Blueprint
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C.20549
FORM
6-K
Report
of Foreign Private Issuer
Pursuant
to Rule 13a-16 or 15d-16
of
the Securities Exchange Act of 1934
(22
February 2017)
LLOYDS BANKING GROUP plc
(Translation of
registrant's name into English)
5th
Floor
25
Gresham Street
London
EC2V
7HN
United
Kingdom
(Address of
principal executive offices)
Indicate by check
mark whether the registrant files or will file annual
reports
under
cover Form 20-F or Form 40-F.
Form
20-F..X..
Form 40-F.....
Indicate by check
mark whether the registrant by furnishing the
information
contained in this
Form is also thereby furnishing the information to the
Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes
...... No ..X..
If
"Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule
12g3-2(b): 82-
________
Index
to Exhibits
Item
No.
1
Regulatory News
Service Announcement, dated 22 February 2017
re:Annual Financial
Report
22
February 2017
LLOYDS BANKING GROUP PLC – ANNUAL REPORT AND
ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 2016
In
accordance with Listing Rule 9.6.1, Lloyds Banking Group plc has
submitted today the following documents to the National Storage
Mechanism.
●
Annual Report and
Accounts 2016
These
documents will shortly be available for inspection at
www.hemscott.com/nsm.do
A copy
of the Annual Report and Accounts 2016 and Annual Review 2016 are
available through the ‘Investors & Performance’
section of our website www.lloydsbankinggroup.com
This
announcement also contains additional information for the purposes
of compliance with the Disclosure and Transparency Rules, including
principal risk factors, details of related party transactions and a
responsibility statement. This information is extracted, in full
unedited text, from the Annual Report and Accounts 2016 (the
‘Annual
Report’). References to page numbers and notes to the
accounts made in the following Appendices, refer to page numbers
and notes to the accounts in the Annual Report. The 2016 Results
News Release made on 22 February 2016 contained a condensed set of
financial statements, the Group Chief Executive’s statement
and the Chief Financial Officer’s review.
-END-
For
further information:
Corporate Affairs
Matt
Smith
+44 (0)20 7356
3522
Head of
Corporate Media
Email:
matt.smith@lloydsbanking.com
Investor Relations
Douglas
Radcliffe
+44 (0)20 7356
1571
Group
Investor Relations Director
Email:
douglas.radcliffe@finance.lloydsbanking.com
FORWARD
LOOKING STATEMENTS
This
Annual Report contains certain forward looking statements with
respect to the business, strategy and plans of Lloyds Banking Group
and its current goals and expectations relating to its future
financial condition and performance. Statements that are not
historical facts, including statements about Lloyds Banking
Group’s or its directors’ and/or management’s
beliefs and expectations, are forward looking statements. Words
such as ‘believes’, ‘anticipates’,
‘estimates’, ‘expects’,
‘intends’, ‘aims’, ‘potential’,
‘will’, ‘would’, ‘could’,
‘considered’, ‘likely’,
‘estimate’ and variations of these words and similar
future or conditional expressions are intended to identify forward
looking statements but are not the exclusive means of identifying
such statements. By their nature, forward looking statements
involve risk and uncertainty because they relate to events and
depend upon circumstances that will or may occur in the
future.
Examples
of such forward looking statements include, but are not limited to:
projections or expectations of the Group’s future financial
position including profit attributable to shareholders, provisions,
economic profit, dividends, capital structure, portfolios, net
interest margin, capital ratios, liquidity, risk-weighted assets
(RWAs), expenditures or any other financial items or ratios;
litigation, regulatory and governmental investigations; the
Group’s future financial performance; the level and extent of
future impairments and write-downs; statements of plans, objectives
or goals of Lloyds Banking Group or its management including in
respect of statements about the future business and economic
environments in the UK and elsewhere including, but not limited to,
future trends in interest rates, foreign exchange rates, credit and
equity market levels and demographic developments; statements about
competition, regulation, disposals and consolidation or
technological developments in the financial services industry; and
statements of assumptions underlying such statements.
Factors
that could cause actual business, strategy, plans and/or results
(including but not limited to the payment of dividends) to differ
materially from the plans, objectives, expectations, estimates and
intentions expressed in such forward looking statements made by the
Group or on its behalf include, but are not limited to: general
economic and business conditions in the UK and internationally;
market related trends and developments; fluctuations in interest
rates (including low or negative rates), exchange rates, stock
markets and currencies; the ability to access sufficient sources of
capital, liquidity and funding when required; changes to the
Group’s credit ratings; the ability to derive cost savings
and other benefits including, but without limitation as a result of
any acquisitions, disposals and other strategic transactions;
changing customer behaviour including consumer spending, saving and
borrowing habits; changes to borrower or counterparty credit
quality; instability in the global financial markets, including
Eurozone instability, the exit by the UK from the European Union
(EU) and the potential for one or more other countries to exit the
EU or the Eurozone and the impact of any sovereign credit rating
downgrade or other sovereign financial issues; technological
changes and risks to cyber security; natural, pandemic and other
disasters, adverse weather and similar contingencies outside the
Group’s control; inadequate or failed internal or external
processes or systems; acts of war, other acts of hostility,
terrorist acts and responses to those acts, geopolitical, pandemic
or other such events; changes in laws, regulations, accounting
standards or taxation, including as a result of the exit by the UK
from the EU, or a further possible referendum on Scottish
independence; changes to regulatory capital or liquidity
requirements and similar contingencies outside the Group’s
control; the policies, decisions and actions of governmental or
regulatory authorities or courts in the UK, the EU, the United
States or elsewhere including the implementation and interpretation
of key legislation and regulation; the ability to attract and
retain senior management and other employees; requirements or
limitations on the Group as a result of HM Treasury’s
investment in the Group; actions or omissions by the Group’s
directors, management or employees including industrial action;
changes to the Group’s post-retirement defined benefit scheme
obligations; the extent of any future impairment charges or
write-downs caused by, but not limited to, depressed asset
valuations, market disruptions and illiquid markets; the value and
effectiveness of any credit protection purchased by the Group; the
inability to hedge certain risks economically; the adequacy of loss
reserves; the actions of competitors, including nonbank financial
services, lending companies and digital innovators and disruptive
technologies; and exposure to regulatory or competition scrutiny,
legal, regulatory or competition proceedings, investigations or
complaints. Please refer to the latest Annual Report on Form 20-F
filed with the US Securities and Exchange Commission for a
discussion of certain factors together with examples of forward
looking statements.
Lloyds
Banking Group may also make or disclose written and/or oral forward
looking statements in reports filed with or furnished to the US
Securities and Exchange Commission, Lloyds Banking Group annual
reviews, half-year announcements, proxy statements, offering
circulars, prospectuses, press releases and other written materials
and in oral statements made by the directors, officers or employees
of Lloyds Banking Group to third parties, including financial
analysts. Except as required by any applicable law or regulation,
the forward looking statements contained in this Annual Report are
made as of the date hereof, and Lloyds Banking Group expressly
disclaims any obligation or undertaking to release publicly any
updates or revisions to any forward looking statements contained in
this Annual Report to reflect any change in Lloyds Banking
Group’s expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is
based.
The
information, statements and opinions contained in this Annual
Report do not constitute a public offer under any applicable law or
an offer to sell any securities or financial instruments or any
advice or recommendation with respect to such securities or
financial instruments.
Appendix 1 – Risk Factors
The
principal risks and uncertainties relating to Lloyds Banking Group
plc are set out on page 28-31 of the Annual Report. The following
is extracted in full and unedited form from the Annual
Report.
The most significant risks which could impact the delivery of our
long-term strategic objectives and our response, are detailed
below.
The Group has considered many of the potential implications
following the UK’s vote to leave the European Union and the
impact to its customers, colleagues and products − as well as
legal, regulatory, tax, finance and capital
implications.
Continued uncertainty surrounding the political and macroeconomic
environment remains but the potential impacts of external factors
have been considered in all principal risks and uncertainties to
ensure any material uncertainties continue to be monitored and are
appropriately mitigated.
Principal risks and uncertainties are reviewed and reported
regularly and no new risks have been identified in the
year.
Credit risk
The
risk that customers and/or other counterparties whom we have either
lent money to or entered into a financial contract with, or other
counterparties with whom we have contracted, fail to meet their
financial obligations, resulting in loss to the Group. Adverse
changes in the economic and market environment we operate in or the
credit quality and/or behaviour of our customers and counterparties
could reduce the value of our assets and potentially increase our
write downs and allowances for impairment losses, adversely
impacting profitability.
Example:
●
Whilst we have a
deep understanding of credit risks across our commercial, mortgage
and other portfolios; a changing economic environment, e.g.
interest rate rises, can impact on customer affordability and
therefore our performance.
Key mitigating actions
●
Credit policy,
incorporating prudent lending criteria, aligned with Board approved
risk appetite, to effectively manage risk.
●
Robust risk
assessment and credit sanctioning to ensure we lend appropriately
and responsibly.
●
Extensive and
thorough credit processes and controls to ensure effective risk
identification, management and oversight.
●
Effective,
well-established governance process supported by independent credit
risk assurance.
●
Early
identification of signs of stress leading to prompt action in
engaging the customer.
Regulatory and legal risk
The risks of changing legislation, regulation, policies, voluntary
codes of practice and their interpretation in the markets in which
we operate can have a significant impact on the Group’s
operations, business prospects, structure, costs and/or capital
requirements and ability to enforce contractual
obligations.
Examples:
●
Increased
regulatory oversight and Prudential regulatory
requirements.
●
Increased
legislative requirements, such as ring-fencing
legislation.
Key mitigating actions
●
Ensure
we develop comprehensive plans for delivery of all legal and
regulatory changes and track their progress. Group-wide projects
implemented to address significant impacts.
●
Continued
investment in people, processes, training and IT to assess impact
and help meet our legal and regulatory commitments.
●
Engage
with regulatory authorities and industry bodies on forthcoming
regulatory changes, market reviews and investigations.
Conduct risk
Conduct risk can arise from a number of areas including selling
products to customers which do not meet their needs; failing to
deal with customers’ complaints effectively; not meeting
customers’ expectations; and exhibiting behaviours which do
not meet market or regulatory standards.
Example:
●
The
most significant conduct cost in recent years has been PPI
mis-selling.
Key mitigating actions
●
Conduct risk
appetite metrics provide a granular view on how our products and
services are performing for customers.
●
Product approval,
review processes and outcome testing supported by conduct
management information.
●
Learning from past
mistakes through root cause analysis and clear customer
accountabilities for colleagues, with rewards driven by
customer-centric metrics.
●
The development of
a refined framework for addressing thematic issues impacting
customers in vulnerable circumstances.
Operational risk
We face
significant operational risks which may result in financial loss,
disruption of services to customers, and damage to our reputation.
These include the availability, resilience and security of our core
IT systems and the potential for failings in our customer
processes.
Examples:
●
A resilient IT
environment is critical to providing reliable services to customers
and enabling sustainable growth.
●
The dynamic threat
posed by cyber risk on the integrity of electronic data or the
availability of systems.
Key mitigating actions
●
Continual review of
our IT environment to ensure that systems and processes can
effectively support customers’ requirements.
●
Enhancing the
resilience of systems that support critical business processes with
independent verification of progress on an annual
basis.
●
Investing in
enhanced cyber controls to protect against external threats to the
confidentiality or integrity of electronic data, or the
availability of systems and responding to findings from third party
industry testing.
People risk
Key
people risks include the risk that we fail to maintain
organisational skills, capability, resilience and capacity levels
in response to increasing volumes of organisational, political and
external market change.
Example:
●
Inability to
attract or retain colleagues with key skills could impact the
achievement of business objectives.
Key mitigating actions
●
Focused action to
attract, retain and develop high calibre people. Delivering
initiatives which reinforce behaviours to generate the best
outcomes for customers and colleagues.
●
Managing
organisational capability and capacity to ensure there are the
right skills and resources to meet our customers’
needs.
●
Effective
remuneration arrangements to promote appropriate colleague
behaviours and meet regulatory expectations.
Insurance risk
Key
insurance risks within the Insurance business are longevity,
persistency and property insurance. Longevity risk is expected to
increase as our presence in the bulk annuity market increases.
Longevity is also the key insurance risk in the Group’s
Defined Benefit Pension Schemes.
Examples:
●
Increases in life
expectancy (longevity) beyond current assumptions will increase the
cost of annuities and pension scheme benefits.
●
Uncertain property
insurance claims impact Insurance earnings and capital, e.g.
extreme weather conditions, such as flooding, can result in high
property damage claims.
Key mitigating actions
●
Processes for
underwriting, claims management, pricing and product design seek to
control exposure. Longevity and bulk pricing experts support the
bulk annuity proposition.
●
The merits of
longevity risk transfer and hedging solutions are regularly
reviewed for both the Insurance business and the Group’s
Defined Benefit Pension Schemes.
●
Property insurance
exposures are mitigated by a broad reinsurance
programme.
Capital risk
The
risk that we have a sub-optimal amount or quality of capital or
that capital is inefficiently deployed across the
Group.
Example:
●
A worsening
macroeconomic environment could lead to adverse financial
performance, which could deplete capital resources and/or increase
capital requirements due to a deterioration in customers’
creditworthiness.
Key mitigating actions
●
A comprehensive
capital management framework that sets and monitors capital risk
appetite, including dividend policy appropriately.
●
Close monitoring of
capital and leverage ratios to ensure we meet current and future
regulatory requirements.
●
Comprehensive
stress testing analysis to evidence capital adequacy under various
adverse scenarios.
Funding and liquidity risk
The
risk that we have insufficient financial resources to meet our
commitments as they fall due, or can only secure them at excessive
cost.
Example:
●
Our funding and
liquidity position is underpinned by a significant and stable
customer deposit base and is supported by strong relationships with
corporate customers and certain wholesale market segments. A
deterioration in either the Group’s or the UK’s credit
rating, or a sudden and significant withdrawal of customer
deposits, would adversely impact our funding and liquidity
position.
Key mitigating actions
●
Holding liquid
assets to meet potential cash and collateral outflows, regulatory
requirements and maintaining a further pool of secondary assets
that can be used to access central bank liquidity
facilities.
●
Undertaking daily
monitoring against a number of market and Group-specific early
warning indicators, maintaining a contingency funding plan
detailing actions and strategies available in stressed
conditions.
Governance risk
Against
a background of increased regulatory focus on governance and risk
management, the most significant challenges arise from the
requirement to improve the resolvability of the Group and to
ring-fence core UK financial services and activities from January
2019 and further requirements under the SM&CR which come into
force from March 2017.
Example:
●
Non-compliance with
or breaches of ring-fencing, resolution and SM&CR requirements
will result in legal and regulatory consequences.
Key mitigating actions
●
Leveraging our
considerable change experience to meet ring-fencing and resolution
planning requirements and the continuing evolution of
SM&CR.
●
Programme in place
to address ring-fencing and resolution planning. In close and
regular contact with regulators to develop plans for our
anticipated operating and legal structure.
●
Evolving risk and
governance arrangements that continue to be appropriate to comply
with regulatory objectives.
Market risk
The
risk that our capital or earnings profile is affected by adverse
market rates, in particular interest rates and credit spreads in
the Banking business, equity and credit spreads in the Insurance
business, and credit spreads in the Group’s Defined Benefit
Pension Schemes.
Examples:
●
Earnings are
impacted by our ability to forecast and model customer behaviour
accurately and establish appropriate hedging
strategies.
●
The Insurance
business is exposed indirectly to equity through the value of
future management charges on policyholder funds. Credit spread risk
within the Insurance business primarily arises from bonds and loans
used to back annuities. Credit spreads affect the value of the
Group’s Defined Benefit Pension Schemes’
liabilities.
Key mitigating actions
●
Structural hedge
programmes implemented to manage liability margins and margin
compression, and the Group’s exposure to Bank Base
Rate.
●
Equity and credit
spread risks are closely monitored and, where appropriate, asset
liability matching is undertaken to mitigate risk.
●
The Group’s
Defined Benefit Pension Schemes have increased their credit
allocation and hedged against nominal rate/inflation
movements.
●
Stress and scenario
testing of Group risk exposures.
Appendix 2 – Related Party Transactions
The
following statements regarding related party transactions of Lloyds
Banking Group plc are set out on pages 241 to 242 of the Annual
Report. The following is extracted in full and unedited form from
the Annual Report.
Note 47: Related party transactions
Key management personnel
Key
management personnel are those persons having authority and
responsibility for planning, directing and controlling the
activities of an entity; the Group’s key management personnel
are the members of the Lloyds Banking Group plc Group Executive
Committee together with its Non‑Executive
Directors.
The
table below details, on an aggregated basis, key management
personnel compensation:
|
|
2016£m
|
2015£m
|
2014£m
|
|
Compensation
|
|
|
|
|
Salaries
and other short-term benefits
|
17
|
14
|
15
|
|
Post-employment
benefits
|
−
|
−
|
1
|
|
Share-based
payments
|
23
|
18
|
17
|
|
Total compensation
|
40
|
32
|
33
|
Aggregate
contributions in respect of key management personnel to defined
contribution pension schemes were £0.1 million (2015:
£0.1 million; 2014: £0.1 million).
|
|
2016
million
|
2015
million
|
2014million
|
|
Share option plans
|
|
|
|
|
At 1
January
|
9
|
13
|
14
|
|
Granted,
including certain adjustments (includes
entitlements of appointed key management personnel)
|
3
|
3
|
−
|
|
Exercised/lapsed
(includes entitlements of former key management
personnel)
|
(9)
|
(7)
|
(1)
|
|
At 31 December
|
3
|
9
|
13
|
|
|
2016
million
|
2015
million
|
2014million
|
|
Share plans
|
|
|
|
|
At 1
January
|
82
|
102
|
105
|
|
Granted,
including certain adjustments (includes entitlements of appointed
key management personnel)
|
29
|
37
|
19
|
|
Exercised/lapsed
(includes entitlements of former key management
personnel)
|
(46)
|
(57)
|
(22)
|
|
At 31 December
|
65
|
82
|
102
|
The
tables below detail, on an aggregated basis, balances outstanding
at the year end and related income and expense, together with
information relating to other transactions between the Group and
its key management personnel:
|
|
2016£m
|
2015£m
|
2014£m
|
|
Loans
|
|
|
|
|
At 1
January
|
5
|
3
|
2
|
|
Advanced
(includes loans of appointed key management personnel)
|
3
|
4
|
2
|
|
Repayments
(includes loans of former key management personnel)
|
(4)
|
(2)
|
(1)
|
|
At 31 December
|
4
|
5
|
3
|
The
loans are on both a secured and unsecured basis and are expected to
be settled in cash. The loans attracted interest rates of between
2.49 per cent and 23.95 per cent in 2016 (2015: 3.99 per cent and
23.95 per cent; 2014: 0.5 per cent and
23.95 per cent).
No
provisions have been recognised in respect of loans given to key
management personnel (2016 and 2015: £nil).
|
|
2016£m
|
2015£m
|
2014£m
|
|
Deposits
|
|
|
|
|
At 1
January
|
13
|
16
|
13
|
|
Placed
(includes deposits of appointed key management
personnel)
|
41
|
58
|
32
|
|
Withdrawn
(includes deposits of former key management personnel)
|
(42)
|
(61)
|
(29)
|
|
At 31 December
|
12
|
13
|
16
|
Deposits
placed by key management personnel attracted interest rates of up
to 4.0 per cent (2015: 4.7 per cent;
2014: 4.7 per cent).
At 31
December 2016, the Group did not provide any guarantees in respect
of key management personnel (2015 and 2014: none).
At 31
December 2016, transactions, arrangements and agreements entered
into by the Group’s banking subsidiaries with directors and
connected persons included amounts outstanding in respect of loans
and credit card transactions of £0.4 million with five
directors and two connected persons (2015: £1 million with
four directors and six connected persons; 2014: £1 million
with six directors and six connected persons).
Subsidiaries
Details
of the Group’s subsidiaries and related undertakings are
provided on pages 293 to 300. In accordance with IFRS 10
Consolidated financial statements, transactions and balances with
subsidiaries have been eliminated on consolidation.
Pension funds
The
Group provides banking and some investment management services to
certain of its pension funds. At 31 December 2016, customer
deposits of £171 million (2015: £145 million) and
investment and insurance contract liabilities of
£406 million (2015: £694 million) related to the
Group’s pension funds.
Collective investment vehicles
The
Group manages 139 (2015: 168) collective investment vehicles, such
as Open Ended Investment Companies (OEICs) and of these 83 (2015:
95) are consolidated. The Group invested £265 million (2015:
£818 million) and redeemed £826 million (2015: £616
million) in the unconsolidated collective investment vehicles
during the year and had investments, at fair value, of £2,405
million (2015: £2,129 million) at 31 December. The Group
earned fees of £192 million from the unconsolidated
collective investment vehicles during 2016 (2015: £187
million).
Joint ventures and associates
At 31
December 2016 there were loans and advances to customers of
£173 million (2015: £225 million) outstanding and
balances within customer deposits of £15 million (2015:
£8 million) relating to joint ventures and
associates.
In
addition to the above balances, the Group has a number of other
associates held by its venture capital business that it accounts
for at fair value through profit or loss. At 31 December 2016,
these companies had total assets of approximately £4,712
million (2015: £3,911 million), total liabilities of
approximately £5,033 million (2015: £4,104 million) and
for the year ended 31 December 2016 had turnover of approximately
£4,401 million (2015: £4,660 million) and made a loss of
approximately £27 million (2015: net loss of £181
million). In addition, the Group has provided £1,550 million
(2015: £1,710 million) of financing to these companies on
which it received £127 million (2015: £125 million) of
interest income in the year.
Appendix 3 – Directors’ Responsibility
Statement
The
following statement is extracted from page 83 of the Annual Report.
This statement relates solely to the Annual Report and is not
connected to the extracted information set out in this announcement
or the 2016 Results News Release dated 22 February
2016.
Statement of directors’ responsibilities
The Directors are responsible for preparing the annual report, the
Directors’ remuneration report and the financial statements
in accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each
financial year. Under that law, the Directors have prepared the
Group and parent Company financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union. Under company law, the Directors must not
approve the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the Group
and the Company and of the profit or loss of the Company and Group
for that period. In preparing these financial statements, the
Directors are required to: select suitable accounting policies and
then apply them consistently; make judgements and accounting
estimates that are reasonable and prudent; and state whether
applicable IFRSs as adopted by the European Union have been
followed.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements and the Directors’
remuneration report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets
of the Company and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
A copy of the financial statements is placed on our website at
www.lloydsbankinggroup.com. The Directors are responsible for the
maintenance and integrity of the Company’s website.
Legislation in the UK governing the preparation and dissemination
of financial statements may differ from legislation in other
jurisdictions. Each of the current Directors who are in office as
at the date of this report, and whose names and functions are
listed on pages 54 to 57 of this annual report, confirm that, to
the best of his or her knowledge:
●
the
Group financial statements, which have been prepared in accordance
with IFRSs as adopted by the European Union, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the Company and Group; and
●
the
management report contained in the strategic report and the
Directors’ report includes a fair review of the development
and performance of the business and the position of the Company and
Group, together with a description of the principal risks and
uncertainties that they face.
The Directors consider that the annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the
Company’s position and performance, business model and
strategy. The Directors have also separately reviewed and approved
the strategic report.
Signatures
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LLOYDS
BANKING GROUP plc
(Registrant)
By: Douglas
Radcliffe
Name: Douglas
Radcliffe
Title: Group
Investor Relations Director
Date:
22 February 2017