TIDMNBS TIDMNAWI
RNS Number : 7204N
Nationwide Building Society
11 August 2017
Nationwide Building Society
Interim Management Statement
Q1 2017/18
11 August 2017
Nationwide Building Society today publishes its Interim
Management Statement covering the period from 5 April 2017 to 30
June 2017 ('Q1 2017/18').
Key highlights
-- Statutory profit before tax of GBP322 million (Q1 2016/17:
GBP401 million) and underlying profit before tax of GBP301 million
(Q1 2016/17: GBP368 million). Profit broadly consistent with the
prior period, after allowing for GBP26 million one-off gain this
quarter and non-recurring GBP100 million gain in Q1 2016/17.(1)
-- Capital strength improved with CET1 ratio of 26.4% (4 April
2017: 25.4%) and UK leverage ratio of 4.4% (4 April 2017:
4.4%).
-- Remained No.1 for customer satisfaction amongst our high
street peer group, with a lead of 3.6%(2)
-- More people opened a current account with Nationwide than
with any other provider, and more than 1 in 5 of all switchers
chose Nationwide.(3)
-- Gross mortgage lending of GBP8.1 billion (Q1 2016/17: GBP8.6
billion) inclusive of prime mortgage lending of GBP7.3 billion (Q1
2016/17: GBP6.9 billion); total market share of 13.0% (Q1 2016/17:
15.0%).
-- Member deposit balances(4) increased by GBP1.3 billion in the
period (Q1 2016/17: GBP2.6 billion), a market share of balance
growth of 10.2% (Q1 2016/17: 11.1%).
Nationwide Building Society Chief Executive, Joe Garner,
said:
"Profit performance in the first quarter remained comfortably
within our strategic target range and, after allowing for one-off
items, was broadly consistent with the prior period.
"Nationwide continued to bring the benefits of mutuality to more
people. Independent research shows that in the first quarter we
remained the UK's top choice(5) for current accounts. Moreover, we
ended 2016 as the highest net gainer of current accounts, with more
than twice as many net switchers as any other provider, the first
time that a building society has overtaken the banks(6) .
"We continued to enjoy a healthy share of mortgage lending, with
a gross market share of 13.0%. We also introduced new steps to make
membership more meaningful, offering an increased choice of
preferential rates to loyal savers, and extending our 'recommend a
friend' scheme.
"Nationwide remains number one for customer satisfaction among
our high street peers, with our lead of 3.6%(2) reflecting our
commitment to member value and first class service.
"Consumer confidence is an important barometer for us. Although
the UK public has become less optimistic about the outlook for the
economy generally, research conducted for our Brexit Consumer
Support Panel shows that the majority of consumers expect Brexit to
leave their ability to access credit unchanged. It will be
important for lenders to balance carefully credit supply with
affordability as we seek to support the long-term interests of
consumers in a responsible way through any potential economic
slowdown ahead. In a period of potentially prolonged economic
uncertainty and persistently low interest rates Nationwide
continues to invest in products and services to support the
long-term needs of our members."
(1) GBP26 million one-off gain from sale of investment in
VocaLink (Q1 2016/17: GBP100 million one-off gain from the sale of
the Society's investment in Visa Europe).
(2) (c) GfK 2017, Financial Research Survey (FRS), 12 months
ending 30 June 2017 vs 31 March 2017, proportion of extremely/very
satisfied customers minus proportion of extremely/very/fairly
dissatisfied customers summed across current account, mortgage and
savings. High street peer group defined as providers with main
current account market share >4% (Barclays, Halifax, HSBC,
Lloyds Bank (inc C&G), NatWest, Santander and TSB).
(3) Source: eBenchmarkers, CACI, BACS Payments Schemes monthly
CASS switching market data and internal sources.
(4) Member deposits include current account credit balances.
(5) Source: Nationwide Brand and Advertising tracker - compiled
by Independent Research Agency. 'Top choice' is most considered
i.e. 'first choice' or 'seriously considered' current account
provider amongst non-customers, based on responses from
non-customers of each brand, 3 months ending June 2017. Financial
brands included Nationwide, Barclays, Co-operative Bank, First
Direct, Halifax, HSBC, Lloyds, NatWest, TSB and Santander.
(6) BACS Payments Schemes CASS switching market data (latest
participant movement data for switches completing in the 3 months
ending 31 December 2016).
Trading performance
Quarter ended Quarter ended
30 June 2017 30 June 2016
GBPbn % GBPbn %
---------------------------------------------------------------- ---------- ------ ---------- ------
Gross residential mortgage lending/market share 8.1 13.0 8.6 15.0
Net residential mortgage lending/market share 2.4 21.8 3.5 52.8
Member deposits balance movement(4) /market share 1.3 10.2 2.6 11.1
---------- ------
Number of new current accounts opened(7) 202,000 173,000
---------------------------------------------------------------- ---------- ------ ---------- ------
At 30 June 2017 At 4 April 2017
GBPbn % GBPbn %
---------- ------
Residential lending balances(8) 173.6 171.1
Member deposit balances(4) /market share 145.8 10.1 144.5 10.1
Market share of main standard and packaged current accounts(9) 7.7 7.5
---------------------------------------------------------------- ---------- ------ ---------- ------
The strong trading performance in the first quarter is a
continuation of the performance reported at the full year. Gross
mortgage lending includes GBP7.3 billion of prime residential
mortgages (Q1 2016/17: GBP6.9 billion), an increase of 5% compared
to same period last year. Following the underwriting criteria
changes we made last year for buy to let (BTL) lending and the
increase in stamp duty impacting the BTL market, the flow of
advances has slowed. BTL gross mortgage lending for the period of
GBP0.8 billion (Q1 2016/17: GBP1.7 billion) partially reflects the
trend seen in the overall BTL market which has decreased by 23%(10)
over the 12 month period to March 2017.
Net mortgage lending decreased to GBP2.4 billion for the period
(Q1 2016/17: GBP3.5 billion) mainly as a result of the reduction in
BTL advances. The net lending for the period comprises GBP2.4
billion for prime lending (Q1 2016/17 GBP2.7 billion), with no net
growth in respect of BTL (Q1 2016/17: GBP0.8 billion).
The movement in member deposit balances in the period reflects
our growth of main standard and packaged current accounts. In a
highly competitive market, our market share of member deposit
balances remained flat at 10.1% (4 April 2017: 10.1%).
More people are choosing Nationwide Building Society for their
everyday banking, attracted by the breadth, value and quality of
our current account range. During the period, we opened 202,000(7)
new current accounts, 17% more than the same period last year. We
continue to benefit from high switching rates through the Current
Account Switch Service, attracting 22.4% of all switchers in the
period. In total, our market share of main standard and packaged
current accounts has increased to 7.7% at May 2017 (February 2017:
7.5%).
(7) Number of new current accounts includes basic bank
accounts.
(8) Residential lending balances are stated net of impairment
provisions. Residential mortgages include prime and specialist
loans, with the specialist portfolio primarily comprising BTL
lending.
(9) Based on market data as at May 2017 (comparative based on
market data as at February 2017).
(10) Source: UK Finance: market gross lending for 12 month
period ended to 31 March 2017: GBP34.7 billion (31 March 2016:
GBP45.0 billion).
Financial performance
Quarter ended Quarter ended
30 June 2017 30 June 2016
GBPm % GBPm %
--------------------------------------- --------- --------- -------- --------
Underlying profit before tax 301 368
Statutory profit before tax 322 401
Statutory profit after tax 240 292
--------------------------------------- --------- --------- -------- --------
Net interest margin 1.35 1.35
Underlying cost income ratio 58.8 53.6
Statutory cost income ratio 57.4 51.7
--------------------------------------- --------- --------- -------- --------
At 30 June 2017 At 4 April 2017
GBPbn % GBPbn %
--------- ---------
Total assets 228.9 221.7
Loans and advances to customers 189.5 187.4
--------- ---------
Common Equity Tier 1 (CET1) ratio(11) 26.4 25.4
UK leverage ratio(12) 4.4 4.4
CRR leverage ratio(13) 4.1 4.2
Liquidity coverage ratio 133.6 124.0
Wholesale funding ratio 29.4 27.1
--------------------------------------- --------- --------- -------- --------
Underlying profit represents management's view of underlying
performance and is presented to aid comparability across reporting
periods. More details on how we define underlying profit can be
found on page 5.
Underlying profit before tax of GBP301 million for the quarter
has reduced 18% on the same period last year, predominantly due to
the prior period impact of a one-off gain of GBP100 million from
the sale of our investment in Visa Europe in June 2016. Underlying
profit for Q1 2017/18 includes a gain of GBP26 million from the
sale of the Society's investment in VocaLink. Statutory profit
before tax is 20% below the prior period at GBP322 million and
includes GBP20 million (Q1 2016/17: GBP31 million) of derivative
and hedge accounting gains which are excluded from underlying
profit.
Net interest income was 5% higher than for the same period last
year driven by balance sheet growth from net lending, with reported
net interest margin consistent at 135bps. Competition in retail
lending markets remains intense and the progressive decline in our
legacy base mortgage rate (BMR) balances(14) continues in line with
both recent experience and our expectations. Given these trends we
currently expect our net interest margin to continue to be
relatively stable but with the potential for limited downward
pressure during the remainder of the year.
The underlying cost income ratio(15) in the first quarter was
58.8% (Q1 2016/17: 53.6%). This reflects cost growth of 5%,
together with a small decline in total income resulting from the
one-off factors referred to above and our continuing commitment to
making conscious and balanced decisions which serve the interests
of our members. Cost growth was driven by higher pension costs,
resulting from low long term interest rates and credit spreads, and
the depreciation impact of prior year investment in line with our
strategy to enhance proposition and service; the remainder of our
cost base was essentially flat compared with a year ago despite
volume growth. Our efficiency programme is a key priority and we
remain committed to a lower trajectory of cost growth in the future
and a broadly flat cost position for the current year, as described
in our last year end results announcement.
We continue to review compliance with ongoing and emerging
regulatory matters with no significant charge in the period in
respect of potential customer redress. Current provisions reflect
latest experience and the estimated impact of industry
consultation.
(11) Common Equity Tier 1 (CET1) ratio has been calculated under
CRD IV on an end point basis.
(12) The UK leverage ratio is shown on the basis of measurement
announced by the Prudential Regulation Authority (PRA) and excludes
eligible central bank reserves from the leverage exposure
measure.
(13) The CRR leverage ratio is calculated using the CRR
definition of Tier 1 for the capital amount and the delegated act
definition of the exposure measure and is reported on an end point
basis.
(14) BMR balances relate to our mortgages reserved on or before
29 April 2009 which revert to a rate guaranteed to be no more than
2% above the Bank of England base rate.
(15) Underlying cost income ratio was 60.2% for the year ended
to 4 April 2017.
Asset quality remains strong, with an average loan to value
(LTV) of loan stock for total residential lending of 55% at the end
of the period, consistent with that reported at the year end. The
average LTV of new lending in the period is 70%, consistent with
the average for the same period last year.
The number of cases more than three months in arrears as a
percentage of the total book remains broadly consistent with the
position reported at 4 April 2017, being 0.35% (4 April 2017:
0.36%) for prime lending and 0.88% (4 April 2017: 0.89%) for
specialist lending.
Impairment losses on loans and advances were higher than the
corresponding period last year at GBP36 million (Q1 2016/17: GBP16
million) but reflect a rate of incurred losses broadly in line with
the full year performance for 2016/17. We continue to review the
retail lending portfolios to ensure incurred losses are
appropriately reflected in the provision amounts.
Capital and leverage ratios have remained well in excess of
regulatory requirements with a CET1 ratio of 26.4% (4 April 2017:
25.4%) and a UK leverage ratio of 4.4% (4 April 2017: 4.4%). The
CET1 ratio increased due to profit after tax for the period. The UK
leverage ratio has remained stable with profits offsetting the
increase in the UK leverage exposure, which was mainly driven by
higher liquidity and mortgage balances. Further information on our
capital position can be found in Appendix 1.
The UK regulatory capital framework continues to develop. The
Financial Policy Committee (FPC) recently announced the
implementation of a 0.5% countercyclical buffer from June 2018,
with an intention to increase this to 1% from November 2018. The
Basel Committee on Banking Supervision is working towards
finalisation of reforms to Basel III, including revisions to the
standardised approach for credit and operational risks. The revised
standardised approach is expected to be used as a basis for a floor
for minimum capital requirements, although calibration of the floor
and the timeline for its introduction have not yet been finalised.
In addition, the PRA has issued a Policy Statement on residential
mortgage risk weights, proposing revised expectations for IRB
models. Whilst this will lead to higher risk weights when the new
models are implemented (by no later than 2020), our current view is
that these developments will not lead to a material increase in
overall regulatory capital requirements for the Group as the UK
leverage ratio framework is expected to remain the binding
requirement.
Outlook
After performing relatively strongly in the second half of 2016,
the UK economy slowed in the first half of 2017. Like most
forecasters, we expect the economy to slow a little further this
year as rising inflation squeezes household budgets.
In terms of consumer sentiment, an important barometer for us,
research conducted for our Brexit Consumer Support Panel shows
that, although the UK public has become less optimistic about the
outlook for the economy generally, most consumers don't expect
Brexit to change their access to credit. It will be important for
lenders to balance carefully credit supply with affordability in a
responsible way to support the long-term interests of consumers
through any potential economic slowdown ahead.
The sustained low interest rate environment and competition in
core markets will maintain pressure on margins. Our mutual model,
combined with our financial strength, means we are able to focus on
taking a long-term view for the benefit of members, rather than
pursuing actions to drive short-term profitability. We will
continue to focus on supporting members and investing in new
propositions, service enhancements and efficiency, whilst
maintaining our capital strength.
Additional information
The financial information on which this Interim Management
Statement is based is unaudited and has been prepared in accordance
with Nationwide Building Society's previously stated accounting
policies described in the Annual Report and Accounts 2017.
For further information please contact:
Investor queries: Alex Wall, 0207 2616568 or 07917 093632,
alexander.wall@nationwide.co.uk
Media contact: Sara Batchelor, 01793 657770 or 07785 344137, sara.batchelor@nationwide.co.uk
Underlying profit
Profit before tax shown on a statutory and underlying basis is
set out on page 3. Statutory profit before tax of GBP322 million
has been adjusted for a number of items to derive an underlying
profit before tax of GBP301 million. The purpose of this measure is
to reflect management's view of the Group's underlying performance
and to assist with like for like comparisons of performance across
years. Underlying profit is not designed to measure sustainable
levels of profitability as that potentially requires exclusion of
non-recurring items even though they are closely related to (or
even a direct consequence of) the Group's core business
activities.
Nationwide has developed a financial performance framework based
on the fundamental principle of maintaining its capital at a
prudent level in excess of regulatory requirements. The framework
provides parameters which allow it to calibrate future performance
and help ensure that it achieves the right balance between
distributing value to members, investing in the business and
maintaining financial strength. The most important of these
parameters is underlying profit which is a key component of
Nationwide's capital. In this context, Nationwide currently
believes that generating underlying profit of approximately GBP0.9
billion to GBP1.3 billion per annum over the medium-term is an
appropriate target for capital planning purposes. This range is
based on our current assumptions around the size of the mortgage
market and maintaining a UK leverage ratio in excess of 4 per cent.
This range, which will vary from time to time, should not be
construed as a forecast of the likely level of Nationwide's
underlying profit for any financial year or period within a
financial year.
Forward looking statements
Certain statements in this document are forward looking with
respect to plans, goals and expectations relating to the future
financial position, business performance and results of Nationwide.
Although Nationwide believes that the expectations reflected in
these forward looking statements are reasonable, Nationwide can
give no assurance that these expectations will prove to be an
accurate reflection of actual results. By their nature, all forward
looking statements involve risk and uncertainty because they relate
to future events and circumstances that are beyond the control of
Nationwide including, amongst other things, UK domestic and global
economic and business conditions, market related risks such as
fluctuation in interest rates and exchange rates,
inflation/deflation, the impact of competition, changes in customer
preferences, risks concerning borrower credit quality, delays in
implementing proposals, the timing, impact and other uncertainties
of future acquisitions or other combinations within relevant
industries, the policies and actions of regulatory authorities, the
impact of tax or other legislation and other regulations in the
jurisdictions in which Nationwide operates. As a result,
Nationwide's actual future financial condition, business
performance and results may differ materially from the plans, goals
and expectations expressed or implied in these forward looking
statements. Due to such risks and uncertainties Nationwide cautions
readers not to place undue reliance on such forward looking
statements.
Nationwide undertakes no obligation to update any forward
looking statements whether as a result of new information, future
events or otherwise.
This document does not constitute or form part of an offer of
securities for sale in the United States. Securities may not be
offered or sold in the United States absent registration or an
exemption from registration. Any public offering to be made in the
United States will be made by means of a prospectus that may be
obtained from Nationwide and will contain detailed information
about Nationwide and management as well as financial
statements.
Appendix 1 - Capital position
Capital structure and ratios
Common Equity Tier 1 (CET1) capital resources have increased by
approximately GBP0.2 billion as a result of profit after tax for
the period. Risk weighted assets (RWAs) decreased over the period
by approximately GBP0.4 billion mainly due to the continued
deleveraging of the commercial portfolio. These movements have
resulted in a CET1 ratio of 26.4% (4 April 2017: 25.4%).
4 April
30 June 2017 2017
GBPm GBPm
------------------------------------------------ ------------- --------
Common Equity Tier 1 capital before regulatory
adjustments 10,137 9,915
Total regulatory adjustments to Common
Equity Tier 1 (1,368) (1,360)
------------------------------------------------ ------------- --------
Common Equity Tier 1 capital 8,769 8,555
Additional Tier 1 capital before regulatory
adjustments 992 992
Total regulatory adjustments to Additional
Tier 1 capital - -
------------------------------------------------ ------------- --------
Additional Tier 1 capital 992 992
------------------------------------------------ ------------- --------
Total Tier 1 capital 9,761 9,547
------------------------------------------------ ------------- --------
Tier 2 capital before regulatory adjustments 2,547 2,582
Total regulatory adjustments to Tier
2 capital - -
------------------------------------------------ ------------- --------
Tier 2 capital 2,547 2,582
------------------------------------------------ ------------- --------
Total capital 12,308 12,129
------------------------------------------------ ------------- --------
Ratios: % %
------------------------------------------------ ------------- --------
Common Equity Tier 1 26.4 25.4
Tier 1 29.4 28.4
Total capital 37.1 36.1
------------------------------------------------ ------------- --------
Note: Data in the table is reported under CRD IV on an end point
basis, being full implementation with no transitional provisions.
Overview of RWAs (EU OV1)
RWAs Minimum capital
requirements(16)
30 June 4 April 30 June 4 April
2017 2017 2017 2017
---------------------------------------------
GBPm GBPm GBPm GBPm
--- ---------------------------------------- -------- -------- ----------- ---------
1 Credit risk 26,448 26,802 2,116 2,144
2 Of which standardised approach 2,529 2,548 202 204
Of which the foundation IRB
3 approach 6,556 6,969 525 557
4 Of which the advanced IRB approach 17,222 17,163 1,378 1,373
Of which Equity IRB under the
simple risk-weight or the internal
5 models approach 141 122 11 10
6 Counterparty credit risk 1,314 1,221 106 98
7 Of which marked to market 581 546 47 44
Of which standardised approach
9 for counterparty credit risk 22 19 2 2
Of which risk exposure for
contributions to the default
11 fund of a CCP 3 6 - -
12 Of which CVA 708 650 57 52
13 Settlement risk - - - -
Securitisation exposures in
14 banking book (after cap) 267 434 21 35
Of which IRB ratings-based
15 approach 267 434 21 35
19 Market risk(17) - - - -
23 Operational risk 4,865 4,865 389 389
25 Of which Standardised approach 4,865 4,865 389 389
Amounts below the thresholds
for deduction (subject to 250%
27 risk weight) 303 319 24 25
--- ---------------------------------------- -------- -------- ----------- ---------
29 Total 33,197 33,641 2,656 2,691
--- ---------------------------------------- -------- -------- ----------- ---------
(16) Capital is also held to meet Pillar 2 and capital buffer
requirements. Further details on Pillar 2 requirements can be found
in the Pillar 3 Disclosure 2017 at nationwide.co.uk
(17) Market risk has been set to zero as permitted by the CRR as
exposure is below the threshold of 2% of own funds.
RWA flow statements of credit risk exposures (EU CR8)
IRB credit risk Standardised Counterparty
credit risk credit risk
RWA amounts Capital RWA amounts Capital RWA amounts Capital
requirements requirements requirements
GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ------------ -------------- ------------ -------------- ------------ --------------
RWA as at 4 April
1 2017 24,254 1,940 2,548 204 1,221 98
------------------ ------------ -------------- ------------ -------------- ------------ --------------
2 Asset size (116) (9) (19) (2) 138 11
3 Asset quality (219) (17) - - (45) (3)
RWA as at 30
9 June 2017 23,919 1,914 2,529 202 1,314 106
------------------ ------------ -------------- ------------ -------------- ------------ --------------
Leverage ratio
The UK leverage ratio(12) is 4.4% at 30 June 2017 (4 April 2017:
4.4%). Minimum leverage requirements are monitored by the PRA on
this basis, with the current regulatory threshold set at 3% as the
countercyclical leverage ratio buffer is currently 0%. Following
the Financial Policy Committee's (FPC) announcement on the
countercyclical buffer (June 2018: 0.5%, November 2018: 1%), the
countercyclical leverage ratio buffer will be 0.2% from June 2018,
increasing to 0.4% from November 2018. In addition, the PRA has
proposed to recalibrate the minimum leverage ratio requirement to
3.25% to adjust for the impact of excluding central bank holdings
from the exposure measure.
The average UK leverage ratio for the three months to 30 June
2017 is 4.4%, with an average exposure measure of GBP218,285
million(18) .
The CRR leverage ratio has decreased to 4.1% (4 April 2017:
4.2%) due to an increase in liquid assets and mortgage
balances.
4 April
30 June 2017 2017
GBPm GBPm
----------------------- ------------- --------
Tier 1 capital 9,761 9,547
UK leverage exposure 219,693 215,894
CRR leverage exposure 236,675 228,428
% %
----------------------- ------------- --------
UK leverage ratio12 4.4 4.4
----------------------- ------------- --------
CRR leverage ratio13 4.1 4.2
----------------------- ------------- --------
(18) The average leverage ratio is calculated using the averages
of Tier 1 capital and total exposure, based on the last day of each
month in the quarter.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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