H7FNTJ4851HG0EXQ1Z70-2022-12-31-T01

Principal activities

Lloyds Bank plc (the Bank) and its subsidiary undertakings (the Group) provide a wide range of banking and financial services through branches

and offices in the UK and in certain locations overseas.

The Group’s revenue is earned through interest and fees on a broad range of financial services products including current accounts, savings,

mortgages, credit cards, motor finance and unsecured loans to personal and business banking customers; and lending, transactional banking,

working capital management, risk management and debt capital markets services to commercial customers.

Business review

Income statement

The Group's profit before tax for the year was £6,094 million, £309 million higher than 2021. The benefit of higher income and lower operating

expenses was partially offset by the impact of an impairment charge (compared to a credit in the prior year), in part reflecting the deterioration

in the economic outlook. Profit after tax was £4,794 million (2021: £5,202 million, which included the benefit of a deferred tax remeasurement).

Total income for the year was £16,745 million, an increase of 14 per cent on 2021, reflecting continued recovery in customer activity and benefits

from UK Bank Rate changes.

Net interest income was £13,105 million in 2022, compared to £11,036 million in 2021. This was driven by stronger margins and higher average

interest-earning assets. Average interest-earning assets increased by £18,215 million to £594,491 million in 2022 compared to £576,276 million in

2021 supported by continued growth in the mortgage book and increases in cash and balances at central banks.

Other income was £3,640 million in 2022 compared to £3,637 million in 2021. Fee and commission income of £2,352 million was up from

£2,195 million in 2021 and included improved current account and credit card performance, reflecting the continued recovery in customer

activity. Net trading income was £205 million lower at £180 million in 2022 compared with £385 million in 2021, in part due to the impact of the

higher expense payable on liabilities designated at fair value through profit or loss. Other operating income was up £210 million, reflecting

higher levels of recharges to fellow Lloyds Banking Group undertakings.

Operating expenses decreased by £1,007 million, or 10 per cent to £9,199 million in 2022 compared with £10,206 million in 2021. Within this,

other expenses were £816 million, or 23 per cent, lower at £2,706 million in 2022 compared with £3,522 million in 2021, driven by the decrease in

charges for regulatory and legal provisions. Depreciation and amortisation costs were £429 million, or 15 per cent, lower at £2,348 million in

2022 compared to £2,777 million in 2021, reflecting the significant software asset write-off in 2021 as a result of investment in new technology

and systems infrastructure. Partly offsetting these decreases, staff costs were £161 million, or 4 per cent, higher at £3,853 million in 2022

compared with £3,692 million in 2021 due to inflationary pressures and additional staff payments. Premises and equipment costs were

£77 million higher at £292 million in 2022 compared with £215 million in 2021, reflecting lower gains on disposal of operating lease assets at the

end of the contract term and reductions in gains on the disposal of Group premises.

The impairment charge of £1,452 million in 2022 compared to a net credit of £1,318 million in 2021, reflected strong observed credit

performance, but was impacted by a deteriorating economic outlook partly offset by COVID-19 releases. Asset quality remains strong, with

sustained low levels of new to arrears and very modest evidence of a deterioration in observed credit metrics despite the inflationary pressures

on affordability during the latter half of the year. The Group's ECL allowance increased in the year by £796 million to £4,796 million, compared

to £4,000 million at 31 December 2021. Overall the Group’s loan portfolio continues to be well-positioned, reflecting a prudent through-the-

cycle approach to lending with high levels of security, also reflected in strong recovery performance.

The Group recognised a tax expense of £1,300 million, compared to a tax expense of £583 million in 2021. The tax expense in 2022 included a

£222 million benefit in relation to the tax deductibility of provisions made in 2021, and a £21 million expense (2021: £1,168 million benefit)

arising on the remeasurement of deferred tax assets.

The Lloyds Bank Group’s post-tax return on average total assets decreased to 0.77 per cent compared to 0.86 per cent in the year ended

31 December 2021.

Balance sheet

Total assets were £14,079 million, or 2 per cent higher at £616,928 million at 31 December 2022 compared to £602,849 million at 31 December

2021. Cash and balances at central banks were £17,726 million, or 33 per cent, higher at £72,005 million compared to £54,279 million at

31 December 2021 reflecting increased liquidity holdings. Financial assets at amortised cost were £1,080 million higher at £491,396 million

compared to £490,316 million at 31 December 2021. Loans and advances to customers increased to £435,627 million, including growth in the

open mortgage book, alongside higher retail unsecured loan and credit card balances. Commercial Banking balances decreased due to

repayments of Government-backed lending, partly offset by attractive growth opportunities in the Corporate and Institutional Banking portfolio.

In addition, within financial assets at amortised cost, debt securities were £2,769 million higher and reverse repurchase agreements were down

£10,449 million. Financial assets at fair value through other comprehensive income decreased by £4,940 million to £22,846 million compared to

£27,786 million at 31 December 2021 driven by net disposals in the year. Deferred tax assets increased by £1,809 million to £5,857 million driven

by change in the value of the cash flow hedging reserve and post-retirement defined benefit scheme remeasurements during the year.

Total liabilities were £15,792 million higher at £577,869 million compared to £562,077 million at 31 December 2021. Customer deposits were

£3,201 million lower at £446,172 million compared to £449,373 million at 31 December 2021. This included Retail current account growth which

was more than offset by reductions in Commercial Banking deposits. Repurchase agreement balances were £48,590 million compared to

£30,106 million at 31 December 2021. Subordinated liabilities decreased £2,065 million to £6,593 million compared to £8,658 million at

31 December 2021 primarily as a result of redemptions and repurchases during 2022 of £2,182 million.

Total equity decreased from £40,772 million at 31 December 2021 to £39,059 million at 31 December 2022, as the Group's profits were more

than offset by reductions in the cash flow hedging reserve due to the rising rate environment and the impact of pension scheme

remeasurements given market conditions.

Capital

The Group’s common equity tier 1 (CET1) capital ratio decreased to 14.8 per cent at 31 December 2022 compared to 16.7 per cent at

31 December 2021, largely reflecting a reduction on 1 January 2022 for regulatory changes. This included the reinstatement of the full

deduction treatment for intangible software assets, phased and other reductions in IFRS 9 transitional relief and an increase in risk-weighted

assets. Subsequent to this, profits for the year were partly offset by pension contributions made to the defined benefit pension schemes, the

accrual for foreseeable ordinary dividends and distributions on other equity instruments.

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Risk-weighted assets increased by £13,326 million, or 8 per cent, from £161,576 million at 31 December 2021 to £174,902 million at 31 December

2022, primarily reflecting the 1 January 2022 regulatory changes which included the anticipated impact of the implementation of new CRD IV

models to meet revised regulatory standards for modelled outputs. The new CRD IV models remain subject to finalisation and approval by the

PRA and therefore the resultant risk-weighted asset impact also remains subject to this. The initial increase was partially offset by a subsequent

reduction in risk-weighted assets during the year, largely as a result of optimisation activity and Retail model reductions from the strong

underlying credit performance, partly offset by the growth in balance sheet lending and the impact of foreign exchange movements.

The total capital ratio decreased to 20.5 per cent at 31 December 2022 compared to 23.5 per cent at 31 December 2021, reflecting the

reduction in CET1 capital, the derecognition of legacy AT1 and Tier 2 capital instruments following the completion of the transition to end-point

eligibility rules for regulatory capital on 1 January 2022, instrument repurchase, the impact of interest rate increases and regulatory amortisation

on eligible Tier 2 capital instruments and the increase in risk-weighted assets. This was partially offset by the issuance of a new Tier 2 capital

instrument, the impact of sterling depreciation and an increase in eligible provisions recognised through Tier 2 capital.

The UK leverage ratio increased to 5.4 per cent at 31 December 2022 compared to 5.3 per cent at 31 December 2021, reflecting the decrease in

the leverage exposure measure following reductions in securities financing transactions and the measure for off-balance sheet items, partially

offset by a reduction in the total tier 1 capital position.

Future developments

Information about future developments is provided within the Principal risks and uncertainties section below.

Section 172(1) Statement

In accordance with the Companies Act 2006 (the 'Act'), the directors provide this statement describing how they have had regard to the matters

set out in section 172(1) of the Act, when performing their duty to promote the success of the company under section 172. Further detail on key

stakeholder interaction is also included within the directors' report on pages 10 to 14.

The directors remain mindful in all their deliberations of the long-term consequences of their decisions, as well as the importance of the Bank

maintaining a reputation for high standards of business conduct and the board of directors (the ‘Board’) engaging with, and taking account of

the views of, key stakeholders.

Key Stakeholder Engagement

As in 2021, the non-executive directors undertook a tailored engagement programme which allowed them to hear directly from their key

stakeholders, including customers, clients and colleagues.

The programme was designed to help the directors better understand what matters in the lives of customers and colleagues, the role the Bank

plays in supporting them and how the Bank is performing in that regard, in turn helping to inform the directors’ decision making.

A variety of activities took place under the programme, including meetings with customers and clients and conversations with colleagues, to

understand the matters which are most important in their lives, both at and outside work, and the challenges these stakeholders face as the

external economic environment continues to evolve. The non-executive directors found these sessions to be of great benefit, providing many

valuable insights which helped in their review of the proposals considered by the Board during the year.

Our Stakeholders

Customers and clients

The Board has an ongoing commitment to understanding and addressing customer and client needs, which remains central to achieving the

Bank’s strategic ambitions.

Examples of Board engagement with customers included:

•Dedicated updates from across the organisation, which identified areas of customer and client concern, covering a range of internal and

external performance measures; in addition, concerns relevant to customers and clients were identified for consideration in wider proposals

put to the Board

•Regular updates giving insight into the Bank’s performance in delivering on its customer and client related objectives and commitments,

assisting in determining where further action was required to meet these objectives

•The Chair and the Group Chief Executive attended customer and client engagement events, across all main regions of the UK, providing an

important opportunity for customers and clients to raise their concerns directly with these Board members

•Non-executive directors attended special events to provide a deeper insight into the issues which customers and clients have faced during

the year, which included sessions on the challenges of buying and owning a home, the practical issues faced as a consequence of the cost of

living crisis, the challenges customers face in day to day family life, and the issues which our commercial and SME clients are routinely facing.

Shareholders

The Bank is a wholly owned subsidiary within the Lloyds Banking Group group of companies. The directors ensure that the strategy, priorities,

processes and practices of the Bank are fully aligned where required to those of Lloyds Banking Group, ensuring that the interests of Lloyds

Banking Group as the Bank’s sole shareholder are duly acknowledged. Further information in respect of the relationship of Lloyds Banking

Group with its shareholders is included within the strategic report within the Lloyds Banking Group Annual Report and Accounts for 2022,

available on the Lloyds Banking Group website.

Colleagues

Colleagues remain a vital part of the delivery of the Bank’s strategic ambitions, and the Board continues to recognise this in its engagement

with colleagues, which has again this year included a variety of sessions across the Group, to discuss topical issues relating to challenges at and

outside work.

Following a review in 2021 of how the Board engages with the Bank’s workforce, the Board’s Responsible Business Committee has continued to

be the designated body for workforce engagement, providing focus, but with the Board also retaining a commitment for individual Board

members to continue to engage with colleagues directly throughout the year. The Board considers these arrangements to be effective as they

enable a broad range of colleague engagement activities, as described in this section.

The Responsible Business Committee reports regularly to the Board on all of its activities, including on its colleague engagement agenda. The

Board will continue to consider its arrangements for engaging with the Bank’s workforce to ensure they remain effective, and encourage

meaningful dialogue between the Board and colleagues.

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Examples of engagement with colleagues included:

•Regular review by the Responsible Business Committee of workforce engagement reports, covering key issues raised by colleagues, trends on

people matters and updates on colleague sentiment

•Review by the Responsible Business Committee of the findings of surveys of colleague sentiment and views, including annual and ad hoc

surveys, and review of the progress being made in addressing the matters colleagues have previously raised

•A related annual report to the Board, summarising all colleague engagement activity, key themes and issues which colleagues have raised

during the year

•Non-executive directors attended a number of colleague focus groups to discuss themes from the annual colleague survey, the Bank’s new

strategy and values, pay and reward and hybrid working. They also attended sessions where they were able to observe colleagues at work,

including Fraud team colleagues handling customer calls

•The approach to colleague surveys will continue to evolve in the coming year, with insight from monthly ‘Pulse’ surveys being used to inform

the discussion topics for future non-executive director / colleague focus groups

•Town Hall sessions were hosted by both the Chair and the Group Chief Executive, complemented by engagement sessions led by other

senior leaders with feedback shared with the wider Board. The Group Chief Executive also held sessions with colleagues from a number of

specific business areas across the Bank

•Board members attended a range of other events held for the Bank’s senior leaders and other colleague network events

During the year the Bank communicated directly with colleagues detailing Bank performance, changes in the economic and regulatory

environment and updates on key strategic initiatives. Meetings were held throughout the year with our recognised unions.

For 2022, the Remuneration Committee approved Group Performance Share awards for colleagues, and colleagues are eligible to participate in

HMRC approved share plans which promote share ownership by giving employees an opportunity to invest in Lloyds Banking Group shares.

Society and environment

The Board places great importance on engagement and action to help the communities in which the Bank operates in prosper, while helping to

build a more sustainable and inclusive future.

Relevant engagement included:

•Updates on climate, environmental and social matters, covering all aspects of the Bank’s business, where the Board reviewed progress made

against stated ambitions in these areas, and agreed any further action it considered was required

•The Board continues to be supported in environmental matters by its Responsible Business Committee. The committee considers stakeholder

views on all matters relating to the Bank’s ambition to be a trusted, sustainable, inclusive and responsible business

Regulators and government

The Board continues to maintain strong and open relationships with the Bank’s regulators and with government authorities, including key

stakeholders such as the FCA, the PRA, HM Treasury and HMRC.

Relevant engagement included:

•The Chair and individual directors, including Chairs of the Board’s committees, held continuing discussions with the FCA and PRA on a

number of aspects relevant to the evolving regulatory agenda

•The Board regularly reviewed updates on wider Bank regulatory interaction, providing a view of key areas of focus, and also progress made in

addressing key regulatory priorities

•A meeting was held between the Board and the PRA in July to discuss the outcomes and progress of action relevant to the PRA’s Periodic

Summary Meeting letter

Suppliers

The Bank has a number of partners it relies on for important aspects of our operations and customer service provision, and the Board

recognises the importance of these supplier relationships in achieving the Bank’s wider ambitions.

Engagement with suppliers included:

•The Board’s Audit Committee considered reports from the Sourcing and Finance teams on the efficiency of supplier payment practices,

including those relating to the Bank’s key suppliers, ensuring our approach continued to meet wider industry standards

•The Board continued to oversee resilience in the supply chain, ensuring our most important supplier relationships were not impacted by

potential material events

•The Board has an ongoing zero tolerance approach towards modern slavery in our supply chain, and receives updates on ongoing

enhancements to supplier practices, including measures to address the risk of human trafficking and modern slavery in our wider supply chain

Key Decisions

Significant stakeholder engagement takes place at all levels within the organisation. Managing stakeholder interest is an important focus for the

Board, and forms a key part of the Board’s delegation of the day to day management of the business to the executive.

In addition to the direct engagement of Board members with stakeholders discussed on pages 2 to 3, the Board requires the stakeholder

implications of all proposals submitted to it from across the organisation to be considered, with stakeholder interests identified by the executive

in these proposals, both within the papers and as part of the accompanying presentations.

Through their regular business updates, and in their other interactions with the Board outside of the board room, the executive routinely

provides the Board with details of stakeholder interaction and feedback from across the wider organisation. Throughout 2022 the Board’s key

stakeholders remained the same as they were in 2021.

The directors remain mindful in all their deliberations of the long-term consequences of their decisions, as well as the importance of the Bank

maintaining a reputation for high standards of business conduct and the Board engaging with, and taking account of the views of, key

stakeholders.

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Strategy

Customers & Clients, Colleagues, Society & Environment

Lloyds Banking Group announced in February 2022 its ambitious new strategy, which included the strategy for the Bank. While the external

environment has changed significantly since then, the strategy remains the right one given its continued focus on customers whilst delivering

growth and diversification. The Board ensures that the necessary resources are in place for the organisation to meet its objectives and measure

performance against them, and the focus of the Board on supporting the implementation of the strategy remains strong.

Given the fundamental importance of the Group’s delivery of its strategy, the Board considered aspects of implementation of the strategy

including opportunities and risks to delivery at its scheduled meetings in 2022.

Additionally, the Board held dedicated sessions in June and November where progress against the strategy was a primary focus. In June this

included discussion of developments in key business areas, progress on the path to net zero, and updates on initiatives supporting the

implementation of the strategy, including the mobilisation of the new platform-based operating model.

The Board provided valuable feedback to the executive leadership team, which was considered and acted upon, with further updates provided

at Board meetings later in the year, and at the dedicated session in November.

At its November session, the Board also considered the impacts on the strategy of the changing economic environment, changes in the skills

the Bank will need as the strategy develops, and the importance of purpose in delivering on agreed strategic ambitions and how the Bank

delivers sustainable long term success.

Stakeholder interest was at the forefront in all these discussions. This was drawn out by the executive, including how the implementation and

development of the strategy is impacting both customers and colleagues, with the Board reflecting on feedback received from stakeholders on

progress in implementing the strategy.

Culture, Values and Purpose

Customers & Clients, Colleagues, Society & Environment

The Board continues to recognise the importance of creating a purpose-driven culture led by values which drive the delivery of the right

outcomes for the Bank’s stakeholders. The Board has to that end continued to oversee the activity commenced in 2021 to deliver transformation

in this area.

The Board considered early in the year the importance of the Bank’s values as a driver to wider cultural change, and in that regard agreed

proposals for re-defining these values, and for providing fuller alignment between values and its purpose, recognising that both of these are key

drivers of our cultural change.

The Board encouraged feedback to be sought from colleagues on the values proposed, and following this feedback approved a re-launch and

programme of colleague engagement.

The purpose remains aligned to that of Lloyds Banking Group in Helping Britain Prosper, and the new five values are People-first, Bold,

Inclusive, Sustainable and Trust. The Board then considered progress in the embedding of purpose and the re-defined values. This included

how the Lloyds Banking Group Culture Plan would deliver on the ambitions which had been set, how the Bank would know that progress was

being made, and the areas and actions which would take particular focus during the course of the year, while also ensuring that simplicity could

be maintained in the overall approach.

Later in the year the Board endorsed a new framework to enable the delivery of further cultural change, including new initiatives such as the

Grow with Purpose leadership development programme. The Board will continue to review progress in this area in the year to come.

Climate and Net Zero

Society & Environment, Colleagues, Customers & Clients, Shareholders, Suppliers, Regulatory & Government

The Board has overall oversight of environmental, social and governance matters, with sustainability an integral element of the Bank’s strategy

and embedded in business objectives. The Board maintains its commitment to, and acknowledges the importance of, the ambitious climate

change goals set for Lloyds Banking Group in 2020, including the Bank, including reducing emissions financed by more than 50 per cent by

2030, and achieving net zero by 2050 or sooner.

The Board has devoted considerable time to reviewing progress against these objectives, and during the year oversaw a number of additional

commitments to further drive progress to deliver on climate ambitions. Key for 2022 was the release of Lloyds Banking Group’s net zero activity

update that included sector-specific emission reduction targets for seven Net-Zero Banking Alliance sectors. In October, the Board approved

new sector targets for four high emitting sectors, including UK residential mortgages, Automotive original equipment manufacturers and

Aviation, along with an update to Power. These combine with existing sector targets for Thermal Coal, Oil and Gas and Retail Motor, with our

seven targets now covering some of the UK’s hardest to abate and most material sectors.

As part of the process of determining and setting these sector targets, the Board reviewed and challenged key strategic levers, dependencies,

risks and opportunities at its offsite meeting in June, acknowledging the unique factors at play within the individual sectors. Alongside sector

targets, a new supply chain ambition was agreed to reduce the emissions from suppliers by 50 per cent by 2030 on the path to net zero by 2050

or sooner, complementing existing financed emissions and own operations emissions reduction ambitions. The Board also approved via its

Responsible Business Committee enhancements to external sector statement for Oil and Gas.

Progress against all of these initiatives continues to be closely monitored by the Board. As the Group’s climate ambitions and related

stakeholder interests have been a key consideration for the Board during the course of the year, further information on our progress in meeting

climate ambitions and our transition plans can be found in the supplementary Lloyds Banking Group Environmental Sustainability Report 2022.

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RISK OVERVIEW

EFFECTIVE RISK MANAGEMENT AND CONTROL

OUR APPROACH TO RISK

Lloyds Bank Group adopts the Lloyds Banking Group enterprise risk management framework supplemented by additional management and

control activities to address the Lloyds Bank Group's specific requirements.

A prudent approach to risk is fundamental to the Group’s business model and drives our participation choices, whilst protecting customers,

colleagues and the Group.

The risk management section from pages 15 to 62 provides an in-depth picture of how risk is managed within the Group, including the

approach to risk appetite, risk governance, stress testing and detailed analysis of the principal risk categories, including the framework by which

these risks are identified, managed, mitigated and monitored.

OUR ENTERPRISE RISK MANAGEMENT FRAMEWORK

Lloyds Banking Group’s comprehensive enterprise risk management framework, that applies to Lloyds Bank Group, is the foundation for the

delivery of effective and consistent risk control. It enables proactive identification, active management and monitoring of the Group’s risks,

which is supported by our One Risk and Control Self-Assessment approach.

The Group’s risk appetite, principles, policies, procedures, controls and reporting are regularly reviewed and updated to ensure they remain

fully in line with regulation, law, corporate governance and industry good practice.

Risk appetite is defined within the Group as the amount and type of risk that the Group is prepared to seek, accept or tolerate in delivering its

strategy.

The Board is responsible for approving the Group’s Board risk appetite statement annually. Board-level risk appetite metrics are augmented

further by sub-Board level metrics and cascaded into more detailed business metrics and limits. Regular close monitoring and comprehensive

reporting to all levels of management and the Board ensures appetite limits are maintained and subject to stress analysis at a risk type and

portfolio level, as appropriate.

Governance is maintained through delegation of authority from the Board down to individuals. Senior executives are supported by a

committee-based structure which is designed to ensure open challenge and enable effective Board engagement and decision-making. More

information on our Risk committees is available on pages 18 to 20.

RISK CULTURE AND THE CUSTOMER

The Board and senior management play a vital role in shaping and embedding a healthy corporate culture.

Our responsible, inclusive and diverse culture supports colleagues to consistently do the right thing for customers.

Lloyds Banking Group’s Code of Responsibility and refreshed values, adopted by Lloyds Bank Group, reinforces colleagues’ accountability for

the risks they take and their responsibility to prioritise customers’ needs.

The Group is open, honest and transparent with colleagues working in collaboration with business areas to:

•Support effective risk management and provide constructive challenge

•Share lessons learned and understand root causes when things go wrong

•Consider horizon risks and opportunities

The Group aims to maintain a strong focus on building and sustaining long-term relationships with customers through the economic cycle.

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RISK PROFILE AND PERFORMANCE

The Group has continued to maintain support for its customers amid the backdrop of supply chain pressures, cost of living increases and global

and domestic economic uncertainty.

Observed credit performance remains strong, with very modest evidence of deterioration. The Group’s loan portfolio continues to be well-

positioned and heightened monitoring is in place to identify signs of affordability stress. The Group’s strategy will see ongoing investment in

technology, driving the evolution of processes and further strengthening of the Group’s operational resilience, amid continuously evolving

threats, such as cyber risk.

Climate change remains a key consideration for the Group, with positive progress in 2022 and a commitment to continued focus in 2023.

Overall, key risks continue to be managed effectively and the Group is well positioned to safely progress its strategic ambitions.

PRINCIPAL RISKS

Principal risks are the Board-approved enterprise-wide risk categories, used to monitor and report the risk exposures posing the greatest impact

to the Group.

All of the Group’s principal risks, which are outlined in this section, are reported regularly to the Board Risk Committee and the Board.

Lloyds Banking Group is in the process of conducting a detailed review of the enterprise risk management framework, which may result in a

reclassification of our principal risks. Page 23 contains a summary of our principal and secondary risks.

The risk management section from pages 23 to 62 provides a more in-depth picture of how each principal risk is managed within the Group.

Risk trends: è Stable risk é Increased risk ê Decreased risk

CAPITAL RISK è

The Group maintained its capital position in 2022 with a CET1 ratio of 14.8 per cent, having also absorbed significant regulatory headwinds on

1 January 2022; this remains significantly ahead of regulatory requirements. Downside risks from economic and regulatory headwinds are being

closely monitored.

Risk appetite: The Group maintains capital levels commensurate with a prudent level of solvency to achieve financial resilience and market

confidence.

Key mitigating actions:

•Capital management framework that includes the setting of capital risk appetite, capital planning and stress testing activities

•The Group monitors early warning indicators and maintains a Capital Contingency Framework as part of the Lloyds Banking Group Recovery

Plan which are designed to identify emerging capital concerns at an early stage, so that mitigating actions can be taken, if needed

CHANGE/EXECUTION RISK é

The Group’s inherent change/execution risk heightened in 2022, driven by the scale and increased complexity of some of the changes being

delivered. The Group continues to strengthen its change capability and controls in response, to support the Group’s business and technology

transformation plans.

Risk appetite: The Group has limited appetite for negative impacts on customers, colleagues, or the Group as a result of change activity.

Key mitigating actions:

•Continued evolution and enhancement of Lloyds Banking Group's change policy, method and control environment

•Measurement and reporting of change/execution risk, including regular reporting to appropriate bodies on critical elements of the change

portfolio

•Providing sufficient skilled resources to safely deliver and embed change and support future transformation plans

CLIMATE RISK è

2022 has seen significant progress in embedding climate risk, with a consistent framework and clear responsibilities that will enhance

understanding of the Group’s climate risks and their management, in line with regulatory requirements. Progress continues in key areas,

including developing climate data and scenario analysis capabilities; enhancing risk appetite measures; as well as progressing the Group’s

ambitions for reducing emissions, in line with Lloyds Banking Group's Environmental, Social and Governance (ESG) strategy.

Risk appetite: The Group takes action to support the Group and its customers transition to net zero, and maintain its resilience against the risks

relating to climate change.

Key mitigating actions:

•Climate risk policy in place, embedded across Lloyds Banking Group

•Regular updates to the Board and further development of climate risk reporting

•Consideration of key climate risks as part of the Group’s financial planning process

CONDUCT RISK è

Conduct risk remained stable in 2022, with the Group’s focus on supporting customers impacted by the rising cost of living; implementing and

embedding the FCA’s new Consumer Duty requirements; and ensuring good customer outcomes amid the transformation of its business and

technology.

Risk appetite: The Group delivers fair outcomes for its customers.

Key mitigating actions:

•Robust conduct risk framework in place to support delivery of good customer outcomes, market integrity and competition requirements

•Active engagement with regulatory bodies and key stakeholders to ensure that the Group’s strategic conduct focus continues to meet

evolving stakeholder expectations

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CREDIT RISK é

The Group’s credit portfolio continued to be well positioned with high levels of security, but a more challenging outlook, driven by interest rate

rises and cost of living pressures, saw an increase in credit risk. Evidence of deterioration was very modest, with assets flowing into arrears,

defaults and write offs remaining low. Impairment was a net charge of £1,452 million, compared to a net credit of £1,318 million for 2021. The

Group’s customer related expected credit loss allowances have increased to £4,779 million (2021: £3,998 million).

Risk appetite: The Group has a conservative and well balanced credit portfolio through the economic cycle, generating an appropriate return on

equity, in line with the Group’s target return on equity in aggregate.

Key mitigating actions:

•Extensive and thorough credit processes, strategies and controls to ensure effective risk identification, management and oversight

•Significant monitoring in place, including early warning indicators to remain close to any signs of portfolio deterioration, accompanied by a

playbook of mitigating actions

•Pre-emptive credit tightening ahead of macroeconomic deterioration, including updates to affordability lending controls for forward look

costs

DATA RISK è

Data risk remained stable in 2022, with significant ongoing investment in the maturity of data risk management, data capabilities and end-to-

end management of data risk. Launch of the Group’s new data strategy will support in managing risk and achieving the Group’s growth

objectives.

Risk appetite: The Group has zero appetite for data related regulatory fines or enforcement actions.

Key mitigating actions:

•Delivering against the data strategy and uplifting capability in data management and privacy, oversight of the data supply chain and data

controls and processes

•Data by design and data ethics principles embedded into the data science lifecycle

FUNDING & LIQUIDITY RISK è

The Group maintained its strong funding and liquidity position in 2022. The loan to deposit ratio increased to 98 per cent as at 31 December

2022 (96 per cent as at 31 December 2021), largely driven by increased customer lending. The Group's liquid assets continue to exceed the

regulatory minimum and internal risk appetite, with a liquidity coverage ratio (LCR) of 136 per cent (based on a monthly rolling average over the

previous 12 months) as at 31 December 2022.

Risk appetite: The Group maintains a prudent liquidity profile and a balance sheet structure that limits its reliance on potentially volatile sources

of funding.

Key mitigating actions:

•Management and monitoring of liquidity risks and ensuring that management systems and arrangements are adequate with regard to the

internal risk appetite, Group strategy and regulatory requirements

•Significant customer deposit base, driven by inflows to trusted brands

MARKET RISK é

Market volatility in 2022 created an environment of increased market risk. The Group remains well-hedged, ensuring near-term interest rate

exposure is managed, while benefitting from rising interest rates. The Group’s structural hedge increased to £250 billion (2021: £235 billion)

mostly due to the continued growth in stable customer deposits. The Group’s pension funds had sufficient liquidity to withstand market

volatility but saw a slight reduction in the IAS 19 accounting surplus to £3.7 billion (2021: £4.3 billion).

Risk appetite: The Group has effective controls in place to identify and manage the market risk inherent in our customer and client focused

activities

Key mitigating actions:

•Structural hedge programmes implemented to stabilise earnings

•Close monitoring of market risks and, where appropriate, undertaking of asset and liability matching and hedging

•Monitoring of the credit allocation in the defined benefit pension schemes, as well as the hedges in place against adverse movements in

nominal rates, inflation and longevity

MODEL RISK é

Model risk increased in 2022. The pandemic related government-led support schemes weakened the relationships between model inputs and

outputs, and the current economic conditions remain outside those used to build the models, placing reliance on judgemental overlays. The

Group’s models are being managed to reduce this need for overlays. The control environment for model risk is being strengthened to meet

revised regulatory requirements.

Risk appetite: Material models are performing in line with expectations.

Key mitigating actions:

•Robust model risk management framework for managing and mitigating model risk within the Group

OPERATIONAL RISK è

Operational risk remained stable in 2022 with operational losses reducing versus 2021. Security, technology and supplier management continue

to be the most material operational risk areas.

Risk appetite: The Group has robust controls in place to manage operational losses, reputational events and regulatory breaches. It identifies

and assesses emerging risks and acts to mitigate these.

Key mitigating actions:

•Review and investment in the Group’s control environment, with a particular focus on automation, to ensure the Group addresses the inherent

risks faced

•Deployment of a range of risk management strategies, including: avoidance, mitigation, transfer (including insurance) and acceptance

Lloyds Bank plc

Strategic report

OPERATIONAL RESILIENCE RISK è

Operational resilience remains a key focus, with continued enhancement to the Group’s resilience for serving customers better and addressing

regulatory priorities. Technology resilience remains a focus area, with dedicated programmes to address key risks.

Risk appetite: The Group has limited appetite for disruption to services to customers and stakeholders from significant unexpected events.

Key mitigating actions:

•Operational resilience programme in place to deliver against new regulation and improve the Group’s ability to respond to incidents while

delivering key services to customers

•Investment in technology improvements, including enhancements to the resilience of systems that support critical business processes

PEOPLE RISK é

People risk has increased in 2022, aligning with the challenges of the Group’s transformation agenda. The strategic focus of the new leadership

team, together with the Group’s revised pay offering, aims to enable colleagues to enhance their skills and capabilities, provide progression

opportunities and support colleagues facing cost of living pressures.

Risk appetite: The Group leads responsibly and proficiently, manages people resource effectively, supports and develops colleague skills and

talent, creates and nurtures the right culture and meets legal and regulatory obligations related to its people.

Key mitigating actions:

•Delivery of strategies to attract, retain and develop high-calibre people with the required capabilities, together with the management of

rigorous succession planning for our senior leaders

•Continued focus on the Group’s culture by developing and delivering initiatives that reinforce appropriate behaviours

REGULATORY & LEGAL RISK è

The regulatory and legal risk profile has remained stable thanks to proactive engagement on emerging focus areas including strategic

transformation, cost of living pressures and Consumer Duty. Legal risk continued to be impacted by the evolving UK legal and regulatory

landscape, other changing regulatory standards and uncertainty arising from the current and future litigation landscape.

Risk appetite: The Group interprets and complies with all relevant regulation and all applicable laws (including codes of conduct which could

have legal implications) and/or legal obligations.

Key mitigating actions:

•Policies and procedures setting out the principles and key controls that should apply across the business which are aligned to the Group risk

appetite

•Identification, assessment and implementation of policy and regulatory requirements by business units and the establishment of local

controls, processes, procedures and resources to ensure appropriate governance and compliance

STRATEGIC RISK è

Strategic risk is stable, with further integration into business planning having been a key focus in 2022. Maturation of Lloyds Banking Group’s

strategic risk framework will strengthen the Group’s ability to achieve its strategic transformation ambitions.

Key mitigating actions:

•Considering and addressing the strategic implications of emerging trends

•Embedding of strategic risk into business planning process and day-to-day risk management

Lloyds Bank plc

Strategic report

EMERGING RISKS

Emerging risks are a key component of Lloyds Banking Group’s strategic risk framework, adopted by Lloyds Bank Group.

The Group’s horizon scanning activity enables identification of the most pertinent internal and external operating trends. This insight informs

the Group’s strategy, which in turn impacts the Group’s risk profile.

EVOLUTION OF THE GROUP'S METHODOLOGY FOR ASSESSING AND PRIORITISING EMERGING RISKS

In 2022, the Group invested in evolving its approach for understanding and assessing emerging risks. Embracing a more rigorous evaluation

methodology, the Group has introduced a wider range of variables for assessing and prioritising risks (see below). These include factors

associated with the threat of a risk, the Group’s specific vulnerability to a risk and the preparation and protection the Group has in place to

manage or mitigate impacts.

The activity has resulted in a more focused list of the Group’s key emerging risks, enabling greater management concentration on developing

the appropriate responses.

Threat: Factors associated with the threat presented by emerging risks

Vulnerability: Factors associated with the Group’s specific vulnerability to emerging risks

Preparation and Protection: The preparation and protection the Group has in place to manage or mitigate impacts

Emerging risk landscape: A focused list of the Group’s key emerging risks from both internal and external sources, for management review

and development of the Group’s response


Emerging risk theme	Concerns for the Group and key considerations
Climate related responsibilities	The risks and resulting public perception of the Group’s ability and choices to support the UK’s transition to a low carbon economy.
Customer propositions and societal expectations	Failure to manage and evolve the customer proposition appropriately, amidst a constantly changing demographic of consumers.
Data ethics/ethical AI	The consequences of handling customer data unethically in relation to emerging technology, growing regulation, and how this may manifest across the Group’s different entities.
Digital currencies	Failure to accurately understand and manage the usage of digital currencies by the public or the government, and how this may affect the Group’s operations and future strategy.
Employee proposition	Inability of the Group to anticipate and hire for future skills aligned to evolving industry needs, or provide an attractive colleague proposition against the changing competition landscape.
Future proof technology strategy	The rate at which the Group is able to adapt, invest and protect itself in relation to fast paced technology growth, alongside rising external expectations.
Global economic and political environment	Increasing strain on the UK economy resulting from continued geopolitical and economic tensions, impacting the Group’s customers, partners and suppliers.
Operational and infrastructure blackouts	Service impacts to the Group’s customers and colleagues due to economic, financial, biological, climate, technological or social challenges.
Potential breakup of the UK	Failure to adequately prepare and assess the policy, operational and financial impacts to the Group as a result of countries in the UK becoming independent.
UK economic environment	Inability to balance the long term social, regulatory and financial impacts of sustained poor economic activity within the UK, and consequent unattractiveness of the UK from external investors.

The individual emerging risks detailed above have been taken to key executive level committees throughout 2022, such as the Board Risk

Committee, with actions assigned to monitor more closely their manifestation and potential opportunities.

Many emerging risk topics are reviewed on a recurring basis, alongside ongoing activity addressing their present impacts. However, it is

acknowledged that these challenges will drive future trends in the long term which the Group will need to prepare for. For further information

on how the Group is managing key emerging risks through its strategy, see pages 21 to 22.

The manifestation of other emerging risks is more unknown. As a result, the Group will continue to explore how these challenges may impact its

future strategy, and how it can continue to best protect its customers, colleagues and shareholders.

Financial risk management objectives and policies

Information regarding the financial risk management objectives and policies of the Group, in relation to the use of financial instruments, is given

in notes 41 and 44 to the accounts. The Group’s approach to risk management including risk policies, risk appetite, measurement bases and

sensitivities, in particular for credit risk, market risk and liquidity risk, is aligned to those of Lloyds Banking Group plc, the Bank’s ultimate parent.

Further information can be found in the Lloyds Banking Group plc annual report.

The Group maintains risk management systems and internal controls relating to the financial reporting processes designed to:

•ensure that accounting policies are appropriately and consistently applied;

•enable the calculation, preparation and reporting of financial outcomes in line with applicable standards; and

•ensure that disclosures are made on a timely basis in accordance with statutory and regulatory requirements.

The 2022 Strategic report has been approved by the Board of Directors.

On behalf of the Board

Robin Budenberg

Chair

Lloyds Bank plc

7 March 2023

Lloyds Bank plc

Strategic report

Results

The consolidated income statement on page 75 shows a statutory profit before tax for the year ended 31 December 2022 of £6,094 million (year

ended 31 December 2021: £5,785 million).

Dividends

The Bank did not pay any interim dividends during the course of the year (2021: £2,900 million). The directors have not recommended a final

dividend for the year ended 31 December 2022 (2021: £nil).

Post balance sheet events

Details of events since the date of the balance sheet are provided in note 46 on page 176.

Going concern

The going concern of the Bank and the Group is dependent on successfully funding their respective balance sheets and maintaining adequate

levels of capital.

In order to satisfy themselves that the Bank and the Group have adequate resources to continue to operate for the foreseeable future, the

directors have reviewed the Bank and the Group’s operating plan and its funding and capital positions, including a consideration of the

implications of climate change. The directors have also taken into account the impact of further stress scenarios.

Accordingly, the directors conclude that the Bank and the Group have adequate resources to continue in operational existence for a period of

at least 12 months from the date of the approval of the financial statements and therefore it is appropriate to continue to adopt the going

concern basis in preparing the accounts.

Corporate Governance Statement

In accordance with the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended by the

Companies (Miscellaneous Reporting) Regulations 2018) (the ‘Regulations’), for the year ended 31 December 2022, the Bank has in its corporate

governance arrangements applied the Wates Corporate Governance Principles for Large Private Companies (the ‘Principles’), which are

available at www.frc.org.uk. The following section explains the Bank’s approach to corporate governance, and its application of the Principles.

High standards of corporate governance are central to achieving the strategy which has been set for the Bank. To this end a Corporate

Governance Framework is in place for Lloyds Banking Group, the Bank, HBOS plc and Bank of Scotland plc, with all four companies sharing a

common approach to governance. The framework is designed to meet the specific needs of each company, setting the approach and standards

in respect of the Bank’s corporate governance practices, including addressing the matters set out in the Principles and the governance

requirements of the operation of the Bank as part of Lloyds Banking Group’s Ring Fenced Bank.

This includes the matters reserved to the Board, and the matters the Board has chosen to delegate to management. Governance arrangements,

including the Corporate Governance Framework, are reviewed at least annually to ensure they remain fit for purpose. The Board delegates

further responsibilities to the Group Chief Executive, who is supported by the Group Executive Committee, the composition of which is detailed

on pages 76 to 77 of the Lloyds Banking Group Annual Report and Accounts for 2022. The Corporate Governance Framework of the Bank

further addresses the requirements of the Principles as discussed on pages 11 to 12.

Board and Committee composition and attendance in 20221


Board Member	Board	Nomination and Governance Committee	Audit Committee	Board Risk Committee	Remuneration Committee	Responsible Business Committee
Robin Budenberg	9/9 (C)	6/6 (C)			7/7	4/4
Charlie Nunn	9/9
William Chalmers	9/9
Alan Dickinson	9/9	6/6	6/6	10/10	7/7 (C)	4/4
Sarah Bentley	8/96				6/76
Brendan Gilligan	9/9		6/6	10/10
Nigel Hinshelwood	9/9	6/6	6/6	10/10	7/7
Sarah Legg	9/9		6/6 (C)	10/10		4/4
Lord Lupton	8/95					4/4
Amanda Mackenzie	9/9	6/6			6/75	4/4 (C)
Harmeen Mehta	9/9
Stuart Sinclair2	4/4	2/2			2/35	2/2
Cathy Turner3	2/2				2/2
Scott Wheway4	3/3	2/2		3/45
Catherine Woods	9/9		6/6	10/10 (C)	7/7

(C)Chair

1Where a director is unable to attend a meeting he/she receives papers in advance and has the opportunity to provide comments to the Chair of the Board or to the relevant Committee

Chair.

2Stuart Sinclair retired from the Board on 12 May 2022.

3Cathy Turner joined the Board and the Remuneration Committee on 1 November 2022.

4Scott Wheway joined the Board, the Nomination and Governance Committee and the Board Risk Committee on 1 August 2022.

5Unable to attend due to a pre-existing commitment.

6Unable to attend due to unexpected circumstances.

Lloyds Bank plc

Directors’ report

Principle One – Purpose and Leadership

The Board is collectively responsible for the long term success of the Bank. It achieves this by agreeing the Bank’s strategy, within the wider

strategy of Lloyds Banking Group, and overseeing delivery against it. The Bank’s strategy is discussed further in the strategic report. The Board

also assumes responsibility for the management of the culture, values and wider standards of the Bank, within the equivalent standards set by

Lloyds Banking Group. The Board’s understanding of stakeholders’ interests is central to these responsibilities and informs key aspects of Board

decision making, as discussed within the statement on pages 3 to 4.

Acknowledging the needs of all stakeholders is fundamental to the way the Bank operates, as is maintaining the highest standards of business

conduct, which is a vital part of the corporate culture. The Bank’s approach is further influenced by our purpose to Help Britain Prosper,

providing not only outstanding service to our customers, but also responding to the UK’s social and economic issues. To this end, the Board

plays a lead role in establishing, promoting, and monitoring the Bank’s corporate culture and values, with the Corporate Governance

Framework ensuring such matters receive the level of prominence in Board and executive decision making which they require. The Bank’s

corporate culture and values align to those of Lloyds Banking Group, which are discussed in more detail on page 84 to 85 of the Lloyds Banking

Group Annual Report and Accounts for 2022.

Principle Two – Board Composition

The Bank is led by a Board comprising a non-executive chair, independent non-executive directors and executive directors, further details of the

current directors can be found on page 14. The Board reviews its size and composition regularly and is committed to ensuring it has the right

balance of skills and experience, with in respect of diversity, the Board meeting the recommendations of the Parker Review and aiming to meet

all recommendations set out in the FTSE Women Leaders Review. The Board considers its current size and composition is appropriate to the

Bank’s circumstances. New appointments are made on merit, taking account of the specific skills and experience, independence and

knowledge needed to ensure a rounded board and the diversity benefits each candidate can bring overall.

The Board is supported by its committees, the operation of which are discussed below, which make recommendations to the Board on matters

delegated to them. Each committee has written terms of reference setting out its delegated responsibilities. Each committee comprises non-

executive directors with appropriate skills and experience and is chaired by an experienced chair. The committee Chairs report to the Board at

the next Board meeting. The Board undertakes an annual review of its effectiveness, which provides an opportunity to consider ways of

identifying greater efficiencies, ways to maximise strengths and highlights areas of further development. An externally facilitated evaluation of

the Board’s effectiveness was undertaken during the course of the year, which concluded that the Board is adding value, with appropriate

engagement and focus, a shared strategic perspective and significant attention to risk and control. Further information on conclusions of the

evaluation can be found on page 89 of the Lloyds Banking Group Annual Report and Accounts for 2022.

Principle Three – Director Responsibilities

The directors assume ultimate responsibility for all matters, and along with senior management are committed to maintaining a robust control

framework as the foundation for the delivery of good governance, including the effective management of delegation through the Corporate

Governance Framework. Policies are also in place in relation to potential conflicts of interest which may arise. All directors have access to the

services of the company secretary, and independent professional advice is available to the directors at the expense of Lloyds Banking Group,

where they judge it necessary to discharge their duties as directors.

The Board is supported by its committees which make recommendations on matters delegated to them under the Corporate Governance

Framework. The management of all committees is in keeping with the basis on which meetings of the Board are managed, with open debate,

and adequate time for members to consider proposals which are put forward. The Chair of the Board and each Board committee assumes

responsibility with support from the company secretary for the provision to each meeting of accurate and timely information.

Principle Four – Opportunity and Risk

The Board oversees the development and implementation of the Bank’s strategy, within the context of the wider strategy of Lloyds Banking

Group, which includes consideration of all strategic opportunities. The Board is also responsible for the long term sustainable success of the

Bank, generating value for its shareholders and ensuring a positive contribution to society. The Board agrees the Bank’s culture, purpose, values

and strategy, within that of Lloyds Banking Group, and agrees the related standards of the Bank, again within the relevant standards of Lloyds

Banking Group. Further specific aims and objectives of the Board are formalised within the Corporate Governance Framework, which also sets

out the matters reserved for the Board.

Strong risk management is central to the strategy of the Bank, which along with a robust risk control framework acts as the foundation for the

delivery of effective management of risk. The Board agrees the Bank’s risk appetite and ensures the Bank manages risk effectively, delegating

related authorities to individuals through the Corporate Governance Framework and the further management hierarchy. Board level

engagement coupled with the direct involvement of senior management in risk issues ensures that escalated issues are promptly addressed,

and remediation plans are initiated where required. The Bank’s risk appetite, principles, policies, procedures, controls and reporting are

managed in conjunction with those of Lloyds Banking Group, and as such are regularly reviewed to ensure they remain fully in line with

regulations, law, corporate governance and industry best practice. The Bank’s principal risks are discussed further on pages 6 to 8.

Principle Five – Remuneration

The Remuneration Committee of the Board, alongside the Remuneration Committee of Lloyds Banking Group (the ‘Remuneration

Committees’), assumes responsibility for the Bank’s approach to remuneration. This includes reviewing and making recommendations on

remuneration policy as relevant to the Bank, ranging from the remuneration of directors and members of the executive to that of all other

colleagues employed by the Bank. This includes colleagues where the regulators require the Bank to implement a specific approach to their

remuneration, such as Senior Managers and other material risk takers. The activities of the Remuneration Committees extend to matters of

remuneration relevant to subsidiaries of the Bank, where such subsidiary does not have its own remuneration committee. Certain members of

the Lloyds Banking Group executive, including the Group Chief Executive, are authorised to act upon the decisions made by the Remuneration

Committees, and to undertake such other duties relevant to remuneration as delegated to them.

Principle Six – Stakeholders

The Bank as part of Lloyds Banking Group operates under Lloyds Banking Group’s wider approach to responsible business, which

acknowledges that the Bank has a responsibility to help address the economic, social and environmental challenges which the UK faces, and as

part of this understand the needs of the Bank’s external stakeholders, including in the development and implementation of strategy.

Central to this is Lloyds Banking Group’s and the Bank’s purpose of Helping Britain Prosper. During the year there was particular focus on the

deterioration in the UK’s economic outlook, in particular in the second half of the year. This involved considering the viewpoints of many of the

Board’s key stakeholders, to determine how the Bank could best support the recovery, the approach which was ultimately taken being set out

on pages 22 to 31 of the Lloyds Banking Group Annual Report and Accounts for 2022.

Lloyds Bank plc

Directors’ report

In 2022 the Responsible Business Committee provided further oversight and support of Lloyds Banking Group’s and the Bank’s plans for

embedding responsible business in the Bank’s core purpose. The approach of the Board in respect of its key stakeholders is described further in

a separate statement made in compliance with the Regulations on pages 2 to 4.

Directors

The names of the current directors are shown on page 14. Changes to the composition of the Board since 1 January 2022 up to the date of this

report are shown in the table below.


	Joined the Board	Left the Board
Scott Wheway	1 August 2022
Cathy Turner	1 November 2022
Stuart Sinclair		12 May 2022

Directors’ indemnities

The directors of the Bank, including the former director who retired during the year, have entered into individual deeds of indemnity with Lloyds

Banking Group plc which constitute ‘qualifying third party indemnity provisions’ for the purposes of the Companies Act 2006. The deeds

indemnify the directors to the maximum extent permitted by law and remain in force. The deeds were in force during the whole of the financial

year or from the date of appointment in respect of the directors appointed in 2022. In addition, Lloyds Banking Group plc had appropriate

directors’ and officers’ liability insurance cover in place throughout 2022. Deeds for existing directors are available for inspection at the Bank’s

registered office.

Lloyds Banking Group plc has also granted deeds of indemnity by deed poll and by way of entering into individual deeds, which constitute

‘qualifying third party indemnity provisions’ to the directors of the Group’s subsidiary companies, including former directors who retired during

the year, and to colleagues subject to the provisions of the Senior Managers and Certification Regime. Such deeds were in force during the

financial year ended 31 December 2022 and remain in force as at the date of this report. Qualifying pension scheme indemnities have also been

granted to the trustees of Lloyds Banking Group’s Pension Schemes, including those schemes relevant to the Bank, which were in force for the

whole of the financial year and remain in force as at the date of this report.

Information required under DTR 7.2

Certain information is incorporated into this report by reference. Information about internal control and risk management systems relating to

the financial reporting process can be found on page 9.

Information about share capital is shown in note 31 on page 136. The Bank is a wholly owned subsidiary of Lloyds Banking Group plc, which

holds all of the Bank’s issued ordinary share capital.

The directors manage the business of the Bank under the powers set out in the Companies Act 2006 and the Bank’s articles of association, these

powers include those in relation to the issue or buy back of the Bank’s shares.

The appointment and retirement of directors is governed by the Bank’s articles of association and the Companies Act 2006. The Bank’s articles

of association may only be amended by a special resolution of the shareholders in a general meeting.

Conflicts of interest

The Board has a comprehensive procedure for reviewing, and as permitted by the Companies Act 2006 and the Bank’s articles of association,

approving actual and potential conflicts of interest. Directors have a duty to notify the Chair and company secretary as soon as they become

aware of actual or potential conflict situations. Changes to commitments of all directors are reported to the Board and a register of directors'

interests is regularly reviewed and authorised by the Board to ensure the authorisation status remains appropriate.

Lord Lupton is a senior adviser to Greenhill Europe, an investment bank focused on providing financial advice on significant mergers,

acquisitions, restructurings, financings and capital raising to corporations, partnerships, institutions and governments. The Board has authorised

the potential conflicts and requires Lord Lupton to recuse himself from discussions, should the need arise.

Branches, future developments and financial risk management objectives and policies

The Bank provides a wide range of banking and financial services through branches and offices in the UK and overseas. Information regarding

future developments and financial risk management objectives and policies of the Group in relation to the use of financial instruments that

would otherwise be required to be disclosed in the directors’ report, and which is incorporated into this report by reference, can be found in the

strategic report.

Share capital

Information about share capital is shown in note 31 on page 136. This information is incorporated into this report by reference. The Bank did not

repurchase any of its shares during 2022 (2021: none). There are no restrictions on the transfer of shares in the Bank other than as set out in the

articles of association and certain restrictions which may from time to time be imposed by law and regulations.

Change of control

The Bank is not party to any significant agreements which take effect, alter or terminate upon a change of control of the Bank following a

takeover bid. There are no agreements between the Bank and its directors or employees providing compensation for loss of office or

employment that occurs because of a takeover bid.

Research and development activities

During the ordinary course of business the Bank develops new products and services within the business units.

Supporting disability

As part of Lloyds Banking Group, the Bank’s aim is to create an inclusive and accessible working environment where everyone is supported to

reach their full potential. Lloyds Banking Group continues to hold the Business Disability Forum Gold Standard accreditation and Disability

Confident status from the Department for Work and Pensions, and offers bespoke training, career development and adjustments for colleagues

and applicants with disabilities, including those who became disabled while employed.

Information incorporated by reference

The following additional information forms part of the directors’ report, and is incorporated by reference.


Content		Pages
Disclosures required under the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008	Statement of employee engagement	2 to 4
	Statement of other stakeholder engagement	2 to 4

Lloyds Bank plc

Directors’ report

Significant contracts

Details of related party transactions are set out in note 38 on pages 142 to 143.

Streamlined Energy and Carbon Reporting

The Bank has taken advantage of the exemption from Streamlined Energy and Carbon Reporting (SECR) reporting requirements in its own

directors' report as it is covered by the Lloyds Banking Group SECR report given in the Lloyds Banking Group plc 2022 Annual Report and

Accounts, available at www.lloydsbankinggroup.com/investors/financial-downloads.html

Statement of directors’ responsibilities

The directors are responsible for preparing the Annual 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 are required to prepare

the Bank’s and the Group’s financial statements in accordance with international accounting standards in conformity with the requirements of

the Companies Act 2006. 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 Bank and the Group, and of the profit or loss of the Bank and the Group for that period. In

preparing these financial statements, the directors are required to properly select and apply accounting policies; present information, including

accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; provide additional disclosures

when compliance with the specific requirements in international accounting standards in conformity with the requirements of the Companies

Act 2006 are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial

position and financial performance; and make an assessment of the Bank’s ability to continue as a going concern.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Bank’s transactions and

disclose with reasonable accuracy at any time the financial position of the Bank and the Group, and enable them to ensure that the financial

statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Bank 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 the

website www.lloydsbankinggroup.com/investors/financial-downloads.html. The directors are responsible for the maintenance and integrity of all

information relating to the Bank on that 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 page 14 of this annual

report, confirm that, to the best of his or her knowledge:

•The Bank’s and the Group’s financial statements, which have been prepared in accordance with international accounting standards in

conformity with the requirements of the Companies Act 2006 give a true and fair view of the assets, liabilities, financial position and profit or

loss of the Bank and the Group

•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 Bank and the Group together with a description of the principal risks and uncertainties

they face

•The Annual Report and Accounts, taken as a whole, are fair, balanced and understandable and provides the information necessary for

shareholders to assess the Bank’s and the Group’s position, performance, business model and strategy. The directors have also separately

reviewed and approved the strategic report

Independent auditor and audit information

Each person who is a director at the date of approval of this report confirms that, so far as the director is aware, there is no relevant audit

information of which the Bank’s auditor is unaware and each director has taken all the steps that he or she ought to have taken as a director to

make himself or herself aware of any relevant audit information and to establish that the Bank’s auditor is aware of that information. This

confirmation is given and should be interpreted in accordance with the provisions of the Companies Act 2006.

On behalf of the Board

Kate Cheetham

Company Secretary

7 March 2023

Lloyds Bank plc

Registered in England & Wales

Company Number 2065

Lloyds Bank plc

Directors’ report

Executive directors:

Charlie Nunn Group Chief Executive

William Chalmers Chief Financial Officer

Non-executive directors:

Robin Budenberg CBE Chair

Alan Dickinson Deputy Chair

Sarah Bentley

Brendan Gilligan

Nigel Hinshelwood

Sarah Legg

Lord Lupton CBE

Amanda Mackenzie LVO OBE

Harmeen Mehta

Cathy Turner

Scott Wheway

Catherine Woods

Lloyds Bank plc

Current directors

RISK MANAGEMENT

All narrative and quantitative tables are unaudited unless otherwise stated. The audited information is required to comply with the requirements

of relevant International Financial Reporting Standards.

Risk management is at the heart of Helping Britain Prosper and creating a more sustainable and inclusive future for people and businesses.

Our mission is to protect our customers, shareholders, colleagues and the Group, while enabling sustainable growth. This is achieved through

informed risk decisions and robust risk management, supported by a consistent risk-focused culture.

The risk overview (pages 5 to 9) provides a summary of risk management within the Group and the key focus areas for 2022, including

maintaining support for customers. The risk overview also highlights the importance of the connectivity of principal, emerging and strategic risks

and how they are embedded into the Group’s strategic risk management framework.

This full risk management section provides a more in-depth picture of how risk is managed within the Group, detailing the Group’s emerging

risks, approach to stress testing, risk governance, committee structure, appetite for risk and a full analysis of the principal risk categories (pages

23 to 62), the framework by which risks are identified, managed, mitigated and monitored.

Each principal risk category is described and managed using the following standard headings: definition, exposures, measurement, mitigation

and monitoring.

LLOYDS BANK GROUP’S APPROACH TO RISK

The Group operates a prudent approach to risk with rigorous management controls to support sustainable business growth and minimise

losses. Through a strong and independent risk function (Risk division), a robust control framework is maintained to identify and escalate current

and emerging risks, support sustainable growth within the Group’s risk appetite, and to drive and inform good risk reward decision-making.

To comply with UK specific ring-fencing requirements, core banking services are ring-fenced from other activities within the overall Lloyds

Banking Group. The Group has adopted the enterprise risk management framework (ERMF) of Lloyds Banking Group and supplemented with

additional tailored practices to address the ring-fencing requirements.

The Group’s ERMF is structured to align with the industry-accepted internal control framework standards.

The ERMF applies to every area of the business and covers all types of risk. It is reviewed, updated and approved by the Board at least annually

to reflect any changes in the nature of the Group’s business and external regulations, law, corporate governance and industry best practice. The

ERMF provides the Group with an effective mechanism for developing and embedding risk policies and risk management strategies which are

aligned with the risks faced by its businesses. It also seeks to facilitate effective communication on these matters across the Group.

Role of the Lloyds Bank Group Board and senior management

Key responsibilities of the Board and senior management include:

•Approval of the ERMF and Board risk appetite

•Approval of Group-wide risk principles and policies

•The cascade of delegated authority (for example to Board sub-committees and the Group Chief Executive)

•Effective oversight of risk management consistent with risk appetite

Risk appetite

The Group’s approach to setting, governing, embedding and monitoring risk appetite is detailed in the risk appetite framework, a key

component of the ERMF.

Risk appetite is defined within the Group as the amount and type of risk that the Group is prepared to seek, accept or tolerate in delivering its

strategy.

Business planning aims to optimise value within the Group’s risk appetite parameters and deliver on its promise to Help Britain Prosper.

The Group’s risk appetite statement details the risk parameters within which the Group operates. The statement forms part of the Group’s

control framework and is embedded into its policies, authorities and limits, to guide decision-making and risk management. Group risk appetite

is regularly reviewed and refreshed to ensure appropriate coverage across our principal risks and any emerging risks, and to align with internal

or external change.

The Board is responsible for approving the Group’s Board risk appetite statement annually. Group Board-level metrics are augmented by

further sub-Board-level metrics and cascaded into more detailed business appetite metrics and limits.

The following areas are currently included in the Group Board risk appetite:

Capital: the Group maintains capital levels commensurate with a prudent level of solvency to achieve financial resilience and market confidence

Change/execution: the Group has limited appetite for negative impacts on customers, colleagues, or the Group as a result of change activity

Climate: the Group takes action to support the transition to net zero, through our activities and our customers, and to maintain our resilience

against the risks relating to climate change

Conduct: the Group delivers fair outcomes for its customers

Credit: the Group has a conservative and well balanced credit portfolio through the economic cycle, generating an appropriate return on

equity, in line with the Group’s target return on equity in aggregate

Data: the Group has zero appetite for data related regulatory fines or enforcement actions

Funding and liquidity: the Group maintains a prudent liquidity profile and a balance sheet structure that limits its reliance on potentially

volatile sources of funding

Market: the Group has effective controls in place to identify and manage the market risk inherent in our customer and client focused activities

Model: material models are performing in line with expectations

Operational: the Group has robust controls in place to manage operational losses, reputational events and regulatory breaches. It identifies

and assesses emerging risks and acts to mitigate these

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Risk management

Operational resilience: the Group has limited appetite for disruption to services to customers and stakeholders from significant unexpected

events

People: the Group leads responsibly and proficiently, manages people resource effectively, supports and develops colleague skills and talent,

creates and nurtures the right culture and meets legal and regulatory obligations related to its people

Regulatory and legal: the Group interprets and complies with all relevant regulation and all applicable laws (including codes of conduct which

could have legal implications) and/or legal obligations

Governance frameworks

The Group’s approach to risk is based on a robust control framework and a strong risk management culture which are the foundation for the

delivery of effective risk management and guide the way all employees approach their work, behave and make decisions.

Governance is maintained through delegation of authority from the Board to individuals through the management hierarchy. Senior executives

are supported where required by a committee-based structure which is designed to ensure open challenge and support effective decision-

making.

The Group’s risk appetite, principles, policies, procedures, controls and reporting are regularly reviewed and updated where needed to ensure

they remain fully in line with regulation, law, corporate governance and industry good practice.

The interaction of the executive and non-executive governance structures relies upon a culture of transparency and openness that is

encouraged by both the Board and senior management.

Board-level engagement, coupled with the direct involvement of senior management in Group-wide risk issues at Group Executive Committee

level, ensures that escalated issues are promptly addressed and remediation plans are initiated where required.

Line managers are directly accountable for identifying and managing risks in their individual businesses, ensuring that business decisions strike

an appropriate balance between risk and reward and are consistent with the Group’s risk appetite.

Clear responsibilities and accountabilities for risk are defined across the Group through a three lines of defence model which ensures effective

independent oversight and assurance in respect of key decisions.

The Risk Committee governance framework is outlined on page 18.

Three lines of defence model

The ERMF is implemented through a ‘three lines of defence’ model which defines clear responsibilities and accountabilities and ensures

effective independent oversight and assurance activities take place covering key decisions.

Business lines (first line) have primary responsibility for risk decisions, identifying, measuring, monitoring and controlling risks within their areas

of accountability. They are required to establish effective governance and control frameworks for their business to be compliant with Group

policy requirements, to maintain appropriate risk management skills, mechanisms and toolkits, and to act within Group risk appetite parameters

set and approved by the Board.

Risk division (second line) is centralised, headed by the Chief Risk Officer, providing oversight and constructive challenge to the effectiveness of

risk decisions taken by business management, providing proactive advice and guidance, reviewing, challenging and reporting on the risk profile

of the Group and ensuring that mitigating actions are appropriate.

It also has a key role in promoting the implementation of a strategic approach to risk management reflecting the risk appetite and ERMF agreed

by the Board that encompasses:

•Overseeing embedding of effective risk management processes

•Transparent, focused risk monitoring and reporting

•Provision of expert and high-quality advice and guidance to the Board, executives and management on strategic issues and horizon scanning,

including pending regulatory changes

•A constructive dialogue with the first line through provision of advice, development of common methodologies, understanding, education,

training, and development of new risk management tools

The primary role of Group Internal Audit (third line) is to help the Board and executive management protect the assets, reputation and

sustainability of the Group. Group Internal Audit is led by the Group Chief Internal Auditor. Group Internal Audit provides independent

assurance to the Audit Committee and the Board through performing reviews and engaging with committees and executive management,

providing opinion, challenge and informal advice on risk and the state of the control environment. Group Internal Audit is a single independent

internal audit function, reporting to the Group Audit Committee, and the Board or Board Audit Committees of the sub-groups, subsidiaries and

legal entities where applicable.

Risk and control cycle from identification to reporting

To allow senior management to make informed risk decisions, the business follows a continuous risk management approach which includes

producing appropriate and accurate risk reporting. The risk and control cycle sets out how this should be approached. This cycle, from

identification to reporting, ensures consistency and is intended to manage and mitigate the risks impacting the Group.

The process for risk identification, measurement and control is integrated into the overall framework for risk governance. Risk identification

processes are forward-looking to ensure emerging risks are identified. Risks are captured and measured using robust and consistent

quantification methodologies. The measurement of risks includes the application of stress testing and scenario analysis, and considers whether

relevant controls are in place before risks are incurred.

Identified risks are reported on a regular basis to the appropriate committee. The extent of the risk is compared to the overall risk appetite as

well as specific limits or triggers. When thresholds are breached, committee minutes are clear on the actions and time frames required to

resolve the breach and bring risk within tolerances. There is a clear process for escalation of risks and risk events.

All key controls are recorded and assessed on a regular basis, in response to triggers or minimum annually. Control assessments consider both

the adequacy of the design and operating effectiveness. Where a control is not effective, the root cause is established and action plans

implemented to improve control design or performance. Control effectiveness against all residual risks are aggregated by risk category and

reported and monitored via the monthly Key Risk Insights Report or Consolidated Risk Report (CRR). The Key Risk Insights Report and CRR are

reviewed and independently challenged by the Risk division and provided to the Risk division Executive Committee and Group Risk Committee.

On an annual basis, a point in time assessment is made for control effectiveness against each risk category and across sub-groups. The CRR

data is the primary source used for this point-in-time assessment and a year-on-year comparison on control effectiveness is reported to the

Board.

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Risk management

One Risk and Control Self-Assessment (One RCSA) is part of the Group’s risk and control strategy to deliver a stronger risk culture and

simplified risk and control environment. During 2022, there has been significant effort to embed One RCSA. This will continue into 2023 as risk

practices, data quality, culture and capability mature.

Risk culture

Based on the Group’s prudent business model, prudent approach to risk management, and guided by the Board, the senior management

articulates the core risk values to which the Group aspires, and sets the tone at the top. Senior management establishes a strong focus on

building and sustaining long-term relationships with customers, through the economic cycle. Lloyds Banking Group’s Code of Responsibility

reinforces colleagues’ accountability for the risks they take and their responsibility to prioritise their customers’ needs.

Risk resources and capabilities

Appropriate mechanisms are in place to avoid over-reliance on key personnel or system/technical expertise within the Group. Adequate

resources are in place to serve customers both under normal working conditions and in times of stress, and monitoring procedures are in place

to ensure that the level of available resource can be increased if required. Colleagues undertake appropriate training to ensure they have the

skills and knowledge necessary to enable them to deliver good outcomes for customers.

There is ongoing investment in risk systems and models alongside the Group’s investment in customer and product systems and processes. This

drives improvements in risk data quality, aggregation and reporting leading to effective and efficient risk decisions.

Risk decision-making and reporting

Risk analysis and reporting enables better understanding of risks and returns, supporting the identification of opportunities as well as better

management of risks.

An aggregate view of the Group’s overall risk profile, key risks and management actions, and performance against risk appetite, including the

Key Risk Insights Report and CRR, is reported to and discussed monthly at the Group Risk Committee with regular reporting to the Board Risk

Committee and the Board.

Rigorous stress testing exercises are carried out to assess the impact of a range of adverse scenarios with different probabilities and severities to

inform strategic planning.

The Chief Risk Officer regularly informs the Board Risk Committee of the aggregate risk profile and has direct access to the Chair and members

of Board Risk Committee.

Financial reporting risk management systems and internal controls

The Group maintains risk management systems and internal controls relating to the financial reporting process which are designed to:

•Ensure that accounting policies are appropriately and consistently applied, transactions are recorded accurately, and undertaken in

accordance with delegated authorities, that assets are safeguarded and liabilities are properly stated

•Enable the calculation, preparation and reporting of financial, prudential regulatory and tax outcomes in accordance with applicable

International Financial Reporting Standards, statutory and regulatory requirements

•Enable certifications by the Senior Accounting Officer relating to maintenance of appropriate tax accounting and in accordance with the 2009

Finance Act

•Ensure that disclosures are made on a timely basis in accordance with statutory and regulatory requirements (for example UK Finance Code

for Financial Reporting Disclosure and the US Sarbanes-Oxley Act)

•Ensure ongoing monitoring to assess the impact of emerging regulation and legislation on financial, prudential regulatory and tax reporting

•Ensure an accurate view of the Group’s performance to allow the Board and senior management to appropriately manage the affairs and

strategy of the business as a whole

The Audit Committee reviews the quality and acceptability of Lloyds Bank Group's financial disclosures. In addition, the Lloyds Banking Group

Disclosure Committee assists the Lloyds Bank Group Chief Executive and Chief Financial Officer in fulfilling their disclosure responsibilities

under relevant listing and other regulatory and legal requirements.

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RISK GOVERNANCE

The risk governance structure below is integral to effective risk management across Lloyds Banking Group, including Lloyds Bank Group. To

meet ring-fencing requirements the Boards and Board Committees of Lloyds Banking Group and the Ring-Fenced Banks (Lloyds Bank plc and

Bank of Scotland plc) as well as relevant Committees of Lloyds Banking Group and the Ring-Fenced Banks will sit concurrently, referred to as the

Aligned Board Model. The Risk division is appropriately represented on key committees to ensure that risk management is discussed in these

meetings. This structure outlines the flow and escalation of risk information and reporting from business areas and the Risk division to the Group

Executive Committee and Board. Conversely, strategic direction and guidance is cascaded down from the Board and Group Executive

Committee.

The Company Secretariat supports senior and Board-level committees, and supports the Chairs in agenda planning. This gives a further line of

escalation outside the three lines of defence.

Risk governance structure

Lloyds Bank Group Chief Executive Committees

•Lloyds Banking Group and Ring-Fenced Banks Executive Committee

(GEC)

•Lloyds Banking Group and Ring-Fenced Banks Risk Committees

(GRC)

•Lloyds Banking Group and Ring-Fenced Banks Asset and Liability

Committees (GALCO)

•Lloyds Banking Group and Ring-Fenced Banks Cost Management

Committees

•Lloyds Banking Group and Ring-Fenced Banks Contentious

Regulatory Committees

•Lloyds Banking Group and Ring-Fenced Banks Strategic Delivery

Committees

•Lloyds Banking Group and Ring-Fenced Banks Net Zero Committees

•Lloyds Banking Group and Ring-Fenced Banks Conduct Investigations

Committees

Risk Division Committees and Governance

•Lloyds Banking Group and Ring-Fenced Banks Market Risk

Committee

•Lloyds Banking Group and Ring-Fenced Banks Economic Crime

Prevention Committee

•Lloyds Banking Group and Ring-Fenced Banks Financial Risk

Committee

•Lloyds Banking Group and Ring-Fenced Banks Capital Risk

Committee

•Lloyds Banking Group and Ring-Fenced Banks Model Governance

Committee

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Risk management

Board, Executive and Risk Committees

The Group’s risk governance structure strengthens risk evaluation and management, while also positioning the Group to manage the changing

regulatory environment in an efficient and effective manner.

Assisted by the Board Risk and Audit Committees, the Board approves the Group’s overall governance, risk and control frameworks and risk

appetite. Refer to the corporate governance section on pages 10 to 13, for further information on Board Committees.

The sub-group, divisional and functional risk committees review and recommend sub-group, divisional and functional risk appetite and monitor

local risk profile and adherence to appetite.

Executive and Risk Committees

Lloyds Bank Group Chief Executive is supported by the following:


Committees	Risk focus
Lloyds Banking Group and Ring-Fenced Banks Executive Committee (GEC)	Assists the Group Chief Executive in exercising their authority in relation to material matters having strategic, cross-business area or Group-wide implications.
Lloyds Banking Group and Ring-Fenced Banks Risk Committees (GRC)	Responsible for the development, implementation and effectiveness of Lloyds Banking Group’s enterprise risk management framework, the clear articulation of the Group’s risk appetite and monitoring and reviewing of the Group’s aggregate risk exposures, control environment and concentrations of risk.
Lloyds Banking Group and Ring-Fenced Banks Asset and Liability Committees (GALCO)	Responsible for the strategic direction of the Group’s assets and liabilities and the profit and loss implications of balance sheet management actions. The committee reviews and determines the appropriate allocation of capital, funding and liquidity, and market risk resources and makes appropriate trade-offs between risk and reward.
Lloyds Banking Group and Ring-Fenced Banks Cost Management Committees	Leads and shapes the Group’s approach to cost management, ensuring appropriate governance and process over Group-wide cost management activities and effective control of the Group’s cost base.
Lloyds Banking Group and Ring-Fenced Banks Contentious Regulatory Committees	Responsible for providing senior management oversight, challenge and accountability in connection with the Group’s engagement with contentious regulatory matters as agreed by the Group Chief Executive.
Lloyds Banking Group and Ring-Fenced Banks Strategic Delivery Committees	Responsible for driving execution of the Group’s investment portfolio and strategic transformation agenda as agreed by the Group Chief Executive, including monitoring execution performance and progress against strategic objectives. To act as a clearing house to resolve issues on individual project areas and prioritisation across divisional and legal entity issues. Engaging in resolution of challenges that require cross-Group support to resolve, ensuring funding and project performance provides value for money for the Group, and autonomy is maintained alongside accountability for projects and platforms.
Lloyds Banking Group and Ring-Fenced Banks Net Zero Committees	Responsible for providing direction and oversight of the Group’s environmental sustainability strategy, including particular focus on the net-zero transition and natural capital (biodiversity) strategy. Oversight of the Group’s approach to meeting external environmental commitments and targets, including but not limited to, progress in relation to the requirements of the Net- Zero Banking Alliance (NZBA). Recommending all external material commitments and targets in relation to environmental sustainability.
Lloyds Banking Group and Ring-Fenced Banks Conduct Investigations Committee	Responsible for protecting and promoting the Group’s conduct, values and behaviours by taking action to rectify the most serious cases of misconduct within the Group, identifying themes and ensuring lessons are shared with the business. The Committee shall do this by making outcome decisions and recommendations (including sanctions) on investigations which have been referred to the Committee from the triage process, including the Independent Triage Panel and overseeing regular reviews of thematic outcomes and lessons learned.
The Lloyds Banking Group and Ring-Fenced Banks Risk Committee is supported through escalation and ongoing reporting by divisional risk committees, cross-divisional committees addressing specific matters of Group-wide significance and the following second line of defence Risk committees which ensure effective oversight of risk management:
Lloyds Banking Group and Ring-Fenced Banks Market Risk Committee	Responsible for monitoring, oversight and challenge of market risk exposures across the Group. Reviews and proposes changes to the market risk management framework, and reviews the adequacy of data quality needed for managing market risks. It is also responsible for escalating issues of Group level significance to GEC level (usually via GALCO) relating to the management of the Group's market risks.
Lloyds Banking Group and Ring-Fenced Banks Economic Crime Prevention Committee	Brings together accountable stakeholders and subject matter experts to ensure that the development and application of economic crime risk management complies with the Group's strategic aims, Group corporate responsibility, Group risk appetite and Group economic crime prevention (fraud, anti-money laundering, anti-bribery and sanctions) policy. It provides direction and appropriate focus on priorities to enhance the Group's economic crime risk management capabilities in line with business and customer objectives while aligning to the Group's target operating model.
Lloyds Banking Group and Ring-Fenced Banks Financial Risk Committee	Responsible for overseeing, reviewing, challenging and recommending to GEC/Board Risk Committee/Board for Lloyds Banking Group and Ring-Fenced Bank (i) annual internal stress tests, (ii) all Prudential Regulation Authority (PRA) and any other regulatory stress tests, (iii) annual liquidity stress tests, (iv) reverse stress tests, (v) Individual Liquidity Adequacy Assessment (ILAA), (vi) Internal Capital Adequacy Assessment Process (ICAAP), (vii) Pillar 3, (viii) recovery/resolution plans, and (ix) relevant ad hoc stress tests or other analysis as and when required by the Committee.

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Risk management


Committees	Risk focus
Lloyds Banking Group and Ring-Fenced Banks Capital Risk Committee	Responsible for providing oversight of relevant capital matters within the Lloyds Banking Group, Ring-Fenced Bank and material subsidiaries, including latest capital position and plans, capital risk appetite proposals, Pillar 2 developments (including stress testing), recovery and resolution matters and the impact of regulatory reforms and developments specific to capital.
Lloyds Banking Group and Ring-Fenced Banks Model Governance Committee	Responsible for supporting the Model Risk and Validation Director in fulfilling their responsibilities, from a Group-wide perspective, under the Lloyds Banking Group model governance policy through provision of debate, challenge and support of decisions. The committee will be held as required to facilitate approval of models, model changes and model related items as required by model policy, including items related to the governance framework as a whole and its application.

STRESS TESTING

Overview

Stress testing is recognised as a key risk management tool by the Boards, senior management, the businesses and the Risk and Finance

functions of all parts of the Group and its legal entities. It is fully embedded in the planning process of the Group and its key legal entities as a

key activity in medium-term planning, and senior management is actively involved in stress testing activities via the governance process.

Scenario stress testing is used to:

Risk identification:

•Understand key vulnerabilities of the Group and its key legal entities under adverse economic conditions

Risk appetite:

•Assess the results of the stress test against the risk appetite of all parts of the Group to ensure the Group and its legal entities are managed

within their risk parameters

•Inform the setting of risk appetite by assessing the underlying risks under stress conditions

Strategic and capital planning:

•Allow senior management and the Boards of the Group and its applicable legal entities to adjust strategies if the plan does not meet risk

appetite in a stressed scenario

•Support the Internal Capital Adequacy Assessment Process (ICAAP) by demonstrating capital adequacy, and meet the requirements of

regulatory stress tests that are used to inform the setting of the Prudential Regulation Authority (PRA) and management buffers (see capital

risk on pages 24 to 28) of the Group and its separately regulated legal entities

Risk mitigation:

•Drive the development of potential actions and contingency plans to mitigate the impact of adverse scenarios. Stress testing also links directly

to the recovery and resolution planning process of the Group and its legal entities

Internal stress tests

On at least an annual basis, the Group conducts macroeconomic stress tests to highlight the key vulnerabilities of the Group’s and its legal

entities’ business plans to adverse changes in the economic environment, and to ensure that there are adequate financial resources in the event

of a downturn. The 2022 internal stress scenario focussed on assessing vulnerabilities to inflation and rising energy prices.

Reverse stress testing

Reverse stress testing is used to explore the vulnerabilities of the Group’s and its key legal entities’ strategies and plans to extreme adverse

events that would cause the businesses to fail. Where this identifies plausible scenarios with an unacceptably high risk, the Group or its entities

will adopt measures to prevent or mitigate that and reflect these in strategic plans.

Other stress testing activity

The Group’s stress testing programme also involves undertaking assessments of liquidity scenarios, market risk sensitivities and scenarios, and

business-specific scenarios (see the principal risk categories on pages 23 to 62 for further information on risk-specific stress testing). If required,

ad hoc stress testing exercises are also undertaken to assess emerging risks, as well as in response to regulatory requests. This wide-ranging

programme provides a comprehensive view of the potential impacts arising from the risks to which the Group is exposed and reflects the

nature, scale and complexity of the Group. Lloyds Banking Group participated in Part 1 of the Bank of England’s Climate Biennial Exploratory

Stress test in 2021 and will leverage the experience gained through that exercise to further embed climate risk into risk management and stress

testing activities.

Methodology

The stress tests at all levels must comply with all regulatory requirements, achieved through comprehensive macroeconomic scenarios and a

rigorous divisional, functional, risk and executive review and challenge process, supported by analysis and insight into impacts on customers

and business drivers.

The engagement of all required business, Risk and Finance teams is built into the preparation process, so that the appropriate analysis of each

risk category’s impact upon the business plans is understood and documented. The methodologies and modelling approach used for stress

testing ensure that a clear link is shown between the macroeconomic scenarios, the business drivers for each area and the resultant stress

testing outputs. All material assumptions used in modelling are documented and justified, with a clearly communicated review and sign-off

process. Modelling is supported by expert judgement and is subject to Lloyds Banking Group model governance policy.

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Risk management

Governance

Clear accountabilities and responsibilities for stress testing are assigned to senior management and the Risk and Finance functions throughout

the Group and its key legal entities. This is formalised through the Lloyds Banking Group business planning and stress testing policy and

procedure, which are reviewed at least annually.

The Group Financial Risk Committee (GFRC), chaired by the Chief Risk Officer and attended by the Chief Financial Officer and other senior Risk

and Finance colleagues, has primary responsibility for overseeing the development and execution of the Group’s stress tests.

The review and challenge of the Group’s detailed stress forecasts, the key assumptions behind these, and the methodology used to translate

the economic assumptions into stressed outputs conclude with the appropriate Finance and Risk sign-off. The outputs are then presented to

GFRC and the Board Risk Committee for review and challenge. With all regulatory exercises being approved by the Board.

EMERGING RISKS

Background and framework

Understanding emerging risks is an essential component of the Group’s risk management approach, enabling the Group to identify the most

pertinent risks and opportunities, and to respond through strategic planning and appropriate risk mitigation.

Although emerging risk is not a principal risk, if left undetected emerging risks have the potential to adversely impact the Group or result in

missed opportunities.

Impacts from emerging risks on the Group’s principal risks can materialise via two different routes:

•Emerging risks can impact the Group’s principal risks directly in the absence of an appropriate strategic response

•Alternatively, emerging risks can be a source of new strategic risks, dependent on our chosen response and the underlying assumptions on

how given emerging risks may manifest

Where an emerging risk is considered material enough in its own right, the Group may choose to recognise the risk as a principal risk. Recent

examples of this include climate risk and strategic risk. Such elevations are considered and approved through the Board as part of the annual

refresh of Lloyds Banking Group's enterprise risk management framework.

Risk identification

The basis for risk identification is founded on collaboration between functions across the Group. The activity incorporates internal horizon

scanning and engagement with external experts to gain an external context, ensuring broad coverage.

This activity is inherently linked with and builds upon the annual strategic planning cycle and is used to identify key external trends, risks and

opportunities for the Group.

The Group continues to evolve its approach for the identification and prioritisation of emerging risks. During 2022, the Group enhanced its

emerging risk methodology, introducing a broader range of factors to provide enriched insight.

Under the revised methodology, key factors considered in the assessment of emerging risks include:

•The threat presented by a risk

•The Group’s specific vulnerability to the risk

•The preparation and protection the Group has in place to manage or mitigate impacts

The enhanced approach has delivered a more focused list of the Group’s key emerging risks, as detailed below, enabling greater management

concentration on developing the appropriate responses.

Notable emerging risks and their implications

The Group considers the emerging risk themes detailed in the risk overview section on page 9 as having the potential to increase in significance

and affect the performance of the Group. These risks can align to one or more of the Group’s strategic risk themes and are considered

alongside the Group’s operating plan.

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Risk management

Risk mitigation

Emerging risks are managed through the Group’s strategic risk framework, detailed on page 62. The individual emerging risks detailed above

have been taken to executive level committees throughout 2022 with actions assigned to closely monitor their manifestation and potential

opportunities.

Pertinent emerging risks are considered as part of the Group’s strategic and business planning processes and primarily addressed through the

Group’s strategy.

Key initiatives to tackle the emerging challenges and capitalise on opportunities as part of the Group’s strategy include the following:

Purpose: At the heart of the Group’s purpose are the themes of inclusion, sustainability and being people-first. As such, the Group’s strategy

aims to fully embed a purpose that supports a more inclusive and sustainable future for the Group’s customers and colleagues.

Outcomes will see products, services and activities, aligning to societal and regulatory expectations, which drive impacts across housing,

financial wellbeing, businesses and jobs, communities, regions, and sustainability.

Customer proposition: As part of its strategy, the Group aims to enhance its proposition, better aligning to its purpose, while supporting

transition to a low carbon economy and adapting to the changing demographic of both its customer base and that of the UK.

Key components include:

•Creating better engagement, improving customer journeys and enhancing experiences and tools to drive greater financial resilience and

wellbeing for customers

•Supporting customers and businesses in respect of making their homes, vehicles, properties and activities more sustainable

•Capitalising on the Group’s existing asset and product capabilities for corporate and institutional clients to play a leading role in the transition

to Net Zero, addressing regional inequalities and supporting UK prosperity by helping corporates trade internationally

Talent: The Group is firmly committed to being diverse, employing new ways of working, where colleagues are supported in having a growth

mindset and empowered to make decisions at pace.

The strategy places focus on a colleague proposition that can attract and retain the best people, while leveraging talent pools across the UK

and exploring in-house skills growth strategies, alongside partnerships with universities and businesses, to supplement scarce skill sets.

For the long term, the Group intends to use its strategic workforce planning capability for understanding and meeting the evolving demand of

skills from its businesses and functions. This will also act as the bedrock for key strategic decisions and interventions in respect of important

elements of the Group’s talent strategy in the future.

Technology: Simplification of the Group’s estate and leveraging contemporary technologies are core components of the Group’s strategy.

The Group aims to manage the challenges of a rapidly evolving landscape by employing technology that is aligned to industry best practice

refresh rates, while promoting autonomy and empowerment within teams by streamlining governance.

This will be supplemented with an aligned business and technology vision and a rationalised hybrid cloud technology estate and modern

engineering standards.

Data: Being data-driven is central to the Group’s transformation activity. More than one third of the benefits from the Group’s business

strategies are reliant on the ability to successfully leverage data. As such, managing data risk and employing strong data ethics are key

considerations for the strategy.

The Group has developed a data management strategy to provide the common framework and direction by uplifting data quality, simplifying

data architecture, enhancing data governance and implementing market leading tools to improve its ability to deliver a data-first culture. The

Group has also invested in data ethics framework and strong governance for its advanced analytics and cloud programmes.

In addition to the strategic actions detailed above, the Group works closely with regulatory authorities and industry bodies to ensure that the

Group can monitor external developments and identify and respond to the evolving landscape, particularly in relation to regulatory and legal

risk.

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Risk management

FULL ANALYSIS OF RISK CATEGORIES

The Group’s risk framework covers all types of risk which affect the Group and could impact on the achievement of its strategic objectives. A

detailed description of each category is provided on pages 24 to 62.

Risk categories recognised by the Group are periodically reviewed to ensure that they reflect the Group risk profile in light of internal and

external factors, such as the Group strategy and the regulatory environment in which it operates. No changes were made to the risk categories

in 2022.


Principal risk categories	Secondary risk categories
Capital risk	– Capital
Page 24
Change/execution risk	– Change/execution
Page 29
Climate risk	– Climate
Page 30
Conduct risk	– Conduct
Page 31
Credit risk	– Retail credit	– Commercial credit
Page 33
Data risk	– Data
Page 47
Funding and liquidity risk	– Funding and liquidity
Page 48
Market risk	– Trading book	– Pensions
Page 52	– Banking book
Model risk	– Model
Page 56
Operational risk	– Business process	– Financial reporting	– Security
Page 57	– Economic crime financial	– Governance	– Sourcing and supply chain management
	– Economic crime fraud	– Internal service provision
	– External service provision	– IT systems
Operational resilience risk	– Operational resilience
Page 59
People risk	– People	– Health and safety
Page 60
Regulatory and legal risk	– Regulatory compliance	– Legal
Page 61
Strategic risk	– Strategic
Page 62

The Group considers both reputational and financial impact in the course of managing all its risks and therefore does not classify reputational

impact as a separate risk category.

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Risk management

CAPITAL RISK

DEFINITION

Capital risk is defined as the risk that an insufficient quantity or quality of capital is held to meet regulatory requirements or to support business

strategy, an inefficient level of capital is held or that capital is inefficiently deployed across the Group.

EXPOSURES

A capital risk event arises when the Group has insufficient capital resources to support its strategic objectives and plans, and to meet both

regulatory and external stakeholder requirements and expectations. This could arise due to a depletion of the Group’s capital resources as a

result of the crystallisation of any of the risks to which it is exposed, or through a significant increase in risk-weighted assets as a result of rule

changes or economic deterioration. Alternatively a shortage of capital could arise from an increase in the minimum requirements for capital,

leverage or MREL either at Group level or regulated entity level. The Group's capital management approach is focused on maintaining sufficient

and appropriate capital resources across all regulated levels of its structure in order to prevent such exposures.

MEASUREMENT

In accordance with UK ring-fencing legislation, the Group was appointed as the Ring-Fenced Bank sub-group (‘RFB sub-group’) under Lloyds

Banking Group plc. As a result the Group is subject to separate supervision by the UK Prudential Regulation Authority (PRA) on a sub-

consolidated basis (as the RFB sub-group) in addition to the supervision applied to Lloyds Bank plc on an individual basis.

The Group maintains capital levels on a consolidated and individual basis commensurate with a prudent level of solvency to achieve financial

resilience and market confidence. To support this, capital risk appetite on both a consolidated and individual basis is calibrated by taking into

consideration both an internal view of the amount of capital to hold as well as external regulatory requirements.

The Group assesses both its regulatory capital requirements and the quantity and quality of capital resources it holds to meet those

requirements through applying the regulatory capital framework set out under the Capital Requirements Directive and Regulation (CRD IV), as

amended by subsequent revisions to the Directive (CRD V) and to the Regulation (CRR II), the latter applying in full from 1 January 2022

following the UK implementation of the remaining provisions of CRR II. The requirements are supplemented through additional regulation

under the PRA Rulebook and associated statements of policy, supervisory statements and other regulatory guidance.

The minimum amount of total capital, under Pillar 1 of the regulatory capital framework, is set at 8 per cent of total risk-weighted assets. At least

4.5 per cent of risk-weighted assets are required to be met with common equity tier 1 (CET1) capital and at least 6 per cent of risk-weighted

assets are required to be met with tier 1 capital. Minimum Pillar 1 requirements are supplemented by additional minimum requirements under

Pillar 2A of the regulatory capital framework, the aggregate of which is referred to as the Group's Total Capital Requirement (TCR), and a

number of regulatory capital buffers as described below.

Additional minimum capital requirements under Pillar 2A are set by the PRA as a firm-specific Individual Capital Requirement (ICR) reflecting a

point in time estimate, which may change over time, of the minimum amount of capital to cover risks that are not fully covered by Pillar 1 and

those risks not covered at all by Pillar 1. A key input into the PRA’s Pillar 2A setting process is a bank's own assessment of the minimum amount

of capital it needs to cover risks that are not covered or not fully covered by Pillar 1 as part of its Internal Capital Adequacy Assessment Process

(ICAAP). Pillar 2A capital requirements consist of a variable amount (being a set percentage of risk-weighted assets), with fixed add-ons for

certain risk types. During 2022 the PRA reduced the Group’s Pillar 2A capital requirement to around 3.0 per cent of risk-weighted assets, of

which around 1.7 per cent of risk-weighted assets must be met by CET1 capital.

A range of additional regulatory capital buffers apply under the capital rules, which are required to be met with CET1 capital. These include a

capital conservation buffer (2.5 per cent of risk-weighted assets) and a time-varying countercyclical capital buffer (CCyB) which is currently

around 0.9 per cent of risk-weighted assets following the increase in the UK CCyB rate (which is set by the Bank of England's Financial Policy

Committee) to 1 per cent in December 2022. The UK CCyB rate will increase to 2 per cent in July 2023, representing an equivalent increase in

the Group's CCyB to around 1.9 per cent of risk-weighted assets.

In addition, the Group in its capacity as the RFB sub-group is subject to an Other Systemically Important Institution (O-SII) buffer of 2.0 per cent

of risk-weighted assets which is designed to hold systemically important banks to higher capital standards so that they can withstand a greater

level of stress before requiring resolution. The next review of the Group’s O-SII buffer will take place in December 2023, based upon year-end

2022 financial results, with any changes applying from 1 January 2025. The Financial Policy Committee has amended the O-SII buffer framework

to change the metric for determining the buffer rate from total assets to the UK leverage exposure measure. Based on the Group's leverage

exposure measure as at 31 December 2022, the OSII buffer rate will be maintained at 2.0 per cent.

As part of the Group's capital planning process, forecast capital positions are subjected to stress testing to determine the adequacy of the

Group’s capital resources against minimum requirements, including the ICR. The PRA considers outputs from the Group’s stress tests, in

conjunction with other information, as part of the process for informing the setting of a capital buffer for the Group, known as the PRA Buffer.

The PRA requires this buffer to remain confidential.

Usage of the PRA Buffer would trigger a dialogue between the Group and the PRA to agree what action is required whereas a breach of the

combined capital buffer (all other regulatory buffers, as referenced above) would give rise to mandatory restrictions upon any discretionary

capital distributions. The PRA has previously communicated its expectation that banks' capital and liquidity buffers can be drawn down as

necessary to support the real economy through a shock and that sufficient time would be made available to restore buffers in a gradual manner.

In addition to the risk-based capital framework outlined above, the Group is also subject to minimum capital requirements under the UK

Leverage Ratio Framework. The leverage ratio is calculated by dividing tier 1 capital resources by the leverage exposure which is a defined

measure of on-balance sheet assets and off-balance sheet items.

The minimum tier 1 leverage ratio requirement under the UK Leverage Ratio Framework is 3.25 per cent. This is supplemented by a time-varying

countercyclical leverage buffer (CCLB) requirement, which is currently 0.3 per cent of the leverage exposure measure, and an additional

leverage ratio buffer (ALRB) requirement of 0.7 per cent of the leverage exposure measure which reflects the application of the Group’s O-SII

buffer. Following the planned increase in the UK CCyB rate to 2 per cent in July 2023, the Group’s CCLB would be expected to increase to 0.7

per cent.

At least 75 per cent of the 3.25 per cent minimum leverage ratio requirement as well as 100 per cent of regulatory leverage buffers must be met

by CET1 capital.

The leverage ratio framework does not currently give rise to higher regulatory capital requirements for the Group than the risk-based capital

framework.

Lloyds Bank plc

Risk management

MITIGATION

The Group's capital management framework is part of a comprehensive framework within Lloyds Banking Group that includes the setting of

capital risk appetite and capital planning and stress testing activities. Close monitoring of capital and leverage ratios is undertaken to ensure the

Group meets regulatory requirements and risk appetite levels and deploys its capital resources efficiently.

The Group monitors early warning indicators and maintains a Capital Contingency Framework as part of the Lloyds Banking Group Recovery

Plan which are designed to identify emerging capital concerns at an early stage, so that mitigating actions can be taken, if needed. The

Recovery Plan sets out a range of potential mitigating actions that the Group could take in response to a stress, including as part of the wider

Lloyds Banking Group response. For example the Group is able to accumulate additional capital through the retention of profits over time,

which can be enhanced through reducing or cancelling dividend payments upstreamed to its parent (Lloyds Banking Group plc), by raising new

equity via an injection of capital from its parent and by issuing additional tier 1 or tier 2 capital securities to its parent. The cost and availability of

additional capital from its parent is dependent upon market conditions and perceptions at the time.

The Group is also able to manage the demand for capital through management actions including adjusting its lending strategy, risk hedging

strategies and through business disposals.

Capital policies and procedures are well established and subject to independent oversight.

MONITORING

The Group’s capital is actively managed and monitoring capital ratios is a key factor in the Group’s planning processes and stress testing. Multi-

year base case forecasts of the Group’s capital position, based upon the Group's operating plan, are produced at least annually to inform the

Group capital plan whilst shorter term forecasts are undertaken to understand and respond to variations of the Group’s actual performance

against the plan. The Group’s capital plan is tested for capital adequacy using relevant stress scenarios and sensitivities covering adverse

economic conditions as well as other adverse factors that could impact the Group.

Regular monitoring of the capital position for the Group and its key regulated entities is undertaken by a range of Lloyds Banking Group and

Ring-Fenced Banks committees, including the Group Capital Risk Committee (GCRC), Group Financial Risk Committee (GFRC), Group Asset

and Liability Committees (GALCO) and Group Risk Committees (GRC), in addition to the Board Risk Committee (BRC) and the Board. This

includes reporting of actual ratios against forecasts and risk appetite, base case and stress scenario projected ratios, and review of early warning

indicators and assessment against the Capital Contingency Framework.

The regulatory framework within which the Group operates continues to evolve and further detail on this is provided in the Group's Pillar 3

disclosures. The Group continues to monitor these developments very closely, analysing the potential capital impacts to ensure that, through

organic capital generation and management actions, the Group continues to maintain a strong capital position that exceeds both minimum

regulatory requirements and the Group's risk appetite and is consistent with market expectations.

MINIMUM REQUIREMENT FOR OWN FUNDS AND ELIGIBLE LIABILITIES (MREL)

Global systemically important banks (G-SIBs) are subject to an international standard on total loss absorbing capacity (TLAC). The standard is

designed to enhance the resilience of the global financial system by ensuring that failing G-SIBs have sufficient capital to absorb losses and

recapitalise under resolution, whilst continuing to provide critical banking services.

In the UK, the Bank of England has implemented the requirements of the international TLAC standard through the establishment of a

framework which sets out minimum requirements for own funds and eligible liabilities (MREL). The purpose of MREL is to require firms to

maintain sufficient own funds and eligible liabilities that are capable of credibly bearing losses or recapitalising a bank whilst in resolution. MREL

can be satisfied by a combination of regulatory capital and certain unsecured liabilities (which must be subordinate to a firm’s operating

liabilities).

The Bank of England's MREL statement of policy (MREL SoP) sets out its approach to setting external MREL and the distribution of MREL

resources internally within groups. Internal MREL resources are intended to enable a material subsidiary to be recapitalised as part of a group

resolution strategy without the need for the Bank of England to apply its resolution powers directly to the subsidiary itself.

The Group’s parent, Lloyds Banking Group plc, is subject to the Bank of England’s MREL SoP and must therefore maintain a minimum level of

external MREL resources. Lloyds Banking Group plc operates a single point of entry (SPE) resolution strategy, with Lloyds Banking Group plc as

the designated resolution entity. Under this strategy, the Group has been identified as a material subsidiary of Lloyds Banking Group plc and

must therefore maintain a minimum level of internal MREL resources. As at 31 December 2022, the Group's internal MREL resources exceeded

the minimum required.

ANALYSIS OF CET1 CAPITAL POSITION

The Group’s CET1 capital ratio decreased to 14.8 per cent at 31 December 2022 compared to 16.7 per cent at 31 December 2021.

This initially reflected a reduction of around 250 basis points on 1 January 2022 for regulatory changes which included an increase in risk-

weighted assets, in addition to other related modelled impacts on CET1 capital, following:

•The anticipated impact of the implementation of new CRD IV mortgage, retail unsecured and commercial banking models to meet revised

regulatory standards for modelled outputs

•The UK implementation of the remainder of CRR II which included a new standardised approach for measuring counterparty credit risk (SA-

CCR)

This was in addition to the reinstatement of the full deduction treatment for intangible software assets and phased reductions in IFRS 9

transitional relief.

The new CRD IV models remain subject to finalisation and approval by the PRA and therefore uncertainty over the final impact remains.

The impact of the regulatory changes on 1 January 2022 was partially offset by profits for the year and a subsequent reduction in risk-weighted

assets during the year. This was offset in part by pension contributions made to the defined benefit pension schemes, the accrual for

foreseeable ordinary dividends and distributions on other equity instruments.

TOTAL CAPITAL REQUIREMENT

The Group’s total capital requirement (TCR) as at 31 December 2022, being the aggregate of the Group's Pillar 1 and current Pillar 2A capital

requirements, was £19,297 million (31 December 2021: £19,364 million).

Lloyds Bank plc

Risk management

CAPITAL RESOURCES

An analysis of the Group’s capital position as at 31 December 2022 is presented in the following section. The capital position reflects the

application of the transitional arrangements for IFRS 9.

Capital resources (audited)

The table below summarises the consolidated capital position of the Group. The Group’s Pillar 3 disclosures provide a comprehensive analysis

of the own funds of the Group.


	At 31 Dec 2022 £m	At 31 Dec 2021 £m
Common equity tier 1
Shareholders’ equity per balance sheet	34,709	36,410
Adjustment to retained earnings for foreseeable dividends	(1,900)	–
Cash flow hedging reserve	5,168	451
Other adjustments1	131	770
	38,108	37,631
less: deductions from common equity tier 1
Goodwill and other intangible assets	(4,783)	(2,870)
Prudent valuation adjustment	(132)	(159)
Removal of defined benefit pension surplus	(2,804)	(3,200)
Deferred tax assets	(4,463)	(4,498)
Common equity tier 1 capital	25,926	26,904
Additional tier 1
Additional tier 1 instruments	4,268	4,949
Total tier 1 capital	30,194	31,853
Tier 2
Tier 2 instruments	5,318	6,322
Other adjustments	303	(266)
Total tier 2 capital	5,621	6,056
Total capital resources2	35,815	37,909
Risk-weighted assets (unaudited)	174,902	161,576
Common equity tier 1 capital ratio (unaudited)	14.8%	16.7%
Tier 1 capital ratio (unaudited)	17.3%	19.7%
Total capital ratio2 (unaudited)	20.5%	23.5%

1Includes an adjustment applied to reserves to reflect the application of the IFRS 9 transitional arrangements for capital.

2Following the completion of the transition to end-point eligibility rules on 1 January 2022, legacy tier 1 and tier 2 capital instruments subject to the original CRR transitional rules have now

been fully removed from regulatory capital. Included in tier 2 capital is a single legacy tier 2 capital instrument of £5 million that remains eligible under the extended transitional rules of

CRR II. Excluding this instrument, total capital resources at 31 December 2022 are £35,810 million and the total capital ratio is 20.5 per cent.

Lloyds Bank plc

Risk management

Movements in capital resources

The key movements are set out in the table below.


	Common equity tier 1 £m	Additional tier 1 £m	Tier 2 £m	Total capital £m
At 31 December 2021	26,904	4,949	6,056	37,909
Profit for the year	4,794	–	–	4,794
Foreseeable dividend accrual	(1,900)	–	–	(1,900)
IFRS 9 transitional adjustment to retained earnings	(227)	–	–	(227)
Pension deficit contributions	(1,611)	–	–	(1,611)
Fair value through other comprehensive income reserve	(31)	–	–	(31)
Prudent valuation adjustment	27	–	–	27
Deferred tax asset	35	–	–	35
Goodwill and other intangible assets	(1,913)	–	–	(1,913)
Movements in other equity, subordinated liabilities, other tier 2 items and related adjustments	–	(681)	(435)	(1,116)
Distributions on other equity instruments	(241)	–	–	(241)
Other movements	89	–	–	89
At 31 December 2022	25,926	4,268	5,621	35,815

CET1 capital resources have reduced by £978 million over the year, primarily reflecting:

•The reduction on 1 January 2022 for regulatory changes including the reinstatement of the full deduction treatment for intangible software

assets in addition to phased and other reductions in IFRS 9 transitional relief

•Pension deficit contributions (fixed and variable) paid into the Group's three main defined benefit pension schemes

•The accrual for foreseeable ordinary dividends and distributions on other equity instruments

•Partially offset by profits for the year

AT1 capital resources have reduced by £681 million and Tier 2 capital resources by £435 million over the year. The reductions primarily reflect

the derecognition of legacy AT1 and Tier 2 capital instruments following the completion of the transition to end-point eligibility rules for

regulatory capital on 1 January 2022, instrument repurchase and the impact of interest rate increases and regulatory amortisation on eligible

Tier 2 capital instruments. This was partially offset by the issuance of a new Tier 2 capital instrument, the impact of sterling depreciation and an

increase in eligible provisions recognised through Tier 2 capital.

Risk-weighted assets


	At 31 Dec 2022 £m	At 31 Dec 2021 £m
Foundation Internal Ratings Based (IRB) Approach	37,907	39,548
Retail IRB Approach	81,066	65,435
Other IRB Approach	5,834	7,117
IRB Approach	124,807	112,100
Standardised (STA) Approach1	19,795	19,861
Credit risk	144,602	131,961
Securitisation1	5,899	5,373
Counterparty credit risk	773	1,257
Credit valuation adjustment risk	342	207
Operational risk	23,204	22,575
Market risk	82	203
Risk-weighted assets	174,902	161,576
Of which threshold risk-weighted assets2	1,864	2,318

1Threshold risk-weighted assets are now included within the Standardised (STA) Approach. In addition securitisation risk-weighted assets are now shown separately. Comparatives have been

presented on a consistent basis.

2Threshold risk-weighted assets reflect the element of deferred tax assets that are permitted to be risk-weighted instead of being deducted from CET1 capital.

Risk-weighted assets have increased by £13 billion during the year, primarily reflecting:

• The increase to around £178 billion of risk-weighted assets on 1 January 2022 from regulatory changes which include the anticipated impact of

the implementation of new CRD IV models to meet revised regulatory standards for modelled outputs. The new CRD IV models remain

subject to finalisation and approval by the PRA and therefore the resultant risk-weighted asset impact also remains subject to this

• Partially offset by a subsequent reduction in risk-weighted assets during the year, largely as a result of optimisation activity and Retail model

reductions from the strong underlying credit performance, partly offset by the growth in balance sheet lending and the impact of foreign

exchange movements

Lloyds Bank plc

Risk management

Leverage ratio

The table below summarises the component parts of the Group's leverage ratio.


	At 31 Dec 2022 £m	At 31 Dec 2021 £m

Total tier 1 capital (fully loaded)	30,194	31,172
Exposure measure
Statutory balance sheet assets
Derivative financial instruments	3,857	5,511
Securities financing transactions	39,261	49,708
Loans and advances and other assets	573,810	547,630
Total assets	616,928	602,849
Qualifying central bank claims	(71,747)	(50,824)
Derivatives adjustments	(2,960)	185
Securities financing transactions adjustments	1,939	1,321
Off-balance sheet items	33,863	49,349
Amounts already deducted from Tier 1 capital	(11,724)	(9,994)
Other regulatory adjustments1	(6,714)	(8,236)
Total exposure measure	559,585	584,650
Average exposure measure2	572,388

UK leverage ratio	5.4%	5.3%
Average UK leverage ratio2	5.4%

Leverage exposure measure (including central bank claims)	631,332	635,474
Leverage ratio (including central bank claims)	4.8%	4.9%

1Includes deconsolidation adjustments that relate to the deconsolidation of certain Group entities that fall outside the scope of the Group's regulatory capital consolidation and adjustments

to exclude lending under the UK Government’s Bounce Back Loan Scheme (BBLS).

2The average UK leverage ratio is based on the average of the month end tier 1 capital position and average exposure measure over the quarter (1 October 2022 to 31 December 2022). The

average of 5.4 per cent compares to 5.2 per cent at the start and 5.4 per cent at the end of the quarter.

Analysis of leverage movements

The Group’s UK leverage ratio increased to 5.4 per cent (31 December 2021: 5.3 per cent), reflecting the £25.1 billion reduction in the leverage

exposure measure, partially offset by the reduction in the total tier 1 capital position. The reduction in the exposure measure largely reflected

reductions in securities financing transaction volumes and the measure for off-balance sheet items following optimisation activity which has

resulted in a reduction in the credit conversion factor applied to residential mortgage offers.

The average UK leverage ratio was 5.4 per cent over the fourth quarter, reflecting an increase in the ratio across the quarter as the exposure

measure reduced, largely driven by decreasing SFT volumes.

Application of IFRS 9 on a full impact basis for capital and leverage


	IFRS 9 full impact
	At 31 Dec 2022	At 31 Dec 2021
Common equity tier 1 (£m)	25,515	26,253
Transitional tier 1 (£m)	29,783	31,202
Transitional total capital (£m)	35,855	38,039
Total risk-weighted assets (£m)	174,977	161,805
Common equity tier 1 ratio (%)	14.6%	16.2%
Transitional tier 1 ratio (%)	17.0%	19.3%
Transitional total capital ratio (%)	20.5%	23.5%
UK leverage ratio exposure measure (£m)	559,175	584,000
UK leverage ratio (%)	5.3%	5.2%

The Group applies the full extent of the IFRS 9 transitional arrangements for capital as set out under CRR Article 473a (as amended via the CRR

'Quick Fix' revisions published in June 2020). Specifically, the Group has opted to apply both paragraphs 2 and 4 of CRR Article 473a (static and

dynamic relief) and in addition to apply a 100 per cent risk weight to the consequential Standardised credit risk exposure add-back as permitted

under paragraph 7a of the revisions.

As at 31 December 2022, static relief under the transitional arrangements amounted to £133 million (31 December 2021: £264 million) and

dynamic relief amounted to £278 million (31 December 2021: £387 million) through CET1 capital.

On 1 January 2023 IFRS 9 static relief came to an end and the transitional factor applied to IFRS 9 dynamic relief reduced by a further 25 per

cent.

Lloyds Bank plc

Risk management

CHANGE/EXECUTION RISK

DEFINITION

Change/execution risk is defined as the risk that, in delivering its change agenda, the Group fails to ensure compliance with laws and regulation,

maintain effective customer service and availability, and/or operate within the Group’s risk appetite.

EXPOSURES

Change/execution risks arise when the Group undertakes activities which require products, processes, people, systems or controls to change.

These changes can be as a result of external drivers (for example, a new piece of regulation that requires the Group to put in place a new

process or reporting) and/or internal drivers including business process changes, technology upgrades and strategic business or technology

transformation.

MEASUREMENT

The Group currently measures change/execution risk against defined risk appetite metrics which are a combination of leading, quality and

delivery indicators across the investment portfolio. These indicators are reported through internal governance structures and monthly execution

risk metrics; which forms part of the Board risk appetite metrics, and are under ongoing evolution and enhancement to ensure ongoing support

of the Group’s change and transformation agenda.

MITIGATION

The Group takes a range of mitigating actions with respect to change/execution risk. These include the following:

•The Board establishes a Group-wide risk appetite and metric for change/execution risk

•Ensuring compliance with the change policy and associated policies and procedures, which set out the principles and key controls that apply

across the business and are aligned to the Group risk appetite

•Businesses assess the potential impacts of undertaking any change activity on their ability to execute effectively, on customers and

colleagues and on the potential consequences for existing business risk profiles

•The implementation of effective governance and control frameworks to ensure adequate controls are in place to manage change activity

and act to mitigate the change/execution risks identified. These controls are monitored in line with the change policy and enterprise risk

management framework

•Events and incidents related to change activities are escalated and managed appropriately in line with risk framework guidance

•Ensuring there are sufficient, appropriately skilled resources to support the safe delivery of the Group’s current and future change portfolio

MONITORING

Change/execution risks are monitored and reported through to the Board and Group Governance Committees in accordance with the Group’s

enterprise risk management framework. Risk exposures are assessed monthly through established governance in Lloyds Banking Group’s

functional and divisional risk committees with escalation to Executive Committees where required. Material change/execution related risk

events or incidents are escalated in accordance with the Group operational risk policy and change policy. In addition there is oversight,

challenge and reporting at Risk division level to support overall management of risks and ongoing effectiveness of controls.

Lloyds Bank plc

Risk management

CLIMATE RISK

DEFINITION

Climate risk is defined as the risk that the Group experiences losses and/or reputational damage, either from the impacts of climate change and

the transition to net zero, or as a result of the Group’s responses to tackling climate change.

EXPOSURES

Climate risk can arise from:

•Physical risks – changes in climate or weather patterns which are acute, event driven (e.g. flood or storms), or chronic, longer-term shifts (e.g.

rising sea levels or droughts)

•Transition risks – changes associated with the move towards net zero, including changes to policy, legislation and regulation, technology and

changes to customer preferences; or legal risks from failing to manage these changes

The Group has identified loans and advances to customers in sectors at increased risk from the impacts of climate change, see page 73 in the

2022 Lloyds Banking Group environmental sustainability report.

This has informed an analysis of the main climate risks facing the Group, including how these may impact across the different principal risks

within the Group’s enterprise risk management framework. For further information see pages 14 to 17 in the 2022 Lloyds Banking Group

environmental sustainability report.

MEASUREMENT

The Group considers how climate risks are incorporated into the measurement of expected credit losses. An assessment was performed of the

Group’s internally generated economic scenarios used in the measurement of expected credit losses against external scenarios published by

the Network for Greening the Financial System (NGFS). This was supplemented by an assessment of the behavioural lifetime of assets against

the expected time horizons of when climate risks may materialise. Given the extended timelines related to climate risks compared to the tenor

of the Group’s lending portfolios and insights produced by the Group’s climate risk experts, no adjustments have been required to the

expected credit losses measured as at 31 December 2022.

The Group continues to enhance its internal climate risk assessment methodologies and tools to assess the physical and transition risks which

could impact clients and customers. One example is the qualitative ESG risk assessment tool for commercial clients. From a climate risk

perspective, this is designed to generate a score for individual clients based on their transition readiness and response to managing climate

risks and opportunities.

The Group also continues to evolve its climate scenario analysis capabilities to assist in the identification, measurement and ongoing

assessment of the climate risks that pose threats to its strategic objectives. It is a fast-evolving discipline, requiring new skill sets and investment

in data. The Group has established a centre of excellence to bring together the expertise and resources to further develop scenario analysis

capabilities, building on the experience gained in Lloyds Banking Group's participation in the Bank of England’s Climate Biennial Exploratory

Scenario (CBES) exercise and other internal assessments. The 2022 Lloyds Banking Group environmental sustainability report (pages 63 to 67)

provides further information on the climate scenario analysis undertaken and next steps as the Group continues to develop its climate scenario

analysis approach.

Climate considerations also form part of the Group’s planning and forecasting activities, with a forecast of the Group’s financed emissions

included within the Group’s four-year financial plan, alongside a qualitative assessment of the climate risks and opportunities for certain material

sectors.

MITIGATION

The Lloyds Banking Group’s climate risk policy provides an overarching framework for the management of climate risks, intended to support

appropriate consideration of climate risks across key activities. The policy also supports Lloyds Banking Group’s climate-related external

ambitions and progress against the relevant regulatory requirements, including the Task Force on Climate-related Financial Disclosures (TCFD)

recommendations.

The 2022 Lloyds Banking Group environmental sustainability report (pages 56 to 67) provides further detail on the key processes to address

some of the most material climate risks facing the Group, particularly focusing on credit risk.

Lloyds Banking Group’s risk appetite for managing climate risk from its lending activities is outlined in its fourteen external sector statements,

which form one of the ways for managing and controlling climate risk. These sector statements outline what types of activities the Group will

and will not support. The Group’s external sector statements are publicly available on the Group Responsible Business Download Centre.

The Group continues to embed climate risk, as well as wider ESG considerations, into its credit risk framework, policies and processes. As

climate risk is embedded into the credit risk management framework, the Group is continuing to assess how climate risk is reflected in its credit

risk policies and sector appetites over the short, medium and long term. The Group currently looks to ensure that climate and broader ESG risks

are considered for all commercial customers that bank with the Group, with specific commentary in new and renewal applications where total

aggregated hard limits exceed £500,000 (excluding automated decisioning processes for smaller counterparties). Lloyds Banking Group’s retail

credit risk policies require due regard to be paid to energy efficiency, Energy Performance Certificate (EPC) controls, and physical risks, such as

flood assessments, in the mortgages business, and transition risks, pace and growth of electric vehicles, within the motor portfolio.

MONITORING

Climate risk is considered each month through the Group’s risk reporting to the Lloyds Banking Group and Ring-Fenced Banks Board Risk

Committees. This ensures Board oversight of the Group’s overall climate risk profile, plans to develop capabilities supporting climate risk

management and development of climate-related risk appetite.

The integration of climate risk into credit decisioning (for example, EPC and flood risk data in Homes) has supported the development of

metrics which highlight the levels of physical and transition risk in key portfolios, and allows the Group to differentiate its lending strategy. The

Group is continuing to develop its approach to measuring and monitoring climate risk and will enhance reporting going forward as

understanding and capabilities increase, which will also be used to set further quantitative and qualitative risk appetite metrics as appropriate.

Lloyds Bank plc

Risk management

CONDUCT RISK

DEFINITION

Conduct risk is defined as the risk of customer detriment across the customer lifecycle including: failures in product management, distribution

and servicing activities; from other risks materialising, or other activities which could undermine the integrity of the market or distort

competition, leading to unfair customer outcomes, regulatory censure, reputational damage or financial loss.

Customer harm or detriment is defined as consumer loss, distress or inconvenience to customers due to breaches of regulatory or internal

requirements or our wider duty to act fairly and reasonably.

EXPOSURES

The Group faces significant conduct risks, which affect all aspects of the Group’s operations and all types of customers. The introduction of

Consumer Duty has increased regulatory expectations in relation to customer outcomes, including how the Group demonstrates and measures

them.

Conduct risks can impact directly or indirectly on the Group’s customers and could materialise from a number of areas across the Group,

including:

•Business and strategic planning that does not sufficiently consider customer needs

•Ineffective development, management and monitoring of products, their distribution (including the sales process, fair value assessment and

responsible lending criteria) and post-sales service (including the management of customers in financial difficulties)

•Unclear, unfair, misleading or untimely customer communications

•A culture that is not sufficiently customer-centric

•Poor governance of colleagues’ incentives and rewards and approval of schemes which lead to behaviours that drive unfair customer

outcomes

•Ineffective identification, management and oversight of legacy conduct issues

•Ineffective management and resolution of customers’ complaints or claims

•Outsourcing of customer service and product delivery to third parties that do not have the same level of control, oversight and culture as the

Group

The Group is also exposed to the risk of engaging in activities or failing to manage conduct which could constitute market abuse, undermine

the integrity of a market in which it is active, distort competition or create conflicts of interest.

There continues to be a significant focus on market misconduct, and action has been taken to move to risk-free rates following the ending of

the majority of London Inter-bank Offered Rate (LIBOR) measures on 1st January 2022.

There is a high level of scrutiny from regulatory bodies, the media, politicians, and consumer groups regarding financial institutions’ treatment

of customers, especially those with characteristics of vulnerability. The Group continues to apply significant focus to its treatment of all

customers, in particular those in financial difficulties and those with characteristics of vulnerability, to ensure good outcomes.

The Group continuously adapts to market developments that could pose heightened conduct risk, and actively monitors for early signs of

financial difficulties driven by pressures from a rising cost of living, rising interest rates and continuing impacts from COVID-19.

Other key areas of focus include transparency and fairness of pricing communications; ensuring victims of Authorised Push Payment Fraud

receive good outcomes; and increased expectations regarding customer outcomes due to the introduction of the FCA’s Consumer Duty

Regulation.

MEASUREMENT

To articulate its conduct risk appetite, the Group has sought more granularity through the use of suitable Conduct Risk Appetite Metrics

(CRAMs) and tolerances that indicate where it may be operating outside its conduct risk appetite.

CRAMs have been designed for services and products offered by the Group and are measured by a consistent set of common metrics. These

contain a range of product design, sales and process metrics (including outcome testing outputs) to provide a more holistic view of conduct

risks; some products also have a suite of additional bespoke metrics.

Each of the tolerances for the metrics are agreed for the individual product or service and are regularly tracked. At a consolidated level these

metrics are part of the Board risk appetite. The Group has, and continues to, evolve its approach to conduct risk measurements, to include

emerging conduct themes.

MITIGATION

The Group takes a range of mitigating actions with respect to conduct risk and remains focused on delivering a leading customer experience.

The Group’s ongoing commitment to good customer outcomes sets the tone from the top and supports the development our values-led

culture with customers at the heart, strengthening links between actions to support conduct, culture and customer and enabling more effective

control management. Actions to encourage good conduct include:

•Conduct risk appetite established at Group and divisional level, with metrics included in the Group risk appetite to ensure ongoing focus

•Simplified and enhanced conduct policies and procedures in place to ensure appropriate controls and processes that deliver good customer

outcomes, and support market integrity and competition requirements

•Customer needs considered through divisional customer plans, with integral conduct lens

•Cultural transformation: achieving a values-led culture through a consistent focus on behaviours to ensure the Group is transforming its

culture for success in a digital world. This is supported by strong direction and tone from senior executives and the Board

•Development and continued oversight of the implementation of the vulnerability strategy continues through the Lloyds Banking Group

Customer Inclusion Forum to monitor vulnerable outcomes, provide strategic direction and ensure consistency across the Group

•Robust product governance framework to ensure products continue to offer customers fair value, and consistently meet their needs

throughout their product lifecycle

Lloyds Bank plc

Risk management

•Effective complaints management through responding to, and learning from, root causes of complaint volumes and Financial Ombudsman

Service (FOS) change rates

•Review and oversight of thematic conduct agenda items at senior committees, ensuring holistic consideration of key Lloyds Banking Group-

wide conduct risks

•Robust recruitment and training, with a continued focus on how the Group manages colleagues’ performance with clear customer

accountabilities

•Ongoing engagement with third parties involved in serving the Group’s customers to ensure consistent delivery

•Monitoring and testing of customer outcomes to ensure the Group delivers good outcomes for customers throughout the product and

service lifecycle, and make continuous improvements to products, services and processes

•Continued focus on market conduct; member of the Fixed Income, Currencies and Commodities Markets Standard Board; and committed to

conducting its market activities consistent with the principles of the UK Money Markets code, the Global Precious Metals Code and the FX

Global Code

•Adoption of robust change delivery methodology to enable prioritisation and delivery of initiatives to address conduct challenges

•Continued focus on proactive identification and mitigation of conduct risk in the Lloyds Banking Group’s strategy

•Active engagement with regulatory bodies and other stakeholders to develop understanding of concerns related to customer treatment,

effective competition and market integrity, to ensure that the Group’s strategic conduct focus continues to meet evolving stakeholder

expectations

•Creation of tools and additional support for customers impacted by the rising cost of living, including cost of living hub and interest-free

overdraft buffer

•A programme of work is underway to deliver the enhanced expectations of Consumer Duty

MONITORING

Conduct risk is governed through divisional risk committees and significant issues are escalated to the Lloyds Banking Group Risk Committee, in

accordance with the Lloyds Banking Group’s Enterprise Risk Management Framework, as well as through the monthly Risk Reporting. The risk

exposures are reported, discussed and challenged at divisional risk committees. Remedial action is recommended, if required. All material

conduct risk events are escalated in accordance with the Lloyds Banking Group Operational Risk Policy.

A number of activities support the close monitoring of conduct risk including:

•The use of CRAMs across the Group, with a clear escalation route to Board

•Oversight and assurance activities across the three lines of defence

•Horizon scanning

Lloyds Bank plc

Risk management

CREDIT RISK

DEFINITION

Credit risk is defined as the risk that parties with whom the Group has contracted fail to meet their financial obligations (both on and off-balance

sheet).

EXPOSURES

The principal sources of credit risk within the Group arise from loans and advances, contingent liabilities, commitments, debt securities and

derivatives to customers, financial institutions and sovereigns. The credit risk exposures of the Group are set out in note 44 on page 161.

In terms of loans and advances (for example mortgages, term loans and overdrafts) and contingent liabilities (for example credit instruments

such as guarantees and documentary letters of credit), credit risk arises both from amounts advanced and commitments to extend credit to a

customer or bank. With respect to commitments to extend credit, the Group is also potentially exposed to an additional loss up to an amount

equal to the total unutilised commitments. However, the likely amount of loss may be less than the total unutilised commitments, as most retail

and certain commercial lending commitments may be cancelled based on regular assessment of the prevailing creditworthiness of customers.

Most commercial term commitments are also contingent upon customers maintaining specific credit standards.

Credit risk also arises from debt securities and derivatives. Credit risk exposure for derivatives is limited to the current cost of replacing contracts

with a positive value to the Group. Such amounts are reflected in note 44 on page 161.

Additionally, credit risk arises from leasing arrangements where the Group is the lessor. Note 2(J) on page 88 provides details on the Group’s

approach to the treatment of leases.

The investments held in the Group’s defined benefit pension schemes also expose the Group to credit risk. Note 27 on page 126 provides

further information on the defined benefit pension schemes’ assets and liabilities.

Loans and advances, contingent liabilities, commitments, debt securities and derivatives also expose the Group to refinance risk. Refinance risk

is the possibility that an outstanding exposure cannot be repaid at its contractual maturity date. If the Group does not wish to refinance the

exposure then there is refinance risk if the obligor is unable to repay by securing alternative finance. This may occur for a number of reasons

which may include: the borrower is in financial difficulty, because the terms required to refinance are outside acceptable appetite at the time or

the customer is unable to refinance externally due to a lack of market liquidity. Refinance risk exposures are managed in accordance with the

Group’s existing credit risk policies, processes and controls, and are not considered to be material given the Group’s prudent credit risk

appetite. Where heightened refinance risk exists exposures are minimised through intensive account management and, where appropriate, are

classed as impaired and/or forborne.

MEASUREMENT

The process for credit risk identification, measurement and control is integrated into the Board-approved framework for credit risk appetite and

governance.

Credit risk is measured from different perspectives using a range of appropriate modelling and scoring techniques at a number of levels of

granularity, including total balance sheet, individual portfolio, pertinent concentrations and individual customer – for both new business and

existing exposure. Key metrics, which may include total exposure, expected credit loss (ECL), risk-weighted assets, new business quality,

concentration risk and portfolio performance, are reported monthly to risk committees and forums.

Measures such as ECL, risk-weighted assets, observed credit performance, predicted credit quality (usually from predictive credit scoring

models), collateral cover and quality, and other credit drivers (such as cash flow, affordability, leverage and indebtedness) have been

incorporated into the Group’s credit risk management practices to enable effective risk measurement across the Group.

The Group has also continued to strengthen its capabilities and abilities for identifying, assessing and managing climate-related risks and

opportunities, recognising that climate change is likely to result in changes in the risk profile and outlook for the Group’s customers, the sectors

the Group operates in and collateral/asset valuations. For further information, please refer to the 2022 Lloyds Banking Group environmental

sustainability report.

In addition, stress testing and scenario analysis are used to estimate impairment losses and capital demand forecasts for both regulatory and

internal purposes and to assist in the formulation and calibration of credit risk appetite, where appropriate.

As part of the ‘three lines of defence’ model, the Risk division is the second line of defence providing oversight and independent challenge to

key risk decisions taken by business management. The Risk division also tests the effectiveness of credit risk management and internal credit risk

controls. This includes ensuring that the control and monitoring of higher risk and vulnerable portfolios and sectors is appropriate and

confirming that appropriate loss allowances for impairment are in place. Output from these reviews helps to inform credit risk appetite and

credit policy.

As the third line of defence, Group Internal Audit undertakes regular risk-based reviews to assess the effectiveness of credit risk management

and controls.

MITIGATION

The Group uses a range of approaches to mitigate credit risk.

Prudent credit principles, risk policies and appetite statements: the independent Risk division sets out the credit principles, credit risk

policies and credit risk appetite statements. These are subject to regular review and governance, with any changes subject to an approval

process. Risk teams monitor credit performance trends and the outlook. Risk teams also test the adequacy of and adherence to credit risk

policies and processes throughout the Group. This includes tracking portfolio performance against an agreed set of credit risk appetite

tolerances.

Robust models and controls: see model risk on page 56.

Limitations on concentration risk: there are portfolio controls on certain industries, sectors and products to reflect risk appetite as well as

individual, customer and bank limit risk tolerances. Credit policies, appetite statements and mandates are aligned to the Group’s risk appetite

and restrict exposure to higher risk countries and potentially vulnerable sectors and asset classes. Note 44 on page 162 provides an analysis of

loans and advances to customers by industry (for commercial customers) and product (for retail customers). Exposures are monitored to prevent

both an excessive concentration of risk and single name concentrations. These concentration risk controls are not necessarily in the form of a

maximum limit on exposure, but may instead require new business in concentrated sectors to fulfil additional minimum policy and/or guideline

requirements. The Group’s largest credit limits are regularly monitored by the Board Risk Committee and reported in accordance with

regulatory requirements.

Lloyds Bank plc

Risk management

Defined country risk management framework: the Group sets a broad maximum country risk appetite. Risk-based appetite for all countries is

set within the independent Risk division, taking into account economic, financial, political and social factors as well as the approved business

and strategic plans of the Group.

Specialist expertise: credit quality is managed and controlled by a number of specialist units within the business and Risk division, which

provide for example: intensive management and control; security perfection; maintenance of customer and facility records; expertise in

documentation for lending and associated products; sector-specific expertise; and legal services applicable to the particular market segments

and product ranges offered by the Group.

Stress testing: the Group’s credit portfolios are subject to regular stress testing. In addition to the Group-led, PRA and other regulatory stress

tests, exercises focused on individual divisions and portfolios are also performed. For further information on stress testing process,

methodology and governance see page 20.

Frequent and robust credit risk assurance: assurance of credit risk is undertaken by an independent function operating within the Risk division

which are part of the Group’s second line of defence. Their primary objective is to provide reasonable and independent assurance and

confidence that credit risk is being effectively managed and to ensure that appropriate controls are in place and being adhered to. Group

Internal Audit also provides assurance to the Audit Committee on the effectiveness of credit risk management controls across the Group’s

activities.

COLLATERAL

The principal types of acceptable collateral include:

•Residential and commercial properties

•Charges over business assets such as premises, inventory and accounts receivable

•Financial instruments such as debt securities

•Vehicles

•Cash

•Guarantees received from third parties

The Group maintains appetite parameters on the acceptability of specific classes of collateral.

For non-mortgage retail lending to small businesses, collateral may include second charges over residential property and the assignment of life

cover.

Collateral held as security for financial assets other than loans and advances is determined by the nature of the underlying exposure. Debt

securities, including treasury and other bills, are generally unsecured, with the exception of asset-backed securities and similar instruments such

as covered bonds, which are secured by portfolios of financial assets. Collateral is generally not held against loans and advances to financial

institutions. However, securities are held as part of reverse repurchase or securities borrowing transactions or where a collateral agreement has

been entered into under a master netting agreement. Derivative transactions with financial counterparties are typically collateralised under a

Credit Support Annex (CSA) in conjunction with the International Swaps and Derivatives Association (ISDA) Master Agreement. Derivative

transactions with non-financial customers are not usually supported by a CSA.

The requirement for collateral and the type to be taken at origination will be based upon the nature of the transaction and the credit quality,

size and structure of the borrower. For non-retail exposures, if required, the Group will often seek that any collateral includes a first charge over

land and buildings owned and occupied by the business, a debenture over the assets of a company or limited liability partnership, personal

guarantees, limited in amount, from the directors of a company or limited liability partnership and key man insurance. The Group maintains

policies setting out which types of collateral valuation are acceptable, maximum loan to value (LTV) ratios and other criteria that are to be

considered when reviewing an application. The fundamental business proposition must evidence the ability of the business to generate funds

from normal business sources to repay a customer or counterparty’s financial commitment, rather than reliance on the disposal of any security

provided.

Although lending decisions are primarily based on expected cash flows, any collateral provided may impact the pricing and other terms of a

loan or facility granted. This will have a financial impact on the amount of net interest income recognised and on internal loss given default

estimates that contribute to the determination of asset quality and returns.

The Group requires collateral to be realistically valued by an appropriately qualified source, independent of both the credit decision process

and the customer, at the time of borrowing. In certain circumstances, for Retail residential mortgages this may include the use of automated

valuation models based on market data, subject to accuracy criteria and LTV limits. Where third parties are used for collateral valuations, they

are subject to regular monitoring and review. Collateral values are subject to review, which will vary according to the type of lending, collateral

involved and account performance. Such reviews are undertaken to confirm that the value recorded remains appropriate and whether

revaluation is required, considering, for example, account performance, market conditions and any information available that may indicate that

the value of the collateral has materially declined. In such instances, the Group may seek additional collateral and/or other amendments to the

terms of the facility. The Group adjusts estimated market values to take account of the costs of realisation and any discount associated with the

realisation of the collateral when estimating credit losses.

The Group considers risk concentrations by collateral providers and collateral type with a view to ensuring that any potential undue

concentrations of risk are identified and suitably managed by changes to strategy, policy and/or business plans.

The Group seeks to avoid correlation or wrong-way risk where possible. Under the Group’s repurchase (repo) policy, the issuer of the collateral

and the repo counterparty should be neither the same nor connected. The same rule applies for derivatives. The Risk division has the necessary

discretion to extend this rule to other cases where there is significant correlation. Countries with a rating equivalent to AA- or better may be

considered to have no adverse correlation between the counterparty domiciled in that country and the country of risk (issuer of securities).

Refer to note 44 on page 161 for further information on collateral.

Lloyds Bank plc

Risk management

ADDITIONAL MITIGATION FOR RETAIL CUSTOMERS

The Group uses a variety of lending criteria when assessing applications for mortgages and unsecured lending. The general approval process

uses credit acceptance scorecards and involves a review of an applicant’s previous credit history using internal data and information held by

Credit Reference Agencies (CRA).

The Group also assesses the affordability and sustainability of lending for each borrower. For secured lending this includes use of an

appropriate stressed interest rate scenario. Affordability assessments for all lending are compliant with relevant regulatory and conduct

guidelines. The Group takes reasonable steps to validate information used in the assessment of a customer’s income and expenditure.

In addition, the Group has in place quantitative limits such as maximum limits for individual customer products, the level of borrowing to income

and the ratio of borrowing to collateral. Some of these limits relate to internal approval levels and others are policy limits above which the

Group will typically reject borrowing applications. The Group also applies certain criteria that are applicable to specific products, for example

applications for buy-to-let mortgages.

For UK mortgages, the Group’s policy permits owner occupier applications with a maximum LTV of 95 per cent. This can increase to 100 per

cent for specific products where additional security is provided by a supporter of the applicant and held on deposit by the Group. Applications

with an LTV above 90 per cent are subject to enhanced underwriting criteria, including higher scorecard cut-offs and loan size restrictions.

Buy-to-let mortgages within Retail are limited to a maximum loan size of £1,000,000 and 75 per cent LTV. Buy-to-let applications must pass a

minimum rental cover ratio of 125 per cent under stressed interest rates, after applicable tax liabilities. Portfolio landlords (customers with four

or more mortgaged buy-to-let properties) are subject to additional controls including evaluation of overall portfolio resilience.

The Group’s policy is to reject any application for a lending product where a customer is registered as bankrupt or insolvent, or has a recent

County Court Judgment or financial default registered at a CRA used by the Group above de minimis thresholds. In addition, the Group

typically rejects applicants where total unsecured debt, debt-to-income ratios, or other indicators of financial difficulty exceed policy limits.

Where credit acceptance scorecards are used, new models, model changes and monitoring of model effectiveness are independently reviewed

and approved in accordance with the governance framework set by the Group Model Governance Committee.

ADDITIONAL MITIGATION FOR COMMERCIAL CUSTOMERS

Individual credit assessment and independent sanction of customer and bank limits: with the exception of small exposures to small to

medium-sized enterprises (SME) customers where certain relationship managers have limited delegated credit approval authority, credit risk in

commercial customer portfolios is subject to approval by the independent Risk division, which considers the strengths and weaknesses of

individual transactions, the balance of risk and reward, and how credit risk aligns to the Group and divisional risk appetite. Exposure to

individual counterparties, groups of counterparties or customer risk segments is controlled through a tiered hierarchy of credit authority

delegations and risk-based credit limit guidances per client group for larger exposures. Approval requirements for each decision are based on a

number of factors including, but not limited to, the transaction amount, the customer’s aggregate facilities, any risk mitigation in place, credit

policy, risk appetite, credit risk ratings and the nature and term of the risk. The Group’s credit risk appetite criteria for counterparty and

customer loan underwriting is generally the same as that for loans intended to be held to maturity. All hard loan/bond underwriting must be

approved by the Risk division. A pre-approved credit matrix may be used for ‘best efforts’ underwriting.

Counterparty credit limits: limits are set against all types of exposure in a counterparty name, in accordance with an agreed methodology for

each exposure type. This includes credit risk exposure on individual derivatives and securities financing transactions, which incorporates

potential future exposures from market movements against agreed confidence intervals. Aggregate facility levels by counterparty are set and

limit breaches are subject to escalation procedures.

Daily settlement limits: settlement risk arises in any situation where a payment in cash, securities or equities is made in the expectation of a

corresponding receipt in cash, securities or equities. Daily settlement limits are established for each relevant counterparty to cover the

aggregate of all settlement risk arising from the Group’s market transactions on any single day. Where possible, the Group uses Continuous

Linked Settlement in order to reduce foreign exchange (FX) settlement risk.

MASTER NETTING AGREEMENTS

It is credit policy that a Group-approved master netting agreement must be used for all derivative and traded product transactions and must be

in place prior to trading, with separate documentation required for each Group entity providing facilities. This requirement extends to trades

with clients and the counterparties used for the Group’s own hedging activities, which may also include clearing trades with Central

Counterparties (CCPs).

Any exceptions must be approved by the appropriate credit approver. Master netting agreements do not generally result in an offset of balance

sheet assets and liabilities for accounting purposes, as transactions are usually settled on a gross basis. However, within relevant jurisdictions

and for appropriate counterparty types, master netting agreements do reduce the credit risk to the extent that, if an event of default occurs, all

trades with the counterparty may be terminated and settled on a net basis. The Group’s overall exposure to credit risk on derivative instruments

subject to master netting agreements can change substantially within a short period, since this is the net position of all trades under the master

netting agreement.

OTHER CREDIT RISK TRANSFERS

The Group also undertakes asset sales, credit derivative based transactions, securitisations (including significant risk transfer transactions),

purchases of credit default swaps and purchase of credit insurance as a means of mitigating or reducing credit risk and/or risk concentration,

taking into account the nature of assets and the prevailing market conditions.

MONITORING

In conjunction with the Risk division, businesses identify and define portfolios of credit and related risk exposures and the key behaviours and

characteristics by which those portfolios are managed and monitored. This entails the production and analysis of regular portfolio monitoring

reports for review by senior management. The Risk division in turn produces an aggregated view of credit risk across the Group, including

reports on material credit exposures, concentrations, concerns and other management information, which is presented to senior officers, the

divisional credit risk forums, Group Risk Committee and the Board Risk Committee.

MODELS

The performance of all models used in credit risk is monitored in line with the Group’s model governance framework – see model risk on page

56.

Lloyds Bank plc

Risk management

INTENSIVE CARE OF CUSTOMERS IN FINANCIAL DIFFICULTY

The Group operates a number of solutions to assist borrowers who are experiencing financial stress. The material elements of these solutions

through which the Group has granted a concession, whether temporarily or permanently, are set out below.

FORBEARANCE

The Group’s aim in offering forbearance and other assistance to customers in financial distress is to benefit both the customer and the Group by

supporting its customers and acting in their best interests by, where possible, bringing customer facilities back into a sustainable position.

The Group offers a range of tools and assistance to support customers who are encountering financial difficulties. Cases are managed on an

individual basis, with the circumstances of each customer considered separately and the action taken judged as being appropriate and

sustainable for both the customer and the Group.

Forbearance measures consist of concessions towards a debtor that is experiencing or about to experience difficulties in meeting its financial

commitments. This can include modification of the previous terms and conditions of a contract or a total or partial refinancing of a troubled

debt contract, either of which would not have been required had the debtor not been experiencing financial difficulties.

The provision and review of such assistance is controlled through the application of an appropriate policy framework and associated controls.

Regular review of the assistance offered to customers is undertaken to confirm that it remains appropriate, alongside monitoring of customers’

performance and the level of payments received.

The Group classifies accounts as forborne at the time a customer in financial difficulty is granted a concession.

Balances in default or classified as Stage 3 are always considered to be non-performing. Balances may be non-performing but not in default or

Stage 3, where for example they are within their non-performing forbearance cure period.

Non-performing exposures can be reclassified as performing forborne after a minimum 12-month cure period, providing there are no past due

amounts or concerns regarding the full repayment of the exposure. A minimum of a further 24 months must pass from the date the forborne

exposure was reclassified as performing forborne before the account can exit forbearance. If conditions to exit forbearance are not met at the

end of this probation period, the exposure shall continue to be identified as forborne until all the conditions are met.

The Group’s treatment of loan renegotiations is included in the impairment policy in note 2(H) on page 86.

CUSTOMERS RECEIVING SUPPORT FROM UK GOVERNMENT SPONSORED PROGRAMMES

To assist customers in financial distress, the Group participates in UK Government sponsored programmes for households, including the

Income Support for Mortgage Interest programme, under which the government pays the Group all or part of the interest on the mortgage on

behalf of the customer. This is provided as a government loan which the customer must repay.

LLOYDS BANK GROUP CREDIT RISK PORTFOLIO IN 2022

OVERVIEW

The Group’s portfolios are well-positioned and the Group retains a prudent approach to credit risk appetite and risk management, with strong

credit origination criteria and robust LTVs in the secured portfolios.

Observed credit performance remains strong, despite the continued economic uncertainty with very modest evidence of deterioration and

sustained low levels of new to arrears. Looking forward, there are risks from a higher inflation and interest rate environment as modelled in the

Group’s expected credit loss (ECL) allowance via the multiple economic scenarios (MES). The Group continues to monitor the economic

environment carefully through a suite of early warning indicators and governance arrangements that ensure risk mitigating action plans are in

place to support customers and protect the Group’s positions.

The impairment charge in 2022 was £1,452 million, compared to a release of £1,318 million in 2021. This reflects a more normalised, but still low,

pre-updated MES charge and a charge from economic outlook revisions. The latter includes a £400 million release from the Group's central

adjustment which addressed downside risk outside of the base case conditioning assumptions in relation to COVID-19.

This reporting period also coincided with the implementation of CRD IV regulatory requirements, which resulted in updates to credit risk

measurement and modelling to maintain alignment between IFRS 9 and regulatory definitions of default. Most notably for UK mortgages,

default was previously deemed to have occurred no later than when a payment was 180 days past due; in line with CRD IV this has now been

reduced to 90 days. In addition, other indicators of mortgage default are added including end-of-term payments on past due interest-only

accounts and loans considered non-performing due to recent arrears or forbearance.

The Group’s ECL allowance on loans and advances to customers increased in the period to £4,779 million (31 December 2021: £3,998 million),

largely due to the impact of the updated MES. Changes related to CRD IV default definitions have resulted in material movements between

stages, although these have not materially impacted total ECL as management judgements were previously held in lieu of anticipated changes.

Predominantly as a result of the CRD IV definition changes and updated MES, Stage 2 loans and advances to customers increased from £34,884

million to £60,103 million and as a percentage of total lending increased by 5.7 percentage points to 13.7 per cent (31 December 2021: 8.0 per

cent). Of the total Group Stage 2 loans and advances, 94.1 per cent are up to date (31 December 2021: 89.0 per cent) with sustained low levels

of new to arrears. Stage 2 coverage reduced to 3.3 per cent (31 December 2021: 3.4 per cent).

Similarly, Stage 3 loans and advances increased in the period to £7,611 million (31 December 2021: £6,406 million), and as a percentage of total

lending increased to 1.7 per cent (31 December 2021: 1.5 per cent). Stage 3 coverage decreased by 1.9 percentage points to 25.5 per cent

(31 December 2021: 27.4 per cent) largely driven by comparatively better quality assets moving into Stage 3 through these CRD IV changes. In

the period since the CRD IV changes, Stage 3 loans and advances have been stable.

PRUDENT RISK APPETITE AND RISK MANAGEMENT

•The Group continues to take a prudent and proactive approach to credit risk management and credit risk appetite, whilst working closely with

customers to help them through cost of living pressures and any deterioration in broader economic conditions

•Sector, asset and product concentrations within the portfolios are closely monitored and controlled, with mitigating actions taken where

appropriate. Sector and product risk appetite parameters help manage exposure to certain higher risk and cyclical sectors, segments and

asset classes

•The Group’s effective risk management seeks to ensure early identification and management of customers and counterparties who may be

showing signs of distress

•The Group will continue to work closely with its customers to ensure that they receive the appropriate level of support, including where

repayments under the UK Government scheme lending fall due

Lloyds Bank plc

Risk management

Impairment charge (credit) by division


	Loans and advances to customers £m	Loans and advances to banks £m	Debt securities £m	Financial assets at fair value through other comprehensive income £m	Undrawn balances £m	2022 £m	20211 £m

UK mortgages	295	–	–	–	–	295	(273)
Credit cards	556	–	–	–	15	571	(52)
Loans and overdrafts	452	–	–	–	47	499	39
UK Motor Finance	(2)	–	–	–	–	(2)	(151)
Other	10	–	–	–	–	10	(10)
Retail	1,311	–	–	–	62	1,373	(447)
Small and Medium Businesses	190	–	–	–	(2)	188	(340)
Corporate and Institutional Banking	217	9	6	–	51	283	(529)
Commercial Banking	407	9	6	–	49	471	(869)
Other	(398)	–	–	6	–	(392)	(2)
Total impairment charge (credit)	1,320	9	6	6	111	1,452	(1,318)

1Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth from Other to Retail; comparatives have been

presented on a consistent basis.

Lloyds Bank plc

Risk management

GROUP LOANS AND ADVANCES TO CUSTOMERS

The following pages contain analysis of the Group’s loans and advances to customers by sub-portfolio. Loans and advances to customers are

categorised into the following stages:

Stage 1 assets comprise of newly originated assets (unless purchased or originated credit impaired), as well as those which have not

experienced a significant increase in credit risk. These assets carry an expected credit loss allowance equivalent to the expected credit losses

that result from those default events that are possible within 12 months of the reporting date (12 month expected credit losses).

Stage 2 assets are those which have experienced a significant increase in credit risk since origination. These assets carry an expected credit loss

allowance equivalent to the expected credit losses arising over the lifetime of the asset (lifetime expected credit losses).

Stage 3 assets have either defaulted or are otherwise considered to be credit impaired. These assets carry a lifetime expected credit loss.

Purchased or originated credit-impaired assets (POCI) are those that have been originated or acquired in a credit impaired state. This includes

within the definition of credit impaired the purchase of a financial asset at a deep discount that reflects impaired credit losses.

Total expected credit loss allowance


	At 31 Dec 2022 £m	At 31 Dec 2021 £m
Customer related balances
Drawn	4,475	3,804
Undrawn	304	194
	4,779	3,998
Loans and advances to banks	9	–
Debt securities	8	2
Total expected credit loss allowance	4,796	4,000

Movements in total expected credit loss allowance


	Opening ECL at 31 Dec 20211 £m	Write-offs and other2 £m	Income statement charge (credit) £m	Net ECL increase (decrease) £m	Closing ECL at 31 Dec 2022 £m


UK mortgages	837	77	295	372	1,209
Credit cards	521	(329)	571	242	763
Loans and overdrafts	445	(266)	499	233	678
UK Motor Finance	298	(44)	(2)	(46)	252
Other	82	(6)	10	4	86
Retail	2,183	(568)	1,373	805	2,988
Small and Medium Businesses	459	(98)	188	90	549
Corporate and Institutional Banking	957	18	283	301	1,258
Commercial Banking	1,416	(80)	471	391	1,807
Other	401	(8)	(392)	(400)	1
Total3	4,000	(656)	1,452	796	4,796

1Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth from Other to Retail; comparatives have been

presented on a consistent basis.

2Contains adjustments in respect of purchased or originated credit-impaired financial assets.

3Total ECL includes £17 million relating to other non customer-related assets (31 December 2021: £2 million).

Lloyds Bank plc

Risk management

Loans and advances to customers and expected credit loss allowance


	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 2 as % of total %	Stage 3 as % of total %
At 31 December 2022
Loans and advances to customers
UK mortgages	257,517	41,783	3,416	9,622	312,338	13.4	1.1
Credit cards	11,416	3,287	289	–	14,992	21.9	1.9
Loans and overdrafts	8,357	1,713	247	–	10,317	16.6	2.4
UK Motor Finance	12,174	2,245	154	–	14,573	15.4	1.1
Other	13,990	643	157	–	14,790	4.3	1.1
Retail	303,454	49,671	4,263	9,622	367,010	13.5	1.2
Small and Medium Businesses	30,781	5,654	1,760	–	38,195	14.8	4.6
Corporate and Institutional Banking	31,729	4,778	1,588	–	38,095	12.5	4.2
Commercial Banking	62,510	10,432	3,348	–	76,290	13.7	4.4
Other1	(3,198)	–	–	–	(3,198)
Total gross lending	362,766	60,103	7,611	9,622	440,102	13.7	1.7
ECL allowance on drawn balances	(678)	(1,792)	(1,752)	(253)	(4,475)
Net balance sheet carrying value	362,088	58,311	5,859	9,369	435,627

Customer related ECL allowance (drawn and undrawn)
UK mortgages	92	553	311	253	1,209
Credit cards	173	477	113	–	763
Loans and overdrafts	185	367	126	–	678
UK Motor Finance2	95	76	81	–	252
Other	16	18	52	–	86
Retail	561	1,491	683	253	2,988
Small and Medium Businesses	129	271	149	–	549
Corporate and Institutional Banking	110	208	924	–	1,242
Commercial Banking	239	479	1,073	–	1,791
Other	–	–	–	–	–
Total	800	1,970	1,756	253	4,779

Customer related ECL allowance (drawn and undrawn) as a percentage of loans and advances to customers3
UK mortgages	–	1.3	9.1	2.6	0.4
Credit cards	1.5	14.5	50.9	–	5.1
Loans and overdrafts	2.2	21.4	64.6	–	6.6
UK Motor Finance	0.8	3.4	52.6	–	1.7
Other	0.1	2.8	33.1	–	0.6
Retail	0.2	3.0	16.5	2.6	0.8
Small and Medium Businesses	0.4	4.8	12.9	–	1.5
Corporate and Institutional Banking	0.3	4.4	58.2	–	3.3
Commercial Banking	0.4	4.6	39.2	–	2.4
Other		–	–	–
Total	0.2	3.3	25.5	2.6	1.1

1Contains centralised fair value hedge accounting adjustments.

2UK Motor Finance for Stages 1 and 2 include £92 million relating to provisions against residual values of vehicles subject to finance leasing agreements. These provisions are included within

the calculation of coverage ratios.

3Total and Stage 3 ECL allowances as a percentage of drawn balances exclude loans in recoveries in Credit cards of £67 million, Loans and overdrafts of £52 million, Small and Medium

Businesses of £607 million and Corporate and Institutional Banking of £1 million.

Lloyds Bank plc

Risk management


	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 2 as % of total %	Stage 3 as % of total %
At 31 December 2021
Loans and advances to customers
UK mortgages	273,629	21,798	1,940	10,977	308,344	7.1	0.6
Credit cards1	11,918	2,077	292	–	14,287	14.5	2.0
Loans and overdrafts	8,181	1,105	271	–	9,557	11.6	2.8
UK Motor Finance	12,247	1,828	201	–	14,276	12.8	1.4
Other1	11,198	593	169	–	11,960	5.0	1.4
Retail	317,173	27,401	2,873	10,977	358,424	7.6	0.8
Small and Medium Businesses1	36,134	4,992	1,747	–	42,873	11.6	4.1
Corporate and Institutional Banking1	29,526	2,491	1,786	–	33,803	7.4	5.3
Commercial Banking	65,660	7,483	3,533	–	76,676	9.8	4.6
Other1,2	(467)	–	–	–	(467)
Total gross lending	382,366	34,884	6,406	10,977	434,633	8.0	1.5
ECL allowance on drawn balances	(909)	(1,112)	(1,573)	(210)	(3,804)
Net balance sheet carrying value	381,457	33,772	4,833	10,767	430,829

Customer related ECL allowance (drawn and undrawn)
UK mortgages	49	394	184	210	837
Credit cards1	144	249	128	–	521
Loans and overdrafts	136	170	139	–	445
UK Motor Finance3	108	74	116	–	298
Other1	15	15	52	–	82
Retail	452	902	619	210	2,183
Small and Medium Businesses1	104	176	179	–	459
Corporate and Institutional Banking1	56	120	780	–	956
Commercial Banking	160	296	959	–	1,415
Other1	400	–	–	–	400
Total	1,012	1,198	1,578	210	3,998

Customer related ECL allowance (drawn and undrawn) as a percentage of loans and advances to customers4
UK mortgages	–	1.8	9.5	1.9	0.3
Credit cards1	1.2	12.0	56.9	–	3.7
Loans and overdrafts	1.7	15.4	67.5	–	4.7
UK Motor Finance	0.9	4.0	57.7	–	2.1
Other1	0.1	2.5	30.8	–	0.7
Retail	0.1	3.3	22.6	1.9	0.6
Small and Medium Businesses1	0.3	3.5	14.5	–	1.1
Corporate and Institutional Banking1	0.2	4.8	43.7	–	2.8
Commercial Banking	0.2	4.0	31.8	–	1.9
Other1		–	–	–
Total	0.3	3.4	27.4	1.9	0.9

1Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth moving from Other to Retail.

2Contains centralised fair value hedge accounting adjustments.

3UK Motor Finance for Stages 1 and 2 include £95 million relating to provisions against residual values of vehicles subject to finance leasing agreements. These provisions are included within

the calculation of coverage ratios.

4Total and Stage 3 ECL allowances as a percentage of drawn balances exclude loans in recoveries in Credit cards of £67 million, Loans and overdrafts of £65 million, Small and Medium

Businesses of £515 million and Corporate and Institutional Banking of £3 million.

Lloyds Bank plc

Risk management

Stage 2 loans and advances to customers and expected credit loss allowance


	Up to date										1-30 days past due2					Over 30 days past due
	PD movements					Other1					1-30 days past due2					Over 30 days past due
Gross lending £m		ECL3 £m	As % of gross lending %		Gross lending £m		ECL3 £m	As % of gross lending %		Gross lending £m		ECL3 £m	As % of gross lending %		Gross lending £m		ECL3 £m	As % of gross lending %
At 31 December 2022
UK mortgages	29,718	263		0.9		9,613	160		1.7		1,633	67		4.1		819	63		7.7
Credit cards	3,023	386		12.8		136	46		33.8		98	30		30.6		30	15		50.0
Loans and overdrafts	1,311	249		19.0		234	53		22.6		125	45		36.0		43	20		46.5
UK Motor Finance	1,047	28		2.7		1,045	23		2.2		122	18		14.8		31	7		22.6
Other	160	5		3.1		384	7		1.8		54	4		7.4		45	2		4.4
Retail	35,259	931		2.6		11,412	289		2.5		2,032	164		8.1		968	107		11.1
Small and Medium Businesses	4,081	223		5.5		1,060	27		2.5		339	13		3.8		174	8		4.6
Corporate and Institutional Banking	4,706	207		4.4		24	1		4.2		5	–		–		43	–		–
Commercial Banking	8,787	430		4.9		1,084	28		2.6		344	13		3.8		217	8		3.7
Total	44,046	1,361		3.1		12,496	317		2.5		2,376	177		7.4		1,185	115		9.7
At 31 December 2021
UK mortgages	14,845	132		0.9		4,133	155		3.8		1,433	38		2.7		1,387	69		5.0
Credit cards4	1,755	176		10.0		210	42		20.0		86	20		23.3		26	11		42.3
Loans and overdrafts	505	82		16.2		448	43		9.6		113	30		26.5		39	15		38.5
UK Motor Finance	581	20		3.4		1,089	26		2.4		124	19		15.3		34	9		26.5
Other4	194	4		2.1		306	7		2.3		44	2		4.5		49	2		4.1
Retail	17,880	414		2.3		6,186	273		4.4		1,800	109		6.1		1,535	106		6.9
Small and Medium Businesses4	3,570	153		4.3		936	14		1.5		297	6		2.0		189	3		1.6
Corporate and Institutional Banking4	2,447	118		4.8		15	2		13.3		4	–		–		25	–		–
Commercial Banking	6,017	271		4.5		951	16		1.7		301	6		2.0		214	3		1.4
Total	23,897	685		2.9		7,137	289		4.0		2,101	115		5.5		1,749	109		6.2

1Includes forbearance, client and product-specific indicators not reflected within quantitative PD assessments. As of 31 December 2022, interest-only mortgage customers at risk of not

meeting their final term payment are now directly classified as Stage 2 up to date “Other”, driving movement of gross lending from the category of Stage 2 up to date “PD movement” into

“Other”.

2Includes assets that have triggered PD movements, or other rules, given that being 1-29 days in arrears in and of itself is not a Stage 2 trigger.

3Expected credit loss allowance on loans and advances to customers (drawn and undrawn).

4Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth moving from Other to Retail; comparatives

have been presented on a consistent basis.

The Group’s assessment of a significant increase in credit risk, and resulting categorisation of Stage 2, includes customers moving into early

arrears as well as a broader assessment that an up to date customer has experienced a level of deterioration in credit risk since origination. A

more sophisticated assessment is required for up to date customers, which varies across divisions and product type. This assessment

incorporates specific triggers such as a significant proportionate increase in probability of default relative to that at origination, recent arrears,

forbearance activity, internal watch lists and external bureau flags. Up to date exposures in Stage 2 are likely to show lower levels of expected

credit loss (ECL) allowance relative to those that have already moved into arrears given that an arrears status typically reflects a stronger

indication of future default and greater likelihood of credit losses.

Lloyds Bank plc

Risk management

RETAIL

•The Retail portfolio has remained resilient and well-positioned despite pressure on consumer disposable incomes from rising interest rates,

inflation and a higher cost of living. Risk management has been enhanced since the last financial crisis, with strong affordability and

indebtedness controls for new lending and a prudent risk appetite approach

•Despite external pressures, only very modest signs of deterioration are evident across the portfolios, arrears rates remain low and generally

below pre-pandemic levels. New lending credit quality remains strong and performance is broadly stable

•The Group is closely monitoring the impacts of the rising cost of living on consumers to ensure we remain close to any signs of deterioration.

Lending controls are under continuous review and we have taken proactive risk actions calibrated to the latest Group macroeconomic

outlook. Precautionary expected credit loss (ECL) judgements have also been raised to cover potential future deterioration from cost of living

risks

•The Retail impairment charge in 2022 was £1,373 million, compared to a release of £447 million for 2021 with updated macroeconomic

assumptions within the ECL model driving a charge for 2022 compared to a release last year

•Existing IFRS 9 staging rules and triggers have been maintained across Retail from the 2021 year end with the exception of mortgages. The

change maintains alignment between IFRS 9 Stage 3 and new regulatory definitions of default. Default continues to be considered to have

occurred when there is evidence that the customer is experiencing financial difficulty which is likely to significantly affect their ability to repay

the amount due. For mortgages, this was previously deemed to have occurred no later than when a payment was 180 days past due; in line

with CRD IV this has now been reduced to 90 days, as well as including end-of-term payments on past due interest-only accounts and all non-

performing loans. Overall ECL is not materially impacted as management judgements were previously held in lieu of these known changes.

However, material movements between stages were observed, with an additional £2.8 billion of assets in Stage 3 and £6.1 billion in Stage 2 at

the point of implementation, both as a result of the broader definition of default

•As a result of updated macroeconomic assumptions within the ECL model, Retail customer related ECL allowance as a percentage of drawn

loans and advances (coverage) increased to 0.8 per cent (31 December 2021: 0.6 per cent). As at 31 December 2022 the majority of ECL

increases are reflected within Stage 2 under IFRS 9, representing cases which have observed a significant increase in credit risk since

origination (SICR)

•Stage 2 loans and advances now comprises 13.5 per cent of the Retail portfolio (31 December 2021: 7.6 per cent), of which 94.0 per cent are

up to date, performing loans (31 December 2021: 87.8 per cent)

•The CRD IV changes have increased the proportion of UK mortgage accounts reaching the broader definition of default and has resulted in a

slight decrease in Stage 2 ECL coverage to 3.0 per cent (31 December 2021: 3.3 per cent)

•As a result of updated macroeconomic assumptions within the ECL model, Stage 3 loans and advances have increased to 1.2 per cent of total

loans and advances (31 December 2021: 0.8 per cent) while Stage 3 ECL coverage decreased to 16.5 per cent (31 December 2021: 22.6 per

cent) due to a higher proportion of mortgages triggering 90 days past due, with lower coverage on average. Underlying credit deterioration

remains relatively limited outside of definition of default changes

UK MORTGAGES

•The UK mortgages portfolio is well positioned with low arrears and a strong loan to value (LTV) profile. The Group has actively improved the

quality of the portfolio over the years using robust affordability and credit controls, while the balances of higher risk portfolios originated prior

to 2008 have continued to reduce

•Arrears rates remain broadly stable with slight increases observed on variable rate products following UK Bank Rate rises exacerbated by

attrition from customers refinancing to fixed rates

•Total loans and advances increased to £312.3 billion (31 December 2021: £308.3 billion), with a small reduction in average LTV. The proportion

of balances with a LTV greater than 90 per cent increased. The average LTV of new business decreased

•Updated macroeconomic assumptions within the ECL model, including a forecast reduction in house prices, resulted in a net impairment

charge of £295 million for 2022 compared to a credit of £273 million for 2021. Total ECL coverage increased to 0.4 per cent (31 December

2021: 0.3 per cent)

•As a result of updated macroeconomic assumptions within the ECL model, Stage 2 loans and advances increased to 13.4 per cent of the

portfolio (31 December 2021: 7.1 per cent), while Stage 2 ECL coverage has decreased to 1.3 per cent (31 December 2021: 1.8 per cent) due

to a higher proportion of mortgage accounts reaching the broader CRD IV definition of default

•Stage 3 loans and advances have increased to 1.1 per cent of the portfolio (31 December 2021: 0.6 per cent) and due to a higher proportion of

mortgage accounts reaching the broader CRD IV definition of default, Stage 3 ECL coverage decreased to 9.1 per cent (31 December 2021:

9.5 per cent)

CREDIT CARDS

•Credit cards balances increased to £15.0 billion (31 December 2021 £14.3 billion) due to recovery in customer spend

•The credit card portfolio is a prime book with low levels of arrears and strong repayment rates despite recent affordability pressures

•Updated macroeconomic assumptions within the ECL model and forward looking judgements for the increased risk from inflation and a

higher cost of living resulted in an impairment charge of £571 million for 2022, compared to a credit of £52 million in 2021. Total ECL coverage

increased to 5.1 per cent (31 December 2021: 3.7 per cent)

•This is reflected in Stage 2 loans and advances which increased to 21.9 per cent of the portfolio (31 December 2021: 14.5 per cent) and Stage

2 ECL coverage which has increased to 14.5 per cent (31 December 2021: 12.0 per cent)

•Stage 3 loans and advances remained broadly stable at 1.9 per cent of the portfolio (31 December 2021: 2.0 per cent), while Stage 3 ECL

coverage has reduced to 50.9 per cent (31 December 2021: 56.9 per cent)

Lloyds Bank plc

Risk management

LOANS AND OVERDRAFTS

•Loans and advances for personal current account and the personal loans portfolios increased to £10.3 billion (31 December 2021: £9.6 billion)

with continued recovery in customer spend and demand for credit

•Updated macroeconomic assumptions within the ECL model and forward looking judgements for the increased risk from inflation and a

higher cost of living resulted in an impairment charge of £499 million for the full year 2022 compared to a charge of £39 million for 2021

•Stage 2 ECL coverage increased to 21.4 per cent (31 December 2021: 15.4 per cent) and overall ECL coverage to 6.6 per cent (31 December

2021: 4.7 per cent)

•Stage 3 ECL coverage reduced slightly to 64.6 per cent (31 December 2021: 67.5 per cent)

UK MOTOR FINANCE

•The UK Motor Finance portfolio increased from £14.3 billion for 2021 to £14.6 billion for 2022, with ongoing new car supply constraints being

offset by continued strong demand for used vehicles

•There was a net impairment credit of £2 million for 2022 reflecting continued low levels of losses given resilient used car prices. This compares

to a credit of £151 million for 2021, which benefitted from ECL releases as used car prices materially outperformed expectations set earlier in

the pandemic. However, used car prices have begun to fall from recent high levels with this trend expected to continue. ECL coverage

decreased to 1.7 per cent (31 December 2021: 2.1 per cent)

•Updates to Residual Value (RV) and Voluntary Termination (VT) risk held against Personal Contract Purchase (PCP) and Hire Purchase (HP)

lending are included within the impairment charge. Continued resilience in used car prices and disposal experience, partially driven by global

supply issues, offset by underperformance in some segments, has resulted in broadly flat RV and VT ECL of £92 million as at 31 December

2022 (31 December 2021: £95 million)

•Stable credit performance and continued resilience in used car prices has resulted in Stage 2 ECL coverage reducing slightly to 3.4 per cent

(31 December 2021:4.0 per cent) and Stage 3 ECL reducing to 52.6 per cent (31 December 2021: 57.7 per cent)

OTHER

•Other loans and advances increased slightly to £14.8 billion (31 December 2021: £12.0 billion). Stage 3 loans and advances remain stable at 1.1

per cent (31 December 2021: 1.4 per cent) and Stage 3 coverage at 33.1 per cent (31 December 2021: 30.8 per cent)

•There was a net impairment charge of £10 million for 2022 compared to a credit of £10 million for 2021

Retail UK mortgages loans and advances to customers1


	At 31 Dec 2022 £m	At 31 Dec 2021 £m
Mainstream	253,283	248,013
Buy-to-let	51,529	51,111
Specialist	7,526	9,220
Total	312,338	308,344

1Balances include the impact of HBOS-related acquisition adjustments.

Lloyds Bank plc

Risk management

INTEREST-ONLY MORTGAGES

The Group provides interest-only mortgages to owner occupier mortgage customers whereby only payments of interest are made for the term

of the mortgage with the customer responsible for repaying the principal outstanding at the end of the loan term. At 31 December 2022, owner

occupier interest-only balances as a proportion of total owner occupier balances had reduced to 16.4 per cent (31 December 2021:18.7 per

cent). The average indexed loan to value remained low at 35.5 per cent (31 December 2021:36.8 per cent).

For existing interest-only mortgages, a contact strategy is in place during the term of the mortgage to ensure that customers are aware of their

obligations to repay the principal upon maturity of the loan.

Treatment strategies are in place to help customers anticipate and plan for repayment of capital at maturity and support those who may have

difficulty in repaying the principal amount. A dedicated specialist team supports customers who have passed their contractual maturity date and

are unable to fully repay the principal. A range of treatments are offered to customers based on their individual circumstances to create fair and

sustainable outcomes.

Analysis of owner occupier interest-only mortgages


	At 31 Dec 2022	At 31 Dec 2021
Interest-only balances (£m)	42,697	48,128
Stage 1 (%)	58.5	70.7
Stage 2 (%)	25.3	17.1
Stage 3 (%)	3.7	2.8
Purchased or originated credit-impaired (%)	12.5	9.4
Average loan to value (%)	35.5	36.8
Maturity profile (£m)
Due	1,931	1,803
Within 1 year	1,453	1,834
2 to 5 years	8,832	8,889
6 to 10 years	16,726	17,882
Greater than 10 years	13,755	17,720

Past term interest-only balances (£m)1	1,906	1,790
Stage 1 (%)	0.2	0.7
Stage 2 (%)	11.9	33.0
Stage 3 (%)	45.6	29.6
Purchased or originated credit-impaired (%)	42.3	36.7
Average loan to value (%)	33.2	33.0
Negative equity (%)	2.0	1.8

1Balances where all interest-only elements have moved past term. Some may subsequently have had a term extension, so are no longer classed as due.

Lloyds Bank plc

Risk management

RETAIL FORBEARANCE

The basis of disclosure for forbearance is aligned to definitions used in the European Banking Authority’s FINREP reporting. Total forbearance

for the major retail portfolios has reduced by £1.1 billion to £4.3 billion. This is driven by a reduction in customers with a historical capitalisation

treatment (where arrears were reset and added to the loan balance) and, following the implementation of new regulatory requirements, the

removal of past term interest-only mortgages as a forbearance event where a forbearance treatment has not been granted.

The main customer treatments included are: repair, where arrears are added to the loan balance and the arrears position cancelled; instances

where there are suspensions of interest and/or capital repayments; and refinance personal loans.

As a percentage of loans and advances, forbearance loans decreased to 1.2 per cent at 31 December 2022 (31 December 2021: 1.5 per cent).

Total expected credit losses (ECL) as a proportion of loans and advances which are forborne has increased to 8.8 per cent (31 December 2021:

7.2 per cent).

Retail forborne loans and advances (audited)


	Total £m	Of which Stage 2 £m	Of which Stage 3 £m	Of which POCI £m	Expected credit losses as a % of total loans and advances which are foreborne1 %
At 31 December 2022
UK mortgages	3,655	684	951	1,995	4.4
Credit cards	260	90	125	–	31.6
Loans and overdrafts	308	125	117	–	36.3
UK Motor Finance	77	32	42	–	32.4
Total	4,300	931	1,235	1,995	8.8
At 31 December 2021
UK mortgages	4,725	1,216	901	2,600	3.2
Credit cards	288	90	141	–	32.9
Loans and overdrafts	312	99	131	–	33.8
UK Motor Finance	102	38	62	–	37.0
Total	5,427	1,443	1,235	2,600	7.2

1Expected credit loss allowance as a percentage of total loans and advances which are forborne is calculated excluding loans in recoveries for Credit cards, Loans and overdrafts (31

December 2022: £80 million; 31 December 2021: £87 million).

COMMERCIAL BANKING

PORTFOLIO OVERVIEW

•The Commercial portfolio credit quality remains resilient overall, with a focused approach to credit underwriting and monitoring standards

and proactively managing exposures to higher risk and vulnerable sectors. While some of the Group’s metrics indicate very modest

deterioration, especially in consumer-led sectors, these are not considered to be material

•The Group has reduced overall exposure to cyclical sectors since 2019 and continues to closely monitor credit quality, sector and single name

concentrations. Sector and credit risk appetite continue to be proactively managed to ensure the Group is protected and clients are

supported in the right way

•The Group continues to carefully monitor the level of arrears on lending under the UK Government support schemes, including the Bounce

Back Loan Scheme and the Coronavirus Business Interruption Loan Scheme, where UK Government guarantees are in place at 100 per cent

and 80 per cent respectively. The Group will continue to review customer trends and take early risk mitigating actions as appropriate,

including actions to review and manage refinancing risk

•The Group continues to provide early support to its more vulnerable customers through focused risk management via its Watchlist and

Business Support framework. The Group will continue to balance prudent risk appetite with ensuring support for financially viable clients on

their road to recovery

IMPAIRMENTS

•There was a net impairment charge of £471 million in 2022, compared to a net impairment credit of 869 million in 2021. This was driven by a

charge from economic outlook revisions. The remaining pre-updated MES charge was largely driven by a further material charge in the fourth

quarter on a pre-existing single case

•ECL allowances increased by £376 million to £1,791 million at 31 December 2022 (31 December 2021: £1,415 million). The ECL provision at

31 December 2022 includes the capture of the impact of inflationary pressures and supply chain constraints and assumes additional losses will

emerge as a result of these and other emerging risks, through the multiple economic scenarios

•As a result of the deterioration in the Group’s forward-looking modelled economic assumptions, Stage 2 loans and advances increased by

£2,949 million to £10,432 million (31 December 2021: £7,483 million), with 94.6 per cent of Stage 2 balances up to date. Stage 2 as a

proportion of total loans and advances to customers increased to 13.7 per cent (31 December 2021: 9.8 per cent). Stage 2 ECL coverage was

higher at 4.6 per cent (31 December 2021: 4.0 per cent) with the increase in coverage a direct result of the change in the multiple economic

scenarios

•Stage 3 loans and advances reduced to £3,348 million (31 December 2021: £3,533 million) and as a proportion of total loans and advances to

customers, reduced to 4.4 per cent (31 December 2021: 4.6 per cent), largely as a result of net repayments and write-offs in the Corporate and

Institutional Banking portfolio. Stage 3 ECL coverage increased to 39.2 per cent (31 December 2021: 31.8 per cent) predominantly driven by a

further material charge on a pre-existing single case

Lloyds Bank plc

Risk management

COMMERCIAL BANKING UK DIRECT REAL ESTATE

•Commercial Banking UK Direct Real Estate gross lending stood at £10.7 billion at 31 December 2022 (net of exposures subject to protection

through Significant Risk Transfer (SRT) securitisations)

•The Group classifies Direct Real Estate as exposure which is directly supported by cash flows from property activities (as opposed to trading

activities, such as hotels, care homes and housebuilders). Exposures of £5.3 billion to social housing providers are also excluded

•Recognising this is a cyclical sector, total quantum (gross and net) and asset type quantum caps are in place to control origination and

exposure. Focus remains on the UK market and new business has been written in line with a prudent risk appetite with conservative LTVs,

strong quality of income and proven management teams. During 2022, the Group increased the reporting granularity of underlying LTV data

as detailed in the LTV - UK Direct Real Estate table

•Overall performance has remained resilient and although the Group saw some increase in cases on its closer monitoring Watchlist category,

these are predominantly purely precautionary, and levels of this remain significantly below that seen during the pandemic. Transfers to the

Group’s Business Support Unit have been limited

•Rent collection has largely recovered and stabilised following the coronavirus pandemic, although challenges remain in some sectors. Despite

some material headwinds, including the inflationary environment and the impact of rising interest rates, which impacts debt servicing and

refinance capacity, the portfolio is well-positioned and proactively managed, with conservative LTVs, good levels of interest cover, and

appropriate risk mitigants in place:

–CRE exposures continue to be heavily weighted towards investment real estate (c.90 per cent) rather than development. Of these

investment exposures, over 91 per cent have an LTV of less than 60 per cent, with an average LTV of 40 per cent

–c.90 per cent of CRE exposures have an interest cover ratio of greater than 2.0 times and in SME, LTV at origination has been typically

limited to c.55 per cent, given prudent repayment cover criteria (including a notional base rate stress)

–Approximately 47 per cent of exposures relate to commercial real estate (with no speculative development lending) with the remainder

predominantly related to residential real estate. The underlying sub sector split is diversified with more limited exposure to higher risk sub

sectors (c.13 per cent of exposures secured by Retail assets, with appetite tightened since 2018)

–Use of SRT securitisations also acts as a risk mitigant in this portfolio, with run-off of these carefully managed and sequenced

–Both investment and development lending is subject to specific credit risk appetite criteria. Development lending criteria includes

maximum loan to gross development value and maximum loan to cost, with funding typically only released against completed work, as

confirmed by the Group’s monitoring quantity surveyor

LTV – UK Direct Real Estate


	At 31 December 20221,2,3				At 31 December 20211,2,3
	Stage 1 and 2 £m	Stage 3 £m	Total £m	Total %	Stage 1 and 2 £m	Stage 3 £m	Total £m	Total %
Investment exposures
Less than 60 per cent	7,721	47	7,768	91.0	6,461	52	6,513	83.2
60 per cent to 70 per cent	452	9	461	5.4	617	5	622	8.0
70 per cent to 80 per cent	58	–	58	0.7	129	13	142	1.8
80 per cent to 100 per cent	17	13	30	0.4	84	2	86	1.1
100 per cent to 120 per cent	8	23	31	0.4	6	102	108	1.4
120 per cent to 140 per cent	1	–	1	–	4	–	4	0.1
Greater than 140 per cent	13	54	67	0.8	12	46	58	0.7
Unsecured4	115	–	115	1.3	288	–	288	3.7
Subtotal	8,385	146	8,531	100.0	7,601	220	7,821	100.0
Other5	346	13	359		1,460	27	1,487
Total investment	8,731	159	8,890		9,061	247	9,308
Development	900	7	907		1,233	17	1,250
UK Government Supported Lending6	278	5	283		362	5	367
Total	9,909	171	10,080		10,656	269	10,925

1Excludes Commercial Banking UK Direct Real Estate exposures subject to protection through Significant Risk Transfer transactions.

2Excludes £0.6 billion in Business Banking (31 December 2021: £0.7 billion).

3Year on year increase in less than 60 per cent driven by improved data coverage with clients moving from 'Other’.

4Predominantly Investment grade corporate CRE lending where the Group is relying on the corporate covenant.

5Mainly lower value transactions where LTV not recorded on Commercial Banking UK Direct Real Estate monitoring system. Year on year decrease driven by improved data coverage with

clients now reported in LTV band.

6Bounce Back Loan Scheme (BBLS) and Coronavirus Business Interruption Loan Scheme (CBILS) lending to real estate clients, where government guarantees are in place at 100 per cent and

80 per cent, respectively.

COMMERCIAL BANKING FORBEARANCE

Commercial Banking forborne loans and advances (audited)


	At 31 December 20221		At 31 December 2021
Type of forbearance	Total £m	Of which Stage 3 £m	Total £m	Of which Stage 3 £m
Refinancing	13	11	14	11
Modification	3,460	2,884	3,624	2,851
Total	3,473	2,895	3,638	2,862

1Includes £279 million (of which £254 million are guaranteed through the UK Government Bounce Back Loan Scheme) in Business Banking reported for the first time, £210 million of which is

Stage 3.

Lloyds Bank plc

Risk management

DATA RISK

DEFINITION

Data risk is defined as the risk of the Group failing to effectively govern, manage and control its data (including data processed by third-party

suppliers), leading to unethical decisions, poor customer outcomes, loss of value to the Group and mistrust.

EXPOSURES

Data risk is present in all aspects of the business where data is processed, both within the Group and by third parties including colleague and

contractor, prospective and existing customer lifecycle and insight processes. Data risk manifests:

•When personal data is not managed in a way that complies with General Data Protection Regulations (GDPR) and other data privacy

regulatory obligations

•When data quality issues are not identified and managed appropriately

•When data records are not created, retained, protected, destroyed, or retrieved appropriately

•When data governance fails to provide robust oversight of data decision-making, controls and actions to ensure strategies are implemented

effectively

•When data standards are not maintained, data-related issues are not remediated, and incomplete data that is not available at the right time,

to the right people, to enable business decisions to be made, and regulatory reporting requirements to be fulfilled

•When critical data mapping and data information standards are not followed, impacting compliance, traceability and understanding of data

MEASUREMENT

Data risk covers data governance, data management and data privacy and ethics and is measured through a series of quantitative and

qualitative metrics.

MITIGATION

Mitigation strategies are adopted to reduce data governance, management, privacy and ethical risks. Control assessments are logged and

tracked on One Risk and Control Self-Assessment system with supporting metrics. Investment continues to be made to reduce data risk

exposure to within appetite. Examples include:

•Delivering a data strategy

•Enhancing data quality and capability

•Embedding data by design and ethics

MONITORING

The Group continues to monitor and respond to data related regulatory initiatives i.e. new Digital Protection and Digital Information Bill

expected spring 2023 and political developments i.e. potential divergence of legal and regulatory requirements following EU exit.

Data risk is governed through Group and sub-group committees and significant issues are escalated to Group Risk Committee, in accordance

with the Lloyds Banking Group’s Enterprise Risk Management Framework and One RCSA frameworks.

A number of activities support the close monitoring of data risk including:

•Design and monitoring of data risk appetite metrics, including key risk indicators and key performance indicators

•Monitoring of significant data related issues, complaints, events and breaches in accordance with Group Operational Risk and Data policies

•Identification and mitigation of data risk when planning and implementing transformation or business change

Lloyds Bank plc

Risk management

FUNDING AND LIQUIDITY RISK

DEFINITION

Funding risk is defined as the risk that the Group does not have sufficiently stable and diverse sources of funding or the funding structure is

inefficient. Liquidity risk is defined as the risk that the Group has insufficient financial resources to meet its commitments as they fall due, or can

only secure them at excessive cost.

EXPOSURE

Liquidity exposure represents the potential stressed outflows in any future period less expected inflows. The Group considers liquidity exposure

from both an internal and a regulatory perspective.

MEASUREMENT

Liquidity risk is managed through a series of measures, tests and reports that are primarily based on contractual maturities with behavioural

overlays as appropriate. The Group undertakes quantitative and qualitative analysis of the behavioural aspects of its assets and liabilities in

order to reflect their expected behaviour.

MITIGATION

The Group manages and monitors liquidity risks and ensures that liquidity risk management systems and arrangements are adequate with

regard to the internal risk appetite, Group strategy and regulatory requirements. Liquidity policies and procedures are subject to independent

internal oversight by Risk. Overseas branches and subsidiaries of the Group may also be required to meet the liquidity requirements of the

entity’s domestic country. Management of liquidity requirements is performed by the overseas branch or subsidiary in line with Group policy.

The Group plans funding requirements over its planning period, combining business as usual and stressed conditions. The Group manages its

liquidity position paying regard to its internal risk appetite, Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) as required by

the PRA, the Capital Requirements Directive (CRD IV) and the Capital Requirements Regulation (CRR) liquidity requirements.

The Group’s funding and liquidity position is underpinned by its significant customer deposit base and is supported by strong relationships

across customer segments. The Group has consistently observed that, in aggregate, the retail deposit base provides a stable source of funding.

Funding concentration by counterparty, currency and tenor is monitored on an ongoing basis and, where concentrations do exist, these are

managed as part of the planning process and limited by the internal funding and liquidity risk monitoring framework, with analysis regularly

provided to senior management.

To assist in managing the balance sheet, the Group operates a Liquidity Transfer Pricing (LTP) process which: allocates relevant interest

expenses from the centre to the Group’s banking businesses within the internal management accounts; helps drive the correct inputs to

customer pricing; and is consistent with regulatory requirements. LTP makes extensive use of behavioural maturity profiles, taking account of

expected customer loan prepayments and stability of customer deposits, modelled on historic data.

The Group can monetise liquid assets quickly, either through the repurchase agreements (repo) market or through outright sale. In addition, the

Group has pre-positioned a substantial amount of assets at the Bank of England’s Discount Window Facility which can be used to access

additional liquidity in a time of stress. The Group considers diversification across geography, currency, markets and tenor when assessing

appropriate holdings of liquid assets. The Group’s liquid asset buffer is available for deployment at immediate notice, subject to complying with

regulatory requirements.

MONITORING

Daily monitoring and control processes are in place to address internal and regulatory liquidity requirements. The Group monitors a range of

market and internal early warning indicators on a daily basis for early signs of liquidity risk in the market or specific to the Group. This captures

regulatory metrics as well as metrics the Group considers relevant for its liquidity profile. These are a mixture of quantitative and qualitative

measures, including: daily variation of customer balances; changes in maturity profiles; funding concentrations; changes in LCR outflows; credit

default swap (CDS) spreads; and basis risks.

The Group carries out internal stress testing of its liquidity and potential cash flow mismatch position over both short (up to one month) and

longer-term horizons against a range of scenarios forming an important part of the internal risk appetite. The scenarios and assumptions are

reviewed at least annually to ensure that they continue to be relevant to the nature of the business, including reflecting emerging horizon risks

to the Group. For further information on the Group’s 2022 liquidity stress testing results refer to page 51.

The Group maintains a Liquidity Contingency Framework as part of the wider Recovery Plan which is designed to identify emerging liquidity

concerns at an early stage, so that mitigating actions can be taken to avoid a more serious crisis developing. The Liquidity Contingency

Framework has a foundation of robust and regular monitoring and reporting of key performance indicators, early warning indicators and Risk

Appetite by both Group Corporate Treasury (GCT) and Risk up to and including Board level. Where movements in any of these metrics and

indicator suites point to a potential issue, SME teams and their directors will escalate this information as appropriate.

FUNDING AND LIQUIDITY MANAGEMENT IN 2022

The Group has maintained its strong funding and liquidity position with a loan to deposit ratio of 98 per cent as at 31 December 2022 (96 per

cent as at 31 December 2021) largely driven by increased customer lending.

The Group's liquid assets continue to exceed the regulatory minimum and internal risk appetite, with a liquidity coverage ratio (LCR) of 136 per

cent (based on a monthly rolling average over the previous 12 months) as at 31 December 2022.

The Net Stable Funding Ratio (NSFR) was implemented on 1 January 2022. The Group monitors this metric monthly and is significantly in excess

of the regulatory requirement of 100 per cent.

Overall, wholesale funding totalled £69.0 billion as at 31 December 2022 (31 December 2021: £64.9 billion). The total outstanding amount of

drawings from the Term Funding Scheme with additional incentives for SMEs (TFSME) has remained stable at £30.0 billion at 31 December 2022

(31 December 2021: £30.0 billion), with maturities in 2025, 2027 and beyond.

The Group’s credit ratings continue to reflect the strength of the Group’s business model and balance sheet. Moody’s downgraded the

subordinated ratings for Lloyds Bank plc by one notch based on their Loss Given Failure methodology. Moody’s also revised the outlook on

Lloyds Bank plc's senior unsecured rating to negative following their decision to downgrade the outlook of the UK sovereign to negative. The

Group’s strong management, franchise and financial performance along with robust capital and funding position are reflected in the Group’s

strong ratings.

Lloyds Bank plc

Risk management

Lloyds Bank Group funding requirements and sources


	At 31 Dec 2022 £bn	At 31 Dec 2021 £bn
Lloyds Bank Group funding position
Cash and balances at central banks	72.0	54.3
Loans and advances to banks	8.4	4.5
Loans and advances to customers	435.6	430.8
Reverse repurchase agreements – non-trading	39.3	49.7
Debt securities at amortised cost	7.3	4.6
Financial assets at fair value through other comprehensive income	22.8	27.8
Other assets1	31.5	31.1
Total Lloyds Bank Group assets	616.9	602.8
Less other liabilities1,2	(11.7)	(16.5)
Funding requirements	605.2	586.3

Wholesale funding2,3	69.0	64.9
Customer deposits	446.2	449.4
Repurchase agreements – non-trading	18.6	0.1
Term Funding Scheme with additional incentives for SMEs (TFSME)	30.0	30.0
Deposits from fellow Lloyds Banking Group undertakings	2.3	1.1
Total equity	39.1	40.8
Funding sources	605.2	586.3

1Other assets and other liabilities primarily include the fair value of derivative assets and liabilities.

2Wholesale funding includes significant risk transfer securitisations issued by special purpose vehicles of £1.6 billion (31 December 2021: £1.7 billion), previously included in other liabilities;

both comparatives have been presented on a consistent basis.

3The Group’s definition of wholesale funding aligns with that used by other international market participants; including bank deposits, debt securities in issue and subordinated liabilities.

Excludes balances relating to margins of £0.7 billion (31 December 2021: £1.3 billion).

Reconciliation of Lloyds Bank Group funding to the balance sheet (audited)


	Included in funding analysis £bn	Cash collateral received1 £bn	Fair value and other accounting methods2 £bn	Balance sheet £bn
At 31 December 2022
Deposits from banks	4.0	0.7	–	4.7
Debt securities in issue3	56.8	–	(7.7)	49.1
Subordinated liabilities	8.2	–	(1.6)	6.6
Total wholesale funding	69.0	0.7
Customer deposits	446.2	–	–	446.2
Total	515.2	0.7
At 31 December 2021
Deposits from banks	1.9	1.4	0.1	3.4
Debt securities in issue3	54.1	–	(5.4)	48.7
Subordinated liabilities	8.9	–	(0.2)	8.7
Total wholesale funding	64.9	1.4
Customer deposits	449.4	–	–	449.4
Total	514.3	1.4

1Repurchase agreements, previously reported within deposits from banks and customer deposits, are excluded; comparatives have been restated.

2Includes the unamortised HBOS acquisition adjustments on subordinated liabilities, the fair value movements on liabilities held at fair value through profit or loss, and hedge accounting

adjustments that impact the accounting carrying value of the liabilities.

3Debt securities in issue included in funding analysis include significant risk transfer securitisations issued by special purpose vehicles of £1.6 billion (31 December 2021: £1.7 billion),

previously included in other liabilities; both comparatives have been presented on a consistent basis.

Lloyds Bank plc

Risk management

Analysis of 2022 total wholesale funding by residual maturity


	Up to 1 month £bn	1–3 months £bn	3–6 months £bn	6–9 months £bn	9–12 months £bn		1–2 years £bn	2–5 years £bn	Over five years £bn		Total at 31 Dec 2022 £bn	Total at 31 Dec 2021 £bn
Deposits from banks	3.8	–	0.1	0.1		–	–	–		–	4.0	1.9
Debt securities in issue:
Certificates of deposit	0.4	1.1	0.1	–		–	–	–		–	1.6	0.3
Commercial paper	2.6	4.9	1.5	–		–	–	–		–	9.0	3.6
Medium-term notes	0.3	0.5	1.0	2.2		0.3	7.6	7.8		9.4	29.1	29.4
Covered bonds	0.9	1.7	0.9	–		–	2.8	5.7		2.2	14.2	17.0
Securitisation1	–	0.2	0.3	–		–	0.1	1.3		1.0	2.9	3.8
	4.2	8.4	3.8	2.2		0.3	10.5	14.8		12.6	56.8	54.1
Subordinated liabilities	–	–	0.2	–		–	–	3.0		5.0	8.2	8.9
Total wholesale funding2	8.0	8.4	4.1	2.3		0.3	10.5	17.8		17.6	69.0	64.9

1Securitisation includes significant risk transfer securitisations issued by special purpose vehicles of £1.6 billion (31 December 2021: £1.7 billion), previously included in other liabilities; both

comparatives have been presented on a consistent basis.

2The Group’s definition of wholesale funding aligns with that used by other international market participants; including bank deposits, debt securities in issue and subordinated liabilities.

Excludes balances relating to margins of £0.7 billion (31 December 2021: £1.3 billion).

Total wholesale funding by currency (audited)


	Sterling £bn1	US Dollar £bn	Euro £bn	Other currencies £bn	Total £bn
At 31 December 2022	17.0	28.0	18.1	5.9	69.0
At 31 December 2021	18.4	23.6	17.0	5.9	64.9

1Wholesale funding includes significant risk transfer securitisations issued by special purpose vehicles of £1.6 billion (31 December 2021: £1.7 billion), previously included in other liabilities;

both comparatives have been presented on a consistent basis.

Analysis of 2022 term issuance (audited)


	Sterling £bn	US Dollar £bn	Euro £bn	Other currencies £bn	Total £bn
Securitisation1	0.2	–	–	–	0.2
Covered bonds	1.0	–	–	–	1.0
Senior unsecured notes	–	1.8	0.9	1.1	3.8
Subordinated liabilities	–	0.8	–	–	0.8
Total issuance	1.2	2.6	0.9	1.1	5.8

1Includes significant risk transfer securitisations.

Lloyds Bank plc

Risk management

LIQUIDITY PORTFOLIO

At 31 December 2022, the Group had £120.8 billion of highly liquid unencumbered LCR eligible assets, based on a monthly rolling average over

the previous 12 months post any liquidity haircuts (31 December 2021: £114.7 billion), of which £117.0 billion is LCR level 1 eligible (31 December

2021: £113.2 billion) and £3.8 billion is LCR level 2 eligible (31 December 2021: £1.5 billion). These assets are available to meet cash and

collateral outflows and regulatory requirements.

LCR eligible assets


	Average
	20221 £bn	20211 £bn
Cash and central bank reserves	66.0	50.3
High quality government/MDB/agency bonds2	48.9	60.6
High quality covered bonds	2.1	2.3
Level 1	117.0	113.2
Level 23	3.8	1.5
Total LCR eligible assets	120.8	114.7

1Based on 12 months rolling average to 31 December. Eligible assets are calculated as an average of month-end observations over the previous 12 months post any liquidity haircuts.

2Designated multilateral development bank (MDB).

3Includes Level 2A and Level 2B.

LCR eligible assets by currency


	Sterling £bn	US Dollar £bn	Euro £bn	Other currencies £bn	Total £bn
At 31 December 2022
Level 1	91.4	8.4	17.1	0.1	117.0
Level 2	0.9	1.4	0.4	1.1	3.8
Total1	92.3	9.8	17.5	1.2	120.8
At 31 December 2021
Level 1	92.4	7.9	12.9	–	113.2
Level 2	0.7	0.4	–	0.4	1.5
Total1	93.1	8.3	12.9	0.4	114.7

1Based on 12 months rolling average to 31 December. Eligible assets are calculated as an average of month-end observations over the previous 12 months post any liquidity haircuts.

The Group also has a significant amount of non-LCR eligible liquid assets which are eligible for use in a range of central bank or similar facilities.

Future use of such facilities will be based on prudent liquidity management and economic considerations, having regard for external market

conditions.

STRESS TESTING RESULTS

Internal liquidity stress testing results at 31 December 2022 (calculated as an average of month end observations over the previous 12 months)

showed that the Group had liquidity resources representing 141 per cent of modelled outflows over a three month period from all wholesale

funding sources, retail and corporate deposits, off-balance sheet requirements, intraday requirements and rating dependent contracts under

the Group’s most severe liquidity stress scenario.

This scenario includes a two notch downgrade of the Group’s current long-term debt rating and accompanying one notch short-term

downgrade implemented instantaneously by all major rating agencies.

Lloyds Bank plc

Risk management

MARKET RISK

DEFINITION

Market risk is defined as the risk that the Group’s capital or earnings profile is affected by adverse market rates or prices, in particular interest

rates, credit spreads.

MEASUREMENT

Group risk appetite is calibrated primarily to a number of multi-risk Group economic scenarios, and is supplemented with sensitivity-based

measures. The scenarios assess the impact of unlikely, but plausible, adverse stresses on income with the worst case for banking activities,

defined benefit pensions and trading portfolios reported against independently, and across the Group as a whole.

The Group risk appetite is cascaded first to the Group Asset and Liability Committee (GALCO), chaired by the Chief Financial Officer, where risk

appetite is approved and monitored by risk type, and then to the Group Market Risk Committee (GMRC) where risk appetite is sub-allocated by

division. These metrics are reviewed regularly by senior management to inform effective decision-making.

MITIGATION

GALCO is responsible for approving and monitoring Group market risks, management techniques, market risk measures, behavioural

assumptions, and the market risk policy. Various mitigation activities are assessed and undertaken across the Group to manage portfolios and

seek to ensure they remain within approved limits. The mitigation actions will vary dependent on exposure but will, in general, look to reduce

risk in a cost effective manner by offsetting balance sheet exposures and externalising to the financial markets dependent on market liquidity.

The market risk policy is owned by Group Corporate Treasury (GCT) and refreshed annually. The policy is underpinned by supplementary

market risk procedures, which define specific market risk management and oversight requirements.

MONITORING

GALCO and GMRC regularly review high level market risk exposure as part of the wider risk management framework. They also make

recommendations to the Board concerning overall market risk appetite and market risk policy. Exposures at lower levels of delegation are

monitored at various intervals according to their volatility, from daily in the case of trading portfolios to monthly or quarterly in the case of less

volatile portfolios. Levels of exposures compared to approved limits and triggers are monitored by Risk and appropriate escalation procedures

are in place.

How market risks arise and are managed across the Group’s activities is considered in more detail below.

BANKING ACTIVITIES

EXPOSURES

The Group’s banking activities expose it to the risk of adverse movements in market rates or prices, predominantly interest rates, credit spreads,

exchange rates and equity prices. The volatility of market rates or prices can be affected by both the transparency of prices and the amount of

liquidity in the market for the relevant asset, liability or instrument.

INTEREST RATE RISK

Yield curve risk in the Group’s divisional portfolios, and in the Group’s capital and funding activities, arises from the different repricing

characteristics of the Group’s non-trading assets, liabilities and off-balance sheet positions.

Basis risk arises from the potential changes in spreads between indices, for example where the bank lends with reference to a central bank rate

but funds with reference to a market rate, e.g. SONIA, and the spread between these two rates widens or tightens.

Optionality risk arises predominantly from embedded optionality within assets, liabilities or off-balance sheet items where either the Group or

the customer can affect the size or timing of cash flows. One example of this is mortgage prepayment risk where the customer owns an option

allowing them to prepay when it is economical to do so. This can result in customer balances amortising more quickly or slowly than anticipated

due to customers’ response to changes in economic conditions.

FOREIGN EXCHANGE RISK

Economic foreign exchange exposure arises from the Group’s investment in its overseas operations (net investment exposures are disclosed in

note 44 on page 160). In addition, the Group incurs foreign exchange risk through non-functional currency flows from services provided by

customer-facing divisions, the Group’s debt and capital management programmes and is exposed to volatility in its CET1 ratio, due to the

impact of changes in foreign exchange rates on the retranslation of non-Sterling-denominated risk-weighted assets.

EQUITY RISK

Equity risk arises primarily from exposure to the Lloyds Banking Group share price through deferred shares and deferred options granted to

employees as part of their benefits package.

CREDIT SPREAD RISK

Credit spread risk arises largely from: (i) the liquid asset portfolio held in the management of Group liquidity, comprising of government,

supranational and other eligible assets; (ii) the Credit Valuation Adjustment (CVA) and Debit Valuation Adjustment (DVA) sensitivity to credit

spreads; (iii) a number of the Group’s structured medium-term notes where the Group has elected to fair value the notes through the profit and

loss account; and (iv) banking book assets in Commercial Banking held at fair value under IFRS 9.

MEASUREMENT

Interest rate risk exposure is monitored monthly using, primarily:

Market value sensitivity: this methodology considers all repricing mismatches (behaviourally adjusted where appropriate) in the current balance

sheet and calculates the change in market value that would result from an instantaneous 25, 100 and 200 basis points parallel rise or fall in the

yield curve. Sterling interest rates are modelled with a floor below zero per cent, with negative rate floors also modelled for non-Sterling

currencies where appropriate (product-specific floors apply). The market value sensitivities are calculated on a static balance sheet using

principal cash flows excluding interest, commercial margins and other spread components and are therefore discounted at the risk-free rate.

Interest income sensitivity: this measures the impact on future net interest income arising from various economic scenarios. These include

instantaneous 25, 100 and 200 basis point parallel shifts in all yield curves and the Group economic scenarios. Sterling interest rates are

modelled with a floor below zero per cent, with negative rate floors also modelled for non-Sterling currencies where appropriate (product-

specific floors apply). These scenarios are reviewed every year and are designed to replicate severe but plausible economic events, capturing

risks that would not be evident through the use of parallel shocks alone such as basis risk and steepening or flattening of the yield curve.

Unlike the market value sensitivities, the interest income sensitivities incorporate additional behavioural assumptions as to how and when

individual products would reprice in response to changing rates.

Lloyds Bank plc

Risk management

Reported sensitivities are not necessarily predictive of future performance as they do not capture additional management actions that would

likely be taken in response to an immediate, large, movement in interest rates. These actions could reduce the net interest income sensitivity,

help mitigate any adverse impacts or they may result in changes to total income that are not captured in the net interest income.

Structural hedge: the structural hedging programme managing interest rate risk in the banking book relies on assumptions made around

customer behaviour. A number of metrics are in place to monitor the risks within the portfolio.

The Group has an integrated Asset and Liability Management (ALM) system which supports non-traded asset and liability management of the

Group. This provides a single consolidated tool to measure and manage interest rate repricing profiles (including behavioural assumptions),

perform stress testing and produce forecast outputs. The Group is aware that any assumptions-based model is open to challenge. A full

behavioural review is performed annually, or in response to changing market conditions, to ensure the assumptions remain appropriate and the

model itself is subject to annual re-validation, as required under Lloyds Banking Group's model governance policy. The key behavioural

assumptions are:

•Embedded optionality within products

•The duration of balances that are contractually repayable on demand, such as current accounts and overdrafts, together with net free reserves

of the Group

•The re-pricing behaviour of managed rate liabilities, such as variable rate savings

The table below shows, split by material currency, the Group’s market value sensitivities to an instantaneous parallel up and down 25 and 100

basis points change to all interest rates.

Lloyds Bank Group Banking activities: market value sensitivity (audited)


	2022				2021
	Up 25bps £m	Down 25bps £m	Up 100bps £m	Down 100bps £m	Up 25bps £m	Down 25bps £m	Up 100bps £m	Down 100bps £m
Sterling	0.4	(1.1)	(2.2)	(9.1)	26.1	(27.6)	98.4	(129.8)
US Dollar	(0.1)	0.2	(0.3)	0.9	(0.3)	0.9	(1.1)	4.0
Euro	(2.0)	–	(7.6)	0.1	(5.1)	(2.9)	(19.3)	(11.5)
Other	–	–	(0.1)	0.1	(0.2)	0.3	(1.0)	0.8
Total	(1.7)	(0.9)	(10.2)	(8.0)	20.5	(29.3)	77.0	(136.5)

This is a risk-based disclosure and the amounts shown would be amortised in the income statement over the duration of the portfolio.

The market value sensitivity to an up 100 basis points shock has decreased due to rates being higher than at year end 2021, which directly

impacts expected mortgage prepayments, aligning more closely to our hedging strategy.

The table below shows supplementary value sensitivity to a steepening and flattening (c.100 basis points around the three-year point) in the

yield curve. This ensures there are no unintended consequences to managing risk to parallel shifts in rates.

Lloyds Bank Group Banking activities: market value sensitivity to a steepening and flattening of the yield curve (audited)


	2022		2021
	Steepener £m	Flattener £m	Steepener £m	Flattener £m
Sterling	67.8	(78.2)	85.8	(114.4)
US Dollar	(7.6)	7.8	(7.0)	8.2
Euro	(7.7)	2.9	(13.8)	(6.9)
Other	0.1	(0.1)	0.2	(0.2)
Total	52.6	(67.6)	65.2	(113.3)

The table below shows the banking book net interest income sensitivity on a one to three year forward-looking basis to an instantaneous

parallel up 25, down 25 and up 50 basis points change to all interest rates.

Lloyds Bank Group Banking activities: three year net interest income sensitivity (audited)


	Down 25bps			Up 25bps			Up 50bps
Client-facing activity and associated hedges	Year 1 £m	Year 2 £m	Year 3 £m	Year 1 £m	Year 2 £m	Year 3 £m	Year 1 £m	Year 2 £m	Year 3 £m
2022	(173.8)	(252.7)	(360.5)	142.9	252.1	361.3	286.5	505.0	723.7
2021	(406.7)	(512.0)	(639.0)	174.9	269.8	397.3	348.7	526.9	782.1

Year 1 net interest income sensitivity, to down 25 basis points, has decreased year-on-year due to reduced modelled margin compression

following a significant increase in interest rates in 2022. The decrease in risk sensitivity year-on-year in the upwards rate shock, is driven by

structural hedge activity.

The three year net interest income sensitivity to an up 25 basis points and 50 basis points shock is largely due to reinvestment of structural

hedge maturities in years two and three.

The sensitivities are illustrative and do not reflect new business margin implications and/or pricing actions, other than as outlined.

The following assumptions have been applied:

•Instantaneous parallel shift in interest rate curve, including bank base rate

•Balance sheet remains constant

•Illustrative 50 per cent deposit pass-through

Lloyds Bank plc

Risk management

Basis risk, foreign exchange, equity and credit spread risks are measured primarily through scenario analysis by assessing the impact on profit

before tax over a 12-month horizon arising from a change in market rates, and reported within the Board risk appetite on a monthly basis.

Supplementary measures such as sensitivity and exposure limits are applied where they provide greater insight into risk positions. Frequency of

reporting supplementary measures varies from daily to quarterly appropriate to each risk type.

MITIGATION

The Group’s policy is to optimise reward while managing its market risk exposures within the risk appetite defined by the Board. Lloyds Banking

Group's market risk policy and procedures outlines the hedging process, and the centralisation of risk from divisions into Group Corporate

Treasury (GCT), e.g. via the transfer pricing framework. GCT is responsible for managing the centralised risk and does this through natural

offsets of matching assets and liabilities, and appropriate hedging activity of the residual exposures, subject to the authorisation and mandate

of GALCO within the Board risk appetite. The hedges are externalised to the market by derivative desks within GCT and the Commercial Bank.

The Group mitigates income statement volatility through hedge accounting. This reduces the accounting volatility arising from the Group’s

economic hedging activities and any hedge accounting ineffectiveness is continuously monitored.

The largest residual risk exposure arises from balances that are deemed to be insensitive to changes in market rates (including current accounts,

a portion of variable rate deposits and investable equity), and is managed through the Group’s structural hedge. Consistent with the Group’s

strategy to deliver stable returns, GALCO seeks to minimise large reinvestment risk, and to smooth earnings over a range of investment tenors.

The structural hedge consists of longer-term fixed rate assets or interest rate swaps and the amount and duration of the hedging activity is

reviewed regularly by GALCO.

While the Group faces margin compression in low rate environments, its exposure to pipeline and prepayment risk are not considered material

and are hedged in line with expected customer behaviour. These are appropriately monitored and controlled through divisional Asset and

Liability Committees (ALCOs).

Net investment foreign exchange exposures are managed centrally by GCT, by hedging non-Sterling asset values with currency borrowing.

Economic foreign exchange exposures arising from non-functional currency flows are identified by divisions and transferred and managed

centrally. The Group also has a policy of forward hedging its forecasted currency profit and loss to year end. The Group makes use of both

accounting and economic foreign exchange exposures, as an offset against the impact of changes in foreign exchange rates on the value of

non-Sterling-denominated risk-weighted assets. This involves the holding of a structurally open currency position; sensitivity is minimised where,

for a given currency, the ratio of the structural open position to risk-weighted assets equals the CET1 ratio. Continually evaluating this structural

open currency position against evolving non-Sterling-denominated risk-weighted assets mitigates volatility in the Group’s CET1 ratio.

MONITORING

The appropriate limits and triggers are monitored by senior executive committees within the Banking divisions. Banking assets, liabilities and

associated hedging are actively monitored and if necessary rebalanced to be within agreed tolerances.

DEFINED BENEFIT PENSION SCHEMES

EXPOSURES

The Group’s defined benefit pension schemes are exposed to significant risks from their assets and liabilities. The liability discount rate exposes

the Group to interest rate risk and credit spread risk, which are partially offset by fixed interest assets (such as gilts and corporate bonds) and

swaps. Equity and alternative asset risk arises from direct asset holdings. Scheme membership exposes the Group to longevity risk. Increases to

pensions in deferment and in payment expose the Group to inflation risk.

For further information on defined benefit pension scheme assets and liabilities please refer to note 27 on page 126.

MEASUREMENT

The Group's management of the schemes’ assets is the responsibility of the Trustees of the schemes who are responsible for setting the

investment strategy and for agreeing funding requirements with the Group. The Group will be liable for meeting any funding deficit that may

arise. As part of the triennial valuation process, the Group will agree with the Trustees a funding strategy to eliminate the deficit over an

appropriate period.

Longevity risk is measured using both 1-in-20 year stresses (risk appetite) and 1-in-200 year stresses (regulatory capital).

MITIGATION

The Group takes an active involvement in agreeing mitigation strategies with the schemes’ Trustees. An interest rate and inflation hedging

programme is in place to reduce liability risk. The schemes have also reduced equity allocation and invested the proceeds in credit assets. The

Trustees have put in place longevity swaps to mitigate longevity risk. The merits of longevity risk transfer and hedging solutions are reviewed

regularly.

MONITORING

In addition to the wider risk management framework, governance of the schemes includes a specialist pension committee.

The surplus, or deficit, in the schemes is tracked monthly along with various single factor and scenario stresses which consider the assets and

liabilities holistically. Key metrics are monitored monthly including the Group’s capital resources of the scheme, the performance against risk

appetite triggers, and the performance of the hedged asset and liability matching positions.

Lloyds Bank plc

Risk management

TRADING PORTFOLIOS

EXPOSURES

The Group’s trading activity is small relative to its peers. The Group’s trading activity is undertaken primarily to meet the financial requirements

of commercial and retail customers for foreign exchange and interest rate products. These activities support customer flow and market making

activities.

All trading activities are performed within the Commercial Banking division. While the trading positions taken are generally small, any extreme

moves in the main risk factors and other related risk factors could cause significant losses in the trading book depending on the positions at the

time. The average 95 per cent 1-day trading VaR (Value at Risk; diversified across risk factors) was £0.06 million for 31 December 2022 compared

to £0.07 million for 31 December 2021.

Trading market risk measures are applied to all of the Group’s regulatory trading books and they include daily VaR, sensitivity-based measures,

and stress testing calculations.

MEASUREMENT

The Group internally uses VaR as the primary risk measure for all trading book positions.

The risk of loss measured by the VaR model is the minimum expected loss in earnings given the 95 per cent confidence. The total and average

trading VaR numbers reported below have been obtained after the application of the diversification benefits across the five risk types. The

maximum and minimum VaR reported for each risk category did not necessarily occur on the same day as the maximum and minimum VaR

reported at Group level.

The Group’s closing VaR, allowing for diversification, on 31 December 2022 across interest rate risk, foreign exchange risk, equity risk, credit

spread risk and inflation risk was less than £0.05 million. During the year ended 31 December 2022, the Group’s minimum diversified VaR was

less than £0.03 million, its average VaR was £0.06 million and maximum VaR was £0.14 million.

For the year ended 31 December 2022, excluding the effects of diversification, the maximum total VaR for all of the above risks was

£0.15 million, the average total VaR was £0.07 million and minimum VaR was less than £0.03 million. The closing VaR on 31 December 2022,

excluding the effects of diversification, was less than £0.06 million.

For the year ended 31 December 2022, the average interest rate risk VaR was £0.05 million, the maximum interest rate risk VaR was £0.14 million

and the minimum interest rate risk VaR was less than £0.03 million. The minimum, maximum and average VaR for all other risk types was less

than £0.04 million. As at 31 December 2022, the closing VaR for all risk types was less than £0.06 million.

The market risk for the trading book continues to be low relative to the size of the Group and in comparison to peers. This reflects the fact that

the Group’s trading operations are customer-centric and focused on hedging and recycling client risks.

Although it is an important market standard measure of risk, VaR has limitations. One of them is the use of a limited historical data sample which

influences the output by the implicit assumption that future market behaviour will not differ greatly from the historically observed period.

Another known limitation is the use of defined holding periods which assumes that the risk can be liquidated or hedged within that holding

period. Also calculating the VaR at the chosen confidence interval does not give enough information about potential losses which may occur if

this level is exceeded. The Group fully recognises these limitations and supplements the use of VaR with a variety of other measurements which

reflect the nature of the business activity. These include detailed sensitivity analysis, position reporting and a stress testing programme.

Trading book VaR (1-day 99 per cent) is compared daily against both hypothetical and actual profit and loss at underlying legal entity level

(HBOS plc and Lloyds Bank plc).

MITIGATION

The level of exposure is controlled by establishing and communicating the approved risk limits and controls through policies and procedures

that define the responsibility and authority for risk taking. Market risk limits are clearly and consistently communicated to the business. Any new

or emerging risks are brought within risk reporting and defined limits.

MONITORING

Trading risk appetite is monitored daily with 1-day 95 per cent VaR and stress testing limits. These limits are complemented with position level

action triggers and profit and loss referrals. Risk and position limits are set and managed at both desk and overall trading book levels. They are

reviewed at least annually and can be changed as required within the overall Group risk appetite framework.

Lloyds Bank plc

Risk management

MODEL RISK

DEFINITION

Model risk is defined as the risk of financial loss, regulatory censure, reputational damage or customer detriment, as a result of deficiencies in

the development, application or ongoing operation of models and rating systems.

Models are defined as quantitative methods that process input data into quantitative outputs, or qualitative outputs (including ordinal letter

output) which have a quantitative measure associated with them. Model governance policy is restricted to specific categories of application of

models, principally financial risk, treasury and valuation, with certain exclusions, such as prescribed calculations and project appraisal

calculations.

EXPOSURES

The Group makes extensive use of models. They perform a variety of functions including:

•Capital calculation

•Credit decisioning, including fraud

•Pricing models

•Impairment calculation

•Stress testing and forecasting

•Market risk measurement

As a result of the wide scope and breadth of coverage, there is exposure to model risk across a number of the Group’s principal risk categories.

Model risk increased in 2022. The pandemic related government-led support schemes weakened the relationships between model inputs and

outputs, and the current economic conditions remain outside those used to build the models, placing reliance on judgemental overlays. The

Group’s models are being managed to reduce this need for overlays. The control environment for model risk is being strengthened to meet

revised regulatory requirements.

In addition, in common with the rest of the industry, changes required to capital models following new regulations will create a temporary

increase in the risk relating to these models during the period of transition. Further information on capital impacts are detailed in the capital risk

section on pages 24 to 28.

MEASUREMENT

The Board risk appetite metric is the key component for measuring the Group’s most material models; performance is reported monthly to the

Group and Board Risk Committees.

MITIGATION

The model risk management framework, established by and with continued oversight from an independent team in the Risk division, provides

the foundation for managing and mitigating model risk within the Group. Accountability is cascaded from the Board and senior management

via the Group enterprise risk management framework.

This provides the basis for Lloyds Banking Group's model governance policy, which defines the mandatory requirements for models across

Lloyds Bank Group, including:

•The scope of models covered by the policy

•Model materiality

•Roles and responsibilities, including ownership, independent oversight and approval

•Key principles and controls regarding data integrity, development, validation, implementation, ongoing maintenance and revalidation,

monitoring, and the process for non-compliance

The model owner takes responsibility for ensuring the fitness for purpose of the models and rating systems, supported and challenged by the

independent specialist Group function.

The above ensures all models in scope of policy, including those involved in regulatory capital calculation, are developed consistently and are of

sufficient quality to support business decisions and meet regulatory requirements.

MONITORING

The Lloyds Banking Group Model Governance Committee is the primary body for overseeing model risk. Policy requires that key performance

indicators are monitored for every model to ensure they remain fit for purpose and all issues are escalated appropriately. Material model issues

are reported to the Group and Board Risk Committees monthly, with more detailed papers as necessary to focus on key issues.

Lloyds Bank plc

Risk management

OPERATIONAL RISK

DEFINITION

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

EXPOSURES

The principal operational risks to the Group which could result in customer detriment, unfair customer outcomes, financial loss, disruption and/

or reputational damage are:

•A cyber-attack

•Failure of IT systems, due to volume of change, and/or aged infrastructure

•Internal and/or external economic crime

•Failure to ensure compliance with increasingly complex and detailed regulation including anti-money laundering, anti-bribery, counter-

terrorist financing, and financial sanctions and prohibitions laws and regulations

A number of these risks could increase where there is a reliance on third-party suppliers to provide services to the Group or its customers.

MEASUREMENT

Operational risk is managed across the Group through an operational risk framework and operational risk policies. The operational risk

framework includes a risk and control self-assessment process, risk impact likelihood matrix, risk and control indicators, risk appetite setting, a

robust operational loss event management and escalation process, and a scenario analysis and operational loss forecasting process.

The table below shows high level loss and event trends for the Group using Basel II categories. Based on data captured on the Group’s One

Risk and Control Self-Assessment, in 2022 the highest frequency of events occurred in external fraud 89.09 per cent. Execution, delivery and

process management accounted for 5.30 per cent of losses by value.

Operational risk events by risk category (losses greater than or equal to £10,000)1


	% of total volume		% of total losses
	2022	2021	2022	2021
Business disruption and system failures	0.23	0.58	0.77	(1.62)
Clients, products and business practices	5.11	7.67	22.10	31.76
Damage to physical assets	–	0.08	–	0.01
Employee practices and workplace safety	0.12	0.04	0.09	0.02
Execution, delivery and process management	5.30	7.14	38.60	47.25
External fraud	89.09	84.07	38.44	21.99
Internal fraud	0.15	0.42	–	0.59
Total	100.00	100.00	100.00	100.00

1Excludes losses related to PPI and provisions, the latter are outlined in note 29. 2021 breakdowns have been restated both to reflect the exclusion of provisions and due to the nature of the

risk events which can evolve over time.

Operational risk losses and scenario analysis is used to inform the Internal Capital Adequacy Assessment Process (ICAAP). The Group calculates

its minimum (Pillar I) operational risk capital requirements using The Standardised Approach (TSA). Pillar II is calculated using internal and

external loss data and extreme but plausible scenarios that may occur in the next 12 months.

MITIGATION

The Group continues to focus on changing risk management requirements, adapting the change delivery model to be more agile and

developing the people skills and capabilities needed. Risks are reported and discussed at local governance forums and escalated to executive

management and the Board as appropriate to ensure the correct level of visibility and engagement. The Group employs a range of risk

management strategies, including: avoidance, mitigation, transfer (including insurance) and acceptance within appetite / tolerance. Where there

is a reliance on third-party suppliers to provide services, Lloyds Banking Group’s sourcing policy ensures that outsourcing initiatives follow a

defined process including due diligence, risk evaluation and ongoing assurance.

Mitigating actions to the principal operational risks are:

•The Group adopts a risk-based approach to mitigate the internal and external fraud risks it faces, reflecting the current and emerging fraud

risks within the market. Fraud risk appetite metrics holistically cover the impacts of fraud in terms of losses to the Group, costs of fraud

systems and operations, and customer experience of actual and attempted fraud. Oversight of the appropriateness and performance of these

metrics is undertaken regularly through business area and Group-level committees. This approach drives a continual programme of prioritised

enhancements to the Group’s technology and process and people-related controls; with an emphasis on preventative controls supported by

real time detective controls wherever feasible. Group-wide policies and operational control frameworks are maintained and designed to

provide customer confidence, protect the Group’s commercial interests and reputation, comply with legal requirements and meet regulatory

requirements. The Group’s fraud awareness programme remains a key component of its fraud control environment, and awareness of fraud

risk is supported by mandatory training for all colleagues. This is further strengthened by material annual investment into both technology and

the personal development needs of colleagues. The Group also plays an active role with other financial institutions, industry bodies and law

enforcement agencies in identifying and combatting fraud

•The Group adopts a risk-based approach to mitigate cyber risks it faces. The effective operation of the Group’s estate is supported by an IT

and Cyber Security Governance framework, guided by a threat-based strategy which underpins investment decisions. The ongoing protection

of the estate and confidentiality of material information is ensured through adherence to the Group Security Policy which has been aligned to

industry good practice including the NIST Cyber Security Framework; and material laws and regulations

Lloyds Bank plc

Risk management

•The Group has adopted policies and procedures designed to detect and prevent the use of its banking network for money laundering,

terrorist financing, bribery, tax evasion, human trafficking, modern-day slavery and wildlife trafficking, and activities prohibited by legal and

regulatory sanctions. Against a background of complex and detailed laws and regulations, and of continued criminal and terrorist activity, the

Group regularly reviews and assesses its policies, procedures and organisational arrangements to keep them current, effective and consistent

across markets and jurisdictions. The Group requires mandatory training on these topics for all employees. Specifically, the anti-money

laundering procedures include ‘know-your-customer’ requirements, transaction monitoring technologies, reporting of suspicions of money

laundering or terrorist financing to the applicable regulatory authorities, and interaction between the Group’s Financial Intelligence Unit and

external agencies and other financial institutions. The Group economic crime prevention policy prohibits the payment, offer, acceptance or

request of a bribe, including ‘facilitation payments’ by any employee or agent and provides a confidential reporting service for anonymous

reporting of suspected or actual bribery activity. The Group economic crime prevention policy also sets out a framework of controls for

compliance with legal and regulatory sanctions

•In addition to its efforts internally, the Group also contributes to economic crime prevention by supporting and championing industry-level

activity, including:

–Improving customer outcomes related to Authorised Push Payment (APP) fraud, incorporating recommendations from the Lending

Standards Board into our APP fraud strategy. The Group remains a signatory to the industry code for APP fraud, which has improved

customer protection and the reimbursement of funds to victims

–Representing large retail banks at the National Economic Crime Centre (NECC) led Public Private Operating Board (PPOB); co-chairing the

Public Private Threat Group leading the UK’s response to Money Laundering; chairing the Joint Money Laundering Intelligence Taskforce

(JMLIT) senior management team and providing expert resource to the NECC’s operational threat cells

–Collaborating with a peer bank to pioneer the concept of data fusion (large scale information sharing and analysis) with the National Crime

Agency (NCA)

–In 2021 we undertook a bilateral data sharing exercise with a different peer bank to understand the fraud prevention benefit for receiving

and sending banks. This identified opportunities to improve real/near time identification of money mules, improving the efficiency and

effectiveness of alerts. The analysis has helped to influence a wider data sharing exercise led by UK Finance across seven firms

–Being an active member of UK Finance where we chair or have representation on every economic crime committee. This includes chairing

the UK Finance Fraud Panel, which is the industry’s primary model for considering fraud issues of mutual interest. We also chair the Anti-

Bribery & Corruption Panel; focused on key ABC issues that members are dealing with. This Panel also interacts with key guidance bodies

such as the Organisation for Economic Cooperation and Development (OECD) and Wolfsberg Group

–Helping fund the Dedicated Card and Payment Crime Unit (DCPCU) to investigate fraud cases, target and where appropriate arrest and

gain prosecution of offenders

–Being a member of Cifas, the largest cross sector fraud sharing organisation, where we share and receive internal and first party fraud data

to detect, deter and prevent criminals exploiting our banking facilities

–Engagement with Europol and International Law Enforcement to share fraud and financial crime intelligence

–Maintaining relationships with key partners such as City of London Police, United for Wildlife and the North East Business Resilience Centre,

for which the Money Laundering Reporting Officer (MLRO) chairs the advisory board

–The Group is a member of Stop Scams UK (SSUK), which brings together partnerships from various industry sectors to stop scams at source.

The Group is involved in a new SSUK pilot, Project 159, which aims to provide consumers with a secure connection to their bank

Operational resilience risk on pages 59 to 60, provides further information on the mitigating actions for cyber and IT resilience.

MONITORING

Monitoring and reporting of operational risk is undertaken at Board, Group, entity and divisional committees. Each committee monitors key

risks, control effectiveness, key risk and control indicators, events, operational losses, risk appetite metrics and the results of independent

testing conducted by Risk division and/or Group Internal Audit.

The Group maintains a formal approach to operational risk event escalation, whereby material events are identified, captured and escalated.

Root causes of events are determined, and action plans put in place to ensure an optimum level of control to keep customers and the business

safe, reduce costs, and improve efficiency.

The insurance programme is monitored and reviewed regularly, with recommendations being made to the Group’s senior management

annually prior to each renewal. Insurers are monitored on an ongoing basis, to ensure counterparty risk is minimised. A process is in place to

manage any insurer rating changes or insolvencies.

Lloyds Bank plc

Risk management

OPERATIONAL RESILIENCE RISK

DEFINITION

Operational resilience risk is defined as the risk that the Group fails to design resilience into business operations, underlying infrastructure and

controls (people, process, technology) so that it is able to withstand external or internal events which could impact the continuation of

operations, and fails to respond in a way which meets customer and stakeholder expectations and needs when the continuity of operations is

compromised.

EXPOSURES

Ineffective operational resilience risk management could lead to important services not being available to customers, and in extreme

circumstances, bank failure could result. The Group has in place a transparent and effective operating model to identify, monitor and test

important business services and critical business processes from a customer, Group and systemic perspective. The failure to adequately build

resilience into an important business service or critical business process may occur in a variety of ways, including:

•The Group being overly reliant on one location to deliver a critical business process

•The Group not having an adequate succession plan in place for designated subject matter experts

•The Group being overly reliant on a supplier which fails to provide a service

•A shortcoming in the Group’s ability to respond and/or recover in a timely manner following a cyber incident

•The Group failing to upgrade its IT systems and leaving them vulnerable to failure

Effective operational resilience ensures the Group designs resilience into its systems, is able to withstand and/or recover from a significant

unexpected event occurring and can continue to provide services to its customers. A significant outage could result in customers being unable

to access accounts or conduct transactions, which as well as presenting significant reputational risk for the Group would negatively impact the

Group’s purpose. Operational resilience is also an area of continued regulatory and industry focus, similar in importance to financial resilience.

Failure to manage operational resilience effectively could impact the following other risk categories:

•Regulatory compliance: non-compliance with new/existing operational resilience regulations, for example, through failure to identify

emerging regulation or not embedding regulatory requirements within the Group’s policies, processes and procedures or identify further

future emerging regulation

•Operational risk: being unable to safely provide customers with business services

•Conduct risk: an operational resilience failure may render the Group liable to fines from the FCA for poor conduct

•Market risk: the Group being unable to provide key services could have ramifications for the wider market and could impact share price

MEASUREMENT

Operational resilience risk is managed across the Group through the Group’s enterprise risk management framework and operational risk policy

and associated standards. Board risk appetite metrics for operational resilience are in place and are well understood. These specific measures

are subject to ongoing monitoring and reporting, including a mandatory review of metrics and thresholds on at least an annual basis. To

strengthen the management of operational resilience risk, the Group mobilised an operational resilience enhancement programme which is

designed to focus on end-to-end resilience and the management of key risks to important processes.

MITIGATION

The Group has increased its focus on operational resilience and has updated its operational resilience strategy to reflect changing priorities of

both customers and regulators. Furthermore, the Group is in the process of responding to the publication of regulatory policy statements.

Focus has been given to ensure compliance, and existing frameworks have been adapted to consider important business services and impact

tolerances. At the core of its approach to operational resilience are the Group’s important business services and critical business processes

which drive activity, including further mapping of the processes to identify any additional resilience requirements such as customer impact

tolerances in the event of a service outage. The Group continues to maintain and develop playbooks that guide its response to a range of

interruptions from internal and external threats and tests these through scenario-based testing and exercising.

Lloyds Banking Group's strategy considers the evolving risk management requirements, adapting the change delivery model to be more agile

and develop the people skills and capabilities needed. The Group continues to review and invest in its control environment to ensure it

addresses the risks it faces. Risks are reported and discussed at local governance forums and escalated to executive management and the

Board as appropriate. The Group employs a range of risk management strategies, including: avoidance, mitigation, transfer (including

insurance) and acceptance. Where there is a reliance on third-party suppliers to provide services, Lloyds Banking Group's sourcing policy

ensures that outsourcing initiatives follow a defined process including due diligence, risk evaluation and ongoing assurance.

Mitigating actions to the principal operational resilience risk are:

•Cyber: the threat landscape associated with cyber risk continues to evolve and there is significant regulatory attention on this subject. The

Board continues to invest heavily to protect the Group from cyber-attacks. Investment continues to focus on improving the Group’s approach

to identity and access management, improving capability to detect, respond and recover from cyber-attacks and improved ability to manage

vulnerabilities across the estate.

•IT resilience: the Group continues to optimise its approach to IT and operational resilience by investing in technology improvements and

enhancing the resilience of systems that support the Group’s critical business processes and important business services, primarily through

the Technology Resilience and Security Change programme. The Board optimises the role that resilient technology plays in maintaining

banking services across the wider industry. As such, the Board dedicates considerable time and focus to this subject at both the Board and

the Board Risk Committee, and continues to sponsor key investment programmes that enhance resilience.

•People: the Group acknowledges the risks associated to the failure to maintain appropriately skilled and available colleagues. The Group

continues to optimise its approach to ensure that, for example, the right number of colleagues are capable of supporting critical technology

components. Key controls and processes are regularly reported to committee(s) and alignment with Lloyds Banking Group’s strategy is closely

monitored.

Lloyds Bank plc

Risk management

•Property: the Group’s property portfolio remains a key focus in ensuring targeted resilience requirements are appropriately maintained,

including energy resilience. Processes are in place to identify key buildings where an important business service or critical business process is

performed. Depending on criticality, a number of mitigating controls are in place to manage the risk of severe critical business process

disruption. The Group remains committed to investment in the upkeep of the property portfolio, primarily through the Group property

upkeep investment programme.

•Sourcing: the threat landscape associated with third-party suppliers and the critical services they provide continues to receive a significant

amount of regulatory attention. The Group acknowledges the importance of demonstrating control and responsibility for those important

business services and critical business processes which could cause significant harm to the Group’s customers. The Group segments its

suppliers by criticality and has processes in place to support ongoing supplier management.

MONITORING

Monitoring and reporting of operational resilience risk is undertaken at Board, Group, entity and divisional committees. Each committee

monitors key risks, control effectiveness, key risk and control indicators, events, operational losses, risk appetite metrics and the results of

independent testing conducted by Risk division and/or Group Internal Audit.

The Group maintains a formal approach to operational resilience risk event escalation, whereby material events are identified, captured and

escalated. Root causes are determined, and action plans put in place to ensure an optimum level of control to keep customers and the business

safe, reduce costs, and improve efficiency.

PEOPLE RISK

DEFINITION

People risk is defined as the risk that the Group fails to provide an appropriate colleague and customer-centric culture, supported by robust

reward and wellbeing policies and processes; effective leadership to manage colleague resources; effective talent and succession management;

and robust control to ensure all colleague-related requirements are met.

EXPOSURES

The Group’s management of material people risks is critical to its capacity to deliver against its strategic objectives, particularly in the context of

organisational, political and external market change and increasing digitisation. The Group is exposed to the following key people risks:

•Failure to recruit, develop and retain a diverse workforce, with the appropriate mix and required level of skills and capabilities to meet the

current and future needs of the Group

•Non-inclusive culture, ineffective leadership, poor communication, weak performance, inappropriate remuneration policies and poor

colleague conduct

•Ineffective management of succession planning or failure to identify appropriate talent pipeline

•Failure to manage capacity, colleagues having excessive demands placed on them resulting in wellbeing issues and business objectives not

being met

•Failure to meet all colleague-related legal and regulatory requirements

•Inadequately designed people processes that are not resilient to withstand unexpected events

•The increasing digitisation of the business is changing the capability mix required and may impact the Group’s ability to attract and retain

talent

•Colleague engagement may be challenged by a number of factors ranging from the adjustment to hybrid working, dissatisfaction with reward,

cost of living pressures, refreshed values and purpose of the business including changes to culture and ethical considerations

MEASUREMENT

People risk is measured through a series of quantitative and qualitative indicators, aligned to key sources of people risk for the Group such as

succession, diversity, retention, colleague engagement and wellbeing. In addition to risk appetite measures and limits, people risks and controls

are monitored on a monthly basis via the Group’s risk governance framework and reporting structures.

MITIGATION

The Group takes many mitigating actions with respect to people risk. Key areas of focus include:

•Focusing on leadership and colleague engagement, through delivery of strategies to attract, retain and develop high calibre people together

with management of rigorous succession planning

•Continued focus on the Group’s culture and inclusivity strategy by developing and delivering initiatives that reinforce the appropriate

behaviours which generate the best possible long-term outcomes for customers and colleagues

•Managing organisational capability and capacity through divisional people strategies to ensure there are the right skills and resources to meet

customers’ needs and deliver the Group’s strategic plan

•Maintaining effective remuneration arrangements to ensure they promote an appropriate culture and colleague behaviours that meet

customer needs and regulatory expectations

•Ensuring colleague wellbeing strategies and support are in place to meet colleague needs, alongside skills and capability growth required to

maximise the potential of our people

•Ensuring compliance with legal and regulatory requirements related to SM&CR, embedding compliant and appropriate colleague behaviours

in line with Group policies, values and its people risk priorities

•Ongoing consultation with the Group’s recognised unions on changes which impact their members

•Reviewing and enhancing people processes to ensure they are fit for purpose and operationally resilient

MONITORING

Monitoring and reporting is undertaken at Board, Group, entity and divisional committees. Key people risk metrics are reported and discussed

monthly at the Group People Risk Committee with escalation to Group Risk and Executive Committees and the Board where required.

All material people risk events are escalated in accordance with Lloyds Banking Group's operational risk policy.

Lloyds Bank plc

Risk management

REGULATORY AND LEGAL RISK

DEFINITION

Regulatory and legal risk is defined as the risk of financial penalties, regulatory censure, criminal or civil enforcement action or customer

detriment as a result of failure to identify, assess, correctly interpret, comply with, or manage regulatory and/or legal requirements.

EXPOSURES

The Group has a zero risk appetite for material legal or regulatory breaches. The Group remains exposed to the evolving UK legal and

regulatory landscape, such as changes to the regulatory framework and other changing regulatory standards as well as uncertainty arising from

the current and future litigation landscape.

MEASUREMENT

Regulatory and legal risks are measured against a defined risk appetite metric, which is an assessment of material regulatory breaches and

material legal incidents.

MITIGATION

The Group undertakes a range of key mitigating actions to manage regulatory and legal risk. These include the following:

•The Board has established a Group-wide risk appetite and metric for regulatory and legal risk

•Lloyds Banking Group policies and procedures set out the principles that should apply across Lloyds Bank Group which are aligned to the

Lloyds Bank Group risk appetite. Mandated policies and processes require appropriate control frameworks, management information,

standards and colleague training to be implemented to identify and manage regulatory and legal risk

•Divisions identify, assess and implement policy and regulatory requirements and establish local controls, processes, procedures and resources

to ensure appropriate governance and compliance

•Divisions regularly produce management information to assist in the identification of issues and test management controls are working

effectively

•Risk and Legal functions provide oversight, proactive support and constructive challenge to the business in identifying and managing

regulatory and legal issues

•Risk division conducts thematic reviews to provide oversight of regulatory compliance

•Horizon scanning is conducted to identify and address changes in regulatory and legal requirements

•The Group engages with regulatory authorities and industry bodies on forthcoming regulatory changes, market reviews and investigations,

ensuring programmes are established to deliver new regulation and legislation

•The Group has adapted quickly to evolving regulatory expectations due to cost of living pressures and continues to engage with regulatory

authorities

MONITORING

Material risks are managed through the relevant business committees, with review and escalation through Group-level committees where

appropriate, including the escalation of any material regulatory breaches or material legal incidents.

Lloyds Bank plc

Risk management

STRATEGIC RISK

DEFINITION

Strategic risk is defined as the risk which results from:

•Incorrect assumptions about internal or external operating environments

•Failure to understand the potential impact of strategic responses and business plans on existing risk types

•Failure to respond or the inappropriate strategic response to material changes in the external or internal operating environments

EXPOSURES

The Group faces significant risks due to the changing regulatory and competitive environments in the financial services sector, with an increased

pace, scale and complexity of change. Customer, shareholder and employee expectations continue to evolve, together with societal trends

amid the recovery post COVID-19 and cost of living pressures.

Strategic risks can manifest themselves in existing principal risks or as new exposures which could adversely impact the Group and its

businesses.

In considering strategic risks, a key focus is the interconnectivity of individual risks and the cumulative effect of different risks on the Group’s

overall risk profile.

Lloyds Banking Group has invested in implementing a robust framework for the identification, assessment and quantification of strategic risks

and their incorporation into business planning and strategic investment decisions. With Board support, in 2022 Lloyds Banking Group continued

to invest in evolving its strategic risk management framework and embedding it into the Group’s day-to-day business operations.

MEASUREMENT

The Group assesses and monitors strategic risk implications as part of business planning and in its day-to-day activities, ensuring they respond

appropriately to internal and external factors including changes to regulatory, macroeconomic and competitive environments. An assessment is

made of the key strategic risks that are considered to impact the Group, leveraging internal and external information and the key mitigants or

actions that could be taken in response.

2021 saw development of the Group’s quantitative risk assessment approach, assessing the:

•Connectivity of inherent risks, which can magnify their impact and severity

•Time horizons in respect of the crystallisation of impacts, should risks manifest

MITIGATION

The range of mitigating actions includes the following:

•Horizon scanning is conducted across the Group to identify potential threats, risks, emerging issues and opportunities and to explore future

trends

•The Group’s business planning processes include formal assessment of the strategic risk implications of new business, product entries and

other strategic initiatives

•The Group’s governance framework mandates individuals’ and committees’ responsibilities and decision-making rights, to ensure that

strategic risks are appropriately reported and escalated

MONITORING

A review of the Group’s strategic risks is undertaken on an annual basis and the findings are reported to the Group and Board Risk Committees.

Risks, alongside their control effectiveness, are articulated and reported regularly to Group and Board Risk Committees.

Lloyds Bank plc

Risk management

This document contains certain forward-looking statements within the meaning of Section 21E of the US Securities Exchange Act of 1934, as

amended, and section 27A of the US Securities Act of 1933, as amended, with respect to the business, strategy, plans and/or results of Lloyds

Bank plc together with its subsidiaries (the Lloyds Bank Group) and its current goals and expectations. Statements that are not historical or

current facts, including statements about the Lloyds Bank Group's or its directors' and/or management's beliefs and expectations, are forward

looking statements. Words such as, without limitation, ‘believes’, ‘achieves’, ‘anticipates’, ‘estimates’, ‘expects’, ‘targets’, ‘should’, ‘intends’,

‘aims’, ‘projects’, ‘plans’, ‘potential’, ‘will’, ‘would’, ‘could’, ‘considered’, ‘likely’, ‘may’, ‘seek’, ‘estimate’, ‘probability’, ‘goal’, ‘objective’, ‘deliver’,

‘endeavour’, ‘prospects’, ‘optimistic’ and similar expressions or variations on these expressions are intended to identify forward looking

statements. These statements concern or may affect future matters, including but not limited to: projections or expectations of the Lloyds Bank

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 Lloyds Bank Group’s future financial performance; the level and extent of future impairments

and write-downs; the Lloyds Bank Group’s ESG targets and/or commitments; statements of plans, objectives or goals of the Lloyds Bank Group

or its management and other statements that are not historical fact; expectations about the impact of COVID-19; and statements of

assumptions underlying 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. 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 include, but are not limited to:

general economic and business conditions in the UK and internationally; political instability including as a result of any UK general election and

any further possible referendum on Scottish independence; acts of hostility or terrorism and responses to those acts, or other such events;

geopolitical unpredictability; the war between Russia and Ukraine; the tensions between China and Taiwan; market related risks, trends and

developments; exposure to counterparty risk; instability in the global financial markets, including within the Eurozone, and as a result of the exit

by the UK from the European Union (EU) and the effects of the EU-UK Trade and Cooperation Agreement; the ability to access sufficient

sources of capital, liquidity and funding when required; changes to the Lloyds Bank Group’s or Lloyds Banking Group plc’s credit ratings;

fluctuations in interest rates, inflation, exchange rates, stock markets and currencies; volatility in credit markets; volatility in the price of the

Lloyds Bank Group's securities; tightening of monetary policy in jurisdictions in which the Lloyds Bank Group operates; natural pandemic

(including but not limited to the COVID-19 pandemic) and other disasters; risks concerning borrower and counterparty credit quality; longevity

risks affecting defined benefit pension schemes; risks related to the uncertainty surrounding the integrity and continued existence of reference

rates; changes in laws, regulations, practices and accounting standards or taxation; changes to regulatory capital or liquidity requirements and

similar contingencies; the policies and actions of governmental or regulatory authorities or courts together with any resulting impact on the

future structure of the Lloyds Bank Group; risks associated with the Lloyds Bank Group’s compliance with a wide range of laws and regulations;

assessment related to resolution planning requirements; risks related to regulatory actions which may be taken in the event of a bank or Lloyds

Bank Group or Lloyds Banking Group failure; exposure to legal, regulatory or competition proceedings, investigations or complaints; failure to

comply with anti-money laundering, counter terrorist financing, anti-bribery and sanctions regulations; failure to prevent or detect any illegal or

improper activities; operational risks; conduct risk; 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; technological failure; inadequate or failed internal or external

processes or systems; risks relating to ESG matters, such as climate change (and achieving climate change ambitions), including the Lloyds Bank

Group’s or the Lloyds Banking Group’s ability along with the government and other stakeholders to measure, manage and mitigate the impacts

of climate change effectively, and human rights issues; the impact of competitive conditions; failure to attract, retain and develop high calibre

talent; the ability to achieve strategic objectives; the ability to derive cost savings and other benefits including, but without limitation, as a result

of any acquisitions, disposals and other strategic transactions; inability to capture accurately the expected value from acquisitions; and

assumptions and estimates that form the basis of the Lloyds Bank Group's financial statements. A number of these influences and factors are

beyond the Lloyds Bank Group’s control. Please refer to the latest Annual Report on Form 20-F filed by Lloyds Bank plc with the US Securities

and Exchange Commission (the SEC), which is available on the SEC’s website at www.sec.gov, for a discussion of certain factors and risks. Lloyds

Bank plc may also make or disclose written and/or oral forward-looking statements in other written materials and in oral statements made by the

directors, officers or employees of Lloyds Bank plc to third parties, including financial analysts. Except as required by any applicable law or

regulation, the forward-looking statements contained in this document are made as of today's date, and the Lloyds Bank Group expressly

disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this

document whether as a result of new information, future events or otherwise. The information, statements and opinions contained in this

document 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.

Lloyds Bank plc

Forward looking statements

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF LLOYDS BANK PLC

Report on the audit of the financial statements

1.Opinion

In our opinion:

•the financial statements of Lloyds Bank plc (the ‘Bank’) and its subsidiaries (the ‘Group’ or ‘LB’) give a true and fair view of the state of the

Group’s and of the Bank’s affairs as at 31 December 2022 and of the Group’s profit for the year then ended;

•the Group financial statements have been properly prepared in accordance with United Kingdom adopted international accounting standards

and International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB);

•the Bank financial statements have been properly prepared in accordance with United Kingdom adopted international accounting standards

and as applied in accordance with the provisions of the Companies Act 2006; and

•the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements which comprise the:


Group		Bank
•Consolidated balance sheet as at 31 December 2022; •Consolidated income statement for the year then ended; •Consolidated statement of comprehensive income for the year then ended; •Consolidated statement of changes in equity for the year then ended; •Consolidated cash flow statement for the year then ended; and •Notes 1 to 47 to the financial statements, which include the accounting principles and policies.		•Balance sheet as at 31 December 2022; •Statement of changes in equity for the year then ended; •Cash flow statement for the year then ended; and •Notes 1 to 27 to the financial statements, which include the accounting principles and policies.

The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom adopted international

accounting standards, and as regards to the Bank financial statements, as applied in accordance with the provisions of the Companies Act 2006.

2.Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under

those standards are further described in the auditors’ responsibilities for the audit of the financial statements section of our report.

We are independent of the Group and the Bank in accordance with the ethical requirements that are relevant to our audit of the financial

statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and

we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided to the Group and the

Bank for the year are disclosed in note 10 to the financial statements. We confirm that we have not provided any non-audit services prohibited

by the FRC’s Ethical Standard to the Group or the Bank.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3.Summary of our audit approach


Key audit matters		The key audit matters that we identified in the current year were: •Expected credit losses (Group and Bank) •Regulatory and litigation matters (Group and Bank) •Defined benefit obligations (Group and Bank) •IT systems that impact financial reporting (Group and Bank) Our assessment of the level of risk for each of these areas have remained consistent with the prior year.
Materiality		Overall materiality used for the Group consolidated financial statements was £290 million, which was determined on the basis of profit before tax and net assets. Overall materiality used for the Bank financial statements was £290 million, which was determined on the basis of net assets and capped at Group materiality.
Scoping		Our audit scope covers 82% of the Group’s revenue, 90% of the Group’s profit before tax, 96% of the Group’s total assets and 94% of the Group’s total liabilities.

Our audit approach

Our audit approach is risk focused and structured to reflect the Group’s organisation. It can be summarised into the following key activities that

we used to obtain sufficient audit evidence required to form our opinion on the Group and the Bank’s financial statements:

•Audit planning and risk assessment

We considered the macroeconomic factors affecting the Group during the year and assessed the impact of the war in Ukraine, the current

economic environment and changes to UK fiscal policy on the Group’s key judgements and sources of estimation uncertainty. The partners and

those leading areas requiring significant audit judgement including expected credit losses, provisions for regulatory and litigation matters and

defined pension obligations were required to consider these factors in their assessment of risk and to design testing procedures to adequately

address the assessed risk. These partners also met regularly with management to understand business strategy, the Group’s accounting

judgements and estimations as well as other matters which arose during the year, which could have impacted the Group’s financial reporting.

Our risk assessments were further informed by detailed analytics as well as other quantitative and qualitative audit procedures, including

consideration of matters such as the impact of cost of living pressures in the UK and climate change on the account balances, disclosures and

company practices;

Lloyds Bank plc

Independent auditors’ report

•Audit procedures undertaken at both Group and Bank level

In addition to the above, we also performed audit work on the Group and Bank financial statements including the consolidation of the Group’s

results, the preparation of the financial statements, litigation provisions and exposures as well as the Group’s entity level and oversight controls

relevant to financial reporting. The areas not covered by our audit scope are subject to analytical procedures to confirm our conclusion that

there were no significant risks of material misstatement in the aggregated financial information;

•Internal controls testing approach

Our internal controls testing approach was informed by our scoping and risk assessment activities. We have assessed the Group’s end-to-end

financial reporting processes supporting all in-scope financial statement balances and identified relevant controls to test for these balances. This

included the testing of general IT controls, process level controls and entity level controls at the Group level; and

•The impact of climate change on our audit

In planning our audit, we have considered the impact of climate change on the Group’s operations and any subsequent impact on its financial

statements. The Group sets out its assessment of the potential impact on page 30 of the Risk management section of the Annual Report.

In conjunction with our climate risk specialists, we have held discussions with the Group to understand their:

–process for identifying affected operations including the governance and controls over this process, and the subsequent effect on financial

reporting for the Group; and

–long-term strategy to respond to climate change risks and how this is factored into the Group’s forecasts, considering publicly announced

climate change commitments and any costs associated with the Group’s net zero targets.

Our audit work has involved:

–evaluating climate as a factor in risk assessments for potentially affected balances;

–challenging the completeness of the physical and transition risks identified and considered in the Group’s climate risk assessment and the

conclusion that there continues to be no material impact of climate change risk on financial reporting;

–reviewing the Group’s qualitative loan portfolio analysis, and challenging the key assumptions used by the Group with reference to our own

understanding of the portfolios and publicly available documentation; and

–assessing disclosures in the Annual Report, and challenging the consistency between the financial statements and the remainder of the

Annual Report.

As part of our audit procedures we are required to read and consider these disclosures to consider whether they are materially inconsistent with

the financial statements or knowledge obtained in the audit and we did not identify any material inconsistencies as a result of these procedures.

4.Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of

the financial statements is appropriate.

Our evaluation of the directors’ assessment of the Group’s and the Bank’s ability to continue to adopt the going concern basis of accounting

included:

•using our knowledge of the Group and the Bank, the financial services industry, the financial services regulatory environment and the general

economic environment including, macroeconomic pressures affecting the Group’s operations, to identify inherent risks in the business model

and how such risks might affect the financial resources or ability to continue operations over the going concern period;

•making enquiries of Group management about the assumptions, including climate risk considerations, used in their going concern models,

and assessing the reasonableness of those assumptions and historical forecasting accuracy;

•evaluating the Group’s strategic plans in light of the changing macroeconomic environment, short and longer term financial budgets, funding,

liquidity and capital adequacy plans including internal stress tests;

•considering the Group’s operational resilience;

•reading analyst reports, industry data, Bank of England reports and other external information to determine if it provided corroborative or

contradictory evidence in relation to the Group’s assumptions;

•reviewing correspondence and meeting with prudential and conduct regulators to assess whether there are any matters that may impact the

going concern assessment;

•testing the underlying data generated to prepare the forecast scenarios and determined whether there was adequate support for the

assumptions underlying the forecasts; and

•evaluating the Group’s disclosures on going concern against the requirements of IAS 1.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or

collectively, may cast significant doubt on the Group's and the Bank’s ability to continue as a going concern for a period of at least twelve

months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

5.Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the

current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These

matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and directing the

efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do

not provide a separate opinion on these matters.

Lloyds Bank plc

Independent auditors’ report


Expected credit losses (Group and Bank)
Key audit matter description		How the scope of our audit responded to the key audit matter
Refer to notes 2, 3, 11, 16 and 44 in the financial statements
The Group has recognised £4.8 billion of expected credit losses (“ECL”) as at 31 December 2022. The determination of ECL consists of a number of assumptions that require a high degree of complex and subjective auditor judgement, specialised skills and knowledge, complex impairment modelling and a high degree of estimation uncertainty. Specifically, the impact of the war in Ukraine, residual economic impact of the COVID-19 pandemic, as well as the economic impact of the rising cost of living on the ECL have been particularly judgemental given the inherent uncertainty in the current economic environment. The key areas we identified as having the most significant level of management judgement were in respect of: •Multiple Economic Scenarios ("MES"); •Retail ECL; and •Commercial Banking ECL.
Multiple economic scenarios The measurement of expected credit losses is required to reflect an unbiased probability-weighted range of possible future outcomes. The Group’s economics team develops the future economic scenarios. Firstly, a base case forecast is produced based on a set of conditioning assumptions, which are designed to reflect the Group’s best view of future events. A full distribution of economic scenarios around this base case is produced using a Monte Carlo simulation and scenarios within that distribution are ranked using estimated relationships with industry wide historical loss data. Three scenarios are derived from the distribution as averages of constituent modelled scenarios around the 15th, 75th and 95th percentiles of the distribution corresponding to an upside, a downside and a severe downside, respectively. The severe downside is then adjusted to incorporate non-modelled paths for inflation and interest rate assumptions. The upside, the base case and the downside scenarios are weighted at 30% and the severe downside at 10%. These four scenarios are then used as key assumptions in the determination of the ECL allowance. The development of these multiple economic scenarios is inherently uncertain, highly complex, and requires significant judgement. The principal consideration for our determination that the multiple economic scenarios is a critical audit matter was the high degree of management judgement which required specialised auditor knowledge and a high degree of audit effort in areas such as evaluating the forward-looking information used by management, and the weighting applied.		We performed the following procedures: •Tested the controls over the generation of the multiple economic scenarios including those over the Group’s governance processes to determine the base case, different scenarios and the weightings applied to each scenario; •Working with our internal economic specialists: –challenged and evaluated economic forecasts in the base scenario such as the unemployment rate, House Price Index, inflation and forecasted interest rates, and Gross Domestic Product through comparison to independent economic outlooks, external analysts and market data; –challenged the appropriateness of management's change in methodology in determining the severe downside scenario; –challenged and evaluated the appropriateness of the methodology applied to generate alternative macroeconomic scenarios, and including associated weightings and assumptions within; –independently replicated the multiple economic scenario model and compared the outputs of our independent model to the Group’s output to test scenario generation; •Tested the completeness and accuracy of the data used by the model; •Performed a stand back assessment of the appropriateness of the weightings applied to each of the scenarios based on publicly available data; and •Evaluated the adequacy of disclosures in respect of significant judgements and sources of estimation uncertainty including macroeconomic scenarios.

Lloyds Bank plc

Independent auditors’ report


Key audit matter description		How the scope of our audit responded to the key audit matter
Retail ECL The ECL for Retail is determined on a collective basis using impairment models to calculate a probability weighted estimate by applying a probability of default, exposure at default and a loss given default, taking account of collateral held or other loss mitigants, discounted using the effective interest rate. The key judgements and estimates in determining the ECL for Retail include: •Modelling approach, modelling simplifications and judgements, and selection of modelling data; •Behavioural lives; and •The appropriate allocation of assets into the correct IFRS 9 stage through the assessment of significant deterioration in credit risk since origination. Model adjustments Adjustments are made to models to address known model and data limitations, and emerging or non-modelled risks. The current economic environment continues to be uncertain and differs from recent experience being characterised by elevated inflation, the “cost of living” crisis for personal borrowers, and higher finance costs, all of which affect the debt servicing capacity of borrowers. As a result, the judgements around if and when the Group have recognised adjustments in the model to account for the impacts of the current economic environment and potential model weaknesses in coping with the current economic outlook are highly judgmental and inherently uncertain. These adjustments require specialist auditor judgement when evaluating the completeness of adjustments, and the methodology, models and inputs to the adjustments.		We tested controls across the process to determine the ECL provisions including: •Model governance, including model validation and monitoring; •Model assumptions; •The allocation of assets into stages; and •Data accuracy and completeness. Working with our internal modelling specialists our audit procedures over the key areas of estimation covered the following: •Model estimations, where we: –evaluated the appropriateness of the modelling approach and assumptions used; –independently replicated the models for the most material portfolios and compared the outputs of our independent models to the Group’s outputs; –assessed model performance by evaluating variations between observed data and model predictions; –developed an understanding and assessed model limitations and remedial actions; and –tested the completeness and accuracy of the data used in model execution and calibration. •Allocation of assets into stages, where we: –evaluated the appropriateness of quantitative and qualitative criteria used for allocation into IFRS 9 stages; –tested the appropriateness of the stage allocation for a sample of exposures; and –tested the data used by models in assigning IFRS 9 stages and evaluated the appropriateness of the model logic used. Model adjustments In respect of the adjustment to models, we performed the following procedures in conjunction with our specialists: •Tested the controls over the adjustments to the models; •Evaluated the methodology, approach and assumptions in developing the adjustments, and evaluated the Group’s selection of approach; •Tested the completeness and accuracy of the data used; •Performed a recalculation of the adjustments; •Evaluated the completeness of adjustments based on our understanding of model and data limitations, including those related to cost of living pressures; and •Evaluated whether duplication exists between different model adjustments and between model adjustments and core models. We have assessed the adequacy of the disclosures and whether the disclosures appropriately address the uncertainty which exists in determining the ECL.

Lloyds Bank plc

Independent auditors’ report


Key audit matter description		How the scope of our audit responded to the key audit matter
Commercial Banking ECL The ECL in Commercial Banking is calculated on a collective basis for performing loans, being those in stage 1 and 2, and on an individual basis for larger impaired loans in stage 3. The collective provision is determined using impairment models. The models use a number of significant judgments to calculate a probability weighted ECL estimate applying an appropriate probability of default, estimated exposure at default and taking account of collateral held or other loss mitigants, discounted using the effective interest rate. The key driver of the probability of default and, therefore, the staging of Commercial Banking exposures is the credit risk rating. The determination of these credit risk ratings is performed on a counterparty basis for larger exposures by a credit officer and involves a high degree of judgement and consideration of multiple sources of information. Complex models and significant judgements are used to develop the probability of default, loss given default and exposure at default as well as applying the staging criteria under IFRS 9. For individual provision assessments of larger exposures in stage 3, the significant judgements in determining provisions are the: •completeness and appropriateness of the potential workout scenarios identified; •probability assigned to each identified potential workout scenarios; and •valuation assumptions used in determining the expected recovery strategies. Complex and subjective auditor judgement including specialised knowledge is required in evaluating the methodology, models and inputs that are inherently uncertain.		We tested the controls across the process to determine the ECL provisions including: •Model governance and arithmetical accuracy of provision calculations; •Data accuracy and completeness; and •Recognition and calculation of post-model adjustments. We performed the following audit procedures over: •Expected credit losses determined through impairment models: –independently assessed the credit rating and tested whether the exposure was in the correct stage and whether a significant increase in credit risk had occurred to result in a stage 2 classification against IFRS 9 criteria; –assessed and challenged the model methodologies, approach and assumptions, including those used in developing the IMAs and PMAs; –tested the completeness and accuracy of data used; and –performed a recalculation of the IFRS 9 collective provision. •Expected credit losses assessed individually: –assessed the exposures to determine if they met the definition of credit impaired with a stage 3 classification; –performed independent assessments to determine the appropriateness of recovery scenarios and associated cash flows, including considerations of climate risks on recoveries; –evaluated valuations, including the use of internal specialists for business valuations; and –independently assessed and challenged the completeness of workout scenarios identified and weightings applied. We have assessed the adequacy of the disclosures and whether the disclosures appropriately address the uncertainty which exists in determining the ECL.
Key observations communicated to the Audit Committee We are satisfied that the ECL provisions are reasonable and recognised in accordance with the requirements of IFRS 9. The calculations are based on appropriate methodologies using reasonable modelled assumptions, including IMAs and PMAs addressing model shortcomings. Where control deficiencies were identified, particularly in data linkage to models, compensating controls were identified and operated effectively. Overall, we are comfortable with the Group’s conclusions in respect of ECL.

Lloyds Bank plc

Independent auditors’ report


Regulatory and litigation matters (Group and Bank)
Key audit matter description		How the scope of our audit responded to the key audit matter
Refer to notes 2, 3 and 29 in the financial statements.
The Group operates in an environment where it is subject to regulatory investigations, litigation and customer remediation, including allegations of fraud and misconduct. The Group is currently exposed to a number of regulatory and litigation matters. The Group’s provision for these matters is £0.7 billion as at 31 December 2022, the most significant of which is the HBOS Reading matter. Significant judgement is required by the Group in determining whether, under IAS 37 Provisions, Contingent Liabilities and Contingent Assets: •Based on the information available to the Group, the amount recorded is representative of the Group's best estimate to settle the obligation; and •Any contingent liabilities and underlying significant estimation uncertainties are adequately disclosed.		We performed the following audit procedures: •Tested the Group’s controls over the completeness of provisions, the review of the assessment of the provision against the requirements of IAS 37, the review of the appropriateness of judgements used to determined a ‘best estimate’ and the completeness and accuracy of data used in the process; •Evaluated the assessment of the provisions, associated probabilities, and potential outcomes in accordance with IAS 37; •Verified and challenged whether the methodology, data and significant judgements and assumptions used in the valuation of the provisions are appropriate in the context of the applicable financial reporting framework; •In respect of HBOS Reading, we inspected information available including outcomes for the awards made by the Foskett panel and tested the methodology applied to determine the provision; •Inspected correspondence and, where appropriate, made direct inquiry with the Group’s regulators and internal and external legal counsel; •Where no provision was made, we critically assessed and challenged the conclusion in the context of the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets; and •Evaluated whether the disclosures made in the financial statements appropriately reflect the facts and key sources of estimation uncertainty.
Key observations communicated to the Audit Committee While there is significant judgement required in estimating the timing and value of future settlements, particularly in relation to the HBOS Reading matter, we are satisfied that the approach to the estimation of these provisions is consistent with the requirements of IAS 37.


Defined benefit obligations (Group and Bank)
Key audit matter description		How the scope of our audit responded to the key audit matter
Refer to notes 2, 3 and 27 in the financial statements
The Group operates a number of defined benefit retirement schemes, the obligations for which totalled £29.0 billion as at 31 December 2022. Their valuation is determined with reference to key actuarial assumptions including mortality assumptions, discount rates and inflation rates. Due to the size of these schemes, small changes in these assumptions can have a material impact on the value of the defined benefit obligation and therefore, the assessment of these assumptions are a key judgement.		We performed the following audit procedures: •Tested the Group’s controls over the valuation of the defined benefit obligations, including controls over the assumptions setting process; and •Challenged the key actuarial assumptions used by comparing these against ranges and expectations determined by our internal actuarial experts, which are calculated with reference to the central assumptions adopted by the actuarial firms for whom we have reviewed and accepted their methodologies.
Key observations communicated to the Audit Committee We are satisfied that the Group's judgements in relation to the actuarial assumptions are reasonable.

Lloyds Bank plc

Independent auditors’ report


IT systems that impact financial reporting (Group and Bank)
Key audit matter description		How the scope of our audit responded to the key audit matter
The Group’s IT environment is inherently complex due to the number of systems it operates and its reliance on automated and IT dependent manual controls. Together, these support a broad range of banking and insurance products as well as the processing of the Group’s significant volume of transactions, which impact all account balances. As such, IT systems within the Group form a critical component of the Group’s financial reporting activities. Due to the significant reliance on IT systems, effective General IT Controls (GITCs) are critical to allow reliance to be placed on the completeness and accuracy of financial data and the integrity of automated system functionality, such as system calculations. We identified the IT systems that impact financial reporting as a key audit matter because of the: •Pervasive reliance on complex technology that is integral to the operation of key business processes and financial reporting; •Reliance on technology which continues to develop in line with the business strategy, such as the increase in the use of automation across the Group and increasing reliance on third parties; and •Importance of the IT controls in maintaining an effective control environment. A key interdependency exists between the ability to rely on IT controls and the ability to rely on financial data, system configured automated controls and system reports. IT controls, in the context of our audit scope, primarily relate to privileged access at the infrastructure level, user access security at the application level and change control.		Our IT audit scope tested the Group’s IT controls over information systems deemed relevant to the audit based on the financial data, system configured automated controls and/or key financial reports that reside within it. We used IT specialists to support our evaluation of the risks associated with IT in the following areas: •General IT Controls, including user access and change management controls; •Key financial reports and system configured automated controls; and •Cyber security risk assessment. Where deficiencies in the IT control environment were identified, our risk assessment procedures included an assessment of those deficiencies to determine the impact on our audit plan. Where relevant, the audit plan was adjusted to mitigate the unaddressed IT risk. Where we were able to identify and test appropriate mitigating controls over affected financial statement line items, our testing approach remained unchanged. In a limited number of areas, we adopted a non-controls reliance approach and we therefore performed additional substantive procedures.
Key observations communicated to the Audit Committee IT control deficiencies were identified in respect of privileged user access to IT infrastructure and in application user access management. The existence of these deficiencies in the year resulted in an increased risk in relation to data, reports and automated system functionality from the affected systems. However, overall, in combination with business mitigating controls, we are satisfied that the Group’s overall IT control environment appropriately supports the financial reporting process.

Lloyds Bank plc

Independent auditors’ report

6.Our application of materiality

6.1Materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a

reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in

evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:


	Group financial statements	Bank financial statements
Materiality	£290 million (2021: £290 million)	£290 million (2021: £290 million)
Basis for determining materiality	In determining our benchmark for materiality, we have considered the metrics used by investors and other users of the financial statements. We have determined the following benchmarks to be the most relevant to users of the financial statements: •Pre-tax profit; and •Net assets. The determined materiality represents 5% of pre-tax profit and 0.7% of net assets.	The Bank materiality represents 0.6% of net assets, and is capped at Group materiality.
Rationale for the benchmark applied	Given the importance of these measures to investors and users of the financial statements, we have used forecasted pre-tax profit as the primary benchmark for our determination of materiality, and net assets as a supporting benchmark.	As the Bank does not disclose a standalone income statement we do not consider an income based metric to be an appropriate benchmark for the purposes of setting materiality when considering the expectations of the user of the Bank financial statements. As such we have determined that a net assets benchmark is appropriate. However, given the size of the entity’s balance sheet, we have capped materiality at Group’s materiality.

6.2Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected

misstatements exceed the materiality for the financial statements as a whole.


	Group financial statements	Bank financial statements
Performance materiality	70% of Group materiality – £185 million (2021: 60% at £175 million)	70% of Bank materiality – £185 million (2021: 60% at £175 million)
Basis and rationale for determining performance materiality	In determining performance materiality, we considered the following factors: a.The quality of the control environment and whether we were able to rely on controls; b.Degree of centralisation and commonality of controls and processes; c.The uncertain economic environment; d.The nature, volume and size of uncorrected misstatements arising in the previous audit; and e.The nature, volume and size of uncorrected misstatements that remain uncorrected in the current period. In the prior year, performance materiality was set at 60% reflecting amongst other factors that it was Deloitte LLP’s first year auditing the Group and Parent financial statements.

6.3Error reporting threshold

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £15 million (2021: £15 million), as

well as any differences below this threshold, which in our view, warranted reporting on qualitative grounds. We also report to the Audit

Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

Lloyds Bank plc

Independent auditors’ report

7.Other information


The other information comprises the information included in the Annual Report, other than the financial statements and our auditors’ report thereon. The Directors are responsible for the other information contained within the Annual Report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.		We have nothing to report in this regard.

We summarise below our work in relation to areas of the other information including those areas upon which we are specifically required to

report:


	Our responsibility	Our report
Matters we are specifically required to report
Strategic report and directors’ report	Report whether they are consistent with the audited financial statements and are prepared in accordance with applicable legal requirements. Report if we have identified any material misstatements in either report in the light of the knowledge and understanding of the Group and of the Bank and their environment obtained in the course of the audit.	As set out in the section “Opinions on other matters prescribed by the Companies Act 2006”, in our opinion, based on the work undertaken in the course of the audit, the information in these reports is consistent with the audited financial statements and has been prepared in accordance with applicable legal requirements.
Principal risks (within the strategic report)	Review the confirmation and description in the light of the knowledge gathered during the audit, such as through considering the directors’ processes to support the statements made, challenging the Group’s key judgements and estimates, consideration of historical forecasting accuracy and evaluating macro-economic assumptions.	We have nothing material to report, add or draw attention to in respect of these matters.

8.Responsibilities of Directors

As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements

and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the

preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group’s and the Bank’s ability to continue as a going

concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either

intend to liquidate the Group or the Bank or to cease operations, or have no realistic alternative but to do so.

9.Auditors' responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,

whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but

is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements

can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the

economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at www.frc.org.uk/

auditorsresponsibilities. This description forms part of our auditors' report.

Lloyds Bank plc

Independent auditors’ report

10.Extent to which the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,

outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of

detecting irregularities, including fraud is detailed below.

Identifying and assessing potential risks related to irregularities

In identifying and assessing the risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and

regulations, we considered the following:

•the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration

policies, key drivers for directors’ remuneration, bonus levels and performance targets;

•the Group’s own assessment of the risks that irregularities may occur either as a result of fraud or error that was discussed by the Audit

Committee on 20 February 2023;

•enquiring of management, in-house legal counsel, internal audit and the Audit Committee, including obtaining and reviewing supporting

documentation, concerning the Group’s policies and procedures relating to:

–identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;

–detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud; and

–the internal controls established to mitigate risks related to fraud or noncompliance with laws and regulations;

•discussing among the engagement team including significant component audit teams and involving relevant internal specialists, including tax,

valuations, pensions, IT and industry specialists regarding how and where fraud might occur in the financial statements and any potential

indicators of fraud; and

•obtaining an understanding of the legal and regulatory frameworks that the Group operates in, focusing on those laws and regulations that

had a direct effect on the financial statements, such as provisions of the UK Companies Act, pensions legislation and tax legislation or that

had a fundamental effect on the operations of the Group, including regulation and supervisory requirements of the Prudential Regulation

Authority, Financial Reporting Council and Financial Conduct Authority.

Audit response to risks identified

As a result of performing the above, we identified the Group’s and Bank’s determination of “Expected credit losses” as a key audit matter

related to the potential risk of fraud. The key audit matters section of our report explains the matter in more detail and also describes the

specific procedures in response to those key audit matters. In common with all audits under ISAs (UK), we are also required to perform specific

procedures to respond to the risk of management override.

In addition to the above, our procedures to respond to risks identified included the following:

•reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant laws

and regulations described as having a direct effect on the financial statements;

•inquiring of management, the Audit Committee and in-house and external legal counsel concerning actual and potential litigation and claims;

•performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due to

fraud;

•reading minutes of meetings of those charged with governance, reviewing internal audit reports and correspondence with regulators; and

•in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other

adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the

business rationale of any significant transactions that are unusual or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including specialists

and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.

Lloyds Bank plc

Independent auditors’ report

Report on other legal and regulatory requirements

11.Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

•The information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is

consistent with the financial statements; and

•The strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the Group and of the Bank and their environment obtained in the course of the audit, we

have not identified any material misstatements in the strategic report or the directors’ report.

12.Matters on which we are required to report by exception


Adequacy of explanations received and accounting records Under the Companies Act 2006 we are required to report to you if, in our opinion: •We have not received all the information and explanations we require for our audit; or •Adequate accounting records have not been kept by the Bank, or returns adequate for our audit have not been received from branches not visited by us; or •The Bank’s financial statements are not in agreement with the accounting records and returns.		We have nothing to report in respect of these matters.
Directors’ remuneration Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been made.		We have nothing to report in respect of this matter.

13.Other matters which we are required to address

Auditor tenure

Following the recommendation of the Audit Committee, we were appointed by shareholders at its annual general meeting on 12 May 2022 to

audit the financial statements of Lloyds Banking Group plc, including Lloyds Bank plc for the year ended 31 December 2022 and subsequent

financial periods. The period of total uninterrupted engagement of the firm is accordingly two years.

Consistency of the audit report with the additional report to the Audit Committee

Our audit opinion is consistent with the additional report to the Audit Committee we are required to provide in accordance with ISAs (UK).

14.Use of our report

This report is made solely to the Bank’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit

work has been undertaken so that we might state to the Bank’s members those matters we are required to state to them in an auditors' report

and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Bank and

the Bank’s members as a body, for our audit work, for this report, or for the opinions we have formed.

As required by the Financial Conduct Authority (FCA) Disclosure Guidance and Transparency Rule (DTR) 4.1.14R, these financial statements form

part of the European Single Electronic Format (‘ESEF’) prepared Annual Financial Report filed on the National Storage Mechanism of the UK

FCA in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors' report provides no assurance over whether the

annual financial report has been prepared using the single electronic format specified in the ESEF RTS.

Michael Lloyd (Senior Statutory Auditor)

For and on behalf of Deloitte LLP

Statutory Auditor

London, United Kingdom

7 March 2023

Lloyds Bank plc

Independent auditors’ report


	Note	2022 £ million	2021 £ million	2020 £ million
Interest income		16,562	12,920	13,866
Interest expense		(3,457)	(1,884)	(3,096)
Net interest income	5	13,105	11,036	10,770
Fee and commission income		2,352	2,195	1,924
Fee and commission expense		(1,101)	(942)	(909)
Net fee and commission income	6	1,251	1,253	1,015
Net trading income	7	180	385	750
Other operating income	8	2,209	1,999	2,050
Other income		3,640	3,637	3,815
Total income		16,745	14,673	14,585
Operating expenses	9	(9,199)	(10,206)	(9,196)
Impairment (charge) credit	11	(1,452)	1,318	(4,060)
Profit before tax		6,094	5,785	1,329
Tax (expense) credit	12	(1,300)	(583)	137
Profit for the year		4,794	5,202	1,466

Profit attributable to ordinary shareholders		4,528	4,826	1,023
Profit attributable to other equity holders		241	344	417
Profit attributable to equity holders		4,769	5,170	1,440
Profit attributable to non-controlling interests		25	32	26
Profit for the year		4,794	5,202	1,466

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Bank plc

Consolidated income statement

for the year ended 31 December 2022


	2022 £ million	2021 £ million	2020 £ million
Profit for the year	4,794	5,202	1,466
Other comprehensive income
Items that will not subsequently be reclassified to profit or loss:
Post-retirement defined benefit scheme remeasurements:
Remeasurements before tax	(3,012)	1,720	138
Tax	860	(658)	(25)
	(2,152)	1,062	113
Movements in revaluation reserve in respect of equity shares held at fair value through other comprehensive income:
Change in fair value	–	–	–
Tax	(1)	1	(16)
	(1)	1	(16)
Gains and losses attributable to own credit risk:
Gains (losses) before tax	519	(86)	(75)
Tax	(155)	34	20
	364	(52)	(55)
Items that may subsequently be reclassified to profit or loss:
Movements in revaluation reserve in respect of debt securities held at fair value through other comprehensive income:
Change in fair value	(132)	137	46
Income statement transfers in respect of disposals	76	116	(145)
Income statement transfers in respect of impairment	6	(2)	5
Tax	19	(55)	74
	(31)	196	(20)
Movements in cash flow hedging reserve:
Effective portion of changes in fair value taken to other comprehensive income	(6,520)	(2,138)	709
Net income statement transfers	(1)	(584)	(727)
Tax	1,804	764	(31)
	(4,717)	(1,958)	(49)
Movements in foreign currency translation reserve:
Currency translation differences (tax: £nil)	91	(19)	–
Transfers to income statement (tax: £nil)	–	–	–
	91	(19)	–
Total other comprehensive loss for the year, net of tax	(6,446)	(770)	(27)
Total comprehensive (loss) income for the year	(1,652)	4,432	1,439

Total comprehensive (loss) income attributable to ordinary shareholders	(1,918)	4,056	996
Total comprehensive income attributable to other equity holders	241	344	417
Total comprehensive (loss) income attributable to equity holders	(1,677)	4,400	1,413
Total comprehensive income attributable to non-controlling interests	25	32	26
Total comprehensive (loss) income for the year	(1,652)	4,432	1,439

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Bank plc

Consolidated statement of comprehensive income

for the year ended 31 December 2022


	Note	2022 £ million	2021 £ million
Assets
Cash and balances at central banks		72,005	54,279
Items in the course of collection from banks		229	147
Financial assets at fair value through profit or loss	13	1,371	1,798
Derivative financial instruments	14	3,857	5,511
Loans and advances to banks		8,363	4,478
Loans and advances to customers		435,627	430,829
Reverse repurchase agreements		39,259	49,708
Debt securities		7,331	4,562
Due from fellow Lloyds Banking Group undertakings		816	739
Financial assets at amortised cost	15	491,396	490,316
Financial assets at fair value through other comprehensive income	18	22,846	27,786
Goodwill	19	470	470
Other intangible assets	20	4,654	4,144
Current tax recoverable		527	220
Deferred tax assets	28	5,857	4,048
Retirement benefit assets	27	3,823	4,531
Other assets	21	9,893	9,599
Total assets		616,928	602,849

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Bank plc

Consolidated balance sheet

at 31 December 2022


	Note	2022 £ million	2021 £ million
Liabilities
Deposits from banks		4,658	3,363
Customer deposits		446,172	449,373
Repurchase agreements at amortised cost		48,590	30,106
Due to fellow Lloyds Banking Group undertakings		2,539	1,490
Items in the course of transmission to banks		357	308
Financial liabilities at fair value through profit or loss	23	5,159	6,537
Derivative financial instruments	14	5,891	4,643
Notes in circulation		1,280	1,321
Debt securities in issue	24	49,056	48,724
Other liabilities	26	5,646	5,391
Retirement benefit obligations	27	126	230
Current tax liabilities		3	–
Deferred tax liabilities		208	–
Other provisions	29	1,591	1,933
Subordinated liabilities	30	6,593	8,658
Total liabilities		577,869	562,077
Equity
Share capital	31	1,574	1,574
Share premium account	32	600	600
Other reserves	33	743	5,400
Retained profits	34	31,792	28,836
Ordinary shareholders’ equity		34,709	36,410
Other equity instruments	35	4,268	4,268
Total equity excluding non-controlling interests		38,977	40,678
Non-controlling interests		82	94
Total equity		39,059	40,772
Total equity and liabilities		616,928	602,849

The accompanying notes are an integral part of the consolidated financial statements.

The directors approved the consolidated financial statements on 7 March 2023.



Robin Budenberg	Charlie Nunn	William Chalmers
Chair	Chief Executive	Chief Financial Officer

Lloyds Bank plc

Consolidated balance sheet

at 31 December 2022


	Attributable to ordinary shareholders
	Share capital and premium £ million	Other reserves £ million	Retained profits £ million	Total £ million	Other equity instruments £ million	Non- controlling interests £ million	Total £ million
At 1 January 2022	2,174	5,400	28,836	36,410	4,268	94	40,772
Comprehensive income
Profit for the year	–	–	4,528	4,528	241	25	4,794
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax	–	–	(2,152)	(2,152)	–	–	(2,152)
Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:
Debt securities	–	(31)	–	(31)	–	–	(31)
Equity shares	–	(1)	–	(1)	–	–	(1)
Gains and losses attributable to own credit risk, net of tax	–	–	364	364	–	–	364
Movements in cash flow hedging reserve, net of tax	–	(4,717)	–	(4,717)	–	–	(4,717)
Movements in foreign currency translation reserve, net of tax	–	91	–	91	–	–	91
Total other comprehensive (loss) income	–	(4,658)	(1,788)	(6,446)	–	–	(6,446)
Total comprehensive (loss) income1	–	(4,658)	2,740	(1,918)	241	25	(1,652)
Transactions with owners
Dividends (note 36)	–	–	–	–	–	(37)	(37)
Distributions on other equity instruments	–	–	–	–	(241)	–	(241)
Capital contributions received	–	–	221	221	–	–	221
Return of capital contributions	–	–	(4)	(4)	–	–	(4)
Total transactions with owners	–	–	217	217	(241)	(37)	(61)
Realised gains and losses on equity shares held at fair value through other comprehensive income	–	1	(1)	–	–	–	–
At 31 December 2022	2,174	743	31,792	34,709	4,268	82	39,059

1Total comprehensive income attributable to owners of the parent was a deficit of £1,677 million (2021: surplus of £4,400 million; 2020: surplus of £1,413 million).

Further details of movements in the Group’s share capital, reserves and other equity instruments are provided in notes 31, 32, 33, 34 and 35.

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Bank plc

Consolidated statement of changes in equity

for the year ended 31 December 2022


	Attributable to ordinary shareholders
	Share capital and premium £ million	Other reserves £ million	Retained profits £ million	Total £ million	Other equity instruments £ million	Non- controlling interests £ million	Total £ million
At 1 January 2021	2,174	7,181	25,750	35,105	5,935	78	41,118
Comprehensive income
Profit for the year	–	–	4,826	4,826	344	32	5,202
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax	–	–	1,062	1,062	–	–	1,062
Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:
Debt securities	–	196	–	196	–	–	196
Equity shares	–	1	–	1	–	–	1
Gains and losses attributable to own credit risk, net of tax	–	–	(52)	(52)	–	–	(52)
Movements in cash flow hedging reserve, net of tax	–	(1,958)	–	(1,958)	–	–	(1,958)
Movements in foreign currency translation reserve, net of tax	–	(19)	–	(19)	–	–	(19)
Total other comprehensive (loss) income	–	(1,780)	1,010	(770)	–	–	(770)
Total comprehensive (loss) income	–	(1,780)	5,836	4,056	344	32	4,432
Transactions with owners
Dividends (note 36)	–	–	(2,900)	(2,900)	–	(14)	(2,914)
Distributions on other equity instruments	–	–	–	–	(344)	–	(344)
Issue of other equity instruments (note 35)	–	–	(1)	(1)	1,550	–	1,549
Repurchases and redemptions of other equity instruments (note 35)	–	–	(9)	(9)	(3,217)	–	(3,226)
Capital contributions received	–	–	164	164	–	–	164
Return of capital contributions	–	–	(4)	(4)	–	–	(4)
Changes in non-controlling interests	–	–	(1)	(1)	–	(2)	(3)
Total transactions with owners	–	–	(2,751)	(2,751)	(2,011)	(16)	(4,778)
Realised gains and losses on equity shares held at fair value through other comprehensive income	–	(1)	1	–	–	–	–
At 31 December 2021	2,174	5,400	28,836	36,410	4,268	94	40,772

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Bank plc

Consolidated statement of changes in equity

for the year ended 31 December 2022


	Attributable to ordinary shareholders
	Share capital and premium £ million	Other reserves £ million	Retained profits £ million	Total £ million	Other equity instruments £ million	Non- controlling interests £ million	Total £ million
At 1 January 2020	2,174	7,250	24,549	33,973	4,865	61	38,899
Comprehensive income
Profit for the year	–	–	1,023	1,023	417	26	1,466
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax	–	–	113	113	–	–	113
Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:
Debt securities	–	(20)	–	(20)	–	–	(20)
Equity shares	–	(16)	–	(16)	–	–	(16)
Gains and losses attributable to own credit risk, net of tax	–	–	(55)	(55)	–	–	(55)
Movements in cash flow hedging reserve, net of tax	–	(49)	–	(49)	–	–	(49)
Total other comprehensive (loss) income	–	(85)	58	(27)	–	–	(27)
Total comprehensive (loss) income	–	(85)	1,081	996	417	26	1,439
Transactions with owners
Dividends (note 36)	–	–	–	–	–	(7)	(7)
Distributions on other equity instruments	–	–	–	–	(417)	–	(417)
Issue of other equity instruments (note 35)	–	–	–	–	1,070	–	1,070
Capital contributions received	–	–	140	140	–	–	140
Return of capital contributions	–	–	(4)	(4)	–	–	(4)
Changes in non-controlling interests	–	–	–	–	–	(2)	(2)
Total transactions with owners	–	–	136	136	653	(9)	780
Realised gains and losses on equity shares held at fair value through other comprehensive income	–	16	(16)	–	–	–	–
At 31 December 2020	2,174	7,181	25,750	35,105	5,935	78	41,118

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Bank plc

Consolidated statement of changes in equity

for the year ended 31 December 2022


	Note	2022 £ million	20211 £ million	20201 £ million
Cash flows from operating activities
Profit before tax		6,094	5,785	1,329
Adjustments for:
Change in operating assets	45(A)	(2,900)	5,174	(5,882)
Change in operating liabilities	45(B)	16,894	8,110	17,841
Non-cash and other items	45(C)	(129)	(661)	3,484
Tax paid (net)		(649)	(715)	(616)
Net cash provided by operating activities		19,310	17,693	16,156
Cash flows from investing activities
Purchase of financial assets		(7,953)	(8,885)	(8,539)
Proceeds from sale and maturity of financial assets		11,041	8,134	6,225
Purchase of fixed assets		(3,704)	(3,102)	(2,815)
Proceeds from sale of fixed assets		871	1,028	1,063
Acquisition of businesses, net of cash acquired		–	(3)	–
Net cash provided by (used in) investing activities		255	(2,828)	(4,066)
Cash flows from financing activities
Dividends paid to ordinary shareholders	36	–	(2,900)	–
Distributions on other equity instruments		(241)	(344)	(417)
Dividends paid to non-controlling interests		(37)	(14)	(7)
Return of capital contributions		(4)	(4)	(4)
Interest paid on subordinated liabilities		(397)	(525)	(852)
Proceeds from issue of subordinated liabilities		837	3,262	303
Proceeds from issue of other equity instruments		–	1,549	1,070
Repayment of subordinated liabilities		(2,216)	(3,745)	(4,156)
Repurchases and redemptions of other equity instruments		–	(3,226)	–
Borrowings from parent company		1,852	543	4,799
Repayments of borrowings to parent company		–	(4,896)	(1,403)
Interest paid on borrowings from parent company		(200)	(226)	(98)
Net cash used in financing activities		(406)	(10,526)	(765)
Effects of exchange rate changes on cash and cash equivalents		82	(1)	1
Change in cash and cash equivalents		19,241	4,338	11,326
Cash and cash equivalents at beginning of year		55,960	51,622	40,296
Cash and cash equivalents at end of year	45(D)	75,201	55,960	51,622

1Restated, see page 83.

The accompanying notes are an integral part of the consolidated financial statements.

Lloyds Bank plc

Consolidated cash flow statement

for the year ended 31 December 2022

Note 1: Basis of preparation

The consolidated financial statements of Lloyds Bank plc and its subsidiary undertakings (the Group) have been prepared in accordance with

international accounting standards in conformity with the requirements of the Companies Act 2006. The financial statements have also been

prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB).

The financial information has been prepared under the historical cost convention, as modified by the revaluation of investment properties,

financial assets measured at fair value through other comprehensive income, trading securities and certain other financial assets and liabilities at

fair value through profit or loss and all derivative contracts. The directors consider that it is appropriate to continue to adopt the going concern

basis in preparing the financial statements. In reaching this assessment, the directors have considered the impact of climate change upon the

Group’s performance and projected funding and capital position. The directors have also taken into account the results from stress testing

scenarios.

Details of those IFRS pronouncements which will be relevant to the Group but which were not effective at 31 December 2022 and which have

not been applied in preparing these financial statements are given in note 47.

In April 2022, the IFRS Interpretations Committee was asked to consider whether an entity includes a demand deposit as a component of cash

and cash equivalents in the statement of cash flows when the demand deposit is subject to contractual restrictions on use agreed with a third

party. It concluded that such amounts should be included within cash and cash equivalents. Accordingly, the Group includes mandatory reserve

deposits with central banks that are held in demand accounts within cash and cash equivalents disclosed in the cash flow statement. This

change has increased the Group’s cash and cash equivalents at 1 January 2020 by £1,682 million (to £40,296 million) and decreased the

adjustment for the change in operating assets in 2020 by £974 million (to a reduction of £5,882 million) resulting in an increase in the Group’s

cash and cash equivalents at 31 December 2020 of £2,656 million (to £51,622 million); and decreased the adjustment for the change in operating

assets in 2021 by £114 million (to an increase of £5,174 million) and, as a result, the Group’s cash and cash equivalents at 31 December 2021

increased by £2,770 million (to £55,960 million). The change had no impact on profit after tax or total equity.

In 2021, the Group adopted the Interest Rate Benchmark Reform Phase 2 amendments issued by the IASB. These amendments require that

changes to expected future cash flows that both arise as a direct result of IBOR Reform and are economically equivalent to the previous cash

flows are accounted for as a change to the effective interest rate with no adjustment to the asset’s or liability’s carrying value; no immediate gain

or loss is recognised. The requirements also provide relief from the requirements to discontinue hedge accounting as a result of amending

hedge documentation if the changes are required solely as a result of IBOR Reform.

Note 2: Accounting policies

The Group's accounting policies are set out below. These accounting policies have been applied consistently.

(A)Consolidation

The assets, liabilities and results of Group undertakings (including structured entities) are included in the financial statements on the basis of

accounts made up to the reporting date. Group undertakings include subsidiaries, associates and joint ventures. Details of the Group’s

subsidiaries and related undertakings are given on pages 226 to 229.

(1)Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it has power over the entity, is exposed to, or has rights to,

variable returns from its involvement with the entity, and has the ability to affect those returns through the exercise of its power. This generally

accompanies a shareholding of more than one half of the voting rights although in certain circumstances a holding of less than one half of the

voting rights may still result in the ability of the Group to exercise control. The existence and effect of potential voting rights that are currently

exercisable or convertible are considered when assessing whether the Group controls another entity. The Group reassesses whether or not it

controls an entity if facts and circumstances indicate that there have been changes to any of the above elements. Subsidiaries are fully

consolidated from the date on which control is transferred to the Group; they are de-consolidated from the date that control ceases.

Structured entities are entities that are designed so that their activities are not governed by way of voting rights. In assessing whether the Group

has power over such entities in which it has an interest, the Group considers factors such as the purpose and design of the entity; its practical

ability to direct the relevant activities of the entity; the nature of the relationship with the entity; and the size of its exposure to the variability of

returns of the entity.

The treatment of transactions with non-controlling interests depends on whether, as a result of the transaction, the Group loses control of the

subsidiary. Changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity

transactions; any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid

or received is recognised directly in equity and attributed to the owners of the parent entity. Where the Group loses control of the subsidiary, at

the date when control is lost the amount of any non-controlling interest in that former subsidiary is derecognised and any investment retained in

the former subsidiary is remeasured to its fair value; the gain or loss that is recognised in profit or loss on the partial disposal of the subsidiary

includes the gain or loss on the remeasurement of the retained interest.

Intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated.

The acquisition method of accounting is used to account for business combinations by the Group. The consideration for the acquisition of a

subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration

includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as

incurred except those relating to the issuance of debt instruments (see (E)(4) below) or share capital (see (O) below). Identifiable assets acquired

and liabilities assumed in a business combination are measured initially at their fair value at the acquisition date.

(2)Joint ventures and associates

Joint ventures are joint arrangements over which the Group has joint control with other parties and has rights to the net assets of the

arrangements. Joint control is the contractually agreed sharing of control of an arrangement and only exists when decisions about the relevant

activities require the unanimous consent of the parties sharing control. Associates are entities over which the Group has significant influence.

Significant influence is the power to participate in the financial and operating policy decisions of the entity, but is not control or joint control of

those policies, and is generally achieved through holding between 20 per cent and 50 per cent of the voting share capital of the entity.

The Group utilises the venture capital exemption for investments where significant influence or joint control is present and the business unit

operates as a venture capital business. These investments are designated on initial recognition at fair value through profit or loss. Otherwise,

the Group’s investments in joint ventures and associates are accounted for using the equity method of accounting.

Lloyds Bank plc

Notes to the consolidated financial statements

(B)Goodwill

Goodwill arises on business combinations and represents the excess of the cost of an acquisition over the fair value of the Group’s share of the

identifiable assets, liabilities and contingent liabilities acquired. Where the fair value of the Group’s share of the identifiable assets, liabilities

and contingent liabilities of the acquired entity is greater than the cost of acquisition, the excess is recognised immediately in the income

statement.

Goodwill is recognised as an asset at cost and is tested at least annually for impairment. For impairment testing, goodwill is allocated to the

cash generating unit (CGU) or groups of CGUs that are expected to benefit from the business combination. The Group's CGUs are largely

product based for its Retail business and client based for its Commercial Banking business. An impairment loss is recognised if the carrying

amount of a CGU is determined to be greater than its recoverable amount. The recoverable amount of a CGU is the higher of its fair value less

costs to sell and its value in use. If an impairment is identified the carrying value of the goodwill is written down immediately through the income

statement and this is not subsequently reversed. At the date of disposal of a subsidiary, the carrying value of attributable goodwill is included in

the calculation of the profit or loss on disposal.

(C)Other intangible assets

Intangible assets which have been determined to have a finite useful life are amortised on a straight-line basis over their estimated useful life as

follows: up to 7 years for capitalised software; 10 to 15 years for brands and other intangible assets.

Intangible assets with finite useful lives are reviewed at each reporting date to assess whether there is any indication that they are impaired. If

any such indication exists the recoverable amount of the asset is determined and in the event that the asset’s carrying amount is greater than its

recoverable amount, it is written down immediately. Certain brands have been determined to have an indefinite useful life and are not

amortised. Such intangible assets are assessed annually to determine whether the asset is impaired and to reconfirm that an indefinite useful life

remains appropriate. In the event that an indefinite life is inappropriate, a finite life is determined and a further impairment review is performed

on the asset.

(D)Revenue recognition

(1)Net interest income

Interest income and expense are recognised in the income statement using the effective interest method for all interest-bearing financial

instruments, except for those classified at fair value through profit or loss. The effective interest method is a method of calculating the

amortised cost of a financial asset or liability and of allocating the interest income or interest expense over the expected life of the financial

instrument. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of

the financial instrument to the gross carrying amount of the financial asset (before adjusting for expected credit losses) or to the amortised cost

of the financial liability, including early redemption fees, other fees, and premiums and discounts that are an integral part of the overall return. In

the case of financial assets that are purchased or originated credit-impaired, the effective interest rate is the rate that discounts the estimated

future cash flows to the amortised cost of the instrument. Direct incremental transaction costs related to the acquisition, issue or disposal of a

financial instrument are also taken into account. Interest income from non-credit impaired financial assets is recognised by applying the

effective interest rate to the gross carrying amount of the asset; for credit impaired financial assets, the effective interest rate is applied to the

net carrying amount after deducting the allowance for expected credit losses. Impairment policies are set out in (H) below.

(2)Fee and commission income and expense

Fees and commissions receivable which are not an integral part of the effective interest rate are recognised as income as the Group fulfils its

performance obligations. The Group’s principal performance obligations arising from contracts with customers are in respect of value added

current accounts, credit cards and debit cards. These fees are received, and the Group provides the service, monthly; the fees are recognised in

income on this basis. The Group also receives certain fees in respect of its asset finance business where the performance obligations are

typically fulfilled towards the end of the customer contract; these fees are recognised in income on this basis. Where it is unlikely that the loan

commitments will be drawn, loan commitment fees are recognised in fee and commission income over the life of the facility, rather than as an

adjustment to the effective interest rate for the lending expected to be drawn. Incremental costs incurred to generate fee and commission

income are charged to fee and commission expense as they are incurred.

(3)Other

Dividend income is recognised when the right to receive payment is established.

Revenue recognition policies specific to trading income are set out in (E)(3) below; and those relating to leases are set out in (J)(1) below.

(E)Financial assets and liabilities

On initial recognition, financial assets are classified as measured at amortised cost, fair value through other comprehensive income or fair value

through profit or loss, depending on the Group’s business model for managing those financial assets and whether the resultant cash flows

represent solely payments of principal and interest. The Group assesses its business models at a portfolio level based on its objectives for the

relevant portfolio, how the performance of the portfolio is managed and reported, and the frequency of asset sales. Financial assets with

embedded derivatives are considered in their entirety when considering their cash flow characteristics. The Group reclassifies financial assets

only when its business model for managing those assets changes. A reclassification will only take place when the change is significant to the

Group’s operations and will occur at a portfolio level and not for individual instruments; reclassifications are expected to be rare. Equity

investments are measured at fair value through profit or loss unless the Group elects at initial recognition to account for the instruments at fair

value through other comprehensive income. For these instruments, principally strategic investments, dividends are recognised in profit or loss

but fair value gains and losses are not subsequently reclassified to profit or loss following derecognition of the investment.

The Group initially recognises loans and advances, deposits, debt securities in issue and subordinated liabilities when the Group becomes a

party to the contractual provisions of the instrument. Regular way purchases and sales of securities and other financial assets and trading

liabilities are recognised on trade date, being the date that the Group is committed to purchase or sell an asset.

Financial assets are derecognised when the contractual right to receive cash flows from those assets has expired or when the Group has

transferred its contractual right to receive the cash flows from the assets and either: substantially all of the risks and rewards of ownership have

been transferred; or the Group has neither retained nor transferred substantially all of the risks and rewards, but has transferred control.

Financial liabilities are derecognised when the obligation is discharged, cancelled or expires.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 2: Accounting policies (continued)

(1)Financial instruments measured at amortised cost

Financial assets that are held to collect contractual cash flows where those cash flows represent solely payments of principal and interest are

measured at amortised cost. A basic lending arrangement results in contractual cash flows that are solely payments of principal and interest on

the principal amount outstanding. Where the contractual cash flows introduce exposure to risks or volatility unrelated to a basic lending

arrangement such as changes in equity prices or commodity prices, the payments do not comprise solely principal and interest. Financial assets

measured at amortised cost are predominantly loans and advances to customers and banks, reverse repurchase agreements and certain debt

securities used by the Group to manage its liquidity. Loans and advances and reverse repurchase agreements are initially recognised when cash

is advanced to the borrower at fair value inclusive of transaction costs. Interest income is accounted for using the effective interest method (see

(D) above).

Financial liabilities are measured at amortised cost, except for trading liabilities and other financial liabilities designated at fair value through

profit or loss on initial recognition which are held at fair value.

Where changes are made to the contractual cash flows of a financial asset or financial liability that are economically equivalent and arise as a

direct consequence of interest rate benchmark reform, the Group updates the effective interest rate and does not recognise an immediate gain

or loss.

(2)Financial assets measured at fair value through other comprehensive income

Financial assets that are held to collect contractual cash flows and for subsequent sale, where the assets’ cash flows represent solely payments

of principal and interest, are recognised in the balance sheet at their fair value, inclusive of transaction costs. Interest calculated using the

effective interest method and foreign exchange gains and losses on assets denominated in foreign currencies are recognised in the income

statement. All other gains and losses arising from changes in fair value are recognised directly in other comprehensive income, until the financial

asset is either sold or matures, at which time the cumulative gain or loss previously recognised in other comprehensive income is recognised in

the income statement; other than in respect of equity shares, for which the cumulative revaluation amount is transferred directly to retained

profits. The Group recognises a charge for expected credit losses in the income statement (see (H) below). As the asset is measured at fair

value, the charge does not adjust the carrying value of the asset, and this is reflected in other comprehensive income.

(3)Financial instruments measured at fair value through profit or loss

Financial assets are classified at fair value through profit or loss where they do not meet the criteria to be measured at amortised cost or fair

value through other comprehensive income or where they are designated at fair value through profit or loss to reduce an accounting mismatch.

All derivatives are carried at fair value through profit or loss, other than those in effective cash flow and net investment hedging relationships.

Derivatives are carried on the balance sheet as assets when their fair value is positive and as liabilities when their fair value is negative. Refer to

note 41(3) (Financial instruments: Financial assets and liabilities carried at fair value) for details of valuation techniques and significant inputs to

valuation models.

Derivatives embedded in a financial asset are not considered separately; the financial asset is considered in its entirety when determining

whether its cash flows are solely payments of principal and interest. Derivatives embedded in financial liabilities are treated as separate

derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host contract is not carried

at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the income

statement.

Trading securities, which are debt securities and equity shares acquired principally for the purpose of selling in the short term or which are part

of a portfolio which is managed for short-term gains, do not meet these criteria and are also measured at fair value through profit or loss.

Financial assets measured at fair value through profit or loss are recognised in the balance sheet at their fair value. Fair value gains and losses

together with interest coupons and dividend income are recognised in the income statement within net trading income.

Financial liabilities are measured at fair value through profit or loss where they are trading liabilities or where they are designated at fair value

through profit or loss in order to reduce an accounting mismatch; where the liabilities are part of a group of liabilities (or assets and liabilities)

which is managed, and its performance evaluated, on a fair value basis; or where the liabilities contain one or more embedded derivatives that

significantly modify the cash flows arising under the contract and would otherwise need to be separately accounted for. Financial liabilities

measured at fair value through profit or loss are recognised in the balance sheet at their fair value. Fair value gains and losses are recognised in

the income statement within net trading income in the period in which they occur, except in the case of financial liabilities designated at fair

value through profit or loss where gains and losses attributable to changes in own credit risk are recognised in other comprehensive income.

The fair values of assets and liabilities traded in active markets are based on current bid and offer prices, respectively, which include the

expected effects of potential changes to laws and regulations, risks associated with climate change and other factors. If the market is not active

the Group establishes a fair value by using valuation techniques. The fair values of derivative financial instruments are adjusted where

appropriate to reflect credit risk (via credit valuation adjustments (CVAs), debit valuation adjustments (DVAs) and funding valuation adjustments

(FVAs)), market liquidity and other risks.

(4)Borrowings

Borrowings (which include deposits from banks, customer deposits, repurchase agreements, debt securities in issue and subordinated liabilities)

are recognised initially at fair value, being their issue proceeds net of transaction costs incurred. These instruments are subsequently stated at

amortised cost using the effective interest method.

Preference shares and other instruments which carry a mandatory coupon or are redeemable on a specific date are classified as financial

liabilities. The coupon on these instruments is recognised in the income statement as interest expense. Securities which carry a discretionary

coupon and have no fixed maturity or redemption date are classified as other equity instruments. Interest payments on these securities are

recognised as distributions from equity in the period in which they are paid. An exchange of financial liabilities on substantially different terms is

accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The difference between the

carrying amount of a financial liability extinguished and the new financial liability is recognised in profit or loss together with any related costs or

fees incurred.

When a financial liability is exchanged for an equity instrument, the new equity instrument is recognised at fair value and any difference between

the carrying value of the liability and the fair value of the new equity instrument is recognised in profit or loss.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 2: Accounting policies (continued)

(5)Sale and repurchase agreements (including securities lending and borrowing)

Securities sold subject to repurchase agreements (repos) continue to be recognised on the balance sheet where substantially all of the risks and

rewards are retained. Funds received for repos carried at fair value are included within trading liabilities. Conversely, securities purchased under

agreements to resell (reverse repos), where the Group does not acquire substantially all of the risks and rewards of ownership, are measured at

amortised cost or at fair value. Those measured at fair value are recognised within trading securities. The difference between sale and

repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.

Securities borrowing and lending transactions are typically secured; collateral takes the form of securities or cash advanced or received.

Securities lent to counterparties are retained on the balance sheet. Securities borrowed are not recognised on the balance sheet, unless these

are sold to third parties, in which case the obligation to return them is recorded at fair value as a trading liability. Cash collateral given or

received is treated as a loan and advance measured at amortised cost or customer deposit.

(F)Hedge accounting

As permitted by IFRS 9, the Group continues to apply the requirements of IAS 39 to its hedging relationships.

Changes in the fair value of all derivative instruments, other than those in effective cash flow and net investment hedging relationships, are

recognised immediately in the income statement. As noted in (2) and (3) below, the change in fair value of a derivative in an effective cash flow

or net investment hedging relationship is allocated between the income statement and other comprehensive income.

Hedge accounting allows one financial instrument, generally a derivative such as a swap, to be designated as a hedge of another financial

instrument such as a loan or deposit or a portfolio of such instruments. At the inception of the hedge relationship, formal documentation is

drawn up specifying the hedging strategy, the hedged item, the hedging instrument and the methodology that will be used to measure the

effectiveness of the hedge relationship in offsetting changes in the fair value or cash flow of the hedged risk. The effectiveness of the hedging

relationship is tested both at inception and throughout its life and if at any point it is concluded that it is no longer highly effective in achieving

its documented objective, hedge accounting is discontinued. Note 14 provides details of the types of derivatives held by the Group and

presents separately those designated in hedge relationships.

Where there is uncertainty arising from interest rate benchmark reform, the Group assumes that the interest rate benchmark on which the

hedged cash flows and/or the hedged risk are based, or the interest rate benchmark on which the cash flows of the hedging instrument are

based, are not altered as a result of interest rate benchmark reform. The Group does not discontinue a hedging relationship during the period

of uncertainty arising from the interest rate benchmark reform solely because the actual results of the hedge are not highly effective.

Where the contractual terms of a financial asset, financial liability or derivative are amended, on an economically equivalent basis, as a direct

consequence of interest rate benchmark reform, the uncertainty arising from the reform is no longer present. In these circumstances, the Group

amends the hedge documentation to reflect the changes required by the reform; these changes to the documentation do not in and of

themselves result in the discontinuation of hedge accounting or require the designation of a new hedge relationship.

(1)Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with

the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk; this also applies if the hedged asset is

classified as a financial asset at fair value through other comprehensive income. If the hedge no longer meets the criteria for hedge accounting,

changes in the fair value of the hedged item attributable to the hedged risk are no longer recognised in the income statement. The cumulative

adjustment that has been made to the carrying amount of the hedged item is amortised to the income statement using the effective interest

method over the period to maturity.

(2)Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other

comprehensive income in the cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the

income statement. Amounts accumulated in equity are reclassified to the income statement in the periods in which the hedged item affects

profit or loss. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative

gain or loss existing in equity at that time remains in equity and is recognised in the income statement when the forecast transaction is

ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was

reported in equity is immediately transferred to the income statement.

(3)Net investment hedges

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument

relating to the effective portion of the hedge is recognised in other comprehensive income, the gain or loss relating to the ineffective portion is

recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the

foreign operation is disposed of. The hedging instruments used in net investment hedges may include non-derivative liabilities as well as

derivative financial instruments.

(G)Offset

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right of offset and

there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. Cash collateral on exchange traded

derivative transactions is presented gross unless the collateral cash flows are always settled net with the derivative cash flows. In certain

situations, even though master netting agreements exist, the lack of management intention to settle on a net basis results in the financial assets

and liabilities being reported gross on the balance sheet.

(H)Impairment of financial assets

The impairment charge in the income statement reflects the change in expected credit losses, including those arising from fraud. Expected

credit losses are recognised for loans and advances to customers and banks, other financial assets held at amortised cost, financial assets (other

than equity investments) measured at fair value through other comprehensive income, and certain loan commitments and financial guarantee

contracts. Expected credit losses are calculated as an unbiased and probability-weighted estimate using an appropriate probability of default,

adjusted to take into account a range of possible future economic scenarios, and applying this to the estimated exposure of the Group at the

point of default after taking into account the value of any collateral held, repayments, or other mitigants of loss and including the impact of

discounting using the effective interest rate.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 2: Accounting policies (continued)

At initial recognition, allowance (or provision in the case of some loan commitments and financial guarantees) is made for expected credit losses

resulting from default events that are possible within the next 12 months (12-month expected credit losses). In the event of a significant increase

in credit risk since origination, allowance (or provision) is made for expected credit losses resulting from all possible default events over the

expected life of the financial instrument (lifetime expected credit losses). Financial assets where 12-month expected credit losses are recognised

are considered to be Stage 1; financial assets which are considered to have experienced a significant increase in credit risk since initial

recognition are in Stage 2; and financial assets which have defaulted or are otherwise considered to be credit-impaired are allocated to Stage 3.

Some Stage 3 assets, mainly in Commercial Banking, are subject to individual rather than collective assessment. Such cases are subject to a risk-

based impairment sanctioning process, and these are reviewed and updated at least quarterly, or more frequently if there is a significant change

in the credit profile. The collective assessment of impairment aggregates financial instruments with similar risk characteristics, such as whether

the facility is revolving in nature or secured and the type of security held against financial assets.

An assessment of whether credit risk has increased significantly since initial recognition considers the change in the risk of default occurring over

the remaining expected life of the financial instrument. In determining whether there has been a significant increase in credit risk, the Group

uses quantitative tests based on relative and absolute probability of default (PD) movements linked to internal credit ratings together with

qualitative indicators such as watchlists and other indicators of historical delinquency, credit weakness or financial difficulty. The use of internal

credit ratings and qualitative indicators ensures alignment between the assessment of staging and the Group’s management of credit risk which

utilises these internal metrics within distinct retail and commercial portfolio risk management practices. However, unless identified at an earlier

stage, the credit risk of financial assets is deemed to have increased significantly when more than 30 days past due. The use of a payment

holiday in and of itself has not been judged to indicate a significant increase in credit risk, with the underlying long-term credit risk deemed to

be driven by economic conditions and captured through the use of forward-looking models. These portfolio-level models are capturing the

anticipated volume of increased defaults and therefore an appropriate assessment of staging and expected credit loss. Where the credit risk

subsequently improves such that it no longer represents a significant increase in credit risk since initial recognition, the asset is transferred back

to Stage 1.

Assets are transferred to Stage 3 when they have defaulted or are otherwise considered to be credit-impaired. Default is considered to have

occurred when there is evidence that the customer is experiencing financial difficulty which is likely to affect significantly the ability to repay the

amount due. IFRS 9 contains a rebuttable presumption that default occurs no later than when a payment is 90 days past due which the Group

now uses for all its products following changes to the definition of default for UK Mortgages on 1 January 2022. In addition, other indicators of

mortgage default are added including end-of-term payments on past due interest-only accounts and loans considered non-performing due to

recent arrears or forbearance. The use of payment holidays is not considered to be an automatic trigger of regulatory default and therefore

does not automatically trigger Stage 3. Days past due will also not accumulate on any accounts that have taken a payment holiday including

those already past due.

In certain circumstances, the Group will renegotiate the original terms of a customer’s loan, either as part of an ongoing customer relationship

or in response to adverse changes in the circumstances of the borrower. In the latter circumstances, the loan will remain classified as either

Stage 2 or Stage 3 until the credit risk has improved such that it no longer represents a significant increase since origination (for a return to

Stage 1), or the loan is no longer credit-impaired (for a return to Stage 2). On renegotiation the gross carrying amount of the loan is recalculated

as the present value of the renegotiated or modified contractual cash flows, which are discounted at the original effective interest rate.

Renegotiation may also lead to the loan and associated allowance being derecognised and a new loan being recognised initially at fair value.

Purchased or originated credit-impaired financial assets (POCI) include financial assets that are purchased or originated at a deep discount that

reflects incurred credit losses. At initial recognition, POCI assets do not carry an impairment allowance; instead, lifetime expected credit losses

are incorporated into the calculation of the effective interest rate. All changes in lifetime expected credit losses subsequent to the assets’ initial

recognition are recognised as an impairment charge.

A loan or advance is normally written off, either partially or in full, against the related allowance when the proceeds from realising any available

security have been received or there is no realistic prospect of recovery and the amount of the loss has been determined. Subsequent

recoveries of amounts previously written off decrease the amount of impairment losses recorded in the income statement. For both secured

and unsecured retail balances, the write-off takes place only once an extensive set of collections processes has been completed, or the status of

the account reaches a point where policy dictates that continuing attempts to recover are no longer appropriate. For commercial lending, a

write-off occurs if the loan facility with the customer is restructured, the asset is under administration and the only monies that can be received

are the amounts estimated by the administrator, the underlying assets are disposed and a decision is made that no further settlement monies

will be received, or external evidence (for example, third-party valuations) is available that there has been an irreversible decline in expected

cash flows.

(I)Property, plant and equipment

Property, plant and equipment (other than investment property) is included at cost less accumulated depreciation. The value of land (included in

premises) is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate the difference between the

cost and the residual value over their estimated useful lives, as follows: the shorter of 50 years and the remaining period of the lease for

freehold/long and short leasehold premises; the shorter of 10 years and, if lease renewal is not likely, the remaining period of the lease for

leasehold improvements; 10 to 20 years for fixtures and furnishings; and 2 to 8 years for other equipment and motor vehicles.

The assets’ residual values and useful lives are reviewed and, if appropriate, revised at each balance sheet date.

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In

assessing the recoverable amount of assets the Group considers the effects of potential or actual changes in legislation, customer behaviour,

climate-related risks and other factors on the asset’s CGU. In the event that an asset’s CGU carrying amount is determined to be greater than its

recoverable amount the asset is written down immediately.

Investment property comprises freehold and long leasehold land and buildings that are held either to earn rental income or for capital accretion

or both. In accordance with the guidance published by the Royal Institution of Chartered Surveyors, investment property is carried at fair value

based on current prices for similar properties, adjusted for the specific characteristics of the property (such as location or condition). If this

information is not available, the Group uses alternative valuation methods such as discounted cash flow projections or recent prices in less

active markets. These valuations are reviewed at least annually by independent professionally qualified valuers. Investment property being

redeveloped for continuing use as investment property, or for which the market has become less active, continues to be valued at fair value.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 2: Accounting policies (continued)

(J)Leases

Under IFRS 16, a lessor is required to determine whether a lease is a finance or operating lease. A lessee is not required to make this

determination.

(1)As lessor

Assets leased to customers are classified as finance leases if the lease agreements transfer substantially all of the risks and rewards of ownership

to the lessee but not necessarily legal title. All other leases are classified as operating leases. When assets are subject to finance leases, the

present value of the lease payments, together with any unguaranteed residual value, is recognised as a receivable, net of allowances for

expected credit losses and residual value impairment, within loans and advances to banks and customers. The difference between the gross

receivable and the present value of the receivable is recognised as unearned finance lease income. Finance lease income is recognised in

interest income over the term of the lease using the net investment method (before tax) so as to give a constant rate of return on the net

investment in the lease. Unguaranteed residual values are reviewed regularly to identify any impairment.

Operating lease assets are included within other assets at cost and depreciated over their estimated useful lives. The depreciation charge is

based on the asset’s residual value and the life of the lease. Operating lease rental income is recognised on a straight-line basis over the life of

the lease.

The Group evaluates non-lease arrangements such as outsourcing and similar contracts to determine if they contain a lease which is then

accounted for separately.

(2)As lessee

Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the

Group. Assets and liabilities arising from a lease are initially measured on a present value basis. The lease payments are discounted using the

interest rate implicit in the lease, if that rate can be determined, or the Group’s incremental borrowing rate appropriate for the right-of-use

asset arising from the lease, and the liability recognised within other liabilities.

Lease payments are allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to

produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over

the shorter of the asset’s useful life and the lease term on a straight-line basis.

Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss.

Short-term leases are leases with a lease term of twelve months or less. Low-value assets comprise IT equipment and small items of office

furniture.

(K)Employee benefits

Short-term employee benefits, such as salaries, paid absences, performance-based cash awards and social security costs, are recognised over

the period in which the employees provide the related services.

(1)Pension schemes

The Group operates a number of post-retirement benefit schemes for its employees including both defined benefit and defined contribution

pension plans. A defined benefit scheme is a pension plan that defines an amount of pension benefit that an employee will receive on

retirement, dependent on one or more factors such as age, years of pensionable service and pensionable salary. A defined contribution plan is

a pension plan into which the Group pays fixed contributions; there is no legal or constructive obligation to pay further contributions.

(i)Defined benefit schemes

Scheme assets are included at their fair value and scheme liabilities are measured on an actuarial basis using the projected unit credit method.

The defined benefit scheme liabilities are discounted using rates equivalent to the market yields at the balance sheet date on high-quality

corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the

terms of the related pension liability. The Group’s income statement charge includes the current service cost of providing pension benefits, past

service costs, net interest expense (income), and plan administration costs that are not deducted from the return on plan assets. Past service

costs, which represents the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment, are

recognised when the plan amendment or curtailment occurs. Net interest expense (income) is calculated by applying the discount rate at the

beginning of the period to the net defined benefit liability or asset.

Remeasurements, comprising actuarial gains and losses, the return on plan assets (excluding amounts included in net interest expense (income)

and net of the cost of managing the plan assets), and the effect of changes to the asset ceiling (if applicable) are reflected immediately in the

balance sheet with a charge or credit recognised in other comprehensive income in the period in which they occur. Remeasurements

recognised in other comprehensive income are reflected immediately in retained profits and will not subsequently be reclassified to profit or

loss.

The Group’s balance sheet includes the net surplus or deficit, being the difference between the fair value of scheme assets and the discounted

value of scheme liabilities at the balance sheet date. Surpluses are only recognised to the extent that they are recoverable through reduced

contributions in the future or through refunds from the schemes. In assessing whether a surplus is recoverable, the Group considers (i) its current

right to obtain a refund or a reduction in future contributions and (ii) the rights of other parties existing at the balance sheet date. In

determining the rights of third parties existing at the balance sheet date, the Group does not anticipate any future acts by other parties.

(ii)Defined contribution schemes

The costs of the Group’s defined contribution plans are charged to the income statement in the period in which they fall due.

(2)Share-based compensation

Lloyds Banking Group operates a number of equity-settled, share-based compensation plans in respect of services received from certain of its

employees. The value of the employee services received in exchange for equity instruments granted under these plans is recognised as an

expense over the vesting period of the instruments, with a corresponding increase in equity. This expense is determined by reference to the fair

value of the number of equity instruments that are expected to vest. The fair value of equity instruments granted is based on market prices, if

available, at the date of grant. In the absence of market prices, the fair value of the instruments at the date of grant is estimated using an

appropriate valuation technique, such as a Black-Scholes option pricing model or a Monte Carlo simulation. The determination of fair values

excludes the impact of any non-market vesting conditions, which are included in the assumptions used to estimate the number of options that

are expected to vest. At each balance sheet date, this estimate is reassessed and if necessary revised. Any revision of the original estimate is

recognised in the income statement, together with a corresponding adjustment to equity. Cancellations by employees of contributions to the

Group’s Save As You Earn plans are treated as non-vesting conditions and the Group recognises, in the year of cancellation, the amount of the

expense that would have otherwise been recognised over the remainder of the vesting period. Modifications are assessed at the date of

modification and any incremental charges are charged to the income statement.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 2: Accounting policies (continued)

(L)Taxation

Tax expense comprises current and deferred tax. Current and deferred tax are charged or credited in the income statement except to the

extent that the tax arises from a transaction or event which is recognised, in the same or a different period, outside the income statement (either

in other comprehensive income, directly in equity, or through a business combination), in which case the tax appears in the same statement as

the transaction that gave rise to it. The tax consequences of the Group’s dividend payments (including distributions on other equity

instruments), if any, are charged or credited to the statement in which the profit distributed originally arose.

Current tax is the amount of corporate income taxes expected to be payable or recoverable based on the profit for the period as adjusted for

items that are not taxable or not deductible, and is calculated using tax rates and laws that were enacted or substantively enacted at the

balance sheet date.

Current tax includes amounts provided in respect of uncertain tax positions when management expects that, upon examination of the

uncertainty by His Majesty’s Revenue and Customs (HMRC) or other relevant tax authority, it is more likely than not that an economic outflow

will occur. Provisions reflect management’s best estimate of the ultimate liability based on their interpretation of tax law, precedent and

guidance, informed by external tax advice as necessary. Changes in facts and circumstances underlying these provisions are reassessed at each

balance sheet date, and the provisions are remeasured as required to reflect current information.

Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the

balance sheet. Deferred tax is calculated using tax rates and laws that have been enacted or substantively enacted at the balance sheet date,

and which are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax liabilities are generally recognised for all taxable temporary differences but not recognised for taxable temporary differences

arising on investments in subsidiaries where the reversal of the temporary difference can be controlled and it is probable that the difference will

not reverse in the foreseeable future. Deferred tax liabilities are not recognised on temporary differences that arise from goodwill which is not

deductible for tax purposes.

Deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which the deductible temporary

differences can be utilised, and are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient

taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are not recognised in respect of temporary differences that arise on initial recognition of assets and liabilities

acquired other than in a business combination. Deferred tax is not discounted.

(M)Foreign currency translation

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment

in which the entity operates (the functional currency). Foreign currency transactions are translated into the appropriate functional currency using

the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such

transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are

recognised in the income statement, except when recognised in other comprehensive income as qualifying cash flow or net investment hedges.

Non-monetary assets that are measured at fair value are translated using the exchange rate at the date that the fair value was determined.

Translation differences on equities and similar non-monetary items held at fair value through profit and loss are recognised in profit or loss as

part of the fair value gain or loss. Translation differences on non-monetary financial assets measured at fair value through other comprehensive

income, such as equity shares, are included in the fair value reserve in equity unless the asset is a hedged item in a fair value hedge.

The results and financial position of all Group entities that have a functional currency different from the presentation currency are translated into

the presentation currency as follows: the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on the

acquisition of a foreign entity, are translated into sterling at foreign exchange rates ruling at the balance sheet date; and the income and

expenses of foreign operations are translated into sterling at average exchange rates unless these do not approximate to the foreign exchange

rates ruling at the dates of the transactions, in which case income and expenses are translated at the dates of the transactions.

Foreign exchange differences arising on the translation of a foreign operation are recognised in other comprehensive income and accumulated

in a separate component of equity together with exchange differences arising from the translation of borrowings and other currency instruments

designated as hedges of such investments (see (F)(3) above). On disposal or liquidation of a foreign operation, the cumulative amount of

exchange differences relating to that foreign operation is reclassified from equity and included in determining the profit or loss arising on

disposal or liquidation.

(N)Provisions and contingent liabilities

Provisions are recognised in respect of present obligations arising from past events where it is probable that outflows of resources will be

required to settle the obligations and they can be reliably estimated.

Contingent liabilities are possible obligations whose existence depends on the outcome of uncertain future events or those present obligations

where the outflows of resources are uncertain or cannot be measured reliably. Contingent liabilities are not recognised in the financial

statements but are disclosed unless they are remote.

Provision is made for expected credit losses in respect of irrevocable undrawn loan commitments and financial guarantee contracts (see (H)

above).

(O)Share capital

Incremental costs directly attributable to the issue of new shares or options or to the acquisition of a business are shown in equity as a

deduction, net of tax, from the proceeds. Dividends paid on the Group’s ordinary shares are recognised as a reduction in equity in the period in

which they are paid.

(P)Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash and non-mandatory deposits held with central banks,

mandatory deposits held with central banks in demand accounts and amounts due from banks with an original maturity of less than three

months that are available to finance the Group’s day-to-day operations.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 2: Accounting policies (continued)

The preparation of the Group’s financial statements in accordance with IFRS requires management to make judgements, estimates and

assumptions in applying the accounting policies that affect the reported amounts of assets, liabilities, income and expenses. Due to the

inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts which differ from those

estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including

expectations of future events that are believed to be reasonable under the circumstances. In preparing the financial statements, the Group has

considered the impact of climate-related risks on its financial position and performance. While the effects of climate change represent a source

of uncertainty, the Group does not consider there to be a material impact on its judgements and estimates from the physical, transition and

other climate-related risks in the short term.

The significant judgements, apart from those involving estimation, made by management in applying the Group’s accounting policies in these

financial statements (critical judgements) and the key sources of estimation uncertainty that may have a significant risk of causing a material

adjustment to the carrying amount of assets and liabilities within the next financial year (key sources of estimation uncertainty), which together

are considered critical to the Group’s results and financial position, are as follows:

Allowance for expected credit losses


Critical judgements:	Determining an appropriate definition of default against which a probability of default, exposure at default and loss given default parameter can be evaluated
	Establishing the criteria for a significant increase in credit risk (SICR)
	The use of management judgement alongside impairment modelling processes to adjust inputs, parameters and outputs to reflect risks not captured by models
Key source of estimation uncertainty:	Base case and multiple economic scenarios (MES) assumptions, including the rate of unemployment and the rate of change of house prices, required for creation of MES scenarios and forward-looking credit parameters

The Group recognises an allowance for expected credit losses (ECLs) for loans and advances to customers and banks, other financial assets held

at amortised cost, financial assets (other than equity investments) measured at fair value through other comprehensive income and certain loan

commitment and financial guarantee contracts. At 31 December 2022, the Group’s expected credit loss allowance was £4,796 million (2021:

£4,000 million), of which £4,492 million (2021: £3,806 million) was in respect of drawn balances.

The calculation of the Group’s expected credit loss allowances and provisions against loan commitments and guarantees under IFRS 9 requires

the Group to make a number of judgements, assumptions and estimates. Further information on the critical accounting judgements and key

sources of estimation uncertainty (see above) and other significant judgements and estimates is set out in note 16.

Defined benefit pension scheme obligations


Critical judgement:	Determination of an appropriate yield curve
Key sources of estimation uncertainty:	Discount rate applied to future cash flows
	Expected lifetime of the schemes’ members
	Expected rate of future inflationary increases

The net asset recognised in the balance sheet at 31 December 2022 in respect of the Group’s defined benefit pension scheme obligations was

£3,732 million comprising an asset of £3,823 million and a liability of £91 million (2021: a net asset of £4,404 million comprising an asset of

£4,531 million and a liability of £127 million). The Group’s accounting policy for its defined benefit pension scheme obligations is set out in note

2(K).

The accounting valuation of the Group’s defined benefit pension schemes’ liabilities requires management to make a number of assumptions.

The key sources of estimation uncertainty are the discount rate applied to future cash flows, the expected lifetime of the schemes’ members

and the expected rate of future inflationary increases.

Income statement and balance sheet sensitivities to changes in the critical accounting estimates and other actuarial assumptions are provided in

part (v) of note 27.

Uncertain tax positions


Critical judgement:	Interpreting tax rules on the Group’s open tax matters

The Lloyds Banking Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary,

which ceased trading on 31 December 2010. In 2013, HMRC informed the Lloyds Banking Group that its interpretation of the UK rules means

that the group relief is not available. In 2020, HMRC concluded their enquiry into the matter and issued a closure notice. The Lloyds Banking

Group’s interpretation of the UK rules has not changed and hence it has appealed to the First Tier Tax Tribunal, with a hearing expected in

2023. If the final determination of the matter by the judicial process is that HMRC’s position is correct, management estimate that this would

result in an increase in current tax liabilities of approximately £760 million (including interest) and a reduction in the Group's deferred tax asset

of approximately £295 million. The Lloyds Banking Group, having taken appropriate advice, does not consider that this is a case where

additional tax will ultimately fall due.

The Group makes other estimates in relation to tax which do not require significant judgements, see further discussion in note 28.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 3: Critical accounting judgements and key sources of estimation uncertainty

Regulatory and legal provisions


Critical judgements:	Determining the scope of reviews required by regulators
	The impact of legal decisions that may be relevant to claims received
	Determining whether a reliable estimate is available for obligations arising from past events
Key sources of estimation uncertainty:	The number of future complaints
	The proportion of complaints that will be upheld
	The average cost of redress

At 31 December 2022, the Group carried provisions of £708 million (2021: £1,054 million) against the cost of making redress payments to

customers and the related administration costs in connection with historical regulatory breaches.

Determining the amount of the provisions, which represent management’s best estimate of the cost of settling these issues, requires the

exercise of significant judgement and estimation. It will often be necessary to form a view on matters which are inherently uncertain, such as the

scope of reviews required by regulators, and to estimate the number of future complaints, the extent to which they will be upheld, the average

cost of redress and the impact of decisions reached by legal and other review processes that may be relevant to claims received. Consequently

the continued appropriateness of the underlying assumptions is reviewed on a regular basis against actual experience and other relevant

evidence and adjustments made to the provisions where appropriate.

Management has applied significant judgement in determining the provision required for HBOS Reading; further details are provided in note

29.

Fair value of financial instruments


Key source of estimation uncertainty:	Interest rate spreads, earnings multiples and interest rate volatility

At 31 December 2022, the carrying value of the Group’s financial instrument assets held at fair value was £28,074 million (2021: £35,095 million),

and its financial instrument liabilities held at fair value was £11,050 million (2021: £11,180 million).

The Group’s valuation control framework and a description of level 1, 2 and 3 financial assets and liabilities is set out in note 41(2). The valuation

techniques for level 3 financial instruments involve management judgement and estimates, the extent of which depends on the complexity of

the instrument and the availability of market observable information. In addition, in line with market practice, the Group applies credit, debit

and funding valuation adjustments in determining the fair value of its uncollateralised derivative positions. A description of these adjustments is

set out in note 41.

Capitalised software enhancements


Critical judgement:	Assessing future trading conditions that could affect the Group’s business operations
Key source of estimation uncertainty:	Estimated useful life of internally generated capitalised software

At 31 December 2022, the carrying value of the Group’s capitalised software enhancements was £3,964 million (2021: £3,383 million).

In determining the estimated useful life of capitalised software enhancements, management consider the product’s lifecycle and the Group’s

technology strategy; assets are reviewed annually to assess whether there is any indication of impairment and to confirm that the remaining

estimated useful life is still appropriate. For the year ended 31 December 2022, the amortisation charge was £825 million (2021: £884 million),

and at 31 December 2022, the weighted-average remaining estimated useful life of the Group’s capitalised software enhancements was 4.5

years (2021: 4.7 years). If the Group reduced by one year the estimated useful life of those assets with a remaining estimated useful life of more

than two years at 31 December 2022, the 2023 amortisation charge would be approximately £200 million higher.

Consideration of climate change

Financial statement preparation includes the consideration of the impact of climate change on the Group’s financial statements. There has been

no material impact identified on the financial reporting judgement and estimates. In particular, the directors considered the impact of climate

change in respect of the:

•Going concern of the Group for a period of at least 12 months from the date of approval of the financial statements

•Assessment of impairment of non-financial assets including goodwill

•Carrying value and useful economic lives of property, plant and equipment

•Fair value of financial assets and liabilities. These are generally based on market indicators which include the market’s assessment of climate

risk

•Economic scenarios used for measurement of expected credit losses and the behavioural lifetime of assets against the expected time

horizons of when climate risks may materialise

•Forecasting of the Group's future UK taxable profits, which impacts deferred tax recognition

Whilst there is currently no material short-term impact of climate change expected, the Group acknowledges the long-term nature of climate

risk and continues to monitor and assess climate risks highlighted in the risk management section on page 30.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 3: Critical accounting judgements and key sources of estimation uncertainty (continued)

The Group provides a wide range of banking and financial services in the UK and in certain locations overseas. The Group Executive Committee

(GEC) of the Lloyds Banking Group has been determined to be the chief operating decision-maker, as defined by IFRS 8 Operating Segments,

for the Group. The Group’s operating segments reflect its organisational and management structures. The GEC reviews the Group’s internal

reporting based around these segments in order to assess performance and allocate resources. They consider interest income and expense on

a net basis and consequently the total interest income and expense for all reportable segments is presented net. The segments are

differentiated by the type of products provided and by whether the customers are individuals or corporate entities.

During the year ended 31 December 2022, there were changes as a result of the Lloyds Banking Group restructure effective from 1 July 2022

and other methodology changes (comparatives have been restated accordingly):

•Business Banking and Commercial Cards moved from Retail to Commercial Banking. Wealth moved to Retail.

•The Group reviewed and updated its methodology for liquidity transfer pricing between segments.

Following the restructure, the Group completed a review and determined that it had two operating and reportable segments: Retail and

Commercial Banking:

•Retail offers a broad range of financial services products to personal customers, including current accounts, savings, mortgages, credit cards,

unsecured loans, motor finance and leasing solutions.

•Commercial Banking serves small and medium businesses as well as corporate and institutional clients, providing lending, transactional

banking, working capital management, debt financing and risk management services.

Other comprises income and expenditure not attributed to the Group's operating segments. These amounts include the costs of certain central

and head office functions.

Inter-segment services are generally recharged at cost, although some attract a margin. Inter-segment lending and deposits are generally

entered into at market rates, except that non-interest bearing balances are priced at a rate that reflects the external yield that could be earned

on such funds.

For the majority of those derivative contracts entered into by business units for risk management purposes, the business unit recognises the net

interest income or expense on an accrual accounting basis and transfers the remainder of the movement in the fair value of the derivative to the

central function where the resulting accounting volatility is managed where possible through the establishment of hedge accounting

relationships. Any change in fair value of the hedged instrument attributable to the hedged risk is also recorded within the central function. This

allocation of the fair value of the derivative and change in fair value of the hedged instrument attributable to the hedged risk avoids accounting

asymmetry in segmental results and leads to accounting volatility, which is managed centrally and reported within Other.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 4: Segmental analysis


	Retail £m	Commercial Banking £m	Other £m	Group £m
Year ended 31 December 2022
Net interest income	9,746	3,227	132	13,105
Other income	1,684	947	1,009	3,640
Total income	11,430	4,174	1,141	16,745
Operating expenses	(5,696)	(2,207)	(1,296)	(9,199)
Impairment (charge) credit	(1,373)	(471)	392	(1,452)
Profit before tax	4,361	1,496	237	6,094

External income	11,996	3,375	1,374	16,745
Inter-segment (expense) income	(566)	799	(233)	–
Segment income	11,430	4,174	1,141	16,745

Segment external assets	372,585	89,536	154,807	616,928
Segment external liabilities	314,051	140,923	122,895	577,869

Analysis of segment other income:
Fee and commission income:
Current accounts	420	222	–	642
Credit and debit card fees	734	456	–	1,190
Commercial banking fees	–	196	–	196
Factoring	–	79	–	79
Other fees and commissions	66	149	30	245
Fee and commission income	1,220	1,102	30	2,352
Fee and commission expense	(665)	(280)	(156)	(1,101)
Net fee and commission income	555	822	(126)	1,251
Operating lease rental income	1,065	12	–	1,077
Gains less losses on disposal of financial assets at fair value through other comprehensive income	–	–	(76)	(76)
Other income	64	113	1,211	1,388
Segment other income	1,684	947	1,009	3,640

Other segment items reflected in income statement above:
Depreciation and amortisation	1,216	195	937	2,348
Defined benefit scheme charges	72	28	25	125
Non-income statement segment items:
Additions to fixed assets	2,146	94	1,464	3,704

Lloyds Bank plc

Notes to the consolidated financial statements

Note 4: Segmental analysis (continued)


	Retail £m	Commercial Banking £m	Other £m	Group £m
Year ended 31 December 20211
Net interest income	8,515	2,479	42	11,036
Other income	1,596	918	1,123	3,637
Total income	10,111	3,397	1,165	14,673
Operating expenses	(5,878)	(2,732)	(1,596)	(10,206)
Impairment credit (charge)	447	869	2	1,318
Profit (loss) before tax	4,680	1,534	(429)	5,785

External income	11,200	3,172	301	14,673
Inter-segment (expense) income	(1,089)	225	864	–
Segment income	10,111	3,397	1,165	14,673

Segment external assets	364,375	85,806	152,668	602,849
Segment external liabilities	312,578	145,273	104,226	562,077

Analysis of segment other income:
Fee and commission income:
Current accounts	425	209	–	634
Credit and debit card fees	533	345	–	878
Commercial banking fees	–	247	37	284
Factoring	–	76	–	76
Other fees and commissions	65	171	87	323
Fee and commission income	1,023	1,048	124	2,195
Fee and commission expense	(571)	(247)	(124)	(942)
Net fee and commission income	452	801	–	1,253
Operating lease rental income	1,046	13	–	1,059
Gains less losses on disposal of financial assets at fair value through other comprehensive income	–	–	(116)	(116)
Other income	98	104	1,239	1,441
Segment other income	1,596	918	1,123	3,637

Other segment items reflected in income statement above:
Depreciation and amortisation	1,525	273	979	2,777
Defined benefit scheme charges	89	29	118	236
Non-income statement segment items:
Additions to fixed assets	1,922	168	1,012	3,102

1Restated, see page 92.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 4: Segmental analysis (continued)


	Retail £m	Commercial Banking £m	Other £m	Group £m
Year ended 31 December 20201
Net interest income	8,317	2,471	(18)	10,770
Other income	1,608	809	1,398	3,815
Total income	9,925	3,280	1,380	14,585
Operating expenses	(5,875)	(2,078)	(1,243)	(9,196)
Impairment charge	(2,274)	(1,397)	(389)	(4,060)
Profit (loss) before tax	1,776	(195)	(252)	1,329

External income	11,490	2,850	245	14,585
Inter-segment (expense) income	(1,565)	430	1,135	–
Segment income	9,925	3,280	1,380	14,585

Segment external assets	351,184	92,206	156,549	599,939
Segment external liabilities	284,622	150,728	123,471	558,821

Analysis of segment other income:
Fee and commission income:
Current accounts	428	182	–	610
Credit and debit card fees	447	301	–	748
Commercial banking fees	–	169	–	169
Factoring	–	76	–	76
Other fees and commissions	72	159	90	321
Fee and commission income	947	887	90	1,924
Fee and commission expense	(585)	(207)	(117)	(909)
Net fee and commission income	362	680	(27)	1,015
Operating lease rental income	1,104	16	–	1,120
Gains less losses on disposal of financial assets at fair value through other comprehensive income	–	–	145	145
Other income	142	113	1,280	1,535
Segment other income	1,608	809	1,398	3,815

Other segment items reflected in income statement above:
Depreciation and amortisation	1,760	242	668	2,670
Defined benefit scheme charges	100	30	117	247
Non-income statement segment items:
Additions to fixed assets	1,684	89	1,042	2,815

1Restated, see page 92.

Geographical areas

The Group’s operations are predominantly UK-based and as a result an analysis between UK and non-UK activities is not provided.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 4: Segmental analysis (continued)


	Weighted average effective interest rate
	2022 %	2021 %	2020 %	2022 £m	2021 £m	2020 £m
Interest income:
Loans and advances to banks and reverse repurchase agreements	1.16	0.11	0.20	947	70	114
Loans and advances to customers and reverse repurchase agreements	3.01	2.55	2.76	14,523	12,334	13,358
Debt securities	2.22	1.57	1.82	145	74	92
Financial assets held at amortised cost	2.73	2.27	2.48	15,615	12,478	13,564
Financial assets at fair value through other comprehensive income	4.02	1.69	1.12	947	442	302
Total interest income1	2.79	2.24	2.42	16,562	12,920	13,866
Interest expense:
Deposits from banks	1.90	1.34	1.19	(78)	(66)	(82)
Customer deposits	0.34	0.12	0.40	(1,083)	(386)	(1,270)
Repurchase agreements at amortised cost	1.79	0.10	0.36	(827)	(22)	(117)
Debt securities in issue2	2.08	1.37	1.13	(1,075)	(746)	(761)
Lease liabilities	2.07	2.01	2.36	(27)	(30)	(39)
Subordinated liabilities	5.55	7.01	7.19	(367)	(634)	(827)
Total interest expense3	0.81	0.45	0.71	(3,457)	(1,884)	(3,096)
Net interest income				13,105	11,036	10,770

1Includes £21 million (2021: £10 million; 2020: £10 million) of interest income on liabilities with negative interest rates, £29 million (2021: £38 million; 2020: £42 million) in respect of interest

income on finance leases and £682 million (2021: £695 million) in respect of hire purchase receivables.

2The impact of the Group’s hedging arrangements is included on this line; excluding this impact the weighted average effective interest rate in respect of debt securities in issue would be

4.17 per cent (2021: 2.30 per cent; 2020: 2.42 per cent).

3Includes £5 million (2021: £2 million; 2020: £23 million) of interest expense on assets with negative interest rates.

Included within interest income is £271 million (2021: £173 million; 2020: £170 million) in respect of credit-impaired financial assets. Net interest

income also includes a credit of £1 million (2021: credit of £584 million; 2020: credit of £727 million) transferred from the cash flow hedging

reserve (see note 33).

Note 6: Net fee and commission income


	2022 £m	2021 £m	2020 £m
Fee and commission income:
Current accounts	642	634	610
Credit and debit card fees	1,190	878	748
Commercial banking fees	196	284	169
Factoring	79	76	76
Other fees and commissions	245	323	321
Total fee and commission income	2,352	2,195	1,924
Fee and commission expense	(1,101)	(942)	(909)
Net fee and commission income	1,251	1,253	1,015

Fees and commissions which are an integral part of the effective interest rate form part of net interest income shown in note 5. Fees and

commissions relating to instruments that are held at fair value through profit or loss are included within net trading income shown in note 7.

In determining the disaggregation of fees and commissions the Group has considered how the nature, amount, timing and uncertainty of

revenue and cash flows are affected by economic factors, including those that are impacted by climate-related factors. It has determined that

the above disaggregation by product type provides useful information that does not aggregate items that have substantially different

characteristics and is not too detailed.

At 31 December 2022, the Group held on its balance sheet £99 million (31 December 2021: £76 million) in respect of services provided to

customers and £63 million (31 December 2021: £70 million) in respect of amounts received from customers for services to be provided after the

balance sheet date. Current unsatisfied performance obligations amount to £138 million (31 December 2021: £143 million); the Group expects

to receive substantially all of this revenue by 2024.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 5: Net interest income

Income recognised during the year included £5 million (2021: £13 million) in respect of amounts included in the contract liability balance at the

start of the year and £nil (2021: £nil) in respect of amounts from performance obligations satisfied in previous years.

The most significant performance obligations undertaken by the Group are in respect of current accounts, the provision of other banking

services for commercial customers and credit and debit card services.

In respect of current accounts, the Group receives fees for the provision of bank account and transaction services such as ATM services, fund

transfers, overdraft facilities and other value-added offerings.

For commercial customers, alongside its provision of current accounts, the Group provides other corporate banking services including factoring

and commitments to provide loan financing. Loan commitment fees are included in fees and commissions where the loan is not expected to be

drawn down by the customer.

The Group receives interchange and merchant fees, together with fees for overseas use and cash advances, for provision of card services to

cardholders and merchants.

Note 7: Net trading income


	2022 £m	2021 £m	2020 £m
Foreign exchange translation gains	6	10	74
Gains on foreign exchange trading transactions	341	329	326
Total foreign exchange	347	339	400
Investment property losses	–	–	(20)
Securities and other (losses) gains (see below)	(167)	46	370
Net trading income	180	385	750

Securities and other gains comprise net gains (losses) arising on assets and liabilities held at fair value through profit or loss as follows:


	2022 £m	2021 £m	2020 £m
Net income arising on assets and liabilities mandatorily held at fair value through profit or loss:
Financial instruments held for trading1	(24)	94	440
Other financial instruments mandatorily held at fair value through profit or loss:
Debt securities, loans and advances	7	6	37
Equity shares	3	11	9
	(14)	111	486
Net expense arising on assets and liabilities designated at fair value through profit or loss	(153)	(65)	(116)
Securities and other (losses) gains	(167)	46	370

1Includes hedge ineffectiveness in respect of fair value hedges (2022: loss of £21 million, 2021: gain of £195 million; 2020: gain of £546 million) and cash flow hedges (2022: loss of £6 million,

2021: loss of £58 million; 2020: gain of £259 million).

Note 8: Other operating income


	2022 £m	2021 £m	2020 £m
Operating lease rental income	1,077	1,059	1,120
Gains less losses on disposal of financial assets at fair value through other comprehensive income (note 33)	(76)	(116)	145
Liability management	(21)	(39)	(216)
Intercompany recharges and other	1,229	1,095	1,001
Total other operating income	2,209	1,999	2,050

Lloyds Bank plc

Notes to the consolidated financial statements

Note 6: Net fee and commission income (continued)


	2022 £m	2021 £m	2020 £m
Staff costs:
Salaries	2,350	2,260	2,382
Performance-based compensation	409	282	106
Social security costs	322	290	271
Pensions and other post-retirement benefit schemes (note 27)	439	523	552
Restructuring costs	36	88	161
Other staff costs	297	249	143
	3,853	3,692	3,615
Premises and equipment costs:
Rent and rates	102	116	115
Repairs and maintenance	136	161	172
Other1	54	(62)	138
	292	215	425
Other expenses:
Communications and data processing	1,412	1,154	996
Advertising and promotion	170	161	184
Professional fees	210	150	128
Regulatory and legal provisions (note 29)	225	1,177	414
Other	689	880	760
	2,706	3,522	2,482
Depreciation and amortisation:
Depreciation of property, plant and equipment2	1,453	1,823	2,017
Amortisation of other intangible assets (note 20)	895	954	653
	2,348	2,777	2,670
Goodwill impairment (note 19)	–	–	4
Total operating expenses	9,199	10,206	9,196

1Net of profits on disposal of operating lease assets of £197 million (2021: £249 million; 2020: £127 million).

2Comprising depreciation in respect of premises £112 million (2021: £121 million; 2020: £124 million), equipment £558 million (2021: £777 million; 2020: £676 million), operating lease assets

£570 million (2021: £709 million; 2020: £1,002 million) and right-of-use assets £213 million (2021: £216 million; 2020: £215 million).

Average headcount

The average number of persons on a headcount basis employed by the Group during the year was as follows:


	2022	2021	2020
UK	62,062	63,649	67,115
Overseas	487	512	515
Total	62,549	64,161	67,630

Lloyds Bank plc

Notes to the consolidated financial statements

Note 9: Operating expenses

Fees payable to the Bank's auditors1 by the Group are as follows:


	2022 £m	2021 £m	2020 £m
Fees payable for the:
– audit of the Bank's current year Annual report	4.9	4.7	4.5
– audits of the Bank's subsidiaries	10.8	9.5	8.9
– total audit fees in respect of the statutory audit of Group entities2	15.7	14.2	13.4
– services normally provided in connection with statutory and regulatory filings or engagements	0.8	0.7	1.6
Total audit fees3	16.5	14.9	15.0

Other audit-related fees3	0.4	0.4	0.3
All other fees3	0.2	0.5	0.9
Total non-audit services4	0.6	0.9	1.2
Total fees payable to the Bank’s auditors by the Group	17.1	15.8	16.2

1Deloitte LLP became the Group’s statutory auditor in 2021. PricewaterhouseCoopers LLP was the statutory auditor during 2020.

2As defined by the Financial Reporting Council (FRC).

3As defined by the Securities and Exchange Commission (SEC).

4As defined by the SEC. Total non-audit services as defined by the FRC include all fees other than audit fees in respect of the statutory audit of Group entities. These fees totalled £1.4 million

in 2022 (2021: £1.6 million; 2020: £2.8 million).

The following types of services are included in the categories listed above:

Audit fees: This category includes fees in respect of the audit of the Group’s annual financial statements and other services in connection with

regulatory filings. Other services supplied pursuant to legislation relate primarily to costs incurred in connection with client asset assurance and

with the Sarbanes-Oxley Act requirements associated with the audit of the financial statements of Lloyds Banking Group filed on its Form 20-F.

Other audit-related fees: This category includes fees in respect of services for assurance and related services that are reasonably related to the

performance of the audit or review of the financial statements, for example acting as reporting accountants in respect of debt prospectuses

required by the Listing Rules.

All other fees: This category includes other assurance services not related to the performance of the audit or review of the financial statements,

for example the review of controls operated by the Group on behalf of a third party. The auditors are not engaged to provide tax services.

It is the Group’s policy to use the auditors only on assignments in cases where their knowledge of the Group means that it is neither efficient nor

cost effective to employ another firm of accountants.

Lloyds Banking Group has procedures that are designed to ensure auditor independence for Lloyds Banking Group plc and all of its

subsidiaries, including prohibiting certain non-audit services. All audit and non-audit assignments must be pre-approved by the Lloyds Banking

Group Audit Committee (the Audit Committee) on an individual engagement basis; for certain types of non-audit engagements where the fee is

‘de minimis’ the Audit Committee has pre-approved all assignments subject to confirmation by management. On a quarterly basis, the Audit

Committee receives and reviews a report detailing all pre-approved services and amounts paid to the auditors for such pre-approved services.

During the year the auditors1 also earned fees payable by entities outside the consolidated Lloyds Bank Group in respect of the following:


	2022 £m	2021 £m	2020 £m
Audits of Group pension schemes	0.3	0.3	0.1
Reviews of the financial position of corporate and other borrowers	–	–	1.3

1Deloitte LLP became the Group’s statutory auditor in 2021. PricewaterhouseCoopers LLP was the statutory auditor during 2020.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 10: Auditors’ remuneration


	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
Year ended 31 December 2022
Impact of transfers between stages	(23)	573	357	–	907
Other changes in credit quality	(284)	90	663	78	547
Additions and repayments	114	97	(91)	(58)	62
Methodology and model changes	2	11	(47)	(29)	(63)
Other items	–	–	(1)	–	(1)
	(168)	198	524	(9)	545
Total impairment charge (credit)	(191)	771	881	(9)	1,452

In respect of:
Loans and advances to banks	9	–	–	–	9
Loans and advances to customers	(232)	679	882	(9)	1,320
Debt securities	6	–	–	–	6
Financial assets at amortised cost	(217)	679	882	(9)	1,335
Impairment charge (credit) on drawn balances	(217)	679	882	(9)	1,335
Loan commitments and financial guarantees	20	92	(1)	–	111
Financial assets at fair value through other comprehensive income	6	–	–	–	6
Total impairment charge (credit)	(191)	771	881	(9)	1,452


	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
Year ended 31 December 2021
Impact of transfers between stages	74	(474)	339	–	(61)
Other changes in credit quality	(313)	(307)	252	(48)	(416)
Additions and repayments	(231)	(379)	(97)	(87)	(794)
Methodology and model changes	(63)	15	6	–	(42)
Other items	2	4	(11)	–	(5)
	(605)	(667)	150	(135)	(1,257)
Total impairment (credit) charge	(531)	(1,141)	489	(135)	(1,318)

In respect of:
Loans and advances to banks	(4)	–	–	–	(4)
Loans and advances to customers	(436)	(1,008)	498	(135)	(1,081)
Financial assets at amortised cost	(440)	(1,008)	498	(135)	(1,085)
Impairment (credit) charge on drawn balances	(440)	(1,008)	498	(135)	(1,085)
Loan commitments and financial guarantees	(89)	(133)	(9)	–	(231)
Financial assets at fair value through other comprehensive income	(2)	–	–	–	(2)
Total impairment (credit) charge	(531)	(1,141)	489	(135)	(1,318)

Lloyds Bank plc

Notes to the consolidated financial statements

Note 11: Impairment

100


	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
Year ended 31 December 2020
Impact of transfers between stages	(168)	925	699	–	1,456
Other changes in credit quality	909	6	1,164	167	2,246
Additions and repayments	77	173	(52)	(30)	168
Methodology and model changes	(31)	170	26	–	165
Other items	–	–	25	–	25
	955	349	1,163	137	2,604
Total impairment charge	787	1,274	1,862	137	4,060

In respect of:
Loans and advances to banks	4	–	–	–	4
Loans and advances to customers	678	1,130	1,853	137	3,798
Financial assets at amortised cost	682	1,130	1,853	137	3,802
Impairment charge on drawn balances	682	1,130	1,853	137	3,802
Loan commitments and financial guarantees	100	144	9	–	253
Financial assets at fair value through other comprehensive income	5	–	–	–	5
Total impairment charge	787	1,274	1,862	137	4,060

The impairment charge contained no release (2021: release of £77 million; 2020: charge of £41 million) in respect of residual value impairment

and voluntary terminations within the Group’s UK motor finance business.

The Group’s impairment charge comprises the following items:

Impact of transfers between stages

The net impact on the impairment charge of transfers between stages.

Other changes in credit quality

Changes in loss allowance as a result of movements in risk parameters that reflect changes in customer quality, but which have not resulted in a

transfer to a different stage. This also contains the impact on the impairment charge as a result of write-offs and recoveries, where the related

loss allowances are reassessed to reflect ultimate realisable or recoverable value.

Additions and repayments

Expected loss allowances are recognised on origination of new loans or further drawdowns of existing facilities. Repayments relate to the

reduction of loss allowances resulting from the repayments of outstanding balances that have been provided against.

Methodology and model changes

Increase or decrease in impairment charge as a result of adjustments to the models used for expected credit loss calculations; as changes to

either the model inputs or the underlying assumptions, as well as the impact of changing the models used.

Movements in the Group’s impairment allowances are shown in note 15.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 11: Impairment (continued)

101

(A)Analysis of tax (expense) credit for the year


	2022 £m	2021 £m	2020 £m
UK corporation tax:
Current tax on profit for the year	(1,050)	(1,349)	(423)
Adjustments in respect of prior years	110	83	336
	(940)	(1,266)	(87)
Foreign tax:
Current tax on profit for the year	(20)	(21)	(18)
Adjustments in respect of prior years	(12)	22	24
	(32)	1	6
Current tax expense	(972)	(1,265)	(81)

Deferred tax:
Current year	(498)	851	508
Adjustments in respect of prior years	170	(169)	(290)
Deferred tax (expense) credit	(328)	682	218
Tax (expense) credit	(1,300)	(583)	137

(B)Factors affecting the tax (expense) credit for the year

The UK corporation tax rate for the year was 19.0 per cent (2021: 19.0 per cent; 2020: 19.0 per cent). An explanation of the relationship between

tax (expense) credit and accounting profit is set out below.


	2022 £m	2021 £m	2020 £m
Profit before tax	6,094	5,785	1,329
UK corporation tax thereon	(1,158)	(1,099)	(253)
Impact of surcharge on banking profits	(340)	(415)	(122)
Non-deductible costs: conduct charges	(5)	(167)	(24)
Non-deductible costs: bank levy	(25)	(19)	(30)
Other non-deductible costs	(58)	(59)	(62)
Non-taxable income	48	22	37
Tax relief on coupons on other equity instruments	46	65	79
Tax-exempt gains on disposals	–	2	–
Tax losses where no deferred tax recognised	–	–	(3)
Remeasurement of deferred tax due to rate changes	(21)	1,168	435
Differences in overseas tax rates	(55)	(17)	10
Adjustments in respect of prior years	268	(64)	70
Tax (expense) credit	(1,300)	(583)	137

Note 13: Financial assets at fair value through profit or loss

These comprise:


	2022 £m	2021 £m
Loans and advances to customers	1,132	1,559
Equity shares	239	239
Total	1,371	1,798

At 31 December 2022 £1,000 million (2021: £1,500 million) of financial assets at fair value through profit or loss had a contractual residual

maturity of greater than one year.

For amounts included above which are subject to repurchase and reverse repurchase agreements see note 44.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 12: Tax expense

102

The fair values and notional amounts of derivative instruments are set out in the following table:


	2022			2021
	Contract/ notional amount £m	Fair value assets £m	Fair value liabilities £m	Contract/ notional amount £m	Fair value assets £m	Fair value liabilities £m
Trading and other
Exchange rate contracts:
Spot, forwards and futures	17,471	244	362	12,243	144	156
Currency swaps	96,614	1,255	1,613	155,190	693	595
Options purchased	30	1	–	5	–	–
Options written	30	–	1	5	–	–
	114,145	1,500	1,976	167,443	837	751
Interest rate contracts:
Interest rate swaps	1,120,668	2,164	3,112	931,834	4,525	3,300
Forward rate agreements	–	–	–	21	–	–
Options purchased	1,881	57	–	2,128	19	–
Options written	1,750	–	59	1,229	–	10
	1,124,299	2,221	3,171	935,212	4,544	3,310
Credit derivatives	4,058	105	97	4,390	64	101
Equity and other contracts	63	12	141	44	11	166
Total derivative assets/liabilities - trading and other	1,242,565	3,838	5,385	1,107,089	5,456	4,328
Hedging
Derivatives designated as fair value hedges:
Interest rate swaps	128,153	8	496	147,724	41	307
Currency swaps	35	1	–	34	7	–
	128,188	9	496	147,758	48	307
Derivatives designated as cash flow hedges:
Interest rate swaps	235,916	–	–	97,942	–	–
Exchange rate forward rate agreements	310	10	10	571	7	8
	236,226	10	10	98,513	7	8
Total derivative assets/liabilities - hedging	364,414	19	506	246,271	55	315
Total recognised derivative assets/liabilities	1,606,979	3,857	5,891	1,353,360	5,511	4,643

The notional amount of the contract does not represent the Group’s exposure to credit risk, which is limited to the current cost of replacing

contracts with a positive value to the Group should the counterparty default. To reduce credit risk the Group uses a variety of credit

enhancement techniques such as netting and collateralisation, where security is provided against the exposure; a large proportion of the

Group’s derivatives are held through exchanges such as London Clearing House and are collateralised through those exchanges. Further details

are provided in note 44 Credit risk.

The Group holds derivatives as part of the following strategies:

•Customer driven, where derivatives are held as part of the provision of risk management products to Group customers

•To manage and hedge the Group’s interest rate and foreign exchange risk arising from normal banking business. The hedge accounting

strategy adopted by the Group is to utilise a combination of fair value and cash flow hedge approaches as described in note 44

The principal derivatives used by the Group are as follows:

•Interest rate related contracts include interest rate swaps, forward rate agreements and options. An interest rate swap is an agreement

between two parties to exchange fixed and floating interest payments, based upon interest rates defined in the contract, without the

exchange of the underlying principal amounts. Forward rate agreements are contracts for the payment of the difference between a specified

rate of interest and a reference rate, applied to a notional principal amount at a specific date in the future. An interest rate option gives the

buyer, on payment of a premium, the right, but not the obligation, to fix the rate of interest on a future loan or deposit, for a specified period

and commencing on a specified future date

•Exchange rate related contracts include forward foreign exchange contracts, currency swaps and options. A forward foreign exchange

contract is an agreement to buy or sell a specified amount of foreign currency on a specified future date at an agreed rate. Currency swaps

generally involve the exchange of interest payment obligations denominated in different currencies; the exchange of principal can be notional

or actual. A currency option gives the buyer, on payment of a premium, the right, but not the obligation, to sell specified amounts of currency

at agreed rates of exchange on or before a specified future date

•Credit derivatives, principally credit default swaps, are used by the Group as part of its trading activity and to manage its own exposure to

credit risk. A credit default swap is a swap in which one counterparty receives a premium at pre-set intervals in consideration for guaranteeing

to make a specific payment should a negative credit event take place

•Equity derivatives are also used by the Group as part of its equity-based retail product activity to eliminate the Group’s exposure to

fluctuations in various international stock exchange indices. Index-linked equity options are purchased which give the Group the right, but not

the obligation, to buy or sell a specified amount of equities, or basket of equities, in the form of published indices on or before a specified

future date

Lloyds Bank plc

Notes to the consolidated financial statements

Note 14: Derivative financial instruments

103

Details of the Group’s hedging instruments are set out below:


	Maturity
At 31 December 2022	Up to 1 month £m	1–3 months £m	3–12 months £m		1–5 years £m	Over 5 years £m		Total £m
Fair value hedges
Interest rate
Cross currency swap
Notional	–	–		–	–		35	35
Average fixed interest rate	–	–		–	–		1.28%
Average EUR/GBP exchange rate	–	–		–	–		1.38
Interest rate swap
Notional	796	12,236		31,539	51,094		32,488	128,153
Average fixed interest rate	3.20%	0.10%		0.68%	2.04%		1.88%
Cash flow hedges
Foreign exchange
Currency swap
Notional	16	35		207	48		4	310
Average EUR/GBP exchange rate	–	–		–	–		–
Average USD/GBP exchange rate	1.23	1.26		1.19	1.23		1.18
Interest rate
Interest rate swap
Notional	4,476	4,891		24,929	152,862		48,758	235,916
Average fixed interest rate	3.18%	1.46%		2.42%	2.46%		1.63%


	Maturity
At 31 December 2021	Up to 1 month £m	1–3 months £m	3–12 months £m	1–5 years £m	Over 5 years £m	Total £m
Fair value hedges
Interest rate
Cross currency swap
Notional	–	–	–	–	34	34
Average fixed interest rate	–	–	–	–	1.28%
Average EUR/GBP exchange rate	–	–	–	–	1.38
Interest rate swap
Notional	283	1,684	15,631	105,666	24,460	147,724
Average fixed interest rate	2.21%	2.13%	0.94%	0.62%	1.87%
Cash flow hedges
Foreign exchange
Currency swap
Notional	31	117	325	98	–	571
Average EUR/GBP exchange rate	1.14	1.16	1.15	1.13	–
Average USD/GBP exchange rate	1.36	1.35	1.37	1.34	1.34
Interest rate
Interest rate swap
Notional	1,000	500	9,542	51,186	35,714	97,942
Average fixed interest rate	0.00%	0.17%	0.56%	0.88%	0.67%

Lloyds Bank plc

Notes to the consolidated financial statements

Note 14: Derivative financial instruments (continued)

104

The carrying amounts of the Group’s hedging instruments are as follows:


	Carrying amount of the hedging instrument
At 31 December 2022	Contract/ notional amount £m	Assets £m	Liabilities £m	Changes in fair value used for calculating hedge ineffectiveness £m
Fair value hedges
Interest rate
Currency swaps	35	1	–	(2)
Interest rate swaps	128,153	8	496	3,108
Cash flow hedges
Foreign exchange
Currency swaps	310	10	10	25
Interest rate
Interest rate swaps	235,916	–	–	(6,417)


	Carrying amount of the hedging instrument
At 31 December 2021	Contract/ notional amount £m	Assets £m	Liabilities £m	Changes in fair value used for calculating hedge ineffectiveness £m
Fair value hedges
Interest rate
Currency swaps	34	7	–	(2)
Interest rate swaps	147,724	41	307	1,887
Cash flow hedges
Foreign exchange
Currency swaps	571	7	8	(26)
Interest rate
Interest rate swaps	97,942	–	–	(2,444)

All amounts are held within derivative financial instruments.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 14: Derivative financial instruments (continued)

105

The Group’s hedged items are as follows:

Carrying amount of

the hedged item

Accumulated amount of

fair value adjustment on

the hedged item

Change in

fair value of

hedged item for

ineffectiveness

assessment

£m

Cash flow hedging reserve

Continuing

hedges

£m

Discontinued

hedges

£m

At 31 December 2022

Assets

£m

Liabilities

£m

Assets

£m

Liabilities

£m

Fair value hedges

Interest rate

Fixed rate mortgages1

73,282

–

(2,602)

–

(3,199)

Fixed rate issuance2

–

28,391

–

2,069

2,422

Fixed rate bonds3

19,259

–

(1,549)

–

(2,350)

Cash flow hedges

Foreign exchange

Foreign currency issuance2

(25)

Customer deposits4

–

Interest rate

Customer loans1

5,931

(6,051)

(921)

Central bank balances5

2,194

(1,597)

(916)

Customer deposits4

(1,661)

2,332

(46)

Carrying amount of

the hedged item

Accumulated amount of

fair value adjustment on

the hedged item

Change in

fair value of

hedged item for

ineffectiveness

assessment

£m

Cash flow hedging reserve

Continuing

hedges

£m

Discontinued

hedges

£m

At 31 December 2021

Assets

£m

Liabilities

£m

Assets

£m

Liabilities

£m

Fair value hedges

Interest rate

Fixed rate mortgages1

88,791

–

(872)

–

(2,081)

Fixed rate issuance2

–

33,128

–

411

1,149

Fixed rate bonds3

25,019

–

342

–

(758)

Cash flow hedges

Foreign exchange

Foreign currency issuance2

(19)

Customer deposits4

–

Interest rate

Customer loans1

1,842

(711)

453

Central bank balances5

588

(235)

(109)

Customer deposits4

(89)

(85)

1Included within loans and advances to customers.

2Included within debt securities in issue.

3Included within financial assets at fair value through other comprehensive income.

4Included within customer deposits.

5Included within cash and balances at central banks.

The accumulated amount of fair value hedge adjustments remaining in the balance sheet for hedged items that have ceased to be adjusted for

hedging gains and losses is a liability of £1,449 million relating to fixed rate issuances of £221 million and mortgages of £1,228 million (2021:

liability of £548 million relating to fixed rate issuances of £270 million and mortgages of £278 million).

Lloyds Bank plc

Notes to the consolidated financial statements

Note 14: Derivative financial instruments (continued)

106

Gains and losses arising from hedge accounting are summarised as follows:


	Gain (loss) recognised in other comprehensive income £m	Hedge ineffectiveness recognised in the income statement1 £m	Amounts reclassified from reserves to income statement as:
At 31 December 2022	Gain (loss) recognised in other comprehensive income £m		Hedged cash flows will no longer occur £m	Hedged item affected income statement £m	Income statement line item that includes reclassified amount
Fair value hedges
Interest rate
Fixed rate mortgages		22
Fixed rate issuance		(29)
Fixed rate bonds		(14)
Cash flow hedges
Foreign exchange
Foreign currency issuance	25	–	–	(6)	Interest expense
Customer deposits	3	–	–	–	Interest expense
Interest rate
Customer loans	(6,718)	(29)	–	5	Interest income
Central bank balances	(2,171)	1	–	2	Interest income
Customer deposits	2,341	22	–	(2)	Interest expense


	Gain (loss) recognised in other comprehensive income £m	Hedge ineffectiveness recognised in the income statement1 £m	Amounts reclassified from reserves to income statement as:
At 31 December 2021	Gain (loss) recognised in other comprehensive income £m		Hedged cash flows will no longer occur £m	Hedged item affected income statement £m	Income statement line item that includes reclassified amount
Fair value hedges
Interest rate
Fixed rate mortgages		206
Fixed rate issuance		(4)
Fixed rate bonds		(7)
Cash flow hedges
Foreign exchange
Foreign currency issuance	(6)	–	(3)	(18)	Interest expense
Customer deposits	28	–	–	–	Interest expense
Interest rate
Customer loans	(1,719)	(42)	–	(454)	Interest income
Central bank balances	(499)	(17)	–	(134)	Interest income
Customer deposits	58	1	–	25	Interest expense

1Hedge ineffectiveness is included in the income statement within net trading income.

In 2021 there was a gain of £3 million (2022: £nil) reclassified from the cash flow hedging reserve for which hedge accounting had previously

been used but for which the hedged future cash flows are no longer expected to occur.

At 31 December 2022 £2,931 million of total recognised derivative assets of and £4,479 million of total recognised derivative liabilities of (2021:

£4,861 million of assets and £4,031 million of liabilities) had a contractual residual maturity of greater than one year.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 14: Derivative financial instruments (continued)

107

Year ended 31 December 2022


	Gross carrying amount					Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
Loans and advances to banks
At 1 January 2022	4,478	–	–	–	4,478	–	–	–	–	–
Exchange and other adjustments	421	–	–	–	421	–	–	–	–	–
Transfers to Stage 2	(2)	2	–		–	–	–	–		–
Impact of transfers between stages	(2)	2	–		–	–	–	–		–
						–	–	–		–
Other changes in credit quality						7	–	–	–	7
Additions and repayments	3,472	1	–	–	3,473	2	–	–	–	2
Charge to the income statement						9	–	–	–	9
At 31 December 2022	8,369	3	–	–	8,372	9	–	–	–	9
Allowance for impairment losses	(9)	–	–	–	(9)
Net carrying amount	8,360	3	–	–	8,363

Loans and advances to customers
At 1 January 2022	382,366	34,884	6,406	10,977	434,633	909	1,112	1,573	210	3,804
Exchange and other adjustments1	(1,574)	24	(21)	12	(1,559)	1	1	43	65	110
Transfers to Stage 1	8,329	(8,256)	(73)		–	176	(167)	(9)		–
Transfers to Stage 2	(34,889)	35,291	(402)		–	(66)	135	(69)		–
Transfers to Stage 3	(1,235)	(2,527)	3,762		–	(8)	(158)	166		–
Impact of transfers between stages	(27,795)	24,508	3,287		–	(119)	697	268		846
						(17)	507	356		846
Other changes in credit quality						(314)	73	664	78	501
Additions and repayments	9,769	687	(1,315)	(1,354)	7,787	97	88	(91)	(58)	36
Methodology and model changes						2	11	(47)	(29)	(63)
(Credit) charge to the income statement						(232)	679	882	(9)	1,320
Advances written off			(928)	(13)	(941)			(928)	(13)	(941)
Recoveries of advances written off in previous years			182	–	182			182	–	182
At 31 December 2022	362,766	60,103	7,611	9,622	440,102	678	1,792	1,752	253	4,475
Allowance for impairment losses	(678)	(1,792)	(1,752)	(253)	(4,475)
Net carrying amount	362,088	58,311	5,859	9,369	435,627
Drawn ECL coverage2 (%)	0.2	3.0	23.0	2.6	1.0

Reverse repurchase agreements
At 31 December 2022	39,259	–	–	–	39,259
Allowance for impairment losses	–	–	–	–	–
Net carrying amount	39,259	–	–	–	39,259

1Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, derecognising assets as a result of modifications and adjustments in respect of

purchased or originated credit-impaired financial assets (POCI). Where a POCI asset’s expected credit loss is less than its expected credit loss on purchase or origination, the increase in its

carrying value is recognised within gross loans, rather than as a negative impairment allowance.

2Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 15: Financial assets at amortised cost

108

Gross carrying amount

Allowance for expected credit losses

Stage 1

£m

Stage 2

£m

Stage 3

£m

POCI

£m

Total

£m

Stage 1

£m

Stage 2

£m

Stage 3

£m

POCI

£m

Total

£m

Debt securities

At 1 January 2022

4,554

–

4,564

–

Exchange and other adjustments

205

–

205

–

Transfers to Stage 1

(9)

–

Impact of transfers between stages

(9)

–

Other changes in credit quality

–

Additions and repayments

2,570

–

2,570

–

Charge to the income statement

–

At 31 December 2022

7,338

–

7,339

–

Allowance for impairment losses

(7)

–

(1)

–

(8)

Net carrying amount

7,331

–

7,331

Due from fellow Lloyds Banking Group undertakings

At 31 December 2022

816

–

816

Allowance for impairment losses

–

Net carrying amount

816

–

816

Total financial assets at

amortised cost

417,854

58,314

5,859

9,369

491,396

The total allowance for impairment losses includes £92 million (2021: £95 million) in respect of residual value impairment and voluntary

terminations within the Group’s UK motor finance business.

Movements in Retail UK mortgage balances were as follows:


	Gross carrying amount					Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
Retail – UK mortgages
At 1 January 2022	273,629	21,798	1,940	10,977	308,344	48	394	184	210	836
Exchange and other adjustments1	–	–	–	12	12	–	–	28	65	93
Transfers to Stage 1	5,107	(5,096)	(11)		–	28	(27)	(1)		–
Transfers to Stage 2	(26,043)	26,204	(161)		–	(14)	25	(11)		–
Transfers to Stage 3	(444)	(1,793)	2,237		–	–	(63)	63		–
Impact of transfers between stages	(21,380)	19,315	2,065		–	(25)	254	98		327
						(11)	189	149		327
Other changes in credit quality						36	(9)	54	78	159
Additions and repayments	5,268	670	(585)	(1,354)	3,999	18	(10)	(45)	(58)	(95)
Methodology and model changes						–	(12)	(55)	(29)	(96)
Charge (credit) to the income statement						43	158	103	(9)	295
Advances written off			(28)	(13)	(41)			(28)	(13)	(41)
Recoveries of advances written off in previous years			24	–	24			24	–	24
At 31 December 2022	257,517	41,783	3,416	9,622	312,338	91	552	311	253	1,207
Allowance for impairment losses	(91)	(552)	(311)	(253)	(1,207)
Net carrying amount	257,426	41,231	3,105	9,369	311,131
Drawn ECL coverage (%)	–	1.3	9.1	2.6	0.4

1Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, derecognising assets as a result of modifications and adjustments in respect of

purchased or originated credit-impaired financial assets (POCI). Where a POCI asset’s expected credit loss is less than its expected credit loss on purchase or origination, the increase in its

carrying value is recognised within gross loans, rather than as a negative impairment allowance.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 15: Financial assets at amortised cost (continued)

109

Movements in the allowance for expected credit losses in respect of undrawn balances were as follows:


	Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
Undrawn balances
At 1 January 2022	103	86	5	–	194
Exchange and other adjustments	(1)	–	–	–	(1)
Transfers to Stage 1	19	(19)	–		–
Transfers to Stage 2	(8)	9	(1)		–
Transfers to Stage 3	(1)	(2)	3		–
Impact of transfers between stages	(16)	78	(1)		61
	(6)	66	1		61
Other items taken to the income statement	26	26	(2)	–	50
Charge to the income statement	20	92	(1)	–	111
At 31 December 2022	122	178	4	–	304

The Group's total impairment allowances were as follows:


	Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
In respect of:
Loans and advances to banks	9	–	–	–	9
Loans and advances to customers	678	1,792	1,752	253	4,475
Debt securities	7	–	1	–	8
Due from fellow Lloyds Banking Group undertakings	–	–	–	–	–
Financial assets at amortised cost	694	1,792	1,753	253	4,492
Provisions in relation to loan commitments and financial guarantees	122	178	4	–	304
Total	816	1,970	1,757	253	4,796
Expected credit loss in respect of financial assets at fair value through other comprehensive income (memorandum item)	9	–	–	–	9

Lloyds Bank plc

Notes to the consolidated financial statements

Note 15: Financial assets at amortised cost (continued)

110

Year ended 31 December 2021


	Gross carrying amount					Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
Loans and advances to banks
At 1 January 2021	4,328	–	–	–	4,328	4	–	–	–	4
Exchange and other adjustments	15	–	–	–	15	–	–	–	–	–
Other changes in credit quality						(3)	–	–	–	(3)
Additions and repayments	135	–	–	–	135	(1)	–	–	–	(1)
Credit to the income statement						(4)	–	–	–	(4)
At 31 December 2021	4,478	–	–	–	4,478	–	–	–	–	–
Allowance for impairment losses	–	–	–	–	–
Net carrying amount	4,478	–	–	–	4,478

Loans and advances to customers
At 1 January 2021	361,161	51,280	6,443	12,511	431,395	1,347	2,125	1,968	261	5,701
Exchange and other adjustments1	(2,518)	(31)	(82)	68	(2,563)	(2)	(5)	5	121	119
Transfers to Stage 1	18,662	(18,623)	(39)		–	562	(551)	(11)		–
Transfers to Stage 2	(11,995)	12,709	(714)		–	(48)	155	(107)		–
Transfers to Stage 3	(872)	(1,818)	2,690		–	(13)	(220)	233		–
Impact of transfers between stages	5,795	(7,732)	1,937		–	(426)	193	221		(12)
						75	(423)	336		(12)
Other changes in credit quality						(239)	(256)	254	(48)	(289)
Additions and repayments	17,928	(8,633)	(994)	(1,565)	6,736	(209)	(344)	(98)	(87)	(738)
Methodology and model changes						(63)	15	6	–	(42)
(Credit) charge to the income statement						(436)	(1,008)	498	(135)	(1,081)
Advances written off			(1,057)	(37)	(1,094)			(1,057)	(37)	(1,094)
Recoveries of advances written off in previous years			159	–	159			159	–	159
At 31 December 2021	382,366	34,884	6,406	10,977	434,633	909	1,112	1,573	210	3,804
Allowance for impairment losses	(909)	(1,112)	(1,573)	(210)	(3,804)
Net carrying amount	381,457	33,772	4,833	10,767	430,829
Drawn ECL coverage (%)	0.2	3.2	24.6	1.9	0.9

Reverse repurchase agreements
At 31 December 2021	49,708	–	–	–	49,708
Allowance for impairment losses	–	–	–	–	–
Net carrying amount	49,708	–	–	–	49,708

1Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, derecognising assets as a result of modifications and adjustments in respect of

purchased or originated credit-impaired financial assets (POCI). Where a POCI asset’s expected credit loss is less than its expected credit loss on purchase or origination, the increase in its

carrying value is recognised within gross loans, rather than as a negative impairment allowance.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 15: Financial assets at amortised cost (continued)

111

Gross carrying amount

Allowance for expected credit losses

Stage 1

£m

Stage 2

£m

Stage 3

£m

POCI

£m

Total

£m

Stage 1

£m

Stage 2

£m

Stage 3

£m

POCI

£m

Total

£m

Debt securities

At 1 January 2021

5,137

–

5,138

–

Exchange and other adjustments

(20)

–

(20)

–

Transfers to Stage 2

(6)

–

Impact of transfers between stages

(6)

–

Additions and repayments

(557)

–

(554)

–

Charge to the income statement

–

At 31 December 2021

4,554

–

4,564

–

Allowance for impairment losses

(1)

–

(1)

–

(2)

Net carrying amount

4,553

–

4,562

Due from fellow Lloyds Banking Group undertakings

At 31 December 2021

739

–

739

Allowance for impairment losses

–

Net carrying amount

739

–

739

Total financial assets at amortised

cost

440,935

33,781

4,833

10,767

490,316

Movements in Retail UK mortgage balances were as follows:


	Gross carrying amount					Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
Retail – UK mortgages
At 1 January 2021	251,418	29,018	1,859	12,511	294,806	104	468	191	261	1,024
Exchange and other adjustments1	–	–	–	68	68	–	–	18	121	139
Transfers to Stage 1	10,109	(10,105)	(4)		–	66	(66)	–		–
Transfers to Stage 2	(6,930)	7,425	(495)		–	(5)	37	(32)		–
Transfers to Stage 3	(147)	(942)	1,089		–	–	(35)	35		–
Impact of transfers between stages	3,032	(3,622)	590		–	(58)	84	48		74
						3	20	51		74
Other changes in credit quality						(14)	(32)	(30)	(48)	(124)
Additions and repayments	19,179	(3,598)	(490)	(1,565)	13,526	8	(52)	(33)	(87)	(164)
Methodology and model changes						(53)	(10)	6	–	(57)
Credit to the income statement						(56)	(74)	(6)	(135)	(271)
Advances written off			(28)	(37)	(65)			(28)	(37)	(65)
Recoveries of advances written off in previous years			9	–	9			9	–	9
At 31 December 2021	273,629	21,798	1,940	10,977	308,344	48	394	184	210	836
Allowance for impairment losses	(48)	(394)	(184)	(210)	(836)
Net carrying amount	273,581	21,404	1,756	10,767	307,508
Drawn ECL coverage (%)	–	1.8	9.5	1.9	0.3

1Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind, derecognising assets as a result of modifications and adjustments in respect of

purchased or originated credit-impaired financial assets (POCI). Where a POCI asset’s expected credit loss is less than its expected credit loss on purchase or origination, the increase in its

carrying value is recognised within gross loans, rather than as a negative impairment allowance.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 15: Financial assets at amortised cost (continued)

112

Movements in the allowance for expected credit losses in respect of undrawn balances were as follows:


	Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
Undrawn balances
At 1 January 2021	191	221	14	–	426
Exchange and other adjustments	1	(2)	–	–	(1)
Transfers to Stage 1	73	(73)	–		–
Transfers to Stage 2	(8)	8	–		–
Transfers to Stage 3	(1)	(6)	7		–
Impact of transfers between stages	(65)	20	(4)		(49)
	(1)	(51)	3		(49)
Other items taken to the income statement	(88)	(82)	(12)	–	(182)
Credit to the income statement	(89)	(133)	(9)	–	(231)
At 31 December 2021	103	86	5	–	194

The Group's total impairment allowances were as follows:


	Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
In respect of:
Loans and advances to banks	–	–	–	–	–
Loans and advances to customers	909	1,112	1,573	210	3,804
Debt securities	1	–	1	–	2
Due from fellow Lloyds Banking Group undertakings	–	–	–	–	–
Financial assets at amortised cost	910	1,112	1,574	210	3,806
Provisions in relation to loan commitments and financial guarantees	103	86	5	–	194
Total	1,013	1,198	1,579	210	4,000
Expected credit loss in respect of financial assets at fair value through other comprehensive income (memorandum item)	3	–	–	–	3

The movement tables are compiled by comparing the position at 31 December to that at the beginning of the year. Transfers between stages

are deemed to have taken place at the start of the reporting period, with all other movements shown in the stage in which the asset is held at

31 December, with the exception of those held within purchased or originated credit-impaired, which are not transferable.

Additions and repayments comprise new loans originated and repayments of outstanding balances throughout the reporting period. Loans

which are written off in the period are first transferred to Stage 3 before acquiring a full allowance and subsequent write-off.

At 31 December 2022 £1,320 million (2021: £2,186 million) of loans and advances to banks, £389,517 million (2021: £384,766 million) of loans and

advances to customers, and £6,794 million (2021: £3,042 million) of debt securities had a contractual residual maturity of greater than one year.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 15: Financial assets at amortised cost (continued)

113

The calculation of the Group’s expected credit loss allowances and provisions against loan commitments and guarantees, which are set out in

note 15, under IFRS 9 requires the Group to make a number of judgements, assumptions and estimates. The most significant are set out below:

Definition of default

The probability of default (PD) of an exposure, both over a 12-month period and over its lifetime, is a key input to the measurement of the ECL

allowance. Default has occurred when there is evidence that the customer is experiencing significant financial difficulty which is likely to affect

the ability to repay amounts due. The definition of default adopted by the Group is described in note 2(H) Impairment of financial assets. IFRS 9

contains a rebuttable presumption that default occurs no later than when a payment is 90 days past due which the Group now uses for all its

products following changes to the definition of default for UK mortgages on 1 January 2022. In addition, other indicators of mortgage default

were added including end-of-term payments on past due interest-only accounts and loans considered non-performing due to recent arrears or

forbearance, aligning the definition of Stage 3 credit-impaired for IFRS 9 to the CRD IV prudential regulatory definition of default. This change

in definition of default contributes to the £1.5 billion increase in Stage 3 UK mortgages during the period.

Lifetime of an exposure

A range of approaches, segmented by product type, has been adopted by the Group to estimate a product’s expected life. These include using

the full contractual life and taking into account behavioural factors such as early repayments, extensions and refinancing. For non-revolving retail

assets, the Group has assumed the expected life for each product to be the time taken for all significant losses to be observed. For revolving

retail products, the Group has considered the losses beyond the contractual term over which the Group is exposed to credit risk. For

commercial overdraft facilities, the average behavioural life has been used. Changes to the assumed expected lives of the Group’s assets could

impact the ECL allowance recognised by the Group. The assessment of SICR and corresponding lifetime loss, and the PD, of a financial asset

designated as Stage 2, or Stage 3, is dependent on its expected life.

Significant increase in credit risk

Performing assets are classified as either Stage 1 or Stage 2. An ECL allowance equivalent to 12 months’ expected losses is established against

assets in Stage 1; assets classified as Stage 2 carry an ECL allowance equivalent to lifetime expected losses. Assets are transferred from Stage 1

to Stage 2 when there has been a significant increase in credit risk (SICR) since initial recognition. Credit-impaired assets are transferred to

Stage 3 with a lifetime expected losses allowance. The Group uses both quantitative and qualitative indicators to determine whether there has

been a SICR for an asset. For Retail, the following tables set out the retail master scale (RMS) grade triggers which result in a SICR for financial

assets and the PD boundaries for each RMS grade.

SICR triggers for key Retail portfolios


Origination grade	1	2	3	4	5	6	7
Mortgages SICR grade	5	5	6	7	8	9	10
Credit cards, loans and overdrafts SICR grade	4	5	6	7	8	9	10


RMS grade	1	2	3	4	5	6	7	8	9	10	11	12	13	14
PD boundary %1	0.10	0.40	0.80	1.20	2.50	4.50	7.50	10.00	14.00	20.00	30.00	45.00	99.99	100.00

1Probability-weighted annualised lifetime probability of default.

For Commercial a doubling of PD with a minimum increase in PD of 1 per cent and a resulting change in the underlying grade is treated as a

SICR.

The Group uses the internal credit risk classification and watchlist as qualitative indicators to identify a SICR. The Group does not use the low

credit risk exemption in its staging assessments. The use of a payment holiday in and of itself has not been judged to indicate a significant

increase in credit risk, nor forbearance, with the underlying long-term credit risk deemed to be driven by economic conditions and captured

through the use of forward-looking models. These portfolio level models are capturing the anticipated volume of increased defaults and

therefore an appropriate assessment of staging and expected credit loss.

All financial assets are assumed to have suffered a SICR if they are more than 30 days past due; credit cards, loans and overdrafts financial assets

are also assumed to have suffered a SICR if they are in arrears on three or more separate occasions in a rolling 12-month period. Financial assets

are classified as credit-impaired if they are 90 days past due.

A Stage 3 asset that is no longer credit-impaired is transferred back to Stage 2 as no cure period is applied to Stage 3. UK mortgages is an

exception to this rule where a probation period is enforced for non-performing, forborne and defaulted exposures in accordance with

prudential regulation. If an exposure that is classified as Stage 2 no longer meets the SICR criteria, which in some cases capture customer

behaviour in previous periods, it is moved back to Stage 1.

The setting of precise trigger points combined with risk indicators requires judgement. The use of different trigger points may have a material

impact upon the size of the ECL allowance. The Group monitors the effectiveness of SICR criteria on an ongoing basis.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 16: Allowance for expected credit losses

114

Generation of multiple economic scenarios

The estimate of expected credit losses is required to be based on an unbiased expectation of future economic scenarios. The approach used to

generate the range of future economic scenarios depends on the methodology and judgements adopted. The Group’s approach is to start

from a defined base case scenario, used for planning purposes, and to generate alternative economic scenarios around this base case. The base

case scenario is a conditional forecast underpinned by a number of conditioning assumptions that reflect the Group’s best view of key future

developments. If circumstances appear likely to materially deviate from the conditioning assumptions, then the base case scenario is updated.

The base case scenario is central to a range of future economic scenarios generated by simulation of an economic model, for which the same

conditioning assumptions apply as in the base case scenario. These scenarios are ranked by using estimated relationships with industry-wide

historical loss data. With the base case already pre-defined, three other scenarios are identified as averages of constituent scenarios located

around the 15th, 75th and 95th percentiles of the distribution. The full distribution is therefore summarised by a practical number of scenarios to

run through ECL models representing an upside, the base case, and a downside scenario weighted at 30 per cent each, together with a severe

downside scenario weighted at 10 per cent. The scenario weights represent the distribution of economic scenarios and not subjective views on

likelihood. The inclusion of a severe downside scenario with a smaller weighting ensures that the non-linearity of losses in the tail of the

distribution is adequately captured. Macroeconomic projections may employ reversionary techniques to adjust the paths of economic drivers

towards long-run equilibria after a reasonable forecast horizon. The Group does not use such techniques to force the MES scenarios to revert to

the base case planning view. Utilising such techniques would be expected to be immaterial for expected credit losses since loss sensitivity is

highest over the initial five years of the projections. Most assets are expected to have matured, or reached the end of their behavioural life

before the five-year horizon.

A forum under the chairmanship of the Chief Economist meets at least quarterly to review and, if appropriate, recommend changes to the

method by which economic scenarios are generated, for approval by the Chief Financial Officer and Chief Risk Officer. In June 2022, the Group

judged it appropriate to include an adjusted severe downside scenario to incorporate a high CPI inflation and UK Bank Rate profiles and to

adopt this adjusted severe downside scenario to calculate the Group's ECL. This is because the historic macroeconomic and loan loss data

upon which the scenario model is calibrated imply an association of downside economic outcomes with easier monetary policy, and therefore

low interest rates. The adjustment is considered to better reflect the risks around the Group’s base case view in an economic environment

where supply shocks are the principal concern. The Group has continued to include a non-modelled severe downside scenario for Group ECL

calculations for 31 December 2022 reporting.

Base case and MES economic assumptions

The Group’s base case economic scenario has been revised in light of the ongoing war in Ukraine, reversals in UK fiscal policy, and a continuing

global shift towards a more restrictive monetary policy stance against a backdrop of elevated inflation pressures. The Group’s updated base

case scenario has three conditioning assumptions: first, the war in Ukraine remains ‘local’, i.e. without overtly involving neighbouring countries,

NATO or China; second, the UK labour market participation rate remains below pre-pandemic levels, impeding the economy’s supply capacity;

and third, the Bank of England accommodates above-target inflation in the medium term, recognising the economic costs that might arise from

a rapid return to the two per cent target.

Based on these assumptions and incorporating the economic data published in the fourth quarter, the Group’s base case scenario is for a

contraction in economic activity and a rise in the unemployment rate alongside declines in residential and commercial property prices, following

increases in UK Bank Rate in response to persistent inflationary pressures. Risks around this base case economic view lie in both directions and

are largely captured by the generation of alternative economic scenarios.

The Group has accommodated the latest available information at the reporting date in defining its base case scenario and generating

alternative economic scenarios. The scenarios include forecasts for key variables in the fourth quarter of 2022, for which actuals may have since

emerged prior to publication.

Scenarios by year

The key UK economic assumptions made by the Group are shown in the following tables across a number of measures explained below.

Annual assumptions

Gross domestic product (GDP) and Consumer Price Index (CPI) inflation are presented as an annual change, house price growth and

commercial real estate price growth are presented as the growth in the respective indices over each year. Unemployment rate and UK Bank

Rate are averages over the year.

Five-year average

The five-year average reflects the average annual growth rate, or level, over the five-year period. It includes movements within the current

reporting year, such that the position as of 31 December 2022 covers the five years 2022 to 2026. The inclusion of the reporting year within the

five-year period reflects the need to predict variables which remain unpublished at the reporting date and recognises that credit models utilise

both level and annual changes. The use of calendar years maintains a comparability between the annual assumptions presented.

Five-year start to peak and trough

The peak or trough for any metric may occur intra year and therefore not be identifiable from the annual assumptions, therefore they are also

disclosed. For GDP, house price growth and commercial real estate price growth, the peak, or trough, reflects the highest, or lowest cumulative

quarterly position reached relative to the start of the five-year period, which as of 31 December 2022 is 1 January 2022. Given these metrics may

exhibit increases followed by greater falls, the start to trough movements quoted may be smaller than the equivalent ‘peak to trough’

movement (and vice versa for start to peak). Unemployment, UK Bank Rate and CPI Inflation reflect the highest, or lowest, quarterly level

reached in the five-year period.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 16: Allowance for expected credit losses (continued)

115


At 31 December 2022	2022 %	2023 %	2024 %	2025 %	2026 %	2022 to 2026 average %	Start to peak1 %	Start to trough1 %
Upside
Gross domestic product	4.1	0.1	1.1	1.7	2.1	1.8	6.5	0.4
Unemployment rate	3.5	2.8	3.0	3.3	3.4	3.2	3.8	2.8
House price growth	2.4	(2.8)	6.5	9.0	8.0	4.5	24.8	(1.1)
Commercial real estate price growth	(9.4)	8.5	3.5	2.6	2.3	1.3	7.2	(9.4)
UK Bank Rate	1.94	4.95	4.98	4.63	4.58	4.22	5.39	0.75
CPI inflation	9.0	8.3	4.2	3.3	3.0	5.5	10.7	2.9
Base case
Gross domestic product	4.0	(1.2)	0.5	1.6	2.1	1.4	4.3	(1.1)
Unemployment rate	3.7	4.5	5.1	5.3	5.1	4.8	5.3	3.6
House price growth	2.0	(6.9)	(1.2)	2.9	4.4	0.2	6.4	(6.3)
Commercial real estate price growth	(11.8)	(3.3)	0.9	2.8	3.1	(1.8)	7.2	(14.8)
UK Bank Rate	1.94	4.00	3.38	3.00	3.00	3.06	4.00	0.75
CPI inflation	9.0	8.3	3.7	2.3	1.7	5.0	10.7	1.6
Downside
Gross domestic product	3.9	(3.0)	(0.5)	1.4	2.1	0.8	1.2	(3.6)
Unemployment rate	3.8	6.3	7.5	7.6	7.2	6.5	7.7	3.6
House price growth	1.6	(11.1)	(9.8)	(5.6)	(1.5)	(5.4)	6.4	(24.3)
Commercial real estate price growth	(13.9)	(15.0)	(3.7)	0.4	1.4	(6.4)	7.2	(29.6)
UK Bank Rate	1.94	2.93	1.39	0.98	1.04	1.65	3.62	0.75
CPI inflation	9.0	8.2	3.3	1.3	0.3	4.4	10.7	0.2
Severe downside
Gross domestic product	3.7	(5.2)	(1.0)	1.3	2.1	0.1	0.7	(6.4)
Unemployment rate	4.1	9.0	10.7	10.4	9.7	8.8	10.7	3.6
House price growth	1.1	(14.8)	(18.0)	(11.5)	(4.2)	(9.8)	6.4	(40.1)
Commercial real estate price growth	(17.3)	(28.8)	(9.9)	(1.3)	3.2	(11.6)	7.2	(47.8)
UK Bank Rate – modelled	1.94	1.41	0.20	0.13	0.14	0.76	3.50	0.12
UK Bank Rate – adjusted2	2.44	7.00	4.88	3.31	3.25	4.18	7.00	0.75
CPI inflation – modelled	9.0	8.2	2.6	(0.1)	(1.6)	3.6	10.7	(1.7)
CPI inflation – adjusted2	9.7	14.3	9.0	4.1	1.6	7.7	14.8	1.5
Probability-weighted
Gross domestic product	4.0	(1.8)	0.2	1.5	2.1	1.2	3.4	(1.8)
Unemployment rate	3.7	5.0	5.8	5.9	5.7	5.2	5.9	3.6
House price growth	1.9	(7.7)	(3.2)	0.7	2.9	(1.2)	6.4	(9.5)
Commercial real estate price growth	(12.3)	(5.8)	(0.8)	1.6	2.3	(3.1)	7.2	(18.6)
UK Bank Rate – modelled	1.94	3.70	2.94	2.59	2.60	2.76	3.89	0.75
UK Bank Rate – adjusted2	1.99	4.26	3.41	2.91	2.91	3.10	4.31	0.75
CPI inflation – modelled	9.0	8.3	3.6	2.1	1.4	4.9	10.7	1.3
CPI inflation – adjusted2	9.1	8.9	4.3	2.5	1.7	5.3	11.0	1.6

1Since the level of property prices peaked during 2022, peak to trough declines for house price growth and commercial real estate price growth are larger than the start to trough declines

over the period shown.

2The adjustment to UK Bank Rate and CPI inflation in the severe downside is considered to better reflect the risks around the Group’s base case view in an economic environment where

supply shocks are the principal concern.


Base case scenario by quarter1 At 31 December 2022	First quarter 2022 %	Second quarter 2022 %	Third quarter 2022 %	Fourth quarter 2022 %	First quarter 2023 %	Second quarter 2023 %	Third quarter 2023 %	Fourth quarter 2023 %
Gross domestic product	0.6	0.1	(0.3)	(0.4)	(0.4)	(0.4)	(0.2)	(0.1)
Unemployment rate	3.7	3.8	3.6	3.7	4.0	4.4	4.7	4.9
House price growth	11.1	12.5	9.8	2.0	(3.0)	(8.4)	(9.8)	(6.9)
Commercial real estate price growth	18.0	18.0	8.4	(11.8)	(16.9)	(19.8)	(15.9)	(3.3)
UK Bank Rate	0.75	1.25	2.25	3.50	4.00	4.00	4.00	4.00
CPI inflation	6.2	9.2	10.0	10.7	10.0	8.9	8.0	6.1

1Gross domestic product is presented quarter-on-quarter. House price growth, commercial real estate growth and CPI inflation are presented year-on-year, i.e. from the equivalent quarter in

the previous year. Unemployment rate and UK Bank Rate are presented as at the end of each quarter.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 16: Allowance for expected credit losses (continued)

116


At 31 December 2021	2021 %	2022 %	2023 %	2024 %	2025 %	2021 to 2025 average %	Start to peak %	Start to trough %
Upside
Gross domestic product	7.1	4.0	1.4	1.3	1.4	3.0	12.6	(1.3)
Unemployment rate	4.4	3.3	3.4	3.5	3.7	3.7	4.9	3.2
House price growth	10.1	2.6	4.9	4.7	3.6	5.1	28.5	1.2
Commercial real estate price growth	12.4	5.8	0.7	1.0	(0.6)	3.7	20.9	0.8
UK Bank Rate	0.14	1.44	1.74	1.82	2.03	1.43	2.04	0.10
CPI inflation1	2.6	5.9	3.3	2.6	3.3	3.5	6.5	0.6
Base case
Gross domestic product	7.1	3.7	1.5	1.3	1.3	2.9	12.3	(1.3)
Unemployment rate	4.5	4.3	4.4	4.4	4.5	4.4	4.9	4.3
House price growth	9.8	0.0	0.0	0.5	0.7	2.1	11.0	1.2
Commercial real estate price growth	10.2	(2.2)	(1.9)	0.1	0.6	1.2	10.2	0.8
UK Bank Rate	0.14	0.81	1.00	1.06	1.25	0.85	1.25	0.10
CPI inflation1	2.6	5.9	3.0	1.6	2.0	3.0	6.5	0.6
Downside
Gross domestic product	7.1	3.4	1.3	1.1	1.2	2.8	11.4	(1.3)
Unemployment rate	4.7	5.6	5.9	5.8	5.7	5.6	6.0	4.3
House price growth	9.2	(4.9)	(7.8)	(6.6)	(4.7)	(3.1)	9.2	(14.8)
Commercial real estate price growth	8.6	(10.1)	(7.0)	(3.4)	(0.3)	(2.6)	8.6	(12.8)
UK Bank Rate	0.14	0.45	0.52	0.55	0.69	0.47	0.71	0.10
CPI inflation1	2.6	5.8	2.8	1.3	1.6	2.8	6.4	0.6
Severe downside
Gross domestic product	6.8	0.9	0.4	1.0	1.4	2.1	7.6	(1.3)
Unemployment rate	4.9	7.7	8.5	8.1	7.6	7.3	8.5	4.3
House price growth	9.1	(7.3)	(13.9)	(12.5)	(8.4)	(6.9)	9.1	(30.2)
Commercial real estate price growth	5.8	(19.6)	(12.1)	(5.3)	(0.5)	(6.8)	6.9	(30.0)
UK Bank Rate	0.14	0.04	0.06	0.08	0.09	0.08	0.25	0.02
CPI inflation1	2.6	5.8	2.3	0.5	0.9	2.4	6.5	0.4
Probability-weighted
Gross domestic product	7.0	3.4	1.3	1.2	1.3	2.8	11.6	(1.3)
Unemployment rate	4.6	4.7	5.0	5.0	4.9	4.8	5.0	4.3
House price growth	9.6	(1.4)	(2.3)	(1.7)	(1.0)	0.6	9.6	1.2
Commercial real estate price growth	9.9	(3.9)	(3.7)	(1.2)	(0.1)	0.1	9.9	(0.3)
UK Bank Rate	0.14	0.82	0.99	1.04	1.20	0.83	1.20	0.10
CPI inflation1	2.6	5.9	2.9	1.7	2.2	3.1	6.5	0.6

1For 31 December 2021 scenarios, CPI numbers were translations of modelled Retail Price Index excluding mortgage interest payments (RPIX) estimates.


Base case scenario by quarter1 At 31 December 2021	First quarter 2021 %	Second quarter 2021 %	Third quarter 2021 %	Fourth quarter 2021 %	First quarter 2022 %	Second quarter 2022 %	Third quarter 2022 %	Fourth quarter 2022 %
Gross domestic product	(1.3)	5.4	1.1	0.4	0.1	1.5	0.5	0.3
Unemployment rate	4.9	4.7	4.3	4.3	4.4	4.3	4.3	4.3
House price growth	6.5	8.7	7.4	9.8	8.4	6.1	3.2	0.0
Commercial real estate price growth	(2.9)	3.4	7.5	10.2	8.4	5.2	0.9	(2.2)
UK Bank Rate	0.10	0.10	0.10	0.25	0.50	0.75	1.00	1.00
CPI inflation	0.6	2.1	2.8	4.9	5.3	6.5	6.3	5.3

1Gross domestic product is presented quarter-on-quarter. House price growth, commercial real estate growth and CPI inflation are presented year-on-year, i.e. from the equivalent quarter in

the previous year. Unemployment rate and UK Bank Rate are presented as at the end of each quarter.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 16: Allowance for expected credit losses (continued)

117

ECL sensitivity to economic assumptions

The table below shows the Group’s ECL for the probability-weighted, upside, base case, downside and severe downside scenarios, with the

severe downside scenario incorporating adjustments made to CPI inflation and UK Bank Rate paths. The stage allocation for an asset is based

on the overall scenario probability-weighted PD and hence the staging of assets is constant across all the scenarios. In each economic scenario

the ECL for individual assessments and post-model adjustments is typically held constant reflecting the basis on which they are evaluated. For

31 December 2022, however, post-model adjustments in Commercial Banking have been apportioned across the scenarios to better reflect the

sensitivity of these adjustments to each scenario. Judgements applied through changes to model inputs are reflected in the scenario ECL

sensitivities. The probability-weighted view shows the extent to which a higher ECL allowance has been recognised to take account of multiple

economic scenarios relative to the base case; the uplift being £668 million compared to £221 million at 31 December 2021.


	At 31 December 2022					At 31 December 20211
	Probability- weighted £m	Upside £m	Base case £m	Downside £m	Severe downside £m	Probability- weighted £m	Upside £m	Base case £m	Downside £m	Severe downside £m
UK mortgages	1,209	514	790	1,434	3,874	837	637	723	967	1,386
Credit cards	763	596	727	828	1,180	521	442	500	569	672
Other Retail	1,016	907	992	1,056	1,290	825	760	811	863	950
Commercial Banking	1,807	1,434	1,618	1,953	3,059	1,416	1,281	1,343	1,486	1,833
Other	1	1	1	2	2	401	401	402	401	400
ECL allowance	4,796	3,452	4,128	5,273	9,405	4,000	3,521	3,779	4,286	5,241

1Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth from Other to Retail; comparatives have been

presented on a consistent basis.

The table below shows the Group’s ECL for the upside, base case, downside and severe downside scenarios, with staging of assets based on

each specific scenario probability of default. ECL applied through individual assessments and the majority of post-model adjustments are

reported flat against each economic scenario, reflecting the basis on which they are evaluated. A probability-weighted scenario is not shown as

this does not reflect the basis on which ECL is reported. Comparing the probability-weighted ECL in the table above to the base case ECL with

base case scenario specific staging, as shown in the table below, results in an uplift of £791 million compared to £228 million at 31 December

2021.


	At 31 December 2022				At 31 December 20211
	Upside £m	Base case £m	Downside £m	Severe downside £m	Upside £m	Base case £m	Downside £m	Severe downside £m
UK mortgages	469	734	1,344	7,848	636	722	973	1,448
Credit cards	563	719	842	1,320	434	500	583	707
Other Retail	886	984	1,059	1,450	754	808	868	973
Commercial Banking	1,403	1,567	2,046	4,672	1,278	1,342	1,500	2,085
Other	1	1	2	2	400	400	400	400
ECL allowance	3,322	4,005	5,293	15,292	3,502	3,772	4,324	5,613

1Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth from Other to Retail; comparatives have been

presented on a consistent basis.

The impact of changes in the UK unemployment rate and House Price Index (HPI) have been assessed. Although such changes would not be

observed in isolation, as economic indicators tend to be correlated in a coherent scenario, this gives insight into the sensitivity of the Group’s

ECL to gradual changes in these two critical economic factors. The assessment has been made against the base case with the reported staging

unchanged and is assessed through the direct impact on modelled ECL only, including management judgements applied through changes to

model inputs. The change in univariate ECL sensitivity in the period is a result of the change in definition of default and associated model

changes, and the deterioration in the base case on which the assessment has been performed.

The table below shows the impact on the Group’s ECL resulting from a 1 percentage point (pp) increase or decrease in the UK unemployment

rate. The increase or decrease is presented based on the adjustment phased evenly over the first ten quarters of the base case scenario. An

immediate increase or decrease would drive a more material ECL impact as it would be fully reflected in both 12-month and lifetime PDs.


	At 31 December 2022		At 31 December 20211
	1pp increase in unemployment £m	1pp decrease in unemployment £m	1pp increase in unemployment £m	1pp decrease in unemployment £m
UK mortgages	26	(21)	23	(18)
Credit cards	41	(41)	20	(20)
Other Retail	25	(25)	14	(14)
Commercial Banking	99	(90)	49	(42)
Other	–	–	1	(1)
ECL impact	191	(177)	107	(95)

1Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth from Other to Retail; comparatives have been

presented on a consistent basis.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 16: Allowance for expected credit losses (continued)

118

The table below shows the impact on the Group’s ECL in respect of UK mortgages of an increase or decrease in loss given default for a 10

percentage point (pp) increase or decrease in the UK House Price Index (HPI). The increase or decrease is presented based on the adjustment

phased evenly over the first ten quarters of the base case scenario.


	At 31 December 2022		At 31 December 2021
	10pp increase in HPI	10pp decrease in HPI	10pp increase in HPI	10pp decrease in HPI
ECL impact, £m	(225)	370	(112)	162

Individual assessments

Stage 3 ECL in Commercial Banking is largely assessed on an individual basis using bespoke assessment of loss for each specific client. These

assessments are carried out by the Business Support Unit based on detailed reviews and expected recovery strategies. While these assessments

are based on the Group’s latest economic view, the use of Group-wide multiple economic scenarios and weightings is not considered

appropriate for these cases due to their individual characteristics. In place of this, a range of case-specific outcomes are considered with any

alternative better or worse outcomes that carry a 25 per cent likelihood taken into account in establishing a probability-weighted ECL. At

31 December 2022, individually assessed provisions for Commercial Banking were £1,008 million (2021: £905 million) which reflected a range of

£908 million to £1,140 million (2021: £741 million to £1,023 million), based on the range of alternative outcomes considered.

Application of judgement in adjustments to modelled ECL

Impairment models fall within the Group’s model risk framework with model monitoring, periodic validation and back testing performed on

model components (i.e. probability of default, exposure at default and loss given default). Limitations in the Group’s impairment models or data

inputs may be identified through the ongoing assessment and validation of the output of the models. In these circumstances, management

make appropriate adjustments to the Group’s allowance for impairment losses to ensure that the overall provision adequately reflects all

material risks. These adjustments are determined by considering the particular attributes of exposures which have not been adequately

captured by the impairment models and range from changes to model inputs and parameters, at account level, through to more qualitative

post-model adjustments. Post-model adjustments are not typically calculated under each distinct economic scenario used to generate ECL, but

on final modelled ECL. All adjustments are reviewed quarterly and are subject to internal review and challenge, including by the Audit

Committee, to ensure that amounts are appropriately calculated and that there are specific release criteria identified.

The coronavirus pandemic and the various support measures resulted in an economic environment which differed significantly from the

historical economic conditions upon which the impairment models had been built. As a result there was a greater need for management

judgements to be applied alongside the use of models at 31 December 2021. During 2022 the direct impact of the pandemic on both economic

and credit performance has reduced, resulting in the release of all material judgements required specifically to capture COVID-19 risks.

Conversely, the intensifying inflationary pressures alongside rising interest rates within the Group’s outlook have created further risks not

deemed to be fully captured by ECL models. This has required judgements to be added to capture affordability risks from inflationary and rising

interest rate pressures. At 31 December 2022 management judgement resulted in additional ECL allowances totalling £330 million (2021:

£1,278 million).

The table below analyses total ECL allowance by portfolio, separately identifying the amounts that have been modelled, those that have been

individually assessed and those arising through the application of management judgement.


			Judgements due to:
	Modelled ECL £m	Individually assessed £m	COVID-191 £m	Inflationary risk £m	Other £m	Total ECL £m
At 31 December 2022
UK mortgages	946	–	–	49	214	1,209
Credit cards	698	–	–	93	(28)	763
Other Retail	903	–	1	53	59	1,016
Commercial Banking	910	1,008	–	–	(111)	1,807
Other	1	–	–	–	–	1
Total	3,458	1,008	1	195	134	4,796
At 31 December 2021
UK mortgages	292	–	67	52	426	837
Credit cards	436	–	94	–	(9)	521
Other Retail2	757	–	18	–	50	825
Commercial Banking2	331	905	194	–	(14)	1,416
Other2	1	–	400	–	–	401
Total	1,817	905	773	52	453	4,000

1Judgements introduced to address the impact that COVID-19 and resulting interventions have had on the Group’s economic outlook and observed loss experience, which have required

additional model limitations to be addressed. 400 million other COVID-19 judgement to recognise the risk that the conditioning assumptions assumed in the base case economic scenario

were invalidated by future events.

2.Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth from Other to Retail; comparatives have been

presented on a consistent basis.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 16: Allowance for expected credit losses (continued)

119

Judgements due to inflationary risk

UK mortgages: £49 million (2021: £52 million)

These adjustments comprise:

Inflationary and interest rate pressures: £49 million (2021: £52 million)

There has been only modest evidence of credit deterioration in the UK mortgages portfolio through 2022 despite the high levels of inflation and

the rising interest rate environment. Mortgage ECL models use bank base rate as a driver of predicted defaults and that has contributed to the

elevated levels of ECL at 31 December 2022. However, there remains a potential risk to affordability from continued inflationary pressures

combined with higher interest rates, and that this may not be fully captured by the Group’s ECL models. This risk is to customers maturing from

low fixed rate deals, the building impact on variable rate holders and lower levels of real household income.

The level of risk is somewhat mitigated from stressed affordability assessments applied at loan origination which means most customers are

anticipated to be able to absorb payment shocks. A judgemental uplift in ECL has therefore been taken in specific segments of the mortgages

portfolio, either where inflation is expected to present a more material risk, or where segments within the model do not use bank base rate as a

material driver of predicted defaults.

At 31 December 2021 additional judgemental ECL was taken in UK mortgages to recognise the heightened risk of interest rates increasing

rapidly compared to the base case outlook. This judgement quantified incremental losses from adopting an alternative severe downside

scenario with a 4 per cent interest rate peak. This judgement is no longer required given the Group’s base case outlook, and modelled ECL,

now captures an equivalent interest rate view within the base case alongside an adjusted severe scenario with a 7 per cent interest rate peak.

Credit cards: £93 million (2021: £nil) and Other Retail: £53 million (2021: £nil)

These adjustments comprise:

Inflationary risk on Retail segments: Credit Cards: £93 million (2021: £nil) and Other Retail: £53 million (2021: £nil)

The Group’s ECL models for credit cards and personal loan portfolios use predictions of wage growth to account for future affordability stress.

As rapidly increasing inflation erodes nominal wage growth, adjustments have been made to the econometric models to account for real, rather

than nominal, income to produce adjusted predicted defaults. These adjustments include the specific risk to affordability from increased

housing costs, not captured by CPI. As these adjustments are made within predicted default models, they are calculated under each economic

scenario and impact the staging of assets through increased PDs.

Alongside these portfolio-wide adjustments management have also made an additional uplift to ECL for customers with lower income levels

and higher indebtedness deemed most vulnerable to inflationary pressures and interest rate rises. Although this segment of customers has not

exhibited any greater stress to date, uplifts have been applied to recognise continued inflation and interest rates pose a greater proportionate

risk in future periods. Management believe that this is an appropriate way to account for the aggregate inflationary risk in these unsecured

portfolios and will continue to monitor both actual economic and customer outcomes to ensure that this adjustment remains reasonable and

appropriate.

Other judgements

UK mortgages: £214 million (2021: £426 million)

These adjustments principally comprise:

Increase in time to repossession: £118 million (2021: £87 million)

Due to the Group suspending mortgage litigation activity between late-2014 and mid-2018 due to policy changes for the treatment of arrears,

and as collections strategy normalises post COVID-19 pandemic, the Group’s experience of possessions data on which our models rely on is

limited. This reflects an adjustment made to allow for an increase in the time assumed between default and repossession.

Provision coverage is uplifted to the equivalent levels of those accounts already in repossession on an estimated shortfall of balances expected

to flow to possession. A further adjustment is made to accounts which have been in default for more than 24 months, with an arrears balance

increase in the last six months. These accounts have their probability of possession set to 70 per cent based on observed historical losses

incurred on accounts that were of an equivalent status. The increase in the judgement reflects a lower modelled coverage that requires a larger

adjustment to reach the required levels.

Asset recovery values: £69 million (2021: £21 million)

Due to low repossession volumes, sales data informing the estimated level of discount in the event of repossessions has been limited,

impacting the ability to update model parameters. Despite these low volumes, since 2020 the observed asset recovery sale values have

remained broadly the same on the limited volumes seen, however the indexed valuation within the model has shown an increasing trend due to

HPI increases, therefore management consider it appropriate to uplift ECL to reflect expected recovery values.

Adjustment for specific segments: £25 million (2021: £54 million)

The Group monitors risks across specific segments of its portfolios which may not be fully captured through wider collective models.

Judgemental increases applied to probability of default on forborne accounts (31 December 2021: £18 million) have been removed as models

now include forborne accounts in Stage 3 assets. The judgement for fire safety and cladding uncertainty has reduced to £25 million

(31 December 2021: £36 million). Though experience remains limited the risk is considered sufficiently material to address through judgement,

given that there is evidence of assessed cases having defective cladding, or other fire safety issues, but this risk has reduced throughout the

year.

Credit cards: £(28) million (2021: £(9) million) and Other Retail: £59 million (2021: £50 million)

These adjustments principally comprise:

Lifetime extension on revolving products: Credit cards: £82 million (2021: £41 million) and Other Retail: £14 million (2021: £5 million)

An adjustment is required to extend the lifetime used for Stage 2 exposures on Retail revolving products from a three year modelled lifetime,

which reflected the outcome data available when the model was developed. Previously this was deemed to be six years by increasing default

probabilities through the extrapolation of the default trajectory observed throughout the three years and beyond. During 2022, work was

undertaken to reassess the expected lifetime for these assets, which concluded in an extension of the expected lifetime from six to ten years,

resulting in an increase to this adjustment.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 16: Allowance for expected credit losses (continued)

120

Adjustments to loss given defaults (LGDs): Credit cards: £(96) million (2021: £(37) million) and Other Retail: £13 million (2021: £24 million)

A number of adjustments have been made to the loss given default assumptions used within unsecured and motor credit models. These include

judgements held previously, notably in relation to the alignment of MBNA credit card cure rates as collection strategies harmonise. Alongside

this, new adjustments have also been raised to capture recent improvements in observed cure rates offset by updates to recovery cost

assumptions. These adjustments will be released once incorporated into models through future recalibration which is pending model

development.

Motor default suppression: Other Retail: £13 million (2021: £nil)

Used car prices have continued to rise through 2022 with lower actual defaults materialising than anticipated. Management consider it

appropriate to uplift ECL to account for the risk that prices return back to more normalised levels.

Commercial Banking: £(111) million (2021: £(14) million)

These adjustments principally comprise:

Adjustments to loss given defaults (LGDs): £(105) million (2021: £(25) million)

The modelling approach for loss given default for commercial exposures has been reviewed. Management deem ECL should be adjusted to

mitigate limitations identified in the approach which are causing loss given defaults to be inflated. These include the benefit from amortisation

of exposures relative to collateral values at default and a move to an exposure-weighted approach being adopted. These temporary

adjustments will be addressed through future model development.

Corporate insolvency rates: £(35) million (2021: £nil)

During 2022, the volume of UK corporate insolvencies showed an increasing trend to above December 2019 levels, revealing a marked

dislocation between observed UK corporate insolvencies and the Group’s credit performance. This dislocation gives rise to uncertainty over the

drivers of observed trends and the appropriateness of the Group’s Commercial Banking model response which uses observed UK corporate

insolvencies data. Given the Group’s asset quality remains strong with very low new defaults, a negative adjustment was deemed appropriate by

management to address potential overstatement of Commercial Banking ECL.

Note 17: Finance lease and hire purchase receivables

The Group's finance lease and hire purchase receivables are classified as loans and advances to customers and accounted for at amortised cost.

These balances are analysed as follows:


	Finance leases		Hire purchase
	2022 £m	2021 £m	2022 £m	2021 £m
Not later than 1 year	216	339	6,307	4,720
Later than 1 year and not later than 2 years	215	135	3,872	4,517
Later than 2 years and not later than 3 years	111	222	3,707	3,981
Later than 3 years and not later than 4 years	45	110	2,962	2,817
Later than 4 years and not later than 5 years	31	46	385	814
Later than 5 years	122	150	275	374
Gross investment	740	1,002	17,508	17,223
Unearned future finance income	(106)	(147)	(1,447)	(1,349)
Rentals received in advance	(9)	(12)	(111)	(89)
Net investment	625	843	15,950	15,785

The net investment represents amounts recoverable as follows:


	Finance leases		Hire purchase
	2022 £m	2021 £m	2022 £m	2021 £m
Not later than 1 year	175	280	5,618	4,004
Later than 1 year and not later than 2 years	190	108	3,447	4,151
Later than 2 years and not later than 3 years	94	198	3,440	3,766
Later than 3 years and not later than 4 years	35	94	2,844	2,744
Later than 4 years and not later than 5 years	24	35	356	765
Later than 5 years	107	128	245	355
Net investment	625	843	15,950	15,785

Equipment leased to customers under finance leases and hire purchase receivables relates to financing transactions to fund the purchase of

aircraft, ships, motor vehicles and other items. There was an allowance for uncollectable finance lease receivables included in the allowance for

impairment losses of £13 million (2021: £18 million) and for hire purchase receivables of £251 million (2021: £275 million).

The Group’s finance lease and hire purchase assets are comprised as follows:


	Finance leases		Hire purchase
	2022 £m	2021 £m	2022 £m	2021 £m
Electric vehicles	8	3	576	429
Internal combustion engine vehicles	176	142	10,743	10,640
Hybrid vehicles	5	3	737	522
Other	436	695	3,894	4,194
Net investment	625	843	15,950	15,785

Lloyds Bank plc

Notes to the consolidated financial statements

Note 16: Allowance for expected credit losses (continued)

121


	2022 £m	2021 £m
Debt securities:
Government securities	11,196	14,599
Asset-backed securities	138	55
Corporate and other debt securities	11,511	13,131
	22,845	27,785
Equity shares	1	1
Total financial assets at fair value through other comprehensive income	22,846	27,786

At 31 December 2022 £20,766 million (2021: £24,947 million) of financial assets at fair value through other comprehensive income had a

contractual residual maturity of greater than one year.

All assets were assessed at Stage 1 at 31 December 2021 and 2022.

Note 19: Goodwill


	2022 £m	2021 £m
At 1 January and 31 December	470	470
Cost1	814	814
Accumulated impairment losses	(344)	(344)
At 31 December	470	470

1For acquisitions made prior to 1 January 2004, the date of transition to IFRS, cost is included net of amounts amortised up to 31 December 2003.

The goodwill held in the Group’s balance sheet is tested at least annually for impairment. For the purposes of impairment testing the goodwill

is allocated to the appropriate cash generating unit; of the total balance of £470 million (2021: £470 million), £302 million, or 64 per cent (2021:

£302 million, 64 per cent) has been allocated to the Credit card cash generating unit and £166 million, or 35 per cent (2021: £166 million, 35 per

cent) has been allocated to the Motor business cash generating unit, both in the Group’s Retail division.

The recoverable amount of the goodwill relating to Credit cards has been based on a value-in-use calculation using post-tax cash flow

projections based on financial budgets and plans approved by management covering a four-year period and a discount rate (post-tax) of 10 per

cent, based on the Group’s cost of equity. The cash flows beyond the four-year period assume 3.5 per cent growth. Management believes that

any reasonably possible change in the key assumptions above would not cause the recoverable amount of the goodwill relating to Credit cards

to fall below the balance sheet carrying value.

The recoverable amount of the goodwill relating to the Motor business is based on a value-in-use calculation using post-tax cash flow

projections based on financial budgets and plans approved by management covering a four-year period and a discount rate (post-tax) of 10 per

cent, based on the Group’s cost of equity. The cash flows beyond the four-year period are extrapolated using a growth rate of 3.5 per cent

which does not exceed the long-term average growth rates for the markets in which the Motor business participates. Management believes that

any reasonably possible change in the key assumptions, including from the impacts of climate change or climate-related legislation, would not

cause the recoverable amount of the goodwill relating to the Motor business to fall below the balance sheet carrying value.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 18: Financial assets at fair value through other comprehensive income

122


	Brands £m	Core deposit intangible £m	Purchased credit card relationships £m	Customer- related intangibles £m	Capitalised software enhancements £m	Total £m
Cost:
At 1 January 2021	584	2,770	1,002	50	5,855	10,261
Additions	–	–	–	–	986	986
Disposals and write-offs	–	–	–	–	(460)	(460)
At 31 December 2021	584	2,770	1,002	50	6,381	10,787
Exchange and other adjustments	–	–	–	–	1	1
Additions	–	–	–	–	1,395	1,395
Disposals	–	–	–	–	(186)	(186)
At 31 December 2022	584	2,770	1,002	50	7,591	11,997
Accumulated amortisation:
At 1 January 2021	204	2,770	551	50	2,574	6,149
Charge for the year (note 9)	–	–	70	–	884	954
Disposals and write-offs	–	–	–	–	(460)	(460)
At 31 December 2021	204	2,770	621	50	2,998	6,643
Exchange and other adjustments	–	–	1	–	(10)	(9)
Charge for the year (note 9)	–	–	70	–	825	895
Disposals	–	–	–	–	(186)	(186)
At 31 December 2022	204	2,770	692	50	3,627	7,343
Balance sheet amount at 31 December 2022	380	–	310	–	3,964	4,654
Balance sheet amount at 31 December 2021	380	–	381	–	3,383	4,144

Brands arising from the acquisition of Bank of Scotland in 2009 are recognised on the Group’s balance sheet and have been determined to have

an indefinite useful life. The carrying value at 31 December 2022 was £380 million (2021: £380 million). The Bank of Scotland name has been in

existence for over 300 years and there are no indications that the brand should not have an indefinite useful life. The recoverable amount has

been based on a value-in-use calculation. The calculation uses post-tax projections for a four-year period of the income generated by the Bank

of Scotland cost generating unit, a discount rate of 10 per cent and a future growth rate of 3.5 per cent. Management believes that any

reasonably possible change in the key assumptions would not cause the recoverable amount of the Bank of Scotland brand to fall below its

balance sheet carrying value.

Note 21: Other assets


	2022 £m	2021 £m
Property, plant and equipment:
Investment properties	3	4
Premises	852	803
Equipment	1,278	1,627
Operating lease assets (see below)	4,816	4,196
Right-of-use assets (note 22)	1,119	1,268
	8,068	7,898
Settlement balances	98	52
Prepayments	1,105	905
Other assets	622	744
Total other assets	9,893	9,599

Operating lease assets where the Group is lessor

Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. At 31 December the future

minimum rentals receivable under non-cancellable operating leases were as follows:


	2022 £m	2021 £m
Within 1 year	912	848
1 to 2 years	620	561
2 to 3 years	322	288
3 to 4 years	102	86
4 to 5 years	11	8
Over 5 years	–	–
Total future minimum rentals receivable	1,967	1,791

Lloyds Bank plc

Notes to the consolidated financial statements

Note 20: Other intangible assets

123

Equipment leased to customers under operating leases primarily relates to vehicle contract hire arrangements. Operating lease assets are

comprised as follows:


	2022 £m	2021 £m
Electric vehicles	1,610	728
Internal combustion engine vehicles	2,042	2,531
Hybrid vehicles	1,159	928
Other	5	9
Total operating lease assets	4,816	4,196

Note 22: Lessee disclosures

The table below sets out the movement in the Group's right-of-use assets, which are primarily in respect of premises, and are recognised within

other assets (note 21).


	2022 £m	2021 £m
At 1 January	1,268	1,434
Exchange and other adjustments	–	(9)
Additions	97	71
Disposals	(33)	(12)
Depreciation charge for the year	(213)	(216)
At 31 December	1,119	1,268

The Group's lease liabilities are recognised within other liabilities (note 26). The maturity analysis of the Group's lease liabilities on an

undiscounted basis is set out in the liquidity risk section of note 44.

The total cash outflow for leases in the year ended 31 December 2022 was £204 million (2021: £243 million). The amount recognised within

interest expense in respect of lease liabilities is disclosed in note 5.

Note 23: Financial liabilities at fair value through profit or loss


	2022 £m	2021 £m
Liabilities designated at fair value through profit or loss: debt securities in issue	5,159	6,537

At 31 December 2022 £4,965 million (2021: £6,258 million of financial liabilities at fair value through profit or loss had a contractual residual

maturity of greater than one year.

Liabilities designated at fair value through profit or loss primarily represent debt securities in issue which either contain substantive embedded

derivatives which would otherwise need to be recognised and measured at fair value separately from the related debt securities, or which are

accounted for at fair value to significantly reduce an accounting mismatch.

The amount contractually payable on maturity of the debt securities held at fair value through profit or loss at 31 December 2022 was

£11,195 million, which was £6,036 million higher than the balance sheet carrying value (2021: £10,558 million, which was £4,021 million higher

than the balance sheet carrying value). At 31 December 2022 there was a cumulative £324 million decrease in the fair value of these liabilities

attributable to changes in credit spread risk; this is determined by reference to the quoted credit spreads of the Bank. Of the cumulative

amount, a decrease of £519 million arose in 2022 and an increase of £86 million arose in 2021.

Note 24: Debt securities in issue


	2022 £m	2021 £m
Senior unsecured notes issued	21,377	23,820
Covered bonds (note 25)	14,240	17,407
Certificates of deposit issued	1,607	290
Securitisation notes (note 25)	2,780	3,672
Commercial paper	9,052	3,535
Total debt securities in issue	49,056	48,724

At 31 December 2022 £30,571 million (2021: £33,369 million) of debt securities in issue had a contractual residual maturity of greater than one

year.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 21: Other assets (continued)

124

Securitisation programmes

Loans and advances to customers include loans securitised under the Group’s securitisation programmes, the majority of which have been sold

by subsidiary companies to bankruptcy remote structured entities. As the structured entities are funded by the issue of debt on terms whereby

the majority of the risks and rewards of the portfolio are retained by the subsidiary, the structured entities are consolidated fully and all of these

loans are retained on the Group’s balance sheet, with the related notes in issue included within debt securities in issue.

Covered bond programmes

Certain loans and advances to customers have been assigned to bankruptcy remote limited liability partnerships to provide security for issues of

covered bonds by the Group. The Group retains all of the risks and rewards associated with these loans and the partnerships are consolidated

fully with the loans retained on the Group’s balance sheet, and the related covered bonds in issue included within debt securities in issue.

The Group’s principal securitisation and covered bond programmes, together with the balances of the advances subject to these arrangements

and the carrying value of the externally held notes in issue at 31 December, are listed below. Notes in issue, previously reported gross of

internal holdings, are presented net; comparatives have been presented on a consistent basis. The notes in issue are reported in note 24.


	2022		2021
	Loans and advances securitised1 £m	Externally held £m	Loans and advances securitised1 £m	Externally held £m
Securitisation programmes
UK residential mortgages and commercial loans	15,402	2,035	18,688	2,544
Credit card receivables	12,776	223	11,615	594
Motor vehicle finance	401	149	235	141
Dutch residential mortgages	402	399	427	426
Total securitisation programmes (notes 23 and 24)2	28,981	2,806	30,965	3,705
Covered bond programmes
Residential mortgage-backed	27,400	13,740	35,896	16,907
Social housing loan-backed	831	500	833	500
Total covered bond programmes (note 24)	28,231	14,240	36,729	17,407
Total securitisation and covered bond programmes		17,046		21,112

1Including assets backing notes held internally within the Group.

2Includes £26 million (2021: £33 million) of securitisation notes held at fair value through profit or loss.

Cash deposits of £3,789 million (2021: £3,455 million) which support the debt securities issued by the structured entities, the term advances

related to covered bonds and other legal obligations, are held by the Group. Additionally, the Group has certain contractual arrangements to

provide liquidity facilities to some of these structured entities. At 31 December 2022 these obligations had not been triggered; the maximum

exposure under these facilities was £4 million (2021: £52 million).

The Group has two covered bond programmes, for which limited liability partnerships have been established to ring-fence asset pools and

guarantee the covered bonds issued by the Group. At the reporting date the Group had over-collateralised these programmes as set out in the

table above to meet the terms of the programmes, to secure the rating of the covered bonds and to provide operational flexibility. From time

to time, the obligations of the Group to provide collateral may increase due to the formal requirements of the programmes. The Group may

also voluntarily contribute collateral to support the ratings of the covered bonds.

The Group recognises the full liabilities associated with its securitisation and covered bond programmes within debt securities in issue, although

the obligations of the Group in respect of its securitisation issuances are limited to the cash flows generated from the underlying assets. The

Group could be required to provide additional support to a number of the securitisation programmes to support the credit ratings of the debt

securities issued, in the form of increased cash reserves and the holding of subordinated notes. Further, certain programmes contain contractual

obligations that require the Group to repurchase assets should they become credit-impaired or as otherwise required by the transaction

documents.

The Group has not provided financial or other support by voluntarily offering to repurchase assets from any of its public securitisation

programmes during 2022 (2021: none).

Lloyds Bank plc

Notes to the consolidated financial statements

Note 25: Securitisations and covered bonds

125


	2022 £m	2021 £m
Settlement balances	109	110
Lease liabilities	1,260	1,411
Other creditors and accruals	4,277	3,870
Total other liabilities	5,646	5,391

The maturity analysis of the Group's lease liabilities on an undiscounted basis is set out in the liquidity risk section of note 44.

Note 27: Retirement benefit obligations


	2022 £m	2021 £m	2020 £m
Charge to the income statement
Defined benefit pension schemes	123	234	244
Other post-retirement benefit schemes	2	2	3
Total defined benefit schemes	125	236	247
Defined contribution pension schemes	314	287	305
Total charge to the income statement (note 9)	439	523	552


	2022 £m	2021 £m
Amounts recognised in the balance sheet
Retirement benefit assets	3,823	4,531
Retirement benefit obligations	(126)	(230)
Total amounts recognised in the balance sheet	3,697	4,301

The total amounts recognised in the balance sheet relate to:


	2022 £m	2021 £m
Defined benefit pension schemes	3,732	4,404
Other post-retirement benefit schemes	(35)	(103)
Total amounts recognised in the balance sheet	3,697	4,301

Lloyds Bank plc

Notes to the consolidated financial statements

Note 26: Other liabilities

126

Pension schemes

Defined benefit schemes

(i)Characteristics of and risks associated with the Group’s schemes

The Group has established a number of defined benefit pension schemes in the UK and overseas. All significant schemes are based in the UK,

with the three most significant being the main sections of the Lloyds Bank Pension Scheme No. 1, the Lloyds Bank Pension Scheme No. 2 and

the HBOS Final Salary Pension Scheme. At 31 December 2022, these schemes represented 94 per cent of the Group’s total gross defined

benefit pension assets (2021: 94 per cent). These schemes provide retirement benefits calculated as a proportion of final pensionable salary

depending upon the length of pensionable service; the minimum retirement age under the rules of the schemes at 31 December 2022 is

generally 55, although certain categories of member are deemed to have a protected right to retire at 50.

The Group operates both funded and unfunded pension arrangements; the majority, including the three most significant schemes, are funded

schemes in the UK. All of these UK funded schemes are operated as separate legal entities under trust law, are in compliance with the Pensions

Act 2004 and are managed by a Trustee Board (the Trustee) whose role is to ensure that their scheme is administered in accordance with the

scheme rules and relevant legislation, and to safeguard the assets in the best interests of all members and beneficiaries. The Trustee is solely

responsible for setting investment policy and for agreeing funding requirements with the employer through the funding valuation process. The

Board of Trustees must be composed of representatives of the scheme membership along with a combination of independent and employer

appointed trustees to comply with legislation and scheme rules.

A valuation to determine the funding status of each scheme is carried out at least every three years, whereby scheme assets are measured at

market value and liabilities (technical provisions) are measured using prudent assumptions. If a deficit is identified a recovery plan is agreed

between the employer and the scheme Trustee and sent to the Pensions Regulator for review. The Group has not provided for these deficit

contributions as the future economic benefits arising from these contributions are expected to be available to the Group. The Group’s overseas

defined benefit pension schemes are subject to local regulatory arrangements.

The most recent triennial funding valuations of the Group’s three main defined benefit pension schemes showed an aggregate ongoing funding

deficit of £7.3 billion as at 31 December 2019 (a funding level of 85.7 per cent). Under the agreed recovery plan, £0.8 billion plus a further 30 per

cent of in-year capital distributions to ordinary shareholders, up to a limit on total deficit contributions of £2.0 billion per annum, is payable until

the 2019 deficit has been removed.

These schemes continue to have a funding deficit, but are in a significantly stronger financial position than at 31 December 2021, when the

deficit was c.£4.0 billion. During 2022, deficit contributions of £2.2 billion were paid into these schemes and the Group expects to make a further

fixed contribution of £0.8 billion in the first half of 2023, consistent with 2021 and 2022.

The Group expects to have substantially agreed the triennial valuation with the Trustee by the end of the third quarter of 2023, along with a

revised contribution schedule in respect of any remaining deficit. Trustee agreement will be conditional upon prior feedback from the Pensions

Regulator. The Group also expects that future contributions will become increasingly contingent in nature, such that they are only paid into the

schemes if required.

The deficit contributions are in addition to the regular contributions to meet benefits accruing over the year, and to cover the expenses of

running the schemes. The Group expects to pay contributions of at least £1.1 billion to its defined benefit schemes in 2023.

During 2009, the Group made one-off contributions to the Lloyds Bank Pension Scheme No. 1 and Lloyds Bank Pension Scheme No. 2 in the

form of interests in limited liability partnerships for each of the two schemes which hold assets to provide security for the Group’s obligations to

the two schemes. At 31 December 2022, the limited liability partnerships held assets of £6.3 billion. The limited liability partnerships are

consolidated fully in the Group’s balance sheet.

The Group has also established three private limited companies which hold assets to provide security for the Group’s obligations to the HBOS

Final Salary Pension Scheme, a section of the Lloyds Bank Pension Scheme No. 1 and the Lloyds Bank Offshore Pension Scheme. At

31 December 2022 these held assets of £4.5 billion in aggregate. The private limited companies are consolidated fully in the Group’s balance

sheet. The terms of these arrangements require the Group to maintain assets in these vehicles to agreed minimum values in order to secure

obligations owed to the relevant Group pension schemes. The Group has satisfied this requirement during 2022.

The last funding valuations of other Group schemes were carried out on a number of different dates. In order to report the position under

IAS 19 as at 31 December 2022, the most recent valuation results for all schemes have been updated by qualified independent actuaries. The

funding valuations use a more prudent approach to setting the discount rate and more conservative longevity and inflation assumptions than

the IAS 19 valuations.

In a judgment in 2018, the High Court confirmed the requirement to equalise the Guaranteed Minimum Pension (GMP) benefits of men and

women accruing between 1990 and 1997 from contracting out of the State Earnings Related Pension Scheme. The Group recognised a past

service cost of £108 million in respect of equalisation in 2018 and, following agreement of the detailed implementation approach with the

Trustee, a further £33 million was recognised in 2019. A further hearing was held during 2020 which confirmed the extent of the Trustee’s

obligation to revisit past transfers out of the schemes. The amount of any additional liability as a result of this judgment is still being reviewed

but is not considered likely to be material.

(ii)Amounts in the financial statements


	2022 £m	2021 £m
Amount included in the balance sheet
Present value of funded obligations	(28,965)	(47,130)
Fair value of scheme assets	32,697	51,534
Net amount recognised in the balance sheet	3,732	4,404

Lloyds Bank plc

Notes to the consolidated financial statements

Note 27: Retirement benefit obligations (continued)

127


	2022 £m	2021 £m
Net amount recognised in the balance sheet
At 1 January	4,404	1,578
Net defined benefit pension charge	(123)	(234)
Actuarial gains on defined benefit obligation	17,222	1,267
Return on plan assets	(20,302)	449
Employer contributions	2,530	1,344
Exchange and other adjustments	1	–
At 31 December	3,732	4,404


	2022 £m	2021 £m
Movements in the defined benefit obligation
At 1 January	(47,130)	(49,549)
Current service cost	(180)	(213)
Interest expense	(902)	(704)
Remeasurements:
Actuarial losses – experience	(1,186)	(426)
Actuarial gains (losses) – demographic assumptions	288	(146)
Actuarial gains – financial assumptions	18,120	1,839
Benefits paid	2,048	2,034
Past service cost	(4)	(11)
Settlements	13	22
Exchange and other adjustments	(32)	24
At 31 December	(28,965)	(47,130)


	2022 £m	2021 £m
Analysis of the defined benefit obligation
Active members	(3,088)	(5,837)
Deferred members	(8,515)	(16,167)
Pensioners	(16,013)	(23,171)
Dependants	(1,349)	(1,955)
At 31 December	(28,965)	(47,130)


	2022 £m	2021 £m
Changes in the fair value of scheme assets
At 1 January	51,534	51,127
Return on plan assets excluding amounts included in interest income	(20,302)	449
Interest income	997	733
Employer contributions	2,530	1,344
Benefits paid	(2,048)	(2,034)
Settlements	(13)	(23)
Administrative costs paid	(34)	(38)
Exchange and other adjustments	33	(24)
At 31 December	32,697	51,534

The expense recognised in the income statement for the year ended 31 December comprises:


	2022 £m	2021 £m	2020 £m
Current service cost	180	213	206
Net interest amount	(95)	(29)	(23)
Settlements	–	1	2
Past service cost – plan amendments	4	11	5
Plan administration costs incurred during the year	34	38	54
Total defined benefit pension expense	123	234	244

Lloyds Bank plc

Notes to the consolidated financial statements

Note 27: Retirement benefit obligations (continued)

128

(iii)Composition of scheme assets


	2022			2021
	Quoted £m	Unquoted £m	Total £m	Quoted £m	Unquoted £m	Total £m
Equity instruments	7	47	54	617	36	653
Debt instruments1:
Fixed interest government bonds	3,007	–	3,007	10,512	–	10,512
Index-linked government bonds	15,497	–	15,497	23,969	–	23,969
Corporate and other debt securities	3,978	–	3,978	13,399	–	13,399
	22,482	–	22,482	47,880	–	47,880
Property	–	116	116	–	139	139
Pooled investment vehicles	2,730	15,863	18,593	1,192	13,346	14,538
Money market instruments, cash, derivatives and other assets and liabilities	1,069	(9,617)	(8,548)	319	(11,995)	(11,676)
At 31 December	26,288	6,409	32,697	50,008	1,526	51,534

1Of the total debt instruments, £20,369 million (2021: £42,568 million) were investment grade (credit ratings equal to or better than ‘BBB’).

The assets of all of the funded plans are held independently of the Group’s assets in separate trustee-administered funds.

The pension schemes’ pooled investment vehicles comprise:


	2022 £m	2021 £m
Equity funds	1,421	3,696
Hedge and mutual funds	240	1,407
Alternative credit funds	2,222	3,884
Property funds	1,604	1,541
Infrastructure funds	1,193	1,389
Liquidity funds	11,527	2,031
Bond and debt funds	354	561
Other	32	29
At 31 December	18,593	14,538

The Trustee’s approach to investment is focused on acting in the members’ best financial interests, with the integration of ESG (Environmental,

Social and Governance) considerations into investment management processes and practices. This policy is reviewed annually (or more

frequently as required) and has been shared with the schemes’ investment managers for implementation.

Climate change is one of the risks the schemes manage given its potential financial impact on valuation of assets.

(iv)Assumptions

The principal actuarial and financial assumptions used in valuations of the defined benefit pension schemes were as follows:


	2022 %	2021 %
Discount rate	4.93	1.94
Rate of inflation:
Retail Price Index (RPI)	3.13	3.21
Consumer Price Index (CPI)	2.69	2.92
Rate of salary increases	0.00	0.00
Weighted-average rate of increase for pensions in payment	2.84	2.88

On 25 November 2020 the Chancellor of the Exchequer announced the outcome of a consultation into a reform of the calculation of RPI. It is

now expected that from 2030 RPI will be aligned with CPIH (the Consumer Price Index including owner occupiers’ housing costs). To determine

the RPI assumption a term-dependent inflation curve has been used adjusting for an assumed inflation risk premium. In the period to 2030 a

gap of 100 basis points has been assumed between RPI and CPI; thereafter a 10 basis point gap has been assumed.


	Men		Women
	2022 Years	2021 Years	2022 Years	2021 Years
Life expectancy for member aged 60, on the valuation date	26.7	27.1	28.8	29.1
Life expectancy for member aged 60, 15 years after the valuation date	27.8	28.1	30.0	30.3

Lloyds Bank plc

Notes to the consolidated financial statements

Note 27: Retirement benefit obligations (continued)

129

The mortality assumptions used in the UK scheme valuations are based on standard tables published by the Institute and Faculty of Actuaries

which were adjusted in line with the actual experience of the relevant schemes. The table shows that a member retiring at age 60 at

31 December 2022 is assumed to live for, on average, 26.7 years for a male and 28.8 years for a female. In practice there will be much variation

between individual members but these assumptions are expected to be appropriate across all members. It is assumed that younger members

will live longer in retirement than those retiring now. This reflects the expectation that mortality rates will continue to fall over time as medical

science and standards of living improve. To illustrate the degree of improvement assumed, the table also shows the life expectancy for

members aged 45 now, when they retire in 15 years time at age 60. The Group uses the CMI mortality projections model and in line with

actuarial industry recommendations has placed no weight on 2020 and 2021 mortality experience. The persistence of excess deaths during 2022

has highlighted the potential longer term impacts of COVID-19 and the Group has applied a 4 per cent scaling factor to its base mortality tables

at December 2022 to allow for this impact on member mortality. This led to a c.1 per cent reduction in the defined benefit obligation.

(v)Amount, timing and uncertainty of future cash flows

Risk exposure of the defined benefit schemes

While the Group is not exposed to any unusual, entity-specific or scheme-specific risks in its defined benefit pension schemes, it is exposed to a

number of significant risks, detailed below:

Inflation rate risk: The majority of the plans’ benefit obligations are linked to inflation both in deferment and once in payment. Higher inflation

will lead to higher liabilities although this will be materially offset by holdings of inflation-linked gilts and, in most cases, caps on the level of

inflationary increases are in place to protect against extreme inflation.

Interest rate risk: The defined benefit obligation is determined using a discount rate derived from yields on AA-rated corporate bonds. A

decrease in corporate bond yields will increase plan liabilities although this will be materially offset by an increase in the value of bond holdings

and through the use of derivatives.

Longevity risk: The majority of the schemes’ obligations are to provide benefits for the life of the members so increases in life expectancy will

result in an increase in the plans’ liabilities.

Investment risk: Scheme assets are invested in a diversified portfolio of debt securities, equities and other return-seeking assets. If the assets

underperform the discount rate used to calculate the defined benefit obligation, it will reduce the surplus or increase the deficit. Volatility in

asset values and the discount rate will lead to volatility in the net pension asset on the Group’s balance sheet and in other comprehensive

income. To a lesser extent this will also lead to volatility in the pension expense in the Group’s income statement.

In addition, the schemes themselves are exposed to liquidity risk with the need to ensure that liquid assets held are sufficient to meet benefit

payments as they fall due and there is sufficient collateral available to support their hedging activity.

The ultimate cost of the defined benefit obligations to the Group will depend upon actual future events rather than the assumptions made. The

assumptions made are unlikely to be borne out in practice and as such the cost may be higher or lower than expected.

Sensitivity analysis

The effect of reasonably possible changes in key assumptions on the value of scheme liabilities and the resulting pension charge in the Group’s

income statement and on the net defined benefit pension scheme asset, for the Group’s three most significant schemes, is set out below. The

sensitivities provided assume that all other assumptions and the value of the schemes’ assets remain unchanged, and are not intended to

represent changes that are at the extremes of possibility. The calculations are approximate in nature and full detailed calculations could lead to

a different result. It is unlikely that isolated changes to individual assumptions will be experienced in practice. Due to the correlation of

assumptions, aggregating the effects of these isolated changes may not be a reasonable estimate of the actual effect of simultaneous changes

in multiple assumptions.


	Effect of reasonably possible alternative assumptions
	Increase (decrease) in the income statement charge		(Increase) decrease in the net defined benefit pension scheme surplus
	2022 £m	2021 £m	2022 £m	2021 £m
Inflation (including pension increases)1:
Increase of 0.1 per cent	13	12	251	481
Decrease of 0.1 per cent	(13)	(12)	(245)	(475)
Discount rate2:
Increase of 0.1 per cent	(25)	(24)	(379)	(774)
Decrease of 0.1 per cent	24	23	388	795
Expected life expectancy of members:
Increase of one year	38	44	745	1,934
Decrease of one year	(39)	(42)	(762)	(1,852)

1At 31 December 2022, the assumed rate of RPI inflation is 3.13 per cent and CPI inflation 2.69 per cent (2021: RPI 3.21 per cent and CPI 2.92 per cent).

2At 31 December 2022, the assumed discount rate is 4.93 per cent (2021: 1.94 per cent).

Sensitivity analysis method and assumptions

The sensitivity analysis above reflects the impact on the liabilities of the Group’s three most significant schemes which account for over 90 per

cent of the Group’s defined benefit obligations. While differences in the underlying liability profiles for the remainder of the Group’s pension

arrangements mean that they may exhibit slightly different sensitivities to variations in these assumptions, the sensitivities provided above are

indicative of the impact across the Group as a whole.

The inflation assumption sensitivity applies to the assumed rate of increase in both the Consumer Price Index (CPI) and the Retail Price Index

(RPI), and includes the impact on the rate of increases to pensions, both before and after retirement. These pension increases are linked to

inflation (either CPI or RPI) subject to certain minimum and maximum limits.

The sensitivity analysis (including the inflation sensitivity) does not include the impact of any change in the rate of salary increases as

pensionable salaries have been frozen since 2 April 2014.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 27: Retirement benefit obligations (continued)

130

The life expectancy assumption has been applied by allowing for an increase/decrease in life expectation from age 60 of one year, based upon

the approximate weighted average age for each scheme. While this is an approximate approach and will not give the same result as a one year

increase in life expectancy at every age, it provides an appropriate indication of the potential impact on the schemes from changes in life

expectancy.

There was no change in the methods and assumptions used in preparing the sensitivity analysis from the prior year.

Asset-liability matching strategies

The main schemes’ assets are invested in a diversified portfolio. Whilst c.50 per cent are held to generate the long-term returns required to

support the funding position of the schemes, the remainder is invested in liability-driven investment (LDI) strategies which hedge the material

risk exposures of the schemes. The investment strategy is not static and will evolve to reflect the structure of liabilities within the schemes.

Specific strategies for each pension plan are independently determined by the responsible governance body for each scheme and in

consultation with the employer.

A significant goal of the strategies adopted by the schemes is to reduce volatility caused by changes in market expectations of interest rates

and inflation. In the main schemes, this is achieved by investing scheme assets in bonds, primarily fixed interest gilts and index linked gilts, and

by entering into interest rate and inflation swap arrangements. The assets in these LDI strategies represented 48 per cent of scheme assets at

31 December 2022.

These investments are structured to take into account the profile of scheme liabilities and actively managed to reflect both changing market

conditions and changes to the liability profile. At 31 December 2022 the asset-liability matching strategy mitigated around 119 per cent of the

liability sensitivity to interest rate movements and around 123 per cent of the liability sensitivity to inflation movements. In addition, a small

amount of interest rate sensitivity arises through holdings of corporate and other debt securities. The higher level of hedging provides greater

protection to the funding position of the schemes.

The schemes’ funding position remained robust and did not experience any material impact from the market volatility seen in the latter part of

last year. Asset prices fell in line with the broader market and hedges fell in value as interest rates rose, and a similar impact was experienced on

liability valuations which also fell in value given the portfolio was almost fully hedged. The Group’s schemes use LDI strategies to achieve this

outcome and, as the hedging was maintained throughout the crisis, the strategy performed as expected. All collateral requirements in respect

of the LDI strategies were met, with no support required from the Group beyond payment of scheduled contributions.

On 28 January 2020, the main schemes entered into a £10 billion longevity insurance arrangement to hedge part of the schemes’ exposure to

unexpected increases in life expectancy. This arrangement forms part of the schemes’ investment portfolio and will provide income to the

schemes in the event that pensions are paid out for longer than expected. The transaction was structured as a pass-through with Scottish

Widows as the insurer, and onwards reinsurance to Pacific Life Re Limited.

On 28 January 2022, the Lloyds Bank Pension Scheme No. 1 entered into an additional £5.5 billion longevity insurance arrangement. The

transaction is structured as a pass-through with Scottish Widows as the insurer, and onwards reinsurance to SCOR SE – UK Branch.

At 31 December 2022 the value of scheme assets included £(100) million representing the value of the longevity swaps (after allowing for the

impact on the IAS 19 liabilities of the revisions to the base mortality assumptions).

In total the schemes have now hedged around 32 per cent of their longevity risk exposure.

Maturity profile of defined benefit obligation

The following table provides information on the weighted average duration of the defined benefit pension obligation and the distribution and

timing of benefit payments:


	2022 Years	2021 Years
Duration of the defined benefit obligation	15	17

Maturity analysis of benefits expected to be paid:


	2022 £m	2021 £m
Within 12 months	1,409	1,352
Between 1 and 2 years	1,464	1,450
Between 2 and 5 years	4,678	4,651
Between 5 and 10 years	8,930	8,993
Between 10 and 15 years	9,296	9,668
Between 15 and 25 years	17,479	18,671
Between 25 and 35 years	12,720	13,846
Between 35 and 45 years	6,138	6,987
In more than 45 years	1,685	2,116

Maturity analysis method and assumptions

The projected benefit payments are based on the assumptions underlying the assessment of the obligations, including allowance for expected

future inflation. They are shown in their undiscounted form and therefore appear large relative to the discounted assessment of the defined

benefit obligations recognised in the Group’s balance sheet. They are in respect of benefits that have been accrued prior to the respective year-

end date only and make no allowance for any benefits that may have been accrued subsequently.

Defined contribution schemes

The Group operates a number of defined contribution pension schemes in the UK and overseas, principally Your Tomorrow and the defined

contribution sections of the Lloyds Bank Pension Scheme No. 1.

During the year ended 31 December 2022 the charge to the income statement in respect of defined contribution schemes was £314 million

(2021: £287 million; 2020: £305 million), representing the contributions payable by the employer in accordance with each scheme’s rules.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 27: Retirement benefit obligations (continued)

131

Other post-retirement benefit schemes

The Group operates a number of schemes which provide post-retirement healthcare benefits to certain employees, retired employees and their

dependants. The principal scheme relates to former Lloyds Bank staff and under this scheme the Group has undertaken to meet the cost of

post-retirement healthcare for all eligible former employees (and their dependants) who retired prior to 1 January 1996. The Group has entered

into an insurance contract to provide these benefits and a provision has been made for the estimated cost of future insurance premiums

payable.

For the principal post-retirement healthcare scheme, the latest actuarial valuation of the liability was carried out at 31 December 2022 by

qualified independent actuaries. The principal assumptions used were as set out above, except that the rate of increase in healthcare premiums

has been assumed at 6.74 per cent (2021: 6.82 per cent).

Movements in the other post-retirement benefits obligation:


	2022 £m	2021 £m
At 1 January	(103)	(109)
Actuarial gains	68	4
Insurance premiums paid	3	3
Charge for the year	(2)	(2)
Exchange and other adjustments	(1)	1
At 31 December	(35)	(103)

Note 28: Deferred tax

The Group’s deferred tax assets and liabilities are as follows:


Statutory position	2022 £m	2021 £m	Tax disclosure	2022 £m	2021 £m
Deferred tax assets	5,857	4,048	Deferred tax assets	7,999	6,377
Deferred tax liabilities	(208)	–	Deferred tax liabilities	(2,350)	(2,329)
Asset at 31 December	5,649	4,048	Asset at 31 December	5,649	4,048

The statutory position reflects the deferred tax assets and liabilities as disclosed in the consolidated balance sheet and takes into account the

ability of the Group to net assets and liabilities where there is a legally enforceable right of offset. The tax disclosure of deferred tax assets and

liabilities ties to the amounts outlined in the tables below which splits the deferred tax assets and liabilities by type, before such netting.

Movements in deferred tax assets and liabilities (before taking into consideration the offsetting of balances within the same taxing jurisdiction)

can be summarised as follows:


Deferred tax assets	Tax losses £m	Property, plant and equipment £m	Provisions £m	Share- based payments £m	Pension liabilities £m	Derivatives £m	Asset revaluations £m	Other temporary differences £m	Total £m
At 1 January 2021	4,054	678	251	27	56	7	28	226	5,327
Credit (charge) to the income statement	964	82	13	(10)	15	30	(28)	(50)	1,016
Credit (charge) to other comprehensive income	–	–	36	–	(2)	–	–	–	34
At 31 December 2021	5,018	760	300	17	69	37	–	176	6,377
Credit (charge) to the income statement	(4)	(237)	114	(3)	(22)	183	8	(66)	(27)
Credit (charge) to other comprehensive income	–	–	(155)	–	–	1,804	–	–	1,649
At 31 December 2022	5,014	523	259	14	47	2,024	8	110	7,999

Deferred tax liabilities		Capitalised software enhancements £m		Acquisition fair value £m	Pension assets £m	Derivatives £m	Asset revaluations1 £m	Other temporary differences £m	Total £m
At 1 January 2021			(228)	(336)	(392)	(699)	–	(204)	(1,859)
(Charge) credit to the income statement			(47)	(16)	(93)	(65)	2	(115)	(334)
(Charge) credit to other comprehensive income			–	–	(846)	764	(54)	–	(136)
Exchange and other adjustments			–	–	–	–	–	–	–
At 31 December 2021			(275)	(352)	(1,331)	–	(52)	(319)	(2,329)
(Charge) credit to the income statement			117	29	29	(470)	41	(47)	(301)
Credit to other comprehensive income			–	–	283	–	11	–	294
Exchange and other adjustments			–	–	–	–	–	(14)	(14)
At 31 December 2022			(158)	(323)	(1,019)	(470)	–	(380)	(2,350)

1Financial assets at fair value through other comprehensive income.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 27: Retirement benefit obligations (continued)

132

At 31 December 2022 the Group carried net deferred tax assets on its balance sheet of £5,857 million (2021: £4,048 million) principally relating

to tax losses carried forward.

Estimation of income taxes includes the assessment of recoverability of deferred tax assets. Deferred tax assets are only recognised to the

extent that they are considered more likely than not to be recoverable based on existing tax laws and forecasts of future taxable profits against

which the underlying tax deductions can be utilised. The Group has recognised a deferred tax asset of £5,014 million (2021: £5,018 million) in

respect of trading losses carried forward. Substantially all of these losses have arisen in Bank of Scotland plc and Lloyds Bank plc, and they will

be utilised as taxable profits arise in those legal entities in future periods.

The Group’s expectations of future UK taxable profits require management judgement, and take into account the Group’s long-term financial

and strategic plans and anticipated future tax-adjusting items. In making this assessment, account is taken of business plans, the Board-

approved operating plan and the expected future economic outlook as set out in the strategic report, as well as the risks associated with future

regulatory, climate-related and other change, in order to produce a base case forecast of future UK taxable profits. Under current law there is no

expiry date for UK trading losses not yet utilised, and given the forecast of future profitability and the Group’s commitment to the UK market, in

management’s judgement it is more likely than not that the value of the losses will be recovered by the Group while still operating as a going

concern. Banking tax losses that arose before 1 April 2015 can only be used against 25 per cent of taxable profits arising after 1 April 2016, and

they cannot be used to reduce the surcharge on banking profits. These restrictions in utilisation mean that the value of the deferred tax asset in

respect of tax losses is only expected to be fully recovered by 2036 (2021: 2047) in the base case forecast. The rate of recovery of the Group’s

tax loss asset is not a straight line, being affected by the relative profitability of the different legal entities in future periods, and the relative size

of their tax losses carried forward. It is expected in the base case that 90 per cent of the value will be recovered by 2032, when Bank of Scotland

plc will have utilised all of its available tax losses. It is possible that future tax law changes could materially affect the timing of recovery and the

value of these losses ultimately realised by the Group.

Deferred tax not recognised

Deferred tax assets of £147 million (2021: £151 million have not been recognised in respect of £583 million of UK tax losses and other temporary

differences which can only be used to offset future capital gains. UK capital losses can be carried forward indefinitely.

No deferred tax has been recognised in respect of foreign trade losses where it is not more likely than not that we will be able to utilise them in

future periods. Of the asset not recognised, £53 million (2021: £34 million) relates to losses that will expire if not used within 20 years, and

£7 million (2021: £5 million) relates to losses with no expiry date.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 28: Deferred tax (continued)

133


	Provisions for financial commitments and guarantees £m	Regulatory and legal provisions £m	Other £m	Total £m
At 1 January 2022	194	1,054	685	1,933
Exchange and other adjustments	(1)	16	28	43
Provisions applied	–	(587)	(419)	(1,006)
Charge for the year	111	225	285	621
At 31 December 2022	304	708	579	1,591

Provisions for financial commitments and guarantees

Provisions are recognised for expected credit losses on undrawn loan commitments and financial guarantees. See also note 15.

Regulatory and legal provisions

In the course of its business, the Group is engaged in discussions with the PRA, FCA and other UK and overseas regulators and other

governmental authorities on a range of matters. The Group also receives complaints in connection with its past conduct and claims brought by

or on behalf of current and former employees, customers, investors and other third parties and is subject to legal proceedings and other

actions. Where significant, provisions are held against the costs expected to be incurred in relation to these matters and matters arising from

related internal reviews. During the year ended 31 December 2022 the Group charged a further £225 million in respect of legal actions and

other regulatory matters and the unutilised balance at 31 December 2022 was £708 million (31 December 2021: £1,054 million). The most

significant items are as follows.

HBOS Reading – review

The Group continues to apply the recommendations from Sir Ross Cranston’s review, issued in December 2019, including a reassessment of

direct and consequential losses by an independent panel (the Foskett Panel), an extension of debt relief and a wider definition of de facto

directors. The Foskett Panel's full scope and methodology was published on 7 July 2020. The Foskett Panel’s stated objective is to consider

cases via a non-legalistic and fair process and to make their decisions in a generous, fair and common sense manner, assessing claims against

an expanded definition of the fraud and on a lower evidential basis.

Following the emergence of the first outcomes of the Foskett Panel through 2021, the Group charged a further £790 million in the year ended

31 December 2021. This included operational costs in relation to Dame Linda Dobbs's review, which is considering whether the issues relating

to HBOS Reading were investigated and appropriately reported by the Group during the period from January 2009 to January 2017, and other

programme costs. A significant proportion of the charge related to the estimated future awards from the Foskett Panel. The Foskett Panel had

shared outcomes on a limited subset of the total population which covers a wide range of businesses and different claim characteristics. The

estimated awards provision recognised at 31 December 2021 was therefore materially dependent on the assumption that the limited number of

awards to date were representative of the full population of cases.

In June 2022, the Foskett Panel announced an alternative option, in the form of a fixed sum award which could be accepted as an alternative to

participation in the full re-review process, to support earlier resolution of claims for those deemed by the Foskett Panel to be victims of the

fraud. Around half the population have now had outcomes via this new process. Extrapolating the Group’s experience to date resulted in an

increase to the provision of £50 million in the year (all in the fourth quarter). Notwithstanding the settled claims and the increase in coverage

which builds confidence in the full estimated cost, uncertainties remain and the final outcome could be different from the current provision once

the re-review is concluded by the Foskett Panel. There is no confirmed timeline for the completion of the Foskett Panel re-review process nor

the review by Dame Linda Dobbs. The Group is committed to implementing Sir Ross's recommendations in full.

Payment protection insurance

The Group has incurred costs for PPI over a number of years totalling £21,906 million. The Group continues to challenge PPI litigation cases,

with mainly legal fees and operational costs associated with litigation activity recognised within regulatory and legal provisions, including a

charge in the fourth quarter. PPI litigation remains inherently uncertain, with a number of key court judgments due to be delivered in 2023.

Other

Following the sale of TSB Banking Group plc, the Group raised a provision of £665 million in relation to various ongoing commitments in

respect of the divestment. At 31 December 2022, a provision of £22 million remained unutilised; the Group expects the majority of the

remaining provision to be utilised in the next twelve months and the provision to be fully utilised by 31 December 2024.

The Group carries provisions of £112 million (2021: £114 million) in respect of dilapidations, rent reviews and other property-related matters.

Provisions are also made for staff and other costs related to Group restructuring initiatives at the point at which the Group becomes committed

to the expenditure; at 31 December 2022 provisions of £108 million (31 December 2021: £187 million) were held.

The Group carries provisions of £86 million (2021: £78 million) for indemnities and other matters relating to legacy business disposals in prior

years. Whilst there remains significant uncertainty as to the timing of the utilisation of the provisions, the Group expects the majority of the

remaining provisions to have been utilised by 31 December 2026.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 29: Other provisions

134

The movement in subordinated liabilities during the year was as follows:


	Preferred securities £m	Undated £m	Dated £m	Total £m
At 1 January 2021	1,772	505	6,965	9,242
Issued during the year1:
3.916% Subordinated Fixed Rate Notes 2048 (US$1,500 million)	–	–	1,074	1,074
3.724% Dated Subordinated Fixed Rate Reset Notes 2041 (£500 million)	–	–	888	888
2.754% Dated Subordinated Fixed Rate Reset Notes 2032 (US$1,750 million)	–	–	1,300	1,300
	–	–	3,262	3,262
Repurchases and redemptions during the year1:
7.754% Non-cumulative Perpetual Preferred Securities (Class B) (£150 million)	(156)	–	–	(156)
Series 2 (US$500 million)	–	(94)	–	(94)
Series 3 (US$600 million)	–	(120)	–	(120)
Floating Rate Primary Capital Notes (US$250 million)	–	(24)	–	(24)
Series 1 (US$750 million)	–	(97)	–	(97)
9.375% Subordinated Bonds 2021 (£500 million)	–	–	(200)	(200)
5.374% Subordinated Fixed Rate Notes 2021 (€160 million)	–	–	(145)	(145)
4.553% Subordinated Fixed Rate Notes 2021 (US$1,500 million)	–	–	(1,122)	(1,122)
6% Subordinated Notes 2033 (US$750 million)	–	–	(216)	(216)
4.293% Subordinated Fixed Rate Notes 2021 (US$824 million)	–	–	(612)	(612)
4.503% Subordinated Fixed Rate Notes 2021 (US$1,353 million)	–	–	(1,004)	(1,004)
	(156)	(335)	(3,299)	(3,790)
Foreign exchange movements	17	–	(80)	(63)
Other movements (cash and non-cash)2	28	–	(21)	7
At 31 December 2021	1,661	170	6,827	8,658
Issued during the year1:
8.133% Dated Subordinated Fixed Rate Reset notes 2033 (US$1,000 million)	–	–	837	837
Repurchases and redemptions during the year1:
12% Fixed to Floating Rate Perpetual Tier 1 Capital Securities callable 2024 (US$2,000 million)	(1,399)	–	–	(1,399)
13% Sterling Step-up Perpetual Capital Securities callable 2029 (£700 million)	(221)	–	–	(221)
7.281% Perpetual Regulatory Tier One Securities (Series B) (£150 million)	(22)	–	–	(22)
7.881% Guaranteed Non-voting Non-cumulative Preferred Securities (£245 million)	(12)	–	–	(12)
12% Perpetual Subordinated Bonds (£100 million)	–	(22)	–	(22)
5.75% Undated Subordinated Step-up Notes (£600 million)	–	(4)	–	(4)
7.625% Dated Subordinated Notes 2025 (£750 million)	–	–	(502)	(502)
	(1,654)	(26)	(502)	(2,182)
Foreign exchange movements	(6)	–	521	515
Other movements (cash and non-cash)2	(1)	2	(1,236)	(1,235)
At 31 December 2022	–	146	6,447	6,593

1Issuances in the year generated cash inflows of £837 million (2021: £3,262 million); the repurchases and redemptions resulted in cash outflows of £2,216 million (2021: £3,745 million).

2Other movements include cash payments in respect of interest on subordinated liabilities in the year amounted to £397 million (2021: £525 million) offset by the interest expense in respect

of subordinated liabilities of £367 million (2021: £634 million).

Certain of the above securities were issued or redeemed under exchange offers, which did not result in an extinguishment of the original

financial liability for accounting purposes.

These securities will, in the event of the winding-up of the issuer, be subordinated to the claims of depositors and all other creditors of the

issuer, other than creditors whose claims rank equally with, or are junior to, the claims of the holders of the subordinated liabilities. The

subordination of specific subordinated liabilities is determined in respect of the issuer and any guarantors of that liability. The claims of holders

of preference shares and preferred securities are generally junior to those of the holders of undated subordinated liabilities, which in turn are

junior to the claims of holders of the dated subordinated liabilities. The Group has not had any defaults of principal or interest or other breaches

with respect to its subordinated liabilities during 2022 (2021: none).

The Bank has in issue various classes of preference shares which are all classified as liabilities under accounting standards. The rights and

obligations attaching to these shares are set out in the Bank’s articles of association, a copy of which can be obtained from Companies House or

from the Lloyds Banking Group website (www.lloydsbankinggroup.com/who-we-are/group-overview/corporate-governance.html).

Lloyds Bank plc

Notes to the consolidated financial statements

Note 30: Subordinated liabilities

135

(1)Authorised share capital

As permitted by the Companies Act 2006, the Bank has removed references to authorised share capital from its articles of association.

(2)Issued and fully paid ordinary shares


	2022 Number of shares	2021 Number of shares	2020 Number of shares	2022 £m	2021 £m	2020 £m
Ordinary shares of £1 each
At 1 January	1,574,285,752	1,574,285,752	1,574,285,751	1,574	1,574	1,574
Issued in the year	–	–	1	–	–	–
At 31 December	1,574,285,752	1,574,285,752	1,574,285,752	1,574	1,574	1,574

(3)Share capital and control

There are no limitations on voting rights or restrictions on the transfer of shares in the Bank other than as set out in the articles of association,

and certain restrictions which may from time to time be imposed by law and regulations (for example, insider trading laws).

Ordinary shares

The holders of ordinary shares are entitled to receive the Bank’s report and accounts, attend, speak and vote at general meetings and appoint

proxies to exercise voting rights. Holders of ordinary shares may also receive a dividend (subject to the provisions of the Bank’s articles of

association) and on a winding up may share in the assets of the Bank.

Issued and fully paid preference shares

The Bank has in issue various classes of preference shares which are all classified as liabilities under accounting standards and which are

included in note 30.

Note 32: Share premium account


	2022 £m	2021 £m	2020 £m
At 1 January and 31 December	600	600	600

Note 33: Other reserves


	2022 £m	2021 £m	2020 £m
Merger reserve1	6,348	6,348	6,348
Revaluation reserve in respect of debt securities held at fair value through other comprehensive income	(393)	(362)	(558)
Revaluation reserve in respect of equity shares held at fair value through other comprehensive income	–	–	–
Cash flow hedging reserve	(5,168)	(451)	1,507
Foreign currency translation reserve	(44)	(135)	(116)
At 31 December	743	5,400	7,181

1There has been no movements in this reserve in 2022, 2021 or 2020.

The merger reserve arose on the transfer of HBOS plc from the Bank’s ultimate holding company in January 2010.

The revaluation reserves in respect of debt securities and equity shares held at fair value through other comprehensive income represent the

cumulative after-tax unrealised change in the fair value of financial assets so classified since initial recognition; or in the case of financial assets

obtained on acquisitions of businesses, since the date of acquisition.

The cash flow hedging reserve represents the cumulative after-tax gains and losses on effective cash flow hedging instruments that will be

reclassified to the income statement in the periods in which the hedged item affects profit or loss.

The foreign currency translation reserve represents the cumulative after-tax gains and losses on the translation of foreign operations and

exchange differences arising on financial instruments designated as hedges of the Group’s net investment in foreign operations.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 31: Share capital

136

Movements in other reserves were as follows:


Revaluation reserve in respect of debt securities held at fair value through other comprehensive income	2022 £m	2021 £m	2020 £m
At 1 January	(362)	(558)	(538)
Change in fair value	(132)	137	46
Deferred tax	34	(44)	29
Current tax	8	–	(2)
	(90)	93	73
Income statement transfers in respect of disposals (note 8)	76	116	(145)
Deferred tax	(23)	(11)	47
	53	105	(98)
Impairment recognised in the income statement	6	(2)	5
At 31 December	(393)	(362)	(558)


Revaluation reserve in respect of equity shares held at fair value through other comprehensive income	2022 £m	2021 £m	2020 £m
At 1 January	–	–	–
Change in fair value	–	–	–
Deferred tax	(1)	1	(16)
	(1)	1	(16)
Realised gains and losses transferred to retained profits	–	–	–
Deferred tax	1	(1)	16
	1	(1)	16
At 31 December	–	–	–


Cash flow hedging reserve	2022 £m	2021 £m	2020 £m
At 1 January	(451)	1,507	1,556
Change in fair value of hedging derivatives	(6,520)	(2,138)	709
Deferred tax	1,803	606	(229)
	(4,717)	(1,532)	480
Net income statement transfers	(1)	(584)	(727)
Deferred tax	1	158	198
	–	(426)	(529)
At 31 December	(5,168)	(451)	1,507


Foreign currency translation reserve	2022 £m	2021 £m	2020 £m
At 1 January	(135)	(116)	(116)
Currency translation differences arising in the year	91	(19)	–
At 31 December	(44)	(135)	(116)

Lloyds Bank plc

Notes to the consolidated financial statements

Note 33: Other reserves (continued)

137


	2022 £m	2021 £m	2020 £m
At 1 January	28,836	25,750	24,549
Profit attributable to ordinary shareholders	4,528	4,826	1,023
Post-retirement defined benefit scheme remeasurements	(2,152)	1,062	113
Gains and losses attributable to own credit risk (net of tax)1	364	(52)	(55)
Dividends paid (note 36)	–	(2,900)	–
Issue of other equity instruments	–	(1)	–
Repurchases and redemptions of other equity instruments	–	(9)	–
Capital contributions received	221	164	140
Return of capital contributions	(4)	(4)	(4)
Change in non-controlling interests	–	(1)	–
Realised gains and losses on equity shares held at fair value through other comprehensive income	(1)	1	(16)
At 31 December	31,792	28,836	25,750

1During 2020 the Group derecognised, on redemption, financial liabilities on which cumulative fair value movements relating to own credit of £1 million net of tax (2022: £nil; 2021: £nil), had

been recognised directly in retained profits.

Note 35: Other equity instruments


	2022 £m	2021 £m	2020 £m
At 1 January	4,268	5,935	4,865
Issued in the year:
£500 million Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Permanent Write-Down Securities	–	500	–
£750 million Floating Rate Additional Tier 1 Perpetual Subordinated Permanent Write-Down Securities	–	750	–
£300 million Floating Rate Additional Tier 1 Perpetual Subordinated Permanent Write-Down Securities	–	300	–
US$500 million Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Permanent Write-Down Securities	–	–	383
€750 million Fixed Rate Reset Additional Tier 1 Perpetual Subordinated Permanent Write-Down Securities	–	–	687
	–	1,550	1,070
Repurchases and redemptions during the year	–	(3,217)	–
Profit for the year attributable to other equity holders	241	344	417
Distributions on other equity instruments	(241)	(344)	(417)
At 31 December	4,268	4,268	5,935

The principal terms of the AT1 securities are described below:

•The securities rank behind the claims against the Bank of unsubordinated creditors on a winding-up

•The fixed rate reset securities bear a fixed rate of interest until the first call date. After the initial call date, in the event that they are not

redeemed, the fixed rate reset AT1 securities will bear interest at rates fixed periodically in advance. The floating rate AT1 securities will be

reset quarterly both prior to and following the first call date

•Interest on the securities will be due and payable only at the sole discretion of the Bank and the Bank may at any time elect to cancel any

interest payment (or any part thereof) which would otherwise be payable on any interest payment date. There are also certain restrictions on

the payment of interest as specified in the terms

•The securities are undated and are repayable, at the option of the Bank, in whole at the first call date, or at any interest payment date

thereafter. In addition, the AT1 securities are repayable, at the option of the Bank, in whole for certain regulatory or tax reasons. Any

repayments require the prior consent of the PRA

•The securities will be subject to a Permanent Write Down should the Common Equity Tier 1 ratio of the Bank fall below 7.0 per cent

Note 36: Dividends on ordinary shares

Dividends paid during the year were as follows:


	2022 £m	2021 £m	2020 £m
Interim dividends	–	2,900	–

Lloyds Bank plc

Notes to the consolidated financial statements

Note 34: Retained profits

138

During the year ended 31 December 2022 Lloyds Banking Group plc operated a number of share-based payment schemes for which employees

of the Lloyds Bank Group were eligible and all of which are equity settled. Details of all schemes operated by Lloyds Banking Group are set out

below; these are managed and operated on a Lloyds Banking Group-wide basis. The amount charged to the Group’s income statement in

respect of Lloyds Banking Group share-based payment schemes, and which is included within staff costs (note 9), was £351 million (2021:

£229 million; 2020: £181 million).

During the year ended 31 December 2022 the Lloyds Banking Group operated the following share-based payment schemes, all of which are

mainly equity settled.

Group Performance Share plan

The Group operates a Group Performance Share plan that is part equity settled. Bonuses in respect of employee service in 2022 have been

recognised in the charge in line with the proportion of the deferral period completed.

Save-As-You-Earn schemes

Eligible employees may enter into contracts through the Save-As-You-Earn (SAYE) schemes to save up to £500 per month and, at the expiry of a

fixed term of three years, have the option to use these savings within six months of the expiry of the fixed term to acquire shares in the Group at

a discounted price of no less than 90 per cent of the market price at the start of the invitation period.

Movements in the number of share options outstanding under the SAYE schemes are set out below:


	2022		2021
	Number of options	Weighted average exercise price (pence)	Number of options	Weighted average exercise price (pence)
Outstanding at 1 January	1,180,563,291	30.63	1,120,138,915	30.39
Granted	217,611,519	39.38	236,923,744	39.40
Exercised	(23,359,526)	37.75	(6,924,434)	30.57
Forfeited	(20,961,259)	29.20	(22,815,078)	28.78
Cancelled	(47,687,607)	33.88	(51,479,310)	32.57
Expired	(49,248,343)	46.29	(95,280,546)	49.03
Outstanding at 31 December	1,256,918,075	31.30	1,180,563,291	30.63
Exercisable at 31 December	263,302	47.92	336,561	51.03

The weighted average share price at the time that the options were exercised during 2022 was £0.49 (2021: £0.47). The weighted average

remaining contractual life of options outstanding at the end of the year was 1.88 years (2021: 2.46 years).

The weighted average fair value of SAYE options granted during 2022 was £0.07 (2021: £0.09). The fair values of the SAYE options have been

determined using a standard Black-Scholes model.

Other share option plans

Executive Share Plans - buyout and retention awards

Share options may be granted to senior employees under the Lloyds Banking Group Executive Share Plan 2003, Lloyds Banking Group

Executive Group Ownership Share Plan and the Deferred Bonus Scheme 2021 specifically to facilitate recruitment (to compensate new recruits

for any lost share awards), and also to make grants to key individuals for retention purposes. In some instances, grants may be made subject to

individual performance conditions.

Participants are not entitled to any dividends paid during the vesting period.


	2022		2021
	Number of options	Weighted average exercise price (pence)	Number of options	Weighted average exercise price (pence)
Outstanding at 1 January	14,032,762	Nil	8,477,084	Nil
Granted	10,278,224	Nil	13,610,204	Nil
Exercised	(3,333,322)	Nil	(7,110,663)	Nil
Vested	–	Nil	–	Nil
Forfeited	(33,409)	Nil	(385,184)	Nil
Lapsed	(477,784)	Nil	(558,679)	Nil
Outstanding at 31 December	20,466,471	Nil	14,032,762	Nil
Exercisable at 31 December	1,638,202	Nil	708,939	Nil

The weighted average fair value of options granted in the year was £0.44 (2021: £0.42). The fair values of options granted have been determined

using a standard Black-Scholes model. The weighted average share price at the time that the options were exercised during 2022 was £0.46

(2021: £0.43). The weighted average remaining contractual life of options outstanding at the end of the year was 6.0 years (2021: 6.3 years).

Included in the above are awards to the Chief Financial Officer and the Group Chief Executive.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 37: Share-based payments

139

William Chalmers joined the Group on 3 June 2019 and was appointed as Chief Financial Officer on 1 August 2019. He was granted deferred

share awards over 4,086,632 shares, to replace unvested awards from his former employer, Morgan Stanley, that were forfeited as a result of him

joining the Group.


	2022 Number of shares	2021 Number of shares
Outstanding at 1 January	686,085	1,810,712
Exercised	(686,085)	(1,124,627)
Outstanding at 31 December	–	686,085

Charlie Nunn joined the Group on 16 August 2021 as Group Chief Executive. He was granted deferred share awards over 8,301,708 shares to

replace unvested awards from his former employer, HSBC, that were forfeited as a result of him joining the Group.


	2022 Number of shares	2021 Number of shares
Outstanding at 1 January	7,444,787	–
Granted	–	8,301,708
Exercised	(859,340)	(856,921)
Outstanding at 31 December	6,585,447	7,444,787

The weighted average fair value of awards granted in 2021 was £0.40.

Other share plans

Lloyds Banking Group Executive Group Ownership Share Plan

The plan, introduced in 2006, is aimed at delivering shareholder value by linking the receipt of shares to an improvement in the performance of

the Group over a three-year period. Awards are made within limits set by the rules of the plan, with the limits determining the maximum number

of shares that can be awarded equating to three times annual salary. In exceptional circumstances this may increase to four times annual salary.

At the end of the performance period for the 2019 grant, the targets had not been fully met and therefore these awards vested in 2022 at a rate

of 41.80 per cent.


	2022 Number of shares	2021 Number of shares
Outstanding at 1 January	350,873,627	533,987,527
Granted	–	–
Vested	(50,703,778)	(39,621,415)
Forfeited	(98,741,356)	(144,437,243)
Dividend award	966,016	944,758
Outstanding at 31 December	202,394,509	350,873,627

Awards in respect of the 2020 grant are due to vest in 2023 at a rate of 43.70% per cent. In previous years participants were entitled to any

dividends paid in the vesting period. However, following a regulatory change prohibiting the payment of dividends on such awards, the number

of shares awarded has been determined by applying a discount factor to the share price on award to exclude the value of estimated future

dividends.

Lloyds Banking Group Long Term Share Plan

The plan, introduced in 2021, replaced the Executive Group Ownership Share Plan and is intended to provide alignment to the Group’s aim of

delivering sustainable returns to shareholders, supported by its values and behaviours.


	2022 Number of shares	2021 Number of shares
Outstanding at 1 January	77,883,068	–
Granted	108,513,202	83,456,304
Vested	–	–
Forfeited	(14,448,527)	(5,573,236)
Dividend award	–	–
Outstanding at 31 December	171,947,743	77,883,068

The weighted average fair value of awards granted in the year was £0.36 (2021: £0.36).

Lloyds Bank plc

Notes to the consolidated financial statements

Note 37: Share-based payments (continued)

140

Assumptions at 31 December 2022

The fair value calculations at 31 December 2022 for grants made in the year, using Black-Scholes models and Monte Carlo simulation, are based

on the following assumptions:


	SAYE	Executive Share Plans	Long Term Share Plan
Weighted average risk-free interest rate	4.33%	3.20%	1.01%
Weighted average expected life	3.3 years	1.2 years	3.6 years
Weighted average expected volatility	28%	27%	33%
Weighted average expected dividend yield	5.3%	5.3%	5.3%
Weighted average share price	£0.42	£0.47	£0.43
Weighted average exercise price	£0.39	Nil	Nil

Expected volatility is a measure of the amount by which the Group’s shares are expected to fluctuate during the life of an option. The expected

volatility is estimated based on the historical volatility of the closing daily share price over the most recent period that is commensurate with the

expected life of the option. The historical volatility is compared to the implied volatility generated from market traded options in the Group’s

shares to assess the reasonableness of the historical volatility and adjustments made where appropriate.

Share Incentive Plans

Free shares

An award of shares may be made annually to employees up to a maximum of £3,600. The shares awarded are held in trust for a mandatory

period of three years on the employee’s behalf, during which period the employee is entitled to any dividends paid on such shares. The award

is subject to a non-market based condition. If an employee leaves the Group within this three-year period for other than a ‘good’ reason, all of

the shares awarded will be forfeited.

No award was made in 2022.

On 25 March 2021, the Group made an award of 1,017 shares to all eligible employees. The number of shares awarded was 67,658,976, with an

average fair value of £0.42 based on the market price at the date of award.

Matching shares

The Group undertakes to match shares purchased by employees up to the value of £45 per month; these matching shares are held in trust for a

mandatory period of three years on the employee’s behalf, during which period the employee is entitled to any dividends paid on such shares.

The award is subject to a non-market based condition: if an employee leaves within this three-year period for other than a ‘good’ reason, all of

the matching shares are forfeited. Similarly, if the employees sell their purchased shares within three years, their matching shares are forfeited.

The number of shares awarded relating to matching shares in 2022 was 43,378,504 (2021: 46,621,026), with an average fair value of £0.45 (2021:

£0.44), based on market prices at the date of award.

Fixed share awards

Fixed share awards were introduced in 2014 in order to ensure that total fixed remuneration is commensurate with role and to provide a

competitive reward package for certain Lloyds Banking Group employees, with an appropriate balance of fixed and variable remuneration, in

line with regulatory requirements. The fixed share awards are delivered in Lloyds Banking Group plc shares, and were initially released over five

years with 20 per cent being released each year following the year of award. From June 2020, the fixed share awards are released over three

years with one third being released each year following the year of award. The number of shares purchased in relation to fixed share awards in

2022 was 7,261,080 (2021: 8,320,948) with an average fair value of £0.47 (2021: £0.45) based on market prices at the date of the award.

The fixed share award is not subject to any performance conditions, performance adjustment or clawback. On an employee leaving the Group,

there is no change to the timeline for which shares will become unrestricted.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 37: Share-based payments (continued)

141

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:


	2022 £m	2021 £m	2020 £m
Compensation
Salaries and other short-term benefits	11	10	12
Post-employment benefits	–	–	–
Share-based payments	14	14	12
Total compensation	25	24	24

The aggregate of the emoluments of the directors was £9.2 million (2021: £10.6 million; 2020: £11.8 million).

Aggregate contributions in respect of key management personnel to defined contribution pension schemes were £nil (2021: £nil; 2020: £nil).

The total for the highest paid director (Charlie Nunn) was £5,160,000 million (2021: Sir António Horta-Osório: £3,117,000; 2020: Juan Colombás:

£4,169,000); this did not include any gain on exercise of Lloyds Banking Group plc shares in any year.


	2022 million	2021 million	2020 million
Share options over Lloyds Banking Group plc shares
At 1 January	–	–	–
Granted, including certain adjustments (includes entitlements of appointed key management personnel)	–	–	–
Exercised/lapsed (includes entitlements of former key management personnel)	–	–	–
At 31 December	–	–	–


	2022 million	2021 million	2020 million
Share plans settled in Lloyds Banking Group plc shares
At 1 January	74	117	101
Granted, including certain adjustments (includes entitlements of appointed key management personnel)	29	19	46
Exercised/lapsed (includes entitlements of former key management personnel)	(31)	(62)	(30)
At 31 December	72	74	117

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:


	2022 £m	2021 £m	2020 £m
Loans
At 1 January	3	2	2
Advanced (includes loans to appointed key management personnel)	1	1	–
Repayments (includes loans to former key management personnel)	(2)	–	–
At 31 December	2	3	2

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 1.01

per cent and 30.15 per cent in 2022 (2021: 0.39 per cent and 22.93 per cent; 2020: 0.39 per cent and 24.20 per cent).

No provisions have been recognised in respect of loans given to key management personnel (2021 and 2020: £nil).

Lloyds Bank plc

Notes to the consolidated financial statements

Note 38: Related party transactions

142


	2022 £m	2021 £m	2020 £m
Deposits
At 1 January	11	11	23
Placed (includes deposits of appointed key management personnel)	37	26	26
Withdrawn (includes deposits of former key management personnel)	(38)	(26)	(38)
At 31 December	10	11	11

Deposits placed by key management personnel attracted interest rates of up to 5.0 per cent (2021: 1.0 per cent; 2020: 2.0 per cent).

At 31 December 2022, the Group did not provide any guarantees in respect of key management personnel (2021 and 2020: none).

At 31 December 2022, transactions, arrangements and agreements entered into by the Group and its banking subsidiaries with directors and

connected persons included amounts outstanding in respect of loans and credit card transactions of £2.1 thousand with three directors and no

connected persons (2021: £0.6 million with five directors and two connected persons; 2020: £0.6 million with five directors and two connected

persons).

Balances and transactions with fellow Lloyds Banking Group undertakings

Balances and transactions between members of the Lloyds Bank Group

In accordance with IFRS 10 Consolidated Financial Statements, transactions and balances between the Bank and its subsidiary undertakings,

and between those subsidiary undertakings, have all been eliminated on consolidation and thus are not reported as related party transactions

of the Group.

Balances and transactions with Lloyds Banking Group plc and fellow subsidiaries of the Bank

The Bank and its subsidiaries have balances due to and from the Bank’s parent company, Lloyds Banking Group plc and fellow subsidiaries of

the Bank. These are included on the Group's balance sheet as follows:


	2022 £m	2021 £m
Assets, included within:
Derivative financial instruments	1,120	634
Financial assets at amortised cost: due from fellow Lloyds Banking Group undertakings	816	739
	1,936	1,373
Liabilities, included within:
Due to fellow Lloyds Banking Group undertakings	2,539	1,490
Derivative financial instruments	1,084	939
Debt securities in issue	17,648	17,961
Subordinated liabilities	6,490	5,176
	27,761	25,566

These balances include Lloyds Banking Group plc’s banking arrangements and, due to the size and volume of transactions passing through

these accounts, it is neither practical nor meaningful to disclose information on gross inflows and outflows. During 2022 the Group earned

£11 million interest income on the above asset balances (2021: £11 million; 2020: £5 million) and the Group incurred £666 million interest

expense on the above liability balances (2021: £500 million; 2020: £478 million).

Details of contingent liabilities and commitments entered into on behalf of fellow Lloyds Banking Group undertakings are given in note 39.

Other related party transactions

Pension funds

The Group provides banking services to certain of its pension funds. At 31 December 2022, customer deposits of £155 million (2021:

£480 million) related to the Group’s pension funds.

Joint ventures and associates

At 31 December 2022 there were loans and advances to customers of £21 million (2021: £14 million) outstanding and balances within customer

deposits of £58 million (2021: £22 million) relating to joint ventures and associates.

During the year the Group paid fees of £5 million (2021: £7 million) to the Lloyds Banking Group's Schroders Personal Wealth joint venture and

also made a payment of £18 million (2021: £10 million) under the terms of agreements put in place on the establishment of the joint venture.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 38: Related party transactions (continued)

143

Interchange fees

With respect to multi-lateral interchange fees (MIFs), the Lloyds Banking Group is not a party in the ongoing or threatened litigation which

involves the card schemes Visa and Mastercard (as described below). However, the Group is a member/licensee of Visa and Mastercard and

other card schemes. The litigation in question is as follows:

•Litigation brought by or on behalf of retailers against both Visa and Mastercard in the English Courts, in which retailers are seeking damages

on grounds that Visa and Mastercard’s MIFs breached competition law (this includes a judgment of the Supreme Court in June 2020

upholding the Court of Appeal’s finding in 2018 that certain historic interchange arrangements of Mastercard and Visa infringed competition

law)

•Litigation brought on behalf of UK consumers in the English Courts against Mastercard

Any impact on the Group of the litigation against Visa and Mastercard remains uncertain at this time, such that it is not practicable for the

Group to provide an estimate of any potential financial effect. Insofar as Visa is required to pay damages to retailers for interchange fees set

prior to June 2016, contractual arrangements to allocate liability have been agreed between various UK banks (including the Lloyds Banking

Group) and Visa Inc, as part of Visa Inc’s acquisition of Visa Europe in 2016. These arrangements cap the maximum amount of liability to which

the Lloyds Banking Group may be subject and this cap is set at the cash consideration received by the Lloyds Banking Group for the sale of its

stake in Visa Europe to Visa Inc in 2016. In 2016, the Group received Visa preference shares as part of the consideration for the sale of its shares

in Visa Europe. A release assessment is carried out by Visa on certain anniversaries of the sale (in line with the Visa Europe sale documentation)

and as a result, some Visa preference shares may be converted into Visa Inc Class A common stock. Any such release and any subsequent sale

of Visa common stock does not impact the contingent liability.

LIBOR and other trading rates

Certain Lloyds Banking Group companies, together with other panel banks, have been named as defendants in ongoing private lawsuits,

including purported class action suits, in the US in connection with their roles as panel banks contributing to the setting of US Dollar, Japanese

Yen and Sterling London Interbank Offered Rate and the Australian BBSW reference rate.

Certain Lloyds Banking Group companies are also named as defendants in (i) UK-based claims; and (ii) two Dutch class actions, raising LIBOR

manipulation allegations. A number of claims against the Lloyds Banking Group in the UK relating to the alleged mis-sale of interest rate

hedging products also include allegations of LIBOR manipulation.

It is currently not possible to predict the scope and ultimate outcome on the Lloyds Banking Group of any private lawsuits or any related

challenges to the interpretation or validity of any of the Lloyds Banking Group’s contractual arrangements, including their timing and scale. As

such, it is not practicable to provide an estimate of any potential financial effect.

Tax authorities

The Lloyds Banking Group has an open matter in relation to a claim for group relief of losses incurred in its former Irish banking subsidiary,

which ceased trading on 31 December 2010. In 2013, HMRC informed the Lloyds Banking Group that its interpretation of the UK rules means

that the group relief is not available. In 2020, HMRC concluded their enquiry into the matter and issued a closure notice. The Lloyds Banking

Group’s interpretation of the UK rules has not changed and hence it has appealed to the First Tier Tax Tribunal, with a hearing expected in

2023. If the final determination of the matter by the judicial process is that HMRC’s position is correct, management estimate that this would

result in an increase in current tax liabilities of approximately £760 million (including interest) and a reduction in the Group's deferred tax asset

of approximately £295 million. The Lloyds Banking Group, having taken appropriate advice, does not consider that this is a case where

additional tax will ultimately fall due.

There are a number of other open matters on which the Group is in discussions with HMRC (including the tax treatment of certain costs arising

from the divestment of TSB Banking Group plc), none of which is expected to have a material impact on the financial position of the Group.

Motor commission review

Following the FCA’s Motor Market review, the Group has received a number of complaints, some of which are with the Financial Ombudsman

Service, in respect of commission arrangements. It is currently not possible to predict the ultimate outcome of the complaints, including the

financial impact or the scope or nature of remediation requirements, if any, or any related challenges to the interpretation or validity of any of

the Group’s historical motor commission arrangements.

Other legal actions and regulatory matters

In addition, in the course of its business the Group is subject to other complaints and threatened or actual legal proceedings (including class or

group action claims) brought by or on behalf of current or former employees, customers, investors or other third parties, as well as legal and

regulatory reviews, challenges, investigations and enforcement actions, which could relate to a number of issues, including financial,

environmental or other regulatory matters, both in the UK and overseas. Where material, such matters are periodically reassessed, with the

assistance of external professional advisers where appropriate, to determine the likelihood of the Group incurring a liability. In those instances

where it is concluded that it is more likely than not that a payment will be made, a provision is established based on management’s best

estimate of the amount required at the relevant balance sheet date. In some cases it will not be possible to form a view, for example because

the facts are unclear or because further time is needed to assess properly the merits of the case, and no provisions are held in relation to such

matters. In these circumstances, specific disclosure in relation to a contingent liability will be made where material. However, the Group does

not currently expect the final outcome of any such case to have a material adverse effect on its financial position, operations or cash flows.

Where there is a contingent liability related to an existing provision the relevant disclosures are included within note 29.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 39: Contingent liabilities, commitments and guarantees

144

Contingent liabilities, commitments and guarantees arising from the banking business


	2022 £m	2021 £m
Contingent liabilities
Acceptances and endorsements	58	21
Other:
Other items serving as direct credit substitutes	781	433
Performance bonds, including letters of credit, and other transaction-related contingencies	2,061	1,886
	2,842	2,319
Total contingent liabilities	2,900	2,340

The contingent liabilities of the Group arise in the normal course of banking business and it is not practicable to quantify their future financial

effect.


	2022 £m	2021 £m
Commitments and guarantees
Forward asset purchases and forward deposits placed	39	60
Undrawn formal standby facilities, credit lines and other commitments to lend:
Less than 1 year original maturity:
Mortgage offers made	17,068	17,757
Other commitments and guarantees	74,242	79,830
	91,310	97,587
1 year or over original maturity	36,020	30,037
Total commitments and guarantees	127,369	127,684

Of the amounts shown above in respect of undrawn formal standby facilities, credit lines and other commitments to lend, £57,782 million (2021:

£55,690 million) was irrevocable.

Capital commitments

Capital expenditure contracted but not provided for at 31 December 2022 amounted to £1,663 million (2021: £1,034 million). Of this amount,

£1,663 million (2021: £1,034 million) related to assets to be leased to customers under operating leases. The Group’s management is confident

that future net revenues and funding will be sufficient to cover these commitments.

Note 40: Structured entities

The Group’s interests in structured entities are consolidated. Details of the Group’s interests in these structured entities are set out in note 25

for securitisations and covered bond vehicles, note 27 for structured entities associated with the Group’s pension schemes, and below.

Asset-backed conduits

In addition to the structured entities discussed in note 25, which are used for securitisation and covered bond programmes, the Group sponsors

an active asset-backed conduit, Cancara, which invests in client receivables and debt securities. The total consolidated exposure of Cancara at

31 December 2022 was £2,357 million (2021: £1,745 million), comprising £1,464 million of loans and advances (2021: £889 million), £850 million of

debt securities (2021: £780 million) and £43 million of financial assets at fair value through profit or loss (2021: £76 million).

All lending assets and debt securities held by the Group in Cancara are restricted in use, as they are held by the collateral agent for the benefit

of the commercial paper investors and the liquidity providers only. The Group provides liquidity facilities to Cancara under terms that are usual

and customary for standard lending activities in the normal course of the Group’s banking activities. During 2022 there have continued to be

planned drawdowns on certain liquidity facilities for balance sheet management purposes, supporting the programme to provide funding

alongside the proceeds of the asset-backed commercial paper issuance. The Group could be asked to provide support under the contractual

terms of these arrangements including, for example, if Cancara experienced a shortfall in external funding, which may occur in the event of

market disruption.

The external assets in Cancara are consolidated in the Group’s financial statements.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 39: Contingent liabilities, commitments and guarantees (continued)

145

(1)Measurement basis of financial assets and liabilities

The accounting policies in note 2 describe how different classes of financial instruments are measured, and how income and expenses,

including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the financial assets and liabilities by

category and by balance sheet heading.

Derivatives

designated

as hedging

instruments

£m

Mandatorily held at

fair value through

profit or loss

Designated

at fair value

through profit

or loss

£m

At fair value

through other

comprehensive

income

£m

Held at

amortised

cost

£m

Total

£m

Held for

trading

£m

Other

£m

At 31 December 2022

Financial assets

Cash and balances at central banks

–

72,005

Items in the course of collection from

banks

–

229

Financial assets at fair value through

profit or loss

–

1,371

–

1,371

Derivative financial instruments

3,838

–

3,857

Loans and advances to banks

–

8,363

Loans and advances to customers

–

435,627

Reverse repurchase agreements

–

39,259

Debt securities

–

7,331

Due from fellow Lloyds Banking Group

undertakings

–

816

Financial assets at amortised cost

–

491,396

Financial assets at fair value through

other comprehensive income

–

22,846

–

22,846

Total financial assets

3,838

1,371

–

22,846

563,630

591,704

Financial liabilities

Deposits from banks

–

4,658

Customer deposits

–

446,172

Repurchase agreements at amortised

cost

–

48,590

Due to fellow Lloyds Banking Group

undertakings

–

2,539

Items in course of transmission to banks

–

357

Financial liabilities at fair value through

profit or loss

–

5,159

–

5,159

Derivative financial instruments

506

5,385

–

5,891

Notes in circulation

–

1,280

Debt securities in issue

–

49,056

Other

–

1,260

Subordinated liabilities

–

6,593

Total financial liabilities

506

5,385

–

5,159

–

560,505

571,555

Lloyds Bank plc

Notes to the consolidated financial statements

Note 41: Financial instruments

146

Derivatives

designated

as hedging

instruments

£m

Mandatorily held at

fair value through

profit or loss

Designated

at fair value

through profit

or loss

£m

At fair value

through other

comprehensive

income

£m

Held at

amortised

cost

£m

Total

£m

Held for

trading

£m

Other

£m

At 31 December 2021

Financial assets

Cash and balances at central banks

–

54,279

Items in the course of collection from

banks

–

147

Financial assets at fair value through

profit or loss

–

1,798

–

1,798

Derivative financial instruments

5,456

–

5,511

Loans and advances to banks

–

4,478

Loans and advances to customers

–

430,829

Reverse repurchase agreements

–

49,708

Debt securities

–

4,562

Due from fellow Lloyds Banking Group

undertakings

–

739

Financial assets at amortised cost

–

490,316

Financial assets at fair value through

other comprehensive income

–

27,786

–

27,786

Total financial assets

5,456

1,798

–

27,786

544,742

579,837

Financial liabilities

Deposits from banks

–

3,363

Customer deposits

–

449,373

Repurchase agreements at amortised

cost

–

30,106

Due to fellow Lloyds Banking Group

undertakings

–

1,490

Items in course of transmission to banks

–

308

Financial liabilities at fair value through

profit or loss

–

6,537

–

6,537

Derivative financial instruments

315

4,328

–

4,643

Notes in circulation

–

1,321

Debt securities in issue

–

48,724

Other

–

1,411

Subordinated liabilities

–

8,658

Total financial liabilities

315

4,328

–

6,537

–

544,754

555,934

Lloyds Bank plc

Notes to the consolidated financial statements

Note 41: Financial instruments (continued)

147

(2)Fair value measurement

Fair value is the price that would be received on sale of an asset or paid to transfer a liability in an orderly transaction between market

participants at the measurement date. It is a measure as at a specific date and may be significantly different from the amount which will actually

be paid or received on maturity or settlement date.

Wherever possible, fair values have been calculated using unadjusted quoted market prices in active markets for identical instruments to those

held by the Group. Where quoted market prices are not available, or are unreliable because of poor liquidity, fair values have been determined

using valuation techniques which, to the extent possible, use market observable inputs, but in some cases use non-market observable inputs.

Valuation techniques used include discounted cash flow analysis and pricing models and, where appropriate, comparison to instruments with

characteristics similar to those of the instruments held by the Group. The Group measures valuation adjustments for its derivative exposures on

the same basis as the derivatives are managed.

The carrying amount of the following financial instruments is a reasonable approximation of fair value: cash and balances at central banks, items

in the course of collection from banks, items in course of transmission to banks and notes in circulation.

Because a variety of estimation techniques are employed and significant estimates made, comparisons of fair values between financial

institutions may not be meaningful. Readers of these financial statements are thus advised to use caution when using this data to evaluate the

Group’s financial position.

Fair value information is not provided for items that are not financial instruments or for other assets and liabilities which are not carried at fair

value in the Group’s consolidated balance sheet. These items include intangible assets, such as brands and acquired credit card relationships;

premises and equipment; and shareholders’ equity. These items are material and accordingly the Group believes that any fair value information

presented would not represent the underlying value of the Group.

Valuation control framework

The key elements of the control framework for the valuation of financial instruments include model validation, product implementation review

and independent price verification. These functions are carried out by appropriately skilled risk and finance teams, independent of the business

area responsible for the products.

Model validation covers both qualitative and quantitative elements relating to new models. In respect of new products, a product

implementation review is conducted pre and post-trading. Pre-trade testing ensures that the new model is integrated into the Group’s systems

and that the profit and loss and risk reporting are consistent throughout the trade lifecycle. Post-trade testing examines the explanatory power

of the implemented model, actively monitoring model parameters and comparing in-house pricing to external sources. Independent price

verification procedures cover financial instruments carried at fair value. The frequency of the review is matched to the availability of independent

data, monthly being the minimum. Valuation differences in breach of established thresholds are escalated to senior management. The results

from independent pricing and valuation reserves are reviewed monthly by senior management.

Formal committees, consisting of senior risk, finance and business management, meet at least quarterly to discuss and approve valuations in

more judgemental areas, in particular for unquoted equities, structured credit, over-the-counter options and the credit valuation adjustment

(CVA), funding valuation adjustment (FVA) and other valuation adjustments.

Valuation of financial assets and liabilities

Assets and liabilities carried at fair value or for which fair values are disclosed have been classified into three levels according to the quality and

reliability of information used to determine the fair values.

Level 1

Level 1 fair value measurements are those derived from unadjusted quoted prices in active markets for identical assets or liabilities. Products

classified as level 1 predominantly comprise listed equity shares, treasury bills and other government securities.

Level 2

Level 2 valuations are those where quoted market prices are not available, for example where the instrument is traded in a market that is not

considered to be active or valuation techniques are used to determine fair value and where these techniques use inputs that are based

significantly on observable market data. Examples of such financial instruments include most over-the-counter derivatives, financial institution

issued securities, certificates of deposit and certain asset-backed securities.

Level 3

Level 3 portfolios are those where at least one input which could have a significant effect on the instrument’s valuation is not based on

observable market data. Such instruments would include any unlisted equity investments which are valued using various valuation techniques

that require significant management judgement in determining appropriate assumptions, including earnings multiples and estimated future

cash flows. Certain of the Group’s asset-backed securities and derivatives, principally where there is no trading activity in such securities, are

also classified as level 3.

Transfers out of the level 3 portfolio arise when inputs that could have a significant impact on the instrument’s valuation become market

observable after previously having been non-market observable. In the case of asset-backed securities this can arise if more than one consistent

independent source of data becomes available. Conversely, transfers into the portfolio arise when consistent sources of data cease to be

available.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 41: Financial instruments (continued)

148

(3)Financial assets and liabilities carried at fair value

(A)Financial assets, excluding derivatives

Valuation hierarchy

At 31 December 2022, the Group’s financial assets carried at fair value, excluding derivatives, totalled £24,217 million (2021: £29,584 million). The

table below analyses these financial assets by balance sheet classification, asset type and valuation methodology (level 1, 2 or 3, as described on

page 148). The fair value measurement approach is recurring in nature. There were no significant transfers between level 1 and 2 during the

year.


	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
At 31 December 2022
Financial assets at fair value through profit or loss
Loans and advances to customers	–	841	291	1,132
Equity shares	235	–	4	239
Total financial assets at fair value through profit or loss	235	841	295	1,371
Financial assets at fair value through other comprehensive income
Debt securities:
Government securities	10,839	357	–	11,196
Asset-backed securities	–	87	51	138
Corporate and other debt securities	531	10,980	–	11,511
	11,370	11,424	51	22,845
Equity shares	–	–	1	1
Total financial assets at fair value through other comprehensive income	11,370	11,424	52	22,846
Total financial assets carried at fair value, excluding derivatives	11,605	12,265	347	24,217
At 31 December 2021
Financial assets at fair value through profit or loss
Loans and advances to customers	–	1,164	395	1,559
Equity shares	235	–	4	239
Total financial assets at fair value through profit or loss	235	1,164	399	1,798
Financial assets at fair value through other comprehensive income
Debt securities:
Government securities	14,599	–	–	14,599
Asset-backed securities	–	–	55	55
Corporate and other debt securities	640	12,491	–	13,131
	15,239	12,491	55	27,785
Equity shares	–	–	1	1
Total financial assets at fair value through other comprehensive income	15,239	12,491	56	27,786
Total financial assets carried at fair value, excluding derivatives	15,474	13,655	455	29,584

Lloyds Bank plc

Notes to the consolidated financial statements

Note 41: Financial instruments (continued)

149

Movements in level 3 portfolio

The table below analyses movements in level 3 financial assets, excluding derivatives, carried at fair value (recurring measurement).


	2022			2021
	Financial assets at fair value through profit or loss £m	Financial assets at fair value through other comprehensive income £m	Total level 3 assets carried at fair value, excluding derivatives (recurring basis) £m	Financial assets at fair value through profit or loss £m	Financial assets at fair value through other comprehensive income £m	Total level 3 assets carried at fair value, excluding derivatives (recurring basis) £m
At 1 January	399	56	455	1,511	65	1,576
Exchange and other adjustments	–	3	3	2	(2)	–
Losses recognised in the income statement within other income	(20)	(3)	(23)	(72)	–	(72)
Losses recognised in other comprehensive income within the revaluation reserve in respect of financial assets at fair value through other comprehensive income	–	–	–	–	(2)	(2)
Purchases/increases to customer loans	3	–	3	397	–	397
Sales/repayments of customer loans	(87)	(4)	(91)	(794)	(5)	(799)
Transfers into the level 3 portfolio	–	–	–	4	–	4
Transfers out of the level 3 portfolio	–	–	–	(649)	–	(649)
At 31 December	295	52	347	399	56	455
Losses recognised in the income statement, within other income, relating to the change in fair value of those assets held at 31 December	(19)	–	(19)	(60)	–	(60)

Valuation methodology for financial assets, excluding derivatives

Loans and advances to customers and banks

The fair value of these assets is determined using discounted cash flow techniques. The discount rates are derived from market observable

interest rates, a risk margin that reflects loan credit ratings and an incremental illiquidity premium based on historical spreads at origination on

similar loans.

Debt securities

Debt securities measured at fair value and classified as level 2 are valued by discounting expected cash flows using an observable credit spread

applicable to the particular instrument.

Where there is limited trading activity in debt securities, the Group uses valuation models, consensus pricing information from third-party

pricing services and broker or lead manager quotes to determine an appropriate valuation. Debt securities are classified as level 3 if there is a

significant valuation input that cannot be corroborated through market sources or where there are materially inconsistent values for an input.

Asset classes classified as level 3 mainly comprise certain collateralised loan obligations and collateralised debt obligations.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 41: Financial instruments (continued)

150

(B)Financial liabilities, excluding derivatives

Valuation hierarchy

At 31 December 2022, the Group’s financial liabilities carried at fair value, excluding derivatives, comprised its financial liabilities at fair value

through profit or loss and totalled £5,159 million (2021: £6,537 million). The table below analyses these financial liabilities by balance sheet

classification and valuation methodology (level 1, 2 or 3, as described on page 148). The fair value measurement approach is recurring in nature.

There were no significant transfers between level 1 and 2 during the year.


	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
At 31 December 2022
Financial liabilities at fair value through profit or loss
Debt securities in issue designated at fair value through profit or loss	–	5,133	26	5,159
Total financial liabilities carried at fair value, excluding derivatives	–	5,133	26	5,159
At 31 December 2021
Financial liabilities at fair value through profit or loss
Debt securities in issue designated at fair value through profit or loss	–	6,504	33	6,537
Total financial liabilities carried at fair value, excluding derivatives	–	6,504	33	6,537

Movements in level 3 portfolio

The table below analyses movements in the level 3 financial liabilities portfolio, excluding derivatives.


	2022 £m	2021 £m
At 1 January	33	45
Gains recognised in the income statement within other income	(3)	(5)
Redemptions	(4)	(7)
At 31 December	26	33
Gains recognised in the income statement, within other income, relating to the change in fair value of those liabilities held at 31 December	(3)	(4)

Valuation methodology for financial liabilities, excluding derivatives

Liabilities held at fair value through profit or loss

These principally comprise debt securities in issue which are classified as level 2 and their fair value is determined using techniques whose

inputs are based on observable market data. The carrying amount of the securities is adjusted to reflect the effect of changes in own credit

spreads and the resulting gain or loss is recognised in other comprehensive income.

In the year ended 31 December 2022, the own credit adjustment arising from the fair valuation of £5,159 million (2021: £6,537 million) of the

Group’s debt securities in issue designated at fair value through profit or loss resulted in a gain of £519 million (2021: loss of £86 million), before

tax, recognised in other comprehensive income.

Trading liabilities in respect of securities sold under repurchase agreements

The fair value of these liabilities is determined using discounted cash flow techniques. The discount rates are derived from observable

repurchase agreement rate curves specific to the type of security sold under the repurchase agreement.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 41: Financial instruments (continued)

151

(C)Derivatives

Valuation hierarchy

All of the Group’s derivative assets and liabilities are carried at fair value. At 31 December 2022, such assets totalled £3,857 million (2021:

£5,511 million) and liabilities totalled £5,891 million (2021: £4,643 million). The table below analyses these derivative balances by valuation

methodology (level 1, 2 or 3, as described on page 148). The fair value measurement approach is recurring in nature. There were no significant

transfers between level 1 and level 2 during the year.


	2022				2021
	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Derivative assets	–	3,857	–	3,857	–	5,495	16	5,511
Derivative liabilities	–	(5,728)	(163)	(5,891)	–	(4,436)	(207)	(4,643)

Movements in level 3 portfolio

The table below analyses movements in level 3 derivative assets and liabilities carried at fair value.


	2022		2021
	Derivative assets £m	Derivative liabilities £m	Derivative assets £m	Derivative liabilities £m
At 1 January	16	(207)	14	(319)
Gains recognised in the income statement within other income	1	27	2	93
Purchases (additions)	–	(9)	–	–
(Sales) redemptions	–	25	–	19
Transfers out of the level 3 portfolio	(17)	1	–	–
At 31 December	–	(163)	16	(207)
Gains recognised in the income statement, within other income, relating to the change in fair value of those assets or liabilities held at 31 December	–	26	2	69

Valuation methodology for derivatives

Where the Group’s derivative assets and liabilities are not traded on an exchange, they are valued using valuation techniques, including

discounted cash flow and options pricing models, as appropriate. The types of derivatives classified as level 2 and the valuation techniques used

include:

•Interest rate swaps which are valued using discounted cash flow models; the most significant inputs into those models are interest rate yield

curves which are developed from publicly quoted rates

•Foreign exchange derivatives that do not contain options which are priced using rates available from publicly quoted sources

•Credit derivatives which are valued using standard models with observable inputs, except for the items classified as level 3, which are valued

using publicly available yield and credit default swap (CDS) curves

•Less complex interest rate and foreign exchange option products which are valued using volatility surfaces developed from publicly available

interest rate cap, interest rate swaption and other option volatilities; option volatility skew information is derived from a market standard

consensus pricing service. For more complex option products, the Group calibrates its models using observable at-the-money data; where

necessary, the Group adjusts for out-of-the-money positions using a market standard consensus pricing service

Complex interest rate and foreign exchange products where inputs to the valuation are significant, material and unobservable are classified as

level 3.

Where credit protection, usually in the form of credit default swaps, has been purchased or written on asset-backed securities, the security is

referred to as a negative basis asset-backed security and the resulting derivative assets or liabilities have been classified as either level 2 or level

3 according to the classification of the underlying asset-backed security.

Certain unobservable inputs used to calculate CVA, FVA, and own credit adjustments, are not significant in determining the classification of the

derivative and debt instruments. Consequently, these inputs do not form part of the level 3 sensitivities presented.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 41: Financial instruments (continued)

152

Derivative valuation adjustments

Derivative financial instruments which are carried in the balance sheet at fair value are adjusted where appropriate to reflect credit risk, market

liquidity and other risks.

(i)Uncollateralised derivative valuation adjustments

The following table summarises the movement on this valuation adjustment account during 2021 and 2022:


	2022 £m	2021 £m
At 1 January	154	242
Income statement credit	(104)	(88)
At 31 December	50	154

Represented by:


	2022 £m	2021 £m
Credit Valuation Adjustment	48	112
Debit Valuation Adjustment	(8)	(4)
Funding Valuation Adjustment	10	46
	50	154

Credit and Debit Valuation Adjustments (CVA and DVA) are applied to the Group’s over-the-counter derivative exposures with counterparties

that are not subject to strong interbank collateral arrangements. These exposures largely relate to the provision of risk management solutions

for corporate customers within the Commercial Banking division.

A CVA is taken where the Group has a positive future uncollateralised exposure (asset). A DVA is taken where the Group has a negative future

uncollateralised exposure (liability). These adjustments reflect interest rates and expectations of counterparty creditworthiness and the Group’s

own credit spread respectively.

The CVA is sensitive to:

•The current size of the mark-to-market position on the uncollateralised asset

•Expectations of future market volatility of the underlying asset

•Expectations of counterparty creditworthiness

Market Credit Default Swap (CDS) spreads are used to develop the probability of default for quoted counterparties. For unquoted

counterparties, internal credit ratings and market sector CDS curves and recovery rates are used. The loss given default (LGD) is based on

market recovery rates and internal credit assessments.

The combination of a one-notch deterioration in the credit rating of derivative counterparties and a ten per cent increase in LGD increases the

CVA by £12 million. Current market value is used to estimate the projected exposure for products not supported by the model, which are

principally complex interest rate options that are traded in very low volumes. For these, the CVA is calculated on an add-on basis (although no

such adjustment was required at 31 December 2022).

The DVA is sensitive to:

•The current size of the mark-to-market position on the uncollateralised liability

•Expectations of future market volatility of the underlying liability

•The Group’s own CDS spread

A one per cent rise in the CDS spread would lead to an increase in the DVA of £13 million.

The risk exposures that are used for the CVA and DVA calculations are strongly influenced by interest rates. Due to the nature of the Group’s

business the CVA/DVA exposures tend to be on average the same way around such that the valuation adjustments fall when interest rates rise.

A one per cent rise in interest rates would lead to a £21 million fall in the overall valuation adjustment to £19 million. The CVA model used by

the Group does not assume any correlation between the level of interest rates and default rates.

The Group has also recognised a Funding Valuation Adjustment to adjust for the net cost of funding uncollateralised derivative positions. This

adjustment is calculated on the expected future exposure discounted at a suitable cost of funds. A ten basis points increase in the cost of funds

will increase the funding valuation adjustment by £1 million.

(ii)Market liquidity

The Group includes mid to bid-offer valuation adjustments against the expected cost of closing out the net market risk in the Group’s trading

positions within a time frame that is consistent with historical trading activity and spreads that the trading desks have accessed historically

during the ordinary course of business in normal market conditions.

At 31 December 2022, the Group’s derivative trading business held mid to bid-offer valuation adjustments of £6 million (2021: £12 million).

Lloyds Bank plc

Notes to the consolidated financial statements

Note 41: Financial instruments (continued)

153

(D)Sensitivity of level 3 valuations


			2022				2021
				Effect of reasonably possible alternative assumptions1				Effect of reasonably possible alternative assumptions1
	Valuation techniques	Significant unobservable inputs2	Carrying value £m	Favourable changes £m	Unfavourable changes £m		Carrying value £m	Favourable changes £m	Unfavourable changes £m
Financial assets at fair value through profit or loss
Loans and advances to customers	Discounted cash flows	Interest rate spreads (+/-50bps)3	291	25		(23)	395	32	(30)
Equity investments		n/a	4	2		(2)	4	2	(2)
			295				399
Financial assets at fair value through other comprehensive income
Asset-backed securities	Lead manager or broker quote/ consensus pricing	n/a	51	4		(4)	55	4	(4)
Equity investments		n/a	1	–		–	1	–	–
			52				56
Derivative financial assets
Interest rate derivatives	Option pricing model	Interest rate volatility (n/a)4	–	–		–	16	–	–
Level 3 financial assets carried at fair value			347				471
Financial liabilities at fair value through profit or loss
Securitisation notes	Discounted cash flows	Interest rate spreads (+/-50bps)5	26	1		(1)	33	1	(1)
Derivative financial liabilities
Interest rate derivatives	Option pricing model	Interest rate volatility (17%/105%)6	13	–		–	31	–	–
Shared appreciation rights	Market values – property valuation	HPI (+/-1%)7	150	16		(16)	176	19	(18)
			163				207
Level 3 financial liabilities carried at fair value			189				240

1Where the exposure to an unobservable input is managed on a net basis, only the net impact is shown in the table.

2Ranges are shown where appropriate and represent the highest and lowest inputs used in the level 3 valuations.

32021: +/-50bps

42021: 31%/59%

52021: +/-50bps

62021: 13%/168%

72021: +/-1%

Unobservable inputs

Significant unobservable inputs affecting the valuation of debt securities and derivatives are as follows:

•Interest rates and inflation rates are referenced in some derivatives where the payoff that the holder of the derivative receives depends on the

behaviour of those underlying references through time

•Credit spreads represent the premium above the benchmark reference instrument required to compensate for lower credit quality; higher

spreads lead to a lower fair value

•Volatility parameters represent key attributes of option behaviour; higher volatilities typically denote a wider range of possible outcomes

Reasonably possible alternative assumptions

Valuation techniques applied to many of the Group’s level 3 instruments often involve the use of two or more inputs whose relationship is

interdependent. The calculation of the effect of reasonably possible alternative assumptions included in the table above reflects such

relationships.

Debt securities

Reasonably possible alternative assumptions have been determined in respect of the Group’s structured credit investments by flexing credit

spreads.

Derivatives

Reasonably possible alternative assumptions have been determined in respect of swaptions in the Group’s derivative portfolios which are priced

using industry standard option pricing models. Such models require interest rate volatilities which may be unobservable at longer maturities. To

derive reasonably possible alternative valuations these volatilities have been flexed within a range.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 41: Financial instruments (continued)

154

(4)Financial assets and liabilities carried at amortised cost

(A)Financial assets

Valuation hierarchy

The table below analyses the fair values of those financial assets of the Group which are carried at amortised cost by valuation methodology

(level 1, 2 or 3, as described on page 148). Financial assets carried at amortised cost are mainly classified as level 3 due to significant

unobservable inputs used in the valuation models. Where inputs are observable, debt securities are classified as level 1 or 2.


	Carrying value £m	Fair value £m	Valuation hierarchy
	Carrying value £m	Fair value £m	Level 1 £m	Level 2 £m	Level 3 £m
At 31 December 2022
Loans and advances to banks	8,363	8,363	–	–	8,363
Loans and advances to customers	435,627	430,980	–	–	430,980
Reverse repurchase agreements	39,259	39,259	–	39,259	–
Debt securities	7,331	7,334	167	7,167	–
Due from fellow Lloyds Banking Group undertakings	816	816	–	–	816
Financial assets at amortised cost	491,396	486,752	167	46,426	440,159
At 31 December 2021
Loans and advances to banks	4,478	4,478	–	–	4,478
Loans and advances to customers	430,829	434,280	–	–	434,280
Reverse repurchase agreements	49,708	49,708	–	49,708	–
Debt securities	4,562	4,615	–	4,615	–
Due from fellow Lloyds Banking Group undertakings	739	739	–	–	739
Financial assets at amortised cost	490,316	493,820	–	54,323	439,497

Valuation methodology

Loans and advances to banks

The carrying value of short-dated loans and advances to banks is assumed to be their fair value. The fair value of loans and advances to banks is

estimated by discounting the anticipated cash flows at a market discount rate adjusted for the credit spread of the obligor or, where not

observable, the credit spread of borrowers of similar credit quality.

Loans and advances to customers

The Group provides loans and advances to commercial, corporate and personal customers at both fixed and variable rates. Due to their short-

term nature, the carrying value of variable rate loans and balances relating to lease financing is assumed to be their fair value.

To determine the fair value of loans and advances to customers, loans are segregated into portfolios of similar characteristics. A number of

techniques are used to estimate the fair value of fixed rate lending; these take account of expected credit losses based on historic trends,

prevailing market interest rates and expected future cash flows. For retail exposures, fair value is usually estimated by discounting anticipated

cash flows (including interest at contractual rates) at market rates for similar loans offered by the Group and other financial institutions. Certain

loans secured on residential properties are made at a fixed rate for a limited period, typically two to five years, after which the loans revert to the

relevant variable rate. The fair value of such loans is estimated by reference to market rates for similar loans of maturity equal to the remaining

fixed interest rate period. The fair value of commercial loans is estimated by discounting anticipated cash flows at a rate which reflects the

effects of interest rate changes, adjusted for changes in credit risk.

Reverse repurchase agreements

The carrying amount is deemed a reasonable approximation of fair value given the short-term nature of these instruments.

Debt securities

The fair values of debt securities are determined predominantly from lead manager quotes and, where these are not available, by alternative

techniques including reference to credit spreads on similar assets with the same obligor, market standard consensus pricing services, broker

quotes and other research data.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 41: Financial instruments (continued)

155

(B)Financial liabilities

Valuation hierarchy

The table below analyses the fair values of those financial liabilities of the Group which are carried at amortised cost by valuation methodology

(level 1, 2 or 3, as described on page 148).


	Carrying value £m	Fair value £m	Valuation hierarchy
	Carrying value £m	Fair value £m	Level 1 £m	Level 2 £m	Level 3 £m
At 31 December 2022
Deposits from banks	4,658	4,660	–	4,660	–
Customer deposits	446,172	445,916	–	445,916	–
Repurchase agreements at amortised cost	48,590	48,590	–	48,590	–
Due to fellow Lloyds Banking Group undertakings	2,539	2,539	–	2,539	–
Debt securities in issue	49,056	48,818	–	48,818	–
Subordinated liabilities	6,593	6,760	–	6,760	–
At 31 December 2021
Deposits from banks	3,363	3,364	–	3,364	–
Customer deposits	449,373	449,455	–	449,455	–
Repurchase agreements at amortised cost	30,106	30,106	–	30,106	–
Due to fellow Lloyds Banking Group undertakings	1,490	1,490	–	1,490	–
Debt securities in issue	48,724	50,683	–	50,683	–
Subordinated liabilities	8,658	9,363	–	9,363	–

Valuation methodology

Deposits from banks and customer deposits

The fair value of bank and customer deposits repayable on demand is assumed to be equal to their carrying value.

The fair value for all other deposits is estimated using discounted cash flows applying either market rates, where applicable, or current rates for

deposits of similar remaining maturities.

Repurchase agreements

The carrying amount is deemed a reasonable approximation of fair value given the short-term nature of these instruments.

Debt securities in issue

The fair value of short-term debt securities in issue is approximately equal to their carrying value. Fair value for other debt securities in issue is

calculated based on quoted market prices where available. Where quoted market prices are not available, fair value is estimated using

discounted cash flow techniques at a rate which reflects market rates of interest and the Group’s own credit spread.

Subordinated liabilities

The fair value of subordinated liabilities is determined by reference to quoted market prices where available or by reference to quoted market

prices of similar instruments. Subordinated liabilities are classified as level 2, since the inputs used to determine their fair value are largely

observable.

(5)Reclassifications of financial assets

There have been no reclassifications of financial assets in 2021 or 2022.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 41: Financial instruments (continued)

156

There were no significant transferred financial assets which were derecognised in their entirety, but with ongoing exposure. Details of

transferred financial assets that continue to be recognised in full are as follows.

The Group enters into repurchase and securities lending transactions in the normal course of business that do not result in derecognition of the

financial assets as substantially all of the risks and rewards, including credit, interest rate, prepayment and other price risks are retained by the

Group. In all cases, the transferee has the right to sell or repledge the assets concerned.

As set out in note 25, included within financial assets measured at amortised cost are loans transferred under the Group’s securitisation and

covered bond programmes. As the Group retains all or a majority of the risks and rewards associated with these loans, including credit, interest

rate, prepayment and liquidity risk, they remain on the Group’s balance sheet. Assets transferred into the Group’s securitisation and covered

bond programmes are not available to be used by the Group while the assets are within the programmes. However, the Group retains the right

to remove loans from the covered bond programmes where they are in excess of the programme’s requirements. In addition, where the Group

has retained some of the notes issued by securitisation and covered bond programmes, the Group has the ability to sell or pledge these

retained notes.

The table below sets out the carrying values of the transferred assets and the associated liabilities. For repurchase and securities lending

transactions, the associated liabilities represent the Group’s obligation to repurchase the transferred assets. For securitisation programmes, the

associated liabilities represent the external notes in issue (note 25). The liabilities shown in the table below have recourse to the transferred

assets.


	2022		2021
	Carrying value of transferred assets £m	Carrying value of associated liabilities £m	Carrying value of transferred assets £m	Carrying value of associated liabilities £m
Repurchase and securities lending transactions
Financial assets at fair value through other comprehensive income	11,801	6,571	7,706	5,039
Securitisation programmes
Financial assets at amortised cost:
Loans and advances to customers1	28,981	2,806	30,965	3,705

1The carrying value of associated liabilities excludes securitisation notes held by the Group of £21,887 million (31 December 2021: £23,521 million).

Lloyds Bank plc

Notes to the consolidated financial statements

Note 42: Transfers of financial assets

157

The following information relates to financial assets and liabilities which have been offset in the balance sheet and those which have not been

offset but for which the Group has enforceable master netting agreements or collateral arrangements in place with counterparties.


				Related amounts where set off in the balance sheet not permitted1		Potential net amounts if offset of related amounts permitted £m
	Gross amounts of assets and liabilities2 £m	Amount offset in the balance sheet3 £m	Net amounts presented in the balance sheet £m	Cash collateral received/ pledged £m	Non-cash collateral received/ pledged £m
At 31 December 2022
Financial assets
Financial assets at fair value through profit or loss	1,371	–	1,371	–	–	1,371
Derivative financial instruments	55,541	(51,684)	3,857	(767)	(2,983)	107
Financial assets at amortised cost:
Loans and advances to banks	8,363	–	8,363	(1,147)	–	7,216
Loans and advances to customers	438,957	(3,330)	435,627	(308)	(2,171)	433,148
Reverse repurchase agreements	49,694	(10,435)	39,259	–	(39,259)	–
Debt securities	7,331	–	7,331	–	–	7,331
	504,345	(13,765)	490,580	(1,455)	(41,430)	447,695
Financial assets at fair value through other comprehensive income	22,846	–	22,846	–	(6,393)	16,453
Financial liabilities
Deposits from banks	4,658	–	4,658	(626)	–	4,032
Customer deposits	447,096	(924)	446,172	(141)	(2,171)	443,860
Repurchase agreements at amortised cost	59,025	(10,435)	48,590	–	(48,590)	–
Financial liabilities at fair value through profit or loss	5,159	–	5,159	–	–	5,159
Derivative financial instruments	59,981	(54,090)	5,891	(1,455)	(3,988)	448


				Related amounts where set off in the balance sheet not permitted1		Potential net amounts if offset of related amounts permitted £m
	Gross amounts of assets and liabilities2 £m	Amount offset in the balance sheet3 £m	Net amounts presented in the balance sheet £m	Cash collateral received/ pledged £m	Non-cash collateral received/ pledged £m
At 31 December 2021
Financial assets
Financial assets at fair value through profit or loss	1,798	–	1,798	–	(35)	1,763
Derivative financial instruments	33,665	(28,154)	5,511	(1,621)	(2,733)	1,157
Financial assets at amortised cost:
Loans and advances to banks	4,478	–	4,478	(350)	–	4,128
Loans and advances to customers	431,994	(1,165)	430,829	(102)	(1,506)	429,221
Reverse repurchase agreements	59,645	(9,937)	49,708	–	(49,708)	–
Debt securities	4,562	–	4,562	–	(267)	4,295
	500,679	(11,102)	489,577	(452)	(51,481)	437,644
Financial assets at fair value through other comprehensive income	27,786	–	27,786	–	(4,981)	22,805
Financial liabilities
Deposits from banks	3,363	–	3,363	(1,404)	–	1,959
Customer deposits	450,538	(1,165)	449,373	(217)	(1,506)	447,650
Repurchase agreements at amortised cost	40,043	(9,937)	30,106	–	(30,106)	–
Financial liabilities at fair value through profit or loss	6,537	–	6,537	–	–	6,537
Derivative financial instruments	32,797	(28,154)	4,643	(452)	(4,191)	–

1The Group enters into derivatives and repurchase and reverse repurchase agreements with various counterparties which are governed by industry standard master netting agreements. The

Group holds and provides cash and securities collateral in respective of derivative transactions covered by these agreements. The right to set off balances under these master netting

agreements or to set off cash and securities collateral only arises in the event of non-payment or default and, as a result, these arrangements do not qualify for offsetting under IAS 32.

2Net of impairment allowances.

3The amounts offset in the balance sheet as shown above mainly represent derivatives and repurchase agreements with central clearing houses which meet the criteria for offsetting under

IAS 32.

The effects of over-collateralisation have not been taken into account in the above table.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 43: Offsetting of financial assets and liabilities

158

Financial instruments are fundamental to the Group’s activities and, as a consequence, the risks associated with financial instruments represent

a significant component of the risks faced by the Group.

The primary risks affecting the Group through its use of financial instruments are: market risk, which includes interest rate risk and foreign

exchange risk; credit risk; liquidity risk and capital risk. The following disclosures provide quantitative and qualitative information about the

Group's exposure to these risks.

Market risk

(A)Interest rate risk

Interest rate risk arises from the different repricing characteristics of the Group's assets and liabilities. Liabilities are generally insensitive to

interest rate movements, for example interest free or very low interest customer deposits, or are sensitive to interest rate changes but bear rates

which may be varied at the Group’s discretion and that for competitive reasons generally reflect changes in the UK Bank Rate, set by the Bank of

England. The rates on the remaining liabilities are contractually fixed for their term to maturity.

Many banking assets are sensitive to interest rate movements; there is a large volume of managed rate assets such as variable rate mortgages

which may be considered as a natural offset to the interest rate risk arising from the managed rate liabilities. However, a significant proportion

of the Group’s lending assets, for example many personal loans and mortgages, bear interest rates which are contractually fixed. Interest rate

sensitivity analysis relating to the Group's banking activities is set out in the tables marked audited on page 53.

The Group’s risk management policy is to optimise reward while managing its market risk exposures within the risk appetite defined by the

Board. The largest residual risk exposure arises from balances that are deemed to be insensitive to changes in market rates (including current

accounts, a portion of variable rate deposits and investable equity), and is managed through the Group’s structural hedge. The structural hedge

consists of longer-term fixed rate assets or interest rate swaps and the amount and duration of the hedging activity is reviewed regularly by the

Lloyds Banking Group Asset and Liability Committee.

The Group establishes hedge accounting relationships for interest rate risk (including components) using cash flow hedges and fair value

hedges. The Group is exposed to cash flow interest rate risk on its variable rate loans and deposits together with its floating rate subordinated

debt. The derivatives used to manage the structural hedge may be designated into cash flow hedges to manage income statement volatility.

The economic items related to the structural hedge, for example current accounts, are not eligible hedged items under IAS 39 for inclusion into

accounting hedge relationships. The Group is exposed to fair value interest rate risk on its fixed rate customer loans, its fixed rate customer

deposits and the majority of its subordinated debt, and to cash flow interest rate risk on its variable rate loans and deposits together with its

floating rate subordinated debt. The Group applies netting between similar risks before applying hedge accounting.

Hedge ineffectiveness arises during the management of interest rate risk due to residual unhedged risk. Sources of ineffectiveness, which the

Group may decide to not fully mitigate, can include basis differences, timing differences and notional amount differences. The effectiveness of

accounting hedge relationships is assessed between the hedging derivatives and the documented hedged item, which can differ to the

underlying economically hedged item.

At 31 December 2022 the aggregate notional principal of interest rate and other swaps (predominantly interest rate) designated as fair value

hedges was £128,153 million (2021: £147,724 million) with a net fair value liability of £488 million (2021: liability of £266 million) (note 14). The

gains on the hedging instruments were £3,106 million (2021: gains of £1,885 million).The losses on the hedged items attributable to the hedged

risk were £3,127 million (2021: losses of £1,690 million). The gains and losses relating to the fair value hedges are recorded in net trading

income.

The notional principal of the interest rate swaps designated as cash flow hedges at 31 December 2022 was £235,916 million (2021:

£97,942 million) with a net fair value liability of £nil (2021: £nil) (note 14). In 2022, ineffectiveness recognised in the income statement that arises

from cash flow hedges was a loss of £6 million (2021: loss of £58 million).

Interest rate benchmark reform

The Group continues to manage the transition to alternative benchmark rates under its Group-wide IBOR transition programme. The Group has

transitioned substantially all of its non-USD LIBOR products and continues to work with customers to transition a small number of remaining

contracts that either have yet to transition or have defaulted to the relevant synthetic LIBOR benchmark in the interim. USD LIBOR transition is

expected to complete by 30 June 2023.

While the volume of outstanding transactions impacted by IBOR benchmark reforms continues to reduce, the Group does not expect material

changes to its risk management approach.

The material risks identified include the following:

Conduct and litigation risk. The Group may be exposed to conduct and litigation charges as a direct result of inappropriate or negligent actions

taken during IBOR transition resulting in detriment to the customer. The Group is working closely with its counterparties to avoid this outcome.

Market risk. IBOR transition is expected to lead to changes in the Group’s market risk profile which will continue to be monitored and managed

within the appropriate risk appetites. The key change is expected to be on the management of basis risk profile during the period when

alternative benchmark rates are referenced in contracts up to the cessation of the in-scope IBOR index.

Credit risk. Clients may wish to renegotiate the terms of existing transactions as a consequence of IBOR reform. This could lead to a change in

the credit risk exposure of the client depending on the outcome of the negotiations. The Group will continue to monitor and manage changes

within the appropriate risk appetites.

Accounting risk. If IBOR transition is finalised in a manner that does not permit the application of the reliefs introduced in the IFRS Phase 2

amendments, the financial instrument may be required to be derecognised and a new instrument recognised. In addition, where instruments

used in hedge accounting relationships are transitioned either at different times or to different benchmarks, this may result in additional

volatility to the income statement either through hedge accounting ineffectiveness or failure of the hedge accounting relationships.

Operational risk. Additional operational risks may arise due to the IBOR transition programme impacting all businesses and functions within the

Group and leading to the implementation of changes to technology, operations, client communication and the valuation of in-scope financial

instruments.

The majority of the Group’s USD LIBOR exposures are expected to transition through industry-led transition programmes managed by the

London Clearing House, or through the International Swaps and Derivatives Association (ISDA) protocol. Other contracts (primarily loans)

maturing after June 2023 are being managed through the Group’s existing processes, either transitioning to an alternative benchmark rate or

allowed to fallback under existing contract protocols or through US legislation.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management

159

At 31 December 2022, the Group had the following significant exposures impacted by interest rate benchmark reform which had yet to

transition to the replacement benchmark rate:


	At 31 December 2022				At 31 December 2021
	GBP LIBOR £m	USD LIBOR £m	Other1 £m	Total £m	GBP LIBOR £m	USD LIBOR £m	Other £m	Total £m
Non-derivative financial assets
Financial assets at fair value through profit or loss	–	–	–	–	131	172	–	303
Loans and advances to banks	–	67	–	67	–	3,252	–	3,252
Loans and advances to customers	760	670	2	1,432	3,419	2,549	–	5,968
Financial assets at amortised cost	760	737	2	1,499	3,419	5,801	–	9,220
	760	737	2	1,499	3,550	5,973	–	9,523
Non-derivative financial liabilities
Financial liabilities at fair value through profit or loss	–	100	–	100	–	100	3	103
Debt securities in issue2	–	1,216	310	1,526	–	3,548	26	3,574
	–	1,316	310	1,626	–	3,648	29	3,677
Derivative notional/contract amount
Interest rate	242	96,795	653	97,690	4,271	120,797	–	125,068
Cross currency	–	14,414	921	15,335	–	22,663	–	22,663
	242	111,209	1,574	113,025	4,271	143,460	–	147,731

1Balances within Other include Canadian Dollar Offered Rate for which a cessation announcement, effective after 28 June 2024, was published on 16 May 2022.

2Includes capital related issuances of £3,494 million held by Lloyds Banking Group plc.

As at 31 December 2022, the IBOR balances in the above table relate to contracts that have not transitioned to an alternative benchmark rate. In

the case of Sterling LIBOR, these are contracts that have cash flows determined on a synthetic LIBOR basis.

Of the £111,209 million of USD derivative notional balances as at 31 December 2022, £19,208 million relate to contracts with their final LIBOR

fixing prior to LIBOR cessation and £70,764 million relate to contracts settled through the London Clearing House. Of the remaining

£21,237 million, £21,229 million are fallback-eligible.

In respect of the Group’s hedge accounting relationships, for the purposes of determining whether:

•A forecast transaction is highly probable

•Hedged future cash flows are expected to occur

•A hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk

•An accounting hedging relationship should be discontinued because of a failure of the retrospective effectiveness test

the Group considers the interest rate benchmark, on which the hedged risk or the cash flows of the hedged item or hedging instrument are

based is not altered by uncertainties resulting from interest rate benchmark reform.

By 31 December 2022, the Group had transitioned its Sterling, Euro, Japanese Yen and Swiss Franc LIBOR hedge accounting models to risk-free

rates. The Group plans to complete the transition of its USD LIBOR hedge accounting models ahead of the 30 June 2023 cessation date.

The Group’s most significant remaining IBOR hedge accounting relationship in relation to benchmark reform is USD LIBOR, of which:

•The notional amount of the hedged items that the Group has designated into cash flow hedge relationships that is directly affected by the

interest rate benchmark reform is £884 million (2021: £2,001 million). These are principally loans and advances to customers in Commercial

Banking.

•The interest rate benchmark reforms also affect assets and liabilities designated in fair value hedges. At 31 December 2022 these assets had a

notional value of £1,864 million and liabilities had a notional value of £6,760 million. At 31 December 2021, such assets had a notional value of

£3,370 million and liabilities had a notional amount of £9,094 million. These fair value hedges principally relate to debt securities in issue.

•At 31 December 2022, the notional amount of the hedging instruments in hedging relationships to which these amendments apply was

£10,529 million, of which £9,587 million relates to fair value hedges and £942 million relates to cash flow hedges. At 31 December 2021, the

notional amount of the hedging instruments in hedging relationships to which these amendments applied was £17,954 million, of which

£15,952 million related to fair value hedges and £2,002 million related to cash flow hedges.

(B)Foreign exchange risk

The corporate and retail businesses incur foreign exchange risk in the course of providing services to their customers. All non-structural foreign

exchange exposures in the non-trading book are managed centrally within allocated exposure limits. Trading book exposures in the authorised

trading centres are allocated exposure limits. The limits are monitored daily by the local centres and reported to the market and liquidity risk

function in London.

The Group manages foreign currency accounting exposure via cash flow hedge accounting, utilising currency swaps and forward foreign

exchange trades.

Risk arises from the Group’s investments in its overseas operations. The Group’s structural foreign currency exposure is represented by the net

asset value of the foreign currency equity and subordinated debt investments in its subsidiaries and branches. Gains or losses on structural

foreign currency exposures are taken to reserves. The Group ceased all hedge accounting of the currency translation risk of the net investment

in foreign operations in 2018.

The Group has overseas operations in Europe. Structural foreign currency exposures in respect of operations with a Euro functional currency are

£1,817 million (2021: £115 million).

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

160

Credit risk

The Group’s credit risk exposure arises in respect of the instruments below and predominantly in the United Kingdom. Credit risk appetite is set

at Board level and is described and reported through a suite of metrics devised from a combination of accounting and credit portfolio

performance measures, which include the use of various credit risk rating systems as inputs and assess credit risk at a counterparty level using

three components: (i) the probability of default by the counterparty on its contractual obligations; (ii) the current exposures to the counterparty

and their likely future development, from which the Group derives the exposure at default; and (iii) the likely loss ratio on the defaulted

obligations, the loss given default. The Group uses a range of approaches to mitigate credit risk, including internal control policies, obtaining

collateral, using master netting agreements and other credit risk transfers, such as asset sales and credit derivatives based transactions.

(A)Maximum credit exposure

The maximum credit risk exposure of the Group in the event of other parties failing to perform their obligations is detailed below. No account is

taken of any collateral held and the maximum exposure to loss is considered to be the balance sheet carrying amount or, for non-derivative off-

balance sheet transactions and financial guarantees, their contractual nominal amounts.


	2022			2021
	Maximum exposure £m	Offset1 £m	Net exposure £m	Maximum exposure £m	Offset1 £m	Net exposure £m
Financial assets at fair value through profit or loss2	1,132	–	1,132	1,559	–	1,559
Derivative financial instruments	3,857	(1,811)	2,046	5,511	(2,369)	3,142
Financial assets at amortised cost, net3:
Loans and advances to banks, net3	8,363	–	8,363	4,478	–	4,478
Loans and advances to customers, net3	435,627	(2,171)	433,456	430,829	(1,506)	429,323
Reverse repurchase agreements, net3	39,259	–	39,259	49,708	–	49,708
Debt securities, net3	7,331	–	7,331	4,562	–	4,562
	490,580	(2,171)	488,409	489,577	(1,506)	488,071
Financial assets at fair value through other comprehensive income2	22,845	–	22,845	27,785	–	27,785
Off-balance sheet items:
Acceptances and endorsements	58	–	58	21	–	21
Other items serving as direct credit substitutes	781	–	781	433	–	433
Performance bonds, including letters of credit, and other transaction-related contingencies	2,061	–	2,061	1,886	–	1,886
Irrevocable commitments and guarantees	57,782	–	57,782	55,690	–	55,690
	60,682	–	60,682	58,030	–	58,030
	579,096	(3,982)	575,114	582,462	(3,875)	578,587

1Offset items comprise deposit amounts available for offset, and amounts available for offset under master netting arrangements, that do not meet the criteria under IAS 32 to enable loans

and advances and derivative assets respectively to be presented net of these balances in the financial statements.

2Excluding equity shares.

3Amounts shown net of related impairment allowances.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

161

(B)Concentrations of exposure

The Group’s management of concentration risk includes single name, industry sector and country limits as well as controls over the Group’s

overall exposure to certain products. As part of its credit risk policy, the Group considers sustainability risk (which incorporates Environmental

(including climate), Social and Governance) in the assessment of Commercial Banking facilities.

At 31 December 2022 the most significant concentrations of exposure were in mortgages (comprising 73 per cent of total loans and advances to

customers) and to financial, business and other services (comprising 5 per cent of the total).


	2022 £m	2021 £m
Agriculture, forestry and fishing	7,447	7,728
Energy and water supply	2,515	1,962
Manufacturing	3,311	3,505
Construction	4,057	4,325
Transport, distribution and hotels	13,062	13,367
Postal and telecommunications	2,409	1,857
Property companies	20,866	23,156
Financial, business and other services	21,281	19,137
Personal:
Mortgages1	322,480	318,422
Other	26,099	24,546
Lease financing	625	843
Hire purchase	15,950	15,785
Total loans and advances to customers before allowance for impairment losses	440,102	434,633
Allowance for impairment losses (note 15)	(4,475)	(3,804)
Total loans and advances to customers	435,627	430,829

1Includes both UK and overseas mortgage balances.

The Group’s operations are predominantly UK-based and as a result an analysis of credit risk exposures by geographical region is not provided.

(C)Credit quality of assets

Loans and advances

The analysis of lending has been prepared based on the division in which the asset is held; with the business segment in which the exposure is

recorded reflected in the ratings system applied. The internal credit ratings systems used by the Group differ between Retail and Commercial,

reflecting the characteristics of these exposures and the way that they are managed internally; these credit ratings are set out below. All

probabilities of default (PDs) include forward-looking information and are based on 12-month values, with the exception of credit-impaired.


Retail		Commercial
Quality classification	IFRS 9 PD range	Quality classification	IFRS 9 PD range
RMS 1–3	0.00–0.80%	CMS 1–5	0.000–0.100%
RMS 4–6	0.81–4.50%	CMS 6–10	0.101–0.500%
RMS 7–9	4.51–14.00%	CMS 11–14	0.501–3.000%
RMS 10	14.01–20.00%	CMS 15–18	3.001–20.000%
RMS 11–13	20.01–99.99%	CMS 19	20.001–99.999%
RMS 14	100.00%	CMS 20–23	100.000%

Stage 3 assets include balances of £577 million (2021: £511 million) (with outstanding amounts due of £1,360 million (2021: £1,279 million)) which

have been subject to a partial write-off and where the Group continues to enforce recovery action.

Stage 2 and Stage 3 assets with a carrying amount of £126 million (2021: £1,540 million) were modified during the year. No material gain or loss

was recognised by the Group.

As at 31 December 2022 assets that had been previously modified while classified as Stage 2 or Stage 3 and were classified as Stage 1

amounted to £5,279 million (2021: £6,657 million).

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

162


	Drawn exposures					Expected credit loss allowance
Gross drawn exposures and expected credit loss allowance	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
At 31 December 2022
Loans and advances to banks
CMS 1–5	1,093	–	–	–	1,093	–	–	–	–	–
CMS 6–10	7,263	–	–	–	7,263	9	–	–	–	9
CMS 11–14	13	3	–	–	16	–	–	–	–	–
CMS 15–18	–	–	–	–	–	–	–	–	–	–
CMS 19	–	–	–	–	–	–	–	–	–	–
CMS 20–23	–	–	–	–	–	–	–	–	–	–
	8,369	3	–	–	8,372	9	–	–	–	9
Loans and advances to customers
Retail – UK mortgages
RMS 1–3	250,937	24,844	–	–	275,781	81	180	–	–	261
RMS 4–6	6,557	11,388	–	–	17,945	10	140	–	–	150
RMS 7–9	23	2,443	–	–	2,466	–	72	–	–	72
RMS 10	–	734	–	–	734	–	24	–	–	24
RMS 11–13	–	2,374	–	–	2,374	–	136	–	–	136
RMS 14	–	–	3,416	9,622	13,038	–	–	311	253	564
	257,517	41,783	3,416	9,622	312,338	91	552	311	253	1,207
Retail – credit cards
RMS 1–3	3,587	5	–	–	3,592	7	–	–	–	7
RMS 4–6	6,497	1,441	–	–	7,938	66	70	–	–	136
RMS 7–9	1,332	1,246	–	–	2,578	47	167	–	–	214
RMS 10	–	227	–	–	227	–	52	–	–	52
RMS 11–13	–	368	–	–	368	–	144	–	–	144
RMS 14	–	–	289	–	289	–	–	113	–	113
	11,416	3,287	289	–	14,992	120	433	113	–	666
Retail – loans and overdrafts
RMS 1–3	659	1	–	–	660	2	–	–	–	2
RMS 4–6	5,902	451	–	–	6,353	90	24	–	–	114
RMS 7–9	1,724	657	–	–	2,381	69	83	–	–	152
RMS 10	53	199	–	–	252	5	45	–	–	50
RMS 11–13	19	405	–	–	424	3	163	–	–	166
RMS 14	–	–	247	–	247	–	–	126	–	126
	8,357	1,713	247	–	10,317	169	315	126	–	610
Retail – UK Motor Finance
RMS 1–3	8,969	743	–	–	9,712	66	9	–	–	75
RMS 4–6	2,778	930	–	–	3,708	25	20	–	–	45
RMS 7–9	425	325	–	–	750	2	13	–	–	15
RMS 10	–	99	–	–	99	–	8	–	–	8
RMS 11–13	2	148	–	–	150	–	26	–	–	26
RMS 14	–	–	154	–	154	–	–	81	–	81
	12,174	2,245	154	–	14,573	93	76	81	–	250
Retail – other
RMS 1–3	12,588	328	–	–	12,916	9	4	–	–	13
RMS 4–6	1,311	213	–	–	1,524	4	11	–	–	15
RMS 7–9	–	90	–	–	90	–	3	–	–	3
RMS 10	–	5	–	–	5	–	–	–	–	–
RMS 11–13	91	7	–	–	98	–	–	–	–	–
RMS 14	–	–	157	–	157	–	–	52	–	52
	13,990	643	157	–	14,790	13	18	52	–	83
Total Retail	303,454	49,671	4,263	9,622	367,010	486	1,394	683	253	2,816

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

163


	Drawn exposures					Expected credit loss allowance
Gross drawn exposures and expected credit loss allowance (continued)	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
At 31 December 2022
Commercial Banking
CMS 1–5	11,906	14	–	–	11,920	2	–	–	–	2
CMS 6–10	16,689	293	–	–	16,982	21	2	–	–	23
CMS 11–14	30,646	4,963	–	–	35,609	123	83	–	–	206
CMS 15–18	3,257	4,352	–	–	7,609	46	239	–	–	285
CMS 19	12	810	–	–	822	–	74	–	–	74
CMS 20–23	–	–	3,348	–	3,348	–	–	1,069	–	1,069
	62,510	10,432	3,348	–	76,290	192	398	1,069	–	1,659
Other1	(3,198)	–	–	–	(3,198)	–	–	–	–	–
Total loans and advances to customers	362,766	60,103	7,611	9,622	440,102	678	1,792	1,752	253	4,475

In respect of:
Retail	303,454	49,671	4,263	9,622	367,010	486	1,394	683	253	2,816
Commercial Banking	62,510	10,432	3,348	–	76,290	192	398	1,069	–	1,659
Other1	(3,198)	–	–	–	(3,198)	–	–	–	–	–
Total loans and advances to customers	362,766	60,103	7,611	9,622	440,102	678	1,792	1,752	253	4,475

1Includes centralised fair value hedge accounting adjustments.

Reverse repurchase agreements

Banks

CMS 1–5

3,292

–

3,292

–

CMS 6–10

258

–

258

–

CMS 11–14

–

CMS 15–18

–

CMS 19

–

CMS 20–23

–

3,550

–

3,550

–

Customers

CMS 1–5

3,752

–

3,752

–

CMS 6–10

31,957

–

31,957

–

CMS 11–14

–

CMS 15–18

–

CMS 19

–

CMS 20–23

–

35,709

–

35,709

–

Total reverse repurchase

agreements

39,259

–

39,259

–

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

164

Undrawn exposures

Expected credit loss allowance

Gross undrawn exposures and

expected credit loss allowance

Stage 1

£m

Stage 2

£m

Stage 3

£m

POCI

£m

Total

£m

Stage 1

£m

Stage 2

£m

Stage 3

£m

POCI

£m

Total

£m

At 31 December 2022

Retail – UK mortgages

RMS 1–3

16,003

159

–

16,162

–

RMS 4–6

–

145

–

RMS 7–9

–

RMS 10

–

RMS 11–13

–

RMS 14

–

16,086

274

16,444

–

Retail – credit cards

RMS 1–3

39,384

–

39,414

–

RMS 4–6

14,355

2,975

–

17,330

–

RMS 7–9

580

422

–

1,002

–

RMS 10

–

RMS 11–13

–

RMS 14

–

54,319

3,549

–

57,913

–

Retail – loans and overdrafts

RMS 1–3

4,174

–

4,176

–

RMS 4–6

1,618

386

–

2,004

–

RMS 7–9

253

159

–

412

–

RMS 10

–

RMS 11–13

–

RMS 14

–

6,051

644

–

6,712

–

Retail – UK Motor Finance

RMS 1–3

318

–

318

–

RMS 4–6

1,259

–

1,259

–

RMS 7–9

347

–

348

–

RMS 10

–

RMS 11–13

–

RMS 14

–

1,924

–

1,925

–

Retail – other

RMS 1–3

702

–

702

–

RMS 4–6

198

–

198

–

RMS 7–9

–

RMS 10

–

RMS 11–13

–

RMS 14

–

900

–

900

–

Total Retail

79,280

4,468

83,894

–

172

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

165

Gross undrawn exposures and

expected credit loss allowance

(continued)

Undrawn exposures

Expected credit loss allowance

Stage 1

£m

Stage 2

£m

Stage 3

£m

POCI

£m

Total

£m

Stage 1

£m

Stage 2

£m

Stage 3

£m

POCI

£m

Total

£m

At 31 December 2022

Commercial Banking

CMS 1–5

15,266

–

15,266

–

CMS 6–10

16,508

–

16,542

–

CMS 11–14

8,657

1,296

–

9,953

–

CMS 15–18

779

800

–

1,579

–

CMS 19

–

CMS 20–23

–

41,210

2,215

–

43,473

–

132

Other

CMS 1–5

–

CMS 6–10

–

CMS 11–14

–

CMS 15–18

–

CMS 19

–

CMS 20–23

–

Total

120,492

6,683

127

127,369

122

178

–

304

In respect of:

Retail

79,280

4,468

83,894

–

172

Commercial Banking

41,210

2,215

–

43,473

–

132

Other

–

Total

120,492

6,683

127

127,369

122

178

–

304

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

166


	Drawn exposures					Expected credit loss allowance
Gross drawn exposures and expected credit loss allowance	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
At 31 December 2021
Loans and advances to banks
CMS 1–5	4,108	–	–	–	4,108	–	–	–	–	–
CMS 6–10	368	–	–	–	368	–	–	–	–	–
CMS 11–14	2	–	–	–	2	–	–	–	–	–
CMS 15–18	–	–	–	–	–	–	–	–	–	–
CMS 19	–	–	–	–	–	–	–	–	–	–
CMS 20–23	–	–	–	–	–	–	–	–	–	–
	4,478	–	–	–	4,478	–	–	–	–	–
Loans and advances to customers
Retail – UK mortgages
RMS 1–3	270,649	9,785	–	–	280,434	48	146	–	–	194
RMS 4–6	2,971	8,288	–	–	11,259	–	104	–	–	104
RMS 7–9	9	2,258	–	–	2,267	–	64	–	–	64
RMS 10	–	355	–	–	355	–	15	–	–	15
RMS 11–13	–	1,112	–	–	1,112	–	65	–	–	65
RMS 14	–	–	1,940	10,977	12,917	–	–	184	210	394
	273,629	21,798	1,940	10,977	308,344	48	394	184	210	836
Retail – credit cards1
RMS 1–3	5,076	15	–	–	5,091	9	–	–	–	9
RMS 4–6	6,023	1,092	–	–	7,115	58	43	–	–	101
RMS 7–9	819	623	–	–	1,442	29	71	–	–	100
RMS 10	–	112	–	–	112	–	22	–	–	22
RMS 11–13	–	235	–	–	235	–	82	–	–	82
RMS 14	–	–	292	–	292	–	–	128	–	128
	11,918	2,077	292	–	14,287	96	218	128	–	442
Retail – loans and overdrafts
RMS 1–3	1,426	2	–	–	1,428	5	–	–	–	5
RMS 4–6	5,794	499	–	–	6,293	79	23	–	–	102
RMS 7–9	938	286	–	–	1,224	39	33	–	–	72
RMS 10	18	74	–	–	92	2	14	–	–	16
RMS 11–13	5	244	–	–	249	1	83	–	–	84
RMS 14	–	–	271	–	271	–	–	139	–	139
	8,181	1,105	271	–	9,557	126	153	139	–	418
Retail – UK Motor Finance
RMS 1–3	8,758	465	–	–	9,223	79	6	–	–	85
RMS 4–6	2,904	844	–	–	3,748	22	19	–	–	41
RMS 7–9	583	298	–	–	881	5	15	–	–	20
RMS 10	–	69	–	–	69	–	7	–	–	7
RMS 11–13	2	152	–	–	154	–	27	–	–	27
RMS 14	–	–	201	–	201	–	–	116	–	116
	12,247	1,828	201	–	14,276	106	74	116	–	296
Retail – other1
RMS 1–3	9,715	228	–	–	9,943	3	4	–	–	7
RMS 4–6	1,386	265	–	–	1,651	11	8	–	–	19
RMS 7–9	–	88	–	–	88	–	3	–	–	3
RMS 10	–	2	–	–	2	–	–	–	–	–
RMS 11–13	97	10	–	–	107	–	–	–	–	–
RMS 14	–	–	169	–	169	–	–	52	–	52
	11,198	593	169	–	11,960	14	15	52	–	81
Total Retail	317,173	27,401	2,873	10,977	358,424	390	854	619	210	2,073

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

167


Gross drawn exposures and expected credit loss allowance (continued)	Drawn exposures					Expected credit loss allowance
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total £m
At 31 December 2021
Commercial Banking1
CMS 1–5	11,678	34	–	–	11,712	1	–	–	–	1
CMS 6–10	19,822	309	–	–	20,131	21	–	–	–	21
CMS 11–14	31,979	3,453	–	–	35,432	83	76	–	–	159
CMS 15–18	2,181	2,832	–	–	5,013	14	143	–	–	157
CMS 19	–	855	–	–	855	–	39	–	–	39
CMS 20–23	–	–	3,533	–	3,533	–	–	954	–	954
	65,660	7,483	3,533	–	76,676	119	258	954	–	1,331
Other2	(467)	–	–	–	(467)	400	–	–	–	400
Total loans and advances to customers	382,366	34,884	6,406	10,977	434,633	909	1,112	1,573	210	3,804

In respect of:
Retail	317,173	27,401	2,873	10,977	358,424	390	854	619	210	2,073
Commercial Banking	65,660	7,483	3,533	–	76,676	119	258	954	–	1,331
Other2	(467)	–	–	–	(467)	400	–	–	–	400
Total loans and advances to customers	382,366	34,884	6,406	10,977	434,633	909	1,112	1,573	210	3,804

1Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth moving from Other to Retail; comparatives

have been presented on a consistent basis.

2Includes centralised fair value hedge accounting adjustments and a central adjustment of £400 million that was applied in respect of uncertainty in the economic outlook.

Reverse repurchase agreements

Banks

CMS 1–5

2,901

–

2,901

–

CMS 6–10

–

CMS 11–14

–

CMS 15–18

–

CMS 19

–

CMS 20–23

–

2,996

–

2,996

–

Customers

CMS 1–5

10,399

–

10,399

–

CMS 6–10

36,313

–

36,313

–

CMS 11–14

–

CMS 15–18

–

CMS 19

–

CMS 20–23

–

46,712

–

46,712

–

Total reverse repurchase

agreements

49,708

–

49,708

–

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

168

Gross undrawn exposures and expected

credit loss allowance

Undrawn exposures

Expected credit loss allowance

Stage 1

£m

Stage 2

£m

Stage 3

£m

POCI

£m

Total

£m

Stage 1

£m

Stage 2

£m

Stage 3

£m

POCI

£m

Total

£m

At 31 December 2021

Retail – UK mortgages

RMS 1–3

16,947

–

17,014

–

RMS 4–6

–

RMS 7–9

–

RMS 10

–

RMS 11–13

–

RMS 14

–

16,971

17,151

–

Retail – credit cards1

RMS 1–3

47,427

–

47,508

–

RMS 4–6

8,811

2,160

–

10,971

–

RMS 7–9

242

172

–

414

–

RMS 10

–

RMS 11–13

–

RMS 14

–

56,480

2,502

–

59,037

–

Retail – loans and overdrafts

RMS 1–3

5,123

–

5,126

–

RMS 4–6

1,180

228

–

1,408

–

RMS 7–9

–

145

–

RMS 10

–

RMS 11–13

–

RMS 14

–

6,401

319

–

6,738

–

Retail – UK Motor Finance

RMS 1–3

277

–

277

–

RMS 4–6

1,180

–

1,180

–

RMS 7–9

527

–

527

–

RMS 10

–

RMS 11–13

–

RMS 14

–

1,985

–

1,985

–

Retail – other1

RMS 1–3

598

–

598

–

RMS 4–6

298

–

298

–

RMS 7–9

–

RMS 10

–

RMS 11–13

–

RMS 14

–

896

–

896

–

Total Retail

82,733

2,916

85,807

–

110

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

169

Gross undrawn exposures and expected

credit loss allowance (continued)

Undrawn exposures

Expected credit loss allowance

Stage 1

£m

Stage 2

£m

Stage 3

£m

POCI

£m

Total

£m

Stage 1

£m

Stage 2

£m

Stage 3

£m

POCI

£m

Total

£m

At 31 December 2021

Commercial Banking1

CMS 1–5

18,993

–

18,994

–

CMS 6–10

12,986

–

13,033

–

CMS 11–14

7,237

1,212

–

8,449

–

CMS 15–18

453

347

–

800

–

CMS 19

–

CMS 20–23

–

39,669

1,640

–

41,376

–

Other

CMS 1–5

–

CMS 6–10

501

–

501

–

CMS 11–14

–

CMS 15–18

–

CMS 19

–

CMS 20–23

–

501

–

501

–

Total

122,903

4,556

153

127,684

103

–

194

In respect of:

Retail

82,733

2,916

85,807

–

110

Commercial Banking

39,669

1,640

–

41,376

–

Other

501

–

501

–

Total

122,903

4,556

153

127,684

103

–

194

1Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth moving from Other to Retail; comparatives

have been presented on a consistent basis.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

170

Cash and balances at central banks

Significantly all of the Group’s cash and balances at central banks of £72,005 million (2021: £54,279 million) are due from the Bank of England or

the Deutsche Bundesbank.

Debt securities held at amortised cost

An analysis by credit rating of the Group's debt securities held at amortised cost is provided below:


	2022			2021
	Investment grade1 £m	Other2 £m	Total £m	Investment grade1 £m	Other2 £m	Total £m
Government securities	247	–	247	202	–	202
Asset-backed securities:
Mortgage-backed securities	3,712	–	3,712	1,457	–	1,457
Other asset-backed securities	1,946	2	1,948	1,590	18	1,608
	5,658	2	5,660	3,047	18	3,065
Corporate and other debt securities	1,431	1	1,432	1,296	1	1,297
Gross exposure	7,336	3	7,339	4,545	19	4,564
Allowance for impairment losses			(8)			(2)
Total debt securities held at amortised cost			7,331			4,562

1Credit ratings equal to or better than ‘BBB’.

2Other comprises sub-investment grade (2022: £nil; 2021: £18 million) and not rated (2022: £3 million; 2021: £1 million).

Financial assets at fair value through other comprehensive income (excluding equity shares)

An analysis of the Group's financial assets at fair value through other comprehensive income is included in note 18. The credit quality of the

Group's financial assets at fair value through other comprehensive income (excluding equity shares) is set out below:


	2022			2021
	Investment grade1 £m	Other2 £m	Total £m	Investment grade1 £m	Other2 £m	Total £m
Debt securities:
Government securities	11,196	–	11,196	14,599	–	14,599
Asset-backed securities	87	51	138	–	55	55
Corporate and other debt securities	11,470	41	11,511	13,087	44	13,131
	22,753	92	22,845	27,686	99	27,785
Total financial assets at fair value through other comprehensive income	22,753	92	22,845	27,686	99	27,785

1Credit ratings equal to or better than ‘BBB’.

2Other comprises sub-investment grade (2022: £51 million; 2021: £55 million) and not rated (2022: £41 million; 2021: £44 million).

Derivative assets

An analysis of derivative assets is given in note 14. The Group reduces exposure to credit risk by using master netting agreements and by

obtaining collateral in the form of cash or highly liquid securities. In respect of the Group's net credit risk relating to derivative assets of

£2,046 million (2021: £3,142 million), cash collateral of £767 million (2021: £1,621 million) was held and a further £17 million (2021: £67 million) was

due from OECD banks.


	2022			2021
	Investment grade1 £m	Other2 £m	Total £m	Investment grade1 £m	Other2 £m	Total £m
Trading and other	2,435	283	2,718	3,991	834	4,825
Hedging	14	5	19	52	–	52
	2,449	288	2,737	4,043	834	4,877
Due from fellow Lloyds Banking Group undertakings			1,120			634
Total derivative financial instruments			3,857			5,511

1Credit ratings equal to or better than ‘BBB’.

2Other comprises sub-investment grade (2022: £112 million; 2021: £622 million) and not rated (2022: £176 million; 2021: £212 million).

Financial guarantees and irrevocable loan commitments

Financial guarantees represent undertakings that the Group will meet a customer’s obligation to third parties if the customer fails to do so.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit.

The Group is theoretically exposed to loss in an amount equal to the total guarantees or unused commitments, however, the likely amount of

loss is expected to be significantly less. Most commitments to extend credit are contingent upon customers maintaining specific credit

standards.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

171

(D)Collateral held as security for financial assets

The principal types of collateral accepted by the Group include: residential and commercial properties; charges over business assets such as

premises, inventory and accounts receivable; financial instruments, cash and guarantees from third-parties. The terms and conditions associated

with the use of the collateral are varied and are dependent on the type of agreement and the counterparty. The Group holds collateral against

loans and advances and irrevocable loan commitments; qualitative and, where appropriate, quantitative information is provided in respect of

this collateral below. Collateral held as security for financial assets at fair value through profit or loss and for derivative assets is also shown

below.

The Group holds collateral in respect of loans and advances to banks and customers as set out below. The Group does not hold collateral

against debt securities, comprising asset-backed securities and corporate and other debt securities, which are classified as financial assets held

at amortised cost.

Loans and advances to banks

There were reverse repurchase agreements which are accounted for as collateralised loans within loans and advances to banks with a carrying

value of £3,550 million (2021: £2,996 million), against which the Group held collateral with a fair value of £nil (2021: £92 million).

These transactions were generally conducted under terms that are usual and customary for standard secured lending activities.

Loans and advances to customers

Retail lending

Mortgages

An analysis by loan to value ratio of the Group’s residential mortgage lending is provided below. The value of collateral used in determining the

loan to value ratios has been estimated based upon the last actual valuation, adjusted to take into account subsequent movements in house

prices, after making allowances for indexation error and dilapidations. The market takes into account many factors, including environmental

considerations such as flood risk and energy efficient additions, in arriving at the value of a home.

In some circumstances, where the discounted value of the estimated net proceeds from the liquidation of collateral (i.e. net of costs, expected

haircuts and anticipated changes in the value of the collateral to the point of sale) is greater than the estimated exposure at default, no credit

losses are expected and no ECL allowance is recognised.


	2022					2021
	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total gross £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	POCI £m	Total gross £m
Less than 70 per cent	210,457	33,205	3,161	8,845	255,668	217,830	19,766	1,717	9,872	249,185
70 per cent to 80 per cent	31,788	5,264	170	359	37,581	42,808	1,632	134	572	45,146
80 per cent to 90 per cent	11,942	2,604	48	149	14,743	12,087	253	52	184	12,576
90 per cent to 100 per cent	3,319	606	13	113	4,051	779	46	14	135	974
Greater than 100 per cent	11	104	24	156	295	125	101	23	214	463
Total	257,517	41,783	3,416	9,622	312,338	273,629	21,798	1,940	10,977	308,344

The energy performance certificate (EPC) profile of the security associated with the Group’s UK mortgage portfolio is shown below:


	2022		2021
EPC profile	£m	%	£m	%
A	731	0.2	563	0.2
B	37,075	11.9	34,070	11.0
C	60,086	19.2	54,636	17.7
D	93,010	29.8	88,752	28.8
E	35,015	11.2	35,086	11.4
F	6,990	2.2	7,258	2.4
G	1,519	0.5	1,546	0.5
Unrated properties	77,912	25.0	86,433	28.0
Total	312,338	100.0	308,344	100.0

The above data is sourced using the latest available government EPC information as at the relevant balance sheet date. The Group has no EPC

data available for 25.0 per cent (2021: 28.0 per cent) of the UK mortgage portfolio, these are classified as unrated properties.

EPC ratings are not considered to be a material credit risk factor,and do not form part of the Group’s credit risk calculations.

Other

The majority of non-mortgage retail lending is unsecured. At 31 December 2022, Stage 3 non-mortgage lending amounted to £475 million, net

of an impairment allowance of £372 million (2021: £498 million, net of an impairment allowance of £435 million).

Stage 1 and Stage 2 non-mortgage retail lending amounted to £53,825 million (2021: £49,147 million). Lending decisions are predominantly

based on an obligor’s ability to repay rather than reliance on the disposal of any security provided. Where the lending is secured, collateral

values are rigorously assessed at the time of loan origination and are thereafter monitored in accordance with business unit credit policy.

The Group's credit risk disclosures for unimpaired non-mortgage retail lending show assets gross of collateral and therefore disclose the

maximum loss exposure. The Group believes that this approach is appropriate.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

172

Commercial lending

Reverse repurchase transactions

At 31 December 2022 there were reverse repurchase agreements which were accounted for as collateralised loans with a carrying value of

£35,709 million (2021: £46,712 million), against which the Group held collateral with a fair value of £29,011 million (2021: £48,423 million), all of

which the Group was able to repledge. These transactions were generally conducted under terms that are usual and customary for standard

secured lending activities.

Stage 3 secured lending

The value of collateral is re-evaluated and its legal soundness re-assessed if there is observable evidence of distress of the borrower; this

evaluation is used to determine potential loss allowances and management’s strategy to try to either repair the business or recover the debt.

At 31 December 2022, Stage 3 secured commercial lending amounted to £389 million, net of an impairment allowance of £159 million (2021:

£608 million, net of an impairment allowance of £198 million). The fair value of the collateral held in respect of impaired secured commercial

lending was £471 million (2021: £693 million). In determining the fair value of collateral, no specific amounts have been attributed to the costs of

realisation. For the purposes of determining the total collateral held by the Group in respect of impaired secured commercial lending, the value

of collateral for each loan has been limited to the principal amount of the outstanding advance in order to eliminate the effects of any over-

collateralisation and to provide a clearer representation of the Group’s exposure.

Stage 3 secured commercial lending and associated collateral relates to lending to property companies and to customers in the financial,

business and other services; transport, distribution and hotels; and construction industries.

Stage 1 and Stage 2 secured lending

For Stage 1 and Stage 2 secured commercial lending, the Group reports assets gross of collateral and therefore discloses the maximum loss

exposure. The Group believes that this approach is appropriate as collateral values at origination and during a period of good performance may

not be representative of the value of collateral if the obligor enters a distressed state.

Stage 1 and Stage 2 secured commercial lending is predominantly managed on a cash flow basis. On occasion, it may include an assessment of

underlying collateral, although, for Stage 3 lending, this will not always involve assessing it on a fair value basis. No aggregated collateral

information for the entire unimpaired secured commercial lending portfolio is provided to key management personnel.

Financial assets at fair value through profit or loss (excluding equity shares)

Securities held as collateral in the form of stock borrowed amounted to £16,667 million (2021: £7,052 million). Of this amount, £8,311 million

(2021: £1,086 million) had been resold or repledged as collateral for the Group’s own transactions.

These transactions were generally conducted under terms that are usual and customary for standard secured lending activities.

Derivative assets, after offsetting of amounts under master netting arrangements

The Group reduces exposure to credit risk by using master netting agreements and by obtaining collateral in the form of cash or highly liquid

securities. In respect of the net derivative assets after offsetting of amounts under master netting arrangements of £2,046 million (2021:

£3,142 million), cash collateral of £767 million (2021: £1,621 million) was held.

Irrevocable loan commitments and other credit-related contingencies

At 31 December 2022, the Group held irrevocable loan commitments and other credit-related contingencies of £60,682 million (2021:

£58,030 million). Collateral is held as security, in the event that lending is drawn down, on £16,442 million (2021: £17,149 million) of these

balances.

Collateral repossessed

During the year, £219 million of collateral was repossessed (2021: £86 million), consisting primarily of residential property. In respect of retail

portfolios, the Group does not take physical possession of properties or other assets held as collateral and uses external agents to realise the

value as soon as practicable, generally at auction, to settle indebtedness. Any surplus funds are returned to the borrower or are otherwise dealt

with in accordance with appropriate insolvency regulations. In certain circumstances the Group takes physical possession of assets held as

collateral against commercial lending. In such cases, the assets are carried on the Group’s balance sheet and are classified according to the

Group’s accounting policies.

(E)Collateral pledged as security

The Group pledges assets primarily for repurchase agreements and securities lending transactions which are generally conducted under terms

that are usual and customary for standard securitised borrowing contracts.

Repurchase transactions

Amortised cost

There are balances arising from repurchase transactions with banks of £33,003 million (2021: £30,085 million), which include amounts due under

the Bank of England's Term Funding Scheme with additional incentives for SMEs (TFSME); the fair value of the collateral provided under these

agreements at 31 December 2022 was £39,535 million (2021: £39,918 million).

There are balances arising from repurchase transactions with customers of £15,587 million (2021: £21 million); the fair value of the collateral

provided under these agreements at 31 December 2022 was £14,197 million (2021: £112 million).

Securities lending transactions

The following on-balance sheet financial assets have been lent to counterparties under securities lending transactions:


	2022 £m	2021 £m
Financial assets at fair value through other comprehensive income	5,408	2,724
Total	5,408	2,724

Securitisations and covered bonds

In addition to the assets detailed above, the Group also holds assets that are encumbered through the Group’s asset-backed conduits and its

securitisation and covered bond programmes. Further details of these assets are provided in note 25.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

173

Liquidity risk

Liquidity risk is defined as the risk that the Group has insufficient financial resources to meet its commitments as they fall due, or can only secure

them at excessive cost. Liquidity risk is managed through a series of measures, tests and reports that are primarily based on contractual

maturity. The Group carries out monthly stress testing of its liquidity position against a range of scenarios, including those prescribed by the

PRA. The Group’s liquidity risk appetite is also calibrated against a number of stressed liquidity metrics.

The tables below analyse financial instrument liabilities of the Group on an undiscounted future cash flow basis according to contractual

maturity, into relevant maturity groupings based on the remaining period at the balance sheet date; balances with no fixed maturity are

included in the over 5 years category. Certain balances, included in the table below on the basis of their residual maturity, are repayable on

demand upon payment of a penalty.


	Up to 1 month £m	1–3 months £m	3–12 months £m	1–5 years £m	Over 5 years £m	Total £m
At 31 December 2022
Deposits from banks	3,728	28	179	673	83	4,691
Customer deposits	430,808	3,565	7,164	4,882	304	446,723
Repurchase agreements at amortised cost	12,494	6,188	904	33,054	38	52,678
Financial liabilities at fair value through profit or loss	84	60	100	1,565	3,736	5,545
Debt securities in issue	4,400	8,571	6,717	25,886	7,802	53,376
Lease liabilities	7	52	161	557	611	1,388
Subordinated liabilities	24	89	687	4,775	7,945	13,520
Total non-derivative financial liabilities	451,545	18,553	15,912	71,392	20,519	577,921
Derivative financial liabilities:
Gross settled derivatives – outflows	2,815	3,241	3,501	7,920	4,700	22,177
Gross settled derivatives – inflows	(1,927)	(2,996)	(3,372)	(7,862)	(4,731)	(20,888)
Gross settled derivatives – net flows	888	245	129	58	(31)	1,289
Net settled derivative liabilities	2,652	(19)	54	271	250	3,208
Total derivative financial liabilities	3,540	226	183	329	219	4,497
At 31 December 2021
Deposits from banks	1,812	136	32	1,420	216	3,616
Customer deposits	439,193	1,540	3,616	5,046	569	449,964
Repurchase agreements at amortised cost	475	417	243	30,987	7	32,129
Financial liabilities at fair value through profit or loss	81	21	242	1,572	4,677	6,593
Debt securities in issue	4,367	5,307	8,603	27,715	4,708	50,700
Lease liabilities	2	61	158	578	832	1,631
Subordinated liabilities	30	39	370	5,418	5,679	11,536
Total non-derivative financial liabilities	445,960	7,521	13,264	72,736	16,688	556,169
Derivative financial liabilities:
Gross settled derivatives – outflows	2,577	573	4,232	11,280	4,990	23,652
Gross settled derivatives – inflows	(2,462)	(425)	(4,168)	(10,945)	(4,734)	(22,734)
Gross settled derivatives – net flows	115	148	64	335	256	918
Net settled derivative liabilities	2,654	(21)	(6)	145	360	3,132
Total derivative financial liabilities	2,769	127	58	480	616	4,050

The principal amount for undated subordinated liabilities with no redemption option is included within the over 5 years column; interest of

£16 million (2021: £19 million) per annum which is payable in respect of those instruments for as long as they remain in issue is not included

beyond 5 years.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

174

The following table sets out the amounts and residual maturities of the Group's off-balance sheet contingent liabilities, commitments and

guarantees.


	Within 1 year £m	1–3 years £m	3–5 years £m	Over 5 years £m	Total £m
At 31 December 2022
Acceptances and endorsements	58	–	–	–	58
Other contingent liabilities	1,667	548	181	446	2,842
Total contingent liabilities	1,725	548	181	446	2,900
Lending commitments and guarantees	91,310	8,256	10,780	16,984	127,330
Other commitments	–	–	10	29	39
Total commitments and guarantees	91,310	8,256	10,790	17,013	127,369
Total contingents, commitments and guarantees	93,035	8,804	10,971	17,459	130,269
At 31 December 2021
Acceptances and endorsements	21	–	–	–	21
Other contingent liabilities	1,362	242	258	457	2,319
Total contingent liabilities	1,383	242	258	457	2,340
Lending commitments and guarantees	97,587	15,506	9,853	4,678	127,624
Other commitments	–	18	–	42	60
Total commitments and guarantees	97,587	15,524	9,853	4,720	127,684
Total contingents, commitments and guarantees	98,970	15,766	10,111	5,177	130,024

Capital risk

Capital is actively managed on an ongoing basis for both the Group and its regulated banking subsidiaries, with associated capital policies and

procedures subjected to regular review. The Group assesses both its regulatory capital requirements and the quantity and quality of capital

resources that it holds to meet those requirements through applying the capital directives and regulations implemented in the UK by the

Prudential Regulation Authority (PRA) and supplemented through additional regulation under the PRA Rulebook and associated statements of

policy, supervisory statements and other regulatory guidance. Regulatory capital ratios are considered a key part of the budgeting and planning

processes and forecast ratios are reviewed by the Group and Ring-Fenced Banks Asset and Liability Committee. Target capital levels take

account of current and future regulatory requirements, capacity for growth and to cover uncertainties. Details of the Group's capital resources

are provided in the table marked audited on page 26.

Note 45: Cash flow statement

(A)Change in operating assets


	2022 £m	20211 £m	20201 £m
Change in amounts due from fellow Lloyds Banking Group undertakings	(77)	(1)	1,116
Change in other financial assets held at amortised cost	(167)	3,406	(8,714)
Change in financial assets at fair value through profit or loss	427	(124)	610
Change in derivative financial instruments	(2,877)	1,548	479
Change in other operating assets	(206)	345	627
Change in operating assets	(2,900)	5,174	(5,882)

1Restated, see page 83.

(B)Change in operating liabilities


	2022 £m	2021 £m	2020 £m
Change in deposits from banks and repurchase agreements	4,213	8,451	1,404
Change in customer deposits and repurchase agreements	12,365	14,825	37,728
Change in amounts due to fellow Lloyds Banking Group undertakings	(603)	(806)	(1,316)
Change in financial liabilities at fair value through profit or loss	(859)	(380)	(946)
Change in derivative financial instruments	1,248	(3,585)	(1,603)
Change in debt securities in issue	332	(10,569)	(17,138)
Change in other operating liabilities1	198	174	(288)
Change in operating liabilities	16,894	8,110	17,841

1Includes a decrease of £150 million (2021: decrease of £182 million; 2020: decrease of £163 million) in respect of lease liabilities.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 44: Financial risk management (continued)

175

(C)Non-cash and other items


	2022 £m	2021 £m	2020 £m
Depreciation and amortisation	2,348	2,777	2,670
Revaluation of investment properties	–	–	20
Allowance for loan losses	1,335	(1,085)	3,802
Write-off of allowance for loan losses, net of recoveries	(759)	(935)	(1,279)
Impairment charge (credit) relating to undrawn balances	111	(231)	253
Impairment of financial assets at fair value through other comprehensive income	6	(2)	5
Regulatory and legal provisions	225	1,177	414
Other provision movements	(134)	(82)	80
Net charge in respect of defined benefit schemes	125	236	247
Foreign exchange impact on balance sheet1	30	159	823
Interest expense on subordinated liabilities	377	570	846
Other non-cash items	(673)	(1,173)	(1,216)
Total non-cash items	2,991	1,411	6,665
Contributions to defined benefit schemes	(2,533)	(1,347)	(1,153)
Payments in respect of regulatory and legal provisions	(587)	(680)	(2,165)
Other	–	(45)	137
Total other items	(3,120)	(2,072)	(3,181)
Non-cash and other items	(129)	(661)	3,484

1When considering the movement on each line of the balance sheet, the impact of foreign exchange rate movements is removed in order to show the underlying cash impact.

(D)Analysis of cash and cash equivalents as shown in the balance sheet


	2022 £m	20211 £m	20201 £m

Cash and balances at central banks	72,005	54,279	49,888
Less mandatory reserve deposits2	(1,935)	(2,007)	(1,736)
	70,070	52,272	48,152
Loans and advances to banks and reverse repurchase agreements	11,913	7,474	5,950
Less amounts with a maturity of three months or more	(6,782)	(3,786)	(2,480)
	5,131	3,688	3,470
Total cash and cash equivalents	75,201	55,960	51,622

1Restated, see page 83.

2Mandatory reserve deposits are held with local central banks in accordance with statutory requirements. Where these deposits are not held in demand accounts and are not available to

finance the Group’s day-to-day operations they are excluded from cash and cash equivalents.

Note 46: Events since the balance sheet date

Acquisition of Tusker

On 21 February 2023, Lloyds Bank Asset Finance Limited, a wholly-owned subsidiary of the Group, acquired 100 per cent of the ordinary share

capital of Hamsard 3352 Limited (“Tusker”), which together with its subsidiaries operates a vehicle management and leasing business. The

acquisition will enable the Group to expand its salary sacrifice proposition within motor finance. Cash consideration was approximately

£300 million1. As a result of the limited time available between the acquisition and the approval of these financial statements, the Group is still in

the process of finalising the fair value of the individual assets and liabilities acquired including the associated identifiable intangible assets and

goodwill.

1Subject to customary adjustments.

Note 47: Future accounting developments

The IASB has issued a number of minor amendments to IFRSs effective 1 January 2023 (including IAS 1 Presentation of Financial Statements and

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors). These amendments are not applicable for the year ended

31 December 2022 and have not been applied in preparing these financial statements. They are not expected to have a significant impact on

the Group.

Lloyds Bank plc

Notes to the consolidated financial statements

Note 45: Cash flow statement (continued)

176


	Note	2022 £ million	2021 £ million
Assets
Cash and balances at central banks		66,783	49,618
Items in the course of collection from banks		182	99
Financial assets at fair value through profit or loss	3	4,994	4,529
Derivative financial instruments	4	7,793	6,898
Loans and advances to banks		7,984	4,291
Loans and advances to customers		113,948	116,716
Reverse repurchase agreements		39,259	49,708
Debt securities		6,471	3,756
Due from fellow Lloyds Banking Group undertakings		119,282	108,424
Financial assets at amortised cost	5	286,944	282,895
Financial assets at fair value through other comprehensive income	7	22,675	25,529
Other intangible assets	8	3,698	3,096
Current tax recoverable		312	245
Deferred tax assets	14	3,556	2,434
Investment in subsidiary undertakings	9	31,197	30,588
Retirement benefit assets	16	2,075	2,420
Other assets	10	3,086	3,473
Total assets		433,295	411,824
Liabilities
Deposits from banks		4,465	2,768
Customer deposits		269,473	268,683
Repurchase agreements at amortised cost		18,380	78
Due to fellow Lloyds Banking Group undertakings		20,342	22,872
Items in the course of transmission to banks		238	207
Financial liabilities at fair value through profit or loss	12	9,244	9,821
Derivative financial instruments	4	10,347	6,102
Debt securities in issue	13	39,819	38,439
Other liabilities	15	3,260	3,128
Retirement benefit obligations	16	50	101
Other provisions		744	771
Subordinated liabilities	17	5,920	7,907
Total liabilities		382,282	360,877
Equity
Share capital	18	1,574	1,574
Share premium account	18	600	600
Other reserves	19	(1,734)	824
Retained profits1	20	46,305	43,681
Shareholders’ equity		46,745	46,679
Other equity instruments	18	4,268	4,268
Total equity		51,013	50,947
Total equity and liabilities		433,295	411,824

1The Bank recorded a profit after tax for the year of £3,517 million (2021: £3,593 million).

The accompanying notes are an integral part of the Bank financial statements.

The directors approved the Bank financial statements on 7 March 2023.



Robin Budenberg	Charlie Nunn	William Chalmers
Chair	Chief Executive	Chief Financial Officer

Lloyds Bank plc

Bank balance sheet

at 31 December 2022

177


	Attributable to ordinary shareholders
	Share capital and premium £ million	Other reserves £ million	Retained profits £ million	Total £ million	Other equity instruments £ million	Total £ million
At 1 January 2022	2,174	824	43,681	46,679	4,268	50,947
Comprehensive income
Profit for the year	–	–	3,276	3,276	241	3,517
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax	–	–	(1,232)	(1,232)	–	(1,232)
Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:
Debt securities	–	(109)	–	(109)	–	(109)
Equity shares	–	(1)	–	(1)	–	(1)
Gains and losses attributable to own credit risk, net of tax	–	–	364	364	–	364
Movements in cash flow hedging reserve, net of tax	–	(2,452)	–	(2,452)	–	(2,452)
Movements in foreign currency translation reserve, net of tax	–	3	–	3	–	3
Total other comprehensive (loss) income	–	(2,559)	(868)	(3,427)	–	(3,427)
Total comprehensive (loss) income1,2	–	(2,559)	2,408	(151)	241	90
Transactions with owners
Distributions on other equity instruments	–	–	–	–	(241)	(241)
Capital contributions received	–	–	221	221	–	221
Return of capital contributions	–	–	(4)	(4)	–	(4)
Total transactions with owners	–	–	217	217	(241)	(24)
Realised gains and losses on equity shares held at fair value through other comprehensive income	–	1	(1)	–	–	–
At 31 December 2022	2,174	(1,734)	46,305	46,745	4,268	51,013

1No statement of comprehensive income has been shown for the Bank, as permitted by section 408 of the Companies Act 2006.

2Total comprehensive income attributable to owners of the parent was £90 million (2021: £3,540 million; 2020: £160 million).

The accompanying notes are an integral part of the Bank financial statements.

Lloyds Bank plc

Bank statement of changes in equity

for the year ended 31 December 2022

178


	Attributable to ordinary shareholders
	Share capital and premium £ million	Other reserves £ million	Retained profits £ million	Total £ million	Other equity instruments £ million	Total £ million
At 1 January 2020	2,174	1,710	42,470	46,354	4,865	51,219
Comprehensive income
Profit for the year	–	–	224	224	417	641
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax	–	–	(102)	(102)	–	(102)
Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:
Debt securities	–	(89)	–	(89)	–	(89)
Equity shares	–	4	–	4	–	4
Gains and losses attributable to own credit risk, net of tax	–	–	(55)	(55)	–	(55)
Movements in cash flow hedging reserve, net of tax	–	(240)	–	(240)	–	(240)
Movements in foreign currency translation reserve, net of tax	–	1	–	1	–	1
Total other comprehensive (loss) income	–	(324)	(157)	(481)	–	(481)
Total comprehensive (loss) income1	–	(324)	67	(257)	417	160
Transactions with owners
Distributions on other equity instruments	–	–	–	–	(417)	(417)
Issue of other equity instruments	–	–	–	–	1,070	1,070
Capital contributions received	–	–	140	140	–	140
Return of capital contributions	–	–	(4)	(4)	–	(4)
Total transactions with owners	–	–	136	136	653	789
Realised gains and losses on equity shares held at fair value through other comprehensive income	–	(4)	4	–	–	–
At 31 December 2020	2,174	1,382	42,677	46,233	5,935	52,168
Comprehensive income
Profit for the year	–	–	3,249	3,249	344	3,593
Other comprehensive income
Post-retirement defined benefit scheme remeasurements, net of tax	–	–	556	556	–	556
Movements in revaluation reserve in respect of financial assets held at fair value through other comprehensive income, net of tax:
Debt securities	–	91	–	91	–	91
Equity shares	–	1	–	1	–	1
Gains and losses attributable to own credit risk, net of tax	–	–	(52)	(52)	–	(52)
Movements in cash flow hedging reserve, net of tax	–	(647)	–	(647)	–	(647)
Movements in foreign currency translation reserve, net of tax	–	(2)	–	(2)	–	(2)
Total other comprehensive (loss) income	–	(557)	504	(53)	–	(53)
Total comprehensive (loss) income1	–	(557)	3,753	3,196	344	3,540
Transactions with owners
Dividends	–	–	(2,900)	(2,900)	–	(2,900)
Distributions on other equity instruments	–	–	–	–	(344)	(344)
Issue of other equity instruments	–	–	(1)	(1)	1,550	1,549
Repurchases and redemptions of other equity instruments	–	–	(9)	(9)	(3,217)	(3,226)
Capital contributions received	–	–	164	164	–	164
Return of capital contributions	–	–	(4)	(4)	–	(4)
Total transactions with owners	–	–	(2,750)	(2,750)	(2,011)	(4,761)
Realised gains and losses on equity shares held at fair value through other comprehensive income	–	(1)	1	–	–	–
At 31 December 2021	2,174	824	43,681	46,679	4,268	50,947

1No statement of comprehensive income has been shown for the Bank, as permitted by section 408 of the Companies Act 2006.

The accompanying notes are an integral part of the Bank financial statements.

Lloyds Bank plc

Bank statement of changes in equity

for the year ended 31 December 2022

179


	Note	2022 £ million	2021 £ million	2020 £ million
Cash flows from operating activities
Profit before tax		4,107	3,301	444
Adjustments for:
Change in operating assets	26 (A)	(5,368)	38,804	71,662
Change in operating liabilities	26 (B)	22,262	(28,015)	(61,993)
Non-cash and other items	26 (C)	(2,817)	(2,059)	1,820
Tax paid (net)		(243)	(11)	(194)
Net cash provided by operating activities		17,941	12,020	11,739
Cash flows from investing activities
Purchase of financial assets		(9,563)	(8,775)	(7,793)
Proceeds from sale and maturity of financial assets		10,641	7,730	5,599
Purchase of fixed assets		(1,674)	(1,255)	(1,186)
Proceeds from sale of fixed assets		3	5	12
Additional capital injections to subsidiaries		(600)	(11)	(1,055)
Dividends received from subsidiaries		1,850	1,391	44
Distributions on other equity instruments received		125	112	167
Capital repayments and redemptions		32	2,576	1,801
Disposal of businesses, net of cash disposed		5	–	–
Net cash provided by (used in) investing activities		819	1,773	(2,411)
Cash flows from financing activities
Dividends paid to ordinary shareholders		–	(2,900)	–
Distributions on other equity instruments		(241)	(344)	(417)
Return of capital contributions		(4)	(4)	(4)
Interest paid on subordinated liabilities		(290)	(423)	(759)
Proceeds from issue of subordinated liabilities		837	3,262	496
Proceeds from issue of other equity instruments		–	1,549	1,070
Repayment of subordinated liabilities		(2,156)	(3,049)	(2,726)
Repurchases and redemptions of other equity instruments		–	(3,226)	–
Borrowings from parent company		1,852	543	4,799
Repayments of borrowings to parent company		–	(4,813)	(1,403)
Interest paid on borrowings from parent company		(200)	(226)	(98)
Net cash (used in) provided by financing activities		(202)	(9,631)	958
Effects of exchange rate changes on cash and cash equivalents		1	–	–
Change in cash and cash equivalents		18,559	4,162	10,286
Cash and cash equivalents at beginning of year		52,230	48,068	37,782
Cash and cash equivalents at end of year	26 (D)	70,789	52,230	48,068

The accompanying notes are an integral part of the Bank financial statements.

Lloyds Bank plc

Bank cash flow statement

for the year ended 31 December 2022

180

Note 1: Basis of preparation and accounting policies

The financial statements of Lloyds Bank plc have been prepared in accordance with international accounting standards in conformity with the

requirements of the Companies Act 2006. The financial statements have also been prepared in accordance with International Financial

Reporting Standards as issued by the International Accounting Standards Board (IASB).

The financial information has been prepared under the historical cost convention, as modified by the revaluation of financial assets measured at

fair value through other comprehensive income, certain financial assets and liabilities at fair value through profit or loss and all derivative

contracts. The accounting policies of the Bank are the same as those of the Group which are set out in note 2 to the consolidated financial

statements. Investments in subsidiaries are carried at historical cost, less any provisions for impairment. Fees payable to the Bank’s auditors by

the Group are set out in note 10 to the consolidated financial statements.

Note 2: Critical accounting judgements and key sources of estimation uncertainty

The preparation of the Bank’s financial statements in accordance with IFRS requires management to make judgements, estimates and

assumptions in applying the accounting policies that affect the reported amounts of assets, liabilities, income and expenses. Due to the

inherent uncertainty in making estimates, actual results reported in future periods may be based upon amounts which differ from those

estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including

expectations of future events that are believed to be reasonable under the circumstances. In preparing the financial statements, the Bank has

considered the impact of climate-related risks on its financial position and performance. While the effects of climate change represent a source

of uncertainty, the Bank does not consider there to be a material impact on its judgements and estimates from the physical, transition and other

climate-related risks in the short to medium term.

The significant judgements, apart from those involving estimation, made by management in applying the Bank’s accounting policies in these

financial statements (critical judgements) and the key sources of estimation uncertainty that may have a significant risk of causing a material

adjustment to the carrying amount of assets and liabilities within the next financial year (key sources of estimates), which together are

considered critical to the Bank’s results and financial position, are as follows:

Allowance for expected credit losses


Critical judgements:	Determining an appropriate definition of default against which a probability of default, exposure at default and loss given default parameter can be evaluated
	Establishing the criteria for a significant increase in credit risk (SICR)
	The use of management judgement alongside impairment modelling processes to adjust inputs, parameters and outputs to reflect risks not captured by models
Key source of estimation uncertainty:	Base case and multiple economic scenarios (MES) assumptions, including the rate of unemployment and the rate of change of house prices, required for creation of MES scenarios and forward-looking credit parameters

The Bank recognises an allowance for expected credit losses (ECLs) for loans and advances to customers and banks, other financial assets held

at amortised cost, financial assets (other than equity investments) measured at fair value through other comprehensive income and certain loan

commitment and financial guarantee contracts. At 31 December 2022, the Bank’s expected credit loss allowance was £1,692 million (2021:

£1,311 million), of which £1,506 million (2021: £1,197 million) was in respect of drawn balances.

The calculation of the Bank’s expected credit loss allowances and provisions against loan commitments and guarantees under IFRS 9 requires

the Group to make a number of judgements, assumptions and estimates. Further information on the critical accounting judgements and key

sources of estimates (see above) and other significant judgements and estimates is set out in note 16 to the consolidated financial statements.

Defined benefit pension scheme obligations


Critical judgement:	Determination of an appropriate yield curve
Key sources of estimation uncertainty:	Discount rate applied to future cash flows
	Expected lifetime of the schemes’ members
	Expected rate of future inflationary increases

The net asset recognised in the balance sheet at 31 December 2022 in respect of the Bank’s defined benefit pension scheme obligations was

£2,046 million comprising an asset of £2,075 million and a liability of £29 million (2021: a net asset of £2,384 million comprising an asset of

£2,420 million and a liability of £36 million). The Bank’s accounting policy for its defined benefit pension scheme obligations is set out in note

2(K) to the consolidated financial statements.

The accounting valuation of the Bank’s defined benefit pension schemes’ liabilities requires management to make a number of assumptions.

The key areas of estimation uncertainty are the discount rate applied to future cash flows, the expected lifetime of the schemes’ members and

the expected rate of future inflationary increases.

Income statement and balance sheet sensitivities to changes in the critical accounting estimates and other actuarial assumptions are provided in

part (v) of note 16.

Lloyds Bank plc

Notes to the Bank financial statements

181

Regulatory and legal provisions


Critical judgements:	Determining the scope of reviews required by regulators
	The impact of legal decisions that may be relevant to claims received
	Determining whether a reliable estimate is available for obligations arising from past events
Key sources of estimation uncertainty:	The number of future complaints
	The proportion of complaints that will be upheld
	The average cost of redress

At 31 December 2022, the Bank carried provisions of £140 million (2021: £146 million) against the cost of making redress payments to customers

and the related administration costs in connection with historical regulatory breaches.

Determining the amount of the provisions, which represent management’s best estimate of the cost of settling these issues, requires the

exercise of significant judgement and estimation. It will often be necessary to form a view on matters which are inherently uncertain, such as the

scope of reviews required by regulators, and to estimate the number of future complaints, the extent to which they will be upheld, the average

cost of redress and the impact of decisions reached by legal and other review processes that may be relevant to claims received. Consequently

the continued appropriateness of the underlying assumptions is reviewed on a regular basis against actual experience and other relevant

evidence and adjustments made to the provisions where appropriate.

Management has applied significant judgement in determining the provision required for HBOS Reading; further details are provided in note 29

to the consolidated financial statements.

Fair value of financial instruments


Key source of estimation uncertainty:	Interest rate spreads, earnings multiples and interest rate volatility

At 31 December 2022, the carrying value of the Bank’s financial instrument assets held at fair value was £35,462 million (2021: £36,956 million),

and its financial instrument liabilities held at fair value was £19,591 million (2021: £15,923 million).

The Bank’s valuation control framework and a description of level 1, 2 and 3 financial assets and liabilities is set out in note 41(2) to the

consolidated financial statements. The valuation techniques for level 3 financial instruments involve management judgement and estimates, the

extent of which depends on the complexity of the instrument and the availability of market observable information. In addition, in line with

market practice, the Bank applies credit, debit and funding valuation adjustments in determining the fair value of its uncollateralised derivative

positions.

Capitalised software enhancements


Critical judgement:	Assessing future trading conditions that could affect the Bank’s business operations
Key source of estimation uncertainty:	Estimated useful life of internally generated capitalised software

At 31 December 2022, the carrying value of the Bank’s capitalised software enhancements was £3,698 million (2021: £3,096 million).

In determining the estimated useful life of capitalised software enhancements, management consider the product's lifecycle and the Bank's

technology strategy; assets are reviewed annually to assess whether there is any indication of impairment and to confirm that the remaining

estimated useful life is still appropriate. For the year ended 31 December 2022, the amortisation charge was £742 million (2021: £750 million),

and at 31 December 2022, the weighted-average remaining estimated useful life of the Bank’s capitalised software enhancements was 4.5 years

(2021: 4.7 years). If the Bank reduced by one year the estimated useful life of those assets with a remaining estimated useful life of more than

two years at 31 December 2022, the 2023 amortisation charge would be approximately £180 million higher.

Lloyds Bank plc

Notes to the Bank financial statements

Note 2: Critical accounting judgements and key sources of estimation uncertainty (continued)

182

These comprise:


	2022 £m	2021 £m
Loans and advances to customers	798	1,121
Corporate and other debt securities	4,192	3,404
Equity shares	4	4
Total	4,994	4,529

At 31 December 2022 £4,517 million (2021: £3,116 million) of financial assets at fair value through profit or loss had a contractual residual

maturity of greater than one year.

Note 4: Derivative financial instruments

Note 14 to the consolidated financial statements includes a discussion of the types of derivatives held by the Group and the Bank and the

strategies for doing so.

The fair values and notional amounts of derivative instruments are set out in the following table:


	2022			2021
	Contract/ notional amount £m	Fair value assets £m	Fair value liabilities £m	Contract/ notional amount £m	Fair value assets £m	Fair value liabilities £m
Trading and other
Exchange rate contracts:
Spot, forwards and futures	17,524	243	369	12,235	143	158
Currency swaps	100,653	1,608	1,710	158,448	965	625
Options purchased	30	1	–	5	–	–
Options written	30	–	1	5	–	–
	118,237	1,852	2,080	170,693	1,108	783
Interest rate contracts:
Interest rate swaps	1,452,104	5,817	7,683	1,160,782	5,710	4,897
Forward rate agreements	–	–	–	21	–	–
Options purchased	1,892	59	–	2,138	20	–
Options written	1,756	–	59	1,220	–	10
	1,455,752	5,876	7,742	1,164,161	5,730	4,907
Credit derivatives	3,323	58	27	4,439	23	102
Equity and other contracts	1	1	–	–	–	–
Total derivative assets/liabilities - trading and other	1,577,313	7,787	9,849	1,339,293	6,861	5,792
Hedging
Derivatives designated as fair value hedges:
Interest rate swaps	50,425	–	497	56,698	22	307
Currency swaps	35	1	–	34	7	–
	50,460	1	497	56,732	29	307
Derivatives designated as cash flow hedges:
Interest rate swaps	47,621	–	–	26,876	–	–
Exchange rate forward rate agreements	85	5	1	415	8	3
	47,706	5	1	27,291	8	3
Total derivative assets/liabilities - hedging	98,166	6	498	84,023	37	310
Total recognised derivative assets/liabilities	1,675,479	7,793	10,347	1,423,316	6,898	6,102

Lloyds Bank plc

Notes to the Bank financial statements

Note 3: Financial assets at fair value through profit or loss

183

Details of the Bank’s hedging instruments are set out below:


	Maturity
At 31 December 2022	Up to 1 month £m	1–3 months £m	3–12 months £m		1–5 years £m	Over 5 years £m		Total £m
Fair value hedges
Interest rate
Cross currency swap
Notional	–	–		–	–		35	35
Average fixed interest rate	–	–		–	–		1.28%
Average EUR/GBP exchange rate	–	–		–	–		1.38
Interest rate swap
Notional	796	486		4,314	23,553		21,276	50,425
Average fixed interest rate	3.20%	2.15%		0.66%	1.90%		1.43%
Cash flow hedges
Foreign exchange
Currency swap
Notional	–	21		52	12		–	85
Average EUR/GBP exchange rate	–	–		–	–		–
Average USD/GBP exchange rate	1.22	1.23		1.28	1.27		–
Interest rate
Interest rate swap
Notional	15	9,549		91	17,008		20,958	47,621
Average fixed interest rate	3.29%	1.62%		3.74%	1.39%		1.09%


	Maturity
At 31 December 2021	Up to 1 month £m	1–3 months £m	3–12 months £m	1–5 years £m	Over 5 years £m	Total £m
Fair value hedges
Interest rate
Cross currency swap
Notional	–	–	–	–	34	34
Average fixed interest rate	–	–	–	–	1.28%
Average EUR/GBP exchange rate	–	–	–	–	1.38
Interest rate swap
Notional	189	1,656	5,271	25,525	24,057	56,698
Average fixed interest rate	1.67%	2.09%	1.71%	1.65%	1.83%
Cash flow hedges
Foreign exchange
Currency swap
Notional	24	33	301	57	–	415
Average EUR/GBP exchange rate	–	–	1.16	1.16	–
Average USD/GBP exchange rate	1.36	1.35	1.37	1.33	–
Interest rate
Interest rate swap
Notional	–	–	8,571	10,115	8,190	26,876
Average fixed interest rate	–	–	0.56%	0.96%	0.74%

Lloyds Bank plc

Notes to the Bank financial statements

Note 4: Derivative financial instruments (continued)

184

The carrying amounts of the Bank’s hedging instruments are as follows:


	Carrying amount of the hedging instrument
At 31 December 2022	Contract/ notional amount £m	Assets £m	Liabilities £m	Changes in fair value used for calculating hedge ineffectiveness £m
Fair value hedges
Interest rate
Currency swaps	35	1	–	(2)
Interest rate swaps	50,425	–	497	(76)
Cash flow hedges
Foreign exchange
Currency swaps	85	5	1	26
Interest rate
Interest rate swaps	47,621	–	–	(2,688)


	Carrying amount of the hedging instrument
At 31 December 2021	Contract/ notional amount £m	Assets £m	Liabilities £m	Changes in fair value used for calculating hedge ineffectiveness £m
Fair value hedges
Interest rate
Currency swaps	34	7	–	(2)
Interest rate swaps	56,698	22	307	(294)
Cash flow hedges
Foreign exchange
Currency swaps	415	8	3	(2)
Interest rate
Interest rate swaps	26,876	–	–	(548)

All amounts are held within derivative financial instruments.

Lloyds Bank plc

Notes to the Bank financial statements

Note 4: Derivative financial instruments (continued)

185

The Bank’s hedged items are as follows:

Carrying amount of

the hedged item

Accumulated amount of

fair value adjustment on

the hedged item

Change in

fair value of

hedged item for

ineffectiveness

assessment

£m

Cash flow hedging reserve

Continuing

hedges

£m

Discontinued

hedges

£m

At 31 December 2022

Assets

£m

Liabilities

£m

Assets

£m

Liabilities

£m

Fair value hedges

Interest rate

Fixed rate issuance1

–

22,971

–

2,353

2,359

Fixed rate bonds2

19,259

–

(1,549)

–

(2,326)

Cash flow hedges

Foreign exchange

Foreign currency issuance1

(26)

(1)

Interest rate

Customer loans3

1,490

(868)

(246)

Central bank balances4

1,347

(436)

(904)

Customer deposits5

(54)

(24)

Carrying amount of

the hedged item

Accumulated amount of

fair value adjustment on

the hedged item

Change in

fair value of

hedged item for

ineffectiveness

assessment

£m

Cash flow hedging reserve

Continuing

hedges

£m

Discontinued

hedges

£m

At 31 December 2021

Assets

£m

Liabilities

£m

Assets

£m

Liabilities

£m

Fair value hedges

Interest rate

Fixed rate issuance1

–

28,870

–

1,018

Fixed rate bonds2

24,358

–

344

–

(736)

Cash flow hedges

Foreign exchange

Foreign currency issuance1

(12)

(2)

Interest rate

Customer loans3

510

(117)

1,014

Central bank balances4

–

211

Customer deposits5

(42)

(67)

1Included within debt securities in issue.

2Included within financial assets at fair value through other comprehensive income.

3Included within loans and advances to customers.

4Included within cash and balances at central banks.

5Included within customer deposits.

The accumulated amount of fair value hedge adjustments remaining in the balance sheet for hedged items that have ceased to be adjusted for

hedging gains and losses is an asset of £69 million (2021: asset of £71 million) relating to fixed rate issuances.

Lloyds Bank plc

Notes to the Bank financial statements

Note 4: Derivative financial instruments (continued)

186

Gains and losses arising from hedge accounting are summarised as follows:


	Gain (loss) recognised in other comprehensive income £m	Hedge ineffectiveness recognised in the income statement1 £m	Amounts reclassified from reserves to income statement as:
At 31 December 2022	Gain (loss) recognised in other comprehensive income £m		Hedged cash flows will no longer occur £m	Hedged item affected income statement £m	Income statement line item that includes reclassified amount
Fair value hedges
Interest rate
Fixed rate issuance		(31)
Fixed rate bonds		(14)
Cash flow hedges
Foreign exchange
Foreign currency issuance	26	–	–	1	Interest expense
Interest rate
Customer loans	(1,848)	(36)	–	(162)	Interest income
Central bank balances	(1,354)	–	–	(196)	Interest income
Customer deposits	87	4	–	5	Interest expense


	Gain (loss) recognised in other comprehensive income £m	Hedge ineffectiveness recognised in the income statement1 £m	Amounts reclassified from reserves to income statement as:
At 31 December 2021	Gain (loss) recognised in other comprehensive income £m		Hedged cash flows will no longer occur £m	Hedged item affected income statement £m	Income statement line item that includes reclassified amount
Fair value hedges
Interest rate
Fixed rate issuance		(7)
Fixed rate bonds		(7)
Cash flow hedges
Foreign exchange
Foreign currency issuance	(3)	–	–	21	Interest expense
Interest rate
Customer loans	(546)	(26)	–	(325)	Interest income
Central bank balances	–	–	–	(113)	Interest income
Customer deposits	111	2	–	18	Interest expense

1Hedge ineffectiveness is included in the income statement within net trading income.

In 2022 and 2021 there were no gains or losses reclassified from the cash flow hedging reserve for which hedge accounting had previously been

used but for which the hedged future cash flows are no longer expected to occur.

At 31 December 2022 £6,933 million of total recognised derivative assets of and £8,926 million of total recognised derivative liabilities of (2021:

£6,277 million of assets and £5,492 million of liabilities) had a contractual residual maturity of greater than one year.

Lloyds Bank plc

Notes to the Bank financial statements

Note 4: Derivative financial instruments (continued)

187

Year ended 31 December 2022


	Gross carrying amount				Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
Loans and advances to banks
At 1 January 2022	4,291	–	–	4,291	–	–	–	–
Exchange and other adjustments	417	–	–	417	–	–	–	–
Transfers to Stage 2	(2)	2	–	–	–	–	–	–
Impact of transfers between stages	(2)	2	–	–	–	–	–	–
					–	–	–	–
Additions and repayments	3,284	1	–	3,285	2	–	–	2
Other changes in credit quality					7	–	–	7
Charge to the income statement					9	–	–	9
At 31 December 2022	7,990	3	–	7,993	9	–	–	9
Allowance for impairment losses	(9)	–	–	(9)
Net carrying amount	7,981	3	–	7,984

Loans and advances to customers
At 1 January 2022	103,110	12,084	2,698	117,892	358	404	414	1,176
Exchange and other adjustments1	476	(4)	(23)	449	–	–	(11)	(11)
Transfers to Stage 1	3,024	(2,998)	(26)	–	81	(76)	(5)	–
Transfers to Stage 2	(9,988)	10,187	(199)	–	(24)	47	(23)	–
Transfers to Stage 3	(645)	(893)	1,538	–	(4)	(52)	56	–
Impact of transfers between stages	(7,609)	6,296	1,313	–	(55)	242	81	268
					(2)	161	109	268
Other changes in credit quality					(123)	44	281	202
Additions and repayments	(1,125)	(860)	(690)	(2,675)	57	77	(19)	115
Methodology and model changes					3	12	(47)	(32)
Charge (credit) to the income statement					(65)	294	324	553
Advances written off			(390)	(390)			(390)	(390)
Recoveries of advances written off in previous years			44	44			44	44
At 31 December 2022	94,852	17,516	2,952	115,320	293	698	381	1,372
Allowance for impairment losses	(293)	(698)	(381)	(1,372)
Net carrying amount	94,559	16,818	2,571	113,948
Drawn ECL coverage2 (%)	0.3	4.0	12.9	1.2

Reverse repurchase agreements
At 31 December 2022	39,259	–	–	39,259
Allowance for impairment losses	–	–	–	–
Net carrying amount	39,259	–	–	39,259

1Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind and derecognising assets as a result of modifications.

2Allowance for expected credit losses on loans and advances to customers as a percentage of gross loans and advances to customers.

Lloyds Bank plc

Notes to the Bank financial statements

Note 5: Financial assets at amortised cost

188

Gross carrying amount

Allowance for expected credit losses

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

Debt securities

At 1 January 2022

3,756

–

3,756

–

Exchange and other adjustments

179

–

179

–

Other changes in credit quality

–

Additions and repayments

2,541

–

2,541

–

Charge to the income statement

–

At 31 December 2022

6,476

–

6,476

–

Allowance for impairment losses

(5)

–

(5)

Net carrying amount

6,471

–

6,471

Due from fellow Lloyds Banking Group undertakings

At 31 December 2022

119,402

–

119,402

Allowance for impairment losses

(120)

–

(120)

Net carrying amount

119,282

–

119,282

Total financial assets at amortised cost

267,552

16,821

2,571

286,944

Movements in the allowance for expected credit losses in respect of undrawn balances were as follows:


	Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
Undrawn balances
At 1 January 2022	57	53	4	114
Exchange and other adjustments	–	–	(1)	(1)
Transfers to Stage 1	10	(10)	–	–
Transfers to Stage 2	(5)	5	–	–
Transfers to Stage 3	(1)	(1)	2	–
Impact of transfers between stages	(8)	51	(1)	42
	(4)	45	1	42
Other items taken to the income statement	15	18	(2)	31
Credit to the income statement	11	63	(1)	73
At 31 December 2022	68	116	2	186

The Bank's total impairment allowances were as follows:


	Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
In respect of:
Loans and advances to banks	9	–	–	9
Loans and advances to customers	293	698	381	1,372
Debt securities	5	–	–	5
Due from fellow Lloyds Banking Group undertakings	120	–	–	120
Financial assets at amortised cost	427	698	381	1,506
Provisions in relation to loan commitments and financial guarantees	68	116	2	186
Total	495	814	383	1,692
Expected credit loss in respect of financial assets at fair value through other comprehensive income (memorandum item)	8	–	–	8

Lloyds Bank plc

Notes to the Bank financial statements

Note 5: Financial assets at amortised cost (continued)

189

Year ended 31 December 2021


	Gross carrying amount				Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
Loans and advances to banks
At 1 January 2021	4,034	–	–	4,034	4	–	–	4
Exchange and other adjustments	20	–	–	20	–	–	–	–
Other changes in credit quality					(3)	–	–	(3)
Additions and repayments	237	–	–	237	(1)	–	–	(1)
Credit to the income statement					(4)	–	–	(4)
At 31 December 2021	4,291	–	–	4,291	–	–	–	–
Allowance for impairment losses	–	–	–	–
Net carrying amount	4,291	–	–	4,291

Loans and advances to customers
At 1 January 2021	101,742	21,494	2,867	126,103	589	974	718	2,281
Exchange and other adjustments1	(123)	(12)	(45)	(180)	(1)	–	(10)	(11)
Transfers to Stage 1	8,555	(8,529)	(26)	–	273	(267)	(6)	–
Transfers to Stage 2	(4,514)	4,834	(320)	–	(14)	61	(47)	–
Transfers to Stage 3	(416)	(651)	1,067	–	(7)	(89)	96	–
Impact of transfers between stages	3,625	(4,346)	721	–	(224)	43	62	(119)
					28	(252)	105	(119)
Other changes in credit quality					(107)	(125)	59	(173)
Additions and repayments	(2,134)	(5,052)	(403)	(7,589)	(88)	(208)	(22)	(318)
Methodology and model changes					(63)	15	6	(42)
(Credit) charge to the income statement					(230)	(570)	148	(652)
Advances written off			(490)	(490)			(490)	(490)
Recoveries of advances written off in previous years			48	48			48	48
At 31 December 2021	103,110	12,084	2,698	117,892	358	404	414	1,176
Allowance for impairment losses	(358)	(404)	(414)	(1,176)
Net carrying amount	102,752	11,680	2,284	116,716
Drawn ECL coverage (%)	0.3	3.3	15.3	1.0

Reverse repurchase agreements
At 31 December 2021	49,708	–	–	49,708
Allowance for impairment losses	–	–	–	–
Net carrying amount	49,708	–	–	49,708

1Exchange and other adjustments includes the impact of movements in exchange rates, discount unwind and derecognising assets as a result of modifications.

Lloyds Bank plc

Notes to the Bank financial statements

Note 5: Financial assets at amortised cost (continued)

190

Gross carrying amount

Allowance for expected credit losses

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

Debt securities

At 1 January 2021

4,316

–

4,316

–

Exchange and other adjustments

–

(1)

–

(1)

Additions and repayments

(572)

–

(572)

–

At 31 December 2021

3,756

–

3,756

–

Allowance for impairment losses

–

Net carrying amount

3,756

–

3,756

Due from fellow Lloyds Banking Group undertakings

At 31 December 2021

108,445

–

108,445

Allowance for impairment losses

(21)

–

(21)

Net carrying amount

108,424

–

108,424

Total financial assets at amortised cost

268,931

11,680

2,284

282,895

Movements in the allowance for expected credit losses in respect of undrawn balances were as follows:


	Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
Undrawn balances
At 1 January 2021	102	135	8	245
Exchange and other adjustments	–	3	–	3
Transfers to Stage 1	46	(46)	–	–
Transfers to Stage 2	(4)	4	–	–
Transfers to Stage 3	(1)	(3)	4	–
Impact of transfers between stages	(41)	9	(2)	(34)
	–	(36)	2	(34)
Other items taken to the income statement	(45)	(49)	(6)	(100)
Charge to the income statement	(45)	(85)	(4)	(134)
At 31 December 2021	57	53	4	114

The Bank's total impairment allowances were as follows:


	Allowance for expected credit losses
	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
In respect of:
Loans and advances to banks	–	–	–	–
Loans and advances to customers	358	404	414	1,176
Debt securities	–	–	–	–
Due from fellow Lloyds Banking Group undertakings	21	–	–	21
Financial assets at amortised cost	379	404	414	1,197
Provisions in relation to loan commitments and financial guarantees	57	53	4	114
Total	436	457	418	1,311
Expected credit loss in respect of financial assets at fair value through other comprehensive income (memorandum item)	2	–	–	2

The movement tables are compiled by comparing the position at 31 December to that at the beginning of the year. Transfers between stages

are deemed to have taken place at the start of the reporting period, with all other movements shown in the stage in which the asset is held at

31 December.

Additions and repayments comprise new loans originated and repayments of outstanding balances throughout the reporting period. Loans

which are written off in the period are first transferred to Stage 3 before acquiring a full allowance and subsequent write-off.

At 31 December 2022 £1,146 million (2021: £2,142 million) of loans and advances to banks, £89,440 million (2021: £92,907 million) of loans and

advances to customers, and £5,936 million (2021: £2,541 million) of debt securities had a contractual residual maturity of greater than one year.

Lloyds Bank plc

Notes to the Bank financial statements

Note 5: Financial assets at amortised cost (continued)

191

The Bank's finance lease and hire purchase receivables are classified as loans and advances to customers and accounted for at amortised cost.

These balances are analysed as follows:


	Finance leases		Hire purchase
	2022 £m	2021 £m	2022 £m	2021 £m
Not later than 1 year	1	3	2,275	527
Later than 1 year and not later than 2 years	6	2	197	647
Later than 2 years and not later than 3 years	–	15	446	841
Later than 3 years and not later than 4 years	–	–	127	577
Later than 4 years and not later than 5 years	–	–	60	383
Later than 5 years	–	–	9	83
Gross investment	7	20	3,114	3,058
Unearned future finance income	–	–	(52)	(46)
Rentals received in advance	–	–	(99)	(78)
Net investment	7	20	2,963	2,934

The net investment represents amounts recoverable as follows:


	Finance leases		Hire purchase
	2022 £m	2021 £m	2022 £m	2021 £m
Not later than 1 year	1	3	2,161	435
Later than 1 year and not later than 2 years	6	2	182	634
Later than 2 years and not later than 3 years	–	15	435	832
Later than 3 years and not later than 4 years	–	–	121	572
Later than 4 years and not later than 5 years	–	–	55	379
Later than 5 years	–	–	9	82
Net investment	7	20	2,963	2,934

Equipment leased to customers under finance leases relates to structured financing transactions to fund the purchase of property, plant and

equipment, office equipment and other items, and hire purchase receivables relate to financing transactions to fund the purchase of motor

vehicles. There was an allowance for hire purchase receivables included in the allowance for impairment losses of £21 million (2021: £15 million).

Note 7: Financial assets at fair value through other comprehensive income


	2022 £m	2021 £m
Debt securities:
Government securities	11,077	14,445
Asset-backed securities	87	–
Corporate and other debt securities	11,511	11,084
	22,675	25,529
Total financial assets at fair value through other comprehensive income	22,675	25,529

At 31 December 2022 £20,595 million (2021: £23,081 million) of financial assets at fair value through other comprehensive income had a

contractual residual maturity of greater than one year.

All assets were assessed at Stage 1 at 31 December 2021 and 2022.

Lloyds Bank plc

Notes to the Bank financial statements

Note 6: Finance leases and hire purchase receivables

192


	Capitalised software enhancements £m
Cost:
At 1 January 2021	5,131
Additions	886
Disposals and write-offs	(321)
At 31 December 2021	5,696
Additions	1,335
Disposals	(152)
At 31 December 2022	6,879
Accumulated amortisation:
At 1 January 2021	2,171
Exchange and other adjustments	–
Charge for the year	750
Disposals and write-offs	(321)
At 31 December 2021	2,600
Exchange and other adjustments	(9)
Charge for the year	742
Disposals	(152)
At 31 December 2022	3,181
Balance sheet amount at 31 December 2022	3,698
Balance sheet amount at 31 December 2021	3,096

Note 9: Investment in subsidiary undertakings


	2022 £m	2021 £m
At 1 January	30,588	33,353
Additions and capital injections	–	11
Capital contributions	1,875	36
Capital repayments	(32)	(2,576)
Disposals	(1,234)	(236)
At 31 December	31,197	30,588

Details of the subsidiaries and related undertakings are given on pages 226 to 229 and are incorporated by reference.

Certain subsidiary companies currently have insufficient distributable reserves to make dividend payments, however, there were no further

significant restrictions on any of the Bank’s subsidiaries in paying dividends or repaying loans and advances. All regulated banking subsidiaries

are required to maintain capital at levels agreed with the regulators; this may impact those subsidiaries’ ability to make distributions.

Note 10: Other assets


	2022 £m	2021 £m
Property, plant and equipment:
Premises	466	509
Equipment	1,121	1,372
Right-of-use assets (note 11)	626	690
	2,213	2,571
Settlement balances	52	51
Prepayments	575	488
Other assets	246	363
Total other assets	3,086	3,473

Lloyds Bank plc

Notes to the Bank financial statements

Note 8: Other intangible assets

193

The table below sets out the movement in the Bank's right-of-use assets, which are primarily in respect of premises, and are recognised within

other assets (note 10).


	2022 £m	2021 £m
At 1 January	690	778
Exchange and other adjustments	–	(9)
Additions	80	54
Disposals	(12)	(4)
Depreciation charge for the year	(132)	(129)
At 31 December	626	690

The Bank's lease liabilities are recognised within other liabilities (note 15). The maturity analysis of the Bank's lease liabilities on an undiscounted

basis is set out in the liquidity risk section of note 25. The total cash outflow for leases in the year ended 31 December 2022 was £107 million

(2021: £135 million).

Note 12: Financial liabilities at fair value through profit or loss


	2022 £m	2021 £m
Liabilities designated at fair value through profit or loss: debt securities in issue	9,244	9,821

At 31 December 2022 £8,904 million (2021: £9,543 million) of financial liabilities at fair value through profit or loss had a contractual residual

maturity of greater than one year.

Liabilities designated at fair value through profit or loss primarily represent debt securities in issue which either contain substantive embedded

derivatives which would otherwise need to be recognised and measured at fair value separately from the related debt securities, or which are

accounted for at fair value to significantly reduce an accounting mismatch.

The Bank has £4,112 million (2021: £3,317 million) of debt securities in issue which are accounted for at fair value to significantly reduce an

accounting mismatch. The changes in the credit risk of these liabilities are linked to the changes in credit risk on corresponding assets that the

Bank holds at fair value through profit or loss, representing debt securities issued by subsidiaries. Given the economic relationship between

these assets and liabilities, the Bank presents changes in the credit risk of these liabilities in profit or loss in order to avoid creating or enlarging

an accounting mismatch.

Note 13: Debt securities in issue


	2022 £m	2021 £m
Senior unsecured notes issued	16,683	19,916
Covered bonds	13,485	15,809
Certificates of deposit issued	1,607	290
Securitisation notes	278	176
Commercial paper	7,766	2,248
Total debt securities in issue	39,819	38,439

At 31 December 2022 £23,301 million (2021: £26,967 million) of debt securities in issue had a contractual residual maturity of greater than one

year.

Lloyds Bank plc

Notes to the Bank financial statements

Note 11: Lessee disclosures

194

The Bank’s deferred tax assets and liabilities are as follows:


Statutory position	2022 £m	2021 £m	Tax disclosure	2022 £m	2021 £m
Deferred tax assets	3,556	2,434	Deferred tax assets	4,361	3,861
Deferred tax liabilities	–	–	Deferred tax liabilities	(805)	(1,427)
Asset at 31 December	3,556	2,434	Asset at 31 December	3,556	2,434

The statutory position reflects the deferred tax assets and liabilities as disclosed in the Bank balance sheet and takes into account the ability of

the Bank to net assets and liabilities where there is a legally enforceable right of offset. The tax disclosure of deferred tax assets and liabilities

ties to the amounts outlined in the tables below which splits the deferred tax assets and liabilities by type, before such netting.

Movements in deferred tax assets and liabilities (before taking into consideration the offsetting of balances within the same taxing jurisdiction)

can be summarised as follows:


Deferred tax assets	Tax losses £m	Property, plant and equipment £m	Provisions £m	Share- based payments £m	Pension liabilities £m	Derivatives £m	Asset revaluations £m	Other temporary differences £m	Total £m
At 1 January 2021	2,507	305	160	18	30	–	–	22	3,042
Credit (charge) to the income statement	683	101	14	(8)	6	–	–	(13)	783
Credit to other comprehensive income	–	–	36	–	–	–	–	–	36
At 31 December 2021	3,190	406	210	10	36	–	–	9	3,861
Credit (charge) to the income statement	(29)	(74)	106	(3)	(16)	(316)	2	16	(314)
Credit (charge) to other comprehensive income	–	–	(155)	–	–	989	–	–	834
At 31 December 2022	3,161	332	161	7	20	673	2	25	4,381

Deferred tax liabilities			Capitalised software enhancements £m		Pension assets £m	Derivatives £m	Asset revaluations1 £m	Other temporary differences £m	Total £m
At 1 January 2021				(212)	(207)	(505)	(5)	(4)	(933)
Charge to the income statement				(44)	(8)	(1)	(1)	–	(54)
(Charge) credit to other comprehensive income				–	(584)	190	(46)	–	(440)
At 31 December 2021				(256)	(799)	(316)	(52)	(4)	(1,427)
(Charge) credit to the income statement				110	19	316	(1)	(94)	350
Credit to other comprehensive income				–	199	–	53	–	252
At 31 December 2022				(146)	(581)	–	–	(98)	(825)

1Financial assets at fair value through other comprehensive income.

At 31 December 2022 the Bank carried deferred tax assets of £3,556 million (2021: £2,434 million) principally relating to tax losses carried

forward.

Estimation of income taxes includes the assessment of recoverability of deferred tax assets. Deferred tax assets are only recognised to the

extent that they are considered more likely than not to be recoverable based on existing tax laws and forecasts of future taxable profits against

which the underlying tax deductions can be utilised. The Bank has recognised a deferred tax asset of £3,161 million (2021: £3,190 million) in

respect of trading losses carried forward, this will be utilised as taxable profits arise.

Deferred tax not recognised

Deferred tax assets of £118 million (2021: £116 million have not been recognised in respect of £467 million of UK tax losses and other temporary

differences which can only be used to offset future capital gains. UK capital losses can be carried forward indefinitely.

No deferred tax has been recognised in respect of foreign trade losses where it is not more likely than not that we will be able to utilise them in

future periods. Of the asset not recognised, £16 million (2021: £nil) relates to losses that will expire if not used within 20 years, and £5 million

(2021: £3 million) relates to losses with no expiry date.

As a result of parent company exemptions on dividends from subsidiaries and on capital gains on disposal there are no significant taxable

temporary differences associated with investments in subsidiaries, branches, associates and joint arrangements.

Note 15: Other liabilities


	2022 £m	2021 £m
Settlement balances	59	51
Lease liabilities	706	777
Other creditors and accruals	2,495	2,300
Total other liabilities	3,260	3,128

The maturity analysis of the Bank's lease liabilities on an undiscounted basis is set out in the liquidity risk section of note 25.

Lloyds Bank plc

Notes to the Bank financial statements

Note 14: Deferred tax

195


	2022 £m	2021 £m
Amounts recognised in the balance sheet
Retirement benefit assets	2,075	2,420
Retirement benefit obligations	(50)	(101)
Total amounts recognised in the balance sheet	2,025	2,319

The total amounts recognised in the balance sheet relate to:


	2022 £m	2021 £m
Defined benefit pension schemes	2,046	2,384
Other post-retirement benefit schemes	(21)	(65)
Total amounts recognised in the balance sheet	2,025	2,319

Pension schemes

Defined benefit schemes

(i)Characteristics of and risks associated with the Bank’s schemes

Note 27 to the consolidated financial statements outlines the characteristics of and risks associated with the Group's and the Bank's defined

benefit pension schemes; the two significant schemes for the Bank are the Lloyds Bank Pension Scheme No. 1 and the Lloyds Bank Pension

Scheme No. 2.

(ii)Amounts in the financial statements


	2022 £m	2021 £m
Amount included in the balance sheet
Present value of funded obligations	(18,485)	(29,222)
Fair value of scheme assets	20,531	31,606
Net amount recognised in the balance sheet	2,046	2,384


	2022 £m	2021 £m
Net amount recognised in the balance sheet
At 1 January	2,384	727
Net defined benefit pension charge	(53)	(113)
Actuarial gains on defined benefit obligation	10,027	553
Return on plan assets	(11,919)	397
Employer contributions	1,605	821
Exchange and other adjustments	2	(1)
At 31 December	2,046	2,384


	2022 £m	2021 £m
Movements in the defined benefit obligation
At 1 January	(29,222)	(30,597)
Current service cost	(82)	(100)
Interest expense	(560)	(435)
Remeasurements:
Actuarial losses – experience	(635)	(431)
Actuarial gains (losses) – demographic assumptions	178	(82)
Actuarial gains – financial assumptions	10,484	1,066
Benefits paid	1,369	1,361
Past service cost	(2)	(4)
Settlements	–	1
Exchange and other adjustments	(15)	(1)
At 31 December	(18,485)	(29,222)

Lloyds Bank plc

Notes to the Bank financial statements

Note 16: Retirement benefit obligations

196


	2022 £m	2021 £m
Analysis of the defined benefit obligation
Active members	(1,730)	(3,085)
Deferred members	(5,184)	(9,527)
Pensioners	(10,618)	(15,238)
Dependants	(953)	(1,372)
At 31 December	(18,485)	(29,222)


	2022 £m	2021 £m
Changes in the fair value of scheme assets
At 1 January	31,606	31,324
Return on plan assets excluding amounts included in interest income	(11,919)	397
Interest income	612	450
Employer contributions	1,605	821
Benefits paid	(1,369)	(1,361)
Settlements	–	(1)
Administrative costs paid	(21)	(24)
Exchange and other adjustments	17	–
At 31 December	20,531	31,606

(iii)Composition of scheme assets


	2022			2021
	Quoted £m	Unquoted £m	Total £m	Quoted £m	Unquoted £m	Total £m
Equity instruments	4	31	35	424	24	448
Debt instruments1:
Fixed interest government bonds	1,527	–	1,527	4,346	–	4,346
Index-linked government bonds	8,527	–	8,527	14,407	–	14,407
Corporate and other debt securities	2,400	–	2,400	8,105	–	8,105
	12,454	–	12,454	26,858	–	26,858
Pooled investment vehicles	267	12,888	13,155	800	8,942	9,742
Money market instruments, cash, derivatives and other assets and liabilities	325	(5,438)	(5,113)	(154)	(5,288)	(5,442)
At 31 December	13,050	7,481	20,531	27,928	3,678	31,606

1Of the total debt instruments £11,077 million (2021: £23,627 million) were investment grade (credit ratings equal to or better than ‘BBB’).

The assets of all of the funded plans are held independently of the Bank’s assets in separate trustee-administered funds.

The pension schemes’ pooled investment vehicles comprise:


	2022 £m	2021 £m
Equity funds	1,022	2,616
Hedge and mutual funds	161	934
Alternative credit funds	1,433	2,476
Property funds	1,208	1,151
Infrastructure funds	471	645
Liquidity funds	8,564	1,488
Bond and debt funds	296	432
At 31 December	13,155	9,742

The Trustee’s approach to investment is focused on acting in the members’ best financial interests, with the integration of ESG (Environmental,

Social and Governance) considerations into investment management processes and practices. This policy is reviewed annually (or more

frequently as required) and has been shared with the schemes’ investment managers for implementation.

Climate change is one of the risks the schemes manage given its potential financial impact on valuation of assets.

Lloyds Bank plc

Notes to the Bank financial statements

Note 16: Retirement benefit obligations (continued)

197

(iv)Assumptions

Note 27 to the consolidated financial statements includes details of the assumptions used in the valuations of the Group's and the Bank's

defined benefit pension schemes, including information on anticipated life expectancy.

(v)Amount, timing and uncertainty of future cash flows

Risk exposure of the defined benefit schemes

Note 27 to the consolidated financial statements includes details of the significant risks faced by the Group and the Bank in relation to their

defined benefit schemes.

Sensitivity analysis

The effect of reasonably possible changes in key assumptions on the value of scheme liabilities and the resulting pension charge in the Bank’s

income statement and on the net defined benefit pension scheme asset, for the Bank’s two most significant schemes, is set out below. The

sensitivities provided assume that all other assumptions and the value of the schemes’ assets remain unchanged, and are not intended to

represent changes that are at the extremes of possibility. The calculations are approximate in nature and full detailed calculations could lead to

a different result. It is unlikely that isolated changes to individual assumptions will be experienced in practice. Due to the correlation of

assumptions, aggregating the effects of these isolated changes may not be a reasonable estimate of the actual effect of simultaneous changes

in multiple assumptions.


	Effect of reasonably possible alternative assumptions
	Increase (decrease) in the income statement charge		(Increase) decrease in the net defined benefit pension scheme surplus
	2022 £m	2021 £m	2022 £m	2021 £m
Inflation (including pension increases)1:
Increase of 0.1 per cent	9	7	167	309
Decrease of 0.1 per cent	(8)	(7)	(159)	(306)
Discount rate2:
Increase of 0.1 per cent	(15)	(14)	(239)	(480)
Decrease of 0.1 per cent	15	13	243	492
Expected life expectancy of members:
Increase of one year	26	27	505	1,253
Decrease of one year	(26)	(26)	(517)	(1,200)

1At 31 December 2022, the assumed rate of RPI inflation is 3.13 per cent and CPI inflation 2.69 per cent (2021: RPI 3.21 per cent and CPI 2.92 per cent).

2At 31 December 2022, the assumed discount rate is 4.93 per cent (2021: 1.94 per cent).

Sensitivity analysis method and assumptions

The sensitivity analysis above reflects the impact on the liabilities of the Bank’s two most significant schemes which account for over 98 per cent

of the Bank’s defined benefit obligations. While differences in the underlying liability profiles for the remainder of the Bank’s pension

arrangements mean that they may exhibit slightly different sensitivities to variations in these assumptions, the sensitivities provided above are

indicative of the impact across the Bank as a whole.

The inflation assumption sensitivity applies to the assumed rate of increase in both the Consumer Price Index (CPI) and the Retail Price Index

(RPI), and includes the impact on the rate of increases to pensions, both before and after retirement. These pension increases are linked to

inflation (either CPI or RPI) subject to certain minimum and maximum limits.

The sensitivity analysis (including the inflation sensitivity) does not include the impact of any change in the rate of salary increases as

pensionable salaries have been frozen since 2 April 2014.

The life expectancy assumption has been applied by allowing for an increase/decrease in life expectation from age 60 of one year, based upon

the approximate weighted average age for each scheme. While this is an approximate approach and will not give the same result as a one year

increase in life expectancy at every age, it provides an appropriate indication of the potential impact on the schemes from changes in life

expectancy.

There was no change in the methods and assumptions used in preparing the sensitivity analysis from the prior year.

Lloyds Bank plc

Notes to the Bank financial statements

Note 16: Retirement benefit obligations (continued)

198

Asset-liability matching strategies

Note 27 to the consolidated financial statements includes a discussion of the measures taken by the Group and the Bank to match scheme

assets and liabilities.

Maturity profile of defined benefit obligation

The following table provides information on the weighted average duration of the defined benefit pension obligation and the distribution and

timing of benefit payments:


	2022 Years	2021 Years
Duration of the defined benefit obligation	14	16

Maturity analysis of benefits expected to be paid:


	2022 £m	2021 £m
Within 12 months	994	940
Between 1 and 2 years	1,021	1,013
Between 2 and 5 years	3,217	3,188
Between 5 and 10 years	5,985	6,029
Between 10 and 15 years	5,923	6,170
Between 15 and 25 years	10,706	11,499
Between 25 and 35 years	7,273	7,925
Between 35 and 45 years	3,053	3,485
In more than 45 years	606	774

Maturity analysis method and assumptions

The projected benefit payments are based on the assumptions underlying the assessment of the obligations, including allowance for expected

future inflation. They are shown in their undiscounted form and therefore appear large relative to the discounted assessment of the defined

benefit obligations recognised in the Bank’s balance sheet. They are in respect of benefits that have been accrued prior to the respective year-

end date only and make no allowance for any benefits that may have been accrued subsequently.

Defined contribution schemes

The Bank operates a number of defined contribution pension schemes in the UK and overseas, principally Your Tomorrow and the defined

contribution sections of the Lloyds Bank Pension Scheme No. 1.

Other post-retirement benefit schemes

The Bank operates a number of schemes which provide post-retirement healthcare benefits to certain employees, retired employees and their

dependants. Under the principal scheme the Bank has undertaken to meet the cost of post-retirement healthcare for all eligible former

employees (and their dependants) who retired prior to 1 January 1996. The Bank has entered into an insurance contract to provide these

benefits and a provision has been made for the estimated cost of future insurance premiums payable.

For the principal post-retirement healthcare scheme, the latest actuarial valuation of the liability was carried out at 31 December 2022 by

qualified independent actuaries. The principal assumptions used were as set out in note 27 to the consolidated financial statements.

Movements in the other post-retirement benefits obligation:


	2022 £m	2021 £m
At 1 January	(65)	(68)
Actuarial gains	44	1
Insurance premiums paid	2	2
Charge for the year	(1)	(1)
Exchange and other adjustments	(1)	1
At 31 December	(21)	(65)

Lloyds Bank plc

Notes to the Bank financial statements

Note 16: Retirement benefit obligations (continued)

199


	Preferred securities £m	Undated £m	Dated £m	Total £m
At 1 January 2021	1,572	414	5,765	7,751
Issued in the year:
3.916% Subordinated Fixed Rate Notes 2048 (US$1,500 million)	–	–	1,074	1,074
3.724% Dated Subordinated Fixed Rate Reset notes 2041 (£500 million)	–	–	888	888
2.754% Dated Subordinated Fixed Rate Reset notes 2032 (US$1,750 million)	–	–	1,300	1,300
	–	–	3,262	3,262
Repurchases and redemptions during the year1:
Series 2 (US$500 million)	–	(94)	–	(94)
Series 3 (US$600 million)	–	(120)	–	(120)
Series 1 (US$750 million)	–	(96)	–	(96)
4.553% Subordinated Fixed Rate Note 2021 (US$1,500 million)	–	–	(1,122)	(1,122)
4.293% Subordinated Fixed Rate Note 2021 (US$824 million)	–	–	(612)	(612)
4.503% Subordinated Fixed Rate Note 2021 (US$1,353 million)	–	–	(1,004)	(1,004)
	–	(310)	(2,738)	(3,048)
Foreign exchange movements	17	(1)	(40)	(24)
Other movements (cash and non-cash)	37	(1)	(70)	(34)
At 31 December 2021	1,626	102	6,179	7,907
Issued in the year:
8.133% Dated Subordinated Fixed Rate Reset notes 2033 (US$1,000 million)	–	–	837	837
Repurchases and redemptions during the year1:
12% Fixed to Floating Rate Perpetual Tier 1 Capital Securities callable 2024 (US$2,000 million)	(1,399)	–	–	(1,399)
13% Sterling Step-up Perpetual Capital Securities callable 2029 (£700 million)	(221)	–	–	(221)
7.625% Dated Subordinated Notes 2025 (£750 million)	–	–	(502)	(502)
	(1,620)	–	(502)	(2,122)
Foreign exchange movements	(6)	–	445	439
Other movements (cash and non-cash)	–	–	(1,141)	(1,141)
At 31 December 2022	–	102	5,818	5,920

1Issuances in the year generated cash inflows of £837 million (2021: £3,262 million); the repurchases and redemptions resulted in cash outflows of £2,156 million (2021: £3,049 million).

2Other movements include cash payments in respect of interest on subordinated liabilities in the year amounted to £290 million (2021: £423 million) offset by the interest expense in respect

of subordinated liabilities of £300 million (2021: £484 million).

Certain of the above securities were issued or redeemed under exchange offers, which did not result in an extinguishment of the original

financial liability for accounting purposes.

These securities will, in the event of the winding-up of the issuer, be subordinated to the claims of depositors and all other creditors of the

issuer, other than creditors whose claims rank equally with, or are junior to, the claims of the holders of the subordinated liabilities. The

subordination of specific subordinated liabilities is determined in respect of the issuer and any guarantors of that liability. The claims of holders

of preference shares and preferred securities are generally junior to those of the holders of undated subordinated liabilities, which in turn are

junior to the claims of holders of the dated subordinated liabilities. The Bank has not had any defaults of principal, interest or other breaches

with respect to its subordinated liabilities during 2022 (2021: none).

Note 18: Share capital, share premium and other equity instruments

Details of the Bank’s share capital, share premium account and other equity instruments are as set out in notes 31, 32 and 35 to the

consolidated financial statements.

Lloyds Bank plc

Notes to the Bank financial statements

Note 17: Subordinated liabilities

200


	2022 £m	2021 £m	2020 £m
Revaluation reserve in respect of debt securities held at fair value through other comprehensive income	(4)	105	14
Revaluation reserve in respect of equity shares held at fair value through other comprehensive income	–	–	–
Cash flow hedging reserve	(1,732)	720	1,367
Foreign currency translation reserve	2	(1)	1
At 31 December	(1,734)	824	1,382

The revaluation reserves in respect of debt securities and equity shares held at fair value through other comprehensive income represent the

cumulative after-tax unrealised change in the fair value of financial assets so classified since initial recognition; or in the case of financial assets

obtained on acquisitions of businesses, since the date of acquisition.

The cash flow hedging reserve represents the cumulative after-tax gains and losses on effective cash flow hedging instruments that will be

reclassified to the income statement in the periods in which the hedged item affects profit or loss.

The foreign currency translation reserve represents the cumulative after-tax gains and losses on the translation of foreign operations and

exchange differences arising on financial instruments designated as hedges of the Bank’s net investment in foreign operations.

Movements in other reserves were as follows:


Revaluation reserve in respect of debt securities held at fair value through other comprehensive income	2022 £m	2021 £m	2020 £m
At 1 January	105	14	103
Change in fair value	(50)	139	12
Deferred tax	23	(47)	(8)
Current tax	–	–	–
	(27)	92	4
Income statement transfers in respect of disposals	(118)	(2)	(138)
Deferred tax	30	–	44
	(88)	(2)	(94)
Impairment recognised in the income statement	6	1	1
At 31 December	(4)	105	14


Revaluation reserve in respect of equity shares held at fair value through other comprehensive income	2022 £m	2021 £m	2020 £m
At 1 January	–	–	–
Change in fair value	–	–	–
Deferred tax	(1)	1	4
	(1)	1	4
Realised gains and losses transferred to retained profits	–	–	–
Deferred tax	1	(1)	(4)
	1	(1)	(4)
At 31 December	–	–	–


Cash flow hedging reserve	2022 £m	2021 £m	2020 £m
At 1 January	720	1,367	1,607
Change in fair value of hedging derivatives	(3,089)	(438)	85
Deferred tax	894	82	(66)
	(2,195)	(356)	19
Net income statement transfers	(352)	(399)	(355)
Deferred tax	95	108	96
	(257)	(291)	(259)
At 31 December	(1,732)	720	1,367


Foreign currency translation reserve	2022 £m	2021 £m	2020 £m
At 1 January	(1)	1	–
Currency translation differences arising in the year	3	(2)	1
At 31 December	2	(1)	1

Lloyds Bank plc

Notes to the Bank financial statements

Note 19: Other reserves

201


	2022 £m	2021 £m	2020 £m
At 1 January	43,681	42,677	42,470
Profit attributable to ordinary shareholders (see below)	3,276	3,249	224
Post-retirement defined benefit scheme remeasurements	(1,232)	556	(102)
Gains and losses attributable to own credit risk (net of tax)	364	(52)	(55)
Dividends paid1	–	(2,900)	–
Issue of other equity instruments	–	(1)	–
Repurchases and redemptions of other equity instruments	–	(9)	–
Capital contributions received	221	164	140
Return of capital contributions	(4)	(4)	(4)
Realised gains and losses on equity shares held at fair value through other comprehensive income	(1)	1	4
At 31 December	46,305	43,681	42,677

1Details of the Bank’s dividends are as set out in note 36 to the consolidated financial statements.

The profit after tax of the Bank was arrived at as follows:


	2022 £m	2021 £m	2020 £m
Net interest income	7,605	4,606	4,519
Net fee and commission income	800	848	655
Dividends received	1,850	1,391	44
Net trading and other operating income	1,027	1,956	2,952
Other income	3,677	4,195	3,651
Total income	11,282	8,801	8,170
Operating expenses	(6,430)	(6,273)	(5,828)
Impairment (charge) credit	(745)	773	(1,898)
Profit before tax	4,107	3,301	444
Tax (expense) credit	(590)	292	197
Profit for the year	3,517	3,593	641

Profit attributable to ordinary shareholders	3,276	3,249	224
Profit attributable to other equity holders	241	344	417
Profit for the year	3,517	3,593	641

Lloyds Bank plc

Notes to the Bank financial statements

Note 20: Retained profits

202

Key management personnel

The key management personnel of the Group and the Bank are the same. The relevant disclosures are given in note 38 to the consolidated

financial statements.

Balances and transactions with fellow Lloyds Banking Group undertakings

Balances and transactions between members of the Lloyds Bank Group

The Bank, as a result of its position as parent of a banking group, has a large number of transactions with various of its subsidiary undertakings;

these are included on the balance sheet of the Bank as follows:


	2022 £m	2021 £m
Assets, included within:
Financial assets at fair value through profit or loss	4,192	3,404
Derivative financial instruments	4,566	3,299
Financial assets at amortised cost: due from fellow Lloyds Banking Group undertakings	118,689	107,907
	127,447	114,610
Liabilities, included within:
Due to fellow Lloyds Banking Group undertakings	17,891	21,540
Derivative financial instruments	5,076	2,508
Debt securities in issue	79	59
	23,046	24,107

Due to the size and volume of transactions passing through these accounts, it is neither practical nor meaningful to disclose information on

gross inflows and outflows. During 2022 the Bank earned interest income on the above asset balances of £3,423 million (2021: £1,933 million;

2020: £1,995 million) and incurred interest expense on the above liability balances of £787 million (2021: £327 million; 2020: £336 million).

In addition, the Bank raised recharges of £2,099 million (2021: £1,609 million; 2020: £1,403 million) on its subsidiaries in respect of costs incurred

and also received fees of £22 million (2021: £70 million; 2020: £56 million), and paid fees of £6 million (2021: £31 million; 2020: £26 million), for

various services provided between the Bank and its subsidiaries.

During the year the Bank transferred direct ownership of its subsidiary MBNA Limited to Bank of Scotland plc, also a subsidiary of the Bank, for

a cash consideration of £1 with the remainder funded by a capital contribution of £1,229 million from the Bank.

Details of contingent liabilities and commitments entered into on behalf of fellow Lloyds Banking Group undertakings are given in note 39.

Balances and transactions with Lloyds Banking Group plc and fellow subsidiaries of the Bank

The Bank has balances due to and from the Bank’s parent company, Lloyds Banking Group plc and fellow subsidiaries of the Bank. These are

included on the Group's balance sheet as follows:


	2022 £m	2021 £m
Assets, included within:
Derivative financial instruments	1,120	634
Financial assets at amortised cost: due from fellow Lloyds Banking Group undertakings	593	517
	1,713	1,151
Liabilities, included within:
Due to fellow Lloyds Banking Group undertakings	2,451	1,332
Financial liabilities at fair value through profit or loss	4,112	3,318
Derivative financial instruments	1,033	633
Debt securities in issue	13,380	14,650
Subordinated liabilities	6,618	5,311
	27,594	25,244

These balances include Lloyds Banking Group plc’s banking arrangements and, due to the size and volume of transactions passing through

these accounts, it is neither practical nor meaningful to disclose information on gross inflows and outflows. During 2022 the Bank earned

£11 million interest income on the above asset balances (2021: £11 million; 2020: £5 million) and the Bank incurred £570 million interest expense

on the above liability balances (2021: £468 million; 2020: £461 million).

Other related party transactions

Related party information in respect of other related party transactions is given in note 38 to the consolidated financial statements.

Lloyds Bank plc

Notes to the Bank financial statements

Note 21: Related party transactions

203

Note 39 to the consolidated financial statements outlines the significant contingent liabilities of the Group and the Bank, other than those

arising from the banking business which are detailed below.

Contingent liabilities, commitments and guarantees arising from the banking business


	2022 £m	2021 £m
Contingent liabilities
Acceptances and endorsements	58	21
Other:
Other items serving as direct credit substitutes	779	375
Performance bonds, including letters of credit, and other transaction-related contingencies	1,966	1,681
	2,745	2,056
Total contingent liabilities	2,803	2,077


	2022 £m	2021 £m
Incurred on behalf of fellow Lloyds Banking Group undertakings	–	–

The contingent liabilities of the Bank arise in the normal course of banking business and it is not practicable to quantify their future financial

effect.


	2022 £m	2021 £m
Commitments and guarantees
Forward asset purchases and forward deposits placed	39	55
Undrawn formal standby facilities, credit lines and other commitments to lend:
Less than 1 year original maturity:
Mortgage offers made	1,135	1,001
Other commitments and guarantees	24,955	29,871
	26,090	30,872
1 year or over original maturity	34,620	27,063
Total commitments and guarantees	60,749	57,990


	2022 £m	2021 £m
Incurred on behalf of fellow Lloyds Banking Group undertakings	3,141	3,055

Of the amounts shown above in respect of undrawn formal standby facilities, credit lines and other commitments to lend, £34,788 million (2021:

£30,653 million) was irrevocable.

Lloyds Bank plc

Notes to the Bank financial statements

Note 22: Contingent liabilities, commitments and guarantees

204

(1)Measurement basis of financial assets and liabilities

The accounting policies in note 2 to the consolidated financial statements describe how different classes of financial instruments are measured,

and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the

financial assets and liabilities by category and by balance sheet heading.

Derivatives

designated

as hedging

instruments

£m

Mandatorily held at

fair value through

profit or loss

Designated

at fair value

through profit

or loss

£m

At fair value

through other

comprehensive

income

£m

Held at

amortised

cost

£m

Total

£m

Held for

trading

£m

Other

£m

At 31 December 2022

Financial assets

Cash and balances at central banks

–

66,783

Items in the course of collection from

banks

–

182

Financial assets at fair value through

profit or loss

–

4,994

–

4,994

Derivative financial instruments

7,787

–

7,793

Loans and advances to banks

–

7,984

Loans and advances to customers

–

113,948

Reverse repurchase agreements

–

39,259

Debt securities

–

6,471

Due from fellow Lloyds Banking Group

undertakings

–

119,282

Financial assets at amortised cost

–

286,944

Financial assets at fair value through

other comprehensive income

–

22,675

–

22,675

Total financial assets

7,787

4,994

–

22,675

353,909

389,371

Financial liabilities

Deposits from banks

–

4,465

Customer deposits

–

269,473

Repurchase agreements at amortised

cost

–

18,380

Due to fellow Lloyds Banking Group

undertakings

–

20,342

Items in course of transmission to banks

–

238

Financial liabilities at fair value through

profit or loss

–

9,244

–

9,244

Derivative financial instruments

498

9,849

–

10,347

Debt securities in issue

–

39,819

Other

–

706

Subordinated liabilities

–

5,920

Total financial liabilities

498

9,849

–

9,244

–

359,343

378,934

Lloyds Bank plc

Notes to the Bank financial statements

Note 23: Financial instruments

205

Derivatives

designated

as hedging

instruments

£m

Mandatorily held at

fair value through

profit or loss

Designated

at fair value

through profit

or loss

£m

At fair value

through other

comprehensive

income

£m

Held at

amortised

cost

£m

Total

£m

Held for

trading

£m

Other

£m

At 31 December 2021

Financial assets

Cash and balances at central banks

–

49,618

Items in the course of collection from

banks

–

Financial assets at fair value through

profit or loss

–

4,529

–

4,529

Derivative financial instruments

6,861

–

6,898

Loans and advances to banks

–

4,291

Loans and advances to customers

–

116,716

Reverse repurchase agreements

–

49,708

Debt securities

–

3,756

Due from fellow Lloyds Banking Group

undertakings

–

108,424

Financial assets at amortised cost

–

282,895

Financial assets at fair value through

other comprehensive income

–

25,529

–

25,529

Total financial assets

6,861

4,529

–

25,529

332,612

369,568

Financial liabilities

Deposits from banks

–

2,768

Customer deposits

–

268,683

Repurchase agreements at amortised

cost

–

Due to fellow Lloyds Banking Group

undertakings

–

22,872

Items in course of transmission to banks

–

207

Financial liabilities at fair value through

profit or loss

–

9,821

–

9,821

Derivative financial instruments

310

5,792

–

6,102

Debt securities in issue

–

38,439

Other

–

777

Subordinated liabilities

–

7,907

Total financial liabilities

310

5,792

–

9,821

–

341,731

357,654

Lloyds Bank plc

Notes to the Bank financial statements

Note 23: Financial instruments (continued)

206

(2)Fair value measurement

Note 41 to the consolidated financial statements outlines the valuation hierarchy into which financial instruments of the Group and the Bank

measured at fair value are categorised and discusses valuation methodologies.

(3)Financial assets and liabilities carried at fair value

(A)Financial assets, excluding derivatives

Valuation hierarchy

At 31 December 2022, the Bank’s financial assets carried at fair value, excluding derivatives, totalled £27,669 million (2021: £30,058 million). The

table below analyses these financial assets by balance sheet classification, asset type and valuation methodology (level 1, 2 or 3, as described on

page 148). The fair value measurement approach is recurring in nature. There were no significant transfers between level 1 and 2 during the

year.


	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
At 31 December 2022
Financial assets at fair value through profit or loss
Loans and advances to customers	–	798	–	798
Corporate and other debt securities	–	4,192	–	4,192
Equity shares	–	–	4	4
Total financial assets at fair value through profit or loss	–	4,990	4	4,994
Financial assets at fair value through other comprehensive income
Debt securities:
Government securities	10,720	357	–	11,077
Asset-backed securities	–	87	–	87
Corporate and other debt securities	531	10,980	–	11,511
	11,251	11,424	–	22,675
Total financial assets at fair value through other comprehensive income	11,251	11,424	–	22,675
Total financial assets carried at fair value, excluding derivatives	11,251	16,414	4	27,669
At 31 December 2021
Financial assets at fair value through profit or loss
Loans and advances to customers	–	1,088	33	1,121
Corporate and other debt securities	–	3,404	–	3,404
Equity shares	–	–	4	4
Total financial assets at fair value through profit or loss	–	4,492	37	4,529
Financial assets at fair value through other comprehensive income
Debt securities:
Government securities	14,445	–	–	14,445
Asset-backed securities	–	–	–	–
Corporate and other debt securities	640	10,444	–	11,084
	15,085	10,444	–	25,529
Total financial assets at fair value through other comprehensive income	15,085	10,444	–	25,529
Total financial assets carried at fair value, excluding derivatives	15,085	14,936	37	30,058

Lloyds Bank plc

Notes to the Bank financial statements

Note 23: Financial instruments (continued)

207

Movements in level 3 portfolio

The table below analyses movements in level 3 financial assets, excluding derivatives, carried at fair value (recurring measurement).


	2022			2021
	Financial assets at fair value through profit or loss £m	Financial assets at fair value through other comprehensive income £m	Total level 3 assets carried at fair value, excluding derivatives (recurring basis) £m	Financial assets at fair value through profit or loss £m	Financial assets at fair value through other comprehensive income £m	Total level 3 assets carried at fair value, excluding derivatives (recurring basis) £m
At 1 January	37	–	37	517	–	517
Exchange and other adjustments	–	–	–	5	–	5
Gains recognised in the income statement within other income	–	–	–	6	–	6
Purchases/increases to customer loans	–	–	–	393	–	393
Sales/repayments of customer loans	(33)	–	(33)	(499)	–	(499)
Transfers into the level 3 portfolio	–	–	–	4	–	4
Transfers out of the level 3 portfolio	–	–	–	(389)	–	(389)
At 31 December	4	–	4	37	–	37
Gains recognised in the income statement, within other income, relating to the change in fair value of those assets held at 31 December	–	–	–	11	–	11

(B)Financial liabilities, excluding derivatives

Valuation hierarchy

At 31 December 2022, the Bank’s financial liabilities carried at fair value, excluding derivatives, comprised its financial liabilities at fair value

through profit or loss and totalled £9,244 million (2021: £9,821 million). The table below analyses these financial liabilities by balance sheet

classification and valuation methodology (level 1, 2 or 3, as described on page 148). The fair value measurement approach is recurring in nature.

There were no significant transfers between level 1 and 2 during the year.


	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
At 31 December 2022
Financial liabilities at fair value through profit or loss
Debt securities in issue designated at fair value through profit or loss	–	9,244	–	9,244
Total financial liabilities carried at fair value, excluding derivatives	–	9,244	–	9,244
At 31 December 2021
Financial liabilities at fair value through profit or loss
Debt securities in issue designated at fair value through profit or loss	–	9,821	–	9,821
Total financial liabilities carried at fair value, excluding derivatives	–	9,821	–	9,821

Lloyds Bank plc

Notes to the Bank financial statements

Note 23: Financial instruments (continued)

208

(C)Derivatives

Valuation hierarchy

All of the Bank’s derivative assets and liabilities are carried at fair value. At 31 December 2022, such assets totalled £7,793 million (2021:

£6,898 million) and liabilities totalled £(10,347) million (2021: £6,102 million). The table below analyses these derivative balances by valuation

methodology (level 1, 2 or 3, as described on page 148). The fair value measurement approach is recurring in nature. There were no significant

transfers between level 1 and level 2 during the year.


	2022				2021
	Level 1 £m	Level 2 £m	Level 3 £m	Total £m	Level 1 £m	Level 2 £m	Level 3 £m	Total £m
Derivative assets	–	7,793	–	7,793	–	6,882	16	6,898
Derivative liabilities	–	(10,334)	(13)	(10,347)	–	(6,071)	(31)	(6,102)

Movements in level 3 portfolio

The table below analyses movements in level 3 derivative assets and liabilities carried at fair value.


	2022		2021
	Derivative assets £m	Derivative liabilities £m	Derivative assets £m	Derivative liabilities £m
At 1 January	16	(31)	14	(60)
Gains recognised in the income statement within other income	1	26	2	29
Purchases (additions)	–	(9)	–	–
Transfers out of the level 3 portfolio	(17)	1	–	–
At 31 December	–	(13)	16	(31)
Gains recognised in the income statement, within other income, relating to the change in fair value of those assets or liabilities held at 31 December	–	25	2	29

(3)Financial assets and liabilities carried at amortised cost

(A)Financial assets

Valuation hierarchy

The table below analyses the fair values of the financial assets of the Bank which are carried at amortised cost by valuation methodology (level 1,

2 or 3, as described on page 148). Financial assets carried at amortised cost are mainly classified as level 3 due to significant unobservable

inputs used in the valuation models. Where inputs are observable, debt securities are classified as level 1 or 2.


	Carrying value £m	Fair value £m	Valuation hierarchy
	Carrying value £m	Fair value £m	Level 1 £m	Level 2 £m	Level 3 £m
At 31 December 2022
Loans and advances to banks	7,984	7,984	–	–	7,984
Loans and advances to customers	113,948	112,542	–	–	112,542
Reverse repurchase agreements	39,259	39,259	–	39,259	–
Debt securities	6,471	6,479	167	6,312	–
Due from fellow Lloyds Banking Group undertakings	119,282	119,282	–	–	119,282
Financial assets at amortised cost	286,944	285,546	167	45,571	239,808
At 31 December 2021
Loans and advances to banks	4,291	4,291	–	–	4,291
Loans and advances to customers	116,716	116,117	–	–	116,117
Reverse repurchase agreements	49,708	49,708	–	49,708	–
Debt securities	3,756	3,817	–	3,817	–
Due from fellow Lloyds Banking Group undertakings	108,424	108,424	–	–	108,424
Financial assets at amortised cost	282,895	282,357	–	53,525	228,832

Lloyds Bank plc

Notes to the Bank financial statements

Note 23: Financial instruments (continued)

209

(B)Financial liabilities

Valuation hierarchy

The table below analyses the fair values of the financial liabilities of the Bank which are carried at amortised cost by valuation methodology

(level 1, 2 or 3, as described on page 148).


	Carrying value £m	Fair value £m	Valuation hierarchy
	Carrying value £m	Fair value £m	Level 1 £m	Level 2 £m	Level 3 £m
At 31 December 2022
Deposits from banks	4,465	4,465	–	4,465	–
Customer deposits	269,473	269,316	–	269,316	–
Repurchase agreements at amortised cost	18,380	18,380	–	18,380	–
Due to fellow Lloyds Banking Group undertakings	20,342	20,342	–	20,342	–
Debt securities in issue	39,819	39,594	–	39,594	–
Subordinated liabilities	5,920	5,974	–	5,974	–
At 31 December 2021
Deposits from banks	2,768	2,768	–	2,768	–
Customer deposits	268,683	268,700	–	268,700	–
Repurchase agreements at amortised cost	78	78	–	78	–
Due to fellow Lloyds Banking Group undertakings	22,872	22,872	–	22,872	–
Debt securities in issue	38,439	40,222	–	40,222	–
Subordinated liabilities	7,907	8,333	–	8,333	–

Note 24: Transfers of financial assets

There were no significant transferred financial assets which were derecognised in their entirety, but with ongoing exposure. Details of

transferred financial assets that continue to be recognised in full are as follows.

The Bank enters into repurchase and securities lending transactions in the normal course of business that do not result in derecognition of the

financial assets as substantially all of the risks and rewards, including credit, interest rate, prepayment and other price risks are retained by the

Bank. In all cases, the transferee has the right to sell or repledge the assets concerned.

The table below sets out the carrying values of the transferred assets and the associated liabilities. For repurchase and securities lending

transactions, the associated liabilities represent the Bank's obligation to repurchase the transferred assets. The liabilities shown in the table

below have recourse to the transferred assets.


	2022		2021
	Carrying value of transferred assets £m	Carrying value of associated liabilities £m	Carrying value of transferred assets £m	Carrying value of associated liabilities £m
Repurchase and securities lending transactions
Financial assets at fair value through other comprehensive income	11,552	6,052	8,626	5,745
Securitisation programmes
Financial assets at amortised cost:
Loans and advances to customers1	3,366	278	2,847	176

1The carrying value of transferred assets for the Bank includes amounts relating to assets transferred to structured entities which are fully consolidated into the Group. The liabilities

associated with such assets are issued by the structured entities.

Lloyds Bank plc

Notes to the Bank financial statements

Note 23: Financial instruments (continued)

210

Market risk

(A)Interest rate risk

Note 44 to the consolidated financial statements outlines the nature of the interest rate risk to which the Group and the Bank are exposed and

how this is managed.

At 31 December 2022 the aggregate notional principal of interest rate and other swaps (predominantly interest rate) designated as fair value

hedges was £50,425 million (2021: £56,698 million) with a net fair value liability of £497 million (2021: liability of £285 million) (note 4). The losses

on the hedging instruments were £78 million (2021: losses of £296 million).The gains on the hedged items attributable to the hedged risk were

£33 million (2021: gains of £282 million). The gains and losses relating to the fair value hedges are recorded in net trading income.

The notional principal of the interest rate swaps designated as cash flow hedges at 31 December 2022 was £47,621 million (2021:

£26,876 million) with a net fair value liability of £nil (2021: £nil) (note 4). In 2022, ineffectiveness recognised in the income statement that arises

from cash flow hedges was a loss of £32 million (2021: loss of £24 million).

Interest rate benchmark reform

Note 44 to the consolidated financial statements outlines the steps that the Group and the Bank are taking to manage the transition to

alternative benchmark rates.

At 31 December 2022, the Bank had the following significant exposures impacted by interest rate benchmark reform which had yet to transition

to the replacement benchmark rate:


	At 31 December 2022				At 31 December 2021
	GBP LIBOR £m	USD LIBOR £m	Other1 £m	Total £m	GBP LIBOR £m	USD LIBOR £m	Other £m	Total £m
Non-derivative financial assets
Financial assets at fair value through profit or loss	–	–	–	–	33	96	–	129
Loans and advances to banks	–	67	–	67	–	3,252	–	3,252
Loans and advances to customers	27	670	2	699	2,912	1,924	–	4,836
Due from fellow Lloyds Banking Group undertakings	–	–	–	–	7	127	–	134
Financial assets at amortised cost	27	737	2	766	2,919	5,303	–	8,222
	27	737	2	766	2,952	5,399	–	8,351
Non-derivative financial liabilities
Financial liabilities at fair value through profit or loss	–	100	–	100	–	100	3	103
Debt securities in issue2	–	1,216	310	1,526	–	3,548	6	3,554
	–	1,316	310	1,626	–	3,648	9	3,657
Derivative notional/contract amount
Interest rate	1	96,420	653	97,074	1,411	120,502	10	121,923
Cross currency	–	14,210	921	15,131	–	21,868	–	21,868
	1	110,630	1,574	112,205	1,411	142,370	10	143,791

1Balances within Other include Canadian Dollar Offered Rate for which a cessation announcement, effective after 28 June 2024, was published on 16 May 2022.

2Includes capital related issuances of £3,494 million held by Lloyds Banking Group plc.

As at 31 December 2022, the IBOR balances in the above table relate to contracts that have not transitioned to an alternative benchmark rate. In

the case of Sterling LIBOR, these are contracts that have cash flows determined on a synthetic LIBOR basis.

Of the £110,630 million of USD derivative notional balances as at 31 December 2022, £19,299 million relate to contracts with their final LIBOR

fixing prior to LIBOR cessation and £70,764 million relate to contracts settled through the London Clearing House. Of the remaining

£20,567 million, £20,557 million are fallback-eligible.

The Bank’s most significant remaining IBOR hedge accounting relationship in relation to benchmark reform is USD LIBOR, of which:

•The interest rate benchmark reforms also affect assets and liabilities designated in fair value hedges. At 31 December 2022, these assets had a

notional amount of £1,864 million and liabilities had a notional value of £6,511 million. At 31 December 2021 such assets had a notional value

of £3,370 million and liabilities had a notional value of £8,129 million. These fair value hedges principally relate debt securities in issue.

•At 31 December 2022, the notional amount of the hedging instruments in hedging relationships to which these amendments apply was

£9,877 million, all of which relates to fair value hedges. At 31 December 2021, the notional amount of the hedging instruments in hedging

relationships to which these amendments applied was £15,462 million, all of which relates to fair value hedges.

(B)Foreign exchange risk

Note 44 to the consolidated financial statements outlines the nature of the foreign exchange risk to which the Group and the Bank are exposed

and the steps taken to manage this.

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management

211

Credit risk

(A)Maximum credit exposure

The maximum credit risk exposure of the Bank in the event of other parties failing to perform their obligations is detailed below. No account is

taken of any collateral held and the maximum exposure to loss is considered to be the balance sheet carrying amount or, for non-derivative off-

balance sheet transactions and financial guarantees, their contractual nominal amounts.


	2022			2021
	Maximum exposure £m	Offset1 £m	Net exposure £m	Maximum exposure £m	Offset1 £m	Net exposure £m
Financial assets at fair value through profit or loss2:
Loans and advances	798	–	798	1,121	–	1,121
Debt securities, treasury and other bills	4,192	–	4,192	3,404	–	3,404
	4,990	–	4,990	4,525	–	4,525
Derivative financial instruments	7,793	(1,657)	6,136	6,898	(2,019)	4,879
Financial assets at amortised cost, net3
Loans and advances to banks, net3	7,984	–	7,984	4,291	–	4,291
Loans and advances to customers, net3	113,948	(1,577)	112,371	116,716	(1,201)	115,515
Reverse repurchase agreements, net3	39,259	–	39,259	49,708	–	49,708
Debt securities, net3	6,471	–	6,471	3,756	–	3,756
	167,662	(1,577)	166,085	174,471	(1,201)	173,270
Financial assets at fair value through other comprehensive income	22,675	–	22,675	25,529	–	25,529
Off-balance sheet items:
Acceptances and endorsements	58	–	58	21	–	21
Other items serving as direct credit substitutes	779	–	779	375	–	375
Performance bonds, including letters of credit, and other transaction-related contingencies	1,966	–	1,966	1,681	–	1,681
Irrevocable commitments and guarantees	34,788	–	34,788	30,653	–	30,653
	37,591	–	37,591	32,730	–	32,730
	240,711	(3,234)	237,477	244,153	(3,220)	240,933

1Offset items comprise deposit amounts available for offset, and amounts available for offset under master netting arrangements, that do not meet the criteria under IAS 32 to enable loans

and advances and derivative assets respectively to be presented net of these balances in the financial statements.

2Excluding equity shares.

3Amounts shown net of related impairment allowances.

(B)Concentrations of exposure

Note 44 to the consolidated financial statements includes a discussion of how the Group and the Bank manage concentration risk.


	2022 £m	2021 £m
Agriculture, forestry and fishing	2,698	2,901
Energy and water supply	2,447	1,890
Manufacturing	2,996	3,113
Construction	3,333	3,613
Transport, distribution and hotels	9,451	10,001
Postal and telecommunications	2,166	1,506
Property companies	17,859	19,934
Financial, business and other services	18,977	17,217
Personal:
Mortgages1	42,771	46,089
Other	9,652	8,674
Lease financing	7	20
Hire purchase	2,963	2,934
Total loans and advances to customers before allowance for impairment losses	115,320	117,892
Allowance for impairment losses (note 5)	(1,372)	(1,176)
Total loans and advances to customers	113,948	116,716

1Includes both UK and overseas mortgage balances.

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management (continued)

212

(C)Credit quality of assets

Loans and advances

Note 44 to the consolidated financial statements includes details of the internal credit rating systems used by the Group and the Bank.


	Drawn exposures				Expected credit loss allowance
Gross drawn exposures and expected credit loss allowance	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
At 31 December 2022
Loans and advances to banks
CMS 1–5	797	–	–	797	–	–	–	–
CMS 6–10	7,186	–	–	7,186	9	–	–	9
CMS 11–14	7	3	–	10	–	–	–	–
CMS 15–18	–	–	–	–	–	–	–	–
CMS 19	–	–	–	–	–	–	–	–
CMS 20–23	–	–	–	–	–	–	–	–
	7,990	3	–	7,993	9	–	–	9
Loans and advances to customers
Retail – UK mortgages
RMS 1–3	33,607	3,474	–	37,081	5	18	–	23
RMS 4–6	964	1,982	–	2,946	1	15	–	16
RMS 7–9	4	484	–	488	–	7	–	7
RMS 10	–	187	–	187	–	4	–	4
RMS 11–13	–	433	–	433	–	16	–	16
RMS 14	–	–	944	944	–	–	69	69
	34,575	6,560	944	42,079	6	60	69	135
Retail – credit cards
RMS 1–3	1,110	2	–	1,112	2	–	–	2
RMS 4–6	1,500	375	–	1,875	13	19	–	32
RMS 7–9	300	377	–	677	10	53	–	63
RMS 10	–	63	–	63	–	15	–	15
RMS 11–13	–	93	–	93	–	38	–	38
RMS 14	–	–	73	73	–	–	27	27
	2,910	910	73	3,893	25	125	27	177
Retail – loans and overdrafts
RMS 1–3	322	–	–	322	1	–	–	1
RMS 4–6	3,449	206	–	3,655	51	11	–	62
RMS 7–9	961	312	–	1,273	39	40	–	79
RMS 10	29	102	–	131	3	23	–	26
RMS 11–13	9	218	–	227	2	87	–	89
RMS 14	–	–	133	133	–	–	69	69
	4,770	838	133	5,741	96	161	69	326
Retail – UK Motor Finance
RMS 1–3	348	4	–	352	2	–	–	2
RMS 4–6	6	3	–	9	–	–	–	–
RMS 7–9	–	2	–	2	–	–	–	–
RMS 10	–	1	–	1	–	–	–	–
RMS 11–13	–	3	–	3	–	1	–	1
RMS 14	–	–	13	13	–	–	7	7
	354	13	13	380	2	1	7	10
Retail – other
RMS 1–3	229	1	–	230	1	–	–	1
RMS 4–6	328	102	–	430	–	5	–	5
RMS 7–9	–	–	–	–	–	–	–	–
RMS 10	–	–	–	–	–	–	–	–
RMS 11–13	–	–	–	–	–	–	–	–
RMS 14	–	–	63	63	–	–	26	26
	557	103	63	723	1	5	26	32
Total Retail	43,166	8,424	1,226	52,816	130	352	198	680

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management (continued)

213


	Drawn exposures				Expected credit loss allowance
Gross drawn exposures and expected credit loss allowance (continued)	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
At 31 December 2022
Commercial Banking
CMS 1–5	9,355	14	–	9,369	2	–	–	2
CMS 6–10	14,994	269	–	15,263	19	2	–	21
CMS 11–14	24,143	4,411	–	28,554	107	75	–	182
CMS 15–18	2,587	3,708	–	6,295	35	204	–	239
CMS 19	10	690	–	700	–	65	–	65
CMS 20–23	–	–	1,726	1,726	–	–	183	183
	51,089	9,092	1,726	61,907	163	346	183	692
Other1	597	–	–	597	–	–	–	–
Total loans and advances to customers	94,852	17,516	2,952	115,320	293	698	381	1,372

In respect of:
Retail	43,166	8,424	1,226	52,816	130	352	198	680
Commercial Banking	51,089	9,092	1,726	61,907	163	346	183	692
Other1	597	–	–	597	–	–	–	–
Total loans and advances to customers	94,852	17,516	2,952	115,320	293	698	381	1,372

1Drawn exposures Include centralised fair value hedge accounting adjustments.

Reverse repurchase agreements

Banks

CMS 1–5

3,292

–

3,292

–

CMS 6–10

258

–

258

–

CMS 11–14

–

CMS 15–18

–

CMS 19

–

CMS 20–23

–

3,550

–

3,550

–

Customers

CMS 1–5

3,752

–

3,752

–

CMS 6–10

31,957

–

31,957

–

CMS 11–14

–

CMS 15–18

–

CMS 19

–

CMS 20–23

–

35,709

–

35,709

–

Total reverse repurchase agreements

39,259

–

39,259

–

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management (continued)

214

Undrawn exposures

Expected credit loss allowance

Gross undrawn exposures and expected credit

loss allowance

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

At 31 December 2022

Retail – UK mortgages

RMS 1–3

1,134

–

1,135

–

RMS 4–6

–

RMS 7–9

–

RMS 10

–

RMS 11–13

–

RMS 14

–

1,134

–

1,135

–

Retail – credit cards

RMS 1–3

10,641

–

10,653

–

RMS 4–6

3,472

851

–

4,323

–

RMS 7–9

133

132

–

265

–

RMS 10

–

RMS 11–13

–

RMS 14

–

14,246

1,023

15,281

–

Retail – loans and overdrafts

RMS 1–3

2,379

–

2,379

–

RMS 4–6

925

125

–

1,050

–

RMS 7–9

145

–

222

–

RMS 10

–

RMS 11–13

–

RMS 14

–

3,452

254

3,715

–

Retail – UK Motor Finance

RMS 1–3

–

RMS 4–6

–

RMS 7–9

–

RMS 10

–

RMS 11–13

–

RMS 14

–

Retail – other

RMS 1–3

–

RMS 4–6

180

–

180

–

RMS 7–9

–

RMS 10

–

RMS 11–13

–

RMS 14

–

225

–

225

–

Total Retail

19,057

1,278

20,356

–

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management (continued)

215

Undrawn exposures

Expected credit loss allowance

Gross undrawn exposures and expected credit

loss allowance (continued)

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

At 31 December 2022

Commercial Banking

CMS 1–5

12,102

–

12,102

–

CMS 6–10

17,965

–

17,997

–

CMS 11–14

7,499

1,218

–

8,717

–

CMS 15–18

734

727

–

1,461

–

CMS 19

–

CMS 20–23

–

38,300

2,047

40,393

121

Other

CMS 1–5

–

CMS 6–10

–

CMS 11–14

–

CMS 15–18

–

CMS 19

–

CMS 20–23

–

Total

57,357

3,325

60,749

116

186

In respect of:

Retail

19,057

1,278

20,356

–

Commercial Banking

38,300

2,047

40,393

121

Other

–

Total

57,357

3,325

60,749

116

186

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management (continued)

216


	Drawn exposures				Expected credit loss allowance
Gross drawn exposures and expected credit loss allowance	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
At 31 December 2021
Loans and advances to banks
CMS 1–5	3,934	–	–	3,934	–	–	–	–
CMS 6–10	355	–	–	355	–	–	–	–
CMS 11–14	2	–	–	2	–	–	–	–
CMS 15–18	–	–	–	–	–	–	–	–
CMS 19	–	–	–	–	–	–	–	–
CMS 20–23	–	–	–	–	–	–	–	–
	4,291	–	–	4,291	–	–	–	–
Loans and advances to customers
Retail – UK mortgages
RMS 1–3	39,431	1,653	–	41,084	3	14	–	17
RMS 4–6	984	2,094	–	3,078	–	13	–	13
RMS 7–9	–	384	–	384	–	7	–	7
RMS 10	–	65	–	65	–	1	–	1
RMS 11–13	–	201	–	201	–	6	–	6
RMS 14	–	–	486	486	–	–	26	26
	40,415	4,397	486	45,298	3	41	26	70
Retail – credit cards1
RMS 1–3	1,321	4	–	1,325	3	–	–	3
RMS 4–6	1,321	296	–	1,617	13	13	–	26
RMS 7–9	200	204	–	404	8	25	–	33
RMS 10	–	33	–	33	–	7	–	7
RMS 11–13	–	57	–	57	–	22	–	22
RMS 14	–	–	72	72	–	–	32	32
	2,842	594	72	3,508	24	67	32	123
Retail – loans and overdrafts
RMS 1–3	669	1	–	670	2	–	–	2
RMS 4–6	3,147	305	–	3,452	43	14	–	57
RMS 7–9	528	158	–	686	22	18	–	40
RMS 10	10	41	–	51	1	8	–	9
RMS 11–13	2	132	–	134	–	46	–	46
RMS 14	–	–	152	152	–	–	77	77
	4,356	637	152	5,145	68	86	77	231
Retail – UK Motor Finance
RMS 1–3	273	4	–	277	1	–	–	1
RMS 4–6	17	7	–	24	–	–	–	–
RMS 7–9	2	4	–	6	–	–	–	–
RMS 10	–	1	–	1	–	–	–	–
RMS 11–13	–	4	–	4	–	–	–	–
RMS 14	–	–	26	26	–	–	13	13
	292	20	26	338	1	–	13	14
Retail – other1
RMS 1–3	156	3	–	159	–	1	–	1
RMS 4–6	699	130	–	829	3	2	–	5
RMS 7–9	1	24	–	25	–	2	–	2
RMS 10	–	–	–	–	–	–	–	–
RMS 11–13	–	8	–	8	–	2	–	2
RMS 14	–	–	81	81	–	–	31	31
	856	165	81	1,102	3	7	31	41
Total Retail	48,761	5,813	817	55,391	99	201	179	479

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management (continued)

217


	Drawn exposures				Expected credit loss allowance
Gross drawn exposures and expected credit loss allowance (continued)	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
At 31 December 2021
Commercial Banking1
CMS 1–5	9,520	34	–	9,554	1	–	–	1
CMS 6–10	17,726	283	–	18,009	18	–	–	18
CMS 11–14	24,600	3,009	–	27,609	69	68	–	137
CMS 15–18	1,741	2,231	–	3,972	11	105	–	116
CMS 19	117	714	–	831	–	30	–	30
CMS 20–23	–	–	1,881	1,881	–	–	235	235
	53,704	6,271	1,881	61,856	99	203	235	537
Other2	645	–	–	645	160	–	–	160
Total loans and advances to customers	103,110	12,084	2,698	117,892	358	404	414	1,176

In respect of:
Retail	48,761	5,813	817	55,391	99	201	179	479
Commercial Banking	53,704	6,271	1,881	61,856	99	203	235	537
Other2	645	–	–	645	160	–	–	160
Total loans and advances to customers	103,110	12,084	2,698	117,892	358	404	414	1,176

1Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth moving from Other to Retail; comparatives

have been presented on a consistent basis.

2Drawn exposures include centralised fair value hedge accounting adjustments and expected credit loss allowance includes a central adjustment of £160 million that was applied in respect of

uncertainty in the economic outlook.

Reverse repurchase agreements

Banks

CMS 1–5

2,901

–

2,901

–

CMS 6–10

–

CMS 11–14

–

CMS 15–18

–

CMS 19

–

CMS 20–23

–

2,996

–

2,996

–

Customers

CMS 1–5

10,399

–

10,399

–

CMS 6–10

36,313

–

36,313

–

CMS 11–14

–

CMS 15–18

–

CMS 19

–

CMS 20–23

–

46,712

–

46,712

–

Total reverse repurchase agreements

49,708

–

49,708

–

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management (continued)

218

Undrawn exposures

Expected credit loss allowance

Gross undrawn exposures and expected credit loss

allowance

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

Stage 1

£m

Stage 2

£m

Stage 3

£m

Total

£m

At 31 December 2021

Retail – UK mortgages

RMS 1–3

1,002

–

1,002

–

RMS 4–6

–

RMS 7–9

–

RMS 10

–

RMS 11–13

–

RMS 14

–

1,002

–

1,002

–

Retail – credit cards1

RMS 1–3

12,590

–

12,617

–

RMS 4–6

2,262

569

–

2,831

–

RMS 7–9

–

132

–

RMS 10

–

RMS 11–13

–

RMS 14

–

14,923

678

15,616

–

Retail – loans and overdrafts

RMS 1–3

2,876

–

2,876

–

RMS 4–6

680

–

739

–

RMS 7–9

–

RMS 10

–

RMS 11–13

–

RMS 14

–

3,613

103

3,726

–

Retail – UK Motor Finance

RMS 1–3

–

RMS 4–6

–

RMS 7–9

–

RMS 10

–

RMS 11–13

–

RMS 14

–

Retail – other1

RMS 1–3

–

RMS 4–6

186

–

186

–

RMS 7–9

–

RMS 10

–

RMS 11–13

–

RMS 14

–

228

–

229

–

Total Retail

19,768

782

20,575

–

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management (continued)

219


	Undrawn exposures				Expected credit loss allowance
Gross undrawn exposures and expected credit loss allowance (continued)	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total £m
At 31 December 2021
Commercial Banking1
CMS 1–5	14,474	1	–	14,475	1	–	–	1
CMS 6–10	14,658	45	–	14,703	11	1	–	12
CMS 11–14	5,987	1,057	–	7,044	18	13	–	31
CMS 15–18	178	276	–	454	4	15	–	19
CMS 19	143	29	–	172	–	3	–	3
CMS 20–23	–	–	66	66	–	–	4	4
	35,440	1,408	66	36,914	34	32	4	70
Other
CMS 1–5	–	–	–	–	–	–	–	–
CMS 6–10	501	–	–	501	–	–	–	–
CMS 11–14	–	–	–	–	–	–	–	–
CMS 15–18	–	–	–	–	–	–	–	–
CMS 19	–	–	–	–	–	–	–	–
CMS 20–23	–	–	–	–	–	–	–	–
	501	–	–	501	–	–	–	–
Total	55,709	2,190	91	57,990	57	53	4	114

In respect of:
Retail	19,768	782	25	20,575	23	21	–	44
Commercial Banking	35,440	1,408	66	36,914	34	32	4	70
Other	501	–	–	501	–	–	–	–
Total	55,709	2,190	91	57,990	57	53	4	114

1Reflects the new organisation structure, with Business Banking and Commercial Cards moving from Retail to Commercial Banking and Wealth moving from Other to Retail; comparatives

have been presented on a consistent basis.

Cash and balances at central banks

Significantly all of the Bank’s cash and balances at central banks of £66,783 million (2021: £49,618 million) are due from the Bank of England or

the Deutsche Bundesbank.

Debt securities held at amortised cost

An analysis by credit rating of the Bank's debt securities held at amortised cost is provided below:


	2022			2021
	Investment grade1 £m	Other2 £m	Total £m	Investment grade1 £m	Other2 £m	Total £m
Government securities	247	–	247	202	–	202
Asset-backed securities:
Mortgage-backed securities	3,423	–	3,423	1,151	–	1,151
Other asset-backed securities	1,384	–	1,384	1,115	–	1,115
	4,807	–	4,807	2,266	–	2,266
Corporate and other debt securities	1,422	–	1,422	1,288	–	1,288
Gross exposure	6,476	–	6,476	3,756	–	3,756
Allowance for impairment losses			(5)			–
Total debt securities held at amortised cost			6,471			3,756

1Credit ratings equal to or better than ‘BBB’.

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management (continued)

220

Financial assets at fair value through other comprehensive income (excluding equity shares)

An analysis of the Bank's financial assets at fair value through other comprehensive income is included in note 7. The credit quality of the Bank's

financial assets at fair value through other comprehensive income (excluding equity shares) is set out below:


	2022			2021
	Investment grade1 £m	Other2 £m	Total £m	Investment grade1 £m	Other2 £m	Total £m
Debt securities:
Government securities	11,077	–	11,077	14,445	–	14,445
Asset-backed securities	87	–	87	–	–	–
Corporate and other debt securities	11,470	41	11,511	11,084	–	11,084
	22,634	41	22,675	25,529	–	25,529
Total financial assets at fair value through other comprehensive income	22,634	41	22,675	25,529	–	25,529

1Credit ratings equal to or better than ‘BBB’.

2Other comprises not rated (2022: £41 million; 2021: £nil).

Derivative assets

An analysis of derivative assets is given in note 4. The Bank reduces exposure to credit risk by using master netting agreements and by

obtaining collateral in the form of cash or highly liquid securities. In respect of the Bank's net credit risk relating to derivative assets of

£6,136 million (2021: £4,879 million), cash collateral of £550 million (2021: £930 million) was held and a further £8 million (2021: £37 million) was

due from OECD banks.


	2022			2021
	Investment grade1 £m	Other2 £m	Total £m	Investment grade1 £m	Other2 £m	Total £m
Trading and other	2,000	101	2,101	2,847	86	2,933
Hedging	1	5	6	32	–	32
	2,001	106	2,107	2,879	86	2,965
Due from fellow Lloyds Banking Group undertakings			5,686			3,933
Total derivative financial instruments			7,793			6,898

1Credit ratings equal to or better than ‘BBB’.

2Other comprises sub-investment grade (2022: £7 million; 2021: £42 million) and not rated (2022: £99 million; 2021: £44 million).

Financial guarantees and irrevocable loan commitments

Financial guarantees represent undertakings that the Bank will meet a customer’s obligation to third parties if the customer fails to do so.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit.

The Bank is theoretically exposed to loss in an amount equal to the total guarantees or unused commitments, however, the likely amount of loss

is expected to be significantly less. Most commitments to extend credit are contingent upon customers maintaining specific credit standards.

(D)Collateral held as security for financial assets

The principal types of collateral accepted by the Bank include: residential and commercial properties; charges over business assets such as

premises, inventory and accounts receivable; financial instruments, cash and guarantees from third-parties. The terms and conditions associated

with the use of the collateral are varied and are dependent on the type of agreement and the counterparty. The Bank holds collateral against

loans and advances and irrevocable loan commitments; qualitative and, where appropriate, quantitative information is provided in respect of

this collateral below. Collateral held as security for financial assets at fair value through profit or loss and for derivative assets is also shown

below.

The Bank holds collateral in respect of loans and advances to banks and customers as set out below. The Bank does not hold collateral against

debt securities, comprising asset-backed securities and corporate and other debt securities, which are classified as financial assets held at

amortised cost.

Loans and advances to banks

There were reverse repurchase agreements which are accounted for as collateralised loans within loans and advances to banks with a carrying

value of £3,550 million (2021: £2,996 million), against which the Bank held collateral with a fair value of £nil (2021: £92 million).

These transactions were generally conducted under terms that are usual and customary for standard secured lending activities.

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management (continued)

221

Loans and advances to customers

Retail lending

Mortgages

An analysis by loan-to-value ratio of the Bank’s residential mortgage lending is provided below. The value of collateral used in determining the

loan-to-value ratios has been estimated based upon the last actual valuation, adjusted to take into account subsequent movements in house

prices, after making allowances for indexation error and dilapidations.

In some circumstances, where the discounted value of the estimated net proceeds from the liquidation of collateral (i.e. net of costs, expected

haircuts and anticipated changes in the value of the collateral to the point of sale) is greater than the estimated exposure at default, no credit

losses are expected and no ECL allowance is recognised.


	2022				2021
	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total gross £m	Stage 1 £m	Stage 2 £m	Stage 3 £m	Total gross £m
Less than 70 per cent	32,367	5,910	886	39,163	37,113	4,072	432	41,617
70 per cent to 80 per cent	1,656	411	36	2,103	2,588	246	29	2,863
80 per cent to 90 per cent	446	185	13	644	612	49	17	678
90 per cent to 100 per cent	105	36	3	144	90	10	3	103
Greater than 100 per cent	1	18	6	25	12	20	5	37
Total	34,575	6,560	944	42,079	40,415	4,397	486	45,298

Commercial lending

Reverse repurchase transactions

At 31 December 2022 there were reverse repurchase agreements which were accounted for as collateralised loans with a carrying value of

£35,709 million (2021: £46,712 million), against which the Bank held collateral with a fair value of £29,011 million (2021: £48,423 million), all of

which the Bank was able to repledge. These transactions were generally conducted under terms that are usual and customary for standard

secured lending activities.

Financial assets at fair value through profit or loss (excluding equity shares)

Securities held as collateral in the form of stock borrowed amounted to £16,676 million (2021: £7,090 million). Of this amount, £8,979 million

(2021: £1,214 million) had been resold or repledged as collateral for the Bank’s own transactions.

These transactions were generally conducted under terms that are usual and customary for standard secured lending activities.

Derivative assets, after offsetting of amounts under master netting arrangements

The Bank reduces exposure to credit risk by using master netting agreements and by obtaining collateral in the form of cash or highly liquid

securities. In respect of the net derivative assets after offsetting of amounts under master netting arrangements of £6,136 million (2021:

£4,879 million), cash collateral of £550 million (2021: £930 million) was held.

Irrevocable loan commitments and other credit-related contingencies

At 31 December 2022, the Bank held irrevocable loan commitments and other credit-related contingencies of £37,591 million (2021:

£32,730 million). Collateral is held as security, in the event that lending is drawn down, on £1,135 million (2021: £1,002 million) of these balances.

(E)Collateral pledged as security

The Group pledges assets primarily for repurchase agreements and securities lending transactions which are generally conducted under terms

that are usual and customary for standard securitised borrowing contracts.

Repurchase transactions

Amortised cost

There are balances arising from repurchase transactions with banks of £2,793 million (2021: £57 million), which include amounts due under the

Bank of England's Term Funding Scheme with additional incentives for SMEs (TFSME); the fair value of the collateral provided under these

agreements at 31 December 2022 was £991 million (2021: £44 million).

There are balances arising from repurchase transactions with customers of £15,587 million (2021: £21 million); the fair value of the collateral

provided under these agreements at 31 December 2022 was £14,197 million (2021: £112 million).

Securities lending transactions

The following on-balance sheet financial assets have been lent to counterparties under securities lending transactions:


	2022 £m	2021 £m
Financial assets at fair value through other comprehensive income	5,669	2,946
Total	5,669	2,946

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management (continued)

222

Liquidity risk

The tables below analyse financial instrument liabilities of the Bank on an undiscounted future cash flow basis according to contractual maturity,

into relevant maturity groupings based on the remaining period at the balance sheet date; balances with no fixed maturity are included in the

over 5 years category. Certain balances, included in the table below on the basis of their residual maturity, are repayable on demand upon

payment of a penalty.


	Up to 1 month £m	1–3 months £m	3–12 months £m	1–5 years £m	Over 5 years £m	Total £m
At 31 December 2022
Deposits from banks	3,727	28	179	478	82	4,494
Customer deposits	264,274	1,538	2,085	1,468	110	269,475
Repurchase agreements at amortised cost	12,279	6,188	–	–	–	18,467
Financial liabilities at fair value through profit or loss	84	60	100	1,565	3,709	5,518
Debt securities in issue	3,854	7,715	6,186	20,961	4,839	43,555
Lease liabilities	6	29	95	297	351	778
Subordinated liabilities	24	26	488	4,264	7,455	12,257
Total non-derivative financial liabilities	284,248	15,584	9,133	29,033	16,546	354,544
Derivative financial liabilities:
Gross settled derivatives – outflows	2,730	3,214	3,433	7,274	3,084	19,735
Gross settled derivatives – inflows	(1,877)	(2,989)	(3,303)	(7,210)	(3,135)	(18,514)
Gross settled derivatives – net flows	853	225	130	64	(51)	1,221
Net settled derivative liabilities	2,298	(19)	54	271	213	2,817
Total derivative financial liabilities	3,151	206	184	335	162	4,038
At 31 December 2021
Deposits from banks	1,812	136	31	813	224	3,016
Customer deposits	266,179	989	618	765	432	268,983
Repurchase agreements at amortised cost	466	407	73	–	–	946
Financial liabilities at fair value through profit or loss	81	21	242	1,572	4,645	6,561
Debt securities in issue	3,802	4,559	5,426	22,704	3,815	40,306
Lease liabilities	1	32	83	300	434	850
Subordinated liabilities	9	17	339	4,708	5,254	10,327
Total non-derivative financial liabilities	272,350	6,161	6,812	30,862	14,804	330,989
Derivative financial liabilities:
Gross settled derivatives – outflows	2,545	544	3,827	10,416	4,343	21,675
Gross settled derivatives – inflows	(2,452)	(407)	(3,769)	(10,108)	(4,095)	(20,831)
Gross settled derivatives – net flows	93	137	58	308	248	844
Net settled derivative liabilities	2,125	(21)	(6)	145	320	2,563
Total derivative financial liabilities	2,218	116	52	453	568	3,407

The principal amount for undated subordinated liabilities with no redemption option is included within the over 5 years column; interest of

£11 million (2021: £12 million) per annum for the Bank which is payable in respect of those instruments for as long as they remain in issue is not

included beyond 5 years.

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management (continued)

223

The following table sets out the amounts and residual maturities of the Bank's off-balance sheet contingent liabilities, commitments and

guarantees.


	Within 1 year £m	1–3 years £m	3–5 years £m	Over 5 years £m	Total £m
At 31 December 2022
Acceptances and endorsements	58	–	–	–	58
Other contingent liabilities	1,650	540	180	375	2,745
Total contingent liabilities	1,708	540	180	375	2,803
Lending commitments and guarantees	26,090	6,984	10,187	17,449	60,710
Other commitments	–	–	10	29	39
Total commitments and guarantees	26,090	6,984	10,197	17,478	60,749
Total contingents, commitments and guarantees	27,798	7,524	10,377	17,853	63,552
At 31 December 2021
Acceptances and endorsements	21	–	–	–	21
Other contingent liabilities	1,227	216	227	386	2,056
Total contingent liabilities	1,248	216	227	386	2,077
Lending commitments and guarantees	30,872	14,213	9,180	3,670	57,935
Other commitments	–	18	–	37	55
Total commitments and guarantees	30,872	14,231	9,180	3,707	57,990
Total contingents, commitments and guarantees	32,120	14,447	9,407	4,093	60,067

Capital risk

Note 44 to the consolidated financial statements includes a discussion of the management of the capital risk faced by the Group and the Bank.

Note 26: Cash flow statement

(A)Change in operating assets


	2022 £m	2021 £m	2020 £m
Change in amounts due from fellow Lloyds Banking Group undertakings	(10,858)	20,347	73,506
Change in other financial assets held at amortised cost	7,993	15,167	(1,815)
Change in financial assets at fair value through profit or loss	(465)	(2,805)	(1,021)
Change in derivative financial instruments	(1,985)	6,085	753
Change in other operating assets	(53)	10	239
Change in operating assets	(5,368)	38,804	71,662

(B)Change in operating liabilities


	2022 £m	2021 £m	2020 £m
Change in deposits from banks and repurchase agreements	4,433	(7,479)	3,182
Change in customer deposits and repurchase agreements	16,356	4,231	24,711
Change in amounts due to fellow Lloyds Banking Group undertakings	(4,182)	(12,468)	(73,233)
Change in financial liabilities at fair value through profit or loss	(58)	1,828	135
Change in derivative financial instruments	4,245	(4,970)	(3,139)
Change in debt securities in issue	1,380	(9,670)	(13,400)
Change in other operating liabilities1	88	513	(249)
Change in operating liabilities	22,262	(28,015)	(61,993)

1Includes a decrease of £72 million (2021: decrease of £108 million; 2020: decrease of £42 million) in respect of lease liabilities.

Lloyds Bank plc

Notes to the Bank financial statements

Note 25: Financial risk management (continued)

224

(C)Non-cash and other items


	2022 £m	2021 £m	2020 £m
Depreciation and amortisation	1,462	1,671	1,325
Dividends and distributions on other equity instruments received from subsidiary undertakings	(1,975)	(1,503)	(211)
Allowance for loan losses	567	(648)	1,742
Write-off of allowance for loan losses, net of recoveries	(346)	(442)	(622)
Impairment charge (credit) relating to undrawn balances	73	(134)	155
Impairment of financial assets at fair value through other comprehensive income	6	1	1
Regulatory and legal provisions	127	196	312
Other provision movements	(95)	(71)	18
Additional capital injections to subsidiaries	(46)	(36)	(33)
Net charge in respect of defined benefit schemes	54	114	121
Foreign exchange impact on balance sheet1	(246)	(48)	491
Interest expense on subordinated liabilities	300	484	534
Other non-cash items	(959)	(867)	(339)
Total non-cash items	(1,078)	(1,283)	3,494
Contributions to defined benefit schemes	(1,607)	(823)	(650)
Payments in respect of regulatory and legal provisions	(132)	(190)	(959)
Other	–	237	(65)
Total other items	(1,739)	(776)	(1,674)
Non-cash and other items	(2,817)	(2,059)	1,820

1When considering the movement on each line of the balance sheet, the impact of foreign exchange rate movements is removed in order to show the underlying cash impact.

(D)Analysis of cash and cash equivalents as shown in the balance sheet


	2022 £m	2021 £m	2020 £m

Cash and balances at central banks	66,783	49,618	45,753
Less mandatory reserve deposits1	(957)	(963)	(954)
	65,826	48,655	44,799
Loans and advances to banks and reverse repurchase agreements	11,534	7,287	5,656
Less amounts with a maturity of three months or more	(6,571)	(3,712)	(2,387)
	4,963	3,575	3,269
Total cash and cash equivalents	70,789	52,230	48,068

1Mandatory reserve deposits are held with local central banks in accordance with statutory requirements. Where these deposits are not held in demand accounts and are not available to

finance the Bank’s day-to-day operations they are excluded from cash and cash equivalents.

Note 27: Other information

Lloyds Bank plc is incorporated as a public limited company and registered in England with the registered number 2065. Lloyds Bank plc’s

registered office is 25 Gresham Street, London, EC2V 7HN, and its principal executive offices are located at 25 Gresham Street, London,

EC2V 7HN.

Lloyds Bank plc and its subsidiaries form a leading UK-based financial services group, whose businesses provide a wide range of banking and

financial services in the UK and in certain locations overseas.

Lloyds Bank plc’s immediate parent undertaking and ultimate parent undertaking and controlling party is Lloyds Banking Group plc which is

incorporated in Scotland. Copies of the consolidated Annual Report and Accounts of Lloyds Banking Group plc may be obtained from Lloyds

Banking Group’s head office at 25 Gresham Street, London EC2V 7HN or downloaded via www.lloydsbankinggroup.com.

Lloyds Bank plc

Notes to the Bank financial statements

Note 26: Cash flow statement (continued)

225

In compliance with section 409 of the Companies Act 2006, the

following comprises a list of all related undertakings of the Group, as

at 31 December 2022. The list includes each undertaking’s registered

office and the percentage of the class(es) of shares held by the

Group. All shares held are ordinary shares unless indicated otherwise

in the notes.

Subsidiary undertakings

The Group directly or indirectly holds 100 per cent of the share class

and a majority of voting rights (including where the undertaking does

not have share capital as indicated) in the following undertakings. All

material subsidiary undertakings are consolidated by Lloyds Banking

Group.


Name of undertaking	Notes
A G Finance Ltd	17 ii iii
A.C.L. Ltd	1 i
ACL Autolease Holdings Ltd	1 i
Alex Lawrie Factors Ltd	9 i
Alex. Lawrie Receivables Financing Ltd	9 i
Amberdate Ltd	1 i v
Anglo Scottish Utilities Partnership 1	+ *
Aquilus Ltd	13 i ‡
Automobile Association Personal Finance Ltd	4 i
Bank of Scotland (B G S) Nominees Ltd	5 *
Bank of Scotland Branch Nominees Ltd	5 i
Bank of Scotland Central Nominees Ltd	5 *
Bank of Scotland Edinburgh Nominees Ltd	5 *
Bank of Scotland Equipment Finance Ltd	13 i ‡
Bank of Scotland plc	5 i v
Bank of Scotland Structured Asset Finance Ltd	1 i
Bank of Scotland Transport Finance 1 Ltd	13 i ‡
Bank of Wales Ltd	20 i
Barents Leasing Ltd	1 i
Birchcrown Finance Ltd	1 v vii
Birmingham Midshires Financial Services Ltd	4 i ‡
Birmingham Midshires Mortgage Services Ltd	13 i ‡
Black Horse (TRF) Ltd	1 i
Black Horse Finance Holdings Ltd	1 ii ix
Black Horse Finance Management Ltd	1 i
Black Horse Group Ltd	1 i v
Black Horse Ltd	1 i
Boltro Nominees Ltd	1 i
BOS (Ireland) Property Services 2 Ltd	16 i
BOS (Ireland) Property Services Ltd	27 i ‡
BOS (Shared Appreciation Mortgages (Scotland)) Ltd	4 i
BOS (Shared Appreciation Mortgages (Scotland) No. 2) Ltd	4 i
BOS (Shared Appreciation Mortgages (Scotland) No. 3) Ltd	4 i
BOS (Shared Appreciation Mortgages) No. 1 plc	4 # i
BOS (Shared Appreciation Mortgages) No. 2 plc	4 # i
BOS (Shared Appreciation Mortgages) No. 3 plc	4 # i
BOS (Shared Appreciation Mortgages) No. 4 plc	4 # i
BOS (Shared Appreciation Mortgages) No. 5 plc	4 i
BOS (Shared Appreciation Mortgages) No. 6 plc	4 i
BOS Personal Lending Ltd	4 ii iii
BOSSAF Rail Ltd	1 i
British Linen Leasing (London) Ltd	5 i
British Linen Leasing Ltd	5 i
British Linen Shipping Ltd	5 i
Capital 1945 Ltd	20 i


Name of undertaking	Notes
Capital Bank Leasing 3 Ltd	13 i ‡
Capital Bank Leasing 5 Ltd	20 i
Capital Bank Leasing 12 Ltd	5 i
Capital Bank Property Investments (3) Ltd	20 i
Capital Personal Finance Ltd	4 i
Cardnet Merchant Services Ltd	1 # ^ iii vi
Cashfriday Ltd	9 i
Caveminster Ltd	1 i
Cedar Holdings Ltd	13 i ‡
CF Asset Finance Ltd	13 i ‡
Cheltenham & Gloucester plc	12 i
Cloak Lane Funding S.A.R.L.	8 i
Cloak Lane Investments S.A.R.L.	8 i
Conquest Securities Ltd	1 v vii
Corbiere Asset Investments Ltd	1 ii iii
Dunstan Investments (UK) Ltd	1 i
Eurolead Services Holdings Ltd	9 i
First Retail Finance (Chester) Ltd	4 i
Forthright Finance Ltd	20 i
General Leasing (No. 12) Ltd	1 i
Gresham Nominee 1 Ltd	1 i
Gresham Nominee 2 Ltd	1 i
Halifax Group Ltd	4 i
Halifax Leasing (March No.2) Ltd	1 i
Halifax Leasing (September) Ltd	1 i
Halifax Ltd	4 i
Halifax Loans Ltd	4 i
Halifax Pension Nominees Ltd	1 i
Halifax Share Dealing Ltd	4 i
Halifax Vehicle Leasing (1998) Ltd	4 i
HBOS Covered Bonds LLP	4 *
HBOS Final Salary Trust Ltd	5 i
HBOS plc	5 i iv vi
HBOS Social Housing Covered Bonds LLP	20 *
HBOS UK Ltd	5 i
Heidi Finance Holdings (UK) Ltd	1 i
Hill Samuel Bank Ltd	1 i
Hill Samuel Finance Ltd	1 v x
Hill Samuel Leasing Co. Ltd	1 i
Home Shopping Personal Finance Ltd	4 i
HSDL Nominees Ltd	4 i
HVF Ltd	1 i
Hyundai Car Finance Ltd	17 ii iii
IBOS Finance Ltd	20 i
Intelligent Finance Software Ltd	4 i ‡
International Motors Finance Ltd	17 ii #
Kanaalstraat Funding C.V.	28 *
LB Healthcare Trustee Ltd	1 i
LB Share Schemes Trustees Ltd	1 i ‡
LBCF Ltd	9 i
LBI Leasing Ltd	1 i
Lex Autolease (CH) Ltd	1 i
Lex Autolease (VC) Ltd	1 i
Lex Autolease Carselect Ltd	1 i
Lex Autolease Ltd	1 i
Lex Vehicle Leasing (Holdings) Ltd	13 ii iii xi ‡

Lloyds Bank plc

Subsidiaries and related undertakings

226


Name of undertaking	Notes
Lex Vehicle Leasing Ltd	13 i ‡
Lime Street (Funding) Ltd	13 i ‡
Lloyds (Gresham) Ltd	1 i xi
Lloyds (Nimrod) Specialist Finance Ltd	1 i
Lloyds Asset Leasing Ltd	1 i
Lloyds Bank (Colonial & Foreign) Nominees Ltd	1 i
Lloyds Bank (I.D.) Nominees Ltd	1 i
Lloyds Bank Asset Finance Ltd	1 i
Lloyds Bank Commercial Finance Ltd	9 i
Lloyds Bank Commercial Finance Scotland Ltd	23 i
Lloyds Bank Corporate Asset Finance (HP) Ltd	1 i
Lloyds Bank Corporate Asset Finance (No.2) Ltd	1 i
Lloyds Bank Corporate Asset Finance (No.3) Ltd	1 i
Lloyds Bank Corporate Asset Finance (No.4) Ltd	1 i
Lloyds Bank Covered Bonds LLP	26 *
Lloyds Bank Covered Bonds (LM) Ltd	26 i
Lloyds Bank Equipment Leasing (No. 1) Ltd	1 i
Lloyds Bank Equipment Leasing (No. 7) Ltd	1 i
Lloyds Bank Equipment Leasing (No. 9) Ltd	1 i
Lloyds Bank Financial Services (Holdings) Ltd	1 i v
Lloyds Bank General Leasing (No. 3) Ltd	1 i
Lloyds Bank General Leasing (No. 5) Ltd	13 i ‡
Lloyds Bank General Leasing (No. 11) Ltd	1 i
Lloyds Bank General Leasing (No. 17) Ltd	13 i ‡
Lloyds Bank GmbH	29 i
Lloyds Bank Leasing (No. 6) Ltd	1 i
Lloyds Bank Leasing Ltd	1 i
Lloyds Bank Maritime Leasing (No. 10) Ltd	1 i
Lloyds Bank Maritime Leasing (No. 17) Ltd	13 i ‡
Lloyds Bank Nominees Ltd	1 i
Lloyds Bank Offshore Pension Trust Ltd	21 i
Lloyds Bank Pension ABCS (No. 1) LLP	1 *
Lloyds Bank Pension ABCS (No. 2) LLP	1 *
Lloyds Bank Pension Trust (No. 1) Ltd	1 i
Lloyds Bank Pension Trust (No. 2) Ltd	1 i
Lloyds Bank Pensions Property (Guernsey) Ltd	30 ii iii
Lloyds Bank Property Company Ltd	1 i
Lloyds Bank S.F. Nominees Ltd	1 i
Lloyds Bank Subsidiaries Ltd	1 i
Lloyds Bank Trustee Services Ltd	1 i
Lloyds Banking Group Pensions Trustees Ltd	1 i
Lloyds Capital GP Ltd	10 i
Lloyds Far East S.A.R.L.	8 i
Lloyds General Leasing Ltd	1 i
Lloyds Hypotheken B.V.	25 i
Lloyds Industrial Leasing Ltd	1 i
Lloyds Investment Bonds Ltd	13 i ‡
Lloyds Investment Securities No.5 Ltd	1 i
Lloyds Leasing (North Sea Transport) Ltd	1 i
Lloyds Leasing Developments Ltd	1 i
Lloyds Offshore Global Services Private Ltd	18 i
Lloyds Plant Leasing Ltd	1 i
Lloyds Portfolio Leasing Ltd	1 i
Lloyds Project Leasing Ltd	1 i
Lloyds Property Investment Company No. 4 Ltd	1 i
Lloyds Secretaries Ltd	1 i


Name of undertaking	Notes
Lloyds TSB Pacific Ltd	14 i
Lloyds UDT Asset Rentals Ltd	13 i ‡
Lloyds UDT Leasing Ltd	1 i
Lloyds UDT Ltd	13 i ‡
Lloyds Your Tomorrow Trustee Ltd	1 i
Loans.co.uk Ltd	20 i
London Taxi Finance Ltd	1 ii iii
Lotus Finance Ltd	17 ii iii
LTGP Limited Partnership Incorporated	30 *
Maritime Leasing (No. 19) Ltd	1 i
MBNA Ltd	20 i
Membership Services Finance Ltd	4 i
Mitre Street Funding S.A.R.L.	8 i
NFU Mutual Finance Ltd	20 ii viii #
Nordic Leasing Ltd	13 i ‡
NWS Trust Ltd	5 i
Pacific Leasing Ltd	1 i
Perry Nominees Ltd	1 i
PIPS Asset Investments Ltd	1 ii iii
Proton Finance Ltd	17 ii iii
R.F. Spencer and Company Ltd	9 i
Ranelagh Nominees Ltd	1 i
Retail Revival (Burgess Hill) Investments Ltd	1 i
Savban Leasing Ltd	1 i
Scotland International Finance B.V.	28 i
Scottish Widows Pension Trustees Ltd	3 i
Scottish Widows Services Ltd	3 i
Seabreeze Leasing Ltd	1 i
Seaspirit Leasing Ltd	1 i
Share Dealing Nominees Ltd	4 i
Shogun Finance Ltd	17 ii iii
St. Mary’s Court Investments	1 i
Standard Property Investment (1987) Ltd	5 ii #
Sussex County Homes Ltd	4 i
Suzuki Financial Services Ltd	17 ii #
The Agricultural Mortgage Corporation plc	22 i
The British Linen Company Ltd	5 i
The Mortgage Business plc	4 i
Thistle Leasing	+ *
Tower Hill Property Investments (7) Ltd	20 i #
Tower Hill Property Investments (10) Ltd	20 i #
Tranquility Leasing Ltd	1 i
UDT Budget Leasing Ltd	13 i ‡
United Dominions Leasing Ltd	1 i
United Dominions Trust Ltd	1 i
Upsaala Ltd	27 i ‡
Ward Nominees (Abingdon) Ltd	1 i
Ward Nominees (Birmingham) Ltd	1 i
Ward Nominees (Bristol) Ltd	1 i
Waymark Asset Investments Ltd	1 ii iii
Wood Street Leasing Ltd	1 i

Lloyds Bank plc

Subsidiaries and related undertakings

227

The Group has determined that it has the power to exercise control

over the following entities without having the majority of the voting

rights of the undertakings. Unless otherwise stated, the undertakings

do not have share capital or the Group does not hold any shares.


Name of undertaking	Notes
Addison Social Housing Holdings Ltd	31
Cancara Asset Securitisation Ltd	32
Candide Financing 2021-1 B.V.	15
Cardiff Auto Receivables Securitisation 2018-1 plc	6 ‡
Cardiff Auto Receivables Securitisation 2019-1 plc	26
Cardiff Auto Receivables Securitisation 2022-1 plc	26
Cardiff Auto Receivables Securitisation Holdings Ltd	26
Cheltenham Securities 2017 Ltd	31
Deva Financing Holdings Ltd	26
Deva Financing plc	6 ‡
Edgbaston RMBS 2010-1 plc	6 ‡
Edgbaston RMBS Holdings Ltd	26
Elland RMBS 2018 plc	26
Elland RMBS Holdings Ltd	26
Fontwell Securities 2016 Ltd	31
Fontwell II Securities 2020 DAC	24
Gresham Receivables (No. 3) Ltd	32
Gresham Receivables (No. 10) Ltd	32
Gresham Receivables (No.11) UK Ltd	19 ‡
Gresham Receivables (No. 13) UK Ltd	7
Gresham Receivables (No. 14) UK Ltd	19 ‡
Gresham Receivables (No. 15) UK Ltd	7
Gresham Receivables (No. 16) UK Ltd	7
Gresham Receivables (No. 19) UK Ltd	19 ‡
Gresham Receivables (No. 20) Ltd	32
Gresham Receivables (No. 24) Ltd	32
Gresham Receivables (No. 25) UK Ltd	19 ‡
Gresham Receivables (No. 26) UK Ltd	19 ‡
Gresham Receivables (No.27) UK Ltd	7
Gresham Receivables (No.28) Ltd	32
Gresham Receivables (No.29) Ltd	32
Gresham Receivables (No. 30) UK Ltd	19 ‡
Gresham Receivables (No. 31) UK Ltd	19 ‡
Gresham Receivables (No. 32) UK Ltd	7
Gresham Receivables (No. 33) UK Ltd	19 ‡
Gresham Receivables (No.34) UK Ltd	7
Gresham Receivables (No.35) Ltd	32
Gresham Receivables (No.36) UK Ltd	7
Gresham Receivables (No.37) UK Ltd	7
Gresham Receivables (No.38) UK Ltd	7
Gresham Receivables (No.39) UK Ltd	7
Gresham Receivables (No.40) UK Ltd	7
Gresham Receivables (No.41) UK Ltd	7
Gresham Receivables (No.44) UK Ltd	7
Gresham Receivables (No.45) UK Ltd	7
Gresham Receivables (No.46) UK Ltd	7
Gresham Receivables (No.47) UK Ltd	7
Gresham Receivables (No.48) UK Ltd	7
Guildhall Asset Purchasing Company (No.11) UK Ltd	7
Housing Association Risk Transfer 2019 DAC	24
Leicester Securities 2014 Ltd	2 ‡
Lingfield 2014 I Holdings Ltd	26
Lingfield 2014 I plc	6 ‡


Name of undertaking	Notes
Lloyds Bank Covered Bonds (Holdings) Ltd	26
Molineux RMBS 2016-1 plc	26
Molineux RMBS Holdings Ltd	26
Penarth Asset Securitisation Holdings Ltd	26
Penarth Funding 1 Ltd	26
Penarth Funding 2 Ltd	26
Penarth Master Issuer plc	26
Penarth Receivables Trustee Ltd	26
Permanent Funding (No. 1) Ltd	26
Permanent Funding (No. 2) Ltd	26
Permanent Holdings Ltd	26
Permanent Master Issuer plc	26
Permanent Mortgages Trustee Ltd	26
Permanent PECOH Holdings Ltd	26
Permanent PECOH Ltd	26
Salisbury Securities 2015 Ltd	31
Salisbury II Securities 2016 Ltd	31
Salisbury II-A Securities 2017 Ltd	31
Salisbury III Securities 2019 DAC	24
Stichting Holding Candide Financing	15
Stichting Security Trustee Candide 2021-1 B.V.	15
Syon Securities 2019 DAC	24
Syon Securities 2020 DAC	24
Syon Securities 2020-2 DAC	24
Wetherby II Securities 2018 DAC	11
Wetherby III Securities 2019 DAC	24
Wetherby Securities 2017 Ltd	31
Wilmington Cards 2021-1 plc	26
Wilmington Cards Holdings Ltd	26
Wilmington Receivables Trustee Ltd	26

Lloyds Bank plc

Subsidiaries and related undertakings

228

Associated undertakings

The Group has a participating interest in the following undertakings.


Name of undertaking	% of share class held by immediate parent company (or by the Group where this varies)	Registered office address	Notes
Addison Social Housing Ltd	20%	1 Bartholomew Lane, London, EC2N 2AX	i
Connery Ltd	20%	44 Esplanade, St. Helier, Jersey, JE4 9WG	i &
Omnium Leasing Company	n/a	n/a	+*


Registered office addresses
1	25 Gresham Street, London, EC2V 7HN
2	13-18 City Quay, Dublin, D02 ED70
3	69 Morrison Street, Edinburgh, EH3 8YF
4	Trinity Road, Halifax, West Yorkshire, HX1 2RG
5	The Mound, Edinburgh, EH1 1YZ
6	40a Station Road, Upminster, Essex, RM14 2TR
7	Wilmington Trust SP Services (London) Limited, Third Floor, 1 King’s Arms Yard, London, EC2R 7AF
8	17 Boulevard F.W. Raiffeisen, L-2411 Luxembourg
9	1 Brookhill Way, Banbury, Oxon, OX16 3EL
10	6th Floor, 125 London Wall, London, EC2Y 5AS
11	1-2 Victoria Buildings, Haddington Road, Dublin 4, Ireland
12	Barnett Way, Gloucester, GL4 3RL
13	1 More London Place, London, SE1 2AF
14	18th Floor, United Centre, 95 Queensway, Hong Kong
15	Basisweg 10, 1043 AP, Amsterdam
16	Suite 6, Rineanna House, Shannon Free Zone, Co. Clare, Ireland
17	St William House, Tresillian Terrace, Cardiff, CF10 5BH
18	6/12, Primrose Road, Bangalore, 560025, India
19	7th Floor, 21 Lombard Street, London, EC3V 9AH
20	Cawley House, Chester Business Park, Chester, CH4 9FB, United Kingdom
21	3rd Floor, IFC5, Castle Street, St. Helier, JE2 3BY, Jersey
22	Keens House, Anton Mill Road, Andover, Hampshire, SP10 2NQ
23	110 St. Vincent Street, Glasgow, G2 4QR
24	5th Floor, The Exchange, George’s Dock, IFSC, Dublin 1, Ireland
25	Fascinatio Boulevard 1302, 2909VA Capelle aan den IJssel, Netherlands
26	1 Bartholomew Lane, London, EC2N 2AX
27	McStay Luby, Dargan House, 21-23 Fenian Street, Dublin 2, Ireland
28	De Entrée 254, 1101 EE, Amsterdam, Netherlands
29	Karl-Liebknecht-STR. 5, D-10178 Berlin, Germany
30	PO Box 186, Royal Chambers, St Julian's Avenue, St Peter Port, GY1 4HP, Guernsey
31	44 Esplanade, St. Helier, Jersey, JE4 9WG
32	26 New Street, St. Helier, Jersey, JE2 3RA


Notes
*	The undertaking does not have share capital
+	The undertaking does not have a registered office
#	In relation to subsidiary undertakings, an undertaking external to the Group holds shares
^	Shares held directly by Lloyds Banking Group plc
&	The Group holds voting rights of between 20% and 49.9%
‡	The undertaking is in liquidation

i	Ordinary shares
ii	A Ordinary shares
iii	B Ordinary shares
iv	Non-voting preference shares
v	Preference shares
vi	Non-voting deferred shares
vii	Ordinary non-voting shares
viii	C Ordinary shares
ix	B Ordinary non-voting shares
x	Ordinary limited voting shares
xi	Redeemable preference shares

Lloyds Bank plc

Subsidiaries and related undertakings

229