Bank of Scotland group profit falls 69% to £351m

Bank of Scotland plc — owned by Lloyds Banking Group — has reported a 2023 group profit before tax of £351 million, down 69% from £1.137 billion in 2022, “primarily as a result of lower net interest income which was partially offset by an impairment credit.”

Customer deposits fell £4.417 billion in the year to £161.9 billion.

The Bank of Scotland plc group includes a number of subsidiaries.

Group total income was £3.391 billion in 2023, a decrease of 31% on 2022.

Net interest income was £2.871 billion, down 37% from £4.547 billion for 2022, as “higher funding costs on intra-group borrowing more than offset the benefits from UK Bank Rate increases.”

Other income of £520 million was 35% higher than 2022 “driven by increases in both net fee and commission income and other operating income.”

Bank of Scotland said net fee and commission income for the year was £362 million compared to £280 million in 2022 “reflecting higher credit and debit card fees as a result of increased customer activity.”

Other operating income in 2023 of £191 million was up £138 million “as a result of gains from liability management exercises and income from the securitisation of legacy mortgages.”

Operating expenses of £3.359 billion were 6% higher than in 2022 “due to higher amortisation given increased strategic investment and an increase in internal recharges due to the effects of inflation.”

Bank of Scotland said it recognised 2023 remediation costs of £89 million (2022: £91 million) and added: “There have been no further charges relating to HBOS Reading and the provision held continues to reflect the group’s best estimate of its full liability, albeit uncertainties remain.”

It said impairment of £319 million “was a credit” compared to a charge of £632 million in 2022.

“The decrease reflects the impact of a significant write-back following the repayment of debt from a single name client, as well as an impairment credit from modest revisions to the group’s economic outlook compared to the deterioration in economic outlook captured last year,” said Bank of Scotland.

“Asset quality remains strong with credit performance across portfolios relatively stable and remaining broadly at, or favourable to pre-pandemic experience.”

Bank of Scotland said its balance sheet “has remained broadly stable compared to 31 December 2022.”

Total assets of £322.4 billion were up £2.1 billion and total liabilities of £305.8 billion were up £1.6 billion.

“Total assets of £322,430 million were up £2,189 million compared to £320,241 million at 31 December 2022,” said Bank of Scotland.

“Financial assets at amortised cost were £2,483 million higher at £311,145 million compared to £308,662 million at 31 December 2022 with increases in debt securities of £1,696 million and balances due from fellow Lloyds Banking Group undertakings of £725 million.

“The marginal increase in loans and advances to customers of £54 million consists of growth in mortgages offset by the securitisation of £2.5 billion of legacy mortgage loans during the year.

“Total liabilities of £305,831 million were up £1,636 million compared to £304,195 million at 31 December 2022 driven by increases in balances due to fellow Lloyds Banking Group undertakings of £3,811 million and an increase in debt securities in issue at amortised cost of £2,487 million as a result of senior unsecured notes and securitisation notes issued during the year.

“There was a reduction in customer deposits of £4,417 million in the year to £161,946 million. The reduction in the year included a decrease in current account balances from higher spend and a more competitive market, partly offset by growth in savings balances.

“Total equity increased by £553 million to £16,599 million at 31 December 2023 from £16,046 million at 31 December 2022. The movement reflected attributable profit for the year and issuance of other equity instruments.”

The bank’s common equity tier 1 (CET1) capital ratio reduced from 15.4% to 14.9%.

“Profit for the year, including dividends received from subsidiaries, was more than offset by an increase in risk-weighted assets and a reduction in IFRS 9 transitional relief following the end of static relief and phased unwind of dynamic relief,” said the bank.

“The total capital ratio reduced from 21.0 per cent at 31 December 2022 to 20.4 per cent at 31 December 2023, reflecting the increase in risk-weighted assets, partially offset by the increase in CET1 capital and the issuance of a new AT1 capital instrument.”

Risk-weighted assets increased by £7.170 billion to £80.254 billion.

“This includes the impact of Retail secured CRD IV model updates of £5 billion,” said the bank.

“Excluding this, lending, a modest uplift from credit and model calibrations, and increases in market risk and securitisation risk-weighted assets, the latter reflecting the increase in debt securities held, were partly offset by a reduction in operational risk and other movements.

“The bank’s UK leverage ratio increased from 4.5 per cent at 31 December 2022 to 4.8 per cent at 31 December 2023, reflecting the increase in the total tier 1 capital position.

“This was partially offset by the increase in the leverage exposure measure following the increase in lending and debt securities held, net of a reduction in off-balance sheet items.”