Lloyds Banking Group plc (LLOY) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Lloyds Bank Investor Presentation. [Operator Instructions] I would now like to hand over to Group Investor Relations Director. Good afternoon to you, Douglas.

Excellent. Thank you very much, and good afternoon to everybody. As the introduction has indicated, I'm Douglas Radcliffe. I'm the Group Investor Relations Director. A number of you may well have heard me speak on a previous investor meet webinar. And clearly, I've been involved in Lloyds Banking Group for a while. So you may well have seen me on some of the divisional seminars that are available on our website. I'm also joined today by Tom Grantham, who's a Senior Manager in the Investor Relations team. We're very happy to be running another one of these retail briefings with Investor Meet. We view these events as a great way of engaging with our shareholders. So thank you for joining us. It's particularly important for us given we have almost like the largest retail shareholder base in the U.K. During the presentation, I'll talk to our strategy, in particular, our outlook to 2026, and Tom will talk to the financials. This should take about 20 minutes, and we'll then have plenty of time for Q&A at the end. So let's move on to the first slide. As you all know, Lloyds is a U.K.-focused bank with a simple operating model split across 3 reporting divisions: Retail Banking, Commercial Banking and Insurance, pensions and investments. Within these divisions, we offer a comprehensive product suite to meet our customers' ever-evolving financial needs. One of our strengths is our portfolio of trusted and recognized brands, many of which you'll know, including Lloyds Bank, Halifax and Scottish Widows, though you can clearly see from the slide that there are a number of other brands that we operate. The breadth of our franchise provides us with a key advantage in servicing more of our customers' needs, as well as understanding them better to provide more targeted offerings that deliver value for both customers and the group. As a bank, we continue to be guided by our purpose-driven strategy that I'll talk to on the next slide. We have a clear strategy and a consistent purpose of helping Britain prosper. We've had this in place for a number of years, and a number of you may well recollect it. This strategy is focused on priorities of grow, focus and change. These have helped us build upon our competitive advantages and drive revenue growth and diversification, whilst reinforcing cost and capital efficiency. This has been underpinned by unlocking the potential of our people, technology and data. This strategy and its successful execution is enhancing the propositions we offer customers, and creating a compelling investment case for our shareholders, ultimately delivering income growth and operating leverage, which is driving higher, more sustainable returns and distributions for shareholders. Let me quickly provide a few examples of the success of the strategy so far. There's a few numbers on this slide, but let's focus on a few of the key ones. As said, we've made strong progress across our 3 strategic pillars. When we laid out the strategy in February 2022, we laid out a number of targeted outcomes to keep track of progress to 2024. Pleasingly, we have delivered against 80% of these, which has helped drive the outputs that you can see on this page. In particular, through our growth initiatives, such as deepening customer relationships and growing in high-value areas, we have grown net income by GBP 2 billion versus 2021. This includes GBP 0.8 billion of additional income from strategic initiatives, beating our original target of GBP 0.7 billion. Importantly, it also includes significant growth in what we call other operating income or noninterest income as we look to diversify our income sources. We have also generated GBP 1.2 billion of cost savings and GBP 18 billion of risk-weighted asset efficiencies as we have retained our core cost and capital discipline, something that's fundamental to a bank in a competitive environment. Finally, we've transformed our people, technology and data. This has resulted in innovative propositions and increased automation as well as a reduction in legacy systems, enabling a step change in the level of digital engagement we are seeing from customers. For example, in 2024, we saw around 7 billion digital log-ons from customers. There's clearly more to come, and I'll speak more on that at the end of this presentation. But for now, I'll hand over to Tom to talk through the financials.

Thanks, Douglas, and good afternoon, everyone. Before I go into the financials, I just want to go through the key messages that we want to leave you with today. First, as Douglas has spoken to and demonstrated, our purpose-led strategy is delivering. This means we have concluded the first chapter of that transformation successfully, and we are building momentum as we move into the second phase. Secondly, as I will speak to in a moment, we delivered a robust financial performance in 2024. This was despite an additional motor provision that I will come to later in the presentation. This financial performance delivered strong capital generation that enabled an increased total dividend of 3.17p for 2024, up 15% year-on-year, and a buyback of GBP 1.7 billion. Finally, we have issued new guidance for 2025 and are increasingly confident for our 2026 ambitions. With that, let me move on to the numbers themselves. As said, our results in Q4 and 2024 as a whole were robust. Stat profit after tax was GBP 4.5 billion or GBP 5 billion, excluding the Q4 motor provision. This resulted in a return on tangible equity of 12.3% or 14% ex motor. Net income was GBP 17.1 billion with a net interest margin of 295 basis points. Pleasingly, the Q4 net interest margin grew quarter-on-quarter to 297 basis points. This continues the positive trajectory from Q3. We retained cost discipline over the year with operating costs in line with guidance at GBP 9.4 billion. Remediation of GBP 899 million included GBP 700 million as a result of the aforementioned motor charge. Asset quality remains strong in 2024. The impairment charge of GBP 433 million represents an asset quality ratio of 10 basis points. Tangible net asset value per share grew in 2024 by 1.6p to 52.4p per share. And finally, as said, we delivered strong capital generation of 148 basis points or 177 basis points, excluding Motor, in line with our guidance. After distributions, this resulted in a CET1 ratio of 13.5%, in line with the expectations we set out in the beginning of the year. Let me turn to movements in the balance sheet. Pleasingly, lending and deposits grew strongly in 2024. Lending ended the year at GBP 459 billion, up 2% or GBP 9 billion in the year, and up GBP 2 billion in Q4. This growth was largely driven by mortgages, which grew GBP 6.1 billion in the year or GBP 2.2 billion in Q4. This was driven by a recovering market as well as a market share of new lending of around 20%, materially above levels of recent years. We expect further mortgage growth through 2025, supported by further strength in the market. In Commercial Banking, lending was down GBP 1 billion in the year and GBP 0.3 billion in the quarter. Within this, we saw growth in our corporate and institutional business or the area of the business that predominantly serves large corporates, and this was more than offset by a reduction in our BCB balances, which are predominantly focused on SMEs. This reduction was largely due to the repayment of government-backed lending. Turning to deposits. We saw a strong performance across both Q4 and the year as a whole. Total deposits were up by over GBP 11 billion in 2024, driven by growth in retail savings and a slightly better performance than expected in current accounts. Although we saw further churn in the period from customers moving their money from current accounts into savings products, this slowed during the year. Commercial deposits were stable. Let me now move on to other -- let me now move on to income on Slide 10. The group delivered net interest income of GBP 12.8 billion in 2024, which was growth of 1%, including growth of 1% quarter-on-quarter. Over the year, average interest-earning assets were GBP 451 billion, and the net interest margin was 295 basis points, both in line with guidance. In Q4, AIEAs were GBP 455 billion with a margin of 297 basis points. As you'll have noticed, the margin was 2 basis points up on Q3 and is continuing to increase at the gradual pace we had expected. Going forward, we're going to focus on net interest income in our guidance rather than our margin. This will simplify our approach and ensure that we guide on what really matters, i.e., income. In 2025, we are targeting net interest income of GBP 13.5 billion, up about GBP 700 million from 2024. This is built on further lending and deposit growth as well as a significant pickup in the income from the structural hedge. Indeed, hedge income is expected to grow by GBP 1.2 billion in 2025 year-on-year and a further GBP 1.5 billion in 2026. These tailwinds will be partly offset by deposit, the impact of rate reductions and the continuation of the mortgage refinancing headwind. Whilst the pressures are meaningful, they will ease throughout the year. And just to note, to ease the transition away from the margin, our 2025 net interest income guidance is equivalent to a net interest margin of 305 basis points. Turning to other income. 2024 was another year of encouraging and broad-based growth. We expect this pattern to continue. In 2024, other income of GBP 5.6 billion was 9% higher year-on-year, driven by positive momentum across the divisions. Indeed, retail was up 10%, supported by a strengthening contribution from our motor leasing business. Commercial was up 8%, driven by a positive performance in our markets business, whilst insurance, pensions and investments was up 7%, which included healthy growth within general insurance as well as workplace pensions and individual annuities. Turning to operating lease depreciation briefly, which is the depreciation charge for our operating fleet business. That was GBP 1.3 billion in 2024 and included GBP 331 million in Q4. A key driver of this is car prices, which followed our expectations in the second half of the year. Overall then, we expect this charge to grow in line with fleet growth and higher value vehicles going forward, but this will support growth in other operating income. Let me move to costs on Slide 11. Operating costs of GBP 9.4 billion were in line with guidance. This was up 3% year-on-year, although this was only 2%, excluding the sector-wide charge for the Bank of England levy that was incorporated at the beginning of the year. In 2025, we expect operating costs of GBP 9.7 billion. This includes the impact of higher national insurance contributions equivalent to around GBP 0.1 billion per annum as well as ongoing investment, partly offset by further efficiency savings. Cost discipline remains hugely important for the group. Our tight BAU cost control enables us to make ongoing investment into the business to support our growth ambitions within our planned cost budgets. This means whilst investment to 2026 will be slightly higher than previously planned, it's consistent with our 2026 ambitions, including a below 50% cost-income ratio. Turning to remediation briefly. The GBP 899 million charge, as said, includes GBP 700 million relating to the incremental motor provision. This provision is built upon a number of key inputs, including the potential outcomes from the Supreme Court in April, which then creates a range of scenarios against which we assess probabilities to determine the probability weighted provision. Clearly, there remains significant uncertainty. But combined with the GBP 450 million taken in 2023, the total of GBP 1.15 billion represents our best estimate. However, clearly, the final financial impact could differ meaningfully, both higher or lower. Let me now turn to asset quality. Asset quality remains strong and reflects resilient credit performance. The full year impairment charge was GBP 433 million, as said, equivalent to an asset quality ratio of 10 basis points. This is the result of a low underlying charge, but it also benefits from improvements to our economic forecast over the year. However, even excluding these economic releases, our asset quality ratio was still low 19 basis points. Looking forward, we expect the asset quality ratio to be around 25 basis points in 2025 based upon our stated economic assumptions. Let me now move to Slide 19 to wrap up the financial overview. In 2024, the group delivered strong capital generation of 148 basis points, 177 basis points, excluding the motor provision. We remain highly committed to returning capital to shareholders, and this strong generation underpins that. For 2024, the Board announced a final ordinary dividend of 2.11p per share for a total of 3.17p. This is up 15% on 2023. In addition, we announced a buyback of up to GBP 1.7 billion. We view this as a good result given the additional motor provision, and it means we have paid down to 13.5% CET1 level as guided. Together, this means the group will distribute around GBP 3.6 billion in respect to 2024. Our distributions are in line with the progressive and sustainable dividend policy. Indeed, the ordinary dividend is up around 60% versus 2021. In addition, our consecutive buyback programs have so far reduced the share count by around 15% over the same period. Going forward, prospects are good for continued healthy growth in our capital distributions. On that note, let me hand back to Douglas to talk to our strategic aspirations to 2026.

Thank you, Tom. So if you just heard, we have been successful in our strategic execution to date, and we delivered a robust performance in 2024. I'll now speak to the second phase of our strategic transformation and the financial benefits that will bring out to 2026. So as a reminder, we initially announced our strategy back in 2022 with the first phase being the 3 years up until 2025 and effectively, it's all to the end of 2024 with the next 2 years being the next stage in the process. So over the next 2 years, we're going to build on our strong foundations and business momentum we have built in the first phase. This will drive growth across the group with a focus on high-value areas. Our commitment to cost and capital efficiency will be reinforced by further savings, delivering strong operating leverage, whilst we will begin the next phase of our technology transformation, increasing the adoption of new technologies such as Gen AI driving benefits in both the near and long term. On the next slide, I'll talk through our priorities for each of our main business units, where we are building upon our existing strengths to deliver long-term competitive advantage. Let me cover each of the business units in turn. Our retail business has significant scale and reach. We have relationships with over half of the U.K. adult population with leading positions across both products and channels. Our strategic focus is to deliver market-leading mobile-first and highly personalized experiences. We will also maintain our leadership positions in lending through ongoing improvements to customer journeys across all channels. This will help us deepen relationships, and we are targeting a further increase in our customer depth of relationship, defined as the number of products they hold with us of 3%. Turning to commercial, which is a combination of our BCB and CIB franchises, which essentially serve small- and medium-sized businesses and large corporates, respectively. Across all of commercial, we have trusted long-standing relationships and leading positions in core areas. For example, in CIB, we are a leader in U.K. infrastructure and project finance. Building upon these strengths, we see opportunities to diversify across both products and sectors whilst focusing on digitization front to back. For example, in B2B, we are digitizing key servicing journeys, improving experience and driving efficiencies for the group. This focus is helping us to diversify our income. In CIB, we are targeting growth of 45% in other income from 2021 to 2026. Finally, in insurance, pensions and investments, we are delivering a truly differentiated experience. With 10 million customers, of which only around 2 million have a banking relationship with us, there is significant opportunity to drive deeper relationships through more integration with our banking business. This will take the form of embedding insurance products within the retail banking app, including investment solutions. We're also driving increased engagement with the Scottish Widows app, increasing the number of users from 400,000 today to more than 1.5 million by the end of 2026. As said before, underpinning all of this is the transformation we are undertaking across our technology. I'll speak to that on the next slide. Our technology strategy over the next 2 years will have 2 distinct elements. Ongoing modernization will deliver savings and improve efficiency, whilst creating the capacity for investment in new technologies. On the latter, we are well positioned as an AI leader with 800 AI models live today, supporting our colleagues and customers, whilst we continue to make key hires at all levels. We are now launching a significant number of generative AI use cases across the group. This includes a knowledge management tool to more than 10,000 of our frontline colleagues. These investments are critical to driving long-term advantage that will drive a long-term advantage, and will support financial benefits and our tech leadership position into the future. Let me conclude by turning to our financial expectations in 2026. The next phase of our strategic plan will deliver significant revenue upside. Headwinds to our growth will persist, but we expect them to be smaller than they were in the years to 2024. In contrast, we expect year-on-year progression in our structural hedge earnings more than headwinds. Added to this, we expect further growth across our strategic and BAU initiatives. On the former, we are upgrading our guidance to greater than GBP 1.5 billion of additional revenues by 2026. Taking these factors together, we are very confident in the outlook. Let me now close with our full suite of guidance. The group is on a clear path to delivering an enhanced financial performance. For 2025, we have now issued new guidance, including a return on tangible equity of around 13.5% and capital generation of circa 175 basis points. We have also reconfirmed our 2026 targets. As you can see, the significant operating leverage we are generating will support higher, more sustainable returns and capital generation. For 2026, this represents a return on tangible equity of greater than 15% and greater than 200 basis points of capital generation. I hope you found this to be a useful and interesting update. To summarize, we are very pleased with the progress so far and are excited about the opportunities to accelerate as we deliver a highly compelling investment case. We'll now open the call up to Q&A. please do submit any questions that you have via the website. I know we've received a couple of already, but please do submit any additional questions.

That's great. Douglas, Thomas, thank you very much indeed for updating investors. As Douglas just to review the considerable number of questions submitted already. I'd just like to remind you a recording of this presentation along with a copy of the slides and the published Q&A will be accessible via your Investor Meet Company platform. Douglas, Thomas, as you can see, there's a number of questions from investors. So firstly, thank you to everyone for your engagement. If I may just hand back to you just to read out the questions where it's appropriate to do so, and I'll pick up from you at the end.

Absolutely. Thank you very much indeed. So we'll go through these. We'll try and cover most of the questions that you've submitted, and we'll just go through them no apparent order. So the first question that was received was very much about Motor Finance. Clearly, that's very topical for Lloyds at the moment, but was really focused on why Lloyds seems to be continually impacted by different misselling cases. A number of you are aware that we have had misselling cases in the past. Look, from our side, I think that there are a number of key elements behind this. If you look at the motor finance case itself, Tom gave the details actually on the call itself. Essentially, this relates to commission paid to motor finance dealers over a number of years. Essentially, we have taken -- we took a GBP 700 million provision in the fourth quarter, basically in relation to the potential impact of those commissions. We had already taken a GBP 450 million charge in the fourth quarter of 2023. So essentially now, we've taken a charge of GBP 1.15 billion. And effectively, that reflects the Court of Appeal judgment that was a huge surprise to the market, and goes beyond the scope of the FCA review and the initial expectations. Essentially, that provision that we took includes an estimate for operational costs. It includes an estimate for potential redress and that's based on a number of multiple scenarios. Now what I would flag is that there is significant uncertainty. Clearly, the next stage in the process is the Supreme Court. The Supreme Court hearing on this will actually be held at the beginning of April. From our side, what I would say is the fact that this is very much relating to historic sales, historic sales processes. As a group, you can talk about our focus of helping Britain prosper. What you'll also see as a group is that we are very customer-focused in the way that we have initiated processes. Indeed, actually, if you go back probably 8 to 10 years, we actually introduced a number of processes relating to customer relationship management, how the sales process worked, how indeed we were developing products and services to make sure that the processes in place were indeed aligned to the requirements. And indeed, we believe that the process that was used for motor finance sales was entirely aligned to the regulatory requirements at the time, which is why that was a surprise to everyone and which is why this is -- this has been taken up the line and challenged by a number of our peers and taken to the Supreme Court. We very much believe that actually the way that we operate the business is in the best interest of our customers. That's the focus of the business. It will continue to be the case. We would hope that the way that the regulation, the politicians, the courts come about means that actually we will get greater clarity going forward as to exactly what the policy, the process should look like and should prevent similar elements coming through because as I said, this does very much relate to historic processes that were in place. Tom, I don't know whether there's anything you want to add to that at all?

No, I think that covers motor. I think the next question then is from Robert and it asks, what has NatWest got right that Lloyds happened given the share price has doubled over the last year? And maybe I'll start on that, Douglas and then you add where you feel appropriate. I think the key thing, and I won't talk to our competitors share price. But last year, clearly, our share price was impacted by motor finance. And as I said, that was an issue that emerged over the year. So there was an FCA investigation in January 2024 and then a court of appeal decision in October 2024. Both of those impacted the share price increase that we saw through the year and also, therefore, resulted in a slight difference in comparison to peers. What has been pleasing for us is in 2025, we have outperformed our peers in terms of our share price. And again, I won't necessarily talk to the relative differences between them. But from a Lloyd's perspective, we feel that's because we've added more transparency around our medium-term prospects and shown the benefits that our strategy is going to bring out to 2026 and also clearly, there's benefits to come from that as well as we build the foundation. I think that transparency has helped people understand the earnings growth, in particular, we're expecting over the next few years. In addition, motor was clearly an overhang last year and continues to be an overhang. And we obviously don't like the uncertainty, we understand that shareholders don't like the uncertainty. But I think there's an understanding now that is largely built into our share price. We'll obviously have to wait and see what happens with the Supreme Court in April and any judgment that comes from that. But I think hopefully, shareholders are reassured by the fact that despite that overhang, we paid out a GBP 1.7 billion buyback and paid down to 13.5% CET1 ratio that we targeted. I think that reassurance that our capital distributions remain strong. We can continue to distribute to shareholders. Hopefully, that has helped drive the share price so far in 2025.

Yes. I think that point that you mentioned at the end there, Tom, is really important. There is absolutely no doubt that the court case on Motor Finance is an overhang on the share price at the moment. But what we were really focused on with the full year results is really in ensuring that actually the underlying performance of the business was very clear, whether that be the robust financial performance, whether that be the progress on our strategic initiatives, or even whether it be the actual capital return itself. Fundamentally, as Tom indicated there, we, despite taking an additional provision of GBP 700 million, we were still able to announce an increased ordinary share -- ordinary dividend. That ordinary dividend was up 15% in the year. And indeed, we were unable to announce a GBP 1.7 billion buyback. So from a capital return perspective, we were still able to almost like deliver the capital generation that enabled the capital -- strong capital return despite the additional provision for motor finance. So the next question that's come up has been how are you balancing digital transformation with maintaining customer trust and security? It's a really important question and a question that clearly is raised on a number of times. From our perspective, this is very much about customer requirements. You can see very much at the moment that primarily in the U.K. and indeed worldwide, the move is very much more is driven by digital distribution, the focus on the app, the focus on actually enabling customers to do as many of their financial transactions as possible online. The actual use of branches is reducing. It's been very clear. That's one of the reasons why the number of branches that we have on the high street has been reducing because the sheer demand for it is less. So you can see that the customer demand is for digital transformation is to move forward the technical capability available at every customer's hands. Likewise, maintaining trust is fundamentally important. And actually, I think as one of the largest financial institutions in the U.K., given our size, we're able to invest that much more into security, into fraud, into investment to make sure that the actual services that we have are safe and secure. Fundamentally, as a bank, it is about safety, it is about security from our customers' perspective and getting that balance is right. We have -- if you look at it from an internal perspective, we have compliance teams, we have policies, we have procedures. We are very focused on making sure that actually the services, the processes are available to customers are safe and secure. And actually, if you're talking about long-term sustainable relationships, that's just part of the proposition.

So the next question was from Philip, and he asked whether on our motor finance provision, whether it's a best estimate of the total cost, including redress and admin, and whether we disclose the range best to worst of assumptions of what the ultimate cost may be? So first of all, Philip, you're right. It is a best estimate. It's a best estimate in the sense that it is a probability weighted outcome. So there are cases, there are scenarios which have worse numbers. There are scenarios which have better numbers. And we have assigned probability to all those scenarios and then that output comes up with the GBP 1.15 billion that we have taken to date. In terms of whether we've disclosed the range, we haven't, unfortunately. But suffice to say, there will be ones, as I said, that are higher than that GBP 1.15 and some that are lower. They will depend, as I said, on some of those inputs, whether that's the Supreme Court outcome, whether it's the FCA's intervention or potential intervention beyond that point and also the customer behavior from any redress arrangement. All of those will be taken into account, but we haven't given the range what the best or worse may be.

Excellent. The next question that came up was talking about the performance of some of the divisions, in particularly the Commercial Banking division and really looking about how it's performing from -- particularly on the SME side, but whether there are any sector-specific challenges. Some of you may well have seen the actual full year results presentation that we produced. Essentially, there were a couple of pages in there that's specifically related to BCB, so business and Commercial Banking and indeed CIB, which is effectively commercial book. So it's almost like the larger commercial customers. If you look at it from our BCB side, effectively, our strategy, so for the small and medium-sized businesses is very much to build the best digitally led relationship bank meeting broader customer needs. Historically, we've had a very strong customer franchise, which has been very much relationship-led. Indeed, if you look at it, we've probably got about a 20% SME relationship share. Actually, on the SME on the BCB, so SME side, we've probably got about, in fact, more than 1 million customers. So it's a significant business. And actually, when you look at the returns from that business, it's a very strong return-led business. Actually, if you look at the returns averaging over the last few years, it's probably greater than about 20% return on tangible equity. If you look at the strengths on that business, I think actually, deposit share has remained very strong. If you look at some of the core areas in which we've been growing have been some of the most like valuable sectors, so whether that be transaction banking, whether they're looking at working capital. And actually, we expect that to increase further and probably expect it to increase by more than 10% over the next couple of years. But I think the biggest challenge in that area, and this is specifically on the SME side, is the digitization. As I talked about previously, fundamentally, if we're going to be important as a group as a whole, operating leverage is going to be really important. Operating leverage is very important when it comes to the SME business and actually digitizing a lot of the proposition is fundamental. It's one of the biggest challenges. It's what we're really focused on. So that's going to be the objective from that side. If you look at it from a commercial perspective, actually, again, we've been making significant share and significant progress when it comes to some of the ancillary income. So for us, the franchise isn't just about lending to these customers. Yes, we're the largest U.K. infrastructure and the largest project finance provider. But actually, it's about how can we progress in some of the other related ancillary services, whether that be in debt capital markets and how we support the growth of institutional and corporate customers or indeed, it's how -- what sort of like interest rate products we can progress. And actually, if you look at it, we are aiming to deliver what about 45% growth between 2022 or 2021 and 2026. So it is an area that we are growing, particularly from an other income perspective.

And maybe the one thing I'll add to that on the back of the question is on SMEs, in particular, and maybe the sector focus there. What we have found is that although customers remain resilient, lending growth and demand for lending has been muted. So whilst we have seen customers build up deposits, and as I said, haven't seen anything from an asset quality perspective to concern us. What has happened is customers have been paying back government-backed lending, and that hasn't been replaced with new lending from that side. And so that means in 2024, we saw a reduction in SME lending because of that deleveraging.

The next question that's come up is actually about distributions, capital return and asking really when the right way to think about this is that you'll continue to deliver progressive dividend per share supported by ongoing share buybacks. Yes. I mean, you can see with the guidance that I talked about earlier, essentially at the moment, for this year, we're expecting 175 basis points of capital generation. And indeed, for next year, we've indicated that we're expecting more than 200 basis points of capital generation and indeed that we're looking to pay down to a capital ratio of around -- a CET1 ratio of around 13%. So we've made it very clear from our dividend policy side that we have a progressive and sustainable ordinary dividend. As I say, that dividend increased by 15% last year. I think it increased by 15% the year before that and 20% the year before that. So as you can see, it is very much progressive. We do believe that to be sustainable. On top of that, if you look at that dividend itself was probably delivered just under -- was probably equivalent to about just under about GBP 2 billion of capital, something like that. On top of that, obviously, last year, we also announced an up to GBP 1.7 billion buyback. If you look at it previously in previous years, we delivered a GBP 2 billion buyback. So you can see it's very much a consistent policy to have that progressive and sustainable ordinary dividend, and then look towards return capital at the end of each year. Given where the share price has been, I think the Board's view has been that actually the share buyback is the most appropriate method for that excess capital return at the moment. I think one major factor behind that being that we believe that actually the returns of the group and indeed, as you can see, the capital generation is strong and should continue to grow. So from that side, we believe in the future trajectory of the organization and therefore, believe that this is still a good time to be buying back shares. The next question is specifically on Halifax share dealing, looking at the service and looking at how it compares to various peers who work with their customers. What I would say is that Halifax share dealing is actually integral to our proposition when it comes to wealth and mass affluent clients. It's a really important element of the whole link between savings and investment. And actually, from a group perspective, one of the major priorities, which I mentioned earlier, was how we integrate more effectively the insurance business with the retail business. In the same way, we're looking at how you integrate Halifax share dealing and some of our share dealing services with some of the other banking propositions. It is a priority for us. It's something that we are going to be developing. And actually, if you look at some of the -- almost like progress that we've made in cash ISAs and the like, actually, our market share has improved significantly. I think now we're #2 for cash ISAs in the U.K. So I think that whole proposition is going to be really important as we focus more on mass affluent and the wealth management proposition, and it will become integral to the whole proposition.

And maybe just to talk about some of the developments we saw in the last year. So our mass affluent and affluent wealth proposition was a key part of our strategy. Last year, that meant rolling out stand-alone investment products such as Readymade Investments and Lloyds Bank 360. Those are investment propositions. But what's key for us, and I think where we see our competitive advantage is we can build those into the banking app. So on the banking app, you now have a specific tab that is for investment, and it makes it much easier for our customers to use all those services. Augmented to that, we bought Embark, which is a direct-to-consumer wealth platform. So you mentioned other providers and other more dynamic brokers. Embark adds a lot of that capability to us. And that helps us compete with some of the other providers out there. And so we feel we have a compelling proposition. And as I said, we'll have to see how it develops, but it's something we're confident on.

And I think that's really key there because you talk about Halifax share dealing actually under the latest details. You can actually see a lot of your Halifax share dealing accounts on your Lloyds Banking Group app. And that integrated approach is really fundamental from a customer proposition. A number of customers do use alternative apps that are entirely independent. But a lot of customers don't want that. They want a more integrated approach and be able to combine their savings and their almost like share dealing propositions, and that's something that we want to enable going forward.

So the next question was on Citra Living. So Citra Living is now called Lloyds Living. We've rebranded that business. That is a buy-to-rent part of our cost vision. Now this is something that we only built itself a few years ago. So this is new to the business. And so it's grown from essentially a portfolio of 0 to a portfolio that's much higher now. It's in the thousands of homes exchange. So the question is, are we committed to growing it? Or is it a noncore unit that we can sell in the future? So we are very committed to growing it. It's within our equity investments business, which itself sits within central items, but that has grown quickly, and it is growing the other income that is coming from that part of the business. And as I said, one of the key parts of our strategy is diversifying our income sources and Lloyds Living is a really important part of that. So we will continue to grow in that business. I think we talked in our annual report about exchanging on about 1,500 homes per year. That gives a sense of the ambitions that we have.

And the key thing is, I think when you look at businesses like Lloyds Living is the fact that what we've talked about is diversifying our income, not just having net interest income but having other operating income. And businesses such as Lloyds Living, such as Lloyds Development Capital that are in the equities business do provide that additional other income streams and opportunity going forward. It's really important when you're running a business the size of ours that you have almost like a portfolio-based approach to the way you look at investments. And this is simply another one of those, perhaps smaller, perhaps newer investments that we're looking to develop further. The next question was relating to consolidation and M&A. And the question was, is Lloyds Opens playing an active role in the ongoing consolidation of the U.K. banking sector? Or is future M&A only going to be of the bolt-on variety to grow the noninterest income line? In essence, I think it's very clear that the Lloyd's strategy is an organic strategy. We believe that we can actually grow the business through actually developing the propositions that we have. We already have leading market shares in a number of the different product areas we compete in, whether that be current accounts, whether that be mortgages or indeed some of the other more peripheral areas. So yes, we have quite strong market positions. The fact that you have those strong market positions already probably does preclude you from undertaking some of the larger M&A that could potentially be out there. We will have to look at the -- effectively the market shares and what that would mean across the piece. But it does mean if you are already a leading player that actually some of those acquisitions would be more difficult. We will, however, continue to look at add-on acquisitions, only where they're really relevant to the business. Does it mean that we can actually add economies of scale by buying books? Could we actually accelerate the development of our strategy by acquiring different skills or capabilities? Are there different areas that we could actually grow slightly? So I think we will look at opportunities. Any opportunity has to effectively work from both a return perspective, from a risk perspective. I mean you'll see we've made a number of acquisitions. In fact, Tom alluded to this in a couple of his earlier responses. But we acquired Tusker, which was a salary sacrifice motor finance business. It's been very successful. Actually, the number of cars financed has probably doubled over the last 2 to 3 years. So actually -- and it was completely aligned to our strategy and where we wanted to play. So I think, yes, we will look at odd add-on acquisitions, but primarily, you should look at our strategy as an organic strategy.

So Marcus asks, are there any upcoming regulatory changes that you believe could significantly impact your business model or capital requirements? So I think the key point here is that when we look at regulation, there is both capital regulation, so the PRA and there's also the FCA from a conduct perspective. For us, I think what's most important is a predictable regulatory environment because that allows us to operate in the U.K. effectively, knowing exactly the commitments we have to customers and how our products should interact with customers. I think for us, we've had a constructive dialogue with the FCA in recent months. I think we support the Chancellor in her statements in the Mansion House speech at the end of last year, which talked about making sure that regulation is set up to promote growth in the industry. For us, we think that's a very important part of a healthy and stable financial sector that in turn will help the U.K. In terms of specific regulatory changes, clearly, the -- recently, the government talked about the interaction of the Financial Ombudsman with the FCA, and the talk of basically making sure that the FA aligned with the FCA and the FCA was the one that had the chief remit to bring in regulation for the banking system. That is obviously something we support and allows us to have that more predictable environment that we just talked to. Beyond that, there are clearly more -- there's more speculation. I think for us, we are keen to see regulation that helps promote some of the areas that are both important for the government and important for the business. So whether that's housing, whether that's sustainable infrastructure or the transition to net zero, whether that's financial planning in terms of pensions, any changes there that meaningfully help our customers then but also help us support our customers is important. And I don't know, Douglas, is there anything you might want to add to that?

No, I think that's a very fair summary. So the next question on here, you might want to add something on this as well, Tom, but was really talking about preference shares, and the fact that we redeemed some preference shares in 2024 and really looking at almost like what that means going forward. Now clearly, when it comes to preference shares, Well, actually, when it comes to funding for the group as a whole, and let's be clear that preference shares are a part of that. We run very much a diverse funding portfolio. That's looking at effectively funding across all the different layers of the balance sheet. We look at capital, we look at OpCo funding, we look at holdco funding. And in essence, across the piece, we try to get a pretty diversified, almost like wholesale funding position, not just from a type because that impacts actually the cost of the funding and for the group as a whole, but also across different currencies and also across different debt types and indeed across different tenants. Whenever we're managing the funding base of the book as a whole, it's a case of balancing regulatory requirements and getting the -- meeting the appropriate funding requirements. We don't tend to because it's effectively indicate as and when -- whether what calls or not you're going to make on future securities. But clearly, we've got a very diversified and I would say almost like debt holder-friendly approach to the way that we look at this.

So the next question is from John. It asks, what assumptions are you making around the Bank of England base rate for the next 12 months? So our economic expectations that we set out the full year said that there would likely be or our expectation is 3 cuts in 2025. Obviously, that includes one cut that has already happened in February. And so that suggests 2 further cuts in the remainder of the year. As we go to 2026, we expect 2 further cuts to a terminal rate of 3.5%. So those are our expectations at the moment. Obviously, every quarter, we review our economic expectations. But as of the full year, those are where we think we're going to end up, and they are built into our guidance around net interest income and also asset quality.

That actually, I think, concludes the questions that have actually been submitted.

That's great, Douglas, Tomas, indeed, thank you, and thank you to everybody once again for your wonderful engagement this afternoon. Douglas, Tomas, I know that investor feedback will be particularly important to you, and I will shortly redirect those on the call to give you their thoughts and their expectations. But before doing so, Douglas, if I may, for the final time, just come back to you for a couple of closing comments.

Yes. If anything, it's just a very quick brief comment. Look, thank you for dialing into the call. Thank you for your interest in Lloyds Banking Group. I hope what we've been able to share with you today is a bit of a summary of the progress, the priorities for the group and indeed the future potential. We are confident in delivering our future guidance. And we wanted to make sure that, that was -- that the messaging that we were making to the market from an institutional perspective was also clearly shared with retail investors as well through this Investor Meet webinar. So thank you very much for dialing in.

That's great, Douglas. Thank you very much indeed for updating investors. If I could please ask investors not to close the session. We'll now automatically redirect you for the opportunity to provide your feedback in order that management can really better understand your views and expectations. That would only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of Douglas, Tomas and the team from Lloyds Bank, I'd like to thank you for attending today's presentation, and good afternoon to you all.