Lloyds Banking Group PLC, GB0008706128

Lloyds Banking Group PLC, GB0008706128

27.10.2022 - 08:38:55

EQS-News: Lloyds Banking Group PLC: 2022 Q3 Interim Management Statement

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?In February we announced an ambitious new strategy. While the operating environment has changed significantly since then, our customer focus remains unchanged. We continue to execute against our strategic goals, based on our objectives of transforming the business, while generating a stronger growth trajectory and enabling the Group to deliver higher, more sustainable returns.

Our income growth, balance sheet momentum and resilient customer franchise have enabled the Group to deliver a robust financial performance and strong capital generation, alongside updated guidance for 2022.

The current environment is concerning for many people and we are committed to maintaining support for our customers. The Group?s resilient business model and prudent approach to risk position the Group well to face the current macroeconomic uncertainties while generating enhanced returns for our shareholders.?

?Charlie Nunn, Group Chief Executive

Robust financial results with resilient credit performance and continued business momentum

Maintaining support for customers and progressing strategic priorities with significant strategic investment Supporting the transition to a low carbon economy; announced new sector-based 2030 emissions reduction targets and a new net zero ambition for our supply chain in our Net Zero Activity Update1 Statutory profit after tax of ?4.0 billion (nine months to 30 September 2021: ?5.5 billion), with higher net income more than offset by impairment charges as a result of the revised economic outlook (versus a significant write-back in 2021) Robust revenue growth supported by continued recovery in customer activity and UK Bank Rate changes. Net income of ?13.0 billion, up 12 per cent; higher net interest and other income and continued low operating lease depreciation Underlying net interest income up 15 per cent, significantly driven by a stronger banking net interest margin of 2.84 per cent year to date (2.98 per cent in the third quarter) Operating costs of ?6.4 billion, up 6 per cent compared to the first nine months of 2021, reflecting stable business-as-usual costs alongside higher planned strategic investment and new businesses Underlying profit before impairment up 29 per cent to ?6.5 billion in the period (with ?2.4 billion in the third quarter), as a result of robust net income growth Observed asset quality remains strong and the portfolio is well-positioned in the context of cost of living pressures. Underlying impairment of ?1.0 billion (of which ?0.7 billion was recognised in the third quarter) reflects a resilient observed credit performance, but impacted by the weakening economic outlook and associated scenarios in the third quarter, partially offset by COVID-19 releases

Continued franchise growth and strong capital generation

Loans and advances to customers at ?456.3 billion were up ?7.7 billion in the first nine months and up ?0.2 billion in the quarter, with continued growth in the open mortgage book Customer deposits of ?484.3 billion were up ?8.0 billion in the first nine months and ?6.1 billion in the quarter. Loan to deposit ratio of 94 per cent continues to provide robust funding and liquidity and potential for growth Capital generationof 191 basis points2 in the first nine months based on robust banking performance and including the Insurance dividend paid in July 2022 CET1 ratio of 15.0 per cent after ordinary dividend and variable pension contributions, remaining well ahead of the ongoing target of c.12.5?per cent, plus a management buffer of c.1 per cent. Commitment to consider excess capital returns as usual at year-end

Outlook

Given the robust financial performance in the first nine months of 2022 and incorporating revised macroeconomic forecasts in the third quarter, the Group is updating its 2022 guidance:

Banking net interest margin now expected to be greater than 290 basis points Operating costs expected to be c.?8.8 billion Asset quality ratio now expected to be c.30 basis points Return on tangible equity expected to be c.13 per cent Risk-weighted assets at the end of 2022 expected to be c.?210 billion Capital generation now expected to be between 225 and 250 basis points2

1?The Net Zero Activity Update can be found at www.lloydsbankinggroup.com/investors/esg-information.html.

2?Excluding regulatory changes on 1 January 2022, ordinary dividend and variable pension contributions.

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INCOME STATEMENT ? UNDERLYING BASISA AND KEY BALANCE SHEET METRICS

? Nine months ended 30 Sep2022?m ? ? Nine months ended 30 Sep 2021 ?m ? ? Change% ? Three months ended 30 Sep 2022 ?m ? ? Three months ended 30 Sep 2021 ?m ? ? Change% ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Underlying net interest income ?9,529? ? ? ?8,270? ? ? ?15? ? ?3,394? ? ? ?2,852? ? ? ?19? Underlying other income ?3,811? ? ? ?3,753? ? ? ?2? ? ?1,282? ? ? ?1,336? ? ? ?(4) Operating lease depreciation ?(295) ? ? ?(382) ? ? ?23? ? ?(82) ? ? ?(111) ? ? ?26? Net income ?13,045? ? ? ?11,641? ? ? ?12? ? ?4,594? ? ? ?4,077? ? ? ?13? Operating costs1 ?(6,436) ? ? ?(6,066) ? ? ?(6) ? ?(2,187) ? ? ?(2,013) ? ? ?(9) Remediation ?(89) ? ? ?(525) ? ? ?83? ? ?(10) ? ? ?(100) ? ? ?90? Total costs ?(6,525) ? ? ?(6,591) ? ? ?1? ? ?(2,197) ? ? ?(2,113) ? ? ?(4) Underlying profit before impairment ?6,520? ? ? ?5,050? ? ? ?29? ? ?2,397? ? ? ?1,964? ? ? ?22? Underlying impairment (charge) credit1 ?(1,045) ? ? ?853? ? ? ? ? ?(668) ? ? ?119? ? ? ? Underlying profit ?5,475? ? ? ?5,903? ? ? ?(7) ? ?1,729? ? ? ?2,083? ? ? ?(17) Restructuring1 ?(69) ? ? ?(34) ? ? ? ? ?(22) ? ? ?(24) ? ? ?8? Volatility and other items ?(237) ? ? ?65? ? ? ? ? ?(199) ? ? ?(30) ? ? ? Statutory profit before tax ?5,169? ? ? ?5,934? ? ? ?(13) ? ?1,508? ? ? ?2,029? ? ? ?(26) Tax expense ?(1,134) ? ? ?(469) ? ? ? ? ?(299) ? ? ?(429) ? ? ?30? Statutory profit after tax ?4,035? ? ? ?5,465? ? ? ?(26) ? ?1,209? ? ? ?1,600? ? ? ?(24) ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Earnings per share 5.2p ? ? 7.1p ? ? (1.9)p ? 1.5p ? ? 2.0p ? ? (0.5)p Banking net interest marginA 2.84% ? ? 2.52% ? ? 32bp ? 2.98% ? ? 2.55% ? ? 43bp Average interest-earning banking assetsA ??451.4bn ? ? ??443.0bn ? ? ?2? ? ??454.9bn ? ? ??447.2bn ? ? ?2? Cost:income ratioA,1 50.0% ? ? 56.6% ? ? (6.6)pp ? 47.8% ? ? 51.8% ? ? (4.0)pp Asset quality ratioA,1 0.30% ? ? (0.25)% ? ? ? ? 0.57% ? ? (0.10)% ? ? ? Return on tangible equityA 12.9% ? ? 17.6% ? ? (4.7)pp ? 11.9% ? ? 14.5% ? ? (2.6)pp

1?2021 comparatives have been presented to reflect the new costs basis, consistent with the current period. See page 23.

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? At 30 Sep2022 ? ? At 30 Jun 2022 ? ? Change% ? ? ? ? At 31 Dec 2021 ? ? Change% ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Loans and advances to customers ??456.3bn ? ? ??456.1bn ? ? ? ? ? ? ? ??448.6bn ? ? ?2? Customer deposits ??484.3bn ? ? ??478.2bn ? ? ?1? ? ? ? ? ??476.3bn ? ? ?2? Loan to deposit ratioA 94% ? ? 95% ? ? (1pp) ? ? ? ? 94% ? ? ? CET1 ratio 15.0% ? ? 14.7% ? ? 0.3pp ? ? ? ? 17.3% ? ? (2.3)pp Pro forma CET1 ratioA,1 15.0% ? ? 14.8% ? ? 0.2pp ? ? ? ? 16.3% ? ? (1.3)pp Total capital ratio 19.4% ? ? 19.3% ? ? 0.1pp ? ? ? ? 23.6% ? ? (4.2)pp MREL ratio 32.8% ? ? 32.4% ? ? 0.4pp ? ? ? ? 37.2% ? ? (4.4)pp UK leverage ratio 5.3% ? ? 5.3% ? ? ? ? ? ? ? 5.8% ? ? (0.5)pp Risk-weighted assets ??210.8bn ? ? ??209.6bn ? ? ?1? ? ? ? ? ??196.0bn ? ? ?8? Wholesale funding ??98.9bn ? ? ??97.7bn ? ? ?1? ? ? ? ? ??93.1bn ? ? ?6? Liquidity coverage ratio2 146% ? ? 142% ? ? 4.0pp ? ? ? ? 135% ? ? 11.0pp Tangible net assets per shareA 49.0p ? ? 54.8p ? ? (5.8)p ? ? ? ? 57.5p ? ? (8.5)p

A?See page 25.

1?The pro forma CET1 ratio comparative for 30 June 2022 reflects the interim dividend received from Insurance in July 2022. The 31?December 2021 comparative reflects the dividend received from Insurance in February 2022 and the full impact of the share buyback, but prior to the impact of regulatory changes that came into effect on 1 January 2022.

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

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QUARTERLY INFORMATIONA

? Quarter ended 30 Sep 2022?m ? ? Quarter ended 30 Jun 2022 ?m ? ? Quarter ended 31 Mar 2022 ?m ? ? Quarter ended 31 Dec 2021 ?m ? ? Quarter ended 30 Sep 2021 ?m ? ? Quarter ended 30 Jun 2021 ?m ? ? Quarter ended 31 Mar 2021 ?m ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Underlying net interest income ?3,394? ? ? ?3,190? ? ? ?2,945? ? ? ?2,893? ? ? ?2,852? ? ? ?2,741? ? ? ?2,677? ? Underlying other income ?1,282? ? ? ?1,268? ? ? ?1,261? ? ? ?1,307? ? ? ?1,336? ? ? ?1,282? ? ? ?1,135? ? Operating lease depreciation ?(82) ? ? ?(119) ? ? ?(94) ? ? ?(78) ? ? ?(111) ? ? ?(123) ? ? ?(148) ? Net income ?4,594? ? ? ?4,339? ? ? ?4,112? ? ? ?4,122? ? ? ?4,077? ? ? ?3,900? ? ? ?3,664? ? Operating costs1 ?(2,187) ? ? ?(2,151) ? ? ?(2,098) ? ? ?(2,246) ? ? ?(2,013) ? ? ?(2,008) ? ? ?(2,045) ? Remediation ?(10) ? ? ?(27) ? ? ?(52) ? ? ?(775) ? ? ?(100) ? ? ?(360) ? ? ?(65) ? Total costs ?(2,197) ? ? ?(2,178) ? ? ?(2,150) ? ? ?(3,021) ? ? ?(2,113) ? ? ?(2,368) ? ? ?(2,110) ? Underlying profit before impairment ?2,397? ? ? ?2,161? ? ? ?1,962? ? ? ?1,101? ? ? ?1,964? ? ? ?1,532? ? ? ?1,554? ? Underlying impairment (charge) credit1 ?(668) ? ? ?(200) ? ? ?(177) ? ? ?532? ? ? ?119? ? ? ?374? ? ? ?360? ? Underlying profit ?1,729? ? ? ?1,961? ? ? ?1,785? ? ? ?1,633? ? ? ?2,083? ? ? ?1,906? ? ? ?1,914? ? Restructuring1 ?(22) ? ? ?(23) ? ? ?(24) ? ? ?(418) ? ? ?(24) ? ? ?6? ? ? ?(16) ? Volatility and other items ?(199) ? ? ?100? ? ? ?(138) ? ? ?(247) ? ? ?(30) ? ? ?95? ? ? ??? ? Statutory profit before tax ?1,508? ? ? ?2,038? ? ? ?1,623? ? ? ?968? ? ? ?2,029? ? ? ?2,007? ? ? ?1,898? ? Tax (expense) credit ?(299) ? ? ?(416) ? ? ?(419) ? ? ?(548) ? ? ?(429) ? ? ?461? ? ? ?(501) ? Statutory profit after tax ?1,209? ? ? ?1,622? ? ? ?1,204? ? ? ?420? ? ? ?1,600? ? ? ?2,468? ? ? ?1,397? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Banking net interest marginA 2.98% ? ? 2.87% ? ? 2.68% ? ? 2.57% ? ? 2.55% ? ? 2.51% ? ? 2.49% ? Average interest-earning banking assetsA ??454.9bn ? ? ??451.2bn ? ? ??448.0bn ? ? ??449.4bn ? ? ??447.2bn ? ? ??442.2bn ? ? ??439.4bn ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Cost:income ratioA,1 47.8% ? ? 50.2% ? ? 52.3% ? ? 73.3% ? ? 51.8% ? ? 60.7% ? ? 57.6% ? Asset quality ratioA,1 0.57% ? ? 0.17% ? ? 0.16% ? ? (0.46)% ? ? (0.10)% ? ? (0.33)% ? ? (0.33)% ? Return on tangible equityA 11.9% ? ? 15.6% ? ? 10.8% ? ? 2.9% ? ? 14.5% ? ? 24.4% ? ? 13.9% ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Loans and advances to customers ??456.3bn ? ? ??456.1bn ? ? ??451.8bn ? ? ??448.6bn ? ? ??450.5bn ? ? ??447.7bn ? ? ??443.5bn ? Customer deposits ??484.3bn ? ? ??478.2bn ? ? ??481.1bn ? ? ??476.3bn ? ? ??479.1bn ? ? ??474.4bn ? ? ??462.4bn ? Loan to deposit ratioA 94% ? ? 95% ? ? 94% ? ? 94% ? ? 94% ? ? 94% ? ? 96% ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Risk-weighted assets ??210.8bn ? ? ??209.6bn ? ? ??210.2bn ? ? ??196.0bn ? ? ??200.7bn ? ? ??200.9bn ? ? ??198.9bn ? Tangible net assets per shareA 49.0p ? ? 54.8p ? ? 56.5p ? ? 57.5p ? ? 56.6p ? ? 55.6p ? ? 52.4p ?

1?2021 comparatives have been presented to reflect the new costs basis, consistent with the current period. See page 23.

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BALANCE SHEET ANALYSIS

? At 30 Sep2022?bn ? ? At 30 Jun 2022 ?bn ? ? Change% ? At 30 Sep 2021 ?bn ? ? Change% ? At 31 Dec 2021 ?bn ? ? Change% ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Loans and advances to customers ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Open mortgage book ?298.4? ? ? ?296.6? ? ? ?1? ? ?292.6? ? ? ?2? ? ?293.3? ? ? ?2? Closed mortgage book ?12.3? ? ? ?13.1? ? ? ?(6) ? ?14.8? ? ? ?(17) ? ?14.2? ? ? ?(13) Credit cards2 ?14.3? ? ? ?14.2? ? ? ?1? ? ?13.5? ? ? ?6? ? ?13.8? ? ? ?4? UK Retail unsecured loans ?8.8? ? ? ?8.5? ? ? ?4? ? ?8.1? ? ? ?9? ? ?8.1? ? ? ?9? UK Motor Finance ?14.2? ? ? ?14.2? ? ? ? ? ?14.1? ? ? ?1? ? ?14.0? ? ? ?1? Overdrafts ?1.0? ? ? ?1.0? ? ? ? ? ?1.0? ? ? ? ? ?1.0? ? ? ? Retail other1 ?13.0? ? ? ?12.5? ? ? ?4? ? ?10.8? ? ? ?20? ? ?10.9? ? ? ?19? Wealth2 ?1.0? ? ? ?1.0? ? ? ? ? ?1.0? ? ? ? ? ?1.0? ? ? ? Small and Medium Businesses2 ?39.8? ? ? ?41.1? ? ? ?(3) ? ?43.8? ? ? ?(9) ? ?42.5? ? ? ?(6) Corporate and Institutional Banking2 ?57.6? ? ? ?55.7? ? ? ?3? ? ?51.0? ? ? ?13? ? ?50.0? ? ? ?15? Central items2,3 ?(4.1) ? ? ?(1.8) ? ? ? ? ?(0.2) ? ? ? ? ?(0.2) ? ? ? Loans and advances to customers ?456.3? ? ? ?456.1? ? ? ? ? ?450.5? ? ? ?1? ? ?448.6? ? ? ?2? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Customer deposits ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Retail current accounts ?115.7? ? ? ?113.4? ? ? ?2? ? ?109.6? ? ? ?6? ? ?111.5? ? ? ?4? Retail relationship savings accounts ?165.7? ? ? ?165.8? ? ? ? ? ?162.6? ? ? ?2? ? ?164.5? ? ? ?1? Retail tactical savings accounts ?16.2? ? ? ?16.9? ? ? ?(4) ? ?16.8? ? ? ?(4) ? ?16.8? ? ? ?(4) Wealth2 ?14.9? ? ? ?14.9? ? ? ? ? ?15.1? ? ? ?(1) ? ?15.6? ? ? ?(4) Commercial Banking deposits ?170.2? ? ? ?166.7? ? ? ?2? ? ?174.5? ? ? ?(2) ? ?167.5? ? ? ?2? Central items2 ?1.6? ? ? ?0.5? ? ? ? ? ?0.5? ? ? ? ? ?0.4? ? ? ? Total customer deposits ?484.3? ? ? ?478.2? ? ? ?1? ? ?479.1? ? ? ?1? ? ?476.3? ? ? ?2? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Total assets ?892.9? ? ? ?890.4? ? ? ? ? ?882.0? ? ? ?1? ? ?886.6? ? ? ?1? Total liabilities ?846.5? ? ? ?840.3? ? ? ?1? ? ?829.4? ? ? ?2? ? ?833.4? ? ? ?2? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Ordinary shareholders? equity ?40.0? ? ? ?44.4? ? ? ?(10) ? ?46.5? ? ? ?(14) ? ?47.1? ? ? ?(15) Other equity instruments ?6.2? ? ? ?5.5? ? ? ?13? ? ?5.9? ? ? ?5? ? ?5.9? ? ? ?5? Non-controlling interests ?0.2? ? ? ?0.2? ? ? ? ? ?0.2? ? ? ? ? ?0.2? ? ? ? Total equity ?46.4? ? ? ?50.1? ? ? ?(7) ? ?52.6? ? ? ?(12) ? ?53.2? ? ? ?(13) ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Ordinary shares in issue, excluding own shares 67,464m ? ? 68,702m ? ? ?(2) ? 70,979m ? ? ?(5) ? 70,996m ? ? ?(5)

1?Primarily Europe.

2?The portfolios shown reflect the new organisation structure; comparatives have been presented on a consistent basis. See page 25.

3?Includes central fair value hedge accounting adjustments. 30 June 2022 included a ?200 million ECL central adjustment that was not allocated to specific portfolios (30 September 2021 and 31 December 2021: ?400 million). In the third quarter of 2022 this central adjustment was released.

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GROUP RESULTS ? STATUTORY BASIS

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Summary income statement Nine months ended30 Sep2022?m ? ? Nine months ended 30 Sep 2021 ?m ? ? Change% Net interest income ?11,061? ? ? ?7,073? ? ? ?56? Other income ?(17,984) ? ? ?20,012? ? ? ? Total income1 ?(6,923) ? ? ?27,085? ? ? ? Insurance claims1 ?20,181? ? ? ?(14,803) ? ? ? Total income, net of insurance claims ?13,258? ? ? ?12,282? ? ? ?8? Operating expenses ?(7,033) ? ? ?(7,194) ? ? ?2? Impairment (charge) credit ?(1,056) ? ? ?846? ? ? ? Profit before tax ?5,169? ? ? ?5,934? ? ? ?(13) Tax expense ?(1,134) ? ? ?(469) ? ? ? Profit for the period ?4,035? ? ? ?5,465? ? ? ?(26) ? ? ? ? ? ? ? ? Profit attributable to ordinary shareholders ?3,632? ? ? ?5,064? ? ? ?(28) Profit attributable to other equity holders ?327? ? ? ?321? ? ? ?2? Profit attributable to non-controlling interests ?76? ? ? ?80? ? ? ?(5) Profit for the period ?4,035? ? ? ?5,465? ? ? ?(26) ? ? ? ? ? ? ? ? Ordinary shares in issue (weighted-average ? basic) 69,478m ? ? 70,919m ? ? ?(2) Basic earnings per share 5.2p ? ? 7.1p ? ? (1.9)p

1?Includes income and expense attributable to the policyholders of the Group?s long-term assurance funds that materially offset in arriving at profit attributable to equity shareholders. These can, depending on market movements, lead to significant variances on a statutory basis in total income and insurance claims from one period to the next.

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Summary balance sheet At 30 Sep 2022?m ? ? At 31 Dec 2021 ?m ? ? Change% Assets ? ? ? ? ? ? ? Cash and balances at central banks ?84,841? ? ? ?76,420? ? ? ?11? Financial assets at fair value through profit or loss ?174,235? ? ? ?206,771? ? ? ?(16) Derivative financial instruments ?34,919? ? ? ?22,051? ? ? ?58? Financial assets at amortised cost ?536,843? ? ? ?517,156? ? ? ?4? Financial assets at fair value through other comprehensive income ?21,303? ? ? ?28,137? ? ? ?(24) Other assets ?40,781? ? ? ?35,990? ? ? ?13? Total assets ?892,922? ? ? ?886,525? ? ? ?1? ? ? ? ? ? ? ? ? Liabilities ? ? ? ? ? ? ? Deposits from banks ?9,032? ? ? ?7,647? ? ? ?18? Customer deposits ?484,303? ? ? ?476,344? ? ? ?2? Repurchase agreements at amortised cost1 ?46,378? ? ? ?31,125? ? ? ?49? Financial liabilities at fair value through profit or loss ?21,012? ? ? ?23,123? ? ? ?(9) Derivative financial instruments ?33,983? ? ? ?18,060? ? ? ?88? Debt securities in issue ?72,448? ? ? ?71,552? ? ? ?1? Liabilities arising from insurance and investment contracts ?142,977? ? ? ?168,463? ? ? ?(15) Other liabilities ?26,174? ? ? ?23,951? ? ? ?9? Subordinated liabilities ?10,242? ? ? ?13,108? ? ? ?(22) Total liabilities ?846,549? ? ? ?833,373? ? ? ?2? Total equity ?46,373? ? ? ?53,152? ? ? ?(13) Total equity and liabilities ?892,922? ? ? ?886,525? ? ? ?1?

1?Repurchase agreements at amortised cost, previously included within other liabilities, are now shown separately; comparatives have been presented on a consistent basis.

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REVIEW OF PERFORMANCE

Robust financial performance with continued business momentum

Statutory results

The Group?s statutory profit before tax for the first nine months of 2022 was ?5,169 million, 13 per cent lower than the same period in 2021. Results benefitted from higher income, more than offset by the impact of an impairment charge (compared to a credit in the prior year), including updates to the economic outlook in the third quarter. Statutory profit after tax was ?4,035?million (nine months to 30 September 2021: ?5,465 million, which included the benefit of a deferred tax remeasurement). In the third quarter of the year, statutory profit before tax was ?1,508 million and statutory profit after tax was ?1,209 million, a decrease on the second quarter of 26 per cent and 25 per cent respectively, again as a result of higher income more than offset by the impairment charge in light of the deterioration in the macroeconomic outlook as at 30 September 2022.

The Group?s statutory income statement includes income and expenses attributable to the policyholders of the Group?s long-term assurance funds. These items materially offset in arriving at profit attributable to equity shareholders but can, depending on market movements, lead to significant variances on a statutory basis between total income and insurance claims from one period to the next. In the nine months to 30 September 2022, due to deteriorating market conditions, the Group recognised losses on policyholder investments within total income which were materially offset by the corresponding reduction in insurance and investment contract liabilities, recognised as a decrease in insurance claims expense and a decrease in the amounts payable to unit holders in the Group?s consolidated open-ended investment companies, recognised within net interest income.

Total statutory income net of insurance claims for the first nine months was ?13,258 million, an increase of 8 per cent on the first nine months of 2021, reflecting continued recovery in customer activity and UK Bank Rate changes. The Group has maintained its focus on cost management, whilst increasing strategic investment as planned.

Loans and advances to customers are up 2 per cent on 31 December 2021 at ?456.3?billion, including continued growth of ?5.1?billion in the open mortgage book (?1.8 billion in the third quarter), alongside higher retail unsecured loan and credit card balances. Commercial Banking balances increased by ?4.9 billion (including ?0.6 billion in the third quarter) due to attractive growth opportunities as well as foreign exchange movements in the Corporate and Institutional Banking portfolio. Customer deposits have increased by ?8.0?billion since the end of 2021, to ?484.3?billion. This included Retail current account growth of ?4.2 billion and Retail relationship savings growth of ?1.2 billion, along with Commercial Banking deposit growth of ?2.7 billion. In the nine months to 30 September 2022, due to market conditions, a reduction was seen in policyholder investments, primarily within financial assets at fair value through profit or loss. This was materially offset by a corresponding reduction in the related insurance and investment contract liabilities.

Total equity reduced during the period as the Group?s profits were more than offset by reductions in the cash flow hedging reserve due to the rising rate environment, the impact of pension scheme remeasurements given market conditions and the impact of in-year distributions, including the share buyback programme that was announced in February 2022. This programme completed on 11 October 2022, with c.4.5 billion ordinary shares repurchased.

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REVIEW OF PERFORMANCE (continued)

Underlying resultsA

The Group?s underlying profit for the first nine months of the year was ?5,475 million, compared to ?5,903 million for the same period in 2021. Growth in net income was more than offset by an increased impairment charge, largely given the impact of the updated economic outlook and associated scenarios in the third quarter versus the underlying impairment credit for the same period in 2021. Underlying profit before impairment for the period was up 29 per cent to ?6,520?million, driven by robust net income growth and lower remediation costs. In the third quarter, underlying profit before impairment was ?2,397?million, up 11 per cent on the second quarter.

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Net income of ?13,045 million was up 12 per cent on the first nine months of 2021, with higher net interest income and other income as well as a continued low charge for operating lease depreciation.

Net interest income of ?9,529 million was up 15 per cent, largely driven by a stronger banking net interest margin of 2.84?per cent (nine months to 30 September 2021: 2.52 per cent). The net interest margin benefitted from the UK Bank Rate increases, structural hedge earnings from the rising rate environment, continued funding and capital optimisation and robust balance growth, partly offset by mortgage margin reductions. In the third quarter, the net interest margin rose to 2.98 per cent. Average interest-earning banking assets were up 2?per cent compared to the first nine months of 2021 at ?451.4?billion, driven by continued growth in the open mortgage book. The Group now expects the banking net interest margin for 2022 to be greater than 290 basis points.

The Group manages the risk to its 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 30 September 2022, the Group?s structural hedge had an approved capacity of ?250 billion (up ?10 billion on 31 December 2021 and stable compared to 30 June 2022), including some of the balances from the deposit growth since the start of the coronavirus pandemic. The Group continues to review recent periods? deposit growth and its eligibility for the structural hedge. The nominal balance of the structural hedge was ?250?billion at 30?September 2022 (31 December 2021: ?240 billion) with a weighted-average duration of approximately three-and-a-half years (31?December 2021: approximately three-and-a-half years). The Group generated ?1.9 billion of total gross income from structural hedge balances in the first nine months of 2022, representing material growth over the same period in 2021 (nine months to 30?September 2021: ?1.6?billion).

Other income of ?3,811 million was 2 per cent higher compared to ?3,753 million for the first nine months of 2021, reflecting solid performance across Retail, Commercial Banking, Insurance, Pensions and Investments (previously Insurance and Wealth) and the Group?s equity investments businesses. This included ?1,282 million in the third quarter, slightly up on the second quarter.

Within Retail, other income was up 11 per cent on prior year, including improved current account and credit card performance. Commercial Banking was up 3 per cent versus the prior year due to higher financial markets activity and strong performance in transaction banking, partly offset by lower levels of corporate financing. Insurance, Pensions and Investments other income was 6 per cent higher than the prior year. This largely reflected the impact of increased workplace pension sales and bulk annuity deals along with the inclusion of Embark income and a benefit from assumption changes. Growth was partly offset by a decrease in the general insurance business contribution driven by market challenges, and particularly storm and subsidence claims. Assumption changes were ?119 million including ?47?million in the third quarter (nine months to 30 September 2021: ?33 million). Other income associated with the Group?s equity investments businesses, including Lloyds Development Capital, was lower after high contributions and releases in 2021.

Operating lease depreciation decreased to ?295 million (nine months to 30 September 2021: ?382 million), reflecting continued strength in used car prices, combined with the ongoing impact of a reduced, but stabilising Lex fleet size, given industry-wide supply constraints in the new car market. Operating lease depreciation further reduced to ?82 million in the third quarter, compared to ?119 million in the second quarter.

The Group delivered good organic growth in Insurance, Pensions and Investments and Wealth (within Retail) assets under administration (AuA), with over ?6 billion net new money in open book AuA over the period. In total, open book AuA stand at ?154 billion.

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REVIEW OF PERFORMANCE (continued)

Cost discipline remains a core focus for the Group. The Group?s cost:income ratio was 50.0 per cent compared to 56.6?per cent in the first nine months of 2021. Total costs of ?6,525 million were 1 per cent lower than in the first nine months of 2021 (with ?2,197 million in the third quarter). Within this, lower remediation costs (down 83 per cent) were partially offset by increased operating costs of ?6,436?million (up 6 per cent), reflecting higher planned strategic investment and new businesses. Business-as-usual costs were stable. Operating costs as previously guided are still expected to be c.?8.8 billion for full-year 2022 (2021: ?8.3?billion).

In the first nine months of 2022 the Group recognised remediation costs of ?89 million (?10 million in the third quarter), principally relating to pre-existing programmes and significantly lower compared to the first nine months of 2021 (?525?million). There have been no further charges relating to HBOS Reading since the year-end and the provision held continues to reflect the Group?s best estimate of its full liability, albeit significant uncertainties remain.

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Impairment was a net charge of ?1,045?million (including ?668 million in the third quarter), compared to a net credit of ?853 million for the first nine months of 2021. This reflected an observed performance charge of ?532 million in the year to date (nine months to 30?September 2021: ?245 million, net of ?261 million of write-backs), equivalent to an asset quality ratio of 15 basis points and a ?513?million charge (nine months to 30?September 2021: a credit of ?1,098?million) from updates to the assessment of the economic outlook and associated scenarios. The updated outlook includes elevated risks from a higher inflation and interest rate environment, offset by a ?200 million release of the COVID-19 central adjustment, driving ?418?million of the ?668 million charge in the third quarter. The asset quality ratio year to date is now 30 basis points.

The Group?s loan portfolio continues to be well-positioned, reflecting a prudent through-the-cycle approach to lending with high levels of security, also reflected in strong recovery performance. Observed credit performance remains stable, with very modest evidence of deterioration and the flow of assets into arrears, defaults and write-offs at low levels and below pre-pandemic levels. These help sustain a low observed performance charge of ?250?million in the third quarter, higher than earlier quarters in the year, largely due to fewer write-backs from asset sales and model-related releases. Stage 3 loans and advances have been stable across the third quarter (see below). Credit card minimum payers and overdraft and revolving credit facility (RCF) utilisation rates have remained low and in line with recent trends.

The Group?s expected credit loss (ECL) allowance has increased in the first nine months of the year to ?5.0 billion (31?December 2021: ?4.5 billion). This reflects the balance of risks shifting from COVID-19 to increased inflationary pressures and rising interest rates within the Group?s base case and wider economic scenarios. The deterioration in the economic outlook is now reflected in variables which credit models better capture. As a result, the Group?s reliance on judgemental overlays for modelling risks in relation to inflationary pressures has reduced from ?0.3 billion at the half-year to ?0.1 billion in the third quarter, with these risks now captured more fully in models.

Management judgements in respect of COVID-19 are now ?0.1 billion, having reduced by ?0.2 billion in the third quarter and compared to ?0.8 billion at 31 December 2021. Of the ?0.7 billion reduction since 31 December 2021, ?0.2 billion is now captured as expected within ECL portfolio models where previously distorted data or trends have now normalised. The remaining ?0.5?billion release drives a net ECL reduction and credit to the impairment charge, with the bulk relating to the ?0.4?billion central adjustment (?0.2 billion released in each of the second and third quarters) and ?0.1 billion relating to ECL held against certain Commercial sectors in relation to the specific risk posed by the virus and potential social restrictions (released to profit in the first half).

Stage 2 loans and advances increased to ?64 billion (31 December 2021: ?42?billion), with 92 per cent up to date. Of the ?22 billion increase, ?15 billion occurred in the third quarter as a result of the updated economic outlook, largely in UK mortgages and Commercial Banking. 99 per cent of the increase in the third quarter related to up to date loans. The increases in Stage 2 assets during the first half of the year, and in Stage 3 loans in the year to date, are not reflective of observed deterioration, but driven by changes in credit risk measurement and modelling associated with CRD IV regulatory requirements1 since the end of 2021. Stage 3 loans of ?11 billion as at 30 September 2022 were stable compared to the second quarter.

On the basis of the Group?s updated base case and the significant change in economic context and associated scenarios since half-year, the Group now expects the 2022 asset quality ratio to be c.30 basis points.

1?As previously outlined, on 1 January 2022 the Group amended its definition of Stage 3 for UK mortgages, maintaining alignment between IFRS 9 and regulatory definitions of default. For UK mortgages, default was previously deemed to have occurred no later than when a payment was 180 days past due. In line with CRD?IV this definition has now been reduced to 90 days, as well as including end-of-term payments on past due interest-only accounts and any non-performing loans. Furthermore, additional assets moved to Stage 2 given the consequential change in approach to the prediction and modelling of up to date accounts and their likelihood of reaching the new broader definition of default in the future. Given the accounts that moved to Stage 2 were up to date with low probability of default, there was no material ECL impact

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REVIEW OF PERFORMANCE (continued)

Restructuring costs of ?69 million were higher than in the first nine months of 2021 (?34 million) and included costs associated with the integration of Embark. Since the first quarter of 2022 all restructuring costs, with the exception of merger, acquisition and integration costs, have been reported as part of the Group?s operating costs.

Volatility and other items were a net loss of ?237 million in the first nine months of 2022, comprising ?95 million of negative market volatility and ?142 million relating to amortisation of purchased intangibles and fair value unwind. Market volatility included negative insurance volatility of ?144?million due to rising interest rates and wider bond spreads which was partly offset by positive banking volatility of ?74 million. This compares to gains in the first nine months of 2021 including ?132 million of positive insurance volatility. In the third quarter, market volatility included ?102 million of negative insurance volatility and ?35 million of negative banking volatility, again principally from rising interest rates.

The return on tangible equity for the first nine months of 2022 was 12.9 per cent reflecting the Group?s robust financial performance (nine months to 30 September 2021: 17.6 per cent, benefitting from a net impairment credit and remeasurement of deferred tax assets). The Group continues to expect the return on tangible equity for 2022 to be c.13 per cent.

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Capital

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The Group?s CET1 capital ratio reduced from 16.3 per cent on a pro forma basis at 31 December 2021 to 15.0 per cent at 30 September 2022. This included a reduction of 230 basis points on 1 January 2022 for regulatory changes (as previously reported), subsequently offset by strong capital generation of 191 basis points during the first nine months of this year. Capital generation reflected banking profitability of 169 basis points, including a net impairment offset of 31?basis points, plus 16 basis points for the interim dividend received from the Insurance business in July 2022 (?300?million). The capital generation further benefitted from a reduction in underlying risk-weighted assets, post 1?January 2022 regulatory changes, equivalent to 14 basis points and other movements of 23 basis points. This was offset in part by 31 basis points related to the full 2022 fixed pension deficit contributions for the Group?s defined benefit pension schemes. Capital generation during the third quarter of 52 basis points was driven by banking profitability of 52?basis points (including a net impairment offset of 18 basis points) and other movements of 6 basis points. This was offset by a reduction of 6?basis points from an increase in risk-weighted assets.

The net impairment offset of 31 basis points for the year to date reflects the impairment charge of 41 basis points, offset by IFRS 9 dynamic relief of 10 basis points resulting from the increase in Stage 1 and Stage 2 expected credit losses in the third quarter. In relation to capital usage, the impact of the interim ordinary dividend and the foreseeable ordinary dividend accrual at 30 September 2022 equated to 60 basis points.

During the first nine months of the year a total of ?1.8?billion in pension deficit contributions (both fixed and variable) has been paid into the Group?s three main defined benefit pension schemes. As previously announced, the fixed contributions for the year of ?0.8 billion (equivalent to 31 basis points) were paid in full in the first quarter. The variable contributions of ?1.0?billion reflected ?0.5?billion paid in the first quarter and ?0.5 billion in the third quarter (equivalent to 37 basis points in total). This substantially covers the payment of the agreed variable pension contributions (c.95 per cent) relating to 30?per cent of in-year distributions, in accordance with the current agreement with the Trustees, with a small residual to be paid in the fourth quarter. The impact of recent volatility has had no material impact on the funding position of the pension schemes.

The Group now expects capital generation in 2022 of between 225 and 250 basis points. The Group maintains its commitment to consider the return of excess capital as usual at year-end.

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REVIEW OF PERFORMANCE (continued)

Pro forma CET1 ratio as at 31 December 20211 16.3% ? Regulatory change on 1 January 2022 (bps) ?(230) ? Pro forma CET1 ratio as at 1 January 2022 14.0% ? Banking build (including impairment charge) (bps) ?169? ? Insurance dividend (bps) ?16? ? Underlying risk-weighted assets (bps) ?14? ? Fixed pension deficit contributions (bps) ?(31) ? Other movements (bps) ?23? ? Capital generation (bps) ?191? ? Ordinary dividend (bps) ?(60) ? Variable pension contributions (bps) ?(37) ? Net movement in CET1 ratio excluding regulatory change (bps) ?94? ? CET1 ratio as at 30 September 2022 15.0% ?

1?31 December 2021 ratio reflects the dividend received from Insurance in February 2022 and the full impact of the share buyback.

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Risk-weighted assets increased by ?16 billion to ?212 billion (pro forma) on 1 January 2022, reflecting regulatory changes which include the anticipated impact of the implementation of new CRD IV models to meet revised regulatory standards for modelled outputs. Risk-weighted assets subsequently reduced by ?1 billion during the first nine months of the year to ?211 billion at 30 September 2022, largely reflecting optimisation activity and Retail model reductions linked to the resilient underlying credit performance, partly offset by the growth in balance sheet lending and impact of foreign exchange. The ?1 billion increase in risk-weighted assets during the third quarter was largely driven by the growth in lending and foreign exchange impacts, partially offset by further optimisation and Retail model reductions. The new CRD?IV models remain subject to finalisation and approval by the PRA and therefore the final risk-weighted asset impact remains subject to this.

The Group continues to expect risk-weighted assets at the end of 2022 to be around ?210?billion.

In October the PRA reduced the Group?s Pillar 2A CET1 capital requirement to around 1.5 per cent of risk-weighted assets (previously around 2 per cent of risk-weighted assets), with the Group?s regulatory minimum CET1 capital requirement now around 10.5 per cent. The planned increases in the UK countercyclical capital buffer rate to 1 per cent in December 2022 and to 2 per cent from July 2023 will lead to an increase in the Group?s countercyclical capital buffer (CCyB), initially to around 0.9 per cent and then to 1.8?per cent, which will be partially offset by the removal of the 0.25?per cent CCyB related element of the PRA buffer. The Board?s view of the ongoing level of CET1 capital required to grow the business, meet current and future regulatory requirements and cover uncertainties continues to be around 12.5?per cent, plus a management buffer of around 1 per cent.

Tangible net assets per share were 49.0 pence, down from 57.5 pence at 31?December 2021, with the favourable impact from profits more than offset by cash flow hedging reserve movements as a result of increased interest rates (9.5 pence), pensions remeasurements (2.2 pence) and the impacts from payment of ordinary dividends (2.2 pence).

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FURTHER IMPAIRMENT DETAIL

The analyses which follow have been presented on an underlying basis. See page 23.

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Underlying impairmentA

? Nine months ended 30 Sep2022?m ? ? Nine months ended 30 Sep 20211 ?m ? ? Change% ? Three months ended 30 Sep 2022?m ? ? Three months ended 30 Sep 20211 ?m ? ? Change% ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Charges (credits) pre-updated MES2 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Retail3 ?520? ? ? ?601? ? ? ?13? ? ?235? ? ? ?163? ? ? ?(44) Commercial Banking3 ?1? ? ? ?(354) ? ? ? ? ?8? ? ? ?(21) ? ? ? Other3 ?11? ? ? ?(2) ? ? ? ? ?7? ? ? ??? ? ? ? ? ?532? ? ? ?245? ? ? ? ? ?250? ? ? ?142? ? ? ? Updated economic outlook ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Retail3 ?541? ? ? ?(678) ? ? ? ? ?370? ? ? ?(141) ? ? ? Commercial Banking3 ?372? ? ? ?(420) ? ? ? ? ?248? ? ? ?(120) ? ? ? Other3 ?(400) ? ? ??? ? ? ? ? ?(200) ? ? ??? ? ? ? ? ?513? ? ? ?(1,098) ? ? ? ? ?418? ? ? ?(261) ? ? ? Underlying impairment charge (credit)A ?1,045? ? ? ?(853) ? ? ? ? ?668? ? ? ?(119) ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Asset quality ratioA 0.30% ? ? (0.25)% ? ? ? ? 0.57% ? ? (0.10)% ? ? ?

1?Non lending-related fraud costs, previously reported within underlying impairment, are now included within operating costs. Comparatives have been presented on a consistent basis.

2?Impairment charges absent the impact from updated economic outlook, thus reflecting observed movements in credit quality. Coronavirus impacted restructuring cases, previously disclosed separately, are now reported within charges pre-updated MES (multiple economic scenarios); comparatives have been presented on a consistent basis.

3?Impairment charges for Retail, Commercial Banking and Other reflect the new organisation structure; comparatives have been presented on a consistent basis. See page 25.

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Total expected credit loss allowance

? Underlying basisA ? At 30 Sep 2022?m ? ? At 30 Jun 2022 ?m ? ? At 31 Dec 2021 ?m ? ? ? ? ? ? ? ? ? ? Customer related balances ? ? ? ? ? ? ? ? Drawn ?4,685? ? ? ?4,247? ? ? ?4,277? ? Undrawn ?286? ? ? ?236? ? ? ?200? ? ? ?4,971? ? ? ?4,483? ? ? ?4,477? ? Loans and advances to banks ?7? ? ? ?4? ? ? ?1? ? Debt securities ?6? ? ? ?4? ? ? ?3? ? Other assets ?33? ? ? ?23? ? ? ?18? ? Total ECL allowance ?5,017? ? ? ?4,514? ? ? ?4,499? ?

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FURTHER IMPAIRMENT DETAIL (continued)

Loans and advances to customers and expected credit loss allowance ? underlying basisA

At 30 September 2022 Stage 1?m ? ? Stage 2?m ? ? Stage 3?m ? ? Total?m ? ? Stage 2as % oftotal ? ? Stage 3as % oftotal ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Loans and advances to customers UK mortgages ?259,541? ? ? ?46,153? ? ? ?6,613? ? ? ?312,307? ? ? ?14.8? ? ? ?2.1? ? Credit cards ?12,018? ? ? ?2,526? ? ? ?292? ? ? ?14,836? ? ? ?17.0? ? ? ?2.0? ? Loans and overdrafts ?8,723? ? ? ?1,339? ? ? ?255? ? ? ?10,317? ? ? ?13.0? ? ? ?2.5? ? UK Motor Finance ?12,335? ? ? ?1,949? ? ? ?169? ? ? ?14,453? ? ? ?13.5? ? ? ?1.2? ? Other ?13,294? ? ? ?650? ? ? ?158? ? ? ?14,102? ? ? ?4.6? ? ? ?1.1? ? Retail1 ?305,911? ? ? ?52,617? ? ? ?7,487? ? ? ?366,015? ? ? ?14.4? ? ? ?2.0? ? Small and Medium Businesses ?31,783? ? ? ?6,266? ? ? ?2,279? ? ? ?40,328? ? ? ?15.5? ? ? ?5.7? ? Corporate and Institutional Banking ?52,001? ? ? ?5,029? ? ? ?1,650? ? ? ?58,680? ? ? ?8.6? ? ? ?2.8? ? Commercial Banking ?83,784? ? ? ?11,295? ? ? ?3,929? ? ? ?99,008? ? ? ?11.4? ? ? ?4.0? ? Equity Investments and Central Items2 ?(4,010) ? ? ??? ? ? ?6? ? ? ?(4,004) ? ? ? ? ? ? ? Total gross lending ?385,685? ? ? ?63,912? ? ? ?11,422? ? ? ?461,019? ? ? ?13.9? ? ? ?2.5? ? ECL allowance on drawn balances ?(632) ? ? ?(1,847) ? ? ?(2,206) ? ? ?(4,685) ? ? ? ? ? ? ? Net balance sheet carrying value ?385,053? ? ? ?62,065? ? ? ?9,216? ? ? ?456,334? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Customer related ECL allowance (drawn and undrawn) UK mortgages ?48? ? ? ?705? ? ? ?823? ? ? ?1,576? ? ? ? ? ? ? ? Credit cards ?182? ? ? ?382? ? ? ?118? ? ? ?682? ? ? ? ? ? ? ? Loans and overdrafts ?175? ? ? ?273? ? ? ?138? ? ? ?586? ? ? ? ? ? ? ? UK Motor Finance3 ?107? ? ? ?85? ? ? ?93? ? ? ?285? ? ? ? ? ? ? ? Other ?15? ? ? ?18? ? ? ?48? ? ? ?81? ? ? ? ? ? ? ? Retail1 ?527? ? ? ?1,463? ? ? ?1,220? ? ? ?3,210? ? ? ? ? ? ? ? Small and Medium Businesses ?104? ? ? ?292? ? ? ?153? ? ? ?549? ? ? ? ? ? ? ? Corporate and Institutional Banking ?133? ? ? ?243? ? ? ?832? ? ? ?1,208? ? ? ? ? ? ? ? Commercial Banking ?237? ? ? ?535? ? ? ?985? ? ? ?1,757? ? ? ? ? ? ? ? Equity Investments and Central Items ??? ? ? ??? ? ? ?4? ? ? ?4? ? ? ? ? ? ? ? Total ?764? ? ? ?1,998? ? ? ?2,209? ? ? ?4,971? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Customer related ECL allowance (drawn and undrawn) as a percentage of loans and advances to customers4 UK mortgages ??? ? ? ?1.5? ? ? ?12.4? ? ? ?0.5? ? ? ? ? ? ? ? Credit cards ?1.5? ? ? ?15.1? ? ? ?54.4? ? ? ?4.6? ? ? ? ? ? ? ? Loans and overdrafts ?2.0? ? ? ?20.4? ? ? ?72.6? ? ? ?5.7? ? ? ? ? ? ? ? UK Motor Finance ?0.9? ? ? ?4.4? ? ? ?55.0? ? ? ?2.0? ? ? ? ? ? ? ? Other ?0.1? ? ? ?2.8? ? ? ?30.4? ? ? ?0.6? ? ? ? ? ? ? ? Retail1 ?0.2? ? ? ?2.8? ? ? ?16.6? ? ? ?0.9? ? ? ? ? ? ? ? Small and Medium Businesses ?0.3? ? ? ?4.7? ? ? ?13.0? ? ? ?1.4? ? ? ? ? ? ? ? Corporate and Institutional Banking ?0.3? ? ? ?4.8? ? ? ?50.5? ? ? ?2.1? ? ? ? ? ? ? ? Commercial Banking ?0.3? ? ? ?4.7? ? ? ?34.9? ? ? ?1.8? ? ? ? ? ? ? ? Equity Investments and Central Items ? ? ? ??? ? ? ?66.7? ? ? ? ? ? ? ? ? ? ? Total ?0.2? ? ? ?3.1? ? ? ?21.7? ? ? ?1.1? ? ? ? ? ? ? ?

1?Retail balances exclude the impact of the HBOS acquisition-related?adjustments.

2?Contains centralised fair value hedge accounting adjustments.

3?UK Motor Finance for Stages 1 and 2 include ?93 million relating to provisions against residual values of vehicles subject to finance leasing agreements. These provisions are included within the calculation of coverage ratios.

4?Total and Stage 3 ECL allowances as a percentage of drawn balances exclude loans in recoveries in Credit cards of ?75?million, Loans and overdrafts of ?65 million, Small and Medium Businesses of ?1,104 million and Corporate and Institutional Banking of ?1?million.

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FURTHER IMPAIRMENT DETAIL (continued)

Loans and advances to customers and expected credit loss allowance ? underlying basisA (continued)

At 30 June 2022 Stage 1 ?m ? ? Stage 2 ?m ? ? Stage 3 ?m ? ? Total ?m ? ? Stage 2 as % of total ? ? Stage 3 as % of total ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Loans and advances to customers UK mortgages ?268,568? ? ? ?35,555? ? ? ?6,764? ? ? ?310,887? ? ? ?11.4? ? ? ?2.2? ? Credit cards1 ?12,186? ? ? ?2,289? ? ? ?280? ? ? ?14,755? ? ? ?15.5? ? ? ?1.9? ? Loans and overdrafts ?8,666? ? ? ?1,144? ? ? ?256? ? ? ?10,066? ? ? ?11.4? ? ? ?2.5? ? UK Motor Finance ?12,476? ? ? ?1,832? ? ? ?179? ? ? ?14,487? ? ? ?12.6? ? ? ?1.2? ? Other1 ?12,711? ? ? ?626? ? ? ?150? ? ? ?13,487? ? ? ?4.6? ? ? ?1.1? ? Retail2 ?314,607? ? ? ?41,446? ? ? ?7,629? ? ? ?363,682? ? ? ?11.4? ? ? ?2.1? ? Small and Medium Businesses1 ?34,310? ? ? ?5,053? ? ? ?2,147? ? ? ?41,510? ? ? ?12.2? ? ? ?5.2? ? Corporate and Institutional Banking1 ?52,129? ? ? ?2,910? ? ? ?1,653? ? ? ?56,692? ? ? ?5.1? ? ? ?2.9? ? Commercial Banking ?86,439? ? ? ?7,963? ? ? ?3,800? ? ? ?98,202? ? ? ?8.1? ? ? ?3.9? ? Equity Investments and Central Items3 ?(1,549) ? ? ?1? ? ? ?6? ? ? ?(1,542) ? ? ? ? ? ? ? Total gross lending ?399,497? ? ? ?49,410? ? ? ?11,435? ? ? ?460,342? ? ? ?10.7? ? ? ?2.5? ? ECL allowance on drawn balances ?(776) ? ? ?(1,389) ? ? ?(2,082) ? ? ?(4,247) ? ? ? ? ? ? ? Net balance sheet carrying value ?398,721? ? ? ?48,021? ? ? ?9,353? ? ? ?456,095? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Customer related ECL allowance (drawn and undrawn) UK mortgages ?45? ? ? ?470? ? ? ?716? ? ? ?1,231? ? ? ? ? ? ? ? Credit cards1 ?172? ? ? ?346? ? ? ?111? ? ? ?629? ? ? ? ? ? ? ? Loans and overdrafts ?164? ? ? ?243? ? ? ?135? ? ? ?542? ? ? ? ? ? ? ? UK Motor Finance4 ?105? ? ? ?80? ? ? ?105? ? ? ?290? ? ? ? ? ? ? ? Other1 ?14? ? ? ?16? ? ? ?48? ? ? ?78? ? ? ? ? ? ? ? Retail2 ?500? ? ? ?1,155? ? ? ?1,115? ? ? ?2,770? ? ? ? ? ? ? ? Small and Medium Businesses1 ?106? ? ? ?177? ? ? ?153? ? ? ?436? ? ? ? ? ? ? ? Corporate and Institutional Banking1 ?93? ? ? ?166? ? ? ?814? ? ? ?1,073? ? ? ? ? ? ? ? Commercial Banking ?199? ? ? ?343? ? ? ?967? ? ? ?1,509? ? ? ? ? ? ? ? Equity Investments and Central Items ?200? ? ? ??? ? ? ?4? ? ? ?204? ? ? ? ? ? ? ? Total ?899? ? ? ?1,498? ? ? ?2,086? ? ? ?4,483? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Customer related ECL allowance (drawn and undrawn) as a percentage of loans and advances to customers5 UK mortgages ??? ? ? ?1.3? ? ? ?10.6? ? ? ?0.4? ? ? ? ? ? ? ? Credit cards1 ?1.4? ? ? ?15.1? ? ? ?53.6? ? ? ?4.3? ? ? ? ? ? ? ? Loans and overdrafts ?1.9? ? ? ?21.2? ? ? ?70.7? ? ? ?5.4? ? ? ? ? ? ? ? UK Motor Finance ?0.8? ? ? ?4.4? ? ? ?58.7? ? ? ?2.0? ? ? ? ? ? ? ? Other1 ?0.1? ? ? ?2.6? ? ? ?32.0? ? ? ?0.6? ? ? ? ? ? ? ? Retail2 ?0.2? ? ? ?2.8? ? ? ?14.9? ? ? ?0.8? ? ? ? ? ? ? ? Small and Medium Businesses1 ?0.3? ? ? ?3.5? ? ? ?12.5? ? ? ?1.1? ? ? ? ? ? ? ? Corporate and Institutional Banking1 ?0.2? ? ? ?5.7? ? ? ?49.3? ? ? ?1.9? ? ? ? ? ? ? ? Commercial Banking ?0.2? ? ? ?4.3? ? ? ?33.6? ? ? ?1.6? ? ? ? ? ? ? ? Equity Investments and Central Items6 ? ? ? ??? ? ? ?66.7? ? ? ? ? ? ? ? ? ? ? Total ?0.2? ? ? ?3.0? ? ? ?20.1? ? ? ?1.0? ? ? ? ? ? ? ?

1?Reflects the new organisation structure. See page 25.

2?Retail balances exclude the impact of the HBOS acquisition-related adjustments.

3?Contains centralised fair value hedge accounting adjustments.

4?UK Motor Finance for Stages 1 and 2 include ?94 million relating to provisions against residual values of vehicles subject to finance leasing agreements. These provisions are included within the calculation of coverage ratios.

5?Total and Stage 3 ECL allowances as a percentage of drawn balances exclude loans in recoveries in Credit cards of ?73?million, Loans and overdrafts of ?65 million, Small and Medium Businesses of ?921 million and Corporate and Institutional Banking of ?1?million.

6?Equity Investments and Central Items excludes the ?200 million ECL central adjustment.

FURTHER IMPAIRMENT DETAIL (continued)

Loans and advances to customers and expected credit loss allowance ? underlying basisA (continued)

At 31 December 2021 Stage 1 ?m ? ? Stage 2 ?m ? ? Stage 3 ?m ? ? Total ?m ? ? Stage 2 as % of total ? ? Stage 3 as % of total ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Loans and advances to customers UK mortgages ?276,021? ? ? ?28,579? ? ? ?4,191? ? ? ?308,791? ? ? ?9.3? ? ? ?1.4? ? Credit cards1 ?11,905? ? ? ?2,075? ? ? ?292? ? ? ?14,272? ? ? ?14.5? ? ? ?2.0? ? Loans and overdrafts ?8,181? ? ? ?1,105? ? ? ?271? ? ? ?9,557? ? ? ?11.6? ? ? ?2.8? ? UK Motor Finance ?12,247? ? ? ?1,828? ? ? ?201? ? ? ?14,276? ? ? ?12.8? ? ? ?1.4? ? Other1 ?11,198? ? ? ?593? ? ? ?169? ? ? ?11,960? ? ? ?5.0? ? ? ?1.4? ? Retail2 ?319,552? ? ? ?34,180? ? ? ?5,124? ? ? ?358,856? ? ? ?9.5? ? ? ?1.4? ? Small and Medium Businesses1 ?36,134? ? ? ?4,992? ? ? ?1,747? ? ? ?42,873? ? ? ?11.6? ? ? ?4.1? ? Corporate and Institutional Banking1 ?46,585? ? ? ?2,538? ? ? ?1,816? ? ? ?50,939? ? ? ?5.0? ? ? ?3.6? ? Commercial Banking ?82,719? ? ? ?7,530? ? ? ?3,563? ? ? ?93,812? ? ? ?8.0? ? ? ?3.8? ? Equity Investments and Central Items3 ?144? ? ? ??? ? ? ?7? ? ? ?151? ? ? ??? ? ? ?4.6? ? Total gross lending ?402,415? ? ? ?41,710? ? ? ?8,694? ? ? ?452,819? ? ? ?9.2? ? ? ?1.9? ? ECL allowance on drawn balances ?(919) ? ? ?(1,377) ? ? ?(1,981) ? ? ?(4,277) ? ? ? ? ? ? ? Net balance sheet carrying value ?401,496? ? ? ?40,333? ? ? ?6,713? ? ? ?448,542? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Customer related ECL allowance (drawn and undrawn) UK mortgages ?50? ? ? ?653? ? ? ?581? ? ? ?1,284? ? ? ? ? ? ? ? Credit cards1 ?147? ? ? ?253? ? ? ?131? ? ? ?531? ? ? ? ? ? ? ? Loans and overdrafts ?136? ? ? ?170? ? ? ?139? ? ? ?445? ? ? ? ? ? ? ? UK Motor Finance4 ?108? ? ? ?74? ? ? ?116? ? ? ?298? ? ? ? ? ? ? ? Other1 ?15? ? ? ?15? ? ? ?52? ? ? ?82? ? ? ? ? ? ? ? Retail2 ?456? ? ? ?1,165? ? ? ?1,019? ? ? ?2,640? ? ? ? ? ? ? ? Small and Medium Businesses1 ?104? ? ? ?176? ? ? ?179? ? ? ?459? ? ? ? ? ? ? ? Corporate and Institutional Banking1 ?68? ? ? ?122? ? ? ?782? ? ? ?972? ? ? ? ? ? ? ? Commercial Banking ?172? ? ? ?298? ? ? ?961? ? ? ?1,431? ? ? ? ? ? ? ? Equity Investments and Central Items ?400? ? ? ??? ? ? ?6? ? ? ?406? ? ? ? ? ? ? ? Total ?1,028? ? ? ?1,463? ? ? ?1,986? ? ? ?4,477? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Customer related ECL allowance (drawn and undrawn) as a percentage of loans and advances to customers5 UK mortgages ??? ? ? ?2.3? ? ? ?13.9? ? ? ?0.4? ? ? ? ? ? ? ? Credit cards1 ?1.2? ? ? ?12.2? ? ? ?58.2? ? ? ?3.7? ? ? ? ? ? ? ? Loans and overdrafts ?1.7? ? ? ?15.4? ? ? ?67.5? ? ? ?4.7? ? ? ? ? ? ? ? UK Motor Finance ?0.9? ? ? ?4.0? ? ? ?57.7? ? ? ?2.1? ? ? ? ? ? ? ? Other1 ?0.1? ? ? ?2.5? ? ? ?30.8? ? ? ?0.7? ? ? ? ? ? ? ? Retail2 ?0.1? ? ? ?3.4? ? ? ?20.4? ? ? ?0.7? ? ? ? ? ? ? ? Small and Medium Businesses1 ?0.3? ? ? ?3.5? ? ? ?14.5? ? ? ?1.1? ? ? ? ? ? ? ? Corporate and Institutional Banking1 ?0.1? ? ? ?4.8? ? ? ?43.1? ? ? ?1.9? ? ? ? ? ? ? ? Commercial Banking ?0.2? ? ? ?4.0? ? ? ?31.6? ? ? ?1.5? ? ? ? ? ? ? ? Equity Investments and Central Items6 ??? ? ? ??? ? ? ?85.7? ? ? ?4.0? ? ? ? ? ? ? ? Total ?0.3? ? ? ?3.5? ? ? ?24.7? ? ? ?1.0? ? ? ? ? ? ? ?

1?Reflects the new organisation structure. See page 25.

2?Retail balances exclude the impact of the HBOS and MBNA acquisition-related adjustments.

3?Contains centralised fair value hedge accounting adjustments.

4?UK Motor Finance for Stages 1 and 2 include ?95 million relating to provisions against residual values of vehicles subject to finance leasing agreements. These provisions are included within the calculation of coverage ratios.

5?Total and Stage 3 ECL allowances as a percentage of drawn balances exclude loans in recoveries in Credit cards of ?67?million, Loans and overdrafts of ?65 million, Small and Medium Businesses of ?515 million and Corporate and Institutional Banking of ?3?million.

6?Equity Investments and Central Items excludes the ?400 million ECL central adjustment.

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FURTHER IMPAIRMENT DETAIL (continued)

Stage 2 loans and advances to customers and expected credit loss allowance ? underlying basisA

? Up to date ? 1 to 30 dayspast due2 ? Over 30 dayspast due ? Total ? PD movements ? Other1 ? ? ? At 30 September 2022 Grosslending?m ? ? ECL3?m ? ? Grosslending?m ? ? ECL3?m ? ? Grosslending?m ? ? ECL3?m ? ? Grosslending?m ? ? ECL3?m ? ? Grosslending?m ? ? ECL3?m ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? UK mortgages ?34,716? ? ? ?257? ? ? ?7,915? ? ? ?213? ? ? ?2,349? ? ? ?118? ? ? ?1,173? ? ? ?117? ? ? ?46,153? ? ? ?705? ? Credit cards ?2,275? ? ? ?291? ? ? ?132? ? ? ?47? ? ? ?90? ? ? ?28? ? ? ?29? ? ? ?16? ? ? ?2,526? ? ? ?382? ? Loans and overdrafts ?943? ? ? ?169? ? ? ?232? ? ? ?45? ? ? ?121? ? ? ?39? ? ? ?43? ? ? ?20? ? ? ?1,339? ? ? ?273? ? UK Motor Finance ?854? ? ? ?27? ? ? ?927? ? ? ?23? ? ? ?136? ? ? ?25? ? ? ?32? ? ? ?10? ? ? ?1,949? ? ? ?85? ? Other ?166? ? ? ?4? ? ? ?394? ? ? ?8? ? ? ?54? ? ? ?4? ? ? ?36? ? ? ?2? ? ? ?650? ? ? ?18? ? Retail ?38,954? ? ? ?748? ? ? ?9,600? ? ? ?336? ? ? ?2,750? ? ? ?214? ? ? ?1,313? ? ? ?165? ? ? ?52,617? ? ? ?1,463? ? Small and Medium Businesses ?4,408? ? ? ?246? ? ? ?1,235? ? ? ?26? ? ? ?399? ? ? ?13? ? ? ?224? ? ? ?7? ? ? ?6,266? ? ? ?292? ? Corporate and Institutional Banking ?4,856? ? ? ?242? ? ? ?39? ? ? ??? ? ? ?14? ? ? ??? ? ? ?120? ? ? ?1? ? ? ?5,029? ? ? ?243? ? Commercial Banking ?9,264? ? ? ?488? ? ? ?1,274? ? ? ?26? ? ? ?413? ? ? ?13? ? ? ?344? ? ? ?8? ? ? ?11,295? ? ? ?535? ? Equity Investments and Central Items ??? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? Total ?48,218? ? ? ?1,236? ? ? ?10,874? ? ? ?362? ? ? ?3,163? ? ? ?227? ? ? ?1,657? ? ? ?173? ? ? ?63,912? ? ? ?1,998? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? At 30 June 2022 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? UK mortgages ?24,356? ? ? ?193? ? ? ?7,836? ? ? ?161? ? ? ?2,290? ? ? ?60? ? ? ?1,073? ? ? ?56? ? ? ?35,555? ? ? ?470? ? Credit cards4 ?2,042? ? ? ?257? ? ? ?131? ? ? ?45? ? ? ?87? ? ? ?28? ? ? ?29? ? ? ?16? ? ? ?2,289? ? ? ?346? ? Loans and overdrafts ?735? ? ? ?140? ? ? ?235? ? ? ?42? ? ? ?134? ? ? ?43? ? ? ?40? ? ? ?18? ? ? ?1,144? ? ? ?243? ? UK Motor Finance ?675? ? ? ?24? ? ? ?977? ? ? ?21? ? ? ?143? ? ? ?25? ? ? ?37? ? ? ?10? ? ? ?1,832? ? ? ?80? ? Other4 ?169? ? ? ?3? ? ? ?354? ? ? ?7? ? ? ?54? ? ? ?3? ? ? ?49? ? ? ?3? ? ? ?626? ? ? ?16? ? Retail ?27,977? ? ? ?617? ? ? ?9,533? ? ? ?276? ? ? ?2,708? ? ? ?159? ? ? ?1,228? ? ? ?103? ? ? ?41,446? ? ? ?1,155? ? Small and Medium Businesses4 ?3,146? ? ? ?139? ? ? ?1,257? ? ? ?22? ? ? ?413? ? ? ?10? ? ? ?237? ? ? ?6? ? ? ?5,053? ? ? ?177? ? Corporate and Institutional Banking4 ?2,672? ? ? ?160? ? ? ?123? ? ? ?3? ? ? ?26? ? ? ?3? ? ? ?89? ? ? ??? ? ? ?2,910? ? ? ?166? ? Commercial Banking ?5,818? ? ? ?299? ? ? ?1,380? ? ? ?25? ? ? ?439? ? ? ?13? ? ? ?326? ? ? ?6? ? ? ?7,963? ? ? ?343? ? Equity Investments and Central Items ??? ? ? ??? ? ? ?1? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? ? ?1? ? ? ??? ? Total ?33,795? ? ? ?916? ? ? ?10,914? ? ? ?301? ? ? ?3,147? ? ? ?172? ? ? ?1,554? ? ? ?109? ? ? ?49,410? ? ? ?1,498? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? At 31 December 2021 ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? UK mortgages ?17,917? ? ? ?226? ? ? ?6,053? ? ? ?222? ? ? ?2,270? ? ? ?73? ? ? ?2,339? ? ? ?132? ? ? ?28,579? ? ? ?653? ? Credit cards4 ?1,754? ? ? ?179? ? ? ?209? ? ? ?41? ? ? ?86? ? ? ?21? ? ? ?26? ? ? ?12? ? ? ?2,075? ? ? ?253? ? Loans and overdrafts ?505? ? ? ?82? ? ? ?448? ? ? ?43? ? ? ?113? ? ? ?30? ? ? ?39? ? ? ?15? ? ? ?1,105? ? ? ?170? ? UK Motor Finance ?581? ? ? ?20? ? ? ?1,089? ? ? ?26? ? ? ?124? ? ? ?19? ? ? ?34? ? ? ?9? ? ? ?1,828? ? ? ?74? ? Other4 ?194? ? ? ?4? ? ? ?306? ? ? ?7? ? ? ?44? ? ? ?2? ? ? ?49? ? ? ?2? ? ? ?593? ? ? ?15? ? Retail ?20,951? ? ? ?511? ? ? ?8,105? ? ? ?339? ? ? ?2,637? ? ? ?145? ? ? ?2,487? ? ? ?170? ? ? ?34,180? ? ? ?1,165? ? Small and Medium Businesses4 ?3,570? ? ? ?153? ? ? ?936? ? ? ?14? ? ? ?297? ? ? ?6? ? ? ?189? ? ? ?3? ? ? ?4,992? ? ? ?176? ? Corporate and Institutional Banking4 ?2,479? ? ? ?119? ? ? ?25? ? ? ?3? ? ? ?6? ? ? ??? ? ? ?28? ? ? ??? ? ? ?2,538? ? ? ?122? ? Commercial Banking ?6,049? ? ? ?272? ? ? ?961? ? ? ?17? ? ? ?303? ? ? ?6? ? ? ?217? ? ? ?3? ? ? ?7,530? ? ? ?298? ? Equity Investments and Central Items ??? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? ? ??? ? Total ?27,000? ? ? ?783? ? ? ?9,066? ? ? ?356? ? ? ?2,940? ? ? ?151? ? ? ?2,704? ? ? ?173? ? ? ?41,710? ? ? ?1,463? ?

1?Includes forbearance, client and product-specific indicators not reflected within quantitative PD assessments.

2?Includes assets that have triggered PD movements, or other rules, given that being 1-29 days in arrears in and of itself is not a Stage 2 trigger.

3?Expected credit loss allowance on loans and advances to customers (drawn and undrawn).

4?Reflects the new organisation structure. See page 25.

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FURTHER IMPAIRMENT DETAIL (continued)

ECL sensitivity to economic assumptions

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. The base case, upside and downside scenarios carry a 30 per cent weighting; the severe downside is weighted at 10 per cent. These assumptions can be found on pages 19?and 18.

The table below shows the Group?s ECL for the probability-weighted, upside, base case, downside and severe downside scenarios, the severe downside scenario incorporating adjustments made to CPI inflation and UK Bank Rate paths. The stage allocation for an asset is based on the overall scenario probability-weighted PD and hence the staging of assets is constant across all the scenarios. In each economic scenario the ECL for individual assessments and post-model adjustments is constant reflecting the basis on which they are evaluated.

Underlying basisA Probability-weighted?m ? ? Upside?m ? ? Base case?m ? ? Downside?m ? ? Severedownside?m ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? UK mortgages ? ?1,576? ? ? ?877? ? ? ?1,147? ? ? ?1,788? ? ? ?4,327? ? Credit cards ? ?682? ? ? ?594? ? ? ?649? ? ? ?742? ? ? ?866? ? Other Retail ? ?952? ? ? ?903? ? ? ?937? ? ? ?984? ? ? ?1,048? ? Commercial Banking ? ?1,768? ? ? ?1,365? ? ? ?1,580? ? ? ?1,909? ? ? ?3,117? ? Other ? ?39? ? ? ?39? ? ? ?39? ? ? ?39? ? ? ?39? ? At 30 September 2022 ? ?5,017? ? ? ?3,778? ? ? ?4,352? ? ? ?5,462? ? ? ?9,397? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? UK mortgages ? ?1,231? ? ? ?856? ? ? ?1,004? ? ? ?1,374? ? ? ?2,607? ? Credit cards1 ? ?629? ? ? ?546? ? ? ?597? ? ? ?686? ? ? ?804? ? Other Retail1 ? ?910? ? ? ?863? ? ? ?895? ? ? ?941? ? ? ?1,004? ? Commercial Banking1 ? ?1,515? ? ? ?1,316? ? ? ?1,413? ? ? ?1,587? ? ? ?2,200? ? Other1 ? ?229? ? ? ?229? ? ? ?229? ? ? ?229? ? ? ?229? ? At 30 June 2022 ? ?4,514? ? ? ?3,810? ? ? ?4,138? ? ? ?4,817? ? ? ?6,844? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? UK mortgages ? ?1,284? ? ? ?1,084? ? ? ?1,170? ? ? ?1,414? ? ? ?1,833? ? Credit cards1 ? ?531? ? ? ?453? ? ? ?511? ? ? ?579? ? ? ?682? ? Other Retail1 ? ?825? ? ? ?760? ? ? ?811? ? ? ?863? ? ? ?950? ? Commercial Banking1 ? ?1,433? ? ? ?1,295? ? ? ?1,358? ? ? ?1,505? ? ? ?1,859? ? Other1 ? ?426? ? ? ?426? ? ? ?427? ? ? ?426? ? ? ?424? ? At 31 December 2021 ? ?4,499? ? ? ?4,018? ? ? ?4,277? ? ? ?4,787? ? ? ?5,748? ?

1?Reflects the new organisation structure. See page 25.

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FURTHER IMPAIRMENT DETAIL (continued)

Base case and MES economic assumptions

The Group?s base case economic scenario reflects the outlook as of 30 September 2022 and was revised in light of developments in energy pricing, changes in UK fiscal policy prior to the balance sheet date and a continuing shift towards a more restrictive monetary policy stance by central banks. The Group?s updated base case scenario was based upon three conditioning assumptions: first, the war in Ukraine remains ?local?, without overtly involving neighbouring countries, NATO or China; second, the fiscal loosening implied by the UK Government?s ?Growth Plan? of 23 September 2022 would be offset principally by Government spending cuts; and third, central bank reaction functions, including of the Bank of England, are focused on controlling inflation, motivating a more rapid tightening of UK monetary policy. The Group continues to assume that no further UK COVID-19 national lockdowns are mandated. Based on these assumptions and incorporating the macroeconomic information published in the third quarter, the Group?s base case scenario comprises an economic downturn with a rise in the unemployment rate, declining residential and commercial property prices, and continuing increases in the UK Bank Rate against a backdrop of elevated inflationary pressures. Risks to the base case economic view exist in both directions and are partly captured by the generation of alternative economic scenarios. Each of the scenarios includes forecasts for key variables as of the third quarter of 2022, for which data or revisions to history may have since emerged prior to publication.

At 30 September 2022, the Group has included an adjusted severe downside scenario to incorporate high CPI inflation and UK Bank Rate profiles and has adopted this adjusted severe downside scenario in calculating its ECL allowance. This is because the historic macroeconomic and loan loss data upon which the scenario model is calibrated imply an association of downside economic outcomes with lower inflation rates, easier monetary policy, and therefore low interest

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