63GF.L Regulatory News (63GF)

Bank of Scotland plc

Half-Year Management Report

For the half-year to 30 June 2013

Member of the Lloyds Banking Group

FORWARD LOOKING STATEMENTS

This announcement contains forward looking statements with respect to the business, strategy and plans of Bank of Scotland plc, its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about the Bank of Scotland Group or the Bank of Scotland Group's management's beliefs and expectations, are forward looking statements. By their nature, forward looking statements involve risk and uncertainty because they relate to future events and circumstances that will or may occur. The Bank of Scotland Group's actual future business, strategy, plans and/or results may differ materially from those expressed or implied in these forward looking statements as a result of a variety of factors, including UK domestic and global economic and business conditions; the ability to derive cost savings and other benefits, including as a result of the Lloyds Banking Group's Simplification programme and to access sufficient funding to meet the Bank of Scotland Group's liquidity needs; changes to Bank of Scotland plc's, HBOS plc's, Lloyds TSB Bank plc's or Lloyds Banking Group plc's credit ratings; risks concerning borrower or counterparty credit quality; instability in the global financial markets, including Eurozone instability and the impact of any sovereign credit rating downgrade or other sovereign financial issues; market-related risks including changes in interest rates and exchange rates; changing demographic and market related trends; changes in customer preferences; changes to laws, regulation, accounting standards or taxation, including changes to regulatory capital or liquidity requirements; the policies and actions of governmental or regulatory authorities in the UK, the European Union, or other jurisdictions in which the Group operates, including the US; the implementation of the Recovery and Resolution Directive and banking reform following the recommendations made by the Independent Commission on Banking; the ability to attract and retain senior management and other employees; requirements or limitations imposed on Lloyds Banking Group plc, Lloyds TSB Bank plc and the Bank of Scotland Group as a result of HM Treasury's investment in Lloyds Banking Group plc; the ability to satisfactorily dispose of certain assets or otherwise meet the Lloyds Banking Group's EC state aid obligations; the extent of any future impairment charges or write-downs caused by depressed asset valuations, market disruptions and illiquid markets; the effects of competition and the actions of competitors, including non-bank financial services and lending companies; exposure to regulatory scrutiny, legal proceedings, regulatory investigations or complaints, and other factors. Please refer to Lloyds Banking Group plc's latest Annual Report on Form 20-F filed with the US Securities and Exchange Commission for a discussion of certain factors together with examples of forward looking statements. The forward looking statements contained in this announcement are made as at the date of this announcement, and the Bank of Scotland Group undertakes no obligation to update any of its forward looking statements.

CONTENTS

FINANCIAL REVIEW

Principal activities

Bank of Scotland plc (the Bank) and its subsidiaries (together, the Group) provide a wide range of banking and financial services in the UK and overseas.

During the half-year to 30 June 2013, the Group earned revenue through interest and fees on a broad range of financial services products including current and savings accounts, personal loans, credit cards and mortgages within the retail market; loans and capital market products to commercial, corporate and asset finance customers; and private banking.

Review of results

The Group recorded a profit before tax of £1,031 million for the half year to 30 June 2013 compared to a loss before tax of £660 million for the half year to 30 June 2012.

Total income increased by £666 million, or 19 per cent, to £4,164 million for the half year to 30 June 2013 from £3,498 million in the half year to 30 June 2012.

Net interest income decreased by £105 million, or 3 per cent, to £3,296 million in the half year to 30 June 2013 compared to £3,401 million in the same period in 2012. This decrease reflected lower lending volumes; however the net interest margin on relationship lending and similar interest-earning assets improved.

Other income increased by £771 million to £868 million in the half year to 30 June 2013, compared to £97 million in the same period in 2012, largely due to a £253 million improvement in net trading income and a £536 million improvement in other operating income. The improvement in net trading income was driven by the impact of market conditions relative to the half year to 30 June 2012. Net fee and commission income was £18 million, or 5 per cent, lower at £351 million in the half year to 30 June 2013 compared to £369 million in the half-year to 30 June 2012. Fees and commission receivable were £26 million, or 5 per cent, lower at £500 million in the half year to 30 June 2013 compared to £526 million in the same period in 2012. A £3 million increase in credit and debit card fees was more than offset by a £9 million decrease in current account fees and an £18 million decrease in other fees receivable. Fees and commissions payable were £8 million, or 5 per cent, lower at £149 million in the half year to 30 June 2013 compared to £157 million in the same period in 2012. Other operating income was £536 million higher at £264 million in the half year to 30 June 2013 compared to a deficit of £272 million in the same period in 2012, with the deficit in 2012 reflecting losses on sale of assets which were outside of the Group's risk appetite.

Total operating expenses decreased by £338 million, or 18 per cent, to £1,538 million in the half year to 30 June 2013 compared to £1,876 million in the half year to 30 June 2012; partly reflecting a reduced regulatory provisions charge of £52 million in the half year to 30 June 2013 compared to £240 million in the same period in 2012. Excluding regulatory provisions, other operating expenses decreased by £150 million, or 9 per cent, to £1,486 million in the half year to 30 June 2013 compared to £1,636 million in the half year to 30 June 2012 as a result of cost savings arising from the rundown of portfolios of assets which are outside of the Group's risk appetite.

Impairment losses decreased by £687 million, or 30 per cent, to £1,595 million in the half year to 30 June 2013 compared to £2,282 million in the half year to 30 June 2012. The lower charge reflected the substantial reductions in the portfolios of assets which are outside of the Group's risk appetite.

On the balance sheet, total assets were flat at £561,978 million at 30 June 2013, compared to £561,433 million at 31 December 2012, as funds released by the continuing rundown of assets which are outside of the Group's risk appetite were placed with fellow Lloyds Banking Group subsidiaries. Loans and advances to customers decreased by £24,327 million, or 7 per cent, from £329,636 million at 31 December 2012 to £315,309 million at 30 June 2013, reflecting the rundown of assets outside of the Group's risk appetite. Shareholders' equity increased by £831 million, from £18,114 million at 31 December 2012 to £18,945 million at 30 June 2013, principally as a result of the profit attributable to equity shareholders.

The Group's core tier 1 capital ratio increased to 12.2 per cent at the end of June 2013 from 9.8 per cent at the end of December 2012, principally driven by a reduction in risk-weighted assets and the retained profit for the period. The total capital ratio increased to 21.7 per cent from 17.4 per cent at 31 December 2012.

FINANCIAL REVIEW (continued)

Capital ratios

PRINCIPAL RISKS AND UNCERTAINTIES

At present the most significant risks faced by the Group are:

CREDIT RISK

Principal risks

Adverse changes in the credit quality or behaviour of the Group's borrowers and counterparties would be expected to reduce the value of the Group's assets and increase the Group's write-downs and allowances for impairment losses. Credit risk can be affected by a range of macroeconomic, environment and other factors, including, inter alia, increased unemployment, reduced asset values (including residential and commercial real estate), lower consumer spending, increased consumer indebtedness, increased personal or corporate insolvency levels, reduced corporate profits, increased interest rates and/or higher tenant defaults. The Group has exposure to commercial customers in both the UK and internationally, including Europe and Ireland, particularly related to commercial real estate lending, where the Group has a high level of lending secured on secondary and tertiary assets. The Group's portfolios may be impacted by some or all of these factors and the possibility of further economic downside risk remains.

Mitigating actions

The Group takes many mitigating actions with respect to this principal risk. The Group manages its credit risk in a variety of ways such as:

- through prudent and through the cycle credit risk appetite and policies;

- clearly defined levels of authority (including, independently sanctioned and controlled credit limits for commercial customers and counterparties, sound credit scoring models and credit policies for retail customers);

- robust credit processes and controls, including those governing forbearance; and

- well-established Group and Divisional committees that ensure distressed and impaired loans are identified, considered, controlled and appropriately escalated and appropriately impaired (taking account of the Group's latest view of current and expected market conditions, as well as refinancing risk).

Reviews are undertaken at least quarterly and incorporate internal and external audit review and challenge.

CONDUCT RISK

Principal risks

As a provider of a wide range of financial services products distributed through numerous channels to a broad and varied customer base, and as a participant in market activities the Group faces significant conduct risks, such as: products or services not meeting the needs of its customers; sales processes which could result in selling products to customers which do not meet their needs; failure to deal with a customer's complaint effectively where the Group has got it wrong and not met customer expectations; and behaviours which do not meet market standards. Given the high level of scrutiny regarding financial institutions' treatment of customers and business conduct from regulatory bodies, the media and politicians, there is a risk that certain aspects of the Group's current or historic business may be determined by the Financial Conduct Authority (FCA) and other regulatory bodies or the courts as not being conducted in accordance with applicable laws or regulations, or fair and reasonable treatment in their opinion. The Group may also be liable for damages to third parties harmed by the conduct of its business.

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

Mitigating actions

The Group takes a range of mitigating actions with respect to this principal risk with clear and visible leadership from the top. These actions are being developed within the Group's Conduct Strategy initiative, including:

- To support the Group's strategy to be the best bank for customers: the Group is enhancing its approach to business strategy and planning, with the customer at the heart; it is continuing its journey to industry-leading complaints performance; its simplification programme is making customer interactions easy and straightforward.

- To support the transparency and simplification of the Group's products: the Group is enhancing its conduct risk appetite statements, with detailed supporting MI and customer analytics to track continuous improvement, and a robust product governance framework; it is developing its framework for rectifying and undertaking root-cause analysis of conduct issues where they arise; it is improving how it keeps a record of the delivery of fair outcomes for customers.

- To support how colleagues deliver the right outcomes for customers: the Group is enhancing recruitment and training and how it manages performance with clearer customer accountabilities; it is reviewing and developing how rewards and incentives drive customer-centric behaviours; it is strengthening sales processes and frameworks to deliver consistently fair outcomes for customers.

- This is supported by policies and standards in key areas, including product governance, customer treatment, sales, responsible lending, customers in financial difficulties, claims and complaints handling. The Group develops colleagues' awareness of these and other expected standards of conduct through these and other policies and standards and codes of responsibility.

- The Group actively engages with regulatory bodies and other stakeholders in developing its understanding of current customer treatment concerns to ensure that the implementation of the Group's Conduct Strategy meets evolving stakeholder expectations.

MARKET RISK

Principal risks

The Group has a number of market risks, the principal one being:

- Interest rate risk: This risk to the Group's banking income arises from competitive pressures on product terms in existing loans and deposits, which sometimes restrict the Group in its ability to change interest rates applying to customers in response to changes in interbank and central bank rates. A further related risk arises from the level of interest rates and the margin of interbank rates over central bank rates.

Mitigating actions

Market risk is managed within a Board approved framework using a range of metrics to monitor the Group's profile against its stated appetite and potential market conditions.

High level market risk exposure is reported regularly to appropriate committees for monitoring and oversight by senior management.

A variety of risk measures are used such as:

- Sensitivity based measures (e.g. sensitivity to 100 basis points move in interest rates)

- Percentile based measures (e.g. Value at Risk)

- Scenario/stress based measures (e.g. single factor stresses, macroeconomic scenarios)

In addition, profit and loss triggers are used in the Trading Books in order to ensure that mitigating action is discussed if profit and loss becomes volatile.

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

- Interest rate risk: Exposure arising from the different repricing characteristics of the Group's non-trading assets and liabilities, and from the mismatch between interest rate sensitive assets and interest rate sensitive liabilities, is managed centrally. Matching assets and liabilities are offset against each other and interest rate swaps are also used to manage the residual exposure to within the non-traded market risk appetite. Exposure arising from the margin of interbank rates over central bank rates is monitored and managed within the non-traded market risk appetite through appropriate hedging activity.

OPERATIONAL RISK

Principal risks

The principal operational risks in the Group are:

- IT systems and resilience: The risk of customer impact and/or loss to the Group resulting from failure to develop, deliver or maintain effective IT solution.

- Information security: The risk of information leakage, loss or theft.

- External fraud: The risk of loss to the Group and/or its customers resulting from an act of deception or omission.

- Customer process: The risk of new issues, process weaknesses and control deficiencies within the Group's customer facing processes.

Mitigating actions

TheGroup operates a robust control environment with regular review and investment. Contingency plans are maintained for a range of potential scenarios with a regime of regular disaster recovery exercises, both Group specific and industry wide. Significant investment has been, and continues to be made in IT infrastructure and systems to ensure their resilience, security and to enhance the services they support.

The Group adopts a risk based approach to mitigate the external fraud risk it faces, reflecting the current and emerging external fraud risks within the market. This approach drives an annual programme of enhancements to the Group's technology, process and people related controls; with emphasis on preventative controls, supported by real time detective controls wherever feasible. Through Group-wide policies and operational control frameworks the Group has developed robust fraud operating model with centralised accountability. Over the past six months the Group has revised and enhanced its incident management capability to increase its speed of response to customer impacting incidents.

Material operational risks are reported regularly to appropriate committees, attracting senior management visibility, and are managed via a range of strategies - avoidance, mitigation, transfer (including insurance), and acceptance.

PEOPLE RISK

Principal risks

The Group's management of material people risks is critical to its capacity to deliver against its strategic objectives and achieve Lloyd's Banking Group's aim to be the best bank for customers. Over the coming six months the Group's ability to manage people risks successfully is likely to be affected by the following factors:

- The ongoing pace of change may disrupt the Group's ability to lead and manage its people effectively in some areas;

- The developing and increasingly rigorous and intrusive regulatory environment may challenge the Group's people strategy, remuneration practices and retention; and

- Negative political and media attention on banking sector culture, sales practices and ethical conduct may impact colleague engagement, investor sentiment and the Group's cost base.

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

Mitigating actions

The Group takes many mitigating actions with respect to people risk. Key examples include:

- Strengthening the risk and customer focused culture amongst colleagues by developing and delivering a number of initiatives that reinforce behaviours to generate the best possible long-term outcomes for customers and colleagues;

- Continuing to ensure strong management of the impact of organisational change and consolidation on colleagues;

- Embedding the Group's Codes of Personal and Business Responsibility across the Group;

- Reviewing and developing incentives continually to ensure they promote colleagues' behaviours that meet customer needs and regulatory expectations;

- Focusing on leadership and colleague engagement, through delivery of strategies to attract, retain and develop high calibre people together with implementation of rigorous succession planning;

- Maintaining focus on people risk management across the Group; and

- Ensuring compliance with legal and regulatory requirements related to Approved Persons and the Remuneration Code, and embedding compliant and appropriate colleague behaviours in line with Group policies, values and its people risk priorities.

LIQUIDITY AND FUNDING RISK

Principal risks

Lloyds Banking Group is dependent on confidence in the short and long-term wholesale funding markets. Should the Group, due to exceptional circumstances, be unable to continue to source sustainable funding, its ability to fund its financial obligations could be impacted. The key dependencies on successfully funding the Group's balance sheet include:

- continued functioning of the money and capital markets;

- the continuation of Lloyds Banking Group's strategy of right-sizing the balance sheet and development of the retail deposit base which has led to a significant reduction in the wholesale funding requirement;

- limited further deterioration in the UK's and the Group's credit rating; and

- no significant or sudden withdrawal of customer deposits.

Mitigating actions

Liquidity and funding risk appetite for the banking business is set by the Board and this statement of the Group's overall appetite for liquidity risk is reviewed and approved annually by the Board.

- The Group's liquidity and funding position is underpinned by its significant customer deposit base, and has been supported by stable funding from the wholesale markets with a reduced dependence on short-term wholesale funding;

- Daily monitoring and control processes are in place to address regulatory liquidity requirements. The Group monitors a range of market and internal early warning indicators on a daily basis for early signs of liquidity risk in the market or specific to the Group;

- The Group carries out stress testing of its liquidity position against a range of scenarios, including those prescribed by the Prudential Regulatory Authority (PRA) on an ongoing basis. The Group's liquidity risk appetite is also calibrated against a number of stressed liquidity metrics; and

- The Group has a contingency funding plan embedded within the Group Liquidity Policy which has been designed to identify emerging liquidity concerns at an early stage, so that mitigating actions can be taken to avoid a more serious crisis developing.

PRINCIPAL RISKS AND UNCERTAINTIES (continued)

STATE FUNDING AND STATE AID

Principal risks

HM Treasury currently holds 38.7 per cent of Lloyds Banking Group's ordinary share capital. United Kingdom Financial Investments Limited (UKFI), as manager of HM Treasury's shareholding, continues to operate in line with the framework document between UKFI and HM Treasury, managing the investment in Lloyds Banking Group on a commercial basis without interference in day-to-day management decisions. There is a risk that a change in Government priorities could result in the framework agreement currently in place being replaced leading to interference in the operations of the Group.

In addition, Lloyds Banking Group is subject to European State Aid obligations in line with the Restructuring Plan agreed with HM Treasury and the EU College of Commissioners in November 2009. This has placed a number of requirements on Lloyds Banking Group including an asset reduction target from a defined pool of assets by the end of 2014 (Project Atlantic), and the disposal of certain portions of its Retail business by the end of November 2013 (Project Verde). There is a risk that if the Group does not deliver its divestment commitments by then, a Divestiture Trustee would be appointed to dispose of the divestment, which could be sold at a negative price.

Mitigating actions

Lloyds Banking Group has received no indications that the Government intends to change the existing operating arrangements with regard to the role of UKFI and engagement with the Group.

Lloyds Banking Group continues to make good progress in respect to its State Aid commitments. In line with the strengthening of the balance sheet, the Group has made excellent progress against its asset reduction commitment and reached the reduction total required in December 2012, two years ahead of the mandated completion date. The European Commission confirmed in May 2013 to HM Treasury that the Group had satisfied and therefore was formally released from this commitment.

As announced on 24 April 2013, following the withdrawal of the Co-Operative Group from the sale process Lloyds Banking Group now intends to divest Verde through an IPO, subject to regulatory and EU Commission approval, having maintained this option throughout the process to ensure best value for shareholders and certainty for customers and colleagues. The Group has already made good progress in the creation of Verde as a stand-alone bank with a strong management team already in place and good progress made in delivering segregated IT systems on the proven Lloyds Banking Group platform. Detailed plans are in place to rebrand the business as TSB which will be visible on the high street from September this year, at which point the TSB Bank (Verde) will operate as a separate business within Lloyds Banking Group. As a result of the Co-op's withdrawal, the Group will not meet the November 2013 deadline and is currently in discussions regarding a revised timeline for disposal via an IPO, with the EU Commission and HM Treasury. To date, the Group has received no indication that the EU Commission intends to appoint a Divestiture Trustee post November 2013.

The Group continues to work closely with the PRA, FCA, EU Commission, HM Treasury and the Monitoring Trustee appointed by the EU Commission to ensure the successful implementation of the Restructuring Plan and mitigate customer impact.

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED)

CONSOLIDATED INCOME STATEMENT

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

CONSOLIDATED BALANCE SHEET

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

CONSOLIDATED BALANCE SHEET (continued)

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

CONDENSED CONSOLIDATED HALF-YEAR FINANCIAL STATEMENTS (UNAUDITED) (continued)

CONSOLIDATED CASH FLOW STATEMENT

Cash and cash equivalents comprise cash and balances at central banks (excluding mandatory deposits) and amounts due from banks with a maturity of less than three months.

NOTES

1. Accounting policies, presentation and estimates

These condensed consolidated half-year financial statements as at and for the period to 30 June 2013 have been prepared in accordance with the Disclosure Rules and Transparency Rules of the Financial Conduct Authority (FCA) and with International Accounting Standard 34 (IAS 34), Interim Financial Reporting as adopted by the European Union and comprise the results of Bank of Scotland plc (the Bank) together with its subsidiaries (the Group). They do not include all of the information required for full annual financial statements and should be read in conjunction with the Group's consolidated financial statements as at and for the year ended 31 December 2012 which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. Copies of the 2012 annual report and accounts are available on the Lloyds Banking Group's website and are available upon request from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN.

The directors consider that it is appropriate to continue to adopt the going concern basis in preparing the condensed consolidated half-year financial statements. In reaching this assessment, the directors have considered projections for the Group's capital and funding position and have had regard to the factors set out in Principal risks and uncertainties: Liquidity and funding on page 6.

As the Group's share of results of joint ventures and associates is no longer significant, this is now included within other operating income and the related asset reported within other assets; comparatives have been re-presented on a consistent basis.

The accounting policies are consistent with those applied by the Group in its 2012 annual report and accounts except as described below.

On 1 January 2013 the Group adopted the following new accounting standards and amendments to standards:

IFRS 10 Consolidated Financial Statements

IFRS 10 supersedes IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation - Special Purpose Entities and establishes the principles for when the Group controls another entity and is therefore required to consolidate the other entity in the Group's financial statements. Under IFRS 10, the Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through the exercise of power. IFRS 10 has been applied retrospectively, and in accordance with the transitional provisions included in the standard, the Group re-assessed its control conclusions as at 1 January 2013 and determined that it was not necessary to consolidate any entities that were not previously consolidated nor to deconsolidate any entities which were already consolidated.

IFRS 13 Fair value measurement

IFRS 13 has been applied with effect from 1 January 2013. IFRS 13 defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. IFRS 13 requires that the fair value of a non-financial asset is determined based on the highest and best use of the asset, and that the fair value of a liability reflects its non-performance risk. These changes had no significant impact on the measurement of the Group's assets and liabilities. The IFRS 13 disclosures required by IAS 34 are given in note 16.

Amendments to IAS 1Presentation of Financial Statements - 'Presentation of Items of Other Comprehensive Income'

The amendments to IAS 1 require entities to group items presented in other comprehensive income on the basis of whether they may potentially be reclassified to profit or loss subsequently. The statement of other comprehensive income in these condensed consolidated half-year financial statements has been revised to reflect the new requirements.

Amendments to IFRS 7 Financial Instruments: Disclosures - 'Disclosures - Offsetting Financial Assets and Financial Liabilities'

The amendments to IFRS 7 require entities to disclose information to enable users of the financial statements to evaluate the effect or potential effect of netting arrangements on the balance sheet. These disclosures will be made in the Group's financial statements for the year ended 31 December 2013.

1. Accounting policies, presentation and estimates (continued)

IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 requires an entity to disclose information that enables users of financial statements to evaluate the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. These disclosures will be made in the Group's financial statements for the year ended 31 December 2013.

Future accounting developments

Details of those IFRS pronouncements which will be relevant to the Group but which will not be effective at 31 December 2013 and which have not been applied in preparing these condensed consolidated half-year financial statements are set out in note 18.

Critical accounting estimates and judgements

The preparation of the Group's financial statements requires management to make judgements, estimates and assumptions that impact the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Due to the inherent uncertainty in making estimates, actual results reported in future periods may include amounts which differ from those estimates. Estimates, judgements and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. There have been no significant changes in the basis upon which estimates have been determined, compared to that applied at 31 December 2012.

2. Other income

3. Operating expenses

4. Impairment

5. Taxation

A reconciliation of the tax (charge) credit that would result from applying the standard UK corporation tax rate to the profit (loss) before tax to the actual tax (charge) credit is given below:

In accordance with IAS 34, the Group's income tax expense for the half-year to 30 June 2013 is based on the best estimate of the weighted-average annual income tax rate expected for the full financial year. The tax effects of one-off items are not included in the weighted-average annual income tax rate, but are recognised in the relevant period.

The Finance Act 2013 (the "Act") was substantively enacted on 2 July 2013. The Act further reduces the rate of corporation tax to 21 per cent with effect from 1 April 2014 and 20 per cent with effect from 1 April 2015. The impact of the corporation tax reductions to 21 and 20 per cent will be accounted for in the second half of 2013. The effect of these rate reductions on the Group's deferred tax balance is estimated to be a reduction in the net deferred tax asset of £0.3 billion.

6. Trading and other financial assets at fair value through profit or loss

7. Loans and advances to customers

Loans and advances to customers include advances securitised under the Group's securitisation and covered bond programmes. Further details are given in note 9.

8. Allowance for impairment losses on loans and receivables

9. Securitisations and covered bonds

The Group's principal securitisation and covered bond programmes, together with the balances of the loans subject to these arrangements and the carrying value of the notes in issue, are listed in the table below.