Lloyds Banking Group(US:LYG)2020-05-01 16:17Financial Data and Key Metrics Changes - Pre-provision operating profit decreased by 19% year-on-year to GBP2 billion, with a net interest margin of 279 basis points [24][29] - Statutory profit before tax was GBP74 million, significantly impacted by an impairment charge of GBP1.4 billion [24][25] - The CET1 ratio increased to 14.2%, benefiting from the cancellation of the 2019 dividend [28][19] Business Line Data and Key Metrics Changes - Retail banking granted around 400,000 mortgage holidays and 880,000 payment holidays across various lines [6][9] - Commercial banking supported clients with approximately 37,000 overdrafts and capital repayment holidays [10] - The impairment charge of GBP1.4 billion reflects updated economic assumptions and disruptions due to COVID-19 [32] Market Data and Key Metrics Changes - Economic forecasts for GDP have turned sharply negative, with a base case assumption of a 5% decline in 2020 [13] - Customer activity has significantly decreased since the end of February, impacting financial performance [14] - The loan-to-deposit ratio reduced to 103%, with strong deposit inflows offsetting loan growth [27][44] Company Strategy and Development Direction - The company emphasizes a prudent approach to risk and a focus on prime UK retail business, with over 75% of the loan portfolio secured [18][37] - The multichannel distribution model, including a leading digital bank, is crucial for customer support during the crisis [20][46] - The company aims to adapt its product range and enhance strategic cost advantages in response to the crisis [47] Management's Comments on Operating Environment and Future Outlook - Management acknowledges significant uncertainty in the economic outlook and the potential for further deterioration [14][35] - The company is committed to supporting customers and the UK economy, leveraging its strong balance sheet [12][46] - Future performance will depend on the severity and duration of the economic shock, with a cautious approach to guidance [69] Other Important Information - The company has suspended all headcount reduction programs and committed to paying all staff in full [7] - Enhanced financial support for charitable partners and mental health charities has been implemented [8] - The company has seen a significant increase in digital banking users, with 217,000 new registrations since the end of March [20] Q&A Session Questions and Answers Question: Can you dimension the downside on impairments? - The impairment charge of GBP1.43 billion includes a forward-looking charge of GBP844 million, with the total charge being front-loaded [52][53] Question: How much of the credit allowance is allocated towards the card book versus other portfolios? - The retail charge includes approximately GBP900 million related to unsecured loans, with a significant portion attributed to the unsecured book [55] Question: How much IFRS 9 transitional relief was benefited in Q1? - The IFRS 9 incremental benefit was about three to five basis points, with the overall CET1 element being around 20 to 30 basis points [63] Question: What is the coverage on Stage 2 loans? - The coverage on Stage 2 loans is not disclosed separately, as it is included in the overall impairment charge [64] Question: How likely is the additional GBP2.1 billion charge to manifest? - The charge is based on economic assumptions, and while the severe downside scenario is considered, the actual impact will depend on future economic conditions [61][62]