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
  
28 July 2016
 
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 28 July 2016
        re: LBG 2016 half-year Pillar 3 disclosures
 
 
 
Lloyds Banking Group plc
 
2016 Half-Year
Pillar 3 disclosures
 
28 July 2016
 
 
BASIS OF PRESENTATION
 
This report presents the condensed half-year Pillar 3 disclosures of Lloyds Banking Group plc (‘the Group’) as at 30 June 2016, prepared in accordance with European Banking Authority (EBA) guidelines on Pillar 3 disclosure frequency. The report should be read in conjunction with the 2016 Lloyds Banking Group Half-Year Results News Release.
 
The EBA guidelines on Pillar 3 disclosure frequency set out key information that institutions in the EU banking sector should consider disclosing on a more frequent than annual basis under Pillar 3. The Group’s assessment of these guidelines has resulted in the disclosure of specific capital and leverage information at the interim quarter ends, with further detailed analysis provided at half-year as covered by this report. These half-year disclosures remain in addition to the full annual disclosure of the Group’s Pillar 3 report. Risk-weighted assets by type of risk are included in the individual half-year Management Reports for the Group’s significant subsidiaries; ‘Lloyds Bank Group’ and ‘Bank of Scotland Group’.
 
A number of significant differences exist between accounting disclosures published in accordance with International Financial Reporting Standards (IFRS) and Pillar 3 disclosures published in accordance with prudential requirements which prevent direct comparison in a number of areas. Of particular note are the differences surrounding scope of consolidation, the definition of credit risk exposure and the recognition, classification and valuation of capital securities.
 
Unless otherwise specified, credit risk exposures are defined as the exposure at default (EAD), prior to the application of credit risk mitigation (CRM). EAD is defined as the aggregate of drawn (on balance sheet) exposures, undrawn (off balance sheet) commitments and contingent liabilities, after application of credit conversion factors (CCF), and other relevant regulatory adjustments. Notable exceptions to this definition include securitisation positions and counterparty credit risk exposures. A summary, noting the definitions applied, is provided below.
 
Exposure type
Exposure type
Credit risk exposures (excluding securitisation positions)
EAD pre CRM1
Counterparty credit risk exposures
EAD post CRM
Securitisation positions
The aggregate of the Group’s retained or purchased positions, excluding those positions rated below BB- or that are unrated and therefore deducted from capital.
 
1
 
For credit risk exposures risk-weighted under the Standardised Approach the EAD pre CRM value is stated net of specific credit risk adjustments (SCRAs). SCRAs relating to credit risk exposures risk-weighted under a relevant Internal Ratings Based (IRB) Approach methodology are netted against expected losses.
 
FORWARD LOOKING STATEMENTS
This document 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. 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. 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; 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 an exit by the UK from the EU, 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 US 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 provision of banking operations services to TSB Banking Group plc; 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 non-bank financial services and lending companies; 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. Except as required by any applicable law or regulation, the forward looking statements contained in this document are made as of today’s date, and Lloyds Banking Group expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements. The information, statements and opinions contained in this document 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.
 
 
Contents
 
Table 1:
Risk-weighted assets movement by key driver
Table 2:
Capital requirements
Table 3:
Credit risk exposures
Table 4:
Corporate master scale
Table 5:
Retail master scale
Table 6:
Corporate Main exposure by PD grade
Table 7:
Corporate SME exposure by PD grade
Table 8:
Central governments and central bank exposures by PD grade
Table 9:
Institution exposures by PD grade
Table 10:
Residential mortgages (SME) exposures by PD grade
Table 11:
Residential mortgages (non-SME) exposures by PD grade
Table 12:
Qualifying revolving retail exposures by PD grade
Table 13:
Other SME exposures by PD grade
Table 14:
Other non-SME exposures by PD grade
Table 15:
Corporate Specialised Lending exposures subject to supervisory slotting
Table 16:
Lloyds Banking Group own funds template
Table 17:
Lloyds Banking Group leverage ratio common disclosure
Table 18:
Lloyds Banking Group summary reconciliation of accounting assets and leverage ratio exposures
 
 
2016 Half-Year Pillar 3 Update
 
The following disclosures include information on Lloyds Banking Group’s own-funds, leverage, risk-weighted assets and capital requirements by type of risk and by exposure class. Additional detail has been included in relation to the Group’s exposures subject to the Internal Ratings Based (IRB) approach.
 
 
At 30 June 
2016 
 
At 31 Dec 
2015 
Key ratios and risk-weighted assets
 
 
 
Fully loaded common equity tier 1 (CET1) capital ratio2
13.0% 
 
13.0% 
Fully loaded tier 1 capital ratio
15.4% 
 
15.2% 
Fully loaded total capital ratio
18.7% 
 
18.0% 
Fully loaded total risk-weighted assets
£222,297m 
 
£222,747m 
 
 
 
 
Transitional CET1 capital ratio
13.1% 
 
12.8% 
Transitional tier 1 capital ratio
16.4% 
 
16.4% 
Transitional total capital ratio
21.8% 
 
21.5% 
Transitional total risk-weighted assets
£222,778m 
 
£222,845m 
 
 
 
 
Leverage ratio1,2
4.7% 
 
4.8% 
Average leverage ratio3
4.8% 
 
 
 
1
 
Reported on a fully loaded basis.
 
2
 
The common equity tier 1 and leverage ratios at 31 December 2015 were reported on a pro forma basis, including the dividend paid by the Insurance business in February 2016 relating to 2015.
 
3
The average leverage ratio is based on the average of the month end tier 1 capital and exposure measures over the quarter (1 April 2016 to 30 June 2016). The average of 4.8 per cent compares to 4.7 per cent at the start and end of the quarter.
 
 
Table 1: Risk-weighted assets movement by key driver
 
 
Credit 
risk
IRB
Credit 
risk
STA
Credit 
risk
Counterparty 
credit 
risk3
Market 
risk 
Operational  risk 
Total 
£m 
£m 
£m 
£m 
£m 
£m 
£m 
Fully loaded risk-weighted assets as at 31 December 2015
 
 
 
 
 
 
222,747 
Less total threshold risk-weighted assets1, 2
 
 
 
 
 
 
(10,690) 
Risk-weighted assets as at 31 December 2015
151,563 
20,443 
172,006 
10,153 
3,775 
26,123 
212,057 
Asset size
(1,940)
(831)
(2,771)
(1,220)
(137)
– 
(4,128)
Acquisitions and disposals
(1,686)
– 
(1,686)
38 
– 
– 
(1,648)
Model updates
3,229 
(28)
3,201 
99 
(418)
– 
2,882 
Methodology and policy
(327)
121 
(206)
– 
– 
– 
(206)
Asset quality
(1,931)
143 
(1,788)
1,203 
(64)
– 
(649)
Movement in risk levels
– 
– 
– 
– 
(215)
– 
(215)
Foreign exchange movements
2,506 
420 
2,926 
453 
(19)
– 
3,360 
Risk-weighted assets as at
30 June 2016
151,414 
20,268 
171,682 
10,726 
2,922 
26,123 
211,453 
Threshold risk-weighted assets1
 
 
 
 
 
 
11,325 
Transitional risk-weighted assets as at 30June 2016
 
 
 
 
 
 
222,778 
Movement to fully loaded
risk-weighted assets2
 
 
 
 
 
 
(481)
Fully loaded risk-weighted assets as at 30 June 2016
 
 
 
 
 
 
222,297 
 
1
 
Threshold risk-weighted assets reflect the element of significant investments and deferred tax assets that are permitted to be risk-weighted instead of deducted from CET1 capital. Significant investments primarily arise from the investment in the Group’s Insurance business.
 
2
 
Differences may arise between transitional and fully loaded threshold risk-weighted assets where deferred tax assets reliant on future profitability and arising from temporary timing differences and significant investments exceed the fully loaded threshold limit, resulting in an increase in amounts deducted from CET1 capital rather than being risk-weighted.
3
 
Counterparty credit risk includes movements in contributions to the default fund of central counterparties and movements in credit valuation adjustment risk.
 
The risk-weighted assets movement table provides analysis of the reduction in risk-weighted assets in the period by risk type and an insight into the key drivers of the movements. The key driver analysis is compiled on a monthly basis through the identification and categorisation of risk-weighted asset movements and is subject to management judgment.
 
Movements in credit risk-weighted assets in the six months to 30 June 2016 were driven by the following:
Asset size movements include risk-weighted asset movements arising from new lending and asset run-off. During the six months to 30 June, credit risk-weighted assets assessed on both Standardised and Internal Ratings Based approaches decreased by £2.8 billion primarily due to repayments and exits, partly offset by growth in targeted customer segments.
Disposal of the Group’s interest in Visa Europe and further disposals within the run-off business reduced credit risk- weighted assets by £1.7 billion.
Model update increases of £3.2 billion were mainly driven by a change in approach for the Retail Buy-to-let mortgage portfolio and other small model refinements.
Methodology and policy movements include changes due to refinements in the application of regulatory policy.
Asset quality movements capture movements in the assessed quality of assets due to changes in borrower risk, including changes in the economic environment. Net reductions in credit risk-weighted assets of £1.8 billion primarily relate to model calibrations and a net change in credit quality, partially offset by increases in valuation of centrally held strategic equity investments.
Foreign exchange movements reflect the depreciation of Sterling which has contributed to a £2.9 billion increase in credit risk-weighted assets of which £2.3 billion arose in the final week of June following the outcome of the EU referendum.
 
 
Counterparty credit risk and CVA risk increases of £0.6 billion are principally driven by yield curve and foreign exchange movements of which £0.9 billion arose in the final week of June following the outcome of the EU referendum, partially offset by increased capital relief from CVA related hedges.
 
Market risk-weighted assets reduced by £0.9 billion due to a reduction in the Value-at-Risk multiplier and active portfolio management.
 
 
 
The risk-weighted assets and Pillar 1 capital requirements, by key regulatory risk type, of the Group as at 30 June 2016 are presented in the table below.
 
Table 2: Capital requirements
 
June-16 
June-16 
Dec-15 
Dec-15 
Risk- weighted 
assets 
Pillar 1 
 capital 
requirements 
Risk- 
weighted 
assets 
Pillar 1 
capital 
requirements 
CREDIT RISK
£m 
£m 
£m 
£m 
Exposures subject to the IRB approach
 
 
 
 
Foundation IRB approach
 
 
 
 
Corporate – main
43,103 
3,448 
43,005 
3,441 
Corporate – SME
8,471 
678 
8,814 
705 
Corporate − specialised lending
Central governments and central banks
1,661 
133 
1,347 
108 
Institutions
1,216 
97 
1,430 
114 
Retail IRB approach
 
 
 
 
Retail mortgages
39,032 
3,122 
38,252 
3,060 
    of which: residential mortgages (SME)
2,891 
231 
3,214 
257 
    of which: residential mortgages (non-SME)
36,141 
2,891 
35,038 
2,803 
Qualifying revolving retail exposures
12,066 
965 
12,501 
1,000 
Other SME
1,766 
141 
1,807 
145 
Other non-SME
11,523 
922 
11,352 
908 
Other IRB approaches1
 
 
 
 
Corporate − specialised lending
14,296 
1,144 
14,386 
1,151 
Equities − exchange traded
2,484 
199 
2,837 
227 
Equities − private equity
5,649 
452 
5,664 
453 
Equities − other
1,321 
106 
1,392 
111 
Securitisation positions2
3,069 
245 
3,266 
261 
Non-credit obligation assets3
5,751 
460 
5,502 
440 
Total − IRB approach
151,414 
12,113 
151,563 
12,125 
Exposures subject to the standardised approach
 
 
 
 
Central governments and central banks
− 
− 
− 
− 
Regional governments or local authorities
− 
− 
− 
− 
Public sector entities
− 
− 
Multilateral development banks
 
− 
− 
− 
Institutions
36 
24 
Corporates
11,829 
946 
11,921 
954 
Retail
3,088 
247 
2,880 
230 
Secured by mortgages on immovable property
2,092 
167 
2,109 
168 
     of which: residential property
2,063 
165 
2,078 
166 
     of which: commercial property
29 
31 
Exposures in default
1,074 
86 
1,198 
96 
Other items3
2,146 
172 
2,309 
185 
Total − standardised approach
20,268 
1,621 
20,443 
1,635 
Total credit risk
171,682 
13,734 
172,006 
13,760 
Threshold − significant investments
8,349 
668 
7,817 
625 
Threshold − deferred tax
2,976 
238 
2,971 
238 
Total credit risk (transitional)
183,007 
14,640 
182,794 
14,623
 
 
 
 
Table 2: Capital requirements (continued)
 
 
June-16 
June-16 
Dec-15 
Dec-15 
Risk- 
weighted 
assets 
Pillar 1 
capital 
requirements 
Risk- 
weighted 
assets 
Pillar 1 
capital 
requirements 
 
£m 
£m 
£m 
£m 
COUNTERPARTY CREDIT RISK
 
 
 
 
IRB approach
8,485 
679 
7,328 
586 
Standardised approach
531 
43 
509 
41 
Central counterparties
143 
11 
144 
12 
Settlement risk
– 
– 
– 
– 
Contributions to the default fund of a central counterparty
466 
37 
488 
39 
Total counterparty credit risk
9,625 
770 
8,469 
678 
Credit valuation adjustment (CVA)
 
 
 
 
Standardised method
1,101 
88 
1,684 
135 
Total credit valuation adjustment
1,101 
88 
1,684 
135 
 
 
 
 
 
MARKET RISK
 
 
 
 
Internal models approach
2,466 
197 
3,224 
258 
Standardised approach
 
 
 
 
Interest rate position risk requirement
374 
30 
477 
38 
    of which: specific interest rate risk of securitisation positions
32 
78 
Equity position risk requirement
− 
− 
− 
− 
Foreign exchange position risk requirement
82 
74 
Commodity position risk requirement
− 
− 
− 
− 
Total market risk
2,922 
234 
3,775 
302 
 
 
 
 
 
OPERATIONAL RISK
 
 
 
 
Standardised approach
26,123 
2,090 
26,123 
2,090 
Total operational risk
26,123 
2,090 
26,123 
2,090 
Total - transitional
222,778 
17,822 
222,845 
17,827 
 
1
 
Credit risk exposures subject to other IRB approaches include specialised lending exposures risk-weighted in accordance with supervisory slotting criteria, equity exposures risk-weighted in accordance with the Simple Risk Weight Method and securitisation positions risk-weighted in accordance with the Internal Assessment Approach (IAA) and Ratings Based Approach (RBA).
 
2
 
Securitisation positions exclude amounts allocated to the 1,250 per cent risk weight category. These amounts are deducted from capital after the application of specific credit risk adjustments (SCRA), rather than being risk-weighted.
 
3
Other items (Standardised Approach) and non-credit obligation assets (IRB Approach) predominantly relate to other balance sheet assets that have no associated credit risk. These comprise various non-financial assets, including fixed assets, cash, items in the course of collection, prepayments and sundry debtors.
 
 
 
Table 3: Credit risk exposures
 
 
June-16 
June-16 
June-16 
Dec-15 
Dec-15 
Dec-15 
 
Credit 
risk 
exposure 
Risk- 
weighted  assets 
Average 
risk 
weight 
Credit 
risk 
exposure 
Risk- 
weighted 
assets 
Average 
risk 
weight 
Exposure class
£m 
£m 
£m 
£m 
Exposures subject to the IRB approach
 
 
 
 
 
 
Foundation IRB approach
 
 
 
 
 
 
Corporate – main
80,887 
43,103 
53% 
80,629 
43,005 
53% 
Corporate – SME
12,833 
8,471 
66% 
12,964 
8,814 
68% 
Corporate − specialised lending
128% 
120% 
Central governments and central banks
20,844 
1,661 
8% 
15,716 
1,347 
9% 
Institutions
6,697 
1,216 
18% 
7,364 
1,430 
19% 
Retail IRB approach
 
 
 
 
 
 
Retail mortgages
338,264 
39,032 
12% 
341,807 
38,252 
11% 
    of which: residential mortgages (SME)
10,462 
2,891 
28% 
10,517 
3,214 
31% 
    of which: residential mortgages (non-SME)
327,802 
36,141 
11% 
331,290 
35,038 
11% 
Qualifying revolving retail exposures
37,424 
12,066 
32% 
36,975 
12,501 
34% 
Other SME
2,493 
1,766 
71% 
2,661 
1,807 
68% 
Other non-SME
15,351 
11,523 
75% 
14,331 
11,352 
79% 
Other IRB approaches1
 
 
 
 
 
 
Corporate − specialised lending
19,836 
14,296 
72% 
19,887 
14,386 
72% 
Equities − exchange traded
857 
2,484 
290% 
978 
2,837 
290% 
Equities − private equity
2,973 
5,649 
190% 
2,981 
5,664 
190% 
Equities − other
357 
1,321 
370% 
376 
1,392 
370% 
Securitisation positions2
20,853 
3,069 
15% 
22,125 
3,266 
15% 
Non-credit obligation assets3
9,387 
5,751 
61% 
9,228 
5,502 
60% 
Total − IRB approach
569,061 
151,414 
27% 
568,028 
151,563 
27% 
Exposures subject to the standardised approach
 
 
 
 
 
 
Central governments and central banks
99,949 
– 
– 
88,415 
 
 
Regional governments or local authorities
– 
20% 
 
20% 
Public sector entities
100% 
100% 
Multilateral development banks
1,436 
– 
– 
997 
 
 
Institutions
195 
36 
18% 
170 
24 
14% 
Corporates
14,185 
11,829 
83% 
14,463 
11,921 
82% 
Retail
4,735 
3,088 
65% 
4,438 
2,880 
65% 
Secured by mortgages on immovable property
5,783 
2,092 
36% 
5,840 
2,109 
36% 
    of which: residential property
5,754 
2,063 
36% 
5,809 
2,078 
36% 
    of which: commercial property
29 
29 
100% 
31 
31 
100% 
Exposures in default
923 
1,074 
116% 
1,005 
1,198 
119% 
Other items3
3,324 
2,146 
65% 
3,204 
2,309 
72% 
Total − standardised approach
130,534 
20,268 
16% 
118,535 
20,443 
17% 
Total credit risk
699,595 
171,682 
25% 
686,563 
172,006 
25% 
Threshold – significant investments
3,340 
8,349 
250% 
3,127 
7,817 
250% 
Threshold – deferred tax
1,191 
2,976 
250% 
1,188 
2,971 
250% 
Total credit risk (transitional)
704,126 
183,007 
26% 
690,878 
182,794
26% 
 
1
Credit risk exposures subject to other IRB approaches include corporate specialised lending exposures risk-weighted in accordance with supervisory slotting criteria, equity exposures risk-weighted in accordance with the Simple Risk Weight Method and securitisation positions risk-weighted in accordance with the IAA and the RBA.
2
Securitisation positions exclude amounts allocated to the 1,250 per cent risk weight category. These amounts are deducted from capital, after the application of SCRAs, rather than being risk-weighted at 1,250 per cent.
3
Other items (Standardised Approach) and non−credit obligation assets (IRB approach) predominantly relate to other balance sheet assets that have no associated credit risk. These comprise various non−financial assets, including fixed assets, cash, items in the course of collection, prepayments and sundry debtors.
 
 
 
Exposures subject to the IRB approach – key movements
 
FIRB Corporate Main
Overall Corporate Main exposures have remained relatively flat, with underlying reductions driven by active portfolio management, offset by the impact of Sterling depreciation, particularly in the last week of June.
 
FIRB Corporate SME
The average risk-weight on FIRB Corporate SME lending has reduced to 66 per cent, driven by targeted new lending which has resulted in an overall improvement in credit quality. This has also led to a reduction in the average PD.
 
FIRB Central governments and central banks
FIRB Central governments and central banks exposures increased by £5.1 billion driven by an increase in deposits with the Federal Reserve. 
 
Retail IRB Residential mortgages
Retail IRB residential mortgage exposures decreased by £3.5 billion reflecting the Group’s focus on balancing margin and risk considerations with volume growth in the current competitive low growth market. The small increase in average risk weight was driven by model updates.
 
Retail Qualifying revolving
Retail IRB Qualifying revolving retail exposures increased by £0.4 billion largely due to targeted growth in credit cards. The average risk weight reduced from 34 per cent to 32 per cent largely due to improved asset quality.
 
Retail Other non-SME
Retail other (non-SME) exposures have increased by £1.0 billion and average risk weights have reduced from 79 per cent to 75 per cent primarily as a result of continued growth in UK Motor Finance
 
Equities
There was a minimal reduction in equities compared to December 2015 as the impact of disposals of certain strategic investments (including Visa Europe) was largely offset by increases in the valuation of centrally held investments.
 
Securitisation positions
Securitisation exposures decreased by £1.3 billion mainly due to net sales in the period.
 
Exposures subject to the Standardised Approach – key movements
 
Standardised Central governments and central banks
Standardised central governments and central banks’ exposures increased by £11.5 billion primarily due to management of the liquid asset portfolio, specifically placement of funds with European sovereigns, primarily Netherlands.
 
 
Internal Rating Scales
Within the Group, PD internal rating scales are used in assessing the credit quality of the Foundation IRB and Retail IRB portfolios. Two separate scales exist within the business – a Corporate Master Scale which covers all relevant corporate, central government and central bank and institution portfolios and a Retail Master Scale which covers all relevant retail portfolios.
 
PD master scales
 
Table 4: Corporate master scale
In commercial portfolios the PD models segment counterparties into a number of rating grades, with each grade representing a defined range of default probabilities and there are a number of different model rating scales. Counterparties/exposures migrate between rating grades if the assessment of the PD changes. The modelled PD ‘map’ through local scales to a single Corporate (non-retail) master scale comprising of 19 non-default ratings. Together with four default ratings the Corporate master scale forms the basis on which internal reporting is completed. These ratings scales can also be mapped to External Ratings as shown below.
 
 
Range
External S&P Rating
PD Grades
Lower 
Mid 
Upper 
(Approximate Equivalent)
1-4
0.000% 
0.018% 
0.035% 
AAA to AA-
5
0.036% 
0.043% 
0.050% 
A+
6
0.051% 
0.060% 
0.080% 
A
7
0.081% 
0.110% 
0.140% 
A-
8
0.141% 
0.180% 
0.220% 
BBB+
9
0.221% 
0.280% 
0.340% 
BBB
10
0.341% 
0.420% 
0.500% 
BBB-
11
0.501% 
0.630% 
0.760% 
BB+
12
0.761% 
1.000% 
1.240% 
BB
13
1.241% 
1.620% 
2.000% 
BB-
14
2.001% 
2.600% 
3.200% 
B+
15
3.201% 
4.200% 
5.200% 
B+
16
5.201% 
6.200% 
7.200% 
B
17
7.201% 
8.700% 
10.200% 
B-
18
10.201% 
12.000% 
13.800% 
B-
19
13.801% 
31.000% 
99.999% 
CCC to C
20 – 23 (Default)
100.000% 
100.000% 
100.000% 
Default
 
 
 
 
Table 5: Retail master scale
In the principal retail portfolios, EAD and loss given default models are also in use. For reporting purposes, customers are segmented into a number of rating grades, each representing a defined range of default probabilities and exposures migrate between rating grades if the assessment of the counterparty PD changes. The Retail master scale comprises 13 non-default ratings and one default rating.
 
 
 
Range
PD Grades
 
Lower 
 
Mid 
 
Upper 
0
 
0.000% 
 
0.050% 
 
0.100% 
1
 
0.101% 
 
0.251% 
 
0.400% 
2
 
0.401% 
 
0.601% 
 
0.800% 
3
 
0.801% 
 
1.001% 
 
1.200% 
4
 
1.201% 
 
1.851% 
 
2.500% 
5
 
2.501% 
 
3.501% 
 
4.500% 
6
 
4.501% 
 
6.001% 
 
7.500% 
7
 
7.501% 
 
8.751% 
 
10.000% 
8
 
10.001% 
 
12.001% 
 
14.000% 
9
 
14.001% 
 
17.001% 
 
20.000% 
10
 
20.001% 
 
25.001% 
 
30.000% 
11
 
30.001% 
 
37.501% 
 
45.000% 
12
 
45.001% 
 
72.500% 
 
99.999% 
Default
 
100.000% 
 
100.000% 
 
100.000% 
 
Analysis of credit risk exposures subject to the Foundation IRB Approach
The section that follows provides a detailed analysis, by PD Grade, of credit risk exposures subject to the Foundation IRB approach.
 
Disclosures provided in the tables that follow take into account PD floors and LGD floors specified by regulators in respect of the calculation of regulatory capital requirements.
 
 
 
 
Table 6: Corporate Main exposure by PD grade
 
 
June-16 
June-16 
June-16 
Dec-15 
Dec-15 
Dec-15 
 
Credit 
risk 
exposure 
Exposure 
weighted 
average 
PD 
Average 
risk 
weight 
Credit 
risk 
exposure 
Exposure 
weighted 
average 
PD 
Average 
risk 
weight 
 
£m 
£m 
PD Grades
 
 
 
 
 
 
1 − 4
9,823 
0.03% 
22.82% 
9,675 
0.03% 
22.93% 
5
2,957 
0.04% 
25.91% 
2,872 
0.04% 
28.29% 
6
5,929 
0.06% 
21.68% 
5,879 
0.06% 
22.61% 
7
11,494 
0.11% 
32.41% 
11,489 
0.11% 
32.37% 
8
11,791 
0.18% 
41.34% 
12,507 
0.18% 
42.08% 
9
11,161 
0.28% 
55.01% 
10,342 
0.28% 
55.17% 
10
9,384 
0.42% 
65.15% 
9,714 
0.42% 
65.34% 
11
5,123 
0.63% 
77.50% 
5,396 
0.63% 
78.40% 
12
4,932 
1.01% 
92.06% 
4,753 
1.00% 
92.06% 
13
3,377 
1.63% 
108.87% 
2,864 
1.63% 
110.86% 
14
2,158 
2.60% 
126.05% 
2,567 
2.60% 
127.72% 
15
402 
4.18% 
144.87% 
677 
4.14% 
134.21% 
16
848 
6.19% 
154.58% 
293 
6.20% 
155.32% 
17
332 
8.73% 
201.26% 
424 
8.73% 
176.91% 
18
72 
11.80% 
217.89% 
36 
11.72% 
230.78% 
19
137 
24.89% 
240.42% 
155 
19.94% 
227.16% 
20 – 23 (Default)
967 
100.00% 
– 
986 
100.00% 
– 
Total
80,887 
1.75% 
53.29% 
80,629 
1.75% 
53.34% 
 
Table 7: Corporate SME exposure by PD grade
 
 
June-16 
June-16 
June-16 
Dec-15 
Dec-15 
Dec-15 
 
Credit 
risk 
exposure 
Exposure  weighted  average PD 
Average 
risk 
weight 
Credit 
risk 
exposure 
Exposure  weighted 
 average PD 
Average 
risk 
weight 
 
£m 
£m 
PD Grades
 
 
 
 
 
 
1 − 4
139 
0.03% 
20.82% 
142 
0.03% 
20.79% 
5
140 
0.04% 
25.48% 
157 
0.04% 
26.06% 
6
330 
0.06% 
25.50% 
284 
0.06% 
22.29% 
7
430 
0.11% 
24.85% 
393 
0.11% 
26.30% 
8
498 
0.18% 
38.98% 
299 
0.18% 
36.03% 
9
547 
0.28% 
47.00% 
565 
0.28% 
46.75% 
10
770 
0.43% 
49.92% 
782 
0.43% 
49.38% 
11
2,522 
0.63% 
59.05% 
2,535 
0.63% 
59.29% 
12
2,151 
1.06% 
71.30% 
2,089 
1.06% 
70.80% 
13
1,363 
1.66% 
81.67% 
1,327 
1.66% 
81.23% 
14
1,589 
2.60% 
91.92% 
1,600 
2.60% 
95.23% 
15
380 
4.23% 
95.53% 
389 
4.23% 
96.34% 
16
498 
5.88% 
110.14% 
808 
6.02% 
124.66% 
17
271 
8.66% 
122.94% 
265 
8.61% 
127.48% 
18
231 
10.80% 
130.18% 
220 
10.73% 
129.01% 
19
155 
29.01% 
152.95% 
148 
24.88% 
157.35% 
20 – 23 (Default)
819 
100.00% 
– 
961 
100.00% 
− 
Total
12,833 
8.32% 
66.01% 
12,964 
9.39% 
67.99% 
 
 
 
Table 8: Central governments and central bank exposures by PD grade
 
 
June-16 
June-16 
June-16 
Dec-15 
Dec-15 
Dec-15 
 
Credit 
risk 
exposure 
Exposure  weighted  average 
PD 
Average 
risk 
weight 
Credit 
risk 
exposure 
Exposure  weighted 
average
PD 
Average 
risk 
weight 
 
£m 
% 
% 
£m 
PD Grades
 
 
 
 
 
 
1 − 4
20,687 
0.01% 
7.73% 
15,716 
0.01%
8.57%
5
− 
− 
− 
− 
− 
− 
6
157 
0.06% 
39.24% 
− 
− 
− 
7
− 
− 
− 
− 
− 
− 
8
− 
− 
− 
− 
− 
− 
9
− 
− 
− 
− 
− 
− 
10
− 
− 
− 
− 
− 
− 
11
− 
− 
− 
− 
− 
− 
12
− 
− 
− 
− 
− 
− 
13
− 
− 
− 
− 
− 
− 
14
− 
− 
− 
− 
− 
− 
15
− 
− 
− 
− 
− 
− 
16
− 
− 
− 
− 
− 
− 
17
− 
− 
− 
− 
− 
− 
18
− 
− 
− 
− 
− 
− 
19
− 
− 
− 
− 
− 
− 
20 – 23 (Default)
− 
− 
− 
− 
− 
− 
Total
20,844
0.01% 
7.97% 
15,716 
0.01% 
8.57% 
Table 9: Institution exposures by PD grade
 
 
June-16 
June-16 
June-16 
Dec-15 
Dec-15 
Dec-15 
 
Credit 
risk 
exposure 
Exposure 
weighted 
average  PD 
Average 
risk 
weight 
Credit 
risk 
exposure 
Exposure 
weighted 
average 
PD 
Average 
risk 
weight 
 
£m 
£m 
PD Grades
 
 
 
 
 
 
1 − 4
2,088 
0.03% 
10.47% 
2,781 
0.03% 
11.25% 
5
868 
0.04% 
8.65% 
954 
0.04% 
9.23% 
6
2,398 
0.06% 
11.97% 
2,179 
0.06% 
10.40% 
7
371 
0.11% 
16.11% 
387 
0.11% 
21.98% 
8
250 
0.18% 
36.52% 
242 
0.18% 
43.38% 
9
228 
0.28% 
60.16% 
214 
0.28% 
62.82% 
10
156 
0.43% 
55.12% 
218 
0.43% 
65.24% 
11
236 
0.67% 
61.69% 
290 
0.73% 
75.00% 
12
46 
1.00% 
89.51% 
43 
1.01% 
93.53% 
13
1.56% 
102.61% 
1.69% 
110.81% 
14
2.10% 
103.72% 
2.20% 
132.33% 
15
4.23% 
149.25% 
4.24% 
157.47% 
16
− 
− 
− 
− 
− 
− 
17
− 
− 
− 
− 
− 
− 
18
26 
12.00% 
200.46% 
− 
− 
− 
19
30.62% 
245.83% 
24 
14.50% 
247.44% 
20 – 23 (Default)
13 
100.00% 
– 
17 
100.00% 
− 
Total
6,697 
0.35% 
18.16% 
7,364 
0.39% 
19.42% 
 
 
 
Analysis of credit risk exposures subject to the Retail IRB Approach
This section provides a detailed analysis, by PD Grade, of credit risk exposures subject to the Retail IRB Approach.
 
Disclosures provided in the tables below take into account PD floors and LGD floors specified by regulators in respect of the calculation of regulatory capital requirements.
 
Table 10: Residential mortgages (SME) exposures by PD grade
 
 
June-16 
June-16 
June-16 
June-16 
June-16 
June-16 
 
Credit 
risk 
exposure 
Exposure  weighted  average 
PD 
Exposure  weighted  average 
LGD1
Average 
risk 
weight 
Undrawn 
commitments 
(gross)
Undrawn 
commitments 
(after CCF)
 
£m 
£m 
£m 
PD Grade
 
 
 
 
 
 
0
− 
− 
− 
− 
− 
− 
1
− 
− 
− 
− 
− 
− 
2
4,755 
0.62% 
16.08% 
11.94% 
501 
491 
3
2,161 
1.12% 
17.82% 
19.80% 
147 
143 
4
1,018 
1.67% 
18.06% 
26.00% 
53 
52 
5
894 
2.62% 
18.58% 
35.24% 
40 
38 
6
632 
5.67% 
18.90% 
53.42% 
24 
23 
7
92 
8.04% 
18.77% 
66.12% 
8
378 
10.61% 
19.81% 
75.50% 
14 
13 
9
175 
18.02% 
20.01% 
90.35% 
10
− 
– 
– 
– 
– 
− 
11
68 
34.10% 
19.79% 
95.14% 
12
17 
78.18% 
22.21% 
47.33% 
– 
− 
Default
272 
100.00% 
8.63% 
147.58% 
Total
10,462 
4.94% 
17.08% 
27.63% 
789 
770 
 
 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
 
Credit 
risk 
exposure 
Exposure 
weighted 
average 
PD 
Exposure  weighted 
average 
 LGD1
Average 
risk 
weight 
Undrawn 
commitment 
(gross)
Undrawn 
commitment 
(after CCF)
 
£m 
£m 
£m 
PD Grade
 
 
 
 
 
 
0
− 
− 
− 
− 
− 
− 
1
− 
− 
− 
− 
− 
− 
2
4,523 
0.62% 
16.46% 
12.28% 
475 
464 
3
2,257 
1.12% 
17.94% 
20.04% 
146 
142 
4
1,054 
1.67% 
18.48% 
26.79% 
58 
56 
5
934 
2.62% 
18.93% 
36.01% 
39 
38 
6
616 
5.67% 
19.32% 
56.39% 
27 
27 
7
72 
8.04% 
20.70% 
72.77% 
8
398 
10.61% 
20.13% 
76.77% 
16 
15 
9
198 
18.02% 
20.84% 
93.75% 
10
− 
– 
– 
– 
– 
− 
11
70 
34.10% 
20.19% 
98.73% 
12
20 
78.18% 
21.92% 
45.43% 
− 
− 
Default
375 
100.00% 
7.91% 
164.85% 
Total
10,517 
5.98% 
17.35% 
30.56% 
773 
754 
 
 
 
 
Table 11: Residential mortgages (non−SME) exposures by PD grade
 
 
June-16 
June-16 
June-16 
June-16 
June-16 
June-16 
 
Credit 
risk 
exposure 
Exposure  weighted  average 
PD 
Exposure  weighted  average 
LGD1
Average 
risk 
weight 
Undrawn 
commitments 
(gross)2
Undrawn 
commitments 
(after CCF)
 
£m
%
%
%
£m
£m
PD Grade
 
 
 
 
 
 
0
191,947 
0.11% 
9.43% 
2.86% 
9,032 
8,617 
1
89,697 
0.46% 
11.01% 
10.04% 
1,758 
1,601 
2
17,946 
1.40% 
13.46% 
23.88% 
196 
191 
3
6,139 
2.29% 
15.30% 
35.17% 
43 
40 
4
7,656 
3.78% 
18.01% 
51.51% 
170 
38 
5
3,073 
6.73% 
19.84% 
78.80% 
6
2,302 
14.22% 
14.96% 
79.63% 
− 
− 
7
880 
17.54% 
14.12% 
91.15% 
− 
− 
8
665 
24.55% 
15.39% 
102.03% 
− 
− 
9
896 
33.65% 
11.96% 
80.58% 
− 
− 
10
903 
43.85% 
12.35% 
83.70% 
− 
− 
11
670 
58.76% 
12.54% 
73.07% 
12
909 
74.42% 
13.53% 
54.42% 
− 
− 
Default
4,119 
100.00% 
14.68% 
74.33% 
− 
− 
Total
327,802 
2.45% 
10.65% 
11.03% 
11,203 
10,490 
 
 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
 
Credit 
risk 
exposure 
Exposure  weighted 
average 
PD 
Exposure  weighted 
average 
LGD1
Average 
risk 
weight 
Undrawn 
commitments 
(gross)2
Undrawn 
commitments 
(after CCF)
 
£m
%
%
%
£m
£m
PD Grade
 
 
 
 
 
 
0
187,636 
0.10% 
9.34% 
2.50% 
8,287 
7,759 
1
94,669 
0.47% 
10.96% 
9.49% 
2,038 
1,931 
2
17,081 
1.39% 
13.29% 
22.32% 
155 
150 
3
7,299 
2.27% 
14.43% 
31.55% 
106 
106 
4
8,954 
3.85% 
16.44% 
45.81% 
181 
43 
5
3,671 
7.27% 
18.42% 
69.99% 
6
2,981 
13.49% 
14.76% 
74.82% 
− 
− 
7
455 
19.15% 
19.34% 
109.26% 
− 
− 
8
1,066 
25.06% 
13.68% 
84.77% 
− 
− 
9
988 
31.89% 
12.54% 
81.54% 
− 
− 
10
938 
43.64% 
12.84% 
78.48% 
− 
− 
11
830 
56.80% 
12.93% 
67.77% 
12
703 
73.07% 
14.07% 
51.99% 
− 
Default
4,019 
100.00% 
14.46% 
61.54% 
− 
− 
Total
331,290 
2.46% 
10.59% 
10.58% 
10,776 
9,996 
 
1
The 10 per cent LGD floor that applies to residential mortgage exposures is applied at portfolio level rather than at account level. This means that LGD per cent for a given grade can be less than 10 per cent but that for the relevant portfolio cannot.
 
2
Undrawn commitments predominantly relate to pipeline mortgages, offered but not drawn down by the customer.
 
 
 
Table 12: Qualifying revolving retail exposures by PD grade
 
 
June-16 
June-16 
June-16 
June-16 
June-16 
June-16 
 
Credit 
risk 
exposure 
Exposure  weighted  average 
PD 
Exposure  weighted  average 
LGD 
Average 
risk 
weight 
Undrawn 
commitments  (gross)
Undrawn 
commitments  (after CCF)1
 
£m 
£m 
£m 
PD Grade
 
 
 
 
 
 
0
11,237 
0.05% 
76.09% 
2.66% 
15,407 
10,665 
1
9,861 
0.22% 
75.66% 
9.12% 
14,180 
8,088 
2
4,601 
0.58% 
79.41% 
21.13% 
4,541 
2,997 
3
2,269 
1.00% 
79.48% 
32.16% 
1,820 
1,151 
4
3,544 
1.75% 
79.74% 
48.94% 
2,142 
1,457 
5
2,229 
3.32% 
79.84% 
77.77% 
908 
720 
6
1,882 
6.16% 
80.70% 
118.65% 
890 
721 
7
480 
8.55% 
80.38% 
144.84% 
108 
119 
8
354 
11.59% 
80.63% 
172.53% 
66 
84 
9
219 
16.56% 
80.60% 
205.94% 
35 
51 
10
134 
24.34% 
80.51% 
239.12% 
17 
28 
11
79 
36.08% 
80.39% 
258.76% 
15 
12
96 
66.61% 
81.23% 
195.97% 
16 
Default
439 
100.00% 
35.09% 
226.57% 
40 
− 
Total
37,424 
2.70% 
77.07% 
32.24% 
40,169 
26,112 
 
 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
 
Credit 
risk 
exposure 
Exposure 
weighted 
average 
PD 
Exposure 
weighted 
average 
LGD 
Average 
risk 
weight 
Undrawn 
commitments 
 (gross)
Undrawn 
commitments 
(after CCF)1
 
£m 
£m 
£m 
PD Grade
 
 
 
 
 
 
0
10,807 
0.05% 
76.00% 
2.71% 
14,803 
10,238 
1
9,869 
0.22% 
76.10% 
9.21% 
13,656 
8,271 
2
4,220 
0.57% 
78.41% 
20.64% 
4,583 
2,715 
3
2,290 
0.99% 
79.13% 
31.89% 
1,901 
1,198 
4
3,571 
1.75% 
79.46% 
48.80% 
2,196 
1,544 
5
2,345 
3.33% 
79.58% 
77.57% 
973 
774 
6
1,675 
6.03% 
80.59% 
116.86% 
788 
563 
7
722 
8.31% 
79.99% 
141.84% 
166 
255 
8
401 
11.47% 
80.29% 
170.88% 
74 
91 
9
234 
16.39% 
80.45% 
204.68% 
36 
52 
10
148 
24.14% 
80.05% 
237.07% 
18 
30 
11
85 
36.15% 
79.90% 
257.23% 
10 
15 
12
108 
67.90% 
80.82% 
188.61% 
17 
Default
500 
100.00% 
33.37% 
243.96% 
38 
− 
Total
36,975 
2.97% 
76.88% 
33.81% 
39,249 
25,763 
 
1
Undrawn commitments post credit conversion can exceed the gross undrawn equivalents where there is an assumption that future drawings will be higher than the current limit.
 
 
 
Table 13: Other SME exposures by PD grade
 
 
June-16 
June-16 
June-16 
June-16 
June-16 
June-16 
 
Credit 
risk 
exposure 
Exposure  weighted  average 
PD 
Exposure  weighted  average 
LGD 
Average 
risk 
weight 
Undrawn 
commitments 
(gross)
Undrawn 
commitments 
(after CCF)
 
£m 
£m 
£m 
PD Grade
 
 
 
 
 
 
0
− 
− 
− 
− 
− 
− 
1
− 
− 
− 
− 
− 
− 
2
929 
0.61% 
76.11% 
58.40% 
516 
516 
3
417 
1.12% 
76.47% 
66.47% 
142 
142 
4
228 
1.67% 
76.87% 
76.96% 
59 
59 
5
306 
2.62% 
75.83% 
85.01% 
46 
46 
6
147 
5.67% 
78.38% 
95.60% 
29 
29 
7
72 
8.04% 
70.89% 
105.65% 
8
91 
10.61% 
81.32% 
113.26% 
18 
18 
9
32 
18.02% 
79.45% 
137.79% 
10
− 
− 
− 
− 
− 
− 
11
12 
34.10% 
83.64% 
178.63% 
− 
− 
12
78.18% 
85.48% 
117.98% 
Default
252 
100.00% 
9.65% 
46.59% 
Total
2,493 
12.58% 
69.76% 
70.85% 
824 
824 
 
 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
 
Credit 
risk 
exposure 
Exposure  weighted 
average 
PD 
Exposure  weighted 
average 
LGD 
Average 
risk 
weight 
Undrawn 
commitments 
(gross)
Undrawn 
 commitments 
(after CCF)
 
£m 
£m 
£m 
PD Grade
 
 
 
 
 
 
0
− 
− 
− 
− 
− 
− 
1
− 
− 
− 
− 
− 
− 
2
990 
0.61% 
75.29% 
48.52% 
517 
517 
3
480 
1.12% 
75.07% 
65.46% 
148 
148 
4
249 
1.67% 
75.94% 
76.44% 
60 
60 
5
332 
2.62% 
75.63% 
85.21% 
49 
49 
6
165 
5.67% 
76.75% 
94.24% 
30 
30 
7
72 
8.04% 
70.76% 
106.61% 
8
104 
10.61% 
80.64% 
113.06% 
17 
17 
9
37 
18.02% 
80.78% 
141.22% 
10
− 
− 
− 
− 
− 
− 
11
15 
34.10% 
81.21% 
174.25% 
12
78.18% 
86.66% 
119.12% 
Default
209 
100.00% 
11.21% 
48.63% 
Total
2,661 
10.43% 
70.63% 
67.91% 
835 
835 
 
 
 
 
Table 14: Other non-SME exposures by PD grade
 
 
June-16 
June-16 
June-16 
June-16 
June-16 
June-16 
 
Credit 
risk 
exposure 
Exposure  weighted  average 
PD 
Exposure  weighted  average 
LGD 
Average 
risk 
weight 
Undrawn 
commitments 
(gross)
Undrawn 
commitments 
(after CCF)
 
£m 
% 
% 
% 
£m 
£m 
PD Grade
 
 
 
 
 
 
0
316 
0.08% 
34.22% 
7.65% 
− 
− 
1
3,138 
0.36% 
40.58% 
24.83% 
2
2,506 
0.68% 
57.11% 
50.01% 
12 
3
1,129 
1.00% 
86.74% 
93.40% 
4
4,840 
1.68% 
64.24% 
83.50% 
16 
5
1,816 
3.29% 
74.50% 
111.21% 
11 
6
688 
5.91% 
72.96% 
116.06% 
7
145 
8.86% 
81.53% 
139.53% 
8
131 
11.26% 
72.87% 
136.09% 
− 
9
93 
18.00% 
90.77% 
204.58% 
10
79 
21.95% 
52.88% 
130.65% 
− 
− 
11
106 
34.82% 
42.84% 
119.27% 
− 
− 
12
70 
72.97% 
78.20% 
139.39% 
− 
Default
294 
100.00% 
31.31% 
222.57% 
− 
− 
Total
15,351 
4.34% 
60.50% 
75.06% 
63 
13 
 
 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
 
Credit 
risk 
exposure 
Exposure  weighted 
average 
PD 
Exposure  weighted 
average 
LGD 
Average 
risk 
weight 
Undrawn 
commitments 
(gross)
Undrawn 
commitments 
(after CCF)
 
£m 
£m 
£m 
PD Grade
 
 
 
 
 
 
0
232 
0.08% 
34.93% 
7.84% 
− 
− 
1
2,832 
0.35% 
42.14% 
24.40% 
2
2,237 
0.68% 
58.00% 
50.61% 
3
1,122 
1.00% 
86.69% 
93.11% 
4
4,526 
1.70% 
66.36% 
86.41% 
5
1,728 
3.30% 
76.52% 
114.30% 
6
688 
5.82% 
76.19% 
120.98% 
7
174 
8.82% 
80.60% 
137.67% 
− 
8
128 
11.35% 
75.27% 
140.95% 
− 
9
84 
17.94% 
91.48% 
205.90% 
− 
10
66 
22.00% 
55.27% 
136.61% 
− 
− 
11
98 
34.91% 
43.77% 
121.90% 
− 
− 
12
75 
71.81% 
80.23% 
148.34% 
− 
− 
Default
341 
100.00% 
28.29% 
236.37% 
− 
− 
Total
14,331 
4.87% 
62.41% 
79.22% 
37 
 
 
 
 
Corporate Specialised Lending Exposures Subject to Supervisory Slotting
The Group applies the Supervisory Slotting Approach to certain corporate specialised lending exposures (including the Group’s commercial real estate exposures).
 
As at 30 June 2016 corporate specialised lending exposures subject to supervisory slotting amounted to £19.8 billion (31 December 2015: £19.9 billion). Risk-weighted assets arising from this amounted to £14.3 billion (31 December 2015: £14.4 billion) as analysed in the table below.
 
Table 15: Corporate specialised lending exposures subject to supervisory slotting
 
 
Remaining maturity
Remaining maturity
Remaining maturity
Remaining maturity
<2.5 years
>2.5 years
<2.5 years
>2.5 years
 
June-16 
June-16 
June-16 
June-16 
Dec-15 
Dec-15 
Dec-15 
Dec-15 
 
Exposure 
Risk- 
weighted 
assets 
Exposure 
Risk- 
weighted 
assets 
Exposure 
Risk- 
weighted 
assets 
Exposure 
Risk- 
weighted 
assets 
Grade
£m 
 £m 
 £m 
 £m 
 £m 
 £m 
 £m 
 £m 
1) Strong1
2,712 
1,180 
5,220 
3,389 
1,597 
798 
6,260 
3,864 
2) Good
2,534 
1,771 
5,683 
5,026 
2,799 
1,955 
4,942 
4,358 
3) Satisfactory
845 
968 
1,312 
1,494 
912 
1,045 
1,596 
1,822 
4) Weak
20 
48 
169 
420 
13 
214 
531 
5) Default2
930 
− 
411 
− 
1,099 
 
463 
 
Total
7,041 
3,967 
12,795 
10,329 
6,412 
3,811 
13,475 
10,575 
 
1
 
The average risk weight percentage in the Strong slotting grade is below the specified regulatory value as a result of exposures to customers which are classed as Strong, typically in the shipping industry, having facilities which have been structured such that the Group also benefits from additional financial collateral from third parties which is not ordinarily part of the security package for Slotting transactions. As a result, recognition of the collateral is applied outside the standard Slotting risk weights, in line with the IRB approach, resulting in a risk weight that is below that ordinarily used in Slotting.
 
2
Exposures categorised as 'default' do not attract a risk weighting but are instead treated as expected loss deductions at a rate of 50 per cent of the exposure value.
 
 
Table 16: Lloyds Banking Group own funds template
 
 
Transitional rules
 
Fully loaded rules
 
At 30 June  2016 
 
At 31 Dec  2015 
 
At 30 June  2016 
 
At 31 Dec  2015 
 
£m 
 
£m 
 
£m 
 
£m 
Common equity tier 1 (CET1) capital: instruments and reserves
 
 
 
 
 
 
 
Capital instruments and related share premium accounts
24,558 
 
24,558 
 
24,558 
 
24,558 
of which: called up share capital
7,146 
 
7,146 
 
7,146 
 
7,146 
of which: share premium
17,412 
 
17,412 
 
17,412 
 
17,412 
Retained earnings2
8,128 
 
7,755 
 
8,128 
 
7,755 
Accumulated other comprehensive income and other reserves (including unrealised gains and losses)
12,264 
 
10,182 
 
12,264 
 
10,182 
Foreseeable dividend
(911)
 
(1,427)
 
(911)
 
(1,427)
Common equity tier 1 (CET1) capital before regulatory adjustments
44,039 
 
41,068 
 
44,039 
 
41,068 
Common equity tier 1 (CET1) capital: regulatory adjustments
 
 
 
 
 
 
 
Additional value adjustments
(744)
 
(372)
 
(744)
 
(372)
Intangible assets (net of related tax liability)
(1,627)
 
(1,719)
 
(1,627)
 
(1,719)
Deferred tax assets that rely on future profitability, excluding those arising from temporary differences (net of related tax liability where the conditions in Article 38 (3) of the CRRare met)
(4,213)
 
(3,874)
 
(4,213)
 
(3,874)
Fair value reserves related to gains or losses on cash flow hedges
(2,809)
 
(727)
 
(2,809)
 
(727)
Negative amounts resulting from the calculation of expected loss amounts
– 
 
(270)
 
– 
 
(270)
Gains or losses on liabilities valued at fair value resulting from changes in own credit standing
(120)
 
 
(120)
 
Defined benefit pension fund assets
(818)
 
(721)
 
(818)
 
(721)
Direct and indirect holdings by the Group of own CET1 instruments
(90)
 
(177)
 
(90)
 
(177)
Direct, indirect and synthetic holdings by the Group of the CET1 instruments of financial sector entities where the Group has a significant investment in those entities (amount above 10% threshold and net of eligible short positions) 2
(4,287)
 
(4,500)
 
(4,287)
 
(4,500)
Exposure amount of the following items which qualify for a risk weight of 1,250%, where the Group has opted for the deduction alternative
(220)
 
(169)
 
(220)
 
(169)
of which: securitisation positions
(220)
 
(169)
 
(220)
 
(169)
Amount exceeding the 15% threshold
− 
 
− 
 
(193)
 
(39)
of which: direct and indirect holdings by the institution of the CET1 instruments of financial sector entities where the institution has a significant investment in those entities
− 
 
− 
 
(142)
 
(29)
of which: deferred tax assets arising from temporary differences
− 
 
− 
 
(51)
 
(10)
Total regulatory adjustments applied to common equity tier 1 (CET1)
(14,928)
 
(12,524)
 
(15,121)
 
(12,563)
Common equity tier 1 (CET1) capital 1
29,111 
 
28,544 
 
28,918 
 
28,505 
 
 
 
 
 
Table 16: Lloyds Banking Group own funds template (continued)
 
 
Transitional rules
 
Fully loaded rules
 
At 30 June  2016 
 
At 31 Dec  2015 
 
At 30 June  2016 
 
At 31 Dec  2015 
 
£m 
 
£m 
 
£m 
 
£m 
Additional tier 1 (AT1) capital: instruments
 
 
 
 
 
 
 
Capital instruments and related share premium accounts
5,355 
 
5,355 
 
5,355 
 
5,355 
of which: classified as equity under applicable accounting standards
5,355 
 
5,355 
 
5,355 
 
5,355 
Amount of qualifying items referred to in Article 484 (4) of the CRR and the related share premium accounts subject to phase out from AT1
791 
 
818 
 
− 
 
− 
Qualifying Tier 1 capital included in consolidated AT1 capital (including minority interests not included in CET1) issued by subsidiaries and held by third parties
2,480 
 
3,004 
 
− 
 
− 
of which: instruments issued by subsidiaries subject to phase out
2,480 
 
3,004 
 
− 
 
− 
Additional tier 1 (AT1) capital before regulatory adjustments
8,626 
 
9,177 
 
5,355 
 
5,355 
 
 
 
 
 
 
 
 
Additional tier 1 (AT1) capital: regulatory adjustments
 
 
 
 
 
 
 
Residual amounts deducted from AT1 capital with regard to deduction from Tier 2 capital during the transitional period pursuant to Article 475 of the CRR
(1,288)
 
               (1,177)
 
− 
 
                         − 
of which: significant investments in Tier 2 instruments of other financial sector entities
(1,288)
 
(1,177)
 
− 
 
− 
Total regulatory adjustments applied to additional tier 1 (AT1) capital
(1,288)
 
(1,177)
 
− 
 
− 
Additional tier 1 (AT1) capital
7,338 
 
8,000 
 
5,355 
 
5,355 
Tier 1 capital
36,449 
 
36,544 
 
34,273 
 
33,860 
 
 
 
 
 
 
 
 
Tier 2 (T2) capital: Instruments and provisions
 
 
 
 
 
 
 
Capital instruments and related share premium accounts
4,027 
 
2,134 
 
4,818 
 
2,952 
Amount of qualifying items referred to in Article 484 (5) of the CRR and the related share premium accounts subject to phase out from T2
10 
 
                       10 
 
− 
 
− 
Qualifying own funds instruments included in consolidated T2 capital (including minority interests and AT1 instruments not included in CET1 or AT1) issued by subsidiaries and held by third parties
9,580 
 
              10,843 
 
5,065 
 
                 6,016 
of which: instruments issued by subsidiaries subject to phase out
4,450 
 
4,763 
 
− 
 
− 
Credit risk adjustments
114 
 
221 
 
114 
 
221 
Tier 2 (T2) capital before regulatory adjustments
13,731 
 
13,208 
 
9,997 
 
9,189 
 
 
 
 
 
 
 
 
Tier (T2) capital: regulatory adjustments
 
 
 
 
 
 
 
Direct and indirect holdings by the Group of the T2 instruments and subordinated loans of financial sector entities where the Group has a significant investment in those entities (net of eligible short positions)
(1,509)
 
              (1,756)
 
(2,797)
 
             (2,933)
Total regulatory adjustments applied to tier 2 (T2) capital
(1,509)
 
(1,756)
 
(2,797)
 
(2,933)
Tier 2 (T2) capital
12,222 
 
11,452 
 
7,200 
 
6,256 
Total capital
48,671 
 
47,996 
 
41,473 
 
40,116 
Total risk-weighted assets
222,778 
 
222,845 
 
222,297 
 
222,747 
 
 
 
Table 16: Lloyds Banking Group own funds template (continued)
 
 
Transitional rules
 
Fully loaded rules
 
At 30 June  2016 
 
At 31 Dec  2015 
 
At 30 June  2016 
 
At 31 Dec  2015 
 
£m 
 
£m 
 
£m 
 
£m 
Capital ratios and buffers
 
 
 
 
 
 
 
Common Equity Tier 1(as a percentage of risk exposure amount)
13.1% 
 
12.8% 
 
13.0% 
 
12.8% 
Tier 1 (as a percentage of risk exposure amount)
16.4% 
 
16.4% 
 
15.4% 
 
15.2% 
Total capital (as a percentage of risk exposure amount)
21.8% 
 
21.5% 
 
18.7% 
 
18.0% 
Institution specific buffer requirement (CET1 requirement in accordance with article 92(1)(a) plus capital conservation and countercyclical buffer requirements, plus systemic risk buffer, plus the systemically important institution buffer (G-SII or O-SII buffer), expressed as a percentage of risk exposure amount)
0.628% 
 
0.001% 
 
0.628% 
 
0.001% 
of which: capital conservation buffer requirement3
0.625% 
 
− 
 
0.625% 
 
− 
of which: countercyclical buffer requirement
0.003% 
 
0.001% 
 
0.003% 
 
0.001% 
Common Equity Tier 1 available to meet buffers (as a percentage of risk exposure amount)1
8.6% 
 
8.3% 
 
8.5% 
 
8.3% 
 
 
 
 
 
 
 
 
Amounts below the threshold for deduction (before risk weighting)
 
 
 
 
 
 
 
Direct and indirect holdings of the capital of financial sector entities where the Group does not have a significant investment in those entities (amount below 10% threshold and net of eligible short positions)
1,379 
 
1,552 
 
1,379 
 
1,552 
Direct and indirect holdings by the Group of the CET1 instruments of financial sector entities where the Group has a significant investment in those entities (amount below 10% threshold and net of eligible short positions)
3,340 
 
3,127 
 
3,340 
 
3,127 
Deferred tax assets arising from temporary differences (amount below 10% threshold, net of related tax liability where the conditions in 38 (3) are met)
1,191 
 
1,188 
 
1,191 
 
1,188 
Applicable caps on the inclusion of provisions in Tier 2
 
 
 
 
 
 
 
Credit risk adjustments included in T2 in respect of exposures subject to internal ratings-based approach (prior to the application of the cap)
114 
 
221 
 
114 
 
221 
Cap on inclusion of credit risk adjustments in T2 under internal ratings-based approach
958 
 
953 
 
958 
 
953 
 
 
 
 
 
 
 
 
Capital instruments subject to phase−out arrangements (only applicable between 1 Jan 2013 and 1 Jan 2022)
 
 
 
 
 
 
 
Current cap on AT1 instruments subject to phase out arrangements
3,305 
 
3,856 
 
− 
 
− 
Amount excluded from AT1 due to cap (excess over cap after redemptions and maturities)
1,861 
 
671 
 
− 
 
− 
Current cap on T2 instruments subject to phase out arrangements
8,600 
 
10,034 
 
− 
 
− 
 
1
Excluding CET1 required to meet Pillar 2A requirements under fully loaded.
2
The presentation of the deconsolidation of the Group's insurance entities has been amended at June 2016 with comparative figures restated accordingly.
3
The capital conservation buffer requirement is the percentage applicable at the reporting date. This will increase to 2.5 per cent by 2019.
 
 
 
 
Table 17: Lloyds Banking Group leverage ratio common disclosure
 
 
At 30 June 
2016 
 
At 31 Dec 
2015 
 
Fully 
loaded 
 
Fully 
loaded 
 
£m 
 
£m 
On-balance sheet exposures (excluding derivatives and SFTs)
 
 
 
On-balance sheet items (excluding derivatives, SFTs and fiduciary assets, but including collateral)
626,734 
 
                  609,110 
Asset amounts deducted in determining Tier 1 capital
(10,627)
 
(9,112)
Total on-balance sheet exposures (excluding derivatives, SFTs and fiduciary assets)
616,107 
 
599,998 
Derivative exposures
 
 
 
Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin)
9,923 
 
6,392 
Add-on amounts for PFE associated with all derivatives transactions (mark-to-market method)
13,050 
 
12,966 
Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the applicable accounting framework
762 
 
2,371 
Deductions of receivables assets for cash variation margin provided in derivatives transactions
(3,527)
 
(3,689)
Adjusted effective notional amount of written credit derivatives
857 
 
813 
Adjusted effective notional offsets and add-on deductions for written credit derivatives
(158)
 
(131)
Total derivative exposures
20,907 
 
18,722 
Securities financing transaction exposures
 
 
 
Gross SFT assets (with no recognition of netting), after adjusting for sales accounting transactions
38,586 
 
39,604 
Netted amounts of cash payables and cash receivables of gross SFT assets
(3,356)
 
(5,909)
Counterparty credit risk exposure for SFT assets
1,793 
 
3,361 
Total securities financing transaction exposures
37,023 
 
37,056 
Other off-balance sheet exposures
 
 
 
Off-balance sheet exposures at gross notional amount
129,834 
 
129,491 
Adjustments for conversion to credit equivalent amounts
(69,961)
 
(73,067)
Other off-balance sheet exposures
59,873 
 
56,424 
Capital and total exposure measure
 
 
 
Tier 1 capital
34,273 
 
33,860 
Leverage ratio total exposure measure
733,910 
 
712,200 
Leverage ratio
 
 
 
Leverage ratio
4.7% 
 
4.8% 
 
 
 
Table 18: Lloyds Banking Group summary reconciliation of accounting assets and leverage ratio exposures
 
 
At 30 June 
2016 
 
At 31 Dec 
2015 
 
Fully 
loaded 
 
Fully 
loaded 
 
£m 
 
£m 
Total assets as per published financial statements
848,232 
 
806,688 
Adjustment for entities which are consolidated for accounting purposes but are outside the scope of regulatory consolidation
(140,421)
 
(135,926)
Adjustments for derivative financial instruments
(23,587)
 
(9,235)
Adjustments for securities financing transactions (SFTs)
440 
 
3,361 
Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures)
59,873 
 
56,424 
Other adjustments
(10,627)
 
(9,112)
Leverage ratio total exposure measure
733,910 
 
712,200 
 
 
 
 
CONTACTS
 
 
For further information please contact:
 
INVESTORS AND ANALYSTS
Douglas Radcliffe
Group Investor Relations Director
020 7356 1571
douglas.radcliffe@finance.lloydsbanking.com
 
Mike Butters
Director of Investor Relations
020 7356 1187
mike.butters@finance.lloydsbanking.com
 
Andrew Downey
Director of Investor Relations
020 7356 2334
andrew.downey@finance.lloydsbanking.com
 
 
CORPORATE AFFAIRS
Ed Petter
Group Media Relations Director
020 8936 5655
ed.petter@lloydsbanking.com
 
Matt Smith
Head of Corporate Media
020 7356 3522
matt.smith@lloydsbanking.com
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Registered office: Lloyds Banking Group plc, The Mound, Edinburgh, EH1 1YZ
Registered in Scotland no. 95000
 
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: 28 July 2016