The ratings reflect Lloyds’ leading retail and commercial banking franchise in the UK. The group pursues a multi-brand and multi-channel strategy, maintaining the largest domestic branch network as well as being the largest domestic digital bank. In addition, the group is the only integrated UK banking and insurance provider, with ambitions to further grow in the areas of retirement and investment and general insurance and protection.

Over the last several years, management has substantially reduced the risks (asset quality, funding) associated with the acquisition of HBOS at the peak of the crisis. Scope expects management to remain committed to the group’s lower risk profile. Earnings are at a solid level and after the August 2019 deadline for PPI claims passes, this material drag on the group’s profitability should disappear. While management has lowered its guidance for return on tangible equity to around 12% for this year, beyond 2019, the target remains 14-15%.

Due to Lloyds’ domestic focus, Scope regards cautiously the still unknown consequences of the UK’s exit from the EU. However, considering the group’s strong business franchise and sound financial profile, Scope sees Lloyds being solidly positioned against potential headwinds.

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