Lloyds Banking Group plc Q2 FY2025 earnings call

Charlie Nunn started by highlighting strong progress, continued delivery for stakeholders, broad-based financial strength, and reaffirming guidance. William Chalmers went into detail on financials, customer franchise developments, interest income, mortgage portfolio, other lending books, deposits, other income, costs, asset quality, returns on TNAV, capital generation, and capital distributions. They discussed strategic initiatives like building a differentiated franchise, supporting the housing sector, growth through strategic initiatives, cost and capital efficiency, digital, AI and data investment. Also mentioned ongoing execution of strategy and being on track to deliver 2026 targeted outcomes.

The group delivered growth across both sides of the balance sheet. Net income increased by 6%, with ongoing OOI strength up 9% in the first half. Return on tangible equity was 14.1% for the half. Retail lending saw growth, with loans and advances up, mortgage book up. Deposit franchise grew strongly, with total deposits up by GBP 11.2 billion or 2% to GBP 494 billion. Net interest income grew 5% in the first half to GBP 6.7 billion. Mortgage book stood at GBP 318 billion, up GBP 5.6 billion in H1. Consumer lending balances performed well, with balances up in various areas. Commercial lending balances also saw growth. Other income was up 9% in the first half, driven by broad-based momentum. Operating costs were GBP 4.9 billion in H1, up 4% year-on-year. Asset quality remained robust with an impairment charge of GBP 442 million equating to an asset quality ratio of 19 basis points.

Reaffirming guidance for 2025 and remaining confident in 2026 commitments. Expect to deliver more than GBP 1.5 billion of additional revenues from strategic initiatives by 2026, with over GBP 1 billion delivered to date on an annualized basis. Confident in delivering a cost-to-income ratio of below 50% and more than 200 basis points of capital generation in 2026. Expect net interest income for 2025 to be circa GBP 13.5 billion. Continue to expect further material TNAV per share growth this year and over the medium term. Expect full year 2025 capital generation to be circa 175 basis points.

Discussed potential risks such as economic environment and uncertainty affecting customers, geopolitical uncertainty, swap rate volatility and competitive dynamics impacting mortgage margins, potential volatility in certain deposits including large commercial and wealth deposits, Motor Finance related risks awaiting Supreme Court judgment and FCA outcomes, and potential impact of changing market conditions on operating lease depreciation.

Q: Guy Stebbings asked about mortgage spreads and deposits.

A: William Chalmers responded on mortgage spreads expecting quarter 2 patterns to continue and on deposits discussing favorable performance, ISA flows, and tapering of PCA outflows.

Q: Benjamin Toms asked about structural hedge and FCA impact on mortgages.

A: William Chalmers talked about structural hedge development, notional growth, and FCA impact on housing market and mortgage volumes.

Q: Amit Goel asked about nonbanking NII headwind and commercial deposit growth.

A: William Chalmers addressed nonbanking NII expectations and commercial deposit growth stability.

Q: Ben Caven-Roberts asked about cost of risk and equity investments.

A: William Chalmers spoke on cost of risk and Charlie Nunn on equity investments and Mansion House reforms.

Q: Aman Rakkar asked about Motor Finance and protection penetration.

A: William Chalmers discussed Motor Finance and Charlie Nunn on protection penetration.

Q: Jonathan Pierce asked about preliminary results and structural hedge.

A: William Chalmers answered on preliminary results and structural hedge maturity.

Q: Edward Firth asked about Motor Finance timetable and capital generation.

A: William Chalmers and Charlie Nunn discussed Motor Finance timetable and capital generation.

Q: Jason Napier asked about op lease depreciation and cost evolution.

A: William Chalmers spoke on op lease depreciation and Charlie Nunn on cost evolution.

Q: Chris Cant asked about Schroders JV and cost-to-income.

A: Charlie Nunn and William Chalmers commented on Schroders JV and cost-to-income.

Q: Sheel Shah asked about deposit outlook.

A: William Chalmers and Charlie Nunn discussed deposit outlook and impact of savings gap policies