Risk overview
Effective risk management and control
Risk management is a key element in shaping our business model
and delivering the Group’s strategy to enable sustainable growth.
A strong risk management culture is crucial to keep the Group, our
colleagues and our customers safe and secure from existing and
emerging risks.
Our approach to risk
The Group’s business model is based on a prudent approach to
risk, which guides participation decisions while safeguarding our
colleagues, customers and the Group. An overview of risk
management is included in this section, with the detailed risk
• A detailed overview of how risk is managed within the Group,
including the approach to risk appetite
• The framework by which these risks are identified, managed,
mitigated and monitored
Risk profile and performance
The Group has remained committed to maintaining support for its
customers despite challenges with the rising cost of living and
economic uncertainties in the global and domestic markets.
The Group’s loans and advances continue to be well positioned
and heightened monitoring is in place to identify signs of
affordability stress. The mortgage book remains resilient with
arrears below 2019, with the new Mortgage Charter providing
additional enhanced support to customers during 2023.
Unsecured and Commercial Banking portfolios continue to exhibit
stable new to arrears and default trends broadly at, or below, pre-
pandemic levels. Commercial Real Estate is demonstrating
resilience and is well diversified with no speculative commercial
development lending.
As part of the Group’s strategy, there will be continuing
investments in technology and infrastructure. The Group’s
operational resilience risks remain a key area of focus, particularly
relating to cyber risk and supply chain management.
The Group has overseen the embedding of its operational risk and
control framework during 2023 and its oversight of management
of financial crime risks and consumer fraud.
Climate risk remains a key priority for the Group, with positive
progress in 2023 and a commitment to continued focus in 2024.
The Group has enhanced the monitoring of progress against its
strategic ambitions, alongside ongoing development of
capabilities for measuring and managing key risks.
Our enterprise risk management framework
The enterprise risk management framework (ERMF) is the
foundation for the delivery of effective and consistent risk control
across Lloyds Banking Group. It enables proactive identification,
active management and monitoring of the Group’s risks, which is
supported by our risk and control self-assessment approach.
The ERMF is regularly updated to ensure it remains in line with
regulation, law, corporate governance and industry good
practice. The Board and senior management are responsible for
the approval of the ERMF, together with Group-wide risk principles
and policies. The effectiveness of the ERMF is assessed annually
with the results reported directly to the Board.
The Board and senior management set and embed a positive
culture of diversity, equity and inclusion. Lloyds Banking Group’s
Code of Ethics and Responsibility and our established values,
reinforce colleagues’ accountability for the risks they take, their
responsibility to explore customers’ needs and consistently deliver
good customer outcomes.
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 executive-level
metrics and cascaded into more detailed business metrics and
limits.
The Group adopts a continuous risk management approach, from
identifying the risks through risk and control self-assessment,
and managing the risks through to producing appropriate,
accurate and focused risk reporting. The Group ensures that the
appropriate risk resources and capabilities are in place, with
colleagues provided with the necessary training to give them the
skills they need.
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.
The three lines of defence model defines the responsibilities and
accountabilities for risk management, with effective independent
oversight and assurance. Business lines have primary
responsibility for the identification and management of risks, Risk
division provides oversight and challenge, and Group Internal
Audit provide independent assurance to the Board and Audit
Committee.
More information on our executive and Risk committees can be
Strategic report continued
5 | Lloyds Bank plc Annual Report and Accounts 2023 |
