The interim management statement call. At this time, all participants are in a listen-only mode. There will be an introduction from Charlie Nunn and a presentation by William Chalmers, followed by a question and answer session. At which time, if you wish to ask a question, you will need to press star one on your telephone. Please note that this call is scheduled for one hour. I must advise you that this call is being recorded today. I will now hand over to Charlie Nunn. Please go ahead.
Thank you, operator, and good morning, everyone. Thank you very much for joining our third quarter results presentation. I'd like to start by saying how pleased I am to be speaking to you today. It feels for me personally like it's been a long time coming, so it's great to be here with you. As you know, William would usually present a quarterly update, but I wanted to introduce myself to you. I'm gonna talk briefly about my initial thoughts since joining the group before handing over to William for the usual run-through of the financials.
This is my 11th week with the group, and since joining Lloyds in August, I've been struck by the power of the group's purpose of helping Britain prosper. This purpose runs through everything the organization does, and the group is clearly playing its part during the pandemic. I've also seen firsthand the strength of the group's colleagues, our customer franchise, and the breadth of our digital banking proposition. These are significant competitive advantages and are gonna give us a great base upon which to build.
The group has a strong stewardship mindset and a proven track record of managing risk. Alongside our balance sheet and capital strength, this will provide a springboard for growth in the future. The group has strong foundations, and we're now working on the detail of the next evolution of our strategy. I'm not going to talk today about our plan, as clearly they are still under development, but I want to let you know about some of the areas we will be thinking about.
Firstly, we have exciting opportunities to grow and deepen customer relationships across all of our businesses. Wealth and insurance we've talked about, but as I've started to land with the organization, I can see opportunities across all of our businesses. Secondly, the pandemic is driving a shift in how customers transact.
Given my digital experience, I'm now very focused on how we can support this transition and leverage the increasing adoption of technology by both our customers and based on the incredibly strong starting position Lloyds Banking Group has around its digital capabilities and services. Thirdly, our commitment to efficiency will remain unchanged. Finally, I'm also very focused on enhancing the group's investor proposition and delivering sustainable long-term returns and distributions while investing in the business.
I hope that gives you a quick sense of my initial views and some of the exciting opportunities we have. I will talk more about this in February when we will provide a strategic update alongside the full year results. With that, I'm gonna hand over to William. William.
Thank you, Charlie, and good morning, everyone. Before covering the Q3 financials, I'll turn first to the continued progress on the Strategic Review 2021, as outlined on slide three. We've made strong progress on the Strategic Review 2021, ensuring the group maintains momentum at a time of change, both for the organization and of course in the external environment. We're pleased with our progress, and we're delivering on our commitments. Underpinning our strategy, our focus for 2021 is on helping Britain recover.
In respect of this, we've so far delivered GBP 12.8 billion of lending to first-time buyers, exceeding our full-year target of GBP 10 billion. We're also expanding the availability of affordable and quality homes by increasing our funding to the Housing Growth Partnership. Within Scottish Widows, we have introduced a fossil fuel free fund, allowing pension savers to invest with a positive environmental impact.
We continue to make progress against our customer-focused ambitions. In becoming the preferred financial partner for personal customers, we've delivered our strongest open book mortgage growth in over a decade, generated GBP 5 billion of net new assets under administration in insurance and wealth, and announced the acquisition of Embark Group, which will complete our wealth capabilities. Customers continue to improve our service rankings.
We are exceeding our targets for both our all-channel Net Promoter Score as well as our mobile app NPS. In our ambition to be the best bank for business, we have seen over 50% growth in SME products originated digitally. Meanwhile, we continue to improve our core markets offering, improving our position in the league tables. Enhancing our capabilities is an important part of our Strategic Review 2021 commitments. As examples, we've continued to build our infrastructure, including further investing in a data-driven business.
We've delivered an improved merchant services proposition in the payments area. The latter, resulting in a 12% growth in new clients so far this year. Finally, we're rolling out hybrid ways of working for our colleagues, allowing us to remain on track for an 8% reduction in office space in 2031. I'll now turn to the financial update beginning on slide four. We saw a solid financial performance in the first nine months of the year, built upon continued business momentum. Net income of GBP 11.6 billion is recovering, up 8% on prior year, with Q3 up 5% on Q2.
Net interest income of GBP 2.9 billion in the quarter is benefiting from higher average interest-earning assets of GBP 447 billion on a Q3 margin of 255 basis points, which is up slightly on the second quarter. Other income of GBP 1.3 billion in the quarter is up 4% from Q2. Net income of GBP 11.6 billion includes a GBP 111 million operating lease depreciation charge in the quarter. This remains below our typical run rate, given the ongoing strength of used car prices.
As you heard from Charlie, we remain committed to efficiency. Our cost income ratio in the quarter was 48.3%. The small increase in costs versus prior year reflects the accelerated rebuild of variable pay, which I mentioned at the half year. This in turn reflects our stronger than expected financial performance. Underlying asset quality remains strong and combined with an improved macroeconomic outlook, supports a net impairment rate of GBP 84 million in the quarter, now totaling GBP 740 million in the year-to-date.
Based on all of these inputs, such strong profit before tax of GBP 5.9 billion for the nine months is significantly up against prior year and represents a solid recovery. Alongside, we have delivered continued balance sheet growth and strong capital build. The CET1 ratio now stands at 17.2%, up from 16.2% at 2020 year end. Now let me turn to slide five and cover the continued franchise growth seen in the third quarter. As you can see, continued mortgage growth was the main driver of our balance sheet momentum.
Growth in the open mortgage book slowed in the quarter versus Q2. Nonetheless, it was still up GBP 2.7 billion and is now GBP 15.3 billion higher than at the end of 2020. We're also just starting to see growth in credit card balances, which are up GBP 0.2 billion in the quarter, partly driven by a recovery in travel spend. We expect this gradual growth to continue over the coming quarters.
Commercial banking balances are up GBP 1.5 billion in the quarter, as we've seen higher corporate institutional drawings more than offset repayments for lending from government support schemes. On the other side of the balance sheet, we've seen continued inflows to our trusted brands. Deposit balances in retail are up GBP 4 billion in the quarter. Total group deposits are now up more than GBP 28 billion so far in 2021 and over GBP 67 billion since the end of 2019.
I've spoken before about how this significant deposit growth will give us opportunities to diversify our customer relationships and indeed, to increase our pool of hedgable balances. In the context of the balance sheet growth just touched upon, average interest earning assets saw growth of GBP 5 billion in Q3. AIEA now stand at GBP 443 billion for the year-to-date. We continue to expect low single-digit % AIEA growth for 2021 as a whole.
We expect mortgage growth to continue into next year, alongside a gradual recovery in unsecured balances in retail. In commercial balances, we expect AIEAs to be impacted by our government guaranteed loans being repaid and our ongoing optimization of that portfolio. I'll now turn to slide six, and resilient income performance in a little more detail. Net interest income of GBP 8.3 billion is up 2% on the first nine months of last year, with Q3 up 4% on Q2.
This was off the back of increasing average interest earning assets and a strengthening net interest margin of 255 basis points in Q3, up 4 basis points in the quarter. Within the net interest margin, mortgage completion margins were around 160 basis points in Q3. Application margins were below this level. However, we continue to see mortgage lending as attractive even at these lower rates from both a returns and an economic value perspective.
Overall, the impact of this competitive mortgage pricing on the group margin has been more than offset by improved income from structural hedge, higher deposit balances, and improved funding costs. Taken together, we expect the margin to continue to be solid in Q4 and for 2021 to be modestly above 250 basis points. This represents a slight improvement versus our expectations at the half year. We remain positively exposed to rate rises. We provide some new disclosure on this in the appendix.
You can see that we expect each 25 basis point parallel shift in the yield curve and associated base rate rise to benefit [inaudible] GBP 100 million in year one. The assumptions on this are as stated in that appendix, including an illustrative 50% pass-through assumption on deposits. It's worth noting that changes in competitive pricing behavior, pass-throughs, and other assumption changes can in fact have a significant impact on the actual outcome for moves in rates. Now turning to other income.
Performance has improved to GBP 3.8 billion for the year-to-date and GBP 1.3 billion in the quarter. The year has benefited from some gradual rebuilding of customer activity, as well as a strong contribution from the group's equity investment businesses. Within that grouping, Lloyds Development Capital income was particularly strong in Q3, based upon a couple of very attractive exits.
If you were to strip out the circa GBP 100 million outperformance in the quarter from these particular exits, you would then get to a more reasonable run rate for other income in the current operating environment. At this point, it's also worth noting that we've included a further appendix on IFRS 17 which will take effect in 2023.
IFRS 17, as you know, is an accounting change which will have some impact on the timing of income recognition from 2023, primarily from the switch to contractual service margin accounting instead of embedded value accounting. This switch will also reduce the volatility of earnings going forward. For a growing business such as ours, income from insurance new business initially falls and then gradually is added back in future years. Further explanation and illustrative effects are contained in the appendix.
In discussing IFRS 17, it's important to stress that there will be no change to the economic value of the insurance business, no change to the cash flows or the capital position of the insurance business, including its ability to pay a dividend and no change to the capital position of the group. Let me now turn to cost on slide seven.
Efficiency remains fundamental to our business model, and it continues to provide competitive advantage even in the context of the inflationary cost pressures we are all experiencing. Our market-leading cost-income ratio of 52.6% for the year-to-date is evidence of this. Operating costs, which is excluding remediation charges, were GBP 5.6 billion for the first nine months of the year. This is at 1% on the prior year, given the rebuild of variable pay we discussed at the interim.
We remain on track to deliver our operating cost guidance of circa GBP 7.6 billion for the year, while continuing to invest circa GBP 900 million on strategic initiatives in 2021. Remediation costs meanwhile were GBP 100 million in the quarter and now total GBP 525 million year-to-date. There were limited new FOS rating panel outcomes in Q3, but we continue to expect significant further charges in the coming quarters. Although uncertainty remains, we just need the run rate from FOS rating is likely to pick up in the fourth quarter.
Restructuring costs, which we report below the line, were GBP 386 million for nine months. As mentioned previously, higher technology R&D and severance costs are likely to drive an increase in restructuring costs for the full year as compared to 2020. Again, I would expect the run rate in this area to pick up in the fourth quarter. Now turning to slide 8 to look at impairments. At this point it remains strong, evidenced by the sustained low levels of new arrears and underlying charges below pre-COVID levels.
The net impairment credit of GBP 84 million in the quarter and GBP 740 million in the year-to-date is also significantly based on our improved macroeconomic outlook. Our outlook improved slightly in Q3 versus Q2, and in particular, our base case now assumes 2021 GDP growth of 6.3% and house price inflation of 4.8% with an unemployment rate peaking at 5.8% in Q4 2021. These base case economic assumptions remain prudent.
In this context, our ECL remains 1 billion higher than at year-end 2019, and within this, we have retained our circa GBP 1.2 billion of additional management judgments, reflecting pandemic and macroeconomic-related uncertainties ahead. With these underlying forecast changes, we now expect impairment for 2021 as a whole to be a net credit.
Let me now turn to capital on slide nine. Our CET1 ratio has increased to 17.2% in Q3, with 159 basis points of capital build year-to-date, supported by lower RWAs. Prudently, if we exclude the impact of both the software intangibles and all of the IFRS 9 transitional release, our CET1 ratio would still be 15.1%. Capital has remained significantly above our operating target of circa 12.5% plus the management buffer of circa 1%, as well as our regulatory capital requirements of circa 11%.
Moving forward, we expect the Embark acquisition to consume around 30 basis points on completion, likely to be in Q4 subject to regulatory approvals. As mentioned previously, we expect 2021 closing RWAs to be below GBP 200 billion and for 2022 to close at around GBP 210 billion after absorbing GBP 15 billion-GBP 20 billion of regulatory inflation on January 1st, 2022. We have a strong capital position and the board remains committed to capital returns.
We reintroduced a progressive and sustainable ordinary dividend policy at the half year. As usual, any further decisions on surplus capital distributions will be taken by the board at the full year. Now finally moving to slide 10. To summarize, we continue to support our customers through uncertain times and we're committed to helping Britain recover. We're delivering strong progress against the priorities of Strategic Review 2021, alongside a solid financial performance built on continued business momentum.
We have a strong capital position with a CET1 ratio of 17.2%, underpinned by capital build of 159 basis points in the first nine months of the year. Together, the group's financial performance and the improved macroeconomic outlook enable us to enhance the group's 2021 guidance, as you can see on slide. To go through that, the net interest margin is now expected to be modestly above 250 basis points. Operating costs are expected to be circa GBP 7.6 billion.
Impairment is now expected to be a net credit for the year. Return on tangible equity is now expected to be over 10%, excluding the circa 2.5% point benefit from tax rate changes. Risk-weighted assets in 2021 are expected to be below GBP 200 billion. In the medium term, we continue to target a return on tangible equity in excess of our cost of equity. Next time we report, and as Charlie mentioned earlier, we will provide a strategy update alongside the 2021 results.
For now, that concludes our prepared remarks for today. Thank you for listening. Charlie and I are now available to take your questions. It's probably worth re-emphasizing at this point that in the context of our ongoing strategic work, we're obviously not planning to answer questions on the outcome of that work. Nonetheless, we will do our best to answer all the other questions that you may have. With that, thank you very much for listening, and operator, over to you.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We will pause for just a moment to allow everyone an opportunity to signal for questions. Our first question comes from Joseph Dickerson from Jefferies. Please go ahead.
Hi, good morning. Thank you for taking the question. Just a quick question on the margin and the hedge. I think you flagged at the half-year results that you had GBP 30 billion of hedge maturities in H2. I guess, where do we stand on that now? And do you expect the hedge to continue to be a benefit to the margin?
I know that it was about one basis point of the four basis points quarter-over-quarter uplift in the margin. I think that the half year it was kind of around a two basis points headwind in the first half of the year. Do you expect that to continue to be a tailwind to-
Thank you, Joe. Couple of questions there. Just to take them in turn. The hedge maturities in H2, as we said at the half year, a further GBP 30 billion to be hedged. Most of that work has been done. As we sit here, I guess it's now end of October 2021, there's not much further hedging to be done for this year. In terms of the maturities next year, we're looking at around GBP 30 billion or so maturities over the course of 2022, and then it ticks up from that level during the course of 2023.
In terms of the impact on the margins before that, Joe, your second question. As you point out, we have seen some benefit from the, I suppose reshaping of the curve, slightly steeper curve during the course of Q3. It's certainly been one of the tailwinds, among one or two others, in achieving the year-to-date margin of 252 and the Q3 performance of 255. We do expect that to repeat itself and the hedge to continue to be a tailwind during the course of Q4.
We're looking, as I said in my comments, at a solid margin in Q4. The hedge alongside probably some growth in unsecured balances, probably some benefits from funding, are further tailwinds to the margin performance in Q4. There'll be some headwinds in the form of volume of net mortgages, which while good for net interest income, is slightly dilutive to the margin. Overall, as I say, the hedge will be part of the tailwind that we expect to experience.
Can I just follow up on that? It's interesting commentary given the yield curve only started to steepen right at the end of the quarter. Aside from that, when I look at your retail tactical deposits, is there any on a forward basis any flex on the retail tactical deposits? Because I know they grew another 2% in the quarter and are up about 34% year-on-year. I know it's not a large contributor to the deposit base anymore, but is there any flex there over time? Or the better question is what's the strategy with the retail tactical deposits?
Yeah. Well, just you made a couple of points there, Joe. One point in terms of the way in which we manage the hedge, we manage the hedge in an appropriate risk management way, and so, you know, we don't necessarily wait for the end of the course to take actions. We're taking action through the course of the year and through the course of any given quarter. You know, at times you'll see a sharpening of the curve, which makes it better to act in some stages than others.
We will take a balanced and measured approach to managing the influence of the hedge over the course of the year. In terms of your second point, retail tactical deposits, overall, there isn't terribly much left in the retail liability margin anymore. I think we've given you numbers on this before, so I'd be happy to do so again. The customer rates are averaging around 8-10 basis points on retail liabilities. Hopefully that gives you a sense as to there not being terribly much room on the retail margin with current interest rates.
That's great. Thank you so much.
Thanks, Joe.
Thank you. Our next question now comes from Rohith Chandra-Rajan from Bank of America. Please go ahead.
Hi. Good morning. I had a couple of questions, please. First one was on IFRS 17, and thank you very much for the disclosure there. I appreciate it's still uncertain. But I was wondering, in terms of slide 14, just firstly, just to clarify what you show on the bottom right there is the year one impact of the implementation impact in terms of IFRS 17 on income.
There's obviously a wide range of impacts over the last three years from GBP 0.8 billion down to what looks like GBP 0.2 billion potentially for this year. You detailed some of the differences, I guess, or some of the reasons for that in the footnotes.
I was just wondering if you could help us understand what you think the 2023 year one impact is and when you see the tipping point. Because obviously, you know, it's just a deferral of earnings as you've highlighted. It's not a you know they don't disappear. When would be the tipping point where IFRS 17 becomes neutral? That'll be the first question.
Yeah, sure. I think that, I'm happy to take it as it goes along, Rohith, recognizing you may have a further question thereafter. Why don't I deal with that first? IFRS 17. You can see what we put forward on, page 14 of the presentation is an illustrative impact of the effect of IFRS 17 replacing IFRS 4 in our earnings for any given year. We've given you three historical periods to look at there.
So that's what's on the chart. In terms of the factors behind the chart, the two or three factors that significantly influence that switch from IFRS 4- IFRS 17 are, one, new business, and two, any net effect of assumption changes in the period. If you look at 2019 and 2021 in particular, you will see that that more or less works out in terms of the transition between IFRS 4- IFRS 17. That is to say new business and net assumption changes during the period.
You don't see that so much in 2020, and the reason for that is because we had an interest rate fall in 2020, and that in turn affects the impact on the experience variance differently to the way in which it impacts the contractual service margin. That's why you see a slight discrepancy within the 2020 year, which is above and beyond or rather the difference is above and beyond the new business and net assumption changes. That's what's going on in terms of the factors there. We won't give you a precise number for 2023 as we look forward.
It will be driven, however, by very much the same thing. That is to say new business, net assumption changes, and if there is a significant interest rate change, then of course, that would have an effect at that point, but I don't think that we can predict one. In terms of the time that it takes for IFRS 17 to effectively catch up with IFRS 4, that's an important point. It's somewhat mitigated by the fact that we've retrospectively applied IFRS 17 back about five years to 2016.
Some of the CSM will be built into the performance over the course of the coming years. What that means is that while the average contract life is around 15 years of insurance, the catch up period is going to be slightly less than that. The catch up period for IFRS 17- IFRS 4, we think is going to be about five years, prospectively from the year of introduction.
Now, Rohith, these are all illustrative numbers at this point, and as your comment highlighted just a second ago, there's further work being done on IFRS 17, but hopefully that gives you a bit of a picture.
That's very helpful. Thank you. The second question was again, sorry, just coming back to the structural hedge. You've got GBP 15 billion of unutilized capacity at the end of the quarter. Just wondering if you put any of that to work given the move in rates in October.
In terms of how that then ties into the rate sensitivity, is it right to think that sort of every GBP 20 billion increase in the structural hedge effectively reduces the sensitivity to a 25 basis point rate move by about GBP 25 billion, GBP 25 million, sorry, assuming the 50% pass through that you put in, which could obviously be different?
Yeah. I'll answer the first part of that question. I probably won't give you a specific answer on the second part, Rohit, for fear of issue of working the numbers out, which I prefer to leave you to do. In terms of the GBP 15 billion outstanding, as said to Joe a second ago, we've done most of our work in respect of the hedges as we stand here at the end of October. We'll have been deploying the hedge over the course of this year, including in October.
As we stand now and we look at the capacity of the hedge, most of the work has been done for the year of 2021. We then obviously look towards the GBP 30 billion of maturities during the course of 2022, which is work that we'll undertake when we get to 2022.
In terms of the rate sensitivity of the hedge, again, I probably won't go there specifically, Rohit, but the component of the rate sensitivity of GBP 225 million that we put forward in the presentation in the appendix, I think just as a number of commentators have expressed over the course of this results season, in the first year at least, a relatively modest part of that is the hedge roll effectively. A bigger part of that is the pass on for the deposits of the base rate.
Thank you. Sorry, just on the hedge capacity. I thought your response to Joe's question was that you'd you've obviously done the GBP 30 billion of maturities that were penciled in for the second half. Have you assigned some of the capacity?
Yes. Rohit, to be clear, as we stand here at the end of October, we have done most of our hedging work for the year, and that includes up to the 240.
Okay. Thank you very much.
Thanks, Rohit.
Thank you. Our next question now comes from Chris Cant from Autonomous. Please go ahead.
Good morning. Thank you for taking my question. If I could just ask about IFRS 17 again, please. So if I've read between the lines correctly on slide 14, it looks like you're talking about something like GBP 400 million of insurance revenues going away in terms of new business recognition in 2023. So when we think about other income at a group level, is it fair to say 2023, we should be thinking about something in mid-high GBP 4 billion territory rather than sliding off to the GBP 5 billion, which is where consensus is currently sitting.
As a follow-up to that, your commentary about the assumption change uncertainty, I guess, around how this actually comes in. Am I correct in interpreting from what you said that if rates rise in 2023, then the year one impact would actually be more severe than that? Thank you.
Yeah. Thanks, Chris. On the first question, as said, the effect of the switch from IFRS 4- IFRS 17, that is, as said, a function of new business, a function of the net assumption changes, and to a degree, a function of any variances that go beyond those two. Those two are the primary ones. I think you very roughly put a number of circa 400 on it. I think historically, if you look at our typical new business performance, that's probably not a bad proxy for where we end up. That in turn, as you know, is probably around 1/3 of the insurance income for any given period.
If you look at it in terms of the group OOI, it's roughly 7%-8% of the group OOI, just to give you some sense of proportion. Having said that, I would make a couple of related points which are important to bear in mind, which is, number one, this catch up period of the CSM. You get these earnings added back over a period of time. As I mentioned in my earlier comments, that period of time looks like it's around five years. That gives you a sense as to the fact that this may be a hit on day one of the earnings when IFRS 17 is introduced.
Equally, you get a faster run rate in the earnings growth thereafter as that CSM gets added back into the numbers. The second point, which I would add on, which, you know, you'll hear me say a number of times in connection with IFRS 17, is that this has nothing to do with cash flows, and therefore, the performance of the business and therefore the ability of the insurance business to dividend and therefore either the insurance capital or the group capital position.
You know, it's an important point to bear in mind. Your question about IFRS 17 then led into a question around OOI and the proportion of IFRS 17 or insurance earnings to OOI. I would say that the OOI. I won't comment on your precise numbers, for OOI in 2023. Safe to say that OOI, you've seen our performance in this quarter, which is about GBP 1.34 billion.
We believe that once you strip out the LDC GBP 100 million that we pointed out, you're getting to a pretty solid underlying run rate of earnings there. That is likely to build by, as a result of economic activity, number one, as a result of our organic initiatives, number two, and as a result of things like Embark and Citra, which will contribute to OOI over time, and hopefully build the pattern going forward. On the third of your points, the assumption changes uncertainty.
I mean, in essence, what happened in 2020 was that you had a sharp rundown in rates. That rundown in rates contributed more to impact experience variance than it did to impact contractual service margin, which is why you got that slight discrepancy in the 2021 difference versus 2019 and 2020, 2021.
2020 stands out a little bit in that respect. If in 2023 you see the reverse of that effect, then I guess, as your question implies, you'll see the reverse in terms of the impact or difference between IFRS 4 and IFRS 17.
Okay. That's helpful. If I could ask just one more follow-up on IFRS 17. I completely understand your point around, you know, this doesn't change the cash flow from the insurance business. I'm just trying to understand the impact on the numbers we're going to see when we get out to 2023. Is there anything in terms of an offset within the cost line of the insurance business? Do some of the costs get reshuffled into revenues, and then how effective will that be in terms of any benefit to the cost line in 2023? How should we think about that?
Yeah. No, it's a good question, Chris. Yes, there is an impact on the cost line. The impact on the cost line is, roughly speaking, in the kind of GBP 100 million type zone. As we look at the numbers today, you know, that's a number that is conceptually equivalent to the GBP 400 million number that you quoted earlier on in your comments.
There's a benefit from the cost line from essentially the similar spreading of acquisition costs. Therefore, you do see that come through as IFRS 17 is implemented in 2023 of the order of magnitude that I just mentioned.
Okay. That's really helpful. Thank you.
Thanks, Chris.
Thank you. Our next question now comes from Raul Sinha from JPM. Please go ahead.
Hi. Good morning. Thanks for taking my questions, welcome Charlie. If I can maybe start this with a general question, and I've got a detail one as well. It was interesting to hear your opening comments, Charlie, and you talked about growth actually being point number one that you addressed.
One of the pushbacks on Lloyds shares from the market, you know, over the last decade has been the lack of tangible book value growth and growth in general. I was wondering what you think about tangible book value growth for a bank. Should that be a priority in your opinion?
Sorry, you cut out a little bit there.
Apologies.
Sorry to interrupt. You cut out a little bit there.
Just wanna make sure we got your question.
We can still hear you now, yeah.
I guess the question really I was asking is about growth and tangible book value per share growth.
Yeah.
I think one of the related impacts that we're talking about with IFRS 17 is a mid-single digit hit to TNAV as well. Obviously, that would mean, again, pro forma basis, there isn't going to be a lot of book value growth from Lloyds. Alongside the focus on growth that Charlie outlined, I was interested in his thoughts on whether tangible book value per share growth should also be a metric that the market should be looking at as a growth measure. The second one, if you don't mind me, is around the rate sensitivity in terms of your disclosures.
That was quite helpful. Obviously, it looks like you've made the same pass through assumptions or you've held the pass through assumptions static for a year. Is it fair to assume that if the pass through was particular, you know, in year one, then that rate sensitivity that you outlined might understate?
The actual rate sensitivity, that you would see given where rates are today.
Well, PD it's Charlie, thank you for the question. You know we got that. Obviously, my view on TNAV, and William will build on this, is it partly depends on the strategy for the bank, firstly. I'll explain that in a second. You just have to be careful around what is included in TNAV, and to your point around IFRS 17, I think it's important, and William will probably expand on that a bit. The point about TNAV is if the organization you're looking at is obviously optimizing its balance sheet and focused on distributing income, TNAV won't progress materially.
Whereas if the organization's focused on organic growth and building asset values, it will progress. Both of those strategies at a very simple level can give different outcomes for TNAV, but still strong shareholder returns. I don't know if that makes sense, Gerald, but that's certainly the way we think about it. In terms of how we're looking at the group going forward, as I said, we'll talk about that in February.
One of the things I said up front was one of the priorities for us is to look at how we provide and deliver on sustainable long-term returns and distributions while investing in the business. As we think about that, we will be clear around how we think that might impact TNAV. Yeah, you can build on that.
Yeah. Thank you. Thanks, Charlie. Raul, I think the two comments that I would make, just to add to that, one is we are interested in TNAV build. Of course we are. It's an important ingredient to the financial metrics of the bank. There are a number of factors that affect that. A number of them have been going in the right direction over the course of this year, profit being obviously the primary one. At the same time, as you point out, IFRS 17 will have an impact on TNAV, in its introduction in 2023.
I think it's very important to bear in mind that just as that gets built back into the earnings, it also gets built back into TNAV over a period of time. This is a temporary effect that it will have on TNAV, and while it might take a hit on day one, it contributes also to a faster growth rate on day one, day two, and beyond. You know, bear that in mind as you look at the TNAV impact of IFRS 17. The second point that I'd make is, we look at TNAV for sure. We also look at returns on TNAV.
And that is clearly an incredibly important metric to the bank. Now, as it happens, actually, the impact of IFRS 17 on the returns on tangible equity is marginally accreted. You might see a hit to TNAV, but you also see a marginal benefit to return on tangible equity. To you know the business as we look to it, as we invest in it, and as we'll discuss with you over the course of next year, is very much about building sustainable returns.
On your sensitivity point, I think the best way to answer that is the sensitivity linear, roughly speaking, to changes in post-hedge assumptions? Yes, it is. That is to say, we do not post-hedge any of the benefits of the interest rate rise. Then in turn, the sensitivity will be roughly double what we stated as at the 50% mark. In that sense, it is pretty linear. There's a second point that I would also add, Raul, to this, which I think is important, which is the environment within which those interest rate rises are taking place.
That is to say interest rate rises happen because you are seeing an increase, a rising level of economic activity. With that rising level of economic activity, we would expect to see customer activity and indeed borrowing, including things like unsecured, go hand in hand with that. Likewise, we'd expect to see markets activity tick up. Likewise, if that interest rate curve, if you like, stays where it is, that builds the performance and indeed the capital position of the insurance business.
So all of these are factors that are not built into our interest rate sensitivity that are likely to accompany a rising rate environment, which in turn will clearly drive earnings and ultimately capital of the institution.
Got it. Thank you.
Thanks, Raul.
Thank you. Jonathan Pierce from Numis has our next question today. Please go ahead.
Hello there. Two questions, please. The first one, I'm really sorry to come back to IFRS 17 again. The net profit hit, by the sounds of it, is something in the order of GBP 300 million, taking into account the GBP 100 million cost offset you just mentioned. I think the run rate of the insurance and wealth profits in the first half at the remediation was only about GBP 400 million per annum. At least initially, there's going to be a big dip in profits.
Now, as you say, the capital generation of Scottish Widows is not affected by this, but I think it does bring much greater focus now onto the dividend upstreaming potential of Scottish Widows, because for a period at least, that could be significantly larger than the accounting profits.
I guess what I'm inviting you to give us more detail on is what do you think the normal run rate is for upstream dividends from Scottish Widows? It's been about GBP 800 million a year on average over the last 10 years, but there's all sorts of things going on within that. What do you think a normal dividend run rate is from Scottish Widows up to the group? That would be the first question. The second question is just a bit of detail on the hedge.
Obviously, the maturities next year will be a combination of maturities out of the hedge that existed pre-pandemic, but also, I guess a reasonable chunk of maturities from the hedge that was built, you know, post-March of last year. Can you give us a scale of the split of that? Is the yield differential on those two parts of the maturities that are very, very different? Thanks a lot.
Thanks, Jonathan. On the first question around IFRS 17, don't worry. You don't have to apologize for coming back to it. We thought it would ensure a level of interest during the course of today's call. The net profit hit, you're about right. I mean, GBP 400 million minus about GBP 100 million costs. It's about right. Again, it does depend upon the volume of new business. I don't wanna be too categorical in putting a precise number on it, but your numbers ballpark make sense.
That, as you say, will ensure a level of attention to essentially cash generation from the insurance business. I don't think for us that's a new point, actually, Jonathan. We've always looked at the cash generation of the business. We look at the Solvency II capital that the business uses, and we also look at the Solvency II cash generation that the business uses. Those measures have been, you know, a long-standing part of our key internal KPIs to the insurance business, and they will be going forward.
The solvency position of the company's Scottish Widows business today at the end of September is just a fraction below 160%. It looks pretty healthy as of the end of September. It is, as you know, significantly influenced by rates, in particular long-term rates, as well as the underlying business performance. That capital level does suggest a healthy level of capital.
You know, we'll see whether that persists over the course of the remainder of this year, but if it does, we would have a discussion with the Scottish Widows board at the appropriate time about what level of dividends might therefore come out of the Scottish Widows business. Looking forward, as you say, we monitor Solvency II cash flow generation metrics, and those are very much part of our business planning.
We would hope that the dividend builds over time in conjunction with, not just rates clearly, but the success of activity and the introduction of new business. I don't want to put a number on it too much, but I think as your question highlights, if you look back at those numbers of GBP 800 million, for example, those numbers were significantly influenced by management actions that took place within the Scottish Widows business, certainly in the years preceding my arrival.
I wouldn't use that GBP 800 million as a guide mark, if you like, for future ongoing sustainable dividends from Scottish Widows. We will look to ensure that business is successful. We will look to ensure that there is a consistent rather and reliable dividend from that Scottish Widows business. I think GBP 800 million frankly is a little bit too high. It is, you know, that dividend is certainly part of our the way in which we manage it.
I would also say as a final point on that, Jonathan, that, as you know, the Scottish Widows business is deconsolidated from the bank as a whole, and that is indeed the reason or part of the reason, I guess, why IFRS 17 isn't making a difference to the group capital position. When we look at the management of that overall capital, it is therefore the dividend that we are most interested in as a group management team. We do pay an awful lot of attention to it. On the hedge, secondly of two questions, pre-pandemic, post-pandemic.
We won't give a split as to that next year. As said, the overall maturity next year is around GBP 30 billion. It then ticks up from that quite significantly in 2023. I will say though, which hopefully is helpful, Jonathan, that the hedge is an overall tailwind next year. We expect it to be a tailwind based on where we are with the hedge today, and that is a contributor therefore to net interest income over next year.
Okay, that's really helpful. Thank you. Just one quick follow-up on the insurance point. I totally accept that the dividends at Scottish Widows have always been the only relevant aspect of what the insurance company is doing in the context of Group. Clearly, if we are gonna have a period where group profits and also insurance profits are on an IFRS 17 basis in the low hundreds of millions GBP, you know, we can't any longer ignore this difference in treatment of profits versus capital upstream.
Can I just push you a little bit on this? Are we going to get insurance dividends out of Scottish Widows starting again, you know, the end of this year or February next year, which is when you'd normally pay them? Where we can split out ordinary dividends from everything else that's been going on in recent years, it does feel like a number of sort of GBP 400 million-GBP 500 million has been more in the order of a normal dividend. Would that be about right?
Thanks, Jonathan. Yeah, happy to comment a little further. Couple of points I'd make. One is, as said, we do focus on dividends from the Widows company, insurance company up to group, number one. Number two, having said that, Widows is also strategically and financially a very important part of our overall group. We also focus on the contribution that the insurance company makes alongside our other divisions, and in that sense, achieve strategic and operational synergies within the group, which is also a source of value to us.
I do wanna make sure that, you know, we portray the picture of the insurance company as it is, which is an integrated part of our overall group and a very strong part of our strategic future. In terms of the start of dividends, as I said, our solvency ratio at the end of September is just a shade below 160%. That's a pretty solid number.
We would look if rates stay where they are and solvency ratio stays where they are, or potentially improves, then we would look to have a discussion with the insurance board at the right time as to the dividend at the end of this year. As to the run rate dividend beyond that, again, I won't comment with any greater specificity than I have done so far. Safe to say that we will look to build the insurance dividend over the course of time in conjunction with the investments that we've been making in that area.
Okay. That's great. Thanks a lot.
Thanks, Jonathan.
Thank you. We now have a question from Andrew Coombs from Citi. Please go ahead.
Good morning. Two questions. One on capital return, one on costs. If we look at your capital ratio, you've had a very strong 12 months year-to-date. Even if we adjust for software amortization and IFRS 9 transition and Embark, the RWA growth you're guiding to in 2022, you're still looking at. Now 15% pro forma ratio. You've got significant excess capital. Intrigued as to your plans for that.
I don't want to prejudge the strategy update, but any thoughts you can share on how you're thinking about buybacks versus dividends versus maintaining a buffer for M&A, given that you've just acquired Embark and whether there's anything else on the horizon. Anything you can comment on that would be welcome.
Secondly, on costs. The restructuring costs have ticked up year-to-date, and you're guiding for more in Q4. Just would like an idea of what the payoff is on that. What do you think of in terms of the savings attached to those, the time frame to recognize those savings, and so forth? Thank you.
Yeah. Thanks, Andrew. In terms of capital return, there are a couple of points to make there. One is we obviously have a very strong capital position. As you say, even if you take account of, I guess software amortization transitionals, and RWA headwinds coming up in the first of January 2022, it remains a very strong capital position. The second point is that we entirely recognize the importance of capital return. The interest of stakeholders, shareholders in capital return is entirely acknowledged.
That's why we committed to pay a progressive and sustainable dividend at the half year. As usual, we will look towards any further distribution of capital above and beyond the dividend as at the end of the year. That's nothing different to what we ordinarily do. You know, the fact that we're not engaged in a buyback right now means nothing other than just we're operating on a BAU basis, and we'll look towards further distributions as appropriate at the end of the year, and that'll be a board discussion at the time.
In terms of form, you know, again, any excess capital distribution question is really for the board at the end of the year. In terms of form, that's really also a matter for the board, but obviously they'll do so in consideration of investor preferences, in consideration of where the share price is trading, and so forth. All of those deliberations will be taken into account at the time when that discussion is had.
In terms of things like M&A and other uses, from our perspective, the strategic story has been and will continue to be primarily an organic story. Where a opportunity to invest in capability or potentially at the margin scale comes up, typically small opportunities, then obviously we'll look at that, but only if it is consistent with our shareholder return objectives. You've seen over the last couple of years the Tesco acquisition, which is an example of just building scale at very low marginal cost.
You've seen this year the Embark acquisition, which is a example of building capabilities. Both small acquisitions, but both important acquisitions in terms of building either scale or capabilities, and importantly, both acquisitions that satisfy our return requirements. Again, I would want to leave you with a comment that M&A is, it's a tool towards strategic objectives. It's not more than that. Our strategy remains very organic. Your second question on restructuring costs.
We do look for return on restructuring costs, just like we look for returns on any investment that we make. If you look at the types of restructuring costs that we have seen recently, severance, for example, is one, property reformation is another. We analyze those investments just like we analyze any other deployment of cash within the business and look at that on an ROI basis, on an IRR basis, on an NPV basis. Our return requirements are generally relatively high for those investments.
The other element of restructuring costs that we are working on right now is technology R&D. That is also subject to return requirements, but we are conscious of the need to invest over the course of time for future benefits, whether that is in terms of addressing our legacy platform, whether that is in terms of improving our customer proposition, you know, depending upon the particular technology investment that we're looking at. That is, as I say, subject to.
Thank you.
Thanks, Andrew.
Thank you. Our next question.
It's been a bit lackluster, presumably given interest-earning asset growth and consensus, but any color there would be very useful. On IFRS 17, can circle back on some of the prior comments. I guess beyond just the impact of net assumption changes and the normal new business impact you referenced.
Back in 2017- 2019 income was also distorted by the auto-enrollment rate changes, which were very favorable under IFRS 4 versus IFRS 17, within the workplace planning retirement line. I'm just trying to gauge if that GBP 400 million revenue number that you referenced is relative to sort of past years rather than the current run rate.
Just want to make sure we're applying it to the right sort of base because, you know, we've been tracking a little bit below 2017-2019 levels in workplace planning retirement income already. Thank you.
Yeah. Thanks, Guy. On AIEAs, we won't give guidance looking forward. Maybe just to comment on one or two historic trends. As you say, Q3 447 versus Q2 at 442. That's up GBP 5 billion on the quarter. The reason why there's a significant change during that quarter is because a lot of the mortgage growth got back-ended into the end of Q2, which is, I think, consistent with the comments that we made then. As a result, you saw a relatively sharp uptick going into Q3 because there were late in quarter balances added in Q2.
As said, our overall profile for AIEAs during the course of 2021 is a low single-digit percentage growth in those AIEAs. The drivers behind that are the ones that we've been talking about this morning. To your point about while we won't give any guidance for 2022, what is it looking like in terms of the underlying balances? I guess a couple of comments that I would make. One is in mortgages. As you know, in mortgages we're seeing both structural factors driving growth and we're seeing cyclical factors driving growth.
Cyclical ones, e.g., stamp duty, somewhat died away at the half year. The structural ones, low rates, low unemployment, people moving to bigger spaces and so forth, those remain in place and therefore leads us to think that we'll continue to see mortgage growth over the course of the coming periods. That obviously will include next year and, potentially beyond.
In terms of motor, we have seen headwinds to motor over the course of this year, and that's had a lot to do with, as your question pointed out, with the supply side, and the market there. It also, to a degree at least, has some impact from the business in terms of corporate appetite for overall fleet volumes and so forth, which in turn feeds through into operating lease appreciation.
The motor balances as the motor market comes back to life a little bit, as some of these supply side constraints start to get sorted out, I would expect they would start to have an effect both upon new cars and on used cars, and therefore drive balances, you know, a little bit more strongly potentially going forward than we've seen in recent periods. We'll have to see.
It's very activity dependent, but those are the things that are going on, kind of underneath the title and underneath the headline. Then finally, unsecured, the unsecured balances, in particular cards. As you know, we saw GBP 0.2 billion increase in balances over the third quarter. We think that is the beginning of growth, but it is at relatively early days to make that call. We think it is the beginning of growth and therefore we would expect that to continue in the coming quarters.
Pleasingly, that growth is happening at the high end of the customer base. That is to say, relatively high quality credit that is building that growth, which is, you know, a good factor to see. We'll see how that develops over the course of the coming periods. Again, very macro and activity dependent, but we think what we've seen in Q3 at least is the beginning of the turn. IFRS 17 theme, as you say, there was on your second question a couple of points there.
The factors again driving the change between IFRS 4- IFRS 17. We talked about new business. We talked about net assumption changes. I talked earlier on about a sharp change in interest rate, which changes the discount rate unwind versus the CSM contribution. So that's a further driver of difference between four and seventeen. As you say, in the early, well, let's say 2016, 2017 or 2017, 2018, we did indeed see auto-enrollment get added on, and that is favorable from an IFRS 4 perspective.
I think if you look at the GBP 400 million that we discussed in the earlier part of the conversation, I would use that as a very rough proxy. I would use it as a very rough proxy for the development of the insurance earnings in the periods that we're showing on slide 14 and the years thereafter. Guy, I won't give you a precise answer to your question. Again, I would use that GBP 400 million income net GBP 300 million once you take account of costs as just a rough proxy, including for the periods that we're showing on 14 and beyond.
Okay, thank you very much.
Thanks, Guy.
Thank you. We have a question now from Martin Leitgeb from Goldman Sachs. Please go ahead.
Yes, good morning. Just for the sake of time, I keep it short. I just wanted to ask on the outlook for mortgage pricing and the impact as we head into next year. I was just wondering if you could comment on what you have seen in the third quarter, how you see competitors acting. Is pricing at current levels still rational? The number of peers have pointed out that the mortgage churn as we head into next year is expected to have a negative impact in the TNAV.
Is that essentially the flip side of higher swap rates, which is a benefit now on the hedge, but obviously could be a negative on the mortgage churn going forward? Could you help us size what the potential impact of such a churn could be for Lloyds next year? Thank you.
Yeah, thanks. Thanks for the question, Martin. Mortgage pricing, I'll actually start that off with just a comment, brief comment around volumes, which have continued to be strong during the third quarter. As you saw, we had about GBP 2.7 billion open book growth during the third quarter. That's about GBP 15.3 billion year-to-date. So pretty strong volumes. That is at share of around 18%, versus what we saw in Q2, which was 19%. So we're staying, you know, there or thereabout in terms of share.
To answer your question, during the third quarter, Martin, we've seen completion margins of around 160 basis points. I think I mentioned that in my comments. We've seen application margins in the quarter of around 1.4%. With the trend in overall mortgage pricing, that has been coming down since the end of the quarter. The average for the third quarter is 1.4% with, you know, as I say, in the context of mortgage pricing coming down a little, thereafter.
We're not being precise in terms of when the front book margin falls below the back book margin, but I think I've mentioned in the past that the back book margin is around 133 basis points. You can see from the numbers that I've given you that we're not far off now, and it might be reasonable to expect that turn to happen sometime during the course of the fourth quarter based on what we're seeing.
On the final part of your question, Martin, in terms of the mortgage sensitivity, which is essentially what you were asking, we haven't given mortgage sensitivities in the past. I don't think that we're going to start now. I do think that the impact of any mortgage price change, if you like, very much depends upon the timing of that price change. That's obviously because the back book roll-off goes up and down over periods of time.
I also think it's relevant to say that at the same time as you see mortgage price changes, you see many other product moves at the same time. You know, any pure mortgage analysis is questionable as to how meaningful it is in isolation. It needs to be viewed as a part of a much bigger picture which envelops our whole thing on our balance sheet.
Thank you very much.
Thanks, man.
Thank you. We have a question now from Aman Rakkar from Barclays. Please go ahead.
Good morning, William. Good morning, Charlie.
Morning.
A couple of questions. Can I start with costs? I guess, you know, inflation is a source of upward pressure on interest rates and, you know, positive for the top line. I wonder, is it getting harder to manage the cost base in this inflationary backdrop? Are you having to kind of run harder to stand still? You know, again, we don't necessarily want to pre-judge the strategy announcement in February, but, you know, I know consensus is probably looking for a slight reduction in operating costs year-on-year.
I'd be interested for your thoughts on that at all if you're able to. Secondly would be around capital. I know your Pillar 2A has come down 20 basis points in the quarter. You know, I also note the comments in the last couple of quarters around the reduced impact of stress tests and what that might mean for the target CET1 ratio. Is it right to think we are one step closer, perhaps now, towards revising that target CET1 ratio down to 13?
Again, at the risk of pre-judging the announcement in February, is that the kind of thing that could happen in February, that number comes down? Sorry, just one final point of clarification. Basically on rate sensitivity, slide 18, the GBP 225 million. I think when I sit down with a spreadsheet, that number still looks quite low to me.
I won't ask you to audit my spreadsheet, but if I was to take something out for the structural hedge benefit in year one, the 50% pass-through that you're modeling, it does seem to imply quite a low amount of rate sensitive deposits that sits behind that number. I guess is there any color or anything you could help explain what's going on there? I guess as part of that, is that 50% pass-through on total deposits including current accounts, or is that just the rate sensitive deposits? Thank you.
Yeah. Thanks, man. Three questions there, so I'll take them in turn, man. I think first of all, on the longer term cost outlook, first point to start is this year clearly. As you know, costs are and will remain an incredibly important part of our story going forward. We are committed, as Charlie said in his comments and I said in mine, to ensure and focus on efficiency throughout the business. What that means for this year is circa GBP 7.6 billion, as we have highlighted. We continue to stick by that commitment to 2021.
As we look forward into 2022, today isn't the time obviously to give guidance. That's really for next year. But as said, costs will remain a source of competitive advantage for the group. We have a very rigorous framework for looking at that, BAU strategic initiatives. That framework will remain in place and continue to be a source of focus. Now, you know, having said that, just like everybody else, we're subject to general inflationary pressures. Those will be in terms of people, those will be in terms of OpEx.
We also are investing in new business lines, new income streams. For example, Embark at the half year, also Citra Living the housing project, as well as our ordinary BAU initiatives across the retail, insurance, and commercial areas. Obviously those income generation activities sometimes come with costs that will reflect that. Now, you know, having said that, we will continue to focus on efficiency throughout t he business.
When we get to the strategic announcement as of February, we'll obviously outline what the implications of all of that are at that point in time. Aman, I think the takeaway from this is that obviously we experience some inflationary pressures, but we remain very committed to cost discipline throughout the business and the efficiency of the business. Your second question, Aman, capital. As said, and to reiterate really, the capital position of the bank remains very, very strong.
Are we getting closer to looking at the targets again? Couple of points to make in that respect, really. What do we think about when we set targets? What we think about essentially is a combination of the current regulatory requirements as well as the evolving regulatory requirements, which obviously in today's terminology means RWAs are coming up, means countercyclical buffer, for example.
We also think about the requirements for the business, including BAU, including stress, and obviously including the growth objectives of the business. What does that mean in practice? For now, we're at 12.5% +1%, which is the capital requirement that we continue to adhere to. It is apparent to us that as RWA intensity ticks up as it will on the first of January next year, if there is no change to economic risk, then there is no need to increase the absolute buffer as a result of that. That is then allied to your Pillar 2A point.
Pillar 2A has been coming down. Now Pillar 2A is an absolute number rather than a percentage as you know, so you need to be a bit careful about how one expresses that. Essentially, you have an increase in RWA intensity, which should not necessarily lead to an increase in absolute quantum of the buffer. You have a reduction in Pillar 2A. And therefore these are factors that we take into account alongside the difference between the regulatory requirements versus our targets.
These are factors I think, Aman, that we'll take into account as of the end of the year and figure out what the best capital target for the business is at the time. Finally, your question on the rate sensitivity. The rate sensitivity is really as expressed. It's a combination of the effects of a parallel shift in the yield curve, plus the base rate change associated with that.
The sensitivity is the effect of that upon the hedge, the effect of that upon the margin widening, if any, through the pass-through assumptions, and it's the effect upon the leads and lags within the business. I don't think it's anything much more complicated than that. The one comment that I would make is that we want to avoid double counting between those balances that are already taken into account in the hedge versus those balances that benefit from base rate change pass on.
As you think about the balances to which this has applied, one needs to bear in mind that an element of the balances within the balance sheet right now are already hedged against. Therefore, the incremental benefit from a base rate change is for those balances that are not currently hedged against. Otherwise, you'll end up double counting between the benefit of the hedge roll on the one hand and the benefit from the base rate change on the other hand.
Thank you very much. That's really helpful. That 50% pass through then applies just to the rate sensitive portion, you know, the unhedged balances, basically.
That's right.
Okay, thank you so much.
Aman, perhaps just to add to that for the sake of clarity, is that effectively what we're saying therefore, is that for those hedged balances, through the deployment of the hedge over the course of this year, we have locked in earnings for those hedged balances, which will then unfold over the course of 2022, 2023 and beyond as that hedge gains maturity.
Thank you very much.
Thanks.
Thank you. This concludes the Lloyds Banking Group 2021 Q3 Interim Management Statement Call. For those of you wishing to review this event, information for the replay is available on the Lloyds Banking Group website. Thank you for participating.