Notes to the consolidated financial statements

• « 18 Loans and advances to banks
• 19 Loans and advances to customers
• 20 Allowance for impairment losses »

19 Loans and advances to customers

	2008 £m	2007 £m
Agriculture, forestry and fishing	3,969	3,226
Energy and water supply	2,598	2,102
Manufacturing	12,057	8,385
Construction	3,016	2,871
Transport, distribution and hotels	14,664	11,573
Postal and telecommunications	1,060	946
Property companies	23,318	17,576
Financial, business and other services	35,746	29,707
Personal:
– Mortgages	114,643	102,739
– Other	25,318	22,988
Lease financing	4,620	4,686
Hire purchase	5,295	5,423
	246,304	212,222
Allowance for impairment losses (note 20)	(3,569)	(2,408)
	242,735	209,814

At 31 December 2008 £180,197 million (2007: £153,302 million) of loans and advances to customers had a contractual residual maturity of greater than one year.

Included in loans and advances to customers are £6,342 million (2007: £4,201 million) held in Cancara, the Group’s hybrid Asset Backed Commercial Paper conduit (see note 21).

During 2008 the Group’s Corporate Markets business wrote down the value of its structured investment vehicle (SIV) exposures by £95 million (2007: £22 million) and now has no residual exposure to SIV Capital Notes (2007: exposure of £78 million). Additionally, at 31 December 2008 the Group’s Corporate Markets business had a commercial paper back up liquidity facility totalling £22 million (2007: £370 million).

The Group holds collateral with a fair value of £1,736 million (2007: £1,975 million), which it is permitted to sell or repledge, of which £366 million (2007: £1,818 million) was repledged or sold to third parties for periods not exceeding three months from the transfer.

Loans and advances to customers include finance lease receivables, which may be analysed as follows:

	2008 £m	2007 £m
Gross investment in finance leases, receivable:
Not later than 1 year	542	620
Later than 1 year and not later than 5 years	1,779	1,917
Later than 5 years	5,639	5,339
	7,960	7,876
Unearned future finance income on finance leases	(3,038)	(2,875)
Rentals received in advance	(128)	(131)
Commitments for expenditure in respect of equipment to be leased	(174)	(184)
Net investment in finance leases	4,620	4,686

The net investment in finance leases represents amounts recoverable as follows:

	2008 £m	2007 £m
Not later than 1 year	329	340
Later than 1 year and not later than 5 years	978	1,004
Later than 5 years	3,313	3,342
	4,620	4,686

Equipment leased to customers under finance leases primarily relates to structured financing transactions to fund the purchase of aircraft, ships and other large individual value items. During 2008 and 2007 no contingent rentals in respect of finance leases were recognised in the income statement. The allowance for uncollectable finance lease receivables included in the allowance for impairment losses is £15 million (2007: £16 million). The unguaranteed residual values included in finance lease receivables were as follows:

	2008 £m	2007 £m
Not later than 1 year	1	–
Later than 1 year and not later than 5 years	29	7
Later than 5 years	3	11
Total	33	18

Securitisations

Loans and advances to customers include balances that have been securitised but not derecognised, comprising both residential mortgages and commercial banking loans, the carrying values of which are set out below together with any related liabilities. Residential mortgages are not derecognised because the Group remains exposed to the majority of the risk of any default in respect of them; commercial banking loans are not derecognised because the Group has not transferred the contractual rights to receive the cash flows from those loans nor has it assumed a contractual obligation to pay the cash flows from those loans to a third party.

Beneficial interests in certain residential mortgages have been transferred to special purpose entities which issue floating rate debt securities. Neither the Group nor any entities in the Group are obliged to support any losses that may be suffered by the note holders and do not intend to offer such support. The floating rate note holders only receive payments of interest and principal to the extent that the special purpose entities have received sufficient funds from the transferred mortgages and after certain expenses have been met. In the event of a deficiency, they have no recourse whatsoever to the Group.

At 31 December 2008 the total amount of residential mortgages subject to securitisation was £34,293 million (2007: £46,284 million) in respect of which external funding at the year end amounted to £9,824 million (2007: £12,403 million); external funding is shown in debt securities in issue (see note 31). The Group participates in the securitisation through the provision of administration and other services, the provision of interest rate and currency swaps and in the form of unsecured loan financing which is subordinate to the interests of the floating rate note holders.

A further £40,608 million of residential mortgages are subject to securitisation via a covered bond programme; the related bonds have been issued to Lloyds TSB Bank plc, and are available for use in connection with Lloyds TSB Bank plc’s participation in the Bank of England’s Special Liquidity Scheme.

In addition the Group has entered into a number of securitisations of elements of its corporate and commercial loan portfolio. The total value of loans so securitised was £8,360 million (2007: £4,325 million), utilising a combination of external funding totalling £226 million (2007: £98 million) and credit default swaps.

The external funding is shown in debt securities in issue (see note 31) and the credit default swaps are accounted for as derivatives (see note 17).