Lloyds Banking Group PLC

The stable outlook on Lloyds Banking Group reflects our belief that the bank is sufficiently provisioned over our two-year outlook horizon to navigate any tail risks from the pandemic. We could consider raising the ratings if: Lloyds makes stronger-than-expected earnings progress, for example reflected in a double digit statutory RoTE in both 2021 and 2022, while maintaining capital discipline. We expect Lloyds will maintain this level of performance, including a cost-income ratio consistently below 50%; and Asset quality metrics and risk appetite compare well domestically, in the context of a predictable U.K. economic outlook. We could lower the ratings if we observe setbacks in Lloyds' business performance and prospects which would cause us to doubt its relatively higher ratings versus

...Lloyds pre-provision earnings performance is subdued. In 2021, we believe it is increasingly likely that Lloyds will report a solid statutory return on tangible equity (RoTE) as it releases some of the large impairment provisions it booked in 2020 in relation to COVID-19. Still, the low-rate environment and reduced weighting in its loan book for higher margin consumer credit will keep Lloyds' pre-provision earnings at subdued levels relative to its potential; we currently assume only a modest improvement in 2022. Capital unlikely to become a credit strength. With a reported regulatory common equity Tier 1 ratio (CET1) of 16.7% at March 31, 2021, Lloyds appears well placed to withstand any unexpected shocks from the latter period of the COVID-19 pandemic. S&P Global Ratings risk-adjusted capital (RAC) ratio of just under 9% is lower than U.K. peers, which partly reflects the deduction of Lloyds' material investment in its insurance business. Looking forward, our capital analysis incorporates...

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