Lloyds Banking Group PLC

The stable outlook reflects our view that Lloyds' strong capitalization levels and competitive position in the U.K. market provide a good cushion for the rating amid rising inflation and slowing economic growth. We expect that strong revenue from gradually improving margins will continue supporting robust capital buffers while adequate provisioning policies will provide sufficient cushion against potential asset quality deterioration. We could lower the ratings if economic and geopolitical challenges triggered significantly higher credit losses than we assume and affected Lloyds' business performance and capital levels. We consider an upgrade during our outlook horizon a remote prospect. Over the long term, we could consider raising the ratings if Lloyds significantly improves its business diversification and demonstrates a sustained competitive advantage,

...Rising interest rates are a tailwind to earnings. Similar to U.K. peers, rising interest rates benefit Lloyds Banking Group PLC's revenue from its deposits and structural hedge, partly offset by strong mortgage market competition. Lloyds expects a return on tangible equity (RoTE) above 13% in 2022, achieving 13.2% in first-half 2022. Asset quality remains robust despite rising cost-of-living pressures. Similar to peers, Lloyds released significant pandemic-related impairment provisions in 2021 as its portfolio performed well. S&P Global Ratings expects the bank's high-quality, well-collateralized loan portfolio will perform resiliently despite high inflation and slowing economic growth squeezing affordability. S&P Global Ratings expects the impairment charge to increase in 2022-2023 toward pre-pandemic levels of about 30 basis points (bps). We consider that the appointment of Charlie Nunn as CEO in August 2021 marked a new era for the group but hasn't diverted its core focus and long-standing...

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