Lloyds Banking Group plc Q4 FY2025 earnings call

Strategic Delivery

• The group is on track to meet or exceed 2026 strategic targeted outcomes, with revenue target upgraded to circa GBP 2 billion in 2026, and gross cost savings of circa GBP 1.9 billion realized since 2021.

Growth Areas

• Retail: Mobile app users up ~45% since 2021, with in-app AI agents to roll out in 2026. IP&I: Deepening relationships, expanding product offerings via partnerships, and the acquisition of Schroders Personal Wealth to enhance end-to-end wealth offering.

Cost and Capital Efficiency

• Delivered circa GBP 1.9 billion of gross cost savings since 2021, targeting a cost/income ratio below 50% in 2026. Target capital generation of more than 200 basis points in 2026.

AI Initiatives

• Scaled 50 Gen AI use cases in 2025, generating GBP 50 million P&L benefit, aiming for >GBP 100 million P&L benefit in 2026 from AI use cases.

In 2025, the group delivered strong outcomes across segments. Retail: Mobile app users are up circa 45% since 2021, with in-app AI agents set to roll out in 2026. IP&I: Deepening relationships as an integrated bancassurance provider, expanding product offerings through partnerships, and the acquisition of Schroders Personal Wealth (to be rebranded to Lloyds Wealth) in the second half of 2025. Commercial Banking: BCB (Business Current Banking) built a digitally led relationship bank, with BCB gross net lending increasing by 15% in 2025; CIB (Corporate and Institutional Banking) drove revenue diversification. Equity Investments: Lloyds Living has grown to nearly 8,000 homes since 2021, and LDC generated more than GBP 600 million of exit proceeds during the year, representing nearly 10% of group OOI.

Revenue and Targets

• Upgraded 2026 revenue target to circa GBP 2 billion, with other income contribution circa GBP 0.9 billion. NII guidance for 2026 is around GBP 14.9 billion, with margin expansion and balance sheet growth. Target cost/income ratio below 50% in 2026, and return on tangible equity target upgraded to greater than 16% for 2026.

Structural Hedge

• Structural hedge income expected to step up to circa GBP 7 billion in 2026, reaching ~GBP 8 billion in 2027 and continuing to grow as yields converge with market rates.

• Competitive pressure in deposit and mortgage markets, with potential for margin compression. - Uncertainty around FCA final proposals on motor finance. - Regulatory changes, such as Basel 3.1 implementation, which could impact RWAs and capital requirements.

Q: On deposits, Q4 softer mainly on commercial side, expectations into 2026?

A: William Leon Chalmers discussed deposit growth, noting seasonal outflows in commercial banking, churn easing due to bank base rate reductions, and expectations for continued healthy deposit performance in 2026 with slowing churn.

Q: On AI ROI, GBP 100 million benefit, gross or net?

A: William Leon Chalmers stated that ROI takes account of the investment made in AI initiatives.

Q: On IP&I net flows, market impact and natural growth?

A: William Leon Chalmers discussed the strategic focus of IP&I, open book growth, and the potential for the business to grow healthily due to strategic investments and joined-up group connectivity