Group Finance Director's Report
Income Statement Analysis
Divisional financial performance can be summarised as follows:
| Year ended 31 December 2007 | Retail £m |
Corporate £m |
Insurance & Investment £m |
International £m |
Treasury & Asset Mgmt £m |
Group Items £m |
Drive £m |
Year ended 31.12.2007 £m |
Year ended 31.12.2006 £m |
| Underlying net interest income | 4,099 | 2,061 | (98) | 1,088 | 164 | 7,314 | 7,400 | ||
| Underlying non-interest income | 1,304 | 1,746 | 1,591 | 499 | 449 | 5,589 | 4,717 | ||
| Underlying net operating income | 5,403 | 3,807 | 1,493 | 1,587 | 613 | 12,903 | 12,117 | ||
| Underlying operating expenses | (2,147) | (885) | (849) | (714) | (342) | (337) | (5,274) | (4,908) | |
| Impairment losses on loans and advances | (1,294) | (602) | (116) | (2,012) | (1,742) | ||||
| Underlying operating profit | 1,962 | 2,320 | 644 | 757 | 271 | (337) | 5,617 | 5,467 | |
| Non-operating income | 87 | 4 | 91 | 70 | |||||
| Underlying profit before tax | 2,049 | 2,320 | 644 | 757 | 275 | (337) | 5,708 | 5,537 | |
| Year ended 31 December 2006 | |||||||||
| Underlying profit before tax | 2,364 | 1,776 | 581 | 617 | 350 | (241) | 90 | 5,537 | |
| Increase/(decrease) in underlying profit before tax | (13)% | 31% | 11% | 23% | (21)% | (40)% | 3% |
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Net Interest Income
Underlying net interest income fell by 1% in 2007 to £7,314m (2006 £7,400m). This reflects the impact of the disposal of Drive and acquisition of Lex in 2006 along with the use of non-interest bearing Treasury investments in 2007.
The Group net interest margin has fallen 9bps to 1.63% (2006 1.72% excluding Drive). This reflects reductions in Retail and Corporate of 12bps and 19bps respectively and a change of business mix between the divisions. Retail’s decline was driven by competitive pressure on mortgages in the first half and the increased cost of funding in the second half. Corporate’s reduction was the result of competitive pressures for new business, coupled with changes to the mix of business written.
| Year ended 31.12.2007 £m |
Year ended 31.12.2006 £m |
|
| Interest receivable | 35,022 | 26,742 |
| Interest payable | (27,708) | (19,342) |
| Underlying net interest income (including Drive) | 7,314 | 7,400 |
| Drive | (254) | |
| Underlying net interest income (excluding Drive) | 7,314 | 7,146 |
| Year ended 31.12.2007 £m |
Year ended 31.12.2006 £m |
|
| Average balances | ||
| Interest earning assets: | ||
| Loans and advances | 408,282 | 372,938 |
| Securities and other liquid assets | 40,295 | 42,741 |
| 448,577 | 415,679 | |
| Drive | (1,345) | |
| 448,577 | 414,334 | |
| Group net interest margin (excluding Drive) | 1.63% | 1.72% |
| Divisional net interest margins: | ||
| Retail | 1.66% | 1.78% |
| Corporate | 2.06% | 2.25% |
| International | 1.93% | 1.97% |
| Treasury & Asset Management | 0.05% | 0.07% |