Blueprint
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
21
February 2018
LLOYDS BANKING GROUP
plc
(Translation
of registrant's name into English)
5th Floor
25 Gresham Street
London
EC2V 7HN
United Kingdom
(Address
of principal executive offices)
Indicate
by check mark whether the registrant files or will file annual
reports
under
cover Form 20-F or Form 40-F.
Form
20-F..X.. Form 40-F
Indicate
by check mark whether the registrant by furnishing the
information
contained
in this Form is also thereby furnishing the information to
the
Commission
pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes
No ..X..
If
"Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule
12g3-2(b):
82- ________
Index
to Exhibits
21
February 2018
LLOYDS BANKING GROUP PLC - ANNUAL REPORT AND ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 2017
In
accordance with Listing Rule 9.6.1, Lloyds Banking Group plc has
submitted today the following document to the National Storage
Mechanism.
●
Annual Report and Accounts
2017
This
document will shortly be available for inspection at
www.hemscott.com/nsm.do
A copy
of the Annual Report and Accounts 2017 is available through the
'Investors & Performance' section of our website
www.lloydsbankinggroup.com
This
announcement also contains additional information for the purposes
of compliance with the Disclosure and Transparency Rules, including
principal risk factors, details of related party transactions and a
responsibility statement. This information is extracted, in full
unedited text, from the Annual Report and Accounts 2017 (the
'Annual Report'). References
to page numbers and notes to the accounts made in the following
Appendices, refer to page numbers and notes to the accounts in the
Annual Report. The 2017 Results News Release made on 21 February
2018 contained a condensed set of financial statements, the Group
Chief Executive's statement and the Chief Financial Officer's
review.
-END-
For
further information:
Investor Relations
Douglas
Radcliffe
+44 (0)20 7356 1571
Group
Investor Relations Director
douglas.radcliffe@.lloydsbanking.com
Corporate Affairs
Matt
Smith
+44 (0)20 7356 3522
Head of
Corporate Media
matt.smith@lloydsbanking.com
FORWARD LOOKING STATEMENTS
This
Annual Report contains certain forward looking statements with
respect to the business, strategy, plans and/or results of Lloyds
Banking Group and its current goals and expectations relating to
its future financial condition and performance. Statements that are
not historical facts, including statements about Lloyds Banking
Group's or its directors' and/or management's beliefs and
expectations, are forward looking statements. Words such as
'believes', 'anticipates', 'estimates', 'expects', 'intends',
'aims', 'potential', 'will', 'would', 'could', 'considered',
'likely', 'estimate' and variations of these words and similar
future or conditional expressions are intended to identify forward
looking statements but are not the exclusive means of identifying
such statements. By their nature, forward looking statements
involve risk and uncertainty because they relate to events and
depend upon circumstances that will or may occur in the future.
Examples of such forward looking statements include, but are not
limited to: projections or expectations of the Group's future
financial position including profit attributable to shareholders,
provisions, economic profit, dividends, capital structure,
portfolios, net interest margin, capital ratios, liquidity,
risk-weighted assets (RWAs), expenditures or any other financial
items or ratios; litigation, regulatory and governmental
investigations; the Group's future financial performance; the level
and extent of future impairments and write-downs; statements of
plans, objectives or goals of Lloyds Banking Group or its
management including in respect of statements about the future
business and economic environments in the UK and elsewhere
including, but not limited to, future trends in interest rates,
foreign exchange rates, credit and equity market levels and
demographic developments; statements about competition, regulation,
disposals and consolidation or technological developments in the
financial services industry; and statements of assumptions
underlying such statements. Factors that could cause actual
business, strategy, plans and/or results (including but not limited
to the payment of dividends) to differ materially from forward
looking statements made by the Group or on its behalf include, but
are not limited to: general economic and business conditions in the
UK and internationally; market related trends and developments;
fluctuations in interest rates, inflation, exchange rates, stock
markets and currencies; the ability to access sufficient sources of
capital, liquidity and funding when required; changes to the
Group's credit ratings; the ability to derive cost savings and
other benefits including, but without limitation as a result of any
acquisitions, disposals and other strategic transactions; changing
customer behaviour including consumer spending, saving and
borrowing habits; changes to borrower or counterparty credit
quality; instability in the global financial markets, including
Eurozone instability, instability as a result of the exit by the UK
from the European Union (EU) and the potential for other countries
to exit the EU or the Eurozone and the impact of any sovereign
credit rating downgrade or other sovereign financial issues;
technological changes and risks to the security of IT and
operational infrastructure, systems, data and information resulting
from increased threat of cyber and other attacks; natural, pandemic
and other disasters, adverse weather and similar contingencies
outside the Group's control; inadequate or failed internal or
external processes or systems; acts of war, other acts of
hostility, terrorist acts and responses to those acts,
geopolitical, pandemic or other such events; changes in laws,
regulations, accounting standards or taxation, including as a
result of the exit by the UK from the EU, or a further possible
referendum on Scottish independence; changes to regulatory capital
or liquidity requirements and similar contingencies outside the
Group's control; the policies, decisions and actions of
governmental or regulatory authorities or courts in the UK, the EU,
the US or elsewhere including the implementation and interpretation
of key legislation and regulation together with any resulting
impact on the future structure of the Group; the ability to attract
and retain senior management and other employees and meet its
diversity objectives; actions or omissions by the Group's
directors, management or employees including industrial action;
changes to the Group's post-retirement defined benefit scheme
obligations; the extent of any future impairment charges or
write-downs caused by, but not limited to, depressed asset
valuations, market disruptions and illiquid markets; the value and
effectiveness of any credit protection purchased by the Group; the
inability to hedge certain risks economically; the adequacy of loss
reserves; the actions of competitors, including non-bank financial
services, lending companies and digital innovators and disruptive
technologies; and exposure to regulatory or competition scrutiny,
legal, regulatory or competition proceedings, investigations or
complaints. Please refer to the latest Annual Report on Form 20-F
filed with the US Securities and Exchange Commission for a
discussion of certain factors together with examples of forward
looking statements. Lloyds Banking Group may also make or disclose
written and/or oral forward looking statements in reports filed
with or furnished to the US Securities and Exchange Commission,
Lloyds Banking Group annual reviews, half-year announcements, proxy
statements, offering circulars, prospectuses, press releases and
other written materials and in oral statements made by the
directors, officers or employees of Lloyds Banking Group to third
parties, including financial analysts. Except as required by any
applicable law or regulation, the forward looking statements
contained in this Annual Report are made as of the date hereof, and
Lloyds Banking Group expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward looking statements contained in this Annual Report to
reflect any change in Lloyds Banking Group's expectations with
regard thereto or any change in events, conditions or circumstances
on which any such statement is based. The information, statements
and opinions contained in this Annual Report do not constitute a
public offer under any applicable law or an offer to sell any
securities or financial instruments or any advice or recommendation
with respect to such securities or financial
instruments.
Appendix 1 - Risk Factors
The
principal risks and uncertainties relating to Lloyds Banking Group
plc are set out on pages 34-37 of the Annual Report. The following
is extracted in full and unedited form from the Annual
Report.
The most significant risks which could impact the delivery of our
long-term strategic objectives and our approach to each risk, are
detailed below.
As part of the Group's ongoing assessment of the potential
implications of the UK leaving the European Union, the Group
continues to consider the impact to its customers, colleagues and
products - as well as legal, regulatory, tax, financial and capital
implications.
There remains continued uncertainty around both the UK and global
political and macroeconomic environment. The potential impacts of
external factors have been considered in all principal risks to
ensure any material uncertainties continue to be monitored and are
appropriately mitigated.
Principal risks and uncertainties are reviewed and reported
regularly. This year we have added a new principal risk, model
risk, to reflect the Group's increasing use of analytics and models
to make decisions.
Credit
The
risk that parties with whom we have contracted, fail to meet their
financial obligations (both on and off balance sheet).
Example:
●
Adverse impact on profitability due to
an increase in impairment losses, write downs and/or decrease in
asset valuations which can occur for a number of reasons, including
adverse changes in the economic, geopolitical and market
environment. For example, low interest rates have helped customer
affordability, but there is a risk of increased defaults as
interest rates rise.
Key
mitigating actions
●
Credit policy, incorporating prudent
lending criteria, aligned with Board approved risk appetite, to
effectively manage risk.
●
Robust risk assessment and credit
sanctioning to ensure we lend appropriately and
responsibly.
●
Extensive and thorough credit processes
and controls to ensure effective risk identification, management
and oversight.
●
Effective, well-established governance
process supported by independent credit risk
assurance.
●
Early identification of signs of stress
leading to prompt action in engaging the customer.
Regulatory and legal
The risks of changing legislation, regulation, policies, voluntary
codes of practice and their interpretation in the markets in which
we operate may have a significant impact on the Group's operations,
business prospects, structure, costs and/or capital requirements
and ability to enforce contractual obligations.
Examples:
●
Increased regulatory oversight and
prudential regulatory requirements.
●
Increased legislative requirements,
such as ring-fencing legislation, Payment Services Directive 2
(PSD2), Open Banking and General Data Protection Regulation
(GDPR).
Key
mitigating actions
●
Ensure we develop comprehensive plans
for delivery of all legal and regulatory changes and track their
progress.
●
Group-wide projects implemented to address significant
impacts.
●
Continued investment in people,
processes, training and IT to assess impact and help meet our legal
and regulatory commitments.
●
Engage with regulatory authorities and
industry bodies on forthcoming regulatory changes, market reviews
and investigations.
Conduct
Conduct risk can arise from a number of areas including selling
products to customers which do not meet their needs; failing to
deal with customers' complaints effectively; not meeting customers'
expectations; failing to promote effective competition in the
interest of customers; and exhibiting behaviours which could impact
on the integrity of the market or undermine wider regulatory
standards.
Example:
●
The most significant conduct cost in
recent years has been PPI mis-selling.
Key
mitigating actions
●
Conduct risk appetite metrics provide a
granular view of how our products and services are performing for
customers.
●
Product approval, continuous product
review processes and customer outcome testing (across products and
services) supported by conduct management information.
●
Learning from past mistakes through
root cause analysis and clear customer accountabilities for
colleagues, with rewards driven by customer-centric
metrics.
●
Further enhancements and embedding of
our framework to support customers in vulnerable
circumstances.
Operational
We face
significant operational risks which may disrupt services to
customers, cause reputational damage, and result in financial loss.
These include the availability, resilience and security of our core
IT systems, unlawful or inappropriate use of customer data, theft
of sensitive data, fraud and financial crime threats, and the
potential for failings in our customer processes.
Example:
The
dynamic threat posed by cyber risk to the confidentiality and
integrity of electronic data or the availability of
systems.
Key
mitigating actions
●
Investing in enhanced cyber controls to
protect against external threats to the confidentiality or
integrity of electronic data, or the availability of systems, and
to ensure effective third party assurance.
●
Enhancing the resilience of systems
that support critical business processes with independent
verification of progress on an annual basis.
●
Significant investment in compliance
with GDPR and Basel Committee on Banking Supervision
standards.
●
Working with industry bodies and law
enforcement agencies to identify and combat fraud and money
laundering.
People
Key
people risks include the risk that we fail to maintain
organisational skills, capability, resilience and capacity levels
in response to organisational, political and external market change
and evolving business needs.
Example
Inability
to attract or retain colleagues with key skills could impact the
achievement of business objectives.
Key
mitigating actions
●
Focused action to attract, retain and
develop high calibre people. Delivering initiatives which reinforce
behaviours to generate the best outcomes for customers and
colleagues.
●
Managing organisational capability and
capacity to ensure there are the right skills and resources to meet
our customers' needs.
●
Effective remuneration arrangements to
promote appropriate colleague behaviours and meet regulatory
expectations.
Insurance underwriting
Key
insurance underwriting risks within the Insurance business are
longevity, persistency and property insurance. Longevity risk is
expected to increase as our presence in the bulk annuity market
increases.
Example
●
Uncertain property insurance claims
impact Insurance earnings and capital, e.g. extreme weather
conditions, such as flooding, can result in high property damage
claims.
Key
mitigating actions
●
Processes for underwriting, claims
management, pricing and product design seek to control exposure.
Longevity and bulk pricing experts support the bulk annuity
proposition.
●
The merits of longevity risk transfer
and hedging solutions are regularly reviewed for the Insurance
business.
●
Property insurance exposures are
mitigated by a broad reinsurance programme.
Capital
The
risk that we have a sub-optimal quantity or quality of capital or
that capital is inefficiently deployed across the
Group.
Example
●
A worsening macroeconomic environment
could lead to adverse financial performance, which could deplete
capital resources and/ or increase capital requirements due to a
deterioration in customers' creditworthiness.
Key
mitigating actions
●
A comprehensive capital management
framework that includes setting of capital risk appetite and
dividend policy.
●
Close monitoring of capital and
leverage ratios to ensure we meet regulatory requirements and risk
appetite.
●
Comprehensive stress testing analyses
to evidence capital adequacy under various adverse
scenarios.
Funding and liquidity
The
risk that we have insufficient financial resources to meet our
commitments as they fall due.
Example
●
A deterioration in either the Group's
or the UK's credit rating, or a sudden and significant withdrawal
of customer deposits, would adversely impact our funding and
liquidity position.
Key
mitigating actions
●
Holding liquid assets to cover
potential cash and collateral outflows and to meet regulatory
requirements. In addition, maintaining a further pool of assets
that can be used to access central bank liquidity
facilities.
●
Undertaking daily monitoring against a
number of market and Group-specific early warning
indicators.
●
Maintaining a contingency funding plan
detailing actions and strategies available in stressed
conditions.
Governance
Against
a background of increased regulatory focus on governance and risk
management, the most significant challenges arise from meeting the
requirements to ring-fence core UK financial services and
activities from January 2019 and further requirements under the
Senior Manager & Certification Regime (SM&CR).
Examples
●
Inadequate or complex governance
arrangements to address ring-fencing requirements could result in a
weaker control environment, delays in decision making and lack of
clear accountability.
●
Non-compliance with or breaches of
SM&CR requirements could result in lack of clear accountability
and legal and regulatory consequences.
Key
mitigating actions
●
Leveraging our considerable change experience
to meet ring-fencing requirements before the regulatory deadlines,
and the continuing evolution of SM&CR.
●
Programme in place to address
ring-fencing. In close and regular contact with regulators to
develop and deploy our planned operating and legal
structure.
●
Evolving risk and governance
arrangements to continue to be appropriate to comply with
regulatory objectives.
Market
The
risk that our capital or earnings profile is affected by adverse
market rates, in particular interest rates and credit spreads in
the banking business, equity and credit spreads in the Insurance
business, and credit spreads in the Group's defined benefit (DB)
pension schemes.
Examples
●
Earnings are impacted by our ability to
forecast and model customer behaviour accurately and establish
appropriate hedging strategies.
●
The Insurance business is exposed indirectly
to equity risk through the value of future management charges on
policyholder funds. Credit spread risk within the Insurance
business primarily arises from bonds and loans used to back
annuities.
●
Narrowing credit spreads will increase the
cost of pension scheme benefits.
Key
mitigating actions
●
Structural hedge programmes implemented to
manage liability margins and margin compression.
●
Equity and credit spread risks are closely
monitored and, where appropriate, asset and liability matching is
undertaken.
●
The Group's DB pension schemes have increased
their credit allocation and hedged against nominal rate and
inflation movements.
Model
The
risk of financial loss, regulatory censure, reputational damage or
customer detriment, as a result of deficiencies in the development,
application and ongoing operation of financial models and rating
systems.
Examples
of the consequences of inadequate models include:
●
Inappropriate levels of capital or
impairments.
●
Inappropriate credit or pricing
decisions.
●
Adverse impacts on funding or
liquidity, or the Group's earnings and profits.
Key
mitigating actions
A
comprehensive model risk management framework
including:
●
Defined roles and responsibilities,
with clear ownership and accountability.
●
Principles regarding the requirements of data
integrity, development, validation, implementation and ongoing
maintenance.
●
Regular model monitoring.
●
Independent review of models.
●
Periodic validation and re-approval of
models.
Appendix 2 - Related Party Transactions
The
following statements regarding related party transactions of Lloyds
Banking Group plc are set out on pages 223 to 224 of the Annual
Report. The following is extracted in full and unedited form from
the Annual Report.
Note 46: Related party transactions
Key management personnel
Key
management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of an entity; the Group's key management personnel are
the members of the Lloyds Banking Group plc Group Executive
Committee together with its Non-Executive
Directors.
The
table below details, on an aggregated basis, key management
personnel compensation:
|
|
2017£m
|
2016£m
|
2015£m
|
|
Compensation
|
|
|
|
|
Salaries
and other short-term benefits
|
13
|
17
|
14
|
|
Post-employment
benefits
|
-
|
−
|
−
|
|
Share-based
payments
|
22
|
23
|
18
|
|
Total compensation
|
35
|
40
|
32
|
Aggregate
contributions in respect of key management personnel to defined
contribution pension schemes were £0.05 million (2016:
£0.1 million; 2015: £0.1 million).
|
|
2017
million
|
2016
million
|
2015
million
|
|
Share option plans
|
|
|
|
|
At 1
January
|
3
|
9
|
13
|
|
Granted,
including certain adjustments (includes entitlements of appointed
key management personnel)
|
-
|
3
|
3
|
|
Exercised/lapsed
(includes entitlements of former key management
personnel)
|
(2)
|
(9)
|
(7)
|
|
At 31 December
|
1
|
3
|
9
|
|
|
2017
million
|
2016
million
|
2015
million
|
|
Share plans
|
|
|
|
|
At 1
January
|
65
|
82
|
102
|
|
Granted,
including certain adjustments (includes entitlements of appointed
key management personnel)
|
37
|
29
|
37
|
|
Exercised/lapsed
(includes entitlements of former key management
personnel)
|
(20)
|
(46)
|
(57)
|
|
At 31 December
|
82
|
65
|
82
|
The
tables below detail, on an aggregated basis, balances outstanding
at the year end and related income and expense, together with
information relating to other transactions between the Group and
its key management personnel:
|
|
2017£m
|
2016£m
|
2015£m
|
|
Loans
|
|
|
|
|
At 1
January
|
4
|
5
|
3
|
|
Advanced
(includes loans of appointed key management personnel)
|
1
|
3
|
4
|
|
Repayments
(includes loans of former key management personnel)
|
(3)
|
(4)
|
(2)
|
|
At 31 December
|
2
|
4
|
5
|
The
loans are on both a secured and unsecured basis and are expected to
be settled in cash. The loans attracted interest rates of between
6.45 per cent and 23.95 per cent in 2017 (2016: 2.49 per cent and
23.95 per cent; 2015: 3.99 per cent and 23.95 per
cent).
No
provisions have been recognised in respect of loans given to key
management personnel (2016 and 2015: £nil).
|
|
2017£m
|
2016£m
|
2015£m
|
|
Deposits
|
|
|
|
|
At 1
January
|
12
|
13
|
16
|
|
Placed
(includes deposits of appointed key management
personnel)
|
41
|
41
|
58
|
|
Withdrawn
(includes deposits of former key management personnel)
|
(33)
|
(42)
|
(61)
|
|
At 31 December
|
20
|
12
|
13
|
Deposits
placed by key management personnel attracted interest rates of up
to 4.0 per cent (2016: 4.0 per cent;
2015: 4.7per cent).
At 31
December 2017, the Group did not provide any guarantees in respect
of key management personnel (2016 and 2015: none).
At 31
December 2017, transactions, arrangements and agreements entered
into by the Group's banking subsidiaries with directors and
connected persons included amounts outstanding in respect of loans
and credit card transactions of £0.01 million with 3 directors
and 2 connected persons (2016: £0.4 million with five
directors and two connected persons; 2015: £1 million with
four directors and six connected persons).
Subsidiaries
Details
of the Group's subsidiaries and related undertakings are provided
on pages 268-274. In accordance with IFRS 10 Consolidated
financial statements, transactions and balances with subsidiaries
have been eliminated on consolidation.
Pension funds
The
Group provides banking and some investment management services to
certain of its pension funds. At 31 December 2017, customer
deposits of £337 million (2016: £171 million) and
investment and insurance contract liabilities of
£307 million (2016: £406 million) related to the
Group's pension funds.
Collective investment vehicles
The
Group manages 134 (2016: 139) collective investment vehicles, such
as Open Ended Investment Companies (OEICs) and of these 83 (2016:
83) are consolidated. The Group invested £418 million (2016:
£265 million) and redeemed £616 million (2016: £826
million) in the unconsolidated collective investment vehicles
during the year and had investments, at fair value, of £2,328
million (2016: £2,405 million) at 31 December. The Group
earned fees of £133 million from the unconsolidated
collective investment vehicles during 2017 (2016: £192
million).
Joint ventures and associates
At 31
December 2017 there were loans and advances to customers of
£123 million (2016: £173 million) outstanding and
balances within customer deposits of £9 million (2016:
£15 million) relating to joint ventures and
associates.
In
addition to the above balances, the Group has a number of other
associates held by its venture capital business that it accounts
for at fair value through profit or loss. At 31 December 2017,
these companies had total assets of approximately £4,661
million (2016: £4,712 million), total liabilities of
approximately £5,228 million (2016: £5,033 million) and
for the year ended 31 December 2017 had turnover of approximately
£4,601 million (2016: £4,401 million) and made a loss of
approximately £87 million (2016: net loss of £27
million). In addition, the Group has provided £1,226 million
(2016: £1,550 million) of financing to these companies on
which it received £81 million (2016: £127 million) of
interest income in the year.
Appendix 3 - Directors' Responsibility Statement
The
following statement is extracted from page 83 of the Annual Report.
This statement relates solely to the Annual Report and is not
connected to the extracted information set out in this announcement
or the 2017 Results News Release dated 21 February
2018.
Statement of directors' responsibilities
The Directors are responsible for preparing the annual report, the
Directors' remuneration report and the financial statements in
accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors have prepared the
Group and parent Company financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. Under company law, the Directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Group
and the Company and of the profit or loss of the Company and Group
for that period. In preparing these financial statements, the
Directors are required to: select suitable accounting policies and
then apply them consistently; make judgements and accounting
estimates that are reasonable and prudent; and state whether
applicable IFRSs as adopted by the European Union have been
followed.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements and the Directors'
remuneration report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets
of the Company and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
A copy of the financial statements is placed on our website at
www.lloydsbankinggroup.com. The Directors are responsible for the
maintenance and integrity of the Company's website. Legislation in
the UK governing the preparation and dissemination of financial
statements may differ from legislation in other
jurisdictions.
Each of the current Directors who are in office as at the date of
this report, and whose names and functions are listed on pages
54-55 of this annual report, confirm that, to the best of his or
her knowledge:
●
the Group financial statements, which
have been prepared in accordance with IFRSs as adopted by the
European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company
and Group; and
●
the management report contained in the
strategic report and the Directors' report includes a fair review
of the development and performance of the business and the position
of the Company and Group, together with a description of the
principal risks and uncertainties that they
face.
The Directors consider that the annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
position and performance, business model and strategy. The
Directors have also separately reviewed and approved the strategic
report.
Signatures
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
LLOYDS
BANKING GROUP plc
(Registrant)
By: Douglas
Radcliffe
Name: Douglas
Radcliffe
Title: Group
Investor Relations Director
Date: 21st
February 2018