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

Thank you for standing by, and welcome to the Lloyds Banking Group 2026 Q3 Interim Management Statement Call. [Operator Instructions] Please note, this call is scheduled for 1 hour and is being recorded. I'll now hand over to William Chalmers. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining our Q3 results call. As usual, I'll run through the group's financial performance before we then open the line for Q&A. Let me start with an overview on Slide 2. In the third quarter, the group again delivered sustained strength in financial performance. We demonstrated continued income growth, improving operating leverage and strong and stable credit quality. We are on track to meet our 2026 guidance. The group is continuing its strategic delivery, focusing on supporting U.K. households and businesses, while laying firm foundations for Accelerate 2030. The business is performing well, and we are excited to execute on the opportunity ahead. Let me now talk to our financials on Slide 3. As said, Lloyds Banking Group again demonstrated sustained strength in financial performance during the first 9 months of the year. Statutory profit after tax was GBP 4.8 billion. Within this, we delivered net income of GBP 14.8 billion, up 9% on the previous year, driven by broad-based growth across our businesses. Q3 net income was 2% higher than Q2. We remain disciplined on costs. Year-to-date operating costs of GBP 7.2 billion were up 1% year-on-year, supporting a cost income ratio for the first 9 months of 49.3%. The cost-income ratio for the third quarter was 47.2%. Credit performance remains strong and stable. The year-to-date impairment charge of GBP 930 million equates to an asset quality ratio of 25 basis points. Together, this delivered underlying profit of GBP 6.6 billion for the first 9 months, GBP 2.4 billion in Q3. Our performance year-to-date has resulted in a return on tangible equity of 17.9%, strong capital generation of 153 basis points and a CET1 ratio of 13.3%. Let me now turn to Slide 4 to look at developments in our customer franchise. We have seen solid growth across both the lending and deposit franchises so far this year. Focusing on the third quarter. Group lending balances of GBP 495.5 billion were up GBP 4 billion or GBP 5 billion, excluding movements in hedge accounting. We saw growth across all business lines. Within Retail, Mortgages increased GBP 0.3 billion in Q3. We realized slightly higher mortgage completion margins quarter-on-quarter at circa 75 basis points, although this remains below maturity margins. The market remains highly competitive. [indiscernible] elsewhere and Retail lending, we saw continued growth in each of our Cards, Loans and Motor businesses as well as European Retail, again in competitive markets. Commercial lending balances meanwhile were up again in the quarter by GBP 3.3 billion or 3%. As has been the case throughout the year, this reflects strong broad-based growth in CIB across sectors. PCB also continued to grow with balances increasing GBP 0.2 billion after the impact of government-backed lending repayments. As we look forward across the lending businesses, we believe higher rates is sustained, may start to slow asset growth. As always, our strategy will be to balance volume and returns. Turning to liability franchise. We saw a solid performance in deposits, up GBP 1.9 billion in the quarter. Total Retail deposits were broadly stable with growth of GBP 0.2 billion in U.K. deposits a decline of GBP 0.5 billion in Europe. We were pleased to see PCA growth of GBP 0.6 billion in the quarter, again, increasing our market share of balances in this core product and helping deepen customer relationships. This more than offset a small decline in U.K. savings of GBP 0.3 billion. Commercial deposits increased by GBP 2.1 billion, reflecting growth in targeted sectors across both CIB and BCB and continuing recent strength in this area. As called out throughout the year, we have again seen a competitive quarter in the deposit market. For now, these conditions look to persist, and we continue to manage for both franchise enhancement and sustainable value. Let me now turn to net interest income on Slide 5. Net interest income continue to grow. Year-to-date NII was up 10% year-on-year to GBP 11.1 billion. This included 3% growth in Q3, helped a little by day count. Income growth continues to be reported by positive but slowing momentum in the net interest margin at 325 basis points in Q3, up 3 basis points on the second quarter. Driving this in Q3, the growing structural hedge contribution continued to more than offset mortgage refinancing and deposit churn headwinds. Structural hedge earnings were GBP 1.9 billion, with an average yield of 3%, still well below current market refinancing rates. Within this, the notional of GBP 246 billion and a weighted average life of around 3.75 years was stable in the quarter. We continue to expect hedge income to grow to greater than GBP 7 billion in 2026 and greater than GBP 8 billion in '27, based on our economic assumptions. NII strength was also supported by the growth in our franchise with average interest earning assets of GBP 481 million in Q3, up over GBP 3 billion on Q2. Based on these developments, we are on track to meet our 2026 NII guidance of greater than GBP 14.9 billion. In the current competitive market conditions, we expect to deliver modestly about GBP 14.9 billion. Looking further forward, these same conditions will likely impact 2027 NII growth, partly offsetting benefits from higher volumes and hedge income. While still healthy, the pace of NII growth in 2027 is likely to be lower than in 2026. Let me now turn to other income on Slide 6. We continue to deliver strong momentum in other income across our franchise. Year-to-date, other income was GBP 5.0 billion, up 10% from the prior year. Q3 is up 8% year-on-year at GBP 1.7 billion. Within this, Q3 was very slightly lower than Q2. This reflects continued strength in transport, current accounts and Lloyd's Living. These factors were offset by increased substance claims within General Insurance, lower markets income within Commercial Banking and the nonrepeat of certain second quarter gains as we flagged in July. Excluding weather claims, third quarter underlying OOI growth was over 10% year-on-year, continuing the strong performance that we've seen in recent periods. Income diversification remains a strategic focus and indeed, our base case expectation. We continue to see good progress in our strategic initiatives, as laid out on the slide. This includes strong momentum within Tusker as well as the successful launch of new propositions, for example, Lloyds [ except ] within BCB. Such developments and upcoming plans will maintain our forward momentum. Briefly turning to operating lease depreciation. The Q3 charge of GBP 420 million has decreased from Q2, largely due to the nonrepeat of the revaluation charge for used car price diversity that we recognized at the half year. This is partly offset by the quarterly run rate, which is increasing in line with fleet growth. Moving to costs on Slide 7. Cost discipline continues to be an imperative. Operating costs for the first 9 months were GBP 7.2 billion, up 1% year-on-year. Our robust performance reflects business cost growth, inflationary pressures and costs related to Lloyds Wealth largely offset by continued cost savings and lower investment at this stage of our current strategic cycle. Third quarter cost of GBP 2.4 million were down 1% versus Q2. As we look forward, Q4 saw higher costs due to the usual seasonal factors, including bank levy as well as investment timing. Remediation charge was GBP 22 million in the quarter, taking a year-to-date charge to GBP 61 million. Taken together, this resulted in a cost-to-income ratio of 47.2% in Q3 and 49.3% for the first 9 months. Importantly, we remain on track to deliver a full year cost-to-income ratio below 50% and operating costs of less than GBP 9.9 billion in 2026. Let me turn to credit performance on Slide 8. Credit performance remained strong and stable. This reflects our prudent approach to lending and a resilient customer base. Arrears and early warning indicators across our portfolios remain benign. The year-to-date impairment charge is GBP 930 million, equivalent to an asset quality ratio of 25 basis points. Compared to the prior year, the increased charge is driven by retail model updates, both last year and this year, and a more normalized level of impairment in 2026 as well as lower one-off releases within commercial. The charge of GBP 313 million in 3rd quarter also represents an asset quality ratio of 25 basis points and reflects stable underlying development alongside model updates. It incorporates a small MES charge of GBP 8 million in the quarter. Our performance year-to-date means that we are on track to meet our guidance for a full year asset quality ratio of around 25 basis points. Let me now address returns and TNAV on Slide 9. The group delivered a strong return on tangible equity of 17.9% for the first 9 months and 19.5% in Q3. Below the line, the third quarter restructuring charge and volatility and other items were modest. Tangible net assets per share ended the quarter at 55.4p, down by 1.6p per share, both year-to-date and in the quarter. Growth from attributable profits and the reduction in share count from the buyback were offset by shareholder distributions and in particular, the temporary impact of higher rates on the cash flow hedges we have. Looking ahead, we continue to expect material TNAV per share growth over the medium term. We remain on track to deliver a return on tangible equity of greater than 16% in 2026. Indeed, given our current TNAV, we expect to comfortably exceed this. Turning now to capital generation on Slide 10. Our business performance has driven strong capital generation. Within this, total RWAs ended the quarter at GBP 247.4 billion, up GBP 11.9 billion from year-end. This increase reflects strength in lending and market and other movements, partly offset by optimization activities. Turning to Q3. RWAs increased GBP 5.6 billion, again, driven by customer and bank lending growth, but with limited optimization in the quarter. Q4 should be more active in this respect. Looking forward, we continue to expect a GBP 6 billion to GBP 8 billion positive day 1 impact from Basel 3.1 on the 1st of January '27. Note that we are also awaiting finalization of CRD4 secured model ratings. Year-to-date, strong banking profitability has driven capital generation of 153 basis points, including 45 basis points in the third quarter. We remain on track to deliver our capital generation guidance of more than 200 basis points in '26. The group CET1 ratio ended the quarter at 13.3%. We continue to expect to pay down to a CET1 ratio of 13% by the end of the year. I'll now turn to our updated macroeconomic outlook on Slide 11. As usual, we've updated our economic outlook for the performance of the U.K. economy. We now expect inflation to average 3.1% this year before peaking in the first quarter of '27. Our bank rate forecast now incorporates a 25 basis point increase in November, although our terminal rate assumption remains unchanged at 3.5%, reaching that level in mid-'28. I referred to the potential impact of higher market rates versus our own forecast in my earlier comments. We expect GDP growth to be 1.3% this year, falling to 1.1% next. Unemployment is forecast to peak at 5.3% in the middle of 2027, and house price growth to be 0.7% in '27, rising to 1.7% next year. While these forecasts represent a modest uplift, our diversified and resilient business model remains well placed to withstand various economic outcomes. In this context, the budget yesterday does little to change our views. Stepping back, let me now remind us of our 2026 guidance on Slide 12. We remain on track to meet our 2026 guidance. We continue to expect net interest income of more than GBP 14.9 billion, a cost-to-income ratio below 50%, below operating costs, below GBP 9.9 billion and an asset quality ratio of around 25 basis points. Alongside, we expect return on tangible equity of more than 16% and capital generation of more than 200 basis points, paying down to a CET1 ratio of around 13%. As always, we remain committed to a progressive and sustainable ordinary dividend. As we have said many times, delivery of our current strategy and financial commitments lays the foundations for the next stage. Let me briefly turn to this to finish up on Slide 13. The successful delivery of the current strategy has been all about building new strategic revenue streams, diversifying income growth and continuing our focus on cost and efficiency. These are the foundations for Accelerate 2030. We are now mobilizing the business at all levels. We've established a new business unit to unlock connected growth opportunities across the group. We have allocated over 95% of our 2027 strategic investment spend, which is now built into delivery plans. Our core franchise will remain a key contributor to value creation, as we deliver new products and build distribution in critical markets. We will innovate to further grow and diversify our revenue streams with many new propositions in the coming months, such as Lloyds Smart Wallet. Growth will be led by investment in technology and skills. We are continuing to extend our AI use cases across the group and are on track to deliver over GBP 100 million of AI benefits in 2026. We were pleased to see our continued progress was recognized in the latest evident AI report. Our strategic ambitions are underpinned by the robust financial framework that we outlined in July. As you know, the expectation is continued income growth, improving operating leverage, strong sustainable returns and growing capital generation. Stepping back, and as I said in my opening comments, the group is delivering in full on the current strategy. Looking ahead, we are more convinced than ever that the opportunity for the group is compelling and Accelerate 2030, is the right way to seize it. That concludes my comments for this morning. Thank you for listening. We'll now open the line for your questions.

[Operator Instructions] Our first caller is Benjamin Toms from RBC.

The first one is on Other income. It was a little bit weak in the quarter, albeit you're still trending up 10% on a year-to-date basis. Is Q3 the right base to model off? It sounds a bit artificially depressed. If it is depressed, how depressed do you think Q3 roughly is? And then secondly, on NII, you defined greater than GBP 14.9 billion as modestly above. I think consensus is slightly above GBP 15 billion. Was the modest comment design to move expectations down slightly to somewhere between GBP 14.9 billion and GBP 15 billion?

Thank you, Ben. Both the two questions. Just to answer them in turn. OOI, first of all, roughly GBP 1.7 billion, GBP 1.68 billion. The performance in OOI is something that actually we're pretty pleased with over the course of the year. There were some points, if you like, in Q3, on specifically the subsidence event off the back of a dry summer. And the second is a little bit of weakness in markets, in particular, in September, on the back of the volatile markets that we saw, that's occurring in the Commercial Banking business, specifically the CIB business. The quarter-on-quarter comparison, which is down about GBP 19 million over the quarter is a little bit softer because quarter 2 was particularly strong. What I mean by that is that we saw some securitization gains in quarter 2, and we also saw some outsized LDC gains. And so there's a bit of strength in Q2 that is in turn contributing to the relative Q2 to Q3 performance. Now as you said, we're up 10% year-to-date, which is very much consistent. In fact, they're even a touch ahead of our high single-digit expectation for the year. We also added into that Lloyds Wealth. I think, Ben, to answer your question, if you strip that out, the two effects that I mentioned in respect to Q3, subsidence is #1, markets #2, are, we think, largely one-off in nature. Subsidence is an event that was particularly acute over the course of the summer. We're now seeing rates hardening, i.e., premium price increases in the general insurance market, which is good to see, and I think it's partly in compensation of that. And then secondly, we're also seeing a stronger start to the quarter in the CIB markets area, which is good to see. So I think we see -- we expect to see continued growth in OOI over the course of the fourth quarter. We do expect to be very consistent with our high single digits plus Lloyds 12th guidance that we gave at the beginning of the year, and we feel very comfortable about the trajectory of OOI in that context. To give you one further data point, Ben, which I find useful is if you strip out some of the quarter 2 benefits, I mentioned securitization and Lloyds development capital as part of that LDC as part of that. And if you strip out the one-offs, we want of a better word, i.e., the weather and maybe a bit of the CIB weakness in markets; number two, then actually, what you're seeing is more like a 5% quarter-on-quarter growth rate as opposed to the GBP 19 million reduction that we saw in quarter 3. So that gives you some idea of the underlying performance that we're seeing in OOI and again, expect a decent fourth quarter. In respect to NII, Ben, and second of your two questions, we have, I suppose, first, want to confirm that we will very much meet all of our guidance in full and that, of course, includes greater than GBP 14.9 billion for NII guidance for the full year. At the same time, we wanted to make sure that people are, if you like, aware of our expectation that we expect to be modestly above GBP 14.9 billion for the year. Now what is going on there? In quarter 4, we expect to see continued growth in NII, which will be driven by similar drivers, frankly, excluding, obviously, the day count benefit that we had in quarter 3. We Should expect to see a modest increase in the net interest margin likewise IEA growth, which will be flatter, but it will be driven up by, in particular, averaging effects and that all delivers us modestly in excess of GBP 14.9 billion. I won't comment on consensus spend, but hopefully, you can tell by my answer to your question there, what we're aiming at.

Our next caller is Guy Stebbings from BNP Paribas.

The first one was back on NII really on the funding side. I mean it's clearly a competitive market out there for funding and at the same time, you're seeing good lending dynamics, particularly on the corporate side. Given the market is no longer sort of what of liquidity if you like, your own loan deposit ratio has been trending upwards or normalizing. Just interested sort of how come are with lending growth running ahead of deposit growth from here? Or does there come a point where you need to either compete harder for deposits or pull back slightly? Or is that just not really an issue for quite a while? And then the second question, which is partly linked is on capital. I mean the chance that yesterday made a push again in terms of the Bank of England ahead of its upcoming capital update to lower sector capital requirements and overlaps, if you want to call them that on [indiscernible] domestic buffers. If we do see that come through, which could have quite a meaningful impact on your regulatory requirements, how do you think you'd use that freed up capital? Would it -- has the chance that we presumably want go towards incremental lending, which would add to funding needs for the sector? Or might you have other uses for that capital? I guess, behind my question, certainly welcome any incremental capital being freed up, but interested in how you think about the sort of competitive pressures that might come out of that.

Yes. Thank you. Thanks for the question, Guy. I'll answer them in turn. I might pull apart the first one a little bit. First of all, in respect to lending, as you say, healthy lending growth over the course of the year and indeed over the course of the quarter. If you take each of those over the course of the year and you add back in securitizations, which is just shy of GBP 2 billion, you add back in movement in the fair value hedge. You add all of that together, we've seen roughly which is shy of GBP 18 billion lending growth over the course of the year, and that includes just over GBP 5 billion lending growth in the course of quarter 3. So some really healthy lending growth developments there, and they are on both the Retail side and indeed the Commercial side. Likewise, we've seen very healthy deposit growth, too, GBP 6.3 billion over the course of the year, just shy of GBP 2 billion in the course of quarter 3. That is slightly more skewed towards the Corporate Banking side, but equally, it includes growth within the U.K. deposit book over the course of quarter 3 of about GBP 2 million -- about GBP 0.2 million which most notably and interestingly includes increases in PCA balances of about GBP 600 billion -- GBP 600 million, including an increase in share. So I think that is good to see, Guy. When we then look at the balance, if you like, as your question highlights, we've seen faster lending growth than we have deposit growth. And that has ticked up the loan deposit ratio a touch. We're now about 99% versus year-end, about 97%. To answer your question, we don't see that as a particular constraint. We don't really have a loan deposit ratio target. It is relatively easy to reduce it, if we would choose to do so by going out and gathering deposits. We've chosen instead to focus deposit value on those where we have the most valuable customer relationships and to avoid, if you like, gathering deposits in what has sometimes been relatively negative margin, fixed-term areas. So we don't see the loan deposit ratio as a constraint. We don't see at the moment at least any inhibition on our ability to continue lending into the economy, which, of course, is important to us. And the best testament to that is, as said, funded lending of around EUR 16 billion. And then, of course, you can add in the securitizations as I did earlier, to get to GBP 17.9 billion in total. The capital point, Ben, the capital point is interesting. We see the FPC discussion ongoing, and we'll expect to see more in November. Now so far, the changes that have been brought about by that review in terms of the leverage ratio, have not made a significant difference to us because, as you know, we are CET1 constrained as opposed to leverage constraint. Looking forward, the FPC is looking at, as your question pointed out, a couple of topics. One is whether there is overlap in buffers and two is the question of buffer usability. It will be interesting to us to see what it is the FPC comes back with -- off the back of that. At the same time, and again, as your question highlighted, as we land Basel 3.1 in the 1st of January next year, we will see a reduction in our Pillar 2A targets of about 20 basis points. They will go from 1.4% to 1.2%. What that will mean is that at the beginning of next year, we have our CET1 target of 13%, but we will have a capital stack of more like 11.6% and of course, in that context, we look with interest to see what the FPC is going to do on capital buffers that feed into that capital stack. What we'll then choose to do beyond that, Guy, at the moment at least, I think, is -- to be determined, depending upon where all that plays out, number one, but recognizing that we have a degree more management flexibility in the way in which we run the business, simply because that management buffer goes from what is currently 120 basis points to what will be 140 basis points. So I think for now, Guy, without wanting to kind of preempt future discussions or alternatively second guess what it is the FPC might come out with, we look with interest to how the situation will evolve. We maintain our capital target of 13% CET1. And if we do get more flexibility by way of large management buffers, that's clearly from -- helpful from the perspective of running the business.

Our next caller is Sheel Shah from JPMorgan.

I can ask on the asset margin? You spoke about some pressure in the mortgage market, which isn't new, that continues. What about some of the other markets like the corporate and the unsecured market. Are you seeing pricing pressure, are you seeing mix change? What's driving this pressure on the margin basis? And then secondly, just a follow-up on the LDR question earlier. How do you think about the balance between raising more deposits in this competitive environment versus wholesale funding considering that LDR ratio is probably going to rise above [ 100 ] shortly?

Sure. Thanks, Sheel, for questions. When we look at the environment, I mean, I think we've been calling out all year that the environment is a relatively competitive one. And of course, there's been a lot of attention paid most recently to the deposit side of that. And indeed, deposit market relatively constrained. That is for a host of cyclical and structural reasons. I might just dwell upon that for a moment. So for example, energy prices, increased inflation, higher rates in turn, limited disposable income growth, that limits deposit market growth for those cyclical reasons. But at the same time, one or two structural factors, Q2 is one example. The reduction of TFSME is another example. The fact that we've got a number of non-U.K. lenders in the market taking out deposits from the U.K. market and not recycling them as U.K. lending is a third point within those structural drivers -- and all of that means, Sheel, is that the deposit market is not growing all that fast. I think it was around GBP 25 billion around the middle of the year from the Bank of England figures. Most of that has gone into fixed term. And that fixed term, as you know, is pretty tightly priced. So that's the Deposit side, but your question was also on the asset side. And I think consistent with what we've been saying all year really, we have seen competitive pressures on the asset side. And it's not just mortgages. It's kind of across the asset classes, too, but I think that what, as said, we've been calling out in various different conferences and so forth. Now having said all of that, we've seen decent volume growth in these areas. We are competing hard in what are still economically very attractive areas. So cards, for example, up 7% year-to-date. Personal loans, likewise, up 7% year-to-date. Motor, up 6% year-to-date. These are important areas for us to grow in. The CB business or the CIB business, just that subcomponent, Commercial Banking is up over 10% year-to-date in its balances. All of this lending is healthy, value-added, positive returning lending. We're pleased to see it. But I think it is fair to say that there is a dose of margin pressure going on, again, consistent with what we've been saying through the course of the year. The second question that you posed there, Sheel, in terms of the -- I guess, the balance sheet, the loan deposit ratio, the liquidity coverage ratio. I mean, first of all, I think you're right to point out the liquidity coverage ratio. When we look at the balance sheet, as I said, loan deposit ratio is not something that we particularly target. We do not feel constrained by the loan deposit ratio as it is. It's relatively easy to fix in the sense that we could go out and raise deposits very easily if we were to choose to do so. But the issue as we see it, is to stay on top of duration and to build the franchise. And as I say, to make sure that we're able to continue the type of GBP 6.3 billion year-to-date deposit growth that we've seen across Retail and across Commercial Banking. Now I think it is a reality for us and I suspect most banks in the sector that actually, it is a liquidity coverage ratio that is at least as important, if not more so, versus the loan-to-deposit ratio. And I suspect for most banks, it is the liquidity coverage ratio that is more likely the earlier biting point. Now we feel very comfortable with our liquidity coverage ratio. It's about 143%, as you will have seen today, and it is backed up by predominantly Retail and therefore, very sticky deposits, which allow us to operate comfortably at the 143% liquidity coverage ratio. And indeed, I would stress that, that is meaningfully ahead of where we were on a pre-COVID basis. So we are holding more liquidity today than we felt necessary on a pre-COVID basis. When we look forward, I would make those points on the, if you like, LDR and LCR side, I would also add that what's important when you look at lending is, at least from our perspective, less to be constrained by LDR and LCR, more to make sure that whatever lending we do is value added -- is economically value-added to the shareholders. We clearly want to present strong customer propositions. And as I said, just shy of GBP 18 billion in total lending so far year-to-date shows that we're doing that from a customer point of view. We want to make sure that, that lending is value-added.

Our next caller is Jonathan Pierce from Jefferies.

William, I've got two questions, please. First is on deposit competition. I really just want to get your view on what's going on here. because rates on site deposits haven't really changed since the start of the year. The extent to which those at the top end, the Best Buy tables are paying above one year swap rates from 1-year term deposits, hasn't changed that much since the start of the year. I mean it's very competitive, but not significantly more so than it was. But for me, what's really changed in the last 6 to 9 months is the whole curve has shifted higher and that's led to this behavioral change with customers moving more money to term. So your site deposit base is holding broadly flat. All the growth in deposits is coming from ISS. And so your marginal funding cost is essentially at so [indiscernible] or above. So I'm just wondering to what extent this idea of higher competition is is being conflated with behavioral changes. And you may say the distinction doesn't really matter at the moment, and I would agree. But behavioral change is transitory. Whereas higher competition may be more structural and therefore, a bit more concerning. So if you can break down what the real issue here is in terms of the marginal margin, that would be helpful. Second question, Pillar 2A. The end result of Basel 3.1 for you looks to be a 20 basis point drop in your Pillar 2A requirement, but your equity Tier 1 ratio going up 40 basis points. And so something the market has been worried about for 8 years now is effectively the sort of 60 basis point reduction in capital requirements to buy, read the release as it seems to imply this morning. I'm just wondering, is there something going on -- something else going on here? Does this Pillar 2A movements that you're expecting at the start of next year, capture anything else other than Basel 3.1? Again, trying to get back to whether the domestic risk add-on changes we may get next month are being somewhat front run in some of the Pillar 2A movements we're seeing this season or whether the genuine year is something else we may get next month that drives your equity Tier 1 requirement down significantly further.

Yes. Thanks for those questions, Jonathan. I'll take them in turn. First of all, on deposits. As I said, up GBP 6.3 billion year-to-date, up just shy of GBP 2 billion over the course of quarter 3. So the deposit performance has been in pretty good shape. Within that and relevant to your question, Jonathan, you talked about site deposits there. We've seen strength in both PCAs and also in noninterest-bearing current accounts within the PCB area as well in quarter 3. So, we're pleased to see that on both counts. I mentioned earlier on about GBP 600 million gain in PCAs over the course of the third quarter, a smaller number gain in noninterest-bearing current accounts in PCB, but nonetheless going in the right direction. I think that's off the back of strength of propositions. It's off the back of our customers choosing to hold [indiscernible]. It's also noticeable actually, Jonathan, that even in the context of a rising rate environment, not only have we gained market share in the PCA front, but also the amount, i.e., the number of balances in terms of quantum in excess of GBP 20,000, as an example, has gone up even in that rising rate environment, which I think is kind of interesting in the context of your question. I'll add a couple of comments and then come back to the behavior versus competition point that you raised. First of all, we think we have seen a bit of rates increase over the course of the year as a whole. As you know, we've been calling out deposit competition right the way through the year. We started in earnest but we've been trying to continue that narrative, indeed, amplify it over the course of the remainder of this year. I do think at the same time, the curve has clearly shifted higher, especially in Q3 in that context. And your question, therefore, is kind of how much behavioral change is that sponsored? When we look at our book overall, we've seen, I think, a combination of clearly high rates, we ourselves have been out from time to time where we thought that it's economically value-added to offer higher rates. I would say the migration within the book, the migration within the book has been relatively limited so far. Specifically, what I mean by that, I think it's probably just over GBP 1 billion switch from instant assets into fixed term in the third quarter. That's in the context of an instant access book, which is comfortably over GBP 100 billion. If I track that back over the course of the year, the migration that we've seen over the course of the year, basically from instant access into fixed term, I think over the year as a whole, it's been somewhere between GBP 3 billion GBP 4 billion, in that zone. So you can see the quarter 3 performance is not particularly different to what we have seen earlier on in the year. And in the context of an instant book that is comfortably over GBP 100 billion, that's relatively limited. Now as we look forward, we expect both aspects of competition on the deposit side to persist, as I mentioned in my script a little while ago. And that's partly what's behind, I suppose, some of our outlook comments, some of my outlook comments that I made in my commentary. The other point I would say, just to add on to this discussion, Jonathan, is we've seen through the course of this year, not just deposit competition but also asset competition. Consistent with my response to Sheel's question just a second ago, there's a bit of asset-side competition that's been going on over this year. We don't have -- Well, let me put it another way. We expect competition to continue in those markets over the course of next year. And that's what we're basing our outlook comments on. We'll give you further guidance at the end of the year. But my point is it's both liability side and don't forget the asset side. When we look at the -- I'll move on Jonathan, to into the second of your question on Pillar 2A. I don't think there's terribly much going on there above and beyond Pillar -- Basel 3.1, at least not for us. What I mean by that specifically is that when we look at the adjustments for Basel 3.1 that move RWAs into Pillar 1. There are things like the SME scaler, for example. They are one or two other aspects. So CBA and operational risk ans so on. These things, in turn, are leading to Pillar 2A relief of 20 basis points, and that's what we're calling out in the RNS. There is one other modest item that is moving in Pillar 2A. I don't think technically, we're allowed to disclose it as such, but there's one other pretty modest item in the Pillar 2A piece that is moving that is net helpful to, as beneficial but it's a very small part of that overall 20 basis point improvement or reduction in Pillar 2A that we see on the 1st of January next year. What that all means on your question is getting to, and please tell me if this isn't fully answering your question, but it means that our capital stack is getting to 11.6% as opposed to where it is today, 11.8%. As mentioned earlier on, in response to -- I think it may have been Guy's question or perhaps Sheel's. That's good. That added 20 basis points of flexibility or management buffer is helpful to us. Over the longer term, as the regulatory situation gets clearer, maybe some of the macroeconomic risks play out, we'll obviously have a discussion with the Board in due course about what does all that mean. But I don't think that's necessarily a discussion for this year. I think it's a discussion based upon the maturity of the debates and the issues that I just mentioned. But there's no doubt that in the meantime, having 140 basis points of management buffer over 120 just allows us to manage the business with that much more flexibility.

Okay. Yes, that's really helped. I mean it basically sounds like you're saying that this isn't in any way treading on the toes of what may come next month because your ring-fenced bank has got probably 460 basis points of domestic risk add-ons. Within it, if I assume, Pillar 2A credit concentration risk of circa 60 bps or something, it's huge. So the door is still open to about 11.6% going. It may be quite a bit lower depending on what the FPC decides to do next month.

Yes, conceivably. It's certainly not trading on the toes of what might come, Jonathan, I think you're absolutely that from that perspective. This is really just about Pillar 2A in relation to Basel 3.1. The incremental point that I mentioned that is above and beyond the Basel 3.1 is really pretty small that has nothing to do with the FPB.

Our next caller is Jason Napier from UBS.