TIDMSAN TIDM83WK
RNS Number : 6958Q
Santander UK Plc
14 September 2017
Santander UK plc
14 September 2017
Half Yearly Financial Report 2017
The Company announces that a copy of the above document has been
submitted to the National Storage Mechanism and will shortly be
available for inspection at www.Hemscott.com/nsm.do
In fulfilment of its obligations under the Disclosure and
Transparency Rules, Santander UK plc hereby releases the unedited
full text of its 2017 Half Yearly Financial Report. Accordingly,
page references in the text refer to page numbers in the 2017 Half
Yearly Financial Report.
A printer-friendly PDF version of the accounts will also be made
available on the Company's website:
Contacts
----------------------- ---------------------------- -------------------
020 7756
Bojana Flint Head of Investor Relations 6474
----------------------- ---------------------------- -------------------
020 7756
Andy Smith Head of Media Relations 4212
----------------------- ---------------------------- -------------------
For more information: www.aboutsantander.co.uk ir@santander.co.uk
----------------------- ---------------------------- -------------------
The full text of the accounts follows:
Santander UK plc
PART OF THE BANCO SANTANDER GROUP
Important information for readers
Santander UK plc and its subsidiaries (collectively Santander UK
or the Santander UK group) operate primarily in the UK, and are
part of Banco Santander (comprising Banco Santander SA and its
subsidiaries). Santander UK plc is regulated by the UK Prudential
Regulation Authority (PRA) and the Financial Conduct Authority
(FCA) and certain other companies within the Santander UK group are
regulated by the FCA.
This Half Yearly Financial Report contains forward-looking
statements that involve inherent risks and uncertainties. Actual
results may differ materially from those contained in such
forward-looking statements. See 'Forward-looking statements' in the
Shareholder information section.
Santander UK plc
Half Yearly Financial Report 2017
2 Introduction
--- --------------------------------------
3 Directors' responsibilities statement
--- --------------------------------------
4 Financial review
--- --------------------------------------
14 Risk review
--- --------------------------------------
32 Financial statements
--- --------------------------------------
50 Shareholder information
--- --------------------------------------
Introduction
The Company sets out in this report a fair review of its
business and a description of its principal risks and
uncertainties, including a balanced and comprehensive analysis of
the development and performance of the business in the first half
of the year and of its position at the end of the period.
Principal activities and business review
Santander UK plc (the Company) and its subsidiaries
(collectively, Santander UK or the Santander UK group) is a major
financial services provider, offering a wide range of personal
financial products and services, and is a growing participant in
the corporate banking market. The Company is authorised and
regulated by the Financial Conduct Authority (FCA) and the
Prudential Regulation Authority (PRA).
Customer focused ring fencing model
We are progressing well with the implementation of a 'wide'
ring-fence structure that will serve our retail, commercial and
corporate customers. We believe this model provides greater
certainty for our customers, while ensuring minimal disruption as
we implement the changes required. This also maintains longer term
flexibility for Santander UK, while lowering the overall programme
implementation costs with the creation of the ring fence now
involving the transfer of fewer customers.
The majority of our customer loans and assets as well as
customer deposits and liabilities will remain within Santander UK
plc, our principal ring-fenced bank. Prohibited activities which
cannot be transacted within the ring-fence principally include our
derivatives business with financial institutions and certain
corporates, elements of our short term markets business and our
branches in Jersey, Isle of Man and the US. Customers who cannot be
served and services which are not permitted within a ring-fenced
bank will be transferred to Banco Santander SA, or its London
branch.
Customers who cannot be served and services which are not
permitted within a ring-fenced bank will be transferred to Banco
Santander SA, or its London branch. We intend to use a Part VII
Ring-Fence Transfer Scheme to transfer the majority of the
prohibited business of the Santander UK group to Banco Santander.
We are on track to complete the implementation in advance of the
legislative deadline of 1 January 2019, with implementation subject
to regulatory and court approvals and various other
authorisations.
Development and performance of our business in H117
Information on the development and performance of our business
in H117 is set out in the 'Income statement review' section of the
Financial review and information on our position at the end of the
period is set out in the 'Balance sheet review' section of the
Financial review.
Board appointments
We recently announced the appointment of two new Executive
Directors. I would like to welcome Antonio Roman, Chief Financial
Officer, and Javier San Felix, Head of Retail & Business
Banking and Deputy CEO, to the Board of Santander UK.
2017 outlook
We expect solid UK economic growth in 2017. However, we see
greater uncertainty in the outlook, with the concern that some
downside risks could materialise later this year and into 2018. The
labour market remains strong, but higher inflation, largely from
the lower value of sterling, is now reducing households' real
earnings. This is likely to result in lower consumer spending
growth which, when combined with a potentially more challenging
macro environment, adds a degree of caution to our outlook.
We have therefore deliberately controlled growth in certain
business areas and in particular those with higher margins and the
potential for higher risk. We believe that our proactive risk
management policies and low risk appetite will deliver resilient
performance going forward.
Our principal risks and uncertainties
Information on our principal risks and uncertainties is set out
in the Risk review by type of risk. Except where noted, there has
been no significant change to the description of these risks or key
mitigating actions as set out in the 2016 Annual Report.
Key performance indicators
The directors of the Company's parent, Santander UK Group
Holdings plc, manage the operations of the Santander UK Group
Holdings plc group (which includes the Santander UK plc group) on a
business division basis. Key performance indicators are not set,
monitored or managed at the Santander UK plc group level. As a
result, the Company's Directors believe that analysis using key
performance indicators for the Company is not necessary or
appropriate for an understanding of the development, performance or
position of the Company. The development and performance of the
business of the Santander UK plc group is set out in the 'Income
statement review' section of the Financial review. The key
performance indicators of the Santander UK Group Holdings plc group
can be found on page 4 of its 2017 Half Yearly Financial Report,
which does not form part of this report.
By Order of the Board
Nathan Bostock
Director
13 September 2017
Directors' responsibilities statement
The Directors confirm that to the best of their knowledge these
Condensed Consolidated Interim Financial Statements have been
prepared in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union,
and that the half-year management report herein includes a fair
review of the information required by Disclosure and Transparency
Rules 4.2.7R and 4.2.8R, namely:
- An indication of important events that have occurred during
the six months ended 30 June 2017 and their impact on the Condensed
Consolidated Interim Financial Statements, and a description of the
principal risks and uncertainties for the remaining six months of
the financial year, and
- Material related party transactions in the six months ended 30
June 2017 and any material changes in the related party
transactions described in the last Annual Report.
By Order of the Board
Nathan Bostock
Chief Executive Officer
13 September 2017
Financial review
5 Income statement review
--- -----------------------------------------
5 Summarised Consolidated Income Statement
--- -----------------------------------------
6 Profit before tax by segment
--- -----------------------------------------
6 - Retail Banking
--- -----------------------------------------
8 - Commercial Banking
--- -----------------------------------------
10 - Global Corporate Banking
--- -----------------------------------------
11 - Corporate Centre
--- -----------------------------------------
12 Balance sheet review
--- -----------------------------------------
12 Summarised Condensed Consolidated
Balance Sheet
--- -----------------------------------------
Income statement review
SUMMARISED CONSOLIDATED INCOME STATEMENT
Half Half
year year
to to
30 June 30 June
2017 2016
GBPm GBPm
-------------------------------------- --------- --------------
Net interest income 1,922 1,773
Non-interest income(1) 591 671
-------------------------------------- --------- --------------
Total operating income 2,513 2,444
-------------------------------------- --------- --------------
Operating expenses before impairment
losses, provisions and charges (1,215) (1,205)
-------------------------------------- --------- --------------
Impairment losses on loans and
advances (48) (63)
Provisions for other liabilities
and charges (186) (97)
-------------------------------------- --------- --------------
Total operating impairment losses,
provisions and charges (234) (160)
-------------------------------------- --------- --------------
Profit before tax 1,064 1,079
Tax on profit (323) (307)
-------------------------------------- --------- --------------
Profit after tax for the period 741 772
-------------------------------------- --------- --------------
Attributable to:
Equity holders of the parent 730 756
Non-controlling interests 11 16
-------------------------------------- --------- --------------
(1) Comprised of Net fee and commission income and Net trading
and other income.
H117 compared to H116
Profit before tax was down 1%, with higher provisions for other
liabilities and charges, offset by steady income growth, continued
cost discipline, and good credit quality. By income statement line,
the movements were:
- Net interest income was up 8%, driven by retail
liability margin improvement and an accrued interest
release, partially offset by continued SVR mortgage
attrition and pressure on new lending margins.
The SVR attrition was GBP2.5bn in H117, lower
than the GBP3.4bn in H116. NIM was 1.53% in H117,
compared to 1.48% in 2016.
- Non-interest income was down 12%, with mark-to-market
movements on economic hedges and the absence of
the gain on sale of Visa Europe Limited in H116.
This was partially offset by growth in all customer
business segments and the gain on sale of Vocalink
Holdings Limited in H117.
- Operating expenses before impairment losses, provisions
and charges were broadly stable. Operational efficiency
continues to absorb higher investment costs in
business growth and enhancements to our digital
channels. Our costs were also well managed, despite
inflationary pressures.
- Impairment losses on loans and advances decreased
24% to GBP48m, as a result of our prudent lending
criteria and the ongoing resilience of the UK
economy. Furthermore, mortgage releases were GBP21m
in H117 compared to GBP58m in H116.
- Provisions for other liabilities and charges increased
to GBP186m, driven by a Q117 GBP32m charge for
PPI, a Q217 net charge of GBP37m for a specific
PPI portfolio under review and GBP35m for other
conduct matters.
- Tax on profit increased 5% to GBP323m, driven
by higher conduct provisions that are disallowed
for tax purposes. The effective tax rate increased
to 30% from 28%.
PROFIT BEFORE TAX BY SEGMENT
This section contains a summary of our results, and commentary
thereon, by income statement line item for each segment. The
segmental information in this Half Yearly Financial Report reflects
the reporting structure in place at the reporting date. For more,
see Note 2 to the Condensed Consolidated Interim Financial
Statements.
RETAIL BANKING
Retail Banking offers a wide range of products and financial
services to individuals and small businesses through a network of
branches and ATMs, as well as through telephony, digital and
intermediary channels. Retail Banking serves business banking
customers, small businesses with an annual turnover of up to
GBP6.5m, and Santander Consumer Finance, predominantly a vehicle
finance business. Its main products are residential mortgage loans,
savings and current accounts, credit cards and personal loans as
well as insurance policies.
Summarised income statement
Half year Half
to year
30 June to
2017 30 June
GBPm 2016
GBPm
----------------------------------------- ---------- ---------
Net interest income 1,730 1,531
Non-interest income 314 283
----------------------------------------- ---------- ---------
Total operating income 2,044 1,814
----------------------------------------- ---------- ---------
Operating expenses before impairment
losses, provisions and charges (919) (922)
----------------------------------------- ---------- ---------
Impairment losses on loans and advances (39) (34)
Provisions for other liabilities and
charges (155) (77)
----------------------------------------- ---------- ---------
Total operating impairment losses,
provisions and charges (194) (111)
----------------------------------------- ---------- ---------
Profit before tax 931 781
----------------------------------------- ---------- ---------
H117 compared to H116
Profit before tax increased by GBP150m to GBP931m in H117 (H116:
GBP781m). By income statement line, the movements were:
- Net interest income increased 13%, with liability
margin improvement offsetting continued SVR mortgage
attrition and pressure on new lending margins.
- Non-interest income increased 11%, with higher
current account and wealth management fees.
- Operating expenses before impairment losses, provisions
and charges were flat with operational efficiencies,
offsetting continued investment in business growth
and digital enhancements.
- Impairment losses on loans and advances increased
by GBP5m to GBP39m, with lower mortgage impairment
releases of GBP21m in H117 compared to GBP58m
in H116, which are starting to normalise from
cyclically low levels.
- Provisions for other liabilities and charges increased
to GBP155m, due to PPI charges in Q117 and Q217
and a charge for other conduct matters.
Balances
30 June 2017 31 December
GBPbn 2016
GBPbn
---------------------------------- ------------- ------------
Customer loans 168.2 168.6
- of which mortgages 154.1 154.3
- of which business banking(1) 2.0 2.3
- of which consumer finance 6.9 6.8
- of which other unsecured
lending 5.2 5.2
Risk-weighted assets (RWAs) 43.9 43.6
Customer deposits 148.7 148.1
- of which current accounts 66.3 64.8
- of which savings 62.3 64.7
- of which business banking
accounts 10.5 10.0
- of which other retail products 9.6 8.6
---------------------------------- ------------- ------------
(1) Following a periodic review in Q117, a number of business
banking customers were transferred to Commercial Banking, where
their ongoing needs can be better served. The balance associated
was cGBP200m. Prior periods have not been amended.
30 June 2017 compared to 31 December 2016
- Mortgage lending balances decreased GBP0.2bn,
reflecting management pricing actions in late
2016 that impacted new mortgage completions in
H117. We retained c75% of mortgages reaching the
end of their incentive period.
- Consumer finance and other unsecured lending balances
were flat, in part as a result of controlled management
actions in an increasingly competitive environment.
- Customer deposits were up GBP0.6bn, with ongoing
demand for our current accounts and other retail
products, partially offset by lower savings balances,
which declined GBP2.4bn.
- Business banking deposits increased GBP0.5bn,
as we continue to deepen relationships with our
SME customers and focus on growing our lending
capabilities.
- Retail Banking deposit spread narrowed, with a
30bps improvement to (0.27)% from (0.57)% in December
2016.
Business volumes(1)
Half
year
to
Half year to 30 June
30 June 2017 2016
GBPbn GBPbn
-------------------------------- -------------- ---------
Mortgage gross lending 11.6 12.7
Mortgage net lending (0.2) 0.6
Business banking net lending (0.3) (0.1)
Consumer finance gross lending 1.7 1.6
Consumer finance net lending 0.1 0.3
-------------------------------- -------------- ---------
(1) Gross and net lending figures exclude any assets purchased
or transferred in the period.
H117 compared to H116
- Lower mortgage gross lending at GBP11.6bn reflects
management pricing actions in Q416 that impacted
new mortgage completions in the first half of the
year. In H117, we helped 10,900 first-time buyers
(GBP1.8bn of gross lending) purchase their new
home. Interest-only mortgage balances decreased
GBP1.7bn to GBP50.6bn (2016: GBP52.3bn) while Buy-to-Let
(BTL) mortgage balances increased GBP0.3bn to GBP6.9bn
(2016: GBP6.6bn).
We continued to focus our BTL book on non-professional
landlords, as this segment is closely aligned with
residential mortgages and accounts for the majority
of the volume in the BTL market. In H117, we completed
2,728 BTL mortgages, representing 4% of the value
of our new business flow, at an average LTV of
62%.
- Consumer finance gross lending was GBP1.7bn with
higher retail loans, partially offset by a decrease
in the stock of new car registrations. We continue
to benefit from our partnership with manufacturers
and joint ventures, supported by prudent underwriting
criteria within our traditional prime vehicle business.
Business development
- In the first half of the year, we introduced a new
set of tools that aim to improve the customer experience
across all channels. In January 2017, the new CRM
tool was launched to enable our people to continue
conversations with customers which may have started
in another channel. It also utilises information
from connected systems to facilitate new conversations.
In addition, we updated the SmartBank app with voice
commands capabilities. Furthermore, in March 2017,
we simplified the process to open a current account
online with instant decisions and document upload
where required. Lastly, in June 2017, we launched
a new service that allows customers to apply for
a mortgage via video link to an advisor.
- Our digital customer base continued to grow in H117,
gaining an average of 1,200 new active mobile users
per day for a total of 2.4 million mobile customers,
of which 1.6 million exclusively use our mobile
app in their transactions with us. In the same period
47% of our mortgages were retained online, 34% of
current account openings and 46% of credit card
openings were made through digital channels.
- Our Cyber Resilience programme operates with a layered
defence approach, continually evolving and adapting
to cyber threats. Protecting our customers, systems
and information is a top priority and a key area
of focus. We have increased our resources and are
leveraging connections with Banco Santander's Cyber
Security Operations Centre.
- 1I2I3 World customers increased, although at a slower
rate, to 5.2 million. Whilst there has been an expected
reduction in 1I2I3 Current Account openings, following
fee and interest rate changes in January 2016 and
November 2016, the current account base continues
to grow (up 43,000), reflecting the strength and
stability of the franchise. We believe the 1I2I3
Current Account and 1I2I3 Lite Current Account continue
to be outstanding propositions for many customers.
- We continue to make investments accessible to all
our customers and have expanded our wealth management
business by growing our Private Banking and Financial
Planning advisory teams. From March 2017 through
April 2017, we ran a media campaign that successfully
raised awareness of our improved wealth management
offering. As a result, over 8,600 customers registered
on our new Investment Hub and over 18,000 customer
appointments were scheduled with our Private Banking
and Financial Planning advisory teams. In June 2017,
we also launched the new World Elite Mastercard,
offering our Select and Private Banking customers
extensive travel and lifestyle benefits whilst also
providing cashback on purchases.
- We plan to grow the Santander Business franchise
with a relationship led approach and strong emphasis
on increasing customer loyalty. In particular we
see an opportunity to expand our lending capabilities
by identifying innovative solutions that meet the
needs of our SME customers.
COMMERCIAL BANKING
Commercial Banking offers a wide range of products and financial
services provided by relationship teams that are based in a network
of regional Corporate Business Centres (CBCs) and through telephony
and digital channels. The management of our customers is organised
across two relationship teams - the Regional Corporate Bank (RCB)
that covers trading businesses with annual turnover from GBP6.5m to
GBP500m and Specialist Sector Groups (SSG) that cover real estate,
housing finance, education, healthcare, and hotels. Commercial
Banking products and services include loans, bank accounts,
deposits, treasury services, invoice discounting, cash
transmission, trade finance and asset finance.
Summarised income statement
Half Half
year year
to to
30 June 30 June
2017 2016
GBPm GBPm
----------------------------------------------- --------- ---------
Net interest income 198 203
Non-interest income 44 41
----------------------------------------------- --------- ---------
Total operating income 242 244
----------------------------------------------- --------- ---------
Operating expenses before impairment
losses, provisions and charges (109) (113)
----------------------------------------------- --------- ---------
Impairment losses on loans and advances (3) (11)
Provisions for other liabilities and (29) -
charges
----------------------------------------------- --------- ---------
Total operating impairment losses, provisions
and charges (32) (11)
----------------------------------------------- --------- ---------
Profit before tax 101 120
----------------------------------------------- --------- ---------
H117 compared to H116
Profit before tax decreased by GBP19m to GBP101m in H117 (H116:
GBP120m). By income statement line, the movements were:
- Net interest income decreased 2%, with continued
asset margin pressures, partially offset by customer
lending growth.
- Non-interest income increased 7% to GBP44m. Growth
in asset restructuring fees, up 11%, international,
up 13%, and digital and payment, up 10%, was partially
offset by lower rates management fees.
- Operating expenses before impairment losses, provisions
and charges decreased 4%, with continued focus on
strong cost management and operational efficiency.
- Impairment losses on loans and advances were lower
at GBP3m. Overall, the loan book continues to perform
well and is supported by our prudent lending policy.
- Provisions for other liabilities and charges increased
to GBP29m, mainly due to conduct provisions taken
in Q217.
Balances
30 June 2017 31 December
GBPbn 2016
GBPbn
------------------- ------------- ------------
Customer loans(1) 19.6 19.4
RWAs 20.1 20.4
Customer deposits 18.1 17.2
------------------- ------------- ------------
(1) Following a periodic review in Q117, a number of business
banking customers were transferred to Commercial Banking, where
their ongoing needs can be better served. The balance associated
was cGBP200m. Prior periods have not been amended.
30 June 2017 compared to 31 December 2016
- Customer loans were broadly flat at GBP19.6bn,
with solid lending growth to trading business
customers, offset by the continued active management
of our CRE exposures amid economic uncertainty.
- RWAs were lower, driven by the reduction of our
CRE exposures.
- We continue to attract deposit balances, through
our strong customer relationships, supported
by a comprehensive product range and competitive
pricing.
Business volumes
Half Half
year year
to to
30 June 30 June
2017 2016
--------------------------------------- --------- ---------
New facilities (GBPbn) 3.5 4.3
Bank account openings (No.) 1,621 1,314
Online banking (Connect) active users
(1) (No.) 28,843 26,100
--------------------------------------- --------- ---------
(1) Online banking (Connect) active users include both business
banking and Commercial Banking customers.
H117 compared to H116
- We continue to open bank accounts and extend
new facilities, despite a competitive environment
and economic uncertainty. Our Relationship Managers
are building their portfolios by leveraging our
comprehensive suite of products and services.
- There was a continuation in the pickup of our
corporate banking platform 'Connect', with active
users increasing 11% year on year.
Business development
- The focus of the Commercial Banking division is
to expand its franchise by both growing the overall
customer base, as well as deepening loyalty amongst
our existing customers. We aim to increase loyalty
by leveraging our international reach and proposition
as well as continuing to develop our product capabilities
to meet our customers' needs.
- Coverage of our commercial clients is organised
by local relationship teams or by sectors. Our sector
teams support our clients by using specialist knowledge
of the individual business and its operating environment
to recommend solutions. Furthermore, we have identified
key strategic sectors and have partnered with leading
trade bodies to deliver a customer led proposition
that leverages our international presence and connectivity
to access on-the-ground support overseas, connect
to potential new business partners and enter global
supply chains. Our partnerships also run a wide
range of collaborative activity, including market
reports, insight and events.
- We are working with Banco Santander SA and key strategic
partners to develop trade initiatives that make
it easier for clients to grow their business internationally.
Our Spain-UK corridor has facilitated introductions
to relationship directors by simplifying the process
for cross-border account referrals. We have also
launched a US-UK corridor and formalised an alliance
with YES bank, India's fourth largest private sector
bank, to support trade and offer our customers new
business opportunities in the respective markets.
These initiatives allow us to attract new clients
and deepen existing relationships, as well as compliment
some of our existing services, for example Santander
Trade Club and Santander Passport.
- Breakthrough Growth Capital provides new funding
and identifies key partnerships at milestones in
the development of our clients' business. In the
first six months of the year, we assisted 26 businesses
in accessing GBP86m of facilities. Since inception,
the Growth Capital team has completed 152 funding
solutions for 108 companies, providing GBP438m of
facilities, which will create over 6,360 jobs.
- Our innovative offering was recognised at the 2017
Business Moneyfacts Awards, winning a number of
prestigious awards including: 'Business Bank of
the Year' and the 'Best International Solutions
Provider', both for the third consecutive year,
to name a few. The industry recognition is a testament
to Santander UK's commitment to become the bank
of choice for UK companies and shows the strength
of our overall value proposition for businesses,
built on our relationship banking approach.
GLOBAL CORPORATE BANKING
Global Corporate Banking (GCB) services corporate clients with a
turnover of GBP500m and above per annum and financial institutions.
GCB clients require specially tailored solutions and value-added
services due to their size, complexity and sophistication. We
provide these clients with products to manage currency
fluctuations, protect against interest rate risk, and arrange
capital markets finance and specialist trade finance solutions, as
well as providing support to the rest of Santander UK's business
segments.
Summarised income statement
Half year Half year
to to
30 June 30 June
2017 2016
GBPm GBPm
----------------------------------------- ---------- ----------
Net interest income 40 39
Non-interest income 206 184
----------------------------------------- ---------- ----------
Total operating income 246 223
----------------------------------------- ---------- ----------
Operating expenses before impairment
losses, provisions and charges (145) (141)
----------------------------------------- ---------- ----------
Impairment losses on loans and advances (9) (21)
Provisions for other liabilities - -
and charges
----------------------------------------- ---------- ----------
Total operating provisions and charges (9) (21)
----------------------------------------- ---------- ----------
Profit before tax 92 61
----------------------------------------- ---------- ----------
H117 compared to H116
Profit before tax increased by GBP31m to GBP92m in H117 (H116:
GBP61m). By income statement line, the movements were:
- Net interest income was broadly flat at GBP40m,
with ongoing demand for project and acquisition
finance, transactional services and factoring
products, offset by continued asset margin pressures.
This also includes GBP10m income arising from
favourable conditions in market rates.
- Non-interest income increased 12% to GBP206m,
driven by security financing, derivative and
cash sales, and market making activities.
- Operating expenses before impairment losses,
provisions and charges increased 3% to GBP145m,
with continued investment to improve our operating
model.
- Impairment losses on loans and advances were
lower at GBP9m, with continued good performance
of the loan book.
- There were no provisions for other liabilities
and charges in the period.
Balances
30 June 2017 31 December
GBPbn 2016
GBPbn
------------------- ------------- ------------
Customer loans 6.5 5.7
RWAs 16.4 16.9
Customer deposits 4.4 4.1
------------------- ------------- ------------
30 June 2017 compared to 31 December 2016
- Customer loans increased to GBP6.5bn, driven
by our refinancing and origination activities
relating to project and acquisition finance and
transactional services, as well as increased
client drawdowns.
- RWAs were lower, driven by a decrease in counterparty
credit and market risk that was partially offset
by asset growth. RWAs attributable to customer
loans were GBP8.0bn (2016: GBP7.5bn).
- Customer deposits were higher at GBP4.4bn, primarily
driven by growth in cash management products.
Business development
- We continue to enhance our compliance and risk frameworks,
with improvements to our internal process in compliance
monitoring and financial crime management. We are
also rolling out our client management service function
to Commercial Banking, to simplify the client on-boarding
process and improve the customer experience.
- In H117, we formed a mergers and acquisitions advisory
team that will complement our existing product capabilities.
The team is building a healthy pipeline of deals
to support fee income growth. There was also solid
momentum in business activity and increased demand
from our Financial Institution Group clients for
debt capital market services. Our ongoing focus
is to maximise return on capital, by effectively
leveraging our transactional banking products, FX
and advisory services.
CORPORATE CENTRE
Corporate Centre predominantly consists of the non-core
corporate and treasury legacy portfolios. Corporate Centre is also
responsible for managing capital and funding, balance sheet
composition, structure and strategic liquidity risk. The non-core
corporate and treasury legacy portfolios are being run-down and/or
managed for value.
Summarised income statement
Half year to Half year to
30 June 2017 30 June 2016
GBPm GBPm
--------------------------------------------------------------------- -------------- --------------
Net interest expense (46) -
Non-interest income 27 163
--------------------------------------------------------------------- -------------- --------------
Total operating (expense)/income (19) 163
--------------------------------------------------------------------- -------------- --------------
Operating expenses before impairment losses, provisions and charges (42) (29)
--------------------------------------------------------------------- -------------- --------------
Impairment releases on loans and advances 3 3
Provisions for other liabilities and charges (2) (20)
Total operating impairment releases, provisions and charges 1 (17)
--------------------------------------------------------------------- -------------- --------------
(Loss)/profit before tax (60) 117
--------------------------------------------------------------------- -------------- --------------
H117 compared to H116
Profit before tax decreased by GBP177m to a loss of GBP60m in
H117 (H116: GBP117m profit). By income statement line, the
movements were:
- Net interest expense of GBP46m, reflects changes
in the commercial balance sheet profile, partially
offset by a GBP39m release of accrued interest
on a foreign tax liability that is no longer
payable.
Due to the lower interest rate environment, we
envisage that net interest income from the structural
hedge will continue to decrease as a result of
maturing positions being reinvested at lower
prevailing rates. The majority of new mortgage
flows are left un-hedged to provide stable returns.
The average duration of our fixed term new mortgage
flows is about 2.5 years, with a total structural
hedge position of cGBP80bn.
- Non-interest income was impacted by mark-to-market
movement on economic hedges and the absence of
the GBP119m gain on sale of Visa Europe Limited
in H116, partially offset by the GBP48m gain
on sale of Vocalink Holdings Limited in H117.
- Operating expenses before impairment losses,
provisions and charges, predominantly represent
GBP42m of regulatory compliance and project costs
relating to Banking Reform.
- Impairment releases on loans and advances were
flat, in line with the continued management of
the non-core portfolio.
- Provisions for other liabilities and charges
decreased to GBP2m, predominantly due to the
absence of restructuring costs.
Balances
30
June 31 December
2017 2016
GBPbn GBPbn
--------------------------- ------- ------------
Non-core customer loans 6.0 6.5
- of which Social Housing 5.1 5.4
RWAs 6.8 6.7
Customer deposits 3.2 3.0
--------------------------- ------- ------------
30 June 2017 compared to 31 December 2016
- Non-core customer loans decreased GBP0.5bn, as
we continue to implement our exit strategy from
individual loans and leases in the non-core corporate
and legacy portfolios.
- RWAs were broadly flat with higher counterparty
credit risk, partially offset by a reduction
in non-core customer loans and the Vocalink Holdings
Limited shareholder sale. RWAs attributable to
non-core customer loans amounted to GBP1.1bn
(2016: GBP1.3bn).
- Customer deposits increased GBP0.2bn, as we continue
to rebalance the deposit base tenor.
Balance sheet review
SUMMARISED CONDENSED CONSOLIDATED BALANCE SHEET
30 June 31 December
2017 2016
GBPm GBPm
--------------------------------------- -------- ------------
Assets
Cash and balances at central banks 18,255 17,107
Trading assets 34,423 30,035
Derivative financial instruments 21,611 25,471
Financial assets designated at
fair value 2,161 2,140
Loans and advances to banks 4,404 4,348
Loans and advances to customers 199,799 199,738
Loans and receivables securities 1,424 257
Available-for-sale securities 9,574 10,561
Held-to-maturity investments 6,613 6,648
Macro hedge of interest rate risk 914 1,098
Interest in other entities 66 61
Property, plant and equipment 1,508 1,491
Retirement benefit assets 500 398
Tax, intangibles and other assets 3,669 3,789
--------------------------------------- -------- ------------
Total assets 304,921 303,142
--------------------------------------- -------- ------------
Liabilities
Deposits by banks 11,890 9,769
Deposits by customers 181,189 177,172
Trading liabilities 21,490 15,560
Derivative financial instruments 18,488 23,103
Financial liabilities designated
at fair value 2,976 2,440
Debt securities in issue 43,997 50,346
Subordinated liabilities 4,109 4,303
Macro hedge of interest rate risk 281 350
Retirement benefit obligations 220 262
Tax, other liabilities and provisions 3,400 3,753
--------------------------------------- -------- ------------
Total liabilities 288,040 287,058
--------------------------------------- -------- ------------
Equity
Total shareholders' equity 16,719 15,934
Non-controlling interests 162 150
--------------------------------------- -------- ------------
Total equity 16,881 16,084
--------------------------------------- -------- ------------
Total liabilities and equity 304,921 303,142
--------------------------------------- -------- ------------
A more detailed consolidated balance sheet is contained in the
Condensed Consolidated Interim Financial Statements.
30 June 2017 compared to 31 December 2016
Assets
Cash and balances at central banks
Cash and balances at central banks increased by 7% to GBP18,255m
at 30 June 2017 (2016: GBP17,107m). The increase was mainly due to
an increase in balances at central banks.
Trading assets
Trading assets increased by 15% to GBP34,423m at 30 June 2017
(2016: GBP30,035m). This is mainly attributable to higher levels of
securities purchased under resale agreements and equities offset by
decreased holdings of debt securities.
Derivative financial instruments - assets
Derivative assets decreased by 15% to GBP21,611m at 30 June 2017
(2016: GBP25,471m). The decrease was mainly due to volatility in
the fair value of interest rate and cross currency derivative
assets principally driven by movements in yield curves and foreign
exchange rates.
Loans and advances to customers
Loans and advances to customers were broadly flat at GBP199,799m
at 30 June 2017 (2016: GBP199,738m), mainly driven by an increase
in loans to UK companies, partially offset by a decrease in
residential mortgages.
Liabilities
Deposits by customers
Deposits by customers increased by 2% to GBP181,189m at 30 June
2017 (2016: GBP177,172m) as we focused on retaining and originating
accounts held by more loyal customers, with continued net positive
inflows to 1I2I3 Current Account, everyday bank accounts as well as
corporate accounts.
Trading liabilities
Trading liabilities increased by 38% to GBP21,490m at 30 June
2017 (2016: GBP15,560m) mainly as a result of an increase in
securities purchased under resale agreements, as part of normal
trading activity.
Derivative financial instruments - liabilities
Derivative liabilities decreased by 20% to GBP18,488m at 30 June
2017 (2016: GBP23,103m). The decrease was mainly due to volatility
in the fair value of interest rate and cross currency derivative
liabilities mainly driven by movements in yield curves and foreign
exchange rates.
Debt securities in issue
Debt securities in issue decreased by 13% to GBP43,997m at 30
June 2017 (2016: GBP50,346m) driven by maturities across the
covered bonds, securitisation and Medium Term Notes programmes,
partially offset by issuances under the US-SEC registered debt
shelf.
Equity
Total shareholders' equity
Total shareholders' equity increased by 5% to GBP16,719m at 30
June 2017 (2016: GBP15,934m). The increase was attributable to the
issuance of AT1 capital, the profit for the period, actuarial gains
on the defined benefit pension funds and the valuation of available
for sale securities, partially offset by dividends approved,
valuation of cash flow hedges and own credit adjustments.
Risk review
15 Risk governance
--- -------------------------
16 Credit risk
--- -------------------------
16 Santander UK group level
--- -------------------------
17 Retail Banking
--- -------------------------
20 Other segments
--- -------------------------
24 Market risk
--- -------------------------
24 Trading market risk
--- -------------------------
24 Banking market risk
--- -------------------------
25 Liquidity risk
--- -------------------------
28 Capital risk
--- -------------------------
30 Other key risks
--- -------------------------
Risk governance
As a financial services provider, managing risk is a core part
of our day-to-day activities. To be able to manage our business
effectively, it is critical that we understand and control risk in
everything we do. We aim to use a prudent approach and advanced
risk management techniques to help us deliver robust financial
performance and build sustainable value for our stakeholders.
We aim to keep a predictable medium-low risk profile, consistent
with our business model. This is key to achieving our strategic
objectives.
30 June 2017 compared to 31 December 2016
There were no significant changes in our risk governance as
described in the 2016 Annual Report.
Credit risk
Overview Key metric
Credit risk management
In H117, there
were no significant
changes in the
way we manage
credit risk as
described in the
2016 Annual Report.
- NPL ratio was
1.32% (2016:
1.50%)
Credit risk review
In this section
we analyse our
credit risk profile
and performance.
We begin by discussing
credit risk at
a Santander UK
group level and
then cover Retail
Banking separately
from our other
segments: Commercial
Banking, Global
Corporate Banking
and Corporate
Centre.
santander uk group level - Credit risk review
Credit performance
Customer loans NPLs(1)(2) NPL ratio NPL coverage(3) Gross write-offs(4) Impairment
loss allowances
GBPbn GBPm % % GBPm GBPm
----------------------- -------------- ---------- --------- --------------- ------------------- ----------------
30 June 2017
Retail Banking: 168.2 2,177 1.29 25 106 553
- Residential mortgages 154.1 1,936 1.26 13 11 251
- Business banking 2.0 121 6.05 48 13 58
- Consumer finance 6.9 33 0.48 239 21 79
- Other unsecured
lending 5.2 87 1.67 190 61 165
Commercial Banking 19.6 358 1.83 57 12 204
Global Corporate
Banking 6.5 80 1.23 81 - 65
Corporate Centre 6.0 26 0.43 162 17 42
----------------------- -------------- ---------- --------- --------------- ------------------- ----------------
200.3 2,641 1.32 33 135 864
----------------------- -------------- ---------- --------- --------------- ------------------- ----------------
31 December 2016
Retail Banking: 168.6 2,340 1.39 25(5) 210 583(5)
- Residential mortgages 154.3 2,110 1.37 13 33 279
- Business banking 2.3 108 4.70 53 24 57
- Consumer finance 6.8 32 0.47 244(5) 30 78(5)
- Other unsecured
lending 5.2 90 1.73 188 123 169
Commercial Banking 19.4 518 2.67 42 10 220
Global Corporate
Banking 5.7 63 1.11 90 - 57
Corporate Centre 6.5 73 1.12 84 51 61
----------------------- -------------- ---------- --------- --------------- ------------------- ----------------
200.2 2,994 1.50 31(5) 271 921(5)
----------------------- -------------- ---------- --------- --------------- ------------------- ----------------
(1) We define NPLs in the 'Credit risk management' section in
the 2016 Annual Report.
(2) All NPLs continue accruing interest.
(3) Impairment loss allowances as a percentage of NPLs.
Impairment loss allowances relate to early arrears and performing
assets (i.e. the incurred but not observed provision) as well as
NPLs, so the ratio can exceed 100%.
(4) 30 June 2017 reflects 6 months of gross write-offs and 31
December 2016 reflects 12 months of gross write-offs.
(5) In H117, we reclassified our provisions for residual value
and voluntary termination from the consumer finance impairment loss
allowance. To facilitate comparison with the current period, the 31
December 2016 consumer finance impairment loss allowance of GBP146m
and NPL coverage ratio of 456% were amended to GBP78m and 244%
respectively. This reclassification was also reflected in the
Retail Banking and total impairment loss allowance and NPL coverage
ratios.
At 30 June 2017 total corporate lending, comprising business
banking, Commercial Banking and Global Corporate Banking, was
GBP28.1bn (2016: GBP27.4bn). The NPL ratio for corporate lending
was 1.99% (2016: 2.51%), the NPL coverage ratio was 58% (2016:
48%), gross write-offs were GBP25m (2016: GBP34m) and impairment
loss allowances were GBP327m (2016: GBP334m).
30 June 2017 compared to 31 December 2016
The NPL ratio improved by 18bps to 1.32% (2016: 1.50%) and
continued to perform well, supported by our prudent lending
criteria and proactive management actions:
- The improvement in the Retail Banking NPL ratio
to 1.29% (2016: 1.39%) was driven by the strong
credit quality of our portfolio and the ongoing
resilience of the UK economy. The loan loss rate
remained low at 0.02% (2016: 0.01%).
- The NPL ratio for Commercial Banking decreased to
1.83% from 2.67% primarily due to the full repayment
of three impaired loans and the write-off of some
pre-2009 vintages. The loan loss rate in Commercial
Banking improved to 0.10% (2016: 0.15%).
- In Global Corporate Banking, the NPL ratio of 1.23%
(2016: 1.11%) was impacted by a single loan of GBP20m
that moved to non-performance.
- The NPL ratio for the Corporate Centre decreased
to 0.43% (2016: 1.12%), reflecting the ongoing sale
and run-off of the non-core corporate and legacy
portfolios.
For more on the credit performance of our key portfolios by
business segment, see the 'Retail Banking - credit risk review' and
'Other segments - credit risk review' sections.
RETAIL BANKING - CREDIT RISK REVIEW
Residential mortgages
Borrower profile
In this table, 'home movers' include both existing customers
moving house and taking out a new mortgage with us, and customers
who switch their mortgage to us when they move house.
'Remortgagers' are external customers who are remortgaging with us.
We have not included internal remortgages, further advances and any
flexible mortgage drawdowns in the new business figures.
Stock New business
------------- ----------------------------- ----------------------------
30 June 2017 31 December Half year Half year
2016 to 30 June to 30 June
2017 2016
-------------- ------------- ------------- -------------
GBPm % GBPm % GBPm % GBPm %
------------- --------- --- -------- --- -------- --- -------- ---
First-time
buyers 28,812 19 29,143 19 1,840 17 1,970 16
Home movers 68,214 44 68,158 44 4,954 45 5,487 45
Remortgagers 50,190 33 50,325 33 3,673 34 3,361 28
Buy-to-let 6,923 4 6,648 4 447 4 1,268 11
------------- --------- --- -------- --- -------- --- -------- ---
154,139 100 154,274 100 10,914 100 12,086 100
------------- --------- --- -------- --- -------- --- -------- ---
30 June 2017 compared to 31 December 2016
Mortgage lending balances decreased GBP135m, reflecting
management pricing actions in late 2016 that impacted new mortgage
completions in H117. We retained c. 75% of mortgages reaching the
end of their incentive period.
We continued to focus our buy-to-let book on non-professional
landlords, as this segment is closely aligned with residential
mortgages and accounts for the majority of the volume in the
buy-to-let market. In H117, we completed 2,728 buy-to-let
mortgages, representing 4% of the value of our new business flow,
at an average LTV of 62%.
In addition to the new business included in the table above,
there were GBP11.6bn (H116: GBP9.1bn) of internal remortgages where
we kept existing customers on new mortgages. We also provided
GBP0.7bn (H116: GBP0.6bn) of further advances and flexible mortgage
drawdowns.
Interest rate profile
The interest rate profile of our mortgage asset stock was:
30 June 2017 31 December
2016
--------------- -------------
GBPm % GBPm %
----------------------------- ---------- --- -------- ---
Fixed rate 96,132 62 91,817 59
Variable rate 31,714 21 33,627 22
Standard Variable Rate (SVR) 26,293 17 28,830 19
----------------------------- ---------- --- -------- ---
154,139 100 154,274 100
----------------------------- ---------- --- -------- ---
30 June 2017 compared to 31 December 2016
The SVR attrition of GBP2,537m in H117 was lower than the
GBP3,464m in H116.
Geographical distribution
The Santander UK new business data in these tables cover H117
compared with FY16. The Council of Mortgage Lenders (CML) new
business data for H117 covers the three months ended 31 March 2017.
The percentages are calculated on a value-weighted basis.
UK region 30 June 2017 31 December 2016
---------------------------- --------------------------------- ---------------------------------
Santander UK CML Santander UK CML
---------------------------- ------------------- -------------------
Stock New business New business Stock New business New business
% % % % % %
---------------------------- ----- ------------ ------------ ----- ------------ ------------
London 24 25 18 24 27 18
Midlands and East Anglia 13 14 17 13 13 17
North 15 12 17 15 12 17
Northern Ireland 2 1 1 2 1 1
Scotland 4 4 6 5 3 7
South East excluding London 31 34 29 30 34 28
South West, Wales and other 11 10 12 11 10 12
---------------------------- ----- ------------ ------------ ----- ------------ ------------
100 100 100 100 100 100
---------------------------- ----- ------------ ------------ ----- ------------ ------------
30 June 2017 compared to 31 December 2016
The average loan size for new business was broadly in line with
2016, at GBP198,000 (FY16: GBP198,000) for the UK overall,
GBP263,000 (FY16: GBP264,000) for the South East including London
and GBP146,000 (2016: GBP144,000) for the rest of the UK. The
loan-to-income multiple of mortgage lending in H117 also increased
slightly to 3.18 (FY16: 3.16).
Loan-to-value analysis
This table shows the LTV distribution for new business and
mortgage asset stock. We used our estimate of the property's value
at the balance sheet date. We have included fees added to the loan
in the calculation. If the product is on flexible terms, the
calculation only includes the drawn loan amount, not undrawn
limits.
LTV 30 June 2017 31 December 2016
-------------------------------- ------------------- -------------------
New business Stock New business Stock
% % % %
-------------------------------- ------------ ----- ------------ -----
Up to 50% 18 46 17 46
>50-75% 43 41 43 41
>75-85% 19 8 23 8
>85-100% 20 4 17 4
>100% - 1 - 1
-------------------------------- ------------ ----- ------------ -----
Simple average(1) LTV (indexed) 63 43 65 43
-------------------------------- ------------ ----- ------------ -----
(1) Unweighted average of LTV of all accounts.
30 June 2017 compared to 31 December 2016
In H117 the proportion of lending with an LTV of over 85%
increased to 20% (2016: 17%) mainly due to the lower proportion of
buy-to-let new business typically written at lower LTVs. At 30 June
2017, the parts of the loans in negative equity which were
effectively uncollateralised before taking account of impairment
loss allowances reduced to GBP259m (2016: GBP285m).
Credit performance
30 June 2017 31 December 2016
GBPm GBPm
--------------------------------------------------- ------------ ----------------
Mortgage loans and advances to customers of which: 154,139 154,274
Performing(1) 151,039 150,895
Early arrears: 1,164 1,269
- 31 to 60 days 721 793
- 61 to 90 days 443 476
------------------------------------------------------ ------------ ----------------
NPLs: (2)(3) 1,936 2,110
- By arrears 1,464 1,578
- By bankruptcy 17 21
- By maturity default 296 316
- By forbearance 127 160
- By properties in possession (PIPs) 32 35
------------------------------------------------------ ------------ ----------------
(1) Excludes mortgages where the customer did not pay for
between 31 and 90 days, arrears, bankruptcy, maturity default,
forbearance and PIPs NPLs. Includes GBP2,745m of mortgages (2016:
GBP2,959m) where the customer did not pay for 30 days or less.
(2) We define NPLs in the 'Credit risk management' section of
the 2016 Annual Report.
(3) All NPLs are in the UK and continue accruing interest.
Forbearance(1)
The balances at 30 June 2017 and 31 December 2016, analysed by
their payment status at the period-end and the forbearance we
applied, were:
Capitalisation Term extension Interest-only Total Impairment
loss allowances
GBPm GBPm GBPm GBPm GBPm
------------------------ -------------- -------------- ------------- ----- ----------------
30 June 2017
In arrears 266 71 187 524 21
Performing 424 208 453 1,085 6
------------------------ -------------- -------------- ------------- ----- ----------------
690 279 640 1,609 27
------------------------ -------------- -------------- ------------- ----- ----------------
Proportion of portfolio 0.4% 0.2% 0.4% 1.0%
------------------------ -------------- -------------- ------------- ----- ----------------
31 December 2016
In arrears 293 78 226 597 24
Performing 466 222 481 1,169 7
------------------------ -------------- -------------- ------------- ----- ----------------
759 300 707 1,766 31
------------------------ -------------- -------------- ------------- ----- ----------------
Proportion of portfolio 0.5% 0.2% 0.4% 1.1%
------------------------ -------------- -------------- ------------- ----- ----------------
(1) We base forbearance type on the first forbearance on the
accounts. Tables only show accounts that were open at the
period-end.
30 June 2017 compared to 31 December 2016
At 30 June 2017, the total stock of forbearance reduced by 9% as
a result of a continued improvement in arrears performance and
favourable market conditions.
Other changes in contract terms
At 30 June 2017, there were GBP4.8bn (2016: GBP5.1bn) of other
mortgages on the balance sheet that we have modified since January
2008. We agreed these modifications in order to maintain a good
relationship with the customer. The customers were not showing any
signs of financial difficulty at the time, so did not classify
these changes as forbearance.
We keep the performance and profile of the accounts under
review. At 30 June 2017:
- The average LTV was 34% (2016: 35%) and 95% (2016:
94%) of accounts had made their last six months'
contractual payments
- The proportion of accounts that were 90 days or
more in arrears was 1.50% (2016: 1.57%).
Portfolios of particular interest
For a description of the types of mortgage that have higher risk
or stand out for different reasons, see the 'Credit risk' section
of the Risk review of the 2016 Annual Report.
Portfolios of particular interest loans - credit performance
Portfolio of particular interest(1)
------------------- ----------------------------------------------------------------------
Total Interest-only Part interest-only, Flexible(2) LTV >100% Buy-to-let Other
part repayment portfolio(3)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------- ------- ------------- ------------------- ----------- --------- ---------- -------------
30 June 2017
Mortgage portfolio 154,139 40,174 14,160 15,851 1,690 6,923 92,834
Performing 151,039 38,771 13,734 15,504 1,500 6,891 91,820
Early arrears:
- 31 to 60 days 721 320 96 56 26 8 295
- 61 to 90 days 443 202 59 41 20 6 177
------------------- ------- ------------- ------------------- ----------- --------- ---------- -------------
NPLs 1,936 881 271 250 144 18 542
------------------- ------- ------------- ------------------- ----------- --------- ---------- -------------
NPL ratio 1.26% 2.19% 1.91% 1.58% 8.52% 0.26% 0.58%
------------------- ------- ------------- ------------------- ----------- --------- ---------- -------------
PIPs 32 17 6 4 12 1 7
------------------- ------- ------------- ------------------- ----------- --------- ---------- -------------
31 December 2016
Mortgage portfolio 154,274 41,707 14,535 16,853 1,873 6,648 90,570
Performing 150,895 40,185 14,066 16,472 1,661 6,621 89,483
Early arrears:
- 31 to 60 days 793 360 111 71 33 7 314
- 61 to 90 days 476 224 70 45 22 2 191
------------------- ------- ------------- ------------------- ----------- --------- ---------- -------------
NPLs 2,110 938 288 265 157 18 582
------------------- ------- ------------- ------------------- ----------- --------- ---------- -------------
NPL ratio 1.37% 2.25% 1.98% 1.57% 8.38% 0.27% 0.64%
------------------- ------- ------------- ------------------- ----------- --------- ---------- -------------
PIPs 35 15 7 4 13 1 9
------------------- ------- ------------- ------------------- ----------- --------- ---------- -------------
(1) Where a loan falls into more than one category, we have
included it in all the categories that apply. As a result, the sum
of the mortgages in the segments of particular interest and the
other portfolio does not agree to the total mortgage portfolio.
(2) Includes legacy Alliance & Leicester flexible loans that
work in a more limited way than our current Flexi loan product.
(3) Includes other loans that are not in any segment of
particular interest.
30 June 2017 compared to 31 December 2016
In H117, the value and proportion of interest-only loans
together with part interest-only, part repayment loans reduced,
reflecting our strategy to manage down the overall exposure to this
lending profile. In addition the value and proportion of flexible
mortgages also reduced as they are no longer offered on new
mortgages.
Portfolios of particular interest loans - forbearance
The forbearance started in H117 was GBP161m (H116: GBP192m),
which is in line with the overall reduction seen in flows into
forbearance in H117. We keep the performance and profile of the
accounts under review.
BUSINESS BANKING, CONSUMER FINANCE AND OTHER UNSECURED LING
In H117 business banking lending reduced slightly to GBP2.0bn
(2016: GBP2.3bn), mainly due to the transfer of a number of
business banking customers (associated balances of GBP0.2bn) to
Commercial Banking, where their ongoing needs can be better served.
This followed a periodic review in H117 and the year-end position
has not been amended. The reduction contributed to an increase in
the NPL ratio to 6.05% (2016: 4.70%).
Consumer finance and other unsecured lending balances were
broadly flat at GBP6.9bn (2016: GBP6.8bn) and GBP5.2bn (2016:
GBP5.2bn) respectively, in part as a result of controlled
management actions in an increasingly competitive environment. The
NPL ratios for consumer finance and other unsecured lending
balances were 0.48% (2016: 0.47%) and 1.67% (2016: 1.73%)
respectively. In H117, we reclassified our provisions for residual
value and voluntary termination from the consumer finance
impairment loss allowance. The 31 December 2016 consumer finance
impairment loss allowance of GBP146m and NPL coverage ratio of 456%
were amended to GBP78m and 244% respectively.
At 30 June 2017 forbearance across business banking, consumer
finance and other unsecured lending increased by 6% to GBP179m
(2016: GBP169m).
OTHER SEGMENTS - CREDIT RISK REVIEW
Other segments credit risk - committed exposures
Rating distribution
These tables show our credit risk exposure according to our
internal rating scale (see 'Credit quality' in the 'Santander UK
group level - credit risk review' section of the 2016 Annual
Report) for each portfolio. On this scale, the higher the rating,
the better the quality of the counterparty.
9 8 7 6 5 4 1 to 3 Other(1) Total
(AAA to (A+ to A) (A- to (BBB to (BB+ to (B+ to B) (B- to D)
AA-) BBB+) BBB-) BB-)
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- -------- ---------- ------- -------- -------- ---------- ---------- -------- ------
30 June 2017
Commercial Banking 1,301 1,782 492 9,254 6,862 3,800 594 87 24,172
Global Corporate Banking 1,968 6,092 10,203 9,906 4,824 70 66 - 33,129
Corporate Centre 36,389 3,607 1,059 452 194 63 21 451 42,236
------------------------- -------- ---------- ------- -------- -------- ---------- ---------- -------- ------
31 December 2016
Commercial Banking 1,377 1,611 861 8,678 6,973 3,640 651 131 23,922
Global Corporate Banking 1,668 9,016 9,237 10,090 4,345 56 75 1 34,488
Corporate Centre 39,386 4,638 1,519 583 215 69 63 480 46,953
------------------------- ------ ----- ----- ------ ----- ----- --- --- ------
(1) Consists of smaller exposures mainly in the commercial
mortgage portfolio. We use scorecards for them, instead of a rating
model.
Geographical distribution
We classify geographical location according to country of risk -
in other words, the country where each counterparty has its main
business activity or assets unless there is a full risk transfer
guarantee in place, in which case we use the guarantor's country of
domicile instead. If our clients have operations in many countries,
we use their country of incorporation.
UK Peripheral Rest of US Rest of Total
eurozone Europe World
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- ------ ---------- ------- ----- ------- ------
30 June 2017
Commercial Banking 24,053 24 93 1 1 24,172
Global Corporate Banking 22,108 2,190 5,007 1,032 2,792 33,129
Corporate Centre 31,718 12 2,899 5,145 2,462 42,236
------------------------- ------ ---------- ------- ----- ------- ------
31 December 2016
Commercial Banking 23,782 18 65 57 - 23,922
Global Corporate Banking 22,407 2,374 4,254 1,248 4,205 34,488
Corporate Centre 36,173 5 3,105 4,933 2,737 46,953
------------------------- ------ ----- ----- ----- ----- ------
Portfolio changes
30 June 2017 compared to 31 December 2016
Commercial Banking
In H117, our committed exposures increased, with increased
demand from medium sized corporate customers partially offset by
active management of Commercial Real Estate exposures amid economic
uncertainty:
- Our SME and mid corporate exposures increased to
GBP11.8bn (2016: GBP11.3bn) with growth seen across
all portfolios.
- Our Commercial Real Estate portfolio decreased to
GBP9.3bn (2016: GBP9.5bn) reflecting the impact
of our proactive management of exposures to certain
segments, as well as slower market activity.
- Our Social Housing portfolio remained stable at
GBP3.1bn (2016: GBP3.1bn) as repayments offset new
business and refinancing of longer-dated loans previously
managed in Corporate Centre.
Global Corporate Banking
In H117, our committed exposures decreased, with growth in our
Large Corporate portfolio more than offset by reductions in our
Sovereign and Supranational and Financial Institutions
portfolios:
- Sovereign and Supranational exposures decreased
to GBP4.2bn (2016: GBP5.1bn) driven by reduced holdings
in Japanese Government securities as part of normal
liquid asset portfolio management and short-term
markets trading activity. The portfolio profile
stayed mainly short-term (up to one year), reflecting
the purpose of the holdings. As in 2016, our rest
of world exposures principally comprised of Japan.
- Large Corporate exposures increased to GBP22.0bn
(2016: GBP21.5bn) driven by lending and origination
activities relating to project and acquisition finance
and transactional services, as well as new lending
to a number of our trading corporate customers.
At 30 June 2017, our direct lending committed exposure
to oil and gas customers was GBP1.2bn (2016: GBP1.8bn)
and to mining customers was GBP1.0bn (2016: GBP1.4bn).
At 30 June 2017 credit quality remained broadly
stable but reflected the downgrading of two customers
with exposures of GBP0.6bn from rating band 8 to
rating band 7. The portfolio profile stayed mainly
short to medium-term (up to five years), reflecting
the type of finance we typically provide to support
our clients' needs.
- Exposures in our Financial Institutions portfolio
decreased to GBP6.9bn (2016: GBP7.9bn) due to a
reduction in counterparty credit risk.
Corporate Centre
In H117, committed exposures decreased to GBP42.2bn (2016:
GBP47.0bn), driven by our Sovereign and Supranational portfolio.
Exposures in our Sovereign and Supranational portfolio are mainly
cash at central banks and highly-rated liquid assets we hold as
part of normal liquid asset portfolio management. The decrease in
the overall exposure to GBP30.0bn (2016: GBP34.5bn) was driven by a
reduction in UK deposits.
Other segments - credit performance
We monitor exposures that show potentially higher risk
characteristics using our Watchlist process (described in 'Risk
monitoring' in the 'Credit risk management' section of the 2016
Annual Report). The table below shows the exposures we monitor, and
those we classify as non-performing by portfolio at 30 June 2017
and 31 December 2016:
Committed exposure
------------------------------------ -------------------------------------------------------------- ----------------
Watchlist
Performing Enhanced Proactive Non-performing Total(2) Observed
Monitoring Management exposure(1) impairment loss
GBPm GBPm GBPm GBPm GBPm allowances
GBPm
------------------------------------ ---------- ----------- ----------- -------------- -------- ----------------
30 June 2017
Commercial Banking 22,215 1,077 509 371 24,172 165
Global Corporate Banking 31,775 1,209 59 86 33,129 41
Corporate Centre 42,174 23 13 26 42,236 16
------------------------------------ ---------- ----------- ----------- -------------- -------- ----------------
Total observed impairment loss
allowances 222
------------------------------------ ---------- ----------- ----------- -------------- -------- ----------------
Allowance for IBNO(3) 89
----------------
Total impairment loss allowances 311
------------------------------------ ---------- ----------- ----------- -------------- -------- ----------------
31 December 2016
Commercial Banking 21,810 1,192 380 540 23,922 183
Global Corporate Banking 33,486 861 72 69 34,488 33
Corporate Centre 46,687 184 9 73 46,953 31
------------------------------------------ ------ ----- --- --- ------ ---
Total observed impairment loss allowances 247
------------------------------------------ ------ ----- --- --- ------ ---
Allowance for IBNO(3) 91
---
Total impairment loss allowances 338
------------------------------------------ ------ ----- --- --- ------ ---
(1) Non-performing exposure includes committed facilities and
derivative exposures.
(2) Includes committed facilities and derivatives. We define
'Enhanced Monitoring' and 'Proactive Management' in the 'Risk
monitoring' section of the 2016 Annual Report.
(3) Allowance for IBNO losses as described in Note 1 to the
Consolidated Financial Statements of the 2016 Annual Report.
30 June 2017 compared to 31 December 2016
Commercial Banking
In our SME and mid corporate portfolio, exposures subject to
enhanced monitoring reduced to GBP712m (2016: GBP892m), whilst
exposures subject to proactive management increased to GBP425m
(2016: GBP331m), primarily driven by the addition of a large
trading customer. Non-performing exposures reduced to GBP286m
(2016: GBP361m) due to successful exits on two larger cases.
In our Commercial Real Estate portfolio, exposures subject to
enhanced monitoring increased to GBP257m (2016: GBP161m) primarily
due to our prudent policy for facilities approaching maturity where
refinance is being finalised and exposures subject to proactive
management increased to GBP84m (2016: GBP49m). Non-performing
exposures reduced to GBP85m (2016: GBP179m) primarily driven by the
full repayment of a loan of GBP50m that moved to non-performance in
2016. The portfolio remains well covered with an NPL coverage ratio
of 63% and low write-offs of GBP7m.
In our Social Housing portfolio, exposures subject to enhanced
monitoring reduced to GBP108m (2016: GBP139m).
Global Corporate Banking
In our Large Corporate portfolio, exposures subject to enhanced
monitoring remained stable at GBP656m (2016: GBP659m). Exposures
subject to proactive management decreased to GBP58m (2016: GBP70m).
Non-performing exposures increased to GBP86m (2016: GBP69m) due to
the movement of a single exposure to non-performing.
In our Financial Institutions portfolio, exposures subject to
enhanced monitoring increased to GBP553m (2016: GBP202m) due to the
redrawing of a secured loan transaction by an existing Watchlist
customer. This loan is over-collateralised with high quality assets
and is puttable on a quarterly basis.
Corporate Centre
In our Legacy Portfolios in run-off portfolio, non-performing
exposures reduced to GBP26m (2016: GBP73m) driven by the sale of a
shipping asset.
In our Social Housing portfolio, there were no exposures subject
to enhanced monitoring (2016: GBP164m) due to the resolution of
governance issues that had impacted two customers.
Other segments - forbearance
We only make forbearance arrangements for lending to
customers.
Commercial Global Corporate
Banking Corporate Centre
Banking
GBPm GBPm GBPm
----------------------------- ---------- ---------- ---------
30 June 2017
Stock(1)
- Term extension 131 58 -
- Interest-only 145 - 17
- Other payment rescheduling 146 10 14
------------------------------- ---------- ---------- ---------
422 68 31
----------------------------- ---------- ---------- ---------
Of which:
- Non-performing 281 60 14
- Performing 141 8 17
------------------------------- ---------- ---------- ---------
422 68 31
----------------------------- ---------- ---------- ---------
Proportion of portfolio 1.7% 0.2% 2.8%
------------------------------- ---------- ---------- ---------
31 December 2016
Stock(1)
- Term extension 168 11 1
- Interest-only 158 - 20
- Other payment rescheduling 208 10 16
------------------------------- ---- ---- ----
534 21 37
----------------------------- ---- ---- ----
Of which:
- Non-performing 344 10 15
- Performing 190 11 22
------------------------------- ---- ---- ----
534 21 37
----------------------------- ---- ---- ----
Proportion of portfolio 2.2% 0.1% 2.7%
------------------------------- ---- ---- ----
(1) We base forbearance type on the first forbearance we
applied. Tables only show accounts open at the period end.
30 June 2017 compared to 31 December 2016
Commercial Banking
At 30 June 2017, the cumulative forbearance stock reduced to
GBP422m (2016: GBP534m). This decrease was mainly due to the
successful resolution of NPL cases in the period and one performing
case exiting forbearance according to defined criteria.
The accounts in forbearance as a percentage of the portfolio
reduced to 1.7% (2016: 2.2%). At 30 June 2017, 78% (2016: 78%) of
the cumulative forbearance stock had entered forbearance before
default.
Global Corporate Banking
At 30 June 2017, there were three forborne cases totalling
GBP68m (2016: two cases totalling GBP21m), of which GBP60m (2016:
GBP10m) was classified as NPL. This increase in forbearance was
driven from one deal that was classified as NPL in 2016.
Corporate Centre
At 30 June 2017 and 2016, we had only made forbearance
arrangements for the Legacy Portfolios in run-off.
At 30 June 2017, the cumulative forbearance stock in our Legacy
Portfolios in run-off decreased slightly to GBP31m (2016:
GBP37m).
PORTFOLIOS OF PARTICULAR INTEREST
Commercial Real Estate
Commercial Real Estate - credit performance
The table below shows the main Commercial Real Estate credit
performance metrics at 30 June 2017 and 31 December 2016:
Customer loans(1) NPLs(2) NPL ratio NPL coverage(3) Gross write-offs Impairment
loss allowances
GBPbn GBPm % % GBPm GBPm
----------------- ----------------- ------- --------- --------------- ---------------- ----------------
30 June 2017 8.7 92 1.06 63 7 58
31 December 2016 9.0 180 2.00 32 1 58
----------------- ----------------- ------- --------- --------------- ---------------- ----------------
(1) Comprises commercial real estate drawn loans in the business
banking portfolio of our Retail Banking segment of GBP284m (2016:
GBP365m) and in the Commercial Real Estate portfolio of our
Commercial Banking segment of GBP8,457m (2016: GBP8,678m).
(2) All NPLs continue accruing interest.
(3) Impairment loss allowances as a percentage of NPLs.
Impairment loss allowances relate to early arrears and performing
assets (i.e. the IBNO provision) as well as NPLs, so the ratio can
exceed 100%.
30 June 2017 compared to 31 December 2016
At 30 June 2017, our NPL ratio was 1.06% (2016: 2.00%)
reflecting our conservative credit risk policy. The reduction in
the ratio was driven by the full repayment of a GBP50m loan that
had moved to non-performance in 2016, alongside other repayments
and the write off of some smaller pre-2009 vintage cases.
Commercial Real Estate loans written before 2009 totalled GBP468m
(2016: GBP543m). The pre-2009 loans were written on market terms
which, compared with more recent times and following a significant
tightening in our lending criteria, included higher original LTVs,
lower interest coverage and exposure to development risk.
Commercial Real Estate - LTV analysis
The tables below show LTVs (based on the drawn balance and our
latest estimate of the property's current value) at 30 June 2017
and 31 December 2016:
Loans and advances to customers 30 June 2017 31 December 2016
-------------- ------------------
GBPm % GBPm %
-------------------------------- -------- ---- ---------- ------
<=70% 7,702 88 7,886 88
>70-100% 89 1 194 2
>100% i.e. negative equity 41 - 88 1
Standardised portfolio(1) 687 8 652 7
-------------------------------- -------- ---- ---------- ------
Total with collateral 8,519 97 8,820 98
Development loans 222 3 223 2
-------------------------------- -------- ---- ---------- ------
8,741 100 9,043 100
-------------------------------- -------- ---- ---------- ------
(1) Consists of smaller value transactions, mainly commercial mortgages.
Commercial Real Estate - sector analysis
The table below shows the sector analysis of the portfolio at 30
June 2017 and 31 December 2016:
Sector 30 June 2017 31 December 2016
GBPm % GBPm %
-------------------------- -------- ---- ---------- ------
Office 2,164 25 2,359 26
Retail 1,668 19 1,739 19
Industrial 1,276 15 1,274 14
Residential 1,012 11 1,016 11
Mixed use 1,196 14 1,184 13
Student accommodation 216 2 224 3
Hotels and leisure 353 4 389 5
Other 169 2 206 2
Standardised portfolio(1) 687 8 652 7
-------------------------- -------- ---- ---------- ------
8,741 100 9,043 100
-------------------------- -------- ---- ---------- ------
(1) Consists of smaller value transactions, mainly commercial mortgages.
30 June 2017 compared to 31 December 2016
The Commercial Real Estate portfolio of GBP8,741m (2016:
GBP9,043m) is well diversified across sectors, with no significant
regional or single name concentration, representing 31% (2016: 33%)
of our total lending to corporates and 4% (2016: 4%) of total
customer loans. At 30 June 2017, the LTV profile of the portfolio
remained conservative with GBP7,702m (2016: GBP7,886m) of the
non-standardised portfolio assets at or below 70% LTV. Loans with
development risk were only 3% (2016: 2%) of the total Commercial
Real Estate portfolio. Development lending is typically on a
non-speculative basis with significant pre-lets in place and/or
pre-sales in place.
In H117, no new business was written above 70% LTV (H116: nil),
and 83% (H116: 96%) was written at or below 60% LTV. At 30 June
2017, the average LTV of the non-standardised portfolio, weighted
by exposure, was 49% (2016: 50%). The weighted average LTV of new
deals, which excludes the standardised portfolio, in H117 was 50%
(2016: 48%). The average loan balance at 30 June 2017 remains at
GBP4.8m (2016: GBP4.8m).
Commercial Real Estate - refinancing risk
For Commercial Real Estate loans approaching maturity, we look
at the prospects of refinancing the loan on current market terms
and applicable credit policy. Where this seems unlikely we put the
case on our Watchlist. At 30 June 2017, Commercial Real Estate
loans of GBP1,340m (2016: GBP1,408m) were due to mature within 12
months. Of these, GBP51m, i.e. 4% (2016: GBP161m, i.e. 11%), had an
LTV ratio higher than is acceptable under our current credit
policy. At 30 June 2017, all of this (2016: GBP149m) had been put
on our Watchlist or recorded as NPL and had an impairment loss
allowance of GBP24m (2016: GBP31m).
Market risk
Overview Key metrics
Market risk management
In H117, there
were no significant
changes in the
way we manage
market risk as
described in the
2016 Annual Report.
- NIM sensitivity
to +50bps was
GBP241m and to
-50bps was GBP(114)m
(2016: GBP240m
and GBP(82)m)
Market risk review
In this section
we analyse our
key trading and
banking market
risk metrics.
Economic Value
of Equity (EVE)
sensitivity to
+50bps was GBP159m
and to -50bps
was GBP(270)m
(2016: GBP54m
and GBP(30)m)
Trading market risk review
VaR
This table shows our Internal VaR for exposure to each of the
main classes of risk at 30 June 2017 and 31 December 2016. The VaR
figures show how much the fair values of all our tradeable
instruments could have changed. Since trading instruments are
recorded at fair value, these are also the amounts by which they
could have increased or reduced our net income.
Trading instruments Period-end exposure Average exposure Highest exposure Lowest exposure
---------------------- --------------------- -------------------- ------------------------- --------------------
30 June 31 December 30 June 31 December 30 June 31 December 30 June 31 December
2017 2016 2017 2016 2017 2016 2017 2016
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- -------- ----------- ------- ----------- ------------ ----------- ------- -----------
Interest rate risks(1) 3.4 2.9 2.3 2.5 3.4 3.6 1.8 1.7
Equity risks(2) 0.4 1.4 1.0 0.9 2.0 1.5 0.2 0.6
Credit (spread) - - - - - - - -
risks(3)
Foreign exchange risks 0.2 1.5 0.6 1.4 1.6 2.2 - 0.1
---------------------- -------- ----------- ------- ----------- ------------ ----------- ------- -----------
Correlation offsets(4) (0.7) (2.3) (1.2) (2.0) - - - -
---------------------- -------- ----------- ------- ----------- ------------ ----------- ------- -----------
Total correlated
one-day VaR 3.3 3.5 2.7 2.8 3.7 3.6 2.0 1.7
---------------------- -------- ----------- ------- ----------- ------------ ----------- ------- -----------
(1) This measures the effect of changes in interest rates and
how volatile they are. The effects are on cash instruments,
securities and derivatives. This includes swap spread risk (the
difference between swap rates and government bond rates), basis
risk (changes in interest rate tenor basis) and inflation risk
(changes in inflation rates).
(2) This measures the effect of changes in equity prices,
volatility and dividends on stock and derivatives.
(3) This measures the effect of changes in the credit spread of
corporate bonds and credit derivatives.
(4) The highest and lowest exposures for each risk type did not
necessarily happen on the same day as the highest and lowest total
correlated one-day VaR. It is impossible to calculate a
corresponding correlation offset effect, so we have not included it
in the table.
BANKING market risk review
Interest rate risk
Yield curve risk
The table below shows how our base case income and valuation
would be affected by a 50 basis point parallel shift (both upwards
and downwards) applied instantaneously to the yield curve at 30
June 2017 and 31 December 2016.
30 June 2017 31 December 2016
-------------- ------------------
+50bps -50bps +50bps -50bps
GBPm GBPm GBPm GBPm
---------------- ------ ------ -------- --------
NIM sensitivity 241 (114) 240 (82)
EVE sensitivity 159 (270) 54 (30)
---------------- ------ ------ -------- --------
30 June 2017 compared to 31 December 2016
There was no significant change in the underlying risk position
in H117. The movement in NIM and EVE sensitivities in H117 was
largely due to changes in our underlying models used for risk
measurement purposes. The models have been updated to better
reflect the risks inherent in the current low interest rate
environment, including the possibility of negative interest rates
in the UK.
Liquidity risk
Overview Key metrics
Liquidity risk
management
In H117, there
were no significant
changes in the
way we manage
liquidity risk
as described in
the 2016 Annual
Report.
- LCR was 133%
(2016: 139%)
Liquidity risk
review
In this section
we analyse our
Liquidity Coverage
Ratio (LCR) and
our wholesale
funding profile.
We also provide
details on asset
encumbrance.
LCR eligible
liquidity pool
was GBP50.1bn
(2016: GBP50.7bn)
on a carrying
value basis
liquidity risk review
Liquidity Coverage Ratio and eligible liquidity pool
This table shows our LCR, and Liquidity Risk Appetite (LRA)
reflecting the stress testing methodology in place at that
time.
LCR LRA(1)
---------------------------------------------------------------------- -------------------- --------------------
30 June 31 December 30 June 31 December
2017 2016 2017 2016
GBPbn GBPbn GBPbn GBPbn
---------------------------------------------------------------------- ------- ----------- ------- -----------
Eligible liquidity pool (liquidity value) 48.5 50.1 44.4 45.2
Net stress outflows (36.5) (36.0) (27.4) (27.3)
---------------------------------------------------------------------- ------- ----------- ------- -----------
Surplus 12.0 14.1 17.0 17.9
---------------------------------------------------------------------- ------- ----------- ------- -----------
Eligible liquidity pool as a percentage of anticipated net cash flows 133% 139% 162% 166%
---------------------------------------------------------------------- ------- ----------- ------- -----------
(1) The LRA is a two-month Santander UK specific
requirement.
At 30 June 2017, the value of the assets in our LCR eligible
liquidity pool was GBP50.1bn (2016: GBP50.7bn) on a carrying value
and GBP48.5bn (2016: GBP50.1bn) on a liquidity value.
30 June 2017 compared to 31 December 2016
Our LCR was 133% (2016: 139%), reflecting prudent liquidity
planning, partially offset by the EU adoption of Regulatory
Technical Standards for assessing additional collateral outflows on
derivative contracts. Our LCR eligible liquidity pool significantly
exceeded wholesale funding of less than one year, with a coverage
ratio of 269% at 30 June 2017 (2016: 237%). Under our current
interpretation, the NSFR stayed above 100% throughout H117 and
FY16.
OUR Funding strategy and structure
Deposit funding
Our Retail Banking and Commercial Banking activities are mostly
funded by customer deposits. The rest is funded through wholesale
markets.
Wholesale funding
Maturity profile of wholesale funding
This table shows our main sources of wholesale funding. It does
not include securities financing repurchase and reverse repurchase
agreements. The table is based on exchange rates at issue and
scheduled repayments. It does not reflect the final contractual
maturity of the funding.
<=1 month >1 and >3 and >6 and >9 and Sub-total >1 and >2 and >5 years Total
<=3 <= 6 <=9 <=12 <=1 year <=2 years <=5 years
months months months months
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
--------------- --------- --------- -------- --------- -------- --------- --------- --------- -------- -----
30 June 2017
Downstreamed from Santander UK Group Holdings plc to
Santander UK plc(1)
Senior
unsecured -
public
benchmark - - - - - - - 3.8 1.5 5.3
Senior
unsecured -
privately
placed - - - - - - - - 0.1 0.1
Subordinated
liabilities
and equity
(inc. AT1) - - - - - - 0.5 1.1 1.5 3.1
--------------- --------- --------- -------- --------- -------- --------- --------- --------- -------- -----
- - - - - - 0.5 4.9 3.1 8.5
--------------- --------- --------- -------- --------- -------- --------- --------- --------- -------- -----
Other Santander
UK plc
Deposits by
banks - 0.1 0.2 - - 0.3 - - - 0.3
Senior
unsecured -
public
benchmark - 0.9 - 0.8 - 1.7 3.7 4.8 1.4 11.6
Senior
unsecured -
privately
placed - 0.4 0.2 0.6 - 1.2 0.9 0.5 0.2 2.8
Covered bonds - - 1.5 0.9 0.9 3.3 - 7.8 3.3 14.4
Securitisation
and structured
issuance(2) 1.4 - 0.9 - 0.4 2.7 1.3 1.0 - 5.0
Term Funding
Scheme - - - - - - - 7.5 - 7.5
Subordinated
liabilities - - - 0.1 - 0.1 0.1 - 2.4 2.6
--------------- --------- --------- -------- --------- -------- --------- --------- --------- -------- -----
1.4 1.4 2.8 2.4 1.3 9.3 6.0 21.6 7.3 44.2
--------------- --------- --------- -------- --------- -------- --------- --------- --------- -------- -----
Other group
entities
Deposits by
banks 0.7 0.4 - - - 1.1 - - - 1.1
Certificates of
deposit and
commercial
paper 2.2 3.0 1.5 0.6 0.3 7.6 - - - 7.6
Senior
unsecured -
privately
placed - - - - - - 0.1 0.5 0.4 1.0
Securitisation
and structured
issuance(3) 0.1 0.1 0.2 0.1 0.1 0.6 0.7 0.3 - 1.6
--------------- --------- --------- -------- --------- -------- --------- --------- --------- -------- -----
3.0 3.5 1.7 0.7 0.4 9.3 0.8 0.8 0.4 11.3
--------------- --------- --------- -------- --------- -------- --------- --------- --------- -------- -----
Total at 30
June 2017 4.4 4.9 4.5 3.1 1.7 18.6 7.3 27.3 10.8 64.0
--------------- --------- --------- -------- --------- -------- --------- --------- --------- -------- -----
Of which: -
secured 1.5 0.1 2.6 1.0 1.4 6.6 2.0 16.6 3.3 28.5
Of which: -
unsecured 2.9 4.8 1.9 2.1 0.3 12.0 5.3 10.7 7.5 35.5
--------------- --------- --------- -------- --------- -------- --------- --------- --------- -------- -----
Total at 31
December 2016 6.5 4.6 3.4 3.8 3.1 21.4 7.0 24.0 12.8 65.2
--------------- --------- --------- -------- --------- -------- --------- --------- --------- -------- -----
Of which: -
secured 2.1 0.6 2.1 1.6 2.5 8.9 4.0 11.7 4.7 29.3
Of which: -
unsecured 4.4 4.0 1.3 2.2 0.6 12.5 3.0 12.3 8.1 35.9
--------------- --------- --------- -------- --------- -------- --------- --------- --------- -------- -----
(1) Currently all our senior debt issued out of Santander UK
Group Holdings plc is downstreamed into Santander UK plc on an
equivalent rankings basis (e.g. senior unsecured is downstreamed as
senior unsecured, subordinated capital instruments are downstreamed
as subordinated capital instruments, etc.). However, under the
end-state MREL / TLAC regime, senior unsecured debt issued out of
Santander UK Group Holdings plc will be downstreamed in a form that
is subordinated to senior unsecured debt, but senior to
subordinated capital instruments issued out of Santander UK
plc.
(2) This includes funding from mortgage-backed securitisation
vehicles where Santander UK plc is the asset originator.
(3) This includes funding from asset-backed securitisation
vehicles where entities other than Santander UK plc are the asset
originator.
Term issuance
In H117, our external term issuance (sterling equivalent)
was:
Sterling US Dollar Euro Other Total H117 Total H116
GBPbn GBPbn GBPbn GBPbn GBPbn GBPbn
------------------------------------------------------- -------- --------- ------ ------ ---------- ----------
Downstreamed from Santander UK Group Holdings plc to Santander UK
plc
Senior unsecured - public benchmark - 0.8 0.4 - 1.2 1.2
Senior unsecured - privately placed - - - 0.1 0.1 -
Subordinated debt and equity (including AT1 issuance) 0.5 - - - 0.5 -
------------------------------------------------------- -------- --------- ------ ------ ---------- ----------
0.5 0.8 0.4 0.1 1.8 1.2
------------------------------------------------------- -------- --------- ------ ------ ---------- ----------
Other Santander UK plc
Securitisations - - - - - 0.6
Covered bonds 1.0 - - - 1.0 -
Term Funding Scheme 3.0 - - - 3.0 -
------------------------------------------------------- -------- --------- ------ ------ ---------- ----------
4.0 - - - 4.0 0.6
------------------------------------------------------- -------- --------- ------ ------ ---------- ----------
Other group entities
Securitisations - - - - - 0.5
Covered bonds - - - - - 0.8
Senior unsecured - public benchmark - - - - - 1.4
Senior unsecured - privately placed 0.1 - - - 0.1 1.0
------------------------------------------------------- -------- --------- ------ ------ ---------- ----------
0.1 - - - 0.1 3.7
------------------------------------------------------- -------- --------- ------ ------ ---------- ----------
Total gross issuances 4.6 0.8 0.4 0.1 5.9 5.5
------------------------------------------------------- -------- --------- ------ ------ ---------- ----------
H117 presented a positive market environment for issuance
despite the continuing backdrop of global geo-political tensions
and other political issues causing intermittent volatility. Any
concerns around events such as the French and UK elections and
Brexit negotiations were quickly shrugged off by the market.
Equities proved resilient and remained high, the Bank of England
and the European Central Bank kept their broader monetary policy
unchanged and we continued to see robust performance of credit
markets across the capital structure. In April 2017 we took
advantage of the strong market appetite for higher risk products
and issued GBP500m of Perpetual Capital Securities to our immediate
parent.
In H117, our total term funding was GBP5.9bn (H116: GBP5.5bn),
of which GBP2.4bn (H116: GBP5.5bn) was medium-term issuance, and
maturities were GBP6.3bn (H116: GBP5.5bn). We drew down a further
GBP3.0bn from the Term Funding Scheme in the period, with a total
drawdown outstanding of GBP7.5bn (2016: GBP4.5bn). At 30 June 2017
the total drawdowns of UK Treasury Bills under the Funding for
Lending Scheme remained at GBP3.2bn (2016: GBP3.2bn). At 30 June
2017, 71% (2016: 67%) of wholesale funding had a maturity over one
year, with an overall residual duration of 42 months (2016: 41
months).
Encumbrance
Encumbrance of customer loans and advances
We have issued prime retail mortgage-backed and other
asset-backed securitised products to a diverse investor base
through our mortgage-backed and other asset-backed funding
programmes. For more on this, see Notes 11 and 19 to the Condensed
Consolidated Interim Financial Statements.
We have raised funding with mortgage-backed notes, both issued
to third parties and retained (the latter being central bank
eligible collateral for funding purposes in other Bank of England
facilities), and other asset-backed notes. We also have a covered
bond programme. Under this, we issue securities to investors
secured by a pool of residential mortgages.
30 June 2017 compared to 31 December 2016
Our level of encumbrance from external and internal issuance of
securitisations and covered bonds decreased in H117 as planned.
This reflected greater maturities than new issues in the period. We
expect our overall level of encumbrance to continue to decrease in
H217.
Credit ratings
Independent credit rating agencies review our creditworthiness.
They base their work on a wide range of business and financial
attributes. These include risk management, capital strength,
earnings, funding, liquidity, accounting and governance.
Senior unsecured Outlook Short-term Stand alone
----------------- ---------------- -------- ---------- -----------
30 June 2017
Standard & Poor's A Negative A-1 bbb+
Moody's Aa3 Negative P-1 a3
Fitch A Stable F-1 baa1
----------------- ---------------- -------- ---------- -----------
30 June 2017 compared to 31 December 2016
Standard & Poor's affirmed our long and short-term ratings
and maintained a negative outlook for various UK banks due to
continued economic uncertainty. Fitch also affirmed our long-term
credit rating, with the outlook changed to stable from positive, as
a result of the weaker prospects for the banking sector following
the results of the UK referendum on EU membership. There was no
rating agency action by Moody's in H117.
Capital risk
Overview Key metrics
Capital risk management
In H117, there
were no significant
changes in the
way we manage
capital risk as
described in the
2016 Annual Report.
The scope of our
capital adequacy
We set out below
a brief update
on emerging regulation.
- CET1 capital
ratio was 12.1%
(2016: 11.6%)
Capital risk review - Total capital
We then analyse resources were
our capital resources GBP 17.1bn (2016:
and key capital GBP16.2bn)
ratios.
THE SCOPE OF OUR CAPITAL ADEQUACY
Regulatory supervision
30 June 2017 compared to 31 December 2016
In March 2017, the Bank of England confirmed Santander UK's
non-binding Minimum Requirements for Eligible Liabilities (MREL).
The indicative requirements (excluding any CET1 combined buffer
requirements) equate to 6% of leverage exposures from 1 January
2019, 20.9% of RWAs from 1 January 2020 and 25.9% of RWAs from 1
January 2022.
These requirements are in line with our expectations, and may
change at the end of the transitional period. We plan to meet the
MREL largely through the issuance of senior unsecured debt from our
holding company. This debt will then be downstreamed to the
operating company in a compliant form. We have made good progress,
with GBP5.6bn of senior unsecured debt issued from our holding
company to date (H117: GBP1.3bn).
In June 2017, the FPC increased the UK countercyclical capital
buffer from 0% to 0.5%, with binding effect from 27 June 2018. The
FPC also expects to increase the buffer to 1% at its meeting in
November 2017, with a 12 month implementation period absent any
material change in the macroeconomic outlook.
CAPITAL RISK REVIEW
Capital resources
Key capital ratios
The tables below are consistent with our regulatory filings for
30 June 2017 and 31 December 2016. Our key capital ratios were:
30 June 2017 31 December 2016
% %
--------------------- ------------ ----------------
CET1 capital ratio 12.1 11.6
AT1 2.3 1.8
Grandfathered Tier 1 0.9 0.8
Tier 2 4.3 4.3
------------------------- ------------ ----------------
Total capital ratio 19.6 18.5
------------------------- ------------ ----------------
The total subordination available to Santander UK plc
bondholders was 19.6% (2016: 18.5%) of RWAs.
30 June 2017 compared to 31 December 2016
We complied with the PRA's capital adequacy rules throughout
H117 and FY16.
The CET1 capital ratio of 12.1% (2016: 11.6%) improved by 50bps
in H117, with stable profit and lower RWAs, which fell by GBP0.4bn
to GBP87.2bn (2016: GBP87.6bn). The UK leverage ratio increased by
30bps to 4.4% (2016: 4.1%), with higher CET1 capital and the
issuance of GBP500m of Perpetual Capital Securities that were
priced in March 2017 with the transaction settling in April
2017.
Our total capital ratio increased to 19.6% at 30 June 2017
(2016: 18.5%), which also reflected the impact of higher CET1
capital and the Perpetual Capital Securities issuance. These were
partially offset by the transitional reduction in the recognition
of Tier 1 and Tier 2 capital instruments issued by Santander UK plc
under the CRD IV Minority Interest rules, which are being phased in
at 20% increments over a five year period.
Regulatory capital resources
The table below is consistent with our regulatory filings for 30
June 2017 and 31 December 2016. We manage our capital on a CRD IV
basis. During H117 and FY16, we held capital over and above our
regulatory requirements, and managed internal capital allocations
and targets in accordance with our capital and risk management
policies.
Analysis of regulatory capital
This table provides an analysis of our regulatory capital.
30 June 2017 31 December 2016
GBPm GBPm
------------------------------------------- ------------ ----------------
CET1 capital before regulatory adjustments 14,586 14,285
------------------------------------------- ------------ ----------------
Total regulatory adjustments to CET1 (3,999) (4,084)
------------------------------------------- ------------ ----------------
CET1 capital 10,587 10,201
------------------------------------------- ------------ ----------------
AT1 capital 2,744 2,271
------------------------------------------- ------------ ----------------
Tier 1 capital 13,331 12,472
------------------------------------------- ------------ ----------------
Tier 2 capital 3,741 3,772
------------------------------------------- ------------ ----------------
Total regulatory capital 17,072 16,244
------------------------------------------- ------------ ----------------
Other key risks
Overview Key metrics
Other key risks
In H117, there
were no significant
changes in the
way we manage
and monitor other
key risks, as
described in the
2016 Annual Report,
except as set
out below.
- Pension Deficit
at Risk was GBP1,460m
(2016: GBP1,688m)
- PPI provision
was GBP405m (2016:
In this section, - GBP457m)
we discuss pension
risk, conduct Operational risk
risk, operational losses were GBP40m
risk and financial in H117 (H116:
crime risk. GBP40m)
PENSION RISK
30 June 2017 compared to 31 December 2016
Risk monitoring and measurement
The funding Deficit at Risk decreased to GBP1,460m (2016:
GBP1,688m). In H117 the Scheme implemented additional equity
hedging as a part of a review of the corporate trustee investment
strategy.
At 30 June 2017, the interest rate hedging ratio on a funding
basis was 55% (2016: 56%) and on an accounting basis was 70% (2016:
72%). The inflation rate hedging ratio of the Scheme on a funding
basis was 61% (2016: 62%) and on an accounting basis was 93% (2016:
94%).
We continue to focus on achieving the right balance between risk
and reward. In H117, overall asset returns were marginally
positive. Our long-term objective is to reduce the risk of the
Scheme and eliminate the deficit on a funding valuation basis.
Triennial funding valuation
The 31 March 2016 triennial funding valuation was concluded in
early 2017. Santander UK plc has committed to continue to fund the
Scheme at the current rate with the recovery plan extended for a
further three years. In addition Santander UK plc has committed to
make contingent contributions if the investment performance is
lower than expected.
Accounting position
During H117, the accounting surplus of the Scheme and other
funded arrangements increased to GBP319m (2016: GBP175m). In
addition, there were unfunded defined benefit scheme liabilities of
GBP39m at 30 June 2017 (2016: GBP39m). The improvement in the
overall position was due to a decrease in liabilities caused mainly
by a fall in implied inflation which reduced the value of future
pension payments, together with ongoing deficit contributions and
positive asset performance. This was partially offset by a fall in
corporate bond yields, reducing the rate used to discount future
pension obligations.
For more on our pension obligations, including the current asset
allocation, see Note 16 to the Condensed Consolidated Interim
Financial Statements.
CONDUCT RISK
30 June 2017 compared to 31 December 2016
In H117 we continued to build on progress made in 2016. This
included:
- Assessing views and new policy areas set out in
the FCA's Business Plan and Mission Statement and
building these into our business planning, controls
and oversight activities
- Improving our framework and guidance for how we
support vulnerable customers, including ageing customers
- Enhancing management information to help us identify
forward-looking risks earlier and analysing internal
and external developments to capture lessons learnt
- Carrying out face to face training in addition to
mandatory modules to aid colleagues on topical areas
of conduct risk
- Creating a new conduct and compliance centre of
excellence within our legal and regulatory division
- Refining and improving our product approval process.
On an ongoing basis, our conduct risk dashboards provide a
granular view of how our products and services are performing for
customers. They continue to help senior management oversee and
measure conduct risk across the business and to take action where
necessary.
Our business units continue to assess the potential customer,
client and market impacts of structural reform as part of our
ring-fencing programme.
PPI provisions
The remaining provision for PPI redress and related costs
amounted to GBP405m (2016: GBP457m). In Q117, we made an additional
provision of GBP32m relating to the final FCA rules and guidance
published in March 2017. We also provided a net charge of GBP37m in
Q217, following a review of claims handling procedures in relation
to a specific PPI portfolio including the impact of a past business
review.
In line with our assumptions, monthly utilisation increased from
the 2016 average following the confirmation of a deadline for
customer complaints. We will continue to monitor our provision
levels in respect of recent claims experience.
Other conduct provisions
The remaining non-PPI related conduct provisions amounted to
GBP51m including an additional provision of GBP35m in Q217,
relating to the sale of interest rate derivatives. This charge
follows an ongoing review regarding regulatory classification of
certain customers eligible for redress.
For more on our provision for conduct remediation, including
sensitivities, see Note 15 to the Condensed Consolidated Interim
Financial Statements. We explain more about these sensitivities in
'Critical accounting policies and areas of significant management
judgement' in Note 1 to the Consolidated Financial Statements in
the 2016 Annual Report.
OPERATIONAL RISK
30 June 2017 compared to 31 December 2016
Operational losses
In H117 operational losses for reportable events with an impact
greater than GBP10,000, and excluding conduct risk events, totalled
GBP40m (H116: GBP40m). Losses relating to 'Execution, delivery, and
process management' include historic systems functionality and
process issues. Consistent with industry experience, we continued
to see a high volume of low value events in the 'External fraud'
category which primarily related to card and online payment
fraud.
Operational Risk Transformation Programme
We have made a number of operational risk enhancements as part
of a final year of investment to embed the programme into business
as usual. Our focus in H217 is to demonstrate effective operational
risk management to the regulators.
Cyber security
In H117, in common with other large UK financial institutions
and other organisations, we continued to be subject to
cyber-attacks but have suffered no significant events. We are
continually improving our systems, processes, controls and staff
training to reduce cyber risk and to help protect our customers,
systems and information. Our Cyber Resilience Programme operates
with a layered defence approach, continually evolving and adapting
to cyber threats.
We have increased our resources and are leveraging connections
with Banco Santander's Cyber Security Operations Centre. Together
with our world-class data centres, this provides us with a solid
foundation to enable our digital transformation and support future
growth within an environment of improved cyber resilience and with
a reduction in legacy technology issues. For more on this, see the
case study on cyber security in the 'Risk review' section within
the 2016 Annual Report.
Scams
We are very sympathetic to customers who are victims of fraud
and welcome all initiatives by the industry and the media to help
raise awareness of this important issue. We invest substantial
resources to protect customers and in trying to prevent fraud. Our
dedicated fraud experts work to identify, prevent and detect scams,
warn and notify customers, and use robust technology in our
customer protection systems. We continually invest in the fight to
counter increasingly sophisticated scams, we run an ongoing
customer education campaign and we offer tips and advice on our
online security centre - www.santander.co.uk/securitycentre. Our
efforts are successful in preventing the vast majority of fraud and
protecting customers' money.
FINANCIAL CRIME risk
30 June 2017 compared to 31 December 2016
In H117, we continued to implement our Financial Crime
Transformation Programme and to address the requirements of new
regulation, including the fourth money laundering directive. This
was specifically around the following:
- Governance: we simplified governance by consolidating
the financial crime forums for Commercial Banking
and Global Corporate Banking. We also continued
to raise the profile of financial crime through
continued briefings to management and Board committees
- Systems and controls: we enhanced our payment screening
to align it to the new EU Funds Transfer Regulation
2, and we introduced an Executive Committee sponsored
programme to accelerate key control improvements
across Commercial Banking and Global Corporate Banking
- Policies: we introduced new AML and sanctions policies
and standards, reflecting new laws and regulations,
and we began to implement the changes. We also launched
an updated anti-bribery and corruption action plan
- Training, culture and awareness: we developed and
approved an enhanced financial crime training strategy,
with a strong focus on anti-financial crime culture,
improved management information and anti-bribery
and corruption. It contains modules to address the
needs of high priority financial crime functions
and specific business areas (anti-bribery and corruption,
trade finance and sanctions compliance). We have
also designed financial crime awareness events for
implementation in early H217.
- Operations: we continued to enhance our intelligence
and risk assessment capabilities including further
investment in our Financial Intelligence Unit and
improved country risk assessment. We also continued
to improve our partnership with public authorities
such as through the Joint Money Laundering Intelligence
Task Force.
- Resources: we remain focused on ensuring we have
the right number and quality of resources supporting
our financial crime initiatives.
Financial statements
33 Independent review report
--- ----------------------------------------
34 Primary financial statements
--- ----------------------------------------
34 Consolidated Income Statement
--- ----------------------------------------
34 Consolidated Statement of Comprehensive
Income
--- ----------------------------------------
35 Consolidated Balance Sheet
--- ----------------------------------------
36 Consolidated Cash Flow Statement
--- ----------------------------------------
37 Consolidated Statement of Changes
in Equity
--- ----------------------------------------
38 Notes to the financial statements
--- ----------------------------------------
Independent review report to Santander UK plc
Report on the Condensed Consolidated Interim Financial
Statements
Our conclusion
We have reviewed Santander UK plc's condensed consolidated
interim financial statements (the "interim financial statements")
in the Half Yearly Financial Report of Santander UK plc for the 6
month period ended 30 June 2017. Based on our review, nothing has
come to our attention that causes us to believe that the interim
financial statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
- * the consolidated balance sheet as at 30 June 2017;
-
* the consolidated income statement and consolidated
statement of comprehensive income for the period then
ended;
-
* the consolidated cash flow statement for the period
then ended;
-
* the consolidated statement of changes in equity for
the period then ended; and
-
* the explanatory notes to the interim financial
statements.
The interim financial statements included in the Half Yearly
Financial Report have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the Condensed Consolidated Interim
Financial Statements and the review
Our responsibilities and those of the directors
The Half Yearly Financial Report, including the interim
financial statements, is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Half Yearly Financial Report in accordance with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Half Yearly Financial Report based on
our review. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other
purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom
this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
What a review of the Condensed Consolidated Interim Financial
Statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Half Yearly
Financial Report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
13 September 2017
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT (unaudited)
For the half year to 30 June 2017 and the half year to 30 June
2016
Half Half
year year
to to
30 June 30 June
2017 2016
Notes GBPm GBPm
-------------------------------------- -------- ---------- ---------
Interest and similar income 2,977 3,301
Interest expense and similar
charges (1,055) (1,528)
-------------------------------------- -------- ---------- ---------
Net interest income 1,922 1,773
-------------------------------------- -------- ---------- ---------
Fee and commission income 609 578
Fee and commission expense (200) (197)
-------------------------------------- -------- ---------- ---------
Net fee and commission income 409 381
-------------------------------------- -------- ---------- ---------
Net trading and other income 3 182 290
-------------------------------------- -------- ---------- ---------
Total operating income 2,513 2,444
-------------------------------------- -------- ---------- ---------
Operating expenses before impairment
losses, provisions and charges 4 (1,215) (1,205)
-------------------------------------- -------- ---------- ---------
Impairment losses on loans
and advances 5 (48) (63)
Provisions for other liabilities
and charges 5 (186) (97)
-------------------------------------- -------- ---------- ---------
Total operating impairment
losses, provisions and charges (234) (160)
-------------------------------------- -------- ---------- ---------
Profit before tax 1,064 1,079
Tax on profit 6 (323) (307)
-------------------------------------- -------- ---------- ---------
Profit after tax for the period 741 772
-------------------------------------- -------- ---------- ---------
Attributable to:
Equity holders of the parent 730 756
Non-controlling interests 11 16
-------------------------------------- -------- ---------- ---------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (unaudited)
For the half year to 30 June 2017 and the half year to 30 June
2016
Half Half
year year
to to
30 June 30 June
2017 2016
GBPm GBPm
---------------------------------- --------- ---------
Profit for the period 741 772
----------------------------------- --------- ---------
Other comprehensive income:
Other comprehensive income
that may be reclassified to
profit or loss subsequently:
Available-for-sale securities:
- Change in fair value 72 (3)
- Income statement transfers (48) (115)
- Taxation (5) 17
----------------------------------- --------- ---------
19 (101)
---------------------------------- --------- ---------
Cash flow hedges:
- Effective portion of changes
in fair value (48) 3,761
- Income statement transfers (124) (2,994)
- Taxation 48 (205)
----------------------------------- --------- ---------
(124) 562
---------------------------------- --------- ---------
Currency translation on foreign
operations - (3)
----------------------------------- --------- ---------
Net other comprehensive income
that may be reclassified to
profit or loss subsequently (105) 458
Other comprehensive income
that will not be reclassified
to profit or loss subsequently:
Pension remeasurement 79 (489)
Taxation (20) 126
----------------------------------- --------- ---------
59 (363)
---------------------------------- --------- ---------
Own credit adjustment:
- Transfers (23) -
- Taxation 6 -
---------------------------------- --------- ---------
(17) -
---------------------------------- --------- ---------
Net other comprehensive income
that will not be reclassified
to profit or loss subsequently 42 (363)
----------------------------------- --------- ---------
Total other comprehensive income
for the period net of tax (63) 95
Total comprehensive income
for the period 678 867
----------------------------------- --------- ---------
Attributable to:
Equity holders of the parent 666 856
Non-controlling interests 12 11
----------------------------------- --------- ---------
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET (unaudited)
At 30 June 2017 and 31 December 2016
30
June 31 December
2017 2016
Notes GBPm GBPm
---------------------------------- -------- -------- ------------
Assets
Cash and balances at central
banks 18,255 17,107
Trading assets 8 34,423 30,035
Derivative financial instruments 9 21,611 25,471
Financial assets designated
at fair value 2,161 2,140
Loans and advances to banks 4,404 4,348
Loans and advances to customers 10 199,799 199,738
Loans and receivables securities 1,424 257
Available-for-sale securities 9,574 10,561
Held-to-maturity investments 6,613 6,648
Macro hedge of interest rate
risk 914 1,098
Interests in other entities 12 66 61
Intangible assets 2,334 2,316
Property, plant and equipment 1,508 1,491
Retirement benefit assets 16 500 398
Other assets 1,335 1,473
---------------------------------- -------- --------
Total assets 304,921 303,142
---------------------------------- --------
Liabilities
Deposits by banks 11,890 9,769
Deposits by customers 181,189 177,172
Trading liabilities 13 21,490 15,560
Derivative financial instruments 9 18,488 23,103
Financial liabilities designated
at fair value 2,976 2,440
Debt securities in issue 14 43,997 50,346
Subordinated liabilities 4,109 4,303
Macro hedge of interest rate
risk 281 350
Other liabilities 2,590 2,871
Provisions 15 595 700
Current tax liabilities 72 54
Deferred tax liabilities 143 128
Retirement benefit obligations 220 262
---------------------------------- --------
Total liabilities 288,040 287,058
---------------------------------- --------
Equity
Share capital and other equity
instruments 18 5,400 4,904
Share premium 5,620 5,620
Retained earnings 5,280 4,886
Other reserves 419 524
---------------------------------- --------
Total shareholders' equity 16,719 15,934
Non-controlling interests 162 150
---------------------------------- --------
Total equity 16,881 16,084
---------------------------------- --------
Total liabilities and equity 304,921 303,142
---------------------------------- --------
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
CONSOLIDATED CASH FLOW STATEMENT (unaudited)
For the half year to 30 June 2017 and the half year to 30 June
2016
Half year to Half year to
30 June 2017 30 June 2016
Notes GBPm GBPm
Cash flows from operating activities
Profit for the period 741 772
Adjustments for:
Non-cash items included in profit 678 (31)
Change in operating assets (1,445) (15,075)
Change in operating liabilities 5,442 14,099
Corporation taxes paid (233) (165)
Effects of exchange rate differences (132) 2,211
Net cash flows from operating activities 5,051 1,811
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets (217) (128)
Proceeds from sale of property, plant and equipment and intangible assets 24 44
Purchase of available-for-sale securities (419) (1,664)
Proceeds from sale and redemption of available-for-sale securities 1,186 1,634
Net cash flows from investing activities 574 (114)
Cash flows from financing activities
Issue of AT1 capital securities 18 500 -
Issuance costs of AT1 capital securities (4) -
Issue of debt securities 2,237 4,585
Issuance costs of debt securities (9) (9)
Repayment of debt securities (6,418) (5,082)
Repurchase of other equity instruments - (7)
Dividends paid on ordinary shares 7 (276) (102)
Dividends paid on other equity instruments 7 (80) (73)
Net cash flows from financing activities (4,050) (688)
Change in cash and cash equivalents 1,575 1,009
Cash and cash equivalents at beginning of the period 25,705 20,351
Effects of exchange rate changes on cash and cash equivalents (254) 994
Cash and cash equivalents at the end of the period 27,026 22,354
Cash and cash equivalents consist of:
30 June 2017 30 June 2016
GBPm GBPm
Cash and balances at central banks 18,255 14,862
Less: regulatory minimum cash balances (380) (344)
17,875 14,518
Net trading other cash equivalents 6,775 5,440
Net non-trading other cash equivalents 2,376 2,396
Cash and cash equivalents 27,026 22,354
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)
For the half year to 30 June 2017 and the half year to 30 June
2016
Share Non-
capital & Other reserves
other Cash
equity Share flow Currency Retained controlling
instruments premium Available-for-sale hedging translation earnings Total interests Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
1 January 2017 4,904 5,620 48 471 5 4,886(1) 15,934 150 16,084
Profit for the period - - - - - 730 730 11 741
Other comprehensive income, net of tax:
- Available-for-sale securities - - 19 - - - 19 - 19
- Cash flow hedges - - - (124) - - (124) - (124)
- Pension remeasurement 16 - - - - - 58 58 1 59
- Own credit adjustment - - - - - (17) (17) - (17)
Total comprehensive income for the period - - 19 (124) - 771 666 12 678
Issue of AT1 capital securities 18 496 - - - - - 496 - 496
Dividends on ordinary shares 7 - - - - - (323) (323) - (323)
Dividends on other equity instruments 7 - - - - - (80) (80) - (80)
Tax on other equity instruments 18 - - - - - 26 26 - 26
30 June 2017 5,400 5,620 67 347 5 5,280 16,719 162 16,881
1 January 2016 4,911 5,620 52 254 8 4,679 15,524 135 15,659
Profit for the period - - - - - 756 756 16 772
Other comprehensive income, net of tax:
- Available-for-sale securities - - (101) - - - (101) - (101)
- Cash flow hedges - - - 562 - - 562 - 562
- Pension remeasurement 16 - - - - - (358) (358) (5) (363)
* Currency translation on foreign operations - - - - (3) - (3) - (3)
Total comprehensive income for the period - - (101) 562 (3) 398 856 11 867
Repurchase of other equity instruments 18 (7) - - - - - (7) - (7)
Dividends on ordinary shares 7 - - - - - (317) (317) - (317)
Dividends on other equity instruments 7 - - - - - (73) (73) - (73)
Tax on other equity instruments 18 - - - - - 15 15 - 15
30 June 2016 4,904 5,620 (49) 816 5 4,702 15,998 146 16,144
(1) The impact of the early adoption of IFRS 9 requirements for
the presentation of gains and losses on such financial liabilities
relating to own credit in other comprehensive income as described
in Note 1, was GBP18m (net of tax).
1. ACCOUNTING POLICIES
Basis of preparation
The financial information in these Condensed Consolidated
Interim Financial Statements does not constitute statutory accounts
as defined in section 434 of the UK Companies Act 2006. Statutory
accounts for the year ended 31 December 2016 have been delivered to
the Registrar of Companies. The auditor's report on those accounts
was unqualified, did not draw attention to any matters by way of
emphasis and did not contain a statement under section 498(2) of
the UK Companies Act 2006.
The Condensed Consolidated Interim Financial Statements have
been prepared in accordance with International Accounting Standard
(IAS) 34 'Interim Financial Reporting', as issued by the
International Accounting Standards Board (IASB) and adopted by the
European Union, and the Disclosure Guidance and Transparency Rules
of the Financial Conduct Authority (FCA). They do not include all
the information and disclosures normally required for full annual
financial statements and should be read in conjunction with the
Consolidated Financial Statements of the Santander UK group for the
year ended 31 December 2016 which were prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union. Those Consolidated Financial Statements were also
prepared in accordance with International Financial Reporting
Standards as issued by the IASB including interpretations issued by
the IFRS Interpretations Committee (IFRIC) of the IASB (together
IFRS). The Santander UK group has also complied with its legal
obligation to comply with International Financial Reporting
Standards as adopted by the European Union as there are no
applicable differences between the two frameworks for the periods
presented.
In preparing the Condensed Consolidated Interim Financial
Statements management makes judgements, estimates and assumptions
which impact the application of accounting policies and the
reported amounts of assets, liabilities, income and expenses.
Because of the inherent uncertainty in making estimates, actual
results reported in future periods may differ. Management
continually evaluates the judgements, estimates and assumptions
applied, including expectations of future events that are believed
to be reasonable under the circumstances.
Except as noted below, the same accounting policies,
presentation and methods of computation are followed in these
Condensed Consolidated Interim Financial Statements as were applied
in the presentation of the Santander UK group's 2016 Annual Report.
Copies of the Santander UK group's 2016 Annual Report are available
on the Santander UK group's website or upon request from Investor
Relations, Santander UK plc, 2 Triton Square, Regent's Place,
London NW1 3AN.
The Santander UK group designates certain financial liabilities
at fair value through profit or loss where they contain embedded
derivatives or where associated derivatives used to economically
hedge the risk are held at fair value. Following the endorsement of
IFRS 9 'Financial Instruments' by the EU in December 2016, the
Santander UK group has elected to early apply from 1 January 2017
the requirements for the presentation of gains and losses on such
financial liabilities relating to own credit in other comprehensive
income without applying the other requirements in IFRS 9. The own
credit component of the cumulative fair value adjustment on
financial liabilities designated at fair value through profit or
loss as at 1 January 2017 was GBP18m (net of tax) and is included
in opening retained earnings. Comparatives have not been
restated.
Except as noted below, there have been no other significant
changes arising from new or revised standards and interpretations,
and amendments thereto, which have been issued but which are not
yet effective for the Santander UK group as were set out in the
2016 Annual Report.
Future accounting developments
IFRS 9 Financial Instruments - In the 2016 Annual Report,
Santander UK provided detailed descriptions and explanations on how
key IFRS 9 concepts will be implemented and included details of our
proposed approaches for classification and measurement of financial
assets and liabilities and hedge accounting and, in respect of the
expected credit loss (ECL) methodology, proposed modelling
techniques, judgements, and proposals for the incorporation of
forward-looking information and the determination of a significant
increase in credit risk.
Santander UK continues to make progress on developing and
testing our ECL impairment models across the range of in-scope
portfolios and formalising the governance framework to support the
new operating model. A parallel-run will take place during H217 to
provide assurances on the accuracy and completeness of the
modelling process, whilst we implement the new operating model to
ensure we can meet our range of disclosures relating to IFRS 9. We
are also finalising the determination of the classification and
measurement of financial assets. We expect to continue to apply IAS
39 hedge accounting until such time as further changes for macro
hedge accounting rules are applicable.
It is not yet practicable to quantify the effect of IFRS 9 on
these Condensed Consolidated Interim Financial Statements.
Santander UK group expects to quantify the effect of IFRS 9 during
H217 and by no later than the end of the year.
IFRS 15 Revenue from Contracts with Customers - In the 2016
Annual Report, Santander UK explained that revenue relating to
lease contracts, insurance contracts and financial instruments is
outside the scope of IFRS 15. In addition, a significant proportion
of the recognition of Santander UK group's fee and commission
income that is within the scope of the standard is not expected to
change. Whilst the standard is not expected to have a significant
impact on the Santander UK group's profitability, the impact of the
standard is still being assessed. It is not yet practicable to
quantify the effect of IFRS 15 on these Condensed Consolidated
Interim Financial Statements.
Going concern
After making enquiries, the Directors have a reasonable
expectation that the Santander UK group has adequate resources to
continue in operational existence for at least twelve months from
the date that the balance sheet is signed. Having reassessed the
principal risks and uncertainties, the Directors consider it
appropriate to adopt the 'going concern' basis of accounting in
preparing the Condensed Consolidated Interim Financial
Statements.
CRITICAL ACCOUNTING POLICIES AND AREAS OF SIGNIFICANT MANAGEMENT
JUDGEMENT
The preparation of the Condensed Consolidated Interim Financial
Statements requires management to make estimates and judgements
that affect the reported amount of assets and liabilities at the
date of the Condensed Consolidated Interim Financial Statements and
the reported amount of income and expenses during the reporting
period. Management evaluates its estimates and judgements on an
ongoing basis. Management bases its estimates and judgements on
historical experience and on various other factors that are
believed to be reasonable under the circumstances. Actual results
may differ from these estimates under different assumptions or
conditions.
There have been no significant changes in the basis upon which
estimates have been determined compared to that applied in the 2016
Annual Report.
2. SEGMENTS
The Santander UK group's business is managed and reported on the
basis of the following segments: Retail Banking, Commercial
Banking, Global Corporate Banking and Corporate Centre. The
Santander UK group's segments are strategic business units that
offer different products and services. They are managed separately
because each business requires different technology and marketing
strategies. There has been no change to the descriptions of these
segments and segmental accounting as set out in Note 2 to the
Consolidated Financial Statements in the 2016 Annual Report.
Retail Commercial Global Corporate Corporate
Banking Banking Banking Centre Total
Half year to 30 June 2017 GBPm GBPm GBPm GBPm GBPm
Net interest income/(expense) 1,730 198 40 (46) 1,922
Non-interest income(1) 314 44 206 27 591
Total operating income/(expense) 2,044 242 246 (19) 2,513
Operating expenses before impairment losses, provisions
and charges (919) (109) (145) (42) (1,215)
Impairment (losses)/releases on loans and advances (39) (3) (9) 3 (48)
Provisions for other liabilities and charges (155) (29) - (2) (186)
Total operating impairment (losses)/releases, provisions
and charges (194) (32) (9) 1 (234)
Profit/(loss) before tax 931 101 92 (60) 1,064
Revenue from external customers 2,272 318 279 (356) 2,513
Inter-segment revenue (228) (76) (33) 337 -
Total operating income 2,044 242 246 (19) 2,513
Total assets(2) 175,246 19,570 45,827 64,278 304,921
Total liabilities 150,394 18,074 39,234 80,338 288,040
Half year to 30 June 2016(3)
Net interest income 1,531 203 39 - 1,773
Non-interest income(1) 283 41 184 163 671
Total operating income 1,814 244 223 163 2,444
Operating expenses before impairment losses, provisions and charges (922) (113) (141) (29) (1,205)
Impairment (losses)/releases on loans and advances (34) (11) (21) 3 (63)
Provisions for other liabilities and charges (77) - - (20) (97)
Total operating impairment losses, provisions and charges (111) (11) (21) (17) (160)
Profit before tax 781 120 61 117 1,079
Revenue from external customers 2,173 313 254 (296) 2,444
Inter-segment revenue (359) (69) (31) 459 -
Total operating income 1,814 244 223 163 2,444
31 December 2016
Total assets(2) 175,731 19,381 39,777 68,253 303,142
Total liabilities 149,793 17,203 36,506 83,556 287,058
(1) Comprised of Net fee and commission income and Net trading
and other income.
(2) Includes customer loans, net of impairment loss
allowances.
(3) Restated on the same basis as described in Note 2 to the
Consolidated Financial Statements in the 2016 Annual Report.
3. NET TRADING AND OTHER INCOME
Half year to Half year to
30 June 2017 30 June 2016
GBPm GBPm
Net trading and other income 182 290
'Net trading and other income' includes the gain of GBP48m
sterling equivalent in respect of the sale of the Vocalink shares.
Santander UK was part of the consortium of banks that sold Vocalink
Holdings Limited to Mastercard. Santander UK's stake in Vocalink
Holdings Limited was 7.75%. Under the terms of the sale agreement,
Santander UK will retain a shareholding of 0.775% for at least
three years. In H116, 'Net trading and other income' included the
gain of GBP119m sterling equivalent in respect of the sale of Visa
shares.
In May 2016, as part of a liability management exercise, certain
debt instruments were purchased pursuant to a tender offer. This
had no significant impact on the income statement.
4. OPERATING EXPENSES BEFORE IMPAIRMENT LOSSES, PROVISIONS AND
CHARGES
Half year to Half year to
30 June 2017 30 June 2016
GBPm GBPm
Staff costs 566 545
Other administration expenses 493 522
Depreciation, amortisation and impairment 156 138
1,215 1,205
5. IMPAIRMENT LOSSES AND PROVISIONS
Half year to Half year to
30 June 2017 30 June 2016
GBPm GBPm
Impairment losses on loans and advances to customers 76 108
Recoveries of loans and advances, net of collection costs (Note 10) (28) (45)
48 63
Provisions for other liabilities and charges (Note 15) 181 97
Provisions for residual value and voluntary termination 5 -
186 97
234 160
There were no impairment losses on loans and advances to banks,
loans and receivables securities, available-for-sale securities and
held-to-maturity investments.
6. TAXATION
The tax on profit before tax differs from the theoretical amount
that would arise using the basic corporation tax rate of the
Company as follows:
Half year to Half year to
30 June 2017 30 June 2016
GBPm GBPm
Profit before tax 1,064 1,079
Tax calculated at a tax rate of 19.25% (H116: 20%) 205 216
Bank surcharge on profits 77 77
Net disallowable items and non-taxable income 33 8
Non-deductible UK Bank Levy 18 17
Effect of change in tax rate on deferred tax provision - (1)
Adjustment to prior period provisions (10) (10)
Tax charge 323 307
Interim period corporation tax is accrued based on the estimated
average annual effective corporation tax rate for the year of 30.4%
(2016: 28.5%). The standard rate of UK corporation tax was 27.25%
for banking entities and 19.25% for non-banking entities (2016: 28%
for banking entities and 20% for non-banking entities) following
the introduction of an 8% surcharge to be applied to banking
companies from 1 January 2016. Taxation for other jurisdictions is
calculated at the rates prevailing in the relevant jurisdictions.
The Finance (No.2) Act 2015, introduced reductions in the
corporation tax rate from 20% to 19% in 2017 and 18% by 2020.
Finance Act 2016, which was substantively enacted on 6 September
2016, introduced a further reduction in the standard rate of
corporation tax rate to 17% from 2020. The effects of the changes
in tax rates are included in the deferred tax balances at 30 June
2017 and 31 December 2016.
7. DIVIDS
a) Ordinary share capital
Dividends of GBP276m (H116: GBP102m) were paid on the Company's
ordinary shares in issue during the period. An interim dividend of
GBP323m was declared on 26 June 2017 on the Company's ordinary
shares in issue.
b) Other equity instruments
Half year to Half year to
30 June 2017 30 June 2016
GBPm GBPm
GBP300m fixed/floating rate non-cumulative callable preference shares 1 1
GBP300m Step-up Callable Perpetual Reserve Capital Instruments 17 17
AT1 securities:
- GBP500m Perpetual Capital Securities 7 -
- GBP750m Perpetual Capital Securities 28 28
- GBP300m Perpetual Capital Securities 11 12
- GBP500m Perpetual Capital Securities 16 15
80 73
8. TRADING ASSETS
30 June 2017 31 December 2016
GBPm GBPm
Loans and advances to banks - securities purchased under resale agreements 1,580 2,757
- other(1) 4,502 4,721
Loans and advances to customers - securities purchased under resale agreements 14,315 7,955
- other(1) 1,768 2,368
Debt securities 4,507 6,248
Equity securities 7,751 5,986
34,423 30,035
(1) Total 'other' comprises short-term loans of GBP1,279m (2016:
GBP920m) and cash collateral of GBP4,991m (2016: GBP6,169m).
A significant portion of the debt and equity securities are held
in our eligible liquidity pool. They comprise mainly of government
bonds and quoted stocks.
9. DERIVATIVE FINANCIAL INSTRUMENTS
30 June 2017 31 December 2016
Fair value Fair value
Notional amount Assets Liabilities Notional amount GBPm Assets Liabilities
Derivatives held for trading GBPm GBPm GBPm GBPm GBPm
Exchange rate contracts 146,818 2,983 4,955 165,521 3,664 6,022
Interest rate contracts 969,928 11,883 11,379 942,798 14,117 14,341
Equity and credit contracts 18,287 1,179 543 15,325 1,321 860
Total derivatives held for trading 1,135,033 16,045 16,877 1,123,644 19,102 21,223
Derivatives held for hedging
Derivatives designated as fair value hedges:
Exchange rate contracts 2,693 471 - 3,819 751 -
Interest rate contracts 57,882 1,321 1,499 70,849 1,578 1,790
Equity derivative contracts 81 - 3 74 4 -
60,656 1,792 1,502 74,742 2,333 1,790
Derivatives designated as cash flow hedges:
Exchange rate contracts 23,894 3,639 8 23,786 3,907 8
Interest rate contracts 12,909 124 101 12,683 120 82
Equity derivative contracts 29 11 - 24 9 -
36,832 3,774 109 36,493 4,036 90
Total derivatives held for hedging 97,488 5,566 1,611 111,235 6,369 1,880
Total derivatives 1,232,521 21,611 18,488 1,234,879 25,471 23,103
10. LOANS AND ADVANCES TO CUSTOMERS
30 June 2017 31 December 2016
GBPm GBPm
Loans and advances to customers 199,559 199,610
Amounts due from fellow Banco Santander subsidiaries and joint ventures 1,172 1,112
Amounts due from Santander UK Group Holdings plc 7 5
Loans and advances to customers 200,738 200,727
Less: impairment loss allowances (864) (921)
Less: residual value and voluntary termination provisions(1) (75) (68)
Net loans and advances to customers 199,799 199,738
(1) In H117, we reclassified our provisions for residual value
and voluntary termination classified within the Finance lease
impairment loss allowances category. In order to facilitate
comparison with the current period, prior year comparatives were
amended.
Movement in impairment loss allowances:
Loans secured Other
on residential Corporate Finance unsecured
property loans leases advances Total
GBPm GBPm GBPm GBPm GBPm
At 1 January 2017 279 382 45 215 921
(Release)/charge to the income statement (18) 12 17 65 76
Write-offs and other items(2) (10) (38) (16) (69) (133)
At 30 June 2017 251 356 46 211 864
At 1 January 2016 424 395 20 269 1,108
(Release)/charge to the income statement (54) 35 3 124 108
Write-offs and other items(2) (16) (15) (15) (115) (161)
At 30 June 2016 354 415 8 278 1,055
(2) Mortgage write-offs exclude the effect of the unwind over
time of the discounting in estimating losses, as described in the
accounting policy 'Impairment of financial assets' in Note 1 to the
Consolidated Financial Statements in the 2016 Annual Report.
Mortgage write-offs including this effect were GBP11m (H116:
GBP18m).
Recoveries of loans and advances, net of collection costs:
Loans secured Other
on residential Corporate Finance unsecured
property loans leases advances Total
GBPm GBPm GBPm GBPm GBPm
30 June 2017 2 1 4 21 28
30 June 2016 2 2 1 40 45
11. SECURITISATIONS AND COVERED BONDS
a) Securitisations
The gross assets securitised at 30 June 2017 and 31 December
2016 under the structures described below were:
30 June 2017 31 December 2016
GBPm GBPm
Master Trust Structures:
- Holmes 4,947 5,560
- Fosse 6,499 7,182
- Langton 4,595 5,211
Other securitisation structures:
- Motor 851 1,117
- Auto ABS UK Loans 1,112 1,260
18,004 20,330
i) Master Trust Structures
Holmes
In H117, there were no issuances (H116: GBP1.2bn) from Holmes
Master Issuer plc. Mortgage-backed notes totalling GBP0.7bn (H116:
GBP2.9bn) equivalent were redeemed during the period.
Fosse
In H117 and H116 there were no issuances from Fosse Master
Issuer plc. Mortgage-backed notes totalling GBP0.7bn (H116:
GBP0.8bn) equivalent were redeemed during the period.
Langton
In H117 and H116 there were no issuances from any of the Langton
issuing companies. No mortgage-backed notes (H116: GBP1.9bn) were
redeemed during the period.
ii) Other securitisation structures
Motor
In H117 and H116 there were no issuances from the Motor
securitisation structures. Asset-backed notes totalling GBP0.2bn
(H116: GBP0.3bn) equivalent were redeemed during the period.
Auto ABS UK Loans
In H117, GBP0.5bn of asset-backed notes (H116: GBP0.5bn) were
issued from Auto ABS UK Loans. Additionally, GBP0.7bn of
asset-backed notes (H116: GBP0.4bn) were redeemed during the
period.
b) Covered Bonds
In H117, there were issuances of GBP1.0bn (H116: GBP0.8bn) from
the covered bond programme. Mortgage-backed notes totalling
GBP1.8bn (H116: GBPnil) equivalent were redeemed during the
period.
12. INTERESTS IN OTHER ENTITIES
The Santander UK group has interests in subsidiaries,
associates, joint ventures and unconsolidated structured entities,
as set out in Note 21 to the Consolidated Financial Statements in
the 2016 Annual Report. The unconsolidated structured entities
include Abbey National Capital Trust I and Abbey National Capital
LP I, which are 100% owned finance subsidiaries (as defined in
Regulation S-X under the US Securities Act 1933, as amended) of
Santander UK plc. On 7 February 2000, Abbey National Capital Trust
I issued US$1bn of 8.963% Non-cumulative Trust Preferred
Securities, which have been registered under the US Securities Act
of 1933, as amended. Abbey National Capital Trust I serves solely
as a passive vehicle holding the partnership preferred securities
issued by Abbey National Capital LP I and each has passed all the
rights relating to such partnership preferred securities to the
holders of trust preferred securities issued by Abbey National
Capital Trust I. All of the trust preferred securities and the
partnership preferred securities have been fully and
unconditionally guaranteed on a subordinated basis by Santander UK
plc. The terms of the securities do not include any significant
restrictions on the ability of Santander UK plc to obtain funds, by
dividend or loan, from any subsidiary.
13. TRADING LIABILITIES
30 June 2017 31 December 2016
GBPm GBPm
Deposits by banks: - securities sold under repurchase agreements 676 780
- other(1) 2,969 3,420
Deposits by customers: - securities sold under repurchase agreements 13,928 8,018
- other(1) 407 541
Short positions in securities and unsettled trades 3,510 2,801
21,490 15,560
(1) Comprises cash collateral of GBP3,371m (2016: GBP3,535m) and
short-term deposits of GBP5m (2016: GBP426m).
14. DEBT SECURITIES IN ISSUE
30 June 2017 31 December 2016
GBPm GBPm
Medium-term notes 18,175 20,995
Covered bond programme 15,961 16,628
Certificates of deposit 4,401 5,217
Securitisation programmes 5,460 7,506
43,997 50,346
15. PROVISIONS
Conduct remediation
Wealth and
PPI Investment Other products Regulatory-related Vacant property Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2017 457 22 14 96 47 64 700
Additional provisions 69 - 35 2 6 69 181
Used during the
period (121) (27) (2) (53) (5) (87) (295)
Transfers - 9 - - - - 9
At 30 June 2017 405 4 47 45 48 46 595
At 1 January 2016 465 146 26 93 68 72 870
Additional provisions - - - 36 1 60 97
Used during the
period (61) (34) (10) (47) (7) (60) (219)
At 30 June 2016 404 112 16 82 62 72 748
Conduct remediation
The table below sets out the key drivers of the Payment
Protection Insurance (PPI) provision balance and forecast
assumptions used in calculating the provision, as well as the
sensitivity of the provision to changes in the assumptions.
Cumulative to Sensitivity analysis
30 June Increase/decrease in provision
2017 Future expected
Inbound complaints(1) ('000) 1,402 412 25 = GBP9m
Outbound contact ('000) 406 342 25 = GBP15m
Response rate to outbound contact 35% 91% 1% = GBP2.2m
Average uphold rate per claim(2) 58% 74% 1% = GBP3.5m
Average redress per claim(3) GBP1,657 GBP643 GBP100 = GBP54m
(1) Excludes invalid claims where the complainant has not held a
PPI policy.
(2) Claims include inbound and responses to outbound
contact.
(3) The average redress per claim reduced from the cumulative
average value at 30 June 2017 of GBP1,657 to a future expected
average value of GBP643 due to the inclusion of Plevin cases in the
provision, as well as a shift in the complaint mix to a greater
proportion of storecards, which typically held lower average
balances.
In November 2015, the FCA issued a Consultation Paper 15/39
(Rules and guidance on payment protection insurance complaints)
which introduced the concept of unfair commission in relation to
Plevin for customer redress plus a deadline by which customers
would need to make their PPI complaints. On 2 August 2016, the FCA
issued Consultation Paper 16/20 (Rules and Guidance on payment
protection insurance complaints: Feedback on CP 15/39 and further
consultation). The paper outlined the FCA's proposed approach to
PPI in light of the 2014 decision of the Supreme Court in Plevin v
Paragon Personal Finance Ltd (Plevin) and also recommended a
two-year deadline period starting in June 2017, which was later
than proposed in CP 15/39. The paper also included proposals in
relation to how redress for Plevin-related claims should be
calculated including consideration of how profit share arrangements
should be reflected in commission levels. The final rules released
on 2nd March 2017 in Policy Statement 17/3 (Payment Protection
Insurance Complaints: Feedback on CP16/20 and final rules and
guidance) confirmed that the two-year deadline period would start
in August 2017. There is also now a requirement to proactively mail
previously rejected complainants in scope of s140A of the Consumer
Credit Act to explain they are eligible to complain again in light
of Plevin. Lastly there are some clarifications to the profit share
percentage calculations. These changes may impact on the future
amounts expected to be paid.
30 June 2017 compared to 31 December 2016
The remaining provision for PPI redress and related costs
amounted to GBP405m. In the first quarter of 2017, we made an
additional provision of GBP32m relating to the final FCA rules and
guidance published in Mar17. We also provided a net charge of
GBP37m in the second quarter, following a review of claims handling
procedures in relation to a specific PPI portfolio including the
impact of a past business review. See Note 17.
In line with our assumptions, monthly utilisation increased from
the 2016 average following the confirmation of a deadline for
customer complaints. We will continue to monitor our provision
levels in respect of recent claims experience.
The remaining non-PPI related conduct provisions amounted to
GBP51m, including an additional provision of GBP35m in the second
quarter, relating to the sale of interest rate derivatives. This
charge follows an ongoing review regarding regulatory
classification of certain customers eligible for redress.
16. RETIREMENT BENEFIT PLANS
The amounts recognised in the balance sheet were as follows:
30 June 2017 31 December 2016
GBPm GBPm
Assets/(liabilities)
Funded defined benefit pension scheme - surplus 500 398
Funded defined benefit pension scheme - deficit (181) (223)
Unfunded defined benefit pension scheme (39) (39)
Total net assets 280 136
a) Defined contribution pension plans
An expense of GBP27m (H116: GBP26m) was recognised for defined
contribution plans in the period, and is included in staff costs
classified within operating expenses in the Income Statement. None
of this amount was recognised in respect of key management
personnel for H117 and H116.
b) Defined benefit pension schemes
The total amount charged to the income statement, including any
amounts classified as redundancy costs was GBP23m (H116:
GBP11m).
Movements in the present value of defined benefit obligations
and fair value of scheme assets were as follows:
30 June 2017 30 June 2016
Present value of Present value of
defined benefit Fair value of scheme defined benefit Fair value of scheme
obligations assets obligations assets
GBPm GBPm GBPm GBPm
Balance at 1 January (11,082) 11,218 (9,004) 9,450
Income statement
charge (182) 247 (186) 232
Recognised in other
comprehensive income
- Return on plan
assets (excluding
amounts included in
net interest expense) - 85 - 1,055
- Actuarial movements
arising from
experience
adjustments 11 - 28 -
- Actuarial movements
arising from changes
in financial
assumptions (17) - (1,572) -
Benefits paid 191 (191) 130 (130)
Balance at 30 June (11,079) 11,359 (10,604) 10,607
The net assets recognised in the balance sheet was determined as
follows:
30 June 2017 31 December 2016
GBPm GBPm
Present value of defined benefit obligations (11,079) (11,082)
Fair value of scheme assets 11,359 11,218
Net defined benefit assets 280 136
Result of triennial valuation
The 31 March 2016 triennial funding valuation was concluded in
early 2017. Santander UK plc has committed to continue to fund the
Scheme at the current rate with the recovery plan extended for a
further three years. In addition Santander UK plc has committed to
make contingent contributions if the investment performance is
lower than expected.
Actuarial assumptions
There have been no significant changes to the method for setting
the principal actuarial assumptions used as set out in Note 34 to
the Consolidated Financial Statements in the 2016 Annual
Report.
17. CONTINGENT LIABILITIES AND COMMITMENTS
30 June 2017 31 December 2016
GBPm GBPm
Guarantees given to third parties 1,435 1,859
Formal standby facilities, credit lines and other commitments 42,131 41,616
43,566 43,475
There have been no significant changes to the contingent
liabilities as set out in Note 35 to the Consolidated Financial
Statements in the 2016 Annual Report, except as follows:
Guarantees given by Santander UK plc to its subsidiaries
Santander UK plc has fully and unconditionally guaranteed the
unsubordinated liabilities of each of Abbey National Treasury
Services plc and Cater Allen Limited, both of which are wholly
owned subsidiaries of the Santander UK group, that have been or
will be incurred before 31 December 2018.
Other legal actions and regulatory matters
Note 15 details our provisions including those in relation to
PPI. In relation to a specific PPI portfolio of complaints,
following a review of legal and regulatory responsibilities,
including consultation with external professional advisers, it is
not currently considered that the likelihood of Santander UK group
incurring a liability is probable and as such no provision is held.
There are a number of factual and legal issues to be resolved in
relation to this portfolio which may impact the amount or timing of
any liability. These issues create uncertainties which mean that it
is not currently possible to make a reliable estimate of the
financial effect, if any, that may arise.
18. SHARE CAPITAL AND OTHER EQUITY INSTRUMENTS
30 June 2017 31 December 2016
GBPm GBPm
Ordinary share capital 3,105 3,105
GBP300m fixed/floating rate non-cumulative callable preference shares 14 14
GBP300m Step-up Callable Perpetual Reserve Capital Instruments 235 235
AT1 securities:
- GBP500m Perpetual Capital Securities 496 -
- GBP750m Perpetual Capital Securities 750 750
- GBP300m Perpetual Capital Securities 300 300
- GBP500m Perpetual Capital Securities 500 500
5,400 4,904
GBP500m Perpetual Capital Securities
On 10 April 2017, the Company issued GBP500m Perpetual Capital
Securities, all of which were subscribed by the Company's immediate
parent, Santander UK Group Holdings plc. The securities are
perpetual and pay a distribution rate on 24 March, June, September
and December. At each distribution payment date, the Company can
decide whether to pay the distribution rate, which is
non-cumulative, in whole or in part. The distribution rate is 6.75%
per annum until 24 June 2024; thereafter, the distribution rate
resets every five years to a rate of 5.792% per annum above the
then prevailing 5 year sterling mid swap rate. The Perpetual
Capital Securities will be automatically written down should the
Common Equity Tier 1 capital ratio of the Santander UK prudential
consolidation group as defined in the PRA's rules fall below 7%.
The Perpetual Capital Securities are redeemable at the option of
the Company on 24 June 2024 or on any reset date thereafter. No
such redemption may be made without the consent of the PRA.
19. ASSETS CHARGED AS SECURITY FOR LIABILITIES AND COLLATERAL
ACCEPTED AS SECURITY FOR ASSETS
Securitisations and covered bonds
As described in Note 16 to the Consolidated Financial Statements
in the 2016 Annual Report, Santander UK plc and certain of its
subsidiaries enter into securitisation transactions whereby
portfolios of residential mortgage loans and other loans are
purchased by or assigned to structured securitisation companies,
and have been funded through the issue of mortgage-backed
securities and other asset-backed securities. Holders of the
securities are only entitled to obtain payments of principal and
interest to the extent that the resources of the securitisation
companies are sufficient to support such payments and the holders
of the securities have agreed in writing not to seek recourse in
any other form. At 30 June 2017, GBP1,450m (2016: GBP363m) of loans
were so assigned by the Santander UK group.
Santander UK plc also has a covered bond programme, whereby
securities are issued to investors and are secured by a pool of
residential mortgages. At 30 June 2017, the pool of residential
mortgages for the covered bond programme was GBP19,989m (2016:
GBP20,263m).
At 30 June 2017, total notes issued externally from secured
programmes (securitisations and covered bonds) decreased to
GBP21,421m (2016: GBP24,134m), including gross issuance of
GBP1,000m (H116: GBP1,147m) and redemptions of GBP3,538m (H116:
GBP2,227m). At 30 June 2017, a total of GBP4,841m (2016: GBP4,998m)
of notes issued under securitisation and covered bond programmes
had also been retained internally, a proportion of which had been
used as collateral for raising funds via third party bilateral
secured funding transactions, which totalled GBP1,834m at 30 June
2017 (2016: GBP2,764m), or for creating collateral which could in
the future be used for liquidity purposes.
20. FINANCIAL INSTRUMENTS
a) Measurement basis of financial assets and liabilities
The Santander UK group categorises assets and liabilities
measured at fair value within the fair value hierarchy based on the
inputs to the valuation techniques as described in Note 43(a) to
the Consolidated Financial Statements in the 2016 Annual
Report.
b) Fair values of financial instruments carried at amortised
cost
The following table analyses the fair value of the financial
instruments carried at amortised cost at 30 June 2017 and 31
December 2016. It does not include fair value information for
financial assets and financial liabilities carried at amortised
cost if the carrying amount is a reasonable approximation of fair
value. Details of the valuation methodology of the financial assets
and financial liabilities carried at amortised cost can be found in
Note 43(c) to the Consolidated Financial Statements in the 2016
Annual Report.
Balance sheet category 30 June 2017 31 December 2016
Fair value Carrying value Fair value Carrying value
GBPm GBPm GBPm GBPm
Assets
Loans and advances to banks 4,351 4,404 4,215 4,348
Loans and advances to Advances secured on
customers residential property 157,009 154,295 157,961 154,448
Corporate loans 31,281 31,302 31,590 31,596
Other advances 14,204 14,202 13,685 13,694
202,494 199,799 203,236 199,738
Loans and receivables securities 1,444 1,424 272 257
Held-to-maturity investments 6,433 6,613 6,436 6,648
Liabilities
Securities sold under
Deposits by banks agreements to repurchase 1,090 1,077 2,406 2,384
Other deposits 10,827 10,813 7,392 7,385
11,917 11,890 9,798 9,769
Deposits by customers Current and demand accounts 92,542 92,542 91,162 91,162
Savings accounts 62,831 62,698 58,461 58,305
Time deposits 25,481 25,447 27,260 27,203
Securities sold under agreements to repurchase 572 502 582 502
181,426 181,189 177,465 177,172
Debt securities in issue Bonds and medium-term notes 40,301 38,537 44,643 42,840
Securitisation programmes 5,507 5,460 7,606 7,506
45,808 43,997 52,249 50,346
Subordinated liabilities 4,491 4,109 4,562 4,303
c) Fair values of financial instruments measured at fair value
on a recurring basis
The following tables summarise the fair values of the financial
assets and liabilities accounted for at fair value at 30 June 2017
and 31 December 2016, analysed by their levels in the fair value
hierarchy - Level 1, Level 2 and Level 3.
Transfers between levels of the fair value hierarchy
Transfers between levels of the fair value hierarchy are
reported at the beginning of the period in which they occur.
During H117 there were no transfers of financial instruments
between Levels 1, 2 and 3 in the fair value hierarchy. Transfers
relating to 2016 are disclosed in Note 43(d) to the Consolidated
Financial Statements in the 2016 Annual Report.
Balance sheet category 30 June 2017 31 December 2016
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Valuation
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm technique
Assets
Loans and
advances to
Trading assets banks - 6,082 - 6,082 - 7,478 - 7,478 A
Loans and advances to customers 1,202 14,881 - 16,083 762 9,561 - 10,323 A
Debt securities 4,507 - - 4,507 6,248 - - 6,248 -
Equity securities 7,751 - - 7,751 5,986 - - 5,986 -
Exchange rate
Derivative assets contracts - 7,072 21 7,093 - 8,300 22 8,322 A
Interest rate contracts - 13,313 15 13,328 1 15,795 19 15,815 A & C
Equity and credit contracts - 1,131 59 1,190 - 1,272 62 1,334 B & D
Financial assets Loans and
designated at fair advances to
value customers - 1,510 64 1,574 - 1,668 63 1,731 A
Debt securities - 399 188 587 - 208 201 409 A & B
Available-for-sale Equity
securities securities 19 9 41 69 17 63 32 112 B
Debt securities 9,503 2 - 9,505 10,449 - - 10,449 C
Total assets at fair value 22,982 44,399 388 67,769 23,463 44,345 399 68,207
Liabilities
Deposits by
Trading liabilities banks - 3,645 - 3,645 - 4,200 - 4,200 A
Deposits by customers - 14,335 - 14,335 - 8,559 - 8,559 A
Short positions 3,510 - - 3,510 2,801 - - 2,801 -
Derivative Exchange rate
liabilities contracts - 4,943 20 4,963 - 6,009 21 6,030 A
Interest rate contracts - 12,972 7 12,979 - 16,202 11 16,213 A & C
Equity and credit contracts 1 503 42 546 1 817 42 860 B & D
Financial
liabilities Debt
designated at fair securities in
value issue - 2,161 6 2,167 - 1,908 6 1,914 A
Structured deposits - 809 - 809 - 526 - 526 A
Total liabilities at fair value 3,511 39,368 75 42,954 2,802 38,221 80 41,103
d) Valuation techniques
The main valuation techniques employed in internal models to
measure the fair value of the financial instruments are disclosed
in Note 43(e) to the Consolidated Financial Statements in the 2016
Annual Report. The Santander UK group did not make any material
changes to the valuation techniques and internal models it used
during H117.
e) Fair value adjustments
The internal models incorporate assumptions that the Santander
UK group believes would be made by a market participant to
establish fair value. Fair value adjustments are adopted when the
Santander UK group considers that there are additional factors that
would be considered by a market participant that are not
incorporated in the valuation model.
The Santander UK group classifies fair value adjustments as
either 'risk-related' or 'model-related'. The fair value
adjustments form part of the portfolio fair value and are included
in the balance sheet values of the product types to which they have
been applied. The majority of these adjustments relate to Global
Corporate Banking. The magnitude and types of fair value adjustment
adopted by Global Corporate Banking are listed in the following
table:
30 June 2017 31 December 2016
GBPm GBPm
Risk-related:
- Bid-offer and trade specific adjustments 42 37
- Uncertainty 43 49
- Credit risk adjustment 43 50
- Funding fair value adjustment 10 20
138 156
Model-related 2 1
Day One profit 1 4
141 161
Risk-related adjustments
Risk-related adjustments are driven, in part, by the magnitude
of the Santander UK group's market or credit risk exposure, and by
external market factors, such as the size of market spreads. For
further details, see the 'Risk-related adjustments' section in Note
43(f) to the Consolidated Financial Statements in the 2016 Annual
Report.
f) Internal models based on information other than market data
(Level 3)
Valuation techniques
There have been no significant changes to the valuation
techniques set out in Note 43(i) to the Consolidated Financial
Statements in the 2016 Annual Report.
Reconciliation of fair value measurements in Level 3 of the fair
value hierarchy
The following table provides a reconciliation of the movement
between opening and closing balances of Level 3 financial
instruments, measured at fair value using a valuation technique
with significant unobservable inputs:
Assets Liabilities
Derivatives Fair value Available-for-sale Total Derivatives Fair value Total
through P&L through P&L
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2017 103 264 32 399 (74) (6) (80)
Total
gains/(losses)
recognised in
profit/(loss):
- Fair value
movements 6 (9) - (3) (7) - (7)
- Foreign exchange
and other
movements (5) - - (5) 5 - 5
Gains recognised
in other
comprehensive
income - - 9 9 - - -
Sales - (3) - (3) - - -
Settlements (9) - - (9) 7 - 7
At 30 June 2017 95 252 41 388 (69) (6) (75)
Gains/(losses)
recognised in
profit/(loss)
relating to
assets and
liabilities held
at the
end of the period 1 (9) - (8) (2) - (2)
At 1 January 2016 188 267 100 555 (105) (5) (110)
Total gains/(losses) recognised in profit/(loss):
- Fair value movements (2) 36 - 34 8 (1) 7
- Foreign exchange and other movements 1 - - 1 - (1) (1)
Gains recognised in other comprehensive income - - 19 19 - - -
Additions - - 25 25 - - -
Sales - - (119) (119) - - -
Settlements (20) (15) - (35) 15 - 15
At 30 June 2016 167 288 25 480 (82) (7) (89)
Gains/(losses) recognised in profit/(loss) relating to assets and
liabilities held at the
end of the period (1) 36 - 35 8 (2) 6
Effect of changes in significant unobservable assumptions to
reasonably possible alternatives (Level 3)
As discussed above, the fair value of financial instruments are,
in certain circumstances, measured using valuation techniques that
incorporate assumptions that are not evidenced by prices from
observable current market transactions in the same instrument and
are not based on observable market data and, as such require the
application of a degree of judgement. Changing one or more of the
inputs to the valuation models to reasonably possible alternative
assumptions would change the fair values significantly. There has
been no significant change to the unobservable inputs and
sensitivities used in Level 3 fair values as set out in Note 43(i)
to the Consolidated Financial Statements in the 2016 Annual
Report.
21. RELATED PARTY DISCLOSURES
The financial position and performance of the Santander UK group
have not been materially affected in H117 by any related party
transactions, or changes to related party transactions. In
addition, transactions with pension schemes operated by the
Santander UK group are described in Note 34 to the Consolidated
Financial Statements in the 2016 Annual Report. These transactions
were made in the ordinary course of business and substantially on
the same terms as for comparable transactions with third party
counterparties and within limits acceptable to the PRA. Such
transactions do not involve more than the normal risk of
collectability or present any unfavourable features.
22. EVENTS AFTER THE BALANCE SHEET DATE
There have been no significant events between 30 June 2017 and
the date of approval of these financial statements which would
require a change to or additional disclosure in the financial
statements.
Shareholder information
51 Forward-looking statements
51 Selected financial data
51 Glossary
Forward-looking statements
The Company and its subsidiaries (together Santander UK) may
from time to time make written or oral forward-looking statements.
The Company makes written forward-looking statements in this Half
Yearly Financial Report and may also make forward-looking
statements in its periodic reports to the SEC on Forms 20-F and
6-K, in its offering circulars and prospectuses, in press releases
and other written materials and in oral statements made by its
officers, directors or employees to third parties. By their very
nature, forward-looking statements are not statements of historical
or current facts; they cannot be objectively verified, are
speculative and involve inherent risks and uncertainties, both
general and specific, and risks exist that the predictions,
forecasts, projections and other forward-looking statements will
not be achieved. Santander UK cautions readers that a number of
important factors could cause actual results to differ materially
from the plans, objectives, expectations, estimates and intentions
expressed in such forward-looking statements made by Santander UK
or on its behalf. For more, see 'Forward-looking statements' in the
Shareholder information section of the 2016 Annual Report. Please
also refer to our latest filings with the SEC (including, without
limitation, our Annual Report on Form 20-F for the year ended 31
December 2016) for a discussion of certain risk factors and
forward-looking statements. Undue reliance should not be placed on
forward-looking statements when making decisions with respect to
any Santander UK member and/or its securities. Investors and others
should take into account the inherent risks and uncertainties of
forward-looking statements and should carefully consider the
non-exhaustive list of important factors in the 2016 Annual Report.
Forward-looking statements speak only as of the date on which they
are made and are based on the knowledge, information available and
views taken on the date on which they are made; such knowledge,
information and views may change at any time. Santander UK does not
undertake any obligation to update or revise any forward-looking
statement, whether as a result of new information, future events or
otherwise.
Selected financial data
SELECTED STATISTICAL INFORMATION
30 June 2017(1) 31 December 2016
% %
Capital ratios:
CET1 capital ratio 12.1 11.6
Total capital ratio 19.6 18.5
Equity to assets ratio(2) 4.61 4.60
Ratio of earnings to fixed charges:(3)
- Excluding interest on retail deposits 382 292
- Including interest on retail deposits 201 166
Profitability ratios:
Return on assets(4) 0.48 0.44
Return on ordinary shareholders' equity(5) 10.3 9.3
Dividend payout ratio(6) n/a 46
(1) As described in Note 1 to the Condensed Consolidated Interim
Financial Statements, Santander UK elected to early apply the IFRS
9 requirement for the presentation of gains and losses on financial
liabilities relating to own credit in other comprehensive income
from 1 January 2017. The cumulative own credit adjustment component
of the cumulative fair value adjustment on financial liabilities
designated at fair value through profit or loss has been included
in opening retained earnings. Comparatives have not been restated.
We have not adopted the other requirements in IFRS 9.
(2) Average ordinary shareholders' equity divided by average
total assets. Average balances are based on monthly data.
(3) For the purpose of calculating the ratios of earnings to
fixed charges, earnings consist of profit from continuing
operations before tax and before adjustment for non-controlling
interests plus fixed charges. Fixed charges consist of interest
expense, including the amortisation of discounts and premiums on
debt securities in issue and related capitalised expenses and
including or excluding interest on retail deposit as
appropriate.
(4) Profit after tax divided by average total assets. Average
balances are based on monthly data.
(5) Profit after tax divided by average ordinary shareholders'
equity.
(6) Ordinary equity dividends approved divided by profit after
tax attributable to equity holders of the parent.
Glossary
Our glossary of industry and other main terms is available on
our website:
www.santander.co.uk/uk/about-santander-uk/investor-relations-glossary.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR OKNDNDBKBKCD
(END) Dow Jones Newswires
September 14, 2017 02:15 ET (06:15 GMT)
Sant Uk.10te% (LSE:SAN)
Historical Stock Chart
From Mar 2024 to Apr 2024
Sant Uk.10te% (LSE:SAN)
Historical Stock Chart
From Apr 2023 to Apr 2024
