TIDMNBS TIDM34VG
RNS Number : 7550T
Nationwide Building Society
17 November 2023
Nationwide Building Society
Interim Results
for the period ended 30 September 2023
Contents
Page
Chief Executive's review 4
Performance summary 6
Financial review 7
Risk report 14
Condensed consolidated interim financial statements 63
Notes to the condensed consolidated interim financial statements 69
Responsibility statement 90
Independent review report to Nationwide Building Society 91
Other information 93
Contacts 93
Introduction
Unless otherwise stated, the income statement analysis compares
the period from 5 April 2023 to 30 September 2023 to the
corresponding six months of 2022 and balance sheet analysis
compares the position at 30 September 2023 to the position at 4
April 2023.
Underlying profit
Profit before tax shown on a statutory and underlying basis is
set out on page 8. The purpose of the underlying profit measure is
to reflect management's view of the Group's underlying performance
and to assist with like-for-like comparisons of performance across
periods. Underlying profit is not designed to measure sustainable
levels of profitability as that potentially requires exclusion of
non-recurring items even though they are closely related to (or
even a direct consequence of) the Group's core business
activities.
Forward-looking statements
Certain statements in this document are forward-looking with
respect to plans, goals and expectations relating to the future
financial position, business performance and results of the Group.
Although the expectations reflected in these forward-looking
statements are considered reasonable, the Group can give no
assurance that these expectations will prove to be an accurate
reflection of actual results. By their nature, all forward-looking
statements involve risk and uncertainty because they relate to
future events and circumstances that are beyond the control of the
Group including, amongst other things, UK domestic and global
economic and business conditions, market-related risks such as
fluctuation in interest rates and exchange rates,
inflation/deflation, the impact of competition, changes in customer
preferences, risks concerning borrower credit quality, delays in
implementing proposals, the timing, impact and other uncertainties
of future acquisitions or other combinations within relevant
industries, risks relating to sustainability and climate change,
the policies and actions of regulatory authorities and the impact
of tax or other legislation and other regulations in the
jurisdictions in which the Group operates. The economic outlook
remains uncertain and, as a result, the Group's actual future
financial condition, business performance and results may differ
materially from the plans, goals and expectations expressed or
implied in these forward-looking statements. Due to such risks and
uncertainties, the Group cautions readers not to place undue
reliance on such forward-looking statements.
The Group undertakes no obligation to update any forward-looking
statements whether as a result of new information, future events or
otherwise.
This document does not constitute or form part of an offer of
securities for sale in the United States. Securities may not be
offered or sold in the United States absent registration or an
exemption from registration. Any public offering to be made in the
United States will be made by means of a prospectus that may be
obtained from Nationwide and will contain detailed information
about the Group and its management, as well as its financial
statements.
Chief Executive's review
Nationwide delivers highest ever member value and strong
financial performance
Debbie Crosbie, Chief Executive, Nationwide Building Society,
said:
"We provide customers with great value products, choice in the
way they bank with us, and the best possible service. As a result,
we have grown our deposit and mortgage balances, and our financial
strength means we can invest in even better products and services,
and increase value for our members.
"Nationwide delivered a total of GBP1,229m in value to our
members this half year. This included our inaugural Nationwide
Fairer Share Payment of GBP344m and our highest ever half year
member financial benefit of GBP885m from pricing and incentives
that were better than the market average.
"We remain first among our peer group for customer satisfaction,
and we provide choice in how customers bank with us, including
through our digital channels, on the phone, or in our network of
branches. We passed a greater proportion of interest rate rises to
savers than the market average and are investing to grow our
customer base through service improvements and our current account
switching incentive, which we relaunched in September 2023.
"Nationwide is performing strongly, and our strategy is to
safeguard the future strength of the Society and provide a good way
to bank for customers. We are the main challenger to
shareholder-owned banks and use our mutual status to make a
meaningful impact on communities and improve society. Our rebrand
in October 2023 was the most significant in 36 years and will help
us to build stronger relationships with our customers, now and in
the future."
Business and trading highlights
-- Extended our Branch Promise, to not leave any town or city in
which we are based until at least 2026. We now have the largest
single-brand branch network in the UK, and 23% of our savings
accounts were opened in branches this half year.
-- Remained first for customer satisfaction among our peer group
for over 11 years, with a current lead of 5.2%pts(1) (March 2023:
lead of 3.8%pts).
-- Continued growth in current account volumes and maintained
our market share at 10.4%(2) (February 2023: 10.4%).
-- Maintained deposit market share at 9.6% (4 April 2023: 9.6%),
with GBP4.2bn (H1 2022/23: GBP3.2bn) of balance growth in the
period.
-- Mortgage balances increased to GBP202.3bn (4 April 2023:
GBP201.7bn). Market share of balances remained robust at 12.2% (4
April 2023: 12.2%) in a competitive market.
-- Delivered changes in line with the Government's Mortgage
Charter; we contacted 1.3m mortgage customers to explain the
support available, and we enabled customers to benefit from the
changes via our online Mortgage Manager.
-- Helped over 31,000 (H1 2022/23: over 40,000) first time buyers(3) into a home of their own.
-- Continued to commit 1% of pre-tax profits to good causes each
year(4) , which for 2023/24 includes over GBP5.1m to our Community
Grants programme.
Financial highlights
-- In total, Nationwide delivered GBP1,229m in value to its
members. This included the distribution of the GBP100 Nationwide
Fairer Share Payment to over 3.4m members in June 2023, totalling
GBP344m, as well as our member financial benefit, which increased
to GBP885m (H1 2022/23: GBP320m). Member financial benefit was
supported by the strength of our savings and mortgage propositions;
we passed a greater proportion of interest rate rises to savers
than the market average.
-- Underlying profit increased to GBP1,262m (H1 2022/23:
GBP980m) and statutory profit increased to GBP989m(5) (H1 2022/23:
GBP969m) due to income growth.
-- Rising interest rates supported growth in total underlying
income to GBP2,449m (H1 2022/23: GBP2,190m). Net interest margin
improved to 1.66% (H1 2022/23: 1.48%).
-- Credit impairment charges were lower at GBP54m (H1 2022/23:
GBP108m). Arrears levels have increased slightly but remain low;
however higher interest rates, continued inflationary pressures and
the uncertain economic outlook remain key risks.
-- Total costs increased to GBP1,115m (H1 2022/23: GBP1,083m), below the rate of inflation.
-- Our balance sheet remains strong, with Tier 1 capital
resources increasing by GBP0.6bn, leading to a leverage ratio of
6.4% (above our target of at least 4.5%) and a CET1 ratio of 27.4%
(4 April 2023: 6.0% and 26.5% respectively).
(1) Lead at September 2023: 5.2%pts, March 2023: 3.8%pts. (c)
Ipsos 2023, Financial Research Survey (FRS), for the 12 months
ending 31 March 2013 to 12 months ending 30 September 2023. Results
based on a sample of around 47,000 adults (aged 16+). The survey
contacts around 51,000 adults (aged 16+) a year in total across
Great Britain. Interviews were face to face, over the phone and
online, taking into account (and weighted to) the overall profile
of the adult population. The results reflect the percentage of
extremely satisfied and very satisfied customers minus the
percentage of customers who were extremely or very or fairly
dissatisfied across those customers with a main current account,
mortgage or savings. Those in our peer group are providers with
more than 3.2% of the main current account market as of April 2023
- Barclays, Halifax, HSBC, Lloyds Bank, NatWest, Santander and TSB.
Prior to April 2017, those in our peer group were providers with
more than 6% of the main current account market - Barclays,
Halifax, HSBC, Lloyds Bank (Lloyds TSB prior to April 2015),
NatWest and Santander.
(2) CACI's Current Account and Savings Database, Stock (August
2023 and February 2023).
(3) The prior year comparative has been restated to be on a
consistent basis with the current year metric and that reported at
the 2023 year end.
(4) The 1% is calculated based on average pre-tax profits over
the previous three years.
(5) The Nationwide Fairer Share Payment of GBP344m accounted for
the majority of the difference between underlying and statutory
profit in H1 2023. For more information, see the Financial Review
on page 8.
Chief Executive's review (continued)
Strategy update
-- More rewarding relationships: We will create deeper, lifelong
relationships with our customers, that provide the best value in
banking . As well as distributing GBP344 million to our members
through the Nationwide Fairer Share Payment in June 2023, we
delivered our highest ever level of member financial benefit of
GBP885 million, from better pricing and incentives than the market
average. We also provided GBP22 million cashback to current account
customers on their supermarket shopping in April 2023, and
relaunched our current account switching incentive in September
2023, alongside our Flex Regular Saver exclusive to current account
holders, with an interest rate of 8%.
-- Simply brilliant service: We will provide value beyond rates,
with distinctive, personalised service our customers can trust, at
every touchpoint . We renewed our Branch Promise until at least
2026; we now have the largest single-brand branch network in the
UK, and so far this year, our branch colleagues have prevented our
customers from losing GBP3.5 million to scams. We increased our
branch colleague resource to support face-to-face account openings
across 51 branches, and continued to have colleagues in branches
serving more of our customers in different ways, including by phone
and through online chat. We also extended our phone line operating
hours to increase convenience for our customers and continued to
provide our dedicated cost of living helpline.
-- Beacon for mutual good: We want to have a meaningful impact
on our customers, colleagues, communities and society, by driving
fairer banking practices and positive change. We remain committed
to building a supportive and inclusive environment for our
colleagues, and our colleague index, an aggregated measure of
colleague engagement, increased to 79.7% (4 April 2023: 77.1%). We
continued to support the UK's 10,000 Black Interns initiative,
hosting 71 (H1 2022/23: 30) new colleagues on 8-week internships.
We also launched our 0% Green Additional Borrowing product, as we
aim to support the UK in achieving its ambition to be net-zero by
2050.
-- Continuous improvement: We will be focused, fit and fast, and
simplify our processes and ways of working to deliver for the
benefit of our customers, while retaining resilient controls that
protect our customers and their money. In line with our continued
commitment to our own branch network, we announced that we will
leave Cash Access UK, as our strategy does not require us to rely
on banking hubs. We are also streamlining our operations to drive
greater efficiency, and we announced the proposed transfer of our
financial planning service to our longstanding partner, Aegon UK,
which will give our customers access to a broader proposition.
Outlook
-- While the economic outlook remains uncertain and cost of
living challenges persist, as the UK's largest building society,
Nationwide is well positioned to continue to use its financial
strength to support its customers.
-- Encouragingly, economic activity, while still weak by
historical standards, has held up better than expected, and there
are signs that cost of living pressures are starting to ease.
However, conditions for households are likely to remain challenging
in the near term, as the effect of previous interest rate increases
feeds through and labour market conditions soften.
-- Bank rate is at or close to its peak, though there are
significant risks in both directions driven by the ongoing
uncertainty surrounding demand prospects and the supply capacity of
the economy.
-- The housing market has slowed and house prices have edged
lower as a result of the higher interest rate environment. While
activity is anticipated to remain subdued in the short term, income
growth and lower fixed rate mortgage rates should help to improve
housing affordability over time.
-- Household deposit growth has also slowed, mirroring the
decline in mortgage lending. However, there has been significant
movement within the deposits market, stimulated by the higher rates
available, with customers transferring money from current accounts
and instant access savings into fixed rate savings.
-- Despite the uncertain economic outlook, the credit quality of
our lending portfolios is strong and our capital resources are
robust. As more households adjust their expenditure priorities in
the higher interest rate environment, we will continue to support
those borrowers who face payment difficulties.
Debbie Crosbie
Chief Executive
Performance summary
Half year Half year
to to
30 September 30 September
2023 2022
--------------- ---------------
Financial performance GBPm GBPm
---------------------------------------- ---------------
Total underlying income 2,449 2,190
---------------------------------------- --------------- ---------------
Administrative expenses 1,115 1,083
---------------------------------------- --------------- ---------------
Underlying profit before tax
(note i) 1,262 980
---------------------------------------- --------------- ---------------
Statutory profit before tax 989 969
---------------------------------------- --------------- ---------------
Mortgage Lending GBPbn % GBPbn %
---------------------------------------- -------- ----- -------- -----
Group residential - gross/market
share 12.1 10.5 19.7 11.8
---------------------------------------- -------- ----- -------- -----
Group residential - net 0.5 5.4
---------------------------------------- -------- ----- -------- -----
Average loan to value of new
residential mortgages (by value) 71 69
---------------------------------------- --------------- ---------------
Deposit balances GBPbn % GBPbn %
---------------------------------------- -------- ----- -------- -----
Member deposits balance movement/market
share (note ii) 4.2 7.8 3.2 4.6
---------------------------------------- -------- ----- -------- -----
Key ratios % %
---------------------------------------- --------------- ---------------
Underlying cost income ratio
(note iii) 45.5 49.5
---------------------------------------- --------------- ---------------
Statutory cost income ratio 44.2 49.7
---------------------------------------- --------------- ---------------
Net interest margin 1.66 1.48
---------------------------------------- --------------- ---------------
30 September 4 April
2023 2023
-------------- -----------
Balance sheet GBPbn % GBPbn %
------------------------------------ ----- ----
Total assets 274.5 271.9
------------------------------------ ------- ----- ----- ----
Loans and advances to customers 211.3 210.8
------------------------------------ ------- ----- ----- ----
Mortgage balances/market share
(note iv) 202.3 12.2 201.7 12.2
------------------------------------ ------- ----- ----- ----
Member deposits/market share
(note ii) 191.3 9.6 187.1 9.6
------------------------------------ ------- ----- ----- ----
Asset quality % %
Residential mortgages
------------------------------------ -------------- -----------
Proportion of residential mortgage
accounts 3 months+ in arrears 0.38 0.32
------------------------------------ -------------- -----------
Average indexed loan to value
(by value) 55 55
------------------------------------ -------------- -----------
Consumer banking
------------------------------------ -------------- -----------
Proportion of customer balances
with amounts past due more than
3 months (excluding charged off
balances) 1.14 1.21
------------------------------------ -------------- -----------
Key ratios % %
Capital
------------------------------------ -------------- -----------
Common Equity Tier 1 ratio 27.4 26.5
------------------------------------ -------------- -----------
Leverage ratio 6.4 6.0
------------------------------------ -------------- -----------
Other balance sheet ratios
------------------------------------ -------------- -----------
Liquidity Coverage Ratio (note
v) 191 180
------------------------------------ -------------- -----------
Wholesale funding ratio (note
vi) 23.5 25.0
------------------------------------ -------------- -----------
Notes:
i. Underlying profit represents management's view of underlying
performance. The following items are excluded from statutory profit
to arrive at underlying profit:
-- Member reward payments, which are presented on a separate
line within the condensed consolidated income statement.
-- Gains or losses from derivatives and hedge accounting, which
are presented separately within total income in the condensed
consolidated income statement.
-- FSCS costs and refunds arising from institutional failures,
which are included within provisions for liabilities and
charges.
ii. Member deposits include current account credit balances.
iii. The underlying cost income ratio represents management's
view of underlying performance. Gains or losses from derivatives
and hedge accounting are excluded from the statutory cost income
ratio to arrive at the underlying cost income ratio.
iv. Mortgage balances are presented gross of credit
provisions.
v. The Liquidity Coverage Ratio represents a simple average of
the ratios for the last 12 month ends.
vi. The wholesale funding ratio includes all balance sheet
sources of funding (including securitisations).
Financial review
Chris Rhodes, Chief Financial Officer, Nationwide Building
Society, said:
"We continue to deliver a robust financial performance in an
uncertain economic environment, with underlying profit increasing
by 29% to GBP1,262 million. During the period we have continued to
provide member value, delivering a combined GBP1,229 million of
value to members, comprising GBP885 million member financial
benefit through better pricing and incentives than the market
average and the inaugural Nationwide Fairer Share payment of GBP344
million to eligible members . In addition, we delivered GBP22
million of cashback to current account customers on their
supermarket shopping.
"We have continued to support our customers' banking, savings
and borrowing needs during the period. Our good value savings and
mortgage products have supported growth in our deposit and mortgage
balances."
Financial highlights
Underlying
profit:
GBP1,262m
(H1 2022/23:
GBP980m)
Statutory
profit:
GBP989m
(H1 2022/23:
GBP969m)
Leverage ratio:
6.4%
(4 April 2023:
6.0%)
* Underlying profit for the half year to 30 September
2023 increased to GBP1,262 million (H1 2022/23:
GBP980 million), reflecting income growth and a
reduction in charges for credit impairments,
partially offset by higher costs. Statutory profit
was GBP989 million (H1 2022/23: GBP969 million),
after reflecting the inaugural Nationwide Fairer
Share Payment.
* Total underlying income increased by GBP259 million
due to rising interest rates, with a H1 2023/24 net
interest margin of 1.66% (H1 2022/23: 1.48%).
* A combined GBP1,229 million of value has been
delivered to members, comprising member financial
benefit which increased to GBP885 million ( H1
2022/23: GBP320 million) supported by the strength of
our savings rates relative to the market average, and
the inaugural Nationwide Fairer Share payment to
eligible members in June 2023 of GBP344 million. In
addition, GBP22 million was recognised in April 2023 * Total administrative expenses increased by 3.0%
relating to cashback to current account customers on (GBP32 million), below the rate of inflation, to
their supermarket shopping. GBP1,115 million (H1 2022/23: GBP1,083 million).
* Member deposit balances increased by GBP4.2 billion * Credit impairment charges were lower at GBP54 million
to GBP191.3 billion (H1 2022/23: GBP108 million), reflecting the
resilience of our lending, whilst retaining
provisions for the continued economic uncertainty and
(4 April 2023: GBP187.1 billion); our market affordability pressures on borrowers. Mortgage
share of balances remained stable at 9.6% arrears are increasing but remain low.
(4 April 2023: 9.6%).
* Mortgage balances increased to GBP202.3 billion (4
April 2023: GBP201.7 billion), with stock market * CET1 and leverage ratios increased to 27.4% and 6.4%
share remaining at 12.2% (4 April 2023: 12.2%). (4 April 2023: 26.5% and 6.0%) respectively.
The results are prepared in accordance with International
Financial Reporting Standards (IFRSs). Underlying results are shown
below, together with a reconciliation to the statutory results.
Income statement
Underlying and statutory results Net interest
margin:
1.66%
(H1 2022/23:
1.48%)
---------------
Half year Half year
to to
30 September 30 September
2023 2022
------------- ------------- ---------------
GBPm GBPm
------------------------------------------- ------------- -------------
Net interest income 2,337 2,055
------------------------------------------- ------------- ------------- ---------------
Underlying cost
income ratio
(note iv):
45.5%
(H1 2022/23:
Net other income 112 135 49.5%)
=========================================== ============= ============= ---------------
Total underlying income 2,449 2,190
------------------------------------------- ------------- ------------- ---------------
Administrative expenses (1,115) (1,083)
------------------------------------------- ------------- -------------
Impairment charge on loans and advances to
customers (54) (108)
------------------------------------------- ------------- -------------
Provisions for liabilities and charges (18) (19)
=========================================== ============= ============= ---------------
Statutory cost
income ratio:
44.2%
(H1 2022/23:
Underlying profit before tax (note i) 1,262 980 49.7%)
------------------------------------------- ------------- ------------- ---------------
Gains/(losses) from derivatives and hedge
accounting (note ii) 71 (11)
------------------------------------------- ------------- ------------- ---------------
Member reward payments (note iii) (344) -
=========================================== ============= =============
Statutory profit before tax 989 969
------------------------------------------- ------------- -------------
Taxation (267) (241)
=========================================== ============= =============
Profit after tax 722 728
------------------------------------------- ------------- ------------- ---------------
Notes:
i. Underlying profit represents management's view of underlying
performance. Member reward payments, gains or losses from
derivatives and hedge accounting (presented separately within total
income in the condensed consolidated income statement) and any FSCS
costs and refunds from institutional failures (included within
provisions for liabilities and charges) are excluded from statutory
profit to arrive at underlying profit. There were no FSCS costs or
refunds from institutional failures for the periods ended 30
September 2023 and 30 September 2022.
ii. Although we only use derivatives to hedge market risks,
income statement volatility can still arise. Further information is
provided in note 6 to the condensed consolidated interim financial
statements.
iii. Member reward payments represent discretionary payments to
members of the Society which may be determined by the Board from
time to time, depending on the financial strength of the Society.
Member reward payments were first recognised in the half year to 30
September 2023, and have been excluded from underlying profit on
the basis that management does not consider such payments to be
part of the Group's underlying business performance.
iv. The underlying cost income ratio represents management's
view of underlying performance. Gains or losses from derivatives
and hedge accounting are excluded from the statutory cost income
ratio to arrive at the underlying cost income ratio.
Total income and net interest margin
Net interest income increased by GBP282 million to GBP2,337
million (H1 2022/23: GBP2,055 million), with a net interest margin
of 1.66% (H1 2022/23: 1.48%). Increases in the Bank rate during the
period have led to an increase in net interest income, reflecting
the timing and level of pass through of interest rate changes to
savings products, partially offset by a decline in mortgage net
interest income. Nationwide has passed a greater proportion of
interest rate rises to savers than the market average, resulting in
an increase in member financial benefit in the period.
Net other income has reduced by GBP23 million to GBP112 million
(H1 2022/23: GBP135 million), with GBP22 million of supermarket
shopping cashback to customers with a personal current account
recognised in April 2023 as part of the Society's cost of living
support.
Member financial benefit
As a building society, we seek to maintain Nationwide's
financial strength whilst providing value to our members through
pricing, products and service. Through member financial benefit, we
measure the additional financial value for members from the
competitive mortgage, savings and banking products that we offer
compared to the market average. Member financial benefit is
calculated by comparing, in aggregate, Nationwide's average
interest rates and incentives to the market, predominantly using
market data provided by the Bank of England and CACI, alongside
internal calculations. The value for individual members will depend
on their circumstances and product choices. More information on how
we calculate member financial benefit can be found in our Annual
Report and Accounts 2023.
For the half year ended 30 September 2023, we delivered member
financial benefit of GBP885 million (H1 2022/23: GBP320 million).
The increase is due to our strong savings and mortgage products
which seek to provide good value to members. As interest rates have
risen, we have passed through a higher proportion of the increase
to savers than the market average.
Member reward payments
The Board announced the inaugural Nationwide Fairer Share
payment in May 2023 as part of our ongoing commitment to reward our
members. During the period, the initial Nationwide Fairer Share
payment of GBP344 million was paid to eligible members who had a
qualifying current account plus either qualifying savings or a
qualifying mortgage as at 31 March 2023. This payment is in
addition to delivering the GBP885 million of member financial
benefit to our members outlined above.
Administrative expenses
Administrative expenses have increased by GBP32 million to
GBP1,115 million (H1 2022/23: GBP1,083 million) with inflationary
increases mitigated by efficiencies within strategic investment and
the non-repeat of restructuring costs incurred in the prior
period.
Impairment charge on loans and advances to customers
Impairment charge/(release) (note i)
Half year Half year
to to
30 September 30 September
2023 2022
------------- -------------
GBPm GBPm
-------------------- ------------- -------------
Residential lending 27 69
-------------------- ------------- -------------
Consumer banking 22 41
==================== ============= =============
Retail lending 49 110
-------------------- ------------- -------------
Commercial 5 (2)
==================== ============= =============
Impairment charge 54 108
-------------------- ------------- -------------
Note:
i. Impairment charge/(release) represents the net amount
recognised in the income statement, rather than amounts written off
during the period.
The net impairment charge for the period has reduced to GBP54
million (H1 2022/23: GBP108 million). In the period we have
retained provisions for affordability risks as a result of ongoing
elevated inflation and interest rates and their impact on borrower
affordability. The higher charge in the prior period included the
recognition of additional provisions to reflect the deteriorating
economic outlook at that time. Residential mortgage arrears have
increased from historically low levels, leading to an increase in
stage 3 provisions, but arrears remain well below the industry
average and below the expected levels included in our provision
models. Consumer banking arrears have reduced slightly. More
information regarding critical accounting judgements, and the
forward-looking economic information used in impairment
calculations, is included in note 8 to the condensed consolidated
interim financial statements.
Provisions for liabilities and charges
Provisions are held to cover the costs of remediation and
redress in relation to historical quality control procedures, past
sales and administration of customer accounts, and other regulatory
matters. The charge of GBP18 million (H1 2022/23: GBP19 million)
reflects judgements and estimates used in determining provisions
for such matters.
Taxation
From 1 April 2023, the main rate of corporation tax increased
from 19% to 25% and the banking surcharge decreased from 8% to 3%.
The tax charge for the period of GBP267 million (H1 2022/23: GBP241
million) represents an effective tax rate of 27.0% (H1 2022/23:
24.9%) which is higher than the statutory UK corporation tax rate
of 25% (H1 2022/23: 19%). The effective tax rate is higher
primarily due to the banking surcharge of GBP24 million (H1
2022/23: GBP54 million). Further information is provided in note 9
to the condensed consolidated interim financial statements.
Balance sheet
Total assets have increased by 1.0% to GBP274.5 billion at 30
September 2023 (4 April 2023: GBP271.9 billion). This increase is
predominantly due to higher holdings of cash.
Mortgage lending has been robust during the period, with
residential mortgage balances increasing to GBP202.3 billion (4
April 2023: GBP201.7 billion), maintaining our market share of
mortgage balances in a competitive market. Member deposit balances
have increased by GBP4.2 billion to GBP191.3 billion (4 April 2023:
GBP187.1 billion) as a result of increases in savings balances,
supported by competitive fixed rate products and increased levels
of accrued and capitalised interest due to higher average savings
rates.
Assets 12-month average
Liquidity Coverage
Ratio (note ii):
191%
(4 April 2023:
180%)
-----------------------------------------------------------------------------
30 September 4 April 2023
2023
--------------
GBPm % GBPm %
--------------------------------------------- --------- ---
Cash 28,676 25,635
--------------------------------------------- --------- --- ========= ===
Residential mortgages (note i) 202,275 95 201,662 95
--------------------------------------------- --- --------- ---
Consumer banking 4,317 2 4,408 2
--------------------------------------------- --- --------- ---
Commercial 5,480 3 5,477 3
--------------------------------------------- --- --------- ---
212,072 100 211,547 100
--------------------------------------------- --- --------- ---
Impairment provisions (774) (765)
============================================= ========= === ========= ===
Loans and advances to customers 211,298 210,782
--------------------------------------------- --- --------- ---
Other financial assets 31,654 32,387
--------------------------------------------- --- --------- ---
Other non-financial assets 2,847 3,089
============================================= ========= === ========= ===
Total assets 274,475 271,893
--------------------------------------------- --------- --- --------- ---
Asset quality % %
--------------------------------------------- --- --------- ---
Residential mortgages (note i):
--------------------------------------------- --- --------- ---
Proportion of residential mortgage accounts
more than 3 months in arrears 0.38 0.32
--------------------------------------------- --- --------- ---
Average indexed loan to value (by value) 55 55
--------------------------------------------- --- --------- ---
Consumer banking:
--------------------------------------------- --- --------- ---
Proportion of customer balances with amounts
past due more than
3 months (excluding charged off balances) 1.14 1.21
--------------------------------------------- --------- --- --------- ---
Notes:
i. Residential mortgages include owner-occupied, buy to let and legacy lending.
ii. This represents a simple average of the Liquidity Coverage
Ratio (LCR) for the last 12 month ends. The LCR ensures that
sufficient high-quality liquid assets are held to survive a
short-term severe but plausible liquidity stress.
Cash
Cash is held by our Treasury function for liquidity purposes,
with the GBP3.0 billion increase to GBP28.7 billion (4 April 2023:
GBP25.6 billion) predominantly due to increases in retail savings
balances.
The average Liquidity Coverage Ratio over the 12 months ended 30
September 2023 increased to 191% (12 months ended 4 April 2023:
180%), with higher average liquid asset balances driven by growth
in member deposits. Liquidity continues to be managed against
internal risk appetite, which is more prudent than regulatory
requirements and, under the most severe internal 30 calendar day
stress test, the average liquid asset buffer remains robust.
Further details are included in the Liquidity and funding risk
section of the Risk report.
Residential mortgages
Total gross mortgage lending was lower than in the prior period
at GBP12.1 billion (H1 2022/23: GBP19.7 billion) and our market
share of gross advances decreased to 10.5% (H1 2022/23: 11.8%). Net
lending in the period was GBP0.5 billion (H1 2022/23: GBP5.4
billion), maintaining our market share of balances at 12.2% in a
competitive market with subdued growth. Net lending has been
supported by our continued focus on retention through highly
competitive products provided to existing customers, as well as our
focus on first time buyers. Owner-occupied mortgage balances
increased to GBP158.4 billion (4 April 2023: GBP157.6 billion) and
buy to let and legacy mortgage balances decreased slightly to
GBP43.8 billion (4 April 2023: GBP44.1 billion).
Arrears remain low but have increased slightly during the
period, with cases more than three months in arrears representing
0.38% (4 April 2023: 0.32%) of the total portfolio. Further
increases in arrears from current levels are expected, due to both
inflation and higher interest rates negatively impacting household
finances. Impairment provision balances have increased to GBP305
million (4 April 2023: GBP280 million) primarily due to higher
interest rates, which have resulted in an increase in the
provisions held to reflect mortgage affordability risks.
Consumer banking
Consumer banking balances were GBP4.3 billion (4 April 2023:
GBP4.4 billion). Consumer banking comprises personal loan balances
of GBP2.4 billion (4 April 2023: GBP2.6 billion), credit card
balances of GBP1.6 billion (4 April 2023: GBP1.5 billion) and
overdrawn current account balances of GBP0.3 billion (4 April 2023:
GBP0.3 billion).
Arrears have reduced slightly during the period, with balances
more than three months in arrears (excluding charged off accounts)
representing 1.14% (4 April 2023: 1.21%) of the total portfolio.
Provision balances reduced to GBP450 million (4 April 2023: GBP469
million), primarily due to updated expectations of the impacts of
cost inflation pressures on future credit performance.
Commercial lending
During the period, commercial lending balances remained stable
at GBP5.5 billion (4 April 2023: GBP5.5 billion). The overall
portfolio includes registered social landlords with balances of
GBP4.3 billion (4 April 2023: GBP4.1 billion), project finance with
balances of GBP0.5 billion (4 April 2023: GBP0.5 billion),
commercial real estate balances of GBP0.3 billion (4 April 2023:
GBP0.4 billion) and a fair value adjustment for micro hedged risk
of GBP0.4 billion (4 April 2023: GBP0.4 billion). Both project
finance and commercial real estate books are closed to new
lending.
Impairment provision balances increased to GBP19 million (4
April 2023: GBP16 million) due to updates relating to a small
number of individual loans.
Other financial assets
Other financial assets of GBP31.7 billion (4 April 2023: GBP32.4
billion) comprise investment assets held by Nationwide's Treasury
function amounting to GBP26.2 billion (4 April 2023: GBP27.6
billion), loans and advances to banks and similar institutions of
GBP3.2 billion (4 April 2023: GBP2.9 billion), derivatives with
positive fair values of GBP8.0 billion (4 April 2023: GBP6.9
billion) and fair value adjustments for portfolio hedged risk of
GBP(5.8) billion (4 April 2023: GBP(5.0) billion). Derivatives
largely comprise interest rate and foreign exchange contracts which
economically hedge financial risks inherent in Nationwide's lending
and funding activities.
Members' interests, equity and liabilities Wholesale funding ratio:
23.5%
(4 April 2023: 25.0%)
30 September 4 April 2023
2023
------------ ------------
GBPm GBPm
------------------------------------------------- ------------ ------------
Member deposits 191,331 187,143
------------------------------------------------- ------------ ------------
Debt securities in issue 29,456 27,626
------------------------------------------------- ------------ ------------
Other financial liabilities 34,922 38,701
------------------------------------------------- ------------ ------------
Other liabilities 1,412 1,517
================================================= ============ ============
Total liabilities 257,121 254,987
------------
Members' interests and equity 17,354 16,906
================================================= ============ ============
Total members' interests, equity and liabilities 274,475 271,893
------------------------------------------------- ------------ ------------
Member deposits
Member deposit balances grew by GBP4.2 billion to GBP191.3
billion (4 April 2023: GBP187.1 billion). Nationwide's market share
of deposit balances remained at 9.6%. The increase in deposit
balances is due to growth in savings balances of GBP5.1 billion (H1
2022/23: GBP1.3 billion) supported by competitive fixed rate
products, including the Fairer Share Bond, and increased levels of
accrued and capitalised interest due to higher average savings
rates. Credit balances on current accounts reduced by GBP0.9
billion (H1 2022/23: GBP1.9 billion growth), driven by a
competitive savings market.
Debt securities in issue and other financial liabilities
Debt securities in issue relate to wholesale funding but exclude
subordinated debt which is included within other financial
liabilities. Balances increased to GBP29.5 billion (4 April 2023:
GBP27.6 billion), reflecting secured and unsecured wholesale
funding issuances during the period. Other financial liabilities
decreased to GBP34.9 billion (4 April 2023: GBP38.7 billion)
primarily due to repayment of GBP4.1 billion of drawings from the
Bank of England's Term Funding Scheme with additional incentives
for SMEs (TFSME). Nationwide's wholesale funding ratio decreased to
23.5% (2022: 25.0%). Further details are included in the Liquidity
and funding risk section of the Risk report.
Members' interests and equity
Members' interests and equity have increased to GBP17.4 billion
(4 April 2023: GBP16.9 billion) largely as a result of retained
profits.
Statement of comprehensive income
Statement of comprehensive income (note i)
Half year Half year
to to
30 September 30 September
2023 2022
------------- -------------
GBPm GBPm
------------------------------------------------------- ------------- -------------
Profit after tax 722 728
------------------------------------------------------- ------------- -------------
Net remeasurement of pension obligations (109) (2)
------------------------------------------------------- ------------- -------------
Net movement in revaluation reserve - 1
------------------------------------------------------- ------------- -------------
Net movement in cash flow hedge reserve (13) 83
------------------------------------------------------- ------------- -------------
Net movement in other hedging reserve 9 (9)
------------------------------------------------------- ------------- -------------
Net movement in fair value through other comprehensive
income reserve 4 (119)
======================================================= ============= =============
Total comprehensive income 613 682
------------------------------------------------------- ------------- -------------
Note:
i. Movements are shown net of related taxation. Gross movements
are set out in the condensed consolidated interim financial
statements on page 65.
Capital structure
Nationwide's capital position remains strong, with both the
Common Equity Tier 1 (CET1) ratio and leverage ratio comfortably
above regulatory capital requirements of 12.5% and 4.3%
respectively. The CET1 ratio increased to 27.4% (4 April 2023:
26.5%) and the leverage ratio increased to 6.4% (4 April 2023:
6.0%). The capital disclosures included in this report are in line
with UK Capital Requirements Directive V (UK CRD V) with IFRS 9
transitional arrangements included.
Capital structure
30 September 4 April 2023
2023
---------------------------- ------------ ------------
GBPm GBPm
---------------------------- ------------ ------------
Capital resources
---------------------------- ------------ ------------
CET1 capital 14,322 13,733
---------------------------- ------------ ------------
Tier 1 capital 15,658 15,069
---------------------------- ------------ ------------
Total regulatory capital 17,428 16,908
---------------------------- ------------ ------------
Capital requirements
---------------------------- ------------ ------------
Risk weighted assets (RWAs) 52,311 51,731
---------------------------- ------------ ------------
Leverage exposure 245,767 249,299
---------------------------- ------------ ------------
UK CRD V capital ratios % %
---------------------------- ------------ ------------
CET1 ratio 27.4 26.5
---------------------------- ------------ ------------
Leverage ratio 6.4 6.0
---------------------------- ------------ ------------
The CET1 ratio increased to 27.4% (4 April 2023: 26.5%) as a
result of an increase in CET1 capital of GBP0.6 billion, partially
offset by an increase in RWAs of GBP0.6 billion. The CET1 capital
resources increase was driven by GBP0.7 billion profit after tax,
partially offset by GBP0.1 billion of capital distributions. RWAs
increased, predominantly due to an increase in residential mortgage
balances.
The leverage ratio increased to 6.4% (4 April 2023: 6.0%), with
Tier 1 capital increasing by GBP0.6 billion as a result of the CET1
capital movements referenced above. In addition, there was a
decrease in leverage exposure of GBP3.5 billion, with an increase
in residential mortgage balances more than offset by a reduction in
treasury investments in the period. Leverage requirements continue
to be Nationwide's binding Tier 1 capital constraint, as the
combination of minimum and regulatory buffer requirements are in
excess of the risk-based equivalent.
Further details of the capital position and future regulatory
developments are described in the Capital risk section of the Risk
report.
Risk report
Contents
Page
Introduction 15
Top and emerging risks 15
Principal risks and uncertainties 16
Credit risk
- Overview 17
- Residential mortgages 20
- Consumer banking 33
- Commercial 40
- Treasury assets 44
Liquidity and funding risk 49
Capital risk 56
Market risk 60
Pension risk 61
Operational and conduct risk 61
Model risk 62
Introduction
This report provides information on developments during the
period in relation to the risks Nationwide's business is exposed
to, and how those risks are managed. This information supports, and
should be read in conjunction with, the material found in the Risk
report in the Annual Report and Accounts 2023. Where there has been
no change to the approach to managing risks, or there has been no
material change to the relevant risk environment from that
disclosed at year end, this information has not been repeated in
these Interim Results.
Top and emerging risks
Top and emerging risks are managed through the process outlined
in the Risk overview section of the Annual Report and Accounts 2023
and remain broadly unchanged from those reported there. The
external environment continues to present the most significant
threats to the delivery of the Group's strategy. Key developments
in the macroeconomic and geopolitical environment since 4 April
2023 are described below.
Material developments in the macroeconomic and geopolitical environment Internal or External Level of
Risk
Overall economic conditions are stable but remain uncertain with high External Unchanged
inflation, modest reductions in house prices and higher interest rates.
Whilst the Bank rate is expected to stabilise, the higher rates customers
pay on their mortgages exacerbate existing pressure on their finances,
impacting both the housing market and mortgage trading volumes. Whilst
arrears rates have increased and more customers are taking up measures
offered under the Mortgage Charter, these factors are adequately reflected
in the assumptions used in our provisioning calculations.
The geopolitical environment remains volatile with the ongoing war in
Ukraine and the conflict in Gaza, which commenced after the half year
reporting period.
===================== ==========
The following internal and external risks, which were
highlighted in the Annual Report and Accounts 2023, have not
materially changed:
* People risk
* Climate change
* Regulatory change
* Cyber
* Data * Technology and resilience
* Economic crime
Principal risks and uncertainties
Nationwide operates an Enterprise Risk Management Framework
(ERMF), which ensures it remains safe and secure for its customers.
The principal risks set out below are the key risks relevant to
Nationwide's business model and achievement of its strategic
objectives.
The principal risk categories remain unchanged from those set
out in the Risk report in the Annual Report and Accounts 2023 and
are as follows:
-- Credit risk
-- Liquidity and funding risk
-- Capital risk
-- Market risk
-- Pension risk
-- Operational and conduct risk
-- Model risk
-- Business risk
Information on key developments in relation to the principal
risks above are included within this report, except for business
risk. Business risk is the risk that achievable volumes or margins
decline relative to the cost base, affecting the sustainability of
the business and delivery of its strategy. This risk is impacted by
the geopolitical and macro-economic environment, and material
developments to this are set out in Top and emerging risks on page
15.
Credit risk - Overview
Credit risk is the risk of loss as a result of a customer or
counterparty failing to meet their financial obligations. Credit
risk encompasses borrower/counterparty risk, security/collateral
risk, concentration risk and refinance risk.
Nationwide manages credit risk for the following portfolios:
Portfolio Definition
Residential mortgages Loans secured on residential property
---------------------- -----------------------------------------------------------------------------------
Consumer banking Unsecured lending comprising current account overdrafts, personal loans and credit
cards
---------------------- -----------------------------------------------------------------------------------
Commercial lending Loans to registered social landlords, project finance loans made under the Private
Finance Initiative and commercial real estate lending
---------------------- -----------------------------------------------------------------------------------
Treasury Treasury liquidity, derivatives and discretionary investment portfolios
---------------------- -----------------------------------------------------------------------------------
Further detail regarding the scope of Nationwide's credit risks
and how they are managed, together with information on the
calculation of impairment provisions based on expected credit
losses (ECLs), is included within the Annual Report and Accounts
2023.
Performance overview
During the period the UK has seen steady increases in Bank rate
aimed at reducing inflation. This has increased the cost of
borrowing and put further pressure on household affordability.
Residential mortgage arrears have increased from historically low
levels but remain well below the industry average and below the
levels expected in our provision models. Consumer banking arrears
have seen limited movement during the period.
Nationwide has supported the Mortgage Charter initiatives
introduced by the Government to mitigate the increase in mortgage
costs and provide help and support to those who are in financial
difficulty. Customer take-up has been relatively low with only
circa 5,000 customers on Mortgage Charter interest only concessions
as at 30 September 2023.
Provisions have remained broadly stable at GBP774 million (4
April 2023: GBP765 million) and include a modelled adjustment for
economic uncertainty totalling GBP170 million (4 April 2023: GBP177
million). This modelled adjustment captures the affordability risks
caused by inflation, and the increased cost of borrowing.
Outlook
A softening of housing market activity is expected to continue
in the period ahead as transactions are deferred due to uncertainty
in house price values and interest rates remaining elevated. The
Group's base case economic scenario assumes that house prices will
fall by 3.7% during 2023 and a further 1.0% during 2024. As a
result of continued economic uncertainty, the house price forecasts
used within the provision models cover a wide range of
outcomes.
We continue to monitor the external environment, its impact on
borrowers and the credit risks affecting our lending portfolios to
ensure that provisions reflect these risks.
Credit risk - Overview (continued)
Maximum exposure to credit risk
Nationwide's maximum exposure to credit risk at 30 September
2023 was GBP282 billion (4 April 2023: GBP279 billion).
Credit risk largely arises from loans and advances to customers,
which account for 79% (4 April 2023: 79%) of Nationwide's total
credit risk exposure. Within this, the exposure relates primarily
to
residential mortgages, which account for 95% (4 April 2023: 95%)
of total loans and advances to customers and comprise high-quality
assets with historically low occurrences of arrears and
possessions.
In addition to loans and advances to customers, Nationwide is
exposed to credit risk on all other financial assets. For all
financial assets recognised on the balance sheet, the maximum
exposure to credit risk represents the balance sheet carrying value
after allowance for impairment, plus off-balance sheet commitments.
For off-balance sheet commitments, the maximum exposure is the
maximum amount that Nationwide would have to pay if the commitments
were to be called upon. For loan commitments and other
credit-related commitments that are irrevocable over the life of
the respective facilities, the maximum exposure is the full amount
of the committed facilities.
Maximum exposure to credit risk
30 September 2023 Gross Impairment Carrying Commitments Maximum % of total
balances provisions value (note i) credit risk credit risk
exposure exposure
--------- ----------- -------- ----------- ------------ ------------
GBPm GBPm GBPm GBPm GBPm %
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Amortised cost loans and advances
to customers:
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Residential mortgages 202,234 (305) 201,929 9,405 211,334 75
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Consumer banking 4,317 (450) 3,867 33 3,900 2
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Commercial and other lending 5,101 (19) 5,082 1,156 6,238 2
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Fair value adjustment for micro
hedged risk (note ii) 377 - 377 - 377 -
==================================== ========= =========== ======== =========== ============ ============
212,029 (774) 211,255 10,594 221,849 79
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
FVTPL loans and advances to
customers:
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Residential mortgages (note iii) 41 - 41 - 41 -
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Commercial 2 - 2 - 2 -
==================================== ========= =========== ======== =========== ============ ============
43 - 43 - 43 -
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Other items:
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Cash 28,676 - 28,676 - 28,676 10
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Loans and advances to banks and
similar institutions 3,168 - 3,168 - 3,168 1
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Investment securities - FVOCI 26,207 - 26,207 - 26,207 9
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Investment securities - Amortised
cost 11 - 11 - 11 -
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Investment securities - FVTPL 10 - 10 5 15 -
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Derivative financial instruments 8,049 - 8,049 - 8,049 3
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Fair value adjustment for portfolio
hedged risk (note ii) (5,791) - (5,791) - (5,791) (2)
==================================== ========= =========== ======== =========== ============ ============
60,330 - 60,330 5 60,335 21
==================================== ========= =========== ======== =========== ============ ============
Total 272,402 (774) 271,628 10,599 282,227 100
------------------------------------ --------- ----------- -------- ----------- ------------ ------------
Credit risk - Overview (continued)
Maximum exposure to credit risk
4 April 2023 Gross Impairment Carrying Commitments Maximum % of total
balances provisions value (note i) credit risk credit risk
exposure exposure
--------- ----------- -------- ----------- ------------ ------------
GBPm GBPm GBPm GBPm GBPm %
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Amortised cost loans and advances
to customers:
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Residential mortgages 201,615 (280) 201,335 8,952 210,287 75
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Consumer banking 4,408 (469) 3,939 28 3,967 2
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Commercial and other lending 4,994 (16) 4,978 1,353 6,331 2
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Fair value adjustment for micro
hedged risk (note ii) 430 - 430 - 430 -
======================================= ========= =========== ======== =========== ============ ============
211,447 (765) 210,682 10,333 221,015 79
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
FVTPL loans and advances to customers:
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Residential mortgages (note iii) 47 - 47 - 47 -
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Commercial 53 - 53 - 53 -
======================================= ========= =========== ======== =========== ============ ============
100 - 100 - 100 -
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Other items:
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Cash 25,635 - 25,635 - 25,635 9
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Loans and advances to banks and
similar institutions 2,860 - 2,860 - 2,860 1
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Investment securities - FVOCI 27,562 - 27,562 - 27,562 10
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Investment securities - Amortised
cost 40 - 40 - 40 -
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Investment securities - FVTPL 13 - 13 - 13 -
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Derivative financial instruments 6,923 - 6,923 - 6,923 3
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Fair value adjustment for portfolio
hedged risk (note ii) (5,011) - (5,011) - (5,011) (2)
======================================= ========= =========== ======== =========== ============ ============
58,022 - 58,022 - 58,022 21
======================================= ========= =========== ======== =========== ============ ============
Total 269,569 (765) 268,804 10,333 279,137 100
--------------------------------------- --------- ----------- -------- ----------- ------------ ------------
Notes:
i. In addition to the amounts shown above, Nationwide has
revocable commitments of GBP10,314 million (4 April 2023: GBP10,444
million) in respect of credit card and overdraft facilities. These
commitments represent agreements to lend in the future, subject to
certain considerations. Such commitments are cancellable by
Nationwide, subject to notice requirements, and given their nature
are not expected to be drawn down to the full level of
exposure.
ii. The fair value adjustment for portfolio hedged risk and the
fair value adjustment for micro hedged risk (which relates to the
commercial lending portfolio) represent hedge accounting
adjustments.
iii. FVTPL residential mortgages include equity release and
shared equity loans.
Commitments
Irrevocable undrawn commitments to lend are within the scope of
provision requirements. The commitments in the table above consist
of overpayment reserves and separately identifiable irrevocable
commitments for the pipeline of residential mortgages, personal
loans, commercial loans and investment securities. These
commitments are not recognised on the balance sheet; the
associated provision of GBP0.3 million (4 April 2023: GBP0.2
million) is included within provisions for liabilities and
charges.
Revocable commitments relating to overdrafts and credit cards
are included in the calculation of impairment provisions, with the
allowance for future drawdowns included in the estimate of the
exposure at default.
Credit risk - Residential mortgages
Summary
Nationwide's residential mortgages comprise owner-occupied, buy
to let and legacy loans. Owner-occupied residential mortgages are
mainly Nationwide-branded advances made through intermediary
channels and the branch network. Since 2008, all new buy to let
mortgages have been originated under The Mortgage Works (UK) plc
(TMW) brand. Legacy mortgages are smaller owner-occupied portfolios
in run-off.
Residential mortgage arrears have seen marginal increases in
early and late arrears as higher inflation and rising interest
rates place greater pressure on household finances.
The value of residential mortgages has seen a modest increase to
GBP202.3 billion (April 2023: GBP201.7 billion), reflecting a
slowdown in housing market activity.
Residential mortgage gross balances
30 September 2023 4 April 2023
------------------- --------------
GBPm % GBPm %
---------------------------------- ------------ ----- --------- ---
Owner-occupied 158,399 78 157,511 78
---------------------------------- ------------ ----- --------- ---
Buy to let and legacy:
---------------------------------- ------------ ----- --------- ---
Buy to let (note i) 42,547 21 42,704 21
---------------------------------- ------------ ----- --------- ---
Legacy (note ii) 1,288 1 1,400 1
================================== ============ ===== ========= ===
43,835 22 44,104 22
---------------------------------- ------------ ----- --------- ---
Amortised cost loans and advances
to customers 202,234 100 201,615 100
---------------------------------- ------------ ----- --------- ---
FVTPL loans and advances to
customers 41 47
================================== ============ ===== ========= ===
Total residential mortgages 202,275 201,662
---------------------------------- ------------ ----- --------- ---
Notes:
i. Buy to let mortgages include GBP41,734 million (4 April 2023:
GBP41,805 million) originated under the TMW brand, with other
brands now closed to new originations.
ii. Legacy includes self-certified, near prime and sub-prime
owner-occupied lending, all of which were discontinued in 2009.
Credit risk - Residential mortgages (continued)
Impairment charge and write-offs for the period
Half year Half year
to 30 September to
2023 30 September
2022
---------------- -------------
GBPm GBPm
------------------------------------ ---------------- -------------
Owner-occupied 14 18
------------------------------------ ---------------- -------------
Buy to let and legacy 13 51
==================================== ================ =============
Total impairment charge 27 69
==================================== ================ =============
% %
------------------------------------ ---------------- -------------
Impairment charge as a % of average
gross balance 0.01 0.03
------------------------------------ ---------------- -------------
GBPm GBPm
------------------------------------ ---------------- -------------
Gross write-offs 4 2
------------------------------------ ---------------- -------------
Balance sheet provisions have increased to GBP305 million (4
April 2023: GBP280 million). This includes a modelled adjustment
totalling GBP87 million (4 April 2023: GBP77 million) to reflect an
increase to the probability of default to account for the combined
risks of rising inflation, increasing interest rates and the impact
of model inputs still benefitting from improvements in credit
indicators which are judged to be temporary, such as reduced levels
of arrears. The impairment charge for the period reflects the
increase in this adjustment, primarily due to latest expectations
of the extent to which higher mortgage interest rates will reduce
borrower affordability. Further information is included in note 8
to the condensed consolidated interim financial statements .
The following table shows residential mortgage lending balances
carried at amortised cost, the stage allocation of the loans,
impairment provisions and the resulting provision coverage
ratios.
Residential mortgages staging analysis
30 September 2023 Stage Stage Stage Stage Stage Stage POCI Total
1 2 2 2 2 3
total Up to 1 - 30 >30 DPD (note
date DPD ii)
(note (note
i) i)
-------- ------- ------- -------- --------- ------ ------- --------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- -------- ------- ------- -------- --------- ------ ------- --------
Gross balances
--------------------------- -------- ------- ------- -------- --------- ------ ------- --------
Owner-occupied 139,007 18,729 17,511 922 296 663 - 158,399
--------------------------- -------- ------- ------- -------- --------- ------ ------- --------
Buy to let and legacy 22,495 20,711 20,179 347 185 511 118 43,835
=========================== ======== ======= ======= ======== ========= ====== ======= ========
Total 161,502 39,440 37,690 1,269 481 1,174 118 202,234
=========================== ======== ======= ======= ======== ========= ====== ======= ========
Provisions
--------------------------- -------- ------- ------- -------- --------- ------ ------- --------
Owner-occupied 8 62 50 6 6 27 - 97
--------------------------- -------- ------- ------- -------- --------- ------ ------- --------
Buy to let and legacy 12 141 117 12 12 55 - 208
=========================== ======== ======= ======= ======== ========= ====== ======= ========
Total 20 203 167 18 18 82 - 305
=========================== ======== ======= ======= ======== ========= ====== ======= ========
Provisions as a % of total % % % % % % % %
balance
--------------------------- -------- ------- ------- -------- --------- ------ ------- --------
Owner-occupied 0.01 0.33 0.29 0.66 2.05 4.10 - 0.06
--------------------------- -------- ------- ------- -------- --------- ------ ------- --------
Buy to let and legacy 0.06 0.68 0.58 3.34 6.52 10.69 - 0.47
=========================== ======== ======= ======= ======== ========= ====== ======= ========
Total 0.01 0.51 0.44 1.39 3.77 6.97 - 0.15
--------------------------- -------- ------- ------- -------- --------- ------ ------- --------
Credit risk - Residential mortgages (continued)
Residential mortgages staging analysis
--------
4 April 2023 Stage 1 Stage 2 Stage 2 Stage 2 Stage 2 Stage 3 POCI Total
total Up to 1 - 30 >30 DPD (note
date DPD ii)
(note (note
i) i)
-------- ------- ------- -------- --------- ------- ------- --------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- -------- ------- ------- -------- --------- ------- ------- --------
Gross balances
----------------------------------- -------- ------- ------- -------- --------- ------- ------- --------
Owner-occupied 138,670 18,200 17,134 811 255 641 - 157,511
----------------------------------- -------- ------- ------- -------- --------- ------- ------- --------
Buy to let and legacy 26,211 17,345 16,875 294 176 425 123 44,104
=================================== ======== ======= ======= ======== ========= ======= ======= ========
Total 164,881 35,545 34,009 1,105 431 1,066 123 201,615
=================================== ======== ======= ======= ======== ========= ======= ======= ========
Provisions
----------------------------------- -------- ------- ------- -------- --------- ------- ------- --------
Owner-occupied 10 48 39 5 4 26 - 84
----------------------------------- -------- ------- ------- -------- --------- ------- ------- --------
Buy to let and legacy 13 143 127 8 8 41 (1) 196
=================================== ======== ======= ======= ======== ========= ======= ======= ========
Total 23 191 166 13 12 67 (1) 280
=================================== ======== ======= ======= ======== ========= ======= ======= ========
Provisions as a % of total balance %% %% %% % %
----------------------------------- -------- ------ ------- ------- --------- ------ ------- --------
Owner-occupied 0.01 0.26 0.23 0.60 1.51 4.04 - 0.05
----------------------------------- -------- ------- ------- -------- --------- ------- ------- --------
Buy to let and legacy 0.05 0.83 0.75 2.85 4.70 9.76 - 0.44
=================================== ======== ======= ======= ======== ========= ======= ======= ========
Total 0.01 0.54 0.49 1.20 2.81 6.30 - 0.14
----------------------------------- -------- ------- ------- -------- --------- ------- ------- --------
Notes:
i. Days past due (DPD) is a measure of arrears status.
ii. POCI loans are those which were credit impaired on purchase
or acquisition. The POCI loans shown in the table above were
recognised on the balance sheet when the Derbyshire Building
Society was acquired in December 2008. These balances, which are
mainly interest-only, were 90 days or more in arrears when they
were acquired and so have been classified as credit impaired on
acquisition. The gross balance for POCI is shown net of the
lifetime ECL on transition to IFRS 9 of GBP5 million (4 April 2023:
GBP5 million).
Total residential mortgage provisions have increased to GBP305
million (4 April 2023: GBP280 million), due to an increase in stage
3 provisions combined with an increase to the provisions held for
affordability risks resulting from higher interest rates.
Stage 2 loans total GBP39.4 billion (4 April 2023: GBP35.5
billion), which includes GBP17.3 billion (4 April 2023: GBP16.6
billion) of loans where the PD has been uplifted to recognise the
increased risk of default in a period of economic uncertainty. The
stage 2 increase is primarily due to increases in the buy to let
and legacy portfolios, which due to their interest only nature are
more sensitive to increasing interest rates.
Credit performance continues to be strong. Stage 3 loans in the
residential mortgage portfolio equate to 0.6% (4 April 2023: 0.5%)
of the total residential mortgage exposure. Of the total
GBP1,174 million (4 April 2023: GBP1,066 million) stage 3 loans,
GBP692 million (4 April 2023: GBP562 million) is in respect of
loans which are more than 90 days past due, with the remainder
being impaired due to other indicators of unlikeliness to pay such
as forbearance or the bankruptcy of the borrower. For loans subject
to forbearance, accounts are transferred from stage 3 to stages 1
or 2 only after being up to date and meeting contractual
obligations for a period of 12 months; GBP175 million (4 April
2023: GBP179 million) of the stage 3 balances in forbearance are in
this probation period.
Credit risk - Residential mortgages (continued)
The table below summarises the movements between stages in the
Group's residential mortgages held at amortised cost. The movements
within the table compare the position at 30 September 2023 to that
at the start of the reporting period.
Reconciliation of net movements in residential mortgage balances and impairment provisions (note
i)
Non-credit impaired Credit impaired
(note ii)
-------------------------------------------- ---------------------
Subject to 12-month Subject to lifetime Subject to lifetime Total
ECL ECL ECL
--------------------- --------------------- --------------------- ---------------------
Stage 1 Stage 2 Stage 3 and POCI
--------------------- --------------------- --------------------- ---------------------
Gross Provisions Gross Provisions Gross Provisions Gross Provisions
balances balances balances balances
--------- ---------- --------- ---------- --------- ---------- --------- ----------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
At 5 April 2023 164,881 23 35,545 191 1,189 66 201,615 280
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Stage transfers:
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Transfers from stage 1 to
stage
2 (16,126) - 16,126 - - - - -
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Transfers to stage 3 (70) - (330) (8) 400 8 - -
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Transfers from stage 2 to
stage
1 10,431 31 (10,431) (31) - - - -
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Transfers from stage 3 28 - 125 4 (153) (4) - -
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Net remeasurement of ECL
arising
from transfer of stage - (29) - 48 - 12 - 31
========================== ========= ========== ========= ========== ========= ========== ========= ==========
Net movement arising from
transfer of stage (5,737) 2 5,490 13 247 16 - 31
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
New assets originated or
purchased
(note iii) 11,397 1 480 6 - - 11,877 7
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Net impact of further
lending
and repayments (3,128) (1) (462) (2) - - (3,590) (3)
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Changes in risk parameters
in relation to credit
quality - (4) - 2 - 11 - 9
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Other items impacting
income
statement
charge/(release)
(including recoveries) - - - - - (2) - (2)
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Redemptions (5,911) (1) (1,613) (7) (127) (7) (7,651) (15)
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Income statement charge
for
the period 27
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Decrease due to write-offs - - - - (17) (4) (17) (4)
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Other provision movements - - - - - 2 - 2
========================== ========= ========== ========= ========== ========= ========== ========= ==========
30 September 2023 161,502 20 39,440 203 1,292 82 202,234 305
========================== ========= ========== ========= ========== ========= ========== ========= ==========
Net carrying amount 161,482 39,237 1,210 201,929
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Notes:
i. The basis of preparation for this note has been updated.
Previously, the table was presented on a gross basis, with the
reported values representing an aggregation of monthly movements
over the period. To reflect more appropriately the movements in
credit quality over the period, the note is now prepared on a net
basis.
ii. Gross balances of credit impaired loans include GBP118
million (4 April 2023: GBP123 million) of POCI loans, which are
presented net of lifetime ECL on transition to IFRS 9 of GBP5
million (4 April 2023: GBP5 million).
iii. If a new asset is originated in the period, the values
included are the closing gross balance and provision for the
period. The stage in which the addition is shown reflects the stage
of the account at the end of the period.
Further information on movements in total gross loans and
advances to customers and impairment provisions, including the
methodology applied in preparing the table, is included in note 10
to the condensed consolidated interim financial statements.
Credit risk - Residential mortgages (continued)
Reason for residential mortgages being reported in stage 2 (note i)
30 September 2023 Owner-occupied Buy to let and legacy Total
----------------- -------------------------------- -------------------------------- --------------------------------
Gross Provisions Provisions Gross Provisions Provisions Gross Provisions Provisions
balances as a balances as a balances as a
% of % of % of
balance balance balance
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
GBPm GBPm % GBPm GBPm % GBPm GBPm %
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Quantitative
criteria:
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Payment status
(greater than
30 DPD) 296 6 2.05 185 12 6.54 481 18 3.77
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Increase in PD
since
origination
(less than
30 DPD) 18,233 56 0.31 19,117 107 0.56 37,350 163 0.43
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Qualitative
criteria:
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Forbearance
(less than 30
DPD) 165 - 0.02 4 - 0.75 169 - 0.04
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Interest only
- significant
risk of
inability
to refinance
at maturity
(less than 30
DPD) - - 1,400 22 1.61 1,400 22 1.61
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Other
qualitative
criteria 35 - 0.03 5 - 0.29 40 - 0.06
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Total stage 2
gross balances 18,729 62 0.33 20,711 141 0.68 39,440 203 0.51
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Reason for residential mortgages being reported in stage 2 (note i)
4 April 2023 Owner-occupied Buy to let and legacy Total
----------------- -------------------------------- -------------------------------- --------------------------------
Gross Provisions Provisions Gross Provisions Provisions Gross Provisions Provisions
balances as a balances as a balances as a
% of % of % of
balance balance balance
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
GBPm GBPm % GBPm GBPm % GBPm GBPm %
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Quantitative
criteria:
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Payment status
(greater than
30 DPD) 255 4 1.51 176 8 4.70 431 12 2.81
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Increase in PD
since
origination
(less than
30 DPD) 17,769 44 0.25 15,952 105 0.66 33,721 149 0.44
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Qualitative
criteria:
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Forbearance
(less than 30
DPD) 137 - 0.17 5 - 0.21 142 - 0.02
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Interest only
- significant
risk of
inability
to refinance
at maturity
(less than 30
DPD) - - - 1,203 30 2.46 1,203 30 2.46
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Other
qualitative
criteria 39 - 0.02 9 - 1.12 48 - 0.23
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Total stage 2
gross balances 18,200 48 0.26 17,345 143 0.83 35,545 191 0.54
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Note:
i. Where loans satisfy more than one of the criteria for
determining a significant increase in credit risk, the
corresponding gross balance has been assigned in the order in which
the categories are presented above.
Loans which are reported within stage 2 are those which have
experienced a significant increase in credit risk since
origination. The Annual Report and Accounts 2023 sets out the main
criteria used to determine whether a significant increase in credit
risk has occurred since origination. There have been no changes to
the criteria during the period.
Credit risk - Residential mortgages (continued)
Credit quality
The residential mortgage portfolio comprises many small loans
which are broadly homogenous, have low volatility of credit risk
outcomes and are geographically diversified. The table below shows
the loan balances and provisions for residential mortgages held at
amortised cost, by PD range. The PD distributions shown are based
on 12-month IFRS 9 PDs at the reporting date.
Loan balance and provisions by PD
30 September 2023 Gross balances (note i) Provisions
------------------------------------- ------------------------------ ---------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3 Provision
and POCI and POCI coverage
-------- ------- ----- ----- --------- ----- ---------
PD Range GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
------------------ -------- ------- --------- ------- ----- ----- --------- ----- ---------
0.00 to < 0.15% 113,598 4,742 34 118,374 3 6 - 9 0.01
------------------ -------- ------- --------- ------- ----- ----- --------- ----- ---------
0.15 to < 0.25% 18,765 1,935 14 20,714 2 4 - 6 0.03
------------------ -------- ------- --------- ------- ----- ----- --------- ----- ---------
0.25 to < 0.50% 19,054 7,387 17 26,458 7 15 - 22 0.08
------------------ -------- ------- --------- ------- ----- ----- --------- ----- ---------
0.50 to < 0.75% 5,465 3,313 9 8,787 2 9 - 11 0.13
------------------ -------- ------- --------- ------- ----- ----- --------- ----- ---------
0.75 to < 2.50% 4,100 12,588 55 16,743 3 44 - 47 0.28
------------------ -------- ------- --------- ------- ----- ----- --------- ----- ---------
2.50 to < 10.00% 494 5,826 58 6,378 2 45 - 47 0.73
------------------ -------- ------- --------- ------- ----- ----- --------- ----- ---------
10.00 to < 100% 26 3,649 181 3,856 1 80 7 88 2.26
------------------ -------- ------- --------- ------- ----- ----- --------- ----- ---------
100% (default) - - 924 924 - - 75 75 8.17
------------------ -------- ------- --------- ------- ----- ----- --------- ----- ---------
Total 161,502 39,440 1,292 202,234 20 203 82 305 0.15
------------------ -------- ------- --------- ------- ----- ----- --------- ----- ---------
Loan balance and provisions by PD
4 April 2023 Gross balances (note i) Provisions
------------------------------------- ---------------------------------- ---------
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total Provision
and POCI and POCI coverage
-------- ------- ------- ------- --------- ----- ---------
PD Range GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
----------------- -------- ------- --------- ------- ------- ------- --------- ----- ---------
0.00 to < 0.15% 126,387 5,620 48 132,055 4 19 - 23 0.02
----------------- -------- ------- --------- ------- ------- ------- --------- ----- ---------
0.15 to < 0.25% 20,845 5,133 17 25,995 9 19 - 28 0.11
----------------- -------- ------- --------- ------- ------- ------- --------- ----- ---------
0.25 to < 0.50% 12,556 6,566 29 19,151 5 26 - 31 0.16
----------------- -------- ------- --------- ------- ------- ------- --------- ----- ---------
0.50 to < 0.75% 3,020 3,981 19 7,020 1 16 - 17 0.24
----------------- -------- ------- --------- ------- ------- ------- --------- ----- ---------
0.75 to < 2.50% 1,937 8,180 62 10,179 2 39 - 41 0.40
----------------- -------- ------- --------- ------- ------- ------- --------- ----- ---------
2.50 to < 10.00% 120 3,663 77 3,860 1 31 1 33 0.86
----------------- -------- ------- --------- ------- ------- ------- --------- ----- ---------
10.00 to < 100% 16 2,402 141 2,559 1 41 4 46 1.76
----------------- -------- ------- --------- ------- ------- ------- --------- ----- ---------
100% (default) - - 796 796 - - 61 61 7.61
----------------- -------- ------- --------- ------- ------- ------- --------- ----- ---------
Total 164,881 35,545 1,189 201,615 23 191 66 280 0.14
----------------- -------- ------- --------- ------- ------- ------- --------- ----- ---------
Note:
i. Includes POCI loans of GBP118 million (4 April 2023: GBP123 million).
At 30 September 2023, 94% (4 April 2023: 96%) of the portfolio
had a 12-month IFRS 9 PD of less than 2.5%, reflecting the high
quality of the residential mortgage portfolio.
Credit risk - Residential mortgages (continued)
Distribution of new business by borrower type (by value)
Distribution of new business by borrower type (by
value) (note i)
Half year Half year
to to
30 September 30 September
2023 2022
-------------
% %
---------------------------- ------------- -------------
Owner-occupied:
---------------------------- ------------- -------------
First time buyers 32 28
---------------------------- ------------- -------------
Home movers 29 30
---------------------------- ------------- -------------
Remortgages 25 24
---------------------------- ------------- -------------
Other 1 1
---------------------------- ------------- -------------
Total owner-occupied 87 83
---------------------------- ------------- -------------
Buy to let:
---------------------------- ------------- -------------
Buy to let new purchases 5 7
---------------------------- ------------- -------------
Buy to let remortgages 8 10
---------------------------- ------------- -------------
Total buy to let 13 17
---------------------------- ------------- -------------
Total new business 100 100
---------------------------- ------------- -------------
Note:
i. All new business measures exclude further advances and product switches.
The proportion of new lending to first time buyers has increased
to 32% (H1 2022/23: 28%) due to our continued support for this
segment. Buy to let lending reduced as a proportion of all new
business to 13% (H1 2022/23: 17%) as the volume of both house
purchases and remortgages in the buy to let market reduced due to
rising interest rates adversely affecting landlord sentiment.
Credit risk - Residential mortgages (continued)
LTV and credit risk concentration
Loan to value (LTV) is calculated by weighting the borrower
level LTV by the individual loan balance to arrive at an average
LTV. This approach is considered to reflect most appropriately the
exposure at risk.
LTV distribution of new business (by value)
(note i)
Half year Half year
to to
30 September 30 September
2023 2022
---------------
% %
------------ ---------------- ---------------
0% to 60% 26 27
------------ ---------------- ---------------
60% to 75% 29 36
------------ ---------------- ---------------
75% to 80% 9 10
------------ ---------------- ---------------
80% to 85% 14 13
------------ ---------------- ---------------
85% to 90% 17 11
------------ ---------------- ---------------
90% to 95% 5 3
------------ ---------------- ---------------
Over 95% - -
------------ ---------------- ---------------
Total 100 100
------------ ---------------- ---------------
Notes:
i. The LTV of new business excludes further advances and product switches .
ii. The average LTV of loan stock includes both amortised cost
and FVTPL balances. There have been no new FVTPL advances during
the year.
Average LTV of new business (by value) (note
i)
Half year Half year
to to
30 September 30 September
2023 2022
--------------
% %
----------------- --------------- --------------
Owner-occupied 72 70
----------------- --------------- --------------
Buy to let 62 67
----------------- --------------- --------------
Group 71 69
----------------- --------------- --------------
Average LTV of loan stock (by value) (note
ii)
30 September 4 April 2023
2023
--------------
% %
---------------------- -------------- --------------
Owner-occupied 55 54
---------------------- -------------- --------------
Buy to let and legacy 55 56
---------------------- -------------- --------------
Group 55 55
---------------------- -------------- --------------
The Group average stock LTV has remained unchanged at 55% (4
April 2023: 55%). Owner-occupied average stock LTV has increased
slightly to 55% (4 April 2023: 54%), with buy to let average stock
LTV reducing to 55% (4 April 2023: 56%) alongside a reduction in
buy to let new lending average LTV to 62% (4 April 2023: 67%).
Owner-occupied new lending average LTV has increased modestly to
72% (4 April 2023: 70%) due to support for the first time buyer
segment.
Credit risk - Residential mortgages (continued)
Residential mortgage balances by LTV and region
Geographical concentration by stage
The following table shows residential mortgages, excluding FVTPL
balances, by LTV and region across stages 1 and 2 (non credit
impaired) and stage 3 (credit impaired). The LTV is calculated
using the latest indexed valuation based on the Nationwide House
Price Index.
Residential mortgage gross balances by LTV and region
30 September Greater Central Northern South South Scotland Wales Northern Total Provision
2023 London England England East England West England Ireland Coverage
------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Stage 1 and 2
loans
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Fully
collateralised
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
LTV ratio:
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Up to 50% 25,249 14,923 11,511 9,533 7,821 4,138 2,551 1,126 76,852 0.06
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
50% to 60% 11,968 7,479 6,286 4,634 3,847 2,208 1,335 443 38,200 0.11
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
60% to 70% 13,014 7,687 6,842 5,077 4,038 2,531 1,253 484 40,926 0.13
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
70% to 80% 10,398 4,709 4,390 2,991 2,268 1,585 786 312 27,439 0.17
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
80% to 90% 3,967 2,435 2,430 1,601 1,123 816 484 206 13,062 0.14
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
90% to 100% 1,076 814 788 634 503 310 205 61 4,391 0.23
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
65,672 38,047 32,247 24,470 19,600 11,588 6,614 2,632 200,870 0.11
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Not fully
collateralised
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Over 100%
LTV 3 5 8 3 16 21 - 16 72 14.19
-------------- ======= ======== ======== ============ ============ ======== ===== ======== ======= ---------
Collateral
value 2 5 7 3 15 18 - 15 65
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Negative 1 - 1 - 1 3 - 1 7
equity
-------------- ======= ======== ======== ============ ============ ======== ===== ======== ======= ---------
Total stage 1
and 2
loans 65,675 38,052 32,255 24,473 19,616 11,609 6,614 2,648 200,942 0.11
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Stage 3 and POCI loans
------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Fully collateralised
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
LTV ratio:
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Up to 50% 254 104 79 67 52 23 18 11 608 3.05
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
50% to 60% 89 56 48 34 30 12 12 3 284 4.81
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
60% to 70% 51 36 53 18 17 14 10 5 204 6.60
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
70% to 80% 34 18 31 9 5 11 2 5 115 9.86
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
80% to 90% 10 5 15 3 2 3 2 4 44 21.45
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
90% to 100% 2 1 8 1 1 2 - 4 19 25.60
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
440 220 234 132 107 65 44 32 1,274 5.59
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Not fully collateralised
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Over 100% LTV 2 3 4 - - 2 - 7 18 55.04
--------------------------- ====== ====== ====== ====== ====== ====== ===== ===== ======= ------
Collateral value 2 2 3 - - 2 - 6 15
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Negative equity - 1 1 - - - - 1 3
--------------------------- ====== ====== ====== ====== ====== ====== ===== ===== ======= ------
Total stage 3 and POCI
loans 442 223 238 132 107 67 44 39 1,292 6.27
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Total residential mortgages 66,117 38,275 32,493 24,605 19,723 11,676 6,658 2,687 202,234 0.15
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Total geographical
concentrations 33% 19% 16% 12% 10% 6% 3% 1% 100%
--------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Credit risk - Residential mortgages (continued)
Residential mortgage gross balances by LTV and region
4 April 2023 Greater Central Northern South South Scotland Wales Northern Total Provision
London England England East England West England Ireland Coverage
------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Stage 1 and 2
loans
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Fully
collateralised
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
LTV ratio:
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Up to 50% 25,295 14,722 11,214 9,433 7,969 3,944 2,512 1,074 76,163 0.03
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
50% to 60% 11,743 7,396 6,162 4,572 3,882 2,127 1,338 421 37,641 0.08
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
60% to 70% 12,937 7,878 6,956 5,108 4,142 2,478 1,299 504 41,302 0.13
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
70% to 80% 11,411 4,977 4,601 3,406 2,239 1,875 791 345 29,645 0.21
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
80% to 90% 3,704 2,072 2,132 1,368 952 766 418 206 11,618 0.18
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
90% to 100% 866 718 817 551 351 330 175 86 3,894 0.26
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
65,956 37,763 31,882 24,438 19,535 11,520 6,533 2,636 200,263 0.10
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Not fully
collateralised
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Over 100%
LTV 7 23 21 20 21 36 5 30 163 6.90
-------------- ======= ======== ======== ============ ============ ======== ===== ======== ======= ---------
Collateral
value 6 22 20 20 20 32 5 28 153
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Negative
equity 1 1 1 - 1 4 - 2 10
-------------- ======= ======== ======== ============ ============ ======== ===== ======== ======= ---------
Total stage 1
and 2
loans 65,963 37,786 31,903 24,458 19,556 11,556 6,538 2,666 200,426 0.11
-------------- ------- -------- -------- ------------ ------------ -------- ----- -------- ------- ---------
Stage 3 and POCI loans
------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Fully collateralised
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
LTV ratio:
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Up to 50% 225 99 77 59 50 24 18 11 563 1.95
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
50% to 60% 82 51 48 29 25 12 11 3 261 3.30
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
60% to 70% 48 36 46 18 15 12 7 5 187 5.47
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
70% to 80% 29 18 29 12 4 11 3 4 110 11.53
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
80% to 90% 9 3 12 2 1 5 1 3 36 22.39
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
90% to 100% 3 1 5 - 1 1 - 3 14 31.00
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
396 208 217 120 96 65 40 29 1,171 4.67
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Not fully collateralised
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Over 100% LTV 1 1 5 1 - 2 - 8 18 71.68
--------------------------------- ====== ====== ====== ====== ====== ====== ===== ===== ======= ------
Collateral value 1 1 3 1 - 2 - 7 15
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Negative equity - - 2 - - - - 1 3
--------------------------------- ====== ====== ====== ====== ====== ====== ===== ===== ======= ------
Total stage 3 and POCI
loans 397 209 222 121 96 67 40 37 1,189 5.53
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Total residential mortgages 66,360 37,995 32,125 24,579 19,652 11,623 6,578 2,703 201,615 0.14
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Total geographical concentrations 33% 19% 16% 12% 10% 6% 3% 1% 100%
--------------------------------- ------ ------ ------ ------ ------ ------ ----- ----- ------- ------
Credit risk - Residential mortgages (continued)
Over the period, the geographical distribution of residential
mortgages across the UK has remained stable. The highest
concentration for both the owner-occupied and buy to let and legacy
portfolios is in Greater London, with proportions broadly stable at
29% and 45% (4 April 2023: 29% and 46%) respectively.
In addition to balances held at amortised cost shown in the
table above, GBP41 million (4 April 2023: GBP47 million) of
residential mortgages are held at FVTPL. These have an average LTV
of 34% (4 April 2023: 35%). The largest geographical concentration
within the FVTPL balances is also in Greater London, at 62% (4
April 2023: 61%) of total FVTPL balances.
Arrears and possessions
Residential mortgage lending continues to have a low risk
profile as demonstrated by the low level of arrears compared to the
industry average.
Number of cases more than 3 months in arrears
as % of total book (note i)
30 September 4 April 2023
2023
------------ ------------
% %
---------------------------- ------------ ------------
Owner-occupied 0.33 0.29
---------------------------- ------------ ------------
Buy to let and legacy 0.55 0.44
---------------------------- ------------ ------------
Total 0.38 0.32
---------------------------- ------------ ------------
UK Finance industry average 0.84 0.72
---------------------------- ------------ ------------
Note:
i. The methodology for calculating mortgage arrears is based on
the UK Finance definition of arrears, where months in arrears is
determined by dividing the arrears balance outstanding by the
latest monthly contractual payment.
The proportion of cases more than 3 months in arrears has
increased during the period to 0.38% (4 April 2023: 0.32%), with a
more significant increase in buy to let and legacy cases where
arrears are disproportionately impacted by older accounts within
these portfolios. Arrears levels are expected to increase further
as a result of the rising interest rates resulting in higher
mortgage payments.
Credit risk - Residential mortgages (continued)
Residential mortgages by payment status
The following table shows the payment status of all residential
mortgages.
Residential mortgages gross balances by payment status
30 September 2023 4 April 2023
---------------------------------------- -------------------------------------------
Owner-occupied Buy to Total Owner-occupied Buy to let Total
let and and legacy
legacy
-------------- ---- -------------- ----------- -------- ----
GBPm GBPm GBPm % GBPm GBPm GBPm %
---------------------------- -------------- -------- -------- ---- -------------- ----------- -------- ----
Not past due 156,527 42,877 199,404 98.5 155,849 43,270 199,119 98.7
---------------------------- -------------- -------- -------- ---- -------------- ----------- -------- ----
Past due 0 to 1 month 1,153 420 1,573 0.8 1,044 376 1,420 0.7
---------------------------- -------------- -------- -------- ---- -------------- ----------- -------- ----
Past due 1 to 3 months 345 219 564 0.3 310 213 523 0.3
---------------------------- -------------- -------- -------- ---- -------------- ----------- -------- ----
Past due 3 to 6 months 186 141 327 0.2 155 108 263 0.1
---------------------------- -------------- -------- -------- ---- -------------- ----------- -------- ----
Past due 6 to 12 months 132 98 230 0.1 111 65 176 0.1
---------------------------- -------------- -------- -------- ---- -------------- ----------- -------- ----
Past due over 12 months 84 53 137 0.1 76 50 126 0.1
---------------------------- -------------- -------- -------- ---- -------------- ----------- -------- ----
Possessions 13 27 40 - 13 22 35 -
---------------------------- -------------- -------- -------- ---- -------------- ----------- -------- ----
Total residential mortgages 158,440 43,835 202,275 100 157,558 44,104 201,662 100
---------------------------- -------------- -------- -------- ---- -------------- ----------- -------- ----
The balance of cases past due by more than 3 months has
increased to GBP734 million (4 April 2023: GBP600 million)
reflecting economic conditions, including rising interest rates.
Increases are in line with expectations and remain well below the
levels expected in our provisioning calculations.
Interest only mortgages
At 30 September 2023, interest only balances of GBP6,374 million
(4 April 2023: GBP6,812 million) account for 4% (4 April 2023: 4%)
of the owner-occupied residential mortgage portfolio. Nationwide
re-entered the owner-occupied market for interest only lending
under a newly established credit policy in April 2020; however, 82%
of current interest only mortgage balances relate to historical
accounts which were originally advanced as interest only mortgages
or where a subsequent change in terms to an interest only basis was
agreed. Maturities on interest only mortgages are managed closely,
with regular engagement with borrowers to ensure the loan is
redeemed or to agree a strategy for repayment.
Of the buy to let and legacy portfolio, GBP39,910 million (4
April 2023: GBP40,126 million) relates to interest only balances,
representing 91% (4 April 2023: 91%) of balances. Buy to let
remains open to new interest only lending under standard terms.
There is a risk that a proportion of interest only mortgages
will not be redeemed at their contractual maturity date, because a
borrower does not have a means of capital repayment or has been
unable to refinance the loan. Interest only loans which are judged
to have a significantly increased risk of inability to refinance at
maturity are transferred to stage 2. The ability of a borrower to
refinance is calculated using current lending criteria which
consider LTV and affordability assessments. The impact of
recognising this risk is to increase provisions by GBP35
million.
( 4 April 2023 : GBP45 million).
Past term interest only loans are not considered to be past due
where contractual interest payments continue to be met, pending
renegotiation of the facility. These loans are, however, treated as
credit impaired and categorised as stage 3 balances from three
months after the maturity date.
Credit risk - Residential mortgages (continued)
Forbearance
Nationwide is committed to supporting borrowers facing financial
difficulty by working with them to find a solution through
proactive arrears management and forbearance.
The Group applies the European Banking Authority (EBA)
definition of forbearance. The Annual Report and Accounts 2023 sets
out further details of concession events included within
forbearance.
The table below provides details of residential mortgages held
at amortised cost subject to forbearance, including balances which
are within stage 1 for provision purposes but which continue to
meet the EBA definition of forbearance. Accounts that are currently
subject to a concession are all assessed as either stage 2, or
stage 3 (credit impaired) where full repayment of principal and
interest is no longer anticipated.
Gross balances subject to forbearance (note i)
30 September 2023 4 April 2023
----------------------------------- -----------------------------------
Owner-occupied Buy to let Total Owner-occupied Buy to let Total
and legacy and legacy
-------------- ------ -------------- ----------- ------
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- -------------- ----------- ------ -------------- ----------- ------
Past term interest only (note ii) 100 149 249 101 149 250
--------------------------------------- -------------- ----------- ------ -------------- ----------- ------
Interest only concessions 403 25 428 503 25 528
--------------------------------------- -------------- ----------- ------ -------------- ----------- ------
Capitalisation 82 19 101 85 22 107
--------------------------------------- -------------- ----------- ------ -------------- ----------- ------
Capitalisation - notification of death
of borrower 77 117 194 75 105 180
--------------------------------------- -------------- ----------- ------ -------------- ----------- ------
Term extensions (within term) 47 17 64 41 18 59
--------------------------------------- -------------- ----------- ------ -------------- ----------- ------
Permanent interest only conversions 1 31 32 1 29 30
--------------------------------------- -------------- ----------- ------ -------------- ----------- ------
Total forbearance (note iii) 710 358 1,068 806 348 1,154
--------------------------------------- -------------- ----------- ------ -------------- ----------- ------
Of which stage 2 252 73 325 289 74 363
--------------------------------------- -------------- ----------- ------ -------------- ----------- ------
Of which stage 3 349 272 621 383 253 636
--------------------------------------- -------------- ----------- ------ -------------- ----------- ------
% % % %% %
--------------------------------------- -------------- ----------- ------ -------------- ---------- ------
Total forbearance as a % of total
gross balances 0.4 0.8 0.5 0.5 0.8 0.6
--------------------------------------- -------------- ----------- ------ -------------- ----------- ------
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- -------------- ----------- ------ -------------- ----------- ------
Impairment provisions on forborne
loans 11 28 39 11 20 31
--------------------------------------- -------------- ----------- ------ -------------- ----------- ------
Notes:
i. Where more than one concession event has occurred, balances
are reported under the latest event.
ii. Includes interest only mortgages where a customer is unable
to renegotiate the facility within six months of maturity and no
legal enforcement is pursued. Should a concession event such as a
term extension occur within the six-month period, this will also be
classed as forbearance.
iii. For loans subject to concession events, accounts are
transferred back to stage 1 or 2 only after being up to date and
meeting contractual obligations for a period of 12 months.
As part of our ongoing commitment to support our borrowers
facing financial difficulty, Nationwide has signed up to HM
Government's Mortgage Charter. This offers borrowers who are up to
date on their mortgage payments the option to switch to interest
only payments for a six-month period. As at 30 September 2023,
GBP862 million of outstanding balances have taken up this option.
GBP34 million of these balances are included in the table above, as
they were in a forbearance probation period when the option was
taken up. The remainder is not classified as forborne as the
temporary switch to interest only as part of the Mortgage Charter
is not classified as forbearance.
The average LTV for forborne accounts is 47% (4 April 2023:
47%). In addition to the amortised cost balances above, GBP4
million of FVTPL balances (4 April 2023: GBP4 million) are also
forborne.
Credit risk - Consumer banking
Summary
The consumer banking portfolio comprises balances on unsecured
retail banking products: overdrawn current accounts, personal loans
and credit cards. Over the year, total balances across these
portfolios have reduced to GBP4,317 million (4 April 2023: GBP4,408
million) driven by reduced new business and a pay down of the
existing book on personal loans.
Arrears levels have remained low during the period, with the
balance of cases past due by more than 3 months, excluding charged
off balances, representing 1.14% (4 April 2023: 1.21%) of these
balances. During the period there has been an increase in early
arrears, which the Group will continue to monitor. Arrears levels
are expected to increase over the short to medium term due to high
levels of inflation and rising interest rates putting pressure on
household budgets, stretching affordability for some borrowers.
Consumer banking gross balances
30 September 2023 4 April 2023
------------------- --------------
GBPm % GBPm %
--------------------------- ----------- ------ -------- ----
Overdrawn current accounts 274 6 310 7
--------------------------- ----------- ------ -------- ----
Personal loans 2,426 56 2,574 58
--------------------------- ----------- ------ -------- ----
Credit cards 1,617 38 1,524 35
--------------------------- ----------- ------ -------- ----
Total consumer banking 4,317 100 4,408 100
--------------------------- ----------- ------ -------- ----
All consumer banking loans are classified and measured at
amortised cost.
Impairment charge and write-offs for the period
Half year Half year
to 30 September to 30 September
2023 2022
---------------- ----------------
GBPm GBPm
---------------------------- ---------------- ----------------
Overdrawn current accounts 9 10
---------------------------- ---------------- ----------------
Personal loans 13 29
---------------------------- ---------------- ----------------
Credit cards - 2
---------------------------- ---------------- ----------------
Total impairment charge 22 41
---------------------------- ---------------- ----------------
% %
---------------------------- ---------------- ----------------
Impairment charge as a % of
average gross balance 0.51 0.87
---------------------------- ---------------- ----------------
GBPm GBPm
---------------------------- ---------------- ----------------
Gross write-offs 43 42
---------------------------- ---------------- ----------------
The lower impairment charge for the period ended 30 September
2023 reflects a reduction in balance sheet provisions, which
reduced to GBP450 million (4 April 2023: GBP469 million).
Provisions include a modelled uplift to the probability of default
to reflect economic uncertainty. This adjustment increases
provisions by GBP83 million (4 April 2023: GBP100 million) and has
reduced during the period due to updated expectations of the impact
of cost inflation pressures on future credit performance.
Credit risk - Consumer banking (continued)
The following table shows consumer banking balances by stage,
with the corresponding impairment provisions and resulting
provision coverage ratios.
Consumer banking product and staging analysis
30 September 2023 4 April 2023
----------------------------- -------------------------------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
------ ------ ------ ------ ----- ------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Gross balances
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Overdrawn current accounts 113 104 57 274 160 91 59 310
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Personal loans 1,224 1,069 133 2,426 1,378 1,063 133 2,574
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Credit cards 945 586 86 1,617 845 591 88 1,524
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Total 2,282 1,759 276 4,317 2,383 1,745 280 4,408
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Provisions
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Overdrawn current accounts 4 23 39 66 5 21 38 64
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Personal loans 7 52 116 175 9 54 117 180
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Credit cards 10 120 79 209 11 136 78 225
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Total 21 195 234 450 25 211 233 469
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Provisions as a % of %% %%
total balance % % % %
------------------------------ ------ ------ ----- ------ ------ ----- ----- -----
Overdrawn current accounts 4.02 21.36 67.92 24.03 3.10 22.90 64.80 20.57
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Personal loans 0.55 4.90 87.68 7.23 0.67 5.09 87.66 7.00
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Credit cards 1.06 20.54 91.92 12.95 1.25 22.96 88.85 14.73
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Total 0.93 11.08 84.89 10.43 1.04 12.07 83.25 10.63
------------------------------ ------ ------ ----- ------ ------ ------ ----- ------
Balance sheet provisions of GBP450 million (4 April 2023: GBP469
million) include a modelled adjustment of GBP83 million (4 April
2023: GBP100 million) to reflect an increase to the probability of
default to account for the combined risks of rising inflation,
increasing interest rates and the impact of model inputs still
benefitting from improvements in credit indicators which are judged
to be temporary, such as reduced levels of arrears. This has
resulted in GBP502 million (4 April 2023: GBP585 million) of
balances being moved to stage 2. Further information is included in
note 8 to the condensed consolidated interim financial
statements.
Credit performance continues to be strong, with the proportion
of total balances in stage 3 remaining stable at 6.4% (4 April
2023: 6.4%). Consumer banking stage 3 gross balances and provisions
include charged off balances. These are accounts which are closed
to future transactions and are held on the balance sheet for an
extended period (up to 36 months) whilst recovery activities take
place. Excluding these charged off balances and related provisions,
provisions amount to 6.5% (4 April 2023: 6.9%) of gross
balances.
Credit risk - Consumer banking (continued)
The table below summarises the movements in the Group's consumer
banking balances held at amortised cost. The movements within the
table compare the position at 30 September 2023 to that at the
start of the reporting period.
Reconciliation of net movements in consumer banking balances and impairment provisions (note i)
Non-credit impaired Credit impaired
-------------------------------------------- --------------------- ---------------------
Subject to 12-month Subject to lifetime Subject to lifetime Total
ECL ECL ECL
--------------------- --------------------- --------------------- ---------------------
Stage 1 Stage 2 Stage 3
--------------------- --------------------- --------------------- ---------------------
Gross Provisions Gross Provisions Gross Provisions Gross Provisions
balances balances balances balances
--------- ---------- --------- ---------- --------- ---------- --------- ----------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
At 5 April 2023 2,383 25 1,745 211 280 233 4,408 469
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Stage transfers:
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Transfers from stage 1 to
stage
2 (349) (5) 349 5 - - - -
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Transfers to stage 3 (7) - (39) (17) 46 17 - -
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Transfers from stage 2 to
stage
1 374 34 (374) (34) - - - -
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Transfers from stage 3 - - 3 2 (3) (2) - -
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Net remeasurement of ECL
arising
from transfer of stage - (27) - 40 - 17 - 30
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Net movement arising from
transfer of stage 18 2 (61) (4) 43 32 - 30
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
New assets originated or
purchased
(note ii) 346 3 215 11 1 1 562 15
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Net impact of further
lending
and repayments (292) (7) (41) (15) (4) (1) (337) (23)
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Changes in risk parameters
in relation to credit
quality - (1) - (5) - 12 - 6
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Other items impacting
income
statement
charge/(release)
(including recoveries) - - - - - (2) - (2)
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Redemptions (173) (1) (99) (3) (1) - (273) (4)
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Income statement charge
for
the period 22
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Decrease due to write-offs - - - - (43) (43) (43) (43)
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Other provision movements - - - - - 2 - 2
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
30 September 2023 2,282 21 1,759 195 276 234 4,317 450
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Net carrying amount 2,261 1,564 42 3,867
-------------------------- --------- ---------- --------- ---------- --------- ---------- --------- ----------
Notes:
i. The basis of preparation for this note has been updated.
Previously, the table was presented on a gross basis, with the
reported values representing an aggregation of monthly movements
over the period. To reflect more appropriately the movements in
credit quality over the period, the note is now prepared on a net
basis.
ii. If a new asset is originated in the period, the values
included are the closing gross balance and provision for the
period. The stage in which the addition is shown reflects the stage
of the account at the end of the period.
Further information on movements in total gross loans and
advances to customers and impairment provisions, including the
methodology applied in preparing the table, is included in note 10
to the condensed consolidated interim financial statements.
Credit risk - Consumer banking (continued)
Reason for consumer banking balances being reported in stage 2
---------------------------------------------------------------------------------------------------------------------------------------------------------
30 September 2023 Overdrawn current Personal loans Credit cards Total
accounts
----------------- -------------------------------- -------------------------------- -------------------------------- --------------------------------
Gross Provisions Provisions Gross Provisions Provisions Gross Provisions Provisions Gross Provisions Provisions
balances as a balances as a balances as a balances as a
% of % of % of % of
balance balance balance balance
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
GBPm GBPm % GBPm GBPm % GBPm GBPm % GBPm GBPm %
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Quantitative
criteria:
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Payment status
(greater than
30 DPD) (note
i) 3 2 75 11 6 52 5 3 72 19 11 61
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Increase in PD
since
origination
(less than 30
DPD) 94 20 21 1,055 46 4 570 115 20 1,719 181 11
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Qualitative
criteria:
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Forbearance
(less than 30
DPD) (note
ii) - - 15 - - 7 - - 21 - - 11
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Other
qualitative
criteria
(less than 30
DPD) 7 1 8 3 - 4 11 2 17 21 3 12
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Total stage 2
gross balances 104 23 21 1,069 52 5 586 120 21 1,759 195 11
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Reason for consumer banking balances being reported in stage 2
4 April 2023 Overdrawn current accounts Personal loans Credit cards Total
----------------- -------------------------------- -------------------------------- -------------------------------- --------------------------------
Gross Provisions Provisions Gross Provisions Provisions Gross Provisions Provisions Gross Provisions Provisions
balances as a % of balances as a balances as a balances as a % of
balance % of % of balance
balance balance
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
GBPm GBPm % GBPm GBPm % GBPm GBPm % GBPm GBPm %
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Quantitative
criteria:
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Payment status
(greater than
30 DPD) (note
i) 2 2 98 11 6 52 4 4 84 17 12 65
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Increase in PD
since
origination
(less than 30
DPD) 81 18 22 1,049 48 5 576 130 23 1,706 196 12
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Qualitative
criteria:
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Forbearance
(less than 30
DPD) (note
ii) - - 17 1 - 10 - - 19 1 - 13
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Other
qualitative
criteria
(less than 30
DPD) 8 1 10 2 - 4 11 2 18 21 3 13
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Total stage 2
gross balances 91 21 23 1,063 54 5 591 136 23 1,745 211 12
----------------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ---------- -------- ---------- ----------
Notes:
i. This category includes all loans greater than 30 DPD,
including those whose original reason for being classified as stage
2 was not arrears over 30 DPD.
ii. Stage 2 forbearance relates to cases where full repayment of
principal and interest is still anticipated.
Balances reported within stage 2 represent loans which have
experienced a significant increase in credit risk since
origination. The significant increase is determined through both
quantitative and qualitative indicators. Of the GBP1,759 million (4
April 2023: GBP1,745 million) stage 2 balances, only 1% (4 April
2023: 1%) are in arrears by 30 days or more, with the majority of
balances in stage 2 due to an increase in PD since origination.
This category includes GBP502 million (4 April 2023: GBP585
million) of loans where the modelled PD has been uplifted to
recognise the increased risk of default in a high inflation and
interest rate environment. The impact of this uplift in PD has
resulted in these loans breaching existing quantitative PD
thresholds.
The Annual Report and Accounts 2023 sets out the main criteria
used to determine whether a significant increase in credit risk has
occurred since origination. There have been no changes to the
criteria during the period.
Credit risk - Consumer banking (continued)
Credit quality
Nationwide adopts robust credit management policies and
processes designed to recognise and manage the risks arising from
the portfolio.
The following table shows gross balances and provisions for
consumer banking balances held at amortised cost, by PD range. The
PD distributions shown are based on a 12-month IFRS 9 PDs at the
reporting date.
Consumer banking gross balances and provisions by PD
Gross balances Provisions Provision
30 September 2023 coverage
-------------------------- -------------------------- ---------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
----- ----- ----- ----- ----- ---------
PD range GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
------------------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
0.00 to <0.15% 657 9 - 666 2 - - 2 0.29
------------------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
0.15 to < 0.25% 313 31 - 344 1 1 - 2 0.49
------------------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
0.25 to < 0.50% 386 153 - 539 2 2 - 4 0.77
------------------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
0.50 to < 0.75% 207 156 - 363 1 3 - 4 1.16
------------------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
0.75 to < 2.50% 461 561 3 1,025 5 21 - 26 2.64
------------------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
2.50 to < 10.00% 240 559 11 810 8 67 2 77 9.46
------------------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
10.00 to < 100% 18 290 10 318 2 101 5 108 33.91
------------------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
100% (default) - - 252 252 - - 227 227 90.48
------------------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Total 2,282 1,759 276 4,317 21 195 234 450 10.43
------------------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Consumer banking gross balances and provisions by PD
4 April 2023 Provision
Gross balances Provisions coverage
-------------------------- -------------------------- ---------
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
----- ----- ----- ----- ----- ---------
PD range GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm %
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ---------
0.00 to <0.15% 644 7 - 651 2 - - 2 0.30
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ---------
0.15 to < 0.25% 338 26 - 364 1 1 - 2 0.48
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ---------
0.25 to < 0.50% 397 136 - 533 2 2 - 4 0.77
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ---------
0.50 to < 0.75% 225 157 - 382 1 3 - 4 1.13
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ---------
0.75 to < 2.50% 482 554 3 1,039 6 21 - 27 2.60
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ---------
2.50 to < 10.00% 270 552 13 835 10 69 2 81 9.70
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ---------
10.00 to < 100% 27 313 9 349 3 115 4 122 34.79
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ---------
100% (default) - - 255 255 - - 227 227 89.38
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ---------
Total 2,383 1,745 280 4,408 25 211 233 469 10.63
----------------- ----- ----- ----- ----- ----- ----- ----- ----- ---------
The credit quality of the consumer banking portfolio has
remained strong. 87% (4 April 2023: 86%) of the portfolio has a
12-month IFRS 9 PD of less than 10%.
Credit risk - Consumer banking (continued)
Consumer banking balances by payment due status
Credit risk in the consumer banking portfolio is primarily
monitored and reported based on arrears status which is set out
below.
Consumer banking gross balances by payment due status
30 September 2023 4 April 2023
------------------------------------------ ------------------------------------------
Overdrawn Personal Credit Total Overdrawn Personal Credit Total
current loans cards current loans cards
accounts accounts
--------- ----- --------- -------- ------ ------ -----
GBPm GBPm GBPm GBPm % GBPm GBPm GBPm GBPm %
------------------------ --------- -------- ------ ------ ----- --------- -------- ------ ------ -----
Not past due 220 2,243 1,512 3,975 92.1 265 2,386 1,423 4,074 92.4
------------------------ --------- -------- ------ ------ ----- --------- -------- ------ ------ -----
Past due 0 to 1 month 16 46 19 81 1.9 8 49 14 71 1.6
------------------------ --------- -------- ------ ------ ----- --------- -------- ------ ------ -----
Past due 1 to 3 months 4 14 9 27 0.6 4 15 8 27 0.6
------------------------ --------- -------- ------ ------ ----- --------- -------- ------ ------ -----
Past due 3 to 6 months 4 10 6 20 0.5 5 11 6 22 0.5
------------------------ --------- -------- ------ ------ ----- --------- -------- ------ ------ -----
Past due 6 to 12 months 3 8 1 12 0.3 4 11 1 16 0.4
------------------------ --------- -------- ------ ------ ----- --------- -------- ------ ------ -----
Past due over 12 months 3 12 - 15 0.3 2 11 - 13 0.3
------------------------ --------- -------- ------ ------ ----- --------- -------- ------ ------ -----
Charged off (note i) 24 93 70 187 4.3 22 91 72 185 4.2
------------------------ --------- -------- ------ ------ ----- --------- -------- ------ ------ -----
Total 274 2,426 1,617 4,317 100.0 310 2,574 1,524 4,408 100.0
------------------------ --------- -------- ------ ------ ----- --------- -------- ------ ------ -----
Note:
i. Charged off balances relate to accounts which are closed to
future transactions and are held on the balance sheet for an
extended period (up to 36 months, depending on the product) whilst
recovery procedures take place .
Of total balances excluding charged off accounts, arrears
greater than three months have reduced to GBP47 million (4 April
2023: GBP51 million), representing 1.1% (4 April 2023: 1.2%) of
these balances. Arrears balances of less than three months have
increased to GBP108 million (4 April 2023: GBP98 million). Arrears
levels are expected to increase further due to the affordability
pressures which borrowers may face, due to high inflation and
increasing interest rates.
Forbearance
Nationwide is committed to supporting customers facing financial
difficulty by working with them to find a solution through
proactive arrears management and forbearance.
The Group applies the European Banking Authority definition of
forbearance. The Annual Report and Accounts 2023 sets out further
details of concession events included in forbearance.
Credit risk - Consumer banking (continued)
The table below provides details of consumer banking balances
subject to forbearance, including balances which are within stage 1
for provision purposes but which continue to meet the EBA
definition of forbearance. Accounts that are currently subject to a
concession are all assessed as either stage 2, or stage 3 (credit
impaired) where full repayment of principal and interest is no
longer anticipated.
Gross balances subject to forbearance (note i)
30 September 2023 4 April 2023 (note ii)
---------------------------------- ----------------------------------
Overdrawn Personal Credit Total Overdrawn Personal Credit Total
current loans cards current loans cards
accounts accounts
--------- ----- --------- -------- ------ -----
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- --------- -------- ------ ----- --------- -------- ------ -----
Payment concession 3 - 13 16 4 - 13 17
---------------------------------- --------- -------- ------ ----- --------- -------- ------ -----
Interest suppressed payment
concession 27 31 9 67 28 33 9 70
---------------------------------- --------- -------- ------ ----- --------- -------- ------ -----
Balance re-aged/re-written - 2 2 4 - 2 2 4
---------------------------------- --------- -------- ------ ----- --------- -------- ------ -----
Total forbearance (note iii) 30 33 24 87 32 35 24 91
---------------------------------- --------- -------- ------ ----- --------- -------- ------ -----
Of which stage 2 3 2 14 19 33 14 20
---------------------------------- --------- -------- ------ ----- --------- ------- ------ -----
Of which stage 3 27 30 9 66 29 31 9 69
---------------------------------- --------- -------- ------ ----- --------- -------- ------ -----
% % % % %% %%
---------------------------------- --------- -------- ------ ----- --------- ------- ------ ----
Total forbearance as a % of
total gross balances 10.9 1.4 1.5 2.0 10.3 1.4 1.6 2.1
---------------------------------- --------- -------- ------ ----- --------- -------- ------ -----
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- --------- -------- ------ ----- --------- -------- ------ -----
Impairment provisions on forborne
loans 13 26 11 50 12 28 12 52
---------------------------------- --------- -------- ------ ----- --------- -------- ------ -----
Notes:
i. Where more than one concession event has occurred, balances
are reported under the latest event.
ii. The 4 April 2023 values for credit cards have been restated
to reflect an update to forbearance definitions during the current
period, which has resulted in GBP12 million of payment concessions
being classified as forbearance.
iii. For loans subject to concession events, accounts are
transferred back to stage 1 or 2 only after being up to date and
meeting contractual obligations for a period of 12 months.
Credit risk - Commercial
Summary
The commercial portfolio comprises loans which have been
provided to meet the funding requirements of registered social
landlords, project finance initiatives and commercial real estate
investors. The project finance and commercial real estate
portfolios are closed to new business and are in run-off. Overall
credit quality has remained stable.
Commercial gross balances
30 September 4 April
2023 2023
-------
GBPm GBPm
--------------------------------------- ------------ -------
Registered social landlords (note i) 4,284 4,131
--------------------------------------- ------------ -------
Project finance (note ii) 518 537
--------------------------------------- ------------ -------
Commercial real estate (CRE) 299 326
--------------------------------------- ------------ -------
Commercial balances at amortised cost 5,101 4,994
--------------------------------------- ------------ -------
Fair value adjustment for micro hedged
risk (note iii) 377 430
--------------------------------------- ------------ -------
Commercial balances - FVTPL (note iv) 2 53
--------------------------------------- ------------ -------
Total 5,480 5,477
--------------------------------------- ------------ -------
Notes:
i. Loans to registered social landlords are secured on residential property.
ii. Loans advanced in relation to project finance are secured on
cash flows from government or local authority backed contracts
under the Private Finance Initiative.
iii. Micro hedged risk relates to loans hedged on an individual
basis.
iv. FVTPL balances have reduced to GBP2 million (4 April 2023:
GBP53 million) following CRE loan redemptions, with the remaining
balance relating to loans to registered social landlords.
Impairment charge/(release) and write-offs for the period
Half year Half year
to 30 September to 30 September
2023 2022
----------------
GBPm GBPm
---------------------------------- ----------------- ----------------
Total impairment charge/(release) 5 (2)
---------------------------------- ----------------- ----------------
Gross write-offs 3 -
---------------------------------- ----------------- ----------------
Commercial provision charges and write-offs remain low and
primarily reflect updates to a small number of individually
assessed exposures.
Credit risk - Commercial (continued)
The following table shows commercial balances carried at
amortised cost on the balance sheet, with the stage allocation of
the exposures, impairment provisions and resulting provision
coverage ratios.
Commercial product and staging analysis
30 September 2023 4 April 2023
Stage Stage Stage Total Stage Stage Stage Total
1 2 3 1 2 3
-----
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Gross balances
------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Registered social landlords 4,166 118 - 4,284 4,061 70 - 4,131
------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Project finance 439 79 - 518 459 78 - 537
------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
CRE 232 43 24 299 274 19 33 326
------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Total 4,837 240 24 5,101 4,794 167 33 4,994
------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Provisions
------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Registered social landlords 1 - - 1 1- -1
------------------------------- ----- ----- ----- ----- ----- ---- ----- ----
Project finance - 7 - 7 -8 -8
------------------------------- ----- ----- ----- ----- ----- ---- ----- ----
CRE - - 11 11 1- 67
------------------------------- ----- ----- ----- ----- ----- ---- ----- ----
Total 1 7 11 19 28 6 16
------------------------------- ----- ----- ----- ----- ----- ---- ----- -----
Provisions as a % of % % % % %% %%
total balance
------------------------------- ----- ----- ----- ----- ----- ---- ----- ----
Registered social landlords 0.01 0.20 - 0.02 0.01 0.26 - 0.02
------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Project finance 0.02 8.02 - 1.24 0.02 10.65 - 1.57
------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
CRE 0.22 0.77 43.90 3.80 0.19 1.31 18.94 2.13
------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Total 0.02 2.87 43.90 0.36 0.02 5.26 18.94 0.32
------------------------------- ----- ----- ----- ----- ----- ----- ----- -----
Over the period, the performance of the commercial portfolio has
remained stable, with 95% (4 April 2023: 96%) of balances in stage
1. Of the GBP240 million (4 April 2023: GBP167 million) stage 2
loans, which represent 4.7% (4 April 2023: 3.3%) of total balances,
GBP0.4 million (4 April 2023: GBPnil) were in arrears by 30 days or
more.
The increase in stage 2 balance across each portfolio reflects
isolated risk events, all considered capable of remedy with a low
risk of loss. A reduction in asset values for the remaining
impaired loans has resulted in an overall increase in stage 3
provisions to GBP11 million (4 April 2023: GBP6 million).
Credit risk - Commercial (continued)
Credit quality
Nationwide applies robust credit management policies and
processes to identify and manage the risks arising from the
portfolio.
The CRE portfolio continues to be spread across the retail,
office, residential investment, industrial and leisure sectors.
Where a CRE loan is secured on assets crossing different sectors,
the sector allocation is based upon the value of the underlying
assets in each sector. For the CRE portfolio the largest exposure
is to the residential sector, which represents 47% (4 April 2023:
39%) of total CRE balances, with a weighted average LTV of 36% (4
April 2023: 35%). Exposure to office assets has reduced to 13% (4
April 2023: 21%) of total CRE balances, with a weighted average LTV
of 66% (4 April 2023: 64%).
The LTV distribution of CRE balances has remained stable with
90% (4 April 2023: 91%) of the portfolio having an LTV of 75% or
less, and 54% (4 April 2023: 47%) of the portfolio having an LTV of
50% or less.
CRE balances with arrears have reduced to GBP17 million (4 April
2023: GBP18 million). Of these, GBP8 million (4 April 2023: GBP10
million) have arrears greater than 3 months and relate to loans
that are in recovery or are being actively managed.
The following table shows the CRE portfolio by risk grade and
the provision coverage for each category. The table includes
balances held at amortised cost only.
CRE gross balances by risk grade and provision coverage
30 September 2023 4 April 2023
------------- ------------------------------------- -------------------------------------
Stage Stage Stage Total Provision Stage Stage Stage Total Provision
1 2 3 coverage 1 2 3 coverage
------------- ----- ----- ----- ----- --------- ----- ----- ----- ----- ---------
GBPm GBPm GBPm GBPm % GBPm GBPm GBPm GBPm %
------------- ----- ----- ----- ----- --------- ----- ----- ----- ----- ---------
Strong 162 20 - 182 0.0 171 - - 171 0.0
------------- ----- ----- ----- ----- --------- ----- ----- ----- ----- ---------
Good 67 - - 67 0.4 97 1 - 98 0.3
------------- ----- ----- ----- ----- --------- ----- ----- ----- ----- ---------
Satisfactory 3 1 - 4 4.3 6 2 - 8 2.8
------------- ----- ----- ----- ----- --------- ----- ----- ----- ----- ---------
Weak - 22 - 22 1.5 - 16 1 17 1.5
------------- ----- ----- ----- ----- --------- ----- ----- ----- ----- ---------
Impaired - - 24 24 43.9 - - 32 32 19.1
------------- ----- ----- ----- ----- --------- ----- ----- ----- ----- ---------
Total 232 43 24 299 3.8 274 19 33 326 2.1
------------- ----- ----- ----- ----- --------- ----- ----- ----- ----- ---------
The risk grades in the table above are based upon the IRB
supervisory slotting approach for specialised lending exposures.
Exposures are classified into categories depending on the
underlying credit risk, with the assessment based upon financial
strength, property characteristics, strength of sponsor and any
other forms of security. The credit quality of the CRE portfolio
has remained stable with 85% (4 April 2023: 85%) of the portfolio
balances rated as strong, good or satisfactory.
Risk grades for the project finance portfolio use the same
slotting approach as for CRE lending, with 85% (4 April 2023: 85%)
of the exposure rated strong or good.
The registered social landlord portfolio is risk rated using an
internal PD rating model, with the major drivers being financial
strength, evaluations of the borrower's oversight and management,
and their type and size. The distribution of exposures is weighted
towards the stronger risk ratings and against a backdrop of zero
defaults in the portfolio, the credit quality remains strong, with
an average 12-month PD of 0.04% (4 April 2023: 0.04%) across the
portfolio.
Credit risk - Commercial (continued)
Forbearance
Nationwide is committed to supporting borrowers facing financial
difficulty by working with them to find a solution through
proactive arrears management and forbearance.
Forbearance is recorded and reported at borrower level and
applies to all commercial lending, including impaired exposures and
borrowers subject to enforcement and recovery action. The Group
applies the European Banking Authority definition of
forbearance.
The table below provides details of commercial loans that are
currently subject to forbearance by concession event.
Gross balances subject to forbearance (note i)
30 September 4 April 2023
2023
------------ -------------
GBPm GBPm
--------------------------------------- ------------ -------------
Modifications:
--------------------------------------- ------------ -------------
Payment concession 11 79
--------------------------------------- ------------ -------------
Extension at maturity 8 16
--------------------------------------- ------------ -------------
Breach of covenant 86 21
--------------------------------------- ------------ -------------
Refinance 1 -
--------------------------------------- ------------ -------------
Total 106 116
--------------------------------------- ------------ -------------
Total impairment provision on forborne
loans 16 14
--------------------------------------- ------------ -------------
Note:
i. Loans where more than one concession event has occurred are reported under the latest event.
Total forborne balances (excluding FVTPL) have reduced to GBP106
million (4 April 2023: GBP116 million), comprising CRE of GBP39
million (4 April 2023: GBP50 million) and project finance of GBP67
million (4 April 2023: GBP66 million), following a reduction in CRE
balances through redemption or write off. Over the period, the
increase in breach of covenant balance is predominantly driven by a
single project finance exposure moving from the payment concession
category.
There are no FVTPL commercial lending balances which are
forborne (4 April 2023: GBP36 million).
Credit risk - Treasury assets
Summary
The treasury portfolio is held primarily for liquidity
management and, in the case of derivatives, for market risk
management. As at 30 September 2023 treasury assets represented
24.1% (4 April 2023: 23.2%) of total assets. There are no exposures
to emerging markets, hedge funds or credit default swaps. The table
below shows the classification of treasury asset balances.
Treasury asset balances
30 September 4 April 2023
2023
--------------- ------------ ------------
Classification GBPm GBPm
----------------------------------- --------------- ------------ ------------
Amortised
Cash cost 28,676 25,635
----------------------------------- --------------- ------------ ------------
Loans and advances to banks and Amortised
similar institutions cost 3,168 2,860
----------------------------------- --------------- ------------ ------------
Investment securities (note i) FVOCI 26,207 27,562
----------------------------------- --------------- ------------ ------------
Investment securities (note i) FVTPL 10 13
----------------------------------- --------------- ------------ ------------
Amortised
Investment securities cost 11 40
----------------------------------- --------------- ------------ ------------
Liquidity and investment portfolio 58,072 56,110
---------------------------------------------------- ------------ ------------
Derivative instruments (note ii) FVTPL 8,049 6,923
----------------------------------- --------------- ------------ ------------
Treasury assets 66,121 63,033
---------------------------------------------------- ------------ ------------
Notes :
i. Investment securities at FVOCI include GBP56 million (4 April
2023: GBP44 million) and investment securities at FVTPL include
GBP10 million (4 April 2023: GBP13 million) which relate to
investments not included within the Group's liquidity portfolio.
These investments primarily relate to investments made in Fintech
companies which are being held for strategic purposes.
ii. Derivatives are classified as assets where their fair value
is positive and liabilities where their fair value is negative. As
at 30 September 2023, derivative liabilities were GBP1,660 million
(4 April 2023: GBP1,524 million).
Investment activity remains focused on high-quality liquid
assets, including assets eligible for central bank operations.
Derivatives are used to economically hedge financial risks inherent
in core lending and funding activities and are not used for trading
or speculative purposes.
Managing treasury credit risks
Credit risk within the treasury portfolio is managed and
controlled by the Treasury Credit Risk function in accordance with
Nationwide's risk governance framework, details of which are
provided in the Annual Report and Accounts 2023. A monthly review
is undertaken of the current and expected performance of treasury
assets to determine expected credit loss (ECL) provision
requirements. There were no impairment losses for the period ended
30 September 2023 (4 April 2023: GBPnil). For financial assets held
at amortised cost or at FVOCI, all exposures within the table below
are classified as stage 1, reflecting the strong and stable credit
quality of treasury assets.
Impairment provisions on treasury assets
30 September 2023 4 April 2023
-------------------------- --------------------------
Gross balances Provisions Gross balances Provisions
-------------- -------------- ----------
GBPm GBPm GBPm GBPm
---------------------------------- -------------- ---------- -------------- ----------
Loans and advances to banks
and similar institutions 3,168 - 2,860 -
---------------------------------- -------------- ---------- -------------- ----------
Investment securities - FVOCI 26,207 - 27,562 -
---------------------------------- -------------- ---------- -------------- ----------
Investment securities - amortised
cost 11 - 40 -
---------------------------------- -------------- ---------- -------------- ----------
Credit risk - Treasury assets (continued)
Liquidity and investment portfolio
The liquidity and investment portfolio of GBP58,072 million (4
April 2023: GBP56,110 million) comprises liquid assets and other
securities as set out below.
Liquidity and investment portfolio by credit rating (note i)
30 September 2023 AAA AA A Other UK US Europe Japan Other
------ --- --- ----- --- ------ ----- -----
GBPm % % % % % % % % %
------------------------------ ------ --- --- ----- --- ------ ----- -----
Liquid assets:
------------------------------ ------ --- --- ----- --- ------ ----- -----
Cash and reserves at central
banks 28,676 - 100 -- 100- -- -
------------------------------ ------ --- --- ---- --- ------ ---- -----
Government bonds (note ii) 18,366 5 78 17- 37 24 12 13 14
------------------------------ ------ --- --- ---- --- ------ ----- -----
Supranational bonds 2,991 46 54 -- -- -- 100
------------------------------ ------ --- --- ---- --- ------ ---- -----
Covered bonds 3,081 100- -- 45- 15- 40
------------------------------ ------ --- ---- --- ------ ---- -----
Residential mortgage backed
securities (RMBS) 705 100- -- 62- 38- -
------------------------------ ------ --- ---- --- ------ ---- -----
Other asset backed securities 169 100- -- 98- 2- -
------------------------------ ------ --- ---- --- ------ ---- -----
Liquid assets total 53,988 12 82 6- 698 65 12
------------------------------ ------ --- --- ---- --- ------ ---- -----
Other securities (note iii):
------------------------------ ------ --- --- ----- --- ------ ----- -----
RMBS FVOCI 836 100- -- 100- -- -
------------------------------ ------ --- ---- --- ------ ---- -----
RMBS amortised cost 11 100- -- 100- -- -
------------------------------ ------ --- ---- --- ------ ---- -----
Other investments (note iv) 69 -5 - 95 95- 5- -
------------------------------ ------ --- ----- --- ------ ---- -----
Other securities total 916 93- -7 100- -- -
------------------------------ ------ --- ---- --- ------ ---- -----
Loans and advances to banks
and similar institutions 3,168 - 83 143 82 12 40 2
------------------------------ ------ --- --- ---- --- ------ ---- -----
Total 58,072 12 81 61 718 54 12
------------------------------ ------ --- --- ---- --- ------ ---- -----
4 April 2023 GBPm %% %% %% %% %
------------------------------ ------ --- ---- --- ------ ---- -----
Liquid assets:
------------------------------ ------ --- --- ----- --- ------ ----- -----
Cash and reserves at central
banks 25,635 - 99 1- 99- 1- -
------------------------------ ------ --- --- ---- --- ------ ---- -----
Government bonds (note ii) 20,130 31 54 15- 37 24 14 12 13
------------------------------ ------ --- --- ---- --- ------ ----- -----
Supranational bonds 2,838 46 54 -- -- -- 100
------------------------------ ------ --- --- ---- --- ------ ---- -----
Covered bonds 2,843 100- -- 46- 16- 38
------------------------------ ------ --- ---- --- ------ ---- -----
Residential mortgage backed
securities (RMBS) 618 100- -- 69- 31- -
------------------------------ ------ --- ---- --- ------ ---- -----
Other asset backed securities 197 100- -- 94- 6- -
------------------------------ ------ --- ---- --- ------ ---- -----
Liquid assets total 52,261 22 72 6- 679 75 12
------------------------------ ------ --- --- ---- --- ------ ---- -----
Other securities (note iii):
------------------------------ ------ --- --- ----- --- ------ ----- -----
RMBS FVOCI 885 100- -- 100- -- -
------------------------------ ------ --- ---- --- ------ ---- -----
RMBS amortised cost 40 100- -- 100- -- -
------------------------------ ------ --- ---- --- ------ ---- -----
Other investments (note iv) 64 - 11 - 89 89- 11- -
------------------------------ ------ --- --- ----- --- ------ ---- -----
Other securities total 989 931 -6 99- 1- -
------------------------------ ------ --- ---- --- ------ ---- -----
Loans and advances to banks
and similar institutions 2,860 - 85 141 82 13 5- -
------------------------------ ------ --- --- ---- --- ------ ---- -----
Total 56,110 22 71 7- 689 74 12
============================== ====== === === ==== === ====== ==== =====
Notes:
i. Ratings used are obtained from Standard & Poor's
(S&P), Moody's or Fitch. For loans and advances to banks and
similar institutions, internal ratings are used.
ii. Balances classified as government bonds include
government-guaranteed, agency and government-sponsored bonds.
iii. Includes RMBS (UK buy to let and UK non-conforming) not
eligible for the Liquidity Coverage Ratio (LCR).
iv. Includes investment securities held at FVTPL of GBP10
million (4 April 2023: GBP13 million).
Credit risk - Treasury assets (continued)
Country exposures
This table summarises the exposure (shown at the balance sheet
carrying value) to institutions outside the UK.
Country exposures
30 September 2023 Government Mortgage Covered Supranational Loans and Other Total
Bonds backed securities bonds bonds advances assets
(note i) to banks
and
similar
institutions
----------------- ------- ------------- ---------------- ------- -----------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ---------- ----------------- ------- ------------- ---------------- ------- -----------------
Austria 360 - - - - - 360
----------------- ---------- ----------------- ------- ------------- ---------------- ------- -----------------
Belgium 329 - - - - - 329
----------------- ---------- ----------------- ------- ------------- ---------------- ------- -----------------
Denmark 58 - 9 - - - 67
----------------- ---------- ----------------- ------- ------------- ---------------- ------- -----------------
Finland 414 - 23 - - - 437
----------------- ---------- ----------------- ------- ------------- ---------------- ------- -----------------
France 880 - 137 - 30 4 1,051
----------------- ---------- ----------------- ------- ------------- ---------------- ------- -----------------
Germany 160 - 57 - 88 3 308
----------------- ---------- ----------------- ------- ------------- ---------------- ------- -----------------
Netherlands 35 268 - - - - 303
----------------- ---------- ----------------- ------- ------------- ---------------- ------- -----------------
Norway - - 126 - - - 126
----------------- ---------- ----------------- ------- ------------- ---------------- ------- -----------------
Sweden 35 - 106 - - - 141
----------------- ---------- ----------------- ------- ------------- ---------------- ------- -----------------
Spain - - - - 1 - 1
----------------- ---------- ----------------- ------- ------------- ---------------- ------- -----------------
Total Europe 2,271 268 458 - 119 7 3,123
----------------- ---------- ----------------- ------- ------------- ---------------- ------- -----------------
Australia 42 - 158 - - - 200
================= ========== ================= ======= ============= ================ ======= =================
Canada 2,438 - 989 - 51 - 3,478
================= ========== ================= ======= ============= ================ ======= =================
Japan 2,412 - - - - - 2,412
================= ========== ================= ======= ============= ================ ======= =================
Singapore - - 77 - - - 77
================= ========== ================= ======= ============= ================ ======= =================
USA 4,342 - - - 391 - 4,733
================= ========== ================= ======= ============= ================ ======= =================
Supranational
entities
(note ii) - - - 2,991 - - 2,991
----------------- ---------- ----------------- ------- ------------- ---------------- ------- -----------------
Total 11,505 268 1,682 2,991 561 7 17,014
================= ========== ================= ======= ============= ================ ======= =================
Credit risk - Treasury assets (continued)
Country exposures
4 April 2023 Government Mortgage backed Covered Supranational Loans and Other Total
Bonds securities bonds bonds advances assets
(note i) to banks and
similar
institutions
--------------- ------- ------------- ----------------- ------- -----------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Austria 418 - - - - - 418
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Belgium 360 - - - - - 360
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Denmark 105 - 9 - - - 114
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Finland 355 - 23 - - - 378
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
France 939 - 139 - 60 7 1,145
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Germany 274 - 57 - 72 12 415
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Netherlands 306 191 - - - - 497
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Norway - - 128 - - - 128
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Sweden 11 - 107 - - - 118
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Spain - - - - - - -
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Total Europe 2,768 191 463 - 132 19 3,573
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Australia 43 - 153 - - - 196
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Canada 2,506 - 852 - 6 - 3,364
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Japan 2,383 - - - - - 2,383
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Singapore - - 76 - - - 76
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
USA 4,959 - - - 384 - 5,343
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Supranational
entities
(note ii) - - - 2,838 - - 2,838
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Total 12,659 191 1,544 2,838 522 19 17,773
------------------ ---------- --------------- ------- ------------- ----------------- ------- -----------------
Notes:
i. Balances classified as government bonds include government
guaranteed, agency and government sponsored bonds.
ii. Exposures to supranational entities are made up of bonds
issued by highly-rated multilateral development banks (MDBs) and
international organisations (IOs).
Credit risk - Treasury assets (continued)
Derivative financial instruments
Derivatives are used to manage exposure to market risks, and not
for trading or speculative purposes. The fair value of derivative
assets as at 30 September 2023 was GBP8.0 billion (4 April 2023:
GBP6.9 billion) and the fair value of derivative liabilities was
GBP1.7 billion (4 April 2023: GBP1.5 billion).
Nationwide, as a direct member of a central counterparty (CCP),
has central clearing capability which it uses to clear standardised
derivatives. Where derivatives are not cleared at a CCP they are
transacted under the International Swaps and Derivatives
Association (ISDA) Master Agreement. A Credit Support Annex (CSA)
is always executed in conjunction with the ISDA Master Agreement.
Under the terms of a CSA collateral is passed between parties to
mitigate the market-contingent counterparty risk inherent in the
outstanding positions. CSAs are two-way agreements where both
parties post collateral dependent on the exposure of the
derivative. Collateral is paid or received on a regular basis
(typically daily) to mitigate the mark-to-market exposures. Market
standard CSA collateral allows GBP, EUR and USD cash, and in some
cases extends to high grade sovereign debt securities; both cash
and securities can be held as collateral.
Nationwide's CSA legal documentation for derivatives grants
legal rights of set-off for transactions with the same
counterparty. Accordingly, the credit risk associated with such
positions is reduced to the extent that negative mark-to-market
values offset positive mark-to-market values in the calculation of
credit risk within each netting agreement.
Under the terms of CSA netting agreements, outstanding
transactions with the same counterparty can be offset and settled
on a net basis following a default, or another predetermined event.
Under these arrangements, netting benefits of GBP1.4 billion (4
April 2023: GBP1.3 billion) were available and GBP6.6 billion (4
April 2023: GBP5.6 billion) of collateral was held.
This table shows the exposure to counterparty credit risk for
derivative contracts after netting benefits and collateral.
Derivative credit exposure
30 September 2023 4 April 2023
----------------------- -----------------------
Counterparty credit quality AA A Total AA A Total
----- ------- ----- ------- -------
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ----- ------- ------- ----- ------- -------
Derivative assets 753 7,296 8,049 636 6,287 6,923
-------------------------------- ----- ------- ------- ----- -------
Netting benefits (219) (1,212) (1,431) (182) (1,104) (1,286)
Net current credit exposure 534 6,084 6,618 454 5,183 5,637
-------------------------------- ----- ------- ------- ----- -------
Collateral (cash) (530) (6,084) (6,614) (451) (5,183) (5,634)
-------------------------------- ----- ------- ------- ----- -------
Net derivative credit exposure 4 - 4 3 - 3
Liquidity and funding risk
Summary
Liquidity risk is the risk that Nationwide is unable to meet its
liabilities as they fall due and maintain member and external
stakeholder confidence. Funding risk is the risk that Nationwide is
unable to maintain diverse funding sources in wholesale and retail
markets and manage excessive concentrations of funding types.
Liquidity and funding risks are managed within a comprehensive
risk framework which includes policies, strategy, limit setting and
monitoring, stress testing and robust governance controls. This
framework ensures that Nationwide maintains stable and diverse
funding sources and a sufficient holding of high-quality liquid
assets such that there is no significant risk that liabilities
cannot be met as they fall due. Further details on the management
of liquidity and funding risk are included within the Risk report
in the Annual Report and Accounts 2023.
Nationwide's Liquidity Coverage Ratio (LCR), which ensures that
sufficient high-quality liquid assets are held to survive a
short-term severe but plausible liquidity stress, averaged 191%
over the 12 months ended 30 September 2023 (4 April 2023: 180%).
This was primarily due to higher average liquid asset balances,
driven by growth in member deposits. Liquidity continues to be
managed against internal risk appetite which is more prudent than
regulatory requirements.
The position against the longer-term funding metric, the Net
Stable Funding Ratio (NSFR), is also monitored. Nationwide's
average NSFR for the four quarters ended 30 September 2023 was 149%
(4 April 2023: 147%), well in excess of the 100% minimum
requirement.
Funding risk
Funding strategy
Nationwide's funding strategy is to remain predominantly retail
funded, as set out below.
Funding profile
Assets 30 September 4 April Members' interests, equity 30 September 4 April
2023 2023 and liabilities 2023 2023
(note i) GBPbn GBPbn GBPbn GBPbn
------------
Retail mortgages 202.0 201.4 Retail funding 191.3 187.1
Treasury assets (including
liquidity portfolio) 58.1 56.1 Wholesale funding 56.2 57.9
Commercial lending 5.4 5.5 Other liabilities 3.2 3.1
Capital and reserves (note
Consumer lending 3.9 3.9 ii) 23.8 23.8
Other assets 5.1 5.0
Total 274.5 271.9 Total 274.5 271.9
Notes:
i. Figures in the above table are stated net of impairment provisions where applicable.
ii. Includes all subordinated liabilities and subscribed capital.
At 30 September 2023, Nationwide's loan to deposit ratio, which
represents loans and advances to customers divided by the total of
shares and other deposits, was 106.8% (4 April 2023: 109.6%).
Included within shares and other deposits, which are reported in
the retail and wholesale funding categories above, is GBP35 billion
of deposits (4 April 2023: GBP35 billion(1) ) that exceed the
GBP85,000 per customer Financial Services Compensation Scheme
(FSCS) limit.
1 The 4 April 2023 comparative for deposits that exceed the
GBP85,000 threshold has been restated to reflect improved data
quality since originally reported.
Liquidity and funding risk (continued)
Wholesale funding
The wholesale funding portfolio comprises a range of secured and
unsecured instruments to ensure that a stable and diversified
funding base is maintained across a range of instruments,
currencies, maturities, and investor types. Part of Nationwide's
wholesale funding strategy is to remain active in core markets and
currencies. A funding risk limit framework also ensures that a
prudent funding mix and maturity concentration profile is
maintained and limits the level of encumbrance to ensure that
enough contingent funding capacity is retained in the event of a
stress.
Wholesale funding has decreased by GBP1.7 billion to GBP56.2
billion during the period driven by repayment of GBP4.1 billion of
drawings from the Bank of England's Term Funding Scheme with
additional incentives for SMEs (TFSME). This decrease was partially
offset by secured and unsecured wholesale funding issuances during
the period. The wholesale funding ratio (on-balance sheet wholesale
funding as a proportion of total funding liabilities) at 30
September 2023 was 23.5% (4 April 2023: 25.0%).
The table below sets out wholesale funding by currency.
Wholesale funding by currency
30 September 2023 4 April 2023
GBP EUR USD Other Total % of GBP EUR USD Other Total % of
total total
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
Repos 0.1 - - - 0.1 0 1.4 0.1 0.6 - 2.1 4
Deposits 13.4 - - - 13.4 24 11.0 - - - 11.0 19
Certificates of deposit 3.3 - - - 3.3 6 1.0 - - - 1.0 2
Covered bonds 5.9 7.2 - 1.4 14.5 26 6.0 7.2 - 1.2 14.4 25
Medium term notes 1.9 4.5 4.0 1.3 11.7 21 1.1 4.8 3.9 1.3 11.1 19
Securitisations 1.4 - 0.2 - 1.6 3 2.3 - 0.2 - 2.5 4
Term Funding Scheme with
additional
incentives for SMEs (TFSME) 13.2 - - - 13.2 23 17.2 - - - 17.2 29
Other (note i) - (1.3) (0.2) (0.1) (1.6) (3) - (1.1) (0.2) (0.1) (1.4) (2)
Total 39.2 10.4 4.0 2.6 56.2 100 40.0 11.0 4.5 2.4 57.9 100
Note:
i. Other consists of fair value adjustments to debt securities in issue for micro hedged risks.
Liquidity and funding risk (continued)
The table below sets out the residual maturity of wholesale
funding, on a contractual maturity basis.
Wholesale funding - residual maturity
30 September 2023 Not more Over one Over three Over six Subtotal Over one Over two Total
than month but months but months but less than year but years
one month not not more not more one year not more
more than than six than one than two
three months months year years
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
Repos 0.1 - - - 0.1 - - 0.1
Deposits 10.1 1.4 1.6 0.2 13.3 0.1 - 13.4
Certificates of deposit 3.3 - - - 3.3 - - 3.3
Covered bonds - - 1.6 0.5 2.1 0.9 11.5 14.5
Medium term notes - 0.2 1.2 0.1 1.5 3.7 6.5 11.7
Securitisations 0.3 - - 0.2 0.5 0.1 1.0 1.6
TFSME 0.1 - - - 0.1 13.1 - 13.2
Other (note i) - - - - - (0.2) (1.4) (1.6)
Total 13.9 1.6 4.4 1.0 20.9 17.7 17.6 56.2
Of which secured 0.5 - 1.6 0.7 2.8 14.1 11.5 28.4
Of which unsecured 13.4 1.6 2.8 0.3 18.1 3.6 6.1 27.8
% of total 24.7 2.9 7.8 1.8 37.2 31.5 31.3 100.0
Wholesale funding - residual maturity
4 April 2023 Not more Over one Over three Over six Subtotal Over one Over two Total
than month but months but months but less than year but years
one month not more not more not more one year not more
than three than six than one than
months months year two years
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
Repos 2.1 - - - 2.1 - - 2.1
Deposits 7.6 1.6 1.4 0.3 10.9 0.1 - 11.0
Certificates of deposit 1.0 - - - 1.0 - - 1.0
Covered bonds 0.8 0.1 - 1.6 2.5 1.1 10.8 14.4
Medium term notes 0.7 - - 1.4 2.1 0.8 8.2 11.1
Securitisations 0.7 - 0.2 0.2 1.1 0.3 1.1 2.5
TFSME - - - - - 11.9 5.3 17.2
Other (note i) - - - - - (0.1) (1.3) (1.4)
Total 12.9 1.7 1.6 3.5 19.7 14.1 24.1 57.9
Of which secured 3.6 0.1 0.2 1.8 5.7 13.3 16.4 35.4
Of which unsecured 9.3 1.6 1.4 1.7 14.0 0.8 7.7 22.5
% of total 22.3 2.9 2.8 6.0 34.0 24.4 41.6 100
Note:
i. Other consists of fair value adjustments to debt securities in issue for micro hedged risks.
At 30 September 2023, cash, government bonds and supranational
bonds included in the liquid asset buffer represented 233% (4 April
2023: 229%) of wholesale funding maturing in less than one year,
assuming no rollovers.
Liquidity and funding risk (continued)
Liquidity risk
Liquid assets
The table below sets out the sterling equivalent fair value of
the liquidity portfolio, by issuing currency. It includes
off-balance sheet liquidity, such as securities received through
reverse repo agreements, and excludes securities encumbered through
repo agreements and for other purposes.
Liquid assets
30 September 2023 4 April 2023
GBP EUR USD JPY Other Total GBP EUR USD JPY Other Total
(note (note
i) i)
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
Cash and reserves at central
banks 28.6 0.1 - - - 28.7 25.5 - 0.1 - - 25.6
Government bonds (note ii) 6.4 2.9 5.3 1.7 0.9 17.2 5.9 3.2 5.3 1.3 1.1 16.8
Supranational bonds 0.1 2.2 0.4 - 0.1 2.8 0.1 2.2 0.5 - - 2.8
Covered bonds 1.2 1.8 0.1 - - 3.1 1.1 1.6 0.1 - - 2.8
Residential mortgage backed
securities (RMBS) (note iii) 1.2 0.3 - - - 1.5 1.3 0.2 - - - 1.5
Asset-backed securities and
other securities 0.2 - - - - 0.2 0.2 - - - - 0.2
Total 37.7 7.3 5.8 1.7 1.0 53.5 34.1 7.2 6.0 1.3 1.1 49.7
Notes:
i. Other currencies primarily consist of Canadian dollars.
ii. Balances classified as government bonds include
government-guaranteed, agency and government-sponsored bonds.
iii. Balances include all RMBS held by the Society which can be
monetised through sale or repo.
The table above primarily comprises LCR-eligible high-quality
liquid assets which averaged GBP56.4 billion for the 12 months
ended 30 September 2023 (4 April 2023: GBP53.3 billion). Further
details can be found in the Group's interim Pillar 3 disclosure
2023-24 at nationwide.co.uk
Nationwide has met its most recent Environmental, Social and
Governance (ESG) asset investment target of GBP1.5 billion and will
maintain a minimum holding of GBP1.5 billion during 2023/24.
Nationwide's internal definition of ESG assets remains restricted
to bonds issued by multilateral development banks and green bonds
issued by selected governments.
Liquidity and funding risk (continued)
Residual maturity of financial assets and liabilities
The table below segments the carrying value of financial assets
and financial liabilities into relevant maturity groupings based on
the final contractual maturity date (residual maturity).
Residual maturity (note i )
30 September Due less Due Due Due Due Due Due Due after Total
2023 than between between between between between between more
one month one and three six and nine and one and two and than
(note three and nine twelve two years five five
ii) months six months months months years years
---------- --------- ---------- ---------- ---------- ---------- ----------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- ---------- ---------- ----------
Financial
assets
---------- --------- ---------- ---------- ---------- ---------- ----------
Cash 28,676 - - - - - - - 28,676
---------- --------- ---------- ---------- ---------- ---------- ----------
Loans and
advances to
banks
and similar
institutions 2,163 - - - - - - 1,005 3,168
---------- --------- ---------- ---------- ---------- ---------- ----------
Investment
securities 50 258 449 346 279 1,243 10,634 12,969 26,228
---------- --------- ---------- ---------- ---------- ---------- ----------
Derivative
financial
instruments 23 25 307 57 34 1,503 3,635 2,465 8,049
---------- --------- ---------- ---------- ---------- ---------- ----------
Fair value
adjustment
for
portfolio
hedged risk (12) (203) (402) (187) (273) (1,462) (2,820) (432) (5,791)
---------- --------- ---------- ---------- ---------- ---------- ----------
Loans and
advances to
customers 2,800 1,396 2,040 1,971 1,974 7,782 23,121 170,214 211,298
Total
financial
assets 33,700 1,476 2,394 2,187 2,014 9,066 34,570 186,221 271,628
Financial
liabilities
---------- --------- ---------- ---------- ---------- ---------- ----------
Shares 141,891 5,178 6,318 7,557 14,543 12,817 2,123 904 191,331
---------- --------- ---------- ---------- ---------- ---------- ----------
Deposits from
banks and
similar
institutions 7,419 1 - 3 1 13,070 - - 20,494
Of which repo 132 - - - - - - - 132
---------- --------- ---------- ---------- ---------- ---------- ----------
Of which
TFSME 168 - - - - 13,070 - - 13,238
Other
deposits 3,000 1,379 1,564 122 113 80 5 - 6,263
---------- --------- ---------- ---------- ---------- ---------- ----------
Fair value
adjustment
for
portfolio
hedged risk 4 6 6 6 21 12 1 - 56
---------- --------- ---------- ---------- ---------- ---------- ----------
Secured
funding -
ABS and
covered
bonds 290 21 1,648 587 41 973 6,763 4,761 15,084
---------- --------- ---------- ---------- ---------- ---------- ----------
Senior
unsecured
funding 3,336 204 1,211 72 17 3,483 5,026 1,023 14,372
---------- --------- ---------- ---------- ---------- ---------- ----------
Derivative
financial
instruments 31 1 13 49 34 180 491 861 1,660
---------- --------- ---------- ---------- ---------- ---------- ----------
Subordinated
liabilities 17 38 19 - 3 - 3,490 2,713 6,280
---------- --------- ---------- ---------- ---------- ---------- ----------
Subscribed
capital
(note iii) 1 - 1 - - - - 167 169
Total
financial
liabilities 155,989 6,828 10,780 8,396 14,773 30,615 17,899 10,429 255,709
Off-balance
sheet
commitments
(note iv) 10,599 - - - - - - - 10,599
Net liquidity
difference (132,888) (5,352) (8,386) (6,209) (12,759) (21,549) 16,671 175,792 5,320
Cumulative
liquidity
difference (132,888) (138,240) (146,626) (152,835) (165,594) (187,143) (170,472) 5,320 -
---------- --------- ---------- ---------- ---------- ---------- ----------
Liquidity and funding risk (continued)
Residual maturity (note i)
4 April 2023 Due less Due Due Due Due Due Due Due after Total
than between between between between between between more
one month one and three six and nine and one and two and than
(note ii) three and nine twelve two years five five
months six months months months years years
---------- ---------- ---------- ---------- ---------- ---------- -------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------- ---------- ---------- ---------- ---------- ---------- -------
Financial
assets
---------- ---------- ---------- ---------- ---------- ---------- -------
Cash 25,635 - - - - - - - 25,635
---------- ---------- ---------- ---------- ---------- ---------- -------
Loans and
advances to
banks
and similar
institutions 1,887 - - - - - - 973 2,860
---------- ---------- ---------- ---------- ---------- ---------- -------
Investment
securities 81 151 41 68 402 772 8,880 17,220 27,615
---------- ---------- ---------- ---------- ---------- ---------- -------
Derivative
financial
instruments 77 1 59 44 243 450 3,904 2,145 6,923
---------- ---------- ---------- ---------- ---------- ---------- -------
Fair value
adjustment
for
portfolio
hedged risk (16) (31) (297) (26) (314) (1,118) (2,829) (380) (5,011)
---------- ---------- ---------- ---------- ---------- ---------- -------
Loans and
advances to
customers 2,784 1,371 2,127 2,053 2,076 7,957 23,489 168,925 210,782
Total
financial
assets 30,448 1,492 1,930 2,139 2,407 8,061 33,444 188,883 268,804
Financial
liabilities
---------- ---------- ---------- ---------- ---------- ---------- -------
Shares 149,642 2,153 6,955 8,292 6,473 10,116 2,581 931 187,143
---------- ---------- ---------- ---------- ---------- ---------- -------
Deposits from
banks and
similar
institutions 7,882 13 1 - - 11,890 5,270 - 25,056
Of which repo 2,075 - - - - - - - 2,075
---------- ---------- ---------- ---------- ---------- ---------- -------
Of which
TFSME - 6 - - - 11,890 5,270 - 17,166
Other
deposits 1,806 1,559 1,374 224 103 116 9 - 5,191
---------- ---------- ---------- ---------- ---------- ---------- -------
Fair value
adjustment
for
portfolio
hedged risk - 1 1 - - - - - 2
---------- ---------- ---------- ---------- ---------- ---------- -------
Secured
funding -
ABS and
covered
bonds 1,501 41 264 233 1,592 1,328 5,930 5,142 16,031
---------- ---------- ---------- ---------- ---------- ---------- -------
Senior
unsecured
funding 1,685 12 53 200 1,126 805 5,757 1,957 11,595
---------- ---------- ---------- ---------- ---------- ---------- -------
Derivative
financial
instruments 56 - 2 1 24 134 405 902 1,524
---------- ---------- ---------- ---------- ---------- ---------- -------
Subordinated
liabilities 8 2 31 14 - 795 3,225 2,680 6,755
---------- ---------- ---------- ---------- ---------- ---------- -------
Subscribed
capital
(note iii) 1 - 1 - - - - 171 173
Total
financial
liabilities 162,581 3,781 8,682 8,964 9,318 25,184 23,177 11,783 253,470
Off-balance
sheet
commitments
(note iv) 10,333 - - - - - - - 10,333
Net liquidity
difference (142,466) (2,289) (6,752) (6,825) (6,911) (17,123) 10,267 177,100 5,001
Cumulative
liquidity
difference (142,466) (144,755) (151,507) (158,332) (165,243) (182,366) (172,099) 5,001 -
---------- ---------- ---------- ---------- ---------- ---------- -------
Notes:
i. The analysis excludes certain non-financial assets (including
property, plant and equipment, intangible assets, other assets,
current tax assets, deferred tax assets and accrued income and
prepaid expenses) and non-financial liabilities (including
provisions for liabilities and charges, accruals and deferred
income, current tax liabilities, deferred tax liabilities and other
liabilities). The retirement benefit surplus and lease liabilities
have also been excluded.
ii. Due less than one month includes amounts repayable on demand.
iii. The principal amount for undated subscribed capital is
included within the due after more than five years column.
iv. Off-balance sheet commitments include amounts payable on
demand for undrawn loan commitments, customer overpayments on
residential mortgages where the borrower can draw down the amount
overpaid, and commitments to acquire financial assets.
In practice, customer behaviours mean that liabilities are often
retained for longer than their contractual maturities and assets
are repaid earlier. This gives rise to funding mismatches on the
balance sheet. The balance sheet structure and risks are managed
and monitored by Nationwide's Assets and Liabilities Committee
(ALCO). Judgement and past behavioural performance of each asset
and liability class are used to forecast likely cash flow
requirements.
In the six months to 30 September 2023, a reduction in deposits
from banks and similar institutions is primarily due to the
repayment of TFSME drawings and a reduction in deposits via repo
agreements.
Liquidity and funding risk (continued)
Asset encumbrance
Encumbrance arises where assets are pledged as collateral
against secured funding and other collateralised obligations, and
therefore cannot be used for other purposes. The majority of asset
encumbrance arises from the use of owner-occupied mortgage pools to
collateralise the covered bond and securitisation programmes and
from participation in the Bank of England's TFSME. Further
information is included in the Annual Report and Accounts 2023.
Certain unencumbered assets are readily available to secure
funding or meet collateral requirements. These include
owner-occupied mortgages, cash and securities held in the liquid
asset buffer. Other unencumbered assets, such as non-owner-occupied
mortgages, are capable of being encumbered with a degree of further
management action. Assets which do not fall into either of these
categories are classified as not being capable of being
encumbered.
At 30 September 2023, Nationwide had GBP33,721 million (4 April
2023: GBP35,215 million) of externally encumbered assets with
counterparties other than central banks. In addition, GBP64,497
million (4 April 2023: GBP68,535 million) of prepositioned and
encumbered assets were held at central banks and GBP170,511 million
(4 April 2023: GBP162,254 million) of assets were neither
encumbered nor prepositioned but capable of being encumbered. The
decrease in assets prepositioned and encumbered at central banks
reflects the repayment of TFSME drawings . The increase in assets
neither encumbered nor prepositioned but capable of being
encumbered reflects the increase in total assets and release of
assets encumbered against TFSME.
External credit ratings
The Group's long-term and short-term credit ratings are shown in
the table below. The long-term rating for both Standard &
Poor's (S&P) and Moody's is the senior preferred rating. The
long-term rating for Fitch is the senior non-preferred rating.
Credit ratings
Senior Short-term Senior Tier 2 Date of last Outlook
preferred non-preferred rating action
/ confirmation
September
Standard & Poor's A+ A-1 BBB+ BBB 2023 Stable
Moody's A1 P-1 A3 Baa1 August 2023 Stable
Fitch A+ F1 A BBB+ July 2023 Stable
Nationwide's credit ratings were affirmed and outlook confirmed
by Fitch in July 2023, Moody's in August 2023 and by S&P in
September 2023.
Capital risk
Capital risk is the risk that Nationwide fails to maintain
sufficient capital to absorb losses throughout a full economic
cycle and sufficient to maintain the confidence of current and
prospective investors, members, the Board and regulators. Capital
is held to protect members, cover inherent risks, provide a buffer
for stress events and support the business strategy. In assessing
the adequacy of capital resources, risk appetite is considered in
the context of the material risks to which Nationwide is exposed
and the appropriate strategies required to manage those risks.
Capital position
The capital disclosures included in this report are in line with
UK Capital Requirements Directive V (UK CRD V) and on an end point
basis with IFRS 9 transitional arrangements applied. In addition,
the disclosures are on a consolidated Group basis, including all
subsidiary entities, unless otherwise stated.
Capital ratios and requirements
30 September 4 April
2023 2023
Capital ratios % %
------------ -------
CET1 ratio 27.4 26.5
------------ -------
Tier 1 ratio 29.9 29.1
-------
Total regulatory capital ratio 33.3 32.7
-------
Leverage ratio 6.4 6.0
-------
Capital requirements GBPm GBPm
------------ -------
Risk weighted assets (RWAs) 52,311 51,731
-------
Leverage exposure 245,767 249,299
-------
Risk-based capital ratios remain in excess of regulatory
requirements with the CET1 ratio at 27.4% (4 April 2023: 26.5%),
above Nationwide's CET1 capital requirement of 12.5%. The CET1
capital requirement includes a 7.0% minimum Pillar 1 and Pillar 2
requirement and the UK CRD V combined buffer requirements of 5.5%
of RWAs.
The CET1 ratio increased to 27.4% (4 April 2023: 26.5%) as a
result of an increase in CET1 capital of GBP0.6 billion, partially
offset by an increase in RWAs of GBP0.6 billion. The CET1 capital
resources increase was driven by GBP0.7 billion profit after tax,
partially offset by GBP0.1 billion of capital distributions. RWAs
increased, predominantly due to an increase in residential mortgage
balances.
UK CRD V requires firms to calculate a leverage ratio, which is
non-risk based, to supplement risk-based capital requirements.
Nationwide's leverage ratio is 6.4% (4 April 2023: 6.0%), with Tier
1 capital increasing by GBP0.6 billion as a result of the CET1
capital movements referenced above. In addition, there was a
decrease in leverage exposure of GBP3.5 billion, with an increase
in residential mortgage balances more than offset by a reduction in
treasury investments for the period.
The leverage ratio remains in excess of Nationwide's leverage
capital requirement of 4.3%, which comprises a minimum Tier 1
capital requirement of 3.25% and buffer requirements of 1.05%. The
buffer requirements include a 0.7% UK countercyclical leverage
ratio buffer, in force from July 2023, and a 0.35% additional
leverage ratio buffer.
Leverage requirements continue to be Nationwide's binding Tier 1
capital constraint, as the combination of minimum and regulatory
buffer requirements are in excess of the risk-based equivalent. The
risk of excessive leverage is managed through regular monitoring
and reporting of the leverage ratio, which forms part of risk
appetite.
Further details on the leverage exposure can be found in the
Group's interim Pillar 3 Disclosure 2023-24 at nationwide.co.uk
Capital risk (continued)
The table below shows how the components of members' interest
and equity contribute to total regulatory capital and does not
include non-qualifying instruments.
Total regulatory capital
30 September 4 April
2023 2023
GBPm GBPm
General reserve 14,709 14,184
Core capital deferred shares (CCDS) (note i) 1,334 1,334
Revaluation reserve 37 38
Fair value through other comprehensive income (FVOCI)
reserve (10) (14)
Cash flow hedge and other hedging reserves 125 129
Regulatory adjustments and deductions:
Cash flow hedge and other hedging reserves (note ii) (125) (129)
Direct holdings of CET1 instruments (note i) (177) (101)
Foreseeable distributions (note iii) (63) (67)
Prudent valuation adjustment (note iv) (86) (119)
Own credit and debit valuation adjustments (note v) (11) (27)
Intangible assets (note vi) (831) (839)
Goodwill (note vi) (12) (12)
Defined benefit pension fund asset (note vi) (519) (614)
Excess of regulatory expected losses over impairment
provisions (note vii) (49) (45)
IFRS 9 transitional arrangements (note viii) - 15
Total regulatory adjustments and deductions (1,873) (1,938)
CET1 capital 14,322 13,733
Other equity instruments (Additional Tier 1) 1,336 1,336
Tier 1 capital 15,658 15,069
Dated subordinated debt (note ix) 1,737 1,835
Excess of impairment provisions over regulatory expected
losses (note vii) 33 14
IFRS 9 transitional arrangements (note viii) - (10)
Tier 2 capital 1,770 1,839
Total regulatory capital 17,428 16,908
Notes:
i. The CCDS amount does not include the deductions for the
Group's repurchase exercises completed in February and June 2023.
This is presented separately as a regulatory adjustment in line
with UK Capital Requirements Regulation (CRR) article 42.
ii. In accordance with CRR article 33, institutions do not
include the fair value reserves related to gains or losses on cash
flow hedges of financial instruments that are not valued at fair
value.
iii. Foreseeable distributions in respect of CCDS and AT1
securities are deducted from CET1 capital under UK CRD V rules.
iv. A prudent valuation adjustment (PVA) is applied in respect
of fair valued instruments as required under UK CRD V rules.
v. Own credit and debit valuation adjustments are applied to
remove balance sheet gains or losses of fair valued liabilities and
derivatives that result from changes in own credit standing and
risk, as per UK CRD V rules.
vi. Intangible, goodwill and defined benefit pension fund assets
are deducted from capital resources after netting associated
deferred tax liabilities.
vii. Where capital expected loss exceeds accounting provisions,
the excess balance is removed from CET1 capital, gross of tax. In
contrast, where provisions exceed capital expected loss, the excess
amount is added to Tier 2 capital, gross of tax. This calculation
is not performed for equity exposures, in line with Article 159 of
CRR. The expected loss amounts for equity exposures are deducted
from CET1 capital, gross of tax.
viii. The IFRS 9 transitional adjustments to capital resources
apply scaled relief until 4 April 2025 due to the impact of the
introduction of IFRS 9 and anticipated increases in expected credit
losses as a result of the Covid-19 pandemic. Further detail is
provided in the Group's interim Pillar 3 disclosure 2023-2024 at
nationwide.co.uk
ix. Subordinated debt includes fair value adjustments relating
to changes in market interest rates, adjustments for unamortised
premiums and discounts that are included in the condensed
consolidated balance sheet, and any amortisation of the capital
value of Tier 2 instruments required by regulatory rules for
instruments with fewer than five years to maturity.
Capital risk (continued)
As part of the Bank Recovery and Resolution Directive, the Bank
of England, in its capacity as the UK resolution authority, has
published its policy for setting the minimum requirement for own
funds and eligible liabilities (MREL). From 1 January 2023,
Nationwide's requirement is to hold twice the minimum capital
requirements (amounting to 6.5% of leverage exposure), plus the
applicable capital requirement buffers, which amount to 1.05% of
leverage exposure. This equals a total loss-absorbing requirement
of 7.55%. At 30 September 2023, total MREL resources, which include
total regulatory capital and eligible liabilities, were in excess
of this requirement at 9.0% (4 April 2023: 8.8%) of leverage
exposure.
Risk weighted assets
The table below shows the breakdown of risk weighted assets
(RWAs) by risk type and business activity. Market risk has been set
to zero as permitted by the CRR, as the exposure is below the
threshold of 2% of own funds.
Risk weighted assets
30 September 2023 4 April 2023
Credit Operational Total Risk Credit Risk Operational Total Risk
Risk Risk (note Weighted (note i) Risk (note Weighted
(note i) ii) Assets ii) Assets
GBPm GBPm GBPm GBPm GBPm GBPm
Retail mortgages 35,836 2,991 38,827 34,609 2,991 37,600
Retail unsecured lending 5,037 1,114 6,151 5,145 1,114 6,259
Commercial loans 1,793 60 1,853 1,883 60 1,943
Treasury 1,426 290 1,716 1,559 290 1,849
Counterparty credit risk (note
iii) 754 - 754 989 - 989
Other (note iv) 1,634 1,376 3,010 1,715 1,376 3,091
Total 46,480 5,831 52,311 45,900 5,831 51,731
Notes:
i. Includes credit risk exposures, securitisations, counterparty
credit risk exposures and exposures below the thresholds for
deduction which are subject to a 250% risk weight.
ii. RWAs have been allocated according to the business lines
within the standardised approach to operational risk, as per
article 317 of CRR.
iii. Counterparty credit risk relates to derivative financial
instruments, securities financing transactions (repurchase
agreements) and exposures to central counterparties.
iv. Other relates to equity, fixed and other assets.
RWAs increased by GBP0.6 billion predominantly due to a GBP1.2
billion increase in retail mortgage RWAs. This was due to an
increase in residential mortgage balances, in conjunction with a
higher portfolio average loss given default (LGD) linked to
property valuations. There was a GBP0.6 billion reduction in RWAs
across other business lines.
In line with 4 April 2023, a model adjustment continues to be
included within RWAs to ensure outcomes consistent with revised
Internal Ratings Based (IRB) regulations in force from 1 January
2022. The impact of this is a GBP22.4 billion increase in RWAs,
mainly relating to retail mortgages. In line with other industry
participants, Nationwide continues to engage with the PRA regarding
approval and implementation timings for Hybrid IRB mortgage
models.
More detailed analysis of RWAs is included in the Group's
interim Pillar 3 Disclosure 2023-24 at nationwide.co.uk
Capital risk (continued)
Stress testing
The Bank of England returned to the Annual Cyclical Scenario
(ACS) Stress Test framework in September 2022. This followed two
years of Covid-19 pandemic-related stress testing and its decision
to postpone the test in March 2022. The 2022 ACS tested the
resilience of the UK banking system to deep simultaneous recessions
in the UK and global economies, large falls in asset prices and
higher global interest rates, and a separate stress of misconduct
costs.
Nationwide's low point CET1 ratio through the scenario was 20.3%
before strategic management actions. This was in excess of that of
peers, showing Nationwide is well capitalised and positioned to
meet stressed economic conditions. The leverage ratio low point was
5.6%, remaining in excess of the 3.6% regulatory requirement at
that time.
On 10 October 2023, the Bank of England confirmed it intends to
run a desk-based stress test exercise in 2024, rather than an ACS,
to support the Financial Policy Committee (FPC) and PRA monitoring
and assessment of the resilience of the UK banking system to
potential downside risks.
Regulatory developments
The Basel Committee published its final reforms to the Basel III
framework in December 2017, now denoted by the PRA as Basel 3.1.
The amendments include changes to the standardised approaches for
credit and operational risks, including the introduction of an RWA
standardised output floor to restrict the use of internal models.
On 30 November 2022, the Bank of England issued CP16/22
'Implementation of the Basel 3.1 standards'. The consultation
paper, although materially similar to the original Basel reforms,
includes interpretations and some divergences.
The reforms may lead to an increase in Nationwide's RWAs
relative to the current position, mainly due to the application of
the standardised RWA output floor. The expected implementation date
is 1 July 2025, with a phased introduction of the standardised RWA
output floor until fully implemented by 2030. Based on Nationwide's
latest interpretation of the draft rules, there will not be a
material day-one impact on Nationwide's CET1 ratio.
Nationwide's CET1 ratio would reduce to a low-to-mid 20% range
compared to the 27.4% reported at 30 September 2023, if the 2030
fully implemented standardised RWA output floor was overlaid.
However, final impacts are uncertain as they are subject to future
balance sheet size and mix and the rules are not yet final.
Nationwide will remain engaged in the development of the
regulatory approach to ensure it is prepared for any resulting
change.
CCDS repurchase
In January 2023, the PRA granted Nationwide a one-year general
prior permission (GPP) to repurchase CCDS up to the equivalent of
2% of CET1 capital resources. Nationwide has applied to renew the
GPP, which subject to approval, will allow Nationwide to offer to
repurchase up to 2% of CET1 capital resources (equating to GBP286
million at 30 September 2023) during 2024 at the Board's
discretion. In the six months to 30 September 2023, GBP76 million
of CCDS were repurchased under the current GPP.
Market risk
Market risk is the risk that the net value of, or net income
arising from, assets and liabilities is impacted as a result of
changes in market prices or rates, primarily interest rates,
currency rates or equity prices. Nationwide has limited appetite
for market risk and does not have a trading book. Market risk is
closely monitored and managed to ensure the level of risk remains
within appetite. Market risks are not taken unless they are
essential to core business activities and they provide stability of
earnings, minimise costs or enable operational efficiency.
The principal market risks linked to Nationwide's balance sheet
assets and liabilities include interest rate risk, basis risk, swap
spread risk, currency risk and product option risk.
Developments in the UK economic environment have continued
during this period with inflation rates (Consumer Price Index)
remaining high, despite falling from 8.3% at April 2023 to 6.7% at
the end of September 2023. In response to this continued heightened
inflation rate, the Bank of England voted to raise the Bank rate on
three occasions since April 2023 to a rate of 5.25% as at 30
September 2023, with the aim of returning inflation to the 2%
target in the medium term. This has led to a change to the UK
housing market, with the average house price decreasing by 1.0%
over the first six months of the financial year.
Sterling has weakened against the dollar during the period;
however, this movement has had negligible impact on the Group as it
hedges exposure in foreign currencies.
Whilst economic conditions within the UK have an impact on the
Group, market risk is closely managed to ensure it remains within
risk appetite. Further information on market risk appetite, risk
management, structural interest rate risk and reporting measures is
included within the Risk report in the Annual Report and Accounts
2023.
Net Interest Income sensitivity (NII)
The sensitivities presented below measure the extent to which
Nationwide's pre-tax earnings are exposed to changes in interest
rates over a one-year period based on instantaneous parallel rises
and falls in interest rates, with the shifts applied to the
prevailing interest rates at the reporting date. The sensitivities
are prepared based on a static balance sheet, with all assets and
liabilities maturing within the year replaced with like-for-like
products, and changes in interest rates being fully passed through
to variable rate retail products, unless a 0% floor is reached when
rates fall. No management actions are included in the
sensitivities.
The purpose of these sensitivities is to assess the exposure to
interest rate risk and therefore the sensitivities should not be
considered as a guide to future earnings performance, with actual
future earnings influenced by the extent to which changes in
interest rates are passed through to product pricing, the timing of
asset and liability maturities and changes to the balance sheet
mix. In practice, earnings changes from actual interest rate
movements will differ from those calculated in the sensitivity
analysis because interest rate changes may not be passed through in
full to those assets and liabilities that do not have a contractual
link to Bank rate.
Potential adverse impact on annual pre-tax future
earnings
30 September 4 April 2023
2023
GBPm GBPm
-------------
+100 basis point shift (37) (30)
-------------
+25 basis point shift (8) (6)
-------------
-25 basis point shift (6) (5)
-------------
-100 basis point shift (33) (32)
-------------
The low levels of NII sensitivity reflect Nationwide's prudent
management of interest rate risk. Minimal NII sensitivity continues
to arise in the +25 basis point shift given that rate changes are
assumed to be fully passed through in this scenario, with product
margins held static. The negative impacts for the +25 and +100
basis point shifts assume that a higher proportion of customers
will take up mortgage offers reserved at lower rates, resulting in
the need for further hedging at higher rates.
Pension risk
Pension risk is defined as the risk that the value of the
pension schemes' assets will be insufficient to meet the estimated
liabilities, creating a pension deficit. Pension risk could
negatively impact Nationwide's capital position and might result in
increased cash funding obligations to the pension schemes.
Nationwide has funding obligations to a number of defined
benefit pension schemes, the largest of which is the Nationwide
Pension Fund (the Fund) which represents over 99% of the Society's
pension obligations. The Fund has approximately 29,000 participants
(Fund members), the majority of whom are deferred members (former
and current employee members, not yet retired). The Fund closed to
new entrants in 2007 and closed to future accrual on 31 March 2021.
Further information is set out within the Risk report in the Annual
Report and Accounts 2023.
The Fund's net defined benefit pension surplus, which is shown
within assets on the condensed consolidated balance sheet, has
decreased from GBP946 million to GBP800 million since 4 April 2023.
This was mainly driven by narrowing credit spreads during this
period which resulted in liabilities reducing by less than the
assets. Further information is included in note 14 to the condensed
consolidated interim financial statements.
In the years ahead, the Fund's board of trustees (the Trustee)
intends to further reduce the level of risk within the Fund, and
Nationwide actively engages with the Trustee to ensure broad
alignment on investment objectives and implementation. Potential
risk management initiatives include, but are not limited to,
adjusting the asset allocation, longevity hedging and implementing
derivative, and other hedging strategies.
In May 2023, the Fund entered into a longevity swap transaction
to manage the scheme's longevity risk in relation to GBP1.7 billion
of pension liabilities, covering approximately 7,000 pensioners.
This transaction will provide income to the Fund in the event that
pensions are paid out for longer than expected, mitigating the
financial impact and reducing the scheme's longevity risk exposure
by approximately one third. The swap is included in the Fund's
assets, with a zero fair value at 30 September 2023, with future
changes to its fair value expected to broadly offset changes in the
scheme's liabilities relating to updates to life expectancy for
those pensioners covered.
On 9 November 2023, the Government issued a consultation on
potential options for how it could intervene to cap ground rents,
as part of its wider leasehold reforms. Developments on this will
continue to be monitored to determine the potential impact on the
GBP105 million of freehold properties held as part of the Fund's
assets.
Operational and conduct risk
Operational and conduct risk is the risk resulting from
inadequate or failed internal processes, conduct and compliance
management, people and systems, or from external events.
Nationwide's overall operational and conduct risk profile has
remained broadly stable since 4 April 2023. Key focus areas during
the period include IT and operational resilience, and ensuring good
outcomes for customers, particularly in the context of the
increased cost of living and implementation of the Consumer Duty.
Further information on operational and conduct risk can be found
within the Risk report in the Annual Report and Accounts 2023.
IT and operational resilience
Operational resilience is key to the Society's strategy and the
regulatory environment. Focus remains on keeping services resilient
and available through ongoing investment in IT. Infrastructure
continues to be upgraded to ensure services are delivered using the
latest technology. Work also continues to enhance the Society's
critical payment infrastructure to ensure service disruption is
minimised.
Nationwide continually assesses the resilience of its Important
Business Services (IBS) by testing and exercising incident
management and disaster recovery responses to known threats by
running scenarios and incident simulations. This includes scenarios
which could impact third parties, to help identify any areas for
improvement. Where vulnerabilities are identified, remediation is
prioritised to ensure any potential impacts to customers are
minimised and regulatory expectations can be met. Nationwide is
currently reviewing its disaster recovery capabilities in relation
to a supplier of printing services, which includes an assessment of
options available to ensure any impact on operations is
minimised.
Operational and conduct risk (continued)
Cost of living and customers in financial difficulty
The increased cost of living continues to pose challenges for
the management of conduct risk as more customers are expected to
face financial difficulty and require appropriate support.
Nationwide has taken a series of steps to support those customers
who may be facing cost of living challenges, including a freephone
support helpline, cost of living training for front line advisors,
and financial health checks for customers. Our customers now have
greater access to support through 24/7 chat and through our contact
centres which are now open 7 days a week, in addition to the
support available through our branch network.
Good customer outcomes and the Consumer Duty
Nationwide has implemented the requirements of the Financial
Conduct Authority's Consumer Duty for new and existing products,
which came into effect on 31 July 2023. The Consumer Duty requires
a higher standard of consumer care beyond the previous set of
principles and rules and requires firms to be more proactive in the
delivery of fair outcomes. Nationwide remains committed to ensuring
good customer outcomes, and work is ongoing to implement the Duty's
requirements for closed products and services prior to the deadline
of 31 July 2024.
Model risk
Model risk is the risk of adverse consequences from model errors
or the inappropriate use of modelled outputs. Nationwide relies on
models to support a broad range of business and risk management
activities. Key examples include the use of model outputs in the
credit approval process, capital and liquidity assessments, stress
testing, loss provisioning, financial planning and pricing
strategies. Nationwide also uses models which apply advanced
machine learning techniques to other risk types such as climate
change and economic crime. Further information on model risk can be
found within the Risk report in the Annual Report and Accounts
2023.
In May 2023, the Prudential Regulation Authority published a new
supervisory statement 'Model risk management principles for banks
', setting out stronger governance expectations for model risk
management. The supervisory statement comes into effect on 17 May
2024. Work is ongoing to align Nationwide's model risk framework
and standards with the statement's principles in line with the
implementation deadline.
Condensed consolidated interim financial statements
Contents
Page
Condensed consolidated income statement 64
Condensed consolidated statement of comprehensive income 65
Condensed consolidated balance sheet 66
Condensed consolidated statement of movements in members'
interests and equity 67
Condensed consolidated cash flow statement 68
Notes to the condensed consolidated interim financial
statements 69
Condensed consolidated income statement
(Unaudited)
Half year Half year
to to
30 September 30 September
2023 2022
Notes GBPm GBPm
Interest receivable and similar income:
Calculated using the effective interest
rate method 3 6,676 3,233
Other 3 36 18
Total interest receivable and similar
income 3 6,712 3,251
Interest expense and similar charges 4 (4,375) (1,196)
Net interest income 2,337 2,055
Fee and commission income 214 209
Fee and commission expense (148) (125)
Other operating income 5 46 51
Gains/(losses) from derivatives and
hedge accounting 6 71 (11)
Total income 2,520 2,179
Administrative expenses 7 (1,115) (1,083)
Impairment charge on loans and advances
to customers 8 (54) (108)
Provisions for liabilities and charges (18) (19)
Profit before member reward payments
and tax 1,333 969
Member reward payments (344) -
Profit before tax 989 969
Taxation 9 (267) (241)
Profit after tax 722 728
The notes on pages 69 to 89 form part of these condensed
consolidated interim financial statements.
Condensed consolidated statement of comprehensive income
(Unaudited)
Half year Half year
to to
30 September 30 September
2023 2022
Notes GBPm GBPm
Profit after tax 722 728
Other comprehensive (expense)/income
Items that will not be reclassified
to the income statement
Retirement benefit obligations:
Remeasurement of net retirement benefit
asset 14 (167) (2)
Taxation 58 -
(109) (2)
Revaluation reserve:
Revaluation of property - 2
Taxation - (1)
- 1
Fair value through other comprehensive
income reserve:
Revaluation gains/(losses) on equity
instruments at fair value through
other comprehensive income 5 (15)
Taxation (2) 4
3 (11)
Items that may subsequently be reclassified
to the income statement
Cash flow hedge reserve:
Hedging net gains arising during
the period 6 136
Amount transferred to income statement (24) (21)
Taxation 5 (32)
(13) 83
Other hedging reserve:
Hedging net gains arising during
the period 22 2
Amounts transferred to income statement (9) (14)
Taxation (4) 3
9 (9)
Fair value through other comprehensive
income reserve:
Revaluation gains/(losses) on debt
instruments at fair value through
other comprehensive income 49 (88)
Amount transferred to income statement (48) (62)
Taxation - 42
1 (108)
Other comprehensive expense (109) (46)
Total comprehensive income 613 682
The notes on pages 69 to 89 form part of these condensed
consolidated interim financial statements.
Condensed consolidated balance sheet
(Unaudited)
30 September 4 April
2023 2023
Notes GBPm GBPm
Assets
Cash 28,676 25,635
Loans and advances to banks
and similar institutions 3,168 2,860
Investment securities 26,228 27,615
Derivative financial instruments 8,049 6,923
Fair value adjustment for
portfolio hedged risk (5,791) (5,011)
Loans and advances to customers 10 211,298 210,782
Intangible assets 851 862
Property, plant and equipment 707 744
Accrued income and prepaid
expenses 284 302
Deferred tax 111 119
Current tax assets - 15
Other assets 94 101
Retirement benefit asset 14 800 946
Total assets 274,475 271,893
Liabilities
Shares 191,331 187,143
Deposits from banks and similar
institutions 20,494 25,056
Other deposits 6,263 5,191
Fair value adjustment for
portfolio hedged risk 56 2
Debt securities in issue 29,456 27,626
Derivative financial instruments 1,660 1,524
Other liabilities 789 695
Provisions for liabilities
and charges 47 82
Accruals and deferred income 235 334
Subordinated liabilities 6,280 6,755
Subscribed capital 169 173
Deferred tax 337 406
Current tax liabilities 4 -
Total liabilities 257,121 254,987
Members' interests and equity
Core capital deferred shares 1,157 1,233
Other equity instruments 1,336 1,336
General reserve 14,709 14,184
Revaluation reserve 37 38
Cash flow hedge reserve 163 176
Other hedging reserve (38) (47)
Fair value through other comprehensive
income reserve (10) (14)
Total members' interests
and equity 17,354 16,906
Total members' interests,
equity and liabilities 274,475 271,893
The notes on pages 69 to 89 form part of these condensed
consolidated interim financial statements.
Condensed consolidated statement of movements in members'
interests and equity
(Unaudited)
For the period ended 30 September 2023
Core Other General Revaluation Cash Other FVOCI Total
capital equity reserve reserve flow hedge hedging reserve
deferred instruments reserve reserve
shares
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 5 April 2023 1,233 1,336 14,184 38 176 (47) (14) 16,906
Profit for the period - - 722 - - - - 722
Net remeasurements of
retirement
benefit obligations - - (109) - - - - (109)
Net movement in cash flow
hedge
reserve - - - - (13) - - (13)
Net movement in other hedging - - - - - 9 - 9
reserve
Net movement in FVOCI reserve - - - - - - 4 4
Total comprehensive income - - 613 - (13) 9 4 613
Reserve transfer - - 1 (1) - - - -
Repurchase of core capital
deferred
shares (76) - - - - - - (76)
Distribution to the holders
of
core capital deferred shares - - (50) - - - - (50)
Distribution to the holders
of
Additional Tier 1 capital - - (39) - - - - (39)
At 30 September 2023 1,157 1,336 14,709 37 163 (38) (10) 17,354
For the period ended 30 September 2022
Core capital Other General Revaluation Cash flow Other FVOCI Total
deferred equity reserve reserve hedge hedging reserve
shares instruments reserve reserve
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 5 April 2022 1,334 1,336 12,753 46 184 (43) 89 15,699
Profit for the period - - 728 - - - - 728
Net remeasurements of
retirement
benefit obligations - - (2) - - - - (2)
Net revaluation of property - - - 1 - - - 1
Net movement in cash flow
hedge
reserve - - - - 83 - - 83
Net movement in other
hedging reserve - - - - - (9) - (9)
Net movement in FVOCI
reserve - - - - - - (119) (119)
Total comprehensive income - - 726 1 83 (9) (119) 682
Reserve transfer - - 5 (5) - - - -
Distribution to the holders
of
core capital deferred
shares - - (54) - - - - (54)
Distribution to the holders
of
Additional Tier 1 capital - - (39) - - - - (39)
At 30 September 2022 1,334 1,336 13,391 42 267 (52) (30) 16,288
The notes on pages 69 to 89 form part of these condensed
consolidated interim financial statements.
Condensed consolidated cash flow statement
( Unaudited )
Half year Half year
to to
30 September 30 September
2023 2022
Notes GBPm GBPm
Cash flows generated from/(used
in) operating activities
Profit before tax 989 969
Adjustments for:
Non-cash items included in profit
before tax 16 382 438
Changes in operating assets and liabilities 16 2,036 3,590
Taxation (252) (230)
Net cash flows generated from operating
activities 3,155 4,767
Cash flows generated from/(used
in) investing activities
Purchase of investment securities (4,097) (6,892)
Sale and maturity of investment securities 5,037 6,741
Purchase of property, plant and equipment (37) (23)
Sale of property, plant and equipment 4 12
Purchase of intangible assets (154) (136)
Net cash flows generated from/(used
in) investing activities 753 (298)
Cash flows generated from/(used
in) financing activities
Distributions paid to the holders
of core capital deferred shares (50) (54)
Distributions paid to the holders
of Additional Tier 1 capital (39) (39)
Repurchase of core capital deferred
shares (76) -
Issue of subordinated liabilities 373 -
Redemption of subordinated liabilities (764) (1,468)
Interest paid on subordinated liabilities (217) (92)
Interest paid on subscribed capital (5) (2)
Repayment of lease liabilities (16) (16)
Net cash flows used in financing
activities (794) (1,671)
Effect of exchange rate changes on
cash and cash equivalents (61) 38
Net increase in cash and cash equivalents 3,053 2,836
Cash and cash equivalents at start
of period 25,955 30,824
Cash and cash equivalents at end
of period 16 29,008 33,660
The notes on pages 69 to 89 form part of these condensed
consolidated interim financial statements.
Notes to the condensed consolidated interim financial
statements
1. General information and reporting period
Nationwide Building Society ('the Society') and its subsidiaries
(together, 'the Group') provide financial services to retail and
commercial customers within the United Kingdom.
Nationwide is a building society incorporated and domiciled in
the United Kingdom. The address of its registered office is
Nationwide Building Society, Nationwide House, Pipers Way, Swindon,
SN38 1NW.
There were no material changes in the composition of the Group
in the half year to 30 September 2023.
These condensed consolidated interim financial statements have
been prepared as at 30 September 2023 and show the financial
performance for the period from, and including, 5 April 2023 to
this date. They were approved for issue on 16 November 2023. These
condensed consolidated interim financial statements have been
reviewed, not audited.
2. Basis of preparation
The condensed consolidated interim financial statements of the
Group for the half year ended 30 September 2023 have been prepared
in accordance with the Disclosure Guidance and Transparency Rules
of the Financial Conduct Authority and UK-adopted International
Accounting Standard (IAS) 34 'Interim Financial Reporting'. The
condensed consolidated interim financial statements should be read
in conjunction with the Group's annual financial statements for the
year ended 4 April 2023, which were prepared in accordance with the
requirements of the Building Societies Act 1986 and with those
parts of the Building Societies (Accounts and Related Provisions)
Regulations 1998 (as amended) that are applicable, UK-adopted
international accounting standards and International Financial
Reporting Standards (IFRSs) adopted by the European Union.
Terminology used in these condensed consolidated interim
financial statements is consistent with that used in the Annual
Report and Accounts 2023. Copies of the Annual Report and Accounts
2023 and Glossary are available on the Group's website at
nationwide.co.uk
Accounting policies
The accounting policies adopted by the Group in the preparation
of these condensed consolidated interim financial statements and
those which the Group currently expects to adopt in the Annual
Report and Accounts 2024 are consistent with those disclosed in the
Annual Report and Accounts 2023, except for the addition of a new
accounting policy in the period for member reward payments.
Member reward payments
Member reward payments represent discretionary payments to
members of the Society which may be determined by the Board from
time to time, depending on the financial strength of the Society.
The Group recognises the expected cost of member reward payments on
the date at which they are announced.
Judgements in applying accounting policies and critical
accounting estimates
Judgements have to be made in applying the Group's accounting
policies which affect the amounts recognised in these condensed
consolidated interim financial statements. In addition, estimates
and assumptions are made that could affect the reported amounts of
assets, liabilities, income and expenses. Due to the inherent
uncertainty in making estimates, actual results reported in future
periods may be based upon amounts which differ from those
estimates.
Details of the significant judgements and estimates which are
relevant to the Group, including any changes from those disclosed
in the Annual Report and Accounts 2023, are disclosed in the
relevant notes as follows:
-- impairment charge and provisions on loans and advances to customers (note 8); and
-- retirement benefit obligations (note 14).
Going concern
The Group's business activities and financial position, the
factors likely to affect its future development and performance,
its objectives and policies in managing the financial risks to
which it is exposed, and its capital, funding and liquidity
positions are set out in the Financial review and the Risk
report.
The directors have assessed the Group's ability to continue as a
going concern, with reference to current and anticipated market
conditions. The directors confirm they are satisfied that the Group
has adequate resources to continue in business for a period of not
less than 12 months from the date of approval of these condensed
consolidated interim financial statements and that it is therefore
appropriate to adopt the going concern basis
3. Interest receivable and similar income
Half year Half year
to to
30 September 30 September
2023 2022
GBPm GBPm
On financial assets measured at amortised
cost:
Residential mortgages 2,955 2,230
Other loans 339 278
Other liquid assets, including reserves
at central banks 997 253
Investment securities 1 1
On investment securities measured at
FVOCI 237 114
Net income on financial instruments
hedging assets in a qualifying hedge
accounting relationship 2,147 357
Total interest receivable and similar
income calculated using the effective
interest rate method 6,676 3,233
Interest on net defined benefit pension
surplus 22 13
Other interest and similar income (note
i) 14 5
Total 6,712 3,251
Note:
i. Includes interest on financial instruments hedging assets
that are not in a qualifying hedge accounting relationship.
4. Interest expense and similar charges
Half year Half year
to to
30 September 30 September
2023 2022
GBPm GBPm
On shares held by individuals 2,253 469
On subscribed capital 5 5
On deposits and other borrowings:
Subordinated liabilities 124 129
Deposits from banks and similar institutions
and other deposits 935 273
Debt securities in issue 548 294
Net expense on financial instruments
hedging liabilities 510 26
Total 4,375 1,196
5. Other operating income
Half year Half year
to to
30 September 30 September
2023 2022
GBPm GBPm
Losses on financial assets measured
at FVTPL (3) (4)
Gains on disposal of FVOCI investment
securities 49 62
Other expense - (7)
Total 46 51
There were no gains or losses on disposal of financial assets
measured at amortised cost in the period ended 30 September 2023
(H1 2022/23: GBPnil).
6. Gains/losses from derivatives and hedge accounting
As a part of its risk management strategy, the Group uses
derivatives to economically hedge financial assets and liabilities.
Hedge accounting is employed by the Group to minimise the
accounting volatility associated with the change in fair value of
derivative financial instruments. The Group only uses derivatives
for the hedging of risks; however, income statement volatility can
still arise due to hedge accounting ineffectiveness or because
hedge accounting is either not applied or is not currently
achievable. In addition, the overall impact of derivatives will
remain volatile from period to period as new derivative
transactions replace those which mature to ensure that interest
rate and other market risks are continually managed.
Half year Half year
to to
30 September 30 September
2023 2022
GBPm GBPm
Gains from fair value hedge accounting 43 8
Gains from cash flow hedge accounting - 2
Fair value gains/(losses) from other
derivatives (note i) 30 (33)
Foreign exchange retranslation (note
ii) (2) 12
Total 71 (11)
Notes:
i. Gains or losses arise from derivatives used for economic
hedging purposes which are not currently in a hedge accounting
relationship, including derivatives economically hedging fixed rate
mortgages not yet on the balance sheet, and valuation adjustments
applied at a portfolio level which are not allocated to individual
hedge accounting relationships.
ii. Gains or losses arise from the retranslation of foreign
currency monetary items not subject to effective hedge
accounting.
7. Administrative expenses
Half year Half year
to to
30 September 30 September
2023 2022
GBPm GBPm
Employee costs:
Wages, salaries and bonuses 361 299
Social security costs 41 41
Pension costs 86 76
488 416
Other administrative expenses 399 413
887 829
Depreciation, amortisation and
impairment 228 254
Total 1,115 1,083
8. Impairment charge and provisions on loans and advances to
customers
The following tables set out the impairment charges and releases
during the period and the closing provision balances which are
deducted from the relevant asset values in the balance sheet:
Impairment charge/(release)
Half year Half year
to to
30 September 30 September
2023 2022
GBPm GBPm
Owner-occupied mortgages 14 18
Buy to let and legacy
residential mortgages 13 51
Consumer banking 22 41
Commercial lending 5 (2)
Total 54 108
Impairment provisions
30 September 4 April
2023 2023
GBPm GBPm
Owner-occupied mortgages 97 84
Buy to let and legacy
residential mortgages 208 196
Consumer banking 450 469
Commercial lending 19 16
Total 774 765
8. Impairment charge and provisions on loans and advances to
customers (continued)
Critical accounting estimates and judgements
Impairment is measured as the impact of credit risk on the
present value of management's estimate of future cash flows. In
determining the required level of impairment provisions, outputs
from statistical models are used, and judgements incorporated to
determine the probability of default (PD), the exposure at default
(EAD), and the loss given default (LGD) for each loan. Provisions
represent a probability weighted average of these calculations
under multiple economic scenarios. Adjustments are made in
modelling provisions, applying further judgements to take into
account model limitations, or to deal with instances where
insufficient data exists to fully reflect credit risks in the
models.
The most significant areas of judgement are:
-- The approach to identifying significant increases in credit risk; and
-- The approach to identifying credit impaired loans.
The most significant areas of estimation uncertainty are:
-- The use of forward-looking economic information using multiple economic scenarios; and
-- The additional judgements made in modelling expected credit
losses (ECL) - these currently include PD uplifts relating to the
current economic uncertainty and LGD uplifts for property valuation
risk.
The Group has considered the potential impact of climate change
on impairment provisions beyond the impact on economic assumptions
and has concluded that an adjustment to modelled provisions is not
currently appropriate. The Group will continue to monitor this
risk.
Identifying significant increases in credit risk (stage 2)
Loans are allocated to stage 1 or stage 2 according to whether
there has been a significant increase in credit risk. Judgement has
been used to select both quantitative and qualitative criteria
which are used to determine whether a significant increase in
credit risk has taken place. These criteria are detailed within the
Credit risk section of the Annual Report and Accounts 2023. The
primary quantitative indicators are the outputs of internal credit
risk assessments. While different approaches are used within each
portfolio, the intention is to combine current and historical data
relating to the exposure with forward-looking economic information
to determine the probability of default (PD) at each reporting
date. For residential mortgage and consumer banking lending, the
main indicators of a significant increase in credit risk are either
of the following:
-- The residual lifetime PD exceeds a benchmark determined by
reference to the maximum credit risk that would have been accepted
at origination; or
-- The residual lifetime PD is at least 75 basis points more
than, and at least double, the original lifetime PD.
Identifying credit impaired loans (stage 3)
The identification of credit-impaired loans is an important
judgement within the staging approach. A loan is credit-impaired
either if it has an arrears status of more than 90 days past due,
is considered to be in default, or it is considered unlikely that
the borrower will repay the outstanding balance in full, without
recourse to actions such as realising security.
8. Impairment charge and provisions on loans and advances to
customers (continued)
Critical accounting estimates and judgements (continued)
Use of forward-looking economic information
Management exercises judgement in estimating future economic
conditions which are incorporated into provisions through modelling
of multiple scenarios. The economic scenarios are reviewed and
updated on a quarterly basis. The provision recognised is the
probability-weighted sum of the provisions calculated under a range
of economic scenarios. The scenarios and associated probability
weights are derived using external data and statistical
methodologies, together with management judgement. The Group
continues to model four economic scenarios, which together
encompass an appropriate range of potential economic outcomes. The
base case scenario is aligned to the Society's financial planning
process. The upside and downside scenarios are reasonably likely
favourable and adverse alternatives to the base case, and the
severe downside scenario is aligned with the Society's internal
stress testing. The impact of applying multiple economic scenarios
(MES) is to increase provisions at 30 September 2023 by GBP123
million (4 April 2023: GBP125 million), compared with provisions
based on the base case economic scenario.
Probability weightings for each scenario are reviewed quarterly
and updated to reflect economic conditions as they evolve. There
have been no changes to scenario weightings during the period. The
probability weightings applied to the scenarios are shown in the
table below.
Scenario probability weighting (%)
Upside Base case Downside Severe
scenario scenario scenario downside
scenario
30 September 2023 10 45 30 15
4 April 2023 10 45 30 15
8. Impairment charge and provisions on loans and advances to
customers (continued)
Critical accounting estimates and judgements (continued)
In the base case scenario at 30 September 2023, limited economic
growth is forecast, with an increase in GDP of 0.7% expected in
2023. In this scenario unemployment is forecast to increase to 4.9%
(4 April 2023: 5.0%). By contrast, the peak unemployment in the
downside scenario of 6.5% (4 April 2023: 7.0%) reflects a
significant UK economic downturn, whilst the severe downside
scenario peak of 9.4% (4 April 2023: 10.0%) reflects a severe and
longer-lasting economic downturn.
House prices are expected to fall in the base case scenario by
3.7% during 2023 and a further 1.0% during 2024. This is the result
of ongoing affordability pressures due to increasing borrowing
costs and inflation. The downside scenario assumes more significant
falls until 2025, driven by a deterioration in economic conditions,
including an increase in unemployment, whilst the severe downside
scenario includes a fall in house prices of 33% from the start of
2023 to the low point in early 2026. As a result of continued
economic uncertainty, the house price forecasts used within the
provision calculations cover a wide range of outcomes. Given the
impact of the severe downside scenario, the weighted average of all
scenarios represents a fall in house prices of 10% from the
September 2023 balance sheet date to early 2026.
The Bank rate is assumed to peak at 5.75% (4 April 2023: 4.25%)
in the base case scenario and is expected to remain elevated during
2024. Inflation in this scenario is expected to reduce during 2024
to 1.8%. In the downside scenario the Bank rate is low from 2025
onwards, reflecting that there is a significant economic downturn,
with a reduction in the Bank rate required to stimulate economic
demand. The severe downside scenario includes a sustained high
level of inflation, which requires an increase in Bank rate to
7%.
Graphs showing the historical and forecasted GDP level,
unemployment rate and average house price for the Group's current
economic scenarios, as well as the previous base case economic
scenario, are included in the Interim Results September 2023 on
nationwide.co.uk
8. Impairment charge and provisions on loans and advances to
customers (continued)
Critical accounting estimates and judgements (continued)
The tables below provide a summary of the values of the key UK
economic variables used within the economic scenarios over the
first five years of the scenario :
Economic variables
Rate/annual growth rate at December 5-year December December
2022-2027 average 2022 2022
( note to peak to trough
i) (note ( note
ii) ii)
Actual Forecast
2022 2023 2024 2025 2026 2027
30 September % % % % % % % % %
2023
GDP growth
Upside scenario 0.6 1.0 1.6 1.6 1.6 1.6 1.5 7.6 0.1
Base case scenario 0.6 0.7 0.8 1.0 1.2 1.6 1.1 5.4 0.1
Downside scenario 0.6 0.4 (1.4) (1.7) 2.6 3.1 0.6 3.1 (2.6)
Severe downside
scenario 0.6 (0.3) (4.4) 0.2 3.2 2.6 0.7 3.7 (5.7)
Unemployment
Upside scenario 3.7 4.2 4.2 4.1 4.1 4.1 4.1 4.2 3.9
Base case scenario 3.7 4.4 4.8 4.7 4.5 4.5 4.6 4.9 3.9
Downside scenario 3.7 4.6 6.1 6.4 6.0 5.5 5.6 6.5 3.9
Severe downside
scenario 3.7 4.8 7.5 9.0 6.8 6.1 6.7 9.4 3.9
HPI growth
Upside scenario 4.8 (0.7) 3.7 3.8 3.8 3.8 2.8 15.1 (2.7)
Base case scenario 4.8 (3.7) (1.0) 0.6 2.2 2.7 0.1 1.0 (5.5)
Downside scenario 4.8 (5.6) (10.1) (3.5) 1.0 5.9 (2.6) (1.2) (19.1)
Severe downside
scenario 4.8 (6.7) (13.3) (16.0) 0.2 8.2 (5.9) (1.2) (33.3)
Bank rate
Upside scenario 3.5 5.3 4.0 4.0 4.0 4.0 4.3 5.3 4.0
Base case scenario 3.5 5.8 5.8 4.8 3.8 3.0 4.7 5.8 3.0
Downside scenario 3.5 6.0 4.0 1.5 1.0 1.0 3.0 6.5 1.0
Severe downside
scenario 3.5 6.5 7.0 5.0 4.3 3.8 5.4 7.5 3.8
Consumer price
inflation
Upside scenario 10.5 3.5 1.7 2.0 2.0 2.0 2.9 10.1 1.4
Base case scenario 10.5 5.3 1.8 1.7 1.9 2.0 3.2 10.1 1.6
Downside scenario 10.5 5.0 1.5 0.3 1.2 1.7 2.5 10.1 0.3
Severe downside
scenario 10.5 9.0 7.8 3.0 2.0 2.0 5.4 10.1 2.0
8. Impairment charge and provisions on loans and advances to
customers (continued)
Critical accounting estimates and judgements (continued)
Economic variables
Rate/annual growth rate at December 5-year December December
2022-2027 average 2022 2022
(note to peak to trough
i) (note (note
ii) ii)
Actual Forecast
2022 2023 2024 2025 2026 2027
4 April 2023 % % % % % % % % %
GDP growth
Upside scenario 0.4 1.3 2.0 1.8 1.6 1.6 1.7 8.6 0.2
Base case scenario 0.4 (1.1) 1.2 1.8 2.9 2.0 1.4 7.0 (1.1)
Downside scenario 0.4 (2.9) 0.8 2.4 2.3 2.0 0.9 4.7 (3.2)
Severe downside
scenario 0.4 (5.2) 2.2 3.0 2.1 1.7 0.7 3.7 (5.7)
Unemployment
Upside scenario 3.7 3.9 4.0 4.0 4.0 4.0 3.9 4.0 3.7
Base case scenario 3.7 4.6 5.0 4.5 4.3 4.2 4.5 5.0 3.9
Downside scenario 3.7 5.8 6.5 5.7 5.3 5.1 5.6 7.0 3.9
Severe downside
scenario 3.7 6.6 9.4 8.0 7.0 6.4 7.5 10.0 4.2
HPI growth
Upside scenario 6.0 0.4 3.7 3.8 3.8 3.8 3.1 16.2 (1.0)
Base case scenario 6.0 (4.5) 0.7 3.0 3.2 3.2 1.1 5.6 (4.5)
Downside scenario 6.0 (8.6) (11.4) 2.0 6.8 4.3 (1.7) (1.7) (19.5)
Severe downside
scenario 6.0 (21.0) (15.8) 2.2 7.7 5.1 (5.1) (1.7) (33.8)
Bank rate
Upside scenario 3.5 4.0 3.0 3.0 3.0 3.0 3.3 4.3 3.0
Base case scenario 3.5 4.3 3.8 2.8 2.3 2.0 3.1 4.3 2.0
Downside scenario 3.5 5.0 0.5 0.1 0.1 0.5 1.5 5.0 0.1
Severe downside
scenario 3.5 7.0 3.0 2.5 2.5 2.5 3.5 7.0 2.5
Consumer price
inflation (CPI)
Upside scenario 10.5 1.2 1.8 2.0 2.0 2.0 2.3 8.5 1.2
Base case scenario 10.5 4.0 2.0 2.0 2.0 2.0 2.9 9.0 2.0
Downside scenario 10.5 5.0 1.5 0.5 1.5 1.9 3.0 13.0 0.3
Severe downside
scenario 10.5 14.0 3.5 2.0 2.0 2.0 5.3 16.0 2.0
Notes:
i. The average rate for GDP and HPI is based on the cumulative
annual growth rate over the forecast period. Average unemployment
and CPI is calculated using a simple average using quarterly
points.
ii. GDP growth and HPI are shown as the largest cumulative
growth/fall from 31 December 2022 over the forecast period. The
unemployment rate and CPI is shown as the highest/lowest rate over
the forecast period from 31 December 2022.
8. Impairment charge and provisions on loans and advances to
customers (continued)
Critical accounting estimates and judgements (continued)
To give an indication of the sensitivity of ECLs to different
economic scenarios, the table below shows the ECL if 100% weighting
is applied to each scenario:
Expected credit losses Proportion of balances
under 100% weighted scenarios in stage 2
under 100% weighted scenarios
Upside Base Downside Severe Reported Upside Base Downside Severe Reported Reported
scenario case scenario scenario case scenario stage stage
2 3
scenario downside provision scenario downside (note
scenario scenario i)
30 September GBPm GBPm GBPm GBPm GBPm % % % % % %
2023
Residential
mortgages 194 211 260 795 305 16.1 15.5 14.5 36.5 19.5 0.6
Consumer
banking
- credit
cards 192 190 206 284 209 35.6 35.5 36.8 37.4 36.2 5.3
Consumer
banking
- personal
loans
and
overdrafts 230 232 243 272 241 38.9 40.8 45.0 49.7 43.4 7.0
Commercial
lending 18 18 18 19 19 4.7 4.7 4.7 4.7 4.7 0.5
Total 634 651 727 1,370 774
4 April 2023 GBPm GBPm GBPm GBPm GBPm %% %% %%
Residential
mortgages 160 179 236 789 280 14.6 13.9 13.5 35.7 17.6 0.5
Consumer
banking
- credit
cards 213 212 228 264 225 37.8 37.8 39.0 40.2 38.8 5.8
Consumer
banking
- personal
loans
and
overdrafts 227 233 247 281 244 34.6 37.5 41.4 46.5 40.0 6.7
Commercial
lending 16 16 16 17 16 3.3 3.3 3.3 3.3 3.3 0.7
Total 616 640 727 1,351 765
Note:
i. The staging of stage 3 assets is not sensitive to economic
scenarios. The reported stage 3 proportion is the same as it would
be in any of the 100% weighted scenarios.
The ECL for each scenario multiplied by the scenario probability
will not reconcile to the reported provision. Whilst the stage
allocation of loans varies in each individual scenario, each loan
is allocated to a single stage in the reported provision
calculation; this is based on a weighted average PD which takes
into account the economic scenarios. A probability-weighted
12-month or lifetime ECL (which takes into account the economic
scenarios) is then calculated based on the stage allocation.
The table below shows the sensitivity at 30 September 2023 to
some of the key assumptions used within the ECL calculation:
Sensitivity to key forward looking assumptions
Increase
in provision
GBPm
10% increase in the probability of the downside scenario 9
(reducing the upside by a corresponding 10%)
5% increase in the probability of the severe downside scenario
(reducing the downside by a corresponding 5%) 32
8. Impairment charge and provisions on loans and advances to
customers (continued)
Critical accounting estimates and judgements (continued)
The table below shows the adjustments made to modelled
provisions in relation to the significant areas of estimation
uncertainty for the retail portfolios (residential mortgages and
consumer banking), with further details provided below. There are
no significant areas of estimation uncertainty for the commercial
portfolio.
Significant adjustments made in modelling provisions
30 September 2023 4 April 2023
Residential Consumer Banking Total Residential Consumer Banking Total
Mortgages Mortgages
Credit Personal Credit Personal
cards loans and cards loans
overdrafts and overdrafts
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
PD uplift for economic
uncertainty 87 50 33 170 77 64 36 177
----------- ------
LGD uplift for property
valuation
risks 22 - - 22 22 - - 22
----------- ------
Total 109 50 33 192 99 64 36 199
----------- ------
Of which:
----------- ------
Stage 1 8 4 3 15 5 4 4 13
----------- ------
Stage 2 95 46 28 169 89 60 30 179
Stage 3 6 - 2 8 5 - 2 7
PD uplift for economic uncertainty
Household disposable income has reduced over the past two years
due to a combination of high inflation and increasing interest
rates, which has increased the risk that borrowers will not be able
to meet their contractual repayments. In addition, model inputs
relating to borrower credit quality are still benefitting from
improvements to credit indicators which are judged to be temporary,
such as reduced levels of arrears. This adjustment to modelled
provisions reflects the cumulative effect of increasing the
probability of default to reflect management's judgements for these
risks.
Since 4 April 2023, interest rate expectations have increased,
resulting in an increase in the adjustments made to modelled
provisions for mortgage affordability. At the same time, a
combination of wage growth and a reduction in the rate of inflation
have resulted in a reduction to the adjustments made for the
consumer banking portfolios.
At 30 September 2023 the overall PD uplift adjustment for
economic uncertainty increased provisions by GBP170 million (4
April 2023: GBP177 million). The adjustment also results in
approximately GBP17.3 billion (4 April 2023: GBP16.6 billion) of
residential mortgages and GBP502 million (4 April 2023: GBP585
million) of consumer banking balances moving from stage 1 to stage
2.
LGD uplift for property valuation risks
An adjustment is made to reflect the property valuation risk
associated with flats, originally driven by risks associated with
properties subject to fire safety issues such as unsuitable
cladding. We continue to hold an adjustment to provisions for this
segment of the market whilst there is insufficient evidence of a
recovery in the value of properties. This adjustment increased
provisions GBP22 million (4 April 2023: GBP22 million).
9. Taxation
The actual tax charge differs from the theoretical amount that
would arise using the standard rate of corporation tax in the UK as
follows:
Reconciliation of tax charge
Half year Half year
to to
30 September 30 September
2023 2022
GBPm GBPm
Profit before tax: 989 969
Tax calculated at a tax rate of 25%
(H1 2022/23: 19%) 247 184
-
Tax credit on distribution to the holders
of Additional Tier 1 capital (10) (6)
Banking surcharge 24 54
Expenses not deductible for tax purposes 5 3
Effect of deferred tax provided at different
tax rates 1 6
-
Tax charge 267 241
From 1 April 2023, the main rate of corporation tax increased to
25% and the banking surcharge decreased to 3%.
On 17 November 2022 the UK Government confirmed its intention to
implement the G20-OECD Inclusive Framework Pillar 2 rules in the
UK, including a Qualified Domestic Minimum Top-Up Tax rule. This
legislation, enacted on 11 July 2023, seeks to ensure that
UK-headquartered multinational enterprises pay a minimum tax rate
of 15% on UK and overseas profits arising after 31 December 2023.
As the UK rate of corporation tax is 25%, and the Group's business
is UK based, the impact of these rules on the Group is not expected
to be material. The IAS 12 exemption to recognise and disclose
information about deferred tax assets and liabilities related to
Pillar 2 income taxes has been applied.
10. Loans and advances to customers
30 September 2023 4 April 2023
Loans held at amortised Loans Total Loans held at amortised Loans Total
cost held cost held
at at
FVTPL FVTPL
Gross Provisions Other Total Gross Provisions Other Total
(note (note
i) i)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Owner-occupied
mortgages 158,399 (97) - 158,302 41 158,343 157,511 (84) - 157,427 47 157,474
Buy to let and
legacy
residential
mortgages 43,835 (208) - 43,627 - 43,627 44,104 (196) - 43,908 - 43,908
Consumer
banking 4,317 (450) - 3,867 - 3,867 4,408 (469) - 3,939 - 3,939
Commercial
lending 5,101 (19) 377 5,459 2 5,461 4,994 (16) 430 5,408 53 5,461
Total 211,652 (774) 377 211,255 43 211,298 211,017 (765) 430 210,682 100 210,782
Note:
i. 'Other' represents a fair value adjustment for micro hedged
risk for commercial loans that were previously hedged on an
individual basis. The hedge relationships have been discontinued
and the balances are being amortised over the remaining life of the
loans.
10. Loans and advances to customers (continued)
The tables below summarise the movements in, and stage
allocations of, gross loans and advances to customers held at
amortised cost, including the impact of ECL impairment provisions
and excluding the fair value adjustment for micro hedged risk.
Residential mortgages represent the majority of the Group's loans
and advances to customers. Additional tables summarising the
movements for the Group's residential mortgages and consumer
banking are presented in the Credit risk sections of the Risk
report.
The basis of preparation for this note has been updated.
Previously, the tables were presented on a gross basis, with the
reported values representing an aggregation of monthly movements
over the period. To reflect more appropriately the movements in
credit quality over the period, the note is now prepared on a net
basis. The movements within the table now compare the position at
30 September to that at the start of the reporting period, rather
than movements for all months therein. Further detail on the
methodology is included within the footnotes to this table. The
comparative table has been restated to also be presented on a net
basis.
Reconciliation of net movements in balances and impairment provisions
Non-credit impaired Credit impaired
( note i)
Subject to 12 Subject to lifetime Subject to lifetime Total
month ECL ECL ECL
Stage 1 Stage 2 Stage 3 and POCI
Gross Gross Gross Gross
balances Provisions balances Provisions balances Provisions balances Provisions
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 5 April 2023 172,058 50 37,457 410 1,502 305 211,017 765
Stage transfers:
Transfers from stage 1 to
stage 2 (16,549) (5) 16,549 5 - - - -
Transfers to stage 3 (79) - (368) (25) 447 25 - -
Transfers from stage 2 to
stage 1 10,806 65 (10,806) (65) - - - -
Transfers from stage 3 29 - 127 6 (156) (6) - -
Net remeasurement of ECL
arising from
transfer of stage - (55) - 88 - 30 - 63
Net movement arising from
transfer
of stage (note ii) (5,793) 5 5,502 9 291 49 - 63
New assets originated or
purchased
(note iii) 12,255 5 695 17 2 1 12,952 23
Net impact of further
lending and repayments
(note iv) (3,476) (8) (503) (16) (9) - (3,988) (24)
Changes in risk parameters
in relation
to credit quality (note
v) - (8) - (5) - 28 - 15
Other items impacting
income statement
(including recoveries) - - - - - (4) - (4)
Redemptions (note vi) (6,423) (2) (1,712) (10) (128) (7) (8,263) (19)
Income statement charge
for the period 54
Decrease due to write-offs - - - - (66) (49) (66) (49)
Other provision movements - - - - - 4 - 4
At 30 September 2023 168,621 42 41,439 405 1,592 327 211,652 774
Net carrying amount 168,579 41,034 1,265 210,878
10. Loans and advances to customers (continued)
Reconciliation of net movements in balances and impairment provisions
Non-credit impaired Credit impaired
(note i)
Subject to 12 Subject to lifetime Subject to lifetime
month ECL ECL ECL Total
Stage 1 Stage 2 Stage 3 and POCI
Gross Gross Gross Gross
balances Provisions balances Provisions balances Provisions balances Provisions
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 5 April 2022 188,130 48 18,326 380 1,691 318 208,147 746
Stage transfers:
Transfers from stage 1 to
stage 2 (8,231) (7) 8,231 7 - - - -
Transfers to stage 3 (103) (1) (243) (25) 346 26 - -
Transfers from stage 2 to
stage 1 5,714 59 (5,714) (59) - - - -
Transfers from stage 3 144 1 161 7 (305) (8) - -
Net remeasurement of ECL
arising from
transfer of stage - (48) - 80 - 29 - 61
Net movement arising from
transfer
of stage (note ii) (2,476) 4 2,435 10 41 47 - 61
New assets originated or
purchased
(note iii) 19,221 12 941 26 2 1 20,164 39
Net impact of further
lending and repayments
(note iv) (3,597) (9) (242) (15) (19) (2) (3,858) (26)
Changes in risk parameters
in relation
to credit quality (note
v) - 22 - 32 - 8 - 62
Other items impacting
income statement
(including recoveries) - - - - - (4) - (4)
Redemptions (note vi) (9,719) (3) (956) (13) (136) (8) (10,811) (24)
Income statement charge
for the period 108
Decrease due to write-offs - - - - (51) (44) (51) (44)
Other provision movements - - - - - 4 - 4
At 30 September 2022 191,559 74 20,504 420 1,528 320 213,591 814
Net carrying amount 191,485 20,084 1,208 212,777
Notes:
i. Gross balances of credit impaired loans include GBP118
million (4 April 2023: GBP123 million) of purchased or originated
credit impaired (POCI) loans, which are presented net of lifetime
ECL on transition to IFRS 9 of GBP5 million (4 April 2023: GBP5
million).
ii. The remeasurement of provisions arising from a change in
stage is reported within the stage to which the assets are
transferred.
iii. If a new asset is originated in the period, the values
included are the closing gross balance and provision for the
period. The stage in which the addition is shown reflects the stage
of the account at the end of the period.
iv. This comprises further lending and capital repayments where
the asset is not derecognised. The gross balances value is
calculated as the closing gross balance for the period less the
opening gross balance for the period. The provisions value is
calculated as the change in exposure at default (EAD) multiplied by
opening provision coverage for the period.
v. This comprises changes in risk parameters, and changes to
modelling inputs and methodology. The provision movement for the
change in risk parameters is calculated for assets that do not move
stage in the period.
vi. For any asset that is derecognised in the period, the value
disclosed is the provision at the start of the period.
11. Fair value hierarchy of financial assets and liabilities
held at fair value
IFRS 13 requires an entity to classify assets and liabilities
held at fair value, and those not measured at fair value but for
which the fair value is disclosed, according to a hierarchy that
reflects the significance of observable market inputs in
calculating those fair values. The three levels of the fair value
hierarchy are defined in note 1 of the Annual Report and Accounts
2023.
Details of those financial assets and liabilities not measured
at fair value are included in note 12.
The following table shows the Group's financial assets and
liabilities that are held at fair value by fair value hierarchy,
balance sheet classification and product type:
30 September 2023 4 April 2023
Fair values based Fair values based
on on
Level Level Level Total Level Level Level Total
1 2 3 1 2 3
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Financial assets
Government, government
related entities and 21
supranational investments ,357 - - 21 ,357 22,968 - - 22,968
Other debt investment
securities 3 ,081 1 ,714 2 4 ,797 2,843 1,707 2 4,552
Investments in equity
shares - - 63 63 - 3 52 55
Total investment securities 24
(note i) ,438 1 ,714 65 26 ,217 25,811 1,710 54 27,575
Interest rate swaps - 5,321 - 5,321 - 4,617 - 4,617
Cross currency interest
rate swaps - 2,090 - 2,090 - 1,801 - 1,801
Foreign exchange swaps - 41 - 41 - 13 - 13
Inflation swaps - 309 288 597 - 265 157 422
Bond forwards and futures - - - - - 70 - 70
Total derivative financial
instruments - 7,761 288 8,049 - 6,766 157 6,923
Loans and advances to
customers - - 43 43 - - 100 100
24
Total financial assets ,438 9 ,475 396 34 ,309 25,811 8,476 311 34,598
Financial liabilities
Interest rate swaps - (786) - (786) - (774) - (774)
Cross currency interest
rate swaps - (829) - (829) - (663) - (663)
Foreign exchange swaps - (2) - (2) - (6) - (6)
Inflation swaps - (39) - (39) - (52) (8) (60)
Bond forwards and futures - - - - - (18) - (18)
Swaptions - - (4) (4) - - (3) (3)
Total derivative financial
instruments - (1,656) (4) (1,660) - (1,513) (11) (1,524)
Total financial liabilities - (1,656) (4) (1,660) - (1,513) (11) (1,524)
Note:
i. Investment securities shown here exclude GBP11 million (4
April 2023: GBP40 million) of investment securities held at
amortised cost.
11. Fair value hierarchy of financial assets and liabilities
held at fair value (continued)
Transfers between fair value hierarchies
Instruments move between fair value hierarchies primarily due to
increases or decreases in market activity or changes to the
significance of unobservable inputs to valuation; movements are
recognised at the date of the event or change in circumstances
which caused the transfer. There were no transfers between the
Level 1 and Level 2 portfolios during the current or prior
period.
Level 1 and Level 2 portfolios
The Group's Level 1 portfolio comprises government and other
highly-rated securities for which traded prices are readily
available. Asset valuations for Level 2 investment securities are
sourced from consensus pricing or other observable market prices.
None of the Level 2 investment securities are valued from models.
Level 2 derivative assets and liabilities are valued using
observable market data for all significant valuation inputs.
Level 3 portfolio
The Group's Level 3 portfolio primarily consists of:
-- certain loans and advances to customers, including a closed
portfolio of residential mortgages;
-- certain investment securities, including investments made in Fintech companies; and
-- inflation swaps and swaptions.
The table below sets out movements in the Level 3 portfolio,
including transfers in and out of Level 3:
Movements in Level 3 portfolio
Half year to 30 September 2023 Half year to 30 September 2022
Investment Derivative Derivative Loans Investment Derivative Derivative Loans
securities financial financial and securities financial financial and
assets liabilities advances assets liabilities advances
to to
customers customers
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 5 April 54 157 (11) 100 63 260 (176) 116
Gains/(losses)
recognised in the
income statement,
within:
Net interest income - 27 - 3 - (172) (15) 2
Gains/(losses) from
derivatives
and hedge
accounting (note i) - 185 7 - - 718 72 -
Other operating
income - 4 - (3) 1 - (9) (7)
Gains/(losses)
recognised in other
comprehensive income,
within:
Fair value through
other comprehensive
income reserve 5 - - - (15) - - -
Additions 6 - - - 1 - - -
Disposals - (4) - - (1) - 9 -
Settlements/repayments - (81) - (57) - (4) 5 (4)
Transfers out of Level
3 portfolio
(note ii) - - - - - (483) 102 -
At 30 September 65 288 (4) 43 49 319 (12) 107
Unrealised
gains/(losses)
recognised
in the income
statement attributable
to assets and
liabilities held
at the end of the
period - 192 7 (3) - 424 6 (7)
Notes:
i. Includes foreign exchange revaluation gains/losses.
ii. The proportional impact of seasonality on the value of
GBP-denominated inflation swaps reduced during the half year to 30
September 2022, resulting in these instruments no longer being
categorised within Level 3 of the fair value hierarchy.
11. Fair value hierarchy of financial assets and liabilities
held at fair value (continued)
Level 3 portfolio sensitivity analysis of valuations using
unobservable inputs
The fair value of financial instruments is, in certain
circumstances, measured using valuation techniques based on market
prices that are not observable in an active market or significant
unobservable market inputs. Reasonable alternative assumptions can
be applied for sensitivity analysis, taking account of the nature
of valuation techniques used, as well as the availability and
reliability of observable proxy and historic data. The following
table shows the sensitivity of the Level 3 fair values to
reasonable alternative assumptions (as set out in the table of
significant unobservable inputs below) and the resultant impact of
such changes in fair value on the income statement or members'
interests and equity.
Sensitivity of Level 3 fair values
30 September 2023 4 April 2023
Income statement Other comprehensive Income statement Other comprehensive
income income
Fair Favourable Unfavourable Favourable Unfavourable Fair Favourable Unfavourable Favourable Unfavourable
value changes changes changes changes value changes changes changes changes
---------- ---------- ------------ ---------- ------------
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Investment
securities 65 4 (3) 15 (14) 54 4 (3) 12 (11)
---------- ------------
Net
derivative
financial
instruments 284 19 (19) - - 146 32 (32) - -
---------- ------------
Loans and
advances
to
customers 43 2 (2) - - 100 3 (2) - -
---------- ------------
Total 392 25 (24) 15 (14) 300 39 (37) 12 (11)
---------- ------------
Alternative assumptions are considered for each product and
varied according to the quality of the data and variability of the
underlying market. The following table discloses the significant
unobservable inputs underlying the above alternative assumptions
for assets and liabilities recognised at fair value and classified
as Level 3, along with the range of values for those significant
unobservable inputs. Where sensitivities are described, the inverse
relationship will also generally apply.
Significant unobservable inputs
30 September 2023 4 April 2023
Total Total Valuation Significant Range Units Total Total Valuation Significant Range Units
assets liabilities technique unobservable (note i) assets liabilities technique unobservable (note i)
inputs inputs
GBPm GBPm GBPm GBPm
Various
Investment Internal (note Internal Various
securities 65 - assessment ii) - - GBP 54 - assessment (note ii) - - GBP
Derivative
financial Discounted Discounted
instruments 288 (4) cash flows Seasonality 0.01 1.00% 157 (11) cash flows Seasonality 0.02 0.82%
Loans and
advances Discounted Discounted
to cash Discount cash Discount
customers 43 - flows rate 5.58 7.58% 100 - flows rate 3.31 9.75%
Notes:
i. The range represents the values of the highest and lowest
levels used in the calculation of favourable and unfavourable
changes as presented in the table of sensitivities above.
ii. Given the wide range of investments and variety of inputs to
modelled values, which may include inputs such as observed market
prices, discount rates or probability weightings of expected
outcomes, the Group does not disclose ranges as they are not
meaningful without reference to individual underlying investments,
which would be impracticable. Some of the significant unobservable
inputs used in the fair value measurement of investment securities
may be interdependent.
12. Fair value of financial assets and liabilities measured at
amortised cost
Valuation methodologies employed in calculating the fair value
of financial assets and liabilities measured at amortised cost are
consistent with those disclosed in the Annual Report and Accounts
2023.
The following table summarises the carrying value and fair value
of financial assets and liabilities measured at amortised cost on
the Group's balance sheet:
Fair value of financial assets and liabilities (note i)
30 September
2023 4 April 2023
Carrying Fair Carrying Fair
value value value value
GBPm GBPm GBPm GBPm
Financial assets
Loans and advances to banks and similar
institutions 3,168 3,168 2,860 2,860
Investment securities 11 11 40 40
Loans and advances to customers:
Residential mortgages 201,929 191,773 201,335 192,504
Consumer banking 3,867 3,752 3,939 3,821
Commercial lending 5,459 4,665 5,408 4,863
Total 214,434 203,369 213,582 204,088
Financial liabilities
Shares 191,331 191,032 187,143 186,917
Deposits from banks and similar institutions 20,494 20,494 25,056 25,056
Other deposits 6,263 6,260 5,191 5,190
Debt securities in issue 29,456 29,686 27,626 27,865
Subordinated liabilities 6,280 6,314 6,755 6,731
Subscribed capital 169 162 173 171
Total 253,993 253,948 251,944 251,930
Note:
i. The table above excludes cash and other financial assets and
liabilities such as accruals, trade receivables, trade payables,
and settlement balances which are short-term in nature and for
which fair value approximates carrying value.
13. Contingent liabilities
During the ordinary course of business, the Group may be subject
to complaints, disputes and threatened or actual legal proceedings
brought by or on behalf of current or former employees, customers,
investors or other third parties. The Group may also be subject to
legal and regulatory reviews, challenges, investigations and
enforcement actions which may result in, among other things,
actions being taken by governmental, tax and regulatory
authorities, increased costs being incurred in relation to
remediation of systems and controls, or fines. Any such material
cases are periodically reassessed, with the assistance of external
professional advisers where appropriate, to determine the
likelihood of incurring a liability and any ability to recover any
losses in future periods.
In those instances where it is concluded that it is not yet
probable that a quantifiable payment will be made, for example
because the facts are unclear or further time is required to fully
assess the merits of the case or to reasonably quantify the
expected payment, no provision is made.
The Group does not disclose amounts in relation to contingent
liabilities associated with such claims where the likelihood of any
payment is remote or where, in the case of matters subject to
active legal proceedings, such disclosure could be seriously
prejudicial to the conduct of the claims.
The FCA has commenced an investigation of the Society's
compliance with UK money laundering regulations and the FCA's rules
and Principles for Businesses in an enquiry focused on aspects of
the Society's anti-money laundering control framework. The Society
is co-operating with the investigation, which remains at an early
stage. The Group has not disclosed an estimate of the potential
financial impact arising from this matter as it is not currently
practicable to do so.
Apart from the matters disclosed, the Group does not expect the
ultimate resolution of any current complaints, disputes, threatened
or actual legal proceedings, regulatory or other matters to have a
material adverse impact on its financial position. However, in
light of the uncertainties involved in such matters there can be no
assurance that the outcome of a particular matter or matters may
not ultimately be material to the Group's results.
14. Retirement benefit obligations
The Group continues to operate two defined contribution schemes
and a number of defined benefit pension arrangements, the most
significant being the Nationwide Pension Fund (the Fund). Further
details are set out in note 30 of the Annual Report and Accounts
2023.
Defined benefit pension schemes
Retirement benefit obligations on the balance sheet
30 September 4 April
2023 2023
GBPm GBPm
Fair value of fund assets 4,596 5,281
Present value of funded obligations (3,792) (4,331)
Present value of unfunded obligations (4) (4)
Surplus 800 946
14. Retirement benefit obligations (continued)
C hanges in the present value of the net defined benefit asset
(including unfunded obligations) are as follows:
Movements in net defined benefit asset
Half year Half year
to to
30 September 30 September
2023 2022
GBPm GBPm
At 5 April 946 1,008
Interest on net defined benefit asset 22 13
Return on assets less than discount
rate (note i) (727) (1,947)
Contributions by employer 1 -
Administrative expenses (2) (2)
Actuarial gains on defined benefit
obligations (note i) 560 1,945
At 30 September 800 1,017
Note:
i. The net impact before tax on the surplus of return on assets
and actuarial gains is a decrease of GBP167 million (H1 2022/23:
GBP2 million) in other comprehensive income.
As the Fund is closed to future accrual, there have been no
current service costs, past service costs or employer contributions
made in respect of future benefit accrual during the current or
prior period. Additionally, there have been no employer deficit
contributions required into the Fund and there are no such
contributions scheduled in the year ending 4 April 2024 or future
years under the current Schedule of Contributions. Employer deficit
contributions of GBP1 million (H1 2022/23: less than GBP1 million)
were made in respect of the Group's defined benefit scheme in its
Nationwide (Isle of Man) Limited subsidiary.
The GBP727 million (H1 2022/23: GBP1,947 million) loss relating
to the return on assets less than the discount rate is primarily
driven by decreases in the value of UK government bonds. The GBP560
million (H1 2022/23: GBP1,945 million) actuarial gain on defined
benefit obligations is primarily driven by an increase in the
discount rate.
In May 2023, the Fund entered into a longevity swap transaction
to manage the scheme's longevity risk in relation to GBP1.7 billion
of pension liabilities, covering approximately 7,000 pensioners and
reducing the scheme's longevity risk exposure by approximately one
third. The swap is included in the Fund's assets, with a zero fair
value at 30 September 2023.
Critical accounting estimates and judgements
The key assumptions used to calculate the defined benefit
obligation which represent significant sources of estimation
uncertainty are the discount rate, inflation assumptions and
mortality assumptions. The principal actuarial assumptions used are
as follows:
Financial assumptions
30 September 4 April
2023 2023
% %
Discount rate 5.55 4.65
Future pension increases (maximum 5%) 3.10 3.05
Retail price index (RPI) inflation 3.25 3.15
Consumer price index (CPI) inflation 2.60 2.50
Assumptions for inflation within the table above reflect the
long-term average across the remaining duration of the scheme.
Mortality rates used in calculating pension liabilities are based
on standard mortality tables which allow for future improvements in
life expectancies and are adapted to represent the Fund's
membership.
15. Related party transactions
There were no related party transactions during the period ended
30 September 2023 which were significant to the Group's financial
position or performance. Full details of the Group's related party
transactions for the year ended 4 April 2023 can be found in note
35 of the Annual Report and Accounts 2023.
16. Notes to the condensed consolidated cash flow statement
Half year Half year
to to
30 September 30 September
2023 2022
GBPm GBPm
Non-cash items included in profit before tax
Net increase in impairment provisions 9 68
Net decrease in provisions for liabilities
and charges (35) (14)
Amortisation and net (gains)/losses on investment
securities 45 24
Write down of inventory 2 1
Depreciation, amortisation and impairment 228 254
Profit on sale of property, plant and equipment (1) (1)
Loss on the revaluation of property, plant
and equipment - 2
Net credit in respect of retirement benefit
obligations (20) (11)
Interest on subordinated liabilities 220 102
Interest on subscribed capital 5 2
(Gains)/losses from derivatives and hedge accounting (71) 11
Total 382 438
Changes in operating assets and liabilities
Loans and advances to banks and similar institutions (289) (794)
Net derivative financial instruments 49 5,010
Loans and advances to customers (578) (5,435)
Other operating assets 3 (30)
Shares 4,188 3,210
Deposits from banks and similar institutions,
customers and others (3,419) (2,238)
Debt securities in issue 2,063 4,135
Contributions to defined benefit pension scheme (1) -
Other operating liabilities 20 (268)
Total 2,036 3,590
Cash and cash equivalents
Cash 28,676 32,890
Loans and advances to banks and similar institutions
repayable in 3 months or less 332 770
Total 29,008 33,660
The Group is required to maintain balances with the Bank of
England which, at 30 September 2023, amounted to GBP2,257 million
(30 September 2022: GBP2,306 million). These balances are included
within loans and advances to banks and similar institutions on the
balance sheet and are not included in the cash and cash equivalents
in the cash flow statement as they are not liquid in nature. The
Group also excludes from cash and cash equivalents cash collateral
and other deposit balances relating to derivative activities
totalling GBP578 million (30 September 2022: GBP953 million).
Responsibility statement
The directors listed below (being all the directors of
Nationwide Building Society) confirm that, to the best of their
knowledge:
-- The condensed consolidated interim financial statements have
been prepared in accordance with UK-adopted International
Accounting Standard 34, 'Interim Financial Reporting',
-- the Interim Results include a fair review of the information
required by Disclosure Guidance and Transparency Rules 4.2.7R and
4.2.8R, namely:
- An indication of important events that have occurred in the
first six months of the financial year 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
- Material related party transactions in the first six months of
the financial year and any material changes in the related party
transactions described in the Annual Report and Accounts 2023.
Signed on behalf of the Board by
Chris Rhodes
Chief Financial Officer
16 November 2023
Board of directors
Chairman
Kevin Parry
Executive directors
Debbie Crosbie
Chris Rhodes
Non-executive directors
Tracey Graham
Albert Hitchcock
Alan Keir
Debbie Klein
Sally Orton
Tamara Rajah
Gillian Riley
Phil Rivett
Independent review report to Nationwide Building Society
Conclusion
We have been engaged by Nationwide Building Society ('the
Society') and its subsidiaries (together, 'the Group') to review
the condensed consolidated interim financial statements in the
Interim Results for the period ended 30 September 2023, which
comprise the condensed consolidated balance sheet as at 30
September 2023 and the related condensed consolidated income
statement, condensed consolidated statement of comprehensive
income, condensed consolidated statement of movements in members'
interests and equity and condensed consolidated cash flow statement
for the period then ended and explanatory notes. We have read the
other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed
consolidated interim financial statements.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed consolidated interim
financial statements in the Interim Results for the period ended 30
September 2023 are 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 2, the annual financial statements of the
Group are prepared in accordance with UK-adopted international
accounting standards. The condensed consolidated interim financial
statements included in the Interim Results have 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 the 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 Results
in accordance with the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are
responsible for assessing the Group'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 Group 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 Results, we are responsible for
expressing to the Group a conclusion on the condensed consolidated
interim financial statements in the Interim Results. 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.
Independent review report to Nationwide Building Society
(continued)
Use of our report
This report is made solely to the Group 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 Group,
for our work, for this report, or for the conclusions we have
formed.
Ernst & Young LLP
London
16 November 2023
Other information
The Interim Results are unaudited and do not constitute
statutory accounts within the meaning of the Building Societies Act
1986.
The financial information for the year ended 4 April 2023 has
been extracted from the Annual Report and Accounts 2023. The Annual
Report and Accounts 2023 has been filed with the Financial
Conduct Authority and the Prudential Regulation Authority. The
independent auditor's report on the Annual Report and Accounts 2023
was unqualified.
Nationwide has continued to adopt the UK Finance Code for
Financial Reporting Disclosure ('the Code') in its Annual Report
and Accounts 2023. The Code sets out five disclosure principles
together with supporting guidance. These principles have been
applied, as appropriate, in the context of the Interim Results.
A copy of the Interim Results is placed on the website of
Nationwide Building Society. The directors are responsible for the
maintenance and integrity of information on the Society's website.
Information published on the internet is accessible in many
countries with different legal requirements. Legislation in the
United Kingdom governing the preparation and dissemination of
financial statements may differ from legislation in other
jurisdictions.
Contacts
Media queries: Investor queries:
Sara Batchelor Sarah Abercrombie
Mobile: +44 (0)7785 344 137 Mobile: +44 (0)7587 886 500
Sara.Batchelor@nationwide.co.uk Sarah.Abercrombie@nationwide.co.uk
Eden Black Vikas Sidhu
Mobile: +44 (0)7793 596 317 Mobile: +44 (0)7738 273 287
Eden.Black@nationwide.co.uk Vikas.Sidhu@nationwide.co.uk
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