Notes to the consolidated financial statements

50 Consolidated cash flow statement

(a) Change in operating assets

	2008 £m	2007 £m
Change in loans and advances to banks	(3,360)	8,673
Change in loans and advances to customers	(30,357)	(20,796)
Change in derivative financial instruments, trading and other financial assets at fair value through profit or loss	(8,990)	(4,348)
Change in other operating assets	(318)	(511)
Change in operating assets	(43,025)	(16,982)

(b) Change in operating liabilities

	2008 £m	2007 £m
Change in deposits from banks	25,279	2,136
Change in customer accounts	13,088	17,172
Change in debt securities in issue	22,401	(2,450)
Change in derivative financial instruments, trading and other liabilities at fair value through profit or loss	22,565	3,840
Change in investment contract liabilities	(3,061)	(58)
Change in other operating liabilities	661	901
Change in operating liabilities	80,933	21,541

(c) Non-cash and other items

	2008 £m	2007 £m
Depreciation and amortisation	686	630
Revaluation of investment property	1,058	321
Allowance for loan losses	2,876	1,721
Write-off of allowance for loan losses	(1,498)	(1,405)
Impairment of available-for-sale securities	130	70
Impairment of goodwill	100	–
Change in insurance contract liabilities	(4,555)	853
Customer remediation paid	(9)	(54)
Other provision movements	16	2
Net charge in respect of defined benefit schemes	164	175
Contributions to defined benefit schemes	(547)	(452)
Other non-cash items	(3,371)	870
Total non-cash items	(4,950)	2,731
Interest expense on subordinated liabilities	896	741
Profit on disposal of businesses	–	(657)
Other	(10)	(31)
Total other items	886	53
Non-cash and other items	(4,064)	2,784

(d) Analysis of cash and cash equivalents as shown in the balance sheet

	2008 £m	2007 £m
Cash and balances with central banks	5,008	4,330
Less: mandatory reserve deposits1	(545)	(338)
	4,463	3,992
Loans and advances to banks	40,758	34,845
Less: amounts with a maturity of three months or more	(12,461)	(6,946)
	28,297	27,899
Total cash and cash equivalents	32,760	31,891

¹Mandatory reserve deposits are held with local central banks in accordance with statutory requirements; these deposits are not available to finance the Group's day-to-day operations.

Included within cash and cash equivalents at 31 December 2008 is £8,255 million (2007: £7,426 million) held within the Group's life funds, which is not immediately available for use in the business.

(e) Analysis of changes in financing during the year

	2008 £m	2007 £m
Share capital (including share premium account):
At 1 January	2,730	2,695
Issue of share capital:
Private placement	760	–
Other	119	35
At 31 December	3,609	2,730
	2008 £m	2007 £m
Minority interests:
At 1 January	284	352
Exchange and other adjustments	28	(1)
Repayment of capital to minority shareholders	(3)	(80)
Minority share of profit after tax	26	32
Dividends to minority shareholders	(29)	(19)
At 31 December	306	284
	2008 £m	2007 £m
Subordinated liabilities:
At 1 January	11,958	12,072
Exchange and other adjustments	2,658	186
Issue of subordinated liabilities	3,021	–
Repayments of subordinated liabilities	(381)	(300)
At 31 December	17,256	11,958

(f) Acquisition of Group undertakings and businesses

	2008 £m		2007 £m
Payments to former members of Scottish Widows Fund and Life Assurance Society acquired during 2000	19		8

(g) Disposal and closure of Group undertakings and businesses

	2008 £m	2007 £m
Cash and balances at central banks	–	37
Trading and other financial assets at fair value through profit or loss	–	10,999
Loans and advances to banks	–	1,150
Value of in-force business	–	412
Liabilities arising from insurance contracts and participating investment contracts	–	(4,349)
Liabilities arising from non-participating investment contracts	–	(7,283)
Unallocated surplus within insurance businesses	–	(15)
Other net assets and liabilities	–	(95)
	–	856
Profit on sale of businesses	–	657
Cash and cash equivalents disposed of	–	(37)
Net cash inflow from disposals	–	1,476

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ANNUAL REPORT AND ACCOUNTS 2008