: 31.9 per cent) largely reflecting the increase in other

eligible liabilities driven by new issuances, net of calls and maturities. This was partly offset by the reduction in total capital resources and

the increase in risk-weighted assets.

Lloyds Banking Group plc Annual Report and Accounts 2024

149

Risk-weighted assets


	At 31 Dec 2024 £m	At 31 Dec 2023 £m
Foundation Internal Ratings Based (IRB) Approach	43,366	44,504
Retail IRB Approach	90,567	85,459
Other IRB Approach1	21,878	20,941
IRB Approach	155,811	150,904
Standardised (STA) Approach1	22,532	22,074
Credit risk	178,343	172,978
Securitisation	8,346	8,958
Counterparty credit risk	6,561	5,847
Credit valuation adjustment risk	485	689
Operational risk	27,183	26,416
Market risk	3,714	4,242
Risk-weighted assets	224,632	219,130
of which: threshold risk-weighted assets2	10,738	11,028

1Threshold risk-weighted assets are included within Other IRB Approach and Standardised (STA) Approach.

2Threshold risk-weighted assets reflect the element of significant investments and deferred tax assets that are permitted to be risk-weighted instead of being deducted from CET1

capital. Significant investments primarily arise from the investment in the Group’s Insurance business.

Risk-weighted assets increased by £5.5 billion in the year to £224.6 billion at 31 December 2024 (31 December 2023: £219.1 billion), in line

with guidance. This reflects the impact of lending growth, Retail secured CRD IV increases and other movements, partly offset by

optimisation including capital efficient, net present value positive securitisation activity.

Leverage ratio

The table below summarises the component parts of the Group’s leverage ratio.


	At 31 Dec 2024 £m	At 31 Dec 2023 £m
Total tier 1 capital	37,349	37,712
Exposure measure
Statutory balance sheet assets
Derivative financial instruments	24,065	22,356
Securities financing transactions	69,941	56,184
Loans and advances and other assets	812,691	802,913
Total assets	906,697	881,453
Qualifying central bank claims	(62,396)	(77,625)
Deconsolidation adjustments1
Derivative financial instruments	563	585
Loans and advances and other assets	(191,551)	(178,552)
Total deconsolidation adjustments	(190,988)	(177,967)
Derivatives adjustments	(6,254)	(4,896)
Securities financing transactions adjustments	3,351	2,262
Off-balance sheet items	40,186	40,942
Amounts already deducted from tier 1 capital	(12,395)	(12,523)
Other regulatory adjustments2	(4,127)	(4,012)
Total exposure measure	674,074	647,634
Average exposure measure3	689,726

UK leverage ratio	5.5%	5.8%
Average UK leverage ratio3	5.5%

Leverage exposure measure (including central bank claims)	736,470	725,259
Leverage ratio (including central bank claims)	5.1%	5.2%

Total MREL resources	72,223	69,905
MREL leverage ratio	10.7%	10.8%

1Deconsolidation adjustments relate to the deconsolidation of certain Group entities that fall outside the scope of the Group’s regulatory capital consolidation, primarily the Group’s

Insurance business.

2Includes adjustments to exclude lending under the Government’s Bounce Back Loan Scheme (BBLS).

3The average UK leverage ratio is based on the average of the month end tier 1 capital position and average exposure measure over the quarter (1 October 2024 to 31 December 2024).

The average of 5.5 per cent compares to 5.5 per cent at the start and 5.5 per cent at the end of the quarter.

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Risk management continued

Analysis of leverage movements



	Climate risk

	Definition The Group defines climate risk as the risk from the impacts of climate change and the transition to net zero (‘inbound risk’), or a result of the Group’s response to tackling climate change and supporting the transition to net zero (‘outbound risk’). The Risk overview, on page 34, contains a summary of climate risk performance and key mitigating actions.

The Group’s UK leverage ratio reduced to 5.5 per cent (31 December

2023: 5.8 per cent) reflecting the reduction in the total tier 1 capital

position and the increase in the leverage exposure measure

following lending growth and increases across securities financing

transactions and other assets (excluding central bank claims). The

average leverage exposure measure reflected higher levels of

securities financing transactions during the quarter.

Stress testing

The Group undertakes a wide-ranging programme of stress testing,

providing a comprehensive view of the potential impacts arising

from the risks to which the Group and its key legal entities are

exposed. One of the most important uses of stress testing is to

assess the resilience of the operational and strategic plans of the

Group and its legal entities to adverse economic conditions and

other key vulnerabilities. As part of this programme the Group

participated in the PRA desk-based stress test in 2024. The test

evaluated the resilience of the UK banking system to two

hypothetical scenarios including severe but plausible combinations

of adverse shocks to the UK and global economies. Both scenarios

had House Price Index (HPI) falls of 28 per cent, Commercial Real

Estate (CRE) falls of 35 per cent and an increase in unemployment

of 4.7 per cent. One scenario tested a Base Rate peak of 9 per cent

whilst the other explored a Base Rate reduction to 0.1 per cent. The

results were published in November 2024 and the report concluded

the UK banking system is well capitalised, maintains high levels of

liquidity and asset quality remains strong. The report did not publish

individual Bank results and the Group was not required to take any

capital actions. The Bank of England has updated its approach to

stress testing the UK banking system and, as part of that, in 2025

the Group will participate in the PRA Bank Capital Stress Test.

G-SIB indicators

Although the Group is not classified as a Global Systemically

Important Bank (G-SIB) at 31 December 2024, by virtue of the

Group’s leverage exposure measure exceeding €200 billion the

Group is required to report G-SIB indicator metrics to the PRA. The

Group’s indicator metrics used within the 2024 Basel G-SIBs annual

exercise will be disclosed at the end of April 2025 and the results are

expected to be made available by the Basel Committee later this

year.

Insurance business

The business transacted by the insurance companies within the

Group comprises both life insurance business and general insurance

business. Life insurance comprises unit-linked, non-profit and With-

Profits business.

Scottish Widows Limited (SW Ltd) holds the only With-Profits funds

managed by the Group. The UK insurance companies within the

Group are regulated by the PRA. SW Ltd’s European insurance

subsidiary is regulated by the CAA.

The Solvency II regime for insurers and insurance groups came

into force from 1 January 2016 and was most recently updated in

December 2024 as part of the Solvency UK reforms. Insurance is

required to calculate solvency capital requirements and available

capital on a risk-based approach. Insurance calculates regulatory

capital on the basis of an internal model, which has been

approved by the PRA.

The minimum required capital must be maintained at all times

throughout the year. These capital requirements and the capital

available to meet them are regularly estimated in order to ensure

that capital requirements are being met. The capital position of

the Group’s insurance businesses is reviewed on a regular basis by

the Insurance, Pensions and Investments Executive Committee.

All minimum regulatory requirements of the insurance companies

have been met during the year.

Embedding

Climate risk continues to be a principal risk, recognising the

importance of the topic as it progresses toward being fully

embedded. However, the approach is less mature compared to the

Group’s other principal risks and continues to evolve. Climate risk

also differs from other risks, as it can materialise through inbound

risk, outbound risk or potentially both:

•Inbound risk: impacts of a risk on the Group’s balance sheet,

which can lead to a financial loss. Managing inbound risks is

critical to mitigate this potential impact, including supporting

customers to be aware of potential risks. Examples include

property devaluation, relied on as collateral, from physical and

transition risks and extreme weather events increasing insurance

losses

•Outbound risk: impacts of the Group’s balance sheet or activity

on the environment driven by our strategy or purpose. Examples

include the insufficient consideration of climate risk in external

disclosure, or external perception of the Group’s actions, claims

and disclosures

Understanding the potential impacts from climate risk on the Group

and other stakeholders continues to develop through our evolving

approach to double materiality across a range of sustainability risks,

including climate risk. See page 49 for more information on how the

Group considers materiality.

The Group’s climate risk policy provides an overarching framework

for managing climate risks. This aims to ensure awareness of key

climate-related risks across the different areas of the Group, and

that appropriate processes and controls are in place to mitigate

these risks. The policy includes requirements for governance,

scenario analysis and management of climate risks, as well as

governance requirements for different aspects of the Group’s net

zero strategy. Activity across the Group to meet these requirements

is actively monitored, including through the development of the

Group’s climate risk profile.

The impacts from climate risk largely manifest through other

principal risks. Therefore, the Group aims to ensure that

consideration of climate risk is reflected within its approach for

managing other principal risks.

Exposures

Climate risks arise through two channels, physical and transition

risks, with various methods used to help identify and assess the

Group’s potential exposure.

Examples of how the Group seeks to understand physical risks

include identifying areas at high risk of flooding and assessing our

potential exposure to flood risk across our mortgage and insurance

portfolios. Flood risk and coastal erosion is discussed in more detail

in the Group’s sustainability report 2024 on page 133.

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151

Examples of how the Group seeks to understand transition risks

include:

•For Commercial Banking lending, the Group’s ESG tool assesses

exposure to the impact of climate risk for specific customers as

part of the credit decisioning process

•For Retail lending, energy efficiency is assessed for the Homes

portfolio via energy performance certificates (EPC)

•Scottish Widows analysis of impact of transition risk upon

equities is detailed within the sustainability report 2024 on

page 134

Transition risks have been assessed to have more short to medium

term impacts, although are particularly dependent on the extent of

government policies to meet climate commitments on limiting

future global warming. However, current modelling approaches

suggest significant impacts relating to physical risks will be longer

term, although there are industry-wide weaknesses in determining

the economic impact of physical risk. Addressing these gaps might

increase the estimated impact of physical risk and potentially

reduce the estimated timeframe to manifest.

The Group has identified the sectors at increased risk from the

impacts of climate change and continues to monitor its loans and

advances to customers in these sectors, see page 80 in the Group’s

sustainability report 2024.

Taken together, these assessments, supported by consideration of

the risks relating to the Group’s response to managing these, inform

the key climate-related risks at Group level, with input from other

entities to capture any material risks not reflected. The table on

page 51 provides a high-level overview of the Group’s key climate

risks, alongside other wider sustainability risks and opportunities.

This considers the cross-cutting impacts across other principal risks

in the Group’s ERMF. A similar exercise has been carried out for

Scottish Widows, as outlined on page 136 in the Group’s

sustainability report 2024.

The materiality of the Group’s key climate risks reflects their

potential impact on the Group, as a key component of the ERMF, all

risks, including climate risk are assessed against a matrix with

impact and likelihood axes. Several factors are assessed to

determine the materiality of impacts.

These impacts are considered on an ongoing basis, with formal

assessment at least annually or driven more frequently by numerous

triggers. This assessment is supported by horizon scanning of

climate-related developments and additional quantitative and

qualitative analysis, such as scenario analysis results.

Measurement

The Group undertakes a number of different activities to measure

the impact of the key inbound and outbound risks relating to

climate change.

From an outbound perspective, the Group measures its emissions

relating to activities across Bank finance, Scottish Widows’

investments, supply chain and its own operations. This provides a

view on the impact of the Group’s activities, as well as identifying

areas where the Group can most effectively reduce emissions to

support the transition to net zero. Further detail on the approach

for each of these areas is provided on pages 4 to 40 in the Group’s

sustainability metrics basis of reporting 2024.

From an inbound perspective, the levels of climate risk impacting

different areas of the Group are measured through a variety of

metrics and approaches. In general, quantifying the impact of the

risks associated with climate change requires scenario analysis

particularly given the different potential outcomes and time

horizons over which the risks may manifest. This is explored further

in the following sub-section, however, there are some areas where

consideration of climate-related risks is already embedded,

reflecting the relative certainty of impacts resulting from these risks.

For example:

•Within the Home Insurance business there is a dedicated

weather modelling team

•For the UK Motor Finance portfolio, the transition from internal

combustion engines (ICE) to electric vehicles (EVs) is a key

consideration in measuring residual value risk (see page 164 for

credit performance of UK Motor Finance)

Scenario analysis

The Group continues to develop its climate scenario analysis

capabilities to inform analysis of climate risks, as well as to help

shape the Group’s strategy to reflect climate opportunities and

assess its resilience. Subsequent analysis has focused on

understanding the areas of the Group most impacted by climate

change, as well as assessing the impact from key climate-related

risks.

Separate assessments have been undertaken for the Group’s

Commercial Banking lending and Scottish Widows investments

portfolios to identify the sectors most exposed to climate transition

risks. Whilst climate modelling is still relatively immature, the Group

has deliberately trialled different approaches in order to understand

where modelled outputs provide consistent messages with each

other, or where they disagree and further exploration is needed.

For Scottish Widows’ investments, the analysis focused on the

impact of climate risk on broadly defined sectors. The conclusions

from this work on the overall ranking of sector sensitivities to

transition risk align with the Commercial Banking lending portfolio

summary below.

The following chart analyses climate risk for a benchmark of sectors

using data from Planetrics, a McKinsey & Company solution1. This

data focuses on listed companies and provides a European and

North American benchmark view of each sector and is not specific

to the Group’s portfolio.

The estimated financial impacts from transition risk are modelled

for each entity.

The relative difference between this climate estimate and a baseline

provides an indicative foresight view of discounted cashflow

reflecting transition risks to 2050 and physical risks to 2080. These

entity-level Net Present Value (NPV) differences are aggregated to

provide a view aligned to lending sectors with increased transition

risk in the NGFS Phase IV Net Zero 2050 scenario.


	NPV impacts in Net Zero 2050 scenario

1This chart represents the Group’s own selection of applicable scenarios that is applied

to a wide set of public companies (larger than the Group’s own portfolio). The Group is

responsible for all assumptions in its scenario selection, resulting findings, conclusions

and decisions. McKinsey & Company is not an investment adviser and has not provided

any investment advice.

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152

Risk management continued

This is broadly comparable with the results obtained from previous

NGFS Phases, with two main comments:

•The 2nd quartiles have shifted slightly left, indicating a worsening

view – which is consistent with the increasing assumptions

required for later versions of the Net Zero 2050 scenario given

lack of transition developments in the meantime

•Automobile manufacturing sector outlook has improved

significantly as NGFS pathway updates reflect the switch from

ICE to EV production already witnessed

Results of scenario analysis undertaken continue to support the

conclusion that the Group has a relatively low Commercial Banking

lending exposure to sectors which experience the most significant

negative impacts when compared to exposure across those sectors

with lower expected impacts. See page 174 for further detail of the

Group’s lending by sector.

Climate risks also transmit via traded assets and the Group has

undertaken climate scenario analysis across three bespoke climate

scenarios, to understand the impact of very short-term market risk

factor shocks stemming from both physical and transition risks.

Resulting stressed valuations fell within existing stress test

framework outcomes demonstrating the resilience of existing risk

management approaches.

In 2024, the Group has explored the effects of policy tightening

leading to significant increases in expectations for managing

sustainability. A scenario exercise was undertaken to assess the

potential financial impacts of a regulatory enquiry, stemming from

observed market failings, on processes associated to green and

sustainable products and services relevant to the Group’s

Commercial Banking lending activities. The scenario analysis

identified actions to further enhance the robustness of internal

controls to mitigate the risks of greenwashing.

The use of scenario analysis in assessing the impact of climate

related change on credit quality in expected credit losses (ECL) saw

improvements in both quantification and granularity for the 2024

assessment. Retail and commercial loan portfolios were assessed for

both transition and physical risks.

For transition risk, the quantitative assessment was extended to the

entire residential real estate portfolio and now assessed at account

level for sensitivity to affordability stress arising from changes in

energy efficiency regulations. Physical risk assessments were

extended from flood risk to include coastal erosion risk for

residential real estate.

For Commercial Banking lending, a top-down sector level approach

used to estimate impacts, was updated to use the latest available

NGFS scenarios. The approach combines sector level NPV impact

estimates, NGFS Gross Domestic Product (GDP) pathways, historic

impairment data and other inputs, to assess the impact of physical

and transition risks.

All the individual portfolio assessments fell below materiality

thresholds and, hence, the overall impact continues to be

immaterial. The approach and outcomes are described in more

detail in note 21 to the consolidated financial statements on

page 282.

Mitigating actions

The Group manages climate-related risk in different ways across the

four key areas of climate risk identified (net zero, disclosures,

greenwashing and physical and transition risks). The following

sections provide an overview of the Group’s mitigation approach,

including the relevant cross-cutting impacts across each of these

themes.

Net zero

The Group has continued to develop action plans across its systems-

led approach. The Group’s climate transition plan sets out the steps

it will take to reduce emissions to net zero for its own operations

and supply chain, as well as the emissions associated with its lending

and investments portfolios. Progress against these ambitions is

monitored through the Group Net Zero Committee on a quarterly

basis and the outputs from this have been used to measure the

Group’s risk appetite for climate risk. For further details, please see

the Group’s sustainability report 2024 on page 68.

Disclosures

The Group’s external disclosures are subject to a robust governance

process, including appropriate legal review. This includes an

assessment of the relevant regulatory requirements, particularly to

ensure alignment with Climate-related Financial Disclosures

requirements (CFD) and Task Force on Climate-related Financial

Disclosures (TCFD) recommendations. External disclosures will

continue to progress in line with the changing regulatory landscape,

and the Group will ensure suitable controls remain in place as these

develop. A number of topics are being introduced this year aiming

to support early compliance of the requirements of ISSB IFRS S1 and

S2 expected to be endorsed by the Government in 2025.

Greenwashing

The Group is enhancing its controls and processes in relation to

greenwashing, aiming to ensure communications are clear, fair and

not misleading. The Group is committed to investigating any

challenge or suggestion of greenwashing and feeding any learnings

into enhancing the control framework. Approaches the Group takes

to support transparency, accuracy and appropriateness of products,

communications and disclosures include:

•External legal review on the suitability of content within the

Group’s sustainability report and annual report and accounts,

endeavouring to support clear and accurate disclosures

•Scottish Widows ESG Claims Framework, requiring first line

teams to assess ESG claims prior to publication of

communications to ensure any claims are accurate, clear, not

misleading and can be substantiated

•Group product policy aligned to Consumer Duty and focus on

customer outcomes

•Dedicated ESG guidance to support product governance

processes

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153

Physical and transition risks

Physical and transition risks can impact different areas of the Group

in different ways, some of the key areas are elaborated on below.

Commercial Banking and Retail lending

For the Group’s Commercial Banking and Retail lending this could

manifest in potential devaluation of property or collateral or a

reduction in clients creditworthiness or affordability. The Group

continues to integrate climate risk in its credit process, in addition

to wider ESG considerations, with continued progress in 2024. This

is through a credit risk integration strategy, which includes the

Group’s ESG credit risk framework and policies, development of an

ESG risk indicator framework at sector level helping to inform

lending decisions as well as portfolio and case management.

Key developments in 2024 for assessing climate-related credit risks

include:

•Transition risk assessments across Commercial Banking lending

have been enhanced, including updating of the assessment

criteria, incorporating methodology from our credible transition

plan work, expanding into key net zero sectors: SME agriculture

and commercial and residential real estate

•Retail credit decisioning has EPC controls for new and existing

lending for buy-to-let, and property specific transition costs

considered as part of the residential affordability assessment

•The mortgage origination stage requires a physical inspection for

all properties exposed to increased flood and coastal erosion risk

Further detail on management of climate-related and ESG credit

risks is provided on page 125 of the Group’s sustainability report

2024.

Home insurance

Provision of household insurance can be impacted by both physical

and transition risks, in particular, the potential for underwriting and

insurance risks arising from climate change, such as increased

frequency and severity of extreme weather events. Given the short-

term nature of home insurance policies, the Group is able to update

its view of risk regularly and change its approach as risks develop.

This helps mitigate the long-term exposure to climate risks. The

Group aims to support customers in improving the resilience of their

homes, including reaching out ahead of extreme weather events

providing elements of advice and guidance on how to protect

themselves and their homes.

Investments

To help manage possible impacts of physical and transition risk in

the value or availability of assets, the Group has various controls in

place including due diligence around the selection and oversight of

our external fund managers, including around ESG factors. The

investments team has dedicated fund investment leads who are

responsible for all aspects of oversight, including review of climate-

related risks and ESG factors and related data supplied by external

fund managers. The Group also utilises the ESG Tool as part of its

credit risk assessment process.

Own operations and supply chain

Climate risk is embedded in the Group’s approach for managing

operational resilience, as one of the key drivers within the Group

strategy, considering the impact on and from climate as part of

ensuring its operations remain resilient. Climate-related impacts

could affect operational resilience through properties, IT systems,

people and third party suppliers and create disruption to services.

The Group has processes in place to consider the resilience of its

property in relation to physical risks, particularly focused on its

offices, data centres and branch network, to minimise the risk of

service disruption. Insurers periodically highlight the Group’s

buildings that are subject to high flood risk. These sites are then

surveyed in detail to quantify that risk and determine appropriate

flood defence mitigation. The Group proactively monitors the

temperature and humidity in its data centres, with root cause

analysis undertaken for any incidents to identify any local climate

issues and remediate. Additionally, resilient tech rooms have been

created where power, temperature and humidity are robustly

controlled.

The Group expects its third party suppliers to review their business

continuity plans and recovery strategies, ensuring these are

appropriately updated to mitigate potential risks posed by climate

change, to ensure continued provision of service and appropriate

consideration of environmental sustainability related to their

activities.

Monitoring

The Group ensures visibility and awareness of climate risks wherever

they present themselves across its risk profile, with regular reporting

and tracking of any identified risks. Management information across

a range of themes is regularly assessed to provide insight into and

oversight of management of climate risk, together with tracking of

associated action plans and identification of triggers for

reassessment. This follows appropriate Risk governance, across the

relevant business units and is reported on a regular basis through

the Group Control and Risk Environment report. This provides

insight into any changes to risk profiles together with a rationale for

awareness and scrutiny by senior leaders.

The Group also closely monitors climate-related regulatory

developments to ensure our approach meets evolving expectations.

This includes understanding the current relevant requirements,

monitoring the Group’s activity and progress against expectations,

for example Dear CEO and CFO letters, as well as horizon scanning

for new developments, such as how the ISSB IFRS disclosure

standards are adopted in the UK. The Group also seeks to include

and map regulatory obligations within its risk and control profile in

support of compliance traceability.

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154

Risk management continued



	Compliance risk

	Definition The risk of financial penalties, regulatory censure, criminal or civil enforcement action or customer detriment as a result of failure to identify, assess, correctly interpret, comply with, or manage regulatory and/or legal requirements. Level two risks Regulatory, Legal The Risk overview, on page 35, contains a summary of compliance risk performance and key mitigating actions.



	Conduct risk

	Definition The risk of the Group’s activities, behaviours, strategy or business planning, having an adverse impact on outcomes for customers, undermining the integrity of the market or distort competition, which could lead to regulatory censure, reputational damage or financial loss. Level two risks Colleague, Customer, Market The Risk overview, on page 35, contains a summary of conduct risk performance and key mitigating actions.

Exposures

The Group does not tolerate non-adherence to regulatory and legal

requirements, and all colleagues employed by the Group are

expected to comply with legal and regulatory obligations,

requirements, statutes, voluntary codes and permissions. Where

inadvertent instances of non-compliance occur, these are addressed

promptly with corrective action to minimise exposure and avoid

recurrence. The Group remains exposed to the evolving legal and

regulatory landscape, such as changes to the regulatory framework

and other standards.

Measurement

Compliance risk is measured against the defined risk appetite

metrics, which is an assessment of material regulatory breaches and

material legal incidents.

Mitigating actions

The Group undertakes a range of key mitigating actions to manage

compliance risk. These include the following:

•A Group-wide risk appetite and metrics for compliance risk

•Principles are reinforced by Group policies and standards and

apply across the business, aligning to the Group risk appetite

•Business units identify, assess and implement policy and

regulatory and legal requirements and establish controls,

processes, standards and resources to ensure appropriate

governance and compliance

•Business units have systems and controls to deliver against the

purpose and expectation of legal and regulatory requirements

•Business units regularly produce management information to

assist in the identification of issues and test management

controls are working effectively

•The Legal function provides legal advice and together, the Risk

and Legal functions provide oversight, proactive support and

constructive challenge to the wider business in identifying and

managing regulatory and legal issues

•The Risk function conducts reviews to provide oversight of

regulatory compliance

•Horizon scanning is conducted to identify and address changes in

regulatory and legal requirements

•The Group engages with regulatory authorities and industry

bodies on forthcoming regulatory changes, market reviews and

investigations, ensuring programmes are established to deliver

new regulation and legislation

Monitoring

Material risks are managed through the relevant business

committees, with review and escalation provided through Group-

level committees, including the escalation of any material regulatory

breaches or material legal incidents. For further detail of Group-level

committees, see page 140.

Exposures

The Group faces significant conduct risks, which affect all aspects of

the Group’s operations and all types of customers. The introduction

of the FCA’s Consumer Duty regulation has increased expectations

in relation to customer outcomes, including how the Group

demonstrates, monitors and measures them.

The Group continues to monitor and assess potential impacts to

customers following the Court of Appeal decision on motor finance

commission arrangements, liaising closely with regulatory bodies.

See note 28 to the consolidated financial statements on page 289.

The Group is exposed to the risk of engaging in activities which

could constitute market abuse, undermine the integrity of a market

in which it is active, distorting competition or creating conflicts of

interest.

There is a high level of scrutiny from regulatory bodies, the media,

politicians and consumer groups regarding financial institutions’

treatment of customers, with particular attention to those with

characteristics of vulnerability. The Group continues to apply

significant focus to its treatment of all customers, in particular those

in financial difficulties and those with characteristics of vulnerability,

to ensure good outcomes.

The Group continuously responds and adapts to market

developments that could pose heightened conduct risk, and actively

monitors for early signs of customer financial difficulty.

Other key areas of focus include transparency and fairness of pricing

communications; ensuring victims of Authorised Push Payment

Fraud receive good outcomes; and a continued mindset shift in line

with Consumer Duty requirements to improve customer outcomes

throughout the Group, with particular focus on improvements to

Group-wide reporting and monitoring.

Measurement

To articulate its conduct risk appetite, the Group has Conduct Risk

Appetite Metrics (CRAMs) throughout all business units, with

tolerances indicating where it may be operating outside its conduct

risk appetite. These contain a range of product design, sales and

process metrics (including outcome testing results) to provide a

more holistic view of conduct risks; some products also have a suite

of additional bespoke metrics.

Each of the tolerances for the metrics are agreed for the individual

product or service and are regularly tracked. At a consolidated level,

these metrics form part of the Board risk appetite. The Group has,

and continues to, evolve its approach to conduct risk measurements

to include emerging conduct themes.

Mitigating actions

The Group’s ongoing commitment to delivering a leading customer

experience is led by the Board, and supports the continued

development of our values-led culture, with customer outcomes as

a priority. There is a strong focus on strengthening the link between

actions to support conduct, culture and customer, enabling robust

control management.

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Actions to support good conduct include:

•Conduct risk appetite established at Group and divisional level,

with metrics included in the Group risk appetite to ensure

ongoing focus and escalation

•Conduct policies and procedures to ensure appropriate controls

and processes to deliver good customer outcomes, and support

market integrity and competition requirements

•Customer needs considered through divisional customer plans,

with an integral conduct lens

•Implementation of the vulnerability strategy continues, with

focus on the monitoring of vulnerable customer outcomes,

providing strategic direction and ensuring consistency of

outcomes across the Group

•Robust product governance framework to ensure products

continue to offer customers fair value, and consistently meet

their needs throughout their product lifecycle

•Complaints management through responding to, and learning

from, root causes of complaint volumes and Financial

Ombudsman Service (FOS) change rates

•Robust colleague recruitment and training, with a continued

focus on how the Group manages colleagues’ performance with

clear customer accountabilities

•Ongoing engagement with third parties involved in serving the

Group’s customers to ensure consistent delivery in line with the

Group’s own standards and expectations

•Enhancements made to monitoring and testing of customer

outcomes to ensure the Group delivers good outcomes for

customers throughout the product and service lifecycle, with

areas of improvement addressed via continuous improvements

to products, services and processes

•Continued focus on market conduct. The Group is a member of

the Fixed Income, Currencies and Commodities Markets

Standard Board and is committed to conducting its market

activities in line with the principles of the UK Money Markets

Code, the Global Precious Metals Code and the FX Global Code

•Adoption and investment in robust change delivery

methodology, to enable the prioritisation and delivery of

initiatives which address conduct challenges

•Continued focus on proactive identification and mitigation of

conduct risk in the Group’s strategy

•Active engagement with regulatory bodies and other

stakeholders to develop understanding of concerns related to

customer treatment, effective competition and market integrity,

to ensure that the Group’s strategic conduct focus continues to

meet evolving stakeholder expectations

•Ongoing investment in additional support for customers

impacted by the rising cost-of-living, including the ‘More Money

in Your Pocket’ and ‘MyExtras’ hub, in addition to the benefits

calculator and bill switcher tools

•Continued embedding of Consumer Duty to meet the increased

expectations relating to customer outcomes

Monitoring

Conduct risk is governed through divisional risk committees and

significant issues, including thematic conduct items are escalated to

the Group Risk Committee, in accordance with the Group’s ERMF,

as well as through regular risk reporting. The risk exposures are

reported, discussed and challenged at divisional risk committees.

Remedial action is recommended, if required. All material conduct

risk events are escalated in accordance with the Group’s

operational risk management toolkit.

A number of activities support the close ongoing monitoring of

conduct risk, including:

•The use of CRAMs across the Group, with an escalation route to

Board

•Oversight and assurance activities across the three lines of

defence

•Horizon scanning to highlight developments and trends, allowing

the Group to anticipate upcoming challenges and opportunities


	Credit risk

	Definition Credit risk is defined as the risk that parties with whom the Group has contracted fail to meet their financial obligations (both on and off-balance sheet). Level two risks Retail credit (page 159), Commercial credit (page 160) The Risk overview, on page 35, contains a summary of credit risk performance and key mitigating actions.



	Financial risk indicators (underlying basisA) •Impairment charge: £433 million (2023: £308 million) •Expected credit loss: £3,651 million (2023: £4,337 million) •Loans and advances in Stage 2: 10.4 per cent (2023: 12.5 per cent)

Exposures

The principal sources of credit risk within the Group arise from loans

and advances, contingent liabilities, commitments and debt

securities to customers, financial institutions and sovereigns.

Credit risk arises from;

•Loans and advances (for example mortgages, term loans and

overdrafts) and commitments or guarantees (for example credit

instruments): The Group can experience potential losses from

both amounts advanced and commitments to extend credit to a

customer or a bank

•Debt securities and derivatives. The potential financial loss to

the Group as a result of a counterparty defaulting on its

obligations

•Leasing arrangements where the Group is the lessor. Note 2(J) to

the consolidated financial statements on page 223 provides

details on the Group’s approach to the treatment of leases

Credit risk exposures in the Insurance, Pensions and Investments

division relate mostly to bond and loan assets which, together with

some related swaps, are used to fund annuity commitments within

shareholder funds; plus balances held in liquidity funds to manage

Insurance division’s liquidity requirements, and exposure to

reinsurers.

The investments held in the Group’s defined benefit pension

schemes also expose the Group to credit risk. Note 12 to the

consolidated financial statements on page 248 provides further

information on the defined benefit pension schemes’ assets and

liabilities.

Loans and advances, contingent liabilities, commitments, debt

securities and derivatives also expose the Group to refinance risk.

Refinance risk is the possibility that an outstanding exposure cannot

be repaid at its contractual maturity date. If the Group does not

wish to refinance the exposure then there is refinance risk if the

obligor is unable to repay by securing alternative finance.

The maximum credit risk exposure of the Group in the event of

other parties failing to perform their obligations is considered to

be the balance sheet carrying amount or, for non-derivative off-

balance sheet transactions and financial guarantees, their

contractual nominal amounts (not taking into account any

collateral held).

Further details can be seen in note 16 to the consolidated

financial statements on page 258 and note 38 to the

consolidated financial statements on page 297.

Lloyds Banking Group plc Annual Report and Accounts 2024

156

Risk management continued

Measurement

The process for credit risk identification, measurement and

control is integrated into the Board-approved framework for

credit risk appetite and governance.

Credit risk is measured from different perspectives using a range

of appropriate modelling and scoring techniques at a number of

levels of granularity, including total balance sheet, individual

portfolio, pertinent concentrations and individual customer – for

both new business and existing exposure. Key metrics, which

may include but are not limited to, total exposure, ECL, risk-

weighted assets, new business quality, concentration risk and

portfolio performance, are reported monthly to risk committees

and forums.

Measures such as ECL, risk-weighted assets, observed credit

performance, predicted credit quality (usually from predictive

credit scoring models), collateral cover and quality, and other

credit drivers (such as cash flow, affordability, leverage and

indebtedness) have been incorporated into the Group’s credit

risk management practices to enable effective risk measurement

across the Group.

The Group is strengthening its ability to manage climate-related

risks and opportunities recognising the impact of climate change on

credit risk. For more details refer to the sustainability report 2024.

Stress testing and scenario analysis are used to estimate impairment

losses and capital demand forecasts for both regulatory and internal

purposes and to assist in the formulation and calibration of credit

risk appetite, where appropriate.

The Risk function also tests the effectiveness of credit risk

management and internal credit risk controls. This includes ensuring

that the control and monitoring of higher risk and vulnerable

portfolios and sectors is appropriate and confirming that

appropriate loss allowances for impairment are in place. Output

from these reviews helps to inform credit risk appetite, credit policy

and portfolio mandates.

As the third line of defence, Group Internal Audit undertakes regular

risk-based reviews to assess the effectiveness of credit risk

management and controls.

Mitigating actions

The Group uses a range of approaches to mitigate credit risk.

Prudent credit principles, risk policies and appetite statements:

The independent Risk function sets out the credit principles, credit

risk policies and credit risk appetite statements.

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.

Credit principles, risk policies and appetite statements are subject

to regular review and governance, with any changes subject to an

approval process. Risk teams monitor credit performance trends

and the outlook. Risk teams also test the adequacy of and

adherence to credit risk policies and processes throughout the

Group. This includes tracking portfolio performance against an

agreed set of credit risk appetite tolerances.

Robust models and controls: see model risk on page 195.

Limitations on concentration risk: there are portfolio controls

on certain industries, sectors and products to reflect risk appetite

as well as individual, customer and bank limit risk tolerances.

Credit policies, appetite statements and mandates are aligned to

the Group’s 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. These

concentration risk controls are not necessarily in the form of a

maximum limit on exposure, but may instead require new

business in concentrated sectors to fulfil additional minimum

policy and/or guideline requirements. The Group’s largest credit

limits are regularly monitored by the Board Risk Committee and

reported in accordance with regulatory requirements.

Defined country risk management framework: the Group sets a

broad maximum country risk appetite. Risk-based appetite for all

countries is set within the independent Risk function, taking into

account economic, financial, political and social factors as well as

the approved business and strategic plans of the Group.

Specialist expertise: credit quality is managed and controlled by a

number of specialist units within the business and Risk function,

which provide for example: intensive management and control;

security perfection; maintenance of customer and facility records;

expertise in documentation for lending and associated products;

sector-specific expertise; and legal services applicable to the

particular market segments and product ranges offered by the

Group.

Stress testing: the Group’s credit portfolios are subject to regular

stress testing, including Group-led PRA and other regulatory stress

tests focusing on individual divisions and portfolios. For further

information see pages 142 to 143.

Frequent and robust credit risk assurance: An independent

function within the Risk function provides oversight that credit risk

is effectively managed and to ensure appropriate controls are in

place and being adhered to. Group Audit conducts assurance on the

effectiveness of credit risk management.

Collateral

The principal types of acceptable collateral include: residential and

commercial properties; charges over business assets such as

inventory and accounts receivable; financial instruments such as

debt securities; vehicles; cash; and guarantees received from third

parties.

The Group maintains appetite parameters on the acceptability of

specific classes of collateral.

For non-mortgage retail lending to small businesses, collateral may

include second charges over residential property and the

assignment of life cover.

Collateral held as security for financial assets other than loans and

advances is determined by the nature of the underlying exposure.

Debt securities, including treasury and other bills, are generally

unsecured, with the exception of asset-backed securities and similar

instruments such as covered bonds, which are secured by portfolios

of financial assets. Collateral is generally not held against loans and

advances to financial institutions and debt securities. Debt

securities are classified as financial assets held at amortised cost.

Securities are held as part of reverse repurchase or securities

borrowing transactions or where a collateral agreement has been

entered into under a master netting agreement. Derivative

transactions with financial institutions are typically collateralised

under a Credit Support Annex (CSA) in conjunction with the

International Swaps and Derivatives Association (ISDA) Master

Agreement. Derivative transactions with non-financial customers

are not usually supported by a CSA.

Lloyds Banking Group plc Annual Report and Accounts 2024

157

Collateral requirements at origination depend on the transaction’s

nature and the borrower’s credit quality, size and structure. For

non-retail exposures, the Group may seek:

•A first charge over land and buildings owned and occupied by the

business

•A debenture over the assets of a company or limited liability

partnerships

•Limited personal guarantees from directors of a company or

limited liability partnership

•Key man insurance

The Group has policies on acceptable collateral valuations,

maximum loan-to-value (LTV) ratios, and other criteria for

application reviews. The customer must demonstrate its ability to

generate funds from normal operations to repay a customer or

counterparty’s financial commitments, rather than relying on the

disposal of collateral.

Although lending decisions are primarily based on expected cash

flows, any collateral provided may impact the pricing and other

terms of a loan or facility granted. This will have a financial impact

on the amount of net interest income recognised and on internal

loss given default estimates that contribute to the determination of

asset quality and returns.

The Group requires collateral to be valued by a qualified,

independent source at the time of borrowing, where

appropriate. For retail residential mortgages, automated

valuation models may be used, subject to accuracy and LTV

limits. Third party valuations are regularly monitored and

reviewed. Collateral values are reviewed based on lending type,

collateral and account performance to ensure they remain

appropriate. If collateral value declines, the Group may seek

additional collateral or amend facility terms. The Group adjusts

estimated market values to take account of the costs of

realisation and any discount associated with the realisation of

the collateral when estimating credit losses.

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.

The Group considers risk concentrations by collateral providers and

collateral type with a view to ensuring that any potential undue

concentrations of risk are identified and suitably managed by

changes to strategy, policy and/or business plans.

The Group seeks to avoid correlation or wrong-way risk where

possible. Under the Group’s repurchase (repo) policy, the issuer of

the collateral and the repo counterparty should be neither the same

nor connected. The same rule applies for derivatives. The Risk

function has the necessary discretion to extend this rule to other

cases where there is significant correlation. Countries with a rating

equivalent to AA- or better may be considered to have no adverse

correlation between the counterparty domiciled in that country and

the country of risk (issuer of securities).

The Group’s credit risk disclosures for unimpaired other retail

lending show assets gross of collateral and therefore disclose the

maximum loss exposure.

During the year, £285 million of collateral was repossessed

(2023: £229 million), consisting primarily of residential property.

Additional mitigation for Retail customers

The Group uses a variety of lending criteria when assessing

applications for mortgages and unsecured lending. The general

approval process uses credit acceptance scorecards and involves a

review of an applicant’s previous credit history using internal data

and information held by Credit Reference Agencies (CRA).

The Group also assesses the affordability and sustainability of

lending for each borrower. For secured lending this includes use of

an appropriate stressed interest rate scenario. Affordability

assessments for all lending are compliant with relevant regulatory

and conduct guidelines. The Group takes reasonable steps to

validate information used in the assessment of a customer’s income

and expenditure.

In addition, the Group has in place quantitative limits such as

maximum limits for individual customer products, the level of

borrowing to income and the ratio of borrowing to collateral. Some

of these limits relate to internal approval levels and others are policy

limits above which the Group will typically reject borrowing

applications. The Group also applies certain criteria that are

applicable to specific products, for example applications for buy-to-

let mortgages.

For UK mortgages, the Group’s policy permits owner occupier

applications with a maximum LTV of 95 per cent. This can increase

to 100 per cent for specific products where additional security is

provided by a supporter of the applicant and held on deposit by the

Group. Applications with an LTV above 90 per cent are subject to

enhanced underwriting criteria, including higher scorecard cut-offs

and loan size restrictions.

Buy-to-let mortgages within Retail are limited to a maximum loan

size of £2,000,000 and 80 per cent LTV for a single property. Buy-

to-let applications must pass a minimum rental cover ratio of 125

per cent under stressed interest rates, after applicable tax liabilities.

Portfolio landlords (customers with four or more mortgaged buy-to-

let properties) are subject to additional controls including

evaluation of overall portfolio resilience.

The Group’s policy is to reject any application for a lending product

where a customer is registered as bankrupt or insolvent, or has a

recent County Court Judgment or financial default registered at a

CRA used by the Group above de minimis thresholds. In addition,

the Group typically rejects applicants where total unsecured debt,

debt-to-income ratios, or other indicators of financial difficulty

exceed policy limits.

Where credit acceptance scorecards are used, new models, model

changes and monitoring of model effectiveness are independently

reviewed and approved in accordance with the governance

framework set by the Group Model Governance Committee.

The Group generally 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’s balance sheet and are classified according to the

Group’s accounting policies.

Additional mitigation for Commercial Banking customers

Individual credit assessment and independent sanction of

customer and bank limits: with the exception of small exposures to

small to medium-sized enterprises (SME) customers where certain

relationship managers have limited delegated credit approval

authority, credit risk in commercial customer portfolios is subject to

approval by the independent Risk function, which considers the

strengths and weaknesses of individual transactions, the balance of

risk and reward, and how credit risk aligns to risk appetite.

Lloyds Banking Group plc Annual Report and Accounts 2024

158

Risk management continued

Exposure to individual counterparties, groups of counterparties or

customer risk segments is controlled through a tiered hierarchy of

credit authority delegations and risk-based credit limit guidances

per client group for larger exposures. Approval requirements for

each decision are based on a number of factors including, but not

limited to, the transaction amount, the customer’s aggregate

facilities, any risk mitigation in place, credit policy, risk appetite,

credit risk ratings and the nature and term of the risk. The Group’s

credit risk appetite criteria for counterparty and customer loan

underwriting is generally the same as that for loans intended to be

held to maturity. All hard loan/bond underwriting must be approved

by the Risk function. A pre-approved credit matrix may be used for

‘best efforts’ underwriting.

Counterparty credit limits: limits are set against all types of

exposure in a counterparty name, in accordance with an agreed

methodology for each exposure type. This includes credit risk

exposure on individual derivatives and securities financing

transactions, which incorporates potential future exposures from

market movements against agreed confidence intervals. Aggregate

facility levels by counterparty are set and limit breaches are subject

to escalation procedures.

Daily settlement limits: settlement risk arises in any situation where

a payment in cash, securities or equities is made in the expectation

of a corresponding receipt in cash, securities or equities. Daily

settlement limits are established for each relevant counterparty to

cover the aggregate of all settlement risk arising from the Group’s

market transactions on any single day. Where possible, the Group

uses Continuous Linked Settlement in order to reduce foreign

exchange (FX) settlement risk.

Master netting agreements

It is credit policy that a Group-approved master netting agreement

must be used for all derivative and traded product transactions and

must be in place prior to trading, with separate documentation

required for each Group entity providing facilities. This requirement

extends to trades with clients and the counterparties used for the

Group’s own hedging activities, which may also include clearing

trades with Central Counterparties (CCPs).

Any exceptions must be approved by the appropriate credit

approver. Master netting agreements do not generally result in an

offset of balance sheet assets and liabilities for accounting purposes,

as transactions are usually settled on a gross basis. However, within

relevant jurisdictions and for appropriate counterparty types,

master netting agreements do reduce the credit risk to the extent

that, if an event of default occurs, all trades with the counterparty

may be terminated and settled on a net basis. The Group’s overall

exposure to credit risk on derivative instruments subject to master

netting agreements can change substantially within a short period,

since this is the net position of all trades under the master netting

agreement.

Other credit risk transfers

The Group also undertakes asset sales, credit derivative based

transactions, securitisations (including significant risk transfer

transactions), purchases of credit default swaps and purchase of

credit insurance as a means of mitigating or reducing credit risk and/

or risk concentration, taking into account the nature of assets and

the prevailing market conditions.

Monitoring

In conjunction with the Risk function, businesses identify and define

portfolios of credit and related risk exposures and the key

behaviours and characteristics by which those portfolios are

managed and monitored. This entails the production and analysis of

regular portfolio monitoring reports for review by senior

management. The Risk function in turn produces an aggregated

view of credit risk across the Group, including reports on material

credit exposures, concentrations, concerns and other management

information, which is presented to senior officers, divisional credit

risk forums, business unit committees and forums, Group Risk

Committee and the Board Risk Committee.

Models

The performance of all models used in credit risk is monitored in line

with the Group’s model governance framework – see model risk on

page 195.

Intensive care of customers in financial difficulty

The Group operates a number of solutions to assist borrowers who

are experiencing financial distress. The material elements of these

solutions through which the Group has granted a concession,

whether temporarily or permanently, are set out below.

Forbearance

The Group’s aim in offering forbearance and other assistance to

customers in financial distress is to benefit both the customer and

the Group by supporting its customers and acting in their best

interests by, where possible, bringing customer facilities back into a

sustainable position.

The Group offers a range of tools and assistance to support

customers who are encountering financial difficulties. Cases are

managed on an individual basis, with the circumstances of each

customer considered separately and the action taken judged as

being appropriate and sustainable for both the customer and the

Group.

Forbearance measures consist of concessions towards a debtor that

is experiencing or about to experience difficulties in meeting its

financial commitments. This can include modification of the

previous terms and conditions of a contract or a total or partial

refinancing of a troubled debt contract, either of which would not

have been required had the debtor not been experiencing financial

difficulties.

The provision and review of such assistance is controlled through

the application of an appropriate policy framework and associated

controls. Regular review of the assistance offered to customers is

undertaken to confirm that it remains appropriate, alongside

monitoring of customers’ performance and the level of payments

received.

The Group classifies accounts as forborne at the time a customer in

financial difficulty is granted a concession.

Balances in default or classified as Stage 3 are always considered to

be non-performing. Balances may be non-performing but not in

default or Stage 3, where for example they are within their non-

performing forbearance cure period.

Non-performing exposures can be reclassified as performing

forborne after a minimum 12-month cure period, providing there are

no past due amounts or concerns regarding the full repayment of

the exposure. A minimum of a further 24 months must pass from

the date the forborne exposure was reclassified as performing

forborne before the account can exit forbearance. If conditions to

exit forbearance are not met at the end of this probation period,

the exposure shall continue to be identified as forborne until all the

conditions are met.

The Group’s treatment of loan renegotiations is included in the

impairment policy in note 2(H) to the consolidated financial

statements on page 222.

Customers receiving support from Government sponsored

programmes

To assist customers in financial distress, the Group participates in

Government sponsored programmes for households, including the

Income Support for Mortgage Interest programme, under which the

government pays the Group all or part of the interest on the

mortgage on behalf of the customer. This is provided as a

government loan which the customer must repay.

Lloyds Banking Group plc Annual Report and Accounts 2024

159

The Group credit risk portfolio in 2024

Overview

The Group’s portfolios are well positioned to benefit from an

improved, but still challenging macroeconomic environment. The

Group maintains a prudent approach to credit risk appetite and risk

management, with strong credit origination criteria including

evidence of affordability and robust LTVs in the secured portfolios.

Asset quality remains strong with improved credit performance in

the year. In UK mortgages and unsecured portfolios, reductions in

new to arrears and flows to default have been observed in 2024.

Securitisations of primarily legacy Retail mortgages, totalling

£2.0 billion of gross loans and advances to customers, during the

second and fourth quarter will help mitigate credit risks in higher risk

assets. Credit quality remains broadly stable and resilient in

Commercial Banking. The Group continues to monitor the impacts

of the economic environment carefully through a suite of early

warning indicators and governance arrangements that ensure risk

mitigating action plans are in place to support customers and

protect the Group’s positions.

The underlying impairment charge in 2024 was £433 million,

increasing from a charge of £308 million in 2023 which benefitted

from a significant write-back following the full repayment of debt

from a single name client. The 2024 charge included a higher credit

from improvements in the Group’s macroeconomic outlook in the

year, resulting in a release of £394 million (2023: a release of

£257 million).

The Group’s underlying probability-weighted total ECL allowance

decreased in the year to £3,651 million (31 December 2023:

£4,337 million).

Group Stage 2 underlying loans and advances to customers

decreased to £48,075 million (31 December 2023: £56,545 million)

and as a percentage of total lending to 10.4 per cent (31 December

2023: 12.5 per cent). The movement includes a redevelopment of

the IFRS 9 staging approach and criteria for UK mortgages which

increased Stage 2 assets, introduced alongside the adoption of a

new ECL model, which together are more than offset by the

transfer of assets from Stage 2 to Stage 1 as a result of

improvements in the Group’s macroeconomic outlook. Of the total

Group Stage 2 loans and advances to customers, 92.3 per cent are

up to date (31 December 2023: 91.3 per cent). Stage 2 coverage

reduced slightly to 2.8 per cent (31 December 2023: 3.0 per cent).

Stage 3 underlying loans and advances to customers decreased to

£9,021 million (31 December 2023: £10,110 million), and as a

percentage of total lending to 2.0 per cent (31 December 2023:

2.2 per cent), as a result of improved credit performance in addition

to the securitisation of primarily legacy accounts within UK

mortgages. The lower proportion of UK mortgages in Stage 3 led to

an increase in Group Stage 3 coverage to 16.4 per cent

(31 December 2023: 15.8 per cent).

Prudent risk appetite and risk management

•The Group continues to take a prudent and proactive approach

to credit risk management and credit risk appetite with robust

oversight, particularly in response to recent external events. Risk

appetite is in line with the Group’s strategy, and helps support

customers during continued economic uncertainties in both

global and domestic markets

•Sector, asset and product concentrations within the portfolios

are closely monitored and controlled, with mitigating actions

taken where appropriate. Sector and product risk appetite

parameters help manage exposure to higher risk and cyclical

sectors, segments and asset classes

•The Group’s effective risk management seeks to ensure early

identification and management of customers and counterparties

who may be showing signs of distress

•The Group will continue to work closely with its customers to

ensure that they receive the appropriate level of support,

including but not restricted to embracing the standards outlined

in the Mortgage Charter

Retail credit performance

•The Retail portfolio has remained resilient and well positioned.

Consumers have adjusted to a higher rate environment, leading

to a reduction in arrears over the year

•Robust risk management remains in place, with strong

affordability and indebtedness controls for both new and

existing lending and a prudent risk appetite approach

•In 2024, reductions in new to arrears and flow to default have

been observed across UK mortgages and the unsecured

portfolios

•In UK Motor Finance, new to arrears have slightly increased,

returning to pre-COVID-19 levels. Flows to default have also

increased, largely driven by a rise in Voluntary Terminations (VT)

as used car prices have fallen from their historic highs during the

pandemic

•Lending strategies are under continuous review and have been

proactively managed and calibrated to the latest

macroeconomic outlook, with actions taken to enhance both

living and housing cost assumptions in affordability assessments

•The Retail impairment charge in 2024 was £457 million, lower

than the charge of £831 million for 2023. This was due to a

combination of improvements in the Group’s macroeconomic

outlook, notably from improved house price growth, driving a

£332 million credit compared to a £233 million credit in 2023,

alongside improvements in UK mortgages credit performance,

one-off benefits from the release of judgemental adjustments for

inflation risk and debt sale write backs

•For UK mortgages, a redevelopment of the IFRS 9 staging

approach and criteria has been introduced alongside the

adoption of a new ECL model. At 31 December 2024, the

significant increase in credit risk (SICR) quantitative trigger to

transfer accounts from Stage 1 to Stage 2 is defined as a doubling

of an account’s PD since origination. IFRS 9 staging rules and

triggers for other Retail portfolios are the same as at

31 December 2023. Retail customer related ECL allowance as a

percentage of drawn loans and advances (coverage) is lower at

0.7 per cent (31 December 2023: 0.9 per cent)

•Improvements in the Group’s macroeconomic outlook primarily

in the first half of 2024, combined with improved credit

performance have reduced Stage 2 loans and advances to

11.5 per cent of the Retail portfolio (31 December 2023:

13.3 per cent), of which 92.2 per cent are up to date loans

(31 December 2023: 91.0 per cent). Stage 2 ECL coverage also

reduced slightly to 2.4 per cent (31 December 2023: 2.6 per cent)

•Reductions within UK mortgages, as a result of improved credit

performance in addition to securitisation activity resulted in a

decrease in Retail Stage 3 loans and advances to 1.9 per cent of

total loans and advances (31 December 2023: 2.2 per cent)

•Retail Stage 3 ECL coverage increased slightly to 14.1 per cent

(31 December 2023: 13.9 per cent) as a result of a lower

proportion of UK mortgages, which typically require lower

coverage compared to other Retail products due to security, and

higher Stage 3 ECL coverage for unsecured products following

debt sale activity, which has reduced recoveries balances

reported at net realisable value

UK mortgages

•The UK mortgages portfolio increased to £313.3 billion

(31 December 2023: £307.6 billion), net of the impact of the

securitisation of primarily legacy Retail mortgages, totalling

£2.0 billion of gross loans and advances to customers, in the

second and fourth quarters. Growth was largely driven by strong

application volumes in the first half of the year

•The UK mortgages portfolio is well positioned with low arrears

and a strong loan to value (LTV) profile. The Group has actively

improved the quality of the portfolio in recent years using robust

affordability and credit controls, while the balances of higher risk

legacy vintages have continued to reduce

•New to arrears in the UK mortgages portfolio have reduced in

2024. The Group continues to proactively monitor existing

mortgage customers as they reach the end of fixed rate deals

with customers’ behaviour remaining stable

Lloyds Banking Group plc Annual Report and Accounts 2024

160

Risk management continued

•The impairment credit of £194 million in 2024 increased,

compared to a credit of £51 million for 2023, due to

improvements in the economic outlook and stronger credit

performance

•Stage 2 loans and advances have reduced following

improvements to both the Group’s macroeconomic outlook and

observed performance, which more than offset the

redevelopment of the IFRS 9 staging approach and criteria

following adoption of a new ECL model. At 31 December 2024,

the significant increase in credit risk (SICR) quantitative trigger to

transfer accounts from Stage 1 to Stage 2 is defined as a doubling

of an account’s PD since origination

•Stage 3 loans and advances have reduced due to improved credit

performance and securitisation activity over 2024, which also

reduces total ECL. Improvements to the macroeconomic outlook

result in a reduction in Stage 3 ECL coverage

Credit cards

•Credit card balances increased to £16.2 billion (2023:

£15.8 billion), due to higher demand for new cards and increased

spend

•The credit card portfolio is a prime book. New to arrears have

reduced in 2024 and repayment rates remained strong

•The impairment charge of £270 million for 2024 is lower than the

charge of £457 million in 2023 due to improvements in the

Group’s macroeconomic outlook, in combination with the

release of ECL judgemental adjustments raised to cover the risk

of increased defaults from high inflation and cost-of-living

pressures, given continued resilient portfolio performance. Total

ECL coverage also reduced as a result

•Improvements in the macroeconomic outlook also result in a

reduction in Stage 2 loans and advances, and Stage 2 ECL

coverage

•Resilient observed arrears and default performance has also

resulted in lower Stage 3 loans and advances. Stage 3 ECL

coverage was higher at 50.2 per cent (2023: 45.8 per cent)

following debt sale activity

UK unsecured loans and overdrafts

•UK unsecured loans and overdraft balances increased to

£10.7 billion (2023: £8.5 billion) driven by organic balance growth

and lower repayments following a securitisation in the fourth

quarter of 2023

•Impairment charge of £272 million for 2024 is slightly higher than

the charge of £251 million for 2023, largely in overdrafts where

one-off benefits in the prior year have not repeated

•Improvements in the macroeconomic outlook and release of

inflation judgements reduce total ECL and coverage. Stage 3 ECL

coverage increased following debt sale activity

UK Motor Finance

•The UK Motor Finance portfolio remained broadly flat at

£15.6 billion (31 December 2023: £15.7 billion)

•Updates to Residual Value (RV) and Voluntary Termination (VT)

provisions held against Personal Contract Purchase (PCP) and

Hire Purchase (HP) lending are included within ECL and the

impairment charge. A combination of more stable used car prices

in the second half of the year, as well as utilisation of existing

judgement within this item results in a small decrease to

£178 million as at 31 December 2024 (31 December 2023:

£187 million)

•The impairment charge of £116 million for 2024 is lower than the

charge of £169 million for 2023 as RV provisions decreased

slightly year on year

Other

•Other loans and advances increased to £18.0 billion

(31 December 2023: £16.6 billion), largely driven by the European

business

•Stage 3 loans and advances remained broadly stable at

0.8 per cent of total loans and advances (31 December 2023:

0.9 per cent)

•There was an impairment credit of £7 million in 2024, compared

to a £5 million charge in 2023

Commercial Banking credit performance

Portfolio overview

•The Commercial portfolio credit quality remains broadly stable

and resilient, benefitting from a focused approach to credit

underwriting and monitoring standards and proactively

managing exposures to higher risk and cyclical sectors

•Credit strategies and policy remains robust, and within our credit

risk appetite tolerances. The Group remains cognisant of the

continued relatively elevated interest rate environment

especially in, but not limited to, sectors reliant upon consumer

discretionary spend. Risks include reduced asset valuation and

refinancing risk, a reduction in market liquidity impacting credit

supply and pressure on both household discretionary spending

and business margins

•The Group continues to review segments of our portfolios as

appropriate, ensuring our credit strategies, appetite, sensitivities

and mitigation action plans are up-to-date and suitable for rapid

action in response to both risks and opportunities, whilst

supporting clients in the right way and ensuring the Group is

protected. Credit Playbooks are in place to cover a number of

potential credit downside scenarios and these are regularly

reassessed and updated. Early warning indicators and risk

appetite metrics are in place to ensure the Group tracks and

takes action, where appropriate, including credit risk mitigation

•The Group continues to provide early support to customers in

difficulty through focused risk management via its Watchlist and

Business Support framework. The Group also balances prudent

risk appetite with ensuring support for financially viable clients

Impairments

•Impairment credit of £14 million, reduced from the prior year

which included a significant one-off write-back. The credit in

2024 reflected strong asset quality, a one-off release from model

loss rates and updated economic scenarios. The charge on new

and existing Stage 3 clients remains low

•Customer related ECL allowances decreased in the year to

£985 million at 31 December 2024 (31 December 2023:

£1,165 million), driven by the one-off release in Commercial

Banking from loss rates used in the impairment model in the first

half of the year

•Stage 2 loans and advances decreased to £5,168 million

(31 December 2023: £7,987 million), largely as a result of

improvements in the Group’s macroeconomic outlook, with

93.2 per cent of Stage 2 balances up to date (31 December 2023:

92.8 per cent). Stage 2 as a proportion of total loans and

advances to customers decreased to 5.8 per cent (31 December

2023: 8.9 per cent). Stage 2 ECL coverage was higher at 6.1 per

cent (31 December 2023: 5.6 per cent), with the increase in

coverage largely as a result of a reduction in Stage 2 balances

•Stage 3 loans and advances decreased to £1,839 million

(31 December 2023: £2,068 million) and as a proportion of total

loans and advances to customers, reduced to 2.1 per cent

(31 December 2023: 2.3 per cent). Stage 3 ECL coverage

increased to 26.9 per cent (31 December 2023: 24.1 per cent)

Lloyds Banking Group plc Annual Report and Accounts 2024

161

Total Group assets

Impairment charge (credit) by division – statutory and underlyingA basis


	Loans and advances to customers £m	Loans and advances to banks £m	Debt securities £m	Financial assets at fair value through other comprehensive income £m		Other £m	Undrawn balances £m	2024 £m	2023 £m

UK mortgages	(188)	–	–		–	–	(6)	(194)	(51)
Credit cards	286	–	–		–	–	(16)	270	457
UK unsecured loans and overdrafts	264	–	–		–	–	8	272	251
UK Motor Finance	115	–	–		–	–	1	116	169
Other	(7)	–	–		–	–	–	(7)	5
Retail	470	–	–		–	–	(13)	457	831
Business and Commercial Banking	47	–	–		–	–	–	47	114
Corporate and Institutional Banking	(10)	(7)	(6)		–	–	(38)	(61)	(625)
Commercial Banking	37	(7)	(6)		–	–	(38)	(14)	(511)
Insurance, Pensions and Investments	–	–	–		–	(9)	–	(9)	(12)
Equity Investments and Central Items	–	–	–		(3)	–	–	(3)	(5)
Total impairment charge (credit)	507	(7)	(6)		(3)	(9)	(51)	431	303
Insurance, Pensions and Investments (underlying basis)A	–	–	–		–	(7)	–	(7)	(7)
Total impairment charge (credit) (underlying basis)A	507	(7)	(6)		(3)	(7)	(51)	433	308

Asset quality ratioA								0.10%	0.07%

Credit risk balance sheet basis of presentation

The balance sheet analyses which follow have been presented on two bases; the statutory basis which is consistent with the presentation

in the Group’s accounts and the underlying basis which is used for internal management purposes. A reconciliation between the two bases

has been provided.

In the following statutory basis tables, purchased or originated credit-impaired (POCI) assets include a fixed pool of mortgages that were

purchased as part of the HBOS acquisition at a deep discount to face value reflecting credit losses incurred from the point of origination to

the date of acquisition. The residual expected credit loss (ECL) allowance and resulting low coverage ratio on POCI assets reflects further

deterioration in the creditworthiness from the date of acquisition. Over time, these POCI assets will run off as the loans redeem, pay down

or as loans are written off.

The Group uses the underlying basis to monitor the creditworthiness of the lending portfolio and related ECL allowances because it

provides a different perspective of the credit performance of the POCI assets purchased as part of the HBOS acquisition. The underlying

basis assumes that the lending assets acquired as part of a business combination were originated by the Group and are classified as either

Stage 1, 2 or 3 according to the change in credit risk over the period since origination. Underlying ECL allowances have been calculated

accordingly. Unless otherwise stated, the following credit risk commentary is provided on an underlying basis.

The statutory basis also includes an accounting adjustment within UK Motor Finance required under IFRS 9 to recognise a continuing

involvement asset following the partial derecognition of a component of the Group’s finance lease book via a securitisation in the third

quarter of 2024.

Lloyds Banking Group plc Annual Report and Accounts 2024

162

Risk management continued

Total expected credit loss allowance – statutory and underlyingA basis


	At 31 Dec 2024 £m	At 31 Dec 2023 £m
Customer related balances
Drawn	3,191	3,717
Undrawn	270	322
	3,461	4,039
Loans and advances to banks	1	8
Debt securities	4	11
Other assets	15	26
Total expected credit loss allowance	3,481	4,084
Acquisition fair value adjustment	170	253
Total expected credit loss allowance (underlying basis)A	3,651	4,337
Of which: Customer related balances (underlying basis)A	3,631	4,292
Of which: Drawn (underlying basis)A	3,361	3,970

Movements in total expected credit loss allowance – statutory and underlyingA basis


	Opening ECL at 31 Dec 2023 £m	Write-offs and other1 £m	Income statement charge (credit) £m	Net ECL increase (decrease) £m	Closing ECL at 31 Dec 2024 £m


UK mortgages2	1,115	(69)	(194)	(263)	852
Credit cards	810	(406)	270	(136)	674
UK unsecured loans and overdrafts	515	(264)	272	8	523
UK Motor Finance	342	(98)	116	18	360
Other	88	(14)	(7)	(21)	67
Retail	2,870	(851)	457	(394)	2,476
Business and Commercial Banking	538	(100)	47	(53)	485
Corporate and Institutional Banking	644	(79)	(61)	(140)	504
Commercial Banking	1,182	(179)	(14)	(193)	989
Insurance, Pensions and Investments	26	(2)	(9)	(11)	15
Equity Investments and Central Items	6	(2)	(3)	(5)	1
Total3	4,084	(1,034)	431	(603)	3,481



UK mortgages (underlying basis)A,4	1,368	(152)	(194)	(346)	1,022
Retail (underlying basis)A	3,123	(934)	457	(477)	2,646
Insurance, Pensions and Investments (underlying basis)A	26	(4)	(7)	(11)	15
Total (underlying basis)A	4,337	(1,119)	433	(686)	3,651

1Contains adjustments in respect of purchased or originated credit-impaired financial assets.

2Includes £53 million within write-offs and other relating to the securitisation of primarily legacy Retail mortgages, totalling £2.0 billion of gross loans and advances to customers.

3Total ECL includes £20 million relating to other non-customer-related assets (31 December 2023: £45 million).

4Includes £81 million within write-offs and other relating to the securitisation of primarily legacy Retail mortgages, totalling £2.0 billion of gross loans and advances to customers.

Total expected credit loss allowance sensitivity to economic assumptions – statutory and underlyingA basis

The measurement of ECL reflects an unbiased probability-weighted range of possible future economic outcomes. The Group achieves this

by generating four economic scenarios to reflect the range of outcomes; the central scenario reflects the Group’s base case assumptions

used for medium-term planning purposes, an upside and a downside scenario are also selected together with a severe downside scenario. If

the base case moves adversely, it generates a new, more adverse downside and severe downside which are then incorporated into the ECL.

Consistent with prior years, the base case, upside and downside scenarios carry a 30 per cent weighting; the severe downside is weighted

at 10 per cent.

The following table shows the Group’s 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 on a statutory basis being £445 million compared to £678 million at

31 December 2023.

Lloyds Banking Group plc Annual Report and Accounts 2024

163


	Probability- weighted £m	Upside £m	Base case £m	Downside £m	Severe downside £m

UK mortgages	852	345	567	1,064	2,596
Credit cards	674	518	641	773	945
Other Retail	950	843	923	1,010	1,172
Commercial Banking	989	745	889	1,125	1,608
Other	16	16	16	16	17
At 31 December 2024	3,481	2,467	3,036	3,988	6,338
UK mortgages (underlying basis)A	1,022	512	735	1,235	2,773
At 31 December 2024 (underlying basis)A	3,651	2,634	3,204	4,159	6,515

UK mortgages	1,115	395	670	1,155	4,485
Credit cards	810	600	771	918	1,235
Other Retail	945	850	920	981	1,200
Commercial Banking	1,182	793	1,013	1,383	2,250
Other	32	32	32	32	32
At 31 December 2023	4,084	2,670	3,406	4,469	9,202
UK mortgages (underlying basis)A	1,368	650	930	1,400	4,738
At 31 December 2023 (underlying basis)A	4,337	2,925	3,666	4,714	9,455

Group loans and advances to customers

The following pages contain analysis of the Group’s loans and advances to customers by sub-portfolio. Loans and advances to customers

are categorised into the following stages:

•Stage 1 assets comprise of newly originated assets (unless purchased or originated credit-impaired), as well as those which have not

experienced a significant increase in credit risk. These assets carry an expected credit loss allowance equivalent to the expected credit

losses that result from those default events that are possible within 12 months of the reporting date (12 month expected credit losses).

•Stage 2 assets are those which have experienced a significant increase in credit risk since origination. These assets carry an expected

credit loss allowance equivalent to the expected credit losses arising over the lifetime of the asset (lifetime expected credit losses).

•Stage 3 assets have either defaulted or are otherwise considered to be credit-impaired. These assets carry a lifetime expected credit

loss.

•Purchased or originated credit-impaired assets (POCI) are those that have been originated or acquired in a credit-impaired state. This

includes within the definition of credit-impaired the purchase of a financial asset at a deep discount that reflects impaired credit losses.

Reconciliation between statutory and underlying bases of gross loans and advances to customers and expected credit loss

allowance on drawn balances


	Gross loans and advances to customers					Expected credit loss allowance on drawn balances
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
At 31 December 2024
Underlying basisA	405,324	48,075	9,021	–	462,420	736	1,199	1,426	–	3,361
POCI assets	(762)	(3,310)	(2,305)	6,377	–	–	(39)	(318)	357	–
Acquisition fair value adjustment	–	–	–	(170)	(170)	–	–	–	(170)	(170)
Continuing use asset	798	–	–	–	798	–	–	–	–	–
	36	(3,310)	(2,305)	6,207	628	–	(39)	(318)	187	(170)
Statutory basis	405,360	44,765	6,716	6,207	463,048	736	1,160	1,108	187	3,191
At 31 December 2023
Underlying basisA	387,060	56,545	10,110	–	453,715	901	1,532	1,537	–	3,970
POCI assets	(1,766)	(3,378)	(2,963)	8,107	–	(1)	(65)	(400)	466	–
Acquisition fair value adjustment	–	–	–	(253)	(253)	–	–	–	(253)	(253)
	(1,766)	(3,378)	(2,963)	7,854	(253)	(1)	(65)	(400)	213	(253)
Statutory basis	385,294	53,167	7,147	7,854	453,462	900	1,467	1,137	213	3,717

Lloyds Banking Group plc Annual Report and Accounts 2024

164

Risk management continued

Loans and advances to customers and expected credit loss allowance – statutory and underlyingA basis


At 31 December 2024	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 2 as % of total %	Stage 3 as % of total %

Loans and advances to customers
UK mortgages	269,760	32,995	4,166	6,207	313,128	10.5	1.3
Credit cards	13,534	2,441	265	–	16,240	15.0	1.6
UK unsecured loans and overdrafts	9,314	1,247	175	–	10,736	11.6	1.6
UK Motor Finance	13,897	2,398	124	–	16,419	14.6	0.8
Other	17,373	516	147	–	18,036	2.9	0.8
Retail	323,878	39,597	4,877	6,207	374,559	10.6	1.3
Business and Commercial Banking	25,785	3,172	1,197	–	30,154	10.5	4.0
Corporate and Institutional Banking	55,692	1,996	642	–	58,330	3.4	1.1
Commercial Banking	81,477	5,168	1,839	–	88,484	5.8	2.1
Equity Investments and Central Items1	5	–	–	–	5	–	–
Total gross lending	405,360	44,765	6,716	6,207	463,048	9.7	1.5
UK mortgages (underlying basis)A,2	270,522	36,305	6,471		313,298	11.6	2.1
UK Motor Finance (underlying basis)A,3	13,099	2,398	124		15,621	15.4	0.8
Retail (underlying basis)A	323,842	42,907	7,182		373,931	11.5	1.9
Total gross lending (underlying basis)A	405,324	48,075	9,021		462,420	10.4	2.0

Customer related ECL allowance (drawn and undrawn)
UK mortgages	55	275	335	187	852
Credit cards	210	331	133	–	674
UK unsecured loans and overdrafts	170	235	118	–	523
UK Motor Finance4	173	115	72	–	360
Other	16	14	37	–	67
Retail	624	970	695	187	2,476
Business and Commercial Banking	132	187	166	–	485
Corporate and Institutional Banking	122	129	249	–	500
Commercial Banking	254	316	415	–	985
Equity Investments and Central Items	–	–	–	–	–
Total	878	1,286	1,110	187	3,461
UK mortgages (underlying basis)A,2	55	314	653		1,022
UK Motor Finance (underlying basis)A,3	173	115	72		360
Retail (underlying basis)A	624	1,009	1,013		2,646
Total (underlying basis)A	878	1,325	1,428		3,631

Customer related ECL allowance (drawn and undrawn) as a percentage of loans and advances to customers
	Stage 1 %	Stage 2 %	Stage 3 %	POCI %	Total %	Adjusted Stage 35 %	Adjusted Total5 %

UK mortgages	–	0.8	8.0	3.0	0.3
Credit cards	1.6	13.6	50.2	–	4.2
UK unsecured loans and overdrafts	1.8	18.8	67.4	–	4.9
UK Motor Finance	1.2	4.8	58.1	–	2.2
Other	0.1	2.7	25.2	–	0.4
Retail	0.2	2.4	14.3	3.0	0.7
Business and Commercial Banking	0.5	5.9	13.9	–	1.6	18.4	1.6
Corporate and Institutional Banking	0.2	6.5	38.8	–	0.9	38.8	0.9
Commercial Banking	0.3	6.1	22.6	–	1.1	26.9	1.1
Equity Investments and Central Items	–	–	–	–	–
Total	0.2	2.9	16.5	3.0	0.7	17.3	0.7
UK mortgages (underlying basis)A,2	–	0.9	10.1		0.3
UK Motor Finance (underlying basis)A,3	1.3	4.8	58.1		2.3
Retail (underlying basis)A	0.2	2.4	14.1		0.7
Total (underlying basis)A	0.2	2.8	15.8		0.8	16.4	0.8

1Contains central fair value hedge accounting adjustments.

2UK mortgages balances on an underlying basisA exclude the impact of the HBOS acquisition-related adjustments.

3UK Motor Finance balances on an underlying basisA at 31 December 2024 exclude a finance lease gross up.

4UK Motor Finance includes £178 million relating to provisions against residual values of vehicles subject to finance leases.

5Stage 3 and Total exclude loans in recoveries in Business and Commercial Banking of £296 million and Corporate and Institutional Banking of £1 million.

Lloyds Banking Group plc Annual Report and Accounts 2024

165


At 31 December 2023	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 2 as % of total %	Stage 3 as % of total %

Loans and advances to customers
UK mortgages	256,596	38,533	4,337	7,854	307,320	12.5	1.4
Credit cards	12,625	2,908	284	–	15,817	18.4	1.8
UK unsecured loans and overdrafts	7,103	1,187	196	–	8,486	14.0	2.3
UK Motor Finance	13,541	2,027	112	–	15,680	12.9	0.7
Other	15,898	525	144	–	16,567	3.2	0.9
Retail	305,763	45,180	5,073	7,854	363,870	12.4	1.4
Business and Commercial Banking	27,525	4,458	1,530	–	33,513	13.3	4.6
Corporate and Institutional Banking	52,049	3,529	538	–	56,116	6.3	1.0
Commercial Banking	79,574	7,987	2,068	–	89,629	8.9	2.3
Equity Investments and Central Items1	(43)	–	6	–	(37)
Total gross lending	385,294	53,167	7,147	7,854	453,462	11.7	1.6
UK mortgages (underlying basis)A,2	258,362	41,911	7,300		307,573	13.6	2.4
Retail (underlying basis)A	307,529	48,558	8,036		364,123	13.3	2.2
Total gross lending (underlying basis)A	387,060	56,545	10,110		453,715	12.5	2.2

Customer related ECL allowance (drawn and undrawn)
UK mortgages	169	376	357	213	1,115
Credit cards	234	446	130	–	810
UK unsecured loans and overdrafts	153	244	118	–	515
UK Motor Finance3	188	91	63	–	342
Other	20	21	47	–	88
Retail	764	1,178	715	213	2,870
Business and Commercial Banking	140	231	167	–	538
Corporate and Institutional Banking	156	218	253	–	627
Commercial Banking	296	449	420	–	1,165
Equity Investments and Central Items	–	–	4	–	4
Total	1,060	1,627	1,139	213	4,039
UK mortgages (underlying basis)A,2	170	441	757		1,368
Retail (underlying basis)A	765	1,243	1,115		3,123
Total (underlying basis)A	1,061	1,692	1,539		4,292

Customer related ECL allowance (drawn and undrawn) as a percentage of loans and advances to customers
	Stage 1 %	Stage 2 %	Stage 3 %	POCI %	Total %	Adjusted Stage 34 %	Adjusted Total4 %

UK mortgages	0.1	1.0	8.2	2.7	0.4
Credit cards	1.9	15.3	45.8	–	5.1	49.4	5.1
UK unsecured loans and overdrafts	2.2	20.6	60.2	–	6.1	65.6	6.1
UK Motor Finance	1.4	4.5	56.3	–	2.2
Other	0.1	4.0	32.6	–	0.5
Retail	0.2	2.6	14.1	2.7	0.8	14.2	0.8
Business and Commercial Banking	0.5	5.2	10.9	–	1.6	13.9	1.6
Corporate and Institutional Banking	0.3	6.2	47.0	–	1.1
Commercial Banking	0.4	5.6	20.3	–	1.3	24.1	1.3
Equity Investments and Central Items		–	66.7	–
Total	0.3	3.1	15.9	2.7	0.9	16.8	0.9
UK mortgages (underlying basis)A,2	0.1	1.1	10.4		0.4
Retail (underlying basis)A	0.2	2.6	13.9		0.9	13.9	0.9
Total (underlying basis)A	0.3	3.0	15.8		0.9	15.8	0.9

1Contains central fair value hedge accounting adjustments.

2UK mortgages balances on an underlying basisA exclude the impact of the HBOS acquisition-related adjustments.

3UK Motor Finance includes £187 million relating to provisions against residual values of vehicles subject to finance leases.

4Stage 3 and Total exclude loans in recoveries in credit cards of £21 million, UK unsecured loans and overdrafts of £16 million and Business and Commercial Banking of £327 million.

Lloyds Banking Group plc Annual Report and Accounts 2024

166

Risk management continued

Stage 2 loans and advances to customers and expected credit loss allowance – statutory and underlyingA basis


	Up to date										1-30 days past due2					Over 30 days past due
	PD movements					Other1					1-30 days past due2					Over 30 days past due
Gross lending £m		ECL3 £m	As % of gross lending %		Gross lending £m		ECL3 £m	As % of gross lending %		Gross lending £m		ECL3 £m	As % of gross lending %		Gross lending £m		ECL3 £m	As % of gross lending %
At 31 December 2024
UK mortgages	28,909	191		0.7		1,869	38		2.0		1,240	22		1.8		977	24		2.5
Credit cards	2,174	248		11.4		149	43		28.9		83	24		28.9		35	16		45.7
UK unsecured loans and overdrafts	630	129		20.5		439	52		11.8		131	36		27.5		47	18		38.3
UK Motor Finance	1,192	49		4.1		1,029	30		2.9		141	25		17.7		36	11		30.6
Other	103	3		2.9		321	7		2.2		37	2		5.4		55	2		3.6
Retail	33,008	620		1.9		3,807	170		4.5		1,632	109		6.7		1,150	71		6.2
Business and Commercial Banking	2,445	154		6.3		426	18		4.2		176	10		5.7		125	5		4.0
Corporate and Institutional Banking	1,903	125		6.6		45	1		2.2		6	–		–		42	3		7.1
Commercial Banking	4,348	279		6.4		471	19		4.0		182	10		5.5		167	8		4.8
Total	37,356	899		2.4		4,278	189		4.4		1,814	119		6.6		1,317	79		6.0
UK mortgages (underlying basis)A	31,510	216		0.7		2,000	41		2.1		1,559	27		1.7		1,236	30		2.4
Retail (underlying basis)A	35,609	645		1.8		3,938	173		4.4		1,951	114		5.8		1,409	77		5.5
Total (underlying basis)A	39,957	924		2.3		4,409	192		4.4		2,133	124		5.8		1,576	85		5.4

At 31 December 2023
UK mortgages	26,665	146		0.5		9,024	133		1.5		1,771	52		2.9		1,073	45		4.2
Credit cards	2,612	345		13.2		145	49		33.8		115	34		29.6		36	18		50.0
UK unsecured loans and overdrafts	756	148		19.6		279	46		16.5		112	34		30.4		40	16		40.0
UK Motor Finance	735	30		4.1		1,120	30		2.7		138	21		15.2		34	10		29.4
Other	125	5		4.0		295	7		2.4		52	5		9.6		53	4		7.5
Retail	30,893	674		2.2		10,863	265		2.4		2,188	146		6.7		1,236	93		7.5
Business and Commercial Banking	3,455	202		5.8		590	17		2.9		253	8		3.2		160	4		2.5
Corporate and Institutional Banking	3,356	214		6.4		14	–		–		28	3		10.7		131	1		0.8
Commercial Banking	6,811	416		6.1		604	17		2.8		281	11		3.9		291	5		1.7
Total	37,704	1,090		2.9		11,467	282		2.5		2,469	157		6.4		1,527	98		6.4
UK mortgages (underlying basis)A	28,126	157		0.6		9,990	156		1.6		2,297	64		2.8		1,498	64		4.3
Retail (underlying basis)A	32,354	685		2.1		11,829	288		2.4		2,714	158		5.8		1,661	112		6.7
Total (underlying basis)A	39,165	1,101		2.8		12,433	305		2.5		2,995	169		5.6		1,952	117		6.0

1Includes forbearance, client and product-specific indicators not reflected within quantitative PD assessments.

2Includes assets that have triggered PD movements, or other rules, given that being 1 to 29 days in arrears in and of itself is not a Stage 2 trigger.

3Expected credit loss allowance on loans and advances to customers (drawn and undrawn).

The Group’s assessment of a significant increase in credit risk, and resulting categorisation of Stage 2, includes customers moving into early

arrears as well as a broader assessment that an up to date customer has experienced a level of deterioration in credit risk since origination.

A more sophisticated assessment is required for up to date customers, which varies across divisions and product type. This assessment

incorporates specific triggers such as a significant proportionate increase in probability of default relative to that at origination, recent

arrears, forbearance activity, internal watch lists and external bureau flags. Up to date exposures in Stage 2 are likely to show lower levels

of expected credit loss (ECL) allowance relative to those that have already moved into arrears given that an arrears status typically reflects

a stronger indication of future default and greater likelihood of credit losses.

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Movements in balances for the year ended 31 December 2024 (audited)

The movement tables below are compiled by comparing the position at the end of the period 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 the end of the period. Purchased or originated credit-impaired are not transferable.

Additions and repayments comprise new loans originated and repayments of outstanding balances throughout the reporting period.

The Group’s 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 amounts previously written off are shown at the full recovered value, with a corresponding entry in repayments and release of

allowance through other changes in credit quality.

Movements in the gross carrying amount for loans and advances to customers and for allowance for expected credit losses were as follows:


	Gross carrying amount					Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
At 1 January 2024	385,294	53,167	7,147	7,854	453,462	900	1,467	1,137	213	3,717
Exchange and other adjustments1	(910)	(23)	(74)	12	(995)	(12)	(6)	21	53	56
Transfers to Stage 1	25,658	(25,607)	(51)		–	413	(404)	(9)		–
Transfers to Stage 2	(25,390)	25,967	(577)		–	(66)	126	(60)		–
Transfers to Stage 3	(1,104)	(2,119)	3,223		–	(21)	(178)	199		–
Net change in ECL due to transfers						(293)	340	303		350
Impact of transfers between stages2	(836)	(1,759)	2,595		–	33	(116)	433		350
Other changes in credit quality2						(130)	(66)	709	66	579
Additions and repayments	22,529	(6,140)	(1,612)	(910)	13,867	(50)	(107)	(193)	(72)	(422)
Charge (credit) to the income statement						(147)	(289)	949	(6)	507
Disposals and derecognition3	(717)	(480)	(366)	(694)	(2,257)	(5)	(12)	(25)	(18)	(60)
Advances written off			(1,174)	(55)	(1,229)			(1,174)	(55)	(1,229)
Recoveries of amounts previously written off			200	–	200			200	–	200
At 31 December 2024	405,360	44,765	6,716	6,207	463,048	736	1,160	1,108	187	3,191
Allowance for expected credit losses	(736)	(1,160)	(1,108)	(187)	(3,191)
Net carrying amount	404,624	43,605	5,608	6,020	459,857
Drawn ECL coverage4 (%)	0.2	2.6	16.5	3.0	0.7

1Exchange 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’s 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.

2Includes a credit for methodology and model changes of £24 million, split by stage as £20 million credit for Stage 1, £2 million charge for Stage 2, £15 million charge for Stage 3 and £21

million credit for POCI.

3Relates to the securitisations of primarily legacy Retail mortgages.

4Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.

The total allowance for expected credit losses includes £178 million (2023: £187 million) in respect of residual value impairment and

voluntary terminations within the Group’s UK Motor Finance business.

Lloyds Banking Group plc Annual Report and Accounts 2024

168

Risk management continued

Movements in Retail UK mortgage balances were as follows:


	Gross carrying amount					Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
Retail – UK mortgages
At 1 January 2024	256,596	38,533	4,337	7,854	307,320	161	374	357	213	1,105
Exchange and other adjustments1	–	–	–	12	12	1	–	50	53	104
Transfers to Stage 1	21,133	(21,105)	(28)		–	135	(132)	(3)		–
Transfers to Stage 2	(21,077)	21,473	(396)		–	(11)	32	(21)		–
Transfers to Stage 3	(299)	(1,341)	1,640		–	–	(39)	39		–
Net change in ECL due to transfers						(122)	114	56		48
Impact of transfers between stages2	(243)	(973)	1,216		–	2	(25)	71		48
Other changes in credit quality2						(94)	(19)	26	66	(21)
Additions and repayments	13,901	(4,143)	(956)	(910)	7,892	(16)	(48)	(79)	(72)	(215)
Charge (credit) to the income statement						(108)	(92)	18	(6)	(188)
Disposals and derecognition3	(494)	(422)	(366)	(694)	(1,976)	(1)	(9)	(25)	(18)	(53)
Advances written off			(70)	(55)	(125)			(70)	(55)	(125)
Recoveries of amounts previously written off			5	–	5			5	–	5
At 31 December 2024	269,760	32,995	4,166	6,207	313,128	53	273	335	187	848
Allowance for expected credit losses	(53)	(273)	(335)	(187)	(848)
Net carrying amount	269,707	32,722	3,831	6,020	312,280
Drawn ECL coverage4 (%)	–	0.8	8.0	3.0	0.3

1Exchange 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’s 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.

2Includes a charge for methodology and model changes of £7 million, split by stage as £1 million charge for Stage 1, £9 million charge for Stage 2, £18 million charge for Stage 3 and £21

million credit for POCI.

3Relates to the securitisations of primarily legacy Retail mortgages.

4Allowance 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 £m	Stage 2 £m	Stage 3 £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
Retail – credit cards
At 1 January 2024	12,625	2,908	284	15,817	168	401	130	699
Exchange and other adjustments	–	–	–	–	–	–	(18)	(18)
Transfers to Stage 1	1,162	(1,162)	–	–	128	(128)	–	–
Transfers to Stage 2	(642)	683	(41)	–	(13)	31	(18)	–
Transfers to Stage 3	(184)	(241)	425	–	(5)	(65)	70	–
Net change in ECL due to transfers					(71)	84	84	97
Impact of transfers between stages	336	(720)	384	–	39	(78)	136	97
Other changes in credit quality					(31)	(22)	284	231
Additions and repayments	573	253	(15)	811	(27)	(4)	(11)	(42)
Charge to the income statement					(19)	(104)	409	286
Advances written off			(506)	(506)			(506)	(506)
Recoveries of amounts previously written off			118	118			118	118
At 31 December 2024	13,534	2,441	265	16,240	149	297	133	579
Allowance for expected credit losses	(149)	(297)	(133)	(579)
Net carrying amount	13,385	2,144	132	15,661
Drawn ECL coverage1 (%)	1.1	12.2	50.2	3.6

1Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.

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169

Movements in Commercial Banking lending were as follows:


	Gross carrying amount				Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
Commercial Banking
At 1 January 2024	79,574	7,987	2,068	89,629	232	372	418	1,022
Exchange and other adjustments	(103)	(5)	(64)	(172)	(13)	(5)	1	(17)
Transfers to Stage 1	2,361	(2,347)	(14)	–	86	(85)	(1)	–
Transfers to Stage 2	(1,850)	1,951	(101)	–	(12)	13	(1)	–
Transfers to Stage 3	(301)	(258)	559	–	(4)	(19)	23	–
Net change in ECL due to transfers					(63)	70	62	69
Impact of transfers between stages1	210	(654)	444	–	7	(21)	83	69
Other changes in credit quality1					(11)	(20)	152	121
Additions and repayments	1,796	(2,160)	(449)	(813)	(10)	(62)	(81)	(153)
Charge to the income statement					(14)	(103)	154	37
Advances written off			(163)	(163)			(163)	(163)
Recoveries of amounts previously written off			3	3			3	3
At 31 December 2024	81,477	5,168	1,839	88,484	205	264	413	882
Allowance for expected credit losses	(205)	(264)	(413)	(882)
Net carrying amount	81,272	4,904	1,426	87,602
Drawn ECL coverage2 (%)	0.3	5.1	22.5	1.0

1Includes a credit for methodology and model changes of £25 million, split by stage as £17 million credit for Stage 1, £8 million credit for Stage 2 and £nil for Stage 3.

2Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.

Movements in balances for the year ended 31 December 2023 (audited)


	Gross carrying amount					Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
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 adjustments1	1,830	(24)	(6)	18	1,818	(7)	(1)	105	67	164
Transfers to Stage 1	18,991	(18,953)	(38)		–	401	(393)	(8)		–
Transfers to Stage 2	(18,010)	18,592	(582)		–	(53)	121	(68)		–
Transfers to Stage 3	(1,216)	(2,507)	3,723		–	(13)	(223)	236		–
Net change in ECL due to transfers						(260)	402	312		454
Impact of transfers between stages	(235)	(2,868)	3,103		–	75	(93)	472		454
Other changes in credit quality2						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 derecognition3	(3,685)	(892)	(122)	(743)	(5,442)	(54)	(59)	(24)	(34)	(171)
Advances written off			(1,231)	–	(1,231)			(1,231)	–	(1,231)
Recoveries of amounts previously written off			116	–	116			116	–	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 expected credit losses	(900)	(1,467)	(1,137)	(213)	(3,717)
Net carrying amount	384,394	51,700	6,010	7,641	449,745
Drawn ECL coverage4 (%)	0.2	2.8	15.9	2.7	0.8

1Exchange 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’s 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.

2Includes a charge for methodology and model changes of £60 million, split by stage as £96 million charge for Stage 1, £33 million credit for Stage 2, £1 million credit for Stage 3 and

£2 million credit for POCI.

3Relates to the securitisations of primarily legacy Retail mortgages and Retail unsecured loans.

4Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.

Lloyds Banking Group plc Annual Report and Accounts 2024

170

Risk management continued

Movements in Retail UK mortgage balances were as follows:


	Gross carrying amount					Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
Retail – 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 adjustments1	–	–	–	18	18	–	–	53	67	120
Transfers to Stage 1	12,202	(12,195)	(7)		–	66	(65)	(1)		–
Transfers to Stage 2	(12,673)	13,103	(430)		–	(7)	33	(26)		–
Transfers to Stage 3	(450)	(1,656)	2,106		–	–	(66)	66		–
Net change in ECL due to transfers						(50)	91	115		156
Impact of transfers between stages	(921)	(748)	1,669		–	9	(7)	154		156
Other changes in credit quality2						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 derecognition3	(1,202)	(547)	(94)	(743)	(2,586)	(1)	(18)	(7)	(34)	(60)
Advances written off			(108)	–	(108)			(108)	–	(108)
Recoveries of amounts previously written off			7	–	7			7	–	7
At 31 December 2023	256,596	38,533	4,337	7,854	307,320	161	374	357	213	1,105
Allowance for expected credit losses	(161)	(374)	(357)	(213)	(1,105)
Net carrying amount	256,435	38,159	3,980	7,641	306,215
Drawn ECL coverage4 (%)	0.1	1.0	8.2	2.7	0.4

1Exchange 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’s 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.

2Includes a charge for methodology and model changes of £74 million, split by stage as £91 million charge for Stage 1, £12 million credit for Stage 2, £3 million credit for Stage 3 and

£2 million credit for POCI.

3Relates to the securitisations of primarily legacy Retail mortgages.

4Allowance 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 £m	Stage 2 £m	Stage 3 £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
Retail – credit cards
At 1 January 2023	11,416	3,287	289	14,992	120	433	113	666
Exchange and other adjustments	–	–	–	–	–	–	(16)	(16)
Transfers to Stage 1	1,311	(1,308)	(3)	–	142	(141)	(1)	–
Transfers to Stage 2	(744)	782	(38)	–	(11)	28	(17)	–
Transfers to Stage 3	(172)	(266)	438	–	(4)	(69)	73	–
Net changes in ECL due to transfers					(80)	125	80	125
Impact of transfers between stages	395	(792)	397	–	47	(57)	135	125
Other changes in credit quality1					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 amounts previously written off			60	60			60	60
At 31 December 2023	12,625	2,908	284	15,817	168	401	130	699
Allowance for expected credit losses	(168)	(401)	(130)	(699)
Net carrying amount	12,457	2,507	154	15,118
Drawn ECL coverage2 (%)	1.3	13.8	45.8	4.4

1Includes a credit for methodology and model changes of £18 million, split by stage as £2 million charge for Stage 1, £20 million credit for Stage 2 and £nil for Stage 3.

2Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.

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Movements in Commercial Banking lending were as follows:


	Gross carrying amount				Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
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)	–	83	77
Transfers to Stage 1	4,026	(4,011)	(15)	–	101	(101)	–	–
Transfers to Stage 2	(3,074)	3,143	(69)	–	(16)	19	(3)	–
Transfers to Stage 3	(369)	(327)	696	–	(3)	(26)	29	–
Net changes in ECL due to transfers					(76)	117	32	73
Impact of transfers between stages	583	(1,195)	612	–	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 amounts previously written off			4	4			4	4
At 31 December 2023	79,574	7,987	2,068	89,629	232	372	418	1,022
Allowance for expected credit losses	(232)	(372)	(418)	(1,022)
Net carrying amount	79,342	7,615	1,650	88,607
Drawn ECL coverage1 (%)	0.3	4.7	20.2	1.1

1Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.

Credit quality of loans and advances to customers (audited)

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 1–3	0.00–0.80%	CMS 1–5	0.000–0.100%
RMS 4–6	0.81–4.50%	CMS 6–10	0.101–0.500%
RMS 7–9	4.51–14.00%	CMS 11–14	0.501–3.000%
RMS 10	14.01–20.00%	CMS 15–18	3.001–20.000%
RMS 11–13	20.01–99.99%	CMS 19	20.001–99.999%
RMS 14	100.00%	CMS 20–23	100.000%

Stage 3 assets include balances of £297 million (2023: £364 million) (with outstanding amounts due of £971 million (2023: £1,167 million))

which have been subject to a partial write-off and where the Group continues to enforce recovery action.

There were no modifications of Stage 2 and Stage 3 assets during the year (2023: £180 million). No material gain or loss was recognised by

the Group.

As at 31 December 2024 there were no (2023: £5 million) significant assets that had been previously modified while classified as Stage 2 or

Stage 3 and were classified as Stage 1.

Lloyds Banking Group plc Annual Report and Accounts 2024

172

Risk management continued


	Drawn exposures					Allowance for expected credit losses
Gross drawn exposures and expected credit loss allowance (audited)	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
At 31 December 2024
Retail – UK mortgages
RMS 1–3	261,101	21,213	–	–	282,314	46	143	–	–	189
RMS 4–6	8,487	7,384	–	–	15,871	6	51	–	–	57
RMS 7–9	112	1,296	–	–	1,408	–	15	–	–	15
RMS 10	17	273	–	–	290	–	5	–	–	5
RMS 11–13	43	2,829	–	–	2,872	1	59	–	–	60
RMS 14	–	–	4,166	6,207	10,373	–	–	335	187	522
	269,760	32,995	4,166	6,207	313,128	53	273	335	187	848
Retail – credit cards
RMS 1–3	5,058	10	–	–	5,068	11	1	–	–	12
RMS 4–6	7,231	1,129	–	–	8,360	87	52	–	–	139
RMS 7–9	1,242	859	–	–	2,101	51	107	–	–	158
RMS 10	3	149	–	–	152	–	31	–	–	31
RMS 11–13	–	294	–	–	294	–	106	–	–	106
RMS 14	–	–	265	–	265	–	–	133	–	133
	13,534	2,441	265	–	16,240	149	297	133	–	579
Retail – UK unsecured loans and overdrafts
RMS 1–3	1,207	2	–	–	1,209	3	–	–	–	3
RMS 4–6	7,020	484	–	–	7,504	98	27	–	–	125
RMS 7–9	1,047	307	–	–	1,354	40	36	–	–	76
RMS 10	31	111	–	–	142	3	22	–	–	25
RMS 11–13	9	343	–	–	352	1	112	–	–	113
RMS 14	–	–	175	–	175	–	–	118	–	118
	9,314	1,247	175	–	10,736	145	197	118	–	460
Retail – UK Motor Finance
RMS 1–3	8,967	760	–	–	9,727	112	16	–	–	128
RMS 4–6	4,487	1,169	–	–	5,656	55	40	–	–	95
RMS 7–9	440	247	–	–	687	2	17	–	–	19
RMS 10	–	46	–	–	46	–	6	–	–	6
RMS 11–13	3	176	–	–	179	–	36	–	–	36
RMS 14	–	–	124	–	124	–	–	72	–	72
	13,897	2,398	124	–	16,419	169	115	72	–	356
Retail – other
RMS 1–3	15,163	238	–	–	15,401	4	4	–	–	8
RMS 4–6	2,132	190	–	–	2,322	11	7	–	–	18
RMS 7–9	78	72	–	–	150	–	3	–	–	3
RMS 10	–	7	–	–	7	–	–	–	–	–
RMS 11–13	–	9	–	–	9	–	–	–	–	–
RMS 14	–	–	147	–	147	–	–	37	–	37
	17,373	516	147	–	18,036	15	14	37	–	66
Total Retail	323,878	39,597	4,877	6,207	374,559	531	896	695	187	2,309
Commercial Banking
CMS 1–5	26,925	6	–	–	26,931	3	–	–	–	3
CMS 6–10	17,126	56	–	–	17,182	13	–	–	–	13
CMS 11–14	32,424	1,128	–	–	33,552	122	21	–	–	143
CMS 15–18	5,002	3,253	–	–	8,255	67	166	–	–	233
CMS 19	–	725	–	–	725	–	77	–	–	77
CMS 20–23	–	–	1,839	–	1,839	–	–	413	–	413
	81,477	5,168	1,839	–	88,484	205	264	413	–	882
Other1	5	–	–	–	5	–	–	–	–	–
Total loans and advances to customers	405,360	44,765	6,716	6,207	463,048	736	1,160	1,108	187	3,191

1Drawn exposures include centralised fair value hedge accounting adjustments.

Lloyds Banking Group plc Annual Report and Accounts 2024

173


	Drawn exposures					Allowance for expected credit losses
Gross drawn exposures and expected credit loss allowance (audited)	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
At 31 December 2023
Retail – UK mortgages
RMS 1–3	226,740	4,137	–	–	230,877	123	37	–	–	160
RMS 4–6	29,637	27,037	–	–	56,674	38	151	–	–	189
RMS 7–9	219	2,713	–	–	2,932	–	37	–	–	37
RMS 10	–	590	–	–	590	–	13	–	–	13
RMS 11–13	–	4,056	–	–	4,056	–	136	–	–	136
RMS 14	–	–	4,337	7,854	12,191	–	–	357	213	570
	256,596	38,533	4,337	7,854	307,320	161	374	357	213	1,105
Retail – credit cards
RMS 1–3	3,906	5	–	–	3,911	9	–	–	–	9
RMS 4–6	7,159	1,248	–	–	8,407	91	65	–	–	156
RMS 7–9	1,548	1,069	–	–	2,617	67	145	–	–	212
RMS 10	12	220	–	–	232	1	50	–	–	51
RMS 11–13	–	366	–	–	366	–	141	–	–	141
RMS 14	–	–	284	–	284	–	–	130	–	130
	12,625	2,908	284	–	15,817	168	401	130	–	699
Retail – UK unsecured loans and overdrafts
RMS 1–3	638	1	–	–	639	1	–	–	–	1
RMS 4–6	5,152	250	–	–	5,402	83	18	–	–	101
RMS 7–9	1,256	473	–	–	1,729	44	50	–	–	94
RMS 10	43	135	–	–	178	4	27	–	–	31
RMS 11–13	14	328	–	–	342	2	113	–	–	115
RMS 14	–	–	196	–	196	–	–	118	–	118
	7,103	1,187	196	–	8,486	134	208	118	–	460
Retail – UK Motor Finance
RMS 1–3	9,979	569	–	–	10,548	142	12	–	–	154
RMS 4–6	2,791	998	–	–	3,789	41	29	–	–	70
RMS 7–9	769	228	–	–	997	3	13	–	–	16
RMS 10	–	63	–	–	63	–	7	–	–	7
RMS 11–13	2	169	–	–	171	–	30	–	–	30
RMS 14	–	–	112	–	112	–	–	63	–	63
	13,541	2,027	112	–	15,680	186	91	63	–	340
Retail – other
RMS 1–3	13,613	240	–	–	13,853	3	4	–	–	7
RMS 4–6	2,197	186	–	–	2,383	16	13	–	–	29
RMS 7–9	–	86	–	–	86	–	4	–	–	4
RMS 10	–	6	–	–	6	–	–	–	–	–
RMS 11–13	88	7	–	–	95	–	–	–	–	–
RMS 14	–	–	144	–	144	–	–	47	–	47
	15,898	525	144	–	16,567	19	21	47	–	87
Total Retail	305,763	45,180	5,073	7,854	363,870	668	1,095	715	213	2,691
Commercial Banking
CMS 1–5	14,100	7	–	–	14,107	2	–	–	–	2
CMS 6–10	30,534	124	–	–	30,658	32	–	–	–	32
CMS 11–14	31,210	2,927	–	–	34,137	133	59	–	–	192
CMS 15–18	3,719	4,115	–	–	7,834	65	232	–	–	297
CMS 19	11	814	–	–	825	–	81	–	–	81
CMS 20–23	–	–	2,068	–	2,068	–	–	418	–	418
	79,574	7,987	2,068	–	89,629	232	372	418	–	1,022
Other1	(43)	–	6	–	(37)	–	–	4	–	4
Total loans and advances to customers	385,294	53,167	7,147	7,854	453,462	900	1,467	1,137	213	3,717

1Drawn exposures include centralised fair value hedge accounting adjustments.

Lloyds Banking Group plc Annual Report and Accounts 2024

174

Risk management continued

Average PD grade (audited)

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’s base case scenario prior to the application of MES and post-model

adjustments which further impact ECL.


	2024		2023
	Stage 1 average PD %	Stage 2 average PD %	Stage 1 average PD %	Stage 2 average PD %
Retail
UK mortgages1	0.29	26.13	0.57	17.60
Credit cards	1.80	22.21	2.14	23.02
UK unsecured loans and overdrafts	2.12	28.43	2.75	29.66
UK Motor Finance	0.65	10.62	0.61	10.00
Commercial Banking
Loans and advances to customers	0.93	22.95	0.92	22.55

12024 calculated using updated models.

Concentrations of exposure (audited)

The Group’s 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’s

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’s 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 2024 the most significant concentrations of exposure were in mortgages.


	2024 £m	2023 £m
Agriculture, forestry and fishing	6,338	7,038
Construction1	3,079	3,543
Energy and water supply	4,569	3,468
Financial, business and other services	36,924	35,112
Lease financing	17,144	17,374
Manufacturing	3,972	4,021
Mining and Quarrying1	169	335
Personal:
Mortgages2	330,840	323,627
Other	28,015	25,342
Postal and telecommunications	3,162	2,654
Property companies	19,252	20,904
Transport, distribution and hotels	9,584	10,044
Total loans and advances to customers before allowance for impairment losses	463,048	453,462
Allowance for impairment losses (note 21 to the consolidated financial statements, page 274)	(3,191)	(3,717)
Total loans and advances to customers	459,857	449,745

1Mining and quarrying, previously included within construction, is now presented separately.

2Includes both UK and overseas mortgage balances.

Lloyds Banking Group plc Annual Report and Accounts 2024

175

UK mortgages product analysis


	At 31 December 2024				At 31 December 2023
	Mainstream	Buy-to-let	Specialist	Total	Mainstream	Buy-to-let	Specialist	Total
UK mortgages loans and advances to customers (statutory basis)1
Total UK mortgages (£m)	261,630	47,984	3,514	313,128	254,416	47,549	5,355	307,320
UK mortgages greater than 3 months in arrears (excluding repossessions, underlying basisA)
Number of cases (cases)	20,112	4,511	2,818	27,441	23,123	5,037	4,726	32,886
Total mortgages accounts (%)	1.2	1.2	9.2	1.3	1.3	1.4	10.5	1.5
Value of loans2 (£m)	2,910	651	531	4,092	3,094	692	806	4,592
Total mortgage balances (%)	1.1	1.4	14.7	1.3	1.2	1.5	14.7	1.5
Loan to value (underlying basisA)
Less than 60 per cent (%)	55.5	68.1	87.3	57.8	55.3	66.9	84.8	57.7
60 per cent to 70 per cent (%)	16.6	21.2	7.2	17.2	17.6	21.8	9.2	18.1
70 per cent to 80 per cent (%)	14.1	10.4	2.3	13.4	14.3	10.8	2.4	13.5
80 per cent to 90 per cent (%)	11.9	0.1	1.2	10.0	9.4	0.4	1.2	7.8
90 per cent to 100 per cent (%)	1.8	0.1	0.9	1.5	3.3	–	1.1	2.8
Greater than 100 per cent (%)	0.1	0.1	1.1	0.1	0.1	0.1	1.3	0.1
Total (%)	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0
Average loan to value (underlying basisA)3
Stock of residential mortgages (%)	43.2	47.4	33.2	43.7	43.1	48.1	35.0	43.6
New residential lending (%)	64.1	56.4	n/a	63.2	62.5	51.6	n/a	61.7

1Balances include the impact of HBOS-related acquisition adjustments.

2Value of loans represents total gross book value of mortgages more than three months in arrears; the balances exclude the impact of HBOS acquisition adjustments.

3Average loan to value is calculated as total loans and advances as a percentage of the total indexed collateral of these loans and advances; the balances exclude the impact of HBOS

acquisition adjustments.

Interest-only UK mortgages

The Group provides interest-only mortgages to owner occupier mortgage customers whereby only payments of interest are made for the

term of the mortgage with the customer responsible for repaying the principal outstanding at the end of the loan term. At 31 December

2024, owner occupier interest-only balances as a proportion of total owner occupier balances had reduced to 12.5 per cent (31 December

2023: 14.4 per cent). The average indexed loan to value remained low at 36.5 per cent (31 December 2023: 36.9 per cent).

For existing interest-only mortgages, a contact strategy is in place during the term of the mortgage to ensure that customers are aware of

their obligations to repay the principal upon maturity of the loan. Treatment strategies are in place to help customers anticipate and plan

for repayment of capital at maturity and support those who may have difficulty in repaying the principal amount. A dedicated specialist

team supports customers who have passed their contractual maturity date and are unable to fully repay the principal. A range of

treatments are offered to customers based on their individual circumstances to create fair and sustainable outcomes.

Analysis of owner occupier interest-only UK mortgages (statutory basis)


	At 31 Dec 2024	At 31 Dec 2023
Interest-only balances (£m)	33,023	37,278
Stage 1 (%)	39.4	54.7
Stage 2 (%)1	44.5	27.6
Stage 3 (%)	5.5	5.6
Purchased or originated credit-impaired (%)	10.6	12.1
Average loan to value (%)	36.5	36.9
Maturity profile (£m)
Due	1,541	1,982
Within 1 year	1,012	1,129
2 to 5 years	8,209	8,803
6 to 10 years	10,772	13,918
Greater than 10 years	11,489	11,446
Past term interest-only balances (£m)2	1,490	1,925
Stage 1 (%)	0.3	0.2
Stage 2 (%)	8.6	9.3
Stage 3 (%)	51.8	52.2
Purchased or originated credit-impaired (%)	39.3	38.4
Average loan to value (%)	35.2	35.2
Negative equity (%)	2.5	2.6

1Includes adoption of a new ECL model, where the significant increase in credit risk (SICR) quantitative Stage 2 trigger is now defined as a doubling of an account’s PD since origination.

2 Balances where all interest-only elements have moved past term. Some may subsequently have had a term extension, so are no longer classed as due.

Lloyds Banking Group plc Annual Report and Accounts 2024

176

Risk management continued

Collateral held as security for Retail loans and advances to customers (audited)

UK mortgages

An analysis by loan-to-value ratio of the Group’s 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.


	At 31 December 2024					At 31 December 2023
	Stage 1 (£m)	Stage 2 (£m)	Stage 3 (£m)	POCI (£m)	Total (£m)	Stage 1 (£m)	Stage 2 (£m)	Stage 3 (£m)	POCI (£m)	Total (£m)
Gross drawn exposures
Less than 60 per cent	145,055	27,851	3,014	5,066	180,986	145,285	22,739	3,209	6,209	177,442
60 per cent to 70 per cent	49,746	2,954	643	638	53,981	47,950	6,015	673	959	55,597
70 per cent to 80 per cent	40,292	1,168	307	232	41,999	36,413	4,506	290	333	41,542
80 per cent to 90 per cent	30,215	898	123	109	31,345	20,949	2,821	87	142	23,999
90 per cent to 100 per cent	4,420	109	36	63	4,628	5,981	2,389	30	91	8,491
Greater than 100 per cent	32	15	43	99	189	18	63	48	120	249
Total	269,760	32,995	4,166	6,207	313,128	256,596	38,533	4,337	7,854	307,320
Allowance for expected credit losses
Less than 60 per cent	14	165	130	66	375	26	118	127	70	341
60 per cent to 70 per cent	11	51	77	36	175	31	90	99	48	268
70 per cent to 80 per cent	13	30	59	27	129	37	75	61	26	199
80 per cent to 90 per cent	13	23	32	17	85	48	53	27	20	148
90 per cent to 100 per cent	2	3	13	10	28	19	31	12	14	76
Greater than 100 per cent	–	1	24	31	56	–	7	31	35	73
Total	53	273	335	187	848	161	374	357	213	1,105

UK mortgages energy performance certificate analysis

The energy performance certificate (EPC) profile of the security associated with the Group’s UK mortgage portfolio is shown below:


EPC profile	A £m	B £m	C £m	D £m	E £m	F £m	G £m	Unrated properties £m	Total
At 31 December 2024	1,113	40,469	68,128	97,392	33,021	6,293	1,370	65,342	313,128
At 31 December 2023	971	41,250	64,466	95,958	34,327	6,663	1,465	62,220	307,320

The above data is sourced using the latest available government EPC information. The Group has no EPC data available for 20.9 per cent

(2023: 20.2 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’s credit risk calculations.

Other Retail lending

At 31 December 2024, Stage 1 and Stage 2 other retail gross lending amounted to £60,720 million (2023: £55,814 million). Stage 3 other

retail lending amounted to £351 million, net of an impairment allowance of £360 million (2023: £378 million, net of an impairment

allowance of £358 million).

Lending decisions are predominantly based on an obligor’s 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’s credit risk disclosures for unimpaired other retail lending show assets gross of collateral and therefore disclose the maximum

loss exposure.

Lloyds Banking Group plc Annual Report and Accounts 2024

177

Retail forbearance

The basis of disclosure for forbearance is aligned to the FINREP reporting definitions. On a statutory basis forbearance for the major retail

portfolios reduced £332 million to £3,550 million. This reduction was primarily driven by the impact of removing balances following UK

mortgage securitisations. The main customer treatments included are: repair, where arrears are added to the loan balance and the arrears

position cancelled; instances where there are suspensions of interest and/or capital repayments; and refinance.

Retail forborne loans and advances (statutory (audited) and underlying basisA)


	Total £m	Of which Stage 2 £m	Of which Stage 3 £m	Of which POCI £m	ECL as a % of total loans and advances which are forborne1 %
At 31 December 2024
UK mortgages	2,984	618	1,161	1,146	4.8
Credit cards	271	87	149	–	33.0
UK unsecured loans and overdrafts	291	119	108	–	34.7
UK Motor Finance	4	3	1	–	18.8
Total	3,550	827	1,419	1,146	9.4
UK mortgages (underlying basis)A	3,054	810	2,182		6.9
Total (underlying basis)A	3,619	1,019	2,440		11.1
At 31 December 2023
UK mortgages	3,269	695	1,008	1,552	4.1
Credit cards	268	89	141	–	32.5
UK unsecured loans and overdrafts	275	107	108	–	35.5
UK Motor Finance	70	36	32	–	30.7
Total	3,882	927	1,289	1,552	8.8
UK mortgages (underlying basis)A	3,374	1,012	2,343		7.1
Total (underlying basis)A	3,987	1,244	2,624		11.2

1Expected credit losses as a percentage of total loans and advances which are forborne are calculated excluding loans in recoveries for credit cards and loans and overdrafts (31

December 2024: £33 million; 31 December 2023: £55 million).

Commercial Banking forbearance

Commercial Banking forborne loans and advances reduced by £170 million to £2,219 million in 2024 (2023: £2,389 million), of which £1,784

million were in Stage 3 (2023: £1,946 million).

Collateral held as security for Commercial Banking loans and advances to customers (audited)

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’s strategy to try to either repair the business or recover the

debt.

At 31 December 2024, Stage 3 secured commercial lending amounted to £450 million, net of an impairment allowance of £150 million

(2023: £507 million, net of an impairment allowance of £133 million). The fair value of the collateral held in respect of impaired secured

commercial lending was £575 million (2023: £608 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’s exposure.

Lloyds Banking Group plc Annual Report and Accounts 2024

178

Risk management continued

Commercial Banking UK Real Estate

•Commercial Banking UK Real Estate, including Business Banking, committed drawn lending stood at £9.3 billion at 31 December 2024

(net of £3.1 billion exposures subject to protection through Significant Risk Transfer (SRT) securitisations). In addition there are undrawn

lending facilities of £2.8 billion to predominantly investment grade rated corporate customers

•The Group classifies Direct Real Estate as exposure which is directly supported by cash flows from property activities (as opposed to

trading activities, such as hotels, care homes and housebuilders). Exposures of £7.2 billion to social housing providers are also excluded

•Despite some headwinds, the portfolio continues to remain well positioned and proactively managed with conservative LTVs, good

levels of interest cover and appropriate risk mitigants in place

•Overall performance of the portfolio has remained resilient. The Group has seen improvement within this sector, with a decrease in

cases in its more closely monitored Watchlist category and limited flow into Business Support

•Lending continues to be heavily weighted towards investment real estate (c.91 per cent) rather than development. Of these investment

exposures, c.91 per cent have an LTV of less than 70 per cent, with an average LTV of 45 per cent. The average interest cover ratio was

3.1 times, with 71 per cent having interest cover of above 2 times. In SME, LTV at origination has been typically limited to c.55 per cent,

given prudent repayment cover criteria (including notional base rate stress)

•The portfolio is well diversified with limited speculative commercial development lending (defined as property not pre-sold or pre-let at

a level to fully repay the debt or generate sufficient income to meet the minimum interest cover requirements). Approximately 47 per

cent of exposures relate to commercial real estate, including c.13 per cent secured by office assets, c.10 per cent by retail assets and c.12

per cent by industrial assets. Approximately 51 per cent of the portfolio relates to residential

•Recognising this is a cyclical sector, total (gross and net) and asset type quantum caps are in place to control origination and exposure.

Focus remains on the UK market and new business has been written in line with a prudent risk appetite criteria including conservative

LTVs, strong quality of income and proven management teams. Development lending criteria also includes maximum loan to gross

development value and maximum loan to cost, with funding typically only released against completed work, as confirmed by the

Group’s monitoring quantity surveyor

•Use of SRT securitisations also act as a risk mitigant in this portfolio, with run-off of these carefully managed and sequenced

LTV – UK Real Estate


	At 31 December 20241,2				At 31 December 20231,2
	Stage 1 and 2 £m	Stage 3 £m	Total £m	Total %	Stage 1 and 2 £m	Stage 3 £m	Total £m	Total %
Investment exposures
Less than 60 per cent	5,726	25	5,751	80.5	6,161	39	6,200	77.2
60 per cent to 70 per cent	700	46	746	10.5	986	9	995	12.4
70 per cent to 80 per cent	140	4	144	2.0	191	13	204	2.5
80 per cent to 100 per cent	26	67	93	1.3	96	45	141	1.8
100 per cent to 120 per cent	4	6	10	0.1	19	64	83	1.0
120 per cent to 140 per cent	4	–	4	0.1	11	38	49	0.6
Greater than 140 per cent	10	81	91	1.3	20	20	40	0.5
Unsecured3	303	–	303	4.2	318	–	318	4.0
Subtotal	6,913	229	7,142	100.0	7,802	228	8,030	100.0
Other4	512	67	579		369	19	388
Total investment	7,425	296	7,721		8,171	247	8,418
Development	731	8	739		776	71	847
Government Supported Lending5	87	2	89		158	3	161
Total	8,243	306	8,549		9,105	321	9,426

1Excludes Commercial Banking UK Real Estate exposures subject to protection through Significant Risk Transfer transactions.

2Excludes £0.7 billion in Business Banking (31 December 2023: £0.5 billion).

3Predominantly Investment grade corporate CRE lending where the Group is relying on the corporate covenant.

4Mainly lower value transactions where LTV not recorded on Commercial Banking UK Real Estate monitoring system.

5Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS) lending to real estate clients, where government guarantees are in place at 100 per cent

and 80 per cent, respectively.

Lloyds Banking Group plc Annual Report and Accounts 2024

179

Credit quality of other financial assets (audited)

Cash and balances at central banks

Significantly all of the Group’s cash and balances at central banks 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 Group’s trading assets and other loans and advances to customers, loans and advances to banks and reverse

repurchase agreements held at fair value through profit or loss have an investment grade rating. The credit quality of the Group’s other

debt securities, treasury and other bills, and contracts held with reinsurers held at fair value through profit or loss is set out below:


	2024			2023
	Investment grade1 £m	Other £m	Total £m	Investment grade1 £m	Other £m	Total £m
Other financial assets mandatorily at fair value through profit or loss:
Debt securities:
Government securities	7,093	–	7,093	8,009	–	8,009
Other public sector securities	2,286	2	2,288	2,303	7	2,310
Bank and building society certificates of deposit	8,667	–	8,667	7,504	–	7,504
Asset-backed securities	641	11	652	506	7	513
Corporate and other debt securities	13,984	2,899	16,883	17,076	3,049	20,125
	32,671	2,912	35,583	35,398	3,063	38,461
Treasury and other bills	32	–	32	51	–	51
Contracts held with reinsurers	10,527	–	10,527	11,336	88	11,424
Total other financial assets mandatorily held at fair value through profit or loss (excluding loans and advances and equity shares)	43,230	2,912	46,142	46,785	3,151	49,936

1Credit ratings equal to or better than ‘BBB’.

Credit risk in respect of trading and other financial assets at fair value through profit or loss held within the Group’s 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 to banks

Significantly all of the Group’s loans and advances to banks are assessed as Stage 1.

Reverse repurchase agreement held at amortised cost

All of the Group’s reverse repurchase agreements held at amortised cost are assessed as Stage 1.

Debt securities held at amortised cost

At 31 December 2024 significantly all of the Group’s debt securities held at amortised cost are investment grade.

Debt securities at fair value through other comprehensive income (excluding equity shares)

At 31 December 2024 significantly all of the Group’s debt securities at fair value through other comprehensive income are investment

grade.

Derivative assets

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.


	2024			2023
	Investment grade1 £m	Other £m	Total £m	Investment grade1 £m	Other £m	Total £m
Trading and other	22,684	1,333	24,017	21,297	956	22,253
Hedging	39	9	48	99	4	103
Total derivative financial instruments	22,723	1,342	24,065	21,396	960	22,356

1Credit ratings equal to or better than ‘BBB’.

Financial guarantees and loan commitments

The level of expected credit loss allowance associated with the Group’s financial guarantees and loan commitments is not significant.

At 31 December 2024, £143,914 million were Stage 1 (2023: £137,109 million), £4,565 million were Stage 2 (2023: £6,002 million), £101

million were Stage 3 (2023: £150 million) and £39 million was POCI (2023: £58 million). Against these exposures the Group held an

allowance for expected credit losses of £270 million (2023: £322 million).

Further details can be seen in note 21 to the consolidated financial statements on page 274.

Lloyds Banking Group plc Annual Report and Accounts 2024

180

Risk management continued

Collateral held as security for other financial assets

The Group does not hold collateral against debt securities which are classified as financial assets held at amortised cost.

Reverse repurchase agreements

The Group enters into reverse repurchase agreements which are accounted for as collateralised loans (see note 16 to the consolidated

financial statements on page 258).

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, against which the Group holds collateral,

all of which the Group is able to repledge (see note 16 to the consolidated financial statements on page 258). At 31 December 2024,

£10,676 million had been repledged (2023: £9,926 million).

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 (see note 16 to the consolidated financial statements on page 258).

Irrevocable loan commitments and other credit-related contingencies

The Group holds irrevocable loan commitments and other credit-related contingencies (see note 38 to the consolidated financial

statements on page 297). Collateral is held as security, in the event that lending is drawn down, on £17,181 million (2023: £13,036 million) of

these balances.

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 secured borrowing contracts.

Repurchase agreements

The Group enters into repurchase agreements which include amounts due under the Bank of England’s Term Funding Scheme with

additional incentives for SMEs (TFSME) (see note 16 to the consolidated financial statements on page 258).

Financial liabilities at fair value through profit or loss

Included in financial liabilities at fair value through profit or loss are repurchase agreements, against which the Group pledges collateral (see

note 16 to the consolidated financial statements on page 258). The secured party is permitted by contract or custom to repledge this

collateral.

Securities lending transactions

The following on-balance sheet financial assets have been lent to counterparties under securities lending transactions:


	2024 £m	2023 £m
Financial assets at fair value through profit or loss	889	633
Financial assets at fair value through other comprehensive income	6,124	5,245
Total	7,013	5,878

In addition, securities held as collateral in the form of stock borrowed amounted to £20,887 million (2023: £17,280 million). Of this amount,

£11,781 million (2023: £9,363 million) had been resold or repledged as collateral for the Group’s own transactions.

These transactions were generally conducted under terms that are usual and customary for standard secured lending activities.

Securitisations and covered bonds

In addition to the assets detailed above, the Group also holds assets that are encumbered through the Group’s asset-backed conduits and

its securitisation and covered bond programmes. Further details of these assets are provided in note 26 to the consolidated financial

statements on page 287.

Lloyds Banking Group plc Annual Report and Accounts 2024

181


	Economic crime risk

	Definition Economic crime risk is defined as the risk that the Group implements ineffective policies, systems, processes and controls to prevent, detect and respond to the risk of fraud and/or financial crime resulting in increased losses, regulatory censure, fines and/or adverse publicity in the UK or other jurisdictions in which the Group operates. Level two risks Anti-bribery, Anti-money laundering, Fraud, Sanctions The Risk overview, on page 36, contains a summary of economic crime risk performance and key mitigating actions.

Exposures

The principal economic crime risks to the Group are:

•Bribery, including corruption

•Money laundering, including terrorist financing, proliferation

financing and the facilitation of tax evasion

•Sanctions

•Fraud, including intentional acts of deception or omission by

external or internal parties

All of the above could result in customer detriment, financial loss,

regulatory censure and/or reputational damage.

Measurement

Economic crime risk is measured using a suite of indicators reported

to the business unit and the Group economic crime risk

management committees. These indicators cover a variety of areas

such as the effectiveness of key controls, breaches and suspicious

activity report (SAR) disclosure rates. All are subject to ongoing

monitoring, including a periodic review of metrics and thresholds to

ensure they remain appropriate.

Mitigating actions

The Group adopts a risk-based approach to mitigate the economic

crime risks it faces, reflecting the current and emerging economic

crime risks within the market, and industry best practice.

Group-wide economic crime prevention policies and standards are

maintained to ensure compliance with legal and regulatory

requirements. The completion of a Group-wide risk assessment and

implementation of a comprehensive suite of systems, processes and

controls support the Group to detect and prevent the use of its

banking network for money laundering, bribery, fraud and activities

prohibited by legal and regulatory sanctions.

The Group’s economic crime prevention policy requires all

colleagues to complete mandatory economic crime training on at

least an annual basis. The Group’s fraud awareness programme

remains a key component of the fraud control environment.

In addition to its efforts internally, the Group also plays an active

role with other financial institutions, industry bodies and law

enforcement agencies in identifying and combatting economic

crime, including:

•Being an active member of UK Finance, where the Group sits as a

member of the Economic Crime Product and Service Board and

has representation on key economic crime committees and

panels. This includes attending the sanctions and fraud

committees, which are the industries’ primary forums for

considering and responding to issues of mutual interest

•Collaborating with peer banks and the National Crime Agency

(NCA) to further develop ‘Data Fusion’, a ground-breaking,

public-private partnership, which brings together targeted bank

transaction data from seven banks and overlays it with NCA

criminal intelligence as a key strategic capability in the UK’s

efforts to disrupt serious and organised crime

•Continuing a strategic partnership with City of London Police

and helping fund the Dedicated Card and Payment Crime Unit to

investigate fraud cases, target and where appropriate arrest and

gain prosecution of offenders

•Being a member of Cifas, the largest cross-sector fraud sharing

organisation

•Chairing the Joint Money Laundering Intelligence Taskforce senior

management team and providing expert resource to the

National Economic Crime Centre’s operational threat cells

Monitoring

Monitoring and reporting of economic crime risk is undertaken at

Board, Group, legal entity and business unit and functional

committees. Each committee monitors key risks, control

effectiveness, indicators, events, risk appetite metrics and the

results of independent testing conducted by the Risk function and

Group Audit. Money Laundering Reporting Officer (MLRO) reports

are also presented annually to the relevant legal entity and Group-

level risk committees.

Lloyds Banking Group plc Annual Report and Accounts 2024

182

Risk management continued



	Insurance underwriting risk

	Definition Insurance underwriting risk is defined as the risk of adverse developments in liabilities due to timing, frequency and severity of claims for insured/ underwritten events, customer behaviour and expense costs. The Risk overview, on page 36, contains a summary of insurance underwriting risk performance and key mitigating actions.



	Financial risk indicators •Life and Pensions sales (present value of new business premiums): £18,249 million (2023: £17,449 million) •General Insurance total gross written premium: £737 million (2023: £579 million)

Exposures

The major source of insurance underwriting risk within the Group

arises from the Insurance business.

Poor persistency is a major risk in the Life and Pensions business,

stemming from customer behaviour that leads to increased

cancellations or stopped contributions. Following the agreed sale of

the bulk annuity business (subject to High Court approval), longevity

risk has reduced but still exists in the individual annuity business and

the Group’s defined benefit pension scheme. Page 248 provides

further information on the defined benefit scheme.

Property insurance risk is a key risk within the General Insurance

business, arising from home insurance. Exposures can arise, for

example, from extreme weather conditions such as flooding, when

property damage claims are higher than expected.

Expenses are incurred in writing all insurance business, with the risk

of costs being higher than expected managed through regular cost

initiatives and operating model reviews.

Measurement

Insurance underwriting risks are 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 across a

range of stresses with risk measures based on 1-in-200 year stresses

for the Insurance business’ regulatory capital assessments and other

supporting measures where appropriate, including those set out in

note 8 to the consolidated financial statements on page 236.

The Group's critical accounting judgements and key sources of

estimation uncertainty for its Insurance business are set out in

note 8 to the consolidated financial statements on page 236.

Mitigating actions

Insurance underwriting risk is mitigated in a number of ways:

•Risks are identified, measured, managed, monitored and

reported using the RCSA process

•Embedded insurance processes for underwriting, claims and

expense management, pricing, product design and use of

reinsurance

•Review and setting of demographic and expense best estimate

assumptions

•Exposure by risk type is assessed through the business planning

process and used as a control mechanism to ensure the profile is

within risk appetite

•Life Insurance exposure to demographic risks is mitigated

through the use of reinsurance, where there is a clear benefit

that outweighs the value of retaining the risks, or where there are

risks which are less well understood

•General Insurance exposure to accumulations of risk and possible

catastrophes is mitigated by reinsurance arrangements spread

over a range of reinsurers. Detailed modelling, including that of

the potential losses under various catastrophe scenarios,

supports the choice of reinsurance arrangements

Monitoring

Insurance underwriting risks are monitored by Insurance senior

executive committees and ultimately the Insurance Board.

Significant risks from the Insurance business and the defined benefit

pension schemes are reviewed by the Group Executive and Group

Risk Committees and Board.

Insurance underwriting risk exposures are monitored against risk

appetite with persistency, expenses and GI claims analysed

monthly. The Insurance business compares actual experience to

expectations, for example business volumes and mix, claims,

expenses and persistency experience. The effectiveness of controls

that manage insurance underwriting risk is evaluated and significant

divergences from experience or movements in risk exposures are

investigated and remedial action taken.

Lloyds Banking Group plc Annual Report and Accounts 2024

183


	Liquidity risk

	Definition Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its commitments when they fall due or can only secure them at excessive cost. Level two risks Funding, Liquidity. The Risk overview, on page 36, contains a summary of liquidity risk performance and key mitigating actions.



	Financial risk indicators •Liquidity coverage ratio: 146 per cent (2023: 142 per cent) •Net stable funding ratio: 129 per cent (2023: 130 per cent) •Loan to deposit ratio: 95 per cent (2023: 95 per cent)

Exposure

Liquidity exposure represents the potential stressed outflows in any

future period less expected inflows. The Group considers liquidity

exposure from both an internal and a regulatory perspective.

Measurement

Liquidity risk is managed through a series of measures, tests and

reports that are primarily based on contractual maturities with

behavioural overlays as appropriate. The Group undertakes

quantitative and qualitative analysis of the behavioural aspects

of its assets and liabilities in order to reflect their expected

behaviour.

Mitigating actions

The Group manages and monitors liquidity risks and ensures that

liquidity risk management systems and arrangements are

adequate with regard to the internal risk appetite, Group

strategy and regulatory requirements. Liquidity policies and

procedures are subject to independent internal oversight by Risk.

Overseas branches and subsidiaries of the Group may also be

required to meet the liquidity requirements of the entity’s

domestic country. Management of liquidity requirements is

performed by the overseas branch or subsidiary in line with

Group policy. Liquidity risk of the Insurance business is actively

managed and monitored within the Insurance business. The

Group plans funding requirements over its planning period,

combining business as usual and stressed conditions. The Group

manages its liquidity position paying regard to its internal risk

appetite, Liquidity Coverage Ratio (LCR) and Net Stable Funding

Ratio (NSFR) as required by the PRA, the Capital Requirements

Directive (CRD V) and the Capital Requirements Regulation (UK

CRR) liquidity requirements.

The Group’s liquidity and funding position is underpinned by its

significant customer deposit base and is supported by strong

relationships across customer segments. The Group has consistently

observed that, in aggregate, the retail deposit base provides a stable

source of funding. Funding concentration by counterparty, currency

and tenor is monitored on an ongoing basis and, where

concentrations do exist, these are managed as part of the planning

process and limited by the internal liquidity and funding risk

monitoring framework, with analysis regularly provided to senior

management.

To assist in managing the balance sheet, the Group operates a

Liquidity Transfer Pricing (LTP) process which: allocates relevant

interest expenses from the centre to the Group’s banking businesses

within the internal management accounts; helps drive the correct

inputs to customer pricing; and is consistent with regulatory

requirements. LTP makes extensive use of behavioural maturity

profiles, taking account of expected customer loan prepayments

and stability of customer deposits, modelled on historic data.

The Group can monetise liquid assets quickly, either through the

repurchase agreements (repo) market or through outright sale. In

addition, the Group has pre-positioned a substantial amount of

assets at the Bank of England’s Discount Window Facility which can

be used to access additional liquidity in a time of stress. The Group

considers diversification across geography, currency, markets and

tenor when assessing appropriate holdings of liquid assets. The

Group’s liquid asset buffer is available for deployment at immediate

notice, subject to complying with regulatory requirements.

Liquidity risk within the Insurance business may result from: the

inability to sell financial assets quickly at fair value; an insurance

liability falling due for payment earlier than expected; the inability

to generate cash inflows as anticipated; an unexpected large

operational event; or from a general insurance catastrophe, for

example, a significant weather event. Liquidity risk is actively

managed and monitored within the Insurance business to ensure

that it remains within approved risk appetite, so that even under

stress conditions, there is sufficient liquidity to meet obligations.

Monitoring

Daily monitoring and control processes are in place to address

internal and regulatory liquidity requirements. The Group monitors a

range of market and internal early warning indicators on a daily

basis for early signs of liquidity risk in the market or specific to the

Group. This captures regulatory metrics as well as metrics the Group

considers relevant for its liquidity profile. These are a mixture of

quantitative and qualitative measures, including: daily variation of

customer balances; changes in maturity profiles; funding

concentrations; changes in LCR outflows; credit default swap (CDS)

spreads; and basis risks.

The Group carries out internal stress testing of its liquidity and

potential cash flow mismatch position over both short (up to one

month) and longer-term horizons against a range of scenarios

forming an important part of the internal risk appetite. The

scenarios and assumptions are reviewed at least annually to ensure

that they continue to be relevant to the nature of the business,

including reflecting emerging horizon risks to the Group. For further

information on the Group’s 2024 liquidity stress testing results refer

to page 186.

The Group maintains a Liquidity Contingency Framework as part of

the wider Recovery Plan which is reviewed and tested regularly and

is designed to identify emerging liquidity concerns at an early stage,

so that mitigating actions can be taken to avoid a more serious crisis

developing. The Liquidity Contingency Framework has a foundation

of robust and regular monitoring and reporting of key performance

indicators, early warning indicators and risk appetite by both Group

Corporate Treasury (GCT) and Risk up to and including Board level.

Where movements in any of these metrics and indicator suites point

to a potential issue, SME teams and their directors will escalate this

information as appropriate.

Lloyds Banking Group plc Annual Report and Accounts 2024

184

Risk management continued

Liquidity and Funding management in 2024

The Group has maintained its strong funding and liquidity position

with a loan to deposit ratio of 95 per cent as at 31 December 2024

(31 December 2023: 95 per cent). Total wholesale funding

decreased to £92.5 billion as at 31 December 2024 (31 December

2023: £98.7 billion) driven by a reduction in Money Market funding.

The Group maintains access to diverse sources and tenors of

funding.

The Group’s liquid assets continue to exceed the regulatory

minimum and internal risk appetite, with a liquidity coverage ratio

(LCR) of 146 per cent (based on a monthly simple average over the

previous 12 months) as at 31 December 2024 (31 December 2023:

142 per cent) calculated on a Group consolidated basis based on the

PRA rulebook. The increase in the LCR resulted from a reduction in

net cash outflows, primarily from a reduction in wholesale funding.

All assets within the liquid asset portfolio are hedged for interest

rate risk. Following the implementation of structural reform,

liquidity risk is managed at a legal entity level with the Group

consolidated LCR representing the composite of the Ring-Fenced

Bank and Non-Ring-Fenced Bank entities.

LCR eligible assets have reduced to £134.4 billion (31 December

2023: £136.0 billion), driven by a reduction in wholesale funding. In

addition to the Group’s reported LCR eligible assets, the Group

maintains borrowing capacity at central banks which averaged

£72 billion in the 12 months to 31 December 2024. The net stable

funding ratio remains strong at 129 per cent (based on a quarterly

simple average over the previous four quarters) as at 31 December

2024 (31 December 2023: 130 per cent).

During 2024, the Group accessed wholesale funding across a range

of currencies and markets with term issuance volumes totalling

£13.9 billion. The Group expects full-year wholesale issuance

requirements of less than £10.0 billion for 2025. The total

outstanding amount of drawings from the Bank of England’s Term

Funding Scheme with additional incentives for SMEs (TFSME) has

reduced to £21.9 billion at 31 December 2024 (31 December 2023:

£30.0 billion), with maturities in 2025, 2027 and beyond. The

repayment of TFSME has been factored into the Group’s funding

plans.

The Group’s credit ratings are well positioned and continue to

reflect the strength of the Group’s management and franchise,

along with its robust financial performance, capital and funding

position. In November 2024, Fitch upgraded the Group’s ratings by

one notch.

Group funding requirements and sources


	At 31 Dec 2024 £bn	At 31 Dec 2023 £bn	Change %
Group funding position
Cash and balances at central banks	62.7	78.1	(20)
Loans and advances to banks1	7.9	10.7	(26)
Loans and advances to customers	459.9	449.7	2
Reverse repurchase agreements – non-trading	49.5	38.8	28
Debt securities at amortised cost	14.5	15.4	(6)
Financial assets at fair value through other comprehensive income	30.7	27.6	11
Other assets2	281.5	261.2	8
Total Group assets	906.7	881.5	3
Less other liabilities2	(247.8)	(226.3)	10
Funding requirements	658.9	655.2	1

Wholesale funding3	92.5	98.7	(6)
Customer deposits	482.7	471.4	2
Repurchase agreements – non-trading	15.9	7.7
Term Funding Scheme with additional incentives for SMEs (TFSME)	21.9	30.0	(27)
Total equity	45.9	47.4	(3)
Funding sources	658.9	655.2	1

1Loans and advances to banks at 31 December 2023 excludes £0.1 billion within the Insurance business (31 December 2024: £nil).

2Other assets and other liabilities primarily include balances in the Group’s Insurance business and the fair value of derivative assets and liabilities.

3The Group’s definition of wholesale funding aligns with that used by other international market participants; including bank deposits, debt securities in issue and subordinated

liabilities. Excludes balances relating to margins of £2.8 billion (31 December 2023: £2.4 billion).

Lloyds Banking Group plc Annual Report and Accounts 2024

185

Reconciliation of Group funding to the balance sheet (audited)


	At 31 December 2024				At 31 December 2023
	Included in funding analysis £bn	Cash collateral received1 £bn	Fair value and other accounting methods2 £bn	Balance sheet £bn	Included in funding analysis £bn	Cash collateral received1 £bn	Fair value and other accounting methods2 £bn	Balance sheet £bn
At 31 December 2024
Deposits from banks	3.1	3.2	(0.1)	6.2	3.7	2.9	(0.4)	6.2
Debt securities in issue	77.2	–	(6.4)	70.8	82.9	–	(7.3)	75.6
Subordinated liabilities	12.2	–	(2.1)	10.1	12.1	–	(1.8)	10.3
Total wholesale funding	92.5	3.2			98.7	2.9
Customer deposits	482.7	–	–	482.7	471.4	–	–	471.4
Total	575.2	3.2			570.1	2.9

1Repurchase agreements, previously reported within deposits from banks and customer deposits, are excluded

2Includes the unamortised HBOS acquisition adjustments on subordinated liabilities, the fair value movements on liabilities held at fair value through profit or loss, and hedge

accounting adjustments that impact the accounting carrying value of the liabilities.

Analysis of 2024 total wholesale funding by residual maturity


	Up to 1 month £bn	1 to 3 months £bn	3 to 6 months £bn	6 to 9 months £bn	9 to 12 months £bn	1 to 2 years £bn	2 to 5 years £bn	Over five years £bn	Total at 31 Dec 2024 £bn	Total at 31 Dec 2023 £bn
Deposits from banks	1.5	0.7	0.5	0.2	0.2	–	–	–	3.1	3.7
Debt securities in issue:
Certificates of deposit issued	0.7	1.3	1.7	1.0	0.8	–	–	–	5.5	7.8
Commercial paper	0.4	2.9	2.2	1.7	1.1	–	–	–	8.3	12.3
Senior unsecured notes issued	2.4	4.1	1.8	1.7	0.3	5.2	18.8	12.2	46.5	44.5
Covered bonds	–	2.0	0.1	–	–	2.7	6.5	0.3	11.6	14.1
Securitisation notes	–	–	–	–	–	0.7	4.0	0.6	5.3	4.2
	3.5	10.3	5.8	4.4	2.2	8.6	29.3	13.1	77.2	82.9
Subordinated liabilities	–	0.6	0.3	–	1.1	1.7	2.2	6.3	12.2	12.1
Total wholesale funding1	5.0	11.6	6.6	4.6	3.5	10.3	31.5	19.4	92.5	98.7

1The Group’s definition of wholesale funding aligns with that used by other international market participants; including bank deposits, debt securities in issue and subordinated

liabilities. Excludes balances relating to margins of £2.8 billion (31 December 2023: £2.4 billion).

Total wholesale funding by currency (audited)


	Sterling £bn	US dollar £bn	Euro £bn	Other currencies £bn	Total £bn
At 31 December 2024	21.0	41.5	22.6	7.4	92.5
At 31 December 2023	26.0	39.7	25.1	7.9	98.7

Analysis of 2024 term issuance (audited)


	Sterling £bn	US dollar £bn	Euro £bn	Other currencies £bn	Total £bn
Securitisation1	1.3	–	0.4	–	1.7
Covered bonds	–	–	0.4	–	0.4
Senior unsecured notes	0.5	6.7	2.4	0.6	10.2
Subordinated liabilities	–	–	0.4	0.4	0.8
Additional tier 1	–	0.8	–	–	0.8
Total issuance	1.8	7.5	3.6	1.0	13.9

1Includes significant risk transfer securitisations.

Lloyds Banking Group plc Annual Report and Accounts 2024

186

Risk management continued

Liquidity portfolio

At 31 December 2024, the Group had £134.4 billion of highly liquid unencumbered LCR eligible assets, based on a monthly simple average

over the previous 12 months post any liquidity haircuts (31 December 2023: £136.0 billion), of which £128.5 billion was LCR level 1 eligible

(31 December 2023: £131.3 billion) and £5.9 billion was LCR level 2 eligible (31 December 2023: £4.7 billion). These assets are available to

meet cash and collateral outflows and regulatory requirements. The Insurance business manages a separate liquidity portfolio to mitigate

insurance liquidity risk.

LCR eligible assets


	Average1		Change %
	2024 £bn	2023 £bn	Change %
Cash and central bank reserves	62.0	83.9	(26)
High quality government/MDB/agency bonds2	63.6	44.7	42
High quality covered bonds	2.9	2.7	7
Level 1	128.5	131.3	(2)
Level 23	5.9	4.7	26
Total LCR eligible assets	134.4	136.0	(1)

1Eligible assets are calculated as an average of month-end observations over the previous 12 months post any liquidity haircuts.

2Designated multilateral development banks (MDB).

3Includes Level 2A and Level 2B.

LCR eligible assets by currency


	Sterling £bn	US dollar £bn	Euro £bn	Other currencies £bn	Total £bn
At 31 December 2024
Level 1	89.8	21.0	17.7	–	128.5
Level 2	2.6	1.7	1.1	0.5	5.9
Total1	92.4	22.7	18.8	0.5	134.4
At 31 December 2023
Level 1	87.9	18.7	24.7	–	131.3
Level 2	2.0	1.9	0.5	0.3	4.7
Total1	89.9	20.6	25.2	0.3	136.0

1Eligible assets are calculated as an average of month-end observations over the previous 12 months post any liquidity haircuts.

The Group also has a significant amount of non-LCR eligible liquid assets which are eligible for use in a range of central bank or similar

facilities. Future use of such facilities will be based on prudent liquidity management and economic considerations, having regard to

external market conditions.

Stress testing results

Internal liquidity stress testing results at 31 December 2024 (based on a monthly simple average over the previous 12 months) showed that

the Group had liquidity resources representing 136 per cent of modelled outflows under the Group’s most severe liquidity stress scenario

(31 December 2023: 136 per cent).

This scenario includes a two notch downgrade of the Group’s current long-term debt rating and accompanying one notch short-term

downgrade implemented instantaneously by all major rating agencies.

Encumbered assets

This disclosure provides further detail on the availability of assets that could be used to support potential future funding requirements of

the Group.

The disclosure is not designed to identify assets that would be available in the event of a resolution or bankruptcy.

The Group Asset and Liability Committee (GALCO) monitors and manages total balance sheet encumbrance, including via a defined risk

appetite. At 31 December 2024, the Group had £35.1 billion (31 December 2023: £38.0 billion) of externally encumbered on-balance sheet

assets with counterparties other than central banks. The decrease in encumbered assets was primarily driven by redemptions across

securitisations and covered bonds. The Group also had £747.2 billion (31 December 2023: £704.5 billion) of unencumbered on-balance

sheet assets, and £124.4 billion (31 December 2023: £139.0 billion) of pre-positioned and encumbered assets held with central banks; the

decrease in the latter was primarily driven by amortisation to the underlying loan pools already pre-positioned at the Bank of England.

Primarily, the Group encumbers mortgages, unsecured lending, credit card receivables and car loans through the issuance programmes and

tradable securities through securities financing activity. The Group mainly pre-positions mortgage assets at central banks.

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187

On balance sheet encumbered and unencumbered assets


	Encumbered with counterparties other than central banks			Pre- positioned and encumbered assets held with central banks £m		Unencumbered assets not pre-positioned with central banks
	Securitisations and covered bonds £m	Other £m	Total £m			Readily realisable1 £m	Other realisable assets2 £m	Cannot be used3 £m	Total £m	Total £m
At 31 December 2024
Cash and balances at central banks	–	–	–		–	58,346	–	4,359	62,705	62,705
Financial assets at fair value through profit or loss4	32	2,091	2,123		813	2,949	–	210,040	212,989	215,925
Derivative financial instruments	–		–		–	–	–	24,065	24,065	24,065
Loans and advances to banks	–	1	1		–	1,170	4,483	2,246	7,899	7,900
Loans and advances to customers	16,852	5,420	22,272		122,426	14,910	244,310	55,939	315,159	459,857
Reverse repurchase agreements	–	–	–		–	–	–	49,476	49,476	49,476
Debt securities	–	1,541	1,541		–	7,494	–	5,509	13,003	14,544
Financial assets at amortised cost	16,852	6,962	23,814		122,426	23,574	248,793	113,170	385,537	531,777
Financial assets at fair value through other comprehensive income	–	9,161	9,161		1,112	19,838	–	579	20,417	30,690
Other5	–	–	–		–	–	442	41,093	41,535	41,535
Total assets	16,884	18,214	35,098		124,351	104,707	249,235	393,306	747,248	906,697
At 31 December 20236
Cash and balances at central banks	–	–	–		–	71,717	–	6,393	78,110	78,110
Financial assets at fair value through profit or loss4	35	2,818	2,853		–	1,321	–	199,144	200,465	203,318
Derivative financial instruments	–	–	–		–	–	–	22,356	22,356	22,356
Loans and advances to banks	–	–	–		–	1,612	7,423	1,729	10,764	10,764
Loans and advances to customers	18,354	3,857	22,211		139,004	14,651	215,145	58,734	288,530	449,745
Reverse repurchase agreements	–	–	–		–	–	–	38,771	38,771	38,771
Debt securities	–	1,635	1,635		–	5,756	–	7,964	13,720	15,355
Financial assets at amortised cost	18,354	5,492	23,846		139,004	22,019	222,568	107,198	351,785	514,635
Financial assets at fair value through other comprehensive income	–	11,268	11,268		–	15,888	–	436	16,324	27,592
Other5	–	–	–		–	–	419	35,023	35,442	35,442
Total assets	18,389	19,578	37,967		139,004	110,945	222,987	370,550	704,482	881,453

1Assets regarded by the Group to be readily realisable in the normal course of business, to secure funding, meet collateral needs, or be sold to reduce potential future funding

requirements, and are not subject to any restrictions on their use for these purposes.

2Assets where there are no restrictions on their use to secure funding, meet collateral needs, or be sold to reduce potential future funding requirements, but are not readily realisable in

the normal course of business in their current form.

3The following assets are classified as unencumbered – cannot be used: assets held within the Group’s Insurance businesses which are generally held to either back liabilities to

policyholders or to support the solvency of the Insurance subsidiaries; assets held within consolidated limited liability partnerships which provide security for the Group’s obligations to

its pension schemes; assets segregated in order to meet the Financial Resilience requirements of the PRA’s Supervisory Statement 9/6 ‘Operational Continuity in Resolution’; assets

pledged to facilitate the use of intra-day payment and settlement systems; Bank of England Sterling Monetary Framework non-eligible collateral; reverse repos and derivatives balance

sheet ledger items.

4Contains assets measured at fair value through profit or loss arising from contracts held with reinsurers, previously included within other assets; comparatives have been restated.

5Other comprises: items in the course of collection from banks; investment properties; goodwill; value of in-force business; other intangible assets; tangible fixed assets; current tax

recoverable; deferred tax assets; retirement benefit assets; investments in joint ventures and associates and other assets; comparatives have been restated.

The above table sets out the carrying value of the Group’s encumbered and unencumbered assets, separately identifying those that are

available to support the Group’s funding needs. The table does not include collateral received by the Group that is not recognised on its

balance sheet, the vast majority of which the Group is permitted to repledge.

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Risk management continued

Maturities of financial instrument liabilities (audited)

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 month £m	1 to 3 months £m	3 to 12 months £m	1 to 5 years £m	Over 5 years £m	Total £m
At 31 December 2024
Deposits from banks	1,809	673	904	2,775	105	6,266
Customer deposits	437,693	14,873	24,811	6,127	256	483,760
Repurchase agreements at amortised cost	8,974	5,169	15,300	9,416	–	38,859
Financial liabilities at fair value through profit or loss	15,208	3,965	1,803	2,102	7,078	30,156
Debt securities in issue at amortised cost	3,704	10,367	13,624	38,973	8,519	75,187
Liabilities arising from non-participating investment contracts	51,228	–	–	–	–	51,228
Lease liabilities	28	65	241	574	461	1,369
Subordinated liabilities	26	698	1,676	4,207	6,705	13,312
Total non-derivative financial liabilities	518,670	35,810	58,359	64,174	23,124	700,137
Derivative financial liabilities
Gross settled derivatives – outflows	100,432	61,356	43,231	34,795	22,505	262,319
Gross settled derivatives – inflows	(97,653)	(59,238)	(41,319)	(32,333)	(18,950)	(249,493)
Gross settled derivatives – net flows	2,779	2,118	1,912	2,462	3,555	12,826
Net settled derivative liabilities	10,432	92	109	404	1,557	12,594
Total derivative financial liabilities	13,211	2,210	2,021	2,866	5,112	25,420


	Up to 1 month £m	1 to 3 months £m	3 to 12 months £m	1 to 5 years £m	Over 5 years £m	Total £m
At 31 December 2023
Deposits from banks	2,093	1,073	623	2,394	–	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	–	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	–	–	–	–	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 – outflows	80,148	46,874	47,777	35,807	20,302	230,908
Gross settled derivatives – inflows	(78,031)	(45,249)	(46,575)	(35,753)	(20,327)	(225,935)
Gross settled derivatives – 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

The majority of the Group’s 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

£16 million (2023: £16 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’s total wholesale funding by residual maturity and by currency is set out on page 183.

Lloyds Banking Group plc Annual Report and Accounts 2024

189

Cash flows arising from insurance liabilities (audited)

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 the liability for remaining coverage of contracts that are measured under

the premium allocation approach.


	Less than 1 year £m	1 to 2 years £m	2 to 3 years £m	3 to 4 years £m	4 to 5 years £m	Over 5 years £m	Total £m
At 31 December 2024
Liabilities arising from insurance and participating investment contracts	(1,038)	(1,292)	(1,951)	(2,453)	(2,992)	(112,055)	(121,781)
Reinsurance contract liabilities	3	3	3	3	2	13	27
Total	(1,035)	(1,289)	(1,948)	(2,450)	(2,990)	(112,042)	(121,754)
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	–	–	–	–	–	(13)	(13)
Total	(843)	(2,112)	(3,035)	(3,537)	(3,667)	(101,367)	(114,561)

For insurance contracts which are neither unit-linked nor in the Group’s 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.

Insurance and participating investment contract liabilities payable on demand (audited)

Some of the Group’s insurance and participating investment contract liabilities are payable on demand as shown in the table below:


	2024		2023
	Amounts payable on demand £m	Carrying amount £m	Amounts payable on demand £m	Carrying amount £m
Life	110,402	107,909	102,396	99,799
Non-life	–	–	–	–
Total	110,402	107,909	102,396	99,799

The amounts payable on demand represent contract surrender values and incurred claims.

Maturities of contingent liabilities, commitments and guarantees (audited)

The table below shows the contractual maturity of the Group’s contingents, commitments and guarantees. Commitments are shown in the

time band containing the earliest date the commitment can be drawn down. For financial guarantee contracts, the maximum amount of

the guarantee is allocated to the earliest period in which the guarantee could be called.


	Up to 1 month £m	1 to 3 months £m	3 to 6 months £m	6 to 9 months £m	9 to 12 months £m	1 to 3 years £m	3 to 5 years £m	Over 5 years £m	Total £m
At 31 December 2024
Acceptances and endorsements	24	11	3	1	–	–	–	–	39
Other contingent liabilities	208	357	225	115	370	547	211	533	2,566
Total contingent liabilities	232	368	228	116	370	547	211	533	2,605
Lending commitments and guarantees	134,283	1,416	1,729	1,562	3,367	2,755	3,140	256	148,508
Other commitments	94	6	11	–	–	–	–	–	111
Total commitments and guarantees	134,377	1,422	1,740	1,562	3,367	2,755	3,140	256	148,619
Total contingents, commitments and guarantees	134,609	1,790	1,968	1,678	3,737	3,302	3,351	789	151,224
At 31 December 2023
Acceptances and endorsements	7	10	166	–	8	–	–	–	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	–	–	–	–	–	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

Lloyds Banking Group plc Annual Report and Accounts 2024

190

Risk management continued



	Market risk

	Definition Market risk is defined as the risk that the Group’s capital or earnings profile are adversely affected by changes in market rates or prices, including, but not limited to, interest rates, foreign exchange, equity prices and credit spreads. Level two risks Banking book (page 191), Pension (page 193), Insurance (page 194), Trading book (page 194) The Risk overview, on page 37, contains a summary of market risk performance and key mitigating actions.



	Financial risk indicators •Structural hedge: £242 billion (2023: £247 billion) •Average 95 per cent 1-day trading VaR: £2.4 million (2023: £2.3 million)

Balance sheet linkages

The information provided in the table below aims to facilitate the

understanding of linkages between banking, trading and insurance

balance sheet items and the positions disclosed in the Group’s

market risk disclosures.

Market risk linkage to the balance sheet


		Banking
2024	Total £m	Trading book1 £m	Non- trading £m	Insurance £m	Primary market risk factor
Assets
Cash and balances at central banks	62,705	–	62,705	–	Interest rate
Financial assets at fair value through profit or loss	215,925	25,450	5,274	185,201	Interest rate, foreign exchange, credit spread, equity
Derivative financial instruments	24,065	20,182	3,172	711	Interest rate, foreign exchange, credit spread
Financial assets at amortised cost
Loans and advances to banks	7,900	–	7,799	101	Interest rate
Loans and advances to customers	459,857	–	459,857	–	Interest rate
Reverse repurchase agreements	49,476	–	49,476	–	Interest rate
Debt securities	14,544	–	14,544	–	Interest rate, credit spread
Financial assets at amortised cost	531,777	–	531,676	101
Financial assets at fair value through other comprehensive income	30,690	–	30,690	–	Interest rate, foreign exchange, credit spread
Other assets	41,535	–	30,413	11,122	Interest rate, credit spread
Total assets	906,697	45,632	663,930	197,135
Liabilities
Deposit from banks	6,158	–	6,158	–	Interest rate
Customer deposits	482,745	–	482,745	–	Interest rate
Repurchase agreements at amortised cost	37,760	–	37,760	–	Interest rate
Financial liabilities at fair value through profit or loss	27,611	22,981	4,630	–	Interest rate, foreign exchange
Derivative financial instruments	21,676	15,205	5,132	1,339	Interest rate, foreign exchange, credit spread
Debt securities in issue at amortised cost	70,834	–	70,034	800	Interest rate, credit spread
Liabilities arising from insurance and investment contracts	173,292	–	–	173,292	Interest rate, credit spread, equity
Subordinated liabilities	10,089	–	9,581	508	Interest rate, foreign exchange
Other liabilities	30,644	–	12,727	17,917	Interest rate, credit spread
Total liabilities	860,809	38,186	628,767	193,856

1Assets and liabilities are classified as trading book if they meet the requirements as set out in the Capital Requirements Regulation, article 104.

The defined benefit pension schemes’ assets and liabilities are

included under other assets and other liabilities in this table and

note 12 to the consolidated financial statements on page 248

provides further information.

The Group’s trading book assets and liabilities are originated

within the Commercial Banking business units. Within the

Group’s balance sheet these fall under the trading assets and

liabilities and derivative financial instruments. The assets and

liabilities are classified as trading book if they meet the

requirements as set out in the Capital Requirements Regulation,

article 104. Further information on these activities can be found

under the Trading portfolios section on page 194.

Derivative assets and liabilities are held by the Group for three main

purposes: to provide risk management solutions for clients, to

manage portfolio risks arising from client business and to manage

and hedge the Group’s own risks.

Insurance business assets and liabilities relate to policyholder funds,

as well as shareholder invested assets, including annuity funds.

The Group ensures that it has adequate cash and balances at

central banks and stocks of high quality liquid assets (for example,

gilts or US Treasury securities) that can be converted easily into cash

to meet liquidity requirements. The majority of these assets are

asset swapped and held at fair value through other comprehensive

income. For further information see Liquidity risk page 183.

Lloyds Banking Group plc Annual Report and Accounts 2024

191

The majority of debt issuance originates from the Group’s capital

and funding activities and the interest rate risk of the debt issued is

hedged by swapping them into a floating rate.

The non-trading book primarily consists of customer on-balance

sheet activities and the Group’s capital and funding activities, which

expose it to the risk of adverse movements in market rates or prices,

predominantly interest rates, credit spreads, exchange rates and

equity prices, as described in further detail within the Banking

activities section on page 191.

Measurement

Group risk appetite is calibrated primarily to a number of multi-risk

Group economic scenarios, and is supplemented with sensitivity-

based measures. The scenarios assess the impact of unlikely, but

plausible, adverse stresses on income with the worst case for

banking activities, defined benefit pensions, insurance and trading

portfolios reported against independently, and across the Group as

a whole.

The Group risk appetite is cascaded first to the Group Asset and

Liability Committee (GALCO), chaired by the Chief Financial

Officer, where risk appetite is approved and monitored by risk type,

and then to the Group Market Risk Committee (GMRC) where risk

appetite is sub-allocated by business unit. These metrics are

reviewed regularly by senior management to inform effective

decision making.

Mitigating actions

GALCO is responsible for approving and monitoring market risk

management techniques, market risk measures, behavioural

assumptions, and the market risk policy. Various mitigation activities

are assessed and undertaken across the Group to manage portfolios

and seek to ensure they remain within approved limits. The

mitigation actions will vary dependent on exposure but will, in

general, look to reduce risk in a cost effective manner by offsetting

balance sheet exposures and externalising to the financial markets

dependent on market liquidity. The market risk policy is owned by

Group Corporate Treasury (GCT) and refreshed annually. The policy

is underpinned by supplementary market risk procedures, which

define specific market risk management and oversight

requirements.

Monitoring

GALCO and GMRC regularly review high level market risk exposures

as part of the wider risk management framework. They also make

recommendations to the Board concerning overall market risk

appetite and market risk policy. Exposures at lower levels of

delegation are monitored at various intervals according to their

volatility, from daily in the case of trading portfolios to monthly or

quarterly in the case of less volatile portfolios. Levels of exposures

compared to approved limits and triggers are monitored by Risk and

appropriate escalation procedures are in place.

How market risks arise and are managed across the Group’s

activities is considered in more detail below.

Banking activities

Exposures

The Group’s banking activities expose it to the risk of adverse

movements in market rates or prices, predominantly interest rates,

credit spreads, exchange rates and equity prices. The volatility of

market rates or prices can be affected by both the transparency of

prices and the amount of liquidity in the market for the relevant

asset, liability or instrument.

Interest rate risk

Yield curve risk in the Group’s divisional portfolios, and in the

Group’s capital and funding activities, arises from the different

repricing characteristics of the Group’s non-trading assets, liabilities

and off-balance sheet positions.

Basis risk arises from the potential changes in spreads between

indices, for example where the bank lends with reference to a

central bank rate but funds with reference to a market rate, for

example, SONIA, and the spread between these two rates widens

or tightens.

Optionality risk arises predominantly from embedded optionality

within assets, liabilities or off-balance sheet items where either the

Group or the customer can affect the size or timing of cash flows.

One example of this is mortgage prepayment risk where the

customer owns an option allowing them to prepay when it is

economical to do so. This can result in customer balances

amortising more quickly or slowly than anticipated due to

customers’ response to changes in economic conditions.

Foreign exchange risk

Economic foreign exchange exposure arises from the Group’s

investment in its overseas operations. In addition, the Group incurs

foreign exchange risk through non-functional currency flows from

services provided by customer-facing divisions, the Group’s debt

and capital management programmes and is exposed to volatility in

its CET1 ratio, due to the impact of changes in foreign exchange

rates on the retranslation of non-sterling-denominated risk-

weighted assets.

Equity risk

Equity risk arises primarily from three different sources:

•The Group’s private equity exposure from investments held by

Lloyds Development Capital and its stake in BGF, both within

the Equities sub-group

•A small number of legacy strategic equity holdings and recently

acquired minority fintech stakes, all held in the Equities sub-

group

•A small exposure to Lloyds Banking Group share price through

deferred shares and deferred options granted to employees as

part of their benefits package

Credit spread risk

Credit spread risk arises largely from: (i) the liquid asset portfolio

held in the management of Group liquidity, comprising government,

supranational and other eligible assets; (ii) the Credit Valuation

Adjustment (CVA) and Debit Valuation Adjustment (DVA)

sensitivity to credit spreads; (iii) a number of the Group’s structured

medium-term notes where the Group has elected to fair value the

notes through the profit and loss account; and (iv) banking book

assets in Commercial Banking held at fair value under IFRS 9.

Measurement

Interest rate risk exposure is monitored monthly using, primarily:

Market value sensitivity: this methodology considers all repricing

mismatches (behaviourally adjusted where appropriate) in the

current balance sheet and calculates the change in market value

that would result from an instantaneous 25, 100 and 200 basis

points parallel rise or fall in the yield curve. The market value

sensitivities are calculated on a static balance sheet using principal

cash flows excluding interest, commercial margins and other spread

components and are discounted at the risk-free rate.

Interest income sensitivity: this measures the impact on future net

interest income arising from various economic scenarios. These

include instantaneous 25, 100 and 200 basis point parallel shifts in

all yield curves and the Group economic scenarios. These scenarios

are reviewed every year and are designed to replicate severe but

plausible economic events, capturing risks that would not be

evident through the use of parallel shocks alone such as basis risk

and steepening or flattening of the yield curve.

Lloyds Banking Group plc Annual Report and Accounts 2024

192

Risk management continued

Unlike the market value sensitivities, the interest income sensitivities incorporate additional behavioural assumptions as to how and when

individual products would reprice in response to changing rates.

Reported sensitivities are not necessarily predictive of future performance as they do not capture additional management actions that

would likely be taken in response to an immediate, large, movement in interest rates. These actions could reduce the net interest income

sensitivity, help mitigate any adverse impacts or they may result in changes to total income that are not captured in the net interest

income.

Structural hedge: the structural hedging programme managing interest rate risk in the banking book relies on assumptions made around

customer behaviour. A number of metrics are in place to monitor the risks within the portfolio. The Group has an integrated Asset and

Liability Management (ALM) system which supports non-traded asset and liability management of the Group. This provides a single

consolidated tool to measure and manage interest rate repricing profiles (including behavioural assumptions), perform stress testing and

produce forecast outputs. The Group is aware that any assumptions-based model is open to challenge.

A full behavioural review is performed annually, or in response to changing market conditions, to ensure the assumptions remain

appropriate and the model itself is subject to annual re-validation, as required under the Group model governance policy. The key

behavioural assumptions are:

•Embedded optionality within products

•The duration of balances that are contractually repayable on demand, such as current accounts and overdrafts, together with net free

reserves of the Group

•The re-pricing behaviour of managed rate liabilities, such as variable rate savings

The table below shows, split by material currency, the Group’s market value sensitivities to an instantaneous parallel up and down 25 and

100 basis points change to all interest rates.

Group Banking activities: market value sensitivity (audited)


	2024				2023
	Up 25bps £m	Down 25bps £m	Up 100bps £m	Down 100bps £m	Up 25bps £m	Down 25bps £m	Up 100bps £m	Down 100bps £m
Sterling	4.7	(4.7)	17.9	(19.5)	9.4	(9.9)	35.3	(42.2)
US dollar	(1.4)	1.4	(5.4)	5.7	(1.7)	1.8	(6.9)	7.4
Euro	(1.4)	(2.3)	(5.1)	(9.4)	(2.7)	0.6	(10.1)	2.6
Other	(1.0)	1.0	(3.6)	4.3	(0.2)	0.2	(0.6)	0.6
Total	0.9	(4.6)	3.8	(18.9)	4.8	(7.3)	17.7	(31.6)

This is a risk-based disclosure and the amounts shown would be amortised in the income statement over the duration of the portfolio.

The market value sensitivity has decreased year-on-year as a result of small changes in the hedging profile of fixed mortgages.

The table below shows supplementary value sensitivity to a steepening and flattening (c.100 basis points around the three-year point) in

the yield curve. This ensures there are no unintended consequences to managing risk to parallel shifts in rates.

Group Banking activities: market value sensitivity to a steepening and flattening of the yield curve (audited)


	2024		2023
	Steepener £m	Flattener £m	Steepener £m	Flattener £m
Sterling	(1.4)	0.3	23.1	(27.2)
US dollar	(0.6)	0.5	(3.0)	3.0
Euro	(12.8)	3.2	(4.2)	(0.7)
Other	(2.4)	3.1	0.6	(0.6)
Total	(17.2)	7.1	16.5	(25.5)

The table below shows the banking book net interest income sensitivity on a one to three year forward-looking basis to an instantaneous

parallel up 25, down 25, up 50 and down 50 basis points change to all interest rates.

Group Banking activities: three year net interest income sensitivity (audited)


	2024			2023
	Year 1 £m	Year 2 £m	Year 3 £m	Year 1 £m	Year 2 £m	Year 3 £m
Up 50bps	234	357	591	250	421	614
Up 25 bps	117	179	296	125	211	307
Down 25bps	(150)	(181)	(297)	(155)	(209)	(303)
Down 50bps	(302)	(364)	(595)	(311)	(417)	(606)

Year 1 net interest income sensitivity, to both up and down shocks, has decreased slightly year-on-year mostly as a result of changing

customer deposit behaviour and structural hedge activity.

The overall three year net interest income sensitivity to up and down 25 basis points and 50 basis points shocks is largely due to

reinvestment of structural hedge maturities in years two and three.

The sensitivities are illustrative and do not reflect new business margin implications and/or pricing actions, other than as outlined.

The following assumptions have been applied:

•Instantaneous parallel shift in interest rate curve, including bank base rate

•Balance sheet remains constant

•Illustrative 50 per cent pass-through on deposits and 100 per cent pass-through on assets, which could be different in practice

Lloyds Banking Group plc Annual Report and Accounts 2024

193

Basis risk, foreign exchange, equity and credit spread risks are

measured primarily through scenario analysis by assessing the

impact on profit before tax over a 12-month horizon arising from a

change in market rates, and reported within the Board risk appetite

on a monthly basis. Supplementary measures such as sensitivity and

exposure limits are applied where they provide greater insight into

risk positions. Frequency of reporting supplementary measures

varies from daily to quarterly appropriate to each risk type.

Mitigating actions

The Group’s policy is to optimise reward while managing its

market risk exposures within the risk appetite defined by the

Board. The Group market risk policy and procedures outlines the

hedging process, and the centralisation of risk from divisions into

Group Corporate Treasury (GCT), for example via the transfer

pricing framework. GCT is responsible for managing the

centralised risk and does this through natural offsets of matching

assets and liabilities, and appropriate hedging activity of the

residual exposures, subject to the authorisation and mandate of

GALCO within the Board risk appetite. The hedges are

externalised to the market by derivative desks within GCT and

the Commercial Bank. The Group mitigates income statement

volatility through hedge accounting. This reduces the accounting

volatility arising from the Group’s economic hedging activities

and any hedge accounting ineffectiveness is continuously

monitored.

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.

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.

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 structural hedge.

Consistent with the Group’s strategy to deliver stable returns,

GALCO seeks to minimise large reinvestment risk, and to smooth

earnings over a range of investment tenors. 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 GALCO.

While the Group faces uncertainty in customer behaviour due to an

elevated rate environment, its exposure to increased pipeline and

prepayment risks are managed through hedging in line with

expected customer behaviour. These are appropriately monitored

and controlled through divisional Asset and Liability Committees

(ALCOs).

Economic foreign exchange exposures arising from non-functional

currency flows are identified by divisions and transferred and

managed centrally. The Group also has a policy of forward hedging

its forecasted currency profit and loss to year end.

The Group’s structural foreign currency exposure is represented

by its investments in overseas subsidiaries and branches which

create capital resources denominated in foreign currencies,

principally USD and EUR. Gains or losses on structural foreign

currency exposures are taken to reserves, resulting in a

movement in CET1 capital. The Group’s main overseas operations

are in America and Europe and do not represent a significant

proportion on its overall portfolio.

The Group makes use of both accounting and economic foreign

exchange exposures, as an offset against the impact of changes in

foreign exchange rates on the value of non-sterling-denominated

risk-weighted assets. This involves the holding of a structurally open

currency position; sensitivity is minimised where, for a given

currency, the ratio of the structural open position to risk-weighted

assets equals the CET1 ratio. Continually evaluating this structural

open currency position against evolving non-sterling-denominated

risk-weighted assets mitigates volatility in the Group’s CET1 ratio.

The Group manages foreign currency accounting exposure via

cash flow hedge accounting, utilising currency swaps and

forward foreign exchange trades. All non-structural foreign

exchange exposures in the non-trading book are managed

centrally within allocated exposure limits.

Monitoring

The appropriate limits and triggers are monitored by senior

executive committees within the Banking divisions. Banking assets,

liabilities and associated hedging are actively monitored and if

necessary rebalanced to be within agreed tolerances.

Defined benefit pension schemes

Exposures

The Group’s defined benefit pension schemes are exposed to risks

that impact their assets and liabilities, that could adversely impact

the Group.

•The liability discount rate exposes the Group to interest rate risk

and credit spread risk, which is partially offset by fixed interest

assets, such as government and corporate bonds and swaps

•Increases to pensions in deferment and in payment expose the

Group to inflation risk, which is partially offset by real assets,

such as index-linked gilts and swaps

•The schemes’ asset holdings expose the Group to investment

risk. Assets are invested in a diversified portfolio of debt

securities, equities and other return-seeking assets

•The schemes’ membership exposes the Group to longevity risk

For further information on defined benefit pension scheme assets

and liabilities please refer to note 12 to the consolidated financial

statements on page 248.

Measurement

The schemes are assessed on a number of different measures for

differing purposes, including but not limited to, the IAS 19

accounting basis for annual reporting and accounts, and the

Trustees’ Technical Provisions funding basis for agreeing

contributions into the schemes.

Management of the schemes’ assets is primarily the responsibility of

the Trustees of the schemes, who are responsible for setting the

investment strategy in consultation with the Group, and, for

agreeing funding requirements with the Group as part of the

triennial valuation process.

Pension scheme risks are measured and monitored using a number

of different metrics and use a range of techniques including scenario

analysis and stress testing.

Lloyds Banking Group plc Annual Report and Accounts 2024

194

Risk management continued

Mitigating actions

The Group takes an active involvement in agreeing risk mitigation

strategies with the schemes’ Trustees. An interest rate and inflation

hedging programme is in place to reduce liability risk. The schemes

have also reduced equity allocations and invested the proceeds in

credit assets. The Trustees have put in place longevity swaps to

mitigate longevity risk. The merits of longevity risk transfer and

hedging solutions are reviewed regularly.

Monitoring

In addition to the wider risk management framework, governance

of the schemes includes a specialist Group Pension Committee.

The surplus, or deficit, in the schemes is tracked monthly along with

various single factor and scenario stresses which consider the risks

to the assets and liabilities holistically. Key metrics are monitored

monthly including the Group’s capital resources of the schemes, the

performance against risk appetite metrics and triggers, and the

performance of the hedged asset and liability matching positions.

Insurance business

Exposures

The main elements of market risk to which the Group is exposed

through the Insurance business are equity, credit default spread,

interest rate and inflation.

•Equity risk arises indirectly through the value of future

management charges on policyholder funds

•Credit default spread risk mainly arises from annuities where

policyholders’ future cash flows are guaranteed at retirement.

Exposure arises if the market value of the assets moves

differently to the liabilities they back. This exposure arises from

credit downgrades and defaults

•Interest rate risk arises through credit and interest assets which

are mainly held to cover the annuity and general insurance

liabilities

•Inflation exposure arises from inflation-linked policyholder

benefits and future expenses

Measurement

Current and potential future market risk exposures within Insurance

are assessed using a range of techniques including stress, reverse

stress and scenario testing, as well as stochastic modelling.

Risk measures include 1-in-200 year stresses for the Insurance

business’ regulatory capital assessments and other supporting

measures where appropriate, including those set out in note 8(I) of

the consolidated financial statements on page 242.

Mitigating actions

Equity and credit spread risks are closely monitored. Asset liability

matching, hedging and unit matching are all used to reduce the

sensitivity of equity movements.

Interest rate risk in the annuity book is monitored and mitigated by

investing in assets whose cash flows closely match those on the

projected future liabilities. It is not possible to eliminate the risk

completely as the timing of insured events is uncertain and bonds

are not available for all required maturities. Other market risks (e.g.

interest rate exposure outside the annuity book and inflation) are

also closely monitored and where considered appropriate, hedges

are put in place to reduce exposure.

The costs and benefits of market risk mitigation are considered in

strategy and business planning decisions, with consideration given

to the impacts to various metrics.

Monitoring

Market risks in the Insurance business are monitored by Insurance

senior executive committees and ultimately the Insurance Board.

Monitoring includes the progression of market risk capital against

risk appetite limits, as well as the sensitivity of profit before tax to

combined market risk stress scenarios and in-year market

movements. Asset and liability matching positions and hedges in

place are actively monitored and if necessary rebalanced to be

within agreed tolerances. In addition, market risk is controlled via

approved investment policies and mandates.

Trading portfolios

Exposures

The Group’s trading activity is small relative to its peers. The Group’s

trading activity is undertaken primarily to meet the financial

requirements of commercial and retail customers for foreign

exchange, credit, interest rate and inflation products. These

activities support customer flow and market making activities.

All trading activities are performed within the Commercial Banking

division. While the trading positions taken are generally small, any

extreme moves in the main risk factors and other related risk factors

could cause significant losses in the trading book depending on the

positions at the time. The average 95 per cent 1-day trading VaR

(Value at Risk; diversified across risk factors) was stable in 2024 at

£2.4 million (31 December 2023: £2.3 million).

Trading market risk measures are applied to all of the Group’s

regulatory trading books and they include daily VaR (see trading

portfolios: VaR table), sensitivity-based measures, and stress testing

calculations.

Measurement

The Group internally uses VaR as the primary risk measure for all

trading book positions.

The trading portfolios: VaR table shows some relevant statistics for

the Group’s 1-day 95 per cent confidence level VaR that are based

on 300 historical consecutive business days to year-end 2024 and

year-end 2023.

The risk of loss measured by the VaR model is the loss in earnings

which is not expected to be exceeded with 95 per cent confidence.

The total and average trading VaR numbers reported below have

been obtained after the application of the diversification benefits

across the five risk types, but do not reflect any diversification

between Lloyds Bank Corporate Markets plc and any other entities.

The maximum and minimum VaR reported for each risk category

did not necessarily occur on the same day as the maximum and

minimum VaR reported at Group level.

The market risk for the trading book continues to be low relative to

the size of the Group and in comparison to peers. This reflects the

fact that the Group’s trading operations are customer-centric and

focused on hedging and recycling client risks.

Trading portfolios: VaR (1-day 95 per cent confidence level) (audited)


	At 31 December 2024				At 31 December 2023
	Close £m	Average £m	Maximum £m	Minimum £m	Close £m	Average £m	Maximum £m	Minimum £m
Interest rate risk	4.0	2.4	5.5	1.2	1.7	2.0	3.8	1.0
Foreign exchange risk	0.1	0.2	0.7	0.1	0.1	0.3	0.9	0.1
Equity risk	–	–	–	–	–	–	–	–
Credit spread risk	0.2	0.3	0.4	0.2	0.2	0.3	0.5	0.1
Inflation risk	0.1	0.3	0.7	0.1	0.5	0.5	1.0	0.2
All risk factors before diversification	4.4	3.2	6.2	2.0	2.5	3.1	5.1	1.9
Portfolio diversification	(0.6)	(0.8)			(0.9)	(0.8)
Total VaR	3.8	2.4	5.1	1.3	1.6	2.3	4.1	1.2

Lloyds Banking Group plc Annual Report and Accounts 2024

195

Although it is an important market standard measure of risk, VaR

has limitations. One of them is the use of a limited historical data

sample which influences the output by the implicit assumption that

future market behaviour will not differ greatly from the historically

observed period. Another known limitation is the use of defined

holding periods which assumes that the risk can be liquidated or

hedged within that holding period. Also calculating the VaR at the

chosen confidence interval does not give enough information about

potential losses which may occur if this level is exceeded. The Group

fully recognises these limitations and supplements the use of VaR

with a variety of other measurements which reflect the nature of

the business activity. These include detailed sensitivity analysis,

position reporting and a stress testing programme.

Trading book VaR (1-day 99 per cent) is compared daily against

both hypothetical and actual profit and loss. The 1-day 99 per cent

VaR chart can be found in the Group’s Pillar 3 disclosures →.

Mitigating actions

The level of exposure is controlled by establishing and

communicating the approved risk limits and controls through

policies and procedures that define the responsibility and authority

for risk taking. Market risk limits are clearly and consistently

communicated to the business. Any new or emerging risks are

brought within risk reporting and defined limits.

Monitoring

Trading risk is monitored daily against 1-day 95 per cent VaR and

stress testing limits. These limits are complemented with position

level action triggers and profit and loss referrals. Risk and position

limits are set and managed at both desk and overall trading book

levels. They are reviewed at least annually and can be changed as

required within the overall Group risk appetite framework.



	Model risk

	Definition Model risk is the potential for adverse consequences from model errors or the inappropriate use of modelled outputs to inform business decisions. Adverse consequences could lead to a deterioration in the prudential position, non-compliance with applicable laws and/or regulations, or damage to the Group’s reputation. Model risk can also lead to financial loss, as well as qualitative limitations such as the imposition of restrictions on business activities. The Risk overview, on page 37, contains a summary of model risk performance and key mitigating actions.

Exposures

The Group uses models to support a broad range of activity,

including:

•Capital adequacy calculation

•Formulating business strategies

•Informing business decisions

•Identifying and measuring risks

•Credit decisioning, including fraud

•Pricing models

•Impairment calculation

•Stress testing and forecasting

•Market risk measurement

These models use quantitative methods to process input data into

quantitative or qualitative outputs which have a quantitative

measure associated with them. They use simplifications of complex

real-world systems and processes, the use of models therefore

creates model risk.

As a result of the wide scope and breadth of coverage, there is

exposure to model risk across a number of the Group’s principal

activities.

Significant events such as global conflicts and pandemics can

weaken the relationship between model inputs and subsequent

outputs due to the uncertainty these events cause. A stable

economy allows models to operate in a much steadier environment,

more typical to those used to build the models.

The evolution of GenAI will support the Group in increasing

productivity and reimagining the customer experience through

innovative solutions. However, these advancements introduce

unique risks. To address these risks, additional controls are being

developed to support the safe and controlled use of the Group’s

GenAI aspirations.

The control environment for model risk continues to be

strengthened to meet revised internal and regulatory requirements.

In addition, in common with the rest of the industry, changes

required to capital models following new regulations have created a

temporary increase in the risk relating to these models during the

period of transition. Further information on capital impacts are

detailed in the capital risk section on pages 144 to 150.

Measurement

The Board risk appetite metrics are the key components for

measuring the Group’s most material models; model performance

and compliance is reported regularly to the Group and Board Risk

Committees.

Mitigating actions

The model risk management framework, established by and with

continued oversight from an independent team in the Risk function,

provides the foundation for managing and mitigating model risk

within the Group. Accountability is cascaded from the Board and

senior management via the Group enterprise risk management

framework.

This provides the basis for the Group’s model risk management

policy, which defines the mandatory requirements for models across

the Group, including:

•The scope of quantitative methods covered by the policy

•Classification of risk of models using materiality and complexity

•Roles and responsibilities, including ownership, independent

oversight and approval

•Key principles and controls regarding model development,

implementation, model use, ongoing monitoring and periodic

revalidation, independent validation, model risk mitigants, and

the process for non-compliance

All models have an owner who takes responsibility for the fitness for

purpose of the model and, where appropriate, are supported and

challenged by the independent specialist Group function.

As a result of the above, all models in scope of policy, including

those involved in regulatory capital calculation, are developed

consistently and are of sufficient quality to support business

decisions and meet regulatory requirements.

Monitoring

The Group Model Governance Committee is the primary body for

overseeing model risk. Policy requires that key performance

indicators are monitored for every model such that all issues are

escalated appropriately. Material model issues are reported to the

Group and Board Risk Committees regularly, with focus on any key

issues.

Lloyds Banking Group plc Annual Report and Accounts 2024

196

Risk management continued


	Operational risk

	Definition Operational risk is defined as the risk of actual or potential impact to the Group (financial and/or non- financial) resulting from inadequate or failed internal processes, people and systems or from external events. Resilience is core to the management of operational risk within Lloyds Banking Group to ensure that business processes (including those that are outsourced) can withstand operational risks and can respond to and meet customer and stakeholder needs when continuity of operations is compromised. Level two risks Business continuity, Change execution, Cyber and physical security, Data and privacy, Financial reporting (including Tax), Health and safety and premises, Information, Internal and external supplier risk, IT systems, People, Transaction processing. The Risk overview, on page 37, contains a summary of operational risk performance and key mitigating actions.

Exposures

The principal operational risk to the Group covers a number of level

two operational risks, which could result in customer harm, unfair

outcomes, colleague detriment, financial loss, regulatory censure

and/or reputational damage.

A number of these risks could increase where there is a reliance on

third party suppliers to provide services to the Group or its

customers.

Measurement

Operational risk is managed across the Group through an

operational risk framework and policies. This framework includes a

risk and control self-assessment process, risk impact likelihood

matrix, risk and control indicators, risk appetite setting, a robust

operational loss event management and escalation process, and a

scenario analysis and operational loss forecasting process that feed

into capital planning. This is supplemented by Group level and local

management information and reporting across a suite of governed

metrics.

The operational risk events by risk category table below shows high

level loss and event trends for the Group using Basel II categories.

Based on data captured on the Group’s RCSA, in 2024 the highest

frequency of events occurred in external fraud with 85 per cent of

the total volume. External fraud also accounted for the highest

losses by value at 41 per cent.

Operational risk losses and scenario analysis is used to inform the

Internal Capital Adequacy Assessment Process (ICAAP). The Group

calculates its minimum (Pillar I) operational risk capital

requirements using The Standardised Approach (TSA). Pillar II is

calculated using internal and external loss data and severe but

plausible scenarios that may occur in the next 12 months.

Mitigating actions

The Group continues to focus on risk management requirements

and developing the processes, systems and people skills and

capabilities needed to mitigate risks. Risks are reported and

discussed at local governance forums and escalated to executive

management and the Board as appropriate to ensure the correct

level of visibility and engagement. The Group employs a range of risk

management strategies, including: avoidance, mitigation, transfer

(including insurance) and acceptance within appetite or tolerance.

Where there is a reliance on third party suppliers to provide services,

including the areas of IT systems and information security, the

Group’s sourcing policy ensures that outsourcing initiatives follow a

defined process including due diligence, risk evaluation and ongoing

assurance. Business management uses issues and action-tracking

management to address identified risk exposure weaknesses in the

control environment in a consistent manner.

Specific mitigating actions for level two operational level risks are:

Business continuity

The Group remains committed to managing operational resilience

risks and ensuring lessons are learned from internal and external

events of disruption, which may have an impact on the Group’s

ability to continue operations. The Group’s priority is centred on

minimising any potential impacts to the Group and its customers, as

well as the wider financial sector and UK economy, such as through

scenario analysis and testing, business continuity, supplier exit

planning and implementation of ‘resilience by design’.

Change execution

The Group takes a range of mitigating actions with respect to

change execution risk. These include the following:

•Ensuring there are sufficient, appropriately skilled colleagues to

support the safe delivery of the Group’s current and future

change portfolio

•Businesses assess the potential impacts of undertaking any

change activity on their ability to execute effectively, on

customers and colleagues and on the potential consequences for

existing business risk profiles

•Ensuring compliance with the change policy and associated

policies and procedures, which set out the principles and key

controls that apply across the business and are aligned to the

Group’s risk appetite

•The implementation of effective governance and control

frameworks to ensure adequate controls are in place to manage

change activity and act to mitigate the change execution risks

identified. These controls, such as testing, are monitored in line

with the change policy and ERMF

•Events and incidents related to change activities are escalated

and managed appropriately in line with risk framework guidance

Operational risk events by risk category (losses greater than or equal to £10,000)1


	% of total volume		% of total losses
	2024	2023	2024	2023
Business disruption and system failures	1.14	0.64	3.40	0.90
Clients, products and business practices	1.89	2.15	25.49	74.61
Damage to physical assets	0.14	0.06	0.05	0.03
Employee practices and workplace safety	0.39	0.32	0.55	0.16
Execution, delivery and process management	10.87	9.56	28.99	14.08
External fraud2	85.32	86.85	41.50	10.14
Internal fraud2	0.25	0.42	0.02	0.08
Total	100.00	100.00	100.00	100.00

1Excludes losses related to Insurance. 2023 breakdowns have been updated to reflect the reinstatement of PPI and provisions, and due to the nature of the risk events which can evolve

over time, such as the lag in operational losses.

2Fraud level two risk is explained in further detail within the economic crime risk, as per the updated enterprise risk management framework.

Lloyds Banking Group plc Annual Report and Accounts 2024

197

Data and privacy

The Group continues to invest to reduce data risk exposure, by:

•Delivering a strategy focused on data management and culture,

data-driven insights, platforms, tooling and AI-enablement

•Enhancing data quality and capability, such as standardised

controls implemented across critical data elements

•Embedding data privacy impact assessments in the processing of

high-risk data

Financial reporting (including tax)

The Group maintains risk management systems and internal

controls relating to the financial reporting process ensuring:

•The consistent and appropriate application of accounting

policies, the accurate recording of transactions, which are

undertaken in accordance with delegated authorities, and

safeguarding of assets with liabilities properly stated

•The calculation, preparation and reporting of financial,

prudential regulatory and tax outcomes in accordance with

applicable International Financial Reporting Standards, statutory

and regulatory requirements, such as the UK Finance Code for

Financial Reporting Disclosure and the US Sarbanes-Oxley Act

•Ongoing monitoring to assess the impact of emerging regulation

and legislation on financial, prudential regulatory and tax

reporting

•An accurate view of the Group’s performance to allow the Board

and senior management to appropriately manage the affairs and

strategy of the business and each of its entities and sub-groups

Health and safety and premises

The Group strives to ensure compliance with legal and regulatory

requirements, embedding compliant and appropriate colleague

behaviours in line with its policies, values and people risk priorities.

The Group continues to monitor horizon scanning, risk assessments

and any incident information to continually improve its health,

safety and premises risk management. Colleagues also regularly

complete health and safety training to ensure that policies,

standards, procedures, processes and practices are understood and

implemented effectively.

Information, cyber and physical security

The Group adopts a risk-based approach to mitigate cyber threats it

faces. Specifically, the Group continues to undertake remediation

activity to address deficiencies in its access controls across certain

business applications and associated IT infrastructure. The effective

operation of the Group’s estate is supported by an IT and Cyber

Security Governance framework, guided by a threat-based strategy

which underpins investment decisions. The ongoing protection of

the estate and confidentiality of material information is ensured

through adherence to the Group Security Policy which has been

aligned to industry good practice including the NIST Cyber Security

Framework; and material laws and regulations. The Group engages a

specialist third party consultancy on a periodic basis, to assess the

maturity of its cyber security programme, in assessing, identifying

and managing material risks from cyber security threats. Thresholds

have been set that, once triggered, will bring the information

security risk owning business representatives, legal and compliance

teams together as a subcommittee. The sub-committee will own

the invocation of crisis management, Board and/or regulatory

notification and the drafting of any wider stakeholder

communications.

Internal and external supplier

The threat landscape associated with third party suppliers and the

critical services they provide continues to receive a significant

amount of attention. The Group acknowledges the importance of

control and responsibility for critical business services and processes,

which could cause significant harm to the Group’s customers.

The Group segments its suppliers by criticality and has processes in

place to support ongoing supplier management, including:

•Policy expectations are underpinned by standards, notably the

sourcing and supply chain management framework

•All material arrangements are set out in written agreements and

based on Group standard terms, which comply with regulations,

including the expectation that all sub-outsourcing is managed in

line with the supplier’s contractual obligations to the Group

•A risk-proportionate process exists for onboarding and managing

third party arrangements through the life cycle

•Pre-outsourcing and ongoing risk assessments to identify key

operational and financial risks, including on-site or virtual

assurance for suppliers with a higher criticality assessment

•Assessments drive the level of ongoing supplier governance,

assurance and monitoring. For example, the Group provides

training and other resources to its suppliers to support IT systems

and information security resilience in its supply chain

IT systems

The Group continues its journey to simplify its technology estate, in

line with its strategy, through the targeted simplification of legacy

applications, infrastructure platforms and on-premise data centres.

The Group has controls in place to manage legacy technology, IT

change and monitoring, incident management and recovery. IT

disaster recovery is a key capability to recover from multiple

scenarios, ranging from likely and medium impact (such as

infrastructure failure for a single application), to low likelihood with

severe or material impact scenarios, such as the loss of a data centre

or cloud region.

People

The Group takes many mitigating actions with respect to people

risk. Key areas of focus include:

•Focusing on leadership and colleague engagement, through

delivery of strategies to attract, retain and develop high calibre

people together with a focus on creating a strong and resilient

talent pipeline

•Continued focus on the Group’s culture and inclusivity strategy

by developing and delivering initiatives that reinforce the

appropriate behaviours which generate the best possible long-

term outcomes for customers and colleagues

•Managing organisational capability and capacity through

divisional people strategies to ensure there are the right skills and

resources to meet customers’ needs and deliver the Group’s

strategic plan

•Ensuring colleague wellbeing strategies and support are in place

to meet colleague needs, alongside skills and capability growth

required to maximise the potential of our people

•Ensuring compliance with legal and regulatory requirements,

embedding compliant and appropriate colleague behaviours in

line with Group policies, values and its people risk priorities

•Reviewing and enhancing people processes to ensure they are fit

for purpose and operationally resilient

Lloyds Banking Group plc Annual Report and Accounts 2024

199

Financial

statements


In this section
Independent auditors’ report		200
Consolidated income statement		212
Consolidated statement of comprehensive income		213
Consolidated balance sheet		214
Consolidated statement of changes in equity		215
Consolidated cash flow statement		218

Notes to the consolidated financial statements
1.	Basis of preparation	219
2.	Accounting policies	219
3.	Critical accounting judgements and key sources of estimation uncertainty	228
4.	Segmental analysis	229
5.	Net interest income	234
6.	Net fee and commission income	234
7.	Net trading income (losses)	235
8.	Insurance business	236
9.	Other operating income	244
10.	Operating expenses	244
11.	Share-based payments	245
12.	Retirement benefit obligations	248
13.	Auditors’ remuneration	253
14.	Impairment	254
15.	Tax	255
16.	Measurement basis of financial assets and liabilities	258
17.	Fair values of financial assets and liabilities	260
18.	Maturities of assets and liabilities	269
19.	Derivative financial instruments	271
20.	Loans and advances to customers	274
21.	Allowance for expected credit losses	274
22.	Finance lease receivables	284
23.	Goodwill and other intangible assets	284
24.	Other assets	286
25.	Lessee disclosures	287
26.	Debt securities in issue	287
27.	Other liabilities	288
28.	Provisions	288
29.	Subordinated liabilities	290
30.	Share capital	291


31.	Earnings per share	292
32.	Share premium account	293
33.	Other reserves	293
34.	Retained profits	294
35.	Other equity instruments	295
36.	Dividends on ordinary shares	295
37.	Related party transactions	296
38.	Contingent liabilities, commitments and guarantees	297
39.	Structured entities	298
40.	Transfers of financial assets	299
41.	Financial risk management	300
42.	Cash flow statement	301
43.	Events since the balance sheet date	302

Parent company balance sheet		303
Parent company statement of changes in equity		304
Parent company cash flow statement		305

Notes to the parent company financial statements
1.	Basis of preparation and accounting policies	306
2.	Measurement basis of financial assets and liabilities	306
3.	Fair values of financial assets and liabilities	307
4.	Deferred tax	307
5.	Debt securities in issue at amortised cost	307
6.	Subordinated liabilities	308
7.	Share capital, share premium account and other equity instruments	308
8.	Merger reserve and capital redemption reserve	308
9.	Retained profits	309
10.	Related party transactions	309
11.	Financial risk management	310
12.	Other information	310

The Group has adopted the UK Finance Code for Financial Reporting Disclosure and these 2024 financial statements have been prepared in compliance with its principles.

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Independent auditors’ report

Independent auditors’ report to the members of Lloyds Banking Group plc

Report on the audit of the financial statements

1.Opinion

In our opinion:

•the financial statements of Lloyds Banking Group plc (the ‘Parent company’) and its subsidiaries (the ‘Group’ or ‘LBG’) give a true and

fair view of the state of the Group’s and of the Parent company’s affairs as at 31 December 2024 and of the Group’s profit for the year

then ended;

•the Group financial statements have been properly prepared in accordance with United Kingdom adopted international accounting

standards and IFRS® Accounting Standards as issued by the International Accounting Standards Board (IASB);

•the Parent company financial statements have been properly prepared in accordance with United Kingdom adopted international

accounting standards and as applied in accordance with the provisions of the Companies Act 2006; and

•the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements which comprise the:


Group		Parent company
•Consolidated balance sheet as at 31 December 2024; •Consolidated income statement for the year then ended; •Consolidated statement of comprehensive income for the year then ended; •Consolidated statement of changes in equity for the year then ended; •Consolidated cash flow statement for the year then ended; •Notes 1 to 43 to the financial statements, which include the accounting principles and policies; •Directors’ remuneration report identified as ‘audited’; and •Risk management section identified as ‘audited’.		•Balance sheet as at 31 December 2024; •Statement of changes in equity for the year then ended; •Cash flow statement for the year then ended; and •Notes 1 to 12 to the financial statements, which include the accounting principles and policies.

The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom adopted international

accounting standards, and as regards the Parent company financial statements, as applied in accordance with the provisions of the

Companies Act 2006.

2.Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities

under those standards are further described in the auditors’ responsibilities for the audit of the financial statements section of our report.

We are independent of the Group and the Parent company in accordance with the ethical requirements that are relevant to our audit of

the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public

interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services

provided to the Group and Parent company for the year are disclosed in note 13 to the financial statements. We confirm that we have not

provided any non-audit services prohibited by the FRC’s Ethical Standard to the Group or the Parent company.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3.Summary of our Audit approach


Key audit matters		The key audit matters that we identified in the current year were: •Expected credit losses (‘ECL’) (Group) •Regulatory and litigation matters (Group) •IT systems that impact financial reporting (Group and Parent company) •Defined benefit obligations (Group) •Valuation of certain complex and illiquid financial instruments held at fair value (Group) In 2023, we identified the first time adoption of IFRS 17 ‘Insurance contracts’ as a key matter. Post implementation we no longer consider this a key audit matter. Our assessment of the level of risk for all other areas has remained consistent with the prior year.
Materiality		Overall materiality used for the Group consolidated financial statements was £320 million, which was determined on the basis of pre-tax profits, normalised for non-recurring items. Overall materiality used for the Parent company financial statements was £320 million, which was determined on the basis of net assets and capped at Group materiality.
Scoping		Our audit scope covers 95 per cent of the Group’s total assets, 94 per cent of the Group’s total liabilities, 89 per cent of the Group’s income and 95 per cent of the Group’s expenses.

Our audit approach

We structured our approach to the audit to reflect how the Group is organised as well as ensuring it was both effective and risk focused. It

can be summarised into the following key activities through which we obtained sufficient audit evidence required to form our opinion on

the Group and Parent company financial statements:

•Audit planning and risk assessment

Our audit team has been structured in line with the Group’s three main operating divisions: Retail, Commercial Banking and Insurance,

Pensions and Investments. Our audit planning procedures considered the impact of internal and external factors affecting the Group’s

profitability and operations, key audit matters most relevant to the users of the financial statements, the appropriate scope of audit work

performed as well as the expectations and requirements of the Group’s investors and regulators.

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In performing our audit risk assessments, we considered the impact of macroeconomic factors on the Group’s key accounting judgements

and sources of estimation uncertainty. The key factors considered in our risk assessments were:

–the impact of uncertainty in the current economic climate and ongoing geopolitical tensions on the Group’s ECL and valuation of

certain illiquid and complex financial instruments; and

–changes to the regulatory and litigation environment affecting the Group’s financial reporting.

We obtained the knowledge and information required to inform our audit planning and risk assessment decision making through regular

meetings with Group and Divisional Finance and the extensive use of data and technology;

•Execution of audit work

Our audit is comprised of two distinct component audit teams covering the Group’s three operating segments, which are:

–the UK Banking component auditing the Group’s Retail and Commercial Banking operating segments; and

–the Insurance component auditing the Group’s Insurance, Pensions and Investments operations.

The component performance materiality allocated across both components ranged between £210 million and £120 million (2023: £228

million and £132 million).

The group audit team met regularly and was in active dialogue with each component audit team throughout the audit to ensure

appropriate oversight over audit activities performed within each audit component. Oversight activities included determining whether the

planned work was performed in accordance with the overall Group audit strategy and in line with the Group audit instructions provided to

the components. We were able to satisfy ourselves that our oversight and supervision was appropriate through in-person meetings,

videoconferencing, direct reviews of work as well as through attending planning and clearance meetings with divisional management;

•Audit procedures undertaken at both Group and Parent company level

We performed audit procedures over the Group and Parent company financial statements including the consolidation of the Group’s

results, the preparation of the financial statements, certain disclosures within the Directors’ Remuneration report, litigation provisions and

exposures, as well as the Group’s entity level and oversight controls relevant to financial reporting. Entities not covered by our audit scope

are subject to analytical procedures to confirm our conclusion that there were no significant risks of material misstatement in the

aggregated financial information;

•Internal controls testing approach

Our internal controls testing approach was informed by our scoping and risk assessment activities. We have assessed the Group’s end-to-

end financial reporting processes supporting all in-scope financial statement balances and identified relevant controls to test for these

balances. This included the testing of general IT controls, process level controls and entity level controls at the Group level; and

•The impact of climate change on our audit

In planning our audit, we have considered the impact of climate change on the Group’s operations and any subsequent impact on its

financial statements. The Group sets out its assessment of the potential impact on page 150 of the Risk Management section of the Annual

Report.

In conjunction with our climate risk specialists, we have held discussions with the Group to understand their:

–process for identifying affected operations including the governance and controls over this process, and the subsequent effect on the

financial reporting for the Group; and

–long-term strategy to respond to climate change risks and how this is factored into the Group’s forecasts, considering publicly

announced climate change commitments and any costs associated with the Group’s net zero targets.

Our audit work has involved:

–evaluating climate as a factor in risk assessments for potentially affected balances;

–challenging the completeness of the physical and transition risks identified and considered in the Group’s climate risk assessment and

the conclusion that there continues to be no material impact of climate change risk on financial reporting;

–reviewing the Group’s qualitative loan portfolio analysis, and challenging the key assumptions used by the Group with reference to

our own understanding of the portfolios and publicly available documentation; and

–assessing disclosures in the Annual Report and challenging the consistency between the financial statements and the remainder of

the Annual Report.

We have not identified any material inconsistencies or issues as a result of these procedures.

The Group’s progress on their Environmental, Social and Governance (‘ESG’) targets is not included within the scope of this audit.

We were engaged separately to provide independent limited assurance under International Standard on Assurance Engagements (‘ISAE’)

3000 (Revised) and ISAE 3410 to the directors regarding the following ESG metrics and targets:

•LBG’s own operations’ Scope 1, 2 and 3 energy consumption and GHG emissions data for the 12 months ended 30 September 2024

(pages 59 to 60);

•Supply chain GHG emissions for the 12 months ended 30 September 2022 and 30 September 2024 (page 58);

•On-balance sheet financed emissions for 9 sectors for the year ended 31 December 2023 and for the defined baseline year for selected

sectors (page 55);

•On and off-balance sheet financed emissions for Scottish Widows’ investment portfolio for the year ended 31 December 2024 (page 55);

•Off-balance sheet facilitated emissions, excluding green bonds, for a subset of capital markets activities for the year ended 31 December

2023 (page 84 of the Sustainability Report)

•Diversity and Inclusion metrics disclosing the proportion of women, Minority Ethnic and Black Heritage colleagues in senior roles (page

55);

•Selected requirements from the Group’s Principles of Responsible Banking Reporting and Self-Assessment Template (pages 3 to 24 of

the Sustainability Reporting Framework Index); and

•The Group’s progress against five specific Sustainable Lending and Investment targets (page 57).

The procedures performed for a limited assurance engagement is substantially less than the work performed for a financial audit, which

provides reasonable assurance. The Sustainability Report and our independent assurance report can be found at

www.lloydsbankinggroup.com/who-we-are/sustainability.html where we explain the scope of work and procedures performed.

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Independent auditors’ report continued

4.Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation

of the financial statements is appropriate.

Our evaluation of the directors’ assessment of the Group’s and Parent company’s ability to continue to adopt the going concern basis of

accounting included:

•using our knowledge of the Group and Parent company, the financial services industry, the financial services regulatory environment and

the general economic environment including, macroeconomic pressures affecting the Group’s operations, to identify inherent risks in the

business model and how such risks might affect the financial resources or ability to continue operations over the going concern period;

•making enquiries of Group management about the assumptions, including climate risk considerations, used in their going concern

models, and assessing the reasonableness of those assumptions and historical forecasting accuracy;

•evaluating the Group’s strategic plans in light of the changing macroeconomic environment, short and longer term financial budgets,

funding, liquidity and capital adequacy plans including internal stress tests;

•considering the Group’s operational resilience;

•reading analyst reports, industry data, Bank of England reports and other external information to determine if it provided corroborative

or contradictory evidence in relation to the Group’s assumptions;

•reviewing correspondence and meeting with prudential and conduct regulators to assess whether there are any matters that may

impact the going concern assessment;

•testing the underlying data generated to prepare the forecast scenarios and determining whether there was adequate support for the

assumptions underlying the forecasts; and

•evaluating the Group’s disclosures on going concern against the requirements of IAS 1.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually

or collectively, may cast significant doubt on the Group’s and Parent company’s ability to continue as a going concern for a period of at

least twelve months from when the financial statements are authorised for issue.

In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or draw

attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to

adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this

report.

5.Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements

of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we

identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the

audit, and directing the efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and

we do not provide a separate opinion on these matters.

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Expected credit losses (Group)
Key audit matter description		How the scope of our audit responded to the key audit matter
Refer to notes 2, 14, 20, 21 and 41 in the financial statements
The Group has recognised £3.5 billion of expected credit losses (‘ECL’) as at 31 December 2024. The valuation and allocation of ECL consists of a number of assumptions that are inherently uncertain and require a high degree of complex and subjective auditor judgement, specialised skills and knowledge, and complex impairment modelling. The increasing economic uncertainty resulting from geopolitical risks and recent changes in government policy in the United Kingdom (‘UK’) has further heightened the levels of judgement required, especially in the development of the base case economic scenario and alternative economic scenarios. As a consequence, we have determined ECL as a key audit matter. The key areas we identified as having the most significant level of management judgement were in respect of: •Multiple economic scenarios; •Collectively assessed ECL; •Individually assessed ECL; and •ECL model adjustments.
Multiple economic scenarios The Group’s economics team develops the future economic scenarios by developing a base case forecast based on a set of conditioning assumptions, with the three outer economic scenarios (upside, downside and severe downside) derived using a Monte Carlo simulation around the base case. The modelled severe downside scenario is then adjusted to capture supply-side risks not contemplated by the Monte Carlo model. The upside, the base case and the downside scenarios are weighted at a 30 per cent probability and the severe downside at a 10 per cent probability. The development of the base case scenario, including the conditioning assumptions, is inherently highly complex and requires significant judgement. This key audit matter is discussed in the Audit Committee’s report on page 101.		We performed the following procedures: •tested the controls over the generation of the multiple economic scenarios including those over the Group’s governance processes to approve the base case, different scenarios and the weightings applied to each scenario; •Working with our internal economic specialists: –challenged and evaluated economic forecasts in the base scenario such as the unemployment rate, House Price Index, Commercial Real Estate prices, inflation and forecasted interest rates, and Gross Domestic Product through comparison to independent economic outlooks, other external analyses and market data; –challenged and evaluated the appropriateness of changes in assumptions and/or the model, including changes to the non- modelled severe downside approach; –challenged and evaluated the appropriateness of the methodology applied to generate alternative macroeconomic scenarios, including associated weightings and assumptions within the model; and –independently replicated the multiple economic scenario model and compared the outputs of our independent model to the Group’s output to test scenario generation; •tested the completeness and accuracy of the data used by the model; •performed a stand back assessment of the appropriateness of the weightings applied to each of the scenarios based on publicly available data; and •evaluated the appropriateness of disclosures in respect of significant judgements and sources of estimation uncertainty including macroeconomic scenarios.

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Key audit matter description		How the scope of our audit responded to the key audit matter
Collectively assessed ECL The ECL for the Retail and Commercial Banking divisions, except for individually assessed stage 3 commercial loans, is determined on a collective basis using impairment models. These models use a number of significant judgements to calculate a probability-weighted estimate by applying a probability of default, exposure at default and a loss given default, taking account of collateral held or other loss mitigants, discounted using the effective interest rate. The key judgements and estimates in determining the ECL include: •modelling approach, modelling simplifications and judgements, and selection of modelling data; •behavioural lives of products in the Retail division; •credit risk ratings for the Commercial Banking division, which are performed on a counterparty basis for larger exposures by a credit officer; and •the appropriate allocation of assets into the correct staging taking into account any significant deterioration in credit risk since inception of the loan. This key audit matter is discussed in the Audit Committee’s report on page 101.		We tested controls across the process to estimate the ECL provisions including: •model governance including model validation and monitoring; •model assumptions; •allocation of assets into stages, including those to determine the credit risk rating in the Commercial Banking division; and •completeness and accuracy of the data used by the model. Working with our internal modelling specialists, our audit procedures over the key areas of estimation in the valuation and allocation of the ECL covered the following: •Model estimations, where we: –evaluated the appropriateness of the modelling approach and assumptions used; –independently replicated a sample of the models for all in-scope portfolios and compared the outputs of our independent models to the Group’s outputs; –assessed model performance by evaluating variations between observed data and model predictions; –developed an understanding of model limitations and assessed these and remedial actions; and –tested the completeness and accuracy of the data used in model execution and calibration. •Allocation of assets into stages, where we: –evaluated the appropriateness of quantitative and qualitative criteria used for allocation into IFRS 9 stages, including independently assessing the credit rating of a sample of loans in the Commercial Banking division; –tested the appropriateness of the stage allocation for a sample of exposures; and –tested the data used by models in assigning IFRS 9 stages and evaluated the appropriateness of the model logic used.
Individually assessed ECL For individual provision assessments of larger exposures in stage 3 in the Commercial Banking division, complex and subjective auditor judgement including specialised knowledge is required in evaluating the methodology, models and inputs that are inherently uncertain in determining the ECL. The significant judgements in estimating provisions are the: •completeness and appropriateness of the potential workout scenarios identified; •probability of default assigned to each identified potential workout scenario; and •valuation assumptions used in determining the expected recovery strategies. This key audit matter is discussed in the Audit Committee’s report on page 101.		•For expected credit losses assessed individually we have: –selected senior team members with extensive IFRS 9 knowledge and expertise to design and lead the execution of the audit of ECL; –tested the controls over individually assessed provisions including assumptions and inputs into workout and recovery scenarios, as well as valuation assumptions used; and –evaluated the appropriateness of workout and recovery scenarios identified, including the judgements to determine the timing and value of associated cash flows as well as consideration of climate risk.

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Key audit matter description		How the scope of our audit responded to the key audit matter
ECL model adjustments Where impairment models do not incorporate all factors relevant to estimating the ECL, adjustments are made to address known model limitations and data limitations, emerging or non-modelled risks and the impact of economic uncertainty on different industry sectors. The identification of model limitations is highly judgemental and inherently uncertain. The adjustments made to address these limitations require specialist auditor judgement when evaluating the: •completeness of adjustments; and •methodology, assumptions, models and inputs. This key audit matter is discussed in the Audit Committee’s report on page 101.		In respect of the adjustments to models, we performed the following procedures in conjunction with our specialists: •tested the controls over the valuation of in-model and post-model adjustments; •evaluated the methodology, approach and assumptions in developing the adjustments, and evaluated the Group’s selection of approach; •tested the completeness and accuracy of the data used in formulating the judgements; •performed a recalculation of adjustments; •evaluated the completeness of adjustments based on our understanding of both model and data limitations, including those related to cost of living and high inflation pressures; and •assessed the appropriateness of the disclosures and whether the disclosures appropriately address the uncertainty which exists in determining the ECL.
Key observations communicated to the Audit Committee We are satisfied that the ECL provisions are reasonable and recognised in accordance with the requirements of IFRS 9. Calculations of the multiple economic scenarios, in-model adjustments and post-model adjustments are made using appropriate methodologies and reasonable modelled assumptions. Overall ECL levels are reasonable compared to peer benchmarking information.


Regulatory and litigation matters (Group)
Key audit matter description		How the scope of our audit responded to the key audit matter
Refer to notes 2 and 28 in the financial statements.
The Group operates in an environment where it is subject to regulatory investigations, litigation and customer remediation, including allegations of fraud and misconduct. The Group is currently exposed to a number of regulatory and litigation matters. The Group’s provision for these matters is £1.6 billion as at 31 December 2024. In the current year, the Group recognised a further provision of £700 million relating to motor finance commission arrangements. Significant judgement is required by the Group in determining whether, under IAS 37 Provisions, Contingent Liabilities and Contingent Assets: •the amount recorded is representative of the Group’s best estimate to settle the obligation based on the information available to the Group, including in respect of motor finance commission arrangements where there is significant uncertainty around the final outcome as a result of the recent Court of Appeal decisions, appeal to the Supreme Court and the impact of the on-going review by the Financial Conduct Authority (‘FCA’); and •any contingent liabilities and underlying significant estimation uncertainties are adequately disclosed. This key audit matter is discussed in the Audit Committee’s report on page 102.		We performed the following audit procedures: •tested the Group’s controls over the completeness of provisions, the review of the assessment of the provision against the requirements of IAS 37, the review of the appropriateness of judgements used to determine a best estimate and the completeness and accuracy of data used in the process; •evaluated the assessment of the provisions, associated probabilities, and potential outcomes in accordance with IAS 37; •verified and evaluated whether the methodology, data and significant judgements and assumptions used in the valuation of the provisions are appropriate in the context of the applicable financial reporting framework; •inspected correspondence and, where appropriate, made direct inquiry with the Group’s regulators and internal and external legal counsel; •critically evaluated the Group’s conclusion in the context of the requirements of IAS 37 where no provision was made; •evaluated whether the disclosures made in the financial statements appropriately reflect the facts and key sources of estimation uncertainty, including in respect of motor finance commission arrangements; •specifically in respect of motor finance commission arrangements, we: –tested the governance control operating over the choice of assumptions used, including agreement to previous redress experience where applicable; –engaged with our internal modelling specialists to review relevant aspects of the code used to extract commission data used within the model; –tested the mathematical accuracy of the model including the completeness and accuracy of data used in the model; –inspected information available for the historical complaints, both supportive and contradictory, the view of independent analysts and the decisions made by the courts; –reviewed correspondence with external legal counsel to support the probability weighting applied; –inspected correspondence and made direct inquiry with the Group’s regulators; and –tested the methodology and assumptions applied to determine the provision.
Key observations communicated to the Audit Committee While there is significant judgement required in estimating the timing and value of future settlements, we are satisfied that the approach to the recognition, estimation and disclosures of these provisions and contingent liabilities is consistent with the requirements of IFRS Accounting Standards

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IT systems that impact financial reporting (Group and Parent company)
Key audit matter description		How the scope of our audit responded to the key audit matter
The Group’s IT environment is inherently complex due to the number of systems it operates and its reliance on automated and IT dependent manual controls. Together, these support a broad range of banking and insurance products as well as the processing of the Group’s significant volume of transactions, which impact all account balances. As such, IT systems within the Group form a critical component of the Group’s financial reporting activities. Due to the significant reliance on IT systems, effective General IT Controls (‘GITCs’) are critical to allow reliance to be placed on the completeness and accuracy of financial data and the integrity of automated system functionality, such as system calculations. We identified the IT systems that impact financial reporting as a key audit matter because of the: •Pervasive reliance on complex technology that is integral to the operation of key business processes and financial reporting; •Reliance on technology which continues to develop in line with the business strategy, such as the increase in the use of automation across the Group and increasing reliance on third parties; and •Importance of the IT controls in maintaining an effective control environment. A key interdependency exists between the ability to rely on IT controls and the ability to rely on financial data, system configured automated controls and system reports. IT controls, in the context of our audit scope, primarily relate to privileged access at the infrastructure level, user access security at the application level and change control. IT systems which impact financial reporting are discussed in the Audit Committee report on page 102.		Our IT audit scope covered the Group’s IT controls over information systems deemed relevant to the audit based on the financial data, system configured automated controls and/or key financial reports that reside within it. We used IT specialists to support our evaluation of the risks associated with IT in the following areas: •General IT Controls, including user access and change management controls; •Key financial reports and system configured automated controls; and •Cyber security risk assessment. Where deficiencies in the IT control environment were identified, our risk assessment procedures included an assessment of those deficiencies to determine the impact on our audit plan. Where relevant, the audit plan was adjusted to mitigate the unaddressed IT risk. Where we were able to identify and test appropriate mitigating controls over affected financial statement line items, our testing approach remained unchanged. In a limited number of areas, we adopted a non-controls reliance approach and we therefore performed additional substantive procedures.
Key observations communicated to the Audit Committee We are satisfied that the Group’s overall IT control environment appropriately supports the financial reporting process and control deficiencies identified in respect of privileged user access to IT infrastructure and in application user access management were mitigated by compensating business controls.


Defined benefit obligations (Group)
Key audit matter description		How the scope of our audit responded to the key audit matter
Refer to notes 2 and 12 in the financial statements
The Group operates a number of defined benefit retirement schemes, the obligations for which totalled £27.1 billion as at 31 December 2024. Their valuation is determined with reference to key actuarial assumptions including mortality assumptions, discount rates and inflation rates. Due to the size of these schemes, small changes in these assumptions can have a material impact on the value of the defined benefit obligation and therefore, the determination of these assumptions requires significant auditor judgement. This key audit matter is discussed in the Audit Committee’s report on page 101.		We performed the following audit procedures: •tested the Group’s controls over the valuation of the defined benefit obligations, including controls over the assumptions setting process; and •challenged and evaluated the key actuarial assumptions against the compiled expected ranges, determined by our internal actuarial experts, based on observable market indices and market experience.
Key observations communicated to the Audit Committee We are satisfied that the Group's judgements in relation to the defined benefit obligations are reasonable.

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Valuation of certain complex and illiquid financial instruments held at fair value (Group)
Key audit matter description		How the scope of our audit responded to the key audit matter
Refer to notes 2, 16, 17 and 41 in the financial statements
Financial instruments are classified as level 1, 2 or 3 in accordance with IFRS 13 Fair value measurement. The fair value of complex and illiquid financial instruments involves significant judgement. The extent of judgement applied by the Group in valuing the Group’s financial investments varies with the nature of assets held, the markets in which they are traded, and the valuation methodology applied. The Group holds several portfolios of level 3 illiquid investments totalling £6.0 billion, the largest of which is held within the Insurance, Pensions and Investments division, and includes loans in the commercial real estate, social housing, infrastructure, and education sectors. The valuation of these loans uses complex valuation models as they are without readily determinable market values and were valued using significant unobservable inputs, such as loan-to-bond premium and calibration spread that involved considerable judgement by management. This key audit matter is discussed in the Audit Committee’s report on page 102.		We tested the controls over the valuation of financial instruments including controls over significant assumptions used in the valuation of these financial assets, and model review controls. We involved our valuation specialists in our audit of the valuation of the level 3 portfolio loans and we performed the following procedures: •evaluated the appropriateness of loan valuation methodologies; •calculated a range of comparable values for a sample of modelled illiquid financial instruments using an independent valuation model and considered reasonable alternative key assumptions based on comparable securities and compared results; •evaluated the appropriateness of the internal credit ratings methodology and tested the appropriateness of the ratings for a sample of loan counterparties; •evaluated the consistency and appropriateness of inputs and assumptions over time, challenging both significant movements and non-movements where we expected change; and •assessed the appropriateness of disclosures and sensitivity analysis.
Key observations communicated to the Audit Committee We are satisfied that the valuation of these certain complex and illiquid financial instruments is reasonable and in accordance with IFRS 13.

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6.Our application of materiality

6.1Materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of

a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and

in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:


	Group financial statements	Parent company financial statements
Materiality	£320 million (2023: £344 million)	£320 million (2023: £344 million)
Basis for determining materiality	In determining our benchmark for materiality, we have considered the metrics used by investors and other users of the financial statements. We have determined pre-tax profits, normalised for non-recurring items to be the most relevant to users of the financial statements. This approach is broadly consistent with the prior year. The determined materiality represents 5 per cent of normalised pre-tax profit and 0.7 per cent of net assets.	Parent company materiality represents 0.6 per cent of net assets and is capped at Group materiality.
Rationale for the benchmark applied	Given the importance of these measures to investors and users of the financial statements, we have used pre-tax profits, normalised for non- recurring items as the primary benchmark for our determination of materiality.	The Parent company holds the Group’s investments and is not profit driven. The balance sheet is the key measure of financial health that is important to shareholders since the primary concern for the Parent company is the receipt and payment of dividends. However, given the size of the entity’s balance sheet, we have capped materiality at Group’s materiality.

6.2Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected

misstatements exceed the materiality for the financial statements as a whole.


	Group financial statements	Parent company financial statements
Performance materiality	70 per cent of Group materiality at £220 million (2023: 70 per cent at £240 million)	70 per cent of Parent company materiality at £220 million (2023: 70 per cent at £240 million)
Basis and rationale for determining performance materiality	In determining performance materiality, we considered the following factors: a. The quality of the control environment and whether we were able to rely on controls; b. The degree of centralisation and commonality of controls and processes; c. The uncertain economic environment; d. The nature, volume and size of uncorrected misstatements arising in the previous audit; and e. The nature, volume and size of uncorrected misstatements that remain uncorrected in the current period.

6.3Error reporting threshold

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £16 million (2023:

£17 million), as well as any differences below this threshold, which in our view, warranted reporting on qualitative grounds. We also report

to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

7.Other information


The other information comprises the information included in the Annual Report, other than the financial statements and our auditors’ report thereon. The directors are responsible for the other information contained within the Annual Report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.		We have nothing to report in this regard.

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We summarise below our work in relation to areas of the other information including those areas upon which we are specifically required to

report:


	Our responsibility	Our report
Matters we are specifically required to report
Principal risks and viability statement	Review the confirmation and description in the light of the knowledge gathered during the audit, such as through considering the directors’ processes to support the statements made, challenging the Group’s key judgements and estimates, consideration of historical forecasting accuracy and evaluating macro-economic assumptions. Consider if the statements are aligned with the relevant provisions of the Code.	As set out in the section ‘Corporate governance statement’, we have nothing material to report, add or draw attention to in respect of these matters.
Directors’ Remuneration report	Report whether the part of the directors’ remuneration report to be audited is properly prepared and the disclosures specified by the Companies Act have been made.	As set out in the section ‘Opinions on other matters prescribed by the Companies Act 2006’, in our opinion, the part of the directors’ remuneration report to be audited has been prepared in accordance with the Companies Act 2006.
Strategic report and directors’ report	Report whether they are consistent with the audited financial statements and are prepared in accordance with applicable legal requirements. Report if we have identified any material misstatements in either report in the light of the knowledge and understanding of the Group and of the Parent company and their environment obtained in the course of the audit.	As set out in the section ‘Opinions on other matters prescribed by the Companies Act 2006’, in our opinion, based on the work undertaken in the course of the audit, the information in these reports is consistent with the audited financial statements and has been prepared in accordance with applicable legal requirements. As referenced on page 201, we have provided limited assurance in accordance with ISAE 3000 (Revised) and ISAE 3410 over selected metrics.
Other reporting on other information
Alternative Performance Measures (‘APMs’)	APMs are measures that are not defined by generally accepted accounting practice (‘GAAP’) and therefore are not typically included in the financial statement part of the Annual Report. The Group use APMs, such as adjusted profit, and banking net interest margin in its quarterly and annual reporting of financial performance. We have reviewed and assessed the Group’s calculation and reporting of these metrics to assess consistency with the Group’s published definitions and policies for these items. We have also considered and assessed whether the use of APMs in the Group’s reporting results is consistent with the guidelines produced by regulators such as the European Securities and Markets Authority (‘ESMA’) guidelines on the use of APMs and the FRC Alternative Performance Measures Thematic Review. We also considered whether there was an appropriate balance between the use of statutory metrics and APMs, in addition to whether clear definitions and reconciliation for APMs used in financial reporting have been provided.	In our opinion: •the use, calculation and disclosure of APMs is consistent with the Group’s published definitions and policies; •the use of APMs in the Group’s reporting results is consistent with the guidelines produced by ESMA and FRC; and •there is an appropriate balance between the use of statutory metrics and APMs, together with clear definitions and reconciliation for APMs used in financial reporting.
Dividends and distribution policy	Consider whether the disclosures in the strategic report are consistent with the dividends policy and that the dividends paid are in line with the policy.	In our opinion the disclosures in the strategic report and dividends paid are consistent with the policy.

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Independent auditors’ report continued

8.Responsibilities of directors

As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial

statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to

enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group’s and the Parent company’s ability to continue

as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the

directors either intend to liquidate the Group or the Parent company or to cease operations, or have no realistic alternative but to do so.

9.Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,

whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance,

but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be

expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:

www.frc.org.uk/auditorsresponsibilities . This description forms part of our auditors’ report.

10.Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our

responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our

procedures are capable of detecting irregularities, including fraud is detailed below.

Identifying and assessing potential risks related to irregularities

In identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and

regulations, we considered the following:

•the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration

policies, key drivers for directors’ remuneration, bonus levels and performance targets;

•the Group’s own assessment of the risks that irregularities may occur either as a result of fraud or error that was discussed by the Audit

Committee including on 18 February 2025;

•results of our inquiries of management, in-house legal counsel, internal audit and the Audit Committee about their own identification

and assessment of the risk of irregularities, including those that are specific to the financial services sector, and review of supporting

documentation, concerning the Group’s policies and procedures relating to:

–identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;

–detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and

–the internal controls established to mitigate risks related to fraud or non compliance with laws and regulations;

•the discussion among the audit engagement team including significant component audit teams and relevant internal specialists,

including tax, valuations, pensions, credit modelling, actuarial, IT and industry specialists regarding how and where fraud might occur in

the financial statements and any potential indicators of fraud; and

•obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and regulations

that had a direct effect on the financial statements, such as provisions of the UK Companies Act, pensions legislation and tax legislation

or that had a fundamental effect on the operations of the Group, including regulation and supervisory requirements of the Prudential

Regulation Authority, Financial Reporting Council and Financial Conduct Authority.

Audit response to risks identified

As a result of performing the above, we identified the Group’s determination of ‘Expected credit losses’ as a key audit matter related to the

potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the specific

procedures in response to the key audit matter. In common with all audits under ISAs (UK), we are also required to perform specific

procedures to respond to the risk of management override.

In addition to the above, our procedures to respond to risks identified included the following:

•reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant

laws and regulations described as having a direct effect on the financial statements;

•enquiring of management, the Audit Committee and in-house and external legal counsel concerning actual and potential litigation and

claims;

•performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement

due to fraud;

•reading minutes of meetings of those charged with governance, reviewing internal audit reports and correspondence with regulators;

•in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other

adjustments;

•assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and

•evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including

specialists, and component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations

throughout the audit.

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211

Report on other legal and regulatory requirements

11.Opinions on other matters prescribed by the Companies Act 2006

In our opinion, the part of the Directors’ Remuneration report to be audited has been properly prepared in accordance with the Companies

Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

•The information given in the strategic report and the directors’ report for the financial year for which the financial statements are

prepared is consistent with the financial statements; and

•The strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the Group and of the Parent company and their environment obtained in the course of

the audit, we have not identified any material misstatements in the strategic report or the directors’ report.

12.Corporate Governance Statement

The Listing Rules require us to review the directors’ statement in relation to going concern, longer-term viability and that part of the

corporate governance statement relating to the Group’s compliance with the provisions of the UK corporate governance code specified for

our review.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance

Statement is materially consistent with the financial statements and our knowledge obtained during the audit:

•the directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material

uncertainties identified set out on page 39;

•the directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is

appropriate is set out on page 39;

•the directors’ statement on fair, balanced and understandable set out on page 136;

•the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 136;

•the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out on

page 102; and

•the section describing the work of the Audit Committee set out on pages 100 to 103.

13.Matters on which we are required to report by exception


Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion: •We have not received all the information and explanations we require for our audit; or •Adequate accounting records have not been kept by the Parent company, or returns adequate for our audit have not been received from branches not visited by us; or •The Parent company financial statements are not in agreement with the accounting records and returns.		We have nothing to report in respect of these matters.
Directors’ remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been made or the part of the Directors’ Remuneration report to be audited is not in agreement with the accounting records and returns.		We have nothing to report in respect of this matter.

14.Other matters which we are required to address

Auditor tenure

Following the recommendation of the Audit Committee, we were appointed by shareholders at its annual general meeting on 16 May 2024

to audit the financial statements of Lloyds Banking Group plc for the year ended 31 December 2024 and subsequent financial periods. The

period of total uninterrupted engagement of the firm is four years.

Consistency of the audit report with the additional report to the Audit Committee

Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).

15.Use of our report

This report is made solely to the Parent company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act

2006. Our audit work has been undertaken so that we might state to the Parent company’s members those matters we are required to

state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume

responsibility to anyone other than the Parent company and the Parent company’s members as a body, for our audit work, for this report,

or for the opinions we have formed.

As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.15R – DTR 4.1.18R, these

financial statements will form part of the Electronic Format Annual Financial Report filed on the National Storage Mechanism of the FCA in

accordance with DTR 4.1.15R – DTR 4.1.18R. This auditors’ report provides no assurance over whether the Electronic Format Annual

Financial Report has been prepared in compliance with DTR 4.1.15R – DTR 4.1.18R.

Michael Lloyd (Senior Statutory Auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

London, United Kingdom

19 February 2025

Lloyds Banking Group plc Annual Report and Accounts 2024

212

Consolidated income statement

for the year ended 31 December


	Note	2024 £m	2023 £m	2022 £m
Interest income		31,288	28,051	17,645
Interest expense		(19,011)	(14,753)	(4,723)
Net interest income	5	12,277	13,298	12,922
Fee and commission income		2,943	2,926	2,790
Fee and commission expense		(1,184)	(1,095)	(1,070)
Net fee and commission income	6	1,759	1,831	1,720
Net trading income (losses)	7	17,825	18,049	(19,987)
Insurance revenue		3,291	3,008	2,461
Insurance service expense		(2,733)	(2,414)	(3,863)
Net (expense) income from reinsurance contracts held		(72)	2	62
Insurance service result	8	486	596	(1,340)
Other operating income	9	1,934	1,631	1,339
Other income		22,004	22,107	(18,268)
Total income		34,281	35,405	(5,346)
Net finance (expense) income from insurance, participating investment and reinsurance contracts		(10,341)	(11,684)	15,893
Movement in third party interests in consolidated funds		(1,059)	(1,109)	1,035
Change in non-participating investment contracts		(4,878)	(3,983)	3,959
Net finance (expense) income in respect of insurance and investment contracts	8	(16,278)	(16,776)	20,887
Total income, after net finance expense in respect of insurance and investment contracts		18,003	18,629	15,541
Operating expenses	10	(11,601)	(10,823)	(9,237)
Impairment	14	(431)	(303)	(1,522)
Profit before tax		5,971	7,503	4,782
Tax expense	15	(1,494)	(1,985)	(859)
Profit for the year		4,477	5,518	3,923

Profit attributable to ordinary shareholders		3,923	4,933	3,389
Profit attributable to other equity holders		498	527	438
Profit attributable to equity holders		4,421	5,460	3,827
Profit attributable to non-controlling interests		56	58	96
Profit for the year		4,477	5,518	3,923

Basic earnings per share	31	6.3p	7.6p	4.9p
Diluted earnings per share	31	6.2p	7.5p	4.9p

The accompanying notes are an integral part of the consolidated financial statements.

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213

Consolidated statement of comprehensive income

for the year ended 31 December


	2024 £m	2023 £m	2022 £m
Profit for the year	4,477	5,518	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	(768)	(1,633)	(3,012)
Current tax	50	376	577
Deferred tax	154	52	283
	(564)	(1,205)	(2,152)
Movements in revaluation reserve in respect of equity shares held at fair value through other comprehensive income:
Change in fair value	93	(54)	44
Deferred tax	–	(3)	3
	93	(57)	47
Gains and losses attributable to own credit risk:
(Losses) gains before tax	(78)	(234)	519
Deferred tax	22	66	(155)
	(56)	(168)	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	(53)	(40)	(133)
Income statement transfers in respect of disposals	(7)	(122)	(92)
Income statement transfers in respect of impairment	(3)	(2)	6
Current tax	1	1	8
Deferred tax	16	46	54
	(46)	(117)	(157)
Movements in cash flow hedging reserve:
Effective portion of changes in fair value taken to other comprehensive income	(2,577)	545	(6,990)
Net income statement transfers	2,597	1,838	43
Deferred tax	(9)	(673)	1,928
	11	1,710	(5,019)
Movements in foreign currency translation reserve:
Currency translation differences (tax: £nil)	(73)	(53)	116
Transfers to income statement (tax: £nil)	–	–	(31)
	(73)	(53)	85
Total other comprehensive (loss) income for the year, net of tax	(635)	110	(6,832)
Total comprehensive income (loss) for the year	3,842	5,628	(2,909)

Total comprehensive income (loss) attributable to ordinary shareholders	3,288	5,043	(3,443)
Total comprehensive income attributable to other equity holders	498	527	438
Total comprehensive income (loss) attributable to equity holders	3,786	5,570	(3,005)
Total comprehensive income attributable to non-controlling interests	56	58	96
Total comprehensive income (loss) for the year	3,842	5,628	(2,909)

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Banking Group plc Annual Report and Accounts 2024

214

Consolidated balance sheet

at 31 December


	Note	2024 £m	2023 £m
Assets
Cash and balances at central banks		62,705	78,110
Financial assets at fair value through profit or loss	17	215,925	203,318
Derivative financial instruments	19	24,065	22,356
Loans and advances to banks		7,900	10,764
Loans and advances to customers	20	459,857	449,745
Reverse repurchase agreements		49,476	38,771
Debt securities		14,544	15,355
Financial assets at amortised cost		531,777	514,635
Financial assets at fair value through other comprehensive income	17	30,690	27,592
Goodwill and other intangible assets	23	8,188	8,306
Current tax recoverable		526	1,183
Deferred tax assets	15	5,005	5,185
Retirement benefit assets	12	3,028	3,624
Other assets	24	24,788	17,144
Total assets		906,697	881,453
Liabilities
Deposits from banks		6,158	6,153
Customer deposits		482,745	471,396
Repurchase agreements at amortised cost		37,760	37,703
Financial liabilities at fair value through profit or loss	17	27,611	24,914
Derivative financial instruments	19	21,676	20,149
Notes in circulation		2,121	1,392
Debt securities in issue at amortised cost	26	70,834	75,592
Liabilities arising from insurance and participating investment contracts	8	122,064	120,123
Liabilities arising from non-participating investment contracts		51,228	44,978
Other liabilities	27	25,918	19,026
Retirement benefit obligations	12	122	136
Current tax liabilities		45	39
Deferred tax liabilities	15	125	157
Provisions	28	2,313	2,077
Subordinated liabilities	29	10,089	10,253
Total liabilities		860,809	834,088
Equity
Share capital	30	6,062	6,358
Share premium account	32	18,720	18,568
Other reserves	33	8,827	8,508
Retained profits	34	5,912	6,790
Ordinary shareholders’ equity		39,521	40,224
Other equity instruments	35	6,195	6,940
Total equity excluding non-controlling interests		45,716	47,164
Non-controlling interests		172	201
Total equity		45,888	47,365
Total equity and liabilities		906,697	881,453

The accompanying notes are an integral part of the consolidated financial statements.

The directors approved the consolidated financial statements on 19 February 2025.



Sir Robin Budenberg Chair	Charlie Nunn Group Chief Executive	William Chalmers Chief Financial Officer

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215

Consolidated statement of changes in equity

for the year ended 31 December


	Attributable to ordinary shareholders				Other equity instruments £m	Non- controlling interests £m	Total £m
	Share capital and premium £m	Other reserves £m	Retained profits £m	Total £m	Other equity instruments £m	Non- controlling interests £m	Total £m
At 1 January 2024	24,926	8,508	6,790	40,224	6,940	201	47,365
Comprehensive income
Profit for the year	–	–	3,923	3,923	498	56	4,477
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax	–	–	(564)	(564)	–	–	(564)
Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:
Debt securities	–	(46)	–	(46)	–	–	(46)
Equity shares	–	93	–	93	–	–	93
Gains and losses attributable to own credit risk, net of tax	–	–	(56)	(56)	–	–	(56)
Movements in cash flow hedging reserve, net of tax	–	11	–	11	–	–	11
Movements in foreign currency translation reserve, net of tax	–	(73)	–	(73)	–	–	(73)
Total other comprehensive loss	–	(15)	(620)	(635)	–	–	(635)
Total comprehensive (loss) income1	–	(15)	3,303	3,288	498	56	3,842
Transactions with owners
Dividends (note 36)	–	–	(1,828)	(1,828)	–	(83)	(1,911)
Distributions on other equity instruments	–	–	–	–	(498)	–	(498)
Issue of ordinary shares	190	–	–	190	–	–	190
Share buyback (note 33)	(369)	369	(2,011)	(2,011)	–	–	(2,011)
Redemption of preference shares	35	(35)	–	–	–	–	–
Issue of other equity instruments (note 35)	–	–	(6)	(6)	763	–	757
Repurchases and redemptions of other equity instruments (note 35)	–	–	(316)	(316)	(1,508)	–	(1,824)
Movement in treasury shares	–	–	(173)	(173)	–	–	(173)
Value of employee services	–	–	153	153	–	–	153
Changes in non-controlling interests	–	–	–	–	–	(2)	(2)
Total transactions with owners	(144)	334	(4,181)	(3,991)	(1,243)	(85)	(5,319)
Realised gains and losses on equity shares held at fair value through other comprehensive income	–	–	–	–	–	–	–
At 31 December 2024	24,782	8,827	5,912	39,521	6,195	172	45,888

1Total comprehensive income attributable to owners of the parent was a surplus of £3,786 million (2023: surplus of £5,570 million; 2022: loss of £3,005 million).

Further details of movements in the Group’s share capital, reserves and other equity instruments are provided in notes 30 and 32 to 35.

The accompanying notes are an integral part of the consolidated financial statements.

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216

Consolidated statement of changes in equity continued

for the year ended 31 December


	Attributable to ordinary shareholders				Other equity instruments £m	Non- controlling interests £m	Total £m
	Share capital and premium £m	Other reserves £m	Retained profits £m	Total £m	Other equity instruments £m	Non- controlling interests £m	Total £m
At 1 January 2023	25,233	6,587	6,550	38,370	5,297	244	43,911
Comprehensive income
Profit for the year	–	–	4,933	4,933	527	58	5,518
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax	–	–	(1,205)	(1,205)	–	–	(1,205)
Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:
Debt securities	–	(117)	–	(117)	–	–	(117)
Equity shares	–	(57)	–	(57)	–	–	(57)
Gains and losses attributable to own credit risk, net of tax	–	–	(168)	(168)	–	–	(168)
Movements in cash flow hedging reserve, net of tax	–	1,710	–	1,710	–	–	1,710
Movements in foreign currency translation reserve, net of tax	–	(53)	–	(53)	–	–	(53)
Total other comprehensive income (loss)	–	1,483	(1,373)	110	–	–	110
Total comprehensive income	–	1,483	3,560	5,043	527	58	5,628
Transactions with owners
Dividends (note 36)	–	–	(1,651)	(1,651)	–	(101)	(1,752)
Distributions on other equity instruments	–	–	–	–	(527)	–	(527)
Issue of ordinary shares	131	–	–	131	–	–	131
Share buyback	(438)	438	(1,993)	(1,993)	–	–	(1,993)
Issue of other equity instruments (note 35)	–	–	(6)	(6)	1,778	–	1,772
Repurchases and redemptions of other equity instruments (note 35)	–	–	–	–	(135)	–	(135)
Movement in treasury shares	–	–	103	103	–	–	103
Value of employee services	–	–	227	227	–	–	227
Changes in non-controlling interests	–	–	–	–	–	–	–
Total transactions with owners	(307)	438	(3,320)	(3,189)	1,116	(101)	(2,174)
Realised gains and losses on equity shares held at fair value through other comprehensive income	–	–	–	–	–	–	–
At 31 December 2023	24,926	8,508	6,790	40,224	6,940	201	47,365

The accompanying notes are an integral part of the consolidated financial statements.

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217


	Attributable to ordinary shareholders				Other equity instruments £m	Non- controlling interests £m	Total £m
	Share capital and premium £m	Other reserves £m	Retained profits £m	Total £m	Other equity instruments £m	Non- controlling interests £m	Total £m
At 1 January 2022	25,581	11,177	8,318	45,076	5,906	235	51,217
Comprehensive income
Profit for the year	–	–	3,389	3,389	438	96	3,923
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax	–	–	(2,152)	(2,152)	–	–	(2,152)
Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:
Debt securities	–	(157)	–	(157)	–	–	(157)
Equity shares	–	47	–	47	–	–	47
Gains and losses attributable to own credit risk, net of tax	–	–	364	364	–	–	364
Movements in cash flow hedging reserve, net of tax	–	(5,019)	–	(5,019)	–	–	(5,019)
Movements in foreign currency translation reserve, net of tax	–	85	–	85	–	–	85
Total other comprehensive (loss) income	–	(5,044)	(1,788)	(6,832)	–	–	(6,832)
Total comprehensive (loss) income	–	(5,044)	1,601	(3,443)	438	96	(2,909)
Transactions with owners
Dividends (note 36)	–	–	(1,475)	(1,475)	–	(92)	(1,567)
Distributions on other equity instruments	–	–	–	–	(438)	–	(438)
Issue of ordinary shares	105	–	–	105	–	–	105
Share buyback	(453)	453	(2,013)	(2,013)	–	–	(2,013)
Issue of other equity instruments (note 35)	–	–	(5)	(5)	750	–	745
Repurchases and redemptions of other equity instruments (note 35)	–	–	(36)	(36)	(1,359)	–	(1,395)
Movement in treasury shares	–	–	(60)	(60)	–	–	(60)
Value of employee services	–	–	224	224	–	–	224
Changes in non-controlling interests	–	–	(3)	(3)	–	5	2
Total transactions with owners	(348)	453	(3,368)	(3,263)	(1,047)	(87)	(4,397)
Realised gains and losses on equity shares held at fair value through other comprehensive income	–	1	(1)	–	–	–	–
At 31 December 2022	25,233	6,587	6,550	38,370	5,297	244	43,911

The accompanying notes are an integral part of the consolidated financial statements.

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218

Consolidated cash flow statement

for the year ended 31 December


	Note	2024 £m	2023 £m	2022 £m
Cash flows (used in) provided by operating activities
Profit before tax		5,971	7,503	4,782
Adjustments for:
Change in operating assets	42(A)	(39,622)	(9,110)	16,735
Change in operating liabilities	42(B)	23,603	4,232	1,481
Non-cash and other items	42(C)	5,990	5,622	(244)
Tax paid1	15	(1,305)	(1,437)	(764)
Tax refunded1	15	970	–	21
Net cash (used in) provided by operating activities		(4,393)	6,810	22,011
Cash flows (used in) provided by investing activities
Purchase of financial assets		(10,518)	(10,311)	(7,984)
Proceeds from sale and maturity of financial assets		7,062	5,298	11,172
Purchase of fixed assets1		(4,364)	(3,961)	(2,432)
Purchase of other intangible assets1		(1,259)	(1,494)	(1,423)
Proceeds from sale of fixed assets1		1,505	1,027	1,550
Proceeds from sale of goodwill and other intangible assets1		62	–	–
Repayment of capital by joint ventures and associates		–	–	36
Acquisition of businesses and joint ventures, net of cash acquired	42(D)	(179)	(380)	(409)
Net cash (used in) provided by investing activities		(7,691)	(9,821)	510
Cash flows used in financing activities
Dividends paid to ordinary shareholders	36	(1,828)	(1,651)	(1,475)
Distributions in respect of other equity instruments		(498)	(527)	(438)
Distributions in respect of non-controlling interests		(83)	(101)	(92)
Interest paid on subordinated liabilities		(622)	(623)	(603)
Proceeds from issue of subordinated liabilities		812	1,417	838
Proceeds from issue of other equity instruments		757	1,772	745
Proceeds from issue of ordinary shares		187	86	31
Share buyback		(2,011)	(1,993)	(2,013)
Repayment of subordinated liabilities		(819)	(1,745)	(2,216)
Repurchases and redemptions of other equity instruments		(1,824)	(135)	(1,395)
Change in stake of non-controlling interests		(2)	–	5
Net cash used in financing activities		(5,931)	(3,500)	(6,613)
Effects of exchange rate changes on cash and cash equivalents		(7)	(480)	727
Change in cash and cash equivalents		(18,022)	(6,991)	16,635
Cash and cash equivalents at beginning of year		88,838	95,829	79,194
Cash and cash equivalents at end of year	42(E)	70,816	88,838	95,829

1Previously presented in aggregate.

Interest received was £29,721 million (2023: £26,461 million; 2022: £16,074 million) and interest paid was £17,840 million (2023: £11,100

million; 2022: £3,320 million).

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Banking Group plc Annual Report and Accounts 2024

219

Notes to the consolidated financial statements

for the year ended 31 December

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 IFRS® Accounting 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 Group’s capital and funding position,

the impact of climate change upon the Group’s future performance and the results from stress testing scenarios.

The Group’s accounting policies are consistent with those applied by the Group in its financial statements for the year ended 31 December

2023 and there have been no changes in the Group’s methods of computation.

The IASB has issued a number of minor amendments to the IFRS Accounting Standards 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 do not have a significant impact on the Group.

Future accounting developments

There are a number of new accounting pronouncements issued by the IASB with an effective date of 1 January 2027. This includes IFRS 18

Presentation and Disclosure in Financial Statements which replaces IAS 1 Presentation of Financial Statements and IFRS 19 Subsidiaries

without Public Accountability: Disclosures. The impact of these standards is being assessed and they have not yet been endorsed for use in

the UK.

The IASB has issued its annual improvements and a number of amendments to the IFRS Accounting Standards effective on or after 1

January 2025, including Amendments to IFRS 9 Financial Instruments (effective 1 January 2026) and Amendments to IFRS 7 Financial

Instruments Disclosure (effective 1 January 2026) and IAS 21 The Effects of Changes in Foreign Exchange Rates (effective 1 January 2025).

These improvements and amendments are not expected to have a significant impact on the Group.

Note 2: Accounting policies

The Group’s 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’s

subsidiaries and related undertakings are given on pages 318 to 331.

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 deconsolidated 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’s 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’s 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’s 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 (P) below).

Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair value at the acquisition

date.

Lloyds Banking Group plc Annual Report and Accounts 2024

220

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 2: Accounting policies continued

(B)Goodwill

Goodwill arises on business combinations and represents the excess of the cost of an acquisition over the fair value of the Group’s share of

the identifiable assets, liabilities and contingent liabilities acquired. Where the fair value of the Group’s 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’s 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’s 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’s 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 leases are set out in (J)(1) below and

those relating to life insurance and general insurance business are set out in (M) 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’s business model for managing those financial assets and whether the resultant cash

flows represent solely payments of principal and interest on principal outstanding. 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’s 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.

Lloyds Banking Group plc Annual Report and Accounts 2024

221

Note 2: Accounting policies continued

(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.

(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 those 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 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 17 (Fair values of financial assets and liabilities) 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.

Lloyds Banking Group plc Annual Report and Accounts 2024

222

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 2: Accounting policies continued

(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.

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 hedging relationships, are recognised

immediately in the income statement. As noted in (2) below, the change in fair value of a derivative in an effective cash flow 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 19 provides details of the types of derivatives held by the

Group and presents separately those designated in hedge relationships.

(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.

(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.

Lloyds Banking Group plc Annual Report and Accounts 2024

223

Note 2: Accounting policies continued

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’s

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 uses for all its products. 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’s 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’ 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’ 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’s cash-generating unit (CGU). In the event that an asset’s 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. 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 if 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.

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224

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 2: Accounting policies continued

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’s 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’s 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’s 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’s 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’s 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’s 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’s 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.

Lloyds Banking Group plc Annual Report and Accounts 2024

225

Note 2: Accounting policies continued

(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’s 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’s Revenue and Customs (HMRC) or other relevant tax authority, it is more likely than not that an economic

outflow will occur. Provisions reflect management’s 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’s long-term insurance businesses, the tax expense is analysed between tax that is payable in respect of policyholders’ returns

and tax that is payable on the shareholders’ 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, or where at the time of the transaction they give rise to equal taxable and

deductible temporary differences. Deferred tax is not discounted.

The Group has applied the exception to recognising and disclosing information about deferred tax assets and liabilities related to Pillar 2

income taxes currently required by IAS 12 Income Taxes.

(M)Insurance

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:

•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)

•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

•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’s

account value

The general insurance business issues only insurance contracts.

Lloyds Banking Group plc Annual Report and Accounts 2024

226

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 2: Accounting policies continued

(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:

•For an insurance contract, if arising 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

•For a participating investment contract, if resulting 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:

•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

•Changes related to past or current service are recognised in the insurance service result in profit or loss

•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’s With-Profits and unit-linked insurance and participating investment contracts are direct participating contracts

under which the Group’s 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’s 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’s 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 cash flows 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.

Lloyds Banking Group plc Annual Report and Accounts 2024

227

Note 2: Accounting policies continued

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’s 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’s 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 Accounting Standards.

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’s 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’s 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.

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Notes to the consolidated financial statements continued

for the year ended 31 December

Note 2: Accounting policies continued

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)Foreign currency translation

Items included in the financial statements of each of the Group’s 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

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. 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.

(O)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).

(P)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’s 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’s share capital, the consideration paid is deducted from

shareholders’ equity as treasury shares until they are cancelled; if these shares are subsequently sold or reissued, any consideration received

is included in shareholders’ equity.

(Q)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’s day-to-day operations.

Note 3: Critical accounting judgements and key sources of estimation uncertainty

The preparation of the Group’s financial statements in accordance with IFRS Accounting Standards 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’s 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’s results and financial position, are as follows:

•Valuation of liabilities arising from insurance business (note 8(I))

•Retirement benefit obligations (note 12)

•Uncertain tax positions (note 15)

•Fair value of financial instruments (note 17(D))

•Allowance for expected credit losses (note 21)

•Regulatory and legal provisions (note 28)

Lloyds Banking Group plc Annual Report and Accounts 2024

229

Note 3: Critical accounting judgements and key sources of estimation uncertainty continued

Consideration of climate change

Financial statement preparation includes the consideration of the impact of climate change on the Group’s 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:

•Going concern of the Group for a period of at least 12 months from the date of approval of the financial statements

•Assessment of impairment of non-financial assets including goodwill

•Carrying value and useful economic lives of property, plant and equipment

•Fair value of financial assets and liabilities. These are generally based on market indicators which include the market’s assessment of

climate risk

•Assessments on expected credit loss, focusing on specific climate-related macroeconomic, physical and transition risk impacts on credit

quality at a sector and segment level

•Forecasting of the Group’s 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 150 to 153.

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’s operating segments reflect its organisational and management structures. The GEC reviews the

Group’s 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 the IFRS Accounting Standards with the effects

of the following excluded in arriving at underlying profit:

•Restructuring costs relating to merger, acquisition, integration and disposal activities

•Volatility and other items, which includes the effects of certain asset sales, the volatility relating to the Group’s hedging arrangements

and that arising in the insurance businesses, the unwind of acquisition-related fair value adjustments and the amortisation of purchased

intangible assets

•Losses from insurance and participating investment contract modifications relating to the enhancement to the Group’s 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:

•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. Its aim is to build enduring relationships that meet more of its customers’

financial needs and improves their financial resilience throughout their lifetime

•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 whilst connecting the whole Group to clients

•Insurance, Pensions and Investments offers insurance, investment and pension management products and services

Other comprises income and expenditure not attributed to the Group’s operating segments. These amounts include those arising from the

Group’s equities business, residual net interest income after transfer pricing (which includes the central recovery of the Group’s

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. 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.

Lloyds Banking Group plc Annual Report and Accounts 2024

230

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 4: Segmental analysis continued


Year ended 31 December 2024	Retail £m	Commercial Banking £m		Insurance, Pensions and Investments £m		Other £m	Total £m
Underlying net interest income	8,930		3,434		(136)	617	12,845
Underlying other income	2,384		1,825		1,292	96	5,597
Total underlying income, net of net finance income in respect of insurance and investment contracts	11,314		5,259		1,156	713	18,442
Operating lease depreciation1	(1,319)		(6)		–	–	(1,325)
Net income	9,995		5,253		1,156	713	17,117
Operating costs	(5,596)		(2,762)		(924)	(160)	(9,442)
Remediation	(750)		(104)		(19)	(26)	(899)
Total costs	(6,346)		(2,866)		(943)	(186)	(10,341)
Underlying impairment (charge) credit	(457)		14		7	3	(433)
Underlying profit before tax	3,192		2,401		220	530	6,343

External income	13,596		3,991		1,292	(437)	18,442
External operating lease depreciation1	(1,319)		(6)		–	–	(1,325)
Inter-segment (expense) income	(2,282)		1,268		(136)	1,150	–
Net income	9,995		5,253		1,156	713	17,117

Loans and advances to customers2	372,250		87,602		–	5	459,857
External assets3	387,322		148,548		197,309	173,518	906,697
Customer deposits	319,726		162,645		–	374	482,745
External liabilities3	324,730		207,066		193,519	135,494	860,809

Analysis of underlying other income:
Consumer lending	1,810						1,810
Consumer relationships	574						574
Business and Commercial Banking			539				539
Corporate and Institutional Banking			1,286				1,286
Life, Pensions and Investments					979		979
General insurance					229		229
Venture capital						457	457
Other					84	(361)	(277)
Underlying other income	2,384		1,825		1,292	96	5,597

Other items reflected in income statement above:
Depreciation and amortisation	2,303		338		229	556	3,426
Defined benefit scheme charge (credit)	7		2		3	(23)	(11)
Non-income statement items:
Additions to fixed assets	3,485		107		75	1,956	5,623
Investments in joint ventures and associates at end of year	–		–		–	542	542

1Net of profits on disposal of operating lease assets of £59 million.

2Other includes centralised fair value hedge accounting adjustments.

3The Insurance, Pensions and Investments operating segment external assets includes £5,122 million included in disposal group assets and external liabilities includes £5,268 million in

disposal group liabilities. Further details are provided in note 24 and note 27.

Lloyds Banking Group plc Annual Report and Accounts 2024

231

Note 4: Segmental analysis continued


Year ended 31 December 2023	Retail £m	Commercial Banking £m	Insurance, Pensions and Investments £m		Other £m	Total £m
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 depreciation1	(948)	(8)		–	–	(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 depreciation1	(948)	(8)		–	–	(956)
Inter-segment (expense) income	(997)	920		(144)	221	–
Net income	10,858	5,482		1,077	515	17,932

Loans and advances to customers2	361,181	88,606		–	(42)	449,745
External assets	376,789	150,834		184,267	169,563	881,453
Customer deposits	308,441	162,752		–	203	471,396
External liabilities	313,244	204,815		179,962	136,067	834,088

Analysis of underlying other income:3
Consumer lending	1,553					1,553
Consumer relationships	606					606
Business and Commercial Banking		514				514
Corporate and Institutional Banking		1,177				1,177
Life, Pensions and Investments				966		966
General insurance				171		171
Venture capital					448	448
Other				72	(384)	(312)
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	–	–		–	401	401

1Net of profits on disposal of operating lease assets of £93 million.

2Other includes centralised fair value hedge accounting adjustments.

3Categories of analysis have been updated for 2024. Comparatives have been updated accordingly.

Lloyds Banking Group plc Annual Report and Accounts 2024

232

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 4: Segmental analysis continued


Year ended 31 December 2022	Retail £m	Commercial Banking £m	Insurance, Pensions and Investments £m		Other £m	Total £m
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 depreciation1	(368)	(5)		–	–	(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)	–	(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 depreciation1	(368)	(5)		–	–	(373)
Inter-segment (expense) income	(550)	682		(51)	(81)	–
Net income	11,137	5,007		859	462	17,465

Loans and advances to customers2	364,194	93,675		–	(2,970)	454,899
External assets	372,485	147,477		170,777	182,655	873,394
Customer deposits	310,765	163,828		–	738	475,331
External liabilities	314,091	202,070		168,357	144,965	829,483

Analysis of underlying other income:3
Consumer lending	1,176					1,176
Consumer relationships	555					555
Business and Commercial Banking		555				555
Corporate and Institutional Banking		1,010				1,010
Life, Pensions and Investments				773		773
General insurance				114		114
Venture capital					469	469
Other				73	(59)	14
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	–		–	381	385

1Net of profits on disposal of operating lease assets of £197 million.

2Other includes centralised fair value hedge accounting adjustments.

3Categories of analysis have been updated for 2024. Comparatives have been updated accordingly.

Geographical areas

The Group’s operations are predominantly UK-based and as a result an analysis between UK and non-UK activities is not provided.

Lloyds Banking Group plc Annual Report and Accounts 2024

233

Note 4: Segmental analysis continued

Reconciliation of underlying basis to statutory basis

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:
Year ended 31 December 2024	Lloyds Banking Group statutory basis £m		Volatility, and other items1 £m	Insurance gross up2 £m	Underlying basis £m
Net interest income		12,277	578	(10)	12,845	Underlying net interest income
Other income, net of net finance income in respect of insurance and investment contracts		5,726	(375)	246	5,597	Underlying other income
Total income, net of net finance income in respect of insurance and investment contracts		18,003
			(1,325)	–	(1,325)	Operating lease depreciation3
Total income, net of net finance income in respect of insurance and investment contracts		18,003	(1,122)	236	17,117	Net income
Operating expenses		(11,601)	1,496	(236)	(10,341)	Total costs
Impairment charge		(431)	(2)	–	(433)	Underlying impairment charge
Profit before tax		5,971	372	–	6,343	Underlying profit


			Removal of:
Year ended 31 December 2023	Lloyds Banking Group statutory basis £m		Volatility, and other items4 £m	Insurance gross up2 £m	Underlying basis £m
Net interest income		13,298	479	(12)	13,765	Underlying net interest income
Other income, net of net finance income in respect of insurance and investment contracts		5,331	(447)	239	5,123	Underlying other income
Total income, net of net finance income in respect of insurance and investment contracts		18,629
			(956)	–	(956)	Operating lease depreciation3
Total income, net of net finance income in respect of insurance and investment contracts		18,629	(924)	227	17,932	Net income
Operating expenses		(10,823)	1,235	(227)	(9,815)	Total costs
Impairment charge		(303)	(5)	–	(308)	Underlying impairment charge
Profit before tax		7,503	306	–	7,809	Underlying profit


			Removal of:
Year ended 31 December 2022	Lloyds Banking Group statutory basis £m		Volatility, and other items5 £m	Insurance gross up2 £m	Underlying basis £m
Net interest income		12,922	226	24	13,172	Underlying net interest income
Other income, net of net finance income in respect of insurance and investment contracts		2,619	1,846	201	4,666	Underlying other income
Total income, net of net finance income in respect of insurance and investment contracts		15,541
			(373)	–	(373)	Operating lease depreciation3
Total income, net of net finance income in respect of insurance and investment contracts		15,541	1,699	225	17,465	Net income
Operating expenses		(9,237)	535	(225)	(8,927)	Total costs
Impairment charge		(1,522)	12	–	(1,510)	Underlying impairment charge
Profit before tax		4,782	2,246	–	7,028	Underlying profit

1In the year ended 31 December 2024 this comprises the effects of market volatility and asset sales (losses of £144 million); the amortisation of purchased intangibles (£81 million);

restructuring (£40 million of merger, acquisition and integration costs); and the fair value unwind (losses of £107 million).

2The Group’s Insurance business statutory income statement includes income and expenses attributable to the policyholders of the Group’s 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 an alternative representation of the underlying trends within the business, these items are shown net within the underlying results.

3Net of profits on disposal of operating lease assets of £59 million (2023: £93 million; 2022: £197 million). Statutory operating expenses includes operating lease depreciation. On an

underlying basis operating lease depreciation is included in net income.

4Comprises the effects of market volatility and asset sales (gain of £35 million); the amortisation of purchased intangibles (£80 million); restructuring (£154 million of merger, acquisition

and integration costs); and the fair value unwind (losses of £107 million).

5Comprises the effects of market volatility and asset sales (losses of £1,978 million); the amortisation of purchased intangibles (£70 million); restructuring (£80 million of merger,

acquisition and integration costs); and the fair value unwind (losses of £118 million).

Lloyds Banking Group plc Annual Report and Accounts 2024

234

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 5: Net interest income


	2024 £m	2023 £m	2022 £m
Interest income:
Loans and advances to banks	3,508	4,172	1,208
Loans and advances to customers	23,242	20,419	14,465
Reverse repurchase agreements	2,685	2,044	857
Debt securities	779	559	168
Financial assets held at amortised cost	30,214	27,194	16,698
Financial assets at fair value through other comprehensive income	1,074	857	947
Total interest income1	31,288	28,051	17,645
Interest expense:
Deposits from banks	(225)	(213)	(148)
Customer deposits	(10,132)	(7,148)	(1,387)
Repurchase agreements at amortised cost	(2,392)	(2,397)	(842)
Debt securities in issue at amortised cost2	(5,493)	(4,253)	(1,636)
Lease liabilities	(31)	(30)	(29)
Subordinated liabilities	(738)	(712)	(681)
Total interest expense	(19,011)	(14,753)	(4,723)
Net interest income	12,277	13,298	12,922

1Includes £1,104 million (2023: £923 million; 2022: £724 million) in respect of finance lease receivables.

2The impact of the Group’s hedging arrangements is included on this line.

Net interest income includes a debit of £2,597 million (2023: debit of £1,838 million; 2022: debit of £43 million) transferred from the cash

flow hedging reserve (see note 33).

Note 6: Net fee and commission income


Year ended 31 December 2024	Retail £m	Commercial Banking £m		Insurance, Pensions and Investments £m		Other £m	Total £m
Fee and commission income:
Current accounts	423		221		–	–	644
Credit and debit card fees	829		457		–	–	1,286
Commercial banking and treasury fees	–		372		–	1	373
Unit trust and insurance broking	–		–		71	–	71
Factoring	–		69		–	–	69
Other fees and commissions	74		148		261	17	500
Total fee and commission income	1,326		1,267		332	18	2,943
Fee and commission expense	(745)		(334)		(89)	(16)	(1,184)
Net fee and commission income	581		933		243	2	1,759


Year ended 31 December 2023	Retail £m	Commercial Banking £m		Insurance, Pensions and Investments £m		Other £m	Total £m
Fee and commission income:
Current accounts	406		218		–	–	624
Credit and debit card fees	800		464		–	–	1,264
Commercial banking and treasury fees	–		334		–	–	334
Unit trust and insurance broking	–		–		69	–	69
Factoring	–		75		–	–	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

Lloyds Banking Group plc Annual Report and Accounts 2024

235

Note 6: Net fee and commission income continued


Year ended 31 December 2022	Retail £m	Commercial Banking £m		Insurance, Pensions and Investments £m		Other £m	Total £m
Fee and commission income:
Current accounts	421		225		–	–	646
Credit and debit card fees	735		460		–	–	1,195
Commercial banking and treasury fees	–		310		–	1	311
Unit trust and insurance broking	–		–		78	–	78
Factoring	–		79		–	–	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

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.

At 31 December 2024, the Group held on its balance sheet £163 million (31 December 2023: £163 million) in respect of services provided to

customers and £75 million (31 December 2023: £69 million) in respect of amounts received from customers for services to be provided after

the balance sheet date. Current unsatisfied performance obligations amount to £195 million (31 December 2023: £172 million); the Group

expects to receive substantially all of this revenue by the end of 2026.

Income recognised during the year included £28 million (2023: £32 million) in respect of amounts included in the contract liability balance

at the start of the year and £nil (2023: £2 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.

Note 7: Net trading income (losses)


	2024 £m	2023 £m	2022 £m
Net gains (losses) on financial assets and liabilities at fair value through profit or loss:
Net (losses) gain on financial instruments held for trading1	(5)	406	(1,049)
Net gains (losses) on other financial instruments mandatorily held at fair value through profit or loss	17,096	16,653	(17,210)
Net losses on financial liabilities designated at fair value through profit or loss2	(336)	(341)	(154)
	16,755	16,718	(18,413)
Foreign exchange	1,003	1,418	(1,063)
Investment property gains (losses) (note 24)	67	(87)	(511)
Net trading income (losses)3	17,825	18,049	(19,987)

1Includes hedge ineffectiveness in respect of fair value hedges (2024: loss of £81 million; 2023: loss of £267 million; 2022: loss of £41 million) and cash flow hedges (2024: loss of

£60 million; 2023: gain of £19 million; 2022: loss of £10 million).

2Excludes gains and losses arising from non-participating investment contracts, which are presented separately on the face of the income statement.

3Includes income from the net investment return on assets held to back insurance and investment contracts of £16,013 million (2023: income of £16,742 million; 2022: losses of £20,899

million). See note 8.

Lloyds Banking Group plc Annual Report and Accounts 2024

236

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 8: Insurance business

(A)Insurance service result


	2024 £m	2023 £m	2022 £m
Insurance revenue
Amounts relating to the changes in liabilities for remaining coverage:
CSM recognised for services provided	449	329	245
Change in risk adjustments for non-financial risk for risk expired	58	84	103
Expected claims and other insurance service expenses	1,916	1,907	1,696
Charges (credits) to funds in respect of policyholder tax and other	108	87	(228)
	2,531	2,407	1,816
Recovery of insurance acquisition cash flows	105	87	86
Total life	2,636	2,494	1,902
Total non-life	655	514	559
Total insurance revenue	3,291	3,008	2,461
Insurance service expense
Incurred claims and other insurance service expenses	(1,978)	(1,897)	(1,751)
Changes that relate to past service: adjustment to liabilities for incurred claims	(4)	–	–
Changes that relate to future service: (losses) reversal of losses on onerous contracts	(72)	58	(1,486)
Amortisation of insurance acquisition cash flows	(105)	(88)	(85)
Total life excluding net impairment loss on insurance acquisition assets	(2,159)	(1,927)	(3,322)
Net impairment loss on insurance acquisition assets	(9)	(7)	(14)
Total life	(2,168)	(1,934)	(3,336)
Total non-life1	(565)	(480)	(527)
Total insurance service expense	(2,733)	(2,414)	(3,863)
Net (expense) income from reinsurance contracts held	(72)	2	62
Insurance service result	486	596	(1,340)

1Includes weather-related claims of £82 million (2023: £57 million; 2022: £116 million), of which £64 million (2023: £51 million; 2022: £108 million) was related to severe weather events.

Lloyds Banking Group plc Annual Report and Accounts 2024

237

Note 8: Insurance business continued

(B)Net investment return on assets held to back insurance and investment contracts and net insurance finance (expense)

income arising from insurance and investment contracts

The following table shows the net investment return on assets held to back insurance and participating investment contracts and the net

finance expense arising from insurance, participating investment and reinsurance contracts, as required by IFRS 17. For completeness, the

net investment return on assets held to back third party interests in consolidated funds and non-participating investment contracts and

the related finance expense is also shown. These contracts are accounted for under IFRS 9.


	2024
	Life £m	Non-life £m	Total £m
Net gains on financial assets and liabilities at fair value through profit or loss	10,247	38	10,285
Foreign exchange	196	–	196
Investment property losses	(4)	–	(4)
Net investment return on assets held to back insurance and participating investment contracts (memorandum item)	10,439	38	10,477
Net investment return on assets held to back third party interests in consolidated funds			1,105
Net investment return on assets held to back non-participating investment contracts			4,431
Net investment return on assets held to back insurance and investment contracts1			16,013

Changes in fair value of underlying items of direct participating contracts	(10,844)	–	(10,844)
Effects of risk mitigation option	161	–	161
Interest accreted	(839)	(7)	(846)
Effect of changes in interest rates and other financial assumptions	1,001	–	1,001
Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked-in rates	140	–	140
Net finance expense from insurance and participating investment contracts	(10,381)	(7)	(10,388)

Net finance income from reinsurance contracts held	47	–	47

Net finance expense from insurance, participating investment and reinsurance contracts	(10,334)	(7)	(10,341)
Movement in third party interests in consolidated funds			(1,059)
Change in non-participating investment contracts			(4,878)
Net finance expense arising from insurance and investment contracts			(16,278)


	2023
	Life £m	Non-life £m	Total £m
Net gains on financial assets and liabilities at fair value through profit or loss	11,218	35	11,253
Foreign exchange	542	–	542
Investment property losses	(4)	–	(4)
Net investment return on assets held to back insurance and participating investment contracts (memorandum item)	11,756	35	11,791
Net investment return on assets held to back third party interests in consolidated funds			1,179
Net investment return on assets held to back non-participating investment contracts			3,772
Net investment return on assets held to back insurance and investment contracts1			16,742

Changes in fair value of underlying items of direct participating contracts	(10,293)	–	(10,293)
Effects of risk mitigation option	172	–	172
Interest accreted	(874)	(6)	(880)
Effect of changes in interest rates and other financial assumptions	(654)	–	(654)
Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked-in rates	(80)	–	(80)
Net finance expense from insurance and participating investment contracts	(11,729)	(6)	(11,735)

Net finance income from reinsurance contracts held	51	–	51

Net finance expense from insurance, participating investment and reinsurance contracts	(11,678)	(6)	(11,684)
Movement in third party interests in consolidated funds			(1,109)
Change in non-participating investment contracts			(3,983)
Net finance expense arising from insurance and investment contracts			(16,776)

Lloyds Banking Group plc Annual Report and Accounts 2024

238

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 8: Insurance business continued


	2022
	Life £m	Non-life £m	Total £m
Net (losses) gains on financial assets and liabilities at fair value through profit or loss	(14,876)	9	(14,867)
Foreign exchange	(1,039)	–	(1,039)
Investment property losses	(3)	–	(3)
Net investment return on assets held to back insurance and participating investment contracts (memorandum item)	(15,918)	9	(15,909)
Net investment return on assets held to back third party interests in consolidated funds			(968)
Net investment return on assets held to back non-participating investment contracts			(4,022)
Net investment return on assets held to back insurance and investment contracts1			(20,899)

Changes in fair value of underlying items of direct participating contracts	11,212	–	11,212
Effects of risk mitigation option	(118)	–	(118)
Interest accreted	(350)	(2)	(352)
Effect of changes in interest rates and other financial assumptions	5,226	–	5,226
Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked-in rates	(20)	–	(20)
Net finance income (expense) from insurance and participating investment contracts	15,950	(2)	15,948

Net finance expense from reinsurance contracts held	(55)	–	(55)

Net finance income (expense) from insurance, participating investment and reinsurance contracts	15,895	(2)	15,893
Movement in third party interests in consolidated funds			1,035
Change in non-participating investment contracts			3,959
Net finance income arising from insurance and investment contracts			20,887

1Net investment return on assets held to back insurance and investment contracts is reported within net trading income (losses) on the face of the Group’s income statement; includes

income of £10,688 million (2023: income of £10,200 million; 2022: loss of £11,081 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 investment contracts are carried at fair value on the Group’s balance sheet.

(C)Insurance and participating investment contracts assets and liabilities


	2024			2023
	Life £m	Non-life £m	Total £m	Life £m	Non-life £m	Total £m
Insurance contract assets	–	–	–	1	–	1
Liabilities arising from insurance and participating investment contracts1	(121,700)	(387)	(122,087)	(119,784)	(364)	(120,148)
Other liabilities2	(5,268)	–	(5,268)	–	–	–
Net liability	(126,968)	(387)	(127,355)	(119,783)	(364)	(120,147)
Insurance acquisition assets	–	23	23	8	16	24
Insurance and participating investment contacts net liability	(126,968)	(364)	(127,332)	(119,775)	(348)	(120,123)

1Excluding insurance acquisition assets.

2Liabilities arising from insurance contracts relating to the disposal of the Group's bulk annuity business have been classified as disposal group liabilities and presented in Other liabilities

in note 27. Further information on the disposal group is provided in note 24.

Of the fair value of underlying items in respect of direct participating contracts of £110,045 million (2023: £101,425 million), £111,435 million

(2023: £103,022 million) were financial assets at fair value through profit or loss and £1,125 million (2023: £1,337 million) were derivative

financial liabilities.

Lloyds Banking Group plc Annual Report and Accounts 2024

239

Note 8: Insurance business continued

(D)Reconciliation of insurance balances for liability for remaining coverage and liability for incurred claims


	2024				2023
	Liabilities for remaining coverage		Liability for incurred claims £m		Liabilities for remaining coverage		Liability for incurred claims £m
Life	Excluding loss component £m	Loss component £m	Liability for incurred claims £m	Total £m	Excluding loss component £m	Loss component £m	Liability for incurred claims £m	Total £m
Net liability at 1 January1	(118,724)	(466)	(593)	(119,783)	(108,846)	(471)	(603)	(109,920)

Contracts under the modified retrospective approach	–	–	–	–	–	–	–	–
Contracts under the fair value transition approach	1,498	–	–	1,498	1,467	–	–	1,467
Other contracts	1,138	–	–	1,138	1,027	–	–	1,027
Insurance revenue	2,636	–	–	2,636	2,494	–	–	2,494
Insurance service expenses2	(105)	(44)	(2,010)	(2,159)	(88)	110	(1,949)	(1,927)
Insurance service result	2,531	(44)	(2,010)	477	2,406	110	(1,949)	567
Net finance income (expense) from insurance and participating investment contracts	(10,371)	(5)	(5)	(10,381)	(11,576)	(105)	(3)	(11,684)
Exchange differences	80	–	–	80	32	–	–	32
Total change in profit or loss	(7,760)	(49)	(2,015)	(9,824)	(9,138)	5	(1,952)	(11,085)
Investment components	10,205	–	(10,205)	–	8,793	–	(8,793)	–
Premiums received	(10,679)	–	–	(10,679)	(9,768)	–	–	(9,768)
Claims and other insurance service expenses paid	849	–	12,214	13,063	–	–	10,721	10,721
Insurance acquisition cash flows	265	–	–	265	203	–	–	203
Cash flows	(9,565)	–	12,214	2,649	(9,565)	–	10,721	1,156
Transfer to other items in the balance sheet	(10)	–	–	(10)	32	–	34	66
Net liability at 31 December1	(125,854)	(515)	(599)	(126,968)	(118,724)	(466)	(593)	(119,783)

1Excluding insurance acquisition assets.

2Losses and reversal of losses on onerous contracts amounted to a net loss of £72 million (2023: net reversal of losses of £58 million). Amortisation of insurance acquisition cashflows

amounted to £105 million (2023: £88 million).

Lloyds Banking Group plc Annual Report and Accounts 2024

240

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 8: Insurance business continued


		2024				2023
		Liabilities for remaining coverage		Liability for incurred claims £m		Liabilities for remaining coverage		Liability for incurred claims £m
Non-life	Excluding loss component £m		Loss component £m	Liability for incurred claims £m	Total £m	Excluding loss component £m	Loss component £m	Liability for incurred claims £m	Total £m
Net liability at 1 January1		(25)	–	(339)	(364)	(22)	(1)	(357)	(380)

Contracts under the modified retrospective approach		–	–	–	–	–	–	–	–
Contracts under the fair value transition approach		–	–	–	–	–	–	–	–
Other contracts		655	–	–	655	514	–	–	514
Insurance revenue		655	–	–	655	514	–	–	514
Insurance service expenses2		(32)	–	(533)	(565)	(30)	1	(451)	(480)
Insurance service result		623	–	(533)	90	484	1	(451)	34
Net finance income (expense) from insurance and participating investment contracts		–	–	(7)	(7)	–	–	(6)	(6)
Total change in profit or loss		623	–	(540)	83	484	1	(457)	28
Premiums received		(659)	–	–	(659)	(525)	–	–	(525)
Claims and other insurance service expenses paid		–	–	524	524	–	–	475	475
Insurance acquisition cash flows		29	–	–	29	38	–	–	38
Cash flows		(630)	–	524	(106)	(487)	–	475	(12)
Net liability at 31 December1		(32)	–	(355)	(387)	(25)	–	(339)	(364)

1Excluding insurance acquisition assets.

2Losses and reversal of losses on onerous contracts amounted to £nil (2023: net reversal of losses of £1 million). Amortisation of insurance acquisition cashflows amounted to £32 million

(2023: £30 million).

(E)Summary of contractual service margin and risk adjustment


	2024			2023
	Life £m	Non-life £m	Total £m	Life £m	Non-life £m	Total £m
CSM on insurance and participating investment contracts1	4,646	–	4,646	4,415	–	4,415
CSM on reinsurance contracts2	(467)	–	(467)	(220)	–	(220)
Total CSM	4,179	–	4,179	4,195	–	4,195
Risk adjustment on insurance and participating investment contracts1	891	19	910	1,159	17	1,176
Risk adjustment on reinsurance contracts2	(68)	(1)	(69)	(65)	(1)	(66)
Total risk adjustment	823	18	841	1,094	16	1,110
Total	5,002	18	5,020	5,289	16	5,305

1Includes CSM of £544 million (2023: £nil) and risk adjustment of £36 million (2023: £nil) arising from insurance contracts classified as disposal group liabilities and presented in other

liabilities. Further information on the disposal group is provided in note 24.

2Includes CSM of £(426) million (2023: £nil) and risk adjustment of £(36) million (2023: £nil) on reinsurance contracts classified as disposal group assets and presented in other assets.

Further information on the disposal group is provided in note 24.

Lloyds Banking Group plc Annual Report and Accounts 2024

241

Note 8: Insurance business continued

(F)Reconciliation of measurement components of insurance contract balances


	2024
				Contractual service margin (CSM)
Life	Present value of future cash flows £m	Risk adjustment for non- financial risk £m			Contracts measured under the fair value approach £m	Other contracts £m	Total CSM £m	Total £m
Net liability at 1 January1	(114,209)		(1,159)		(1,473)	(2,942)	(4,415)	(119,783)
Relating to current services	46		58		155	294	449	553
Contracts initially recognised in the year	33		(65)		–	(61)	(61)	(93)
Changes in estimates that adjust the CSM	334		252		(95)	(491)	(586)	–
Changes in estimates that result in losses and reversal of losses on onerous contracts	(2)		23		–	–	–	21
Relating to future services	365		210		(95)	(552)	(647)	(72)
Relating to past services	(3)		(1)		–	–	–	(4)
Insurance service result	408		267		60	(258)	(198)	477
Net finance expense from insurance and participating investment contracts	(10,341)		–		(9)	(31)	(40)	(10,381)
Exchange differences	72		1		7	–	7	80
Total change in profit or loss	(9,861)		268		58	(289)	(231)	(9,824)
Premiums received	(10,679)		–		–	–	–	(10,679)
Claims and other insurance service expenses paid	13,063		–		–	–	–	13,063
Insurance acquisition cash flows	265		–		–	–	–	265
Cash flows	2,649		–		–	–	–	2,649
Transfer to other items in the balance sheet	(10)		–		–	–	–	(10)
Net liability at 31 December1	(121,431)		(891)		(1,415)	(3,231)	(4,646)	(126,968)

1Excluding insurance acquisition assets.


	2023
				Contractual service margin (CSM)
Life	Present value of future cash flows £m	Risk adjustment for non- financial risk £m			Contracts measured under the fair value approach £m	Other contracts £m	Total CSM £m	Total £m
Net liability at 1 January1	(104,545)		(1,165)		(1,441)	(2,769)	(4,210)	(109,920)
Relating to current services	99		84		129	197	326	509
Contracts initially recognised in the year	107		(86)		–	(92)	(92)	(71)
Changes in estimates that adjust the CSM	390		(12)		(170)	(208)	(378)	–
Changes in estimates that result in losses and reversal of losses on onerous contracts	109		20		–	–	–	129
Relating to future services	606		(78)		(170)	(300)	(470)	58
Insurance service result	705		6		(41)	(103)	(144)	567
Net finance (expense) income from insurance and participating investment contracts	(11,621)		–		7	(70)	(63)	(11,684)
Exchange differences	30		–		2	–	2	32
Total change in profit or loss	(10,886)		6		(32)	(173)	(205)	(11,085)
Premiums received	(9,768)		–		–	–	–	(9,768)
Claims and other insurance service expenses paid	10,721		–		–	–	–	10,721
Insurance acquisition cash flows	203		–		–	–	–	203
Cash flows	1,156		–		–	–	–	1,156
Transfer to other items in the balance sheet	66		–		–	–	–	66
Net liability at 31 December1	(114,209)		(1,159)		(1,473)	(2,942)	(4,415)	(119,783)

1Excluding insurance acquisition assets.

Lloyds Banking Group plc Annual Report and Accounts 2024

242

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 8: Insurance business continued

The Group estimates the Risk adjustment separately from other components of the fulfilment cashflows using an explicit margins

approach. A confidence level scenario, allowing for diversification of risks across the insurance business, is used to determine the margins to

be applied to the best estimate assumptions which are then used to calculate the risk adjustment at a policy level. The risk adjustment

represents the difference in the value of the best estimate cash flows with and without these margins.

The confidence level corresponding to the risk adjustment is 85 per cent (2023: 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 68 per cent (2023: 70

per cent) at end of the reporting period.

(G)Impacts of insurance and participating investment contracts recognised in the year


	2024			2023
Life	Profitable contracts issued £m	Onerous contracts issued £m	Total £m	Profitable contracts issued £m	Onerous contracts issued £m	Total £m
Insurance and participating investment contracts
Insurance acquisition cash flows	56	203	259	87	142	229
Claims and other directly attributable expenses	1,446	4,498	5,944	5,450	447	5,897
Estimates of the present value of future cash outflows	1,502	4,701	6,203	5,537	589	6,126
Estimates of the present value of future cash inflows	(1,577)	(4,659)	(6,236)	(5,708)	(525)	(6,233)
Risk adjustment for non-financial risk	14	51	65	79	7	86
Contractual service margin	61	–	61	92	–	92
Losses recognised on initial recognition	–	93	93	–	71	71

(H)Life business contractual service margin run-off

The following table analyses the expected recognition of the contractual service margin (CSM) in profit or loss.


At 31 December 2024	Less than 1 year £m	1 to 2 years £m	2 to 3 years £m	3 to 4 years £m	4 to 5 years £m	5 to 10 years £m	Over 10 years £m	Total £m
Pensions and investments	(240)	(218)	(199)	(164)	(152)	(591)	(1,169)	(2,733)
Annuities, protection and other1	(660)	(106)	(98)	(90)	(83)	(331)	(545)	(1,913)
Insurance and participating investment contracts	(900)	(324)	(297)	(254)	(235)	(922)	(1,714)	(4,646)
Reinsurance contracts held2	433	5	4	3	3	8	11	467
Total	(467)	(319)	(293)	(251)	(232)	(914)	(1,703)	(4,179)


At 31 December 2023	Less than 1 year £m	1 to 2 years £m	2 to 3 years £m	3 to 4 years £m	4 to 5 years £m	5 to 10 years £m	Over 10 years £m	Total £m
Pensions and investments	(186)	(176)	(168)	(157)	(133)	(535)	(1,088)	(2,443)
Annuities, protection and other	(147)	(136)	(125)	(117)	(109)	(444)	(894)	(1,972)
Insurance and participating 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)

1CSM of £(544) million arising from insurance contracts classified as disposal group liabilities has been included in less than one year. The Group expects the CSM to be derecognised in

2025 upon disposal of the insurance contract liabilities. Further information on the disposal group is provided in note 24.

2CSM of £426 million arising from reinsurance contracts held classified as disposal group assets has been included in less than one year. The Group expects the CSM to be derecognised

in 2025 upon disposal of the reinsurance contract assets. Further information on the disposal group is provided in note 24.

(I)Life insurance sensitivity analysis

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
Key sources of estimation uncertainty:	Increase in illiquidity premia and widening of credit default spreads

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. With the exception of the 31 December 2024 risk free rate, the sensitivities below are on a gross of

reinsurance basis, which do not differ materially from the sensitivities on a net of reinsurance basis. The 31 December 2024 risk free rate

sensitivity is shown net of reinsurance and reflects the impact of the reinsurance of the Group's bulk annuity business to Rothesay Life plc.

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.

Lloyds Banking Group plc Annual Report and Accounts 2024

243

Note 8: Insurance business continued


		2024		2023
	Change in variable	Increase (reduction) in profit before tax £m	Increase (reduction) in equity £m	Increase (reduction) in profit before tax £m	Increase (reduction) in equity £m
Key sources of estimation uncertainty
Risk free rate, including illiquidity premia - gross	1% reduction	(245)	(184)	393	294
	1% increase	211	158	(333)	(250)
Risk free rate, including illiquidity premia - net	1% reduction	243	183
	1% increase	(203)	(153)
Widening of credit default spreads on corporate bonds	0.25% addition	(174)	(131)	(316)	(237)
Other accounting estimates
Annuitant mortality	5% reduction	49	37	70	52
	5% increase	(46)	(34)	(75)	(56)
Future maintenance and investment expenses	10% reduction	33	25	29	21
	10% increase	(33)	(25)	(29)	(21)
Non-annuitant mortality and morbidity	5% reduction	61	46	63	47
	5% increase	(62)	(46)	(63)	(47)
Lapse rates	10% reduction	(6)	(4)	(11)	(8)
	10% increase	4	3	8	6

At each measurement date, the Group estimates, based on information about past events, current conditions and forecasts of future

conditions, the expected value of future cash flows. The calculation uses a range of scenarios that reflect the full range of possible

outcomes. The assumptions used to develop the estimates of future cash flows are reassessed at each reported date to reflect conditions

existing at the measurement date.

Risk free rate, including illiquidity premia

The Group has applied judgement 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.

Due to the illiquid nature of their cash flows, an illiquidity premium has been applied to the discount rate of the Group’s 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. To reflect differences between the characteristics of insurance contracts and a

reference portfolio, adjustments for credit risk are required when determining appropriate discount rates. 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 sterling yield curves 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
2024	5.58	5.17	5.66	5.71	5.06
2023	5.37	4.15	4.79	4.72	4.19

The Group determines the quantity of benefits provided under each contract using different bases, depending on the product. For with-

profits and unit linked products, the policyholder account value (or the guaranteed benefits, if higher) is used. For annuities, pre-vesting

date the defined amount payable is used (immediate annuities have no pre-vesting date period) and post-vesting date the annuity payout

is used.

Widening of credit default spreads on corporate bonds

The Group applies a sensitivity showing the impact of an 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. There is no impact in 2024 on the Bulk annuity business as this is now backed by the reinsurance with

Rothesay Life plc.

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 2024 and the prior period were selected from the bespoke mortality tables. The mortality improvements adopt

the 100per cent Bespoke tables and CMI 2023_{M/F}_(7.25)_{2.0/1.8}%_{0.5/0.5}A_2013 for the year ended 31 December 2024; and the

100 per cent Bespoke tables and CMI 2022_{M/F}_(7.25)_{2.0/1.8}%_{0.5/0.5}A_2013 for the prior period.

Lloyds Banking Group plc Annual Report and Accounts 2024

244

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 8: Insurance business continued

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’s 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 13.8 per cent (2023: 0.8 per cent to 14.6 per cent) and for

longstanding business range from 0.5 per cent to 74.1 per cent (2023: 0.5 per cent to 74.1 per cent), the wide range being a result of the age

and variety of products.

Note 9: Other operating income


	2024 £m	2023 £m	2022 £m
Operating lease rental income	1,681	1,383	1,077
Rental income from investment properties (note 24)	172	146	145
Net gains on disposal of financial assets at fair value through other comprehensive income (note 33)	7	122	92
Other	74	(20)	25
Total other operating income	1,934	1,631	1,339

Note 10: Operating expenses


	2024 £m	2023 £m	2022 £m
Staff costs:
Salaries and social security costs1	3,819	3,651	3,310
Pensions and other retirement benefit schemes (note 12)	526	355	455
Restructuring and other staff costs	327	487	307
	4,672	4,493	4,072
Premises and equipment costs2	454	449	332
Depreciation and amortisation3	3,426	2,905	2,396
UK bank levy	147	150	148
Regulatory and legal provisions (note 28)	899	675	255
Other	2,594	2,720	2,556
Operating expenses before adjustment for:	12,192	11,392	9,759
Amounts attributable to the acquisition of insurance and participating investment contracts	(182)	(183)	(168)
Amounts reported within insurance service expenses	(409)	(386)	(354)
Total operating expenses	11,601	10,823	9,237

1Including social security costs of £428 million (2023: £371 million; 2022: £341 million).

2Net of profits on disposal of operating lease assets of £59 million (2023: £93 million; 2022: £197 million).

3Including depreciation in respect of premises £96 million (2023: £110 million; 2022: £114 million), equipment £400 million (2023: £388 million; 2022: £561 million), operating lease assets

£1,410 million (2023: £1,070 million; 2022: £570 million) and right-of-use assets £198 million (2023: £209 million; 2022: £226 million).

Average headcount

The average number of persons on a headcount basis employed by the Group during the year was as follows:


	2024	2023	2022
UK	64,334	65,390	62,587
Overseas	1,895	807	785
Total	66,229	66,197	63,372

Performance-based compensation

The tables below analyse the Group’s performance-based compensation costs between those relating to the current performance year and

those relating to earlier years.


	Performance-based compensation expense			Performance-based compensation expense deferred until later years
	2024 £m	2023 £m	2022 £m	2024 £m	2023 £m	2022 £m
Awards made in respect of the year ended 31 December	300	316	349	90	108	128
Awards made in respect of earlier years	96	124	109	34	22	20
	396	440	458	124	130	148

Performance-based awards expensed in 2024 include cash awards amounting to £162 million (2023: £169 million; 2022: £144 million).

Lloyds Banking Group plc Annual Report and Accounts 2024

245

Note 11: Share-based payments

Charge to the income statement

The charge to the income statement is set out below:


	2024 £m	2023 £m	2022 £m
Deferred bonus plan	206	241	289

Options and shares granted in the year	15	20	19
Options and shares granted in prior years	60	67	68
	75	87	87

Total charge to the income statement	281	328	376

During the year ended 31 December 2024 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 2024 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 £500 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:


	2024		2023
	Number of options	Weighted average exercise price (pence)	Number of options	Weighted average exercise price (pence)
Outstanding at 1 January	1,311,205,148	31.70	1,256,918,075	31.30
Granted	200,820,157	52.35	287,984,574	38.55
Exercised	(663,187,372)	24.60	(164,709,399)	38.55
Forfeited	(17,375,716)	39.01	(12,862,726)	31.78
Cancelled	(27,852,684)	40.70	(45,807,000)	37.65
Expired	(5,984,747)	35.40	(10,318,376)	38.25
Outstanding at 31 December	797,624,786	42.30	1,311,205,148	31.70
Exercisable at 31 December	955,281	24.25	410,368	39.87

The weighted average share price at the time that the options were exercised during 2024 was £0.47 (2023: £0.48). The weighted average

remaining contractual life of options outstanding at the end of the year was 1.85 years (2023: 1.58 years).

The weighted average fair value of SAYE options granted during 2024 was £0.09 (2023: £0.09). 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.

Lloyds Banking Group plc Annual Report and Accounts 2024

246

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 11: Share-based payments continued


	2024		2023
	Number of Options	Weighted average exercise price (pence)	Number of Options	Weighted average exercise price (pence)
Outstanding at 1 January	26,131,255	Nil	20,466,471	Nil
Granted	768,170	Nil	15,198,717	Nil
Exercised	(10,815,436)	Nil	(8,739,497)	Nil
Vested	–	Nil	(765,247)	Nil
Forfeited	(488,091)	Nil	(8,216)	Nil
Lapsed	(16,901)	Nil	(20,973)	Nil
Outstanding at 31 December	15,578,997	Nil	26,131,255	Nil
Exercisable at 31 December	988,243	Nil	1,148,770	Nil

The weighted average fair value of options granted in the year was £0.46 (2023: £0.41). 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

2024 was £0.53 (2023: £0.46). The weighted average remaining contractual life of options outstanding at the end of the year was 6.2 years

(2023: 6.3 years).

Included in the above are awards to the Group Chief Executive.

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.


	2024 Number of options	2023 Number of options
Outstanding at 1 January	5,337,899	6,585,447
Exercised	(1,368,990)	(1,247,548)
Outstanding at 31 December	3,968,909	5,337,899

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.

The Executive Group Ownership awards were replaced by Long Term Share Plan awards in 2021.


	2024 Number of shares	2023 Number of shares
Outstanding at 1 January	39,804,293	202,394,509
Vested	(18,490,246)	(66,555,435)
Forfeited	(33,055)	(96,034,781)
Dividend award	842,202	–
Outstanding at 31 December	22,123,194	39,804,293

Lloyds Banking Group Long Term Share Plan

The plan, approved at the 2020 AGM and introduced in 2021, replaced the Executive Group Ownership Share Plan and is intended to

provide alignment to the Group’s aim of delivering sustainable returns to shareholders, supported by its values and behaviours.

The awards in respect of the 2022 grant are due to vest in 2025 at a rate of 100 per cent. Details in relation to the plan are provided in the

directors’ remuneration report.


	2024 Number of shares	2023 Number of shares
Outstanding at 1 January	262,409,389	171,947,743
Granted	–	108,551,439
Vested	(53,608,504)	–
Forfeited	(12,921,590)	(18,089,793)
Outstanding at 31 December	195,879,295	262,409,389

The weighted average fair value of awards granted in the year was £nil (2023: £0.42).

Lloyds Banking Group plc Annual Report and Accounts 2024

247

Note 11: Share-based payments continued

Lloyds Banking Group Long Term Incentive Plan

The plan, approved at the 2023 AGM and introduced in 2024, replaced the Long Term Share Plan and is intended to deliver stronger

alignment between variable reward outcomes and the creation of shareholder value through the delivery of our strategy and the deepening

of our relationships with our customers.

The awards in respect of the 2024 grant are due to vest in 2027. Details in relation to the plan are provided in the directors’ remuneration

report.


	2024 Number of shares	2023 Number of shares
Outstanding at 1 January	—	—
Granted	75,063,395	—
Outstanding at 31 December	75,063,395	—

The weighted average fair value of awards granted in the year was £0.30 (2023: £nil).

Executive Share Plans – buyout and retention awards

Share awards in the form of conditional shares may be granted to senior employees under the 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.


	2024	2023
	Number of Shares	Number of Shares
Outstanding at 1 January	—	—
Granted	3,593,397	—
Vested	(728,370)	—
Forfeited	—	—
Outstanding at 31 December	2,865,027	—

The weighted average fair value of awards granted in the year was £0.51 (2023: £nil).

Assumptions at 31 December 2024

The fair value calculations at 31 December 2024 for grants made in the year, using Black-Scholes models and Monte Carlo simulation, are

based on the following assumptions:


	SAYE	Executive Option Plans	Executive Share Plans	Long Term Share Plan
Weighted average risk-free interest rate	3.58%	4.43%	4.35%	4.07%
Weighted average expected life	3.3 years	1.6 years	1.3 years	4.4 years
Weighted average expected volatility	25%	24%	23%	29%
Weighted average expected dividend yield	6.0%	7.0%	7.0%	7.0%
Weighted average share price	£0.58	£0.52	£0.56	£0.48
Weighted average exercise price	£0.52	Nil	Nil	Nil

Expected volatility is a measure of the amount by which the Group’s 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’s 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 £45 per month; these matching shares are held in trust

for a mandatory period of three years on the employee’s 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 ‘good’

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 2024 was 38,464,042 (2023: 43,945,238), with an average fair value of £0.53

(2023: £0.46), 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 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 2024 was 1,541,751 (2023: 1,790,243) with an average fair value of £0.55 (2023: £0.46) 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.

Lloyds Banking Group plc Annual Report and Accounts 2024

248

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 11: Share-based payments continued

Free shares

An award of shares may be made annually to employees up to a maximum of £3,600. The shares awarded are held in trust for a mandatory

period of three years on the employee’s 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 ‘good’

reason, all of the shares awarded will be forfeited.

There have not been any awards made since 2021.

Note 12: 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’ members
	Expected rate of future inflationary increases

The net asset recognised in the balance sheet at 31 December 2024 in respect of the Group’s defined benefit pension scheme obligations

was £2,945 million, comprising an asset of £3,028 million and a liability of £83 million (2023: a net asset of £3,532 million comprising an

asset of £3,624 million and a liability of £92 million). The Group’s 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).


	2024 £m	2023 £m	2022 £m
Charge (credit) to the income statement
Defined benefit pension schemes	(13)	(80)	123
Other retirement benefit schemes	2	1	2
Total defined benefit schemes	(11)	(79)	125
Defined contribution pension schemes	537	434	330
Total charge to the income statement (note 10)	526	355	455


	2024 £m	2023 £m
Amounts recognised in the balance sheet
Retirement benefit assets	3,028	3,624
Retirement benefit obligations	(122)	(136)
Total amounts recognised in the balance sheet	2,906	3,488

The total amounts recognised in the balance sheet relate to:


	2024 £m	2023 £m
Defined benefit pension schemes	2,945	3,532
Other retirement benefit schemes	(39)	(44)
Total amounts recognised in the balance sheet	2,906	3,488

Pension schemes

Defined benefit schemes

(i)Characteristics of and risks associated with the Group’s schemes

The Group has established a number of defined benefit pension schemes in the UK and overseas, both funded and unfunded. All significant

schemes are funded and 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 2024, these schemes represented 94

per cent of the Group’s total gross defined benefit pension assets (2023: 94 per cent). These schemes provide retirement benefits

calculated as a proportion of final pensionable salary depending upon the length of pensionable service.

All of the 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 the schemes are administered in accordance with the scheme rules

and relevant legislation, and to safeguard the assets in the best interests of all members and beneficiaries.

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’s overseas defined benefit pension schemes are subject to local regulatory arrangements.

The 31 December 2022 triennial valuation for the main defined benefit schemes was completed in 2023, and following the contributions

paid in 2023, there will be no further deficit contributions for this triennial period (to 31 December 2025).

The Group pays 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 £0.1 billion to its defined benefit schemes in 2025.

Lloyds Banking Group plc Annual Report and Accounts 2024

249

Note 12: Retirement benefit obligations continued

The Group provides additional security arrangements to a number of the UK schemes for the Group’s obligations to the schemes. At 31

December 2024 the security arrangements held assets of £4.1 billion. The security arrangements are fully consolidated in the Group’s

balance sheet.

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 2024, 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 June 2023, the High Court handed down a decision (Virgin Media Limited v NTL Pension Trustees II Limited and others) which potentially

has implications for the validity of amendments made by pension schemes, which were contracted-out on a salary-related basis between 6

April 1997 and the abolition of contracting-out in 2016. The High Court ruled that any amendments made to these pension schemes during

the relevant period would be void unless the scheme actuary had confirmed that the pension scheme would continue to satisfy the

statutory standard for contracted-out schemes. On 25 July 2024, the Court of Appeal upheld the original decision. The Group is carrying

out a review of scheme amendments to decide whether any subsequent actions or amendments to IAS 19 liabilities are required. The

Group has not made any allowance for the possible impact of the ruling as it is currently unclear whether any additional liabilities might

arise, and if they were to arise, how they would be reliably measured. The Group will continue to monitor developments.

(ii)Amounts in the financial statements


	2024 £m	2023 £m
Amount included in the balance sheet
Present value of funded obligations	(27,118)	(30,201)
Fair value of scheme assets	30,063	33,733
Net amount recognised in the balance sheet	2,945	3,532


	2024 £m	2023 £m
Net amount recognised in the balance sheet
At 1 January	3,532	3,732
Net defined benefit pension (charge) credit	13	80
Actuarial (losses) gains on defined benefit obligation	2,940	(1,304)
Return on plan assets	(3,712)	(318)
Employer contributions	172	1,342
At 31 December	2,945	3,532


	2024 £m	2023 £m
Movements in the defined benefit obligation
At 1 January	(30,201)	(28,965)
Current service cost	(85)	(88)
Interest expense	(1,385)	(1,394)
Remeasurements:
Actuarial gains – demographic assumptions	109	153
Actuarial losses – experience	94	(1,067)
Actuarial (losses) gains – financial assumptions	2,737	(390)
Benefits paid	1,638	1,544
Past service cost	(35)	(5)
Settlements	1	–
Exchange and other adjustments	9	11
At 31 December	(27,118)	(30,201)


	2024 £m	2023 £m
Analysis of the defined benefit obligation
Active members	(2,463)	(2,955)
Deferred members	(7,080)	(8,438)
Dependants	(1,429)	(1,572)
Pensioners	(16,146)	(17,236)
At 31 December	(27,118)	(30,201)

Lloyds Banking Group plc Annual Report and Accounts 2024

250

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 12: Retirement benefit obligations continued


	2024 £m	2023 £m
Changes in the fair value of scheme assets
At 1 January	33,733	32,697
Return on plan assets excluding amounts included in interest income	(3,712)	(318)
Interest income	1,551	1,602
Employer contributions	172	1,342
Benefits paid	(1,638)	(1,544)
Settlements	(1)	–
Administrative costs paid	(33)	(35)
Exchange and other adjustments	(9)	(11)
At 31 December	30,063	33,733

The (credit) expense recognised in the income statement for the year ended 31 December comprises:


	2024 £m	2023 £m	2022 £m
Current service cost	85	88	180
Net interest amount	(166)	(208)	(95)
Past service cost – plan amendments	35	5	4
Plan administration costs incurred during the year	33	35	34
Total defined benefit pension (credit) expense	(13)	(80)	123

(iii)Composition of scheme assets


	2024			2023
	Quoted £m	Unquoted £m	Total £m	Quoted £m	Unquoted £m	Total £m
Debt instruments1:
Fixed interest government bonds	6,985	–	6,985	5,657	–	5,657
Index-linked government bonds	15,550	–	15,550	16,105	–	16,105
Corporate and other debt securities	7,396	–	7,396	7,305	–	7,305
Asset-backed securities	–	–	–	4	–	4
	29,931	–	29,931	29,071	–	29,071
Pooled investment vehicles	686	7,342	8,028	613	8,361	8,974
Property	–	130	130	–	97	97
Equity instruments	23	66	89	23	62	85
Money market instruments, cash, derivatives and other assets and liabilities	55	(8,170)	(8,115)	466	(4,960)	(4,494)
At 31 December	30,695	(632)	30,063	30,173	3,560	33,733

1Of the total debt instruments, £27,551 million (2023: £26,777 million) were investment grade (credit ratings equal to or better than ‘BBB’).

The assets of all of the funded plans are held independently of the Group’s assets in separate trustee-administered funds.

The pension schemes’ pooled investment vehicles comprise:


	2024 £m	2023 £m
Alternative credit funds	1,793	1,962
Bond and debt funds	449	571
Equity funds	1,553	1,674
Hedge and mutual funds	709	808
Infrastructure funds	1,059	1,147
Liquidity funds	1,449	1,585
Property funds	992	1,227
Other	24	–
At 31 December	8,028	8,974

The Trustee’s approach to investment is focused on acting in the members’ 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’ investment managers for implementation.

Climate change is one of the risks the schemes manage given its potential financial impact on valuation of assets.

Lloyds Banking Group plc Annual Report and Accounts 2024

251

Note 12: Retirement benefit obligations continued

(iv)Assumptions

The principal actuarial and financial assumptions used in valuations of the defined benefit pension schemes were as follows:


	2024 %	2023 %
Discount rate	5.55	4.70
Rate of inflation:
Retail Price Index (RPI)	2.97	2.96
Consumer Price Index (CPI)	2.52	2.47
Rate of salary increases	0.00	0.00
Weighted average rate of increase for pensions in payment	2.69	2.73

To determine the RPI assumption a term-dependent inflation curve has been used adjusting for an assumed inflation risk premium. A gap of

100 basis points has been assumed between RPI and CPI from 2025 to 2030; thereafter a 20 basis point gap has been assumed.


	Men		Women
	2024 Years	2023 Years	2024 Years	2023 Years
Life expectancy for average member aged 60, on the valuation date	26.4	26.7	28.5	28.7
Life expectancy for average member aged 60, 15 years after the valuation date	27.3	27.8	29.4	29.8

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 Group uses the CMI mortality projections

model to project future mortality improvements. In line with actuarial industry recommendations no weight is placed on 2020 and 2021

mortality experience and 15 per cent weight on 2022 and 2023 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 schemes’ 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’ obligations are to provide benefits for the life of the members so increases in life expectancy

will result in an increase in the schemes’ 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’s balance sheet and in other

comprehensive income. To a lesser extent this will also lead to volatility in the pension expense in the Group’s 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 Group’s income statement and on the net defined benefit pension

scheme asset from the change in value of scheme liabilities is set out below. The sensitivities provided assume that all other assumptions

and the value of the schemes’ assets remain unchanged. 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.

Lloyds Banking Group plc Annual Report and Accounts 2024

252

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 12: Retirement benefit obligations continued


	Effect of reasonably possible alternative assumptions
	Increase (decrease) in the income statement charge		(Increase) decrease in the net defined benefit pension scheme surplus
	2024 £m	2023 £m	2024 £m	2023 £m
Inflation (including pension increases)1:
Increase of 0.25 per cent	28		484
Decrease of 0.25 per cent	(27)		(467)
Increase of 0.1 per cent		11		224
Decrease of 0.1 per cent		(12)		(235)
Discount rate2:
Increase of 0.25 per cent	(51)		(718)
Decrease of 0.25 per cent	49		757
Increase of 0.1 per cent		(22)		(355)
Decrease of 0.1 per cent		21		363
Expected life expectancy of members:
Increase of one year	46	45	806	927
Decrease of one year	(47)	(46)	(830)	(946)

1At 31 December 2024, the assumed rate of RPI inflation is 2.97 per cent and CPI inflation 2.52 per cent (2023: RPI 2.96 per cent and CPI 2.47 per cent).

2At 31 December 2024, the assumed discount rate is 5.55 per cent (2023: 4.70 per cent).

Sensitivity analysis method and assumptions

The sensitivity analysis above reflects the impact on the liabilities of the Group’s three most significant schemes which account for over 90

per cent of the Group’s defined benefit obligations. While differences in the underlying liability profiles for the remainder of the Group’s

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’ assets are invested in a diversified portfolio which are independently determined by the responsible governance body

for each scheme and in consultation with the employer.

A significant goal of the asset 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 in liability-driven investment (LDI) strategies. The assets in

these LDI strategies represented c.47 per cent of scheme assets at 31 December 2024.

The LDI strategies are actively managed to reflect both changing market conditions and changes to the liability profile. At 31 December

2024 the asset-liability matching strategy mitigated c.116 per cent of the liability sensitivity to interest rate movements and c.131 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.

The main schemes hold a number of longevity insurance contracts, hedging c.30 per cent of their longevity risk exposure at 31 December

2024. These arrangements form part of the schemes’ investment portfolio and provide income to the schemes in the event that pensions

are paid out for longer than expected. As of 1 January 2025 an additional longevity insurance arrangement was entered into, taking the

total the main schemes have now hedged to c.35 per cent of their longevity risk exposure.

At 31 December 2024 the value of scheme assets included longevity swaps valued at £(175) million (after allowing for the impact of the

revisions to the base mortality assumptions).

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:


	2024 Years	2023 Years
Duration of the defined benefit obligation	12	13

Lloyds Banking Group plc Annual Report and Accounts 2024

253

Note 12: Retirement benefit obligations continued

Maturity analysis of benefits expected to be paid:


	2024 £m	2023 £m
Within 12 months	1,800	1,697
Between 1 and 2 years	1,595	1,513
Between 2 and 5 years	5,134	4,886
Between 5 and 10 years	9,318	9,159
Between 10 and 15 years	9,150	9,176
Between 15 and 25 years	16,316	16,882
Between 25 and 35 years	11,294	12,343
Between 35 and 45 years	5,171	6,121
In more than 45 years	1,201	1,595

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’s 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 2024 the charge to the income statement in respect of defined contribution schemes was £537 million

(2023: £434 million; 2022: £330 million), representing the contributions payable by the employer in accordance with each scheme’s 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 2024 by

qualified independent actuaries. The principal assumptions used were as set out above in section (iv), except that the rate of increase in

healthcare premiums has been assumed at 10.00 per cent (2023: 10.00 per cent).

Movements in the other retirement benefits obligation:


	2024 £m	2023 £m
At 1 January	(44)	(35)
Actuarial (losses) gains	4	(11)
Insurance premiums paid	3	3
Charge for the year	(2)	(1)
At 31 December	(39)	(44)

Note 13: Auditors’ remuneration

Fees payable to the Company’s auditors by the Group are included within other operating expenses and are as follows:


	2024 £m	2023 £m	2022 £m
Fees payable for the:
– audit of the Company’s current year annual report	2.0	2.0	1.9
– audits of the Company’s subsidiaries	31.9	32.3	29.5
– total audit fees in respect of the statutory audit of Group entities1	33.9	34.3	31.4
– services normally provided in connection with statutory and regulatory filings or engagements	6.7	6.6	6.3
Total audit fees2	40.6	40.9	37.7
Other audit-related fees2	1.5	1.3	1.5
All other fees2	1.0	1.2	5.0
Total non-audit services3	2.5	2.5	6.5
Total fees payable to the Company’s auditors by the Group	43.1	43.4	44.2

1As defined by the Financial Reporting Council (FRC).

2As defined by the Securities and Exchange Commission (SEC).

3As 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 £9.2

million in 2024 (2023: £9.1 million; 2022: £12.8 million).

Lloyds Banking Group plc Annual Report and Accounts 2024

254

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 13: Auditors’ remuneration continued

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’s 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’s 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’s policy to use the auditors only on non-audit 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 ‘de minimis’ 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:


	2024 £m	2023 £m	2022 £m
Audits of Group pension schemes	0.5	0.5	0.4
Audits of the unconsolidated Open-Ended Investment Companies managed by the Group	0.2	0.2	0.2

Note 14: Impairment


Year ended 31 December 2024	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m

Loans and advances to banks	(7)	–	–	–	(7)
Loans and advances to customers	(147)	(289)	949	(6)	507
Debt securities	(4)	(2)	–	–	(6)
Financial assets at amortised cost	(158)	(291)	949	(6)	494
Financial assets at fair value through other comprehensive income	(3)	–	–	–	(3)
Other assets	(9)	–	–	–	(9)
Loan commitments and financial guarantees	(18)	(33)	–	–	(51)
Total impairment charge (credit)	(188)	(324)	949	(6)	431


Year ended 31 December 2023	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m

Loans and advances to banks	(5)	(2)	–	–	(7)
Loans and advances to customers	261	(281)	414	(73)	321
Debt securities	–	1	–	–	1
Financial assets at amortised cost	256	(282)	414	(73)	315
Financial assets at fair value through other comprehensive income	(2)	–	–	–	(2)
Other assets	–	–	(10)	–	(10)
Loan commitments and financial guarantees	27	(25)	(2)	–	–
Total impairment charge (credit)	281	(307)	402	(73)	303


Year ended 31 December 2022	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m

Loans and advances to banks	12	2	–	–	14
Loans and advances to customers	(217)	694	883	(9)	1,351
Debt securities	7	–	–	–	7
Financial assets at amortised cost	(198)	696	883	(9)	1,372
Financial assets at fair value through other comprehensive income	6	–	–	–	6
Other assets	–	–	22	–	22
Loan commitments and financial guarantees	24	99	(1)	–	122
Total impairment (credit) charge	(168)	795	904	(9)	1,522

The impairment charge includes a £24 million charge (2023: £73 million charge; 2022: £nil) in respect of residual value impairment and

voluntary terminations within the Group’s UK Motor Finance business.

Lloyds Banking Group plc Annual Report and Accounts 2024

255

Note 15: Tax

Analysis of tax expense for the year


	2024 £m	2023 £m	2022 £m
UK corporation tax:
Current tax on profit for the year	(1,159)	(1,301)	(1,152)
Adjustments in respect of prior years	89	51	31
	(1,070)	(1,250)	(1,121)
Foreign tax:
Current tax on profit for the year	(122)	(101)	(74)
Adjustments in respect of prior years	3	3	(9)
	(119)	(98)	(83)
Current tax expense	(1,189)	(1,348)	(1,204)
Deferred tax:
Current year	(307)	(583)	124
Adjustments in respect of prior years	2	(54)	221
Deferred tax (expense) credit	(305)	(637)	345
Tax expense	(1,494)	(1,985)	(859)

The tax expense is made up as follows:


Tax (expense) credit attributable to policyholders	(137)	30	(54)
Shareholder tax expense	(1,357)	(2,015)	(805)
Tax expense	(1,494)	(1,985)	(859)

Factors affecting the tax expense for the year

The UK corporation tax rate for the year was 25.0 per cent (2023: 23.5 per cent; 2022: 19.0 per cent). The increase in applicable tax rate

from 2023 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.


	2024 £m	2023 £m	2022 £m
Profit before tax	5,971	7,503	4,782
UK corporation tax thereon	(1,493)	(1,763)	(909)
Impact of surcharge on banking profits	(157)	(305)	(339)
Non-deductible costs: conduct charges	(27)	(29)	(5)
Non-deductible costs: bank levy	(37)	(35)	(28)
Other non-deductible costs	(73)	(106)	(70)
Non-taxable income	78	80	138
Tax relief on coupons on other equity instruments	125	124	83
Tax-exempt gains on disposals	98	35	67
Tax losses where no deferred tax recognised	(7)	(2)	11
Remeasurement of deferred tax due to rate changes	–	(14)	60
Differences in overseas tax rates	(9)	6	(63)
Policyholder tax	(75)	(61)	(65)
Deferred tax asset in respect of life assurance expenses	(5)	84	21
Adjustments in respect of prior years	94	–	243
Tax effect of share of results of joint ventures	(1)	1	(3)
Provision for Pillar 2 current income taxes	(5)	–	–
Tax expense	(1,494)	(1,985)	(859)

On 11 July 2023, the Government enacted its legislation implementing the G20-OECD Inclusive Framework Pillar 2 rules in the UK, including

a Qualified Domestic Minimum Top-Up Tax rule. This legislation seeks 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 a result, tax expense for 2024 includes a

current tax charge of £5 million in respect of the Group’s Channel Islands businesses.

The Group paid tax of £1,305 million in the period in respect of current year profits, and received refunds of £970 million relating to tax

overpaid in respect of previous periods. These overpayments had been reflected in the balance sheet as current tax assets pending

finalisation of arrangements for repayment.

Lloyds Banking Group plc Annual Report and Accounts 2024

256

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 15: Tax continued

Deferred tax

The Group’s deferred tax assets and liabilities are as follows:


Statutory position	2024 £m	2023 £m	Tax disclosure	2024 £m	2023 £m
Deferred tax assets	5,005	5,185	Deferred tax assets	6,900	7,409
Deferred tax liabilities	(125)	(157)	Deferred tax liabilities	(2,020)	(2,381)
Net deferred tax asset at 31 December	4,880	5,028	Net deferred tax asset at 31 December	4,880	5,028

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:


Deferred tax assets	Tax losses £m	Property, plant and equipment £m	Provisions £m	Long-term assurance business £m	Share- based payments £m	Pension liabilities £m	Derivatives £m	Asset revaluations1 £m	Other temporary differences £m	Total £m
At 1 January 2023	5,066	506	260	114	36	47	2,423	8	281	8,741
(Charge) credit to the income statement	(283)	(258)	(39)	119	10	–	(84)	–	(179)	(714)
(Charge) credit to other comprehensive income	–	–	–	–	–	–	(672)	42	–	(630)
Other credit to equity	–	–	–	–	12	–	–	–	–	12
At 31 December 2023	4,783	248	221	233	58	47	1,667	50	102	7,409
Charge to the income statement	(133)	(75)	(22)	(167)	(1)	(9)	(63)	–	(10)	(480)
(Charge) credit to other comprehensive income	–	–	–	–	–	–	(9)	16	–	7
Transfer to disposal group	–	–	–	(13)	–	–	–	–	–	(13)
Other charge to equity	–	–	–	–	(23)	–	–	–	–	(23)
At 31 December 2024	4,650	173	199	53	34	38	1,595	66	92	6,900

Deferred tax assets of £13 million have been reclassified as disposal group assets and presented within other assets (see note 24).


Deferred tax liabilities	Capitalised software enhancements £m	Acquisition fair value £m	Pension assets £m	Derivatives £m	Other temporary differences £m	Total £m
At 1 January 2023	(162)	(332)	(1,019)	(541)	(474)	(2,528)
Credit (charge) to the income statement	70	38	(5)	(167)	141	77
Credit to other comprehensive income	–	–	53	–	66	119
Acquisitions	–	(58)	–	–	–	(58)
Exchange and other adjustments	–	–	–	–	9	9
At 31 December 2023	(92)	(352)	(971)	(708)	(258)	(2,381)
(Charge) credit to the income statement	(31)	124	3	164	(85)	175
Credit to other comprehensive income	–	–	154	–	22	176
Exchange and other adjustments	–	–	–	–	10	10
At 31 December 2024	(123)	(228)	(814)	(544)	(311)	(2,020)

1Financial assets at fair value through other comprehensive income.

Lloyds Banking Group plc Annual Report and Accounts 2024

257

Note 15: Tax continued

At 31 December 2024 the Group carried deferred tax assets on its balance sheet of £5,005 million (2023: £5,185 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 £4,650 million (2023:

£4,783 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’s expectations of future UK taxable profits require management judgement, and take into account the Group’s 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’s

commitment to the UK market, in management’s 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 2037 (2023: 2036) in the

base case forecast. The rate of recovery of the Group’s 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 85 per

cent of the value will be recovered by 2033, 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 £104 million (2023: £118 million) has been recognised in respect of the future tax benefit of certain expenses of the

life assurance business. The decrease is driven by the utilisation of expenses in the year, reducing the maximum deferred tax asset that can

be recognised. The forecast investment returns in the long-term projections for the life insurance business continue to be strong due to high

interest rates which results in utilisation of all expenses in the long term. Therefore, there is no unrecognised deferred tax asset in 2024

(2023: £88 million).

Deferred tax not recognised

Deferred tax assets of £143 million (2023: £160 million) have not been recognised in respect of £570 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, £58 million (2023: £51 million) relates to losses that will expire if not used within

20 years, and £8 million (2023: £9 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 2020, HMRC concluded its enquiry into the matter and issued a closure notice denying the group relief

claim. The Group appealed to the First Tier Tax Tribunal. The hearing took place in May 2023. In January 2025, the First Tier Tribunal

concluded in favour of HMRC. The Group believes it has applied the rules correctly and that the claim for group relief is correct. Having

reviewed the Tribunal’s conclusions and having taken appropriate advice, the Group intends to appeal the decision and does not consider

this to be a case where an additional tax liability will ultimately fall due. If the final determination of the matter by the judicial process is

that HMRC’s position is correct, management believes that this would result in an increase in current tax liabilities of approximately

£975 million (including interest) and a reduction in the Group’s deferred tax asset of approximately £275 million. Following the First Tier Tax

Tribunal outcome, the tax will be paid and recognised as a current tax asset, given the Group’s view that the tax liability will not ultimately

fall due. It is unlikely that any appeal hearing will be held before 2026, and final conclusion of the judicial process may not be for several

years.

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 and the tax treatment of costs relating to HBOS Reading), none of which is expected

to have a material impact on the financial position of the Group.

Lloyds Banking Group plc Annual Report and Accounts 2024

258

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 16: 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.

Derivatives

designated

as hedging

instruments

£m

Mandatorily held at

fair value through

profit or loss

Designated

at fair value

through

profit or loss

£m

At fair value

through other

comprehensive

income

£m

Held at

amortised

cost

£m

Insurance-

contracts

£m

At 31 December 2024

Held for

trading

£m

Other

£m

Total

£m

Financial assets

Cash and balances at central banks

–

62,705

–

62,705

Financial assets at fair value through

profit or loss

–

25,450

190,475

–

215,925

Derivative financial instruments

24,017

–

24,065

Loans and advances to banks

–

7,900

–

7,900

Loans and advances to customers

–

459,857

–

459,857

Reverse repurchase agreements

–

49,476

–

49,476

Debt securities

–

14,544

–

14,544

Financial assets at amortised cost

–

531,777

–

531,777

Financial assets at fair value through other

comprehensive income

–

30,690

–

30,690

Other

–

173

5,481

5,654

Total financial assets

49,467

190,475

–

30,690

594,655

5,481

870,816

Financial liabilities

Deposits from banks

–

6,158

–

6,158

Customer deposits

–

482,745

–

482,745

Repurchase agreements at amortised cost

–

37,760

–

37,760

Financial liabilities at fair value through

profit or loss

–

22,981

–

4,630

–

27,611

Derivative financial instruments

355

21,321

–

21,676

Notes in circulation

–

2,121

–

2,121

Debt securities in issue at amortised cost

–

70,834

–

70,834

Liabilities arising from insurance and

participating investment contracts

–

122,064

Liabilities arising from non-participating

investment contracts

–

51,228

–

51,228

Other

–

1,708

5,278

6,986

Subordinated liabilities

–

10,089

–

10,089

Total financial liabilities

355

44,302

–

55,858

–

611,415

127,342

839,272

Offsetting of financial assets and liabilities


				Related amounts where set off in the balance sheet not permitted1			Potential net amounts if offset of related amounts permitted £m
At 31 December 2024	Gross amounts of assets and liabilities £m	Amount offset in the balance sheet2 £m	Net amounts presented in the balance sheet £m	Cash collateral (received)/ pledged £m	Non-cash collateral (received)/ pledged £m	Master netting and similar agreements £m
Derivative assets	60,118	(36,053)	24,065	(4,071)	(4,139)	(10,522)	5,333
Derivative liabilities	(60,150)	38,474	(21,676)	3,853	1,514	10,522	(5,787)
Net position	(32)	2,421	2,389	(218)	(2,625)	–	(454)
Reverse repurchase agreements held at fair value	35,463	(14,997)	20,466	362	(20,389)	–	439
Repurchase agreements held at fair value	(35,561)	14,997	(20,564)	31	19,991	–	(542)
Net position	(98)	–	(98)	393	(398)	–	(103)
Reverse repurchase agreements held at amortised cost	60,282	(10,806)	49,476	257	(49,341)	–	392
Repurchase agreements held at amortised cost	(48,566)	10,806	(37,760)	8	37,427	–	(325)
Net position	11,716	–	11,716	265	(11,914)	–	67

1The 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.

2The amounts offset in the balance sheet as shown above meet the criteria for offsetting under IAS 32.

The format of the table above has been updated to give a clearer view of the net exposures of the Group.

Lloyds Banking Group plc Annual Report and Accounts 2024

259

Note 16: Measurement basis of financial assets and liabilities continued

Derivatives

designated

as hedging

instruments

£m

Mandatorily held at

fair value through

profit or loss

Designated

at fair value

through

profit or loss

£m

At fair value

through other

comprehensive

income

£m

Held at

amortised

cost

£m

Insurance-

contracts

£m

At 31 December 2023

Held for

trading

£m

Other

£m

Total

£m

Financial assets

Cash and balances at central banks

–

78,110

–

78,110

Financial assets at fair value through

profit or loss

–

21,638

181,680

–

203,318

Derivative financial instruments

103

22,253

–

22,356

Loans and advances to banks

–

10,764

–

10,764

Loans and advances to customers

–

449,745

–

449,745

Reverse repurchase agreements

–

38,771

–

38,771

Debt securities

–

15,355

–

15,355

Financial assets at amortised cost

–

514,635

–

514,635

Financial assets at fair value through other

comprehensive income

–

27,592

–

27,592

Other

–

299

443

742

Total financial assets

103

43,891

181,680

–

27,592

593,044

443

846,753

Financial liabilities

Deposits from banks

–

6,153

–

6,153

Customer deposits

–

471,396

–

471,396

Repurchase agreements at amortised cost

–

37,703

–

37,703

Financial liabilities at fair value through

profit or loss

–

19,631

–

5,283

–

24,914

Derivative financial instruments

505

19,644

–

20,149

Notes in circulation

–

1,392

–

1,392

Debt securities in issue at amortised cost

–

75,592

–

75,592

Liabilities arising from insurance and

participating investment contracts

–

120,123

Liabilities arising from non-participating

investment contracts

–

44,978

–

44,978

Other

–

1,960

1,968

Subordinated liabilities

–

10,253

–

10,253

Total financial liabilities

505

39,275

–

50,261

–

604,449

120,131

814,621

Offsetting of financial assets and liabilities


		Amount offset in the balance sheet2 £m				Related amounts where set off in the balance sheet not permitted1				Potential net amounts if offset of related amounts permitted £m
At 31 December 2023	Gross amounts of assets and liabilities £m	Amount offset in the balance sheet2 £m		Net amounts presented in the balance sheet £m		Cash collateral (received)/ pledged £m	Non-cash collateral (received)/ pledged £m	Master netting and similar agreements £m
Derivative assets	61,820		(39,464)		22,356	(3,361)	(2,869)		(9,862)		6,264
Derivative liabilities	(62,273)		42,124		(20,149)	4,146	2,905		9,862		(3,236)
Net position	(453)		2,660		2,207	785	36		–		3,028
Reverse repurchase agreements held at fair value	29,778		(12,365)		17,413	(75)	(17,226)		–		112
Repurchase agreements held at fair value	(30,422)		12,365		(18,057)	(102)	18,043		–		(116)
Net position	(644)		–		(644)	(177)	817		–		(4)
Reverse repurchase agreements held at amortised cost	46,157		(7,386)		38,771	71	(38,581)		–		261
Repurchase agreements held at amortised cost	(45,089)		7,386		(37,703)	(60)	37,715		–		(48)
Net position	1,068		–		1,068	11	(866)		–		213

1The 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.

2The amounts offset in the balance sheet as shown above meet the criteria for offsetting under IAS 32.

The format of the table above has been updated to give a clearer view of the net exposures of the Group.

Lloyds Banking Group plc Annual Report and Accounts 2024

260

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 17: Fair values of financial assets and liabilities

At 31 December 2024, the carrying value of the Group’s financial instrument assets held at fair value was £270,680 million (2023:

£253,266 million), and its financial instrument liabilities held at fair value was £100,515 million (2023: £90,041 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’s 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’s consolidated balance sheet. These items include intangible assets, property, plant and equipment, and

shareholders’ 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’s

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 and are performed at a minimum on a monthly

basis. 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’s valuation is not based on

observable market data. Such instruments would include the Group’s 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’s asset-backed securities, loans and advances recognised at fair

value and derivatives are also classified as level 3.

Transfers in or out of the level 3 portfolio arise when inputs that could have a significant impact on the instrument’s valuation become

unobservable or observable, or where an unobservable input becomes significant or insignificant to an instrument’s value.

Lloyds Banking Group plc Annual Report and Accounts 2024

261

Note 17: Fair values of financial assets and liabilities continued

(2)Financial assets and liabilities carried at fair value

(A)Financial assets (excluding derivatives)

Valuation hierarchy

At 31 December 2024, the Group’s financial assets (excluding derivatives) carried at fair value totalled £246,615 million (2023:

£230,910 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

page 180.


	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
At 31 December 2024
Trading assets
Loans and advances to customers	–	621	–	621
Reverse repurchase agreements	–	20,466	–	20,466
Debt securities:
Government securities	3,473	–	–	3,473
Asset-backed securities	–	149	–	149
Corporate and other debt securities	–	741	–	741
	3,473	890	–	4,363
Total trading assets	3,473	21,977	–	25,450
Other financial assets mandatorily held at fair value through profit or loss
Loans and advances to banks	–	2,787	–	2,787
Loans and advances to customers	–	2,418	6,010	8,428
Debt securities:
Government securities	7,091	2	–	7,093
Other public sector securities	–	2,288	–	2,288
Bank and building society certificates of deposit	–	8,667	–	8,667
Asset-backed securities	–	285	367	652
Corporate and other debt securities	–	14,722	2,161	16,883
	7,091	25,964	2,528	35,583
Treasury and other bills	32	–	–	32
Equity shares	131,767	–	1,351	133,118
Contracts held with reinsurers	–	10,527	–	10,527
Total other financial assets mandatorily held at fair value through profit or loss1	138,890	41,696	9,889	190,475
Total financial assets at fair value through profit or loss	142,363	63,673	9,889	215,925
Financial assets at fair value through other comprehensive income
Debt securities:
Government securities	15,146	115	–	15,261
Asset-backed securities	–	149	48	197
Corporate and other debt securities	1,152	13,755	–	14,907
	16,298	14,019	48	30,365
Equity shares	–	–	325	325
Total financial assets at fair value through other comprehensive income	16,298	14,019	373	30,690
Total financial assets (excluding derivatives) at fair value	158,661	77,692	10,262	246,615

1Other financial assets mandatorily at fair value through profit or loss include assets backing insurance contracts and investment contracts of £185,201 million. Included within these

assets are investments in unconsolidated structured entities of £86,630 million; see note 39.

Lloyds Banking Group plc Annual Report and Accounts 2024

262

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 17: Fair values of financial assets and liabilities continued


	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
At 31 December 2023
Trading assets
Loans and advances to customers	–	23	–	23
Reverse repurchase agreements	–	17,413	–	17,413
Debt securities:
Government securities	3,596	–	–	3,596
Asset-backed securities	–	77	–	77
Corporate and other debt securities	–	529	–	529
	3,596	606	–	4,202
Total trading assets	3,596	18,042	–	21,638
Other financial assets mandatorily held at fair value through profit or loss
Loans and advances to banks	–	3,127	–	3,127
Loans and advances to customers	–	1,992	7,890	9,882
Debt securities:
Government securities	8,005	4	–	8,009
Other public sector securities	10	2,300	–	2,310
Bank and building society certificates of deposit	–	7,504	–	7,504
Asset-backed securities	–	327	186	513
Corporate and other debt securities	–	18,061	2,064	20,125
	8,015	28,196	2,250	38,461
Treasury and other bills	51	–	–	51
Equity shares	117,194	–	1,541	118,735
Contracts held with reinsurers	–	11,424	–	11,424
Total other financial assets mandatorily held at fair value through profit or loss1	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	–	14,141
Asset-backed securities	–	121	52	173
Corporate and other debt securities	956	12,090	–	13,046
	15,049	12,259	52	27,360
Equity shares	–	–	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

1Other financial assets mandatorily at fair value through profit or loss include assets backing insurance contracts and investment contracts of £176,475 million. Included within these

assets are investments in unconsolidated structured entities of £76,426 million; see note 39.

Lloyds Banking Group plc Annual Report and Accounts 2024

263

Note 17: Fair values of financial assets and liabilities continued

Movements in level 3 portfolio

The table below analyses movements in level 3 financial assets (excluding derivatives) at fair value, recurring basis.


	2024			2023
	Financial assets at fair value through profit or loss £m	Financial assets at fair value through other comprehensive income £m	Total level 3 financial assets (excluding derivatives) at fair value, recurring basis £m	Financial assets at fair value through profit or loss £m	Financial assets at fair value through other comprehensive income £m	Total level 3 financial assets (excluding derivatives) at fair value, recurring basis £m
At 1 January	11,681	284	11,965	11,304	342	11,646
Exchange and other adjustments	1	(3)	(2)	(4)	(1)	(5)
Gains (losses) recognised in the income statement within other income	352	3	355	723	6	729
Gains (losses) recognised in other comprehensive income within the revaluation reserve in respect of financial assets at fair value through other comprehensive income	–	92	92	–	(54)	(54)
Purchases/increases to customer loans	1,080	–	1,080	744	3	747
Sales/repayments of customer loans	(3,266)	(3)	(3,269)	(1,140)	(12)	(1,152)
Transfers into the level 3 portfolio	84	–	84	136	–	136
Transfers out of the level 3 portfolio	(43)	–	(43)	(82)	–	(82)
At 31 December	9,889	373	10,262	11,681	284	11,965
Gains (losses) recognised in the income statement, within other income, relating to the change in fair value of those assets held at 31 December	186	(1)	185	654	–	654

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.

Reverse repurchase agreements

The fair value of these assets 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 reverse repurchase agreement.

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’s 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.

•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

•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

•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’s 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.

Lloyds Banking Group plc Annual Report and Accounts 2024

264

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 17: Fair values of financial assets and liabilities continued

(B)Financial liabilities (excluding derivatives)

Valuation hierarchy

At 31 December 2024, the Group’s financial liabilities (excluding derivatives) carried at fair value, comprised its financial liabilities at fair

value through profit or loss and totalled £27,611 million (2023: £24,914 million). The table below analyses these financial liabilities by

balance sheet classification and valuation methodology (level 1, 2 or 3, as described on page 260). The fair value measurement approach is

recurring in nature. There were no significant transfers between level 1 and 2 during the year.


	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
At 31 December 2024
Trading liabilities
Liabilities in respect of securities sold under repurchase agreements	–	20,564	–	20,564
Short positions in securities	2,400	17	–	2,417
Total trading liabilities	2,400	20,581	–	22,981
Liabilities designated at fair value through profit or loss
Debt securities in issue	–	4,608	22	4,630
Other	–	–	–	–
Total liabilities designated at fair value through profit or loss	–	4,608	22	4,630
Total financial liabilities (excluding derivatives) at fair value	2,400	25,189	22	27,611
At 31 December 2023
Trading liabilities
Liabilities in respect of securities sold under repurchase agreements	–	18,057	–	18,057
Short positions in securities	1,569	5	–	1,574
Total trading liabilities	1,569	18,062	–	19,631
Liabilities designated at fair value through profit or loss
Debt securities in issue	–	5,223	42	5,265
Other	–	18	–	18
Total liabilities designated at fair value through profit or loss	–	5,241	42	5,283
Total financial liabilities (excluding derivatives) at fair value	1,569	23,303	42	24,914

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 2024 was

£9,863 million, which was £5,233 million higher than the balance sheet carrying value (2023: £10,433 million, which was £5,167 million

higher than the balance sheet carrying value). At 31 December 2024 there was a cumulative £12 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 £78 million arose in 2024 and an increase of £234 million arose in

2023.

For the fair value of collateral pledged in respect of repurchase agreements see page 180.

In addition to the liabilities above, the Group’s 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.


	2024 £m	2023 £m
At 1 January	42	45
Gains recognised in the income statement within other income	2	(1)
Redemptions	(3)	(1)
Transfers out of the level 3 portfolio	(19)	(1)
At 31 December	22	42
Gains recognised in the income statement, within other income, relating to the change in fair value of those liabilities held at 31 December	3	(1)

Lloyds Banking Group plc Annual Report and Accounts 2024

265

Note 17: Fair values of financial assets and liabilities continued

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 2024, the own credit adjustment arising from the fair valuation of £4,630 million (2023: £5,265 million) of

the Group’s debt securities in issue designated at fair value through profit or loss resulted in a loss of £78 million (2023: loss of £234 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’s derivative assets and liabilities are carried at fair value. At 31 December 2024, such assets totalled £24,065 million (2023:

£22,356 million) and liabilities totalled £21,676 million (2023: £20,149 million). The table below analyses these derivative balances by

valuation methodology (level 1, 2 or 3, as described on page 260). The fair value measurement approach is recurring in nature. There were

no significant transfers between level 1 and level 2 during the year.


	2024				2023
	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Derivative assets	103	23,221	741	24,065	77	21,857	422	22,356
Derivative liabilities	(79)	(21,175)	(422)	(21,676)	(116)	(19,589)	(444)	(20,149)

Movements in level 3 portfolio

The table below analyses movements in level 3 derivative assets and liabilities carried at fair value.


	2024		2023
	Derivative assets £m	Derivative liabilities £m	Derivative assets £m	Derivative liabilities £m
At 1 January	422	(444)	553	(608)
Exchange and other adjustments	(15)	7	(8)	5
Gains (losses) recognised in the income statement within other income	11	(7)	(104)	111
Purchases (additions)	5	(4)	19	(15)
(Sales) redemptions	(29)	53	(38)	63
Transfers into the level 3 portfolio	347	(27)	–	–
At 31 December	741	(422)	422	(444)
Gains (losses) recognised in the income statement, within other income, relating to the change in fair value of those assets or liabilities held at 31 December	12	(7)	(72)	76

Valuation methodology for derivatives

The Group’s 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:

•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

•Foreign exchange derivatives that do not contain options which are priced using rates available from publicly quoted sources

•Credit derivatives are valued using standard models with observable inputs, including publicly available yield and credit default swap

(CDS) curves

•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.

Derivatives where the counterparty becomes distressed from a credit perspective are generally reclassified to level 3 given limited

observability in all traded levels.

Lloyds Banking Group plc Annual Report and Accounts 2024

266

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 17: Fair values of financial assets and liabilities continued

(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, interest rate volatility and recovery rates

The Group’s 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) above. A quantitative analysis of the sensitivities to market risk arising from the

Group’s trading portfolios is set out in the tables marked audited on page 194.


			2024				2023
				Effect of reasonably possible alternative assumptions1				Effect of reasonably possible alternative assumptions1
	Valuation techniques	Significant unobservable inputs2	Carrying value £m	Favourable changes £m	Unfavourable changes £m		Carrying value £m	Favourable changes £m	Unfavourable changes £m
Financial assets at fair value through profit or loss
Loans and advances to customers	Discounted cash flows	Interest rate spreads (-241bps/ +131bps)4	6,022	245		(231)	7,890	369		(351)
Debt securities	Discounted cash flows	Credit spreads (+/- 17%)5	621	35		(55)	445	39		(41)
Equity and venture capital investments	Market approach	Earnings multiple (3.5/15.0)6	2,267	150		(150)	2,228	131		(131)
	Underlying asset/net asset value (incl. property prices)3	n/a	773	80		(84)	809	77		(99)
Unlisted equities, debt securities and property partnerships in the life funds	Underlying asset/net asset value (incl. property prices), broker quotes or discounted cash flows3	n/a	206	–		(7)	309	7		(6)
			9,889				11,681
Financial assets at fair value through other comprehensive income
Asset-backed securities	Lead manager or broker quote/ consensus pricing	n/a	48	2		(2)	52	2		(2)
Equity and venture capital investments	Underlying asset/net asset value (incl. property prices)3	n/a	325	33		(33)	232	22		(22)
			373				284
Derivative financial assets
Interest rate options	Option pricing model	Interest rate volatility (11%/183%)7	394	4		(6)	422	6		(3)
Interest rate derivatives	Discounted cash flows	(+/- 8%) uncertainty of recovery rates	347	21		(21)	–	–		–
			741				422
Level 3 financial assets carried at fair value			11,003				12,387
Financial liabilities at fair value through profit or loss
Securitisation notes and other	Discounted cash flows	Interest rate spreads (+/– 50bps)8	22	1		(1)	42	1		(1)
Derivative financial liabilities
Interest rate derivatives	Option pricing model	Interest rate volatility (11%/183%)7	422	17		(15)	444	10		(7)
Level 3 financial liabilities carried at fair value			444				486

1Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.

2Ranges are shown where appropriate and represent the highest and lowest inputs used in the level 3 valuations.

3Underlying asset/net asset values represent fair value.

42023: -50bps/+272bps.

52023: +/- 6%.

62023: 1.6/17.8.

72023: 13%/200%.

82023: +/- 50bps.

Lloyds Banking Group plc Annual Report and Accounts 2024

267

Note 17: Fair values of financial assets and liabilities continued

Unobservable inputs

Significant unobservable inputs affecting the valuation of debt securities, unlisted equity investments and derivatives are as follows:

•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

•Volatility parameters represent key attributes of option behaviour; higher volatilities typically denote a wider range of possible

outcomes

•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’s venture capital investments are valued using an estimate of the company’s 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’s 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’s structured credit investments by flexing

credit spreads.

Derivatives

Reasonably possible alternative assumptions have been determined in respect of swaptions in the Group’s 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 11 per cent to

183 per cent (2023: 13 per cent to 200 per cent).

Further reasonably possible alternative assumptions have been determined in respect of the recovery rate on distressed derivatives, with

recovery rates flexed by 8 per cent in order to determine possible alternative valuations.

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:

•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

•The discount rates used in discounted cash flow valuations

•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 260). 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 value £m	Fair value £m	Valuation hierarchy
	Carrying value £m	Fair value £m	Level 1 £m	Level 2 £m	Level 3 £m
At 31 December 2024
Loans and advances to banks	7,900	7,892	–	–	7,892
Loans and advances to customers	459,857	455,846	–	–	455,846
Reverse repurchase agreements	49,476	49,476	–	49,476	–
Debt securities	14,544	14,380	–	11,980	2,400
At 31 December 2023
Loans and advances to banks	10,764	10,764	–	–	10,764
Loans and advances to customers	449,745	439,449	–	–	439,449
Reverse repurchase agreements	38,771	38,771	–	38,771	–
Debt securities	15,355	15,139	–	10,939	4,200

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.

Lloyds Banking Group plc Annual Report and Accounts 2024

268

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 17: Fair values of financial assets and liabilities continued

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 260).


	Carrying value £m	Fair value £m	Valuation hierarchy
	Carrying value £m	Fair value £m	Level 1 £m	Level 2 £m	Level 3 £m
At 31 December 2024
Deposits from banks	6,158	6,158	–	6,158	–
Customer deposits	482,745	483,568	–	483,568	–
Repurchase agreements at amortised cost	37,760	37,760	–	37,760	–
Debt securities in issue at amortised cost	70,834	70,894	–	70,894	–
Subordinated liabilities	10,089	10,419	–	10,419	–
At 31 December 2023
Deposits from banks	6,153	6,153	–	6,153	–
Customer deposits	471,396	471,857	–	471,857	–
Repurchase agreements at amortised cost	37,703	37,703	–	37,703	–
Debt securities in issue at amortised cost	75,592	75,021	–	75,021	–
Subordinated liabilities	10,253	10,345	–	10,345	–

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’s 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 2023 or 2024.

Lloyds Banking Group plc Annual Report and Accounts 2024

269

Note 18: Maturities of assets and liabilities

The table below analyses assets and liabilities of the Group, other than liabilities arising from insurance and investment contracts (including

those classified as disposal group liabilities), into relevant maturity groupings based on the remaining contractual period at the balance

sheet date; balances with no fixed maturity such as goodwill, other intangible assets and property, plant and equipment are included in the

over 5 years category. Liabilities arising from insurance and investment contracts are analysed on a behavioural basis. Certain deposit

balances, included in the table below on the basis of their residual maturity, are repayable on demand upon payment of a penalty.

The table is provided on a contractual basis. The Group’s 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’s 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.


	Up to 1 month £m	1 to 3 months £m	3 to 6 months £m	6 to 9 months £m	9 to 12 months £m	1 to 2 years £m	2 to 5 years £m	Over 5 years £m	Total £m
At 31 December 2024
Assets
Cash and balances at central banks	62,705	–	–	–	–	–	–	–	62,705
Financial assets at fair value through profit or loss	13,096	6,843	6,680	3,675	2,837	4,244	11,030	167,520	215,925
Derivative financial instruments	2,405	2,302	1,079	774	659	1,237	3,062	12,547	24,065
Loans and advances to banks	2,842	1,350	903	452	187	583	1,579	4	7,900
Loans and advances to customers	18,748	12,747	15,375	12,271	11,010	34,790	67,901	287,015	459,857
Reverse repurchase agreements	22,793	13,356	6,945	2,764	1,524	1,355	739	–	49,476
Debt securities	40	1,439	232	358	273	4,128	2,183	5,891	14,544
Financial assets at amortised cost	44,423	28,892	23,455	15,845	12,994	40,856	72,402	292,910	531,777
Financial assets at fair value through other comprehensive income	8	178	39	140	728	3,908	11,746	13,943	30,690
Other assets	3,231	1,015	157	1,030	106	295	643	35,058	41,535
Total assets	125,868	39,230	31,410	21,464	17,324	50,540	98,883	521,978	906,697
Liabilities
Deposits from banks	1,783	669	540	171	171	350	2,413	61	6,158
Customer deposits	392,403	27,489	18,009	18,650	18,327	4,153	3,456	258	482,745
Repurchase agreements at amortised cost	8,698	5,140	1,660	–	13,227	93	8,942	–	37,760
Financial liabilities at fair value through profit or loss	15,443	3,677	774	131	1,048	402	1,466	4,670	27,611
Derivative financial instruments	2,409	2,218	1,054	781	588	1,207	3,407	10,012	21,676
Debt securities in issue at amortised cost	3,222	10,190	6,074	4,265	2,089	8,190	26,525	10,279	70,834
Liabilities arising from insurance and participating investment contracts	478	436	51	102	224	1,510	7,992	111,271	122,064
Liabilities arising from non-participating investment contracts	419	646	1,058	1,211	1,165	4,362	9,807	32,560	51,228
Other liabilities	7,519	1,711	351	684	446	1,548	2,237	16,148	30,644
Subordinated liabilities	–	638	277	–	1,070	1,706	2,219	4,179	10,089
Total liabilities	432,374	52,814	29,848	25,995	38,355	23,521	68,464	189,438	860,809

Lloyds Banking Group plc Annual Report and Accounts 2024

270

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 18: Maturities of assets and liabilities continued


	Up to 1 month £m	1 to 3 months £m	3 to 6 months £m	6 to 9 months £m	9 to 12 months £m	1 to 2 years £m	2 to 5 years £m	Over 5 years £m	Total £m
At 31 December 2023
Assets
Cash and balances at central banks	78,110	–	–	–	–	–	–	–	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	–	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	–	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	–	21,448	8,951	–	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	–	–	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

Lloyds Banking Group plc Annual Report and Accounts 2024

271

Note 19: Derivative financial instruments

The fair values and notional amounts of derivative instruments are set out in the following table:


	2024					2023
	Contract/ notional amount £m	Fair value		Changes in fair value used for calculating hedge ineffectiveness £m		Contract/ notional amount £m	Fair value		Changes in fair value used for calculating hedge ineffectiveness £m
	Contract/ notional amount £m	Assets £m	Liabilities £m			Contract/ notional amount £m	Assets £m	Liabilities £m
Trading and other
Exchange rate contracts	707,329	10,247	9,172			572,858	6,631	6,222
Interest rate contracts	12,864,265	13,436	11,644			7,654,512	15,116	12,724
Credit derivatives	6,103	87	172			5,349	51	118
Equity, commodity and other contracts	8,678	247	333			9,463	455	580
Total derivative assets/liabilities – trading and other	13,586,375	24,017	21,321			8,242,182	22,253	19,644
Hedging
Interest rate
Currency swaps	43	2	–		–	35	3	–		2
Interest rate swaps	231,064	6	337		1,336	153,639	80	425		(2,665)
Designated as fair value hedges	231,107	8	337		1,336	153,674	83	425		(2,663)
Foreign exchange
Currency swaps	1,963	30	14		61	2,684	11	72		(138)
Interest rate
Interest rate swaps	484,996	10	4		(600)	463,660	9	8		2,541
Designated as cash flow hedges	486,959	40	18		(539)	466,344	20	80		2,403
Total derivative assets/liabilities – hedging	718,066	48	355		797	620,018	103	505		(260)
Total recognised derivative assets/ liabilities	14,304,441	24,065	21,676			8,862,200	22,356	20,149

The notional amount of the contract does not represent the Group’s 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’s derivatives are held through exchanges such as London Clearing House and are collateralised through those exchanges.

The Group holds derivatives as part of the following strategies:

•Customer driven, where derivatives are held as part of the provision of risk management products to Group customers

•To manage and hedge the Group’s 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

•Derivatives held in policyholder funds as permitted by the investment strategies of those funds

The principal derivatives used by the Group are as follows:

•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

•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

•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

•Equity, commodity and other contracts include commodity swaps and options

Lloyds Banking Group plc Annual Report and Accounts 2024

272

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 19: Derivative financial instruments continued

Details of the Group’s hedging instruments are set out below:


	Maturity
Fair value hedges	Up to 1 month £m	1 to 3 months £m	3 to 12 months £m		1 to 5 years £m	Over 5 years £m		Total £m
At 31 December 2024
Interest rate
Cross currency swap
Notional	–	–		–	–		43	43
Average fixed interest rate	–	–		–	–		1.28%
Average EUR/GBP exchange rate	–	–		–	–		1.38
Interest rate swap
Notional	5,236	13,781		55,607	111,300		45,140	231,064
Average fixed interest rate	3.04%	3.68%		4.04%	3.36%		2.27%
								231,107
At 31 December 2023
Interest rate
Cross currency swap
Notional	–	–		–	–		35	35
Average fixed interest rate	–	–		–	–		1.28%
Average EUR/GBP exchange rate	–	–		–	–		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%
								153,674


	Maturity
Cash flow hedges	Up to 1 month £m	1 to 3 months £m	3 to 12 months £m		1 to 5 years £m	Over 5 years £m	Total £m
At 31 December 2024
Foreign exchange
Currency swap
Notional	107	441		646	763	6	1,963
Average EUR/GBP exchange rate	1.17	1.16		1.15	1.10	1.06
Average USD/GBP exchange rate	1.30	1.27		1.27	1.27	1.30
Interest rate
Interest rate swap
Notional	9,195	21,010		129,436	262,387	62,968	484,996
Average fixed interest rate	4.32%	4.36%		3.84%	3.34%	3.01%
							486,959
At 31 December 2023
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	–
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%
							466,344

Lloyds Banking Group plc Annual Report and Accounts 2024

273

Note 19: Derivative financial instruments continued

The Group’s hedged items are as follows:


	Carrying amount of the hedged item		Accumulated amount of fair value adjustment on the hedged item		Change in fair value of hedged item for ineffectiveness assessment £m
	Carrying amount of the hedged item
Fair value hedges	Assets £m	Liabilities £m	Assets £m	Liabilities £m
At 31 December 2024
Interest rate
Fixed rate mortgages1	124,013	–	(890)	–	(184)
Fixed rate issuance2	–	51,499	–	1,340	(75)
Fixed rate bonds3	29,264	–	(1,070)	–	(1,158)
At 31 December 2023
Interest rate
Fixed rate mortgages1	75,871	–	25	–	2,544
Fixed rate issuance2	–	50,466	–	1,365	(1,110)
Fixed rate bonds3	24,146	–	(331)	–	962

1Included within loans and advances to customers.

2Included within debt securities in issue at amortised cost and subordinated liabilities.

3Included within financial assets at amortised cost and financial assets at fair value through other comprehensive income.


	At 31 December 2024			At 31 December 2023
	Change in fair value of hedged item for ineffectiveness assessment £m	Cash flow hedging reserve		Change in fair value of hedged item for ineffectiveness assessment £m	Cash flow hedging reserve
		Continuing hedges £m	Discontinued hedges £m		Continuing hedges £m	Discontinued hedges £m
Cash flow hedges		Continuing hedges £m	Discontinued hedges £m		Continuing hedges £m	Discontinued hedges £m
Foreign exchange
Foreign currency issuance1	(60)	75	59	138	8	69
Customer deposits2	–	–	5	–	–	3
Interest rate
Customer loans3	982	(3,470)	(1,590)	(1,796)	(2,934)	(1,885)
Central bank balances4	384	(1,012)	(917)	(648)	(624)	(1,462)
Customer deposits2	(51)	1,592	42	262	1,591	(3)

1Included within debt securities in issue at amortised cost and subordinated liabilities.

2Included within customer deposits.

3Included within loans and advances to customers.

4Included 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 £980 million relating to fixed rate issuances of £582 million and mortgages of

£398 million (2023: liability of £1,446 million relating to fixed rate issuances of £656 million and mortgages of £790 million).

Gains and losses arising from hedge accounting are summarised as follows:


	Hedge ineffectiveness recognised in the income statement1
Fair value hedges	2024 £m	2023 £m
Interest rate
Fixed rate mortgages	(52)	(264)
Fixed rate issuance	(11)	(17)
Fixed rate bonds	(18)	14

1Hedge ineffectiveness is included in the income statement within net trading income.

Lloyds Banking Group plc Annual Report and Accounts 2024

274

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 19: Derivative financial instruments continued


	Gain (loss) recognised in other comprehensive income £m	Hedge ineffectiveness recognised in the income statement1 £m	Amounts reclassified from reserves to net interest income as:
Cash flow hedges	Gain (loss) recognised in other comprehensive income £m		Hedged cash flows will no longer occur £m	Hedged item affected income statement £m
At 31 December 2024
Foreign exchange
Foreign currency issuance	61	–	–		(4)
Interest rate
Customer loans	(2,700)	(61)	–		2,458
Central bank balances	(780)	(7)	–		937
Customer deposits	842	8	–		(794)
At 31 December 2023
Foreign exchange
Foreign currency issuance	(138)	–	–		(9)
Interest rate
Customer loans	(37)	20	–		1,674
Central bank balances	284	2	–		725
Customer deposits	436	(3)	–		(552)

1Hedge ineffectiveness is included in the income statement within net trading income.

There was no gain or loss in either 2024 or 2023 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 20: Loans and advances to customers

Tables showing the movement of loans advances to customers, compiled by comparing the position at the end of the year to that at the

beginning of the year, are shown in the Credit Risk section.

Note 21: 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 2024, the Group’s expected credit loss allowance was

£3,481 million (2023: £4,084 million), of which £3,211 million (2023: £3,762 million) was in respect of drawn balances.

The Group’s total expected credit loss allowances were as follows:


	At 31 December 2024					At 31 December 2023
Allowance for expected credit losses	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
In respect of:
Loans and advances to banks	1	–	–	–	1	8	–	–	–	8
UK mortgages	53	273	335	187	848	161	374	357	213	1,105
Credit cards	149	297	133	–	579	168	401	130	–	699
Other	329	326	227	–	882	339	320	228	–	887
Retail	531	896	695	187	2,309	668	1,095	715	213	2,691
Commercial Banking	205	264	413	–	882	232	372	418	–	1,022
Other	–	–	–	–	–	–	–	4	–	4
Loans and advances to customers	736	1,160	1,108	187	3,191	900	1,467	1,137	213	3,717
Debt securities	3	–	1	–	4	7	2	2	–	11
Financial assets at amortised cost	740	1,160	1,109	187	3,196	915	1,469	1,139	213	3,736
Other assets	7	–	8	–	15	16	–	10	–	26
Provisions in relation to loan commitments and financial guarantees	142	126	2	–	270	160	160	2	–	322
Total	889	1,286	1,119	187	3,481	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)	4	–	–	–	4	7	–	–	–	7

The calculation of the Group’s expected credit loss allowances and provisions against loan commitments and guarantees, which are set out

above, requires the Group to make a number of judgements, assumptions and estimates. The most significant are set out below:

Lloyds Banking Group plc Annual Report and Accounts 2024

275

Note 21: Allowance for expected credit losses continued

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. 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.

Significant increase in credit risk

An ECL allowance equivalent to 12 months’ 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. 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 Group uses both quantitative and qualitative indicators to determine whether there has been a SICR for an asset. The setting of

precise trigger points combined with risk indicators requires judgement and the use of different trigger points may have a material impact

upon the ECL allowance. The Group monitors the effectiveness of SICR criteria on an ongoing basis.

For UK mortgages a reassessment of the SICR criteria was performed following redevelopment of the ECL model in the period, in order to

maintain SICR effectiveness. At 31 December 2024 a doubling of PD since origination was set as a quantitative SICR trigger. All originations

post IFRS 9 adoption incorporate forward looking information, and for recent Interest Only accounts the likelihood of default occurring at

the end of term. This is supplemented by qualitative triggers including where customers have surpassed their original contractual term

through use of term extensions, where fraud is evident, or where an account is in arrears.

For credit cards, loans and overdrafts an increase of three PD grades since origination on the retail master scale (RMS) shown below is set

as a quantitative SICR trigger. Assets are also assumed to have suffered a SICR if they have either been in arrears on three occasions, or in

default once, in the past 12 months.


RMS grade	1	2	3	4	5	6	7	8	9	10	11	12	13	14
PD boundary1 (%)	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

1Probability-weighted annualised lifetime probability of default.

For Commercial Banking a doubling of PD with a minimum increase in PD of 1 per cent since origination is treated as a SICR. This is

complemented with the use of internal credit risk classifications and ratings as qualitative indicators to identify a SICR.

The Group does not use the low credit risk exemption in its staging assessments, though more simplistic SICR criteria are applied for

portfolios not listed above. All financial assets are assumed to have suffered a SICR if they are more than 30 days past due.

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.


	At 31 December 2024							At 31 December 2023
					Judgements due to:						Judgements due to:
	Modelled ECL £m	Individually assessed £m		Inflationary and interest rate risk £m		Other £m	Total £m	Modelled ECL £m	Individually assessed £m	Inflationary and interest rate risk £m		Other £m	Total £m
UK mortgages	720		–		–	132	852	991	–		61	63	1,115
Credit cards	681		–		–	(7)	674	703	–		92	15	810
Other Retail	860		–		–	90	950	866	–		33	46	945
Commercial Banking	894		354		–	(259)	989	1,124	340		–	(282)	1,182
Other	16		–		–	–	16	32	–		–	–	32
Total	3,171		354		–	(44)	3,481	3,716	340		186	(158)	4,084

Individually 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’s 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 2024, individually assessed

provisions for Commercial Banking were £354 million (2023: £340 million) which reflected a range of £309 million to £437 million (2023:

£291 million to £413 million), based on the range of alternative outcomes considered.

Lloyds Banking Group plc Annual Report and Accounts 2024

276

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 21: Allowance for expected credit losses continued

Application of judgement in adjustments to modelled ECL

Impairment models fall within the Group’s model risk framework with model monitoring, periodic validation and back testing performed on

model components, such as probability of default. Limitations in the models or data inputs may be identified through these assessments

and review of model outputs, which may require appropriate judgemental adjustments to the ECL. 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 (in-model adjustments), through to more qualitative post-model adjustments.

Judgements due to inflationary and interest rate risk

During 2022 and 2023 the intensifying inflationary pressures, alongside rising interest rates created further risks not deemed to be fully

captured by ECL models which meant judgemental adjustments were required. Throughout 2024 these risks subsided with inflation back

at around 2 per cent, base rates reducing and credit performance proving resilient. As a result, the judgements held in respect of

inflationary and interest rate risks have been removed (2023: £186 million). Other judgements continue to be applied for broader data and

model limitations, both increasing and decreasing ECL where deemed necessary.

Other judgements

UK mortgages: £132 million (2023: £63 million)

These adjustments principally comprise:

Repossession risk1: £110 million (2023: £106 million)

The Group’s repossession activity and respective data associated with the UK mortgage portfolio has been distorted for a number of years

following pauses in litigation activity both before and during COVID-19. This has seen a larger number of customers in default for a longer

period than would typically be expected resulting in a risk that ECL calculated on these accounts is understated. Judgemental adjustments

to mitigate this risk have been in place for several years, although the approach has been revisited in 2024. An assessment of recent cure

trends indicated that the overall possession rates used in the model appeared adequate; however, the assessment identified a potential

recovery risk on specific subsets of long-term defaulted cases (greater than five years), as well as a continued risk from a longer duration

between default and repossession than model assumptions used on existing and future defaults.

1Previously reported as Increase in time to repossession.

Adjustment for specific segments: £13 million (2023: £23 million)

The Group monitors risks across specific segments of its portfolios which may not be fully captured through collective models. The

judgement for fire safety and cladding uncertainty reduced in the period following methodology refinement. Though experience remains

limited the risk is considered sufficiently material to address, given evidence of cases having defective cladding, or other fire safety issues.

Credit cards: £(7) million (2023: £15 million) and Other Retail: £90 million (2023: £46 million)

These adjustments principally comprise:

Lifetime extension: Credit cards: £55 million (2023: £67 million) and Other Retail: £10 million (2023: £10 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 Credit cards

judgement has reduced slightly in the period reflecting portfolio movement.

Adjustments to loss rates: Credit cards: £(57) million (2023: £(50) million) and Other Retail: £47 million (2023: £37 million)

A number of adjustments have been made to the loss given default (LGD) 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’s LGD models,

incorporating up to date customer performance and forward flow debt sale pricing. For UK Motor Finance, within Other Retail, the

adjustment is used to incorporate the latest outlook on used car prices.

Commercial Banking: £(259) million (2023: £(282) million)

These adjustments principally comprise:

Corporate insolvency rates: £(253) million (2023: £(292) million)

The volume of UK corporate insolvencies continues to exhibit an elevated trend beyond December 2019 levels, revealing a marked

misalignment between observed UK corporate insolvencies and the Group’s equivalent credit performance. This dislocation gives rise to

uncertainty over the drivers of the observed trends in the metric and the appropriateness of the Group’s Commercial Banking model

response which uses observed UK corporate insolvencies data to anchor future loss estimates to. Given the Group’s asset quality remains

strong with low defaults, a negative adjustment is applied by reverting judgementally to the long-term average of the insolvency rate.

Adjustments to loss given defaults (LGDs): £(80) million (2023: £(105) million)

Following a review of the loss given default approach for commercial exposures, management continues to judge 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.

Corporate income gearing (CIG) adjustment: £37 million (2023: £nil)

An adjustment was raised, based upon the assessment of Corporate Income Gearing (CIG), a model parameter for affordability used in

Commercial Banking. The modelled ECL release resulting from updating CIG drivers (interest rates) was judgmentally reversed, with interest

rates having reached a plateau which has translated into a slower year-on-year increase in CIG. This slowdown gave a release in modelled

ECL which is not judged representative of the continued pressure on borrowers and business margins.

Commercial Real Estate (CRE) price reduction: £35 million (2023: £67 million)

The material fall in CRE prices observed in late 2022, previously required a judgemental reinstatement within ECL model assumptions at 31

December 2023, given the materially reduced level in CRE prices could still trigger additional losses. At 31 December 2024 the adjustment

remains in place only for loss rates on a small proportion of accounts still to be reassessed following this fall. This is alongside a more

material adjustment for the potential impact on loss rates from valuations on specific CRE sectors where evidence suggests valuations may

lag achievable levels, notably in cases of stressed sale.

Lloyds Banking Group plc Annual Report and Accounts 2024

277

Note 21: Allowance for expected credit losses continued

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’s 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’s 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 minimal after the initial five years of the projections.

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. The Group

continues to judge it appropriate to include a non-modelled severe downside scenario for Group ECL calculations. The scenario is

generated as a simple average of a fully modelled severe scenario, better representing shocks to demand, and a scenario with higher paths

for UK Bank Rate and CPI inflation, as a representation of shocks to supply. The combined ‘adjusted’ scenario used in ECL modelling is

considered to better reflect the risks around the Group’s base case view in an economic environment where demand and supply shocks are

more balanced.

Base case and MES economic assumptions

The Group’s base case economic scenario has been updated to reflect ongoing geopolitical developments and changes in domestic

economic policy. The Group’s updated base case scenario has three conditioning assumptions. First, cross-border conflicts do not lead to

major disruptions in commodity prices or global trade. Second, the US pursues a more isolationist economic agenda, with policies including

trade tariffs; immigration cuts; and unfunded tax cuts. China, EU and UK are assumed to retaliate to US tariffs imposed on them. Third, UK

Budget public investment plans are assumed to have a small but positive impact on trend productivity growth, subject to further review as

more specific policy detail emerges.

Based on these assumptions and incorporating the economic data published in the fourth quarter, the Group’s base case scenario is for a

slow expansion in GDP and a rise in the unemployment rate alongside modest changes in residential and commercial property prices.

Against a backdrop of some persistence in inflationary pressures, UK Bank Rate is expected to be lowered gradually during 2025. 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 2024, 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) growth 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 2024 covers the five years 2024 to 2028. 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 2024 is 1 January 2024. Given

these metrics may exhibit increases followed by greater falls, the start to trough movements quoted may be smaller than the equivalent

‘peak to trough’ 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.

Lloyds Banking Group plc Annual Report and Accounts 2024

278

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 21: Allowance for expected credit losses continued


At 31 December 2024	2024 %	2025 %	2026 %	2027 %	2028 %	2024 to 2028 average %	Start to peak %	Start to trough %
Upside
Gross domestic product growth	0.8	1.9	2.2	1.5	1.4	1.6	8.9	0.7
Unemployment rate	4.3	3.5	2.8	2.7	2.8	3.2	4.4	2.7
House price growth	3.4	3.7	6.5	6.6	5.4	5.1	28.2	0.4
Commercial real estate price growth	0.7	7.8	6.7	3.2	0.5	3.7	20.0	(0.8)
UK Bank Rate	5.06	4.71	5.02	5.19	5.42	5.08	5.50	4.50
CPI inflation	2.6	2.8	2.6	2.9	3.0	2.8	3.5	2.0
Base case
Gross domestic product growth	0.8	1.0	1.4	1.5	1.5	1.2	7.0	0.7
Unemployment rate	4.3	4.7	4.7	4.5	4.5	4.5	4.8	4.2
House price growth	3.4	2.1	1.0	1.4	2.4	2.0	10.5	0.4
Commercial real estate price growth	0.7	0.3	2.5	1.9	0.0	1.1	5.4	(0.8)
UK Bank Rate	5.06	4.19	3.63	3.50	3.50	3.98	5.25	3.50
CPI inflation	2.6	2.8	2.4	2.4	2.2	2.5	3.5	2.0
Downside
Gross domestic product growth	0.8	(0.5)	(0.4)	1.0	1.5	0.5	3.2	0.0
Unemployment rate	4.3	6.0	7.4	7.4	7.1	6.4	7.5	4.2
House price growth	3.4	0.6	(5.5)	(6.6)	(3.4)	(2.4)	4.0	(11.4)
Commercial real estate price growth	0.7	(7.8)	(3.1)	(0.9)	(2.3)	(2.7)	0.7	(12.9)
UK Bank Rate	5.06	3.53	1.56	0.96	0.68	2.36	5.25	0.59
CPI inflation	2.6	2.8	2.3	1.8	1.2	2.1	3.5	0.9
Severe downside
Gross domestic product growth	0.8	(1.9)	(1.5)	0.7	1.3	(0.1)	1.2	(2.4)
Unemployment rate	4.3	7.7	10.0	10.0	9.7	8.4	10.2	4.2
House price growth	3.4	(0.8)	(12.4)	(13.6)	(8.8)	(6.7)	3.4	(29.2)
Commercial real estate price growth	0.7	(17.4)	(8.5)	(5.5)	(5.7)	(7.5)	0.7	(32.3)
UK Bank Rate – modelled	5.06	2.68	0.28	0.08	0.02	1.62	5.25	0.02
UK Bank Rate – adjusted1	5.06	4.03	2.70	2.23	1.95	3.19	5.25	1.88
CPI inflation – modelled	2.6	2.8	1.9	1.0	0.1	1.7	3.5	(0.2)
CPI inflation – adjusted1	2.6	3.6	2.1	1.4	0.8	2.1	3.9	0.7
Probability-weighted
Gross domestic product growth	0.8	0.5	0.8	1.2	1.4	1.0	5.7	0.7
Unemployment rate	4.3	5.0	5.5	5.4	5.3	5.1	5.5	4.2
House price growth	3.4	1.8	(0.7)	(1.0)	0.4	0.8	5.3	0.4
Commercial real estate price growth	0.7	(1.7)	1.0	0.7	(1.1)	(0.1)	0.7	(1.3)
UK Bank Rate – modelled	5.06	4.00	3.09	2.90	2.88	3.59	5.25	2.88
UK Bank Rate – adjusted1	5.06	4.13	3.33	3.12	3.08	3.74	5.25	3.06
CPI inflation – modelled	2.6	2.8	2.4	2.2	1.9	2.4	3.5	1.8
CPI inflation – adjusted1	2.6	2.9	2.4	2.3	2.0	2.4	3.5	1.9

1The adjustment to UK Bank Rate and CPI inflation in the severe downside is considered to better reflect the risks around the Group’s base case view in an economic environment

where the risks of supply and demand shocks are more balanced.


Base case scenario by quarter1 At 31 December 2024	First quarter 2024 %	Second quarter 2024 %	Third quarter 2024 %	Fourth quarter 2024 %	First quarter 2025 %	Second quarter 2025 %	Third quarter 2025 %	Fourth quarter 2025 %
Gross domestic product growth	0.7	0.4	0.0	0.1	0.2	0.3	0.3	0.3
Unemployment rate	4.3	4.2	4.3	4.4	4.5	4.6	4.7	4.8
House price growth	0.4	1.8	4.6	3.4	3.6	4.0	3.0	2.1
Commercial real estate price growth	(5.3)	(4.7)	(2.8)	0.7	1.8	1.4	0.9	0.3
UK Bank Rate	5.25	5.25	5.00	4.75	4.50	4.25	4.00	4.00
CPI inflation	3.5	2.1	2.0	2.5	2.4	3.0	2.9	2.7

1Gross domestic product growth 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.

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279

Note 21: Allowance for expected credit losses continued


At 31 December 2023	2023 %	2024 %	2025 %	2026 %	2027 %	2023 to 2027 average %	Start to peak %	Start to trough %
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 – modelled	4.94	2.75	0.49	0.13	0.03	1.67	5.25	0.02
UK Bank Rate – adjusted1	4.94	6.56	4.56	3.63	3.13	4.56	6.75	3.00
CPI inflation – modelled	7.3	2.7	2.2	0.9	(0.2)	2.6	10.2	(0.3)
CPI inflation – adjusted1	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 – modelled	4.94	4.64	3.52	3.02	2.64	3.75	5.25	2.59
UK Bank Rate – adjusted1	4.94	5.02	3.93	3.37	2.95	4.04	5.42	2.89
CPI inflation – modelled	7.3	2.7	2.8	2.3	1.9	3.4	10.2	1.9
CPI inflation – adjusted1	7.4	3.2	3.0	2.4	2.0	3.6	10.2	2.0

1The adjustment to UK Bank Rate and CPI inflation in the severe downside is considered to better reflect the risks around the Group’s base case view in an economic environment

where supply shocks are the principal concern.


Base case scenario by quarter1 At 31 December 2023	First quarter 2023 %	Second quarter 2023 %	Third quarter 2023 %	Fourth quarter 2023 %	First quarter 2024 %	Second quarter 2024 %	Third quarter 2024 %	Fourth quarter 2024 %
Gross domestic product growth	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

1Gross domestic product growth 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.

Lloyds Banking Group plc Annual Report and Accounts 2024

280

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 21: Allowance for expected credit losses continued

ECL sensitivity to economic assumptions