Annual Financial Report

RNS Number : 3592Z
Nationwide Building Society
21 May 2021
 

 

 

 

 

 

 

Nationwide Building Society

 

Preliminary Results Announcement

for the year ended

4 April 2021

 

 

 

 

 

 

 

 

 

 

 

CONTENTS

Key highlights and quotes

3

Financial summary

4

Chief Executive's review

5

Financial review 

8

Risk report

16

Consolidated financial statements

78

Notes to the consolidated financial statements

83

Responsibility statement

108

Other information

108

Contacts

108

 

Underlying profit

 

Profit before tax shown on a statutory and underlying basis is set out on page 9 . Statutory profit before tax of £ 823 million has been adjusted to derive an underlying profit before tax of £790 million. The purpose of this 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 Nationwide. Although Nationwide believes that the expectations reflected in these forward-looking statements are reasonable, Nationwide 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 Nationwide 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, the policies and actions of regulatory authorities, the impact of tax or other legislation and other regulations in the jurisdictions in which Nationwide operates. The economic outlook also remains unusually uncertain due to Brexit and the impacts of Covid-19. As a result, Nationwide'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 Nationwide cautions readers not to place undue reliance on such forward-looking statements.

 

Nationwide 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 Nationwide and management as well as financial statements.

 

 

Britain's biggest mutual supports homebuyers and savers while enhancing financial strength

 

Headlines

 

· Enhanced our financial strength to navigate challenges of the pandemic and have the flexibility to support our members

· Supported homebuyers with responsible lending and higher loan to value mortgages for lower risk first time buyers

· Launched market leading Member Exclusive Fixed Rate ISA and prize draws to encourage savings habit.

· No. 1 for customer satisfaction for 9 years among our peer group1 and Which? Banking Brand of the Year in 2020, for the fourth year running

· Backing our communities, by extending our Branch Promise until 2023

· Allowing 13,000 employees to 'work anywhere' improving flexibility and productivity

 

Numbers at a glance

 

Financial highlights

· Underlying profit improved to £790m (2020: £469m), driven by improved income and margin, and statutory profit increased to £823m (2020: £466m)

· Well capitalised with higher UK leverage ratio of 5.4% (2020: 4.7%) and higher CET1 ratio of 36.4% (2020: 31.9%)

· Managed costs down by £94m to £2,218m (2020: £2,312m)

· Set aside £190m (2020: £209m) for loans that may not be repaid in light of uncertain outlook, although arrears remain low

· Member financial benefit of £265m (2020: £735m), below our £400m target, mainly reflecting lower savings rates

 

Trading highlights

· Gross lending of £29.6bn (2020: £30.9bn) and net lending of £1.9bn (2020: £2.8bn); our market share was broadly flat, with growth in buy to let offsetting lower prime lending

· Deposits up £10.6bn (2020: £5.7bn) reflecting some members retaining higher balances during lockdown

· Maintained market share of 10% of all current accounts2

 

1 ©Ipsos MORI 2021, Financial Research Survey (FRS), for the 12 months ending 31 March 2013 to the 12 months ending 31 March 2021. For more information, see footnote 5 on page 6.

2 CACI's Current account and savings database (February 2021 and February 2020).

 

Joe Garner, Chief Executive, Nationwide Building Society, said:  

 

This year has shown the financial strength of the building society mutual model.  It has been a tough year, one that tested the resilience of people and businesses. Given the profound uncertainties we faced, we focused on the things that were most important in times of crisis: namely to keep our people and members safe and our Society strong.

 

We entered the crisis in a position of financial strength and, in the face of a highly uncertain environment, we took steps to protect our finances. This meant we could stand by our members, colleagues and communities when they needed us most. From payment holidays and socially distanced services, to personal assistance for the most vulnerable and remote working for all our office employees, we responded with flexibility and humanity.

 

We also continued to help members achieve their financial goals. We supported homebuyers by lending responsibly, including at 90% LTV, and more recently at 95% LTV. Later in the year, we were able to start giving more value back to savers again through innovative products that reward membership such as our market leading Member Exclusive Fixed Rate ISA.

 

We finished the year financially and operationally strong, and well-placed to support our members in future.

 

 

Chris Rhodes, Chief Financial Officer, Nationwide Building Society, said:

 

Our longstanding prudent approach to managing our finances proved its worth in this crisis year.

 

Our capital ratios were already at a high level as we went into the pandemic and we took quick and decisive action to protect our financial strength. Our UK leverage ratio is substantially above our minimum target and our CET1 ratio strengthened further.

 

On financial performance, our interest income and margin improved and we also reduced our costs. Although arrears remain low today, unsurprisingly, provisions for loans that might not be repaid have remained elevated, in light of the uncertain economic times ahead.

 

Our member financial benefit - the extra value we give to members as a mutual - was lower than our £400m target, having significantly exceeded it in recent years. In the medium term, we expect member financial benefit to exceed £400m a year again.

 

Our profitability recovered, enhancing our financial strength at a time of uncertainty. We face the future from a position of strength.

 

 

Financial summary

 

 

2021

2020

Financial performance

£m

 

£m

 

Total underlying income

3,285

 

3,046

 

Underlying profit before tax (note i)

790

 

469

 

Statutory profit before tax

823

 

466

 

 

 

 

 

 

Mortgage lending

£bn

%

£bn

%

Group residential - gross/market share

29.6

11.1

30.9

11.4

Group residential - net/market share

1.9

2.1

2.8

4.8

 

 

 

 

 

Average loan to value of new residential lending (by value)

70

72

 

 

 

 

 

Deposit balances

£bn

%

£bn

%

Member deposits balance increase/market share (note ii)

10.6

5.6

5.7

6.9

 

 

 

 

 

Key ratios

%

%

Underlying cost income ratio (note iii)

67.5

75.9

Statutory cost income ratio (note iii)

66.8

76.1

Net interest margin

1.21

1.13

 

 

 

 

 

 

 

 

2021

2020

Balance sheet

£bn

%

£bn

%

Total assets

254.9

 

248.0

 

Loans and advances to customers

201.5

 

201.0

 

Mortgage balances/market share

191.0

12.5

188.8

12.9

Member deposits/market share (note ii)

170.3

9.4

159.7

9.9

 

Asset quality

%

%

 

Residential mortgages

 

 

 

Proportion of residential mortgage accounts 3 months+ in arrears

0.43

0.41

 

Impairment charge as a % of average gross balance (note iv)

0.04

0.03

 

Average indexed loan to value (by value)

56

58

 

 

 

 

 

Consumer banking

 

 

 

Proportion of customer balances with amounts past due more than 3 months (excluding charged off balances)

1.33

1.22

 

Impairment charge as a % of average gross balance (note iv)

2.68

3.27

 

 

Key ratios

%

%

Capital

 

 

Common Equity Tier 1 ratio

36.4

31.9

UK leverage ratio (note v)

5.4

4.7

CRR leverage ratio (note v)

5.0

4.4

 

 

 

Other balance sheet ratios

 

 

Liquidity coverage ratio

164.6

163.1

Wholesale funding ratio (note vi)

26.7

28.5

           

 

Notes:

i.  Underlying profit represents management's view of underlying performance. The following items are excluded from statutory profit to arrive at underlying profit:

a.  FSCS costs and refunds arising from institutional failures, which are included within provisions for liabilities and charges.

b.  Gains or losses from derivatives and hedge accounting, which are presented separately within total income.

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. In the calculation of 'Impairment charge as a % of average gross balance', average gross balance is calculated as the average of balances at each month end date.

v.  The difference between the Capital Requirements Regulation (CRR) leverage ratio and the UK leverage ratio is driven by the exclusion of qualifying central bank claims from the UK leverage exposure measure as per the PRA Rulebook.

vi. The wholesale funding ratio includes all balance sheet sources of funding (including securitisations).

 

Chief Executive's review

 

The last year has been dominated by the pandemic which continues to be - first and foremost - a human crisis. The pandemic has tested the resilience of people, communities and organisations and has shown once again how important it is that we work together. Nationwide is a mutual organisation, founded on the belief that we can achieve more by acting together. Everyone has dug deep to help us keep members and colleagues safe, to keep our services running smoothly, and to safeguard our financial strength. By working together, we have come through this year financially strong, which means we have been able to support our members and communities through uncertain times: this is the essence of what it means to be a mutual. I would like to thank you, our members, and my colleagues, for your support for our Society during the last year.

 

During the pandemic, we have been focused on the following key priorities which are aligned to our purpose, and the five cornerstones of our strategy.

 

Keeping members and colleagues safe

 

Protecting the health and wellbeing of colleagues and members, while also maintaining essential services, remained our main priority through last year.

 

We rapidly put in place measures to protect members and colleagues, which meant more than 90% of branches remained open through the first lockdown and 98% in the latest lockdown. We introduced social distancing in our branches and offered members video appointments in their homes. We supported vulnerable members with, for example, cash deliveries and specialist telephone helplines. We moved many services online at speed, such as only taking 12 days to introduce online valuations. We also extended 'tea & tech' sessions to de-mystify our digital services for members who had not used them before.

 

Meanwhile, the vast majority of our office-based colleagues moved to home working almost overnight. We supported colleagues with a 'click and collect' office supply service and colleagues supported one another by working flexibly. For example, branches answered over 1.5 million member calls to relieve pressure on call centres.

 

We put in place a range of wellbeing initiatives to support our employees and encouraged them to take a proactive approach to their social, mental, physical, emotional, and financial wellbeing.

 

With 13,000 colleagues working from home during the pandemic, we have had a unique opportunity to review our working practices. Remote working has been popular with colleagues and made us more productive. The flexibility also helps us better serve our members. We are therefore adopting a flexible working model into the future, where colleagues can choose where they work.

 

  

 

Supporting members and communities

 

Supporting members facing financial hardship has been a key priority this year. We put in place a comprehensive home support package to enable people to stay in their homes. As well as payment holidays, this included an industry leading 'no repossessions' pledge until May 2021.   We supported 256,000 people with mortgage payment holidays, and gave payment breaks on 105,000 loans and credit cards, as well as interest-free overdrafts.

 

We continued helping people into homes despite the unpredictable nature of last year's housing market. After months of almost complete closure due to the pandemic, the market bounced back thanks to pent-up demand, the stamp duty holiday and because the pandemic prompted people to re-evaluate their homes and where they wanted to live. The partial market closure reduced our overall gross lending compared with last year, but our market share was broadly the same. Within that, buy to let grew and prime declined.

 

We supported one in seven of all first time buyers onto the housing ladder (2020: one in six). We lent responsibly and, by tightening our lending criteria, were one of the first few lenders to offer 90% loan to value mortgages. Since the year end, the launch of our Helping Hand mortgage saw us become the first major lender to offer first time buyers the ability to borrow 5.5 times salary on 5 or 10 year fixed rate mortgages, with a loan to value of up to 90%, enabling home ownership for many who have been frozen out. In May 2021 we became the largest mortgage provider to reintroduce 95% loan to value lending without government support, offering market-leading mortgages to first time buyers and home movers.

 

Our buy to let business, The Mortgage Works (TMW), has had one of its strongest ever years for gross lending. As people increasingly live in privately rented homes, supporting good landlords is becoming an important way in which we can fulfil our role as a building society to help people into high quality homes. This business diversifies our income and supports our profitability, which in turn helps us reward members with value and service.

 

We continued to offer interest rates on deposits that, on average over the year, were above the market average. Nationwide has a proven record of paying higher deposit rates than the market average - in the last five years, we have paid over £2 billion in extra interest to depositors - however, we had to reduce our savings rates in light of the cut to bank base rate. This meant that member financial benefit fell below our target of £400 million, having significantly exceeded it in recent years. Since December, we have once again been increasing value to members through new propositions including our Start to Save account, Mutual Reward Bond, our Triple Access Online accounts and our market-leading Member Exclusive Fixed Rate ISA. I am pleased to report a recovery in our savings volumes towards the end of the year as a result of this activity.

 

 

 

 

Chief Executive's review (continued)

 

Overall, total deposit balances increased by around £11 billion, due to members both holding more cash in their current accounts and putting more into new savings products later in the year. However, our market share of deposits was slightly lower.

 

Last year we reached a 10% market share of all current accounts3. This year, we have focused on serving our existing members during this uncertain time. However, we maintained our share3, and continued to attract new current account members through the Current Account Switching Service, reflecting our continued appeal to existing and new customers4.

 

In 2020, we were delighted to be named Which? Banking Brand of the Year for the fourth year running. We were no. 1 for customer satisfaction among our peer group for the ninth year running5, although our lead narrowed and fell below our target. Our own member experience survey highlighted that this was because lower savings rates and the disruption to branch services, both caused by the pandemic, reduced satisfaction among savers and branch users, although this recovered towards the year end as things began to normalise6. We were ranked joint 13th in the all-sector UK Customer Satisfaction Index, below our top 5 target, but the highest ranked high street financial services provider7.

 

As a result of the pandemic, more members are choosing to interact through digital services, which is why we are investing in our digital tools and capabilities. At the same time, we are protecting the branch services members value by extending our Branch Promise until 2023. This decision, alongside giving charities the flexibility to use our funding to help those most in need, will continue to support people and communities during the difficult period ahead.

 

Safeguarding our Society and maintaining financial strength

 

Our prudent approach to managing our finances proved its worth in this crisis year.

Our capital ratios remain high. Our UK leverage ratio is above our target, and our already strong CET1 ratio improved further.

 

On the income side, our net interest income and margin improved. We also reduced our costs. Arrears remain low today but, unsurprisingly, in light of the uncertain economic times ahead, the impairment charge for loans that might not be repaid remained high.   We have reduced our total headcount with a reduction both in employee numbers and, more significantly, in our use of third-party contractors.

 

3 CACI's Current account and savings database   (February 2021 and February 2020).

4 Pay.UK quarterly CASS data, 9 months to December 2020.

5 © Ipsos MORI 2021, Financial Research Survey (FRS), for the 12 months ending 31 March 2013 to the 12 months ending 31 March 2021. Results based on a sample of around 47,000 adults (aged 16+). The survey contacts around 54,000 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 3.5% of the main current account market as of April 2020 - 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.

6 Member experience tracker survey asks members to rate their satisfaction and provide feedback, following a specific interaction across channels and products. Survey results for the 3 months ending 31 March 2020 to the 3 months ending 31 March 2021.

7 Institute of Customer Service UK Customer Satisfaction Index (UKCSI) as at January 2021.

 

Overall, these factors combined to significantly increase profitability year on year. This  enhances our financial strength at a time of uncertainty, allowing us to support our members, colleagues and communities, including extending our Branch Promise. We will also continue to invest in our technology transformation, to deliver the services, platforms and capacity that our members will want and need in the future.

 

Looking after our communities and wider society

 

The pandemic has exposed the character of many organisations, and our care for communities has been evident through this time.

 

We continued with our long-term programme of helping people into a place fit to call home, and awarded £4 million in grants to support almost 100 charitable housing projects (2020: £5.5 million). We are funding a not-for-profit housing development, Oakfield, in Swindon, which aims to build 239 homes to high environmental standards, with an EPC A rating. Build is now underway and we hope the Oakfield development will be a blueprint for others to develop sustainable homes. We continue to actively support campaigns to improve housing provision for both renters and homebuyers.

 

Climate change and broader environmental issues continue to be a major risk to our way of life. We want to contribute to tackling these issues by both reducing our direct impact and encouraging members to reduce theirs. We have maintained our Carbon Trust Triple Standard accreditation.

 

We want to lead the greening of UK homes, which account for 15% of the UK's total carbon emissions8. Although we have made a £1 billion loan fund available, at preferential rates, to encourage people to make their homes greener, slow take-up highlights the scale of the challenge the UK faces if it is to improve the energy efficiency of its homes. To further encourage greener, more energy-efficient home ownership, since year end, we launched a new cashback offer for those purchasing a property with a high-energy efficiency rating.

 

We have launched the Nationwide Incubator to work with FinTechs to address the challenges faced by people who are struggling financially. In partnership with Fair by Design, our incubator will support FinTech start-ups with advice and funding so that they can develop products and services that will improve financial wellbeing and tackle the poverty premium.

  

8 Office for National Statistics, February 2020.

 

 

 

Chief Executive's review (continued)

 

We are committed to help build a more mutually respectful and inclusive society, in line with our mutual values. The last year, in particular the Black Lives Matter campaign, has shown how far society still has to go to achieve true diversity and inclusion.

 

We have entered into partnerships with The Diana Award and the Football Association's Respect programme to engage young people and parents to think about these important issues. We have also led a Together Against Hate public campaign, which has focused on protecting frontline workers across all industries from unacceptable behaviour.

 

Internally, we are also doing more to promote diversity and inclusion, with mentoring and sponsorship programmes, and firm measures monitored by the Board.

 

Looking ahead

 

Looking ahead, we and our members face a radically different business and economic outlook compared with 18 months ago. Although the success of the UK's vaccination programme gives grounds for optimism, there is continued uncertainty around how quickly life and the economy can return to normal.

 

While the outlook is undoubtedly challenging, over the last year we have demonstrated the Society's resilience - financially, operationally, and culturally. The strength of our values, our social purpose and finances mean we can continue to work for the mutual good of our members, colleagues and communities, as we re-build society, nationwide.

 

 

Financial review

 

In summary

 

Throughout the financial year, we have faced an uncertain and unprecedented period. The global pandemic led to the reduction of bank base rate to a historic low and created significant macroeconomic disruption and uncertainty.

 

We have therefore focused on preserving our strong capital position and continuing to support our members through these challenging times. As a result, underlying profit for the year has improved to £790 million (2020: £469 million) and statutory profit increased to £823 million (2020: £466 million), reflecting strong income and a reduction in administrative expenses.

 

Total income increased by £239 million, as our net interest margin (NIM) increased to 1.21% (2020: 1.13%). Mortgage income increased as the macroeconomic uncertainty resulted in stronger new business margins across the market.

 

The reduction in our savings rates, in response to the cut in bank base rate to 0.1%, reduced member financial benefit to £265 million (2020: £735 million9). Over the medium term we expect member financial benefit to return to above our £400 million target.

 

Our continued focus on our cost base has led to administrative expenses reducing by £94 million to £2,218 million (2020: £2,312 million). Reductions from reprioritisation of investment spend over the medium term, and lower business as usual run costs, have been partly offset by restructuring costs as we took action to reduce our future cost base.

 

The total credit impairment charge remains elevated compared to pre-pandemic levels at £190 million (2020: £209 million). The forward-looking scenarios that we have used to determine the charge encompass a range of outcomes that could arise as a result of the pandemic. However, arrears rates on lending portfolios have remained low, in part due to the impact of government support schemes on our borrowers' finances and the use of payment deferrals.

 

We have continued to support our 16.3 million members through these challenging times, providing 256,000 mortgage payment holidays and granting 105,000 payment breaks or interest free periods on loans, credit cards and overdrafts.

 

We have remained open for business, with total residential mortgage lending of £29.6 billion (2020: £30.9 billion). Our market share of mortgage balances was 12.5% (2020: 12.9%).

 

We saw significant net deposit growth of £10.6 billion (2020: £5.7 billion) due to strong current account inflows as consumer spending was subdued. Our market share of all deposit balances reduced to 9.4% (4 April 2020: 9.9%), reflecting our lower proportion of current account balances, and therefore lower inflows, relative to the market.

 

In this exceptional year, we have demonstrated the Society's financial resilience by improving our balance sheet strength. Our CET1 and UK leverage ratios improved to 36.4% and 5.4% (4 April 2020: 31.9% and 4.7%) respectively, although this includes a regulatory change in the treatment of intangible assets which the PRA is proposing to reverse. Our Liquidity Coverage Ratio (LCR) was 165% (4 April 2020: 163%).

 

By preserving our capital strength, we can face the future with confidence, as we continue to support members through a highly uncertain period.

 

 

9 The comparative for member financial benefit has been restated. More information on member financial benefit can be found on page 9.

 

Underlying profit:

£790m

(2020: £469m)

 

 

 

 

 

 

 

Statutory profit:

£823m

(2020: £466m)

 

 

 

 

 

 

 

UK leverage ratio:

5.4%

(2020: 4.7%)

 

 

 

 

 

 

 

 

 

 

 

Risk report

 

Contents

 

 

Page

Introduction

17

Top and emerging risks

 

17

Principal risks

19

Credit risk:

 

 

Credit risk overview

20

Residential mortgages

25

Consumer banking

42

Commercial and other lending

52

Treasury assets

59

Liquidity and funding risk

63

Solvency risk

73

 

 

 

 

 

 

 

 

 

Risk report

 

Introduction

 

Risk management is at the heart of our business and has an important part to play in delivering our shared purpose of building society, nationwide by making sure we are safe and secure for the future.

 

All business activities involve some degree of risk, Nationwide seeks to protect its members by managing appropriately the risks that arise from its activities. Nationwide's risk management processes ensure it is built to last by:

 

· identifying risks through a robust assessment of principal risks and uncertainties facing the Society, including those that would threaten its business model, future performance, solvency, or liquidity;

· robust decision making, ensuring we take the right risks, in a way that is considered and supports the strategy;

· ensuring the risks we do take are understood, controlled, and managed appropriately; and

· maintaining an appropriate balance between delivering member value and remaining a prudent and responsible lender.

 

Top and emerging risks

 

Top and emerging risks are those with potential to have a significant impact on Nationwide's financial results and delivery of its strategic objectives. Nationwide's strategic responses to its top and emerging risks are described below, together with developments in specific external and internal risks.

 

Covid-19 Pandemic

 

The effects of the Covid-19 pandemic have been far reaching with widespread restrictions placed on individuals and businesses, triggering a downturn in the UK economy. Nationwide invoked the highest level of incident management response to the pandemic and has taken unprecedented action to balance three key objectives: maintaining the safety of our members and colleagues; supporting our members with their individual needs; and ensuring the Society remains stable and secure. The unique challenges posed by the pandemic are reflected in a heightened risk profile both externally, driven by the macro-economic environment and the changing needs of our members, and internally as we seek to ensure our processes and systems remain robust whilst minimising risks to our colleagues and members.

 

 

 

Top and emerging risks (continued)

 

Top and emerging risks

 

External Risks

Trend

Geopolitical and macroeconomic environment - As a UK-focused building society, Nationwide's performance is naturally aligned to the UK's economic conditions, in particular household income and the corresponding impact on the housing market. Despite significant government intervention, economic conditions remain uncertain, having been severely impacted by a combination of the Covid-19 pandemic and the UK's exit from the European Union. The Society maintains strong capital and liquidity levels and regularly undertakes robust internal and regulatory stress tests to ensure these are sufficient under a range of severe scenarios, including the potential introduction of negative bank base rates.

è

Competitive environment - The operating environment remains highly competitive, with shifting customer behaviours, regulatory changes and continued innovation in the financial services sector leading to heightened competition in our core markets, as well as new entrants competing primarily via digital channels.

è

Regulatory change - The Society is responding to a high volume of complex regulatory changes and engages with regulators to implement any relevant regulatory developments promptly and appropriately.

è

Climate change - We continue to respond to the threat posed to our members and the Society's business activities by climate change. This includes both the physical risks to housing stock and property, and the transitional risks as the UK transitions towards zero net emissions.

ì

Financial crime / cyber security - We continuously monitor the external landscape to identify potential cyber or fraud threats whilst operating and maturing our key financial crime and cyber controls to protect our members and services as financial crime levels rise in the industry.  

è

Libor transition - Preparations for the phasing out of Libor by the end of 2021 are ongoing. This will impact a range of Libor-linked assets, liabilities and derivatives and work continues to manage the impact on the Society and our customers, including working with regulators and industry bodies.

è

 

Internal Risks

Trend

Resilience - Maintaining resilient systems, infrastructure and processes remains critical as Covid-19 restrictions influence member needs in accessing our products and services, and how they interact with us. We continue to strengthen our control environment whilst pro actively monitoring the resilience of our services to reduce disruption to our customers.

è

People risk - Throughout the pandemic, ensuring the safety and wellbeing of our colleagues has been of paramount importance. We have implemented measures to ensure colleagues remain safe and supported, including transitioning our workplace to comply with government Covid-19 guidance, enabling colleagues to work from home through technology, allowing flexibility and additional paid leave where necessary to look after children/dependants, and have introduced initiatives to support the physical and mental wellbeing of all our colleagues. Our decision to allow remote working permanently will benefit our colleagues, but we recognise the need to focus on maintaining controls.

ì

Third parties - We rely on a network of suppliers to support the provision of member-facing services. Throughout the pandemic, we have continued to work closely with our key suppliers to identify and mitigate any risks which could impact our services. We continue to develop capability to ensure consistent and robust management of third party risks. 

è

Data - As increasing volumes of customer data are utilised to improve customer experience and deliver intuitive digital services, the safeguarding of customer data is becoming increasingly critical. We are committed to protecting member and employee data and continue to invest in data architecture and technology to manage and protect personal data more effectively in an evolving digital environment.

è

Model risk - Model risk is heightened under Covid-19 as unprecedented government support and industry measures break traditional economic and credit relationships. To manage the increased model risk the understanding of model limitations has been revisited, model monitoring has been enhanced, and, where appropriate, adjustments to model outputs are made.

ì

Key (change in level of risk to Nationwide in year)

ì   Increased level of risk   è   Stable level of risk  î   Decreased level of risk

 

 

 

 

 

Principal risks and uncertainties

 

The principal risk types set out below are the key risks relevant to the Society's business model and achievement of its strategic objectives. These principal risks are further broken down into lower level categories to support day to day management. The principal risk categories remain unchanged from last year and are managed through the Society's Enterprise Risk Management Framework.

 

Principal risk

Definition

Risk Committee

Credit risk

The risk of loss as a result of a member, customer or counterparty failing to meet their financial obligations.

Credit Committee

Liquidity and funding risk

Liquidity risk is the risk that Nationwide is unable to meet its liabilities as they fall due and maintain member and other stakeholder confidence.

Funding risk is the risk that Nationwide is unable to maintain diverse funding sources in wholesale and retail markets and manage retail funding risk that can arise from excessive concentrations of higher risk deposits.

Assets and Liabilities Committee

Solvency risk

The risk that Nationwide fails to maintain sufficient capital to absorb losses throughout a full economic cycle and to maintain the confidence of current and prospective members, investors, the Board, and regulators.

Assets and Liabilities Committee

Market risk

The risk that the net value of, or net income arising from, the Society's assets and liabilities is impacted as a result of market price or rate changes. As Nationwide does not have a trading book, market risk only arises in the banking book.

Assets and Liabilities Committee

Pension risk

The risk that the value of the pension schemes' assets will be insufficient to meet the estimated liabilities, creating a pension deficit.

Assets and Liabilities Committee

Business risk

The risk that achievable volumes or margins decline relative to the cost base, affecting the sustainability of the business and the ability to deliver the strategy due to macro-economic, geopolitical, industry, regulatory, competitor or other external events.

Executive Risk Committee

Model risk

The risk of an adverse outcome (incorrect or unintended decision or financial loss) that occurs as a direct result of weaknesses or failures in the development, implementation or use of a model. The adverse consequences include financial loss, poor business or strategic decision making, or damage to Nationwide's reputation.

Model Risk Oversight Committee

Operational and conduct risk

The risk of Society impacts resulting from inadequate or failed internal processes, conduct and compliance management, people and systems, or from external events.

Conduct and Operational Risk Committee (note i)

 

 

Note:

i.  Conduct and Operational Risk Committee was incepted in Q1 2021 and brought together two previous senior committees, Operational Risk Committee and Conduct & Compliance Committee.

 

Information on key developments and updated quantitative disclosures for credit risk, liquidity and funding risk, and solvency risk are included within this Risk report.

 

 

 

 

 

 

Credit risk - Overview

 

Credit risk is the risk of loss as a result of a member, customer or counterparty failing to meet their financial obligations. Credit risk encompasses:

 

· borrower/counterparty risk - the risk of loss arising from a borrower or counterparty failing to pay, or becoming increasingly likely not to pay the interest or principal on a loan, or on a financial product, or for a service, on time;

· security/collateral risk - the risk of loss arising from deteriorating security/collateral quality;

· concentration risk - the risk of loss arising from insufficient diversification; and

· refinance risk - the risk of loss arising when a repayment of a loan or other financial product occurs later than originally anticipated.

 

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 and other lending

Loans to registered social landlords, project finance loans made under the Private Finance Initiative, commercial real estate lending and other balances due from counterparties not covered by other categories

Treasury

Treasury liquidity, derivatives and discretionary investment portfolios

 

Forbearance

 

Forbearance occurs when concessions are made to the contractual terms of a loan when the customer is facing or about to face difficulties in meeting their financial commitments. A concession is where the customer receives assistance, which could be a modification to the previous terms and conditions of a facility or a total or partial refinancing of debt, either mid-term or at maturity. Requests for concessions are principally attributable to:

 

· temporary cash flow problems;

· breaches of financial covenants; or

· an inability to repay at contractual maturity.

 

In addition, we are supporting borrowers financially affected by the Covid-19 pandemic with payment holidays and other concessions.

 

Consistent with the European Banking Authority reporting definitions, loans that meet the regulatory forbearance exit criteria are not reported as forborne. The concession events used to classify balances subject to forbearance for residential mortgages, consumer banking and commercial lending are described in the relevant sections of this report.

 

Impairment provision

 

Impairment provisions on financial assets are calculated on an expected credit loss (ECL) basis for assets held at amortised cost and at fair value through other comprehensive income (FVOCI). ECL impairment provisions are based on an assessment of the probability of default (PD), exposure at default (EAD) and loss given default (LGD), discounted to give a net present value. Provision calculations for retail portfolios are typically performed on a collective rather than individual loan basis. For collective assessments, whilst each loan will have an associated ECL calculation, the calculation will be based on cohort level data for assets with shared credit risk characteristics (e.g. origination date, origination loan to value, term).

 

 

 

Credit risk - Overview (continued)

 

Impairment provisions are calculated using a three stage approach depending on changes in credit risk since original recognition of the assets:

 

· an asset which is not credit impaired on initial recognition and has not subsequently experienced a significant increase in credit risk is categorised as being within stage 1, with a provision equal to a 12 month ECL (losses arising on default events expected to occur within 12 months);

· where a loan's credit risk increases significantly, it is moved to stage 2. The provision recognised is equal to the lifetime ECL (losses on default events expected to occur at any point during the life of the asset);

· if a loan meets the definition of credit impaired, it is moved to stage 3 with a provision equal to its lifetime ECL.

 

For loans and advances held at amortised cost, the stage distribution and the provision coverage ratios are shown in this report for each individual portfolio. The provision coverage ratio is calculated by dividing the provisions by the gross balances for each main lending portfolio. Loans remain on the balance sheet, net of associated provisions, until they are deemed no longer recoverable, when such loans are written off.

 

Governance and oversight of impairment provisions

 

The models used in the calculation of impairment provisions are governed in accordance with the Society's Model Risk Framework. PD, EAD and LGD models are subject to regular monitoring and back testing and are reviewed annually. Where necessary, adjustments are approved for risks not captured in model outputs, for example where insufficient historic data exists. The economic scenarios used in the calculation of impairment provisions and associated probability weightings are proposed by our Chief Economist. Details of these economic assumptions and material adjustments are included in note 8 to the financial statements.

 

Governance and oversight of economic assumptions, weightings applied to economic scenarios and all key judgements relating to impairment provisions is through a formal monthly meeting including the Chief Financial Officer, Chief Risk Officer and Chief Credit Officer. Impairment provisions are regularly reported to the Audit Committee, which reviews and challenges the key judgements and estimates made by management.

 

Performance overview

 

A significant and prolonged contraction in economic activity was observed during the year, due to the Covid-19 pandemic and government measures to reduce the spread of the virus.

 

Government support schemes introduced at the onset of the Covid-19 pandemic and the Society's own support mechanisms, including a moratorium on possessions activity to protect and reassure members struggling with the financial impact of the pandemic and the furlough and payment deferral schemes, provided temporary financial relief for our members.

 

Help and support continues to be offered to members who have been impacted in these challenging times. This includes offering payment deferrals to affected borrowers, to temporarily suspend their contractual payments. In accordance with regulatory guidance, these payment concessions are not recorded as forbearance and do not automatically have an impact on the staging of balances used in calculating provisions. For borrowers applying for an initial payment deferral the deadline for applications was March 2021; payment deferrals can be taken beyond this point if they are consecutive, but all must end by July 2021. For borrowers who continue to need financial support after the payment deferral scheme ends, we will continue to offer non-arrears bearing concessions based on consideration of their individual circumstances.

 

The various measures of support have affected the relationship between the economic drivers for the retail models used in determining ECL. Specifically, unemployment rates remained relatively stable, whereas GDP saw a significant decline in 2020. To account for this, GDP forecasts, where used within the retail impairment models, have been updated. Due to these factors, careful consideration has been given to model performance during their annual reviews, and model monitoring continues to show the models are performing as expected.

 

Observed credit quality and performance has remained broadly stable over the period, with residential mortgage and consumer banking arrears remaining at a relatively low level. Whilst balances subject to arrears and forbearance have reduced during the reporting period, stage 2 balances have increased due to a change to our staging criteria. In our judgement, arrears performance has benefited from the government measures in combination with reduced spending on current account and credit cards and the low bank base rate environment, which have had the effect of suppressing what would otherwise have been a degradation in performance due to reduced economic activity that may have a lasting impact on consumer preferences and behaviour.

 

In addition, since the initial lockdown, housing market activity has recovered strongly. This has been driven by a combination of pent-up demand, stamp duty changes and a behavioural shift as people reassess their housing needs and preferences. This increased activity has resulted in house price growth, with the Nationwide House Price Index recording a 7.3% rise in house prices in 2020.

 

Outlook

 

Despite the stable performance over the year, the economic outlook and effects of the pandemic on the portfolio remain uncertain. Payment deferrals have now largely matured but may have suppressed underlying cases of financial difficulty which may now emerge; similarly, as the various support schemes offered by the Government (including the furlough scheme) begin to wind down

this may expose more borrowers to difficulties in making their repayments. There remains wider uncertainty related to the pandemic and its short- and medium-term impacts on the economy. Taken together, this points to a likely increase in arrears and losses over the next year. The potential impact on impairment is captured by the economic scenarios used within our IFRS 9 calculation. Further details are included in note 8 to the financial statements.

 

Maximum exposure to credit risk

 

Nationwide's maximum exposure to credit risk has increased to £265 billion (2020: £256 billion), principally reflecting higher holdings of liquid assets.

 

Credit risk largely arises from loans and advances to customers, which account for 81% (2020: 83%) of Nationwide's total credit risk exposure. Within this, the exposure relates primarily to residential mortgages, which account for 94% (2020: 94%) 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.

 

 

 

 

 

Credit risk - Overview (continued)

 

Maximum exposure to credit risk

2021

 

Gross

balances

Impairment provisions

Carrying

value

Commitments

(note i)

Maximum
credit risk

exposure

% of total
credit risk

exposure

 

£m

£m

£m

£m

£m

%

Amortised cost loans and advances to customers:

 

 

 

 

 

 

Residential mortgages

190,955

(317)

190,638

12,039

202,677

76

Consumer banking

4,404

(502)

3,902

43

3,945

2

Commercial and other lending

6,267

(33)

6,234

1,176

7,410

3

Fair value adjustment for micro hedged risk (note ii)

653

-

653

-

653

-

 

202,279

(852)

201,427

13,258

214,685

81

FVTPL loans and advances to customers:

 

 

 

 

 

 

Residential mortgages (note iii)

68

-

68

-

68

-

Commercial

52

-

52

-

52

-

 

120

-

120

-

120

-

Other items:

 

 

 

 

 

 

Cash

16,693

-

16,693

-

16,693

6

Loans and advances to banks and similar institutions

3,660

-

3,660

-

3,660

1

Investment securities - FVOCI

24,218

-

24,218

-

24,218

9

Investment securities - Amortised cost

1,243

-

1,243

-

1,243

1

Investment securities - FVTPL

12

-

12

1

13

-

Derivative financial instruments

3,809

-

3,809

-

3,809

2

Fair value adjustment for portfolio hedged risk (note ii)

946

-

946

-

946

-

 

50,581

-

50,581

1

50,582

19

Total

252,980

(852)

252,128

13,259

265,387

100

 

 

Credit risk - Overview (continued)

 

Maximum exposure to credit risk

2020

 

 

Gross

 balances

Impairment provisions

Carrying

 value

Commitments

(note i)

Maximum
credit risk

exposure

% of total
credit risk

exposure

 

£m

£m

£m

£m

£m

%

Amortised cost loans and advances to customers:

 

 

 

 

 

 

Residential mortgages

188,768

(252)

188,516

10,734

199,250

78

Consumer banking

4,994

(494)

4,500

40

4,540

2

Commercial and other lending

7,133

(40)

7,093

642

7,735

3

Fair value adjustment for micro hedged risk (note ii)

741

-

741

-

741

-

 

201,636

(786)

200,850

11,416

212,266

83

FVTPL loans and advances to customers:

 

 

 

 

 

 

Residential mortgages (note iii)

71

-

71

-

71

-

Commercial

57

-

57

-

57

-

 

128

-

128

-

128

-

Other items:

 

 

 

 

 

 

Cash

13,748

-

13,748

-

13,748

5

Loans and advances to banks and similar institutions

3,636

-

3,636

-

3,636

1

Investment securities - FVOCI

18,367

-

18,367

-

18,367

7

Investment securities - Amortised cost

1,625

-

1,625

-

1,625

1

Investment securities - FVTPL

12

-

12

-

12

-

Derivative financial instruments

4,771

-

4,771

-

4,771

2

Fair value adjustment for portfolio hedged risk (note ii)

1,774

-

1,774

-

1,774

1

 

43,933

-

43,933

-

43,933

17

Total

245,697

(786)

244,911

11,416

256,327

100

 

Notes:

i.  In addition to the amounts shown above, Nationwide has revocable commitments of £10,624 million (2020: £10,139 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. They are indirectly exposed to credit risk through the relationship with the underlying loans covered by Nationwide's hedging programmes.

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 and are predominantly within stage 1, with an associated provision of £0.5 million (2020: £0.4 million) which is included within provisions for liabilities and charges.

 

Revocable commitments relating to overdrafts and credit cards are included in ECL provisions, with the allowance for future drawdowns made as part of the exposure at default element of the ECL calculation.

 

Credit risk - Residential mortgages

 

Summary

 

Nationwide's residential mortgages comprise prime, buy to let and legacy loans. Prime residential mortgages are mainly Nationwide-branded advances made through the branch network and intermediary channels. Buy to let mortgages are now only originated under The Mortgage Works (UK) plc (TMW) brand. Legacy mortgages are smaller portfolios in run-off.

 

As highlighted in the Credit risk overview section of this report the Covid-19 pandemic has had a significant impact on the residential mortgage market and, whilst house prices have increased, the economic outlook is uncertain.

 

To date arrears remain low and credit quality continues to be strong; however, this performance is supported by government intervention, payment deferrals and the low bank base rate environment.

 

Residential mortgage gross balances

 

2021

2020

 

£m

%

£m

%

Prime

149,706

78

151,069

80

 

 

 

 

 

Buy to let and legacy (note i):

 

 

 

 

Buy to let (note ii)

 39,312

21

35,539

19

Legacy (note iii)

 1,937

1

2,160

1

 

41,249

22

37,699

20

 

 

 

 

 

Amortised cost loans and advances to customers

190,955

100

188,768

100

 

 

 

 

 

FVTPL loans and advances to customers

68

 

71

 

Total residential mortgages

191,023

 

188,839

 

 

Notes:

i.  This category of lending was previously referred to as specialist lending.

ii.  Buy to let mortgages include £37,983 million (2020: £34,031 million) originated under the TMW brand.

iii. Legacy includes self-certified, near prime and sub-prime lending, all of which were discontinued in 2009.

 

Total balances across the residential mortgage portfolios have grown by 1% during the year to £191 billion (2020: £189 billion), in particular within the buy to let portfolio which saw 11% growth in the year.
 

Credit risk - Residential mortgages (continued)

 

Impairment losses for the year

 

Impairment losses and write-offs for the year

 

2021

2020

 

£m

£m

Prime

39

13

Buy to let and legacy

32

40

Total impairment losses

71

53

 

 

 

 

%

%

Impairment charge as a % of average gross balance

0.04

0.03

 

 

 

 

£m

£m

Gross write-offs

9

11

 

Impairment losses for the year include the impact of updating macroeconomic assumptions and weightings to reflect the impact of the Covid-19 pandemic; further details are included in note 8 to the financial statements. Updates to the severe downside scenario assumptions increased provisions by £33 million during the year. Additional provisions totalling £56 million have been recognised to reflect an increased risk relating to property valuations. This comprises £23 million to reflect risks associated with flats where work is required to meet fire safety standards, and £33 million to reflect an increase in the idiosyncratic risk associated with property recovery values for repossessed properties over the next few years. The prior year impairment losses included a £51 million charge reflecting the estimated impact of Covid-19 at 4 April 2020. 

 

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

2021

Stage 1

Stage 2
 total

Stage 2
Up to date
(note i)

Stage 2
1 - 30 DPD
(note i)

Stage 2
>30 DPD
(note i)

Stage 3

POCI
(note ii)

Total

 

 

£m

£m

£m

£m

£m

£m

£m

£m

 

Gross balances

 

 

 

 

 

 

 

 

 

Prime

 143,500

 5,313

 4,606

 505

 202

 893

 - 

 149,706

 

Buy to let and legacy

 35,247

 5,346

 5,009

 201

 136

 508

 148

 41,249

 

Total

 178,747

 10,659

 9,615

 706

 338

 1,401

 148

 190,955

 

 

 

 

 

 

 

 

 

 

 

Provisions

 

 

 

 

 

 

 

 

 

Prime

 17

 39

 33

 3

 3

 37

 - 

 93

 

Buy to let and legacy

 49

 137

 118

 9

 10

 38

 - 

 224

 

Total

 66

 176

 151

 12

 13

 75

 - 

 317

 

 

 

 

 

 

 

 

 

 

 

Provisions as a % of total balance

%

%

%

%

%

%

%

%

 

Prime

0.01

0.74

0.73

0.59

1.39

4.10

 - 

0.06

 

Buy to let and legacy

0.14

2.58

2.38

4.28

7.18

7.46

 - 

0.54

 

Total

0.04

1.66

1.59

1.64

3.72

5.32

 - 

0.17

 

 

Credit risk - Residential mortgages (continued)

 

Residential mortgages staging analysis

2020

Stage 1

Stage 2
 total

Stage 2
Up to date
(note i)

Stage 2
1 - 30 DPD
(note i)

Stage 2
>30 DPD
(note i)

Stage 3

POCI
(note ii)

Additional provision

(note iii)

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

Gross balances

 

 

 

 

 

 

 

 

 

Prime

148,355

1,953

998

698

257

761

-

-

151,069

Buy to let and legacy

29,399

7,642

7,115

270

257

503

155

-

37,699

Total

177,754

9,595

8,113

968

514

1,264

155

-

188,768

 

 

 

 

 

 

 

 

 

 

Provisions

 

 

 

 

 

 

 

 

 

Prime

27

8

2

3

3

10

-

11

56

Buy to let and legacy

13

117

87

11

19

27

(1)

40

196

Total

40

125

89

14

22

37

(1)

51

252

 

 

 

 

 

 

 

 

 

 

Provisions as a % of total balance

%

%

%

%

%

%

%

%

%

Prime

0.02

0.41

0.22

0.46

1.02

1.30

-

-

0.04

Buy to let and legacy

0.05

1.53

1.23

3.93

7.22

5.33

-

-

0.52

Total

0.02

1.30

1.11

1.42

4.12

2.90

-

-

0.13

 

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 of £5 million (2020: £6 million).

iii. In recognition of the financial impact that Covid-19 may have on our borrowers, an additional provision of £51 million was included in the impairment provisions for residential mortgages at 4 April 2020. This additional provision was not allocated to underlying loans and therefore was not attributed to stages. During the reporting period this provision has been assigned across the stages and is reflected in the allocations for 4 April 2021.

 

At 4 April 2021, 93% (2020: 94%) of the residential mortgage portfolio is in stage 1, reflecting the portfolio's underlying strong credit quality. During the year there has been an increase in stage 2 balances to £10,659 million (2020: £9,595 million). The prime portfolio stage 2 balance has increased by £3,360 million. This increase is the result of a change to staging criteria from a multiple of 4 times origination PD to a multiple of 2. The change in criteria was made to increase staging sensitivity during the current uncertain economic conditions. In addition, a higher risk segment of loans with payment deferrals moved to stage 2 from stage 1. This change did not have a significant impact on provisions.

 

The buy to let and legacy portfolio stage 2 balances have reduced by £2,296 million, primarily due to a reduction in the refinance risk associated with interest only loans. The refinance assessment estimates the ability of a borrower with an interest only loan to refinance at maturity and considers both collateral values and affordability criteria. Due to the low bank base rate assumption used in the modelling of expected credit losses, a higher proportion of interest only mortgages are expected to meet the affordability criteria, so have therefore moved from stage 2 to stage 1 during the year. This reduction has been partially offset by the change in the multiple of PD described above. The impact of the staging criteria change across both portfolios has had no significant impact on provisions due to strong quality of the loans affected.

 

 

 

 

Credit risk - Residential mortgages (continued)

 

Stage 3 loans in the residential mortgage portfolio equate to 1% (2020: 1%) of the total residential mortgage exposure. Of the total £1,401 million (2020: £1,264 million) stage 3 loans, £690 million (2020: £679 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. Stage 3 provisions have increased by £38 million during the year, primarily driven by an additional provision of £33 million to recognise an increase in the idiosyncratic risk associated with property recovery values for repossessed properties over the next few years. The uncertainty has arisen from shifts in the housing market, partly due to Covid-19, with the expectation that future repossessed properties may be more difficult to sell and may not follow the modelled HPI recovery assumed for the wider market.

 

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; £242 million

(2020: £244 million) of the stage 3 balances in forbearance are in this probation period.

 

The table below summarises the movements between stages in the Group's residential mortgages held at amortised cost. The movements within the table are an aggregation of monthly movements over the year.

 

Reconciliation of movements in gross residential mortgage balances and impairment provisions

 

Non-credit impaired

Credit impaired (note i)

 

 

Subject to 12-month ECL

Subject to lifetime ECL

Subject to lifetime ECL

Total

 

Stage 1

Stage 2

Stage 3 and POCI

 

 

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

 

£m

£m

£m

£m

£m

£m

£m

£m

At 5 April 2020 (note ii)

177,754

40

9,595

125

1,419

36

188,768

252

 

 

 

 

 

 

 

 

 

Stage transfers:

 

 

 

 

 

 

 

 

Transfers from Stage 1 to Stage 2

(17,422)

(15)

17,422

15

-

-

-

-

Transfers to Stage 3

(409)

-

(812)

(38)

1,221

38

-

-

Transfers from Stage 2 to Stage 1

15,250

100

(15,250)

(100)

-

-

-

-

Transfers from Stage 3

255

-

541

12

(796)

(12)

-

-

Net remeasurement of ECL arising from transfer of stage

 

(82)

 

130

 

(19)

 

29

Net movement arising from transfer of stage

(2,326)

3

1,901

19

425

7

-

29

 

 

 

 

 

 

 

 

 

New assets originated or purchased

29,452

9

-

-

-

-

29,452

9

Net impact of further lending and repayments

(8,303)

(3)

(127)

-

(28)

-

(8,458)

(3)

Changes in risk parameters in relation to credit quality

-

22

-

40

-

43

-

105

Other items impacting income statement charge/(reversal) (including recoveries)

-

-

-

-

-

(3)

-

(3)

Redemptions

(17,830)

(5)

(710)

(8)

(247)

(2)

(18,787)

(15)

Removal of year-end additional provision for Covid-19 (note ii)

 

 

 

 

 

 

 

(51)

Income statement charge for the year

 

 

 

 

 

 

 

71

Decrease due to write-offs

-

-

-

-

(20)

(9)

(20)

(9)

Other provision movements

-

-

-

-

-

3

-

3

4 April 2021

178,747

66

10,659

176

1,549

75

190,955

317

Net carrying amount

 

178,681

 

10,483

 

1,474

 

190,638

 

Credit risk - Residential mortgages (continued)

 

Reconciliation of movements in gross residential mortgage balances and impairment provisions

 

Non-credit impaired

Credit impaired (note i)

 

 

Subject to 12-month ECL

Subject to lifetime ECL

Subject to lifetime ECL

Total

 

Stage 1

Stage 2

Stage 3 and POCI

 

 

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

 

£m

£m

£m

£m

£m

£m

£m

£m

At 5 April 2019

176,023

37

8,479

127

1,438

42

185,940

206

 

 

 

 

 

 

 

 

 

Stage transfers:

 

 

 

 

 

 

 

 

Transfers from Stage 1 to Stage 2

(15,257)

(15)

15,257

15

-

-

-

-

Transfers to Stage 3

(315)

-

(779)

(31)

1,094

31

-

-

Transfers from Stage 2 to Stage 1

12,923

66

(12,923)

(66)

-

-

-

-

Transfers from Stage 3

199

1

539

13

(738)

(14)

-

-

Net remeasurement of ECL arising from transfer of stage

 

(52)

 

72

 

(12)

 

8

Net movement arising from transfer of stage

(2,450)

-

2,094

3

356

5

-

8

 

 

 

 

 

 

 

 

 

New assets originated or purchased

30,501

5

-

-

-

-

30,501

5

Net impact of further lending and repayments

(8,230)

(3)

(140)

1

(45)

(2)

(8,415)

(4)

Changes in risk parameters in relation to credit quality

-

4

-

3

-

3

-

10

Other items impacting income statement charge/(reversal) (including recoveries)

-

-

-

-

-

(4)

-

(4)

Redemptions

(18,090)

(3)

(838)

(9)

(295)

(1)

(19,223)

(13)

Additional provision for Covid-19 (note ii)

 

 

 

 

 

 

 

51

Income statement charge for the year

 

 

 

 

 

 

 

53

Decrease due to write-offs

-

-

-

-

(35)

(11)

(35)

(11)

Other provision movements

-

-

-

-

-

4

-

4

4 April 2020 (note ii)

177,754

40

9,595

125

1,419

36

188,768

252

Net carrying amount

 

177,714

 

9,470

 

1,383

 

188,516

 

Notes:

i.  Gross balances of credit impaired loans include £148 million (2020: £155 million) of POCI loans, which are presented net of lifetime ECL impairment provisions of £5 million (2020: £6 million).

ii.  At 4 April 2020, an additional provision for credit losses of £51 million was recognised to reflect the estimated impact of the Covid-19 pandemic on ECLs. At 4 April 2020, this additional provision was not allocated to underlying loans, nor was it attributed to stages. During the year, this provision has been allocated to underlying loans and is reflected in the movements within the table and the 4 April 2021 position.

 

The increase in stage 2 balances is driven by a combination of the change to staging criteria, the movement of a higher risk segment of loans with payment deferrals to stage 2 from stage 1 and a reduction in the refinance risk associated with interest only loans. As the stage of individual loans is assessed monthly, the gross movements between stages 1 and 2 include the cumulative impact of transfers caused by changes in PD leading to the loans breaching the criteria for transferring assets to stage 2 and vice versa.

 

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 financial statements.

 

Credit risk - Residential mortgages (continued)

 

Reason for residential mortgages being included in stage 2 (notes i and ii)

2021

Prime

Buy to let and legacy

Total

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

£m

£m

£m

£m

£m

£m

Quantitative criteria:

 

 

 

 

 

 

Payment status (greater than 30 DPD)

 202

 3

 136

 10

 338

 13

Increase in PD since origination (less than 30 DPD)

 5,067

 36

 3,288

 70

 8,355

 106

 

 

 

 

 

 

 

Qualitative criteria:

 

 

 

 

 

 

Forbearance (less than 30 DPD)

 6

 - 

 3

 - 

 9

 - 

Interest only - significant risk of inability to refinance at maturity (less than 30 DPD)

 - 

 - 

 1,914

 57

 1,914

 57

Other qualitative criteria

 38

 - 

 5

 

 43

 - 

 

 

 

 

 

 

 

Total Stage 2 gross balances

 5,313

 39

 5,346

 137

 10,659

 176

 

Reason for residential mortgages being included in stage 2 (note i and ii)

2020

Prime

Buy to let and legacy

Total

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

£m

£m

£m

£m

£m

£m

Quantitative criteria:

 

 

 

 

 

 

Payment status (greater than 30 DPD)

 257

 3

 257

 19

 514

 22

Increase in PD since origination (less than 30 DPD)

 1,509

 5

 2,697

 27

 4,206

 32

 

 

 

 

 

 

 

Qualitative criteria:

 

 

 

 

 

 

Forbearance (less than 30 DPD)

 165

 - 

 5

 - 

 170

 - 

Interest only - significant risk of inability to refinance at maturity (less than 30 DPD)

 - 

 - 

 4,678

 71

 4,678

 71

Other qualitative criteria

 22

 - 

 5

 - 

 27

 - 

 

 

 

 

 

 

 

Total Stage 2 gross balances

 1,953

 8

 7,642

 117

 9,595

 125

 

Notes:

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.

ii.  In recognition of the financial impact that Covid-19 may have on our borrowers, an additional provision of £51 million was included in the impairment provisions for residential mortgages at 4 April 2020. This additional provision was not allocated to underlying loans and therefore was not attributed to stages. During the reporting period this provision has been assigned across the stages and is reflected in the allocations for 4 April 2021.

 

 

Credit risk - Residential mortgages (continued)

 

Loans which are reported within stage 2 are those which have experienced a significant increase in credit risk since origination, determined through both quantitative and qualitative indicators, as shown in the table below.

 

Criteria

Detail

Quantitative

The primary quantitative indicators are the outputs of internal credit risk assessments. For residential mortgage exposures, PDs are derived using scorecards, which use external information such as that from credit reference agencies, as well as internal information such as known instances of arrears or other financial difficulty. While different approaches are used within each portfolio, current and historical data relating to the exposure are combined with forward-looking macroeconomic information to determine the likelihood of default. 12-month and lifetime PDs are calculated for each loan.

 

The 12-month and lifetime PDs are compared to pre-determined benchmarks at each reporting date to ascertain whether a relative or absolute increase in credit risk has occurred. The indicators for a significant increase in credit risk are:

 

· Absolute measures:

-  The 12-month PD exceeds the benchmark 12-month PD that is indicative, at the assessment date, of an account being in arrears.

-  The residual lifetime PD exceeds the benchmark residual lifetime PD, set at inception, which represents the maximum credit risk that would have been accepted at that point.

 

· Relative measure:

-  The residual lifetime PD has increased by at least 75 basis points and a multiple of 2 (2020: 4x multiple).

Qualitative

Qualitative indicators include the increased risk associated with interest only loans which may not be able to refinance at maturity.

 

Also included are forbearance events where full repayment of principal and interest is still anticipated, on a discounted basis.

Backstop

In addition to the primary criteria for stage allocation described above, accounts that are more than 30 days past due are also transferred to stage 2.

 

The value of loans reported within stage 2 as a result of being in arrears by 30 days or more has reduced to £338 million, 0.18% of total gross balances (2020: £514 million, 0.27% of total gross balances). Management has judged this to be a temporary position due to the availability of government support and payment deferral schemes and an adjustment has been made to recognise the underlying risk where modelled provisions would otherwise have been reduced.

 

Stage 2 loans include all loans greater than 30 days past due (DPD), including those where the original reason for being classified as stage 2 was other than arrears over 30 DPD. The total value of loans in stage 2 due solely to payment status is less than 0.1% (2020: <0.1%) of total stage 2 balances.

 

 

 

 

Credit risk - Residential mortgages (continued)

 

Credit quality

 

The residential mortgages 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 (notes i and ii)

2021

Gross balances

Provisions

Provision coverage

 

Stage 1

Stage 2

Stage 3

and POCI

Total

Stage 1

Stage 2

Stage 3

 and POCI

Total

PD Range

£m

£m

£m

£m

£m

£m

£m

£m

%

0.00 to < 0.15%

 156,099

 2,573

 52

158,724

 34

 28

 - 

62

0.04

0.15 to < 0.25%

 10,402

 1,369

 44

11,815

 7

 13

 - 

20

0.17

0.25 to < 0.50%

 7,334

 1,298

 29

8,661

 9

 19

 - 

28

0.31

0.50 to < 0.75%

 2,326

 636

 22

2,984

 3

 10

 - 

13

0.44

0.75 to < 2.50%

 2,442

 1,085

 60

3,587

 10

 19

 - 

29

0.82

2.50 to < 10.00%

 143

 823

 70

1,036

 3

 16

 - 

19

1.81

10.00 to < 100%

 1

 2,875

 324

3,200

 - 

 71

 8

79

2.48

100% (default)

 - 

 - 

 948

948

 - 

 - 

 67

67

7.07

Total

178,747

10,659

1,549

190,955

66

176

75

317

0.17

 

Loan balance and provisions by PD (note i and ii)

2020

Gross balances

Provisions

Provision coverage

 

Stage 1

Stage 2

Stage 3

 and POCI

Total

Stage 1

Stage 2

Stage 3

 and POCI

Total

PD Range

£m

£m

£m

£m

£m

£m

£m

£m

%

0.00 to < 0.15%

 168,240

 5,124

 103

173,467

 33

 40

 - 

73

0.04

0.15 to < 0.25%

 4,756

 945

 23

5,724

 3

 9

 - 

12

0.20

0.25 to < 0.50%

 2,317

 477

 35

2,829

 2

 7

 - 

9

0.29

0.50 to < 0.75%

 1,227

 287

 12

1,526

 1

 5

 - 

6

0.37

0.75 to < 2.50%

 1,109

 866

 54

2,029

 1

 18

 - 

19

0.96

2.50 to < 10.00%

 105

 1,102

 111

1,318

 - 

 19

 - 

19

1.51

10.00 to < 100%

 - 

 794

 203

997

 - 

 27

 2

29

2.97

100% (default)

 - 

 - 

 878

878

 - 

 - 

 34

34

3.80

Total

177,754

9,595

1,419

188,768

40

125

36

201

0.11

 

Notes:

i.  Includes POCI loans of £148 million (2020: £155 million).

ii.  In recognition of the financial impact that Covid-19 may have on our borrowers, an additional provision of £51 million was included in the impairment provisions for residential mortgages at 4 April 2020. This additional provision was not allocated to underlying loans or attributed to stages and is therefore excluded from this table. During the year this provision has been assigned across the stages and is reflected in the allocations for 4 April 2021. The additional provision resulted in a 4 April 2020 total provision coverage of 0.13%

Credit risk - Residential mortgages (continued)

 

At 4 April 2021, 97% (2020: 98%) of the portfolio had a PD of less than 2.5%, reflecting the high quality of the residential mortgage portfolios. The provisions allocated to the lowest PD range primarily reflect the fact that the majority of loans are in this range. The increase during the year within the 10.00% to 100% band is largely a result of an increase in the PD assigned to the higher risk loans with payment deferrals within the prime portfolio. The reduction in the stage 2 balance within the 0.00% to < 0.15% band is due to lower risk interest only cases within the buy to let and legacy portfolio moving from stage 2 to 1, as described below the residential mortgages staging analysis table on page 26.

 

Distribution of new business by borrower type (by value)

 

Distribution of new business by borrower type (by value) (note i)

 

2021

2020

 

%

%

Prime:

 

 

First time buyers

27

33

Home movers

28

24

Remortgages

19

20

Other

1

1

Total prime

75

78

 

 

 

Buy to let:

 

 

Buy to let new purchases

9

6

Buy to let remortgages

16

16

Total buy to let

25

22

 

 

 

Total new business

100

100

 

Note:

i.  All new business measures exclude further advances and product switches.

 

The proportion of lending by borrower type has been impacted by the pandemic with the house purchase market virtually closed during the initial lockdown. Following the lockdown, the housing market recovered strongly but the lower maximum LTV caps that were introduced (see LTV and credit risk concentration below) had a bigger impact on prime than buy to let. This is most evident in the proportion of lending to first time buyers which has reduced to 27% (2020: 33%).
 

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)

 

2021

2020

 

%

%

0% to 60%

26

22

60% to 75%

36

34

75% to 80%

7

7

80% to 85%

17

11

85% to 90%

12

22

90% to 95%

2

4

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)

 

2021

2020

 

%

%

Prime

71

74

Buy to let

67

65

Group

70

72

 

Average LTV of loan stock (by value) (note ii)

 

2021

2020

 

%

%

Prime

55

58

Buy to let and legacy

57

59

Group

56

58

 

The average LTV of prime new business completed in the period has reduced to 71% (2020: 74%), reflecting the withdrawal from higher LTV lending at the start of the pandemic. The maximum LTV was initially reduced to 85% in April 2020 and has since been increased back to 90% (2020: 95%). T he average LTV of buy to let new business increased from 65% to 67% due to higher proportion of loans being originated close to the maximum allowable LTV of 75%. With house price increases during the year, the average indexed LTV of total loan stock has reduced to 56% (2020: 58%).

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).

 

Residential mortgage gross balances by LTV and region

2021

 

Greater
London

Central
England

Northern England

South East England

South West England

Scotland

Wales

Northern
Ireland

Total

Provision

Coverage

(note i)

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

%

Stage 1 and 2 loans

 

 

 

 

 

 

 

 

 

 

Fully collateralised

 

 

 

 

 

 

 

 

 

 

LTV ratio:

 

 

 

 

 

 

 

 

 

 

Up to 50%

24,487

12,484

9,340

8,930

6,454

3,526

1,944

995

68,160

 0.06

50% to 60%

10,968

6,432

5,630

4,137

3,263

2,103

1,245

391

34,169

 0.10

60% to 70%

11,326

7,119

6,351

4,653

3,653

2,427

1,311

446

37,286

 0.13

70% to 80%

9,537

6,147

5,826

4,262

3,276

2,354

1,109

469

32,980

 0.18

80% to 90%

6,129

2,828

1,914

2,132

1,741

974

359

237

16,314

 0.20

90% to 100%

118

53

50

14

33

32

3

49

352

 2.82

 

62,565

35,063

29,111

24,128

18,420

11,416

5,971

2,587

189,261

 0.12

Not fully collateralised

 

 

 

 

 

 

 

 

 

 

Over 100% LTV

8

4

28

1

2

18

1

83

145

 15.07

Collateral value

7

3

25

1

2

16

1

73

128

 

Negative equity

1

1

3

-

-

2

-

10

17

 

 

 

 

 

 

 

 

 

 

 

 

Total stage 1 and 2 loans

62,573

35,067

29,139

24,129

18,422

11,434

5,972

2,670

189,406

 0.13

 

Stage 3 and POCI loans

 

 

 

 

 

 

 

 

 

 

Fully collateralised

 

 

 

 

 

 

 

 

 

 

LTV ratio:

 

 

 

 

 

 

 

 

 

 

Up to 50%

264

100

86

77

44

24

16

13

624

 1.72

50% to 60%

110

60

51

31

31

16

9

5

313

 2.90

60% to 70%

67

61

58

28

30

17

12

6

279

 4.60

70% to 80%

36

37

51

22

14

15

9

6

190

 8.15

80% to 90%

32

11

25

10

7

8

3

5

101

 12.49

90% to 100%

2

1

10

-

-

2

-

3

18

 26.42

 

511

270

281

168

126

82

49

38

1,525

 4.31

Not fully collateralised

 

 

 

 

 

 

 

 

 

 

Over 100% LTV

1

1

5

1

-

2

-

14

24

 41.07

Collateral value

1

1

4

1

-

2

-

12

21

 

Negative equity

-

-

1

-

-

-

-

2

3

 

 

 

 

 

 

 

 

 

 

 

 

Total stage 3 and POCI loans

512

271

286

169

126

84

49

52

1,549

 4.80

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgages

63,085

35,338

29,425

24,298

18,548

11,518

6,021

2,722

190,955

 0.17

 

 

 

 

 

 

 

 

 

 

 

Total geographical concentrations

33%

19%

15%

13%

10%

6%

3%

1%

100%

 

 

Credit risk - Residential mortgages (continued)

 

Residential mortgage gross balances by LTV and region

2020

 

Greater
London

Central
England

Northern England

South East England

South West England

Scotland

Wales

Northern
Ireland

Total

Provision

Coverage

(note i)

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

%

Stage 1 and 2 loans

 

 

 

 

 

 

 

 

 

 

Fully collateralised

 

 

 

 

 

 

 

 

 

 

LTV ratio:

 

 

 

 

 

 

 

 

 

 

Up to 50%

22,883

10,946

7,695

8,033

5,713

3,040

1,606

913

60,829

 0.03

50% to 60%

10,973

6,151

4,726

4,051

3,080

1,715

1,004

373

32,073

 0.06

60% to 70%

10,701

6,871

6,552

4,180

3,418

2,351

1,386

412

35,871

 0.09

70% to 80%

9,018

5,659

5,593

3,795

3,030

2,466

1,085

419

31,065

 0.12

80% to 90%

8,360

4,047

3,665

3,448

2,375

1,574

666

346

24,481

 0.11

90% to 100%

764

562

249

386

503

269

46

91

2,870

 0.32

 

62,699

34,236

28,480

23,893

18,119

11,415

5,793

2,554

187,189

 0.08

Not fully collateralised

 

 

 

 

 

 

 

 

 

 

Over 100% LTV

5

5

16

2

3

6

-

123

160

 11.27

Collateral value

4

4

13

2

2

6

-

106

137

 

Negative equity

1

1

3

-

1

-

-

17

23

 

 

 

 

 

 

 

 

 

 

 

 

Total stage 1 and 2 loans

62,704

34,241

28,496

23,895

18,122

11,421

5,793

2,677

187,349

 0.09

 

Stage 3 and POCI loans

 

 

 

 

 

 

 

 

 

 

Fully collateralised

 

 

 

 

 

 

 

 

 

 

LTV ratio:

 

 

 

 

 

 

 

 

 

 

Up to 50%

214

81

70

66

40

20

12

11

514

 0.73

50% to 60%

109

48

46

32

26

13

9

4

287

 1.01

60% to 70%

52

61

53

31

29

19

8

4

257

 1.79

70% to 80%

27

48

55

16

20

17

14

6

203

 3.51

80% to 90%

16

13

44

7

5

8

8

3

104

 4.85

90% to 100%

2

1

15

-

-

3

1

5

27

 15.46

 

420

252

283

152

120

80

52

33

1,392

 1.99

Not fully collateralised

 

 

 

 

 

 

 

 

 

 

Over 100% LTV

-

1

4

1

-

1

1

19

27

 32.00

Collateral value

-

1

3

1

-

1

1

16

23

 

Negative equity

-

-

1

-

-

-

-

3

4

 

 

 

 

 

 

 

 

 

 

 

 

Total stage 3 and POCI loans

420

253

287

153

120

81

53

52

1,419

 2.57

 

 

 

 

 

 

 

 

 

 

 

Total residential mortgages

63,124

34,494

28,783

24,048

18,242

11,502

5,846

2,729

188,768

 0.11

 

 

 

 

 

 

 

 

 

 

 

Total geographical concentrations

34%

18%

15%

13%

10%

6%

3%

1%

100%

 

 

Note:

i.  In recognition of the financial impact that Covid-19 may have on our borrowers, an additional provision of £51 million was included in the impairment provisions for residential mortgages at 4 April 2020. This additional provision was not allocated to underlying loans or attributed to stages and is therefore excluded from this table. During the year this provision has been assigned across the stages and is reflected in the allocations for the year.

 

 

Credit risk - Residential mortgages (continued)

 

Over the year, the geographical distribution of residential mortgages across the UK has remained stable, with the highest concentration continuing to be in Greater London, at 33% of the total (2020: 34%).

 

In addition to balances held at amortised cost shown in the table above, there are £68 million (2020: £71 million) of residential mortgages held at FVTPL which have an average LTV of 38% (2020: 39%). The largest geographical concentration within the FVTPL balances is also in Greater London, at 54% (2020: 49%).

 

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)

 

2021

2020

 

%

%

Prime

0.35

0.33

Buy to let and legacy

0.72

0.74

Total

0.43

0.41

 

 

 

UK Finance (UKF) industry average

0.85

0.74

 

Note:

i.  The methodology for calculating mortgage arrears is based on the UKF definition of arrears, where months in arrears is determined by dividing the arrears balance outstanding by the latest monthly contractual payment.

 

Number of properties in possession as % of total book

 

2021

2020

 

Number of properties

%

Number of properties

%

Prime

33

0.00

98

0.01

Buy to let and legacy

51

0.01

150

0.05

Total

84

0.00

248

0.02

 

 

 

 

 

UKF industry average

 

0.01

 

0.03

 

During the year, the proportion of cases more than 3 months in arrears has increased to 0.43% (2020: 0.41%). Whilst payment deferrals have helped supress the flow of cases into arrears, the ability of some borrowers to recover from arrears has slowed given the pressures on income. In addition, cases have remained in arrears as a result of the suspended flow of cases from arrears to possessions following the introduction of Nationwide's Home Support Package, which included flexibility for mortgage repayments and a pledge for no repossessions before 31 May 2021. Another factor explaining the increase in the number of cases more than 3 months in arrears is that under the UKF definition, as monthly payments reduced following the reduction in bank base rate from 0.75% to 0.1%, the arrears balance on mortgages linked to bank base rate will now represent a greater number of monthly 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

 

2021

2020

 

Prime

Buy to let and legacy

Total

 

Prime

Buy to let and legacy

Total

 

 

£m

£m

£m

%

£m

£m

£m

%

Not past due

 148,285

 40,460

 188,745

98.8

 149,387

 36,684

 186,071

98.5

Past due 0 to 1 month

 842

 278

 1,120

0.6

 1,062

 356

 1,418

0.8

Past due 1 to 3 months

 259

 159

 418

0.2

 311

 307

 618

0.3

Past due 3 to 6 months

 149

 121

 270

0.2

 177

 142

 319

0.2

Past due 6 to 12 months

 113

 108

 221

0.1

 112

 109

 221

0.1

Past due over 12 months

 123

 113

 236

0.1

 82

 81

 163

0.1

Possessions

 3

 10

 13

-

9

20

 29

-

Total residential mortgages

 149,774

 41,249

 191,023

100

 151,140

 37,699

 188,839

100

 

The balance of cases past due by up to 3 months has decreased to £1,538 million (2020: £2,036 million). Management has judged this to be a temporary position due to the availability of government support and payment deferral schemes and an adjustment has therefore been made to recognise the underlying risk, retaining provisions of £21 million which would have otherwise been released.

 

The balance of cases past due by more than 12 months has increased to £236 million (2020: £163 million); this is principally due to the possession moratorium. The moratorium will remain in place until the end of May 2021 and has reduced possession balances to £13 million (2020: £29 million).

 

Interest only mortgages

 

Interest only balances for prime residential mortgages relate primarily to historical balances 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, engaging regularly with borrowers to ensure the loan is redeemed or to agree a strategy for repayment. 90% of the buy to let and legacy portfolio relate to interest only balances (2020: 89%) and buy to let remains open to new interest only lending under standard terms. Nationwide also re-entered the prime market for interest only lending under a newly established credit policy in April 2020.

 

 

Credit risk - Residential mortgages (continued)

 

Interest only mortgages (gross balance) - term to maturity (note i)

 

 

Term expired

(still open)

Due within one year

Due after one year and before two years

Due after two years and before five years

Due after more than five years

Total

% of

book

2021

£m

£m

£m

£m

£m

£m

%

Prime

74

303

357

1,256

6,757

8,747

5.8

Buy to let and legacy

175

271

338

1,360

34,963

37,107

90.0

Total

249

574

695

2,616

41,720

45,854

24.0

 

 

 

 

 

 

 

 

2020

£m

£m

£m

£m

£m

£m

%

Prime

68

258

370

1,412

7,726

9,834

6.5

Buy to let and legacy

134

211

334

1,236

31,737

33,652

89.3

Total

202

469

704

2,648

39,463

43,486

23.0

 

Note:

i.  Balances subject to forbearance with agreed term extensions are presented based on the latest agreed contractual term.

 

Interest only loans that are term expired (still open) 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.

 

Forbearance

 

Nationwide is committed to supporting borrowers facing financial difficulty by working with them to find a solution through proactive arrears management and forbearance. In addition, we are supporting borrowers financially affected by the Covid-19 pandemic. Further details of this support are provided at the end of this forbearance section.

 

The Group applies the European Banking Authority (EBA) definition of forbearance.

 

The following concession events are included within the forbearance reporting for residential mortgages:

 

Past term interest only concessions

 

Nationwide works with borrowers who are unable to repay the capital at term expiry of their interest only mortgage. Where a borrower is unable to renegotiate the facility within six months of maturity, but no legal enforcement is pursued, the account is considered forborne. Should another concession event such as a term extension occur within the six month period, this is also classed as forbearance.

 

Interest only concessions

 

Where a temporary interest only concession is granted the loans do not accrue arrears for the period of the concession and these loans are categorised as impaired.

 

Capitalisation

 

When a borrower emerges from financial difficulty, provided they have made at least six full monthly instalments, they are offered the option to capitalise arrears. This results in the account being repaired and the loans are categorised as not impaired provided contractual repayments are maintained.
 

Credit risk - Residential mortgages (continued)

 

Capitalisation - temporary suspension of payments following notification of death of a borrower

 

On notification of death, we offer a 12 month capitalisation concession to allow time for the estate to redeem the account. The loan does not accrue arrears for the period of the concession although interest will continue to be added. Accounts subject to this concession will be classed as forborne if the full contractual payment is not received.

 

Term extensions (within term)

 

Customers in financial difficulty may be allowed to extend the term of their mortgage. On a capital repayment mortgage this will reduce their monthly commitment; interest only borrowers will benefit by having a longer period to repay the capital at maturity.

 

Permanent interest only conversions

 

In the past, some borrowers in financial difficulty were granted a permanent interest only conversion, normally reducing their monthly commitment. This facility was withdrawn in March 2012; it remains available for buy to let lending in line with Nationwide's new business credit policy.

 

The table below provides details of residential mortgages held at amortised cost subject to forbearance. Accounts that are currently subject to forbearance are assessed as in either stage 2 or stage 3:

 

Gross balances subject to forbearance (note i)

 

2021

2020

 

Prime

Buy to let and legacy

Total

Prime

Buy to let and legacy

Total

 

£m

£m

£m

£m

£m

£m

Past term interest only (note ii)

126

123

249

117

120

237

Interest only concessions

725

41

766

533

48

581

Capitalisation

71

37

108

75

42

117

Capitalisation - notification of death of borrower (note iii)

103

91

194

156

70

226

Term extensions (within term)

35

15

50

34

13

47

Permanent interest only conversions

2

41

43

2

35

37

Total forbearance (note iv)

 1,062

 348

 1,410

917

328

1,245

 

 

 

 

 

 

 

Of which stage 2

200

66

266

160

53

213

Of which stage 3

635

258

893

472

188

660

 

 

 

 

 

 

 

Impairment provisions on forborne loans

 19

 18

 37

5

12

17

 

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. The prior period comparative for Capitalisation - notification of death of borrower has been restated for buy to let and legacy lending, increasing the balance by £10 million to £70 million.

iv. 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 - Residential mortgages (continued)

 

Over the year, total balances subject to forbearance have increased to £1,410 million (2020: £1,245 million) driven largely by interest only concessions which accounts for the increase in stage 3 balances. Interest only concession balances have increased as some borrowers require further support following the expiry of their second payment deferral. However, this proportion is low with only 1% of borrowers exiting a payment deferral currently having gone on to take an interest only concession.

 

The average LTV for forborne accounts is 50% (2020: 50%).

 

In addition to the amortised cost balances above, there are £68 million FVTPL balances (2020: £71 million), of which £8 million (2020: £9 million) are forborne.

 

Support for borrowers impacted by Covid-19

 

Payment deferrals continue to be offered to impacted borrowers in accordance with regulatory guidance; in isolation these payment deferrals are not recorded as forbearance and do not automatically have an impact on the default status of borrowers. For borrowers who continue to need financial support after completion of a payment deferral period, Nationwide offers tailored concessions. Under regulatory guidance, where these concessions are not arrears-bearing they are treated as forbearance and are included, as applicable, in the reported staging balance.

The following table shows the value of residential mortgages with a payment deferral related to Covid-19, showing total deferrals granted and those still in place at year end.

 

Payment and interest deferrals granted due to Covid-19

 

 

 

 

 

4 April 2021

4 April 2020

Payment

deferrals

granted

to date

Payment

deferrals

outstanding

 

Payment

deferrals

outstanding

 

Prime

 

 

 

Number of properties (000s)

211

8

167

Balance (£m)

26,919

1,151

23,541

Share of book, balance (%)

18%

1%

16%

Weighted average LTV (%)

59%

61%

63%

 

 

 

 

Buy to let and legacy

 

 

 

Number of properties (000s)

45

1

37

Balance (£m)

5,968

208

5,037

Share of book, balance (%)

15%

1%

13%

Weighted average LTV (%)

59%

60%

61%

 

 

 

 

Total Residential

 

 

 

Number of properties (000s)

256

9

204

Balance (£m)

32,887

1,359

28,578

Share of book, balance (%)

17%

1%

15%

Weighted average LTV (%)

59%

61%

62%

 

The outstanding balances of borrowers on a payment deferral have reduced to 1% (2020: 15%) of the total portfolio. The majority of the payment deferrals which have expired to date have resumed payments. For residential mortgages, a provision of £36 million (2020: £22 million) has been recognised in respect of Covid-19 payment deferrals; this includes payment deferrals taken during the period that have since expired but where risk is judged to remain elevated.

 

 

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 decreased by £590 million to £4,404 million (2020: £4,994 million), equating to a 12% reduction. The reduction in balances primarily reflects lower customer spending during the Covid-19 pandemic, as well as reduced customer demand for new borrowing and the implementation of controls that reduce new lending in response to the increased risk arising from Covid-19.

 

To date arrears remain low and credit quality is stable; however, this performance has benefited from the impact of government support schemes, payment deferrals and the low base rate environment.

 

Consumer banking gross balances

 

2021

2020

 

£m

%

£m

%

Overdrawn current accounts

233

5

280

5

Personal loans

2,797

64

3,030

61

Credit cards

1,374

31

1,684

34

Total consumer banking

4,404

100

4,994

100

 

All consumer banking loans are classified and measured at amortised cost.

 

Impairment losses and write-offs for the year

 

2021

2020

 

£m

£m

Overdrawn current accounts

19

21

Personal loans

76

82

Credit cards

30

56

Total impairment losses

125

159

 

 

 

 

%

%

Impairment charge as a % of average gross balance

2.68

3.27

 

 

 

 

£m

£m

Gross write-offs

124

87

 

Impairment losses for the year include the impact of updating macroeconomic assumptions and weightings to reflect the impact of the Covid-19 pandemic; further details are included in note 8 of the financial statements. Updates to the severe downside scenario assumptions increased provisions by £20 million in the year, primarily in relation to personal loans. Another factor in the charge for impairment losses is the number of loans with payment deferrals and interest holidays granted in the year; provisions against these loans total £38 million (2020: £17 million). The performance of those loans where the concession has ended remains in line with our expectations. The prior year impairment losses included a £43 million charge reflecting the estimated impact of Covid-19 at 4 April 2020.

 

 

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

 

 

2021

2020

 

 

Stage 1

Stage 2 

Stage 3

Total

Stage 1

Stage 2

Stage 3

Additional provision

(note i)

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

Gross balances

 

 

 

 

 

 

 

 

 

Overdrawn current accounts

 121

 78

 34

 233

 149

 89

 42

 -

 280

Personal loans

 2,144

 521

 132

 2,797

 2,597

 296

 137

 -

 3,030

Credit cards

 876

 391

 107

 1,374

 1,111

 442

 131

 -

 1,684

Total

 3,141

 990

 273

 4,404

 3,857

 827

 310

 -

 4,994

 

 

 

 

 

 

 

 

 

 

Provisions

 

 

 

 

 

 

 

 

 

Overdrawn current accounts

 5

 23

 32

 60

2

 17

 37

 3

 59

Personal loans

 25

 77

 118

 220

 15

 33

 119

 23

 190

Credit cards

 18

 108

 96

 222

 15

 91

 122

 17

 245

Total

 48

 208

 246

 502

 32

 141

 278

 43

 494

 

 

 

 

 

 

 

 

 

 

Provisions as a % of total balance

%

%

%

%

%

%

%

%

%

Overdrawn current accounts

3.89

29.38

93.36

25.64

1.75

19.06

87.02

-

21.21

Personal loans

1.18

14.81

89.06

7.87

0.56

11.15

86.78

-

6.27

Credit cards

2.00

27.68

89.99

16.13

1.33

20.67

92.86

-

14.55

Total

1.51

21.04

89.97

11.39

0.82

17.09

89.39

-

9.90

           

 

Note: 

i.  In recognition of the financial impact that Covid-19 may have on our borrowers, an additional provision of £43 million was included in the impairment provisions for consumer banking at 4 April 2020. This additional provision was not allocated to underlying loans and therefore was not been attributed to stages. During the reporting period this provision has been assigned across the stages and is reflected in the allocations for 4 April 2021. 

 

At 4 April 2021, 71% (2020: 77%) of the consumer banking portfolio is in stage 1. This reduction is largely the result of a change to our staging criteria from a multiple of 4 times origination PD to a multiple of 2, thus making the models more sensitive to relative PD changes over time. This change resulted in an increase in the proportion of stage 2 balances to 23% (2020: 17%), with no significant impact on provisions given the strong quality of the loans affected. The proportion of total balances in stage 3 is unchanged at 6% (2020: 6%), reflecting broadly stable underlying credit performance. The increase in provisions to £502 million (2020: £494 million) is due to the uncertain economic outlook and how the impact of the Covid-19 pandemic is reflected in the economic scenarios used to model expected credit losses.

 

 

 

Credit risk - Consumer banking (continued)

 

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 7.2% (2020: 5.7%) of gross balances.

 

The table below summarises the movements in the Group's consumer banking balances held at amortised cost. The movements within the table are an aggregation of monthly movements over the year.

 

Reconciliation of movements in gross consumer banking balances and impairment provisions

 

Non-credit impaired

Credit impaired

 

 

Subject to 12-month ECL

Subject to lifetime ECL

Subject to lifetime ECL

Total

 

Stage 1

Stage 2

Stage 3

 

 

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

 

£m

£m

£m

£m

£m

£m

£m

£m

At 5 April 2020 (note i)

3,857

32

827

141

310

278

4,994

494

 

 

 

 

 

 

 

 

 

Stage transfers:

 

 

 

 

 

 

 

 

Transfers from Stage 1 to Stage 2

(1,960)

(46)

1,960

46

-

-

-

-

Transfers to Stage 3

(10)

-

(118)

(87)

128

87

-

-

Transfers from Stage 2 to Stage 1

1,506

219

(1,506)

(219)

-

-

-

-

Transfers from Stage 3

2

2

17

13

(19)

(15)

-

-

Net remeasurement of ECL arising from transfer of stage

 

(161)

 

230

 

9

 

78

Net movement arising from transfer of stage

(462)

14

353

(17)

109

81

-

78

 

 

 

 

 

 

 

 

 

New assets originated or purchased

1,611

35

-

-

-

-

1,611

35

Net impact of further lending and repayments

(1,210)

(50)

(29)

(29)

(17)

(19)

(1,256)

(98)

Changes in risk parameters in relation to credit quality

-

17

-

118

-

31

-

166

Other items impacting income statement charge/(reversal) (including recoveries)

-

-

-

-

-

(6)

-

(6)

Redemptions

(655)

-

(161)

(5)

(5)

(2)

(821)

(7)

Removal of year-end additional provision for Covid-19 (note i)

 

 

 

 

 

 

 

(43)

Income statement charge for the year

 

 

 

 

 

 

 

125

Decrease due to write-offs

-

-

-

-

(124)

(124)

(124)

(124)

Other provision movements

-

-

-

-

-

7

-

7

4 April 2021

3,141

48

990

208

273

246

4,404

502

Net carrying amount

 

3,093

 

782

 

27

 

3,902

 

 

 

Credit risk - Consumer banking (continued)

 

Reconciliation of movements in gross consumer banking balances and impairment provisions

 

Non-credit impaired

Credit impaired

 

 

 

Subject to 12-month ECL

Subject to lifetime ECL

Subject to lifetime ECL

Total

 

Stage 1

Stage 2

Stage 3

 

 

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

 

£m

£m

£m

£m

£m

£m

£m

£m

At 5 April 2019

3,538

27

761

132

287

259

4,586

418

 

 

 

 

 

 

 

 

 

Stage transfers:

 

 

 

 

 

 

 

 

Transfers from Stage 1 to Stage 2

(1,505)

(25)

1,505

25

-

-

-

-

Transfers to Stage 3

(15)

-

(141)

(79)

156

79

-

-

Transfers from Stage 2 to Stage 1

1,334

160

(1,334)

(160)

-

-

-

-

Transfers from Stage 3

2

2

14

10

(16)

(12)

-

-

Net remeasurement of ECL arising from transfer of stage

 

(132)

 

189

 

29

 

86

Net movement arising from transfer of stage

(184)

5

44

(15)

140

96

-

86

 

 

 

 

 

 

 

 

 

New assets originated or purchased

2,248

26

-

-

-

-

2,248

26

Net impact of further lending and repayments

(1,123)

(23)

77

(11)

(27)

(16)

(1,073)

(50)

Changes in risk parameters in relation to credit quality

-

(3)

-

38

-

28

-

63

Other items impacting income statement charge/(reversal) (including recoveries)

1

-

-

-

(1)

(4)

-

(4)

Redemptions

(623)

-

(55)

(3)

(2)

(2)

(680)

(5)

Income statement charge for the year

 

 

 

 

 

 

 

43

Additional provision for Covid-19 (note i)

 

 

 

 

 

 

 

159

Decrease due to write-offs

-

-

-

-

(87)

(87)

(87)

(87)

Other provision movements

-

-

-

-

-

4

-

4

4 April 2020 (note i)

3,857

32

827

141

310

278

4,994

494

Net carrying amount

 

3,825

 

686

 

32

 

4,500

          

 

Note:

i.  At 4 April 2020, an additional provision for credit losses of £43 million was recognised to reflect the estimated impact of the Covid-19 pandemic on ECLs. At 4 April 2020, this additional provision was not allocated to underlying loans and therefore was not attributed to stages. During the year, this provision has been allocated to underlying loans and is reflected in the movements within the table and the 4 April 2021 position.

 

The change to the staging criteria from a multiple of 4 times origination PD to a multiple of 2 drove the increase in the proportion of stage 2 balances to 23% (2020: 17%). As the staging of individual loans is assessed monthly, the gross movements between stages 1 and 2 include the cumulative impact of transfers caused by changes in PD leading to the loans breaching the criteria for transferring assets to stage 2 and vice versa.

 

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 financial statements.

 

 

 

Credit risk - Consumer banking (continued)

 

Reason for consumer banking balances being included in stage 2 (note i)

2021

Overdrawn current accounts

Personal loans

Credit cards

Total

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

£m

£m

£m

£m

£m

£m

£m

£m

Quantitative criteria:

 

 

 

 

 

 

 

 

Payment status (greater than 30 DPD) (note ii)

 3

 2

 6

 5

 4

 3

 13

 10

Increase in PD since origination (less than 30 DPD)

 66

 20

 510

 72

 364

 101

 940

 193

 

 

 

 

 

 

 

 

 

Qualitative criteria:

 

 

 

 

 

 

 

 

Forbearance (less than 30 DPD) (note iii)

 1

 - 

 - 

 - 

 - 

 - 

 1

 - 

Other qualitative criteria (less than 30 DPD)

 8

 1

 5

 - 

 23

 4

 36

 5

 

 

 

 

 

 

 

 

 

Total Stage 2 gross balances

 78

 23

 521

 77

 391

 108

 990

 208

 

Reason for consumer banking balances being included in stage 2

2020

Overdrawn current accounts

Personal loans

Credit cards

Total

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

£m

£m

£m

£m

£m

£m

£m

£m

Quantitative criteria:

 

 

 

 

 

 

 

 

Payment status (greater than 30 DPD) (note ii)

 4

 3

 12

 5

 7

 5

 23

 13

Increase in PD since origination (less than 30 DPD)

 74

 13

 278

 28

 399

 78

 751

 119

 

 

 

 

 

 

 

 

 

Qualitative criteria:

 

 

 

 

 

 

 

 

Forbearance (less than 30 DPD) (note iii)

 2

 - 

 - 

 - 

 - 

 - 

 2

 - 

Other qualitative criteria (less than 30 DPD)

 9

 1

 6

-

 36

 8

51

 9

 

 

 

 

 

 

 

 

 

Total Stage 2 gross balances

 89

 17

 296

 33

 442

 91

 827

 141

 

Notes:

i.  In recognition of the financial impact that Covid-19 may have on our borrowers, an additional provision of £43 million was included in the impairment provisions for consumer banking at 4 April 2020. This additional provision was not allocated to underlying loans and therefore was not attributed to stages. During the reporting period this provision has been assigned across the stages and is reflected in the allocations for 4 April 2021.

ii.  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.

iii. Stage 2 forbearance relates to cases where full repayment of principal and interest is still anticipated.

 

Balances reported within stage 2 are those which have experienced a significant increase in credit risk since origination. The significant increase is determined through both quantitative and qualitative indicators. Of the £990 million stage 2 balances (2020: £827 million), only 1% (2020: 3%) are in arrears by 30 days or more, with the majority of balances in stage 2 due to an increase in

 

 

 

Credit risk - Consumer banking (continued)

 

PD since origination. The increase in personal loans stage 2 balances is largely the result of a change to staging criteria from a multiple of 4 times origination PD to a multiple of 2, thus making the models more sensitive to relative PD changes over time. The reductions in credit cards and overdrawn current accounts are consistent with the reduction in total balances for these products in the year.

 

The table below outlines the main criteria used to determine whether a significant increase in credit risk since origination has occurred.

 

Criteria

Detail

Quantitative

The primary quantitative indicators are the outputs of internal credit risk assessments. For consumer banking exposures, PDs are derived using scorecards, which use external information such as that from credit reference agencies, as well as internal information such as known instances of arrears or other financial difficulty. While different approaches are used within each portfolio, current and historical data relating to the exposure are combined with forward-looking macroeconomic information to determine the likelihood of default. 12-month and lifetime PDs are calculated for each loan.

 

The 12-month and lifetime PDs are compared to pre-determined benchmarks at each reporting date to ascertain whether a relative or absolute increase in credit risk has occurred. The indicators for a significant increase in credit risk are:

 

· Absolute measures:

-  The 12-month PD exceeds the benchmark 12-month PD that is indicative, at the assessment date, of an account being in arrears.

-  The residual lifetime PD exceeds the benchmark residual lifetime PD, set at inception, which represents the maximum credit risk that would have been accepted at that point.

 

· Relative measure:

-  The residual lifetime PD has increased by at least 75 basis points and a multiple of 2 (2020: 4x multiple).

Qualitative

Qualitative criteria include both forbearance events and, within the credit card portfolio, recognition of the risk related to borrowers in persistent debt.

Backstop

In addition to the primary criteria for stage allocation described above, accounts that are more than 30 days past due are also transferred to stage 2.

 

 

 

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 (note i)

2021

Gross balances

Provisions

Provision coverage

 

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

PD range

£m

£m

£m

£m

£m

£m

£m

£m

%

0.00 to <0.15%

 913

 3

 - 

916

 9

 - 

 - 

9

1.01

0.15 to < 0.25%

 361

 21

 - 

382

 4

 1

 - 

5

1.30

0.25 to < 0.50%

 614

 79

 - 

693

 6

 6

 - 

12

1.73

0.50 to < 0.75%

 303

 84

 - 

387

 4

 6

 - 

10

2.66

0.75 to < 2.50%

 682

 297

 1

980

 13

 31

 - 

44

4.53

2.50 to < 10.00%

 261

 302

 3

566

 11

 54

 - 

65

11.54

10.00 to < 100%

 7

 204

 12

223

 1

 110

 5

116

51.57

100% (default)

 - 

 - 

 257

257

 - 

 - 

 241

241

93.57

Total

3,141

990

273

4,404

48

208

246

502

11.39

 

Consumer banking gross balances and provisions by PD

2020

Gross balances

Provisions

Provision coverage

 

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

PD range

£m

£m

£m

£m

£m

£m

£m

£m

%

0.00 to <0.15%

934

4

-

938

3

-

-

3

0.36

0.15 to < 0.25%

479

6

-

485

2

-

-

2

0.40

0.25 to < 0.50%

719

19

-

738

3

1

-

4

0.61

0.50 to < 0.75%

376

26

-

402

2

2

-

4

1.05

0.75 to < 2.50%

970

205

-

1,175

11

18

-

29

2.44

2.50 to < 10.00%

371

378

1

750

10

54

-

64

8.47

10.00 to < 100%

8

189

4

201

1

66

3

70

34.51

100% (default)

-

-

305

305

-

-

275

275

90.28

Total

3,857

827

310

4,994

32

141

278

451

9.02

 

Note:

i.  In recognition of the financial impact that Covid-19 may have on our borrowers, an additional provision of £43 million was included in the impairment provisions for consumer banking at 4 April 2020. This additional provision was not allocated to underlying loans and therefore was not attributed to stages. During the reporting period this provision has been assigned across the stages and is reflected in the allocations for 4 April 2021.

 

The credit quality of the consumer banking portfolio has remained stable with 89% of the portfolio (2020: 90%) considered good quality with a PD of less than 10%.

 

 

 

Credit risk - Consumer banking (continued)

 

Consumer banking balances by payment due status 

 

Credit risk in the consumer banking portfolios is primarily monitored and reported based on arrears status which is set out below.

 

Consumer banking gross balances by payment due status

 

2021

2020

 

Overdrawn

current

accounts

Personal

loans

Credit
cards

Total

 

Overdrawn

current

accounts

Personal
 loans

Credit
cards

Total

 

 

£m

£m

£m

£m

%

£m

£m

£m

£m

%

Not past due

 189

 2,616

 1,259

 4,064

92.3

226

2,830

1,528

4,584

91.8

Past due 0 to 1 month

 9

 34

 11

 54

1.2

11

53

23

87

1.7

Past due 1 to 3 months

 3

 10

 8

 21

0.5

5

12

13

30

0.6

Past due 3 to 6 months

 3

 16

 7

 26

0.6

4

11

9

24

0.5

Past due 6 to 12 months

 2

 11

 2

 15

0.3

3

14

2

19

0.4

Past due over 12 months

 3

 12

 - 

 15

0.3

3

12

-

15

0.3

Charged off (note i)

 24

 98

 87

 209

4.8

28

98

109

235

4.7

Total

 233

 2,797

 1,374

 4,404

100

280

3,030

1,684

4,994

100

 

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.

 

Total balances subject to arrears, excluding charged off balances, have reduced to £131 million (2020: £175 million), representing 3.1% (2020: 3.7%) of the total balance excluding charged off balances. The arrears performance has benefited from Covid-19 government support schemes and payment deferrals, as well as reduced spending on current account and credit cards. It is management's judgement that the arrears reduction is temporary and therefore this improvement in portfolio performance has not been reflected within the provisions at 4 April 2021.

 

Forbearance

 

Nationwide is committed to supporting customers facing financial difficulty, including those impacted by Covid-19, 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 following concession events are included within the forbearance reporting for consumer banking:

 

Payment concession

 

This concession consists of reduced monthly payments over an agreed period and may be offered to customers with an overdraft or credit card. For credit cards subject to such a concession, arrears do not increase provided the payments are made.

 

 

 

Credit risk - Consumer banking (continued)

 

Interest suppressed payment arrangement

 

This temporary interest payment concession results in reduced monthly payments and may be offered to customers with an overdraft, credit card or personal loan. Interest payments and fees are suppressed during the period of the concession and arrears do not increase. Cases subject to this concession are classified as impaired.

 

Balances re-aged/re-written

 

As customers repay their debt in line with the terms of their new arrangement, their accounts are re-aged, bringing them into an up-to-date and performing position. For personal loans we will

re-write the loan to extend the term and thus maintain a reduced monthly payment. For credit cards we re-age the account and set the payment status to 'up-to-date', at which point the customer is treated in the same way as any other performing account.

 

The table below provides details of consumer banking balances subject to 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)

 

2021

2020

 

Overdrawn current accounts

Personal
loans

Credit

cards

Total

Overdrawn current
 accounts

Personal
 loans

Credit
cards

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

Payment concession

 7

 - 

 1

 8

 14

 - 

 1

 15

Interest suppressed payment concession

 6

 42

 13

 61

 7

 39

 15

 61

Balance re-aged/re-written

 - 

 1

 2

 3

 - 

 1

 3

 4

Total forbearance

 13

 43

 16

 72

 21

 40

 19

 80

 

 

 

 

 

 

 

 

 

Of which stage 2

5

2

4

11

11

4

3

18

Of which stage 3

7

41

12

60

9

31

15

55

 

 

 

 

 

 

 

 

 

Impairment provisions on forborne loans

 8

 31

 11

 50

 12

 27

 13

 52

 

Note:

i.  Where more than one concession event has occurred, balances are reported under the latest event.

 

Over the year, total balances subject to forbearance have reduced to £72 million (2020: £80 million), with forborne balances as a percentage of the total consumer banking lending remaining stable at 1.6% (2020: 1.6%). The balance reduction is likely to be temporary as borrowers have utilised payment deferrals as a method of support during the pandemic. These payment deferrals are not reported as forbearance. The forbearance position has not increased as most customers have not required immediate further support following the expiry of their payment deferral.

 

 

Credit risk - Consumer banking (continued)

 

Support for borrowers impacted by Covid-19

 

The ongoing impact of Covid-19 continues to be a concern for our consumer banking customers, and for those financially impacted we have offered additional help and continued support in these challenging times. 

 

In response to Covid-19, and in accordance with regulatory guidance, Nationwide has been offering payment deferrals on credit cards and personal loans, as well as interest holidays on current accounts, since March 2020. For borrowers applying for an initial payment deferral, the deadline for applications was March 2021; payment deferrals can be taken beyond this point if they are consecutive, but all must end by July 2021.

 

In line with Financial Conduct Authority (FCA) guidance during the period, no arrears or forbearance will be reported on the customer's credit file as a result of these measures. In isolation these concessions are not reported as forbearance and do not automatically impact the reported stage allocation.

The following table shows the value of consumer credit products with a payment deferral or using an interest-free period related to Covid-19.

 

Gross balances subject to a payment deferral or interest holiday due to Covid-19

 

 

 

2021

2020

Granted to date

Outstanding (note i)

Outstanding (note i)

 

 

£m

Percentage of

gross balance

%

 

 

£m

Percentage of

gross balance

%

 

 

£m

Percentage of

gross balance

%

Payment deferral

 

 

 

 

 

 

Personal Loans

301

11

20

1

225

7

Credit Cards

85

6

7

1

64

4

Interest holiday

 

 

 

 

 

 

Current Accounts

20

9

-

-

8

3

Total

406

9

27

1

297

6

 

Note:

i.  Includes consumer credit products with a payment deferral or using an interest-free period related to Covid-19 as used in the calculation of expected credit losses.

 

The outstanding balances of borrowers on a payment deferral have reduced to 1% (2020: 6%). The majority of customers have not required immediate further support following the expiry of their payment deferral. For consumer banking, provisions include £38 million (2020: £17 million) in respect of Covid-19 payment deferrals and interest holidays.

 

 

Credit risk - Commercial

 

Summary

 

The commercial portfolio comprises loans which have been provided to meet the funding requirements of registered social landlords, commercial real estate investors and project finance initiatives. The commercial real estate and project finance portfolios are closed to new business.

 

Nationwide continues to support commercial borrowers where income has been disrupted through the impacts of Covid-19. Credit quality is stable, although portfolio performance has benefited from the impact of government support schemes, payment deferrals and the low interest rate environment.

 

Commercial gross balances

 

2021

2020

 

£m

£m

Registered social landlords (note i)

4,828

5,425

Commercial real estate (CRE)

769

996

Project finance (note ii)

670

712

Commercial balances at amortised cost

6,267

7,133

Fair value adjustment for micro hedged risk (note iii)

653

741

Commercial balances - FVTPL

52

57

Total

6,972

7,931

 

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.

 

Over the year, total balances across the commercial portfolios continued to reduce, most significantly in the registered social landlords portfolio where loan amortisation and repayments exceeded drawdowns on new lending to this sector. The reduction in commercial real estate balances is driven by amortisation and early repayments, reflecting the closed book strategy.

 

Impairment reversals and write-offs for the year

 

2021

2020

 

£m

£m

Total impairment reversals

(6)

(3)

 

 

 

Gross write-offs

3

1

 

The reduction in impairment is driven by improvements to the collateral value or anticipated cashflows for 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

 

2021

2020

 

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Additional provision

(note i)

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

Gross balances

 

 

 

 

 

 

 

 

 

Registered social landlords

4,782

46

-

4,828

5,385

40

-

-

5,425

CRE

574

120

75

769

791

155

50

-

996

Project finance

595

53

22

670

616

73

23

-

712

Total

5,951

219

97

6,267

6,792

268

73

-

7,133

 

 

 

 

 

 

 

 

 

 

Provisions

 

 

 

 

 

 

 

 

 

Registered social landlords

1

-

-

1

1

-

-

-

1

CRE

1

2

23

26

2

2

18

7

29

Project finance

-

2

4

6

-

1

9

-

10

Total

2

4

27

33

3

3

27

7

40

 

 

 

 

 

 

 

 

 

 

Provisions as a % of total balance

%

%

%

%

%

%

%

%

%

Registered social landlords

0.01

0.13

-

0.01

0.02

0.12

-

-

0.02

CRE

0.19

1.89

29.81

3.34

0.25

1.29

36.00

-

2.91

Project finance

0.02

2.97

21.86

0.97

0.02

1.37

39.13

-

1.40

Total

0.03

1.78

28.01

0.52

0.04

1.12

36.99

-

0.56

 

Note:

i.  In recognition of the financial impact that Covid-19 may have on our borrowers, an additional provision of £7 million was included in the impairment provisions for the CRE portfolio at 4 April 2020. This additional provision was not allocated to underlying loans and therefore was not attributed to stages. At 4 April 2021 all provisions have been attributed to underlying loans and stages.

 

Over the year, the performance of the commercial portfolio has remained stable, with 95% (2020: 95%) of balances remaining in stage 1. Of the £219 million (2020: £268 million) stage 2 loans, which represent 3.5% (2020: 3.8%) of total balances, £6 million (2020: £1 million) were in arrears by 30 days or more, with the remainder in stage 2 due to a deterioration in risk profile.

 

A number of loans have been impacted by a disruption to rental income as a result of the impacts of Covid-19; some of this disruption is considered temporary in nature and short-term concessions have been applied. A small number of loans which are considered to have been adversely impacted in the longer term have contributed to an increase in stage 3 (credit-impaired) CRE loans to £75 million (2020: £50 million), equating to 10% (2020: 5%) of the total CRE exposure.

 

Within the registered social landlord portfolio, there are no stage 3 assets, and only 1% (2020: 1%) of the exposure is in stage 2.

 

 

 

Credit risk - Commercial (continued)

 

Loans in the project finance portfolio benefit from long-term cash flows, which typically emanate from the provision of assets such as schools, hospitals, police stations, government buildings and roads, procured under the Private Finance Initiative. 97% of these balances are in respect of fully developed assets. During the year, the project finance stage 3 provisions have reduced to £4 million (2020: £9 million).

 

Credit quality

 

Nationwide applies robust credit management policies and processes to identify and manage the risks arising from the portfolio.

 

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

 

2021

2020

Stage 1

Stage 2

Stage 3

Total

Provision coverage

Stage 1

Stage 2

Stage 3

Total

Provision coverage

 

£m

£m

£m

£m

%

£m

£m

£m

£m

%

Strong

343

4

-

347

0.1

433

18

-

451

0.1

Good

192

37

-

229

0.2

289

67

-

356

0.6

Satisfactory

39

24

-

63

1.4

69

10

-

79

1.7

Weak

-

55

-

55

3.1

-

60

-

60

1.2

Impaired

-

-

75

75

31.1

-

-

50

50

36.2

Total

574

120

75

769

3.3

791

155

50

996

2.3

 

The risk grades in the table above are based upon the IRB supervisory slotting approach for specialised lending exposures, under which exposures are classified into categories depending on the underlying credit risk, with the assessment based upon financial strength, asset characteristics, strength of the sponsor and the security. The credit quality of the CRE portfolio has declined slightly with 83% (2020: 89%) of the portfolio rated as satisfactory or better. This reflects the run-off of the portfolio combined with limited migration to the weaker grades driven by cashflow volatility and reduced asset values.

 

Risk grades for the project finance portfolio are also based upon supervisory slotting approach for specialised lending, with 90% 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 high, with an average 12-month PD of 0.04% across the portfolio. 

 

In addition to the above, £52 million (2020: £57 million) of commercial lending balances are classified as FVTPL.

 

 

Credit risk - Commercial (continued)

 

CRE balances by LTV and region

 

The following table includes both amortised cost and FVTPL CRE balances.

 

CRE lending gross balances by LTV and region (note i)

 

2021

2020

 

London

Rest of UK

Total

London

Rest of UK

Total

 

£m

£m

£m

£m

£m

£m

Fully collateralised

 

 

 

 

 

 

LTV ratio (note ii):

 

 

 

 

 

 

Less than 25%

56

45

101

62

59

121

25% to 50%

214

154

368

315

254

569

51% to 75%

141

104

245

167

115

282

76% to 90%

15

20

35

3

43

46

91% to 100%

20

11

31

-

-

-

 

446

334

780

547

471

1,018

Not fully collateralised:

 

 

 

 

 

 

Over 100% LTV

-

38

38

-

32

32

Collateral value

-

25

25

-

19

19

Negative equity

-

13

13

-

13

13

 

 

 

 

 

 

 

Total CRE loans

446

372

818

547

503

1,050

 

 

 

 

 

 

 

Geographical concentration

55%

45%

100%

52%

48%

100%

 

Notes:

i.  A CRE loan may be secured on assets located in different regions, with the allocation being based upon the value of the underlying assets in each region.

ii.  The approach to revaluing assets charged as security is determined by the industry sector, the loan balance outstanding and the indexed value of the most recent independent external collateral valuation, with higher risk loans subject to more frequent revaluations to determine provision requirements. The LTV ratio is calculated using the on-balance sheet carrying amount of the loan divided by the indexed value. The Investment Property (IPD) monthly index is used.

 

Changes to the regional distribution of the CRE portfolio reflect the managed reduction of the portfolio, with 55% (2020: 52%) of the CRE exposure now being secured against assets located in London. The LTV distribution of CRE balances has also changed as a result of reduced CRE property values, with 87% (2020: 93%) of the portfolio now having an LTV of 75% or less, and 57% (2020: 66%) of the portfolio having an LTV of 50% or less.

 

 

 

 

Credit risk - Commercial (continued) 

 

Credit risk concentration by industry sector

 

The following table includes balances held at amortised cost only. 

 

CRE lending gross balances and provisions by industry sector (note i)

 

2021

2020

Gross balances

Provisions

Gross balances

Provisions

£m

£m

£m

£m

Retail

166

3

202

3

Office

148

19

222

12

Residential

331

1

419

1

Industrial and warehouse

46

-

56

2

Leisure and hotel

66

1

84

-

Other

12

2

13

4

Total CRE lending

769

26

996

22

 

Note:

i.  The £7 million additional Covid-19 provision at 4 April 2020 was not allocated to underlying loans and is therefore excluded from this table.

 

Credit risk exposure by industry sector is broadly unchanged from the prior year. 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 CRE exposures, excluding FVTPL balances, the largest exposure is to the residential sector, which represents 43% (2020: 42%) of the total CRE portfolio balance. The exposure to retail assets has reduced to £166 million (2020: £202 million), with a weighted average LTV of 63% (2020: 53%). Exposure to the leisure and hotel sector has reduced to £66 million (2020: £84 million), with a weighted average LTV of 55% (2020: 46%).

 

In addition to the amortised cost balances, there are £49 million (2020: £54 million) of FVTPL CRE commercial lending balances, of which £36 million (2020: £42 million) relates to the office sector and £13 million (2020: £12 million) relates to the retail sector.

 

CRE balances by payment due status

 

Of the £818 million (2020: £1,050 million) CRE exposure, including FVTPL balances, £61 million (2020: £14 million) relates to balances with arrears. Of these, £32 million (2020: £6 million) have arrears greater than 3 months. The increase in arrears balances is driven principally by a small number of loans that are being actively managed.

 

Forbearance

 

Nationwide is committed to supporting borrowers facing financial difficulty by working with them to find a solution through proactive arrears management and forbearance. In addition, we are supporting borrowers financially affected by the Covid-19 pandemic. Further details of this support are provided at the end of this forbearance section.

 

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.

 

For commercial customers in financial difficulty, the following concession events are included within forbearance reporting:

 

 

Credit risk - Commercial (continued)

 

Refinance

 

Debt restructuring, either mid-term or at maturity, will be considered where asset sales or external refinance cannot be secured to repay facilities in full and where a restructure is considered to provide the best debt recovery outcome for both the customer and Nationwide.

 

Interest concession

 

The temporary postponement of interest or a reduction to the interest rate charged, during which period the loans do not accrue arrears, may be considered where the customer is experiencing payment difficulties.

 

Capital concession

 

Capital concessions consist of temporary suspensions to capital repayments to allow the customer time to overcome payment difficulties, the full or partial consolidation of previous payment arrears or the partial write-off of debt.

 

Security amendment

 

Where a borrower seeks the release of assets charged to Nationwide as security for their commercial loan, this will be treated as forbearance where Nationwide's position is weakened in terms of either the loan to value of the remaining exposure or the level of interest cover available.

 

Extension at maturity

 

Borrowers who are unable to repay the loan at term expiry may be given short-term maturity extensions to allow them time to negotiate the repayment of facilities in full either via asset sales or external refinance.

 

Breach of covenant

 

Where a borrower is unable to comply with either financial or non-financial covenants, as specified in their loan agreement, a temporary waiver or amendment to the covenants will be considered, as appropriate.

 

The table below provides details of commercial loans that are currently subject to forbearance by concession event.

 

Gross balances subject to forbearance (note i)

 

2021

2020

 

£m

£m

Refinance

8

43

Modifications:

 

 

Payment concession

100

31

Security amendment

6

8

Extension at maturity

7

19

Breach of covenant

123

126

Total

244

227

 

 

 

Total impairment provision on forborne loans

29

14

 

Note: 

i.  Loans where more than one concession event has occurred are reported under the latest event.

 

 

Credit risk - Commercial (continued)

 

The increase in payment concessions during the year reflects the measures put in place to support borrowers financially affected by the Covid-19 pandemic. The increase in the total impairment provision on forborne loans to £29 million (2020: £14 million) is reflective of a reduction in asset values and apportionment of the £7 million Covid-19 provision overlay at 4 April 2020 to individual borrowers where appropriate at 4 April 2021.

 

In addition to the amortised cost balances included in the table above, there are £52 million (2020: £57 million) of FVTPL commercial lending balances, none (2020: none) of which are forborne.

 

Support for borrowers impacted by Covid-19

 

Support continues to be offered to impacted borrowers via payment deferrals, interest only concessions and loan extensions.

 

No concessions have been applied for in the registered social landlord or project finance portfolios.

 

The following table shows the amortised cost balances of the CRE portfolio with a concession related to Covid-19 at the balance sheet date:

 

Gross CRE balances subject to a concession due to Covid-19

 

 

2021

2020

Loan

Balance

£m

Percentage

of book

%

Weighted Average LTV

%

Loan

 Balance

£m

Percentage

of book

%

Weighted

Average LTV

%

3 month capital and interest repayment holiday

37

4.8

85

113

11.3

49

6 month capital repayment holiday

58

7.6

59

100

10.1

41

Extension at maturity

84

10.8

47

1

0.1

29

Total

179

23.2

59

214

21.5

45

 

Balances subject to Covid-19 related temporary measures, at £179 million (2020: £214 million), represent 23.2% (2020: 21.5%) of the CRE portfolio balances and 9% (2020: 11%) of our CRE borrowers. The cases that have received these temporary concessions have a weighted average LTV of 59% (2020: 45%), and £61 million (2020: £2.2 million) of the loan balances have an LTV greater than 65%. Concessions have been agreed across all industry sectors, with a weighting towards the residential sector, which accounts for 42% (2020: 47%) of the balances subject to a concession due to Covid-19, reflecting the portfolio concentration to this industry sector. The increase in maturity extensions is driven by the closed book status of this portfolio requiring support for borrowers by allowing additional time to source an alternative lender or other means of repayment at a time of reduced market appetite for CRE lending.

 

 

 

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 4 April 2021 treasury assets represented 19.5% (2020: 17.0%) 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

 

 

Classification

2021

2020

 

£m

£m

Cash

Amortised cost

16,693

13,748

Loans and advances to banks and similar institutions

Amortised cost

3,660

3,636

Investment securities (note i)

FVOCI

24,218

18,367

Investment securities (note i)

FVTPL

12

12

Investment securities

Amortised cost

1,243

1,625

Liquidity and investment portfolio

 

45,826

37,388

Derivative instruments (note ii)

FVTPL

3,809

4,771

Treasury assets

 

49,635

42,159

 

Notes:

i.  Investment securities at FVOCI include £20 million (2020: £6 million) and investment securities at FVTPL include £12 million (2020: £12 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 long-term strategic purposes.

ii.  Derivatives are classified as assets where their fair value is positive and liabilities where their fair value is negative. As at 4 April 2021, derivative liabilities were £1,622 million (2020: £1,924 million).

 

Investment activity remains focused on high quality liquid assets, including assets eligible for central bank operations. The size of the portfolio has increased predominantly in cash balances and government bond holdings. Derivatives are used to economically hedge financial risks inherent in core lending and funding activities and are not used for trading or speculative purposes.

 

Credit risk within the treasury portfolio arises from the instruments held and transacted by the Treasury function for operational, liquidity and investment purposes. In addition, counterparty credit risk arises from the use of derivatives to reduce exposure to market risks; these are only transacted with highly-rated organisations and are collateralised under market standard documentation.

 

There were no impairment losses for the year ended 4 April 2021 (2020: £nil). 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

 

2021

2020

 

Gross balances

Provisions

Gross balances

Provisions

 

£m

£m

£m

£m

Loans and advances to banks and similar institutions

3,660

-

3,636

-

Investment securities - FVOCI

24,218

-

18,367

-

Investment securities - amortised cost

1,243

-

1,625

-

 

 

 

Credit risk - Treasury assets (continued)

 

Liquidity and investment portfolio

 

The liquidity and investment portfolio of £45,826 million (2020: £37,388 million) comprises liquid assets and other securities as set out below.

 

Liquidity and investment portfolio by credit rating (note i)

2021

 

AAA

AA

A

Other

UK

US

Europe

Japan

Other

 

£m

%

%

%

%

%

%

%

%

%

Liquid assets:

 

 

 

 

 

 

 

 

 

 

Cash and reserves at central banks

16,693

-

100

-

-

100

-

-

-

-

Government bonds (note ii)

20,310

28

60

12

-

39

18

26

10

7

Supranational bonds

1,053

75

25

-

-

-

-

-

-

100

Covered bonds

1,748

100

-

-

-

62

-

25

-

13

Residential mortgage backed securities (RMBS)

474

100

-

-

-

72

-

28

-

-

Asset backed securities (other)

301

100

-

-

-

75

-

25

-

-

Liquid assets total

40,579

22

72

6

-

65

9

14

5

7

Other securities (note iii):

 

 

 

 

 

 

 

 

 

 

RMBS FVOCI

291

100

-

-

-

100

-

-

-

-

RMBS amortised cost

1,243

83

14

3

-

100

-

-

-

-

Other investments (note iv)

53

-

38

-

62

62

-

38

-

-

Other securities total

1,587

83

12

3

2

99

-

1

-

-

Loans and advances to banks and similar institutions

3,660

-

65

34

1

89

2

8

-

1

Total

45,826

22

70

8

-

68

8

13

5

6

 

 

 

 

 

 

 

 

 

 

 

2020

 

£m

%

%

%

%

%

%

%

%

%

Liquid assets:

 

 

 

 

 

 

 

 

 

 

Cash and reserves at central banks

13,748

-

100

-

-

100

-

-

-

-

Government bonds (note ii)

14,914

34

58

8

-

47

25

16

7

5

Supranational bonds

983

87

13

-

-

-

-

-

-

100

Covered bonds

1,583

100

-

-

-

68

-

16

-

16

Residential mortgage backed securities (RMBS)

483

100

-

-

-

72

-

28

-

-

Asset backed securities (other)

351

100

-

-

-

59

-

41

-

-

Liquid assets total

32,062

26

70

4

-

70

11

9

3

7

Other securities (note iii):

 

 

 

 

 

 

 

 

 

 

RMBS FVOCI

17

100

-

-

-

100

-

-

-

-

RMBS amortised cost

1,625

83

12

5

-

100

-

-

-

-

Other investments (note iv)

48

-

62

-

38

38

-

62

-

-

Other securities total

1,690

81

13

4

2

98

-

2

-

-

Loans and advances to banks and similar institutions

3,636

-

79

20

1

92

3

4

-

1

Total

37,388

26

69

5

-

73

10

9

3

5

Notes:

i.  Ratings used are obtained from Standard & Poor's (S&P) and from Moody's or Fitch if no S&P rating is available. For loans and advances to banks and similar institutions, internal ratings are used.

ii.  Balances classified as government bonds include government guaranteed and agency 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 £12 million (2020: £12 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

2021

 

Government

Bonds
(note i)

 

Mortgage backed securities

 

Covered

bonds

 

Supranational bonds

Loans and advances

to banks and

similar institutions

 

Other

assets

 

 

Total

 

£m

£m

£m

£m

£m

£m

£m

Austria

545

-

-

-

-

-

545

Belgium

645

-

-

-

-

-

645

Finland

606

-

24

-

-

-

630

France

1,505

-

108

-

147

20

1,780

Germany

1,069

-

44

-

151

76

1,340

Ireland

154

-

-

-

-

-

154

Netherlands

503

133

-

-

-

-

636

Spain

-

-

-

-

-

-

-

Total Eurozone

5,027

133

176

-

298

96

5,730

USA

3,722

-

-

-

80

-

3,802

Japan

2,116

-

-

-

-

-

2,116

Rest of world (note i)

1,510

-

494

1,053

28

-

3,085

Total

12,375

133

670

1,053

406

96

14,733

 

 

 

 

 

 

 

 

2020

 

£m

£m

£m

£m

£m

£m

£m

Austria

369

-

-

-

-

-

369

Belgium

390

-

-

-

-

-

390

Finland

381

-

25

-

-

-

406

France

265

-

22

-

-

30

317

Germany

639

-

31

-

162

144

976

Ireland

44

-

-

-

-

-

44

Netherlands

194

133

-

-

-

-

327

Spain

-

-

-

-

1

-

1

Total Eurozone

2,282

133

78

-

163

174

2,830

USA

3,703

-

-

-

94

-

3,797

Japan

1,024

-

-

-

-

-

1,024

Rest of world (note i)

934

-

424

983

43

-

2,384

Total

7,943

133

502

983

300

174

10,035

 

Note:

i.  Rest of world exposure is to Canada, Denmark, Norway and Sweden (2020: Australia, Canada, Denmark, Norway and Sweden)

 

Credit risk - Treasury assets (continued)

Derivative financial instruments

 

Derivatives are used to manage exposure to market risks, and not for trading or speculative purposes, although the application of accounting rules can create volatility in the income statement in a given financial year. The fair value of derivative assets as at 4 April 2021 was £3.8 billion (2020: £4.8 billion) and the fair value of derivative liabilities was £1.6 billion (2020: £1.9 billion).

 

To comply with EU regulatory requirements, 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 are currently held as collateral by the Society.

 

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 £1.4 billion (2020: £1.6 billion) were available and £2.4 billion (2020: £3.0 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 

 

2021 

2020 

Counterparty credit quality 

AA 

A 

BBB 

Total 

AA 

A 

BBB 

Total 

 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

£m 

Gross positive fair value of contracts as reported on the balance sheet 

742 

3,052 

15 

3,809 

1,470 

3,291 

10 

4,771 

Netting benefits 

(249) 

(1,187) 

(4) 

(1,440) 

(481) 

(1,157) 

(10) 

(1,648) 

Net current credit exposure 

493 

1,865 

11 

2,369 

989 

2,134 

- 

3,123 

Collateral (cash) 

(489) 

(1,775) 

(11) 

(2,275) 

(982) 

(1,924) 

- 

(2,906) 

Collateral (securities) 

- 

(84) 

- 

(84) 

- 

(91) 

- 

(91) 

Net derivative credit exposure 

4 

6 

- 

10 

7 

119 

- 

126 

 

  

 

 

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.

 

Liquidity and funding levels continued to be within Board risk appetite and regulatory requirements throughout the year. This includes the Liquidity Coverage Ratio (LCR), which ensures that sufficient high-quality liquid assets are held to survive a short term severe but plausible liquidity stress. Nationwide's average LCR over the 12 months ending 4 April 2021 increased to 159% (2020: 152%). The LCR as at 4 April 2021 was 165% (2020: 163%). Nationwide continues to manage its liquidity prudently, with its internal risk appetite well within regulatory requirements.

 

The position against the longer-term funding metric, the Net Stable Funding Ratio (NSFR) is also monitored. Based on current interpretations of expected regulatory requirements and guidance, the NSFR at 4 April 2021 was 141% (2020: 134%), well in excess of the expected 100% minimum future requirement.

 

Funding risk 

 

Funding strategy

 

Nationwide's funding strategy is to remain predominantly retail funded, as set out below.

 

Funding profile

Assets

2021

2020

Liabilities

2021

2020

(note i)

£bn

£bn

 

£bn

£bn

Retail mortgages

190.7

188.6

Retail funding

170.3

159.7

Treasury assets (including liquidity portfolio)

45.8

37.4

Wholesale funding

59.5

62.3

Commercial lending

6.9

7.9

Other liabilities

3.2

3.5

Consumer lending

3.9

4.5

Capital and reserves (note ii)

21.9

22.5

Other assets

7.6

9.6

 

 

 

Total

254.9

248.0

Total

254.9

248.0

 

Notes:

i.  Figures in the above table are stated net of impairment provisions where applicable.

ii.  Includes all subordinated liabilities and subscribed capital.

 

At 4 April 2021, Nationwide's loan to deposit ratio, which represents loans and advances to customers divided by the total of shares and other deposits, was 115.3% (2020: 122.4%).

 

 

 

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 enough contingent funding capacity is retained in the event of a stress.

 

Wholesale funding has decreased by £2.8 billion to £59.5 billion during the year. The decrease is primarily driven by £4.8 billion decrease in covered bonds, due to a debt buy-back exercise and maturities during the year, along with a decrease in short-term wholesale funding. This decrease was partially offset by increased repo activity. The wholesale funding ratio (on-balance sheet wholesale funding as a proportion of total funding liabilities) was 26.7% at 4 April 2021 (2020: 28.5%).

 

The table below sets out Nationwide's wholesale funding by currency.

 

Wholesale funding by currency

 

2021

2020

 

GBP

EUR

USD

Other

Total

% of total

GBP

EUR

USD

Other

Total

% of

 total

 

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

Repos

4.2

0.8

2.9

0.2

8.1

14

0.5

0.1

-

-

0.6

1

Deposits

6.4

0.6

-

-

7.0

12

6.2

1.2

1.3

-

8.7

14

Certificates of deposit

0.1

-

-

-

0.1

-

1.5

0.4

0.1

-

2.0

3

Commercial paper

-

-

-

-

-

-

-

-

1.6

-

1.6

3

Covered bonds

5.4

8.5

0.7

0.4

15.0

25

5.0

13.4

0.8

0.6

19.8

31

Medium term notes

2.0

3.2

3.4

0.6

9.2

15

1.9

2.5

2.2

0.6

7.2

12

Securitisations

2.0

0.5

0.4

-

2.9

5

2.2

0.9

1.1

-

4.2

7

Term Funding Scheme with additional incentives for SMEs (TFSME)

16.4

-

-

-

16.4

28

-

-

-

-

-

-

Term Funding Scheme (TFS)

-

-

-

-

-

-

17.0

-

-

-

17.0

27

Other

0.2

0.5

0.1

-

0.8

1

0.2

0.8

0.2

-

1.2

2

Total

36.7

14.1

7.5

1.2

59.5

100

34.5

19.3

7.3

1.2

62.3

100

 

The residual maturity of wholesale funding, on a contractual maturity basis, is set out on the next page.

 

 

 

 

Liquidity and funding risk (continued)

 

Wholesale funding - residual maturity

2021

Not more than one month

Over one
month but not more than
three months

Over three months but not more than
six months

Over six
months but not more than
one year

Subtotal less than one year

Over one

 year but not more than

two years

Over two years

Total

 

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

Repos

7.9

0.2

-

-

8.1

-

-

8.1

Deposits

4.6

0.7

1.6

0.1

7.0

-

-

7.0

Certificates of deposit

0.1

-

-

-

0.1

-

-

0.1

Commercial paper

-

-

-

-

-

-

-

-

Covered bonds

-

-

-

2.5

2.5

2.6

9.9

15.0

Medium term notes

0.2

-

0.6

-

0.8

2.0

6.4

9.2

Securitisations

0.5

-

-

0.1

0.6

1.1

1.2

2.9

TFSME

-

-

-

-

-

-

16.4

16.4

Other

-

-

-

0.1

0.1

0.1

0.6

0.8

Total

13.3

0.9

2.2

2.8

19.2

5.8

34.5

59.5

Of which secured

8.4

0.2

-

2.7

11.3

3.8

28.0

43.1

Of which unsecured

4.9

0.7

2.2

0.1

7.9

2.0

6.5

16.4

% of total

22.4

1.5

3.7

4.7

32.3

9.7

58.0

100.0

 

Wholesale funding - residual maturity

2020

Not more than one month

Over one
month but not more than
three months

Over three months but not more than
six months

Over six
months but not more than
one year

Subtotal less  than one year

Over one

 year but not

more than

two years

Over two years

Total

 

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

Repos

0.6

-

-

-

0.6

-

-

0.6

Deposits

5.2

1.6

1.9

-

8.7

-

-

8.7

Certificates of deposit

0.1

1.7

0.2

-

2.0

-

-

2.0

Commercial paper

-

0.9

0.7

-

1.6

-

-

1.6

Covered bonds

-

-

0.9

2.6

3.5

2.6

13.7

19.8

Medium term notes

-

-

-

0.2

0.2

0.7

6.3

7.2

Securitisations

0.3

-

0.5

0.4

1.2

0.7

2.3

4.2

TFS

-

-

-

6.0

6.0

11.0

-

17.0

Other

-

-

-

-

-

0.2

1.0

1.2

Total

6.2

4.2

4.2

9.2

23.8

15.2

23.3

62.3

Of which secured

0.9

1.2

1.4

9.0

12.5

14.5

16.8

43.8

Of which unsecured

5.3

3.0

2.8

0.2

11.3

0.7

6.5

18.5

% of total

10.0

6.7

6.7

14.8

38.2

24.4

37.4

100.0

 

At 4 April 2021, cash, government bonds and supranational bonds included in the liquid asset buffer represented 157% of wholesale funding maturing in less than one year, assuming no rollovers (2020: 122%).

 

During the year, Nationwide fully repaid its £17.0 billion of TFS drawings and drew £16.4 billion from the TFSME, which has a four-year flexible maturity.

 

Liquidity and funding risk (continued)

Liquidity risk

 

Liquidity strategy

 

Sufficient liquid assets, both in terms of amount and quality, are held to meet daily cash flow needs as well as simulated stressed requirements driven by the Society's risk appetite and regulatory assessments. This includes prudent management of the currency mix of liquid assets to ensure there is no undue reliance on currencies not consistent with the profile of stressed outflows.

 

Liquid assets are held and managed centrally by the Treasury function. A high-quality liquidity portfolio is maintained, predominantly comprising reserves held at central banks and highly-rated debt securities issued by a restricted range of governments, central banks and supranationals.

 

The Society's risk appetite, as set by the Board, defines the size and mix of the liquid asset buffer, and is translated into a set of liquidity risk limits. The buffer composition is also influenced by other relevant considerations such as stress testing and regulatory requirements.

 

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 repurchase (repo) agreements, and excludes securities encumbered through repo agreements and for other purposes.

 

Liquid assets

 

2021

2020

 

GBP

EUR

USD

JPY

Other

(note i)

Total

GBP

EUR

USD

JPY

Other

(note i)

Total

 

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

£bn

Cash and reserves at central banks

16.7

-

-

-

-

16.7

13.7

-

-

-

-

13.7

Government bonds (note ii)

4.2

4.5

1.2

2.1

0.7

12.7

6.8

2.3

3.8

1.0

0.5

14.4

Supranational bonds

-

0.5

0.4

-

-

0.9

0.3

0.4

0.2

-

-

0.9

Covered bonds

0.5

1.1

0.1

-

-

1.7

0.5

1.0

0.1

-

-

1.6

Residential mortgage backed securities (RMBS) (note iii)

0.8

0.1

-

-

-

0.9

0.5

0.1

0.1

-

-

0.7

Asset-backed securities and other securities

0.3

0.1

-

-

-

0.4

0.2

0.1

-

-

-

0.3

Total

22.5

6.3

1.7

2.1

0.7

33.3

22.0

3.9

4.2

1.0

0.5

31.6

 

Notes:

i.  Other currencies primarily consist of Canadian dollars.

ii.  Balances classified as government bonds include government guaranteed and agency bonds.

iii. Balances include all RMBS held by the Society which can be monetised through sale or repo.

 

The average combined month end balance during the year of cash and reserves at central banks, and government and supranational bonds, was £42.1 billion (2020: £29.3 billion).

 

Nationwide also holds a portfolio of high quality, central bank eligible covered bonds, RMBS and asset-backed securities. Other securities are held that are not eligible for central bank operations but can be monetised through repurchase agreements with third parties or through sale.

 

During the year, Nationwide set its first Environmental, Social and Governance (ESG) Investment policy for treasury assets. This includes annual investment targets with the aim of holding £1.5 billion of ESG assets by 4 April 2023. Nationwide has met its 2021 target of £750 million. Nationwide's criteria for ESG assets are currently restricted to bonds issued by Multilateral Development Banks. ESG investment criteria are subject to ongoing review.

 

Liquidity and funding risk (continued)

 

Nationwide undertakes securities financing transactions in the form of repurchase agreements. This demonstrates the liquid nature of the assets held in its liquid asset buffer as well as satisfying regulatory requirements. Cash is borrowed in return for pledging assets as collateral and because settlement is on a simultaneous 'delivery versus payment' basis, the main credit risk arises from intra-day changes in the value of the collateral. This is largely mitigated by Nationwide's collateral management processes.

 

Repo market capacity is regularly assessed and tested to ensure there is sufficient capacity to monetise the liquid asset buffer rapidly in a stress.

 

For contingent purposes, Nationwide pre-positions unencumbered mortgage assets at the Bank of England which can be used in the Bank of England's liquidity operations if market liquidity is severely disrupted.

 

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)

2021

 

Due less than
one month
(note ii)

Due between one and
three months

Due between three and
six months

Due between
six and
nine months

Due between nine and
twelve months

Due between one and
two years

Due between two and
five years

 Due after
more than
five years

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

Financial assets

 

 

 

 

 

 

 

 

 

Cash

16,693

-

-

-

-

-

-

-

16,693

Loans and advances to banks and similar institutions

2,815

-

-

-

-

-

-

845

3,660

Investment securities

39

136

197

47

137

938

8,101

15,878

25,473

Derivative financial instruments

119

26

39

62

475

331

1,183

1,574

3,809

Fair value adjustment for portfolio hedged risk

4

23

62

59

83

295

322

98

946

Loans and advances to customers

2,616

1,515

2,188

2,204

2,128

8,462

23,359

159,075

201,547

Total financial assets

22,286

1,700

2,486

2,372

2,823

10,026

32,965

177,470

252,128

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

Shares

149,985

1,976

2,501

2,085

2,312

6,864

3,495

1,095

170,313

Deposits from banks and similar institutions

10,417

166

-

9

-

-

16,430

-

27,022

Of which repo

7,984

165

-

-

-

-

-

-

8,149

Of which TFSME

-

-

-

-

-

-

16,430

-

16,430

Other deposits

2,234

642

1,568

34

24

15

5

-

4,522

Fair value adjustment for portfolio hedged risk

1

6

3

-

1

9

5

-

25

Secured funding - ABS and covered bonds

467

23

29

892

1,780

3,715

5,816

5,783

18,505

Senior unsecured funding

202

48

561

-

5

2,053

5,072

1,477

9,418

Derivative financial instruments

50

3

16

10

10

144

443

946

1,622

Subordinated liabilities

29

-

29

3

-

-

3,114

4,400

7,575

Subscribed capital (note iii)

1

1

1

-

-

-

-

240

243

Total financial liabilities

163,386

2,865

4,708

3,033

4,132

12,800

34,380

13,941

239,245

Off-balance sheet commitments (note iv)

13,259

-

-

-

-

-

-

-

13,259

Net liquidity difference

(154,359)

(1,165)

(2,222)

(661)

(1,309)

(2,774)

(1,415)

163,529

(376)

Cumulative liquidity difference

(154,359)

(155,524)

(157,746)

(158,407)

(159,716)

(162,490)

(163,905)

(376)

 

 

Liquidity and funding risk (continued)

 

Residual maturity (note i)

2020

 

Due less than
one month
(note ii)

Due between one and
three months

Due between three and
six months

Due between
six and
nine months

Due between nine and
twelve months

Due between one and
two years

Due between two and
five years

 Due after
more than
five years

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

Financial assets

 

 

 

 

 

 

 

 

 

Cash

13,748

-

-

-

-

-

-

-

13,748

Loans and advances to banks and similar institutions

2,832

-

-

-

-

-

-

804

3,636

Investment securities

18

495

376

107

137

373

4,715

13,783

20,004

Derivative financial instruments

33

77

347

35

212

862

978

2,227

4,771

Fair value adjustment for portfolio hedged risk

25

65

124

150

122

388

554

346

1,774

Loans and advances to customers

2,856

1,395

2,067

2,152

2,129

8,629

23,624

158,126

200,978

Total financial assets

19,512

2,032

2,914

2,444

2,600

10,252

29,871

175,286

244,911

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

Shares

139,870

1,205

1,905

2,003

1,932

5,219

6,377

1,180

159,691

Deposits from banks and similar institutions

3,610

1,202

-

2,000

4,000

11,000

-

-

21,812

Of which repo

638

-

-

-

-

-

-

-

638

Of which TFS

-

-

-

2,000

4,000

11,000

-

-

17,000

Other deposits

2,164

377

1,881

17

23

10

10

-

4,482

Fair value adjustment for portfolio hedged risk

5

2

1

2

-

7

12

-

29

Secured funding - ABS and covered bonds

242

26

1,475

548

2,474

3,425

10,062

6,703

24,955

Senior unsecured funding

150

2,673

824

-

117

750

3,866

2,628

11,008

Derivative financial instruments

152

95

12

33

44

29

266

1,293

1,924

Subordinated liabilities

32

-

729

2

-

-

2,577

5,977

9,317

Subscribed capital (note iii)

1

1

1

-

-

-

-

250

253

Total financial liabilities

146,226

5,581

6,828

4,605

8,590

20,440

23,170

18,031

233,471

Off-balance sheet commitments (note iv)

11,416

-

-

-

-

-

-

-

11,416

Net liquidity difference

(138,130)

(3,549)

(3,914)

(2,161)

(5,990)

(10,188)

6,701

157,255

24

Cumulative liquidity difference

(138,130)

(141,679)

(145,593)

(147,754)

(153,744)

(163,932)

(157,231)

24

-

 

Notes:

i.  The analysis excludes certain non-financial assets (including property, plant and equipment, intangible assets, other 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 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.
 

Liquidity and funding risk (continued)

 

The 4 April 2021 table above includes the impact of a debt buy-back exercise that involved the Society repurchasing seven outstanding series of covered bonds totalling £2 billion (GBP equivalent). This exercise followed the issuance of senior unsecured debt predominantly for the purpose of securing our credit rating with Moody's. The impact of unwinding associated derivative financial instruments is also reflected.

 

Financial liabilities - gross undiscounted contractual cash flows

 

The tables below provide an analysis of gross contractual cash flows. The totals differ from the analysis of residual maturity as they include estimated future interest payments, calculated using balances outstanding at the balance sheet date, contractual maturities and appropriate forward-looking interest rates.

 

Amounts are allocated to the relevant maturity band based on the timing of individual contractual cash flows.

 

Gross contractual cash flows

2021

Due less than
one month
(note i)

Due between

one and
three months

Due between

three and
six months

Due between
six and
nine months

Due between

nine and
twelve months

Due between

one and
two years

Due between

two and
five years

Due after
more than
five years

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

Shares

149,985

2,017

2,540

2,122

2,346

6,966

3,631

1,095

170,702

Deposits from banks and similar institutions

10,417

170

4

13

4

16

16,455

-

27,079

Other deposits

2,234

643

1,568

34

24

15

5

-

4,523

Secured funding - ABS and covered bonds

469

32

51

918

1,860

3,883

6,119

5,899

19,231

Senior unsecured funding

203

51

588

3

64

2,172

5,298

1,528

9,907

Subordinated liabilities

32

-

91

39

86

248

3,606

4,765

8,867

Subscribed capital (note ii)

1

1

4

3

4

13

43

247

316

Total non-derivative financial liabilities

163,341

2,914

4,846

3,132

4,388

13,313

35,157

13,534

240,625

 

 

 

 

 

 

 

 

 

 

Derivative financial liabilities:

 

 

 

 

 

 

 

 

 

Gross settled derivative outflows

(2,803)

(337)

(416)

(199)

(571)

(3,584)

(8,449)

(6,752)

(23,111)

Gross settled derivative inflows

2,798

333

385

178

553

3,371

8,136

6,461

22,215

Gross settled derivatives - net flows

(5)

(4)

(31)

(21)

(18)

(213)

(313)

(291)

(896)

Net settled derivative liabilities

(104)

(175)

(183)

(189)

(222)

(583)

(1,037)

(798)

(3,291)

Total derivative financial liabilities

(109)

(179)

(214)

(210)

(240)

(796)

(1,350)

(1,089)

(4,187)

Total financial liabilities

163,232

2,735

4,632

2,922

4,148

12,517

33,807

12,445

236,438

 

 

 

 

 

 

 

 

 

 

Off-balance sheet commitments (note iii)

13,259

-

-

-

-

-

-

-

13,259

Total financial liabilities including off-balance sheet commitments

176,491

2,735

4,632

2,922

4,148

12,517

33,807

12,445

249,697

 

 

 

Liquidity and funding risk (continued)

 

Gross contractual cash flows

2020

Due less than
one month
(note i)

Due between

one and
three months

Due between

three and
six months

Due between
six and
nine months

Due between

nine and
twelve months

Due between

one and
two years

Due between

two and
five years

Due after
more than
five years

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

Shares

139,870

1,260

1,958

2,052

1,977

5,358

6,597

1,180

160,252

Deposits from banks and similar institutions

3,610

1,206

4

2,004

4,003

11,005

-

-

21,832

Other deposits

2,164

382

1,883

17

23

10

10

-

4,489

Secured funding - ABS and covered bonds

247

34

1,506

581

2,644

3,589

10,526

6,609

25,736

Senior unsecured funding

151

2,681

871

4

182

890

4,145

2,621

11,545

Subordinated liabilities

36

-

806

43

96

276

3,188

6,304

10,749

Subscribed capital (note ii)

1

1

4

3

4

13

40

255

321

Total non-derivative financial liabilities

146,079

5,564

7,032

4,704

8,929

21,141

24,506

16,969

234,924

 

 

 

 

 

 

 

 

 

 

Derivative financial liabilities:

 

 

 

 

 

 

 

 

 

Gross settled derivative outflows

(1,124)

(967)

(791)

(165)

(665)

(427)

(6,495)

(5,915)

(16,549)

Gross settled derivative inflows

1,101

928

771

142

621

387

6,146

5,605

15,701

Gross settled derivatives - net flows

(23)

(39)

(20)

(23)

(44)

(40)

(349)

(310)

(848)

Net settled derivative liabilities

(70)

(175)

(174)

(258)

(300)

(865)

(1,373)

(1,224)

(4,439)

Total derivative financial liabilities

(93)

(214)

(194)

(281)

(344)

(905)

(1,722)

(1,534)

(5,287)

Total financial liabilities

145,986

5,350

6,838

4,423

8,585

20,236

22,784

15,435

229,637

 

 

 

 

 

 

 

 

 

 

Off-balance sheet commitments (note iii)

11,416

-

-

-

-

-

-

-

11,416

Total financial liabilities including off-balance sheet commitments

157,402

5,350

6,838

4,423

8,585

20,236

22,784

15,435

241,053

 

Notes:

i.  Due less than one month includes amounts repayable on demand.

ii.  The principal amount for undated subscribed capital is included within the due more than five years column.

iii. Off-balance sheet commitments include amounts payable on demand for undrawn loan commitments, customer overpayments on residential mortgages where the borrower is able to draw down the amount overpaid and commitments to acquire financial assets.

 

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 prime mortgage pools to collateralise the Covered Bond and securitisation programmes (further information is included in note 10 to the financial statements) and from participation in the Bank of England's TFS and TFSME.

 

Certain unencumbered assets are readily available to secure funding or meet collateral requirements. These include prime mortgages and cash and securities held in the liquid asset buffer. Other unencumbered assets, such as non-prime 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.

 

 

Liquidity and funding risk (continued)

 

An analysis of Nationwide's encumbered and unencumbered on-balance sheet assets is set out below. This disclosure is not intended to identify assets that would be available in the event of a resolution or bankruptcy.

 

Asset encumbrance

2021

Assets encumbered as a result of transactions with counterparties other than central banks

Other assets (comprising assets encumbered at the
central bank and unencumbered assets)

Total

As a result of

covered bonds

As a result of securitisations

Other

Total

Assets positioned at

the central bank

(i.e. prepositioned

plus encumbered)

Assets not positioned

at the central bank

Readily available for encumbrance

Other assets that are capable of being encumbered

Cannot be encumbered

 

 

 

Total

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Cash

628

921

-

1,549

-

14,963

-

181

15,144

16,693

Loans and advances to banks and similar institutions

-

-

1,218

1,218

1,376

-

-

1,066

2,442

3,660

Investment securities

-

-

8,621

8,621

-

15,676

-

1,176

16,852

25,473

Derivative financial instruments

-

-

-

-

-

-

-

3,809

3,809

3,809

Loans and advances to customers

23,611

12,779

-

36,390

69,321

43,970

51,866

-

165,157

201,547

Non-financial assets

-

-

-

-

-

-

-

2,786

2,786

2,786

Other financial assets

-

-

-

-

-

-

-

946

946

946

Total

24,239

13,700

9,839

47,778

70,697

74,609

51,866

9,964

207,136

254,914

 

2020

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Cash

600

657

-

1,257

-

12,193

-

298

12,491

13,748

Loans and advances to banks and similar institutions

-

-

1,555

1,555

1,355

-

-

726

2,081

3,636

Investment securities

-

-

2,506

2,506

-

16,006

-

1,492

17,498

20,004

Derivative financial instruments

-

-

-

-

-

-

-

4,771

4,771

4,771

Loans and advances to customers

28,003

15,177

-

43,180

42,217

65,687

49,894

-

157,798

200,978

Non-financial assets

-

-

-

-

-

-

-

3,130

3,130

3,130

Other financial assets

-

-

-

-

-

-

-

1,774

1,774

1,774

Total

28,603

15,834

4,061

48,498

43,572

93,886

49,894

12,191

199,543

248,041

 

 

 

Liquidity and funding risk (continued)

 

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
preferred

Short-term

Senior

non-preferred

Tier 2

Date of last rating action / confirmation

Outlook

 

Standard & Poor's

A

A-1

BBB+

BBB

January 2021

Stable

 

Moody's

A1

P-1

Baa2

Baa2

July 2020

Stable

 

Fitch

A+

F-1

A

BBB+

February 2021

Negative

 

 

In January 2021, Standard & Poor's affirmed Nationwide's Issuer Credit Rating and stable outlook.

 

In July 2020, Moody's revised Nationwide's outlook to stable from negative, following Nationwide's €1 billion senior preferred issuance.

 

In September 2020 and February 2021, Fitch affirmed Nationwide's Long-Term Issuer Default Rating and negative outlook.

 

The table below sets out the amount of additional collateral Nationwide would need to provide in the event of a one and two notch downgrade by external credit rating agencies.

 

 

 

Cumulative adjustment for
a one notch downgrade

Cumulative adjustment for
a two notch downgrade

 

£bn

£bn

2021

0.8

2.3

2020

0.2

3.8

 

The contractually required cash outflow would not necessarily match the actual cash outflow as a result of management actions that could be taken to reduce the impact of the downg

 

 

 

 

Solvency risk

Solvency 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 CRD IV and on an end point basis with IFRS 9 transitional arrangements applied. This assumes that all CRD IV requirements are in force during the period, with no CRD IV transitional provisions permitted. In addition, the disclosures are on a consolidated Group basis, including all subsidiary entities, unless otherwise stated.

 

Capital ratios

 

2021

2020

Solvency

%

%

Common Equity Tier 1 (CET1) ratio

  36.4 

31.9

Total Tier 1 ratio

  40.5 

33.7

Total regulatory capital ratio

  49.1 

43.6

Leverage

£m

£m

UK leverage exposure

 248,402 

240,707

CRR leverage exposure

  265,079 

254,388

Tier 1 capital

  13,343 

11,258

 

%

%

UK leverage ratio

 5.4 

4.7

CRR leverage ratio

  5.0 

4.4

 

Risk-based capital ratios remain in excess of regulatory requirements with the CET1 ratio of 36.4% (2020: 31.9%) above Nationwide's CET1 capital requirement of 12.7%. This includes a minimum CET1 capital requirement of 9.2% (Pillar 1 and Pillar 2A) and the CRD IV combined buffer requirements of 3.5% of RWAs.

 

The increase in the CET1 ratio results from an increase in CET1 capital of £1.3 billion and a reduction in RWAs of £0.4 billion. The CET1 capital increase was driven by £0.6 billion profit after tax and a £0.1 billion increase in IFRS 9 transitional capital relief. In addition, £0.6 billion of software intangible assets are no longer deducted from capital due to a regulatory change; the PRA is expected to reverse this change in future as explained further below. The reduction in RWAs was driven by unsecured loan RWAs linked to decreasing total loan balance and reduced probability of default (PD). In addition, modifications were made to risk weights for small and medium-sized enterprises (SMEs) and infrastructure loans in line with EU Regulation 2020/873, culminating in a reduction of commercial loan RWAs. Further detail is included in the total regulatory capital table and risk weighted asset table on pages 75 and 76.

 

On 27 June 2020, EU Regulation 2020/873 came into force amending CRR and CRR II in a number of areas in response to the Covid-19 pandemic, including an extension to the IFRS 9 relief on increases in Stage 1 and Stage 2 expected credit losses from 1 January 2020 for two years. The Covid-19 package also brought forward the implementation date of the application of certain more favourable treatments that had previously been due to apply from June 2021. As noted above, this included a reduction in risk weights for exposures to SMEs and for infrastructure lending.

 

Also included in the package was the option to temporarily remove specific fair value gains or losses, accrued since 31 December 2019, from CET1 capital resources. This primarily relates to central government debt and is in place to neutralise any potential impact of fair value movements on capital ratios. Nationwide has opted to apply the temporary treatment, and as an unrealised gain was recognised in the period, a £41 million deduction to CET1 capital was applied.

 

Solvency risk (continued)

 

On 23 December 2020, EU Regulation 2020/2176 also came into force providing an amendment to the deduction of intangible assets from CET1 items for 'prudently valued software assets, the value of which is not negatively affected by resolution, insolvency or liquidation of the institution', and instead calculate a risk weighted asset value of 100% to those assets not deducted. The PRA confirmed as part of CP5/21 'Implementation of Basel standards' that they found no credible evidence that software assets would absorb losses effectively in a stress. Consequently, they have confirmed their intention to modify the applicable regulation and reverse this change by 1 January 2022. If the revised rules had not been applied, Nationwide's CET1 ratio and UK Leverage ratio at 4 April 2021 would have been 35.4% and 5.2% respectively.

 

CRD IV requires firms to calculate a leverage ratio, which is non-risked based, to supplement risk-based capital requirements. The UK leverage ratio increased to 5.4% (2020: 4.7%), with Tier 1 capital increasing by £2.1 billion as a result of the CET1 capital movements outlined above and the issuance of £0.7 billion of AT1 capital instruments in June 2020. Partially offsetting the impact of this, there was an increase in UK leverage exposure of £7.7 billion, primarily as a result of net retail lending and treasury investments in the period. This position remains in excess of Nationwide's capital requirement of 3.6%, which comprises a minimum Tier 1 capital requirement of 3.25% and buffer requirements of 0.35%. The buffer requirement reflects a 0% countercyclical leverage ratio buffer announced as part of the Bank of England responses to the impacts of Covid-19 made on 11 March 2020.

 

The CRR leverage ratio increased by 0.6%, closing at 5.0% (2020: 4.4%). The difference between the Capital Requirements Regulation (CRR) leverage ratio and the UK leverage ratio is driven by the exclusion of qualifying central bank claims from the UK leverage exposure measure as per the PRA Rulebook.

 

Leverage requirements continue to be Nationwide's binding capital constraint, as they are in excess of risk-based requirements, and it is expected that this will continue despite the impact of IRB mortgage model changes, proposed mortgage risk weight floors in 2022 and Basel III reforms on risk-based capital requirements in 2023 (see the 'regulatory developments' section below). Our internal assessment, however, is still subject to PRA IRB mortgage model approval and the forthcoming PRA consultation on the Basel III reforms. The expected impact of the reforms on Nationwide's UK leverage ratio is negligible. The risk of excessive leverage is managed through regular monitoring and reporting of the leverage ratio, which forms part of risk appetite.

 

 

 

 

Solvency risk (continued)

 

The table below shows how the components of members interest and equity contribute to total regulatory capital calculated on an end-point basis and so does not include non-qualifying instruments.

 

Total regulatory capital

 

2021

2020

 

£m

£m

General reserve

  11,140

10,749

Core capital deferred shares (CCDS)

 1,334

1,325

Revaluation reserve

 44

48

Fair value through other comprehensive income (FVOCI) reserve

 110

(17)

Cashflow hedge and other hedging reserves

 149

264

Regulatory adjustments and deductions:

 

 

FVOCI reserve temporary relief (note i)

 (41)

-

Cashflow hedge and other hedging reserves (note ii)

 (149)

(264)

Foreseeable distributions (note iii)

 (71)

(61)

Prudent valuation adjustment (note iv)

 (39)

(54)

Own credit and debit valuation adjustments (note v)

 (3)

(3)

Intangible assets (note vi)

  (525)

(1,200)

Goodwill (note vi)

 (12)

(12)

Defined-benefit pension fund asset (note vi)

 (112)

(190)

Excess of regulatory expected losses over impairment provisions (note vii)

 (1)

-

IFRS 9 transitional arrangements (note viii)

 183

80

Total regulatory adjustments and deductions

  (770)

(1,704)

Common Equity Tier 1 capital

 12,007

10,665

Other equity instruments (Additional Tier 1)

 1,336

593

Total Tier 1 capital

 13,343

11,258

Dated subordinated debt (note ix)

 2,833

3,265

Excess of impairment provisions over regulatory expected losses (note vii)

 144

113

IFRS 9 transitional arrangements (note viii) 

 (144)

(58)

Tier 2 capital

 2,833

3,320 

 

 

 

Total regulatory capital

 16,176

14,578

 

Notes:

i.  Includes a temporary adjustment to mitigate the impact of volatility in central government debt on capital ratios, in line with the Covid-19 banking package.

ii.  In accordance with CRR article 33, institutions shall 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 CRD IV.

iv. A prudent valuation adjustment (PVA) is applied in respect of fair valued instruments as required under regulatory capital 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 our own credit standing and risk, as per CRD IV rules.

vi. Intangible, goodwill and defined-benefit pension fund asset (excluding applicable software 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 transitional adjustments to capital resources apply scaled relief due to the impact of the introduction of IFRS 9 and increases in expected credit losses due to the Covid-19 pandemic.

ix.  Subordinated debt includes fair value adjustments related to changes in market interest rates, adjustments for unamortised premiums and discounts that are included in the 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.

 

Risk report (continued)

 

Solvency risk (continued)

 

As part of the Bank Recovery and Resolution Directive (BRRD), 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) and provided firms with indicative MREL. From 1 January 2020, Nationwide is required to hold twice the minimum capital requirements (6.5% of UK leverage exposure), plus the applicable capital requirement buffers, which amount to 0.35% of UK leverage exposure.

 

At 4 April 2021, total MREL resources were equal to 8.5% (2020: 8.4%) of UK leverage ratio exposure, in excess of the 2021 loss-absorbing requirement of 6.85% described above.

 

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

 

2021

2020

 

Credit Risk
(note i)

Operational
Risk (note ii)

Total Risk Weighted Assets

Credit Risk
(note i)

Operational
Risk (note ii)

Total Risk Weighted Assets

 

£m

£m

£m

£m

£m

£m

Retail mortgages

 14,523 

 2,966

 17,489

14,498

3,145

17,643

Retail unsecured lending

  5,503 

 965 

  6,468 

6,029

887

6,916

Commercial loans

  2,671 

 116

 2,787

3,183

143

3,326

Treasury

  1,588 

 327 

 1,915

1,541

304

1,845

Counterparty credit risk (note iii)

 1,491  

 - 

 1,491

1,619

-

1,619

Other (note iv)

 2,365 

  455 

  2,820 

1,783

267

2,050

Total

 28,141

  4,829 

    32,970  

28,653

4,746

33,399

 

Notes:

i.  This column includes credit risk exposures, securitisations, counterparty credit risk exposures and exposures below the thresholds for deduction that 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, intangible software and other assets.

 

RWAs reduced by £0.4 billion driven by unsecured loan RWAs linked to decreasing total loan size and reduced probability of default (PD). In addition, there was a reduction in commercial loan RWAs due to decreasing total loan size but also due to the application of more favourable treatments for SME and infrastructure lending in line with Regulation 2020/873. In contrast, RWAs for 'Other' assets increased due to the new application of risk weights to intangible software assets deducted from capital, as per EU Regulation 2020/2176.

 

 

 

Risk report (continued)

 

Solvency risk (continued)

 

Regulatory developments

 

Key areas of regulatory change are set out below. Nationwide will remain engaged in the development of the regulatory approach to ensure it is prepared for any resulting change.

 

New residential mortgage IRB models were submitted to the PRA for approval in 2021 with the expectation that these models will be implemented by 1 January 2022. This is in line with the revised deadline set by the Bank of England on 20 March 2020 which delays implementation by 1 year from the original January 2021 implementation date set out in PS13/17. The new models will also reflect the PRA's approach to implementing the European Banking Authority's (EBA's) recommendations relating to PD and LGD estimation, and the treatment of defaulted exposures. This is as part of the IRB approach to credit risk as set out in PS 11/20. The PRA is currently consulting on the application of risk weight floors to mortgage assets (7% for individual loans and 10% for all UK residential mortgages to which the firm applies the IRB approach), also to be implemented in January 2022. It is currently estimated that the impact of these new model changes, together with the 7% risk weight floor, will be to reduce the reported CET1 ratio by approximately one third from the current level, given the material increase in risk weighted assets. This is based on Nationwide's assessment of the consultation which is yet to be concluded by the PRA.

 

On 12 February 2021, the PRA published CP5/21 'Implementation of Basel standards'. The purpose of these rules is to implement the remaining Basel international standards. The consultation paper includes a revised standardised approach to counterparty credit risk (SA-CCR) and the revised Basel framework for exposures to central counterparties (CCPs) amongst other changes due for implementation on 1 January 2022.

 

The Basel Committee published their 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 and the introduction of a new RWA output floor. The rules are subject to a lengthy revised transitional period from 2023 to 2028 and will lead to a significant increase in Nationwide's RWAs relative to both the current position and that expected under the new mortgage IRB models, mainly due to the application of standardised floors for mortgages. Following the IRB model implementation and Basel III reforms, the total estimated impact on the reported CET1 ratio will be a reduction of approximately a half relative to the position at 4 April 2021. This impact is before organic earnings in the period to 2028 which will partly mitigate the reduction in the CET1 ratio. The Basel III reforms represent a re-calibration of regulatory requirements with no underlying change in the capital resources held or the risk profile of assets. Final impacts are uncertain as they are subject to future balance sheet size and mix, and because the final detail of some elements of the regulatory changes remain at the PRA's discretion. We are expecting the PRA to consult on the UK implementation of Basel 3.1 by autumn of 2021.

 

 

 

 

 

 

 

 

Consolidated financial statements

 

Contents

 

 

Page

Consolidated income statement

79

Consolidated statement of comprehensive income

80

Consolidated balance sheet

81

Consolidated statement of movements in members' interests and equity

82

Notes to the consolidated financial statements

83

 

 

 

Consolidated income statement

 

For the year ended 4 April 2021

 

2021

2020

 

Notes

£m

£m

Interest receivable and similar income/(expense):

 

 

 

Calculated using the effective interest rate method

3

4,122

5,157

Other

3

2

(27)

Total interest receivable and similar income

3

4,124

5,130

Interest expense and similar charges

4

(978)

(2,320)

Net interest income

 

3,146

2,810

Fee and commission income

 

379

439

Fee and commission expense

 

(231)

(270)

Other operating (expense)/income

5

(9)

67

Gains/(losses) from derivatives and hedge accounting

6

34

(7)

Total income

 

3,319

3,039

Administrative expenses

7

(2,218)

(2,312)

Impairment losses on loans and advances to customers

8

(190)

(209)

Provisions for liabilities and charges

12

(88)

(52)

Profit before tax

 

823

466

Taxation

9

(205)

(101)

Profit after tax

 

618

365

 

 

Consolidated statement of comprehensive income

 

For the year ended 4 April 2021

 

2021

2020

 

 

£m

£m

Profit after tax

 

618

365

 

 

 

 

Other comprehensive (expense)/income:

 

 

 

 

 

 

 

Items that will not be reclassified to the income statement

 

 

 

Remeasurements of retirement benefit obligations:

 

 

 

Retirement benefit remeasurements

 

(112)

195

Taxation

 

40

(76)

 

 

(72)

119

Revaluation of property:

 

 

 

Revaluation losses

 

(9)

(13)

Taxation

 

11

2

 

 

2

(11)

Movements in fair value of equity shares held at fair value through other comprehensive income:

 

 

 

Fair value movements taken to members' interests and equity

 

4

-

Taxation

 

(1)

-

 

 

3

-

 

 

 

 

 

 

(67)

108

Items that may subsequently be reclassified to the income statement

 

 

 

Cash flow hedge reserve

 

 

 

Fair value movements taken to members' interests and equity

 

(98)

56

Amount transferred to income statement

 

(54)

(65)

Taxation

 

41

(5)

 

 

(111)

(14)

Other hedging reserve

 

 

 

Fair value movements taken to members' interests and equity

 

(4)

(57)

Amount transferred to income statement

 

(2)

-

Taxation

 

2

15

 

 

(4)

(42)

Fair value through other comprehensive income reserve:

 

 

 

Fair value movements taken to members' interests and equity

 

215

(51)

Amount transferred to income statement

 

(40)

(40)

Taxation

 

(47)

24

 

 

128

(67)

 

 

 

 

Other comprehensive (expense)/income

 

(54)

(15)

 

 

 

 

Total comprehensive income

 

564

350

 


 

 

Consolidated balance sheet

 

At 4 April 2021

 

 

2021

2020

 

 

 

Notes

£m

£m

 

 

Assets

 

 

 

 

 

Cash

 

16,693

13,748

 

 

 

 

 

 

Loans and advances to banks and similar institutions

 

3,660

3,636

 

 

Investment securities

 

25,473

20,004

 

 

Derivative financial instruments

 

3,809

4,771

 

 

Fair value adjustment for portfolio hedged risk

 

946

1,774

 

 

Loans and advances to customers

10

201,547

200,978

 

 

Intangible assets

 

1,101

1,239

 

 

Property, plant and equipment

 

1,018

1,172

 

 

Accrued income and prepaid expenses

 

213

205

 

 

Deferred tax

 

72

76

 

 

Current tax assets

 

-

65

 

 

Other assets

 

210

79

 

 

Retirement benefit assets

14

172

294

 

 

Total assets

 

254,914

248,041

 

 

Liabilities

 

 

 

 

 

Shares

 

170,313

159,691

 

 

Deposits from banks and similar institutions

 

27,022

21,812

 

 

Other deposits

 

4,522

4,482

 

 

Fair value adjustment for portfolio hedged risk

 

25

29

 

 

Debt securities in issue

 

27,923

35,963

 

 

Derivative financial instruments

 

1,622

1,924

 

 

Other liabilities

 

933

915

 

 

Provisions for liabilities and charges (note i)

12

159

146

 

 

Accruals and deferred income (note i)

 

307

340

 

 

Subordinated liabilities

11

7,575

9,317

 

 

Subscribed capital

11

243

253

 

 

Deferred tax

 

150

207

 

 

Current tax liabilities

 

7

-

 

 

Total liabilities

 

240,801

235,079

 

 

Members' interests and equity

 

 

 

 

 

Core capital deferred shares

15

1,334

1,325

 

 

Other equity instruments

16

1,336

593

 

 

General reserve

 

11,140

10,749

 

 

Revaluation reserve

 

44

48

 

 

Cash flow hedge reserve

 

195

306

 

 

Other hedging reserve

 

(46)

(42)

 

 

Fair value through other comprehensive income reserve

 

110

(17)

 

 

Total members' interests and equity

 

14,113

12,962

 

 

Total members' interests, equity and liabilities

 

254,914

248,041

 

 
               

 

Note:

i.  Comparatives have been restated as detailed in note 2.

 

 

 

Consolidated statement of movements in members' interests and equity

 

For the year ended 4 April 2021

 

Core capital deferred shares

Other equity instruments

General reserve

Revaluation reserve

Cash flow hedge reserve

Other hedging reserve

 

FVOCI
reserve

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

At 5 April 2020

1,325

593

10,749

48

306

(42)

(17)

12,962

Profit for the year

-

-

618

-

-

-

-

618

Net remeasurements of retirement benefit obligations

-

-

(72)

-

-

-

-

(72)

Net revaluation of property

-

-

-

2

-

-

-

2

Net movement in cash flow hedge reserve

-

-

-

-

(111)

-

-

(111)

Net movement in other hedging reserve

-

-

-

-

-

(4)

-

(4)

Net movement in FVOCI reserve

-

-

-

-

-

-

131

131

Total comprehensive income

-

-

546

2

(111)

(4)

131

564

Reserve transfer

-

-

10

(6)

-

-

(4)

-

Issuance of core capital deferred shares

9

-

-

-

-

-

-

9

Issuance of Additional Tier 1 capital

-

743

-

-

-

-

-

743

Distribution to the holders of core capital deferred shares

-

-

(108)

-

-

-

-

(108)

Distribution to the holders of Additional Tier 1 capital

-

-

(57)

-

-

-

-

(57)

At 4 April 2021

1,334

1,336

11,140

44

195

(46)

110

14,113

 

For the year ended 4 April 2020

 

Core capital deferred shares

Other equity instruments

General reserve

Revaluation reserve

Cash flow

hedge
reserve

Other
hedging reserve

 

FVOCI
reserve

Total

 

£m

£m

£m

£m

£m

£m

£m

£m

At 5 April 2019

1,325

992

10,418

64

320

-

50

13,169

Profit for the year

-

-

365

-

-

-

-

365

Net remeasurements of retirement benefit obligations

-

-

119

-

-

-

-

119

Net revaluation of property

-

-

-

(11)

-

-

-

(11)

Net movement in cash flow hedge reserve

-

-

-

-

(14)

-

-

(14)

Net movement in other hedging reserve

-

-

-

-

-

(42)

-

(42)

Net movement in FVOCI reserve

-

-

-

-

-

-

(67)

(67)

Total comprehensive income

-

-

484

(11)

(14)

(42)

(67)

350

Reserve transfer

-

-

5

(5)

-

-

-

-

Issuance of Additional Tier 1 capital

-

593

-

-

-

-

-

593

Redemption of Additional Tier 1 capital

-

(992)

(8)

-

-

-

-

(1,000)

Distribution to the holders of core capital deferred shares

-

-

(108)

-

-

-

-

(108)

Distribution to the holders of Additional Tier 1 capital

-

-

(42)

-

-

-

-

(42)

At 4 April 2020

1,325

593

10,749

48

306

(42)

(17)

12,962

 

 

 

 

 

Notes to the consolidated financial statements

1. Reporting period

 

These results have been prepared as at 4 April 2021 and show the financial performance for the year from, and including, 5 April 2020 to this date.

 

2. Basis of preparation

 

These consolidated financial statements have been prepared in accordance with international accounting standards in conformity 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. International accounting standards which have been adopted for use within the UK have also been applied in these consolidated financial statements.

 

These consolidated financial statements are also prepared in accordance with International Financial Reporting Standards (IFRS) adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union.

 

The accounting policies adopted for use in the preparation of this Preliminary Results Announcement and which will be used in preparing the Annual Report and Accounts for the year ended 4 April 2021 were included in the 'Annual Report and Accounts 2020' document except as detailed below. Copies of these documents are available at nationwide.co.uk/about_nationwide/results_and_accounts

 

Adoption of new and revised IFRSs

 

With effect from 5 April 2020 the Group has adopted the Interest Rate Benchmark Reform - Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. Further information on the impacts of adopting these amendments is set out below.

 

In addition, a number of amendments and improvements to accounting standards have been issued by the International Accounting Standards Board (IASB) with an effective date of 1 January 2020. Those relevant to these financial statements include minor amendments to IAS 1 'Presentation of Financial Statements', IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors', and the Conceptual Framework. The adoption of these amendments and interpretations had no significant impact on the Group.

 

 

Interest Rate Benchmark Reform - Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

 

In August 2020, the IASB issued amendments arising from Phase 2 of its work on Interest Rate Benchmark Reform. The amendments focus on accounting for the replacement of existing benchmark interest rates, and provide relief allowing entities:

 

· not to recognise significant modification gains or losses on financial instruments if a change results directly from IBOR reform and occurs on an 'economically equivalent' basis; and

· to continue existing hedging relationships despite changes to hedge documentation for modifications required as a direct consequence of IBOR reform.

 

These amendments, which were endorsed by the EU and UK in January 2021, are applicable to the Group from 5 April 2021, with early adoption permitted. The Group has early adopted the amendments in these financial statements, with no significant impact.

 

Change in presentation of bank levy

 

To reflect better the nature of liabilities associated with the UK Bank Levy, a liability of £12 million at 4 April 2021 has been reclassified to be presented within accruals and deferred income on the consolidated balance sheet. Previously, this liability was included within provisions for liabilities and charges. 

 

Comparatives at 4 April 2020 have been restated as shown below.

 

Consolidated balance sheet extract at 4 April 2020

 

Previously published

Adjustment

Restated

 

£m

£m

£m

Provisions for liabilities and charges

176

(30)

146

Accruals and deferred income

310

30

340

 

This change had no impact on the Group's net assets or members' interests and equity at 4 April 2020.

2. Basis of preparation (continued)
 

Future accounting developments
 

The IASB has issued a number of minor amendments to IFRSs that become effective from 1 January 2021 or subsequent years, some of which have not yet been endorsed for use in the UK. These amendments are not expected to have a significant impact for the Group.
 

IFRS 17 'Insurance Contracts' establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. IFRS 17 is effective for accounting periods beginning on or after 1 January 2023 and has not yet been endorsed for use by the UK. The requirements of IFRS 17 are currently being assessed; however, it is not expected that the new standard will have a significant impact for the Group.

 

Judgements in applying accounting policies and critical accounting estimates

 

The preparation of the Group's consolidated financial statements in accordance with IFRS involves management making judgements and estimates when applying those accounting policies that affect the reported amounts of assets, liabilities, income and expense. Actual results may differ from those on which management's estimates are based. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable. For the year ended 4 April 2021, this evaluation has considered the ongoing impacts of Covid-19.

 

The key areas involving a higher degree of judgement or areas involving significant sources of estimation uncertainty made by management in applying the Group's accounting policies are disclosed in the following notes, including any additional information relating to Covid-19 where relevant.

 

 

Estimates

Judgements

Impairment losses and provisions on loans and advances to customers

Note 8

Note 8

Provisions for customer redress

Note 12

 

Retirement benefit obligations (pensions)

Note 14

 

 

 

 

Going concern

 

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 twelve months and that it is therefore appropriate to adopt the going concern basis in preparing this preliminary financial information.

3. Interest receivable and similar income

 

 

 

2021

2020

 

£m

£m

On financial assets measured at amortised cost:

 

 

Residential mortgages

4,246

4,553

Other loans

557

655

Other liquid assets

35

152

Investment securities

16

27

On investment securities measured at FVOCI

137

172

On financial instruments hedging assets in a qualifying hedge accounting relationship

(869)

(402)

Total interest receivable and similar income calculated using the effective interest rate method

4,122

5,157

Interest on net defined benefit pension asset (note 14)

7

3

Other interest and similar expense (note i)

(5)

(30)

Total

4,124

5,130

 

Note:

i.  Includes interest on financial instruments hedging assets that are not in a qualifying hedge accounting relationship.

 

4. Interest expense and similar charges

 

 

 

2021

2020

 

£m

£m

On shares held by individuals

527

1,361

On subscribed capital

14

14

On deposits and other borrowings:

 

 

Subordinated liabilities

281

309

Other

56

240

On debt securities in issue

539

745

Net income on financial instruments hedging liabilities

(439)

(349)

Total

978

2,320

 

5. Other operating expense/income

 

 

 

2021

2020

 

£m

£m

Gains on financial assets measured at FVTPL

-

17

Gains on disposal of FVOCI investment securities

41

40

Other (expense)/income

(50)

10

Total

(9)

67

 

Other (expense)/income in the year ended 4 April 2021 includes losses of £37 million realised from the repurchase of £2.1 billion of covered bonds that were issued under the Nationwide Covered Bond programme. Other (expense)/income also includes fair value movements on balances relating to previous investment disposals, the net amount of rental income, profits or losses on the sale of property, plant and equipment and increases or decreases in the valuations of branches and non-specialised buildings which are not recognised in other comprehensive income. There were no gains or losses on disposal of financial assets measured at amortised cost in the year ended 4 April 2021 (2020: £nil).

 

 

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. This volatility does not reflect the economic reality of the Group's hedging strategy. 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. 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.

 

 

 

2021

2020

 

£m

£m

Gains from fair value hedge accounting

-

61

Losses from cash flow hedge accounting

(1)

(2)

Fair value gains/(losses) from other derivatives (note i)

45

(74)

Foreign exchange retranslation (note ii)

(10)

8

Total

34

(7)

 

Notes:

i.  This category includes derivatives used for economic hedging purposes, but which are not currently in a hedge accounting relationship, as well as valuation adjustments which are applied at a portfolio level and so 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.

 

Gains from fair value hedge accounting include gains of £50 million (2020: £53 million) from macro hedges, due to hedge ineffectiveness and the amortisation of existing balance sheet amounts, and losses of £50 million (2020: gains of £8 million) relating to micro hedges which arise due to a combination of hedge ineffectiveness, disposals and restructuring, and the amortisation of existing balance sheet amounts. Fair value gains from other derivatives include gains of £49 million (2020: losses of £51 million) caused by a narrowing of bid-offer spreads. These gains are largely a reversal of bid-offer spread losses reported in the Annual Report and Accounts 2020, which were caused by spreads widening at the end of the financial year as financial markets reacted to Covid-19.

 

 

7. Administrative expenses

 

 

 

 

2021

2020

 

 

£m

£m

Employee costs:

 

 

 

Wages and salaries

 

570

561

Bonuses

 

30

21

Social security costs

 

72

65

Pension costs (note i)

 

180

15

 

 

852

662

Other administrative expenses (note i):

 

742

929

Bank levy

 

27

55

 

 

1,621

1,646

Depreciation, amortisation and impairment

 

597

666

Total

 

2,218

2,312

 

Note:

i.  In the year ended 4 April 2020, pension costs are net of a gain of £164 million and other staff related costs include an expense of £60 million relating to the closure of the Nationwide Pension Fund to future accrual on 31 March 2021. Further information is included in note 14.

 

 

 

 

8. Impairment losses and provisions on loans and advances to customers

 

The following tables set out impairment losses and reversals during the year and the closing provision balances which are deducted from the relevant asset values in the consolidated balance sheet.

 

Impairment losses/(reversals)

 

2021

2020

£m

£m

Prime residential

39

13

Buy to let and legacy residential

32

40

Consumer banking

125

159

Commercial and other lending

(6)

(3)

Total

190

209

 

Impairment provisions

 

4 April
2021

4 April
2020

£m

£m

Prime residential

93

56

Buy to let and legacy residential

224

196

Consumer banking

502

494

Commercial and other lending

33

40

Total

852

786

 

8. Impairment losses 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, the Group uses outputs from statistical models, incorporating a number of estimates and judgements to determine the probability of default (PD), the exposure at default, and the loss given default (LGD) for each loan.

 

The most significant areas of estimation uncertainty are:

 

· the impact on expected credit losses of Covid-19 (including government furlough and other support initiatives)

· the performance of interest only mortgages at maturity

· the level of future recoveries for retail lending

· the use of forward-looking economic information

 

The most significant area of judgement is:

 

· the approach to identifying significant increases in credit risk and impairment.

 

The table below shows the impact on impairment provisions at 4 April 2021 of the most significant areas of estimation uncertainty, with further details provided on the following pages. 

 

Significant areas of estimation uncertainty

 

2021

2020

 

 

£m

£m

 

Impact on expected credit losses of Covid-19 (including government furlough and other support initiatives)

 

 

 

Economic impact of Covid-19 scenario at 4 April 2020 (note i)

-

62

 

Relationship between GDP and expected defaults

25

-

 

Suppressed credit risk associated with payment deferrals

74

39

 

Temporary reduction in arrears

57

-

 

 

 

 

 

Performance of interest only mortgages at maturity

69

72

 

 

 

 

 

Level of future recoveries for retail lending

 

 

 

Residential mortgages: collateral values

56

-

 

Consumer banking: future recoveries

22

21

 

 

 

 

 

Use of forward-looking economic information

 

 

 

Impact of applying multiple economic scenarios (note ii)

159

123

 

 

Notes:

i.  The economic impact of Covid-19 as separately disclosed as at 4 April 2020; during the year ended 4 April 2021 this has been integrated into modelled provisions.

ii.  £159 million is the total impact of applying multiple economic scenarios, £41 million of which is also included in the values disclosed for other key judgements in the table.

 

 

8. Impairment losses and provisions on loans and advances to customers (continued)

 

Critical accounting estimates and judgements (continued)

 

Impact on expected credit losses of Covid-19 (including government furlough and other support initiatives)

 

As at 4 April 2020, an additional provision for credit losses totalling £101 million was recognised to reflect the estimated impact of the Covid-19 pandemic on ECLs. This additional provision comprised £62 million for economic impacts (£55 million from revised economic assumptions and £7 million relating to commercial lending) and £39 million to reflect suppressed credit risk associated with payment deferrals. These risks have been integrated into the IFRS 9 provision process where required.

 

Relationship between GDP and expected defaults

 

The impact of Covid-19 on the UK economy is unprecedented, with the significant GDP fall, impact of government support and use of payment deferrals creating a unique combination of economic impacts. These factors have changed the relationships between economic variables, such as GDP and unemployment, and the subsequent expected defaults. GDP is an input into consumer banking ECL modelling, and the GDP fall during 2020 would ordinarily be expected to result in an increase in defaults in the short term. However, due to government intervention, the increase in defaults is expected to be delayed. A change has therefore been made to increase the assumed time lag between GDP changes and defaults within the IFRS 9 models and thus reflect the judgement that the consequent credit losses have been delayed but not avoided. Had this change not been made, the ECL on consumer banking portfolios would have been lower by £25 million.

 

Suppressed credit risk associated with payment deferrals

 

Payment deferrals or other similar concessions have been offered on all retail products as a result of Covid-19. The Group recognises that in some cases borrowers will experience longer-term financial difficulty as a result of the pandemic, and additional ECLs have therefore been recognised in respect of some borrowing with payment deferrals. Unlike other concessions granted to borrowers in financial difficulty, these payment deferrals have not been subject to detailed affordability assessments, and therefore the degree of financial difficulty experienced by the members and customers who apply for them requires estimation.

 

During the year, additional payment deferrals have been granted and the payment deferral schemes have been extended. For all retail portfolios the additional provision has been updated to reflect additional requests received during the year. Further analysis of the risk characteristics of the retail payment deferral population has been carried out using internal and external credit risk data, to estimate the proportion of loans judged to carry increased risk which may not be evident due to payment deferrals suppressing arrears. The probability of default has been increased where appropriate. These changes have increased the total provision for this risk across all lending portfolios to £74 million (2020: £39 million). The proportion of payment deferrals to which the adjustment was applied varied between 10% to 27%, depending on the portfolio; an increase in this proportion by 5 percentage points would have increased provisions by £27 million.

 

As a result of the recognition of increased probability of default in respect of payment deferrals, £2 billion of residential mortgages have transferred to stage 2.

 

Temporary reduction in arrears

 

Arrears balances across all products have reduced during the year, leading to a reduction in modelled provisions. Management has judged this to be a temporary position due to the availability of government support and payment deferral schemes, and an adjustment has therefore been made to recognise the underlying risk, retaining provisions of £57 million (residential mortgages £21 million, consumer banking £36 million) which would have otherwise been released. This adjustment is expected to reduce once government support schemes come to an end and arrears start to return to the levels associated with prevailing economic conditions. This adjustment has been allocated to stage 2 loans.

 

 

8. Impairment losses and provisions on loans and advances to customers (continued)

 

Critical accounting estimates and judgements (continued)

 

Performance of interest only mortgages at maturity

 

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. Buy to let mortgages are typically advanced on an interest only basis. Interest only balances for prime residential mortgages relate primarily to historical balances which were originally advanced as interest only mortgages or where a change in terms to an interest only basis has been agreed. The impact of the allowance for unredeemed interest only mortgages at contractual maturity in the central scenario amounts to £45 million (2020: £44 million), with an additional impact of £24 million (2020: £28 million) reflecting the impact of forward-looking economic information. 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 considers LTV and affordability assessments. If the interest rate used within the affordability assessment was increased by 1%, provisions would increase by £8 million.

 

Level of future recoveries for retail lending

 

Residential mortgages: collateral values

 

For residential mortgages, the estimate of future collateral values is a key source of estimation uncertainty. During the year ended 4 April 2021, two new model adjustments have been introduced to reflect risks which are not reflected in the modelled outputs. 

 

Firstly, an adjustment has been introduced to reflect the risks associated with flats subject to fire safety risks such as unsuitable cladding. The current government funding available is anticipated to be below the amount required to remediate such properties, and the desirability of the properties is expected to be severely affected for several years. Due to limited data availability to identify affected properties individually, it is assumed that a proportion of the flats securing loans in the residential mortgage portfolios are affected, in line with UK market exposure estimates. Assumptions relating to property values have been applied based upon the height of the affected buildings. The ECL adjustment is £23 million, of which £6 million relates to buildings with six or more stories.

 

Secondly, an adjustment has been introduced to reflect the idiosyncratic risk relating to recovery values for repossessed properties over the next few years. The uncertainty has arisen from shifts in the housing market, partly due to Covid-19, with the expectation that future repossessed properties may be more difficult to sell and may not follow the modelled HPI recovery assumed for the wider market. This adjustment has been applied by reducing modelled property valuations, and also by increasing the expected variance in valuations achieved across the portfolio. The ECL adjustment totals £33 million, which equates to a 2% increase in the stage 3 provision coverage ratio.

 

Consumer banking: future recoveries

 

For consumer banking, the estimate of future recoveries is a key source of estimation uncertainty. The Group uses a combination of both historical data and management judgement in estimating the level and timing of future recoveries. It is management's judgement that the recovery experience over recent years is not sustainable in the future, and therefore additional provisions totalling £22 million (2020: £21 million) are held on charged off assets to reflect a future reduction in recovery rates. This represents 11% of total charged off balances.

 

 

8. Impairment losses 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, to determine scenarios which span an appropriately wide range of plausible economic conditions. The Group continues to model four economic scenarios, which together encompass an appropriate range of potential economic outcomes. The impact of applying multiple economic scenarios (MES) is to increase provisions by £159 million (2020: £123 million), compared with provisions based on the central economic scenario.

 

At 4 April 2021, the probability weightings for each scenario were reviewed and the probabilities allocated to the upside, central and downside scenarios remain unchanged from 30 September 2020. The increase in the upside weighting during the year reflects that this scenario now includes the impact of Covid-19, therefore incorporating more conservative economic assumptions than at 4 April 2020. The probabilities allocated to the central and downside scenarios reflect the uncertainty of the potential outcomes regarding Covid-19. The probability weightings applied to the scenarios are shown in the table below.

 

Scenario probability weighting (%)

 

Upside

scenario

Central scenario

Downside

scenario

Severe downside scenario

4 April 2021

10

40

40

10

30 September 2020

10

40

40

10

4 April 2020

5

50

35

10

 

All four economic scenarios reflect the potential impact of Covid-19 to differing degrees.There is continued uncertainty regarding the economic impacts that could arise from new variants of Covid-19, offset by the effectiveness of the vaccination programme, and also uncertainty over the extent to which government support schemes will have avoided or merely delayed the adverse credit consequences of the pandemic. The scenarios also reflect the fact that the UK reached a free trade agreement deal with the EU at the end of 2020, consistent with the assumptions incorporated in the prior year central scenario. In the central scenario at 4 April 2021, GDP recovers to levels slightly higher than those used in the central scenario at 4 April 2020. For unemployment the impacts are comparable to previous assumptions, albeit the adverse impacts are delayed and the peak of unemployment is slightly higher at 8.0%. The house price forecast reflects the 7% growth during 2020, with reductions expected in 2022 across the central and downside scenarios. The bank base rate is forecast to remain at 0.1% across all scenarios between 2020 and 2025, with the exception of the upside scenario, where an increase to 0.25% is forecast in 2024. The downside scenario reflects both a higher peak level of unemployment and a more gradual recovery in the economy. The severe downside scenario continues to be aligned with internal stress testing and reflects a severe and long-lasting impact on the UK economy.

 

During the year, the severe downside scenario has been incorporated into the core provision models. However, due to the severity of the scenario it is management's judgement that the modelled outputs do not reflect the non-linear impacts that would arise from the economic assumptions. Using information from internal and external stress testing exercises, management have derived adjustments to probability of default and loss given default at a portfolio level, which increased provisions by £102 million (2020: £77 million).

 

8. Impairment losses and provisions on loans and advances to customers (continued)  

 

Critical accounting estimates and judgements (continued)

 

Graphs showing the historical and forecasted GDP level, average house price and unemployment rate for the Group's economic scenarios, including the previous central economic scenario, are included in the Preliminary Results 2020-21 on nationwide.co.uk

 

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

4 April 2021

Rate/annual growth rate at December 2020-2025

 

5-year average

(note i)

Dec-20 to peak

(notes ii and iii)

Dec-20 to trough

(notes ii
and iii)

Actual

Forecast

2020

2021

2022

2023

2024

2025

%

%

%

%

%

%

%

%

%

GDP growth

 

 

 

 

 

 

 

 

 

Upside scenario

(7.8)

(7.8)

(7.8)

(7.8)

10.6

2.6

2.0

2.0

1.6

3.7

20.0

(3.2)

Central scenario

7.2

2.9

2.0

1.8

1.2

3.0

16.0

(4.0)

Downside scenario

2.0

4.6

2.8

2.0

1.6

2.6

13.6

(6.2)

Severe downside scenario

(3.2)

3.9

2.0

2.0

1.6

1.2

6.3

(8.5)

HPI growth

 

 

 

 

 

 

 

 

 

Upside scenario

7.0

7.5

3.0

3.9

3.5

3.5

4.3

23.4

2.0

Central scenario

7.0

1.9

(7.8)

6.9

4.9

4.7

2.0

10.2

(6.6)

Downside scenario

7.0

(2.2)

(14.7)

8.0

4.7

3.5

(0.5)

1.9

(16.9)

Severe downside scenario

7.0

(5.9)

(22.8)

(3.5)

8.8

7.2

(4.0)

0.8

(29.9)

Unemployment

 

 

 

 

 

 

 

 

 

Upside scenario

5.1

5.3

4.3

3.9

3.9

3.9

4.4

5.7

3.9

Central scenario

5.1

8.0

5.9

4.7

4.3

4.3

5.4

8.0

4.3

Downside scenario

5.1

9.5

7.4

5.8

5.1

5.0

6.5

9.5

5.0

Severe downside scenario

5.1

12.0

10.0

8.6

7.0

5.7

8.5

12.0

5.7

                     
 

8. Impairment losses and provisions on loans and advances to customers (continued) 

 

Critical accounting estimates and judgements (continued)

 

4 April 2020

Rate/annual growth rate at December 2020-2024

5-year average

(note i)

Dec-19 to peak

(notes ii

and iii)

Dec-19 to trough

(notes ii
and iii)

Forecast

2020

2021

2022

2023

2024

%

%

%

%

%

%

%

%

GDP growth

 

 

 

 

 

 

 

 

Upside scenario

2.0

2.4

2.9

2.0

2.4

2.4

12.3

0.9

Central scenario

(9.6)

6.1

4.1

2.0

1.8

0.7

3.7

(9.6)

Downside scenario

0.4

(1.7)

1.2

1.6

1.7

0.7

3.4

(1.2)

Severe downside scenario

(4.7)

0.7

1.3

0.9

1.1

(0.2)

(0.4)

(4.7)

HPI growth

 

 

 

 

 

 

 

 

Upside scenario

5.0

5.5

6.0

4.6

4.1

5.0

27.9

0.5

Central scenario

(10.0)

2.0

4.0

3.5

3.5

0.5

3.0

(13.8)

Downside scenario

(1.0)

(5.0)

(4.0)

0.0

1.4

(1.7)

(0.6)

(10.7)

Severe downside scenario

(11.1)

(16.4)

(8.9)

5.5

5.7

(5.5)

(1.0)

(32.4)

Unemployment

 

 

 

 

 

 

 

 

Upside scenario

3.8

3.7

3.6

3.6

3.5

3.7

3.8

3.5

Central scenario

6.9

5.6

4.9

4.7

4.6

5.3

7.4

3.9

Downside scenario

4.4

5.7

6.0

5.8

5.7

5.4

6.0

3.8

Severe downside scenario

7.2

9.2

8.7

8.1

7.4

7.8

9.2

3.8

 

Notes:

i.  The average rate for GDP and HPI is based on the cumulative annual growth rate over the forecast period. Average unemployment 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 over the forecast period.

iii. The unemployment rate is shown as the highest/lowest rate over the forecast period from 31 December.

 

 

 

8. Impairment losses 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 and stage 2 balance proportion if 100% weighting is applied to each scenario.

 

Sensitivity analysis impact of multiple economic scenarios

 

 

 

Proportion of balances in stage 2

 

 

 

Upside scenario

Central

scenario

Downside scenario

Severe

downside scenario

 

Reported

provision

 

Upside scenario

Central

scenario

Downside scenario

Severe

downside scenario

(note i)

 

Reported

4 April 2021

£m

£m

£m

£m

 

£m

 

%

%

%

%

 

%

Residential mortgages

158

 212

261

998

 

317

 

5.9

5.4

5.9

6.4

 

5.6

Consumer banking

428

 449

458

916

 

502

 

20.1

22.1

26.1

31.0

 

22.5

Commercial lending

 29

 32

34

38

 

33

 

3.5

3.5

3.7

3.9

 

3.5

Total

 615

 693

 753

 1,952

 

852

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4 April 2020

£m

£m

£m

£m

 

£m

 

 

 

 

 

 

 

Residential mortgages

136

 149

 254

674

 

252

 

 

 

 

 

 

 

Consumer banking

432

438

466

736

 

494

 

 

 

 

 

 

 

Commercial lending

37

37

40

55

 

40

 

 

 

 

 

 

 

Total

 605

 624

 760

 1,465

 

786

 

 

 

 

 

 

 

                 

 

Note:

i.  The severe scenario stage 2 proportion reflects only the modelled output and not the additional ECL added on through judgement.

 

The ECL for each scenario multiplied by the scenario probability will not reconcile to the overall provision. Whilst the stage allocation of loans varies in each individual scenario, each loan is allocated to a single stage in the overall 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 4 April 2021 to some of the key assumptions used within the ECL calculation.

 

Sensitivity to key forward looking information assumptions

2021

Increase in provision

£m

Single-factor sensitivity to key economic variables (note i)

 

10% decrease in HPI at 4 April 2021 and throughout the forecast period (note ii)

36

1% increase in unemployment at 4 April 2021 and throughout the forecast period (note iii)

21

Sensitivity to changes in scenario probability weightings

 

10% increase in the probability of the downside scenario (reducing the upside by a corresponding 10%)

14

5% increase in the probability of the severe downside scenario (reducing the downside by a corresponding 5%)

61

 

Notes:

i.  As these are single-factor sensitivities, they should not be extrapolated due to the likely non-linear effects.

ii.  Central scenario impact on LGD.

iii.  Central scenario impact on PD.

 

 

8. Impairment losses and provisions on loans and advances to customers (continued)

 

Critical accounting estimates and judgements (continued)

 

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. The Group has used judgement to select both quantitative and qualitative criteria which are used to determine whether a significant increase in credit risk has taken place. These criteria have been detailed within the credit risk report. 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 retail loans, 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

· the residual lifetime PD has increased by at least 75bps and a 2x multiple of the original lifetime PD (2020: 4x multiple).

 

The change to the staging criteria from a multiple of 4 times origination PD to a multiple of 2 has made the models more sensitive to relative PD changes, and has therefore transferred £4 billion of residential mortgages and £0.3 billion of consumer banking balances from stage 1 to 2. The impact on provisions was an increase of £10 million (residential mortgages £7 million, consumer banking £3 million).

 

These complementary criteria have been reviewed through detailed back-testing, using management performance indicators and actual default experience, and found to be effective in capturing events which would constitute a significant increase in credit risk. The sensitivity of ECLs to stage allocation is such that a transfer of 1% of current stage 1 balances to stage 2 would increase provisions by £18 million for residential mortgages, and £5 million for consumer banking.

 

Identifying credit impaired loans (stage 3)

 

The identification of credit impaired loans is an important judgement within the IFRS 9 staging approach. A loan is credit impaired where 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.

 

 

9. Taxation

 

Tax charge in the income statement

 

 

2021

2020

 

£m

£m

 

Current tax:

 

 

 

UK corporation tax

226

168

 

Adjustments in respect of prior years

(6)

(4)

 

Total current tax

220

164

 

 

 

 

 

Deferred tax:

 

 

 

Current year credit

(26)

(48)

 

Adjustments in respect of prior years

16

2

 

Effect of deferred tax provided at different tax rates

(5)

(17)

 

Total deferred taxation

(15)

(63)

 

Tax charge

205

101

 

      
 

 

9. Taxation (continued)

 

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

 

 

2021

 

2020

 

 

£m

£m

 

Profit before tax:

823

466

 

Tax calculated at a tax rate of 19%

156

89

 

Adjustments in respect of prior years

10

(2)

 

Tax credit on distribution to the holders of Additional Tier 1 capital

(12)

(9)

 

Banking surcharge

38

24

 

Temporary differences where no deferred tax is recognised

2

-

 

Expenses not deductible for tax purposes/(income not taxable):

 

 

 

Depreciation on non-qualifying assets

2

3

 

Bank levy

5

11

 

Customer redress

8

4

 

Other

1

(2)

 

Effect of deferred tax provided at different tax rates

(5)

(17)

 

Tax charge

205

101

 

      

 

 

10. Loans and advances to customers

 

 

 

 

2021

2020

 

 

Loans held at amortised cost

Loans held at FVTPL

Total

Loans held at amortised cost

Loans held at FVTPL

Total

 

 

Gross

Provisions

Other
(note i)

Total

Gross

Provisions

Total

 

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

 

Prime residential mortgages

149,706

(93)

-

149,613

68

149,681

151,069

(56)

-

151,013

71

151,084

 

Buy to let and legacy residential mortgages

41,249

(224)

-

41,025

- 

41,025

37,699

(196)

-

37,503

-

37,503

 

Consumer banking

4,404

(502)

-

3,902

- 

3,902

4,994

(494)

-

4,500

-

4,500

 

Commercial and other lending

6,267

(33)

653

6,887

52

6,939

7,133

(40)

741

7,834

57

7,891

 

Total

201,626

(852)

653

201,427

120

201,547

200,895

(786)

741

200,850

128

200,978

 

               

 

Note:

i.  'Other' represents a fair value adjustment for micro hedged risk for commercial loans that were previously hedged on an individual basis.

 

10. Loans and advances to customers (continued)

 

The tables below summarise the movements in 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. The lines within the tables are an aggregation of monthly movements over the year. 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 Risk report.

 

The reasons for key movements shown in the table below are as follows:

 

· The movement in gross balances is principally a result of £32,014 million of new lending, offset by a reduction of £31,138 million from repayments and redemptions. The majority of these movements relate to residential mortgages.

· Of the £136 million of write-offs, £124 million relates to unsecured lending, £9 million to residential mortgages and £3 million to commercial and other lending.

· Impairment provisions increased by £66 million in the period to £852 million. Further detail on the impairment provisions and losses by portfolio is shown in note 8.

 

Reconciliation of movements in gross balances and impairment provisions

 

Non-credit impaired

Credit impaired (note i)

 

 

Subject to 12 month ECL

Subject to lifetime ECL

Subject to lifetime ECL

Total

 

Stage 1

Stage 2

Stage 3 and POCI

 

 

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

 

£m

£m

£m

£m

£m

£m

£m

£m

At 5 April 2020 (note ii)

188,403

75

10,690

269

1,802

341

200,895

786

 

 

 

 

 

 

 

 

 

Stage transfers:

 

 

 

 

 

 

 

 

Transfers from Stage 1 to Stage 2

(19,556)

(61)

19,556

61

-

-

-

-

Transfers to Stage 3

(419)

-

(972)

(126)

1,391

126

-

-

Transfers from Stage 2 to Stage 1

16,910

320

(16,910)

(320)

-

-

-

-

Transfers from Stage 3

257

2

560

25

(817)

(27)

-

-

Net remeasurement of ECL arising from transfer of stage

 

(244)

 

360

 

(9)

 

107

Net movement arising from transfer of stage (note iii)

(2,808)

17

2,234

-

574

90

-

107

 

 

 

 

 

 

 

 

 

New assets originated or purchased (note iv)

32,014

45

-

-

-

-

32,014

45

Net impact of further lending and repayments (note v)

(10,100)

(52)

(162)

(26)

(58)

(21)

(10,320)

(99)

Changes in risk parameters in relation to credit quality (note vi)

-

37

-

157

-

78

-

272

Other items impacting income statement charge/(reversal) including recoveries

-

-

-

-

-

(12)

-

(12)

Redemptions (note vii)

(19,670)

(6)

(894)

(12)

(252)

(4)

(20,816)

(22)

Reversal of additional Covid-19 provision (note ii)

 

 

 

 

 

 

 

(101)

Income statement charge for the year

 

 

 

 

 

 

 

190

Decrease due to write-offs

-

-

-

-

(147)

(136)

(147)

(136)

Other provision movements

-

-

-

-

-

12

-

12

4 April 2021

187,839

116

11,868

388

1,919

348

201,626

852

Net carrying amount

 

187,723

 

11,480

 

1,571

 

200,774

 

 

10. Loans and advances to customers (continued)

 

Reconciliation of movements in gross balances and impairment provisions

 

Non-credit impaired

Credit impaired (note i)

 

 

Subject to 12 month ECL

Subject to lifetime ECL

Subject to lifetime ECL

Total

 

Stage 1

Stage 2

Stage 3 and POCI

 

 

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

Gross balances

Provisions

 

£m

£m

£m

£m

£m

£m

£m

£m

At 5 April 2019

187,368

68

9,539

261

1,797

336

198,704

665

 

 

 

 

 

 

 

 

 

Stage transfers:

 

 

 

 

 

 

 

 

Transfers from Stage 1 to Stage 2

(16,930)

(39)

16,930

39

-

-

-

-

Transfers to Stage 3

(330)

-

(938)

(110)

1,268

110

-

-

Transfers from Stage 2 to Stage 1

14,397

226

(14,397)

(226)

-

-

-

-

Transfers from Stage 3

202

2

554

23

(756)

(25)

-

-

Net remeasurement of ECL arising from transfer of stage

 

(184)

 

262

 

18

 

96

Net movement arising from transfer of stage (note iii)

(2,661)

5

2,149

(12)

512

103

-

96

 

 

 

 

 

 

 

 

 

New assets originated or purchased (note iv)

34,049

31

-

-

-

-

34,049

31

Net impact of further lending and repayments (note v)

(9,947)

(24)

(77)

(10)

(81)

(21)

(10,105)

(55)

Changes in risk parameters in related to credit quality (note vi)

-

(1)

-

42

-

26

-

67

Other items impacting income statement charge/(reversal) including recoveries

-

-

-

-

(1)

(11)

(1)

(11)

Redemptions (note vii)

(20,406)

(4)

(921)

(12)

(302)

(4)

(21,629)

(20)

Additional provision for Covid-19 (note ii)

 

 

 

 

 

 

 

101

Income statement charge for the year

 

 

 

 

 

 

 

209

Decrease due to write-offs

-

-

-

-

(123)

(99)

(123)

(99)

Other provision movements

-

-

-

-

-

11

-

11

4 April 2020 (note ii)

188,403

75

10,690

269

1,802

341

200,895

786

Net carrying amount (note ii)

 

188,328

 

10,421

 

1,461

 

200,109

 

Notes:

i.  Group gross balances of credit impaired loans include £148 million (2020: £155 million) of purchased or originated credit impaired (POCI) loans, which are presented net of lifetime ECL impairment provisions of
£5 million (2020: £6 million).

ii.  At 4 April 2020, an additional provision for credit losses of £101 million was recognised to reflect the estimated impact of the Covid-19 pandemic on ECLs. At 4 April 2020, this additional provision was not allocated to underlying loans nor was it attributed to stages. During the period, this provision has been allocated to underlying loans and is reflected in the movements within the table and the 4 April 2021 position.

iii.  The remeasurement of provisions arising from a change in stage is reported within the stage to which the assets are transferred.

iv.  If a new asset is generated in the month, the value included is the closing gross balance and provision for the month. All new business written is included in Stage 1.

v.  This comprises further lending and capital repayments where the asset is not derecognised. The value for gross balances is calculated as the closing gross balance for the month less the opening gross balance for the month. The value for provisions is calculated as the change in exposure at default (EAD) multiplied by opening provision coverage for the month.

vi.  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 month.

vii. For any asset that is derecognised in the month, the value disclosed is the provision at the start of that month.

 

 

10. Loans and advances to customers (continued)

 

Asset backed funding

 

Certain prime residential mortgages have been pledged to the Group's asset backed funding programmes or utilised as whole mortgage loan pools for the Bank of England's (BoE) Term Funding Scheme with additional incentives for SMEs (TFSME) and other short-term liquidity facilities. The programmes have enabled the Group to obtain secured funding. Mortgages pledged and the carrying values of the notes in issue are as follows.

 

Mortgages pledged to asset backed funding programmes

 

2021

2020

 

Mortgages pledged
(note i)

Notes in issue

Mortgages pledged
(note i)

Notes in issue

 

Held by
third parties
(note ii)

Held by the Group

Total notes
in issue

Held by
third parties
(note ii)

Held by the Group

Total notes
in issue

 

Drawn
(note iii)

Undrawn
(note iv)

Drawn
(note iii)

Undrawn
(note iv)

 

£m

£m

£m

£m

£m

£m

£m

£m

£m

£m

Covered bond programme

23,611

15,640

-

-

15,640

28,003

20,740

-

-

20,740

Securitisation programme

12,779

2,865

-

2,505

5,370

15,177

4,215

-

2,533

6,748

Whole mortgage loan pools

21,479

-

16,430

-

16,430

23,570

-

18,183

-

18,183

Total

57,869

18,505

16,430

2,505

37,440

66,750

24,955

18,183

2,533

45,671

 

Notes:

i.  Mortgages pledged include £13.9 billion (2020: £14.3 billion) in the covered bond and securitisation programmes that are in excess of the amount contractually required to support notes in issue.

ii.  Notes in issue which are held by third parties are included within debt securities in issue.

iii.  Notes in issue, held by the Group and drawn are whole mortgage loan pools securing amounts drawn with the BoE under the TFSME and, in the prior year, the BoE's Term Funding Scheme (TFS) and US dollar (USD) funding operations. At 4 April 2021 the Group had outstanding TFSME drawings of £16.4 billion (2020: TFS £17.0 billion) and USD funding operations of £nil (2020: £1.2 billion).

iv.  Notes in issue, held by the Group and undrawn, are debt securities issued by the programmes to the Group and mortgage loan pools that have been pledged to the BoE but not utilised.

 

Mortgages pledged under the Nationwide Covered Bond programme provide security for issues of covered bonds made by the Group. During the year ended 4 April 2021, £1.0 billion (sterling equivalent) of notes were issued, and £5.5 billion (sterling equivalent) of notes matured or were repurchased.

 

The securitisation programme notes are issued by Silverstone Master Issuer plc, which is fully consolidated into the accounts of the Group. The issuance proceeds are used to purchase, for the benefit of note holders, a share of the beneficial interest in the mortgages pledged by the Group. The remaining beneficial interest in the pledged mortgages of £7.2 billion (2020: £8.2 billion) stays with the Group and includes its required minimum seller share in accordance with the rules of the programme. The Group is under no obligation to support losses incurred by the programme or holders of the notes and does not intend to provide such further support. The entitlement of note holders is restricted to payment of principal and interest to the extent that the resources of the programme are sufficient to support such payment and the holders of the notes have agreed not to seek recourse in any other form. During the year ended 4 April 2021 £1.2 billion (sterling equivalent) of notes matured.

 

The whole mortgage loan pools are pledged at the BoE Single Collateral Pool. Notes are not issued when pledging the mortgage loan pools at the BoE. Instead, the whole loan pool is pledged to the BoE and drawings are made directly against the eligible collateral, subject to a haircut. At 4 April 2021, £21.5 billion (2020: £23.6 billion) of pledged collateral supported £16.4 billion of TFSME drawdowns (2020: TFS £17.0 billion) and £nil (2020: £1.2 billion) of USD Funding Operations.

 

In accordance with accounting standards, notes in issue and held by the Group are not recognised in the consolidated balance sheet. Mortgages pledged are not derecognised from the consolidated balance sheet as the Group has retained substantially all the risks and rewards of ownership. The Group continues to be exposed to the liquidity risk, interest rate risk and credit risk of the mortgages. No gain or loss has been recognised on pledging the mortgages to the programmes.

 

 

 

11. Subordinated liabilities and subscribed capital

 

 

 

 

2021

2020

 

£m

£m

Subordinated liabilities

 

 

Senior non-preferred notes and Tier 2 eligible subordinated notes

7,292

8,712

Fair value hedge accounting adjustments

305

635

Unamortised premiums and issue costs

(22)

(30)

Total

7,575

9,317

Subscribed capital

 

 

Permanent interest-bearing shares

212

212

Fair value hedge accounting adjustments

33

43

Unamortised premiums and discounts

(2)

(2)

Total

243

253

    

 

All of the Society's subordinated liabilities and permanent interest-bearing shares (PIBS) are unsecured. The Society may, with the prior consent of the Prudential Regulation Authority (PRA), repay the PIBS and redeem the Tier 2 eligible subordinated notes early. The redemption of senior non-preferred notes does not require regulatory consent.

 

Senior non-preferred notes are a class of subordinated liability which rank equally with each other and behind the claims against the Society of all depositors, creditors and investing members other than holders of Tier 2 eligible subordinated notes, PIBS, Additional Tier 1 (AT1) instruments and core capital deferred shares (CCDS). Senior non-preferred notes contribute to meeting the Society's minimum requirement for own funds and eligible liabilities (MREL) and loss absorbing requirements. The Tier 2 eligible subordinated notes rank equally with each other and ahead of claims against the Society of holders of PIBS, AT1 instruments and CCDS.

 

PIBS rank equally with each other and the Group's AT1 instruments. They are deferred shares of the Society and rank behind the claims against the Society of all noteholders, depositors, creditors and investing members of the Society, other than the holders of CCDS.

 

 

12. Provisions for liabilities and charges

 

 

 

Customer redress

Other provisions

Total

 

£m

£m

£m

At 5 April 2020 (note i)

114

32

146

Provisions utilised

(77)

(54)

(131)

Charge for the year

100

63

163

Release for the year

(13)

(6)

(19)

Net income statement charge (note ii)

87

57

144

At 4 April 2021

124

35

159

 

Notes:

i.  Comparatives have been restated to reflect the change in presentation of the bank levy as detailed in note 2. 

ii.  The net income statement charge relating to customer redress is included in provisions for liabilities and charges. The net income statement charge relating to other provisions is recognised in administrative expenses, with the exception of £1 million in respect of obligations under the Financial Services Compensation Scheme which is included in provisions for liabilities and charges.

 

Customer redress

 

During the course of its business, the Group receives complaints from customers in relation to past sales or ongoing administration. The Group is also subject to enquiries from and discussions with its regulators and governmental and other public bodies, including the Financial Ombudsman Service (FOS), on a range of matters. Customer redress matters may also exist in relation to other aspects of past sales and administration of customer accounts, quality control issues and non-compliance with consumer credit legislation or other regulatory matters. Consideration of such customer redress matters may result in a provision, a contingent liability or both, depending upon relevant facts and circumstances. No provision is made where it is concluded that it is not probable that a quantifiable payment will be made; this will include circumstances where the facts are unclear or further time is required to reasonably quantify the expected payment.

 

At 4 April 2021, the Group holds provisions of £124 million (2020: £114 million) in respect of the potential costs of remediation and redress in relation to past sales of PPI, issues relating to administration of customer accounts, issues relating to historical quality control procedures, non-compliance with consumer credit legislation and other regulatory matters.

 

Within provisions for customer redress, £38 million is held as a result of the Group's investigations into its historical quality control procedures. The provision has been based on detailed reviews completed to date into specific areas of concern and represents the Group's best estimate of the liability. As further work is undertaken on these areas, it is possible that the ultimate liability may be higher or lower than the amount provided at 4 April 2021. An estimate of the potential impact of any contingent liabilities associated with the ongoing investigations has not been provided as it is not practicable to do so.

 

Other provisions

 

Other provisions primarily include amounts for severance costs, a number of property-related provisions and expected credit losses on irrevocable personal loan and mortgage lending commitments.

 

 

12. Provisions for liabilities and charges (continued)

 

Critical accounting estimates and judgements

 

There is significant estimation uncertainty in estimating the probability, timing and amount of any cash outflows associated with customer redress provisions.

 

Provisions are recognised for matters relating to customer redress where an outflow is probable and can be estimated reliably. Amounts provided are based on management's best estimate of the number of customers impacted and anticipated remediation. As any new matters emerge, an estimate is made of the outcome, although in some cases uncertainties remain as to the eventual costs given the inherent difficulties in determining the number of impacted customers and the amount of any redress applicable.

 

Provisions relating specifically to PPI mis-selling are no longer considered to contain significant estimation uncertainty due to the time elapsed since the PPI claims deadline in August 2019. Sources of significant estimation uncertainty in provisions for customer redress relate specifically to matters in respect of administration of customer accounts and quality control procedures. A number of assumptions are applied in estimating provisions relating to the past administration of customer accounts, including the identification and segmentation of customer groups expected to receive redress and the amount of redress payable for each customer group. If the total number of customers expected to receive redress changed by 10%, the provision would change by £3 million. If the amount of redress expected to be payable changed by 10%, the provision would change by £2 million. For provisions relating to quality control procedures, if the number of customers expected to receive redress changed by 10%, the provision would change by £5 million. Provisions will be adjusted in future periods as further information becomes available.

 

 

13. Contingent liabilities

 

During the ordinary course of business, the Group may be subject to complaints and threatened or actual legal proceedings brought by or on behalf of current or former employees, customers, investors or other third parties, as well as legal and regulatory reviews, challenges, investigations and enforcement actions. Any such material cases are periodically reassessed, with the assistance of external professional advisers where appropriate, to determine the likelihood of incurring a liability.

 

The Group does not disclose amounts in relation to contingent liabilities associated with such claims where the likelihood of any payment is remote. The Group also does not disclose an estimate of the potential financial impact or effect on the Group of contingent liabilities where it is not currently practicable to do so. The Group does not expect the ultimate resolution of any current complaints, threatened or actual legal proceedings, regulatory or other matters to have a material adverse impact on its financial position.

 

Contingent liabilities associated with redress provisions are discussed further in note 12.

 

 

14. Retirement benefit obligations

 

The Group operates two defined contribution pension schemes in the UK - the Nationwide Group Personal Pension Plan (GPP) and the Nationwide Temporary Workers Pension Scheme. New employees are automatically enrolled into one of these schemes. Outside of the UK, there is a defined contribution pension scheme for a small number of employees in the Isle of Man.

 

The Group also has funding obligations to several defined benefit pension schemes, which are administered by boards of trustees. Pension trustees are required by law to act in the interests of all relevant beneficiaries and are responsible for the investment policy of fund assets, as well as the day to day administration. The Group's largest pension scheme is the Nationwide Pension Fund (the Fund). This is a contributory defined benefit pension scheme, with both final salary and career average revalued earnings (CARE) sections. The Fund was closed to new entrants in 2007 and since that date employees have been able to join the GPP. In line with UK pensions legislation, a formal actuarial valuation ('Triennial Valuation') of the assets and liabilities of the Fund is carried out at least every three years by independent actuaries.

 

The Fund was closed to future accrual on 31 March 2021, with affected employees being moved to the GPP for future pension savings. From 1 April 2021, members moved from active to deferred status, with future indexation of deferred pensions before retirement measured by reference to the Consumer Price Index (CPI). In the year ended 4 April 2020, a gain of £164 million was recognised as a past service credit within administrative expenses relating to the closure, and £60 million was accrued within 'other administrative expenses' for the cost of one-off payments to be made to affected members in the form of cash or as contributions to their pensions.

 

In November 2020, Nationwide and the Trustee of the Fund entered into an arrangement whereby Nationwide has agreed to provide £1.7 billion of collateral (a contingent asset) in the form of
self-issued Silverstone notes to provide additional security to the Fund. The Fund would have access to these notes in the case of certain events such as insolvency of Nationwide.

 

Further information on the Group's obligations to defined benefit pension schemes is set out below.

 

Defined benefit pension schemes

 

Retirement benefit obligations on the balance sheet

 

2021

2020

 

£m

£m

Fair value of fund assets

7,033

6,530

Present value of funded obligations

(6,853)

(6,228)

Present value of unfunded obligations

(8)

(8)

Surplus at 4 April

172

294

 

Most members of the Fund can draw their pension when they reach the Fund's retirement age of 65. The methodology for calculating the level of pension benefits accrued before 1 April 2011 varies; however, most are based on 1/54th of final salary for each year of service. Pension benefits accrued after 1 April 2011 are usually based on 1/60th of average earnings, revalued to the age of retirement, for each year of service (also called CARE). As noted above, there will be no further accrual of benefits from 1 April 2021, and future indexation of previously accrued benefits will be valued on the basis of CPI. 

 

On the death of a Fund member, benefits may be payable in the form of a spouse/dependant's pension, lump sum (paid within five years of a Fund member beginning to take their pension), or refund of Fund member contributions. Prior to 1 April 2021, Fund members were able to place redundancy severance into their pension.
 

14. Retirement benefit obligations (continued)

 

Approximately 68% of the Fund's pension obligations have been accrued in relation to deferred Fund members (current and former employees not yet drawing their pension) and 32% for current pensioners and dependants. The average duration of the Fund's pension obligation is approximately 22 years, reflecting the split of the obligation between deferred members (25 years) and current pensioners (14 years).

 

The Group's retirement benefit obligations also include £8 million (2020: £8 million) in respect of unfunded legacy defined benefit arrangements.

 

Changes in the present value of the net defined benefit asset/(liability), including unfunded obligations, are as follows:

 

Movements in net defined benefit asset/(liability)

 

2021

2020

 

£m

£m

Surplus/(deficit) at 5 April

294

(105)

Current service cost

(72)

(90)

Past service (cost)/credit

(5)

169

Interest on net defined benefit asset

7

3

Return on assets greater than discount rate

467

141

Contributions by employer

66

127

Administrative expenses

(6)

(5)

Actuarial (losses)/gains on defined benefit obligations

(579)

54

Surplus at 4 April

172

294

 

Current service cost represents the increase in liabilities resulting from employees accruing service over the year. This includes salary sacrifice employee contributions.

 

Past service cost represents a £5 million (2020: £2 million) increase in liabilities arising from Fund members choosing to pay additional contributions (AVCs or pension credits). Included within the past service credit for the year ended 4 April 2020 is a gain of £164 million relating to the decision to close the Fund to future accrual on 31 March 2021 and a gain of £7 million in respect of Fund members made redundant during that year.

 

The interest on the net defined benefit asset represents the interest accruing on the liabilities over the year, offset by the interest income on assets. A net interest credit of £7 million was recognised in the year ended 4 April 2021 (2020: £3 million).

 

The £467 million gain relating to the return on assets greater than the discount rate (2020: £141 million) is driven by gains on equities and investments in unlisted asset classes.

 

During the year, Nationwide and the Trustee agreed to a new Deficit Recovery Plan and Schedule of Contributions following the finalisation of the Fund's 31 March 2019 actuarial valuation. As a consequence of entering into the contingent asset arrangement, no employer deficit contributions were required in the year ended 4 April 2021. Additionally, no employer deficit contributions will be required in the year ending 4 April 2022 or in future years under the terms of the new Deficit Recovery Plan. Employer contributions of £66 million in the year ended 4 April 2021 relate to the final contributions in respect of benefit accrual prior to the Fund closing to future accrual on 31 March 2021.

 

 

 

14. Retirement benefit obligations (continued)

 

The £579 million actuarial loss on defined benefit obligations (2020: £54 million actuarial gain) is due to:

 

· An experience gain of £43 million (2020: £117 million gain) primarily reflecting the difference between estimates of long-term inflation and membership assumptions compared to actual
long-term inflation.

· A £581 million loss (2020: £34 million loss) from changes in financial assumptions, driven by a 0.50% increase in assumed Retail Price Index (RPI) inflation and 0.75% increase in assumed Consumer Price Index (CPI) inflation (which increases the value of the liabilities), partially offset by a 0.05% increase in the discount rate (which decreases the value of liabilities).

· A £41 million loss (2020: £29 million loss) arising from updates to reflect the Fund's new commutation factors, partially offset by the impact of updating to the latest industry standard actuarial model for projecting future longevity improvements.

 

The principal actuarial assumptions used are as follows:

 

Principal actuarial assumptions

 

2021

2020

 

%

%

Discount rate

2.00

1.95

Future salary increases

-

2.65

Future pension increases (maximum 5%)

3.00

2.55

Retail price index (RPI) inflation

3.10

2.60

Consumer price index (CPI) inflation

2.40

1.65

 

An assumption for future salary increases is no longer required due to the closure of the Fund to future accrual from 1 April 2021.

 

The assumptions for mortality rates are based on standard mortality tables which allow for future improvements in life expectancies and are adjusted to represent the Fund's membership. The assumptions made are illustrated in the table below, showing how long the Group would expect the average Fund member to live for after the age of 60, based on reaching that age at 4 April 2021 or in 20 years' time at 4 April 2041.

 

Life expectancy assumptions (years)

 

2021

 

2020

 

Age 60 at 4 April 2021

 

 

Males

27.6

27.6

Females

29.4

29.3

Age 60 at 4 April 2041:

 

 

Males

29.0

29.0

Females

30.7

30.6

 

 

 

14. Retirement benefit obligations (continued)

 

Critical accounting estimates and judgements

 

Retirement benefit obligations

 

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. If different assumptions were used, this could have a material effect on the reported surplus. The sensitivity of the results to these assumptions is shown below.

 

Change in key assumptions at 4 April 2021

 

 

Increase/(decrease)

in surplus from

assumption change

 

£m

0.1% increase in discount rate

145

0.1% increase in inflation assumption

(132)

1 year increase in life expectancy at age 60 in respect of all members

(233)

 

The above sensitivities apply to individual assumptions in isolation. The 0.1% sensitivity to the inflation assumption includes a corresponding 0.1% increase in the future pension increase assumptions.

 

 

15. Core capital deferred shares

 

 

 

Number of shares

CCDS

Share premium

Total

 

 

£m

£m

£m

 

At 4 April 2021

10,555,500

11

1,323

1,334

 

At 4 April 2020

10,500,000

11

1,314

1,325

 

 

During the year ended 4 April 2021, the Society issued 55,500 of £1 core capital deferred shares (CCDS). These CCDS form a single series together with previous issuances. The proceeds of the issuance were £9 million (gross and net of issuance costs).

 

CCDS are a form of Common Equity Tier 1 (CET1) capital which have been developed to enable the Group to raise capital from the capital markets. Previously issued Tier 1 capital instruments, PIBS, no longer meet the regulatory capital requirements of CRD IV and are being gradually phased out of the calculation of capital resources under transitional rules.

 

CCDS are perpetual instruments. They rank equally to each other and are junior to claims against the Society of all depositors, creditors and investing members. Each holder of CCDS has one vote, regardless of the number of CCDS held.

 

 

15. Core capital deferred shares (continued)

 

In the event of a winding up or dissolution of the Society and if a surplus was available, the amount that the investor would receive for each CCDS held is limited to the average principal amount in issue, which is currently £126.39 per share.

 

There is a cap on the distributions that can be paid to holders of CCDS in any financial year. The cap is currently set at £16.73 per share and is adjusted annually in line with CPI. A final distribution of £54 million (£5.125 per share) for the financial year ended 4 April 2020 was paid on 22 June 2020 and an interim distribution of £54 million (£5.125 per share) in respect of the period to
30 September 2020 was paid on 21 December 2020. These distributions have been recognised in the consolidated statement of movements in members' interests and equity.

 

Since the balance sheet date, the directors have declared a distribution of £5.125 per share in respect of the period to 4 April 2021, amounting in aggregate to £54 million. This has not been reflected in these consolidated financial statements as it will be recognised in the year ending 4 April 2022, by reference to the date at which it was declared .

 

16. Other equity instruments

 

 

 

2021

2020

 

£m

£m

At 5 April

593

992

Redemptions

-

(992)

Issuances

743

593

At 4 April

1,336

593

 

Other equity instruments are Additional Tier 1 (AT1) capital instruments.

 

The Society issued £750 million (£743 million net of issuance costs) of new AT1 capital instruments on 10 June 2020. The AT1 instruments rank equally to each other and are junior to claims against the Society of all depositors, creditors and investing members, other than the holders of CCDS. The AT1 instruments pay a fully discretionary, non-cumulative fixed interest at an initial rate of 5.75% per annum. The rate will reset on 20 December 2027 and every five years thereafter to the benchmark gilt reset reference rate plus 5.625% per annum. Coupons are paid semi-annually in June and December.

 

The Society issued £600 million (£593 million net of issuance costs) of new AT1 capital instruments on 17 September 2019. The AT1 instruments rank equally to each other and are junior to claims against the Society of all depositors, creditors and investing members, other than the holders of CCDS. The AT1 instruments pay fully discretionary, non-cumulative fixed interest coupons at an initial rate of 5.875% per annum. The rate will reset on 20 June 2025 and every five years thereafter to the benchmark gilt reset reference rate plus 5.39% per annum. Coupons are paid semi-annually in June and December. The Society redeemed £1 billion (£992 million net of issuance costs) of AT1 capital instruments in full on 20 June 2019.

 

Interest payments totalling £57 million were made in the year ended 4 April 2021 (2020: £42 million), representing the maximum non-cumulative fixed coupon amounts. These payments have been recognised in the consolidated statement of movements in member's interest and equity. A coupon payment of £39 million is expected to be paid on 22 June 2021 and will be recognised in the consolidated statement of movements in members' interests and equity in the financial year ending 4 April 2022.

 

AT1 instruments have no maturity date but are repayable at the option of the Society from the first reset date, and on every fifth anniversary reset date thereafter. If the fully loaded CET1 ratio for the Society, on either a consolidated or unconsolidated basis, falls below 7% the AT1 instruments convert to CCDS instruments at the rate of one CCDS share for every £100 of AT1 holding.

 

 

 

Responsibility statement

 

The directors confirm that the consolidated financial statements, prepared in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No. 1606/2002 as it applies in the European Union (and endorsed by the UK), give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group as required by the Disclosure Guidance and Transparency Rules (DTR 4.1.12). The Chief Executive's review and the Financial review together include a fair review of the development and performance of the business of the Group, and taken together with the primary financial statements, supporting notes and the Risk report provide a description of the principal risks and uncertainties faced.

 

A full list of the board of directors will be disclosed in the Annual Report and Accounts 2021.

 

Signed on behalf of the Board by

 

 

Chris Rhodes

Chief Financial Officer

 

20 May 2021

 

Other information

 

The financial information set out in this announcement which was approved by the Board on 20 May 2021 does not constitute accounts within the meaning of section 73 of the Building Societies Act 1986.

 

The Annual Report and Accounts 2020 have been filed with the Financial Conduct Authority and the Prudential Regulation Authority. The Annual Report and Accounts 2021 will be published on the website of Nationwide Building Society, nationwide.co.uk The report of the auditor on those accounts is unqualified and did not draw attention to any matters by way of emphasis. The Annual Report and Accounts 2021 will be lodged with the Financial Conduct Authority and the Prudential Regulation Authority following publication.

 

A copy of this Preliminary report is placed on the website of Nationwide Building Society, nationwide.co.uk from 21 May 2021. 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:

 

Sara Batchelor

Mobile: +44 (0)7785 344 137

Sara.Batchelor@nationwide.co.uk

 

Eden Black

Mobile: +44 (0)7793 596 317

Eden.Black@nationwide.co.uk

Investor queries:

 

Charles Wood

Mobile: +44 (0)7500 999 612

Charles.Wood@nationwide.co.uk

 

Carly Thomas

Mobile: +44 (0)7464 491  600

Carly.Thomas@nationwide.co.uk

 

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