Lloyds Banking Group plc

Thank you for standing by and welcome to the Lloyds Banking Group Q3 2020 interim management statement call. At this time, all participants are in listen only mode. There will be a presentation by Antonio Horta Osorio and 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 this call is scheduled for one hour. I must advise you that this conference is being recorded today. I will now hand the conference over to Antonio Horta Osorio. Please go ahead.

Good morning, everyone, and thank you for joining our 2020 third quarter interim management statement presentation. I will give a brief overview of our encouraging business recovery in Q3 with a return to profitability in the quarter. followed by how our digital transformation is creating new opportunities for the group and being recognized as market leading by our customers. All this while we continue to strive for a more inclusive and sustainable future. I will then hand over to William to run through the financials and we'll have time for questions at the end. I will turn first to our business recovery in the quarter on slide two. Despite a challenging operating environment and while significant uncertainties remain, we have seen the open mortgage book grow by £3.5 billion in the quarter and with a 22% share of approvals. This represents the highest volume of growth in approvals in a quarter since 2008. We have also continued to see retail current accounts growing ahead of the markets through the third quarter, and group deposits are now £35 billion higher than at the end of the year. We have seen a significant change in financial performance in Q3 with a return to profitability. This is largely due to impairments, but also to an increase in business volumes, and has enabled the group to deliver a return on tangible equity of 7.4% in Q3. Given the better-than-expected macroeconomic conditions over the quarter and our ongoing optimization of the commercial book, we are able to enhance our 2020 guidance for both impairments and risk-weighted assets. William will go through this in detail shortly. The group is also benefiting from our long-run investment in the business and continues to focus on strategic execution. The benefits of our £2.6 billion of strategic investment can be seen in our record digital engagement and satisfaction scores, as I shall outline on the next slide. So turning to slide three and how our recognised digital leadership position is creating new opportunities for the group. We are the largest digital bank in the UK with 17.1 million digital active users, of which 12.1 million use our mobile apps, up 1.4 million in the last nine months. We are very pleased with this continued customer growth, and this is a clear strategic advantage as those customers log on to their app 25 times per month, That is a total of 3.1 billion logons so far this year. This has enabled us to serve more customer needs digitally throughout a challenging period, and we have seen an 18% increase in products originated digitally this year. Importantly, this is not at the expense of quality, and our digital net promoter score is up 8% over the same period. As you have heard me say many times before, our unique single customer view capability enables the group to leverage our deep retail banking relationships in order to support customers' long-term savings needs. We now have over 6 million customers who are able to use this unique functionality. Those customers view 16 million of their insurance and investment products alongside a bank account every month, including pensions, home insurance, protection, and shared building. This is at 8% in the quarter, and over 70% of those views came through our mobile apps. Our long-run investment and digital transformation positioned the group well to continue to serve our customers through the pandemic. I have great confidence in the future of the group and in its competitive position. we will maintain our relentless focus on supporting our customers and the UK economy, while we will continue investing for the future and developing our competitive advantages further. I will now turn to slide four and outline how the group is continuing to strive towards an inclusive and more sustainable future. We have adopted a proactive response to the coronavirus pandemic, and we are working closely with the government, our regulators and other stakeholders to support customers and businesses up and down the country as we help Britain recover, which is at the heart of the group's purpose. We have particularly focused on mental health and wellbeing while also committing 25.5 million pounds of funding to our independent charitable foundations for 2021, which will enable them to continue their vital work. We have all been deeply moved by recent events around the world which have highlighted the vital importance of diversity and how much we still have to do. We have announced our Race Action Plan, which will drive cultural change across the organization, while ensuring diversity of recruitment and progression. We have quantified our target to increase black representation in senior roles, and this is in addition to our existing diversity targets. This is clearly the right thing to do for our colleagues and for the benefit of the group, but it is also important to note that Moody's Red recognized the Race Action Plan as a credit positive, given improved diversity and reduced social risk. Finally, on sustainability, we have announced an ambitious goal to reduce the carbon emissions we finance by over 50% by 2030. At the same time, we have already met our internal carbon reduction target for 2030, so we are working on developing new targets. These actions and more are the right things to do as supporting diversity and sustainability will directly aid the recovery of the UK economy from which we will benefit. This is fully aligned with the group's long-term strategic objectives, the position of the franchise and the interests of our shareholders. That concludes my opening remarks and I will now hand over to William to run through the financials in more detail.

Thank you, Antonio, and good morning, everyone. I'm planning to give a run-through of the group's financial performance. As usual, we'll then open up for Q&A at the end. Turning first to slide six with an overview of the financials. The group's resilient business model and the reduced impairment charge in the quarter has driven a return to profitability in Q3 with a statutory profit before tax of $1 billion. Net income of $3.4 billion in Q3 is down 2% on the second quarter, largely due to the performance in other income, which I'll come back to in more detail later on. NII is supported by a net interest margin of 242 basis points and a small increase in average interest-earning assets to $436 billion. Costs remain an area of intense focus for the group. The 4% reduction in total costs is largely derived from 5% lower VAU costs. The group's cost-income ratio performance, meanwhile, has clearly been impacted by the challenging revenue environment. Pre-provision operating profit of $5 billion year-to-date includes $1.5 billion in the quarter, and while this is down 6% on Q2, it still gives very substantial loss-absorbing capacity. The impairment environment in the third quarter has been benign relative to expectations. The charge of $301 million reflects a relatively stable macroeconomic environment and the significant reserving undertaken in Q2. I'll come on to this in more detail in a few minutes. TNAV is up 0.6 pence in the quarter at 52.2 pence per share. CT1 ratio has increased to 15.2% or 14% excluding transitionals, both comfortably ahead of our target and regulatory capital requirements. I'll now turn to slide seven and look at how the group's customer franchise performed in Q3. As Antonio mentioned, we've seen strong growth in the mortgage book in the quarter. The open book is up 3.5 billion with a 22% share of approvals, building a strong pipeline looking into Q4. Based on that, we expect the open book performance in Q4 to be stronger than in the third quarter. Consumer finance has performed at the better end of expectations. I mentioned at the half year that we expected balances to be down around 5% to 10% in the second half. Given the performance in Q3, we now expect balances to be closer to 5% down in H2. In commercial, we continue to see SME lending driven by the government support schemes. We've now delivered about $8 billion of guaranteed lending, with a market share of 18%. Going the other way, corporate and institutional balances are down $4.8 billion in the quarter, as we continue to see clients pay down their RCFs, while we've also continued our work on low returning relationships. Commercial RCF drawings are now back at February's level, having seen significant drawdowns early on in the crisis. Average interest-owning assets are up $1 billion on Q2, and as mentioned, looking forward to the fourth quarter, I would expect continued support for AIEAs from the strong growth in the open mortgage book. As you've heard from Antonio, in total deposits are now up over $35 billion in the year, a very strong performance. This growth has continued in Q3, indeed ahead of the market in retail current accounts. Meanwhile, commercial is benefiting from around 50% of support scheme lending remaining on deposit. Turning now to net interest income on slide eight. NII is 8.1 billion year-to-date, or 2.6 billion in the quarter. The Q3 margin of 242 basis points is in line with half-year guidance and up a couple of basis points on Q2. In addition to better consumer finance balances versus expectations, we've also seen a full quarter's benefit of deposit repricing and the benefit of significant low-cost deposit growth, as well as overdraft charging starting to come back into the margin, consistent with the outline that I gave at the half-year. I've already mentioned the strong mortgage performance. New business mortgage margins are attractive and higher than maturing front-book business. That attractive asset growth will continue to support AIEAs in the fourth quarter and is thereby supportive of group interest income, albeit slightly dilutive to the group margin. The current low rate environment is also impacting the structural hedge. With the five-year swap only around seven basis points above three-month LIBOR, we've been replacing maturities with shorter-dated hedges. This strategy allows us to achieve income protection while preserving flexibility. You see the consequence of that approach in the now roughly two-year weighted average life of the hedge. In that context, hedge earnings of 1.1 billion, or 0.8%, over average life all year to date will likely continue to reduce gradually over time if the curve remains flat. Taken together, the better-than-expected real economy lending is currently offsetting the fatter yield curve and is supportive of interest income. Based on this mix, we expect AIEAs to be asked and expect the margin to remain broadly stable at around 240 basis points in Q4, resulting in a full-year margin of around 250 basis points. Turning now to slide nine, another income. OI of $3.4 billion for nine months includes approximately $1 billion in Q3. This is clearly below our aspirations and is due to the continued relatively low levels of activity across our key markets. We've also seen an $80 million charge in respect to the asset management market review following the FCA's review of pricing across the investment industry. With respect to the divisions, retail has benefited from a pickup in card spend and Q3 OI is in line with Q2 in an environment of relatively subdued levels of customer activity. Commercial saw lower markets income versus Q2 given our UK focus and transaction banking activity remains subdued. Insurance continues to be impacted by reduced levels of new business, the AMR charge, and the non-repeat of the illiquidity premium benefit of Q2. Overall, I expect other incomes to remain subject to similar pressures in the fourth quarter, less the AMMR charge, but potentially impacted by the annual review of insurance persistency assumptions. However, we're now around the base level from which we would expect activity to start to recover in 2021. We are investing in both resilience and in diversification in other income, including, for example, in our markets platforms and payments propositions in commercial, as well as our products platforms and the Schroeders Personal Wealth Joint Venture within insurance and wealth. Now, moving on to slide 10 in costs. You've heard about our intense focus on costs many times before, and this remains as important as ever. Total costs have come down by 4% year-on-year, including a 5% reduction in BAU costs. This has been achieved despite deferring all role-based restructuring activity for a number of months this year, resulting in higher than expected average headcount, albeit with lower bonus accruals. Remediation of 254 million for nine months has increased by 28 million year-on-year. This reflects charges across a number of existing programs. I expect this to be higher in Q4, given various small historic conduct programs coming to an end. Overall, the cost in 2020 is likely to end up above our ongoing expectation of 200 to 300 million per annum. Our track record of ongoing sustainable cost savings has enabled continued investment in the business. We've invested a total of 1.6 billion so far in 2020 and made a strategic investment of 2.6 billion over the life of the GSR3 program to date. Investment spend has been adapted to the pandemic situation, but we remain absolutely committed to investing in the long-term success of the Group, especially in our digital capabilities. The benefit of this investment has been particularly evident during a pandemic, as you've heard from Antonio earlier on. While investment will remain a priority for the Group, we continue to expect operating costs to be below $7.6 billion for the year. I'll now move on to impairment on slide 11. The impairment experience in Q3 has been benign, given the better-than-expected macroeconomic environment and the continued presence of government and bank customer support schemes. The impairment charge of $301 million for Q3 recognizes this benign picture and overall holds the expected credit loss steady. This is consistent with our updated economic outlook and the front-loading of our reserving taken in Q2. The retail charge of 398 million in the quarter is only a little above the pre-pandemic run rate, and in commercial, we've not seen any significant charges this quarter. Importantly, the retail charge includes a management overlay of 205 million. This is taken to offset provision releases that our model generates as a result of benign arrears experience in Q3. We have taken the judgment that arrears and losses have been kept low by the range of customer support measures available, and hence it would not have been appropriate to recognize larger provision releases at this point. As mentioned, we've also updated our forward-looking economic assumptions. Forecasts are reprofiled but unchanged in the longer term, essentially maintaining our view of a significant slowdown in activity but delaying much of it by about a quarter into 2021. It also recognizes some of the better performance that we've seen in Q3. This update results in a modest release of 105 million, largely reflecting the benefits from a higher HPI in 2020. It's also worth adding that we've slightly refined our triggers for staging in cards, leading to 1.4 billion of up-to-date balances, moving to stage two, and an associated increase in provision of 40 million. Given all of this, our stock of ECLs remains broadly stable at 7.1 billion, a pickup of 0.5 billion on our base case ECL and providing significant protection against potential future credit impairments. The ECL continues to reflect a range of economic scenarios, including our severe downside weighted at 10% and incorporating peak unemployment of 12.5% in Q2 2021. Assuming no further changes to our economic scenarios, the front loading of our provision under IFRS 9 in H1 means that we now expect the full year impairment charge to be at the lower end of our 4.5 to 5.5 billion range. The caveat of no material change to our economic scenarios is important, given the obvious uncertainties. Now, moving to slide 12, I'll touch on how we've maintained our reserving across business lines. As I mentioned, the $3 billion increase in expected credit loss provisions in the first nine months means that we now have an ECL provision stock of $7.1 billion. This provides significant balance sheet resilience, while currently write-offs remain in line with pre-crisis levels. Overall balance sheet coverage of 1.4% is in line with the half-year. Within that, mortgages are 0.6%, and we've increased coverage on the cards book from 6.3% to 6.7%, including 44% on Stage 3. We maintain our proactive charge of policy on cards at four months in arrears. Indeed, if we charged off after an additional 12 months, in line with some of our peers, our pro forma overall cards coverage would be closer to 9.1%, with Stage 3 at 69%. I'm now going to look briefly at the group's exposure to certain commercial sectors on slide 13. The commercial portfolio has been subject to careful risk management in recent years. Around 70% of total medium and large corporate exposure is to investment-grade clients, while around 90% of SME lending is secured. Within this, our exposure to the sectors most impacted by coronavirus is modest in the context of the group. It's only around 2% of group lending, or around 12% of commercial lending. There's been a full reduction in the exposure to these impacted sectors during the quarter. As mentioned, commercial RCF drawings have fallen by around 2 billion in Q3. This means that the full 8 billion, which was drawn down at the beginning of the crisis, has now been repaid, and RCFs are back to pre-crisis levels, further reducing our balance sheet risk. Finally, on commercial, our commercial real estate portfolio has reduced by 0.4 billion since the half year, whilst maintaining its average LTV at 49%, with over two-thirds below 60% LTV. I'll now move on to payment holidays on slide 14. The vast majority of first payment holidays have now matured, with around 82% of customers now repaying, up from around 70% at the half year. In total, payment holidays have been granted around 69 billion of retail lending. with today less than $15 billion outstanding, including $2.4 billion having missed a payment. Our market share of mortgage payment holidays is now below our natural market share. Around 30% of extended mortgage payment holidays have also now expired, with around 90% resuming payment. As mentioned at the half-year, the cohort of extensions across products is of lower credit quality. with higher balances, but it's also worth noting that around 35% of outstanding payment holidays are already in Stage 2. Indeed, moving the remaining population of extensions across all assets to Stage 2 would generate an incremental ECL of less than 100 million. Early arrears are low at just under 4% of mature payment holidays. This includes missed first payments, and notably around half of the mortgage and motor finance arrears were already in arrears at the start of their payment holiday. Briefly on SME capital repayment holidays, over 90% of secured lending, and while maturities remain at low levels, we're seeing a similar picture to retail. Now moving down to P&L to look at the below the line items on slide 15. Restructuring is broadly in line with prior year to date, but up significantly on Q2 as the group resumed previously halted severance plans and property rationalization work in Q3. This will continue, and we expect another quarter of relatively high restructuring charges in Q4. Volatility and other items in the quarter include positive banking and insurance volatility, partially offset by the normal fair value unwind charge. PPI provisions are again zero in the quarter, and we remain happy with the circa 10% model conversion rate and with the unutilized provision of $328 million. The year-to-date tax credit of $273 million reflects the DTA remeasurement benefit in Q1 and taxable losses thereafter. As a result of all of this, we end with a statutory profit after tax of $707 million for the year to date and $688 million in Q3. The return on tangible equity, as Antonio said, is 7.4% in the third quarter. Now, moving on to capital on slide 16. Our CET1 ratio of 15.2% is comfortably above both our internal capital target and our regulatory capital requirements of around 11%. It acts as a substantial protection against potential credit impairment. CET1 continues to benefit from the temporary addition of 121 basis points of RFS9 transitionals. We have previously expected up to half of the in-year increase to unwind with staging movements in H2, but this is now looking unlikely. We still expect to see this unwind as assets move into Stage 3, but this is now likely to be more of a 2021 story. We've also had a 16 basis point benefit in Q3 from lower RWAs, partly because we've managed RWAs better and partly because we've not seen expected credit migration. Again, while we still expect to see this migration take place, we now expect this to be a largely next year event. Therefore, on the basis of our macro forecast for 2020, we now expect RWAs at year end to be broadly stable on Q3. In total, CET1 is up 64 basis points in the quarter, which is strong, albeit this is clearly helped by the RWA reduction and further transitional benefit in quarter. Looking forward and subject to regulatory approval, we see a circa 50 basis point benefit from the potential change in treatment of software intangibles in Q4. This is higher than our previous expectation given the change in prudential amortization for over three years. On capital requirements, we will hold to our ongoing CT1 target of around 12.5% with a management buffer of around 1%. This means that we're comfortably above both our internal target and regulatory capital requirements. As usual, the Board will consider any capital return at year-end when they look at all available information, including, in particular, the economic outlook, as well as capital levels and regulatory requirements. Finally, turning to slide 17. Strong growth on both sides of the balance sheet has enabled us to offset the impacts of the challenging rate environment. Together with a stable economic environment, this has contributed to a return to profitability in Q3. The group's solid pre-provision profitability, prudent reserving, and enhanced capital strength give significant loss-absorbing capacity. It also means that we're in a strong position to support our customers, despite the ongoing uncertainty. As mentioned in the relevant areas and based upon our economic assumptions, we've updated guidance for 2020 impairment and risk-weighted assets. You can see a summary of our guidance on the slide in front of you. In conclusion, we have great confidence in the future of the group. We will emerge from this crisis having learned a great deal about the organisation, our customers and new ways of working. Whatever the future brings, we will maintain our focus on supporting our customers and the UK economy. This is the right thing to do and is in the best interests of the group and our shareholders. We remain well positioned to deliver long-term, superior and sustainable returns. That concludes the presentation for this morning and we're happy to take your questions. Thank you for listening.

Thank you. A reminder to ask a question, please key star one on your telephone keypad. Please stand by for your first question. Your first question comes from the line of Rahul Sinha, JP Morgan. Please go ahead. You're live in the call.

Rahul Sinha, JP Morgan Good morning, Antonio. Good morning, William. A couple of questions from my side, essentially the same topics that we've been discussing on the calls for the last three quarters. We started at NII. Obviously, pleasing to see the recovery in the quarter, and I hear you on the pickup in average interest earning assets. Can I just ask, you know, how much of this recovery is driven by, you know, your intention to take a greater share of the mortgage market given pricing trends have improved versus just the sort of pent-up demand-related boost that we're seeing in the mortgage market right now, which, you know, might peter out next year? So I'm just trying to understand whether you think structurally pricing might have improved now sufficiently that you can actually operate with a higher share. And if you could give us some numbers around what sort of share you're comfortable with, that would be really helpful. And then the second one, just on non-NII, you know, I'm still struggling with the consensus, you know, of about $5 billion of non-NII for 2021. looking at what you've delivered. And I do accept, you know, you have called that it has probably bottomed out now. Could you help us in trying to understand, you know, what are the goal drivers from here, even if you assume a sort of 1.1 billion run rate, what bridges the gap from that sort of run rate to the sort of 5 billion plus second things as expected? Thank you.

Good morning, Raul. Maybe I'll start to give you an overview of the mortgage market. to explain the environment of your question, and then William can build up on the specific numbers you mentioned also on OOI. So, in terms of the mortgage market, and you will remember, as you said, we discussed this many times before, that we have adopted in the last few years a prudent strategy in relation to the mortgage markets, We thought that prices were not where we would like to see them, and we have, therefore, privileged capital and margins and risk versus volumes, and we basically held our open mortgage book stable. The prices have improved from the start of the year, as we discussed previously, and they have continued to improve. And therefore, given our absolute focus on helping Britain prosper or recover in this case, and being the largest mortgage lender in the country, we have been supplying the needs of our customers on mortgages. And this has been very, very strong on Q3, as you heard. And it has been quite strong across the board, to your question. So this is both on first-time buyers and on home movers. And I think that this basically is an outcome based on three factors. The first, as you mentioned, there was some pent-up demand to satisfy. Secondly, it is also a fact that we have strong incentives on people to buy ahead, as you said, Israel, of the stamp duty expiring next year. But thirdly, there is a significant change in customer behaviors. People have been, on one hand, saving more, as they have spent less on traveling hospitality, and they have saved more in general. And secondly, they have, as you know, most people spend much more time at home, and therefore their home became, if you want, more valuable to them. And they are strongly moving homes across the board and wanting to go into larger homes, outside cities, with gardens if possible. So it's both the first-time buyers and the home movers who that are driving this significant demand in mortgages, and that is, in my opinion, a structural change in behaviors from people. So you have all of these three effects, and this is quite important. Our market share of approvals has been 22% at August, which is the highest we have had since 2008. So within these conditions and with very strong customer demand, we have been absolutely meeting those customer needs. To give you an idea, on first-time buyers, our market share has been even higher at 24%. And given that there is, as you know, a time lag between applications and completions of around three to four months, we already know that we will have an even stronger growth in the open mortgage book in Q4. Even we already know the applications that we got. And therefore, this is a changing trend. We are the largest mortgage lender in the country, as I said. We have a very strong capital position. Therefore, we are absolutely supporting our customers and supplying the mortgages that they need. And this is very important to sustain NII, and it has more than offset, as William said, the impact of the low yield curve.

William, shall we? Would you like to comment on the other income question from Rob? First of all, on other income, in Q3, what did we see? As you can see from the release today, we had $988 million, which included an AMMR charge of roughly $80 million, which in turn means that we're at around $1.1070 billion if you take out that AMMR charge. I think in terms of answering to your question, I obviously won't comment on consensus for next year. That's a matter for next year, not for today. But it's important to give a bit of context about what's in that OOI charge and to a degree what's not in there. What did we see? We saw relatively flat performance in retail. Retail continues to be subdued off the back of modest activity and in particular limited travel. We saw commercial banking performance relatively affected by our UK focus on markets, which was down on the quarter two performance. And we saw insurance Modestly performing, off the back of not just the AMMR charge, but also some GI claims from weather events in August, an absence of bulk activity, and very limited new business in terms of some of our areas, such as workplace, where the coronavirus impact is clearly taking its toll on new business schemes. as well as things like protection activity. So when we look forward for OOI, it is very activity sensitive. And to the extent that you see things like return to travel in retail, for example, things like a bit more activity in UK markets, for example, things like a bit more activity in some of the insurance value streams that we have, then you would expect OOI to respond to that. I think added to that on a secular basis, we're making a number of investments, as I mentioned in my comments earlier on in the ROI stream in order to build the non-interest streams within the business. So examples of that might be package bank account propositions in retail, might be the transaction banking platform in commercial and cash management. Likewise, the protection platform, the GI platform within insurance. And those investments over time will build this income stream. I think the final comment, Raoul, is, as I've said before, this will be gradual. It's not going to change overnight, but it is activity sensitive, and it is also the subject of ongoing investment.

Great. Thank you very much.

Thank you. Next question comes from the line of Amin Ratkar, Barclays. Please go ahead. You're live in the call.

Morning, gents. Could I ask a couple, please? So first on mortgages, interested in what your application experience has been in October. Are we seeing a similar level of robust performance as you've observed? in Q3, and does that give you any indication on drawdowns and completions in Q1? I'm just trying to work out how much of this kind of volume dynamic is a tailwind into next year. As part of that, could you help us understand the kind of front and back book margin dynamic on the open book? Presumably it's a nice tailwind now, but if you're able to quantify that That would really help. Another one on capital, if I may. So it's good to see the upgraded guidance in RWAs, which is good. It might be a matter of timing. I just wanted to come back to, you know the regulatory headwinds that you guys have called out before of about $6 billion to $10 billion? I think you've nudged that number lower. I was interested in what's your best estimate of that? And how much of that is captured in this year versus is expected to come through next year? I guess I'm just trying to get a sense on the RWA inflation that might be coming next year as a combination of RWA pro-cyclicality, but also the RWA regulatory headwinds that might be coming.

Thank you. Right. Thank you very much, Aman. elaborate on your first question in terms of the Q&A and applications, and William can take the second one on front, back book, and on capital. So, just to complement what I was saying to Raul, we haven't seen any significant different behavior in October from customers. We always, as you know, we constantly adapt our prices and strategies according to our multi-brand strategy, depending on on demand, and especially on the intermediary channel, we are quite agile in terms of adapting. But from a demand point of view, we haven't seen any significant change in behavior in October. I think, relating to my previous points, that as the stamp duty incentives deadline gets closer, you might have an additional rush into people that want to take advantage of that. And for people to take advantage of the stamp duty, they will more or less have to submit their applications by the end of the year, as you know, in order to take advantage next year from the deadline. And then after that, of course, that incentive will disappear. So you should expect that to disappear a bit later on. On the other hand, the structural impact I told you about the customer behavior and people structurally investing more on their houses and wanting to have better houses given they spend more time in the houses, I think it is a more structural demand point. So this would be the additional feedback and color I could give you on this point.

Thanks, Antonio. Thanks, Aaron, for the question. On the mortgage margin question, first of all, What we're looking at there is completions taking place at around 160 basis points versus 140 basis points on maturities. But also having said that, applications are more like 190 basis points and above in Q3. So that gives you a sense as to the margin and the trends on the mortgage front. You asked about RWAs. The RWA picture for next year, again, is really a matter for next year's guidance, which we're not giving on this call, but two or three factors that are perhaps worth bearing in mind in that context. When we look at RWAs going forward, I called out credit migration as a point in my comments earlier on. We haven't seen that in Q3. We don't really expect to see it on the basis of what we've seen so far in Q4, so it's perhaps more of a next year event contingent upon your view of macroeconomics. You asked about regulatory headwinds there. The only significant regulatory headwind that we see in 2021 at the moment is counterparty credit risk, which we will call out in the early part of next year. That's modest, but it's there. Then offset against that, we'd expect our commercial business in particular to continue with its ongoing optimization, just as it has done this year. And that will then lead in combination to our picture for RWAs during the course of 2021. But again, we'll give more guidance on that in 2021 rather than today.

Perfect. Thanks for that, then. Can I just clarify, then? Does it sound like that $6 billion to $10 billion isn't happening in the way that you thought it was before, or is it that actually you've digested a decent chunk of it this year and there's only a little bit more to come next year?

I think, again, it's a matter for guidance probably at the beginning of next year, but it's more a question of timing, I suspect, and the particular issues that are being referred to.

Okay. Thank you. Next question comes from the line of Guy Stebbings, X-AIM. Please go ahead. You're live in the call.

Good morning. Thanks for taking the questions. Can I come back to NI actually, please? Just on NIM quickly and sort of the exit rate this year and thinking into next year, I'm interested about the multiple references you've made today on stability in the margin. I think if we look into next year, clearly the hedge will be a meaningful drag based on prevailing rates. Looks like obviously much more secured lending over unsecured lending. And then we've got the interesting dynamic on spread widening on mortgages, which maybe dissipates somewhat, but probably is still a net positive into next year in terms of back-to-front book. I mean, is it just that mortgage back-to-front book, which is enough to provide stability into next year? Or is there something else going on? Or are we actually looking at 240 exit rate and maybe a bit of pressure from that sort of level as we think into next year? And then on volumes and average interest on the assets, we've ended the quarter about $2 billion above the average for the quarter. Consensus this year is $4.33 and $4.35 next year, and we're somewhere above that already, and you've got the good pipeline into next year. So I'm just trying to work out if there's anything you can see that should persuade us from thinking that actually we're running somewhere above that into 2021. Thank you.

Thanks very much, Guy, for the questions. Maybe dealing first of all with the margin picture. I'll start off with what we've seen in Q3. As you saw, the Q3 margin ended at 242. That's consistent with the guidance that we gave at the half year. Within that, we saw a couple of positives and a couple of negatives. The positives that we saw were deposit repricing, number one, and the removal of interest-free overdrafts. Chargeable balances, for example, were up 65% in the context of Q3. Against that, we saw a couple of negatives. The structural hedge was one of them, and the second was around asset mix, which is to say unsecured balances came off a little bit, as I called out in my comments earlier on, and mortgages, while they are very good for net interest income, by virtue of the comments that I made earlier on, are a little bit diluted to the group margin. The margin picture looking forward into Q4 is going to be subject to similar factors, and that's why we're calling out margin stability into Q4. with the positives being a full quarter of deposit repricing, a full quarter of the interest-free overdrafts coming to an end, and indeed some reduced funding costs from things like our drawdown in TF-SME. The negatives, again, won't surprise you. They're very similar. The structural hedge has about $10 billion of maturities in the remainder of 2020. Again, we'll see a little bit more attrition in unsecured volumes, albeit that's slowing down. And we'll see a boost in mortgages, just as Antonio was commenting on earlier on, which again is great for NII, but a little bit diluted to margin. That gives you a picture as to the margin. I think looking beyond that, again, guidance is really a matter for 2021. But you can see the factors at play in Q4, which are going to be not totally dissimilar. The important point here comes to your second question, which is what's going on in AIEAs and the driver of that to net interest income. We've seen in the context of Q3 the strength in mortgages. We have seen that offset, if you like, the unsecured balances from an AIEA perspective. And we've seen commercial, a combination of bounce-back loans going up and RCFs coming down, which more or less nets out. When we go into Q4, we're going to continue to see the mortgage growth based upon what we're seeing today in the pipeline, and that continues to grow. We're going to continue to see a little bit of unsecured attrition, just as I commented on in the margin earlier on. Overall, that leads us to the view that AIEAs will continue to increase from what they are today into the year end. To the extent that we see those patterns continue in the course of 2021, then again, that's a matter for 2021 guidance, but you can see where we head off at the end of this year. With a stable NIM, that is good news, obviously, from an NII perspective.

Okay, very clear. Thank you. Perhaps it's an obvious point, but I get the sense that in the past there was perhaps more emphasis placed on net interest margin, whereas given the environment we're in, it feels like NI should really be what we're a bit more focused on rather than just simply the headline MIM. Is that a fair way that you're thinking about it more these days?

Yes, I think it is, but I think it is important to say that it's in the context of making sure that we do things that are in the best interest of both customers and shareholders, and we're in the context of relatively attractive mortgage margin pricing. Okay. Thank you.

Thank you. Next question comes from the line of Chris Kant, Autonomous. Please go ahead. You're live in the call.

Good morning. Thank you for taking my questions. Just on the structural hedge, you mentioned in your remarks, you talked about the net contribution for the nine months being 1.1 billion, I think it was. If I look at your hedge disclosures for 3Q and the equivalent disclosures at the 2Q stage, the nine months, you say 1.1, the six months was 0.6 billion net contribution. So, We're at about a 0.5 billion net contribution for the third quarter, specifically annualizing to about 2 billion. And if there is any rounding there that I'm misunderstanding, that would be a helpful clarification. But if we say the 2 billion two-year average life on the hedge, are we basically looking at a headwind of about 500 million per annum from the 3Q NII level? And if you could also give us a number on the hedge maturities next year specifically, that would be helpful. Thank you. Yeah, sure.

Thanks for the question, Chris. The structural hedge, it's important, first of all, just to make sure that we refer to the right benchmark. So there is the structural hedge and absolute income, if you like. which is around, so far year to date, around $1.8 billion. There is a structural hedge contribution above and beyond LIBOR, which is obviously a lower number because you have to subtract LIBOR from that $1.8 billion number. So just by way of reference, it's important just to, if you like, benchmark against the right context. In terms of the look forward, I mentioned that we have $10 billion maturities in the context of 2020. What we have been doing, as I mentioned in my comments earlier on, is in the context of very low rates, we have been trying to preserve earnings stability and preserve value, just as we always do with the hedge. And that has led us to a strategy of short-dated hedging, which protects against further downside, for example, should, not our base case, but should we see negative interest rates emerge. we are protecting ourselves against that downside by virtue of this short-dated hedging. At the same time, we're preserving optionality, if you like, if the curve kind of resumes back to normal, by, again, making sure that the hedging is appropriately short-dated. Looking forward, this is your second question, but it's part of my answer to the first. Looking forward, because of that short-dated hedging, we see slightly more maturities in 2021. We're now looking at a number of around 60 billion in 2021 maturities for structural hedge. As you look at that on a roll-forward basis in terms of the headwind as you're referring to it, we have over the life of the hedge just over a two-year weighted average life, but importantly an average life of the hedge that is more like five to six years. And so when you think about the structural hedge, as it rolls off, if we see a flat rate curve, then that's the type of – it's that five- to six-year parameter that you should be thinking about. In terms of the headwind on an annualized basis, a couple of things that I'll caution against, really. One is that the hedge profile is relatively lumpy, number one. Number two is that we will, in the interest of preserving earnings stability and shareholder value, be, just as we always are, careful about when we deploy the hedge in order to ensure that we achieve those objectives, which one would hope would abate some of the headwinds that you're referring to. The further points that I would make are more kind of strategic structural, which is that we're in a low interest rate environment. I suspect that we are seeing some pricing moves. We've been talking about mortgages quite extensively this morning that are offsetting some of the effects of that low interest rate environment. So you have to think about the industry response, I think, to the low rate environment that we have, which is driving the structural hedge, but is also driving some benefits in other product markets. We're in a rational, relatively well-ordered market. And I think when you think about the dynamics in our P&L, that's important context.

I understand completely on the other moving parts. If I could just come back to the numbers point though, I understand you do give the gross numbers as well, and perhaps I misheard you, perhaps you were speaking to the gross, but if I'm thinking about the contribution of the hedge NII, It's about $2 billion annualized in 3Q, the NII generated from the hedge. I think that's right. I mean, the gross number you give is 1.9. For the six months, it was 1.3. So the gross contribution in 3Q is $0.6 billion. The net contribution is... 0.5 billion, the LIBOR component is about 0.1, which checks out versus your average hedge balance. But if I think about how much NII you would lose if the entire hedge just rolls into this very flat curve environment, it's essentially 2 billion annualized over the life of the hedge with, by the sounds of it, quite a chunk of that hitting you next year.

I think the numbers that you've given for the performance year to date, Chris, are not terribly different to the numbers that I see. They're slightly different, but not much. I obviously won't comment on next year beyond what I've already said.

Okay. All right. Thank you. Thank you. Next question comes from the line of Martin Leitgev, Goldman Sachs. Please go ahead. You're live in the call.

Yes, good morning. I just wanted to ask you on the potential impact of negative rates and how you see negative rates.

I think the Bank of England has asked banks to comment on whether they are ready for negative rates with the system. So the first question, is Lloyds ready? And do you think the broader market is ready as of now, meaning that anything could at least operationally come in the near to medium term? And maybe to the question of mortgage pricing, related to mortgage pricing, what are the levels banks have left to address the impact of potentially lower rates? Is there anything left in terms of repricing on the liability side, or could there be a scenario where banks increasingly look at asset pricing in order to try to find an offset to potentially lower rates? Thank you.

Thank you very much, Martin. Look, in relation to negative rates, I think we should bear in mind two factors. So there is an operational side and the financial side. What the Bank of England said and the governor and Andy Haldane just last week is that the bank wants to have negative rates in their toolkits, and for them to be in their toolkits, obviously that has to be operationally feasible. So we are in discussions with the Bank of England about how to make that feasible, how long does it take, and what are the steps to make that part of their toolkit. So that's one point. The second one is about financially, is the bank... has the bank changed their mind about their view on interest rates? Both the governor and Andy Haldane have said they haven't changed their mind. Andy Haldane just said last week that most likely the bank, if the bank decides to do something else, they would resort to additional QE before thinking about anything about negative rates. And so I'm just repeating what the governor said and what Andy Haldane said, and we are on that phase. where operationally we are discussing with the bank what it would take to enable the toolkit to be available for the Bank of England. In terms of pricing, and William will want to comment, I'm sure, just a comment I would advance is the following. I mean, as you know, and as I said in one previous question, we have been prudent throughout the last few years in terms of the mortgage market, as we thought pricing was not where we thought it should be sustainably, considering capital, risk, volumes, and other considerations. And now that mortgage margins are on a more stable and a more rational environment almost for 12 months now, I would see it's frankly very difficult why that environment would change while we still have significant uncertainties out there. There is significant demand, as we discussed, and there is a different risk premium going forward, especially for high LTVs. So I would see that difficult to change in the current economic environment.

Well, just to address the second of your two questions there, Martin, which is around liabilities, and it was inherent in what Antonio said as well. The liability margin is, won't surprise you, relatively modest right now, not just for us, but I'm sure for the sector as a whole, given where interest rates are. In that context, it is interesting actually that some of the support to Q3 margin was indeed through liability repricing, as I mentioned in my comments. Looking forward, it's more about asset repricing. So that's a point looking forward, if you like. I think one point that is worth making is that liabilities pricing being low is a function of where we are in the rates curve. That in turn means that I suspect most of the opportunities going forward are from the asset side of the balance sheet. Thank you very much.

Thank you. Next question comes from the line of Andrew Coombs, Citi. Please go ahead. You're live on the call.

Thank you. Perhaps if I could stay on the same theme, looking at mortgage dynamics, and thank you for the numbers on the margin on completions versus maturities and on applications. Just on this theme, in the discussions you have with the Bank of England, it's been quite interesting, the dynamics this year, in that really the mortgage rates have been a function of supply and demand, whereas in the past we've really seen the pass-through of lower rates onto the mortgage market. You just indicated you think the scenario or the environment is likely to remain similar. So a big pitch question here, but in the discussions you have with the Bank of England when they are talking about the prospect of further rate cuts potentially moving to negative rates, what we've seen this year is that hasn't passed through to the mortgage market and hasn't passed through to the end consumer. In fact, it's gone the other way. Mortgage rates are higher. So does that disincentivize the Bank of England from introducing negative rates? any discussions you've had with them on that transmission mechanism. And then a second question, a bit more of a boring number one. At the first half stage, you gave the aggregate gross margin on consumer and on customer deposits. I think it was 681 on consumer and 25 on customer deposits. Can you just give us the updated number, please?

Okay. Andrew, I will comment on the first, and William will comment on the second. Just two points I would add to what we have been discussing, Andrew. In terms of conversations with the Bank of England, the conversations have not been about implementing negative rates themselves, as I said to you, but they are about implementing what it would take for us banks in general, all of us, to be ready to operational implement them should they decide to do it. So we are on the operational phase, as I said. The Bank of England wants to have this available in the toolkit. For it to be available, it has to be feasible. It has to be implementable. And we are on that phase. And as I was just saying, for example, and the other day last week, said publicly that if they were minded to discuss additional monetary policy measures, they would probably first resort to additional quantitative easing. So our conversations, to be very clear about that, are about implementation and having the tool available, not about the change of mind of the bank in terms of whether they want to implement it or not. On the second point, which connects to the first, I understand, Andrew, about passing debts to consumers. Well, they have been passed to consumers. I mean, as base rates went from 75 basis points to 10 basis points, we and most of the banks have lowered the SBI rate exactly by the amount that base rate has passed. And that is immediate, very substantial impact which was passed to consumers. New business price has fluctuated over the years. It has increased a little bit from the beginning of the year in terms of margins, but given the decrease in terms of base rates, prices for consumers are lower than at the beginning of the year. You have to look at the different segments, et cetera. But on average, you have to distinguish which was the impact on absolute prices, which has into consideration the decrease on the base rate and what are the dynamics of the market. There is very substantial demand, which I think will continue. and will continue both because of the incentives for taking advantage of the stamp duty, lower stamp duty, until the beginning of next year. That is going to continue. And apart from that, there is this structural shift in customer behavior, which is also driving demand up very substantially. I mean, we have never had so many approvals, as I told you, since 2008, and we are the largest player in the segment. So that's quite important. The mortgage... Prices in general are in a more rational opinion, in our opinion, a more rational position, in our opinion, and I really don't see, given both the demand factors I mentioned to you, the uncertainties out there, and the risk factors at high LTVs, I don't see that changing in the next one or two quarters.

I'll just maybe add one comment to Antonio's there, Andrew, and then go on to address the second of your two questions. I think it is our view that the regulator realizes, or the Bank of England more appropriately, realizes the profit impact, if you like, or the concerns around negative rates from a financial sector point of view as a general matter. I think, therefore, the As Antonio says, we have passed on in mortgage rates rate reductions that we have seen so far. Going forward, I suspect that the Bank of England will be sympathetic in terms of the form in which negative rates might get introduced. in order to ensure that, if you like, bank sectoral profitability concerns are addressed. We'll see. That's obviously in the realm of slight speculation. But I suspect there is an understanding and a desire to avoid necessarily significant negative impacts from introduction of negative rates if they get there. The second point on your gross margin point on consumer, we won't give that just because I don't want to get into the business of giving detailed 3Q disclosures along the same lines as we give at H1. We'll save those for the halves. There's been, as a general matter, as a trend matter, there's been a very modest amount of pressure on the consumer finance margin, but I won't go into more detail beyond that.

Okay, thanks. Just a quick follow-up then on that consumer margin. Given the dynamics you're seeing in the credit card market, and obviously it was largely a mix-shift effect that have weighed on that gross margin on the consumer book, do you think that will now stabilize in terms of mix effect going forward?

Well, I think our margin, as I mentioned at the half-year, is very dependent upon activity levels in general and what that does to the unsecured book. So if one sees a resumption in activity during the course of 2021, which would be our expectation, then you would expect to see that feeding through into the margin.

Thank you. Thank you. Thank you. Next question comes from the line of Jonathan Pierce-Numis. Please go ahead. You're live in the call.

Hello, both. Two questions, please. The first is just a clarification on that hedge maturity number. Did you say $60 billion next year and If so, is that a relatively smooth set of maturities through 2021? That's the first question. The second question is on capital. I mean, everything you were telling us suggests we get a small profit probably again in Q4. You've got software benefits. Risk-weighted assets are flat. It feels like the XTTO ratio probably ends the year up. towards 16%. And even if I fully load for your severe downside scenario, we'd only be at 13%. I know it's difficult to comment, but can you see any good reason now why the regulator wouldn't let you turn distributions back on, particularly given you've been lending into the important markets as well through the course of 2020?

Yeah, thanks, Jonathan. On the first of your three questions, the hedge maturity, I won't give a detailed breakdown as to the timing of that during the course of 2021, but the number of $60 billion is the right number, roughly $60 billion for next year. But again, I won't go into detail about how exactly that breaks down. The second of your questions around capital performance, the capital performance the remainder of the year is obviously macro-dependent. I mentioned how you might see RP&L and one or two of the trends within that in the course of my prepared remarks. We would expect to see continued capital build, but with that macro-dependency. You mentioned the software exemption. I think we need to see where the PRA goes on that and what it decides to do. What does that all mean for the distributions questions, a third of your questions? The organization, I think, entirely recognizes the importance of dividends to investors. We also see ourselves, as you've commented, and we also agree with, we have a very strong capital position, both with and without transitionals. That is clearly appropriate given the uncertainties that we're in, the macroeconomic uncertainties, the ones that we know about. The distribution ultimately is a question for the board at the end of the year based upon, I'm sure, a number of considerations, but the types of things I would expect it to consider would obviously be the capital strength and the evolution of that position, would obviously be the macro outlook and where we stand, and would obviously be the regulatory position and what the regulator would like to see us as a sector do. So, again, that's a question for the board at the end of the year, but those are the types of considerations I would expect it to debate.

Okay, thank you.

thank you next question come from the line of frederick sleeper kbw please go ahead you're live in the call

Yeah, hi. I think my name's been changed, so it's Ed Firth here. But I'm happy to go under Frederic, if that helps. No, I just had a question about the economic environment, because it seems we're in a sort of slightly surreal world at the moment, where all the banks, not just you, are delivering very low impairment numbers. And yet, if I'm reading my newspaper or reading, you know, France going back into lockdown, Manchester in lockdown, Nottingham in tier three, etc. So I guess my question is, insofar as you can, in those areas of the UK that you have seen in lockdown, going back into some form of lockdown, and I'm thinking of places like Manchester, I guess is the most obvious one. How has the book performed in those areas? And can you see a sort of marked differential between those areas versus the rest, which might give us some indication of what would happen if the whole of the UK goes back into some form of lockdown? I suppose that's my first question. And then my second question related to that is, if we do see some form of sort of greater lockdown in Q4, Would we expect that to be reflected in Q4 provisioning? Or would your first call be to utilize some of the impairments you've already made rather than adding to them further? Thanks very much.

Okay. So I will take the first question, and then William will take the second one. Look, it is very frankly, I mean, it is still too early to see to your example whether, for example, the Manchester lockdown has had any significant different impact on the book because, I mean, we are speaking about weeks. So it's really difficult to know about that. What I would say are probably two things. The first one is, I mean, the government measures of support to the economy are absolutely the right ones at first, because as we have discussed in previous quarters, obviously it keeps a productive structure ready that whenever the pandemic effects dissipate, that productive structure can immediately be used and not have to be reset. Of course, as we move into the pandemic, the government has, and rightly so again, driven more targeted help to the sectors that will continue to operate post pandemic and has looked differently at sectors which has a structural impact from the pandemic but overall speaking the impact of supporting the sectors with a very significant external unexpected shock is the right thing to do if you had not spent that money in that way you would spend it through unemployment benefits lower taxation from corporations that kept operating, et cetera, et cetera, and you would not have the flexibility of going as quickly after the pandemic into production. That's the first important point. But the second important one, I think, which has been less discussed, is that this supports not only to businesses, as I was just mentioning, but to individuals as well through the furlough scheme has also enabled people and businesses to adapt with the transition period, if you want, and to plan ahead. And that's what you see by unsecured debt having decreased So individuals have decreased their leverage as they save more and as they spend less, which is reflected in the balance sheets of the banks by lower and secured balances, and that makes those individuals more resilient to the fact that they might lose their jobs going forward and some will, unfortunately, lose their jobs going forward, but they have had, number one, they are in a stronger situation financially, and secondly, they are having time to plan ahead for those uncertainties, which is also really important in terms of not having an unexpected shock. So I think that those are two important points that I think you should bear in mind. A third one I would add relating to us specifically, because you were mentioning impairments, and I'll ask William to comment in a moment, is that you should bear in mind that us being a retail and a commercial bank, It is not really important what we do in the six months previously to a shock like this one or doing the shock itself. What is really relevant for a retail and commercial bank is what you have been doing for the past five years and the cohorts of loans you have been putting into the books. And as you know, we have since the start, we have always said we wanted to build a low-risk, simple business. digital financial institution based on the real economy in the UK. So we wanted to build a low-risk bank, and we have, as we have discussed with you through several years now, we have taken that view sustainably. For example, to give an example on mortgages, it was already five years ago that we had decided to lower our activity in mortgages in London and the Southeast by decreasing the loan to incomes from five to four in order to de-emphasize our focus on that part of the market. And when you look at the slides we gave you in the appendix, the situation of our mortgage book, again, just to give you a factual example, is completely different than before. So you look at 2010, you see that the bank had 145 billion pounds of mortgages above an LTV of 80%. And after 10 years, we only have 25 billion. And if you look above 100% LTV when prices have gone down in certain areas of the country, we have less than £1 billion of mortgages over 100% LTV. In spite of that, when 10 years ago we had £45 billion, and our equity is around £40 billion, to give an example. So I think it's really important to bear in mind in our specific case that we have been building a low-risk bank and focused on prime businesses over many years now, and that's what most of our work is now after so many years.

I'll address your second question, Ed. The start point is probably just to better understand what's in and what's not in the IFRS 9 provision as we see it today. So our forecasts currently include some measure of localized lockdowns, but also an end to government support as it was articulated at the end of Q3. Now, if you look at what we're seeing today, it could be that the lockdowns get a bit worse. We'll see how that transpires over the coming weeks. But it's also the case that government support is a bit better than we had previously anticipated. So there's a bit of a net effect there and some positives and negatives going on. As we look forward into the future, you asked if we end up in a more adverse macroeconomic situation, does that cause a change in our IFRS 9 impairment provision, or do we dig into the provisions that we already have? It's perhaps just important to step back and say our IFRS 9 impairment provision is constructed based upon the macroeconomic forecasts that we have given you. If those macroeconomic forecasts change, then so will our IFRS 9 impairment provision. Now, having said that, it is important to recognize that the macroeconomic forecasts are a net forecast based upon potential future impairments driven by coronavirus or the coronavirus scenario, but offset by whatever government measures may be taken to soften those blows. So our macroeconomic forecasts rest upon a net of those two. And we'll have to see if there are any changes going forward, what the net impact, if you like, of those two is. Coming back to Q3, within Q3, as said, we've seen pretty benign arrears experience. We have more or less maintained our ECL, now at $7.1 billion, and indeed within that we've had to work pretty hard to offset releases driven by the model to maintain that prudent stance. So our position right now we feel very comfortable with based upon macroeconomic assumptions as given to you today.

Great. Okay. Thanks so much indeed.

thank you due to time constraints we have one final question it comes from the line of benjamin thoms rbc please go ahead you're live in the call hi thank you for taking my questions uh two please firstly in relation to the pra consultation paper that was published last week which includes a proposed change to the rules and mbas if the paper would be implemented in its current form does it have the potential to change the way the management thinks about its one percent management buffer And then secondly, do you expect to recalibrate your property cost footprint following the crisis or is it still too early to say? Thank you.

Sure. Thanks very much for the question. I think on the first of those two, our ambition with capital, as we've demonstrated today, is to stay very comfortably ahead of any MDA or other regulatory constraints. As we stand today, we've got a BAU regulatory requirement of around 11%. The capital ratio today is 15.2%, so there's obviously a very substantial buffer there. I think we would always look to manage the business comfortably in excess of whatever regulatory hurdles there may be. On the property portfolio, I think that as we look forward, one of the things that we've done in our restructuring charge and will continue to do is look at the overall property estate. And to the extent it makes sense in the context of new ways of working, in the context of some of the learnings that we're taking out of the coronavirus environment, we will adjust that property portfolio accordingly. Again, we've done a little bit of that in the course of 2020, and as we look forward, we'll clearly be planning on what is the appropriate property network in the current environment. Thank you.

Thank you. That concludes your Lloyds Quarter Results 2020. You may now all disconnect. Thank you for joining and please enjoy the rest of the day.