BASIS OF PRESENTATION
Virgin Money UK PLC ('Virgin
Money', 'VMUK' or 'the Company'), together with its subsidiary
undertakings (which together comprise the 'Group'), operate under
the Clydesdale Bank, Yorkshire Bank and Virgin Money brands. This
release covers the results of the Group for the six months ended 31
March 2024.
Statutory basis: Statutory
information is set out on page 4 and within the interim condensed
consolidated financial statements.
Excluding notable items basis: Management exclude certain items from the Group's statutory
position to arrive at an 'excluding notable items' basis. The
exclusion of notable items aims to remove the impact of one-offs
and other volatile items which may distort period-on-period
comparisons. Rationale for the notable items is shown on page 88.
This basis is classed as an alternative performance measure, see
below. Previously, items adjusted from the Group's statutory
position resulted in an 'underlying basis' of performance. The
Group no longer presents results on an underlying basis, moving
instead to a statutory presentation of its income statement, whilst
still providing details of notable items of income and expenditure.
Comparative periods have not been restated as the 'excluding
notable items basis' is directly comparable to the previously
disclosed 'underlying basis'. Further information on this change is
shown on page 88.
Alternative performance measures (APMs):
the key performance indicators (KPIs) and
performance metrics used in monitoring the Group's performance and
reflected throughout this report fall into two categories:
financial and non-financial, and are detailed at 'Measuring the
Group's performance' on pages 372 to 380 of the Group's 2023 Annual
Report and Accounts. APMs are closely
scrutinised to ensure that they provide genuine insights into the
Group's progress; however, statutory measures are the key
determinant of dividend paying capability.
Certain figures contained in this
document, including financial information, may have been subject to
rounding adjustments and foreign exchange conversions. Accordingly,
in certain instances, the sum or percentage change of the numbers
contained in this document may not conform exactly to the total
figure given.
|
FORWARD-LOOKING STATEMENTS
This document and any other
written or oral material discussed or distributed in connection
with the results (the 'Information') may include forward-looking
statements, which are based on assumptions, expectations,
valuations, targets, estimates, forecasts and projections about
future events. These can be identified by the use of words such as
'expects', 'aims', 'targets', 'seeks', 'anticipates', 'plans',
'intends', 'prospects', 'outlooks', 'projects', 'forecasts',
'believes', 'estimates', 'potential', 'possible', and similar words
or phrases. These forward-looking statements are subject to risks,
uncertainties and assumptions about the Group and its securities,
investments and the environment in which it operates, including,
among other things, the development of its business and strategy,
any acquisitions, combinations, disposals or other corporate
activity undertaken by the Group, trends in its operating industry,
changes to customer behaviours and covenant, macroeconomic and/or
geopolitical factors, the repercussions of the outbreak of
coronaviruses (including but not limited to the COVID-19 pandemic),
changes to its Board and/or employee composition, exposures to
terrorist activity, IT system failures, cyber-crime, fraud and
pension scheme liabilities, risks relating to environmental matters
such as climate change including the Group's ability along with the
government and other stakeholders to measure, manage and mitigate
the impacts of climate change effectively, changes to law and/or
the policies and practices of the Bank of England (BoE), the
Financial Conduct Authority (FCA) and/or other regulatory and
governmental bodies, inflation, deflation, interest rates, exchange
rates, tax and national insurance rates, changes in the liquidity,
capital, funding and/or asset position and/or credit ratings of the
Group, future capital expenditures and acquisitions, the
repercussions of the UK's exit from the European Union (EU)
(including any change to the UK's currency and the terms of any
trade agreements (or lack thereof) between the UK and the EU),
Eurozone instability, the repercussions of Russia's invasion of
Ukraine, the conflict in the Middle East, any referendum on
Scottish independence and any UK or global cost of living crisis or
recession.
In light of these risks,
uncertainties and assumptions, the events in the forward-looking
statements may not occur. Forward-looking statements involve
inherent risks and uncertainties and should be viewed as
hypothetical. Other events not taken into account may occur and may
significantly affect the analysis of the forward-looking
statements. No member of the Group or their respective directors,
officers, employees, agents, advisers or affiliates (each a 'VMUK
Party') gives any representation, warranty or assurance that any
such projections or estimates will be realised, or that actual
returns or other results will not be materially lower than those
set out in the Information. No representation or warranty is made
that any forward-looking statement will come to pass. Whilst every
effort has been made to ensure the accuracy of the Information, no
VMUK Party takes any responsibility for the Information or to
update or revise it. They will not be liable for any loss or
damages incurred through the reliance on or use of it. The
Information is subject to change. No representation or warranty,
express or implied, as to the truth, fullness, fairness,
merchantability, accuracy, sufficiency or completeness of the
Information is given.
Certain industry, market and
competitive position data contained in the Information comes from
official or third party sources. There is no guarantee of the
accuracy or completeness of such data. While the Group reasonably
believes that each of these publications, studies and surveys has
been prepared by a reputable source, no member of the Group or
their respective directors, officers, employees, agents, advisers
or affiliates have independently verified the data. In addition,
certain industry, market and competitive position data contained in
the Information comes from the Group's own internal research and
estimates based on the knowledge and experience of the Group's
management in the markets in which the Group operates. While the
Group reasonably believes that such research and estimates are
reasonable and reliable, they, and their underlying methodology and
assumptions, have not been verified by any independent source for
accuracy or completeness, and are subject to change. Accordingly,
undue reliance should not be placed on any of the industry, market
or competitive position data contained in the
Information.
The Information does not
constitute or form part of, and should not be construed as, any
public offer under any applicable legislation or an offer to sell
or solicitation of any offer to buy any securities or financial
instruments or any advice or recommendation with respect to such
securities or other financial instruments. The distribution of the
Information in certain jurisdictions may be restricted by law.
Recipients are required to inform themselves about and to observe
any such restrictions. No liability to any person is accepted in
relation to the distribution or possession of the Information in
any jurisdiction.
No statement in the Information is
intended as a profit forecast, profit estimate or quantified
benefit statement for any period and no statement in the
Information should be interpreted to mean that earnings per share
for the Company for the current or future financial years would
necessarily match or exceed the historical published earnings or
earnings per share (EPS) for the Company or the Group.
Interim financial report
For the six months ended 31 March
2024
Contents
Virgin Money UK PLC
Interim Results 2024
|
1
|
Business and
financial review
|
3
|
Risk
management
|
19
|
Risk
overview
|
20
|
Credit
risk
|
22
|
Financial
risk
|
46
|
Statement of
Directors' responsibilities
|
58
|
Independent review
report to Virgin Money UK PLC
|
59
|
Financial
statements
|
60
|
Interim condensed
consolidated income statement
|
60
|
Interim condensed
consolidated statement of comprehensive income
|
61
|
Interim condensed
consolidated balance sheet
|
62
|
Interim condensed
consolidated statement of changes in equity
|
63
|
Interim condensed
consolidated statement of cash flows
|
64
|
Notes to the interim
condensed consolidated financial statements
|
65
|
Additional
information
|
84
|
Virgin Money UK PLC Interim
Results 2024
David Duffy, Chief Executive
Officer:
"Over the first six months, we
have continued to deliver on our strategic ambitions in line with
expectations. While we expect there to be headwinds through the
second half of the year, we remain well placed to deliver growth in
our target segments."
Summary financials
|
|
|
6 months
to
|
6 months
to
|
|
|
6 months
to
|
|
|
|
|
31 Mar
2024
|
31 Mar
2023
|
Change
|
|
30 Sep
2023
|
Change
|
|
|
|
£m
|
|
£m
|
%
|
|
|
£m
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (excluding
notable items)
|
|
|
868
|
|
855
|
2
|
|
|
861
|
1
|
Non-interest income (OOI)
(excluding notable items)
|
|
|
72
|
|
78
|
(8)
|
|
|
79
|
(9)
|
Total operating income (excluding notable
items)
|
|
|
940
|
|
933
|
1
|
|
|
940
|
-
|
Notable items in income(1)
|
|
|
(17)
|
|
(19)
|
(11)
|
|
|
(27)
|
(37)
|
Statutory total operating income
|
|
|
923
|
|
914
|
1
|
|
|
913
|
1
|
Operating and administrative
expenses (excluding notable items)
|
|
|
(502)
|
|
(477)
|
5
|
|
|
(494)
|
2
|
Notable items in expenses(1)
|
|
|
(49)
|
|
(57)
|
(14)
|
|
|
(145)
|
(66)
|
Statutory operating and administrative
expenses
|
|
|
(551)
|
|
(534)
|
3
|
|
|
(639)
|
(14)
|
Statutory operating profit before impairment
losses
|
|
|
372
|
|
380
|
(2)
|
|
|
274
|
36
|
Impairment losses on credit
exposures
|
|
|
(93)
|
|
(144)
|
(35)
|
|
|
(165)
|
(44)
|
Statutory profit on ordinary activities before
tax
|
|
|
279
|
|
236
|
18
|
|
|
109
|
156
|
Performance
metrics(2)
|
|
|
|
|
|
|
|
|
|
|
Total customer lending
|
|
|
£72,675m
|
|
£72,435m
|
0.3%
|
|
|
£72,754m
|
(0.1)%
|
Net interest margin
(NIM)
|
|
|
1.94%
|
|
1.91%
|
3bps
|
|
|
1.91%
|
3bps
|
Return on tangible equity
(RoTE)
|
|
|
9.1%
|
|
6.1%
|
3.0%pts
|
|
|
1.6%
|
7.5%pts
|
Cost: income ratio
|
|
|
59.7%
|
|
58.5%
|
1.2%pts
|
|
|
70.0%
|
(10.3)%pts
|
Adjusted cost: income
ratio(3)
|
|
|
52.3%
|
|
51.1%
|
1.2%pts
|
|
|
52.6%
|
(0.3)%pts
|
Cost of risk (CoR)
|
|
|
0.26%
|
|
0.40%
|
(14)bps
|
|
|
0.42%
|
(16)bps
|
Common Equity Tier 1 (CET1)
ratio (IFRS 9 transitional)
|
|
|
14.6%
|
|
14.7%
|
(0.1)%pts
|
|
|
14.7%
|
(0.1)%pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Full details
of notable items are included on page 88.
|
(2) For
definitions of the performance metrics, refer to 'Measuring the
Group's performance' on pages 372 to 380 of the Group's 2023 Annual
Report and Accounts.
(3) Adjusted to
exclude all notable items and the new BoE Levy recognised in 2024
of £10m. Refer to page 89 for further details.
|
|
Delivered strong financial performance in H1
2024
· NIM
expanded further to 1.94% in H1 (Q224: 1.99%), supported by EIR
adjustments in the credit card portfolio, reflecting strong
customer activity and updated assumptions
· OOI
(excluding notable items) down 8% YoY, reflecting reclassification
of insurance costs incurred on packaged current accounts
· Operating expenses (excluding notable items) 5% higher YoY,
driven by inflation and the new BoE Levy (£10m in Q2) partially
offset by ongoing delivery of the cost savings programme; adjusted
C:I ratio modestly higher YoY at 52.3%
· Notable expenditure included £33m from restructuring
activities and £15m related to new financial crime prevention
programme
· Impairment charge of £93m (CoR: 26bps), incorporating benefit
from the ongoing SICR review of the Group's credit card portfolio
and a modestly improving macroeconomic outlook; credit quality
remains solid; stable provision coverage of 84bps (FY23:
84bps)
· Statutory profit before tax increased 18% YoY to £279m (9.1%
statutory RoTE), primarily reflecting the lower impairment
charge
· CET1
ratio remains strong at 14.6% (FY23: 14.7%); movement includes 2p
foreseeable FY 2024 dividend and c.£63m returned to shareholders as
part of the £150m buyback programme announced alongside FY23, prior
to the cancellation of the programme
Further growth in target lending segments and relationship
deposits, in line with strategy
· 2%
growth in active relationship customer accounts during H1 to 3.8m
accounts
· Relationship deposits 2% higher in H1 at £36.3bn, remaining
53% of total deposits; total deposits increased 2% to
£68.2bn
· Continued growth in target segments; Unsecured +3%, driven by
growth in cards; Business lending +7% as growth in BAU balances
offset a reduction in Government scheme lending; Mortgages reduced
2% given subdued market; overall lending stable
Continued strategic execution
· Completed purchase of abrdn's c.50% stake in Virgin Money
Investments(4)
in April for £20m, following successful roll-out
of new investment and pension services
· Fully rolled-out premium broker service to 225 mortgage
intermediaries, covering c.40% of VMUK applications, contributing
to a stronger pipeline of recommended cases from those
brokers
· New
virtual assistant Redi has now supported over 1 million
conversations, attracting strong Smile scores and solving more than
50% of queries without the need for further escalation
· Reduced office property footprint by c.35% in H1, supporting
gross savings
· Progressing second phase of Consumer Duty review ahead of
July implementation
FY24 revised outlook
· Anticipate 5-10% growth across target lending segments of
business and unsecured lending in FY24, as guided at
FY23
· Continue to expect NIM to be in 190-195bps range for FY24,
with NIM lower in H2 vs. H1, reflecting lower expected contribution
from cards EIR adjustments, ongoing competition and lower interest rates, partially mitigated by the
reinvestment rate of the structural hedge
· In
light of the proposed acquisition by Nationwide Building Society
('Nationwide'), the Group has deferred
certain restructuring activities
· Adjusted cost: income ratio anticipated to be higher in H2
vs. H1, reflecting the latest outlook for income, inflation,
ongoing investment and cost savings
· Continue to expect CoR of 30-35bps for FY24, incorporating
SICR review on card portfolio & modestly improving economic
outlook
· Given the proposed acquisition by Nationwide, the Group does
not intend to announce any further share buybacks or
dividends
(4) Legal entity
name 'Virgin Money Unit Trust Managers Limited'
|
· As a
result of these factors, statutory RoTE expected to be lower in H2
vs H1
Contact details
For further information, please
contact:
Investors and
Analysts
|
|
Richard Smith
Head of Investor Relations &
Sustainability
|
+44 7483
399 303
richard.smith@virginmoney.com
|
|
|
Amil Nathwani
|
+44 7702
100 398
|
Senior Manager, Investor
Relations
|
amil.nathwani@virginmoney.com
|
|
|
Martin Pollard
Senior Manager, Investor
Relations
|
+44 7894
814 195
martin.pollard1@virginmoney.com
|
|
|
Media
|
|
Andrew Scott
Head of Media Relations
Simon Hall
|
+44 7483
911 591
andrew.s.scott@virginmoney.com
+44 7855
257 081
|
Senior Media Relations
Manager
|
simon.hall@virginmoney.com
|
|
|
Press Office
|
+44 800
066 5998
|
|
press.office@virginmoney.com
|
|
|
Teneo
|
|
Doug Campbell (UK)
Julia Henkel
(Australia)
|
+44 7753
136628
+61 406
918080
|
|
|
|
|
There will be no management
presentation or conference call today.
Announcement authorised for
release by Lorna McMillan, Group Company Secretary.
Business and financial review
KPIs
Measuring strategic
delivery
All figures as at H1
2024
Total active relationship customer
accounts
3.8m
FY23: 3.8m
FY22: 3.6m
2021(1):
3.3m
|
|
Digital
primacy(4)
68%
FY23: 61%
FY22: 56%
H1 22(2):
51%
|
|
Target lending segment asset
growth
6% in
H1
FY23: 9%
FY22: 7%
FY21: (3)%
|
Gross annualised cost savings
(cumulative)
c.£150m
FY23: £130m
FY22: £69m
Target: £200m
|
|
Customer complaints per 1k
accounts
3.9
FY23: 4.0
FY22: 4.2
FY21: 3.7
|
|
Colleague engagement
83%
FY23: 80%
FY22: 79%
FY21: 68%
|
Group Smile
score(4)
57%
FY23: 49%
FY22: 46%
FY21: 51%
|
|
Group diversity
indicators
Senior
gender(3)
50%
FY23: 55%
FY22: 52%
Target: 45-55%
|
Senior
ethnicity(3)
9%
FY23: 4%
FY22: 8%
Target: 10%
|
Group ethnicity
8%
FY23: 6%
FY22: 7%
Target: 10%
|
|
|
|
|
|
|
|
(1)
|
As at October 2021 due to
availability of source data.
|
(2)
|
As at March 2022 due to
availability of source data.
|
(3)
|
Senior defined as top three
levels.
|
(4)
|
H1 2024 outcomes reflect improved
source data, not directly comparable to historic data
|
|
|
|
|
|
|
|
|
Business and financial
review
Financial performance -
summary
Summary income statement
|
|
|
|
|
|
|
6 months
to
|
6 months
to
|
|
|
6 months
to
|
|
|
|
|
31 Mar
2024
|
31 Mar
2023
|
Change
|
|
30 Sep
2023
|
Change
|
|
|
|
£m
|
|
£m
|
%
|
|
|
£m
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (excluding
notable items)
|
|
|
868
|
|
855
|
2
|
|
|
861
|
1
|
Non-interest income (excluding
notable items)
|
|
|
72
|
|
78
|
(8)
|
|
|
79
|
(9)
|
Total operating income (excluding notable
items)
|
|
|
940
|
|
933
|
1
|
|
|
940
|
-
|
Notable items in income
|
|
|
(17)
|
|
(19)
|
(11)
|
|
|
(27)
|
(37)
|
Statutory total operating income
|
|
|
923
|
|
914
|
1
|
|
|
913
|
1
|
Operating and administrative
expenses (excluding notable items)
|
|
|
(502)
|
|
(477)
|
5
|
|
|
(494)
|
2
|
Notable items in expenses
|
|
|
(49)
|
|
(57)
|
(14)
|
|
|
(145)
|
(66)
|
Statutory operating and administrative
expenses
|
|
|
(551)
|
|
(534)
|
3
|
|
|
(639)
|
(14)
|
Statutory operating profit before impairment
losses
|
|
|
372
|
|
380
|
(2)
|
|
|
274
|
36
|
Impairment losses on credit
exposures
|
|
|
(93)
|
|
(144)
|
(35)
|
|
|
(165)
|
(44)
|
Statutory profit on ordinary activities before
tax
|
|
|
279
|
|
236
|
18
|
|
|
109
|
156
|
Tax expense
|
|
|
(43)
|
|
(56)
|
(23)
|
|
|
(43)
|
-
|
Statutory profit after tax
|
|
|
236
|
|
180
|
31
|
|
|
66
|
258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notable items
|
|
|
|
6 months
to
|
6 months
to
|
6 months
to
|
|
|
|
|
31 Mar
2024
|
31 Mar
2023
|
30 Sep
2023
|
|
|
|
|
£m
|
£m
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
Acquisition accounting unwinds
(net interest income)
|
(9)
|
(3)
|
(26)
|
Hedge ineffectiveness
(non-interest income)
|
(8)
|
(16)
|
-
|
Other (non-interest income)
|
-
|
-
|
(1)
|
Total notable items in statutory
operating income
|
(17)
|
(19)
|
(27)
|
|
|
|
|
Operating expenses:
|
|
|
|
Restructuring charges
|
(33)
|
(53)
|
(78)
|
Financial crime prevention
programme
|
(15)
|
-
|
-
|
Legacy conduct
|
4
|
(4)
|
(8)
|
Other
|
(5)
|
-
|
(59)
|
Total notable items in statutory
operating expenses
|
(49)
|
(57)
|
(145)
|
|
|
|
|
Operating profit before impairment
losses (excluding notable items)
|
438
|
456
|
446
|
|
|
|
|
Performance
metrics(1)
|
|
|
|
6 months
to
|
6 months
to
|
|
6 months
to
|
|
|
|
|
|
|
31 Mar
2024
|
31 Mar
2023
|
Change
|
30 Sep
2023
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profitability:
|
|
|
|
|
|
|
|
|
|
Net interest margin
(NIM)
|
|
|
1.94%
|
1.91%
|
3bps
|
1.91%
|
3bps
|
|
Statutory return on tangible
equity (RoTE)
|
|
|
9.1%
|
6.1%
|
3.0%pts
|
1.6%
|
7.5%pts
|
|
Statutory cost: income
ratio
|
|
|
59.7%
|
58.5%
|
1.2%pts
|
70.0%
|
(10.3)%pts
|
|
Earnings per share
(EPS)
|
|
|
16.0p
|
11.0p
|
5.0p
|
3.0p
|
13.0p
|
|
Adjusted cost: income
ratio(2)
|
|
|
52.3%
|
51.1%
|
1.2%pts
|
52.6%
|
(0.3)%pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For definitions of the performance
metrics, refer to 'Measuring the Group's performance' on pages 372
to 380 of the Group's 2023 Annual Report and Accounts
|
(2)
|
Adjusted to exclude all notable
items shown above and the new BoE Levy recognised in 2024 of
£10m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business and financial
review
Financial performance -
summary
Performance metrics
(continued)
|
|
|
|
|
|
|
|
|
|
As at:
|
|
|
|
31 Mar
2024
|
31 Mar
2023
|
Change
|
30 Sep
2023
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset quality
|
|
|
|
|
|
|
|
|
|
Cost of risk
(CoR)(1)
|
0.26%
|
0.40%
|
(14)bps
|
0.42%
|
(16)bps
|
|
Total provision to customer
loans
|
0.84%
|
0.72%
|
12bps
|
0.84%
|
-bps
|
|
Indexed loan to value ratio (LTV)
of mortgage portfolio(2)
|
53.6%
|
53.6%
|
-%pts
|
52.9%
|
0.7%pts
|
|
Regulatory Capital:
|
|
|
|
|
|
|
CET1 ratio (IFRS 9
transitional)
|
14.6%
|
14.7%
|
(0.1)%pts
|
14.7%
|
(0.1)%pts
|
|
CET1 ratio (IFRS 9 fully
loaded)
|
14.5%
|
14.4%
|
0.1%pts
|
14.3%
|
0.2%pts
|
|
Total capital ratio
|
20.9%
|
21.2%
|
(0.3)%pts
|
21.2%
|
(0.3)%pts
|
|
Minimum requirement for own funds
and eligible liabilities (MREL) ratio
|
33.9%
|
31.0%
|
2.9%pts
|
31.9%
|
2.0%pts
|
|
UK leverage ratio
|
5.3%
|
5.0%
|
0.3%pts
|
5.0%
|
0.3%pts
|
|
Tangible net asset value (TNAV)
per share
|
361.2p
|
350.5p
|
10.7p
|
359.8p
|
1.4p
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funding and Liquidity:
|
|
|
|
|
|
|
Loan to deposit ratio
(LDR)
|
|
|
|
107%
|
108%
|
(1)%pt
|
109%
|
(2)%pts
|
|
Liquidity coverage ratio
(LCR)
|
|
|
151%
|
153%
|
(2)%pts
|
146%
|
5%pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
CoR for the 6 months to March is
calculated on an annualised basis.
|
(2)
|
LTV of the mortgage portfolio is
defined as mortgage portfolio weighted by balance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summary balance sheet
|
|
|
|
|
|
|
|
As at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 Mar
2024
|
30 Sep
2023
|
Change
|
|
|
|
|
|
|
|
|
|
£m
|
|
£m
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer loans
|
|
|
|
|
|
|
|
|
72,675
|
|
72,754
|
-
|
of which Mortgages
|
|
|
|
|
|
|
|
|
56,627
|
|
57,497
|
(2)
|
of which Unsecured
|
|
|
|
|
|
|
|
|
6,727
|
|
6,519
|
3
|
of which Business
|
|
|
|
|
|
|
|
|
9,321
|
|
8,738
|
7
|
Other financial assets
|
|
|
|
|
|
|
|
|
19,058
|
|
17,766
|
7
|
Other non-financial
assets
|
|
|
|
|
|
|
|
1,300
|
|
1,266
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
|
93,033
|
|
91,786
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
|
|
|
|
|
|
|
68,184
|
|
66,609
|
2
|
of which relationship
deposits(1)
|
|
|
|
|
|
|
|
|
36,267
|
|
35,394
|
2
|
of which non-linked savings
|
|
|
|
|
|
|
|
|
10,759
|
|
9,741
|
10
|
of which term deposits
|
|
|
|
|
|
|
|
|
21,158
|
|
21,474
|
(1)
|
Wholesale funding
|
|
|
|
|
|
|
|
|
16,223
|
|
16,658
|
(3)
|
Other liabilities
|
|
|
|
|
|
|
|
|
2,967
|
|
2,912
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
|
|
87,374
|
|
86,179
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shareholders'
equity
|
|
|
|
|
|
|
|
|
4,824
|
|
5,013
|
(4)
|
Additional Tier 1 (AT1)
equity
|
|
|
|
|
|
|
|
|
835
|
|
594
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
5,659
|
|
5,607
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
|
|
|
|
|
|
|
93,033
|
|
91,786
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Weighted Assets (RWAs)
|
|
|
|
|
|
|
|
|
25,581
|
|
25,176
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Current account
and linked savings balances
Business and financial
review
Chief Executive Officer's
statement
Delivering against our
strategy
"Over the
first six months, we have continued to deliver on our strategic
ambitions in line with expectations. While we expect there to be
headwinds through the second half of the year, we remain well
placed to deliver growth in our target segments."
David Duffy, CEO
Dear Stakeholder,
I am pleased to report that in the
first half of the final year of our current strategic cycle, we
have delivered continued operational, financial and strategic
progress in line with our Purpose-led digital strategy.
In May, our shareholders voted to
approve the Scheme of Arrangement ("Scheme") and associated
resolutions in connection with the proposed acquisition of Virgin
Money by Nationwide Building Society ("Nationwide"). Together, Virgin Money and Nationwide will become the
second largest mortgage and savings provider in the UK. The
proposed combination presents an exciting opportunity to build on
Virgin Money's strategic and operational progress in recent years,
including the consistent growth we have delivered in retail and
business lending, and deposits, and the combined group will be able
to offer more great products and services to a larger customer
base. The proposed acquisition remains subject to the satisfaction
or waiver of all remaining conditions of the Scheme, including
regulatory approval, and final approval by the Court.
During the first half, we have
delivered further growth across all our target segments, despite
the competitive backdrop in UK banking. We've continued to invest
in our capabilities throughout the period and our planned cost
savings have helped partially mitigate ongoing inflationary
pressure. The higher rate environment and ongoing Effective
Interest Rate (EIR) adjustments in our credit cards portfolio,
reflecting strong customer activity and updated assumptions,
supported our net interest margin, which, combined with focused
management of costs saw a stable adjusted cost: income ratio for
H1, in line with our guidance.
So far this financial year, the
macroeconomic backdrop has modestly improved, with inflation
continuing to fall, though remaining above the Bank of England's
target range. As a result, market interest rate expectations have
been volatile through the period, but with continued low
unemployment and wage inflation supporting customer affordability.
Overall, whilst GDP growth remains low, the level of activity in
key lending categories has shown some signs of
improvement.
Against this backdrop, we've
continued to execute our strategy, with growth in Business lending,
up 7% in H1 24, and Unsecured, 3% higher in H1 24, offsetting a 2%
reduction in mortgages. Overall deposits also grew 2% during the
half supported by growth in our relationship deposit base where our
digital propositions, including Personal and Business current
accounts (PCAs and BCAs) continued to attract new customers.
Following the relaunch of Virgin Money Investments (VMI) during
FY23, we were pleased to complete the acquisition of VMI from abrdn
in April, which will support further growth.
During H1, we've also continued to
deliver our restructuring programme, with further gross costs
savings realised during the period helping to partially offset
inflationary impacts and investment. Given the proposed
acquisition, we will now defer some activity that was due to take
place later in the year, which will limit the level of cost savings
realised in H2. As announced alongside FY23 results, we launched
the financial crime prevention programme (FCPP) across H1 as we
focus on upgrading our financial crime prevention and cyber
capabilities. We are also reaching the final stages of our
preparations for the implementation of the next phase of Consumer
Duty, covering off-sale products and services, on 31 July
2024.
As we look forward over the
remainder of the year, following a good first half we do expect
some headwinds, with downward pressure on NIM relative to H1 driven
by ongoing competition, lower interest rates and a lower expected
contribution from Effective Interest Rate (EIR) adjustments in our
credit cards portfolio. On costs, inflation and continuing
investment will only be partially mitigated by the ongoing cost
savings programme, where certain restructuring activities have now
been deferred in light of the proposed acquisition by Nationwide,
representing further headwinds relative to H1.
Following the successful
shareholder vote in May, during the second half of the year we will
also focus on concluding the transaction with Nationwide, which
remains subject to the satisfaction or waiver of all remaining
conditions of the Scheme, including regulatory approval and final
approval by the Court. The terms of the cash acquisition comprise a
220p per share total cash price to compensate shareholders for the
fundamental value of the Virgin Money Group. This includes an FY
2024 dividend of 2 pence per share, which the Board is pleased to
announce today, and which will be paid on 30 July 2024. We continue
to expect the transaction to conclude in calendar Q4
2024.
Good financial performance in H1
2024
The higher rate environment,
combined with our strategic execution, saw the Group deliver good
financial performance during H1. Statutory RoTE of 9.1% improved
relative to last year (H1 2023: 6.1%), reflecting higher profit
before tax and also a lower cash flow hedge reserve level, given
the rate environment. Statutory profit before tax in H1 2024 was
£279m, 18% up on H1 2023 (£236m), as higher income and lower
impairments offset higher operating and administrative
expenses.
Total income on a statutory basis
increased 1% to £923m (H1 2023: £914m) compared to the same period
a year ago. This was primarily driven by a continued improvement in
net interest margin, to a 1.94% NIM for H1 (H1 2023: 1.91%), as the
benefits from the reinvestment rate of the structural hedge and
ongoing credit card EIR adjustments reflecting strong customer
activity and updated assumptions, offset spread pressure in
mortgages and deposit competition and migration. Non-interest
income of £64m was 3% higher year-on-year, primarily reflecting
lower hedge ineffectiveness.
Business and financial
review
Chief Executive Officer's
statement
Operating and administrative costs
of £551m were 3% higher when compared to H1 2023 as gross cost
savings from the restructuring programme were more than offset by
persistent inflation, including higher wages and a £10m impact from
the new Bank of England levy in Q2. The adjusted cost: income
ratio, excluding the levy and notable items, of 52.3% was broadly
stable half-on-half (H2 23: 52.6%).
Operating and administrative costs
included £49m of notable expenditure during H1 (H1 2023: £57m),
primarily relating to ongoing restructuring activity (£33m) and the
financial crime prevention programme (£15m). Credit impairments of
£93m were significantly lower year-on-year (H1 2023: £144m), with
the cost of risk of 26bps (H1 2023: 40bps) reflecting updated, more
benign macroeconomic assumptions and our ongoing review of the
application of significant increases in credit risk criteria (SICR)
on the credit card portfolio, which reduced the expected credit
loss provision by £31m in H1.
Lending balances finished the
period at £72.7bn, broadly stable compared to the 2023 level,
reflecting the continued growth in our target segments of Business
and Unsecured lending offset by lower mortgages balances. Overall
deposit balances increased 2% to £68.2bn supported by growth in
relationship deposits which remained at 53% of the total deposit
base. With lending broadly stable, this enabled a reduction in the
loan to deposit ratio to 107% (FY23: 109%).
The Group maintained a
conservative balance sheet position, with resilient asset quality
supported by the modestly improving economic outlook, while
capital, funding and liquidity all remained robust, with provision
coverage stable on FY23 at 84bps. The CET1 ratio remains strong at
14.6% (FY23: 14.7%), as underlying capital generation offset RWA
growth in the period. The CET1 movement in H1 incorporated the
c.£63m returned to shareholders as part of the £150m buyback
programme announced alongside FY23 results, prior to the
cancellation of the remainder of the programme given the proposed
acquisition of the Company by Nationwide.
Continuing our strategic execution during the first half of
2024
We set out a three year plan at
FY21 to digitise the bank and improve our financial performance. In
the first 6 months of the final year of this plan,
the Group delivered
growth in key target lending segments, launched improved
propositions, delivered savings, and invested in resilience and
sustainability while providing further capital distributions to
shareholders. Whilst we see some headwinds over the remainder of
the year to the NIM and cost outlook, we continue to see an
opportunity for further growth in our target segments.
Pioneering
Growth
In Business lending, our
established franchise continued to deliver strong growth,
increasing balances by 7% in H1 to £9.3bn, supported by healthy
demand at good margins in our resilient sector specialisms, and
benefiting from our relationship manager-led approach. In
Unsecured, lending increased 3% in H1 to £6.7bn, driven mainly by
measured, 5% growth in credit cards, reflecting strong demand from
existing customers, and further new account acquisition in a
growing market. During the first half we also saw resilient credit
card spending, broadly stable on a per account basis to a year
ago.
In Mortgages, balances reduced by
2% in H1 to £56.6bn, reflecting a subdued market for completions in
which we continued to trade nimbly to optimise performance,
including the roll-out of our premium broker service to 225
mortgage intermediaries, covering c.40% of VMUK applications. Q2
saw higher application volumes than in Q1, against a backdrop of
improving momentum across the market.
Relationship deposits also
increased by 2% to £36.3bn, reflecting the strength of our current
accounts and related exclusive propositions for customers. Current
account balances were down 3% over the half, reflecting general
market trends as customers migrated to higher yielding savings
products. Despite lower balances, we continued to attract new
customers during the period, selling c.62k new personal current
accounts (H2 23: c.44k) and c.19k new business current accounts
during the half (H2 23: c.19k). Overall relationship customer
numbers continued to increase in the half, as we added c.60k,
taking the total to 3.8m.
Delighted Customers and
Colleagues
In February, Virgin Money
announced we had reached agreement to buy out our joint venture
(JV) partners abrdn and take full ownership of Virgin Money
Investments (VMI), with the transaction subsequently completing in
early April. This follows the launch of our new digital platform
and pensions proposition last year, offering customers a range of
award-winning investment products. The transaction will help
support growth in AUM and enable Virgin Money and abrdn to focus on
their respective strengths.
We continued to focus on
digitising customer journeys and improving service levels in the
first half, including continued automation of key processes. The
Group's Smile Score is now 57% (FY23: 49%), which reflects
enhancements to the customer survey on which this metric is based,
which now gathers feedback from a wider range of customers,
together with our ongoing focus on improving the customer
experience.
Colleague Engagement levels were
also strong, at 83% in our most recent survey, up 3% on the
position at FY23. During H1, we've also continued to focus on the
DE&I agenda and were pleased to be named in the Women in
Finance Charter for our work on our BRAVER initiative.
Super-straightforward
Efficiency
At H1, we delivered further cost
savings as part of our cost savings programme, with c.£150m of
annualised gross cost savings now realised (FY23: £130m), including
benefits from sourcing, digitisation and organisational design. We
have continued to make good progress post the period-end and the
programme remains important to help offset headwinds from
investment and inflation, including from annual wage rises, as well
as maintaining resilience and service levels. Given the proposed
acquisition, we will now defer some activity that was due to take
place later in the year, which will limit the level of cost savings
realised in H2.
Business and financial
review
Chief Executive Officer's
statement
In digital and service
developments, our new virtual assistant Redi has now supported over
1 million conversations, attracting strong Smile scores and solving
more than 50% of queries without the need for further escalation.
Digital primacy, which measures the proportion of active PCA and
Card customers who are digital-only in their engagement with Virgin
Money, is now up to 68% (FY23: 61%), reflecting improved processes
and data capture. We were also pleased to have delivered a
significant year-on-year improvement in our online and mobile
banking security as rated by Which?, demonstrating our focus on
improving our digital defences.
Discipline and
Sustainability
We have made a good start on our
new financial crime prevention programme (FCPP), with the programme
tracking in line with expectations. Over the next few months, we
will be implementing the upgrade of our strategic financial crime
platform to replace a number of current systems. Ahead of that we
have increased our real time screening capabilities, upgraded our
customer risk assessments, and added a new suite of financial crime
detection triggers. In parallel, we have progressed several fraud
prevention projects, including investing in a market leading
anti-fraud system, which is now into its implementation phase. We
are also making progress on the use of enhanced behavioural
modelling and biometric validation, with further implementation
expected in H2. c.£15m has been invested in the programme during
the first half.
Credit quality remained solid
during the half with the portfolio continuing to perform well, and
with overall arrears trends remaining consistent with prior
reporting, including a gradual increase in credit card arrears, as
expected, mainly reflecting the ongoing portfolio maturation and
diversification of our cards book.
From a sustainability perspective,
we have continued to focus on developing customer propositions to
support the transition to a low-carbon economy over time. Through
our partnership with Good Things Foundation, all our stores are now
Databanks offering free data to customers as we continue to focus
on fighting the Poverty Premium.
Outlook
Overall the business has had a
positive first half of the year with good delivery across key
areas. As we look out in to the second half, the Group does expect
downward pressure on NIM relative to H1. We also anticipate cost
pressures from inflation and investment in H2, which will only be
partially mitigated by the ongoing cost savings programme, where
certain restructuring activities have now been deferred in light of
the proposed acquisition by Nationwide.
On volumes, we continue to
anticipate 5-10% growth across our target lending segments of
business and unsecured in FY24, in line with our previous guidance.
From an income perspective, we continue to expect FY24 NIM to be in
the range of 190-195bps, but with H2 NIM expected to be lower than
H1, given the impact of a lower expected contribution from cards
EIR adjustments, along with ongoing competition and lower interest
rates, partially offset by the reinvestment rate of the structural
hedge.
The adjusted cost: income ratio is
expected to be higher in H2 as ongoing inflation and investment
will only be partially mitigated by the cost savings programme,
where given the proposed acquisition, we will now defer some
activity that was due to take place later in the year, limiting the
level of cost savings realised in H2. The
Group also expects that transaction costs associated with the
proposed acquisition will be significantly higher in the second
half.
We continue to expect the cost of
risk to be in the range of 30-35bps for FY24, as guided at FY23,
incorporating the ongoing SICR review on the credit
card portfolio and a modestly improving
economic backdrop. Given the proposed acquisition by Nationwide,
the Group does not intend to announce any further share buybacks or
dividends, representing a headwind to returns, assuming the
transaction proceeds to completion in line with the anticipated
timetable set out in the Scheme document.
Given these anticipated headwinds
over the remainder of the year, we expect the return on tangible
equity to be lower in the second half of the year, relative to the
first half.
Following Virgin Money
shareholders' approval of the Scheme and related matters for the
proposed acquisition of Virgin Money by Nationwide in May, the
transaction continues to track in line with previously highlighted
timescales, with completion currently expected in calendar Q4 2024.
Completion remains subject to the satisfaction or waiver of all
remaining conditions of the Scheme, including regulatory approvals
and final approval by the Court, but looking forward, the proposed
combination with Nationwide represents an exciting longer-term
opportunity, creating the second largest mortgage and savings
provider in the UK.
We have an attractive business
that is well positioned to continue to deliver on its growth
ambitions. Over the remainder of the year, we'll continue to invest
in improving the customer experience and launching innovative and
rewarding products, whilst maintaining a resilient balance sheet
and investing further in our capabilities.
Finally, I would like to take this
opportunity to thank all of the stakeholders who have supported us
on our journey. Thank you to our customers for their loyalty, to
our colleagues for their hard work, and to our investors for their
continued support.
David Duffy, Chief Executive Officer - 12 June
2024
Business and financial
review
Chief Financial Officer's
review
Delivering strategic and financial
momentum
"The Group delivered continued
business momentum during H1, supported by ongoing strategic
execution, with trading broadly as anticipated. The Group believes
the acquisition of Virgin Money by Nationwide presents an exciting
opportunity to build on our significant strategic progress by
combining two complementary businesses that together can offer more
great products and services to a larger customer base, while
delivering value for our shareholders."
Clifford Abrahams, Group CFO
Financial
Highlights
Statutory profit before
tax
£279m
H1 2023: £236m
|
|
Profit before tax (excluding
notable items)
£345m
H1 2023: £312m
|
|
Statutory RoTE
9.1%
H1 2023: 6.1%
|
NIM
1.94%
H1 2023: 1.91%
|
|
Adjusted cost: income
ratio
52.3%(1)
H1 2023: 51.1%
|
|
CoR
26bps
H1 2023: 40bps
|
CET1 ratio
14.6%
FY23: 14.7%
|
|
Capital distributions
announced
£26m
H1 2023: £45m
|
|
Relationship deposit
growth
2.5%
H1 2023: 2.9%
|
LCR
151%
FY23: 146%
|
|
NSFR
136%
FY23: 136%
|
|
Dividend per share
2.0p
FY23: 5.3p
|
(1)
|
Adjusted to exclude all notable
items as shown in the tables on page 88 and the new BoE Levy
recognised in 2024 of £10m.
|
Business and financial
review
Chief Financial Officer's
review
Momentum in delivering our strategy
The Group has delivered a good
first half of the year, with ongoing strategic delivery and
financial momentum. In line with our strategy, the Group has
continued to grow active relationship accounts and delivered
further growth in its target lending segments of business and
unsecured, while broadly maintaining its deposit mix. This,
alongside ongoing credit card EIR adjustments, reflecting strong
customer activity and updated assumptions, supported 1% growth in
total operating income relative to H1 2023. Operating and
administrative expenses (excluding notable items) were higher
year-on-year, reflecting inflation, including annual wage rises,
and the new BoE Levy, which together more than offset savings in
the period. Overall, this resulted in an adjusted cost: income
ratio of 52% (H1 2023: 51%). Credit quality remained resilient in
H1, with provision coverage stable when compared with FY 2023. The
Group's balance sheet remains strong with a robust funding and
liquidity position. CET1 finished the half at 14.6% (FY23: 14.7%),
well in excess of regulatory requirements and the Group's target
range of 13-13.5%.
Growing in target segments
The Group delivered further
lending growth in its target areas during the first half of the
year, while overall customer lending was stable at £72.7bn.
Mortgage balances reduced 1.5% during the period to £56.6bn, as the
rate environment and wider cost of living pressures tempered
purchase activity, albeit with signs of improved market activity
levels since January. Business lending increased 6.7% overall, as
growth in BAU balances offset ongoing reductions in
government-backed lending. Unsecured balances increased 3.2% during
H1 to £6.7bn, driven by 5.3% growth in the credit card portfolio.
We continued to attract new deposits during the first half of the
year, supporting overall deposit growth of 2.4%, while the mix of
deposits remained broadly stable.
Resilient financial performance
Statutory profit before tax in H1
2024 was £279m, which was 18% higher compared to last year (H1
2023: £236m), reflecting higher operating income and lower
impairments, offsetting growth in operating and administrative
expenses. Statutory RoTE of 9.1% in H1 was improved relative to
last year (H1 2023: 6.1%), reflecting improved profitability, a
lower tax charge, and a reduction in the cash flow hedge reserve.
NIM of 1.94% (H1 2023: 1.91%) was higher year-on-year, as benefits
from the reinvestment rate of the structural hedge and ongoing
credit card EIR adjustments offset spread pressure in mortgages and
ongoing deposit competition and migration. Non-interest income of
£64m was 3% higher year-on-year, primarily reflecting lower hedge
ineffectiveness. Overall, this resulted in total operating income
that was 1% better compared to a year ago. Operating and
administrative costs of £551m were 3% higher when compared to H1
2023 as gross cost savings from the restructuring programme were
more than offset by inflation and the new BoE Levy. Operating and
administrative costs included £49m of notable expenditure during
H1, primarily relating to the financial crime prevention programme
and ongoing restructuring activity. Credit impairments of £93m were
significantly lower year-on-year, reflecting updated macroeconomic
assumptions and the ongoing review of the application of SICR on
the credit card portfolio, which reduced the ECL provision by £31m
during the period.
As a result of the Group's
performance and as previously highlighted as part of the terms of
the proposed acquisition of Virgin Money by Nationwide, the Board
has announced an FY 2024 dividend of 2.0p.
Robust balance sheet with strong capital, liquidity and
funding position
The Group maintained a
conservative balance sheet position, including robust funding and
liquidity, a strong capital position and stable
provision coverage. The Group's total credit
provision as at H1 2024 was £617m (FY23: £617m) equivalent to a
coverage ratio of 0.84% (FY23: 0.84%). Funding and liquidity remain
strong, with the 12-month average LCR ratio increasing to 151%
(FY23 12-month average: 146%) and 12-month average net stable
funding ratio (NSFR) stable at 136% (FY23: 136%). The LDR reduced
to 107% (FY23: 109%) as deposit balances increased 2.4% to £68.2bn,
while lending volumes were broadly stable at £72.7bn. The CET1
ratio remains strong at 14.6% (FY23: 14.7%), as capital generation
more than offset RWA growth in the period. The CET1 movement in H1
incorporated c.£63m returned to shareholders as part of the £150m
buyback programme announced alongside FY23 results, prior to the
cancellation of the programme, given the proposed acquisition of
the Company by Nationwide.
Outlook
Following a strong H1, during the
second half of the year, the Group expects downward pressure on NIM
relative to H1, primarily reflecting a lower expected contribution
from cards EIR adjustments, and ongoing competition. The Group also
anticipates cost pressures from inflation and investment in the
second half, which will only be partially mitigated by the ongoing
cost savings programme, where certain restructuring activities have
now been deferred in light of the proposed acquisition by
Nationwide. In the medium term, the Group remains focussed on
delivering growth in return accretive segments, continued
cost-efficiency and ongoing balance sheet resilience and believes
the proposed acquisition by Nationwide will support its strategic
ambitions, leveraging Nationwide's scale and pace of investment, as
well as Virgin Money's capabilities and strengths.
Business and financial
review
Chief Financial Officer's
review
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 months
to
|
6 months
to
|
|
|
6 months
to
|
|
|
|
|
|
31 Mar
2024
|
31 Mar
2023
|
Change
|
|
30 Sep
2023
|
Change
|
|
|
|
|
£m
|
|
£m
|
%
|
|
|
£m
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income (excluding
notable items)
|
|
|
868
|
|
855
|
2
|
|
|
861
|
1
|
|
Acquisition accounting
unwinds
|
|
|
(9)
|
|
(3)
|
200
|
|
|
(26)
|
(65)
|
|
Statutory net interest income
|
|
|
859
|
|
852
|
1
|
|
|
835
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income (excluding
notable items)
|
|
|
72
|
|
78
|
(8)
|
|
|
79
|
(9)
|
|
Hedge ineffectiveness
|
|
|
(8)
|
|
(16)
|
(50)
|
|
|
-
|
n/a
|
|
Other
|
|
|
-
|
|
-
|
-
|
|
|
(1)
|
(100)
|
|
Statutory non-interest income
|
|
|
64
|
|
62
|
3
|
|
|
78
|
(18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (excluding
notable items(1))
|
|
|
940
|
|
933
|
1
|
|
|
940
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory total operating income
|
|
|
923
|
|
914
|
1
|
|
|
913
|
1
|
|
(1)
|
Notable items are presented
separately above, with full details included on page 88.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview
Statutory total operating income
of £923m was 1% higher compared with H1 2023 and H2 2023, driven by
growth in NII. NII (excluding notable items) improved 2%
year-on-year as NIM increased 3bps to 1.94%, including a Q2 NIM of
1.99%. There were also £(9)m of acquisition accounting unwinds
within NII during H1 (H1 2023: £(26)m), reflecting fair value
accounting adjustments at the time of the CYBG and Virgin Money
acquisition. Statutory non-interest income was 3% higher
year-on-year.
NII and NIM
Asset yields increased 151bps
compared to H1 2023 at an aggregate level. Within this, mortgage
yields increased 83bps, given the higher rate environment, while
average mortgage balances were 2% lower in H1 2024 year-on-year.
Together, this resulted in mortgage interest income that was 31%
higher year-on-year.
Unsecured average balances
increased 6% relative to H1 2023, in line with the Group's strategy
to target growth in higher-yielding lending. Average yields
increased 293bps year-on-year and incorporated £72m of positive EIR
adjustments in the credit cards portfolio in H1, equivalent to
16bps of NIM on an annualised basis, reflecting behavioural
outperformance relative to more prudent assumptions, and the
removal of the temporary macro-economic adjustments that were
previously applied at 30 September 2023, partly offset by the Group
reducing the expectation of future balances. Altogether, this drove
a 53% year-on-year increase in interest income from unsecured
lending.
In Business, a 179bps increase in
the average yield was driven by a combination of the higher rate
environment and a reduction in lower-yielding government-backed
lending. This, alongside a growth in average balances, resulted in
40% higher interest income year-on-year.
Elsewhere, the average yield on
the Group's liquid assets increased 189bps reflecting the higher
rate environment.
In March, £262m of Cash Ratio
Deposits that were with the BoE and classed as non-interest earning
assets were returned to the Bank as part of the introduction of the
new BoE Levy and are now classed as interest earning
assets.
Liability rates on interest
bearing liabilities increased 167bps relative to H1 2023, with
increased average rates across all products, mainly due to the
higher rate environment.
Current account average balances
reduced during the period, reflecting deposit migration into higher
rate products. Term deposit average balances increased year-on-year
as the Group actively participated in this market for new funding.
Savings account balances reduced in H1 2024 relative to H1 2023 due
to the attrition or churn of existing balances. Wholesale funding
average balances reduced during the period, primarily reflecting
the repayment of TFSME.
Business and financial
review
Chief Financial Officer's
review
Net interest income
|
6 months ended 31 March
2024
|
|
6
months ended 31 March 2023
|
|
Average
balance
|
Interest income/
(expense)
|
Average
yield/ (rate)(1)
|
|
Average
balance
|
Interest
income/ (expense)
|
Average
yield/ (rate)(1)
|
Average balance sheet
|
£m
|
£m
|
%
|
|
£m
|
£m
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
Mortgages
|
57,193
|
942
|
3.30
|
|
58,315
|
719
|
2.47
|
Unsecured
|
6,885
|
333
|
9.66
|
|
6,492
|
218
|
6.73
|
Business(2)
|
8,997
|
356
|
7.91
|
|
8,359
|
255
|
6.12
|
Liquid assets
|
15,835
|
417
|
5.27
|
|
15,651
|
264
|
3.38
|
Due from other banks
|
698
|
16
|
4.47
|
|
748
|
5
|
1.25
|
Swap income/other
|
-
|
331
|
n/a
|
|
-
|
252
|
n/a
|
Other interest earning
assets
|
3
|
-
|
n/a
|
|
3
|
-
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average interest earning assets
|
89,611
|
2,395
|
5.34
|
|
89,568
|
1,713
|
3.83
|
Total average non-interest earning assets
|
2,296
|
|
|
|
2,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets
|
91,907
|
|
|
|
92,124
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
Current accounts
|
14,876
|
(127)
|
(1.71)
|
|
16,123
|
(84)
|
(1.04)
|
Savings accounts
|
23,738
|
(329)
|
(2.77)
|
|
27,560
|
(179)
|
(1.30)
|
Term deposits
|
23,493
|
(530)
|
(4.51)
|
|
17,129
|
(206)
|
(2.41)
|
Wholesale funding
|
17,186
|
(539)
|
(6.28)
|
|
18,395
|
(387)
|
(4.22)
|
Other interest earning
liabilities
|
190
|
(2)
|
n/a
|
|
152
|
(2)
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average interest bearing liabilities
|
79,483
|
(1,527)
|
(3.84)
|
|
79,359
|
(858)
|
(2.17)
|
Total average non-interest bearing
liabilities
|
6,848
|
|
|
|
6,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average liabilities
|
86,331
|
|
|
|
86,249
|
|
|
Total average equity
|
5,576
|
|
|
|
5,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average liabilities and average
equity
|
91,907
|
|
|
|
92,124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
868
|
1.94
|
|
|
855
|
1.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Average yield is calculated by
annualising the interest income/expense for the period.
|
|
(2)
|
Includes loans designated at fair
value through profit or loss (FVTPL).
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
Non-interest income (excluding
notable items) was £6m lower relative to H1 2023 at £72m. The key
driver for this movement was the reclassification of insurance
costs incurred on packaged current accounts from April 2023 as
non-interest income; these were previously recognised within
operating and administrative expenses. Excluding this impact,
performance was broadly stable year-on-year, reflecting resilient
credit card activity and business fee income. There were a further £(8)m of notable items within
non-interest income (H1 2023: £(16)m) arising from hedge volatility
and rate volatility in the period.
Business and financial
review
Chief Financial Officer's
review
Costs
|
|
|
6 months
to
|
6 months
to
|
|
|
6 months
to
|
|
|
|
|
|
31 Mar
2024
|
31 Mar
2023
|
Change
|
|
30 Sep
2023
|
Change
|
|
|
|
|
£m
|
|
£m
|
%
|
|
|
£m
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staff costs
|
|
|
213
|
|
177
|
20
|
|
|
190
|
12
|
|
Property and
infrastructure
|
|
|
20
|
|
19
|
5
|
|
|
21
|
(5)
|
|
Technology and
communications
|
|
|
64
|
|
61
|
5
|
|
|
65
|
(2)
|
|
Corporate and professional
services
|
|
|
75
|
|
87
|
(14)
|
|
|
86
|
(13)
|
|
Depreciation, amortisation and
impairment
|
|
|
43
|
|
49
|
(12)
|
|
|
46
|
(7)
|
|
Other expenses
|
|
|
87
|
|
84
|
4
|
|
|
86
|
1
|
|
Operating and administrative expenses (excluding notable
items)
|
|
|
502
|
|
477
|
5
|
|
|
494
|
2
|
|
Notable items:
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
33
|
|
53
|
(38)
|
|
|
78
|
(58)
|
|
Financial crime prevention
programme
|
|
|
15
|
|
-
|
n/a
|
|
|
-
|
n/a
|
|
Legacy conduct
|
|
|
(4)
|
|
4
|
n/a
|
|
|
8
|
n/a
|
|
Other
|
|
|
5
|
|
-
|
n/a
|
|
|
59
|
(92)
|
|
Statutory operating and administrative
expenses
|
|
|
551
|
|
534
|
3
|
|
|
639
|
(14)
|
|
Cost: income ratio
|
|
|
59.7%
|
|
58.5%
|
1.2%pts
|
|
|
70.0%
|
(10.3)%pts
|
|
Adjusted cost: income ratio
(1)(2)
|
|
|
52.3%
|
|
51.1%
|
1.2%pts
|
|
|
52.6%
|
(0.3)%pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Notable items are presented
separately above. Full details of all notable items is included on
page 88.
|
(2)
|
Adjusted to exclude all notable
items shown above and the new BoE Levy recognised in 2024 of
£10m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses (excluding
notable items) increased 5% year-on-year to £502m, while the
adjusted cost: income ratio increased 1.2%pts to 52.3%. The Group
has continued to deliver its restructuring programme, which has
driven further cost efficiencies, with annualised savings of
c.£150m to date. Staff costs were £36m (20%) higher relative to H1
2023 due to wage inflation and a £11m lower defined benefit pension
credit year-on-year, partly mitigated by restructuring benefits.
The reduction in corporate and professional services costs
year-on-year included the non-recurrence of complaints handling
costs with service now improved. The Group also benefited from a
lower depreciation charge in H1 2024, primarily due to the run-off
of assets and the impact of store closures. Other expenses of £87m
in H1 2024 were £3m higher year-on-year and included a £10m initial
estimate of the costs related to the new BoE Levy (that replaced
the BoE's Cash Ratio Deposit Scheme, with effect from 1 March
2024), partly offset by higher VAT recoveries. The
BoE Levy is the means of funding the costs of the
BoE's policy functions in pursuit of its Financial Stability and
Monetary Policy objectives that is paid for by eligible
institutions.
The Group incurred c.£49m of notable expenditure during the period, £8m
lower than in H1 2023. Restructuring charges of £33m included spend
related to ongoing digitisation, property changes and severance.
During the period, the Group also incurred £15m related to the new
financial crime prevention programme to support the upgrade of our
financial crime prevention and cyber defence capabilities. There
was a net £4m legacy conduct release during the period, reflecting
the latest risk assessment of potential cases. Other notable
expenditure of £5m included costs associated with the proposed
acquisition of Virgin Money by Nationwide.
Impairments
As at 31 March 2024
|
Credit
provisions
£m
|
Gross
lending
£bn
|
Coverage
ratio
bps
|
Net
CoR(1)
bps
|
% of loans
in
Stage 2
|
% of loans
in
Stage 3
|
|
Mortgages
|
55
|
56.9
|
10
|
-
|
4.5
|
1.0
|
|
Unsecured:
|
425
|
7.1
|
635
|
242
|
18.5
|
2.0
|
|
of which credit cards
|
391
|
6.5
|
648
|
269
|
15.9
|
2.1
|
|
of which personal loans and overdrafts
|
34
|
0.6
|
520
|
1
|
44.9
|
0.9
|
|
Business
|
137
|
9.3
|
155(2)
|
30
|
16.9
|
4.9
|
|
Total
|
617
|
73.3
|
84
|
26
|
7.4
|
1.6
|
|
of which Stage 2
|
353
|
5.4
|
651
|
|
|
|
|
of which Stage 3
|
161
|
1.2
|
1,645
|
|
|
|
|
(1)
|
CoR is calculated on an annualised
basis.
|
(2)
|
Government-guaranteed element of
loan balances excluded for the purposes of calculating the Business
and total coverage ratio.
|
|
|
|
|
|
|
|
|
|
As at 30 September 2023
|
Credit
provisions
£m
|
Gross
lending
£bn
|
Coverage
ratio
bps
|
Net
CoR
bps
|
% of
loans in
Stage
2
|
% of
loans in
Stage
3
|
|
Mortgages
|
57
|
57.8
|
10
|
-
|
4.7
|
1.0
|
|
Unsecured:
|
429
|
6.8
|
665
|
430
|
24.1
|
1.7
|
|
of which credit cards
|
392
|
6.1
|
688
|
483
|
21.7
|
1.8
|
|
of which personal loans and overdrafts
|
37
|
0.7
|
488
|
86
|
44.3
|
0.9
|
|
Business
|
131
|
8.7
|
160(1)
|
44
|
22.8
|
4.7
|
|
Total
|
617
|
73.3
|
84
|
42
|
8.6
|
1.5
|
|
of which Stage 2
|
400
|
6.3
|
633
|
|
|
|
|
of which Stage 3
|
128
|
1.1
|
1,393
|
|
|
|
|
(1)
|
Government-guaranteed element of
loan balances excluded for the purposes of calculating the Business
and total coverage ratio.
|
|
|
|
|
|
|
|
|
|
Business and financial
review
Chief Financial Officer's
review
ECL provisions of £617m as at H1
2024 were stable relative to FY23 (£617m). Alongside stable
customer lending, this resulted in coverage of 84bps, which was
unchanged from FY23. The components of the total ECL provision
includes £536m of modelled and individually assessed ECL (FY23:
£540m) and £81m of management adjustments (MAs) (FY23: £76m). These
factors resulted in a £93m impairment charge during the period,
equivalent to an annualised CoR of 26bps.
The key macroeconomic assumptions
used in the Group's IFRS 9 modelling were updated based on
scenarios provided by our third-party provider Oxford Economics.
The weightings applied to the scenarios were 10% to the Upside
scenario, 55% to the Base scenario and 35% to the Downside
scenario. The weighted macroeconomic scenario includes a 0.3%
decline in GDP in 2024 before a modest recovery thereafter, peak
unemployment of 4.8% in 2027 and
a 3.4% contraction in the House Price Index (HPI)
in 2024, followed by a steady recovery thereafter.
During the period, the Group
finalised changes to the credit card SICR model that removed the
requirement for a two-month probation before accounts could return
to Stage 1 from Stage 2 for non-forborne exposures. Overall, this
reduced the ECL by £31m during H1 2024. Excluding the impact of
SICR changes, the increase in ECL primarily reflected growth in
Unsecured and Business lending.
During the first half of the year,
loans classified as Stage 2 reduced from 9% of the portfolio at
FY23 to 7%, including the impact from SICR model changes in the
credit cards portfolio. 96% of the Stage 2 lending balances remain
<30 days past due (DPD). Stage 3 assets as a % of Group lending
increased modestly to 1.6% (FY23: 1.5%).
Aggregate provision coverage of
84bps at H1 remained consistent during the period. In Mortgages,
the coverage ratio of 10bps is considered appropriate for the
conservative loan book that is weighted to low LTVs. The portfolio
continues to evidence good underlying credit performance, despite a
gradual increase in late-stage arrears over the period.
Our Unsecured book coverage ratio
of 635bps includes 648bps of coverage for our credit card portfolio
and 520bps of coverage for our smaller personal loans and
overdrafts book. Credit card portfolio coverage was lower relative
to FY23, incorporating the impact of SICR model changes and revised
macroeconomic forecasts. Credit card arrears continued to increase
gradually during the first half of the year, mainly reflecting the
ongoing maturation and diversification of the portfolio. Despite
this, 97% of balances in Stage 1 or Stage 2 remain not past due
(FY23: 97%).
In Business, the coverage ratio of
155bps reflects a 5bps decrease in the period, driven mainly by the
modestly improving economic conditions and customers migrating from
Stage 2 into Stage 1. There continues to be no significant
deterioration in asset quality metrics and no significant increase
in specific provision recognition. The proportion of loans in
Stage1 or 2 and not past due remains high at 95% (FY23:
95%).
Profitability
|
|
|
|
|
|
|
6 months
to
|
|
|
|
|
|
|
|
31 Mar
2024
|
31 Mar
2023
|
30 Sep
2023
|
|
|
|
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory profit on ordinary activities before
tax
|
|
|
|
279
|
|
236
|
|
109
|
Tax expense
|
|
|
|
(43)
|
|
(56)
|
|
(43)
|
Statutory profit for the period
|
|
|
|
236
|
|
180
|
|
66
|
RoTE
|
|
|
|
|
|
|
9.1%
|
|
6.1%
|
|
1.6%
|
TNAV per share
|
|
|
|
|
|
|
361.2p
|
|
350.5p
|
|
359.8p
|
Basic earnings per share
(EPS)
|
|
|
|
|
|
|
16.0p
|
|
11.0p
|
|
3.0p
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview
The Group made a statutory profit before tax of £279m in H1 2024 (H1 2023:
£236m), resulting in a statutory RoTE of 9.1% (H1 2023:
6.1%). TNAV per share increased 1.4p in H1
2024 relative to FY23 to 361.2p. The key drivers of the increase
were 15.3p of retained earnings net of dividends and 8.7p from
share buybacks, offset by (18.3)p from a reduction in the cash flow
hedge reserve, (3.6)p from a lower overall actuarial pension
surplus and (0.7)p of fair value through
other comprehensive income (FVOCI) and
other movements.
Taxation
There was a £43m tax charge in
respect of £279m of statutory profit before tax, reflecting an
effective tax rate of 15%. The lower effective tax rate during the
period incorporates a reduction in the deferred tax liability in
respect of the defined benefit pension surplus, following the
enactment of changes to the authorised surplus payments charge from
35% to 25%.
During the full year to September
2023, the most recent period for which annual tax data is
available, the Group paid cash tax totalling £170m to HMRC
(principally corporation tax including banking surcharge and
irrecoverable VAT), with a further £87m (largely payroll taxes and
national insurance contributions) collected on HMRC's
behalf.
Business and financial
review
Chief Financial Officer's
review
Balance sheet
|
|
|
|
|
|
|
|
As at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 Mar
2024
|
30 Sep
2023
|
|
|
|
|
|
|
|
|
|
|
£m
|
|
£m
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages
|
|
|
|
|
|
|
|
|
56,627
|
|
57,497
|
(2)%
|
Unsecured
|
|
|
|
|
|
|
|
|
6,727
|
|
6,519
|
3%
|
Business(1)
|
|
|
|
|
|
|
|
9,321
|
|
8,738
|
7%
|
Total customer lending
|
|
|
|
|
|
|
|
|
72,675
|
|
72,754
|
-%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relationship
deposits(2)
|
|
|
|
|
|
|
|
|
36,267
|
|
35,394
|
2%
|
Non-linked savings
|
|
|
|
|
|
|
|
|
10,759
|
|
9,741
|
10%
|
Term deposits
|
|
|
|
|
|
|
|
|
21,158
|
|
21,474
|
(1)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total customer deposits
|
|
|
|
|
|
|
|
|
68,184
|
|
66,609
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale funding
|
|
|
|
|
|
|
|
16,223
|
|
16,658
|
(3)%
|
of which TFSME
|
|
|
|
|
|
|
|
5,050
|
|
6,200
|
(19)%
|
LDR
|
|
|
|
|
|
|
|
|
107%
|
|
109%
|
(2)%pts
|
LCR
|
|
|
|
|
|
|
|
151%
|
|
146%
|
5%pts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Of which, £499m government lending
(30 September 2023: £625m)
|
|
(2)
|
Current account and linked savings
balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview
At an aggregate level, total
customer lending remained stable at £72.7bn in H1 as growth in
Unsecured and Business lending, in line with the Group's strategy,
was offset by a reduction in Mortgages. Total customer deposits
increased 2% to £68.2bn, resulting in a reduction in the LDR to
107% (FY23: 109%).
Mortgage balances reduced 2% in H1
2024 to £56.6bn, reflecting lower housing activity with mortgage
rates positioned at higher levels and wider cost of living
pressures.
Unsecured balances increased 3% in
H1 2024 to £6.7bn, as 5% growth in credit card balances was offset
by a reduction in personal loans. In cards, the Group has
benefitted from resilient activity levels and further new account
acquisition, supported by its digitally-led proposition. During the
period, the Group has continued to observe customer behavioural
activity outperforming its prudent assumptions across spend,
repayment and retention, resulting in card EIR performance
remaining persistently better than expected.
Business lending increased by 7%
in H1 2024 to £9.3bn as a reduction in Government-scheme balances
was more than offset by 9% growth in BAU balances in a subdued
market. BAU performance reflected the strength of our national
franchise and sector specialisms in resilient market segments.
Government-scheme balances reduced 20% to £0.5bn, as borrowers made
contractual repayments.
Customer deposits increased by 2%
in the first half of the financial year to £68.2bn. The Group
continued to execute against its strategy during the period,
increasing relationship deposits by £0.9bn, supported by strong
customer propositions and competitive rates. Non-linked savings
increased by £1.0bn during H1 2024 as the Group prioritised this
market for new funding. Term deposit balances reduced by £0.3bn
during the period, given ongoing maturities and as the Group
prioritised non-linked savings for new funding, given the better
value opportunities available.
Wholesale funding and liquidity
The Group has a stable funding
base with customer deposits representing c.81% of total funding.
The Group's customer deposits are weighted towards retail customers
(76%), with the balance being from business customers,
predominantly small and medium-sized enterprises. Of the total
customer deposit book, the significant majority is insured via the
Financial Services Compensation Scheme and of the balances that are
uninsured, a proportion are fixed term and/or would incur a charge
if customers wanted to withdraw their money.
Business and financial
review
Chief Financial Officer's
review
The Group has a number of
well-established wholesale funding programmes with proven markets
access. During the period, the Group successfully issued €750m of
MREL senior notes and £500m of RMBS publicly to investors, while at
the same time repaying £1.15bn of its TFSME drawings (£5.05bn
outstanding as at 31 March 2024), resulting in the Group having now
repaid all of its TFSME maturities due in 2024. On an overall
basis, wholesale funding reduced to £16.2bn as at H1 2024 (FY23:
£16.7bn). Of our total debt securities in issue, only c.10%
(£1.0bn) has less than 1-year to effective maturity, reflecting
term issuance roll-downs (the Group has negligible short-term
wholesale funding). The Group has £1.60bn of TFSME maturing in FY25
and £2.55bn maturing in FY26, with the remaining £0.90bn subject to
term extension beyond FY26. Given the strong deposit performance in
H1 and wholesale issuances during the period, the Group does not
expect to issue any further secured issuance in FY24, subject to
ongoing deposit flows and acquisition process.
The stability of the Group's
funding sources is highlighted in its NSFR, which
remains strong on a
12-month average basis at 136%.
The Group's 12-month average LCR increased
to 151% (30 September
2023: 146%), continuing to comfortably exceed both regulatory
requirements and the Group's more prudent internal risk appetite
metrics. The Group's c.£15.7bn
liquid asset portfolio is primarily comprised of
cash at the BoE (c.69%), UK Government securities (Gilts) (c.8%) and AAA rated listed securities
(e.g. bonds issued by supra-nationals and corporate covered bonds)
(c.23%). The
liquid asset portfolio is fully hedged from an interest rate,
inflation and FX risk perspective and any movements in fair value
are recognised in CET1 via the Income Statement or FVOCI
reserve. The Group also has unencumbered
pre-positioned collateral at the BoE
representing c.£7.7bn of secondary liquidity drawing capacity via the Bank's
Sterling Monetary Framework, which does not form part of the liquid
asset portfolio for LCR or internal stressed outflow purposes. Over
time the stock of unencumbered pre-positioned collateral will
increase as remaining TFSME drawings are repaid. In addition, the
Group has a further c.£19.4bn
of unencumbered assets eligible and readily
available but not currently pre-positioned at the BoE.
Business and financial
review
Chief Financial Officer's
review
Capital
|
|
|
|
|
|
|
|
As at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 Mar
2024
|
30 Sep
2023
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CET1 ratio (IFRS 9
transitional)
|
|
14.6%
|
|
14.7%
|
(0.1)%pts
|
CET1 ratio (IFRS 9 fully
loaded)
|
|
14.5%
|
|
14.3%
|
0.2%pts
|
Total capital ratio
|
|
20.9%
|
|
21.2%
|
(0.3)%pts
|
MREL ratio
|
|
33.9%
|
|
31.9%
|
2.0%pts
|
UK leverage ratio
|
|
5.3%
|
|
5.0%
|
0.3%pts
|
RWAs (£m)
|
|
25,581
|
|
25,176
|
1.6%
|
of which Mortgages
(£m)
|
|
8,446
|
|
9,072
|
(6.9)%
|
of which Unsecured
(£m)
|
|
4,969
|
|
4,819
|
3.1%
|
of which Business
(£m)
|
|
7,903
|
|
6,990
|
13.1%
|
(1)
|
Unless where stated, data in the
table shows the capital position on a Capital Requirements
Directive (CRD) IV 'fully loaded' basis with IFRS 9 transitional
adjustments applied.
|
|
(2)
|
The capital ratios include
unverified profits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overview
The Group maintained a robust
capital position with a CET1 ratio (IFRS 9 transitional basis) of
14.6% and a total capital ratio of 20.9%. The Group's CET1 ratio on
an IFRS 9 fully loaded basis was 14.5%. The Group's latest Pillar
2A requirement has a CET1 element of 1.9%. Overall, the Group
continues to maintain a significant surplus above its CRD IV
minimum CET1 capital requirement (or MDA threshold) of 10.9%. The
Group currently expects to receive PRA approval on the mortgage IRB
models (including hybrid PD) later this year and will implement
shortly thereafter. A model adjustment has
been applied to increase RWAs and expected losses in advance of
formal approval of models. The Group continues to expect some
modest upside to our capital position from Basel 3.1 implementation
on day 1 (1 July 2025), subject to regulatory approval.
CET1 capital
CET1 reduced by c.15bps in the
period with the movements set out in the table below. The (25)bps
impact of the share buyback includes £63m that was returned to
shareholders, prior to the cancellation of the programme given the
proposed acquisition of the Company by Nationwide.
CET1 Capital movements
|
|
6 months
to
31 Mar
2024
|
|
|
%/bps
|
Opening CET1 ratio
|
|
14.7%
|
Capital generated (bps)
|
|
82
|
RWA growth (bps)
|
|
(23)
|
AT1 distributions (bps)
|
|
(11)
|
Underlying capital generated (bps)
|
|
48
|
|
|
|
Restructuring charges
(bps)
|
|
(10)
|
Acquisition accounting unwind
(bps)
|
|
(4)
|
Financial crime prevention
programme (bps)
|
|
(4)
|
Conduct (bps)
|
|
2
|
Hedge ineffectiveness
(bps)
|
|
(2)
|
Foreseeable ordinary dividends
(bps)
|
|
(10)
|
Share buyback (bps)
|
|
(25)
|
Other (bps)
|
|
(10)
|
Net capital absorbed
(bps)
|
|
(15)
|
Closing CET1 ratio
|
|
14.6%
|
(1)
|
The table shows the capital
position on a CRD IV 'fully loaded' basis with IFRS 9 transitional
adjustments applied.
|
MREL
The Group's transitional MREL
ratio at H1 2024 was at 33.9% (FY23: 31.9%) of RWAs, or 10.1% when
expressed as a percentage of Leverage exposures (FY23: 9.3%). This
provides prudent headroom of £1.7bn or 6.6% above the binding
loss-absorbing capacity (LAC) requirement of 27.3% of RWAs, or 2.0%
above the binding LAC requirement of 8.2% when expressed as a
percentage of Leverage exposures. Given the surplus to LAC
requirements and having refinanced its redemptions in FY24, the
Group is not planning any MREL or capital issuance over the
remainder of the year, subject to the acquisition
process.
Business and financial
review
Chief Financial Officer's
review
Outlook and guidance
FY24 financial guidance
|
NIM
190-195bps range for FY24, with NIM lower in H2 vs.
H1
|
Cost: income ratio
Adjusted cost: income ratio expected to be higher in H2 vs.
H1
|
CoR
30-35bps range
|
Consistent with our strategy to
diversify the balance sheet, we continue to anticipate 5-10% growth
across target lending segments of business and unsecured lending in
FY24.
During the second half of the
year, we expect NIM to be impacted by a lower expected contribution
from cards EIR adjustments, ongoing competition and lower interest
rates, partially mitigated by the reinvestment rate of the
structural hedge. As a result of these factors, the Group continues
to expect NIM to be in the range of 190-195bps for FY24, with NIM
lower in H2 vs. H1.
The adjusted cost: income ratio is
anticipated to be higher in H2 vs. H1, reflecting the latest
outlook for income, inflation, ongoing investment and cost savings,
where certain restructuring activities have now been deferred in
light of the proposed acquisition by Nationwide.
The Group also expects that transaction costs
associated with the proposed acquisition will be significantly
higher in the second half.
The Group continues to expect CoR
to be in the range 30-35bps for FY24, incorporating the SICR review
on the credit card portfolio and a modestly improving economic
backdrop.
Given the proposed acquisition by
Nationwide, the Group has cancelled its share buyback programme and
does not intend to announce any further share buybacks or
dividends, representing a headwind to
returns, assuming the transaction proceeds
to completion in line with the anticipated timetable set out in the
Scheme Document.
As a result of these factors,
statutory RoTE is expected to be lower in H2 vs. H1.
Clifford Abrahams, Chief Financial Officer - 12 June
2024
Risk management
Risk overview
Risk overview
|
20
|
Credit risk
|
22
|
Financial risk
|
46
|
Risk management
Risk overview
The objective of risk management
is to keep the bank safe, to ensure resilience and to put the
customer interests at the centre of our decision
making. Effective risk management supports the delivery of our
strategic objectives and fulfils our Purpose.
This report provides information on developments during the period
relating to the Group's risk exposures, including how those risks
are managed or mitigated. These risk disclosures support, and
should be read in conjunction with, the Risk report in the Annual
Report and Accounts 2023.
During H1, Risk have continued
work to enhance risk management practices and reporting
capabilities, with focus on determining risk and control libraries
aligned to our recently launched risk taxonomy, to support
reporting from our incoming Integrated Risk Management system. This
investment will increase monitoring of controls testing and drive
improvements to our capability to execute control effectiveness
assessments, which will support more robust risk management and
better outcomes for our stakeholders.
We have also remained committed to
proactively supporting our customers through the higher-rate
environment and cost of living pressures that continue to prevail,
and which have the potential to affect customer resilience and debt
affordability. Close portfolio monitoring and assessment of
aggregate risks is in place to highlight any signs of portfolio
deterioration or affordability stress.
Managing execution risk and
delivering change sustainably has continued to be a priority for
the Group and we have supported the launch of the financial crime
prevention programme, to further improve risk controls and
strengthen technology, striving to meet evolving regulatory
obligations and aligning to our purpose. Fraud and scams continue
to become more sophisticated and incidence rates continue to rise
across the sector, this investment will bolster our fraud controls
and cyber defences, providing customers with improving protections
against criminal actors. Risk teams have continued to carry out
detailed risk assessments, assurance and oversight activity to
support the business in management of fraud and cyber risks.
Activity to strengthen oversight of the technology and data risk
profile has continued and will remain a focus area, as we work
towards adoption of the BCBS 239 data standard.
Building on progress in FY23, we
have remained committed to ensuring good customer outcomes, with
focus on overseeing the effective implementation and embedding of
the FCA's Consumer Duty across the Group, including compliance with
the requirements for closed book review and reporting by 31 July
2024. Good customer outcomes are at the heart of our purpose and
central to our culture, business objectives and
strategy.
Principal risks
Principal risks are those which
could result in events or circumstances that might threaten the
Group's business model, future performance, solvency, liquidity or
reputation. The Group's principal risks
are listed below and remain as disclosed
in the 2023 Annual Report and Accounts.
Principal risks
|
Definitions
|
Credit risk
|
The risk that a retail or business
customer or counterparty fails to pay the interest or capital due
on a loan or other financial instrument. Credit risk needs to be
managed through the life cycle of each loan from origination to
repayment, redemption, write-off or sale. It manifests in the
products that the Group offers and in which it invests and can
arise in respect of both on- and off-balance sheet
exposures.
|
Financial risk
|
Financial risk includes capital
risk, funding risk, liquidity risk, market risk and pension risk,
all of which have the ability to impact the financial performance
of the Group, if not managed correctly.
|
Model risk
|
The potential for adverse
consequences from decisions based on incorrect or misused model
outputs and reports.
|
Regulatory and compliance
risk
|
The risk of failing to comply with
relevant regulatory requirements and changes in the regulatory
environment, or failing to manage a constructive relationship with
our regulators, by not keeping them informed of relevant issues,
not responding effectively to information requests or not meeting
regulatory deadlines.
|
Conduct risk
|
The risk of undertaking business
in a way which fails to deliver good customer outcomes in line with
the FCA's Consumer Duty, and causes customer harm, and may result
in regulatory censure, redress costs and/or reputational
damage.
|
Operational risk
|
The risk of loss or customer harm
resulting from inadequate or failed internal processes, people and
systems or from external events, incorporating the inability to
maintain critical services, recover quickly and learn from
unexpected/adverse events. Operational risk includes: change risk;
third-party risk; cyber and information security risk; physical and
personal security risk; IT resilience risk; data management risk;
payment creation, execution and settlement risk; and people
risk.
|
Economic crime risk
|
The risk that the Group fails to
detect and prevent its products and services from being used to
facilitate economic crime, resulting in harm to customers,
the Group and its reputation, or third parties. This
includes money laundering, terrorist financing, sanctions, fraud,
and bribery and corruption.
|
Strategic and enterprise
risk
|
The risk of significant loss of
earnings or damage from decisions or actions that impact the
long-term interests of the Group's stakeholders; or from an
inability to fund or manage required change projects, or adapt
to external developments.
|
Climate risk
|
The risk of exposure to physical
and transition risks arising from climate change.
|
Risk management
Risk overview
Emerging and evolving risks
Emerging and evolving risks are
current or future risks arising from internal or external events,
with a material unknown or unpredictable component, and the
potential to significantly impact the future performance of the
Group or prevent delivery of good outcomes for our customers.
Emerging and evolving risks are continually assessed through a
horizon scanning process, considering all
internal and external factors, with escalation and reporting to the
Board.
The emerging and evolving risk classifications reported in the
Group's 2023 Annual Report and Accounts have been reviewed and
remain broadly unchanged, noting the key developments outlined
below. Areas of enhanced risk attention include the risks
associated with the proposed acquisition by Nationwide Building
Society and the continued development of Technology and Data Risks,
with a streamlined and refocused emerging risk now
defined.
Risks
|
Description
|
|
|
|
Deal risk associated to
acquisition by Nationwide Building Society
|
While the Board has recommended
the proposal to shareholders, there are a range of strategic &
enterprise, financial and people risks should the deal not succeed,
which could include:
Strategic & enterprise risk - There could be: impacts from adjustments to the pace of the
Group's cost saving and change programmes; share price volatility
and reputational damage, as the market reacts to the Group's
revised positioning and strategic outlook; increased scrutiny on
the Group's capabilities to execute on its strategic ambitions;
and, impacts to FY24 guidance and targets from short term costs
related to the transaction.
Financial risk - There would
be impacts to the Group's funding and financial plans if the deal
were not to proceed. Spreads for listed debt could widen due to
market uncertainty and the outlook for the Group's credit ratings
could change, with the potential for downside risk to reflect a
lack of clarity on the Group's strategy in the short to medium
term.
People risk - During the
transition period, there are people risks associated to talent
retention and attraction against the Group's shifting strategic
outlook. Significant people risk challenges could affect
operations, growth, costs and resilience.
|
Technology and Data
Risks
|
The pace of technological change,
in areas such as Generative AI and cloud solutions, continues to
accelerate and risks and opportunities need to be fully understood.
These technologies have broad and potentially growing applications,
with supporting regulatory frameworks under continuous
review.
The Group's operations and
strategy are increasingly dependent on the use of quality and
timely data, within scalable and secure architecture, to support
decision making and to underpin our digital capabilities.
Stakeholder expectations in relation to the effective governance,
management and protection of data continue to evolve.
In turn, the landscape of security
and cyber threats we face into continues to change and is becoming
more sophisticated in terms of frequency, impact, and severity,
with potential that AI-assisted tools such as voice and image
generation create further risks.
The Group is investing in
capabilities to defend against cyber threats, with key initiatives
in place to upgrade propositions across areas such as financial
crime prevention and cyber defence.
|
Risk management
Credit risk
Section
|
Page
|
Tables
|
Page
|
Credit risk overview
|
23
|
|
|
Group credit risk
exposures
|
23
|
Maximum exposure to credit risk on
financial assets, contingent liabilities and credit-related
commitments
|
24
|
Key credit metrics
|
24
|
Key credit metrics
|
24
|
|
|
Gross loans and advances ECL and
coverage
|
25
|
|
|
Stage 2 balances
|
27
|
|
|
Credit risk exposure and ECL, by
internal probability of default (PD) rating, by IFRS 9 stage
allocation
|
28
|
|
|
IFRS 9 staging
|
29
|
Mortgage credit
performance
|
30
|
Breakdown of Mortgage
portfolio
|
30
|
Collateral
|
30
|
Mortgage portfolio interest rate
breakdown
|
30
|
Forbearance
|
31
|
Average LTV of Mortgage portfolio
by staging
|
31
|
IFRS 9 staging
|
32
|
IFRS 9 staging
|
32
|
Unsecured credit
performance
|
33
|
Breakdown of Unsecured credit
portfolio
|
33
|
Forbearance
|
34
|
|
|
IFRS 9 staging
|
34
|
IFRS 9 staging
|
34
|
Business credit
performance
|
36
|
Breakdown of Business credit
portfolio
|
36
|
Forbearance
|
37
|
|
|
IFRS 9 staging
|
38
|
IFRS 9 staging
|
38
|
Macroeconomic assumptions,
scenarios, and weightings
|
39
|
|
|
Macroeconomic assumptions
|
39
|
Scenarios
|
39
|
|
|
Key macroeconomic
assumptions
|
40
|
|
|
Five-year simple averages on
unemployment, GDP and HPI
|
41
|
The use of estimates, judgements
and sensitivity analysis
|
41
|
|
|
The use of estimates
|
41
|
Economic scenarios
|
41
|
The use of judgement
|
42
|
Impact of changes to
significant increase in credit risk
(SICR) thresholds on staging
|
42
|
|
|
Impact of management adjustments
(MAs) on the Group's ECL allowance and coverage ratio
|
43
|
|
|
Macroeconomic
assumptions
|
45
|
Risk management
Credit risk
Credit risk overview
Credit risk is the risk that a
borrower or counterparty fails to pay the interest or capital due
on a loan or other financial instrument. Credit risk manifests
itself in the financial instruments and products that the Group
offers and in which it invests and can arise in respect of
both on- and off-balance sheet exposures. This remains consistent
with the Group's position as described in the Group's 2023 Annual
Report and Accounts, and not all of that information has been
replicated in this Interim Financial Report.
Close monitoring, clear policies
and a disciplined approach to credit risk management support the
Group's operations and have underpinned its resilience in recently
challenging times. The significant inflationary headwinds and cost
of living pressures together with economic and geopolitical factors
that have prevailed over the past 24 months have the potential to
affect customer resilience and debt affordability. The Group
continually reviews the steps that are being taken to support
customers through this period of heightened affordability pressure
and ensure that its credit risk framework and associated policies
remain effective and appropriate.
The Group has continued to
maintain a relatively stable lending book, with gross lending to
customers remaining broadly stable overall with £73.3bn at 31 March
2024 (30 September 2023: £73.3bn). While the Mortgage portfolio
reduced slightly, the Unsecured portfolio has grown, driven
primarily by credit cards. The underlying growth has been
maintained in the Business portfolio, with the continuing reduction
in the government backed loan schemes outpaced by support for new
and existing customers' lending needs.
Asset quality remains robust and
most of the key asset quality ratios remained resilient with no
significant deterioration. Some weakening in the pre default and
early delinquency metrics continue to be monitored
closely.
Within the total ECL provision,
the modelled and IA provision has remained stable at £617m as at 31
March 2024 (30 September 2023: £617m), resulting in a stable
coverage ratio of 84bps, although the composition has changed
slightly since September 2023.
Primarily driven by an improving
economic outlook, the updated macroeconomic inputs have resulted in
a release of modelled provision across all portfolios.
During the period, the Group
reviewed the existing staging approach for credit cards in the
Unsecured portfolio which focused on the triggers that move
exposures from Stage 1 (requiring a 12-month ECL calculation) to
Stage 2 (requiring a lifetime ECL calculation) and removed the
requirement for a two-month probation period before accounts could
return to Stage 1 from Stage 2 for non-forborne exposures. This
enables the recognition of improving economic forecasts immediately
in the same way deterioration is currently recognised immediately
following a model economic scenario (MES)
refresh, and whilst this may increase the volatility of IFRS stage
migration, the impact is not expected to be material. The overall
impact of these changes has been to reduce the modelled ECL in the
Unsecured portfolio by £31m.
MAs have increased in the period
to £81m (30 September 2023: £76m) primarily due to a review of the
MAs held for debt sale. The IA impairment charge was £107m in the
period (12 months to 30 September 2023: £142m, 6 months to 31 March
2023: £63m), resulting in a total impairment charge to the income
statement of £93m (12 months to 30 September 2023: £309m, 6 months
to 31 March 2023: £144m), and an associated CoR of 26bps (12 months
to 30 September 2023: 42bps, 6 months to 31 March 2023:
40bps).
Group credit risk exposures
The Group is exposed to credit
risk across all of its financial asset classes, however its
principal exposure to credit risk arises on customer lending
balances. Given the significance of customer lending exposures to
the Group's overall credit risk position, the disclosures that
follow are focused principally on customer lending.
The Group is also exposed to
credit risk on its other banking and treasury-related activities,
and holds £12.9bn of cash and balances with central banks and
£0.6bn due from other banks at amortised cost (30 September 2023:
£11.3bn and £0.7bn respectively), with a further £5.8bn (30
September 2023: £6.2bn) of financial assets at FVOCI. Cash and
balances with central banks includes £11.8bn of cash held with the
BoE (30 September 2023: £10.2bn). Balances with other banks and
financial assets at FVOCI are primarily held with senior investment
grade counterparties. All other banking and treasury related
financial assets are classed as Stage 1 with no material ECL
provision held.
The following tables show the
levels of concentration of the Group's loans and advances,
contingent liabilities and credit-related commitments.
Risk management
Credit risk
Maximum exposure to credit risk on financial assets and
credit-related commitments
31 March 2024
|
Gross loans and advances
to customers
|
Credit-related
commitments
|
Total
|
£m
|
£m
|
£m
|
Mortgages
|
56,941
|
2,374
|
59,315
|
Unsecured
|
7,053
|
11,379
|
18,432
|
Business
|
9,267
|
4,059
|
13,326
|
Total
|
73,261
|
17,812
|
91,073
|
Impairment provisions on credit
exposures (1)
|
(612)
|
(5)
|
(617)
|
Fair value hedge
adjustment
|
(305)
|
-
|
(305)
|
Maximum credit risk exposure on lending
assets
|
72,344
|
17,807
|
90,151
|
Cash and balances with central
banks
|
|
|
12,930
|
Financial instruments at
FVOCI
|
|
|
5,764
|
Due from other banks
|
|
|
592
|
Other financial assets at fair
value
|
|
|
59
|
Derivative financial
assets
|
|
|
44
|
Maximum credit risk exposure on all financial assets
(2)
|
|
|
109,540
|
|
|
|
|
30 September 2023
|
|
|
|
Mortgage
|
57,797
|
2,685
|
60,482
|
Unsecured
|
6,814
|
11,242
|
18,056
|
Business
|
8,684
|
4,073
|
12,757
|
Total
|
73,295
|
18,000
|
91,295
|
Impairment provisions held on
credit exposures (1)
|
(612)
|
(5)
|
(617)
|
Fair value hedge
adjustment
|
(492)
|
-
|
(492)
|
Maximum credit risk exposure on
lending assets
|
72,191
|
17,995
|
90,186
|
Cash and balances with central
banks
|
|
|
11,282
|
Financial instruments at
FVOCI
|
|
|
6,184
|
Due from other banks
|
|
|
667
|
Other financial assets at fair
value
|
|
|
61
|
Derivative financial
assets
|
|
|
135
|
Maximum credit risk exposure on
all financial assets (2)
|
|
|
108,515
|
(1)
The total ECL provision covers both on and
off-balance sheet exposures which are reflected in notes 3.1.1.1
and 3.3 respectively. All tables and ratios that follow are
calculated using the combined on- and off-balance sheet ECL, which
is consistent for all periods reported.
(2) Unless otherwise
noted, the amount that best represents the maximum credit exposure
at the reporting date is the carrying value of the financial
asset.
Key credit metrics
|
6 months
to
31 Mar
2024
£m
|
12
months to
30 Sep
2023
£m
|
6 months
to
31 Mar
2023
£m
|
Impairment charge on credit exposures
|
|
|
|
Mortgage lending
|
(1)
|
2
|
3
|
Unsecured lending
|
81
|
269
|
126
|
Business lending
|
13
|
38
|
15
|
Total Group impairment charge
|
93
|
309
|
144
|
Impairment charge (1)
to average customer loans (cost of risk (CoR))
|
0.26%
|
0.42%
|
0.40%
|
|
6 months
to
31 Mar
2024
|
12
months to
30 Sep
2023
|
|
Key asset quality ratios
|
|
|
|
Loans in Stage 2
|
7.39%
|
8.63%
|
|
Loans in Stage 3
|
1.59%
|
1.47%
|
|
Total book coverage
(2)
|
0.84%
|
0.84%
|
|
Stage 2 coverage
(2)
|
6.51%
|
6.33%
|
|
Stage 3 coverage
(2)
|
16.45%
|
13.93%
|
|
(1)
(2)
|
Inclusive of gains/losses on
assets held at fair value and elements of fraud loss.
Excludes the guaranteed element of
government-backed loan schemes.
|
|
|
|
|
|
Risk management
Credit risk
Credit quality of loans and advances
The following tables outline the
staging profile of the Group's customer lending portfolios which is
key to understanding their asset quality.
Gross loans and advances
(1) ECL and
coverage
31 March 2024
|
|
Unsecured
|
|
Mortgages
|
Cards
|
Loans and
Overdrafts
|
Combined
|
Business
(2)
|
Total(2)
|
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
|
Stage 1
|
53,828
|
94.5%
|
5,271
|
82.0%
|
339
|
54.2%
|
5,610
|
79.5%
|
7,247
|
78.2%
|
66,685
|
91.0%
|
|
Stage 2 - total
|
2,539
|
4.5%
|
1,024
|
15.9%
|
281
|
44.9%
|
1,305
|
18.5%
|
1,568
|
16.9%
|
5,412
|
7.4%
|
|
Stage 2: 0 DPD
|
2,233
|
4.0%
|
958
|
14.9%
|
277
|
44.2%
|
1,235
|
17.5%
|
1,544
|
16.7%
|
5,012
|
6.9%
|
|
Stage 2: < 30 DPD
|
135
|
0.2%
|
31
|
0.5%
|
2
|
0.3%
|
33
|
0.5%
|
11
|
0.1%
|
179
|
0.2%
|
|
Stage 2: > 30 DPD
|
171
|
0.3%
|
35
|
0.5%
|
2
|
0.4%
|
37
|
0.5%
|
13
|
0.1%
|
221
|
0.3%
|
|
Stage 3(3)
|
574
|
1.0%
|
132
|
2.1%
|
6
|
0.9%
|
138
|
2.0%
|
452
|
4.9%
|
1,164
|
1.6%
|
|
|
56,941
|
100%
|
6,427
|
100%
|
626
|
100%
|
7,053
|
100%
|
9,267
|
100%
|
73,261
|
100%
|
|
ECLs(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stage 1
|
9
|
17.3%
|
58
|
14.9%
|
4
|
11.2%
|
62
|
14.6%
|
31
|
22.6%
|
102
|
16.6%
|
|
Stage 2 - total
|
25
|
45.2%
|
262
|
67.0%
|
25
|
74.7%
|
287
|
67.6%
|
41
|
29.6%
|
353
|
57.1%
|
|
Stage 2: 0 DPD
|
22
|
40.0%
|
225
|
57.5%
|
23
|
68.5%
|
248
|
58.4%
|
41
|
29.4%
|
311
|
50.3%
|
|
Stage 2: < 30 DPD
|
1
|
1.6%
|
15
|
3.8%
|
1
|
1.8%
|
16
|
3.6%
|
-
|
0.1%
|
17
|
2.6%
|
|
Stage 2: > 30 DPD
|
2
|
3.6%
|
22
|
5.7%
|
1
|
4.4%
|
23
|
5.6%
|
-
|
0.1%
|
25
|
4.2%
|
|
Stage 3(3)
|
21
|
37.5%
|
71
|
18.1%
|
5
|
14.1%
|
76
|
17.8%
|
65
|
47.8%
|
162
|
26.3%
|
|
|
55
|
100%
|
391
|
100%
|
34
|
100%
|
425
|
100%
|
137
|
100%
|
617
|
100%
|
|
Coverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stage 1
|
|
0.02%
|
|
1.18%
|
|
1.06%
|
|
1.17%
|
|
0.44%
|
|
0.15%
|
|
Stage 2 - total
|
|
0.96%
|
|
26.85%
|
|
8.75%
|
|
22.75%
|
|
2.63%
|
|
6.51%
|
|
Stage 2: 0 DPD
|
|
0.97%
|
|
24.65%
|
|
8.14%
|
|
20.77%
|
|
2.64%
|
|
6.19%
|
|
Stage 2: < 30 DPD
|
|
0.63%
|
|
50.40%
|
|
33.63%
|
|
49.44%
|
|
0.81%
|
|
9.04%
|
|
Stage 2: > 30 DPD
|
|
1.14%
|
|
66.02%
|
|
58.73%
|
|
65.51%
|
|
2.05%
|
|
12.06%
|
|
Stage 3(3)
|
|
3.61%
|
|
55.85%
|
|
77.76%
|
|
56.85%
|
|
23.98%
|
|
16.45%
|
|
|
|
0.10%
|
|
6.48%
|
|
5.20%
|
|
6.35%
|
|
1.55%
|
|
0.84%
|
|
Undrawn exposures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stage 1
|
2,261
|
95.2%
|
10,818
|
98.2%
|
276
|
75.2%
|
11,094
|
97.5%
|
3,552
|
87.5%
|
16,907
|
94.9%
|
|
Stage 2
|
102
|
4.3%
|
172
|
1.6%
|
90
|
24.5%
|
262
|
2.3%
|
483
|
11.9%
|
847
|
4.8%
|
|
Stage 3
|
11
|
0.5%
|
22
|
0.2%
|
1
|
0.3%
|
23
|
0.2%
|
24
|
0.6%
|
58
|
0.3%
|
|
|
2,374
|
100.0%
|
11,012
|
100.0%
|
367
|
100.0%
|
11,379
|
100.0%
|
4,059
|
100.0%
|
17,812
|
100.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management
Credit risk
Gross loans and advances
(1) ECL and coverage
(continued)
30 September 2023
|
|
Unsecured
|
|
|
Mortgages
|
Cards
|
Loans
and Overdrafts
|
Combined
|
Business (2)
|
Total(2)
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
|
Stage 1
|
54,540
|
94.3%
|
4,658
|
76.5%
|
398
|
54.8%
|
5,056
|
74.2%
|
6,293
|
72.5%
|
65,889
|
89.9%
|
|
Stage 2 - total
|
2,704
|
4.7%
|
1,321
|
21.7%
|
321
|
44.3%
|
1,642
|
24.1%
|
1,980
|
22.8%
|
6,326
|
8.6%
|
|
Stage 2: 0 DPD
|
2,405
|
4.2%
|
1,250
|
20.5%
|
316
|
43.6%
|
1,566
|
23.0%
|
1,951
|
22.4%
|
5,922
|
8.1%
|
|
Stage 2: < 30 DPD
|
98
|
0.2%
|
37
|
0.6%
|
2
|
0.3%
|
39
|
0.6%
|
14
|
0.2%
|
151
|
0.2%
|
|
Stage 2: > 30 DPD
|
201
|
0.3%
|
34
|
0.6%
|
3
|
0.4%
|
37
|
0.5%
|
15
|
0.2%
|
253
|
0.3%
|
|
Stage 3(3)
|
553
|
1.0%
|
109
|
1.8%
|
7
|
0.9%
|
116
|
1.7%
|
411
|
4.7%
|
1,080
|
1.5%
|
|
|
57,797
|
100%
|
6,088
|
100%
|
726
|
100%
|
6,814
|
100%
|
8,684
|
100%
|
73,295
|
100%
|
|
ECLs (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stage 1
|
13
|
22.6%
|
42
|
10.8%
|
4
|
12.1%
|
46
|
10.9%
|
30
|
22.6%
|
89
|
14.5%
|
|
Stage 2 - total
|
27
|
47.9%
|
294
|
74.9%
|
28
|
73.5%
|
322
|
74.8%
|
51
|
39.4%
|
400
|
64.7%
|
|
Stage 2: 0 DPD
|
23
|
42.0%
|
256
|
65.3%
|
25
|
67.1%
|
281
|
65.5%
|
51
|
39.2%
|
355
|
57.6%
|
|
Stage 2: < 30 DPD
|
1
|
1.3%
|
17
|
4.3%
|
1
|
1.9%
|
18
|
4.1%
|
-
|
0.2%
|
19
|
3.0%
|
|
Stage 2: > 30 DPD
|
3
|
4.6%
|
21
|
5.3%
|
2
|
4.5%
|
23
|
5.2%
|
-
|
-
|
26
|
4.1%
|
|
Stage 3(3)
|
17
|
29.5%
|
56
|
14.3%
|
5
|
14.4%
|
61
|
14.3%
|
50
|
38.0%
|
128
|
20.8%
|
|
|
57
|
100%
|
392
|
100%
|
37
|
100%
|
429
|
100%
|
131
|
100%
|
617
|
100%
|
|
Coverage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stage 1
|
|
0.02%
|
|
0.98%
|
|
1.07%
|
|
0.99%
|
|
0.49%
|
|
0.13%
|
|
Stage 2 - total
|
|
0.99%
|
|
23.16%
|
|
8.16%
|
|
20.07%
|
|
2.66%
|
|
6.33%
|
|
Stage 2: 0 DPD
|
|
0.98%
|
|
21.31%
|
|
7.56%
|
|
18.38%
|
|
2.67%
|
|
6.02%
|
|
Stage 2: < 30 DPD
|
|
0.74%
|
|
48.66%
|
|
35.30%
|
|
47.94%
|
|
1.56%
|
|
12.19%
|
|
Stage 2: > 30 DPD
|
|
1.28%
|
|
64.90%
|
|
56.02%
|
|
64.16%
|
|
0.95%
|
|
10.38%
|
|
Stage 3(3)
|
|
3.03%
|
|
54.15%
|
|
77.16%
|
|
55.57%
|
|
19.76%
|
|
13.93%
|
|
|
|
0.10%
|
|
6.88%
|
|
4.88%
|
|
6.65%
|
|
1.60%
|
|
0.84%
|
|
Undrawn exposures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stage 1
|
2,560
|
95.4%
|
10,493
|
96.2%
|
280
|
82.1%
|
10,773
|
95.8%
|
3,453
|
84.7%
|
16,786
|
93.3%
|
|
Stage 2
|
114
|
4.2%
|
387
|
3.6%
|
60
|
17.6%
|
447
|
4.0%
|
597
|
14.7%
|
1,158
|
6.4%
|
|
Stage 3(3)
|
11
|
0.4%
|
21
|
0.2%
|
1
|
0.3%
|
22
|
0.2%
|
23
|
0.6%
|
56
|
0.3%
|
|
|
2,685
|
100%
|
10,901
|
100%
|
341
|
100%
|
11,242
|
100%
|
4,073
|
100%
|
18,000
|
100%
|
|
(1)
|
Excludes loans designated at
FVTPL, balances due from customers on acceptances, accrued interest
and deferred and unamortised fee income.
|
|
(2)
|
Business and total coverage ratio
excludes the guaranteed element of government-backed
loans.
|
|
(3)
|
Stage 3 includes purchased or
originated credit impaired (POCI) for gross loans and advances of
£45m for Mortgages and £1m for Unsecured (30 September 2023: £48m
and £1m respectively); and ECL of (£1m) for Mortgages and (£1m) for
Unsecured (30 September 2023: (£1m) and (£1m)
respectively).
|
|
(4)
|
Includes £4m ECL held for the
undrawn exposures shown (30 September
2023: £5m), of which £1m (30 September
2023: £1m) is held under Stage 1 and £3m (30 September 2023: £4m) under Stage 2.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management
Credit risk
Credit quality of loans and advances
(continued)
Stage 2 balances
There can be a number of reasons
that require a financial asset to be subject to a Stage 2 lifetime
ECL calculation other than reaching the 30 DPD backstop. The
following table highlights the relevant trigger points leading to a
financial asset being classed as Stage 2:
31 March 2024
|
|
Unsecured
|
|
|
Mortgages
|
Cards(3)
|
Loans and
overdrafts
|
Combined
|
Business
|
Total
|
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
PD deterioration
|
1,553
|
61%
|
537
|
52%
|
278
|
99%
|
815
|
63%
|
895
|
57%
|
3,263
|
60%
|
Forbearance
|
86
|
3%
|
17
|
2%
|
1
|
-
|
18
|
1%
|
262
|
17%
|
366
|
7%
|
AFD or Watch List
(1)
|
1
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
398
|
25%
|
399
|
8%
|
> 30 DPD
|
171
|
7%
|
35
|
4%
|
2
|
1%
|
37
|
3%
|
13
|
1%
|
221
|
4%
|
Other (2)
|
728
|
29%
|
435
|
42%
|
-
|
-
|
435
|
33%
|
-
|
-
|
1,163
|
21%
|
|
2,539
|
100%
|
1,024
|
100%
|
281
|
100%
|
1,305
|
100%
|
1,568
|
100%
|
5,412
|
100%
|
ECLs
|
|
|
|
|
|
|
|
|
|
|
|
|
PD deterioration
|
12
|
46%
|
121
|
46%
|
24
|
94%
|
145
|
50%
|
16
|
38%
|
173
|
49%
|
Forbearance
|
8
|
33%
|
5
|
2%
|
-
|
-
|
5
|
2%
|
12
|
29%
|
25
|
7%
|
AFD or Watch List
(1)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
13
|
33%
|
13
|
4%
|
> 30 DPD
|
2
|
8%
|
22
|
9%
|
1
|
6%
|
23
|
8%
|
-
|
-
|
25
|
7%
|
Other (2)
|
3
|
13%
|
114
|
43%
|
-
|
-
|
114
|
40%
|
-
|
-
|
117
|
33%
|
|
25
|
100%
|
262
|
100%
|
25
|
100%
|
287
|
100%
|
41
|
100%
|
353
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 September 2023
|
|
Unsecured
|
|
Mortgages
|
Cards
|
Loans
and overdrafts
|
Combined
|
Business
|
Total
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
£m
|
%
|
PD deterioration
|
1,739
|
65%
|
777
|
59%
|
317
|
99%
|
1,094
|
67%
|
1,229
|
62%
|
4,062
|
64%
|
Forbearance
|
81
|
3%
|
16
|
1%
|
1
|
-
|
17
|
1%
|
281
|
14%
|
379
|
6%
|
AFD or Watch List
(1)
|
1
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
455
|
23%
|
456
|
7%
|
> 30 DPD
|
201
|
7%
|
34
|
3%
|
3
|
1%
|
37
|
2%
|
15
|
1%
|
253
|
4%
|
Other (2)
|
682
|
25%
|
494
|
37%
|
-
|
-
|
494
|
30%
|
-
|
-
|
1,176
|
19%
|
|
2,704
|
100%
|
1,321
|
100%
|
321
|
100%
|
1,642
|
100%
|
1,980
|
100%
|
6,326
|
100%
|
ECLs
|
|
|
|
|
|
|
|
|
|
|
|
|
PD deterioration
|
18
|
67%
|
143
|
49%
|
26
|
93%
|
169
|
52%
|
23
|
45%
|
210
|
52%
|
Forbearance
|
3
|
11%
|
5
|
2%
|
-
|
-
|
5
|
2%
|
14
|
28%
|
22
|
6%
|
AFD or Watch List
(1)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
14
|
27%
|
14
|
4%
|
> 30 DPD
|
3
|
11%
|
21
|
7%
|
2
|
7%
|
23
|
7%
|
-
|
-
|
26
|
7%
|
Other (2)
|
3
|
11%
|
125
|
42%
|
-
|
-
|
125
|
39%
|
-
|
-
|
128
|
31%
|
|
27
|
100%
|
294
|
100%
|
28
|
100%
|
322
|
100%
|
51
|
100%
|
400
|
100%
|
(1)
|
Approaching Financial Difficulty
(AFD) and Watch markers are early warning indicators of Business
customers who may be approaching financial difficulties. If these
indicators are not reversed, they may lead to a requirement for
more proactive management by the Group.
|
|
(2)
|
Other refers primarily to rules
using additional credit reference agency data as well as a number
of smaller value drivers.
|
|
(3)
|
During the period, changes to the
credit card SICR model, that removed the requirement for a
two-month probation before accounts could return to Stage 1 from
Stage 2 for non-forborne exposures, resulted in a reduced modelled
ECL in the credit cards portfolio by £31m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management
Credit risk
Credit risk exposure and ECL, by internal PD rating, by IFRS
9 stage allocation
The distribution of the Group's
credit exposures and ECL by internal PD rating is analysed
below:
|
|
|
Stage 1
|
Stage 2
|
Stage
3(1)
|
Total
|
31 March 2024
|
Lending
£m
|
ECL
£m
|
Lending £m
|
ECL
£m
|
Lending £m
|
ECL
£m
|
Lending £m
|
ECL
£m
|
Mortgages
|
PD range
|
|
|
|
|
|
|
|
|
Strong
|
0 - 0.74
|
52,314
|
5
|
1,423
|
2
|
-
|
-
|
53,737
|
7
|
Good
|
0.75 - 2.49
|
1,191
|
2
|
435
|
3
|
-
|
-
|
1,626
|
5
|
Satisfactory
|
2.50 - 99.99
|
323
|
2
|
681
|
20
|
-
|
-
|
1,004
|
22
|
Default
|
100
|
-
|
-
|
-
|
-
|
574
|
21
|
574
|
21
|
Total
|
|
53,828
|
9
|
2,539
|
25
|
574
|
21
|
56,941
|
55
|
Unsecured
|
|
|
|
|
|
|
|
|
|
Strong
|
0 - 2.49
|
4,639
|
33
|
20
|
2
|
-
|
-
|
4,659
|
35
|
Good
|
2.50 - 9.99
|
967
|
28
|
798
|
115
|
-
|
-
|
1,765
|
143
|
Satisfactory
|
10.00 - 99.99
|
4
|
1
|
487
|
170
|
-
|
-
|
491
|
171
|
Default
|
100
|
-
|
-
|
-
|
-
|
138
|
76
|
138
|
76
|
Total
|
|
5,610
|
62
|
1,305
|
287
|
138
|
76
|
7,053
|
425
|
Business
|
|
|
|
|
|
|
|
|
|
Strong
|
0 - 0.74
|
2,317
|
2
|
101
|
-
|
-
|
-
|
2,418
|
2
|
Good
|
0.75 - 9.99
|
4,895
|
28
|
1,213
|
22
|
-
|
-
|
6,108
|
50
|
Satisfactory
|
10.00 - 99.99
|
35
|
1
|
254
|
19
|
-
|
-
|
289
|
20
|
Default
|
100
|
-
|
-
|
-
|
-
|
452
|
65
|
452
|
65
|
Total
|
|
7,247
|
31
|
1,568
|
41
|
452
|
65
|
9,267
|
137
|
|
|
|
Stage
1
|
Stage
2
|
Stage
3(1)
|
Total
|
30 September 2023
|
Lending
£m
|
ECL
£m
|
Lending
£m
|
ECL
£m
|
Lending
£m
|
ECL
£m
|
Lending
£m
|
ECL
£m
|
Mortgages
|
PD range
|
|
|
|
|
|
|
|
|
Strong
|
0 - 0.74
|
52,612
|
8
|
1,355
|
2
|
-
|
-
|
53,967
|
10
|
Good
|
0.75 - 2.49
|
1,540
|
2
|
553
|
3
|
-
|
-
|
2,093
|
5
|
Satisfactory
|
2.50 - 99.99
|
388
|
3
|
796
|
22
|
-
|
-
|
1,184
|
25
|
Default
|
100
|
-
|
-
|
-
|
-
|
553
|
17
|
553
|
17
|
Total
|
|
54,540
|
13
|
2,704
|
27
|
553
|
17
|
57,797
|
57
|
Unsecured
|
|
|
|
|
|
|
|
|
|
Strong
|
0 - 2.49
|
4,443
|
29
|
123
|
12
|
-
|
-
|
4,566
|
41
|
Good
|
2.50 - 9.99
|
607
|
16
|
1,063
|
148
|
-
|
-
|
1,670
|
164
|
Satisfactory
|
10.00 - 99.99
|
6
|
1
|
456
|
162
|
-
|
-
|
462
|
163
|
Default
|
100
|
-
|
-
|
-
|
-
|
116
|
61
|
116
|
61
|
Total
|
|
5,056
|
46
|
1,642
|
322
|
116
|
61
|
6,814
|
429
|
Business
|
|
|
|
|
|
|
|
|
|
Strong
|
0 - 0.74
|
1,860
|
2
|
158
|
-
|
-
|
-
|
2,018
|
2
|
Good
|
0.75 - 9.99
|
4,360
|
27
|
1,441
|
30
|
-
|
-
|
5,801
|
57
|
Satisfactory
|
10.00 - 99.99
|
73
|
1
|
381
|
21
|
-
|
-
|
454
|
22
|
Default
|
100
|
-
|
-
|
-
|
-
|
411
|
50
|
411
|
50
|
Total
|
|
6,293
|
30
|
1,980
|
51
|
411
|
50
|
8,684
|
131
|
(1)
|
Stage 3 includes POCI for gross
lending of £45m for Mortgages and £1m for Unsecured (30 September
2023: £48m and £1m respectively); and ECL of (£1m) for Mortgages
and (£1m) for Unsecured (30 September 2023: (£1m) and (£1m)
respectively).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In terms of the credit quality of
the loan commitments and financial guarantee contracts, at least
97% is classified as either 'Good' or 'Strong' under the Group's
internal PD rating scale with the overall portfolio at 96% (30
September 2023: 96%) and the level of default remaining
low.
The improvements to the profile of
the PD groupings has been predominantly driven by the updates to
MES received during the period, rather than underlying customer
rating changes.
Risk management
Credit risk
IFRS 9 staging
The following
table shows the changes in the loss allowance and gross carrying
value of the portfolios. Values are calculated using the individual
customer account balances, and the stage allocation is taken as at
the end of each month. The monthly position of each account is
aggregated to report a net closing position for the period, thereby
incorporating all movements an account has made during the
period.
6
months to 31 March 2024
|
Stage 1
|
Stage 2
|
Stage
3(1)
|
Total gross
loans
£m
|
Total
provisions
£m
|
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Income statement
£m
|
Opening balance at 1 October 2023
|
65,889
|
89
|
6,326
|
400
|
1,080
|
128
|
73,295
|
617
|
|
Transfers from Stage 1 to Stage
2
|
(3,295)
|
(20)
|
3,294
|
177
|
-
|
-
|
(1)
|
157
|
157
|
Transfers from Stage 2 to Stage
1
|
3,086
|
24
|
(3,129)
|
(142)
|
-
|
-
|
(43)
|
(118)
|
(118)
|
Transfers to Stage 3
|
(43)
|
-
|
(348)
|
(73)
|
394
|
88
|
3
|
15
|
15
|
Transfers from Stage 3
|
33
|
1
|
75
|
7
|
(114)
|
(6)
|
(6)
|
2
|
2
|
Net movement
|
(219)
|
5
|
(108)
|
(31)
|
280
|
82
|
(47)
|
56
|
56
|
New assets originated or purchased
(2)
|
10,235
|
49
|
329
|
26
|
122
|
21
|
10,686
|
96
|
96
|
Repayments and other movements
(3)
|
(1,383)
|
(2)
|
(359)
|
(3)
|
88
|
3
|
(1,654)
|
(2)
|
(2)
|
Repaid or derecognised
(3)
|
(7,837)
|
(39)
|
(776)
|
(39)
|
(288)
|
(86)
|
(8,901)
|
(164)
|
(164)
|
Write-offs
|
-
|
-
|
-
|
-
|
(118)
|
(118)
|
(118)
|
(118)
|
-
|
Cash recoveries
|
-
|
-
|
-
|
-
|
-
|
25
|
-
|
25
|
-
|
Individually assessed impairment
charge
|
-
|
-
|
-
|
-
|
-
|
107
|
-
|
107
|
107
|
Closing balance at 31 March 2024
|
66,685
|
102
|
5,412
|
353
|
1,164
|
162
|
73,261
|
617
|
93
|
12 months to 30 September
2023
|
Stage
1
|
Stage
2
|
Stage
3(1)
|
Total
gross loans
£m
|
Total
provisions
£m
|
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Income
statement £m
|
Opening balance at 1 October
2022
|
66,385
|
85
|
5,725
|
268
|
1,036
|
104
|
73,146
|
457
|
|
|
Transfers from Stage 1 to Stage
2
|
(8,561)
|
(46)
|
8,535
|
414
|
-
|
-
|
(26)
|
368
|
368
|
|
Transfers from Stage 2 to Stage
1
|
6,077
|
16
|
(6,125)
|
(129)
|
-
|
-
|
(48)
|
(113)
|
(113)
|
|
Transfers to Stage 3
|
(96)
|
-
|
(586)
|
(109)
|
686
|
138
|
4
|
29
|
29
|
|
Transfers from Stage 3
|
121
|
-
|
134
|
8
|
(266)
|
(10)
|
(11)
|
(2)
|
(2)
|
|
Net movement
|
(2,459)
|
(30)
|
1,958
|
184
|
420
|
128
|
(81)
|
282
|
282
|
|
New assets originated or purchased
(2)
|
20,489
|
57
|
629
|
44
|
161
|
34
|
21,279
|
135
|
135
|
|
Repayments and other movements
(3)
|
(2,990)
|
12
|
(558)
|
(22)
|
140
|
(4)
|
(3,408)
|
(14)
|
(14)
|
|
Repaid or derecognised
(3)
|
(15,536)
|
(35)
|
(1,428)
|
(74)
|
(490)
|
(127)
|
(17,454)
|
(236)
|
(236)
|
|
Write-offs
|
-
|
-
|
-
|
-
|
(187)
|
(187)
|
(187)
|
(187)
|
-
|
|
Cash recoveries
|
-
|
-
|
-
|
-
|
-
|
38
|
-
|
38
|
-
|
|
Individually assessed impairment
charge
|
-
|
-
|
-
|
-
|
-
|
142
|
-
|
142
|
142
|
|
Closing balance at 30 September
2023
|
65,889
|
89
|
6,326
|
400
|
1,080
|
128
|
73,295
|
617
|
309
|
|
(1)
|
Stage 3 includes POCI for gross
loans and advances of £45m for Mortgages and £1m for Unsecured (30
September 2023: £48m and £1m respectively), and ECL of (£1m) for
Mortgages and (£1m) for Unsecured (30 September 2023: (£1m) and
(£1m) respectively). Nil for Business in both periods.
|
|
(2)
|
Includes assets where the term has
ended, and a new facility has been provided.
|
|
(3)
|
'Repayments' comprises payments made
on customer lending which are not yet fully paid at the reporting
date and the customer arrangement remains live at that date.
'Repaid' refers to payments made on customer lending which is
either fully repaid or derecognised by the reporting date and the
customer arrangement is therefore closed at that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The IFRS 9 staging movements are
driven by a variety of factors at individual product portfolio
levels, with further detail provided in the following portfolio
performance pages. Overall, the portfolio movements across staging
are consistent with the prior period with gross flows in and out of
Stage 2 the predominant movement. The level of write offs in the 6
month period is trending higher than the full year outcome of the
prior period and has been primarily driven from the credit card
portfolio, in addition to a small number of individually
significant business write offs. The levels of default across the
portfolio remain low.
The contractual amount outstanding
on loans and advances that were written off during the reporting
period or still subject to enforcement activity was £2.4m (30
September 2023: £5.1m). The Group has not purchased any lending
assets in the period (30 September 2023: none). Further information
on staging profile is provided at a portfolio level in the
respective portfolio performance section on the following
pages.
Risk management
Credit risk
Mortgage credit performance
The table below presents key
information which is important for understanding the asset quality
of the Group's Mortgage portfolio and should be read in conjunction
with the supplementary data presented in the following pages of
this section.
Breakdown of Mortgage portfolio
|
Gross
lending
|
Modelled & IA
ECL
|
MA
|
Total ECL
|
Net
lending
|
Coverage
|
Average
LTV
|
31 March 2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
%
|
%
|
Residential - capital
repayment
|
34,274
|
9
|
3
|
12
|
34,262
|
0.04%
|
56.2%
|
Residential - interest
only
|
7,587
|
8
|
1
|
9
|
7,578
|
0.12%
|
49.2%
|
Buy-to-let (BTL)
|
15,080
|
8
|
26
|
34
|
15,046
|
0.22%
|
54.9%
|
Total Mortgage portfolio
|
56,941
|
25
|
30
|
55
|
56,886
|
0.10%
|
53.6%
|
|
|
|
|
|
|
|
|
30 September 2023
|
|
|
|
|
|
|
|
Residential - capital
repayment
|
35,085
|
10
|
5
|
15
|
35,070
|
0.04%
|
54.2%
|
Residential - interest
only
|
7,503
|
8
|
1
|
9
|
7,494
|
0.12%
|
47.0%
|
BTL
|
15,209
|
7
|
26
|
33
|
15,176
|
0.21%
|
52.8%
|
Total Mortgage
portfolio
|
57,797
|
25
|
32
|
57
|
57,740
|
0.10%
|
52.9%
|
Mortgage lending reduced in the
period on a net basis to £56.9bn (30 September 2023: £57.8bn) with
lower demand for new lending owing to the higher rate environment,
stressed affordability pressure and wider cost of living
considerations, being outpaced by repayments and
redemptions.
The portfolio continues to
evidence good underlying credit performance, with the majority
(98%) of lending not yet past due at the balance sheet date (30
September 2023: 98%), and 95% of loans held in Stage 1 (30
September 2023: 94%). A significant proportion of the portfolio is
rated Strong or Good at the balance sheet date under the Group's
internal PD rating scale (97%), consistent with 30 September 2023:
97%.
Stage 3 balances have remained
consistently low at 1.0% (30 September 2023: 1.0%) and 86% of the
portfolio has an LTV of less than 75% (30 September 2023: 91%),
with the weighted average LTV relatively stable in the period to
53.6% (30 September 2023: 52.9%).
All of these key metrics evidence
a high quality mortgage portfolio, with relatively low risk of
default, driven by sound lending decisions and underwriting
criteria. Further detail on LTV bandings is provided
below.
Mortgage portfolio - interest rate profile
|
31 March
2024
|
30
September 2023
|
|
£m
|
%
|
£m
|
%
|
Fixed rate
|
51,817
|
91.0%
|
52,841
|
91.5%
|
Variable rate
|
4,159
|
7.3%
|
3,081
|
5.3%
|
Standard variable rate
(SVR)
|
965
|
1.7%
|
1,875
|
3.2%
|
Total
|
56,941
|
100.0%
|
57,797
|
100.0%
|
The Group is a signatory to the
government mortgage charter announced by the chancellor of the
exchequer on 23 June 2023, to support regulated residential
mortgage borrowers impacted by higher mortgage interest rates, in
particular borrowers whose existing fixed rate deal is due to end
in the immediate future.
During the period there has been a
shift and increase in the volume of customers opening tracker
mortgages as customers monitor the interest rate movements. The
increase in interest rates has also driven a reduction in the
volume of customers on the SVR.
Risk management
Credit risk
Mortgage credit performance (continued)
Collateral
The quality of the Group's
Mortgage portfolio can be considered in terms of the average LTV of
the portfolio and the staging of the portfolio, as set out in the
following tables:
Average LTV of Mortgage portfolio by
staging
31 March 2024
|
Stage 1
|
Stage 2
|
Stage
3(2)
|
Total
|
LTV (1)
|
Loans
£m
|
%
|
ECL
£m
|
Loans
£m
|
%
|
ECL
£m
|
Loans
£m
|
%
|
ECL
£m
|
Loans
£m
|
%
|
ECL
£m
|
Less than 50%
|
20,218
|
38%
|
2
|
1,395
|
55%
|
3
|
264
|
46%
|
3
|
21,877
|
38%
|
8
|
50% to 75%
|
26,218
|
49%
|
4
|
980
|
39%
|
11
|
214
|
37%
|
5
|
27,412
|
48%
|
20
|
76% to 80%
|
3,297
|
6%
|
1
|
78
|
3%
|
1
|
33
|
6%
|
2
|
3,408
|
6%
|
4
|
81% to 85%
|
1,939
|
4%
|
1
|
38
|
1%
|
1
|
18
|
3%
|
2
|
1,995
|
4%
|
4
|
86% to 90%
|
1,362
|
2%
|
-
|
26
|
1%
|
-
|
15
|
3%
|
1
|
1,403
|
3%
|
1
|
91% to 95%
|
706
|
1%
|
-
|
15
|
1%
|
1
|
4
|
1%
|
1
|
725
|
1%
|
2
|
96% to 100%
|
53
|
-
|
-
|
3
|
-
|
1
|
6
|
1%
|
1
|
62
|
-
|
2
|
Greater than 100%
|
35
|
-
|
1
|
4
|
-
|
7
|
20
|
3%
|
6
|
59
|
-
|
14
|
|
53,828
|
100%
|
9
|
2,539
|
100%
|
25
|
574
|
100%
|
21
|
56,941
|
100%
|
55
|
30 September 2023
|
Stage
1
|
Stage
2
|
Stage
3(2)
|
Total
|
LTV (1)
|
Loans
£m
|
%
|
ECL
£m
|
Loans
£m
|
%
|
ECL
£m
|
Loans
£m
|
%
|
ECL
£m
|
Loans
£m
|
%
|
ECL
£m
|
Less than 50%
|
22,680
|
42%
|
4
|
1,551
|
58%
|
5
|
282
|
50%
|
2
|
24,513
|
42%
|
11
|
50% to 75%
|
26,913
|
49%
|
6
|
1,009
|
37%
|
14
|
203
|
37%
|
4
|
28,125
|
49%
|
24
|
76% to 80%
|
2,270
|
4%
|
1
|
81
|
3%
|
2
|
22
|
4%
|
1
|
2,373
|
4%
|
4
|
81% to 85%
|
1,408
|
3%
|
1
|
33
|
1%
|
1
|
13
|
2%
|
1
|
1,454
|
3%
|
3
|
86% to 90%
|
992
|
2%
|
-
|
23
|
1%
|
-
|
9
|
2%
|
1
|
1,024
|
2%
|
1
|
91% to 95%
|
236
|
-
|
-
|
3
|
-
|
-
|
11
|
2%
|
1
|
250
|
-
|
1
|
96% to 100%
|
8
|
-
|
-
|
2
|
-
|
1
|
3
|
1%
|
-
|
13
|
-
|
1
|
Greater than 100%
|
33
|
-
|
1
|
2
|
-
|
4
|
10
|
2%
|
7
|
45
|
-
|
12
|
|
54,540
|
100%
|
13
|
2,704
|
100%
|
27
|
553
|
100%
|
17
|
57,797
|
100%
|
57
|
(1)
|
LTV of
the Mortgage portfolio is defined as Mortgage portfolio weighted by balance. The portfolio is indexed using the MIAC Acadametrics indices
at a given date.
|
(2)
|
Stage 3
includes £45m (30
September 2023: £48m) of
POCI gross loans and advances and (£1m) ECL (30 September
2023: (£1m)).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Mortgage portfolio remains
highly secured with 86% of mortgages, by loan value, having an
indexed LTV of less than 75% (30 September 2023: 91.1%), and an
average portfolio LTV of 53.6% (30 September 2023: 52.9%). A new 2
year fixed 95% product and increased lending to first time buyers
in the period has driven the higher value of lending in the 91% to
95% range. The total portfolio has reduced by 1.5% with the highest
reduction by proportion in Stage 2 and value in Stage 1.
Forbearance
The volume and value of loans in
forbearance has changed in the period to 3,743/£513m from
3,801/£498m at 30 September 2023, indicating that this is still a
primary measure of early intervention and support that customers
use to find breathing space and make good choices towards the most
favourable outcome.
When all other avenues of
resolution, including forbearance, have been explored, the Group
will take steps to repossess and sell underlying collateral. In the
6 month period to 31 March 2024, there were 35 repossessions (12
months to 30 September 2023: 55). The Group remains committed to
supporting the customer and places good customer outcomes at the
centre of this strategy.
Risk management
Credit risk
Mortgage credit performance (continued)
IFRS 9 staging
The Group closely monitors the
staging profile of the Mortgage portfolio over time which can be
indicative of general trends in book health. Movements in the
staging profile of the portfolio in the current and prior period
are presented in the tables below.
|
|
Stage 1
|
Stage 2
|
Stage
3(1)
|
|
|
|
|
6
months to 31 March 2024
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Total
gross
loans
£m
|
Total
provisions
£m
|
Income statement
£m
|
Opening balance at 1 October
2023
|
54,540
|
13
|
2,704
|
27
|
553
|
17
|
57,797
|
57
|
|
Transfers from Stage 1 to Stage
2
|
(1,937)
|
(1)
|
1,927
|
17
|
-
|
-
|
(10)
|
16
|
16
|
Transfers from Stage 2 to Stage
1
|
1,738
|
2
|
(1,749)
|
(20)
|
-
|
-
|
(11)
|
(18)
|
(18)
|
Transfers to Stage 3
|
(21)
|
-
|
(155)
|
(3)
|
175
|
4
|
(1)
|
1
|
1
|
Transfers from Stage 3
|
31
|
1
|
50
|
7
|
(84)
|
(2)
|
(3)
|
6
|
6
|
Net movement
|
(189)
|
2
|
73
|
1
|
91
|
2
|
(25)
|
5
|
5
|
New assets originated or purchased
(2)
|
2,838
|
1
|
-
|
-
|
1
|
-
|
2,839
|
1
|
1
|
Repayments and other movements
(3)
|
(1,127)
|
(6)
|
(49)
|
-
|
(6)
|
10
|
(1,182)
|
4
|
4
|
Repaid or derecognised
(3)
|
(2,234)
|
(1)
|
(189)
|
(3)
|
(64)
|
(3)
|
(2,487)
|
(7)
|
(7)
|
Write-offs
|
-
|
-
|
-
|
-
|
(1)
|
(1)
|
(1)
|
(1)
|
-
|
Individually assessed impairment
charge
|
-
|
-
|
-
|
-
|
-
|
(4)
|
-
|
(4)
|
(4)
|
Closing balance at 31 March 2024
|
53,828
|
9
|
2,539
|
25
|
574
|
21
|
56,941
|
55
|
(1)
|
of which:
|
|
|
|
|
|
|
|
|
|
Residential - capital repayment
|
32,658
|
2
|
1,343
|
3
|
273
|
7
|
34,274
|
12
|
|
Residential - interest only
|
6,773
|
1
|
616
|
1
|
198
|
7
|
7,587
|
9
|
|
BTL
|
14,397
|
6
|
580
|
21
|
103
|
7
|
15,080
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stage
1
|
Stage
2
|
Stage
3(1)
|
|
|
|
12 months to 30 September
2023
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Total
gross
loans
£m
|
Total
provisions
£m
|
Income
statement
£m
|
Opening balance at 1 October
2022
|
54,791
|
10
|
3,090
|
32
|
583
|
14
|
58,464
|
56
|
|
Transfers from Stage 1 to Stage
2
|
(5,237)
|
(3)
|
5,203
|
63
|
-
|
-
|
(34)
|
60
|
60
|
Transfers from Stage 2 to Stage
1
|
4,827
|
1
|
(4,852)
|
(49)
|
-
|
-
|
(25)
|
(48)
|
(48)
|
Transfers to Stage 3
|
(58)
|
-
|
(273)
|
(5)
|
328
|
7
|
(3)
|
2
|
2
|
Transfers from Stage 3
|
112
|
-
|
104
|
7
|
(222)
|
(3)
|
(6)
|
4
|
4
|
Net movement
|
(356)
|
(2)
|
182
|
16
|
106
|
4
|
(68)
|
18
|
18
|
New assets originated or purchased
(2)
|
8,372
|
2
|
-
|
-
|
-
|
-
|
8,372
|
2
|
2
|
Repayments and other movements
(3)
|
(2,366)
|
4
|
(99)
|
(15)
|
(9)
|
3
|
(2,474)
|
(8)
|
(8)
|
Repaid or derecognised
(3)
|
(5,901)
|
(1)
|
(469)
|
(6)
|
(126)
|
(3)
|
(6,496)
|
(10)
|
(10)
|
Write-offs
|
-
|
-
|
-
|
-
|
(1)
|
(1)
|
(1)
|
(1)
|
-
|
Individually assessed impairment
charge
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Closing balance at 30 September
2023
|
54,540
|
13
|
2,704
|
27
|
553
|
17
|
57,797
|
57
|
2
|
of which:
|
|
|
|
|
|
|
|
|
|
Residential - capital repayment
|
33,328
|
3
|
1,489
|
6
|
268
|
6
|
35,085
|
15
|
|
Residential - interest only
|
6,651
|
1
|
657
|
2
|
195
|
6
|
7,503
|
9
|
|
BTL
|
14,561
|
9
|
558
|
19
|
90
|
5
|
15,209
|
33
|
|
(1)
|
Stage 3 includes POCI for gross
loans and advances of £45m and ECL of (£1m) (30 September 2023:
£48m and (£1m) respectively).
|
(2)
|
Includes assets where the term has
ended, and a new facility has been provided.
|
(3)
|
'Repayments' comprises payments made
on customer lending which are not yet fully paid at the reporting
date and the customer arrangement remains live at that date.
'Repaid' refers to payments made on customer lending, which is
either fully repaid or derecognised by the reporting date and the
customer arrangement is therefore closed at that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management
Credit risk
Mortgage credit performance (continued)
The Mortgage portfolio continues
to evidence strong performance with levels of delinquency and
impairment remaining relatively low.
The level of mortgage lending
classed as Stage 1 increased to 94.5% (30 September 2023: 94.3%),
with a decrease in assets in Stage 2 from 4.7% to 4.5%. Within the
Stage 2 category, 88% is not yet past due at the balance sheet date
(30 September 2023: 89%). The proportion of mortgages classified as
Stage 3 remains modest at 1.0% (30 September 2023: 1.0%). The net
movements across the stages show reductions, primarily in the Stage
2 and 3 portfolios, driven by a wide variety of factors, but
broadly they are all successful outcomes in either restoring
customers to fully performing or resuming satisfactory repayment
schedules, as the Group is committed to the delivery of good
customer outcomes.
The sustained quality in the
internal PD ratings and high quality of collateral underpinning the
book are key factors in an impairment release of £1m in the period
(12 months to 30 September 2023: charge of £2m, 6 months to 31
March 2023: charge of £3m) and associated CoR of nil bps (12 months
to 30 September 2023: nil bps, 6 months to 31 March 2023: 1bps).
Provision coverage has remained stable in
the period at 10bps (30 September 2023: 10bps).
Unsecured credit performance
The table below presents key
information which is important for understanding the asset quality
of the Group's Unsecured lending portfolio and should be read in
conjunction with the supplementary data presented in the following
pages of this section.
Breakdown of Unsecured credit portfolio
|
Gross
lending
|
Modelled
ECL
|
MA
|
Total ECL
|
Net
lending
|
Coverage
|
31 March 2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
%
|
Credit cards
|
6,427
|
354
|
37
|
391
|
6,036
|
6.48%
|
Personal loans
|
601
|
29
|
1
|
30
|
571
|
4.91%
|
Overdrafts
|
25
|
4
|
-
|
4
|
21
|
11.34%
|
Total Unsecured lending portfolio
|
7,053
|
387
|
38
|
425
|
6,628
|
6.35%
|
|
|
|
|
|
|
|
30 September 2023
|
|
|
|
|
|
|
Credit cards
|
6,088
|
364
|
28
|
392
|
5,696
|
6.88%
|
Personal loans
|
699
|
32
|
1
|
33
|
666
|
4.59%
|
Overdrafts
|
27
|
4
|
-
|
4
|
23
|
11.62%
|
Total Unsecured lending
portfolio
|
6,814
|
400
|
29
|
429
|
6,385
|
6.65%
|
Unsecured gross lending balances
increased to £7.1bn (30 September 2023: £6.8bn) with underlying
growth in the credit card portfolio offset by the personal loan
portfolio which continues to contract.
While there has been evidence of a
slight deterioration in early stage delinquency metrics in the
portfolio against a backdrop of a downturn in the broader UK
economy, the credit quality of the Unsecured portfolio remains
high, with 97.1% of the portfolio in Stage 1 or Stage 2 not past
due (30 September 2023: 97.2%).
During the period, the Group
reviewed the existing staging approach for credit cards in the
Unsecured portfolio which focused on the triggers that move
exposures from Stage 1 (requiring a 12-month ECL calculation) to
Stage 2 (requiring a lifetime ECL calculation) and removed the
requirement for a two-month probation period before accounts could
return to Stage 1 from Stage 2 for non-forborne exposures. This
enables the recognition of improving economic forecasts immediately
in the same way deterioration is currently recognised immediately
following a MES refresh, and whilst this may increase the
volatility of IFRS stage migration, the impact is not expected to
be material. The overall impact of these changes has been to reduce
the modelled ECL in the Unsecured portfolio by £31m. This has been
partially offset by the ECL attributable to the credit card
portfolio growth. In addition, the updated macroeconomic scenarios
drove a further reduction in modelled ECL of £8m.
A refreshed debt sale MA has been
introduced to account for the deferral period for the receipt of
Cards debt sale proceeds. The total MA held for debt sale increased
by £8.7m to £37.6m.
Overall, coverage reduced slightly
to 635bps (30 September 2023: 665bps), driven by the reduction in
modelled ECL.
The value of credit cards written
off in the period, net of recoveries, was £76m (12 months to 30
September 2023: £116m).
Risk management
Credit risk
Unsecured credit performance (continued)
Forbearance
The level of forbearance
concessions agreed in the Unsecured portfolio, particularly in
credit cards, has increased in line with portfolio arrears, driven
by continued portfolio maturation, the Group's diversification
strategy and the wider economic environment, although remains
relatively low at 1.76% of total portfolio lending at 31 March 2024
(30 September 2023: 1.42%). The level of
impairment coverage on forborne lending has remained stable at 46%
(30 September 2023: 46%).
Credit cards forbearance totalled
£112m (27,392 accounts), an increase from the 30 September 2023
position of £90m (22,206 accounts) reflective of the current
environment. This represents 1.84% of total credit cards balances
(30 September 2023: 1.56%).
Limited forbearance is exercised
in relation to Personal loans and overdrafts, and it remains
relatively stable at £2m which equates to 0.46% of the portfolio
(30 September 2023: £2m, 0.51%).
IFRS 9 staging
The Group closely monitors the
staging profile of its Unsecured lending portfolio over time which
can be indicative of general trends in book health. Movements in
the staging profile of the portfolio in the current and prior
period are presented in the tables below:
|
Stage 1
|
Stage 2
|
Stage
3(1)
|
|
Total
provisions
£m
|
Income
statement
£m
|
6
months to 31 March 2024
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Total
gross
loans
£m
|
Opening balance at 1 October 2023
|
5,056
|
46
|
1,642
|
322
|
116
|
61
|
6,814
|
429
|
|
Transfers from Stage 1 to Stage
2
|
(767)
|
(17)
|
781
|
148
|
-
|
-
|
14
|
131
|
131
|
Transfers from Stage 2 to Stage
1
|
754
|
19
|
(785)
|
(109)
|
-
|
-
|
(31)
|
(90)
|
(90)
|
Transfers to Stage 3
|
(10)
|
-
|
(118)
|
(67)
|
132
|
80
|
4
|
13
|
13
|
Transfers from Stage 3
|
-
|
-
|
-
|
-
|
(3)
|
(3)
|
(3)
|
(3)
|
(3)
|
Net movement
|
(23)
|
2
|
(122)
|
(28)
|
129
|
77
|
(16)
|
51
|
51
|
New assets originated or purchased
(2)
|
646
|
6
|
-
|
-
|
2
|
2
|
648
|
8
|
8
|
Repayments and other movements
(3)
|
33
|
10
|
(189)
|
-
|
103
|
(2)
|
(53)
|
8
|
8
|
Repaid or derecognised
(3)
|
(102)
|
(2)
|
(26)
|
(7)
|
(103)
|
(63)
|
(231)
|
(72)
|
(72)
|
Write-offs
|
-
|
-
|
-
|
-
|
(109)
|
(109)
|
(109)
|
(109)
|
-
|
Cash recoveries
|
-
|
-
|
-
|
-
|
-
|
24
|
-
|
24
|
-
|
Individually assessed impairment
charge
|
-
|
-
|
-
|
-
|
-
|
86
|
-
|
86
|
86
|
Closing balance at 31 March 2024
|
5,610
|
62
|
1,305
|
287
|
138
|
76
|
7,053
|
425
|
81
|
12 months to 30 September
2023
|
Stage
1
|
Stage
2
|
Stage
3(1)
|
|
Total
provisions
£m
|
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Total
gross
loans
£m
|
Income
statement
£m
|
Opening balance at 1 October
2022
|
5,324
|
63
|
1,109
|
181
|
80
|
40
|
6,513
|
284
|
|
|
Transfers from Stage 1 to Stage
2
|
(1,621)
|
(39)
|
1,642
|
320
|
-
|
-
|
21
|
281
|
281
|
|
Transfers from Stage 2 to Stage
1
|
590
|
13
|
(608)
|
(69)
|
-
|
-
|
(18)
|
(56)
|
(56)
|
|
Transfers to Stage 3
|
(15)
|
-
|
(179)
|
(100)
|
200
|
121
|
6
|
21
|
21
|
|
Transfers from Stage 3
|
-
|
-
|
1
|
-
|
(5)
|
(5)
|
(4)
|
(5)
|
(5)
|
|
Net movement
|
(1,046)
|
(26)
|
856
|
151
|
195
|
116
|
5
|
241
|
241
|
|
New assets originated or purchased
(2)
|
1,101
|
12
|
1
|
-
|
2
|
2
|
1,104
|
14
|
14
|
|
Repayments and other movements
(3)
|
(97)
|
-
|
(282)
|
2
|
152
|
(6)
|
(227)
|
(4)
|
(4)
|
|
Repaid or derecognised
(3)
|
(226)
|
(3)
|
(42)
|
(12)
|
(152)
|
(91)
|
(420)
|
(106)
|
(106)
|
|
Write-offs
|
-
|
-
|
-
|
-
|
(161)
|
(161)
|
(161)
|
(161)
|
-
|
|
Cash recoveries
|
-
|
-
|
-
|
-
|
-
|
37
|
-
|
37
|
-
|
|
Individually assessed impairment
charge
|
-
|
-
|
-
|
-
|
-
|
124
|
-
|
124
|
124
|
|
Closing balance at 30 September
2023
|
5,056
|
46
|
1,642
|
322
|
116
|
61
|
6,814
|
429
|
269
|
|
(1)
|
Stage 3 includes POCI for gross
loans and advances of £1m and ECL of (£1m) (30 September 2023: £1m
and (£2m) respectively).
|
(2)
|
Includes assets where the term has
ended, and a new facility has been provided.
|
(3)
|
'Repayments' comprises payments
made on customer lending which are not yet fully paid at the
reporting date and the customer arrangement remains live at that
date. 'Repaid' refers to payments made on customer lending which is
either fully repaid or derecognised by the reporting date and the
customer arrangement is therefore closed at that date.
|
|
|
|
|
Risk management
Credit risk
Unsecured credit performance (continued)
The level of write offs in the
Unsecured portfolio has increased slightly, commensurate with a
growing portfolio, with an increase in the volume of credit card
balances reaching 180 DPD the primary driver, although the level of
post write off recoveries remains good. The total ECL held on
balance sheet has decreased from £429m at 30 September 2023 to
£425m at 31 March 2024 with the improved economic outlook and the
removal of the staging probation period being the primary drivers.
Modelled provision coverage alone is now 549bps (30 September 2023:
589bps).
The changes to the credit card
SICR model that removed the requirement for a two-month probation
before accounts could return to Stage 1 from Stage 2 for
non-forborne exposures, is the primary driver of the increase in
the balance of Unsecured lending classed as Stage 1 to 79.5% (30
September 2023: 74.2%), with a corresponding decrease in assets in
Stage 2 from 24.1% to 18.5%. This change was approved on the basis
that it will enable the recognition of improving economic forecasts
immediately following a refresh, and whilst account volatility may
increase, the impact is not expected to be material. Within the
Stage 2 category, 94.6% is not yet past due (30 September 2023:
95.4%). The proportion classified as Stage 3 increased slightly to
2.0% (30 September 2023: 1.7%).
The total ECL provision held for
the unsecured portfolio as at 31 March 2024 is £425m (30 September
2023: £429m), which in addition to a net write off impairment
charge of £86m, gives rise to a total impairment charge in the
period of £81m (12 months to 30 September 2023: £269m, 6 months to
31 March 2023: £126m) and associated CoR of 242bps (12 months to 30
September 2023: 430bps, 6 months to 31 March 2023:
410bps).
The total provision coverage has
reduced to 635bps (30 September 2023: 665bps).
Risk management
Credit risk
Business credit performance
The table below presents key
information which is important for understanding the asset quality
of the Group's Business lending portfolio and should be read in
conjunction with the supplementary data presented in the following
pages of this section.
Breakdown of Business credit portfolio
|
Gross
lending
|
Govern-ment
(1)
|
Total
gross
|
Model-led & IA
ECL
|
MA
|
Total ECL
|
Net
lending
|
Cover-age
(2)
|
|
31 March 2024
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
%
|
|
Agriculture
|
1,316
|
40
|
1,356
|
4
|
1
|
5
|
1,351
|
0.37%
|
|
Business services
|
1,172
|
185
|
1,357
|
42
|
3
|
45
|
1,312
|
3.66%
|
|
Commercial Real Estate
|
818
|
3
|
821
|
4
|
-
|
4
|
817
|
0.50%
|
|
Government, health &
education
|
1,395
|
33
|
1,428
|
7
|
1
|
8
|
1,420
|
0.60%
|
|
Hospitality
|
849
|
53
|
902
|
3
|
1
|
4
|
898
|
0.44%
|
|
Manufacturing
|
699
|
65
|
764
|
15
|
2
|
17
|
747
|
2.39%
|
|
Resources
|
168
|
4
|
172
|
1
|
-
|
1
|
171
|
1.00%
|
|
Retail and wholesale
trade
|
764
|
125
|
889
|
23
|
2
|
25
|
864
|
3.21%
|
|
Transport and storage
|
337
|
28
|
365
|
4
|
-
|
4
|
361
|
1.12%
|
|
Utilities, post and
telecoms
|
513
|
9
|
522
|
6
|
1
|
7
|
515
|
1.29%
|
|
Other
|
569
|
122
|
691
|
15
|
2
|
17
|
674
|
2.74%
|
|
Total Business portfolio
|
8,600
|
667
|
9,267
|
124
|
13
|
137
|
9,130
|
1.55%
|
|
|
|
|
|
|
|
|
|
|
|
30 September 2023
|
|
|
|
|
|
|
|
|
|
Agriculture
|
1,315
|
46
|
1,361
|
4
|
1
|
5
|
1,356
|
0.35%
|
|
Business services
|
1,153
|
212
|
1,365
|
38
|
3
|
41
|
1,324
|
3.45%
|
|
Commercial Real Estate
|
715
|
4
|
719
|
5
|
1
|
6
|
713
|
0.72%
|
|
Government, health &
education
|
1,200
|
38
|
1,238
|
9
|
2
|
11
|
1,227
|
0.85%
|
|
Hospitality
|
779
|
60
|
839
|
3
|
1
|
4
|
835
|
0.50%
|
|
Manufacturing
|
669
|
77
|
746
|
17
|
3
|
20
|
726
|
2.87%
|
|
Resources
|
160
|
5
|
165
|
2
|
-
|
2
|
163
|
1.65%
|
|
Retail and wholesale
trade
|
758
|
145
|
903
|
19
|
2
|
21
|
882
|
2.72%
|
|
Transport and storage
|
290
|
32
|
322
|
4
|
-
|
4
|
318
|
1.47%
|
|
Utilities, post &
telecoms
|
376
|
11
|
387
|
4
|
1
|
5
|
382
|
1.22%
|
|
Other
|
501
|
138
|
639
|
11
|
1
|
12
|
627
|
2.36%
|
|
Total Business
portfolio
|
7,916
|
768
|
8,684
|
116
|
15
|
131
|
8,553
|
1.60%
|
|
(1)
|
Government includes all lending
provided to business customers under UK Government schemes
including Bounce back loan scheme (BBLS), Coronavirus business
interruption loan scheme (CBILS), Coronavirus large business
interruption loan scheme (CLBILS) and Recovery loan scheme (RLS).
This excludes £168m (30 September 2023: £143m) of guarantee claim
funds received from British Business Bank.
|
(2)
|
Coverage ratio excludes the
guaranteed element of government-backed loan schemes.
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management
Credit risk
Business credit performance (continued)
Gross Business lending increased
to £9.3bn (30 September 2023: £8.7bn). The government-guaranteed
lending portfolio continues to reduce as borrowers repay balances.
Growth remains targeted to sectors and sub sectors where we have
well established expertise. The sector mix remained stable with
lending to the agriculture, business services and government,
health and education sectors continuing to account for almost half
of the total book, at 45% (30 September 2023: 46%).
Whilst there is some weakening in
the pre and early delinquency metrics being monitored, there has
been no significant deterioration in asset quality metrics across
the portfolio however, a small number of individually significant
specific provisions have been recognised increasing the value of IA
held by £18m. A range of external risks have remained prevalent
throughout the period including geopolitical, general inflationary
pressures, interest rate rises, ongoing supply chain distribution
and labour market disruption, as well as wider geopolitical risks.
However, the updated economic outlook is more favourable and the
updated macroeconomic inputs have resulted in a £10m release of
modelled provision.
The proportion of loans in Stage 1
has increased from 72.5% at 30 September 2023 to 78.2% at 31 March
2024, with a corresponding decrease in the proportion of loans in
Stage 2 to 16.9% (30 September 2023: 22.8%). Within the Stage 2
category, 98.5% is not past due (30 September 2023: 98.5%) and 92%
remain rated as 'Strong' or 'Good' (30 September 2023: 90%) under
the Group's internal PD rating scale. Stage 3 loans remain modest
at 4.9% (30 September 2023: 4.7%).
Forbearance
Forbearance is considered to exist
where customers are experiencing, or about to experience, financial
difficulty and the Group grants a concession on a non-commercial
basis. The Group reports business forbearance at a customer level
and at a value which incorporates all facilities and the related
impairment allowance, irrespective of whether each individual
facility is subject to forbearance. Authority to grant forbearance
measures for business customers is held by the Group's Strategic
Business Services unit and is exercised, where appropriate, based
on detailed consideration of the customer's financial position and
prospects.
Where a customer is part of a
larger group, forbearance is exercised and reported across the
Group at the individual entity level. Where modification of the
terms and conditions of an exposure meeting the criteria for
classification as forbearance results in derecognition of loans and
advances from the balance sheet and the recognition of a new
exposure, the new exposure is treated as forborne.
All balances subject to
forbearance are classed as either Stage 2 or Stage 3 for ECL
purposes.
Business portfolio forbearance has
remained relatively stable from £493m (291 customers) at 30
September 2023 to £521m (286 customers) at 31 March
2024.
As a percentage of the Business
portfolio, forborne balances are 5.33% (30 September 2023: 5.35%)
with impairment coverage increasing to 11.59% (30 September 2023:
9.14%), primarily due to specific provisions raised.
The majority of forbearance
arrangements relate to term extensions allowing customers a longer
term to repay their obligations in full than initially
contracted.
Risk management
Credit risk
Business credit performance (continued)
IFRS 9 staging
The Group closely monitors the
staging profile of its Business lending portfolio over time which
can be indicative of general trends in book health. Movements in
the staging profile of the portfolio in the current and prior
period are presented in the tables below.
|
Stage 1
|
Stage 2
|
Stage
3(3)
|
Total
gross
loans
£m
|
|
Income
statement
£m
|
6
months to 31 March 2024
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Total
provisions(3)
£m
|
Opening balance at 1 October 2023
|
6,293
|
30
|
1,980
|
51
|
411
|
50
|
8,684
|
131
|
|
Transfers from Stage 1 to Stage
2
|
(591)
|
(2)
|
587
|
11
|
-
|
-
|
(4)
|
9
|
9
|
Transfers from Stage 2 to Stage
1
|
594
|
3
|
(595)
|
(13)
|
-
|
-
|
(1)
|
(10)
|
(10)
|
Transfers to Stage 3
|
(12)
|
-
|
(75)
|
(4)
|
87
|
4
|
-
|
-
|
-
|
Transfers from Stage 3
|
1
|
-
|
24
|
-
|
(28)
|
(1)
|
(3)
|
(1)
|
(1)
|
Net movement
|
(8)
|
1
|
(59)
|
(6)
|
59
|
3
|
(8)
|
(2)
|
(2)
|
New assets originated or purchased
(1)
|
6,752
|
43
|
329
|
26
|
120
|
19
|
7,201
|
88
|
88
|
Repayments and other movements
(2)
|
(289)
|
(7)
|
(121)
|
-
|
(9)
|
(6)
|
(419)
|
(13)
|
(13)
|
Repaid or derecognised
(2)
|
(5,501)
|
(36)
|
(561)
|
(30)
|
(121)
|
(20)
|
(6,183)
|
(86)
|
(86)
|
Write-offs
|
-
|
-
|
-
|
-
|
(8)
|
(8)
|
(8)
|
(8)
|
-
|
Cash recoveries
|
-
|
-
|
-
|
-
|
-
|
1
|
-
|
1
|
-
|
Individually assessed impairment
charge
|
-
|
-
|
-
|
-
|
-
|
26
|
-
|
26
|
26
|
Closing balance at 31 March 2024
|
7,247
|
31
|
1,568
|
41
|
452
|
65
|
9,267
|
137
|
13
|
12 months to 30 September
2023
|
Stage
1
|
Stage
2
|
Stage
3(3)
|
|
Total
provisions(3)
£m
|
Income
statement
£m
|
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Gross
loans
£m
|
ecl
£m
|
Total
gross
loans
£m
|
|
Opening balance at 1 October
2022
|
6,270
|
12
|
1,526
|
55
|
373
|
50
|
8,169
|
117
|
|
|
Transfers from Stage 1 to Stage
2
|
(1,703)
|
(4)
|
1,689
|
31
|
-
|
-
|
(14)
|
27
|
27
|
|
Transfers from Stage 2 to Stage
1
|
659
|
1
|
(666)
|
(11)
|
-
|
-
|
(7)
|
(10)
|
(10)
|
|
Transfers to Stage 3
|
(23)
|
-
|
(134)
|
(4)
|
158
|
10
|
1
|
6
|
6
|
|
Transfers from Stage 3
|
8
|
-
|
30
|
-
|
(40)
|
(2)
|
(2)
|
(2)
|
(2)
|
|
Net movement
|
(1,059)
|
(3)
|
919
|
16
|
118
|
8
|
(22)
|
21
|
21
|
|
New assets originated or purchased
(1)
|
11,017
|
43
|
627
|
44
|
159
|
32
|
11,803
|
119
|
119
|
|
Repayments and other movements
(2)
|
(526)
|
8
|
(174)
|
(8)
|
(1)
|
(1)
|
(701)
|
(1)
|
(1)
|
|
Repaid or derecognised
(2)
|
(9,409)
|
(30)
|
(918)
|
(56)
|
(213)
|
(33)
|
(10,540)
|
(119)
|
(119)
|
|
Write-offs
|
-
|
-
|
-
|
-
|
(25)
|
(25)
|
(25)
|
(25)
|
-
|
|
Cash recoveries
|
-
|
-
|
-
|
-
|
-
|
1
|
-
|
1
|
-
|
|
Individually assessed impairment
charge
|
-
|
-
|
-
|
-
|
-
|
18
|
-
|
18
|
18
|
|
Closing balance at 30 September
2023
|
6,293
|
30
|
1,980
|
51
|
411
|
50
|
8,684
|
131
|
38
|
|
(1)
|
Includes assets where the term has
ended, and a new facility has been provided.
|
(2)
|
'Repayments' comprises payments
made on customer lending which are not yet fully paid at the
reporting date and the customer arrangement remains live at that
date. 'Repaid' refers to payments made on customer lending which is
either fully repaid or derecognised by the reporting date and the
customer arrangement is therefore closed at that date.
|
(3)
|
This excludes £168m (30 September
2023: £143m) of guarantee claim funds received from British
Business Bank.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The updated MES is the primary
driver of the £412m drop in the value of loans in stage 2, with the
majority migrating to stage 1 as a result of the improved economic
forecasts. The proportion of loans in stage 2 and not past due
remains high at 98.5% (30 September 2023: 98.5%). The level of
write offs in the portfolio remains low, with a small number of
connections driving the majority of the £8m of balances written off
in the period. The level of provision recognition in the period has
also remained subdued on a volume basis, with a small number of
individually significant provisions driving the majority of the IA
charge in the period. The level of Business lending classed as
Stage 1 increased to 78.2% (30 September 2023: 72.5%), with a
corresponding decrease in Stage 2 from 22.8% at 30 September 2023
to 16.9% at 31 March 2024. The majority of the balances in Stage 2
(98.5%) are not past due and are primarily in Stage 2 due to PD
deterioration since origination, however, there have been some PD
improvements in the period, in addition to proactive management
measures such as early intervention, heightened monitoring and
forbearance concessions. Stage 3 loans have remained relatively
stable at 4.9% (30 September 2023: 4.7%) and are predominantly
comprised of Bounce Back Loans.
Risk management
Credit risk
Business credit performance (continued)
The PDs for Business lending
combine both internal ratings information and forward-looking
economic forecasts. The material drivers of the PD and stage
migrations in the period are the economic forecasts, rather than
internal drivers or the emergence of arrears or defaults. The
proportion of assets classed as 'Strong' has increased to 26% (30
September 2023: 23%), with assets classed as 'Strong' or 'Good'
also improving to 92% (30 September 2023: 90%).
The specific provisions held on
balance sheet have increased to £43m (30 September 2023: £25m)
primarily due to a small number of individually significant
provisions recognised in the period. This results in an overall
provision of £137m (30 September 2023: £131m) and an impairment
charge of £13m in the period (12 months to 30 September 2023:
£38m, 6 months to 31 March 2023:
£15m) and
associated CoR of 30bps (12 months to 30 September 2023: 44bps, 6
months to 31 March 2023: 34bps).
Overall, portfolio coverage
remains prudent at 155ps (30 September 2023: 160bps).
Macroeconomic assumptions, scenarios and
weightings
The Group's ECL allowance at 31
March 2024 was £617m (30 September 2023: £617m).
Macroeconomic assumptions
The Group engages Oxford Economics
to provide a wide range of future macroeconomic assumptions, which
are used in the scenarios over the five-year forecast period,
reflecting the best estimate of future conditions under each
scenario outcome. The macroeconomic assumptions were provided by
Oxford Economics on 28 February 2024 and changes in macroeconomic assumptions
between then and 31 March 2024 have been considered in concluding
on the quantum of the MAs. The Group has identified the following
key macroeconomic drivers as the most significant inputs for IFRS 9
modelling purposes: UK GDP growth, inflation, house prices, base
rates, and unemployment rates. The external data provided is
assessed and reviewed on a quarterly basis to ensure
appropriateness and relevance to the ECL calculation, with more
frequent updates provided as and when the circumstances require
them. Further adjustments supplement the modelled output when it is
considered that not all the risks identified in a product segment
have been accurately reflected within the models or for other
situations where it is not possible to provide a modelled
outcome.
Weak economic data in December saw
the UK economy fall into a mild recession, however a strong start
to the year has recovered any ground lost as a result.
Inflation has continued to fall back towards the BoE's long term
target rate of 2%, which supports the expectation that the Bank's
Monetary Policy Committee will begin cutting the bank base rate,
from the current 16 year high of 5.25%, in Q2 2024. The
unemployment outlook has also improved following the release of
revised LFS data by the Office of National Statistics in
February.
Against this backdrop the Group
has assessed the available IFRS 9 scenarios for inclusion in the
macroeconomic models. The selection of scenarios and the
appropriate weightings applied to each of those scenarios are
considered, debated and decided by the Asset and Liability
Committee (ALCO) and the Audit Committee. The three scenarios
selected and the weights applied have been maintained as
follows:
Scenario
|
31 Mar
2024
(%)
|
30
Sept 2023
(%)
|
Upside
|
10
|
10
|
Base
|
55
|
55
|
Downside
|
35
|
35
|
The Group continue to select three
scenarios, with the largest weighting applied to the base scenario.
The decision to maintain the choice of scenarios, and the
weightings applied to each of those scenarios, is a reflection of
the relatively stable progression across recent forecasts since the
September 2023 update.
Risk management
Credit risk
Macroeconomic assumptions (continued)
The key macroeconomic assumptions
used in the scenarios in the period are(1):
|
Base (55%)
|
Upside
(10%)
|
Downside
(35%)
|
GDP
|
· Negative growth in Q1 2024 is followed by accelerated growth
from H2 2024, exceeding 2% towards the end of 2025
· Overall year on year growth is forecast at 0.4% in 2024,
followed by 1.8% in 2025
· Growth peaks at 2.2% in Q1 2026 before falling back to a long
run average on 1.5% by the end of 2029
|
· Despite a contraction of 0.2% in Q1 2024, year on year growth
reaches 2.1% in 2024
· Year
on year growth accelerates in 2025 to 3.8% before slowing in the
outer years
· Growth of 2.8% in 2026 is followed by 2.2% in 2027 before
levelling out at 1.6% in 2028
|
· The
mild recession from Q4 2023 to Q1 2024 becomes a deep recession,
with GDP contracting by 2.1% in 2024
· The
recession ends in Q3 2025 with growth of 0.8% in the quarter, but
the average for the year remains negative at 0.5%
· Productivity stabilises from that point on sees growth of
1.5% in 2026, 1.6% in 2027 and 1.8% in 2028
|
Inflation
|
· Inflation continues to fall quickly, dropping below the BoE's
2% target in Q2 2024
· Having hit a low of 1.6% the rate slowly increases to a high
of 2.3% by the end of 2025 before falling back to 2% by the end of
2028
|
· Inflation continues to fall rapidly to a low of 1.9% in Q2
2024 before rising again, leading to an average of 2.6% for the
year
· The
rate continues to rise until Q3 2025, peaking at 3.4%, with an
average of 3.3% for the year
· Inflation then falls back, with averages of 2.7% in 2026,
2.2% in 2027 and 2.1% in 2028
|
· Inflation falls rapidly, dropping to just above 0% in Q1 2025
before increasing steadily back to the BoE's target rate of 2% by
Q2 2027
· This
is reflected in the average annual rates, with inflation of 1.4% in
2024, 0.6% in 2025 and 1.6% in 2026 before stabilising at 2.0% in
2027
|
Base rate
|
· The
BoE base rate begins to fall from the current high of 5.25% in Q2
2024
· The
rate falls steadily at around 25bps per quarter to a low of 2.0% in
2027
|
· Two
25bp rate increases sees the BoE base rate peak at 5.75% in Q3
2024, where it remains through Q1 2025
· The
rate falls consistently from Q2 2025 through to Q3 2028 when the
rate levels out at 2.5%
|
· As
with the base case, the BoE base rate begins to fall from the
current high of 5.25% in Q2 2024
· The
rate is cut at an accelerated rate, through to Q1 2027 where it
stabilises at 1.5%
· Overall the average rate drops from 4.7% in 2024 to 3.0% in
2025 and 2.0% in 2026
|
HPI
|
· HPI
falls throughout 2024, albeit at a lower rate than previously
forecast
· Q4 v
Q4 in 2024 sees a contraction of 1.3%
· Growth returns from Q1 2025, with Q4 v Q4 growth 2.6%
followed by 4.4% in both 2026 and 2027, before easing to 3.4% in
2028
|
· Following a quarter on quarter fall in the HPI in Q1 2024 the
index value increases throughout the remainder of the
forecast
· Overall Q4 v Q4 growth in 2024 is broadly flat at
0.2%
· Growth accelerates to 4.9% in 2025 and 6.7% in 2026 before
falling back to 5.1% in 2027 and 3.3% in 2028
|
· Starting from a fall of 0.8% in Q1 2024, v Q1 2023, HPI falls
rapidly to -7.7% in Q4 2024 v Q4 2023
· The
index continues to fall until Q1 2027 at which point it begins to
increase, but at the end of the 5 year horizon it remains well
below the levels seen at the start of the forecast
· Overall Q4 v Q4 comparison sees negative growth of 2.9% in
2025 and 0.7% in 2026, before positive growth of 3.5% in 2027 and
3.8% in 2028
|
(1) The time periods referenced in this section relate to calendar
years unless otherwise stated.
Risk management
Credit risk
Macroeconomic assumptions (continued)
|
Base (55%)
|
Upside
(10%)
|
Downside
(35%)
|
Unemployment
|
· Following the revision to LFS data, unemployment peaks at
4.1% in Q3 2024
· The
rate remains at that level until Q2 2025 when in gradually begins
to fall to a new long run average of 3.8%
|
· Unemployment peaks below 4% in Q1 2024 before falling to a
low of 3.6% in Q3 2025
· Although the rate rises slightly in the outer years the
annual average for 2026 through to 2028 remains at 3.6%
|
· Unemployment increases steadily from a low of 3.9% in Q1 2024
to a peak of 6.9% in Q1 2027
· Having peaked the rate slowly falls back to 6.6% by the end
of 2028
|
Five-year simple averages on unemployment, GDP and
HPI
31 March 2024
|
Unemployment
%
|
GDP
%
|
HPI
%
|
Upside
|
3.7
|
2.5
|
4.0
|
Base
|
3.8
|
1.5
|
2.7
|
Downside
|
6.1
|
0.4
|
(0.8)
|
|
|
|
|
30 September 2023
|
|
|
|
Upside
|
3.9
|
2.2
|
1.3
|
Base
|
4.2
|
1.2
|
(0.2)
|
Downside
|
6.1
|
0.2
|
(3.3)
|
The use of estimates, judgements and sensitivity
analysis
The following are the main areas
where estimates and judgements are applied to the ECL
calculation:
The use of estimates
Economic scenarios
The calculation of the Group's
impairment provision is sensitive to changes in the chosen
weightings as highlighted above. The effect on the closing
modelled provision of each portfolio as a result of applying a 100%
weighting to each of the selected scenarios is shown
below:
31 March 2024
|
Probability
Weighted(1)
£m
|
Upside
£m
|
Base
£m
|
Downside
£m
|
|
Mortgages
|
24
|
22
|
23
|
28
|
|
Unsecured of which:
|
386
|
367
|
367
|
426
|
|
Cards
|
353
|
339(3)
|
338
|
388
|
|
Personal loans and
overdrafts(2)
|
33
|
28
|
29
|
38
|
|
Business(2)
|
81
|
74
|
77
|
92
|
|
Total
|
491
|
463
|
467
|
546
|
|
30 September 2023
|
Probability
Weighted(1)
£m
|
Upside
£m
|
Base
£m
|
Downside
£m
|
|
Mortgages
|
20
|
17
|
18
|
24
|
|
Unsecured of which:
|
399
|
382
|
382
|
433
|
|
Cards
|
364
|
352(3)
|
350
|
391
|
|
Personal loans and
overdrafts(2)
|
35
|
30
|
32
|
42
|
|
Business(2)
|
91
|
81
|
86
|
107
|
|
Total
|
510
|
480
|
486
|
564
|
|
(1)
|
In addition to the probability
weighted modelled provision shown in the table, the Group holds
£81m relative to MAs and £44m of IA provision (30 September 2023:
£76m and £30m respectively).
|
(2)
|
Salary Finance contributes more
than 50% of the combined personal loans and overdrafts
ECL.
|
(3)
|
Due to a minor model interaction
effect, the 100% ECL for Upside is marginally higher than the Base
case.
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management
Credit risk
The use of estimates (continued)
One of the criteria for moving
exposures between stages is the PD which incorporates macroeconomic
factors. As a result, the stage allocation will be different
in each scenario and so the probability weighted ECL cannot be
recalculated using the scenario ECL provided and the scenario
weightings.
Certain asset classes are less
sensitive to specific macroeconomic factors. To ensure appropriate
levels of ECL, the relative lack of sensitivity is compensated for
through the application of MAs, further detail of which can be
found below.
Within each portfolio, the
following are the macroeconomic inputs which are more sensitive and
therefore more likely to drive the move from Stage 1 to Stage 2
under a stress scenario:
Mortgages:
Unemployment and HPI
Unsecured: Unemployment
Business:
Unemployment and HPI
In addition to assessing the ECL
impact of applying a 100% weighting to each of the three chosen
scenarios, the Group has also considered what the effect of changes
to a few key economic inputs would make to the modelled ECL
output.
The Group considers that the
unemployment rate and HPI are the inputs that would have the most
significant and sensitive ECL impact and has assessed how these
would change the ECL across the relevant portfolios, with the
reported output assessed against the base case. There are no
material differences to the sensitivity disclosures on Unemployment
and HPI changes in the period from those disclosed in the
Group's 2023 Annual Report and
Accounts.
The use of judgement
SICR
Judgement is required in
determining the point at which a SICR has occurred, as this is the
point at which a 12-month ECL is replaced by a lifetime ECL. The
Group has developed a series of triggers that indicate when a SICR
has occurred when assessing exposures for the risk of default
occurring at each reporting date compared to the risk at
origination. There is no single factor that influences this
decision, rather a combination of different criteria that enables
the Group to make an assessment based on the quantitative and
qualitative information available. This includes the impact of
forward-looking macroeconomic factors but excludes the existence of
any collateral implications.
Indicators of a SICR include
deterioration of the residual lifetime PD by set thresholds which
are unique to each product portfolio, non-default forbearance
programmes, and watch list status. The Group adopts the backstop
position that a SICR will have taken place when the financial
asset reaches 30 DPD.
The Group does not have a set
absolute threshold by which the PD would have to increase by in
establishing that a SICR has occurred, and has implemented an
approach with the required SICR threshold trigger varying on a
portfolio and product basis according to the origination
PD.
Changes to the overall SICR
thresholds can also impact staging, driving accounts into higher
stages with the resultant impact on the ECL
allowance:
|
31 Mar
2024
£m
|
30 Sept
2023
£m
|
|
A 10% movement in the mortgage
portfolio from Stage 1 to Stage 2
|
+9
|
+13
|
|
A 10% movement in the credit card
portfolio from Stage 1 to Stage 2
|
+114(1)
|
+89
|
|
A 10% movement in the business
portfolio from Stage 1 to Stage 2
|
+12
|
+10
|
|
A PD stress which increases PDs
upwards by 20% for all portfolios
|
+132
|
+131
|
|
(1)
|
The review of the staging approach
for credit cards has increased the proportion of lending in Stage 1
and is the primary driver of the increased impact shown.
|
|
|
|
|
|
|
Definition of default
The PD of a credit exposure is a
key input to the measurement of the ECL allowance. Default under
Stage 3 occurs when there is evidence that a customer is
experiencing significant financial difficulty which is likely to
affect the ability to repay amounts due.
MAs
At 31 March 2024, £81m of MAs (30
September 2023: £76m) are included within the total ECL provision
of £617m (30 September 2023: £617m).
These are management judgements
which impact the ECL provision by increasing (or decreasing) the
collectively assessed modelled output where not all of the known
risks identified in a particular product segment have been
reflected within the models. This also takes into account any time
lag between the date the macroeconomic assumptions were received
and the reporting date.
Risk management
Credit risk
The use of judgement (continued)
The impact of these adjustments
and how they impact the Group's total reported ECL allowance and
coverage ratio for each portfolio is:
31 March 2024(1)
|
Mortgages
|
Unsecured
|
Business
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
ECL before adjustments (A)
|
24.6
|
387.4
|
124.2
|
536.2
|
Adjustments:
|
|
|
|
|
To address economic resilience
|
2.5
|
-
|
-
|
2.5
|
Additional BTL impact
|
25.1
|
-
|
-
|
25.1
|
Other credit card adjustments
|
-
|
36.7
|
-
|
36.7
|
Other adjustments
|
2.8
|
0.9
|
12.8
|
16.5
|
Total adjustments (B)
|
30.4
|
37.6
|
12.8
|
80.8
|
Total reported ECL (A + B)
|
55.0
|
425.0
|
137.0
|
617.0
|
% of total ECL (B / total reported ECL)
|
55%
|
9%
|
9%
|
13%
|
Coverage - total
|
0.10%
|
6.35%
|
1.55%
|
0.84%
|
Coverage - total ex MAs
|
0.04%
|
5.49%
|
1.40%
|
0.73%
|
30 September
2023(1)
|
Mortgages
|
Unsecured
|
Business
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
ECL before adjustments
(A)
|
25.2
|
400.2
|
115.5
|
540.9
|
Adjustments:
|
|
|
|
|
To address economic resilience
|
5.0
|
-
|
15.0
|
20.0
|
Additional BTL impact
|
25.1
|
-
|
-
|
25.1
|
Other credit card adjustments
|
-
|
27.5
|
-
|
27.5
|
Other adjustments
|
1.7
|
1.3
|
0.5
|
3.5
|
Total adjustments (B)
|
31.8
|
28.8
|
15.5
|
76.1
|
Total reported ECL (A +
B)
|
57.0
|
429.0
|
131.0
|
617.0
|
% of total ECL (B / total reported ECL)
|
56%
|
7%
|
12%
|
12%
|
Coverage - total
|
0.10%
|
6.65%
|
1.60%
|
0.84%
|
Coverage - total ex MAs
|
0.04%
|
5.87%
|
1.33%
|
0.74%
|
(1) The
impact of rounding means that the combination of the probability
weighted total and IA provision may not fully align to the
portfolio sections.
Mortgages
The selection of appropriate MAs
is a major component in determining the Group's ECL. Asset quality
metrics for the BTL mortgage book remain robust, but the Group
continues to review the level of provisioning held for this
customer cohort, and has retained the £25m MA (30 September 2023:
£25m) to ensure the coverage on this portfolio remains higher than
the coverage on the residential portfolio and in line with peers.
The improvements in the economic outlook have resulted in the MA
for economic uncertainty being reduced from £5m to £3m. The Group
no longer raise individually assessed provisions on the mortgage
portfolio and have implemented an updated valuation and calculated
provision process. A new MA has been introduced to reflect this new
policy within ECL calculations while upstream processes are
adapted. This together with other small MAs total £3m (30 September
2023: £2m), taking total MAs held to £30m, down from £32m at 30
September 2023.
Risk management
Credit risk
Unsecured
The unsecured portfolio comprises
credit cards, personal loans and overdrafts, with credit cards the
largest consideration for MAs. The refresh of the debt sale
adjustments has introduced a new debt sale MA of £11m to account
for the deferral period for the receipt of Cards debt sale proceeds
from 12 to 18 months. Due to the time value of money, this will
have an adverse impact on recovery rates as recoveries from debt
sale activities must be discounted. This is not currently captured
in the model, and so the ECL impact of the increased
Loss Given Defaults (LGDs), due to reduced recovery rates post discounting, is
held as an MA. There are 3 other separate MAs held for debt sale,
reflecting the difference between the updated contracts and the
current models.
Business
The £15m economic uncertainty MA,
implemented in September 2023, has been released. The economic
forecasts have improved sufficiently that the requirement for a
non-targeted uncertainty MA has been removed.
Two new MAs have been introduced
in the period, one of which being a £8m MA relating to the LGD
model. The current LGD implementation assumes a constant
discounting approach across all LGD segments. The new ECL
calculator enables a more granular segmentation which improves the
accuracy of the calculation. This MA will be held as until the
implementation of the new calculator later this financial
year.
In addition, a new £5m MA has been
introduced to better reflect origination risk for some lending
facilities where our platform has not retained sufficient
information to automatically ensure that loans are correctly
attributed to their origination date and origination ratings. This
can result in loans appearing in Stage 1 that have deteriorated
since their true origination. The new ECL calculator can identify
loans which have an incorrect origination date and rating and
calculate the correct ECL for these loans meaning the MA will be
released when it is implemented.
The Group assesses and reviews the
need for and quantification of MAs on a quarterly basis, with the
CFO recommending the level of MAs to the Board Audit Committee
twice a year at each external reporting period.
Risk management
Credit risk
Macroeconomic assumptions
Annual macroeconomic assumptions
used over the five-year forecast period in the scenarios and their
weighted averages are as follows:(1)
31 March 2024
Scenario
|
VMUK weighting
|
Economic measure
(2)
|
2024
%
|
2025
%
|
2026
%
|
2027
%
|
2028
%
|
Upside
|
10%
|
Base rate
|
5.6
|
5.5
|
4.5
|
3.5
|
2.6
|
Unemployment
|
3.9
|
3.7
|
3.6
|
3.6
|
3.6
|
GDP
|
2.1
|
3.8
|
2.8
|
2.2
|
1.6
|
Inflation
|
2.6
|
3.3
|
2.7
|
2.2
|
2.1
|
HPI
|
0.2
|
4.9
|
6.7
|
5.1
|
3.3
|
Base
|
55%
|
Base rate
|
5.0
|
4.0
|
3.0
|
2.1
|
2.0
|
Unemployment
|
4.0
|
3.9
|
3.8
|
3.8
|
3.8
|
GDP
|
0.4
|
1.8
|
2.0
|
1.7
|
1.7
|
Inflation
|
2.1
|
2.1
|
2.2
|
2.1
|
2.1
|
HPI
|
(1.3)
|
2.6
|
4.4
|
4.4
|
3.4
|
Downside
|
35%
|
Base rate
|
4.7
|
3.0
|
2.0
|
1.5
|
1.5
|
Unemployment
|
4.6
|
5.7
|
6.6
|
6.8
|
6.6
|
GDP
|
(2.1)
|
(0.5)
|
1.5
|
1.6
|
1.8
|
Inflation
|
1.4
|
0.6
|
1.6
|
2.0
|
2.0
|
HPI
|
(7.7)
|
(2.9)
|
(0.7)
|
3.5
|
3.8
|
Weighted average
|
|
Base rate
|
4.9
|
3.8
|
2.8
|
2.0
|
1.9
|
Unemployment
|
4.2
|
4.5
|
4.7
|
4.8
|
4.7
|
GDP
|
(0.3)
|
1.2
|
1.9
|
1.7
|
1.7
|
Inflation
|
1.9
|
1.7
|
2.1
|
2.1
|
2.0
|
HPI
|
(3.4)
|
0.9
|
2.9
|
4.1
|
3.6
|
30 September 2023
Scenario
|
VMUK weighting
|
Economic measure
(2)
|
2023
%
|
2024
%
|
2025
%
|
2026
%
|
2027
%
|
Upside
|
10%
|
Base rate
|
4.8
|
6.5
|
6.0
|
5.0
|
4.0
|
Unemployment
|
4.2
|
4.1
|
3.9
|
3.8
|
3.7
|
GDP
|
0.8
|
3.0
|
2.6
|
3.0
|
1.6
|
Inflation
|
7.6
|
4.2
|
2.5
|
1.1
|
1.7
|
HPI
|
(1.3)
|
(4.8)
|
(0.9)
|
6.6
|
7.0
|
Base
|
55%
|
Base rate
|
4.7
|
5.4
|
4.5
|
3.5
|
2.5
|
Unemployment
|
4.2
|
4.5
|
4.3
|
3.9
|
3.9
|
GDP
|
0.5
|
0.4
|
1.5
|
2.3
|
1.5
|
Inflation
|
7.6
|
3.2
|
1.5
|
1.0
|
1.7
|
HPI
|
(2.7)
|
(7.2)
|
(2.9)
|
4.6
|
7.1
|
Downside
|
35%
|
Base rate
|
4.6
|
4.5
|
3.5
|
2.5
|
1.5
|
Unemployment
|
4.3
|
5.7
|
6.7
|
7.0
|
6.8
|
GDP
|
(0.1)
|
(3.3)
|
0.7
|
1.9
|
1.6
|
Inflation
|
7.4
|
1.7
|
0.4
|
0.7
|
1.7
|
HPI
|
(4.7)
|
(12.7)
|
(7.6)
|
1.0
|
7.5
|
Weighted average
|
|
Base rate
|
4.7
|
5.2
|
4.3
|
3.3
|
2.3
|
Unemployment
|
4.2
|
4.9
|
5.1
|
5.0
|
4.9
|
GDP
|
0.3
|
(0.6)
|
1.3
|
2.2
|
1.6
|
Inflation
|
7.5
|
2.8
|
1.2
|
0.9
|
1.7
|
HPI
|
(3.3)
|
(8.9)
|
(4.4)
|
3.6
|
7.3
|
(1)
|
Macroeconomic assumptions provided
by Oxford Economics on 28 February 2024 and reported on a calendar
year basis unless otherwise stated. Any changes in macroeconomic
assumptions between this date and 31 March 2024 have been
considered as part of the MAs.
|
(2)
|
The percentages shown for base
rate, unemployment and inflation are averages. GDP is the
year-on-year movement, with HPI the Q4 v Q4 movement.
|
|
|
|
|
|
|
|
|
|
Risk management
Financial risk
|
|
|
|
Section
|
Page
|
Tables
|
Page
|
Financial risk summary
|
47
|
|
|
Capital risk
|
47
|
|
|
Regulatory capital developments
|
47
|
|
|
Capital resources
|
48
|
Regulatory capital
|
48
|
|
|
Regulatory capital flow of
funds
|
49
|
Risk Weighted Assets
|
50
|
Minimum capital
requirements
|
50
|
|
|
RWA movements
|
50
|
IFRS 9 transitional arrangements
|
51
|
IFRS 9 transitional
arrangements
|
51
|
Capital requirements
|
51
|
Minimum requirements
|
51
|
MREL
|
52
|
MREL position
|
52
|
Dividend
|
52
|
|
|
Share buyback
|
53
|
|
|
Leverage
|
53
|
Leverage ratio
|
53
|
Funding and liquidity
risk
|
54
|
|
|
Sources of funding
|
54
|
Sources of funding
|
54
|
Liquid assets
|
55
|
LCR
|
55
|
|
|
Liquid asset portfolio
|
55
|
|
|
Analysis of debt securities in
issue by residual maturity
|
55
|
External credit ratings
|
56
|
External credit ratings
|
56
|
Net interest income
|
56
|
Net interest income
|
56
|
LIBOR replacement
|
57
|
|
|
Risk management
Financial risk
Financial risk covers several categories of
risk which impact the way in which the Group can support its
customers in a safe and sound manner. They include capital risk,
funding risk, liquidity risk, market risk and pension risk. Market
risk and pension risk show no significant changes in the period,
with other financial risk developments detailed below.
Capital risk
Capital is held by the Group to
cover inherent risks in a normal and stressed operating
environment, to protect unsecured creditors and investors and to
support the Group's strategy of sustainable growth. Capital risk is
the risk that the Group has or forecasts insufficient capital and
other loss-absorbing debt instruments to operate effectively. This
includes meeting minimum regulatory requirements, operating within
Board approved risk appetite and supporting its strategic
goals.
Regulatory capital developments
The regulatory landscape for
capital is subject to a number of changes, some of which can lead
to uncertainty on eventual outcomes. In order to mitigate this
risk, the Group actively monitors emerging regulatory change,
assesses the impact and puts plans in place to respond.
Internal ratings-based (IRB) model
changes
Following the BoE's announcements
in 2020 regarding supervisory and prudential policy measures to
address the challenges of COVID-19, the requirements relating to
compliance with updates to definition of default and mortgage IRB
models were extended. The Group will apply the relevant models
after PRA approval.
Ahead of the Group's
implementation of mortgage IRB models (including hybrid PD), a
model adjustment has been applied to increase RWAs and expected
losses in advance of formal approval of models.
Basel 3.1
Following the publication of final
reforms to the Basel III framework in December 2017,
the PRA published CP16/22 at the end of November 2022, covering its
consultation on the UK implementation of these reforms. There are a
number of key amendments to the standardised approaches to credit
and operational risks together with the introduction of a new
standardised RWA output floor, the latter of which will be
introduced gradually over a transition period. There are also
amendments to IRB approaches, Credit Valuation Adjustments, Credit
Risk Mitigation rules and associated reporting and disclosure
requirements. The Group continues to
expect some modest upside to our capital position from Basel 3.1
implementation on day 1 (1 July 2025), subject to regulatory
approval. Since the publication of
CP16/22, the PRA has issued PS17/23 covering the 'near final' rules
and policy on Operational Risk, Counterparty Credit Risk, Credit
Valuation Adjustment Risk and Market Risk in December 2023 with the
remaining elements of Credit Risk, Output Floor and Reporting and
Disclosure requirements to be published in Q2 2024. The Group will
implement the final Basel 3.1 policies from 1 July 2025 in line
with the PRA's prescribed timelines.
Pillar 2A
As part of its Basel 3.1
proposals, the PRA announced its intention to review Pillar 2A
methodologies after the rules on Basel 3.1 are finalised, with a
view to consult on any proposed changes in 2025. This review could
have an impact on the Group which will be assessed when the
proposals are published. In addition, the first part of the PRA's
'near-final' policy statement on Basel 3.1 included the
announcement of an off-cycle review of Pillar 2 capital
requirements ahead of day 1 with specific focus on 'double counts'
and 're-basing' Pillar 2A and PRA buffer requirements.
Solvency Stress Test and Annual
Cyclical Scenarios (ACS)
The Group completed the 2022 ACS
exercise in Q2 FY23. The scenario tested the resilience of the UK
Banking system to deep simultaneous recessions in the UK and global
economies, real income shocks, large falls in asset prices and
higher global interest rates, as well as a separate stress of
conduct costs. The BoE published results in July 2023, with the
Group remaining significantly in excess of its reference rates on
both a transitional and non-transitional basis. In October 2023 the
BoE confirmed their intention to run a desk-based stress test
exercise, rather than an ACS, in 2024 and the Group is
participating in this exercise as required.
Resolvability Assessment
Framework
The BoE has introduced a
Resolvability Assessment Framework to ensure major UK banks can
be safely resolved. The Group is required to submit an assessment
of its resolvability to the BoE biennially; the first assessment
was submitted in October 2021 with disclosures published in
June 2022. The BoE concluded that, upon their first assessment as
resolution authority of the eight major banks, a major UK bank
could enter resolution safely, remaining open and continuing
to provide vital banking services to the economy. The Group has
submitted an updated self assessment to support their next public
disclosure in June 2024.
.
Risk management
Financial risk
Regulatory capital developments (continued)
Model Risk Management
(MRM)
The PRA's policy on Model Risk
Management Principles for Banks (Supervisory Statement 1/23)
came into effect on 17 May 2024. Before the effective
date, firms have been expected to conduct an initial
self-assessment of their implemented MRM frameworks against
the policy and, where relevant, to prepare remediation plans to
address any identified shortcomings. The Group has undertaken a
programme of work to update the policies and frameworks to make
them compliant to the new regulations as well as the implementation
of improved capability for model inventory and approaches to model
tiering and classifications. Gaps with regards to the live practice
of MRM principles have been identified and will be addressed in
accordance with the policy's approach to remediation
plans.
Capital resources
The Group's capital resources position as at
31 March 2024 is summarised below:
|
31 Mar
2024
|
30 Sep
2023
|
Regulatory capital(1)
|
£m
|
£m
|
Statutory total equity
|
5,659
|
5,607
|
CET1 capital: regulatory
adjustments(2)
|
|
|
Other equity
instruments
|
(835)
|
(594)
|
Defined benefit pension fund
assets
|
(331)
|
(333)
|
Prudent valuation
adjustment
|
(6)
|
(5)
|
Intangible assets
|
(139)
|
(162)
|
Goodwill
|
(11)
|
(11)
|
Deferred tax asset relying on
future profitability
|
(245)
|
(261)
|
Cash flow hedge reserve
|
(250)
|
(496)
|
AT1 coupon accrual
|
(18)
|
(12)
|
Foreseeable dividend on ordinary
shares
|
(26)
|
(27)
|
Excess expected losses
|
(101)
|
(103)
|
IFRS 9 transitional
adjustments
|
38
|
112
|
Unconsolidated losses arising from
JV
|
(4)
|
(4)
|
Total regulatory adjustments to CET1
|
(1,928)
|
(1,896)
|
Total CET1 capital
|
3,731
|
3,711
|
|
|
|
AT1 capital
|
|
|
AT1 capital instruments
|
835
|
594
|
Total AT1 capital
|
835
|
594
|
|
|
|
Total Tier 1 capital
|
4,566
|
4,305
|
|
|
|
Tier 2 capital
|
|
|
Subordinated debt
|
773
|
1,022
|
Total Tier 2 capital
|
773
|
1,022
|
|
|
|
Total regulatory capital
|
5,339
|
5,327
|
(1)
|
Data in the table is reported
under CRD IV on a fully loaded basis with IFRS 9 transitional
arrangements applied.
|
|
(2)
|
A number of regulatory adjustments
to CET1 capital are required under CRD IV regulatory capital
rules.
|
|
|
|
|
|
|
|
|
|
Risk management
Financial risk
Capital
resources (continued)
|
6 months
to
|
12
months to
|
|
31 Mar
2024
|
30 Sep
2023
|
Regulatory capital flow of
funds(1)
|
£m
|
£m
|
CET1 capital(2)
|
|
|
CET1 capital at 1
October
|
3,711
|
3,633
|
Share issuance
|
2
|
2
|
Share buyback
|
(63)
|
(99)
|
Retained earnings and other
reserves (including special purpose entities)
|
145
|
(242)
|
Intangible assets
|
23
|
94
|
Deferred tax asset relying on
future profitability
|
16
|
41
|
Defined benefit pension fund
assets
|
2
|
317
|
Movement in AT1 foreseeable
distributions
|
(6)
|
1
|
Foreseeable dividend on ordinary
shares
|
(26)
|
(27)
|
Excess expected losses
|
2
|
(3)
|
IFRS 9 transitional
adjustments
|
(74)
|
(2)
|
Prudent valuation
adjustment
|
(1)
|
-
|
Unconsolidated losses arising from
JV
|
-
|
(4)
|
Total CET1 capital at 31 March
|
3,731
|
3,711
|
|
|
|
AT1 capital
|
|
|
AT1 capital at 1
October
|
594
|
666
|
AT1 instrument issued net of
costs
|
346
|
-
|
AT1 instrument redeemed
|
(105)
|
(72)
|
Total AT1 capital at 31 March
|
835
|
594
|
Total Tier 1 capital at 31 March
|
4,566
|
4,305
|
|
|
|
Tier 2 capital
|
|
|
Tier 2 capital at 1
October
|
1,022
|
1,020
|
Capital instrument
redeemed
|
(250)
|
-
|
Amortisation of issue
costs
|
1
|
2
|
Total Tier 2 capital at 31 March
|
773
|
1,022
|
Total capital at 31 March
|
5,339
|
5,327
|
(1)
|
Data in the table is reported
under CRD IV as implemented by the PRA on a fully loaded basis with
IFRS 9 transitional arrangements applied.
|
(2)
|
CET1 capital is comprised of
shares issued and related share premium, retained earnings and
other reserves less specified regulatory adjustments.
|
The Group's CET1 capital showed an
increase of £20m during the period. The Group reported a profit
after tax of £236m which drove an overall increase in retained
earnings. The capital benefits of this increase were utilised to
fund AT1 distributions of £26m, a foreseeable dividend of £26m and
share buyback. In November 2023, a £150m share buyback programme
was announced with £63m returned to shareholders before the
programme was formally cancelled on 2 April due to the potential
cash acquisition of the Group by Nationwide. The reduction in
standardised IFRS 9 provisions recognised in the period, together
with a tapering of relief, reduced the IFRS 9 transitional
adjustments by £74m. Other main movements included reductions in
the intangible assets balance of £23m and in the deferred tax
recognised on tax losses carried forward of £16m, offset by £12m
market driven movements in the reserves balance for assets held at
fair value.
In December 2023, the Group
redeemed £250m of 7.875% Fixed Rate Reset Callable Notes due 2028,
held as Tier 2 capital. The Group also issued a new £350m AT1
instrument and simultaneously tendered 42% of its £250m 9.25% AT1
instrument, first callable in June 2024 (note 4.1.2). The Group
redeemed the residual £144m 9.25% AT1 securities on their call date
in June 2024.
Risk management
Financial risk
Risk weighted assets
|
31 March
2024
|
30 September 2023
|
|
Minimum capital requirements
|
Exposure
|
RWA
|
Minimum capital
requirements
|
Exposure
|
RWA
|
Minimum
capital requirements
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Retail mortgages
|
59,191
|
8,446
|
676
|
60,354
|
9,072
|
726
|
|
Business lending
|
13,192
|
7,903
|
632
|
12,635
|
6,990
|
559
|
|
Other retail lending
|
17,926
|
4,969
|
397
|
17,586
|
4,819
|
385
|
|
Other lending
|
19,587
|
379
|
30
|
18,328
|
364
|
29
|
|
Other(1)
|
609
|
694
|
55
|
592
|
674
|
54
|
|
Total credit risk
|
110,505
|
22,391
|
1,790
|
109,495
|
21,919
|
1,753
|
|
Credit valuation
adjustment
|
|
198
|
16
|
|
278
|
22
|
|
Operational risk
|
|
2,833
|
227
|
|
2,833
|
227
|
|
Counterparty credit risk
|
|
159
|
13
|
|
146
|
12
|
|
Total
|
110,505
|
25,581
|
2,046
|
109,495
|
25,176
|
2,014
|
|
(1)
|
The items included in the Other
exposure class that attract a capital charge include items in the
course of collection, fixed assets, prepayments, other debtors and
deferred tax assets that are not deducted.
|
|
|
|
|
|
|
|
|
|
RWA movements
|
|
6 months to 31 March
2024
|
6
months to 30 September 2023
|
RWA movements
|
IRB
RWA
£m
|
STD
RWA
£m
|
Non-credit
risk
RWA(2)
£m
|
Total
£m
|
Minimum capital requirement
£m
|
IRB
RWA
£m
|
STD
RWA
£m
|
Non-credit risk
RWA(2)
£m
|
Total
£m
|
Minimum
capital
requirement £m
|
Opening RWA
|
15,476
|
6,443
|
3,257
|
25,176
|
2,014
|
15,528
|
6,171
|
3,004
|
24,703
|
1,976
|
Asset size
|
196
|
198
|
-
|
394
|
32
|
10
|
203
|
-
|
213
|
17
|
Asset quality
|
410
|
33
|
-
|
443
|
35
|
(1,153)
|
109
|
-
|
(1,044)
|
(83)
|
Model
updates(1)
|
(383)
|
-
|
-
|
(383)
|
(31)
|
1,091
|
-
|
-
|
1,091
|
87
|
Methodology and policy
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Other
|
-
|
18
|
(67)
|
(49)
|
(4)
|
-
|
(40)
|
253
|
213
|
17
|
Closing RWA
|
15,699
|
6,692
|
3,190
|
25,581
|
2,046
|
15,476
|
6,443
|
3,257
|
25,176
|
2,014
|
(1)
|
Model updates include
MAs.
|
|
(2)
|
Non-credit risk RWA includes
operational risk, credit valuation adjustment and counterparty
credit risk.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RWA increased c.£0.4bn to £25.6bn
primarily due to increased lending in the Retail unsecured and
Business portfolios, and higher risk weights associated with new
business lending.
Updates to Hybrid model related
MAs have reduced RWAs by £0.5bn in the mortgage portfolio, while
Business model MA updates have resulted in an RWA increase of
£0.1bn.
Risk management
Financial risk
IFRS 9 transitional arrangements
This table shows a comparison of capital
resources, requirements and ratios with and without the application
of transitional arrangements for IFRS 9:
|
|
Available capital (amounts)
|
IFRS 9 Transitional
basis
|
IFRS 9 Fully loaded
basis
|
CET1 capital
|
3,731
|
3,693
|
Tier 1 capital
|
4,566
|
4,528
|
Total capital
|
5,339
|
5,301
|
RWA (amounts)
|
|
|
Total RWA
|
25,581
|
25,551
|
Capital ratios
|
|
|
CET1 (as a percentage of
RWA)
|
14.6%
|
14.5%
|
Tier 1 (as a percentage of
RWA)
|
17.8%
|
17.7%
|
Total capital (as a percentage of
RWA)
|
20.9%
|
20.7%
|
Leverage ratio
|
|
|
Leverage ratio total exposure
measure
|
85,720
|
85,682
|
UK leverage ratio
|
5.3%
|
5.3%
|
Transitional arrangements in CRR
mean the regulatory capital impact of ECL is being phased in
over time. Following the CRR Quick Fix amendments package, which
applied from 27 June 2020, relevant provisions raised from 1
January 2020 through to 2024 have a CET1 add-back percentage of 50%
in 2023, reducing to 25% in 2024. From 1 January 2025, the Group
will no longer apply transitional relief in respect of IFRS
9.
At 31 March 2024, £38m of IFRS 9
transitional adjustments (30 September 2023: £112m) have been
applied to the Group's capital position in accordance with CRR,
which is entirely comprised of dynamic relief (30 September 2023:
£3m static and £109m dynamic).
Capital
requirements
The Group measures the amount of capital it is
required to hold by applying CRD IV as implemented in the UK by the
PRA. The table below summarises the amount of capital in relation
to RWA the Group is currently required to hold, excluding any PRA
Buffer.
|
As at 31 March 2024
|
Minimum
requirements
|
CET1
|
Total
capital
|
Pillar 1(1)
|
4.5%
|
8.0%
|
Pillar 2A
|
1.9%
|
3.4%
|
Total capital
requirement (TCR)
|
6.4%
|
11.4%
|
|
|
|
Capital conservation buffer
|
2.5%
|
2.5%
|
UK countercyclical capital buffer
|
2.0%
|
2.0%
|
Total
(excluding PRA buffer)(2)
|
10.9%
|
15.9%
|
(1)
|
The minimum amount of total
capital under Pillar 1 of the regulatory framework is determined as
8% of RWA, of which at least 4.5% of RWA is required to be covered
by CET1 capital.
|
|
(2)
|
The Group may be subject to a PRA
buffer as set by the PRA but is not permitted to disclose the level
of any buffer.
|
|
|
|
|
|
|
The Group continues to maintain a
significant surplus above its capital requirements. At 31 March
2024 the Group maintained CET1 capital in excess of its maximum
distributable amount requirements equal to 3.7% of RWAs (equivalent
to £939m).
The PRA sets a Group specific
Pillar 2A requirement for risks which are not captured within the
Pillar 1 requirement. Together Pillar 1 and Pillar 2A represent the
Group's TCR, which is the minimum requirement which must be met at
all times.
Risk management
Financial risk
Capital requirements (continued)
In November 2023 the PRA
communicated an update to the Group's Pillar 2A requirement setting
it as 3.41% of RWAs, of which 1.92% must be met with CET1 capital
(30 September 2023: 2.97% of which 1.67% had to be met with CET1
capital). Applying this updated requirement in March 2024 resulted
in a modest increase in total capital requirements of £113m and
CET1 requirements of £63m. At 31 March 2024 this resulted in
a TCR of 11.41% of RWAs (equivalent to £2,919m) of which 6.4% must
be met with CET1 capital (equivalent to £1,642m).
The regulatory capital buffer
framework is intended to ensure firms maintain a sufficient amount
of capital above their regulatory minimum in order to withstand
periods of stress and mitigate against firm specific and systemic
risks. The UK has implemented the provisions on capital buffers
outlined in CRD IV which introduced a combined capital buffer. This
includes a Capital Conservation Buffer, a Countercyclical Capital
Buffer (CCyB) and where applicable a Global Systemically Important
Institution (G-SII) Buffer or an Other Systemically Important
Institution (O-SII) Buffer.
The Group's CCyB reflects an
exposure weighted average of the CCyB rates applicable in
the geographies the Group operates in. Currently this reflects only
the UK. As had been previously announced, the CCyB increased in the
prior year to 2% in July 2023 to align with its guidance for the
CCyB rate under standard risk conditions. The Financial Policy
Committee has noted the considerable uncertainties in relation to
the economic outlook and will continue to monitor the situation and
stands ready to vary the UK CCyB rate - in either direction - in
line with the evolution of economic conditions, underlying
vulnerabilities and the overall risk environment.
The Group has been designated as
an O-SII, but is not required to hold a related capital
buffer.
Minimum
Requirement for Own Funds and Eligible Liabilities
(MREL)
Under the Bank Recovery and
Resolution Directive the Group is required to hold additional
loss-absorbing instruments to support an effective resolution.
The MREL establishes a minimum amount of equity and eligible debt to
recapitalise the Group. An analysis of the Group's
current MREL position is provided below:
|
31 Mar
2024
£m
|
30 Sep
2023
£m
|
|
Total capital
resources(1)(2)
|
5,339
|
5,327
|
|
Eligible senior unsecured
securities issued by Virgin Money UK PLC(2)
|
3,333
|
2,707
|
|
Total MREL resources
|
8,672
|
8,034
|
|
RWA
|
25,581
|
25,176
|
|
Total MREL resources available as a percentage of
RWA
|
33.9%
|
31.9%
|
|
UK leverage exposure
measure
|
85,720
|
86,554
|
|
Total MREL resources available as a percentage of UK leverage
exposure measure
|
10.1%
|
9.3%
|
|
(1)
|
The capital position reflects the
application of the transitional arrangements for IFRS
9.
|
(2)
|
Includes MREL instrument maturity
adjustments, the add-back of regulatory amortisation and the
deduction of instruments with less than one year to
maturity.
|
|
|
|
|
|
The BoE as the UK Resolution Authority has
published its framework for setting MREL. This requires the Group
to hold capital resources and eligible debt instruments equal to
the greater of two times the TCR or two times the UK Leverage Ratio
requirement. In addition to MREL, the Group must also hold any
applicable capital buffers, which together with MREL represent the
Group's LAC requirement.
As at 31 March 2024, the Group's risk based
LAC requirement of 27.3% of RWA exposures (or 8.2% when expressed
as a percentage of leverage) was greater than the leverage based
LAC requirement of 26.8% of RWAs, meaning the RWA measure is the
binding requirement.
MREL resources were £8.7bn (30 September 2023:
£8.0bn) equivalent to 33.9% of RWA exposures (30 September 2023:
31.9%) or 10.1% when expressed as a percentage of leverage (30
September 2023: 9.3%). This provides prudent headroom of £1.7bn or
6.6% above the LAC requirement of 27.3% of RWAs, or 2.0% above the
LAC requirement of 8.2% when expressed as a percentage of leverage
exposures.
Dividend
Distributable reserves are determined as
required by the Companies Act 2006 by reference to a company's
individual financial statements. At 31 March 2024, the Company had
accumulated distributable reserves of £1,130m (30 September 2023:
£1,044m).
The Board has recommended an interim dividend
for the financial year ending 30 September 2024 of 2p per
share. The interim dividend is consistent with the terms of
the recommended cash acquisition of the Group by Nationwide and
should be considered alongside cash consideration of 218p per share
which together form the overall 220p per share value attributable
to each shareholder.
Risk management
Financial risk
Share
buyback
On 2 August 2023 the Company
announced a new share buyback to repurchase £50m in aggregate of
ordinary shares and CHESS Depositary Interests (CDIs) and
subsequently repurchased shares and CDIs in approximately equal
proportions; the buyback commenced on 2 August 2023 and ended on
22 November 2023.
On 23 November 2023 the Company
announced a further share buyback with an intent to repurchase
another £150m in aggregate of shares and CDIs, ending no later than
16 May 2024.
On 7 March 2024, the Company
announced the suspension of the £150m buyback programme due to the
potential cash acquisition of the Group by Nationwide; at the point
of suspension, share repurchases of £63m had been completed. The
boards of directors of Nationwide and the Company have since agreed
the terms of the recommended cash acquisition and on 2 April 2024
the Company announced the full cancellation of the remaining
buyback programme.
Further details are
disclosed in note 4.1.1.
Leverage
|
31 Mar
2024
|
30 Sep
2023
|
Leverage ratio
|
£m
|
£m
|
Total Tier 1 capital for the leverage ratio
|
|
|
Total CET1 capital
|
3,731
|
3,711
|
AT1 capital
|
835
|
594
|
Total Tier 1 capital
|
4,566
|
4,305
|
Exposures for the leverage ratio
|
|
|
Total assets
|
93,033
|
91,786
|
Adjustment for off-balance sheet
items
|
2,962
|
2,999
|
Adjustment for derivative
financial instruments
|
676
|
706
|
Adjustment for securities
financing transactions
|
1,870
|
2,261
|
Adjustment for qualifying central
bank claims
|
(10,968)
|
(9,052)
|
Regulatory deductions and other
adjustments
|
(1,853)
|
(2,146)
|
UK leverage ratio exposure(1)
|
85,720
|
86,554
|
UK leverage ratio(1)
|
5.3%
|
5.0%
|
Average UK leverage ratio
exposure(2)
|
86,214
|
85,910
|
Average UK leverage ratio(2)
|
5.1%
|
4.9%
|
(1)
|
The UK leverage ratio and exposure
measure are calculated after applying the IFRS 9 transitional
arrangements of the CRR.
|
(2)
|
The average leverage exposure
measure is based on the daily average of on-balance sheet items and
month-end average of off-balance sheet and capital items over the
quarter (1 January 2024 to 31 March 2024).
|
|
|
|
|
|
|
The leverage ratio is monitored
against a Board-approved Risk Appetite Statement, with the
responsibility for managing the ratio delegated to ALCO.
The leverage ratio is the ratio of
Tier 1 capital to total exposures, defined as:
− capital: Tier 1 capital defined on an IFRS 9 transitional
basis; and
− exposures: total on- and off-balance sheet exposures (subject
to credit conversion factors) as defined in the delegated act
amending CRR article 429 (Calculation of the Leverage Ratio), which
includes deductions applied to Tier 1 capital.
Other regulatory adjustments
consist of adjustments that are required under CRD IV to be
deducted from Tier 1 capital. The removal of these from the
exposure measure ensures consistency is maintained between the
capital and exposure components of the ratio.
The Group's UK leverage ratio of
5.3% (30 September 2023: 5.0%) exceeds the UK minimum ratio of 3.25%.
Risk management
Financial risk
Funding and liquidity risk
Funding risk occurs where the
Group is unable to raise or maintain funds of sufficient quantity
and quality to support the delivery of the business plan or sustain
lending commitments. Prudent funding risk management reduces the
likelihood of liquidity risks occurring, increases the stability of
funding sources, minimises concentration risks and ensures future
balance sheet growth is sustainable.
Liquidity risk occurs when the
Group is unable to meet its current and future financial
obligations as they fall due or at acceptable cost, or when the
Group reduces liquidity resources below internal or regulatory
stress requirements.
Sources of funding
The table below provides an
overview of the Group's sources of funding as at 31 March
2024:
|
31 Mar 2024
|
30 Sep 2023
|
|
|
£m
|
£m
|
|
Total assets
|
93,033
|
91,786
|
|
Less: Other
liabilities(1)
|
(2,488)
|
(2,694)
|
|
Funding requirement
|
90,545
|
89,092
|
|
Funded by:
|
|
|
|
Customer deposits
|
68,663
|
66,827
|
|
Debt securities in issue
|
9,968
|
9,719
|
|
Due to other banks
|
6,255
|
6,939
|
|
of which:
|
|
|
Secured loans
|
5,116
|
6,291
|
Securities sold under agreements to
repurchase
|
1,058
|
552
|
Transaction balances with other
banks
|
23
|
19
|
Deposits with other
banks
|
58
|
77
|
Equity
|
5,659
|
5,607
|
|
Total funding
|
90,545
|
89,092
|
|
(1) Other liabilities include derivatives,
deferred tax liabilities, provisions for liabilities and charges,
and other liabilities as per the balance sheet line
item.
|
|
|
|
|
|
|
The Group's funding objective is
to prudently manage the sources and tenor of funds in order to
provide a sound base from which to support sustainable lending
growth. At 31 March 2024, the Group had a funding requirement of
£90,545m (30 September 2023: £89,092m) with the majority being used
to support loans and advances to customers. The Group measures the
sustainability and stability of funding through the NSFR. The Group
has sufficient stable funding to meet NSFR regulatory requirements
and internal risk appetite.
Customer deposits
The majority of the Group's
funding requirement was met by customer deposits of £68,663m (30
September 2023: £66,827m). Customer deposits comprise
interest-bearing deposits, term deposits and non‑interest-bearing demand deposits
from a range of sources including Personal and Business
customers.
Debt securities in
issue
Growth in customer deposits has
been supported by an increase in debt securities to £9,968m (30
September 2023: £9,719m). The wholesale funding has been primarily
driven by issuance from our medium-term note and securitisation
programmes.
Equity
Equity of £5,659m (30 September
2023: £5,607m) was also used to meet the Group's funding
requirement. Equity comprises ordinary share capital, retained
earnings, other equity investments and a number of other reserves.
For full details on equity refer to note 4.1 within the interim
condensed consolidated financial statements.
Risk management
Financial risk
Liquid assets
The quantity and quality of the
Group's liquid assets are calibrated to the Board's view of
liquidity risk appetite and remain at a prudent level above
regulatory requirements.
|
Average
|
LCR
|
31 Mar
2024
£m
|
30 Sep
2023
£m
|
Eligible liquidity
buffer
|
14,135
|
13,798
|
Net stress outflows
|
9,387
|
9,424
|
Surplus
|
4,748
|
4,374
|
LCR
|
151%
|
146%
|
The liquid asset portfolio
provides a buffer against sudden and potentially sharp outflows of
funds. Liquid assets must therefore be high-quality so they can be
realised for cash and cannot be encumbered for any other purpose
(e.g. to provide collateral for payments systems).
The volume and quality of the
Group's liquid asset portfolio is defined through a series of
internal stress tests across a range of time horizons and stress
conditions. The liquid asset portfolio is primarily comprised of
cash at the BoE, UK Government securities (Gilts) and listed
securities (e.g. bonds issued by supra-nationals and AAA-rated
covered bonds).
The liquid asset portfolio is
marked to market and fully hedged from an interest rate, inflation
and FX risk perspective. All fair value movements are therefore
recognised in CET1 via the Income Statement (market risk) or FVOCI
reserve (credit risk). The
Interest rate risk in the banking book
(IRRBB)
stress testing framework includes limits to
manage the stressed credit spread risk arising from hedging the
fixed rate securities in the Group's liquid asset portfolio. This
ensures the composition of the portfolio is controlled and the
exposure will not exceed internal appetite or the amount of capital
allocated.
|
31 Mar
2024
|
30 Sep
2023
|
Change
|
Average at 31 Mar
2024
|
Average
at
30 Sep
2023
|
|
Liquid asset portfolio(1)
|
£m
|
£m
|
%
|
£m
|
£m
|
|
Level 1
|
|
|
|
|
|
|
Cash and balances with central
banks
|
10,857
|
8,940
|
21.4
|
9,553
|
9,604
|
|
UK Government treasury bills and
gilts
|
1,228
|
1,655
|
(25.8)
|
1,378
|
1,182
|
|
Other debt securities
|
3,136
|
3,153
|
(0.5)
|
2,946
|
2,782
|
|
Total level 1
|
15,221
|
13,748
|
10.7
|
13,877
|
13,568
|
|
Level 2(2)
|
512
|
471
|
8.7
|
448
|
327
|
|
Total LCR eligible assets
|
15,733
|
14,219
|
10.6
|
14,325
|
13,895
|
|
(1)
|
Excludes encumbered
assets.
|
(2)
|
Includes Level 2A and Level
2B.
|
|
|
|
|
|
|
|
|
The NSFR was implemented by the
PRA on 1 January 2022 based on Basel standards. The 12-month
average NSFR as at 31 March 2024 is 136% (30 September 2023: 136%)
comfortably in excess of the binding minimum requirement of
100%.
Analysis of debt securities in issue by residual
maturity
The table below shows the residual
maturity of the Group's debt securities in issue:
|
3 months
or less
£m
|
3 to 12
months
£m
|
1 to 5
years
£m
|
Over 5
years
£m
|
Total at
31 Mar
2024
£m
|
Total
at
30 Sep
2023
£m
|
Covered bonds
|
43
|
9
|
3,831
|
-
|
3,883
|
4,415
|
Securitisation
|
72
|
153
|
1,834
|
-
|
2,059
|
1,740
|
Medium-term notes
|
736
|
13
|
2,555
|
-
|
3,304
|
2,612
|
Subordinated debt
|
7
|
1
|
714
|
-
|
722
|
952
|
Total debt securities in issue
|
858
|
176
|
8,934
|
-
|
9,968
|
9,719
|
Of which issued by Virgin Money UK PLC
|
743
|
14
|
3,269
|
-
|
4,026
|
3,564
|
Risk management
Financial risk
External credit ratings
The Group's long-term credit ratings are
summarised below:
|
Outlook as
at
|
As at
|
|
31 Mar
2024(1)
|
31 Mar 2024
|
30 Sep 2023
|
Virgin Money
UK PLC
|
|
|
|
Moody's
|
Positive
|
Baa1
|
Baa1
|
Fitch
|
Positive
|
BBB+
|
BBB+
|
Standard & Poor's
|
CreditWatch Positive
|
BBB-
|
BBB-
|
Clydesdale
Bank PLC
|
|
|
|
Moody's(2)
|
Positive
|
A3
|
A3
|
Fitch
|
Positive
|
A-
|
A-
|
Standard & Poor's
|
CreditWatch Positive
|
A-
|
A-
|
(1)
|
For detailed background on the
latest credit opinion by Standard & Poor's, Fitch and Moody's,
please refer to the respective rating agency website.
|
|
(2)
|
Long-term deposit
rating.
|
|
|
|
|
|
|
|
On 21 March 2024,
Standard & Poor's placed
the long- and short-term issuer credit ratings of the Group on
CreditWatch with positive implications. The CreditWatch positive
placement reflects the potential for Standard & Poor's
to upgrade the Group by up to two notches on
completion of Nationwide's acquisition of the Group, given the
greater potential for support from the parent, and that they expect
to resolve the CreditWatch placement upon completion of the
acquisition.
On 22 March 2024, Moody's placed
on review for upgrade Clydesdale Bank PLC B's A3 long-term deposit
and senior unsecured and Virgin Money UK PLC's Baa1 long-term
issuer ratings. The ratings review reflects Moody's expectation
that upon the completion of the acquisition by Nationwide, the
adjusted base line credit assessment of the bank could benefit from
potential support from its new parent. It also reflects the
potential benefit to senior creditors of the Group if its liability
structure converges with that of Nationwide, resulting in lower
loss-given failure. Moody's also note the uplift that could be
incorporated from a potential moderate likelihood of government
support, in case of need, due to the systemic importance of
Nationwide.
On 6 June 2024, Fitch Ratings
maintained Virgin Money UK PLC's long- and short-term Issuer
Default Ratings (IDRs) and debt ratings on Rating Watch Positive
pending the acquisition by Nationwide. At the same time, Fitch
affirmed the long-term IDR of Clydesdale Bank PLC at 'A-' and
revised its Outlook to Stable from Positive. The stabilisation of
the Outlook on Clydesdale Bank PLC's long-term IDR primarily
reflects Fitch's updated lower view of the profitability outlook
compared to a year ago. The Outlook revision also reflects
potential strategy execution risks from the takeover by Nationwide,
with Fitch expecting to assign an 'a-' Shareholder Support Rating
to Virgin Money UK PLC and Clydesdale Bank PLC once the acquisition
is finalised.
Net interest income
Earnings sensitivity measures calculate the
change in NII over a 12-month period resulting from an
instantaneous and parallel change in interest rates. +/- 25 basis
point shocks and +/- 100 basis point shocks represent the primary
NII sensitivities assessed internally, though a range of scenarios
are assessed on a monthly basis.
12 months NII sensitivity
|
31 Mar
2024
£m
|
30 Sep
2023
£m
|
+25 basis point parallel
shift
|
9
|
11
|
+100 basis point parallel
shift
|
39
|
42
|
-25 basis point parallel
shift
|
(19)
|
(11)
|
-100 basis point parallel
shift
|
(68)
|
(45)
|
Risk management
Financial risk
Net interest income (continued)
Sensitivities disclosed reflect the expected
mechanical response to a movement in rates and represent a prudent
outcome. The sensitivities are indicative only and should not be
viewed as a forecast. The key assumptions and limitations are
outlined below:
−
The sensitivities are calculated based on a static balance
sheet and it is assumed there is no change to margins on
reinvestment of maturing fixed rate products.
−
There are no changes to basis spreads with the rate change
passed on in full to all interest rate bases.
−
Administered rate products receive a rate pass on in line with
internal scenario specific pass on assumptions. Any rate reduction
in a rate fall scenario is subject to product floors with the
assumption customer rates would not go negative.
−
Additional commercial pricing responses and management
actions are not included.
−
While in practice hedging strategy would be reviewed in light
of changing market conditions, the sensitivities assume no changes
over the 12-month period.
LIBOR replacement
All regulatory milestones in
relation to LIBOR cessation have been met and there are no conduct
issues to note.
As at 31 March 2024 loans with an
aggregate value of £0.8m (30 September 2023: £0.9m) with 6
customers (30 September 2023: 8 customers) remained on three-month
GBP synthetic LIBOR. This temporary reference rate ceased at the
end of March 2024 and the remaining loans will be transitioned to
alternative reference rates.
Post 31 March 2024, the Group
holds no LIBOR exposure, in any currency, on the balance
sheet.
Statement of Directors'
responsibilities
The Directors confirm that to the best of
their knowledge these interim condensed consolidated financial
statements have been prepared in accordance with UK adopted
International Accounting Standard 34 'Interim Financial Reporting'
(IAS 34) and that the interim management report includes a fair
review of the information required by Disclosure Guidance and
Transparency Rules (DTR) 4.2.7R and DTR 4.2.8R, namely:
a)
|
an indication of important events that have
occurred during the six months ended 31 March 2024 and their impact
on the condensed consolidated interim financial statements and a
description of the principal risks and uncertainties for the
remaining six months of the financial year; and
|
|
|
b)
|
material related party transactions in the six
months ended 31 March 2024 and any material changes in the related
party transactions described in the last Annual Report of Virgin
Money UK PLC.
|
Signed by order of the Board
David Duffy
Chief
Executive Officer
12 June
2024
Independent review report to
Virgin Money UK PLC
Conclusion
We have been engaged by Virgin
Money UK PLC (the Company) to review the condensed set of financial
statements in the interim financial report for the six months ended
31 March 2024 which comprises the Interim condensed consolidated
income statement, Interim condensed consolidated statement of
comprehensive income, Interim condensed consolidated balance sheet,
Interim condensed consolidated statement of changes in equity,
Interim condensed consolidated statement of cash flows and the
related explanatory notes 1.1 to 5.5. We have read the other
information contained in the interim financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
Based on our review, nothing has
come to our attention that causes us to believe that the condensed
set of financial statements in the interim financial report for the
six months ended 31 March 2024 is not prepared, in all material
respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of
the United Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in
accordance with International Standard on Review Engagements 2410
(UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
As disclosed in note 1, the annual
financial statements of the Company together with its subsidiary
undertakings (which together comprise the Group) are prepared in
accordance with UK adopted international accounting standards. The
condensed set of financial statements included in this interim
financial report has been prepared in accordance with UK adopted
International Accounting Standard 34, "Interim Financial
Reporting".
Conclusions Relating to Going Concern
Based on our review procedures,
which are less extensive than those performed in an audit as
described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or
that management have identified material uncertainties relating to
going concern that are not appropriately disclosed.
This conclusion is based on the
review procedures performed in accordance with this ISRE, however
future events or conditions may cause the entity to cease to
continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for
preparing the interim financial report in accordance with the
Disclosure Guidance and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
In preparing the interim financial
report, the directors are responsible for assessing the company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial
information
In reviewing the interim financial
report, we are responsible for expressing to the Company a
conclusion on the condensed set of financial statements in the
interim financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less
extensive than audit procedures, as described in the Basis for
Conclusion paragraph of this report.
Use of our report
This report is made solely to the
Company in accordance with guidance contained in International
Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our work, for this report, or
for the conclusions we have formed.
Ernst & Young LLP
Edinburgh
12 June 2024
Financial statements
Interim condensed consolidated income
statement
|
|
6 months
to
|
|
6 months
to
|
|
12
months to
|
|
|
|
31 Mar
2024
|
|
31 Mar
2023
|
|
30 Sep
2023
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(audited)
|
|
|
Note
|
£m
|
|
£m
|
|
£m
|
|
Interest income
|
|
2,384
|
|
1,708
|
|
3,830
|
|
Other similar interest
|
|
2
|
|
2
|
|
3
|
|
Interest expense and similar
charges
|
|
(1,527)
|
|
(858)
|
|
(2,146)
|
|
Net interest income
|
2.1
|
859
|
|
852
|
|
1,687
|
|
Gains less losses on financial
instruments at fair value
|
(6)
|
|
(14)
|
|
(12)
|
|
Other operating income
|
|
70
|
|
76
|
|
152
|
|
Non-interest income
|
2.2
|
64
|
|
62
|
|
140
|
|
Total operating income
|
|
923
|
|
914
|
|
1,827
|
|
Operating and administrative
expenses before impairment losses
|
2.3
|
(551)
|
|
(534)
|
|
(1,173)
|
|
Operating profit before impairment losses
|
372
|
|
380
|
|
654
|
|
Impairment losses on credit
exposures
|
|
(93)
|
|
(144)
|
|
(309)
|
|
Profit on ordinary activities before tax
|
279
|
|
236
|
|
345
|
|
Tax expense
|
2.4
|
(43)
|
|
(56)
|
|
(99)
|
|
Profit for the period
|
|
236
|
|
180
|
|
246
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
Ordinary shareholders
|
|
210
|
|
152
|
|
192
|
|
Other equity holders
|
|
26
|
|
28
|
|
54
|
|
Profit for the period
|
|
236
|
|
180
|
|
246
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
(pence)
|
2.5
|
16.0
|
|
11.0
|
|
14.0
|
|
Diluted earnings per share
(pence)
|
2.5
|
15.9
|
|
10.9
|
|
13.9
|
|
All material items dealt with in arriving at
the profit before tax for the periods relate to continuing
activities.
The notes on pages 65 to 83 form an integral
part of these interim condensed consolidated financial
statements.
Financial statements
Interim condensed consolidated statement of
comprehensive income
|
|
6 months
to
|
|
6 months
to
|
|
12
months to
|
|
|
|
31 Mar
2024
|
|
31 Mar
2023
|
|
30 Sep
2023
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(audited)
|
|
|
Note
|
£m
|
|
£m
|
|
£m
|
|
Profit for the period
|
|
236
|
|
180
|
|
246
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified to the income
statement
|
|
|
|
|
|
|
|
Change in cash flow hedge reserve
|
|
|
|
|
|
|
|
Losses during the
period
|
4.1.5
|
(303)
|
|
(430)
|
|
(268)
|
|
Transfers to the income
statement
|
4.1.5
|
(37)
|
|
(9)
|
|
(12)
|
|
Taxation thereon - deferred tax
credit
|
4.1.5
|
94
|
|
121
|
|
77
|
|
|
|
(246)
|
|
(318)
|
|
(203)
|
|
Change in FVOCI reserve
|
|
|
|
|
|
|
|
Losses during the
period
|
|
(16)
|
|
(48)
|
|
(49)
|
|
Transfers to the income
statement
|
|
-
|
|
(1)
|
|
(1)
|
|
Taxation thereon - deferred tax
credit
|
|
4
|
|
14
|
|
14
|
|
|
|
(12)
|
|
(35)
|
|
(36)
|
|
|
|
|
|
|
|
|
|
Total items that may be reclassified to the income
statement
|
(258)
|
|
(353)
|
|
(239)
|
|
|
|
|
|
|
|
|
|
Items that will not be reclassified to the income
statement
|
|
|
|
|
|
Change in defined benefit pension
plan
|
(89)
|
|
(421)
|
|
(544)
|
|
Taxation thereon - deferred tax
credit
|
40
|
|
144
|
|
188
|
|
Taxation thereon - current tax
credit
|
|
2
|
|
2
|
|
1
|
|
Total items that will not be reclassified to the income
statement
|
|
(47)
|
|
(275)
|
|
(355)
|
|
|
|
|
|
|
|
|
|
Other comprehensive losses, net of tax
|
|
(305)
|
|
(628)
|
|
(594)
|
|
Total comprehensive losses for the period, net of
tax
|
(69)
|
|
(448)
|
|
(348)
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
Ordinary shareholders
|
|
(95)
|
|
(476)
|
|
(402)
|
|
Other equity holders
|
|
26
|
|
28
|
|
54
|
|
Total comprehensive losses attributable to equity
holders
|
(69)
|
|
(448)
|
|
(348)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes on pages 65 to 83 form an integral
part of these interim condensed consolidated financial
statements.
Financial statements
Interim condensed consolidated balance
sheet
|
|
31 Mar
2024
|
|
30 Sep
2023
|
|
|
(unaudited)
|
|
(audited)
|
|
Note
|
£m
|
|
£m
|
Assets
|
|
|
|
|
Financial instruments
|
3.1
|
|
|
|
At amortised cost
|
3.1.1
|
|
|
|
Loans and advances to
customers
|
3.1.1.1
|
72,344
|
|
72,191
|
Cash and balances with central
banks
|
|
12,930
|
|
11,282
|
Due from other banks
|
|
592
|
|
667
|
At FVOCI
|
|
5,764
|
|
6,184
|
At FVTPL
|
3.1.2
|
|
|
|
Loans and advances to
customers
|
3.1.2.1
|
57
|
|
59
|
Derivatives
|
3.1.2.2
|
44
|
|
135
|
Other
|
|
2
|
|
2
|
Intangible assets and
goodwill
|
|
150
|
|
173
|
Deferred tax
|
2.4
|
266
|
|
193
|
Defined benefit pension
assets
|
3.2
|
442
|
|
512
|
Other assets
|
|
442
|
|
388
|
Total assets
|
|
93,033
|
|
91,786
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Financial instruments
|
3.1
|
|
|
|
At amortised cost
|
3.1.1
|
|
|
|
Customer deposits
|
|
68,663
|
|
66,827
|
Debt securities in
issue
|
3.1.1.2
|
9,968
|
|
9,719
|
Due to other banks
|
3.1.1.3
|
6,255
|
|
6,939
|
At FVTPL
|
3.1.2
|
|
|
|
Derivatives
|
3.1.2.2
|
210
|
|
290
|
Deferred tax
|
2.4
|
111
|
|
179
|
Provisions for liabilities and
charges
|
3.3
|
61
|
|
69
|
Other liabilities
|
|
2,106
|
|
2,156
|
Total liabilities
|
|
87,374
|
|
86,179
|
|
|
|
|
|
Equity
|
|
|
|
|
Share capital and share
premium
|
4.1.1
|
140
|
|
143
|
Other equity
instruments
|
4.1.2
|
835
|
|
594
|
Capital reorganisation
reserve
|
4.1.3
|
(839)
|
|
(839)
|
Merger reserve
|
4.1.4
|
2,128
|
|
2,128
|
Other reserves
|
|
269
|
|
528
|
Retained earnings
|
|
3,126
|
|
3,053
|
Total equity
|
|
5,659
|
|
5,607
|
Total liabilities and equity
|
|
93,033
|
|
91,786
|
The notes on pages 65 to 83 form an integral
part of these interim condensed consolidated financial
statements.
These interim condensed consolidated financial
statements were approved by the Board of Directors on 12 June 2024
and were signed on its behalf
by:
|
|
David Duffy
|
Clifford Abrahams
|
Chief
Executive Officer
|
Chief
Financial Officer
|
Company name: Virgin Money UK PLC,
Company number: 09595911
Financial statements
Interim condensed consolidated statement of
changes in equity
|
|
|
|
|
Other
reserves
|
|
|
|
Share
capital and share premium
|
Other
equity
instruments
|
Capital
reorg' reserve
|
Merger
reserve
|
Own
shares held
|
Capital
redemption reserve
|
Deferred
shares reserve
|
Equity
based comp' reserve
|
FVOCI
reserve
|
Cash
flow hedge reserve
|
Retained
earnings
|
Total
equity
|
Note
|
4.1.1
|
4.1.2
|
4.1.3
|
4.1.4
|
|
|
|
|
|
4.1.5
|
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
£m
|
As at 1 October 2022(1)
|
148
|
666
|
(839)
|
2,128
|
-
|
3
|
11
|
10
|
43
|
699
|
3,471
|
6,340
|
Profit for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
180
|
180
|
Other comprehensive losses net of
tax
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(35)
|
(318)
|
(275)
|
(628)
|
Total comprehensive losses for the
period
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(35)
|
(318)
|
(95)
|
(448)
|
AT1 distributions paid
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(28)
|
(28)
|
Dividends paid to ordinary
shareholders
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(103)
|
(103)
|
Ordinary shares issued
|
3
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
3
|
Share buyback
|
(5)
|
-
|
-
|
-
|
-
|
5
|
-
|
-
|
-
|
-
|
(63)
|
(63)
|
Transfer from equity based
compensation reserve
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(4)
|
-
|
-
|
4
|
-
|
Equity based compensation
expensed
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
5
|
-
|
-
|
-
|
5
|
Settlement of Virgin Money
Holdings (UK) PLC share awards
|
-
|
-
|
-
|
-
|
-
|
-
|
(5)
|
-
|
-
|
-
|
1
|
(4)
|
AT1 redemption
|
-
|
(72)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(72)
|
As at 31 March 2023(1)
|
146
|
594
|
(839)
|
2,128
|
-
|
8
|
6
|
11
|
8
|
381
|
3,187
|
5,630
|
Profit for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
66
|
66
|
Other comprehensive
(losses)/income net of tax
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1)
|
115
|
(80)
|
34
|
Total comprehensive
(losses)/income for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1)
|
115
|
(14)
|
100
|
AT1 distributions paid
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(26)
|
(26)
|
Dividends paid to ordinary
shareholders
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(45)
|
(45)
|
Ordinary shares issued
|
(1)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1)
|
Share buyback
|
(2)
|
-
|
-
|
-
|
-
|
2
|
-
|
-
|
-
|
-
|
(49)
|
(49)
|
Purchase of own shares
|
-
|
-
|
-
|
-
|
(2)
|
-
|
-
|
-
|
-
|
-
|
-
|
(2)
|
As at 30 September 2023(1)
|
143
|
594
|
(839)
|
2,128
|
(2)
|
10
|
6
|
11
|
7
|
496
|
3,053
|
5,607
|
Profit for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
236
|
236
|
Other comprehensive losses net of
tax
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(12)
|
(246)
|
(47)
|
(305)
|
Total comprehensive
(losses)/income for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(12)
|
(246)
|
189
|
(69)
|
AT1 distributions paid
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(26)
|
(26)
|
Dividends paid to ordinary
shareholders
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(26)
|
(26)
|
Ordinary shares issued
|
2
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2
|
Share buyback
|
(5)
|
-
|
-
|
-
|
-
|
5
|
-
|
-
|
-
|
-
|
(63)
|
(63)
|
Purchase of own shares
|
-
|
-
|
-
|
-
|
(8)
|
-
|
-
|
-
|
-
|
-
|
-
|
(8)
|
Transfer from equity based
compensation reserve
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(5)
|
-
|
-
|
5
|
-
|
Equity based compensation
expensed
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
4
|
-
|
-
|
-
|
4
|
Settlement of Virgin Money
Holdings (UK) PLC share awards
|
-
|
-
|
-
|
-
|
5
|
-
|
(2)
|
-
|
-
|
-
|
(5)
|
(2)
|
AT1 issuance
|
-
|
346
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
346
|
AT1 redemption
|
-
|
(105)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(1)
|
(106)
|
As at 31 March 2024(1)
|
140
|
835
|
(839)
|
2,128
|
(5)
|
15
|
4
|
10
|
(5)
|
250
|
3,126
|
5,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The balances as at 1 October 2022
and 30 September 2023 have been audited; the movements in the
individual six month periods to 31 March 2023 and 31 March 2024 are
unaudited.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notes on pages 65 to 83 form an integral
part of these interim condensed consolidated financial
statements.
Financial statements
Interim condensed consolidated statement of
cash flows
|
|
6 months
to
|
|
6 months
to
|
|
12
months to
|
|
|
|
31 Mar
2024
|
|
31 Mar
2023
|
|
30 Sep
2023
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(audited)
|
|
|
Note
|
£m
|
|
£m
|
|
£m
|
|
Operating activities
|
|
|
|
|
|
|
|
Profit on ordinary activities
before tax
|
|
279
|
|
236
|
|
345
|
|
Adjustments for:
|
|
|
|
|
|
|
|
Non-cash or non-operating items
included in profit before tax
|
|
(718)
|
|
(662)
|
|
(1,207)
|
|
Changes in operating
assets
|
|
(415)
|
|
(582)
|
|
(544)
|
|
Changes in operating
liabilities
|
|
1,924
|
|
1,149
|
|
284
|
|
Payments for short-term and low
value leases
|
|
(1)
|
|
-
|
|
(3)
|
|
Interest received
|
|
2,262
|
|
1,457
|
|
3,300
|
|
Interest paid
|
|
(761)
|
|
(383)
|
|
(1,173)
|
|
Tax paid
|
|
(16)
|
|
(21)
|
|
(48)
|
|
Net cash provided by operating activities
|
2,554
|
|
1,194
|
|
954
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
Interest received
|
|
169
|
|
105
|
|
232
|
|
Proceeds from sale and maturity of
financial assets at FVOCI
|
|
1,168
|
|
971
|
|
1,868
|
|
Purchase of financial assets at
FVOCI
|
|
(599)
|
|
(1,602)
|
|
(2,950)
|
|
Proceeds from sale of property,
plant and equipment
|
|
-
|
|
1
|
|
1
|
|
Purchase of property, plant and
equipment
|
|
(3)
|
|
(3)
|
|
(9)
|
|
Purchase and development of
intangible assets
|
|
(3)
|
|
(6)
|
|
(11)
|
|
Net cash provided by/(used in) investing
activities
|
|
732
|
|
(534)
|
|
(869)
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
Interest paid
|
|
(492)
|
|
(277)
|
|
(742)
|
|
Repayment of principal portions of
lease liabilities
|
5.3
|
(11)
|
|
(14)
|
|
(24)
|
|
Issuance of RMBS and covered
bonds
|
5.3
|
500
|
|
400
|
|
1,826
|
Redemption and principal repayment
on RMBS and covered bonds
|
5.3
|
(784)
|
|
(705)
|
|
(1,012)
|
Issuance of medium-term
notes/subordinated debt
|
5.3
|
641
|
|
447
|
|
747
|
|
Redemption and principal repayment
on medium-term notes/subordinated debt
|
5.3
|
(250)
|
|
-
|
|
(432)
|
|
Issuance of AT1
securities
|
|
347
|
|
-
|
|
-
|
|
Redemption of AT1
securities
|
|
(106)
|
|
(72)
|
|
(72)
|
|
Amounts repaid under the
TFSME
|
5.3
|
(1,150)
|
|
(200)
|
|
(1,000)
|
|
Share buybacks and purchase of own
shares
|
4.1
|
(80)
|
|
(75)
|
|
(112)
|
|
AT1 distributions
|
4.1
|
(26)
|
|
(28)
|
|
(54)
|
|
Ordinary dividends paid
|
4.1
|
(26)
|
|
(103)
|
|
(148)
|
|
Net cash used in financing activities
|
(1,437)
|
|
(627)
|
|
(1,023)
|
|
Net increase/(decrease) in cash and cash
equivalents
|
|
1,849
|
|
33
|
|
(938)
|
|
Cash and cash equivalents at the
beginning of the period
|
|
11,673
|
|
12,611
|
|
12,611
|
|
Cash and cash equivalents at the end of the
period
|
|
13,522
|
|
12,644
|
|
11,673
|
|
The notes on pages 65 to 83 form an integral
part of these interim condensed consolidated financial
statements.
Financial statements
Notes to the interim condensed consolidated
financial statements
Section 1: Basis of preparation and
accounting policies
Overview
These interim condensed
consolidated financial statements for the six months ended 31 March
2024 have been prepared in accordance with UK adopted IAS 34. They
have also been prepared in accordance with the Disclosure Guidance
and Transparency Rules of the UK's FCA. They do not include all the
information required by IASs in full annual financial statements
and should therefore be read in conjunction with the Group's 2023
Annual Report and Accounts which was prepared in accordance with UK
adopted IASs. Copies of the 2023 Annual Report and Accounts are
available from the Group's website at
https://www.virginmoneyukplc.com/investor-relations/results-and-reporting/annual-reports/.
The UK Finance Code for Financial
Reporting Disclosure ('the Disclosure Code') sets out disclosure
principles together with supporting guidance in respect of the
financial statements of UK banks. The Group has adopted the
Disclosure Code and these interim condensed consolidated financial
statements have been prepared in compliance with the Disclosure
Code's principles. Terminology used in these interim condensed
consolidated financial statements is consistent with that used in
the Group's 2023 Annual Report and Accounts.
The information in these interim
condensed consolidated financial statements is unaudited and does
not constitute annual accounts within the meaning of Section 434 of
the Companies Act 2006 ('the Act'). Statutory accounts for the year
ended 30 September 2023 have been delivered to the Registrar of
Companies and contained an unqualified audit report under Section
495 of the Act, which did not draw attention to any matters by way
of emphasis and did not contain any statements under Section 498 of
the Act.
1.1
Going
concern
The Directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for at least the next 12 months from the date
the interim condensed consolidated financial statements are
authorised for issue, and that the Group is well placed to manage
its business risks successfully. Accordingly, they continue to
adopt the going concern basis in preparing these interim condensed
consolidated financial statements. In reaching this assessment, the
Directors have considered a wide range of information relating to
present and future conditions, including future projections of
profitability, cash flows, capital requirements and capital
resources. These considerations include potential impacts from top
and emerging risks, stress scenarios, and the related impact on
profitability, capital and liquidity.
On 22 May 2024 the Company's
shareholders voted to approve the acquisition of the Company by
Nationwide. The transaction remains subject to regulatory approvals
and the satisfaction or waiver of other conditions as set out in
the Scheme document.
The Directors' going concern
assessment has focussed on the current Board approved strategy,
with consideration of acquisition related risks and the mitigation
activities around them. Should the acquisition proceed, the
Directors expect that the new parent company will manage any
consequential changes to Group capital, funding sources and
strategy in a controlled manner which ensures the Group continues
to meet all regulatory capital and funding requirements and can
continue to operate as a going concern for at least the next 12
months from the date the interim condensed consolidated financial
statements are authorised for issue.
Nationwide has publicly stated
that in the medium term, the Group will continue to operate as a
separate legal entity within the combined Nationwide group, with a
separate board of directors and a banking licence held by
Clydesdale Bank PLC. Following a successful completion, Nationwide
intends to work with the Group's management to undertake a detailed
review of the Group which will include, among other considerations,
an appraisal of the short and long-term objectives, strategy, and
potential of the Group. Nationwide expects that this review will be
completed within approximately 18 months from the acquisition
date.
1.2 Accounting
policies
The accounting policies adopted in
the preparation of these interim condensed consolidated financial
statements are consistent with those policies followed in the
preparation of the Group's 2023 Annual Report and Accounts except
for those policies highlighted in note 1.4. Comparatives are
presented on a basis that conforms to the current presentation
unless stated otherwise.
1.3 Critical
accounting estimates and judgements
The preparation of financial
statements requires the use of certain critical accounting
estimates and judgements that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosed
amounts of contingent liabilities. Assumptions made at each balance
sheet date are based on best estimates at that date. Although the
Group has internal control systems in place to ensure that best
estimates can be reliably measured, actual amounts may differ from
those estimated. There has been no change
to the areas where the Group applies critical accounting estimates
and judgements compared to those shown in the Group's 2023 Annual
Report and Accounts.
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 1: Basis of preparation and accounting policies
(continued)
1.3 Critical
accounting estimates and judgements (continued)
There have been no material
changes to the main accounting estimates and judgements for EIR
from the detail disclosed in note 2.1 of the Group's Annual Report
and Accounts for the year ended 30 September 2023 however there
have been some methodology changes for credit card EIR as described
below.
Mortgages
As at 31 March 2024, a total EIR
adjustment of £218m (30 September 2023: £209m) has been recognised
for mortgages. This represented 0.4% (30 September 2023: 0.4%) of
the balance sheet carrying value of gross loans and advances to
customers for mortgage lending. The net impact of the mortgage EIR
adjustments on the income statement in the period represented 1.0%
of gross customer interest income for mortgages (year to 30
September 2023: 0.5%).
Credit cards
During the period, the credit card
EIR methodology has been reviewed with a view to simplifying the
approach. This has allowed the Group to remove the temporary
macro-economic adjustments that were previously applied at 30
September 2023, which has been compensated by the Group reducing
the expectation of future balances.
Key assumptions continue to be
yield and balance attrition. Yield is a function of the Interest
Bearing Balance (IBB) and the Annual Percentage Rate charged to
customers. Balance attrition is a function of customer activity and
repayment expectations. IBB and balance attrition is impacted by
customer behaviour and while there is evidence to support the
expected IBB and balance attrition assumptions, there is inherent
risk that this data may differ in the future. The Group has
embedded a reduced expectation of future balances as part of the
methodology review and has applied an average IBB of 51.9% and a
long run average attrition rate of 3.8% per month.
As at 31 March 2024, a total EIR
adjustment of £292m (30 September 2023:
£259m) has been recognised for credit cards. This represented 4.8% (30 September 2023: 4.5%) of the balance
sheet carrying value of gross loans and advances to customers for
credit cards. The impact of the net credit card EIR adjustments on
the income statement was a credit in the period representing 10.8%
of gross customer interest income for credit cards (30 September
2023: charge in the year representing (6.2)% of gross customer
interest income for credit cards).
Sensitivity analysis (mortgages and credit
cards)
There are inter-dependencies
between the key assumptions which add to the complexity of the
judgements the Group has to make. This means that no single factor
is likely to move independently of others, however, the
sensitivities disclosed below assume all other assumptions remain
unchanged.
Sensitivity impact on the mortgage EIR
adjustment
|
31 Mar
2024
£m
|
30 Sep
2023
£m
|
+/- 1 month change to the timing
of customer repayments, redemptions and product
transfers
|
16/(16)
|
21/(18)
|
50bps increase to the BoE base
rate not passed through to the Group's SVR
|
(47)
|
(42)
|
The new simplified approach for
the credit card EIR methodology reduces the exposure to customer
behaviours at the end of the promotional period and therefore the
sensitivities for the current year have been updated accordingly.
These now consider IBB and balance attrition assumptions over the
full expected life rather than focussing on the post-promotional
period.
Sensitivity impact on the credit card EIR
adjustment
|
31 Mar
2024
£m
|
30 Sep
2023
£m
|
+/- 5 ppts change to
post-promotional IBB assumption(1) (9.1% relative
increase/decrease)
|
n/a
|
25/(26)
|
+/- 5 ppts change to IBB
assumption (10.8% relative increase/decrease)
|
55/(55)
|
n/a
|
+/- 0.5 ppts change to
post-promotional monthly balance attrition rate(1) (33%
relative increase/decrease)
|
n/a
|
(7)/7
|
+/- 0.5 ppts change to monthly
balance attrition rate (16.4% relative
increase/decrease)
|
(23)/26
|
n/a
|
(1)
|
Where the IBB assumption is already
equal to or less than 50% IBB, no further adjustment has been made
on the basis this already represents a downside economic
stress.
|
|
|
|
|
|
|
The simplified credit card EIR
methodology incorporates a reduced expectation of future balances
in order to mitigate the inherent judgement and estimation
uncertainty that exists in determining the EIR adjustment. During
the period, the Group outperformed the expectation set through the
new simplified EIR methodology, and there is sufficient capacity in
the underlying methodology to materially absorb the above
sensitivities.
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 1: Basis of preparation and accounting policies
(continued)
1.4 Accounting
developments
The Group adopted the following
pronouncements from the International Accounting Standards Board
(IASB) in the period, none of which have had a material
impact:
· Amendments to IAS 8
'Accounting Policies and Accounting Estimates':
This was issued in February 2021 (applicable for
accounting periods beginning on or after 1 January 2023) and
received endorsement for use in the UK in November 2022. The
amendments clarify what changes in accounting estimates are and how
these differ from changes in accounting policies and corrections of
errors.
· Amendments to IAS 12
'Income Tax': Deferred Tax Related to Assets and Liabilities
Arising from a Single Transaction. This was issued in May 2021 (applicable for accounting
periods beginning on or after 1 January 2023) and received
endorsement for use in the UK in November 2022. The amendments
provide a further exception from the initial recognition exemption.
Under the amendments, an entity does not apply the initial
recognition exemption for transactions that give rise to equal
taxable and deductible temporary differences.
· International Tax Reform -
Pillar 2 Model Rules: Amendments to IAS
12. This
was issued in May 2023 (with additional disclosure requirements
applicable for accounting periods beginning on or after 1 January
2023, although some paragraphs were for immediate application) and
received endorsement for use in the UK in July 2023. The amendments
introduce a mandatory temporary exception to the accounting for
deferred taxes arising from the implementation of the Organisation
for Economic Co-operation and Development Pillar 2 model rules,
together with targeted disclosure requirements for affected
entities (further detail on how this has been reflected in UK tax
legislation can be found in note 2.4).
Amendments to IAS 1 'Presentation of financial
statements' and IFRS Practice Statement 2
'Making materiality
judgements' which were issued in February 2021 (applicable
for accounting periods beginning on or after 1 January 2023) and
endorsed for use in the UK by the UK Endorsement Board in November
2022 was early adopted by the Group with effect from 1 October
2022.
During the period, there have been
no further pronouncements issued by the IASB that are considered
relevant and material to the Group.
Changes in the period - Expected credit losses
(ECL)
During the period, the Group
reviewed the existing staging approach for credit cards in the
Unsecured portfolio which focused on the triggers that move
exposures from Stage 1 (requiring a 12-month ECL calculation) to
Stage 2 (requiring a lifetime ECL calculation). The overall impact
of these changes has been to reduce the modelled ECL in the
Unsecured portfolio by £31m.
1.5 Presentation of risk
disclosures
Certain disclosures outlined in
IFRS 7 'Financial Instruments: Disclosure' concerning the nature
and extent of risks relating to financial instruments have been
included within the risk management section of this
report.
Financial statements
Notes to the interim condensed
consolidated financial
statements
Section 2: Results for the
period
2.1 Net interest
income
|
|
6 months
to
|
|
6 months
to
|
|
12
months to
|
|
|
31 Mar
2024
|
|
31 Mar
2023
|
|
30 Sep
2023
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(audited)
|
|
|
£m
|
|
£m
|
|
£m
|
Interest income
|
|
|
|
|
|
|
Loans and advances to
customers
|
|
1,951
|
|
1,436
|
|
3,150
|
Loans and advances to other
banks
|
|
271
|
|
173
|
|
435
|
Financial assets at
FVOCI
|
162
|
|
99
|
|
245
|
Total interest income
|
|
2,384
|
|
1,708
|
|
3,830
|
|
|
|
|
|
|
|
Other similar interest
|
|
|
|
|
|
|
Financial assets at
FVTPL
|
2
|
|
2
|
|
3
|
Total other similar interest
|
|
2
|
|
2
|
|
3
|
|
|
|
|
|
|
|
Less: interest expense and similar charges
|
|
|
|
|
|
|
Customer deposits
|
|
(986)
|
|
(469)
|
|
(1,233)
|
Debt securities in
issue
|
|
(351)
|
|
(230)
|
|
(537)
|
Due to other banks
|
|
(188)
|
|
(157)
|
|
(372)
|
Other interest expense
|
|
(2)
|
|
(2)
|
|
(4)
|
Total interest expense and similar charges
|
|
(1,527)
|
|
(858)
|
|
(2,146)
|
Net interest income
|
|
859
|
|
852
|
|
1,687
|
2.2 Non-interest
income
|
|
|
6 months
to
|
|
6 months
to
|
|
12
months to
|
|
|
|
31 Mar 2024
2024
|
|
31 Mar
2023 2023
|
|
30 Sep
2023 2023
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(audited)
|
|
|
|
£m
|
|
£m
|
|
£m
|
Gains less losses on financial instruments at fair
value
|
|
|
|
|
Held for trading
derivatives
|
|
|
-
|
|
(3)
|
|
1
|
Financial assets at fair
value(1)
|
|
|
2
|
|
5
|
|
2
|
Ineffectiveness arising from fair
value hedges
|
|
(21)
|
|
14
|
|
33
|
Amounts recycled to profit and
loss from cash flow hedges(2)
|
|
30
|
|
(2)
|
|
2
|
Ineffectiveness arising from cash
flow hedges
|
|
(17)
|
|
(28)
|
|
(50)
|
|
|
|
(6)
|
|
(14)
|
|
(12)
|
Other operating income
|
|
|
|
|
|
|
|
Net fee and commission
income
|
|
|
60
|
|
66
|
|
128
|
Margin on foreign exchange
derivative brokerage
|
10
|
|
9
|
|
19
|
Gain on sale of financial assets
at FVOCI
|
-
|
|
1
|
|
1
|
Share of JV loss after
tax
|
|
|
(1)
|
|
-
|
|
-
|
Other income
|
|
|
1
|
|
-
|
|
4
|
|
|
|
70
|
|
76
|
|
152
|
Total non-interest income
|
|
|
64
|
|
62
|
|
140
|
(1)
|
Included within financial assets at
fair value is a credit risk gain on loans and advances at fair
value of £Nil (period ended 31 March 2023: £Nil, year ended 30
September 2023: £Nil) and a fair value gain on equity investments
of £Nil (period ended 31 March 2023: £1m, year ended 30 September
2023: £2m gain).
|
|
(2)
|
In respect of de-designated cash
flow hedges where the swap was subsequently re-designated in a fair
value hedge.
|
|
|
|
|
|
|
|
|
|
|
|
The Group's unrecognised share of
profit of JVs for the period was £3m (period ended 31 March 2023:
£3m loss, year ended 30 September 2023: £6m loss). For loss-making
entities, subsequent profits earned are not recognised until
previously unrecognised losses are extinguished. On a cumulative
basis, the Group's unrecognised share of losses net of unrecognised
profits of JVs is £12m (period ended 31 March 2023: £12m, year
ended 30 September 2023: £15m).
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 2: Results for the period
(continued)
2.2 Non-interest
income (continued)
Non-interest income includes the
following fee and commission income disaggregated by product
type:
|
|
|
|
|
|
6 months
to
|
|
6 months
to
|
|
12
months to
|
|
|
|
31 Mar
2024
|
|
31 Mar
2023
|
|
30 Sep
2023
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(audited)
|
|
|
|
£m
|
|
£m
|
|
£m
|
Current account and debit card
fees
|
|
|
48
|
|
52
|
|
100
|
Credit cards
|
|
|
29
|
|
28
|
|
63
|
Insurance, protection and
investments
|
|
3
|
|
4
|
|
7
|
Other
fees(1)
|
|
|
7
|
|
8
|
|
16
|
Total fee and commission
income
|
|
|
87
|
|
92
|
|
186
|
Total fee and commission
expense
|
|
|
(27)
|
|
(26)
|
|
(58)
|
Net fee and commission income
|
|
|
60
|
|
66
|
|
128
|
(1)
|
Other fees include mortgages,
invoice and asset finance and ATM fees.
|
|
|
|
|
|
|
|
|
|
|
|
2.3 Operating and
administrative expenses before impairment losses
|
|
|
6 months
to
|
|
6 months
to
|
|
12
months to
|
|
|
|
31 Mar
2024
|
|
31 Mar
2023
|
|
30 Sep
2023
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(audited)
|
|
|
|
£m
|
|
£m
|
|
£m
|
Staff costs
|
|
|
228
|
|
191
|
|
432
|
Property and
infrastructure
|
|
|
30
|
|
34
|
|
74
|
Technology and
communications
|
|
|
68
|
|
62
|
|
130
|
Corporate and professional
services
|
|
|
98
|
|
109
|
|
240
|
Depreciation, amortisation and
impairment
|
|
|
44
|
|
53
|
|
116
|
Other expenses
|
|
83
|
|
85
|
|
181
|
Total operating and administrative expenses
|
|
551
|
|
534
|
|
1,173
|
|
|
|
|
|
|
|
|
Staff costs comprise the following
items:
|
|
|
|
|
|
|
|
|
6 months
to
|
6 months
to
|
|
12
months to
|
|
|
|
31 Mar
2024
|
31 Mar
2023
|
|
30 Sep
2023
|
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(audited)
|
|
|
|
£m
|
|
£m
|
|
£m
|
Salaries and wages
|
147
|
|
132
|
|
275
|
Social security costs
|
18
|
|
15
|
|
32
|
Defined contribution pension
expense
|
|
|
31
|
|
27
|
|
56
|
Defined benefit pension
credit
|
|
|
(13)
|
|
(24)
|
|
(50)
|
Compensation costs
|
|
|
183
|
|
150
|
|
313
|
Equity based
compensation(1)
|
|
|
6
|
|
4
|
|
6
|
Bonus awards
|
|
|
12
|
|
8
|
|
22
|
Performance costs
|
|
|
18
|
|
12
|
|
28
|
Redundancy and
restructuring
|
|
|
3
|
|
1
|
|
7
|
Temporary staff costs
|
|
|
9
|
|
12
|
|
24
|
Other
|
|
|
15
|
|
16
|
|
60
|
Other staff costs
|
|
|
27
|
|
29
|
|
91
|
Total staff costs
|
|
|
228
|
|
191
|
|
432
|
(1)
|
Includes National Insurance on
equity based compensation.
|
|
|
|
|
|
|
|
|
|
|
|
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 2: Results for the period
(continued)
2.4
Taxation
|
6 months
to
|
|
6 months
to
|
|
12
months to
|
|
31 Mar 2024
2024
|
|
31 Mar
2023 2023
|
|
30 Sep
2023 2023
|
|
(unaudited)
|
|
(unaudited)
|
|
(audited)
|
|
£m
|
|
£m
|
|
£m
|
Current tax
|
|
|
|
|
|
Current period
|
47
|
|
27
|
|
36
|
Adjustment in respect of prior
periods
|
(1)
|
|
2
|
|
2
|
|
46
|
|
29
|
|
38
|
Deferred tax
|
|
|
|
|
|
Current period
|
(3)
|
|
30
|
|
65
|
Adjustment in respect of prior
periods
|
-
|
|
(3)
|
|
(4)
|
|
(3)
|
|
27
|
|
61
|
Tax expense for the period
|
43
|
|
56
|
|
99
|
The tax assessed for the period differs from
that arising from applying the standard rate of corporation tax in
the UK of 25% (2023: 22%). A reconciliation from the expense
implied by the standard rate to the actual tax expense is as
follows:
|
6 months
to
|
|
6 months
to
|
|
12
months to
|
|
31 Mar 2024
2024
|
|
31 Mar
2023 2023
|
|
30 Sep
2023 2023
|
|
(unaudited)
|
|
(unaudited)
|
|
(audited)
|
|
£m
|
|
£m
|
|
£m
|
Profit on ordinary activities
before tax
|
279
|
|
236
|
|
345
|
Tax expense based on the standard rate of corporation tax in the UK of 25%
(March and September 2023: 22%)
|
70
|
|
52
|
|
76
|
|
|
|
|
|
|
Effects of:
|
|
|
|
|
|
Disallowable expenses
|
(1)
|
|
1
|
|
5
|
Conduct indemnity
adjustment
|
-
|
|
-
|
|
(1)
|
Deferred tax assets
derecognised
|
8
|
|
-
|
|
19
|
Impact of rate changes
|
(30)
|
|
5
|
|
9
|
AT1 distribution
|
(7)
|
|
(6)
|
|
(12)
|
Banking surcharge
|
3
|
|
5
|
|
5
|
Adjustments in respect of prior
periods
|
-
|
|
(1)
|
|
(2)
|
Tax expense for the period
|
43
|
|
56
|
|
99
|
|
|
|
|
|
|
|
|
The Group's effective tax rate is
15.5% (period ended 31 March 2023: 23.6%, year ended 30 September
2023: 28.7%). The impact of the banking surcharge on profits in
excess of the threshold is more than offset by the tax deduction
for AT1 distributions for which the accounting charge is included
in the statement of changes in equity, while the tax effect is, in
accordance with legislation, reflected in the income
statement.
The reduction to the authorised
surplus payments charge from 35% to 25% from 6 April 2024 was
substantively enacted on 11 March 2024 and drives the current
period rate change credit.
The Group has recognised deferred
tax in relation to the following items in the balance sheet, income
statement, and statement of other comprehensive income:
Movement in deferred tax asset/(liability)
|
Acquisition
accounting
adjustments
£m
|
Cash
flow
hedge reserve
£m
|
Gains on
financial
instruments at
FVOCI
£m
|
Tax
losses
carried
forward
£m
|
Capital
allowances
£m
|
Other
temporary
differences
£m
|
Total
deferred
tax assets
£m
|
Defined
benefit
pension scheme
surplus
£m
|
Total
deferred
tax liabilities
£m
|
At 1 October 2022
|
(8)
|
(267)
|
(16)
|
302
|
111
|
24
|
146
|
(350)
|
(350)
|
Income statement
credit/(charge)
|
2
|
1
|
-
|
(35)
|
(8)
|
(4)
|
(44)
|
(17)
|
(17)
|
Other comprehensive income
charge
|
-
|
77
|
14
|
-
|
-
|
-
|
91
|
188
|
188
|
At 30 September 2023
|
(6)
|
(189)
|
(2)
|
267
|
103
|
20
|
193
|
(179)
|
(179)
|
Income statement
credit/(charge)
|
1
|
-
|
-
|
(20)
|
(5)
|
(1)
|
(25)
|
28
|
28
|
Other comprehensive income
credit
|
-
|
94
|
4
|
-
|
-
|
-
|
98
|
40
|
40
|
At 31 March 2024
|
(5)
|
(95)
|
2
|
247
|
98
|
19
|
266
|
(111)
|
(111)
|
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 2: Results for the period
(continued)
2.4
Taxation
(continued)
Other temporary differences
include the IFRS 9 transitional adjustment of £8m and equity-based
compensation of £5m (30 September 2023: £9m and £5m
respectively).
The deferred tax assets and liabilities
detailed above arise primarily in Clydesdale Bank
PLC which has a right to offset current tax assets against current
tax liabilities and is party to a Group Payment Arrangement for
payments of tax to HMRC. Therefore, in accordance with IAS 12,
deferred tax assets and deferred tax liabilities have also been
offset in this period where they relate to payments of income tax
to this tax authority.
The Group has unrecognised deferred tax assets
of £28m (30 September 2023: £21m) (£113m gross loss (30 September
2023: £83m) valued at the mainstream rate of 25%) representing tax
losses whose use is not forecast within the foreseeable
future.
The Group has assessed the likelihood of
recovery of the deferred tax assets at 31 March 2024, and considers
it probable that sufficient future taxable profits will be
available over the corporate planning horizon against which the
underlying deductible temporary differences can be utilised.
Deferred tax assets are recognised to the extent that they are
expected to be utilised within six years of the balance sheet
date. If, instead of six years, the period were five or seven
years, the total recognised deferred tax asset would decrease to
£221m or increase to £294m respectively, with the latter being full
recognition of all losses. If Group profit forecasts were 10%
lower than anticipated, the total deferred tax asset would be
£243m. If Group taxable profit forecasts were 10%
higher than anticipated, the deferred tax asset would be £288m. All
tax assets arising will be used within the
UK.
The UK Government passed the legislation
required to enact the Pillar 2 Model Rules, as highlighted in note
1.4, for UK based groups in July 2023. It is effective for
accounting periods beginning on or after 1 January 2024. The
legislation introduces a domestic UK top-up tax for the profits
made by group subsidiaries and any other relevant non-consolidated
entities where they are taxed at a Pillar 2 effective tax rate of
less than 15%. The Group's trading operations are wholly within the
UK. No material impact of Pillar 2 is expected for members of the
Group, though as this will depend upon financial results at the
time of each periodic assessment, no forward-looking assurance can
be given.
2.5 Earnings per
share
|
|
6 months
to
|
|
6 months
to
|
|
12
months to
|
|
|
31 Mar
2024
|
|
31 Mar
2023
|
|
30 Sep
2023
|
|
|
(unaudited)
|
|
(unaudited)
|
|
(audited)
|
|
|
£m
|
|
£m
|
|
£m
|
Profit attributable to ordinary
equity holders for the purposes of
basic and diluted EPS
|
210
|
|
152
|
|
192
|
|
|
|
|
|
|
|
|
|
31 Mar 2024 Number
of
shares
|
31 Mar
2023 Number of
shares
|
30 Sep
2023
Number
of shares
|
Weighted-average number of
ordinary shares in issue (millions)
|
|
|
|
|
|
|
- Basic
|
|
1,317
|
|
1,384
|
|
1,375
|
Adjustment for share awards made
under equity based
compensation schemes
|
|
7
|
|
6
|
|
4
|
- Diluted
|
|
1,324
|
|
1,390
|
|
1,379
|
Basic earnings per share
(pence)
|
|
16.0
|
|
11.0
|
|
14.0
|
Diluted earnings per share
(pence)
|
|
15.9
|
|
10.9
|
|
13.9
|
Basic earnings per share has been
calculated after deducting 3m (31 March 2023: 0.3m, 30 September
2023: 0.2m) ordinary shares representing the weighted average of
the Group's holdings of its own shares.
Note 4.1 provides details of the
share buyback programme.
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 3: Assets and
liabilities
3.1 Financial
instruments
3.1.1
Financial instruments at amortised cost
3.1.1.1 Loans and
advances to customers
|
|
|
31 Mar
2024
|
30 Sep
2023
|
|
|
|
(unaudited)
|
(audited)
|
|
|
|
£m
|
|
£m
|
Gross loans and advances to
customers
|
|
73,261
|
|
73,295
|
Impairment provisions on credit
exposures(1)
|
|
(612)
|
|
(612)
|
Fair value hedge
adjustment
|
|
|
(305)
|
|
(492)
|
|
|
|
72,344
|
|
72,191
|
(1)
|
ECLs on off-balance sheet exposures
of £5m (30 September 2023: £5m) are presented as part of the
provisions for liabilities and charges balance (note
3.3).
|
|
|
|
|
|
|
|
|
|
The Group has a portfolio of fair valued
business loans of £57m (30 September 2023: £59m) which are
classified separately as financial assets at FVTPL (note 3.1.2.1).
Combined with the above this is equivalent to total loans and
advances of £72,401m (30 September 2023: £72,250m).
The fair value hedge adjustment
represents an offset to the fair value movement on hedging
derivatives transacted to manage the interest rate risk inherent in
the Group's fixed rate mortgage portfolio.
The Group has transferred a
proportion of mortgages to the securitisation and covered bond
programmes.
3.1.1.2
|
Debt securities in
issue
|
The breakdown of debt securities in issue is
shown below:
31 March 2024 (unaudited)
|
Medium-term
notes
|
Subordinated
debt
|
Securitisation
|
Covered
bonds
|
Total
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Debt securities
|
3,273
|
714
|
2,044
|
3,831
|
9,862
|
|
Accrued interest
|
31
|
8
|
15
|
52
|
106
|
|
|
3,304
|
722
|
2,059
|
3,883
|
9,968
|
|
|
|
|
|
|
|
|
30 September 2023
(audited)
|
Medium-term notes
|
Subordinated
debt
|
Securitisation
|
Covered
bonds
|
Total
|
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
|
Debt securities
|
2,584
|
938
|
1,729
|
4,392
|
9,643
|
|
Accrued interest
|
28
|
14
|
11
|
23
|
76
|
|
|
2,612
|
952
|
1,740
|
4,415
|
9,719
|
|
|
|
|
|
|
|
|
|
|
|
Key movements in the period are
shown in the table below(1). Full details of all notes
in issue can be found at
https://www.virginmoneyukplc.com/investor-relations/debt-investors/.
|
Period to 31 March
2024
|
Year to
30 September 2023
|
|
|
Issuances
|
Redemptions
|
Issuances
|
Redemptions
|
|
|
Denomination
|
£m
|
Denomination
|
£m
|
Denomination
|
£m
|
Denomination
|
£m
|
|
Medium term notes
|
EUR
|
641
|
-
|
-
|
EUR,
GBP
|
747
|
EUR
|
432
|
|
Subordinated debt
|
-
|
-
|
GBP
|
250
|
-
|
-
|
-
|
-
|
|
Securitisation
|
GBP
|
500
|
GBP
|
184
|
GBP
|
900
|
USD,
GBP
|
1,012
|
|
Covered bonds
|
-
|
-
|
GBP
|
600
|
EUR,
GBP
|
926
|
-
|
-
|
|
|
|
1,141
|
|
1,034
|
|
2,573
|
|
1,444
|
|
(1)
|
Other movements relate to foreign
exchange, hedging adjustments and the capitalisation and
amortisation of issuance costs.
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 3: Assets and liabilities
(continued)
3.1 Financial
instruments (continued)
3.1.1
Financial instruments at amortised cost
(continued)
3.1.1.2 Debt
securities in issue (continued)
The following tables provide a
breakdown of the medium-term notes and subordinated debt by
instrument (excluding accrued interest):
Medium-term notes
|
31 Mar
2024
(unaudited)
£m
|
30 Sep
2023
(audited)
£m
|
VM UK 3.125% fixed-to-floating
rate callable senior notes due 2025
|
300
|
300
|
VM UK 4% fixed rate reset callable
senior notes due 2026
|
476
|
463
|
VM UK 3.375% fixed rate reset
callable senior notes due 2026
|
338
|
330
|
VM UK 4% fixed rate reset callable
senior notes due 2027
|
364
|
350
|
VM UK 2.875% fixed rate reset
callable senior notes due 2025
|
422
|
418
|
VM UK 4.625% fixed rate reset
callable senior notes due 2028
|
427
|
421
|
VM UK 7.625% fixed rate reset
callable senior notes due 2029
|
310
|
302
|
VM UK 4% fixed rate reset callable
senior notes 2028
|
636
|
-
|
|
3,273
|
2,584
|
Subordinated debt
|
31 Mar
2024
(unaudited)
£m
|
|
30 Sep
2023
(audited)
£m
|
VM UK 7.875% fixed rate reset
callable subordinated notes due 2028
|
-
|
|
250
|
VM UK 5.125% fixed rate reset
callable subordinated notes due 2030
|
440
|
|
424
|
VM UK 2.625% fixed rate reset
callable subordinated notes due 2031
|
274
|
|
264
|
|
714
|
|
938
|
3.1.1.3 Due to other
banks
|
31 Mar
2024
|
|
30 Sep
2023
|
|
|
(unaudited)
|
|
(audited)
|
|
|
£m
|
|
£m
|
|
Secured loans
|
5,116
|
|
6,291
|
|
Securities sold under agreements
to repurchase(1)
|
1,058
|
|
552
|
|
Transaction balances with other
banks
|
23
|
|
19
|
|
Deposits from other
banks
|
58
|
|
77
|
|
|
6,255
|
|
6,939
|
|
(1)
|
The underlying securities sold
under agreements to repurchase have a carrying value of £1,816m (30
September 2023: £1,047m) and relate to mortgage assets as well as
internally held debt securities, backed by mortgage
assets.
|
|
|
|
|
|
|
Secured loans comprise amounts
drawn under the TFSME schemes (including accrued
interest).
3.1.2
Financial instruments at fair value through profit or
loss
3.1.2.1 Loans and
advances
Included in financial assets at FVTPL is a
historical portfolio of loans. Interest rate risk associated with
these loans is managed using interest rate derivative contracts and
the loans are recorded at fair value to avoid an accounting
mismatch. The maximum credit exposure of the loans is £57m (30
September 2023: £59m). The cumulative loss in the fair value of the
loans attributable to changes in credit risk amounts to £1m (30
September 2023: £1m); the change for the current period is £Nil
(period ended 31 March 2023: £Nil, year ended 30 September 2023:
£Nil) of which £Nil (period ended 31 March 2023: £Nil, year ended
30 September 2023:£Nil) has been recognised in the income
statement.
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 3: Assets and liabilities
(continued)
3.1 Financial
instruments (continued)
3.1.2
Financial instruments at fair value through profit or loss
(continued)
3.1.2.2 Derivative
financial instruments
The tables below analyse derivatives between
those designated as hedging instruments and those classified as
held for trading:
|
|
|
31 Mar
2024
|
30 Sep
2023
|
|
|
|
(unaudited)
|
(audited)
|
|
|
|
£m
|
|
£m
|
Fair value of derivative financial assets
|
|
|
Designated as hedging
instruments
|
21
|
|
96
|
Designated as held for
trading
|
|
23
|
|
39
|
|
|
|
44
|
|
135
|
Fair value of derivative financial
liabilities
|
Designated as hedging
instruments
|
156
|
|
204
|
Designated as held for
trading
|
|
54
|
|
86
|
|
|
|
210
|
|
290
|
Cash collateral totalling £224m (30 September
2023: £267m) has been pledged and £12m has been received (30
September 2023: £33m) in respect of derivatives with other banks.
These amounts are included within due from and due to other banks
respectively. Net collateral received from clearing houses, which
did not meet offsetting criteria, totalled £8m (30 September 2023:
£116m) and is included within other assets and other
liabilities.
The derivative financial instruments held by
the Group are further analysed below. The notional contract amount
is the amount from which the cash flows are derived and does not
represent the principal amounts at risk relating to these
contracts.
|
31 March 2024
(unaudited)
|
30
September 2023 (audited)
|
|
Total derivative contracts
|
Notional contract
amount
|
Fair value
of assets
|
Fair value
of
liabilities
|
Notional
contract amount
|
Fair
value
of
assets
|
Fair
value
of
liabilities
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
Derivatives designated as hedging
instruments
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
(gross)
|
37,103
|
|
658
|
|
246
|
|
51,185
|
|
1,295
|
|
545
|
|
Less: net settled interest rate
swaps(1)
|
(37,054)
|
|
(658)
|
|
(246)
|
|
(49,888)
|
|
(1,222)
|
|
(531)
|
|
Interest rate swaps
(net)(2)
|
49
|
|
-
|
|
-
|
|
1,297
|
|
73
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
(gross)(3)
|
21,093
|
|
866
|
|
822
|
|
19,203
|
|
1,219
|
|
862
|
|
Less: net settled interest rate
swaps(1)
|
(20,393)
|
|
(866)
|
|
(814)
|
|
(18,113)
|
|
(1,206)
|
|
(820)
|
|
Interest rate swaps
(net)(2)
|
700
|
|
-
|
|
8
|
|
1,090
|
|
13
|
|
42
|
|
Cross currency
swaps(2)
|
2,951
|
|
21
|
|
148
|
|
2,350
|
|
10
|
|
148
|
|
|
3,651
|
|
21
|
|
156
|
|
3,440
|
|
23
|
|
190
|
|
Total derivatives designated as hedging
instruments
|
3,700
|
|
21
|
|
156
|
|
4,737
|
|
96
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives designated as held for trading
|
|
|
Foreign exchange rate related contracts
|
|
|
|
Spot and forward foreign
exchange(2)
|
667
|
|
5
|
|
5
|
|
654
|
|
7
|
|
9
|
|
Options(2)
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
667
|
|
5
|
|
5
|
|
654
|
|
7
|
|
9
|
|
Interest rate related contracts
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
(gross)
|
1,828
|
|
30
|
|
39
|
|
1,910
|
|
47
|
|
50
|
|
Less: net settled interest rate
swaps(1)
|
(862)
|
|
(25)
|
|
(4)
|
|
(753)
|
|
(43)
|
|
(1)
|
|
Interest rate swaps
(net)(2)
|
966
|
|
5
|
|
35
|
|
1,157
|
|
4
|
|
49
|
|
Swaptions(2)
|
10
|
|
-
|
|
1
|
|
10
|
|
-
|
|
1
|
|
Options(2)
|
1,138
|
|
8
|
|
8
|
|
1,067
|
|
16
|
|
16
|
|
|
2,114
|
|
13
|
|
44
|
|
2,234
|
|
20
|
|
66
|
|
Commodity related contracts
|
163
|
|
5
|
|
5
|
|
167
|
|
12
|
|
11
|
|
Total derivatives designated as held for
trading
|
2,944
|
|
23
|
|
54
|
|
3,055
|
|
39
|
|
86
|
|
(1)
|
Presented within other assets and
other liabilities.
|
|
(2)
|
Presented within derivative
financial instruments.
|
|
(3)
|
Includes inflation and interest
rate risk related swaps with a notional of £1,480m and a fair value
liability of £413m. These swaps are centrally cleared and net
settled.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 3: Assets and liabilities
(continued)
3.1 Financial
instruments (continued)
3.1.2
Financial instruments at fair value through profit or loss
(continued)
3.1.2.2 Derivative
financial instruments (continued)
Derivatives transacted to manage
the Group's interest rate exposure on a net portfolio basis are
accounted for as either cash flow hedges or fair value hedges as
appropriate. Derivatives traded to manage interest rate, inflation
and currency risk on certain fixed rate assets held for liquidity
management, including UK Government Gilts, are accounted for as
fair value hedges.
The Group hedging positions also
include those designated as foreign currency and interest rate
hedges of debt issued from the Group's securitisation and covered
bond programmes. As such, certain derivative financial assets and
liabilities have been booked in structured entities and
consolidated within these financial statements.
The Group has no remaining hedge
relationships exposed to LIBOR and as no uncertainty remains
regarding interest rate benchmark reform, the Group no longer
applies the reliefs provided by 'Interest Rate Benchmark Reform -
Phase 1 and Phase 2 amendments' to hedge accounting.
3.1.3
Fair value of financial instruments
This section should be read in
conjunction with note 3.1.4 of the Group's 2023 Annual Report and
Accounts, which provides more detail about accounting policies
adopted and valuation methodologies used in calculating fair value.
There have been no changes in the accounting policies adopted or
the valuation methodologies used. Fair value measurements are
assigned to Level 1, 2 or 3 of the fair value hierarchy depending
on the significance of the inputs used in determining fair value
(Level 1 being the lowest and Level 3 being the
highest).
(a) Fair value of financial
instruments recognised on the balance sheet at amortised
cost
The tables below show a comparison
of the carrying amounts of financial assets and liabilities
measured at amortised cost, and their fair values where these are
not approximately equal.
There are various limitations
inherent in this fair value disclosure, particularly where prices
are derived from unobservable inputs due to some financial
instruments not being traded in an active market. The methodologies
and assumptions used in the fair value estimates are described in
the notes to the tables in note 3.1.4 of the Group's 2023 Annual
Report and Accounts. The difference between carrying value and fair
value is relevant in a trading environment but is not relevant to
assets such as loans and advances.
|
|
|
|
31 Mar
2024
|
|
30 Sep
2023
|
|
|
|
|
(unaudited)
|
|
(audited)
|
|
|
|
|
Carrying
value
|
Fair value
|
|
Carrying
value
|
Fair
value
|
|
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
Loans and advances to
customers(1)
|
|
|
72,344
|
|
72,780
|
|
72,191
|
|
71,611
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
Customer
deposits(2)
|
|
|
|
68,663
|
|
68,507
|
|
66,827
|
|
66,625
|
Debt securities in
issue(3)
|
|
|
|
9,968
|
|
10,168
|
|
9,719
|
|
9,788
|
Due to other
banks(2)
|
|
|
|
6,255
|
|
6,301
|
|
6,939
|
|
6,959
|
(1)
|
Categorised as Level 3 in the fair
value hierarchy with the exception of £1,094m (30 September 2023:
£1,085m) of overdrafts which are categorised as Level 2.
|
|
(2)
|
Categorised as Level 2 in the fair
value hierarchy.
|
|
(3)
|
Categorised as Level 2 in the fair
value hierarchy with the exception of £4,137m of listed debt (30
September 2023: £3,597m) which is categorised as Level
1.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 3: Assets and liabilities
(continued)
3.1 Financial
instruments (continued)
3.1.3
Fair value of financial instruments (continued)
(b) Fair value of financial
instruments recognised on the balance sheet at fair
value
The following tables provide an analysis of
financial instruments that are measured at fair value, using the
fair value hierarchy described above:
|
Fair value measurement as
at
|
Fair
value measurement as at
|
|
|
31 Mar 2024
(unaudited)
|
30 Sep
2023 (audited)
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
£m
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held at FVOCI
|
5,764
|
|
-
|
|
-
|
|
5,764
|
|
6,184
|
|
-
|
|
-
|
|
6,184
|
|
Loans and advances to
customers
|
-
|
|
57
|
|
-
|
|
57
|
|
-
|
|
59
|
|
-
|
|
59
|
|
Derivatives
|
-
|
|
44
|
|
-
|
|
44
|
|
-
|
|
135
|
|
-
|
|
135
|
Other
|
-
|
|
-
|
|
2
|
|
2
|
|
-
|
|
-
|
|
2
|
|
2
|
|
Total financial assets at fair value
|
5,764
|
|
101
|
|
2
|
|
5,867
|
|
6,184
|
|
194
|
|
2
|
|
6,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
-
|
|
210
|
|
-
|
|
210
|
|
-
|
|
290
|
|
-
|
|
290
|
|
Total financial liabilities at fair value
|
-
|
|
210
|
|
-
|
|
210
|
|
-
|
|
290
|
|
-
|
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no transfers between Level 1 and 2
in the current or prior period.
3.2 Retirement
benefit obligations
The Group's principal trading subsidiary,
Clydesdale Bank PLC, is the sponsoring employer of the Yorkshire
and Clydesdale Bank Pension Scheme ('the Scheme'), a defined
benefit pension scheme, which was closed to future benefit accrual
for the majority of current employees on 1 August 2017. The assets
of the Scheme are held in a trustee administered fund, with the
Trustee responsible for the operation and governance of the Scheme,
including making decisions regarding the funding and investment
strategy.
The following table provides a summary of the
fair value of Scheme assets and present value of the defined
benefit obligation:
|
31 Mar
2024
|
|
30 Sep
2023
|
|
(unaudited)
|
|
(audited)
|
|
£m
|
|
£m
|
Fair value of Scheme
assets
|
2,919
|
|
2,796
|
Defined benefit
obligation
|
(2,477)
|
|
(2,284)
|
Net defined benefit pension
asset
|
442
|
|
512
|
On 6 April 2023, the Scheme entered into a
longevity swap transaction with Pacific Life Re International
Limited and Zurich Assurance Ltd to manage longevity risk in
relation to c.£1.6bn of pensioner liabilities. The arrangement
provides long term protection to the Scheme against costs resulting
from pensioners or their dependants living longer than currently
expected, enhancing security for Scheme members and reducing risk
for the Group. The fair value of the hedge instrument is £Nil (30
September 2023: £Nil).
During 2023 the Trustee concluded the latest
triennial valuation for the Scheme, which was conducted in
accordance with Scheme data and market conditions as at 30
September 2022. The valuation resulted in an improvement in the
Scheme's funding position, with a reported surplus of £256m
(previously a surplus of £144m based on Scheme data and market
conditions as at 30 September 2019) and a technical provisions
funding level of 109% (previously 103%). As the 2022 valuation
outcome was a funding surplus, a deficit recovery plan is not
required and the Group is not required to make any additional
contributions to the Scheme other than the ongoing funding of the
Scheme's administrative expenses.
The next triennial valuation will be conducted
in the year ending 30 September 2026 based on Scheme data and
market conditions as at 30 September 2025.
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 3: Assets and liabilities
(continued)
3.3 Provisions for
liabilities and charges
|
Employee
related
costs provision
£m
|
Customer
related
provision
£m
|
Property
provision
£m
|
Off-balance sheet
ECL
provisions
£m
|
Total
£m
|
As at 1 October 2022
|
7
|
13
|
27
|
3
|
50
|
Charge to the
income statement
|
7
|
-
|
24
|
2
|
33
|
Utilised
|
(6)
|
(3)
|
(5)
|
-
|
(14)
|
As at 30 September 2023
|
8
|
10
|
46
|
5
|
69
|
Charge/(credit) to the
income statement
|
4
|
(5)
|
4
|
-
|
3
|
Utilised
|
(6)
|
(1)
|
(6)
|
-
|
(13)
|
Other
|
-
|
2
|
-
|
-
|
2
|
As at 31 March 2024
|
6
|
6
|
44
|
5
|
61
|
Employee related costs provision
This includes provision for staff
redundancies and for NIC on equity based compensation. During the
period, provisions of £4m (30 September 2023: £7m) were raised
relating to staff redundancy costs.
Customer related provision
This relates to customer matters,
legal proceedings and claims arising in the ordinary course of the
Group's business. A number of these matters are now reaching a
conclusion and the risk that the final amount required to settle
the Group's potential liabilities in these matters being materially
more than the remaining provision is now considered to be low.
During the period, a £2m (30 September 2023: £Nil) legacy insurance
claim was received to cover the remaining provision offset by a
release of £5m (30 September 2023: £Nil) following a review of the
final amounts required.
Property provision
This includes costs for stores and
office closures. During the period, provisions of £4m (30 September
2023: £24m) were raised.
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 4: Capital
4.1
Equity
4.1.1
Share capital and share premium
|
|
|
|
|
31 Mar
2024
|
|
30 Sep
2023
|
|
|
|
|
|
(unaudited)
|
|
(audited)
|
|
|
|
|
|
£m
|
|
£m
|
Share capital
|
|
|
|
|
130
|
|
134
|
Share premium
|
|
|
|
|
10
|
|
9
|
|
|
|
|
|
140
|
|
143
|
|
31 Mar
2024
|
|
30 Sep
2023
|
|
|
|
|
|
(unaudited)
|
|
(audited)
|
|
31 Mar
2024
|
|
30 Sep
2023
|
|
Number of
|
|
Number
of
|
|
(unaudited)
|
|
(audited)
|
|
shares
|
|
shares
|
|
£m
|
|
£m
|
Ordinary shares of £0.10 each - allotted, called up, and
fully paid
|
|
|
|
|
|
|
Opening ordinary share
capital
|
1,344,640,968
|
|
1,408,530,988
|
|
134
|
|
141
|
Issued under employee share
schemes
|
816,743
|
|
3,947,282
|
|
1
|
|
-
|
Share buyback programme
|
(48,985,025)
|
|
(67,837,302)
|
|
(5)
|
|
(7)
|
Closing ordinary share
capital
|
1,296,472,686
|
|
1,344,640,968
|
|
130
|
|
134
|
The holders of ordinary shares are
entitled to dividends as declared and are entitled to one vote per
share at meetings of the shareholders of the Company. All shares in
issue at 31 March 2024 rank equally with regard to the Company's
residual assets.
The following dividends were
declared in the current and prior periods:
· A
final dividend in respect of the year ended 30 September 2022 of
7.5p per ordinary share in the Company, amounting to £103m, was
paid in March 2023.
· An
interim dividend in respect of the year ending 30 September 2023 of
3.3p per ordinary share in the Company, amounting to £45m, was paid
in June 2023.
· A
final dividend in respect of the year ending 30 September 2023 of
2.0p per ordinary share in the Company, amounting to £26m, was paid
in March 2024.
· The
Board has recommended an interim dividend for the financial year
ending 30 September 2024 of 2.0p per share.
The following share buybacks have
been announced in the current and prior periods:
· On
30 June 2022, the Company announced an initial repurchase of up to
£75m which commenced on 30 June 2022 and ended on 9 December
2022.
· On
21 November 2022, the Company announced an extension to the share
buyback programme to purchase a further £50m. The buyback extension
commenced on 21 November 2022 and ended on 7 March 2023.
· On 2
August 2023, the Company announced a new share buyback programme to
repurchase £50m. The buyback commenced on 2 August 2023 and ended
on 22 November 2023. Under this buyback programme, the Company
returned £13m to shareholders in the current period.
· On
23 November 2023, the Company announced a further share buyback
to repurchase another £150m, ending no later than 16 May
2024.
On 7 March 2024, the Company
announced the suspension of the £150m buyback programme due to the
potential cash acquisition of the Group by Nationwide. The boards
of directors of Nationwide and the Company have since agreed the
terms of the recommended cash acquisition and on 2 April 2024, the
Company announced the full cancellation of the remaining buyback
programme and no further purchases were made after 5 March 2024.
Under this buyback programme, the Company returned £63m to
shareholders.
49m ordinary shares (30 September
2023: 68m), with a nominal value of £5m (30 September 2023: £7m),
were repurchased in the period for a total consideration of £76m
(30 September 2023: £112m).
Each buyback is completed in
aggregate between the Company's ordinary shares of £0.10 each
listed on the London Stock Exchange and CDIs, each representing one
share, listed on the Australian Securities Exchange. The Company
repurchased shares and CDIs in approximately equal proportions. All
shares repurchased were cancelled and the nominal value of the
share cancellation transferred to the capital redemption reserve
with the premium paid deducted from retained earnings.
Share premium represents the
aggregate of all amounts that have ever been paid above par value
to the Company when it has issued ordinary shares.
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 4: Capital
(continued)
4.1 Equity
(continued)
A description of the other equity
categories included within the statements of changes in equity,
together with any significant movements during the period, is
provided below.
4.1.2
Other equity instruments
Other equity instruments comprises
AT1 capital which consists of the following Perpetual Contingent
Convertible Notes:
|
31 March
2024
|
30
September 2023
|
|
Carrying
value
£m
|
Nominal
value
£m
|
Carrying
value
£m
|
Nominal
value
£m
|
|
Perpetual securities (fixed 9.25%
up to the first reset date) issued on 13 March 2019 with an
optional redemption on 8 June 2024.
|
142
|
144
|
247
|
250
|
Perpetual securities (fixed 8.25%
up to the first reset date) issued on 17 June 2022 with an optional
redemption on 17 June 2027.
|
347
|
350
|
347
|
350
|
Perpetual securities (fixed 11.00%
up to the first reset date) issued on 8 December 2023 with an
optional redemption on 8 December 2028.
|
346
|
350
|
-
|
-
|
|
835
|
844
|
594
|
600
|
|
|
|
|
|
|
On 6 December 2023, perpetual securities
(fixed 9.25% up to the first reset date) issued on 13 March 2019
totalling £105m were redeemed. The remaining £142m were redeemed on
the optional redemption date of 8 June 2024.
The issuances are treated as equity
instruments in accordance with IAS 32 'Financial instruments:
presentation' with the proceeds included in equity, net of
transaction costs, which is the difference between the nominal and
carrying values. AT1 distributions of £26m were paid in the period
(period ended 31 March 2023: £28m; year ended 30 September 2023:
£54m).
4.1.3
Capital reorganisation reserve
The capital reorganisation reserve of £839m
was recognised on the issuance of the Company's ordinary shares in
February 2016 in exchange for the acquisition of the entire share
capital of the Group's previous parent company, CYB Investments
Limited (CYBI). The reserve reflects the difference between the
consideration for the issuance of the Company's shares and CYBI's
share capital and share premium.
4.1.4
Merger reserve
A merger reserve of
£633m was recognised on the issuance of the Company's ordinary
shares in February 2016 in exchange for the acquisition of the
entire share capital of CYBI. An additional £1,495m was recognised
on the issuance of the Company's ordinary shares in October 2018 in
exchange for the acquisition of the entire share capital of Virgin
Money Holdings (UK) PLC. The merger reserve reflects the difference
between the consideration for the issuance of the Company's shares
and the nominal value of the shares issued.
4.1.5 Cash
flow hedge reserve
The cash flow hedge reserve
represents the effective portion of cumulative post-tax gains and
losses on derivatives designated as cash flow hedging instruments
that will be recycled to the income statement when the hedged items
affect profit or loss.
|
6 months
to
31 Mar
2024
(unaudited)
£m
|
|
12
months to
30 Sep
2023
(audited)
£m
|
At 1 October
|
496
|
|
699
|
Amounts recognised in other comprehensive
income:
|
|
|
|
Cash flow hedge - interest rate risk
|
|
|
|
Effective portion of changes in
fair value of interest rate swaps
|
(303)
|
|
(268)
|
Amounts transferred to the income
statement
|
(37)
|
|
(12)
|
Taxation
|
94
|
|
77
|
Closing cash flow hedge
reserve
|
250
|
|
496
|
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 5: Other notes
5.1
Contingent
liabilities and commitments
The table below sets out the amounts of
financial guarantees and commitments which are not recorded on the
balance sheet. Financial guarantees and commitments are
credit-related instruments which include acceptances, letters of
credit, guarantees and commitments to extend credit. The amounts do
not represent the amounts at risk at the balance sheet date but the
amounts that would be at risk should the contracts be fully drawn
upon and the customer default. Since a significant portion of
guarantees and commitments is expected to expire without being
drawn upon, the total of the contract amounts is not representative
of future liquidity requirements.
|
31 Mar
2024
|
|
30 Sep
2023
|
|
(unaudited)
|
|
(audited)
|
|
£m
|
|
£m
|
Guarantees and assets pledged as
collateral security:
|
|
|
|
Due in less than 3
months
|
16
|
|
12
|
Due between 3 months and 1
year
|
33
|
|
18
|
Due between 1 year and 3
years
|
12
|
|
8
|
Due between 3 years and 5
years
|
1
|
|
1
|
Due after 5 years
|
40
|
|
40
|
|
102
|
|
79
|
|
|
|
|
Other credit commitments
|
|
|
|
Undrawn formal standby facilities,
credit lines and other commitments to lend at call
|
17,710
|
|
17,921
|
Other contingent liabilities
Conduct risk related matters and legal
claims
There continues to be uncertainty with
judgement required in determining the quantum of conduct risk
related liabilities, with note 3.3 reflecting the Group's current
position where a provision can be reliably estimated. Until all
matters are resolved the final amount required to settle the
Group's potential liabilities for conduct related matters remains
uncertain.
The Group will continue to reassess the
adequacy of provisions for these matters and the assumptions
underlying the calculations at each reporting date based upon
experience and other relevant factors at that time.
The Group's subsidiary, Clydesdale Bank PLC,
along with its former parent company, National Australia Bank
Limited, is a defendant in nine separate claims (comprising 904
individual claimants) co-ordinated by the claims management
company, RGL Management Limited, in connection with (i) the payment
of break costs and (ii) the composition of fixed interest rates,
both, in respect of historic tailored business loans.
On 19 March 2024 His Majesty's High Court delivered its
judgment in the first and fourth claims dismissing all claims made
against Clydesdale Bank PLC and National Australia
Bank Limited. Costs have been awarded in favour of
Clydesdale Bank PLC and National Australia Bank Limited. The
Claimants intend to appeal parts of the judgment.
No provision has been made in these financial statements in
respect of the current claims, nor any other claims of a similar
nature which may be brought by other claimants.
The Group is named in and is defending a
number of legal claims arising in the ordinary course of business.
No material adverse impact on the financial position of the Group
is expected to arise from the ultimate resolution of these legal
actions.
5.2
Related party
transactions
The Group undertakes activity with the
following entities which are considered to be related party
transactions:
Yorkshire and
Clydesdale Bank Pension Scheme ('the Scheme')
The Group provides banking
services to the Scheme, with customer deposits of £11m (30
September 2023: £7m). Pension contributions of £6m were made to the
Scheme in the period (period ended 31 March 2023: £6m; year ended
30 September 2023: £7m).
The Group granted a £75m
uncommitted liquidity facility to the Scheme as an additional
contingency against future short-term liquidity challenges
resulting from unexpected market turbulence. As at 31 March 2024,
the amount drawn under the facility was £Nil (30 September 2023:
£Nil). There is also a £7m BACS facility held for the Scheme in
relation to payments to the Scheme's members (30 September 2023:
£7m). As at 31 March 2024, the amount drawn on the facility was
£Nil (30 September 2023: £Nil).
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 5: Other notes
(continued)
5.2
Related party
transactions (continued)
JVs and
associates
The Group holds investments in JVs of £9m
(30 September 2023: £10m). The total share of
losses recognised in the period was £1m (period ended 31 March
2023: £Nil; year ended 30 September 2023: £Nil). In addition, the
Group had the following transactions with JV entities during the
period:
· Salary Finance - the Group provides Salary Finance with a
revolving credit facility funding line, of which the current gross
lending balance was £260m (30 September 2023: £290m) and the
undrawn facility was £90m (30 September 2023: £60m). The facility
is held under Stage 2 for credit risk purposes (30 September 2023:
Stage 2), with an ECL allowance of £21m (30 September 2023: £22m)
held against the lending. An impairment release of £1m was
recognised in the period (period ended 31 March 2023: £1m release;
year ended 30 September 2023: £3m charge). The lending made via
Salary Finance continues to be held as part of the Group's
Unsecured lending portfolio and consists of personal lending to
Salary Finance customers. During the period, there has been no
material change to the ECL allowance held from that at September
2023. Additionally, the Group received £8m of interest income from
Salary Finance in the period (period ended 31 March 2023: £8m; year
ended 30 September 2023: £16m) and holds deposits of £10m (30
September 2023: £10m). Board approval is in place for this facility
up until December 2025 with £350m being the approved limit;
and
· Virgin Money Unit Trust Managers Limited (UTM) - the Group provides banking services to UTM which has
resulted in amounts due of £3m (30 September 2023: £3m).
Additionally, the Group received £5m of recharge income in the
period (period ended 31 March 2023: £4m; year ended 30 September
2023: £9m) from UTM in accordance with a Service Level Agreement in
respect of resourcing, infrastructure and marketing. During the
period, the Group provided no additional funding to UTM (30
September 2023: £Nil). The Group has also paid consortium relief to
UTM of £Nil (30 September 2023: £1m) for losses surrendered from
UTM. The Group provides UTM with a 30 day notice account with
customer deposits of £10m (30 September 2023: £17m) which resulted
in interest of £0.3m being paid to UTM (30 September 2023: £0.5m).
On 2 April 2024 the Group acquired the remaining 50 per cent
ordinary share capital of UTM for £20m. Refer to note 5.5 for
further information.
Other related party transactions with Virgin
Group(1)
The Group has related party
transactions with other Virgin Group companies:
· License fees due to Virgin Enterprises Limited for the use of
the Virgin Money brand trademark resulted in payables of £6m (30
September 2023: £5m), with expenses incurred in the period of £9m
(period ended 31 March 2023: £9m; year ended 30 September 2023:
£17m).
· The
Group incurs credit card commissions and air mile charges from
Virgin Atlantic Airways Limited (VAA) in respect of an agreement
between the two parties. Amounts payable to VAA totalled £2m (30
September 2023: £2m) and expenses of £9m were incurred in the
period (period ended 31 March 2023: £7m; year ended 30 September
2023: £17m).
· The
Group incurs charges and receives commissions concerning the
cashback incentive scheme with Virgin Red Limited in relation to
the credit card and PCA portfolio. Amounts receivable totalled
£0.5m (31 March 2023: £0.2m; 30 September 2023: £0.2m), amounts
payable totalled £Nil (31 March 2023: £1m; 30 September 2023:
£0.1m) and during the period this resulted in expenses of £0.5m
(period ended 31 March 2023: £0.5m, year ended 30 September 2023:
£0.5m) along with income of £0.5m (period ended 31 March 2023:
£0.2m, year ended 30 September 2023: £0.4m).
· The
Group has an arrangement with Virgin Start Up Limited to host a
series of events, podcasts and videos and other digital content.
During the period this resulted in amounts payable of £Nil (30
September 2023: £0.1m) and expenses payable of £0.2m (period ended
31 March 2023: £0.2m, year ended 30 September 2023:
£0.4m).
· The
Group paid £4m (period ended 31 March 2023: £14m, year ended 30
September 2023: £20m) of ordinary dividends to Virgin Group
Holdings Limited.
(1)
|
All companies were incorporated in
England and Wales with the exception of Virgin Group Holdings
Limited, which was incorporated in the
British Virgin Islands.
|
Charities
The Group provides banking services to Virgin
Money Foundation which has resulted in customer deposits of £1m
(30 September 2023: £1m). The Group made
donations of £1m in the period (period ended 31 March 2023: £1m;
year ended 30 September 2023: £1m) to the Foundation to enable it
to pursue its charitable objectives. The Group has also provided a
number of support services to the Foundation on a pro bono basis,
including use of facilities and employee time. The estimated gift
in kind for support services provided during the period was £0.2m
(period ended 31 March 2023: £0.3m; year ended 30 September 2023:
£0.5m).
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 5: Other notes
(continued)
5.3 Notes to the
statement of cash flows
|
|
Term funding
schemes(1)
|
Debt securities in
issue
|
Lease
liabilities
|
Total
|
|
Note
|
£m
3.1.1.3
|
£m
3.1.1.2
|
£m
|
£m
|
At 1 October 2022
|
|
7,230
|
8,509
|
132
|
15,871
|
Cash flows:
|
|
|
|
|
|
Issuances
|
|
-
|
2,573
|
-
|
2,573
|
Drawdowns
|
|
-
|
(1,444)
|
-
|
(1,444)
|
Redemptions
|
|
(1,000)
|
-
|
(24)
|
(1,024)
|
Repayment
|
|
-
|
-
|
(1)
|
(1)
|
Non-cash flows
|
|
|
|
|
|
Fair value and other associated
adjustments
|
|
-
|
59
|
-
|
59
|
Additions to right-of-use asset in
exchange for increased lease liabilities
|
|
-
|
-
|
76
|
76
|
Remeasurement
|
|
-
|
-
|
(6)
|
(6)
|
Movement in accrued
interest
|
|
61
|
27
|
3
|
91
|
Unamortised costs
|
|
-
|
(5)
|
-
|
(5)
|
At 30 September 2023
|
|
6,291
|
9,719
|
180
|
16,190
|
Cash flows:
|
|
|
|
|
|
Issuances
|
|
-
|
1,141
|
-
|
1,141
|
Redemptions
|
|
-
|
(1,034)
|
-
|
(1,034)
|
Repayment
|
|
(1,150)
|
-
|
(11)
|
(1,161)
|
Non-cash flows
|
|
|
|
|
|
Fair value and other associated
adjustments
|
|
-
|
114
|
-
|
114
|
Additions to right-of-use asset in
exchange for increased lease liabilities
|
-
|
-
|
1
|
1
|
Remeasurement
|
-
|
-
|
1
|
1
|
Movement in accrued
interest
|
(25)
|
30
|
2
|
7
|
Unamortised costs
|
-
|
(2)
|
-
|
(2)
|
At
31 March 2024
|
|
5,116
|
9,968
|
173
|
15,257
|
(1)
|
This includes amounts drawn under
the TFS and TFSME.
|
|
|
|
|
|
|
|
|
|
5.4 Segment
information
The Group's operating segments are
operating units engaged in providing different products or services
and whose operating results and overall performance are regularly
reviewed by the Group's Chief Operating Decision Maker, the
Executive Leadership Team.
The Group operates under four
commercial lines: Mortgages, Unsecured, Business, and Deposits,
which are reported through the Managing Director, Business and
Commercial. At this point in time, the business continues to be
reported to the Group's Chief Operating Decision Maker as a single
segment and decisions made on the performance of the Group on that
basis. Segmental information will therefore continue to be
presented on this single segment basis.
|
6 months
to
|
|
6 months
to
|
|
12
months to
|
|
31 Mar
2024
|
|
31 Mar
2023
|
|
30 Sep
2023
|
|
(unaudited)
|
|
(unaudited)
|
|
(audited)
|
|
£m
|
|
£m
|
|
£m
|
Net interest income
|
859
|
|
852
|
|
1,687
|
Non-interest income
|
64
|
|
62
|
|
140
|
Total operating income
|
923
|
|
914
|
|
1,827
|
Operating and administrative
expenses
|
(551)
|
|
(534)
|
|
(1,173)
|
Impairment losses on credit
exposures
|
(93)
|
|
(144)
|
|
(309)
|
Segment profit before tax
|
279
|
|
236
|
|
345
|
|
|
|
|
|
|
Average interest earning assets
|
89,611
|
|
89,568
|
|
89,810
|
The Group has no operations outside the UK and
therefore no secondary geographical area information is presented.
The Group is not reliant on a single customer. Liabilities are
managed on a centralised basis.
Financial statements
Notes to the interim condensed
consolidated financial statements
Section 5: Other notes
(continued)
5.5 Post-balance
sheet events
Virgin Money Unit Trust Managers Limited
acquisition
At 31 March 2024 the Group held a
50 per cent plus one share equity interest in the ordinary share
capital of Virgin Money Unit Trust Managers Limited (UTM), a JV
with abrdn plc (abrdn). The Group's investment in the JV is
accounted for under the equity method and the carrying value of the
investment at 31 March 2024 is £9m, included within other assets on
the Group balance sheet. UTM provides investment management
services to retail customers including general investment accounts,
stocks and shares ISAs and a pension product.
On 2 April 2024 the Group acquired
the remaining 50 per cent ordinary share capital of UTM for £20m.
The Group will consolidate UTM from 2 April 2024. With UTM having
successfully completed its technology platform migration and
launched the Virgin Money Investments digital platform, taking full
ownership will enable the Group to focus on our expertise in
branding and distribution, while abrdn will continue to provide
investment advisory services.
Because of the limited time
available between the acquisition and approval of these financial
statements, the Group is still in the process of
establishing:
a) the fair
value of the existing interest in UTM held by the Group prior to
the acquisition date and the resulting gain or loss recognised as a
result of the IFRS requirement for acquisitions completed in stages
to remeasure the previously held interest to fair value immediately
before the business combination; and
b) the fair
value of the assets and liabilities acquired and the associated
identifiable intangible assets and goodwill.
At 31 December 2023, being the
year end date of the most recently audited financial statements,
UTM had net assets of £21m. Total assets of £33m comprise primarily
cash at bank of £19m along with trade receivables and other
receivables of £10m. Total liabilities of £12m include trade and
other payables of £6m and amounts due to related parties of £6m.
The values shown include £11m of cash and term deposits held with
Group companies and amounts due to the Group of £5m. Refer to note
5.2 for further information.
Nationwide's acquisition of Virgin Money
On 21 March 2024, the boards of
the Company and Nationwide announced that they had agreed the terms
of a recommended cash acquisition of the entire issued and to be
issued share capital of the Company by Nationwide. The acquisition
is being implemented by way of a scheme of arrangement. On 22
May 2024, it was announced that the Company's shareholders voted in
favour of the recommended cash acquisition by Nationwide. The
transaction remains subject to regulatory approvals and the
satisfaction or waiver of other conditions as set out in the scheme
document following which there will be a court hearing to sanction
the scheme. The scheme will become effective shortly after approval
by the court with the acquisition expected to complete in calendar
Q4 2024. In addition, the Company's shareholders approved
amendments to the brand licence agreement between the Company and
Virgin Enterprises Limited (the 'TMLA'), which governs the use of
the 'Virgin Money' brand, pursuant to the TMLA Amendment
Agreement(1) and which are contingent on the scheme
becoming effective. The TMLA Amendment Agreement includes
arrangements for the payment of an exit fee of £250m, payable by
the Company to Virgin Enterprises Limited, following
completion.
(1)
|
The agreement entered into between
Nationwide and Virgin Enterprises Limited on 7 March 2024 (as
amended by a side letter dated 21 March 2024) pursuant to which the
parties have agreed to procure that a deed of amendment in respect
of the TMLA is entered into shortly following completion of the
proposed acquisition.
|
Additional
information
Measuring financial
performance
As highlighted within the Business
and financial review and Risk management sections, a range of
metrics are considered that measure and track the Group's
performance. Some of these metrics will be the Group's KPIs, which
are a set of quantifiable measurements used to gauge the Group's
overall long-term performance. Others are not referred to as KPIs,
but are still useful metrics for the Group to reflect on and are
disclosed to aid comparisons with peers.
These metrics fall into two main
categories:
· Financial - which are further split into:
o IFRS based - meaning the basis of the calculation is derived
from a measure that can be found and is directly required under
generally accepted accounting principles (GAAP); and
o Non-IFRS based - these are also referred to as APMs and can
be derived from non-GAAP measures.
· Non-Financial - being those that are not directly linked to
the Group's financial performance, but more in relation to other
external factors.
Non-IFRS based financial
performance metrics can be calculated on either a statutory or an
'excluding notable items' basis. Previously, items adjusted from
the Group's statutory position resulted in an 'underlying basis' of
performance. The Group no longer presents results on an underlying
basis, moving instead to a statutory presentation of its income
statement, whilst still providing details of notable items of
income and expenditure. Further detail on each of the notable
items, along with management's reasoning for excluding the impact
of these items from the Group's current 'excluding notable items'
basis, can be found on page 88, directly following this
section.
Refer to pages 372 to 380 of the
Group's 2023 Annual Report and Accounts for a complete listing of
the Group's performance metrics, metric definitions and why they
matter. For financial performance metrics that are arrived at by
way of a calculation, refer below:
Financial performance metrics
Profitability:
Metric
|
KPI
|
Basis
|
Formula
|
Adjusted cost: income
ratio
|
Yes
|
Non-IFRS
|
|
6 months
to
31 Mar
2024
|
6 months
to
31 Mar
2023
|
12
months to
30 Sep
2023
|
Operating and administrative
expenses (excluding notable items) (a)
|
£502m
|
£477m
|
£971m
|
BoE Levy (b)
|
£10m
|
-
|
-
|
Total operating income (excluding
notable items) (c)
|
£940m
|
£933m
|
£1,873m
|
Adjusted cost: income ((a)-(b))/(c)
|
52.3%
|
51.1%
|
51.9%
|
|
Adjusted EPS
|
No
|
Non-IFRS
|
|
6 months
to
31 Mar
2024
|
6 months
to
31 Mar
2023
|
12
months to
30 Sep
2023
|
Adjusted profit after tax
attributable to ordinary equity shareholders (a)
|
£264m
|
£207m
|
£376m
|
Weighted average number of ordinary
shares in issue (b)
|
1,317m
|
1,384m
|
1,375m
|
Adjusted basic earnings per share
(a)/(b)
|
20.0p
|
14.9p
|
27.4p
|
|
Adjusted profit after tax
attributable to ordinary equity shareholders
|
No
|
Non-IFRS
|
|
6 months
to
31 Mar
2024
|
6 months
to
31 Mar
2023
|
12
months to
30 Sep
2023
|
Profit before tax (excluding
notable items) (a)
|
£345m
|
£312m
|
£593m
|
Adjusted tax charge (b)
|
£62m
|
£77m
|
£163m
|
AT1 distributions (c)
|
£26m
|
£28m
|
£54m
|
BoE Levy (net of tax)
(d)
|
£7m
|
-
|
-
|
Adjusted profit after tax
attributable to ordinary equity shareholders
(a) - (b) - (c) + (d)
|
£264m
|
£207m
|
£376m
|
|
|
|
|
|
|
|
|
|
|
Additional
information
Measuring financial
performance
Financial performance metrics continued
Profitability continued:
Metric
|
KPI
|
Basis
|
Formula
|
Profit before tax (excluding
notable items)
|
No
|
Non-IFRS
|
|
6 months
to
31 Mar
2024
|
6 months
to
31 Mar
2023
|
12
months to
30 Sep
2023
|
Statutory profit before tax
(a)
|
£279m
|
£236m
|
£345m
|
Acquisition accounting unwinds
(b)
|
£9m
|
£3m
|
£29m
|
Hedge ineffectiveness
(c)
|
£8m
|
£16m
|
£16m
|
Restructuring charges
(d)
|
£33m
|
£53m
|
£131m
|
Financial crime prevention
programme (e)
|
£15m
|
-
|
-
|
Legacy conduct (f)
|
£(4)m
|
£4m
|
£12m
|
Other (g)
|
£5m
|
-
|
£60m
|
Profit before tax (excluding
notable items)
(a) + (b) + (c) + (d) + (e) + (f)
+ (g)
|
£345m
|
£312m
|
£593m
|
|
Net interest margin
(NIM)
|
No
|
Non-IFRS
|
|
6 months
to
31 Mar
2024
|
6 months
to
31 Mar
2023
|
12
months to
30 Sep
2023
|
NII (excluding notable items)
(a)
|
£868m
|
£855m
|
£1,716m
|
Annualised half year NII (b)
(a)*(366/183) (2023: 365/182)
|
£1,736m
|
£1,715m
|
£1,716m
|
Average interest earning assets
(c)
|
£89,611m
|
£89,568m
|
£89,810m
|
Short-term repos used for liquidity
management (d)
|
-
|
£8m
|
-
|
NIM (b)/((c)-(d))
|
1.94%
|
1.91%
|
1.91%
|
|
Statutory basic earnings per share
(EPS)
|
No
|
IFRS
|
|
6 months
to
31 Mar
2024
|
6 months
to
31 Mar
2023
|
12
months to
30 Sep
2023
|
Statutory profit after tax
attributable to ordinary equity shareholders (a)
|
£210m
|
£152m
|
£192m
|
Weighted average number of ordinary
shares in issue (b)
|
1,317m
|
1,384m
|
1,375m
|
Statutory basic earnings per share
(a)/(b)
|
16.0p
|
11.0p
|
14.0p
|
|
Statutory cost: income
ratio
|
No
|
Non-IFRS
|
|
6 months
to
31 Mar
2024
|
6 months
to
31 Mar
2023
|
12
months to
30 Sep
2023
|
Operating and administrative
expenses (a)
|
£551m
|
£534m
|
£1,173m
|
Total operating income
(b)
|
£923m
|
£914m
|
£1,827m
|
Statutory cost: income ratio (a)/(b)
|
59.7%
|
58.5%
|
64.2%
|
|
Statutory return on tangible
equity (RoTE)
|
Yes
|
Non-IFRS
|
|
6 months
to
31 Mar
2024
|
6 months
to
31 Mar
2023
|
12
months to
30 Sep
2023
|
Statutory profit after tax
attributable to ordinary equity shareholders (a)
|
£210m
|
£152m
|
£192m
|
Annualised half year profit after
tax (b) (a)*(366/183) (2023: 365/182)
|
£420m
|
£304m
|
£192m
|
Average tangible equity
(c)
|
£4,634m
|
£4,997m
|
£4,971m
|
Statutory RoTE (b)/(c)
|
9.1%
|
6.1%
|
3.9%
|
|
Lending (Basis - non-IFRS):
Metric
|
KPI
|
Formula
|
Target lending segment asset
growth
|
Yes
|
|
6 months
to
31 Mar
2024
|
6 months
to
31 Mar
2023
|
12
months to
30 Sep
2023
|
Target lending - current year
(a)
|
£15,549m
|
£13,970m
|
£14,632m
|
Target lending - prior year
(b)
|
£14,632m
|
£13,448m
|
£13,448m
|
Target lending growth
((a)-(b))/(b)
|
6.3%
|
3.9%
|
8.8%
|
|
Additional
information
Measuring financial
performance
Financial performance metrics continued
Lending (Basis - non-IFRS) continued:
Metric
|
KPI
|
Formula
|
Relationship deposits
growth
|
Yes
|
|
6 months
to
31 Mar
2024
|
6 months
to
31 Mar
2023
|
12
months to
30 Sep
2023
|
Total relationship deposits -
current year (a)
|
£36,267m
|
£35,643m
|
£35,394m
|
Total relationship deposits - prior
year (b)
|
£35,394m
|
£34,649m
|
£34,649m
|
Relationship deposit growth
((a)-(b))/(b)
|
2.5%
|
2.9%
|
2.2%
|
|
Asset quality (Basis - non-IFRS):
Metric
|
KPI
|
Formula
|
Impairment charge to average
customer loans
(cost of risk)
|
No
|
|
6 months
to
31 Mar
2024
|
6 months
to
31 Mar
2023
|
12
months to
30 Sep
2023
|
Impairment charge (a)
|
£93m
|
£144m
|
£309m
|
Annualised half year impairment
charge (b) (a)* (366/183) (2023: 365/182)
|
£186m
|
£289m
|
£309m
|
Average customer loans
(c)
|
£72,833m
|
£72,869m
|
£72,770m
|
Cost of risk (b)/(c)
|
0.26%
|
0.40%
|
0.42%
|
|
% of loans in Stage 2
|
No
|
|
31 Mar
2024
|
31 Mar
2023
|
30 Sep
2023
|
Stage 2 loans (a)
|
£5,412m
|
£7,153m
|
£6,326m
|
Gross loans and advances
(b)
|
£73,261m
|
£73,889m
|
£73,295m
|
% of loans in stage 2
(a)/(b)
|
7.4%
|
9.7%
|
8.6%
|
|
% of loans in Stage 3
|
No
|
|
31 Mar
2024
|
31 Mar
2023
|
30 Sep
2023
|
Stage 3 loans (a)
|
£1,164m
|
£1,075m
|
£1,080m
|
Gross loans and advances
(b)
|
£73,261m
|
£73,889m
|
£73,295m
|
% of loans in stage 3
(a)/(b)
|
1.6%
|
1.5%
|
1.5%
|
|
Total book coverage
|
No
|
|
31 Mar
2024
|
31 Mar
2023
|
30 Sep
2023
|
Impairment provisions on credit
exposures (a)
|
£617m
|
£526m
|
£617m
|
Gross loans and advances
(b)
|
£73,261m
|
£73,035m
|
£73,295m
|
Total book coverage
(a)/(b)
|
0.84%
|
0.72%
|
0.84%
|
|
Stage 2
coverage(1)
|
No
|
|
31 Mar
2024
|
31 Mar
2023
|
30 Sep
2023
|
Stage 2 impairment provisions on
credit exposures (a)
|
£353m
|
£349m
|
£400m
|
Stage 2 gross loans and advances
(b)
|
£5,403m
|
£7,073m
|
£6,305m
|
Total stage 2 book coverage
(a)/(b)
|
6.51%
|
4.94%
|
6.33%
|
|
Stage 3
coverage(1)
|
No
|
|
31 Mar
2024
|
31 Mar
2023
|
30 Sep
2023
|
Stage 3 impairment provisions on
credit exposures (a)
|
£162m
|
£112m
|
£128m
|
Stage 3 gross loans and advances
(b)
|
£984m
|
£925m
|
£920m
|
Total stage 3 book coverage
(a)/(b)
|
16.45%
|
12.10%
|
13.93%
|
|
(1)
|
The ratios exclude the
government-backed loan portfolio, unearned income, accrued interest
and fair value adjustments.
|
|
|
|
|
|
|
Additional
information
Measuring financial
performance
Financial performance metrics continued
Capital (Basis - non-IFRS):
Metric
|
KPI
|
Formula
|
Announced shareholder
distributions
|
Yes
|
|
6 months
to
31 Mar
2024
|
6 months
to
31 Mar
2023
|
12
months to
30 Sep
2023
|
Interim dividend (a)
|
£26m
|
£45m
|
£45m
|
Final dividend (b)
|
n/a
|
n/a
|
£27m
|
Buybacks (c)
|
n/a
|
n/a
|
£200m
|
Statutory profit after tax
attributable to ordinary equity holders (d)
|
£210m
|
£152m
|
£192m
|
Announced shareholder distributions
((a)+(b)+(c))/(d)
|
12%
|
30%
|
142%
|
|
Common Equity Tier 1 (CET1) ratio
(IFRS 9 transitional)
|
No
|
|
31 Mar
2024
|
31 Mar
2023
|
30 Sep
2023
|
CET1 capital (IFRS 9 transitional)
(a)
|
£3,731m
|
£3,627m
|
£3,711m
|
RWA (IFRS 9 transitional)
(b)
|
£25,581m
|
£24,703m
|
£25,176m
|
CET1 ratio (IFRS 9 transitional)
(a)/(b)
|
14.6%
|
14.7%
|
14.7%
|
|
CET1 ratio (IFRS 9 fully
loaded)
|
No
|
|
31 Mar
2024
|
31 Mar
2023
|
30 Sep
2023
|
CET1 capital (IFRS 9 fully loaded)
(a)
|
£3,693m
|
£3,537m
|
£3,599m
|
RWA (IFRS 9 fully loaded)
(b)
|
£25,551m
|
£24,632m
|
£25,087m
|
CET1 ratio (IFRS 9 fully loaded)
(a)/(b)
|
14.5%
|
14.4%
|
14.3%
|
|
Tier 1 ratio
|
No
|
|
31 Mar
2024
|
31 Mar
2023
|
30 Sep
2023
|
Tier 1 capital (a)
|
£4,566m
|
£4,221m
|
£4,305m
|
RWA (b)
|
£25,581m
|
£24,703m
|
£25,176m
|
Tier 1 ratio (a)/(b)
|
17.8%
|
17.1%
|
17.1%
|
|
Total capital ratio
|
No
|
|
31 Mar
2024
|
31 Mar
2023
|
30 Sep
2023
|
Total capital (a)
|
£5,339m
|
£5,242m
|
£5,327m
|
RWA (b)
|
£25,581m
|
£24,703m
|
£25,176m
|
Total capital ratio
(a)/(b)
|
20.9%
|
21.2%
|
21.2%
|
|
Tangible net asset value
(TNAV) per share
|
No
|
|
31 Mar
2024
|
31 Mar
2023
|
30 Sep
2023
|
Tangible equity (a)
|
£4,674m
|
£4,795m
|
£4,840m
|
Number of ordinary shares in issue
(b)
|
1,296m
|
1,366m
|
1,345m
|
Deferred shares (c)
|
1m
|
2m
|
2m
|
Own shares held (d)
|
4m
|
0.2m
|
1.3m
|
Tangible net asset value per share
(a)/((b)+(c)-(d))
|
361.2p
|
350.5p
|
359.8p
|
|
Additional
information
Measuring financial
performance
Management exclude certain items
from the Group's statutory position to arrive at an 'excluding
notable items' basis. The exclusion of notable items aims to remove
the impact of one-offs and other volatile items which may distort
period-on-period comparisons. Previously, items adjusted from the
Group's statutory position resulted in an 'underlying basis' of
performance. The Group no longer presents results on an underlying
basis, moving instead to a statutory presentation of its income
statement, whilst still providing details of notable items of
income and expenditure. Comparative periods have not been restated
as the 'excluding notable items basis' is directly comparable to
the previously disclosed 'underlying basis'. Management's approach
to notable items is aligned to the European Securities and Markets
Authority (ESMA) guidelines on APMs and recommendations are subject
to review and agreement by the Board Audit Committee. Additional
detail on these items is provided below to help understand their
inclusion as a notable item.
Notable items within operating income
Item
|
6 months
to
31 Mar
2024
£m
|
6 months
to
31 Mar
2023
£m
|
6 months
to
30 Sep
2023
£m
|
Reason for inclusion as a notable
item
|
Acquisition accounting unwinds
|
(9)
|
(3)
|
(26)
|
This consists of the unwind of the
IFRS 3 fair value adjustments created on the acquisition of
Virgin Money Holdings (UK) PLC in October 2018. These represent
either one-off adjustments or are the scheduled reversals of the
accounting adjustments that arose following the fair value exercise
required by IFRS 3. These will continue to be treated as notable
items until the remaining amounts have been fully
reversed.
|
Hedge ineffectiveness
|
(8)
|
(16)
|
-
|
The result of hedge accounting and
fair value movements on derivatives in economic hedges to the
extent they either do not meet the criteria for hedge accounting or
give rise to hedge ineffectiveness. These items are often volatile,
driven by accounting requirements and not generally considered as a
component of the core financial result.
|
Other:
|
|
|
|
|
UTM transition costs
|
-
|
(1)
|
(1)
|
These costs relate to UTM's
transformation costs principally for the build of a new platform
for administration and servicing.
|
VISA shares
|
-
|
1
|
-
|
A one-off gain on conversion of
Visa B Preference shares to Series A preference shares.
|
Total
|
(17)
|
(19)
|
(27)
|
|
Notable items within operating expenses
Item
|
6 months
to
31 Mar
2024
£m
|
6 months
to
31 Mar
2023
£m
|
6 months
to
30 Sep
2023
£m
|
Reason for inclusion as a notable
item
|
Restructuring charges
|
(33)
|
(53)
|
(78)
|
These costs relate to the Group's
£275m restructuring programme as first announced alongside the
Group's FY21 results.
|
Financial crime prevention programme
|
(15)
|
-
|
-
|
The Group has initiated a
'Financial Crime Prevention Programme' which will deliver
significantly enhanced financial crime, fraud, and cyber security
and controls across the Group's estate and is estimated to cost
c.£130m over 3 years. This is a one-off programme of activity
driving a significant increase in spend.
|
Legacy conduct
|
4
|
(4)
|
(8)
|
These credits/(costs) are
historical in nature and are not indicative of the Group's current
practices.
|
Other:
|
|
|
|
|
Transaction costs
|
(5)
|
-
|
-
|
Costs incurred as a direct
consequence of the Nationwide offer. This includes professional
advisory fees, including incremental audit fees following the
resignation of PwC and appointment of EY.
|
Internally developed software
adjustments
|
-
|
-
|
(47)
|
In FY23 the write-off charge was
in relation to the Group's mortgage digitisation programme.
Following an assessment of the progress of the project to upgrade
the mortgage platform and challenges identified during testing,
we anticipate a significant deferral and redesign as we implement
the upgraded capability.
|
Property, plant and equipment, and
investment property adjustments
|
-
|
-
|
(12)
|
In FY23, £6m of these costs
related to a data cleanse exercise conducted on the Group's fixed
asset registers ahead of a migration to a single fixed asset
register and a £6m reduction in the valuation of an investment
property due to changes in market conditions.
|
Total
|
(49)
|
(57)
|
(145)
|
|
Additional
information
Measuring financial
performance
Bank of England (BoE) Levy
The adjusted cost: income ratio,
adjusted profit after tax attributable to ordinary equity
shareholders, and adjusted EPS exclude both the notable items and
the new BoE Levy. Whilst not regarded as a notable item, we believe
that the cost of the new Levy should be excluded from these
specific performance metrics in the current period as its impact on
the Group's FY24 results was unclear at the time the FY23 results
were published and this was not clarified until the relevant
legislation required to implement the new Levy was passed in Q1
2024. Additionally, the £10m expense was fully recognised in Q2 as
required under the new Levy, creating a distorted view of the cost:
income ratio and EPS in both Q2 and H1 2024. The calculation
of the £10m expense is the Group's best estimate of the liability
due under the Levy based on available information from the
BoE.
We anticipate that in H2 2024, the
interest income generated from the return of the Cash Ratio Deposit
funds will also be adjusted for these performance metrics (the
impact for H1 2024 is immaterial), together with any true-up
required to the £10m expense under the Levy as a result of the full
liability becoming known in Q4 2024.
Additional information
Glossary
For a glossary of terms and abbreviations used
within this report refer to pages 382 to 387 of the Group's 2023
Annual Report and Accounts.
For terms and abbreviations not previously
included within the Glossary, or where terms have been redefined,
refer below:
Term
|
Definition
|
Nationwide
|
Nationwide Building Society, a
building society authorised by the PRA and regulated by the FCA and
the PRA under registration number 106078
|
Nationwide group
|
Nationwide and its subsidiary
undertakings
|
|
|
|
|
|
|
|
|
Abbreviations
|
|
IBB
|
Interest bearing
balance
|
MA
|
Management adjustment
|
MDA
|
Maximum distributable
amount
|
MES
|
Model economic
scenarios
|
MRM
|
Model risk management
|
TCR
|
Total capital
requirement
|
Additional information
Officers and professional
advisers
Non-Executive
Directors
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Board
Chair
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David Bennett(1)
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Senior
Independent Non-Executive Director
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Tim Wade(2)
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Independent
Non-Executive Directors
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Lucinda
Charles-Jones(2)
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Geeta
Gopalan(2)(3)
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Elena
Novokreshchenova(2)
Darren Pope(2)
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Non-Executive
Director
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Sara Weller(4)
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Executive Directors
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David Duffy
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Clifford Abrahams
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Group Company
Secretary
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Lorna McMillan
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Group General
Counsel and Purpose Officer
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James Peirson
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Independent
auditors
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Ernst & Young LLP
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25 Churchill Place
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Canary Wharf
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London
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E14 5EY
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(1) Member of
the Remuneration Committee and Governance and Nomination
Committee.
(2) All
Independent Non-Executive Directors are members of the Remuneration
Committee, Audit Committee, Risk Committee and Governance and
Nomination Committee.
(3) Geeta
Gopalan will step down from the Board on 30 June 2024.
(4) Member of
the Governance and Nomination Committee.
.
VIRGIN MONEY UK PLC
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Registered number 09595911 (England and
Wales)
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ARBN 609 948 281 (Australia)
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Head Office:
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London Office:
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Registered Office:
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177 Bothwell Street
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Floor 15, The Leadenhall Building
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Jubilee House
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Glasgow
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122 Leadenhall Street
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Gosforth
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G2 7ER
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London
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Newcastle Upon Tyne
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EC3V 4AB
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NE3 4PL
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