Lloyds Banking Group(LYG) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Statutory profit after tax for 2025 was GBP 4.8 billion, with a return on tangible equity of 12.9% or 14.8% excluding the motor provision [18] - Net income for the full year was GBP 18.3 billion, up 7% compared to 2024, driven by growth in net interest income (NII) and other income, which increased by 6% and 9% respectively [18][19] - Operating costs for 2025 were GBP 9.76 billion, reflecting a 3% year-on-year increase, while the cost-income ratio was 58.6% [19][32] Business Line Data and Key Metrics Changes - Retail banking saw growth in mortgages, credit cards, and European retail, with total lending balances closing at GBP 481 billion, up GBP 22 billion or 5% [20][21] - Commercial banking gross net lending increased by 15% in 2025, with significant growth in targeted sectors [8][26] - Other operating income (OOI) was GBP 6.1 billion, up 9% year-on-year, with retail OOI growing by 12% [30] Market Data and Key Metrics Changes - Total deposits increased by GBP 13.8 billion or 3% in 2025, with retail deposits up GBP 5.5 billion and commercial deposits up GBP 8.5 billion [22][27] - The structural hedge notional stood at GBP 244 billion at year-end, contributing to a significant increase in hedge income to around GBP 5.5 billion [28] Company Strategy and Development Direction - The company is entering the final phase of its 5-year strategic plan, focusing on high-potential sectors such as housing, pensions, investments, and infrastructure [4][5] - The acquisition of Schroders Personal Wealth is aimed at enhancing the company's wealth offering and deepening relationships with mass affluent customers [7][8] - The company is committed to improving operating leverage and reducing the cost-income ratio to below 50% by 2026 [11][32] Management's Comments on Operating Environment and Future Outlook - The management is optimistic about the UK economy, forecasting resilient but slower growth, with interest rates expected to gradually fall in 2026 [4] - The company upgraded its return on tangible equity target for 2026 to greater than 16%, reflecting confidence in future performance [17][41] - Management highlighted the importance of cost discipline and strategic initiatives in driving future growth and shareholder returns [49][53] Other Important Information - The company announced a 15% increase in the ordinary dividend and a share buyback of up to GBP 1.75 billion, representing a total capital return of up to GBP 3.9 billion [2][39] - The tangible net asset value per share increased to 57 pence, up 4.6 pence in 2025 [36] Q&A Session Summary Question: Deposit performance and expectations for 2026 - The company noted strong deposit growth in 2025, with expectations for continued healthy performance in 2026, despite some seasonal variations [45][48] Question: Cost growth and management - The management emphasized cost discipline, projecting limited absolute cost growth in 2026, aided by strategic initiatives and declining inflation [49][50][52] Question: NII guidance and structural hedge - The company expects net interest income to grow in 2026, with margin expansion anticipated throughout the year, although some quarterly variations may occur [56][60]