Apr 27, 2017
Operator
Thank you for standing by and welcome to the Lloyds Banking Group Q1 2017 Interim Management Statement Conference Call. At this time all participants are in a listen only mode.
There will be a presentation by Antonio Horta-Osorio and George Culmer, followed by question-and-answer session. [Operator Instructions] Please note that this call is scheduled for one hour.
I must advise the participants today that this call is being recorded. And I’d like to hand the call over to Antonio Horta-Osorio.
Please go ahead.
Antonio Horta-Osorio
Thank you. Good morning, everyone, and thanks for joining our 2017 first quarter results presentation.
I’m going to give a shorter review of the key highlights and George will cover the financial results. We’ll then have some time for questions at the end.
Turning to Slide 1 for those of you following the website presentation, building on our strong 2016 performance, in the first three months of this year our simple, low risk, UK focused multi brand business model has continued to deliver with underlying profit increasing to GBP2.1billion and statutory profit before tax doubling to GBP1.3 billion. The group continues to deliver positive operating jaws, with stable income and lower operating cost in the quarter and our market leaving cost to income ratio has further improved to 47.1%.
UK economic performance remained strong in the first quarter and continued to benefit from lower employments and the reduced levels of indebtness. We continue to expect GDP growth in 2017 similar to the level seen in 2016 of around 2%.
Given this reverse UK economic backdrop and our low risk business model, asset quality remained strong and is stable across the portfolio, with a net asset quality ratio of 12 basis points in the quarter. This financial performance has resulted in strong capital generation of around 70 basis points in the quarter, with CET1 ratio pre dividend accrual of 14.5%, which still includes the retention of 80 basis points for the MBNA acquisition, which we continue to expect to complete by the end of June.
We’re making good progress in delivering the final year of our current strategic plan and remain focused on fulfilling our commitments to individuals, businesses and communities as set out in our Helping Britain Prosper Plan. In terms of our financial guidance, we remain confident in our ability to deliver the targets we set for 2017 and as to date improved our full year margin and AQR guidance, where we now expect to deliver a margin of close to 2.80% and the AQR insights of our existing 25 basis points guidance.
While on capital generation, given the strong first quarter performance, we now expect to be at the top ends of our 170 to 200 basis points ongoing guidance range for 2017. In terms of our asset growth, we have seen continued net lending growth in our key target growth areas of consumer finance and SME, while in global corporate we have continued to optimize for capital and returns.
With regards to the open mortgage book, where balance is continuing to decline in the first quarter, as discussed at the yearend results presentation, we have already taken measures which will stabilize and then grow the book, such that full year balances should close in line with December 2016. Finally, I’m pleased to see that the current work undertaken the last six years to transform and simplify the business has allowed the UK government to recover that investment in Lloyds.
As the government announced last Friday, GBP20.4 billion has now been returned to state including dividends on its original GBP20.3 billion investment, which further proceeds to come as UK fight completes its divestments. I would now like to pass the call over to George, who will run through the financials.
George Culmer
Thanks, Antonio, and good morning, everyone. Underlying profit for the first three months increased to GBP 2.1 billion, an increase of 1% on Q1 last year.
Underlying return on tangible equity was 15.1% and again marginally up from prior year. Net income was stable at 4.2 billion, with 1% increase and net interest income is 2.9 billion and stable other income of GBP 1.5 billion.
Operating expectation increased 30% and in line with strong statutory lease volumes in the third quarter. Operating cost of GBP2 billion down 1% through our continued focus on cost control and run rate benefits from our simplification program.
As you’ve heard this further improves our market leading cost income ratio and has driven a positive operating jaws of 1%. Our credit impairment is up 15% to 127 million with a net AQR of 12 basis points.
This comprise 23 basis points of gross impairments and around 11 of releases and writebacks. We stay ahead of expectations due to the benefits expected releases and writebacks, but we now expect for 2017 full year net AQR to be 25 basis points.
The 1% increase in net interest income was driven by expected and improved margin offset by slight reductions in average interest in the assets. NIM now stands at 2.80%, with 12 basis points higher than Q4 2016, driven by the deposit and funding costs including a full quarter benefit from the deposit we fund to implement in Q4 and the continued optimization of our wholesale funding and capital budget.
As Antonio has mentioned, we’re improving our 2017 full year NIM guidance, note that margins to be close to 2.80%. Average interest on the assets was at 3 billion in the quarter with growth in consumer finance and to me offset by reductions in global corporate and mortgages.
Global corporates average assets was at 2 billion as we continued to optimize capital and returns. While mortgages average assets was down by 2 billion, reductions between the open and closed books.
Just mentioned, we expect the open expect the open book mortgage balance sheet to stabilize and grow such as they’re close in line to 2016. Other income of 1.5 billion was slightly up on the prior year and in line with historic quarterly run rate.
This year-on-year increase was largely be consumer finance and by the fleet growth in Lex Autolease, which offset slightly weaker retail and commercial banking income while insurance was stable year-on-year and included and benefit of further bulk annuity transactions. Looking at statutory profit, statutory profit before tax doubled year-on-year to 1.3 billion, with return on tangible equity of 8.8% compared with 5.7 last year.
Market volatility and other items were 72 million in the quarter and considered with the prior year which includes of course the ECNs redemption charge. Restructuring costs were 157 million and excludes severance cost raised in final year of our current simplification program, the non-branch property rationalization and the implementation of the group’s non ring fence spend.
PPI as you know with a further 350 million during the first quarter and respond to provide PPI policy statement issued by the FCA at the end of March. It has a provision and increase the estimate improvised proactive communication arrangements for previously defended Plevin complaints and the two month extension to the time bar [indiscernible].
Other conduct as recently announced the group accepted 100 million provision to cover package and measures we’re providing to customers impacted by the HBOS Reading fraud as well as a further100 million retail conduct matters. Finally, our tax charge is 414 million, representing an effective tax rate of 32%, which is slightly above our guidance of 157 largely due to non-deductibility of conduct provisions in the quarter.
Turning now to capital, you’ve heard the group delivered solid capital generation in Q1 of 70 basis points and our CET1 ratio prior to dividend accrual increased to 14.5% at the end of March and around 18 basis points still retained to the MBNA acquisition. The 70 basis points capital generation was driven by strong underlying profit, conduct charges of around 30 basis points, offset by small benefits from positive market movements in our IFS portfolio as well as further RWY reductions.
Given this strong performance, we now expect the full year capital generations to be at the top end of our 170 to 200 basis points ongoing guidance range. Also the group’s total capital ratio also continues to remain stronger 21.9% and the leverage ratio was stable at 5.0%.
Finally TNAV, the share increased by 1.7p to 56.5p at the end of march, again this increase was driven by strong underlying profit with conduct charges offset by positive reserve movements. In summary, the group’s simple, efficient and low risk business model has continued to deliver strong statutory profit and capital generation.
The group is well positioned for future and we have today improved on net interest margin and asset quality ratio guidance for 2017. That concludes today’s presentation.
We’re now available to take questions.
Operator
Ladies and gentlemen your question-and-answer session will now begin. [Operator Instructions] Okay, we have your first question and this one comes from Chris Manners.
Please go ahead. You’re log in the call.
Chris Manners
Good morning Antonio and good morning George. Two questions from me.
And two questions I may. The first one was the interest margin and obviously a great effort in the quarter.
Nice to see the liability of repricing that and could I ask in the rest of the year ex-NVNA, are you expecting it to sort of tail off a little bit? I see you’re saying that FY 17 NIM is going to be close to 280, which will seem as the drift and maybe you could talk about why that would be essence than maybe make that firm in mortgages once pricing comes down a little bit something like that.
And the second question was on capital return, I guess you’ve build 70 basis points in Q1 despite quite a lot of below the line charges, maybe you could explain why it’s only 200 basis points of capital generation for the year? And when I look at that 200 basis points, if I look at your auto lease that will mean about GBP4.3 billion of free capital generation, which is about 6p per share.
Would it be sensible to assume that that 6p will come back to shareholders or the other thing present 9p we should sort of temper our expectation there a little bit? Thank you.
Antonio Horta-Osorio
Okay, Chris some small questions there. I mean first of all the comment , which is early in the year.
We are just a few round, we’ve had a strong Q1, but in capital generation and net interest margin. We still have nine months to be at the fold out, so this is early views of the year.
To your NIM, we are pleased with our performance. We still sit coming into this year as we hope to be sound with the mortgage book in line where we started and a NIM in excess of 270.
We’re now sticking to that volume target but stand - essentially we’ll be 280, we’ll be close to 280. In terms of managing through the year, that will be also an option.
There is a bit around scale, I mean I appreciate your focus upon this, but the one or two basis points is not material in the overall shape of the group. We’ve already taken a number of the actions or plan to do in terms of reading through the mortgage book.
There will be a number of small moving parts in terms of where rates go in terms of our competitors respond, in terms of just how we manage the spread between the two, but I wouldn’t read anything overly into that. We’re pleased with where we got to, we’ve got our volume targets aware of, which has essentially improved on NIM targets and the taint in those volume goes and I think that’s the key there.
And then similarly on the capital, yeah, 70 basis points is good, stronger capital generative. What we’re essentially doing, as I said, it’s the start of the year.
We’re essentially locking the performance, we’re talking about the 170 to 200, we’re locking in that, that out performance that we’ve seen in Q1, we’re pleased with those positive trends. Underlying profit is strong, below the line charges are well down on target and that’s true.
How we use, digging into the last part of your question, again you’ve heard the answer before. We’re going to stay the same, in terms of how we use that capital will be decided by the board, but that will be yearend, so I’m not going to speculate what it might open to, but your math was sort of correct, but that is the decision for the board and the board will take that as a deferred return.
Christopher Manners
Fair enough. Fair enough.
I was just thinking if you were going to do 200 basis points of capital generation this year, you’ve done 70 in Q1. Did that mean to save to about, call it, 43 basis points a quarter for the remaining three quarters?
But I just thought the below-the-line charges should be lower. So, it just seemed to conserve the target without [indiscernible].
Antonio Horta-Osorio
Chris, this is just to help George a little bit here. I mean we are just telling I mean we had the year end’s results presentation two months ago.
We have a strong quarter. We are basically updating the guidance, the overall performance of quarter one, and that’s what you should read into it.
Okay?
Christopher Manners
That makes sense. Thank you.
Antonio Horta-Osorio
Thanks, Chris.
Operator
Thank you. We have another question for you and this one is from Claire Kane.
Please go ahead. You are live in the call.
Apologies. Claire’s line disconnect there.
So, we now have apologies to pronunciation. Raul Sinha, please go ahead.
You are live in the call.
Raul Sinha
Good morning, Antonio. Good morning, George.
Can I just start with NIM please? And maybe trying to get your thoughts on both the asset and liability side, so on the NIM, if you could talk about why you haven’t seen more asset pressure in the first quarter.
There has been clearly a lot of very aggressive pricing out there on the mortgage side and we are just wondering why we only saw 2 basis points. Is that something specific in there that might have resulted in lower assets pressure in Q1 that will come back in the few quarters after?
And then the second part on the NIM in terms of the liability spread, have we seen all of the repricing baked in? And could you give us an update on what the size of the term deposit book is now and what the pricing on that is?
I’m just trying to understand whether we reached a plateau in terms of fall of liability costs and then from here should we expect that to be no more repricing tailwinds or there is more to come after for example?
George Culmer
It’s George. So, I mean, dealing with the second one, so in terms of the sort of base rate cuts in price [indiscernible] through in terms of I think that taints back to that particular event.
And in terms of your question, within my retail savings book, on the savings side about 169 billion, which is a couple of billion down where it was at the year end and the cost of those is about 67 and it was 62, 63 in terms of efficiency [ph] that’s come down. But beyond that, we do always continue to optimize.
I don’t know if you heard this before, but in terms of the funding, well, just in terms of retail, commercial, and the wholesale side of things as well, but also the commercial funding, commercial bank is going up from 133 to 136 billion and again those deposits are costing us considerably inside of 57. So, we continue to optimize cost commercial retail.
And again on the wholesale side of things, obviously we were able to do a number of things back end of the last year in terms of return on extensive funding and this year we’ve drawn and we will continue to draw the TFS allowance, which we will utilize that as well. So, the actions are specifically related to the base cut of finish.
I mean going forward, we will continue to manage as we have done and there is always - some volumes due that manage it on a sort of tactical basis, the things related to base rate cut. We will continue to manage the individual balances between the commercial and retail and then the spread between customer balances and wholesale is part and parcel of what we do and that has no finish.
On the NIM, I don’t know, look, in terms of managing that asset, what you see is the solid evidence of how we are managing the asset side of the portfolio and we are down a few basis points as we’ve been down a few basis points in the last few years, but it’s our ability to use the multi-brand approach on channels in terms of minimizing those asset classes, so managing that margin volume trade off. Yes, the mortgage market does remain top.
You know what our goal is, though. But it is simply an evidence of how we are able to manage across the brand.
Raul Sinha
Okay. Can I have a follow-up, George?
Just on IFS 9, I did ask this earlier as well. I’m hoping I might get a better answer now, because I think [indiscernible] it’s a few tens of basis points, so this integral can cover.
Would have you any updated thoughts on the impact of first line?
George Culmer
Okay. I’m not sure you are going to get a better answer.
No, we will update later in the year in terms of what the impact [indiscernible] I think virgin came out with the number as well. We will update later in the year.
Please don’t take that in any way that the project is behind. Project is exactly where we want it to be and we are progressing through in terms of understanding the balances et cetera.
As you know, it is still evolving to its capital treatment, but we will update later in the year, but please don’t take that as we are behind or anything like that.
Raul Sinha
Great, thanks very much.
George Culmer
Thanks, Raul.
Operator
Thank you. We have another question for you and this one is from Chris Cant.
Please go ahead. You are live in the call.
Christopher Cant
Good morning. Thanks for the call, guys.
I just wanted to follow-up on some of the past commentary linking Antonio to various other roles in the banking industry. Obviously you’ve been with Lloyd now for a number of years, successfully helped the government exit his position essays more profit.
Now I’m just wondering if you could speak to your sort of happiness at Lloyd. Are you likely to stay for the foreseeable future?
Thanks.
Antonio Horta-Osorio
Yeah, well, if you heard my past call, you heard the answer. I mean I really haven’t got anything that question I’m happy here.
I’m not here for those so many years as you say. This is the great bank.
We have lots to do. We have the MBNA transaction to close to integrate.
There is always more to do in the strategy and I really don’t have anything to add to what I have said previously.
Christopher Cant
Okay. Thanks.
Operator
Thank you. We have another question for you.
Apologies for pronunciation. And this one is from Rohith Chandra-Rajan.
Please go ahead. You are live in the call.
Rohith Chandra-Rajan
Hi. Good morning.
I’m Rohith Chandra-Rajan from Barclays. Can I just come back to the NIM?
As you said, you sort of - you gave this guidance a couple of months ago and it’s improved. I’m just wondering if you could help us really understand what - it sounds like the Q1 turn has been better than you are expecting and you think that will be largely sustained through the year based on your comments to Chris’ question earlier.
I mean, is the deposit repricing piece which is also the biggest moving part in the quarter that turned out better than you expected or is there anything else going on there? So, that will be the first one.
And then second is on the open mortgage book, just to understand sort of the - if you could remind us sort of the you are going to be taking there and is it reasonable to expect stabilization in Q2 and maybe growth in the second half of year, is that the right sort of trajectory? Thank you.
Antonio Horta-Osorio
Okay. Let me - it’s Antonio.
Let me add some color because I already answered that question. But you want some color and so I will give you some color on this.
So, we are the only bank in the UK that operates with the multi-brand model as you know. I have repeatedly stated in these calls that the multi-brand is a very interesting strategy, because different customers have different preferences and gives us additional levers in order to manage our margin.
And as I told you as well, those referendum and given our very low risk profile, we’ve had a normal influx of deposits especially on the Lloyds brand as I said and on the commercial banking side, which enabled us to continue our work of managing margin pruning as a high cost of deposits. So, this has continued as we have said at year end.
And relating to the previous questions and George’s answer, we basically see the environment the same. We continue to expect the competitive market in mortgages to drive spreads slightly down.
It has been happening over the last few quarters. And as George said, we still have the cost of deposits at 67 basis points build the average of the sector and we will continue within a multi-brand strategy to bring the cost of the deposits also down as the asset prices are coming down.
And we believe the margin as a consequence will be closer to 80, which is on the guidance. So, we manage as you know the balance sheet in an integrated way top down.
What is really important for us we believe is the right thing to do is to focus on the difference of the asset as a liability margin. Things have been going a bit better than we expected.
And as George said, one quarter already went by and therefore we are confident of increasing the guidance of the margin. The strategy we have been following is very much the same we have been following over the two years and this is very much a Lloyds’ specific strategy.
I would say given out multi-brand model underway we manage margin. On the mortgage open book…
Rohith Chandra-Rajan
Sorry, Antonio. Could I just clarify on that?
In terms of the piece that is going better, it sounds I think from your comment that the deposit or pricing is perhaps come a bit better, because you obviously had a lot of inflows and you can manage by brand. Is that the right interpretation?
Antonio Horta-Osorio
The right interpretation is that we continue to attract deposits in a very, very easy way I would say, given our low risk perception the power of our brands. And we have been able to execute our strategy well as we intended and the fact that in the quarter things went very well.
We are a little bit like we are telling you on the capital generation we are banking the results achieving quarter one which we think are sustainable. That’s why we are telling you that the margin we achieved is a margin which is sustainable and that’s why we are saying we’ll be close to 280 in the year.
But it is the same type of actions we had been following, but of course plans are one thing and the executions are another. We have continued to execute well.
One quarter has gone by and therefore we are confident to create our margin guidance. On the open mortgage book, as George said, we have already taken the actions in order to, as we said at year end results, have the book at year end at the same level at the end of 2016 that as you know, applications come in.
You have approvals, which take a little bit of time, not much, but then you have normally 90 to 120 days between approvals and completions and that’s why there is normally a lag time between actions and you are seeing the mortgage completing on the books, but we have already, as we build that, taken the measures, which will stabilize the group and then make it growth of the same levels at the end of 2016.
Rohith Chandra-Rajan
Okay. Thank you very much.
Operator
Thank you. We have another question for you and this one is from Joseph Dickerson.
Please go ahead. You are live in the call.
Joseph Dickerson
Hi, good morning guys. Two question if I may.
You mentioned in your press release about reductions in the global corporate portfolio. Can you discuss through some of the rationale behind that reduction and how much more reduction we might see directionally over the remaining quarters of the year, presumably that’s a fairly high RWA density product and free capital for you?
So, any steer on that would be helpful. And then secondly, just given your capital position, the current share price, the government hopefully in the next few weeks, what are the hurdles to pursuing a share buyback with some of your excess capital here?
Is it the same hurdle as, say, dividend accrual or is it easier to get done from a regulatory standpoint? Thanks.
George Culmer
Yeah, so going back to your first question, this isn’t the new trend. This goes back to four, five years, I think with Antonio and Andrew coming onboard and looking at the return on risk weight, the corporate business, commercial business utilized, I’ll go back then, I forgot the precise number, but I think it was about 120 billion or something for RWA with the return, I forgot the number, but it was inadequate and we set those targets, which we’ve beaten and exceeded.
And to your point entirely, we deliberately set targets for that is 5 to 10, but we take it very close view in terms of our RWA usage and optimization. And I think if you look at the asset base, I think this year versus last year, I think that goes down from 17% in terms of asset base and what that represents is this discipline on making sure that the relationships that we have already and the returns that we want.
So, these are relationships that I think that are helping the UK prosper but are also driving the returns that we want from our business and we are very disciplined in that and Andrew’s team has spent an awful lot of time working on that and what you see is the continuation of that this comes through with results with time.. So, I sort of hesitate because to give you a target on it, but I will say that that approach continues and we will continue to focus and make sure that we are making appropriate return on the RWA.
It seems that approach is driven to date, but we will continue with that approach as we move forward. In terms of the second part, [indiscernible] I don’t think now is the appropriate time to have discussions between merits and specials and buy backs buybacks et cetera and sort of going back to the older question.
We, the board, will take a decision at the appropriate time in terms of surplus capital, how we might use that surplus capital and we will have that decision [indiscernible] will be a part of that discussion. But I don’t think now is the appropriate time to go through what the rationales might be.
But the board will make a decision at the appropriate time. So, I’m sure that precisely the answer.
Joseph Dickerson
Thanks.
Operator
Thank you. We have another question for you.
This one is from Jonathan Pierce. Please go ahead.
You are live in the call.
Jonathan Pierce
Good morning. I’ve got two.
Actually the first one is on net interest income again. Sorry about this.
Can I just try and understand your bridge between the fourth quarter number and Q1 of this year and a slightly different way to the one you presented. Is this math broadly correct?
Over the last three months you’ve had about 5 basis point improvement in margin, because of tier 2 redemptions in December 2016. I guess there is some additional margin from the TFS as well and actually just as a broader point on that, can you update us as to how TFS you now have, I am assuming this has probably added a couple of basis points on to the margin as well?
So, then we are up to an incremental 7, 8 basis points and then the rest is just a combination of deposit asset rates and mix. Is that another way of thinking about the movement in Q1?
George Culmer
Where we show is about 3 basis points. So, in terms of wholesale funding, which obviously would have been you call out relative and some of it is because in Q4, some of the things you talked about, I forget the precise dates, Jonathan, but they would have had a beneficial at the moment.
We did the exercise and drew the funds on the back end of last year. So, you may be right in absolutes.
But I think some of your basis points, and again I forget when we actually did them, it would have been - we would draw in TFS back end of last year. We would do in these tier 2 sub redemptions in Q4.
And going back to what we always say, well I mean, [indiscernible], but again we do manage to think it’s time, so when TFS was announced and launched, we went through every single piece of our funding and in terms of racking and stacking in terms of expense and that’s not just in terms of headline rate, but in terms of the liquidity costs and that’s how we managed the bank and we’ve got the ability, that advantage we have to look across entire balance sheet and look what’s the most efficient form of funding is. So, [indiscernible] probably some of the benefit was probably in December, in Q4 of last year.
You are right on TFS. I mean we will be a full utilizer of TFS and I think we talk about I think about 20 billion, I think it’s our estimate of capacity on that.
We have drawn to date, we have drawn about half of that and, that is, in this year we’ve drawn about 6 billion, so that would have been obviously 4 billion in last year. So, we are on par and we expect that would be drawn essentially as an even periods as you move through the back end of it, as you move through the rest of this year rather.
Jonathan Pierce
Okay. That’s very helpful.
Thanks for that. The second question is on non-interest income.
Just trying to understand maybe ahead of the interim, some of the detail around non-interest income and this too bets really to this question insurance income you’ve commented as flat year-on-year. Now, I don’t know what the number was in in Q1 last year for experience variance in the insurance company but it was quite big in first half of 2016.
So, is there any experience variance in the Q1 numbers? And then the second part of this non-interest income question, the AFS portfolio fell by about GBP2 billion in the quarter.
I am just wondering whether you already associated AFS gains in the non-interest income in Q1 therefore.
George Culmer
Yeah, and that will be, I mean, realized in some of the gains possible, but also in Q1 of this year, that would have been about 40, 50 million, but that would have been a number in last year’s Q1 as well, which I don’t have to hand. So, some of the gains will be sort of a common feature of that.
The insurance, thinking back to last year, in terms of experience variance in insurance - within H1 I doubt that would have been in Q1 last year and there is no big experience variances in Q1 this year for insurance. We main check I think in my presentation talk about new issues which was added about £14 million to this [indiscernible] and I don't think it was a Q1futre from last year as well.
I think it's an experience rather than I think over Q2 last year, I will check that.
Jonathan Pierce
Okay, that's really helpful, thank you.
George Culmer
Okay.
Operator
Thank you. We have another question for you and this one comes from Fahed Kunwar.
Please go ahead, you’re live in the call.
Fahed Kunwar
Hi, good morning. Just a few factual questions, just so I understand the 57 bps cost of deposit, I think Antonio that you called out, is not versus the 69 bps if you disclosed in full year 2016 as I want to make sure it's kind of like-for-like comparison.
And the second question was on your nip case, I mean you've talked about influx of deposits giving you maybe there is deposits you had like about 25% growth in non-interest bearing accounts in 2016 over 2015. Have you had kind of similar kind of run rate of growth in this quarter?
And last question is on that open mortgage book of £300 billion if AIEA that you cut hoping to hit, does that mean x-MD&A [ph] you should be hitting the kind of £435 billion total AIEA mark kind of flattish on Q4 2016 or slightly up? Thank you.
Antonio Horta-Osorio
In terms of average probably you just talked as for loans advance is actually good, I think this year so this quarter and we close that £455 is the number that we’ve closed. And I think cutting to the chase we would probably expect there were about at the year-end within that you know referencing some of the things that we’ve talked about the large parties mortgages and obliviously we hope to grow expect to grow from the Q1 position to the year-end to be sort of flat as we’ve talked about year-on-year 2017 versus 2016 I would expect to see some growth in consumer finance within that, I would expect to see some growth in mid markets and SME within that, and then going back to the earlier question, global corporate will be were the sort of pricing takes us and where again our internal approach and internal review take us, but I think in sort of totality we would probably for £455 on a smart basis I would expect to be there or thereabouts I think by the end of the year.
Fahed Kunwar
That’s x-MD&A I assume.
Antonio Horta-Osorio
So that’s all x-MD&A, yeah.
Fahed Kunwar
Thank you.
Antonio Horta-Osorio
Then to the cost of deposits £257 I mean this is sort of savings to get where 69 isn't a number I recognize and I will talk the year end number, so this is a Q4 number, Q4 spot number was more like about 62 so those are the sort of Q4 spot versus Q1 spot. And then another question when non-interesting bearing sorry I miss that question.
Fahed Kunwar
Your NIBCO [ph] growth I think 2016 is around 25% versus 2015, non-interest bearing account sorry. Is what kind of rate of growth have we seen in this quarter, are you still getting a lot of space in non-interest bearing accounts on the commercial and retail side flowing to you guys, is that kind of run rate?
Antonio Horta-Osorio
Yeah develop is anything like QCA is have a black current accounts, Q1 yeah, we have some of that £66 billion compared with £63 billion at the end of last year. So I’ve been talked previously about saving, the savings I said earlier were down a couple of billion, if I look across the retail division, current accounts were up £63 billion on £66 that's Q4 2016 to Q1 2017 [indiscernible] within the commercial business, but to the overall commercial was up £133 to £136.
But we are - I will continue to see strong in terms of current account non-interest bearing account traction.
Fahed Kunwar
Great, thank you very much.
Operator
Thank you. We have another question for you, and this comes from [indiscernible].
Please go ahead you’re live in the call.
Unidentified Analyst
Yes, good morning. Just a quick couple of questions on detail actually.
One in terms of PPI, could you just tell us what the utilization rates being in the first quarter if that's okay? And then the second one was on the provision number you highlight you had some debt sales in there, is it possible to let us know roughly what that did in terms of reducing the provision charge?
Antonio Horta-Osorio
For PPI the utilization was £325 million I think in Q1 I’m saying that and thinking that thinking that and it was about £325 million in terms of utilization in Q1. But obviously we also increased the provision by £350 million, so the reality of the unutilized provision sales stands and it was basically £2.3 billion a year end it went about to £2.3 billion in the time of Q1.
In terms of tech sales and in terms of impairments provision again we talked about in terms of Nessun growth in my presentations, I think it was about 11 basis points in terms of write back some releases and what we said in the representation of those were running slightly ahead, so if you look at the growth credit experiences is kind of in line with last two year and was seen as a continuation of the same trend but right absolutely so I think when we gave our original guidance of this year. I think we said it was something other it was any about two or three basis points over the whole year of releases in my tax and what we've seen is basically most quite a lot of that has been front ended in Q1, so it's about 11 basis points.
Unidentified Analyst
So the most of the 11 basis points relates to disposal of that, disposal of…
Antonio Horta-Osorio
Yes it does, it does, so the disposals of deck in that and there are some right backs as well, I don't have to precise, well I do have the [indiscernible] in that.
Unidentified Analyst
Okay, great. Can I just come back a bit on the PPI, because it seems that your utilization rate is running pretty much flat on what it was in the second half of last year, so I mean sort of surprising to me out of you doesn’t see any slowdown in utilization rate?
I think it continues at the current rate clearly 2.2 is not going to get you through to August 29.
Antonio Horta-Osorio
Yes, you still one of the remediation type stuff, there were bit around the hedge, but I mean if we’re running at £100 million, just around £100 million per month, I expect that to come down to sort of £70 million, £80 million per month so I do expect utilization to come down.
Unidentified Analyst
Did you know when you might expect at what if it doesn't come down where you have to start stopping up again?
Antonio Horta-Osorio
I think it comes down to in the course of this year in terms of that on PPI as we've said remember we have this flat to return validate just under 8000 currently running ahead of that 9000, we said, we got a flat rate sometimes it will be about sometimes we below sometimes is currently sort of running ahead, so we will keep an eye of that and of course PPI remain uncertain but we do have quite a lot we have a significant amount of unusualized provisions.
Unidentified Analyst
Okay, great. Thank you so much.
Operator
Thank you. We have another question for you and this comes from in Ian Golden, please go ahead, you’re live in the call.
Ian Golden
Yes morning, sorry it's just a repeat question on the bullish volume guidance on paid six which you’ve already discussed. I wondered if you could be a bit more specific from the open mortgage guidance, can you perhaps give me a quarter-on-quarter rise in the approvals pipeline for more could use and to discuss any product variation in terms of the measures you’ve already taken in order to deliver the anticipated net growth through the last three quarters of the year?
Thanks.
Antonio Horta-Osorio
Hi, I’m sure I’m going to disappoint you. As you have I think you know yourself in terms of action taken of flow through that could be 90, 120 days plus some reaction which might already be seen in the market have been taken.
As I look through I don’t give you a quarter-on-quarter prediction we were down obviously Q1 versus Q4, let’s see whether we are in Q2 customers more to see on building thereafter in second half. But in terms of specific price in specific offerings what we what we do in retention strategies et cetera, I'm afraid I'm not going to share for us I mean in terms of how we manage the book not for you know some dissemination communications and discussion so I'm sorry for disappointing.
Ian Golden
No that's right, I'll just take it as sort of ongoing fine tuning very much to the margin story where you continue to outperform. Okay thank you.
Operator
Thank you. We have another question for you and this comes from Robert Nobel.
Please go ahead you’re live in the call.
Robert Nobel
Good morning, I just have a few questions on the consumer finance market at the various regulatory proposals coming out of the CA and financial stability review. Can you give us some numbers on your level of persistent that is the amount of the consumer credit, but which is on effective interest rate, how much is on balance transfer and what impact you actually see from the SCA paper?
Antonio Horta-Osorio
Okay let’s follow on that. So yes okay, couple weeks back and also some of those specific questions they talked about trouble sort of problem debt and I think I talked about an industry about 18% either estimate of percentage would be in the sort of mid-single digits, 6%, 7% of the order.
And I think looking at MBNA it would be of a similar percentage so they said the market has changed we have as much significantly reduced amounts of that and what that reflects is obviously the prime nature of both those books and now what I'm going to say these are two season books as well, which I think is relevant in that. So that would be in terms of percentages, just in terms of percentages of shares of books and those sort of things you know balance transfer or about 15% of our new business and there so about 30% of our book in terms of EIR adjustments and we're going to prudent approach to this probably demonstrating that is on our balance sheet, we really care about £60 million or £70 million in the sense of the asset and so that's the income, which it's you know it's not a material amount, it's a very small amount.
Our effective EIR rate would be about a 5% something like that. So with regard everywhere as paper was coming.
We obviously know as precise form, but it came out more or less as we were expecting to do, we reflect in that in our approach to the acquisition. We think the stats reflect just I’ll giving you reflect the quality of our book reasonably in the market, and selling on the accounting as I said we think we are prudent it’s a no material part of that.
George Culmer
And Robert just to add some color to what charges. I mean as you know we were significantly and represented in consumer finance.
We ran [indiscernible] very prudent book in general and our credit card book is much smaller than what it was six years ago. MBNA was a very interesting opportunities for us from the moments where we could address the risk of PPI where as you know we are not taking any additional PPI liability it was also with Bank of America.
We are putting the average if you are through the cycle buying season book as George and expect as we returning 17% when we have a cost of equity of man in the house, so with a significant cushion we know the portfolio very well, 20% of the MBNA customers are already our customers in other brands in other products. And therefore this would serve with a balanced portfolio where our market share in consumer finance in general gets closer to our overall market share and bought a book which is a prime book in very attractive conditions.
So I think this is quite relevant, we only do prime lending and we think that the way the market is evolving, is positive as I said this morning in terms of - in terms of the media call their families were significantly in that as six years ago they have now decrease their in depth versus GDP and the only reason why we have seen additional growth in the last two, three years is because student loans are growing significantly in student loans is government funded that so that's actually quite important.
Robert Nobel
Great, thank you. Can I just ask what's the growth in the consumer finance, but looking like picking up at the same sort of levels of 2016 or do you expected a slowdown?
George Culmer
It’s around 10% year-on-year.
Antonio Horta-Osorio
Which is in line with the previous year.
Robert Nobel
Okay thank you.
Antonio Horta-Osorio
And we are growing significantly on car financing. We are growing in line with the markets on credit cards, and we are slightly decreasing UPLs which where the market is decreasing in general UPLs and overdrafts are going down in terms of the general markets.
Robert Nobel
Thanks a lot.
Operator
Thank you. We have another question for you, and this comes from Robin Diamond.
Please go ahead. You’re live in the call.
Robin Diamond
Yeah just a couple of quick one from me, the unconsciousness mix change a thing in the deposit book away from retail savings to all of corporate balances. I just wonder if there’s any limitation to how far you would allow that to go, I would guess the corporate balance is might be a little bit kind of a bit more volatile, so I assume from that few quarters sign but is there a limit on how far you're prepared to that mix change go?
And then just a couple very quick numbers question for non-banking net interest income step down, I think you sort of indicated of what the full year stage. Is that Q1 sort of level in the sort of mid-40s is that sort of run rate that we should think about going forward.
And then really sort of transporter question but the amortization of purchased intangibles below the line had been running at full mid-80s for a long time, now that it's a step down in the first quarter again is that sort of elaboration or is that of run rate we should expect going forward? Thank you.
Antonio Horta-Osorio
Hi Robin, I do the middle one, so non-banking I said the full year we expected this to come down and yes the 47 billion or something in Q1 that you can extrapolate that and give you your annual rates, so I think you’ll get 140 I think last it was over 300 million, so significant step down in that absolute perhaps only fair value should be, I’ve just numbers not in my mind, but it should be in terms of Q1 that should be if it is in [indiscernible] that I should be that you have to extrapolate that as well. From the commercial different things going on here I mean there are possible as well is also in terms of customer relationship in terms of building the core SME mid market franchise, and utilize those long term relationship for as well.
So I mean to your part of question which I’ve got key franchisees that are going to maintain the cost of retail brand, corporate brand, et cetera and when looking at commercial deposits you know when we're very close scrutiny on this particularly sort of top end in terms of FIs et cetera in terms of what do or don’t count for liquidity purposes. You have to get start.
But there is also a large ground in terms of building out as I say mid market relationship savings and cash deposits and SMEs as well. So the trend that you've seen I talked about has been going out for few years and again it's about the reorientation of the commercial business, so it is serving the key franchise and in terms of those long standing relationships that's caught it about, so it’s been a continuing trend, and I think it probably will continue, but it's not just about the money it's about the core relationship.
Robin Diamond
Thank you.
Operator
Thank you. We have another question for you and this one comes from Andrew Coombs.
Please go ahead you’re live in the call.
Andrew Coombs
Yes, good morning. Couple of questions on the interest margin, this past is just on Page 9 of the release you have the insurance gross up adjustment on the NII and the decline in other income those numbers have been getting consistently bigger over the course of last few quarters so I think in Q1 2016 U.S.
76 million adjustment on the NII. 325 million in Q4, you’re now 499 million, so your underlying NII is coming efficiently from the statutory and likewise in the opposite direction for other income.
So perhaps if you could just elaborate on exactly what's driving that and it's a little bit on for note to be intrigued. And then more broadly on the NOI my second question would between back to asset spread point, if we look at two basis points sign you tack Q-on-Q that's quite a bit lower than the four bps that you had this time last year, it's quite a bit lower than the 14 bps that you had full 16 to disaggregate that, so is the case of do you think that is sustainable is that the normal run rate from here, is it partly a timing issue benefit based on when mortgage pricing decisions have been made and what do you think that it's likely to increase that pressure from that?
Thank you.
Antonio Horta-Osorio
The first thing I will get back, I’m not aware any long term trends in terms of the growth up in terms of difference between attributing policy holder and shareholders, so I’ll get back to you. I can’t mutually think about these and why of course long term trend that will come back and come back to you on that one.
On the access margin, yes, you're right that's what four basis points. Again I'm not going to tell you lot about I’ll give you a trend or a target depend upon what happens in the market and how we response to that.
So I'm afraid out, I’m not going to give you a trend in terms of how you made to use that forward in particularly in terms of your entrepreneurs to take your question.
Andrew Coombs
Okay, thank you.
Operator
Thank you. We have another question, apologies to pronunciation, this comes from Martin Leitgeb, sorry apologies again, please go ahead, you’re live in the call.
Martin Leitgeb
Yes good morning, no problem. Just one question from, understand it’s a difficult last name.
Being mindful of time just one question from my side, in the past we obviously discussed a lot on structural hedging and then that was really helpful. And I'm just trying to get to look for a little bit of color on how you or more importantly in the market is looking at product hedging going forward, and the thing to reason for that question is obviously we got the TFS coming in, which provide substantially cheap and variable rate funding.
And I just wonder how you think the market will adapt to that in terms of mortgage pricing whether mortgages are still being priced off to two year swap curve or increasingly not so because of the availability of cheaper funding sources elsewhere? Thank you.
Antonio Horta-Osorio
It's really hard to comment, what others are doing, when we see some of the pricing seem to be responding to some swap curve and we believe that’s been funded of the some of the funds are available now and would have some duration mismatched to the term of the mortgage. So in terms of where it conceptually, I don't think I have any particular insight in terms of why other market might take I know how we look at it and funding it’s look at what's going on in terms of swap rates and in terms of hedging those products and the cost of hedging and products is there absolute core part of that would put us together.
And I don't see that will change, I believe will change. But I don't know what other models others are playing in the market or we’ll play so I mean that's our position.
Martin Leitgeb
So for you hasn’t been any change now or you don’t…
Antonio Horta-Osorio
No, absolutely not.
Martin Leitgeb
Thanks a lot. Very clear, thank you.
Antonio Horta-Osorio
Thank you.
Operator
Thank you. We have another question for you and this one from James Edwin.
Please go ahead you’re live in the call.
James Edwin
Hi morning, its James Edwin here. Just a couple of questions please.
The first is on PPI I know you’ve talked about a bit, but I just wondering if you could call at the actual claims number for Q1 just wondering what was published year end time vantage for that? And then second just moving to capital, I think you said in the past that even if the counter cyclical buffer heads up towards 1% you could offset most of that in 13% were an annual go to number.
Just wondering if that still holds given the Bank of England's promise to keep the buffer it's zero is that is going to expire? Thanks.
Antonio Horta-Osorio
Okay, the Capital One, I mean [indiscernible] in terms of the reduction in the battle which is something that we called out. So you know we think that 13% is there are right and that remains our position and our opposition is a pretty set out was that if you get specific is you going to have a cyclical is come in they will be offset by reductions elsewhere whether that's in the two way or the action the 2B buffer and you’ve seen that two way come down, and we think we'll continue to work on that in terms of actions were taken within the bank, and the 2B we saw that come down again reflects in the derisking and again we will have that as we look for the consumes to see further progress in that.
So you know 13 is our number and remains our number and our expectation and you know as sort of what it has to comes in it's a run rate of just after percentage or whatever we expect to be able to absorb that within our current capital expectations. In terms of PPI and what is the I mean in terms of that place that is come in I think that was the question what is the question on PPI?
James Edwin
Yeah, so what are the claim volumes done in Q1?
Antonio Horta-Osorio
So the claim volumes the average weekly level as I was said earlier was running it's just above 9000, I think it’s about 9400 and we just assumed rather about 7800 so we've seen claims levels reactive and essentially coming in where we start remember, we set a straight life vision, and we sort of expected as we move through that so the peer is above and peer is for low and we've certainly seen a periods above in Q1.
James Edwin
Got it, thank you. I'm going to thank you for.
And here we have another question for you this one's from clacking Please go ahead your life in the.
Antonio Horta-Osorio
Okay.
Operator
Thank you we have another question for you, this one is from Claire Kane. Please go ahead, you’re live in the call.
Claire Kane
Hi sorry about earlier. Two quick questions please, so just to follow-up on that count cyclical capital buffer point, and if we did get the 1% announced in June, do you still think with the minimum requirement of 13% of very close to 13% you can run with zero management buffer on top of that.
That’s the first clarification point. And then secondly we had a paper route as well from the SCA early this week about mortgage raise handling and they estimated maybe 1.5 billion of address costs for the industry, is any of that take into account in the extra 100 million of conduct provisions you've taken or have you got a sense on what your liability might be for that?
Thank you.
Antonio Horta-Osorio
There's nothing in the 100 million and there's small things that I don't have a sense of what the exposures might be, so really anything. So we don't think it anything right.
You’re right make things look tougher to comes in as of June, but let's see what happens. So let’s see happen in that point?
Claire Kane
Great thank you.
Operator
Thank you. We have another question please.
This one is from David Lock. Please go ahead, you're live in the call.
David Lock
Morning and one follow-up and then another question please. The first one is on average in selling assets, I think early you were saying you're expecting the overall loan to be flat about 455 billion by the end of the year MBNA I just wondered if you if that still applies as well to the average in stunning assets whether there are some other meeting parts that might come back or go away in the coming quarters.
And then secondly on the other income, I know there was quite strong growth in consumer finance driven by contract fleet leasing growth. Just wondered if that's seasonal - if that's something that you really are pushing into and if we should expect to continue in the coming quarters?
Thank you.
Antonio Horta-Osorio
I think expect to continue to see pretty strong growth in that area whether that same level we will see what I think I did expect to see growth. And then in terms of the spot I mean it's just I’m going to expect all the fee average to follow I’m not aware of anything that would necessary to start.
So you know I would expect in the average trend to follow the spot trend pretty closely, so I wasn't trying to be devious or anything, which is easier to the spot. So I would expect the average to fall in a spot pretty closely.
David Lock
Okay, thank you.
Operator
Thank you ladies and gentlemen. That concludes your conference call for today.
And that concludes the Lloyds Banking Group Q1 2017 interim management statement conference call. You may now disconnect.