Barclays PLC

Welcome to the Barclays Half Year 2020 Results Analysts and Investor Conference call. I will now hand you over to Jeff Staley, Group Chief Executive, and Tushar Mazari, Group Finance Director.

Good morning, everyone. And thank you for joining us today. First of all, let me say that I hope you and your loved ones have been keeping safe and well as we continue to navigate the COVID-19 pandemic. These remain extraordinary circumstances for all of us. And the impact of this crisis weighs heavily on our professional and personal lives. For me, this past quarter for Barclays has been a story of two things. The first is the resilience of the bank, underpinned by the diversification of our strategy and evident in our performance. And the second, made possible by that underlying soundness and strength, has been Barclays continued support for our customers, our clients, our colleagues, and the communities where we live and work around the world. As I said before, the key difference between the financial crisis of 2008 and 2009 and now, is that in a way the banks in 2008 and 2009 were the catalyst for the crisis. While this time we can be a firewall, helping to mitigate the impact of this crisis. I do believe this is a large part driven by regulatory and central bank policies of the past 10 years, which have aimed at moving the economy from an over-dependence on bank balance sheets to much greater reliance on the capital markets to fund economic growth. You can see the evidence of that approach in central bank actions since the beginning of the crisis, particularly in the unprecedented injections of liquidity and huge purchases of corporate debt to bolster the capital markets globally. That strategy has proven to be a very positive shift in terms of the ability for corporates and governments to remain well-funded and liquid as this health crisis moves towards an economic one as we contemplate how to support a sustainable recovery. I welcome the opportunity and obligation for Barclays to help alleviate the social and economic impact of COVID-19. And that effort remains a core priority for Barclays. I've been especially proud of the way our colleagues across the bank have risen to the challenge. Our business touches half the households in the UK. Five months into the crisis, we provided an enormous amount of reassurance and support to a million of customers facing financial challenges and with understandable concerns about the future. In practical help, so far we've granted repayment holidays on 121,000 mortgages and on 76,000 personal loans. We're providing an interest-free buffer on overdrafts for 5.4 million UK customers. And beyond that, we've reduced in cap banking charges. We've waived late payment fees and cash advance fees for 8 million Barclay Card customers and granted some 157,000 payment holidays. And we've exercised similar forbearance across both our businesses in the US and in Europe. 817 branches are open across the UK, providing critical frontline banking services, especially to our most vulnerable customers. We've also trained thousands of branch colleagues to help ease the burden on our call centers. These colleagues are helping handle some 200,000 customer calls a week, representing a whole new engagement with customers from our branches. As the economic consequences of COVID-19 begin to bite, it's more important than ever to help businesses get through this period intact and to do what we can to protect and preserve jobs. That's clearly a top government priority and equally a priority for Barclays. We have all seen the unprecedented effort from the treasury and from the Bank of England to back businesses in the UK. And we've been playing our part to help get that support to companies that need it. As of the beginning of this week, Barclays has now approved nearly 9,000 loans to mid-sized corporates in the UK, with a total value of two and a half billion pounds. Perhaps even more importantly, Barclays has delivered bounce-back loans to nearly a quarter of a million small businesses across the United Kingdom, with a value of some 7.75 billion pounds, helping to preserve hundreds of thousands of jobs. To give you some sense of the relative scale of that, we would historically make that number of loans and of that size over around a three-year period. We delivered the majority of support in just 12 weeks. Behind those numbers are stories of businesses and jobs surviving this crisis, which is what these programs are all about. Take Carras Plating in Greater Manchester, for example. Carras is a -year-old company specializing in electroplating, surface coating, and metal finishing. A 250,000 civils loan has enabled them to adjust their manufacturing process, to plate urgently needed parts for ventilators, provide electrical connectors for the Nightingale hospitals, as well as continue to supply critical components to the food and power sector. We'll take the UK's leading Thai restaurant group, Giggling Squid. Our support and delivery in its 5 million civils loans has helped safeguard 920 jobs at 235 restaurants across the Middle East and Southern England. In nearly a quarter of a million bounce-back loans to small businesses, like Jeweler Arnace Rose in London or the caterer Papadelli in Bristol, there's been a difference between survival and failure for companies up and down the UK. We're proud to be playing our part in that. With our investment banking expertise, we've also been a leader in helping large businesses to access the Bank of England and Treasury's commercial paper program. So far, we've arranged over 11.7 billion pounds of funding for UK corporates, representing some 48% of the total funding access to the CCFF scheme. To date, across all the government-backed programs, Barclays has delivered some 22 billion pounds in COVID-related support to businesses. In the round, these programs represent an extraordinary effort by the government to preserve jobs. And we are proud to support them in that effort. In addition to our backing for those government schemes, we've also been able to provide significant help of our own to business clients. For example, we waived everyday banking fees and overdraft interest for 650,000 of our small business customers. And we've put in place 12-month capital repayment holidays for most SMEs with loans of over 25,000 pounds. We're continuing to extend credit to companies, and Barclays has maintained billions of pounds in credit facilities for clients around the world to draw upon. We're also steadfastly supporting clients globally in advisory and in the equity and debt capital markets. For the second quarter, we advised on 580 capital market transactions that collectively raised a total of over three quarters of a trillion dollars in funding. Of note in the UK, we helped listed companies raise almost six billion pounds in the equity capital market, including household names such as William Hill, Austin Martin, and the Compass Group. There is perhaps no greater stabilizing effect for a company during a time of stress than the injection of new equity. And Barclays is the number one underwriter of equities for British companies year to date. In the US, we served as lead left book runner on a 1.5 billion term loan and a 3.5 billion secured bond offering for Delta Airlines. The term loan represented the first broadly syndicated institutional term loans to clear the market since the start of the COVID-19 crisis. On the advisory side, we were pleased to act as the lead financial advisor to Dominion Energy and the company's 9.7 billion divestiture of its midstream business to Berkshire Hathaway. It was announced earlier this month. We'll continue to evolve our approach in offering to clients, big and small, to help them through this crisis. It's crucial that we preserve as many businesses and jobs as we can to aid the recovery. Barclays has deep roots in the communities where we live and work. And I'm proud of everything our colleagues do year round to support their local areas. We are delivering our core finishing programs in communities such as life skills, unreasonable impact, and connect with work with a particular focus on helping mitigate the impacts of COVID-19. We're delighted that so far we have allocated 45 million pounds of our 100 million pound community aid package to charities in the UK, US, and India to support the people hardest hit by the crisis. From providing food to vulnerable families, to purchasing protective equipment for NHS staff. We understand that our fortunes are intertwined with those of the communities and economies we serve. Times like this, more than ever, our obligation is to support them. And we're going to continue to do that. Before I head over to Tuchar to take you through the numbers and details, I want to provide some overall thoughts on our financial performance in the first half and the second quarter. As I said at the top of these remarks, the first half has clearly demonstrated the resilience of this bank, underpinned by the diversification of our universal banking model. That diversification has enabled Barclays to deliver a robust operating performance in an extremely challenging macro environment. In the first half, income increased 8% to 11.6 billion pounds, with costs down 4% to 6.6 billion pounds. Resulting in positive jobs of 12% and an improved cost to income ratio of 57%. Pre-provision profits were strong, up 27% to five billion for the half. Notwithstanding the impairment reserve of 3.7 billion pounds in the first half of this year, including a further 1.6 billion pounds in the second quarter, that operating performance, led by our investment bank, meant we remained profitable in both quarters. Tuchar will talk more about the assumptions we have made about the macroeconomic outlook, which are a big part of our impairment bill. But we certainly feel that Barclays is appropriately positioned. For instance, taking the unemployment rate, a key driver of consumer credit risk, we've assumed a prolonged period of heightened unemployment in both the UK and US, that is some way above current levels. Yet despite the 3.7 billion impairment number, Barclays still ended June with a CT1 ratio of 14.2%. That's the highest capital ratio in the bank's history. In our corporate investment bank, in the first half, income increased 31% to 6.9 billion pounds, driven by a standout performance in our markets business, particularly in FIC, of 83% year over year, in our equities business, up 26%. The majority of our markets revenue is derived from trading securities and derivatives, and earning the bid-off or spread intraday. We also saw an 8% increase in banking fee income through continued momentum in both debt and equity underwriting. The share gains we have made across markets, and our performance in banking over the past two years, reflect client confidence in our capabilities, and we are pleased at how well the franchise has done in these volatile markets. While we don't expect these extreme levels of volatility to continue, the markets business remains attractive. In the first half, our CIV performance offset a much more challenging time for our consumer businesses. Income decreased by 11% for Barclays UK, and 21% in consumer cards and payments in the first half of the year. This is as a result of low interest rates, and few interest earning balances, reduced payments activity, and decisions to waive various fees and charges to support customers. This all translated into marginal profitability overall for Barclays UK in the period, and a loss of some 500 million pounds post-tax in consumer cards and payments. Dramatic falls in consumer spending in the second quarter have been well documented. We are now actually starting to see some encouraging signs of recovery, including strong demand in the mortgage market in the UK, and card spend trends on both sides of the Atlantic, and payment acquiring volumes. If that recovery continues further into the third quarter, this should lead to a better income and impairment environment, with the resulting improvements in underlying profitability for both the UK and our international cards and payments business. Finally, the investments we have made over the past five plus years in our digital capabilities have enabled us to serve our customers seamlessly through this period, including via the UK's number one banking app. As you'd expect, one consequence of the pandemic lockdown has been to increase demand for our digital services. So to conclude, and in summary, my colleagues and I are, today primarily focused on supporting our customers and clients, our communities, and the wider economy to navigate the pandemic. The strength of our business and the resilience of our strategy means we can both run this bank safely, and profitably, and provide that support to our customers and clients until this crisis passes. I'm gonna hand over to Tushar to take you through the performance for the quarter with some more detail.

Thanks, Jeff. As usual, I'll summarize the first half results and focus on the second quarter performance. As at Q1, we are facing a period of uncertainty, which makes it particularly difficult to give forward-looking guidance, but we can now see the initial effects of the COVID pandemic, and where possible, I will try to give pointers for the coming quarters. As Jeff mentioned, the results of the first half show the benefit of our diversified business model. Despite the impairment charge of 3.7 billion, we reported a statutory profit before tax of 1.3 billion, generating four pence of earnings per share. Mitigation and conduct was immaterial, so on this call, I'll reference the statutory numbers. As for Q1, profits for the half overall was down on last year, reflecting the increase of 2.8 billion in the impairment charge, but income growth of 8% and a reduction of 4% in costs resulted in a profitable half, and an ROT of 2.9%. Given the uncertainty around the economic downturn and low interest rate environment, we do expect the environment in H2 to remain challenging. While we continue to believe that above 10% ROT is the right target for Barclays over time, we need to see how the downturn plays out before giving any medium-term guidance. That income growth reflected a 31% increase in CID, more than offsetting income headwinds in the consumer businesses. The cost reduction delivered positive draws of 12% and an increased cost income ratio of 57%. As a result, pre-provision profits were up 27% to 5 billion. A capital position is strong with a CT1 ratio ending the half at .2% upon the year-end level of 13.8, despite dipping to 13.1 at Q1. The strength of the balance sheet was reflected in the rise in TNAV from 262 pence to 284 pence. Moving on to Q2 performance. Income decreased 4%. Continued strong performance by CID, particularly in markets, was offset by income headwinds in the UK and CCT. Cost decreased 6%, delivering positive draws of 2% and a 62% cost income ratio. As a result, pre-provision profits were broadly stable year on year at 2 billion. However, we provided a further 1.6 billion for impairment of 1.1 billion to add to the 2.1 billion we provided at Q1. This charge included a further 1 billion net increase from modeling revised COVID-19 scenarios with macroeconomic inputs based on a slower recovery than we had modeled at Q1. Continue to see limited effects of the pandemic on delinquencies, partly as a result of support programs. Net write-offs in the quarter were just 0.5 billion and 0.9 billion for the half. Assuming no further deterioration in the macroeconomic variables we are using, we would expect to report a lower impairment charge in the remaining quarters of the year. Before I go into the performance by business, a few words on income costs and impairment overall. The quarter showed the benefit of the diversification of our sources of income across consumer and wholesale businesses. CID income increased 19% to 3.3 billion, driven by an increase of 49% in markets, which is down just 8% on Q1. Conditions remain challenging for our consumer businesses with reduced balances in a low rate environment, as we'll show on the next slide. However, with the recovery in levels of consumer spending, there are encouraging signs starting to emerge. We've highlighted here the headwinds from balance sheet reductions in -U-K and U.S. cards, and also summarize the interest rate developments that have put pressure on income across our lending businesses. You've seen some signs of recovery in consumer spending in both the U.K. and U.S. through June and into July as lockdowns are eased, but of course there will be some time lag in converting this spending to associated increases in interest earning balances. Spending recovery should have a quicker transmission to income levels in U.S. cards, due to the higher interchange income we earn on card spend in the U.S. We've also put on the slide a reminder of the headwinds in -U-K we quantified at Q1. We've continued in H2, but following the repricing of deposits, the margin compression may moderate in H2. Looking now at costs. With the 8% increase in income and cost down 4% in H1, the group delivered positive jewels of 12%, and the cost income ratio reduced from 64% to 57%. I would remind you that costs in H2 will include the bank levy, and we expect the additional costs relating to the pandemic to outweigh cost categories, such as travel, which are reduced in the short term. Of course, the level of costs in H2 will vary with the performance related cost flex in the CID. Pandemic is also changing the ways in which we work, so our continuing focus on cost discipline remains critical to our performance going forward. I've mentioned the additional impairment charge in Q2. As you can see, there was a -on-year increase across all businesses, but the -on-quarter progression shows an increase in -U-K, reflecting a slower forecast economic recovery, but a decrease in CCP. The effect of this slower forecast recovery in the US was offset by a lower 2020 peak for unemployment and the significant reductions in US card balances. In CID, we had lower single-name charges than in Q1, but the effect of the slower recovery on expected losses in corporate lending kept the charge at an elevated level. We've shown on the next slide a breakdown of how we built up the Q2 charge, and the macroeconomic variables, or MEVs, underline the expected loss calculation. We used a similar format to Q1 to explain the workings behind the charge. The modeled impairment calculated during the quarter, using the MEVs we set prior to running the COVID scenario for the Q1 close, generated a figure of 0.4 billion. I think of this as a sort of baseline model charge. In addition to this, we had another 0.2 billion in respect to single-name wholesale charges in the CID. As in Q1, some of these names may have been affected by the pandemic, but the sum of these two is not materially about and is a result of our underlying quarterly run rate in previous years of around 0.5 billion. The remainder of the increase reflects the 1 billion net impact from updated COVID scenarios, reflecting the deterioration in forecast MEVs, and an overlay of 150 million for selected sectors. This book up, as I call it, compares to the 1.35 billion we charged in Q1. We've shown on the slide some of the key UK and US macroeconomic variables used, and there's more detail in the results announcement. The key changes are that while the peak unemployment level in the US is lower in the Q1 COVID scenario, the unemployment levels for both the UK and US remain high for longer. The modeling is subject to inherent uncertainty with respect to forecasting incremental credit losses, and it is difficult to give guidance on the charge going forward. The levels of defaults flowing through will be a key determinant of the charges for the next few quarters. The extension of support programs may delay visibility as to the ultimate level of such defaults, and to the extent that they were already included in the expected loss book up. Taking a step back from the level of the Q2 charge, it's important to look at the coverage ratios to see the full extent of our cumulative protection against downside risk. This slide summarizes the loan books, impairment bills, and resulting coverage ratios for the wholesale and consumer portfolios over the last two quarters. You can see that our coverage ratio increased at the group level from 1.8 to 2.5%. Of course, coverage ratio is very material across the secured and unsecured portfolios. The wholesale coverage has increased from 0.8 to 1.4%. Now, a large portion of this is in the selective sectors, which we consider to be more vulnerable to the downturn, which I'll cover shortly. I would remind you that we are looking at the major risks in corporate lending on a -by-name basis, including taking into account assessment of any value of collateral. The other major area of focus is the coverage on the unsecured consumer books, with a ratio increase from 8.1 to 12% overall, and to .1% on stage two balances, most of which are not past due. We've spit out the unsecured portfolios on the next slide. You can see here the increase in the coverage ratio across the UK and US card portfolios at 16 and .9% respectively. The coverage on stage two balances has increased to 28 and 24.5%. Turning now to the wholesale coverage on selective sectors, we've shown here our exposure to those sectors which we feel are particularly vulnerable to the downturn. I won't go through each of them, but you can see that the balance sheet exposure is just over 20 billion, and our overall coverage ratio across these sectors has increased from 2.3 to .0% through H1. I'd also highlight that as a result of our cautious approach to wholesale risk management, we have synthetic protection in place, covering over 25% of our exposure. As I've mentioned before, we've been happy to sacrifice some income in order to reduce the downside on credit risk. Before I move on to individual businesses, a few words on payment holidays. We've set out on this slide the balances in the major portfolios receiving payment holidays as at 30th of June, staging of those balances and coverage ratios. As you can see, 10% of the mortgage book was on a payment holiday, but these are mainly stage one balances, and the average LTV is 57%. In UK and US, cards with a percentage of balances with holidays was much lower at 5% and 3% respectively. The portion of these that are stage two balances is considerably higher, where the coverage ratios on those balances are well above average stage two coverage on cards at 43.9 and .3% respectively. That means the total uncovered balances on payment holidays across UK and US cards was under 1 billion at 30th of June, and you'll see on the next slide that this is coming down materially in July. It's still too early to draw firm conclusions from the behavior of customers rolling off payment holidays. However, we've set out here the evolution of holiday grants and roll-offs through to the 22nd of July. You can see that as the first wave of holiday grants have started to expire, a significant portion have been rolling off payment holidays, and many of these are returning to regular payment schedules as their payments become due. So there was a marked decline during June in net balances still on payment holidays, and this trend is continuing in the first three weeks of July. Sending now to the performance of individual businesses. We mentioned at Q1 some of the income headwinds the UK is facing, and these are reflected in the Q2 performance, with income down 17% in line with consensus. Although we saw recovery in spending towards the end of the quarter, as I showed earlier, unsecured balances reduced significantly, with interest earning card balances down 18% year on year. Mortgage balances, on the other hand, were up year on year and broadly flat on Q1, with slightly improving pricing. With a significant increase in business banking lending, it's seven billion combined in bounce bank loans and C bills. Meanwhile, deposit balances continue to grow, resulting in a loan to deposit ratio of 92%. Overall, as indicated at Q1, NIM was down material in the quarter at 248 basis points, from 291 for Q1. We still expect the foliar NIM to be in the range of 250 to 260 basis points. Cost in the quarter decreased 4% as efficiency gains were offset by costs related to the pandemic, and circa 25 million of costs were transferred with our partner finance business from Barclays International. In payment for the quarter was 583 million, an increase on the Q1 level of 481 million, reflecting the updated COVID scenario that I mentioned earlier. As I noted earlier, arrears rates at 30 as of June do not yet reflect the developing economic downturn. Turning now to Barclays International. The BI businesses delivered an ROT of .6% for the quarter, down year on year, as a positive jolts from a 3% increase in income and 10% reduction in costs were more than offset by an increase of 0.8 billion in impairment. I'll go into more detail on the businesses on the next two slides. CIB delivered an ROT of .6% in Q2 with another strong performance in markets more than offset the increased impairment provision. Income was up 19% at 3.3 billion, while costs were down 10%, delivering positive joules of 29%. Markets grew income to 2.1 billion, up 49%. Increase was driven by slow trading, as in Q1, with increased client activity, and the trading businesses capturing a good portion of the widen bid-offer spreads as a result of the heightened volatility. This was despite sizable headwinds from hedging counterparty risk, including funding valuation adjustments. FIC income was up 60% on last year, or up 90% excluding the net effect of the trade web gains, with a particularly strong performance from flow credit. Equities had a record quarter in terms of sterling income at 674 million, up 30%, with particularly strong increases in derivatives and cash equities. Banking increased 5%, reflecting improved performance in DCM and ECM, but lower advisory revenues. Overall, it was a strong performance by historical standards. We talked at Q1 about the effect of the corporate lending income of -to-market moves on loan hedges. And in Q2, we saw most of the Q1 benefit reverse as market conditions improved, with circa 280 million negative in total from -to-market and carry costs of the hedges. We also had some positive marks on our leverage loan commitments, totaling circa 140 million, totaling circa 140 million, taken through the income line. Cost reduced 10%, resulting in a cost income ratio of 51%. Impayment increased to 596 million, driven by the effect of the updated COVID scenarios on some single-name charges. RWA is reduced by 3 billion in the quarter to 198 billion, significantly lower than anticipated. I'll come back to that when I talk about capital progression. Turning now to consumer cards and payments. Income in CCP was down 37% -on-year. This included a 101 million pound write-down on visa preference shares. Excluding this, income was still down 28% -on-year, reflecting a significant reduction in US card balances, which were down 18% in dollar terms. In addition to affecting balances, lower spend volumes are also a headwind for interchanging income in cards and payments income. Although the income environment is expected to remain challenging in H2, recent spend data from June and into July, particularly in the US, have suggested some recovery in income, if those trends continue. Costs were down 11%, reflecting both cost efficiencies and lower marketing spend in light of the pandemic. While the ERIO's rates have not yet responded to the downturn, we have taken additional impairment provision of 0.4 billion as a result of running an updated COVID scenario with a slower economic recovery than forecast at Q1, partly offset by lower balances. Turning now to head office. The head office lost before tax was 321 million, up significantly -on-year and -on-quarter. The negative income reflects the main elements I've referenced before, like the 13 million of legacy funding costs and residual negative treasury items, while hedge accounting this quarter generated negative income, compared to a positive contribution in Q1. And that is expected to continue in H2. These are partially offset by the final dividend of circa 40 million. Q2 also included some -to-market losses on legacy investments in the income line, and they'll act when they're right down through the other net expenses. These were each of the order of 40 to 50 million. After an unusually low Q1 print, cost of 109 million, were above the usual run rate of 50 to 60 million, due to the inclusion around half of the community age program of 100 million we announced at Q1. Moving on to capital. We began the quarter at a C to one ratio of 13.1%, having seen a material increase in RWAs in Q1. We had guided for a slightly lower ratio at Q2, as further pro-cyclical increases in RWAs were expected to more than offset capital generation. As we flagged our announcement a couple of weeks ago, the combination of some beneficial regulatory changes and lower RWAs have contributed to a higher than expected ratio, ending the quarter at 14.2%. We continue to generate capital with profits adding 60 basis points of capital, excluding the pre-tax impairment charge. The full impairment charge would have taken 51 basis points off the ratio. This was partly offset by IFRS 9 transitional release of 35 basis points, which included the benefit of the rule changes in Q2. We've shown how these new rules work in the call out box, and there's more detail in an appendix slide. The PVA reduction added 10 basis points, which includes the adoption of the rule change in Q2. There are also increments from fair value moves and the pension position. I'll say more about the way we are looking at our capital flight park in a moment, but first I'll go into detail on the RWA bridge. Here we've broken down the elements of the 6.6 billion decrease in RWAs. The pro-cyclicality we had anticipated at Q1 only partially materialized, and we were able to take management actions to mitigate potential increases. We did see some credit RWA inflation from credit quality deterioration, which we estimate at circa 5 billion. However, other credit risk movements reduced RWAs by a total of 7.6 billion. Over half of the March drawdowns on revolving credit facilities will be paid in Q2, contributing 3.7 billion to that credit RWA reduction after an increase of circa 7 billion in Q1. Counter-party RWAs reduced by 3.1 billion, and in market RWAs, management actions we were able to take resulted in a 2.7 billion net reduction in the quarter, a good result given our strong performance in the market's businesses. Our plans for running the businesses do currently assume some further pro-cyclical effects materializing H2, but as we have seen, forecasting the timing of such effects is difficult. Overall, I would expect the RWA flight path to be a headwind to the capital ratio in H2. The other headwind I'd call out is the potential capital effect of the H2 impairment charge to the extent it has an increased element generated by defaulted balances, which should not be eligible for the increased transitional relief that benefited the Q2 ratio. This would limit the capital generation from pre-provision profitability in H2. Looking at the next slide at our capital requirement, we've shown here our current capital requirement and how it is reduced to reflect the removal of the counter-cyclical buffering Q1 and the recent reduction in Pillar 2A. As a result, our MDA has reduced by 130 basis points to 11.2%, so a Q2 ratio of .2% represents a 300 basis point buffer. We also expect some further reduction in our MDA hurdle in percentage terms over the stress period through some further reduction in our Pillar 2A requirement. With regards to Headroom, our capital ratio has strengthened over the recent years to put us in a position to absorb precisely the type of stress we are now experiencing. In this environment, we will manage our capital ratio through this stress period to enable us to support customers while maintaining appropriate a buffer above the MDA. I wouldn't look at a 300 basis points buffer as any sort of benchmark. We expect the buffer that we consider to be appropriate to evolve over time, having regard to the expected flight parts of both our ratio and our capital requirement. In summary, we are comfortable with our capital ratio and would be comfortable for it to reduce in H2, but it's too early to give definitive guidance on the H2 flight path. Finally, a few words about our liquidity and funding. You can see on this slide some of the key metrics showing we are well positioned to withstand the stresses that are developing and to support our customers. So to recap, we were profitable in Q2 as well as for the first half overall, despite the effects of the COVID pandemic. Although some income headwinds across the consumer businesses are expected to continue into 2021, we do expect a gradual recovery from the Q2 levels. We continue to see the benefits of our diversified business model coming through with strong income growth in the CIV in H1 and our franchise is well positioned for the future. Costs were down year on year resulted in positive jills for the quarter. The pandemic has increased costs in certain areas, but is also changing some of the ways we work. So our continuing focus on cost discipline remains critical to our performance going forward. We've taken very significant impairment charges in Q1 and Q2. While the future is hard to forecast, without further deterioration in economic forecasts, we expect to report lower charges for the remaining quarters of the year. Our funding and liquidity remains strong and put us in a good position to support our customers and clients during this difficult period. Though we may face further headwinds in H2, our improved CT1 ratio of 14.2%, puts us in a good position to deal with further challenges resulting from the pandemic. However, I won't comment further on the potential future capital distribution at this stage. The board will decide on future dividend and capital returns policy at the year end. Thank you. I will now take your questions and as usual, I would ask you to limit yourself to two person so he can get a chance to get around to as many as we can.