Lloyds Banking Group plc (NYSE:LYG) Q2 2023 Earnings Call Transcript

That is partly off of the recognition of what was achieved in H1 being a little bit stronger than we had expected and it is partly recognizing that what we think is going to be achieved in H2 is also going to be a little bit stronger than we expected. The headwinds and the tailwinds looking forward, Raul, first of all, the tailwind facts, the structural hedge starts to kick in. As said, GBP20 billion of maturities, less whatever modest reduction we might see, but nonetheless, a significant tailwind going into H2 of this year. Second, the headwinds as we look at them going into H2, again, it’s a continued expectation around mix shift within overall deposits alongside the mortgage refinancing that we expect to see. We might see a bit of compression in margins in some of the other retail and CBE assets.

But again, it’s basically those two deposit mix shift, number one and mortgages refinancing number two. Those are the — that’s the mix. What will that produce? We expect it to produce a margin that is slightly higher than we had previously indicated. At the year-end, we talked about a floor, as I think Guy mentioned in his earlier question of around 300 basis points. We expect it to perform a little bit better than that now going into Q3 and Q4. The beta in that mix, Raul, we haven’t put a number on the beta from that mix. As you know, the pass-on decisions are basically determined by what offers best value to our customers, particularly in the context of consumer duty, clearly. What is the competition doing and how should we best respond to that?

And what are the funding needs of the business? Those three are the criteria, if you like, that we used to assess the pass-on decision. It’s safe to say two things, I think, Raul. One is that so far, we’ve been very much in line with the sector in terms of the overall pass-on decision. Two is, as we look forward and consistent with what I think Charlie and I have always said, we do expect the pass-on to increase as we get into a higher base rate environment, and indeed, we expect some of the pass-on to continue even after base rate changes have stopped and so that will increase a little bit beyond where we are today. At the moment, we are below 50%, but we do expect it to increase towards that level as we go forward, consistent with the comments that I just made.

So I’ll perhaps pause there. I hope that answers your question and let me know if it doesn’t.

Raul Sinha: Yeah. Thank you. Yeah. That’s really helpful, William. I’ve got an unrelated question on the buy-to-let arrears profile. I don’t know if you’re seeing anything specific around. I think you flagged the 2006, 2008 vintage and there’s some helpful disclosure on the slides. But I guess my question is specifically around buy-to-let if you’re seeing any specific arrears trends within there? Would you call out anything in terms of that business going forward? Thank you.