• For Barclays Pestle and Swot analysis, see Barclays Pestle & Swot.
• For HSBC Pestle and Swot analysis, see HSBC Pestle & Swot.
• For RBS Pestle and Swot analysis, see RBS Pestle & Swot.

1.0 INTRODUCTION 

Lloyds Banking Group is a UK based banking, insurance and financial services provider with operations in England, Wales and Scotland. In England and Wales, it operates as The Halifax and Lloyds Bank brands while in Scotland, it operates as Bank of Scotland where it has been serving Scottish customers since 1695. Lloyds Banking Group has operations in a diverse set of consumer and wholesale markets including retail and personal finance (operating as Halifax and Lloyds Bank), commercial and corporate lending (operating as Black Horse and Lex Autolease) and pensions & insurance (operating as Scottish Widows). It is part of the UK big four, referring to the four largest UK-based banking groups which also include HSBC, Royal Bank of Scotland and Barclays. Latest revenues for the year ending 31 December 2016 were  approximately £39.611 billion on operating profits (before tax) of £4.2 billion (Lloyds Bank Annual Report 2016).

2.0 RBS PESTLE analysis 2016-2017(Opportunities and threats)

2016 was a very challenging year for most British based banks but not for Lloyds Banking Group. A sustainable and responsible business model characterised by a very low risk appetite enabled Lloyds bank to ride the turbulent macro climate faced by other banks. While rivals such as Royal Bank of Scotland and Barclays continue to undergo mega restructurings and battle legacy conduct issues, Lloyds has relied on its simple low cost operating model to become currently the second largest banking group in the UK after HSBC.

2.1 Political environment

2016 was a challenging political environment for many UK banks, characterised by new regulatory capital rules (such as the EU Bank Recovery and Resolution Directive and the UK Banking Reform Act) requiring all UK banks especially those with international operations to ring-fence their core operations. These capital requirements known initially as Basel II were first implemented following the 2008 financial crisis to ensure capital strength and adequacy of banks by forcing them to have minimum capital reserves (including CET1, Tier 1 and Tier 2 capital) to absorb financial shocks, losses after the 2008 financial crisis. Beginning 2015, new Basel III capital requirements entailed banks to fund themselves with minimum Common Equity Tier 1 (CET1) ratio of 4.5% (up from 2% in Basel II) of risk-weighted assets (RWAs) by 2019. On its part, Lloyds Banking Group maintained a CET1 ratio of 13% during the year and since it focuses primarily on the UK market, it has not been as affected as much as Barclays and the Royal Bank of Scotland (Annual Report 2016).

The year also saw the introduction of a new 8 percent surcharge on bank profits by the UK government which started in January 2016 (Annual Report 2016). However, the biggest political shock was the decision by the UK to leave the EU, a move predicted to cause both political and economic upheaval and uncertainty for not only UK based firms but also the UK economy in general, at least in the short term (Douglas and Gross 2016). One such political fallout is the continued demand for another Scottish referendum in opposition to Brexit, a potential threat for Lloyds Banking Group as well as other banks with operations in Scotland like the Royal Bank of Scotland. If successful, it could force such banks to move their Edinburgh headquarters to London.

2.2 Economic environment

The economic risk and uncertainty of a UK exit from Europe poses a significant challenge to many banks including Lloyds Banking Group. Depending on the eventual international agreement between Britain and the other EU member states, the potential implications to leave the EU are many, as evidenced by the consequential decline in the value of pound sterling against the major currencies, a situation that could get worse if Britain does eventually leave the EU by 2020 (Davies 2017). For Lloyds Banking Group, Brexit does come with possible negative consequences for capital, operations and regulation, along with the impact for its employees, clients and customers (Annual Report 2016).

2.3 Social environment

The macro social environment can include changes in people’s lifestyles, fashion, labour composition, social mobility and other demographic trends that have the potential to either threaten UK banks or avail opportunities to them. One such demographic change with future potential to affect Lloyds Banking Group developed in its core UK market is the ageing British population. According to the Office for National Statistics (ONS), the UK median age has over the last 40 years risen from an average of 33 years in 1974 to 40 years in 2014 (ONS 2015). Further, it is predicted that the number of 55-64-year-olds will experience double-digit growth by 2019 meaning Britain is getting older. 

An ageing population comes with business opportunities for many businesses as pension age consumers earn and have higher disposable incomes. For Lloyds Banking Group and other banks, such a shift means a drive towards savings, investment and wealth management as a baseline service to meet the needs of pension age customers alongside credit and consumption services that have been growth drivers in the past (PwC 2016).

2.4 Technological environment

When it comes to the technological environment, the banking industry has reached a tipping point where digital capabilities are driving the evolution of banking so fast that literally every facet of banking can be accessed via digital platforms, changing consumer behaviour and expectations dramatically. Financial innovations such as the rise of FinTech firms, agile digital players that are leveraging technology to enter financial markets with simple, convenient and cost-effective products and services to customers, has especially had a significant impact on the banking industry due to their disruptive technology (PwC 2016; CapGemini 2016).

On its part, Lloyds Banking Group is perhaps better prepared to respond to these market conditions than UK rivals since it has always focussed on a multi-brand, multi-channel business model that puts digital and mobile capabilities at the front. Above it all, there is a chance for Lloyds Banking to differentiate itself technologically by investing in fraud prevention, cyber risk, IT security and the appropriate management of data in order to meet evolving customer needs (Annual Report 2016).

2.5 Legal environment

Lloyds Banking Group is currently the subject of a lawsuit brought by the Lloyds/HBOS Shareholder Action Group, which represents about 6,000 investors in Lloyds, including City institutions. The lawsuit concerns the ill-fated buyout of HBOS in 2008, a move that crippled the bank and led to a government bailout (Johnson 2009). The shareholders, who want more than £400million in settlements, claim that Lloyd’s management withheld key information from them concerning the struggling HBOS when a £12bn deal for it was struck back in 2008 (Martin 2017). This legal action represents perhaps the last remnant of financial liabilities from the pre-crisis era.

2.6 Environmental factors

The transition to a low carbon and resource-efficient future is underway, affecting almost every sector of the economy. Local environmental considerations such as air quality, flooding and natural habitats also remain a major concern. The Paris Agreement provides a framework by which the world will seek to prevent dangerous climate change but further challenges remain. Lloyds Banking Group PLC recognizes the current trends in consumers and governments demanding businesses to reduce their carbon foot print. In its 2016 Annual Report, the bank committed to reducing its own carbon foot print by buying renewable electricity and reducing use of paper in preference for online statements when communicating with customers (Annual Report 2016).

Figure 1: Lloyds Banking Group pestle analysis 2016-2017

4.0 Lloyds Banking SWOT analysis 2017

4.1 Strengths

• During the year 2016, Lloyds Banking Group sought to mitigate where possible the impact of many of the macro challenges and threats analysed in PESTLE (figure 1) such as Brexit, a shareholder lawsuit and government regulatory pressure while also benefiting from the existing opportunities such as a reduced balance sheet, and growth in mortgages and SME lending
• Strong balance sheet which means high capitalisation.
• A business model that emphasises lower operating costs gives Lloyds a cost leadership position in UK banking.
• Lloyds Bank is largest retail bank in the UK with the largest branch network.
• Low risk business model with strong focus on UK market.
• Largest digital bank with over 12 million active online users.
• Largest lender to first-time home buyers in the UK.

4.2 Weaknesses

• Lloyds Banking Group is underperforming in the SME lending market.
• Material legacy conduct issues such as the £400million Lloyds/HBOS Shareholder Action Group lawsuit regarding the ill-fated buyout of HBOS in the run-up to the 2008 financial crisis. 

4.3 Opportunities

• The strategic acquisition of MBNA’s prime UK credit card business in December 2016 represents a future avenue for growth.
• SME lending.
• The final divesture of the UK government shareholding in Lloyds on 17 March 2017 shows the bank has been fully transformed following the financial crisis and is no longer burdened with conduct issues like the Royal Bank of Scotland and Barclays which positions it better for future success (Annual Report 2016).
• Digital innovation a future avenue for growth and improving customer service experience.
• Growth in new mortgage lending market share as currently, demand for housing in many parts of the UK outstrips supply (Annual Report 2016).

4.4 Threats

• The decision of UK government to leave the EU in Brexit has led to uncertainty which is bad business.
• Regulatory pressure including new capital requirements.
• Introduction of a new 8 percent surcharge on bank profits in January 2016 by UK government.

Figure 2: Lloyds Banking SWOT analysis 2016-2017

Conclusion

While 2016 was a very challenging macro environment for many banks in the UK characterized by Brexit, restructurings and regulatory pressure, Lloyds Banking Group managed to navigate it better than its rivals. A sustainable and responsible business model characterised by a low cost operating model and low risk appetite enabled Lloyds to ride the turbulent macro climate faced by other banks and it is currently the second largest banking group in the UK after HSBC. And with the UK government divesting its final shareholding in the bank on the 17th March 2017, Lloyds is no longer burdened with any pre-crisis conduct issues like rivals. This has translated into strong financial performance. Nevertheless, given its UK focus, the banks performance is inextricably linked to the UK macro environment which leaves vulnerable to macro factors such as Brexit, a low interest environment as well as a sluggish UK economy. Nevertheless, it’s perhaps the only bank in the UK best positioned to take advantage of economic, social and technological opportunities such as growth in SME lending, growth in home mortgages as well as the digital transformation taking place in the banking industry.

References

References available upon request.

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