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Speaker 1: Charlie Nunn, the CEO of Lloyd's Banking Group. Charlie, thank

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Speaker 1: you so much for coming to speak to us. So

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Speaker 1: let me ask you about this, this guidance and the

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Speaker 1: contrast that we see in the guidance message versus what

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Speaker 1: you're sort of reporting backward looking on the guidance, you've

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Speaker 1: increased guidance around return on tangible equity, around net interest margins,

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Speaker 1: but on the second quarter it seems that you've missed

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Speaker 1: estimates because of higher impairment charges. What kind of message

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Speaker 1: are you looking to pass it onto the market this morning?

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Speaker 2: Morning, Anna, it's great to be here.

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Speaker 3: So I mean, first of all, we had robust financial

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Speaker 3: performance in the first quarter. It's obviously a challenging external

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Speaker 3: environment for our customers in this context, and we've had

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Speaker 3: a lot of focus on supporting customers.

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Speaker 2: But what we've announced today are robust financial.

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Speaker 3: Performance for Q two and as you say, we had

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Speaker 3: guided to the year twenty twenty three evolving in a

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Speaker 3: very specific way, and we've actually raised our guidance for

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Speaker 3: the second part of the year. I think the third message,

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Speaker 3: which is really important is the confidence we have around

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Speaker 3: the strategy we're executing and our re commitment to our

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Speaker 3: targets for really growing the organization and supporting our customers

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Speaker 3: in twenty twenty four and twenty twenty six.

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Speaker 1: Okay, so those that's your commitment there on the second

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Speaker 1: quarter numbers, though, that higher impairment charge. What's the trajectory

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Speaker 1: that you now brace for though in terms of impairments

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Speaker 1: at Lloyd's Banking Group.

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Speaker 3: Yeah, Actually, in terms of our impairments and our credit performance,

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Speaker 3: it's been really resilient. We guided at the start of

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Speaker 3: the year and in Q one our impairment numbers were

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Speaker 3: about thirty basis points in terms of our guidance for

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Speaker 3: the year. When you look at the underlying impairments for

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Speaker 3: quarter two it was twenty nine basis points, so very

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Speaker 3: much in line with our guidance, and that's what we

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Speaker 3: continue to see, real resilience around our credit portfolios. The

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Speaker 3: additional add on in Q two was specific to some

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Speaker 3: economic scenarios. We updated our outlook for the economy and

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Speaker 3: although it's a bit stronger in twenty twenty three, we

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Speaker 3: actually are saying that there's not going to be a

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Speaker 3: recession in twenty twenty three. Now there's going to be

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Speaker 3: modest growth. We are also predicting because rates will be

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Speaker 3: higher for longer, that unemployment will get a bit.

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Speaker 2: Higher in twenty twenty five.

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Speaker 3: And so the economic adjustments we made to our impairments

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Speaker 3: reflect that forward looking view. Underlying impairments show real resilience

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Speaker 3: and we're guiding to the same guidance we have given

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Speaker 3: for the last six months.

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Speaker 1: Okay, but it's the effect of higher on employment rates

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Speaker 1: that you're sort of factoring into your macro assumptions there

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Speaker 1: that has that effect. Let me think about other vulnerabilities

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Speaker 1: in the UK economy, and of course this takes me

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Speaker 1: to the mortgage market. Charlie. You are Britain's biggest mortgage

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Speaker 1: lenser over at Lloyd's and how vulnerable do you think

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Speaker 1: that the market is in terms of mortgages around re mortgaging.

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Speaker 1: This is going to be a strain on many households

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Speaker 1: this year.

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Speaker 3: Yeah, So it's been a really challenging six months nine

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Speaker 3: months for our customers in a very dynamic market. Actually,

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Speaker 3: what we're seeing again is enormous resilience of our customers.

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Speaker 3: Just give you a few stats. In the last six months,

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Speaker 3: customers who have come off a two or five year

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Speaker 3: mortgage deal have increased their monthly payments by about one

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Speaker 3: hundred and eighty pounds per month. As we look to

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Speaker 3: the same second half of the year, that's going to

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Speaker 3: be more like three hundred and fifty pounds, so a

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Speaker 3: really significant increase for our customers. Now, the good news

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Speaker 3: in that context is the majority of our mortgage customers,

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Speaker 3: first of all, are on fixed price deals, so actually

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Speaker 3: only about thirty five percent of our mortgage customers we'll

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Speaker 3: see an increase in their interest rates this year. That

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Speaker 3: means people are locked in a one two percent deal

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Speaker 3: in the last few years. We're going to continue to

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Speaker 3: be protected from interest rates going forward.

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Speaker 2: And then for those face sorry Anna, so carry on?

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Speaker 1: So can we carry on, Charlie?

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Speaker 2: No.

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Speaker 3: And then for those customers facing into those higher mortgage payments,

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Speaker 3: the average salary or household income for a mortgage customers

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Speaker 3: seventy five thousand pounds, so it's challenging they need to

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Speaker 3: adjust what their their spending patterns are. But the vast

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Speaker 3: majority of our mortgage customers we're seeing are adjusting well,

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Speaker 3: and we've not seen an increase in a rear overall

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Speaker 3: in that context.

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Speaker 1: Okay, and what are customers turning to if they come

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Speaker 1: off those fixed deals Charlie to try and cushion themselves.

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Speaker 1: Are they looking to new five year deal? We heard

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Speaker 1: this recently from that west because they're looking for certainty,

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Speaker 1: or more recently, perhaps looking at trackers because they're assuming

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Speaker 1: maybe we get to the end of the hiking cycle.

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Speaker 2: What are people doing?

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Speaker 3: Yeah, So actually in Q four last year, after the

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Speaker 3: mini budget, there was a real growth in trackers, people

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Speaker 3: looking at a tracker and that lasted for three or

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Speaker 3: four months. Actually, again as we're coming to this year,

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Speaker 3: we're looking we're seeing our customers look for more certainty

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Speaker 3: again and it's a balance between five year and two

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Speaker 3: year deals, but they really value that certainty and that's

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Speaker 3: what we're seeing customers look at.

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Speaker 1: Okay, and what impact is all of this in the

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Speaker 1: market mortgage market having on mortgage margins Given what you've

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Speaker 1: said there about the salaries of the people that you

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Speaker 1: provide mortgages to, maybe not too much, but what's the

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Speaker 1: margin outlook for the mortgage business.

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Speaker 3: So again, our guidance around mortgage margins has been consistent.

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Speaker 3: Mortgage margins are tight, They're about fifty basis points and

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Speaker 3: if you compare that to some of the mortgages that

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Speaker 3: are rolling off those that were two years ago, for example,

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Speaker 3: two three years ago now in twenty twenty one, mortgage

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Speaker 3: margins at that stage were more like one hundred and

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Speaker 3: fifty to two hundred basis points. Now that's great because

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Speaker 3: that means although with interest rates going up, mortgagees now

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Speaker 3: are much higher cost for our customers, they're one to

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Speaker 3: two percent lower than they would be. So that's good

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Speaker 3: in that context, and that's why we guided towards our

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Speaker 3: net interest income and net interest margin declining in Q two,

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Speaker 3: which is what we've seen. Actually it's declined a bit

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Speaker 3: less than we guided to, but we saw that our

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Speaker 3: mortgage customers would be getting tighter rates and that we

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Speaker 3: would be passing on more to our savers, and that's

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Speaker 3: what's happened.

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Speaker 1: Okay, Can I turn to another subject that, of course,

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Speaker 1: has got a lot of attention recently. Nigel Faraoy's publicizing,

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Speaker 1: of course, the fact that he has been dbanked as

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Speaker 1: the verb goes, and he's trying to find banking facilities,

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Speaker 1: and it sparked a wider conversation about this topic. I

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Speaker 1: wonder if you're revisiting your debanking policies at Lloyd's Banking Group,

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Speaker 1: the criteria that you apply if you decide to withdraw

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Speaker 1: someone's bank account. Charlie, are you revisiting those policies.

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Speaker 2: No, we're not revisiting them.

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Speaker 3: We had a really clear policy that meant we didn't

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Speaker 3: look at people's police called preferences or their personal beliefs

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Speaker 3: as part of the decision as to whether we either

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Speaker 3: opened an account or closed an account for a customer.

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Speaker 3: So we're confident that that's the right policy. Obviously, we

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Speaker 3: did receive a letter from the Economic Secretary this week

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Speaker 3: and we've got a meeting later today where we're going

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Speaker 3: to talk through or are there any enhancements we should

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Speaker 3: be putting in place around when we close accounts to customers,

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Speaker 3: And as we get the details of that, will absolutely

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Speaker 3: be looking at in that context. But our policy, I

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Speaker 3: believe at the moment is the right one for what

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Speaker 3: we think we're doing for our customers.

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Speaker 1: And Johlly, do you think then that we will see

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Speaker 1: a change of any regulation as a result of this,

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Speaker 1: And of course this might be different when we're talking

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Speaker 1: about ordinary consumers and we're ordinary customers and we're talking

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Speaker 1: about politically exposed persons. But in either of those categories.

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Speaker 1: Do you expect to see changes in regulation?

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Speaker 3: I think I do, even just the early discussions with

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Speaker 3: the Economic Secretary. There's a point around disclosure and giving

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Speaker 3: people ninety days rather than sixty days notice around account closures.

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Speaker 3: Let's wait and see what comes out. I expect some changes,

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Speaker 3: but obviously the core of what we do, which is

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Speaker 3: how do we assess a customer and what our policy is,

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Speaker 3: I think the core of that will stay the same.

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Speaker 1: I wonder if you feel, I mean, you're going to

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Speaker 1: the Treasury today. A lot has been made of the

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Speaker 1: fact that Natwes of course has a government shareholder, so

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Speaker 1: you're not in the same place so for it, Lloyd's

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Speaker 1: banking group, But the whole sector must feel under quite

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Speaker 1: a lot of political pressure at the moment. And I

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Speaker 1: suppose it's understandable, perhaps given the role that banking plays,

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Speaker 1: and if people are not able to access the digital

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Speaker 1: payment's economy, then that's a big deal these days. How

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Speaker 1: do you think we move forward in this? Because banks

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Speaker 1: want to maintain some freedom to say yes or no

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Speaker 1: to customers, but at the same time they're providing an

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Speaker 1: increasingly necessary service.

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Speaker 3: Oh and you know, I've always believed that the role

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Speaker 3: financial services plays is really important for our society, for

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Speaker 3: our economic development and then for how we support the

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Speaker 3: politics and social fabric of an economy. Our purpose statements

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Speaker 3: helping Britain prosper, and that's what we've always been focused on.

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Speaker 3: So for me, just highlights the importance of financial services

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Speaker 3: and I welcome the conversations with the government.

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Speaker 2: You know.

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Speaker 3: A good example was the mortgage charter that we launched

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Speaker 3: a few weeks ago after conversations with the Chancellor and

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Speaker 3: our regulators. It was a great example of us coming

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Speaker 3: together to try and make sure see if we could

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Speaker 3: do anything in addition to support customers at the moment indeed,

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Speaker 3: and I'd expect that to continue to be the way

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Speaker 3: we operate in the.

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Speaker 1: UK thinking of people, you know, far away from the

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Speaker 1: Nigel Pharaoh's example, but at another end of the income spectrum,

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Speaker 1: if you like, areas of society that maybe have felt

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Speaker 1: d banked for a long time and not able to

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Speaker 1: access banking facilities. Is it okay for people to not

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Speaker 1: be able to accept banking facilities in this century?

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Speaker 3: Well so at Lloyd's Banking Group we have twenty six

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Speaker 3: million customers, we have a relationship with half the households

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Speaker 3: in the UK and actually for those that I think

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Speaker 3: you're talking about. We have a basic bank account service

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Speaker 3: and we are by far the biggest provider of basic

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Speaker 3: bank account services to the UK, So we believe that

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Speaker 3: that service should be available and we certainly make it

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Speaker 3: available to our customers, and we make it available through

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Speaker 3: all channels.

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Speaker 2: So that's absolutely our belief.

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Speaker 1: Okay, really interesting, So thank you for going into the

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Speaker 1: sort of that conversation with me. Stepping back a little

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Speaker 1: to the broader story around the UK economy. We focus

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Speaker 1: on the mortgage market, the vulnerabilities there. You've talked about

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Speaker 1: your changing macro assumptions and what that does to the

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Speaker 1: impairments that you're factoring in. But overall you're telling a

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Speaker 1: more positive story than maybe six months ago around the

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Speaker 1: UK economy. Charlie, how would you assess the UK economy

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Speaker 1: right now?

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Speaker 3: So it's fragile, I think, is the answer, and it's

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Speaker 3: creating uncertainty for our customers. What we've adjusted in our

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Speaker 3: economic forecast is more positive for twenty twenty three, but

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Speaker 3: it actually creates a more challenging environment for the UK

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Speaker 3: over the next two or three years. We're not predicting

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Speaker 3: a recession. We're predicting slower growth, and that's because we

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Speaker 3: think the pressure on interest rates and inflation is now

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Speaker 3: stickier than we assessed it INQ one and at the

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Speaker 3: end of the year last year. So it's a fragile economy.

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Speaker 3: It's one that we can see has some growth but

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Speaker 3: limited growth. The good news is that we still think

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Speaker 3: unemployment will remain low, even though we are predicting it

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Speaker 3: will increase, and we think house prices, although we're seeing

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Speaker 3: a five percent four this year, will remain relatively stable.

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Speaker 2: But we absolutely need to get.

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Speaker 3: Investment back into the economy and to support customer and

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Speaker 3: business sentiment so we can start investing in jobs, in

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Speaker 3: growth and productivity.

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Speaker 2: Again.

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Speaker 1: Yes, and I know we've talked about your strategy and

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Speaker 1: you've said you're confident in it, but I wonder how

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Speaker 1: your strategy sits with that as an economic bad job.

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Speaker 1: It involves digital, in involves corporate banking, but it also

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Speaker 1: involves growing the wealth offering. Is that something that is

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Speaker 1: well timed right now or are you having concerns about that, Charlie, No, it.

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Speaker 2: Is well timed.

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Speaker 3: It was very very focused on what we call mass affluent,

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Speaker 3: but it's not the high end private banking services. This

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Speaker 3: is everyday people with everyday money to invest. And what

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Speaker 3: we're seeing, whether it's in their pension assets, simple investments

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Speaker 3: or savings, is this is a moment in time when

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Speaker 3: people need to build their financial resilience. And actually, what

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Speaker 3: we've seen at Lloyd's Banking Group is about seventy billion

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Speaker 3: pounds of additional savings that came into Lloyd's Banking Group

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Speaker 3: through COVID, but we still have about sixty billion pounds

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Speaker 3: of that. So for those customers that are looking to

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Speaker 3: build their future financial resilience, this is a really important

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Speaker 3: moment in time for them to be thinking about how

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Speaker 3: they invest that money and protect themselves and their families

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Speaker 3: for the future. So it couldn't be a better time

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Speaker 3: for us to be engaging customers on those issues.

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Speaker 1: Okay, thank you so much for joining us. Charlie, really

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Speaker 1: nice to have you on the program today. Charlie Nunn,

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Speaker 1: the CEO of Lloyd's Banking Group,