Lloyds Banking Group(LYG)2024-10-23 13:51Financial Performance - The statutory profit after tax for the first nine months of the year was £3.8 billion, with a return on tangible equity of 14% and net income of £12.7 billion year to date [4][10] - In Q3, net interest income increased by 2% quarter on quarter to £3.2 billion, supported by a net interest margin of 2.95%, which was up two basis points from Q2 [4][9] - Operating costs for the first nine months were £7 billion, up 5% year on year, while the cost to income ratio was 53.4% [5][12] Business Line Performance - Lending balances grew to £457 billion, with a £3.2 billion increase in the mortgage book during Q3, reflecting strong market conditions [6][8] - Retail business saw growth in cards and unsecured loans, with increases of £0.1 billion and £0.6 billion respectively, while motor finance balances decreased by £0.6 billion [7][46] - Commercial lending balances slightly decreased by £0.2 billion, with targeted growth in corporate institutional lending offset by repayments in small and medium businesses [7] Market Performance - Deposits increased to £476 billion, with retail deposits up £1.7 billion, while commercial deposits decreased by £0.5 billion [8] - The insurance, pensions, and investments segment saw £3.5 billion of net new money year to date [8] Strategic Direction and Industry Competition - The company is focused on strategic transformation, aiming for higher, sustainable returns and reaffirming its 2024 guidance [3][10] - The management highlighted the importance of maintaining a balance between market share and acceptable pricing in the mortgage sector [42][44] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the strength of the group's franchise and asset quality, with an expected asset quality ratio of less than 20 basis points for 2024 [5][14] - The company anticipates continued growth in net interest margin and net interest income, with expectations for a stable Q4 performance [20][26] Other Important Information - The tangible net asset value per share increased to 52.5p, up 2.9p in Q3, driven by profits and the unwind of a cash flow hedge reserve [14][30] - The company expects to generate strong capital, with a closing CET1 ratio of 14.3% for the quarter [15][16] Q&A Session Summary Question: Inquiry on net interest income and structural hedge - Management noted that the structural hedge contributed 10 basis points to net interest margin in Q3, with expectations for a similar contribution in Q4 [20][22] Question: Average interest earning assets (AIEAs) growth - AIEAs were reported at £451 billion in Q3, with expectations for continued growth in Q4, aligning with guidance of greater than £450 billion for the year [26][28] Question: Clarification on hedge tailwind and maturities - Management clarified that the £20 billion in maturities for H2 excludes pre-hedged positions, making it difficult to model the exact tailwind [27][32] Question: TNAV growth and return on tangible equity (ROT) - Management confirmed expectations for TNAV growth and a ROT of greater than 15% for 2026, despite potential changes in the Tier 1 ratio [29][31] Question: Non-banking net interest income (NII) expectations - Management indicated that non-banking NII is expected to step up in Q4, with a modest increase anticipated for 2025 [50][52]