We expect to meet the market consensus for the full year ending 31st December 2003.
Across our lending divisions, targeted growth in business levels has been achieved with overall broad margin stability and at a credit quality consistent with expected provisioning impacts.
Controlled margin reductions in the operating divisions are therefore now likely to see only a modest fall of around 5bps this year at the Group level.
Non-performing loans and associated provisioning are in line with our expectations. Overall, we expect the rate of growth in NPAs to have slowed in the second half of the year. And as a percentage of advances, NPAs are expected to show little or no increase over 2002.
We are on track for our key cost target of 3% growth in Retail for 2003 and the second half should see a further improvement in the Group cost: income ratio (as against the first half).
Merger integration continues to proceed to plan.
Divisional operating performance
In Retail, we expect to achieve all our key published targets for sales and market shares in what will be another year of strong performance.
Mortgage lending in the second half of 2003 has maintained the strength evident in the first half, and we expect HBOS's share of net lending to be ahead of the targeted 23% level.
Sales of new credit cards and new bank accounts are both running at targeted levels and are set to achieve in excess of the I million new accounts in both cases.
We expect Intelligent Finance to breakeven by the end of 2003.
Sales of insurance in the household, creditor and motor sectors indicate a healthy increase in premiums for the full year.
Investment product sales continue to reflect strong growth in bancassurance sales offset by weaker sales through the IFA and wealth management channels.
UK sales will be ahead whilst total sales in 2003 (as measured by new equivalent premium income) are likely to match those achieved in 2002.
Business Banking has continued to make good progress in the second half of 2003 with strong asset growth leading to continued payback for previous periods of significant investment.
Corporate Banking deal flow has remained strong. Current levels of syndicated lending sell down coupled with a targeted slowing in the rate of growth of risk weighted assets is expected to deliver a strong performance for the year as a whole.
Treasury results are expected to be broadly in line with the prior year, with growth in other income offsetting lower interest margins.
Outlook
Although the UK economy is strengthening, we expect only modest increases in interest rates. The recent rise in interest rates should slow demand for personal credit. As a consequence of the recent rise in rates, we have naturally tightened our lending criteria so as to preserve the appropriate balance between risk and reward for our shareholders.
Despite higher interest rates, the stock market rally, improving corporate credit conditions and a resilient housing market all point to a better trading environment in 2004. We are confident that 2004 will be a year of further growth for HBOS and that the 2003 results will underpin the achievement of our most demanding performance goal; a 20% return on equity in 2004.
This document contains forward-looking statements, including such statements within the meaning of Section 27A of the US Securities Act of 1993 and section 21E of the Securities Exchange Act of 1934. These statements concern or may affect future matters. These may include HBOS's future strategies, business plans, and results and are based on the current expectations of the directors of HBOS. They are subject to a number of risks and uncertainties that might cause actual results and outcomes to differ materially from expectations outlined in these forward-looking statements. These factors are not limited to regulatory developments but include stock markets, IT, developments, competitive and general operating conditions.
