lyg-20251231

Purpose in action

Empowering customers
for digital success
The Consumer Digital Index is a comprehensive study
of digital and financial lives. As the nation’s largest
digital bank, we use our unique data and expertise
to deliver powerful insights through this report.
Our 2025 findings reveal a major shift, with more than
28 million adults now using AI tools to manage their
money, from everyday budgeting and savings goals to
financial education. Further information can be found
on page 33 of our sustainability report .
We’re committed to ensuring everyone has the tools,
confidence and access to thrive in a digital-first economy.
Through Lloyds Bank Academy, c.428,000 individuals have
benefitted from our digital and financial skills programmes
in 2025, empowering our customers with knowledge
and building a more resilient, inclusive financial future.

Lloyds Banking Group plc Annual Report and Accounts 2025

In this report

Our purpose of Helping Britain Prosper

has long guided how we support

customers to invest, grow and thrive.

Strategic report

01 to 34


Chair’s statement	02
Group Chief Executive’s review	03
Our business model	06
Our external environment	10
Our strategy	14
Our key performance indicators	18
Our colleagues	22
Risk overview	24
Section 172(1) statement	30
Task Force on Climate-related Financial Disclosures (TCFD)	32
Non-financial and sustainability information statement	33
Viability statement and going concern	34

Sustainability review

36 to 49


Sustainability review introduction	36
Our value chain	38
Sustainability risks and opportunities	39
Supporting the transition to net zero	42

Financial results

51 to 64


Results for the full year	51
Divisional results	61

Governance

66 to 136


Directors’ report	66
Committee reports	85
Directors’ remuneration report	98
Other statutory and regulatory information	134

Risk management

138 to 197


The Group’s approach to risk	138
Risk governance structure	140
Stress testing	142
Full analysis of principal risk categories	144

Financial statements

199 to 304


Independent auditors’ report	199
Consolidated financial statements	211
Parent company financial statements	297

Other information

306 to 324


Shareholder information	306
Alternative performance measures	308
Subsidiaries and related undertakings	313
Forward-looking statements	324

The 2025 annual report and accounts

incorporates the strategic report, the

directors’ report and the consolidated

financial statements, all of which have

been approved by the Board of directors.

On behalf of the Board

Sir Robin Budenberg

Chair, Lloyds Banking Group plc

13 February 2026



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	Our reporting Our reporting suite helps us communicate clearly with a wide range of stakeholders. The annual report and accounts outlines our strategic direction, financial and operational performance, and environmental and social impact. It includes forward-looking statements on the Group’s future financial position, results and objectives. We use alternative performance measures to complement statutory results, with strategic report commentary on an underlying basis unless stated. Additional disclosures, including our sustainability report, are available online.


			See our full reporting suite including our sustainability report on the Investors page of our website.

Lloyds Banking Group plc Annual Report and Accounts 2025

Chair’s statement

Driving growth through

purpose and innovation

Sir Robin

Budenberg

Chair


Read full biography

Delivering on our purpose-driven strategy

Reflecting on 2025, it has been another year of significant progress

for the Group, delivering for customers, colleagues, communities

and shareholders. We have continued to invest and transform the

business, delivering strong progress against our strategic objectives

and further enhancing the customer proposition and our platform

for growth.

At the heart of our transformation is digital innovation, bringing

together transformative technologies and skilled people to

meet customer needs effectively. We are a digital and AI leader

with distinct competitive advantages and have taken action to

enhance our infrastructure and capabilities to create a platform for

innovation and business growth. This is enabling us to deliver leading

and innovative customer propositions and experiences across

the Group and we are now extending this to new and emerging

technologies such as digital assets. These steps will open up new

opportunities for our customers and maintain our commercial

leadership. Read more on pages 14 to 17.

At the same time, we are delivering on our purpose of Helping

Britain Prosper and creating a more sustainable and inclusive

future for people and businesses across the UK whilst accessing

new commercial growth opportunities. Embedding a positive,

values based performance culture remains important. The Board

places great emphasis on shaping and fostering this culture and,

throughout 2025, engaged with colleagues better to understand

their experiences. These insights informed Board discussions and

decision making, ensuring that we continue to build the culture

of the organisation. Read more on page 79.

The UK economy proved resilient to a volatile and uncertain global

economic and political environment in 2025, with growth similar to

its recent long-term trend rate. Regulatory developments have been

constructive from a prudential perspective where we now have

more clarity on capital requirements. We have taken an additional

provision of £800 million for Motor Finance as a result of our

assessment of the impact of the FCA's proposed redress scheme

and we await further clarity on the final rules. We welcome the

FCA's broader strategic focus on growth and simplifying regulation.

Generating value for shareholders

I was pleased to see our market value strengthen considerably

during the course of 2025, with the share price up more than 79%.

I believe this improvement reflects the Group’s strategic progress,

consistent financial performance and the growing confidence

in our ability to deliver higher, more sustainable returns.

Following the financial progress made during the year, the Board

has recommended a final ordinary dividend of 2.43 pence per

share, bringing the total proposed ordinary dividend for 2025

to 3.65 pence per share, an increase of 15% compared with the

prior year. In addition, on 30 January 2026 the Group announced

the launch of a share buyback programme to repurchase up to

£1.75 billion of ordinary shares.


	Shareholder returns

	3.65p total ordinary dividend per share, up 15%		£3.9bn returned to shareholders for 2025
	3.65p total ordinary dividend per share, up 15%		£3.9bn returned to shareholders for 2025

Directors

We regularly review the Board’s composition and diversity to ensure

we maintain the right balance of skills, experience and perspectives

at the highest level. In June 2025, Chris Vogelzang was appointed

as a non-executive director and joined the Responsible Business

Committee. Scott Wheway stepped down from the Board in

October 2025. For more insight into our Board structure and

changes, refer to page 68.

Remuneration

As we advance our strategy, attracting and retaining talent across the

business remains essential. The Board’s Remuneration Committee

carefully determines all awards, ensuring that they align with market

conditions, regulatory developments, Group performance and

shareholder expectations. The Group intends to implement a new

remuneration policy in 2026, designed to incentivise the leadership

team to deliver continued strategic and financial progress and guide

the Group into its next strategic cycle. The policy places greater

emphasis on sustainable high performance and shareholder value

creation. More information on our approach to remuneration can

be found on page 98.

Summary

I’m proud of what Lloyds Banking Group continues to deliver for

customers, colleagues and shareholders and of how we’re doing it.

Through long-term investment in our business and communities,

we’re driving sustainable growth and building resilience. I’d specifically

like to thank our colleagues for their continued dedication and focus

on meeting the evolving needs of our customers.



Sir Robin Budenberg Chair

Lloyds Banking Group plc Annual Report and Accounts 2025

Group Chief Executive’s review

Purpose-driven strategy

delivering enhanced results

Charlie Nunn

Group Chief

Executive


Read full biography

2025 was a key year for the Group, entering the second phase of our

strategy, investing for the benefit of our customers and wider

stakeholders and guided by our purpose of Helping Britain Prosper.

As we enter 2026, our transformation is accelerating, supported by

strong business momentum as well as enhanced digital capabilities

and innovative propositions that are driving growth and efficiency

across the franchise.

The Group demonstrated sustained strength in financial

performance in 2025, with franchise, balance sheet and income

growth. Strong business performance drove capital generation

across the year of 147 basis points allowing total shareholder

distributions of £3.9 billion, even after an additional £800 million

charge for motor finance in the third quarter.

Given our continued strategic execution and sustained strength in

financial performance, we remain confident in meeting our 2026

commitments (including our upgraded target for return on tangible

equity) and the Group’s outlook beyond 2026. We look forward to

setting out the next phase of the Group’s strategy, beyond the

current plan, in July.

Sustained strength in financial performance

Statutory profit before tax was £6.7 billion, up 12% year-on-year,

with higher underlying profit of £6.8 billion, driven by 7% growth in

net income, partially offset by higher operating costs and a higher

underlying impairment charge. Net income of £18.3 billion

benefitted from a higher banking net interest margin of 3.06% and

continued broad-based growth in underlying other income of 9%.

Operating costs of £9.8 billion increased by 3%, reflecting strategic

investment (including an increased severance charge), business

growth costs and inflationary pressures, partially offset by increasing

cost savings from investment and business-as-usual cost discipline.

The impairment charge remained low at £795 million, with strong

and stable credit performance across our portfolios. Overall, this

resulted in a return on tangible equity of 12.9%, or 14.8% excluding

the motor finance charge.

The Group’s franchise and balance sheet grew during 2025.

Underlying loans and advances to customers of £481.1 billion

were up £22.0 billion (5%), reflecting growth across all Retail

areas including UK mortgages and the European business, alongside

growth in Corporate and Institutional Banking. Customer deposits

of £496.5 billion increased by £13.8 billion (3%) across the year.

This included growth in Retail of £5.5 billion, driven by strength

in current accounts and savings, and Commercial Banking

of £8.5 billion, including growth in targeted sectors.

The Group delivered strong capital generation of 147 basis points in

2025 (178 basis points excluding the motor finance charge), and has

a pro forma CET1 ratio of 13.2%. Given the capital generation and

strength of the CET1 position, the Board has recommended an

increased final ordinary dividend of 2.43 pence per share, resulting

in a total dividend for the year of 3.65 pence per share, up 15% on

the prior year. In addition, the Group has announced its intention to

implement an ordinary share buyback of up to £1.75 billion, as we

continue to distribute excess capital to shareholders. Together this

represents distributions of £3.9 billion in respect of 2025. Going

forward, reflecting increasing confidence in our capital generation,

the Group will now review excess capital distributions in addition to

the ordinary dividend every half year.

Guiding purpose of Helping Britain Prosper

The fundamentals of the UK economy are constructive. Our purpose

allows us to play a key role in promoting UK prosperity, aligning our

strategy to support UK economic growth sectors. As part of this, we

recently committed to providing a further £35 billion of new finance

to companies investing and operating in the UK in 2026. Alongside,

we remain focused on improving access to quality and affordable

housing, lending £17 billion to first time buyers, as well as supporting

£3.2 billion of new finance to the social housing sector in 2025.

We continue to financially empower our customers. For example,

our Ready-Made Pensions product is a simple, long-term financial

planning solution benefitting customers including those who do not

participate in auto-enrolment. Of the over 7,000 accounts opened

since launch, c.40% are self-employed customers.

Supporting the net zero transition remains a significant strategic

and commercial opportunity. The Group has cumulatively delivered

over £70 billion of sustainable financing since 2022, including over

£21 billion in 2025.

Second phase of purpose-driven strategy,

continued strong momentum, on track for 2026

In 2025, we entered the second phase of our five year strategic plan,

continuing to scale the core business, driving growth in high value

areas, deepening customer relationships and strengthening cross-

Group collaboration. Strong strategic momentum means we now

expect to generate c.£2 billion of additional revenues from strategic

initiatives by the end of 2026, exceeding our initial £1.5 billion target.

In 2025 we continued to grow our Retail franchise through

innovative new propositions and enhanced capabilities. We

maintained our focus on high-value segments, building our Mass

Affluent current account offering with the launch of our Lloyds

Premier product.

Lloyds Banking Group plc Annual Report and Accounts 2025

Group Chief Executive’s review continued

As the UK’s largest digital bank, we continued to accelerate the shift

to mobile-first. We now have c.21.5 million customers using our app,

an increase of c.45% since 2021. Alongside, we recently announced

the acquisition of Curve (subject to regulatory approval) which will

reinforce our leading digital experiences, including enhanced digital

wallet capabilities.

In Insurance, Pensions and Investments (IP&I), we are reinforcing our

competitive position in areas of strategic focus. We now have over

750,000 customers using our core app for workplace pension

customers, helping to drive regular workplace pension contributions

up 5% year-on-year. With the intention of capitalising on our

position as the UK’s only scale integrated financial services provider,

we continue to embed IP&I products across banking journeys. The

protection take-up rate for mortgage customers is now at 20% in

2025, up from 15% in 2024. Alongside, the recent full acquisition of

Schroders Personal Wealth accelerates delivery of our Wealth

strategy and will deepen relationships in a high value segment.

In Commercial Banking, we are building a digitally-led relationship

bank and driving income diversification through capital efficient

growth. In Business and Commercial Banking, we have strengthened

deposit and lending growth capabilities through enhanced digital

propositions. This includes our new Gen AI powered application

which simplifies the Commercial Real Estate lending journey by

expediting the tenancy schedule process. In Corporate and

Institutional Banking, we are delivering on our ambition to become

a broader scale solution provider, meeting more of our customer

needs. For example, in 2025 we launched a market-leading FX

solution, supporting a c.21% increase in foreign exchange volumes

year-on-year.

Finally, within Equity Investments, alongside strong LDC

performance in 2025, our Lloyds Living business continues to be a

significant growth driver, with a portfolio of close to 8,000 homes,

up from c.5,500 this time last year.

As we deliver growth we are focused on improving operating

leverage through cost and capital efficiency. Since 2021 we have

delivered £1.9 billion of gross cost savings through both business-as-

usual management as well as more transformational initiatives

enabled by strategic investment. Alongside, we have driven

£24 billion of risk-weighted asset optimisation, primarily through

enhanced capabilities, data improvements and risk reduction

transactions.

Leveraging our enablers to drive long-term competitive strength

As highlighted in our recent Digital and AI seminar, our investment

in technology, data and people underpins our ambitions to grow the

business with innovation and improved operating leverage.

Advances in our infrastructure and capabilities allow us to deliver on

our strategic priorities, such as enabling a seven minute mobile

current account opening process, in line with the sector best, driving

c.85% of our current account openings in 2025. Digital investments

have also supported simplification of our technology estate and

helped improve productivity, with an increase of c.45% in active

customers served per distribution FTE since 2021. Finally, we are

extending our leadership across new and emerging technologies,

including Gen AI and digital assets, and are well-placed to succeed

in a period of potentially transformational change for the industry.

Our c.50 major live Gen AI use cases delivered c.£50 million of value

in 2025, as we built the foundations of our capabilities. We are now

targeting over £100 million of incremental P&L benefit from Gen AI

in 2026, as we start to scale the foundations.

Together, these developments drive improved operating leverage,

helping towards our target cost:income ratio of less than 50% in

2026. As we enter the final year of our current strategy, we remain

confident in our 2026 ambitions to generate higher, more

sustainable returns for our shareholders. Beyond 2026, we are

committed to continuing income growth, improving operating

leverage and stronger, sustainable returns.

2026 guidance

Based on our sustained strength in financial performance and our

current macroeconomic assumptions, for 2026 the Group expects:

•Underlying net interest income of c.£14.9 billion

•Cost:income ratio of less than 50% (including operating costs

of less than £9.9 billion)

•Asset quality ratio of c.25 basis points

•Return on tangible equity now of greater than 16%

•Capital generation of greater than 200 basis points1

•To pay down to a CET1 ratio of c.13.0%

1Excludes capital distributions.



Charlie Nunn Group Chief Executive



Read our 2025 UK Consumer Digital Index

Lloyds Banking Group plc Annual Report and Accounts 2025

Our business model

What we do

Our business model

is focused on Helping

Britain Prosper in

a way that delivers

sustainable profit

and returns

Our competitive

advantages

Leading UK customer franchise

with deep customer insight

c.28 million customers with unequalled

reach across the UK. Extensive customer

data and analysis ensures we can anticipate

and meet the needs of these customers

more effectively.

All-channel distribution

with digital leadership

and trusted brands

Operating through a range of brands

and distribution channels, including

the UK’s largest digital bank.

Unique customer proposition

Serving all our customers’ banking,

investment and insurance needs

through a comprehensive product range.

Innovation through modern

and transformative technology

Continued investment in our technology

platform, apps and change function enables

us to innovate in order to anticipate

and meet customers’ needs.

Operating at scale

with cost discipline

Our scale and efficiency enable us

to operate and invest more effectively.

Focused and capital

generative business model

Allowing significant investment

while generating attractive returns

for shareholders.

Our vision

To be the UK customer-

focused digital leader and

integrated financial services

provider, capitalising on new

opportunities, at scale.

Our purpose

Helping Britain Prosper.

We do this by creating a more

sustainable and inclusive

future for people and

businesses, shaping finance

as a force for good.

Financial strength and

robust risk management

Strong capital position. Robust approach

to risk, as reflected in the quality of

our portfolio and underwriting criteria.

Dedicated colleagues

with strong values

Highly engaged, skilled, customer

focused, diverse workforce with

significant expertise and experience.


	See how our purpose is driving performance on page 14 to 17

Lloyds Banking Group plc Annual Report and Accounts 2025

Our external environment

External

context,

opportunities

and risks

We’ve adapted our business and

strategy in response to the fast

pace of change in our external

environment and to address

ever-evolving stakeholder

needs. This helps ensure

the Group can capitalise

on opportunities and manage

risks as they emerge, and is

resilient over the longer term.



	Economy
	Overview The UK economy proved resilient to global challenges in 2025. Although elevated inflation and pay growth resulted in slower interest rate cuts than in the US and Eurozone, real-wages grew and households’ spending growth rose. Lower inflation in 2026 is expected to allow further interest rate cuts to support the economy while the government continues to address its deficit. Low private sector indebtedness and high household savings provide resilience and capacity for improving growth.


	Link to strategy

Market context

•The UK economy is estimated to have grown by 1.4% in 2025,

proving resilient to rising taxes, uncertainty from the shift in the

global trade environment as the US introduced significant import

tariffs, and to continued conflict in Ukraine and the Middle East

•The economy has not settled back to pre-pandemic norms,

however. Inflation remained elevated above its 2% target,

increasing from 2.5% in 2024 to 3.4% in 2025, partly a result of

government policy impacts – a large rise in water bills, VAT on

private school fees, Vehicle Excise Duty changes, a 6.7% rise in

the National Living Wage and an increase in employer National

Insurance. Consequently, households’ high inflation expectations

kept pay growth strong through much of the year

•As a result, the Bank of England reduced interest rates only

slowly. Bank Rate was cut by 100 basis points through 2025 to

end the year at 3.75%, 150 basis points lower than its 2023 to

2024 peak – a smaller reduction than the 175 basis points in the

US and 200 basis points in the Eurozone. The unemployment rate

rose by 0.7 percentage points in the year to November, to 5.1%

•With this backdrop, UK households raised their spending growth,

but cautiously, saving a high proportion of disposable income.

House prices rose by less than 1%, reflecting affordability

of mortgage payments being still more of a constraint than

pre-pandemic

•Nevertheless, growth in 2025 in the markets we operate in

returned to rates similar to, or better than, pre-pandemic.

Both households’ and corporates’ leverage had fallen to low

levels, creating space for a pick-up in borrowing. Mortgages and

household deposits benefitted from the high level of housing

transactions early in the year in advance of the stamp-duty

increase in April. The drag on SMEs’ borrowing balances from

pay-down of government-guaranteed COVID-scheme lending

is now abating

Lloyds Banking Group plc Annual Report and Accounts 2025

Our response

•In a world of heightened economic uncertainty, our purpose of

Helping Britain Prosper is ever more important. Our strategy and

business model position us well in both constructive and more

challenging economic environments

•Our strategy is focused on faster growing, high potential sectors

such as housing, pensions, investments, and infrastructure.

We are already driving growth in these areas, leveraging our

competitive advantage as the UK’s only integrated financial

services provider. As a result, we expect the Group to continue

to grow faster than the wider economy over the coming years

•Our transformation allied to our strong customer franchise

captures opportunity by effectively meeting evolving

customer needs and demands, diversifying income streams,

and also with efficiency. Our large scale and strong balance

sheet, with a prudent approach to risk, provides both access

to growth opportunities and resilience at times of challenging

economic conditions

2026 outlook

•We forecast GDP growth of 1.2% in 2026, a little below 2025’s

estimated 1.4%. Although the government will continue to shrink

its budget deficit via rising taxes, the resulting drag on the

economy is expected to be offset by lower rates and reduced

policy uncertainty, allowing the economy to grow closer to its

‘potential’ or ‘trend’ rate through the year

•Some uncertainties are expected to reduce now that the scale

and impact of US tariffs has become clearer, notwithstanding

likely readjustment in response to legal challenges

•More importantly, interest rates are switching from being a drag

on the economy to a marginal support, as many customers

refinancing mortgages will begin to obtain lower rates than

their existing deals. Mortgage rates fell in late 2025 as markets

priced earlier Bank Rate cuts, in response to Budget measures

subtracting c.50 basis points from mid-2026 inflation forecasts

•The reduced near-term inflation outlook should lessen concern

of a self-perpetuating cycle between elevated inflation and

elevated pay growth that some members of the Bank of

England’s Monetary Policy Committee had cited as a key reason

for reticence to cut rates more swiftly through 2025. We expect

CPI inflation to decline to 2.6% in 2026 from 3.4% in 2025, and

assume two further Bank Rate cuts to 3.25% by the third quarter

of 2026

•Growth closer to the economy’s ‘potential’ or ‘trend’ rate

through 2026 should mean that unemployment drifts up only

a little further from its level of 5.1% at November 2025

•However, we expect the lagged impact of rising unemployment

to mean that pay growth falls by more than the reduction in

inflation during 2026

•Households are therefore likely to maintain a cautious approach

towards spending. Alongside, we expect house prices to rise by

only 2%, close to the average of the past three years, lacking the

benefit from elevated housing transactions early in 2025

•Growth in the markets we operate in is expected to slow slightly

in comparison to 2025, for these reasons



	Customers
	Overview Most customers continue to prefer digital engagement channels which offer convenient and personalised financial solutions with frictionless journeys, to proactively manage their finances. AI is accelerating this shift by enabling customers to rapidly evaluate the market and seek advice on the best products to meet their needs. Alongside, financial health across most households and businesses is strengthening, supported by improving confidence and falling rates.


	Link to strategy

Market context

•Reducing rates have increased consumer confidence and

improved the outlook for mortgage holders, as the majority

of the market is currently financed on higher rates

•With one in three customers now using AI weekly to manage

their finances (UK Consumer Digital Index 2025, based on survey

of 5,000 customers, results may not be representative of all

customers), expectations for seamless and personalised digital

journeys continue to grow

•Customers are seeking to access financial solutions at their point

of need, supported by growth in embedded finance

•Corporates and SMEs are confident about future prospects

for their businesses, despite wider economic uncertainty

Our response

•Redesigned app with improved onboarding and servicing

journeys, empowering customers to achieve financial goals

•Integration of AI into servicing journeys, such as underwriting

for SME CRE lending, driving better and faster decisioning

•Branch co-servicing enabling Halifax, Bank of Scotland or Lloyds

customers to use any of our branches to manage their accounts

•Enhancements across our product suite, including launch of

Lloyds Premier, meeting more needs for Mass Affluent customers

•Improved mobile PCA onboarding journey. Launch of mobile

Business Banking loans journey

2026 outlook

•Launch of AI financial assistant bringing personalised,

round-the-clock financial guidance to mobile app customers

•Integration of digital wallet capabilities following our proposed

acquisition of the fintech Curve to provide greater payment

flexibility and access to advanced digital wallet features

•Scale digital journeys across Business Banking with extended digital

onboarding and origination and greater personalisation capacity


UK economic growth % GDP growth			1.4%

			1.1	1.4
8.5	5.1	0.3	1.1	1.4

2021	2022	2023	2024	2025


Digitally active users m			23.6m

18.3	19.8	21.5	22.7	23.6

2021	2022	2023	2024	2025

Lloyds Banking Group plc Annual Report and Accounts 2025

Our external environment continued



	Competitors
	Overview Competition remains intense with high street banks and building societies maintaining their focus on share growth, and building scale by consolidating smaller players. Alongside, neobanks and fintechs continue to gain momentum by leveraging their strong digital experiences and broadening their customer offering across Retail and Commercial segments.


	Link to strategy

Market context

•Ongoing new business margin pressure across deposit and

mortgage markets, driven by intense competition

•Continued disruption to the single-provider banking model, with

digital onboarding and engagement channels making it easier for

customers to manage relationships across multiple providers

•New, smaller entrants reshaping financial services through tightly

targeted propositions supported by strong digital experiences

•Opportunity for providers with breadth of offering and

personalised journeys to deepen their customer relationships

Our response

•Market-leading direct and intermediary journeys reaching

customers in their preferred channel

•Relevant and differentiated cross-Group propositions meeting

a wider set of financial needs

•Tailored solutions designed to simplify complex financial

decisions, offer expert guidance, and provide exclusive rewards

•Empowered customers financially with up-to-date credit report

insights enabling over 500,000 customers to improve their credit

score each quarter

•Focus on high value areas, including our Home ecosystem which

is increasing engagement and helping retain customer balances

•Successful pilot of embedded finance offering through

BlackHorse Flexpay with growth in merchant sign-ups in 2025

2026 outlook

•Enhance access to relevant and tailored propositions across

customer life stages, leveraging our proposition breadth

•Integrate Schroders Personal Wealth, to be rebranded as Lloyds

Wealth, combining expert face to face advice with powerful

digital tools to deepen our relationships in high value segments

•Leverage technology and data to deliver more compelling,

personalised digital propositions to support customer goals



	Technology and data
	Overview Rapidly evolving technology landscape, accelerated by developments in artificial intelligence and digital transformation. These shifts are enabling new engagement models, innovative propositions and greater cost efficiency. Gen AI is enhancing customer interactions through more personalised engagement, with digital asset innovation creating opportunities for greater customer control and faster, more efficient transactions.


	Link to strategy

Market context

•Digital banking with AI-powered functionality continues to lower

cost to serve, whilst increasing innovation and speed to market,

driving accelerated customer adoption and greater competition

•Incumbents are moving to modern and efficient platforms, which

unlock richer personalisation and proposition development

capabilities, enabling accelerated revenue growth through more

targeted and differentiated offerings

•Sophistication of cyber threats requires banks to continually

enhance security measures to protect customers

Our response

•Launched the UK’s first in-app financial assistant

•Agile Platform operating model, increasing efficiency and speed

of change by combining our business and technology teams

•Increasing our technology hires, including the launch of Lloyds

Technology centre to bring talent in-house

•Continued enhancement of legacy infrastructure with more than

20% reduction in technology applications and c.50% reduction in

data centres since 2021

•Extending our capabilities in new and emerging technologies

through investment in Gen AI and digital assets, with 50 live Gen

AI use cases in 2025 generating c.£50 million incremental value

•UK first digital assets use-case with Aberdeen Investments

and Archax, using tokenised units as collateral for FX trades

2026 outlook

•Actively scaling Gen AI deployment, targeting over £100 million

in incremental P&L benefit in 2026 as we build seamless digital

journeys and personalised customer interactions

•Building capability to be at the forefront of agentic AI,

bridging the advice gap through in-app agents

•Position as the UK leader in digital assets, developing GB

Tokenised Deposits pilot use cases to build value add in

customer journeys


Mortgage market share total gross lending – flow			18.9%

18.5	17.2	16.9	19.9	18.9

2021	2022	2023	2024	2025


IT applications on cloud %			>50%

1	2	7	c.50	>50

2021	2022	2023	2024	2025

Lloyds Banking Group plc Annual Report and Accounts 2025



	Society and environment
	Overview Evolving environmental and societal issues, along with new regulations, require companies to clearly understand the related risks and opportunities. This includes recognising the role the Group can play through its products and services in helping customers and their communities respond to these developments.


	Link to strategy

Market context

•Organisations must have a clear understanding of environmental

and sustainability issues and integrate them in their strategies

and decision making, understanding their impacts,

dependencies, risks and opportunities

•Organisations need to respond to the evolving regulatory

and geopolitical landscape including evolving stakeholder

expectations, uncertainty and the acceleration of sustainability-

related financial risks and opportunities

Our response

•Since 2022, the Bank has financed £70.9 billion of sustainable

lending, with £21.9 billion of sustainable finance supported

in 2025

•Scottish Widows have achieved discretionary investments

of £81.3 billion in climate-aware strategies, with the

increase primarily driven by the launch of Scottish Widows

Lifetime Investment

•Issuance of the first sterling corporate blue bond by a UK

corporate for Thames Tideway

•Delivered £340 million of lending against our £500 million

financing commitment with the National Wealth Fund

•Empowered over 7,000 customers through our Ready-Made

Pensions since launch

•Over £800 million donated to our four charitable

Foundations across the UK since 1985

2026 outlook

•Integration of sustainability approach into the next stage of

our Group strategy, identifying risks and opportunities

•Continue to evolve our sustainable finance framework and

related financing activities and propositions, remaining aligned to

our sustainability pillars, whilst shaping finance as a force for good

•Enhance our disclosures through the use of data, to support

meeting evolving regulatory expectations



	Regulation
	Overview The regulatory landscape continues to evolve rapidly to support growth of the UK economy and innovation. The Government’s Leeds Reforms, announced in July 2025, contained a number of proposals seeking to position the UK as the number one destination for financial services companies by 2035. The proposals announced by the Government and regulators span a range of areas directly relevant to the Group.


	Link to strategy

Market context

•The Economic Secretary is reviewing the ring-fencing regime

to support growth and stability, while the Financial Policy

Committee has reviewed bank capital requirements

•The FCA will introduce a new regulated activity, ‘targeted support’

in spring 2026. It will complement existing advice by letting firms

offer tailored suggestions to customer groups, aiming to broaden

access and help consumers manage their finances

•The Government, FCA and Financial Ombudsman Service consulted

on reforms to modernise the UK’s redress system. In 2025, the FOS

introduced a case fee for professional representatives and announced

plans to change the interest rate on compensation awards

•The Government is reforming the Consumer Credit Act to create

a simpler, more agile regime that allows firms to deliver innovative

new products and services, and good consumer outcomes

•The Government has published the Strategy for Future Retail

Payments Infrastructure, and is progressing plans to abolish

the Payment Systems Regulator and consolidate its functions

primarily within the FCA

•The UK is rapidly developing a regulatory regime for digital assets;

crypto, stablecoins and tokenised assets, set for implementation

by late 2026

•The FCA launched a consultation process on a scheme

for motor finance compensation

Our response

•We will continue to engage constructively with the authorities on

the wide range of regulatory reforms currently being progressed

to ensure that tangible changes are delivered which will promote

better outcomes for consumers and the wider economy

•We’re monitoring developments and contributing to consultations

to support innovation while ensuring market integrity and stability

•We responded to the FCA’s consultation on a proposed motor

finance compensation scheme emphasising that a strong and

stable motor finance market is critical to ensuring that customers

have access to competitive finance to support their needs

Sustainable lending (active targets)

and climate-aware investments


Timeline of key regulatory changes


l	Progress		\|	Target


Early 2026		HM Treasury’s ring-fencing review, conducted with the Bank of England and reporting into the Economic Secretary to the Treasury

Spring 2026		Expected FCA Enhanced Accountability Rules

Q2 2026		Ongoing consultation on ring-fencing rules

Q1 2027		Basel 3.1 implementation

Commercial Banking


Mortgages


2024/ 2025	£24.5bn


2025	£5.3bn

£30bn by 2026

£11bn by 2027

Motor


Scottish Widows


2025	£2.8bn


£81.3bn invested in climate-aware strategies

£10bn by 2027


For further details on our sustainable finance progress see page 45.

Lloyds Banking Group plc Annual Report and Accounts 2025

Our strategy



Our purpose pillars
Our strategy is driven by our purpose, with each of the five pillars below woven into our core strategic priorities and helping deliver shareholder value.

Access to quality and affordable housing To help all UK households regardless of income or tenure	Empowering a prosperous future For our customers and businesses	Supporting regional development and communities As our success is intrinsically linked with their success	Building an inclusive organisation To better support our customers and communities	Supporting the UK transition By providing financial solutions and building resilience

Read more on page 36


Increased confidence in delivering our 2026 strategic commitments
c.£2bn additional revenues from strategic initiatives	<50% cost:income ratio	>16% RoTE	>200bps capital generation

Lloyds Banking Group plc Annual Report and Accounts 2025



	Supporting first time buyers As the UK’s largest mortgage lender we support first time buyers to get on the housing ladder, providing £17 billion of funding in 2025 to them. Our ‘First Time Buyer Boost’ proposition launched in August 2024, is helping more customers by enhancing the amount they can safely borrow by up to 22%. In 2025 we have made available £5 billion of lending through this proposition, helping 14,000 first time buyers borrow more than 4.5 times their income. In addition, our ‘Your Credit Score’ tool helped over 500,000 customers improve their credit score every quarter during 2025. We are equipping our customers with the tools to improve their financial wellbeing while gaining insights to generate sustainable growth.		£17bn of funding to first time buyers



Read more on how we're supporting the UK housing market



	Financing the transition in the North West In 2025 we acted as Mandated Lead Arranger in the provision of a £154 million debt commitment as part of a wider £2.5 billion financing package to support the HyNet CO₂ Transport and Storage Project in the North West of England and North Wales. Eni’s Liverpool Bay Carbon Capture and Storage project is the backbone of HyNet which will be critical in reducing emissions from essential but hard-to-abate sectors such as energy-from-waste, cement manufacturing, and low-carbon hydrogen production. Once operational, HyNet will play a significant role in the UK government’s net zero strategy. The project also expects to create over 2,000 jobs during its initial construction phase and thousands more through wider investment across the North West, demonstrating how finance can drive commercial growth and supporting regional development, aligned to our purpose of Helping Britain Prosper.



	Deepening our commitment to social housing We’ve supported over £22 billion of financing for social housing since 2018 – including £3.2 billion this year alone. In 2025, the Group announced a £100 million loan agreement to fund the sustainable retrofit of thousands of social homes across the South, West and East of England, with Sovereign Network Group (SNG), one of the UK’s leading housing associations. This lending formed part of our £500 million commitment to finance the retrofit of social housing in the UK. Social housing continues to be a source of lending growth for the Group. £100m loan agreement to fund sustainable retrofit of social homes with SNG



	Helping more people plan for the future The UK has the largest pension market in Europe, worth over £2 trillion, however our latest Scottish Widows retirement report shows that 39% of people will fail to meet basic living standards in retirement, notably those who are self-employed and younger workers. In 2024 we launched our Ready-Made Pension offering to help customers manage their pension savings and plan for retirement, with this offering now available to those who are not an existing customer through our Scottish Widows website. At the end of 2025 we now have over 7,000 accounts opened, with 27% of our customers aged 35 and under and approximately 41% self-employed. We are committed to designing products that directly address our customers’ needs and bridge gaps in the market, ensuring we play a vital role in supporting the prosperity and resilience of communities across the UK while growing our assets under management.

Read more in our Women

and Retirement Report

Lloyds Banking Group plc Annual Report and Accounts 2025

Our strategy continued


	2025 progress	2026 priorities	2026 outcomes

Deepen and innovate in Consumer	•Completed a full redesign of the app experience across Lloyds, Bank of Scotland and Halifax with improved onboarding and servicing •Expanded lending through our new Ultra and Advance credit cards and tailored mortgage propositions for limited companies •Announced third-party Motor and Health insurance partnerships with Axa and Vitality	•Continue to build personalised, seamless experiences across all channels, driving customer value and simplifying interactions •Broaden and innovate across our product range to meet evolving customer needs and the competitive challenge •Accelerate our mobile-first approach while reimagining physical spaces to enhance efficiency and deepen engagement	3% further increase in-depth of relationship (versus 2024) c.50% increase in active customers served per distribution FTE (versus 2021)



Create a new Mass Affluent offering	•Strengthened and grew relationships with Mass Affluent customers through Lloyds Premier, supporting customers who have a c.2 times greater depth of relationship with exclusive benefits, offers and optimised digital experiences •Strong uptake across our Direct-to-Consumer investment products with 84,000 accounts opened to-date	•Continue to enhance our Mass Affluent proposition, with improved digital experiences, supporting customers to achieve their financial goals •Integration of Schroders Personal Wealth, offering full advice propositions to Mass Affluent customers across Lloyds, Halifax, Bank of Scotland and Scottish Widows	>10% increase in Mass Affluent total relationship balances, including assets under administration



Digitise and diversify our BCB business	•Strong progress towards becoming a digital-first relationship bank, with over 50% of products originated and fulfilled digitally, and over 50% of key servicing interactions digitised, achieving our 2026 target a year early •Diversified our business, shifting sector mix and enhancing propositions across Merchant Services, Cards, Trade and FX to meet more client needs	•Deliver more personalised and engaging digital solutions through automating lending decisions, expanding our multi-currency capabilities, and introducing tailored nudges to support client goals •Provide greater client flexibility with enhanced data ingestion capabilities and connecting the Group to over 70 accounting software packages	Maintain small business deposit market share >50% of key servicing interactions digitised



Develop our Corporate and Institutional business (CIB)	•Awarded a landmark cash management and payments contract with the government to serve over 30 central departments and public sector bodies •Delivered c.21% year-on-year growth in foreign exchange volumes •Launched a market-leading foreign exchange algorithmic proposition	•Position ourselves as a broader CIB partner, providing an integrated Cash-Debt-Risk offering to meet all client needs •Disciplined expansion across key client markets in the US and Europe •Connect CIB clients to wider Group propositions to unlock greater value	c.45% increase in CIB other operating income (versus 2021) >5.25% income / average risk-weighted assets
Develop our Corporate and Institutional business (CIB)

Lloyds Banking Group plc Annual Report and Accounts 2025


	2025 progress	2026 priorities	2026 outcomes

Strengthen cost and capital efficiency	•Disciplined cost management with a further c.£700 million gross cost savings delivered in 2025, contributing towards a total gross cost saving of £1.9 billion since 2021 •Investment in digital journeys continued to lower our cost to serve with a c.45% increase in customers served per distribution FTE compared to 2021 •Strong balance sheet management with risk-weighted assets optimisation of £24 billion since 2021, including over £5 billion in 2025 •Maintained strong capital generation of 147 basis points in 2025	•Continued commitment to enhance productivity and cost saves through strategic investment in simplification and digitisation, driving an improved cost:income ratio of less than 50% in 2026 •Ongoing focus on growth of capital-lite revenue and other operating income from strategic initiatives •Maintain focus on risk-weighted asset optimisation supported by value-add securitisation opportunities	<50% cost:income ratio >200bps capital generation
			<50% cost:income ratio >200bps capital generation


	2025 progress	2026 priorities	2026 outcomes

Maximise the potential of people, technology and data	People •c.9,000 technology and data hires since 2021, supporting our growth and change delivery •Deployed Gen AI colleague tools at scale with over 30,000 Copilot licences distributed •Modernised our property estate, supporting improved ways of working	•Support strategic delivery by increasing the number of new hires in key skill areas •Continue to scale enterprise Gen AI support tools to enhance productivity of our colleagues •Ongoing commitments to building a more inclusive organisation	Maintain strong employee engagement index (versus 2024)


	Technology and data •Continued mobile app and digital journey investment, enabling more than 95% of Retail sales via digital channels •Greater change efficiency; c.30% gross reduction in run and change tech costs since 2021 •Developed Gen AI foundations	•Continue to accelerate legacy app decommissioning and cloud migration •Actively scale Gen AI in use cases to support customers and colleagues, including the deployment of the UK’s first large-scale, multi-feature agentic AI powered financial assistant	>30% applications on modern technology 35% gross reduction in run and change technology costs (versus 2021)

Lloyds Banking Group plc Annual Report and Accounts 2025

Our key performance indicators

Strategic progress and sustained

strength in financial performance

Financial

Our key performance indicators

highlight our progress in relation to

the Group’s most important priorities.

These encompass a range of measures designed to assess both

financial and non-financial performance, ensuring a balanced

consideration of the interests of all stakeholders.

The majority of these key performance indicators also inform

remuneration across the Group to ensure that our colleagues

are rewarded for delivering for both customers and shareholders.

This alignment considers the Group’s financial performance as well

as specific conduct and risk management controls.

This year we have refined our financial key performance indicators

to ensure they more clearly reflect progress against our strategic

priorities and our approach to creating long‑term shareholder

value. The former ordinary dividend chart has been replaced

with a broader shareholder distributions measure, which captures

both ordinary dividends and share buybacks, providing a more

comprehensive view of total capital returned to shareholders.

In addition, we have introduced capital generation, recognising its

importance as a key outcome of our strategy and a fundamental

driver of our ability to maintain sustainable distributions.

During 2025, the Group continued to perform well, demonstrating

strategic progress and sustained strength in financial performance.

Strong capital generation was delivered by income growth, cost

discipline and strong credit performance in 2025, despite the

impact of the additional motor finance charge in the third quarter.

Our strategic progress combined with this financial performance

gives us confidence in our 2026 guidance.



		Key performance indicators that are directly linked to our remuneration are marked with this symbol. More information can be found within our directors’ remuneration report from page 98.




		We use a number of alternative performance measures in the description of our business performance and financial position. These measures are labelled with this symbol. See page 308 for our alternative performance measures.



	1Expectation based on the Group’s current macroeconomic assumptions. 2Reported on a pro forma basis, reflecting declared share buybacks and any dividends received from the Insurance business in the subsequent quarter prior to the publication of the financial results. Excludes phased unwind of IFRS 9 relief. 3Capital generation excludes capital distributions and variable pension contributions but includes dividends received from the Insurance business in the subsequent quarter prior to the publication of the financial results. 4Excludes a decrease of 230 basis points related to regulatory changes that came into effect on 1 January 2022. 5Excludes a decrease of 21 basis points related to the acquisition of Tusker.

Statutory profit

after tax

£m

4,757


5,885	3,923	5,518	4,477	4,757

2021	2022	2023	2024	2025


Link to strategy	Statutory profit after tax of £4,757 million is 6% higher than 2024 with higher total income partially offset by higher operating expenses, a higher impairment charge and a higher tax expense. 2025 was impacted by a charge relating to motor finance commission arrangements of £800 million. Excluding the motor finance charge, statutory profit after tax was £5,428 million (2024: £5,035 million).

Net income

£m

18,301


15,763	17,465		17,932	17,117	18,301

2021		2022	2023	2024	2025


Link to strategy	Net income of £18,301 million is 7% higher than 2024, with higher underlying net interest income, in line with guidance, and higher underlying other income, partially offset by increased operating lease depreciation.

Return on

tangible equity

12.9


13.8	9.8	15.8	12.3	12.9

2021	2022	2023	2024	2025


Link to strategy	Return on tangible equity of 12.9%. Excluding the charge for motor finance commission arrangements, return on tangible equity was 14.8%, above guidance. This reflects the Group’s sustained strength in financial performance. 2026 guidance1: Return on tangible equity of greater than 16%.

Lloyds Banking Group plc Annual Report and Accounts 2025

Operating costs

£m

9,761


8,312	8,672	9,140	9,442	9,761

2021	2022	2023	2024	2025


Link to strategy	Operating costs of £9,761 million rose 3% versus 2024, reflecting strategic investment, business growth and inflationary pressures, partially offset by cost savings from investment and continued cost discipline. Delivery was in line with guidance excluding the full acquisition of Schroders Personal Wealth. 2026 guidance1: Cost:income ratio of less than 50% (including operating costs of less than £9.9 billion).

Common equity

tier 1 ratio (CET1)

13.2


16.3	14.1	13.7	13.5	13.2

20212	20222	20232	20242	20252


Link to strategy	The pro forma CET1 ratio remains strong at 13.2%, after an increased recommended ordinary dividend and the announced share buyback of up to £1.75 billion. 2026 guidance1: Expect to pay down to a CET1 ratio of c.13.0% by end of 2026.

Total shareholder

return

87.9


35	0	10.9	21.2	87.9

2021	2022	2023	2024	2025


Link to strategy	Total in-year shareholder return was 87.9%. The share price was 79.3% higher than one year earlier, with the remaining return being attributed to the ordinary dividend.

Underlying profit

£m

6,777


7,536	7,028	7,809	6,343	6,777

2021	2022	2023	2024	2025


Link to strategy	Underlying profit of £6,777 million in 2025 was 7% higher than in 2024 due to higher net income partially offset by higher operating costs and a higher underlying impairment charge. Excluding the motor finance charge, underlying profit was £7,577 million (2024: £7,043 million).

Capital generation3

bps

147


210	245	173	148	147

2021	20224	20235	2024	2025


Link to strategy	The Group delivered strong capital generation of 147 basis points in 2025, in line with updated guidance (178 basis points excluding the motor finance provision). 2026 guidance1: Capital generation of greater than 200 basis points.

Shareholder

distributions

£bn

3.9




2021	20224	20235	2024	2025


0.5		0.6		0.6		0.7		0.7


Link to strategy	l	Interim dividend	l	Final dividend	l	Buyback

	For 2025, total distributions amounted to £3.9 billion. This includes a total recommended ordinary dividend of 3.65 pence per share, up 15% versus last year and reflecting our progressive and sustainable ordinary dividend policy; this covers both interim and final dividends. The Group has also announced a share buyback of up to £1.75 billion.

Lloyds Banking Group plc Annual Report and Accounts 2025

Our key performance indicators continued

Non-financial


	Customer

Digitally active users

23.6


18.3	19.8	21.5	22.7	23.6

2021	2022	2023	2024	2025


Link to strategy	The Group operates the largest digital bank in the UK and reflecting the pace of digital adoption, the number of active digital users increased in the year to 23.6 million, up 4% year-on-year. Within this we had c.21.5 million app users, which represents a 6% increase from last year.

Customer satisfaction

Relationship net

promoter score

16.1


		17.2	19.7	16.1

20211	20221	2023	2024	2025


Link to strategy	In 2025, we transitioned from an all-channel net promoter score to a relationship net promoter score, which measures the customer likelihood of recommending us based on their overall experience. We believe the year-on-year decline is largely driven by changes to the mobile banking app, with customers telling us that there is more we can do to improve journeys and experience. Actions are in place to support improvement in 2026.

Customer complaints

FCA reportable

complaints per

1,000 accounts

4.84


2.60	2.57	3.33	5.10	4.84

H1 2023	H2 2023	H1 2024	H2 2024	H1 2025


Link to strategy	We remain committed to delivering the highest level of service to our customers, with our colleagues working diligently to understand and address the concerns raised. Despite the ongoing impact of Motor commission complaints, overall volumes fell from the second half of 2024. Data for the second half of 2025 is not available at time of publishing.


Group customer dashboard (GCD) (November YTD) Pts – 2024 to 2025 % – 2021 to 2023

65


79	80	86	83	65

2021	2022	2023	20242	20252


Link to strategy	In 2025, the Group customer dashboard (GCD) score declined to 65. This was down year-on- year, in part due to a decline in our net promoter score and elevated customer complaints, as outlined on this page. While we improved or maintained performance on 64% of our GCD measures, we continue to strive to achieve more of our customer ambitions in 2026.


	Climate

Operational carbon

emissions

tCO2e

103,148


112,067	117,671	122,616	123,449	103,148

20/21	21/22	22/233	23/243	24/254


Link to strategy	In 2024/25, our market-based carbon emissions that form part of the balanced scorecard were amended to exclude international travel. Compared to previously reported numbers there has been a 42% decrease since baseline year 2018/19 when market-based carbon emissions were 176,993 tCO2e and 16% decrease since 2023/24. Restating prior year comparatives to exclude international travel gives a reduction of 39% from baseline year and 10% from 2023/24. With the decrease from the prior period mainly driven by a reduction in domestic employee commuting. Further details of our market-based overall emissions including international travel can be found in the sustainability metrics datasheet .

Lloyds Banking Group plc Annual Report and Accounts 2025


	Colleague

Employee

engagement index

% favourable


Link to strategy	Our annual colleague survey, MyVoice, achieved a record participation rate of 85%5, indicating positive colleague sentiment. The employee engagement index of 75% improved by 4 percentage points. This increase was driven by career development opportunities, a supportive and inclusive culture and reward, putting us in a strong position to continue our transformation.


72	78	66	71	75

20213	2022	2023	2024	2025

Inclusion

Link to strategy

In 2025 we launched a suite of inclusion ambitions which include one gender and two UK ethnicity ambitions for our executive

colleagues. We believe that setting ambitions for our leadership team is important to provide role modelling and inspiration for

our colleagues and ensures more inclusive and better strategic decision making. The focus will continue to 2030. Read more on

pages 22 to 23. To understand the Group’s approach on inclusion, please see our sustainability report .


Gender balance in executive roles6 %	40.4

45% to 55%


2025	40.4%


l	Progress
\|	2030 ambition range


Black heritage colleagues in executive roles6 %	4.3

3.5% to 4%


2025	4.3%


l	Progress
\|	2030 ambition range


Black, Asian and Minority Ethnic colleagues in executive roles6 %	17.5

19% to 22%


2025	17.5%


l	Progress
\|	2030 ambition range


Disability representation in senior roles by 20257 %	19.0

12%


2025		19.0%


l	Progress
\|	2025 ambition



		Key performance indicators that are directly linked to our remuneration are marked with this symbol. More information can be found within our directors’ remuneration report from page 98.




		We use a number of alternative performance measures in the description of our business performance and financial position. These measures are labelled with this symbol. See page 308 for our alternative performance measures.



	1Data for 2021 and 2022 is not available and has been excluded from the chart. 2Change in measurement approach from 2024, so comparison of 2024-2025 to prior years is not like-for-like. 3Restated data to improve the accuracy of reporting, using actual data to replace estimates and updates to historical emissions. 4Excludes international travel. 5Our annual survey (MyVoice) is sent to both UK and international colleagues. 6Executive roles include Grade X colleagues only. For gender, it includes UK and international based colleagues, excluding US and subject to local laws and regulations. For ethnicity it includes UK based colleagues only. 7Senior manager roles include grades F, G and X.

Lloyds Banking Group plc Annual Report and Accounts 2025

Our colleagues

Being inclusive allows us to be the best business

for colleagues and customers

Our colleague engagement

In 2025, we extended how we listen to colleagues to create a more

regular and complete picture of sentiment across the year.

We ran six surveys at key points during the year and reintroduced

our joiners and leavers survey, giving us a continuous view across the

colleague lifecycle – from onboarding through to exit. With more

than 64,000 colleagues working across the Group, this cadence

ensures we hear from a broad cross‑section of roles, locations and

tenure, and can take timely action where it matters most.

MyVoice, our annual colleague survey, achieved a record 85%

completion rate, delivering the widest view of sentiment so far.

Colleagues also shared over 200,000 comments, providing a rich,

nuanced evidence base to understand what is working well and

where we can strengthen our approach. Results this year show

robust improvements across themes, including our employee

engagement index (up four percentage points to 75%) and

employee net promoter score (up 15 points to +23). Taken together,

these outcomes indicate we are in a strong position to continue to

progress our transformation.

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. Please see page 77 for further examples of how

the Board engages with the Group’s workforce and why the Board

considers those arrangements to be effective.

For 2025, the Remuneration Committee approved Group

Performance Share awards for colleagues, and colleagues are

eligible to participate in HMRC-approved share plans which

promote share ownership by giving employees an opportunity to

invest in Group shares. The vast majority of our colleagues hold

shares in the Group.

Our 2025 inclusion performance

We aspire to be the UK’s leading business for inclusion by

supporting our customers, colleagues and communities. In 2025,

we strengthened our commitment by laying strong foundations that

will enable long-term progress. We placed inclusion at the centre of

how we work, embedding it into our purpose, performance and

culture. This meant integrating inclusive governance principles into

organisational design, pay and recruitment processes to support

fair, transparent and consistent decision making.

Our progress was further supported by our inclusion plans which

we have developed with our Group Executive Allies and our

employee networks.

Social mobility

We remain committed to removing barriers and providing

opportunities for people from all socio-economic backgrounds

to reach their potential.

According to MyVoice, 65% of UK colleagues have shared their

socio-economic background with us. Notably, 22% of colleagues

overall and 21% of our senior colleagues come from low socio-

economic backgrounds, which compares favourably against other

organisations as per the Progress Together annual benchmarking.

We’re proud to be named finalists in four categories at the 2025 UK

Social Mobility Awards, and one of our senior leaders was a finalist

of the Champion of the Year. In 2025, we supported young people

in education from primary to further and higher education. Our

Youth outreach helped over 100,000 young people across all

education levels (including school, college and university students).

They were supported with developing essential skills and

experiences to realise their potential.

Outreach extended to five UK regions, inclusive of regions where

opportunities for social mobility are significantly lower relative to

the UK as a whole.

Gender

We are dedicated to advancing gender equality by strengthening

the talent pipeline and driving balanced representation.

In 2025 we set a new ambition to reach and maintain a gender

balance of between 45 to 55% in executive roles by the end of

20301. Setting this ambition for our leadership team is important

in providing role modelling and inspiration for our colleagues and

ensures more inclusive strategic decision making. At the end of

2025, the number of women in executive level roles (X+) stands

at 40.4%, putting us on track to meet our 2030 ambitions.

Our award winning Elevate Programme, which develops leadership

capability among women across tech, data and security, continues

to grow, with over 100 women participating in 2025.

Our disclosures in relation to board diversity as required under the

UK Listing Rule UKLR6.6.6(9) are on page 136.

Ethnicity

We are committed to building an inclusive society and creating an

organisation that reflects the community we serve.

Building representation of colleagues of Black, Asian and Minority

Ethnic heritages, to reflect the society of which we are a part,

remains challenging, but we are focused on it and continue to make

progress. We have moved to range ambitions of 3.5 to 4% for

Black heritage and 19 to 22% for Black, Asian and Minority Ethnic

colleagues in executive roles1. These new 2030 UK ethnicity

ambitions reflect UK census data, the evolving diversity of society

and industry benchmarks.

We continue to exceed the Parker Review recommendation of

having at least one Black, Asian or Minority Ethnic Board member.

Guided by our Race Action Plan since 2020, we remain focused on

driving cultural change, improving recruitment and progression, and

unlocking potential for Black heritage communities across the UK.

Disability and neurodiversity

We aspire to be a best-in-class leader in disability and neuro-

inclusion. Last year, we publicly launched our Blueprint for disability

and neuro-inclusion, sharing our commitments.

Alongside our ambition, we’ve committed to making recruitment

more inclusive, supporting career development, improving

accessibility in workspaces and technology, upskilling colleagues to

reduce stigma, and championing the disability community beyond

our organisation. In 2025, we held a facilitated workshop for all

our talent acquisition managers, which tangibly increased their

confidence in supporting hiring managers and candidates with

disabilities and neurodivergent conditions, throughout the

recruitment process.

Sexual orientation and gender identity

We continue to build a more inclusive environment for our LGBTQ+

colleagues. Our LGBTQ+ network, Rainbow, remains central to

this work and has supported colleagues for ten years. In 2025, we

partnered with our Employee Assistance Programme (EAP) provider

to launch an enhanced clinical pathway tailored to the needs of

LGBTQ+ colleagues and allies. We believe this is the first service of

its kind in the UK offered jointly by an employer and EAP provider.

Developed in response to colleague feedback, it was piloted in 2024

and is now a permanent offering. Staffed by people with lived

experience and specialist training, it provides a safe, empathetic

space for support, shared experiences and tailored resources.

1 Executive roles include Grade X colleagues only. For gender, it includes UK and

international based colleagues, excluding US and subject to local laws and regulations.

For ethnicity it includes UK based colleagues only.

Lloyds Banking Group plc Annual Report and Accounts 2025



		Purpose in action

	Upskilling colleagues on neuro-inclusion Since its launch in September 2024, over 54,000 colleagues have completed the ‘This is Me’ e-module and c.8,500 line managers have attended the workshop. This programme plays a pivotal role in helping us build a more disability and neuro-inclusive organisation, driving better outcomes for our colleagues, customers and communities. Our commitment to neurodiversity was also honoured globally at the 2025 Davos Neurodiversity Summit, where we received the Impact Award for Corporate Leadership in Neuro-inclusion.

Read more from

our colleagues



	2025 progress and performance on inclusion metrics


			Number 2025	% 2025	% 2024
Gender1 (UK and international colleagues, excluding colleagues who are based in the US, subject to local laws and regulations)	Board members	Men	5	50.0	50.0
	Board members	Women	5	50.0	50.0
	Senior positions on the Board2	Men	3	75.0	75.0
	Senior positions on the Board2	Women	1	25.0	25.0
	GEC3	Men	8	61.5	53.8
	GEC3	Women	5	38.5	46.2
	Executive roles4	Men	199	59.6	61.4
	Executive roles4	Women	135	40.4	38.6
	Senior managers5	Men	4,577	59.6	59.6
	Senior managers5	Women	3,101	40.4	40.4
	All colleagues	Men	29,722	46.5	45.2
	All colleagues	Women	34,200	53.5	54.8
Ethnicity1 (UK based colleagues only)	Board members	White British or other White	8	80.0	80.0
		Asian heritage	1	10.0	10.0
		Mixed/multiple ethnic groups	1	10.0	10.0
	Senior positions on the Board2	White British or other White	4	100.0	100.0
	GEC3	White British or other White	11	84.6	84.6
	GEC3	Asian heritage	2	15.4	15.4
	Executive roles4	Black, Asian and Minority Ethnic representation	57	17.5	14.6
	Executive roles4	Black heritage	14	4.3	3.3
	Senior managers5	Black, Asian and Minority Ethnic representation	996	13.6	12.6
	Senior managers5	Black heritage	139	1.9	1.8
Disability (UK based colleagues only)	Colleagues who disclose that they have a disability		12,776	21.6	18.7
Disability (UK based colleagues only)	Senior managers4 who disclose that they have a disability		1,388	19.0	16.1
Sexual orientation and gender identity (UK based colleagues only)	Colleagues who disclose their sexual orientation		47,560	80.4	77.8
	Colleagues who disclose that they are LGBTQ+		2,506	4.2	4.0
	Colleagues who disclose their gender identity		43,897	74.2	69.9

1Data in the table above is collated and reported in compliance with the provisions of

section 414C(8)(c) Companies Act 2006. For Listing rule UKLR 6.6.6(10) please see

further information on our Board diversity and executive management on page 136.

2 Senior positions on the Board refer to the roles of the Chief Executive Officer,

Chief Financial Officer, Senior Independent Director and Chair of the Board.

3The Group Executive Committee (GEC) assists the Group Chief Executive in strategic,

cross-business or Group-wide matters and inputs to the Board. The GEC includes the

Group Chief Executive and excludes colleagues who report to a member or attendee of

the GEC, including administrative or executive support roles (personal assistant,

executive assistant).

4Executive roles include grade X colleagues only.

5Senior manager roles include grades F, G and X.

Key definitions:

•All diversity information for ethnicity, disability, sexual orientation and gender identity

is based on voluntary self-declaration by colleagues. Our systems do not record diversity

data colleagues who have not declared this information and is for UK payroll only

•Gender data includes those on parental/maternity leave, absent without leave and

long-term sick and excludes contractors, temporary and agency staff. International

colleagues are included, except those based in the US, subject to local laws and

regulations

•LGBTQ+ includes Asexual / Ace Spectrum, Bisexual / Bi, Gay Man, Lesbian / Gay

Woman, Pansexual, Other Sexual Orientation and includes Trans*

•A colleague is an individual who is paid via the Group’s payroll and employed on a

permanent or fixed-term contract (employed for a limited period). Includes parental

leavers and internationals (UK includes Guernsey, Isle of Man, Jersey and Gibraltar

subject to and local laws and regulations). Excludes leavers, Group non-executive

directors, contractors, temps and agency staff

•Diversity calculations are based on headcount, not full-time employee value

Lloyds Banking Group plc Annual Report and Accounts 2025

Risk overview

Continuing our risk transformation

journey through 2025

The Group’s approach to risk


	Risk management framework

		Group and risk management strategies •The Group strategy is driven by strategic priorities and informed by the Group’s risk profile, considering external economic, political and regulatory threats. This shapes risk appetite and risk management practices •The risk management strategy supports delivery of the Group strategy by ensuring principal risks are managed consistently within appetite and the target control environment

		Culture, values and behaviours •The RMF provides tools for colleagues to make the right decisions, balancing stakeholder needs, risks and trade-offs and encouraging a culture of intellectual curiosity, innovation and proactive risk management

		Risk governance •Designed to enable sound decision making in line with good corporate governance standards across all legal entities. Board and executive committees hold key decision-making authority, with clear responsibilities for risk management, delegated powers and reporting requirements •The Board’s responsibilities can be found on page 73

		Three lines of defence •Aligned with industry best practice, the Group applies a three lines of defence model, with all colleagues accountable for managing risk in daily activities and demonstrating behaviours consistent with the Group’s purpose, values and culture

		Risk function mandate •Clarifies Risk’s role as an oversight and control function within the three lines of defence, supporting the Chief Risk Officer in fulfilling accountabilities defined in their role profile and delegated by the Group Chief Executive and the Board

		Risk appetite •The type and level of risk the Group is willing to accept in pursuit of its strategic objectives, which must operate within Board-approved parameters. Set annually for the Group and its legal entities

		Risk architecture and approach •The Group’s risk architecture defines a consistent, unified approach and a common language for all principal risks. Risk principles and policies translate risk appetite into actionable risk management

Risk management is essential to our business model and strategy,

helping us to embrace opportunities responsibly and drive

sustainable growth for the Group. Our strong risk management

culture, underpinned by our enhanced risk management framework

(RMF), is vital in safeguarding the Group, colleagues and customers

against both existing and emerging risks.

Risk profile and performance in 2025

The Group’s credit performance remains strong and stable; the loan

portfolio remains well positioned amid macroeconomic uncertainty

and is closely monitored to proactively identify signs of stress.

Operational resilience remains crucial, enabling the Group to

prevent, withstand and respond to cybersecurity threats and IT

outages, using intelligence and learnings from recent global events.

The Group continues to modernise its technology and strengthen

capabilities and ensure the safe, responsible use of models and tools

such as artificial intelligence.

The latest position regarding motor finance commission

arrangements and the potential impact is provided on page 284.

The Risk overview provides a summary of performance for each of

the Group’s principal risks, along with emerging and topical risks.

Resetting Risk

During 2025, the Group has continued to make progress in its risk

transformation journey, allowing us to further evolve our risk

management approach to deliver good outcomes for our customers.

This has included the consistent implementation of the RMF

requirements for all of the Group’s legal entities, business units

and functions.

The RMF ensures processes are in place to facilitate robust risk

management and effective decision making.

The Group’s risk policies are supported by risk toolkits, which set

out clear guidance and minimum standards for proactive

identification and effective risk management, fostering a strong risk

management culture across the Group. Further information about

the RMF and the Resetting Risk programme can be found on

pages 138 to 139.



	Our approach “We’re on an exciting transformation journey through our Resetting Risk programme, allowing us to further evolve our risk management approach and accelerate decision making to achieve improved outcomes for our customers.”
	Stephen Shelley Chief Risk Officer

Lloyds Banking Group plc Annual Report and Accounts 2025

Principal risks


	Summary table for 2025

The risks outlined in this section are used to monitor and report

the risk exposures posing the greatest potential impact to the

Group. All principal risks are reported regularly to the Board Risk

Capital

Climate

Compliance

Conduct

Credit

Economic crime

Insurance underwriting

Liquidity

Market

Model

Operational

Committee and Board, and are reviewed at least annually to

ensure they remain fit for purpose.

Sustainability related risks are intrinsically linked to our principal

risks. Pages 39 to 41 provide an overview of our sustainability

related risks and opportunities assessment, and highlight related

principal risks.

The risk management section on pages 144 to 197 provides a

detailed review of these risks, including definitions and how they are

identified, assessed, managed, mitigated, monitored and reported.


See page 16	See page 17	See page 17


	Capital risk

	The Group continued to maintain its strong capital position in 2025 with a CET1 capital ratio of 13.2% on a pro forma basis (2024: 13.5% pro forma). This remains ahead of regulatory requirements and in excess of the Group’s ongoing target of c.13.0%, which includes a management buffer of around 1%. Banking business profits for the year and the receipt of dividends from the Insurance business, partially offset by risk- weighted asset (RWA) increases and regulatory headwinds, have continued to enable strong shareholder distributions. Downside risks and uncertainties arising from economic and regulatory headwinds, including in relation to Retail secured CRD IV RWA increases, continue to be closely monitored.		Mitigating actions •Capital management framework is in place, including the setting of capital risk appetite, capital planning and stress testing activities •Regular refresh and monitoring of early warning indicators and maintenance of a contingency framework to address emerging capital concerns •Robust risk management through prudent underwriting standards, balance sheet and portfolio management and capital optimisation


	Climate risk

	Climate risk remains stable, with no material adjustments to the Group’s financial statements required for the impact from physical and transition risks, and ongoing monitoring of potential reputational impacts, including performance of emission reduction targets against broader UK progress. The Group has refined how it reflects the cross-cutting impacts of climate risk with other principal risks. Focus remains on embedding consideration of climate-related risks and enhancing capabilities for measuring and managing these, in line with evolving external expectations.		Mitigating actions •Guidance outlines the impacts of climate risk across other principal risks, supporting embedding within Group policies and procedures •This informs suitable consideration within the management of other principal risks, including client engagement, assessment informed by scenario analysis and relevant case management


	Compliance risk

	The compliance risk profile remains stable. The Group continues to monitor compliance risk closely given the pace of regulatory and legislative change, a continued volume of regulatory data requests and to enable strategic business growth within risk appetite.		Mitigating actions •Policies and standards setting out clear requirements and controls that apply across the business, aligned to the Group’s risk appetite •Identification, assessment and implementation of regulatory and legal requirements by risk specialists and legal colleagues as needed •Local controls, processes, procedures and resources to ensure appropriate governance and compliance by business units

Lloyds Banking Group plc Annual Report and Accounts 2025

Risk overview continued


	Conduct risk

	Conduct risk remained elevated in 2025, recognising areas of ongoing focus driven by legal decisions, regulatory changes and complaint trends. The Group continues to monitor the evolving situation in relation to motor finance commission arrangements and potential impacts to customers and its risk and control profile, liaising closely with regulatory bodies. Enhancements continue to be made to the Group’s control environment, with mitigating actions and controls in place to deliver good outcomes for customers, protect market integrity, prevent colleague misconduct and ensure effective management of concerns raised through whistleblowing. The Group remains focused on the treatment of vulnerable customers and complaints performance.		Mitigating actions •Policies and strategies are in place to prevent colleague misconduct and support good customer outcomes with ongoing focus on utilising root cause insights to support the management and mitigation of complaint volumes •Active engagement with regulatory bodies and key stakeholders to ensure that the Group’s strategic conduct focus continues to meet evolving stakeholder expectations •Strengthening policies, controls and reporting capabilities to demonstrate good outcomes for customers and markets


	Credit risk

	Credit performance has remained strong and stable in 2025. In the Group’s retail portfolios, low and stable arrears have been observed. The Group’s commercial portfolio remains strong. The underlying impairment charge in 2025 was £795 million, up from £433 million in 2024, and includes a net charge from updates to the Group’s macroeconomic outlook of £74 million compared to a large release of £394 million in 2024. Excluding macroeconomic updates, the Group’s underlying impairment charge remains low and similar to 2024. The total underlying probability-weighted expected credit loss (ECL) allowance was lower in 2025 at £3,353 million (31 December 2024: £3,651 million).		Mitigating actions •Appropriate and robust credit processes, strategies and controls to ensure effective risk identification, management and oversight •Significant monitoring in place, including early warning indicators •Selective credit tightening reflective of forecast changes in the macroeconomic environment, including updates to affordability lending controls for forward-looking costs


	Economic crime risk

	Economic crime remains a principal risk for the Group, reflecting the inherent risks within the external environment, driven by geopolitical instability and an evolving economic crime threat landscape. Controls are in place to address bribery and corruption, fraud, money laundering and sanction risks. In 2025, business units continued to deliver against action plans, which strengthened the control environment, reduced residual risk and responded to changing regulatory expectations. During the year, two new Board-level risk appetite metrics were introduced to further enhance oversight of sanctions and fraud. Protecting customers remains a key priority, with ongoing consideration of regulatory developments, data-sharing capabilities, and interventions across the economic crime lifecycle.		Mitigating actions •Robust economic crime policy and standards •Delivery of Group-wide Economic Crime Prevention Strategy, supported by periodic reviews to address emerging risks and regulatory developments •Sustained progress in remediation activities to strengthen the control environment and reduce residual risk •Continued enhancements of our industry-leading fraud detection capabilities to respond to evolving threats


	Insurance underwriting risk

	Insurance underwriting risk remains stable. Life and Pensions present value of new business premium increased to £21.0 billion (2024: £18.2 billion), driven by higher contribution from workplace, protection and Scottish Widows platform businesses, partially offset by lower sales in the annuities business due to market conditions. Gross written premiums increased to £762 million (2024: £737 million).		Mitigating actions •Underwriting quality is the primary mechanism used to manage insurance risk •Robust processes are embedded for underwriting, reinsurance, claims management, pricing, product design and product management •Management through diversification and pooling of risks

Lloyds Banking Group plc Annual Report and Accounts 2025


	Liquidity risk

	The Group maintained its strong liquidity and funding position with a loan to deposit ratio of 97% (2024: 95%). The Group’s liquid assets continue to exceed the regulatory minimum and internal risk appetite, with a monthly simple average over the previous 12-months’ liquidity coverage ratio (LCR) of 145% (2024: 146%). The Group maintains access to diverse sources and tenors of funding.		Mitigating actions •Maintenance of a portfolio of unencumbered high quality liquid assets in excess of regulatory requirements •Robust management and monitoring of liquidity risks to ensure systems and arrangements are adequate with regard to internal risk appetite, Group strategy and regulatory requirements •Significant customer deposit base, driven by inflows to trusted brands •Participation in term issuance programmes


	Market risk

	Market conditions have remained stable in 2025. The Group remains well hedged, ensuring near-term interest rate exposure is appropriately managed. The Group’s structural hedge has increased to £244 billion in 2025 (2024: £242 billion) due to strong deposit growth. Following the agreements made as part of the Group's main defined benefit pension schemes triennial valuations at 31 December 2022, there are no further deficit contributions payable for this triennial period (to 31 December 2025). The IAS 19 accounting surplus has reduced to £2.6 billion at 31 December 2025 (2024: £2.9 billion).		Mitigating actions •Structural hedge programmes to stabilise earnings •Close monitoring of market risks and where appropriate, all asset and liability matching and hedging •Monitoring of the credit allocation in the defined benefit pension schemes, as well as the hedges in place against adverse movements in nominal rates, inflation and longevity


	Model risk

	In 2025, the Group has made significant progress in strengthening its model risk management. The Group’s model risk operating framework continues to improve with investment in training and resources to support framework adoption and further development of our CRD IV models. The Group continues to anticipate and address regulatory requirements, embedding SS1/23 principles into our day-to-day risk management, including proactive engagement with regulators. The control environment for model risk continues to be enhanced, meeting both internal and regulatory requirements to support the safe and strategic development of AI and machine learning applications within the Group. Investment in model risk management remains a priority for the Group to further improve risk management and as an enabler to drive strategic developments.		Mitigating actions •Continued enhancement and embedding of the model risk management framework for managing and mitigating model risk •The Group’s independent model validation process provides ongoing, independent, and effective challenge to model development and use •Establishment of a governance framework for the management of AI model risks across principal risk categories •Introduction of a wider range of model status categories to provide more transparent and informative reporting of model risk


	Operational risk

	Operational risk remained stable in 2025, with key risks relating to change execution risk, data and privacy, supplier risk, IT systems and information, cyber and physical security. Operational loss event volumes continue to be low, primarily relating to transaction and data processing, IT systems and change execution. The Group continues to demonstrate resilience in delivering strategic change safely, despite some IT outages occurring during the year. No material security breaches took place in 2025, though some events at third-party suppliers reinforced the need for vigilance and robust oversight. The Group places a strong emphasis on analysing progress against its strategic transformation delivery, using learnings to drive improvements and ensure effective management of change execution risk.		Mitigating actions •Deployment of a range of risk management strategies, such as avoidance, mitigation, transfer (including insurance) and acceptance •Ongoing focus on people risk measures including culture, capability and capacity to support strategic growth plans •The Group continues to invest strategically to mitigate operational risks, strengthen controls and to meet operational resilience regulatory requirements •Internal reviews and industry engagement on IT outages to drive control improvement and ensure effective supplier assurance

Lloyds Banking Group plc Annual Report and Accounts 2025

Risk overview continued

Emerging and topical risks

Emerging and topical risks remain an area of ongoing focus for the

Group’s Board and senior management. During 2025, the Group has

continued to strengthen its approach to identifying, assessing and

prioritising emerging risks, recognising the continued complexity and

interdependence of global and sector-specific challenges.

The Group’s emerging and topical risk themes have been refined in

2025, reflecting developments in geopolitical uncertainty,

technological disruption, climate transition and regulatory change.

These themes have been subject to reviews at executive and Board-

level committees, including the Board Risk Committee, with actions

agreed to strengthen monitoring and mitigation strategies.

Particular attention has been given to drivers of the emerging and

topical risk themes, such as supply chain fragility and evolving

customer behaviours.

Building on the foundations established in prior years, the Group’s

methodology now places greater emphasis on forward-looking,

scenario-based exercises to anticipate potential shifts in the

emerging risk landscape. These exercises explore how emerging risks

could materialise and interact under plausible conditions, leveraging

insights from senior leaders and subject matter experts to test

critical assumptions, examine interdependencies and identify

potential second-order impacts across the business.

Looking ahead to 2026, horizon scanning and thematic analysis will

continue as a key risk management tool to anticipate future trends,

ensuring preparedness for both risks and opportunities arising from

an increasingly volatile environment while safeguarding customers,

colleagues and shareholders.


	Emerging and topical risk themes

			Consumer and market dynamics	Market offerings are increasingly personalised, simple and transparent through digital means. Increased competition from traditional and non-traditional competitors means brand loyalty is under pressure, and the influence of social media heightens the risk of poor customer outcomes against an uncertain societal backdrop. Similarly, digital exclusion, particularly among older or less digitally literate groups, requires balancing investment in innovation with inclusive service delivery. Rapid growth in new, often loss-leading financial products intensifies market competition, raising concerns around sustainability, mis-selling, data ethics and product suitability.

			Evolution of technology, AI and cybercrime	The accelerating pace of technological innovation, spanning AI, blockchain, cloud computing and digital currencies, is reshaping the financial landscape. While these developments offer significant opportunities to enhance customer experiences and operational efficiency, they also introduce new risks. Balancing the adoption of emerging technologies with the need to maintain digital sovereignty, protect against evolving cybercrime and uphold data privacy and ethical standards is increasingly complex. At the same time, cloud vulnerabilities and the rapid evolution of AI and tokenisation challenge traditional business models, requiring firms to remain agile, transparent and resilient in the face of disruption.
		Emerging and topical risk themes
Principal risks			Geopolitical and economic environment	Global uncertainty continues to reshape the regulatory and operating environment, with shifting geopolitical alliances, economic fragmentation, and evolving health dynamics challenging traditional models of cross-border engagement. Organisations must navigate a complex web of international regulations, sanctions and trade compliance while responding to the impacts of extreme weather events, financial market volatility and unexpected events, in order to manage the impacts to operations, customers and suppliers.

			Regulatory agenda and expectations	The regulatory landscape is evolving rapidly, shaped by political priorities, shifting expectations of regulatory bodies, and growing awareness of environmental and ethical responsibilities. Sudden market interventions, calls for enhanced consumer protections and the need for greater transparency in disclosures are encouraging firms to demonstrate compliance, ethical integrity and adaptability. New entrants, without legacy challenges and benefitting from lower regulatory constraints present competitive pressures. The increasing importance of responsible corporate behaviour is prompting a more proactive and thoughtful approach to governance, underpinned by a commitment to legal integrity and sustainable business practices.

			Strategic and operational adaptability	Disruption from supplier dependencies, infrastructure outages, or severe data loss can significantly impact service delivery and trust. Evolving business models, workforce transformation, and the need to attract and retain future-ready talent places pressure on organisational culture and capability. Balancing operational efficiency with colleague wellbeing, while adapting to a dynamic risk landscape shaped by network vulnerabilities, is critical to sustaining performance and delivering strong customer outcomes. Growing mental health concerns among customers and employees demand an adaptive, resilient and inclusive approach to risk management and strategic planning.

Lloyds Banking Group plc Annual Report and Accounts 2025


Emerging and topical risk theme	Drivers	Key mitigating actions

Consumer and market dynamics	•Ageing population •Changing and expanding customer base •Data ethics and privacy •Disinformation and social media •Market dynamics •Non-traditional competitive landscape •Societal expectations of financial services institutions •Societal polarisation	•Review of customer propositions, participation choices by business area. Continued focus on consumer duty, ESG and vulnerability •Periodic review of the Group’s strategy, including review of performance, key risks and external environment •Ongoing assessment of the impact of customer sentiment, complaint volumes and media coverage •Regular customer insight analysis and risk assessments undertaken to understand impacts of changing demographics

Evolution of technology, AI and cybercrime	•Blockchain and tokenisation •Cloud vulnerabilities •Digital currencies and payments •Digital sovereignty •Emerging technologies •Evolution and scaling of AI •Evolution of cybercrime	•Regular updates on data and technology strategy, and deep dives completed on generative AI, cyber risk, technology risk and economic crime prevention at relevant committees •Partnership with Cambridge Spark to deliver ‘Leading with AI’ programme to over 200 senior leaders •Implemented a data ethics framework and Ethical AI framework within our Group data and model risk policies •Establishing feature teams focused on emerging technology trends such as tokenisation and exploring new partnerships to deliver new capabilities

Geopolitical and economic environment	•Extreme weather events •Financial market volatility •Geopolitical influences •Quantitative tightening and fiscal restraints	•Quarterly review of the Group’s economic assumptions in response to the macroeconomic environment •Periodic intelligence scanning to detect and identify triggers and events which may impact the Group and its operations •Undertake stress testing to analyse the impact of different economic scenarios on the Group’s performance

Regulatory agenda and expectations	•Compliance and legal integrity •Failing to ensure ethical corporate behaviour •Necessary regulatory reform •Regulatory disclosures and external disclosures	•Ongoing monitoring of regulatory developments through horizon scanning activity •Regular engagement by senior management and Board members with regulators on key topics and specific areas of regulatory focus, including responses to consultations •Legal and regulatory lens applied to cost and investment prioritisation •Organisational focus on meeting all relevant regulatory requirements and expectations

Strategic and operational adaptability	•Business model evolution •Colleague conduct and wellbeing •Network and infrastructure blackouts •Operational efficiency challenges •Organisational culture and mindset •Physical and mental health impacts •Skills of the future •Strategic transformation •Supplier challenges and dependencies •Talent attraction and retention	•The Group implements playbooks if significant disruptive events occur, such as another pandemic or system outages, and these are refreshed at least annually to prepare for such events •The Group has strengthened measures to ensure that we are more prepared for significant disruption to supply chains •Enhanced business continuity plans to enable the majority of our colleagues to work remotely where possible, supported by ongoing cloud migration of applications •Regular reviews of the Group’s strategic workforce planning focused on short- medium- and long-term view of the skills composition required, alongside our culture, inclusion and diversity goals

Lloyds Banking Group plc Annual Report and Accounts 2025

Section 172(1) statement

Effective stakeholder

engagement underpins

decision making by the Board

Considering stakeholder interests is

key to decision making by the Board.

To better understand their interests,

the Board receives feedback from

stakeholders through engagement both

inside and outside of the boardroom

including at specific events and through

the Group’s Closer to Customers,

Clients and Colleagues programme.

Senior management supports Board decision making by addressing

stakeholder implications in proposals submitted to the Board

for consideration and providing the Board with details of

stakeholder interactions.

Further detail on stakeholder engagement is contained within

the directors’ report on pages 76 to 78.



	Section 172(1) statement This section (pages 30 to 31) is our Section 172(1) statement for the purposes of the Companies Act 2006 (the Act), describing how the directors have had regard to the matters set out in section 172(1) (a) to (f) of the Act when performing their duty to promote the success of the Company under section 172. Further detail on key stakeholder interaction is also contained within the directors’ report on pages 76 to 78. The directors remain mindful in all their deliberations of the long-term consequences of their decisions, as well as the importance of Lloyds Banking Group plc (the Company) maintaining a reputation for high standards of business conduct and the Board engaging with, and taking account of the interests of, stakeholders. The three key Board decisions outlined in this section (Empowering customers through technology and innovation, Growing wealth strategy and unlocking bancassurance potential and Delivering financial reporting at greater pace) illustrate this in practice.


	Empowering customers through technology and innovation

Board considerations:

In 2025, in line with the Group’s customer-focused strategy, the

Board considered initiatives aimed at accelerating and broadening

the Group’s digital transformation and deepening customer

relationships as well as simplifying customer interactions.

Board initiatives:

•In June, the Board approved the Consumer Duty annual report

and considered how good customer outcomes remain critical as

the Group focuses on customer experience and differentiation.

Throughout 2025, the Board received updates on co-servicing,

which enables customers to service products across our

brands seamlessly – whether in branch, online or when they need

extra support

•Customer differentiation was also the focus of executive

briefings to the Board in June and November on the Group’s

proposed acquisition of Curve, a London based fintech

operating an innovative digital wallet platform, with a view to

accelerating the Group’s digital wallet strategy and differentiate

customer experience

Future focus:

The Board is committed to supporting the Group’s strategy to deliver

market-leading digital experiences and empower its customers.

Lloyds Banking Group plc Annual Report and Accounts 2025


	Growing wealth strategy and unlocking bancassurance potential

Board considerations:

The Board has an ongoing commitment to the Group’s focus on the

customer, including through its wealth strategy and the offering of

personalised propositions to customers for everyday value and key

life events, both within Insurance, Pensions and Investments (IP&I)

and across the Group more broadly.

Board initiatives:

•In July, the Board approved the acquisition of the outstanding

interest in Schroders Personal Wealth (SPW), the wealth

management and advice business previously operated as a joint

venture with Schroders Group

•The Board engaged with the executive on the transaction’s

strategic rationale and the benefits for customers with SPW

subsequently rebranding as Lloyds Wealth

•In May and June, the Board considered the steps being taken

within IP&I to develop the Group’s bancassurance model and

enhance customer services

Future focus:

The Board will continue to support the executive to grow and

diversify revenue by strengthening bancassurance and transforming

the Group’s wider wealth business with a full advice proposition

available to mass affluent banking customers across brands as well

as to new customers.


	Delivering financial reporting at greater pace

Board considerations:

In 2025, the Board and its Audit Committee considered whether

the Group should move to preliminary reporting, reflecting the

Group’s strategic ambition to deliver at pace and enhance

transparency with stakeholders.

Board initiatives:

•In June, the Board and its Audit Committee considered the

strategic benefits of preliminary reporting which included earlier

market messaging and focusing senior management on driving

the organisation forwards earlier in 2026, as well as the risks,

such as audit limitations and initial increased implementation

workload for colleagues

•In July, the Board, upon recommendation from the Audit

Committee, approved the half year results announcement,

including disclosure related to the announcement of the

intention to start preliminary reporting at year end

Future focus:

The Board will monitor the impact of this changed approach to

financial reporting on stakeholders. Ongoing engagement with

shareholders, colleagues and external audit will remain a priority

for the Board.

Lloyds Banking Group plc Annual Report and Accounts 2025

Task Force on Climate-related Financial Disclosures (TCFD)

Creating a sustainable and inclusive future is core to our purpose

of Helping Britain Prosper. We report on sustainability matters

throughout this annual report and accounts (ARA), in particular

in the following sections: (i) Strategic report, pages 22 to 23

and 32 to 33; (ii) Sustainability review on pages 35 to 49;

(iii) Risk management on pages 150 to 152; (iv) Governance

pages 80 to 81 and (v) in the supplementary sustainability report .

We comply with the UKLR 6.6.6R(8) and Sections 414CA and

414CB of the UK Companies Act 2006. Our disclosures which

are presented consistent with the 2021 TCFD recommendations

and recommended disclosures across all four of the TCFD pillars:

strategy; governance; risk management; and metrics and targets,

requirements under Sections 414CA and 414CB have been

considered by cross-reference.

Additional detail on our progress against our metrics and targets

can be found in our sustainability report and sustainability

metrics data sheet . Our separate supplements ensure we

can provide a comprehensive response, that is presented in

a decision-useful manner for users of the reports.

In addition to the compliance below, in-scope entities within

our Insurance, Pensions and Investments business, which are

incorporated as part of Scottish Widows Group, are required

to report in compliance with FCA ESG Sourcebook Chapter 2

‘Disclosures on climate-related financial information’ (set out

via FCA PS21/24) reporting requirements for the period ending

31 December 2025. This additional compliance will be met

through Entity and Product level reporting to be published

on the Scottish Widows website in June 2026.

We will continue to assess and develop our disclosures against

the TCFD recommendations and recommended disclosures,

considering relevant TCFD guidance and materials along with

expected disclosure requirements such as UK Sustainability

Reporting Standards: SRS S1 ‘General requirements’ and

SRS S2 ‘Climate-related disclosures’.



	TCFD and Climate-related financial disclosures cross-reference table

Recommendations		Reference (ARA unless specified otherwise)
Strategy
A. Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term. (Companies Act 2006 – Sections 414CA and 414CB 2A (b) and (d))		Pages 39 to 41 Pages 44 to 47 Pages 150 to 152
B. Describe the impact of climate-related risks and opportunities on the organisation’s business, strategy and financial planning. (Companies Act 2006 – Sections 414CA and 414CB 2A (e))		Pages 39 to 41 Pages 42 to 47 Pages 150 to 152 Notes to financial statements Page 228 and pages 278 to 279
C. Describe the resilience of the organisation’s strategy, taking into consideration different climate- related scenarios, including a 2°C or lower scenario. (Companies Act 2006 – Sections 414CA and 414CB 2A (f))		Page 48 to 49 Pages 150 to 152 Page 228 and pages 278 to 279
Governance
A. Describe the Board’s oversight of climate-related risks and opportunities. (Companies Act 2006 – Sections 414CA and 414CB 2A (a))		Pages 80 to 81
B. Describe management’s role in assessing and managing climate-related risks and opportunities. (Companies Act 2006 – Sections 414CA and 414CB 2A (a))		Pages 80 to 81
Risk Management
A. Describe the organisation’s processes for identifying and assessing climate-related risks. (Companies Act 2006 – Sections 414CA and 414CB 2A (b)		Page 25 Pages 39 to 40 Pages 150 to 152
B. Describe the organisation’s processes for managing climate-related risks. (Companies Act 2006 – Sections 414CA and 414CB 2A (b))		Pages 39 to 40 Pages 150 to 152
C. Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s overall risk management. (Companies Act 2006 – Sections 414CA and 414CB 2A (c))		Pages 150 to 152
Metrics and Targets
A. Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process (Companies Act 2006 – Sections 414CA and 414CB 2A (h))		Pages 42 to 49, 110 and 122 Sustainability report pages 62 to 81 and 118 to 120
B. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. (Companies Act 2006 – Sections 414CA and 414CB 2A (h))		Pages 42 to 49 Sustainability report pages 62 to 81 and 118 to 120
C. Describe the targets used by the organisation to manage climate‑related risks and opportunities and performance against targets. (Companies Act 2006 – Sections 414CA and 414CB 2A (g))		Pages 42 to 49 Sustainability report pages 62 to 81 and 118 to 120

Lloyds Banking Group plc Annual Report and Accounts 2025

Non-financial and sustainability information statement

The Non-Financial Reporting requirements contained in Sections 414CA, 414CB and 414C(7)(b)(i)(iii) of the Companies Act 2006 are

addressed within this section. The table below signposts the information necessary to understand our Group’s development, performance

and position and the impact of our activity relating to environmental matters, our employees, social matters, our respect for human rights,

and anti-corruption and anti-bribery matters. We provide cross references to indicate in which part of the Group’s reporting the respective

requirements are embedded.



	Non-financial and sustainability information reference table

Statement		Information necessary to understand our Group and its impact, policies, due diligence and outcomes	Reference to the annual report and accounts
Business model		Our business model	Pages 06 to 09
		Our approach to sustainability materiality and value chain	Page 38
		Our strategy	Page 36
		Progress and performance based on key non-financial metrics	Pages 20 to 21 and 42 to 49
Principal risks		Risk overview including risk management framework	Pages 24 to 29
		Climate risk	Pages 25 and 150 to 152
		Economic crime risk	Pages 26 and 179
		Operational risk	Pages 27 and 195 to 197
		Conduct risk	Pages 26 and 153
Our stakeholders		Stakeholder engagement	Pages 22, 30 to 31 and 76 to 78
Our stakeholders		Further information on how we support our stakeholders is included within the Code of ethics and responsibility and internal colleague policies including Colleague policy1, Health and Safety policy1 and Speak Up policy1 which are summarised in our sustainability report
Climate and environmental sustainability		Supporting the UK transition and our progress on ambitions and targets	Pages 42 to 49
		Identification, assessment and management of climate risk	Pages 39 to 40 and 150 to 152
		Task Force on Climate-related Financial Disclosures (TCFD)	Page 32
		Climate-related financial disclosures (CFD)	Page 32
		Policies which support our approach to environmental sustainability include our sector statements During 2025, we recorded no material environmental incidents or regulatory enforcement actions and reduced operational greenhouse gas emissions year-over-year
Social matters		Social sustainability risk arises through operational, conduct and credit risk with identified risks and opportunities disclosed along with associated metrics	Pages 39 to 41
Social matters		Core to our purpose, our sustainability strategy identified four social sustainability focus areas, where we can make the biggest difference, while creating opportunities for our future growth. Further detail is included in the sustainability report	Pages 14 to 15, 22 to 23 and 36 to 38
Anti-bribery and corruption		The Group has a dedicated Economic Crime Prevention (ECP) function. The ECP policy sets out the minimum requirements to which all Group businesses must comply across anti-bribery and corruption (ABC); anti-money laundering and counterterrorist financing (AML); fraud; sanctions; and tax evasion. Economic crime is treated as a principal risk. During the year, no bribery or corruption incidents were substantiated, and 99% of in‑scope employees completed anti‑bribery training	Pages 26, 94 and 179
Anti-bribery and corruption		Further policies which support our approach include: Anti-bribery policy statement and Code of ethics and responsibility
Respect for human rights		The Group is committed to operating in accordance with internationally accepted human rights standards and with all relevant legislation including the UK Modern Slavery Act 2015. The Group’s approach to human rights is supported by several Group policies and programmes including: Our Code of Supplier Responsibility which sets out the key social, ethical and environmental values and behaviours that we want our suppliers to abide by. Human rights policy statement , Modern slavery and human trafficking statement and our colleague policy1, data privacy policy1, data ethics policy1 and information, cyber and physical security policy1 which has been summarised within the sustainability report During 2025, we had no substantiated reports of modern slavery across our business and supply chain, and strengthened controls through training and assurance, including continued rollout of our group-wide modern slavery module and executive/Board training.
		Topic is considered as part of conduct, economic crime and operational risk	Pages 25 to 27
		Activities to support our colleagues and promote Inclusion	Pages 22 to 23
Governance		Key Board discussions and decisions	Pages 30 to 31
Governance		Sustainability governance	Pages 80 to 81

1Certain Group policies, internal standards and guidelines are not published externally.

Lloyds Banking Group plc Annual Report and Accounts 2025

Viability statement and going concern

Viability statement

The directors have an obligation under the UK Corporate

Governance Code to state whether they believe the Company

and the Group will be able to continue in operation and meet their

liabilities as they fall due over a specified period determined by the

directors, taking account of the current position and the principal

risks of the Company and the Group.

In making this assessment, the directors have considered a wide

range of information, including:

•The principal risks and emerging and topical risks which could

impact the performance of the Group

•The 2022 Strategic Review which sets out the Group’s customer

and business strategy for the period from 2022 to 2026

•The Group’s operating plan which comprises detailed financial,

capital and funding projections together with an assessment

of relevant risk factors for the period from 2026 to 2028

Group, legal entities and divisional operating plans are produced

and subject to rigorous stress testing on an annual basis.

The planning process takes account of the Group’s business

objectives, the risks taken to seek to meet those objectives and

the controls in place to mitigate those risks to ensure they remain

within the Group’s overall risk appetite.

The Group’s annual planning process comprises the following

key stages:

•The Board reviews and agrees the Group’s strategy, risk appetite

and objectives in the context of the operating environment and

external market commitments

•The divisional teams develop their operating plans, ensuring

that they are in line with the Group’s strategy and risk appetite

•The financial projections and underlying assumptions in respect

of expected market and business changes, emerging and future

expected legal, accounting and regulatory changes, are subject

to rigorous review and challenge from both divisional and

Group executives

•In addition, the Board obtains independent assurance from the

Risk function over the alignment of the plan with Group strategy

and the Board’s risk appetite. This assessment performed by the

Risk function also identifies the key risks to delivery of the

Group’s operating plan

•The planning process is also underpinned by robust capital and

funding stress testing management policies and toolkits. These

allow the Group to assess compliance of the operating plan with

the Group's risk appetite

The scenarios used for stress testing are designed to consider

a range of plausible risks, vulnerabilities and severities, and take

account of the availability and likely effectiveness of mitigating

actions that could be taken by management to avoid or reduce the

impact or occurrence of the underlying risks. The Group conducts

internal stress testing and completes the PRA regulatory exercises.

In 2025, stress tests have considered a range of economic scenarios

covering multiple outlooks and economic paths, including differing

interest rates paths and a range of severity in other key economic

factors. Group stress results are segmented to provide insight,

inform risk appetite, and allow for development of mitigating

actions. In considering the likely effectiveness of such actions, the

conclusions of the Board’s regular monitoring and review of risk and

internal control systems, as discussed on pages 137 to 197, is taken

into account. Further information on stress testing and reverse

stress testing is provided on pages 142 and 143.

•Stress testing outputs are presented to the Board Risk

Committee for review and challenge. All regulatory exercises

are approved by the Board

•The final operating plan, Risk function assessment and the

results of the stress testing are presented to the Board for

approval. Once approved, the operating plan drives detailed

divisional and Group targets for the following year

The directors have specifically assessed the prospects of the

Company and the Group over the current plan period. The Board

considers that a three-year period continues to present a reasonable

degree of confidence over expected events and macroeconomic

assumptions, while still providing an appropriate longer-term

outlook. Information relevant to the assessment can be found in the

following sections of the annual report and accounts:

•The Group’s principal activities, business and operating models

and strategic direction are described in the strategic report on

pages 01 to 34

•Emerging and topical risks are disclosed on pages 28 and 29

•The principal risks, including the Group’s objectives, policies and

processes for managing credit, capital, liquidity and funding, are

provided in the risk management section on pages 137 to 197

•The Group’s approach to stress testing and reverse stress testing,

including both regulatory and internal stresses, is described on

pages 142 and 143

Based upon this assessment, the directors have a reasonable

expectation that the Company and the Group will be able to

continue in operation and meet their liabilities as they fall due

over the next three years to 31 December 2028.



	Going concern

	The going concern of the Company and the Group is dependent on successfully funding their respective balance sheets and maintaining adequate levels of capital. In order to satisfy themselves that the Company and the Group have adequate resources to continue to operate for the foreseeable future, the directors have reviewed the Group’s operating plan and its funding and capital positions, including a consideration of the implications of climate change.		The directors have also taken into account the impact of further stress scenarios as well as a number of other key dependencies which are set out in the risk management section under principal risks and uncertainties: funding and liquidity on pages 181 to 186 and capital position on pages 144 to 150. Additionally, the directors have considered the capital and funding projections of the Company. Accordingly, the directors conclude that the Company and the Group have adequate resources to continue in operational existence for a period of at least 12 months from the date of the approval of the financial statements and therefore it is appropriate to continue to adopt the going concern basis in preparing the accounts.

Lloyds Banking Group plc Annual Report and Accounts 2025

Sustainability review introduction

Charlie Nunn

Group Chief

Executive

Read full biography

The Group is committed to a purpose-driven strategy that

supports the needs of our customers, colleagues and communities,

while delivering long-term sustainable returns and creating value

for shareholders.

Access to quality and affordable housing

We are proud to play a leading role in the UK’s housing market,

working with communities, developers and local partners to

accelerate the delivery of quality, affordable homes for people who

need them most.

In 2025, we provided £17 billion to first-time buyers, supporting

business growth and helping 70,000 customers onto the property

ladder. Last year, we strengthened our mortgage offering with the

launch of ‘First Time Buyer Boost’, making an additional £5 billion

available to customers who may previously have missed out on

securing a mortgage. By making home ownership possible for

thousands more people, ‘Boost’ is helping customers realise their

ambitions of home ownership, while driving income growth in

a competitive market.

The Group has a long-standing commitment to support the social

housing sector and our financing is helping more people access

secure, affordable homes, while strengthening lending growth.

A brilliant example is our £100 million financing agreement with

the Sovereign Network Group, which will fund the retrofit of

4,500 social homes. This support will improve energy efficiency,

aiming to make these homes cost-effective, comfortable and

quality places to live.

Beyond championing the social housing sector, we are broadening

access to home ownership and making it easier to access new,

energy-efficient family homes. Through Lloyds Living, we now

operate a growing portfolio of over 5,450 professionally managed

homes, offering more rental and shared ownership options to

customers across the UK. Through our market-leading role in the UK’s

housing sector, we are successfully growing our business, while

helping more people move into quality homes and build their futures.

Empowering a prosperous future

As the UK’s only integrated financial services provider, we are deeply

committed to empowering our customers to achieve their financial

ambitions.

Since launching Ready‑Made Pensions in 2024, we’ve opened over

7,000 accounts, helping customers access simple, flexible ways to

build their retirement savings. Our Ready‑Made Investments are

empowering people to take control of their finances, with c.84,000

customers starting to invest since launch. With a market‑leading

fund charge, more of our customers’ money is invested directly into

their futures, with over £500 million invested to date. Both offerings

mean we’re supporting a growing customer base, while contributing

to an increase in other operating income through management fees.

We are using our extensive data and digital capabilities to

strengthen customers’ credit health and improve access to

borrowing. Over 500,000 customers improved their credit scores

every quarter last year, building resilience and confidence.

Our Benefits Calculator highlighted £93.3 million of support payable

to customers, and we paid £9.1 billion in interest payments in 2025,

supporting everyday resilience and deepening customer and

client relationships.

Supporting regional development

and communities

We are committed to supporting growth and creating opportunities

in regions and communities across the UK. In the North West, we

acted as mandate lead arranger for a £154 million debt commitment

to a critical carbon capture infrastructure project that creates 2,000

jobs, demonstrating how our finance delivers commercial growth and

regional development, while reducing emissions.

Last year, we supported the Community Development Finance sector

as it continues to scale. Our initial £43 million investment in 2024,

delivered through the £1 billion Regional Impact Fund, has since

supported over 370 regional businesses and helped unlock new

capital in local economies.

Our Lloyds Bank Foundations are another useful community

asset and we marked their 40th anniversary in 2025. Since the

Foundations were established in 1985, we have donated over

£800 million and countless hours of our colleagues’ time in support

of small and local charities across the UK. Beyond our Foundations,

our colleagues also spent more than 11,000 hours volunteering for

national homelessness charity Crisis, raising almost £5 million since

the start of our partnership in 2023. Our deep-rooted presence in UK

communities reflects the enduring impact of our charitable initiatives

and the strength of our commercial success, working together to

create lasting value for customers and communities.

Building an inclusive organisation

We are clear that our workforce needs to reflect the customers and

communities we serve. Over the past year, we have continued to

advance our 2030 inclusion ambitions, strengthening our focus on

increasing representation in executive roles. We remain committed

to removing barriers and providing opportunities for people to reach

their potential regardless of their socio-economic backgrounds. In

2025, our youth outreach programmes supported over 100,000

people across school, college and university, building essential skills

and strengthening the Group’s talent pipeline. Ensuring that

we build an inclusive workforce means we can attract – and retain –

the exceptional talent we need to deliver on our strategy and build

a business that meets evolving customer needs.

Supporting the UK transition

We continue to strengthen the resilience of our balance sheet and

investment portfolios by deploying capital to support the UK’s

transition. Since 2022, we have provided £70.9 billion of sustainable

finance and we have now invested £81.3 billion in climate-aware

strategies since 2020.

We are structuring new forms of finance that link institutional capital

to critical national infrastructure. One example is our support for the

first corporate issuance of a blue bond in sterling, co-coordinating

£250 million for London’s Thames Tideway Tunnel. Once completed,

we expect that the tunnel will reduce pollution, support the capital’s

long-term water resilience. It showcases how innovation in

sustainable finance can drive positive societal impact and robust

financial outcomes. Alongside this leadership in nature‑based

finance, we continue to play a critical role in strengthening the UK’s

energy security. Our support for major national projects, including

Sizewell C, reflects our commitment to backing large‑scale, clean

power that will help secure reliable, affordable energy for the UK.

These examples underline how we are supporting the long‑term

resilience of critical infrastructure, while unlocking significant

commercial growth opportunities aligned to the UK’s transition.

Continuing to deliver in 2026

We continue 2026 from a position of strength with a clear focus on

purposeful growth. By combining positive impact with sustainable,

long-term returns, we will continue to deliver on our purpose of

Helping Britain Prosper.

Lloyds Banking Group plc Annual Report and Accounts 2025



	>£93m of benefits highlighted as payable to customers since the launch of our Benefits Calculator



	Championing sustainable infrastructure finance The Group played a pivotal role in supporting Tideway’s issuance of the first sterling corporate blue bond by a UK corporate, raising £250 million to finance the final stages of London’s Thames Tideway Tunnel. This innovative financing accelerates the UK’s environmental goals by reducing sewage pollution spills in the River Thames by around 95%, while generating returns for investors and the Group. By connecting institutional capital to critical infrastructure, Lloyds Bank helps ensure long-term water resilience, supports local jobs, and fosters a cleaner environment, demonstrating how sustainable finance can deliver both positive societal impact and robust financial outcomes for the UK.



	Group financing secures regional water supply The Haweswater Aqueduct Resilience Programme (HARP) demonstrates how collaboration across the Group delivers value for customers and sustainable returns. By leveraging expertise from multiple teams, the Group committed £100 million in long-term financing, as part of a £3 billion deal, a project to safeguard the daily supply of clean drinking water for up to 2.5 million people across Cumbria, Lancashire and Greater Manchester. The project will create up to 1,200 local jobs, and channels annuity customers’ investments into impactful projects. The result is a model that benefits communities, facilitates competitive pricing and generates sustainable returns.

Partnerships to

deliver more social

and supported

housing

In 2025, the Group partnered with

Homewards, a programme led by HRH The

Prince of Wales and The Royal Foundation,

to help make homelessness rare, brief and

unrepeated in six locations across the UK.

Aligned with the Group’s purpose of Helping

Britain Prosper, we committed £50 million

in new lending to support small and

medium-sized housing providers and

charities in the Homewards locations

and Liverpool, including those offering

wrap-around support for individuals

with complex needs.

This partnership will combine funding

with sector expertise, increasing access

to good quality housing.



	c.1,800 colleagues enrolled in new reskilling pathways to develop future skills

SusRev_OurPurposeInAction_LinkToStrategy_Partnerships.gif

Lloyds Banking Group plc Annual Report and Accounts 2025

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 creates 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.

Our customers, clients and shareholders input into our operations

by trusting us with their savings and investments. We, in turn, ensure

that capital is allocated efficiently to support borrowing needs and

deliver value for those we serve.

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 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.

We 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 that it should be reported. We

also consider 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

Our material topics list considers 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 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

Our materiality review and impact analysis was initially undertaken

in line with the UNEP FI Principles for Responsible Banking and

among other inputs, the UN Sustainability Development Goals

(SDGs) in 2020 and is refreshed and reviewed annually. In 2025,

we reviewed our commercial exposures and operations to refresh

both our positive and negative impacts and sustainability‑related

risks and opportunities. We confirmed our analysis and advanced

our approach to financial materiality, integrating sustainability

considerations into existing materiality processes and tools.

Identifying and assessing our material sustainability risks 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 •Biodiversity and nature •Climate change and transition •Cyber security and data privacy •Diversity, equity and inclusion		•Financial crime •Financial inclusion and resilience •Governance and conduct •Health and wellbeing of colleagues •Human rights •Regional inequalities

	Further details on these material topics and our responses to managing these areas can be found on page 2 in our sustainability report

Future developments to our materiality approach

We are leveraging the knowledge gained from our understanding

of our value chain and material topics to enhance our materiality

approach in readiness for upcoming reporting standards. The Group

is reviewing the regulatory landscape and preparing for readiness to

report in alignment with expected UK government endorsement of

UK Sustainability Reporting Standards. Our current expectation is

that the Group will be required to report under EU CSRD for the

financial year 2028.

Lloyds Banking Group plc Annual Report and Accounts 2025

Sustainability risks and opportunities

Integrating material topics into risk management

Our material topics have helped inform our understanding

of the Group’s key sustainability risks and opportunities,

across a range of Environmental, Social and Governance topics.

Identifying and assessing our material sustainability topics and

associated risks and opportunities allows us to align them to, 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.

Sustainability risks

As shown in the table on the next page, the impacts from

sustainability risks largely manifest through other principal risks that

the Group faces (including credit, conduct and operational risks).

Our approach to principal risk identification, assessment and

management as part of our risk management framework can

be found on page 141. For sustainability-related risks our ambition

is to embed consideration of these risks into our wider risk

management processes.

Risks covering social and governance matters are considered

in line with the material topics we have identified. In addition,

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

Consideration of sustainability-related risks within our risk

management framework continues to develop, with our approach

most mature in our established approach to ESG credit risk

management. Further details on this process can be found within

our sustainability report .

We will continue to enhance our overall approach to credit and

other risks as part of further development of the Group’s approach

to risk management and principal risks we face.

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, as detailed on pages 80

to 81.

Through this work we have identified opportunities aligned to our

purpose pillars outlined on page 14, 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. 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.



		Purpose in action

Supporting our agricultural

clients to transition

Moor Farm, a 154-hectare enterprise in Baschurch, Shropshire,

demonstrates how sustainability and profitability can work

hand in hand.

After experiencing financial challenges in the cattle business,

they adopted regenerative practices inspired by Gabe Brown.

Key actions included eliminating ad-lib feed, saving £30,000

annually and transitioning to a grass-based system with

strip grazing.

Participation in the Soil Association Exchange baselining

audit, funded by Lloyds Bank, enables Moor Farm to measure

sustainability performance, track progress, and make targeted

improvements. Adoption of regenerative practices, quantified

through the SAX tool, opens access to premium markets. With

demand for ethical, low-carbon food rising, the farm is well

positioned to capture new revenue streams. Moor Farm

illustrates how regenerative agriculture can deliver cost savings,

climate resilience, and market differentiation, offering significant

potential for profitability and sustainability when scaled across

the sector.

We are committed to supporting customers on their transition

journeys, recognising that sustainable business practices are

essential for long-term prosperity.

Lloyds Banking Group plc Annual Report and Accounts 2025

Sustainability risks and opportunities continued


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

Deterioration in customers’ creditworthiness, affordability or valuations of assets and investments from the transition towards a low-carbon economy and/or the impact of extreme weather events or natural hazards		Credit, Market		Short, Medium, Long	Elements of climate change incorporated into annual ECL assessment, see page 278, along with a range of quantitative metrics across portfolios, for example, EPC ratings and flood risk for residential mortgages. Qualitative updates on nature, although measurement capability is still evolving	Climate change, Biodiversity and nature


General insurance – greater losses from higher volume of home insurance claims		Insurance underwriting		Short, Medium, Long	Defined risk appetite. For further details of insurance risk and policy, please see page 133 of our sustainability report	Climate change


Life insurance – changes in mortality, morbidity and longevity risks driven by climate and environment, such as changes in air quality, temperature and vector-borne diseases		Insurance underwriting		Short, Medium, Long	Deaths, critical illness, sickness inception and recovery rates, policy lapses and paid-up rates for material business lines are monitored and managed. Pricing and product terms and conditions are designed to reduce risk	Climate change, Biodiversity and nature


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


Failure to deliver on our voluntary sustainability commitments including supporting the transition to net zero		Compliance		Short, Medium, Long	Progress against our emission reduction targets and sustainable lending and investments. For further details please see pages 43 to 47	Climate change, Governance and conduct


Material errors in external sustainability reporting, or failure to meet the relevant disclosure requirements		Operational		Short, Medium	Qualitative updates provided to Group executive committees. Further details can be found on pages 80 to 81	Climate change, Diversity, equity and inclusion, Human rights


External perception of greenwashing in the Group’s disclosures, marketing or product communications		Conduct		Short, Medium	Qualitative updates as part of executive governance on the Group’s communications strategy and associated policy framework	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 92	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 97	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 Board Risk Committee see page 81	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 22 to 23	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 97	Financial inclusion and resilience, Health and wellbeing of colleagues


Losses incurred by our customers and organisation due to economic crime.		Economic crime		Short, Medium	Risks monitored through regular updates to executive committees, key indicators and risk appetite reviews. See page 179	Financial crime


Ineffective technology implementation could result in service disruption due to internal failure or cyber-attack, threatening business continuity and customer experience		Operational		Short, Medium, Long	Qualitative updates given to Responsible Business Committee see page 81	Cyber security and data privacy, Governance and conduct

Lloyds Banking Group plc Annual Report and Accounts 2025


	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 page 70 of our sustainability report	Climate change


Providing finance to support investment in climate-related technology and solutions		Market, Climate, Credit		Short, Medium	Our Commercial Banking sustainable lending target see page 45	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 45	Climate change, Regional inequalities


Increasing consumer preference for sustainable products		Market		Short, Medium	Our Scottish Widows Lifetime Investments default proposition for workplace customers includes funds that integrate ESG-tilts and apply our exclusions policy	Climate change, Regional inequalities, Financial inclusion and resilience


Develop industry partnerships to help drive sustainable, low carbon and nature positive solutions for our customers to transition		Conduct, Climate		Short, Medium	Our sustainable lending targets. For further details please see page 45. For details on our partnerships that support the UK transition see our website	Climate change, Biodiversity and nature, Regional inequalities


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


Transforming the 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 inclusion performance see page 23 and support provided to businesses owned by Black, disabled and women entrepreneurs, see page 28 of our sustainability report	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 81	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 37 to 47 of our sustainability report	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 financing to the social housing sector. See page 14 of our sustainability report	Regional inequalities, Financial inclusion and resilience


Develop products that support customer lifestyle needs (e.g. pension products; income protection) so the Group can support our customers to plan for the future, and grow our customer base and assets under management		Conduct, Operational		Short, Medium	Our workplace pension, Ready-Made Pension, Ready-Made Investments and insurance offerings. See pages 31 to 32 of our sustainability report	Financial inclusion and resilience



£633m	£3.2bn	>84,000
financing for Sizewell C energy security project	of new finance supporting social housing in 2025	customers empowered through our ready- made investments

Lloyds Banking Group plc Annual Report and Accounts 2025

Supporting the transition to net zero

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 operating plan, primarily across

four key areas: Bank financed emissions, Scottish Widows

investment carbon intensity, own operations and supply chain.

Our 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 support the UK transition.

How we monitor and report sustainability-related matters:

•We forecast Bank financed emissions to 2030, including

high-carbon sectors, own operations, and, since 2025,

the Scottish Widows carbon investment footprint

•Internally, we report quarterly on sustainable lending and

investments, and regularly on financed emissions, with 2025

seeing the inclusion of wider social sustainability metrics;

these processes inform executive remuneration and Board

risk appetite

•The majority of our sustainability costs incurred by the Group

form part of business-as-usual activities. In addition, finance

tracks specific project-related sustainability investments across

climate, nature and social initiatives, engaging directly with

business units to ensure strategic alignment, with around

c.£28 million dedicated in 2025 to support customer transition,

alongside ongoing activities

•Financial statement preparation considers climate change

impacts on the Group’s financial position, with no material

impact forecasted to expected credit loss, see page 278


	Progress in reduction of our Group’s emissions (MtCO2e)1

Our environmental strategy

Our environmental strategy supports growth and balance sheet

resilience by supporting our customers, clients and the broader

economy transition. We do this by managing our impacts, mitigating

our risks, and seeking growth opportunities through financing and

investment activities.

Our strategy is based on understanding the changes and solutions

needed to enable the transition, the associated opportunities, risks and

dependencies; supported by scenario analysis. It is supported by our

engagement with clients on Client Transition Plans, investees through

our stewardship approach and suppliers helping us to understand what

this means in reality for them and the wider economy.

Recognising the global shortfall in the pace of transition, our

systems-led approach identifies material risks and opportunities,

prioritising actions to unlock progress. We address interdependencies

across sectors and extend our focus beyond climate to nature and

social considerations, aiming for a Just Transition, with the actions

we take closely aligning with our purpose pillars.

Our emissions reduction ambitions

The Group have set four 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. We recognise 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. The progress we have made

against our ambitions are shown within each section.

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 . The makeup of our lending portfolio means our

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

our residential mortgages, real estate sector and agriculture. The scale

of our emissions varies across different areas of the business.

A breakdown of our Group’s absolute emissions is shown to the right.

What this looks like for the Group

The scale of our current emissions varies across

different areas of the business.

Bank

financed

Baseline year2

MtCO2e

29.2

2024 MtCO2e

18.6

Baseline year2

MtCO2e

12.5

Scottish

Widows

financed3

2024 MtCO2e

8.8

Baseline year2

MtCO2e

0.53

Supply

chain4

2024/25

0.51

MtCO2e

Own

operations

Baseline year2

MtCO2e

0.18

2024/25

0.11

MtCO2e

1Based on 2024 data available for Bank and Scottish Widows financed emissions Scope 1

and 2 emissions only. 2024/25 period end data for supply chain emissions and own

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

2Baseline 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.

3Scottish Widows ambition is intensity based for details on progress see page 45. The

difference to the amount shown in the diagram is due to rounding differences.

4Supply chain emissions are calculated from supplier spend totalling £4.4 billion (net of VAT).

In addition there is a further £5.7 billion (gross spend) spread across other business areas.

For further details on our methodology see sustainability metrics basis of reporting .

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 2024 data available for Bank and Scottish Widows financed emissions Scope 1

and 2 emissions only. 2024/25 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 £4.4 billion (net of

VAT). In addition there is a further £5.7 billion (including VAT) spread across other business

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

2025.

Further details on our methodology see sustainability metrics basis of reporting 2025 .

Lloyds Banking Group plc Annual Report and Accounts 2025



	Bank Our ambition Work with customers, government and the market to help reduce the carbon emissions we finance by more than 50% by 2030 on the path to net zero by 2050 or sooner. 1From a 2018 baseline, covering Scope 1 and 2 emissions.

Our latest estimate shows a 36% reduction in our Bank financed

emissions from our 2018 baseline of 29.2 MtCO2e.

Our net zero ambition was set in 2020 and informed by the

UK CCC’s assessment then of UK sectoral emissions reductions

pathways. While we have made progress to date, achieving

this ambition depends on how quickly the underlying sectors

transition given the challenges and external dependencies

that exist in many areas of the economy. These challenges

and dependencies are related to policy and regulatory support,

market readiness and public awareness, technology availability

and infrastructure, supply chains and workforce skills and grid

decarbonisation. We explain specific dependencies by system

in our transition plan, see our sustainability report .

We are committed to supporting clients and the wider economy

through this transition, but variability in policy, technology

deployment and market conditions will influence the outcomes

we are able to achieve.

2018 Baseline

Our actions

Our overall Bank financed emissions reduction ambition is

supported by ten 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.


Sector target summary
System and targets1	Baseline year of target	Target baseline2	2024 Target progress	Divergence from pathway3
Greening the built environment
UK mortgages – 35% reduction in emissions intensity to 30kgCO2e/m2 by 2030	2020	46kgCO2e/m2	42kgCO2e/m2	2.0%
Commercial and residential real estate (C&RRE) – 43% reduction in emissions intensity to 22kgCO2e/ m2 by 2030	2021	38kgCO2e/m2	34kgCO2e/m2	5.6%
Low carbon transport
Retail motor (cars and LCVs) – 48% reduction in emissions intensity to 82gCO2e/km by 2030	2018	157gCO2e/km	132gCO2e/km	(1.8%)
Road passenger transport – 47% reduction in emissions intensity to 67gCO2e/pkm by 2030	2019	125gCO2e/pkm	109gCO2e/pkm	0.6%
Automotive (OEMs) – 47% reduction in emissions intensity to 131gCO2e/vkm by 2030	2020	246gCO2e/vkm	234gCO2e/vkm	18.7%
Aviation – 31% reduction in emissions intensity to 788gCO2e/rtk by 2030	2019	1,143gCO2e/rtk	743gCO2e/rtk	(24.4)%
Sustainable farming and food
Agriculture – 23% reduction of absolute emissions to 5.1MtCO2e by 2030	2021	6.6MtCO2e	5.4MtCO2e	(13.3)%
Energy transition
Oil and gas – 50% reduction in absolute emissions to 3.6MtCO2e by 2030	2019	7.2MtCO2e	1.6MtCO2e	(59.3)%
Power generation – 81% reduction in emissions intensity to 51gCO2e/kWh by 2030	2020	264gCO2e/kWh	6gCO2e/kWh	(96.4)%
Thermal coal – Full exit of thermal coal power in the UK by 2023. 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 2025 available at sustainability downloads . 2C&RRE, Retail motor, Road passenger transport, Automotive (OEMs), Aviation, Agriculture, Power and Oil and gas baselines have been updated due to methodology changes, correction of misstatements due to error and revised client data. 3Shows divergence between 2024 actual and 2024 reference pathway emission intensity. Arrow up – performance for 2024 ahead of reference pathway. Arrow down – performance for 2024 behind reference pathway. Retail motor divergence is based on divergence from scenario pathway as no reference pathway is available.

Lloyds Banking Group plc Annual Report and Accounts 2025

Supporting the transition to net zero continued

Overview of decarbonising by system

As part of our planning process, we forecast our Bank financed

emissions to 2030 for our priority sector targets, comparing this

to our 2030 target outcome. Within the sustainability report our

progress updates include insights on the key risks, dependencies and

progress on achieving our 2030 targets. For further details please

see individual sector updates within our sustainability report .

Energy

Energy contributes to 19.2%1,2,3 of UK emissions, and makes up 1.6%

of the Group’s Bank financed emissions. This system enables the

decarbonisation of society and other systems or sectors such as the

electrification of passenger transport or domestic heating.

To support the transition of this system our activities include:

•Continuing to engage with clients on their net zero transition,

reviewing and considering their transition-related targets,

commitments and progress

•Aligning current and future growth strategy to the UK

government’s Clean Power 2030 ambition, in order to continue

playing a role in the transition

Greening the built environment

Contributing to 25.1%1,2 of UK emissions and 26.3% of the Group’s

Bank financed emissions the built environment touches a number of

areas across the Group, including our residential mortgages portfolio

and our commercial real estate clients.

The energy system is intrinsically linked to decarbonisation of the

built environment with decarbonisation of electricity, a critical

enabler alongside a switch away from gas boilers to lower carbon

heating alternatives.

To support the transition of this system our activities include:

•Continuing to enhance data capability across the system to

understand risks and impacts and target actions effectively

•Identifying finance models to support customers and make

retrofit affordable

•Enhancing customer education to understand options available

•Encouraging development of policy frameworks to support

retrofitting at scale

•Unlocking skills through our participation in industry-leading

skills and diveristy initiatives

Low carbon transport

Surface transport is the highest emitting sector in the UK,

accounting for 23.2%1,2 of total emissions and 15.1% of the Bank’s

financed emissions. Our low carbon transport system addresses

transport by road and by air, with surface transport the highest

emitting sector in the UK.

To support the transition of this system our activities include:

•Considering innovative financing models, such as cashback

incentives, to encourage customer uptake of low carbon

transport, with the Group financing 1 in 8 electric vehicles

on UK roads

•Using data to highlight benefits to customers of switching

to low carbon vehicles

•Facilitating the move to greener vehicles by considering support

for the required support infrastructure and associated new

financing opportunities

Sustainable farming and food

Responsible for 12.4%1,2 of UK emissions and 29.0% of Bank financed

emissions. Our system addresses primary agriculture and the food

value chain and plays an important role in ensuring food security

in the UK.

To support the transition of this system our activities include:

•Articulating the challenges through policy engagement with

government and industry bodies

•Investing in tools that will support our customers, including

collaborating with Soil Association Exchange and Finance Earth

to pilot new financing models that reward farmers for prioritising

environmental outcomes

•Engaging with our most material food, drink and retail clients

though our Client Transition Plan assessments for the sector

•Launching the Agriculture Transition Finance loan to help

farmers adopt regenerative practices

1Sourced from Department for Energy Security and Net Zero – 2023 UK greenhouse

gas emissions.

2UK emissions from 2023, including energy supply were 96.6MtCO2e for built

environment, 89.1MtCO2e for Passenger Car, Electric Vehicle, Buses and Light Duty

Vehicles, and aviation transport and 47.7MtCO2e for sustainable farming and food.

Total UK emissions from 2023, including energy supply where 385.0MtCO2e for the

entire UK.

3UK emissions from energy supply in 2023 were 74.0MtCO2e. Emissions for the Energy

transition system relate to UK energy supply emissions including emissions from power

generation and fuel supply.

Lloyds Banking Group plc Annual Report and Accounts 2025



	Sustainable financing and investment targets1 We have established sustainable finance and investment targets aligned to our core business areas.

Since 2022 our cumulative sustainable lending is £70.9 billion

covering our Commercial Banking, Motor and Mortgages

businesses. Our active targets for these areas are £30 billion

sustainable finance for Commercial Banking customers by the

end of 2026, £10 billion of financing for electric vehicles and

£11 billion of mortgage lending for EPC A and B rated properties

both by the end of 2027. We achieved our original target to

invest in climate-aware strategies at the end of 2024. At year

end 2025 we have £81.3 billion invested in climate-aware

strategies. This is a significant rise compared to the prior period,

driven by the launch of our new workplace proposition, Scottish

Widows Lifetime Investment, which includes a higher proportion

of climate-aware ESG-tilted investment strategies.


	Our Sustainable finance and investment targets


	Group-wide sustainable finance Commercial Banking1,2,3


			Total £45bn (cumulative target)
			Total £45bn (cumulative target)
	Mortgages1,4		£40.3bn Current progress





			Total £21bn (cumulative target)
			Total £21bn (cumulative target)
	Motor1,5		£18.5bn Current progress





			Total £18bn (cumulative target)
			Total £18bn (cumulative target)
			£12.1bn Current progress



	Total sustainable finance achieved since 2022		£70.9bn
			£70.9bn


l	Performance against previous target	Target outperformance
l	Performance against current target	Target


		Target


	2022	£15bn	t £15.8bn

	2024			t £24.5bn £30bn
Progress (£bn lending)				2026 target


		Target


	2022			£10bn	t £13.3bn

	2025		t £5.3bn	£11bn
Progress (£bn lending)				2027 target

Target

2022

£8bn

t £9.4bn

2025

t £2.8bn

£10bn

Progress (£bn lending)

2027 target


	Scottish Widows6
	Discretionary investment in climate-aware strategies		£81.3bn
	Discretionary investment in climate-aware strategies		£81.3bn

1As defined within the Sustainable Financing Framework available in our sustainability downloads

2The new Commercial Banking target (1 January 2024 onwards) relates to both Corporate and Institutional Banking customers and Business and Commercial Banking customers. From 1

January 2022 to 31 December 2023 the target applied to corporate and institutional customers only, and was measured against the criteria set out in the 2023 Sustainable Financing

Framework.

3Includes £0.6bn lending to SMEs located in the most socio-economically disadvantaged areas in the UK and to female-led businesses, both of which form part of the social eligibility

criteria, included for the first time in 2025.

4New mortgage lending on UK (excluding Channel Islands) residential property that meets an EPC rating of B or higher. The target includes remortgages but excludes further advances.

£18.5 billion covers the period from January 2022 to September 2025. £5.3 billion was achieved from 1 January 2025 to 30 September 2025. There are rounding differences between the

cumulative total and the individual target positions.

5From 1 January 2025 the new target includes new lending advances and operating leases for EVs; includes cars and vans. From 1 January 2022 to 31 December 2024 the target covered

EVs and plug-in hybrid vehicles new lending advances for Black Horse and operating leases for Lex Autolease (gross) and operating leases for Tusker (gross, post-acquisition by the

Group (February 2023)); includes cars and vans. There are rounding differences between the cumulative total and the individual target positions.

6This 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.

SusRev_ScottishWiddows_SupplyChain_NetTransitionBorder.gif

Lloyds Banking Group plc Annual Report and Accounts 2025

Supporting the transition to net zero continued



	Scottish Widows Our ambition Achieving net zero emissions across our investment portfolio by 2050, with the interim target of halving our carbon footprint by 2030.

	To support our ambition we 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
tCO2e/£m invested
	2024	20234	Baseline4
Carbon footprint (where data is available) (tCO2e/£m)	55.2	64.7	116.1
1Climate-aware investment strategies: This refers to funds that have a focus on investment in companies that are either adapting their businesses 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 2025 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 2024 was 55.2 tCO2e/£m against a 2019 baseline of 116.1 tCO2e/£m. 4The metrics for 2019 and 2023 have not been restated in the current period.

Our Scottish Widows Group 2024 carbon footprint was

55.2 tCO2e/£m, down from our 2019 baseline of 116.1 tCO2e/£m,

which represents a 52% decrease. Whilst financed emissions

continued to decline over 2024, the more significant driver of the

fall in footprint was the rise in the market value of the investment

portfolio in line with market performance over the year. We consider

the long-term trend of our carbon footprint to avoid the impact of

short-term market volatility on results and decision making.

We achieved our original target to invest in climate-aware

strategies at the end of 2024. At year end 2025 we have

£81.3 billion invested in climate-aware strategies. This is a

significant rise from what we’ve already achieved, driven by

the launch of our new workplace proposition, Scottish Widows

Lifetime Investment, which includes a higher proportion of

climate-aware ESG-tilted investment strategies.

Our updated transition plan – The Road to 2030 and Beyond –

was released in October 2025 and reaffirms our commitment

to investing for a net zero by 2050 transition that delivers good

customer outcomes. In this new plan, we detail how we invest and

influence to drive the transition, and monitor our progress. The

Plan shifts focus from just looking at portfolio decarbonisation

towards enabling real-world emissions reduction and delivering

resilient, responsible investment outcomes for customers.

Key areas of focus include:

•Investing in climate leaders that are aligned to the goals of the Paris

Agreement, and influence climate laggards that are not aligned

•Seek new climate and nature solutions opportunities,

particularly through private markets

•Take a holistic, systems-level approach to net zero that

connects climate, nature and social issues

Further details on this activity is included on pages 112-113 in our

sustainability report .



	Supply chain Our ambition Reduce our supply chain emissions by 50% by 2030, on a path to net zero by 20501.


Our progress
tCO2e
	Current year 2024/25	Restated2 2023/24	Restated2 baseline year 2021/22
Scope 3 supply chain emissions GHG Protocol Categories 1,2,4 and 8	511,909	504,299	530,621
1From a 2021/22 baseline. 2Our baseline and prior period comparative were restated due to methodology changes.

For the period, October 2024 to September 2025, our emissions

are calculated from supplier spend totalling £4.4 billion (net of

VAT). This represents an 11% increase in spend compared to our

baseline year, with absolute emissions decreasing by 4%, and

emissions intensity by 13%.

Whilst we have seen a reduction in emissions, progress has

been impacted by an increase in category 2 emissions reflecting

the Group’s investment in our new data centre, as well as capital

expenditure to maintain and transform our office and branch

network. In addition, an increase in category 4 emissions primarily

due to increased spend with a single supplier. The pace of

decarbonisation by our supply chain also plays a factor,

emphasising the need for collective progress.

The calculation of our category 2 and category 4 emissions

relies predominantly on less accurate calculation methodologies.

These activities are also more carbon intensive. Whilst we expect

this spend to decrease as our investment programme concludes,

we will continue to encourage our key suppliers to disclose their

full scope of material emissions and collaborate with them

through our Emerald Standard programme. This year, we have

had direct engagement with 170 suppliers who make the biggest

contribution to our supply chain emissions.

In October 2025, Comprehensive Environmental Data Archive

(CEDA) released an update to carbon emissions factors for 2023

onwards. As a result, we have restated baseline year + 1 and

baseline year + 2.

To maintain consistency and comparability between our

disclosures, we also re-aligned some of our previous CEDA

mappings based upon improved understanding of descriptions

and corrected immaterial findings identified in prior years. These

changes have been applied retrospectively, to our baseline year,

to ensure our data reflects the most accurate and up-to-date

information available.

Additional details on our supply chain emissions and our Emerald

Standard are included within our sustainability report .

Lloyds Banking Group plc Annual Report and Accounts 2025



	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% by 20301 •Reduce total energy consumption across our operations by 50% by 20301 •Maintain travel-related carbon emissions below 50%1,2 •Zero waste by 2030 (includes our legacy waste reduction pledge)3 •Water neutrality by 20304


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% by 2025 from a 2014/2015 baseline. Zero waste is defined as 90% diversion from landfill and incineration. 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.

2018/19 Baseline

Net Zero

Our actions

We continue to make strong progress against our ambition and

pledges. We recognise that in order to maintain progress, we will

need to keep investing in our buildings, as well as supporting

colleagues in the transition towards a greener future.

We continued reducing our carbon emissions associated with

heating fuel across our branches through a targeted programme

to remove gas burning appliances. This year several branches

were assessed for gas removal, with four buildings having

their gas boilers replaced with more carbon-friendly electric

heating systems.

We will continue rolling out our heating decarbonisation

programme across the branch estate. To reduce our reliance

on grid electricity, we will investigate suitable locations for

the installation of solar arrays and take action on these

where suitable.

The Group promotes sustainable travel through our sustainable

car scheme and refreshed travel and expenses colleague

guidance. We have continued our activities this year to provide

our colleagues with more sustainable travel choices. To increase

awareness of the sustainable travel options available to

colleagues, we hosted a series of sustainable travel roadshows

including virtual lunch and learn sessions for liftshare and cycle

to work schemes.

Further details of progress against our operation pledges

can be found within our sustainability report .

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 2024 to 30 September 2025.

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, upstream transportation and

distribution and upstream leased assets (category 1, 2, 4 and 8) and

investments (category 15), these figures are included in our supply

chain and financed emissions reporting shown on pages 43 to 46

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

is provided in our sustainability metrics basis of reporting 2025

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 dedicated cooling,

aside from that provided through heat networks for its own use.

We are not aware of any other material sources of omissions from

our reporting.


	Intensity ratio


	October 2024 to September 2025	October 2023 to September 2024	October 2022 to September 20231
GHG emissions (CO2e) per £m of underlying income (location based)	8.4	10.2	9.8
GHG emissions (CO2e) per £m of underlying income (market based)	6.2	7.2	6.8

Our overall location-based carbon emissions2 were 154,198 tonnes

CO2e; an 11.5% decrease year-on-year. While our overall market-

based3 carbon emissions were 112,750 tonnes CO2e; an 8.7% decrease

since 2023/24. Group energy consumption (electricity and gas)

has continued to reduce in line with reduction in the number of

properties, extensive investment in energy efficiency across our

buildings and adaptations; this has been offset by an increase in our

emissions from business travel with the Group drawing more select

skills from the global market. The operating model evolution has

impacted our carbon emissions through a need for increased

international travel by our colleagues.

1Intensities have been restated for 2022/23 and 2023/24 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.

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

2, 4, 8 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.

Lloyds Banking Group plc Annual Report and Accounts 2025

Supporting the transition to net zero continued


	Carbon emissions (tonnes CO2e)


	October 2024 to September 2025 tonnes CO2e	October 2023 to September 2024 tonnes CO2e4	October 2022 to September 2023 tonnesCO2e4
Total tCO2e (location based)	154,198	174,230	176,372
Total tCO2e (market based)	112,750	123,449	122,616
Total Scope 1 and 2 (location based)	60,537	70,825	75,508
Of which: UK Scope 1 and 2 (location based)	57,229	69,055	74,735
Total Scope 1 and 2 (market based)	19,089	20,044	21,751
Of which: UK Scope 1 and 2 (market based)	18,946	19,881	21,541
Total Scope 1	19,084	20,040	21,740
Total Scope 2 (market based)	5	4	11
Of which: Electricity	–	–	–
Total Scope 2 (location based)	41,453	50,785	53,768
Total Scope 3	93,660	103,405	100,865

4Metrics have been restated for 2022/23 and 2023/24 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 2021/22 to 2024/25 is

available in our sustainability metrics datasheet 2025 .


	Global energy use (kWhs)


	October 2024 to September 2025 kWhs	October 2023 to September 2024 kWhs1	October 2022 to September 2023 kWhs1
Total global energy use	297,278,022	332,775,377	362,706,349
Of which: UK energy use	290,342,633	327,700,875	358,791,923
Total building energy	279,207,852	313,952,935	344,118,916
Total Company owned vehicle energy	6,502,390	8,704,843	10,108,961
Total grey fleet2 vehicle energy	4,632,390	5,043,096	4,564,047

1Restated data since 2022/23 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.

Energy efficiency

We have continued our efforts to reduce our energy consumption

through the delivery of energy efficiency project works. Our

connected energy management contract with Mitie has produced

a combined energy reduction of 4,751,980 kWhs across 29 sites. This

year the programme focused on ensuring our building management

systems controlled our internal environments appropriately and

reduce energy waste through plant overrides.



	Assessing our resilience to climate risk The risks associated with climate change and the transition to a low carbon economy can potentially expose the Group to financial losses and therefore present an important consideration for the resilience of the Group’s strategy. Our Assessment for 2025 continues to support our view that our strategy remains resilient to the challenges of climate risk.

We continue to review our strategy to support the transition to net

zero to ensure it captures our current view of potential risks and

opportunities, as reflected in the previous sections.

To inform our latest assessment of the resilience of the Group’s

strategy we have:

•Updated our understanding of 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

•Completed additional analysis to understand the potential

impacts from these risks if they were to occur

Areas at greater risk

Understanding the potential impact of climate risk is initially

informed by identifying which areas of the Group’s portfolios could

be affected. We assess both physical and transition risk, noting that

our physical risk assessment is currently more focused on our

mortgage and home insurance books.

Climate change can increase the likelihood and severity of flood

events, which could negatively impact property valuations and

increase insurance costs. Our assessment tells us that approximately

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 the present

day time horizon. 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 portfolios,

we have undertaken further analysis to inform which sectors are

most exposed to climate risk using different models and scenarios,

including bespoke scenarios and the Network for Greening the

Financial System (NGFS) scenarios.

Lloyds Banking Group plc Annual Report and Accounts 2025

Our latest analysis has assessed the potential financial impacts

across key sectors under a range of scenarios, including the NGFS

Net Zero 2050 and Delayed Transition scenarios. Our analysis here

however focuses on the Net Zero 2050 scenario as this analysis

describes the ideal outcome that the Group’s net zero strategy and

targets are aiming for. This level of analysis is focused on identifying

where more detailed assessment is required. Recent flaws

acknowledged in the NGFS scenarios have been reviewed and

mitigated where necessary within assessments using these scenarios,

including as part of ECL assessment (see Note 21, page 278).

We recognise the actions required under these scenarios’ assumptions

now tend to generate increased transition risks compared to previous

iterations, reflecting the lack of sufficient progress to date and

external dependencies such as government policy.

Our analysis shows the sectors most impacted in the Net Zero 2050

scenario include coal mining, oil and gas, transport, automotive and

utilities. These remain broadly unchanged from last year, noting

higher impacts observed in the automotive sector, driven by the

lower projections of EV uptake. Further detail is provided on analysis

for our investments portfolio in the sustainability report .

A summary of bank lending to sectors with increased climate risk

is shown in the table on page 78 of our sustainability report .

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

exposures are in the residential mortgages and real estate sector,

although short-term risks are expected to be limited based on the

current policy landscape. Our exposure to other sectors with higher

sensitivity to transition risk is lower and the Group continues to

monitor loans and advances in these sectors. A similar sectoral

analysis of Scottish Widows' assets under management is provided

on page 117 of our sustainability report .

Analysis of potential impacts

Climate-related risks are complex, forward-looking and uncertain,

and unlike traditional financial models, there is no historic dataset

to test climate model outcomes against. Therefore, our approach

to assessing the impact of these risks continues to evolve as our

understanding matures and develop, including our scenario analysis

capabilities and we’re continuing to embed these, as detailed

within the risk management section on page 150 and page 124 in

our sustainability report . The following assessments have been

undertaken to evaluate our resilience to the impacts of the risks

related to climate change.

Lending

For the last two years, we have incorporated consideration of some

impacts of climate risk into our calculation of expected credit losses,

as outlined in Note 21, page 278. This exercise was repeated in 2025

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 2025.

We have also performed a stress exercise on the largest credit

portfolio, retail mortgages, and quantified the impact on losses

and implication on capital. The transition risk stress explored

affordability shocks due to retrofitting and valuation impacts

for properties falling below hypothetical future minimum energy

efficiency standards. The climate impact was immaterial in relation

to both impairment and capital effect.

Investment and insurance

We continue to assess risks to the achievement of our strategic

objectives over the short to medium term by stress testing our

business plan. Amongst other stress tests, we considered a bespoke

climate scenario and compared this to the base planning scenario.

Over the past few years these stress tests against the base plan have

assessed scenarios capturing different climate risk drivers, for 2025

we considered acute physical risk events and subsequent social,

economic and governmental actions.

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.

Lloyds Banking Group plc Annual Report and Accounts 2025

Income statement – underlying basisA


	2025 £m	2024 £m	Change %
Underlying net interest income	13,635	12,845	6
Underlying other income	6,120	5,597	9
Operating lease depreciation	(1,454)	(1,325)	(10)
Net income	18,301	17,117	7
Operating costs	(9,761)	(9,442)	(3)
Remediation	(968)	(899)	(8)
Total costs	(10,729)	(10,341)	(4)
Underlying profit before impairment	7,572	6,776	12
Underlying impairment charge	(795)	(433)	(84)
Underlying profit	6,777	6,343	7
Restructuring	(46)	(40)	(15)
Market and other volatility	72	(144)
Amortisation of purchased intangibles	(86)	(81)	(6)
Fair value unwind	(56)	(107)	48
Volatility and other items	(70)	(332)	79
Statutory profit before tax	6,661	5,971	12
Tax expense	(1,904)	(1,494)	(27)
Statutory profit after tax	4,757	4,477	6

Earnings per share	7.0p	6.3p	0.7p
Dividends per share – ordinary	3.65p	3.17p	15
Share buyback value	£1.75bn	£1.70bn	3

Banking net interest marginA	3.06%	2.95%	11bp
Average interest-earning banking assetsA	£462.9bn	£451.2bn	3
Cost:income ratioA	58.6%	60.4%	(1.8)pp
Asset quality ratioA	0.17%	0.10%	7bp
Return on tangible equityA	12.9%	12.3%	0.6pp

ASee page 308.

Key balance sheet metrics


	At 31 Dec 2025	At 31 Dec 2024	Change %
Underlying loans and advances to customersA	£481.1bn	£459.1bn	5
Customer deposits	£496.5bn	£482.7bn	3
Loan to deposit ratioA	97%	95%	2pp
CET1 ratio	14.0%	14.2%	(0.2)pp
Pro forma CET1 ratioA,1	13.2%	13.5%	(0.3)pp
UK leverage ratio	5.4%	5.5%	(0.1)pp
Risk-weighted assets	£235.5bn	£224.6bn	5
Wholesale funding2	£99.4bn	£92.5bn	7
Wholesale funding <1 year maturity2	£37.0bn	£31.3bn	18
of which: money market funding <1 year maturity2	£26.6bn	£16.9bn	57
Liquidity coverage ratio – eligible assets3	£131.4bn	£134.4bn	(2)
Liquidity coverage ratio4	145%	146%	(1)pp
Net stable funding ratio5	124%	129%	(5)pp
Tangible net assets per shareA	57.0p	52.4p	4.6p

131 December 2025 and 31 December 2024 pro forma CET1 ratios reflect the full impact of the share buybacks announced in respect of 2025 and 2024. 31 December 2024 pro forma

CET1 ratio also reflects the ordinary dividend received from the Insurance business in February 2025. The CET1 and pro forma CET1 ratios at 31 December 2025 both reflect an ordinary

dividend received from the Insurance business in December 2025, that would previously have been received in February of the following year.

2Excludes balances relating to cash collateral of £1.5 billion (31 December 2024: £2.8 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 2025

Balance sheet analysis


	At 31 Dec 2025 £bn	At 30 Sep 2025 £bn	Change %	At 30 Jun 2025 £bn	Change %	At 31 Dec 2024 £bn	Change %

UK mortgages	323.1	321.0	1	317.9	2	312.3	3
Credit cards	17.3	16.8	3	16.4	5	15.7	10
UK Retail unsecured loans	10.5	10.3	2	9.9	6	9.1	15
UK Motor Finance1	16.4	16.1	2	16.0	3	15.3	7
Overdrafts	1.3	1.2	8	1.2	8	1.2	8
Retail Europe2	20.4	19.9	3	19.0	7	16.8	21
Retail other2	1.3	1.4	(7)	1.2	8	1.1	18
Business and Commercial Banking	28.3	28.8	(2)	29.1	(3)	29.7	(5)
Corporate and Institutional Banking	62.0	61.3	1	59.7	4	57.9	7
Central Items3	0.5	0.3	67	0.6	(17)	–
Underlying loans and advances to customersA	481.1	477.1	1	471.0	2	459.1	5

Retail current accounts	102.8	101.8	1	100.6	2	101.3	1
Retail savings accounts	212.5	212.4		213.1		208.2	2
Wealth	9.9	9.5	4	9.7	2	10.2	(3)
Commercial Banking	171.1	172.6	(1)	170.2	1	162.6	5
Central Items	0.2	0.4	(50)	0.3	(33)	0.4	(50)
Customer deposits	496.5	496.7		493.9	1	482.7	3

Total assets	944.1	937.5	1	919.3	3	906.7	4
Total liabilities	896.2	891.8		872.4	3	860.8	4

Ordinary shareholders’ equity	41.8	40.2	4	40.4	3	39.5	6
Other equity instruments	5.9	5.2	13	6.3	(6)	6.2	(5)
Non-controlling interests	0.2	0.2		0.2		0.2
Total equity	47.9	45.6	5	46.9	2	45.9	4

Ordinary shares in issue, excluding own shares	58,799m	59,196m	(1)	59,938m	(2)	60,491m	(3)

1UK Motor Finance balances on an underlying basisA exclude a finance lease gross up. See page 308.

2Within underlying loans and advances, Retail Europe, previously presented within Retail other, is reported separately. The comparatives are represented on a consistent basis.

Retail other primarily includes the Wealth business.

3Central Items includes central fair value hedge accounting adjustments.

Lloyds Banking Group plc Annual Report and Accounts 2025

Summary of Group results

Statutory results

Income statement

The Group’s statutory profit before tax for 2025 was £6,661 million, 12% higher than in 2024. This included higher total income,

partially offset by higher operating expenses and a higher impairment charge. Profit after tax was £4,757 million and earnings per share

were 7.0 pence (2024: £4,477 million and 6.3 pence respectively).

Total income for 2025 was £19,422 million, an increase of 8% on the prior year (2024: £18,003 million). Net interest income of

£13,230 million was up 8% (2024: £12,277 million), driven by higher average interest-earning assets and a higher margin, benefitting from

franchise led volume growth and stronger structural hedge income as eligible balances were reinvested in a higher rate environment,

partially offset by continued mortgage and deposit headwinds.

Other income increased by 8% to £6,192 million (2024: £5,726 million), with higher other operating income and a higher insurance service

result, partially offset by lower net trading income. Other operating income increased by 22% to £2,367 million (2024: £1,934 million) as a

result of vehicle fleet growth and higher average vehicle rental values in UK Motor Finance within Retail. The insurance service result

increased by 56% to £756 million (2024: £486 million), benefitting from higher income in the workplace pensions business, higher general

insurance income net of claims and the full acquisition of Schroders Personal Wealth in the fourth quarter. This was alongside the gain on

sale of the Group’s bulk annuities portfolio to Rothesay Life plc in the first half of the year. Net trading income reduced to £1,485 million

(2024: £1,812 million), largely due to market movements partially offset by strong income growth from Lloyds Living.

Total operating expenses of £11,966 million (2024: £11,601 million) included a higher remediation charge relating to motor finance

commission arrangements. Excluding remediation, the impact of strategic investment (including planned higher severance), business

growth costs (including the full acquisition of Schroders Personal Wealth) and inflationary pressures were partially mitigated by cost savings

from investment and continued business-as-usual cost discipline. Operating expenses include operating lease depreciation which increased

due to fleet growth, the depreciation of higher value vehicles and declines in used electric car prices, partly mitigated through lease

extensions, used car leasing and remarketing agreements.

A remediation charge of £968 million was recognised by the Group in 2025 (2024: £899 million), including £800 million in relation to the

potential impact of motor finance commission arrangements taken in the third quarter, bringing the total provision recognised for motor

finance to £1,950 million.

The 2025 impairment charge was £795 million, up from £431 million in 2024 which benefitted from a large credit from improvements in the

Group’s economic outlook. In Retail, the charge for 2025 reflected both strong performance alongside the benefits from calibrations and

model refinements and a debt sale. In Commercial Banking, higher charges in the first half of the year driven by a small number of individual

cases were more than offset by releases from Stage 1 and Stage 2 model calibrations capturing strong credit performance and reducing

interest rates throughout the year.

The Group recognised a tax expense of £1,904 million in 2025 (2024: £1,494 million).

Balance sheet

As at 31 December 2025, total assets were £944,072 million, £37,375 million higher than the prior year (31 December 2024:

£906,697 million). Financial assets at amortised cost were £553,672 million, £21,895 million higher versus the prior year (31 December 2024:

£531,777 million), supported by increases in loans and advances to customers. This included growth of £10,806 million in UK mortgages,

alongside growth across UK Retail unsecured loans, credit cards, UK Motor Finance and the European retail business totalling £7,307 million.

Lending balances increased by £2,707 million in Commercial Banking, with higher Institutional balances including securitised products,

alongside corporate infrastructure growth, partially offset by repayments of government-backed lending.

Financial assets held at fair value through profit or loss at £240,413 million increased by £24,488 million during the year, with increased

holdings in the Insurance business as a result of market gains on investments held to back insurance and investment contract liabilities as

well as increased reverse repurchase agreements in the banking business.

Derivative financial assets were £4,338 million lower at £19,727 million versus the prior year (31 December 2024: £24,065 million), driven by

market movements in the year. Financial assets at fair value through other comprehensive income of £36,320 million increased by

£5,630 million in the year reflecting increases in liquid asset holdings. Cash and balances at central banks reduced by £6,044 million to

£56,661 million (31 December 2024: £62,705 million) reflecting a change in the mix of liquidity holdings. Other assets were £4,256 million

lower, primarily reflecting the disposal of the Group’s bulk annuity business in the second quarter, partially offset by increased operating

lease assets resulting from fleet growth and higher value vehicles in UK Motor Finance and increased investment properties from business

growth in Lloyds Living.

Total liabilities were £896,205 million, £35,396 million higher over the year (31 December 2024: £860,809 million). Customer deposits

of £496,457 million increased in the year by £13,712 million. Retail deposits increased £5,442 million in the year, including growth in

Retail savings accounts, as a result of net inflows to limited withdrawal and fixed term deposits particularly through increased ISA

balances, and growth in European retail balances. This was alongside strength in current account balances. Commercial Banking

deposits were up £8,418 million, resulting from growth in targeted sectors. Repurchase agreements at amortised cost increased by

£810 million to £38,570 million (31 December 2024: £37,760 million), following £13 billion of repayments of drawings from the Bank of

England’s Term Funding Scheme with additional incentives for SMEs (TFSME), more than offset by increased repurchase agreements.

Financial liabilities at fair value through profit or loss were stable at £27,909 million at 31 December 2025 and derivative financial liabilities

decreased by £5,544 million to £16,132 million as a result of market movements. Liabilities arising from insurance and investment contracts

increased by £23,632 million reflecting the increase in policyholder investments. Other liabilities decreased by £4,375 million to

£26,269 million and included the effects of the disposal of the Group’s bulk annuity business, partially offset by increased provisions

primarily driven by the provision increase in relation to motor finance commission arrangements. Debt securities in issue at amortised cost

increased by £7,437 million to £78,271 million, with new issuances in the year, while subordinated liabilities remained stable at

£9,894 million.

Total equity of £47,867 million at 31 December 2025 increased by £1,979 million from £45,888 million at 31 December 2024. Profit for the

year, the unwind of the cash flow hedge reserve and issuance of AT1 capital instruments in February 2025 and November 2025 were

partially offset by the impact of the ordinary share buyback programme, the dividends paid in May 2025 and September 2025, as well as

the impact of redemptions of AT1 capital instruments in June 2025 and September 2025, alongside a lower pension surplus.

Lloyds Banking Group plc Annual Report and Accounts 2025

Summary of Group results continued

Underlying resultsA

The Group’s underlying profit was £6,777 million in 2025, up 7% versus the prior year (2024: £6,343 million). Higher underlying net interest

income and higher underlying other income were partially offset by higher operating costs and a higher underlying impairment charge given

a significant release in 2024 driven by the improved economic outlook. Underlying profit for the fourth quarter was £1,926 million versus

£1,290 million in the third quarter of the year.

Net incomeA


	2025 £m	2024 £m	Change %
Underlying net interest income	13,635	12,845	6
Underlying other income	6,120	5,597	9
Operating lease depreciation1	(1,454)	(1,325)	(10)
Net incomeA	18,301	17,117	7

Banking net interest marginA	3.06%	2.95%	11bp
Average interest-earning banking assetsA	£462.9bn	£451.2bn	3

1Net of losses on disposal of operating lease assets of £10 million (2024: profit of £59 million).

Net income of £18,301 million was up 7% compared to 2024, driven by higher underlying net interest income and higher underlying other

income, partially offset by an increased charge for operating lease depreciation. Net income in the fourth quarter of £4,744 million was up

2% compared to the third quarter reflecting the same trends.

Within net income, underlying net interest income of £13,635 million was up 6% versus the prior year (2024: £12,845 million). This was

supported by a banking net interest margin of 3.06% (2024: 2.95%). The net interest margin benefitted from franchise led volume growth

and stronger structural hedge income as eligible balances were reinvested in a higher rate environment, partially offset by continued

mortgage and deposit headwinds. Average interest-earning banking assets in 2025 of £462.9 billion (2024: £451.2 billion) reflect strong

customer led growth, primarily driven by UK mortgages, credit cards, UK Retail unsecured loans and the European retail business. In

Commercial Banking, average interest-earning banking assets reduced, impacted by continued repayments of government-backed lending

within Business and Commercial Banking and lower lending to banks offsetting non government-backed lending growth. Underlying net

interest income in 2025 also included a non-banking net interest expense of £515 million (2024: £469 million), increasing as a result of

growth in the Group’s other operating income activities and the refinancing of these activities at higher rates. The Group expects underlying

net interest income for 2026 to be c.£14.9 billion.

Underlying net interest income of £3,529 million in the fourth quarter of 2025 was 2% higher than the third quarter (three months to 30

September 2025: £3,451 million). A growing structural hedge contribution more than offset the impact of continued headwinds from asset

margin compression and a reduced UK Bank Rate. This resulted in an increase in the banking net interest margin to 3.10% (three months to

30 September 2025: 3.06%). Average interest-earning banking assets were higher in the fourth quarter at £470.3 billion (three months to

30 September 2025: £465.5 billion), driven by UK mortgages, the European retail business and the Corporate and Institutional Banking

business.

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. As at 31 December 2025, the notional balance of the sterling structural hedge was £244 billion

(31 December 2024: £242 billion) with a weighted average life of approximately 3.75 years (31 December 2024: approximately

3.5 years). The Group generated £5.5 billion of total income from sterling structural hedge balances in 2025, an increase of £1.3 billion

over the prior year (2024: £4.2 billion). The Group expects sterling structural hedge earnings to be c.£7.0 billion in 2026, to be c.

£8.0 billion in 2027, with earnings growth from the structural hedge expected to continue thereafter.

Underlying other income of £6,120 million in 2025 grew by 9% compared to the prior year (2024: £5,597 million), driven by strengthening

customer activity and the benefit of investments in strategic initiatives. This included an increase of 12% in Retail, driven by UK Motor

Finance from fleet growth and higher average vehicle rental values, alongside strength in income from current accounts and credit cards.

Commercial Banking increased by 1% from higher transaction banking and markets income, partially offset by lower loan markets activity,

with 2024 benefitting from one-off gains. Insurance, Pensions and Investments underlying other income was up 11% from strengthening

performance in the workplace pensions business, higher general insurance income net of claims and the full acquisition of Schroders

Personal Wealth in the fourth quarter. Equity Investments and Central Items benefitted from strong business growth in Lloyds Living.

Underlying other income in the fourth quarter was up 2% compared to the third quarter. This was supported by continued growth in UK

Motor Finance within Retail, higher transaction banking income in Commercial Banking, alongside the full acquisition of Schroders Personal

Wealth in Insurance, Pensions and Investments and continued business growth in Lloyds Living.

Operating lease depreciation of £1,454 million in 2025 was 10% higher than in the prior year (2024: £1,325 million), due to fleet growth,

the depreciation of higher value vehicles and declines in used electric car prices, partially offset by risk mitigation actions. Compared to

the third quarter of 2025, operating lease depreciation was 4% higher, in line with the continued growth in fleet size and year-end

valuations. The Group continues to mitigate the risk of used car price movements through a number of market and customer initiatives

to both improve performance and reduce volatility, including lease extensions, used car leasing, remarketing agreements and residual

value insurance.

Lloyds Banking Group plc Annual Report and Accounts 2025

Total costsA


	2025 £m	2024 £m	Change %
Operating costsA	9,761	9,442	(3)
Remediation	968	899	(8)
Total costsA	10,729	10,341	(4)

Cost:income ratioA	58.6%	60.4%	(1.8)pp

Operating costs of £9,761 million increased by 3% in 2025 reflecting strategic investment (including an increased severance charge),

business growth costs (including the full acquisition of Schroders Personal Wealth) and inflationary pressures. These factors were partially

mitigated by cost savings from investment and continued business-as-usual cost discipline. Operating costs in the fourth quarter increased

by 12% as expected, which includes the Bank Levy, additional investment spend and costs associated with the full acquisition of Schroders

Personal Wealth.

A remediation charge of £968 million was recognised by the Group in 2025 (2024: £899 million), including £800 million in relation to the

potential impact of motor finance commission arrangements taken in the third quarter, bringing the total provision recognised for motor

finance to £1,950 million. The FCA published Consultation Paper CP25/27 in October 2025 setting out detailed proposals for a scheme to

redress unfair customer relationships, including a more generous redress methodology than anticipated in the previous scenario-based

provision. The Group has made representations to the FCA on a number of aspects of the proposed scheme, including that the proposed

redress methodology does not reflect the loss to the customer. The Group will assess developments and potential impacts on the provision

following the announcement of the final scheme rules, which are expected by the end of March 2026. The current provision represents the

Group’s best estimate. In the fourth quarter the Group recognised a remediation charge of £56 million across a small number of

rectification programmes.

Total costs, including remediation, of £10,729 million were 4% higher than the prior year, with net income up 7%. The cost:income ratio was

58.6% (2024: 60.4%) and the cost:income ratio excluding remediation was 53.3%. For 2026, the cost:income ratio is expected to be less

than 50%, with operating costs expected to be less than £9.9 billion.

Underlying impairmentA


	2025 £m	2024 £m	Change %
Charges (credits) pre-updated MES1
Retail	734	789	7
Commercial Banking	(14)	48
Other	1	(10)
	721	827	13
Updated economic outlook
Retail	–	(332)
Commercial Banking	74	(62)
	74	(394)
Underlying impairment chargeA	795	433	(84)

Asset quality ratioA	0.17%	0.10%	7bp

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

The underlying impairment charge was £795 million (2024: £433 million), resulting in an asset quality ratio of 17 basis points. The higher

charge includes a £74 million net charge from updated multiple economic scenarios (MES), compared to a credit from MES of £394 million

in 2024 which benefitted from an improved economic outlook, notably house price growth.

The pre-updated MES charge of £721 million for 2025 is equivalent to an asset quality ratio of 15 basis points. This was lower compared to

the prior year due to strong credit performance, with arrears low and stable across portfolios, alongside one-off benefits primarily from

model refinements and calibrations. In Retail, the charge for 2025 reflected both strong performance alongside the benefits from

calibrations and model refinements and a debt sale. In Commercial Banking, higher charges in the first half of the year driven by a small

number of individual cases were more than offset by releases from Stage 1 and Stage 2 model calibrations capturing strong credit

performance and reducing interest rates throughout the year.

The impairment charge in the fourth quarter of £177 million, equivalent to an asset quality ratio of 14 basis points, includes a £47 million

MES charge reflecting a higher short term unemployment outlook. The low pre-updated MES charge for the quarter includes model

refinement benefits and a large debt sale write back in Retail which together reduced the charge. The asset quality ratio excluding the

model and debt sale benefits is considered to be closer to 25 basis points, both for the full year and the fourth quarter. The Group expects

the asset quality ratio to be c.25 basis points in 2026.

Lloyds Banking Group plc Annual Report and Accounts 2025

Summary of Group results continued

Restructuring, volatility and other items

Volatility and other items consists of market and other volatility, amortisation of purchased intangibles and fair value unwind.

Restructuring costs

Restructuring costs for 2025 were £46 million (2024: £40 million).

Market and other volatility

Market and other volatility resulted in a net gain of £72 million (2024: net loss of £144 million), as a result of the gain on sale of the Group’s

bulk annuities portfolio to Rothesay Life plc in the first half of the year and the gain following the full acquisition of Schroders Personal

Wealth in the fourth quarter, partially offset by negative market volatility, primarily insurance related.

Amortisation of purchased intangibles

The Group incurred a charge of £86 million (2024: £81 million) for the amortisation of intangible assets.

Fair value unwind

The results include the impact of the fair value adjustments arising from historical acquisitions. In 2025 the principal financial effect of the

fair value unwind is to reflect the effective interest rates applicable at the date of acquisition, on liabilities that were acquired at values

that differed from their original book value. The Group incurred a charge of £56 million (2024: £107 million) relating to fair value unwind,

with the reduction resulting from the maturity of debt instruments, fair valued as part of the HBOS acquisition.

Further information on the reconciliation of statutory to underlying results is included on page 308.

Return on tangible equityA and tangible net assets per shareA

The return on tangible equity for the year was 12.9%, or 14.8% excluding the third quarter charge for motor finance commission

arrangements (2024: 12.3%), with 15.7% in the fourth quarter. The Group now expects the return on tangible equity for 2026 to be greater

than 16%.

Tangible net assets per share at 31 December 2025 were 57.0 pence, up 4.6 pence in the year (31 December 2024: 52.4 pence) and up

2.0 pence in the fourth quarter. The increase across 2025 resulted from attributable profit, the unwind of the cash flow hedge reserve

and a reduction in the number of shares in issue due to the ordinary share buyback announced in February 2025. This was partially

offset by capital distributions, a lower pension surplus and increased intangible assets following the full acquisition of Schroders

Personal Wealth.

Tax

The Group recognised a tax expense of £1,904 million in 2025 (2024: £1,494 million), representing an effective tax rate of 28.6%. Excluding

motor finance remediation costs, the tax rate would have been 27.2%. The Group expects a medium-term effective tax rate of around 27%

based on the banking surcharge rate of 3% and the corporation tax rate of 25%. 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 252.

Balance sheet

The Group saw strong customer lending growth in the year, with underlying loans and advances to customers increasing by £22.0 billion (or 5%)

to £481.1 billion. This included growth of £10.8 billion in UK mortgages alongside growth across UK Retail unsecured loans, credit cards, UK

Motor Finance and the European retail business totalling £7.7 billion. Lending balances increased by £2.7 billion in Commercial Banking, with

higher Institutional balances including securitised products, alongside corporate infrastructure growth, partially offset by repayments of

£1.4 billion of government-backed lending within Business and Commercial Banking. Underlying loans and advances increased by £4.0 billion in

the fourth quarter, including growth in UK mortgages, Retail unsecured products and the European retail business.

Customer deposits of £496.5 billion increased significantly in the year, by £13.8 billion, or 3%. Retail deposits were up £5.5 billion in the year,

including £4.0 billion growth in Retail savings accounts, as a result of net inflows to limited withdrawal and fixed term deposits particularly

through increased ISA balances, and growth in European retail balances. This was alongside strength in current account balances.

Commercial Banking deposits were up £8.5 billion in the year (31 December 2024: £162.6 billion), resulting from growth in targeted sectors.

In the fourth quarter, customer deposits reduced £0.2 billion, with growth in Retail current accounts of £1.0 billion, offset by a reduction of

£1.5 billion in Commercial Banking, given seasonal flows and balance sheet management.

The Group saw growth of £7.9 billion net new money during 2025 in Insurance, Pensions and Investments open book assets under

administration (AuA). In total, open book AuA stand at £232 billion at 31 December 2025. This included £0.5 billion of net new money and

£18 billion of AuA relating to the full acquisition of Schroders Personal Wealth.

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 145% at 31 December 2025 (31 December 2024: 146%) and a net stable funding ratio of 124% (31 December 2024:

129%). The loan to deposit ratio of 97%, slightly up versus 31 December 2024, continues to reflect a robust funding and liquidity position,

with significant capacity to grow lending. Wholesale funding increased to £99.4 billion (2024: £92.5 billion), with money market funding

returning to normalised levels following the repayment of £13.1 billion of drawings from the Bank of England’s Term Funding Scheme with

additional incentives for SMEs (TFSME).

The underlying expected credit loss (ECL) allowance reduced to £3.4 billion at 31 December 2025 (31 December 2024: £3.7 billion). The

uplift from the base case to probability-weighted ECL is £0.4 billion (31 December 2024: £0.4 billion). The ECL allowance includes

judgemental adjustments which increase the ECL by £242 million (31 December 2024: £15 million decrease to ECL). The increase compared

to 2024 is primarily due to the removal of negative ECL adjustments previously held for loss given default adjustments in both Retail

Unsecured and Commercial Banking, where respective model enhancements have removed the need for an adjustment. The ECL allowance

continues to include a £50 million judgemental adjustment taken in the first half of the year in respect of the global tariff and geo-political

disruption risks to specific drivers across various corporate sectors not reflected in broad macroeconomic model variables.

Lloyds Banking Group plc Annual Report and Accounts 2025

Capital

Capital generation


Pro forma CET1 ratio as at 31 December 2024A,1	13.5%
Banking build (bps)2	228
Insurance dividend (bps)	9
Risk-weighted assets (bps)	(54)
Other movements (bps)3	14
Retail secured CRD IV increases (bps)4	(19)
Capital generation excluding provision charge for motor finance commission arrangements (bps)	178
Provision charge for motor finance commission arrangements (bps)	(31)
Capital generation (bps)	147
Ordinary dividend (bps)	(97)
Share buyback accrual (bps)	(79)
Pro forma CET1 ratio as at 31 December 2025A,1	13.2%

131 December 2025 and 31 December 2024 pro forma CET1 ratios reflect the full impact of the share buybacks announced in respect of 2025 and 2024. 31 December 2024 pro forma

CET1 ratio also reflects the ordinary dividend received from the Insurance business in February 2025. The CET1 and pro forma CET1 ratios at 31 December 2025 both reflect an ordinary

dividend received from the Insurance business in December 2025, that would previously have been received in February of the following year.

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

3Includes share-based payments and market volatility.

4Retail secured CRD IV increases include additional risk-weighted assets as well as related excess regulatory expected losses.

The Group’s pro forma CET1 capital ratio at 31 December 2025 was 13.2% (31 December 2024: 13.5% pro forma). Capital generation during

the year was 147 basis points, in line with updated guidance. Excluding the provision charge for motor finance commission arrangements in

the third quarter, capital generation was 178 basis points.

Capital generation reflects strong banking build and the £200 million of dividends received from the Insurance business across July and

December 2025, partially offset by risk-weighted asset increases and the charge for motor finance. Regulatory headwinds of 19 basis

points in the year reflect an uplift for the CRD IV model outcomes on Retail secured. The impact of the interim ordinary dividend paid in

September 2025 and the accrual for the recommended final ordinary dividend equates to 97 basis points, with a further 79 basis points

to cover the accrual for the announced ordinary share buyback programme of up to £1.75 billion. Capital generation in the fourth quarter

of 37 basis points reflects strong banking build and the dividend received from the Insurance business in December 2025, partially offset

by risk-weighted asset increases and regulatory headwinds. The Group reaffirms guidance for capital generation in 2026 of greater than

200 basis points.

Excluding the full impact of the announced ordinary share buyback programme, the Group's CET1 capital ratio at 31 December 2025 was

14.0% (31 December 2024: 14.2%).

Risk-weighted assets increased by £10.9 billion to £235.5 billion at 31 December 2025 (31 December 2024: £224.6 billion). This reflects the

impact of strong customer lending growth, Retail secured CRD IV increases and other movements, partially offset by continued

optimisation activity. In the fourth quarter, risk-weighted assets increased by £3.2 billion following lending growth and Retail secured CRD

IV increases, partially offset by optimisation activity. In the context of the Retail secured CRD IV models, an additional risk-weighted asset

increase of £2.0 billion was recognised in the fourth quarter. This reflects model outcomes, in line with previous guidance on the anticipated

impact and remains subject to review and approval by the PRA.

The Group expects the initial impact of Basel 3.1 implementation on 1 January 2027 to result in a Day 1 risk-weighted assets reduction in the

range of c.£6 billion to c.£8 billion.

The PRA provided an update to the Group’s Pillar 2A CET1 capital requirement during the third quarter, with the requirement reducing

slightly to c.1.4% of risk-weighted assets from the previous requirement of c.1.5% of risk-weighted assets. The Group’s total regulatory CET1

capital requirement remains c.12% 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 remains c.13.0%. This includes a

management buffer of c.1%. The Board intends to pay down to the CET1 capital target of c.13.0% by the end of 2026.

Pensions

The 31 December 2022 triennial valuation for the main defined benefit schemes was completed in 2023. Following the contributions paid in

2023, no further deficit contributions have been paid for this triennial period (to 31 December 2025). Any future contributions will be

conditional on the 31 December 2025 triennial valuation which is expected to be completed during 2026.

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 2025, the Board decided to return surplus capital in respect of 2024 through

an ordinary share buyback programme of up to £1.7 billion. This commenced on 21 February and completed on 8 December 2025, with

c.2.2 billion (c.4%) ordinary shares repurchased at an average price of 77.13 pence per share.

In respect of 2025, the Board has recommended a final ordinary dividend of 2.43 pence per share, which, together with the interim

ordinary dividend of 1.22 pence per share totals 3.65 pence per share, an increase of 15% compared to 2024, in line with the Board’s

commitment to a progressive and sustainable ordinary dividend. On 30 January 2026, the Group announced the launch of an ordinary

share buyback of up to £1.75 billion which is expected to be completed, subject to continued authority from the PRA, by 31 December

2026.

Based on the combined interim and proposed final ordinary dividends and the announced ordinary share buyback, the total capital return

in respect of 2025 will be up to £3.9 billion, equivalent to c.6% (as at 26 January 2026) of the Group’s market capitalisation value. The

Group intends to pay down to its CET1 capital target of c.13.0% by the end of 2026. Going forward, given the Board’s continued confidence

in capital generation, the Group will now review excess capital distributions in addition to the ordinary dividend every half year.

Lloyds Banking Group plc Annual Report and Accounts 2025

Summary of Group results continued

Other financial information

Post-tax return on average assets


	2025 %	2024 %
Post-tax return on average assets	0.51	0.50

Share buyback in respect of 2024 results

During 2025, the Group completed a £1.7 billion share buyback programme, in respect of 2024 results, with c.2.2 billion shares purchased at

an average price of 77.13 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 2024 results had the effect of increasing the earnings per share by 0.1 pence

and increasing the tangible net assets per share by 2.1 pence, compared to the equivalent distribution through an ordinary dividend.

Insurance, Pensions and Investments performance summaryA


	2025 £m	2024 £m	Change %
Life and pensions sales (PVNBP)A,1	21,047	18,249	15
New business value of insurance and participating investment contracts recognised in the yearA,2
of which: deferred to contractual service margin and risk adjustment	93	126	(26)
of which: losses recognised on initial recognition	(13)	(15)	13
	80	111	(28)
Assets under administration (net flows)A,3	£7.9bn	£5.7bn	39
General insurance underwritten new gross written premiumsA	175	197	(11)
General insurance underwritten total gross written premiumsA	762	737	3
General insurance combined ratioA	89%	97%	(8)pp


	At 31 Dec 2025	At 31 Dec 2024	Change %
Insurance Solvency II ratio (pre-dividend)4	144%	158%	(14)pp
Total customer assets under administrationA,3	£279.6bn	£247.1bn	13

1Present value of new business premiums can fluctuate due to timing of new schemes.

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). Following the full acquisition of Schroders Personal Wealth in the fourth

quarter of 2025, this presentation includes Wealth AuAs (previously reported within Retail). For 2025, total customer assets under administration and net flows now include £18 billion

and £0.5 billion respectively and the comparative period has been shown on a consistent basis. For 2024, excluding Wealth AuAs, total customer assets under administration were

£231.9 billion and net flows were £5.3 billion.

4Equivalent estimated regulatory view of ratio (including With-Profits funds and post dividend where applicable) was 140% (31 December 2024: 148%, post-February 2025 dividend).

Breakdown of net incomeA


	2025				2024
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)	346	455	801		350	318	668
Non-life (General insurance)	–	277	277		–	229	229
Other items2	67	135	202		69	190	259
Net incomeA	413	867	1,280		419	737	1,156

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.

Lloyds Banking Group plc Annual Report and Accounts 2025

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


	Life open book £m	Other products2 £m	Bulk annuities3 £m	Total1 £m
Deferred profit at 1 January 2025	4,216	686	118	5,020
New business	93	–	–	93
Release to income statement	(346)	(67)	–	(413)
Other movements	486	157	(118)	525
Deferred profit at 31 December 2025	4,449	776	–	5,225
Deferred profit at 1 January 2024	4,025	702	578	5,305
New business	126	–	–	126
Release to income statement	(350)	(69)	–	(419)
Other movements	415	53	(460)	8
Deferred profit at 31 December 2024	4,216	686	118	5,020

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 reflected the reinsurance agreement entered into as part of the agreed sale of the in-force bulk annuity portfolio to Rothesay Life plc, with the impact of the

reinsurance agreement included within Other movements. This sale has since completed.

Volatility arising in the Insurance business


	2025 £m	2024 £m
Insurance volatility	36	(56)
Policyholder interests volatility	256	162
Total volatility	292	106
Insurance hedging arrangements	(537)	(442)
Total1	(245)	(336)

1Total insurance volatility is included within market and other volatility in the Group underlying basis income statement, which in total resulted in a gain of £72 million in 2025 (2024:

loss of £144 million). See page 308.

The most significant limitation associated with excluding insurance volatility from the underlying basis results is that insurance volatility

requires assumptions to be made for the normalised return on equities and other investments. Management compensates for this

limitation by monitoring closely the assumptions used to calculate the normalised return used within the calculation of insurance volatility.

Insurance volatility impacts statutory profit before tax (through market and other volatility) 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 £245 million (2024: losses

of £336 million), driven by increases in interest rates and equity markets and decreases in inflation.

Lloyds Banking Group plc Annual Report and Accounts 2025

Segmental analysis – underlying basisA


2025	Retail £m	Commercial Banking £m	Insurance, Pensions and Investments £m		Equity Investments and Central Items £m		Group £m
Underlying net interest income	9,637	3,670		(151)		479	13,635
Underlying other income	2,636	1,825		1,431		228	6,120
Operating lease depreciation	(1,445)	(9)		–		–	(1,454)
Net income	10,828	5,486		1,280		707	18,301
Operating costs	(5,807)	(2,853)		(933)		(168)	(9,761)
Remediation	(931)	(27)		(15)		5	(968)
Total costs	(6,738)	(2,880)		(948)		(163)	(10,729)
Underlying profit before impairment	4,090	2,606		332		544	7,572
Underlying impairment (charge) credit	(734)	(60)		(2)		1	(795)
Underlying profit	3,356	2,546		330		545	6,777

Banking net interest marginA	2.65%	4.93%					3.06%
Average interest-earning banking assetsA	£384.6bn	£78.3bn		–		–	£462.9bn
Asset quality ratioA	0.19%	0.07%					0.17%
Underlying loans and advances to customersA,1	£390.3bn	£90.3bn		–		£0.5bn	£481.1bn
Customer deposits	£325.2bn	£171.1bn		–		£0.2bn	£496.5bn
Risk-weighted assets	£130.4bn	£78.5bn		£0.5bn		£26.1bn	£235.5bn


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 income2	2,354	1,815		1,292	136	5,597
Operating lease depreciation	(1,319)	(6)		–	–	(1,325)
Net income	9,965	5,243		1,156	753	17,117
Operating costs2	(5,566)	(2,752)		(924)	(200)	(9,442)
Remediation	(750)	(104)		(19)	(26)	(899)
Total costs	(6,316)	(2,856)		(943)	(226)	(10,341)
Underlying profit (loss) 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	2.54%	4.51%				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

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

2In 2025, the Group revised its treatment of certain divisional variable payment related costs. Previously reported within divisional operating costs, these are now included within

divisional underlying other income. Comparative figures have been represented on a consistent basis, with no net impact on segmental profit or loss. Total Group comparatives are

unchanged.

3In 2025, the Group revised its capital transfer pricing methodology; comparative segmental banking net interest margin has been represented on a consistent basis.

Number of employees (full-time equivalent)


	At 31 Dec 2025	At 31 Dec 2024
Retail	27,781	29,734
Commercial Banking	8,126	8,850
Insurance, Pensions and Investments	6,254	5,882
Group functions and services	18,559	17,544
	60,720	62,010
Agency staff	(659)	(782)
Total number of employees	60,061	61,228

The Group has increased its non-permanent worker population by around 2.6% in 2025. 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 2025

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 meeting more of its customers’

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

improving digital experience through a mobile-first strategy. Retail delivers market-leading products and meets consumer duty

expectations, working within a prudent risk appetite. Outside of the UK, Retail has a growing mortgages and savings focused European

business. Through strategic investment and increased use of data, Retail aims to deepen consumer relationships, deliver personalised

propositions, broaden its intermediary offering, improve customer experience and increase operational efficiency.

Strategic progress

•UK’s largest digital bank with c.21.5 million customers actively using the Group’s mobile apps, engaging in c.6.5 billion logons in 2025,

with c.85% of current account openings via the seven minute mobile opening process

•Announced the planned acquisition of Curve, a leading digital wallet provider that combines customers’ bank cards, with unique

features including enabling customers to retrospectively move transactions between accounts

•Lent £17 billion to over 70,000 first time buyers in 2025, supported by our first time buyer boost proposition

•Direct mortgage applications up c.32% versus 2024 with 20% protection insurance take up, up 5 percentage points

•In credit cards, launched Lloyds Ultra, a market leading 1% cashback product supporting a wide range of customer needs from travel and

rewards along with the launch of Lloyds Advance supporting existing customers starting their credit journey

•Introduced digital co-servicing, to allow customers to view accounts across Lloyds, Halifax and Bank of Scotland brands in one app and

online, with in branch co-serving reaching over 1 million transactions since launch

•Strengthened and grew relationships with Mass Affluent customers through Lloyds Premier, supporting customers who have a c.2 times

greater depth of relationship

•Launched an enhanced Digital Loan Refinance journey across Lloyds, Bank of Scotland, Halifax and MBNA, delivering greater flexibility

and convenience and meeting the needs of c.100,000 customers since launch

•Empowered customers financially by providing up-to-date insights on their credit report, resulting in over 500,000 customers improving

their credit score each quarter

•Made electric vehicles more accessible through Tusker, with the fleet now approaching 85,000 vehicles, up 49% versus 2024, supporting

the UK’s ambition to transition to net zero by 2050

Financial performance

•Underlying net interest income increased 8%, with stronger structural hedge earnings and higher unsecured loan balances, partially

offset by continued mortgage refinancing and deposit churn headwinds

•Underlying other income up 12% from fleet growth and higher average vehicle rental values in UK Motor Finance, alongside strength in

current account and credit card income

•Operating lease depreciation charge increased by 10% due to fleet growth, the depreciation of higher value vehicles and declines in used

electric car prices. Used car price volatility and performance continue to be partly mitigated through lease extensions, used car leasing,

and remarketing agreements

•Operating costs up 4%, from strategic investment (including planned higher severance), business growth costs and inflationary

pressures, partially offset by cost savings from investment and continued business-as-usual cost discipline. Remediation costs of

£931 million include £800 million relating to the potential impact of motor finance commission arrangements taken in the third quarter

•Underlying impairment charge of £734 million, higher than 2024 which included a £332 million credit from the improved economic

outlook. 2025 benefits from model refinements and a debt sale write back in the fourth quarter. Strong credit performance with

ongoing improvement in UK mortgages and stability across unsecured

•Underlying loans and advances to customers of £390.3 billion, up £18.8 billion, with an increase of £10.8 billion in UK mortgages

alongside growth across UK Retail unsecured loans, credit cards, UK Motor Finance and the European retail business totalling £7.7 billion

•Customer deposits of £325.2 billion, up £5.5 billion with net inflows to limited withdrawal and fixed term UK savings including an

additional c.£7.5 billion ISA balances throughout 2025, alongside growth in European savings, supported by strength in current

accounts balances

•Risk-weighted assets up 4% in the year, given strong lending growth and Retail secured CRD IV model increases, partially offset by

optimisation activity

Lloyds Banking Group plc Annual Report and Accounts 2025

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 digitisation, product development and coverage capability, Commercial Banking is delivering an enhanced customer

experience via a digital-first model in Business and Commercial Banking and an expanded client proposition in Corporate and Institutional

Banking. This is meeting customer growth objectives, generating diversified capital efficient growth and supporting customers in their

transition to net zero.

Strategic progress

•Enhanced digital propositions including the fixed term deposits mobile journey, new mobile lending journey and enriched

personalisation, driving deposit and lending growth

•Scaled and improved digital servicing offering, enabling greater customer flexibility and efficiency, with over 1 million Business Banking

and SME customers now able to view and manage their mandate and signing authorities online

•Delivered c.£1.6 billion in sustainable finance to SME customers and provided targeted support to over 9,000 under-represented

business owner groups, while launching innovative propositions with industry partners

•Launched the first Gen AI powered application in Business and Commercial Banking, making the Commercial Real Estate lending

journey easier by simplifying and expediting the tenancy schedule process

•Awarded landmark UK Government banking services contract connecting us to the majority of UK households, with the bank

expected to handle around 400 million transactions a year

•Named ‘Bank/Funder of the Year’ at The North West Dealmakers Awards, supporting regional growth

•Delivered £24.5 billon1 of sustainable financing towards the three year commitment of £30 billion between 2024 and 2026. Supported

the UK’s initial three carbon capture projects

•Markets business achieving first ranking in all issuer Sterling Structured Finance2 and second ranking in all issuer Sterling Debt Capital

Markets3. Ranked first for ‘Overall Service Quality’ in Coalition Greenwich Voice of Client UK Corporate Interest Rate Derivatives

Study for the second year running

•Delivered a c.21% year-on-year growth in foreign exchange volumes. Launched a market-leading foreign exchange execution

algorithmic solution

•Delivered UK’s first tokenised collateral transfer on a public blockchain, awarded ‘Best Bank for Digitalisation’ by Global Trade Review

and enhanced the Markets Intelligence data product offering

•Strong growth in cross-Group collaboration, across pensions, vehicle leasing and workplace solutions, delivering Group products to

commercial clients

Financial performance

•Underlying net interest income of £3,670 million, up 7% on the prior year, underpinned by strength in deposit franchise including

structural hedge refinancing benefits

•Underlying other income increased 1% to £1,825 million, largely driven by higher transaction banking and markets income more than

offsetting lower loan markets activity, with 2024 benefitting from one-off gains

•Operating costs up 4% reflecting strategic investment (including planned higher severance), business growth costs and inflationary

pressures, partially offset by cost savings from investment and continued business-as-usual cost discipline. Remediation costs were

£27 million across a small number of rectification programmes

•Underlying impairment charge of £60 million compared to a credit in 2024 which benefitted from the improved economic outlook.

2025 included model calibration benefits alongside strong credit performance particularly in the second half of the year which more

than offset higher Stage 3 charges observed in the first half of the year

•Customer lending was 3% higher at £90.3 billion, reflecting growth in Institutional balances including securitised products, alongside

corporate infrastructure growth. This was partially offset by government-backed lending repayments in Business and Commercial

Banking

•Customer deposits 5% higher at £171.1 billion, with growth in targeted sectors

•Risk-weighted assets 6% higher at £78.5 billion, reflecting lending growth in Corporate and Institutional Banking partially offset by

optimisation activity

1In line with the Group’s Sustainable Financing Framework; sustainable financing since 1 January 2024.

2Source: LSEG Workspace: GBP Structured Finance (excluding collateralised debt obligations).

3Source: LSEG GBP Debt Capital Markets; Investment Grade bonds (excluding Sovereign, supranational and agency).

Lloyds Banking Group plc Annual Report and Accounts 2025

Insurance, Pensions and Investments

Insurance, Pensions and Investments (IP&I) serves over 10 million customers, holds a top three market share across Home, Workplace and

Individual Annuities businesses and has £280 billion in assets under administration. The Group continues to invest significantly in the

business. This includes enhancing investment propositions, supporting the Group’s Wealth and Mass Affluent strategy, driving digitisation in

customer facing and operational platforms, innovating intermediary propositions and contributing to the transition to a low carbon

economy.

Strategic progress

•Announced the full acquisition of Schroders Personal Wealth (SPW), previously a joint venture with Schroders Group, becoming a fully

owned subsidiary and now rebranding to ‘Lloyds Wealth’. The full acquisition of c.60,000 clients and c.£17 billion in AuA supports the

Group’s ambitions for a market leading end-to-end wealth offering with financial advice offered to our banking and workplace

customer base

•Growth in Ready-Made Investments, with c.84,000 accounts opened to date. c.40% of customers under the age of 35. Launch of

managed growth funds, a range of multi-asset funds at market leading ongoing fund charges, bringing institutional pricing to customers

to support their long term investment goals

•Growth of 15% in open book AuA to £232 billion (31 December 2024: £201 billion) and AuA net flows of £7.9 billion, with a significant

contribution from the workplace pension business. The growth was helped in part by greater collaboration and penetration across

Commercial Banking clients. Excluding SPW, AuA grew 16%

•Climate-aware investments increased by £55.4 billion in 2025 driven by the launch of Scottish Widows Lifetime Investment, bringing

overall investments to £81.3 billion, with the original target met at the end of 20241

•Industry leading Trustpilot scores of 4.5 stars for Scottish Widows and 4.7 for Lloyds Insurance, driven by increased investment in

automation, AI adoption and training, following the completion of the migration of 4 million policies to modern infrastructure

•More than 1.75 million digitally registered Scottish Widows customers, with the core app for workplace pension customers growing by

more than 75% year-on-year to over 750,000 users, c.60% of which are active users

•Increased partnerships product offering with relaunch of the Group’s motor insurance product through AXA and the recent launch of

the Health Partnership with Vitality, helping to complement the insurance ecosystem in a low risk, low capital intensity manner

•Captured over 14% of new home insurance policy market, leveraging the Group’s trusted brands and digitising customer journeys with

some claims being settled in as little as five minutes2

•Increased Protection market share to 7.8% (30 September 2024: 5.8%) following successful launch of refreshed advisor proposition in

2024. New business IFA applications more than double those in 20242

Financial performance

•Underlying profit of £330 million was up 50%. This included underlying other income of £1,431 million, up 11%, driven by strong business

performance including higher general insurance net of claims, strengthening performance in the workplace pension business and the

integration of Schroders Personal Wealth in the fourth quarter. Excluding Schroders Personal Wealth, underlying profit was £303 million,

up 38%

•Operating costs were up 1%. Excluding Schroders Personal Wealth operating costs were down 2% with costs savings from investment

and continued business-as-usual cost discipline partially offset by strategic investment and inflationary pressures

•Balance of deferred profits (including the risk adjustment) grew to £5.2 billion (after release to income of £413 million), including

£93 million from new business, reflecting value generation in the workplace pensions business

•Life and pensions sales (PVNBP) up 15%, driven by higher contribution from Workplace, Protection and Scottish Widows Platform

businesses, partially offset by lower sales in the Annuities business due to market conditions

•Payment of a further £50 million interim dividend in December 2025 to Lloyds Banking Group plc, after the £150 million interim dividend

paid in July 2025, supported by a strong capital position with an estimated Insurance Solvency II ratio of 144% and reflected in the

robust result in the recent PRA Life Insurance Stress Test

1This 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.

Scottish Widows Lifetime Investment has climate aware ESG-tilted indices developed in partnership with Robeco.

2Home insurance Market Share information as per internal analysis of eBenchmarkers data, Protection as per the ABI. Home Insurance Shares reflect information at 30 November 2025,

Protection shares as at 30 September 2025.

Lloyds Banking Group plc Annual Report and Accounts 2025

Equity Investments and Central Items

Equity Investments and Central Items includes the Group’s equity investment businesses, including LDC, Lloyds Living, the Housing Growth

Partnership (HGP), the Group’s share of the Business Growth Fund (BGF) and the MADE Partnership joint venture. LDC is a leading private

equity investor, supporting more than 90 growing SMEs that span all regions and sectors of the UK economy and employ over 25,000

people. LDC has almost £2.3 billion assets under management. Lloyds Living is the Group’s residential landlord business with 7,750 homes in

operation or contracted as at 31 December 2025. Equity Investments and Central Items also includes income and expenses not attributed

to the divisions, including residual underlying net interest income after transfer pricing.

Strategic progress

•Invested almost £250 million in 2025 through LDC, taking total capital deployed since the start of 2020 to over £2 billion

•More than half of LDC transactions took place in the fourth quarter of the year, signalling positive momentum

•Supported LDC portfolio companies to make 45 acquisitions, helping them to grow despite challenging market conditions

•Exited 11 successful investments where the businesses grew revenues by an average of 155% and created more than 1,200 jobs.

Generated more than £600 million of exit proceeds and an average money multiple return of 3.3 times

•Lloyds Living portfolio saw significant expansion in 2025 with a completed portfolio of c.5,450 homes, with c.2,300 additional homes

under development

•Completed scheme occupancy in Lloyds Living of 95% and rental growth tracking at over 4% (annualised basis)

•Helped support transition to a low-carbon economy with c.850 all-electric homes, of which 285 completed in 2025 and a 25 home zero

bills pilot with Octopus Energy

•HGP committed to build a further c.2,000 homes taking total homes committed since investment started in 2016 to over 15,000 and

homes sold of c.5,500. Homes committed in 2025 have high energy efficiency standards, with 100% target rated as EPC B or above and

1 in 4 rated as EPC A

•HGP awarded Specialist Financier of the year by the 2025 RESI Awards and dedicated 300 days of the senior advisor network of

industry leaders time to support SMEs in the current housing cycle challenge

•The first full year of the MADE Partnership, the LBG/Barratt Redrow/Homes England master developer joint venture saw MADE

progress master plan opportunities with potential to deliver up to 7,350 new homes

Financial performance

•Net income of £707 million 6% lower compared to 2024, with higher underlying other income more than offset by lower underlying net

interest income. Underlying net interest income was lower given increased funding costs to support volume growth in the Group’s equity

and direct investment business, alongside lower divisional recharges from a reduction in structured medium-term note and AT1

distribution costs

•Underlying other income includes £579 million (2024: £502 million) generated by the Group’s equity and direct investment businesses,

increasing 15% versus 2024 as a result of strong income growth from Lloyds Living (up £69 million), partially offset by lower income from

LDC (down £15 million)

•Total costs of £163 million in 2025 decreased 28% on the prior year, including lower remediation costs

Within this, the performance of the Group’s equity investment businesses, including LDC, Lloyds Living, the Housing Growth Partnership

(HGP), the Group’s share of the Business Growth Fund (BGF) and the MADE Partnership joint venture, is summarised as follows:


	At 31 Dec 2025 £m	At 31 Dec 2024 £m
Underlying net interest expense	(132)	(109)
Underlying other income	579	502
Net income	447	393
Total costs	(96)	(78)
Underlying profit	351	315

Lloyds Banking Group plc Annual Report and Accounts 2025

Chair’s statement

Sir Robin

Budenberg

Chair

Read full biography

Good governance has underpinned the

transformation of the Group and is

helping achieve our 2026 goals with

precision and pace.



	Board membership and attendance at scheduled meetings1

	Sir Robin Budenberg	10/10
	Charlie Nunn	10/10
	William Chalmers	10/10
	Cathy Turner	10/10
	Nathan Bostock	9/102
	Sarah Legg	10/10
	Amanda Mackenzie	10/10
	Harmeen Mehta	10/10
	Chris Vogelzang	5/53
	Scott Wheway	8/84
	Catherine Woods	10/10

	1Where a director is unable to attend a Board or Committee meeting he/she receives papers in advance and has the opportunity to provide comments to the Chair of the Board or to the relevant Committee Chair. 2Nathan Bostock was unable to attend one meeting due a commitment scheduled prior to Nathan joining the Board. 3Chris Vogelzang was appointed to the Board on 16 June 2025. 4Scott Wheway stepped down from the Board on 31 October 2025. Other attendees Nigel Hinshelwood (the Senior Independent Director of the Ring-Fenced Banks), Sarah Bentley and Brendan Gilligan (both independent non-executive directors of the Ring-Fenced Banks) attend meetings as observers to provide insight on the Ring-Fenced Banks when required. The Company Secretary and Chief Risk Officer also attend Board meetings.



	Read more

	Skills and experience	pages 68 to 69
	Role of the Board (and on the corporate governance page of the Group’s website )	page 72
	Board performance review	pages 82 to 83

I’m pleased to present this 2025 corporate governance report.

Looking back on the year, I’m proud of the significant progress

the Group has made in delivering on our purpose-driven and

customer-focused strategy. The Board has overseen the continued

transformation of the Group and has considered initiatives to

accelerate the Group’s digital transformation, deepen customer

relationships and enhance customer propositions. Good governance

underpins this progress and is fundamental to enabling the Group

to continue to move towards achieving its 2026 goals with precision

and pace.

In terms of boardroom dynamics, I have been impressed by the

quality of reporting by executives and by the diverse contributions

and constructive challenge made by directors at Board meetings.

The 2025 Board performance review was facilitated externally

and the review concluded that the Board is highly functioning and

deeply engaged.

Beyond Board level, the ongoing embedding of a healthy culture

at the Group is considered vital by the Board, particularly amidst

ongoing organisational change and political and economic

uncertainty. During 2025, the Board engaged with colleagues

to better understand their experiences and support the fostering

of a values-led and performance-based culture throughout

the organisation.

Below are key governance activities that took place in 2025. Going

forward, the Board will maintain its focus on effective governance

and accelerating decision making for the benefit of stakeholders.

Board oversight of strategy

The Board continued to oversee the executive’s progress on

delivering the 2025 strategic commitments. In June and November,

as part of separate two-day off-sites, the Board participated in

dedicated sessions on the Group’s proposed strategic vision beyond

2026. Read more on page 78.

Cultural transformation

In January and July, the Board discussed the Group’s ongoing cultural

transformation progress. As mentioned above, in 2025, Board

members engaged in quarterly listening sessions with colleagues,

insights from which were reviewed by the Responsible Business

Committee and shared with the Board for consideration. Read

Read more on pages 31 and 75.

Lloyds Banking Group plc Annual Report and Accounts 2025

Board performance review

As mentioned on the previous page, the 2025 Board performance

review was externally facilitated by board review specialist, Lisa

Thomas of Independent Board Evaluation. Key findings can be

found on page 82.

Board and Committee changes

Chris Vogelzang was appointed as a non-executive director

of the Company and a member of the Responsible Business

Committee on 16 June 2025.

Scott Wheway retired from the Board and as Chair of Scottish

Widows Group on 31 October 2025.

Chris Vogelzang will be appointed as a member of the Board Risk

Committee with effect from 1 April 2026.

Ring-fencing governance

Although this is Lloyds Banking Group plc’s corporate governance

report, I would like to thank Nigel Hinshelwood, Sarah Bentley

and Brendan Gilligan for their contribution to the Group as non-

executive directors of Lloyds Bank plc and Bank of Scotland plc

(the Ring-Fenced Banks). Read more on pages 71 and 73.

Stakeholder engagement

The Board considers understanding and meeting the Group’s

responsibilities and duties to shareholders, customers and the

communities we serve to be central to our purpose and of vital

importance. Read more on pages 76 to 78.

Sir Robin Budenberg

Chair


	UK Corporate Governance Code

	Compliance statement The UK Corporate Governance Code 2024 (the Code) applied to the financial year ended 31 December 2025 with the exception of Provision 29, which applies to the Company’s financial year which began on 1 January 2026. The Company will report against Provision 29 of the Code in its annual report and accounts for the year ending 31 December 2026. Read more about the Group’s preparation for Provision 29 coming into force on pages 84, 91 and 93. Provision 29 of the UK Corporate Governance Code 2018 (2018 Code) applied to the financial year ended 31 December 2025. This directors’ report is set out in a way that helps shareholders and investors to evaluate how the Company has applied the principles and complied with the provisions of the Code during 2025. The table below signposts parts of the annual report and accounts which relate to the principles and provisions of the Code and provision 29 of the 2018 Code, including where the relevant information is not in the directors’ report. The Company confirms that it applied the principles and complied with all relevant provisions of the Code and with provision 29 of the 2018 Code throughout 2025. The Code is available at www.frc.org.uk.


Principles of the Code

1	Board leadership and company purpose	Pages
1	Board leadership and company purpose	Pages
A	Effective board	68 to 70 and 72 to 84
B	Purpose, values and strategy	02 to 17, 74 to 75 and 78
	Culture	79
C	Board decisions and outcomes	72 to 86
D	Stakeholder engagement	76 to 78 and 108
E	Workforce policies and practice	22 and 91
2	Division of responsibilities
F	Role of Chair	73
G	Independence	68 to 69 and 86
	Division of responsibilities	72 to 73
H	Role of non-executive directors and time commitments	73 and 86
I	Policies, processes, information, time and resources	72 to 73 and 86
3	Composition, succession and evaluation
J	Board appointments and succession plans	85 to 86
K	Board skills, experience and knowledge	68 to 70
L	Annual board performance review	82 to 83
4	Audit, risk and internal control
M	External auditor and internal audit	91
	Integrity of financial reporting	88 to 91
N	Fair, balanced and understandable assessment	136
O	Risk management framework	138 to 197 and 90
	Internal financial controls	84 and 90
5	Remuneration
P	Linking remuneration with purpose, values and strategy	98 to 133
Q	Remuneration policy	106 to 133
R	Performance outcomes in 2025	106 to 123

Lloyds Banking Group plc Annual Report and Accounts 2025

Our Board



	Sir Robin Budenberg CBE Chair

Appointed: October 2020 (Board), January 2021

(Chair)

Skills, experience and contribution:

•Extensive financial services and investment

banking experience

•Strong governance and strategic advisory skills in

relation to companies and government

•Regulatory, public policy and stakeholder

management experience

Robin was Chair of The Crown Estate for nine years

until July 2025. He spent 25 years advising UK

companies and the UK Government while working for

S.G. Warburg/UBS Investment Bank and was formerly

Chief Executive and Chairman of UK Financial

Investments (UKFI), managing the Government’s

investments in UK banks following the 2008 financial

crisis. He qualified as a chartered accountant.

Key external appointments:

None



	Charlie Nunn Executive director and Group Chief Executive

Appointed: August 2021

Skills, experience and contribution:

•Extensive financial services experience including

in chief executive and other leadership roles

•Strategic planning and implementation

•Extensive experience of digital transformation

Charlie has over 25 years’ experience in the financial

services sector. Prior to joining the Group, Charlie

held a range of leadership positions at HSBC,

including Global Chief Executive, Wealth and

Personal Banking, and Group Head of Wealth

Management and Digital, as well as Global Chief

Operating Officer of Retail Banking and Wealth

Management. Charlie began his career at Accenture,

where he worked for 13 years in the US, France,

Switzerland and the UK before being made a Partner.

He then moved to McKinsey & Co. as a Senior

Partner, leading on projects for five years.

Key external appointments:

None



	William Chalmers Executive director and Chief Financial Officer

Appointed: August 2019

Skills, experience and contribution:

•Significant board-level strategic and financial

leadership experience

•Strategic planning and development, mergers and

acquisitions, equity and debt capital structuring

and risk management

William joined the Board in August 2019, when he

was appointed Chief Financial Officer and was

Interim Group Chief Executive from May 2021 to

August 2021.

William has worked in financial services for over 25

years and previously held a number of senior roles at

Morgan Stanley, including Co-Head of the Global

Financial Institutions Group and Head of EMEA

Financial Institutions Group. Before joining Morgan

Stanley, William worked for J. P. Morgan, again in the

Financial Institutions Group.

Key external appointments:

None



	Cathy Turner Senior Independent Director

Appointed: November 2022 (Board), September

2023 (Senior Independent Director)

Skills, experience and contribution:

•Significant executive and non-executive financial

services experience

•Knowledge of complex remuneration matters

•Communications expertise with a broad range of

stakeholders including investors, regulators,

government, media and unions

Cathy has significant financial services experience,

having worked in senior executive positions at

Barclays plc and at the Group. Cathy has previously

been a Non-Executive Director and Chair of the

Remuneration Committee of Aldermore Group plc,

Quilter plc, Spectris plc and Countrywide plc.

Key external appointments:

Non-Executive Director of Rentokil Initial plc and

Partner on a part-time basis at Manchester Square

Partners LLP.



	Nathan Bostock Independent non- executive director and Chair of Lloyds Bank Corporate Markets plc and Lloyds Bank GmbH

Appointed: August 2024

Skills, experience and contribution:

•A wealth of financial, risk and regulatory expertise

•Extensive experience in large-scale customer and

corporate facing businesses

•Significant executive experience in the financial

services industry

Nathan was Chief Executive Officer of Santander

UK plc from 2014 until 2022 and then Head of

Investment Platforms at Banco Santander S.A. until

his retirement from Santander in 2023.

Prior to joining Santander in 2014, Nathan was an

executive director and Group Chief Financial Officer

of RBS and previously held the post of Chief Risk

Officer at RBS. Before joining RBS, Nathan held

various senior positions at Santander UK plc between

2004 and 2009, including Executive Director, Finance

Director and commercial Chief Executive Officer roles

in Financial Markets and Corporate Banking and in

Cards and Insurance. He is qualified as a chartered

accountant.

Key external appointments:

Non-Executive Director of Centrica plc1.



	Sarah Legg Independent non-executive director

Appointed: December 2019

Skills, experience and contribution:

•Strong financial leadership and regulatory

reporting skills

•Significant audit and risk experience in financial

leadership

•Strong transformation programme experience

Sarah has spent her entire executive career in

financial services with almost 30 years at HSBC. She

was the Group Financial Controller, a Group General

Manager and CFO for HSBC’s Asia Pacific region. She

also spent eight years as a Non-Executive Director of

Hang Seng Bank Limited.

Key external appointments:

Non-Executive Director of Severn Trent plc, Non-

Executive Director of Man Group plc and a Trustee of

the Lloyds Bank Foundation for England and Wales.

Lloyds Banking Group plc Annual Report and Accounts 2025



	Amanda Mackenzie LVO OBE Independent non-executive director

Appointed: October 2018

Skills, experience and contribution:

•Extensive experience in ESG matters including

responsible business and sustainability

•Strong customer engagement and digital

technology experience

•Significant marketing and brand background

Amanda was Chief Executive of Business in the

Community, of which King Charles III is the Royal

Founding Patron and which promotes responsible

business and corporate responsibility.

Prior to that role, she was a member of Aviva’s Group

Executive for seven years as Chief Marketing and

Communications Officer and was seconded to help

launch the United Nations Sustainable Development

Goals. She is also a former Director of British Airways

AirMiles, BT, Hewlett Packard Inc and British Gas.

Key external appointments:

Non-Executive Director of The British Land Company

plc, Chair of The Queen’s Reading Room and Chair

and partner of Otherwise Partners LLP.



	Harmeen Mehta Independent non-executive director

Appointed: November 2021

Skills, experience and contribution:

•Over 25 years’ experience leading digital, AI-

driven, complex transformation

•Experience of building and running technology-led

businesses and creating new ventures

•A wealth of international and financial services

knowledge having lived in 11 countries and worked

across 30 countries on six continents

Harmeen was appointed Chief Digital and Innovation

Officer at Equinix in April 2025.

Prior to that role, she was Chief Digital and

Innovation Officer at BT and spent seven years as

Global Chief Information Officer and Head of Cyber

Security and Cloud Business at Bharti Airtel, leading

its cloud and security businesses. Earlier in her career,

Harmeen held CIO positions at BBVA, HSBC and

Bank of America Merrill Lynch.

Key external appointments:

Chief Digital and Innovation Officer at Equinix and

Non-Executive Director, UK Parliament, Information

& Digital Board.



	Chris Vogelzang Independent non-executive director

Appointed: June 2025

Skills, experience and contribution:

•Extensive experience in retail and

commercial banking

•Strong understanding of technology’s role

in financial services

•Track record of driving transformation

within organisations

Chris was Chief Executive Officer of Danske Bank A/S

from 2019 until 2021. Prior to that, he held a number

of senior positions at ABN AMRO, including Managing

Board member with responsibility for Retail and

Private Banking, Chief Executive Officer of Retail

Banking for The Netherlands and Chief Executive

Officer of Global Private Banking.

Key external appointments:

Non-Executive Director of Wolters Kluwer N.V.



	Catherine Woods Independent non-executive director

Appointed: March 2020

Skills, experience and contribution:

•Extensive executive experience of international

financial institutions

•Deep experience of risk and transformation

oversight

•Strong focus on culture and corporate

governance

Catherine is a former Deputy Chair and Senior

Independent Director of AIB Group plc where she

also chaired the Board Audit Committee. In her

executive career with J.P. Morgan Securities, she

was Vice President, European Financial Institutions,

Mergers and Acquisitions, and Vice President

Equity Research Department, forming the European

Banks Team.

Key external appointments:

Deputy Chair of BlackRock Asset Management

Ireland Limited.



	Kate Cheetham Chief Legal Officer and Company Secretary

Appointed: July 2019 (Company Secretary)

Skills, experience and contribution:

•Significant legal and governance leadership

experience within financial services

•Strategic functional planning and development,

corporate, mergers and acquisitions, regulation

and risk management

Kate became Group General Counsel (now Chief

Legal Officer) in May 2015 and Company Secretary

in July 2019. Kate joined the Group in 2005 from

Linklaters, where she was a corporate lawyer

specialising in mergers and acquisitions transactions.

Before her current roles, Kate held a number of senior

positions including Deputy Group General Counsel

and General Counsel for Group Legal.


	Audit Committee member
	Board Risk Committee member
	Nomination and Governance Committee member
	Remuneration Committee member
	Responsible Business Committee member
	Committee Chair


	Board changes during the year

	16 June 2025 Chris Vogelzang joined the Board as a non-executive director		31 October 2025 Scott Wheway retired as a non-executive director of the Board and as Chair of Scottish Widows Group3

1Nathan will continue to serve on the Centrica plc board until no later than the end of July 2026. Nathan will join the board of Jupiter Asset Management plc as a non-executive director

and Chair designate on 1 March 2026 and will take on the role of Chair of that company, subject to regulatory approval, with effect from 1 April 2026.

2Chris Vogelzang will be appointed as a member of the Board Risk Committee with effect from 1 April 2026.

3Chris Moulder, the Senior Independent Director of Scottish Widows Group, assumed the role of interim Chair of Scottish Widows Group while a process is run for the appointment of

the next Chair of Scottish Widows Group.

Lloyds Banking Group plc Annual Report and Accounts 2025

Boards of the Ring-Fenced Banks and Group Executive Committee

Boards of the Ring-Fenced Banks

Each of the directors of Lloyds Banking Group plc is also a director

of Lloyds Bank plc and Bank of Scotland plc, which are the banks

within the Group that have been included within the ring-fence

(together, the Ring-Fenced Banks). The boards of the Ring-Fenced

Banks have three additional independent non-executive directors:

Nigel Hinshelwood (Senior Independent Director), Sarah Bentley

and Brendan Gilligan. Read more about the role of the Ring-Fenced

Bank-only directors and the Group’s structure on page 73.

Read the full biographies of the Ring-Fenced Bank-only directors

on our corporate governance page .


	Nigel Hinshelwood Senior Independent Director Lloyds Bank plc and Bank of Scotland plc

Appointed: January 2019

Skills, experience and contribution

•Extensive experience in the financial services

sector in the UK and worldwide

•Significant experience of large-scale

transformation, operations and technology

Nigel was a partner at Ernst & Young and also

held various roles at HSBC, including Deputy CEO

of HSBC Bank plc, Head of HSBC Insurance Holdings,

Chief Operating Officer for EMEA and Global Head

of Operations.


	Sarah Bentley Non-executive director Lloyds Bank plc and Bank of Scotland plc

Appointed: January 2019

Skills, experience and contribution

•Extensive digital and digital transformation

experience

•Strong customer and marketing skills

Sarah was formerly Chief Executive Officer and

Executive Director of Thames Water Utilities Limited.

Prior to those roles, Sarah was Chief Customer

Officer at Severn Trent plc and a member of its

Executive Committee and the Managing Partner for

Accenture’s Digital business unit in the UK & Ireland.


	Brendan Gilligan Non-executive director Lloyds Bank plc and Bank of Scotland plc

Appointed: January 2019

Skills, experience and contribution

•Extensive experience in core strategic finance

and controllership roles in the financial

services industry

•Significant experience of serving on the boards of

regulated financial services businesses in the UK,

France, Switzerland and Poland

Brendan worked in commercial and consumer

banking services and financing with Woodchester

Investments plc and, after its acquisition by General

Electric Company, with GE Capital.

Our Group Executive Committee


	Charlie Nunn Executive director and Group Chief Executive Appointed: August 2021


	William Chalmers Executive director and Chief Financial Officer Appointed: June 2019


	Chirantan Barua Chief Executive Officer, Scottish Widows and Insurance, Pensions and Investments Appointed: May 2023


	Kate Cheetham Chief Legal Officer and Company Secretary Appointed: July 2017


	Elyn Corfield1 Chief Executive Officer, Business and Commercial Banking Appointed: July 2022


	Sharon Doherty Chief People and Places Officer Appointed: June 2022


	Ron van Kemenade Chief Operating Officer Appointed: June 2023


	Laura Needham Chief Internal Auditor Appointed: October 2022


	Jayne Opperman Chief Executive Officer, Consumer Lending Appointed: January 2023


	Stephen Shelley Chief Risk Officer Appointed: September 2017


	Jasjyot Singh OBE Chief Executive Officer, Consumer Relationships Appointed: July 2022


	Andrew Walton Chief Sustainability Officer and Chief Corporate Affairs Officer Appointed: September 2018


	John Winter2 Chief Executive Officer, Corporate and Institutional Banking Appointed: September 2022

1Elyn Corfield will step down as

Chief Executive Officer for Business

and Commercial Banking and be

succeeded by Amanda Murphy at

the end of February 2026, subject


	Read the full biographies of the Group Executive Committee

to regulatory approval.

2John Winter will step down as Chief

Executive Officer for Corporate and

Institutional Banking and be succeeded

by John Langley in March 2026, subject

to regulatory approval.

Lloyds Banking Group plc Annual Report and Accounts 2025

Our governance structure and responsibilities

The role of the Board

The Board is responsible for promoting and assessing the Group’s

long-term sustainable success, generating value for shareholders

and contributing to wider society. It sets the Group’s purpose,

values and strategy, with the aim of Helping Britain Prosper –

read more on pages 74 to 75 and 78.

The Board is also responsible for establishing and promoting

a culture of customer focus (including treating customers fairly),

risk awareness and ethical behaviours through the Group values,

and monitoring how that culture has been embedded.

Read more about the Board’s customer focus on pages 30 to 31 and

74 to 76 and about its monitoring of culture on page 79.

The Board is also responsible for ensuring that the Group’s culture is

aligned with its purpose, values and strategy – read more on pages

74 to 75 and 79.

The Board believes that engaging with stakeholders is crucial for

achieving the Group’s strategy and long-term goals. Details on

stakeholder engagement are on pages 76 to 78 and the directors’

section 172(1) statement is on pages 30 to 31.


	Our Board and governance structure

Lloyds Banking Group Board

Chair

Executive

directors

Non-executive

directors

Company

Secretary

Sir Robin

Budenberg

Group Chief

Executive:

Charlie Nunn

Chief Financial

Officer:

William Chalmers

Senior

Independent

Director:

Cathy Turner

Nathan Bostock

Sarah Legg

Amanda Mackenzie

Harmeen Mehta

Chris Vogelzang

Catherine Woods

Kate

Cheetham

Group Chief

Executive

Committees

See page 140

Board Committees

Nomination

and Governance

Committee

Audit

Committee

Board Risk

Committee

Remuneration

Committee

Responsible

Business Committee

Responsible for keeping

the Board’s governance

arrangements under review,

ensuring there is a formal,

rigorous and transparent

procedure for the

appointment of new

directors, ensuring Board

and senior management

succession plans are in

place, leading the process

for Board appointments

and assisting the Board in

ensuring its composition

is regularly reviewed

and refreshed.

Responsibilities include

monitoring and reviewing

the formal arrangements

established by the Board in

respect of the integrity of

the financial reporting and

narrative reporting of the

Group and the Company,

the independence and

effectiveness of the

internal and external

audit functions and the

effectiveness of the internal

controls and the risk

management framework.

Responsible for assisting the

Board in fulfilling its risk

governance and oversight

responsibilities, including

oversight of the

development,

implementation and

maintenance of the

Company’s risk appetite,

risk principles and overall

risk management and

internal control framework.

Responsibilities include

reviewing and approving

the remuneration policy

and framework for the

directors of the Group and

the overall remuneration

policy for the Group

and overseeing the

implementation of

those policies.

Responsibilities include

providing oversight of and

support for the Group’s

strategy and plans for

delivering the Company’s

aspirations to become a truly

purpose-driven organisation,

considering and recommending

to the Board for approval

the Group’s reporting relating

to purpose and sustainability

matters, oversight of the

Group’s Consumer Duty

responsibilities and being

the designated body for

workforce engagement.

See page 85

See page 88

See page 92

See pages 98 to 102 and 105

See page 97


	The terms of reference for the Board Committees can be found on our corporate governance page

Lloyds Banking Group plc Annual Report and Accounts 2025

Division of responsibilities

There is a clear, written division of responsibilities which is

documented in the Group's Corporate Governance Framework

and provides that:

•The Chair has overall responsibility for the leadership of the

Board and ensuring its effectiveness in all aspects of its operation

•The Senior Independent Director acts as a sounding board for

the Chair on Board and shareholder matters and as a conduit for

the views of non-executive directors. The Senior Independent

Director is available to help resolve shareholders’ concerns where

necessary and attends meetings with major shareholders to

understand issues and concerns

•The Group Chief Executive manages and leads the business

The Chair and the independent non-executive directors challenge

management constructively and help develop and set the Group’s

strategy. They actively participate in Board decision making.

Board meetings

There are separate boards and board committees of Lloyds Banking

Group plc, Lloyds Bank plc, Bank of Scotland plc and HBOS plc,

but most meetings are held concurrently under the ‘Aligned Board

Model’. As most of the Group’s business sits within the Ring-Fenced

Banks, the interests of the Ring-Fenced Banks, Lloyds Banking

Group plc and HBOS plc are aligned in most circumstances. This

model is supported by a number of safeguards to enable the Group

to operate in this way including the appointment of three Ring-

Fenced Bank-only non-executive directors and a Ring-Fenced Bank

Risk Officer, all of whose primary focus is on protecting the interests

of the Ring-Fenced Banks.

Lloyds Banking Group plc has a continuous agenda-setting and

escalation process to ensure the Board receives timely and relevant

information for decision making. Led by the Chair, with support

from the Group Chief Executive and the Company Secretary, this

ensures that sufficient time is allocated for strategic discussions and


		Read more about the roles of the Chair, the Senior Independent Director, the Group Chief Executive and the Board on our corporate governance page

business critical items. The process for escalating issues and setting

agendas is regularly reviewed and enhanced as needed. Read more

about Board activities on pages 74 to 75 and 78.


	Group structure and ring-fencing governance arrangements

	Since 1 January 2019, UK legislation has required large UK banks to separate personal banking services, such as current and savings accounts, from riskier activities, such as investment banking, in other parts of their business. This is called ring-fencing. The Group’s structure and governance arrangements meet these regulatory requirements. As mentioned on page 71, Lloyds Bank plc and Bank of Scotland plc are the banks within the Group which have been included within the ring-fence (together, the Ring-Fenced Banks). The governance structure focuses on ensuring: •Independent decision making by the Ring-Fenced Banks’ boards – on any matters where there might be a conflict between the interests of the Ring-Fenced Banks and the interests of another part of the Group and that any such conflicts are identified and appropriately managed •Risks affecting the Ring-Fenced Banks are considered and managed from the Ring-Fenced Banks’ perspective – including maintenance of the capital adequacy and liquidity of the Ring-Fenced Banks •Clear and effective governance at both Ring-Fenced Bank level and Lloyds Banking Group plc level – including second and third lines of defence in respect of risk management		The subsidiaries in the Group are structured into the following sub-groups under Lloyds Banking Group plc, providing effective governance for the business undertaken in each sub-group: •Ring-Fenced Banks sub-group containing Lloyds Bank plc and Bank of Scotland plc (including the Halifax and MBNA businesses), serving both their personal and commercial customers •Non-Ring-Fenced Bank sub-group – Lloyds Bank Corporate Markets plc – which provides products and services to Group customers that are not allowed within the ring-fence, as well as serving financial institutions’ customers and holding certain of the Group’s subsidiaries and branches outside the UK •Insurance sub-group under Scottish Widows Group Limited (including Scottish Widows Limited) •Equity sub-group under LBG Equity Investments Limited (including Lloyds Development Capital (Holdings) Limited) The boards of the Ring-Fenced Banks comprise all of the Group directors plus three additional independent non-executive directors: Nigel Hinshelwood (Senior Independent Director), Sarah Bentley and Brendan Gilligan – read their biographies on page 71. These Ring-Fenced Bank-only directors are independent of the management and the rest of the Group and their role is to act exclusively in the best interests of the Ring-Fenced Banks. They therefore play a crucial role in the governance structure, with an enhanced role in managing any potential conflicts between the Ring-Fenced Banks and the Group.


	Lloyds Banking Group plc simplified sub-group structure

Lloyds Banking Group plc Board


Aligned boards Lloyds Bank plc1 HBOS plc Bank of Scotland plc1 1 Ring-Fenced Banks	Lloyds Bank Corporate Markets plc Non-Ring-Fenced Bank	Scottish Widows Group Limited Insurance	LBG Equity Investments Limited Equity Investments

Lloyds Banking Group plc Annual Report and Accounts 2025

Board activities

Overview

These pages highlight some of the Board’s main

activities throughout the year, with a timeline

of key discussions, outcomes, in-depth sessions

and external insights

Agenda planning

Each Board meeting agenda includes standing updates and

other items for consideration by the Board. The Board regularly

receives reports from the Group Chief Executive, Chief Financial

Officer, Chief Operating Officer and Chief Risk Officer,

providing insights on important strategic, financial, operational

and risk matters for the Group. Chairs of Board Committees

and major subsidiaries deliver regular updates to the Board on

recent meetings and activities. The Board also receives a

standing corporate governance update, covering emerging

governance developments, annual governance framework

and policy reviews and governance-related approvals. Agendas

provide for other items to be considered by the Board as

relevant including certain topics at different stages as

management’s thinking evolves.

January

Discussion matters included

•Preview of 2024 results and year end distribution options

•Progress against strategic transformation metrics

•Culture transformation progress

Key decisions/outcomes included

•Approved ESG-related disclosures and targets

•Approved matters relating to the risk management

framework, risk appetite and risk metrics

•Approved directors’ suitability for election/re-election and

non-executive directors’ independence

February

Discussion matters included

•Performance against customer engagement goals and

an update on co-servicing strategy

•An update on the ‘Speak Up’ whistleblowing programme

•Insights from Internal Audit on the Group’s control

Board training

During the year, Board members had the opportunity to

attend training sessions, which were designed to keep the

Board informed on a range of relevant topics and emerging

focus areas. Training topics are selected and agreed

through a collaborative process involving key executive

teams, the Company Secretary and the Nomination and

Governance Committee. For more detail on the training

programme and the topics covered, see page 87.

environment

Key decisions/outcomes included

•Approved the Group’s operating plan, which sets out the

Group’s business forecast

•Agreed proposed 2025 metrics for assessing customer

experience outcomes

•Approved the 2024 annual report and accounts and

capital distributions

•Approved the Modern Slavery and Human Trafficking

Statement

•Approved an updated policy on Board and Group Executive

Committee share dealing

•Adopted recommendations from the 2024 Board

performance review


	Topics key:
	Strategy Customers and clients Purpose, culture and values Sustainability Risk management and regulatory Financial Governance Political and economic environment

April

Discussion matters included

•An update on the reputational and political environment

•Business unit performance and strategy updates

•Aspects of the Group’s proposed strategic vision beyond 2026

Key decisions/outcomes included

•Approved the operational resilience self-assessment

•Approved the refreshed Corporate Governance Framework

•Approved the Q1 2025 financial results

External insights

The Group’s brokers joined the Board for a discussion on the

financial services market, including the competitive landscape,

as well as shareholder engagement activities.

Lloyds Banking Group plc Annual Report and Accounts 2025

May

Discussion matters included

•Business unit performance and strategy updates

•An update on geopolitical developments

•An update on the economic crime prevention programme

Key decisions/outcomes included

•Provided feedback to management on discussions around

the Group’s proposed strategic vision beyond 2026

In-depth session/external insights

At a session presented by external speakers, the Board discussed

developments in the private credit market. A joint session was also

held with the Lloyds Bank Corporate Markets and Scottish

Widows boards to discuss business growth and strategic progress.

The Board also attended the annual general meeting.

June

Discussion matters included

•Further discussion on progress against strategic

transformation metrics

•Business unit performance and strategy updates, including

further consideration of co-servicing strategy developments

•Customer insights and performance against Group metrics

for assessing customer experience outcomes

•An update on generative AI initiatives

•A briefing on the proposed acquisition of Curve

•The format of financial results reporting from 2026

Key decisions/outcomes included

•Approved the appointment of Chris Vogelzang as a director

•Approved the annual Consumer Duty report

•Approved the Bank Capital Stress Test results

In-depth session and external insights

As part of a two-day offsite event, the Board held a dedicated

session on the Group’s proposed strategic vision beyond 2026

(read more on page 78) and a session on geopolitical

developments, facilitated by an external speaker.

July

Discussion matters included

•Progress with risk and culture transformation programmes

•The Chief Internal Auditor’s views on the control environment

•Business unit performance updates

•The FCA’s firm evaluation letter and, with the FCA in

attendance, the FCA’s regulatory strategy

•The PRA’s periodic summary review letter with the PRA

in attendance

Key decisions/outcomes included

•Approved the 2025 interim dividend and half year results,

including the announcement of changes to the format of

financial reporting from 2026, as discussed by the Board in June

•Approved the acquisition of the outstanding interest in

Schroders Personal Wealth and discussed customer benefits

and experience as part of the proposals

September

Discussion matters included

•Strategic vision and operational transformation beyond 2026

•An updated view of the reputational and political environment

•Business unit performance and strategy updates, including

further review of co-servicing strategy

•Performance against Group metrics for assessing customer

experience outcomes

•Key outcomes and conclusions from the annual Group

incident exercise

Key decisions/outcomes included

•Approved the proposed cost of equity metric for 2025

•Approved updates to certain risk appetite metrics

•In October, the Board approved the Q3 2025 financial results

November

Discussion matters included

•Business unit performance and strategy updates

•An update on workforce engagement activities during

the year

Key decisions/outcomes included

•Further discussed the proposed acquisition of Curve and the

opportunity to offer broader differentiation for customers

•Discussed changes to colleague defined contribution pensions

•Approved annual ring-fencing compliance matters

•Approved the Board Inclusion Policy

In-depth session

The Board held a two-day offsite event which included a

dedicated session to continue to explore the strategic vision

beyond 2026 (read more on page 78).

December

Discussion matters included

•Updates from business unit CEOs, Finance, the Chief

Operating Office and Risk on the operating plan approach

•Economic considerations and assumptions for the

operating plan

•Customer insights and the development of the Group’s 2026

metrics for assessing customer experience outcomes

•Recommendations from the Board performance review

Key decisions/outcomes included

•Provided feedback on the operating plan, which sets out

the Group’s business forecast, and confirmed support for

the approach

•Approved further changes to the share dealing policy and

a new share dealing portal for Board and Group Executive

Committee members

External insights

A Board development session (supported by an external

facilitator) followed on from a previous session held

in November 2024 and included a discussion focused

on digital assets.

Lloyds Banking Group plc Annual Report and Accounts 2025

Engaging with our stakeholders

Stakeholder engagement

The Board recognises the fundamental importance of engaging with

its stakeholders, gaining a deeper understanding of their views and

the importance of this understanding in informing their discussions

and decision making. During the year, key stakeholders included

customers, clients, colleagues, shareholders, communities,

regulators and suppliers.

The Group’s Closer to Customers, Clients and Colleagues

programme remains a key method by which non-executive directors

hear directly from the Board’s stakeholders.

The programme helps the directors better understand the

important issues for the Group’s stakeholders, the role the Group

plays in supporting them and how the Group is performing here.

Activity under the programme, along with other forms of director

engagement, is described below. Examples of decision making by

the Board which had particular relevance to their stakeholder

engagement can be found on pages 30 to 31.




	Customers and clients		How does that engagement impact Board decisions? •Hearing directly from customers and clients helps better determine the action the Group takes now and in the future to best support our customers’ needs •Direct engagement helps the Board in ensuring the Group can best meet its Consumer Duty obligations •Regular updates from the executive team help to identify opportunities for innovation and improvement to better support our customers and clients •Review of the Group customer dashboard gives the Board the opportunity to ensure meaningful changes are delivered to further improve customer outcomes
	Customers and clients

	Why does the Board engage? The Board’s engagement with customers is central to the Group’s customer-centric approach, including the Group’s ability to evolve to meet changing customer needs and support our customers in achieving their financial ambitions. How did the Board engage? •Sessions providing deeper insight into the issues faced by specific customer groups, including single person households, small businesses and later life including retirement •Holding events with clients in Edinburgh, Manchester and London to hear directly from them on the issues their businesses are facing •Regular updates to the Board by the executive team gave insight into the Group’s performance in delivering on its customer and client-related objectives, including customer insight sessions and ongoing consideration of the Group customer dashboard •Concerns relevant to customers and clients were identified for consideration in wider proposals put to the Board



		Engagement in action

	Pension engagement During the year, the Board and its Remuneration Committee consulted with colleagues on proposals to move the Group’s UK defined contribution pension provision from Your Tomorrow and Your Retirement Plan to the Scottish Widows Master Trust. The Board engaged with colleagues to understand their views through a comprehensive digital first consultation process. This included around 1,800 items of feedback formally submitted by colleagues across all grades, business units and age groups. Trade union partners, including Accord and Unite, were also consulted, along with the Group’s People Consultation Forum, allowing collective consultation and a number of relevant questions to be raised, resulting in no formal objections or requests for further action. The Board was pleased to have the opportunity to hear from colleagues and representatives so as to be able to take their views into account prior to making the decision to transfer the future pension provision of the Group’s UK colleagues to the Scottish Widows Master Trust from 2026.

Lloyds Banking Group plc Annual Report and Accounts 2025



	Colleagues		•Helps the Board gain additional insight on matters which colleagues have raised as part of wider engagement activity and allows progress against matters raised to be monitored
	Colleagues

	Why does the Board engage? The Board’s ambition is that the Group continues to be a place where people who are passionate about our purpose wish to work. Engagement with colleagues helps to understand better how they remain motivated to achieve our purpose with the skills needed to deliver on the Group’s wider strategic objectives. How did the Board engage? •Held a number of colleague engagement and recognition events with the opportunity to hear directly from colleagues and recognise their achievements in supporting our customers •Considered reports on key themes raised during colleague engagement activity, including the work of the People Forum, the People Consultation Forum and the Management Advisory Forum •Review by its Responsible Business Committee of findings from surveys of colleague sentiment and other colleague engagement reports How does that engagement impact board decisions? •Allows the Board to understand directly colleague views on the Group’s progress against its strategy, including what could improve this progress, and colleague observations from interacting with customers, further informing wider Board decision making



		Engagement in action

	Engaging with our workforce The Board’s Responsible Business Committee is the designated body for workforce engagement, providing focus, but with the Board retaining a commitment for individual Board members to engage with colleagues directly throughout the year. The Responsible Business Committee reports regularly to the Board on its colleague engagement agenda. The Board considers these arrangements to be effective as the work of the Responsible Business Committee combined with the other colleague engagement methods in this section allows engagement with diverse colleague groups.



	Shareholders		•The Board’s Nomination and Governance Committee considered correspondence from institutional shareholders and non-governmental organisations along with market feedback. The Committee also reviewed initiatives aimed at enhancing shareholder processes to ensure they remain effective and aligned with regulatory and shareholder expectations •Directors engaged with shareholders at the Group’s annual general meeting and encouraged shareholder participation by inviting questions and facilitating open discussion How does that engagement impact Board decisions? •Shareholder feedback helped the Board to better understand investor sentiment, in turn informing relevant discussions and decision making, including in relation to the Group’s strategic progress •Feedback also helped to inform the ongoing development of the Group’s approach to communicating with external parties
	Shareholders

	Why does the Board engage? With one of the largest shareholder bases in the UK, the Board remains committed to understanding the needs and expectations of our shareholders, both private and institutional, helping to further inform Board decision making. How did the Board engage? •Directors including the Chair, Group Chief Executive and Chief Financial Officer met regularly with institutional shareholders, both in the UK and internationally •Considered updates from Investor Relations on market views and shareholder sentiment, including an annual presentation from our corporate brokers on matters including perceptions of the Group



	Communities and environment		•The Board continues to be supported in environmental matters by its Responsible Business Committee, which considers stakeholder views on matters relating to the Group’s ambition to be a trusted, sustainable, inclusive and responsible business. The report of that Committee can be found on page 97 How does that engagement impact Board decisions? •Engagement with the Group’s charitable partners allowed the Board to better understand the Group’s impact within local communities •The work of the Responsible Business Committee gives the Board deeper insight into its role as both an employer and a collaborator within the communities in which the Group is present
	Communities and environment

	Why does the Board engage? The Group’s presence in a large number of communities across the UK continues to reinforce the importance of engagement and action to help these communities prosper, while also helping to build a more sustainable and inclusive future. How did the Board engage? •Members of the Board met with representatives of charities and community groups supported by the Group’s charitable foundations

Lloyds Banking Group plc Annual Report and Accounts 2025

Engaging with our stakeholders continued



	Regulators and government		•Discussions included the Board’s role in oversight of the Group’s key risks and the execution of its strategy •The PRA and FCA attended a meeting of the Board during which progress against actions from their Periodic Summary Meeting and Firm Evaluation letters were discussed •Directors engaged with the Government during the year on matters relating to the impact of policy on the financial services sector How does that engagement impact Board decisions? •Ongoing direct discussions allow the Board to better understand the regulators’ and the Government’s priorities and how these are best acknowledged in the Board’s wider decision making
	Regulators and government

	Why does the Board engage? The Board recognises the importance of its ongoing constructive relationships and dialogue with both government and the regulatory authorities in markets in which the Group operates, in particular in achieving the Group’s strategic ambitions, and continuing to deliver for the Group’s wider stakeholders. How did the Board engage? •Directors held ongoing discussions with the FCA and PRA on various aspects of the regulatory agenda



	Suppliers		•The Board continued to oversee resilience in the supply chain ensuring the Group’s most important supplier relationships were not impacted by potential material events How does that engagement impact Board decisions? •Ensures the Group’s approach continues to meet wider industry standards on supplier management, in particular supplier payment practices •Allows a deeper understanding of our supply chain and the degree to which our suppliers’ operations align to the strategy and purpose of the Group
	Suppliers

	Why does the Board engage? The Board recognises the importance of the partners the Group relies on for key aspects of the Group’s operations and strengthening these relationships to achieve both the Group’s and its suppliers’ wider ambitions. How did the Board engage? •The Audit Committee considered reports from the Group’s Sourcing and Finance teams on the efficiency of supplier payment practices, including those relating to the Group’s key suppliers


	Strategy discussions

	While strategy was regularly discussed at Board meetings throughout the year, the Board also participated in two dedicated strategy sessions which were held offsite. These sessions provided the opportunity for iterative engagement on strategy between the Board and the executive team, enabling early input on emerging plans and ongoing dialogue as the strategy developed. The sessions also allowed the Board to test strategic assumptions from a stakeholder perspective. June Topics discussed at the June offsite session included the complex external environment, its potential evolution beyond 2026 and key considerations for the Group. The Board also discussed the development of the Group’s purpose ambitions and focus areas, scope for efficiencies in the Group’s operating model and the potential strategic vision beyond 2026 for the Group and specific businesses.		November At the offsite session in November, the Board continued to explore the potential strategic vision beyond 2026. Discussion topics included consideration of potential strategic focus areas for each of the Group’s business units as well as further refinement of the Group’s purpose outcomes. The Board also considered changes in the market and external environment since the offsite discussion in June, with a particular focus on the pace of development and impact of generative AI.


Grow	Focus	Change

Drive revenue growth and diversification	Strengthen cost and capital efficiency	Maximise the potential of people, technology and data

Lloyds Banking Group plc Annual Report and Accounts 2025

Our culture in action


	How the Board monitors and assesses culture

	The directors continue to engage with colleagues to deepen their understanding of how culture is experienced across the Group. Colleague listening is a core part of the Group’s culture, using an ongoing feedback system to inform transformation and performance. Methods used by the Board to monitor and assess culture in 2025 included: •Board participation in quarterly ‘listening sessions’, part of the Group’s ‘Closer to Customers, Clients and Colleagues’ programme of engagement, where colleagues shared views with the Board on key topics such as culture, collaboration and risk. Groups of colleagues interacted with this year include Next Generation Talent, Leaders and Lloyds Technology Centre colleagues •Board consideration of the results of surveys (annual and regular pulse) designed to understand colleague sentiment and highlight any cultural issues focus areas such as simplification •Feedback from focus groups whereby colleagues shared views on our ways of working, inclusion, decision making and AI and technology •Branch visits and colleague breakfasts attended by non-executive directors and the Chair, which gave colleagues the opportunities to share their views •Review of the Group culture dashboard – read more below The Chair and Group Chief Executive have comprehensive colleague engagement programmes throughout the year.


	Outcomes of the Board’s monitoring and assessment

	Insights gained from the Board’s engagement with colleagues and from colleague feedback more generally are reviewed by the Responsible Business Committee as the designated workforce engagement body and key themes and results are shared with the Board on a quarterly basis. During 2025, these insights enabled the Board to consider progress on, and actions required to continue to advance towards, workforce and cultural transformation ambitions and also to satisfy itself that workforce engagement methods and associated updates remain appropriate and effective. As a result, the Board provided input into 2026 cultural focus areas across simplicity, accountability and performance and requested the executive establish a methodology and metrics to track the Group’s cultural and behavioural change. The 2025 Board listening sessions provided the Board with colleague views on crucial topics such as the Group’s approach to risk, collaboration between teams, use of AI and simplification. This feedback enabled the Board to input into the iteration of key transformation and culture programmes, for example helping shape the Group’s programme of work to remove barriers and blockers so we can deliver more value to customers at pace. The 2025 annual colleague survey demonstrated observable cultural outcomes whereby key metrics across all indices improved, including the Group’s employee engagement index improving and its colleague advocacy (net promoter) score increasing.



	Embedding the desired culture

	The Group culture dashboard is a key element of how the Group embeds the desired culture throughout the organisation. Introduced in November 2023 and shared twice yearly with the Board, the dashboard tracks insights related to performance, change and customer outcomes and identifies blockers to our cultural goals. The dashboard’s outcomes are a key input to culture plans, driving action towards cultural transformation and creating a strong culture that drives good customer outcomes. This, alongside our Group cultural framework, which aligns values throughout the organisation and promotes colleague listening activity and culture and people plans, plays a key role in embedding the Group’s culture.

Employee

engagement index

75%

up 4pts vs 2024

Colleague advocacy

(net promoter) score

+23

up 15pts vs 2024

Manager net

promoter score

+62

up 7pts vs 2024

MyVoice annual survey

response rate

85%

up 4pts vs 2024

Lloyds Banking Group plc Annual Report and Accounts 2025

Sustainability governance

Given the strategic importance of our sustainability ambitions

and commitments in managing the impacts arising from climate

change and broader social issues, the Group’s governance structure

provides clear oversight and ownership of the Group’s sustainability

strategy and management of risks and opportunities.

Sustainability-related responsibilities at Board level are overseen

by the Responsible Business Committee, with specific reporting,

remuneration and risk management responsibilities in relation to

sustainability-related matters (including climate) shared with the

Audit Committee, Remuneration Committee and the Board Risk

Committee. This ensures appropriate Board-level coordination

and cooperation on these matters.

Climate risks and opportunities are identified, assessed and

managed by business unit level teams governed via functional and

divisional level steering groups and committees including the Group

Risk Committee. For further details on the control environment

operating at a business unit level for climate-related controls,

please see page 125 of our sustainability report .

The Responsible Business Committee oversees the Group’s delivery

of its purpose including the delivery of our sustainability strategy.

It conducts deep dives into current priority areas and escalates for

review and discussion to the Board as appropriate. The Group’s

purpose pillars are outlined on page 14.

The Committee also makes recommendations to the Board for

social strategies and environmental sustainability activities.

The Remuneration Committee plays a key role in embedding

sustainability into executive performance management. It oversees

the integration of ESG performance measures into the Group’s

balanced scorecard and LTIP frameworks, thereby aligning

remuneration outcomes with the Group’s sustainability ambitions

and climate-related goals.

We engage proactively with investors and other key stakeholders

throughout the year on our sustainability priorities and plans. Given

sustainability is at the heart of our purpose-driven strategy, with

ambitious climate targets reflected in strategic objectives, the

progress already being made in this area and the Group’s existing

focus on enhanced disclosure, transparency and engagement, the

Board does not believe it is necessary to propose a separate climate

vote at our 2026 annual general meeting at this time. We will

continue to be transparent on our support for the UK’s transition,

our ambitions and targets, plans and progress and to consider on a

regular basis whether to propose a climate vote.

Executive-level governance

The accountable executive for the Group’s sustainability strategy is

the Chief Sustainability Officer and Chief Corporate Affairs Officer,

with relevant teams in place to drive this strategy forward. There

are four key committees that provide management oversight at

an executive level: the Group Sustainability Committee, the Group

Risk Committee, the Group Disclosure Committee and the Group


	Our sustainability governance structure

	Board level
	Lloyds Banking Group plc Board1

	Responsible Business Committee (RBC)2		Board Risk Committee (BRC)	Audit Committee (AC)	Remuneration Committee (RemCo)

	Executive level

	Group Sustainability Committee (GSC)		Group Risk Committee (GRC)	Group Disclosure Committee (GDC)	Group Executive Committee (GEC)1

	Business and functional level

		Divisional and functional-level climate and sustainability steering groups or committees
1The Chair of the Scottish Widows Board (except for any Interim Chair) sits on the Lloyds Banking Group plc Board. The Scottish Widows CEO sits on the Group Executive Committee and updates the Group Executive Committee on relevant insurance matters which can include papers for Group Executive Committee consideration. 2The Chair of the Responsible Business Committee, Amanda Mackenzie, is a non- executive director on the Board, a member of the Remuneration Committee, the Nomination and Governance Committee and the Audit Committee. Amanda helps ensure that sustainability is discussed and considered by the Board. Amanda has extensive experience in ESG matters, including helping launch the United Nations Sustainable Development Goals.

Executive Committee. These are supported by a number of divisional

and function-level teams who consider sustainability topics.

Group Sustainability Committee governance

The Group Sustainability Committee provides direction and

oversight of the Group’s sustainability strategy, as well as oversight

of the Group’s approach to meeting external environmental and

social ambitions and targets. Through regular meetings the Group

Sustainability Committee reviews sustainability opportunities and

makes recommendations to the Group Executive Committee and

the Responsible Business Committee where appropriate.

The Group Sustainability Committee is supported by divisional and

functional-level teams; further details on their role can be found on

pages 120 of our sustainability report .

Group Risk Committee governance

Responsibility for overseeing the management of financial risks

from climate change rests with the relevant Chief Risk Officers

across the Group, who have Senior Management Function (SMF)

responsibility covering the Ring-Fenced Banks (Lloyds Bank plc

and Bank of Scotland plc), Lloyds Bank Corporate Markets and

the Solvency UK regulated entities in Scottish Widows Group

(under Scottish Widows Group, its Finance Director has additional

SMF responsibilities to manage the risks while the Chief Risk Officer

has oversight).

The Group Risk Committee oversees the Group’s management of

emerging and principal risks such as climate risk, operational risk,

conduct risk and economic crime. Climate risk is considered

regularly through the Group’s risk reporting to the Group Risk

Committee in addition to standalone updates on an annual basis

which inform discussions at the Board Risk Committee. Relevant

updates are also provided across the Group’s key legal entities,

as required. Additional engagement on relevant climate-related

matters is undertaken through the existing risk governance

structure, for example sector risks and opportunities related

to climate are presented and discussed at senior credit forums.

Group Disclosure Committee governance

The Group Disclosure Committee provides oversight of the

accuracy, completeness and timeliness of disclosures made to the

market and/or prospective investors. This includes sustainability

disclosures in our annual report and accounts, sustainability

report and separate sustainability supplements .

Lloyds Banking Group plc Annual Report and Accounts 2025



		Sustainability in action

	Modern slavery Board training In 2025, the Group delivered targeted human rights and modern slavery training for senior leaders, including the Board and Group Executive Committee. The Board undertook a voluntary session on the evolving global legal landscape, highlighting financial sector responsibilities and the strategic importance of embedding human rights into core business practices. The training, supported by Unseen UK, explored risks across operations, supply chains, lending and investments, and it shared practical examples of how integration strengthens resilience and integrity. This initiative reinforces the Group’s commitment to responsible business conduct, equipping leaders to manage human rights risks and supporting long-term sustainability objectives.

Group Executive Committee governance

Climate considerations form part of our planning and forecasting

activities. This includes forecasting of our Bank financed emissions

to 2030 for our high-carbon-intensive sectors. These emissions

forecasts are included as part of our operating plan process, shared

with the Group Executive Committee and the Board.

Business and functional level

Executive-level governance of sustainability risk is supported by

existing governance structures across our divisions that are used

to oversee decisions related to sustainability risk that impact

the divisions, ensuring sustainability risks are managed as part

of regular activity.


	Key sustainability topics discussed at the Board’s Committee meetings in 2025
	Across the Group’s governance structure, key areas of discussion at Board Committee level are detailed below in relation to the Group’s sustainability strategy, targets and approach to managing climate-related risk. These Committees meet at least quarterly with sustainability matters, including climate, discussed at a number of these meetings. There were 12 specific updates given to the Board in 2025 on climate-related matters.
	Lloyds Banking Group plc Board
	Committee		Sustainability topics discussed
	Responsible Business Committee See the Responsible Business Committee report on page 97		•The Committee recommended to the Board the Group’s updated Consumer Lending Sustainable Finance targets for Mortgages and Motor and restatement of the Group’s operational carbon targets ahead of publication of the 2024 Sustainability Report •Purpose pillar deep dives on regional development, inclusion, financial empowerment and environmental sustainability •Monitoring progress against climate ambitions, targets, pledges and strategic levers •Discussion on plans and progress across environmental sustainability strategy and our approach for nature •Recommended to the Board the approval of the external sector statement, modern slavery and human trafficking statement and annual Consumer Duty Board report •Review of sustainable finance framework updates •Review of colleague engagement strategy, feedback and outcomes •Discussion on community engagement
	Board Risk Committee See the Board Risk Committee report on pages 92 to 96		•Review of the key climate risks facing the Group, including uncertainty of the transition to a low-carbon economy, especially for sectors which are heavily dependent on technological development and government policy •Update on the PRA’s expectations for managing climate-related risks, as outlined in Consultation Paper 10/25, noting this aligns with the Group’s direction, including in relation to the development of internal scenario modelling and capabilities to assess these •Review of the Board climate risk appetite, while looking to ensure the Group avoids risks from potential economic and social misalignment in material sectors such as homes and agriculture •Wider sustainability topics included: the Group’s treatment of vulnerable customers, generative AI deep dive which outlined the Group’s AI ethics principles and how use cases are overseen via the Data and AI Ethics Committee, economic crime deep dive and key drivers of people risk and mitigating action
	Audit Committee See the Audit Committee report on pages 88 to 91		•Review of developments with regulations including UK Sustainability Reporting Standards, US and EU regulations, including Corporate Sustainability Reporting Directive •Activity to assess impacts of climate-related risks and opportunities on the financial statements including quantification of impacts of climate risk on Expected Credit Loss •Updates on the control environment embedded to support 2025 sustainability reporting, including assurance •Review of sustainability reporting approach and integrated sustainability disclosures for the Group in 2025
	Remuneration Committee See the Director’s remuneration report on pages 121 and 122		•Review and approve performance measures, weightings and targets used in the scorecards that inform the remuneration of executive directors. Executive remuneration is linked to the successful delivery of the Group’s long-term strategy and considers measures relating to financial and non-financial performance, including sustainability measures aligned to our public commitments on climate change, promoting inclusion and diversity and colleague engagement •Regularly discuss Group performance, including relevant headwinds/tailwinds underlying that performance, in the context of both all-colleague and executive remuneration, ensuring reward outcomes appropriately properly reflect overall stakeholder experience

Lloyds Banking Group plc Annual Report and Accounts 2025

Board performance

Board performance review

How the Board performs and is evaluated

The annual Board performance review provides an opportunity

to identify improvements to its effectiveness, maximise strengths

and highlight areas of further development, enabling the Board to

continuously improve its own performance and the performance of

the Group. The Board is committed to the independent evaluation

of its own performance and that of its Committees at least once

every three years, as recommended by the UK Corporate

Governance Code 2024. An externally facilitated evaluation

was conducted in 2022, with internal evaluations having been

conducted in 2023 and 2024, and therefore the Board

performance review was externally facilitated in 2025.

The Chair of the Board, with the support of the Nomination and

Governance Committee, leads the Board in considering and

responding to the review of the Board’s effectiveness, which

includes a review of its Committees and individual directors.

Performance evaluation of the Chair is carried out by the

non-executive directors, led by the Senior Independent Director,

considering the views of the executive directors.

Progress against actions from the

2024 evaluation of the Board’s performance

A summary of progress against the feedback from the

2024 evaluation is set out on page 83.

2025 Board performance review

The 2025 evaluation was facilitated externally by Lisa Thomas of

Independent Board Evaluation (IBE) in September and October

2025. IBE is an independent external service provider with no other

connection to the Group or any individual directors. The evaluation

took into account the findings from the 2024 evaluation as well as

an externally facilitated Board development session.

The 2025 Board performance review concluded that the Board is

highly functioning and deeply engaged. The Group intends to report

back in its next annual report on the actions taken as a result of the

evaluation. The strengths and areas for growth and continued focus

are outlined below.


	Process for 2025 performance review



Appointed IBE following a competitive tender process	Evaluation brief provided to IBE	One-to-one interviews conducted	Board and Committee meetings observed by IBE	Observations discussed with the Group Chair and Committee chairs	Reports presented to the Board and Committees and actions agreed


	Key findings from the 2025 performance review

The 2025 Board performance review concluded that the Board is highly functioning and deeply engaged.


Theme and link to strategy	Strengths	Areas for improvement/continued focus
Board composition, skills and relevance Grow	•The way in which the Group Chair orchestrates meetings and continues to deliver Board improvement •Executive directors who model transparency and collaboration and are considered exceptional leaders for the business •The quality and rigour demonstrated in the process for selecting new Board members	•Continue to consider Board skills against future needs of the Group, focusing on the next two to five years •Take a more fluid approach to non-executive director terms to match skills to strategy and keep relevance as the bar, not a nine-year term •Continue refining succession plans for the Board and executive directors, ensuring ideal sequencing and contingencies
Board culture, focus, engagement and agenda Focus	•The embedding of the Group’s purpose into Board thinking and how that is tested •The way in which the Group Chair fosters relationships to sustain boardroom culture •The Board’s remit and accountability and the way the agenda balances different stakeholder interests, supported by sound values to do the right thing •The progressive approach to Board development	•Consider Board and Committee meeting focus areas and agenda shape based on materiality and forward-looking matters •Assess the need for additional external data or input to inform Board or Committee discussions •Board members to role model performance culture by encouraging more in-room group discussion focused on challenge and accountability
Board governance Change	•The quality of the governance overall, including oversight through the rigour seen at Board Committees, which are considered to be very well chaired and to be effective in fulfilling their remit •Decision making processes are well handled and discussions well trailed •The support provided by the Corporate Governance team	•Implement short-form Board papers to support the Board’s focus on key areas •Continue to shape Board materials to ensure a balanced and relevant mix of content, including useful external perspectives •Consider further development of individualised induction and education plans, with dedicated budgets if needed

Lloyds Banking Group plc Annual Report and Accounts 2025


	Progress against the 2024 evaluation

The main focus in improvements to Board effectiveness in 2025 has centred around bringing in more external perspectives to facilitate

insightful Board discussions and continuing to address the rapidly evolving external environment through the strategy. The Board also

focused on driving the implementation of cultural change across the organisation to deliver the right outcomes, as well as Board

recruitment and development.


Theme and link to strategy	Feedback from the 2024 evaluation	Actions taken in 2025
Board leadership and contribution Grow	•Explore opportunities to increase external perspectives and time for informal discussions to take place outside of Board meetings, enhancing the richness of content and views •Continue to consider Board composition and focus on skills required for future Board recruitment	•Opportunities to share external perspectives and engagement with the Board in a variety of formal and informal settings, including meetings, offsites and dinners covering such topics as private credit, geopolitical developments and market insights •Board composition and skills reviewed by the Nomination and Governance Committee, with priority skills for recruitment identified. The Board’s breadth of skills was enhanced through the appointment of Chris Vogelzang in June 2025 •Engaged Spencer Stuart to facilitate a Board development session involving a strategic discussion on digital assets in December 2025, building on the successful session delivered in November 2024
Risk and control Focus	•Continue to enhance the quality of materials to the Board to ensure they highlight the key messages, risks, challenges and expected outcomes so as to optimise the efficiency of meetings •Expand the extent to which presentations demonstrate iterative thinking as well as lessons learned	•Following input from a wide variety of stakeholders, the Board paper template, guidance and training programme were reviewed. This guidance sets out the requirement for stakeholders to consider potential risks, how they will be addressed and that executives’ priorities are to be presented for discussion in a structured and consistent format •There was focus on the quality control of Board papers through ongoing guidance and training provided to stakeholders by the Corporate Governance team throughout the year •Board meetings provided time for Committee Chairs to highlight constructive challenge, feedback and outcomes from Committee meetings •Iterative thinking was demonstrated through management’s presentation of early views on a number of topics, such as the strategic vision beyond 2026
Strategy Change	•Continued focus on both the opportunities and threats resulting from a fast-evolving external environment •Ensure customer and colleague perspectives and insights shared with the Board are presented in a comprehensive way, including as part of the strategy	•The Board has spent dedicated time on a range of fast-changing topics both at Board meetings and at the strategy offsite meetings in June and November. Topics included business unit strategy and competitive landscape, the fast-evolving external environment and its reputational, geopolitical and economic implications and data, digital assets, technology and use of artificial intelligence •The Board regularly received updates on customer and colleague perspectives during the year, including as part of strategy updates. The new Board paper template also reminds stakeholders to consider both customer and colleague impacts in their papers
People, culture and environment Change	•The Board to support and challenge management further on the implementation of cultural change throughout the organisation to deliver the right outcomes	•There were regular updates to the Board and relevant Committees from the People and Places function to understand colleague views and progress of the cultural transformation agenda •The Board had the opportunity to continue to develop a deeper understanding of customer and colleague views through various activities, including engagement and events at offsites and participation in the ‘Closer to Customers, Clients and Colleagues’ programme

Lloyds Banking Group plc Annual Report and Accounts 2025

Internal control

Board responsibility

The Board is responsible for, and monitors, the Lloyds Banking

Group Risk Management Framework (LBG RMF) and internal

control framework. The LBG RMF and internal control framework

is designed to facilitate effective and efficient operations and to

ensure the quality and integrity of internal and external reporting

and compliance with applicable laws and regulations. It is also

used to assist the Board in determining the nature and extent of

the principal risks the Group is willing to take to achieve its strategy,

and in putting in place appropriate controls to maintain those

risks within the Group’s risk appetite. The directors and senior

management are committed to maintaining a robust control

framework as the foundation for the delivery of effective risk

management. The directors acknowledge their responsibilities

in relation to LBG’s RMF and internal control framework,

and for reviewing its effectiveness.

In establishing and reviewing the LBG RMF and internal control

framework, the directors carried out a robust assessment of the

emerging and principal risks facing the Group, including those that

might threaten its business model, future performance, solvency

or liquidity and reputation, the potential impact and likelihood of

a risk event occurring, the timescale over which risk events might

occur and the costs of control. The process for identification,

evaluation and management of the emerging and principal risks

faced by the Group is integrated into the Group’s overall enterprise

framework for risk and is designed to also identify whether the

controls in place result in an acceptable level of risk. At Group level,

the Enterprise-Wide Risk Management (EWRM) report and risk

appetite dashboard are reviewed and regularly debated by the

Group Risk Committee and the Board Risk Committee, with formal

updates provided by those committees to the Board to ensure that

the Board is satisfied with the overall risk profile, risk

accountabilities and mitigating actions. The report and dashboard

together provide a view of the Group’s overall risk profile, key risks

and management actions, together with performance against risk

appetite and an overview of emerging risks which could affect the

Group’s performance over the life of the operating plan. Information

regarding the main features of the internal control and risk

management systems in relation to the financial reporting process



	Audit and Risk Committee Forum for non-executive directors

	The audit and risk committee Forum is now an established annual event in the Board calendar and was most recently held in November 2025. Members of the Group, Insurance and Lloyds Bank Corporate Markets audit committees and board risk committees as well as colleagues from the business attended. The aims of this informal forum are to have interactive discussion to gain a shared understanding and appreciation of common areas of interest. The topics discussed were: •the Group’s approach to complying with provision 29 of the UK Corporate Governance Code 2024, which relates to the effectiveness of material controls •Political and economic environments and future implications for the Group •AI: use and opportunities across Audit, Risk and Finance and views of associated risks

is provided within the risk management report on pages 138 to 197.

The LBG RMF is currently being refreshed and the revised design

will cover risk management for the entirety of the Group whilst

providing sufficient flexibility to allow for legal entity and local

jurisdiction requirements.

Control effectiveness review

All material controls are reviewed and assessed in response to

material triggers. Control assessments consider both the adequacy

of their design and operating effectiveness. In the event a control

is not effective, action plans are implemented to improve control

design or performance. Control effectiveness against all residual

risks is aggregated by risk category, monitored and reported via the

monthly EWRM report. The EWRM report is produced by the EWRM

team and reviewed and challenged by the Risk Function Executive

Committee and Group Risk Committee. On an annual basis, a point-

in-time assessment is made for control effectiveness against each risk

category and across the sub-groups. The Operational Risk System,

Key Risk Insights or EWRM are the sources used for this point-in-time

assessment and a year-on-year comparison on control effectiveness

is reported to the Board Risk Committee and the Board.

Reviews by the Board

The effectiveness of the LBG RMF and internal control framework is

reviewed at least annually by the Board, the Board Risk Committee

and the Audit Committee, which also receive reports of reviews

undertaken by the Risk Function and Group Audit.

The Audit Committee receives reports from the Group’s external

auditor, Deloitte LLP (which include details of significant internal

control matters that they have identified) and has a discussion

with the auditor at least once a year without executives present,

to ensure that there are no unresolved issues of concern. The

Group’s risk management and internal control systems are regularly

reviewed by the Board Risk Committee and the Board and are

consistent with the Corporate Governance Code Guidance on

Audit, Risk, and Internal Control issued by the Financial Reporting

Council. There is also an annual independent Control Effectiveness

review by Group Audit which is reviewed by the Board Risk

Committee and Audit Committee. These reports have confirmed

appropriate risk and internal control systems have been in place

for principal risks in the year under review and up to the date of

the approval of the annual report. The Group, Ring-Fenced Bank

sub-group and Lloyds Bank Corporate Markets have achieved full

compliance with BCBS 239 risk data aggregation and risk reporting

requirements, and actively continue to maintain this status.

Throughout the year both the Board Risk Committee and Audit

Committee have reviewed and approved proposals from the

Executive in relation to our preparations to comply with the

updated requirements of Provision 29 of the FRC’s UK Corporate

Governance Code 2024, relating to our approach to identifying and

reporting on the effectiveness of material controls ahead of

implementation from our financial year that began on 1 January

2026.

Conclusion

The 2025 LBG RMF and internal control framework review provides

reasonable assurance that the Group's risks and controls are

effective or that where any control weaknesses are identified, they

are subject to management oversight and action plans.

The Board in conjunction with the Audit Committee and the Board

Risk Committee concluded that the Group’s risk management

arrangements throughout 2025 were adequate overall. The Board

is confident that the continuous improvements underway will

ensure that the Group’s risk management arrangements will remain

sufficiently robust to meet developing risk management best

practice for the future, including assessing, and making a declaration

of, effectiveness of material controls.

Lloyds Banking Group plc Annual Report and Accounts 2025

Nomination and Governance Committee report

Sir Robin

Budenberg

Chair, Nomination

and Governance

Committee

Read full biography

Effective succession planning and

ongoing development of Board

members ensure the Board retains

a diverse mix of skills, qualities

and strengths.



	Key activities in 2025

	•Board and senior executive succession planning •Board and Committee composition, skills and training •Board performance review outcomes •Shareholder relations •Corporate governance framework review •Subsidiary governance •Board Inclusion Policy



	Membership and attendance at scheduled meetings

	Sir Robin Budenberg (Committee Chair)	5/5
	Amanda Mackenzie	5/5
	Cathy Turner	5/5
	Scott Wheway	4/41

	1Scott Wheway stepped down from the Committee on 31 October 2025. Other attendees Nigel Hinshelwood, the Senior Independent Director of the Ring-Fenced Banks, attends meetings as an observer to provide insight on the Ring-Fenced Banks when required. The Group Chief Executive also attends as appropriate.



Read more

Skills and experience	pages 68 to 69
Board composition	page 70
Responsibilities (and its terms of reference, which are on our corporate governance page )		page 72
Board performance review	pages 82 to 83

Introduction

During 2025, the Committee continued to focus on succession

planning at both Board and executive level, playing a key role in

the composition and diversity of the Board. The Committee also

focused on training and development of Board members and on

Board performance, including implementation of actions arising

from the 2024 Board evaluation process and the outcome of the

2025 externally facilitated Board performance review. These areas

and the Committee’s other key activities are covered in more detail

in this report.

Board and Committee changes

Scott Wheway retired from the Board with effect from 31 October

2025. The Board is grateful for the contribution Scott made to the

Group and for the leadership and commercial acumen he brought

to the Board and in his role as Chair of Scottish Widows Group.

As part of the Committee’s strategic recruitment for core skills,

Chris Vogelzang was appointed as a non-executive director and

as a member of the Responsible Business Committee with effect from

16 June 2025 to supplement the Board’s existing retail and commercial

banking experience. Details of the selection process for Chris’s

appointment can be found below. Chris will be appointed as a

member of the Board Risk Committee with effect from 1 April 2026.



	Appointment process – non-executive directors

	The Committee oversees the process for appointing non- executive directors, providing recommendations to the Board for the selection of a preferred candidate. In early 2025, the Committee initiated a search to recruit for an additional non- executive director based on a role specification which included retail and commercial banking experience. The search involved open advertising as well as the appointment of Spencer Stuart, an executive search and leadership consulting firm. The search process resulted in a shortlist of potential candidates, who were interviewed by the Chair and other non-executive directors. Further interviews were then conducted with preferred candidates. Following this, a recommendation was made to the Committee and, in turn, the Committee recommended to the Board Chris Vogelzang’s appointment as a non-executive director. This formal, rigorous and transparent appointment process was based on merit and objective criteria and sought to promote diversity, inclusion and equal opportunity by considering a broad range of factors including gender balance, social and ethnic backgrounds, cognitive and personal strengths and the Group’s future strategic direction. Spencer Stuart, who were engaged in the recruitment that led to Chris Vogelzang’s appointment, have no connection with the Group or individual directors other than providing leadership search and succession planning services and facilitating Board development sessions.

Board and Committee performance review

This year, in line with the UK Corporate Governance Code’s

recommendation of an externally facilitated Board performance

review every three years, the performance of the Board was

reviewed by an external board review specialist, Lisa Thomas

of Independent Board Evaluation. The Committee considered

the outcomes of Lisa Thomas’s review, including those

outcomes specific to the Committee, agreed the action plan and

recommended it to the Board for approval. Details of the review,

its outcomes and the action plan are provided on page 82.

The Committee subsequently undertook an annual review of its

own performance, the findings of which were considered by the

Committee at its January 2026 meeting with the conclusion reached

that the performance of the Committee continues to be effective.

Lloyds Banking Group plc Annual Report and Accounts 2025

Nomination and Governance Committee report continued


	Succession planning

	Succession planning, at both Board level and across key senior management roles, remained a core area of focus for the Committee during 2025. Effective succession planning assists the Group in delivering on its long-term strategic objectives by ensuring the desired mix of knowledge, skills, experience and diversity of Board members and executives. Board succession planning The Committee supports the Chair in reviewing the composition of the Board and its Committees with attention given to the skills, diversity and tenure of members. The Committee gives consideration to further non-executive representation on the Board, keeping in view the current and future needs of the business. The promotion of inclusivity in gender, ethnicity, background and thought, as well as the outcomes of performance reviews, are also considered. A Board skills matrix, a summary of which is on page 70, assists the Committee in tracking individual member and Group strengths and identifying any gaps in the desired collective skills profile of the Board. As discussed on the prior page in relation to the appointment process, the Committee identified the desire for enhanced retail and commercial banking experience on the Board, resulting in the recruitment of Chris Vogelzang. The Committee has also identified the need for additional consumer, digital and insurance experience resulting in ongoing recruitment processes to address those needs. A search for Scott Wheway’s successor as a non-executive director of the Company and Chair of Scottish Widows Group was initiated following announcement of Scott’s decision to retire from the Group. The Committee reviewed the draft role specification at its meeting in November 2025 as part of the search. As part of the Committee’s formal succession planning approach, the Committee reviewed the rotation-based recruitment activity timetable, emergency cover plans and Board Succession Protocol (including the Emergency Succession Protocol for the Chair), with the aim of facilitating orderly transitions and mitigating risks from unexpected departures. Executive succession planning At an executive level, the Chair is responsible for developing and maintaining a succession plan for the Group Chief Executive who is, in turn, primarily responsible for developing and maintaining succession plans for key leadership positions in the senior executive team. As part of its oversight of succession planning for executive directors and members of the senior executive team, the Committee received and discussed regular updates from the Group Chief Executive covering executive succession arrangements. These discussions demonstrated the continuing effectiveness of the Group’s approach to executive succession planning, whereby the Board recognises the importance of the ongoing development of a diverse pipeline of current and future leaders across the Group’s executive and management levels. This is supported by a range of policies across the Group which promote the engagement of under- represented groups within the business to help continue to build a diverse talent pipeline. Further details can be found on page 22.

Independence

The Nomination and Governance Committee monitors whether

there are any relationships or circumstances which may affect a

director’s independence. Based on its assessment for 2025, the

Committee is satisfied that, throughout the year, all non-executive

directors remained independent1 in character and judgement and

are independent directors for the purposes of the Code.

Time commitments

Non-executive directors are advised of time commitments for the

Board and relevant Committees prior to their appointment and are

required to devote such time as is necessary to discharge their

duties effectively. The time commitments of the directors are

considered by the Board on appointment and annually thereafter.

The outcome of the most recent review was that the Board is

satisfied that there are no directors whose time commitments are

considered to be a matter for concern.

Directors are asked to agree new external appointments, which may

affect existing time commitments to the Board and its Committees,

with the Chair and to seek Board approval before the proposed

start date. During 2025, Harmeen Mehta was appointed as the

Chief Digital and Innovation Officer of Equinix and Nathan Bostock

accepted the role of non-executive director and chair designate of

Jupiter Fund Management plc with effect from 1 March 2026 and,

subject to regulatory approval, will take on the role of Chair of that

company with effect from 1 April 2026. The Committee and the

Board considered the time commitments and potential conflicts

involved prior to Harmeen and Nathan accepting their respective

roles and were satisfied that they would both continue to have

sufficient time to commit to their Board appointments. Following

recommendation from the Committee, the Board approved the

two additional appointments.

In recommending directors for election and/or re-election at the

annual general meeting, the Committee has reviewed the

performance of each non-executive director and his/her ability to

continue meeting the time commitments required. This takes into

consideration individual capabilities, skills and experiences and any

potential conflicts of interest that have been disclosed. The external

roles held by all directors were considered to be appropriate. Details

of the Board process in relation to actual and potential conflicts of

interest can be found on page 134.

The Group’s Corporate Governance Framework

The Group's Corporate Governance Framework is reviewed each

year and efforts are made to continue to simplify and improve the

framework. In February 2025, the Committee considered changes

to reflect the UK Corporate Governance Code 2024 and also a

significant updating of the content to provide a more proportionate

and user-friendly governance approach and to facilitate more

effective decision making throughout the Group. The current review

of the Group’s Corporate Governance Framework is in progress and

will build on the simplification made as part of the 2025 review.

Subsidiary governance

The Committee considered changes to the Group’s subsidiary

governance framework, which focused on proportionate

governance and simplification. The Committee also considered the

governance of Lloyds Bank GmbH in the context of chair succession

for that company.

The Committee approved the list of the Group’s material

subsidiaries and the appointment of a number of individuals to the

boards of those subsidiaries including to the Scottish Widows Group

Limited and Lloyds Bank Corporate Markets plc boards.

Shareholder relations and

corporate governance developments

The Committee considered the Group’s engagement with

shareholders, key investor focus areas and correspondence with

shareholders on governance issues.

As part of its broader governance responsibilities, the Committee

considered updates on developments in corporate governance

during the year. This included reviewing and considering aspects

of the implementation of the Economic Crime and Corporate

Transparency Act and legislative changes to reduce the corporate

reporting burden on companies.

1The Chair was independent on appointment. Under the Code, thereafter the test of

independence is not appropriate in relation to the Chair.

Lloyds Banking Group plc Annual Report and Accounts 2025


	Training and development

	To ensure the Board remains effective and able to continue to support the delivery of our strategy, it is essential that directors stay informed about recent and upcoming developments and maintain up-to-date knowledge and skills. The Board continued to focus on its development throughout the year with external insight and training sessions offered across a range of topics which complement the Board agenda, examples of which are set out below. In addition to the below topics, there was mandatory training, including on Speak Up (the Group’s whistleblowing programme) and on the Financial Conduct Authority’s Conduct Rules. At its meetings in November 2025 and January 2026, the Committee looked back at the 2025 Board training plan and also considered the learnings from the external Board performance review to help inform the 2026 training schedule. The Committee discussed priority areas and topics for Board training as well as what types of external inputs and stimulus would be most useful for Board members.
		Q1 2025 •Generative AI: maximising opportunities while navigating the complexities around governance and risk

		Q2 2025 •Resolution and recovery plan •Private credit •Geopolitical global developments

		Q3 2025 •Environmental markets •Model risk •FCA redress schemes

		Q4 2025 •Operational resilience (including cyber security risk) and third party implications •Modern slavery and human rights – read more on page 81 •Digital assets

Board Inclusion Policy

The Board Inclusion Policy (the Policy) sets out the Board’s

approach to diversity and inclusion and provides a high-level

indication of the Board’s approach to this in respect of senior

management roles. This is governed in greater detail through the

Group’s policies. A copy of the Policy is available on the

sustainability page on our website.

The Board places great emphasis on ensuring that its membership

reflects inclusion in its broadest sense. Consideration is given to

the combination of diversity demographics, skills, experience,

educational, socio-economic and professional background and

other relevant personal attributes on the Board to provide the range

of perspectives, insights and challenge needed to support good

decision making.

In order to achieve a broad representation of diversity, the Board

ensures inclusive appointment practices and promotes equal

opportunities. New appointments and succession plans are made

on merit, taking account of the specific skills and experience,

independence and knowledge needed to ensure a rounded Board

and the diverse benefits each candidate can bring to the overall

Board composition.

Objectives for achieving an inclusive Board are reviewed on a regular

basis. On gender balance, the Board is committed to maintaining

at least four women Board members and aspires to maintain 45 to

55% female representation on their Boards, higher than the FTSE

Women Leaders recommendation of 40%, while recognising the

limited numbers involved. The representation of women on the

Board is currently 50%. On ethnicity, the Board is committed to

meeting the Parker Review recommendation of having at least one

Black, Asian or Minority Ethnic Board member.

Currently, the Policy is not applied to Board Committees

individually because of their small membership, although the Board

strives to apply similar representation across the Committees. Four

of the five Board Committees are chaired by women. The Board

is comfortable that the diversity of the Board is reflected across

Committee memberships and that this remains an ongoing

consideration. As at 31 December 2025, the Group meets all three

board diversity targets specified under UK Listing Rule 6.6.6(9) –

read more at the bottom of this page. Further information disclosed

in accordance with UK Listing Rule 6.6.6(9), (10) and (11) can be

found on page 136. The gender balance of the Group’s senior

management and their direct reports can be found on on page 23.

The Board places high emphasis on not only its own diversity but on

the oversight of the Group’s inclusion approach and ambitions and

is kept updated on progress. Any material changes to the Group’s

inclusion approach are approved by the Group Executive

Committee, reviewed by the Responsible Business Committee

and approved at Board level. This includes material changes in

the Group’s inclusion ambitions and supporting plans. The Group’s

policies are subject to local laws and regulations and the aspirations

identified in the fourth paragraph above reflect targets set out in

the UK Listing Rules LR6.6.6(9).

Further information on the current approach to the Group’s

inclusion ambitions, progress and performance can be found

on pages 22 to 23.

Lloyds Banking Group plc Annual Report and Accounts 2025

Audit Committee report

Sarah Legg

Chair, Audit

Committee

Read full biography

Rigorous challenge of key judgements

and oversight of continuous

improvement in financial reporting

on an end-to-end basis.



	Key activities in 2025

	•Monitoring the integrity of the financial statements and non-financial (including narrative) reporting •Overseeing the continuous improvement in financial and regulatory reporting including associated controls •Reviewing the findings of the Group Internal Audit function and challenging the internal audit plan on a forward looking basis •Engaging with the subsidiary audit committees on their activities in the year



	Membership and attendance at scheduled meetings

	Sarah Legg (Committee Chair)	7/7
	Nathan Bostock	7/7
	Amanda Mackenzie	7/7
	Catherine Woods	7/7

	Other attendees Nigel Hinshelwood and Brendan Gilligan, the Senior Independent Director and an independent non-executive director respectively of the Ring-Fenced Banks, attend meetings as observers to provide insight on the Ring-Fenced Banks when required. The Group Chief Executive, the Chief Financial Officer, the Chief Risk Officer, the Group Financial Controller, the Chief Internal Auditor and the external auditor also attend meetings as appropriate. While the Committee’s membership comprises the non-executive directors noted above, all non-executive directors may attend meetings as agreed with the Chair of the Committee



Read more

Skills and experience	pages 68 to 69
Responsibilities (and its terms of reference, which are on our corporate governance page )		page 72

Introduction

I am pleased to report on the Committee’s activities over the past

year. I thank the Committee members for their contributions and

support. The participation of Ring-Fenced Bank-only directors as

observers has provided valuable insights.

In 2025, the Committee collaborated closely with other Board

Committees, especially with the Board Risk Committee on

preparations for Provision 29 of the UK Corporate Governance

Code 2024, which relates to our approach to identifying and

reporting on the effectiveness of material controls. The joint Audit

and Risk Forum established in 2022 met again in 2025 to discuss

topics of mutual interest and consider common themes on a

forward-looking basis (read more on page 84). Looking forward to

2026, in addition to our core responsibilities, the Committee will

continue to provide rigorous challenge and monitor areas of

continuous improvement on an end-to-end basis.

Committee purpose and responsibilities

The Committee’s purpose is to oversee the integrity of the Group’s

and Company’s financial and narrative reporting. It also reviews the

independence and effectiveness of the internal and external audit

functions, internal controls, the risk management framework and

whistleblowing arrangements. This includes the statutory audit of

consolidated financial statements and the independence of the

external auditor.

The Committee reports to the Board on its responsibilities and

recommendations, all of which were accepted during the year.

In satisfying its purpose, the Committee undertakes the functions

detailed within Disclosure Guidance and Transparency Rule 7.1.3R.

During the year the Committee considered a number of matters

relating to the Group’s financial reporting, which are summarised

on the following pages. In addition, the Committee considered a

number of other matters not related directly to financial reporting.

These matters are discussed in detail on the final page of this report.

Committee composition, skills,

experience and operation

The Committee operates independently of the executive to safeguard

shareholders’ interests in financial reporting and internal control.

All members of the Committee are independent non-executive

directors with competence in the financial sector and their

biographies can be found on pages 68 to 69. Sarah Legg is a Fellow

of the Chartered Institute of Management Accountants and of the

Association of Corporate Treasurers, with extensive knowledge of

financial markets, treasury, risk management and international

accounting standards. She is a member having recent and relevant

financial experience for the purposes of the UK Corporate

Governance Code and is the Audit Committee financial expert

for SEC purposes.

During the course of the year, the Committee held separate sessions

with the internal and external audit teams without members of the

executive management present.

The Committee undertook an annual review of its own

performance, the findings of which, together with the outcomes

of the externally facilitated Board performance review process as

relevant to the Committee, were considered by the Committee

members with the conclusion reached that the performance of

the Committee continues to be effective.

Audit Partner

Mike Lloyd has been Deloitte LLP (Deloitte) lead audit partner for

the Group since Deloitte was appointed auditor for the 2021 year

end. Following completion of the audit for the year ended 31

December 2025, Ben Jackson will be the lead audit partner for the

Group, with a related transition period, supported by the

Committee.

Lloyds Banking Group plc Annual Report and Accounts 2025


	Matters considered during 2025


	Jan	Feb	Apr	Jun	Jul	Oct	Dec
Reporting
Review of external reporting documents	ò	ò	ò	Å	ò	ò	ò
Significant accounting judgements	ò	ò	ò	ò	ò	ò	ò
Going concern assumption/viability statement	Å	ò	Å	Å	ò	Å	Å
Regulatory reporting	ò	Å	ò	ò	Å	ò	Å
Sustainability-related reporting	Å	ò	Å	ò	Å	ò	Å
Activities of subsidiary audit committees	ò	ò	Å	Å	ò	ò	Å
Corporate governance and the Audit and Assurance Framework	Å	Å	ò	Å	Å	ò	Å
Control environment
Control update (including Sarbanes-Oxley)	ò	ò	ò	ò	ò	ò	ò
Annual review of risk management framework and control effectiveness review summary	ò	Å	Å	Å	Å	Å	Å


	Jan	Feb	Apr	Jun	Jul	Oct	Dec
Group Audit
Reports from Group Audit, including Speak Up (whistleblowing)	ò	Å	ò	ò	ò	ò	ò
External audit
Reports from the external auditor (including external audit plan)	ò	ò	ò	ò	ò	ò	ò
Reappointment, remuneration, non-audit services and effectiveness	Å	ò	ò	Å	ò	Å	Å
Other
Audit committee effectiveness review	ò	Å	Å	Å	Å	ò	Å
Finance strategy and transformation	Å	ò	ò	Å	Å	ò	Å

Financial reporting

During the year, and in relation to the year ended 31 December 2025, the Committee considered the following issues in relation to the

Group’s financial statements and disclosures, with input from management, the risk function and Group Audit.


	Areas of focus


	Key issues	Committee review and conclusion
Allowance for impairments on loans and advances 31 December 2025: £3,228 million 31 December 2024: £3,481 million	The Group’s impairment provision is dependent on management’s judgements on matters such as future interest rates, house prices and unemployment rates, as well as its assessment of the current financial position of its customers.	During the year, the Committee has reviewed the level of provision held for expected credit losses (ECL) by the Group and the judgements and estimates used to calculate the provision. The Committee has monitored underlying credit performance trends and the evolution of the Group’s economic outlook and Multiple Economic Scenario (MES) approach in a year where ECL assessment has needed to respond quickly and appropriately to significant domestic and international events. The Committee has overseen further progress on ECL modelling and the corresponding reduction in the number of judgemental adjustments for model limitations where mitigated by model development. Note 21 to the financial statements includes details of the Group’s ECLs allowances, including those resulting from judgemental adjustments (31 December 2025: £224 million credit; 31 December 2024: £44 million debit). The Committee has reviewed management’s rationale for these provisions and has challenged whether their inclusion and quantification are appropriate. It also considered management’s assessment of climate risk impacts on ECL and the conclusion that no adjustment was required. Conclusion: The Committee was satisfied that the impairment provision and the disclosures provided in the financial statements were appropriate.
Uncertain tax provisions	The Group has open tax matters which require it to make judgements about the most likely outcome for the purposes of calculating its tax position.	The Committee reviewed management’s assessment of the Group’s uncertain tax positions, which took into account the views of the relevant tax authorities and any external advice it received. In particular, following the conclusion of the First Tier Tribunal in favour of HMRC, it considered the Group's assessment of its continued likelihood of success in its claim for group relief of losses in its former Irish banking subsidiary. Conclusion: The Committee was satisfied that the provisions and disclosures made in respect of uncertain tax positions were appropriate.
Retirement benefit obligations 31 December 2025: £26,571 million 31 December 2024: £27,118 million	The value of the Group’s defined benefit pension plan obligations is determined using both financial and demographic assumptions.	The Committee reviewed the process used by management to determine appropriate assumptions to calculate the Group’s defined benefit liabilities. These included the discount rate, the future rate of inflation and expected mortality rates. Conclusion: The Committee was satisfied that management had used appropriate assumptions that reflected the Group’s most recent experience and were consistent with market data and other information.

Lloyds Banking Group plc Annual Report and Accounts 2025

Audit Committee report continued


	Areas of focus continued


	Key issues	Committee review and conclusion
Insurance liabilities and participating investment contracts 31 December 2025: £135,284 million 31 December 2024: £127,332 million	Determining the value of the Group’s liabilities arising from insurance and participating investment contracts requires management to make significant estimates for both economic and  non-economic actuarial assumptions.	The Committee considered updates from management and from the Group’s Insurance Audit Committee summarising its activities, which included a review of the economic and non-economic assumptions made by management to determine the carrying value of Group’s liabilities arising from insurance and participating investment contracts. The assumptions discussed were in respect of maintenance expenses, investment expenses allowance, lapse and paid-up assumptions on Workplace business and updated mortality projections. Conclusion: The Committee was satisfied that the assumptions used to calculate the Group’s liabilities arising from insurance and participating investment contracts were appropriate.
Conduct risk provisions 31 December 2025: £2,276 million 31 December 2024: £1,600 million	Management judgement is used to determine the expected costs of remediation and, where appropriate, the related administration costs.	The Committee has received regular updates on the Group’s conduct risk matters and the progress it has made including updates in relation to the Supreme Court judgment handed down on 1 August 2025 on motor commission arrangements, the FCA consultation paper published on 7 October 2025 on an industry-wide redress scheme for motor finance, HBOS Reading and Responsible Lending. Conclusion: The Committee has considered management’s assessment of the Group’s provision for conduct-related matters and was satisfied that the provisions held at 31 December 2025 were appropriate.
Going concern statement	The directors are required to confirm whether they have a reasonable expectation that the Company and the Group will be able to continue to operate and meet their liabilities as they fall due for a specified period.	The Committee assisted the Board in determining the appropriateness of adopting the going concern basis of accounting. This assessment was based on the Group’s operating, funding and capital plans which included consideration of climate-related matters on the Group’s performance and its projected funding and capital position. The Committee also took into account the results of the Group’s stress testing activities (pages 142 and 143), its principal risks (pages 25 to 27) and its emerging and topical risks (pages 28 and 29). Conclusion: The Committee determined that the going concern basis of accounting was appropriate.
Financial assets held at fair value through profit or loss classified as level 3 31 December 2025: £10,251 million 31 December 2024: £9,889 million	Determining the fair value of the Group’s financial assets classified as level 3 requires management to make significant estimates.	Financial assets held at fair value through profit or loss are classified into three levels according to the quality and reliability of information used to determine their fair values. Those classified as level 1 or level 2 are valued using observable market data, either directly or within models. Assets classified as level 3 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 and as such involves significant judgement. During the year, the Committee reviewed the valuations of the Group’s level 3 financial assets held at fair value through profit or loss, the valuation techniques and the Group’s governance processes. Conclusion: The Committee was satisfied that the valuations and disclosures made in respect of the Group’s level 3 financial assets classified at fair value through profit or loss were appropriate.

Other significant issues

The following matters were also considered by the Committee.

Viability statement

The viability statement must disclose the basis for the directors’

conclusions and explain why the period chosen is appropriate.

The Committee assisted the Board in performing the assessment

of the viability of the Company and the Group. This assessment

considered a wide range of information including principal,

emerging and topical risks that could impact the performance of

the Group and its operating plan which comprises detailed financial,

capital and funding projections together with an assessment of the

relevant risk factors for the period from 2026 to 2028 inclusive. The

Committee advised the Board that three years was a suitable period

of review for the viability statement and that the viability statement

could be provided. The viability statement is disclosed within the

strategic report on page 34.

Risk management and internal control systems

Full details of the internal control and risk management framework

in relation to the financial reporting process are given within the risk

management section on pages 138 to 197. Specific related matters

that the Committee considered for the year included:

•The effectiveness of systems for internal control, financial

reporting and risk management

•The extent of the work undertaken across the Group to ensure

that the control environment continued to operate effectively

•The major findings of internal investigations into control

weaknesses, fraud or misconduct and management’s response,

along with any control deficiencies identified through the

assessment of the effectiveness of the internal controls over

financial reporting under the US Sarbanes-Oxley Act (SOX).

Specifically, the Committee continued to closely monitor the

deficiencies identified in respect of privileged access to the IT

infrastructure and the Group’s remediation activity to address

the control findings identified. The Committee was satisfied that

internal controls over financial reporting were appropriately

designed and operating effectively

Lloyds Banking Group plc Annual Report and Accounts 2025

Risk-weighted assets and regulatory reporting

The focus on the quality of regulatory reporting continues to be

high on the PRA’s agenda. Across the first, second and third lines

of defence, management continues to focus on strengthening

the control environment in regulatory reporting with a link to

longer-term and strategic initiatives also being considered.

The ongoing programme of external assurance on regulatory

reporting commissioned by the Committee has been extended

to provide coverage across both capital (including risk-weighted

assets) and liquidity reporting. Management have provided regular

updates to the Committee over the year to highlight progress made

in improving the reporting control environment across regulatory

reporting. In addition, KPMG gave an external perspective so

Committee members could hear a wider view on control matters.

UK Corporate Governance Code 2024 Provision 29

The Committee, in conjunction with the Board Risk Committee,

has been preparing for the introduction of Provision 29 of the UK

Corporate Governance Code 2024 effective for the financial year

that began on 1 January 2026. Further details on the Group’s

approach to internal controls, and the review of their effectiveness,

are set out on page 84.

Speak Up (the Group’s whistleblowing service)

The Committee reviewed management reports on the Group’s

whistleblowing arrangements, ensuring colleagues can report issues

confidentially and without fear of retaliation. These well-publicised

arrangements allow reporting of inappropriate practices with

independent investigations or follow-ups. The Committee reported

on its consideration of whistleblowing arrangements to the Board.

Sustainability reporting

The Committee was updated on the Group’s responses to UK

Government consultations on matters such as UK Sustainability

Reporting Standards and Transition Plans. Compliance with existing

UK companies regulation requirements for climate-related financial

disclosure has been considered when assessing external disclosures.

The Committee continues to monitor Group capabilities and

progress with the production of sustainability reporting, the linkage

to financial statements, the enhanced control environment and the

developments with governance and assurance. Further discussion

can be found on pages 36 to 49.

Group Internal Audit

In monitoring the activity, role and effectiveness of the internal

audit function and its audit programme the Committee:

•Approved the updated Audit Charter, which sets out the

purpose, role and mandate of internal audit

•Approved the annual audit plan and budget, including resources

•Reviewed progress against the plan through quarterly updates

•Reviewed the annual audit opinion on the control framework

•Considered the major findings of significant internal audits,

management’s response and themes by major risk type

•Assessed and concluded upon the quality of Group Audit’s

work through review of quality assurance reporting on a six-

monthly basis

Based on the above and through regular interactions by all Audit

Committee members with the Chief Internal Auditor and an

informal networking session with Group Audit colleagues in July,

the Committee is satisfied with the effectiveness and impact of

the internal audit function and the appropriateness of its resources.

Finance strategy and transformation

Significant investment has been made to transform the Finance

function, including the launch of a new Group-wide General

Ledger in 2025. The Group also improved cost and investment

management processes, procurement tools and colleague expenses

systems. Enhancements in cost planning and reporting, alongside

continuous investment in the Group's financial data, will boost

planning and commercial insights. Further investment in the control

infrastructure and use of emerging AI technology will enhance the

colleague experience and provide commercial benefits.

The Committee received timely updates on progress, risk

management, proposed plans and the associated financial and

non-financial benefits.

Auditor independence and remuneration

The Committee is responsible for establishing the Group’s policies

and procedures designed to protect the independence and

objectivity of the external auditor. In April 2025, the Committee

reviewed its non-audit services policy; no substantive changes were

made to the policy.

The policy details those services that the auditor is permitted to

carry out and pre-approves certain of these services provided the

fee is below a threshold; all other permitted services must be

specifically approved in advance by the Committee. Prior to the

engagement of the auditor for a permitted service, the policy

requires that senior management confirms whether the Committee

has pre-approved the service or specific approval is required.

The total amount of fees paid to the auditor for both audit and

non-audit related services in 2025 and further information on the

policy is disclosed in note 13 to the financial statements.

External auditor

Following an external audit tender in 2018, Deloitte was appointed

as auditor of the Company and the Group with effect from the 2021

financial year. Mike Lloyd is the statutory audit partner for the

Group and attends all meetings of the Committee. The Committee

oversees the relationship with the external auditor including its

terms of engagement and remuneration and monitors its

independence and objectivity. In 2025 the Chair of the Committee

met with the Deloitte leaders responsible for the key subsidiary

audits to hear directly from them about the approach to these

component parts. This enhanced the overall understanding of the

external audit and provided a further opportunity to engage with

important aspects of the process. The Committee also reviewed

Deloitte’s audit plan, including the underlying methodology and

Deloitte’s risk identification processes. In its assessment of Deloitte’s

performance and effectiveness, the Committee has considered:

Deloitte’s interactions with the Committee; the responses to a

questionnaire issued to the Group’s businesses, Finance, Risk,

Internal Audit and non-executive directors; and the FRC’s Audit

Quality Inspection Report published in July 2025. In addition, the

FRC’s Audit Quality Review team reviewed Deloitte’s audit of the

Group’s 2024 financial statements as part of its latest annual

inspection of audit firms and noted several areas of good practice.

The Committee received a copy of the report and discussed it with

Deloitte. There were no key or other findings. The Committee

concluded that it was satisfied with the auditor’s performance and

recommended to the Board a proposal for the reappointment of

the auditor at the Company’s annual general meeting.

Statutory Audit Services compliance

The Company and the Group confirm compliance with the

provisions of The Statutory Audit Services for Large Companies

Market Investigation (Mandatory Use of Competitive Tender

Processes and Audit Committee Responsibilities) Order 2014,

which relates to the frequency and governance of tenders for

the appointment of the external auditor and Audit Committee

responsibilities including negotiating and agreeing the statutory

audit fee and the setting of a policy on the provision of non-audit

services for the year to 31 December 2025. There are no plans as

at the date of this report to conduct a tender exercise for external

audit services.

Audit Committees and the External Audit:

Minimum Standard

The Group is compliant with Audit Committees and the External

Audit: Minimum Standard published by the FRC in May 2023 and

this report explains the activities we have undertaken to meet the

requirements of this Standard.

Lloyds Banking Group plc Annual Report and Accounts 2025

Board Risk Committee report

Catherine Woods

Chair, Board Risk

Committee

Read full biography

Strengthening operational resilience is

essential to safeguarding the Group’s

services to customers in a continuously

changing external threat landscape.



	Key activities in 2025
	•Oversight of enhancements to risk management and embedding of changes to the three lines of defence model •Ongoing oversight of operational resilience risks and continuous enhancements to controls, particularly in relation to cybersecurity, IT stability and supplier risk •Oversight and challenge of change management and execution risks, focusing on strategic transformation progress •Reviewed progress on strengthening economic crime prevention controls •Continued oversight and challenge on model and data risk, ensuring effective risk management of artificial intelligence •Considered management of climate risk, particularly greenwashing controls and scenario modelling capabilities •Reviewed management of capital, funding and liquidity risks, including structural hedge activity and provided challenge on stress testing design and execution •Ongoing assessment of emerging and topical risks


	Membership and attendance at scheduled meetings
	Catherine Woods (Committee Chair)	9/9
	Nathan Bostock	8/91
	Sarah Legg	9/9
	Cathy Turner	9/9
	Scott Wheway	6/71,2

	1Nathan Bostock and Scott Wheway were each unable to attend one meeting due to scheduling conflicts. 2Scott Wheway stepped down from the Committee on 31 October 2025. Other attendees Nigel Hinshelwood and Brendan Gilligan, the Senior Independent Director and an independent non-executive director respectively of the Ring-Fenced Banks, attend meetings as observers to provide insight on the Ring-Fenced Banks when required. The Chief Risk Officer has full access to the Committee and attends all meetings. The Chief Internal Auditor and members of the executive also attend meetings as appropriate.


Read more
Skills and experience	pages 68 to 69
Responsibilities (and its terms of reference, which are on our corporate governance page )		page 72

Introduction

I am pleased to report on how the Committee has discharged its

responsibilities during 2025. The year has been marked by persistent

macroeconomic and geopolitical uncertainties, compounded by

ongoing cost of living pressures, which continue to influence a range

of risks faced by both the Group and the wider economy.

The Committee maintained regular oversight of the embedding of

the Group’s enhanced risk management framework and the three

lines of defence approach. It also reviewed and recommended

Board approval of the evolved risk appetite approach. Significant

time was dedicated to considering changes to the Group’s risk and

control profile. Separate reviews of risk and control plans for

specific business units were also undertaken. These activities remain

central to the ongoing transformation and strengthening of the

Group’s risk management.

Operational resilience was a key area of focus, including IT outages

and cybersecurity, both from a Group and supplier standpoint.

Consideration was given to the increased external cyber threat

landscape and industry challenges, together with further

improvements to controls. A deep dive into payments systems

was also conducted, with a focus on the security and resilience

of these core systems. The review of a self-assessment of the

Group’s supplier risk management framework against regulatory

requirements provided a broader perspective on business

continuity, complemented by a deep dive into supplier risk,

emphasising the importance of minimum resilience standards.

The Committee continued to regularly review credit risk

performance across commercial and consumer portfolios. Deep

dives offered further insights into specific portfolios during the year,

covering the Group’s mortgage business, consumer unsecured

portfolio, derivative exposures and project finance business.

Broader credit management information was reviewed at each

meeting, with the Chief Risk Officer providing perspectives on the

overall credit environment. Oversight of model risk included a deep

dive on generative and agentic AI together with implementation of

the associated assurance framework.

Good customer outcomes remained a priority, with the Committee

overseeing the effectiveness of controls and seeking additional

structured updates on evolving conduct risk matters. Areas of

particular focus included the Group’s treatment of vulnerable

customers, Financial Ombudsman Service complaint overturn

rates and oversight of the delivery and reconciliation of critical

communications to retail customers. The Committee, and the

Board, has considered the potential impact of the FCA’s motor

finance commission redress scheme and will continue to assess

developments following the announcement by the FCA of the final

scheme rules.

The Committee assessed several other key areas, including

economic crime prevention, change execution risk and people

risk. Consideration was also given to climate risk, reviewing

enhanced greenwashing controls, regulatory expectations and

the development of climate scenario modelling capabilities. All

these areas are explored in greater detail throughout this report.

I look forward to welcoming Chris Vogelzang as a member of the

Committee, with his appointment being effective from 1 April 2026.

Chris will bring strong retail and commercial banking experience

to the Committee’s deliberations. I would also like to take this

opportunity to formally thank Scott Wheway for his valuable

contribution to the Committee’s work over the past three years and

wish him every success in his new role, following his decision to step

down from his Group position on 31 October 2025. The challenge

and commercial insight Scott brought to the Committee have been

immensely beneficial.

Lloyds Banking Group plc Annual Report and Accounts 2025

Committee purpose and responsibilities

The Committee assists the Board in fulfilling its risk governance

and oversight roles and responsibilities. It is responsible for ensuring

the risk culture is fully embedded and supports at all times the

Group’s agreed risk appetite. The Committee is also responsible for

reviewing and recommending to the Board the nature and extent of

principal risks the Company is willing to take in order to achieve its

long-term objectives and oversees current risk exposures.

The Committee oversees the development, implementation and

maintenance of the Group’s overall risk management framework

and internal control framework. It reviews and recommends to the

Audit Committee the assessment of the effectiveness of the Group’s

risk management framework and internal controls, covering

material controls, other than financial reporting controls which

are covered by the Audit Committee.

The Committee, in conjunction with the Audit Committee, has been

preparing for the introduction of Provision 29 of the UK Corporate

Governance Code 2024. Further details on the Group’s approach to

internal controls, and the review of their effectiveness, are set out

on page 84. During the year, the Committee’s terms of reference

were reviewed and updated, including changes to responsibilities

driven by the implementation of Provision 29.

More details on the Group’s wider approach to risk management

can be found in the risk management section on pages 137 to 197.

Full details of the Committee’s responsibilities are set out

in its terms of reference, which can be found on the corporate

governance page on our website.

Committee composition, skills,

experience and operation

Two of the three designated independent non-executive directors

of the Ring-Fenced Banks attend meetings as observers in order to

provide insights on matters relevant to the Ring-Fenced Banks when

required and as part of their role in the Group’s overall governance

structure. For the majority of the year, prior to Scott Wheway’s

departure, membership of the Committee included the Chairs of

both Lloyds Bank Corporate Markets plc and Scottish Widows

Group Limited. Committee membership is kept under regular

review by the Nomination and Governance Committee.

The Committee undertook an annual review of its own

performance, the findings of which, together with the outcomes

of the externally facilitated Board performance review process

as relevant to the Committee, were considered by Committee

members with the conclusion reached that the performance of

the Committee continues to be effective.

During the year, Committee members attended various training

sessions and briefings as part of the Board’s ongoing training

schedule, with a number of these covering matters particularly

relevant to the Committee’s considerations. These sessions continue

to help deepen Committee members’ knowledge on specific topics,

further enhancing discussion and challenge at subsequent

Committee meetings.

Interaction with other Board

and Executive Committees

As the most senior risk committee in the Group, the Committee

interacts with other related risk committees, including the executive

Group Risk Committee. This helps ensure the appropriate escalation

of relevant matters to the Committee for review and consideration.

The Committee continues to be supported by the IT and Cyber

Advisory Forum, which dedicates additional time and resource to

reviewing and challenging risks associated with IT infrastructure, IT

strategy, IT resilience and cyber risks. The Chair and other members

of the Committee attend this Forum.

Regular interaction between Board Committees is maintained,

helping to strengthen relationships and facilitate broader

perspectives and discussion on relevant topics. The Chair of the

Board Risk Committee is a member of the Audit Committee, and

conversely, the Chair of the Audit Committee is a member of the

Board Risk Committee. The Chair of the Remuneration Committee

is also a member of the Committee, further enhancing discussion on

alignment of remuneration to risk performance and the Chair of the

Responsible Business Committee attends Committee meetings for

matters of specific interest.

The annual Group-wide Audit and Risk Forum was held in

November 2025, providing an opportunity for members of both

Committees to discuss key areas of common interest, further

strengthening the debate and challenge of matters provided

by these Committees. Themes this year included a focus on the

Group’s approach to implementation of Provision 29 of the UK

Corporate Governance Code 2024.

The Committee continues to review regular updates from the Non-

Ring-Fenced Bank and Insurance sub-groups, headed up by Lloyds

Bank Corporate Markets plc and Scottish Widows Group Limited

respectively, summarising key discussions and decisions taken at the

relevant entities’ risk committees.

Matters considered by the Committee

During 2025, the Committee considered a broad range of current

and forward-looking risks across all key areas of risk management,

in addition to a continued focus on risk culture and risk appetite.

The Committee regularly uses deep dives to focus on key risk topics,

enabling greater analysis of particular topics and associated risks.

The following pages provide a summary of the risks considered by

the Committee, its role and an outline of the conclusions which

were ultimately reached.

Lloyds Banking Group plc Annual Report and Accounts 2025

Board Risk Committee report continued


	Key activities for the year


Area of focus	Key role of Committee	Key outcomes
Risk management framework
	•The Committee received regular updates on the effectiveness of the Group risk management framework to enable oversight of its development and ensure it aligns with emerging regulatory, corporate governance and industry best practice	•In January, the Committee recommended that the Board approve an enhanced risk management framework. The Committee received regular updates on its implementation across the Group throughout the year, driving clarity and consistency in the management of both financial and non-financial risks •The Committee has overseen enhancements made to the Group’s approach to risk appetite and operational risk management •The effectiveness of the Group risk management framework was supported in November
Risk and control profile
	•Significant time was spent reviewing the Group’s risk and control profile •Detailed insights were provided to the Committee throughout the year, with an enhanced consolidated Enterprise-Wide Risk Management report introduced to improve the Committee’s visibility of material risk and control issues	•The Group’s Risk and Control Self-Assessment approach has been enhanced. The new risk scoring assessment, which ensures a focus on the most significant risks was welcomed by the Committee •The Committee has been preparing for the introduction of Provision 29 of the UK Corporate Governance Code 2024 for our financial year that began on 1 January 2026 and supported the proposed approach •The Committee continued to review three-year risk and control improvement plans for both Business and Commercial Banking and Corporate and Institutional Banking, together with a deep dive on the markets control environment •In November, the Committee reviewed and supported the Risk function and Group Audit’s report on the effectiveness of internal controls required to manage risk
Non-financial risks
Conduct and compliance	•The Committee is responsible for overseeing that effective controls are in place to ensure that good outcomes are realised for customers and that the Group complies with its existing regulatory obligations •Emphasising conduct and compliance’s importance to the Group and the scale of regulatory attention, the Committee requested more frequent updates	•Customer treatment has been the subject of a number of discussions at the Committee in 2025. Focus areas included: –The Group’s treatment of vulnerable customers, including outcomes from the FCA’s market survey and case study analysis –Complaints brought to the Financial Ombudsman Service (FOS), including understanding the root causes –Oversight of the delivery and reconciliation of critical communications to Retail customers ▪Detailed reports on legal developments and litigation risks were considered on a half-yearly basis ▪The Committee reviewed the Group’s ring-fencing arrangements in November, including implementation of near term reforms earlier in the year, and supported the Board in their confirmation of overall compliance with ring-fencing governance requirements
Economic crime	•Recognising the significant external threat from economic crime to the Group and its customers, the Committee received updates on its exposure and prevention	•Sanctions, politically exposed persons (PEPs) payment and customer screening alerts were the focus of an update to the Committee in January •In April, the Committee considered an economic crime deep dive, which included progress updates on enhancing the control environment. The progress made to strengthen capability and capacity was recognised •The Committee reviewed the Money Laundering Reporting Officer’s annual report
Strategic transformation oversight	•The Committee received quarterly updates on the performance of the Group’s extensive current and future strategic change agenda. This enabled the Committee to assess the impact of any material change programmes on the Group	•The Committee continued with its focus on ensuring effective management of change execution risk, with a strong emphasis on analysing strategic transformation delivery progress, challenging how the Group assesses the value derived and lessons learned from the platform-based operating model
Operational resilience	•Oversight of operational resilience was a continued key focus area in 2025, with regular updates on IT service stability •A deep dive was undertaken on payments with a focus on the security and resilience of these core systems	•In March, the Committee reviewed the Group’s operational resilience self-assessment, which detailed scenario testing, recovery timeframes and regulatory expectations. The self-assessment was subsequently recommended to the Board for approval •The Committee covered IT service stability, particularly in response to outages experienced in the first half of the year, and oversaw improved performance •A comprehensive review of payment systems was conducted, focusing on the continuity and resilience of core operations

Lloyds Banking Group plc Annual Report and Accounts 2025


	Key activities for the year continued


Area of focus	Key role of Committee	Key outcomes
Non-financial risks continued
Cybersecurity	•The Committee acknowledges the importance of cybersecurity and has received regular updates from the Group’s IT and Cyber Advisory Forum (ITCAF)	•In light of the increased threat landscape and market events in 2025, the Committee was briefed on cyber-related issues and efforts to reduce IT vulnerabilities and enhance the control environment
Supplier risk management	•Close attention has been paid to the Group’s suppliers to ensure resilience of service to the Group’s customers	•In January, the Committee scrutinised a self-assessment of the Group’s supplier risk framework against the Prudential Regulation Authority’s Supervisory Statement 2/21 and questioned the status of compliance with new critical third-party regulations •A deep dive on supplier risk was conducted in October. The Committee emphasised the importance of ensuring all suppliers meet minimum resilience standards •Despite not having a significant impact on the Group, following the Amazon Web Services outage in October, the Committee discussed lessons learned to drive control enhancements
People and health, safety and premises risks	•The performance and safety of colleagues is of utmost importance to the Committee, which has provided advice, oversight and challenge during the year	•Key drivers of people risk, mitigating actions and current and future areas of focus were considered by the Committee. Discussions focused on measuring culture, capability and capacity, and supporting strategic growth plans •The Committee recognised the progress made on health, safety and premises risk, noting improved automation of controls and data insights. Further focus is required given increasing levels of verbal abuse faced by branch colleagues
Data and privacy risk	•Data and privacy risk is a continuing area of focus for the Committee •The Committee received updates on the data management risk profile and data privacy breaches	•A deep dive on the data and privacy risk profile was undertaken in July, with a follow-up in October. The Committee recognised that the Group is progressing towards a mature data management state with issues prioritised by impact, supported by AI-driven data quality monitoring •Alongside the deep dive, a proposal to revise the Group-wide Data Retention Schedule was noted •Compliance with the principles for effective risk data aggregation and risk reporting (BCBS 239) was discussed in July
Financial risks
Credit risk	•The Committee has frequently reviewed and challenged the performance of the Group’s commercial and consumer credit portfolios through regular credit management information and deep dives on portfolios requiring additional focus	•The Committee was pleased to note that the Group’s credit performance remained strong and stable in 2025 •A deep dive of the Group’s mortgages portfolio was completed, which considered an overview of the portfolio’s credit performance, market outlook and evolving risks. The Committee noted the material reduction in legacy assets that were originated before 2009 •A deep dive on the Group’s derivatives portfolio was undertaken, which included a sensitivity analysis. The overall high credit quality of the counterparties was noted by the Committee •A consumer lending credit risk deep dive highlighted the Group’s focus on sustainable growth. The Committee considered macroeconomic trends, performance and customers’ financial resilience •Infrastructure and project finance was also the focus of a deep dive, providing the Committee with a detailed overview of the business strategy and credit risks within the portfolio, such as concentration risk and growth in US exposures
Motor finance	•With significant external factors impacting the motor finance sector, the Committee has carefully monitored the transport portfolio’s performance, its exposure to residual value risk and the evolving situation in relation to motor finance commission arrangements	•The Committee received a detailed update on motor finance residual value risk. The Committee noted the significant focus on building capabilities to mitigate residual value risk given ongoing volatility, particularly in relation to battery electric vehicles (BEVs) •The Group has considered the potential impact of the FCA’s motor finance commission redress scheme and will continue to assess developments following the announcement by the FCA of the final scheme rules

Lloyds Banking Group plc Annual Report and Accounts 2025

Board Risk Committee report continued


	Key activities for the year continued


Area of focus	Key role of Committee	Key outcomes
Financial risks continued
Capital and liquidity	•The Committee has closely monitored the associated risks from capital, liquidity and funding	•After challenge and discussion from the Committee, the 2025 ICAAP was approved in March. The Committee was satisfied that the Group’s current and planned capital adequately covers the risk of financial loss it is, or might be, exposed to. During the year, the Committee also considered the approach and methodology for the 2026 ICAAP, including scrutinising the specific scenarios that help set operational risk capital for the Group •In April, the Committee approved the Group’s ILAAP. This included compliance with the PRA’s Overall Liquidity Adequacy Rules (OLAR) and refreshed Pillar 2 assessments •A capital optimisation deep dive took place in May, which focused on managing capital demand. The Committee expressed its support on plans and improvement of the Group’s capabilities •Updates on customer deposit trends and mix and the subsequent impacts this has for structural hedge activity were also provided to the Committee
Other
Model risk	•Model risk continued to be an area of significant internal and external focus, with the Committee overseeing the Group’s current model risk landscape and proposed improvements •The validation process for AI models also remained an area of importance in 2025	•During 2025, the Committee continued its oversight of model risk management, with regular updates being provided •The Committee gave particular focus to the implementation of Capital Requirements Directive (CRD) IV models and embedding of the PRA’s Supervisory Statement 1/23 principles on Model Risk Management •November’s update included an assessment of the effectiveness of the model risk framework with details of future enhancements •A deep dive on generative and agentic AI took place in July, which outlined the development and implementation of an AI assurance framework
Climate risk	•The Committee oversaw the impact of climate risk on the Group’s activities and considered the latest activity to assess and mitigate these risks	•A deep dive on climate risk was discussed in May. The Committee considered the Group’s key climate risks, the PRA’s Consultation Paper CP10/25 and continued development of internal climate scenario modelling capabilities
Recovery plans and resolution	•Recovery planning and resolution remained an important area of focus for the Committee throughout 2025 •The Committee has periodically reviewed the Group’s recovery and resolution plans	•Prior to the Committee’s approval of the approach to the 2025 Recovery Plan, a dedicated training session on recovery and resolution was held. The recovery plan focused on updating the recovery stress scenarios and aligning these to recovery strategy to the stress scenarios used in the 2025 ICAAP •As part of the recovery plan, the Committee considered a comprehensive Trading Activity Wind Down (TWD) analysis, which uses the severe stress scenario to evaluate TWD stress •The approach to the Group’s Resolution Integrated Scenario Test was approved by the Committee in May 2025 and will take place in the first half of 2026
Emerging and topical risks	•Emerging risk and topical risk themes have been regularly monitored by the Committee during 2025	•The Group’s approach to emerging risks has been refined further during 2025. In November, the Committee reviewed an updated register of emerging and topical risk themes

Lloyds Banking Group plc Annual Report and Accounts 2025

Responsible Business Committee report

Amanda

Mackenzie

Chair, Responsible

Business Committee

Read full biography

By embedding purpose, sustainability

and inclusion, we are determined to

create lasting positive impact for

customers, colleagues and communities

accross the UK.



	Key activities in 2025

	•Driving the Group’s ambitions to build a sustainable and inclusive future •Engaging our colleagues to deliver cultural change •Delivering on our duty to customers and stakeholders



	Membership and attendance at scheduled meetings

	Amanda Mackenzie (Committee Chair)	4/4
	Sir Robin Budenberg	4/4
	Sarah Legg	4/4
	Chris Vogelzang	1/11

	1Chris Vogelzang joined the Committee on 16 June 2025 Other attendees Sarah Bentley, an independent non-executive director of the Ring-Fenced Banks, attends meetings as an observer to provide insight on the Ring-Fenced Banks when required. The Group Chief Executive and, as appropriate, representatives from Group Audit also attend.



Read more

Skills and experience	pages 68 to 69
Responsibilities (and in its terms of reference, which are on our corporate governance page )		page 72

Introduction

I am pleased to report on the Committee’s work in 2025 and I

would like to thank members for their contributions. Over the past

12 months, our focus has been resolute: driving the actions that will

help build a more sustainable and inclusive future for the people

and communities the Group serves. By concentrating on the areas

where we can have the greatest positive impact, we continue to

strengthen our business, deepen trust and deliver long-term,

sustainable value for both shareholders and other stakeholders.

Committee operation

The Committee met four times during 2025. As part of our ongoing

commitment to governance, the Committee undertook an annual

review of its own performance, the findings of which, together

with the outcomes of the externally facilitated Board performance

review process as relevant to the Committee, were considered by

the Committee at its January 2026 meeting; it was considered that

the performance of the Committee continues to operate effectively

with a strong focus on governance and responsible oversight.

Purpose in action

Throughout 2025, the Committee focused on how the Group is

making the most meaningful difference for customers, colleagues

and communities. This approach not only supports long-term

business resilience but also helps impact the people and places

that need it most.

This year, we considered the Group’s efforts to empower prosperous

futures for customers and its continued leadership in improving

access to quality and affordable housing, reinforcing our longstanding

commitment to the UK’s social housing sector. We also considered

the Group’s work with UK universities to advance regional growth

across the country. Demonstrating our continued commitment to

supporting the UK’s transition, we approved updates to financed

emission sector targets in line with the Government’s Seventh Carbon

Budget. The Group also achieved the highest ISS ESG QualityScore,

reflecting our strong ESG governance and transparent disclosures.

And with the launch of new products, including the Agricultural

Transition Finance loan, the Group continued to showcase its

determination to turn intention into action on sustainability.

More detail on our responsible business activity can be found

on pages 35 to 49 and in our sustainability report .

In 2025, we also celebrated 40 years since the launch of our

four independent Charitable Foundations. Since 1985, more than

£800 million has been donated to almost 70,000 charities across

the UK, a powerful legacy of collaboration and impact in the

communities we serve.

The Committee also reviewed the progress towards the Group’s

2030 inclusion ambitions. We saw encouraging steps in increasing

senior representation and reaffirmed the importance of using data

to build an inclusive organisation that recognises the business value

of social mobility. The Committee remains fully supportive of the

work underway to increase representation from key demographics.

I remain inspired by the Group’s actions and its commitment

to ensure its workforce reflects the communities it serves.

More detail can be found on pages 22 to 23.

Colleague engagement

Our colleagues are central to the delivery of the Group’s strategic

ambitions. As the designated body for workforce engagement, the

Committee supports the Group’s engagement strategy, reporting

to the Board on the key themes and issues we are hearing from

colleagues. This year, we focused on culture and collaboration,

accountability and empowerment, as well as skills and growth.

More details on our colleague engagement activities can be found

on page 77.

Consumer Duty

The Committee continues to fulfil the Board’s responsibilities

for Consumer Duty and I remain the Board’s Consumer Duty

Champion. During 2025, we received regular progress updates from

business units and reviewed the annual Consumer Duty Report

ahead of its submission to the Board. Consumer Duty underpins

how the Group serves customers and sits at the heart of our

strategy, ensuring we deliver good, fair and responsible outcomes.

Lloyds Banking Group plc Annual Report and Accounts 2025

Directors’ remuneration report

Cathy Turner

Chair, Remuneration

Committee

Read full biography

Our proposed 2026 Policy places

greater emphasis on sustainable

high performance and the creation

of shareholder value, pivoting

from guaranteed fixed pay to

performance-related variable pay.



	Key activities in 2025

	•Agreed a multi-year pay deal with a fixed award approach for the majority of our colleagues, which includes a £1,2001 pay award for 2026 and 2027 •Conducted a thorough review of the Directors’ Remuneration Policy to ensure it supports the Group’s strategic priorities •Completed an extensive shareholder consultation on executive remuneration



	Membership and attendance

	Cathy Turner (Committee Chair)	6/6
	Sir Robin Budenberg	6/6
	Amanda Mackenzie	6/6
	Catherine Woods	6/6

	Other attendees Nigel Hinshelwood and Sarah Bentley, the Senior Independent Director and an independent non-executive director respectively of the Ring-Fenced Banks, attend meetings as observers to provide insight on the Ring-Fenced Banks when required. In addition, the Committee engaged with and received updates from the Group Chief Executive, Chief People and Places Officer, Total Reward Director and the Chief Risk Officer.



Read more

Remuneration at a glance		page 103
2025 annual report on remuneration	pages 105 to 123
2026 Directors’ Remuneration Policy	pages 124 to 133
Responsibilities (and in its terms of reference, which are on our corporate governance page )		page 72

Dear shareholder

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

remuneration report (DRR) for the year ended 31 December 2025

and the proposed Directors’ Remuneration Policy (Policy), for which

we are seeking approval at our annual general meeting (AGM) in

May 2026.

I would also like to take this opportunity to thank our shareholders

for the strong support received at the 2025 AGM, with 94%

approval of our 2024 DRR.

Sustained strength in financial performance

and how we have delivered for our customers,

communities and shareholders in 2025

2025 has been another year of significant progress for the Group,

delivering for our customers, communities, and shareholders. Given

our continued strategic execution and sustained strength in

financial performance, this enabled a total proposed ordinary

dividend for 2025 of 3.65 pence per share, an increase of 15%

compared with the prior year. In addition, the Group announced

the launch of a share buyback programme to repurchase up to £1.75

billion of ordinary shares, reinforcing our commitment to creating

long-term value for our 2.1 million shareholders, including around

80% of our employees.

In 2025, we continued to deliver on our purpose of Helping Britain

Prosper. We remain focused on improving access to quality and

affordable housing, lending £17 billion to first time buyers in 2025

and supporting £3.2 billion of new finance to the social housing

sector. Additionally, we recently committed to providing a further

£35 billion of new finance to companies investing and operating in

the UK in 2026.

Supporting the net zero transition remains a significant strategic and

commercial opportunity. The Group has cumulatively delivered over

£70 billion of sustainable financing since 2022, including over

£21 billion in 2025.

Continuing to support colleagues

through our transformation

I am immensely proud of the role our colleagues have played in

delivering for our customers, communities and shareholders in 2025.

We have continued our significant transformation and the

commitment of our colleagues remains critical to its success.

In 2024 and 2025, we provided a two-year pay deal to give

colleagues certainty during a fast-changing economic environment

as we continued to transform our Group. This year, we have

agreed another multi-year pay deal for junior colleagues with our

recognised unions, Accord and Unite, continuing our support for

colleagues by keeping things simple and providing certainty. In

2026, this includes a pay award of £1,2001, with a new minimum

salary of £26,2001, and in 2027, a further pay increase of £1,2001

will apply, with the minimum salary rising to £27,4001. Our new

minimum salary from 1 April 2026 will be 7.0% above the national

Real Living Wage; our London rates will be 10.9% above the London

Real Living Wage.

As set out last year, in continuing to consider arrangements for

engaging with the Group’s workforce, the Board approved an

evolved approach to colleague engagement, implemented during

2025. This new approach built on existing colleague listening activity

and introduced three colleague-led forums designed to increase

colleague voice, particularly at grades where trade union

representation is low.

For colleagues not included in the two-year pay-deal, we shared our

approach with the People Forum and listened to and acted on their

feedback, providing higher increases for those lower in their pay

range. For our more senior colleagues, we continued our

discretionary pay approach, maintaining a strong emphasis on

individual impact and contribution, peer pay comparisons and

position within the pay range.

1Pro-rated for reduced hours.

Lloyds Banking Group plc Annual Report and Accounts 2025

Finally, I’m delighted to celebrate the success of the 2022

Sharesave, a savings scheme combined with a share option plan

which enables our colleagues to save for their future and then buy

shares in the Group at a discounted price. The scheme launched

in December 2022 with an option price of 39 pence and matured

on 1 January 2026 at a price of 99 pence. Around 15,000 of our

colleagues, approximately 25% of the Group’s employees, have

shared in the significant value they helped create for shareholders

through Sharesave. The typical savings amount from colleagues

participating in the 2022 Sharesave was £112 per month, and at the

above gain would see a final realisation benefit of around £6,000.

PRA/FCA remuneration reform

In October 2025, the PRA and FCA published a joint policy

statement which made significant, positive changes to the delivery

of variable pay for Material Risk Takers (MRTs); these changes

better align the UK with global norms and make it easier for UK

firms to attract and retain global talent.

Excluding our executive directors, we implemented these changes

with immediate effect. For our executive directors, we are mindful

that additional considerations apply. As a consequence, for

our executive directors, we will be subjecting variable pay to a

greater level of deferral and delivery of shares than required by the

regulatory rules; this is detailed as part of our implementation report.

2025 Group-wide variable reward outcomes

2025 was a key year for the Group, entering the second phase of our

strategy demonstrating sustained strength in financial performance

with franchise, balance sheet and income growth.

In determining the 2025 Group Performance Share (GPS) annual

bonus pool outcome, the Committee has considered a range of

factors, including the Group’s underlying financial performance,

its reward market positioning, our Group balanced scorecard (BSC)

outcome and our risk management. The Group BSC contains

measures of financial and non-financial performance, reflecting a

range of stakeholders including shareholders, customers and clients,

colleagues, and our communities and the environment. The

scorecard is described in more detail on pages 110 and 111.

The Committee has approved a 2025 GPS pool of £405 million,

representing a year-on-year increase of 10% compared to 2024.

The increased pool in 2025 shows continuing alignment to the

underlying financial performance of the Group.

In 2023, Long Term Share Plan (LTSP – a restricted share plan with

underpins) awards were granted to approximately 840 colleagues,

including our executive directors. The decision to award LTSP

awards in 2023 was based on performance relating to 2022. 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

vest in full. The Committee also considered whether there was

any requirement to adjust the final outcome for windfall gains,

particularly as share price appreciation (c.75% share price growth

over the life of the plan) accounts for such a significant proportion

of the value realised by colleagues. The Committee concluded that

the share price growth over the period was reflective of underlying

performance and shareholder experience and as a consequence

determined that no adjustment is necessary. The 2023 LTSP is the

final long-term incentive in the form of an award under a restricted

share plan to vest having been replaced by a performance-based

Long Term Incentive Plan (LTIP) from 2024.

2025 Executive director variable

reward outcomes

In 2025, our Group Chief Executive (GCE), Charlie Nunn, has

overseen the continued delivery of the Group’s strategy, financial

targets, investment priorities, and market share growth in priority

areas, which will set the Group up for success in 2026, the final year

of the first strategic phase.

He has demonstrated strong leadership throughout another

challenging year for consumers while working closely with the UK

Regulators and UK Government on several key areas.

Our Chief Financial Officer (CFO), William Chalmers, has played a

critical role in the execution of the Group’s strategy and maintained

positive engagement with investors and regulators on the Group’s

performance and strategic direction, while showing strong financial

and risk management.

The Group BSC, comprising seven financial and non-financial

performance measures, is the principal input into the annual bonus

awards for the GCE and CFO. As I set out in my Chair statement

in 2024, the impact of any motor finance provision in 2025 on

financial metrics would be excluded, with any impact considered

on a discretionary case-by-case basis, to allow the Committee to

set robust financial targets aligned to the financial planning and

budgeting process.

A detailed breakdown of the outcome of the Group BSC is set out

on page 110. After careful consideration, the Committee does not

consider that the mechanical outcome of 81.9% properly reflects

the performance of the Group given the additional provision taken

for motor finance this year (see page 283). In assessing the impact

of the provision on the Group’s financial performance with due

consideration to the fact that it relates to issues that took place

prior to the appointment of the current management team, the

Committee has agreed a 74% outcome is appropriate which has

resulted in a 7.9 percentage point reduction from the mechanical

outcome. Taken with the impact on the Group BSC in 2023

and 2024, the Committee is satisfied that the total provisions

taken by the Group to date have been appropriately reflected

in executive variable pay outcomes.

On the basis of a Group BSC outcome of 74.0% the final

2025 GPS awards for the GCE and CFO were £1,424,895

and £908,835 respectively.

2026 Directors’ Remuneration Policy

The current Policy, which received 96% support from our

shareholders at the 2023 AGM, is due for renewal in 2026. In

preparation, the Committee has undertaken a thorough review

to ensure the Policy acts as a strong incentive to our management

team, who are well regarded by our shareholders, to deliver

continued strategic and financial progress and guide the Group

into its next strategic cycle. The Policy places greater emphasis

on sustainable high performance and shareholder value creation.

The 2026 Policy proposes a material reduction in guaranteed

fixed pay for our executive directors alongside a higher

performance-related variable reward opportunity to enhance

our pay-for-performance proposition and further align executive

reward outcomes with the experience of our shareholders. The

scorecards which drive variable reward outcomes have also been

reviewed, with an increased weighting towards quantitative

financial measures, and 2026 financial targets have been set

substantially higher than in previous years reflecting the Group’s

ambitious growth plans.

Shareholder consultation

We place significant emphasis on our shareholders’ views and have

undertaken a comprehensive consultation, across both 2024 and

2025, on executive pay to ensure those views are well understood

and properly reflected in the proposed Policy.

In 2024, I consulted with a range of shareholders and proxy

rating agencies to discuss their views on executive pay ahead of

Policy implementation in 2025. The feedback was valuable and

indicated broad support for the management of executive pay

at the Group which our shareholders consider is undertaken

responsibly. Our shareholders clearly understood our rationale

for the fixed pay changes and the importance of rewarding our

executive directors, who are well regarded amongst our investors,

fairly for their roles in the short and long term.

Lloyds Banking Group plc Annual Report and Accounts 2025

100

Directors’ remuneration report continued

One area of particular discussion during the 2024 consultation

was the timing of fixed pay increases ahead of the Policy review in

2025. As I set out in my Chair statement in 2024, the Committee

considered the feedback carefully and determined to take a two-

step approach to ensure the executive directors were paid fairly

ahead of the 2026 Policy review. Appropriate fixed pay changes

were implemented in 2025.

In the 2024 DRR, I noted that fixed pay would be reconsidered

as part of the 2026 Policy review, where we anticipated that,

consistent with likely market movements, the fixed share award

(FSA) element would be significantly reduced and a higher,

performance-related, variable reward opportunity recommended.

I once again consulted with shareholders in 2025 to ensure our early

Policy thinking was reflective of shareholder views. In October 2025,

I spoke with our largest shareholders, representing around 25% of

issued share capital (ISC), followed in November 2025 by engaging

with the main proxy rating agencies whose recommendations are

considered by a significant portion of our register.

During those meetings, we specifically focused on the significant

pivot from fixed to variable pay, the increased weighting of financial

measures across our scorecards, and how we benchmarked our

proposals to test them against an appropriate range of peers.

Feedback from shareholders during the consultation was positive.

In particular, shareholders welcomed the early engagement,

acknowledged the clear and well-articulated rationale for the

changes and the market alignment of the proposed package.

Following our initial consultation, we issued a letter to a number

of institutional shareholders who were not part of the initial

consultation, seeking their input on the proposals discussed as well

as sharing feedback received to date. In total, approximately 60%

of the Group’s ISC were contacted on the proposed 2026 Policy.

Taken as a whole, the Committee determined that the course we

are on is appropriate for our business. However, our shareholders

were also clear on three areas where they wanted the Committee

to reflect:

•Future-proofing – shareholders expect the Policy to provide

sufficient flexibility to last the cycle and do not expect the Group

to seek a new Policy before 2029

•Performance targets – recognising the potential increase in

quantum, shareholders expect performance measures to be

transparent and targets should continue to be stretching

•Benchmarking – clear and transparent benchmarking, including

consideration of the choice of peer group, particularly where

firms have exposure to the US which has influenced their

remuneration structure or overall quantum and those of similar

size and performance to the Group

How the Committee has considered and addressed these key points

is discussed in more detail below.

Policy background and context

Since the appointment of Charlie Nunn as our GCE in August 2021,

£43 billion of shareholder value has been created through a

combination of growth in our market capitalisation of c.£25 billion

and through distributions of c.£18 billion, c.131% of the value of the

Company in August 2021.

In February 2022, the Group launched its new strategy, building on

our strong foundations and our purpose of Helping Britain Prosper.

At that time, the Committee conducted a thorough review of the

Group’s Policy to ensure it supported the Group’s strategic priorities

and the interests of our shareholders.

Following this review, as part of our refreshed 2023 Policy, we made

significant changes to our executive reward package to drive a high-

performing culture and create a stronger link between performance,

reward, and the creation of shareholder value. Principal amongst

those changes was the return to a performance-related LTIP,

providing an increased variable opportunity but with significantly

greater downside risk than the restricted share plan it replaced.

We also increased shareholding requirements for our executive

directors to further strengthen alignment with our shareholders by

requiring them to hold a higher multiple of salary in Group shares,

increasing the requirement from 350% to 400% and from 250% to

300% for the GCE and CFO, respectively. The shareholding policy

applies for two years post-employment.

The Committee believes that the current Policy, despite greater

design constraints applicable at the time, has served the Group

well and we continue to make strong progress in delivering our

purpose-driven strategy, building differentiated customer outcomes

and growing our business as we build towards our ambitious targets

for 2026.

The Committee is also mindful of external factors which impact

the 2026 Policy design, in particular the removal of the regulatory

2:1 bonus cap, FCA/PRA reforms, updated Investment Association

Principles of Remuneration, and the new directors’ remuneration

policies approved by the shareholders of the Group’s main UK

banking peers.

The Committee has reflected on the 2023 Policy and has

concluded that a simple annual bonus/LTIP structure remains

most appropriate for our business, providing the closest alignment

with the shareholder experience as well as transparency in terms

of targets and outcomes for both our executive directors and our

shareholders. During our consultations, investors have been

supportive of this approach.

After careful consideration throughout 2025, the Committee

has concluded that the direction set out in the 2024 DRR,

pivoting towards a more leveraged, performance-oriented package,

remains the right one to place more emphasis on sustainable high

performance and shareholder value creation.

Fixed pay

The new Policy removes FSAs (currently set at 100% of salary),

reduces our executive directors’ pension contributions from 15% to

10% of salary to better align to the market and at a level lower than

the majority of the wider workforce, and removes the flexible

benefits allowance and the CFO’s company car allowance.

The base salaries of our GCE and CFO will be increased by 3%, in

line with wider workforce fixed pay funding for 2026 to £1,416,642

and £903,572, respectively, effective 1 April 2026. Subject to

approval of the Policy at the 2026 AGM, also effective 1 April 2026,

salaries will be increased by an additional £112,531 and £82,684

to reflect the partial consolidation of FSAs and flexible benefits

allowance. Taken together, these changes will reduce our executive

director fixed pay by approximately 44%.

As acknowledged by the UK regulators at the time the bonus cap

was removed, the regulations did not limit total remuneration but

placed upward pressure on banking fixed pay which is not

performance related and cannot be subsequently adjusted or

clawed back. The fixed pay changes proposed as part of the 2026

Policy will bring the GCE’s fixed pay as a percentage of total

maximum compensation in line with FTSE 30 norms; down from

33% to 12%, compared to the FTSE 30 median of 14%. For the CFO,

this would be down from 33% to 14%, compared to the FTSE 30

median of 15%.

Variable pay

Alongside the reduction in fixed pay, the Committee also intends to

make responsible use of the Group’s 8:1 variable-to-fixed pay ratio

to increase the executive directors’ variable pay opportunity to

place further emphasis on a high-performing culture and create a

stronger link between performance, reward, and the creation of

shareholder value.

For the GCE, the Committee is proposing to increase the maximum

annual bonus award from 140% to 300% of base salary and the

maximum LTIP opportunity from 300% to 500%; for the Group

CFO, the proposed increases are to 250% and 450%, respectively.

Lloyds Banking Group plc Annual Report and Accounts 2025

101

These changes will place significantly more of the executive

directors’ pay at risk, increasing the variable pay component

to over 85% of total maximum remuneration from 67% today.


	Reward structure change



	Group Chief Executive Charlie Nunn	Total maximum remuneration
	2025	Total maximum remuneration


	100%	140%	300%	£9.1m

p
£3.0m


2026
	300%	500%	£13.9m

p
£1.7m
44% fixed pay reduction



	Chief Financial Officer William Chalmers	Total maximum remuneration
	2025	Total maximum remuneration


	100%	140%	300%	£5.8m

p
£1.9m


	2026
		250%	450%	£8.0m

	p
£1.1m
44% fixed pay reduction


l	Base salary	l	Fixed share awards	l	Pension/ Benefits	l	Short term variable	l	Long term variable

The Committee is satisfied that the maximum total compensation

opportunity under the proposed Policy is appropriately positioned

relative to the market to create a strong incentive to the current

management team to lead the Group into its next strategic cycle

without needing to revisit the Policy ahead of 2029.

Subject to shareholder approval of the new Policy and following a

pre-grant test based on 2025 performance, including the outcome

of the 2025 Group BSC, 2026 LTIP awards will be granted following

the AGM under the terms of the 2026 Policy at 500% of salary for

the GCE and 450% of salary for the Group CFO.

Shareholding requirement

To further strengthen the alignment between executive directors’

interests and those of our shareholders, we are also proposing to

increase the Group’s shareholding requirement from 400% to 500%

of base salary for the GCE and from 300% to 450% for the Group

CFO as part of the 2026 DRP, aligned to their respective maximum

proposed LTIP opportunities. As is currently the case, the

shareholding policy applies for two years post-employment.

Performance scorecards and targets

The Committee is clear that the performance targets which drive

both GPS and LTIP outcomes are key in driving executive director

behaviour and ensuring focus on sustainable high performance and

the creation of shareholder value. For that reason, the Committee

has dedicated significant time to both the Group BSC and the LTIP

performance measures and is making substantive changes.

Our 2023 Policy rightly placed significant emphasis on strategic

transformation, and that was reflected in the 35% weighting to the

Strategic Delivery block in our LTIP scorecard. Under the new 2026

Policy, the Committee is clear that the Group’s transformation and

change must translate into sustainable high performance and the

creation of value for our shareholders. To reflect that pivot we plan

to significantly increase the financial weighting of the LTIP scorecard

from not less than 50% to not less than 75%, to focus the vesting

outcome of the LTIP on the financial results of our transformation.

For 2026, the LTIP measures will be return on tangible equity

(RoTE) (30% weighting), capital generation (15% weighting)

and relative total shareholder return (TSR) (30% weighting).

Recognising the importance of stretching financial targets to our

shareholders, we have increased our RoTE target range for the 2026

LTIP award by two full percentage points from 13% to 16% to 15% to

18% and our capital generation range from 185 to 230 basis points

to 200 to 250 basis points. Both the RoTE and capital generation

targets are on a three-year average basis from 2026 to 2028.


	Group RoTE target progression within the LTIP


	2026 to 2028	+2ppt	t 15%	18% u


	2025 to 2027	+1ppt	t 13%	16% u


	2024 to 2026	t 12%	15% u


	ll	Performance range

The remaining weight will remain aligned to strategic delivery (15%)

and environmental sustainability commitments (10%), which we

intend to maintain as a separate block to ensure clarity and visibility

over our climate-related performance.

Our current Group BSC, which is a key input into annual GPS

decisions for our executive directors and informs the level of annual

LTIP grant, has, for a number of years, included a strong weighting

to financial measures; for that reason, the Committee is not

proposing to change the current 60% weighting for 2026.

However, to recognise the longer-term nature of the Group’s

ambitions on decarbonisation, the Committee will use the LTIP

as the principal measure of the Group’s progress on environmental

sustainability by moving the Reduction in our Operational Carbon

Emissions measure from the short-term to the long-term scorecard.

To reflect the criticality of continued transformation of our

workforce to enable delivery of Group strategy, our 2026 Group

BSC will include a broader and more comprehensive ‘People

measure’ weighted 15%; this will retain our current focus on

inclusion and colleague engagement but also include a wider range

of people transformation metrics considered by the Board. These

will include, for example, colleague upskilling and the adoption of

AI, a first we believe amongst our peers.

To recognise the importance of our customers and to ensure

executive variable reward outcomes reflect their experience,

the remaining 25% weight will be aligned to the Group Customer

Dashboard (an increase of 5 percentage points from 2025).

Collectively, these changes will represent a significant pivot toward

financial performance, with over 60% of total reward opportunity

being linked to financial measures versus approximately 35% under

the previous Policy.

Market benchmarking

Benchmarking was one of the key discussion points during our

shareholder engagement; from those conversations it was clear

that our investors expected us to use benchmarking to test our

proposals, rather than be led by it, and also to be thoughtful over

our choice of peers.

Lloyds Banking Group plc Annual Report and Accounts 2025

102

Directors’ remuneration report continued

To satisfy itself that the increased total reward package on offer to

the executive directors is reasonable, the Committee has carefully

tested its proposals against our main UK banking peers and a subset

of the FTSE 30 which excludes firms whose pay structures are

heavily influenced by the US market where pay practices are

markedly different to the UK. For similar reasons, the Committee

has decided not to consider a specific European peer set as part of

the exercise.

Based on the benchmarking data set out below, the Committee is

satisfied that the proposed Policy is well positioned versus market:


	Group Chief Executive Charlie Nunn


	UK banking peer median

	FTSE 30 peer median

	LBG 2026

	LBG 2025


£1.8m	260%	520%

£14.2m

£11.0m

£13.9m

£9.1m


£1.7m	210%	490%


£1.7m	300%	500%


£3.0m	140%	300%


ll	Fixed pay	ll	Short-term variable	ll	Long-term variable


	Chief Financial Officer William Chalmers


	UK banking peer median

	FTSE 30 peer median

	LBG 2026

	LBG 2025


£1.2m	235%	435%

£8.2m

£5.9m

£8.0m

£5.8m


£1.0m	200%	375%


£1.1m	250%	450%


£1.9m	140%	300%


ll	Fixed pay	ll	Short-term variable	ll	Long-term variable

UK banking peers: Barclays, HSBC, NatWest and Standard Chartered.

FTSE 30 firms included: 3i Group, Anglo American, BAE Systems, Barclays, BP, Compass

Group, Diageo (CFO only), Experian, Glencore (GCE only), Haleon, HSBC, Imperial Brands,

NatWest, RELX, Rio Tinto, Rolls-Royce, Shell, SSE, Standard Chartered, Tesco, Unilever and

Vodafone Group.

FTSE 30 firms excluded for having pay structures heavily influenced by the US market:

Ashtead, Astrazeneca, BAT, GSK, LSEG, National Grid and Reckitt Benckiser.

Peer 2025 data aged 3% for comparison purposes.

A key discussion point with shareholders during the consultation

was how the Committee considers peers closest to the Group in

terms of size, complexity and performance, given the diverse nature

of the companies comprising the FTSE 30.

The Committee has also considered a narrower subset of the FTSE

30 which are more comparable to the Group in terms of market

capitalisation (as a useful proxy for size and complexity) as well

as TSR performance and has, again, concluded that the proposals

are reasonable.

Renewal of the North America Employee

Stock Purchase Plan 2016 Rules

We will also be recommending a resolution to the AGM to renew

our US Employee Stock Purchase plan, which is similar to our UK

Sharematch scheme, to ensure its continued operation beyond

the current approval period, which is due to expire in 2026.

Conclusion

Together with my Committee members, I would like to thank our

shareholders for their continued support and critical engagement on

executive pay during 2025, and our people for their commitment to

our customers and communities, and for delivering another set of

robust results in 2025.

On behalf of the Board

Cathy Turner

Chair, Remuneration Committee

Directors’ Remuneration Policy design process and approach to consultation

October to

November

2024

December

2024

January

2025

May to

September

2025

October to

November

2025

November

2025

December

2025

January to

February

2026

Consultation on

2025 fixed pay

implementation

Attendees

Major institutional

shareholders

representing c.25%

of the shareholder

Proxy rating agencies

Board Governance

Event

Attendees

Shareholders

representing c.31%

of the shareholder

the event

Follow-up

consultation on

2025 fixed pay

implementation

Attendees

Proxy rating agencies

Review of existing

Policy and proposals

for new Policy

Consultation on

2026 proposed

Policy

Attendees

Major institutional

shareholders

representing c.25%

of the shareholder

Proxy rating agencies

Remuneration

Committee meeting

to discuss investor

feedback

Letter issued setting

out proposed Policy,

feedback from initial

consultation and

inviting feedback

Recipients

Major institutional

shareholders

representing c.60%

of the shareholder

Discuss further

shareholder

feedback and

approve proposed

Policy for

shareholder vote

at 2026 AGM

Engaged with

shareholders in

response to

feedback

Lloyds Banking Group plc Annual Report and Accounts 2025

103

2025 Remuneration at a glance

This section provides a summary of key 2025 remuneration outcomes for the Group and its executive directors and how they align to our

strategic delivery and wider stakeholder experience.


	Strategy and Stakeholder key

	Our reward outcomes reflect our strategic delivery and wider stakeholder experience as demonstrated by our Group balanced scorecard and Long Term Share Plan scorecard, as shown below.


	2025 Single total figure of remuneration (£000)
	Group Chief Executive Charlie Nunn		Chief Financial Officer William Chalmers

	The Group Chief Executive’s total remuneration for 2025 was £7.4 million, up 20% from 2024. The Chief Financial Officer’s total remuneration for 2025 was £5.0 million, an 18% increase from the previous year. The year-on-year increases were primarily driven by fixed pay changes implemented in 2025, described in detail on page 106, higher short-term variable reward outcomes of 74.0% of maximum compared to 68.1% in 2024 and finally the share price appreciation linked to the vesting of the long-term variable awards which benefitted from share price increase over the period from 52 to 91 pence. For full details please see page 109.

2025

2024

Total £7,407

Total £6,169

Total £4,976

Total £4,212

2025

2024


l	Fixed	l	Short Term Variable	l	Long Term Variable	l	Value from share price appreciation


2025 Group balanced scorecard outcome

	Financial (60%)	Profit after tax	21.8% / 25%

		Return on tangible equity	22.1% / 25%

		Operating costs	5.8% / 10%

	Non-financial (40%)	Group customer dashboard	13% / 20%

		Reducing our operational carbon emissions	5% / 5%

		Increasing gender and ethnic representation in executive roles	6.75% / 7.5%

		Culture and colleague engagement	7.5% / 7.5%

	Mechanical balanced scorecard outcome		81.9%
	Discretionary Committee adjustment		-7.9
	Discretionary Committee adjustment		-7.9
	Revised balanced scorecard outcome		74.0%
	For full details please see pages 110 and 111.


2023 Long Term Share Plan outcome

	Financial (100%)	CET1 ratio – Group CET1 ratio above the guided management target each year, including all regulatory buffers	Met

		RoTE – Group RoTE exceeds the average for UK peer banks over the three years	Met

		Ordinary dividend – Increased ordinary dividend payments over the plan period	Met

	Award (% max) vesting		100%
	For full details on the ‘pre-vest test’ please see page 112.


	2025 Group Performance Share pool
			The underlying profitability of the Group is the key driver of our GPS pool, ensuring strong pay-for-performance alignment. The Group BSC is also considered in setting the pool and therefore the final outcome considers our strategic delivery and wider stakeholder experience. The Committee determined a pool for 2025 of £405 million, up 10% from 2024, recognising increased underlying performance.

10%

2025

2024

Lloyds Banking Group plc Annual Report and Accounts 2025

104

Directors’ remuneration report continued

Revised Policy overview

The below table sets out the revised Directors’ Remuneration Policy which will be put forward to shareholders at the 2026 AGM. The full

Policy can be found on pages 124 to 133.


		Current 2023 Policy		Proposed changes in 2026 Policy and rationale



Base Salary	•Reflective of individual role, taking account of responsibilities, experience and pay in the wider Group •Base salaries are typically reviewed annually with any increases normally taking effect from 1 April for executive directors	No change to Policy.


Fixed Share Award	•Delivered entirely in Lloyds Banking Group shares, released over three years with 33% being released annually following the year of the award •The maximum award is 100% of base salary	Change: •Fixed share awards have been removed from the 2026 Policy Why: To set fixed pay at an appropriate level in line with market standard for executive directors and further align executive remuneration with stakeholder experience.


Pension	•Provides cost-effective and market competitive retirement benefits •Maximum allowance for executive directors is 15% of salary, aligned with that available to the majority of the workforce	Change: •Maximum allowance of 10% of salary for executive directors Why: To set fixed pay at an appropriate level in line with market standard for executive directors. This will move from being in line with to less than the majority of the wider workforce.


Benefits	•Flexible benefit allowance of 4% of salary •Other benefits include medical insurance, car allowance and transportation	Change: •Flexible benefit allowance has been removed •Car allowance has been removed Why: To align executive director remuneration package with the wider workforce where these allowances were consolidated in previous years and to set fixed pay at an appropriate level.


Group Performance Share (Short Term Variable)	•Maximum opportunity of 140% of salary for executive directors, with normal target level at 50% of maximum opportunity •Performance adjustment including malus and clawback provisions apply	Change: •Maximum opportunity of 300% of salary for GCE and 250% for other executive directors Why: To place further emphasis on a high-performing culture and create a stronger link between performance, reward, and the creation of shareholder value. The increase in maximum variable reward opportunity should be considered alongside the reduction in fixed pay described above.


Long Term Incentive Plan (Long Term Variable)	•The maximum LTIP opportunity is 300% of salary for all executive directors •A minimum of 50% of the award being dependent on financial measures •Performance adjustment including malus and clawback provisions apply	Change: •Maximum opportunity of 500% of salary for GCE and 450% for other executive directors •A minimum of 75% of the award being dependent on financial measures Why: To place further emphasis on a high-performing culture and create a stronger link between performance, reward, and the creation of shareholder value. The increase in maximum variable reward opportunity should be considered alongside the reduction in fixed pay described above.

Lloyds Banking Group plc Annual Report and Accounts 2025

105

Remuneration Committee

The Committee comprises of four non-executive directors including

Sir Robin Budenberg, 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, including the Senior Independent

Director, 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 98.

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 and approves 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 2025.

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 2025

amounted to £134,625 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	Dec

Executive directors’ remuneration
Executive directors’ fixed pay proposals	l	¡	¡	l	¡	¡
Executive directors’ performance and variable remuneration	l	l	¡	l	l	l
Directors’ remuneration report	l	l	¡	¡	¡	l
Directors’ Remuneration Policy design	¡	¡	¡	l	l	l
All employee remuneration
Fixed pay proposals	¡	¡	¡	l	l	¡
Group performance and GPS pool	l	l	l	l	l	l
Employee insights	¡	l	¡	¡	¡	¡
Remuneration for other senior executives	l	l	¡	¡	¡	l
Reward governance
Consideration of policy and conduct matters	l	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 2025 in relation to the annual report on remuneration. The Directors' 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)
2024 annual report on remuneration (advisory vote)	37,913	94.23%	2,323	5.77%	28
Directors’ Remuneration Policy (binding vote in 2023)	39,002	96.00%	1,623	4.00%	68

Lloyds Banking Group plc Annual Report and Accounts 2025

106

Directors’ remuneration report continued

2023 Directors’ Remuneration Policy

summary and 2025 implementation

The 2023 Directors’ Remuneration Policy, which applied during

2025, was approved by shareholders at the AGM on 18 May 2023

with 96% 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.

Details of the new Policy being proposed to shareholders at the

2026 AGM are set out on pages 124 to 133.

A summary of the 2023 Policy for the executive directors and how

it was implemented during 2025 is shown below.


	Read more 2023 Directors’ Remuneration Policy in full


		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 January 2025, the 13% discount applied to the GCE’s salary on appointment was reversed, taking his salary to £1,335,321, and from 1 April 2025, salaries for the executive directors increased by 3%, less than the wider workforce, to £1,375,381 for the GCE and £877,254 for the CFO.	The pay deal for the wider workforce in 2025 reflected a 4.1% budget. The approach focused on lower paid colleagues with junior colleagues receiving a minimum £1,500 award in 2025 (pro-rated for reduced hours).


Fixed Share Award	•Delivered entirely in Lloyds Banking Group shares, released over three years with 33% being released annually following the year of the award •The maximum award is 100% of base salary From 1 January 2025, fixed share awards were increased to align with the executive directors salaries.	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 was delivered in the form of shares. Fixed share awards were only granted to the GCE and the CFO.


Pension	•The maximum allowance for executive directors is set at 15% 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 for 2025 was set at 15% of base salary.	The maximum allowance for all executive directors for 2025 was set at 15% 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 for 2025 were unchanged from 2024. Executive directors received a flexible benefit allowance of 4% of base salary. The CFO also received a car allowance.	Flexible benefit allowance of 4% of base salary was consolidated into base salary in July 2023 for colleagues, simplifying their reward package and benefitting from pension contribution entitlement.

Lloyds Banking Group plc Annual Report and Accounts 2025

107


		Directors’ remuneration		Wider workforce alignment



Group Performance Share (Short Term Variable)	•The normal ‘target’ level of the GPS is 50% of maximum opportunity •The maximum GPS opportunity is 140% of salary for the executive directors The GCE and CFO received 2025 GPS awards of 74.0% of maximum in line with the final Group balanced scorecard outcome as shown on page 110. The Group’s policy is to apply deferral to variable reward in line with minimum regulatory requirements. However, to recognise market practice and shareholder expectations for executive directors, we will apply deferral to 2025 annual bonus awards above our Policy minimum. Our default position is to award GPS 50% in cash and 50% in shares released over three years in equal tranches; however, as both executive directors have met their respective shareholding requirements we will award 75% in cash and 25% in shares released over three years in equal tranches.	All Group employees are eligible to receive an award through the Group Performance Share scheme. The Committee determined a GPS pool of £405 million for 2025.


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% of salary for the executive directors 2025 LTIP awards were granted in March 2025 at 300% of salary for executive directors. Awards were deferred over seven years to be released in five equal tranches, each with a one-year hold. The 2023 LTSP award vested in full as shown on page 112.	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 40% of the first £660,000 of total variable remuneration and 60%		of any excess to be deferred for up to four years with pro-rata vesting, at least 50% of total variable remuneration to be delivered in shares or equity-linked instruments and where a portion of variable remuneration is delivered upfront and in shares it is subject to a minimum one-year holding period.



	Performance adjustment	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 ten years where there is an ongoing internal or regulatory investigation. The Committee has considered the time period of up to ten years and believes that is an appropriate length of time for performance adjustment to apply. 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 may result in a reduction of up to 100% of the variable remuneration opportunity for the relevant period. It can be applied on a collective or individual basis. 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 •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 consider adjustments should be made


	2023 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 2025

108

Directors’ remuneration report continued

Explore life at Lloyds Banking Group

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

wider benefits.


	Read more A guide to life at Lloyds Banking Group


	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.

48%

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. 59% of colleagues participate in Sharematch


	Colleague Sustainable Cars

	Colleague Sustainable Cars is a salary sacrifice scheme that enables colleagues to drive a brand-new Ultra Low Emission Vehicle (ULEV) through a reduction in salary. In 2025 we partnered with Tusker, the Group’s own specialist in salary sacrifice schemes, and will now offer only Zero Emission Vehicles (ZEV), further reducing our environmental impact and improving urban air quality in support of the Group’s sustainability ambitions. >4,200 cars As of 31 December 2025, the scheme has grown to 4,213 cars since its launch in 2021, making it one of the largest in the UK private sector



	Colleague wellbeing including Bupa cover

At Lloyds Banking Group, the health and wellbeing of our colleagues

is central to how we work and succeed. We want every colleague

to thrive, at work and in life, whatever their role, or personal

circumstances. Our approach focuses on creating an inclusive

culture and providing access to appropriate support for physical,

mental, and financial wellbeing, alongside tools and resources that

help colleagues make healthy, sustainable choices.

Colleagues can access a range of wellbeing resources, including our

Employee Assistance Programme, colleague wellbeing events, and

digital wellbeing tools. This includes access to the Headspace app,

which provides interactive and self‑guided content for meditation,

stress management and sleep support.

All employees are entitled to company‑paid, Bupa‑administered

Private Medical Benefit (UK Mainland) or Private Medical Insurance

(Offshore), regardless of grade. Cover includes a neurodiversity

assessment and coaching, support for gender reaffirmation, and

from 1 January 2026 access to a range of cancer screening options

for colleagues and their dependants.

Engagement with the wider workforce

The Board’s ambition is that the Group continues to be a place

where people who are passionate about our purpose wish to work.

Engagement with colleagues helps to better understand how they

remain motivated to achieve our purpose, with the skills needed

to deliver on the Group’s wider strategic objectives. In 2024 the

Board approved an evolved approach to workforce engagement,

implemented during 2025. This approach built on existing listening

activities and introduced three new forums – the People Forum,

People Consultation Forum, and Management Advisory Forum –

designed to increase colleague voice, particularly at grades where

trade union membership is low. Where appropriate, these forums

will be engaged on matters of remuneration, including how

executive remuneration aligns to the wider workforce.

In 2025, the Board held a number of colleague engagement events,

with the opportunity to hear directly from colleagues. We also

continue to engage colleagues through regular surveys and

townhalls. In 2025, the Group Chief Executive hosted two virtual

all-colleague townhall sessions, where colleagues were invited to

submit questions in advance.

The most popular questions were addressed, including those under

the ‘People and culture’ category where colleagues can submit

questions around remuneration.

Meetings were also held with our recognised trade unions to ensure

open dialogue on pay and reward. These activities collectively

support transparency and help the Board understand colleague

sentiment on remuneration, ensuring executive pay decisions align

with the wider workforce.



	Colleague engagement survey – reward

	We ask our colleagues a simple question each year – “Overall, I believe my reward package fairly reflects my role.” 67% of colleagues answered this favourably (up 3 points from 2024 and 19 points above the financial services industry average)

Lloyds Banking Group plc Annual Report and Accounts 2025

109


	Executive director single total figure of remuneration (audited)

		Charlie Nunn		William Chalmers
£000		2025	2024	2025	2024
Base salary		1,365	1,170	871	844
Fixed share award1		1,365	1,082	871	519
Benefits		71	52	48	63
Pension		205	176	131	127
Total fixed pay		3,006	2,480	1,921	1,553
Group Performance Share2		1,425	1,127	909	812
Long-term incentive3,4
–Value excluding share price appreciation		1,704	1,687	1,228	1,216
–Share price appreciation		1,272	875	917	631
Total variable pay		4,401	3,689	3,054	2,659
Other remuneration5		–	–	1	–
Total remuneration		7,407	6,169	4,976	4,212
Less: Performance adjustment6		–	–	–	–
Total remuneration less performance adjustment		7,407	6,169	4,976	4,212

1The fixed share award is part of fixed remuneration and is not subject to any performance conditions (see page 106).

2Awards for Charlie Nunn and William Chalmers will be made in March 2026 in a combination of cash and shares.

3The 2023 Long Term Share Plan (LTSP) vesting (see page 112) at 100% was confirmed by the Remuneration Committee at its meeting on 12 February 2026. The total number of shares

vesting will be 3,283,896 for Charlie Nunn and 2,366,848 for William Chalmers. The average share price between 1 October 2025 and 31 December 2025 of 90.64 pence has been used

to indicate the value. The shares were awarded in 2023 based on a share price of 51.901 pence. The amount of the long-term incentive vesting attributable to share price appreciation is

shown in the table above.

4The long-term incentive figures for 2024 have been adjusted to reflect the vesting share price of 71.42 pence instead of the average price of 55.969 pence reported in the 2024 report.

5Other remuneration payments comprise income from all-employee share plans, which arises through employer matching or discounting of employee purchases.

6No malus or clawback provisions were applied in relation to the executive directors during the year.



	2025 pension and benefits (audited)

£		Charlie Nunn	William Chalmers
Pension/Benefits
Pension		204,805	130,630
Car or car allowance1		14,718	12,000
Flexible benefits payments		54,615	34,835
Private medical insurance		1,205	1,205
Subtotal for Total Benefits less pension		70,538	48,040

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.

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 2025.

Payments within the reporting year to past directors (audited)

There were no payments made to past directors in 2025.

External appointments

No executive director served as a non-executive director on the board of another company in 2025.

Lloyds Banking Group plc Annual Report and Accounts 2025

110

Directors’ remuneration report continued

2025 Group balanced scorecard

The balanced scorecard provides transparency on how our

executive directors’ remuneration outcomes for 2025 GPS directly

align with our performance, strategy and stakeholder experience.

Strong performance across both financial and non-financial

measures has resulted in an overall mechanical outcome of 81.9%

as set out in the scorecard assessment table below.

For 2025, any impact relating to motor finance provisions on

financial metrics was excluded, to allow the Committee to set

robust targets aligned to the financial planning and budgeting

process, as described in our 2024 directors’ remuneration report.

Instead, the Committee would assess and determine an appropriate

impact to the scorecard and resulting executive directors 2025

annual GPS outcomes.

In assessing the impact of the provision on the Group’s financial

performance with due consideration to the fact that it relates to

issues that took place prior to the appointment of the current

management team, the Committee has decided to exercise its

discretion to adjust the BSC to a more appropriate outcome of

74.0%.

Commentary on non-financial performance is described on page 111.

Rem_LinkToStrategyAndStrategy_WithoutWordKey_Infographic.gif


	Our 2025 Group balanced scorecard


Financial (60%)	Profit after tax1	25%	£4,054m		£5,712m	£5,428m	87%	21.8%

	Return on tangible equity1	25%	11%		15.5%	14.8%	88%	22.1%

	Operating costs2	10%	£9,411m		£9,132m	£9,288m	58%	5.8%

Non-financial (40%)	Group customer dashboard	20%	25		100	65	65%	13.0%

	Reducing our operational carbon emissions3	5%	27%		36%	39%	100%	5.0%

	Increasing our gender & ethnic representation in executive roles4	3.75%	36.0%		42.0%	40.4%	80%	3.00%

		3.75%	14.4%		16.1%	17.5%	100%	3.75%

	Culture and colleague engagement	7.5%	60%		75%	75%	100%	7.5%

	Mechanical balanced scorecard outcome							81.9%

	Discretionary Committee adjustment							-7.9

	Revised balanced scorecard outcome							74.0%
	1Profit after tax and return on tangible equity measures exclude the £800 million provision in 2025 in relation to motor finance commission arrangements. 2Operating costs exclude remediation and in-year GPS expense.			3Reducing our operational carbon emissions excludes international travel. 4Executive roles include grade X colleagues only, subject to local laws and regulation.



	Charlie Nunn – Group Chief Executive
	Maximum award	£1,925,533
	Group balanced scorecard outcome	74.0%
	Annual GPS award	£1,424,895
	•Continued delivery of the Group’s strategy, financial targets, investment priorities, and market share growth in priority areas, which will set the Group up for success in 2026, the final year of the first strategic phase •Demonstrated strong leadership throughout another challenging year for consumers, proactively managing risk issues and the strategic direction of the Group •Worked closely with the UK Regulators and UK Government on several key areas (e.g. motor finance and UK growth ambitions) •Group financials remain robust, with the Group delivering 2025 and on-track for 2026, driven by strong income performance, strategic delivery, and effective risk management – contributing to the strong share price performance in 2025



	William Chalmers – Chief Financial Officer
	Maximum award	£1,228,156
	Group balanced scorecard outcome	74.0%
	Annual GPS award	£908,835
	•Played a critical role in the execution of the Group’s strategy and maintained positive engagement with investors and regulators on the Group’s performance and strategic direction •Strong financial and risk management, delivering the plan throughout 2025 and on-track for 2026 commitments, with continued focus on cost and investment management, alongside net interest income and other operating income growth •Sustained strength in financial performance and strong capital, funding, and balance sheet growth, enabling strong share price performance in 2025, a 15% increase in dividend and an increased buyback

Lloyds Banking Group plc Annual Report and Accounts 2025

111

Group balanced scorecard non-financial measures performance in 2025

The table below outlines the Committee’s assessment of the non-financial elements of the scorecard.


	Non-financial measures (40% weighting) commentary


Measure	Link to strategy	Link to stakeholder	Commentary
Group customer dashboard 20% weighting Our assessment of how effectively we are serving customers across our brands, products and services. It brings together survey based measures (such as net promoter score and customer satisfaction) and operational indicators (including digital engagement and performance of key customer journeys).			•The 2025 dashboard contains 135 measures spanning products, services, customer segments and business areas, with 46 driving the overall outcome within the Group balanced scorecard •The 2025 score is 65, on a 0-100 scale, with the score moving up or down depending on how many measures exceed or fall short of stretching targets at an aggregated level. This means less favourable performance in some areas can be offset by strong performance in others, and vice versa •We have made good progress on our strategic transformation, with performance on 64% of measures improved or maintained year-on-year. However, we have seen an increase in customer complaints reflective of broader market changes and a small decline in our net promoter scores with customers telling us that there is more we can do to improve mobile app journeys and experiences, finding support when needed and making their money work harder for them


Reducing our operational carbon emissions 5% weighting Reported vs 2018/2019 baseline. Includes Scope 1, Scope 2 and Scope 3 carbon emissions, excluding international travel. Reporting year is October to September.			•A 39% reduction has been achieved year to date from our 2018/19 baseline, demonstrating continued strong progress in reducing the Group’s operational carbon footprint •Performance has been supported by improved energy management practices, investment in more efficient office spaces and colleagues making conscious decisions to travel less frequently and in more sustainable, lower emission modes of transport •These actions underpin our pathway to net zero carbon operations by 2030 and our ambition to reduce energy use by 50%

Increasing our gender and ethnic representation in executive roles 7.5% weighting Executive roles include grade X colleagues only, subject to local laws and regulation.			•We have seen an increase in women in executive roles to 40.4% during 2025. This is against our ambition to achieve 45% to 55% women in executive roles by year end 2030 •Throughout 2025, we also saw continued improvement in the representation of Black, Asian and Minority Ethnic colleagues in executive positions. At year end, 17.5% of executive roles were held by Black, Asian and Minority Ethnic colleagues, representing strong progress toward our ambition of reaching 19% to 22% by 2030

Culture and colleague engagement 7.5% weighting 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 2025 EEI results highlight our supportive and inclusive culture, alongside the opportunities for learning, development and internal mobility that shape colleagues’ experiences at the Group. A key factor driving the year-on-year improvement in engagement was colleagues’ increased confidence in our reward and benefits package, which many cite as an important reason for staying with the Group

Measuring customer experience

across five priority pillars.

Across the Group’s

trusted brands

How did

customers

feel about the

brand?

Were our

propositions

compelling?

Did we

deliver on

service

expectations?

Did we

attract new

customers?

Did we

deepen

relationships?

Link to

strategy

Link to

strategy

Link to

strategy

Link to

strategy

Link to

strategy

See page 07

Rem_LongTermSharePlan_WithStrategyAndStakeholders_NoType.gif

Lloyds Banking Group plc Annual Report and Accounts 2025

112

Directors’ remuneration report continued

2023 Long Term Share Plan

A Long Term Share Plan award was granted in relation to 2022

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


Financial (100%)	CET1 ratio – Group CET1 ratio above the guided management target each year (c.13.5% by 2024 and c.13.0% by 2026), including all regulatory buffers	2023	13.7%	Met

		2024	13.5%

		2025	13.2%

	RoTE – Group RoTE exceeds the average for UK peer banks1 over the three years. Average RoTE for peer banks: 11.9% (2023), 11.6% (2024) and 11.8% (20252)	2023	15.8%	Met

		2024	12.3%

		2025	12.9%

	Ordinary dividend – Increased ordinary dividend payments over the plan period (subject to any further sector-wide regulatory constraints). Starting point in 2022 was a dividend of 2.40p	20233	2.76p	Met

		20243	3.17p

		20253	3.65p

	Award (% maximum) vesting			100%


	1Peers: Barclays Group, HSBC Holdings, NatWest Group, Santander UK and Virgin Money UK. 22025 peer bank average based on latest company published consensus as of 5 February 2026 where full-year results not available. In October 2024, Nationwide completed its acquisition of Virgin Money; therefore no Virgin Money UK 2025 RoTE available. Instead, 2024 RoTE has been used as a proxy. 3Dividend shown includes both interim and final for the respective performance year. For 2025, this is the proposed final dividend.


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 in supporting the UK’s transition to a low carbon economy. Our progress is monitored through updates and deep dives at a Group Executive Committee and Board level providing visibility of achievements, learnings, and the external dependencies shaping the Group’s transition pathway and performance. Progress against our ambitions, targets, and commitments can be found on pages 35 to 49, and in our sustainability report . During the 2023 to 2025 performance period, there have been no serious external conduct matters or severe reputational damage. While there continues to be uncertainty around motor finance issue, the Committee has determined that it should not impact the 2023 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 2023 LTSP awards will vest at 100%, 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 delivery for customers, communities and shareholders since making awards in 2023. Risk management is essential to our business model and strategy, helping us to embrace opportunities responsibly and drive sustainable growth for the Group.

In determining the final vesting outcome of the 2023 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 2023 at 51.901 pence, around 10%

higher than awards granted in March 2022.

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 90.64 pence, detailed on page 109. While 75%

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 2025

113


	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.

Dividend and share buyback1

£bn


	2025


	2024

12025: Proposed ordinary dividend in respect of the financial year ended 31 December

2025, partly paid in 2025 and partly to be paid in 2026 and share buyback.

2024: Ordinary dividend in respect of the financial year ended 31 December 2024,

partly paid in 2024 and partly paid in 2025 and share buyback.

Salaries and performance-based compensation2

£bn


	2025


	2024

2Performance-based compensation includes expense for the following plans: Group

Performance Share (2025: £412 million, 2024: £368 million), Long Term Incentive Plan,

Long Term Share Plan and Executive Group Ownership Share (2025: £24 million,

2024: £28 million), Executive Share Awards (2025: £0.00 million, 2024: £0.03 million).

For the 2025 performance year, the value of awards was £405 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.

Historical TSR Performance

Growth in the value of a hypothetical £100 holding since 31 December 2015 (to 31 December 2025)


	Lloyds Banking Group		FTSE 100 Index
	Lloyds Banking Group		FTSE 100 Index

Value of £100 invested on 31 December 2015

250

200

150

100

Dec

2015

Dec

2016

Dec

2017

Dec

2018

Dec

2019

Dec

2020

Dec

2021

Dec

2022

Dec

2023

Dec

2024

Dec

2025


	Group Chief Executive remuneration over the last ten years


Group Chief Executive	Sir António Horta-Osório1						William Chalmers2	Charlie Nunn3,4
Year	2016	2017	2018	2019	2020	2021	2021	2021	2022	2023	2024	2025
GCE single figure of remuneration £000	5,791	6,434	6,544	4,424	3,604	2,444	819	5,523	3,767	3,681	6,169	7,407
Annual bonus/GPS payout (% of maximum opportunity)	77%	77%	67.6%	n/a	n/a	57.8%	78.2%	57.8%	84.1%	80.3%	68.1%	74.0%
Long-term incentive vesting (% of maximum opportunity)	55%	66.3%	68.7%	49.7%	33.75%	41.8%	n/a	n/a	n/a	n/a	100%	100%

1Sir 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.

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.

3Charlie 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.

4The single figure of remuneration figure for 2024 has been adjusted from what was reported in the 2024 report as per detail set out on page 109.

Lloyds Banking Group plc Annual Report and Accounts 2025

114

Directors’ remuneration report continued


	Single total figure of remuneration and shareholding for Chair and non-executive directors (audited)

		Fees (£000)		Benefits (£000)4		Total (£000)		Total shareholding5
		2025	2024	2025	2024	2025	2024	at 31 December 2025
Chair and non-executive directors
Sir Robin Budenberg		750	655	1	1	751	656	2,500,000
Nathan Bostock		359	140	4	–	363	140	430
Sarah Legg		254	232	6	13	260	245	200,000
Amanda Mackenzie		239	219	3	3	242	222	63,567
Harmeen Mehta		117	106	7	5	124	111	20,000
Cathy Turner		285	277	3	2	288	279	424,113
Chris Vogelzang1		77	–	1	–	78	–	80,500
Scott Wheway2		407	475	18	17	425	492	168,356
Catherine Woods3		264	250	12	(9)	276	241	124,262

1Chris Vogelzang was appointed on 16 June 2025.

2 Scott Wheway retired on 31 October 2025. The number of shares shown is as of the day of leaving.

3The 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.

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.

Non-executive directors do not receive variable pay.

5Shares owned outright. Includes holdings of any Person Closely Associated. There has been no change in shareholdings from 31 December 2025 to 13 February 2026. Directors are not

permitted to enter into any hedging arrangements in relation to share awards. No director uses shareholding as collateral.


	Directors’ share interests and share awards (audited)

		Number of shares			Number of options		Total shareholding
		Owned outright1	Unvested subject to continued employment	Unvested subject to performance	Unvested subject to continued employment	Vested unexercised	Totals at 31 December 20252
Executive directors3
Charlie Nunn		10,140,467	2,987,208	20,208,631	2,599,919	–	35,936,225
William Chalmers		10,740,854	3,858,710	14,565,244	39,701	–	29,204,509

1Includes holdings of any Person Closely Associated, of which there are currently none.

2There has been no change in shareholdings from 31 December 2025 to 13 February 2026.

3Directors 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 2025

115


	Outstanding share plan interests (audited)

		At 1 January 2025	Granted/ awarded	Vested/ released/ exercised	Lapsed	At 31 December 2025	Exercise price	Exercise periods
		At 1 January 2025	Granted/ awarded	Vested/ released/ exercised	Lapsed	At 31 December 2025	Exercise price	From	To	Notes

Charlie Nunn
LTSP 2022 – 2024		3,588,364	–	717,672	–	2,870,692				2
LTSP 2023 – 2025		3,283,896	–	–	–	3,283,896				2
LTIP 2024 – 2026		10,376,712	–	–	–	10,376,712				2
LTIP 2025 – 2027		–	6,548,023	–	–	6,548,023				2,3,4
Deferred GPS awarded in 2023 (2022 GPS)		335,442	–	218,926	–	116,516				5
Deferred GPS awarded in 2025 (2024 GPS)		–	788,076	788,076	–	–				6,7
Share Buy-Out		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		1,291,908	–	430,636	–	861,272				2
LTSP 2021 – 2023		1,237,872	–	309,468	–	928,404				2
LTSP 2022 – 2024		2,586,292	–	517,258	–	2,069,034				2
LTSP 2023 – 2025		2,366,848	–	–	–	2,366,848				2
LTIP 2024 – 2026		7,478,949	–	–	–	7,478,949				2
LTIP 2025 – 2027		–	4,719,447	–	–	4,719,447				2,3,4
Deferred GPS awarded in 2023 (2022 GPS)		132,703	–	132,703	–	–				5
Deferred GPS awarded in 2025 (2024 GPS)		–	568,000	568,000	–	–				6,7
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 10 March 2025 and Charlie Nunn exercised the options on 21 March 2025, acquiring 725,564 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 288,328 shares having no

holding period and 437,236 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 2025 were ineligible for dividend equivalents. In accordance with the 2023 Directors’ Remuneration Policy, the LTIP award

was determined at 300% 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 (25 February 2025 to 3 March 2025), which was 71.48 pence and applying a discount based on Lloyds Banking Group’s expected dividend yield for the vesting period

(54.14 pence).

42025 LTIP vesting is subject to performance conditions applicable for the first three years from grant as detailed on page 132 of the 2024 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 2022 GPS deferred award, vested on 5 March 2025. The closing market price of Lloyds Banking Group shares on that date was 73.08 pence. The awards were

settled in shares net of tax, with the resulting shares subject to a one-year holding period.

6The 2024 GPS is delivered half in an immediately vested share award with shares subject to a holding period until March 2026, and half paid in cash. The value of the shares awarded

in respect of the GPS granted in March 2025 was £563,316 (788,076 shares) for Charlie Nunn; and £406,007 (568,000 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 (25 February 2025

to 3 March 2025), which was 71.48 pence.

7The 2024 GPS share award vested on 5 March 2025. The closing market price of the Lloyds Banking Group shares on that date was 73.08 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 2025 £	Granted/ awarded £	Vested / released / exercised £	At 31 December 2025 £	Notes
Charlie Nunn
Deferred GPS cash awarded in 2023 (2022 GPS)		174,096	–	113,625	60,471	1
William Chalmers
Deferred GPS cash awarded in 2023 (2022 GPS)		68,874	–	68,874	–	1

1Half of the deferred portion of the 2022 GPS awards are delivered in cash.

2£2,000 of 2024 GPS was delivered in cash in March 2025 for both executive directors. Half of the remaining 2024 GPS was delivered in cash on 20 June 2025. Charlie Nunn received

£561,316 and William Chalmers received £404,007.

Lloyds Banking Group plc Annual Report and Accounts 2025

116

Directors’ remuneration report continued

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.

The minimum shareholding requirements applicable to executive

directors at 31 December 2025 are 400% of salary for the Group

Chief Executive and 300% 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 met the requirement ahead of the required date

of 15 August 2026 and currently holds 656% of salary in Group

shares at 31 December 2025. This is an increase from 344%

which was published in the 2024 directors’ remuneration report.

William Chalmers met the requirement by 2 June 2024 and currently

holds 1128% of salary in Group shares at 31 December 2025,

significantly exceeding his shareholding requirement. This is an

increase from 656% which was published in the 2024 directors’

remuneration report.

Increase in shareholding requirements

In recognition of the increased variable opportunity offered by the

proposed 2026 Directors’ Remuneration Policy, the shareholding

requirement applicable to the GCE will increase from 400%

to 500% of salary and from 300% to 450% for the CFO.

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

£5.50m

Charlie Nunn

Actual: 656% of salary

Requirement: 400%

of salary by 15/08/26

31/12/25

31/12/24

£2.63m

31/12/25

31/12/24

William Chalmers

Actual: 1128% of salary

Requirement: 300%

of salary by 02/06/24


	Requirement		l	Actual2		l	Unvested subject to continued employment3		l	Unvested subject to performance4

12024 shareholding has been recalculated using the average share price for the period 1 January 2025 to 31 December 2025 (77.42 pence).

2Calculated using the average share price for the period 1 January 2025 to 31 December 2025 (77.42 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, broadly meaning spouse

or partner and children, are also included, of which there are currently none.

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% vesting outcome and after deduction of estimated income tax and national insurance. The final vesting

outcome could range between 0-100%. Shares subject to performance are also subject to continued employment.

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Gender and ethnicity pay

The publication of our Gender and Ethnicity Pay Gap report each

year is an opportunity to pause and reflect on the progress we’re

making towards our inclusion ambitions. Helping Britain Prosper

means creating opportunity for everyone, and inclusion is how we

make that happen. This year, we’re pleased to share that we’ve

continued to make encouraging strides.


	Read more Gender and Ethnicity Pay Gap Report April 2024 to April 2025



	Gender pay gap – April 2024 to April 2025
	Progress has continued to close the mean Gender pay gap; this has reduced 1.0 percentage point to 24.9%. As of April 2025, 38.8% of executive roles were held by women. Overview The Gender pay gap reflects the different representation of men and women across levels in the organisation. This does highlight a clear opportunity to keep strengthening career progression and representation, with a particular focus on supporting women to progress into more senior roles. What the data shows Continued progress has been made in closing the mean Gender pay gap, with the gap reducing by 1.0 percentage point to 24.9%. 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 inclusion into the way we run our business has been core to our success to date. Holding our Group executives to account is paramount. 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. How our executives bridge identified opportunities, forms a core part of performance conversations. We take active steps to drive inclusion through all stages of our colleague lifecycle from recruitment, to progression and retention. In 2025 we set a new ambition to reach and maintain a gender balance of between 45% to 55% in executive roles by the end of 2030. Setting this ambition for our leadership team is important in providing role modelling and inspiration for our colleagues and ensures more inclusive strategic decision making. It also supports greater innovation and adaptability, both vital as we continue to transform our business for the future. At the end of 2025, the number of women in executive level roles (X+) stands at 40.4%, putting us on track to meet our 2030 ambitions. We proudly co-sponsor the Government-backed FTSE Women Leaders Review which sets recommendations to increase the representation of women on boards and in leadership. We achieved all the Review’s recommendations in 2023, two years ahead of the deadline. In 2025 we achieved 13th place. In 2025, our continued commitment has once again been recognised externally, with our inclusion in the Times Top 50 Employers for Gender Equality for the 14th consecutive year.

	Mean pay gap %



	Ethnicity pay gap – April 2024 to April 2025
	Continued progress has been made with the mean gap reducing by 1.3 percentage points from 3.0% to 1.7% from last year. Overview We remain committed to publishing our Ethnicity pay gap report on a voluntary basis. We have chosen to publish for the past six 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 it will lead to sustainable positive change for our people. What the data shows As at April 2025, 91.5% of our colleagues have chosen to disclose their ethnicity with us, an encouraging increase from 88.2% 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 In an increasingly multicultural society, we can only truly be the best bank for our customers if our workforce reflects the diversity of the UK population and ultimately our customers. Our goal is to increase our workforce diversity and unlock the full potential of our Black, Asian, and Minority Ethnic colleagues. We remain guided by the principles of our Race Action Plan, launched in 2020, which focuses on driving cultural change, improving recruitment and progression across the Group, and setting out the steps we are taking to deliver sustainable change for our people, customers, and the communities we serve. In 2025, we reset our UK ambition: to increase representation of Black, Asian, and Minority Ethnic colleagues in executive roles to between 19% and 22%, and to grow Black representation in executive positions to between 3.5% and 4% by the end of 2030. We have seen steady growth in ethnic representation across the Group, particularly at senior levels. To accelerate this progress, we launched a series of Regional Thought Leadership and Networking events. These are designed to build external professional communities with the skills, insights, and experience aligned to our business needs, centred around our strategic locations. This approach helps create a diverse talent pool for today and the future. Recognising opportunities to improve the progression of colleagues from Black heritage backgrounds, we continue to invest in career initiatives. These focus on understanding colleagues’ career experiences and aspirations, while promoting existing support that is available to all our colleagues such as mentorship and sponsorship opportunities. In addition, we remain committed to supporting Black business communities through our Black Entrepreneur Programme, where trust has more than doubled from 36% in 2022 to 84% today. At the 2025 Ethnicity Awards we were once again recognised overall ‘Outstanding Employer’ for the fourth time since the launch of the awards in 2018.

	Mean pay gap %


		2025


		2024


		2025


		2024

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Directors’ remuneration report continued


	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 119 of the report.

% change		2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025
Base salary8
Charlie Nunn2		n/a	1	–	3	17
William Chalmers3		12	(9)	–	3	3
All employees1		4	6	13	10	5
GPS4,8
Charlie Nunn2		n/a	47	(5)	(12)	26
William Chalmers3		n/a	(2)	34	(12)	12
All employees1		n/a	12	(14)	(4)	10
Benefits6,8
Charlie Nunn2		n/a	4	(37)	8	37
William Chalmers3		2	35	–	2	(24)
Sir Robin Budenberg		n/a	–	100	(50)	–
All employees1		1	5	(43)	(71)	(12)
Fees5
Sir Robin Budenberg		243	1	1	4	15
Nathan Bostock10		n/a	n/a	n/a	n/a	3
Sarah Legg		28	6	2	2	9
Amanda Mackenzie		(1)	7	2	22	9
Harmeen Mehta		n/a	2	4	4	10
Cathy Turner		n/a	n/a	38	76	3
Chris Vogelzang7		n/a	n/a	n/a	n/a	n/a
Scott Wheway9		n/a	n/a	1	4	3
Catherine Woods		43	4	2	2	6

1Lloyds Banking Group plc 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 (annual 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.

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.

7Chris Vogelzang was appointed on 16 June 2025 and therefore no year-on-year comparison shown.

82022 to 2023 and 2023 to 2024 variance was impacted by the consolidation of variable pay and Flex cash allowance into base salary.

9Scott Wheway retired on 31 October 2025. Figures for 2025 have been annualised based on the single total figure table.

10Nathan Bostock was appointed on 1 August 2024. Figures for 2024 have been annualised based on the single total figure table.

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	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 2025 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)
2025		A	205:1	141:1	81:1	87:1	60:1	34:1
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 (2024 vs 2025)				24%			13%

Notes to the table:

•The 2025 total remuneration for the colleagues identified at P25, P50 and P75 are as follows: £36,157, £52,638, £91,900

•The 2025 base salary for the colleagues identified at P25, P50 and P75 are as follows: £26,819, £42,756, £75,606

•The P25, P50 and P75 colleagues were determined on 31 December 2025 based on calculating total remuneration for all UK employees

for the 2025 financial year. Payroll data from 1 January 2025 to 31 December 2025

•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 55,280 UK colleagues within the Group for a full year including full-time equivalent base pay,

2025 Group Performance Share awards, vesting 2023 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 2025 and 31 December 2025 of 90.64 pence has been used to indicate the value of vesting

2023 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 55,280 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. Explanations

for the year-on-year change in pay ratios prior to 2023 can be found in previous directors’ remuneration reports for the relevant period.

The 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%. Given the approach

focused on lower paid colleagues and colleagues lower in their pay range, this resulted in pay increases of between 8% and 13% 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% 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 have

been down 9% on 2023. The fixed pay ratio reduced by 2% as colleagues realised a full-year impact of Group Performance Share

consolidation from July 2023.

For 2025, the total compensation ratio has increased primarily due to two factors. The first is the fixed pay changes set out in the 2024

directors’ remuneration report which included reversing the impact of the discount applied to the GCE’s salary on appointment (13%) and

increasing the fixed share awards to match base salary; thus setting the fixed pay at an appropriate level ahead of the 2026 Policy review.

The second is the increase in variable pay outcomes in 2025; firstly the short-term annual bonus outcome of 74% of maximum in 2025 was

higher than corresponding 68.1% in 2024 and, the portion of the long-term incentive vesting attributed to share price appreciation was

45% higher than the prior year (c.52 pence at grant to c.91 pence used to calculate indicative value). The fixed pay ratio has increased due

to the same reasons as set out for the total compensation ratio.

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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Directors’ remuneration report continued

Implementation of Policy in 2026

The 2026 Directors’ Remuneration Policy is subject to approval at the annual general meeting in May 2026. The Group proposes to

implement the Policy in the following way subject to shareholder approval.

Performance year

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Base Salary

Paid in cash

Pension/

Benefits

Paid in performance year

Short Term

Variable

Performance period

75% in cash

upfront

25% paid in shares and released

over three years in equal tranches

Long Term

Variable

Pre-grant test

Performance period

75% shares

Two-year holding period

25% shares

One-year

holding period


	How our remuneration is delivered


	Directors’ remuneration



	Base Salary
	As set out in the Chair statement on pages 98 to 102, the new 2026 Policy removes fixed share awards (currently set at 100% of salary), reduces executive director pension contributions from 15% to 10% of salary and removes the flexible benefits allowance and the CFO’s car allowance. The base salaries of our Group Chief Executive and Chief Financial Officer will be increased by 3% respectively effective 1 April 2026. Subject to approval of the Policy at the 2026 AGM, also effective 1 April 2026, salaries will be increased by an additional £112,531 and £82,684 to reflect the partial consolidation of fixed share awards and flexible benefits allowance. Taken together, these changes will reduce our executive director fixed pay by approximately 44%.		The on-cycle 3% annual increase, effective 1 April 2026, to the salary of both executive directors is in line with the 2026 3.1% budget as part of the pay deal for wider workforce. For further context and detail, please refer to pages 98 to 102. Salaries from 1 April 2026 will therefore be as follows: GCE: £1,416,642 CFO: £903,572 Subject to approval of the Policy at the 2026 AGM, salaries will be increased to the following, also effective 1 April 2026: GCE: £1,529,174 CFO: £986,256


	Pension
	Pension allowances for all executive directors are set at 10% of base salary. Around 52,000 colleagues participate in the Group’s Defined Contribution (DC) Pension scheme where the maximum opportunity for the workforce is 15% of base salary.		Executive directors’ employer pension contributions are therefore less than those available to the majority of the workforce.


	Benefits
	As described above, the flexible benefit allowance of 4% of base salary has been removed as part of the 2026 Policy. The CFO’s car allowance has also been removed. Executive directors can continue to select benefits including life assurance and critical illness cover from the flexible benefits catalogue.		The cost of any selection will come from the executive directors’ base salary. Other benefits include transportation and private medical cover.

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	Directors’ remuneration continued



	Group Performance Share (Short Term Variable)
	Overview Maximum opportunities for executive directors for 2026 are 300% of base salary for the Group Chief Executive and 250% for the Chief Financial Officer. For the 2026 performance year, any GPS opportunity will be awarded in March 2027 in a combination of cash 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’s policy is to apply deferral to variable reward in line with minimum regulatory requirements. However, we are mindful that additional considerations apply when it comes to executive director remuneration in the UK. We will set out our deferral position each year, at award, in the annual report on remuneration, taking into account shareholder expectations, market practice and emerging trends. Our current approach to GPS delivery is set out on page 120. 2026 Group balanced scorecard The performance measures for determining any individual 2026 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 2026 scorecard metrics have been reviewed alongside the 2026 LTIP measures, shown on page 122, 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. As discussed in the Chair statement on pages 98 to 102, to recognise the longer-term nature of the Group’s ambitions on decarbonisation, the Committee will use the LTIP as the principal measure of the Group’s progress on environmental sustainability by moving the Reduction in our Operational Carbon Emissions measure from the short-term to the long-term scorecard for 2026. To recognise the importance of our customers and to ensure executive variable reward outcomes reflect their experience, the Group customer dashboard weighting will be increased to 25%.		To reflect the criticality of continued transformation of our workforce to enable delivery of Group strategy, our 2026 Group balanced scorecard will include a broader ‘People measure’ weighted 15%; this will retain our current focus on inclusion and colleague engagement but also include a wider range of people transformation metrics considered by the Board. These will include, for example, colleague upskilling and the adoption of AI, a first we believe amongst our peers. 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 2026 and these will be disclosed retrospectively in the 2026 annual report alongside the level of performance achieved, as the Committee considers such targets to be commercially sensitive. To recognise exceptional items are not budgeted, profit after tax, return on tangible equity and cost:income ratio measures will exclude these from 2026. Instead, the Committee will consider any impact on a 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. 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 2026 Group balanced scorecard


Financial (60%)	Profit after tax1	25%

	Return on tangible equity1	25%

	Cost:income ratio1	10%

Non-financial (40%)	Customer Our assessment of how effectively we are serving customers across all brands, products and services as measured by our Group Customer Dashboard	25%

	People A holistic assessment of our gender and ethnic representation in executive roles2, culture and colleague engagement and a wider range of people transformation metrics	15%

1Profit after tax, return on tangible equity and cost:income ratio measures will exclude any exceptional items. Instead, items will be reviewed on a case-by-case basis by the

Remuneration Committee.

2 Executive roles include grade X colleagues only, subject to local laws and regulation.

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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 2025 performance under the terms of the new 2026 Policy. The Committee concluded that 2025 performance, including assessment of our 2025 Group balanced 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, the Committee has determined that LTIP awards will be granted with a value of 500% of base salary to the GCE and 450% of base salary to the CFO to reflect the Group’s performance in 2025. LTIP grants are normally made in March. However, for 2026 for the executive directors the grants will be made, subject to approval of the 2026 Policy, shortly after the 2026 AGM, by reference to the same grant date, grant price and performance and vesting periods used in March 2026 for the Group's other LTIP participants. Performance measures and weightings As discussed in the Chair statement on pages 98 to 102, the financial block has been increased to 75% weight for 2026. Return on tangible equity 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 15% weighting will assess our strategic delivery; the final stage of the current strategy in 2026; and the progress of our new strategy (which we look forward to setting out in July 2026) in 2027 and 2028. Finally, 10% weight is attributed to sustainability 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. For 2026 this will also include assessment of our operational carbon reduction. Recognising exceptional items are not budgeted, RoTE and capital generation will exclude these from 2026. Instead, the Committee will consider any impact on a 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. 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 sustainability agenda, comparable industry returns and the higher variable reward opportunity available to our executive directors through our 2026 Policy. Operation Awards made in 2026 will be subject to the Group’s performance between January 2026 and December 2028. Awards will vest in two tranches; 75% after three years, subject to a two-year post-vesting retention period, 25% after four years subject to a one-year post-vesting retention period.


	2026-2028 LTIP scorecard


Financial (75%)	Return on tangible equity (RoTE)1,2 – average over three years	30%	15%	18%

	Capital generation1,3 – average over three years	15%	200 bps	250 bps

	Relative Total Shareholder Return4 – cumulative over three years	30%	Median of the peer group	Upper quartile of the peer group

Strategic (15%)	Delivery of the Group’s strategic objectives by the end of 2028	15%	Assessment of the Group’s delivery against our current five-year strategic plan, ending in 2026, alongside the Group’s progress toward delivering on our next strategic cycle through 2028, which will be outlined in July 2026. The assessment will include, but not be limited by, how the Group continues to Grow, Focus and Change its business to achieve our purpose of Helping Britain Prosper. After undertaking this review, the Committee will exercise its judgement to determine the vesting outcome on a holistic basis.

Sustainability5 (10%)	Sustainable finance and investment	10%	The Committee will assess the Group’s performance against its publicly disclosed environmental targets aligned to cumulative sustainable finance and investment provided over the performance period, 2028 progress towards 2030 sector targets and Scottish Widows emissions reduction ambition, and our own operational carbon reduction. After this assessment the Committee will holistically determine a vesting outcome.

	Achievement of 2030 sector targets and Scottish Widows’ emissions reduction ambition

	Reducing our operational carbon emissions6

1Return on tangible equity and capital generation measures will exclude exceptional items. Instead, items will be reviewed on a case-by-case basis by the Remuneration Committee.

2If average RoTE reaches 15% then 7.5% of the award vests. If average RoTE reaches 18% then 30% 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 200 basis points then 3.75% of the award vests. If average capital generation reaches 250 basis points then 15% 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.

4Peer group unchanged from 2025 grant: 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 pages 35 to 49 for an overview of our ambitions, targets, and commitments.

6Includes Scope 1, Scope 2 and Scope 3 carbon emissions, excluding international travel.

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	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 approving 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 2026

As set out in the 2024 directors’ remuneration report there is a £100,000 increase to the annual fee for the Chair from 1 January 2026 taking the fee to £850,000. This is step two of the two-stage increase announced last year. 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 table below sets out changes to non-executive director fees from 1 January 2026.

		2026	2025	% change 2025 to 2026
Basic non-executive director fee		95,000	92,200	3.0%
Senior Independent Director		64,200	64,200	—%

Audit Committee Chair		79,180	77,250	2.5%
Remuneration Committee Chair		79,180	77,250	2.5%
Risk Committee Chair		79,180	77,250	2.5%
Responsible Business Committee Chair		61,500	60,000	2.5%
IT and Cyber Advisory Forum Chair		61,500	60,000	2.5%

Audit Committee member		35,875	35,000	2.5%
Remuneration Committee member		35,875	35,000	2.5%
Risk Committee member		35,875	35,000	2.5%
Responsible Business Committee member		25,625	25,000	2.5%
IT and Cyber Advisory Forum member		25,625	25,000	2.5%
Nomination and Governance Committee member		16,750	16,550	1.2%

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Directors’ remuneration report continued

2026 Directors’ Remuneration Policy (proposed)

Approval for this Directors’ Remuneration Policy (Policy) will be

sought at the AGM on 14 May 2026 and, if approved, it will take

effect from that date.

It is intended that approval of the Policy will be sought at three-year

intervals, unless amendments to the Policy are required, in which

case further shareholder approval will be sought. Information on

how the Policy will be implemented in 2026 is included in the

annual report on remuneration.

2026 Policy changes

As set out in detail in pages 98 to 102, over the course of 2025, the

Committee conducted a thorough review of the existing Policy to

ensure it supports the Group’s strategic priorities. Input was sought

from a range of stakeholders including institutional shareholders,

the main proxy rating agencies, executive directors and the

Committee’s external advisers, PricewaterhouseCoopers (PwC), to

ensure a broad range of views were sought as well as alignment with

market best practice and compliance with applicable regulations.

The Chair of the Committee engaged directly with a significant

number of the Group’s largest shareholders both in one-on-one

dialogue and as part of a written communication programme and

ensured the full range of those views were represented and carefully

considered by the Committee as part of its discussions on proposed

changes to the Policy. In total, approximately 60% of the Group’s

issued share capital were contacted on the proposed 2026 Policy.

The changes to Policy are set out in detail in the following pages.

The 2026 Policy will act as a strong incentive to the current

management team, who are well regarded by shareholders, to

deliver our ambitious 2026 targets and to lead the Group through

its next strategic cycle whilst also placing even greater emphasis

on sustainable high performance and the creation of shareholder

value. There will be a significant reduction in guaranteed fixed pay

alongside increased variable reward opportunity further

emphasising pay-for-performance. Underpinning this will be an

increased weighting to financial measures in our performance

conditions and an increase in shareholding requirements to ensure

the executives are closely aligned with shareholder experience.

During consultation, shareholders expressed broad support for

the proposals with no major concerns raised. Increased financial

weighting and shareholding requirements were received positively.

Shareholders continue to express their expectation that targets

should be transparent and stretching which has been and will be

given full consideration when approving targets for scorecards

which drive both short- and long-term award outcomes. During

consultation, it was heard, and acknowledged, that this Policy

should last the full three-year cycle with no desire from shareholders

to re-approve a Policy until the next on-cycle approval in 2029.

Benchmarking was one of the key discussion points during our

shareholder engagement; from those conversations it was clear

that our investors expected us to use benchmarking to test our

proposals, rather than be led by it, and also to be thoughtful over

our choice of peers. The approach which the Committee took to

benchmarking the Remuneration Policy is set out in the Chair’s

statement.

While colleagues were not formally consulted on the Policy, the

Committee ensured that the pay and reward proposition of all

colleagues was taken into account in the process of developing the

Policy and the People Forum was engaged to explain the alignment

of executive reward to that of the rest of the Group.

No executive director has been involved in the determination of

their own remuneration. To manage conflicts of interests effectively,

executive directors were asked to step out of relevant committee

meetings and relevant papers were also redacted for individuals

if required.

Performance measures and link to strategy

The performance measures selected for the GPS and LTIP will be set

annually by the Committee taking account of the Group’s strategic

priorities and its most important financial measures. Performance

measures are selected to ensure an appropriate balance between

short- and long-term strategic goals and to align executive director

and shareholder interests. Rationale for performance measures

selected and their link to both strategic delivery and wider

stakeholder alignment will be shown in the annual report on

remuneration for the year under review. In determining the

appropriate set of measures and targets for annual bonus

and LTIP awards, the Committee has discretion to vary the

performance measures, or to substitute the metrics, over the

life of the Policy taking into account the Group’s strategic plan

or emerging best practice.

2026 Directors’ Remuneration Policy and Group

remuneration policy alignment

The only significant difference between the Policy for executive

directors and colleagues outside the Group Executive Committee

is participation in the LTIP which is restricted to those most directly

accountable for the successful delivery of the Group’s strategy.

LTIP awards are subject to forward-looking performance measures

and are granted in shares ensuring a strong pay-for-performance

link and alignment between executive director remuneration

and shareholder interests.

The table below summarises how the Policy applies across

the Group.

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125


	2026 Directors’ Remuneration Policy and Group remuneration policy alignment


	Executive directors	Group Executive Committee	Other material risk takers	Other employees

Fixed1
Base salary	l	l	l	l
Pension	l	l	l	l
Benefits	l	l	l	l
Variable
Short term incentive	l	l	l	l
Long term incentive	l	l	¡	¡

1Role-based allowances remain for Group Executive Committee members and certain other material risk takers. Executive directors are not eligible for a role-based allowance.


	Remuneration Policy table for executive directors


	Base Salary
	Purpose and link to strategy To support the recruitment and retention of executive directors of the calibre required to develop and deliver the Group’s strategic priorities. Base salary reflects the role of the individual, taking account of market competitiveness, responsibilities and experience, and pay in the Group as a whole. Operation Base salaries are typically reviewed annually with any increases normally taking effect from 1 April for executive directors. When determining and reviewing base salary levels, the Committee takes into account base salary increases for employees throughout the Group and ensures that decisions are made within the following two parameters: •An objective assessment of the individual’s responsibilities and the size and scope of their role, using objective job-sizing methodologies •Pay for comparable roles in comparable publicly listed firms of a similar size Salary may be paid in pounds sterling (GBP) or other currency and at an exchange rate determined by the Committee.		Maximum potential The Committee will make no increase which it believes is inconsistent with the two parameters. Increases will normally be no more than the increase awarded to the overall employee population. However, a greater salary increase may be appropriate in certain circumstances, such as a new appointment made on a salary below a market competitive level, where phased increases are planned, or where there has been an increase in the responsibilities of an individual. Where increases are awarded in excess of the wider employee population, the Committee will provide an explanation in the relevant annual report on remuneration. Performance measures N/A Changes No change to Policy on base salary. To set fixed pay at an appropriate level in line with market standard for executive directors and further align executive remuneration with stakeholder experience, fixed share awards have been removed from the Policy.


	Pension
	Purpose and link to strategy To provide cost effective and market competitive retirement benefits, supporting executive directors in building long-term retirement savings. Operation Executive directors are entitled to participate in the Group’s defined contribution scheme with company contributions set as a percentage of salary. An executive director may elect to receive some or all of their pension allowance as cash in lieu of pension contribution.		Maximum potential The maximum allowance for all executive directors is set at 10% of base salary, which is lower than that of the majority of the wider workforce. Performance measures N/A Changes To set fixed pay at an appropriate level in line with market standard for executive directors, maximum employer pension contribution available has been reduced from 15% to 10% of base salary. This will move the executive directors from being in line with, to less than the majority of the wider workforce.

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Directors’ remuneration report continued


	Remuneration Policy table for executive directors continued


	Benefits
	Purpose and link to strategy To provide flexible benefits as part of a competitive remuneration package. Operation Benefits may include those currently provided and disclosed in the annual report on remuneration. Core benefits include private medical insurance, life insurance and other benefits that may be selected through the Group’s flexible benefits plan. In certain circumstances, the Committee may provide additional benefits to individuals, which may include, but are not limited to, accommodation, relocation, and travel support.		Maximum potential N/A Performance measures N/A Changes To align executive director remuneration package with the wider workforce where flex and car allowances were consolidated in previous years and to set fixed pay at an appropriate level, executive directors will no longer receive a flexible benefits allowance. Car allowance has also been removed as a benefit.


	All-employee plans
	Purpose and link to strategy Executive directors are eligible to participate in HMRC tax advantaged share plans which promote share ownership by giving employees an opportunity to invest in Group shares. Operation Executive directors may participate in these plans in line with HMRC guidelines currently prevailing (where relevant), on the same basis as other eligible employees. Maximum potential Participation levels may be increased up to HMRC limits as amended from time to time. The monthly savings limits for Save As You Earn (SAYE) is currently £500.		The maximum value of shares that may be purchased under the Share Incentive Plan (SIP) in any year is currently £1,800 with a two-for-one match. Currently a three-for-two match is operated up to a maximum colleague investment of £30 per month. The maximum value of free shares that may be awarded in any year is £3,600. Performance measures N/A Changes No change to Policy.

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	Remuneration Policy table for executive directors continued


	Group Performance Share (Short Term Variable)
	Purpose and link to strategy To incentivise and reward the achievement of the Group’s annual financial and strategic targets whilst supporting the delivery of higher, more sustainable returns. Operation Measures and targets are set annually and awards are determined by the Committee after the year end based on performance against the targets set. The GPS may be delivered in cash, shares, notes or other debt instruments including contingent convertible bonds. Where all or part of any award is deferred, the Committee may adjust these deferred awards in the event of any variation of share capital, demerger, special dividend or distribution or amend the terms of the plan in accordance with the plan rules. Where an award or a deferred award is in shares or other share linked instrument, dividends or dividend equivalents may accrue over the vesting period and are payable in respect of awards that vest. These will be paid in shares unless the individual has met their shareholding requirement in which case they may be payable in cash at the discretion of the Committee. Where dividends or dividend equivalents are not accrued, the grant price of shares to be awarded may be discounted to reflect the lack of dividend equivalents. The Committee applies its judgement to determine the payout level commensurate with business and/or individual performance or other factors as determined by the Committee. The Committee may reduce the level of award (including to zero), apply additional conditions to the vesting or delay the vesting of deferred awards to a specified date or until conditions set by the Committee are satisfied, where it considers it appropriate. Awards may be subject to malus and 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.		Maximum potential The maximum GPS opportunities are 300% of base salary for the Group Chief Executive and 250% of base salary for other executive directors. Performance measures Measures and targets are set annually by the Committee in line with the Group’s strategic business plan and further details are set out in the annual report on remuneration for the relevant year. Measures consist of both financial and non-financial measures and the weighting of these measures will be determined annually by the Committee. All assessments of performance are ultimately subject to the Committee’s judgement, but measures will not vest if threshold performance is not met. The payout for threshold performance will not exceed 25% of maximum. The normal ‘target’ level of the GPS is 50% of maximum opportunity. The Committee is committed to providing transparency in its decision making in respect of GPS awards and will disclose historic measures and target information together with information relating to how the Group has performed against those targets in the annual report on remuneration for the relevant year except to the extent that this information is deemed to be commercially sensitive, in which case it will be disclosed once it is deemed not to be sensitive. Changes The maximum GPS for the GCE has been increased from 140% to 300% of base salary and the maximum GPS for other executive directors has been increased from 140% to 250% of base salary. The Policy gives the Committee flexibility to permit dividends or dividend equivalents to be awarded on deferred awards.

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Directors’ remuneration report continued


	Remuneration Policy table for executive directors continued


	Long Term Incentive Plan (Long Term Variable)
	Purpose and link to strategy To align executive directors’ long-term variable remuneration with the Group’s strategic ambitions, while ensuring alignment with shareholder interests. Operation Awards will be granted under the rules of the 2023 Long Term Incentive Plan, which was approved by shareholders at the 2023 AGM; awards will be granted in the form of conditional rights to shares in the Group. Dividends or dividend equivalents may accrue over the vesting period and are payable in respect of awards that vest. These will be paid in shares unless the individual has met their shareholding requirement in which case they may be payable in cash at the discretion of the Committee. Where dividends or dividend equivalents are not accrued, the grant price of shares to be awarded may be discounted to reflect the lack of dividend equivalents. The vesting and release of awards will comply with regulation and shareholder expectations, which is currently a performance period of at least three years, and a total performance and holding period of least five years. The Committee retains full discretion to amend the vesting levels should the outcome not reflect business and/or individual performance including risk and conduct outcomes. The Committee may reduce (including to zero) the level of the award, apply additional conditions to the vesting, or delay the vesting of awards to a specified date or until conditions set by the Committee are satisfied, where it considers it appropriate. Awards may be subject to malus and clawback for a period of up to seven years after the date of award which may be extended to ten years where there is an ongoing internal or regulatory investigation.		Maximum potential The maximum Long Term Incentive Plan opportunity is 500% of base salary for the Group Chief Executive and 450% of base salary for other executive directors. The actual award level granted will be determined with reference to a pre-grant test based on an assessment of performance by the Committee. Performance measures Awards will be subject to forward-looking performance measures based on financial and non-financial measures, such as strategic and sustainability, set out in the annual report on remuneration each year; performance will be measured over a period of not less than three years as determined by the Committee. The Committee has the discretion to change the measures or their weightings, from grant to grant, subject to a minimum of 75% of the award being dependent on financial measures. No more than 25% of the award will vest for threshold performance. 100% of the award will vest for achieving the maximum performance. Where performance falls between threshold and maximum levels, an intermediate number of awards will vest. Changes The maximum LTIP for the GCE has been increased from 300% to 500% of base salary and the maximum LTIP for other executive directors has been increased from 300% to 450% of base salary. The minimum weighting to financial performance measures has increased from 50% to 75%. To provide alignment to shareholders, the Policy allows for the grant of dividends or dividend equivalents to be awarded on deferred awards.


	Deferral of variable remuneration and holding periods
	Operation Both the GPS and LTIP are treated as variable remuneration for purpose of applicable remuneration regulation. At award, payment and deferral levels must meet minimum rules for executive directors. The current minimum requirements are: •At least 40% of the first £660,000 of total variable remuneration and 60% of any excess to be deferred for up to four years with pro-rata vesting •At least 50% of total variable remuneration to be delivered in shares or equity-linked instruments •Where a portion of variable remuneration is delivered upfront and in shares it is subject to a minimum one-year holding period		Changes No change to Policy that payment and deferral levels and the operation of any holding period is determined annually at the time of the award. Additional context To maintain flexibility across the period of our Policy, we believe minimum regulatory requirements is the most appropriate Policy position. However, we are mindful that additional considerations apply when it comes to executive director remuneration in the UK. We will set out our deferral position each year in the annual report on remuneration, taking into account shareholder expectations, market practice and emerging trends.

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	Remuneration Policy table for executive directors continued


	Performance adjustment
	Performance adjustment is determined by the Remuneration Committee and may result in a reduction of up to 100% variable remuneration opportunity for the relevant period. It can be applied on a collective or individual basis. 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 at a Group, business area, division and/or business unit level •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 consider adjustments should be made		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 ten years where there is an ongoing internal or regulatory investigation. The Committee has considered the time period of up to ten years and believes that is an appropriate length of time for performance adjustment to apply. 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

Discretion in relation to variable rewards

The Committee retains discretion with regards to all variable

rewards plans. This relates to:

•The timing, size and type of awards and holding periods, subject

to Policy maxima, regulatory requirements and the annual

setting of targets

•Where performance measures are used and performance against

those measures is not commensurate with the Group’s overall

financial or strategic performance over the performance period

•Adjustment of targets and measures if events occur which cause

it to determine that it is appropriate to do so. The Committee

also retains the right to change performance measures and the

weighting of measures, including following feedback from

regulators, shareholders and/or other stakeholders; and

amending the plan rules in accordance with their terms and or

amending the basis of operation (including but not limited to the

approach in respect of dividend equivalents) including in light of

any change to regulatory requirements or guidance or feedback

from regulators

•To exercise discretion in accordance with the rules, including in

relation to whether or not malus or clawback provisions would

apply, in connection with recruitment, or terminations of

employment, or corporate events affecting the Company

•Adjustments required in certain circumstances (e.g. rights issues,

corporate restructuring events and special dividends)

•The determination of how dividend equivalents should be

calculated and paid

The exercise of the Committee’s discretion will be disclosed in

accordance with regulatory requirements.

Legacy awards and restrictions on payments

Awards in respect of the 2025 GPS will be granted in 2026 under

the terms of the 2023 Directors’ Remuneration Policy approved by

shareholders on 18 May 2023. Awards in respect of the 2026 Long

Term Incentive Plan will be granted following the AGM in 2026

under the terms of the new Directors’ Remuneration Policy (the

2026 Policy), subject to shareholder approval of the 2026 Policy.

The Committee reserves the right to make any remuneration

payments/awards and any payments/awards for loss of office,

notwithstanding that they are not in line with the Policy set

out above where the terms of the payment/award were agreed

(i) before the 2026 Policy came into effect or (ii) at a time when the

relevant individual was not a director of the Group and, in the

opinion of the Committee, the payment/award was not in

consideration for the individual becoming a director of the Group.

Such payments/awards will have been set out in the annual report

on remuneration for the relevant year and include awards and

payments made under previous approved remuneration Policies.

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Directors’ remuneration report continued


	Illustration of application of Remuneration Policy


	The charts below illustrate possible remuneration outcomes under the following four scenarios: 1The maximum that may be paid, assuming full GPS payout and full vesting under the new LTIP with a share price appreciation of 50% for the LTIP. The basis of the calculation of the share price appreciation is that the share price embedded in the calculation for the ‘maximum’ bar chart is assumed to increase by 50%. 2The maximum that may be paid, assuming full GPS payout and full vesting under the new LTIP with no share price appreciation. 3The expected value of remuneration for performance midway between threshold and maximum, assuming 50% of maximum Group Performance Share opportunity and 50% vesting of maximum Long Term Incentive Plan opportunity. 4The minimum that may be paid, where only the fixed element is paid (base salary, benefits and pension). Amounts are based on base salaries as at 1 April 2026, 10% pension allowance and private medical cover. Implementation of the Policy in 2026 is set out in the annual report on remuneration.


	Value of package

Charlie Nunn (GCE)		William Chalmers (CFO)


	Maximum – with share price appreciation					Total
9%		t 1%	26%	43%	22%	£17.7m


	Maximum
11%		t 1%	33%	55%	£13.9m


	Mid-performance
20% t 2%		t 29%	t 49%	£7.8m


	Minimum
91% t 9%		£1.7m


Maximum – with share price appreciation					Total
10%	t 1%	24%	43%	22%	£10.2m


Maximum
12%	t 1%	31%	56%	£8.0m


Mid-performance
22%	t 2%	t 27%	t 49%	£4.5m


Minimum
91%	t 9%	£1.1m

Salary

Pension/Benefits

Group Performance Share

Long Term Incentive Plan

Share price appreciation

Approach to recruitment and

appointment to the Board

In determining appropriate remuneration arrangements on hiring

a new executive director, the Committee will take into account

all relevant factors. This may include the experience and calibre

of the individual, local market practice, the existing remuneration

arrangements for other executives and the business circumstances.

The Committee will seek to ensure that arrangements are in the

best interests of both the Group and its shareholders and will seek

not to pay more than is necessary.

The Committee may make awards on hiring an external candidate

to ‘buy out’ remuneration arrangements forfeited, or opportunities

lost on leaving a previous employer. In doing so the Committee

will take account of relevant factors including any performance

conditions attached to these awards, the form in which they were

granted (e.g. cash or shares), the currency of the awards, and the

timeframe of awards. Any such award made will be made in

accordance with the PRA’s Rulebook and made on a comparable

basis to those forfeited and, where required, will be subject to

malus and clawback at the request of the previous employer as

required by the PRA rules.

The package will normally be aligned with the Remuneration

Policy. However, the Committee retains the discretion to make

appropriate remuneration decisions outside the standard Policy to

facilitate the recruitment of an individual of the required calibre in

exceptional circumstances.

This may, for example, include the following circumstances:

•An interim recruit, appointed to fill an executive director role on

a short-term basis

•Exceptional circumstances requiring the Chair to take on an

executive function on a short-term basis

•An executive director recruited from a business or location

where benefits are provided that do not fall into the

definition of ‘variable remuneration forfeited’ but where the

Committee considers it reasonable to buy out these benefits,

or where the form of remuneration to be bought out requires

a differentiated approach

•Transitional arrangements for overseas hires, which might include

relocation expenses and accommodation

Variable remuneration awarded to a new executive director may

not exceed the multiple of annualised fixed pay specified by the

Remuneration Committee.

In making any such remuneration decisions, the Committee will

apply any appropriate performance measures in line with those

applied to other executive directors.

A full explanation will be provided of any buy-out award or

discretionary payment.

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.


	Notice to be given by the Group	Date of service agreement
Sir Robin Budenberg	6 months	04 July 2020
Charlie Nunn	12 months	29 November 2020
William Chalmers	12 months	15 March 2019

The service contracts and letters of appointment are available for

inspection at the Company’s registered office.

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131

Notice periods

Newly appointed executive directors will be employed on contracts

that include the following provisions:

•The individual will be required to give six months’ notice if they

wish to leave and the Group will give 12 months’ notice other

than for material misconduct, neglect or other circumstances

where the individual may be summarily dismissed by written

notice. In exceptional circumstances, new joiners will be offered

a longer notice period (typically reducing to 12 months within

two years of joining)

•In the event of long-term incapacity, if the executive director

does not perform their duties for a period of at least 26 weeks

(in aggregate over a 12-month period), the Group shall be

entitled to terminate the executive’s employment by giving

three months’ notice

•At any time after notice to terminate is given by either the Group

or the executive director, the Group may require the executive

director to take leave for some or all of the notice period

•At any time, at its absolute discretion, the Group may elect

to terminate the individual’s employment by paying to the

executive director, in lieu of the notice period, an amount

equivalent to base salary, subject to mitigation as described

more fully in the termination payments section of this report

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
Chris Vogelzang	11 June 2025	16 June 2025
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.


	Remuneration Policy table for non-executive directors

	Chair and non-executive director fees and benefits
	Chair and non-executive director fees and benefits
	Purpose and link to strategy To provide an appropriate reward to attract and retain a high-calibre individual with the relevant skills, knowledge and experience, and to reflect the time commitment required to fulfil the role effectively. Operation The Committee is responsible for evaluating and approving the Chair’s fees. The Chair does not participate in these discussions. The Group Chief Executive and the Chair are responsible for evaluating and making recommendations to the Board in relation to the fees of the non-executive directors (NEDs). When determining and reviewing fee and benefit levels, the Committee ensures that decisions are made within the following parameters: •The individual’s skills and experience •An objective assessment of the individual’s responsibilities and the size and scope of their role, using objective sizing methodologies •Fees and benefits for comparable roles in comparable publicly listed firms of a similar size 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. An additional fee is also paid to the Senior Independent Director to reflect the additional responsibilities. Any increases normally take effect from 1 January of a given year. 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). Maximum potential Any increase in fees or benefits currently provided will be consistent with the parameters above. Performance measures N/A Changes No change to Policy.

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Directors’ remuneration report continued

Termination payments

It is the Group’s policy that where notice pay continues to be

payable after termination, it should be paid on a phased basis,

normally mitigated in the event that alternative employment is

secured in line with executive directors’ service contracts. Where it

is appropriate to make a GPS award to the individual, this should

relate to the period of active service, rather than the full notice

period. Any GPS payment will be determined on the basis of

performance as for all continuing employees and will remain subject

to performance adjustment (malus and clawback) and deferral.

Generally, on termination of employment, unvested GPS awards,

Group Ownership Share awards, Long Term Share Plan awards,

Long Term Incentive awards and other rights to payments will lapse

except where termination falls within one of the reasons set out

below. In the event of redundancy, the individual may receive a

payment in line with statutory entitlements at that time. If an

executive director is dismissed for gross misconduct, the executive

director will receive normal contractual entitlements until the date

of termination and all deferred GPS, Group Ownership Share, Long

Term Share Plan and Long Term Incentive Plan awards will lapse.



	Termination payments


	Base salary	Pension and benefits1
Resignation	Entitlement to base salary continues for full notice period. If employment is terminated prior to end of notice period, balance of notice pay is paid in monthly instalments, offset by earnings from any new employment during this period. If resignation is to take up a new employment, base salary would continue during any period of garden leave but may then cease if early release date agreed.	Paid until date of termination including any period of leave required by the Group (subject to individual benefit scheme rules).
Redundancy or termination by mutual agreement	Entitlement to base salary continues for full notice period. If employment is terminated prior to end of notice period, balance of notice pay is paid in monthly instalments, offset by earnings from any new employment during this period.	Paid until date of termination including any period of leave required by the Group (subject to individual benefit scheme rules).
Retirement/ill health, injury, permanent disability/death	Paid until date of retirement/death. For ill health, injury or permanent disability which results in the loss of employment, paid for the applicable notice period (including any period of leave required by the Group).	Paid until date of death/ retirement (subject to individual benefit scheme rules). For ill health, injury, permanent disability, paid for the notice period including any period of leave required by the Group (subject to individual benefit scheme rules).
Change of control or merger	N/A	N/A
Other reason where the Committee determines that the executive should be treated as a good leaver	Entitlement to base salary continues for full notice period. If employment is terminated prior to end of notice period, balance of notice pay is paid in monthly instalments, offset by earnings from any new employment during this period.	Paid until date of termination including any period of leave required by the Group (subject to individual benefit scheme rules).

1In certain circumstances, certain benefits may continue for a period post-termination.

Chair and non-executive director fees

Chair and non-executive director fees are paid until the date of leaving the Board in all circumstances set out above. The Chair is entitled to

six months’ notice.

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133


	Termination payments


	Group Performance Share (Annual bonus plan)1,2,5	Long Term Incentive Plan (Long term variable reward plan)2,3,4,5
Resignation	Unvested deferred GPS awards and entitlement to be considered for in-year award are normally forfeited on resignation unless the Committee determines, in exceptional circumstances, to treat as a good leaver, as set out below.	Unvested awards normally lapse on date of leaving (or on notice of leaving) unless the Committee determines otherwise in exceptional circumstances that they will vest on the original vesting date (or exceptionally on the date of leaving). Where the award is to vest it will be subject to the original performance conditions and time pro-rating (for months worked in the performance period). Malus and clawback will apply.
Redundancy or termination by mutual agreement	For cases of redundancy, unvested deferred GPS awards are retained and in-year GPS awards are accrued until the date of termination (or the commencement of garden leave if earlier). Such awards would be subject to deferral, malus and clawback.	Awards vest on the original vesting date (or exceptionally on the date of leaving). Vesting is subject to the performance conditions and time pro-rating (for months worked in the performance period). Malus and clawback provisions will continue to apply.
Retirement/ill health, injury, permanent disability	Unvested deferred GPS awards are retained and in-year GPS awards are accrued until the date of termination (or the commencement of garden leave if earlier). Such awards would be subject to deferral, malus and clawback.	Awards vest on the original vesting date (or exceptionally on the date of leaving). Vesting is subject to the performance conditions and time pro-rating (for months worked in the performance period). Malus and clawback provisions will continue to apply.
Death	Unvested deferred GPS awards are retained and in-year GPS awards are accrued until the date of death. Deferred GPS awards vest on death in cash, unless the Committee determines otherwise.	Awards vest in full on the date of death unless in exceptional circumstances the Remuneration Committee determines that the performance against targets set do not support full vesting.
Change of control or merger	In-year GPS accrued up until date of change of control or merger (current year). Where there is a Corporate Event, deferred GPS awards vest to the extent and timing determined by the Committee in its absolute discretion.	Awards vest on date of event. Vesting is subject to the performance conditions and time pro-rating (for months worked in the performance period unless determined otherwise). The Committee may decide not to time pro-rate in its absolute discretion. Malus and clawback provisions will continue to apply. Instead of vesting, awards may be exchanged for equivalent awards over the shares of the acquiring company or another company or equivalent cash based awards.
Other reason where the Committee determines that the executive should be treated as a good leaver	Unvested deferred GPS awards retained and in-year GPS awards are accrued until the date of termination (or the commencement of garden leave if earlier). Deferred GPS awards vest in line with normal timeframes and are subject to malus and clawback. The Committee may allow awards to vest early if it considers it appropriate.	Awards vest on the original vesting date (or exceptionally on the date of leaving). Vesting is subject to the performance conditions and time pro-rating (for months worked in the performance period). Malus and clawback provisions will continue to apply.

1If any GPS is to be paid to the executive director for the current year, this will be determined on the basis of performance for the period of actual service, rather than the full notice

period (and so excluding any period of leave required by the Group).

2Reference to change of control or merger includes a compromise or arrangement under section 899 of the Companies Act 2006 or equivalent. Legacy fixed share awards may also be

released/ exchanged in the event of a resolution for the voluntary winding up of the Company; a demerger, delisting, distribution (other than an ordinary dividend) or other transaction,

which, in the opinion of the Committee, might affect the current or future value of any award; or a reverse takeover, merger by way of a dual listed company or other significant

corporate event, as determined by the Committee. In the event of a demerger, special dividend or other transaction which would in the Committee’s opinion affect the value of

awards, the Committee may allow a deferred Group Performance Share award or a long term incentive award to vest to the extent relevant performance conditions are met to that

date and if the Committee so determined, on a time pro-rated basis (unless determined otherwise) to reflect the number of months of the performance period worked.

3The terms applicable on a cessation of employment to GOS awards are as shown on page 97 of the 2017 Remuneration Policy. The terms applicable on a cessation of employment to

LTSP awards as shown on page 122 of the 2020 Remuneration Policy.

4In the event that performance conditions are required to be assessed prior to the normal vesting date in connection with the leaver event, the Committee retains discretion to make

such an assessment on such basis as it considers appropriate.

5Any awards which vest pursuant to a good leaver event will remain subject to any applicable post-vesting holding period.

On termination, the executive director will be entitled to payment for any accrued holiday not taken as part of any period of garden leave

calculated by reference to base salary.

The cost of legal, tax or other advice incurred by an executive director in connection with the termination of their employment and/or the

cost of support in seeking alternative employment may be met up to a maximum of £100,000 (excl. VAT). Additional payments may be

made where required to settle legal disputes, or as consideration for new or amended post-employment restrictions.

Where an executive director is in receipt of expatriate or relocation expenses at the time of termination (as at the date of publication no

current executive director is in receipt of such expenses), the cost of actual expenses incurred or benefits provided may continue to be

reimbursed for up to 12 months after termination or, at the Group’s discretion, a one-off payment may be made to cover the costs of

premature cancellation. The cost of repatriation may also be covered.

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 2025

134

Other statutory and regulatory information

This directors’ report on pages 66 to 136 is our

directors’ report for the purposes of the Companies

Act 2006 and fulfils the requirements of the

corporate governance statement for the purposes

of the Financial Conduct Authority’s Disclosure

Guidance and Transparency Rules (DTR).

Profit and dividends

The consolidated income statement shows a statutory profit

before tax for the year ended 31 December 2025 of £6,661 million

(2024: £5,971 million). The directors have recommended a final

ordinary dividend for 2025, which is subject to approval by the

shareholders at the annual general meeting (AGM), of 2.43 pence per

share, which together with the interim ordinary dividend of 1.22 pence

per share represents a total ordinary dividend for the year of

3.65 pence per share, equivalent to £2.2 billion. If approved by

shareholders, the final ordinary dividend will be paid on 19 May 2026.

A final ordinary dividend of 2.11 pence per share totalling

£1,271 million in respect of 2024 was paid on 20 May 2025 and

an interim ordinary dividend of 1.22 pence per share totalling

£729 million was paid on 9 September 2025. Further information

on dividends is shown in note 34 on page 289 and is incorporated

into this directors’ report by reference.

For 2025, the Board intends to return up to £1.75 billion through

a share buyback programme in respect of the Company’s ordinary

shares. This represents the return of capital over and above the

Board’s view of the current level of capital required to grow the

business, meet regulatory requirements and cover uncertainties.

The share buyback programme commenced on 30 January 2026

and is expected to be completed by 31 December 2026. Based

on the total proposed ordinary dividend and the intended ordinary

share buyback the total capital return in respect of 2025 will be up

to £3.9 billion.

The Company intends to use the authority for the repurchase of

ordinary shares granted to it at the 2025 AGM to implement the

share buyback. Details of this existing authority are set out under

‘Power of directors in relation to shares’. Shareholders will be

asked to renew the authority at the 2026 AGM, in line with

common practice.

Going forward, given the Board’s continued confidence in capital

generation, the Group will now review excess capital distributions

in addition to the ordinary dividend every half year.

Appointment and retirement of directors

The appointment and retirement of directors is governed by the

Company’s articles of association, the UK Corporate Governance

Code 2024 and the Companies Act 2006. The Company’s articles

of association may only be amended by a special resolution of the

shareholders in a general meeting.

In the interests of good governance and in accordance with the

provisions of the UK Corporate Governance Code 2024, all directors

will retire at the 2026 AGM and those wishing to serve for the first

time or again will submit themselves for election or re-election

(as applicable). Biographies of the current directors are set

out on pages 68 to 69. Details of the directors seeking election

or re-election at the AGM are set out in the Notice of Meeting.

Board composition

The names and biographical information of all current directors are

on pages 68 to 69. Changes to the composition of the Board since

1 January 2025 up to the date of this report are shown in the

table below:


	Joined the Board	Left the Board
Chris Vogelzang	16 June 2025
Scott Wheway		31 October 2025

Directors’ and officers’ liability insurance

Throughout 2025 the Group had appropriate insurance cover

in place to protect directors, including the directors who retired

during the year, from liabilities that may arise against them

personally in connection with the performance of their role.

As well as insurance cover, the Group agrees to indemnify the

directors to the maximum extent permitted by law. Further

information on the Group’s indemnity arrangements is provided

in the directors’ indemnities section below.

Directors’ indemnities

The directors of the Company have entered into individual

deeds of indemnity with the Company which constituted ‘qualifying

third-party indemnity provisions’ for the purposes of the Companies

Act 2006. The deeds indemnify the directors to the maximum

extent permitted by law and remain in force. The deeds were in

force during the whole of the financial year or from the date of

appointment for any director appointed during the course of the

year. Deeds for existing directors are available for inspection at the

Company’s registered office.

The Company has also granted deeds of indemnity by deed poll

and by way of entering into individual deeds, which constitute

‘qualifying third-party indemnity provisions’ to the directors of

the Group’s subsidiary companies, including to former directors

who retired during the year and since the year end, and to Group

colleagues subject to the provisions of the Senior Managers and

Certification Regime. Such deeds were in force during the financial

year ended 31 December 2025 and remain in force as at the date of

this report.

Qualifying pension scheme indemnities have also been granted to

the trustees of the Group’s pension schemes, which were in force

for the whole of the financial year and remain in force as at the date

of this report.

Conflicts of interest

The Board has a comprehensive procedure for reviewing, and as

permitted by the Companies Act 2006 and the Company’s articles

of association, approving actual and potential conflicts of interest.

Directors have a duty to notify the Chair and Company Secretary

as soon as they become aware of actual or potential conflict

situations. Any changes to the commitments of directors are

reported to the Nomination and Governance Committee and the

Board and a register of directors’ interests is regularly reviewed and

authorised by the Board to ensure that the authorisation status

remains appropriate.

Share capital

Detail of the rights and obligations attaching to the Company’s

issued share capital may be found in notes 29 and 30 to the

financial statements on pages 285 and 287.

Power of directors in relation to shares

The Board manages the business of the Company under the powers

set out in the articles of association, which include the directors’

ability to issue or buy back shares. The directors were granted

authorities to issue and allot shares and to buy back shares at the

2025 AGM. Shareholders will be asked to renew these authorities at

the 2026 AGM.

The authority in respect of purchase of the Company’s ordinary

shares, as granted at the 2024 AGM, was limited to 6,377,697,127

ordinary shares, equivalent to 10% of the issued ordinary share

capital of the Company as at the latest practicable date prior to

publication of the 2024 AGM Notice of Meeting. Such authority

was used during the year under review in connection with the share

buyback programme described below and, as at 31 December 2025

and the date of this report, a total of 2,204,109,740 ordinary shares

had been repurchased under such authority.

Lloyds Banking Group plc Annual Report and Accounts 2025

135

The Company undertook an ordinary share buyback programme,

which was launched on 21 February 2025 and ended on 8 December

2025. The programme repurchased in aggregate 2,204,109,740

ordinary shares, each with a nominal value of 10 pence, for an

aggregate consideration of c.£1.7 billion (aggregate nominal value

of the ordinary shares £220,410,974) as a means by which to return

surplus capital to shareholders and to reduce the ordinary share

capital of the Company.

All of the repurchased ordinary shares were cancelled and together

represented 3.74% of the called up share capital of the Company

as at 31 December 2025. Further information in relation to the

2025 ordinary share buyback programme is provided on page 57.

The authority in respect of purchase of the Company’s

ordinary shares, as granted at the 2025 AGM, was limited to

6,059,214,381 ordinary shares, none of which had been utilised

as at 31 December 2025, however will be utilised for the buyback

programme commenced on 30 January 2026. Information on

transactions in own shares is made publicly available via the

regulatory information service and on the Company’s website at

www.lloydsbankinggroup.com

Branches

The Group provides a wide range of banking and financial services

through branches and offices in the UK and overseas.

Research and development activities

During the ordinary course of business, the Group develops new

products and services within the business units.

Change of control

The Company is not party to any significant agreements which take

effect, alter or terminate upon a change of control of the Company

following a takeover bid. There are no agreements between the

Company and its directors or employees providing compensation

for loss of office or employment resulting from a takeover, except

for the Company’s employee share plans which contain provisions

relating to a change of control set out on page 287.

Capital Requirements

(Country-by-Country Reporting)

As required under the Capital Requirements (Country-by-Country

Reporting) Regulations 2013, the Group’s related disclosures may

be found online on the financial downloads page of our website.

Post balance sheet events

Details of events since the date of the balance sheet are provided

in note 41 on page 296.

Substantial shareholders

Major shareholders do not have different voting rights from other

holders of ordinary shares. Information provided to the Company

by substantial shareholders pursuant to the DTR is published

via a Regulatory Information Service. As at 31 December 2025,

the Company had been notified by its substantial shareholders

under Rule 5 of the DTR of the following interests in the

Company’s shares:


	Interest in shares	% of issued share capital with rights to vote in all circumstances at general meetings1
BlackRock, Inc.	3,668,756,7652	5.14%
Norges Bank	1,935,747,756	3.02%

1Percentage provided was correct at the date of notification. All holdings are direct

holdings unless stated to the contrary.

2The most recent notification provided by BlackRock, Inc. under Rule 5 of the DTR

identifies (i) an indirect holding of 3,599,451,380 shares in the Company representing

5.04% of the voting rights in the Company, and (ii) a holding of 69,305,385 in other

financial instruments in respect of the Company representing 0.09% of the voting

rights of the Company. As at 11 February 2026, BlackRock, Inc.’s holding most recently

notified to the Company under Rule 5 of the DTR varies from the holding disclosed in

BlackRock, Inc.’s Schedule 13-G filing with the US Securities and Exchange Commission

dated 8 February 2024, which identifies beneficial ownership of 5,352,886,800 shares

in the Company representing 8.4% of the issued share capital in the Company. This

variance is attributable to different notification and disclosure requirements between

these regulatory regimes.

Harris Associates L.P. held at last notification on 19 July 2021 pursuant to Rule 5 of the

DTR an indirect holding of 3,546,216,787 shares, representing 4.99%. It is understood

that Harris Associates L.P. disposed of their holding during the course of 2025.

No further notifications have been received under Rule 5 of the DTR

as at the date of this report.

Information incorporated by reference


Content		Pages
Group results	Summary of Group results	53 to 59
Ordinary dividends	Dividends on ordinary shares	289
Directors’ emoluments	Directors’ remuneration report	98 to 133
Internal control and financial risk management	Financial reporting risk	141
	Risk management	24 to 29 137 to 197
	Financial instruments	255 to 266 294
Information included in the strategic report	Future developments	1 to 29
	Post balance sheet events	2 and 3
	Environmental disclosures	32 35 to 49
	Supporting disability	22
	Engagement with colleagues	22 and 77
	Engagement with customers, suppliers and others	76 to 78
Disclosures required under UK Listing Rule 6.6.1R	Significant contracts	290 to 291
Disclosures required under UK Listing Rule 6.6.1R	Dividend waivers	289 to 290
Principal risks and uncertainties	Funding and liquidity	27 181 to 186
Principal risks and uncertainties	Capital position	25 144 to 150
Viability statement	Risk overview	34
Going concern statement	Risk overview	34
Share capital and control	Share capital and restrictions on the transfer of shares or voting rights	287
	Employee share schemes – exercise voting rights	287
	Rights and obligations attaching to the Company’s issued share capital	287
Environmental disclosures	Carbon reporting	47 to 48

Independent auditor and audit information

Each person who is a director at the date of approval of this report

confirms that, so far as the director is aware, there is no relevant

audit information of which the Company’s auditor is unaware and

each director has taken all the steps that he or she ought to have

taken as a director to make himself or herself aware of any relevant

audit information and to establish that the Company’s auditor is

aware of that information.

This confirmation is given and should be interpreted in accordance

with the provisions of the Companies Act 2006.

Lloyds Banking Group plc Annual Report and Accounts 2025

136

Other statutory and regulatory information continued

Board and executive management diversity (these disclosures are made as at 31 December 2025, in compliance

with UK Listing Rules UKLR 6.6.6(9) and UKLR 6.6.6(10))

Reporting table on gender representation


	Number of Board members	Percentage of the Board	Number of senior positions on the Board (CEO, CFO, SID and Chair)	Number in executive management (GEC)	Percentage in executive management (GEC)
Men	5	50%	3	8	61.5%
Women	5	50%	1	5	38.5%
Other categories	0	0%	0	0	0.0%
Not specified/Prefer not to say	0	0%	0	0	0.0%

Reporting table on ethnicity representation


	Number of Board members	Percentage of the Board	Number of senior positions on the Board (CEO, CFO, SID and Chair)	Number in executive management (GEC)	Percentage in executive management (GEC)
White British or other white	8	80%	4	11	84.6%
Mixed/Multiple ethnic groups	1	10%	0	0	0%
Asian/Asian British	1	10%	0	2	15.4%
Black/African/Caribbean/Black British	0	0%	0	0	0%
Other ethnic group	0	0%	0	0	0%
Not specified/prefer not to say	0	0%	0	0	0%

Methodology and definitions

All data in the table above is disclosed as at 31 December 2025.

All diversity information for ethnicity is based on voluntary self-

declaration with Board and executive management asked to

disclose based on the categories shown in the table above. Our

systems do not record diversity data of colleagues who have not

declared this information and is for UK payroll only. Gender data

includes those on parental/maternity leave, absent without leave

and long-term sick and excludes contractors, Group non-executive

directors, temporary and agency staff. Executive management

numbers are based on members and attendees of the Group

Executive Committee. Diversity calculations are based on

headcount, not full-time employee value.

Further details on our gender and diversity data including progress

on our ambitions can be found on pages 22 to 23.

Statement of directors’ responsibilities

The directors are responsible for preparing the annual report,

including the directors’ remuneration report and the financial

statements, in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements

for each financial year. Under that law, the directors are required

to prepare the Group and parent company financial statements in

accordance with international accounting standards in conformity

with the requirements of the Companies Act 2006.

Under company law, the directors must not approve the financial

statements unless they are satisfied that they give a true and fair

view of the state of affairs of the Group and the Company and of

the profit or loss of the Company and Group for that period. In

preparing these financial statements, the directors are required to

properly select and apply accounting policies; present information,

including accounting policies, in a manner that provides relevant,

reliable, comparable and understandable information; provide

additional disclosures when compliance with the specific

requirements in international accounting standards in conformity

with the requirements of the Companies Act 2006 are insufficient

to enable users to understand the impact of particular transactions,

other events and conditions on the entity’s financial position and

financial performance; and make an assessment of the Company’s

ability to continue as a going concern. The financial statements also

comply with International Financial Reporting Standards as issued

by the IASB.

The directors are responsible for keeping adequate accounting

records that are sufficient to show and explain the Company’s

transactions and disclose with reasonable accuracy at any time

the financial position of the Company and the Group and enable

them to ensure that the financial statements and the directors’

remuneration report comply with the Companies Act 2006. They

are also responsible for safeguarding the assets of the Company and

the Group and hence for taking reasonable steps for the prevention

and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of

the corporate and financial information included on the Company’s

website. Legislation in the UK governing the preparation and

dissemination of financial statements may differ from legislation in

other jurisdictions.

Each of the current directors who are in office as at the date of this

report, and whose names and functions are listed on pages 68 to 69

of this annual report, confirm that, to the best of his or her knowledge:

•The Group and the Company financial statements, which have

been prepared in accordance with international accounting

standards in conformity with the requirements of the Companies

Act 2006, give a true and fair view of the assets, liabilities,

financial position and profit or loss of the Company and the

undertakings included in the consolidation taken as a whole

•The strategic report and directors’ report include a fair review

of the development and performance of the business and the

position of the Company and the undertakings included in the

consolidation taken as a whole, together with a description of

the principal risks and uncertainties they face

•The annual report and accounts, taken as a whole, are fair,

balanced and understandable and provide the information

necessary for shareholders to assess the Company and the

Group’s position, performance, business model and strategy

This responsibility statement was approved by the Board of

directors on 13 February 2026.

Kate Cheetham

Company Secretary

On behalf of the Board

13 February 2026

Lloyds Banking Group plc

Registered in Scotland, No. SC095000

Lloyds Banking Group plc Annual Report and Accounts 2025

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 24 to 29) provides a summary of risk

management within the Group and the key focus areas for 2025.

This full risk management section provides a more in-depth view of

how risk is managed within the Group including key developments

in 2025, and the framework by which risks are identified, assessed,

managed, mitigated, monitored and reported.

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

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 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 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 Direct Investments).

The Group’s Risk Management Framework (RMF) was enhanced in

2025 and 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. The framework defines a

proportionate, materiality-based approach to risk management

that can be consistently applied across the Group. This enhanced

approach replaces previous legal entity and business-specific

frameworks, ensuring clarity, consistency and an ease of use.

The Group’s RMF also includes an evolved approach to risk

appetite, which introduces a consistent and top-down approach to

the setting of Board risk appetite across the Group and its legal

entities. This provides greater clarity and visibility of the Group’s risk

appetite, demonstrating the significance of risk appetite for the

Group in achieving its strategic objectives.

The RMF 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.

Risk policies have been updated during 2025, setting out

mandatory requirements, limits, parameters and controls to

ensure each of the Group’s risks remain within appetite.

Key enhancements to the RMF have been delivered through the

Resetting Risk programme. The Risk function’s focus is now on

supporting the embedding of the enhanced framework across the

Group to ensure consistent application, maturity, and sustained

effectiveness.

The Group’s risk management framework

The RMF has connectivity across its component parts, ensuring

processes are in place to facilitate risk management and decision-

making across the organisation. It provides a common structure

across the Group and can be appropriately calibrated for all legal

entities, business units and Group functions.

Group strategy

and the risk

management

strategy

Culture,

values and

behaviours

Risk

architecture

and approach

Risk

management

framework

Risk

appetite

Risk

governance

Risk function

mandate

Three lines

of defence

Group strategy and the risk management strategy

The Group strategy is underpinned by clear strategic priorities and

financial targets designed to create value and deliver sustainable

returns. It is shaped by an understanding of the Group’s risk profile,

considering economic, political and regulatory uncertainties. This

informs risk appetite and risk management practices.

All risk-taking activities are aligned to the Group’s strategy and

purpose, aiming to generate sustainable outcomes and shareholder

value. The Group and legal entity Chief Risk Officers (CROs) play a

critical role by challenging proposals, reconciling risk appetite, and

ensuring adherence through ongoing oversight.

The risk management strategy enables consistent management of

principal risks within appetite and the target control environment.

It draws on risk and control improvement plans, developed by sub-

groups, legal entities and business units, which outline actions to

strengthen capabilities over a defined period.

The Risk function oversees and challenges the business, combining

these plans with regular reporting to ensure operations remain

within appetite and improvements are delivered as planned. It also

maintains its own plan to enhance the RMF and achieve the target

state for risk management.

Culture, values and behaviours

The Group’s culture, guided by the Group’s values, is fundamental

to its purpose of Helping Britain Prosper and its strategic objectives.

Leaders shape and embed a supportive risk culture of

accountability, strong customer focus, intellectual curiosity,

innovation and proactive risk management. The RMF, Code of

Ethics and Responsibility and Colleague Conduct Policy give

guidance and tools for working responsibly and making the right

decisions. Speak Up, the Group’s whistleblowing programme,

ensures colleagues’ concerns are taken seriously and treated

sensitively.

Lloyds Banking Group plc Annual Report and Accounts 2025

139

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

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 governance structure is explained on page 140.

Three lines of defence

In line with industry best practice, the Group adopts a three lines of

defence model of risk governance, implemented on a functional,

rather than activity basis. This model is reviewed annually by the

Board as part of its RMF approval.

All colleagues are responsible for the management of risk in day-to-

day activities, demonstrating risk practices and behaviours that are

consistent with the Group’s purpose, values and culture. The Group

Chief Executive (GCE) leads on all aspects of executive governance

as part of the execution of the Board-approved strategy, business

and operating plan and ensures the efficient use of resources. The

effective management of risks as defined within the RMF, however

is considered to be outside of the three lines of defence. The Board

also sits above the three lines of defence.

The first line of defence (1LOD) and second line of defence (2LOD)

are considered as management and operate the control

environment. Independence must be maintained through clear

boundaries of accountability, however a service may be provided

from one line to another, for example the provision of subject

matter expertise.

In line with the functional approach, control activities undertaken

by specific functions within 1LOD, such as Group Finance and Group

Legal, do not result in these functions being part of 2LOD. Further,

risk management activities and approvals performed within the Risk

function, including reporting and model development, do not result

in these functions being considered as 1LOD.

The roles and responsibilities of each of the three lines of defence

are outlined on page 140.

Risk function mandate

The Risk function mandate expands on the requirements for Risk as

an oversight and control function that are set out in the three lines

of defence. It sets out the role of the CRO, including their

accountabilities, and the key outcomes expected of the Risk

function in relation to oversight and challenge, control and culture.

This section sets the high-level mandate for the Risk function to

perform oversight and challenge activities across the Group and will

support the development of a consistent, proportionate and

materiality-based approach to risk oversight for all legal entities,

business units and Group functions.

Risk appetite

The Group’s approach to setting and the ongoing management of

risk appetite is an integral component of the Group’s RMF.

The Group defines risk appetite as the type and aggregate level of

risk it is willing to take or accept in pursuit of its strategic objectives

and business plans.

The Board is responsible for approving the Group’s Board risk

appetite at least annually. Risk appetite is documented for the

Group, as well as sub-groups and legal entities as required. All legal

entities, business units and Group functions must operate within the

risk appetite parameters set by the Group Board. Group Board-level

risk appetite metrics are augmented further by lower-level measures

to facilitate the management of Board risk appetite. The

performance of Board risk appetite metrics and management

measures across risk types is reported regularly to Board Risk

Committee and Group Risk Committee.

The Group’s risk appetite statement is articulated through

qualitative statements of risk appetite and quantitative risk

appetite metrics. These are defined for all principal risks as

appropriate, setting clear boundaries and expectations under both

business-as-usual and stress conditions.

The Group’s strategy and risk management strategy operate in

tandem with risk appetite. It reinforces the Group’s purpose,

strategy and objectives by driving behaviour and setting boundaries

around risk taking, to monitor changes in risk exposure, enabling the

delivery of its strategic aims.

Risk architecture and approach

This sets out a common language and standard definitions to

facilitate consistency and clarity in risk management terminology

and how risks should be managed. Policy architecture for all

principal risks ensures a consistent approach to the management

of risk across the Group. High-level risk principles and detailed risk

policies explain the requirements, controls, limits and parameters

that must be implemented to manage risk, and the risk

management tools and processes to be used across the Group.

The Group’s events-based risk management framework is

comprised of principal risks, underpinned by a second and third risk

level as appropriate. This brings consistency and clarity of the risks

that the Group faces, aligning to industry best practice and

regulatory expectations.

Additionally, the Group identifies emerging and topical risks by

proactive horizon scanning and assessment of the potential impact

of a future internal or external event of trend, which could have a

materially positive or adverse impact on the Group and its

customers, but where the probability, timescale and/or materiality

may be difficult to accurately assess. These will be added to the

events-based risk management framework as appropriate.

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140

Risk management continued

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 are referred to as the Aligned Board Model. Please see page 73 for further information on the

Group’s approach to ring-fencing.


	Risk governance structure


Audit Committee	Board		Board Risk Committee

Group Chief Executive
	Primary escalation
Group and Ring-Fenced Banks Risk Committee
	Primary escalation
Risk Function committees and governance		Business area principal enterprise risk committees


	Aggregation		Reporting		Escalation



Three lines of defence model The RMF establishes a ‘three lines of defence’ model defining clear responsibilities and accountabilities and ensuring effective independent oversight and assurance on key decisions, while ensuring appropriate risk resource and capabilities for each area:
First line of defence	Independent challenge of first line of defence	Second line of defence	Independent challenge of both first and second lines of defence	Third line of defence
Risk management		Risk oversight		Risk assurance
Business areas have end-to-end accountability for risks in their processes and must ensure strong governance and controls, both internally and with third parties, to manage risks appropriately within Board-approved appetite parameters. They identify, assess, mitigate, monitor, and report risks, maintain risk management skills, and comply with Group policies and relevant regulations.		The Risk function, led by the Chief Risk Officer, is independent from the first line of defence. It advises on, monitors, challenges, approves, escalates, and reports to the Board and Group Chief Executive on first-line risk-taking. It oversees governance, risk management, controls and regulatory compliance, ensuring these align to the RMF and Board-set risk appetite.		Group Audit, led by the Chief Internal Auditor, provide independent assurance on the effectiveness of the first and second lines of defence’s management of risk, including assessing the design and operation of key controls and the adequacy and effectiveness of internal controls. Their scope of work is unrestricted based on their independent assessment of the Group’s key risks.

Group Board and executive committees with risk management responsibilities

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 72 to 73 for further information on Board Committees.

The governance structure includes several committees with defined roles and responsibilities, summarised below:


Board committees	Risk focus
Board	Approves risk appetite and the RMF, identifies and monitors exposures including principal risks and emerging risks, reviews internal controls and the cascade of delegated authority
Board Risk Committee	Oversees the RMF, its effectiveness, and that of internal controls; risk appetite, risk principles, stress testing, and approves ICAAP and ILAAP. Inputs into remuneration decisions
Audit Committee	Oversees financial reporting, internal audit and whistleblowing
Executive committees
Group Executive Committee	Supports the Group Chief Executive with risk, strategy, customer, colleague and operational matters, culture change and succession planning
Group and Ring- Fenced Banks Risk Committee	Develops and monitors the RMF and material risk and control matters. Supported by business unit risk committees

The Group Chief Executive is supported by the following:

•Group and Ring-Fenced Banks Asset and Liability Committees

•Group and Ring-Fenced Banks Strategic Delivery Committees

•Group and Ring-Fenced Banks Disclosure Committees

•Group Sustainability Committee

•Group Conduct Investigations Committee

•Group and Ring-Fenced Banks Cost Management Committees

•Group and Ring-Fenced Banks Contentious Regulatory Committees

The Group and Ring-Fenced Banks Risk Committee is supported by

business unit risk committees, cross-business unit committees addressing

specific matters of Group-wide significance, and second line of defence

Risk committees ensuring oversight of risk management. These include:

•Group Capital Risk Committee

•Group Financial Risk Committee

•Economic Crime Prevention Committee

•Group Liquidity Risk Committee

•Group Market Risk Committee

•Group Model Governance Committee

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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 Enterprise-Wide Risk Management 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.

Financial reporting and tax risk management

systems and internal controls

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 89 to 91.


	Risk and control cycle



	Risk identification and assessment 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.		Risk management and mitigation 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.


	Risk reporting 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.		Risk monitoring Proactive monitoring or testing is established to ensure that controls continue to be effective, and that the Group remains within risk appetite.

Lloyds Banking Group plc Annual Report and Accounts 2025

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 banking 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 61 to 64.


At 31 December 2025	Retail £bn	Commercial Banking £bn	Insurance, Pensions and Investments1 £bn	Equity Investments and Central Items2 £bn	Group £bn
Risk-weighted assets (RWAs)
Credit risk	113.1	59.9	0.2	13.2	186.4
Counterparty credit risk3	–	5.9	–	1.0	6.9
Market risk	–	3.8	–	–	3.8
Operational risk	17.3	8.9	0.3	1.3	27.8
Total (excluding threshold)	130.4	78.5	0.5	15.5	224.9
Threshold4	–	–	–	10.6	10.6
Total	130.4	78.5	0.5	26.1	235.5

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 LDC 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 a key 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 informing

the setting of management buffers (see capital risk on pages 144

to 150) of the Group and its separately regulated legal entities

•Meeting the requirements of regulatory stress tests that are used

to inform the setting of PRA buffers

•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

In 2025 the PRA completed the Bank Capital Stress Test. The

scenario was designed to test the resilience of the UK banking

system under severe global aggregate supply shock, which leads to

deep recessions across the world and escalation of geopolitical

tensions, resulting in a sharp increase in commodity and energy

prices, large falls in asset prices and higher global interest rates. The

results were published in December 2025 and the report concluded

that the UK banking system remains well capitalised. The Group

passed the stress test, performing strongly and was not required to

take any capital actions.

In addition, Scottish Widows Group Limited participated in the

PRA’s Life Insurance Stress Test. The scenario was designed to test

the resilience of major UK annuity providers under severe, yet

plausible, market conditions. The scenario included falls in equities,

yields and credit events including downgrades and property crashes.

Permitted management actions were restricted. The results were

published in November 2025 and show that, having sold the bulk

annuity business in 2024 and hedged much of its equity exposure,

Scottish Widows Group Limited is resilient to the chosen scenario.

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.

Lloyds Banking Group plc Annual Report and Accounts 2025

143

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. The Group continues to

participate in the Bank of England’s System-wide exploratory

scenarios (SWES).

Detailed stress testing information can be found within each

relevant risk in the Risk management section (capital risk page 150,

Insurance underwriting risk page 180, liquidity risk page 184 and

market risk page 188).

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 policy and related documentation, which is 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 Banks’ 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 Banks’

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 LBCM for the

governance of the LBCM-specific results.

Lloyds Banking Group plc Annual Report and Accounts 2025

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 197.


	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 25, contains a summary of capital risk performance and key mitigating actions.



	Financial risk indicators •CET1 ratio: 14.0% (2024: 14.2%) •Total capital ratio: 18.9% (2024: 19.0%) •MREL ratio: 32.2% (2024: 32.2%)

Risk appetite

The Group manages its capital above regulatory requirements to

support the achievement of its business strategy and to continue to

serve customers in a macroeconomic downturn.

For the Group, capital risk appetite is set to remain above current

regulatory requirements in a business-as-usual environment and

above defined regulatory thresholds in a mild or severe stress.

Scottish Widows Group Limited sets capital risk appetite to remain

above insurance capital requirements in a mild stress.

Risk appetite for the Group is expressed through the CET1 capital

ratio and Tier 1 leverage ratio, whilst Scottish Widows Group

Limited mainly expresses its risk appetite under Solvency II

requirements, these being key measures of capital resilience.

Identification and assessment

The minimum amount of total capital, under Pillar 1 of the

regulatory capital framework, is set at 8% of total risk-weighted

assets (RWAs). At least 4.5% of RWAs are required to be met with

common equity tier 1 (CET1) capital and at least 6% of RWAs are

required to be met with tier 1 capital. Minimum Pillar 1 requirements

are supplemented by 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).

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 RWAs), with fixed add-ons for certain risk types. The

Group’s Pillar 2A capital requirement at 31 December 2025 is the

equivalent of around 2.5% of RWAs, of which the minimum amount

to be met by CET1 capital is the equivalent of around 1.4% of RWAs.

The Group is also required to hold a number of regulatory capital

buffers which must be met with CET1 capital. In addition, the Group

is also subject to minimum capital requirements under the UK

Leverage Ratio Framework, where at least 75% of the 3.25%

minimum leverage ratio requirement as well as the full amount of

regulatory leverage buffers must be met with CET1 capital. Further

information regarding capital and leverage buffers is provided in the

Group’s Pillar 3 disclosures.

A capital risk event arises when the Group has insufficient capital

resources to support its strategic objectives and plans, and

potentially fails 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 risks being realised, or

through a significant increase RWAs 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 Internal Capital Adequacy Assessment Process (ICAAP) is a key

mechanism for assessing the Group’s capital risks, ensuring that the

Group has robust strategies, processes and systems in place to

support the identification and measurement of Pillar 2 risks.

Emerging and topical risk assessments are regularly conducted to

identify and assess any emerging capital risks, for example, from

market conditions, regulatory changes, reputational issues, and

includes consideration of issues emerging in the wider Group risk

landscape with potential capital consequences. Assessment outputs

are used to inform stress testing activities and risk appetite setting.

Scenario analysis and stress testing, including reverse stress testing,

are used to identify sources of potential capital risk, and highlight

vulnerabilities along with potential mitigating actions.

Board-level capital risk appetite is proposed and reviewed at least

annually and approved by the Board. It comprises a capital risk

appetite statement and set of quantitative metrics. This is supported

by a suite of management measures and operational limits.

Management and mitigation

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.

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.

A capital contingency framework is defined as part of the Group

Recovery Plan, setting out trigger levels at which mitigating actions

should be considered. Supporting this is a suite of internal and

external early warning indicators (EWIs), to ensure timely escalation

of emerging concerns. 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.

Lloyds Banking Group plc Annual Report and Accounts 2025

145

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.

A capital plan and periodic re-forecasting, ensures that business

strategy can be delivered within capital risk appetite. The capital

plan provides visibility of key risks and assumptions, along with

appropriate sensitivities, to inform executive decision making.

The internal stress of the capital plan reviews ratios against

appropriate thresholds in stress conditions to inform strategic

decision making and any potential mitigating actions.

Monitoring

The Group, relevant sub-groups and legal entities regularly monitor

their capital positions against risk appetite and regulatory

requirements.

EWIs are monitored regularly for early signs of capital risk, with the

Capital Contingency Level (CCL) reviewed and agreed each month,

taking account of the latest capital position and risk profile as part

of the capital contingency framework.

The Group’s capital performance (including capital returns) is

monitored against the capital plan, latest forecast and external

guidance. Appropriate capital monitoring activity is in place to

support early identification of deterioration in outlook or deviation

from capital plans.

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 closely, analysing the potential capital

impacts to ensure that, through organic capital generation and

management actions, it continues to maintain a strong capital

position that exceeds both minimum regulatory requirements and

its risk appetite, maintaining consistency with market expectations.

Reporting

Capital risk appetite metrics and a set of management measures are

reported to relevant Asset Liability Committees (ALCOs) and Board

as required.

Operational limits are reported to the relevant committee, forum or

individual as required.

Regular and periodic reporting to executive and Board-level

committees provide sufficient information on the current and

forward view of the capital position, and risk profile to enable

effective capital management decision making, including visibility of

key assumptions and judgements.

Regular reporting includes monthly capital performance updates to

Group Executive Committee (GEC), updates on capital

management and monitoring activity to Group Asset Liability

Committee (GALCO), as well as escalation of matters to GALCO,

GEC, Risk Committees and Board-level committees as required.

Periodic reporting includes capital plans, distribution decisions,

regulatory stress tests and ICAAP, requiring executive and/or Board

approval.

Regulatory reports required by the PRA and other regulatory bodies

are submitted within mandated timelines.

CET1 target capital ratio

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%, which includes a management buffer of around 1%. This

takes into account, amongst other considerations:

•The minimum Pillar 1 CET1 capital requirement of 4.5% of risk-

weighted assets

•The Group’s Pillar 2A CET1 capital requirement, set by

the PRA, which is the equivalent of around 1.4% of risk-

weighted assets

•The Group’s countercyclical capital buffer (CCyB) requirement,

which is around 1.8% of risk-weighted assets

•The capital conservation buffer (CCB) requirement of 2.5% of

risk-weighted assets

•The Ring-Fenced Bank (RFB) sub-group’s other systemically

important institution (O-SII) buffer of 2.0% of risk-weighted

assets, which equates to 1.6% of risk-weighted assets at Group

level

•The Group’s PRA Buffer, set after taking account of the results of

any regulatory 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

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 sustained strength in financial performance and

strong capital position at the year end, the Board has recommended

a final ordinary dividend of 2.43 pence per share. This is in addition

to the interim ordinary dividend of 1.22 pence per share that was

announced as part of the 2025 half-year results and paid in

September 2025. The total proposed ordinary dividend for the year

is therefore 3.65 pence per share. On 30 January 2026, the Group

announced the launch of an ordinary share buyback of up to

£1.75 billion, which is expected to be completed, subject to

continued authority from the PRA, by 31 December 2026.

The Board remains committed to future capital returns and will

maintain its progressive and sustainable ordinary dividend policy

alongside further returns of surplus capital 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. Going forward,

given the Board’s continued confidence in capital generation, the

Group will now review excess capital distributions in addition to the

ordinary dividend every half year.

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.

Lloyds Banking Group plc Annual Report and Accounts 2025

146

Risk management continued

Distributable reserves are determined as required by the

Companies Act 2006 by reference to a company’s individual

financial statements. At 31 December 2025 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 2025, 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 requires all subsidiary entities, subject to

agreement by their governing bodies, to remit surplus capital to

their parent companies at least annually.

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 2025, 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 21.0% of risk-weighted assets, or 6.5% 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 2025 was

13.2% (31 December 2024: 13.5% pro forma). Capital generation

during the year was 147 basis points, in line with updated guidance.

Excluding the provision charge for motor finance commission

arrangements in the third quarter, capital generation was 178 basis

points. Capital generation reflects strong banking build and the

£200 million of dividends received from the Insurance business

across July and December 2025, partially offset by risk-weighted

asset increases and the charge for motor finance. Regulatory

headwinds of 19 basis points in the year reflect an uplift for the CRD

IV model outcomes on Retail secured. The impact of the interim

ordinary dividend paid in September 2025 and the accrual for the

recommended final ordinary dividend equates to 97 basis points,

with a further 79 basis points to cover the accrual for the announced

ordinary share buyback programme of up to £1.75 billion.

The full impact of the ordinary share buyback programme will be

accrued for through the Group’s actual capital position during the

first quarter of 2026.

Excluding the full impact of the announced ordinary share buyback

programme, the Group's CET1 capital ratio at 31 December 2025

was 14.0% (31 December 2024: 14.2%).

Lloyds Banking Group plc Annual Report and Accounts 2025

147

Capital resources (audited) and MREL resources (unaudited)

An analysis of the Group’s capital position and MREL resources as at 31 December 2025 is presented in the following table. 31 December

2024 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 2025 £m	At 31 Dec 2024 £m
Common equity tier 1: instruments and reserves
Share capital and share premium account	24,686	24,782
Banking retained earnings1	20,671	19,582
Banking other reserves1	4,374	2,786
Adjustment to retained earnings for foreseeable dividends	(1,429)	(1,276)
	48,302	45,874
Common equity tier 1: regulatory adjustments
Cash flow hedge reserve	2,062	3,755
Goodwill and other intangible assets	(5,996)	(5,679)
Prudent valuation adjustment	(343)	(354)
Excess of expected losses over impairment provisions and value adjustments	(631)	(270)
Removal of defined benefit pension surplus	(1,968)	(2,215)
Significant investments1	(4,708)	(5,024)
Deferred tax assets	(3,812)	(4,025)
Other regulatory adjustments	24	(83)
Common equity tier 1 capital	32,930	31,979

Additional tier 1: instruments
Other equity instruments	5,923	6,170
Additional tier 1: regulatory adjustments
Significant investments1	(800)	(800)
Total tier 1 capital	38,053	37,349

Tier 2: instruments and provisions
Subordinated liabilities	7,489	6,366
Tier 2: regulatory adjustments
Significant investments1	(963)	(964)
Total capital resources (audited)	44,579	42,751

Ineligible AT1 and tier 2 instruments2	(79)	(94)
Amortised portion of eligible tier 2 instruments issued by Lloyds Banking Group plc	–	891
Other eligible liabilities issued by Lloyds Banking Group plc3	31,232	28,675
Total MREL resources (unaudited)	75,732	72,223

Risk-weighted assets (unaudited)	235,513	224,632

Common equity tier 1 capital ratio (unaudited)	14.0%	14.2%
Tier 1 capital ratio (unaudited)	16.2%	16.6%
Total capital ratio (unaudited)	18.9%	19.0%
MREL ratio (unaudited)	32.2%	32.2%

1In 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.

2Instruments not issued out of the holding company.

3Includes senior unsecured debt.

Total capital requirement

The Group’s total capital requirement (TCR) as at 31 December 2025, being the aggregate of the Group’s Pillar 1 and Pillar 2A capital

requirements, was £24,735 million (31 December 2024: £23,907 million).

Lloyds Banking Group plc Annual Report and Accounts 2025

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 2024	31,979
Banking business profits1	4,891
Movement in foreseeable dividend accrual2	(153)
Dividends paid on ordinary shares during the year	(2,000)
Adjustment to reflect full impact of share buyback	(1,710)
Dividends received from the Insurance business3	300
Movement in treasury shares and employee share schemes	251
Deferred tax asset	212
Goodwill and other intangible assets	(317)
Excess regulatory expected losses	(361)
Significant investments	316
Distributions on other equity instruments	(463)
Other movements	(15)
At 31 December 2025	32,930

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 2024 ordinary dividend, net of the accrual for the final 2025 ordinary dividend.

3Received in February 2025, July 2025 and December 2025.

The Group’s CET1 capital ratio was 14.0% at 31 December 2025 (31 December 2024: 14.2%) with the increase in CET1 capital resources more

than offset by the increase in risk-weighted assets from year end 2024.

CET1 capital resources increased by £951 million, with banking business profits for the year and the receipt of dividends paid up by the

Insurance business largely offset by:

•The interim ordinary dividend paid in September 2025, the accrual for the recommended final 2025 ordinary dividend of 2.43 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 2024 year end

results, which completed in December 2025

Movements in total capital and MREL

The Group’s total capital ratio reduced to 18.9% at 31 December 2025 (31 December 2024: 19.0%). The increase in CET1 capital and the

issuance of new AT1 and tier 2 capital instruments during the year was more than offset by AT1 and tier 2 instrument calls, other tier 2

movements and the increase in risk-weighted assets.

The MREL ratio remained at 32.2% at 31 December 2025 (31 December 2024: 32.2%) with the increase in MREL resources, reflecting the

increase in other eligible liabilities and total capital resources after adjustments, broadly offset by the increase in risk-weighted assets.

Lloyds Banking Group plc Annual Report and Accounts 2025

149

Risk-weighted assets


	At 31 Dec 2025 £m	At 31 Dec 2024 £m
Foundation Internal Ratings Based (IRB) Approach	47,782	43,366
Retail IRB Approach	90,354	90,567
Other IRB Approach1	23,292	21,878
IRB Approach	161,428	155,811
Standardised (STA) Approach1	27,166	22,532
Credit risk	188,594	178,343
Counterparty credit risk2	6,835	7,046
Securitisation	8,472	8,346
Market risk	3,844	3,714
Operational risk	27,768	27,183
Risk-weighted assets	235,513	224,632
of which: threshold risk-weighted assets3	10,672	10,738

1Threshold risk-weighted assets are included within Other IRB Approach and Standardised (STA) Approach.

2Includes credit valuation adjustment risk.

3Threshold 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 £10.9 billion to £235.5 billion at 31 December 2025 (31 December 2024: £224.6 billion). This reflects the

impact of strong customer lending growth, Retail secured CRD IV increases and other movements, partially offset by continued

optimisation activity.

Leverage ratio

The table below summarises the component parts of the Group’s leverage ratio.


	At 31 Dec 2025 £m	At 31 Dec 2024 £m
Total tier 1 capital	38,053	37,349
Exposure measure
Statutory balance sheet assets
Derivative financial instruments	19,727	24,065
Securities financing transactions	71,967	69,941
Loans and advances and other assets	852,378	812,691
Total statutory balance sheet assets	944,072	906,697
Qualifying central bank claims	(56,231)	(62,396)
Deconsolidation adjustments1	(210,617)	(190,988)
Derivatives adjustments	(283)	(6,254)
Securities financing transactions adjustments	2,489	3,351
Off-balance sheet items	44,410	40,186
Amounts already deducted from tier 1 capital	(12,622)	(12,395)
Other regulatory adjustments2	(2,879)	(4,127)
Total exposure measure	708,339	674,074
Average exposure measure3	713,268

UK leverage ratio	5.4%	5.5%
Average UK leverage ratio3	5.3%

Leverage exposure measure (including central bank claims)	764,570	736,470
Leverage ratio (including central bank claims)	5.0%	5.1%

Total MREL resources	75,732	72,223
MREL leverage ratio	10.7%	10.7%

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 2025 to 31 December 2025).

The average of 5.3% compares to 5.2% at the start and 5.4% at the end of the quarter.

Lloyds Banking Group plc Annual Report and Accounts 2025

150

Risk management continued

Analysis of leverage movements

The Group’s UK leverage ratio reduced to 5.4% at 31 December

2025 (31 December 2024: 5.5%), with the increase in total tier 1

capital more than offset by the increase in the leverage exposure

measure. The latter primarily reflects increases across loans and

advances and other assets, due in part to strong customer lending

growth, in addition to an increase in off-balance sheet items.

The average leverage ratio reflected the issuance of a new AT1

capital instrument during the last quarter of 2025.

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 risks. As part of this programme the Group participated in

the Bank of England 2025 Bank Capital Stress Test. The scenario

tests a severe negative global aggregate supply shock, leading to

deep recessions globally and in the UK. In the scenario, GDP falls 5%,

unemployment and inflation rise, and central banks increase

interest rates (peak of 8%). The results were published in December

2025 and the report concluded that the UK banking system remains

well capitalised. The Group passed the stress test, performing

strongly, and was not required to take any capital actions.

G-SIB indicators

Although the Group is not classified as a Global Systemically

Important Bank (G-SIB) at 31 December 2025, 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 2025 Basel G-SIBs

annual exercise will be disclosed at the end of April 2026 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 subsequently amended 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.


	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 25, contains a summary of climate risk performance and key mitigating actions.

Risk appetite

The Group manages climate risk in line with our strategy and targets

to support the UK’s transition to net zero by 2050, while operating

within the risk appetite for other applicable risks, such as credit risk.

The Group recognises that there are external dependencies outside

of our control for certain sectors which may have implications for

the Group’s wider strategy, however, the Group endeavours to keep

pace with the UK’s wider progress. The Group also ensures robust

management of potential impacts from physical risks or

greenwashing and has no tolerance for non-compliance with

regulatory requirements.

Identification and assessment

Climate risk is a principal risk within the Group’s RMF, recognising

the importance of the topic. This approach provides an overall view

of the climate-related risks which may impact the Group and aims

to ensure suitable consistency in the approach to managing these

risks. However, the cross-cutting impacts from climate risk manifest

through other risk types. As part of embedding climate risk within

the Group’s RMF, there is clear documentation of the cross-cutting

impacts to be considered as part of managing other principal risks,

with ongoing activity to ensure the Group’s principles are suitably

considered within this.

Identification of climate risk draws upon consideration of the

potential drivers of climate risk, either physical risk, resulting from

changes in climate or weather patterns, such as floods or rising sea

levels; or transition risk, resulting from changes to progress towards

a low carbon economy, such as government policy and

technological developments.

The key risks facing the Group are grouped into four components:

failure to deliver on net zero ambitions; the impact from physical

and transition risks; deficiencies in external disclosures; and

greenwashing. The potential impacts from these risks are then

mapped against the other principal risks that these manifest in or

are managed through, with climate-related factors considered as

part of assessment of these risks. The Group looks to update its

assessments of material risks at least annually, with materiality

considered in line with the thresholds used for other financial and

non-financial risks within the Group’s RMF. Further detail on the

Group’s key sustainability related risks, including climate-related

risks, as well as opportunities, is provided on pages 39 to 41.

Initial understanding of the potential risks facing the Group is

informed by key data points, particularly in relation to the impact

from physical and transition risks.

Transition risk varies significantly both across and within sectors.

Identification of potential risks is based on the relative emissions at

sector level, which have also informed the Group’s transition plan,

and supported by specific customer-level information. For lending

and investment to corporates, the Group’s ESG tool assesses

exposure to the impact of climate risk for specific clients as part of

the credit decisioning process. For Retail lending, risk factors such as

the EPC profile of mortgage properties and the power train for

motor finance are considered.

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151

Identification of physical risk requires information on the potential

hazards which could impact the relevant locations where the Group

has exposure. The Group is particularly focused on developing a

clear view of potential exposure to high risk of flooding across its

mortgage and insurance portfolios.

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. 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. The outputs of scenario analysis are used to

support consideration of potential impacts of climate risk within key

processes, including credit, capital and liquidity assessments.

Several examples of where scenario analysis is used to assess

climate risk are outlined below.

The impacts of climate-related change on credit quality in expected

credit losses (ECL) were assessed for retail and commercial loan

portfolios for both transition and physical risks, as covered in the

Assessing our Resilience section on page 48.

The Group has assessed the risks transmitted via traded assets

across three climate scenarios, to understand the high-level impact

of short-term market risk factor shocks stemming from physical and

transition risk narratives. Resulting stressed valuations fell within

existing stress test framework outcomes demonstrating the

resilience of existing risk management approaches.

To support assessment of potential greenwashing risks, the Group

has repeated a scenario exercise focussed on Commercial Banking

lending activities. This looked at the effects of policy tightening

leading to significant increases in expectations for managing

sustainability and identified actions to further enhance the

robustness of internal controls to mitigate the risks of greenwashing.

The Group’s sustainability report provides further details on

several aspects of the identification and assessment processes

highlighted, including: exposure to increased climate risk sectors on

page 78; and developments in climate scenario analysis, including

assessment of flood risk on page 124.

Management and mitigation

Failure to deliver on net zero ambitions

The Group has continued to develop action plans across its systems-

led approach for supporting the UK’s transition. The Group’s climate

transition plan sets out the steps it will take to reduce emissions for

its own operations and supply chain, as well as the emissions

associated with its lending and investments portfolios. Delivery

against the Group’s net zero ambitions is considered within the

Regulatory Compliance Risk Policy, in relation to voluntary

commitments and frameworks the Group has signed up to. This

includes requirements to support measurement of emissions and

suitable monitoring of progress informing discussions at Group

Sustainability Committee on direction of the Group’s strategy.

Impact from physical and transition risks

Physical and transition risks impact various other principal risks in

different ways, with several approaches in place to support

mitigation of these risks outlined below.

Credit

For commercial lending, the Group continues to embed climate and

broader ESG-related risks into credit processes through a targeted,

risk-based approach. ESG factors including climate, environmental,

nature-related, social, and governance risks are systematically

assessed using an enhanced ESG Credit Risk Indicator Framework.

This framework informs sector-level strategy supporting alignment

with the Group’s risk appetite.

ESG Credit Risk Assessments evaluate a client’s or transaction’s

exposure to ESG-related risks, such as operational resilience and the

credibility of transition plans. Clients identified with elevated ESG-

related risks are subject to enhanced due diligence as part of the

credit decision-making process.

Within Retail, the Group adopts a measured approach to managing

climate risk. In transport, the transition to low-carbon system is

closely managed, while EPC controls and physical risks such as

flooding are embedded within mortgage credit decisioning.

Further detail on management of climate-related and ESG credit

risks is provided on page 128 of the Group’s sustainability report .

Insurance underwriting

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 to

provide elements of advice and guidance on how to protect

themselves and their homes.

Market risk

For the Investments portfolio in Scottish Widows, the Group

manages potential impacts from physical and transition risks on the

value or availability of assets through a range of controls, including

due diligence on the selection and oversight of external fund

managers, with specific consideration of 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.

Operational

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.

The Group’s Code of Supplier Responsibility outlines the minimum

standards and advanced expectations of third-party suppliers.

Suppliers are required to proactively identify, manage and reduce

their environmental impact across their operations, products, and

services. The Code specifies that suppliers must comply with all

applicable environmental legislation and regulation, including

climate-related disclosures and transition plans where relevant. For

further information, refer to the Group’s Code of Supplier

Responsibility .

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152

Risk management continued

Deficiencies in external disclosures

The Group’s external disclosures are subject to a robust governance

process, including appropriate legal review. This provides an

assessment of the relevant reporting requirements, such as the

Climate-related Financial Disclosures requirements (CFD) and Task

Force on Climate-related Financial Disclosures (TCFD)

recommendations.

Greenwashing

The Group has established measures to manage conduct risk and

mitigate greenwashing, reinforcing transparency and accuracy in

communications and disclosures. These measures include reviewing

ESG-related content prior to publication, providing dedicated

guidance and training to support product governance and content

creation and external legal review of sustainability-related content

within the annual report and other disclosures. Together, these

actions complement climate-related risk reporting obligations

and demonstrate the Group’s commitment to responsible

communication. Looking ahead, the Group will continue to enhance

its approach, as well as investigating any challenges or suggestions of

greenwashing and embedding learnings into future improvements.

Monitoring

The Group ensures visibility and awareness of climate risks across its

risk profile, with management information across a range of themes

regularly assessed across the relevant business units. This is in

addition to quarterly monitoring of the Group’s progress against its

net zero ambitions through the Group Sustainability Committee, as

well as consideration within the Group’s operating plan process.

The Group also closely monitors climate-related regulatory

developments to ensure its approach meets current requirements

and progress towards meeting evolving expectations is tracked.

This includes understanding developments in sustainability

reporting and prudential supervision. Further detail on these

is provided on page 141 of the Group’s sustainability report .

Reporting

The Group’s climate risk profile is regularly reviewed, with an

overview provided as part of the Group’s risk reporting. Additional

management information on climate risk is included within

reporting to Group Risk Committee and Board Risk Committee,

providing visibility of potential exposure to physical and transition

risks across key areas of the Group.


	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 Legal; Regulatory The Risk overview, on page 25, contains a summary of compliance risk performance and key mitigating actions.

Risk appetite

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 and permissions.

Where inadvertent instances of non-compliance occur, these are

promptly addressed with corrective action to minimise exposure

and avoid recurrence.

Identification and assessment

Compliance risk is measured against defined risk appetite metrics,

which assess material regulatory breaches and material legal

incidents.

The Group Legal function provides legal advice and together with

the Risk function, delivers oversight, proactive support and

constructive challenge to the wider business in identifying and

managing regulatory and legal issues.

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.

Horizon scanning is used to identify both medium- and long-term

compliance risks that could affect the ability to achieve strategic

objectives. This includes but is not limited to new or updated

regulations, legislations, guidance and updates. Similarly, the

Group’s emerging and topical risks provide a forward-looking view

of themes, with the potential to alter execution of strategy or

operations in the medium to long term.

Management and mitigation

The Group’s strategy supports a continued focus on proactive

identification, management and mitigation of compliance risk,

embedded through colleague recruitment, training, performance

management and clear accountabilities.

Permissions, licenses, waivers, modifications and authorisations are

in place and maintained to ensure that appropriate approvals have

been sought to carry out regulated activities.

Compliance policies and standards are in place, setting out clear

requirements and controls that apply across the business, aligned to

the Group’s risk appetite.

The Senior Managers and Certification Regime (SMCR) is used to

ensure that accountabilities are clearly allocated to and from senior

managers, with expectation that all Senior Manager Function (SMF)

and Material Risk Takers (MRT) colleagues deliver compliant

outcomes in line with regulatory expectations.

Monitoring

Compliance with relevant laws and regulations is supported by risk

oversight and monitoring activity. The Group continues to evolve its

approach to traceability of regulatory obligations as part of the risk

management framework.

Regulatory and legal breaches are escalated and recorded, with

regulators notified of material breaches in line with expected

timescales. Breaches are used as a trigger to consider the

compliance risk profile.

Changes to the internal and external environment are regularly

monitored to ensure there is an accurate and up-to-date view of

the risk profile. This includes but is not limited to:

•Using key risk, control and performance indicators as relevant to

monitor the risk profile

•Monitoring relevant risk appetite metrics against agreed

thresholds, including the escalation of breaches

•Understanding the impact of change activity on the risk and

control environment

Reporting

Reporting ensures that senior management have visibility of the

Group’s compliance risk exposure to enable informed decision

making.

Data for risk profiles, events and issues is reported to the relevant

risk committee(s) by all appropriate business units, Group functions

and sub-groups.

Regulatory reporting is submitted to regulators as required.

Lloyds Banking Group plc Annual Report and Accounts 2025

153


	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 26, contains a summary of conduct risk performance and key mitigating actions.

Risk appetite

The Group is committed to maintaining a strong conduct and

customer focused culture that minimises customer harm and

maintains good customer outcomes. The Group manages conduct

risk to ensure that the actions and behaviours of the Group and its

colleagues do not:

•Negatively impact the delivery of good customer outcomes at all

stages of the customer journey

•Have an adverse effect on the markets in which it operates

•Conflict with the Group’s purpose and values or expose it to

negative reputational impact

The Group does not tolerate deliberately or negligently causing

detriment to customers.

Identification and assessment

Conduct risks are identified through day-to-day business

management, with product owners accountable for current and

emerging risks.

Horizon scanning for regulatory and market developments is used to

identify both medium- and long-term conduct risks that could

affect the ability to achieve strategic objectives.

Customer outcomes are monitored and assessed in line with the

Group’s regulatory requirements, including Consumer Duty, and to

mitigate the customer conduct risks the Group faces.

There are monitoring systems in place to detect instances of market

abuse alongside procedures to ensure that any detected instances

are dealt with swiftly and effectively. This includes procedures to

identify and report suspicious transactions where relevant. The

Group implements and monitors adherence with market abuse and

personal account dealing procedures that are aligned with the UK’s

market abuse legislation.

Management and mitigation

The Group’s strategy supports a continued focus on proactive

identification and mitigation of conduct risk, embedded through

colleague recruitment, training, performance management and clear

accountabilities.

Conduct risk appetite is established at Group and divisional level,

with metrics supporting the Group risk appetite to ensure ongoing

focus and escalation via appropriate governance procedures.

Conduct policies and procedures are in place to ensure appropriate

controls and processes to deliver good customer outcomes,

including fair value and meeting customer needs, and support

market integrity and competition requirements.

Complaints are managed through responding to, and learning from,

root causes of complaint volumes and Financial Ombudsman

Service (FOS) change rates.

The Group actively engages with regulatory bodies and other

stakeholders to develop understanding of concerns related to

customer treatment, colleague behaviours, effective competition

and market integrity, to ensure that the Group’s strategic conduct

focus continues to meet evolving stakeholder expectations.

Ongoing engagement with any third parties involved in serving the

Group’s customers ensures consistent delivery in line with the

Group’s own standards and expectations.

In respect of the motor finance commissions review, the Group will

continue to assess developments and potential impacts following

the announcement by the FCA of the final scheme rules, which are

expected by the end of March 2026. Further details are provided on

page 284.

Market conduct remains an area of focus with ongoing

enhancements to our surveillance and control environment. 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.

Monitoring

The Group maintains comprehensive monitoring activities to ensure

the effective management of conduct risk, including:

•Conduct Risk Appetite Metrics (CRAMs), with escalation to the

Board where required

•Oversight across the three lines of defence, ensuring

accountability and robust governance

•Data-driven insights into customer outcomes, including

monitoring aligned to Consumer Duty requirements

•Tracking risk appetite metrics and management measures

against agreed thresholds, with prompt escalation of any

breaches

•Use of key risk, control, and performance indicators to monitor

the overall risk profile

•Assessment of the impact of change and transformation

initiatives on the risk and control environment

•Monitoring strategic changes and new product offerings,

ensuring associated risks are understood and managed

•Identification, escalation, and recording of events in line with

operational risk protocols, including immediate regulatory

notification where required. Effective root cause analysis is

undertaken to address issues, strengthen the control

environment (including resilience), and inform capital

requirements for unexpected severe losses

The Group continues to refine its approach to data-led monitoring

as part of its data strategy.

Reporting

Conduct risk is governed through divisional risk committees, with

significant issues escalated to the Group Risk Committee in

accordance with the Group’s risk management framework. Risk

profiles, events, and issues at all organisational levels are reported to

the relevant committees to ensure full visibility and informed

decision making.

Lloyds Banking Group plc Annual Report and Accounts 2025

154

Risk management continued


	Credit risk

	Definition Credit risk is defined as the risk that parties with whom the Group has contracted fail to meet their financial obligations (on and off-balance sheet). Level two risks Retail credit (page 169); Commercial credit (page 174) The Risk overview, on page 26, contains a summary of credit risk performance and key mitigating actions.



	Financial risk indicators (underlying basisA) •Impairment charge: £795 million (2024: £433 million) •Expected credit loss: £3,353 million (2024: £3,651 million) •Loans and advances in Stage 2: 9.4% (2024: 10.4%)

Risk appetite

The Group is commercially required to take credit risk to support

the strategy of the business and maintain underwriting standards to

enable safe and sustainable growth. The Group maintains a well-

balanced credit portfolio through the economic cycle, considering

stressed losses and aligned with the Group’s target return on equity.

Risk appetite is expressed primarily through origination quality

metrics, designed to ensure quality of new business written is within

acceptable tolerances and stress loss outcomes.

Identification and assessment

The principal sources of credit risk within the Group where financial

loss may occur arise from loans and advances (for example

mortgages, term loans and overdrafts), contingent guarantees (for

example, credit instruments such as guarantees or letters of credit),

commitments, debt securities, derivatives to customers, financial

institutions and sovereigns, and leasing arrangements where the

Group is the lessor. These also expose the Group to refinance risk in

the event the Group does not wish to refinance an exposure at its

contractual maturity date and the obligor is unable to repay by

securing alternative finance.

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 245 provides further

information on the defined benefit pension schemes’ assets

and liabilities.

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 255 and note 36 to the

consolidated financial statements on page 291.

Credit risk is identified through relationship and portfolio

management, credit stewardship and/or through automated

decision processes for portfolios or individual customers. Risks are

assessed against the capacity of the customer to repay the debt and

expected returns to determine whether, and on what terms, to

grant credit. Individual credit assessments are controlled via

approved limits and parameters which are formally delegated to

approved individuals with appropriate level of skill and judgement.

Models provide a way of objectively assessing credit risk and a range

of approaches are used to ensure a clear understanding of the risk

profile including, but not limited to, Probability of Default (PD),

Exposure at Default (EAD) and Loss Given Default (LGD) models.

Horizon scanning is used to identify credit risks arising from changing

market and economic conditions and changes to regulatory

requirements. 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.

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.

Management and mitigation

The Group uses a range of approaches to mitigate credit risk.

Credit risk management

Prudent credit principles, risk policies, standards and appetite

statements

The independent Risk function sets out the credit principles, credit

risk policies, credit standards 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 authorities are delegated by relevant Boards to Chief Risk

Officers, with subsequent delegation to enable colleagues to

make credit decisions

•Credit risk management is undertaken at a customer, portfolio

and macro level. Portfolios are monitored and actions taken to

ensure they remain within risk appetite and approved limits

•Periodic reviews of specific business, sector and portfolio

strategies are undertaken to assess the risk return profile and

ensure risk is being managed, sustainable returns optimised, and

that quality is not sacrificed for growth

Lloyds Banking Group plc Annual Report and Accounts 2025

155

•The ratio of risk to reward influences pricing decisions with PD,

LGD and EAD acting as key drivers to assess the potential

profitability of deals and portfolios, and to facilitate risk-

adjusted pricing and strategy decisions

•Repayment from cash flows is the primary form of risk mitigation

the Group seeks to ensure that customers can meet their

obligations

•To mitigate the risk of loss due to insufficient cash flows,

mitigation is also managed where appropriate through taking

security, collateral, credit default swaps, credit risk insurance,

financial covenants, significant risk transactions, risk netting,

guarantees, credit linked debt instruments and operational/

contractual rights to offset mutual obligations

•The Group supports and works with customers to return them to

performing and forbearance may be provided for customers

when an unexpected change in circumstances impacts their

ability to meet financial obligations. If a return to performing

status is not possible, the Group will seek to recover monies

owed

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 standards, 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 standards 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 maximum country risk appetite for countries

based on economic, financial, political and social factors as well as

the approved business and strategic plans of the Group. Risk-based

appetite for all countries is set within the independent Risk

function.

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.

Frequent and robust credit risk assurance

An independent department within the Risk function provides

oversight that credit risk is effectively managed and to ensure

appropriate controls are in place and 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 credit standards 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.

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 standards on acceptable collateral valuations,

maximum loan-to-value (LTV) ratios, and other criteria for

application reviews. The customer or counterparty 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 and limited

residential assets in Commercial, 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, standards and/or business plans.

Lloyds Banking Group plc Annual Report and Accounts 2025

156

Risk management continued

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, or agree exceptions, for

example, countries with a rating equivalent to AA- or better may be

considered to have no adverse correlation between a counterparty

domiciled in that country and the country of risk (issuer of

securities), or for short-dated transactions with counterparties with

certain specific Sovereign issues.

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, £394 million of collateral was repossessed

(2024: £285 million), consisting primarily of residential property.

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 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 221.

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 credit standard permits owner

occupier applications with a maximum LTV of 95%. This can

increase to 100% 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% 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% LTV for a single property. Buy-to-let

applications must pass a minimum rental cover ratio of 125% 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 credit standard 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 credit standard 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 and the Group‘s

strategy.

Credit facilities provided are subject to an Annual Credit Review

(ACR) in line with Credit Standards, to confirm appetite for ongoing

provision of existing facilities.

Lloyds Banking Group plc Annual Report and Accounts 2025

157

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 standards, 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 a credit requirement 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 risk insurance as a means of mitigating or reducing credit risk

and/or risk concentration, taking into account the Group’s credit

risk appetite, the nature of assets and the prevailing market

conditions.

Monitoring

Credit risk exposure is monitored using various internal risk

management measures against limits approved by automated

decision tools, or individuals with set delegated authorities.

Portfolios are monitored to evaluate trends in credit risk measures

including PD, EAD, LGD, Expected Credit Loss (ECL), Expected Loss

(EL) and Risk-Weighted Assets (RWA), and ensure that the overall

composition of the lending portfolios remains consistent with Board

approved risk appetite.

Early Warning Indicators are used to detect early signs of a

deterioration in credit quality.

Reporting

Credit Risk Appetite Metrics and a set of management measures are

reported to relevant Boards, Risk Committees and Forums as

required.

Operational limits are reported to the relevant committees, forums

or individuals as required.

Robust insight, analytical, and reporting capabilities are in place to

produce timely and reliable risk data and management information

to meet internal and external reporting requirements.

The Group credit risk portfolio in 2025

Overview

Credit performance has remained strong and stable in 2025. The

Group maintains a measured approach to credit risk appetite and

risk management with strong credit origination criteria embedded,

including affordability tests and robust LTVs in the secured

portfolios.

In UK mortgages, reductions in new to arrears and flows to default

have been observed, whilst unsecured portfolios continue to exhibit

low and stable arrears trends. Credit performance also remains

strong in Commercial Banking. The Group continues to assess the

impacts of the economic and geopolitical 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 2025 was £795 million, up

from £433 million in 2024, and includes a net charge from updates

to the Group’s macroeconomic outlook of £74 million compared to

a large release of £394 million in 2024. Excluding macroeconomic

updates, the Group’s underlying impairment charge remains low

and similar to 2024. The total underlying probability-weighted ECL

allowance was lower in 2025 at £3,353 million (31 December 2024:

£3,651 million) following strong credit performance and additional

benefits from model refinements.

Stage 2 underlying loans and advances to customers are lower at

£45,413 million versus the prior year (31 December 2024:

£48,075 million) following strong credit performance particularly

within UK mortgages. Additionally, growth in lending from new

business inflows dilute the proportion of Stage 2 loans and advances

to 9.4% of total lending (31 December 2024: 10.4%) with Stage 2

coverage reducing slightly at 2.6% (31 December 2024: 2.8%).

Stage 3 underlying loans and advances to customers are lower at

£8,349 million versus the prior year (31 December 2024:

£9,021 million), and as a percentage of total lending at 1.7%

(31 December 2024: 2.0%). Migrations into Stage 3 from a small

number of cases within Commercial Banking were offset by

continued strong performance, especially following improving

default rates within UK mortgages. Growth in house prices combined

with strong credit performance across Retail also reduced the total

Group Stage 3 coverage to 15.9% (31 December 2024: 16.4%).

Lloyds Banking Group plc Annual Report and Accounts 2025

158

Risk management continued

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	2025 £m	2024 £m

UK mortgages	(59)	–	–		–	–	(1)	(60)	(194)
Credit cards	327	–	–		–	–	(6)	321	270
UK unsecured loans and overdrafts	269	–	–		–	–	(12)	257	272
UK Motor Finance	214	–	–		–	–	(2)	212	116
Other	3	–	–		–	–	1	4	(7)
Retail	754	–	–		–	–	(20)	734	457
Business and Commercial Banking	(53)	–	–		–	–	–	(53)	47
Corporate and Institutional Banking	166	–	–		–	–	(53)	113	(61)
Commercial Banking	113	–	–		–	–	(53)	60	(14)
Insurance, Pensions and Investments	–	–	–		–	2	–	2	(9)
Equity Investments and Central Items	–	–	–		(1)	–	–	(1)	(3)
Total impairment charge (credit)	867	–	–		(1)	2	(73)	795	431
Insurance, Pensions and Investments (underlying basis)A	–	–	–		–	2	–	2	(7)
Total impairment charge (credit) (underlying basis)A	867	–	–		(1)	2	(73)	795	433

Asset quality ratioA								0.17%	0.10%

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 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 2025

159

Total expected credit loss allowance – statutory and underlyingA basis


	At 31 Dec 2025 £m	At 31 Dec 2024 £m
Customer related balances
Drawn	3,011	3,191
Undrawn	197	270
	3,208	3,461
Loans and advances to banks	1	1
Debt securities	5	4
Other assets	14	15
Total expected credit loss allowance	3,228	3,481
Acquisition fair value adjustment	125	170
Total expected credit loss allowance (underlying basis)A	3,353	3,651
Of which: Customer related balances (underlying basis)A	3,333	3,631
Of which: Drawn (underlying basis)A	3,136	3,361

Movements in total expected credit loss allowance – statutory and underlyingA basis


	Opening ECL at 31 Dec 2024 £m	Write-offs and other1 £m	Income statement charge (credit) £m	Net ECL increase (decrease) £m	Closing ECL at 31 Dec 2025 £m


UK mortgages	852	(61)	(60)	(121)	731
Credit cards	674	(392)	321	(71)	603
UK unsecured loans and overdrafts	523	(282)	257	(25)	498
UK Motor Finance	360	(142)	212	70	430
Other	67	(8)	4	(4)	63
Retail	2,476	(885)	734	(151)	2,325
Business and Commercial Banking	485	(55)	(53)	(108)	377
Corporate and Institutional Banking	504	(106)	113	7	511
Commercial Banking	989	(161)	60	(101)	888
Insurance, Pensions and Investments	15	(3)	2	(1)	14
Equity Investments and Central Items	1	1	(1)	–	1
Total2	3,481	(1,048)	795	(253)	3,228


UK mortgages (underlying basis)A	1,022	(106)	(60)	(166)	856
Retail (underlying basis)A	2,646	(930)	734	(196)	2,450
Insurance, Pensions and Investments (underlying basis)A	15	(3)	2	(1)	14
Total (underlying basis)A	3,651	(1,093)	795	(298)	3,353

1Contains adjustments in respect of purchased or originated credit-impaired financial assets.

2Total ECL includes £20 million relating to other non-customer-related assets (31 December 2024: £20 million).

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% weighting; the severe downside is weighted at 10%.

The following table shows the Group’s ECL for the probability-weighted, upside, base case, downside and severe downside scenarios. The

stage allocation for an asset is based on the overall 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 £366 million compared to £445 million at

31 December 2024.

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Risk management continued


	Probability- weighted £m	Upside £m	Base case £m	Downside £m	Severe downside £m
UK mortgages	731	341	510	937	1,943
Credit cards	603	498	579	674	777
Other Retail	991	922	969	1,036	1,126
Commercial Banking	888	690	789	1,010	1,414
Other	15	15	15	15	15
At 31 December 2025	3,228	2,466	2,862	3,672	5,275
UK mortgages (underlying basis)A	856	466	635	1,062	2,068
At 31 December 2025 (underlying basis)A	3,353	2,591	2,987	3,797	5,400
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

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 underlyingA 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 2025
Underlying basisA	430,493	45,413	8,349	–	484,255	737	1,107	1,292	–	3,136
POCI assets	(644)	(2,734)	(1,823)	5,201	–	–	(30)	(254)	284	–
Acquisition fair value adjustment	–	–	–	(125)	(125)	–	–	–	(125)	(125)
Continuing involvement asset	344	–	–	–	344	–	–	–	–	–
	(300)	(2,734)	(1,823)	5,076	219	–	(30)	(254)	159	(125)
Statutory basis	430,193	42,679	6,526	5,076	484,474	737	1,077	1,038	159	3,011
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 involvement 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

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Loans and advances to customers and expected credit loss allowance – statutory and underlyingA basis


At 31 December 2025	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	284,307	30,414	4,016	5,076	323,813	9.4	1.2
Credit cards	15,258	2,326	274	–	17,858	13.0	1.5
UK unsecured loans and overdrafts	10,601	1,397	193	–	12,191	11.5	1.6
UK Motor Finance	14,222	2,786	141	–	17,149	16.2	0.8
Other	21,245	392	145	–	21,782	1.8	0.7
Retail	345,633	37,315	4,769	5,076	392,793	9.5	1.2
Business and Commercial Banking	24,362	3,329	979	–	28,670	11.6	3.4
Corporate and Institutional Banking	59,658	2,035	778	–	62,471	3.3	1.2
Commercial Banking	84,020	5,364	1,757	–	91,141	5.9	1.9
Equity Investments and Central Items1	540	–	–	–	540	–	–
Total gross lending	430,193	42,679	6,526	5,076	484,474	8.8	1.3
UK mortgages (underlying basis)A,2	284,951	33,148	5,839		323,938	10.2	1.8
UK Motor Finance (underlying basis)A,3	13,878	2,786	141		16,805	16.6	0.8
Retail (underlying basis)A	345,933	40,049	6,592		392,574	10.2	1.7
Total gross lending (underlying basis)A	430,493	45,413	8,349		484,255	9.4	1.7
Customer related ECL allowance (drawn and undrawn)
UK mortgages	55	208	309	159	731
Credit cards	205	277	121	–	603
UK unsecured loans and overdrafts	172	214	112	–	498
UK Motor Finance4	202	149	79	–	430
Other	17	11	35	–	63
Retail	651	859	656	159	2,325
Business and Commercial Banking	92	165	120	–	377
Corporate and Institutional Banking	107	136	263	–	506
Commercial Banking	199	301	383	–	883
Equity Investments and Central Items	–	–	–	–	–
Total	850	1,160	1,039	159	3,208
UK mortgages (underlying basis)A,2	55	238	563		856
UK Motor Finance (underlying basis)A,3	202	149	79		430
Retail (underlying basis)A	651	889	910		2,450
Total (underlying basis)A	850	1,190	1,293		3,333
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	–	0.7	7.7	3.1	0.2
Credit cards	1.3	11.9	44.2	–	3.4	45.7	3.4
UK unsecured loans and overdrafts	1.6	15.3	58.0	–	4.1	60.5	4.1
UK Motor Finance	1.4	5.3	56.0	–	2.5
Other	0.1	2.8	24.1	–	0.3
Retail	0.2	2.3	13.8	3.1	0.6	13.8	0.6
Business and Commercial Banking	0.4	5.0	12.3	–	1.3	15.7	1.3
Corporate and Institutional Banking	0.2	6.7	33.8	–	0.8	33.8	0.8
Commercial Banking	0.2	5.6	21.8	–	1.0	24.9	1.0
Equity Investments and Central Items	–	–	–	–	–
Total	0.2	2.7	15.9	3.1	0.7	16.5	0.7
UK mortgages (underlying basis)A,2	–	0.7	9.6		0.3
UK Motor Finance (underlying basis)A,3	1.5	5.3	56.0		2.6
Retail (underlying basis)A	0.2	2.2	13.8		0.6	13.8	0.6
Total (underlying basis)A	0.2	2.6	15.5		0.7	15.9	0.7

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 exclude a finance lease gross up.

4UK Motor Finance includes £243 million relating to provisions against residual values of vehicles subject to finance leases.

5Stage 3 and Total exclude loans in recoveries in credit cards of £9 million, UK unsecured loans and overdrafts of £8 million, Business and Commercial Banking of £217 million and

Corporate and Institutional Banking of £1 million.

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Risk management continued


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 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.

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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 2025
UK mortgages	26,298	155		0.6		2,032	13		0.6		1,130	18		1.6		954	22		2.3
Credit cards	2,048	202		9.9		144	36		25.0		94	23		24.5		40	16		40.0
UK unsecured loans and overdrafts	666	116		17.4		559	53		9.5		129	31		24.0		43	14		32.6
UK Motor Finance	1,325	69		5.2		1,293	40		3.1		136	29		21.3		32	11		34.4
Other	62	2		3.2		305	6		2.0		11	1		9.1		14	2		14.3
Retail	30,399	544		1.8		4,333	148		3.4		1,500	102		6.8		1,083	65		6.0
Business and Commercial Banking	2,767	133		4.8		258	15		5.8		213	12		5.6		91	5		5.5
Corporate and Institutional Banking	1,888	135		7.2		21	–		–		7	1		14.3		119	–		0.0
Commercial Banking	4,655	268		5.8		279	15		5.4		220	13		5.9		210	5		2.4
Total	35,054	812		2.3		4,612	163		3.5		1,720	115		6.7		1,293	70		5.4
UK mortgages (underlying basis)A	28,460	172		0.6		2,163	19		0.9		1,373	21		1.5		1,152	26		2.3
Retail (underlying basis)A	32,561	561		1.7		4,464	154		3.4		1,743	105		6.0		1,281	69		5.4
Total (underlying basis)A	37,216	829		2.2		4,743	169		3.6		1,963	118		6.0		1,491	74		5.0
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

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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Risk management continued

Movements in balances for the year ended 31 December 2025 (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 2025	405,360	44,765	6,716	6,207	463,048	736	1,160	1,108	187	3,191
Exchange and other adjustments1	1,034	(17)	3	8	1,028	(13)	(1)	18	45	49
Transfers to Stage 1	7,165	(7,021)	(144)		–	240	(221)	(19)		–
Transfers to Stage 2	(10,427)	11,211	(784)		–	(53)	114	(61)		–
Transfers to Stage 3	(1,557)	(1,871)	3,428		–	(35)	(157)	192		–
Net change in ECL due to transfers						(153)	257	350		454
Impact of transfers between stages2	(4,819)	2,319	2,500		–	(1)	(7)	462		454
Other changes in credit quality2						27	(46)	677	11	669
Additions and repayments	28,618	(4,388)	(1,606)	(1,130)	21,494	(12)	(29)	(140)	(75)	(256)
Charge (credit) to the income statement						14	(82)	999	(64)	867
Disposals and derecognition	–	–	–	–	–	–	–	–	–	–
Advances written off			(1,296)	(9)	(1,305)			(1,296)	(9)	(1,305)
Recoveries of amounts previously written off			209	–	209			209	–	209
At 31 December 2025	430,193	42,679	6,526	5,076	484,474	737	1,077	1,038	159	3,011
Allowance for expected credit losses	(737)	(1,077)	(1,038)	(159)	(3,011)
Net carrying amount	429,456	41,602	5,488	4,917	481,463
Drawn ECL coverage3 (%)	0.2	2.5	15.9	3.1	0.6

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 £136 million, split by stage as £41 million credit for Stage 1, £47 million credit for Stage 2, £52 million credit for Stage 3 and

£4 million charge for POCI.

3Allowance 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 £243 million (2024: £178 million) in respect of residual value impairment and

voluntary terminations within the Group’s UK Motor Finance business.

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165

Movements in balances for the year ended 31 December 2024 (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 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.

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 2025 the most significant concentrations of exposure were in mortgages.


	2025 £m	2024 £m
Agriculture, forestry and fishing	6,071	6,424
Construction1	3,175	3,389
Energy and water supply	5,571	4,912
Financial, business and other services	40,221	38,034
Manufacturing	5,326	4,790
Mining and Quarrying	314	205
Personal:
Mortgages1	346,033	330,840
Lease financing2	13,972	13,249
Other	31,145	28,016
Postal and telecommunications	3,177	3,182
Property companies	19,139	19,271
Transport, distribution and hotels	10,330	10,736
Total loans and advances to customers before allowance for impairment losses	484,474	463,048
Allowance for impairment losses (note 21 to the consolidated financial statements, page 272)	(3,011)	(3,191)
Total loans and advances to customers	481,463	459,857

1Includes both UK and overseas mortgage balances.

2Lease financing, previously reported in aggregate, is presented separately according to whether the lending is personal or non-personal. Non-personal lease financing is allocated to the

industries or sectors relevant to the exposure. Comparatives are represented on a consistent basis.

Lloyds Banking Group plc Annual Report and Accounts 2025

166

Risk management continued

Forbearance

The basis of disclosure for forbearance is the CRR Article 47b definition. On a statutory basis, forbearance for the major retail portfolios

increased by £122 million to £3,672 million in 2025 (2024: £3,550 million).

Commercial Banking forborne loans and advances increased by £241 million to £2,460 million in 2025 (2024: £2,219 million), of which

£1,852 million were in Stage 3 (2024: £1,784 million).

For information on customer treatments, see page 156.

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 £235 million (2024: £297 million) (with outstanding amounts due of £992 million (2024: £971 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 (2024: none). No material gain or loss was recognised by

the Group.

As at 31 December 2025 there were no (2024: none) 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 2025

167


	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 2025
Retail – UK mortgages
RMS 1–3	276,020	19,717	–	–	295,737	43	99	–	–	142
RMS 4–6	8,034	6,274	–	–	14,308	6	34	–	–	40
RMS 7–9	154	1,193	–	–	1,347	1	12	–	–	13
RMS 10	23	338	–	–	361	–	5	–	–	5
RMS 11–13	76	2,892	–	–	2,968	1	57	–	–	58
RMS 14	–	–	4,016	5,076	9,092	–	–	309	159	468
	284,307	30,414	4,016	5,076	323,813	51	207	309	159	726
Retail – credit cards
RMS 1–3	5,708	6	–	–	5,714	11	–	–	–	11
RMS 4–6	8,221	1,108	–	–	9,329	85	44	–	–	129
RMS 7–9	1,321	793	–	–	2,114	48	87	–	–	135
RMS 10	8	140	–	–	148	1	26	–	–	27
RMS 11–13	–	279	–	–	279	–	91	–	–	91
RMS 14	–	–	274	–	274	–	–	121	–	121
	15,258	2,326	274	–	17,858	145	248	121	–	514
Retail – UK unsecured loans and overdrafts
RMS 1–3	1,376	2	–	–	1,378	4	–	–	–	4
RMS 4–6	8,130	624	–	–	8,754	106	34	–	–	140
RMS 7–9	1,062	324	–	–	1,386	37	33	–	–	70
RMS 10	26	110	–	–	136	2	19	–	–	21
RMS 11–13	7	337	–	–	344	1	99	–	–	100
RMS 14	–	–	193	–	193	–	–	112	–	112
	10,601	1,397	193	–	12,191	150	185	112	–	447
Retail – UK Motor Finance
RMS 1–3	8,531	910	–	–	9,441	135	22	–	–	157
RMS 4–6	5,083	1,275	–	–	6,358	63	52	–	–	115
RMS 7–9	606	359	–	–	965	3	25	–	–	28
RMS 10	–	77	–	–	77	–	10	–	–	10
RMS 11–13	2	165	–	–	167	–	39	–	–	39
RMS 14	–	–	141	–	141	–	–	79	–	79
	14,222	2,786	141	–	17,149	201	148	79	–	428
Retail – other
RMS 1–3	18,554	3	–	–	18,557	7	–	–	–	7
RMS 4–6	2,616	213	–	–	2,829	10	7	–	–	17
RMS 7–9	75	86	–	–	161	–	1	–	–	1
RMS 10	–	57	–	–	57	–	1	–	–	1
RMS 11–13	–	33	–	–	33	–	1	–	–	1
RMS 14	–	–	145	–	145	–	–	35	–	35
	21,245	392	145	–	21,782	17	10	35	–	62
Total Retail	345,633	37,315	4,769	5,076	392,793	564	798	656	159	2,177
Commercial Banking
CMS 1–5	31,945	123	–	–	32,068	6	–	–	–	6
CMS 6–10	17,918	40	–	–	17,958	18	–	–	–	18
CMS 11–14	31,833	2,007	–	–	33,840	110	41	–	–	151
CMS 15–18	2,324	2,486	–	–	4,810	39	144	–	–	183
CMS 19	–	708	–	–	708	–	94	–	–	94
CMS 20–23	–	–	1,757	–	1,757	–	–	382	–	382
	84,020	5,364	1,757	–	91,141	173	279	382	–	834
Other1	540	–	–	–	540	–	–	–	–	–
Total loans and advances to customers	430,193	42,679	6,526	5,076	484,474	737	1,077	1,038	159	3,011

1Drawn exposures include centralised fair value hedge accounting adjustments.

Lloyds Banking Group plc Annual Report and Accounts 2025

168

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 2025

169

Retail credit performance

Portfolio overview

•The Retail portfolio has continued to deliver strong credit

performance in 2025 and remains well positioned despite

macroeconomic headwinds. Consumers continue to show

strength in the context of inflationary pressures

•Robust risk management remains firmly embedded, underpinned

by strong affordability and indebtedness controls for lending and

a prudent risk appetite approach. Lending strategies are assessed

regularly and are calibrated to reflect the latest macroeconomic

conditions

•In UK mortgages, new to arrears and flow to default rates have

improved during 2025, while in the unsecured portfolios and UK

Motor Finance, new to arrears and flows to default have

remained low and stable

•The Retail impairment charge in 2025 was £734 million, higher

than the £457 million charge for 2024 which benefitted from a

large release of £332 million from improvements in the Group’s

macroeconomic outlook. Excluding macroeconomic updates, the

impairment charge is slightly lower than 2024 due to continued

stability in flows to default with additional write-backs from

model refinements

•Retail customer related ECL allowance as a percentage of drawn

loans and advances (coverage) has reduced to 0.6%

(31 December 2024: 0.7%)

•Strong credit performance and higher portfolio balances have

reduced Stage 2 loans and advances to 10.2% of the Retail

portfolio (31 December 2024: 11.5%). Stage 2 ECL coverage

reduced to 2.2% (31 December 2024: 2.4%)

•Stable and low flows to default and higher portfolio balances

have also resulted in a reduction in Retail Stage 3 loans and

advances to 1.7% of total loans and advances (31 December

2024: 1.9%)

•Stage 3 ECL coverage reduced to 13.8% (31 December 2024:

14.1%), largely due to continued house price increases

UK mortgages

•The UK mortgages portfolio increased to £323.9 billion

(31 December 2024: £313.3 billion), driven by sustained customer

demand

•New to arrears in the UK mortgages portfolio improved during

2025. The portfolio remains well positioned with a strong loan to

value (LTV) profile. Portfolio quality improved during the year,

supported by robust affordability and credit controls with higher

risk legacy vintage balances continuing to reduce

•The impairment credit of £60 million for 2025 is lower than the

credit of £194 million in 2024. Both years included favourable

updates to the macroeconomic outlook, predominantly via

continued growth in house prices, however this benefit was more

material in 2024. Excluding macroeconomic updates, the

impairment charge is favourable year-on-year due to improving

flow to default rates

•Stage 2 loans and advances have reduced to 10.2% of total UK

mortgages balances (31 December 2024: 11.6%) following the

removal of non-modelled adjustments previously applied to UK

Bank Rate and CPI inflation in the severe downside scenario,

combined with strong credit performance and higher portfolio

balances

•Continued strong credit performance and higher portfolio

balances also resulted in a reduction in Stage 3 loans and

advances to 1.8% (31 December 2024: 2.1%), with continued

growth in house prices resulting in a reduction in Stage 3 ECL

coverage to 9.6% (31 December 2024: 10.1%)

Credit cards

•Credit card balances increased to £17.9 billion

(2024: £16.2 billion), driven by higher demand for new cards

and increased customer spending

•The credit card portfolio is a prime book. New to arrears

continue to be low and repayment rates remain strong

•The impairment charge of £321 million for 2025 is higher than the

charge of £270 million in 2024, due to updates to the Group’s

macroeconomic outlook, notably upwards revisions to the

unemployment forecast, compared to favourable updates in

2024. Portfolio performance remained stable with additional

write-backs from model refinements related to loss rates, and an

unsecured debt sale completed in the fourth quarter. Total ECL

coverage is lower at 3.4% (31 December 2024: 4.2%)

•Stable credit performance and higher portfolio balances resulted

in a reduction in Stage 2 loans and advances to 13.0% of total

credit card balances (31 December 2024: 15.0%), with lower

Stage 2 ECL coverage at 11.9% (31 December 2024: 13.6%)

•Similarly, Stage 3 loans and advances reduced slightly to 1.5%

(31 December 2024: 1.6%) with model refinements also

contributing to reduce Stage 3 ECL coverage to 45.7%

(31 December 2024: 50.2%)

UK unsecured loans and overdrafts

•UK unsecured loans and overdraft balances increased to

£12.2 billion (2024: £10.7 billion) driven by organic balance

growth and lower repayments

•The impairment charge of £257 million for 2025 is lower than the

charge of £272 million for 2024, largely due to loss rate model

refinements. ECL and coverage are both lower at a total level

and across all stages

•Strong credit performance and higher portfolio balances within

unsecured loans resulted in a slight reduction in Stage 2 loans

and advances to 11.5% of total balances (31 December 2024:

11.6%), with Stage 2 ECL coverage lower at 15.3% (31 December

2024: 18.8%)

•Similarly, Stage 3 loans and advances remained stable at 1.6%

(31 December 2024: 1.6%), with model refinements also

contributing to reduce Stage 3 ECL coverage to 60.5%

(31 December 2024: 67.4%)

UK Motor Finance

•UK Motor Finance balances (which exclude operating leases)

increased to £16.8 billion (2024: £15.6 billion), driven by retail

demand, alongside increased stocking

•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. Volatility in used vehicle values have primarily

driven an ECL increase to £243 million as at 31 December 2025

(31 December 2024: £178 million)

•The impairment charge of £212 million for 2025 is higher than the

charge of £116 million for 2024, reflecting increased RV and VT

charges year-on-year. Increased RV and VT provisions drove

increases to Stage 2 ECL coverage to 5.3% (31 December 2024:

4.8%), with Stage 2 loans and advances increasing slightly to

16.6% (31 December 2024: 15.4%)

•Stage 3 loans and advances remained stable at 0.8% (31 December

2024: 0.8%), with Stage 3 ECL coverage reducing slightly to 56.0%

(31 December 2024: 58.1%)

Other

•Other Retail loans and advances increased to £21.8 billion

(31 December 2024: £18.0 billion), largely driven by growth in

the European business

•Stage 2 loans and advances reduced to 1.8% (31 December 2024:

2.9%), due to higher portfolio balances, with coverage across

stages broadly stable. Stage 3 loans and advances remained

stable at 0.7% of total loans and advances (31 December 2024:

0.8%)

•There was a £4 million impairment charge in 2025, compared to

a £7 million credit in 2024

Lloyds Banking Group plc Annual Report and Accounts 2025

170

Risk management continued

Retail UK mortgage balance movements (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
Retail – UK mortgages
At 1 January 2025	269,760	32,995	4,166	6,207	313,128	53	273	335	187	848
Exchange and other adjustments1	–	–	–	7	7	(1)	(1)	36	45	79
Transfers to Stage 1	3,892	(3,850)	(42)		–	29	(27)	(2)		–
Transfers to Stage 2	(5,474)	6,053	(579)		–	(2)	25	(23)		–
Transfers to Stage 3	(399)	(999)	1,398		–	–	(19)	19		–
Net change in ECL due to transfers						(29)	27	60		58
Impact of transfers between stages2	(1,981)	1,204	777		–	(2)	6	54		58
Other changes in credit quality2						(6)	(33)	89	11	61
Additions and repayments	16,528	(3,785)	(794)	(1,129)	10,820	7	(38)	(72)	(75)	(178)
Charge (credit) to the income statement						(1)	(65)	71	(64)	(59)
Advances written off			(139)	(9)	(148)			(139)	(9)	(148)
Recoveries of amounts previously written off			6	–	6			6	–	6
At 31 December 2025	284,307	30,414	4,016	5,076	323,813	51	207	309	159	726
Allowance for expected credit losses	(51)	(207)	(309)	(159)	(726)
Net carrying amount	284,256	30,207	3,707	4,917	323,087
Drawn ECL coverage3 (%)	–	0.7	7.7	3.1	0.2

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 £12 million, split by stage as £22 million credit for Stage 2, £6 million charge for Stage 3 and £4million charge for POCI.

3Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.


	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.

Lloyds Banking Group plc Annual Report and Accounts 2025

171

UK mortgages product analysis (statutory basis)1


	At 31 December 2025				At 31 December 20241
	Mainstream	Buy-to-let	Specialist	Total	Mainstream	Buy-to-let	Specialist	Total
UK mortgages loans and advances to customers (£m)	273,106	47,858	2,849	323,813	261,630	47,984	3,514	313,128
UK mortgages greater than 3 months in arrears2
Number of cases	17,070	3,351	2,208	22,629	20,112	4,511	2,818	27,441
Total mortgages accounts (%)	1.0	1.0	8.6	1.1	1.2	1.2	9.2	1.3
Value of loans3 (£m)	2,518	486	397	3,401	2,850	623	504	3,977
Total mortgage balances (%)	0.9	1.0	13.9	1.1	1.1	1.3	14.3	1.3
Loan to value
Less than 60%	52.0	64.1	90.0	54.2	55.6	68.5	89.4	57.9
60% to 70%	15.4	21.4	6.4	16.2	16.7	21.1	6.9	17.2
70% to 80%	15.5	14.4	2.0	15.2	14.1	10.3	2.0	13.4
80% to 90%	14.4	0.1	0.9	12.2	11.9	0.1	0.9	10.0
90% to 100%	2.7	–	0.4	2.2	1.7	–	0.5	1.5
Greater than 100%	–	–	0.3	–	–	–	0.3	–
Total (%)	100.0	100.0	100.0	100.0	100.0	100.0	100.0	100.0
Average loan to value4
Stock of residential mortgages (%)	44.7	48.2	32.0	45.0	43.2	47.3	32.9	43.6
New residential lending in the period (%)	64.7	58.8	n/a	64.1	64.1	56.4	n/a	63.2

1This table is now presented on a statutory basis. The comparative period has been represented on the same basis.

2Excluding repossessions.

3Value of loans represents gross book value excluding the impact of HBOS acquisition adjustments of mortgages more than three months in arrears. These accounts are a subset of total

Stage 3 given the exclusion of accounts in possession and those meeting other Stage 3 criteria.

4 Average loan to value is calculated as total loans and advances as a percentage of the total indexed collateral of these loans and advances.

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

2025, owner occupier interest-only balances as a proportion of total owner occupier balances had reduced to 11.4% (31 December 2024:

12.5%). The average loan to value remained low at 37.5% (31 December 2024: 36.5%).

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


	At 31 Dec 2025	At 31 Dec 2024
Interest-only balances (£m)	31,319	33,023
Stage 1 (%)	46.8	39.4
Stage 2 (%)1	39.0	44.5
Stage 3 (%)	5.2	5.5
Purchased or originated credit-impaired (%)	9.0	10.6
Average loan to value (%)	37.5	36.5
Maturity profile (£m)
Due	1,198	1,541
Within 1 year	970	1,012
2 to 5 years	7,740	8,209
6 to 10 years	9,085	10,772
Greater than 10 years	12,326	11,489
Past term interest-only balances (£m)2	1,196	1,490
Stage 1 (%)	0.5	0.3
Stage 2 (%)	8.4	8.6
Stage 3 (%)	52.2	51.8
Purchased or originated credit-impaired (%)	38.9	39.3
Average loan to value (%)	36.9	35.2
Negative equity (%)	2.2	2.5

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 2025

172

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 2025					At 31 December 2024
	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%	142,960	25,099	2,811	4,343	175,213	145,055	27,851	3,014	5,066	180,986
60% to 70%	48,852	2,647	620	451	52,570	49,746	2,954	643	638	53,981
70% to 80%	47,327	1,324	321	158	49,130	40,292	1,168	307	232	41,999
80% to 90%	38,070	1,181	165	62	39,478	30,215	898	123	109	31,345
90% to 100%	7,053	156	46	22	7,277	4,420	109	36	63	4,628
Greater than 100%	45	7	53	40	145	32	15	43	99	189
Total	284,307	30,414	4,016	5,076	323,813	269,760	32,995	4,166	6,207	313,128
Allowance for expected credit losses
Less than 60%	11	128	105	62	306	14	165	130	66	375
60% to 70%	10	36	69	34	149	11	51	77	36	175
70% to 80%	15	20	56	23	114	13	30	59	27	129
80% to 90%	16	19	37	15	87	13	23	32	17	85
90% to 100%	3	4	14	6	27	2	3	13	10	28
Greater than 100%	–	1	28	19	48	–	1	24	31	56
Total	55	208	309	159	731	53	273	335	187	848

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 2025	2,087	47,170	77,625	102,066	32,690	6,124	1,361	54,690	323,813
At 31 December 2024	1,113	40,469	68,128	97,392	33,021	6,293	1,370	65,342	313,128

The above data is sourced using the latest available government EPC information. The Group has no EPC data available for 16.9%

(2024: 20.9%) 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.

Lloyds Banking Group plc Annual Report and Accounts 2025

173

Other Retail lending

At 31 December 2025, Stage 1 and Stage 2 other retail gross lending amounted to £68,227 million (2024: £60,720 million). Stage 3 other

retail lending amounted to £406 million, net of an impairment allowance of £347 million (2024: £351 million, net of an impairment

allowance of £360 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.

Retail credit card balance movements (audited)


	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 2025	13,534	2,441	265	16,240	149	297	133	579
Exchange and other adjustments	–	–	–	–	–	–	(19)	(19)
Transfers to Stage 1	956	(953)	(3)	–	92	(91)	(1)	–
Transfers to Stage 2	(657)	694	(37)	–	(10)	27	(17)	–
Transfers to Stage 3	(206)	(227)	433	–	(5)	(55)	60	–
Net change in ECL due to transfers					(52)	77	78	103
Impact of transfers between stages1	93	(486)	393	–	25	(42)	120	103
Other changes in credit quality1					(24)	(14)	272	234
Additions and repayments	1,631	371	(11)	1,991	(5)	7	(12)	(10)
Charge to the income statement					(4)	(49)	380	327
Advances written off			(496)	(496)			(496)	(496)
Recoveries of amounts previously written off			123	123			123	123
At 31 December 2025	15,258	2,326	274	17,858	145	248	121	514
Allowance for expected credit losses	(145)	(248)	(121)	(514)
Net carrying amount	15,113	2,078	153	17,344
Drawn ECL coverage2 (%)	1.0	10.7	44.2	2.9

1Includes a credit for methodology and model changes of £53 million, split by stage as £18 million credit for Stage 1, £18 million credit for Stage 2 and £17 million credit for Stage 3.

2Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.


	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 changes 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.

Lloyds Banking Group plc Annual Report and Accounts 2025

174

Risk management continued

Commercial Banking credit performance

Portfolio overview

•Portfolio credit performance remained strong. The Group

continues to monitor external developments and their impact

upon the macroeconomic climate generally and also on specific

sectors within the portfolio

•Credit strategies and policy remain robust, and within risk

appetite tolerances. The Group remains focused on credit

underwriting and monitoring standards, and proactively

managing higher risk and cyclical sector exposures

•The Group continues to review segments of portfolios as

appropriate, ensuring 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, covering a range of potential credit downside

scenarios, are maintained and refreshed as conditions evolve.

Early warning indicators and risk appetite metrics are tracked

and provide timely insight to enable proactive action where

appropriate

•The Group continues to provide early support to customers in

difficulty through focused risk management via its Watchlist and

Business Support framework. The approach balances prudent

risk appetite with ensuring support for financially viable clients,

reinforcing the Group’s commitment to resilience and

responsible client management

•Commercial Banking UK Real Estate committed drawn lending

grew by £0.7 billion to £10.0 billion in 2025 (net of £2.6 billion

exposures subject to protection through significant risk transfer

(SRT) securitisations). Performance has remained strong and

stable within this sector, with a decrease in cases in its Watchlist

category and limited flow into Business Support

•The net impairment charge in 2025 was £60 million, versus a

credit of £14 million in 2024 and includes a £74 million charge from

the updated macroeconomic outlook, including a judgemental

adjustment in respect of global tariff and geo-political disruption

risks. Excluding macroeconomic updates, a small number of single

name charges were observed in the first half of the year, largely

isolated to a single sector and not representative of trends across

the portfolio. This has been offset by releases from Stage 1 and

Stage 2 provisions capturing strong credit performance and

reducing interest rates throughout the year

•ECL allowances decreased in the year to £883 million in 2025

(31 December 2024: £985 million), also as a result of favourable

model updates partially offset by single name cases

•Stage 2 loans and advances increased to £5,364 million

(31 December 2024: £5,168 million). Stage 2 as a proportion of

total loans and advances to customers is stable at 5.9%

(31 December 2024: 5.8%) with stable credit performance and

model updates resulting in lower Stage 2 ECL coverage at 5.6%

(31 December 2024: 6.1%)

•Stage 3 loans and advances decreased to £1,757 million

(31 December 2024: £1,839 million) and as a proportion of total

loans and advances to customers to 1.9% (31 December 2024:

2.1%), given movements in the first half of 2025. Stage 3 ECL

coverage is lower at 24.9% (31 December 2024: 26.9%)

Business and Commercial Banking

•Business and Commercial Banking lending reduced to

£28.7 billion (31 December 2024: £30.2 billion), driven by

government-backed lending repayments. Excluding these, the

lending portfolio grew in the year

•A net impairment credit of £53 million in 2025 compares to a

charge of £47 million in 2024, driven by improved expectations

for accounts in recoveries alongside continued strong credit

performance

•Stage 2 loans and advances increased to £3,329 million

(31 December 2024: £3,172 million). Stage 2 as a proportion of

total loans and advances to customers increased to 11.6%

(31 December 2024: 10.5%), while Stage 2 ECL coverage

decreased to 5.0% (31 December 2024: 5.9%) following model

updates

•Stage 3 loans and advances decreased to £979 million

(31 December 2024: £1,197 million), primarily driven by

repayments and reduced to 3.4% (31 December 2024: 4.0%) as a

proportion of total loans and advances. Stage 3 ECL coverage

reduced to 15.7% (31 December 2024: 18.4%)

Corporate and Institutional Banking

•Corporate and Institutional lending grew to £62.5 billion

(31 December 2024: £58.3 billion), reflecting growth in

Institutional balances including securitised products, alongside

corporate infrastructure growth

•A net impairment charge of £113 million in 2025 compares to an

impairment credit of £61 million in 2024, driven by a small

number of single name charges, primarily in the first half of the

year

•Stage 2 loans and advances increased to £2,035 million

(31 December 2024: £1,996 million). Stage 2 as a proportion of

total loans and advances to customers is stable at 3.3%

(31 December 2024: 3.4%), with Stage 2 ECL coverage at 6.7%

(31 December 2024: 6.5%)

•Stage 3 loans and advances increased to £778 million

(31 December 2024: £642 million) and as a proportion of total

loans and advances to customers to 1.2% (31 December 2024:

1.1%), driven by a small number of single name transfers to Stage

3, mainly in the first half of the year. Stage 3 ECL coverage

decreased to 33.8% (31 December 2024: 38.8%) following the

write-off of a large longstanding case that was fully provided for

Lloyds Banking Group plc Annual Report and Accounts 2025

175

Commercial Banking balance movements (audited)


	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 2025	81,477	5,168	1,839	88,484	205	264	413	882
Exchange and other adjustments	(543)	(38)	–	(581)	(13)	(2)	6	(9)
Transfers to Stage 1	1,439	(1,353)	(86)	–	62	(53)	(9)	–
Transfers to Stage 2	(2,502)	2,633	(131)	–	(12)	12	–	–
Transfers to Stage 3	(485)	(277)	762	–	(5)	(18)	23	–
Net change in ECL due to transfers					(45)	80	108	143
Impact of transfers between stages1	(1,548)	1,003	545	–	–	21	122	143
Other changes in credit quality1					(15)	(9)	45	21
Additions and repayments	4,634	(769)	(475)	3,390	(4)	5	(52)	(51)
Charge to the income statement					(19)	17	115	113
Advances written off			(153)	(153)			(153)	(153)
Recoveries of amounts previously written off			1	1			1	1
At 31 December 2025	84,020	5,364	1,757	91,141	173	279	382	834
Allowance for expected credit losses	(173)	(279)	(382)	(834)
Net carrying amount	83,847	5,085	1,375	90,307
Drawn ECL coverage2 (%)	0.2	5.2	21.7	0.9

1Includes a credit for methodology and model changes of £19 million, split by stage as £18 million credit for Stage 1, £23 million charge for Stage 2 and £24 million credit for Stage 3.

2Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.


	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 changes 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, £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.

Lloyds Banking Group plc Annual Report and Accounts 2025

176

Risk management continued

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 either repair the business or recover the debt.

At 31 December 2025, Stage 3 secured commercial lending amounted to £448 million, net of an impairment allowance of £121 million

(2024: £450 million, net of an impairment allowance of £150 million). The fair value of the collateral held in respect of impaired secured

commercial lending was £468 million (2024: £575 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.

Commercial Banking UK Real Estate

•Commercial Banking UK Real Estate committed drawn lending stood at £10.0 billion at 31 December 2025 (net of £2.6 billion exposures

subject to protection through Significant Risk Transfer (SRT) securitisations). This compares to £9.3 billion at 31 December 2024 (net of

£3.1 billion subject to SRT securitisations). In addition there are undrawn lending facilities of £3.2 billion (31 December 2024: £2.8 billion)

to predominantly investment grade rated corporate customers

•The Group classifies 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). Drawn lending of £6.9 billion to social housing providers are also excluded

(31 December 2024: £7.2 billion)

•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 strong and stable, 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.94%) rather than development. Of these investment

exposures c.92% have an LTV of less than 70%, with an average LTV of 45%. The average gross interest cover ratio was 3.1 times, with

c.75% having gross interest cover of above 2 times

•The portfolio is well diversified with approximately 45% of exposures relating to commercial real estate, including c.13% secured by

office assets, c.9% by retail assets and c.13% by industrial assets. Approximately 49% of the portfolio relates to residential lending

•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

•Use of SRT securitisations also acts as a risk mitigant in this portfolio. Run-off of these is carefully managed and sequenced to avoid

concentrations

LTV – UK Real Estate1


	At 31 December 2025				At 31 December 2024
	Stage 1 and 2 £m	Stage 3 £m	Total £m	Total %	Stage 1 and 2 £m	Stage 3 £m	Total £m	Total %
Less than 60%	8,894	65	8,959	84.6	8,621	34	8,655	84.5
60% to 70%	712	21	733	6.9	815	49	864	8.4
70% to 80%	53	16	69	0.7	166	5	171	1.7
80% to 100%	40	21	61	0.6	40	69	109	1.1
100% to 120%	5	47	52	0.5	7	32	39	0.4
120% to 140%	1	—	1	–	5	—	5	–
Greater than 140%	4	76	80	0.8	11	81	92	0.9
Unsecured2	630	—	630	6.0	303	—	303	3.0
Subtotal	10,339	246	10,585	100.0	9,968	270	10,238	100.0
Other3	721	45	766		525	67	592
Total investment	11,060	291	11,351		10,493	337	10,830
Development	607	19	626		731	8	739
Government supported lending4	56	2	58		87	2	89
Business Banking5	528	7	535		704	9	713
Total gross	12,251	319	12,570		12,015	356	12,371
Significant Risk Transfer			(2,585)				(3,109)
Total net			9,985				9,262

1Figures in the table above are stated on gross basis with Significant Risk Transfer deducted to show final net position. 2024 figures were previously prepared on a net basis and have

been represented on a consistent basis.

2Predominantly Investment grade corporate CRE lending where the Group is relying on the corporate covenant.

3Mainly lower value transactions where LTV not recorded on Commercial Banking UK Real Estate monitoring system.

4Bounce Back Loan Scheme and Coronavirus Business Interruption Loan Scheme lending to real estate clients, where government guarantees are in place at 100% and 80%, respectively.

5Business Banking excluded from the published table in the annual report and accounts 2024.

Lloyds Banking Group plc Annual Report and Accounts 2025

177

Credit quality of other financial assets (audited)

Cash and balances at central banks

Substantially 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:


	2025			2024
	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	16,593	–	16,593	7,093	–	7,093
Other public sector securities	1,898	7	1,905	2,286	2	2,288
Bank and building society certificates of deposit	7,036	–	7,036	8,667	–	8,667
Asset-backed securities	909	14	923	641	11	652
Corporate and other debt securities	20,476	2,934	23,410	13,984	2,899	16,883
	46,912	2,955	49,867	32,671	2,912	35,583
Treasury and other bills	11	–	11	32	–	32
Contracts held with reinsurers	8,168	–	8,168	10,527	–	10,527
Total other financial assets mandatorily held at fair value through profit or loss (excluding loans and advances and equity shares)	55,091	2,955	58,046	43,230	2,912	46,142

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 2025 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 2025 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.


	2025			2024
	Investment grade1 £m	Other £m	Total £m	Investment grade1 £m	Other £m	Total £m
Trading and other	18,361	1,341	19,702	22,684	1,333	24,017
Hedging	24	1	25	39	9	48
Total derivative financial instruments	18,385	1,342	19,727	22,723	1,342	24,065

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 2025, £153,410 million were Stage 1 (2024: £143,914 million), £4,083 million were Stage 2 (2024: £4,565 million), £61 million

were Stage 3 (2024: £101 million) and £20 million was POCI (2024: £39 million). Against these exposures the Group held an allowance for

expected credit losses of £197 million (2024: £270 million).

Further details can be seen in note 21 to the consolidated financial statements on page 272.

Lloyds Banking Group plc Annual Report and Accounts 2025

178

Risk management continued

Collateral held as security for other financial assets (audited)

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 255).

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 255). At 31 December 2025,

£12,257 million had been repledged (2024: £10,676 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 255).

Irrevocable loan commitments and other credit-related contingencies

The Group holds irrevocable loan commitments and other credit-related contingencies (see note 36 to the consolidated financial

statements on page 291). Collateral is held as security, in the event that lending is drawn down, on £18,272 million (2024: £17,181 million)

of these balances.

Collateral pledged as security (audited)

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 255).

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 255). 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:


	2025 £m	2024 £m
Financial assets at fair value through profit or loss	1,088	889
Financial assets at fair value through other comprehensive income	5,034	6,124
Total	6,122	7,013

In addition, securities held as collateral in the form of stock borrowed amounted to £12,763 million (2024: £20,887 million). Of this amount,

£7,542 million (2024: £11,781 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 283.

Lloyds Banking Group plc Annual Report and Accounts 2025

179


	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 26, contains a summary of economic crime risk performance and key mitigating actions.

Risk appetite

The Group recognises that economic crime risk presents itself as a

consequence of conducting business and it must be managed and

mitigated in order to protect our customers, our communities and

the Group.

The Group seeks to prevent, detect and disrupt economic crime and

manages its risk exposure through delivering compliant, robust and

risk-based controls to minimise the ability of criminals to exploit our

products, services and customers, whilst also supporting victims and

the legitimate economy.

The Group does not tolerate preventable or avoidable breaches of

economic crime legislation.

Economic crime risk appetite is expressed through the management

of economic crime controls and breaches in line with agreed

tolerances and fraud losses aligned to agreed provisions.

Identification and assessment

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.

Threat analysis enables the Group to conduct investigations of

previously undetected or unknown economic crime risks through

the receipt of intelligence from both the industry and law

enforcement. This is supplemented with internal data analysis to

further develop the intelligence and understand how economic

crime is manifesting within the Group.

An annual business economic crime risk assessment is used to

provide a more detailed analysis of the level of economic crime risk

across the Group. More detailed risk assessments of customers and

third parties are also undertaken to understand the profile of those

whom the Group is doing business with to determine the level of

economic crime risk and how that should be treated.

Horizon scanning and external engagement is used to identify,

examine and assess the external landscape and use intelligence to

identify potential sources of both medium- and long-term economic

crime risks, emerging issues and opportunities, and to provide a

platform for benchmarking and collaboration across the industry.

Management and mitigation

Controls are used across the Group to reduce the likelihood of a risk

occurring, or the impact should it occur. Controls apply to

customers, third parties and colleagues, including at initial

onboarding, scheduled stages and at trigger-based events, such as

the exiting of relationships, suppliers and intermediaries, and

colleagues. Control testing is then completed to ensure the

effectiveness of controls.

Customer, payment and third-party screening processes are in place

to identify prohibited relationships and payments, higher risk

relationships including Politically Exposed Persons (PEPs) and

residents in high risk third countries, suspicious payments and any

customers that are outside of appetite. Suspicious payments are

subject to investigation, customer contact and rejection of

prohibited and fraudulent payments.

Due diligence is performed at the onboarding stage to build an

understanding of who the Group is establishing a relationship with,

and continues throughout the relationship to ensure it remains up-

to-date with an accurate risk classification.

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 also

remains a key component of the fraud control environment.

Monitoring

Events and their associated impacts are identified, escalated and

recorded to ensure that losses are managed in line with risk

appetite. Effective root cause analysis is undertaken to identify

issues that need to be resolved and where action is necessary to

strengthen the control environment, including resilience.

Suspicious Activity Reporting (SAR) is in place to enable internal

reporting by colleagues and external disclosure by the Nominated

Officer to the UK Financial Intelligence Unit (UKFIU).

Changes to the internal and external environment are regularly

monitored to ensure there is an accurate and up-to-date view of

the risk profile. This includes but is not limited to:

•Utilising outputs from horizon scanning to determine changes in

regulatory obligations or the external environment

•Using key risk, control and performance indicators (as relevant)

to monitor the risk profile

•Monitoring risk appetite metrics and management measures

against agreed thresholds, including the escalation of breaches

•Understanding the impact of change and/or transformation

activity on the risk and control environment

•Ensuring strategic changes or new product offerings are

monitored and impacts understood

Reporting

Economic crime reporting ensures that senior management have full

visibility of the Group’s economic crime risk exposure, to enable

informed decision making.

Money Laundering Reporting Officer (MLRO) reports are presented

annually to the relevant legal entity and Group-level risk

committees.

Lloyds Banking Group plc Annual Report and Accounts 2025

180

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 26, 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)A: £21,047 million (2024: £18,249 million) •General insurance underwritten total gross written premiumsA: £762 million (2024: £737 million)

Risk appetite

The Group is commercially required to take some forms of insurance

underwriting risk. For example, longevity and general insurance

underwriting risks to support customer demands and generate

operating income. Other underwriting risks, particularly persistency

and expense risk, need to be managed to avoid significant

fluctuations in the value of business written.

Identification and assessment

The primary 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. Longevity risk has reduced

following the sale of the bulk annuity business but still exists in the

individual annuity business and the Group’s defined benefit pension

scheme. Page 246 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 weather-related risks such as major floods or

windstorms when property damage claims are higher than

expected.

Expenses are incurred in writing and administering all insurance

business, with the risk of costs being higher than expected managed

through regular cost initiatives and operating model reviews.

The Own Risk and Solvency Assessment (ORSA) is used to identify,

assess, manage and report the short- to medium-term risks

associated with the Insurance sub-group and assess the overall

solvency needs related to the risk profile.

Emerging and horizon risk assessments and horizon scanning are

regularly conducted to identify emerging insurance underwriting

risks arising from economic and market conditions, regulatory

changes and reputational issues.

Scenario analysis and stress testing are used to identify and quantify

sources of potential insurance underwriting risk, highlight any

vulnerabilities identified and propose appropriate remedial action.

Reverse stress testing is also performed to identify and assess

scenarios that would cause the Group to fail and to propose

mitigating actions to alleviate the risk of failure.

Models provide a way of objectively assessing insurance

underwriting risk and a range of approaches are used to ensure a

clear understanding of the risk profile.

An annual review and setting of demographic and expense best

estimate assumptions is carried out, enabling risk exposures to be

quantified and appropriate levels of capital, reserves and customer

premiums to be set.

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 235.

Management and mitigation

Underwriting is the primary mechanism used to manage insurance

risk and appropriate underwriting procedures are in place to

support the effective underwriting of insurance products.

A limit framework is in place to manage insurance underwriting risk.

Limits are set on underwriting capacity and authority is delegated to

individuals based on their specific expertise.

Product pricing uses data from risk assessments, reinsurance

arrangements, actuarial analysis, market dynamics, regulatory

compliance, and customer characteristics and aims to balance

adequately covering risks, remaining competitive, and satisfying

regulatory requirements.

Product terms and policy wording are drafted to ensure they do not

expose the business to a greater number of claims than anticipated,

whilst maintaining fair customer outcomes.

A robust reserving process is in place to evaluate, review and

estimate unpaid claims and ensure appropriate resources are

available to settle claims as they arise. This is supported by an

effective claims management process which ensures that any claims

are reviewed and handled efficiently, effectively and in line with

relevant policy wording.

Reinsurance and diversification are also used to mitigate risk

exposure.

Monitoring

Insurance underwriting risk is reviewed monthly relative to the

established risk appetite.

Exposure is monitored regularly to ensure that the risks

underwritten are diversified in order to manage risk concentration,

and to verify adequacy of reinsurance.

Projected and current exposure to insurance underwriting risk

relative to the overall risk profile is considered in the ORSA and the

operating plan.

The appropriateness of assumptions is tracked through the

monitoring of relevant experience against expectations. Persistency,

claims and expenses are analysed monthly; mortality, morbidity and

longevity are analysed annually.

Reporting

Insurance underwriting risk appetite metrics and management

measures are reported to relevant risk committees, boards and

forums as required.

Operational limits are reported to the relevant committee, forum or

individual as required. Underwriting and claims issues are reported

to the relevant committees within the Insurance business.

Lloyds Banking Group plc Annual Report and Accounts 2025

181


	Liquidity risk

	Definition Liquidity risk is the risk that the Group has insufficient financial resources to meet its commitments as they fall due or can only secure them at excessive cost. Level two risks Funding; Liquidity The Risk overview, on page 27, contains a summary of liquidity risk performance and key mitigating actions.



	Financial risk indicators •Liquidity coverage ratio: 145% (2024: 146%) •Net stable funding ratio: 124% (2024: 129%) •Loan to deposit ratio: 97% (2024: 95%)

Risk appetite

The Group is commercially required to take liquidity risk to meet its

customers’ borrowing and depositing needs and generate

shareholder returns.

The Banking Group’s liquidity risk appetite is maintained above

regulatory minima in a severe but plausible stress for a reasonable

time-period, relying on non-franchise damaging management

actions. Scottish Widows Group Limited’s appetite is to maintain a

prudent liquidity profile to meet all commitments, in stressed

conditions, as they fall due.

For the Banking Group, risk appetite is expressed primarily through

the Liquidity Coverage Ratio (LCR) metric, measured in a regulatory

defined 30-day severe stress scenario. This is supplemented by

additional metrics to manage longer term liquidity stresses, such as

the Net Stable Funding Ratio (NSFR). For Scottish Widows Group

Limited, risk appetite is expressed primarily through holding

sufficient liquid assets to meet entity-specific requirements in

stressed conditions.

Identification and assessment

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.

The Internal Liquidity Adequacy Assessment Process (ILAAP) is the

key mechanism for assessing the Group’s liquidity and funding

needs. It is completed at least annually and used to ensure that the

Group has robust strategies, processes and systems in place to

support the identification, measurement, management, monitoring

and reporting of liquidity risk over an appropriate set of time

horizons.

Liquidity risk appetite is proposed and reviewed at least annually

and approved by the Board. It comprises a liquidity risk appetite

statement and set of quantitative metrics. This is supported by a

suite of management measures.

Scenario analysis and stress testing are used to identify sources of

potential liquidity risk, highlight any vulnerabilities identified and

propose appropriate remedial action. Reverse stress testing is also

performed to identify and assess scenarios that would cause the

Group to fail and to propose mitigating actions to alleviate the risk

of failure.

Emerging and topical risk assessments are regularly conducted to

identify liquidity risks arising from market conditions, regulatory

changes, reputational issues, balance sheet changes and new

product offerings. Assessment outputs are used to inform the

liquidity risk stress testing framework.

Management and mitigation

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.

The Group maintains a diverse, reliable and cost-effective funding

structure and strategy, which considers areas such as maturity

mismatches, concentration of funding sources, asset encumbrance

and stability of funding. The operating plan, which includes an

issuance plan, is produced for the Group and its material legal

entities ensuring compliance with Board liquidity risk appetite limits

across all years of the plan.

The Group considers the cost of liquidity and funding when forming

business plans and strategies to ensure liquidity and funding usage is

optimised. The transfer pricing mechanism ensures that levels of

liquidity risk taken in the Group are controlled and incentivises an

optimum funding mix.

A liquid asset buffer of unencumbered high quality liquid assets is

held to protect the Group against a range of stress scenarios. The

composition and eligibility of marketable assets is considered under

business-as-usual and stressed conditions.

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 the

Risk function. 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 legal entities. 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.

Monitoring

Daily monitoring and control processes are in place to address

internal and regulatory liquidity requirements. A range of market

and internal early warning indicators are monitored daily for early

signs of liquidity risk in the market or specific to the Group.

A liquidity contingency framework is maintained as part of the

Recovery Plan and sets out strategies for addressing liquidity

shortfalls in emergency situations, detailing governance and

escalation procedures in the context of a liquidity stress event.

The Recovery Plan is prepared to ensure the Group continues to

operate through a liquidity crisis, documents how the Group would

respond to a financial stress event and restore itself to a viable

position.

Funding concentrations by counterparty, currency and tenor are

regularly monitored and, where high levels of concentrations exist,

these are managed as part of the operating plan process and limited

by the liquidity risk monitoring framework.

Lloyds Banking Group plc Annual Report and Accounts 2025

182

Risk management continued

Reporting

Liquidity Board Risk Appetite Metrics and a set of management

measures are reported to relevant Asset Liability Committee

(ALCOs) and Board as required.

Operational limits are reported to the relevant committee, forum or

individual as required.

Regulatory reports required by the PRA, FCA and other regulatory

bodies are submitted within mandated timelines and processes are

in place to demonstrate, evidence and attest to regulatory

compliance.

The Group is subject to the Bank of England’s Resolvability

Assessment Framework (RAF) and ensures appropriate capabilities

are in place and documented to support the Funding in Resolution

(FiR) requirements.

Liquidity and funding management in 2025

The Group has maintained its strong funding and liquidity position

with a loan to deposit ratio of 97% as at 31 December 2025 (31

December 2024: 95%). Total wholesale funding has increased to

£99.4 billion as at 31 December 2025 (31 December 2024: £92.5

billion). 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)1 of 145% as at 31 December 2025 (31 December 2024: 146%)

calculated on a Group consolidated basis based on the PRA

rulebook. The decrease in the LCR resulted from a reduction in

liquid assets, from an increase in lending and repayments of Bank of

England Term Funding Scheme with additional incentives for SMEs

(TFSME) partially offset by an increase in customer deposits, and a

decrease in net cash outflows, primarily from a reduction in

outflows related to derivative exposures arising from historic market

volatility. 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 assets1 have reduced to £131.4 billion (31 December

2024: £134.4 billion), primarily driven by an increase in lending and

TFSME repayments, partially offset by an increase in customer

deposits. In addition to the Group’s reported LCR eligible assets, the

Group maintains borrowing capacity at central banks which

averaged £87 billion in the year to 31 December 2025 (31 December

2024: £72 billion). The net stable funding ratio remains strong at

124% (calculated as a quarterly simple average over the previous

four quarters) as at 31 December 2025 (31 December 2024: 129%).

LCR eligible assets comprise £125.8 billion LCR level 1 eligible assets

(31 December 2024: £128.5 billion) and £5.6 billion LCR level 2

eligible assets (31 December 2024: £5.9 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.

The banking business 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.

During 2025, the Group accessed wholesale funding across a range

of currencies and markets with term issuance volumes totalling

£13.8 billion. The total outstanding amount of drawings from the

TFSME has reduced to £8.8 billion as at 31 December 2025

(31 December 2024: £21.9 billion), with further maturities in 2027

and beyond. The repayment of TFSME maturities 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 September 2025, S&P upgraded the Group’s issuer

credit rating by one notch.

1Based on a monthly simple average over the previous 12 months.

Group funding requirements and sources


	At 31 Dec 2025 £bn	At 31 Dec 2024 £bn	Change %
Group funding position
Total Group assets	944.1	906.7	4
Less other liabilities1	(261.7)	(247.8)	(6)
Funding requirements	682.4	658.9	4

Customer deposits	496.5	482.7	3
Wholesale funding2	99.4	92.5	7
Repurchase agreements at amortised cost:
Repurchase agreements – non-trading	29.8	15.9	87
Term Funding Scheme with additional incentives for SMEs (TFSME)	8.8	21.9	(60)
	38.6	37.8	2
Total equity	47.9	45.9	4
Funding sources	682.4	658.9	4

1Other liabilities primarily include balances in the Group’s Insurance business and the fair value of derivative liabilities.

2The 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 cash collateral of £1.5 billion (31 December 2024: £2.8 billion).

Lloyds Banking Group plc Annual Report and Accounts 2025

183

Reconciliation of Group funding to the balance sheet (audited)


	At 31 December 2025				At 31 December 2024
	Included in funding analysis £bn	Cash collateral received1 £bn	Fair value and other accounting methods £bn	Balance sheet £bn	Included in funding analysis £bn	Cash collateral received1 £bn	Fair value and other accounting methods £bn	Balance sheet £bn
Deposits from banks	3.8	2.0	–	5.8	3.1	3.2	(0.1)	6.2
Debt securities in issue	83.9	–	(5.6)	78.3	77.2	–	(6.4)	70.8
Subordinated liabilities	11.7	–	(1.8)	9.9	12.2	–	(2.1)	10.1
Total wholesale funding	99.4	2.0			92.5	3.2
Customer deposits	496.5	–	–	496.5	482.7	–	–	482.7
Repurchase agreements at amortised cost	38.6	–	–	38.6	37.8	–	–	37.8
Total equity	47.9	–	–	47.9	45.9	–	–	45.9
Funding Sources	682.4	2.0			658.9	3.2

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 cash collateral on its balance sheet in respect of these agreements. At 31 December 2025, £2.0 billion (31 December 2024: £3.2 billion) was with bank counterparties,

of which £1.5 billion (31 December 2024: £2.8 billion) relates primarily to the Global Markets business of Lloyds Bank Corporate Markets plc, whilst £0.5 billion (31 December 2024:

£0.4 billion) relates to the Insurance business.

Analysis of 2025 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 2025 £bn	Total at 31 Dec 2024 £bn
Deposits from banks	1.6	0.4	0.8	0.9	0.1	–	–	–	3.8	3.1
Debt securities in issue:
Certificates of deposit issued	0.2	1.3	2.3	1.9	1.1	0.5	–	–	7.3	5.5
Commercial paper	–	7.0	6.3	2.3	0.3	–	–	–	15.9	8.3
Senior unsecured notes issued	–	0.8	2.2	1.6	0.8	9.6	15.9	12.1	43.0	46.5
Covered bonds	–	0.9	0.8	0.1	1.0	3.0	4.6	0.8	11.2	11.6
Securitisation notes	–	–	–	0.2	0.5	1.7	3.5	0.6	6.5	5.3
	0.2	10.0	11.6	6.1	3.7	14.8	24.0	13.5	83.9	77.2
Subordinated liabilities	–	1.1	–	0.5	–	–	4.4	5.7	11.7	12.2
Total wholesale funding	1.8	11.5	12.4	7.5	3.8	14.8	28.4	19.2	99.4	92.5

Total wholesale funding by currency (audited)


	Sterling £bn	US dollar £bn	Euro £bn	Other currencies £bn	Total £bn
At 31 December 2025	21.6	46.4	25.1	6.3	99.4
At 31 December 2024	21.0	41.5	22.6	7.4	92.5

Analysis of 2025 term issuance (audited)


	Sterling £bn	US dollar £bn	Euro £bn	Other currencies £bn1	Total £bn
Securitisation2	0.8	–	0.6	–	1.4
Covered bonds	1.0	–	0.4	–	1.4
Senior unsecured notes	0.8	3.7	2.5	0.7	7.7
Subordinated liabilities	–	0.9	0.9	–	1.8
Additional tier 1	0.7	0.8	–	–	1.5
Total issuance	3.3	5.4	4.4	0.7	13.8

1Includes Australian dollar, Swiss franc, Hong Kong dollar and Japanese yen.

2Securitisation includes externally issued notes from significant risk transfer transactions.

Lloyds Banking Group plc Annual Report and Accounts 2025

184

Risk management continued

Liquidity portfolio

At 31 December 2025, the Group had £131.4 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 2024: £134.4 billion), of which £125.8 billion was LCR level 1 eligible

(31 December 2024: £128.5 billion) and £5.6 billion was LCR level 2 eligible (31 December 2024: £5.9 billion). These assets are available to

meet cash and collateral outflows and regulatory requirements.

Liquidity risk is managed in line with the Group Liquidity Risk Policy, with the Insurance Group managing liquidity risk on a standalone basis.

Assets held for annuities are specifically chosen to correspond to the expectation of timing of annuity payments. For With Profits and unit-

linked business, portfolios are managed through mandates which ensure that they are run within defined tolerances, maintaining sufficient

liquidity to carry out operations of the portfolio without material disruption. For non-linked products other than annuity contracts, backing

investments are mostly held in gilts with minimal liquidity risk. Investments are arranged to minimise the possibility of being a distressed

seller whilst at the same time investing to meet policyholder obligations. This is achieved by anticipating policyholder behaviour and sales of

underlying assets within funds.

LCR eligible assets


	Average1		Change %
	2025 £bn	2024 £bn	Change %
Cash and central bank reserves	59.3	62.0	(4)
High quality government/MDB/agency bonds2	64.0	63.6	1
High quality covered bonds	2.5	2.9	(14)
Level 1	125.8	128.5	(2)
Level 23	5.6	5.9	(5)
Total LCR eligible assets	131.4	134.4	(2)

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 2025
Level 1	87.5	21.9	16.4	–	125.8
Level 2	2.6	1.0	1.1	0.9	5.6
Total1	90.1	22.9	17.5	0.9	131.4
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

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 2025 (based on a monthly simple average over the previous 12 months) showed that

the Group had liquidity resources representing 144% of modelled outflows under the Group’s most severe liquidity stress scenario

(31 December 2024: 136%). The increase in ratio is explained primarily by a decrease in modelled stress outflows.

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.

Lloyds Banking Group plc Annual Report and Accounts 2025

185

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. In the case of dated

subordinated liabilities, the maturity presented is based on call date where applicable. The Group’s preference shares have partially

discretionary coupons and have been included in the below analysis.


	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 2025
Deposits from banks	1,872	421	1,930	1,579	10	5,812
Customer deposits	428,915	23,351	35,640	9,722	503	498,131
Repurchase agreements at amortised cost	11,966	9,750	7,866	6,773	3,147	39,502
Financial liabilities at fair value through profit or loss	13,140	6,062	2,953	2,044	5,657	29,856
Notes in circulation	2,118	–	–	–	–	2,118
Debt securities in issue at amortised cost	408	9,959	22,797	40,064	13,427	86,655
Liabilities arising from non-participating investment contracts	61,640	–	–	–	–	61,640
Lease liabilities	35	59	200	446	392	1,132
Subordinated liabilities	24	1,170	990	6,247	8,328	16,759
Total non-derivative financial liabilities	520,118	50,772	72,376	66,875	31,464	741,605
Derivative financial liabilities
Gross settled derivatives – outflows	89,450	66,862	43,379	40,311	21,260	261,262
Gross settled derivatives – inflows	(88,088)	(65,410)	(42,508)	(38,949)	(18,853)	(253,808)
Gross settled derivatives – net flows	1,362	1,452	871	1,362	2,407	7,454
Net settled derivative liabilities	8,258	35	62	291	1,784	10,430
Total derivative financial liabilities	9,620	1,487	933	1,653	4,191	17,884


	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
Notes in circulation	2,121	–	–	–	–	2,121
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	520,791	35,810	58,359	64,174	23,124	702,258
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

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 and preference shares with no redemption option is included within the over 5

years column; interest of £16 million (2024: £16 million) in respect of the undated subordinated liabilities and £28 million (2024: £28 million)

in respect of the preference shares, per annum 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 2025

186

Risk management continued

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 2025
Liabilities arising from insurance and participating investment contracts	(1,823)	(1,941)	(2,316)	(2,775)	(3,147)	(117,710)	(129,712)
Reinsurance contract liabilities	3	3	3	2	2	12	25
Total	(1,820)	(1,938)	(2,313)	(2,773)	(3,145)	(117,698)	(129,687)
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)

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:


	2025		2024
	Amounts payable on demand £m	Carrying amount £m	Amounts payable on demand £m	Carrying amount £m
Life	122,691	118,931	110,402	107,909
Non-life	–	–	–	–
Total	122,691	118,931	110,402	107,909

The amounts payable on demand represent contract surrender values and incurred claims.

Maturities of contingent liabilities, commitments and financial guarantees (audited)

The table below shows the contractual maturity of the Group’s contingents, commitments and financial 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 2025
Acceptances and endorsements	97	6	2	–	–	–	–	–	105
Other contingent liabilities	215	555	366	86	290	691	364	337	2,904
Total contingent liabilities	312	561	368	86	290	691	364	337	3,009
Lending commitments and financial guarantees	143,506	1,553	1,057	2,061	2,341	3,468	3,058	435	157,479
Other commitments	95	–	–	–	–	–	–	–	95
Total commitments and financial guarantees	143,601	1,553	1,057	2,061	2,341	3,468	3,058	435	157,574
Total contingents, commitments and financial guarantees	143,913	2,114	1,425	2,147	2,631	4,159	3,422	772	160,583
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 financial 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 financial guarantees	134,377	1,422	1,740	1,562	3,367	2,755	3,140	256	148,619
Total contingents, commitments and financial guarantees	134,609	1,790	1,968	1,678	3,737	3,302	3,351	789	151,224

Lloyds Banking Group plc Annual Report and Accounts 2025

187


	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 189); Pension (page 192); Insurance (page 192); Trading book (page 193) The Risk overview, on page 27, contains a summary of market risk performance and key mitigating actions.



	Financial risk indicators •Structural hedge: £244 billion (2024: £242 billion) •Average 95% 1-day trading VaR: £2.2 million (2024: £2.4 million)

Risk appetite

The Group effectively manages market risk from banking and

insurance activity and is commercially required to engage in trading

and direct investment activity, as a necessary component of our

business model, to satisfy customer demands and generate stable

financial returns.

The Group aims to balance potential returns with the need to

safeguard our capital base and is willing to accept fluctuations in

earnings that do not trigger mandatory distribution restrictions,

even in mild stress market conditions.

Risk appetite is expressed primarily through an earning at risk

metric, measured in a mild market risk stress scenario. This is

supplemented by additional metrics for specific portfolios, such as

the Structural hedge and the Trading Book.

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
2025	Total £m	Trading book1 £m	Non- trading £m	Insurance £m	Primary market risk factor
Assets
Cash and balances at central banks	56,661	–	56,661	–	Interest rate
Financial assets at fair value through profit or loss	240,413	25,537	5,331	209,545	Interest rate, foreign exchange, credit spread, equity
Derivative financial instruments	19,727	16,278	2,329	1,120	Interest rate, foreign exchange, credit spread
Financial assets at amortised cost
Loans and advances to banks	7,236	–	7,145	91	Interest rate
Loans and advances to customers	481,463	–	481,463	–	Interest rate
Reverse repurchase agreements	50,986	–	50,986	–	Interest rate
Debt securities	13,987	–	13,987	–	Interest rate, credit spread
Financial assets at amortised cost	553,672	–	553,581	91
Financial assets at fair value through other comprehensive income	36,320	–	36,320	–	Interest rate, foreign exchange, credit spread
Other assets	37,279	–	30,880	6,399	Interest rate, credit spread
Total assets	944,072	41,815	685,102	217,155
Liabilities
Deposit from banks	5,779	–	5,779	–	Interest rate
Customer deposits	496,457	–	496,457	–	Interest rate
Repurchase agreements at amortised cost	38,570	–	38,570	–	Interest rate
Financial liabilities at fair value through profit or loss	27,909	23,666	4,243	–	Interest rate, foreign exchange
Derivative financial instruments	16,132	11,196	3,772	1,164	Interest rate, foreign exchange, credit spread
Debt securities in issue at amortised cost	78,271	–	77,383	888	Interest rate, credit spread
Liabilities arising from insurance and investment contracts	196,924	–	–	196,924	Interest rate, credit spread, equity
Subordinated liabilities	9,894	–	9,382	512	Interest rate, foreign exchange
Other liabilities	26,269	–	12,084	14,185	Interest rate, credit spread
Total liabilities	896,205	34,862	647,670	213,673

1Assets and liabilities are classified as trading book if they meet the requirements as set out in the Capital Requirements Regulation, article 104.

Lloyds Banking Group plc Annual Report and Accounts 2025

188

Risk management continued

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 245

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 193.

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 181.

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.

Identification and assessment

The Group ensures that all current and potential future market risks

are identified, understood and appropriately managed.

The market risk impacts of complex transactions, new products and

significant product changes identified by sub-groups, legal entities

or business units are reviewed by the Risk function prior to approval.

Additionally, the market risk for all products is reviewed and

documented through the market risk attestation process.

Where a new market risk exposure is discovered for example

through scenario analysis, stress testing, profit and loss attribution,

back-testing or model review, this must be notified to the Risk

function. Reverse stress testing is also performed to identify and

assess scenarios that would cause the Group to fail and to propose

mitigating actions to alleviate the risk of failure.

Market risk appetite is proposed and reviewed at least annually and

approved by the Board. It comprises a market risk appetite

statement and set of quantitative metrics. This is supported by a

suite of management measures.

Management and mitigation

Group Asset and Liability Committee (GALCO) is responsible for

approving and monitoring market risk management techniques,

measures and behavioural assumptions.

The transfer pricing process ensures that the level of market risk

taken in the Group is controlled and incentivises effective

management of market risk. Hedging costs, benefits and risks are

incorporated into the Group’s product pricing and contribute to

performance measurement.

All hedgeable banking book market risk exposures in sub-groups,

legal entities and business units are transferred to and centralised

within the Corporate Treasury of the relevant legal entity using an

appropriate transfer pricing process. Exposures are then managed

by the Corporate Treasury.

Appropriate trading limits are allocated to trading desks. It is the

responsibility of first line of defence to manage the risk profile in

accordance with these limits on both the desk and trader level, with

heads of desks responsible for managing risk within agreed limits.

The long-term financial management of all the Group’s defined

benefit pension schemes and the impact of both the current and

potential risk management strategy is analysed and monitored by

Group Corporate Treasury to ensure an appropriate financial

management strategy is agreed with the relevant Trustees and

implemented.

Within Insurance, market risk is managed by considering business

strategy and risk appetite, which typically state (or limit) the

amount and type of risk the Group is willing to take in pursuit of the

strategy.

Monitoring

GALCO and Group Market Risk Committee (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 policy.

Across the Group, appropriate monitoring, reporting and escalation

processes are in place for all market risk exposures consistent with

the size and complexity of the risk as well as the requirements of the

recipients.

Market risk exposures are monitored against market risk appetite

and reported to the relevant audience at the appropriate

frequency, and reported in accordance with all legal and regulatory

requirements.

In Insurance, monitoring of (Solvency II capital) market risk

exposures against risk appetite, or other internal limits, is carried out

monthly.

Reporting

Market risk appetite metrics and a set of management measures are

reported to the relevant Asset and Liability Committees (ALCOs)

and Board as required.

Operational limits are reported to the relevant committee, forum or

individual as required.

Regulatory reports required by the PRA, FCA and other regulatory

bodies are submitted within mandated timelines and processes are

in place to demonstrate, evidence and attest to regulatory

compliance.

Lloyds Banking Group plc Annual Report and Accounts 2025

189

Banking activities

Identification and assessment

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 two different sources:

•The Group’s direct equity exposure within the Equity sub-group

including private equity exposure from investments held by LDC,

Housing Growth Partnership and its stake in BGF, in addition to

other equity exposure from a small number of legacy strategic

equity holdings and recently acquired minority fintech stakes

•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.

Sensitivities

Interest rate risk exposure is monitored monthly using the following

methodologies.

Market value sensitivity 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 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.

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.

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

Lloyds Banking Group plc Annual Report and Accounts 2025

190

Risk management continued

Group banking activities: market value sensitivity (audited)

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.


	2025				2024
	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	22.8	(23.0)	89.6	(93.7)	4.7	(4.7)	17.9	(19.5)
US dollar	(3.6)	3.6	(14.1)	14.6	(1.4)	1.4	(5.4)	5.7
Euro	(3.7)	(0.4)	(14.5)	(1.6)	(1.4)	(2.3)	(5.1)	(9.4)
Other	(1.6)	1.6	(6.3)	6.4	(1.0)	1.0	(3.6)	4.3
Total	13.9	(18.2)	54.7	(74.3)	0.9	(4.6)	3.8	(18.9)

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 increased year-on-year as a result of increased customer prepayments for fixed mortgages.

Group banking activities: market value sensitivity to a steepening and flattening of the yield curve (audited)

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.


	2025		2024
	Steepener £m	Flattener £m	Steepener £m	Flattener £m
Sterling	2.7	(3.2)	(1.4)	0.3
US dollar	1.8	(1.8)	(0.6)	0.5
Euro	(9.1)	(1.3)	(12.8)	3.2
Other	3.3	(3.3)	(2.4)	3.1
Total	(1.3)	(9.6)	(17.2)	7.1

Group banking activities: three-year net interest income sensitivity (audited)

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.


	2025			2024
	Year 1 £m	Year 2 £m	Year 3 £m	Year 1 £m	Year 2 £m	Year 3 £m
Up 50bps	216	376	660	234	357	591
Up 25 bps	109	189	331	117	179	296
Down 25bps	(131)	(192)	(336)	(150)	(181)	(297)
Down 50bps	(261)	(386)	(673)	(302)	(364)	(595)

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% pass-through on deposits and 100% pass-through on assets, which could be different in practice

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.

Lloyds Banking Group plc Annual Report and Accounts 2025

191

Management and mitigation

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.

The Group’s exposure to pipeline and prepayment risks are

managed through hedging in line with expected customer

behaviour. These are appropriately monitored and controlled

through divisional 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.

Lloyds Banking Group plc Annual Report and Accounts 2025

192

Risk management continued

Defined benefit pension schemes

Identification and assessment

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,

which is partially offset by longevity swap assets

For further information on defined benefit pension scheme assets

and liabilities please refer to note 12 to the consolidated financial

statements on page 245.

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.

Management and mitigation

The Group takes an active involvement in agreeing risk mitigation

strategies with the schemes’ Trustees.

The current and long-term investment strategy is regularly reviewed

to ensure an appropriate balance of risk. An interest rate and

inflation hedging programme is in place to reduce liability risk and

the schemes hold a diversified portfolio of debt securities and other

return seeking assets.

The merits of longevity risk transfer and hedging solutions are

reviewed regularly, and the Trustees have put in place longevity

swaps to mitigate longevity risk.

Monitoring

In addition to the wider risk management framework, governance

of the schemes includes a specialist Group Pensions Committee.

The surplus, or deficit, in the schemes is tracked regularly along with

various single factor and scenario stresses which consider the risks

to the assets and liabilities holistically. Key metrics are monitored

regularly including the impact on the Group’s capital resources of

the schemes, the performance against risk limits and triggers, and

the performance of the hedged asset and liability matching

positions.

Insurance business

Identification and assessment

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.

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 240.

Management and mitigation

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 against 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.

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193

Trading portfolios

Identification and assessment

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% 1-day trading VaR (Value at

Risk; diversified across risk factors) was relatively stable in 2025 at

£2.2 million (31 December 2024: £2.4 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.

The Group internally uses stress testing as the primary risk measure,

complemented by VaR, for all trading book positions. The trading

portfolios: VaR table shows some relevant statistics for the Group’s

1-day 95% confidence level VaR, based on 300 historical

consecutive business days to year end 2025 and year end 2024.

The risk of loss measured by the VaR model is the loss in earnings

which is not expected to be exceeded with 95% 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.

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 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%) is compared daily against both

hypothetical and actual profit and loss. The 1-day 99% VaR chart

can be found in the Group’s Pillar 3 disclosures .

Management and mitigation

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% 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.

Trading portfolios: VaR (1-day 95% confidence level) (audited)


	At 31 December 2025				At 31 December 2024
	Close £m	Average £m	Maximum £m	Minimum £m	Close £m	Average £m	Maximum £m	Minimum £m
Interest rate risk	1.1	2.2	4.2	0.9	4.0	2.4	5.5	1.2
Foreign exchange risk	0.1	0.2	0.7	0.1	0.1	0.2	0.7	0.1
Equity risk	–	–	–	–	–	–	–	–
Credit spread risk	0.2	0.3	0.5	0.1	0.2	0.3	0.4	0.2
Inflation risk	0.1	0.2	1.7	0.1	0.1	0.3	0.7	0.1
All risk factors before diversification	1.5	2.9	4.8	1.5	4.4	3.2	6.2	2.0
Portfolio diversification	(0.4)	(0.7)	–	–	(0.6)	(0.8)	–	–
Total VaR	1.1	2.2	4.3	1.0	3.8	2.4	5.1	1.3

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194

Risk management continued


	Model risk

	Definition Model Risk is defined as 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 27, contains a summary of model risk performance and key mitigating actions.

Risk appetite

Models underpin a broad range of activities which are essential in

supporting the Group’s strategy. The Group manages model risk to

prevent potential adverse consequences arising from model errors

or the inappropriate use of modelled outputs to inform business

decisions.

Risk appetite is expressed through tolerances measuring the

effectiveness of the model risk control framework and model use.

Identification and assessment

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

•Fraud and economic crime

•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, therefore the use of models

creates model risk.

The wide scope and breadth of coverage leads to model risk

exposure across a number of the Group’s principal activities.

A comprehensive discovery exercise has been undertaken across the

Group to identify all models (and in-scope deterministic

quantitative methods), complimented with model risk training to

help colleagues with continued identification.

All models which are under development, implemented for use, or

decommissioned are recorded in the model inventory. The inventory

contains a record of all direct and indirect model interdependencies

to obtain a better understanding of aggregate model risk.

A risk-based model tiering approach is used to prioritise validation

activities and to identify and classify those models that pose the

most risk to the Group. All models are assigned a model tier by the

model owner, based on model materiality and complexity.

Challenge by independent validation teams is provided where

appropriate.

Management and mitigation

The Group manages model risk to prevent potential adverse

consequences arising from model errors or the inappropriate use of

modelled outputs to inform business decisions. Adverse

consequences could lead to 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.

Material models are independently validated to ensure model risks

are appropriately identified, assessed and mitigated. The model

validation process provides ongoing, independent and effective

challenge to model performance and use. The outputs of the

validation are documented in a model validation report, which

outlines findings and assigns an independent risk rating.

New model developments, material changes to existing models

or new model uses all require pre-approval before implementation

and use.

Model issues and limitations are identified throughout the model

lifecycle. Detailed action plans are created to remediate model

issues and are captured in the model inventory. Model limitations

are clearly outlined within model development documentation.

Post model adjustments can be used after model approval to

mitigate model weaknesses where unforeseen risks and

uncertainties are not adequately reflected in models. There must be

a clear rationale for use.

The evolution of AI systems will support the Group in increasing

productivity and reimagining the customer experience through

innovative solutions. However, these advancements introduce

unique model risks. To address these risks, additional controls are

being developed to support the safe and controlled use of the

Group’s AI aspirations.

Monitoring

Ongoing performance monitoring is undertaken to assess model

performance against established tolerances.

Periodic validations performed by both the model owner and

independent validation teams provide an in-depth assessment of

fitness for purpose, at a frequency and depth determined by the

model’s risk tier.

Reporting

Board model risk appetite metrics and management measures are

reported to the Board and Group Model Governance Committee as

required. This provides senior management with visibility of the

Group’s model risk exposure.

Regulatory reports required by the PRA are submitted within

mandated timelines. Processes are in place to demonstrate,

evidence and attest to regulatory compliance.

Lloyds Banking Group plc Annual Report and Accounts 2025

195


	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; Data and privacy; Financial reporting and tax; Health, safety and premises; Information, cyber and physical security; Internal and external supplier; IT systems; Payments and transaction execution; People The Risk overview, on page 27, contains a summary of operational risk performance and key mitigating actions.

Risk appetite

The Group manages and mitigates inherent operational risk to serve

our customers and meet our strategic objectives, however accepts

that it is not practical or economic to avoid all operational risks.

The Group accepts that operational disruption and material

operational risk events may occur. When they do, it responds

quickly, seeking to protect customers, the Group, and the wider

market from non-financial impacts and prevent reoccurrence.

Risk appetite is expressed through individual tolerances for each of

the Group’s operational risks, allowing risk decisions to be taken

within clear boundaries.

Identification and assessment

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.

Horizon scanning is used to identify both medium- and long-term

operational risks that could affect the ability to achieve strategic

objectives. Similarly, the emerging and topical risks provide a

forward-looking view of themes with the potential to alter

execution of strategy or operations in the medium to long term.

Scenario analysis and loss forecasting form an integral part of

identifying operational risk, focusing on severe but plausible events

that have an impact on customers, colleagues, reputation, or

finances. Scenario analysis findings are used to inform risk

management activity, such as identifying control improvements or

risk exposures that are not fully understood. New scenarios or

enhancements to existing scenarios are identified by considering

emerging risks, threats, or changes to the risk profile. Loss

forecasting feeds directly into capital planning.

Management and mitigation

Controls are activities performed to reduce the likelihood of a risk

occurring or the impact of a risk should it occur. Controls are

established across the business and can be preventative, detective,

or relate to recovery. Controls can also be manual, semi or fully

automated, and their performance is monitored. All types of

controls come together to form a robust control environment.

Key controls, defined as those providing the greatest defence

against risks materialising, are identified and assessed as part of the

Group’s Risk and Control Self Assessment (RCSA) process to ensure

they are adequately designed and operating effectively.

Issues and actions are used to address identified risk exposure or

weaknesses in the control environment in a consistent manner.

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 2025 the highest

frequency of events occurred in external fraud with 91% of the total

volume. Clients, products and business practices accounted for the

highest losses by value at 81%. Conduct risks are explained in further

detail on page 153. 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.

Operational risk events by risk category (losses greater than or equal to £10,000)1


	% of total volume		% of total losses
	2025	20242	2025	20242
Business disruption and system failures	0.54	1.24	0.09	0.92
Clients, products and business practices3	2.00	1.87	81.10	83.50
Damage to physical assets	0.03	0.16	–	0.02
Employee practices and workplace safety	0.28	0.59	0.04	0.24
Execution, delivery and process management	5.94	12.51	9.72	6.30
External fraud4	91.08	83.37	9.05	9.01
Internal fraud4	0.13	0.26	–	0.01
Total	100.00	100.00	100.00	100.00

1Excludes losses related to Insurance; only losses from investment firm entities within the Scottish Widows Group Limited are included.

22024 figures have been restated to reflect any losses that occurred during the year and were captured after the 2024 financial year-end.

3The risk management of clients, products and business practices is outlined within conduct risk, on page 153.

4Fraud level two risk is explained in further detail under economic crime risk on page 179.

Lloyds Banking Group plc Annual Report and Accounts 2025

196

Risk management continued

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 RMF

•Events and incidents related to change activities are escalated

and managed appropriately in line with risk framework guidance

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 and tax

The Group maintains risk management systems and internal

controls relating to the financial reporting and tax processes

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,

regulatory (financial) 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, regulatory (financial) 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 enhance 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.

Group Risk Committee is responsible for ensuring that management

has processes in place designed to identify and evaluate

information, cyber and security risks that the Group is exposed to,

implementing processes and programmes to manage these risks and

mitigate related incidents within appetite. The Board Risk

Committee (BRC) continues to be supported by the IT and Cyber

Advisory Forum (ITCAF), which is attended by the BRC chair and

other Board members. ITCAF dedicates time and attention to

reviewing and challenging risks associated with IT infrastructure, IT

strategy, IT resilience and cyber risks. Senior management is

responsible for identifying, considering and assessing material IT

systems and security risks on an ongoing basis, establishing

processes to ensure that such potential risk exposures are

monitored, putting in place appropriate mitigation measures and

maintaining control improvement programmes.

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.

Lloyds Banking Group plc Annual Report and Accounts 2025

197

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

Payments and transaction execution

The Group adopts a robust approach to minimising risks associated

with payments or transaction execution, which may have an impact

on customers, clients, or internal operations. This includes

processing and execution failures relating to clients and products,

such as errors in payment processing or management of payments

and claims, including those where a third party is operating on the

Group’s behalf.

Monitoring

Events and their associated impacts are identified, escalated and

recorded to ensure that losses are managed in line with risk

appetite, with some events requiring immediate notification to the

regulator. Effective root cause analysis is undertaken to identify

issues that need to be resolved and where action is necessary to

strengthen the control environment, including resilience. Events

data is also used to inform the amount of capital required to cover

unexpected severe operational risk losses.

Changes to the internal and external environment are regularly

monitored to ensure there is an accurate and up-to-date view of

the operational risk profile. This includes but is not limited to:

•Utilising outputs from horizon scanning to determine changes in

regulatory obligations or the external environment

•Using key risk, control and performance indicators (as relevant)

to monitor the risk profile

•Monitoring risk appetite metrics and management measures

against agreed thresholds, including the escalation of breaches

•Understanding the impact of change and/or transformation

activity on the risk and control environment

•Ensuring strategic changes or new product offerings are

monitored and impacts understood

Reporting

Operational risk reporting ensures senior management has full

visibility of the Group’s operational risk exposure to enable

informed decision making.

Sub-group, legal entity, business unit and Group function

operational risk profile, event, and issue data is reported to the

relevant risk committee(s).

Lloyds Banking Group plc Annual Report and Accounts 2025

198

Financial

statements


Independent auditors’ report		199
Consolidated financial statements
Consolidated income statement		211
Consolidated statement of comprehensive income		212
Consolidated balance sheet		213
Consolidated statement of changes in equity		214
Consolidated cash flow statement		217
Notes to the consolidated financial statements
1.	Basis of preparation	218
2.	Accounting policies	218
3.	Critical accounting judgements and key sources of estimation uncertainty	228
4.	Segmental analysis	228
5.	Net interest income	233
6.	Net fee and commission income	233
7.	Net trading income	234
8.	Insurance business	235
9.	Other operating income	242
10.	Operating expenses	242
11.	Share-based payments	243
12.	Retirement benefit obligations	245
13.	Auditors’ remuneration	251
14.	Impairment	251
15.	Tax	252
16.	Measurement basis of financial assets and liabilities	255
17.	Fair values of financial assets and liabilities	257
18.	Maturities of assets and liabilities	267
19.	Derivative financial instruments	269
20.	Loans and advances to customers	272
21.	Allowance for expected credit losses	272
22.	Finance lease receivables	280
23.	Goodwill and other intangible assets	280
24.	Other assets	281
25.	Lessee disclosures	282
26.	Debt securities in issue	283
27.	Other liabilities	283
28.	Provisions	283
29.	Subordinated liabilities	285
30.	Share capital	287
31.	Earnings per share	287
32.	Other reserves	288
33.	Other equity instruments	289
34.	Dividends on ordinary shares	289
35.	Related party transactions	290
36.	Contingent liabilities, commitments and financial guarantees	291
37.	Structured entities	292
38.	Transfers of financial assets	293
39.	Financial risk management	294
40.	Cash flow statement	295
41.	Events since the balance sheet date	296


Parent company financial statements
Parent company income statement		297
Parent company balance sheet		298
Parent company statement of changes in equity		299
Parent company cash flow statement		300
Notes to the parent company financial statements
1.	Basis of preparation and accounting policies	301
2.	Measurement basis of financial assets and liabilities	301
3.	Fair values of financial assets and liabilities	302
4.	Derivative financial instruments	302
5.	Deferred tax	302
6.	Debt securities in issue at amortised cost	302
7.	Subordinated liabilities	303
8.	Share capital and other equity instruments	303
9.	Related party transactions	303
10.	Financial risk management	304

The Group has adopted the UK Finance Code for Financial Reporting Disclosure and these 2025 financial statements have been prepared in compliance with its principles.

Lloyds Banking Group plc Annual Report and Accounts 2025

211

Consolidated income statement

for the year ended 31 December


	Note	2025 £m	20241 £m	20231 £m
Interest income		30,749	31,288	28,051
Interest expense		(17,519)	(19,011)	(14,753)
Net interest income	5	13,230	12,277	13,298
Fee and commission income		3,118	2,943	2,926
Fee and commission expense		(1,334)	(1,184)	(1,095)
Net fee and commission income	6	1,784	1,759	1,831
Net trading income	7	1,485	1,812	1,307
Insurance revenue		3,438	3,291	3,008
Insurance service expense		(2,543)	(2,733)	(2,414)
Net expense from reinsurance contracts held		(139)	(72)	2
Insurance service result	8	756	486	596
Net investment return on assets held to back insurance and investment contracts		23,844	16,013	16,742
Net finance expense in respect of insurance and investment contracts		(24,044)	(16,278)	(16,776)
Net investment return and finance result in respect of insurance and investment contracts		(200)	(265)	(34)
Other operating income	9	2,367	1,934	1,631
Other income		6,192	5,726	5,331
Total income		19,422	18,003	18,629
Operating expenses	10	(11,966)	(11,601)	(10,823)
Impairment	14	(795)	(431)	(303)
Profit before tax		6,661	5,971	7,503
Tax expense	15	(1,904)	(1,494)	(1,985)
Profit for the year		4,757	4,477	5,518

Profit attributable to ordinary shareholders		4,196	3,923	4,933
Profit attributable to other equity holders		463	498	527
Profit attributable to equity holders		4,659	4,421	5,460
Profit attributable to non-controlling interests		98	56	58
Profit for the year		4,757	4,477	5,518

Basic earnings per share	31	7.0p	6.3p	7.6p
Diluted earnings per share	31	6.9p	6.2p	7.5p

1Comparative periods have been represented for presentational changes. See note 1.

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Banking Group plc Annual Report and Accounts 2025

212

Consolidated statement of comprehensive income

for the year ended 31 December


	2025 £m	20241 £m	20231 £m
Profit for the year	4,757	4,477	5,518
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements:
Remeasurements before tax	(520)	(768)	(1,633)
Current tax	50	50	376
Deferred tax	85	154	52
	(385)	(564)	(1,205)
Movements in revaluation reserve in respect of equity shares held at FVOCI:
Change in fair value	34	93	(54)
Deferred tax	–	–	(3)
	34	93	(57)
Gains and losses attributable to own credit risk:
Losses before tax	(126)	(78)	(234)
Deferred tax	35	22	66
	(91)	(56)	(168)

	(442)	(527)	(1,430)

Items that may subsequently be reclassified to profit or loss:
Movements in revaluation reserve in respect of debt securities held at FVOCI:
Change in fair value	34	(53)	(40)
Current tax	1	1	1
Deferred tax	(8)	14	11
	27	(38)	(28)
Income statement transfers in respect of disposals	(3)	(7)	(122)
Deferred tax	1	2	35
	(2)	(5)	(87)
Income statement transfers in respect of impairment	(1)	(3)	(2)
	24	(46)	(117)
Movements in cash flow hedge reserve:
Effective portion of changes in fair value taken to other comprehensive income	482	(2,577)	545
Deferred tax	(136)	719	(160)
	346	(1,858)	385
Net income statement transfers	1,869	2,597	1,838
Deferred tax	(523)	(728)	(513)
	1,346	1,869	1,325
	1,692	11	1,710

Movements in foreign currency translation reserve: Currency translation differences (tax: £nil)	54	(73)	(53)

	1,770	(108)	1,540

Total other comprehensive income (loss) for the year, net of tax	1,328	(635)	110
Total comprehensive income for the year	6,085	3,842	5,628

Total comprehensive income attributable to ordinary shareholders	5,524	3,288	5,043
Total comprehensive income attributable to other equity holders	463	498	527
Total comprehensive income attributable to equity holders	5,987	3,786	5,570
Total comprehensive income attributable to non-controlling interests	98	56	58
Total comprehensive income for the year	6,085	3,842	5,628

1Current tax and deferred tax impacts, previously shown in aggregate for each reserve, are now presented alongside each line item. Comparatives are represented on a consistent basis.

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Banking Group plc Annual Report and Accounts 2025

213

Consolidated balance sheet

at 31 December


	Note	2025 £m	2024 £m
Assets
Cash and balances at central banks		56,661	62,705
Financial assets at fair value through profit or loss	17	240,413	215,925
Derivative financial instruments	19	19,727	24,065
Loans and advances to banks		7,236	7,900
Loans and advances to customers	20	481,463	459,857
Reverse repurchase agreements		50,986	49,476
Debt securities		13,987	14,544
Financial assets at amortised cost		553,672	531,777
Financial assets at fair value through other comprehensive income	17	36,320	30,690
Goodwill and other intangible assets	23	8,593	8,188
Current tax recoverable		1,346	526
Deferred tax assets	15	3,990	5,005
Retirement benefit assets	12	2,695	3,028
Other assets	24	20,655	24,788
Total assets		944,072	906,697
Liabilities
Deposits from banks		5,779	6,158
Customer deposits		496,457	482,745
Repurchase agreements at amortised cost		38,570	37,760
Financial liabilities at fair value through profit or loss	17	27,909	27,611
Derivative financial instruments	19	16,132	21,676
Notes in circulation		2,118	2,121
Debt securities in issue at amortised cost	26	78,271	70,834
Liabilities arising from insurance and participating investment contracts	8	135,284	122,064
Liabilities arising from non-participating investment contracts		61,640	51,228
Other liabilities	27	20,945	25,918
Retirement benefit obligations	12	120	122
Current tax liabilities		52	45
Deferred tax liabilities	15	146	125
Provisions	28	2,888	2,313
Subordinated liabilities	29	9,894	10,089
Total liabilities		896,205	860,809
Equity
Share capital	30	5,889	6,062
Share premium account		18,797	18,720
Other reserves	32	10,744	8,827
Retained profits		6,291	5,912
Ordinary shareholders’ equity		41,721	39,521
Other equity instruments	33	5,947	6,195
Total equity excluding non-controlling interests		47,668	45,716
Non-controlling interests		199	172
Total equity		47,867	45,888
Total equity and liabilities		944,072	906,697

The accompanying notes are an integral part of the consolidated financial statements.

The directors approved the consolidated financial statements on 13 February 2026.



Sir Robin Budenberg Chair	Charlie Nunn Group Chief Executive	William Chalmers Chief Financial Officer

Lloyds Banking Group plc Annual Report and Accounts 2025

214

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 capital3 £m	Share premium3 £m	Other reserves £m	Retained profits4 £m	Total £m	Other equity instruments £m	Non- controlling interests £m	Total £m
At 1 January 2025	6,062	18,720	8,827	5,912	39,521	6,195	172	45,888
Comprehensive income
Profit for the year	–	–	–	4,196	4,196	463	98	4,757
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax	–	–	–	(385)	(385)	–	–	(385)
Movements in revaluation reserve in respect of FVOCI assets, net of tax:
Debt securities	–	–	24	–	24	–	–	24
Equity shares	–	–	34	–	34	–	–	34
Gains and losses attributable to own credit risk, net of tax	–	–	–	(91)	(91)	–	–	(91)
Movements in cash flow hedge reserve, net of tax	–	–	1,692	–	1,692	–	–	1,692
Movements in foreign currency translation reserve, net of tax	–	–	54	–	54	–	–	54
Total other comprehensive income (loss)	–	–	1,804	(476)	1,328	–	–	1,328
Total comprehensive income1	–	–	1,804	3,720	5,524	463	98	6,085
Transactions with owners
Dividends (note 34)	–	–	–	(2,000)	(2,000)	–	(51)	(2,051)
Distributions on other equity instruments	–	–	–	–	–	(463)	–	(463)
Issue of ordinary shares	47	77	–	–	124	–	–	124
Share buyback (note 32)	(220)	–	220	(1,710)	(1,710)	–	–	(1,710)
Issue of other equity instruments (note 33)	–	–	–	(7)	(7)	1,511	–	1,504
Repurchases and redemptions of other equity instruments (note 33)	–	–	–	–	–	(1,759)	–	(1,759)
Movement in treasury shares	–	–	–	38	38	–	–	38
Value of employee services		–	–	211	211	–	–	211
Changes in non-controlling interests	–	–	–	20	20	–	(20)	–
Total transactions with owners	(173)	77	220	(3,448)	(3,324)	(711)	(71)	(4,106)
Realised gains and losses on FVOCI equity shares	–	–	(107)	107	–	–	–	–
At 31 December 20252	5,889	18,797	10,744	6,291	41,721	5,947	199	47,867

1Total comprehensive income attributable to owners of the parent was a surplus of £5,987 million (2024: surplus of £3,786 million; 2023: surplus of £5,570 million).

2Total equity attributable to owners of the parent was £47,668 million (2024: £45,716 million; 2023: £47,164 million).

3Share capital and share premium, previously presented in aggregate, are shown separately. Comparatives have been represented on a consistent basis.

4Retained profits are stated after deducting £17 million representing 87 million treasury shares held.

Further details of movements in the Group’s share capital, reserves and other equity instruments are provided in notes 30 and 32 to 33.

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Banking Group plc Annual Report and Accounts 2025

215


	Attributable to ordinary shareholders					Other equity instruments £m	Non- controlling interests £m	Total £m
	Share capital1 £m	Share premium1 £m	Other reserves £m	Retained profits2 £m	Total £m	Other equity instruments £m	Non- controlling interests £m	Total £m
At 1 January 2024	6,358	18,568	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 FVOCI assets, 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 hedge 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) income	–	–	(15)	3,303	3,288	498	56	3,842
Transactions with owners
Dividends (note 34)	–	–	–	(1,828)	(1,828)	–	(83)	(1,911)
Distributions on other equity instruments	–	–	–	–	–	(498)	–	(498)
Issue of ordinary shares	73	117	–	–	190	–	–	190
Share buyback	(369)	–	369	(2,011)	(2,011)	–	–	(2,011)
Redemption of preference shares	–	35	(35)	–	–	–	–	–
Issue of other equity instruments (note 33)	–	–	–	(6)	(6)	763	–	757
Repurchases and redemptions of other equity instruments (note 33)	–	–	–	(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	(296)	152	334	(4,181)	(3,991)	(1,243)	(85)	(5,319)
Realised gains and losses on equity shares held at FVOCI	–	–	–	–	–	–	–	–
At 31 December 2024	6,062	18,720	8,827	5,912	39,521	6,195	172	45,888

1Share capital and share premium, previously presented in aggregate, are shown separately. Comparatives have been represented on a consistent basis.

2Retained profits are stated after deducting £47 million representing 126 million treasury shares held.

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Banking Group plc Annual Report and Accounts 2025

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

capital1

£m

premium1

£m

Other

reserves

£m

Retained

profits2

£m

Total

£m

At 1 January 2023

6,729

18,504

6,587

6,550

38,370

5,297

244

43,911

Comprehensive income

Profit for the year

–

4,933

527

5,518

Other comprehensive income

Post-retirement defined benefit

scheme remeasurements, net of

tax

–

(1,205)

–

(1,205)

Movements in revaluation reserve

in respect of FVOCI assets, 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)

Movements in cash flow hedge

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

5,628

Transactions with owners

Dividends (note 34)

–

(1,651)

–

(101)

(1,752)

Distributions on other equity

instruments

–

(527)

–

(527)

Issue of ordinary shares

–

131

–

131

Share buyback

(438)

–

438

(1,993)

–

(1,993)

Issue of other equity instruments

(note 33)

–

(6)

1,778

–

1,772

Repurchases and redemptions of

other equity instruments (note 33)

–

(135)

–

(135)

Movement in treasury shares

–

103

–

103

Value of employee services

–

227

–

227

Changes in non-controlling

interests

–

Total transactions with owners

(371)

438

(3,320)

(3,189)

1,116

(101)

(2,174)

Realised gains and losses on equity

shares held at FVOCI

–

At 31 December 2023

6,358

18,568

8,508

6,790

40,224

6,940

201

47,365

1Share capital and share premium, previously presented in aggregate, are shown separately. Comparatives have been represented on a consistent basis.

2Retained profits are stated after deducting £10 million representing 61 million treasury shares held.

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Banking Group plc Annual Report and Accounts 2025

217

Consolidated cash flow statement

for the year ended 31 December


	Note	2025 £m	2024 £m	2023 £m
Cash flows (used in) provided by operating activities
Profit before tax		6,661	5,971	7,503
Adjustments for:
Change in operating assets	40(A)	(40,689)	(39,622)	(9,110)
Change in operating liabilities	40(B)	35,403	23,603	4,232
Non-cash and other items	40(C)	6,431	5,990	5,622
Tax paid	15	(2,305)	(1,305)	(1,437)
Tax refunded	15	200	970	–
Net cash provided by (used in) operating activities		5,701	(4,393)	6,810
Cash flows used in investing activities
Purchase of financial assets		(19,762)	(10,518)	(10,311)
Proceeds from sale and maturity of financial assets		14,309	7,062	5,298
Purchase of property, plant and equipment		(5,071)	(4,364)	(3,961)
Purchase of other intangible assets		(1,252)	(1,259)	(1,494)
Proceeds from sale of property, plant and equipment		1,560	1,505	1,027
Proceeds from sale of goodwill and other intangible assets		–	62	–
Acquisition of businesses and joint ventures, net of cash acquired	40(D)	27	(179)	(380)
Net cash used in investing activities		(10,189)	(7,691)	(9,821)
Cash flows used in financing activities
Dividends paid to ordinary shareholders	34	(2,000)	(1,828)	(1,651)
Distributions in respect of other equity instruments		(463)	(498)	(527)
Distributions in respect of non-controlling interests		(51)	(83)	(101)
Interest paid on subordinated liabilities		(806)	(622)	(623)
Proceeds from issue of subordinated liabilities		1,757	812	1,417
Proceeds from issue of other equity instruments		1,504	757	1,772
Proceeds from issue of ordinary shares		99	187	86
Share buyback		(1,710)	(2,011)	(1,993)
Repayment of subordinated liabilities		(1,928)	(819)	(1,745)
Repurchases and redemptions of other equity instruments		(1,759)	(1,824)	(135)
Change in stake of non-controlling interests		–	(2)	–
Net cash used in financing activities		(5,357)	(5,931)	(3,500)
Effects of exchange rate changes on cash and cash equivalents		(378)	(7)	(480)
Change in cash and cash equivalents		(10,223)	(18,022)	(6,991)
Cash and cash equivalents at beginning of year		70,816	88,838	95,829
Cash and cash equivalents at end of year	40(E)	60,593	70,816	88,838

Interest received was £29,843 million (2024: £29,721 million; 2023: £26,461 million) and interest paid was £16,589 million (2024: £17,840 million;

2023: £11,100 million).

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Banking Group plc Annual Report and Accounts 2025

218

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 United Kingdom adopted international accounting standards and 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

2024 and there have been no changes in the Group’s methods of computation.

Net investment return on assets held to back insurance and investment contracts, previously shown within net trading income, is presented

separately on the face of the income statement. Net finance expense in respect of insurance and investment contracts, previously shown

outside total income in the income statement, is included within other income as part of total income. This change has been made to

represent more clearly the impact of the Group’s insurance business on the results. Comparative periods are represented on a consistent

basis.

Current and deferred tax are presented separately for each movement in the revaluation reserve in respect of debt securities held at fair

value through other comprehensive income and movements in the cash flow hedge reserve within the statement of other comprehensive

income. Previously both current tax and deferred tax were presented in aggregate for each reserve.

The IASB has issued an amendment to IAS 21 The Effects of Changes in Foreign Exchange Rates, effective 1 January 2025. This amendment

has not had 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, including IFRS 18

Presentation and Disclosure in Financial Statements which replaces IAS 1 Presentation of Financial Statements. While many of the existing

requirements of IAS 1 Presentation of Financial Statements are retained, IFRS 18 Presentation and Disclosure in Financial Statements

introduces additional disclosure obligations in relation to the structure of the income statement, management-defined performance

measures, and the aggregation and disaggregation of financial information. IFRS 18 will have no impact on the Group’s net profit as it

impacts neither recognition nor measurement. The new standard will impact the presentation of the Group’s results as it requires that

operating, investing and financing activities are presented separately. There will also be a change in the Group’s cash flow statement as

IFRS 18 requires that the first line of the cash flow statement is operating profit rather than profit before tax.

The IASB has issued its annual improvements and a number of amendments to the IFRS Accounting Standards effective 1 January 2026,

including Amendments to IFRS 9 Financial Instruments and Amendments to IFRS 7 Financial Instruments Disclosures. 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 313 to 323.

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 is reported within net finance expense arising from insurance and investment contracts.

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.

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Note 2: Accounting policies continued

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.

(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 loss is identified, the carrying value of the goodwill is written

down immediately through the income statement. This impairment loss cannot be reversed in a subsequent period. 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.

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220

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 2: Accounting policies continued

Equity investments are measured at fair value through profit or loss unless the Group elects at initial recognition to account for the

instruments at fair value through other comprehensive income. For these instruments, principally strategic investments, dividends are

recognised in profit or loss but fair value gains and losses are not subsequently reclassified to profit or loss following derecognition of the

investment.

The Group initially recognises loans and advances, deposits, debt securities in issue and subordinated liabilities when the Group becomes a

party to the contractual provisions of the instrument. Regular way purchases and sales of securities and other financial assets and trading

liabilities are recognised on trade date, being the date that the Group is committed to purchase or sell an asset.

Financial assets are derecognised when the contractual right to receive cash flows from those assets has expired or when the Group has

transferred its contractual right to receive the cash flows from the assets and either: substantially all of the risks and rewards of ownership

have been transferred; or the Group has neither retained nor transferred substantially all of the risks and rewards, but has transferred

control. Financial liabilities are derecognised when the obligation is discharged, cancelled or expires.

(1)Financial instruments measured at amortised cost

Financial assets that are held to collect contractual cash flows where those cash flows represent solely payments of principal and interest

are measured at amortised cost. A basic lending arrangement results in contractual cash flows that are solely payments of principal and

interest on the principal amount outstanding. Where the contractual cash flows introduce exposure to risks or volatility unrelated to a basic

lending arrangement such as changes in equity prices or commodity prices, the payments do not comprise solely principal and interest.

Financial assets measured at amortised cost are predominantly loans and advances to customers and banks, reverse repurchase

agreements and certain debt securities used by the Group to manage its liquidity. Loans and advances and reverse repurchase agreements

are initially recognised when cash is advanced to the borrower at fair value inclusive of transaction costs. Interest income is accounted for

using the effective interest method (see (D) above).

Financial liabilities are measured at amortised cost, except for trading liabilities and other financial liabilities designated at fair value

through profit or loss on initial recognition which are held at fair value.

(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.

Lloyds Banking Group plc Annual Report and Accounts 2025

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Note 2: Accounting policies continued

Preference shares and other instruments which carry a mandatory coupon or are redeemable on a specific date are classified as financial

liabilities. The coupon on these instruments is recognised in the income statement as interest expense. Securities which carry a

discretionary coupon and have no fixed maturity or redemption date are classified as other equity instruments. Interest payments on these

securities are recognised as distributions from equity in the period in which they are paid.

An exchange of financial liabilities on substantially different terms is accounted for as an extinguishment of the original financial liability

and the recognition of a new financial liability. The difference between the carrying amount of a financial liability extinguished and the new

financial liability is recognised in profit or loss together with any related costs or fees incurred. When a financial liability is exchanged for an

equity instrument, the new equity instrument is recognised at fair value and any difference between the carrying value of the liability and

the fair value of the new equity instrument is recognised in profit or loss.

(5)Sale and repurchase agreements (including securities lending and borrowing)

Securities sold subject to repurchase agreements (repos) continue to be recognised on the balance sheet where substantially all of the risks

and rewards are retained. Funds received for repos carried at fair value are included within trading liabilities.

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, 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 hedge 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.

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Notes to the consolidated financial statements continued

for the year ended 31 December

Note 2: Accounting policies continued

At initial recognition, allowance (or provision in the case of some loan commitments and financial guarantees) is made for expected credit

losses resulting from default events that are possible within the next 12 months (12-month expected credit losses). In the event of a

significant increase in credit risk since origination, allowance (or provision) is made for expected credit losses resulting from all possible

default events over the expected life of the financial instrument (lifetime expected credit losses). Financial assets where 12-month

expected credit losses are recognised are considered to be Stage 1; financial assets which are considered to have experienced a significant

increase in credit risk since initial recognition are in Stage 2; and financial assets which have defaulted or are otherwise considered to be

credit-impaired are allocated to Stage 3. Some Stage 3 assets, mainly in Commercial Banking, are subject to individual rather than

collective assessment. Such cases are subject to a risk-based impairment sanctioning process, and these are reviewed and updated at least

quarterly, or more frequently if there is a significant change in the credit profile. The collective assessment of impairment aggregates

financial instruments with similar risk characteristics, such as whether the facility is revolving in nature or secured and the type of security

held against financial assets.

An assessment of whether credit risk has increased significantly since initial recognition considers the change in the risk of default occurring

over the remaining expected life of the financial instrument. In determining whether there has been a significant increase in credit risk, the

Group uses quantitative tests based on relative and absolute probability of default (PD) movements linked to internal credit ratings

together with qualitative indicators such as watchlists and other indicators of historical delinquency, credit weakness or financial difficulty.

The use of internal credit ratings and qualitative indicators ensures alignment between the assessment of staging and the Group’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 recognised on the balance sheet 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. 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.

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Note 2: Accounting policies continued

(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.

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.

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224

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 2: Accounting policies continued

(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.

(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

Lloyds Banking Group plc Annual Report and Accounts 2025

225

Note 2: Accounting policies continued

•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.

(1)Life insurance business

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. The Group's policy is to

include all insurance finance income and expenses in profit or loss.

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.

Lloyds Banking Group plc Annual Report and Accounts 2025

226

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 2: Accounting policies continued

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.

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.

Lloyds Banking Group plc Annual Report and Accounts 2025

227

Note 2: Accounting policies continued

(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.

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.

Lloyds Banking Group plc Annual Report and Accounts 2025

228

Notes to the consolidated financial statements continued

for the year ended 31 December

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 disclosed within the following notes:

•Insurance business (note 8(I))

•Retirement benefit obligations (note 12)

•Tax (note 15)

•Fair value of financial assets and liabilities (note 17(D))

•Allowance for expected credit losses (note 21)

•Provisions (note 28)

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

•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 152.

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

Management believes that excluding volatility from underlying profit before tax provides useful information for investors on the

performance of the business because it allows for a comparable representation of the Group’s performance by removing the impact of

items caused by market movements outside the control of management.

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

•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

•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 equity investment businesses and residual underlying net interest income after transfer pricing.

In 2025, the Group revised its treatment of certain divisional variable payment related costs. Previously reported within divisional operating

costs, these are now included within divisional underlying other income. Comparative figures have been represented on a consistent basis,

with no net impact on segmental profit or loss. Total Group comparatives are unchanged.

Lloyds Banking Group plc Annual Report and Accounts 2025

229

Note 4: Segmental analysis continued

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 the segmental results.


Year ended 31 December 2025	Retail £m	Commercial Banking £m		Insurance, Pensions and Investments £m		Other £m	Total £m
Underlying net interest income	9,637		3,670		(151)	479	13,635
Underlying other income	2,636		1,825		1,431	228	6,120
Total underlying income	12,273		5,495		1,280	707	19,755
Operating lease depreciation1	(1,445)		(9)		–	–	(1,454)
Net income	10,828		5,486		1,280	707	18,301
Operating costs	(5,807)		(2,853)		(933)	(168)	(9,761)
Remediation	(931)		(27)		(15)	5	(968)
Total costs	(6,738)		(2,880)		(948)	(163)	(10,729)
Underlying impairment (charge) credit	(734)		(60)		(2)	1	(795)
Underlying profit before tax	3,356		2,546		330	545	6,777

External income	15,383		3,499		1,436	(563)	19,755
External operating lease depreciation1	(1,445)		(9)		–	–	(1,454)
Inter-segment (expense) income	(3,110)		1,996		(156)	1,270	–
Net income	10,828		5,486		1,280	707	18,301

Loans and advances to customers2	390,616		90,307		–	540	481,463
External assets	404,882		147,186		218,137	173,867	944,072
Customer deposits	325,169		171,063		–	225	496,457
External liabilities	331,244		211,175		213,520	140,266	896,205

Analysis of underlying other income:
Consumer lending	2,075						2,075
Consumer relationships	561						561
Business and Commercial Banking			543				543
Corporate and Institutional Banking			1,282				1,282
Life, Pensions and Investments					1,018		1,018
General insurance					277		277
Venture capital						462	462
Other					136	(234)	(98)
Underlying other income	2,636		1,825		1,431	228	6,120

Other items reflected in income statement above:
Depreciation and amortisation	2,352		345		193	587	3,477
Defined benefit scheme credit	–		–		–	(37)	(37)
Non-income statement items:
Additions to fixed assets	4,173		242		57	1,851	6,323
Investments in joint ventures and associates at end of year	–		–		–	445	445

1Net of losses on disposal of operating lease assets of £10 million.

2Other includes centralised fair value hedge accounting adjustments.

Lloyds Banking Group plc Annual Report and Accounts 2025

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 income1	2,354	1,815		1,292	136	5,597
Total underlying income	11,284	5,249		1,156	753	18,442
Operating lease depreciation2	(1,319)	(6)		–	–	(1,325)
Net income	9,965	5,243		1,156	753	17,117
Operating costs1	(5,566)	(2,752)		(924)	(200)	(9,442)
Remediation	(750)	(104)		(19)	(26)	(899)
Total costs	(6,316)	(2,856)		(943)	(226)	(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	13,566	3,981		1,292	(397)	18,442
External operating lease depreciation2	(1,319)	(6)		–	–	(1,325)
Inter-segment (expense) income	(2,282)	1,268		(136)	1,150	–
Net income	9,965	5,243		1,156	753	17,117

Loans and advances to customers3	372,250	87,602		–	5	459,857
External assets4	387,322	148,548		197,309	173,518	906,697
Customer deposits	319,726	162,645		–	374	482,745
External liabilities4	324,730	207,066		193,519	135,494	860,809

Analysis of underlying other income:
Consumer lending	1,810					1,810
Consumer relationships	544					544
Business and Commercial Banking		533				533
Corporate and Institutional Banking		1,282				1,282
Life, Pensions and Investments				979		979
General insurance				229		229
Venture capital					457	457
Other				84	(321)	(237)
Underlying other income	2,354	1,815		1,292	136	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

1In 2025, the Group revised its treatment of certain divisional variable payment related costs. Previously reported within divisional operating costs, these are now included within

divisional underlying other income. Comparative figures have been represented on a consistent basis, with no net impact on segmental profit or loss. Total Group comparatives are

unchanged.

2Net of profits on disposal of operating lease assets of £59 million.

3Other includes centralised fair value hedge accounting adjustments.

4The Insurance, Pensions and Investments operating segment external assets included £5,122 million of disposal group assets and external liabilities included £5,268 million of disposal

group liabilities. Further details are provided in note 24 and note 27.

Lloyds Banking Group plc Annual Report and Accounts 2025

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	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:
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.

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 2025

232

Notes to the consolidated financial statements continued

for the year ended 31 December

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 2025	Lloyds Banking Group statutory basis £m	Volatility, and other items1 £m	Insurance gross up2 £m	Underlying basis £m
Net interest income	13,230	403	2	13,635	Underlying net interest income
Other income	6,192	(326)	254	6,120	Underlying other income
		(1,454)	–	(1,454)	Operating lease depreciation3
Total income	19,422	(1,377)	256	18,301	Net income
Operating expenses3	(11,966)	1,493	(256)	(10,729)	Total costs
Impairment charge	(795)	–	–	(795)	Underlying impairment charge
Profit before tax	6,661	116	–	6,777	Underlying profit


			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		5,726	(375)	246	5,597	Underlying other income
			(1,325)	–	(1,325)	Operating lease depreciation3
Total income		18,003	(1,122)	236	17,117	Net income
Operating expenses3		(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 items1 £m	Insurance gross up2 £m	Underlying basis £m
Net interest income		13,298	479	(12)	13,765	Underlying net interest income
Other income		5,331	(447)	239	5,123	Underlying other income
			(956)	–	(956)	Operating lease depreciation3
Total income		18,629	(924)	227	17,932	Net income
Operating expenses3		(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

1In the year ended 31 December 2025 this comprises the effects of market and other volatility (gain of £72 million, 2024: losses of £144 million, 2023: gain of £35 million); the

amortisation of purchased intangibles (£86 million, 2024: £81 million, 2023: £80 million); restructuring (£46 million of merger, acquisition and integration costs, 2024: £40 million, 2023:

£154 million); and the fair value unwind (losses of £56 million, 2024: losses of £107 million, 2023: losses of £107 million).

2Under IFRS 17, expenses which are directly associated with the fulfilment of insurance contracts are reported as part of the insurance service result within statutory other income. On

an underlying basis these expenses remain within costs.

3Net of losses on disposal of operating lease assets of £10 million (2024: profit of £59 million; 2023: profit of £93 million). Statutory operating expenses includes operating lease

depreciation. On an underlying basis operating lease depreciation is included in net income.

Lloyds Banking Group plc Annual Report and Accounts 2025

233

Note 5: Net interest income


	2025 £m	2024 £m	2023 £m
Interest income:
Loans and advances to banks	2,657	3,508	4,172
Loans and advances to customers	23,756	23,242	20,419
Reverse repurchase agreements	2,336	2,685	2,044
Debt securities	658	779	559
Financial assets held at amortised cost	29,407	30,214	27,194
Financial assets at fair value through other comprehensive income	1,342	1,074	857
Total interest income1	30,749	31,288	28,051
Interest expense:
Deposits from banks	(244)	(225)	(213)
Customer deposits	(9,257)	(10,132)	(7,148)
Repurchase agreements at amortised cost	(1,984)	(2,392)	(2,397)
Debt securities in issue at amortised cost2	(5,299)	(5,493)	(4,253)
Lease liabilities	(28)	(31)	(30)
Subordinated liabilities	(707)	(738)	(712)
Total interest expense	(17,519)	(19,011)	(14,753)
Net interest income	13,230	12,277	13,298

1Includes £1,213 million (2024: £1,104 million; 2023: £923 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 £1,869 million (2024: debit of £2,597 million; 2023: debit of £1,838 million) transferred from the

cash flow hedge reserve (see statement of comprehensive income).

Note 6: Net fee and commission income


Year ended 31 December 2025	Retail £m	Commercial Banking £m		Insurance, Pensions and Investments £m		Other £m	Total £m
Fee and commission income:
Current accounts	430		243		–	–	673
Credit and debit card fees	845		479		–	–	1,324
Commercial banking and treasury fees	–		434		–	–	434
Unit trust and insurance broking	–		–		65	–	65
Factoring	–		66		–	–	66
Other fees and commissions	80		130		332	14	556
Total fee and commission income	1,355		1,352		397	14	3,118
Fee and commission expense	(811)		(363)		(144)	(16)	(1,334)
Net fee and commission income	544		989		253	(2)	1,784


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

Lloyds Banking Group plc Annual Report and Accounts 2025

234

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 6: Net fee and commission income continued


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

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. 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 2025, the Group held on its balance sheet £174 million (31 December 2024: £163 million) in respect of services provided to

customers and £92 million (31 December 2024: £75 million) in respect of amounts received from customers for services to be provided after

the balance sheet date. Current unsatisfied performance obligations amount to £207 million (31 December 2024: £195 million); the Group

expects to receive substantially all of this revenue by the end of 2027.

Income recognised during the year included £30 million (2024: £28 million) in respect of amounts included in the contract liability balance

at the start of the year and £nil (2024: nil) 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


	2025 £m	20241 £m	20231 £m
Net gains on financial assets and liabilities at fair value through profit or loss:
Net gains on financial instruments held for trading2	716	778	518
Net gains on other financial instruments mandatorily held at fair value through profit or loss	555	662	561
Net losses on financial liabilities designated at fair value through profit or loss	(252)	(336)	(341)
	1,019	1,104	738
Foreign exchange	411	687	585
Investment property gains (losses)	55	21	(16)
Net trading income	1,485	1,812	1,307

1Comparative periods have been represented for presentational changes. See note 1.

2Includes hedge ineffectiveness in respect of fair value hedges (2025: loss of £54 million; 2024: loss of £81 million; 2023: loss of £267 million) and cash flow hedges (2025: gain of

£54 million; 2024: loss of £60 million; 2023: gain of £19 million).

Lloyds Banking Group plc Annual Report and Accounts 2025

235

Note 8: Insurance business

(A)Insurance service result


	2025 £m	2024 £m	2023 £m
Insurance revenue
Amounts relating to the changes in liabilities for remaining coverage:
CSM recognised for services provided	590	449	329
Change in risk adjustments for non-financial risk for risk expired	49	58	84
Expected claims and other insurance service expenses	1,730	1,916	1,907
Charges to funds in respect of policyholder tax and other	200	108	87
	2,569	2,531	2,407
Recovery of insurance acquisition cash flows	117	105	87
Total life	2,686	2,636	2,494
Total non-life	752	655	514
Total insurance revenue	3,438	3,291	3,008
Insurance service expense
Incurred claims and other insurance service expenses	(1,749)	(1,978)	(1,897)
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	(84)	(72)	58
Amortisation of insurance acquisition cash flows	(117)	(105)	(88)
Total life excluding net impairment loss on insurance acquisition assets	(1,950)	(2,159)	(1,927)
Net impairment loss on insurance acquisition assets	–	(9)	(7)
Total life	(1,950)	(2,168)	(1,934)
Total non-life1	(593)	(565)	(480)
Total insurance service expense	(2,543)	(2,733)	(2,414)
Net (expense) income from reinsurance contracts held	(139)	(72)	2
Insurance service result	756	486	596

1Includes weather-related claims of £111 million (2024: £82 million; 2023: £57 million), of which £97 million (2024: £64 million; 2023: £51 million) was related to severe weather events.

(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.


	2025
	Life £m	Non-life £m	Total £m
Net gains on financial assets and liabilities at fair value through profit or loss	15,408	34	15,442
Foreign exchange	(42)	–	(42)
Investment property losses	(4)	–	(4)
Net investment return on assets held to back insurance and participating investment contracts	15,362	34	15,396
Net investment return on assets held to back third party interests in consolidated funds			2,054
Net investment return on assets held to back non-participating investment contracts			6,394
Investment return on assets held to back insurance and investment contracts1			23,844

Changes in fair value of underlying items of direct participating contracts	(14,943)	–	(14,943)
Effects of risk mitigation option	174	–	174
Interest accreted	(701)	(14)	(715)
Effect of changes in interest rates and other financial assumptions	64	–	64
Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked-in rates	69	–	69
Net finance expense from insurance and participating investment contracts	(15,337)	(14)	(15,351)

Net finance income from reinsurance contracts held	54	–	54

Net finance expense from insurance, participating investment and reinsurance contracts	(15,283)	(14)	(15,297)
Movement in third party interests in consolidated funds			(1,954)
Change in non-participating investment contracts			(6,793)
Net finance expense arising from insurance and investment contracts			(24,044)
Net investment return and finance result in respect of insurance and investment contracts			(200)

Lloyds Banking Group plc Annual Report and Accounts 2025

236

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 8: Insurance business continued


	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	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)
Net investment return and finance result in respect of insurance and investment contracts			(265)


	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	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 expense 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 income arising from insurance and investment contracts			(16,776)
Net investment return and finance result in respect of insurance and investment contracts			(34)

1Includes income of £15,009 million (2024: income of £10,688 million; 2023: income of £10,200 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.

Lloyds Banking Group plc Annual Report and Accounts 2025

237

Note 8: Insurance business continued

(C)Insurance and participating investment contracts assets and liabilities


	2025			2024
	Life £m	Non-life £m	Total £m	Life £m	Non-life £m	Total £m
Insurance contract assets	113	–	113	–	–	–
Liabilities arising from insurance and participating investment contracts1	(134,906)	(412)	(135,318)	(121,700)	(387)	(122,087)
Other liabilities2	–	–	–	(5,268)	–	(5,268)
Net liability	(134,793)	(412)	(135,205)	(126,968)	(387)	(127,355)
Insurance acquisition assets	–	34	34	–	23	23
Insurance and participating investment contacts net liability	(134,793)	(378)	(135,171)	(126,968)	(364)	(127,332)

1Excluding insurance acquisition assets.

2Liabilities arising from insurance contracts relating to the disposal of the Group's bulk annuity business were classified as disposal group liabilities in 2024 and presented in Other

liabilities in note 27.

On 13 March 2024, the Group entered into a business transfer agreement with Rothesay Life plc for the sale of the Group’s bulk annuity

business and to pursue the transfer of associated business assets and assumed liabilities under Part VII of the Financial Services and Markets

Act 2000. A reinsurance agreement between the Group and Rothesay Life plc was signed on 30 April 2024 to materially de-risk the Group’s

bulk annuity portfolio. The Part VII transfer was completed in June 2025 and associated reinsurance agreements were concluded.

At 31 December 2024, the Group presented the assets and liabilities relating to the bulk annuity business, including the reinsurance

contract assets arising from the agreement between the Group and Rothesay Life plc, as a disposal group. At the Part VII transfer date, the

Group derecognised the assets and liabilities of the disposal group, comprising £4.9 billion of reinsurance contract assets, £5.1 billion of

insurance contract liabilities, £50 million of goodwill and a £9 million deferred tax asset. Following the derecognition requirements in IFRS

17 for transfers of contracts to a third party, the Group recognised £179 million in insurance revenue, representing the release of CSM for

future service at the transfer date. The derecognition of the goodwill and deferred tax asset was charged to other operating income. The

overall pre-tax gain on derecognition of the disposal group was £120 million.

Of the fair value of underlying items in respect of direct participating contracts of £121,347 million (2024: £110,045 million), £122,685 million

(2024: £111,435 million) were financial assets at fair value through profit or loss and £902 million (2024: £1,125 million) were derivative

financial liabilities.

(D)Reconciliation of insurance balances for liability for remaining coverage and liability for incurred claims


	2025				2024
	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	(125,854)	(515)	(599)	(126,968)	(118,724)	(466)	(593)	(119,783)

Contracts under the fair value transition approach	1,651	–	–	1,651	1,498	–	–	1,498
Other contracts	1,035	–	–	1,035	1,138	–	–	1,138
Insurance revenue	2,686	–	–	2,686	2,636	–	–	2,636
Insurance service expenses2	(120)	(40)	(1,790)	(1,950)	(105)	(44)	(2,010)	(2,159)
Insurance service result	2,566	(40)	(1,790)	736	2,531	(44)	(2,010)	477
Net finance expense from insurance and participating investment contracts	(15,313)	(19)	(5)	(15,337)	(10,371)	(5)	(5)	(10,381)
Exchange differences	(84)	–	–	(84)	80	–	–	80
Total change in profit or loss	(12,831)	(59)	(1,795)	(14,685)	(7,760)	(49)	(2,015)	(9,824)
Investment components	10,411	–	(10,411)	–	10,205	–	(10,205)	–
Premiums received	(10,618)	–	–	(10,618)	(10,679)	–	–	(10,679)
Claims and other insurance service expenses paid	–	–	12,240	12,240	849	–	12,214	13,063
Insurance acquisition cash flows	306	–	–	306	265	–	–	265
Cash flows	(10,312)	–	12,240	1,928	(9,565)	–	12,214	2,649
Derecognition Consideration3	4,932	–	–	4,932	–	–	–	–
Transfer to other items in the balance sheet	–	–	–	–	(10)	–	–	(10)
Net liability at 31 December1	(133,654)	(574)	(565)	(134,793)	(125,854)	(515)	(599)	(126,968)

1Excluding insurance acquisition assets.

2Losses and reversal of losses on onerous contracts amounted to a net loss of £84 million (2024: net losses of £72 million). Amortisation of insurance acquisition cash flows amounted to

£117 million (2024: £105 million).

3Derecognition consideration recognised due to transfer of bulk annuity business to Rothesay, as set out in section (C).

Lloyds Banking Group plc Annual Report and Accounts 2025

238

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 8: Insurance business continued


		2025				2024
		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		(32)	–	(355)	(387)	(25)	–	(339)	(364)

Contracts under the fair value transition approach		–	–	–	–	–	–	–	–
Other contracts		752	–	–	752	655	–	–	655
Insurance revenue		752	–	–	752	655	–	–	655
Insurance service expenses2		(31)	–	(562)	(593)	(32)	–	(533)	(565)
Insurance service result		721	–	(562)	159	623	–	(533)	90
Net finance income (expense) from insurance and participating investment contracts		–	–	(14)	(14)	–	–	(7)	(7)
Total change in profit or loss		721	–	(576)	145	623	–	(540)	83
Premiums received		(744)	–	–	(744)	(659)	–	–	(659)
Claims and other insurance service expenses paid		–	–	540	540	–	–	524	524
Insurance acquisition cash flows		34	–	–	34	29	–	–	29
Cash flows		(710)	–	540	(170)	(630)	–	524	(106)
Net liability at 31 December1		(21)	–	(391)	(412)	(32)	–	(355)	(387)

1Excluding insurance acquisition assets.

2Losses and reversal of losses on onerous contracts amounted to £nil (2024: £nil). Amortisation of insurance acquisition cash flows amounted to £31 million (2024: £32 million).

(E)Summary of contractual service margin and risk adjustment


	2025			2024
	Life £m	Non-life £m	Total £m	Life £m	Non-life £m	Total £m
CSM on insurance and participating investment contracts1	4,385	–	4,385	4,646	–	4,646
CSM on reinsurance contracts2	(90)	–	(90)	(467)	–	(467)
Total CSM	4,295	–	4,295	4,179	–	4,179
Risk adjustment on insurance and participating investment contracts1	946	23	969	891	19	910
Risk adjustment on reinsurance contracts2	(39)	–	(39)	(68)	(1)	(69)
Total risk adjustment	907	23	930	823	18	841
Total	5,202	23	5,225	5,002	18	5,020

1Includes CSM of £nil (2024: £544 million) and risk adjustment of £nil (2024: £36 million) arising from insurance contracts classified as disposal group liabilities and presented in other

liabilities. Further information on the disposal group is provided in section (C).

2Includes CSM of £nil (2024: £(426) million) and risk adjustment of £nil (2024: £(36) million) on reinsurance contracts classified as disposal group assets and presented in other assets.

Further information on the disposal group is provided in section (C).

Lloyds Banking Group plc Annual Report and Accounts 2025

239

Note 8: Insurance business continued

(F)Reconciliation of measurement components of insurance contract balances


	2025
				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	(121,431)		(891)		(1,415)	(3,231)	(4,646)	(126,968)
Relating to current services	179		51		190	400	590	820
Contracts initially recognised in the year	(14)		(60)		–	(18)	(18)	(92)
Changes in estimates that adjust the CSM	319		(49)		65	(335)	(270)	–
Changes in estimates that result in losses and reversal of losses on onerous contracts	10		(2)		–	–	–	8
Relating to future services	315		(111)		65	(353)	(288)	(84)
Relating to past services	(6)		6		–	–	–	–
Insurance service result	488		(54)		255	47	302	736
Net finance expense from insurance and participating investment contracts	(15,302)		–		5	(40)	(35)	(15,337)
Exchange differences	(77)		(1)		(6)	–	(6)	(84)
Total change in profit or loss	(14,891)		(55)		254	7	261	(14,685)
Premiums received	(10,618)		–		–	–	–	(10,618)
Claims and other insurance service expenses paid	12,240		–		–	–	–	12,240
Insurance acquisition cash flows	306		–		–	–	–	306
Cash flows	1,928		–		–	–	–	1,928
Derecognition Consideration2	4,932		–		–	–	–	4,932
Transfer to other items in the balance sheet	–		–		–	–	–	–
Net liability at 31 December1	(129,462)		(946)		(1,161)	(3,224)	(4,385)	(134,793)

1Excluding insurance acquisition assets.

2Derecognition consideration recognised due to transfer of bulk annuity business to Rothesay, as set out in section (C).


	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) income 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
Derecognition Consideration	–		–		–	–	–	–
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.

Lloyds Banking Group plc Annual Report and Accounts 2025

240

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% (2024: 85%). 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% (2024: 68%) at end of the

reporting period.

(G)Impacts of insurance and participating investment contracts recognised in the year


	2025			2024
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	123	185	308	56	203	259
Claims and other directly attributable expenses	5,573	524	6,097	1,446	4,498	5,944
Estimates of the present value of future cash outflows	5,696	709	6,405	1,502	4,701	6,203
Estimates of the present value of future cash inflows	(5,761)	(630)	(6,391)	(1,577)	(4,659)	(6,236)
Risk adjustment for non-financial risk	47	13	60	14	51	65
Contractual service margin	18	–	18	61	–	61
Losses recognised on initial recognition	–	92	92	–	93	93

(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 2025	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	(277)	(251)	(207)	(189)	(172)	(663)	(1,358)	(3,117)
Annuities, protection and other	(106)	(98)	(90)	(83)	(78)	(306)	(507)	(1,268)
Insurance and participating investment contracts	(383)	(349)	(297)	(272)	(250)	(969)	(1,865)	(4,385)
Reinsurance contracts held	12	10	8	7	6	18	29	90
Total	(371)	(339)	(289)	(265)	(244)	(951)	(1,836)	(4,295)


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)

1CSM of £(544) million arising from insurance contracts classified as disposal group liabilities was included in less than one year.

2CSM of £426 million arising from reinsurance contracts held classified as disposal group assets was included in less than one year.

(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. The sensitivities below are on a net of reinsurance basis. 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.

In 2025, the Group utilised all its remaining brought forward life assurance expenses to reduce the cost of policyholder tax charged on its

investment gains. Future investment gains cannot therefore be sheltered by expenses, and as a result the equity impacts in sensitivity table

below for 2025 includes the cost of policyholder tax whereas the 2024 comparatives do not.

Lloyds Banking Group plc Annual Report and Accounts 2025

241

Note 8: Insurance business continued


		2025		2024
	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	1% reduction	271	157	272	204
	1% increase	(237)	(136)	(227)	(171)
Widening of credit default spreads on corporate bonds and other credit risky assets	0.25% addition	(186)	(140)	(174)	(131)
Other market exposure
Equity	10% reduction	64	145	137	103
	10% increase	(58)	(144)	(127)	(95)
Inflation	50bps reduction	(77)	(58)	(88)	(66)
	50bps increase	84	63	98	73
Other accounting estimates
Annuitant mortality	5% reduction	33	25	48	36
	5% increase	(37)	(28)	(45)	(33)
Future maintenance and investment expenses	10% reduction	29	22	30	23
	10% increase	(31)	(23)	(30)	(23)
Non-annuitant mortality and morbidity	5% reduction	31	24	17	13
	5% increase	(26)	(20)	(10)	(8)
Lapse rates	10% reduction	8	6	5	4
	10% increase	(9)	(6)	(4)	(3)

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
2025	4.74	5.25	6.00	6.24	5.57
2024	5.58	5.17	5.66	5.71	5.06

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 and other credit risky assets

The Group applies a sensitivity showing the impact of an increase in credit default spreads on corporate bonds and other credit risky assets

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.

Equity

The Group applies a sensitivity showing the impact of an instantaneous increase (decrease) in the value of equity markets. This impacts the

value of unit linked and with-profits business as the assets backing the policyholder liabilities rise (fall) leading to an increase (reduction) the

value of future annual management charges received. The overall impact is affected by the Group's unit-matching policy which mitigates

the impact of equity market movements on the value of these future charges. The Group also implements an equity market hedge along

with utilising the Risk Mitigation Option under IFRS17 to further mitigate equity market movement impacts.

Inflation

The Group applies a sensitivity showing the impact of an increase (decrease) in inflation. This impacts the level of expenses incurred across

all lines of business as well as any inflation linked premiums or benefits.

Lloyds Banking Group plc Annual Report and Accounts 2025

242

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 8: Insurance business continued

Mortality

The mortality assumptions for the main classes of business are set with regard to recent Group experience and general industry trends,

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 2025 and the prior period were selected from the bespoke mortality tables. The mortality improvements adopt the

100% Bespoke tables and CMI2024_{M/F}_Q3(7.25) HL-1_{2.0/1.8}%_{0.5/0.5}A_2013 for the year ended 31 December 2025; and the 100%

Bespoke tables and CMI 2023_{M/F}_(7.25)_{2.0/1.8}%_{0.5/0.5}A_2013 for the prior period.

Lapse rates

Lapse rates refer to the rate of policy termination or the rate at which policyholders stop paying regular premiums due under the contract.

Historical persistency experience is analysed using statistical techniques. As experience can vary considerably between different product

types and for contracts that have been in force for different periods, the data is broken down into broadly homogeneous groups for the

purposes of determining the Group’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 1.3% to 16.9% (2024: 0.8% to 13.8%) and for longstanding business range from

0.5% to 74.1% (2024: 0.5% to 74.1%), the wide range being a result of the age and variety of products.

Note 9: Other operating income


	2025 £m	2024 £m	2023 £m
Operating lease rental income	1,979	1,681	1,383
Rental income from investment properties (note 24)	190	172	146
Other1	198	81	102
Total other operating income	2,367	1,934	1,631

1 Net gains on disposal of financial assets at fair value through other comprehensive income, previously reported separately, are presented within other.

Note 10: Operating expenses


	2025 £m	2024 £m	2023 £m
Staff costs:
Salaries and social security costs1	3,846	3,819	3,651
Pensions and other retirement benefit schemes (note 12)	527	526	355
Restructuring and other staff costs	334	327	487
	4,707	4,672	4,493
Premises and equipment costs2	503	454	449
Depreciation and amortisation3	3,477	3,426	2,905
UK bank levy	130	147	150
Regulatory and legal provisions (note 28)	968	899	675
Other	2,786	2,594	2,720
Operating expenses before adjustment for:	12,571	12,192	11,392
Amounts attributable to the acquisition of insurance and participating investment contracts	(191)	(182)	(183)
Amounts reported within insurance service expenses	(414)	(409)	(386)
Total operating expenses	11,966	11,601	10,823

1Including social security costs of £454 million (2024: £428 million; 2023: £371 million).

2Net of loss on disposal of operating lease assets of £10 million (2024: profit of £59 million; 2023: profit of £93 million).

3Including depreciation in respect of premises £101 million (2024: £96 million; 2023: £110 million), equipment £349 million (2024: £400 million; 2023: £388 million), operating lease

assets £1,470 million (2024: £1,410 million; 2023: £1,070 million) and right-of-use assets £182 million (2024: £198 million; 2023: £209 million).

Average headcount

The average number of persons on a headcount basis employed by the Group during the year was as follows:


	2025	2024	2023
UK	60,331	64,334	65,390
Overseas	3,707	1,895	807
Total	64,038	66,229	66,197

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
	2025 £m	2024 £m	2023 £m	2025 £m	2024 £m	2023 £m
Awards made in respect of the year ended 31 December	343	300	316	83	90	108
Awards made in respect of earlier years	92	96	124	37	34	22
	435	396	440	120	124	130

Performance-based awards expensed in 2025 include cash awards amounting to £225 million (2024: £162 million; 2023: £169 million).

Lloyds Banking Group plc Annual Report and Accounts 2025

243

Note 11: Share-based payments

Charge to the income statement

The charge to the income statement is set out below:


	2025 £m	2024 £m	2023 £m
Deferred bonus plan	186	206	241

Options and shares granted in the year	12	15	20
Options and shares granted in prior years	51	60	67
	63	75	87

Total charge to the income statement	249	281	328

During the year ended 31 December 2025 the Group operated the following share-based payment schemes, 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 2025 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% 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:


	2025		2024
	Number of options	Weighted average exercise price (pence)	Number of options	Weighted average exercise price (pence)
Outstanding at 1 January	797,624,786	42.30	1,311,205,148	31.70
Granted	119,602,764	74.35	200,820,157	52.35
Exercised	(189,981,525)	39.40	(663,187,372)	24.60
Forfeited	(24,349,649)	43.66	(17,375,716)	39.01
Cancelled	(15,760,828)	47.99	(27,852,684)	40.70
Expired	(1,816,675)	39.45	(5,984,747)	35.40
Outstanding at 31 December	685,318,873	48.52	797,624,786	42.30
Exercisable at 31 December	178,806	39.40	955,281	24.25

The weighted average share price at the time that the options were exercised during 2025 was £0.61 (2024: £0.47). The weighted average

remaining contractual life of options outstanding at the end of the year was 1.88 years (2024: 1.85 years).

The weighted average fair value of SAYE options granted during 2025 was £0.15 (2024: £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.


	2025		2024
	Number of options	Weighted average exercise price (pence)	Number of options	Weighted average exercise price (pence)
Outstanding at 1 January	15,578,997	nil	26,131,255	nil
Granted	–	nil	768,170	nil
Exercised	(6,945,829)	nil	(10,815,436)	nil
Forfeited	(253,070)	nil	(488,091)	nil
Lapsed	–	nil	(16,901)	nil
Outstanding at 31 December	8,380,098	nil	15,578,997	nil
Exercisable at 31 December	200,359	nil	988,243	nil

The weighted average fair value of options granted in the year was £nil (2024: £0.46). 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

2025 was £0.75 (2024: £0.53). The weighted average remaining contractual life of options outstanding at the end of the year was 5.9 years

(2024: 6.2 years).

Included in the above are awards to the Group Chief Executive.

Lloyds Banking Group plc Annual Report and Accounts 2025

244

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 11: Share-based payments continued

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.


	2025 Number of options	2024 Number of options
Outstanding at 1 January	3,968,909	5,337,899
Exercised	(1,368,990)	(1,368,990)
Outstanding at 31 December	2,599,919	3,968,909

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.


	2025 Number of shares	2024 Number of shares
Outstanding at 1 January	22,123,194	39,804,293
Vested	(10,254,907)	(18,490,246)
Forfeited	–	(33,055)
Dividend award	–	842,202
Outstanding at 31 December	11,868,287	22,123,194

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 2023 grant are due to vest in 2026 at a rate of 100%. Details in relation to the plan are provided in the

directors’ remuneration report.


	2025 Number of shares	2024 Number of shares
Outstanding at 1 January	195,879,295	262,409,389
Vested	(62,272,967)	(53,608,504)
Forfeited	(4,809,902)	(12,921,590)
Outstanding at 31 December	128,796,426	195,879,295

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.


	2025 Number of shares	2024 Number of shares
Outstanding at 1 January	75,063,395	–
Granted	46,999,778	75,063,395
Outstanding at 31 December	122,063,173	75,063,395

The weighted average fair value of awards granted in the year was £0.48 (2024: £0.30).

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.


	2025	2024
	Number of shares	Number of shares
Outstanding at 1 January	2,865,027	–
Granted	3,679,148	3,593,397
Vested	(1,747,624)	(728,370)
Outstanding at 31 December	4,796,551	2,865,027

The weighted average fair value of awards granted in the year was £0.73 (2024: £0.51).

Lloyds Banking Group plc Annual Report and Accounts 2025

245

Note 11: Share-based payments continued

Assumptions at 31 December 2025

The fair value calculations at 31 December 2025 for grants made in the year, using Black-Scholes models and Monte Carlo simulation, are

based on the following assumptions:


	SAYE	Executive Share Plans	Long Term Share Plan
Weighted average risk-free interest rate	3.87%	3.81%	4.13%
Weighted average expected life	3.3 years	1.5 years	4.4 years
Weighted average expected volatility	25%	25%	27%
Weighted average expected dividend yield	5.0%	6.0%	6.0%
Weighted average share price	£0.84	£0.80	£0.71
Weighted average exercise price	£0.74	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 2025 was 26,409,397 (2024: 38,464,042), with an average fair value of £0.74

(2024: £0.53), 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 2025 was 1,470,573 (2024: 1,541,751) with an average fair value of £0.81 (2024: £0.55) based on market prices at the date of the award.

The fixed share award is not subject to any performance conditions, performance adjustment or clawback. On an employee leaving the

Group, there is no change to the timeline for which shares will become unrestricted.

Since the beginning of 2023 the number of recipients of these awards has been reduced to the executive directors only.

Free shares

An award of shares may be made annually to employees up to a maximum of £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 2025 in respect of the Group’s defined benefit pension scheme obligations

was £2,612 million, comprising an asset of £2,695 million and a liability of £83 million (2024: a net asset of £2,945 million comprising an

asset of £3,028 million and a liability of £83 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).


	2025 £m	2024 £m	2023 £m
Charge (credit) to the income statement
Defined benefit pension schemes	(39)	(13)	(80)
Other retirement benefit schemes	2	2	1
Total defined benefit schemes	(37)	(11)	(79)
Defined contribution pension schemes	564	537	434
Total charge to the income statement (note 10)	527	526	355

Lloyds Banking Group plc Annual Report and Accounts 2025

246

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 12: Retirement benefit obligations continued


	2025 £m	2024 £m
Amounts recognised in the balance sheet
Retirement benefit assets	2,695	3,028
Retirement benefit obligations	(120)	(122)
Total amounts recognised in the balance sheet	2,575	2,906

The total amounts recognised in the balance sheet relate to:


	2025 £m	2024 £m
Defined benefit pension schemes	2,612	2,945
Other retirement benefit schemes	(37)	(39)
Total amounts recognised in the balance sheet	2,575	2,906

The Group holds on its balance sheet the net surplus or deficit, being the difference between the fair value of plan assets and the present

value of scheme liabilities, at the balance sheet date for each plan. Surpluses are only recognised to the extent that they are recoverable

through reduced contributions in the future or through potential future refunds from the schemes. In assessing whether a surplus is

recoverable, the Group considers its current right to obtain a refund or a reduction in future contributions together with the rights of third

parties, such as trustees, at the balance sheet date.

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 2025, these schemes represented 94%

of the Group’s total gross defined benefit pension assets (2024: 94%). 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 funding 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, no further deficit contributions were paid 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 2026.

The Group provides additional security arrangements to a number of the UK schemes for the Group’s obligations to the schemes.

At 31 December 2025 the security arrangements held assets of £4.0 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 2025, 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 July 2024, the Court of Appeal handed down a judgment (Virgin Media Limited v NTL Pension Trustees Limited) which potentially has

implications for the validity of amendments made by pension schemes that were contracted out on a salary-related basis between 6 April

1997 and the abolition of contracting-out in 2016. The Government in September 2025, recognising that schemes and sponsoring

employers need clarity around scheme liabilities, proposed legislation to give affected pension schemes the ability to retrospectively obtain

written actuarial confirmation that historic benefit changes met the necessary standards. 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 is continuing to review scheme amendments to decide whether any subsequent actions are required and

will continue to monitor developments.

(ii)Amounts in the financial statements


	2025 £m	2024 £m
Amount included in the balance sheet
Present value of funded obligations	(26,571)	(27,118)
Fair value of scheme assets	29,183	30,063
Net amount recognised in the balance sheet	2,612	2,945

Lloyds Banking Group plc Annual Report and Accounts 2025

247

Note 12: Retirement benefit obligations continued


	2025 £m	2024 £m
Net amount recognised in the balance sheet
At 1 January	2,945	3,532
Net defined benefit pension credit	39	13
Actuarial gains on defined benefit obligation	412	2,940
Return on plan assets	(934)	(3,712)
Employer contributions	150	172
At 31 December	2,612	2,945


	2025 £m	2024 £m
Movements in the defined benefit obligation
At 1 January	(27,118)	(30,201)
Current service cost	(64)	(85)
Interest expense	(1,459)	(1,385)
Remeasurements:
Actuarial gains – demographic assumptions	114	109
Actuarial (losses) gains – experience	(427)	94
Actuarial gains – financial assumptions	725	2,737
Benefits paid	1,693	1,638
Past service cost	(30)	(35)
Settlements	2	1
Exchange and other adjustments	(7)	9
At 31 December	(26,571)	(27,118)


	2025 £m	2024 £m
Analysis of the defined benefit obligation
Active members	(1,960)	(2,463)
Deferred members	(6,722)	(7,080)
Dependants	(1,486)	(1,429)
Pensioners	(16,403)	(16,146)
At 31 December	(26,571)	(27,118)


	2025 £m	2024 £m
Changes in the fair value of scheme assets
At 1 January	30,063	33,733
Return on plan assets excluding amounts included in interest income	(934)	(3,712)
Interest income	1,624	1,551
Employer contributions	150	172
Benefits paid	(1,693)	(1,638)
Settlements	(2)	(1)
Administrative costs paid	(32)	(33)
Exchange and other adjustments	7	(9)
At 31 December	29,183	30,063

The credit recognised in the income statement for the year ended 31 December comprises:


	2025 £m	2024 £m	2023 £m
Current service cost	64	85	88
Net interest amount	(165)	(166)	(208)
Past service cost – plan amendments	30	35	5
Plan administration costs incurred during the year	32	33	35
Total defined benefit pension credit	(39)	(13)	(80)

Lloyds Banking Group plc Annual Report and Accounts 2025

248

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 12: Retirement benefit obligations continued

(iii)Composition of scheme assets


	2025			2024
	Quoted £m	Unquoted £m	Total £m	Quoted £m	Unquoted £m	Total £m
Debt instruments1:
Fixed interest government bonds	6,326	–	6,326	6,985	–	6,985
Index-linked government bonds	15,382	–	15,382	15,550	–	15,550
Corporate and other debt securities	9,771	–	9,771	7,396	–	7,396
Asset-backed securities	3	–	3	–	–	–
	31,482	–	31,482	29,931	–	29,931
Pooled investment vehicles	653	5,964	6,617	686	7,342	8,028
Property	–	132	132	–	130	130
Equity instruments	12	59	71	23	66	89
Money market instruments, cash, derivatives and other assets and liabilities	135	(9,254)	(9,119)	55	(8,170)	(8,115)
At 31 December	32,282	(3,099)	29,183	30,695	(632)	30,063

1Of the total debt instruments, £29,876 million (2024: £27,551 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:


	2025 £m	2024 £m
Alternative credit funds	1,138	1,793
Bond and debt funds	276	449
Equity funds	1,644	1,553
Hedge and mutual funds	–	709
Infrastructure funds	1,012	1,059
Liquidity funds	1,702	1,449
Property funds	817	992
Other	28	24
At 31 December	6,617	8,028

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.

(iv)Assumptions

The principal actuarial and financial assumptions used in valuations of the defined benefit pension schemes were as follows:


	2025 %	2024 %
Discount rate	5.57	5.55
Rate of inflation:
Retail Price Index (RPI)	2.65	2.97
Consumer Price Index (CPI)	2.13	2.52
Rate of salary increases	0.00	0.00
Weighted average rate of increase for pensions in payment	2.52	2.69

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
	2025 Years	2024 Years	2025 Years	2024 Years
Life expectancy for average member aged 60, on the valuation date	26.5	26.4	28.6	28.5
Life expectancy for average member aged 60, 15 years after the valuation date	27.4	27.3	29.5	29.4

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 2023 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% weight on 2022 and 2023 mortality experience.

Lloyds Banking Group plc Annual Report and Accounts 2025

249

Note 12: Retirement benefit obligations continued

(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.


	Effect of reasonably possible alternative assumptions
	Increase (decrease) in the income statement charge		Increase (decrease) in the net defined benefit pension scheme surplus
	2025 £m	2024 £m	2025 £m	2024 £m
Inflation (including pension increases)1:
Increase of 0.25%	27	28	(455)	(484)
Decrease of 0.25%	(25)	(27)	433	467
Discount rate2:
Increase of 0.25%	(46)	(51)	659	718
Decrease of 0.25%	45	49	(700)	(757)
Expected life expectancy of members:
Increase of one year	45	46	(802)	(806)
Decrease of one year	(47)	(47)	827	830

1At 31 December 2025, the assumed rate of RPI inflation is 2.65% and CPI inflation 2.13% (2024: RPI 2.97% and CPI 2.52%).

2At 31 December 2025, the assumed discount rate is 5.57% (2024: 5.55%).

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% 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.

Lloyds Banking Group plc Annual Report and Accounts 2025

250

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 12: Retirement benefit obligations continued

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% of scheme assets at 31 December 2025.

The LDI strategies are actively managed to reflect both changing market conditions and changes to the liability profile. At 31 December

2025 the asset-liability matching strategy mitigated c.110% of the liability sensitivity to interest rate movements and c.130% 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.60% of their longevity risk exposure at 31 December 2025.

These arrangements form part of the schemes’ investment portfolio and reduce the risk of members living longer than expected through

the exchange of fixed payments for actual payments.

At 31 December 2025 the value of scheme assets included longevity swaps valued at £(217) million.

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:


	2025 Years	2024 Years
Duration of the defined benefit obligation	11	12

Maturity analysis of benefits expected to be paid:


	2025 £m	2024 £m
Within 12 months	1,816	1,800
Between 1 and 2 years	1,625	1,595
Between 2 and 5 years	5,229	5,134
Between 5 and 10 years	9,294	9,318
Between 10 and 15 years	8,993	9,150
Between 15 and 25 years	15,679	16,316
Between 25 and 35 years	10,382	11,294
Between 35 and 45 years	4,375	5,171
In more than 45 years	906	1,201

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.

During the year ended 31 December 2025 the charge to the income statement in respect of defined contribution schemes was £564 million

(2024: £537 million; 2023: £434 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 2025 by

qualified independent actuaries. The principal assumptions used were as set out above in section (iv), except that the long-term rate of

increase in healthcare premiums has been assumed at 10.00% (2024: 10.00%).

Movements in the other retirement benefits obligation:


	2025 £m	2024 £m
At 1 January	(39)	(44)
Actuarial gains	2	4
Insurance premiums paid	2	3
Charge for the year	(2)	(2)
At 31 December	(37)	(39)

Lloyds Banking Group plc Annual Report and Accounts 2025

251

Note 13: Auditors’ remuneration

Fees payable to the Company’s auditors by the Group are included within other operating expenses and are as follows:


	2025 £m	2024 £m	2023 £m
Fees payable for the:
– audit of the Company’s current year annual report	2.0	2.0	2.0
– audits of the Company’s subsidiaries	33.9	31.9	32.3
– total audit fees in respect of the statutory audit of Group entities1	35.9	33.9	34.3
– services normally provided in connection with statutory and regulatory filings or engagements	6.5	6.7	6.6
Total audit fees2	42.4	40.6	40.9
Other audit-related fees2	1.5	1.5	1.3
All other fees2	1.1	1.0	1.2
Total non-audit services3	2.6	2.5	2.5
Total fees payable to the Company’s auditors by the Group	45.0	43.1	43.4

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 £9.1

million in 2025 (2024: £9.2 million; 2023: £9.1 million).

The following types of services are included in the categories listed above:

Audit fees: This category includes fees in respect of the audit of the Group’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:


	2025 £m	2024 £m	2023 £m
Audits of Group pension schemes	0.5	0.5	0.5
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 2025	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m

Loans and advances to banks	–	–	–	–	–
Loans and advances to customers	14	(82)	999	(64)	867
Debt securities	–	–	–	–	–
Financial assets at amortised cost	14	(82)	999	(64)	867
Financial assets at fair value through other comprehensive income	(1)	–	–	–	(1)
Other assets	2	–	–	–	2
Loan commitments and financial guarantees	(30)	(43)	–	–	(73)
Total impairment (credit) charge	(15)	(125)	999	(64)	795

Lloyds Banking Group plc Annual Report and Accounts 2025

252

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 14: Impairment continued


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 (credit) charge	(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

The impairment charge includes a £137 million charge (2024: £24 million charge; 2023: £73 million charge) in respect of residual value

impairment and voluntary terminations within the Group’s UK Motor Finance business.

Note 15: Tax

Analysis of tax expense for the year


	2025 £m	2024 £m	2023 £m
UK corporation tax:
Current tax on profit for the year	(1,367)	(1,159)	(1,301)
Adjustments in respect of prior years	86	89	51
	(1,281)	(1,070)	(1,250)
Foreign tax:
Current tax on profit for the year	(139)	(122)	(101)
Adjustments in respect of prior years	(9)	3	3
	(148)	(119)	(98)
Current tax expense	(1,429)	(1,189)	(1,348)
Deferred tax:
Current year	(504)	(307)	(583)
Adjustments in respect of prior years	29	2	(54)
Deferred tax (expense) credit	(475)	(305)	(637)
Tax expense	(1,904)	(1,494)	(1,985)

The tax expense is made up as follows:


Tax (expense) credit attributable to policyholders	(219)	(137)	30
Shareholder tax expense	(1,685)	(1,357)	(2,015)
Tax expense	(1,904)	(1,494)	(1,985)

Factors affecting the tax expense for the year

The UK corporation tax rate for the year was 25.0% (2024: 25.0%; 2023: 23.5%). 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.

Lloyds Banking Group plc Annual Report and Accounts 2025

253

Note 15: Tax continued


	2025 £m	2024 £m	2023 £m
Profit before tax	6,661	5,971	7,503
UK corporation tax thereon	(1,665)	(1,493)	(1,763)
Impact of surcharge on banking profits	(167)	(157)	(305)
Non-deductible costs: conduct charges	(70)	(27)	(29)
Non-deductible costs: bank levy	(33)	(37)	(35)
Other non-deductible costs1	(72)	(73)	(52)
Non-taxable income1	99	51	76
Tax relief on coupons on other equity instruments	116	125	124
(Non-deductible) non-taxable foreign exchange (losses) gains1	(75)	27	(50)
Tax-exempt gains on disposals	62	98	35
Tax losses where no deferred tax recognised	(7)	(7)	(2)
Remeasurement of deferred tax due to rate changes	–	–	(14)
Differences in overseas tax rates	(5)	(9)	6
Policyholder tax in respect of the life assurance business	(71)	(75)	(61)
Deferred tax in respect of life assurance policyholder tax	(119)	(5)	84
Adjustments in respect of prior years	106	94	–
Tax effect of share of results of joint ventures	(3)	(1)	1
Provision for Pillar 2 current income taxes	–	(5)	–
Tax expense	(1,904)	(1,494)	(1,985)

1(Non-deductible) non-taxable foreign exchange gains (losses) on non-sterling denominated other equity instruments and on net investment hedging of subsidiaries, previously shown in

aggregate within other non-deductible costs and non-taxable income, are now presented as an individual line item. Comparatives are represented on a consistent basis.

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% on UK and overseas profits arising after 31 December 2023. As a result, tax expense for 2024 included a current

tax charge of £5 million in respect of the Group’s Channel Islands businesses. In 2025, following changes to tax rates in the Channel Islands,

we do not expect any additional Pillar 2 charge to arise.

The Group paid UK and overseas corporation taxes of £1,575 million in the period, and received refunds of £200 million relating to tax

overpaid in respect of the previous period. In addition, the Group paid £730 million in respect of the Irish loss relief case (see note 36).

Deferred tax

The Group’s deferred tax assets and liabilities are as follows:


Statutory position	2025 £m	2024 £m	Tax disclosure	2025 £m	2024 £m
Deferred tax assets	3,990	5,005	Deferred tax assets	5,734	6,900
Deferred tax liabilities	(146)	(125)	Deferred tax liabilities	(1,890)	(2,020)
Net deferred tax asset at 31 December	3,844	4,880	Net deferred tax asset at 31 December	3,844	4,880

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 and the deferred tax assets and

liabilities relate to income taxes levied by the same taxation authority. 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 2024	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
(Charge) credit to the income statement	(401)	(81)	(58)	(53)	2	(5)	37	(29)	(1)	(589)
Credit (charge) to other comprehensive income	–	–	35	–	–	–	(659)	(7)	–	(631)
Other credit to equity	–	–	–	–	54	–	–	–	–	54
At 31 December 2025	4,249	92	176	–	90	33	973	30	91	5,734

In 2024, deferred tax assets of £13 million were reclassified as disposal group assets and presented within other assets (see note 24).

Lloyds Banking Group plc Annual Report and Accounts 2025

254

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 15: Tax continued


Deferred tax liabilities	Property, plant and equipment £m	Capitalised software enhancements £m	Long-term assurance business £m	Acquisition fair value £m	Pension assets £m	Derivatives £m	Other temporary differences £m	Total £m
At 1 January 2024	–	(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)
(Charge) credit to the income statement	(45)	33	(73)	32	2	154	11	114
Credit to other comprehensive income	–	–	–	–	85	–	–	85
Acquisitions	–	–	–	(72)	–	–	–	(72)
Exchange and other adjustments	–	–	5	–	–	–	(2)	3
At 31 December 2025	(45)	(90)	(68)	(268)	(727)	(390)	(302)	(1,890)

1Financial assets at fair value through other comprehensive income.

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 £4,249 million (2024: £4,650 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% of taxable profits arising after 1 April 2016, and they cannot

be used to reduce the surcharge on banking profits. These restrictions in utilisation mean that the value of the deferred tax asset in respect

of tax losses is only expected to be fully recovered by 2036 (2024: 2037) 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% of the value will be recovered by 2033, when Lloyds Bank 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.

Strong life business investment returns in the year mean that its brought forward expenses have now been fully utilised in the calculation of

policyholder tax liabilities. As a result, there is no net deferred tax asset to recognise in respect of them (2024: £104 million).

Deferred tax not recognised

Deferred tax assets of £132 million (2024: £143 million) have not been recognised in respect of £526 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, £52 million (2024: £58 million) relates to losses that will expire if not used within

20 years, and £2 million (2024: £8 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 has appealed to the Upper Tier Tax Tribunal, 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 £980 million (including interest) and a reduction in the Group’s deferred tax asset of approximately £270 million. Following

the First Tier Tax Tribunal outcome, the tax has been paid to HMRC and recognised as a current tax asset, given the Group’s view that the

tax liability will not ultimately fall due. The appeal has been listed for hearing in March 2027, however 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 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 2025

255

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 2025

Held for

trading

£m

Other

£m

Total

£m

Financial assets

Cash and balances at central banks

–

56,661

–

56,661

Financial assets at fair value through

profit or loss

–

25,537

214,876

–

240,413

Derivative financial instruments

19,702

–

19,727

Loans and advances to banks

–

7,236

–

7,236

Loans and advances to customers

–

481,463

–

481,463

Reverse repurchase agreements

–

50,986

–

50,986

Debt securities

–

13,987

–

13,987

Financial assets at amortised cost

–

553,672

–

553,672

Financial assets at fair value through other

comprehensive income

–

36,320

–

36,320

Other

–

514

Total financial assets

45,239

214,876

–

36,320

610,333

514

907,307

Financial liabilities

Deposits from banks

–

5,779

–

5,779

Customer deposits

–

496,457

–

496,457

Repurchase agreements at amortised cost

–

38,570

–

38,570

Financial liabilities at fair value through

profit or loss

–

23,666

–

4,243

–

27,909

Derivative financial instruments

290

15,842

–

16,132

Notes in circulation

–

2,118

–

2,118

Debt securities in issue at amortised cost

–

78,271

–

78,271

Liabilities arising from insurance and

participating investment contracts

–

135,284

Liabilities arising from non-participating

investment contracts

–

61,640

–

61,640

Other

–

1,026

–

1,026

Subordinated liabilities

–

9,894

–

9,894

Total financial liabilities

290

39,508

–

65,883

–

632,115

135,284

873,080

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 2025	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	52,332	(32,605)	19,727	(2,815)	(2,962)	(8,339)	5,611
Derivative liabilities	(50,775)	34,643	(16,132)	3,006	882	8,339	(3,905)
Net position	1,557	2,038	3,595	191	(2,080)	–	1,706
Reverse repurchase agreements held at fair value	42,475	(21,494)	20,981	(32)	(20,832)	–	117
Repurchase agreements held at fair value	(43,304)	21,594	(21,710)	(14)	21,621	–	(103)
Net position	(829)	100	(729)	(46)	789	–	14
Reverse repurchase agreements held at amortised cost	63,862	(12,876)	50,986	75	(50,843)	–	218
Repurchase agreements held at amortised cost	(51,345)	12,775	(38,570)	2	38,424	–	(144)
Net position	12,517	(101)	12,416	77	(12,419)	–	74

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.

Lloyds Banking Group plc Annual Report and Accounts 2025

256

Notes to the consolidated financial statements continued

for the year ended 31 December

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 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


		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 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.

Lloyds Banking Group plc Annual Report and Accounts 2025

257

Note 17: Fair values of financial assets and liabilities

At 31 December 2025, the carrying value of the Group’s financial instrument assets held at fair value was £296,460 million

(2024: £270,680 million), and its financial instrument liabilities held at fair value was £105,681 million (2024: £100,515 million).

(A)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 2025

258

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 assets and liabilities carried at fair value

(1)Financial assets (excluding derivatives)

Valuation hierarchy

At 31 December 2025, the Group’s financial assets (excluding derivatives) carried at fair value totalled £276,733 million (2024:

£246,615 million). The table below analyses these financial assets by balance sheet classification, asset type and valuation methodology

(level 1, 2 or 3, as described on page 257). The fair value measurement approach is recurring in nature. There were no significant transfers

between level 1 and 2 during the year.


	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
At 31 December 2025
Trading assets
Loans and advances to customers	–	621	–	621
Reverse repurchase agreements	–	20,981	–	20,981
Debt securities:
Government securities	2,908	–	–	2,908
Asset-backed securities	–	182	–	182
Corporate and other debt securities	–	845	–	845
	2,908	1,027	–	3,935
Total trading assets	2,908	22,629	–	25,537
Other financial assets mandatorily held at fair value through profit or loss
Loans and advances to banks	–	2,851	–	2,851
Loans and advances to customers	–	2,322	6,058	8,380
Debt securities:
Government securities	16,588	5	–	16,593
Other public sector securities	–	1,905	–	1,905
Bank and building society certificates of deposit	–	7,036	–	7,036
Asset-backed securities	–	272	651	923
Corporate and other debt securities	–	21,303	2,107	23,410
	16,588	30,521	2,758	49,867
Treasury and other bills	11	–	–	11
Equity shares	144,164	–	1,435	145,599
Contracts held with reinsurers	–	8,168	–	8,168
Total other financial assets mandatorily held at fair value through profit or loss1	160,763	43,862	10,251	214,876
Total financial assets at fair value through profit or loss	163,671	66,491	10,251	240,413
Financial assets at fair value through other comprehensive income
Debt securities:
Government securities	22,875	308	–	23,183
Asset-backed securities	–	167	50	217
Corporate and other debt securities	1,276	11,593	–	12,869
	24,151	12,068	50	36,269
Equity shares	–	–	51	51
Total financial assets at fair value through other comprehensive income	24,151	12,068	101	36,320
Total financial assets (excluding derivatives) at fair value	187,822	78,559	10,352	276,733

1Other financial assets mandatorily at fair value through profit or loss include assets backing insurance contracts and investment contracts of £209,545 million. Included within these

assets are investments in unconsolidated structured entities of £45,991 million; see note 37.

Lloyds Banking Group plc Annual Report and Accounts 2025

259

Note 17: Fair values of financial assets and liabilities continued


	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 37.

Lloyds Banking Group plc Annual Report and Accounts 2025

260

Notes to the consolidated financial statements continued

for the year ended 31 December

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.


	2025			2024
	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	9,889	373	10,262	11,681	284	11,965
Exchange and other adjustments	(1)	3	2	1	(3)	(2)
Gains recognised in the income statement within other income	529	2	531	352	3	355
(Losses) gains recognised in other comprehensive income within the revaluation reserve in respect of financial assets at fair value through other comprehensive income	–	(71)	(71)	–	92	92
Purchases/increases to customer loans	1,251	–	1,251	1,080	–	1,080
Sales/repayments of customer loans	(1,365)	(206)	(1,571)	(3,266)	(3)	(3,269)
Transfers into the level 3 portfolio	32	–	32	84	–	84
Transfers out of the level 3 portfolio	(84)	–	(84)	(43)	–	(43)
At 31 December	10,251	101	10,352	9,889	373	10,262
Gains (losses) recognised in the income statement, within other income, relating to the change in fair value of those assets held at 31 December	273	5	278	186	(1)	185

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 2025

261

Note 17: Fair values of financial assets and liabilities continued

(2)Financial liabilities (excluding derivatives)

Valuation hierarchy

At 31 December 2025, the Group’s financial liabilities (excluding derivatives) carried at fair value, comprised its financial liabilities at fair

value through profit or loss and totalled £27,909 million (2024: £27,611 million).

The table below analyses these financial liabilities by balance sheet classification and valuation methodology (level 1, 2 or 3, as described on

page 257). The fair value measurement approach is recurring in nature. There were no significant transfers between level 1 and 2 during the

year.


	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
At 31 December 2025
Trading liabilities
Liabilities in respect of securities sold under repurchase agreements	–	21,710	–	21,710
Short positions in securities	1,722	234	–	1,956
Total trading liabilities	1,722	21,944	–	23,666
Debt securities in issue designated at fair value through profit or loss	–	4,226	17	4,243
Total financial liabilities (excluding derivatives) at fair value	1,722	26,170	17	27,909
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
Debt securities in issue 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

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 2025 was

£8,934 million, which was £4,691 million higher than the balance sheet carrying value (2024: £9,863 million, which was £5,233 million

higher than the balance sheet carrying value). At 31 December 2025 there was a cumulative £114 million increase 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 £126 million arose in 2025 and an increase of £78 million arose

in 2024.

For the fair value of collateral pledged in respect of repurchase agreements see page 255.

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.


	2025 £m	2024 £m
At 1 January	22	42
(Gains) losses recognised in the income statement within other income	(2)	2
Redemptions	(3)	(3)
Transfers out of the level 3 portfolio	–	(19)
At 31 December	17	22
(Gains) losses recognised in the income statement, within other income, relating to the change in fair value of those liabilities held at 31 December	(2)	3

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 2025, the own credit adjustment arising from the fair valuation of £4,243 million (2024: £4,630 million) of

the Group’s debt securities in issue designated at fair value through profit or loss resulted in a loss of £126 million (2024: loss of £78 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.

Lloyds Banking Group plc Annual Report and Accounts 2025

262

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 17: Fair values of financial assets and liabilities continued

(3)Derivatives

Valuation hierarchy

All of the Group’s derivative assets and liabilities are carried at fair value. At 31 December 2025, such assets totalled £19,727 million

(2024: £24,065 million) and liabilities totalled £16,132 million (2024: £21,676 million).

The table below analyses these derivative balances by valuation methodology (level 1, 2 or 3, as described on page 257). The fair value

measurement approach is recurring in nature. There were no significant transfers between level 1 and level 2 during the year.


	2025				2024
	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Derivative assets	57	19,206	464	19,727	103	23,221	741	24,065
Derivative liabilities	(29)	(15,879)	(224)	(16,132)	(79)	(21,175)	(422)	(21,676)

Movements in level 3 portfolio

The table below analyses movements in level 3 derivative assets and liabilities carried at fair value.


	2025		2024
	Derivative assets £m	Derivative liabilities £m	Derivative assets £m	Derivative liabilities £m
At 1 January	741	(422)	422	(444)
Exchange and other adjustments	19	(9)	(15)	7
(Losses) gains recognised in the income statement within other income	(216)	189	11	(7)
Purchases (additions)	7	(7)	5	(4)
(Sales) redemptions	(22)	25	(29)	53
Transfers into the level 3 portfolio	–	–	347	(27)
Transfers out of the level 3 portfolio	(65)	–	–	–
At 31 December	464	(224)	741	(422)
(Losses) gains recognised in the income statement, within other income, relating to the change in fair value of those assets or liabilities held at 31 December	(43)	31	12	(7)

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 2025

263

Note 17: Fair values of financial assets and liabilities continued

Derivative valuation adjustments

Derivative financial instruments which are carried in the balance sheet at fair value are adjusted where appropriate to reflect credit risk,

funding risk and liquidity.


Adjustment	2025 £m	2024 £m
Credit Valuation Adjustment	98	122
Debit Valuation Adjustment	(43)	(42)
Funding Valuation Adjustment	29	47
Liquidity Adjustment	57	60
Other	3	3
Total	144	190

Credit, Debit and Funding Valuation Adjustments (CVA, DVA and FVA) are applied to the Group’s over-the-counter derivative exposures

with counterparties that are not subject to strong interbank collateral arrangements. These exposures largely relate to the provision of risk

management solutions for corporate customers within the Corporate and Institutional Banking division.

Credit valuation adjustment

A CVA is taken where the Group has a positive future uncollateralised exposure on derivative transactions. This adjustment reflects future

expectations of counterparty creditworthiness.

Debit valuation adjustment

A DVA is taken where the Group has a negative future uncollateralised exposure on derivative transactions. This adjustment reflects future

expectations of our own creditworthiness.

Funding valuation adjustment

An FVA is taken where the Group has a future uncollateralised exposure on derivative transactions. This adjustment reflects expected

future funding costs observed in the market.

Liquidity adjustment

A liquidity reserve is taken where the Group has an exposure valued at mid-market and requires an adjustment to value at bid or offer. This

adjustment reflects the cost of neutralising market risk through offsetting transactions in standard market conditions.

Lloyds Banking Group plc Annual Report and Accounts 2025

264

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 17: Fair values of financial assets and liabilities continued

(4)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 (A) 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 (3) 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 193.


			2025				2024
				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 (+/- 16%)3	6,058	168		(159)	6,022	245		(231)
Debt securities	Discounted cash flows	Credit spreads (+/- 27%)4	860	36		(56)	621	35		(55)
Equity and venture capital investments	Market approach	Earnings multiple (+/- 10%)5	2,275	101		(101)	2,267	150		(150)
Equity and venture capital investments	Underlying asset/net asset fair value (incl. property prices)	n/a	811	85		(87)	773	80		(84)
Unlisted equities, debt securities and property partnerships in the life funds	Underlying asset/net asset fair value (incl. property prices), broker quotes or discounted cash flows	n/a	247	1		(2)	206	–		(7)
			10,251				9,889
Financial assets at fair value through other comprehensive income
Asset-backed securities	Lead manager or broker quote/ consensus pricing	n/a	50	2		(2)	48	2		(2)
Equity and venture capital investments	Underlying asset/net asset fair value (incl. property prices)	n/a	51	3		(3)	325	33		(33)
			101				373
Derivative financial assets
Interest rate options	Option pricing model	Interest rate volatility (12%/195%)6	202	4		(4)	394	4		(6)
Interest rate derivatives	Discounted cash flows	(+/- 8%) uncertainty of recovery rates7	262	21		(21)	347	21		(21)
			464				741
Level 3 financial assets carried at fair value			10,816				11,003
Financial liabilities at fair value through profit or loss
Securitisation notes and other	Discounted cash flows	Interest rate spreads (+/– 50bps)8	17	1		(1)	22	1		(1)
Derivative financial liabilities
Interest rate derivatives	Option pricing model	Interest rate volatility (12% /195% )6	224	15		(13)	422	17		(15)
Level 3 financial liabilities carried at fair value			241				444

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.

32024: -241bps/+131bps.

42024: +/- 17%.

52024: 3.5/15.0.

62024: 11%/183%.

72024: +/- 8%.

82024: +/- 50bps.

Lloyds Banking Group plc Annual Report and Accounts 2025

265

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 12% to 195%

(2024: 11% to 183%).

Further reasonably possible alternative assumptions have been determined in respect of the recovery rate on distressed derivatives, with

recovery rates flexed by 8% 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

(C)Financial assets and liabilities carried at amortised cost

(1)Financial assets

Valuation hierarchy

The table below analyses the fair values of those financial assets of the Group which are carried at amortised cost by valuation

methodology (level 1, 2 or 3, as described on page 257). Financial assets carried at amortised cost are mainly classified as level 3 due to

significant unobservable inputs used in the valuation models. Where inputs are observable, debt securities are classified as level 1 or 2.


	Carrying 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 2025
Loans and advances to banks	7,236	7,235	–	–	7,235
Loans and advances to customers	481,463	480,703	–	–	480,703
Reverse repurchase agreements	50,986	50,986	–	50,986	–
Debt securities	13,987	14,082	–	12,908	1,174
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

Lloyds Banking Group plc Annual Report and Accounts 2025

266

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.

(2)Financial liabilities

Valuation hierarchy

The table below analyses the fair values of those financial liabilities of the Group which are carried at amortised cost by valuation

methodology (level 1, 2 or 3, as described on page 257).


	Carrying 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 2025
Deposits from banks	5,779	5,779	–	5,779	–
Customer deposits	496,457	497,849	–	497,849	–
Repurchase agreements at amortised cost	38,570	38,570	–	38,570	–
Debt securities in issue at amortised cost	78,271	78,900	–	78,900	–
Subordinated liabilities	9,894	11,475	–	11,475	–
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	–

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.

(D)Reclassifications of financial assets

There have been no reclassifications of financial assets in 2024 or 2025.

Lloyds Banking Group plc Annual Report and Accounts 2025

267

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 2025
Assets
Cash and balances at central banks	56,661	–	–	–	–	–	–	–	56,661
Financial assets at fair value through profit or loss	12,449	8,163	5,217	3,636	1,880	7,267	14,941	186,860	240,413
Derivative financial instruments	1,626	1,759	759	583	418	1,179	2,814	10,589	19,727
Loans and advances to banks	1,890	1,576	1,249	575	231	473	1,235	7	7,236
Loans and advances to customers	18,991	13,984	15,869	13,550	11,358	37,418	69,454	300,839	481,463
Reverse repurchase agreements	9,911	14,193	11,114	3,901	1,489	6,875	3,503	–	50,986
Debt securities	88	459	1,597	370	446	1,152	2,804	7,071	13,987
Financial assets at amortised cost	30,880	30,212	29,829	18,396	13,524	45,918	76,996	307,917	553,672
Financial assets at fair value through other comprehensive income	205	934	276	415	451	4,163	12,821	17,055	36,320
Other assets	2,668	841	153	1,083	90	222	276	31,946	37,279
Total assets	104,489	41,909	36,234	24,113	16,363	58,749	107,848	554,367	944,072
Liabilities
Deposits from banks	1,921	386	813	951	115	449	1,134	10	5,779
Customer deposits	423,727	25,731	17,233	10,711	9,055	6,413	3,170	417	496,457
Repurchase agreements at amortised cost	11,865	9,699	6,511	876	232	6,269	1	3,117	38,570
Financial liabilities at fair value through profit or loss	13,100	6,021	2,103	342	419	362	1,484	4,078	27,909
Derivative financial instruments	1,254	1,361	677	388	318	1,119	2,497	8,518	16,132
Debt securities in issue at amortised cost	243	9,345	11,459	6,594	3,193	13,787	21,566	12,084	78,271
Liabilities arising from insurance and participating investment contracts	476	675	393	465	501	2,383	9,215	121,176	135,284
Liabilities arising from non-participating investment contracts	481	718	1,063	1,050	1,038	4,018	10,984	42,288	61,640
Other liabilities	6,754	1,783	276	912	734	1,646	469	13,695	26,269
Subordinated liabilities	–	1,130	–	–	500	–	4,081	4,183	9,894
Total liabilities	459,821	56,849	40,528	22,289	16,105	36,446	54,601	209,566	896,205

Lloyds Banking Group plc Annual Report and Accounts 2025

268

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 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 2025

269

Note 19: Derivative financial instruments

The fair values and notional amounts of derivative instruments are set out in the following table:


	2025			2024
	Contract/ notional amount £m	Fair value		Contract/ notional amount £m	Fair value
	Contract/ notional amount £m	Assets £m	Liabilities £m	Contract/ notional amount £m	Assets £m	Liabilities £m
Trading and other
Exchange rate contracts	689,215	7,594	6,454	707,329	10,247	9,172
Interest rate contracts	15,086,291	11,797	8,924	12,864,265	13,436	11,644
Credit derivatives	5,566	75	170	6,103	87	172
Equity, commodity and other contracts	8,914	236	294	8,678	247	333
Total derivative assets/liabilities – trading and other	15,789,986	19,702	15,842	13,586,375	24,017	21,321
Hedging
Interest rate
Currency swaps	35	4	–	43	2	–
Interest rate swaps	211,737	8	253	231,064	6	337
Designated as fair value hedges	211,772	12	253	231,107	8	337
Foreign exchange
Currency swaps	1,554	6	33	1,963	30	14
Interest rate
Interest rate swaps	571,126	7	4	484,996	10	4
Designated as cash flow hedges	572,680	13	37	486,959	40	18
Total derivative assets/liabilities – hedging	784,452	25	290	718,066	48	355
Total recognised derivative assets/liabilities	16,574,438	19,727	16,132	14,304,441	24,065	21,676

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 that 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 that 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. 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 including commodity swaps and options

Lloyds Banking Group plc Annual Report and Accounts 2025

270

Notes to the consolidated financial statements continued

for the year ended 31 December

Note 19: Derivative financial instruments continued

The Group’s hedged items and gains and losses arising from hedge accounting are summarised 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	Hedge ineffectiveness recognised in the income statement4 £m
	Carrying amount of the hedged item
Fair value hedges	Assets £m	Liabilities £m	Assets £m	Liabilities £m
At 31 December 2025
Interest rate
Fixed rate mortgages1	121,732	–	(178)	–	725	(68)
Fixed rate issuance2	–	45,053	–	829	(530)	10
Fixed rate bonds3	35,058	–	(1,053)	–	(138)	4
Total	156,790	45,053	(1,231)	829	57	(54)
At 31 December 2024
Interest rate
Fixed rate mortgages1	124,013	–	(890)	–	(184)	(52)
Fixed rate issuance2	–	51,499	–	1,340	(75)	(11)
Fixed rate bonds3	29,264	–	(1,070)	–	(1,158)	(18)
Total	153,277	51,499	(1,960)	1,340	(1,417)	(81)

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.

4Hedge ineffectiveness is included in the income statement within net trading income.


	Gain (loss) recognised in other comprehensive income £m	Amounts reclassified from reserves to net interest income as:			Cash flow hedge reserve		Change in fair value of hedged item for ineffectiveness assessment £m	Hedge ineffectiveness recognised in the income statement1 £m
Cash flow hedges	Gain (loss) recognised in other comprehensive income £m	Hedged cash flows that will no longer occur £m	Hedged item affected income statement £m		Continuing hedges £m	Discontinued hedges £m
At 31 December 2025
Foreign exchange
Foreign currency issuance2	(3)	–		(4)	(11)	138	7	–
Customer deposits3	–	–		4	–	9	–	–
Interest rate
Customer loans4	294	–		1,131	(2,159)	(1,475)	(802)	63
Central bank balances5	205	–		793	(100)	(831)	(487)	3
Customer deposits3	(14)	–		(55)	1,527	38	72	(12)
Total	482	–		1,869	(743)	(2,121)	(1,210)	54
At 31 December 2024
Foreign exchange
Foreign currency issuance2	61	–		(4)	75	59	(60)	–
Customer deposits3	–	–		–	–	5	–	–
Interest rate
Customer loans4	(2,700)	–		2,458	(3,470)	(1,590)	982	(61)
Central bank balances5	(780)	–		937	(1,012)	(917)	384	(7)
Customer deposits3	842	–		(794)	1,592	42	(51)	8
Total	(2,577)	–		2,597	(2,815)	(2,401)	1,255	(60)

1Hedge ineffectiveness is included in the income statement within net trading income. The reported hedge ineffectiveness includes an adjustment for off-market derivatives.

2Included within debt securities in issue at amortised cost and subordinated liabilities.

3Included within customer deposits.

4Included within loans and advances to customers.

5Included within cash and balances at central banks.

There was no gain or loss in either 2025 or 2024 reclassified from the cash flow hedge reserve for which hedge accounting had previously

been used but for which the hedged future cash flows are no longer expected to occur.

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 £524 million relating to fixed rate issuances of £498 million and mortgages of

£26 million (2024: liability of £980 million relating to fixed rate issuances of £582 million and mortgages of £398 million).

Lloyds Banking Group plc Annual Report and Accounts 2025

271

Note 19: Derivative financial instruments continued

Details of the Group’s hedging instruments are set out below:


	Maturity								Changes in fair value used for calculating hedge ineffectiveness £m
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 2025
Interest rate
Cross currency swap
Notional	–	–		–	35		–	35	2
Average fixed interest rate	–	–		–	1.28%		–
Average EUR/GBP exchange rate	–	–		–	1.38		–
Interest rate swap
Notional	395	5,503		31,294	132,417		42,128	211,737	(113)
Average fixed interest rate	3.00%	3.24%		3.70%	3.33%		1.96%
								211,772	(111)
Cash flow hedges
At 31 December 2025
Foreign exchange
Currency swap
Notional	152	162		157	884		199	1,554	(7)
Average EUR/GBP exchange rate	1.13	1.16		1.14	0.98		0.95
Average USD/GBP exchange rate	1.33	1.31		1.30	1.29		–
Interest rate
Interest rate swap
Notional	12,636	31,911		114,577	321,862		90,140	571,126	1,771
Average fixed interest rate	4.03%	3.43%		3.65%	3.59%		3.56%
								572,680	1,764
Total								784,452	1,653

Fair value hedges
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	1,336
Average fixed interest rate	3.04%	3.68%		4.04%	3.36%		2.27%
								231,107	1,336
Cash flow hedges
At 31 December 2024
Foreign exchange
Currency swap
Notional	107	441		646	763		6	1,963	61
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	(600)
Average fixed interest rate	4.32%	4.36%		3.84%	3.34%		3.01%
								486,959	(539)
Total								718,066	797

Lloyds Banking Group plc Annual Report and Accounts 2025

272

Notes to the consolidated financial statements continued

for the year ended 31 December

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 2025, the Group’s expected credit loss allowance was

£3,228 million (2024: £3,481 million), of which £3,031 million (2024: £3,211 million) was in respect of drawn balances.

The Group’s total expected credit loss allowances were as follows:


	At 31 December 2025					At 31 December 2024
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	1	–	–	–	1
UK mortgages	51	207	309	159	726	53	273	335	187	848
Credit cards	145	248	121	–	514	149	297	133	–	579
Other	368	343	226	–	937	329	326	227	–	882
Retail	564	798	656	159	2,177	531	896	695	187	2,309
Commercial Banking	173	279	382	–	834	205	264	413	–	882
Other	–	–	–	–	–	–	–	–	–	–
Loans and advances to customers	737	1,077	1,038	159	3,011	736	1,160	1,108	187	3,191
Debt securities	4	–	1	–	5	3	–	1	–	4
Financial assets at amortised cost	742	1,077	1,039	159	3,017	740	1,160	1,109	187	3,196
Other assets	6	–	8	–	14	7	–	8	–	15
Provisions in relation to loan commitments and financial guarantees	113	83	1	–	197	142	126	2	–	270
Total	861	1,160	1,048	159	3,228	889	1,286	1,119	187	3,481
Expected credit loss in respect of financial assets at fair value through other comprehensive income (memorandum item)	3	–	–	–	3	4	–	–	–	4

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:

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 doubling of PD since origination is 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.

Lloyds Banking Group plc Annual Report and Accounts 2025

273

Note 21: Allowance for expected credit losses continued

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% 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 2025					At 31 December 2024
	Modelled ECL £m	Individually assessed £m		Judgemental adjustments £m	Total £m	Modelled ECL £m	Individually assessed £m	Judgemental adjustments £m	Total £m
UK mortgages	623		–	108	731	720	–	132	852
Credit cards	540		–	63	603	681	–	(7)	674
Other Retail	916		–	75	991	860	–	90	950
Commercial Banking	555		355	(22)	888	894	354	(259)	989
Other	15		–	–	15	16	–	–	16
Total	2,649		355	224	3,228	3,171	354	(44)	3,481

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% likelihood taken into account in establishing a probability-weighted ECL. At 31 December 2025, individually assessed provisions for

Commercial Banking were £355 million (2024: £354 million) which reflected a range of £276 million to £440 million (2024: £309 million to

£437 million), based on the range of alternative outcomes considered.

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.

UK mortgages: £108 million (2024: £132 million)

These adjustments principally comprise:

Repossession risk: £85 million (2024: £110 million)

Additional ECL continues to be held judgementally to capture the potential repossession and recovery risk from specific subsets of largely

long-term defaulted cases. This is alongside an adjustment to capture a longer duration between default and repossession than model

assumptions use on existing and future defaults. The reduction in the period reflects methodology refinement and latest data points on the

population judged at risk.

Adjustment for specific segments: £13 million (2024: £13 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 remains in place as the only Mortgages segment sufficiently material to address, given

evidence of cases with defective cladding, or other fire safety issues.

Credit cards: £63 million (2024: £(7) million) and Other Retail: £75 million (2024: £90 million)

These adjustments principally comprise:

Lifetime extension: Credit cards: £49 million (2024: £55 million) and Other Retail: £9 million (2024: £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, to a more representative lifetime. Incremental

defaults beyond year three are calculated through the extrapolation of the default trajectory observed throughout the three years and

beyond.

Adjustments to loss rates: Credit cards: £nil (2024: £(57) million) and Other Retail: £25 million (2024: £47 million)

A number of adjustments were previously made to the loss given default (LGD) assumptions used within unsecured and motor credit

models. For unsecured portfolios, the previous adjustments reflected 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. These impacts have now been integrated

into the model solution following model refinements. The remaining adjustment for UK Motor Finance, within Other Retail, captures the

observed loss rates and the latest outlook on used car prices.

Lloyds Banking Group plc Annual Report and Accounts 2025

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Note 21: Allowance for expected credit losses continued

Commercial Banking: £(22) million (2024: £(259) million)

These adjustments principally comprise:

Corporate insolvency rates: £(122) million (2024: £(253) 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 stable credit

performance, a negative adjustment is applied by reverting judgementally to the long-term average of the insolvency rate. The scale of the

negative adjustment reduced in the period reflecting both the reduction in observed actual UK corporate insolvencies rates, narrowing the

gap of the misalignment, as well from changes due to the interaction with the implementation of loss rate model enhancements in the

period.

Adjustments to loss given defaults (LGDs): £50 million (2024: £(80) million)

In preceding years, adjustments have been required to mitigate limitations identified in the modelling approach which were causing loss

given defaults to be inflated. These included the lack of benefit from amortisation of exposures relative to collateral values at default, and

the need to reflect an exposure-weighted calculation. These two adjustments have been released following respective enhancements to

models. One remaining adjustment remains for a specific segment of the SME portfolio which judgementally applies a more appropriate

blended LGD rate from credit risk profile segments more aligned to experience.

Corporate income gearing (CIG) adjustment: £nil (2024: £37 million)

An adjustment was raised at 31 December 2024, based upon the assessment of Corporate Income Gearing, a model parameter for

affordability used in Commercial Banking. This adjustment reversed the modelled ECL release seen from updating CIG drivers (interest

rates), given interest rates had merely reached a plateau which translated into a slower year-on-year increase. This slowdown gave a

modelled ECL release not judged representative of the continued pressure on borrowers and business margins. However, the maintenance

of those improvements in drivers over the first half of 2025 (including sustained lower base rates) gives support for the modelled release to

now be recognised, removing the judgemental adjustment.

Commercial Real Estate (CRE) price reduction: £nil (2024: £35 million)

This adjustment recognised the potential impact on loss rates from valuations on specific CRE sectors where evidence suggested valuations

may lag achievable levels, notably in cases of stressed sale. Recent performance reflects stabilisation in valuations and improved confidence

in the CRE sector, removing the judgemental adjustment.

Global tariff and geo-political disruption risks: £50 million (2024: £nil)

This new adjustment is to recognise the potential risks to specific drivers across various corporate sectors not reflected in broad

macroeconomic model drivers. These are potential nuanced risks to businesses inherent in the base case which could also worsen in the

downside scenarios. This assessment is judgemental and apportioned across all sectors given the uncertainty of how these risks would

emerge.

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% each,

together with a severe downside scenario weighted at 10%. 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. Since 30 September

2025, the non-modelled adjustments previously applied to UK Bank Rate and CPI inflation in the severe downside scenario have been

removed. This is because the incremental ECL impact is no longer considered sufficiently material to justify their application. Accordingly,

its removal has had no material impact on ECL.

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Base case and MES economic assumptions

The Group’s base case economic scenario has been updated to reflect global developments and changes in domestic economic policy. The

Group’s updated base case scenario has the following conditioning assumptions. First, developments in global conflicts, technology or

financial sector issues do not cause a significant degree of financial market volatility. Second, the US effective tariff rate is maintained at

levels prevailing at the balance sheet date pending a switch to a sector-based tariff framework. Third, the UK’s macroeconomic framework

for monetary and fiscal policy remains in place, alongside broader continuity on other areas of government policy.

Based on these assumptions and incorporating the economic data published for the third quarter of 2025, the Group’s base case scenario is

for a slow expansion in gross domestic product (GDP) and a further rise in the unemployment rate alongside small gains in residential and

commercial property prices. With underlying inflationary pressures expected to recede, modest further reductions in UK Bank Rate are

expected to continue in 2026. 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 taken into account 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 as at the fourth quarter of 2025. Actual data for this

period, or restatements of past data, may have since emerged prior to publication and have not been included.

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 2025 covers the five years 2025 to 2029. 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 2025 is 1 January 2025. 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.

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At 31 December 2025	2025 %	2026 %	2027 %	2028 %	2029 %	2025 to 2029 average %	Start to peak %	Start to trough %
Upside
Gross domestic product growth	1.4	2.0	2.3	1.6	1.6	1.8	9.4	0.7
Unemployment rate	4.8	4.2	3.2	3.1	3.2	3.7	5.1	3.0
House price growth	0.8	3.5	7.1	6.9	6.0	4.8	26.4	(0.1)
Commercial real estate price growth	1.2	7.9	4.9	1.7	0.8	3.2	17.3	0.6
UK Bank Rate	4.13	3.94	4.59	5.07	5.33	4.61	5.39	3.75
CPI inflation	3.4	2.6	2.4	2.8	3.1	2.9	3.8	2.1
Base case
Gross domestic product growth	1.4	1.2	1.4	1.5	1.6	1.4	7.6	0.7
Unemployment rate	4.8	5.2	4.8	4.6	4.5	4.8	5.3	4.5
House price growth	0.8	1.6	1.9	2.2	3.1	1.9	9.8	(0.1)
Commercial real estate price growth	1.2	0.6	1.7	0.5	0.2	0.9	4.4	0.6
UK Bank Rate	4.13	3.44	3.25	3.44	3.50	3.55	4.50	3.25
CPI inflation	3.4	2.6	2.2	2.2	2.3	2.6	3.8	2.1
Downside
Gross domestic product growth	1.4	(0.3)	(0.5)	1.1	1.6	0.7	3.6	0.1
Unemployment rate	4.8	6.6	7.5	7.4	7.0	6.7	7.6	4.5
House price growth	0.8	(0.2)	(4.7)	(5.7)	(2.8)	(2.6)	0.9	(12.2)
Commercial real estate price growth	1.2	(7.1)	(4.2)	(2.7)	(2.3)	(3.1)	1.3	(14.4)
UK Bank Rate	4.13	2.74	1.09	0.75	0.52	1.85	4.50	0.45
CPI inflation	3.4	2.6	2.0	1.4	1.0	2.1	3.8	0.8
Severe downside
Gross domestic product growth	1.4	(1.9)	(1.8)	0.7	1.4	0.0	1.3	(2.8)
Unemployment rate	4.8	8.3	10.2	9.9	9.4	8.5	10.3	4.5
House price growth	0.8	(1.2)	(11.1)	(12.2)	(7.8)	(6.5)	0.8	(28.4)
Commercial real estate price growth	1.2	(17.4)	(9.8)	(7.4)	(5.4)	(8.0)	1.3	(34.0)
UK Bank Rate	4.13	1.91	0.10	0.03	0.01	1.24	4.50	0.01
CPI inflation	3.4	2.6	1.7	0.5	(0.4)	1.6	3.8	(0.7)
Probability-weighted
Gross domestic product growth	1.4	0.7	0.8	1.3	1.6	1.2	6.1	0.7
Unemployment rate	4.8	5.6	5.7	5.5	5.4	5.4	5.8	4.5
House price growth	0.8	1.3	0.2	(0.2)	1.1	0.6	2.8	(0.1)
Commercial real estate price growth	1.2	(1.3)	(0.3)	(0.9)	(0.9)	(0.4)	1.3	(2.6)
UK Bank Rate	4.13	3.23	2.69	2.78	2.81	3.13	4.50	2.64
CPI inflation	3.4	2.6	2.2	2.0	1.9	2.4	3.8	1.8


Base case scenario by quarter1 At 31 December 2025	First quarter 2025 %	Second quarter 2025 %	Third quarter 2025 %	Fourth quarter 2025 %	First quarter 2026 %	Second quarter 2026 %	Third quarter 2026 %	Fourth quarter 2026 %
Gross domestic product growth	0.7	0.3	0.1	0.3	0.3	0.3	0.4	0.4
Unemployment rate	4.5	4.7	5.0	5.1	5.3	5.3	5.2	5.1
House price growth	2.9	2.7	1.3	0.8	1.3	1.6	1.6	1.6
Commercial real estate price growth	2.5	2.6	2.6	1.2	0.5	0.2	0.1	0.6
UK Bank Rate	4.50	4.25	4.00	3.75	3.75	3.50	3.25	3.25
CPI inflation	2.8	3.5	3.8	3.7	3.3	2.6	2.2	2.2

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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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 was 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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ECL sensitivity to economic assumptions

The following table shows the Group’s ECL for the probability-weighted, upside, base case, downside and severe downside scenarios. The

stage allocation for an asset is based on the overall 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 £366 million compared to £445 million at

31 December 2024.


	At 31 December 2025					At 31 December 2024
	Probability- weighted £m	Upside £m	Base case £m	Downside £m	Severe downside £m	Probability- weighted £m	Upside £m	Base case £m	Downside £m	Severe downside £m
UK mortgages	731	341	510	937	1,943	852	345	567	1,064	2,596
Credit cards	603	498	579	674	777	674	518	641	773	945
Other Retail	991	922	969	1,036	1,126	950	843	923	1,010	1,172
Commercial Banking	888	690	789	1,010	1,414	989	745	889	1,125	1,608
Other	15	15	15	15	15	16	16	16	16	17
ECL allowance	3,228	2,466	2,862	3,672	5,275	3,481	2,467	3,036	3,988	6,338

The impact of isolated changes in the UK unemployment rate and House Price Index (HPI) has been assessed on a univariate basis.

Although such changes would not be observed in isolation, as economic indicators tend to be correlated in a coherent scenario, this gives

insight into the sensitivity of the Group’s ECL to gradual changes in these two critical economic factors.

The impacts are assessed as changes to probability-weighted modelled ECL inclusive of the impacts upon staging of assets, excluding post

model adjustments. In previous assessments, impacts were assessed as changes to base case modelled ECL only (at 100% weighting) with

staging held flat to the reported view, and similarly excluded post model adjustments. The updated approach addresses the limitations of

the prior methodology and provides a more representative view of the potential impact of these sensitivities.

The ECL impact due to a change in unemployment has reduced in 2025 compared to 2024 as a result of lower loss rates within the

Commercial Banking model. The HPI reduction versus 2024 is due to lower default rates and a reduced proportion of assets in Stage 2 for

UK mortgages, following strong credit performance in the year.

The table below shows the impact on the Group’s ECL resulting from a 1 percentage point increase or decrease in the UK unemployment

rate. The increase or decrease is presented based on the adjustment phased evenly over the first 10 quarters of all four scenarios. A more

immediate increase or decrease would drive a more material ECL impact as it would be fully reflected in both 12-month and lifetime

probability of defaults.


	At 31 December 2025		At 31 December 20241
	1pp increase in unemployment £m	1pp decrease in unemployment £m	1pp increase in unemployment £m	1pp decrease in unemployment £m
UK mortgages	11	(11)	13	(12)
Credit cards	54	(53)	54	(53)
Other Retail	25	(25)	23	(24)
Commercial Banking	58	(48)	113	(82)
ECL impact	148	(137)	203	(171)

1For 2025, impacts are assessed as changes to probability-weighted modelled ECL inclusive of the impacts upon staging of assets, excluding post model adjustments. The comparative

period has been represented on a consistent basis.

The table below shows the impact on the Group’s ECL in respect of UK mortgages of an increase or decrease in loss given default for a

10 percentage point increase or decrease in HPI. The increase or decrease is presented based on the adjustment phased evenly over the first

10 quarters of all four scenarios.


	At 31 December 2025		At 31 December 20241
	10pp increase in HPI £m	10pp decrease in HPI £m	10pp increase in HPI £m	10pp decrease in HPI £m
ECL impact	(172)	261	(207)	312

1For 2025, impacts are assessed as changes to probability-weighted modelled ECL inclusive of the impacts upon staging of assets, excluding post model adjustments. The comparative

period has been represented on a consistent basis.

Assessment of climate risk impacts on ECL

The Group continues to develop capabilities to quantify the potential impact of climate risks on ECL. This includes identifying the climate-

related risk drivers that could influence future credit losses for loan portfolios that have the highest sensitivity to climate risks and

commencing the use of more quantitative analysis on the impact of these risk drivers on ECL. The approach leverages the Group’s climate

scenario analysis, to identify the potential physical and transition risk impacts on credit quality. UK mortgages and Commercial Banking

portfolios are judged to have the highest sensitivity to climate risk, with both physical and transition risk drivers assessed.

UK mortgages physical and transition risks – additional costs arising from regulatory obligations of increased energy efficiency standards to

reduce carbon emissions and increased flood risk and coastal erosion, through property repair or rebuild and/or increased insurance premia.

This can result in affordability pressure, as well as decrease in property valuation, for borrowers owning low EPC rated properties or those in

areas prone to flooding or coastal erosion.

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Commercial Banking physical and transition risks – increased costs or revenue disruption, or both, arising from chronic and acute physical

hazards from rising temperatures. Companies adapting to a sudden transition scenario could potentially lead to increased transition costs

in operations, direct carbon costs, and deteriorating financial performance due to changing consumer perspectives.

Macroeconomic and sector scenario risk assessments

Assessments were performed on the Group’s internally generated economic scenarios used in the measurement of expected credit losses

against external scenarios published by the Network for Greening the Financial System (NGFS).

The potential incremental impact of climate factors on key economic drivers was isolated from the Phase V NGFS Delayed Transition

scenario, which management judged the most plausible. The incremental risk to ECL was then quantified by overlaying the specific climate

impact of this scenario onto macroeconomic drivers within the Group’s base case and MES scenarios. The results from the most material

Retail portfolios, UK mortgages and Credit cards allowed management to conclude on an immaterial ECL impact for Retail below

£10 million (31 December 2024: below £5 million), and in Commercial Banking a separate climate assessment performed at sector level,

resulted in an ECL impact of below £15 million (31 December 2024: below £15 million).

The Group’s MES downside and severe downside scenarios, together comprising a 40% weighting in ECL calculations, are generally more

severe than the most adverse NGFS scenario (‘Net Zero 2050’). The assessment suggests that no material changes are required to the

Group’s existing suite of economic scenarios used within the ECL calculation.

In Commercial Banking, a top-down analysis using sectoral modelling was repeated to estimate the specific ECL impact of climate risk on

commercial credit conditions. This assessment specifically targets agriculture, automotive, transport, oil and gas, real estate and utilities

sectors where climate impacts were judged to be more significant. Resulting sector-specific, climate-adjusted credit cycle indices (CCI)

were used to calculate probability of default and resulting ECL. These adjusted CCI model inputs combined external NGFS Phase V

scenarios with client level valuation impacts where available, alongside historic impairment data. The Phase V scenarios introduced a

physical risk approach, requiring adjustments to ensure appropriate timing of impacts. Considering methodological limitations, the

additional ECL required was shown to be immaterial.

The Group recognises the ongoing uncertainty and limitations of climate scenario modelling, including external concerns reported in late

2025 for physical risk approaches. While NGFS scenarios continue to provide a consistent benchmark for assessing climate-related risks in

ECL, they are used with prudent adjustments.

Physical and transition risk assessments

The Group has enhanced its assessment of transition risk on the UK mortgage portfolio. Scope has been extended from Probability of

Default (PD) impacts only to also include Loss Given Default (LGD) considerations.

The affordability stress resulting from home retrofitting costs associated with higher EPC regulatory rating requirements, under multiple

scenarios was re-calculated. The provision impact was assessed by transforming the account level assessment of affordability and valuation

impacts to adjust inputs used in existing PD and LGD parameters. As at 31 December 2025, the impact on ECL has been estimated to be

less than £10 million (31 December 2024: less than £10 million) across buy-to-let (BTL), mainstream and legacy portfolios.

The physical risk assessment on the UK mortgage portfolio in 2025 continued to include both flooding and coastal erosion risk. The impacts

were based on an internally defined delayed transition outlook, out to 2050, aligned with the Group’s transition methodology. The

assessment showed that over 80% of the book was not exposed to flood risk damage. Over 99% had no risk to coastal erosion damage.

The impact on ECL to customers exposed to the affordability risk from flood and coastal erosion damage has been estimated to be

immaterial.

Whilst this supports no judgemental adjustment to ECL being required, the narrow scope does not capture the wider impact on loss rates

emanating from being located in a high-risk area. Similarly the current assessment excludes the potential affordability shocks or reduced

insurance coverage that could occur due to possible changes to insurance policy initiatives in this area.


Assessment	Nature of risk assessed	Portfolios assessed	ECL impact At 31 December 2025	ECL impact At 31 December 2024
Macroeconomic impact from climate scenario	Scenario risk – macro level	Retail	< £10 million	< £5 million
Sector level impacts from climate scenario	Scenario risk – sector level	Commercial Banking (excluding Business Banking)	< £15 million	< £15 million
Retrofitting cost to meet EPC regulation	Transition risk	UK mortgages	< £10 million	< £10 million
Flood risk	Physical risk	UK mortgages	< £5 million	< £5 million

The climate risk assessments above remain limited due to the degree of uncertainty underpinning key assumptions used, as well as the

continuing developmental nature of the data, approach and models used in the quantification. These include, but are not limited to, the

analyses being restricted to PD impacts only for Commercial Banking; considering only the most material hazards for UK mortgages (flood

and coastal erosion); client valuation impacts not incorporating climate transition plans; the physical risk modelling for corporates currently

excluding broader components such as supply chain impacts, and more broadly the political landscape; future climate data enhancements

and further model development.

The ECL impacts resulting from these climate risk assessments remain immaterial. 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 2025. The current behavioural lives of the Group’s lending dilute the

potential exposure to the later emergence of potential physical climate impacts, with the incorporation of climate risk, in credit policy, as a

qualitative underwriting assessment within the Commercial Banking credit process and the origination process for mortgages providing

further mitigation on more recent originations.

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Note 22: Finance lease receivables

The Group’s finance lease receivables are classified as loans and advances to customers and accounted for at amortised cost. The

contractual maturity of these balances are analysed as follows:


	2025 £m	2024 £m
Not later than 1 year	7,835	6,202
Later than 1 year and not later than 2 years	5,176	5,251
Later than 2 years and not later than 3 years	4,142	4,297
Later than 3 years and not later than 4 years	2,731	2,868
Later than 4 years and not later than 5 years	418	516
Later than 5 years	357	475
Gross investment	20,659	19,609
Unearned future finance income	(2,503)	(2,447)
Rentals received in advance	(22)	(18)
Net investment	18,134	17,144

Equipment leased to customers under finance lease receivables relates to financing transactions to fund the purchase of aircraft, ships,

motor vehicles and other items. There was an allowance for uncollectable finance lease receivables included in the allowance for

impairment losses of £441 million (2024: £368 million).

The Group’s finance lease assets are comprised as follows:


	2025 £m	2024 £m
Electric vehicles	1,506	1,001
Internal combustion engine vehicles	12,740	11,557
Self-charging hybrid vehicles	575	347
Plug-in hybrid vehicles	1,604	1,306
Other	1,709	2,933
Net investment	18,134	17,144

Note 23: Goodwill and other intangible assets


	Goodwill £m	Brands £m	Purchased credit card relationships £m	Customer- related intangibles £m	Acquired value of in-force business £m	Capitalised software enhancements £m	Total £m
Cost1:
At 1 January 2024	3,142	591	1,002	682	834	8,918	15,169
Exchange and other adjustments	–	–	–	3	–	(5)	(2)
Additions and acquisitions	–	–	–	–	–	1,259	1,259
Disposals and write-offs2	(50)	–	–	(423)	–	(216)	(689)
At 31 December 2024	3,092	591	1,002	262	834	9,956	15,737
Exchange and other adjustments	–	–	–	3	–	(47)	(44)
Additions and acquisitions	262	–	–	296	–	1,252	1,810
Disposals and write-offs	–	–	–	–	–	(269)	(269)
At 31 December 2025	3,354	591	1,002	561	834	10,892	17,234
Accumulated amortisation:
At 1 January 2024	344	205	762	483	680	4,389	6,863
Exchange and other adjustments	–	–	–	3	–	(12)	(9)
Charge for the year3	–	1	70	13	17	1,221	1,322
Disposals and write-offs	–	–	–	(422)	–	(205)	(627)
At 31 December 2024	344	206	832	77	697	5,393	7,549
Exchange and other adjustments	–	–	–	5	–	(19)	(14)
Charge for the year3	–	1	71	18	15	1,270	1,375
Disposals and write-offs	–	–	–	–	–	(269)	(269)
At 31 December 2025	344	207	903	100	712	6,375	8,641
Balance sheet amount at 31 December 2025	3,010	384	99	461	122	4,517	8,593
Balance sheet amount at 31 December 2024	2,748	385	170	185	137	4,563	8,188

1For acquisitions made prior to 1 January 2004, the date of transition to IFRS Accounting Standards, cost is included net of amounts amortised up to 31 December 2003.

2Disposals and write-offs includes goodwill of £50 million in 2024 that was classified as disposal group assets and presented within other assets in note 24.

3The charge for the year is recognised in operating expenses (note 10).

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Note 23: Goodwill and other intangible assets continued

Goodwill

On 9 October 2025, LBG Equity Investments Limited, a wholly owned subsidiary of the Group, acquired 49.9% of the ordinary share capital

of Schroders Personal Wealth Limited (SPW) in exchange for its stake in Cazenove Capital, bringing the Group’s ownership of SPW to 100%.

Goodwill of £262 million was recognised on the transaction. None of the goodwill is deductible for tax purposes.

The goodwill held in the Group’s balance sheet is tested at least annually for impairment. For the purposes of impairment testing the

goodwill is allocated to the appropriate cash-generating unit; of the total balance of £3,010 million (2024: £2,748 million), £2,383 million, or

79% (2024: £2,121 million, 77%) has been allocated to the Life and pensions cash-generating unit; £302 million, or 10% (2024: £302 million,

11%) has been allocated to the Credit card cash-generating unit in the Group’s Retail division; and £310 million, or 10% (2024: £310 million,

11%) to the Motor business cash-generating units, both in the Group’s Retail division. Management believes that any reasonably possible

change in the key assumptions (listed below) would not cause the recoverable amount of the goodwill to fall below its balance sheet

carrying value.

The recoverable amount of the goodwill relating to the Life and pensions business, is based on a value-in-use calculation. The calculation

uses pre-tax projections of future cash flows based upon budgets and plans approved by management covering a three-year period, the

related run-off of existing business in-force and a discount rate (pre-tax) of 11.0%. The budgets and plans are based upon past experience

adjusted to take into account anticipated changes in sales volumes, product mix and margins having regard to expected market conditions

and competitor activity. The discount rate is determined with reference to internal measures and available industry information. New

business cash flows beyond the plan period have been extrapolated using a reducing balance growth rate that falls from 3.5% to 2.0% after

20 years, which does not exceed the long-term average growth rate for the life assurance market.

The recoverable amount of the goodwill relating to the Motor business is based on a value-in-use calculation using post-tax cash flow

projections based on financial budgets and plans approved by management covering a three-year period and a discount rate (post-tax) of

10.5%, based on the Group’s cost of equity. This is equivalent to a pre-tax rate of 14.0%. The budgets and plans are based upon past

experience adjusted to take into account anticipated changes in sales volumes having regard to expected market conditions and

competitor activity. The cash flows beyond the plan period are extrapolated using a growth rate of 3.5%, which does not exceed the long-

term average growth rates for the markets in which the Motor business participates.

The recoverable amount of the goodwill relating to Credit cards has been based on a value-in-use calculation using post-tax cash flow

projections based on financial budgets and plans approved by management covering a three-year period and a discount rate (post-tax) of

10.5%, based on the Group’s cost of equity. This is equivalent to a pre-tax rate of 14.0%. The budgets and plans are based upon past

experience adjusted to take into account anticipated changes in credit card volumes having regard to expected market conditions and

competitor activity. The cash flows beyond the plan period are extrapolated using a growth rate of 3.5%, which does not exceed the long-

term average growth rates for the markets in which the Cards business participates.

Other intangible assets

The brand arising from the acquisition of Bank of Scotland in 2009 is recognised on the Group’s balance sheet and has been determined to

have an indefinite useful life. The carrying value at 31 December 2025 was £380 million (2024: £380 million). The Bank of Scotland name

has been in existence for over 300 years and there are no indications that the brand should not have an indefinite useful life. The

recoverable amount has been based on a value-in-use calculation. The calculation uses post-tax projections for a three-year period of the

income generated by the Bank of Scotland cash-generating unit, a discount rate of 10.5% and a future growth rate of 3.5%. Management

believes that any reasonably possible change in the key assumptions would not cause the recoverable amount of the Bank of Scotland

brand to fall below its balance sheet carrying value.

Note 24: Other assets


	2025 £m	2024 £m
Insurance contract assets	113	–
Reinsurance contract assets2	401	422
Investment in joint ventures and associates	445	542
Property, plant and equipment:
Investment properties (see below)	3,917	3,281
Premises	1,126	1,100
Equipment	901	879
Operating lease assets (see below)	8,213	7,265
Right-of-use assets (note 25)	759	872
	14,916	13,397
Prepayments	1,792	1,634
Disposal group assets1:
Deferred tax assets	–	13
Goodwill	–	50
Reinsurance contract assets2	–	5,059
	–	5,122
Other assets	2,988	3,671
Total other assets	20,655	24,788

1See Note 8 (C) for further detail.

2The Group’s reinsurance contract assets have decreased by £5,080 million from £5,481 million to £401 million predominantly as a result of the completion of the part VII transfer of

insurance contract liabilities to Rothesay Life plc in relation to the Group’s bulk annuity business and the conclusion of the associated reinsurance agreement.

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Note 24: Other assets continued

Investment properties

The Group’s investment properties are primarily held by Lloyds Living and by the Insurance, Pensions and Investments business, where they

back policyholder liabilities. They are valued by external Chartered Surveyors using industry standard techniques based on guidance from

the Royal Institute of Chartered Surveyors. The valuation methodology includes an assessment of general market conditions and sector

level transactions and takes account of expectations of occupancy rates, rental income and growth. Property valuations undergo individual

scrutiny using cash flow analysis to factor in the timing of rental reviews, capital expenditure, lease incentives, dilapidation and operating

expenses; these reviews utilise both observable and unobservable inputs. Within the fair value hierarchy, all of the Group’s investment

properties are categorised as level 3 (see note 17 for details of levels in the fair value hierarchy). The table below analyses movements in

level 3 investment properties, which are carried at fair value.


	2025 £m	2024 £m
At 1 January	3,281	2,862
Acquisition of new properties	606	640
Additional expenditure on existing properties	10	26
Change in fair value	99	67
Disposals and other movements	(79)	(314)
At 31 December	3,917	3,281

Rental income of £190 million (2024: £172 million) and direct operating expenses of £27 million (2024: £44 million) arising from investment

properties that generate rental income have been recognised in the income statement.

Details of capital expenditure in respect of investment properties which had been contracted for but not recognised in the financial

statements is given in note 36.

Operating lease assets where the Group is lessor

Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. At 31 December the future

minimum rentals receivable under non-cancellable operating leases were as follows:


	Within 1 year £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 2025	1,911	1,131	1,072	483	124	16	4,737
At 31 December 2024	1,577	956	821	365	85	6	3,810

Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. Operating lease assets are

comprised as follows:


	2025 £m	2024 £m
Electric vehicles	4,534	3,894
Internal combustion engine vehicles	1,641	1,630
Self-charging hybrid vehicles	125	166
Plug-in hybrid vehicles	1,905	1,575
Other	8	–
Total operating lease assets	8,213	7,265

The group continues to mitigate used car price movements through a number of market and customer initiatives to improve performance

and reduce volatility, including lease extensions, used car leasing, remarketing agreements and residual value insurance.

Note 25: Lessee disclosures

The table below sets out the movement in the Group’s right-of-use assets, which are primarily in respect of premises, and are recognised

within other assets (note 24).


	2025 £m	2024 £m
At 1 January	872	1,055
Exchange and other adjustments	(1)	2
Additions	83	128
Disposals	(13)	(115)
Depreciation charge for the year	(182)	(198)
At 31 December	759	872

The Group’s lease liabilities are recognised within other liabilities (note 27). The maturity analysis of the Group’s lease liabilities on an

undiscounted basis is set out in the liquidity risk section.

The total cash outflow for leases in the year ended 31 December 2025 was £183 million (2024: £202 million). The amount recognised within

interest expense in respect of lease liabilities is disclosed in note 5.

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Note 26: Debt securities in issue


	2025			2024
	At fair value through profit or loss £m	At amortised cost £m	Total £m	At fair value through profit or loss £m	At amortised cost £m	Total £m
Senior unsecured notes issued	4,226	37,532	41,758	4,608	40,019	44,627
Covered bonds	–	11,260	11,260	–	11,764	11,764
Certificates of deposit issued	–	7,333	7,333	–	5,776	5,776
Securitisation notes	17	6,325	6,342	22	5,185	5,207
Commercial paper	–	15,821	15,821	–	8,090	8,090
Total debt securities in issue	4,243	78,271	82,514	4,630	70,834	75,464

Covered bonds and securitisation programmes

At 31 December 2025, the covered bonds held by external parties and those held internally, were secured on certain loans and advances to

customers amounting to £22,072 million (2024: £26,202 million) which have been assigned to bankruptcy remote limited liability

partnerships to provide security for issues of covered bonds by the Group. The Group retains all of the risks and rewards associated with

these loans and the partnerships are consolidated fully with the loans retained on the Group’s balance sheet.

The Group has two covered bond programmes, which have ring-fence asset pools and guarantee the covered bonds issued by the Group.

At the reporting date the Group had over-collateralised these programmes to meet the terms of the programmes, to secure the rating of

the covered bonds and to provide operational flexibility. From time to time, the obligations of the Group to provide collateral may increase

due to the formal requirements of the programmes. The Group may also voluntarily contribute collateral to support the ratings of the

covered bonds.

Covered bonds includes Pfandbriefe, which the Group issued for the first time in 2024.

The Group’s securitisation vehicles issue notes that are held both externally and internally, and are secured on loans and advances to

customers amounting to £27,766 million at 31 December 2025 (2024: £27,657 million), the majority of which have been sold by subsidiary

companies to bankruptcy remote structured entities. As the structured entities are funded by the issue of debt on terms whereby the

majority of the risks and rewards of the portfolio are retained by the subsidiary, the structured entities are consolidated fully and all of

these loans are retained on the Group’s balance sheet.

Cash deposits of £3,359 million (2024: £3,256 million) which support the debt securities issued by the structured entities, the term

advances related to covered bonds and other legal obligations, are held by the Group. Additionally, the Group has certain contractual

arrangements to provide liquidity facilities to some of these structured entities. At 31 December 2025 these obligations had not been

triggered; the maximum exposure under these facilities was £11 million (2024: £11 million).

The Group recognises the full liabilities associated with its securitisation and covered bond programmes within debt securities in issue,

although the obligations of the Group in respect of its securitisation issuances are limited to the cash flows generated from the underlying

assets. The Group could be required to provide additional support to a number of the securitisation programmes to support the credit

ratings of the debt securities issued, in the form of increased cash reserves and the holding of subordinated notes. Further, certain

programmes contain contractual obligations that require the Group to repurchase assets should they become credit-impaired or as

otherwise required by the transaction documents. The Group has not provided financial or other support by voluntarily offering to

repurchase assets from any of its public securitisation programmes during 2025 (2024: none).

Note 27: Other liabilities


	2025 £m	2024 £m
Third party interests in consolidated funds1	12,781	10,706
Lease liabilities	1,026	1,261
Disposal group liabilities:
Liabilities arising from insurance contracts	–	5,268
Other creditors and accruals2	7,138	8,683
Total other liabilities	20,945	25,918

1Where a collective investment vehicle is consolidated, the interests of parties other than the Group are reported at fair value in other liabilities.

2Includes settlement balances, accruals and deferred income and reinsurance contract liabilities

The maturity analysis of the Group’s lease liabilities on an undiscounted basis is set out in the liquidity risk section on page 185.

Note 28: Provisions

Critical accounting judgements and key sources of estimation uncertainty


Critical judgement:	Determining whether a present obligation exists and whether it is more likely than not that an outflow of resources will be required to settle that obligation
Key sources of estimation uncertainty:	Populations impacted, level of remediation and response rates

Determining the amount of the provisions, which represent management’s best estimate of the cost of settling these issues, requires the

exercise of significant judgement and estimation. It will often be necessary to form a view on matters which are inherently uncertain, such

as the scope of reviews required by regulators, and to estimate the number of future complaints, the extent to which they will be upheld,

the average cost of redress and the impact of decisions reached by legal and other review processes that may be relevant to claims

received. Consequently, the continued appropriateness of the underlying assumptions is reviewed on a regular basis against actual

experience and other relevant evidence and adjustments made to the provisions where appropriate.

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Note 28: Provisions continued


Provisions for financial commitments and guarantees £m		Regulatory and legal provisions £m	Other £m	Total £m
At 1 January 2025	270	1,600	443	2,313
Exchange and other adjustments	–	3	(1)	2
Provisions applied	–	(295)	(479)	(774)
(Release) charge for the year	(73)	968	452	1,347
At 31 December 2025	197	2,276	415	2,888

Provisions for financial commitments and guarantees

Provisions are recognised for expected credit losses on undrawn loan commitments and financial guarantees.

Regulatory and legal provisions

In the course of its business, the Group is engaged on a regular basis in discussions with UK and overseas regulators and other governmental

authorities on a range of matters, including legal and regulatory reviews and, from time to time, enforcement investigations (including in

relation to compliance with applicable laws and regulations, such as those relating to prudential regulation, consumer protection,

investment advice, employment, business conduct, systems and controls, environmental, sustainability, competition/anti-trust, tax, anti-

bribery, anti-money laundering and sanctions). Any matters discussed or identified during such discussions and inquiries may result in,

among other things, further inquiry or investigation, other action being taken by governmental and/or regulatory authorities, increased

costs being incurred by the Group, remediation of systems and controls, public or private censure, restriction of the Group’s business

activities and/or fines. The Group also receives complaints and pre-action correspondence in connection with its past conduct and claims

brought or threatened by or on behalf of current and former employees, customers (including their appointed representatives), investors

and other third parties and is subject to legal proceedings and other legal actions from time to time. Any of these matters, events or

circumstances could have a material adverse effect on the Group’s financial position, operations or cash flows. Provisions are held where

the Group can reliably estimate a probable outflow of economic resources. The ultimate liability of the Group may be significantly more, or

less, than the amount of any provision recognised. If the Group is unable to determine a reliable estimate, a contingent liability is disclosed.

The recognition of a provision does not amount to an admission of liability or wrongdoing on the part of the Group. During the full year to

31 December 2025 the Group charged a further £968 million in respect of legal actions and other regulatory matters and the unutilised

balance at 31 December 2025 was £2,276 million (31 December 2024: £1,600 million). The most significant items are outlined below.

Motor commission review

The Group recognised a further £800 million provision in the third quarter of 2025 following the FCA’s announcement in October 2025 that

it intends to implement a motor finance commission redress scheme. As at 31 December 2025, the total provision recognised is

£1,950 million.

The Supreme Court judgment in Johnson v FirstRand Bank Limited in August 2025 found that there was an unfair relationship under s.140A

of the Consumer Credit Act (CCA). Following the Supreme Court judgment, the FCA published Consultation Paper CP25/27 in October

2025 setting out detailed proposals for a scheme (including their proposed basis) to redress unfair customer relationships.

The increased provision reflects the increased likelihood of a higher number of scheme cases (i.e. discretionary commission arrangements,

commercial tie or high commission arrangements) being eligible for redress, including those dating back to 2007 and also the likelihood of a

higher level of redress than anticipated in the previous scenario-based provision; the FCA's proposed redress calculation approach is less

closely linked to customer loss than previously anticipated. The Group has made representations to the FCA on a number of aspects of the

proposed scheme.

On 3 December 2025, the FCA announced that the pause on motor finance complaints handling would be lifted on 31 May 2026 for

complaints made in relation to the subject matter of the scheme, and that this timeline may be superseded in due course by the

operational timetable to be set out in the final scheme rules. The FCA also lifted the pause on handling motor finance complaints in respect

of leasing products on 5 December 2025. The Group continues to receive new complaints as well as claims in the County Courts in respect

of motor finance commissions. A large number of those claims have been stayed, as has a claim in the Competition Appeal Tribunal. In April

2026, the Court of Appeal is expected to consider whether, in the context of motor finance claims, it is possible for multiple unfair

relationship claims to be dealt with via one omnibus claim form.

In establishing the provision estimate, the Group has considered the potential impact of the FCA’s proposed redress scheme, as well as a

number of possible modifications to the scheme which might arise as a result of the consultation. The Group will continue to assess

developments and potential impacts following the announcement by the FCA of the final scheme rules, which are expected by the end of

March 2026. The ultimate financial impact will be determined by a number of factors still to be resolved, in particular the final scheme

rules, customer response rates, scheme operating costs, any further interventions and any broader implications of legal proceedings and

complaints. Given the significant level of uncertainty in terms of the final outcome, the ultimate financial impact could materially differ

from the amount provided. The total £1,950 million provision represents the Group’s current best estimate of the potential impact of the

motor finance issue.

HBOS Reading – review

The Group continues to apply the recommendations from Sir Ross Cranston’s review, issued in December 2019, including a reassessment of

direct and consequential losses by an independent panel (the Foskett Panel), an extension of debt relief and a wider definition of de facto

directors. The Foskett Panel’s full scope and methodology was published on 7 July 2020. The Foskett Panel’s stated objective is to consider

cases via a non-legalistic and fair process and to make its decisions in a generous, fair and common sense manner, assessing claims against

an expanded definition of the fraud and on a lower evidential basis.

In June 2022, the Foskett Panel announced an alternative option, in the form of a fixed sum award which could be accepted as an

alternative to participation in the full re-review process, to support earlier resolution of claims for those deemed by the Foskett Panel to be

victims of the fraud.

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Note 28: Provisions continued

All of the population have now had an initial decision, with a small number of the populations’ challenges to the Panel’s initial decision

ongoing through the published process, with operational costs, redress and tax costs associated with the re-reviews recognised within the

amount provided.

Notwithstanding the settled claims and the increase in outcomes which builds confidence in the full estimated cost, uncertainties remain

and the final outcome could be different. There is no confirmed timeline for the completion of the re-review process nor the separate

review by Dame Linda Dobbs. The Group remains committed to implementing the recommendations in full.

Payment protection insurance (PPI)

The Group continues to challenge PPI litigation cases, with mainly operational costs and legal fees associated with litigation activity

recognised within regulatory and legal provisions.

Customer claims in relation to insurance branch business in Germany

The Group continues to receive claims from customers in Germany relating to policies issued by Clerical Medical Investment Group Limited

(subsequently renamed Scottish Widows Limited), with smaller numbers of claims received from customers in Austria and Italy.

Operational costs, redress and legal fees associated with the claims are recognised within regulatory and legal provisions.

Other

The Group carries provisions of £119 million (31 December 2024: £154 million) in respect of dilapidations, rent reviews and other property-

related matters.

Provisions are also made for staff and other costs related to Group restructuring initiatives at the point at which the Group becomes

committed to the expenditure; at 31 December 2025 provisions of £170 million (31 December 2024: £135 million) were held.

The Group carries provisions of £41 million (31 December 2024: £35 million) for indemnities and other matters relating to legacy business

disposals in prior years. Whilst there remains significant uncertainty as to the timing of the utilisation of the provisions, the Group expects

the majority of the remaining provisions to have been utilised by 31 December 2026.

Note 29: Subordinated liabilities

The movement in subordinated liabilities during the year was as follows:


	Preference shares £m	Undated £m	Dated £m	Total £m
At 1 January 2024	466	144	9,643	10,253
Issued during the year1:
4.375% Fixed Rate Reset Dated Subordinated Notes 2034 (€500 million)	–	–	427	427
5.788% Fixed-to-Floating Rate Dated Subordinated Notes 2034 (A$250 million)	–	–	128	128
Floating Rate Dated Subordinated Notes 2034 (A$500 million)	–	–	257	257
	–	–	812	812
Repurchases and redemptions during the year1:
6.475% Non-cumulative Preference Shares callable 2024 (£186 million)	(47)	–	–	(47)
4.5% Dated Subordinated Notes 2024 ($1,000 million)	–	–	(772)	(772)
	(47)	–	(772)	(819)
Foreign exchange movements	(1)	–	(24)	(25)
Other movements (cash and non-cash)2	(5)	1	(128)	(132)
At 31 December 2024	413	145	9,531	10,089
Issued during the year1:
4.00% Fixed Rate Reset Dated Subordinated Notes 2035 (€1,000 million)	–	–	842	842
6.068% Fixed-to-Floating Rate Dated Subordinated Notes 2036 ($1,250 million)	–	–	918	918
	–	–	1,760	1,760
Repurchases and redemptions during the year1:
4.50% Fixed Rate Step-up Subordinated Notes 2030 (€441 million)	–	–	(371)	(371)
4.50% Fixed Rate Step-up Subordinated Notes 2030 (€309 million)	–	–	(260)	(260)
7.625% Dated Subordinated Notes 2025 (£273 million)	–	–	(273)	(273)
4.582% Fixed Rate Dated Subordinated Notes 2025 ($1,328 million)	–	–	(996)	(996)
4.582% Fixed Rate Dated Subordinated Notes 2025 ($25.6 million)	–	–	(19)	(19)
5.75% Undated Step-up Subordinated Notes callable 2025 (£9 million)	–	(9)	–	(9)
	–	(9)	(1,919)	(1,928)
Foreign exchange movements	(3)	–	(277)	(280)
Other movements (cash and non-cash)2	(3)	–	256	253
At 31 December 2025	407	136	9,351	9,894

1Issuances in the year generated cash inflows of £1,757 million (2024: £812 million); the repurchases and redemptions resulted in cash outflows of £1,928 million (2024: £819 million).

2Other movements include hedge accounting movements and cash payments in respect of interest on subordinated liabilities in the year amounting to £618 million (2024: £622 million)

offset by the interest expense in respect of subordinated liabilities of £707 million (2024: £738 million).

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Note 29: Subordinated liabilities continued

These securities will, in the event of the winding-up of the issuer, be subordinated to the claims of depositors and all other creditors of the

issuer, other than creditors whose claims rank equally with, or are junior to, the claims of the holders of the subordinated liabilities. The

subordination of specific subordinated liabilities is determined in respect of the issuer and any guarantors of that liability. The claims of

holders of preference shares and preferred securities are generally junior to those of the holders of undated subordinated liabilities, which in

turn are junior to the claims of holders of the dated subordinated liabilities.

Preference shares

The Company has in issue various classes of preference shares, with a nominal value of £74 million (296,227,449 shares), which are all

classified as liabilities under IFRS accounting standards and are shown below. This represents 0.50% of the total issued share capital

(59,181,971,051 shares) of the Group.


	Number of shares
	2025	2024	2023
6% Non-cumulative Redeemable Preference shares of GBP0.25	400	400	400
6.475% Non-cumulative Preference shares of GBP0.25	–	–	47,273,816
9.25% Non-cumulative Irredeemable Preference shares of GBP0.25	252,510,147	252,510,147	252,510,147
9.75% Non-cumulative Irredeemable Preference shares of GBP0.25	43,630,285	43,630,285	43,630,285
6.413% Non-cumulative Fixed/Floating Rate Callable Preference shares of USD0.25	48,990	48,990	48,990
6.657% Non-cumulative Fixed/Floating Rate Callable Preference shares of USD0.25	37,627	37,627	37,627
Total	296,227,449	296,227,449	343,501,265


	2025		2024		2023
	£m	% of share capital	£m	% of share capital	£m	% of share capital
6% Non-cumulative Redeemable Preference shares of GBP0.25	–	–	–	–	–	–
6.475% Non-cumulative Preference shares of GBP0.25	–	–	–	–	12	0.07
9.25% Non-cumulative Irredeemable Preference shares of GBP0.25	63	0.43	63	0.42	63	0.40
9.75% Non-cumulative Irredeemable Preference shares of GBP0.25	11	0.07	11	0.07	11	0.07
6.413% Non-cumulative Fixed/Floating Rate Callable Preference shares of USD0.25	–	–	–	–	–	–
6.657% Non-cumulative Fixed/Floating Rate Callable Preference shares of USD0.25	–	–	–	–	–	–
Total	74	0.50	74	0.49	86	0.54

In any general meeting of the Company which is held as a physical general meeting, a resolution put to the vote of the meeting shall be

decided by a poll unless the chair of the meeting determines that such resolution shall be decided on a show of hands, although in certain

circumstances such decision may be overridden by a sufficient number of shareholders demanding a poll. At a general meeting of the

Company, every holder of shares (whether ordinary or preference shares) who is present in person or by proxy and entitled to vote, shall

have one vote per share in relation to the resolutions on which they are entitled, respectively, to vote, whether such vote is held on a poll or

a show of hands.

100% of preference shares have voting rights. The preference shares represent 0.50% of the total voting rights of the Company, the

remainder being represented by the ordinary shares.

The rights and obligations attaching to the preference shares are set out in:

i.the Company’s articles of association, a copy of which can be obtained from Companies House or from our website

(www.lloydsbankinggroup.com/who-we-are/group-overview/corporate-governance.html );

ii.in respect of the 6% Non-cumulative Redeemable Preference shares, in Companies House form 128(1) filed at Companies House on

12 January 2005, a copy of which is available from Companies House (www.companieshouse.gov.uk ); and

iii.in respect of the other classes of preference shares, in the prospectus dated 20 November 2008 and published on the

National Storage Mechanism on that date, a copy of which prospectus is available on the National Storage Mechanism

(https://data.fca.org.uk/#/nsm/nationalstoragemechanism ).

None of the preference shares have any multiple or unequal voting rights.

As at 31 December 2025, the free float percentage of all of the Company’s ordinary and preference listed shares in issue was over 99.99%,

by both number of shares and nominal value. The balance was comprised of the 400 unlisted 6% Non-cumulative Redeemable Preference

shares of GBP0.25 each referred to above (£100 in total).

Lloyds Banking Group plc Annual Report and Accounts 2025

287

Note 30: Share capital

Issued and fully paid ordinary share capital


	Number of shares
Ordinary shares of 10p (formerly 25p) each	2025	2024	2023
At 1 January	60,617,012,971	63,569,225,662	67,287,852,204
Issued under employee share schemes	472,840,371	734,265,017	667,636,165
Share buyback programme (note 32)	(2,204,109,740)	(3,686,477,708)	(4,386,262,707)
At 31 December	58,885,743,602	60,617,012,971	63,569,225,662


	2025		2024		2023
Ordinary shares of 10p (formerly 25p) each	£m	% of share capital	£m	% of share capital	£m	% of share capital
At 31 December	5,889	99.50	6,062	99.52	6,358	99.46

Ordinary shares

As permitted by the Companies Act 2006, the Company removed references to authorised share capital from its articles of association at

the annual general meeting on 5 June 2009. This change took effect from 1 October 2009. There are no restrictions on the transfer of shares

in the Company other than as set out in the articles of association and:

•Certain restrictions which may from time to time be imposed by law and regulations (for example, insider trading laws)

•Where directors and certain employees of the Company require the approval of the Company to deal in the Company’s shares

•Pursuant to the rules of some of the Company’s employee share plans where certain restrictions may apply while the shares are subject

to the plans

Where, under an employee share plan operated by the Company, participants are the beneficial owners of shares but not the registered

owners, the voting rights are normally exercised by the registered owner at the direction of the participant. Outstanding awards and

options would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions at

that time.

All of the Company’s issued ordinary share capital is listed (i.e. the free float percentage of the ordinary shares is 100%) and none of the

shares have any multiple or unequal voting rights; each share carries one vote. In addition, the Company is not aware of any agreements

between shareholders that may result in restrictions on the transfer of securities and/or voting rights.

The directors have authority to allot and issue ordinary and preference shares and to make market purchases of ordinary and preference

shares as granted at the annual general meeting on 15 May 2025. The authority to issue shares and the authority to make market

purchases of shares will expire at the next annual general meeting. Shareholders will be asked, at the annual general meeting, to give

similar authorities.

Subject to any rights or restrictions attached to any shares, on a show of hands at a general meeting of the Company every holder of shares

present in person or by proxy and entitled to vote has one vote and on a poll every member present and entitled to vote has one vote for

every share held. The special rights attached to any class of shares (including preference shares) in the Company may, subject to the

statutory provisions, be varied or abrogated either with the consent in writing of the holders of three-quarters in nominal value of the

issued shares of the class or with the sanction of a special resolution passed at a separate meeting of the holders of the shares of the class

(but not otherwise).

The holders of ordinary shares, who held 100% of the total ordinary share capital at 31 December 2025, are entitled to receive the

Company’s report and accounts, attend, speak and vote at general meetings and appoint proxies to exercise voting rights. Holders of

ordinary shares may also receive a dividend (subject to the provisions of the Company’s articles of association) and in the event of a

winding-up, may share in the assets of the Company.

The rights and obligations attached to the Company’s ordinary shares are set out in the Company’s articles of association, a copy of which

can be found at www.lloydsbankinggroup.com/who-we-are/group-overview/corporate-governance.html →.

Preference shares

The Company has in issue various classes of preference shares which are all classified as liabilities under IFRS accounting standards and

which are included in note 29. The statement above (under the heading ‘Ordinary shares’) in relation to the variation of special rights

attaching to any shares is also applicable to preference shares.

Note 31: Earnings per share


	2025 £m	2024 £m	2023 £m
Profit attributable to ordinary shareholders – basic and diluted	4,196	3,923	4,933


	2025 million	2024 million	2023 million
Weighted average number of ordinary shares in issue – basic	59,790	62,413	64,953
Adjustment for share options and awards	723	661	807
Weighted average number of ordinary shares in issue – diluted	60,513	63,074	65,760

Basic earnings per share	7.0p	6.3p	7.6p
Diluted earnings per share	6.9p	6.2p	7.5p

Lloyds Banking Group plc Annual Report and Accounts 2025

288

Note 31: Earnings per share continued

Basic earnings per share are calculated by dividing the net profit attributable to equity shareholders by the weighted average number of

ordinary shares in issue during the year, which has been calculated after deducting 105 million (2024: 71 million; 2023: 180 million) ordinary

shares representing the Group’s holdings of own shares in respect of employee share schemes.

For the calculation of diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion

of all dilutive potential ordinary shares that arise in respect of share options and awards granted to employees. The number of shares that

could have been acquired at the annual average price of the Company’s shares based on the monetary value of the subscription rights

attached to outstanding share options and awards is determined. This is deducted from the number of shares issuable under such options

and awards to leave a residual bonus amount of shares which are added to the weighted average number of ordinary shares in issue, but no

adjustment is made to the profit attributable to equity shareholders.

There were 1 million anti-dilutive share options and awards excluded from the calculation of diluted earnings per share (2024: 16 million;

2023: 41 million).

Note 32: Other reserves


	2025 £m	2024 £m	2023 £m
Merger reserve
At 1 January	7,102	7,149	7,149
Redemption of preference shares (note 29)1	–	(47)	–
At 31 December	7,102	7,102	7,149
Capital redemption reserve
At 1 January	5,751	5,370	4,932
Redemption of preference shares (note 29)1	–	12	–
Shares cancelled under share buyback programme (see below)	220	369	438
At 31 December	5,971	5,751	5,370
Revaluation reserve in respect of debt securities held at fair value through other comprehensive income
At 1 January	(113)	(67)	50
Movements recognised in other comprehensive income	24	(46)	(117)
At 31 December	(89)	(113)	(67)
Revaluation reserve in respect of equity shares held at fair value through other comprehensive income
At 1 January	93	–	57
Movements recognised in other comprehensive income	34	93	(57)
Realised gains and losses transferred to retained profits	(107)	–	–
At 31 December	20	93	–
Cash flow hedge reserve
At 1 January	(3,755)	(3,766)	(5,476)
Movements recognised in other comprehensive income	1,692	11	1,710
At 31 December	(2,063)	(3,755)	(3,766)
Foreign currency translation reserve
At 1 January	(251)	(178)	(125)
Movements recognised in other comprehensive income	54	(73)	(53)
At 31 December	(197)	(251)	(178)
Total other reserves at 31 December	10,744	8,827	8,508

1During the year ended 31 December 2024, the Group redeemed all of its outstanding 6.475% Non-cumulative Preference Shares at their combined sterling value of £47 million. These

preference shares had been accounted for as subordinated liabilities. On redemption an amount of £35 million was transferred from the distributable merger reserve to the share

premium account.

The merger reserve primarily comprises the premium on shares issued in January 2009 as part of the recapitalisation of the Group and the

acquisition of HBOS plc.

The capital redemption reserve represents transfers from distributable reserves in accordance with companies’ legislation upon the

redemption of ordinary and preference share capital.

The revaluation reserve in respect of debt securities and equity shares held at fair value through other comprehensive income represent the

cumulative after-tax unrealised change in the fair value of financial assets so classified since initial recognition; or in the case of financial

assets obtained on acquisitions of businesses, since the date of acquisition.

The cash flow hedge reserve represents the cumulative after-tax gains and losses on effective cash flow hedging instruments that will be

reclassified to the income statement in the periods in which the hedged item affects profit or loss.

The foreign currency translation reserve represents the cumulative after-tax gains and losses on the translation of foreign operations.

In 2025, 2024 and 2023 the Group commenced and completed share buyback programmes to repurchase outstanding ordinary shares. In

2025 the Group bought back and cancelled 2,204 million shares under the programme (2024: 3,686 million shares; 2023: 4,386 million

shares), for a total consideration, including expenses, of £1,710 million (2024: £2,011 million; 2023: £1,993 million). Upon cancellation,

£220 million (2024: £369 million; 2023: £438 million), being the nominal value of the shares repurchased, was transferred to the capital

redemption reserve.

Lloyds Banking Group plc Annual Report and Accounts 2025

289

Note 33: Other equity instruments


	2025 £m	2024 £m	2023 £m
At 1 January	6,195	6,940	5,297
Issued during the year:
£750 million 7.5% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible Securities callable 2030	750	–	–
$1,000 million 6.625% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible Securities callable 2035	761
$1,000 million 6.75% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible Securities Callable 2031	–	763	–
$1,250 million 8% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible Securities Callable 2029	–	–	1,028
£750 million 8.5% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible Securities Callable 2028	–	–	750
	1,511	763	1,778
Repurchases and redemptions during the year:
€750 million 6.375% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible Securities Callable 2020	(622)	–	–
$1,500 million 7.5% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible Securities Callable 2025	(1,137)	–	–
$1,675 million 7.5% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible Securities	–	(1,008)	–
£500 million 5.125% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible Securities Callable 2024	–	(500)	–
£1,494 million 7.625% Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Contingent Convertible Securities Callable 2023	–	–	(135)
	(1,759)	(1,508)	(135)
Profit for the year attributable to other equity holders	463	498	527
Distributions on other equity instruments	(463)	(498)	(527)
At 31 December	5,947	6,195	6,940

The AT1 securities are Fixed Rate Resetting Perpetual Subordinated Contingent Convertible Securities with no fixed maturity or

redemption date. The principal terms of the AT1 securities are described below:

•The securities rank behind the claims against Lloyds Banking Group plc of (a) unsubordinated creditors, (b) claims which are, or are

expressed to be, subordinated to the claims of unsubordinated creditors of Lloyds Banking Group plc but not further or otherwise, or (c)

whose claims are, or are expressed to be, junior to the claims of other creditors of Lloyds Banking Group, whether subordinated or

unsubordinated, other than those whose claims rank, or are expressed to rank, pari passu with, or junior to, the claims of the holders of

the AT1 securities in a winding-up occurring prior to a conversion event being triggered

•The securities bear a fixed rate of interest until the first reset date. After the first reset date or any reset date thereafter, in the event

that they are not redeemed, the AT1 securities will bear interest at rates fixed periodically in advance for five year periods based on

market rates

•Interest on the securities will be due and payable only at the sole discretion of Lloyds Banking Group plc, and Lloyds Banking Group plc

may at any time elect to cancel any interest payment (or any part thereof) which would otherwise be payable on any interest payment

date. There are also certain restrictions on the payment of interest as specified in the terms

•The securities are undated and are repayable, at the option of Lloyds Banking Group plc, in whole at the first call date or period, or on

any fifth anniversary after the first call date or period. In addition, the AT1 securities are repayable, at the option of Lloyds Banking

Group plc, in whole for certain regulatory or tax reasons. Any repayments require the prior consent of the PRA

•The securities convert into ordinary shares of Lloyds Banking Group plc, at a pre-determined price, should the CET1 ratio of the Group

fall below 7.0%

Note 34: Dividends on ordinary shares

The directors have recommended a final dividend, which is subject to approval by the shareholders at the annual general meeting on

14 May 2026, of 2.43 pence per ordinary share (2024: 2.11 pence per ordinary share). This is equivalent to £1,429 million, before the impact

of any cancellations of shares under the Company’s buyback programme (2024: £1,271 million, following cancellations of shares under the

Company’s 2025 buyback programme up to the record date), and will be paid on 19 May 2026. These financial statements do not reflect

the recommended final dividend. Shareholders who have already joined the dividend reinvestment plan will automatically receive shares

instead of the cash dividend. Key dates for the payment of the recommended dividend are outlined on page 306.

Dividends paid during the year were as follows:


	2025 pence per share	2024 pence per share	2023 pence per share	2025 £m	2024 £m	2023 £m
Final dividend recommended by directors at previous year end	2.11	1.84	1.60	1,271	1,169	1,059
Interim dividend paid in the year	1.22	1.06	0.92	729	659	592
	3.33	2.90	2.52	2,000	1,828	1,651

Lloyds Banking Group plc Annual Report and Accounts 2025

290

Note 34: Dividends on ordinary shares continued

The trustees of the following holdings of Lloyds Banking Group plc shares in relation to employee share schemes retain the right to receive

dividends but have chosen to waive their entitlement to the dividends on those shares as indicated: the Lloyds Banking Group Share

Incentive Plan (holding at 31 December 2025: 2,805,932 shares, 31 December 2024: 590,670 shares, waived rights to all dividends) and the

Lloyds Banking Group Employee Share Ownership Trust (holding at 31 December 2025: 84,427,788 shares, 31 December 2024:

125,361,633 shares, waived rights to all dividends).

The payment of dividends by subsidiaries and the ability of members of the Group to lend money to other members of the Group may be

subject to regulatory or legal restrictions, the availability of reserves and the financial and operating performance of the entity. A number of

Group subsidiaries, principally those with banking and insurance activities, are subject to regulatory capital requirements which require

minimum amounts of capital to be maintained relative to their size and risk. The Group actively manages the capital of its subsidiaries,

which includes monitoring the regulatory capital ratios for its banking and insurance subsidiaries and, on a consolidated basis, the Ring-

Fenced Bank sub-group, against approved risk appetite levels.

Note 35: Related party transactions

Key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of an

entity; the Group’s key management personnel are the members of the Lloyds Banking Group plc Group Executive Committee together

with its non-executive directors.

The table below details, on an aggregated basis, key management personnel compensation:


Compensation	2025 £m	2024 £m	2023 £m
Salaries and other short-term benefits	15	14	16
Share-based payments	24	20	22
Total compensation	39	34	38

There were no contributions in respect of key management personnel to defined contribution pension schemes (2024 and 2023: none).


	Share plans
	2025 million	2024 million	2023 million
At 1 January	123	55	72
Granted, including certain adjustments (includes entitlements of appointed key management personnel)	44	78	27
Exercised/lapsed (includes entitlements of former key management personnel)	(9)	(10)	(44)
At 31 December	158	123	55

The tables below detail, on an aggregated basis, balances outstanding at the year end and related income and expense, together with

information relating to other transactions between the Group and its key management personnel:


Loans	2025 £m	2024 £m	2023 £m
At 1 January	1	1	2
Advanced (includes loans to appointed key management personnel)	1	1	–
Repayments (includes loans to former key management personnel)	(1)	(1)	(1)
At 31 December	1	1	1

The loans are on both a secured and unsecured basis and are expected to be settled in cash. The loans attracted interest rates of between

3.67% and 31.75% in 2025 (2024: 2.03% and 32.40%; 2023: 1.09% and 32.40%).

No provisions have been recognised in respect of loans given to key management personnel (2024 and 2023: £nil).


Deposits	2025 £m	2024 £m	2023 £m
At 1 January	8	14	10
Placed (includes deposits of appointed key management personnel)	42	31	44
Withdrawn (includes deposits of former key management personnel)	(43)	(37)	(40)
At 31 December	7	8	14

Deposits placed by key management personnel attracted interest rates of up to 6.25% (2024: 6.25%; 2023: 6.25%).

At 31 December 2025, the Group did not provide any guarantees in respect of key management personnel (2024 and 2023: none).

At 31 December 2025, transactions, arrangements and agreements entered into by the Group’s banking subsidiaries with directors and

connected persons included amounts outstanding in respect of loans and credit card transactions of £36.1 thousand with three directors

and one connected person (2024: £29.0 thousand with five directors and one connected person; 2023: £23.4 thousand with five directors

and no connected persons).

Subsidiaries

Details of the Group’s subsidiaries and related undertakings are given on pages 313 to 323. In accordance with IFRS 10 Consolidated

Financial Statements, transactions and balances with subsidiaries have been eliminated on consolidation.

Lloyds Banking Group plc Annual Report and Accounts 2025

291

Note 35: Related party transactions continued

Pension funds

The Group provides banking and some investment management services to a number of its pension funds. At 31 December 2025, customer

deposits of £128 million (2024: £113 million) related to the Group’s pension funds.

Collective investment vehicles

The Group manages 91 (2024: 88) collective investment vehicles, such as Open-Ended Investment Companies (OEICs) and of these

49 (2024: 50) are consolidated. The Group invested £45 million (2024: £142 million) and redeemed £525 million (2024: £513 million) in the

unconsolidated collective investment vehicles during the year and had investments, at fair value, of £744 million (2024: £1,461 million) at

31 December. The Group earned fees of £130 million from the unconsolidated collective investment vehicles during 2025 (2024:

£82 million).

Joint ventures and associates

At 31 December 2025 there were loans and advances to customers of £34 million (2024: £45 million) outstanding and balances within

customer deposits of £13 million (2024: £13 million) relating to joint ventures and associates.

During the year the Group paid fees of £3 million (2024: £4 million) to its Schroders Personal Wealth joint venture, which then became a

fully consolidated subsidiary on 9 October 2025 when the Group acquired the remaining 49.9% of the ordinary share capital of Schroders

Personal Wealth in exchange for its stake in Cazenove Capital.

In addition to the above balances, the Group has a number of other associates held by its venture capital business that it accounts for at

fair value through profit or loss. These investments are reported within financial assets at fair value through profit or loss on the face of the

balance sheet. At 31 December 2025, companies that are joint ventures and associates of the Group had total assets of £7,728 million

(2024: £7,635 million), total liabilities of £6,275 million (2024: £6,436 million) and for the year ended 31 December 2025 had turnover of

£3,072 million (2024: £3,630 million) and made a net loss of £221 million (2024: net loss of £328 million). In addition, the Group has

provided £1,646 million (2024: £1,651 million) of financing to these companies on which it received £135 million (2024: £116 million) of

interest income in the year.

Note 36: Contingent liabilities, commitments and financial guarantees

Contingent liabilities, commitments and guarantees arising from the banking business

At 31 December 2025 contingent liabilities, such as performance bonds and letters of credit, arising from the banking business were

£3,009 million (31 December 2024: £2,605 million).

The contingent liabilities of the Group arise in the normal course of its banking business and it is not practicable to quantify their future

financial effect. Total commitments and financial guarantees were £157,574 million (31 December 2024: £148,619 million), of which in

respect of undrawn formal standby facilities, credit lines and other commitments to lend, £88,135 million (31 December 2024:

£79,518 million) was irrevocable.

Capital commitments

Excluding commitments in respect of investment property, capital expenditure contracted but not provided for at 31 December 2025

amounted to £610 million (2024: £640 million) and related to assets to be leased to customers under operating leases. Capital expenditure

in respect of investment properties which had been contracted for but not recognised in the financial statements was £312 million (31

December 2024: £236 million). The Group’s management is confident that future net revenues and funding will be sufficient to cover these

commitments.

Interchange fees

With respect to multi-lateral interchange fees (MIFs), the Group is not a party in the ongoing or threatened litigation which involves the

card schemes Visa and Mastercard or any settlements of such litigation. However, the Group is a member/licensee of Visa and Mastercard

and other card schemes.

Litigation has been brought by or on behalf of retailers against both Visa and Mastercard in the English Courts, in which retailers are seeking

damages on grounds that Visa and Mastercard’s MIFs breached competition law. This includes a final judgment of the Supreme Court in

2020 that certain historic interchange arrangements of Mastercard and Visa infringed competition law and a subsequent judgment of the

Competition Appeal Tribunal in June 2025 finding that all default interchange fee rules of Mastercard and Visa (including after the

Interchange Fee Regulation) infringed competition law.

Separate litigation was brought on behalf of UK consumers in the English Courts against Mastercard (settlement of which was approved by

the Competition Appeal Tribunal in the first half of 2025).

Any impact on the Group of the litigation against Visa and Mastercard remains uncertain at this time, such that it is not practicable for the

Group to provide an estimate of any potential financial effect. Insofar as Visa is required to pay damages to retailers for interchange fees set

prior to June 2016, contractual arrangements to allocate liability have been agreed between various UK banks (including the Group) and

Visa Inc, as part of Visa Inc’s acquisition of Visa Europe in 2016. These arrangements cap the maximum amount of liability to which the

Group may be subject and this cap is set at the cash consideration received by the Group for the sale of its stake in Visa Europe to Visa Inc

in 2016. In 2016, the Group received Visa preference shares as part of the consideration for the sale of its shares in Visa Europe. A release

assessment is carried out by Visa on certain anniversaries of the sale (in line with the Visa Europe sale documentation) and as a result, some

Visa preference shares may be converted into Visa Inc Class A common stock from time to time. Any such releases and any subsequent

sales of Visa common stock do not impact the contingent liability.

LIBOR and other trading rates

Certain Group companies, together with other panel banks, were previously named as defendants in private lawsuits in the US in

connection with their roles as panel banks contributing to the setting of US dollar, Japanese yen and Sterling London Interbank Offered

Rate. Certain Group company dismissals from these lawsuits remain subject to appeal.

Certain Group companies are also named as defendants in two Dutch class actions, raising LIBOR manipulation allegations and one English

claim relating to the alleged mis-sale of interest rate hedging products which also includes an allegation of LIBOR manipulation.

It is currently not possible to predict the scope and ultimate outcome on the Group of any private lawsuits. As such, it is not practicable to

provide an estimate of any potential financial effect.

Lloyds Banking Group plc Annual Report and Accounts 2025

292

Note 36: Contingent liabilities, commitments and financial guarantees continued

Tax authorities