Lloyds Banking Group(LYG) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Statutory profit after tax increased to GBP2.9 billion, up 17% year-on-year [38] - Return on tangible equity was reported at 16.6% [38] - Net interest income for the first half was GBP7 billion, reflecting a 14% year-on-year increase [48] - Net interest margin for the first half was 318 basis points, with a second quarter margin of 314 basis points [41][22] - Customer deposits totaled GBP470 billion, down 1.2% in the half [45] Business Line Data and Key Metrics Changes - Total lending balances stood at GBP451 billion, with retail balances flat and commercial down GBP2.9 billion [39] - The mortgage portfolio is resilient at GBP306 billion, with competitive pricing pressures noted [43] - Other lending books, including consumer balances, increased by GBP1.8 billion in the half [52] Market Data and Key Metrics Changes - The average household income in the mortgage portfolio is over GBP75,000, indicating a strong consumer base [76] - The average loan-to-value ratio of the mortgage portfolio is 42%, with 92% of the book below 80% LTV [78] - The UK consumer is adapting well to rising mortgage rates, with average payments increasing by GBP185 per month [76] Company Strategy and Development Direction - The company is on track to deliver strategic benefits outlined for 2024 and 2026, despite a challenging environment [15] - Continued investment of GBP0.6 billion in the first half of the year, totaling GBP1.4 billion to date [26] - Focus on enhancing digital engagement, with 20.6 million digitally active customers [29] Management's Comments on Operating Environment and Future Outlook - Management noted increased uncertainty for customers due to high inflation and interest rates [13] - The company expects net interest income to continue building in absolute terms, supported by stronger base rates [6] - Confidence in the capital position and financial strength to support customers and deliver for shareholders [16] Other Important Information - The interim ordinary dividend was increased by 15% compared to the first half of last year [24] - The company is committed to supporting customers through proactive measures, including contacting over 200,000 affected by rising mortgage rates [18] Q&A Session Summary Question: Outlook for net interest income and UK consumer health - Management indicated that net interest income is expected to build in absolute terms, with the UK consumer showing resilience despite rising mortgage payments [6][76] Question: Changes in customer behavior and deposit performance - Management reported no significant changes in customer behavior in July, with deposit performance remaining stable [121][124] Question: Conduct risk related to debanking - Management clarified that customer exits are based on specific obligations, and there is no exposure to conduct risk from political beliefs [126][128] Question: Cost inflation and management strategies - Management acknowledged cost inflation pressures but emphasized their commitment to cost targets and strategies to mitigate these impacts [134][141] Question: Structural hedge and TNAV movements - Management explained that while the notional hedge size may drop, the income effect remains positive due to current rate conditions [144]