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    LYG
    Earnings call· Dec 2025(Q4 FY25)

    Lloyds Banking Group plc LYG

    Jan 29, 2026 Source

    Executive summary

    Lloyds Banking Group Q4 FY25 — Strong Performance, Upgraded 2026 Targets, and Increased Capital Returns

    Lloyds Banking Group delivered strong full-year 2025 results, driven by accelerating strategic execution and robust financial performance. The company upgraded its 2026 targets for return on tangible equity and strategic initiative revenues, while committing to continued income growth and improved operating leverage beyond 2026. Significant capital returns were announced, reflecting confidence in future capital generation, despite ongoing cost pressures and competitive mortgage market dynamics.

    Highlights

    5

    • Return on tangible equity of 14.8% (excluding motor provision) for FY25.

    • Net income up 7% year-on-year to GBP 18.3 billion in FY25.

    • Ordinary dividend increased by 15% and a GBP 1.75 billion share buyback announced.

    • Upgraded 2026 target for strategic initiatives revenue to circa GBP 2 billion (from original guidance).

    • FY25 lending balances up 5% to GBP 481 billion.

    Concerns

    4

    • Operating costs up 3% year-on-year to GBP 9.76 billion in FY25 due to investment, growth, and inflation.

    • Remediation charge of GBP 968 million for FY25, including GBP 800 million for motor finance provision.

    • Commercial deposits down GBP 1.5 billion in Q4 FY25 due to low-margin funding actions and seasonal outflows.

    • Mortgage completion margins around 70 basis points with a further 1-2 basis points of tightening in Q4 FY25.

    Guidance & targets

    18
    CategoryTargetConfidence
    Strategic targeted outcomes
    meet or exceed
    high materiality
    High
    Strategic initiatives additional revenues
    circa GBP 2 billion
    high materiality
    High
    Other income contribution (from strategic initiatives)
    circa GBP 0.9 billion
    medium materiality
    High
    Cost/income ratio
    below 50%
    high materiality
    High
    Capital generation
    more than 200 basis points
    high materiality
    High
    Return on tangible equity
    greater than 16%
    high materiality
    High
    Net Interest Income (NII)
    around GBP 14.9 billion
    high materiality
    High
    Hedge income
    circa GBP 7 billion
    medium materiality
    High
    Hedge income
    around GBP 8 billion
    medium materiality
    High
    Hedge income
    continue growing
    low materiality
    Medium
    Operating expenses
    less than GBP 9.9 billion
    high materiality
    High
    Asset quality ratio
    circa 25 basis points
    medium materiality
    High
    GDP growth
    around 1.2%
    low materiality
    High
    Unemployment forecast
    peaking at 5.3%
    low materiality
    High
    Bank base rate reductions
    two 25 basis point reductions to 3.5%
    low materiality
    High
    House prices growth
    around 2%
    low materiality
    High
    CET1 ratio
    around 13%
    high materiality
    High
    Basel 3.1 RWA reduction
    around GBP 6 billion to GBP 8 billion
    high materiality
    High

    Segment performance

    6
    SegmentRevenueYoYQoQMargin
    Retail
    Leading provider across key products, strengthening position in high-value areas, developing product range. Benefited from growth in Motor franchise.
    Mobile app users: up circa 45% since 2021Mortgages: up GBP 10.8 billion (3%) in 2025 to GBP 323 billionMortgage flow share: around 19%Credit cards: grew GBP 0.5 billion in Q4European retail lending: up GBP 0.5 billion in Q4Protection take-up rates in mortgages: increased 5 percentage points to 20% in 2025Direct mortgages share: 26% of the market last yearMass affluent mortgages share: increased from 9% to over 20%
    		————
    Insurance, Pensions & Investments (IP&I)
    Deepening relationships as an integrated bancassurance provider, expanding product offering, transforming engagement through Scottish Widows app. Strategic focus on GI and workplace pensions.
    Open book net new money flows: GBP 7.9 billion for FY25Open book net new money flows: GBP 4.2 billion in Q4 FY25
    		—11% (OOI growth)——
    Commercial Banking
    Building digitally led relationship bank, strong deposit franchise, rolling out new mobile-first journeys. Driving revenue diversification through growth opportunities aligned to cash, debt, and risk management. Supported by renewed focus in Markets business.
    Gross net lending: increased by 15% in 2025FX volumes: increased by over 20% in 2025Lending: up GBP 2.7 billion in FY25 (or GBP 4.1 billion excluding government-backed lending repayments)
    		————
    Business & Commercial Banking (BCB)
    Building the best digitally led relationship bank, strong deposit franchise, rolling out new mobile-first journeys.
    Lending: held steady (excluding government-backed lending repayments) or down GBP 1.4 billion (including repayments) in FY25
    		————
    Corporate & Institutional Banking (CIB)
    Driving revenue diversification, growth opportunities aligned to cash, debt, and risk management.
    Lending: encouraging progress in strategic areas such as infrastructure and project finance
    		————
    Equity Investments
    Growing contributor to the group.
    Represents nearly 10% of group OOILloyds Living homes: nearly 8,000 since 2021LDC exit proceeds: more than GBP 600 million during FY25Lloyds Living OOI: more than doubled during FY25
    		—15% (OOI growth)——

    Operational metrics

    29
    Return on tangible equity (RoTE)
    14.8
    FY25

    Statutory RoTE was 12.9%.

    Capital generation
    178
    FY25

    Statutory capital generation was 147 bps.

    Total capital distributions
    3.9up 8% on 2024
    FY25

    Equivalent to around 6% of current market capitalization.

    Ordinary dividend per share
    3.65up approximately 15% year-on-year
    FY25

    Dividends up more than 80% versus 2021.

    Share buyback authorization
    1.75
    FY25

    Consecutive buybacks reduced share count by more than 17% since 2021.

    Operating costs
    9.76up 3% year-on-year
    FY25

    In line with guidance, excluding Lloyds Wealth acquisition in Q4.

    Remediation charge
    968
    FY25
    Underlying impairment charge
    just below 25
    FY25

    Reported impairment charge was 17 bps.

    Q4 impairment charge
    177
    Q4 FY25

    Equating to 14 basis points.

    Stock of ECLs
    3.4
    FY25 end

    Leaving the company well covered.

    Tangible net asset value per share
    57up 4.6p (9%) in 2025
    FY25 end
    Restructuring costs
    46
    FY25

    Includes integration costs for Lloyds Wealth and Curve.

    Volatility and other items charge
    70
    FY25
    Risk-weighted assets (RWA)
    235.5up GBP 10.9 billion
    FY25 end

    Subject to PRA approval.

    Fair value unwind and amortization of purchase intangibles
    34-35
    Q4 FY25

    Bulk has nothing to do with capital.

    Strategic initiatives additional revenues generated to date
    1.4
    since 2021
    Gross cost savings delivered
    1.9
    since 2021

    Met upgraded 2024 target of GBP 1.2 billion last year.

    Technology and data hires
    9,000
    since 2021
    Gen AI P&L benefit
    50
    FY25

    Based on narrow definition of latest technology.

    Structural hedge earnings growth
    more than 3
    over last 4 years
    Net income increase
    3
    over last 4 years
    Nonbanking NII charge
    515up GBP 46 million (10%) year-on-year
    FY25

    Supporting growth in OOI.

    Operating lease depreciation
    1.45up 10% versus 2024
    FY25

    In line with OOI growth from vehicle leasing.

    Average interest-earning assets (AIEA)
    463up 3% compared to 2024
    FY25
    Q4 Average interest-earning assets (AIEA)
    just over 470up GBP 4.8 billion
    Q4 FY25
    Structural hedge notional
    244up GBP 2 billion over the year
    FY25 end
    Structural hedge weighted average life
    about 3.75
    Q4 FY25
    Lloyds Wealth income stream (incremental)
    circa 175versus FY25
    FY26
    Bounce back loan balances
    1.4
    current

    Industry KPIs

    13
    MetricValueDetails
    Loans481GBP billion
    Deposits496.5GBP billion
    Rotce ROE14.8%
    Cet1 ratio13.2%
    Capital returns3.9GBP billion
    Fee income lines6.1GBP billion
    Allowance reserves3.4GBP billion
    Net interest income13.6GBP billion
    Net interest margin3.06%
    Net charge offs nplslow and stable
    Total operating expenses9.76GBP billion
    Provision for credit losses795GBP million
    Efficiency ratio operating leverage58.6%

    Product announcements

    5
    ProductTypeDetails
    In-app AI agentslaunch
    Market-leading algorithmic trading solutionlaunch
    Lloyds Ultralaunch
    Investment advice to the whole marketroadmap
    Conversational interface for everyday bankingroadmap

    Deals & partnerships

    3
    Schroders Personal Wealthacquisition of wealth management businessGBP 0 capital cost

    Acquisition announced in H2 FY25, rebranding to Lloyds Wealth in coming months. Includes 300 advisors.

    U.K. Governmentbanking services contract

    Landmark contract awarded to CIB, testament to investment in cash management and payments platform.

    Curveacquisition of fintech company

    Mentioned as an acquisition contributing to restructuring costs and added cost base.

    Risks & headwinds

    6
    Mortgage repricing and deposit churn headwindsFY25 and FY26

    NII impact

    Mitigation: Strong hedge income and business volume growth partially offset; developing franchise proposition and customer relationship around mortgage product (e.g., protection take-up, direct mortgages).

    Operating costs increase due to investment, business growth, and inflationary pressuresFY25

    up 3% YoY to GBP 9.76 billion in FY25

    Mitigation: Partly mitigated by efficiency savings; expecting less than GBP 9.9 billion in FY26 due to moderating inflation, reduced severance, and strategic cost benefits.

    Motor finance provisionQ3 FY25

    GBP 800 million in Q3 FY25 (part of GBP 968 million total remediation)

    Mitigation: Waiting for FCA's final proposals post consultation in next couple of months.

    Competitive mortgage marketFY25 and FY26

    completion margins around 70 bps with 1-2 bps tightening in Q4 FY25

    Mitigation: Prudent view on completion margins; focus on direct mortgages (26% share), enhanced digital capabilities, and broader customer relationships.

    PRA approval for CRD IV modelsQ4 FY25 onwards

    GBP 2 billion RWA add-on in Q4 FY25 related to CRD IV implementation

    Mitigation: Models landed, awaiting PRA approval, acknowledging risk of modification.

    Bank base rate reductionsFY26

    two 25 basis point reductions to 3.5% expected in FY26

    Mitigation: NII guidance calibrated to absorb this, with continued NII growth expected beyond 2026 fueled by structural hedge.

    What to watch in Q1 FY26

    5

    NII and NIM Progression

    Q1 FY26
    CurrentNII GBP 13.6B (FY25), NIM 3.06% (FY25)
    TargetSteady NII growth and NIM expansion quarter-on-quarter in FY26

    Why it matters

    To confirm the expected positive trajectory of core banking profitability amidst rate cuts.

    But broadly speaking, yes, you should do. That is going to accelerate and slow down from one quarter to the other for sure. But over the year, you should expect a steady growth in NII off the back of margin expansion quarter-on-quarter.

    Q&A highlights

    5

    Clarify Q4 commercial deposit softness and expectations for 2026 deposit growth, mix effects, and pass-through assumptions, especially given competitive intensity.

    William Chalmers explained Q4 commercial deposit decline was due to seasonality and low-margin funding actions. He expects continued healthy deposit performance in 2026, similar to 2025, with slowing churn due to falling interest rates. He highlighted strengthening competitive position through enhanced capabilities, competitive pricing, and strong PCA performance.

    “When we look at 2025, we saw deposit growth of almost GBP 14 billion, GBP 13.8 billion over the course of the year, about 3%. So a really pretty good deposit performance during the year.”

    asked by Guy Stebbings · answered by William Leon Chalmers (Executives)

    2 min read6 chapters

    Detailed Narrative

    01

    Strategic Transformation & Momentum

    The group is in the final phase of its 5-year strategic plan, accelerating delivery and building momentum. This has resulted in GBP 1.4 billion of additional revenues from strategic initiatives to date, with an upgraded 2026 target of circa GBP 2 billion. Gross cost savings have reached circa GBP 1.9 billion since 2021, supporting confidence in a cost/income ratio below 50% in 2026.

    02

    Digital and AI Leadership

    Lloyds has established a digital and AI leadership position, scaling 50 Gen AI use cases into full production in 2025, generating GBP 50 million in-year P&L benefit. For 2026, they expect over GBP 100 million of P&L benefit from Gen AI, focusing on high-value agentic opportunities and driving both revenue and cost efficiencies.

    03

    Balance Sheet Growth & Mix

    The group delivered healthy balance sheet momentum in 2025, with lending balances up 5% to GBP 481 billion and total deposits up 3% to GBP 496.5 billion. Retail lending saw strong growth across mortgages, credit cards, and European retail, while commercial lending grew in targeted CIB areas, with BCB holding steady excluding government-backed lending repayments.

    04

    Net Interest Income & Margin Expansion

    NII for FY25 was GBP 13.6 billion, up 6% year-on-year, driven by strong hedge income and business volume growth, partially offset by mortgage repricing and deposit churn. The net interest margin increased 11 basis points to 3.06%, with a Q4 margin of 3.10% (up 4 bps QoQ) due to significant hedge income uplift.

    05

    Other Operating Income Diversification

    OOI grew 9% in FY25 to GBP 6.1 billion, reflecting a resilient and diversified portfolio. Growth was broad-based across Retail (motor leasing, cards, banking fees), Commercial (Markets, Transaction Banking), Insurance, Pensions & Investments (general insurance, workplace), and Equity Investments (Lloyds Living). The Lloyds Wealth acquisition is expected to contribute significantly to OOI in 2026.

    06

    Capital Generation & Shareholder Returns

    The group generated 147 basis points of capital in 2025 (178 bps ex-motor provision), enabling a 15% increase in ordinary dividend (total 3.65p per share) and a GBP 1.75 billion share buyback, totaling GBP 3.9 billion in capital returns. The CET1 ratio stood at 13.2% at year-end, with a target of 13% by end-2026.

    AI-generated summary of the company’s earnings call. Not investment advice.