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35. Financial instruments

Remaining maturity

	Group
2006	1 month or less £m	1-3 months £m	3-12 months £m	1-5 years £m	Over 5 years £m	Equity shares £m	Total £m
Assets
Cash and balances at central banks	6,121	—	—	—	—	—	6,121
Treasury and other eligible bills	739	1,179	3,573	—	—	—	5,491
Loans and advances to banks	63,779	10,813	7,601	121	292	—	82,606
Loans and advances to customers	166,701	47,573	49,230	61,655	141,734	—	466,893
Debt securities	8,144	5,287	11,893	31,974	69,953	—	127,251
Equity shares	—	—	—	—	—	13,504	13,504
Settlement balances	7,425	—	—	—	—	—	7,425
Derivatives	6,018	7,719	14,247	39,921	48,776	—	116,681

Liabilities
Deposits by banks	87,087	15,275	22,222	6,174	1,385	—	132,143
Customer accounts	323,331	27,246	22,027	6,763	4,855	—	384,222
Debt securities in issue	19,924	12,304	9,729	21,374	22,632	—	85,963
Settlement balances and short positions	25,102	447	901	14,719	8,307	—	49,476
Derivatives	5,806	8,943	15,333	40,229	47,801	—	118,112
Subordinated liabilities	746	150	2,947	8,690	15,121	—	27,654

2005
Assets
Cash and balances at central banks	4,759	—	—	—	—	—	4,759
Treasury and other eligible bills	779	1,252	3,507	—	—	—	5,538
Loans and advances to banks	46,276	14,959	8,749	265	338	—	70,587
Loans and advances to customers	139,732	48,881	42,485	66,488	119,640	—	417,226
Debt securities	2,635	8,289	11,472	25,621	72,948	—	120,965
Equity shares	—	—	—	—	—	9,301	9,301
Settlement balances	6,005	—	—	—	—	—	6,005
Derivatives	4,816	7,282	11,778	31,667	40,120	—	95,663

Liabilities
Deposits by banks	69,393	17,876	13,293	8,264	1,581	—	110,407
Customer accounts	286,960	28,582	14,516	8,172	4,637	—	342,867
Debt securities in issue	20,577	23,297	24,253	14,986	7,307	—	90,420
Settlement balances and short positions	16,533	569	1,696	15,950	9,240	—	43,988
Derivatives	4,962	6,733	12,740	32,067	39,936	—	96,438
Subordinated liabilities	539	418	3,075	7,122	17,120	—	28,274

	Company
2006	1 month or less £m	1-3 months £m	3-12 months £m	1-5 years £m	Over 5 years £m	Total £m
Assets
Loans and advances to banks	1,090	81	—	355	5,726	7,252
Loans and advances to customers	—	—	286	—	—	286

Liabilities
Deposits by banks	—	—	—	738	—	738
Debt securities in issue	—	518	1,163	458	—	2,139
Derivatives	—	1	22	19	—	42
Subordinated liabilities	584	—	422	1,865	5,323	8,194

2005
Assets
Loans and advances to banks	435	1,476	780	1,510	4,921	9,122
Loans and advances to customers	—	—	—	262	305	567
Derivatives	—	—	—	55	—	55

Liabilities
Deposits by banks	32	919	—	—	—	951
Customer accounts	—	55	—	—	—	55
Debt securities in issue	909	2,033	—	—	—	2,942
Subordinated liabilities	189	311	1,008	1,653	6,081	9,242

Interest rate sensitivity

The following tables summarise the interest rate sensitivity gap for the Group and the company at 31 December 2006 and 31 December 2005. The tables show the contractual repricing for each category of asset, liability and off-balance sheet items in the banking book. A liability (or negative) gap position exists when liabilities reprice more quickly or in greater proportion than assets during a given period and tends to benefit net interest income in a declining interest rate environment. An asset (or positive) gap position exists when assets reprice more quickly or in greater proportion than liabilities during a given period and tends to benefit net interest income in a rising interest rate environment. The actual interest rate sensitivity of the Group’s earnings will be determined by the currency and contractual or behavioural profile of assets and liabilities, in addition to the size and timing of interest rate movements. Contractual repricing terms do not reflect the potential impact of early repayment or withdrawal. Positions may not be reflective of those in subsequent periods. Major changes in positions can be made promptly as market outlooks change. In addition, significant variations in interest rate sensitivity may exist within the re-pricing periods presented and among the currencies in which the Group has interest rate positions.

	Group
2006	3 months or less £m	After 3 months but less than 6 months £m	After 6 months but less than 1 year £m	After 1 year but less than 5 years £m	Over 5 years £m	Total interest earning/ bearing £m	Yield %	Non interest earning/ bearing £m	Fair value through profit or loss £m	Banking book total £m	Trading book total £m	Total £m
Assets
Loans and advances to banks	20,628	1,869	2,095	105	55	24,752	4.50	3,252	376	28,380	54,226	82,606
Loans and advances to customers	256,410	14,629	13,506	48,365	36,851	369,761	6.17	17,598	1,327	388,686	78,207	466,893
Debt securities and treasury bills	7,779	1,879	1,729	4,166	11,689	27,242	4.93	3	5,619	32,864	99,878	132,742
Other assets	3,242	—	—	—	—	3,242		59,334	—	62,576	126,615	189,191
Total assets	288,059	18,377	17,330	52,636	48,595	424,997	5.95	80,187	7,322	512,506	358,926	871,432

Liabilities and equity
Deposits by banks	52,301	26	2,502	474	1,261	56,564	4.36	1,625	—	58,189	73,954	132,143
Customer accounts	262,010	7,512	6,188	5,758	1,459	282,927	3.31	37,375	3,922	324,224	59,998	384,222
Debt securities in issue	63,245	2,516	2,133	1,320	2,013	71,227	4.54	243	10,499	81,969	3,994	85,963
Subordinated liabilities	7,298	1,127	273	4,844	13,646	27,188	5.92	—	124	27,312	342	27,654
Other liabilities	—	—	—	—	—	—		33,974	—	33,974	167,249	201,223
Shareholders’ equity	—	—	—	—	—	—		38,411	—	38,411	1,816	40,227
Internal funding of trading business	(43,864)	(5,443)	(92)	(2,009)	—	(51,408)	4.78	(165)	—	(51,573)	51,573	—
Total liabilities and equity	340,990	5,738	11,004	10,387	18,379	386,498	4.32	111,463	14,545	512,506	358,926	871,432
Interest rate swaps	18,843	(4,371)	(10,626)	(11,528)	7,682	—		—	—
Interest rate sensitivity gap	(34,088)	8,268	(4,300)	30,721	37,898	38,499		(31,276)	(7,223)
Cumulative interest rate sensitivity gap	(34,088)	(25,820)	(30,120)	601	38,499	38,499		7,223	—

	Group
2005	3 months or less £m	After 3 months but less than 6 months £m	After 6 months but less than 1 year £m	After 1 year but less than 5 years £m	Over 5 years £m	Total interest earning/ bearing £m	Yield %	Non interest earning/ bearing £m	Fair value through profit or loss £m	Banking book total £m	Trading book total £m	Total £m
Assets
Loans and advances to banks	15,843	2,100	2,293	85	69	20,390	3.71	4,241	282	24,913	45,674	70,587
Loans and advances to customers	231,730	14,063	13,045	49,078	32,789	340,705	5.51	15,274	616	356,595	60,631	417,226
Debt securities and treasury bills	12,416	3,362	994	4,765	16,857	38,394	3.81	469	3,991	42,854	83,649	126,503
Other assets	—	—	—	—	—	—		54,952	2,541	57,493	105,018	162,511
Total assets	259,989	19,525	16,332	53,928	49,715	399,489	5.26	74,936	7,430	481,855	294,972	776,827

Liabilities and equity
Deposits by banks	54,515	2,880	1,507	776	968	60,646	3.97	2,123	—	62,769	47,638	110,407
Customer accounts	232,221	5,715	8,141	7,332	2,909	256,318	2.57	37,817	3,683	297,818	45,049	342,867
Debt securities in issue	65,055	4,212	3,586	957	1,140	74,950	4.18	7	11,068	86,025	4,395	90,420
Subordinated liabilities	3,965	1,492	116	5,749	16,339	27,661	6.84	110	150	27,921	353	28,274
Other liabilities	—	—	—	—	—	—		29,576	—	29,576	139,848	169,424
Shareholders’ equity	—	—	—	—	—	—		33,775	—	33,775	1,660	35,435
Internal funding of trading business	(48,506)	(4,913)	(1,800)	(9)	—	(55,228)	3.83	(801)	—	(56,029)	56,029	—
Total liabilities and equity	307,250	9,386	11,550	14,805	21,356	364,347	3.82	102,607	14,901	481,855	294,972	776,827
Interest rate swaps	(13,537)	(2,849)	(1,508)	1,182	16,712	—		—	—
Interest rate sensitivity gap	(60,798)	7,290	3,274	40,305	45,071	35,142		(27,671)	(7,471)
Cumulative interest rate sensitivity gap	(60,798)	(53,508)	(50,234)	(9,929)	35,142	35,142		7,471	—

	Company
2006	3 months or less £m	After 3 months but less than 6 months £m	After 6 months but less than 1 year £m	After 1 year but less than 5 years £m	Over 5 years £m	Total interest earning/ bearing £m	Yield %	Non interest earning/ bearing £m	Banking book total £m
Assets
Loans and advances to banks	1,378	178	—	1,457	4,235	7,248	6.33	4	7,252
Loans and advances to customers	286	—	—	—	—	286	5.94	—	286
Investment in subsidiaries	—	—	—	—	—	—	—	21,784	21,784
Other assets	—	—	—	—	—	—	—	3	3
Total assets	1,664	178	—	1,457	4,235	7,534	6.32	21,791	29,325

Liabilities and equity
Deposits by banks	738	—	—	—	—	738	5.42	—	738
Debt securities in issue	2,139	—	—	—	—	2,139	5.24	—	2,139
Other liabilities	—	—	—	—	—	—	—	57	57
Subordinated liabilities	1,233	178	—	1,455	5,328	8,194	6.24	—	8,194
Shareholders’ equity	—	—	—	—	—	—	—	18,197	18,197
Total liabilities and equity	4,110	178	—	1,455	5,328	11,071	5.99	18,254	29,325

Interest rate swaps	—	—	—	—	—	—		—
Interest rate sensitivity gap	(2,446)	—	—	2	(1,093)	(3,537)		3,537
Cumulative interest rate sensitivity gap	(2,446)	(2,446)	(2,446)	(2,444)	(3,537)	(3,537)		—

2005
Assets
Loans and advances to banks	1,803	554	119	1,585	5,061	9,122	6.05	—	9,122
Loans and advances to customers	305	—	—	262	—	567	2.82	—	567
Investment in subsidiaries	—	—	—	—	—	—	—	20,851	20,851
Other assets	—	—	—	—	—	—	—	202	202
Total assets	2,108	554	119	1,847	5,061	9,689	5.86	21,053	30,742

Liabilities and equity
Deposits by banks	951	—	—	—	—	951	4.42	—	951
Customer accounts	55	—	—	—	—	55	—	—	55
Debt securities in issue	2,942	—	—	—	—	2,942	4.55	—	2,942
Other liabilities	—	—	—	—	—	—	—	14	14
Subordinated liabilities	1,317	567	116	1,603	5,639	9,242	6.83	—	9,242
Shareholders’ equity	—	—	—	—	—	—	—	17,538	17,538
Total liabilities and equity	5,265	567	116	1,603	5,639	13,190	6.12	17,552	30,742
Interest rate swaps	—	—	—	—	—	—		—
Interest rate sensitivity gap	(3,157)	(13)	3	244	(578)	(3,501)		3,501
Cumulative interest rate sensitivity gap	(3,157)	(3,170)	(3,167)	(2,923)	(3,501)	(3,501)		—

Trading book

The table below sets out by time band the net effect on the Group’s profit or loss of a basis point (0.01%) increase in interest rates, assuming all trading positions remained unchanged.

	Group
2006	3 months or less £000	After 3 months but less than 6 months £000	After 6 months but less than 1 year £000	After 1 year but less than 5 years £000	Over 5 years £000	Total £000
Gain/(loss) per basis point increase	187	102	110	(2,033)	763	(871)

2005
(Loss)/gain per basis point increase	(487)	(40)	180	(1,631)	1,146	(832)

Financial assets and liabilities designated as at fair value through profit or loss

	2006 £m	2005 £m
Net gain in year recognised in other operating income	573	364

The following table shows the carrying values and the fair values of financial instruments on the balance sheets.

	Group				Company
	2006 Carrying value £m	2006 Fair value £m	2005 Carrying value £m	2005 Fair value £m	2006 Carrying value £m	2006 Fair value £m	2005 Carrying value £m	2005 Fair value £m
Financial assets
Cash and balances at central banks	6,121	6,121	4,759	4,759	—	—	—	—

Treasury and other eligible bills
Held-for-trading	4,516	4,516	3,004	3,004	—	—	—	—
Available-for-sale	975	975	2,534	2,534	—	—	—	—
	5,491	5,491	5,538	5,538	—	—	—	—
Loans and advances to banks
Held-for-trading	52,736	52,736	44,965	44,965	—	—	—	—
Designated as at fair value through profit or loss	376	376	282	282	—	—	—	—
Loans and receivables	29,494	29,474	25,340	25,336	7,252	7,252	9,122	9,122
	82,606	82,586	70,587	70,583	7,252	7,252	9,122	9,122
Loans and advances to customers
Held-for-trading	72,462	72,462	53,963	53,963	—	—	—	—
Designated as at fair value through profit or loss	1,327	1,327	616	616	—	—	—	—
Loans and receivables	381,583	382,671	350,960	354,670	286	286	567	567
Finance leases	11,521	11,504	11,687	11,687	—	—	—	—
	466,893	467,964	417,226	420,936	286	286	567	567
Debt securities
Held-for-trading	95,192	95,192	80,653	80,653	—	—	—	—
Designated as at fair value through profit or loss	5,989	5,989	3,991	3,991	—	—	—	—
Available-for-sale	25,509	25,509	35,533	35,533	—	—	—	—
Loans and receivables	561	561	788	788	—	—	—	—
	127,251	127,251	120,965	120,965	—	—	—	—
Equity shares
Held-for-trading	3,038	3,038	2,941	2,941	—	—	—	—
Designated as at fair value through profit or loss	2,610	2,610	2,541	2,541	—	—	—	—
Available-for-sale	7,856	7,856	3,819	3,819	—	—	—	—
	13,504	13,504	9,301	9,301	—	—	—	—

Settlement balances	7,425	7,425	6,005	6,005	—	—	—	—

Derivatives	116,681	116,681	95,663	95,663	—	—	55	55

	Group				Company
	2006 Carrying value £m	2006 Fair value £m	2005 Carrying value £m	2005 Fair value £m	2006 Carrying value £m	2006 Fair value £m	2005 Carrying value £m	2005 Fair value £m
Financial liabilities
Deposits by banks
Held-for-trading	57,452	57,452	32,067	32,067	—	—	—	—
Amortised cost	74,691	74,510	78,340	78,218	738	738	951	951
	132,143	131,962	110,407	110,285	738	738	951	951
Customer accounts
Held-for-trading	46,797	46,797	34,645	34,645	—	—	—	—
Designated as at fair value through profit or loss	3,922	3,922	3,683	3,683	—	—	—	—
Amortised cost	333,503	333,286	304,539	305,252	—	—	55	55
	384,222	384,005	342,867	343,580	—	—	55	55
Debt securities in issue
Held-for-trading	2,141	2,141	1,469	1,469	—	—	—	—
Designated as at fair value through profit or loss	10,499	10,499	11,068	11,068	—	—	—	—
Amortised cost	73,323	73,580	77,883	78,089	2,139	2,139	2,942	2,942
	85,963	86,220	90,420	90,626	2,139	2,139	2,942	2,942
Settlement balances and short positions	49,476	49,476	43,988	43,988	—	—	—	—
Derivatives	118,112	118,112	96,438	96,438	42	42	—	—
Subordinated liabilities
Designated as at fair value through profit or loss	124	124	150	150	—	—	—	—
Amortised cost	27,530	28,606	28,124	29,598	8,194	8,369	9,242	9,639
	27,654	28,730	28,274	29,748	8,194	8,369	9,242	9,639

Industry risk - geographical analysis

	Group
2006	Loans and advances to banks and customers £m	Treasury bills, debt securities and equity shares £m	Derivatives £m	Other (1) £m	Total £m	Netting and offset (2) £m
UK
Central and local government	7,629	28,211	345	1,624	37,809	1,553
Manufacturing	15,259	521	915	49	16,744	4,540
Construction	9,667	115	179	3	9,964	1,458
Finance	128,463	47,274	80,577	2,199	258,513	93,403
Service industries and business activities	57,895	4,330	2,616	769	65,610	5,289
Agriculture, forestry and fishing	2,819	61	3	—	2,883	99
Property	51,303	561	646	11	52,521	1,291
Individuals
Home mortgages	70,884	—	1	—	70,885	—
Other	28,594	861	29	58	29,542	61
Finance leases and instalment credit	14,218	5	—	—	14,223	189
Interest accruals	1,890	62	—	—	1,952	—
Total UK	388,621	82,001	85,311	4,713	560,646	107,883

US
Central and local government	435	24,013	—	102	24,550	1
Manufacturing	3,842	251	157	—	4,250	52
Construction	790	48	12	—	850	—
Finance	31,785	28,333	29,989	3,495	93,602	26,037
Service industries and business activities	10,678	1,267	168	—	12,113	22
Agriculture, forestry and fishing	64	—	—	—	64	—
Property	5,781	—	24	—	5,805	19
Individuals
Home mortgages	34,230	—	—	—	34,230	—
Other	11,643	—	—	—	11,643	—
Finance leases and instalment credit	2,282	—	—	—	2,282	—
Interest accruals	526	343	—	—	869	2
Total US	102,056	54,255	30,350	3,597	190,258	26,133

Europe
Central and local government	488	423	—	3	914	—
Manufacturing	4,067	—	—	—	4,067	—
Construction	2,751	—	—	—	2,751	—
Finance	6,067	1,938	860	49	8,914	7
Service industries and business activities	9,607	100	7	7	9,721	—
Agriculture, forestry and fishing	469	2	—	—	471	—
Property	8,781	21	—	—	8,802	—
Individuals
Home mortgages	13,661	—	—	—	13,661	—
Other	3,774	—	—	—	3,774	—
Finance leases and instalment credit	1,325	—	—	—	1,325	—
Interest accruals	221	—	—	—	221	—
Total Europe	51,211	2,484	867	59	54,621	7

Rest of the World
Central and local government	185	921	16	—	1,122	1
Manufacturing	129	—	3	—	132	3
Construction	80	—	—	—	80	—
Finance	6,116	6,652	106	7	12,881	2,271
Service industries and business activities	2,664	2	27	2	2,695	2
Agriculture, forestry and fishing	13	—	—	—	13	—
Property	1,250	19	1	—	1,270	—
Individuals
Home mortgages	273	—	—	—	273	—
Other	782	—	—	—	782	—
Finance lease and instalment credit	10	—	—	—	10	—
Interest accruals	44	—	—	—	44	—
Total Rest of the World	11,546	7,594	153	9	19,302	2,277

	Group
2006	Loans and advances to banks and customers £m	Treasury bills, debt securities and equity shares £m	Derivatives £m	Other (1) £m	Total £m	Netting and offset (2) £m
Total
Central and local government	8,737	53,568	361	1,729	64,395	1,555
Manufacturing	23,297	772	1,075	49	25,193	4,595
Construction	13,288	163	191	3	13,645	1,458
Finance	172,431	84,197	111,532	5,750	373,910	121,718
Service industries and business activities	80,844	5,699	2,818	778	90,139	5,313
Agriculture, forestry and fishing	3,365	63	3	—	3,431	99
Property	67,115	601	671	11	68,398	1,310
Individuals
Home mortgages	119,048	—	1	—	119,049	—
Other	44,793	861	29	58	45,741	61
Finance lease and instalment credit	17,835	5	—	—	17,840	189
Interest accruals	2,681	405	—	—	3,086	2
	553,434	146,334	116,681	8,378	824,827	136,300

Notes:

(1) Includes settlement balances of £7,425 million.

(2) This column shows the amount by which exposures to counterparties are reduced by the existence of a legal right of set-off (on the basis that the financial asset will be collected in accordance with its terms) and under master netting arrangements. The credit risk of financial assets subject to a master netting arrangement is eliminated only to the extent that financial liabilities due to the same counterparty will be settled after the assets are realised. The extent to which the Group's credit risk is reduced through a master netting arrangement may change substantially within a short period following the balance sheet date because the exposure is affected by each transaction subject to the arrangement.

	Group
2005	Loans and advances to banks and customers £m	Treasury bills, debt securities and equity shares £m	Derivatives £m	Other (1) £m	Total £m	Netting and offset (2) £m
UK
Central and local government	4,082	20,061	175	407	24,725	1,481
Manufacturing	14,861	462	1,088	—	16,411	3,640
Construction	8,389	53	126	—	8,568	1,224
Finance	99,123	49,532	66,132	2,129	216,916	77,206
Service industries and business activities	53,504	3,404	2,148	162	59,218	5,211
Agriculture, forestry and fishing	2,685	17	2	—	2,704	58
Property	41,074	401	1,123	—	42,598	1,568
Individuals
Home mortgages	65,286	—	3	—	65,289	—
Other	26,987	564	—	186	27,737	53
Finance leases and instalment credit	13,909	4	—	—	13,913	158
Interest accruals	1,503	774	—	—	2,277	—
Total UK	331,403	75,272	70,797	2,884	480,356	90,599

US
Central and local government	472	27,420	—	112	28,004	—
Manufacturing	3,369	89	91	—	3,549	6
Construction	730	30	8	—	768	—
Finance	33,811	24,672	21,023	3,818	83,324	22,059
Service industries and business activities	10,440	661	113	—	11,214	11
Agriculture, forestry and fishing	92	—	—	—	92	—
Property	5,215	5	39	—	5,259	15
Individuals
Home mortgages	34,783	922	—	—	35,705	—
Other	14,396	—	—	—	14,396	—
Finance leases and instalment credit	2,973	—	—	—	2,973	—
Interest accruals	424	194	—	—	618	2
Total US	106,705	53,993	21,274	3,930	185,902	22,093

Europe
Central and local government	297	301	—	—	598	—
Manufacturing	6,429	—	—	—	6,429	—
Construction	2,382	—	—	—	2,382	—
Finance	8,259	2,214	450	8	10,931	—
Service industries and business activities	9,908	10	11	—	9,929	—
Agriculture, forestry and fishing	514	—	—	—	514	—
Property	5,078	49	—	—	5,127	—
Individuals
Home mortgages	8,848	—	—	—	8,848	—
Other	3,585	105	—	—	3,690	—
Finance leases and instalment credit	1,311	—	—	—	1,311	—
Interest accruals	115	26	—	—	141	—
Total Europe	46,726	2,705	461	8	49,900	—

Rest of the World
Central and local government	243	1,709	1,379	—	3,331	—
Manufacturing	102	—	7	—	109	1
Construction	65	—	—	—	65	—
Finance	3,680	2,233	1,728	3	7,644	896
Service industries and business activities	1,610	24	17	—	1,651	—
Agriculture, forestry and fishing	3	—	—	—	3	—
Property	112	—	—	—	112	1
Individuals
Home mortgages	216	—	—	—	216	—
Other	792	—	—	—	792	—
Finance lease and instalment credit	—	—	—	—	—	—
Interest accruals	43	—	—	—	43	—
Total Rest of the World	6,866	3,966	3,131	3	13,966	898

	Group
2005	Loans and advances to banks and customers £m	Treasury bills, debt securities and equity shares £m	Derivatives £m	Other (1) £m	Total £m	Netting and offset (2) £m
Total
Central and local government	5,094	49,491	1,554	519	56,658	1,481
Manufacturing	24,761	551	1,186	—	26,498	3,647
Construction	11,566	83	134	—	11,783	1,224
Finance	144,873	78,651	89,333	5,958	318,815	100,161
Service industries and business activities	75,462	4,099	2,289	162	82,012	5,222
Agriculture, forestry and fishing	3,294	17	2	—	3,313	58
Property	51,479	455	1,162	—	53,096	1,584
Individuals
Home mortgages	109,133	922	3	—	110,058	—
Other	45,760	669	—	186	46,615	53
Finance lease and instalment credit	18,193	4	—	—	18,197	158
Interest accruals	2,085	994	—	—	3,079	2
	491,700	135,936	95,663	6,825	730,124	113,590

Notes:

(1) Includes settlement balances of £6,005 million.

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