Lloyds Banking Group(LYG) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Statutory profit after tax for the first half was £2.5 billion, with a return on tangible equity of 14.1% [19] - Net income increased by 6% year-on-year to £8.9 billion, driven by growth in net interest income and a 9% increase in other operating income [20][37] - Operating costs for the first half were £4.9 billion, up 4% year-on-year, with a focus on efficiency [20][42] Business Line Data and Key Metrics Changes - Retail lending balances increased by £3.1 billion, with the mortgage book up £5.6 billion in the first half [22][29] - Commercial lending balances increased by £1.2 billion, driven by growth in the Corporate and Institutional Banking (CIB) business [32] - Other income grew by 9% year-on-year, supported by strong performance in retail and commercial banking [37] Market Data and Key Metrics Changes - Total deposits increased by £11.2 billion or 2% to £494 billion, with retail deposits up £3.7 billion [33] - The structural hedge notional increased to £244 billion, contributing significantly to income [36] - The mortgage market share of net new lending was 19% in the first half, reflecting strong underlying demand [29] Company Strategy and Development Direction - The company is focused on supporting the housing sector and has lent over £8 billion to first-time buyers [6] - Strategic initiatives are expected to deliver over £1.5 billion in additional revenues by 2026, with £1 billion already delivered on an annualized basis [13] - The company aims to maintain a cost-to-income ratio below 50% and generate over 200 basis points of capital by 2026 [14] Management's Comments on Operating Environment and Future Outlook - The UK economy is expected to show resilient but slower growth, with underlying fundamentals strengthening [8][10] - Management remains confident in delivering higher, sustainable returns and reaffirmed guidance for 2025 [5][56] - The company is well-positioned to benefit from government initiatives aimed at growth in key sectors [10] Other Important Information - The interim dividend was increased by 15% to 1.22p per share, reflecting strong capital generation [52] - The company plans to move to preliminary reporting for the full year 2025 results [54] Q&A Session Summary Question: Mortgage spreads and back-to-front book mortgage spread churn - Management indicated that mortgage spreads in Q2 were around 70 basis points, slightly tighter than Q1, and expected similar patterns to continue into Q3 [61][63] Question: Deposit flows and PCA outflows - Management confirmed that PCA outflows were down £700 million over the half, with strong ISA season performance contributing positively [62][68] Question: Structural hedge contribution and notional expectations - Management expects structural hedge contributions to be consistent with previous guidance, with a projected increase in notional balances [76][80] Question: FCA affordability changes and mortgage volume expectations - Management believes FCA changes will positively impact housing market prospects and expects continued mortgage growth in the second half [84][86]